Q1 2025 AAR Corp Earnings Call

Okay.

Operator: Good afternoon, everyone, and welcome to AAR's fiscal 2025 first quarter erase hall.

Speaker Change: Good afternoon, everyone and welcome to your fiscal 2025 in the first quarter earnings call.

Operator: We're joined today by John Holmes, chairman, president and chief representative officer, and Sean Gillen, chief financial officer.

Speaker Change: Today by John Holmes, Chairman, President and Chief Executive Officer, and Sean Gillen, Chief Financial Officer 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.

Operator: Before we begin, I'd like to remind you that the comments may, 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 uncertainty; they could cause actual results to differ materially from the forward looking statements. Accordingly, these statements are no guarantee of future performance.

Speaker Change: Forward looking statements involve risks and uncertainties that could cause actual results to differ materially from the forward looking statements. Accordingly. These statements are no guarantee of future performance.

Operator: These risks and uncertainties are discussed in the company's earnings release and the risk factor section of the company's Annual Report on Form 10-K for the fiscal year ended at May 31, 2024. In providing the forward-looking statement, the company assumes no obligation to provide updates to reflect future circumstances or anticipated or unanticipated events.

Speaker Change: And uncertainties are discussed in the company's earnings release, and the risk factors section of the company's annual report on Form 10-K for the fiscal year ended May 31 2024.

Speaker Change: In providing 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 on 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: 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 repayment conference call will be available for on-demand listening shortly after the completion of the call on AAR's website.

Speaker Change: This conference call will be available for on demand listening shortly after the completion of the call on <unk> website.

John Holmes: At this time, I would like to turn the call over to AAR's Chairman, President and CEO John Holmes. Great. Thank you. And thank you to everyone for joining us this afternoon to discuss our most recent quarter's results. We are very proud of the performance we delivered during our first quarter of fiscal 2025. This was a very solid start of the year, and I'm grateful to our team for continuing to deliver. AAR advanced strategic initiatives and continued to execute well across the company. We are benefiting from structural tailwinds, elevated levels of air travel, and an aging fleet, which drives demand for our aftermarket services.

Speaker Change: At this time I would like to turn the call over to <unk>, Chairman, President and CEO John Holmes.

John Holmes: Great. Thank you and thank you to everyone for joining us this afternoon to discuss our most recent quarter's results.

Speaker Change: We are very proud of the performance we delivered during our first quarter of fiscal 2025, which was a very solid start to the year and I am grateful to our team for continuing to deliver.

Speaker Change: Our advanced strategic initiatives and continued to execute well across the company.

Speaker Change: We're benefiting from structural tailwind elevated levels of air travel and an aging fleet, which drive demand for our aftermarket services.

John Holmes: Our company is more focused than ever within our three main operating 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. You saw that this quarter, and we expect a benefit from these investments to continue throughout our fiscal 2025.

Our company is more focused than ever within our three main operating segments parts supply preparing engineering and integrated solutions, we are making investments in each of these three segments to drive growth improve our efficiency and deliver higher margins.

Speaker Change: You saw that this quarter and we expect to benefit from these investments to continue throughout our fiscal 2025.

John Holmes: With that, I will turn to our first quarter results. We delivered quarterly sales of $662 million, up 20% year over year, driven by growth in each of our segments. Additionally, we had growth in both our commercial and government businesses, with each growing at 20%. Our distribution and hanger activities have particularly strong performance, and our recent acquisition of tracks and products with poor will also meaningful contributors this quarter. Regarding profitability, I am pleased that once again we demonstrated significant operating margin expansion. Our adjusted operating margins increased by 180 basis points year over year from 7.3% to 9.1%.

Speaker Change: With that I will turn to our first quarter results.

Speaker Change: We delivered quarterly sales of $662 million up 20% year over year driven by growth in each of our segments.

Speaker Change: Finally, we had growth in both our commercial and government businesses with each growing at 20%.

Speaker Change: Our distribution and hangar activities had particularly strong performance and our recent acquisition to track the product support.

Speaker Change: So meaningful contributors this quarter.

Regarding profitability I am pleased that once again, we demonstrated significant operating margin expansion. Our adjusted operating margin increased by 180 basis points year over year and seven 3% to nine 1%. This was the result of the continued organic margin expansion as well as contribution from the tracks and <unk>.

John Holmes: This was the result of the continued organic margin expansion as well as contribution from the tracks and product support acquisitions.

John Holmes: I am now going to go into these results in a little more detail for each of our three main segments. 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 used serviceable material or USM. Distribution represents nearly 60% of parts supply and 22% of consolidated sales. USM represents approximately 40% of parts supply in 15% of consolidated. in sales. In New Park's distribution, sales grew 26% organically, driven by continued market share gains. We benefited from both continued commercial demand strength and recovery in our government lines, where the largest independent distributor of OEM parts in our independent status is the key strategic advantage, which eliminates conflicts and allows our OEM partners to serve all aircraft types.

Speaker Change: Support acquisitions.

I'm now going to go into these results in a little more detail for each of our three main segments.

Speaker Change: Parts supply is our largest and most profitable segment and where we have very significant opportunity for organic growth.

Speaker Change: This segment contains two activities, new parts distribution and used serviceable material or use them.

Speaker Change: Distribution represents nearly 60% of parts supply to 22% of consolidated sales USF represents approximately 40% of part supply 15% of consolidated sales.

Speaker Change: A new parts distribution.

Speaker Change: <unk> grew 26% organically driven by continued market share gains we benefited from both continued commercial demand strength and recovery our government volumes, we're the largest independent distributor of OEM parts and our independent status as a key strategic advantage, which eliminates conflicts and allows our.

Speaker Change: Our OEM partners to serve all aircraft types. This.

John Holmes: This is the key driver behind our consistent market share gains, and we believe we have a long run one way ahead of us as we have a strong pipeline of opportunities. For the USM activity within parts supply, we saw a decline in year-over-year sales driven entirely by the lack of whole assets, predominantly engine, available in the market. The decrease in whole assets sales is the result of the current dynamics in the aviation aftermarket. The continued delay of new aircraft deliveries, ongoing challenges with new engine platforms, have resulted in a greater use of the existing fleet, which has resulted in lower retirements.

Speaker Change: This was a key driver behind our consistent market share gains and we believe we have a long run one way ahead of us as we have a strong pipeline of opportunities.

Speaker Change: <unk> activity within parts supply, we saw a decline in year over year sales driven entirely by the lack of whole assets predominantly engine available in the market the.

The decrease in whole assets sale as a result of the current dynamics in the aviation aftermarket.

Speaker Change: <unk> delay of new aircraft deliveries ongoing challenges with new engine platforms and resulted in a greater use of the existing fleet, which has resulted in lower retirements.

John Holmes: Overall, this is good for AR and USM. Specifically, it means that there's less supply available. We do anticipate more aircraft retirements over time, which will increase the supply of USM to service that demand.

