AAR CORP. (NYSE: AIR), a leading provider of aviation services to
commercial and government operators, MROs, and OEMs, today reported
fourth quarter fiscal year 2023 consolidated sales of $553.3
million and income from continuing operations of $23.2 million, or
$0.66 per diluted share. For the fourth quarter of the prior year,
the Company reported sales of $476.1 million and income from
continuing operations of $23.9 million, or $0.66 per diluted share.
Our adjusted diluted earnings per share from continuing operations
in the fourth quarter of fiscal year 2023 were $0.83, compared to
$0.72 in the fourth quarter of the prior year.
Consolidated fourth quarter sales increased 16%
over the prior year quarter. Our consolidated sales to commercial
customers increased 31% over the prior year quarter, primarily due
to further recovery in the commercial market. Our consolidated
sales to government customers decreased 7% primarily due to the
completion of certain government programs that occurred last fiscal
year. Sales to commercial customers were 69% of consolidated sales,
compared to 62% in the prior year quarter.
“Across our domestic and international markets,
the demand for commercial air travel is increasing and our airline
customers expect this trend to continue. In turn, we have seen
sustained high demand for our services which drove another strong
quarter of growth,” said John M. Holmes, Chairman, President and
Chief Executive Officer of AAR CORP.
Gross profit margins were 19.5% in the current
quarter, compared to 18.9% in the prior year quarter. Adjusted
gross profit margin increased from 18.6% to 19.5%, primarily due to
the favorable impact of our previous actions to reduce costs and
improve our operating efficiency.
Selling, general, and administrative expenses
were $70.8 million in the quarter, which included increased
investments in digital initiatives as well as $5.1 million related
to Trax acquisition and amortization expenses. As a percentage of
sales, selling, general, and administrative expenses were 12.8% for
the quarter, compared to 12.0% last year. Excluding the Trax
acquisition and amortization expenses, selling, general, and
administrative expenses were 11.9% of sales in the quarter.
Operating margins remained consistent at 6.6% in
the current and prior year quarters, while adjusted operating
margin increased from 7.0% in the prior year quarter to 7.8%,
primarily as a result of the growth in commercial sales.
Sequentially, our adjusted operating margin increased from 7.6% to
7.8%, driven by improved profitability in our commercial
business.
Subsequent to the quarter, we announced an
extension and expansion of our United Airlines MRO relationship and
a planned facility expansion in Miami, Florida. Under the new
arrangement, we will increase our narrow body maintenance
capacity to provide United Airlines a minimum of 10 lines of
support across our Miami and Rockford, Illinois, MRO facilities. To
support the additional lines of maintenance, we will add a new
three-bay hangar adjacent to our existing nine-bay facility at
Miami International Airport. Miami-Dade County has committed to
reimburse the expected construction costs of the hangar.
Net interest expense for the quarter was $4.7
million, compared to $0.6 million last year. Average diluted share
count decreased from 35.7 million shares in the prior year quarter
to 34.8 million shares in the current year quarter. We did not
repurchase any shares during the quarter as a result of deploying
capital towards the acquisition of Trax and other attractive
investment opportunities. We have $57.6 million remaining on the
program and will continue to evaluate share repurchases along with
other opportunities to deploy our capital.
Cash flow provided by operating activities from
continuing operations was $45.3 million during the current quarter.
Excluding our accounts receivable financing program, our cash flow
provided by operating activities from continuing operations was
$48.8 million in the current quarter. As of May 31, 2023, our net
debt was $203.6 million and our net leverage was 1.07x.
Holmes continued, “The sales growth combined
with our actions to improve margins drove record earnings in the
fourth quarter. We also delivered solid cash flow, and our balance
sheet remains exceptionally strong, which will allow us to continue
to make growth investments, as we did with the acquisition of
Trax.”
Fiscal year 2023 results
Full fiscal year 2023 consolidated sales were
$2.0 billion, an increase of 9% from fiscal year 2022. Aviation
Services sales increased by 9%, primarily from the continued
recovery in the commercial market, while sales to government
customers in this segment decreased 13% primarily due to the
completion of certain government programs that occurred last fiscal
year. Expeditionary Services sales increased 24% in fiscal year
2023 from higher volumes in our Mobility operations.
Full fiscal year 2023 income from continuing
operations was $89.8 million, or $2.52 per diluted share. In fiscal
year 2022, income from continuing operations was $78.5 million, or
$2.16 per share. Our adjusted diluted earnings per share from
continuing operations was $2.86 in the current year, compared to
$2.38 last year, reflecting continued recovery in the commercial
market.
Sales to commercial customers were 67% of
consolidated sales, compared to 60% in the prior year. Cash flow
from operating activities from continuing operations was $23.8
million in fiscal year 2023. Excluding our accounts receivable
financing program, our cash flow provided by operating activities
from continuing operations was $26.0 million in fiscal year
2023.
Holmes concluded, “I am exceptionally proud of
our team and the record results we delivered this year. We expect
continued growth in our parts business due to increasing demand for
used material and the full ramp-up of recent new parts distribution
contract awards. Our hangars are expected to remain largely full
throughout the year, and we are excited about the opportunities
Trax provides to help further strengthen the AAR value proposition.
Our new business pipeline across the commercial and government
markets remains strong, and we believe we are well-positioned to
continue our growth and margin expansion.”
