Q2 2026 AAR Corp Earnings Call

January 6, 2026

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I will now like to hand the conference over to Chris tillit vice president of investor relations. You may begin.

Good afternoon everyone and welcome to aar's physical year. 2026 second quarter earnings call.

We're joined today by John Holmes, chairman president and chief executive officer and Sarah, Flanagan interim, Chief Financial Officer.

The presentation we are sharing today is part of this webcast can be found under the investor relations section on our corporate website.

Before we begin I'd like to remind you that the comments made during the call include forward-looking statements as defined in the private Securities. Litigation Reform, Act of 1995.

These forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from the forward-looking statements.

Accordingly, these statements are no guarantee of future performance.

These residents are in. These 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 May 31st 2025

And providing a 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 during the call today. A Reconciliation of these non-gaap measures to the most comparable. Gaap measure is set forth in the company's earnings release and slice.

A transcript of this conference call will be available shortly after the webcast on aar's website.

At this time, we would like to turn the call over to aar's Chairman president and CEO John Holmes.

Great. Thank you, Chris and welcome everyone. To our second quarter, fiscal year 2026 earnings call. This was another outstanding quarter for a as we generated strong results across all areas of our business. We also completed. 2, key strategic Acquisitions. And announced the third, which is expected to close in our fiscal fourth quarter. We are excited about these Acquisitions as they enable us to accelerate our strategic objectives and 2 key areas of our business. Our high growth part supply, business segments, specifically new parts distribution, and in our repair and Engineering segment.

Turning to type slide 3. I would like to start with the key takeaways from the quarter first. We delivered strong financial results with sales growth across all segments. Our 16% total sales growth was led by our part supply business which was up 29% in the quarter. This growth was driven by above Market, organic sales growth of 32% in our new parts distribution activities,

This has been our fastest growing activity, averaging more than 20% organic growth in each of the last 4 years. Our 2-way exclusive distribution model, resonates with oems and is helping to drive continued market. Share gains.

John Holmes: Announced the third, which is expected to close in our fiscal fourth quarter. We are excited about these acquisitions as they enable us to accelerate our strategic objectives in two key areas of our business: our high-growth Parts Supply business segment, specifically new parts distribution, and in our Repair and Engineering segment. Turning to slide three, I would like to start with the key takeaways from the quarter. First, we delivered strong financial results with sales growth across all segments. Our 16% total sales growth was led by our Parts Supply business, which was up 29% in the quarter. This growth was driven by above-market organic sales growth of 32% in our new parts distribution activities. This has been our fastest-growing activity, averaging more than 20% organic growth in each of the last four years.

Speaker #1: Announced the third, which is expected to close in our fiscal fourth quarter. We are excited about these acquisitions, as they enable us to accelerate our strategic objectives in two key areas of our business: our high-growth parts supply business segment—specifically new parts distribution—and in our repair and engineering segment.

Second, we strengthen our portfolio with 2 strategic Acquisitions. We previously shared that we are committed to enhancing our offerings with targeted Acquisitions that Advance, our strategy and we are delivering on that promise.

Speaker #1: Turning to slide three, I would like to start with the key takeaways from the quarter. First, we delivered strong financial results with sales growth across all segments.

Third, we continue to capture new business across the country, including the new oil and key exclusive. New Parts, district distribution agreements, as well as new customers for tracks.

First, we delivered strong financial results with sales growth across all segments. Our 16% total sales growth was led by our Parts Supply business, which was up 29% in the quarter. This growth was driven by above-market organic sales growth of 32% in our new parts distribution activities. This has been our fastest-growing activity, averaging more than 20% organic growth in each of the last four years.

Speaker #1: Our 16% total sales growth was led by our parts supply business, which was up 29% in the quarter. This growth was driven by above-market organic sales growth of 32% in our new parts distribution activities.

In addition, We are continuing to enhance our digital capabilities, including through our newly announced partnership with Aero exchange, the Premier Commercial Aviation supply chain, secure network provider.

Forth. We are carefully managing our balance sheet to maintain strategic flexibility, and we ended the quarter with lower leverage, which is now within our long-term target range.

Speaker #1: This has been our fastest-growing activity, averaging more than 20% organic growth in each of the last four years. Our two-way exclusive distribution model resonates with OEMs and is helping to drive continued market share gains.

John Holmes: Our two-way exclusive distribution model resonates with OEMs and is helping to drive continued market share gains. Second, we strengthened our portfolio with two strategic acquisitions. We previously shared that we are committed to enhancing our offerings with targeted acquisitions that advance our strategy, and we are delivering on that promise. Third, we continue to capture new business across the company, including the renewal of key exclusive new parts distribution agreements, as well as new customers for TRAX. In addition, we are continuing to enhance our digital capabilities, including through our newly announced partnership with Aeroxchange, the premier commercial aviation supply chain secure network provider. Fourth, we are carefully managing our balance sheet to maintain strategic flexibility, and we ended the quarter with lower leverage, which is now within our long-term target range.

Our two-way exclusive distribution model resonates with OEMs and is helping to drive continued market share gains. Second, we strengthened our portfolio with two strategic acquisitions. We previously shared that we are committed to enhancing our offerings with targeted acquisitions that advance our strategy, and we are delivering on that promise. Third, we continue to capture new business across the company, including the renewal of key exclusive new parts distribution agreements, as well as new customers for TRAX.

Turning to slide 4. We have a number of accomplishments within the quarter regarding our 4 strategic objectives, which are new business wins. Operational, efficiency, software and IP enabled offerings and discipline portfolio management.

Speaker #1: Second, we strengthened our portfolio with two strategic acquisitions. We previously shared that we are committed to enhancing our offerings with targeted acquisitions that advance our strategy, and we are delivering on that promise.

I will highlight 2 of the objectives on this side. New business wins as well as software and IP enabled offerings with additional items to be discussed later in the presentation.

Speaker #1: Third, we continue to capture new business across the company, including the renewal of key exclusive new parts distribution agreements, as well as new customers for tracks.

In addition, we are continuing to enhance our digital capabilities, including through our newly announced partnership with Aeroxchange, the premier commercial aviation supply chain secure network provider. Fourth, we are carefully managing our balance sheet to maintain strategic flexibility, and we ended the quarter with lower leverage, which is now within our long-term target range.

Speaker #1: In addition, we are continuing to enhance our digital capabilities, including through our newly announced partnership with AeroXchange, the premier commercial aviation supply chain secure network provider.

First, our distribution model is unique in the industry in that, nearly all of our distribution contracts, which typically range from 5 to 10 years, are 2-way exclusive. Meaning we do not represent competing product in a given market and our OEM Partners do not use a competing distributor.

Speaker #1: Fourth, we are carefully managing our balance sheet to maintain strategic flexibility. We ended the quarter with lower leverage, which is now within our long-term target range.

This model allows us to develop deeper relationships with our OEM Partners become technically proficient, in their products and help them take market share.

this differs from a traditional distribution model where you acquire inventory and essentially act as a call center

Speaker #1: Turning to slide four, we have a number of accomplishments within the quarter regarding our four strategic objectives, which are new business wins, operational efficiency, software and IP-enabled offerings, and disciplined portfolio management.

John Holmes: Turning to slide four, we have a number of accomplishments within the quarter regarding our four strategic objectives, which are new business wins, operational efficiency, software and IP-enabled offerings, and discipline portfolio management. I will highlight two of the objectives on this slide: new business wins, as well as software and IP-enabled offerings, with additional items to be discussed later in the presentation. First, our distribution model is unique in the industry in that nearly all of our distribution contracts, which typically range from 5 to 10 years, are two-way exclusive, meaning we do not represent competing products in a given market, and our OEM partners do not use a competing distributor. This model allows us to develop deeper relationships with our OEM partners, become technically proficient in their products, and help them take market share.

Turning to slide four, we have a number of accomplishments within the quarter regarding our four strategic objectives, which are new business wins, operational efficiency, software and IP-enabled offerings, and discipline portfolio management. I will highlight two of the objectives on this slide: new business wins, as well as software and IP-enabled offerings, with additional items to be discussed later in the presentation.

We developed this approach for more than 10 years ago and over the last several years have seen a 100% renewal rate in our contracts.

Speaker #1: I will highlight two of the objectives on this slide: new business wins, as well as software and IP-enabled offerings, with additional items to be discussed later in the presentation.

First, our distribution model is unique in the industry in that nearly all of our distribution contracts, which typically range from 5 to 10 years, are two-way exclusive, meaning we do not represent competing products in a given market, and our OEM partners do not use a competing distributor. This model allows us to develop deeper relationships with our OEM partners, become technically proficient in their products, and help them take market share.

We are also leveraging synergies between our repair offering and our distribution activities. During the quarter Eaton, 1 of our key, new parts, distribution OEM partners

Speaker #1: First, our distribution model is unique in the industry in that nearly all of our distribution contracts, which typically range from 5 to 10 years, are two-way exclusive, meaning we do not represent competing product in a given market, and our OEM partners do not use a competing distributor.

Speaker #1: This model allows us to develop deeper relationships with our OEM partners, become technically proficient in their products, and help them take market share.

Named Amsterdam our Amsterdam facility as an authorized service center to support their hydraulic components across Europe, the Middle, East and Africa. This is a great example of the critical role, our parts supply, and repair and Engineering businesses, play in the aviation value chain and the synergies that exist within our operating activities,

Speaker #1: This differs from a traditional distribution model, where you acquire inventory and essentially act as a call center. We developed this approach more than 10 years ago, and over the last several years have seen a 100% renewal rate in our contracts.

John Holmes: This differs from a traditional distribution model where you acquire inventory and essentially act as a call center. We developed this approach more than 10 years ago, and over the last several years, have seen a 100% renewal rate in our contracts. Speaking of renewals, during the quarter, we announced the renewal of two key exclusive contracts with Collins Aerospace and Arkwin Industries, which is a unit of TransDigm Group. We are also leveraging synergies between our repair offering and our distribution activities. During the quarter, Eaton, one of our key new parts distribution OEM partners, named our Amsterdam facility as an authorized service center to support their hydraulic components across Europe, the Middle East, and Africa. This is a great example of the critical role our Parts Supply and Repair and Engineering businesses play in the aviation value chain and the synergies that exist within our operating activities.

This differs from a traditional distribution model where you acquire inventory and essentially act as a call center. We developed this approach more than 10 years ago, and over the last several years, have seen a 100% renewal rate in our contracts. Speaking of renewals, during the quarter, we announced the renewal of two key exclusive contracts with Collins Aerospace and Arkwin Industries, which is a unit of TransDigm Group. We are also leveraging synergies between our repair offering and our distribution activities.

Within our repair and Engineering business. We continue to make progress on our Oklahoma City and Miami airframe, heavy maintenance, expansions both expansions are progressing well and will come online in calendar 2026, adding approximately 60 million in annual revenue.

Speaker #1: Speaking of renewals, during the quarter we announced the renewal of two key exclusive contracts with Collins Aerospace and Arcwind Industries, which is a unit of TransDyne.

During the quarter tracks announced an agreement with air exchange. Air exchange is a leading provider of secure commercial, Aviation Supply networks. And this agreement will enhance our integration capabilities with our customers.

Speaker #1: We are also leveraging synergies between our repair offering and our distribution activities. During the quarter, Eaton, one of our key new parts distribution OEM partners, named our Amsterdam facility as an authorized service center to support their hydraulic components across Europe, the Middle East, and Africa.

During the quarter, Eaton, one of our key new parts distribution OEM partners, named our Amsterdam facility as an authorized service center to support their hydraulic components across Europe, the Middle East, and Africa. This is a great example of the critical role our Parts Supply and Repair and Engineering businesses play in the aviation value chain and the synergies that exist within our operating activities.

Tracks customers will gain access to Aero exchanges. Extensive networks of Parts, repair inventory, full and Consignment service suppliers through tracks applications.

This collaboration advances our strategy to make it easier for tracks customers to buy parts and repairs.

Speaker #1: This is a great example of the critical role our parts supply, repair, and engineering businesses play in the aviation value chain, and the synergies that exist within our operating activities.

Speaker #1: Within our repair and engineering business, we continue to make progress on our Oklahoma City and Miami airframe heavy maintenance expansions. Both expansions are progressing well and will come online in calendar 2026, adding approximately $60 million in annual revenue.

John Holmes: Within our repair and engineering business, we continue to make progress on our Oklahoma City and Miami airframe heavy maintenance expansions. Both expansions are progressing well and will come online in calendar 2026, adding approximately $60 million in annual revenue. During the quarter, TRAX announced an agreement with Aeroxchange. Aeroxchange is a leading provider of secure commercial aviation supply networks, and this agreement will enhance our integration capabilities with our customers. TRAX customers will gain access to Aeroxchange's extensive networks of parts, repair, inventory pool, and consignment service suppliers through TRAX applications. This collaboration advances our strategy to make it easier for TRAX customers to buy parts and repairs.

Within our repair and engineering business, we continue to make progress on our Oklahoma City and Miami airframe heavy maintenance expansions. Both expansions are progressing well and will come online in calendar 2026, adding approximately $60 million in annual revenue. During the quarter, TRAX announced an agreement with Aeroxchange. Aeroxchange is a leading provider of secure commercial aviation supply networks, and this agreement will enhance our integration capabilities with our customers.

1 more thing on tracks, we excited to announce yesterday. The tracks has been selected by Tire Airways, 1 of the most important Asian carriers to provide its emro, enterprise resource planning system, Suite of e-mobility, apps and the cloud hosting solution.

Turning now to slide 5 with more detail. I'll provide more detail on our recent acquisition of Adi.