Speaker Change: Overall this is good.

In U S and specifically it means that there's less supply available we do anticipate more aircraft retirements over time, which will increase the supply of USF to service that demand.

John Holmes: Turning to repair and engineering, sales growth was 58% in the quarter. Excluding the product support acquisition, sales growth was 6% as we continue to seek strong underlying demand for our MRO services. Even though our hangers are largely at capacity, we continue to grow inside of our existing footprint with both increased efficiency and improved throughput. That said, our hanger capacity expansions in Miami and Oklahoma City remain on track for operation, beginning in the second half of calendar 2025. As a reminder, these expansions will add approximately $60 million of annual sales. Regarding the Triumph Product Support Acquisition, the business has exceeded our initial expectations in the first two quarters, and we are in the early stages of unlocking significant additional value.

Speaker Change: Turning to repair and engineering sales growth was 58% in the quarter, excluding the product support acquisition sales growth was 6% as we continued to see strong underlying demand for our MRO services.

Speaker Change: Even though our hangers or largely a capacity we continue to grow inside of our existing footprint with both increased efficiency and improved throughput.

Speaker Change: That said our hangar capacity expansion at the Miami in Oklahoma City remains on track for operation beginning in the second half of calendar 2025. As a reminder, these expansions will add approximately $60 million of annual sales.

Speaker Change: Regarding the triad product support acquisition the business has exceeded our initial expectations in the first two quarters and we are in the early stages of unlocking significant additional value.

John Holmes: In terms of cost energy, we are on track to achieve the previously announced target of $10 million, and are confident we will exceed this number once we complete the consolidation of our existing log island facility into the facilities in Grand Parade, Texas and Wellington, Kansas. Additionally, we continue to make progress on in-sourcing repair work in support of our commercial programs and USM activities.

Speaker Change: In terms of cost synergy we are on track to achieve the previously announced target of $10 million and are confident we will exceed this number once that complete consolidation of our once we complete the consolidation of our existing long island facility into the facilities in Grand Prairie, Texas.

Speaker Change: In Kansas.

Speaker Change: Additionally, we continue to make progress on in sourcing repair work in support of our commercial programs and USA and activities.

John Holmes: Turning to integrated solutions, in the quarter, we drove growth across both our commercial and government offerings, which resulted in total sales growth of 8% for the second. Tracks had a particularly strong quarter with some significant new business wins and customer implementations. Customer interest in tract is offering remains strong, and we are excited about the potential to continue to win market share with new customers and expand our services with existing customers. Our government program activities and integrated solutions had a strong quarter as well. Some went to the quarter; we had two significant business wins in government programs. We awarded a five-year, firm fixed-price, IDIQ contract with the Navy to perform air-frame maintenance on their PH fleet.

Speaker Change: Turning to integrated solutions in the quarter, we drove growth across both our commercial and government offerings.

Speaker Change: Which resulted in total sales growth of 8% for this segment.

<unk> had a particularly strong quarter with some significant new business wins and customer implementations customer interest and track. This offering remains strong and we are excited about the potential to continue to win market share with new customers and expand our services with existing customers.

Speaker Change: Our government program activities and integrated solutions had a strong quarter as well.

Subsequent to the quarter, we had two significant business wins in government programs. We were awarded a five year firm fixed price <unk> contract with the Navy to perform airframe maintenance on their key aged fleet.

John Holmes: This award is a continuation of existing work. We also want a new contract to support the engine maintenance for the Navy on the same PH aircraft. Lee. These wins demonstrate the significant value proposition that AAR brings to its government customers.

Speaker Change: Award is a continuation of existing work. We also won a new contract to support the engine maintenance for the Navy on the same Ta aircraft fleet.

Speaker Change: These wins demonstrate the significant value proposition that <unk> brings to its government customers overall I'm incredibly proud of the quarter that we just delivered and with that I'll turn it over to Sean.

Sean Gillen: Overall, I'm incredibly proud of the core that we just delivered, and with that, I'll turn it over to Sean.

Sean Gillen: Thanks, John. Total sales in the quarter of the 20% to $662 million. Excluding the impact from the recently acquired product support, goodness organic sales wrote for the quarter was 6%. Commercial sales increased 20% with growth in all three of our core segments. Our commercial distribution sales were particularly stand out as we continued to drive sales growth on existing product lines and expanded movie one product lines as well. Government sales also increased 20%, an improvement from the 15% growth we experienced in the fourth quarter. The sales increase is given by an ongoing recovery across government program activities and increased order volume for a new part distribution activities.

Thanks, John total sales in the quarter grew 20% to $662 million, excluding the impact from the recently acquired product support business organic sales growth for the quarter was 6%.

Speaker Change: Commercial sales increased 20% with growth in all three of our core segments. Our commercial distribution sales were particular standout as we continued to drive sales growth on existing product lines and expanded <unk> product lines as well.

Speaker Change: Government sales also increased 20% an improvement from the 15% growth we experienced in the fourth quarter.

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

Sean Gillen: Adjusted operating profit margin improved 180 basis points from 7.3% to 9.1%. Adjusted even about margin increased 180 basis point from 9.5% to 11.3%. We've a clear roadmap for continued margin improvements over the medium term as our mix shifts towards our higher margin segments and realize synergies in the recently acquired product support business. We continue to roll out our airframe maintenance efficiency improvement initiatives and expect further margin improvement as capacity expansion projects come online. Net interest expense for the quarter with 18.3 million reflecting the financing of the product support acquisition, and we expect Q2 interest expense to be approximately the same as Q1.

Speaker Change: Adjusted operating profit margin improved 180 basis points from seven 3% to nine 1%.

Speaker Change: Adjusted EBITDA margin increased 180 basis points from nine 5% to 11, 3%.

Speaker Change: We have a clear roadmap for continued margin improvement over the medium term as our mix shift towards our higher margin segments and the realized synergies in the recently acquired product support business. We continued to rollout our airframe maintenance efficiency improvement initiatives and expect further margin improvement as capacity expansion projects come online.

Speaker Change: Net interest expense for the quarter was $18 3 million, reflecting the financing of the product support acquisition and we expect Q2 interest expense to be approximately the same as Q1.

Sean Gillen: Every distributed share count in the quarter was 35.6 million shares. For FY25, we continue to expect our effective tax rate to be approximately 28%. Adjusted deleted EPS increased from 78 to 85 cents, reflecting the benefit of our growth and margin expansion. The product support acquisition was accreted to earnings from the quarter, which we expect to continue through FY25.

Speaker Change: Average diluted share count in the quarter was $35 6 million shares.

Speaker Change: For FY 'twenty five we continue to expect our effective tax rate to be approximately 28%.

Speaker Change: Adjusted diluted EPS increased from 78 to <unk> 85, reflecting the benefit of our growth and margin expansion.

Speaker Change: Support acquisition was accretive to earnings for the quarter, which we expect to continue through FY 'twenty five.