Change in operating
segments
Beginning in the first quarter of fiscal 2024,
we implemented a new reporting structure which resulted in the
separation of our Aviation Services segment into three new
operating segments: Parts Supply, Repair & Engineering, and
Integrated Solutions. In conjunction with this re-alignment, we
have also changed our measure of segment performance from gross
profit to operating income. These changes will be initially
reflected in our condensed consolidated financial statements for
the quarterly period ended August 31, 2023. We expect to file a
Form 8-K later today that will provide certain historical summary
financial information under our new operating segment structure for
fiscal years 2022 and 2023.
Conference call information
On Tuesday, July 18, 2023, at 3:45 p.m. Central
time, AAR will hold a conference call to discuss the results. The
conference call can be accessed by registering at
https://register.vevent.com/register/BI6e42da77ed2046a0b652f6417faa6d56.
Once registered, participants will receive a dial-in number and a
unique PIN that will allow them to access the call.
A replay of the conference call will be
available for on-demand listening shortly after the completion of
the call
at https://edge.media-server.com/mmc/p/4efwk2rt and will
remain available for approximately one year.
Investor Day information
AAR will host an Investor Day on Thursday, July
20, 2023 at 9 a.m. ET in New York City. During the event, AAR’s
senior leadership team will provide an overview of the Company’s
strategy, markets, operations, and key growth opportunities. For
those not attending the event, a webcast of the presentations and
accompanying slides will be available in the investor relations
section of our website. Following the event, an archived version of
the webcast and accompanying slides will be available for
approximately one year on our website.
About AAR
AAR is a global aerospace and defense
aftermarket solutions company with operations in over 20 countries.
Headquartered in the Chicago area, AAR supports commercial and
government customers through two operating segments: Aviation
Services and Expeditionary Services. Additional information can be
found at aarcorp.com.
Contact: Dylan Wolin – Vice President,
Strategic & Corporate Development and Treasurer |
+1-630-227-2017 | dylan.wolin@aarcorp.com
This press release
contains certain statements relating to future results, which are
forward-looking statements as that term is defined in the Private
Securities Litigation Reform Act of 1995, which reflect
management’s expectations about future conditions, including but
not limited to the strength of the commercial and government
aviation markets, opportunities for and the execution and success
of growth investments, and continuing demand for our parts and
services.
Forward-looking
statements often address our expected future operating and
financial performance and financial condition, or sustainability
targets, goals, commitments, and other business plans, and often
may also be identified because they contain words such as
“anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,”
“intend,” “likely,” “may,” “might,” “plan,” “potential,” “predict,”
“project,” “seek,” “should,” “target,” “will,” “would,” or similar
expressions and the negatives of those terms.
These forward-looking
statements are based on the beliefs of Company management, as well
as assumptions and estimates based on information available to the
Company as of the dates such assumptions and estimates are made,
and are subject to certain risks and uncertainties that could cause
actual results to differ materially from historical results or
those anticipated, depending on a variety of factors, including:
(i) factors that adversely affect the commercial aviation industry;
(ii) the impact of pandemics and other disease outbreaks, such as
COVID-19, and similar public health threats on air travel,
worldwide commercial activity and our and our customers’ ability to
source parts and components; (iii) a reduction in the level of
sales to the branches, agencies and departments of the U.S.
government and their contractors (which were 29% of consolidated
sales in fiscal year 2023); (iv) cost overruns and losses on
fixed-price contracts; (v) nonperformance by subcontractors or
suppliers; (vi) changes in or non-compliance with laws and
regulations that may affect certain of our aviation and government
and defense related activities that are subject to licensing,
certification and other regulatory requirements imposed by the FAA,
the U.S. State Department and other regulatory agencies, both
domestic and foreign; (vii) a reduction in outsourcing of
maintenance activity by airlines; (viii) a shortage of the skilled
personnel on whom we depend to operate our business, or work
stoppages; (ix) competition from other companies, including
original equipment manufacturers, some of which have greater
financial resources than we do; (x) financial and operational risks
arising as a result of operating internationally; (xi) inability to
integrate acquisitions effectively and execute our operational and
financial plan related to the acquisitions; (xii) failure to
realize the anticipated benefits of the acquisition of Trax USA
Corp. (“Trax”) and difficulties integrating Trax’s operations
(xiii) inability to recover our costs due to fluctuations in market
values for aviation products and equipment caused by various
factors, including reductions in air travel, airline bankruptcies,
consolidations and fleet reductions; (xiv) asset impairment charges
we may be required to recognize to reflect the non-recoverability
of our assets or lowered expectations regarding businesses we have
acquired; (xv) threats to our systems technology from equipment
failures, cyber or other security threats or other disruptions;
(xvi) a need to make significant capital expenditures to keep pace
with technological developments in our industry; (xvii) a need to
reduce the carrying value of our assets; (xviii) inability to fully
execute our stock repurchase program and return capital to our
stockholders; (xix) restrictions on paying, or failure to maintain
or pay dividends; (xx) limitations on our ability to access the
debt and equity capital markets or to draw down funds under loan
agreements; (xxi) non-compliance with restrictive and financial
covenants contained in certain of our loan agreements; (xxii)
non-compliance with laws and regulations relating to the formation,
administration and performance of our U.S. government contracts;
(xxiii) exposure to product liability and property claims that may
be in excess of our liability insurance coverage; (xxiv) impacts
from stakeholder and market focus on environmental, social and
governance matters; and (xxv) the costs of compliance, and
liability for non-compliance, with environmental regulations,
including future requirements regarding climate change and
environmental, social and governance matters. Should one or more of
those risks or uncertainties materialize adversely, or should
underlying assumptions or estimates prove incorrect, actual results
may vary materially from those described. Those events and
uncertainties are difficult or impossible to predict accurately and
many are beyond our control.
