Q3 2025 AAR Corp Earnings Call
Unknown Speaker 00.00.00.00.
Speaker Change: Hello and welcome to AARCOP third quarter 2025 earnings conference call
At this time, all participants are in a listen only mode
Speaker Change: After the speaker's presentation, there will be a question and answer session. To ask the question during the session, you will need to press star one one on your telephone. You would then hear automatic message advising your hand is raised. To withdraw your question, please press star one one again. I will now like to turn the conference over to Denise Patielli, director of investor relations. You may begin. Thank you very much.
Thank you.
Speaker Change: Good afternoon everyone and welcome to AAR's fiscal year 2025 third quarter earnings call. We're joined today by John Holmes, Chairman, President, and Chief Executive Officer and Sean Gillen Chief Financial Officer.
Speaker Change: The presentation material we are sharing today as part of this webcast can also be found in the investor relations section under the events and presentation tab located on our corporate website.
Speaker Change: Before we begin, I'd like to remind you that the comments made during the call may include forward looking statement as defined in the private security 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 statement.
Speaker Change: Accordingly, these statements are no guarantee a future performance. 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 10K for the fiscal year ended in May 31, 2024.
Speaker Change: and providing the four booking statements, the company assumes no obligation to provide updates to reflect future circumstances or anticipated or unanticipated events.
Speaker Change: Certain non-GAAP financial information will be discussed during 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 and slides. A transcript of this conference call will be available shortly after the webcasts on AAR's web site.
Speaker Change: At this time, I would like to turn the call over to AAR's Chairman, President and CEO , John
Speaker Change: Great, thank you and welcome everybody to our third quarter fiscal year 2025 earnings call. I'm pleased to report another strong quarter in AAR with record results in both sales and adjusted EPS.
Speaker Change: This past quarter we successfully drove value throughout the organization by growing our aftermarket services and significantly improving our margins.
Speaker Change: We continue to benefit from a strong demand environment in both our commercial and government end markets, which we anticipate will continue through calendar year 2025.
Speaker Change: Once again, the combination of sales growth and margin expansion resulted in a significant increase to adjusted earnings per share, which grew 16% to 99 cents compared to 85 for the same period last year.
Speaker Change: Additionally, this past quarter, we reduced our net debt leverage from three six to $3 63.
Speaker Change: <unk> 3.06 times from three seven times in the prior quarter.
Speaker Change: Our strong balance sheet and disciplined capital allocation strategy have us well positioned for investments that will continue to drive growth.
Speaker Change: Turning now to slide four I will discuss our three core business segments in more detail.
Speaker Change: Alright supply continues to be our largest business segment contributing nearly 40% of our company's sales overall third quarter sales of approximately $271 million were 12% higher compared to the same quarter last year, driven largely by significant growth in our new parts distribution activities third quarter adjusted EBITDA for parts supply.
Speaker Change: <unk> of $36 8 million, 12% higher than the same quarter last year.
Speaker Change: New parts distribution continues to drive exceptional growth in this segment as sales increased 20% organically from the prior year quarter with meaningful growth across both our commercial and government end markets.
Speaker Change: Saw better than expected margins due to favorable product mix and scaling efficiencies as recent new exclusive distribution contracts ramped up.
Speaker Change: I wanted to take a moment and highlight our new parts distribution business. This business has grown by double digits organically for each of the last 13 quarters and now represents approximately 60% of our parts supply segment.
Speaker Change: <unk> is an independent distributor combined with our focus on exclusive contracts if compelling value proposition for our customers and OEM partners.
Speaker Change: A recent example of this value proposition is our multiyear agreement to exclusively distribute select units and parts under our supplier capability of contract with the defense Logistics agency. In this agreement we are expanding our penetration with a key supplier unison and helping the U S government needs. Additionally, we have entered into a multi year exclusive agreement with chroma.
Speaker Change: Roy to distribute their PMA parts of the PW 4000 engine platform. It builds on our previously announced agreement to distribute <unk> PMA parts for the CF fix ADC to engine platform.
Speaker Change: Our U S.
Speaker Change: The activities, we saw modest year over year growth, which fell short of our expectations for the quarter.
Speaker Change: We saw a decline in volume due to timing of engine inductions for certain contracts we support.
Speaker Change: We expect this lower volume level to be temporary.
Speaker Change: While engine material and narrow body assets remain tight as.
