AAR Reports Second Quarter Fiscal Year 2020 Results
WOOD DALE, Ill., Dec. 19, 2019 /PRNewswire/ -- AAR CORP. (NYSE: AIR) today reported second quarter Fiscal Year 2020 consolidated sales of $560.9 million and income from continuing operations of $20.1 million, or $0.57 per diluted share. For the second quarter of the prior year, the Company reported sales of $493.3 million and income from continuing operations of $11.2 million, or $0.32 per diluted share. Our adjusted diluted earnings per share from continuing operations were $0.64 in the current quarter compared to $0.60 in the second quarter of the prior year.
Consolidated sales increased 14% over the prior year period due to continued growth across our Aviation Services segment, which grew 15% during the quarter. This growth was driven by strong demand for both new and aftermarket parts, significant improvement in MRO and solid execution on our government contract awards.
"This is our sixth consecutive quarter of double-digit sales growth. Revenue in our parts supply and government programs activities remains very strong and we continue to see meaningful recovery in MRO as a result of our labor initiatives. Our focus on integrating our differentiated capabilities across our best-in-class aviation services offering continues to be a successful model for growth," said John M. Holmes, President and Chief Executive Officer of AAR CORP.
During the quarter, we expanded the scope of our component repair services program with BAE for its regional jet support programs to include more components. BAE cited our consistent cost savings and the high-quality delivered by our Amsterdam facility as the basis for this expansion.
We also announced two contracts within our Airinmar subsidiary, the top global provider of component repair cycle management and aircraft warranty solutions. We signed a three-year agreement with JetBlue to provide component value engineering cost oversight services. We also entered into an agreement with Alaska Airlines for a digital trial of our Airvolution platform which provides airlines maximum visibility into their component repair cycle as well as access to our proprietary analytics and business intelligence capabilities.
Sales to government and defense customers were 33% of consolidated sales compared to 32% in the prior year's quarter reflecting growth from new government programs. Second quarter sales to commercial customers, which also increased during the period, represented 67% of consolidated sales compared to 68% of consolidated sales in the second quarter of last year.
Gross profit margins decreased to 15.3% in the current quarter from 15.9% in the prior year quarter due primarily to operational challenges and delayed contract awards in Expeditionary Services. Aviation Services gross profit margins were relatively flat at 16.1% compared to 16.2% in the prior year quarter.
Selling, general and administrative expenses as a percentage of sales were 10.2% for the quarter compared to 10.0% last year, reflecting increased costs related to severance, investigation and compliance matters of $3.3 million. Excluding these costs, selling, general and administrative expenses as a percentage of sales were 9.6% compared to 9.9% in the prior year quarter.
Net interest expense for the quarter was $1.8 million compared to $2.4 million last year. Also during the quarter, the Company paid cash dividends of $2.6 million, or $0.075 per share. Average diluted share count was 35.0 million in both the current and prior year quarters.
Cash flow provided by operating activities from continuing operations was $19.9 million during the current quarter compared to a use of cash of $8.3 million in the prior year quarter. Excluding our accounts receivable financing program, our adjusted cash flow provided by operating activities from continuing operations was $20.4 million in the current quarter compared to a use of cash of $14.9 million in the prior year quarter.
Holmes concluded, "The fundamentals of our commercial and government end-markets remain strong and are driving continued demand for our services. I am proud of our team for their successful execution in the first two quarters, and we are excited about the opportunities we see for the balance of the fiscal year."
Outlook
We are raising our financial guidance for Fiscal Year 2020, which now includes sales in the range of $2.150 to $2.225 billion and adjusted diluted earnings per share from continuing operations of $2.50 to $2.65. Our previous guidance included sales in the range of $2.1 to $2.2 billion and adjusted diluted earnings per share from continuing operations of $2.45 to $2.65. Compared to our prior financial guidance, the midpoint of our revised sales guidance increased from $2.150 to $2.188 billion and the midpoint of our revised adjusted diluted earnings per share from continuing operations increased from $2.55 to $2.58. We continue to expect selling, general and administrative expenses to be approximately 10.5% of sales and anticipate an effective tax rate of 24% in Fiscal Year 2020.
Conference Call Information
AAR will hold its quarterly conference call at 3:45 p.m. CST on December 19, 2019. The conference call can be accessed by calling 866-802-4322 from inside the U.S. or 703-639-1319 from outside the U.S. A replay of the conference call will also be available by calling 855-859-2056 from inside the U.S. or 404-537-3406 from outside the U.S. (access code 3846045). The replay will be available from 7:15 p.m. CST on December 19, 2019 until 10:59 p.m. CST on December 24, 2019.