For a discussion of
these and other risks and uncertainties, refer to our Annual Report
on Form 10-K, Part I, “Item 1A, Risk Factors” and our other filings
from time to time with the U.S Securities and Exchange Commission.
These events and uncertainties are difficult or impossible to
predict accurately and many are beyond the Company’s control. The
risks described in these reports are not the only risks we face, as
additional risks and uncertainties are not currently known or
foreseeable or impossible to predict accurately or risks that are
beyond the Company’s control or deemed immaterial may materially
adversely affect our business, financial condition or results of
operations in future periods. We assume no obligation to update any
forward-looking statements to reflect events or circumstances after
the date of such statements or to reflect the occurrence of
anticipated or unanticipated events.
AAR CORP. and subsidiaries |
|
|
|
|
Condensed consolidated
statements of income(In millions
except per share data - unaudited) |
Three months ended May 31, |
|
Year ended May 31, |
|
|
2023 |
2022 |
|
|
|
2023 |
2022 |
|
|
|
|
|
Sales |
$ |
553.3 |
|
|
$ |
476.1 |
|
|
$ |
1,990.5 |
|
|
$ |
1,820.0 |
|
Cost and
expenses: |
|
|
|
|
|
|
|
Cost of sales |
|
445.2 |
|
|
|
386.3 |
|
|
|
1,620.4 |
|
|
|
1,506.8 |
|
Provision for credit losses |
|
0.8 |
|
|
|
0.3 |
|
|
|
2.6 |
|
|
|
1.2 |
|
Selling, general and administrative |
|
70.8 |
|
|
|
56.9 |
|
|
|
230.4 |
|
|
|
202.2 |
|
Loss from joint ventures |
|
(0.2 |
) |
|
|
(1.2 |
) |
|
|
(3.2 |
) |
|
|
(2.9 |
) |
|
|
|
|
|
|
|
|
Operating
income |
|
36.3 |
|
|
|
31.4 |
|
|
|
133.9 |
|
|
|
106.9 |
|
Losses related to sale
and exit of business |
|
(0.2 |
) |
|
|
(0.4 |
) |
|
|
(0.7 |
) |
|
|
(1.7 |
) |
Interest expense,
net |
|
(4.7 |
) |
|
|
(0.6 |
) |
|
|
(11.2 |
) |
|
|
(2.3 |
) |
Other income
(expense), net |
|
(1.2 |
) |
|
|
0.1 |
|
|
|
(0.8 |
) |
|
|
2.2 |
|
|
|
|
|
|
|
|
|
Income from continuing
operations before income tax expense |
|
30.2 |
|
|
|
30.5 |
|
|
|
121.2 |
|
|
|
105.1 |
|
Income tax
expense |
|
7.0 |
|
|
|
6.6 |
|
|
|
31.4 |
|
|
|
26.6 |
|
Income from continuing
operations |
|
23.2 |
|
|
|
23.9 |
|
|
|
89.8 |
|
|
|
78.5 |
|
Income from
discontinued operations |
|
–– |
|
|
|
–– |
|
|
|
0.4 |
|
|
|
0.2 |
|
Net
income |
$ |
23.2 |
|
|
$ |
23.9 |
|
|
$ |
90.2 |
|
|
$ |
78.7 |
|
|
|
|
|
|
|
|
|
Earnings per share –
Basic: |
|
|
|
|
|
|
|
Earnings from continuing operations |
$ |
0.67 |
|
|
$ |
0.67 |
|
|
$ |
2.55 |
|
|
$ |
2.19 |
|
Earnings from discontinued operations |
|
–– |
|
|
|
–– |
|
|
|
0.01 |
|
|
|
0.01 |
|
Earnings per share – Basic |
$ |
0.67 |
|
|
$ |
0.67 |
|
|
$ |
2.56 |
|
|
$ |
2.20 |
|
|
|
|
|
|
|
|
|
Earnings per share –
Diluted: |
|
|
|
|
|
|
|
Earnings from continuing operations |
$ |
0.66 |
|
|
$ |
0.66 |
|
|
$ |
2.52 |
|
|
$ |
2.16 |
|
Earnings from discontinued operations |
|
–– |
|
|
|
–– |
|
|
|
0.01 |
|
|
|
0.01 |
|
Earnings per share – Diluted |
$ |
0.66 |
|
|
$ |
0.66 |
|
|
$ |
2.53 |
|
|
$ |
2.17 |
|
|
|
|
|
|
|
|
|
Share
data: |
|
|
|
|
|
|
|
Weighted average
shares outstanding – Basic |
|
34.4 |
|
|
|
35.1 |
|
|
|
34.7 |
|
|
|
35.6 |
|
Weighted average
shares outstanding – Diluted |
|
34.8 |
|
|
|
35.7 |
|
|
|
35.1 |
|
|
|
36.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AAR CORP. and subsidiaries |
Condensed consolidated balance sheets(In
millions) |
May 31,2023 |
|
May 31,2022 |
|
(unaudited) |
|
|
ASSETS |
|
|
|
Cash and cash equivalents |
$ |
68.4 |
|
|
$ |
53.5 |
|
Restricted cash |
|
13.4 |
|
|
|
5.4 |
|
Accounts receivable, net |
|
241.3 |
|
|
|
214.0 |
|
Contract assets |
|
86.9 |
|
|
|
73.6 |
|
Inventories, net |
|
574.1 |
|
|
|
550.5 |
|
Rotable assets and equipment on or available for
lease |
|
50.6 |
|
|
|
53.6 |
|
Assets of discontinued operations |
|
13.5 |
|
|
|
16.2 |
|
Other current assets |
|
49.7 |
|
|
|
40.4 |
|
Total current assets |
|
1,097.9 |
|
|
|
1,007.2 |
|