Speaker Change: As we mentioned last quarter, we see signs of loosening and more whole assets coming to the market. We are watching this market closely and believe we are well positioned to invest in parts and whole assets, where they meet our return requirements. So that in this morning's announcement of our extension of our CFM 56 arrangement without Ty will provide exclusive access to decided.
Speaker Change: And material.
Speaker Change: And now and in the coming years.
Speaker Change: Turning now to repair and engineering segment third quarter sales.
Speaker Change: $216 million and grew 53% from the same quarter last year adjusted.
Speaker Change: Adjusted EBITDA grew to $27 9 million up 110% from the same quarter last year.
Speaker Change: The product support acquisition continues to perform well and drive growth and margin improvement in the repair and engineering segment.
Speaker Change: As a reminder, as part of the product support integration, we are exiting our long Island, New York facility and are consolidating that work into our locations in Dallas and Wellington, Kansas.
Speaker Change: So that integration is on schedule for completion during our first.
Speaker Change: Our fiscal fourth quarter, and we intend to fully exit the Newark facility in Q1, FY 'twenty six.
Speaker Change: We saw some lower efficiencies and throughput this quarter as we significantly ramp up head count and the two sites that are receiving the work.
Speaker Change: Are there new technicians become more experience they will be able to repair units more efficiency as we come out of this particularly accurate point in the integration process, we expect our operating efficiency to improve it supports our plan to continue our overall margin expansion.
Speaker Change: Finally, it's important to note that the backlog is growing across our component repair sites as we leverage our global sales force to win New business. One example of this is the recently announced multi year agreement with Cebu Pacific, where CFM 56 engine nacelle maintenance for their <unk> hundred 20 fleet. This work will be done out of our Thailand facility and represents a key.
Speaker Change: Key wins in the important Asia Pacific region.
Speaker Change: On the airframe MRO side of repair and engineering, we continue to see strong underlying demand for our services and are focused on implementing process improvements that continue to increase efficiency and improved throughput at our existing facilities. These initiatives have been extremely effective and led to better than expected margins this quarter.
Speaker Change: Hangar capacity expansions in Miami in Oklahoma City are both progressing.
Speaker Change: The city expansion is slightly ahead of schedule and the Miami expansion is slightly behind due to some permitting delays.
Speaker Change: Turning now to integrated solutions sales for the quarter were $163 million slightly lower than the same quarter last year due to a net decline in our overall government activities. While we saw a decline in certain existing programs, which was partially offset by growth in new programs, which we expect to continue and contribute to overall.
Speaker Change: All growth in the coming quarters.
Speaker Change: Adjusted EBITDA and the integrated solutions and integrated solutions for the second quarter was $16 $2 million stronger by 11% from the same period last year due to mix shift within certain programs and strong performance contracts.
Speaker Change: Speaking of tracks well tracks is a relatively small contributor today as we invest in scale the offering to secure more business tracks will drive further operating margin expansion for the company. Overall, an example of a new business win at Cathay Pacific, who recently selected track to become the new maintenance operating system for their airline. Additionally, we.
Speaker Change: Expect the track will ultimately become a sales channel for our parts activities and we're making investments to support these initiatives.
Speaker Change: Before I turn it over to Sean I did want to comment on the current government environment those in particular.
Speaker Change: Ah can bring significant cost savings to the government by applying our commercial best practices. We've demonstrated this already with our support on the U S. Navy fleet for airframe and engine maintenance or services allowed the government to reduce cost and improve readiness. Additionally, we continue to pursue USA sales opportunities with the U S government, which has a cost.
Speaker Change: Saving alternative to purchasing new parts, we look forward to further demonstrating our capability to the U S Department of Defense State Department and other agencies have submitted a paper to the dose commission outlined specific areas, where we can best provide cost savings.
Speaker Change: I'll now turn it over to Sean to discuss our third quarter results in more detail.
Sean Gillen: Thanks, John.
Speaker Change: Turning now to slide five.
Speaker Change: Total sales in the quarter grew 20% to $678 million year over year, setting a new third quarter sales record.
Speaker Change: An improvement in part supply driven by an increase in distribution activities, along with higher sales and repair and engineering resulted in the significant sales increase from the same period last year.
Speaker Change: Sales to commercial customers increased 22% and sales to government customers increased 15%.
Speaker Change: For the quarter total commercial sales made up 72% of total sales while government sales made up the remaining 28%.