Speaker #1: During the quarter, Tracks announced an agreement with AeroXchange. AeroXchange is a leading provider of secure commercial aviation supply networks, and this agreement will enhance our integration capabilities with our customers.

TRAX customers will gain access to Aeroxchange's extensive networks of parts, repair, inventory pool, and consignment service suppliers through TRAX applications. This collaboration advances our strategy to make it easier for TRAX customers to buy parts and repairs.

Speaker #1: Tracks customers will gain access to AeroXchange's extensive networks of parts, repair, inventory pool, and consignment service suppliers through Tracks applications. This collaboration advances our strategy to make it easier for Tracks customers to buy parts and repairs.

Required ADI in September for 1008, 138 million. ADI is a leading distributor of electronic components and assemblies and a closely aligned with our strategic objective to expand our rapidly growing. New parts distribution activities within our part supply segment. As mentioned, new parts, distribution has been growing at over 20% for the last 4 years.

And ADI will add a new growth Vector to this activity.

The addition of ADI moves AAR up the value chain up. The supply chain through audeze production facing distribution channels.

Speaker #1: One more thing on Tracks, we were excited to announce yesterday that Tracks has been selected by Thai Airways, one of the most important Asian carriers, to provide its eMRO enterprise resource planning system suite of e-mobility apps and cloud hosting solution.

John Holmes: One more thing on TRAX: we were excited to announce yesterday that TRAX has been selected by Thai Airways, one of the most important Asian carriers, to provide its eMRO enterprise resource planning system, suite of e-mobility apps, and cloud hosting solution. Turning now to slide five with more detail, I'll provide more detail on our recent acquisition of ADI. We acquired ADI in September for $138 million. ADI is a leading distributor of electronic components and assemblies, and it closely aligns with our strategic objective to expand our rapidly growing new parts distribution activities within our parts supply segment. As mentioned, new parts distribution has been growing at over 20% for the last four years, and ADI will add a new growth factor to this activity. The addition of ADI moves AAR up the value chain, up the supply chain through ADI's production-facing distribution channel.

One more thing on TRAX: we were excited to announce yesterday that TRAX has been selected by Thai Airways, one of the most important Asian carriers, to provide its eMRO enterprise resource planning system, suite of e-mobility apps, and cloud hosting solution. Turning now to slide five with more detail, I'll provide more detail on our recent acquisition of ADI. We acquired ADI in September for $138 million.

This means we will now supply parts to our OEM partners for use in their own Manufacturing.

We plan to leverage our OEM relationships to grow audeze business.

Speaker #1: Turning now to slide five with more detail. I'll provide more detail on our recent acquisition of ADI. We acquired ADI in September for $138 million.

For the proximately 150 million dollars in sales over the last 12 months, and a team of 400 skilled employees. We are increasing our access to a substantial and rapidly growing total addressable Market.

ADI is a leading distributor of electronic components and assemblies, and it closely aligns with our strategic objective to expand our rapidly growing new parts distribution activities within our parts supply segment. As mentioned, new parts distribution has been growing at over 20% for the last four years, and ADI will add a new growth factor to this activity. The addition of ADI moves AAR up the value chain, up the supply chain through ADI's production-facing distribution channel.

Speaker #1: ADI is a leading distributor of electronic components and assemblies, and it closely aligns with our strategic objective to expand our rapidly growing new parts distribution activities within our parts supply segment.

Additionally over time, we see opportunities to improve margins through higher volumes and operational efficiencies ADI has performed above expectations in the first few months, and the integration is progressing as planned.

Turning now, to slide 6, I would like to provide an overview of our acquisition of ho Americas.

Speaker #1: As mentioned, new parts distribution has been growing at over 20% for the last four years, and ADI will add a new growth factor to this activity.

We required ho Americas in November for 77 million. Extending our leadership position in airframe heavy maintenance.

Speaker #1: The addition of ADI moves AAR up the value chain, up the supply chain, through ADI's production-facing distribution channel. This means we will now supply parts to our OEM partners for use in their own manufacturing.

Through our investments in proprietary systems and processes. We've achieved industry-leading quality and turnaround time and have become the most sought-after. Airframe. Heavy maintenance provider in North America.

John Holmes: This means we will now supply parts to our OEM partners for use in their own manufacturing. We plan to leverage our OEM relationships to grow ADI's business. With approximately $150 million in sales over the last 12 months and a team of 400 skilled employees, we are increasing our access to a substantial and rapidly growing total addressable market. Additionally, over time, we see opportunities to improve margins through higher volumes and operational efficiencies. ADI has performed above expectations in the first few months, and the integration is progressing as planned. Turning now to slide six, I would like to provide an overview of our acquisition of HAECO Americas. We acquired HAECO Americas in November for $77 million, extending our leadership position in airframe heavy maintenance.

This means we will now supply parts to our OEM partners for use in their own manufacturing. We plan to leverage our OEM relationships to grow ADI's business. With approximately $150 million in sales over the last 12 months and a team of 400 skilled employees, we are increasing our access to a substantial and rapidly growing total addressable market.

Speaker #1: We plan to leverage our OEM relationships to grow ADI's business. With approximately $150 million in sales over the last 12 months and a team of 400 skilled employees, we are increasing our access to a substantial and rapidly growing total addressable market.

While new parts distribution has been our fastest growing Business airframe. Heavy maintenance has been the largest contributor to our margin expansion over the last 4 years. This acquisition Builds on that success.

Additionally, over time, we see opportunities to improve margins through higher volumes and operational efficiencies. ADI has performed above expectations in the first few months, and the integration is progressing as planned. Turning now to slide six, I would like to provide an overview of our acquisition of HAECO Americas. We acquired HAECO Americas in November for $77 million, extending our leadership position in airframe heavy maintenance.

Speaker #1: Additionally, over time, we see opportunities to improve margins through higher volumes and operational efficiencies. ADI has performed above expectations in the first few months, and the integration is progressing as planned.

Takeo America's operate facilities in Greensboro and North Carolina and Lake City Florida as part of the integration process. We will be applying our successful operating model to these facilities to improve their operational and financial performance. This process will take 12 to 18 months and has 3 key elements.

Speaker #1: Turning now to slide six, I would like to provide an overview of our acquisition of Heiko Americas. We acquired Heiko Americas in November for $77 million, extending our leadership position in airframe heavy maintenance.

Revenue optimization cost reduction and process improvements and footprint rationalization.

Speaker #1: Through our investments in proprietary systems and processes, we've achieved industry-leading quality and turnaround times, and have become the most sought-after airframe heavy maintenance provider in North America.

John Holmes: Through our investments in proprietary systems and processes, we've achieved industry-leading quality and turnaround times and have become the most sought-after airframe heavy maintenance provider in North America. While new parts distribution has been our fastest-growing business, airframe heavy maintenance has been the largest contributor to our margin expansion over the last four years. This acquisition builds on that success. HAECO Americas operates facilities in Greensboro, North Carolina, and Lake City, Florida. As part of the integration process, we will be applying our successful operating model to these facilities to improve their operational and financial performance. This process will take 12 to 18 months and has three key elements: revenue optimization, cost reduction, and process improvements, and footprint rationalization. With respect to optimizing revenue, as part of the acquisition, we announced approximately $850 million of new contract awards with several customers over five years.

Through our investments in proprietary systems and processes, we've achieved industry-leading quality and turnaround times and have become the most sought-after airframe heavy maintenance provider in North America. While new parts distribution has been our fastest-growing business, airframe heavy maintenance has been the largest contributor to our margin expansion over the last four years. This acquisition builds on that success. HAECO Americas operates facilities in Greensboro, North Carolina, and Lake City, Florida.

With respect to optimizing Revenue. As part of the acquisition, we announced approximately 850 million of new contract Awards. With several customers over 5 years. These contracts will replace the existing Revenue base at Howe and more closely match. The key terms we have with our current, uh, other airframe. Heavy maintenance customers.

Speaker #1: While new parts distribution has been our fastest-growing business, airframe heavy maintenance has been the largest contributor to our margin expansion over the last four years.

Speaker #1: This acquisition builds on that success. Heico Americas operates facilities in Greensboro, North Carolina, and Lake City, Florida. As part of the integration process, we will be applying our successful operating model to these facilities to improve their operational and financial performance.

As part of the integration process, we will be applying our successful operating model to these facilities to improve their operational and financial performance. This process will take 12 to 18 months and has three key elements: revenue optimization, cost reduction, and process improvements, and footprint rationalization. With respect to optimizing revenue, as part of the acquisition, we announced approximately $850 million of new contract awards with several customers over five years.

With respect to cost reduction and process improvements at the ho facilities, our actions to adjust, the cost structure to match the new Revenue base are already well underway. Additionally over time, we will deploy our proprietary processes and systems to the facilities to achieve the same quality and efficiency levels. We've achieved at our other airframe, heavy maintenance facilities.

Speaker #1: This process will take 12 to 18 months and has three key elements: revenue optimization, cost reduction and process improvements, and footprint rationalization. With respect to optimizing revenue, as part of the acquisition, we announced approximately $850 million of new contract awards with several customers over five years.

Regarding footprint, rationalization, we will be exiting our heavy maintenance site in Indianapolis. Over the next 18 months and transferring that work to other AAR sites with much of it. Moving to the ho facilities,

Speaker #1: These contracts will replace the existing revenue base at Heiko and more closely match the key terms we have with our current other airframe heavy maintenance customers.

John Holmes: These contracts will replace the existing revenue base at HAECO and more closely match the key terms we have with our current other airframe heavy maintenance customers. With respect to cost reduction and process improvements at the HAECO facilities, our actions to adjust the cost structure to match the new revenue base are already well underway. Additionally, over time, we will deploy our proprietary processes and systems to the facilities to achieve the same quality and efficiency levels we have achieved at our other airframe heavy maintenance facilities. Regarding footprint rationalization, we will be exiting our heavy maintenance site in Indianapolis over the next 18 months and transferring that work to other AAR sites, with much of it moving to the HAECO facilities. As a result of our lease agreement with the airport, Indianapolis is our highest-cost location. Additionally, labor availability has been a persistent challenge.

These contracts will replace the existing revenue base at HAECO and more closely match the key terms we have with our current other airframe heavy maintenance customers. With respect to cost reduction and process improvements at the HAECO facilities, our actions to adjust the cost structure to match the new revenue base are already well underway. Additionally, over time, we will deploy our proprietary processes and systems to the facilities to achieve the same quality and efficiency levels we have achieved at our other airframe heavy maintenance facilities.

Frame. Heavy maintenance activities.

Speaker #1: With respect to cost reduction and process improvements at the Heiko facilities, our actions to adjust the cost structure to match the new revenue base are already well underway.

As mentioned, all these actions will take 12 to 18 months to complete and will initially be margin dilutive. However, we expect the margin to steadily improve as we move through the integration process.

Speaker #1: Additionally, over time, we will deploy our proprietary processes and systems to the facilities to achieve the same quality and efficiency levels we've achieved at our other airframe heavy maintenance facilities.

Regarding footprint rationalization, we will be exiting our heavy maintenance site in Indianapolis over the next 18 months and transferring that work to other AAR sites, with much of it moving to the HAECO facilities. As a result of our lease agreement with the airport, Indianapolis is our highest-cost location. Additionally, labor availability has been a persistent challenge.

Speaker #1: Regarding footprint rationalization, we will be exiting our heavy maintenance site in Indianapolis over the next 18 months and transferring that work to other AAR sites, with much of it moving to the Heiko facilities.

Once this work is complete, we will have added approximately 40% additional capacity to our Network lowered. Our fixed cost and gained access to a more predictable labor Supply. Most importantly, we have the support and contractual commitments from our customers to execute this plan.

Speaker #1: As a result of our lease agreement with the airport, Indianapolis is our highest-cost location. Additionally, labor availability has been a persistent challenge. By exiting this high-cost location when the lease expires and redistributing the work throughout the rest of our network, we will further improve the overall margin profile of our airframe heavy maintenance activities.

Turning now to slide 7. We also, recently announced an agreement to acquire aircraft reconfig Technologies or art for 35 million.

John Holmes: By exiting this high-cost location when the lease expires and redistributing the work throughout the rest of our network, we will further improve the overall margin profile of our airframe heavy maintenance activities. As mentioned, all of these actions will take 12 to 18 months to complete and will initially be margin-dilutive. However, we expect the margin to steadily improve as we move through the integration process. Once this work is complete, we will have added approximately 40% additional capacity to our network, lowered our fixed cost, and gained access to a more predictable labor supply. Most importantly, we have the support and contractual commitments from our customers to execute this plan. Turning now to slide seven, we also recently announced an agreement to acquire Aircraft Reconfig Technologies, or ART, for $35 million. ART specializes in reconfiguring passenger aircraft interiors, providing project management, engineering, and certification solutions.

By exiting this high-cost location when the lease expires and redistributing the work throughout the rest of our network, we will further improve the overall margin profile of our airframe heavy maintenance activities. As mentioned, all of these actions will take 12 to 18 months to complete and will initially be margin-dilutive. However, we expect the margin to steadily improve as we move through the integration process. Once this work is complete, we will have added approximately 40% additional capacity to our network, lowered our fixed cost, and gained access to a more predictable labor supply.

Speaker #1: As mentioned, all of these actions will take 12 to 18 months to complete, and will initially be margin dilutive; however, we expect the margin to steadily improve as we move through the integration process.

Art specializes in reconfiguring passenger aircraft Interiors, providing project management, engineering and certification Solutions. This is an exciting addition to our airframe, heavy maintenance capabilities, that expands our ability to perform complex aircraft modification work, while bringing proprietary Solutions and robust IP portfolio.

