AAR Corp. Q1 FY2026 earnings call

Management Statement and Operational Highlights

• Top-line Growth: Delivered 17% organic adjusted sales growth, with new parts distribution averaging over 20% organic growth in the last four years.
• New Business Wins: Multiyear exclusive distribution agreement with AmSafe Bridport, progress on Oklahoma City and Miami airframe MRO expansions set to come online in 2026.
• Cost Efficiency: Rollout of paperless hangar solution completed ~60%, driving increased throughput; reduced SG&A year over year.
• Software and IT: Trakt software momentum with Delta Airlines win, acquisition of AeroStrat completed, and Traxx software success with JetBlue upgrading to e-mobility and cloud solutions.

Segment Performance

• Parts Supply: Sales grew 27% to $318 million, with over 20% organic growth in new parts distribution. Adjusted EBITDA was $43.8 million (up 34%) with a margin of 13.8% (up from 13.1%).
• Repair and Engineering: Sales decreased 1% to $215 million, but organic growth was 8% excluding divestiture impact. Adjusted EBITDA was $28.1 million (up 1%) with a margin of 13.1% (up from 12.8%).
• Integrated Solutions: Sales increased 10% to $185 million. Adjusted EBITDA was $14.2 million (up 5%) with an adjusted operating margin of 5.9% (down from 6.2%).

Guidance

• Q2 FY26: Expect sales growth of 7%-10% (excluding landing gear sales), with adjusted operating margin of 9.6%-10%.
• Full Fiscal Year: Expect organic sales growth approaching 10% (up from previous 9% guidance).

Risks

• Forward-looking statements involve risks and uncertainties, discussed in the company's earnings release and the Risk Factors section of the annual report on Form 10-Ks.

Question and Answer

• Q: Ken Herbert on full year expectation uptick: A: Parts supply is leading the way, with strong organic growth in parts supply driving the improved outlook.
• Q: Michael Luchamp on distribution pipeline: A: Majority of wins are taking market share, with an exclusive distribution model resonating with OEMs.
• Q: Michael Luchamp on cross-selling in repair and engineering: A: Early stages of cross-selling strategy, focus on integration of acquired component services site, with long-term agreements needed for volume reallocation.
• Q: Scott Micas on USM sales and margins: A: USM sales grew in Q1, with margin expected to expand as supply loosens, though current margins in USM are depressed due to tight supply.
• Q: Scott Micas on AeroStrat acquisition: A: Earn-out for AeroStrat employees to retain key talent, with plans to integrate the team and realize revenue synergy between Traxx and AeroStrat offerings.
• Q: Noah Levitt on engine aftermarket exposure: A: Significant engine exposure in parts supply (80% of USM parts are engine parts), distribution (Unison engine-related parts), and component services (engine-related capability in Grand Prairie).
• Q: Noah Levitt on Trakt e-commerce marketplace: A: Investing in the marketplace initiative, with expectations of announcements in 2026 regarding progress in leveraging Trakt's operator base for parts and repair solutions.