Sean Gillen: With that, I'll turn to the detailed results by segment. Part supply sales grew 5% to 250 million, driven by 26% growth in distribution and a 22% decline in the USM. We want to gain double-digit growth and distribution as we continue to gain market share. Both in the quarter was positively impacted by the expansion of both existing product lines and the ramp-up of need business wins, as well as greater purchases by both the US and foreign governments. Our USM activity is down to the lack of availability of whole assets. Part supply adjusted operating margins increased by 110 basis points to 12.1% in the quarter, given by distribution, which benefited from scale and mix.

With that I will turn to the detailed results by segment.

Speaker Change: Parts supplies sales grew 5% to $250 million driven by 26% growth in distribution and a 22% decline in the U S.

Speaker Change: Once again drove double digit growth in distribution as we continue to gain market share.

Growth in the quarter were positively impacted by the expansion of existing product lines and the ramp up of new business wins as well as greater purchases by both the U S and foreign governments, our U S activity were down due to lack of availability of haul assets.

Speaker Change: <unk> adjusted operating margins increased by 110 basis points to 12, 1% in the quarter driven by distribution, which benefited from scale and mix.

Sean Gillen: The improvement of distribution sales to government customers also contributed to the increase in margins. Repair and engineering sales increased 58% to 218 million. On an organic basis, sales increased 6%. The man remains strong for our 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 460 basis points to 11.2% in the quarter, given by the inorganic impact of product support and continued efficient to gain in the hangars. Going forward, we expect to drive further margin expansion in this segment from the realization of product support synergies, roll out of our paperless hanger initiatives, and the capacity expansion.

Prudent of distributions.

Speaker Change: Distribution sales to government customers also contributed to the increase in margins.

Speaker Change: Repair and engineering sales increased 58% to $218 million on an organic basis sales increased 6%.

Speaker Change: <unk> remained strong for our 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 460 basis points to 11, 2% 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 hangar initiatives and the capacity expansion once they come on line in FY 'twenty.

Sean Gillen: once they come online in FY26. Integrated solution sales increased 8% to 159 million, driven by growth in commercial, power-binding hour activities, certain government programs, and some tracks. Integrated solutions adjusted to operating margin decreased by 40 basis points to 6.2% in the quarter based on the mix within government programs. An expeditionary services are government customer as decided to revert to the current generation callus and as a result terminate of our contract to provide next generation callus. We are the incumbent on the current generation callus and will continue to support the government demand for these products as we await the potential new RFP for the next generation call.

Integrated solutions sales increased 8% to $169 million driven by growth in commercial power by the hour activities certain government programs and from tracks.

Great solutions adjusted operating margin decreased by 40 basis points to six 2% in the quarter based on the mix within government programs.

Speaker Change: In Expeditionary services, our government customer has decided to revert to the current generation talent and as a result terminated our contract to provide next generation pilots. We are the incumbent on the current generation pallets and will continue to support the government demand for these products as we await a potential new RFP for the next generation Kal.

Sean Gillen: We do not expect any material change in the outlook for expeditionary services due to the government's decision. However, related to the termination in the quarter, we recognize revenue of 9.5 million and a net loss of 3.2 million, which are excluded from our adjusted results. Terms to consolidate cash flow use and operating activities of 19 million in the quarter as you made investments in the business, particularly in inventory to support the growth and distribution. Despite this cash use, we maintain the net leverage of 3.3 times net debt to adjusted pre-alformer EBITDA. For the balance of the fiscal year, we expect to reduce net leverage through both growth and EBITDA, as well as reduction in net debt.

Speaker Change: Expect any material change in the outlook for Expeditionary services due to the government's decision.

Speaker Change: Related to the termination in the quarter, we recognized revenue of $9 5 million and a net loss of $3 2 million, which are excluded from our adjusted results.

Turning to consolidated cash cash flow used in operating activities was $19 million in the quarter as we made investments in the business, particularly in inventory to support the growth in distribution.

Despite this cash use we maintain net leverage of three three times net debt to adjusted pro forma EBITDA.

Speaker Change: For the balance of the fiscal year, we expect to reduce net leverage through both growth in EBITDA as well as reduction in net debt.

Sean Gillen: Our balance sheet and capital structure afford us sufficient flexibility to manage our business and make decisions that maximize shareholder value.

Speaker Change: Balance sheet and capital structure affords 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. I'm very pleased with the results that we delivered in Q1 and the strong start to our fiscal year. Demand for our services remains exceptionally strong, and the current dynamic in the aviation supply chain overall is in our favor. Looking to Q2 of fiscal 2025, specifically, we expect sales growth of 18 to 22% and adjusted operating margins similar to Q1, which was 9.1%. We continue to make tremendous progress towards executing our long-term objectives. We continue to gain market share and distribution; our on-track with capacity expansions and repair and engineering are growing the track stock offering and driving higher margins through investments in efficiency and differentiated capabilities.

Shawn: Great. Thank you Shawn.

Speaker Change: Pleased with the results that we delivered in Q1 and a strong start to our fiscal year demand for our services remains exceptionally strong and the current dynamics in the aviation supply chain overall are in our favor.

Speaker Change: Looking to Q2 of fiscal 2025, specifically, we expect sales growth of 18% to 22% and adjusted operating margin similar to Q1, which was nine 1%.

Speaker Change: To make tremendous progress towards executing our long term objectives, we continue to gain market share and distribution are on track with capacity expansion and repair and engineering are growing the track software offerings and driving higher margins through investments in efficiency and differentiated capabilities.

John Holmes: 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.

Speaker Change: Absolutely well positioned to capitalize on the strength that we're seeing in our markets and are very excited about our future with that I'll turn it over to the operator for questions.

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

Operator: Thank you.

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

Thank you.

Speaker Change: Ladies and gentlemen to ask a question. Please press star one on your telephone and wait to hear your name to be announced to.

Speaker Change: So withdraw your question. Please press star one again please.

Please standby, while we compile the Q&A roster.

Speaker Change: Okay.

Scott Micas: Our first question comes from the line of Scott Micas with Mealius Research. Yalan is open.

Speaker Change: Our first question comes from the line of Scott <unk> with Melius Research. Your line is open.

Scott Micas: Hi, John. Sean. Good evening.

Hi, John Sean Good evening, Hey, how are you.

Scott Micas: John, I wanted to ask on the Triumph product support asset. So it came with 6,000 proprietary DR repairs. So I'm just wondering how we should think about the growth and the number of DR repairs that you can do? You know, add to that.

Speaker Change: John I wanted to ask on the try on product support asset. So it came a 6000 proprietary Dr. Repairs. So I'm just wondering how should we think about the growth in the number of DDR repairs.

Scott Micas: So should I be thinking an annual growth rate on that or just a simple number of repairs you want to add per annum?