Speaker #1: Once this work is complete, we will have added approximately 40% additional capacity to our network, lowered our fixed cost, and gained access to a more predictable labor supply.

It also brings engineering and self-certification capability that can accelerate our parts. PMA development efforts, we expect this acquisition to close in the fourth quarter of this fiscal year and we look forward to welcoming the skilled team to a r.

With that, I'll turn it over to Sarah to discuss the results in more detail.

Most importantly, we have the support and contractual commitments from our customers to execute this plan. Turning now to slide seven, we also recently announced an agreement to acquire Aircraft Reconfig Technologies, or ART, for $35 million. ART specializes in reconfiguring passenger aircraft interiors, providing project management, engineering, and certification solutions.

Speaker #1: Most importantly, we have the support and contractual commitments from our customers to execute this plan. Turning now to slide seven, we also recently announced an agreement to acquire Aircraft Reconfig Technologies, or ART, for $35 million.

Thanks John. Looking now to slide 8, total sales in the quarter, grew 16% year-over-year, including 12%, organic growth, to 795 million. We drove growth in each of our segments, with particular strengths and part supply

Speaker #1: ART specializes in reconfiguring passenger aircraft interiors, providing project management, engineering, and certification solutions. This is an exciting addition to our airframe heavy maintenance capabilities that expands our ability to perform complex aircraft modification work while bringing proprietary solutions and a robust IP portfolio.

Sales growth to government. Customers increased, 23% and sales to commercial customers increased 13% over the same period last year.

John Holmes: This is an exciting addition to our airframe heavy maintenance capabilities that expands our ability to perform complex aircraft modification work while bringing proprietary solutions and a robust IP portfolio. It also brings engineering and self-certification capability that can accelerate our parts PMA development efforts. We expect this acquisition to close in the fourth quarter of this fiscal year, and we look forward to welcoming the skilled team to AAR. With that, I'll turn it over to Sarah to discuss the results in more detail.

This is an exciting addition to our airframe heavy maintenance capabilities that expands our ability to perform complex aircraft modification work while bringing proprietary solutions and a robust IP portfolio. It also brings engineering and self-certification capability that can accelerate our parts PMA development efforts. We expect this acquisition to close in the fourth quarter of this fiscal year, and we look forward to welcoming the skilled team to AAR. With that, I'll turn it over to Sarah to discuss the results in more detail.

For the quarter total commercial sales made up 71% of total sales. While government sales made up the remaining 29%,

Speaker #1: It also brings engineering and self-certification capability that can accelerate our parts PMA development efforts. We expect this acquisition to close in the fourth quarter of this fiscal year, and we look forward to welcoming the skilled team to AAR.

Speaker #1: With that, I'll turn it over to Sarah to discuss the results in more detail.

Speaker #2: Thanks, John. Looking now to slide eight, total sales in the quarter grew 16% year over year, including 12% organic growth, to $795 million. We drove growth in each of our segments, with particular strengths in parts supply.

Sarah: Thanks, John. Looking now to slide eight, total sales in the quarter grew 16% year-over-year, including 12% organic growth to $795 million. We drove growth in each of our segments with particular strengths in parts supply. Sales growth to government customers increased 23%, and sales to commercial customers increased 13% over the same period last year. For the quarter, total commercial sales made up 71% of total sales, while government sales made up the remaining 29%. Compared to the same quarter last year, adjusted EBITDA increased 23% to $96.5 million, and adjusted EBITDA margins increased to 12.1% from 11.4%. Adjusted operating income increased 28% to $81.2 million, with adjusted operating margins improving 100 basis points from 9.2% to 10.2%. Our focus on improving operating efficiencies, strong performance in our parts supply segment, and government programs were key drivers of the improved margins.

Sarah Flanagan: Thanks, John. Looking now to slide eight, total sales in the quarter grew 16% year-over-year, including 12% organic growth to $795 million. We drove growth in each of our segments with particular strengths in parts supply. Sales growth to government customers increased 23%, and sales to commercial customers increased 13% over the same period last year. For the quarter, total commercial sales made up 71% of total sales, while government sales made up the remaining 29%.

Compared to the same quarter last year adjusted Eva increased 23% to 96.5 million and adjusted Eva margins, increased to 12.1% from 11.4%. Adjusted operating income, increased 28% to 81.2 million with adjusted operating. Margins, improving, 100 basis points from 9.2% to 10.2%

Speaker #2: Sales growth to government customers increased 23%, and sales to commercial customers increased 13% over the same period last year. For the quarter, total commercial sales made up 71% of total sales, while government sales made up the remaining 29%.

Our focus on improving operating efficiencies strong performance and our part supply segment and government programs were key drivers of the improved margins, the combination of sales, growth and margin expansion, resulted in a year-over-year, adjusted diluted EPS, increase of 31% to $118 cents. A share from 90 cents a share in the same quarter last year.

With that, I'll turn to the detail results by segments. Starting with Part Supply on slide 9

Compared to the same quarter last year, adjusted EBITDA increased 23% to $96.5 million, and adjusted EBITDA margins increased to 12.1% from 11.4%. Adjusted operating income increased 28% to $81.2 million, with adjusted operating margins improving 100 basis points from 9.2% to 10.2%. Our focus on improving operating efficiencies, strong performance in our parts supply segment, and government programs were key drivers of the improved margins.

Speaker #2: Compared to the same quarter last year, adjusted EBITDA increased 23% to $96.5 million, and adjusted EBITDA margins increased to 12.1% from 11.4%. Adjusted operating income increased 28% to $81.2 million, with adjusted operating margins improving 100 basis points from 9.2% to 10.2%.

Total Part Supply, sales grew 29% from the same quarter last year to 354 million. We, once again, saw above market growth in our new parts distribution activities, which grew 32% as compared to last year. Excluding the contributions from Adi

Speaker #2: Our focus on improving operating efficiencies, strong performance in our parts supply segment, and government programs were key drivers of the improved margins. The combination of sales growth and margin expansion resulted in a year-over-year adjusted diluted EPS increase of 31% to $1.18 a share from $0.90 a share in the same quarter last year.

Second quarter Part Supply adjusted Eva of 46.5 million with Higher by 37% and adjusted EPA margin increased to 13.2% from 12.4% in the same quarter last year.

Sarah: The combination of sales growth and margin expansion resulted in a year-over-year Adjusted Diluted EPS increase of 31% to $1.18 a share from $0.90 a share in the same quarter last year. With that, I'll turn to the detailed results by segment, starting with Parts Supply on slide nine. Total Parts Supply sales grew 29% from the same quarter last year to $354 million. We once again saw above-market growth in our new parts distribution activities, which grew 32% as compared to last year, excluding the contributions from ADI. Second quarter Parts Supply Adjusted EBITDA of $46.5 million was higher by 37%, and Adjusted EBITDA margin increased to 13.2% from 12.4% in the same quarter last year. Adjusted operating income rose 35% to $42.8 million, and adjusted operating margins also increased from 11.5% to 12.1%.

The combination of sales growth and margin expansion resulted in a year-over-year Adjusted Diluted EPS increase of 31% to $1.18 a share from $0.90 a share in the same quarter last year. With that, I'll turn to the detailed results by segment, starting with Parts Supply on slide nine. Total Parts Supply sales grew 29% from the same quarter last year to $354 million.

Adjusted operating income Rose, 35% to 42.8 million and adjusted operating margins. Also include increased from 11.5% to 12.1%.

Speaker #2: With that, I'll turn to the detailed results by segment, starting with parts supply on slide nine. Total parts supply sales grew 29% from the same quarter last year to $354 million.

Higher margins were largely driven by increased operating leverage as we are successfully scaling our business while maintaining cost discipline.

We once again saw above-market growth in our new parts distribution activities, which grew 32% as compared to last year, excluding the contributions from ADI. Second quarter Parts Supply Adjusted EBITDA of $46.5 million was higher by 37%, and Adjusted EBITDA margin increased to 13.2% from 12.4% in the same quarter last year. Adjusted operating income rose 35% to $42.8 million, and adjusted operating margins also increased from 11.5% to 12.1%.

Speaker #2: We once again saw above-market growth in our new parts distribution activities, which grew 32% compared to last year, excluding the contributions from ADI.

Turning now to slide 10 for repair and Engineering, total sales, increased 7% year-over-year to 245 million demand remains strong for our airframe. Heavy maintenance activities and we continue to drive efficiency to increase through part.

Speaker #2: Second quarter Parts Supply adjusted EBITDA of $46.5 million was higher by 37%, and adjusted EBITDA margin increased to 13.2% from 12.4% in the same quarter last year.

Speaker #2: Adjusted operating income rose 35% to $42.8 million, and adjusted operating margins also increased from 11.5% to 12.1%. Higher margins were largely driven by increased operating leverage as we are successfully scaling our business while maintaining cost discipline.

Sarah: Higher margins were largely driven by increased operating leverage, as we are successfully scaling our business while maintaining cost discipline. Turning now to Slide 10 for repair and engineering. Total sales increased 7% year-over-year to $245 million. Demand remained strong for our airframe heavy maintenance activities, and we continue to drive efficiency to increase throughput. Adjusted EBITDA of $31.2 million was 1% higher than in the same period last year, while adjusted EBITDA margins decreased to 12.8% from 13.5%. Second quarter adjusted operating income of $27.4 million remained consistent to the same period last year, with adjusted operating margins decreasing to 11.2% from 12.0%. This was largely due to the mix of work within our airframe heavy maintenance network, one-time costs, and component repair, as well as a slight impact on the HAECO Americas acquisition, as we only had one month of HAECO operations included in the quarter.

Higher margins were largely driven by increased operating leverage, as we are successfully scaling our business while maintaining cost discipline. Turning now to Slide 10 for repair and engineering. Total sales increased 7% year-over-year to $245 million. Demand remained strong for our airframe heavy maintenance activities, and we continue to drive efficiency to increase throughput. Adjusted EBITDA of $31.2 million was 1% higher than in the same period last year, while adjusted EBITDA margins decreased to 12.8% from 13.5%.

Adjusted ebita of 31.2 million was 1% higher than in the same period last year while adjusted IBA margins decreased to 12.8% from 13.5%. Second quarter, adjusted operating income of 24, 27.4 million remain consistent to the same period last year with adjusted operating margins. Decreasing to 11.2% from 12.0%. This was largely due to the mix of work within our happy airframe. Heavy maintenance Network, 1-time costs and component repair as well as a slight impact on the ho America's acquisition.

Speaker #2: Turning now to slide 10 for Repair and Engineering. Total sales increased 7% year over year to $245 million. Demand remained strong for our airframe heavy maintenance activities, and we continue to drive efficiency to increase throughput.

As we only had 1 month of ho operations included in the quarter.

Speaker #2: Adjusted EBITDA of $31.2 million was 1% higher than in the same period last year, while adjusted EBITDA margins decreased to 12.8% from 13.5%. Second quarter adjusted operating income of $27.4 million remained consistent with the same period last year, with adjusted operating margins decreasing to 11.2% from 12.0%.

Keep it on margin to margins in line with our current repair and Engineering margins.

Going forward, we expect to continue to drive margin expansion in this segment. Through the improved performance of our 2. Newly acquired, ho facilities.

Second quarter adjusted operating income of $27.4 million remained consistent to the same period last year, with adjusted operating margins decreasing to 11.2% from 12.0%. This was largely due to the mix of work within our airframe heavy maintenance network, one-time costs, and component repair, as well as a slight impact on the HAECO Americas acquisition, as we only had one month of HAECO operations included in the quarter.

Driven by integration and Synergy actions continued rollout of our paperless hanger initiatives. Increased volume into our component repair facilities and the hangar capacity, expansions that are in process.

Speaker #2: This was largely due to the mix of work within our airframe heavy maintenance network, one-time costs and component repair, as well as a slight impact, as Heiko only had one month of Heiko operations included in the quarter.

Looking now to slide 11, integrated solution sales, increased 8% year-over-year to 176 million primarily driven by government programs.

Speaker #2: As we grow our component repair facilities, and the hangar capacity expansions that are in process. Looking now to slide 11, integrated solution sales increased 8% year over year to $176 million, primarily driven by government programs.

Speaker #2: As John mentioned earlier, we have initiated our integration activities and expect to improve their operating margin over the next 12 to 18 months, taking them from low single-digit EBITDA margin to margins in line with our current repair and engineering margins.

Integrated Solutions adjusted Eva of 18.5 million with 50% higher than the same period last year.

Sarah: As John mentioned earlier, we have initiated our integration activities and expect to improve their operating margin over the next 12 to 18 months, taking them from low single-digit EBITDA margin to margins in line with our current repair and engineering margins. Going forward, we expect to continue to drive margin expansion in this segment through the improved performance of our two newly acquired HAECO facilities, driven by integration and synergy actions, continued rollout of our paperless hangar initiatives, increased volume into our component repair facilities, and the hangar capacity expansions that are in process. Looking now to slide 11, Integrated Solutions sales increased 8% year-over-year to $176 million, primarily driven by government programs. Integrated Solutions adjusted EBITDA of $18.5 million was 50% higher than the same period last year. Adjusted operating income of $15.1 million was 82% higher, with the adjusted operating margin increasing from 5.1% to 8.6%.

As John mentioned earlier, we have initiated our integration activities and expect to improve their operating margin over the next 12 to 18 months, taking them from low single-digit EBITDA margin to margins in line with our current repair and engineering margins. Going forward, we expect to continue to drive margin expansion in this segment through the improved performance of our two newly acquired HAECO facilities, driven by integration and synergy actions, continued rollout of our paperless hangar initiatives, increased volume into our component repair facilities, and the hangar capacity expansions that are in process.