Property, plant, and equipment, net |
|
126.1 |
|
|
|
109.6 |
|
Operating lease right-of-use assets, net |
|
63.7 |
|
|
|
73.0 |
|
Goodwill and intangible assets, net |
|
239.5 |
|
|
|
119.7 |
|
Rotable assets supporting long-term programs |
|
178.1 |
|
|
|
166.6 |
|
Other non-current assets |
|
127.8 |
|
|
|
97.8 |
|
Total assets |
$ |
1,833.1 |
|
|
$ |
1,573.9 |
|
|
|
|
|
LIABILITIES AND EQUITY |
|
|
|
Accounts payable and accrued liabilities |
$ |
338.1 |
|
|
$ |
331.0 |
|
Liabilities of discontinued operations |
|
13.4 |
|
|
|
17.2 |
|
Total current liabilities |
|
351.5 |
|
|
|
348.2 |
|
Long-term debt |
|
269.7 |
|
|
|
98.9 |
|
Operating lease liabilities |
|
48.2 |
|
|
|
57.4 |
|
Other liabilities |
|
64.6 |
|
|
|
34.9 |
|
Total liabilities |
|
734.0 |
|
|
|
539.4 |
|
Equity |
|
1,099.1 |
|
|
|
1,034.5 |
|
Total liabilities and equity |
$ |
1,833.1 |
|
|
$ |
1,573.9 |
|
|
|
|
|
|
|
|
|
AAR CORP. and subsidiaries |
Condensed consolidated
statements of cash flows(In millions – unaudited) |
Three months endedMay 31, |
|
Year endedMay
31, |
|
|
2023 |
|
|
|
2022 |
|
|
|
2023 |
|
|
|
2022 |
|
Cash flows provided by
operating activities: |
|
|
|
|
|
|
|
Net income |
$ |
23.2 |
|
|
$ |
23.9 |
|
|
$ |
90.2 |
|
|
$ |
78.7 |
|
Income from discontinued operations |
|
–– |
|
|
|
–– |
|
|
|
(0.4 |
) |
|
|
(0.2 |
) |
Income from continuing operations |
|
23.2 |
|
|
|
23.9 |
|
|
|
89.8 |
|
|
|
78.5 |
|
Adjustments to reconcile income from continuing operations
to net cash provided by operating
activities |
|
|
|
|
|
|
|
Depreciation and amortization |
|
7.7 |
|
|
|
7.6 |
|
|
|
27.9 |
|
|
|
33.1 |
|
Amortization of stock-based compensation |
|
3.1 |
|
|
|
2.4 |
|
|
|
13.5 |
|
|
|
8.2 |
|
Provision for credit losses |
|
0.8 |
|
|
|
0.3 |
|
|
|
2.6 |
|
|
|
1.2 |
|
Pension settlement charges |
|
–– |
|
|
|
0.7 |
|
|
|
–– |
|
|
|
1.4 |
|
Impairment charges |
|
1.0 |
|
|
|
–– |
|
|
|
1.0 |
|
|
|
2.9 |
|
Changes in certain assets and liabilities: |
|
|
|
|
|
|
|
Accounts receivable |
|
8.3 |
|
|
|
(4.9 |
) |
|
|
(18.1 |
) |
|
|
(49.0 |
) |
Contract assets |
|
4.8 |
|
|
|
(4.8 |
) |
|
|
(13.7 |
) |
|
|
(1.9 |
) |
Inventories |
|
(3.4 |
) |
|
|
(15.0 |
) |
|
|
(23.6 |
) |
|
|
(10.4 |
) |
Prepaid expenses and other current assets |
|
0.2 |
|
|
|
12.5 |
|
|
|
(8.6 |
) |
|
|
(10.2 |
) |
Rotable assets supporting long-term programs |
|
(6.1 |
) |
|
|
1.6 |
|
|
|
(19.3 |
) |
|
|
3.0 |
|
Accounts payable and accrued liabilities |
|
6.7 |
|
|
|
1.7 |
|
|
|
(6.4 |
) |
|
|
18.9 |
|
Deferred revenue on long-term programs |
|
(6.2 |
) |
|
|
1.3 |
|
|
|
(4.0 |
) |
|
|
3.8 |
|
Other |
|
5.2 |
|
|
|
12.9 |
|
|
|
(17.3 |
) |
|
|
10.3 |
|
Net cash provided by operating activities – continuing
operations |
|
45.3 |
|
|
|
40.2 |
|
|
|
23.8 |
|
|
|
89.8 |
|
Net cash used in operating activities – discontinued
operations |
|
(0.1 |
) |
|
|
(0.1 |
) |
|
|
(0.5 |
) |
|
|
(14.6 |
) |
Net cash provided by operating activities |
|
45.2 |
|
|
|
40.1 |
|
|
|
23.3 |
|
|
|
75.2 |
|
|
|
|
|
|
|
|
|
Cash flows used in
investing activities: |
|
|
|
|
|
|
|
Property, plant, and equipment expenditures |
|
(7.0 |
) |
|
|
(7.1 |
) |
|
|
(29.5 |
) |
|
|
(17.3 |
) |
Payment for acquisition of Trax, net of cash
acquired |
|
(103.3 |
) |
|
|
–– |
|
|
|
(103.3 |
) |
|
|
–– |
|
Other |
|
(0.4 |
) |
|
|
(2.5 |
) |
|
|
(5.2 |
) |
|
|
0.8 |
|
Net cash used in
investing activities |
|
(110.7 |
) |
|
|
(9.6 |
) |
|
|
(138.0 |
) |
|
|
(16.5 |
) |
|
|
|
|
|
|
|
|
Cash flows provided by
(used in) financing activities: |
|
|
|
|
|
|
|
Short-term borrowings (repayments) on Revolving Credit
Facility, net |
|
84.0 |
|
|
|
(4.5 |
) |
|
|
172.0 |
|
|
|
(34.2 |
) |
Purchase of treasury stock |
|
–– |
|
|
|
(22.2 |
) |
|
|
(50.1 |
) |
|
|
(42.4 |
) |
Other |
|
9.2 |
|
|
|
12.2 |
|
|
|
15.8 |
|
|
|
16.8 |
|
Net cash provided by
(used in) financing activities |
|
93.2 |
|
|
|
(14.5 |
) |
|
|
137.7 |
|
|
|
(59.8 |
) |
Effect of exchange
rate changes on cash |