Speaker Change: Compared to the same quarter last year, adjusted EBITDA increased 39% to $81 2 million and EBITDA margin increased to 12% from 10, 3%.
Speaker Change: Adjusted operating income increased 39% to $65 6 million with adjusted operating margins improving to nine 7% from eight 3%.
Speaker Change: Our focus on airframe maintenance efficiencies and the contribution from the recently acquired product support business continues to help improve margin performance.
Speaker Change: Net interest expense for the quarter was $18 1 million, reflecting financing from the product support acquisition.
Speaker Change: For Q4, we expect net interest expense to remain consistent with these levels.
We also expect our Q4 effective tax rate to be approximately 30% the increase in the effective tax rate is due to the impact of the impairment associated with the landing gear divestiture.
Speaker Change: Future quarters, we expect our effective tax rate to be approximately 28%.
Speaker Change: Average diluted share count in the quarter was 35 4 million shares year over year adjusted diluted EPS increased 16% to 99 from 85 in the same quarter last year, reflecting the benefit of our growth and margin expansion.
Speaker Change: With that I'll turn to the detailed results by segment, starting with parts supply on slide six.
Speaker Change: Art supplies sales grew 12% to $271 million from the same quarter last year, driven by growth in both distribution and use with better than expected sales and distribution.
Speaker Change: An increase in commercial volume drove growth across both distribution and use along with an uptick in government demand for new parts distribution.
Speaker Change: Third quarter parts supply adjusted EBITDA was $36 8 million.
Speaker Change: Higher by 12% and adjusted EBITDA margins were flat at 13, 6% from the same quarter last year.
Speaker Change: Adjusted operating income rose, 10% to $34 3 million and adjusted operating margin declined slightly from 12, 8% to 12, 7%.
Speaker Change: Turning now to slide seven for repair and engineering.
Speaker Change: Sales increased 53% to $216 million as demand remains strong for our airframe MRO and component services capabilities.
Speaker Change: Adjusted EBITDA of $27 9 million was 110% higher than in the same period last year, while adjusted EBITDA margins increased to $12 nine from nine 4%.
Speaker Change: Third quarter adjusted operating income of $23 9 million was 108% higher and adjusted operating margins increased to 11, 1% from eight 2% in the same period last year.
Speaker Change: Going forward, we expect to drive further margin expansion in this segment from the realization of product support synergies.
Speaker Change: <unk> rollout of our paperless hanger initiatives and the capacity expansions that are in process.
Speaker Change: Looking now to slide eight.
Speaker Change: Integrated solutions sales slightly decreased by one 6% to $163 million driven by slightly larger government program sales offset by improvement in commercial program sales and gains and tracks.
Speaker Change: Integrated solutions adjusted EBITDA of $16 2 million was 11% higher than the same period last year.
Speaker Change: Adjusted operating income of $12 4 million was 11% higher while adjusted operating margin of seven 6% was slightly higher as John mentioned earlier, we continue to see strong margins from tracks.
Speaker Change: Turning to slide nine of the presentation.
Speaker Change: During the quarter, we reduced our net debt leverage from three seven times to 3.06 times, despite having an operating cash use of $19 million due to the CPA settlement of $56 million, which was paid during the quarter.
Speaker Change: When we closed the product support acquisition in March of last year net leverage at the time was $3 five eight times and we have made good progress on deleveraging in the year since closing.
Speaker Change: Our strong balance sheet has us well positioned to invest organically and to potentially pursue value accretive acquisitions absent any M&A, we would expect to continue to delever towards our target net leverage of two to two five times.
Speaker Change: I'd also like to update you on the sale of our landing gear business. We are close to closing unexpected divestiture to be complete during this quarter.
Speaker Change: Upon closing the cash proceeds will be used for debt paydown, which will be reflected in our fourth quarter cash flows.
Speaker Change: Our fourth quarter results will include landing gear results through the closing date of the sale for.
Speaker Change: For context landing gear contributed $19 million of sales in Q4 of last year and is currently generating approximately $6 million to $7 million of sales per month.
Jonathan: With that I will turn the call back over to Jonathan.
Speaker Change: Great. Thank you Sean turning to slide 10 in summary for Q3, our strong performance in new parts distribution airframe MRO contracts led to better than expected operating margins and our integration of product support is on schedule performance in U S. M remains variable due to market dynamics.
