Q4 2024 AAR Corp Earnings Call

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Operator: from the AAR's fiscal 2024 fourth quarter earnings call. We're joined today by John Holmes, Chairman, President and Chief Executive Officer, and Sean Gillen, Chief Financial Officer.

Unknown Executive: This is our fiscal 2024 fourth quarter earnings call. We're joined today by John Holmes, Chairman, President, and Chief Executive Officer, and Sean Gillen, Chief Financial Officer.

Speaker Change: Good afternoon, everyone, and welcome to AAR's fiscal 2024 fourth quarter earnings call. We're joined today by John Holmes, Chairman, President, and Chief Executive Officer, and Sean Gillen, Chief Financial Officer.

Unknown Executive: Before we begin, I would like to remind you that the comments made during the call may include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those expressed in the forward-looking statements. Accordingly, these statements are no guarantee of future performance. These risks and uncertainties are discussed in the company's earnings release and the risk factors section of the company's annual report.

Operator: Before we begin, I'd like to remind you that the comments made during the call may include four lifting statements as defined the Private Securities Litigation Reform Act of 1995. These four lifting statements involve risks and uncertainties that could cause actual results to differ materially from the four lifting statements. Accordingly, these statements are no guarantee of future performance.

Speaker Change: Before we begin, I would like to remind you that the comments made during the call may include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from the forward-looking statements.

Operator: These risks and uncertainties are discussed in the company's earnings release and the risk vector section of the company's annual course, to form 10K for the fiscal year ended May 31, 2024, with respect to be on file with the SEC shortly. In providing the four lifting statements, the company seems no obligation provides updates to reflect future circumstances or anticipated or unintended statements.

Speaker Change: Accordingly, these statements are no guarantee of future performance. These risks and uncertainties are discussed in the company's earnings release and the risk factors section of the company's annual report.

Unknown Executive: Information forms a 10-K for the fiscal year ended May 31st, 2024, which we expect to be on file with the SEC shortly. In providing these forward-looking statements, the company assumes no obligation to provide updates to reflect future circumstances or anticipated or unanticipated events. Certain non-GAAP financial information will be discussed in the call today. A reconciliation of these non-GAAP measures to the most comparable GAAP measures is set forth in the company's earnings release. A replay of this conference call will be available for on-demand listing shortly after the completion of the call on AAR's website. At this time, I would like to turn the call over to AAR's Chairman, President, and CEO, John Holmes. Thank you.

Speaker Change: And Form 10-K for the fiscal year ended May 31st, 2024, which we expect to be on file with the SEC shortly. In providing the forward-looking statements, the company assumes no obligation to provide updates to reflect future circumstances or anticipated or unanticipated events.

Operator: Certain non-GAAP financial information will be discussed in the call today. Reconciliation of these non-GAAP measures to the most comparable GAAP measures is set for the company's earnings release.

Speaker Change: Certain non-GAAP financial information will be discussed in the call today. A reconciliation of these non-GAAP measures to the most comparable GAAP measures is set forth in the company's earnings release.

Operator: A replay of this conference call will be available for on-demand listening shortly after the completion of the call on AAR's website.

Speaker Change: A replay of this conference call will be available for on-demand listening shortly after the completion of the call on AAR's website. At this time, I would like to turn the call over to AAR's Chairman, President, and CEO , John Holmes.

John Holmes: At this time, I would like to turn the call over to AAR's Chairman, President, and CEO, John Holmes.

John McClain Holmes: Thank you, and thank you to everyone for joining us this afternoon. We are very proud of the record performance we delivered during FY24. I want to thank our team for their tireless effort. AAR Advanced Strategic Initiatives, Sharpened Focus, completed our largest ever acquisition, and we executed well across the company. We are benefiting from structural tailwinds, from high levels of air travel, and an aging fleet, which drives demand for our aftermarket services.

John Holmes: Thank you. And thank you to everyone for joining us this afternoon. We're very proud of the record performance we delivered during our FY24. I want to thank our team for their tireless efforts. AAR advanced strategic initiatives, sharpened focus, completed our largest ever acquisition, and we executed well across the company. We are benefiting from structural tailwinds from high levels of air travel, and an aging fleet, which drives demand for our aftermarket services. Our company is more focused than ever before within our three main segments: parts fly, preparing engineering, and integrated solutions. We are making investments in each of these free segments to direct growth and prove our efficiency and deliver higher margins.

John McClain Holmes: Thank you, and thank you to everyone for joining us this afternoon.

John McClain Holmes: We are very proud of the record performance we delivered during our FY24 and I want to thank our team for their tireless efforts. AAR advanced strategic initiatives, sharpened focus, completed our largest ever acquisition, and we executed well across the company.

John McClain Holmes: We are benefiting from structural tailwinds, from high levels of air travel, and an aging fleet, which drives demand for our aftermarket services. Our company is more focused than ever before within our three main segments, parts supply, repair and engineering, and integrated solutions.

John McClain Holmes: Our company is more focused than ever before within our three main segments, parts supply, repair and engineering, and integrated solutions. We are making investments in each of these three segments to drive growth, improve our efficiency, and deliver higher margins. We saw the benefits of these investments in our FY24 and expect them to continue in our FY25. With that, I will turn to the FY24 results more specifically.

John McClain Holmes: We are making investments in each of these three segments to drive growth, improve our efficiency, and deliver higher margins. We saw the benefits from these investments in our FY24 and expect them to continue in our FY25.

John Holmes: We saw the benefits from these investments in our FY24 and expect them to continue in our FY25.

John McClain Holmes: We delivered record four-year sales of $2.3 billion, up 17% over the prior year. Our adjusted operating margins increased from 7.5% to 8.3% in fiscal 2024, which only reflects one quarter of ownership of the higher-margin Triumph product support. And we generated record adjusted diluting per share from continuing operations of $3.33 compared to $2.86 last year. Our fourth quarter was a record ending to a record year.

John Holmes: With that, I will turn to the FY24 results more specifically. We delivered record four-year sales of 2.3 billion, up to 17% over the prior year. Our adjusted operating margins increased from 7.5% to 8.3% in fiscal 2024, which only reflects one quarter of ownership of the higher margins in trying product support business. And we generated record adjusted the looting for share from continuing operations of $3.33 compared to $2.86 last year. Our fourth quarter was a record ending to a record year. Sales increased 19% year over year, driven by the impact of the product support acquisition, and strong performance in our distribution and government integrated solutions activities.

John McClain Holmes: With that, I will turn to the FY24 results more specifically.

John McClain Holmes: We delivered record four-year sales of $2.3 billion, up 17% over the prior year. Our adjusted operating margins increased from 7.5% to 8.3% in fiscal 2024, which only reflects one-quarter of ownership of the higher-margin Triumf Product Support business.

John McClain Holmes: And we generated record adjusted diluting per share from continuing operations of $3.33 compared to $2.86 last year.

John McClain Holmes: Sales increased 19% year over year, driven by the impact of the product support acquisition and strong performance in our distribution and government integrated solutions activities. Adjusted operating margin improved by 150 basis points year over year from 7.8% to 9.3% due to the contribution from product support and our solid execution in both parts supply and airframe maintenance. Given some of the changes that we have made to the portfolio, I am now going to go into the results in a little more detail for each of our three sectors.

John McClain Holmes: Our fourth quarter was a record ending to a record year. Sales increased 19% year over year, driven by the impact of the product support acquisition and strong performance in our distribution and government integrated solutions activities.

John Holmes: Adjusted operating margin proved by 150 days to 0.0 year, from 7.8% to 9.3% due to the contribution from product support, and our solid execution in both parts supply and airframe maintenance.

John McClain Holmes: Adjusted operating margin improved by 150 basis points year over year from 7.8% to 9.3% due to the contribution from product support and our solid execution in both part supply and airframe maintenance.

John Holmes: Given some of the changes that we have made to the portfolio, I am now going to go into the results in a little more detail for each of our frame three seconds. Part supply is our largest and most profitable segment, and where we have very significant opportunity for organic growth. This segment contains two activities: new parts distribution and use serviceable material or U.S.A. Distribution represents about 55% of parts applied sales. Distribution executed extremely well in the fourth quarter, posting the tenth straight quarter of double-digit organic growth. Revenue grew 16% driven by additional government volumes, market share gains, and continued commercial demand strike.

John McClain Holmes: Given some of the changes that we have made to the portfolio, I am now going to go into the results in a little more detail for each of our three segments.

John McClain Holmes: Part Supply. Part Supply is our largest and most profitable segment and where we have a very significant opportunity for organic growth. This segment contains two activities, new parts distribution and used serviceable material, or USM. Distribution represents about 55% of parts supply sales. Distribution executed extremely well in the fourth quarter, posting the 10th straight quarter of double-digit organic growth.

John McClain Holmes: Parts Supply. Parts Supply is our largest and most profitable segment, and where we have very significant opportunity for organic growth. This segment contains two activities, new parts distribution and used serviceable material, or USM.

John McClain Holmes: Distribution represents about 55% of parts supply sales. Distribution executed extremely well in the fourth quarter, posting the 10th straight quarter of double-digit organic growth.

John McClain Holmes: Revenue grew 16% driven by additional government volumes, market share gains, and continued commercial demand strength. We are the largest independent distributor of OEM parts, and our independent status is a key strategic advantage that eliminates conflicts and allows our OEM partners to serve all aircraft types. We have deep relationships with a few key OEMs, and these are all on an exclusive basis.

John McClain Holmes: Revenue grew 16% driven by additional government volumes, market share gains, and continued commercial demand strike.

John Holmes: We're the largest independent distributor of OEM parts, and are in our independence status as a key strategic advantage, which eliminates conflicts and allows our OEM partners to serve all aircraft types. We have deep relationships with a few key OEMs, and these are all on an exclusive basis. We continue to sign new exclusive agreements, and we have several meeting balloons in the quarter, including our multi-year contract extension and expansion with Sumitomo Precision Products to distribute its B-2500 starter and valve components. Our new multi-year agreement with Triumph to support its actuation product line, and the expansion of our agreement with Auto-Engineering to distribute electro-mechanical components.

Speaker Change: We are the largest independent distributor of OEM parts, and our independent status is a key strategic advantage which eliminates conflicts and allows our OEM partners to serve all aircraft types.

John McClain Holmes: We continue to sign new exclusive agreements, and we have several meaningful ones in the quarter, including our multi-year contract extension and expansion with Sumitomo Precision Products to distribute its B2500 starter and valve components, our new multi-year agreement with Triumph to support its actuation product line, and the expansion of our agreement with Auto Engineering to distribute electromechanical components. We are optimistic about continuing to gain market share and add new distribution lines at a similar pace going forward, particularly as we move into electronic components and the business in general, aviation and the market. USM.