|
–– |
|
|
|
(0.1 |
) |
|
|
(0.1 |
) |
|
|
(0.2 |
) |
Increase (Decrease) in
cash and cash equivalents |
|
27.7 |
|
|
|
15.9 |
|
|
|
22.9 |
|
|
|
(1.3 |
) |
Cash, cash
equivalents, and restricted cash at beginning of
period |
|
54.1 |
|
|
|
43.0 |
|
|
|
58.9 |
|
|
|
60.2 |
|
Cash, cash
equivalents, and restricted cash at end of period |
$ |
81.8 |
|
|
$ |
58.9 |
|
|
$ |
81.8 |
|
|
$ |
58.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AAR CORP. and subsidiaries |
Sales by business segment(In millions -
unaudited) |
Three months endedMay 31, |
|
Year endedMay 31, |
|
|
2023 |
|
|
|
2022 |
|
|
|
2023 |
|
|
|
2022 |
|
Aviation Services |
$ |
529.9 |
|
|
$ |
452.9 |
|
|
$ |
1,898.7 |
|
|
$ |
1,745.8 |
|
Expeditionary Services |
|
23.4 |
|
|
|
23.2 |
|
|
|
91.8 |
|
|
|
74.2 |
|
|
$ |
553.3 |
|
|
$ |
476.1 |
|
|
$ |
1,990.5 |
|
|
$ |
1,820.0 |
|
Gross profit by business segment(In millions-
unaudited) |
Three months endedMay 31, |
|
Year endedMay 31, |
|
|
2023 |
|
|
|
2022 |
|
|
|
2023 |
|
|
|
2022 |
|
Aviation Services |
$ |
104.1 |
|
|
$ |
84.7 |
|
|
$ |
355.1 |
|
|
$ |
297.5 |
|
Expeditionary Services |
|
4.0 |
|
|
|
5.1 |
|
|
|
15.0 |
|
|
|
15.7 |
|
|
$ |
108.1 |
|
|
$ |
89.8 |
|
|
$ |
370.1 |
|
|
$ |
313.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted income from continuing operations,
adjusted diluted earnings per share from continuing operations,
adjusted sales, adjusted cost of sales, adjusted gross profit
margin, adjusted operating margin, adjusted cash provided by
operating activities from continuing operations, adjusted EBITDA,
net debt, and net debt to adjusted EBITDA are “non-GAAP
financial measures” as defined in Regulation G of the Securities
Exchange Act of 1934, as amended (the “Exchange Act”). We believe
these non-GAAP financial measures are relevant and useful for
investors as they illustrate our core operating performance, cash
flows and leverage unaffected by the impact of certain items that
management does not believe are indicative of our ongoing and core
operating activities. When reviewed in conjunction with our GAAP
results and the accompanying reconciliations, we believe these
non-GAAP financial measures provide additional information that is
useful to gain an understanding of the factors and trends affecting
our business and provide a means by which to compare our operating
performance and leverage against that of other companies in the
industries we compete. These non-GAAP measures should be considered
as a supplement to, and not as a substitute for, or superior to,
the corresponding measures calculated in accordance with GAAP.
Our non-GAAP financial measures reflect
adjustments for certain items including, but not limited to, the
following:
- Investigation and remediation
compliance costs comprised of legal and professional fees related
to addressing potential violations of the U.S. Foreign Corrupt
Practices Act, which we self-reported to the U.S. Department of
Justice and other agencies.
- Contract termination/restructuring
costs comprised of gains and losses that are recognized at the time
of modifying, terminating, or restructuring certain customer and
vendor contracts, including adjustments for forward loss provisions
on long-term contracts.
- Customer bankruptcy and credit
charges (recoveries) reflecting the impact of bankruptcies and
other credit charges primarily resulting from the significant
impact of the COVID-19 pandemic on the commercial aviation
industry.
- Costs related to strategic projects
consisting of professional fees for significant projects related to
strategic financings and acquisitions, including due diligence
costs.
- Losses related to the sale and exit
from our Composites manufacturing business including legal fees for
the performance guarantee associated with the Composites’ A220
aircraft contract and charges associated with the change in fair
value of the contingent consideration from the sale.
