AAR reports record fourth quarter and fiscal year 2024 results

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• Record fourth quarter sales of $657 million, up 19% over the prior year
• Fourth quarter GAAP diluted earnings per share from continuing operations of $0.26, compared to $0.66 in Q4 FY2023
• Record fourth quarter adjusted diluted earnings per share from continuing operations of $0.88, up 6% from $0.83 in Q4 FY2023
• Fourth quarter cash flow provided by operating activities from continuing operations of $25 million
• Record full year sales of $2.3 billion, up 17% over the prior year
• Full year GAAP diluted earnings per share from continuing operations of $1.29, compared to $2.52 in FY2023; record adjusted earnings of $3.33 in FY2024, up 16% from $2.86 in FY2023

Wood Dale, Illinois, July 18, 2024 - AAR CORP. (NYSE: AIR), a leading provider of aviation services to commercial and government operators, MROs, and OEMs, today reported fourth quarter fiscal year 2024 consolidated sales of $656.5 million and income from continuing operations of $9.1 million, or $0.26 per diluted share. For the fourth quarter of the prior year, the Company reported sales of $553.3 million and income from continuing operations of $23.2 million, or $0.66 per diluted share. Our adjusted diluted earnings per share from continuing operations in the fourth quarter of fiscal year 2024 were $0.88, compared to $0.83 in the fourth quarter of the prior year.

Consolidated fourth quarter sales increased 19% over the prior year quarter. Our consolidated sales to commercial customers increased 20% over the prior year quarter, primarily due to the acquisition of the Product Support business and strong demand for our new parts distribution activities. Our sales to government customers increased 15% primarily due to increased order volume for our new parts distribution activities and improved performance across our government program activities. Sales to commercial customers were 70% of consolidated sales, compared to 69% in the prior year quarter.

"We delivered another record quarter driven primarily by both record performance in our new parts distribution activities and the Triumph Product Support acquisition, which exceeded our expectations during the period. We also continued to drive growth in our heavy maintenance hangars out of our existing footprint. In addition to this record performance in our commercial business, we saw double-digit growth in our government business," said John M. Holmes, Chairman, President and Chief Executive Officer of AAR CORP.

Gross profit margin decreased from 19.5% in the prior year quarter to 19.4% in the current quarter, primarily due to a commercial programs PBH agreement that was terminated during the quarter. This was partially offset by the favorable margin contribution from the recently acquired Product Support business.

Selling, general, and administrative expenses were $94.8 million in the current quarter, which included $17.5 million related to acquisition and amortization expenses and $4.8 million related to investigation costs.

Operating margins were 5.0% in the current quarter, compared to 6.6% in the prior year quarter. Adjusted operating margin increased from 7.8% in the prior year quarter to 9.3% in the current year quarter. Sequentially, our adjusted operating margin increased from 8.3% to 9.3%. The improved adjusted margins are primarily driven by the favorable contribution from the recently acquired Product Support business.

During and subsequent to the quarter, we announced multiple new contract awards, including:

• New multi-year distribution agreement with Triumph to supply its actuation product line to commercial airlines and MROs
• Multi-year contract extension and expansion with Sumitomo Precision Products to distribute its V2500 starter and valve components
• Expansion of our agreement with OTTO Engineering to distribute electromechanical switches, grips, and joysticks to the commercial and defense markets

Net interest expense for the quarter was $18.7 million, compared to $4.7 million last year. Average diluted share count increased from 34.8 million shares in the prior year quarter to 35.4 million shares in the current year quarter. We did not repurchase any shares during the quarter as a result of deploying capital towards the acquisition of the Product Support business and other attractive investment opportunities. We have $52.5 million remaining on our $150 million share repurchase program. From a capital deployment perspective, we are prioritizing debt repayment but will evaluate share repurchases along with other attractive investment opportunities to deploy our capital.

Cash flow provided by operating activities from continuing operations was $24.5 million during the current quarter. As of May 31, 2024, our net debt was $911.2 million and our net leverage, pro forma for the last twelve months adjusted EBITDA of the Product Support business, was 3.30x.

Holmes continued, "This was our 13^th consecutive quarter of adjusted operating margin improvement, which was supported by both organic growth and our acquisition of the Product Support business. Margin expansion remains a top priority for our team and we expect continued incremental margin improvement. Additionally, we reduced our net leverage by approximately 0.3x in just one quarter since the closing of the Product Support acquisition."

Fiscal year 2024 results

Full fiscal year 2024 consolidated sales were $2.3 billion, an increase of 17% from fiscal year 2023 with growth resulting from our Parts Supply offerings and increased volumes in our commercial programs activities.

Operating margins were 5.6% for the full year, compared to 6.7% in fiscal year 2023. Adjusted operating margin increased from 7.5% in fiscal year 2023 to 8.3% in fiscal year 2024, which reflects only one quarter of ownership of the higher margin Product Support business.

Full fiscal year 2024 income from continuing operations was $46.3 million, or $1.29 per diluted share. In fiscal year 2023, income from continuing operations was $89.8 million, or $2.52 per share. Our adjusted diluted earnings per share from continuing operations was $3.33 in the current year, compared to $2.86 last year, reflecting the impact of our improved operating efficiency on higher sales volumes.

