AAR Corp. Q3 FY2026 earnings call

• Another outstanding quarter with 25% growth in total sales, 31% growth in adjusted operating income, and 26% growth in adjusted EBITDA and adjusted earnings per share. - Growth across parts repair and software platform activities, with 14% organic adjusted sales growth led by 36% organic growth in new parts distribution. - Integration of HACO Americas ahead of schedule, hanger expansions on track. ADI performing above expectations. TRAX had another record quarter. Expeditionary services business awarded $450 million in multi-year government contracts.

Total sales grew 25% year over year, including 14% organic adjusted sales growth to $845 million. Adjusted EBITDA increased 26% to $102.1 million, adjusted EBITDA margin increased to 12.1%. Adjusted operating income was up 31% to $86.2 million, adjusted operating income margin improved 50 basis points to 10.2%. Parts supply sales grew 45% to $392.5 million, new parts distribution grew 62% total and 36% organically. Repair and engineering sales increased 23% to $265 million, adjusted EBITDA margin decreased 190 basis points to 11.0%, adjusted operating margin decreased 150 basis points to 9.6%. Integrated solutions sales increased 3% year-on-year to $167.8 million, adjusted EBITDA of $19 million was up 18%, adjusted EBITDA margin grew 150 basis points to 11.4%, adjusted operating income of $15.5 million was 25% higher, adjusted operating margin increasing from 7.6% to 9.2%.

• For Q4, expecting total adjusted sales growth of 19% to 21%, organic adjusted sales growth between 6% and 8%. - Expecting Q4 operating margin of 10.2% to 10.5%. - Full year expectation for total sales growth of approximately 19%, organic sales growth of approximately 12%.

Q: Michael Ciamoli with Truist asked about oil prices, capacity cuts by airlines and historical context.

A: Fundamental demand for air travel remains strong, modest capacity adjustments not impacting demand for parts or maintenance.

Q: Sheila Kayoglu with Jefferies followed up on new parts distribution, repair and engineering, visibility and sources of outperformance.

A: Solid visibility through quarter and guidance, sources include ADI outpacing expectations, HACO integration progress, strong quarter for Trax.

Q: Ken Herbert with RBC Capital Markets asked about commercial aftermarket book and ship vs backlog driven, cash generation.

A: Heavy maintenance and distribution backlog-driven, component repair more short cycle, expecting cash flow positive in Q4.

Q: Scott Mikus with Megalius Research asked about parts supply, war impact, organic growth guide.

A: War not expected to impact part supply, Q4 guide due to lapping tough comp last year.

Q: Noah Levitz with Wim Blair asked about Trax deployment, parts marketplace timeline, defense business margins.

A: Delta implementation in early innings, parts marketplace to go live this calendar year, mixed shift towards higher margin government programs to continue.

Q: Michael LeShaw with KeyBank Capital Markets asked about HACO integration progress, integrated solutions growth lumpiness.

A: HACO integration progressing with workforce sizing, system implementation, integrated solutions recurring revenue expected linear with some lumpiness