AIR
#Thank you very much, and welcome, everyone.
Good afternoon.
I hope everybody is having a good day, and thank you for joining us today to discuss our fourth quarter and year-end fiscal year 2017 results.
As you can tell by the release early today, we had another solid quarter as diluted earnings per share from continuing operations increased 29% from $0.34 in the prior year to $0.44 in the current period.
Our revenue was up 5.1% or $23.7 million for the quarter, primarily as a result of increased sales in our Aviation Services segment to commercial customers, partially offset by the wind-down of the KC-10 program, which Tim will talk a little bit further about in his comments, and our Lake Charles airframe maintenance facility, which we've discussed in the past.
We were especially pleased with the performance of our industry-leading integrated supply chain solutions and our aircraft and parts supply activity.
During the quarter, we announced significant new business wins, including the $909 million fixed-price contract from the U.S. Air Force for the Landing Gear Peformance-Based Logistics One program.
Under the contract, we will provide total supply chain management, including purchasing, remanufacturing, distribution and inventory control to support the Air Force requisitions received for all C-130, KC-135 and E-3 landing gears parts.
Our performance on the contract's on hold pending resolution of a protest filed by one of the competitors for the contract.
We were also awarded a multi-year component support contract with ASL Group, a growing European-based scheduled and chartered carrier.
The new contract for power-by-the-hour support for ASL Group's airlines includes component support and repair for approximately 100 passenger and cargo aircraft, including the ATR aircraft.
And we identify the ATR aircraft in this respect because we also acquired a small business from them to support ATR aircraft, and we're excited about the possibilities for that product line.
AAR will support the contract with inventory purchased from ASL's subsidiary, ACLAS Global, which will be incorporated into AAR's existing global supply chain network located in Belgium, Germany and Singapore.
We were also awarded a multi-iyear component support agreement with Viva Colombia and Viva Air Peru.
AAR will be providing full support to affiliate airlines within the Viva Latin America Group, including Viva Colombia, Colombia's new established low-cost carrier, and the newly established localized carrier, Viva Air in Peru.
AAR will make inventory available from its facilities in Miami and Chicago, as well as positioning stock in Bogota, Medellin and Lima.
We are very excited to expand our presence in Latin America with this new contract.
We're continuing to see growth in our integrated supply chain solutions and are now supporting approximately 1,400 aircraft and new aircraft platforms.
We're also continuing to expand geographically, most recently opening offices in India and New Zealand that position us closer to our customers.
We believe that our closer to the customer business model remains a strategic advantage for the company.
Before handing the call over to Tim, I would like to take a minute to provide an update on the INL/A contract awarded to AAR Airlift by the U.S. State Department back in September 2016.
We expect the decision by United States Court of Federal Claims by October 31 regarding the protest, and we remain favorably inclined as a result of our expectations for the outcome from this latest protest effort.
With that, I'd like to turn the call over to Tim to discuss these financials in a bit more detail.
I may have said October 30, I meant October 31, and so October 31, 2017.
So my apologies on that.
Thanks, <UNK>.
As <UNK> mentioned, we had a strong fourth quarter with sales of $492 million and earnings per share of $0.44 compared to $0.34 in the prior year.
Our sales in the quarter grew 5%, driven by growth in both segments, and this is despite higher sales of $32.8 million in the prior year quarter related to the wind-down of the KC-10 contract and the Lake Charles facility.
I'm going to give you the quarterly sales on the KC-10 contract that we had in fiscal '17 for your modeling, and sales in the first quarter were $38.6 million, $29.4 million in the second quarter ---+ $30 million ---+ $24.3 million in the third quarter and $18.3 million in the fourth quarter, for a total of $110.6 million in fiscal '17.
And in fiscal '18, we expect minimal kind KC-10 revenue.
Our gross profit increased $10.3 million for the quarter in the Aviation Services segment on increased sales volumes and margins and parts supply in commercial programs.
Our gross profit in the Expeditionary Services segment increased $3.9 million, with improved profitability across these businesses.
SG&A expenses increased in Q4, reflecting several special items, including increased legal fees related to INL, acquisition, diligence cost and compensation cost, including some severance.
These special costs were approximately $4 million in the quarter.
Consolidated net income was up $3.3 million in the quarter, and our results included a $2.2 million reduction in income tax expense related to the recognition of previously reserved income tax benefits.
This item helped to offset some of the increase in the SG&A expense that we experienced related to the special items.
Our CapEx in the quarter was $5.6 million, and depreciation and amortization was $13.9 million.