Speaker Change: You can add to that so should I be seeking an annual growth rate on that or just a simple number of repairs you want to add per annum.

John Holmes: A great question and an important asset that came with the acquisition. What I would say there is residents trying to quantify the types of repairs. I would say that the majority of the 6,000 DR repairs that Triumph has are focused on structures, and we are focused on broadening that DR repair capability to the accessories and components that are repaired in the other areas of Triumph of TPS. And so again, rather than trying to quantify, you know, the growth rate or number of repairs, I would say that from a product type, we would look to capture the opportunity beyond what they've done in the structure.

Speaker Change: Great question, and an important asset that came with.

Speaker Change: That came with the acquisition what I would say there is rather than trying to quantify the types of repairs I would say that the majority of the 6000 <unk> repairs to try and have our focused on structures.

Speaker Change: And we are focused on broadening that AAR repair capability to the accessories. The components that are repaired and in the other areas of triumph TBS.

And so again, rather than trying to quantify a growth rate or number of repairs I would say that from a product type we would look to capture the opportunity beyond what they've done in the structures world.

Scott Micas: as well.

Scott Micas: Okay, got it.

Scott Micas: And then I also want to stick with our parent engineering and just thinking about the MRO hangers. So you have the capacity expansions in Oklahoma City and Miami that'll be ready for the fall of 2025.

Speaker Change: Okay got it and then I also wanted to stick with your parent engineering and just thinking about the MRO hangar see if the capacity expansions in Oklahoma City, and Miami that'll be ready for the fall of 2025 and I'm. Just wondering do you have the pipeline of workers to fill those hangers on day, one or is it going to take time to train Haier and <unk>.

John Holmes: But I'm just wondering, do you have the pipeline of workers to fill those hangers on day one? Where's it going to take time to train higher and ramp up those new employees, generate sales and profits? Yeah, a great question. You know, we're very excited about that capacity. We're also excited that it's sold. And we went into markets where we knew we would have a long term baseball customer, and we knew, to your point, that we would be able to hire up. So both Miami and Oklahoma City are favorable labor markets for us. We've had a long time presence in each place.

Speaker Change: Ramp up those new employees to generate sales and profits.

Speaker Change: Great question.

Speaker Change: We're very excited about that capacity coming online. We're also excited that it sold.

Speaker Change: And we went into markets, where we knew we would have a long term baseload customer and we knew to your point that we would be able to.

Speaker Change: Higher to higher up so both Miami and Oklahoma City are favorable labor markets for US we've got a long time presence in each place.

Scott Micas: We've got relationships with local providers and schools, etc. And so we feel really good about our ability to recruit talent in both locations. There will be a ramp up in each facility. There always is. There's a bit of an operational curve, though, but we feel very confident in the relatively short ramp up and our ability to hire the labor to support that new business. All right.

Speaker Change: Got relationships with local providers.

Providers and schools et cetera, and so we feel really good about our ability to recruit talent in both locations there will be a ramp up in each facility. There always is there.

Speaker Change: A bit of an operational curve, though but we feel very confident and in a relatively short ramp up and our ability to hire the labor to support that new business.

Scott Micas: Thanks for taking the questions. Thank you.

Speaker Change: Alright, thanks for taking the questions.

Operator: Please stand by for our next question.

Thank you.

Speaker Change: Please standby for our next question.

Michael Chamoli: Next question comes from a lot of Michael Chamoli with Truer Security. Heal On is open.

Speaker Change: Our next question comes from the line of Michael <unk> with <unk> Securities. Your line is open.

Michael Chamoli: Hey, good evening, guys. Thanks for taking the questions. Nice for sure.

Speaker Change: Hey, good evening guys. Thanks for taking the questions Nice result.

Michael Chamoli: Hey, John, just on the USM and kind of the challenges there. I mean, how are you guys thinking about, or how are you potentially forecasting whole asset sales for the year? I've got to imagine that's a challenge. And does that market? I mean, just given what's going on with the Boeing strike. I mean, obviously hard to tell how long it lasts, but presumably airlines aren't getting claims they needed. Does that market potentially get even tighter for you? Yeah. So great question. You know, first of all, I would say that despite the decline that we saw in the USM business, we are really happy that the reps of the company performed really, really well, and we were able to deliver 20% growth in the quarter.

Speaker Change: Hey, John just on the U S.

Speaker Change: And kind of the challenge since there I mean, how are you guys thinking about or how are you potentially forecasting whole asset sales for the year I've got to imagine that the challenge in does that market I mean, just given what's going on with the Boeing strike I mean, obviously hard to tell how long it lasts but for example.

<unk> airlines aren't getting planes, they needed that market potentially get even tighter for you.

Speaker Change: Yeah. So great question first of all I would say that despite the decline that we saw in the U S.

We are really happy that the rest of the company performed really really well and we were able to deliver 20% growth in the quarter and that's one of the reasons, we called out U S F 15% of our business and.

John Holmes: And that's one of the reasons we call it out. You know, USM is 15% of our business. And to your point, yes, anything that puts more pressure on the existing fleet, like the Boeing strike, is going to extend the tightness in the USM market. But more importantly, it's going to extend the robust demand that we see for the other 80 plus percent of the company. So we, you know, it is a difficult thing to forecast. And we do expect that, you know, at some point, as these aircraft are retired in this assemble, that will result in more asset availability.

Speaker Change: To your point, yes anything that.

Puts more pressure on the existing fleet like the Boeing strike is going to extend the tightness in the U S market, but more importantly, it's going to extend the robust demand that we see for the other.

Speaker Change: What percent of.

Speaker Change: The company.

Speaker Change: So we.

Speaker Change: It is a difficult thing.

Speaker Change: It's a forecast.

And.

Speaker Change: We do expect that at some point as these aircraft are retired and disassemble that will result in more asset availability and that will occur. While there is still strong demand for these assets and we're in the right position to.

John Holmes: And that will occur while there is still strong demand for these assets. And we're in the right position to capture that. But, you know, right now the overall tailwinds and dynamics that you describe or that we're seeing in the market are benefiting the overall company as a whole.

Speaker Change: To capture that but right now the overall <unk> dynamics.

Speaker Change: You described that we're seeing in the market are benefiting.

Speaker Change: The overall company as a whole.

Michael Chamoli: Got it.

John Holmes: Is there any way to parse out maybe the piece part for component sales of USM versus, you know, the headwind that kind of. Or maybe under like growth that was massed by the whole asset sales. Yeah, yeah. What I would say is that the fourth quarter for individual piece parts sale was the highest quarter we've ever had in individual parts sales in USM. The quarter we just ended was the second highest we've ever seen. So the individual parts sales there are very strong, and we are able to locate that material. It's the whole assets right now that are that are constrained.

Speaker Change: Got it is there any way to parse out maybe the piece parts of our component sales of U S versus the headwind.

Speaker Change: Or maybe underlying growth that was masked by the whole asset sale.