Adjusted operating income of 15.1 million was 82% higher with the adjusted operating margin increasing from 5.1% to 8.6%.

Speaker #2: Going forward, we expect to continue to drive margin expansion in this segment through the improved performance of our two newly acquired Heiko facilities. Driven by integration and synergy actions, continued rollout of our paperless hanger initiatives, increased volume into America's acquisition.

Higher margins were driven by favorable mix and certain government contracts, achieving Key Program, Milestones during the quarter.

Looking now to slide 11, Integrated Solutions sales increased 8% year-over-year to $176 million, primarily driven by government programs. Integrated Solutions adjusted EBITDA of $18.5 million was 50% higher than the same period last year. Adjusted operating income of $15.1 million was 82% higher, with the adjusted operating margin increasing from 5.1% to 8.6%.

Turning to slide 12 of the presentation. During the quarter, our net debt leverage decreased from 2.8 to times in the in the first quarter to 2.49 times achieving our target range of 2.0 to 2.5 times. This decrease was driven by double-digit earnings growth, continued, balance sheet management and our Equity offering

Speaker #2: Integrated Solutions adjusted EBITDA of $18.5 million was 50% higher than the same period last year. Adjusted operating income of $15.1 million was 82% higher, with the adjusted operating margin increasing from 5.1% to 8.6%.

Turning to slide 13 of the presentation with respect to our Capital, allocation strategy, our priorities remain unchanged. First, we will continue to fund organic growth and each of our 3 core areas, our high growth, new parts distribution activities, our airframe, heavy maintenance, and component repair activities and our software and IP enabled offerings.

Speaker #2: Higher margins were driven by favorable mix and certain government contracts achieving key program milestones during the quarter. Turning to slide 12 of the presentation, during the quarter, our net debt leverage decreased from 2.82 times in the first quarter to 2.49 times, achieving our target range of 2.0 to 2.5 times.

Sarah: Higher margins were driven by favorable mix and certain government contracts achieving key program milestones during the quarter. Turning to slide 12 of the presentation, during the quarter, our net debt leverage decreased from 2.82 times in the first quarter to 2.49 times, achieving our target range of 2.0 to 2.5 times. This decrease was driven by double-digit earnings growth, continued balance sheet management, and our equity offering. Turning to slide 13 of the presentation, with respect to our capital allocation strategy, our priorities remain unchanged. First, we will continue to fund organic growth in each of our three core areas: our high-growth new parts distribution activities, our airframe heavy maintenance and component repair activities, and our software and IP-enabled offerings. Second, we'll allocate capital to M&A opportunities to meet our strategic and financial criteria and support our core segments.

Higher margins were driven by favorable mix and certain government contracts achieving key program milestones during the quarter. Turning to slide 12 of the presentation, during the quarter, our net debt leverage decreased from 2.82 times in the first quarter to 2.49 times, achieving our target range of 2.0 to 2.5 times. This decrease was driven by double-digit earnings growth, continued balance sheet management, and our equity offering. Turning to slide 13 of the presentation, with respect to our capital allocation strategy, our priorities remain unchanged.

Speaker #2: This decrease was driven by double-digit earnings growth, continued balance sheet management, and our equity offering. Turning to slide 13 of the presentation, with respect to our capital allocation strategy, our priorities remain unchanged.

Second, we will allocate Capital to m&a opportunities to meet our strategic, and financial criteria and support our core segments. The 3 acquire discussed today ADI, heko Americas and art are all well aligned with our state state of criteria and will help to accelerate our growth strategy of bringing our unique platform to Market as a premier, independent provider of Aviation Parts repair and sophomore software.

As we look to Q3, we expect to be cash. Positive in the quarter. We also expect interest expense to be slightly lower than the prior quarter with that. I'll turn it back to John.

First, we will continue to fund organic growth in each of our three core areas: our high-growth new parts distribution activities, our airframe heavy maintenance and component repair activities, and our software and IP-enabled offerings. Second, we'll allocate capital to M&A opportunities to meet our strategic and financial criteria and support our core segments.

Speaker #2: First, we will continue to fund organic growth in each of our three core areas: our high-growth new parts distribution activities, our airframe heavy maintenance and component repair activities, and our software and IP-enabled offerings.

Speaker #2: Second, we'll allocate capital to M&A opportunities to meet our strategic and financial criteria, and support our core segments. The three acquisitions we have discussed today—ADI, Heico Americas, and ART—are all well aligned with our stated criteria and will help to accelerate our growth strategy of bringing our unique platform to market as a premier independent provider of aviation parts, repair, and software.

Great, thank you. Sarah turning to slide 14. We have an update on our outlook for Q3 and for the rest of our fiscal year. For Q3, we're expecting total sales growth, and the range of 20 to 22%, which includes the impact of our 2. Recent acquisitions for reference, organic sales growth for Q3 is expected to be 8 to 11%, which excludes the Devastator of landing gear as well as the impact of the ADI at Howe acquisitions.

Sarah: The three acquisitions we have discussed today, ADI, HAECO Americas, and ART, are all well aligned with our stated criteria and will help to accelerate our growth strategy of bringing our unique platform to market as a premier independent provider of aviation parts, repair, and software. As we look to Q3, we expect to be cash positive in the quarter. We also expect interest expense to be slightly lower than the prior quarter. With that, I'll turn it back to John.

The three acquisitions we have discussed today, ADI, HAECO Americas, and ART, are all well aligned with our stated criteria and will help to accelerate our growth strategy of bringing our unique platform to market as a premier independent provider of aviation parts, repair, and software. As we look to Q3, we expect to be cash positive in the quarter. We also expect interest expense to be slightly lower than the prior quarter. With that, I'll turn it back to John.

For margin. We expect Q3 adjusted operating margin of 9.8% to 10.1% for the full fiscal year. Given our strong performance in the first half, and including our 2 recent acquisitions. We expect total sales, growth approaching 17% and organic sales growth approaching 11%.

Speaker #2: As we look to Q3, we expect to be cash positive in the quarter. We also expect interest expense to be slightly lower than the prior quarter.

Speaker #2: With that, I'll turn it back to John.

Speaker #3: Great. Thank you, Sarah. Turning to slide 14, we have an update on our outlook for Q3 and for the rest of our fiscal year.

John Holmes: Great. Thank you, Sarah. Turning to slide 14, we have an update on our outlook for Q3 and for the rest of our fiscal year. For Q3, we are expecting total sales growth in the range of 20% to 22%, which includes the impact of our two recent acquisitions. For reference, organic sales growth for Q3 is expected to be 8% to 11%, which excludes the divestiture of landing gear, as well as the impact of the ADI and HAECO acquisitions. For margin, we expect Q3 adjusted operating margin of 9.8% to 10.1%. For the full fiscal year, given our strong performance in the first half and including our two recent acquisitions, we expect total sales growth approaching 17% and organic sales growth approaching 11%. In closing, I would like to highlight AAR's strength as a business and as an investment.

Speaker #3: For Q3, we're expecting total sales growth in the range of 20% to 22%, which includes the impact of our two recent acquisitions. For reference, organic sales growth for Q3 is expected to be 8% to 11%, which excludes the divestiture of landing gear as well as the impact of the ADI and Heiko acquisitions.

In closing, I would like to highlight our strength as a business and as an investment we are well positioned. The most attractive segments of a growing Aviation aftermarket. We have a broad unique platform as a provider of Parts repair and software. That is unmatched. In our industry, our complete range of aftermarket Solutions work together to drive a sustainable self-reinforcing cycle of growth. We have enhanced our portfolio with high-quality Acquisitions and we are delivering stronger growth and higher margins.

For margin, we expect Q3 adjusted operating margin of 9.8% to 10.1%. For the full fiscal year, given our strong performance in the first half and including our two recent acquisitions, we expect total sales growth approaching 17% and organic sales growth approaching 11%. In closing, I would like to highlight AAR's strength as a business and as an investment.

Speaker #3: For margin, we expect Q3 adjusted operating margin of 9.8% to 10.1%. For the full fiscal year, given our strong performance in the first half, and including our two recent acquisitions, we expect total sales growth approaching 17%, and organic sales growth approaching 11%.

I would like to thank our talented team of global employees, particularly Sarah for their dedication, as they deliver, Excellence quality safety, and the critical work, work that we do for our customers every day.

I would also like to thank our customers and our shareholders for your continued interest and support of AAR. And with that, we'll turn it over to the operator for questions.

Speaker #3: In closing, I would like to highlight AAR's strength as a business and as an investment. We are well positioned in the most attractive segments of a growing aviation aftermarket.

Thank you, ladies and gentlemen, as a reminder to ask the question, please press star, 1 1 1, on your telephone, then wait, for your name to be announced.

John Holmes: We are well positioned in the most attractive segments of a growing aviation aftermarket. We have a broad, unique platform as a provider of parts, repair, and software that is unmatched in our industry. Our complete range of aftermarket solutions work together to drive a sustainable, self-reinforcing cycle of growth. We have enhanced our portfolio with high-quality acquisitions, and we are delivering stronger growth and higher margins. I would like to thank our talented team of global employees, particularly Sarah, for their dedication, as they deliver excellence, quality, safety, and the critical work that we do for our customers every day. I would also like to thank our customers and our shareholders for your continued interest and support of AAR. And with that, we'll turn it over to the operator for questions.

We are well positioned in the most attractive segments of a growing aviation aftermarket. We have a broad, unique platform as a provider of parts, repair, and software that is unmatched in our industry. Our complete range of aftermarket solutions work together to drive a sustainable, self-reinforcing cycle of growth. We have enhanced our portfolio with high-quality acquisitions, and we are delivering stronger growth and higher margins.

To withdraw your question. Please press star 1 1, again please, stand by while we compile the Q&A roster.

Speaker #3: We have a broad, unique platform as a provider of parts, repair, and software that is unmatched in our industry. Our complete range of aftermarket solutions work together to drive a sustainable, self-reinforcing cycle of growth.

Our first question comes from the line of Ken Herbert with RBC yolen is open.

Speaker #3: We have enhanced our portfolio with high-quality acquisitions, and we are delivering stronger growth and higher margins. I would like to thank our talented team of global employees—particularly Sarah—for their dedication as they deliver excellence, quality, safety, and the critical work that we do for our customers every day.

Yeah. Hey, good afternoon, uh,

I would like to thank our talented team of global employees, particularly Sarah, for their dedication, as they deliver excellence, quality, safety, and the critical work that we do for our customers every day. I would also like to thank our customers and our shareholders for your continued interest and support of AAR. And with that, we'll turn it over to the operator for questions.

Speaker #3: I would also like to thank our customers and our shareholders for your continued interest and support of AAR, and with that, we'll turn it over to the operator for questions.

Speaker #1: Thank you. Ladies and gentlemen, as a reminder, to ask a question, please press star one-one on your telephone, then wait for your name to be announced.

Operator: Thank you. Ladies and gentlemen, as a reminder to ask the question, please press star 11 on your telephone, then wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster. Our first question comes from Ken Herbert with RBC. Ken is open.

And, and if you're seeing anything unique, on the price side, from an airline perspective, and then within volume how we think about maybe sort of same store sales of that versus sort of new contract wins or, or expansions to the portfolio in the quarter.

Speaker #1: To withdraw your question, please press star-one-one again. Please stand by while we compile the Q&A roster. Our first question comes from Milán of Ken Herbert with RBC.

Speaker #1: Yoland is

Speaker #1: open. Yeah, hey,

Ken Herbert: Yeah. Hey, good afternoon.

Speaker #1: Good good afternoon.

Speaker #1: Good afternoon. Hey, John and Sarah, really nice—

Operator: Good afternoon.

Good afternoon.

Ken Herbert: Hey, John and Sarah. Really nice quarter. Hey, John, maybe just to start, on the parts supply, how do we think about with the 32% growth? Is it possible to parse that out a little bit more by, say, volume versus price? And if you're seeing anything unique on the price side from an airline perspective? And then within volume, how we think about maybe sort of same-store sales of that versus sort of new contract wins or expansions to the portfolio in the quarter?

Speaker #4: Quarter. Hey John, maybe just to start, on the parts supply—how do we think about, with the 32% growth, is it possible to parse that out a little bit more by, say, volume versus price?

Yeah, I would say a great question. I would say, overall, it's volume driving that growth. Uh, so the majority of that growth is driven by volume, uh, sure. We've had some, uh, some, you know, some price escalation with certain of our OEM Partners but, uh, that would be, uh, you know, not not, not the majority of that. Um, and then, in terms of the same store sales, uh, we are seeing significant growth out of existing distribution contracts. That, uh, are again in that, you know, kind of, uh, you know, 20 to 30% range, um, which is obviously driving the overall growth. So, um, it is volume, uh, it is new contracts, ramping up, but it's also, uh, really healthy same store sales performance.

Speaker #4: And if you're seeing anything unique on the price side from an airline perspective, and then within volume, how do we think about maybe sort of same-store sales of that versus sort of new contract wins or expansions to the portfolio in the quarter?

Speaker #3: Yeah, I would say a great question. I would say, overall, it's volume driving that growth. So the majority of that growth is driven by volume.

John Holmes: Yeah. I would say a great question. I would say overall, it's volume driving that growth. So the majority of that growth is driven by volume. Sure, we've had some price escalation with certain of our OEM partners, but that would be not the majority of that. And then in terms of same-store sales, we are seeing significant growth out of existing distribution contracts that are, again, in that kind of 20% to 30% range, which is obviously driving the overall growth. So it is volume. It is new contracts ramping up, but it's also really healthy same-store sales performance.