Speaker Change: Overall strength of the rest of the company is allowing us to accelerate our margin expansion efforts.
Speaker Change: As it relates to Q4 FY 'twenty five we expect year over year sales growth in the mid single digits net sales growth guidance assumes approximately one month of landing gear revenue will be included in our Q4 financial results, excluding the impact of landing a blended year divestiture, our year over year sales growth would be closer to the high single digits.
Speaker Change: Expect adjusted operating margin in the range of nine 7% to nine 9% in Q4 as Sean mentioned, we also expect our net interest expense to be consistent with Q3 $18 million and our effective tax rate to be approximately 30% in the quarter.
Speaker Change: Just as we stated last quarter, we continue to see strong demand signals from our largest commercial and government customers, we expect growth and margin expansion to continue this year and through FY 'twenty six before turning it over to the operator for questions I would like to thank our team of dedicated employees, our customers and our shareholders for your continued interest and support of a R.
Speaker Change: That will open it up for questions.
Speaker Change: Thank you.
Speaker Change: Ladies and gentlemen to ask a question. Please press star one on your telephone.
Speaker Change: Wait for your name to be announced to withdraw your question. Please press star one again please.
Speaker Change: Please standby, while we compile the Q&A roster.
Speaker Change: Great. Thank you.
Speaker Change: Our first question comes from the line of Scott <unk> with Melius Research. Your line is open.
Speaker Change: Hey, Scott.
Speaker Change: Okay.
Speaker Change: Scott are you there.
Speaker Change: Great why don't we go to go to the next question.
Speaker Change: Operator, maybe we can go to the next question.
Speaker Change: Sure one moment.
Speaker Change: Please standby for our next question.
Our next question comes from the line of Ken Herbert with RBC capital markets. Your line is open.
Ken Herbert: Yeah, Hey, good afternoon, John and Sean and Denise Hey, first.
Speaker Change: First John you made a comment again U S.
Speaker Change: Thank you said down slightly in the quarter, but but you expected I think you said that to be temporary.
Just maybe give a little bit more about what youre seeing in that marketplace, and which gives you confidence that you have.
Speaker Change: It sounds like it could be up in the fourth quarter and how do we think about that then into fiscal 'twenty six.
Speaker Change: And we're going to get we're getting pretty good at talking about USA.
Speaker Change: So yes. This quarter, we did have some situational things going on as you know in the U S business, we support most of its engine material and we support certain engine shop on contract and certain of our customers saw lower than expected engine shop inputs from their end users which resulted in.
Speaker Change: Lower demand for our material during the quarter on those particular contracts, we expect that to be temporary because these were maintenance deferrals by their end customers and we expect that work to get done later and therefore, we will see the demand later.
Speaker Change: Generally speaking consistent with what we said last quarter, we are seeing more whole assets and parts of packages come to market and U S N.
Speaker Change: And where those assets meet our return requirements were in a position to invest in them, where we see demand.
Speaker Change: Great and just as a follow up Theres certainly been some more concerned about about capacity growth amongst U S Airlines initially and maybe now a few in Europe.
Speaker Change: Just comment on if youre seeing any of that yet impact your business and maybe how much would we see capacity go down before you would in fact start to see impacts on different parts of your business.
Speaker Change: Yes, great question, and we're certainly paying attention to the commentary from the airlines here as well as as well as in Europe and other geographies.
Speaker Change: Generally speaking we are.
Speaker Change: Not seeing any meaningful decline in demand signals for the services that we offer so for parts supply for airframe heavy maintenance and four.
Speaker Change: Component maintenance all of the demand for those services for our customers.
Speaker Change: As strong as we've seen so at this moment, we feel we feel quite good.
Speaker Change: We'll be continuing to to the extent that there are capacity reductions our focus would be to continuing to demonstrate our value.
Speaker Change: <unk>.
Speaker Change: Lastly work is coming out of the airlines. It is going to go away from our competitors and remain with us.
Sean Gillen: Great. Thanks, John I'll pass it back there.
Ken Herbert: Great. Thank you Ken.
Speaker Change: Please standby for our next question.
Speaker Change: Our next question comes from the line of Laura <unk> with William Blair. Your line is open.
John Holmes: John Sean and Denise good afternoon.
Speaker Change: How are you.
Speaker Change: Great Nice work on the margin expansion, that's been a focus for investors and I was wondering you provided the information that the landing gear I think is generating roughly $20 million in revenue a quarter.