Speaker Change: We have deep relationships with a few key OEMs, and these are all on an exclusive basis.

Speaker Change: We continue to sign new exclusive agreements.

Speaker Change: And we had several meaningful wins in the quarter, including our multi-year contract extension and expansion with Sumitomo Precision Products to distribute its B2500 starter and valve components.

Speaker Change: Our new multi-year agreement with Triumph to support its actuation product line and the expansion of our agreement with Auto Engineering to distribute electromechanical components.

John Holmes: We are optimistic about continuing to gain market share and add new distribution lines that have a similar taste going forward, particularly as we move into electronic components and the business in general aviation and market. USM represents about 45% of total part supply sales. It is also performed well in the quarter, with sales up 1% year over year and up 7% sequentially, despite extremely tight supply conditions. As a reminder, in this business, we acquire used aircraft engines, design a disassembly and repair plan. We have regular individual parts refurbished, and then sell them to our customers at significant savings versus the new Polaroid Tournament.

Speaker Change: We are optimistic about continuing to gain market share and add new distribution lines at a similar pace going forward, particularly as we move into electronic components and the business and general aviation and market.

John McClain Holmes: USM represents about 45% of total parts supply sales. It has also performed well in the quarter, with sales up 1% year over year and up 7% sequentially despite extremely tight supply conditions. As a reminder, in this business, we acquire used aircraft engines, design a disassembly and repair plan, have regular individual parts refurbished, and then sell them to our customers at significant savings versus the new PoliCar Tornado. We also acquire and resell whole aircraft and engines, which is an important activity and can create lumpiness in our results. Excluding these whole asset sales, USM sales parts growth was 38% in the quarter.

Speaker Change: USM. USM represents about 45% of total parts supply sales. It has also performed well in the corner, with sales up 1% year over year and up 7% sequentially despite extremely tight supply conditions.

Speaker Change: As a reminder, in this business, we acquire used aircraft engines, design a disassembly and repair plan, have individual parts refurbished, and then sell them to our customers at significant savings versus the new alternative.

John Holmes: We also acquire and refill whole aircraft engines, which is an important activity and can create lumpiness in our results. Excluding the poll assets sales, USM sales parts grow with 38% in the quarter. This underlying growth and recurring use parts reflects our strong market position, underpinned by deep supply relationships to source parts, significant expertise to evaluate assets, and a world-class global sales force. We continue to benefit from the increasing adoption of USM, as airlines and MROs unlock the benefits of buying use, and we believe this will continue to be a tail one to our business for years to come.

Speaker Change: We also acquire and resell whole aircraft and engines, which is an important activity and can create lumpiness in our results. Excluding these whole asset sales, USM sales parts growth was 38% in the quarter.

John McClain Holmes: This underlying growth and recurring use parts reflects our strong market position underpinned by deep supply relationships to source parts, significant expertise to evaluate assets, and a world-class global sales force. We continue to benefit from the increasing adoption of USM as airlines and MROs unlock the benefits of buying used, and we believe this will continue to be a tailwind to our business for years to come. Whole assets, such as engines, in particular, are in high demand due to the issues with the GTF and other new engine variants. This, coupled with relatively few aircraft retirements, is driving constrained whole asset availability.

Speaker Change: This underlying growth and recurring use parts reflects our strong market position underpinned by deep supply relationships to source parts, significant expertise to evaluate assets, and a world-class global sales force.

Speaker Change: We continue to benefit from the increasing adoption of USM as airlines and MROs unlock the benefits of buying used, and we believe this will continue to be a tailwind to our business for years to come.

John Holmes: All assets, such as engines in particular, are in high demand due to the issues with the GTF and other new engine variants. This coupled with relatively few aircraft retirements is driving constrained whole asset availability. However, we expect supply pressures to alleviate over the next few years, based on the recovery of new aircraft production and improve new engine variant performance. This will lead to more aircraft and engine retirements, which will drive greater availability of individual parts and whole assets, and allow us to continue our overall growth in USM.

Speaker Change: Whole assets, such as engines in particular, are in high demand due to the issues with the GTF and other new engine variants. This, coupled with relatively few aircraft retirements, is driving constrained whole asset availability.

John McClain Holmes: However, we expect supply pressures to alleviate over the next few years, based on the recovery of new aircraft production and improved new engine variant performance. This will lead to more aircraft and engine retirements, which will drive greater availability of individual parts and whole assets and allow us to continue our overall growth in USM. Become a professional in engineering

Speaker Change: However, we expect supply pressures to alleviate over the next few years.

Speaker Change: Based on the recovery of new aircraft production and improved new engine variant performance. This will lead to more aircraft and engine retirements, which will drive greater availability of individual parts and whole assets, and allow us to continue our overall growth in USM.

John Holmes: Prepare an engineering. This segment consists of air firm heavy maintenance and component repair, including try and product support, as well as our PMA parts initiatives. Revenue growth was 51% in the quarter; excluding the product support acquisition, revenue was relatively flat as our hangers are nearly active path. That's said, our hangar capacity expanses in Miami, and Oklahoma City remain on track for operation beginning in the second half of calendar 2025. These expansions will add approximately $60 million of annual sales. At the beginning of the fourth quarter on March 1, we closed on the acquisition of Triumph Product Support, which brings increased scale and differentiated repair capability.

John McClain Holmes: Turning to repair and engineering, this segment consists of airframe heavy maintenance and component repair, including tri- and product support, as well as our PMA parts initiative. Revenue growth was 51% in the quarter. Excluding the product support acquisition, revenue is relatively flat as our hangers are nearly at capacity. That said, our hangar capacity expansions in Miami and Oklahoma City remain on track for operation beginning in the second half of calendar 2025. These expansions will add approximately $60 million in annual sales.

Speaker Change: Repair and Engineering. Turning to repair and engineering, this segment consists of airframe heavy maintenance and component repair, including tri- and product support, as well as our PMA parts initiatives.

Speaker Change: Revenue growth was 51% in the quarter. Excluding the product support acquisition, revenue was relatively flat as our hangers are nearly at capacity.

Speaker Change: That said, our hangar capacity expansions in Miami and Oklahoma City remain on track for operation beginning in the second half of calendar 2025. These expansions will add approximately $60 million of annual sales.

John McClain Holmes: At the beginning of the fourth quarter on March 1st, we closed on the acquisition of Triumf Product Support, which brings increased scale and differentiated repair capability. The acquisition exceeded our expectations in Q4, and we are in the early stages of unlocking significant additional value. In terms of cost synergy, we are beginning to consolidate our existing Long Island facility into product support facilities in Grand Prairie, Texas, and Wellington, Kansas.

Speaker Change: At the beginning of the fourth quarter on March 1st, we closed on the acquisition of Triumf product support, which brings increased scale and differentiated repair capability. The acquisition exceeded our expectations in Q4, and we are in the early stages of unlocking significant additional value.

John Holmes: The acquisition exceeded our expectations in Q4, and we are in the early phase stages of unlocking significant additional value. In terms of cost synergy, we are beginning to consolidate our existing Long Island facility in a product support grant for a Texas and Wellington, Kansas facilities, and we are on track to achieve the previously announced associated cost synergy target of $10 million by Q1 FY26. The business also brings capability in-house, but we can now use for repair work to support our commercial programs, and you had them refurbishment activities. In addition, we are leveraging our talented commercial aftermarket sales force and our government business development resources to further accelerate product support growth.

Speaker Change: In terms of cost synergy, we are beginning to consolidate our existing Long Island facility into product supports Grand Prairie, TX and Wellington, KS facilities, and we are on track to achieve the previously announced associated cost synergy target of $10 million by Q1 FY26.

John McClain Holmes: We are on track to achieve the previously announced associated cost synergy target of $10 million by Q1 FY26. The business also brings capability in-house that we can now use for repair work to support our commercial programs and USM refurbishment activities. In addition, we are leveraging our talented commercial aftermarket sales force and our government business development resources to further accelerate product support growth. We also continue to make progress on our PMA initiative.

Speaker Change: The business also brings capability in-house that we can now use for repair work to support our commercial programs and USM refurbishment activities.

Speaker Change: In addition, we are leveraging our talented commercial aftermarket sales force and our government business development resources to further accelerate product support growth.

John Holmes: We also continue to make progress on our P&A initiatives. We received FAA approval for several parts and have a significant additional pipeline that we are actively working to develop. We are in the process of integrating this initiative with the existing P&A business that came with the product support acquisition and remain committed to growing this combined P&A effort into a meaningful business over the next several years.

John McClain Holmes: We received FAA approval for several parts and have a significant additional pipeline that we are actively working to develop. We are in the process of integrating this initiative with the existing P&A business that came with the product support acquisition and remain committed to growing this combined P&A effort into a meaningful business over the next several years. Integrated Foolers

Speaker Change: We also continue to make progress on our PMA initiative. We received FAA approval for several parts and have a significant additional pipeline that we are actively working to develop.

Speaker Change: We are in the process of integrating this initiative with the existing P&A business that came with the product support acquisition and remain committed to growing this combined P&A effort into a meaningful business over the next several years.

John Holmes: Integrated solutions. Turning to integrated solutions in this segment, we support government and commercial aircraft operators with the management of logistics and supply chains, as well as the track software offering. The majority of what we do in this segment is supporting government customers. Our programs are long-term with an average tenure of five years, meaning this is in a new way of business. In general, we are managing the aftermarket needs of aircraft operators across parts, maintenance, sourcing, logistics, and programmatic fashion. Revenue in this segment was up 10% from a year ago, and we saw greater volumes in our state department and F-16 programs. As you know, we required the track software business a year ago, and the integration has gone well.

John McClain Holmes: Turning to integrated solutions, in this segment, we support government and commercial aircraft operators with the management of logistics and supply chains, as well as tracking software operations. The majority of what we do in this segment is supporting government customers. Our program's long-term, with an average tenure of five years, meaning this is an annuity business.

Speaker Change: Integrated Solutions.

Speaker Change: Turning to integrated solutions, in this segment we support government and commercial aircraft operators with the management of logistics and supply chains, as well as the track software offering.

Speaker Change: The majority of what we do in this segment is supporting government customers. Our program's a long-term with an average tenure of five years, meaning this is an annuity business.

John McClain Holmes: In general, we are managing the aftermarket needs of aircraft operators across parts, maintenance, sourcing, and logistics in a programmatic fashion. Revenue in this segment was up 10% from a year ago, and we saw greater volumes in our State Department and F-16 programs. As you know, we acquired the Tracks software business a year ago, and the integration has gone well. Tracks is a best-in-class maintenance ERP offering that supports nearly 150 airlines and MRO customers globally.

