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Text: I appreciate you joining us today to discuss our first quarter fiscal year 2021 results.
Before reviewing the quarter, I would like to express my continued gratitude to AAR's employees.
The majority of our people have continued to come to work every day throughout the pandemic to ensure AAR's uninterrupted support of its customers, and I'm grateful for their dedication and commitment, and proud of our team's ability to continue to navigate a truly unprecedented decline in commercial passenger flying.
Turning to the results.
Our sales for the quarter decreased 26% from $542 million to $401 million and our adjusted diluted earnings per share from continuing operations decreased 70% from $0.57 per share to $0.17 per share.
Our total sales to commercial customers decreased 48% from the prior year, while sales to government and defense customers increased 10%, reflecting new contract awards and significant shipments out of our Mobility business against the previously announced $125 million Cargo Pallets contract.
For the quarter, sales to government and defense customers were 56% of the total.
In response to the current environment, we have taken a number of actions to align our costs with the lower levels of demand.
But we've also gone further to position the company for improved margins as demand recovers.
Over the last three years, we have consolidated -- three quarters, we have consolidated three facilities, a permanent reduction to our fixed and variable costs, and exited or restructured several underperforming contracts.
We have also taken steps to focus on our core aviation services offering by completing the divestitures of our Airlift and Composites businesses.
All of these actions have simplified our portfolio, improved efficiency in our operations and set us up to drive higher returns on capital.
In addition to this progress, we continue to win new business during the quarter.
We announced a three-year contract with the Royal Netherlands Air Force to repair F-16 jet fuel starters.
We also announced two new contracts won by our Airinmar subsidiary, which provides component repair cycle management and aircraft warranty solutions.
We were selected by both Frontier Airlines and Air Methods, the world's largest civilian helicopter operator to provide a full suite of warranty and value engineering services.
In addition to the wins this quarter, we saw stabilization in certain of our businesses.
Our order volume in trading and distribution were consistent throughout the quarter at a level above what we saw in April and May, but well below pre-COVID levels.
In our MRO business, as we head into the fall, we incurred -- we are encouraged by the loading we expect to see in our hangars.
While our customers continue to operate in an uncertain environment and their maintenance schedules could change, the early indications are positive relative to our earlier expectations.
We are in a constant contact with our commercial customers globally and are continuing to look for ways to support them during this difficult time.
In our Government business, where we saw growth during the quarter, we continue to pursue new opportunities and the pipeline remains full.
As John mentioned, we continue to take action to reduce our costs and exit underperforming activities in the quarter.
These actions and other items resulted in predominantly non-cash pre-tax charges of $37.3 million.
Also, as previously disclosed, we received financial aid under the CARES Act in the quarter.
The total amount received was $57.2 million, of which $48.5 million was a grant and $8.7 million was a low interest pre-payable loan.
In the quarter, we utilized $8 million of the CARES Act grant and $3 million of other non-U.S. government labor subsidies for a total of $11 million.
This amount is included in the GAAP income statement but excluded from adjusted earnings.
As of the quarter-end, the unutilized portion of the grant was $40.8 million, which was recorded as a current liability.
This amount will flow through the P&L, as it is utilized, which we expect to be complete by mid-Q4.
Turning to some additional financial detail in the quarter.
SG&A expense was $45.3 million for the quarter.
On an adjusted basis, SG&A was $39.7 million, down $10.5 million from the prior year quarter, which reflects the reduction of our overhead cost structure.
In the quarter, adjusted SG&A as a percentage of sales was 9.9%.
Net interest expense for the quarter was $1.6 million compared to $2.1 million last year, which reflects the lower interest rate in the period.
During the quarter, we generated $39.8 million of cash in our operating activities from continuing operations.
This includes the $48.5 million grant portion of the CARES Act funding and a net use of cash of $18.6 million, as we reduce the level of our accounts receivable financing program.
Excluding the CARES Act and accounts receivable financing program impacts, cash flow provided by operating activities from continuing operations was $9.9 million.
Additionally, as we are focused on lowering our working capital, we were able to reduce inventory by $19 million during the quarter.
Also, we repaid $355 million of our revolving credit facility during the quarter.
We had previously drawn the full balance as a precautionary measure.
Our net debt at quarter-end was $149.3 million and unrestricted cash was $107.7 million.
Our balance sheet remains strong with net leverage of 1.1 times and availability under our revolver of approximately $355 million and we have no near-term maturities.
In light of the current macro environment, we are pleased with our Q1 performance.
Our Government business continues to be healthy, our cargo end markets continue to generate demand and our balance sheet remains strong.
As discussed on the Q4 call, given the uncertainty in the market, at this stage, we are not providing guidance for the rest of the year.
Having said that, looking forward more generally, although, the trajectory of the recovery remains uncertain, we expect the aftermarket to recover faster than the OEM market.
Within the aftermarket, we expect used serviceable material, in which AAR is the global leader, to be prioritized by operators over higher cost alternatives.
We also expect to see more material become available to support this demand as aircrafts are permanently retired and parted out.
This, along with the maintenance deferrals occurring for both airframe and engine, should drive an increased need for services out of our Trading, Distribution and MRO businesses as the commercial market recovers.
While the timing of the recovery is unknown, we believe that the actions we have taken and are continuing to take to adjust our cost structure and reposition our portfolio, combined with the strength of our team, the airlines' need for lower cost solutions and our balance sheet, uniquely position us to benefit from an eventual return of demand and to emerge an even stronger and more profitable company.

user
q1 adjusted earnings per share $0.17 from continuing operations excluding items.
q1 sales $401 million versus refinitiv ibes estimate of $381.7 million.

assistant