About AAR
AAR is a global aerospace and defense aftermarket solutions company that employs more than 6,000 people in over 20 countries. Headquartered in the Chicago area, AAR supports commercial and government customers through two operating segments: Aviation Services and Expeditionary Services. AAR's Aviation Services include parts supply; OEM solutions; integrated solutions; maintenance, repair, overhaul; and engineering. AAR's Expeditionary Services include mobility systems and composite manufacturing operations. Additional information can be found at www.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.
These forward-looking statements
are based on beliefs of Company
management, as well as assumptions
and estimates based on information
currently available to the
Company, and are subject to
certain risks and uncertainties
that could cause actual results to
differ materially from historical
results or those anticipated,
including those factors discussed
under Item 1A, entitled "Risk
Factors", included in the
Company's Form 10-K for the
fiscal year ended May 31, 2019.
Should one or more of these risks
or uncertainties materialize
adversely, or should underlying
assumptions or estimates prove
incorrect, actual results may vary
materially from those described.
These events and uncertainties are
difficult or impossible to predict
accurately and many are beyond the
Company's control. The Company
assumes 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. For additional
information, see the comments
included in AAR's filings with the
Securities and Exchange
Commission.
---
AAR CORP. and Subsidiaries
Consolidated Statements of Income Three Months Ended Six Months Ended
---
(In millions except per share data - unaudited) November 30, November 30,
2019 2018 2019 2018
---
Sales $560.9 $493.3 $1,102.4 $959.6
Cost and expenses:
Cost of sales 475.0 415.0 934.9 810.1
Provision for doubtful accounts 0.7 12.4 1.4 13.0
Selling, general and administrative 57.1 49.1 115.2 97.3
Operating income 28.1 16.8 50.9 39.2
Interest expense, net (1.8) (2.4) (3.9) (4.0)
Other income (expense), net (0.2) (0.2) (0.4) 0.2
Income from continuing operations before income tax expense 26.1 14.2 46.6 35.4
Income tax expense 6.0 3.0 9.4 5.3
---
Income from continuing operations 20.1 11.2 37.2 30.1
Loss from discontinued operations (5.9) (4.2) (18.6) (8.0)
---
Net income $14.2 $7.0 $18.6 $22.1
===
Earnings per share - Basic:
Earnings from continuing operations $0.58 $0.32 $1.07 $0.87
Loss from discontinued operations (0.17) (0.12) (0.54) (0.23)
---
Earnings per share - Basic $0.41 $0.20 $0.53 $0.64
===
Earnings per share - Diluted:
Earnings from continuing operations $0.57 $0.32 $1.06 $0.85
Loss from discontinued operations (0.17) (0.12) (0.53) (0.23)
---
Earnings per share - Diluted $0.40 $0.20 $0.53 $0.62
===
Share Data:
Weighted average shares outstanding - Basic 34.6 34.6 34.6 34.6
Weighted average shares outstanding - Diluted 35.0 35.0 35.0 35.1
AAR CORP. and Subsidiaries
Consolidated Balance Sheets
November 30, May 31,
---
(In millions) 2019 2019
(unaudited)
ASSETS
Cash and cash equivalents $38.2 $21.3
Restricted cash 14.5 19.8
Accounts receivable, net 208.5 197.8
Contract assets 62.2 59.2
Inventories, net 580.4 523.7
Rotable assets and equipment on or available for lease 69.1 65.3
Assets of discontinued operations 27.4 29.2
Other current assets 71.9 36.2
Total current assets 1,072.2 952.5
Property, plant, and equipment, net 134.3 132.8
Operating lease right-of-use assets, net 103.8 --
Goodwill and intangible assets, net 129.4 138.4
Rotable assets supporting long-term programs 225.6 216.0
Other non-current assets 89.6 77.5
Total assets $1,754.9 $1,517.2
LIABILITIES AND EQUITY
Accounts payable and accrued liabilities $364.6 $328.3
Liabilities of discontinued operations 41.9 29.2
Total current liabilities 406.5 357.5
Long-term debt 196.1 141.7
Operating lease liabilities 84.0 --
Other liabilities and deferred income 146.6 112.1
Total liabilities 833.2 611.3
Equity 921.7 905.9
Total liabilities and equity $1,754.9 $1,517.2
AAR CORP. and Subsidiaries
Consolidated Statements of Cash
Flows Three Months Ended Six Months Ended
---
(In millions - unaudited) November 30, November 30,
2019 2018 2019 2018
---
Cash flows provided from operating activities:
Net income $14.2 $7.0 $18.6 $22.1
Loss from discontinued
operations 5.9 4.2 18.6 8.0
---
Income from continuing
operations 20.1 11.2 37.2 30.1
Adjustments to reconcile income from continuing