Speaker Change: Yes, what I would say is that the <unk>.

Speaker Change: Fourth quarter for individual piece parts sale was the highest quarter, we've ever had in individual part sales in U S.

The quarter. We just ended was the second highest we've ever seen so.

Speaker Change: The individual part sales there are.

Speaker Change: Our very strong and we are able to locate that material. It's the whole assets right. Now that are that are constraining. The only other thing I'll add there.

John Holmes: The only other thing I've got there is, you know, that market is very situational, right? I mean, you can see a, you know, like what we saw a couple years ago with American Airlines decided to exit a certain fleet. You can see things break loose, and our job is to make sure that we are in the right place at the right time to be able to do quickly and capture assets when they become available, even if there's not an overall change in the market. And that's what we're focused on. as we're talking here.

Speaker Change: Mark it's very situational right I mean, you can see.

Speaker Change: Like what we saw a couple of years ago with American Airlines deciding to exit a certain fleet you can see things break loose and our job is to make sure that we are in the right place at the right time to be able to do quickly and capture assets when they become available even if there's not an overall change in the market and that's what we're focused on doing.

Got it got it and just.

John Holmes: I mean, what's the environment like? Are there just very limited assets, or are you seeing maybe, you know, airline operators actually looking to buy equipment, not to make an ROI on it, just because they need to service their plans? I mean, are you seeing a high level of, yeah, good. Yeah, it's predominantly the latter. You know, you're seeing, airlines, you know, they just need the lift. And so, as assets come available, you know, the airlines themselves or lessors are going right after those assets because lease rates are extremely favorable right now because there's tremendous demand because airlines just need the lift.

Speaker Change: We're talking here I mean whats the environment like are there just very limited assets or are you seeing maybe.

Speaker Change: Airline operators actually looking to buy equipment not to make an ROI on it.

Speaker Change: Because they need to service their plans I mean are you seeing a tick up.

Yes, yes.

Speaker Change: Yes, it's predominantly the ladder.

You're seeing airlines.

Speaker Change: They just need the lift and so as assets come available.

Speaker Change: The airlines themselves or lessors are going right. After those assets because lease rates are extremely favorable right now because theres tremendous demand because airlines just feed the lab.

John Holmes: Got it. But what the other point to mention there is, as those engines are in operation, you're burning off a lot of green time at once, which means that once these, you know, once these do go in for maintenance, they're going to require a lot of parts. And that again is a favorable demand environment for us. Got it.

Got it got it.

Speaker Change: The other the other point to mention there is as those engines are in operation you are burning off a lot of green time at one which means that once these.

Speaker Change: Once these do go in for maintenance is going to require a lot of parts and that again is a favorable demand environment for us.

Michael Chamoli: Of course, sure.

Speaker Change: Got it.

Sean Gillen: But one, Sean, just on the adjustments in the quarter, any detail on the investigation costs that were 14 cents in the contract termination costs of 9 cents, any color you could provide there? Nothing further on the investigation. It's been the same investigation line item for the past number of quarters.

Speaker Change: Sure.

Speaker Change: One Sean just on the adjustments in the quarter any any detail on the investigation costs that were <unk>.

Speaker Change: Contract termination costs of 900, Anthony any color you can provide there.

Nothing further on the investigation has been the same investigation line item for the past number of quarters and then the contract termination is the expeditionary services talent contracts that I talked about in the upcoming year, yes. Okay.

Sean Gillen: And then the contract termination with the Expeditionary Services, talent contract that I talked about in the opening. Yeah. Okay, those are the items. Got it. Perfect.

Speaker Change: Those are the items.

Michael Chamoli: Thanks, guys. I'll jump back in the queue. Thank you.

Speaker Change: Got it perfect. Thanks, guys I'll jump back in the queue. Thank.

Operator: Please stand by for our next question.

Thank you.

Ladies sandbox our next question.

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

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

Ken Herbert: Yeah, hey, good afternoon.

Speaker Change: Okay.

Ken Herbert: John and Sean. Hey, maybe John, I wanted to first start on the P8.

Speaker Change: Yeah, Hey, good afternoon, John and Sean.

Speaker Change: Kevin.

Speaker Change: And maybe John I wanted to first start on the <unk> It sounds like the airframe I'd IQ.

Ken Herbert: It sounds like the airframe IDIQ is sort of a continuation of work you've been doing, but I just wanted to clarify that. There isn't maybe a step up there in terms of the revenue opportunity, but then second and maybe more importantly, on the engine side, can you talk about how much of that could be incremental from a revenue standpoint this year? How that phases in?

Speaker Change: Is sort of a continuation of work you've been doing but I just wanted to clarify that there isn't maybe a step up there in terms of the revenue opportunity, but then second and maybe more importantly on the engine side can you talk about how much of that could be incremental from a revenue standpoint, this year, how that phases in.

Ken Herbert: And what exactly are you doing on the engine side? Is it more sort of parts support or maybe a little more color there, please?

Speaker Change: And what exactly are you doing on the engine side is it more sort of parts support or maybe a little more color there. Please.

John Holmes: Yeah, great to appreciate you asking about those two awards. So yes, for the first one, the airframe award that is a continuation of work that we have today. The volumes of heavy maintenance for that fleet do change over time, and there is a chance that we do see more volume out of that contract in this next phase than we saw in the previous phase. We got to wait to secure the award and get the schedule from the Navy, but, you know, based on what the proposal that we submitted, you know, said, it's possible you could see a step up in volume there.

Speaker Change: Yes.

Great I appreciate you asking about those two awards.

Yes for the first one the airframe award that is a continuation of work that we have today.

Speaker Change: The volumes of heavy maintenance for that fleet do change over time.

There is a chance that we do see more volume out of that contract in this next phase than we saw in the previous phase we've got to wait to secure the award and get the schedule from the Navy but.

Speaker Change: Based on what the proposal that we submitted.

Speaker Change: Third it gets.

Speaker Change: Possible you could see a step up in volume there as.

Ken Herbert: As it relates to the engine award, that is entirely new business for AAR. And what we will be doing is helping to manage the supply chain and provide parts. We have a partner that will actually be doing the wrench turning that'll come out once the government, you know, releases more information, but we will be working that partner to manage the overall engine flow and then supply parts to that partner and support of the engine overall. Can you quantify yet me how much growth the engine, the parts supply, part of that contract could provide this year?

As it relates to the engine award that is that it is entirely new business for AAR and what we will be doing is helping to manage the supply chain and provide parts. We have a partner that will actually be doing the wrench, turning that will come out once the government.

Speaker Change: Releases more information, but we will be working that partner to manage the overall engineered flow and then supply parts to that partner in support of the engine overhauls.

Speaker Change: Is it can you quantify maybe how much growth the engine parts supply part of that contract could provide this year.