Speaker Change: In general, we are managing the aftermarket needs of aircraft operators across parts, maintenance, sourcing, and logistics in a programmatic fashion. Revenue in this segment was up 10% from a year ago, and we saw greater volumes in our State Department and F-16 programs.

John Holmes: Tracks is a best-in-class maintenance ERP offering, which supports nearly 150 airlines in MRO customers globally. We are growing the core track business by introducing it to customers that may not have been able to reach previously, and laying the groundwork for tracks to be a new sales channel for our core parts and services offering. Tracks is a high-margin business and a long runway for growth.

Speaker Change: As you know, we acquired the Tracks software business a year ago, and the integration has gone well.

Speaker Change: Trax is a best-in-class maintenance ERP offering, which supports nearly 150 airlines and MRO customers globally.

John McClain Holmes: We are growing the core Trax business by introducing it to customers it may not have been able to reach previously and laying the groundwork for Trax to be a new sales channel for our core parts and services offering. Tracks is a high-margin business and a long runway for growth. That concludes the update for our three core sectors. Our fourth segment, Expeditionary Services, is non-core for AAR.

Speaker Change: We are growing the core Trax business by introducing it to customers it may not have been able to reach previously and laying the groundwork for Trax to be a new sales channel for our core parts and services offering.

John Holmes: That concludes the update for our three core segments.

Speaker Change: Tractors is a high-margin business and a long runway for growth.

John Holmes: Our fourth segment, Expeditionary Services, is non-core AR. Sales in this segment were down 30% due to continued to press volumes in both pallets and shelters, as the government prioritized spending on products that are supported in Ukraine forces. However, we now have visibility on funding going forward, and we expect volumes to normalize during FY25.

Speaker Change: That concludes the update for our three core segments.

John McClain Holmes: Sales in this segment were down 30% due to continued depressed volumes in both pallets and shelters as the government prioritized spending on products that are supporting Ukrainian forces. However, we now have visibility on funding going forward, and we expect volumes to normalize during FY25. Overall, I am incredibly proud of the quarter and the year that we delivered, and with that, I'll turn it over to Sean. Thanks, John.

Speaker Change: Our fourth segment, Expeditionary Services is non-core for AR.

Speaker Change: Sales in this segment were down 30% due to continued depressed volumes in both pallets and shelters as the government prioritized spending on products that are supporting Ukraine forces. However, we now have visibility on funding going forward and we expect volumes to normalize during FY25.

Sean Gillen: Overall, I am incredibly proud of the quarter and the years that we delivered, and with that, I'll turn it over to Sean.

Speaker Change: Overall, I am incredibly proud of the quarter and the year that we delivered, and with that I'll turn it over to Sean. Thanks, John . Total sales in the quarter grew 19% to $657 million.

Sean M. Gillen: Total sales in the quarter grew 19% to $657 million. Excluding the impact of the recently acquired product support business, organic revenue growth for the quarter was 5.5%. Our consolidated sales to commercial customers increased 20% or 4% on an organic basis, with growth in all three of our core sales. Our commercial distribution sales were a particular standout as we continued to drive sales growth on existing product lines and expanded newly won product lines.

Sean Gillen: Thanks, John. Total sales in the quarter were $19% to $657 million. Excluding the impacts in the recently acquired product support, there's no support, organic revenue growth for the quarter; it was 525.

Sean Gillen: and Michael Jackson. Our consolidated sales to commercial customers increase 20% or 4% on an organic basis, with growth in all three of our core seconds. Our commercial distribution sales were a particular standout as we continued to drive sales growth on existing product lines and expanded newly one product lines as well. Our government sales increased 15% or 10% on an organic basis and improvement from a 7% decline in the prior quarter. The organic sales increase was driven by an ongoing recovery across our government program activities and increased order volume for our new parts distribution activities. Adjusted operating profit margin improved 150 basis points from 7.8% to 9.3% on an organic basis.

Sean M. Gillen: Excluding the impact from the recently acquired product support business, organic revenue growth for the quarter was 5.5%.

Sean M. Gillen: Our consolidated sales to commercial customers increased 20% or 4% on an organic basis with growth in all three of our core segments.

Speaker Change: Our commercial distribution sales were a particular standout as we continued to drive sales growth on existing product lines and expanded newly won product lines as well. Our government sales increased 15% or 10% on an organic basis, and improvement from a 7% decline in the prior quarter.

Sean M. Gillen: Our government sales increased 15% or 10% on an organic basis, an improvement from a 7% decline in the prior year. The organic sales increase was driven by an ongoing recovery across our government program activities and increased order volume for our new parts distribution.

Speaker Change: The organic sales increase was driven by an ongoing recovery across our government program activities and increased order volume for our new parts distribution activities.

Speaker Change: Adjusted operating profit margin improved 150 basis points from 7.8% to 9.3%.

Sean Gillen: Adjusted operating margin also increased by 60 basis points, driven by parts supply and air frame maintenance. Adjusted EBITDA margin increased 200 basis points from 9.6% to 11.6%. We have a clear roadmap for continued margin improvement over the medium term as our mix shifts towards our higher margin segments. We realize the product support synergies. We continue to roll out our air frame maintenance efficiency improvement initiatives, and the new air frame maintenance capacity expansion projects come online. Net interest expense for the quarter was 18.7 million dollars, reflecting the financing of the product support acquisition, and we expect Q1 interest expense to be approximately the same as Q4.

Speaker Change: On an organic basis, adjusted operating margins also increased by 60 basis points, driven by part supply and airframe maintenance. Adjusted EBITDA margin increased 200 basis points from 9.6% to 11.6%.

Sean M. Gillen: The Adjusted Operating Profit Margin improved 150 basis points from 7.8% to 9.3% on an organic basis. Adjusted operating margins also increased by 50 basis points driven by part supply and airframe. The adjusted EBITDA margin increased 200 basis points from 9.6% to 11%. We have a clear roadmap for continued margin improvements over the medium term as our mix shifts towards our higher margin segments, we realize the product support synergies, we continue to roll out our airframe maintenance efficiency improvement initiatives, and the new airframe maintenance capacity expansion projects come on.

Speaker Change: We have a clear roadmap for continued margin improvements over the medium term as our mix shifts towards our higher margin segments. We realize the product support synergies. We continue to roll out our airframe maintenance efficiency improvement initiatives and the new airframe maintenance capacity expansion projects come online.

Sean M. Gillen: Net Interest Expense for the quarter was $18.7 million, reflecting the financing of the product support acquisition. And we expect Q1 interest expense to be approximately the same as Q2. The average diluted share count in the quarter was $35.4 million.

Speaker Change: Net interest expense for the quarter was $18.7 million reflecting the financing of the product support acquisition, and we expect Q1 interest expense to be approximately the same as Q4.

Sean Gillen: Average diluted share count in the quarter was 30.4 million shares. Our effective adjustment tax rate increased from 23.6% to 26.4%. And for FY25 we expect our effective adjusted tax rates to be approximately 28%. Adjusted diluted ETS increased from 83 cents to a record 88 cents, reflecting the benefit of our growth and margin expansion. The product support acquisition was slightly diluted to the quarter, but we expected to be agreed if the earnings in FY25.

Sean M. Gillen: Our effective adjustment tax rate increased from 23.6%. [inaudible] And for FY 25, we expect our effective adjusted tax rate to be approximately 28%. Adjusted diluted EPS increased from 83 cents to a record 88 cents, reflecting the benefit of our growth and margin. The product support acquisition was slightly diluted for the quarter, but we expect it to be accretive to earnings in FY20. With that, I'll turn to the detailed results by segment.

Speaker Change: Average diluted share count in the quarter was 35.4 million shares.

Speaker Change: Our effective adjusted tax rate increased from 23.6% to 26.4%. And for FY25, we expect our effective adjusted tax rate to be approximately 28%.

Speaker Change: Adjusted diluted EPS increased from $0.83 to a record $0.88, reflecting the benefit of our growth and margin expansion.

Speaker Change: The product support acquisition was slightly diluted for the quarter, but we expect it to be accretive to earnings in FY25. With that, I'll turn to the detailed results by segment.

Sean Gillen: With that, I'll turn to the detailed results by segment. Part supply sales grew 9% to 260 million dollars, driven by 16% growth in distribution and 1% growth in USM. The growth and distribution was consistent with the double-digit growth we've experienced over the last several quarters as we continue to gain market share. Growth in the quarter was positively impacted by the continued ramp up of our arc line and arrow control X line, as well as greater purchases by both the USM and foreign governments. Our USM activities at a strong quarter as sales of USM parts were up significantly.

Sean M. Gillen: Part supply sales were 9% to $260 million, driven by 16% growth in distribution and 1% growth in the US. The growth and distribution was consistent with the double-digit growth we've experienced over the last several quarters as we continue to gain markets. Growth in the quarter was positively impacted by the continued ramp-up of our ARKwin and AeroControl X lines, as well as greater purchases by both the US and foreign governments, are USM activities at a strong quarter as sales of USM parts increased. However, this growth was largely offset by a decline in USM whole asset sales as supply remains constrained for these types of large, Part Supply Adjusted Operating Margins increased by 130 basis points to 13.

Speaker Change: Part supply sales were 9% to $260 million, driven by 16% growth in distribution and 1% growth in USM. The growth in distribution was consistent with the double-digit growth we've experienced over the last several quarters, as we continue to gain market share.

Speaker Change: Growth in the quarter was positively impacted by the continued ramp-up of our ARCWIN and AeroControl X lines, as well as greater purchases by both the U.S. and foreign governments.

Sean Gillen: However, this growth was largely offset by a decline in USM whole asset sales, as supply remains constrained for these types of larger transactions. Part supply adjusted operating margins increased by 130 basis points to 13.5% in the quarter, driven by distribution, which benefited from scale and mix. The improvement of distribution sales to government customers also contributed to the increase in margins. Repair and engineering sales increased 51% to 216 million dollars on an organic basis. Repair sales were flat as growth in the hangars was offset by the roll off of certain landing gear repair work. The product support integration is progressing well, and its acquisition contributed 73 million dollars to revenue in the fourth quarter.

Speaker Change: Our USM activity is at a strong quarter as sales of USM parts were up significantly.

Speaker Change: However, this growth was largely offset by a decline in USM whole asset sales as supply remains constrained for these types of larger transactions.

Speaker Change: Part supply adjusted operating margins increased by 130 basis points to 13.5% in the quarter, driven by distribution, which benefited from scale and mix.