That's helpful. And as you think about moving here into calendar 26, the second half of your fiscal year. Are there any concerns or are you seeing any risk about desking at your airline customers? After obviously, you know, several years of of what seems to be? Maybe some, some buffer inventory level, uh, building their

Speaker #3: Sure, we've had some price escalation with certain of our OEM partners, but that would not be the majority of that. And then, in terms of same-store sales, we are seeing significant growth out of existing distribution contracts that are, again, in that kind of 20% to 30% range.

Yeah, great question. And the answer is no, we're not seeing evidence of that. Um you know, the backlog for that business, uh you know, gets us confidence that the growth rates that we're seeing there are going to continue. Um, and at this point, you know, no, no signals uh, uh, they would imply a few stocking.

Speaker #3: Which is obviously driving the overall growth. So it is volume, it is new contracts ramping up, but it's also really healthy same-store sales.

Perfect. And just finally, if I could the implied third quarter margin represents a bit of a step down sequentially, I'm guessing this is this is really mixed as you think about the Acquisitions but anything else going on? Besides mix in terms of sequentially, second to third quarter on the margins.

Speaker #3: performance. That's

Ken Herbert: That's helpful. As you think about moving here into calendar 2026, the second half of your fiscal year, are there any concerns or are you seeing any risk about destocking at your airline customers after, obviously, several years of what seems to be maybe some buffer inventory level building there?

Speaker #4: Helpful. And as you think about moving here into calendar '26, the second half of your fiscal year, are there any concerns or are you seeing any risk about

Speaker #1: Some buffer inventory level building there.

Speaker #2: Yeah . Great question . And the answer is no . We're not seeing evidence of that . You know the backlog for that business , you know , gives us confidence that the growth rates that we're seeing there are going to continue .

John Holmes: Yeah. Great question. And the answer is no. We're not seeing evidence of that. The backlog for that business gives us confidence that the growth rates that we're seeing there are going to continue. And at this point, no signals that would imply destocking.

No, that's uh, that that that's the driver. Um, as we mentioned, you know, around the ho acquisition, um, you know, long term that will be margin. Accretive, in fact, since we've gotten into it, we uh we expect it'll be even more margin to creative than we thought when we did the deal, um, which is a great thing. But uh it is going to take us a couple quarters to move through that integration um uh to get there and you're going to see the impact of that and uh in Q3 and Q4

Great. Thanks. John.

Speaker #2: point , And at this no , no you know , signals that would imply destocking .

Great. Thanks. Ken.

Thank you. Please stand by for our next question.

Speaker #1: Perfect . And just finally , if I could , the implied third quarter margin represents a step bit of a down sequentially . I'm guessing this is this is really mixed as you think about the acquisitions .

Our next question comes from the line of Louis de pollo with William Blair. Your line is open.

Ken Herbert: Perfect. Just finally, if I could, the implied Q3 margin represents a bit of a step down sequentially. I'm guessing this is really mixed as you think about the acquisitions. Anything else going on besides mix in terms of sequentially Q2 to Q3 on the margins?

Speaker #1: But anything else going on besides mix, in terms of sequentially, second to third quarter on the margins?

John Sarah and and Christopher, good afternoon and happy 2026.

Hey Louie. Happy 2026.

Speaker #2: No , that's that that's the driver . As we mentioned , you know , around the acquisition , you know , long term that will be margin accretive .

John Holmes: No, that's the driver. As we mentioned around the HAECO acquisition, long-term, that will be margin accretive. In fact, since we've gotten into it, we expect it'll be even more margin accretive than we thought when we did the deal, which is a great thing. But it is going to take us a couple of quarters to move through that integration to get there. And you're going to see the impact of that in Q3 and Q4.

Speaker #2: In fact , since we've gotten into it , we we expect it will be even more margin accretive than we thought when we did the deal , which is a great thing .

Speaker #2: But it Happy

Um John you became the heavy maintenance industry leader with the the heco America's deal. Um, do you see synergies with heavy maintenance and and your other businesses such as your component repair business and and also with tracks,

Speaker #2: that

Ken Herbert: Great. Thanks, John.

John Holmes: Great. Thanks, Ken.

Operator: Thank you. Please stand by for our next question. Our next question comes from Louie DiPalma with William Blair. Louie is open.

Louie DiPalma: John, Sarah, and Christopher. Good afternoon and happy 2026.

John Holmes: Hey, Louie. Happy 2026.

Louie DiPalma: John, you became the heavy maintenance industry leader with the HAECO Americas deal. Do you see synergies with heavy maintenance and your other businesses, such as your component repair business, and also with TRAX?

Yeah, um, absolutely. And, and great question. Um, you know, for sure, uh, there are synergies between the heavy maintenance business, um, and the component business and we, um, you know, part of our strategy is to leverage the leadership position that we have in airframe, heavy maintenance to drive, um, uh, volume to our component shops, some of that comes from just having possession of the aircraft themselves. We now have well more than a thousand aircraft moving through our our facilities each year, and that generates individual component, repairs that we can perform. But mostly it's going to be by doing, um, uh, deals with our customers, where we sign up, uh, long-term commitments on the heavy maintenance side that are coupled with long-term commitments on the component repair side. And, you know, I just want to highlight

Speaker #4: Thank you. Happy 2026.

John Holmes: Yeah. Absolutely. And great question. For sure, there are synergies between the heavy maintenance business and the component business. And part of our strategy is to leverage the leadership position that we have in airframe heavy maintenance to drive volume to our component shops. Some of that comes from just having possession of the aircraft themselves. We now have well more than 1,000 aircraft moving through our facilities each year. And that generates individual component repairs that we can perform. But mostly, it's going to be by doing deals with our customers where we sign up long-term commitments on the heavy maintenance side that are coupled with long-term commitments on the component repair side. And I just want to highlight, we've invested a lot in proprietary systems and processes inside our hangars. And we have now achieved industry-leading turnaround time and quality.

Speaker #2: And

Speaker #2: we component , you Please stand by know , part of our John . in the heavy Louis . strategy is to leverage the leadership that we position have in airframe heavy maintenance to drive volume to our component shops .

Speaker #2: Some of that comes from just having possession of the aircraft themselves . We now have , well , more than a thousand aircraft moving through our facilities each year .

But mostly, it's going to be by doing deals with our customers where we sign up long-term commitments on the heavy maintenance side that are coupled with long-term commitments on the component repair side. And I just want to highlight, we've invested a lot in proprietary systems and processes inside our hangars. And we have now achieved industry-leading turnaround time and quality.

We we've we've invested a lot in proprietary systems and processes inside our hangers, and we have now achieved industry-leading, turnaround, time and quality. Um, our turnaround times are particularly important to the customers because let's just say, a heavy maintenance visit is going to take 30 days. A typical is going to take 30 days if we can deliver that aircraft back to our customer and 28 days or 27 days. Um, they love that because that's extra days that they have to put that aircraft back in Revenue Service and that's worth a lot. And that operational performance inside our hangers is driving the demand that we're seeing. And, you know, as I mentioned, when all this is said and done, we will have added 40% capacity, and that's sold out through the end of the decade, so that's a lot of demand. Um, and we plan to leverage that leadership position again to drive volume through the component shops. Um, as it relates to tracks in particular, uh track test Synergy, um, predominantly predominantly we with our parts supply business. Uh, we intend to

John Holmes: Our turnaround times are particularly important to the customers because let's just say a heavy maintenance visit is going to take 30 days. A typical is going to take 30 days. If we can deliver that aircraft back to our customer in 28 days or 27 days, they love that because that's extra days that they have to put that aircraft back in revenue service. And that's worth a lot. That operational performance inside our hangars is driving the demand that we're seeing. And as I mentioned, when all this is said and done, we will have added 40% capacity, and that's sold out through the end of the decade. That's a lot of demand. We plan to leverage that leadership position again to drive volume through the component shops. As it relates to TRAX in particular, TRAX has synergy predominantly with our parts supply business.

Our turnaround times are particularly important to the customers because let's just say a heavy maintenance visit is going to take 30 days. A typical is going to take 30 days. If we can deliver that aircraft back to our customer in 28 days or 27 days, they love that because that's extra days that they have to put that aircraft back in revenue service. And that's worth a lot.

The aerostat acquisition that we made. Uh, last quarter does have direct Synergy with heavy maintenance because that software allows customers to um, uh, to plan long range, heavy maintenance visits. And of course, that feeds directly into the heavy maintenance, offering that we provide

That operational performance inside our hangars is driving the demand that we're seeing. And as I mentioned, when all this is said and done, we will have added 40% capacity, and that's sold out through the end of the decade. That's a lot of demand. We plan to leverage that leadership position again to drive volume through the component shops. As it relates to TRAX in particular, TRAX has synergy predominantly with our parts supply business.

Excellent. Thanks John. And also um you announced of the win yesterday with high Airways and I was wondering, has has the like the landmark win with Delta Airlines that you announced over the summer, has that

John Holmes: We intend to develop proprietary channels to market to sell new and used parts through TRAX and then also through component repair. The Aerostrat acquisition that we made last quarter does have direct synergy with heavy maintenance because that software allows customers to plan long-range heavy maintenance visits. Of course, that feeds directly into the heavy maintenance offering that we provide.

We intend to develop proprietary channels to market to sell new and used parts through TRAX and then also through component repair. The Aerostrat acquisition that we made last quarter does have direct synergy with heavy maintenance because that software allows customers to plan long-range heavy maintenance visits. Of course, that feeds directly into the heavy maintenance offering that we provide.

Stimulated the pipeline as as many airlines, they often follow Delta's lead. Given Delta's roles like 1 of the largest like mro's. In addition to 1 of the largest Airlines

We we've we've invested a lot in proprietary systems and processes inside our hangers, and we have now achieved industry-leading, turnaround, time and quality. Um, our turnaround times are particularly important to the customers because let's just say, a heavy maintenance visit is going to take 30 days. A typical is going to take 30 days if we can deliver that aircraft back to our customer and 28 days or 27 days. Um, they love that because that's extra days that they have to put that aircraft back in Revenue Service and that's worth a lot. And that operational performance inside our hangers is driving the demand that we're seeing. And, you know, as I mentioned, when all this is said and done, we will have added 40% capacity, and that's sold out through the end of the decade, so that's a lot of demand. Um, and we plan to leverage that leadership position again, to drive volume through the component shops. Um, as it relates to tracks in particular, uh track test Synergy, um, predominant will predominant we with our parts supply business. Uh we intend

They develop proprietary channels to market to sell new and used parts, uh, through TRAK, and then also, uh, through component repair.

The Arrows Strat acquisition that we made last quarter does have direct synergy with heavy maintenance because that software allows customers to, um, to plan long-range, heavy maintenance visits. And, of course, that feeds directly into the heavy maintenance offering that we provide.

Louie DiPalma: Excellent. Thanks, John. Also, you announced the win yesterday with Thai Airways. I was wondering, has the landmark win with Delta Air Lines that you announced over the summer, has that stimulated the pipeline as many airlines? They often follow Delta's lead, given Delta's role as one of the largest MROs in addition to one of the largest airlines.

Yeah, the answer is is absolutely and that's 1 of the reasons we were so focused on securing Delta as a win early on in our journey with tracks because Delta is not only the largest but it's an extremely well-respected Airline amongst all Airlines. And so the fact that they have selected tracks um and endorse that as a solution that can scale up to their size, uh it's usually beneficial and absolutely that has opened doors. Uh, that is open doors for tracks. Um, we uh, the other thing I would just mention is that

Excellent. Thanks John. And also um, you and announced of the wind yesterday with high Airways and I was wondering, has has the like the landmark win with Delta Airlines that you announced over the summer, has that

It's a approximately, a 3-year implementation at Delta. So we're about 7 months into that it is going very well and Delta has been willing to serve as a reference for us with other customers which were greatly, uh, which were grateful for

Fantastic. That's it. For me. Thanks everyone. Great. Thanks Laurie.

Thank you.

Please stand by for our next question.

John Holmes: Yeah. The answer is absolutely. And that's one of the reasons we were so focused on securing Delta as a win early on in our journey with TRAX because Delta is not only the largest, but it's an extremely well-respected airline amongst all airlines. And so the fact that they have selected TRAX and endorsed that as a solution that can scale up to their size is hugely beneficial. And absolutely, that has opened doors for TRAX. The other thing I would just mention is that it's approximately a three-year implementation at Delta. So we're about seven months into that. It is going very well. And Delta has been willing to serve as a reference for us with other customers, which we're grateful for.

Stimulated the pipeline. As, as many airlines, they often follow Delta's lead. Given Delta's role as, like, one of the largest MROs in addition to one of the largest airlines.

Our next question comes from the line of Michael lopp with keybanc, capital markets, your line is open.

Yeah the the answer is is absolutely and that's 1 of the reasons we were so focused on securing Deltas. The win early on in our journey with tracks because Delta is not only the largest but it's an extremely well-respected Airline amongst all Airlines. And so the fact that they have selected tracks um and endorse that as a solution that can scale up to their size, uh it's usually beneficial and that has opened doors. Uh, that is open doors for tracks. Um, we uh, the other thing I would just mention is that

Hey, good afternoon. Uh, wanted to ask on m&a. You've been highly inquisitive as of late and you mentioned Capital, allocation priorities are unchanged. Do you see opportunities for further m&a over the next? Maybe 6 to 12 months, or is there more of a shift to integration? Um just any thoughts you can provide on the m&a pipeline and what you're seeing there and and then maybe what segments you might Target going forward.