Sales to commercial customers were 71% of consolidated sales, compared to 67% in the prior year. Cash flow provided by operating activities from continuing operations was $43.8 million in fiscal year 2024. Excluding our accounts receivable financing program, our cash flow provided by operating activities from continuing operations was $42.9 million in fiscal year 2024.

Holmes concluded, "We made tremendous progress in fiscal 2024 executing on the strategic vision and targets that we outlined at our Investor Day last year. We continued to extend our leadership position in Parts Supply, broke ground on airframe maintenance expansions that will add 15% more capacity to our hangar network, integrated Trax, acquired Product Support, and increased our margins. We believe demand will remain robust as the life and high utilization of current generation aircraft continue to extend, which we expect will lead to another year of sales and earnings growth as we leverage our stronger market position."

Conference call information

On Thursday, July 18, 2024, at 4:00 p.m. Central time, AAR will hold a conference call to discuss the results. A listen-only webcast and slides can be accessed at https://edge.media-server.com/mmc/p/8qeyvfs4. Participants may join via phone by registering at https://register.vevent.com/register/BI385873ce93e94b7289ac86adcc0a0acb. Once registered, participants will receive a dial-in number and a unique PIN that will allow them to access the call. The slides are also available on AAR's website here.

A replay of the conference call will be available for on-demand listening shortly after the completion of the call at the webcast link and will remain available for approximately one year.

About AAR

AAR is a global aerospace and defense aftermarket solutions company with operations in over 20 countries. Headquartered in the Chicago area, AAR supports commercial and government customers through four operating segments: Parts Supply, Repair & Engineering, Integrated Solutions, and Expeditionary Services. Additional information can be found at aarcorp.com.

This press release contains certain statements relating to future results, which are forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995, which reflect management's expectations about future conditions, including, but not limited to, continued demand in the commercial aviation market, the life and utilization of current generation aircraft, anticipated activities and benefits under extended, expanded and new services, supply and distribution agreements, opportunities for capital deployment and margin improvement, earnings performance, contributions from our recent acquisitions, the expansion of capacity in our hangars, and expectations for our USM and parts supply businesses.

Forward-looking statements often address our expected future operating and financial performance and financial condition, or sustainability targets, goals, commitments, and other business plans, and often may also be identified because they contain words such as "anticipate," "believe," "continue," "could," "estimate," "expect," "intend," "likely," "may," "might," "plan," "potential," "predict," "project," "seek," "should," "target," "will," "would," or similar expressions and the negatives of those terms.

These forward-looking statements are based on the beliefs of Company management, as well as assumptions and estimates based on information available to the Company as of the dates such assumptions and estimates are made, and are subject to certain risks and uncertainties that could cause actual results to differ materially from historical results or those anticipated, depending on a variety of factors, including: (i) factors that adversely affect the commercial aviation industry; (ii) adverse events and negative publicity in the aviation industry; (iii) a reduction in sales to the U.S. government and its contractors; (iv) cost overruns and losses on fixed-price contracts; (v) nonperformance by subcontractors or suppliers; (vi) a reduction in outsourcing of maintenance activity by airlines; (vii) a shortage of skilled personnel or work stoppages; (viii) competition from other companies; (ix) financial, operational and legal risks arising as a result of operating internationally; (x) inability to integrate acquisitions effectively and execute operational and financial plans related to the acquisitions; (xi) failure to realize the anticipated benefits of acquisitions; (xii) circumstances associated with divestitures; (xiii) inability to recover costs due to fluctuations in market values for aviation products and equipment; (xiv) cyber or other security threats or disruptions; (xv) a need to make significant capital expenditures to keep pace with technological developments in our industry; (xvi) restrictions on use of intellectual property and tooling important to our business; (xvii) inability to fully execute our stock repurchase program and return capital to stockholders; (xviii) limitations on our ability to access the debt and equity capital markets or to draw down funds under loan agreements; (xix) non-compliance with restrictive and financial covenants contained in our debt and loan agreements; (xx) changes in or non-compliance with laws and regulations related to federal contractors, the aviation industry, international operations, safety, and environmental matters, and the costs of complying with such laws and regulations; and (xxi) exposure to product liability and property claims that may be in excess of our liability insurance coverage. Should one or more of those risks or uncertainties materialize adversely, or should underlying assumptions or estimates prove incorrect, actual results may vary materially from those described. Those events and uncertainties are difficult or impossible to predict accurately and many are beyond our control.

For a discussion of these and other risks and uncertainties, refer to our Annual Report on Form 10-K, Part I, "Item 1A, Risk Factors" and our other filings from time to time with the U.S Securities and Exchange Commission. These events and uncertainties are difficult or impossible to predict accurately and many are beyond the Company's control. The risks described in these reports are not the only risks we face, as additional risks and uncertainties are not currently known or foreseeable or impossible to predict accurately or risks that are beyond the Company's control or deemed immaterial may materially adversely affect our business, financial condition or results of operations in future periods. We assume no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.

Contact
Dylan Wolin
Vice President, Strategic & Corporate Development and Treasurer
+1-630-227-2017
[email protected]

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