- Expenses associated with our Trax
acquisition including professional fees for legal, due diligence,
and other acquisition activities, intangible asset amortization,
and compensation expense related to contingent consideration and
retention agreements.
Adjusted EBITDA is income from continuing
operations before interest income (expense), other income
(expense), income taxes, depreciation and amortization, stock-based
compensation, and items of an unusual nature including but not
limited to business divestitures and acquisitions, workforce
actions, subsidies and costs, impairment and exit charges, facility
consolidation and repositioning costs, investigation and
remediation compliance costs, purchase accounting and legal
settlements, strategic project costs, equity investments gains and
losses, Trax acquisition and amortization expenses, and significant
customer events such as early terminations, contract
restructurings, forward loss provisions and bankruptcies.
Pursuant to the requirements of Regulation G of
the Exchange Act, we are providing the following tables that
reconcile the above-mentioned non-GAAP financial measures to the
most directly comparable GAAP financial measures:
Adjusted income from continuing operations(In
millions - unaudited) |
Three months endedMay 31, |
|
Year endedMay 31, |
|
|
2023 |
|
|
|
2022 |
|
|
|
2023 |
|
|
|
2022 |
|
Income from continuing operations |
$ |
23.2 |
|
|
$ |
23.9 |
|
|
$ |
89.8 |
|
|
$ |
78.5 |
|
Investigation and remediation compliance
costs |
|
1.6 |
|
|
|
1.1 |
|
|
|
4.7 |
|
|
|
3.7 |
|
Losses related to sale and exit of business |
|
0.2 |
|
|
|
0.4 |
|
|
|
0.7 |
|
|
|
1.7 |
|
Trax acquisition and amortization expenses |
|
5.1 |
|
|
|
–– |
|
|
|
7.0 |
|
|
|
–– |
|
Loss on equity investments, net |
|
1.0 |
|
|
|
–– |
|
|
|
0.1 |
|
|
|
–– |
|
Government COVID-related subsidies |
|
–– |
|
|
|
(1.1 |
) |
|
|
(1.6 |
) |
|
|
(4.9 |
) |
Customer bankruptcy and credit charges |
|
–– |
|
|
|
–– |
|
|
|
1.5 |
|
|
|
1.0 |
|
Russian bankruptcy court clawback judgment |
|
–– |
|
|
|
–– |
|
|
|
1.8 |
|
|
|
–– |
|
Contract termination/restructuring costs and
loss provisions, net |
|
–– |
|
|
|
(0.3 |
) |
|
|
2.0 |
|
|
|
0.9 |
|
Costs related to strategic projects |
|
–– |
|
|
|
1.8 |
|
|
|
(0.2 |
) |
|
|
1.8 |
|
Severance and pension settlement charges |
|
–– |
|
|
|
0.7 |
|
|
|
0.1 |
|
|
|
3.3 |
|
Asset impairment and exit charges |
|
–– |
|
|
|
0.1 |
|
|
|
–– |
|
|
|
3.5 |
|
Facility consolidation and repositioning
costs |
|
–– |
|
|
|
–– |
|
|
|
–– |
|
|
|
0.2 |
|
Recognition of foreign currency translation
adjustments |
|
–– |
|
|
|
–– |
|
|
|
–– |
|
|
|
0.2 |
|
Gain on settlement of purchase accounting
liabilities |
|
–– |
|
|
|
–– |
|
|
|
–– |
|
|
|
(1.0 |
) |
Tax effect on adjustments
(a) |
|
(2.0 |
) |
|
|
(0.6 |
) |
|
|
(4.1 |
) |
|
|
(2.6 |
) |
Adjusted income from continuing operations |
$ |
29.1 |
|
|
$ |
26.0 |
|
|
$ |
101.8 |
|
|
$ |
86.3 |
|
(a) Calculation uses estimated statutory tax rates on
non-GAAP adjustments.
Adjusted diluted earnings per share from continuing
operations(unaudited) |
Three months endedMay 31, |
|
Year endedMay
31, |
|
|
2023 |
|
|
|
2022 |
|
|
|
2023 |
|
|
|
2022 |
|
Diluted earnings per share from continuing
operations |
$ |
0.66 |
|
|
$ |
0.66 |
|
|
$ |
2.52 |
|
|
$ |
2.16 |
|
Investigation and remediation compliance
costs |
|
0.04 |
|
|
|
0.03 |
|
|
|
0.13 |
|
|
|
0.10 |
|
Losses related to sale and exit of business |
|
0.01 |
|
|
|
0.01 |
|
|
|
0.02 |
|
|
|
0.05 |
|
Trax acquisition and amortization expenses |
|
0.15 |
|
|
|
–– |
|
|
|
0.21 |
|
|
|
–– |
|
Loss on equity investments, net |
|
0.03 |
|
|
|
–– |
|
|
|
0.01 |
|
|
|
–– |
|
Government COVID-related subsidies |
|
–– |
|
|
|
(0.03 |
) |
|
|
(0.05 |
) |
|
|
(0.14 |
) |
Customer bankruptcy and credit charges |
|
–– |
|
|
|
–– |
|
|
|
0.04 |
|
|
|
0.03 |
|
Russian bankruptcy court clawback judgment |
|
–– |
|
|
|
–– |
|
|
|
0.05 |
|
|
|
–– |
|
Contract termination/restructuring costs and loss
provisions, net |
|
–– |
|
|
|
(0.01 |
) |
|
|
0.06 |
|
|
|
0.02 |
|
Costs related to strategic projects |
|
–– |
|
|
|
0.05 |
|
|
|
–– |
|
|
|
0.05 |
|
Severance and pension settlement charges |
|
–– |
|
|
|
0.02 |
|
|
|
–– |
|
|
|
0.10 |
|
Asset impairment and exit charges |
|
–– |
|
|
|
–– |
|
|
|
–– |
|
|
|
0.10 |
|
Facility consolidation and repositioning
costs |
|
–– |
|
|
|
–– |
|
|
|
–– |
|
|
|
0.01 |
|
Gain on settlement of purchase accounting
liabilities |
|
–– |
|
|
|
–– |
|
|
|
–– |
|
|
|
(0.03 |
) |
Tax effect on adjustments
(a) |
|
(0.06 |
) |
|
|
(0.01 |
) |
|
|
(0.13 |
) |
|
|
(0.07 |
) |
Adjusted diluted earnings per share from continuing
operations |
$ |
0.83 |
|
|
$ |
0.72 |
|
|
$ |
2.86 |
|
|
$ |
2.38 |
|
(a) Calculation uses estimated statutory tax rates on
non-GAAP adjustments.