Speaker Change: That divestiture.
Speaker Change: Potentially add.
Speaker Change: 30 to 40 basis points to the EBITA margin when it when it closes.
Speaker Change: No not that much.
Speaker Change: And just to be clear landing gear. The results were fully in Q3, and then we expect to close shortly so the guidance that we gave for Q4 assumes landing gears and the results for one month.
Speaker Change: It's about breakeven to slightly positive on operating profit.
Speaker Change: So it will be overall accretive to margins, but not to the magnitude you mentioned.
Speaker Change: Okay.
Speaker Change: Great.
Speaker Change: <unk>.
Speaker Change: Another question your tracks business one.
The deal with Cathay Pacific and you previously announced a win with Singapore Airlines.
Speaker Change: These deals contributed to.
Speaker Change: Margin expansion as they scale and are there other tracks deals in the pipeline as it seems you have momentum there in the APAC region.
Speaker Change: Yes.
Speaker Change: Thanks for thanks for pointing that out.
Speaker Change: Yes, and yes so.
Speaker Change: We do expect them to.
Speaker Change: To add volume to track and track is our highest margin business in the company. So as that business grows overall accretive to margin and we do have a very strong pipeline of.
Speaker Change: Customers for Trac.
Speaker Change: We can't announce all of the ones you know some customers will lead us to a public some of them won't.
Speaker Change: So like Singapore, and Cathay, where we're able to or willing to let us announce the wins.
Speaker Change: But.
Speaker Change: For those that we can announce it for those that we can we feel really good about the pipeline of opportunity for tracks.
Speaker Change: Awesome. Thanks, John.
Lloyd: Great. Thanks Lloyd.
Speaker Change: Thank you.
Speaker Change: Please standby for our next question.
Speaker Change: Our next question comes from the line of Michael Lisa with Keybanc capital markets. Your line is open.
Speaker Change: Hey, good afternoon, everyone.
Speaker Change: You had called out the increased throughput MRO facilities.
Speaker Change: Those have been running at or near full capacity for a while now so it's good to see that improvement.
Speaker Change: Could you talk about the efficiency improvement and maybe how big of an impact it had on margins and then secondly, do you see more room for increased throughput in the near term.
Speaker Change: Yes, great question. So we've made if you look at the last several quarters, we've made substantial gains in margins in our airframe hangers and we've also continued to grow sales and we are proud of the fact that we've been able to improve margins in an inflationary environment environment for labor costs in particular and grew.
Speaker Change: Sales on the same footprint and to your point that comes from increased increased throughput we.
Speaker Change: We do see opportunities to continue both improvements more throughput.
Speaker Change: And sales growth as well as further margin expansion in the hangers on the existing on the existing footprint in the coming quarters.
Speaker Change: To highlight one initiative and we've talked about this a couple of times.
Speaker Change: Our paperless initiative inside of the Hanger is still not fully rollout we've made a lot of progress in the last couple of quarters of getting that rolled out.
Speaker Change: So we have more runway there.
Speaker Change: Initiatives fully implemented throughout our entire network and so that will drive further margin improvement and then beyond that.
Speaker Change: Once we do complete the expansions in Oklahoma and Miami.
Speaker Change: Drive it and further margin improvement as we leverage the fixed cost base, bringing on those new Dave in those three facilities.
Speaker Change: And then maybe an update on defense opportunities you had talked about the U S M parts with <unk>.
Speaker Change: How has the activity there increased versus maybe three months ago and looking forward when can we realistically expect those opportunities to come to fruition.
Speaker Change: Great and timely question.
Speaker Change: So the first answer is theyre actually.
Speaker Change: Our U S sales to the government, we have not seen a notable increase yet so.
Speaker Change: Any activity there would be upside to where we are today I was actually in Washington D. C. Yesterday, I had a number of meetings on the hill.
Speaker Change: We're talking about this opportunity and even though that the concept that we've been talking about what the government for some time.
Speaker Change: We are hopeful that with the door was commissioned in place and the general environment for for trying new things at scale quickly. This could be the moment, where we actually see significant uptake for U S. Seven.
Speaker Change: So we're encouraged by the conversations and they would be incremental the results to the results today because at the moment we have.
Speaker Change: Uhm standpoint in the U S government.
Speaker Change: We don't have much activity today.
Speaker Change: Great I'll leave it there thank you great.