Sean M. Gillen: The improvement of distribution sales to government customers also contributed to the increase, repair and engineering sales increased 51% to $216 million. On an organic basis, sales were flat as growth in the hangars was offset by the roll off of certain landing gear The product support integration is progressing well, and its acquisition contributed $73 million to revenue in the fourth, Demand remains strong for heavy maintenance and component repair capabilities, and we look to continue to drive growth in these activities, repair and engineering adjusted operating margins increased by 490 basis points to 11.5% in the quarter driven by the inorganic impact of product support and continued efficiency gain in the, Going forward, we expect to drive further margin expansion in the segment from the realization of product support synergies, roll out of our paperless hanger initiative and the capacity expansions once they come online.

Speaker Change: The improvement of distribution sales to government customers also contributed to the increase in margins.

Speaker Change: Repair and engineering sales increased 51% to $216 million. On an organic basis, sales were flat as growth in the hangars was offset by the roll-off of certain landing gear repair work.

Speaker Change: The product support integration is progressing well, and its acquisition contributed $73 million to revenue in the fourth quarter.

Sean Gillen: and Kenneth Carter. The man remains strong for our heavy maintenance of the ponder repair capabilities, and we look to continue to drive growth in these activities. And the capacity expansion wants to come online in FY26. Integrated solution sales increased 10% to $163 million driven by growth in our State Department program, F16 program, and from tracks. Integrated solutions adjusted operating margin decreased by 120 basis points to 5.6% in the quarter based on the mix within government programs. Turning to consolidated cash, cash provided by operating activities from continuing operations was $25 million in the quarter as we reduced non-product support inventory by $7 million.

Speaker Change: Demand remains strong for our heavy maintenance and component repair capabilities, and we look to continue to drive growth in these activities.

Speaker Change: Repair and engineering adjusted operating margins increased by 490 basis points to 11.5% in the quarter, driven by the inorganic impact of product support and continued efficiency gains in the hangers.

Speaker Change: Going forward, we expect to drive further margin expansion in this segment from the realization of product support synergies, rollout of our paperless hanger initiatives, and the capacity expansions once they come online in FY20.

Sean M. Gillen: Integrated Solutions Sales increased 10% to $163 million dollars driven by growth in our State Department program, F-16 program, and from track. Integrated Solutions' Adjusted Operating Margin decreased by 120 basis points to 5.6% in the quarter based on the mix within government.

Speaker Change: 26.

Speaker Change: Integrated solutions sales increased 10% to 163 million dollars driven by growth in our State Department program, F-16 program, and from TRACS.

Speaker Change: Integrated Solutions Adjusted Operating Margin decreased by 120 basis points to 5.6% in the quarter based on the mix within government programs.

Sean M. Gillen: Turning to consolidated cash, cash flow provided by operating activities from continuing operations was $25 million in the quarter as we reduced non-product support inventory by 7%. This cash flow generation and the EBITDA growth allowed us to delever from 3.6 times net debt to adjusted pro forma EBITDA at the closing of the Product Support Act to 3.3 times at the end. We are pleased with this reduction in leverage and will continue to balance opportunities to invest in the business and continue debt reduction. Our balance sheet and capital structure afford us sufficient flexibility to manage our business and make decisions that maximize shareholder value. With that, I will turn the call back over to you.

Speaker Change: Turning to consolidated cash, cash flow provided by operating activities from continuing operations was $25 million in the quarter as we reduced non-product support inventory by $7 million.

Sean Gillen: This cash flow generation and the EBITDA growth allowed us to deliver from 3.6 times net debt to adjusted pro forma EBITDA at the closing of the product support acquisition to 3.3 times at the end of Q4. We are pleased with this reduction in leverage and will continue to balance opportunities to invest in the business and continue debt reduction. Our balance sheet and capital structure afford us sufficient flexibility to manage our business and make decisions that maximize shareholder value.

Speaker Change: This cash flow generation and the EBITDA growth allowed us to delever from 3.6 times net debt to adjusted pro forma EBITDA at the closing of the product support acquisition to 3.3 times at the end of Q4.

Speaker Change: We are pleased with this reduction in leverage and will continue to balance opportunities to invest in the business and continue debt reduction.

Speaker Change: Our balance sheet and capital structure afford us sufficient flexibility to manage our business and make decisions that maximize shareholder value. With that, I will turn the call back over to John .

John Holmes: With that, I will turn the call back over to John. Great. Thank you, Sean.

John McClain Holmes: Great, thank you, Sean. Considering that this will be our first full year of results, including the margin-accretive product support acquisition, we are updating our three to five year adjusted operating margin target that we communicated at last year's investor day to include the creative impact of the product support acquisition. We previously expected 9% to 10% plus adjusted operating margins. We are increasing that to 10.5% to 11.5% plus as a result of the product support acquisition and our increased confidence in hitting the targets that we laid out a year ago. This translates to 12.5% to 13.5% plus adjusted EBITDA margins.

John Holmes: Considering that this will be our first full year of results, including the margin of creative product support acquisition. We are updating our three to five year adjusted operating margin target that we communicated at last year's Investor Day to include the created impact of the product support acquisition. We previously expected 9 to 10% plus adjusted operating margins. We are increasing that to 10.5 to 11.5% plus, as a result of the product support acquisition and our increased confidence in hitting the targets that we laid out a year ago. This translates to 12.5 to 13.5% plus EBITDA, adjusted EBITDA margins.

John McClain Holmes: Great, thank you Sean. Considering that this will be our first full year of results including the margin accretive product support acquisition, we are updating our three to five year adjusted operating margin target that we communicated at last year's investor day to include the creative impact of the product support acquisition.

John McClain Holmes: We previously expected 9 to 10% plus adjusted operating margins. We are increasing that to 10.5 to 11.5% plus as a result of the product support acquisition and our increased confidence in hitting the targets that we laid out a year ago.

John McClain Holmes: This translates to 12.5 to 13.5% plus adjusted EBITDA margins.

John Holmes: We are confident in our ability to deliver 5 to 10% average annual organic sales growth and an average annual growth of 10 to 15% on organic adjusted EPS over the next three to five years.

John McClain Holmes: We're confident in our ability to deliver five to 10% average annual organic sales growth and an average annual growth of 10 to 15% on Organic Adjusted EPS over the next three to five years. With respect to FY25, we anticipate continued growth and margin expansion. In parts supply, we expect new parts distribution will continue to benefit from the ramp-up of new distribution lines and the growth in commercial aftermarket demand. In USM, demand should continue to be very strong, although tight supply will likely limit revenue growth until more aircraft are retired over the next few years.

John McClain Holmes: We are confident in our ability to deliver 5-10% average annual organic sales growth and an average annual growth of 10-15% on

John Holmes: With respect to FY25, we anticipate continued growth and margin expansion. In parts supply, we expect new parts distribution will continue to benefit from the ramp up of new distribution lines and the growth and commercial aftermarket demand. In U.S.M., demand should continue to be very strong, although tight supply will likely limit revenue growth until more aircraft are retired over the next few years. In repair and engineering, our airframe maintenance tangers will continue to be largely full until our expansions in Miami and Oklahoma City come online in FY26. We expect to continue to drive greater efficiency and higher profitability out of our existing footprint in the meantime.

John McClain Holmes: Organic Adjusted EPS over the next three to five years.

John McClain Holmes: With respect to FY25, we anticipate continued growth and margin expansion.

John McClain Holmes: In parts supply, we expect new parts distribution will continue to benefit from the ramp-up of new distribution lines and the growth in commercial aftermarket demand.

John McClain Holmes: In USM, demand should continue to be very strong, although tight supply will likely limit revenue growth until more aircraft are retired over the next few years.

John McClain Holmes: In repair and engineering, our airframe maintenance hangars will continue to be largely full until our expansions in Miami and Oklahoma City come online in FY26, so we expect to continue to drive greater efficiency and higher profitability out of our existing footprint in the meantime. With respect to component repair, we expect to drive additional volume and margin expansion as we integrate and realize the synergies from the product support acquisition. And, in Integrated Solutions, although new government awards during FY25 would likely not commence until FY26, our pipeline of opportunity remains full, and we continue to be well-positioned to support the DoD's interest in applying commercial best practices in support of the government fleet.

John McClain Holmes: In repair and engineering, our airframe maintenance hangars will continue to be largely full until our expansions in Miami and Oklahoma City come online in FY26, so we expect to continue to drive greater efficiency and higher profitability out of our existing footprint in the meantime.

John Holmes: With respect to component repair, we expect to drive additional volume and margin expansion as we integrate and realize the synergies from the product support acquisition. And in integrated solutions, although new government awards during FY25 would likely not commence until FY26, our pipeline of opportunity remains full and we continue to be well positioned to support the DOD's interest in applying commercial best practices and support of the government fleet.

John McClain Holmes: With respect to component repair, we expect to drive additional volume and margin expansion as we integrate and realize the synergies from the product support acquisition.

John McClain Holmes: and Integrated Solutions, although new government awards during FY25

John McClain Holmes: would likely not commence until FY26, our pipeline of opportunity remains full and we continue to be well positioned to support the DOD's interest in applying commercial best practices in support of the government fleet.

John Holmes: Looking to Q1 of FY25 specifically, we expect revenue growth of 15% to 19% and adjusted operating margin of approximately 9%.

John McClain Holmes: Looking to Q1 of FY 25, specifically, we expect revenue growth of 15 to 19% and an adjusted operating margin of approximately 9%. Last year at R-Investor Day, we outlined a strategy and a vision, and we made tremendous progress in FY24, executing on those objectives. We continue to expand our leadership position in parts supply, break ground on airframe maintenance expansions, integrate tracks, complete our largest ever acquisition, and drive higher margins through our investments in efficiency and differentiated capability. We're exceptionally well-positioned to capitalize on the strength that we are seeing in our markets, and I'm very excited about our future. With that, I'll turn it over to the operator for questions.

John McClain Holmes: Looking to Q1 of FY25 specifically, we expect revenue growth of 15 to 19 percent and adjusted operating margin of approximately 9 percent.

John Holmes: Last year at our investor day, we outlined a strategy in a vision, and we made tremendous progress in FY24 executing on those objectives. We continue to expand our leadership position in part supply, program on airframe maintenance expansions, integrated tracks, completed our largest ever acquisition, and drove higher margins through our investments in efficiency and differentiated capability. We are exceptionally well positioned to capitalize on the strength that we are seeing in our markets, and I'm very excited about our future.

John McClain Holmes: Last year at our Investor Day, we outlined a strategy and a vision, and we made tremendous progress in FY24 executing on those objectives.

John McClain Holmes: We continue to expand our leadership position in parts supply, broke ground on airframe maintenance expansions, integrated tracks, completed our largest ever acquisition, and drove higher margins through our investments in efficiency and differentiated capabilities.