During the quarter, we paid dividends of $2.9 million or $0.075 cents per share, and we've repurchased 96,000 shares for $3.2 million in the quarter.
And for the year, we repurchased 767,000 shares for $19.8 million.
Our average diluted share count for the quarter was 34.3 million compared to 34.2 million in the fourth quarter last year.
And as <UNK> mentioned, yesterday, our Board of Directors authorized the repurchase of up to $250 million of our stock.
And just a couple of comments on the full fiscal year, earnings per share was $1.45 compared to $1.10 in fiscal 2016, so up a healthy 32% for the year.
Our sales grew 4% for the fiscal year to $1.767 billion, driven by sales growth in both segments.
And again, this reflects overcoming $80 million in higher sales in the prior year from KC-10 and Lake Charles.
Our gross profit increased $18.4 million in the fiscal year in Aviation Services segment and $22.2 million in Expeditionary Services segment.
Net debt increased $30.1 million for fiscal 2016 as we continued to make strategic investments in our business, including assets to support new multiyear supply chain management programs supporting our customers as well as for dividends and share repurchases.
So thanks again for your interest, and now I'll turn the call back over to <UNK>.
We completed our board meetings this morning.
We've had 2 days of productive board meetings, as you can see from some of our announcements.
I'm pleased to announce that John Holmes was elected a board member.
And you should know, John is off to a very strong start as our President and Chief Operating Officer.
We also announced the hiring of Mike Milligan to be our new Chief Financial Officer.
Mike will join the company on September 1.
He will have tough shoes to fill in with Tim's retirement, but Tim will hang around until the end of the calendar year to give ample time for him to share with Mike some of his knowledge and make the transition a little bit smoother.
So I would like, at this moment, to thank Tim for his 36 years of service to the company and his valued counsel.
I'm pleased to know that he will be with the company full-time through the end of the year, and then will stay on as a consultant into next year for the full calendar year.
So all in all, our company finished up with a very strong year.
We go into the new year with a fair amount of momentum.
I feel very good about some of the skill sets that we've developed this past year and feel good about the investments we made to fund our future growth.
And with that, I'd like to turn the call back to you folks to see if there's any questions you might have that we might be able to answer.
Yes, just one second.
See if we can get it real quick.
$41 million.
Yes, I think we can say what we've shared in the past.
I think 5% to 10% range is a range we're comfortable with.
Yes, by the end of this quarter.
Mobility is doing a little bit better.
Airlift, you're correct, we've lost some positions, but the Mobility business has seen a little bit more order flow.
So not where it's been, but still ---+ but that isn't where ---+ it's better than recent past.
Yes, yes.
Legal is 98%.
I mean, it's mostly related to the INL.
Yes, so we're technically an intervener in DynCorp's lawsuit against the U.S. government.
And we will continue to spend money in that role.
And hopefully, hopefully, the process will conclude by the October 31 date and we wouldn't expect much in the way of legal expense they have, unless DynCorp continues to protest.
No, I think we're ---+ the strategy is no different than it's been.
What we were looking to do was kind of replenish the authorization.
We had been at ---+ we had had a $250 million authorization back in 2014 and we once closed out 2000 ---+ maybe that was '15, but ---+ we went through '15 actually, but we went through $187 million of it.
So we were just, to give us the maximum flexibility, the board thought wise to go ahead and bring it back up to the old ---+ to the level it was before.
No change, though, in terms of motivation or outlook in this regard.
And obviously, we don't buy shares, and as a strategy, we buy shares opportunistically as we see fit.
Yes, we had the benefit from the taxes a little less than the after-tax impact of the kind of a special.
.
Yes, what I'd like ---+ first of all, fourth quarter is historically a strong quarter.
So you have airlines getting ready to service their customers for the summer months, so you have the ---+ shops are pretty full and the spare parts supply is pretty robust.
So that's been a trend for the last 15, maybe 20 years here at the company.
What I would like to do, Rob, is we have our Investor Day in October.
We'll be coming out with the date here pretty soon.
What I'd like to do is kind of give you ---+ share, at that point, a little bit more feel for how we see the trend, if you will, in the business.
Right now, we feel pretty bullish on things, but we just ---+ I just want to let a little time pass, let John get a little bit more ensconced in his position.
And then by around October, we should be able to give a little bit more color.
No, not [okay].
We released it ---+ when we released it, we were putting together our minutes from the board meeting.
And we just released it as part of our normal course of business.
So we got the authorization yesterday during the day.