Adjusted gross profit margin(In millions -
unaudited) |
Three months ended |
|
Year ended |
|
May 31, 2023 |
February 28, 2023 |
May 31, 2022 |
|
May 31, 2023 |
May 31, 2022 |
Sales |
$ |
553.3 |
|
|
$ |
521.1 |
|
|
$ |
476.1 |
|
|
$ |
1,990.5 |
|
|
$ |
1,820.0 |
|
Contract termination/restructuring costs, net |
|
–– |
|
|
|
–– |
|
|
|
(1.2 |
) |
|
|
0.1 |
|
|
|
(2.9 |
) |
Adjusted sales |
$ |
553.3 |
|
|
$ |
521.1 |
|
|
$ |
474.9 |
|
|
$ |
1,990.6 |
|
|
$ |
1,817.1 |
|
|
|
|
|
|
|
|
Cost of sales |
$ |
445.2 |
|
|
$ |
426.8 |
|
|
$ |
386.3 |
|
|
$ |
1,620.4 |
|
|
$ |
1,506.8 |
|
Contract termination/restructuring costs
and loss provisions, net |
|
–– |
|
|
|
–– |
|
|
|
(0.9 |
) |
|
|
(1.9 |
) |
|
|
(3.8 |
) |
Government COVID-related subsidies |
|
–– |
|
|
|
–– |
|
|
|
1.1 |
|
|
|
0.7 |
|
|
|
4.8 |
|
Facility consolidation and repositioning
costs |
|
–– |
|
|
|
–– |
|
|
|
–– |
|
|
|
–– |
|
|
|
(0.2 |
) |
Asset impairment and exit charges |
|
–– |
|
|
|
–– |
|
|
|
–– |
|
|
|
–– |
|
|
|
(2.9 |
) |
Severance charges |
|
–– |
|
|
|
–– |
|
|
|
–– |
|
|
|
–– |
|
|
|
(0.6 |
) |
Adjusted cost of sales |
$ |
445.2 |
|
|
$ |
426.8 |
|
|
$ |
386.5 |
|
|
$ |
1,619.2 |
|
|
$ |
1,504.1 |
|
|
|
|
|
|
|
|
Adjusted gross profit margin |
|
19.5 |
% |
|
|
18.1 |
% |
|
|
18.6 |
% |
|
|
18.7 |
% |
|
|
17.2 |
% |
Adjusted operating margin(In millions -
unaudited) |
Three months ended |
|
Year ended |
|
May 31, 2023 |
February 28, 2023 |
May 31, 2022 |
|
May 31, 2023 |
May 31, 2022 |
Adjusted sales |
$ |
553.3 |
|
|
$ |
521.1 |
|
|
$ |
474.9 |
|
|
$ |
1,990.6 |
|
|
$ |
1,817.1 |
|
|
|
|
|
|
|
|
Operating income |
$ |
36.3 |
|
|
$ |
34.0 |
|
|
$ |
31.4 |
|
|
$ |
133.9 |
|
|
$ |
106.9 |
|
Investigation and remediation costs |
|
1.6 |
|
|
|
1.2 |
|
|
|
1.1 |
|
|
|
4.7 |
|
|
|
3.7 |
|
Trax acquisition and amortization expenses |
|
5.1 |
|
|
|
1.9 |
|
|
|
–– |
|
|
|
7.0 |
|
|
|
–– |
|
Government COVID-related subsidies |
|
–– |
|
|
|
(0.9 |
) |
|
|
(1.1 |
) |
|
|
(1.6 |
) |
|
|
(4.9 |
) |
Customer bankruptcy and credit charges |
|
–– |
|
|
|
1.8 |
|
|
|
–– |
|
|
|
1.5 |
|
|
|
1.0 |
|
Russian bankruptcy court clawback judgment |
|
–– |
|
|
|
1.8 |
|
|
|
–– |
|
|
|
1.8 |
|
|
|
–– |
|
Contract termination/restructuring costs
and loss provisions, net |
|
–– |
|
|
|
–– |
|
|
|
(0.3 |
) |
|
|
2.0 |
|
|
|
0.9 |
|
Costs related to strategic projects |
|
–– |
|
|
|
–– |
|
|
|
1.8 |
|
|
|
(0.2 |
) |
|
|
1.8 |
|
Asset impairment and exit charges |
|
–– |
|
|
|
–– |
|
|
|
0.1 |
|
|
|
–– |
|
|
|
3.5 |
|
Facility consolidation and repositioning
costs |
|
|
|
|
|
–– |
|
|
|
0.2 |
|
Severance charges |
|
–– |
|
|
|
–– |
|
|
|
0.1 |
|
|
|
0.1 |
|
|
|
2.0 |
|
Adjusted operating income |
$ |
43.0 |
|
|
$ |
39.8 |
|
|
$ |
33.1 |
|
|
$ |
149.2 |
|
|
$ |
115.1 |
|
|
|
|
|
|
|
|
Adjusted operating margin |
|
7.8 |
% |
|
|
7.6 |
% |
|
|
7.0 |
% |
|
|
7.5 |
% |
|
|
6.3 |
% |
Adjusted cash provided by operating activities
