AAR reports third quarter fiscal year 2023 results

AAR MRO Facility

SeoulAAR reported third quarter fiscal year 2023 consolidated sales of $521.1 million and income from continuing operations of $21.8 million, or $0.62 per diluted share. For the third quarter of the prior year, the company reported sales of $452.2 million and income from continuing operations of $22.6 million, or $0.63 per diluted share. Adjusted diluted earnings per share from continuing operations in the third quarter of fiscal year 2023 were $0.75, compared to $0.63 in the third quarter of the prior year.

Subsequent to the quarter, the company acquired Trax, a leading independent provider of aircraft MRO and fleet management software which was founded in 1999. Trax offers critical software applications to a diverse global customer base of airlines and MROs supporting approximately 5,000 aircraft. Trax’s comprehensive solutions support the entire spectrum of maintenance activities and create the system of record required by airlines and MROs. The Trax acquisition adds established, higher-margin aviation aftermarket software offerings with recurring revenue to the company’s portfolio and provides opportunities to cross-sell products and services.

Consolidated third quarter sales increased 15% over the prior year quarter. Consolidated sales to commercial customers increased 28% over the prior year quarter, primarily due to further recovery in the commercial market. Consolidated sales to government customers decreased 3% due to the completion of certain government programs which occurred last fiscal year. Sales to commercial customers were 65% of consolidated sales, compared to 59% in the prior year quarter.

“We drove strong performance across our entire portfolio particularly in our USM and new parts distribution activities where we had made investments during the second quarter. Additionally, we are very pleased to have completed the acquisition of Trax which brings well-established, industry-leading digital offerings to our portfolio. Over time, we expect Trax will become a unique channel to market for our parts and services,” said John M. Holmes, Chairman, President and Chief Executive Officer of AAR.

Gross profit margins were 18.1% in the current quarter, compared to 17.8% in the prior year quarter. Adjusted gross profit margin increased from 17.3% to 18.1%, primarily due to the favourable impact of previous actions to reduce costs and improve operating efficiency.

Selling, general, and administrative expenses were $56.7 million in the quarter, which included increased investments in digital initiatives as well as $3.7 million related to Trax acquisition costs and a Russian bankruptcy court judgment. As a percentage of sales, selling, general, and administrative expenses were 10.9% for the quarter, compared to 10.8% last year.

Operating margins were 6.5% in the current quarter compared to 6.7% in the prior year quarter, while adjusted operating margin increased from 6.7% in the prior quarter to 7.6% primarily as a result of the growth in commercial sales. Sequentially, adjusted operating margin remained consistent at 7.6%.

Net interest expense for the quarter was $3.5 million, compared to $0.6 million last year. Average diluted share count decreased from 35.7 million shares in the prior year quarter to 34.6 million shares in the current year quarter. The company did not repurchase any shares during the quarter as a result of deploying capital towards other attractive investment opportunities. The company has $57.6 million remaining on the program.

Cash flow provided by operating activities from continuing operations was $17.4 million during the current quarter. Excluding the accounts receivable financing program, cash flow provided by operating activities from continuing operations was $17.2 million in the current quarter.

As of 28 February net debt was $135.3 million and net leverage was 0.75x which decreased from 0.88x at November 30, 2022.  On a pro forma basis, the Trax acquisition increased  net leverage to 1.35x as of 28 February the company expects that ratio to decrease as the company generates cash in the fourth quarter and grow adjusted EBITDA. As of 28 February the company’s availability on our Revolving Credit Facility on a pro forma basis was $300.8 million.

Holmes concluded, “We are proud to have delivered another solid quarter with strong operating margin performance and positive cash flows. We are encouraged by the optimism we see from our airline customers regarding the recovery in air travel and this continues to drive demand for our services. We are also excited by the robust pipeline of opportunities we see across our commercial and government end markets and our strong balance sheet will allow us to continue to make strategic investments, such as the acquisition of Trax, to support our long-term growth.”

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