John McClain Holmes: We are exceptionally well positioned to capitalize on the strength that we are seeing in our markets and I'm very excited about our future.

Operator: But that will turn it over to the operator for questions.

Operator: Thank you. Ladies and gentlemen, to ask a question, please press star 11 on your telephone and then wait to hear your name announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A list. Our first question comes from the line of Michael Ciarmoli with Troy Securities. Your line is open.

Operator: Ladies and gentlemen, to ask the question, please press start 1-1 on your telephone, and then wait to hear your name announced. To withdraw your question, please press start 1-1 again. Please stand by while we compile the Q&A roster.

Speaker Change: With that, I'll turn it over to the operator for questions.

Speaker Change: Thank you. Ladies and gentlemen, to ask a question, please press star 11 on your telephone and then wait to hear your name announced. To withdraw your question, please press star 11 again.

Michael Ciarmoli: Our first question comes from a line of Michael Ciarmoli with Truist Security. Your line is open. Hey, good evening, guys. Thanks for taking the questions. John, how are you doing? Just on that last item, you just said 9% margins. Is that just more seasonality driving that down sequentially? What are the puts and takes for the margins, different sequentially off the last quarter? Yeah, that's exactly it. It's a seasonality. Even though seasonality in the business is much less severe than it was in years past, we still do experience a bit of it as the aircraft that we're working on and component volumes are a bit less during the summer because the airlines have the aircraft flying.

Speaker Change: Please stand by while we compile the Q&A roster.

Michael Frank Ciarmoli: Hey, good evening, guys. Thanks for taking the questions.

Speaker Change: Our first question comes from the line of Michael Ciarmoli with Truist Securities. Your line is open.

John McClain Holmes: Hey, Mike. How are you? Good. How are you doing?

Michael Frank Ciarmoli: Just on that last item you just said, 9% margins. Is that just more seasonality driving that down sequentially? You know, what are the puts and takes for the margins dipping sequentially off the last quarter?

Michael Frank Ciarmoli: Hey, good evening, guys. Thanks for taking the questions.

Speaker Change: Hey, Michael. Good. How are you doing? Just on that last item you just said, 9% margins, is that just more seasonality, driving that down sequentially? You know, what are the puts and takes for the margins dipping sequentially off the last quarter?

John McClain Holmes: Yeah, that's exactly it. It's the seasonality, even though seasonality in the business is much less severe than it was in years past. We still do. We still experience a bit of it as the aircraft that we're working on and component volumes are a bit less during the summer because the airlines have the aircraft flying. Although it's a nice increase year over year. I mean, Q1 last year was 7.3%, and obviously, we're forecasting 9% this year. I got it.

Mike: Yeah, that's exactly it. It's the seasonality, even though seasonality in the business is much less severe than it was in years past.

Speaker Change: We still do experience a bit of it as the aircraft that we're working on and component volumes are a bit less during the summer because the airlines have the aircraft flying.

John Holmes: Although with the nice increase year over year, Q1 last year was 7.3%, and obviously we're forecasting 9% this year. Got it. And then just to the organic target. I don't know if I've been a long day. I'm a little bit confused, but you've got the margin expansion, but the EPS Cagor is the same. Presumably, you've got some higher interest expense in the short term. You're going to be lever. I guess I'm just trying to reconcile here these organic targets. What's my actual starting point? Because yeah, you had one quarter of triumph, but on an annualized basis, if I perform that for 24, I can come up with a $6 number at your midpoint in three years, or I can come up with take that $3.33 and come up with something lower.

Speaker Change: Although it's a nice increase year over year. I mean Q1 last year was 7.3% and obviously we're forecasting 9% this year.

Michael Frank Ciarmoli: Got it. And then just to the organic targets, I guess. I don't know if I'm, you know, it's been a long day. I'm a little bit confused. But you know, you've got the margin expansion. But the EPS CAGR is the same, presumably, you've got some higher interest expense in the short term, and you're going to delever. I guess I'm just trying to reconcile here these organic targets. What's my actual starting point because you had one quarter of triumph, but on an annualized basis, you know, if I pro forma that for 24, I can come up with a $6 number at your midpoints in three years, or I can come up with, take the $3.33, come up with something lower. So how should we interpret these targets?

Speaker Change: Got it. And then just to the organic targets, I guess, I don't know if I'm, you know, it's been a long day. I'm a little bit confused. But, you know, you've got the margin expansion.

Speaker Change: but the EPS CAGR is the same. Presumably you've got some higher interest expense in the short term. You're gonna delever. I guess I'm just, I'm trying to reconcile here these organic targets. What's my actual starting point?

Speaker Change: because you had one quarter of triumph, but on an annualized basis, you know, if I proforma that for 24, I can get

Speaker Change: I can come up with a $6 number at your midpoints in three years or I can come up with take the $3.33 and come up with something lower. So how should we interpret these targets?

John Holmes: How should we interpret these targets? I would interpret it as the whole curve that shifted up, meaning we are applying the same organic growth assumptions to a higher base that includes Triumph. We do expect, yeah. So like I could take an annualized $280 million that hits closes for 24, give or take those margins, and make my assumptions off of that base. Yes, that's right. That's right. Okay, that helps.

John McClain Holmes: You know, I would interpret it as the whole curve has shifted up, meaning we are applying the same organic growth assumptions to a higher base that includes triumph. Okay, we do expect, yeah.

Speaker Change: You know, I would interpret it as the whole curve has shifted up, meaning we are applying the same organic growth assumptions to a higher base that includes triumph.

Michael Frank Ciarmoli: So that I could take an annualized, you know, 280 million that it closes for 24 give or take at those margins and make my assumptions off of that basis. That's right. That's right. Okay. Okay, that helps. Um, and then just, uh, the last one, uh, that I had just, just any other color USM. I mean, I, I get it. Parts are tight. You know, what are you seeing out there in the marketplace?

Speaker Change: Okay, we do expect, yeah.

Speaker Change: So that like I could take an annualized you know 280 million that hits closes for 24 give or take at those margins and make my assumptions off of that base?

John Holmes: And then just last one that I had, just any other, you know, color, USM. I mean, I kind of parked for tight, you know, what do you see out there in the marketplace? I mean, it seems like this aftermarket with the Boeing and Airbus struggles, you know, continues to benefit, you know, obviously, you know, parts, you know, hard, hard to get any material out there, but any, any behavioral changes, any color you can give from airline customers or, you know, just kind of lay the land out there? Yeah, sure. We've covered that a couple of different ways.

Speaker Change: That's right

Speaker Change: That's right. Okay. Okay. That helps.

Speaker Change: and then just

Speaker Change: Last last one that I had just just any other, you know, color USM. I mean, I get it parts are tight. You know, what are you seeing out there in the marketplace? I mean, it seems like this aftermarket with with the Boeing and Airbus struggles.

Michael Frank Ciarmoli: I mean, it seems like this aftermarket, with the Boeing and Airbus struggles, you know, continues to benefit, obviously, you know, parts, um, you know, hard, hard to get any material out there, but any behavioral changes, any color you can give from airline customers or, you know, just kind of the lay of the land.

Speaker Change: Unknown Speaker You know, continues to benefit, you know, obviously, you know, parts, you know, hard, hard to get any material out there, but any any behavioral changes, any color you can give from airline customers, or, you know, just kind of lay the land out there. Transcribed by https://otter.ai

John McClain Holmes: Yeah, sure. I'm going to cover that in a couple of different ways. I mean, first of all, demand remains extremely strong for all that we do, from a maintenance perspective, from a component repair perspective, and, of course, from a parts perspective. And, you know, you're seeing great strength out of the larger carriers like United, maybe a little bit less, still very strong, but maybe a little bit less out of some of the lower cost carriers, as you might expect. But overall, for our large customers, demand is extremely strong. We started out by asking on USM.

John Holmes: I mean, first of all, demand remains extremely strong for all that we do, from a maintenance perspective, from a component repair perspective, and of course, from a parts perspective. And you know, you're seeing great strains out of, you know, the larger carriers like the United, maybe a little bit less, that's very strong, but maybe a little bit less out of some of the lower cost carriers, as you might expect. But overall, for our large customers, demand is extremely strong. With, you started out by asking on, on USM, USM, for all of those reasons, is very, very tight right now.

Speaker Change: Yeah, sure. I'm going to cover that a couple of different ways. I mean, first of all, demand remains extremely strong for all that we do from a maintenance perspective, from a component repair perspective, and of course, from a parts perspective.

Speaker Change: And, you know, you're seeing great strength out of, you know, the larger carriers like the United, maybe a little bit less, still very strong, but maybe a little bit less out of some of the lower cost carriers, as you might expect. But overall, for our large customers, demand is extremely strong.

John McClain Holmes: USM, for all of those reasons, is very, very tight right now. We started last quarter, you know, really bifurcating that into part sales, individual part sales, as well as whole asset sales. Part sales, we are, even though everything's very tight, we are executing very well and getting our hands on the highest-demand individual parts. And that drove the 38% growth that we saw in the first quarter on individual part sales. Whole assets, mainly engines, are increasingly difficult to come by.

Speaker Change: We started out by asking on USM.

John Holmes: We started last quarter, you know, really bifurcating that into parts sales, individual parts sales, as well as whole asset sales. Part sales, we are. Even though everything is very tight, we are executing very well and getting our hands on the highest demand individual parts. And that drove the 38% growth that we saw in the first quarter on individual parts sales. Whole assets, mainly engines, are increasingly difficult to come by. And we've seen that market really tighten up in the last few quarters, because those assets, the whole engines, are going on-wing as soon as they become available, meaning they're more to an operator than they are to guys like us, because of the new engine issues, ETF, et cetera.

Speaker Change: USM, for all of those reasons, is very, very tight right now.

Speaker Change: We started last quarter, you know, really bifurcating that into part sales, individual part sales, as well as whole asset sales.

Speaker Change: Part sales, we are, even though everything is very tight, we are executing very well and getting our hands on the highest demand individual parts. And that drove the 38% growth that we saw in the first quarter on individual part sales.

John McClain Holmes: And we've seen that market really tighten up in the last few quarters because those assets, those whole engines, are going on wing as soon as they become available, meaning they're worth more to an operator than they are to guys like us because of the new engine issues, ETF, et cetera. Again, we expect all of that to alleviate, but it's very difficult to predict exactly when that's going to occur.

Speaker Change: Coal assets.

Speaker Change: mainly engines.

Speaker Change: are increasingly difficult to come by and we've seen that market really tighten up in the last few quarters.

