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Text: I appreciate you joining us today to discuss our first quarter fiscal year 2022 results.
Our positive momentum continued with another quarter of solid results, despite the continuing impact of the COVID-19 pandemic.
Compared to the prior year period, sales were up 14% from $401 million to 405 -- $455 million and adjusted diluted earnings per share from continuing operations were up 206% from $0.17 per share to $0.52 per share.
Our sales to commercial customers increased 52% and our sales to government and defense customers decreased 17%.
We are particularly pleased that our sequential growth from Q4, Q1 was 4%, notwithstanding the fact that our first quarter typically declines from our fourth quarter as a result of seasonality in our business.
Sequential growth in our commercial activities was 17%.
This improvement was driven by our parts businesses, which is an encouraging indicator of returning demand.
The strong performance in the quarter was also due to the robust demand for our airframe MRO services.
Notably, the significant majority of our MRO volume has been on standard maintenance work as opposed to catch-up work.
Our operating margin was 5.5% for the quarter on an adjusted basis up from 2.5% last year and 5.2% in the fourth quarter.
For context, our margin this quarter was actually higher than 2 years ago prior to the pandemic even though our revenue was down $86 million or 16%.
This performance demonstrates the operating leverage that we have created over the last 18 months by optimizing our MRO operations, exiting underperforming activities and reducing indirect and overhead costs.
It was another strong quarter, as we generated $18 million from operating activities from continuing operations.
We also continue to reduce the usage of our accounts receivable financing program.
Excluding the impact of that AR program, our cash flow from operating activities from continuing operation was $26 million.
Subsequent to the end of the quarter, we announced several new business wins.
First, we announced an exclusive agreement with Arkwin, a TransDigm company to distribute engine actuation and other commercial aviation product.
This award reflects the power of our independent distribution offering to component OEMs as well as the strength of our balance sheet.
Second, we announced a contract with the Department of Energy for the conversion and delivery of a 737-700 aircraft modified to allow the DoE to quickly transition between passenger and cargo modes.
Like our prior C40 aircraft delivery contract with the U.S. Marine Corps, this contract demonstrates the significant cost savings available to government customers by procuring in the aftermarket.
Finally, we announced an extension of our component support program with Volotea, a growing low cost Spanish carrier which reflects the market's continued demand for this offering and our ability to drive, lower operating costs with superior operating performance.
Before turning it over to Sean, I would like to comment on the critical role that AAR in the U.S. withdrawal from Afghanistan.
We had over a 150 people station in country primarily in support of our WASS program.
Over a 36 hour period, our WASS team transported approximately 2,000 U.S. embassy personnel to Kabul International Airport to support their evacuation from the country.
All of our employees subsequently departed the country safely as well and I'm exceptionally proud of our team support of state department personnel under very difficult circumstances.
Our sales in the quarter of $455.1 million were up 14% or $54.3 million year-over-year.
Sales inour Aviation Services segment were up 19.8% driven by recovery in our commercial markets.
Sales in our Expeditionary Services segment were down $17.7 million, reflecting the divestiture of our Composites business and strong performance of the U.S. Air Force pallet contract in the prior year quarter.
Gross profit margin in the quarter was 14.2% versus 12.1% in the prior year quarter and adjusted gross profit margin was 16.1% versus 13% in the prior year quarter.
The significant improvement reflects the cost take out and efficiency initiatives we have implemented.
As the commercial market recovers, we would expect to continue to generate higher gross margins, given the fixed nature of some of our cost of sales and the higher margin nature of our parts business, which is not yet participated in the market recovery to the same degree as our maintenance business.
As we indicated during last quarter's call, one of our commercial programs contracts was terminated during the quarter.
We recognized $10 million of charges primarily related to this termination and an asset impairment.
SG&A expenses in the quarter were $49.3 million or 10.8% of sales excluding severance of about $1 million, this would have been closer to 10.6% of sales.
This is down from 11.3% in the year ago quarter and 11.2% in Q4.
As a reminder, last year's results had contemporary cost savings due to salary and benefit reductions that were in place through Q2 of last year.
Net interest expense for the quarter was $0.7 million compared to $1.6 million last year, driven by lower borrowings.
Average diluted share count for the quarter was $35.7 million versus $35 million for the prior year quarter.
With respect to Afghanistan, as we discussed on last quarter's call, we had in-country activity on 2 programs, our WASS program supporting the State Department and our C130 program supporting four Afghan Airforce aircraft.
In conjunction with the state department's exit from Afghanistan, we are winding down related activities and expect that to be completed later this quarter.
The C130 program is currently continuing with support of 2 of the 4 aircraft based in the UAE.
In total, our FY'21 sales in Afghanistan were $67 million, the margins on these activities were consistent with the overall WASS program, which we have described in the past as being high single-digit operating margin.
As John indicated, we generated cash flow from our operating activities from continuing operations of $17.5 million as we continue to reduce our rotables and inventory balances.
In addition, we reduced our accounts receivable financing program by $8.4 million in the quarter.
Our balance sheet remains exceptionally strong with net debt of $80.2 million and net leverage of only 0.6 times.
Looking forward, we expect that demand for our MRO activities will remain strong as airlines continue to focus both on readiness to support the recovery in air travel and on preserving a healthy maintenance supply chain.
With respect to part supply, while we saw increasing levels of activity during the quarter, we expect stable performance in the near term as a result of the uncertainty created by the Delta variant.
On the government side, the exit from Afghanistan as well as the programs nearing natural completion points will have a near-term impact on our business.
However, our Department of Energy contract is an offsetting award that demonstrates the fundamental value proposition of our commercial best practices business model.
In addition, we continue to build a solid past performance history.
As such, we believe that over time, we remain in an excellent position to grow our government business through additional program wins and expansions of our current positions.
Based on these near term dynamics, we currently expect overall Q2 performance to be similar to Q1.
While there remains uncertainty over the timing of the recovery.
We are confident that a recovery will occur and we believe, we are exceptionally well positioned.
We have emerged from the crisis with an even stronger balance sheet, our government and commercial pipelines are full and the operating leverage we have created positions us to continue to drive further margin expansion.

user
compname reports q1 sales of $455 mln.
q1 adjusted earnings per share $0.52 from continuing operations.
q1 sales $455 million versus refinitiv ibes estimate of $438.4 million.

assistant