John Holmes: Once we get full clarity from the government on our position on the contract, we'll be able to get more data on that. But would you feel it'll be a nice contributor in terms of revenue and income? And, you know, in terms of when it starts, obviously, we've got to see if there's a process, etc. But, you know, we do feel like it will be a meaningful contributor. Okay, great.

Speaker Change: Once we get.

Speaker Change: For clarity from the government on our position on the contract we will be able to give more data on that but would you feel it will be.

Speaker Change: A nice contributor in terms of revenue and income.

And.

In terms of when it starts obviously, we got to see if there was a protest et cetera.

Speaker Change: But.

Speaker Change: We do feel like it will be a meaningful contributor.

Ken Herbert: And as we look at the part supply business, you know, nice margins this quarter, how do we think about the progression there? I mean, is it a more meaningful step up, really held back until you can see.

Speaker Change: Okay, great and as we look at the parts supply business.

Speaker Change: Nice margins this quarter, how do we think about the progression there.

A more meaningful step up really held back until you can see.

John Holmes: Maybe more pronounced whole asset opportunity within USM, or is there an opportunity through mixing through efficiencies to continue to sort of drive incrementally higher margins on parts supplies. We think about the cadence of this year and into, and even into fiscal 26. Sure, for USM, again, it's somewhat situational and dependent on the availability of material and the price of which we are able to acquire and sell that material. So that that moves with the market. What we do see is just continued strength out of our new parts distribution business. The margins there because of our exclusive distribution model are better than what you would normally see in a part distribution business.

Speaker Change: Will you be more pronounced hello asset opportunity within within U S. Sam or is there an opportunity.

Speaker Change: Through through mix since you efficiencies to continue to sort of drive incrementally higher margins on parts supply as we think about the cadence of this year and even into fiscal 'twenty six.

Speaker Change: Sure for USAA, and again, it's somewhat situational and dependent on the availability of material and the price at which we are able to acquire and sell that material.

Speaker Change: That moves with the market.

Speaker Change: What we do see is just continued strength out of our new parts distribution business. The margins there because of our exclusive distribution model or better than what you would normally see.

Speaker Change: And the parts distribution business.

Ken Herbert: And with each new win, we're able to continue to leverage our fixed cost base. So I would say over time we see the improvement of margin and parts supply on a steady basis coming from the growth and distribution. And then I would say a more situational basis, you know, based on the opportunities we see in USM. Okay, helpful.

And with each new win we're able to continue to leverage our fixed cost base. So I would say over time, we see the improvement of margin in parts supply on a steady basis coming from the growth in distribution and then I would say are more situational basis.

Speaker Change: Based on the opportunities we see in USA.

Ken Herbert: And just finally, you know, coming out of your fiscal fourth quarter, there was some incremental concern around capacity growth and some spending by, more specifically, some of the low-cost airlines. And it sounds like that was predominantly sort of idiosyncratic to a few specific airlines and situations.

Speaker Change: Okay helpful and just finally.

Speaker Change: Coming out of your fiscal fourth quarter, there was some incremental concern around.

Speaker Change: Capacity growth and some spending by more specifically some of the low cost airlines and it sounds like that was predominantly sort of idiosyncratic to a few specific airlines or situations, but can you just comment more from a macro standpoint on what youre seeing in terms of airline your airline customers and spending into sort of.

John Holmes: But can you just comment more from a macro standpoint on what you're seeing in terms of airline, your airline customers and spending into sort of the back half here of calendar 24. And then I guess any changes in your schedules, backlogs, demand, as you think about spending into the first part of for the calendar 25. Sure, sure. And again, a great question. I say, you know, for certain customers, certain lower cost carriers, to your point that, yes, they have, you know, scenes of softness. However, they are not major customers of AR, that the larger carriers, the long haul carriers.

Speaker Change: The back half here of calendar 'twenty, four and then I guess any changes in your schedules backlogs demand as you think about spending into the first part of.

Speaker Change: Sort of calendar 'twenty five.

Speaker Change: Sure sure and again great question.

Speaker Change: I would say.

Speaker Change: For certain customers certain lower cost carriers to your point.

Speaker Change: <unk>.

Speaker Change: Yes, they have.

Speaker Change: <unk> seen some softness however, they are not major customers of AAR the larger carriers the long haul carriers those are the ones that.

John Holmes: Those are the ones that are continuing to do very well. And those are the ones that are the largest customers of AR. So, from our major customers, we've continued very strong demand signals. And they recognize a value proposition. We have definitely been in a position where, you know, they have favored our maintenance solutions, our parts solutions over that of our competitors, even if, even if there's a decline in their own volumes. But, you know, I would say just broadly, our largest customers are continuing to express strong demand throughout the rest of the fiscal year. Great.

Speaker Change: Our continuing to do very well and those are the ones that are the largest customers of AAR. So from our major customers. We see continued very strong demand signals and they recognize the value proposition, we have definitely been in a position where.

They have favorite our maintenance solutions are part solutions over that of our competitors even if.

Speaker Change: Even if there is a decline in their own volumes, but I would say just broadly our largest customers are continuing to express.

Strong demand throughout the rest of this fiscal year.

Ken Herbert: Thanks, Sean. Thanks, Ian.

Sean Gillen: Great. Thanks, Sean.

Operator: Please stand by for our next question.

Thanks, Ken.

Speaker Change: Please standby for our next question.

Louis Dipalma: Our next question comes from the line of Louis DiPalma with William Blair, Yelana Sopin. John and Sean, good afternoon.

Speaker Change: Our next question comes from the line of Louis di Palma with William Blair. Your line is open.

Speaker Change: John and Sean Good afternoon, Hey, Larry how are you doing.

Louis Dipalma: Hey, Louis, how you doing? Great. Can you talk about the business development and pipeline activity with tracks? And when do you expect that tracks can become a viable sales channel for your parts business? Yeah, thanks for asking about tracks. It was a good quarter for tracks. They made a nice contribution to the results in a couple of ways. One, they upgraded certain of their existing customers, and they actually were able to capture some new customers. Not all of these things were able to announce customer by customer, but they're making really nice progress in the market.

Speaker Change: Great can you talk about the business.

Speaker Change: Business development and pipeline activity with tracks and when do you expect that tracks can become a.

Speaker Change: A viable sales channel for you or your partner.

Speaker Change: Yes, thanks for asking about track that was a good quarter for tracks. They made a nice contribution to the results in a couple of ways one.

Speaker Change: Upgraded certain of their existing customers and they actually were able to capture some some new customers not all of these things, we're able to announce a customer by customer, but they're making really nice progress in the market. One of the main reasons. We felt that we should acquire track that could bring value to their business with our ability to.

John Holmes: One of the main reasons we felt that we should acquire tracks that could bring value to their business was our ability to open doors for them, big doors for them in the market with larger airlines that may not have been comfortable turning their ERP system over to a smaller company like Tracks. We are seeing that play out. We're very encouraged by the pipeline of activity with tracks, particularly with some very large airlines, and we're hopeful that when the coming quarters will be able to secure that business, which will validate that important element of the acquisition pieces.