Speaker Change: Great. Thank you.
Speaker Change: Please standby for our next question.
Speaker Change: Our next question comes from the line of Scott <unk> with Melius Research. Your line is open.
Scott <unk>: Hey, John John Sorry, I think I got disconnected earlier.
Speaker Change: Don't worry.
Speaker Change: Come at that question.
Speaker Change: Yeah.
Speaker Change: I saw the press release on your extending the partnership with <unk> through 2030 on the CFM 56 engine.
Speaker Change: Wondering does that extension of the agreement did it come with any change in economics or increase in scope and then kind of how should we think about it ramping from this point through the end of this decade.
Speaker Change: Yes, great question, the partnership with FY have gone very well and which is why we chose to extend that.
Speaker Change: It's a very similar arrangement to what we have today, where we are.
Speaker Change: Exclusive outlet for the CFM 56 engine material as they retire.
Speaker Change: The engines out of their portfolio, we do expect over time to continue to increase the volume from where we are a day with F&I and that's directly tied to their own scaling as they scale their own portfolio, adding more and more engines to their lease portfolio. We should see more engines coming out of that portfolio that again, we have the exclusive right to distribute.
Speaker Change: Apart so it's a continuation of what we're doing but we do expect growth in the coming quarters and years.
Speaker Change: Okay, and then thinking about the tariff situation, it's very slow Ed I'm thinking potentially doing any bulk buys and parts for your parts distribution business to preempt any tariffs and is there the possibility that.
Speaker Change: If there's not broad exemptions for tariffs that it could drive more demand for your component repair business.
Speaker Change: Great question.
Speaker Change: <unk>.
Speaker Change: Naturally like everybody, we are paying attention to the changing landscape and sheriff.
Speaker Change: It could impact that in a few different ways.
Speaker Change: First of all we are not buying ahead of any tariffs, we're not making any meaningful decisions there.
Speaker Change: We are focused on keeping track of to the extent the tariff impact the OEM price increases too.
Speaker Change: We want to make sure that we're able to pass those increases along to the end user and it's important to remember that we've been in a deflationary environment for some time, even before the tariffs were part of the narrative of the Oems have been.
Speaker Change: Our OEM partners and distribution have been.
Speaker Change: Making substantial changes to their pricing to us, which we've had to pass on and we've been doing that.
Speaker Change: Successfully and we would do that certainly in a tariff environment is.
Speaker Change: As it relates to tariffs potentially benefiting us I mean, yes, so to the extent that repair work needs to stay in the U S. As opposed to being sent overseas. We are in a great position to capture that work given the expanded footprint that we acquired what's wrong.
Speaker Change: Alright, thanks for taking the questions.
Speaker Change: Great. Thank you.
Speaker Change: As a reminder, ladies and gentlemen that star one to ask a question.
Speaker Change: Please standby for our next question.
Speaker Change: Our next question comes from the line of Josh Sullivan with the Benchmark Company. Your line is the line is open.
Josh Sullivan: Hey, good evening.
Speaker Change: Yes.
Speaker Change: Just as far as the.
Speaker Change: <unk> distribution agreement with Chromalloy.
Speaker Change: Yes, there's a conversation around lessors.
Speaker Change: Their interest in PMA I mean, what's your sense as you get into this distribution arrangement that.
Speaker Change: The lesson lessor market is going to be a good customer.
Speaker Change: Yes, great question, I mean lessors in particular, we do see increasing openness.
Speaker Change: To adopt DNA obviously.
Speaker Change: What <unk> been able to achieve.
A big part of that kind of change in mindset out there. So we do see that as a market but.
Speaker Change: More than that we see many many end users that only engines in both lease them.
Speaker Change: Open to these particular PMA and the <unk> DNA is on the fixed ADC too and the Pratt and Whitney 4000 engine. The CMA has had been in existence for many years. They are well established technology. There is already broad adoption and we teamed up with corn alloy because chromalloy felt that we could help take their sales to the next level given our reach into the global market.
Speaker Change: And then I guess, tying that maybe a separate question, but tying it into your comments earlier about those I mean, what are your thoughts about potential PMA is entering into that conversation as well.
Speaker Change: Our focus has been more on the U S M side of things.
Speaker Change: That's a different conversation obviously use them at the same partner makes the same material.
Speaker Change: So thats a more straightforward discussion to have.
Speaker Change: PMA.