It's approximately a 3-year implementation of Delta, so we're about 7 months into that. It is going very well, and Delta has been willing to serve as a reference for us with other customers, which we're greatly, uh, which we're grateful for.

Louie DiPalma: Fantastic. That's it for me. Thanks, everyone.

John Holmes: Great. Thanks, Louie.

Fantastic. That's it for me. Thanks, everyone.

Operator: Thank you. Please stand by for our next question. Our next question comes from Michael Leshock with KeyBanc Capital Markets. Your line is open.

Great. Thanks. Laurie.

Thank you.

Please stand by for our next question.

Uh, sure. Um, the short answer is, is yes, we continue to believe that and continue to see m&a as a as a key part of our growth. And, um, you know, 1 of the things, I particularly proud of is, out of the last several deals that we've, we've done. Uh, these have all been self sourced. Uh, we have gone to these companies, we have developed relationships with the owners, um, and we, uh, uh, we so all the deals that we've closed in the last 3 years. Uh, they've been sourced by us. So we've got very specific criteria that

Our next question comes from the line of Michael L. Shop with KeyBanc Capital Markets. Your line is open.

Michael Leshock: Hey, good afternoon. I wanted to ask on M&A. You've been highly acquisitive as of late, and you mentioned capital allocation priorities are unchanged. Do you see opportunities for further M&A over the next maybe six to 12 months, or is there more of a shift to integration? Just any thoughts you can provide on the M&A pipeline and what you're seeing there, and then maybe what segments you might target going forward?

John Holmes: Sure. The short answer is yes. We continue to believe that and continue to see M&A as a key part of our growth. And one of the things I'm particularly proud of is out of the last several deals that we've done, these have all been self-sourced. We have gone to these companies. We have developed relationships with the owners. And so all the deals that we've closed in the last three years, they've been sourced by us. So we've got very specific criteria that acquisitions need to meet. There are several other companies out there that we believe can meet that criteria, and we are actively pursuing them. We feel that we have the integration muscle, if you will, moving inside the company. We're definitely cognizant of our own bandwidth, so we want to make sure that we're successful with the integrations that are underway right now.

Positions need to meet, uh, there are several other companies out there that we believe can meet those. Um, meet that criteria. And we are, uh, you know, actively pursuing them. We feel that we have the integration muscle if you will moving inside the company. Um, we're definitely cognizant of our own bandwidth so we want to make sure that we're successful um with the Integrations that are underway right now. But we also want to be in a position to uh to curate attractive, m&a opportunities and close on them.

Further M&A over the next maybe 6 to 12 months, or is there more of a shift to integration? Um, just any thoughts you can provide on the M&A pipeline and what you're seeing there, and then maybe what segments you might target going forward.

So we've got very specific criteria that acquisitions need to meet. There are several other companies out there that we believe can meet that criteria, and we are actively pursuing them. We feel that we have the integration muscle, if you will, moving inside the company. We're definitely cognizant of our own bandwidth, so we want to make sure that we're successful with the integrations that are underway right now.

John Holmes: But we also want to be in a position to curate, attract to them M&A opportunities, and close on them.

But we also want to be in a position to curate, attract to them M&A opportunities, and close on them.

Uh, sure. Um, the short answer is, is yes, we continue to believe that, uh, and continue to see m&a as a, uh, as a key part of our growth and, um, you know, 1 of the things, I particularly proud of is, out of the last several deals that we, we've done. Uh, these have all been self sourced. Uh, we have gone to these companies, we have developed relationships with the owners, um, and we, uh, uh, we so all the deals that we've closed in the last 3 years. Uh, they've been sourced by us. So, we've got very specific criteria that Acquisitions need to meet. Uh, there are several other companies out there that we believe can meet those. Um, meet that criteria. And we are, uh, you know, actively pursuing them. We feel that we have the integration muscle if you will moving inside the company. Um, we're definitely cognizant of our own bandwidth so we want to make sure that we're successful um with the Integrations that are underway right now. But we also want to be in a position to uh to curate attractive, m&a opportunities and close on them.

Michael Leshock: Great. And then one more question on TRAX. If you could provide any color on TRAX in the customer upgrade cycle, whether that be the percent of customers that have already upgraded or the timing of when you expect more upgrades to occur? I know it's a multi-year event, but any more color on TRAX would be great. Thank you.

Great. And then 1 more question on tracks. If you could provide any color on tracks in the customer upgrade cycle, whether that be the percent of customers that have already upgraded or the timing of when you expect more upgrades to occur. Uh, I know it's a multi-year event but any more color on tracks would be great. Thank you. Thanks, thanks. Thanks, have a great. Great question there. Um, we're approximately I'd say, you know, 30% 30 to 35%, uh, of the way through the customer upgrades. Um, you have and that and that's customer upgrades that have been agreed to but potentially not yet implemented. So we have a lot of, uh, current uh, upgrades going on. Um, that are very V, various stages of implementation. Uh, our goal is to have all of that completed by the end of 2028, you know, like any software, um, uh, any software, uh, upgrade cycle. Uh, you know, it may take longer but um, our goal is to have the bulk of this.

Done by, uh, by 2028.

Great. Thank you.

Thank you.

Our next question comes from the line of Scott Michaels with Melius research.

1 moment.

John Holmes: Thanks, Michael. Thanks, Michael. Now, a great question there. We're approximately, I'd say, 30% to 35% of the way through the customer upgrades. And that's customer upgrades that have been agreed to, but potentially not yet implemented. So we have a lot of current upgrades going on that are in various stages of implementation. Our goal is to have all of that completed by the end of 2028. Like any software upgrade cycle, it may take longer, but our goal is to have the bulk of this done by 2028.

Mr. Mike is, can I have you to press Start 11 again?

Thank you. Your line is open Mr. Mikus

Hi. Yes, can you hear me?

Yeah. Hey Scott, how are you?

Great. And then 1 more question on tracks. If you could provide any color on tracks in the customer upgrade cycle, whether that be the percent of customers that have already upgraded or the timing of when you expect more upgrades to occur. Um, I know it's a multi-year event but any more color on tracks would be great. Thank you. Thanks Michael. Thanks, Michael. I have a great. Great question there. Um, we're approximately I'd say, you know, 30%, 30 to 35%, uh, of the way through the customer upgrades. Um, you have and that and that's customer upgrades that have been agreed to, but potentially not yet implemented. So, we have a lot of, uh, current uh, upgrades going on, um, that are in various V, various stages of implementation. Our goal is to have all of that completed by the end of 2028, you know, like any software, um, uh, any software upgrade cycle. Uh, you know, it may take longer but, um, our goal is to have the bulk of this done by

Uh, by 2028.

Hey, sorry about that. Um John I wanted to ask on the art acquisition we're seeing a lot of Airlines announced interior refreshes they try to better segment. Their cabins and increase the premium offering. So I'm just kind of wondering if you could provide what's the revenue now? What kind of growth tagger do you see their say over the next 3, 4 years. And what's the margin potential for that business?

Michael Leshock: Great. Thank you.

John Holmes: Great. Thank you.

Great. Thank you.

Operator: Thank you. Our next question comes from Scott Mikus with Melius Research. One moment. Mr. Mikus, can I have you to press star 11 again?

Great. Thank you.

Thank you.

Our next question comes from the line of Scott Michaels with Melius Research.

1 moment.

Mr. Mike, can I have you press Start 1 1 again?

John Holmes: Yeah. Scott.

Operator: Thank you. Yolanda is open, Mr. Michaels.

Scott Mikus: Hi. Yes. Can you hear me?

Thank you. Your line is open, Mr. Micas.

John Holmes: Yeah. Hey, Scott. How are you?

Hi. Yes, can you hear me?

Scott Mikus: Hey. Sorry about that. John, I wanted to ask on the ART acquisition. We're seeing a lot of airlines announce interior refreshes as they try to better segment their cabins and increase the premium offerings. So I'm just kind of wondering if you could provide what's the revenue now? What kind of growth CAGR do you see there, say, over the next three, four years? And what's the margin potential for that business?

Yeah. Hey, Scott, how are you?

Yeah. Um, appreciate the question. We didn't, uh, we didn't disclose the revenue, but uh, what we can say is that, uh, that is 1 of the main reasons we decided to make this acquisition, um, this is a market, we, we do participate in, in The Limited way today, but, um, art brings a much needed, uh, engineering IP and self-certification, uh, expertise to allow us to become a much bigger player in that market. And you hit the nail on the head. Um, this is, this is an area that, um, uh, that is that is, is very strong now and expected to grow as airlines are constantly looking to refine their offering and reposition the resources inside of their cabin to meet the, uh, the demand. And this, uh, this, this this acquisition puts us in a really strong position to participate in that market coupled with our heavy maintenance offerings.

John Holmes: Yeah. Appreciate the question. We didn't disclose the revenue, but what we can say is that that is one of the main reasons we decided to make this acquisition. This is a market we do participate in in a limited way today, but ART brings much-needed engineering, IP, and self-certification expertise to allow us to become a much bigger player in that market. And you hit the nail on the head. This is an area that is very strong now and expected to grow as airlines are constantly looking to refine their offering and reposition the resources inside of their cabin to meet the demand. And this acquisition puts us in a really strong position to participate in that market, coupled with our heavy maintenance offering.

Hey, sorry about that. Um, John, I wanted to ask on the art acquisition—we're seeing a lot of airlines announcing interior refreshes as they try and better segment their cabins and increase the premium offerings. I'm just kind of wondering if you could provide, what's the revenue now? What kind of growth trajectory do you see there, say, over the next 3 or 4 years? And what's the margin potential for that business?

Okay. And then 1 more quick question. I mean, just I think last quarter you mentioned there was a meaningful pickup in USM sales. Just wondering if that Trend continued this quarter and our Airlines may be reconsidering retiring, aircraft and parting them out, just giving that demand looks like it's improved in recent months and now fuel prices are pretty low.

Yeah, um, appreciate the question. We didn't, uh, we didn't disclose the revenue, but, uh, what we can say is that, uh, that is one of the main reasons we decided to make this acquisition. Um, this is a market we, we do participate in, in a limited way today, but, um, Art brings much needed engineering IP and self-certification expertise to allow us to become a much bigger player in that market, and you hit the nail on the head. Um, this is, this is an area that, um, uh, that is, that is, is very strong now and expected to grow as airlines are constantly looking to refine their offering and reposition the resources inside of their cabin to meet the—

Yeah, I would. Um, so we saw about the same level of activity in USM, this quarter as we did last quarter and I would say there's been no, um, material change in the market, in terms of, uh, availability since what we discussed last quarter. So it's pretty much, uh, it's pretty much status quo. Um, but you know, we're, uh, we're really focused as you can tell, on the, uh, on the new parts distribution business, which has, uh, exceptional momentum in the market right now and it continues to gain wide acceptance.

Scott Mikus: Okay. And then one more quick question. I mean, just I think last quarter, you mentioned there was a meaningful pickup in USM sales. Just wondering if that trend continued this quarter. And are airlines maybe reconsidering retiring aircraft and parting them out, just given that demand looks like it's improved in recent months and now fuel prices are pretty low?

The, uh, the demand, and this, uh, this, this, this, this acquisition puts us in a really strong position to participate in that market, coupled with our heavy maintenance offering,

Okay, and then a quick 1 for Sarah. I just wanted to clarify. I think you said new parts distribution sales were up, 32% organically. I was wondering if you could parse that out, maybe between commercial and government.

Yeah, I would say, um, in the quarter, uh, roughly, 50% of that growth came from commercial in the other 50% came from, uh, from defense. So we had a really strong quarter, uh, on both fronts.

Okay, got it. Thank you. A nice results.

John Holmes: Yeah. So we saw about the same level of activity in USM this quarter as we did last quarter. And I would say there's been no material change in the market in terms of availability since what we discussed last quarter. So it's pretty much status quo. But we're really focused, as you could tell, on the new parts distribution business, which has exceptional momentum in the market right now and continues to gain wide acceptance.

Thank you very much. Thank you.

Okay, and then one more quick question. I mean, just—I think last quarter you mentioned there was a meaningful pickup in USM sales. Just wondering if that trend continued this quarter, and are airlines maybe reconsidering retiring aircraft and parting them out, just given that demand looks like it's improved in recent months and now fuel prices are pretty low.

Thank you.

Please stand by for our next question.

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

Scott Mikus: Okay. And then a quick one for Sarah. I just wanted to clarify. I think you said new parts distribution sales were up 32% organically. I was wondering if you could parse that out maybe between commercial and government.

Sarah: Yeah. I would say in the quarter, roughly 50% of that growth came from commercial, and the other 50% came from defense. So we had a really strong quarter on both fronts.

Sarah Flanagan: Yeah. I would say in the quarter, roughly 50% of that growth came from commercial, and the other 50% came from defense. So we had a really strong quarter on both fronts.

Okay, and then a quick one for Sarah. I just wanted to clarify—I think you said new parts distribution sales were up 32% organically. I was wondering if you could parse that out, maybe between commercial and government.

Yeah. Hey John. Um, on the USM front, 1 of your major Partners F ties announced, you know an aero derivative, IGT offering for the cfm56. Um, it sounds like overall activity for you on that engine with F-Type may have been trending down. But do you see this potentially as a risk longer term to to engine volumes, perhaps, for your, your USM business as we maybe see more traction of of Aero derivative engines into non-aerospace markets

Scott Mikus: Okay. Got it. Thank you. Nice results.