Speaker Change: Open doors for them big doors for them in the market with larger airlines that may not have been comfortable.

Speaker Change: Turning their ERP system over to a smaller company like track, we are seeing that play out we're very encouraged by the pipeline of activity activity with track, particularly with some very large airlines and we're hopeful that in the coming quarters, we'll be able to secure that business, which will validate that important element of the acquisition thesis.

John Holmes: So we feel good about that. And then to the second part of your question about track as they type line for our parts sales, that it's still something we feel very, very strongly about. In the early year, the first year of the tracks acquisition, our priority has been to improve the operations of tracks so that they could scale to ultimately support larger customers. We made a great deal of progress in that regard.

Speaker Change: So we feel good about that and then to your second part of your question about tracked as a pipeline for our part sales that is still something we feel very very strongly about in the early year. The first year of the Trax acquisition, our priority has been to.

Speaker Change: Improve the operations of tracks, so that they could scale to ultimately support larger customers and we made a great deal of progress in that regard.

Louis Dipalma: Once we feel good about what we've done, then there we'll turn our attention to the integration between AAR and track around selling parts, but we're still a little bit away from being able to get that done. Great.

Speaker Change: Once we feel good about what we've done then there we will turn our attention to the integration between <unk> and track around around selling parts, there were still a little bit away from being able to get that done.

Louis Dipalma: And a few quarters ago, still on tracks. I think you mentioned Singapore Airlines and Archery Aviation as new customers. How are those implementations coming? They're complete. And those customers are up and running and live. There's another significant customer that we hadn't announced publicly, but in that same period of time, is up and running and live. We upgraded another existing customer to the latest and greatest suite of operating from Track. That implementation went well, and it's live. So, again, going back to your prior question.

Speaker Change: Great and a few quarters ago still on track I think you mentioned, Singapore Airlines and Archer aviation.

Speaker Change: Alright.

Speaker Change: Or are the implementation.

Speaker Change: Hi.

Speaker Change: They are complete.

Speaker Change: And those customers are up and running in live.

Speaker Change: There is another significant customer that we haven't announced publicly that in that same period of time is up and running in live.

Speaker Change: We upgraded another existing customer to the latest and greatest suite of offerings from track that implementation went well and is live so.

Speaker Change: Again going back to your prior question one of the main area of focus for us is to be able to handle multiple multiple implementations and upgrades at the same time, that's something that was difficult for track to do when they were on their own and.

John Holmes: One of the main areas of focus for us is to be able to handle multiple implementations and upgrade at the same time. That's something that was difficult for tracks to do when they were on their own. And so, we've made a lot of progress in being able to take on many things at the same time. Great.

Speaker Change: And so we've made a lot of progress in being able to take on many things at the same time.

Louis Dipalma: And following up on Ken's question for the Navy, the pair of the Navy PA contract. for the engine services contract.

Great and following up on Ken's question for that the Navy the Navy contracts.

Speaker Change: The engine services contract did you take that contract away from an incumbent and is that why you think there is an increased likelihood of a protest.

John Holmes: Did you take that contract away from an incumbent, and is that why you think there's an increased likelihood of a protest? I can't say about the incumbent, but we, and I don't know if there will be a protest or not, we don't. But to the extent that there were multiple bitters rather than whether it was an incumbent, that's why we always have our eye open to a potential protest. But, as you know, in the government world, that's just very common. Yes. Definitely.

Speaker Change: I can't say about the incumbent but we.

Speaker Change: And I don't know if there will be a protest or not we don't.

Speaker Change: So okay.

Speaker Change: But to the extent that there were multiple bidders rather than whether it was unencumbered.

Speaker Change: Yes.

That's why we always have our eye open to a potential potential further.

Speaker Change: But as you know in the government World Thats, just very common yes.

John Holmes: Are there many other types of these engine contracts out there for the different, the Navy or Air Force platforms that you could either take away from the incumbents or just new work in general? Yeah, I would just answer broadly and say that we feel very strongly that our commercial offerings should play very well for all commercial derivative military aircraft. And so whether it's airframe maintenance or accessory repair or component repair or engine support. We think that we're in a position to take what we do really well in the commercial markets and port it to the government markets.

Speaker Change: Definitely and are there many other types of these engine contracts out there for the different.

Speaker Change: The Navy or Air Force platform that you can either take away from.

Speaker Change: The incumbents are just new work in general.

Yes, I would just answer it broadly and say that we feel very strongly that our commercial offerings should play very well for all commercial derivative.

Speaker Change: Military aircraft and so whether it's airframe maintenance or accessory repair.

Speaker Change: Our component repair or engine support we think that we're in a position to take what we do really well on the commercial market's imported to the government markets.

Louis Dipalma: Sounds good.

John Holmes: And one final question, perhaps this is yet for both of you, John and Sean. As it relates to triumphs, can you talk about the progress or the plans to like in-source the repair work for USM? Are we still in the early innings of integrating triumphs such that you can take some of the triumph repair capabilities and support your USM business? Yeah. We have a couple different vectors there. One, in terms of the transfer of work from our existing facility in New York to the facilities in Wellington, Kansas, and Dallas, we're on track there. There's two buckets of work.

Speaker Change: And one final.

Question.

Perhaps this is for both of you John and Sean as it relates to trial can.

Speaker Change: Can you talk about.

Speaker Change: <unk> are the plans to <unk>.

Speaker Change: Im sorry.

Speaker Change: Repair work for us are we still on.

Speaker Change: Early innings of <unk>.

Speaker Change: Integrating tram.

Speaker Change: That you can.

Speaker Change: Take some of the Tam for <unk> capabilities and support your U S business.

Speaker Change: Yes.

Speaker Change: A couple of different vectors there one in terms of the transfer of work from our existing facility in New York to the facilities in Wellington, Kansas and Dallas.

Speaker Change: We were on track there.

John Holmes: There's commercial work, and there's government work. The commercial work is right on track, and the majority has been transferred. The government work takes longer because we have to zone capability, get it audited and approved by the government. Once that happens, we can cut the work over. Both of those areas are aptly on track. As it relates to in-sourcing, really two main buckets of work there. One is to support the USM business, as you just mentioned. That is largely done where we're in-sourcing all but we can today for the USM business. The longer term element of that is the work supporting our commercial programs business.

Speaker Change: Two buckets of work, there's commercial work in the government, where the commercial work is right on track and the majority has been transferred the government work takes longer because we have to build capability to get it audited and approved by the government. Once that happens we can we can cut the workover both of those areas are absolutely on track as it relates to in sourcing.

Speaker Change: Two main buckets of work there one is to support the U S business as you just mentioned that is largely done.

Speaker Change: We're in sourcing all but we can today for the <unk> business.

Speaker Change: Longer term element of that is the work supporting our commercial programs business and <unk>.

