AAR — First Quarter Fiscal Year 2027 Earnings Summary

Financial Performance

• Consolidated sales increased 24% year-over-year to $918.0 million, compared to $739.6 million in Q1 FY2026.
• GAAP net income was $40.1 million ($1.00 diluted EPS), up from $34.4 million ($0.95 diluted EPS) in the prior year quarter.
• Adjusted diluted EPS was $1.49, an increase of 38% compared to $1.08 in the prior year quarter.
• Adjusted EBITDA rose 34% to $116.5 million (reported as $117 million in highlights), compared to $86.7 million in the prior year quarter.
• Adjusted EBITDA margin expanded 100 basis points year-over-year to 12.7%, up from 11.7%.
• Operating margin was 7.9% in the current quarter, down from 8.8% in the prior year quarter; adjusted operating margin increased to 10.6% from 9.7%.
• Cash provided by operating activities was $55.8 million, compared to $44.9 million used in the prior year quarter.
• Net debt was $780.5 million as of August 31, 2026, down from $950.0 million in the prior year quarter.
• Net leverage ratio was 1.81x as of August 31, 2026.
• Selling, general, and administrative expenses were $107.0 million, compared to $71.8 million in the prior year quarter.
• Acquisition, amortization, and integration expenses were $19.6 million, compared to $4.4 million in the prior year quarter.
• Net interest expense was $16.2 million, compared to $18.5 million in the prior year quarter.
• Weighted average diluted shares outstanding increased to 39.9 million from 35.9 million in the prior year quarter.

Guidance and Future Outlook

• Second quarter FY2027 sales growth (excluding Legacy Commercial Programs) is guided for 14%–16%.
• Second quarter FY2027 adjusted EBITDA margin (excluding Legacy Commercial Programs) is guided for 13.0%–13.4%.
• Full year FY2027 sales growth (excluding Legacy Commercial Programs) is guided for the low teens, an upgrade from the prior guidance of low double-digits to low teens.
• Guidance figures exclude the impact of the MRO Holdings acquisition.
• Management expressed confidence in delivering another year of strong performance in fiscal 2027 driven by solid first-quarter results and continued demand.

Business Segments and Product Lines

• Parts Supply segment sales grew 31%, led by 23% organic growth in new parts distribution across Commercial and Government end markets.
• Repair, Engineering & Software (RE&S) segment sales grew 31%, driven by Airframe MRO, Component MRO, and software activities.
• Government Solutions segment sales increased 4%, driven by strength in Mobility Systems.
• Sales to commercial customers increased 28% to represent 73% of consolidated sales, compared to 71% in the prior year quarter.
• Sales to government customers increased 14%, primarily due to increased volumes in new parts distribution activities.
• Total adjusted EBITDA margin across Parts Supply, RE&S, and Government Solutions segments was 13.3%.

Market and Competitive Landscape

• Airline customers continue to experience strong demand for air travel, driving demand for AAR's services.
• The company operates in the aviation aftermarket, serving both commercial and government customers globally across over 20 countries.
• The company noted above-market growth in Commercial Distribution sales.

Risks and Challenges

• Forward-looking statements are subject to risks including adverse events in the commercial aviation industry, reduction in sales to the U.S. government, cost overruns on fixed-price contracts, and nonperformance by subcontractors.
• Risks include a shortage of skilled personnel, work stoppages, competition, and international operational risks.
• Specific risks related to the MRO Holdings acquisition include the failure to complete the transaction, failure to satisfy closing conditions, regulatory approval delays, termination fees, financing risks, dilution from potential private placement, and integration challenges.
• Risks also include the potential disruption of current business plans, diversion of management attention, and unexpected costs associated with the acquisition.
• General risks include cyber threats, product liability claims, inability to protect intellectual property, and compliance with laws and regulations.

Management Commentary and Tone

• John M. Holmes, Chairman, President, and CEO, described the quarter as a "very strong start" to the fiscal year.
• Management highlighted that sales growth resulted in a 34% increase in adjusted EBITDA and margin expansion.
• Holmes stated the MRO Holdings acquisition is "highly strategic" and marks a "significant step" in the long-term growth plan, expected to accelerate the strategy by driving revenue to all other areas of the company through heavy maintenance.
• Management expressed confidence in the strategy, portfolio, and combination adding to the strength and resilience of the aftermarket platform.
• The tone was confident regarding the ability to deliver strong performance in fiscal 2027.

Other Key Points

• AAR entered into a definitive agreement to acquire a 65% controlling interest in MRO Holdings.
• The previously scheduled earnings conference call was rescheduled to 7:00 AM CT on Tuesday, September 29, 2026, to discuss the results and the MRO Holdings acquisition.
• The acquisition is intended to reshape the portfolio into an integrated Parts, Repair, and Software aviation aftermarket platform.
• The transaction structure allows AAR to partner with a proven team in a strategically important region while maintaining financial flexibility.
• The company reported a bargain purchase gain in the prior year but none in the current quarter.
• The company is not providing a reconciliation of forward-looking financial measures to GAAP due to the inherent difficulty of forecasting timing and amounts of certain items.