Speaker Change: It's a different part until the approval process is different.
Speaker Change: But for our for our interest we've been focused more on the <unk> side.
Speaker Change: Got it.
Speaker Change: And then I guess, just one last one on tracks.
Speaker Change: It becomes a broader base.
Speaker Change: Platform.
When do we hit that tipping point, where we really see some.
Speaker Change: A lot of activity for air distribution of our products flowing through cracks platform.
Speaker Change: Yes.
Speaker Change: Great question that is a very significant focus of ours right. Now we are really excited about the potential there.
Speaker Change: We are making investments.
Speaker Change: Two to build that channel and we hope to have something to talk about more fully later this calendar year.
Speaker Change: Okay.
Speaker Change: Great. Thank you for the time.
Speaker Change: Great. Thank you.
Speaker Change: Ladies standby for our next question.
Speaker Change: Our next question comes from the line of Michael <unk> with <unk> Securities. Your line is open.
Speaker Change: Hey, good afternoon, guys. Thanks for taking the question Hey, Mike.
Mike: Hey, John or Sean I, just want to make sure it sounded like the topline Miss versus your expectation I think you were looking at 'twenty two.
Speaker Change: Hi.
Speaker Change: Okay.
Speaker Change: So I wanted to make sure I had that and then just I mean on the engine maintenance deferrals.
Speaker Change: I mean should we be thinking of that as something maybe a little bit more ominous when we when we couple that with what we're seeing out of the airlines and I think there's also been some chatter and reports of some of these advanced bookings, especially in Canada really showing some weakness so I'm just thinking if you hear an airline.
Speaker Change: Different engine, most likely close they are not flying or how can we reconcile that.
Speaker Change: Yes.
Speaker Change: State that you've got a little garbled there at the beginning but I think I got it so in terms of the topline yet.
Speaker Change: Sales out of the U S M business were below our expectations for the quarter.
Speaker Change: Specifically that was a couple of customers on one contract and I would not cite that as ominous or an indication of overall trend is that in fact, our understanding of the reason, we've deferred maintenance because they actually needed to lift as opposed to have the ability to take the engines out of service and put them through the shop. So.
Speaker Change: It would suggest that there is continued strong demand there.
Speaker Change: Okay. Okay. That's helpful and then just what about.
Speaker Change: That sort of more questions on U S. M. I guess, we've actually seen some of the U S carriers may be talking about accelerating some retirement switch maybe that's just a healthy return to normal in terms of retirement <unk> percent of the fleet.
Speaker Change: Seeing those signals you get access to that material I mean, some of these cost for some of the carriers have said that our some of your customers. So do you think there is going to be I don't want to say a bow wave of U S. M. But do you think you'll get some more shots on goal here.
Speaker Change: Yes, I mean, so we're seeing a lot of those conversations as you can imagine.
Speaker Change: <unk> has been predicted for some time.
Speaker Change: It hasnt happened in that form.
Speaker Change: As we mentioned and you just generally speaking we are seeing more of those conversations and more whole assets in parts of packages come to market.
Speaker Change: But it's still not a normal amount.
Speaker Change: But as we've been as we have said for that business. When you reach a point, where you start to get a more regular level of material hitting the market combined with the elevated demand that we expect to persist for some time that would be a good combination of events for us, but again, our focus and our.
Speaker Change: <unk> at the company have really been in the other areas around component repair, which obviously is very high margin and certainly the new parts distribution business, which we've highlighted has been growing exceptionally well over the past 13 quarters and we see a lot of runway for that business.
Speaker Change: It is more predictable.
Speaker Change: Over the next several years.
Speaker Change: Got it helpful. And then just last one housekeeping what was the organic growth I may have missed it the organic growth in the quarter Sean.
Sean Gillen: Yes for the quarter it was about 6% organic growth.
Speaker Change: Got it alright, thanks, guys I'll jump back in the queue.
Speaker Change: Yes.
Speaker Change: Ladies and gentlemen at this time I will now.
Speaker Change: Now I'd like to turn the call back over to management for closing remarks.
Speaker Change: Great. Thank you everybody and thank you everybody. We really appreciate the time and the interest and we look forward to being back with you in July.
Speaker Change: Ladies and gentlemen that concludes today's conference call. Thank you for your participation you may now disconnect.
Speaker Change: Okay.
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Speaker Change: Yes.
Speaker Change: Yes.
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Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Okay.