John Holmes: And there, I would say that generally we actually see more opportunity to in-source work with a modest amount of investment in Triumph than we did when we agreed to do the deal. So we're very encouraged by the opportunity there. It will take longer because it's not just work that we control. It's ultimately work that we're doing in support of a third-party customer that's got approved everything. But headline there, as we see, we see more opportunity to in-source commercial programs work than we treat you sick.

Speaker Change: There I would say that generally we actually see more opportunity to in source work with a modest amount of investment and try them than we did.

Speaker Change: When we when we agreed to do the deal. So we're very encouraged by the opportunity there it will take longer because it's not just work that we control. It's ultimately work that we're doing in support of a third party customer that got approve everything but.

Speaker Change: Headline there as we see we see more opportunity to in source commercial programs work than we previously thought.

Scott Micas: Scott. Fantastic.

John Holmes: Thanks, John and Sean.

Fantastic, Thanks, John and Sean.

Sean Gillen: Thank you.

Speaker Change: Thanks Lee.

Operator: Please stand by for our next question.

Speaker Change: Thank you please standby for our next question.

Scott Micas: We have a follow-up question from the line of Scott Michaels with Melius Research. Your line is open.

Speaker Change: We have a follow up question from the line of Scott Michael Slip Melius Research. Your line is open.

Sean Gillen: Yeah, so do you have a quick one for Sean? Sean, do you have the growth rates for defense and commercial within just the new parts distribution business? Not in my fingertips. Yeah, just for this quarter or even over the past several quarters. I mean, just for this quarter, if you have it. If not, we can follow up offline.

Speaker Change: So I just have a quick one for Sean Sean do you have the growth rates for defense and commercial within just the new parts distribution business.

Speaker Change: Not at my fingertips.

Speaker Change: Okay.

Speaker Change: Yes, just for this quarter or you mean over the past several quarters.

Speaker Change: I mean, just for this quarter. If you have it if not we can follow up offline.

Sean Gillen: Yeah, I'll follow up, and then the queue will be filed later, which will have some of that information, so we can follow up after that. Okay, perfect. Thank you.

Speaker Change: I'll follow up and then the Q will be filed later, which will have some of that information. So we can follow up after that.

Speaker Change: Okay perfect. Thank you.

Speaker Change: Thank you.

Operator: Please stand by for our next question.

Speaker Change: Please standby for our next question.

Ken Herbert: We have a follow-up question from the line of Kim Herbert with RDC. Your line is open.

I have a follow up question from the line of Ken Herbert RBC. Your line is open.

Ken Herbert: Yeah, hey, thanks.

Sean Gillen: Hey, maybe Sean, just another quick follow-up. Last year, you had a similar sort of cash burn in the first quarter, but then you were nicely positive in terms of cash operations and free cash through the rest of the year. Do you expect a similar sort of cadence now starting in the second quarter of this fiscal year in terms of cash generation?

Speaker Change: Yeah, Hey, Thanks can you maybe John just another quick follow up last year, you had a similar sort of cash burn in the first quarter, but then you were nicely positive.

Speaker Change: In terms of cash from operations and free cash through the rest of the year do you expect a similar sort of cadence now starting in the second quarter of this fiscal year in terms of cash generation and I guess bigger picture, how should we think about full year free cash generation, maybe just sort of relative to EBITDA or maybe how much of an improvement should we expect revenue to <unk>.

Sean Gillen: And I guess, bigger picture, how should we think about full year free cash generation, maybe just sort of relative to EBITDA, or maybe how much of an improvement should we expect relative to fiscal 24? Yeah, so I would expect a similar cadence from Q1 for the balance of the year in terms of cash flow generation. Just to see the reality with Q1 and timing of cash flows. And then it relates to the balance of the fiscal year. The idea would expect that inventory would be a net user of capital of cash as we continue to grow the parts applied businesses specifically.

Speaker Change: Fiscal 'twenty four.

Speaker Change: Yes.

Speaker Change #100: So I wouldn't expect a similar cadence from Q1 through the balance of the year in terms of cash flow generation, just some seasonality with Q1 and timing of cash flows.

Speaker Change #100: And then as it relates to the balance of the fiscal year.

Would expect that inventory will be a net user of capital and cash.

As we continue to grow.

Supply businesses specifically.

Sean Gillen: In terms of AR, I think from a DSO standpoint, you keep that pretty consistent, and you can use that on your sales growth assumptions. CapEx run rate for this quarter is probably getting number to use and then interest expense. We mentioned then the call or in my opening remarks that interest expense would be similar to Q1. And then when you think about the back half of the year, that should come down close with a little bit of rate relief on the revolver as well as a reduction in net on the average borrowers. Okay, so full year free cash up over last year, but maybe similar to maybe sort of the growth.

Speaker Change #102: In terms of they are I think from a DSO standpoint, we keep that pretty consistent and you can use that on your sales growth assumptions.

Speaker Change #103: Capex run rate for this quarter is probably a good number to use and then interest expense, we mentioned on the call or in my opening remarks.

Speaker Change #104: Remarks that interest expense will be similar.

Speaker Change #105: Q1, and then when you think about the back half of the year that should come down a little bit of rate relief on the revolver.

As well as reduction in net debt on the average borrowings.

Okay. So so full full year free cash up over last year, but.

Speaker Change #105: Maybe.

Speaker Change #105: Maybe similar to maybe sort of.

Sean Gillen: It sounds like working capital is going to continue to be a tail or a headwind in terms of free cash generation this year as well. Yeah, up over last year with network and capital still being net consumer of cash, but overall cash will be higher than last year.

Speaker Change #105: The growth it sounds like working capital is going to continue to be a tailwind or headwind in terms of free cash generation this year as well.

Speaker Change #106: Up over last year with net working capital still be a net consumer of cash, but overall cash flow higher than last year.

Sean Gillen: Perfect, thanks Sean.

Perfect. Thanks, Sean.

Operator: Thank you.

Speaker Change #107: Thank you.

John Holmes: Ladies and gentlemen, at this time, I would like to turn the call back over to management for closing remarks. Great, thank you very much. We really appreciate all the time and the interest and support. And we look forward to being back here in January to talk about Q2.

Speaker Change #108: Ladies and gentlemen at this time I would like to turn the call back over to management for closing remarks.

Speaker Change #109: Alright. Thank you very much we really appreciate all the time and the interest and support and we look forward to being back here.

Speaker Change #110: In January to talk about Q2, thank you.

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

Speaker Change #111: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.

Speaker Change #111: Okay.

Speaker Change #111: [music].

Speaker Change #111: Sure.

Speaker Change #111: Thank you.

Speaker Change #111: Okay.

Speaker Change #111: Yes.

[music].

Speaker Change #111: Okay.

Speaker Change #111: Okay.

Speaker Change #111: Okay.

Okay.

Speaker Change #111: Okay.

Speaker Change #111: [music].