Speaker Change: because those assets, those whole engines, are going on wing as soon as they become available. Meaning they're worth more to an operator than they are to guys like us.

Michael Ciarmoli: Again, we expect all of that to alleviate, but it's very difficult to predict exactly when that's going to occur. Okay, got it. Perfect. Oh, I'll jump back in the queue. Thanks, guys. All right. Thanks, Mark.

Speaker Change: because of the new engine issues, ETF, et cetera. Again, we expect all of that to alleviate, but it's very difficult to predict exactly when that's gonna occur.

Operator: Okay, okay, I got it. Perfect. I'll jump back in the queue. All right.

Bert Subin: Please stand by for our next question. Our next question comes from the line of Bert Souven with Steffel. Elana is open. Hi, hey, good afternoon. Thank you for the questions. Bert, thank you.

Speaker Change: Okay, okay, got it. Perfect. I'll jump back in the queue. Thanks, guys.

Operator: Please stand by for our next question. Our next question comes from the line of Bert Subin with Stiefel. Your line is open.

Speaker Change: All right. Thanks, Mark.

Speaker Change: Please stand by for our next question.

Bert William Subin: Hi, hey, good afternoon. Thank you for the questions. Thank you.

Speaker Change: Our next question comes from the line of Bert Subin with Stiefel. Your line is open.

John McClain Holmes: John, maybe just to pick up on that last note on the 1Q commentary, for 15 to 19% growth, I guess that would imply something a little below, probably around 4.5% organic relative to that 5-10% longer-term target. So how do we think about growth this quarter being sort of on the lower end of that, and next quarter maybe being below it? What changes as we go through time to get you to sort of 7.5% plus?

John Holmes: John, maybe just to pick up on that last note on the one queue commentary, for 15 to 19% growth, I guess that would imply something a little below, probably around 4.5% organic relative to that 5% to 10% longer-term target. So, how do we think about growth this quarter being on the lower end of that, next quarter maybe being below it? What changes do we go through time to get you to 7.5% plus? Yeah, a few things. Again, you've got a bit of some of it, but as we integrate time support, as we continue to see supply loosening in the USM market, as we ramp up the new distribution deals that we continue to sign, all of those we expect will continue to drive increasing organic growth.

Elan: Hi, hey, good afternoon. Thank you for the questions. Thank you.

Elan: John , maybe just to pick up on that last note on the 1Q commentary, for 15-19% growth, I guess that would imply

Speaker Change: something a little below, probably around 4.5% organic relative to that 5% to 10% longer term target. So how do we think about, you know, growth this quarter being sort of on the lower end of that next quarter, maybe being below it? What changes?

John McClain Holmes: Yeah, you know, a few things. Again, you've got a bit of seasonality in this quarter, so that's driving some of it. But, you know, as we integrate Triumph support, as we, you know, continue to see supply loosen in the USM market, as we ramp up the new distribution deals that we continue to sign, all of those we expect will continue to drive increasing organic growth.

Speaker Change: So we go through time to get you to sort of seven and a half percent plus.

Speaker Change: Yeah, you know, a few things. Again, you've got a bit of seasonality in this quarter, so that's driving some of it, but, you know, as we integrate Triumph support, as we, you know, continue to see supply loosening in the USM market, as we ramp up the new distribution deals that we continue to sign, all of those we expect will continue to drive increasing organic growth.

John Holmes: Okay, and maybe I guess just to follow on on the distribution side, growth there's been really good. I want to say last quarter was 27% of this quarter; it is 16%. You've got the Triumph deal, but I don't believe that's going to start for another several quarters. So, in the meantime, we would just sort of expect double-digit growth in distribution. Like what's the, is there a runway to keep growing that double digit for a period of time? Yes, yes. And we see that continuing through this last four years. Got it. And then again, that's layering on some of the new deals that you just mentioned, but it's also, you know, if you think about it in terms of things, door sales, contracts that we've had in place for years, because of the overall strong demand out there, we continue to see healthy growth out of our mature agreements as well.

Bert William Subin: Okay, and maybe I guess just to follow on the distribution side. Growth has been really good. I want to say last quarter was 27%. This quarter was 16%. You've got the Triumph deal, but I don't believe that's going to start for another several quarters. So in the meantime, just sort of expect double-digit growth and distribution. Like, what's the runway to keep growing that double-digit for a period of time?

Speaker Change: Okay and maybe I guess with the follow-on on the distribution side

Speaker Change: Growth there has been really good. I want to say last quarter was 27%, this quarter is 16%.

Speaker Change: You've got the Triumph deal, but I don't believe that's going to start for another several quarters. So in the meantime, just sort of expect double-digit growth in distribution. Is there runway to keep growing that double-digit for a period of time?

John McClain Holmes: Yes, yes, and we see that continuing throughout this discussion.

John McClain Holmes: Got it. And then again, that's layering on some of the new deals that you just mentioned. But it's also, you know, if you think about it in terms of same-store sales contracts that we've had in place for years because of the overall strong demand out there, we continue to see healthy growth out of our mature agreements as well. Okay, and that's, I mean, you're mainly focused on the commercial side; you mentioned potentially going into BG&A. And obviously, you have a government business here; is there a way to break down sort of where the growth and distribution are?

Speaker Change: Yes, yes, and we see that continuing through this fiscal year.

Speaker Change: And again, that's layering on some of the new deals that you just mentioned, but it's also, if you think about it in terms of same-store sales, contracts that we've had in place for years because of the overall strong demand out there, we continue to see healthy growth out of our mature agreements as well.

John Holmes: Okay. And that's, I mean, mainly that's mainly on the commercial side.

John Holmes: You mentioned potentially going into BGNA, and obviously you have a government business here. Is there a way to break down sort of where the growth in distribution is in? Yeah. Great. Great question. We did see a nice return to growth in government distribution this quarter. That had been on a decline for several quarters, and we did see an inflection point in the last couple of quarters in terms of bookings, and now that's translated into sales. So we would expect growth out of government distribution to continue through FY25 based on the backlog that we have. The focus on BGNA as well as electronics; those are relatively new efforts for us were encouraged by some of the early wins that we had on distribution product lines.

Speaker Change: Okay and that's I mean you're mainly that's mainly on the commercial side you mentioned potentially going into BG&A and obviously you have a government business here is there a way to break down sort of where the growth and distribution's in?

John McClain Holmes: Yeah, a great question. We did see a nice return to growth in government distribution this quarter. That had been on a decline for several quarters, and we did see an inflection point in the last couple of quarters in terms of bookings, and now that's translating into sales. We're encouraged by some of the early wins that we've had on distribution product lines, and as we build out the sales force and build out our presence in the market, we would expect those to be contributors, but I would view that as a more significant kind of growth in 26 and beyond, and the growth in 25 will be more commercial and a return to growth in government.

Speaker Change: Yeah, great question. We did see a nice return to growth in government distribution this quarter.

Speaker Change: That have been on a decline for several quarters.

Speaker Change: And we did see an inflection point in the last couple of quarters in terms of bookings, and now that's translated into sales.

Speaker Change: So we would expect growth out of government distribution to continue through FY25 based on the backlog that we have.

Speaker Change: The focus on BG&A as well as electronics.

Speaker Change: Those are relatively new efforts for us. We're encouraged by some of the early wins that we've had on distribution product lines.

John Holmes: And as we build out the sales force and build out their presence in the market, we would expect those to be contributors, but I would view that as more significant kind of 26 and beyond, and the growth in 25 will be more commercial and a return to growth in government. Got it. Okay.

Speaker Change: And as we build out the sales force and build out in our presence in the market, we would expect those to be contributors. But I would view that as more significant kind of 26 and beyond, and the growth in 25 will be more commercial and a return to growth in government.

Bert William Subin: Got it. Okay. And then just last one for me for you, Sean.

Sean Gillen: And then just last one for me, for you Sean, you know, pretty encouraging to see that the net leverage took down at the pace it did. You know, I think you've talked about getting down sort of closer to two times over the next two years. Is that still the target and what should we expect from future deleveraging? Yeah, that's right. You know, target there is to get to that long-term range to be one to two times on the back of the acquisition.

Sean M. Gillen: You know, pretty encouraging to see that the net leverage took down at the pace it did. You know, I think you've talked about getting down sort of closer to two times over the next two years. Is that still the target? And what should we expect from future deleverage?

Sean M. Gillen: Got it. Okay. And then just last one for me, for you, Sean. You know, pretty encouraging to see that the net leverage took down at the pace it did. You know, I think you've talked about getting down sort of closer to two times over the next two years. Is that still the target? And what should we expect from future deleveraging?

Sean M. Gillen: Yeah, that's right. You know, Target, to get to that, we've had that long-term range to be one to two times on the back of the acquisition, focused on getting to that, you know, two times net leverage. And as you mentioned, as I've talked before, kind of that two-year timeframe, an appropriate timeline to get there. But we're very pleased with the first quarter being able to take leverage down by 0.3 turns right off the bat. Great

Sean M. Gillen: Yeah, that's right. You know, target to get to that, you know, we've had that long term range to be one to two times on the back of the acquisition focused on getting to that, you know, two times net leverage. And as you mentioned, as I've talked before, kind of that two year timeframe, appropriate timeline to get there, but very pleased with the first quarter being able to take leverage down by 0.3 turns right off the bat.

Sean Gillen: Folks on getting to that, you know, two times net leverage, and as you mentioned, as I've talked before, kind of that two-year timeframe appropriate timeline to get there, but very pleased with the first quarter being able to take leverage down by a point three turn to write off the bat. Great.

Bert William Subin: Great. Thanks. Thanks so much.

Sean Gillen: Thanks so much. Thank you.

Scott Micahs: Please say bye for our next question. Our next question comes from the line of Scott Micahs with Melius Research. Yelana's open. Good evening. Hey, Scott. John. Hey, John, John.

Operator: Please stand by for our next question. Our next question comes from Alana Scott Micahs with Melius Research. Your line is open.

Speaker Change: Great, thanks so much.

Speaker Change: Thank you.

Speaker Change: Please stand by for our next question.

Speaker Change: Our next question comes from Elanis Scott-Micahs with Melius Research. Your line is open.

Alana Scott Micahs: Hey, Scott. John. Hey, John, Sean.

John Holmes: I wanted to ask on margins at part supply; there was strong in the quarter at 13.5 percent, and slides mentioned favorable mix and distribution, so I'm just wondering, hey, should we be using that as a jumping off point for FY 25, or is there a more normalized margin that we should be using? Singh. Yeah, you know, it had a mixed benefit, and part of that mixed benefit was on the distribution side, as the government sales improved. You know, the margin associated with those tends to be a little bit higher than the commercial side. And then, as we get incremental sales volume of some of these new product lines ramped off, but somewhere in that difficult, the right starting point.