operations to net cash
provided from
(used in) operating activities
Depreciation and intangible
amortization 11.0 10.4 21.8 20.5
Amortization of stock-based
compensation 2.8 1.2 7.1 5.2
Provision for doubtful accounts 0.7 12.4 1.4 13.0
Changes in certain assets and liabilities:
Accounts receivable (10.4) (30.8) (11.0) (52.1)
Contract assets (0.1) (14.3) (2.8) (13.4)
Inventories (26.8) (27.6) (56.8) (52.1)
Rotable assets supporting long-
term programs (5.3) (18.8) (19.1) (26.7)
Accounts payable and accrued
liabilities 19.6 30.2 24.6 5.7
Other 8.3 17.8 (12.6) 28.6
---
Net cash provided from (used
in) operating activities -
continuing operations 19.9 (8.3) (10.2) (41.2)
Net cash provided from (used
in) operating activities -
discontinued operations (5.4) (0.2) (7.7) 5.7
---
Net cash provided from (used
in) operating activities 14.5 (8.5) (17.9) (35.5)
Cash flows used in investing activities:
Property, plant and equipment
expenditures (5.7) (3.8) (10.2) (8.0)
Other (2.5) (0.5) (1.5) (1.0)
---
Net cash used in investing
activities - continuing
operations (8.2) (4.3) (11.7) (9.0)
Net cash used in investing
activities - discontinued
operations -- (0.1) -- (0.4)
Net cash used in investing
activities (8.2) (4.4) (11.7) (9.4)
Cash flows provided from financing activities:
Proceeds from (repayments on)
borrowings, net (5.0) 10.0 55.0 42.0
Cash dividends (2.6) (2.6) (5.5) (5.3)
Purchase of treasury stock (4.1) -- (4.1) --
Other -- 1.7 (4.3) 8.2
Net cash provided from (used
in) financing activities -
continuing operations (11.7) 9.1 41.1 44.9
Net cash used in financing
activities - discontinued
operations -- (0.2) -- (0.7)
Net cash provided from (used
in) financing activities (11.7) 8.9 41.1 44.2
Effect of exchange rate changes
on cash 0.1 (0.1) 0.1 (0.2)
---
Increase (Decrease) in cash and
cash equivalents (5.3) (4.1) 11.6 (0.9)
Cash, cash equivalents, and
restricted cash at beginning
of period 58.0 44.8 41.1 41.6
---
Cash, cash equivalents, and
restricted cash at end of
period $52.7 $40.7 $52.7 $40.7
===
AAR CORP. and Subsidiaries
Sales By Business Segment Three Months Ended Six Months Ended
(In millions - unaudited) November 30, November 30,
---
2019 2018 2019 2018
---
Aviation Services $532.0 $462.9 $1,043.8 $901.3
Expeditionary Services 28.9 30.4 58.6 58.3
---
$560.9 $493.3 $1,102.4 $959.6
===
Gross Profit by Business Segment Three Months Ended Six Months Ended
(In millions- unaudited) November 30, November 30,
---
2019 2018 2019 2018
---
Aviation Services $85.7 $74.9 $165.7 $142.0
Expeditionary Services 0.2 3.4 1.8 7.5
---
$85.9 $78.3 $167.5 $149.5
===
Adjusted income from continuing operations, adjusted diluted earnings per share from continuing operations, adjusted selling, general, and administrative expenses, adjusted cash used in operating activities from continuing operations, adjusted EBITDA, and net debt are "non-GAAP financial measures" as defined in Regulation G of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). We believe these non-GAAP financial measures are relevant and useful for investors as they provide a better understanding of our actual operating performance unaffected by the impact of certain items. When reviewed in conjunction with our GAAP results and the accompanying reconciliations, we believe these non-GAAP financial measures provide additional information that is useful to gain an understanding of the factors and trends affecting our business and provide a means by which to compare our operating performance against that of other companies in the industries we compete. These non-GAAP measures should be considered as a supplement to, and not as a substitute for, or superior to, the corresponding measures calculated in accordance with GAAP. Adjusted EBITDA is income from continuing operations before interest income (expense), other income (expense), income taxes, depreciation and amortization, stock-based compensation and other items of an unusual nature including but not limited to severance, facility repositioning costs, investigation and remediation compliance costs, and significant customer bankruptcies. A reconciliation of forward-looking non-GAAP financial measures to the most directly comparable GAAP financial measure has not been provided because we are unable to predict with reasonable certainty the potential amount or timing of severance, investigation and remediation compliance costs, and other items and their related tax effects without unreasonable effort.