It was some ---+ we meant to get it out last night, didn't get around to it, and we got it written up this morning during our session with the board and got it out today.
So we weren't thinking about the after hours or before hours.
Not that we see.
Not that it's ---+ nothing that is apparent.
But I guess, I would reserve my comments on that until after the actual execution.
But nothing that is apparent.
So let me share with you how we're thinking about the businesses because we're really thinking about the businesses as being integrated and having an integrated solution.
So we are ---+ as we think about our strategy, we think about these pieces and how they're connected to each other.
And as we think about growing the company, we think about growing them in this fashion.
So at this stage, I would prefer to focus more around thinking of these businesses as a collective group of businesses designed to give us a powerful value proposition for our customers.
And I believe that, that strategy is working.
And I don't think, at this stage, it would be wise to deviate from that.
So I'd prefer to speak in terms of the businesses in their totality.
Yes, right.
I'm saying the aggregate is 5% to 10%.
Yes, that's what I'm saying.
Yes, no.
So why don't we get ---+ we'll drill down a little bit further at the Investor Day.
So why don't we kind of wait on that until then and leave it at that.
We were ---+ the last date was August 9.
We then went out with a 8-K filing and laid out the dates between now and October 31.
So there was a delay in the process, and we articulated that through an 8-K filing.
Shut down.
No.
The ---+ we would be hopeful that we could get on schedule on the ramp.
We've had enough time to think about it, so.
.
We're pretty prepared.
And I think the customer is ---+ yes, I mean, we're pretty prepared.
We have reason to believe that a decision will be known before the month is out, so we're hopeful that we'll hear something on that before July 31.
So on the Mobility, we're seeing an increase in dialogue around opportunities with the customers, some new product development actually, as well as some of the traditional products.
On the airlift, we're ---+ we've won some, we've been named on some IDIQs, but we haven't won any [test] orders.
So we're a little bit ---+ we're short there in terms of positions, as we mentioned earlier in this call.
So again, I think we can get into a lot ---+ a more deeper dive at the October Investor Day.
No visibility.
We have no visibility on that.
Yes, yes.
So I think ---+ so I mean, Tim just laid out for you some of the headwinds that we faced with the KC-10 wind-down.
So.
.
That's right.
We'd expect the legal expenses to be lower.
We believe that there's room for improvement, yes.
So we believe, as we succeed more in providing integrated solutions, that it not just creates more value for our customer, but we also think it creates more value for our shareholders as well.
Yes, I think as it relates to next year, because of the items you mentioned ---+ the item you mentioned, I think we're expecting relatively flat.
Yes.
Yes.
So first of all, we ---+ and one of the ---+ as you've seen me indicate, we have different ---+ we look at the application in capital across a few different possibilities.
And one of the possibilities, of course, is investing in the business itself.
So if you look at the year that just ended, we spent money buying inventories to support some of these programs that we've recently won.
We will maintain a balanced approach based on the cash needed to fund the growth of the business and look at the cash that is available and the ratios that are available to us in terms of EBITDA to debt.
We'll keep surveilling that and make determinations based on the share price, based on other uses of our capital as to when the right times to be investing in the stock.
We do not expect to have a debt offering, or there's been no discussion at all about a debt offering to fund the purchases of the stock.
And I want to be careful in not signaling any changes from how we've been behaving to date, just that we're looking to refresh what we had previously authorized, and giving the company some flexibility as it relates to applications of capital.
So please don't be expecting anything unusual to take place.
Let me ---+ my recollection is that it's slightly ---+ 2 components for the KC-10, there's the flight hour piece, which is below ---+ you may recall, we're reporting it at 0 margin.
And then, there's the over and above, which have a pretty ---+ have a healthier margin.
So my sense is that the gross profit line is probably below our blended rate.
Cash flow from operations was $33 million in Q4.
Larry, did you get that.
Yes, what I'd like to do again here is I'd like to have a chance.
In this regard, I might have to be a little later than October.
I want to have a chance to see the impacts of the ramp of all these different contracts.
Because the pace of ingestion has been pretty rapid here.
And what we're ---+ the first step for us is to make sure we can satisfy the requirements that the customer has, and so we are making the investments we feel are necessary for that, and now we have to give these programs a chance to ramp and take a look what the ongoing costs are against the revenues that come in.
So I prefer, at this stage, to give ourselves a little bit more time to see how that evolves.
We have internal targets, but I prefer to see how we actually perform before commenting.
Okay.
Well, thank you.
Thank you for your participation today and your interest in our company.
Have a nice afternoon.