Alana Scott-Micahs: Good evening.

Alana Scott-Micahs: Hey, Scott. John . Hey, John , Sean. I wanted to ask on margins of parts supply. They were strong in the quarter, 13.5%, and the slides mentioned favorable mix and distribution.

Elanis Scott-Micahs: So I'm just wondering, should we be using that as a jumping off point for FY25 or is there a more normalized margin that we should be using?

John McClain Holmes: I wanted to ask about margins for parts supply. They were strong in the quarter, 13.5%, and slides mentioned favorable mix and distribution. So I'm just wondering, should we be using that as a jumping off point for FY25, or is there a more normalized margin that we should be using?

Sean M. Gillen: Yeah, you know, it had a mixed benefit. And part of that mixed benefit was on the distribution side; as government sales improved, you know, the margin associated with those tends to be a little bit higher than the commercial side. So that was part of it.

Speaker Change: Yeah, you know, it had a mixed benefit. And part of that mixed benefit was on the distribution side as the government sales improved, you know, the margin associated with those tend to be a little bit higher than the commercial side. So that was part of it. So I think that, you know, 13 and a half percent is a bit higher than the past few quarters, which were more in that kind of high 12%. So I think somewhere right in that zip code is a good jumping off point. And we'll look to continue to drive, you know, margin as we as we get incremental sales volume and some of these new product lines ramped up, but somewhere in that zip code is the right starting point.

Sean M. Gillen: So I think that, you know, 13 and a half percent is a bit higher than the past few quarters, which were more in that kind of high 12%. So I think somewhere right in that zip code is a good jumping off point. And we look to continue to drive, you know, margin as we get incremental sales volume and some of these new product lines ramped up, but somewhere in that zip code, the right starting point

Alana Scott Micahs: Okay, and then recently we've seen airlines talking about overcapacity, especially in the U.S. domestic market, so I'm just wondering are you seeing any sort of slowdown, whether it be in bookings for your hangers from more U.S. domestic focus carriers or low-cost carriers, and then are they also ordering fewer parts as well?

John Holmes: Okay, and then recently we've seen airlines talking about overcapacity, especially in the US domestic market. So I'm just wondering, are you seeing any sort of slowdown, whether it be in bookings for your hangers from more US domestic focus carriers or low-cost carriers. And then are they also ordering less parts as well? Yeah, so we have seen a bit of a shift. We're seeing continue to see exceptionally strong demand out of the larger carriers, the United, the Delta, etc. Those are some of our largest customers. We've seen a little bit of pullback from the lower cost carriers like Southwest, but the larger carriers have been very quick to fill up any demand softest we're seeing out of those guys.

Speaker Change: Okay, and then recently we've seen airlines talking about overcapacity, especially in the U.S. domestic market.

Speaker Change: So I'm just wondering, are you seeing any sort of slowdown, whether it be in bookings for your hangers from more U.S. domestic-focused carriers or low-cost carriers, and then are they also ordering less parts as well?

John McClain Holmes: Yeah. So, we have seen a bit of a shift. We continue to see exceptionally strong demand out of the larger carriers, the United, the Deltas, et cetera, and those are some of our largest customers. We've seen a little bit of, you know, kind of pullback from the lower cost carriers like Southwest, but the larger carriers have been very quick to fill up any demand softness we're seeing out of those guys.

Speaker Change: Yeah, so we have seen a bit of a shift. We're seeing, continue to see exceptionally strong demand out of the larger carriers, the United, the Deltas, etc. And those are some of our largest customers.

Speaker Change: you know kind of pull back from the lower cost areas like the Southwest.

Speaker Change: But the larger carriers have been very quick to fill up any demand softness we're seeing out of those guys. So overall, the environment remains very healthy. And again, given the visibility we have in the hangars for the rest of the fiscal year, we expect to be...

John Holmes: So overall, the environment remains very healthy. And again, given the ability we have in the hangers through the rest of the fiscal year, we expect to be full. From a parts perspective, it's still very strong across the board, which again is leading to that considering supply. If we do see softening, did you see aircraft come out of service and go to retirement? That would be a very positive thing for us because we would get our hands on assets that we need to fill with demand. Yeah, I'll stop there. Thank you. Great. Thank you.

John McClain Holmes: So, overall, the environment remains very healthy, and again, given the visibility we have in the hangars for the rest of this fiscal year, we expect to be full. From a parts perspective, it's still very strong across the board, which again is leading to that constrained supply. If we do see softening, and you do see aircraft, you know, come out of service and go to retirement, that would be a significant issue.

Speaker Change: before.

Speaker Change: From a parts perspective, it's still very strong across the board, which again is leading to that constrained supply. If we do see softening and you do see aircraft come out of service and go to retirement, that would be a very positive thing for us because we would get our hands on assets that we need to fill the demand.

Alana Scott Micahs: Yeah, I'll stop there. Thank you. Great.

Louis D. Palmer: Please stand by for our next question. Our next question comes from the line of Louis D. Palmer with William Blair. Your line is open. John, Sean, and Dylan. Good afternoon. Avery, how you doing? Great. You announced the distribution expansion with auto engineering related to that. How large is your APAC business? And do you have opportunities to add APAC distribution to many of your other OEM partners?

Operator: Please stand by for our next question. Our next question comes from the line of Lloyd DiPalma with William Blair. Your line is open.

Speaker Change: Okay, I'll stop there. Thank you.

Speaker Change: Great, thank you.

Speaker Change: Will you stand by for our next question?

Michael Louie D DiPalma: John, Sean, and Dylan. Good afternoon. Hey, Lurie, how are you doing? Great. Um, related to that, how large is your APAC business? And do you have opportunities to add, um, APAC distribution to many of your other OEM partners?

Speaker Change: Our next question comes from the line of Lloyd DiPalma with William Blair. Your line is open.

Michael Louie D DiPalma: John , Sean, and Dylan, good afternoon.

John McClain Holmes: Yes. In terms of APAC distribution specifically, I don't have it in front of me right now.

Michael Louie D DiPalma: Hey, Lurie. How you doing?

Michael Louie D DiPalma: Great. You announced the distribution expansion with auto engineering. Related to that, how large is your APAC business and do you have opportunities to add APAC distribution to many of your other OEM partners?

John Holmes: Yes, I, in terms of APAC distribution specifically, I don't have that primary right now. We can get to that answer, but it is a large and growing market for us. You know, in the same vein. We also announced an expansion of our agreement with Sumitomo. They've been a great joint venture partner in Japan, and we expect continued growth in that market in particular. Having the physical presence with the Triumph facility in Thailand is also going to help. It's synergistic with the distribution business in that a number of OEM partners that we speak to want to have repair capability in region for the parts that we're distributing.

John McClain Holmes: We can get to that answer, but it is a large and growing market for us. In the same vein, we also announced an extension of our agreement with Sumitomo. They've been a great joint venture partner in Japan, and we expect continued growth in that market, in particular. Having the physical presence with the Triumph facility in Thailand is also going to help. It's synergistic with the distribution business in that a number of OEM partners that we speak to want to have repair capability in-region for the parts that we're distributing. So, those things go together. It's still early, of course, but we are having some encouraging dialogue about potential further Asian expansion as a result of having that Triumph facility.

Speaker Change: Yes, I

Speaker Change: In terms of APAC distribution specifically, I don't have it in front of me right now, we can get to that answer, but it is a large and growing market for us. You know, in the same vein, we also announced an expansion of our agreement with Sumitomo. They've been a great joint venture partner in Japan, and we expect continued growth in that market in particular.

Speaker Change: Having the physical presence with the TRIUMF facility in Thailand is also going to help. It's synergistic with the distribution business in that a number of OEM partners that we speak to want to have repair capability.

John Holmes: So those things go together. It's still early, of course, but we are having some encouraging dialogue about the potential for their Asian expansion as a result of having that Triumph facility over there now.

Speaker Change: in region for the parts that we're distributing. So those things go together. It's still early, of course, but we are having some encouraging dialogue about potential further Asian expansion as a result of having that Triumph facility over there now.

Michael Louie D DiPalma: Great, thanks John. And for Sean, should the operating margin in the second half of the year be higher than... The first half, and will the exit rate, you know, when taking into account some, you know, initial synergies approach that 10% threshold?

Sean Gillen: Great. Thanks, John. And first, Sean, should the operating margin in the second half of the year be higher than the first half? And will the exit rate, you know, when taking into account some, you know, initial synergies approach that 10% threshold? Yeah, so one, the operating margin, as we move through this year, we expect will increase, which is similar to the past year as well. But with this year, what the benefit will start seeing some of the synergies as we move through the fiscal year. And our goal is, you know, you've got to revise medium, you know, targets in terms of operating margin, but as we think about this year by the end of it, getting towards a 10% is the target.

Speaker Change: Great. Thanks, John . And first, Sean, should the operating margin in the second half of the year be higher than

Sean M. Gillen: The first half, and will the exit rate, you know, when taking into account some, you know, initial synergies, approach that 10% threshold?

Sean M. Gillen: Yeah, so one, the operating margin, as we move through this year, we expect it to increase, which is similar to the past year as well. But with this year, we'll have the benefit of starting to see some of the synergies as we move through the fiscal year. And our goal is, you know, you got the revised medium targets in terms of operating margin, but just think about this year, by the end of it, getting towards that 10% is the target.

Sean M. Gillen: Yeah, so one, the operating margin as we move through this year, we expect will increase, which is similar to this past year as well. But with this year, we'll have the benefit, we'll start seeing some of the synergies as we move through the fiscal year. And our goal is, you know, we got the revised medium, you know, targets in terms of operating margin. But as we think about this year, by the end of it, getting towards that 10% is the target.

Sean Gillen: Great.

Michael Louie D DiPalma: Great. And one last one on government distribution. The return to growth, is that sustainable in this fiscal year? Or should we expect that to be lumpy?

Sean Gillen: And one last one on the government distribution improved; should the return to growth, is that sustainable in this fiscal year, or should we expect that to be lumpy? You know, I would break that down into two parts. One, you've got the government; the overall growth in government is coming from two different areas. One, as you just mentioned, the sales of new parts to the government, we would expect back growth rates to be consistent throughout the year based on the backlog that we have right now. The other part of the growth that we saw during this quarter came from the increased operational tempo out of two larger programs, most notably the program we have in the State Department, the last contract.

Speaker Change: Great, and one last one. The government distribution improved. Should the return to growth, is that sustainable in this fiscal year, or should we expect that to be lumpy?