from continuing operations(In
millions - unaudited) |
Three months endedMay 31, |
|
Year endedMay
31, |
|
|
2023 |
|
|
|
2022 |
|
|
|
2023 |
|
|
|
2022 |
|
Cash provided by operating activities from continuing
operations |
$ |
45.3 |
|
|
$ |
40.2 |
|
|
$ |
23.8 |
|
|
$ |
89.8 |
|
Amounts outstanding on accounts receivable financing
program: |
|
|
|
|
|
Beginning of period |
|
16.3 |
|
|
|
18.0 |
|
|
|
15.0 |
|
|
|
38.6 |
|
End of period |
|
(12.8 |
) |
|
|
(15.0 |
) |
|
|
(12.8 |
) |
|
|
(15.0 |
) |
Adjusted cash provided by operating activities
from continuing operations |
$ |
48.8 |
|
|
$ |
43.2 |
|
|
$ |
26.0 |
|
|
$ |
113.4 |
|
Adjusted EBITDA(In millions - unaudited) |
Three months endedMay 31, |
|
Year endedMay 31, |
|
|
2023 |
|
|
|
2022 |
|
|
|
2023 |
|
|
|
2022 |
|
Net income |
$ |
23.2 |
|
|
$ |
23.9 |
|
|
$ |
90.2 |
|
|
$ |
78.7 |
|
Income from discontinued operations |
|
–– |
|
|
|
–– |
|
|
|
(0.4 |
) |
|
|
(0.2 |
) |
Income tax expense |
|
7.0 |
|
|
|
6.6 |
|
|
|
31.4 |
|
|
|
26.6 |
|
Other expense (income), net |
|
1.2 |
|
|
|
(0.1 |
) |
|
|
0.8 |
|
|
|
(2.2 |
) |
Interest expense, net |
|
4.7 |
|
|
|
0.6 |
|
|
|
11.2 |
|
|
|
2.3 |
|
Depreciation and amortization |
|
7.7 |
|
|
|
7.6 |
|
|
|
27.9 |
|
|
|
33.1 |
|
Investigation and remediation compliance
costs |
|
1.6 |
|
|
|
1.1 |
|
|
|
4.7 |
|
|
|
3.7 |
|
Losses related to sale and exit of business |
|
0.2 |
|
|
|
0.4 |
|
|
|
0.7 |
|
|
|
1.7 |
|
Trax acquisition-related expenses |
|
4.3 |
|
|
|
–– |
|
|
|
6.2 |
|
|
|
–– |
|
Government COVID-related subsidies, net |
|
–– |
|
|
|
(1.1 |
) |
|
|
(1.6 |
) |
|
|
(4.9 |
) |
Customer bankruptcy and credit charges |
|
–– |
|
|
|
–– |
|
|
|
1.5 |
|
|
|
1.0 |
|
Russian bankruptcy court clawback judgment |
|
–– |
|
|
|
–– |
|
|
|
1.8 |
|
|
|
–– |
|
Contract termination/restructuring costs and
loss provisions, net |
|
–– |
|
|
|
(0.3 |
) |
|
|
2.0 |
|
|
|
0.9 |
|
Costs related to strategic projects |
|
–– |
|
|
|
1.8 |
|
|
|
(0.2 |
) |
|
|
1.8 |
|
Severance charges |
|
–– |
|
|
|
0.1 |
|
|
|
0.1 |
|
|
|
2.0 |
|
Asset impairment and exit charges |
|
–– |
|
|
|
0.1 |
|
|
|
–– |
|
|
|
3.5 |
|
Facility consolidation and repositioning
costs |
|
–– |
|
|
|
–– |
|
|
|
–– |
|
|
|
0.2 |
|
Stock-based compensation |
|
3.1 |
|
|
|
2.4 |
|
|
|
13.5 |
|
|
|
8.2 |
|
Adjusted EBITDA |
$ |
53.0 |
|
|
$ |
43.1 |
|
|
$ |
189.8 |
|
|
$ |
156.4 |
|
Net debt(In millions - unaudited) |
May 31, 2023 |
|
May 31, 2022 |
Total debt |
$ |
272.0 |
|
|
$ |
100.0 |
|
Less: Cash and cash
equivalents |
|
(68.4 |
) |
|
|
(53.5 |
) |
Net debt |
$ |
203.6 |
|
|
$ |
46.5 |
|
Net debt to adjusted EBITDA(In millions -
unaudited) |
May 31, 2023 |
|
|
May 31, 2022 |
Adjusted EBITDA for the year ended |
$ |
189.8 |
|
|
$ |
156.4 |
|
Net debt at period end |
|
203.6 |
|
|
|
46.5 |
|
Net debt to Adjusted EBITDA |
|
1.07 |
|
|
|
0.30 |
|
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