Yeah, I would say, um, in the quarter, roughly 50% of that growth came from commercial, and the other 50% came from, uh, from defense. So we had a really strong quarter on both fronts.

John Holmes: Thank you very much.

Sarah: Thank you.

Sarah Flanagan: Thank you.

Okay, got it. Thank you. Nice results.

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

Thank you very much. Thank you.

Thank you.

Please stand by for our next question.

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

Ken Herbert: Yeah. Hey, John. On the USM front, one of your major partners, FTAI, has announced an aeroderivative IGT offering for the CFM56. It sounds like overall activity for you on that engine with FTAI may have been trending down, but do you see this potentially as a risk longer term to engine volumes, perhaps, for your USM business as we maybe see more traction of aeroderivative engines into non-aerospace markets?

No, I I I appreciate you asking the question. I really don't see it as a risk. Um, you know, and in the immediate term as you just indicated, uh, you know, FTI and they're a great partner. Uh, they've had such demand for these assets, but we have seen our, um, activity with them, uh, the client significantly over the last uh, year plus, um, yet our team in the USM business, has been able to continue to Source CFM material out in the market, um, to basically make up for the, uh, the lack of volume with appetite. So, um, you know, our, our, our skill in the USM business is finding material in the market where others cannot. And, uh, I'm very confident that um, you know, despite

you know, potentially this new demand Vector for that engine will continue to be able to find material

Great. Thanks. John.

Thanks good.

Thank you.

As a reminder, ladies and gentlemen that start 111 to ask the question.

John Holmes: No. I appreciate you asking the question. I really don't see it as a risk. In the immediate term, as you just indicated, FTAI, and they're a great partner, they've had such demand for these assets that we have seen our activity with them decline significantly over the last year plus. Yet, our team in the USM business has been able to continue to source CFM material out in the market to basically make up for the lack of volume with FTAI. So our skill in the USM business is finding material in the market where others cannot. And I'm very confident that despite potentially this new demand vector for that engine, we'll continue to be able to find material.

Yeah. Hey John. Um, I'm on the USM front. What are your major Partners F ties announced? You know an aero derivative, IGT offering for the cfm56. Um, I it sounds like, overall activity for you, on that engine. With ftype may have been trending down. But do you see this potentially as a risk longer term to to engine volumes, perhaps, for your, your USM business as we maybe see more traction of of Aero derivative engines into non-aerospace markets

I'm showing no further questions in the queue. I would now like to turn the call back over to John for closing remarks. Well um it looks like we have some more questions. Yep, they just popped up 1 moment.

Please stand by for our next question.

Our next question comes from the line of Michael cumali with truist Securities. Your line is open.

No, I, I appreciate you asking the question. I really don't see it as a risk. Um, you know, in the immediate term as you just indicated, uh, you know, FTI and they're a great partner. Uh, they've had such demand for these assets, but we have seen our, um, activity with them, uh, the client significantly over the last uh, year plus, um, yet our team in the USM business, has been able to continue to Source CFM material out in the market, um, to basically make up for the, uh, the lack of volume with FTI. So, um, you know, our our, our, our skill in the USM business is finding material in the market where others cannot. And, uh, I'm very confident that um, you know, despite, you know, potentially this new demand Vector for that engine we'll continue to be able to find material

Ken Herbert: Great. Thanks, John.

John Holmes: Great. Thanks, Ken.

Great. Thanks. John.

Operator: Thank you. As a reminder, ladies and gentlemen, that's star 11 to ask the question. I'm showing no further questions in the queue. I would now like to turn the call back over to John for closing remarks.

Thanks good.

Thank you.

As a reminder, ladies and gentlemen, let's start Q&A. Please press 1-1-1 to ask a question.

John Holmes: Well, it looks like we have some more questions.

Operator: Yep. They just popped up. One moment. Please stand by for our next question. Our next question comes from Michael Ciarmoli with Truist Securities. Your line is open.

I'm showing no further questions in the queue. I will now turn the call back over to John for closing remarks. Well, um, it looks like we have some more questions. Yep, they just—

Popped up 1 moment.

Um, great. Thank you, Mike. Hey, John just how should we think? You know you've given sort of the um the annual guidance in terms of revenues? You know, we we've got some Solution on the margins. You know, any any thoughts on how we should think about that adjusted operating margin and maybe call it a a 10% ceiling when you can kind of firmly punch through that, you know. It it does seem like I guess you know with more of a full quarter, you kind of talked about it, you get a little bit of that delusion from ho it's going to take a little bit. But anything in terms of how we should think about those adjusted margins going forward, you know taking into account the the synergies the cost out and some of the other benefits

Please stand by for our next question.

Ken Herbert: Hey. Evening. Thanks for getting me in there, guys. Not sure what was going on, but real nice results.

Michael Ciarmoli: Hey. Evening. Thanks for getting me in there, guys. Not sure what was going on, but real nice results.

Our next question comes from the line of Michael Chole with Truist Securities. Your line is open.

John Holmes: Great. Thank you, Mike.

Ken Herbert: Hey, John, just how should we think? You've given sort of the annual guidance in terms of revenues. We've got some color on the margins. Any thoughts on how we should think about that adjusted operating margin and maybe call it a 10% ceiling when you can kind of firmly punch through that? It does seem like, I guess, with more of a full quarter, you kind of talked about it, you get a little bit of that dilution from HAECO. It's going to take a little bit. But anything in terms of how we should think about those adjusted margins going forward, taking into account the synergies, the cost out, and some of the other benefits?

Michael Ciarmoli: Hey, John, just how should we think? You've given sort of the annual guidance in terms of revenues. We've got some color on the margins. Any thoughts on how we should think about that adjusted operating margin and maybe call it a 10% ceiling when you can kind of firmly punch through that? It does seem like, I guess, with more of a full quarter, you kind of talked about it, you get a little bit of that dilution from HAECO. It's going to take a little bit. But anything in terms of how we should think about those adjusted margins going forward, taking into account the synergies, the cost out, and some of the other benefits?

Yeah, I would uh, I would say go first of all, we're really pleased with the trajectory we we've been on, right? Um, you know, this is, uh, you know, only the second time we've been above 10% in the quarter. We're up a full point from last year. And, um, you know, I think, as we've said in various settings, we see, you know, the ability to achieve a couple points, uh, above where we are now. Uh, the HOH integration is going to be a uh, you know, near-term dilution areas you said, um, uh uh for you know, the next couple of quarters. But as a result of the integration as a result of exiting, our higher cost location in Indianapolis. Um we feel very good about um punching above that 10% level uh over time

Okay. Okay. Um, and then just on the the revenue outlook for the year, do you have any contributions from the new capacity coming online in this current, uh, fiscal 26 guidance or is it? Is it going to be a more pronounced positive impact? Uh, next year,

John Holmes: Yeah. I would say, first of all, we're really pleased with the trajectory we've been on, right? This is only the second time we've been above 10% in the quarter. We're up a full point from last year. And I think, as we've said in various settings, we see the ability to achieve a couple of points above where we are now. The HAECO integration is going to be a near-term dilutive, as you said, for the next couple of quarters. But as a result of the integration, as a result of exiting our higher-cost location in Indianapolis, we feel very good about punching above that 10% level over time.

Hey evening. Uh, thanks for getting me in there guys. Not sure what was going on but uh, real nice results. Um, thank you, Mike 8, 8 John just how should we think? You know, you've given sort of the um, the annual guidance in terms of revenues? You know, we we've got some Solution on the margins. You know, any, any thoughts on how we should think about that adjusted operating margin and maybe call it a a 10% ceiling when you can kind of firmly punch through that, you know. It's it. It does seem like I guess you know with more of a full quarter you kind of talked about it, you get a little bit of that dilution from ho it's going to take a little bit. But anything in terms of how we should think about those adjusted operate margins, going forward, you know taking into account the the synergies the cost out and some of the other benefits

It'll be a more pronounced positive impact next year. Yeah, it'll be a more pronounced positive impact in our, uh, in our FY 27, we will see a slight contribution from the Oklahoma City site that will come online likely, in, uh, February time frame. Um, but the uh, uh, the Miami site, uh, will come online fully in, um, in call it July time frame. So both of those will be at full run rate for our FY 27.

Yeah, I would, uh, I would say, you know, first of all, we're really pleased with the trajectory we've been on, right? Um, you know, this is, uh, you know, only the second time we've been above 10% in the quarter. We're up a full point from last year. And, um, you know, I think, as we've said in various settings, we see, you know, the ability to achieve a couple points, uh, above where we are now. Uh, the HOH integration is going to be a, uh, you know, near-term solution area, as you said, um, uh, uh, for, uh, you know, the next couple of quarters.

Ken Herbert: Okay. Okay. And then just on the revenue outlook for the year, do you have any contributions from the new capacity coming online in this current fiscal 2026 guidance, or is it going to be a more pronounced positive impact next year?

Michael Ciarmoli: Okay. Okay. And then just on the revenue outlook for the year, do you have any contributions from the new capacity coming online in this current fiscal 2026 guidance, or is it going to be a more pronounced positive impact next year?

But as a result of the integration, as a result of exiting our higher cost location in Indianapolis, we feel very good about punching above that 10% level over time.

Perfect. And then I'm going to ask you this 1 anyway, I get this question a lot from from clients and have gotten it just just from the rationale to expand that that lower margin. Mro heavy maintenance. You know, it often gets perceived as the wrench turning aspect of the business. I mean to to me it makes a lot of sense. But you know you you're kind of adding to the lowest margin portion of your business. I know you talked about the Synergy. I'm really yeah.

John Holmes: It'll be a more pronounced positive impact next year. Yeah. It'll be a more pronounced positive impact in our FY 2027. We will see a slight contribution from the Oklahoma City site that'll come online likely in February timeframe, but the Miami site will come online fully in, call it, July timeframe. So both of those will be a full run rate for our FY 2027.

Okay. Okay. Um, and then just on the the revenue outlook for the year, do you have any contributions from the new capacity coming online in this foreign, uh, fiscal 26 guidance or is it? Is it going to be a more pronounced positive impact? Uh, next year

Yeah. Go ahead. No no no just the thoughts on on maybe skewing more towards that higher margin Parts business or you know how how should we think about it? How should investors really think about that when they see? Yeah and that and I'm an employee and capital there.

Ken Herbert: Okay. Perfect. And then I'm going to ask you this one anyway. I get this question a lot from clients and have gotten it. Just on the rationale to expand that lower margin MRO heavy maintenance, it often gets perceived as the wrench-turning aspect of the business. I mean, to me, it makes a lot of sense, but you're kind of adding to the lowest margin portion of your business. I know you talked about the synergy.

Michael Ciarmoli: Okay. Perfect. And then I'm going to ask you this one anyway. I get this question a lot from clients and have gotten it. Just on the rationale to expand that lower margin MRO heavy maintenance, it often gets perceived as the wrench-turning aspect of the business. I mean, to me, it makes a lot of sense, but you're kind of adding to the lowest margin portion of your business. I know you talked about the synergy.

It'll be a more pronounced positive impact next year. Yeah, it'll be a more pronounced positive impact in our, uh, in our FY24 in, call it, July time frame. So both of those will be at full run rate for our FY27.

John Holmes: Yeah. Yeah. Go ahead.

From clients and have gotten it just from the rationale to expand that, that lower margin—MRO heavy maintenance. You know, it often gets perceived as the wrench-turning aspect of the business. I mean, to me, it makes a lot of sense. But, you know, you're kind of adding to the lowest margin portion of your business. I know you talked about the synergy. I'm really, yeah.

Ken Herbert: Just the thoughts on maybe skewing more towards that higher-margin parts business, or how should we think about it? How should investors really think about that when they see you deploying capital there?

Michael Ciarmoli: Just the thoughts on maybe skewing more towards that higher-margin parts business, or how should we think about it? How should investors really think about that when they see you deploying capital there?

Yeah, go ahead.

John Holmes: Yeah. So I'm really happy that you were able to get the question in because that's one that I'm happy to answer. It is not a low-margin business. We have made more margin gains in the heavy maintenance area since coming out of COVID than anywhere else. So now that business is a low double-digit margin business with potential to expand as a result of this acquisition as we improve the fixed cost space. Not only that, we now have circa 45 to 50% market share, and the customers are coming to us. And so the investments that we've made in our processes that improve the turnaround, as I described, I mean, they're allowing us to sell out through the end of the decade and, in certain cases, achieve a premium in the market. So that business, I think, is misunderstood.

It's on on maybe skewing more towards that higher margin Parts business or yeah how how should we think about it? How should investors really think about that when they see? Yeah and that deploy and capital there?

Yeah, so I'm really happy that, uh, that that you were able to get the question in, because that's 1 that's, uh, that I'm happy to answer. It is not a low margin business. We have made more margin gains in the heavy maintenance, uh, area since, uh, over the last since coming, out of Co than anywhere else. So, now that business, um, is a, you know, a low double digit margin, um, business with potential to expand as a result of this acquisition, as we improve the fixed cost base. Um, you know, not only that, you know, we now have, you know, circular, you know, 45 50% market share and, you know, the the customers are coming to us. And so the Investments that we've made in our processes that improve the turnaround. As I described, I mean, they're allowing us to uh you know, to to to sell out through the end of the decade and in certain cases achieve the premium in the market. So um that business I think is misunderstood um if you look at the margins in our repair and Engineering segment and look at them compared to other publicly traded mros. They're actually the the the

Trade differently than we do.

Not only that, we now have circa 45 to 50% market share, and the customers are coming to us. And so the investments that we've made in our processes that improve the turnaround, as I described, I mean, they're allowing us to sell out through the end of the decade and, in certain cases, achieve a premium in the market. So that business, I think, is misunderstood.