John McClain Holmes: Um, you know, I would break that down into two parts. Um, one, you've got the government. You know, the overall growth in government is coming from two different areas. One, uh, as you just mentioned, the sales of new parts to the government. We would expect that growth rate to be consistent, uh, throughout the year, based on, uh, the backlog that we have right now. The other part of the growth that we, uh, saw during this quarter came from the increased operational tempo of two larger programs, most noticeably, most notably the program we have with the State Department, the loss contract.

Speaker Change: Thank you.

Speaker Change: You know, I would break that down into two parts. One, you've got the government, you know, the overall growth in government is coming from two different areas. One, as you just mentioned, the sales of new parts to the government. We would expect that growth rate to be consistent throughout the year based on the backlog that we have right now. The other part of the growth that we saw during this quarter came for the increased operational tempo out of two larger programs, most notably the program we have with the State Department, the WAF contract.

John McClain Holmes: Um, that's a little more difficult to predict because, um, uh, you know, again, we are moving at the pace of the, uh, government, and we often don't know the missions that we're flying for the government until they are actually flown. So, um, you know, we feel good about the growth rate of new parts distribution sales to the government. And, uh, you know, we're hopeful that the, uh, operational tempo increase that we saw in the 4th quarter will continue throughout this fiscal year on the program side.

Sean Gillen: That's a little more difficult to predict because, you know, again, we are moving at the pace of the government, and we often don't know the missions that we're flying for the government until they actually are flown. So, you know, we feel good about the growth rate out of new parts distribution sales to the government. And, you know, we're hopeful that the operational tempo increase that we saw in the fourth quarter will continue throughout this fiscal year on the program side. Sounds good. Thanks, John, Sean, and Dylan. Absolutely.

Speaker Change: That's a little more difficult to predict because, you know, again, we are moving at the pace of the government, and we often don't know the missions that we're flying for the government until they actually are flown.

Speaker Change: So, you know, we feel good about the growth rate out of new parts distribution sales to the government. And, you know, we're hopeful that the operational tempo increase that we saw in the fourth quarter will continue throughout this fiscal year on the program side.

Michael Louie D DiPalma: Sounds good. Thanks, John, Sean, and Dylan.

Ken Herbert: Please stand by for our next question. Our next question comes from a line of Ken Herbert with RBC. Your line is open. Hey, Ken. Yeah, good afternoon. Hey, John. How are you? Great. How you doing? Good.

Operator: Please stand by for our next question. Our next question comes from the line of Ken Herbert with RBC. Your line is open.

Speaker Change: Sounds good. Thanks, John , Sean, and Dylan.

Floyd: Thanks, Floyd.

Speaker Change: Please stand by for our next question.

Kenneth George Herbert: Hey Ken, how are you? Great, how are you doing? Good. Can you just break out, within part, supply distribution in particular, what was the growth of commercial versus government, if you can provide that in the quarter? Let's see if we have that.

Speaker Change: Our next question comes from the line of Ken Herbert with RBC. Your line is open.

John McClain Holmes: Have that handy. We may need to get back to you on that specific detail.

Kenneth George Herbert: Again, yeah, good after you. Hey, John , how are you?

Ken Herbert: Can you just break out within part supply distribution in particular? What was the growth of commercial versus government if you can provide that in the quarter? Let's see if we have that handy. We may need to get back to you on that specific detail. They were both great. Okay. Yeah, we'll follow up on that.

John McClain Holmes: Great, how you doing?

Kenneth George Herbert: Good. Can you just break out, within parts supply distribution in particular, what was the growth of commercial versus government, if you can provide that in a quarter?

Speaker Change: Let's see if we have that handy.

John McClain Holmes: They were both great. Okay. Yeah.

Speaker Change: We may need to get back to you on that specific detail.

Kenneth George Herbert: Yeah, we'll follow up on that. But I guess, have you seen any incremental pushback on pricing from customers, specifically on the commercial side as it relates to some of your distribution?

Speaker Change: They were both great.

John Holmes: But I guess have you seen any incremental pushback on pricing from customers, specifically on the commercial side, as it relates to some of your distribution agreements? We have not. And, you know, as you're well aware, we, you know, we obviously buy to the extent that there's OEM price increases. We pass that along. Certainly, there are reactions to a certain of those price increases, depending on the severity. But it is not impact at the order flow. on the distribution growth.

Speaker Change: Yeah, we'll follow up on that. But I guess, have you seen any incremental pushback on pricing from customers specifically on the commercial side as it relates to some of your distribution agreements?

John McClain Holmes: We have not. We have not. And, you know, as you're well aware, we obviously buy to the extent that there are OEM price increases; we pass that along. Certainly, there are reactions to certain of those price increases depending on the severity, but that has not, it has not impacted the order flow. Okay. Great. And then on... just on the distribution growth. Commercial was kind of, you know, low, low teens growth, and government actually had a real nice bounce back and was, you know, closer to 20% year over year growth.

Speaker Change: We have not. We have not. And, you know, as you're well aware, we

Speaker Change: You know, we obviously buy to the extent that there's OEM price increases, we pass that along. Certainly there are reactions to certain of those price increases depending on the severity, but that has not, it has not impacted the order flow.

Ken Herbert: You know, commercial was kind of, you know, low, low teeth growth, and government actually had a real nice bounce back, and it was, you know, closer to 20% year over year growth. Okay, yeah, I mean, it looks like the commercial growth was sequentially lower in the fourth quarter than the third quarter. I remember you called that out as part of the third quarter results.

Speaker Change: And then, great and this.

Kenneth George Herbert: Okay, yeah, I mean, the commercial growth was sequentially lower in the fourth quarter than in the third quarter. I remember you called that out as part of the third quarter results. Was there anything in particular for that slower growth, maybe tougher comps on the commercial side, or anything in particular we should keep in mind?

Speaker Change: Okay, I mean, it looks like the commercial growth was sequentially lower in the fourth quarter than the third quarter. I remember you called that out as part of the third quarter results. Was there anything in particular for that slower growth, maybe tougher comps on the commercial side or anything in particular we should keep in mind?

Ken Herbert: Was there anything in particular for that slower growth, maybe tougher comps on the commercial side or anything of a cheaper way we should keep in mind? No, I wouldn't point to anything in particular. I mean, you do see, as it flows in order volume, that largely depends on when we receive material from the ROAN partners. You know, the supply change are still quite dynamic right now. But, you know, I wouldn't point to anything; I wouldn't point to anything in particular. Okay, great.

John McClain Holmes: No, I wouldn't point to anything in particular. I mean, you do see ebbs and flows and order volume, and that largely depends on when we receive material from the ROEM partners. As you know, the supply chains are still quite dynamic right now, but, you know, I wouldn't point to anything in particular.

Speaker Change: No, I wouldn't point to anything in particular. I mean, you do, you do see ebbs and flows and order volume, and that largely depends on when we receive material from the ROEM partners. You know, the supply chains are still quite dynamic right now. But, you know, I wouldn't point to anything, wouldn't point to anything in particular.

Kenneth George Herbert: Okay, great. And within integrated solutions, was there anything one time in the quarter that that happened? I mean, it sounds like there were maybe some issues with the State Department contract that negatively impacted margins there. Is that a one-quarter event? Or how should we think about sort of the jumping off point for margins in that business into fiscal 25?

Ken Herbert: And within integrated solutions, was there anything one time in the quarter that, I mean, it sounds like there was maybe some issues with the State Department contract and negatively impacted margins there? Does that, is that a one quarter event, or how should we think about sort of the jumping off point for margins in that business in Dec. 25? Yeah, there were no significant, you know, one-time items as it relates to margin in the quarter in Integrated Solutions. You know, the mix within government was, you know, some of the sales mix was towards some of the swamie lower margin programs, but there wasn't anything kind of one time associated with that.

Sean M. Gillen: Yeah, there were no significant, you know, one-time items as it relates to margin in the quarter and integrated solutions. The mix within government was, you know, some of the sales mix was towards some of the slightly lower margin programs, but there wasn't anything kind of one-time associated with that.

Speaker Change: Yeah, there were no significant, you know, one-time items as it relates to margin in the corridor and integrated solutions. You know, the mix within government was, you know, some of the sales mix was towards some of the slightly lower margin programs, but there wasn't anything kind of one-time associated with that.

Sean Gillen: So, low single digits, maybe the right way to think about segment margins for that business? Well, I think in the near term, yes, but that's trash ramps. That'll be a creative for the margin. So those are things we move into this fiscal year. You know, that'll be a creative for the margin portfolio. And then in the program's piece, kind of that zip code that you mentioned is about the right place for, for, for large expectations. Okay, perfect.

Kenneth George Herbert: So low single digits may be the right way to think about segment margins for that business.

Speaker Change: So, low single digits may be the right way to think about segment margins for that business.

Sean M. Gillen: Well, I think in the near term, yes, but as the track ramps up, that'll be accretive to the margins. And so as we think we're moving through this fiscal year, you know, that'll be accretive to the margin portfolio. And then on the programs piece, kind of that zip code that you mentioned is about the right place for margin expectations.

Speaker Change: Well, I think in the near term, yes, but that's tracks, ramps, that'll be accretive to the margins. And those are things we're moving through this fiscal year, you know, that'll be accretive to the margin portfolio. And then in the programs piece, kind of that zip code that you mentioned is about the right place for margin expectations.

Kenneth George Herbert: Perfect. I'll stop there. Thanks, Sean. I'll pass it back.

Sean Gillen: I'll stop there. Thanks. Thanks, Sean, to pass it back. Great. Thanks, Kevin.

Speaker Change: Okay, perfect. I'll stop there. Thanks. Thanks, Sean. I'll pass it back.

Operator: Thank you. Ladies and gentlemen, I'm showing no further questions than the queue.

Operator: Ladies and gentlemen, I'm showing no further questions in the queue. I would now like to turn the call back over to management for closing remarks.

John McClain Holmes: Great, thanks. Thank you.

John Holmes: I would now like to turn the call back over to management for closing remarks. Great. Well, thank you very much, everybody, for your time and attention. Again, we're extremely proud of the results. We're excited about FY 25.

Speaker Change: Ladies and gentlemen, I'm showing no further questions in the queue. I would now like to turn the call back over to management for closing remarks.

John McClain Holmes: Great. Well, thank you, everybody, for your time and attention. Again, we're extremely proud of the results. We're excited about FY25, and we look forward to speaking with you again in September.

Operator: And we look forward to speaking with you again in September. Thank you.

Speaker Change: Great. Well, thank you, everybody, for your time and attention. Again, we're extremely proud of the results. We're excited about FY25, and we look forward to speaking with you again in September .

Operator: Thank you. Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.

Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect. Thank you.

Speaker Change: Thank you. Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.