Pursuant to the requirements of Regulation G of the Exchange Act, we are providing the following tables that reconcile the above mentioned non-GAAP financial measures to the most directly comparable GAAP financial measures:
Adjusted Income from
Continuing Operations Three Months Ended Six Months Ended
(In millions -
unaudited) November 30, November 30,
---
2019 2018 2019 2018
Income from continuing
operations $20.1 $11.2 $37.2 $30.1
Investigation and
remediation
compliance costs, net
of tax 1.8 0.2 4.2 0.2
Customer bankruptcy
charge, net of tax -- 9.6 -- 9.6
Severance charges
(reversals), net of
tax 0.7
-- 1.2 (0.1)
Adjusted income from
continuing operations $22.6 $21.0 $42.6 $39.8
Adjusted Diluted
Earnings per Share
from Continuing Ended
Operations Three Months Ended Six Months
(In millions -
unaudited) November 30, November 30,
---
2019 2018 2019 2018
Diluted earnings per
share from continuing
operations $0.57 $0.32 $1.06 $0.85
Investigation and
remediation
compliance costs, net
of tax 0.05 0.01 0.12 0.01
Customer bankruptcy
charge, net of tax
-- 0.27
-- 0.27
Severance charges, net
of tax 0.02
-- 0.03
--
Adjusted diluted
earnings per share
from continuing
operations $0.64 $0.60 $1.21 $1.13
Adjusted Selling,
General and
Administrative Ended
Expenses Three Months Ended Six Months
(In millions -
unaudited) November 30, November 30,
---
2019 2018 2019 2018
Selling, general and
administrative
expenses $57.1 $49.1 $115.2 $97.3
Investigation and
remediation
compliance costs (2.4) (0.2) (5.2) (0.2)
Severance charges
(reversals) (0.9)
-- (1.7) 0.1
Stock-based
compensation (2.8) (1.2) (7.1) (5.2)
Adjusted selling,
general and
administrative
expenses $51.0 $47.7 $101.2 $92.0
Adjusted Cash Provided
by (Used in)
Operating Activities Ended
from
Continuing
Operations Three Months Ended Six Months
(In millions -
unaudited) November 30, November 30,
---
2019 2018 2019 2018
Cash provided by (used
in) operating
activities from
continuing
operations $19.9 $(8.3) $(10.1) $(41.2)
Amounts outstanding on
accounts receivable
financing program:
Beginning of period 86.2 88.6 86.2 71.7
End of period (85.7) (95.2) (85.7) (95.2)
Adjusted cash provided
by (used in)
operating activities
from
continuing operations $20.4 $(14.9) $(9.6) $(64.7)
Adjusted EBITDA Three Months Ended Six Months Ended Year Ended
May 31,
(In millions -
unaudited) November 30, November 30,
---
2019 2018 2019 2018 2019
Net income $14.2 $7.0 $18.6 $22.1 $7.5
Loss from discontinued
operations 5.9 4.2 18.6 8.0 76.6
Income tax expense 6.0 3.0 9.4 5.3 4.9
Other expense
(income), net 0.2 0.2 0.4 (0.2) 0.8
Interest expense, net 1.8 2.4 3.9 4.0 8.5
Depreciation and
intangible
amortization 11.0 10.4 21.8 20.5 42.8
Customer bankruptcy
charge
-- 12.4 -- 12.4 12.4
Investigation and
remediation costs 2.4 0.2 5.5 0.2 3.5
Severance charges
(reversals) 0.9
-- 1.6 (0.1) 0.2
Facility repositioning
costs
--
-- --
-- 0.9
Stock-based
compensation 2.8 1.2 7.1 5.2 13.5
Adjusted EBITDA $45.2 $41.0 $86.9 $77.4 $171.6
Net Debt
November 30,
November 30,
2019 2018
(In millions- unaudited)
---
Total debt $198.3 $220.3
Less: Cash and cash equivalents (38.2) (25.7)
Net debt $160.1 $194.6
Net Debt to Adjusted EBITDA
(In millions - unaudited)
---
Adjusted EBITDA for the year ended May 31, 2019 $171.6
Less: Adjusted EBITDA for the six months ended November 30, 2018 (77.4)
Plus: Adjusted EBITDA for the six months ended November 30, 2019 86.9
Adjusted EBITDA for the twelve months ended November 30, 2019 181.1
Net debt at November 30, 2019 $160.1
Net debt to Adjusted EBITDA 0.88
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SOURCE AAR CORP.