Uh, they're actually pretty similar and we're telling you that we can expand margins from here. So um, I think the historical view that airframe is a tough business, it's low margin Etc. Um it is a tough business but we've developed a model that is succeeding uh significantly and that's thanks to our execution and the uh, the systems that we put in place. So, um, I'm I'm really excited about the ho acquisition and the potential um uh for further margin.

Expansion across all the heavy maintenance.

Perfect. Uh, that's a good answer. I appreciate it. Thanks John. Thanks guys, thank you.

Thank you. Please stand by for our next question.

Our next question comes from the line of Sheila with Jeffrey. The line is open.

John Holmes: If you look at the margins in our Repair and Engineering segment and look at them compared to other publicly traded MROs, they trade differently than we do. They're actually pretty similar, and we're telling you that we can expand margins from here. So I think the historical view that airframe is a tough business, it's low margin, etc. It is a tough business, but we've developed a model that is succeeding significantly. And that's thanks to our execution and the systems that we've put in place. So I'm really excited about the HAECO acquisition and the potential for further margin expansion across all of heavy maintenance.

If you look at the margins in our Repair and Engineering segment and look at them compared to other publicly traded MROs, they trade differently than we do. They're actually pretty similar, and we're telling you that we can expand margins from here. So I think the historical view that airframe is a tough business, it's low margin, etc. It is a tough business, but we've developed a model that is succeeding significantly. And that's thanks to our execution and the systems that we've put in place. So I'm really excited about the HAECO acquisition and the potential for further margin expansion across all of heavy maintenance.

Um, hey guys, uh, congrats on Braker.

Yeah, so I'm really happy that that that you were able to get the question in, because that's 1 that's, uh, that I'm happy to answer. It is not a low margin business. We have made more margin gains in the heavy maintenance, uh, area since, uh, over the last since coming, out of Co than anywhere else. So, now that business, um, is a, you know, a low double digit margin, um, business with potential to expand as a result of this acquisition, as we improve the fixed cost base. Um, you know, not only that, you know, we now have, you know, Circa, you know, 45 50% market share and, you know, the the customers are coming to us. And so the Investments that we've made in our processes that improve the turnaround. As I described, I mean, they're allowing us to uh you know, to to to sell out through the end of the decade and in certain cases achieve the premium in the market. So um that business I think is misunderstood um, if you look at the

Margins in our Repair and Engineering segment, and look at them compared to other publicly traded MROs, they're actually the—the—the trade differently than we do.

It's to double-digit margins. How much would that comes from the contract with realignment versus the cost rationalization?

Ken Herbert: Perfect. That's a good answer. I appreciate it. Thanks, John. Thanks, guys.

Michael Ciarmoli: Perfect. That's a good answer. I appreciate it. Thanks, John. Thanks, guys.

Uh, they're actually pretty similar and we're telling you that we can expand margins from here. So um, I think the historical view that airframe is a tough business, it's low margin Etc. Um it is a tough business but we've developed a model that is succeeding uh significantly and that's thanks to our execution and the uh, the systems that we put in place. So um I'm I'm really excited about the ho acquisition and the potential um for further margin expansion across all the heavy maintenance.

John Holmes: Thank you.

Operator: Thank you. Please stand by for our next question. Our next question comes from Sheila Kahyaoglu with Jefferies. Sheila is open.

Perfect. Uh, that's a good answer. I appreciate it. Thanks, John. Thanks, guys. Thank you.

Thank you. Please stand by for our next question.

Our next question comes from the line of Chilla with Jefferies. The line is open.

Ken Herbert: Hey, guys. Congratulations.

Sheila Kahyaoglu: Hey, guys. Congratulations.

Operator: Thanks, John.

John Holmes: Thanks, John.

Ken Herbert: Great quarter.

Operator: Thank you.

Ken Herbert: John, maybe on the last line of questioning, if that's okay, sticking to Repair and Engineering. Maybe, I guess, just bigger picture, how do you think about margin expansion within the segment? Then second, as we think about HAECO, and I know you already talked about it with Mike a little bit, how do you think about going from 3% margins or low single digits to double-digit margins? How much of that comes from the contract realignment versus the cost rationalization?

John Holmes: Thank you.

Sheila Kahyaoglu: John, maybe on the last line of questioning, if that's okay, sticking to Repair and Engineering. Maybe, I guess, just bigger picture, how do you think about margin expansion within the segment? Then second, as we think about HAECO, and I know you already talked about it with Mike a little bit, how do you think about going from 3% margins or low single digits to double-digit margins? How much of that comes from the contract realignment versus the cost rationalization?

Sheila Kahyaoglu: Great quarter.

Um, hey guys, uh, congratulations, great quarter.

John Holmes: I think it's okay. So I would say, in general, in the segment, we would see going back to the levels that we were a year ago in terms of margins, so low double-digit, and then expanding from there. So I would view the moment that we're in right now in Repair and Engineering as a low point. We got a couple of quarters to get through as we get through the bulk of the real heavy lifting as it relates to the HAECO acquisition, but then we'll go up from there and then ultimately exceed where we were prior to this. And again, as I mentioned, we've got the customer support and the customer commitments over a multi-year period to achieve all of that. So feel good about the overall margin possibility in Repair and Engineering.

Thank you, John. Maybe I'm the last line of questioning if that's okay sticking to repair and Engineering, maybe I guess just bigger picture. How do you think about margin expansion within the segment and then second as we think about ho and I know you already talked about it with Mike a little bit. How do you think about going from 3%? Margins or low single digits to double digit margins? How much of that comes from the contract with realignment versus the cost rationalization?

I think it's uh, okay. So um, I would say in general in the segment, uh, we would see, you know, going back to the levels that we were, um, a year ago in terms of margins. So low double digit and then expanding from there. Um, so I would be the moment that we're in right now and repair and Engineering is a, is a, is a low Point. Um, we got a couple quarters to get through as we get through the bulk of the, or the, the real heavy lifting is, it comes to the as it relates to the ho acquisition, but then we'll go up from there. And then ultimately exceed, where we were prior to this. Um, and again, as I mentioned, we've got the customer support and the customer commitments over a multi-year period to achieve all of that. So, um, you know, feel good about the, uh, you know, the overall margin possibility and repair and engineering and, and, and 1 of the thing I should mention that I'm talking about heavy maintenance. Um, the component repair business is a, you know, mid to high teens, uh, operating margin business. And as I talked talked about earlier, we intend to leverage the leadership position that we have in heavy maintenance.

To drive more volume to component repair, which will further enhance the margins of the overall segment.

John Holmes: And one other thing I should mention to that. I'm talking about heavy maintenance. The component repair business is a mid to high teens operating margin business. And as I talked about earlier, we intend to leverage the leadership position that we have in heavy maintenance to drive more volume to component repair, which will further enhance the margins of the overall segment. As it relates to the HAECO integration, as it relates to the HAECO integration in particular, it would be a mix between the revenue realignment and the cost takeout. And I should mention that we are taking the revenues down from what HAECO was doing before pretty significantly.

And one other thing I should mention to that. I'm talking about heavy maintenance. The component repair business is a mid to high teens operating margin business. And as I talked about earlier, we intend to leverage the leadership position that we have in heavy maintenance to drive more volume to component repair, which will further enhance the margins of the overall segment. As it relates to the HAECO integration, as it relates to the HAECO integration in particular, it would be a mix between the revenue realignment and the cost takeout. And I should mention that we are taking the revenues down from what HAECO was doing before pretty significantly.

I think it's uh, okay. So um, I would say in general in the segment, uh, we would see, you know, going back to the levels that we were, um, a year ago in terms of margins. So low double digit and then expanding from there. Um, so I would be the moment that we're in right now and repair and Engineering is a, is a, is a low Point. Um, we got a couple quarters to get through as we get through the bulk of the or the real heavy lifting, as it comes to the, as it relates to the higo acquisition. But then we'll go up from there. And then ultimately exceed, where we were prior to this. Um, and again, as I mentioned, we've got the customer support and the customer commitments over a multi-year period to achieve all of that. So, um, you know, feel good about the, uh, you know, the overall margin possibility and repair and engineering and, and, and 1 of the thing I should mention that I'm talking about heavy maintenance. Um, the component repair business is a, you know, mid to high teens, uh, operating margin business. And as I talked talked about earlier, we intend to leverage the leadership position that we have in heavy maintenance.

To drive more volume to component repair, which will further enhance the margins of the overall segment.

Um, as it relates to the ho integration, as it relates to the ho integration in particular, it would be a, it would be, um, a mix, um, between the revenue realignment. Um, and the cost takeout. And I should mention that we are taking the revenues down from what ho was doing before, uh, pretty significantly. And so, we're bringing the volume in that facility in in across the facilities down to a level where we can establish our processes, establish the, um, uh, uh, the, the rigor that we want to see that we've been able to achieve elsewhere, uh, on the floor in the hangers and then ultimately build up from there. So, um, you know, we're utilizing, we're not utilizing the full foot footprint. We're we're right. Sizing the labor force to match the volume to get the operations performing the way we want. But then over time, we would intend to build up for here from here. And I should mention that, we've done that, you know, successfully in, in several of our other existing facilities, and we're obviously doing that in Miami and Oklahoma in the city because we're expanding those 2 sites.

Yeah, great. And then maybe just Switching gears a little bit. Lots of questions already on your success in parts.

John Holmes: And so we're bringing the volume in that facility and across the facilities down to a level where we can establish our processes, establish the rigor that we want to see that we've been able to achieve elsewhere on the floor in the hangars, and then ultimately build up from there. So we're not utilizing the full footprint. We're right-sizing the labor force to match the volume to get the operations performing the way we want. But then over time, we would intend to build up from here. And I should mention that we've done that successfully in several of our other existing facilities, and we're obviously doing that in Miami and Oklahoma City because we're expanding those two sites.

And so we're bringing the volume in that facility and across the facilities down to a level where we can establish our processes, establish the rigor that we want to see that we've been able to achieve elsewhere on the floor in the hangars, and then ultimately build up from there. So we're not utilizing the full footprint. We're right-sizing the labor force to match the volume to get the operations performing the way we want. But then over time, we would intend to build up from here. And I should mention that we've done that successfully in several of our other existing facilities, and we're obviously doing that in Miami and Oklahoma City because we're expanding those two sites.

Uh, solution accelerating over, 30% in the in the quarter. Um, you know, can you talk about what you're expecting? You you uh, Sarah mentioned, 50% of that came from government customers. What you're thinking about the second half, uh, of the year.

Um, as it relates to the HO integration, as it relates to the HO integration in particular, it would be a, it would be, um, a mix, um, between the revenue realignment, um, and the cost takeout. And I should mention that we are taking the revenues down from what HO was doing before, uh, pretty significantly. And so we're bringing the volume in that facility, in, um, across the facilities down to 11.

Yeah, I would say, you know, again, we've been kind of on an annual, uh, run rate of, uh, you know, thought Circa 20% organic growth and, um, uh, I would think that we would be, uh, you know, a slightly above that, uh, in the second half of the year.

Got it. Okay. Great. Thank you.

Thank you.

I'm showing no further questions at this time. I would now like to turn the call back over to John for closing remarks.

Of our other existing facilities, and we're obviously doing that in Miami and Oklahoma City because we're expanding those two sites.

Ken Herbert: Yep. Great. And then maybe just switching gears a little bit, lots of questions already on your success in parts distribution accelerating over 30% in the quarter. Can you talk about what you're expecting? Sarah mentioned 50% of that came from government customers. What you're thinking about the second half of the year?

Sheila Kahyaoglu: Yep. Great. And then maybe just switching gears a little bit, lots of questions already on your success in parts distribution accelerating over 30% in the quarter. Can you talk about what you're expecting? Sarah mentioned 50% of that came from government customers. What you're thinking about the second half of the year?

Great really. Want to thank everybody for the time and the interest as you can tell, we've got a strategy that's working. We're encouraged by the momentum that we have and we expect it to continue and look forward to getting back together next quarter. Thanks everybody.

Yeah, great. And then maybe just switching gears a little bit—lots of questions already on your Q6.

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

John Holmes: Yeah. I would say, again, we've been kind of on an annual run rate of circa 20% organic growth, and I would think that we would be slightly above that in the second half of the year.

Stuff in Parts, uh, distribution accelerating over 30% in the quarter. Um, you know, can you talk about what you're expecting? You, you, uh, Sarah mentioned 50% of that came from government customers. What you're thinking about the second half, uh, of the year.

Ken Herbert: Got it. Okay. Great. Thank you.

Sheila Kahyaoglu: Got it. Okay. Great. Thank you.

Yeah, I would say, you know, again, we've been kind of on an annual, uh, run rate of, uh, you know, call it 20% organic growth, and, um, uh, I would think that we would be, uh, you know, slightly above that, uh, in the second half of the year.

John Holmes: Great. Thank you.

Thank you.

Operator: Thank you. I'm showing no further questions at this time. I would now like to turn the call back over to John for closing remarks.

Great. Thank you.

Thank you.

John Holmes: Great. Really want to thank everybody for the time and the interest. As you can tell, we've got a strategy that's working. We're encouraged by the momentum that we have, and we expect it to continue, and look forward to getting back together next quarter. Thanks, everybody.

I'm Sean. No further questions at this time. I will now turn the call back over to John for closing remarks.

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

Great, really. I want to thank everybody for the time and the interest. As you can tell, we've got a strategy that's working. We're encouraged by the momentum that we have, and we expect it to continue. We look forward to getting back together next quarter. Thanks, everybody.

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

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