AAR CORP — Call Transcript 2026

Good afternoon. I'm Louie DiPalma. I cover aerospace and defense on William Blair's equity research team. A lot of familiar faces in the audience. This is the second day of the 46th Annual William Blair Growth Stock Conference, and we're pleased to be hosting a presentation/fireside chat with AAR's management team. Joining me today are Chairman, President, and CEO, John Holmes, and in the audience, CFO Dylan Wolin, and Vice President of Investor Relations, Chris Tillett. Following the presentation, we will move for a more in-depth discussion in the Adler Room on the second floor. I am required to inform the audience that a complete list of conflicts of interest and disclosures are available on our website at williamblair.com. Thanks, John, take it away. All right. Thanks, Louie. I'm required to tell you all of this here in the forward-looking statements, there is one other statement I want to make before I get into the remark, and that is I'm very proud to say that I'm a William Blair alum. I started my career here coming out of the University of Illinois in 1999 and joined the William Blair investment banking team, and that is actually what led me to AAR because AAR was and is a William Blair client. It's cool to be up here. I'm going to talk for about 10 minutes. I could talk for a lot longer, but I'm going to go quickly through some slides and then Louie and I will do questions. The messages that we want to convey or that I want to convey today are, AAR's been around for a long time. We've been in business since 1955. I think we are known for certain things in the market, but we have been doing a lot of work to transform the company over the last several years. We've repositioned the portfolio. We've really doubled down on building a differentiated culture. We have a more focused strategy than ever, and we have been and will continue to deliver faster, more profitable growth. Sorry, I got to move this so I can see the slides here. Here's some stats on the company, obviously publicly traded, LTM sales of $3.1 billion. We crossed $3 billion for the first time ever. We are at about 8,000 members of the team at about 12% EBITDA margins, which we are increasing. An important thing to note about AAR is we are balanced between government and commercial. About 70% of the company is commercial, about 30% is government. Being in the government space in times like we're in right now is a very good thing. I'll talk about that in a minute. We are geographically diverse with a concentration in North America, and we recently resegmented the company. We report in four segments: Parts Supply, Repair and Engineering, Government Solutions, and we have a fourth segment, Legacy Commercial Programs. As the name implies, this is a set of contracts and businesses that are a set of contracts with airlines that we are winding down over time. That's a market that we've been talking about for the last several years moving away from us. We have a number of contracts that are not performing at the new, I would say, requirements that we have for the business. We have a fair amount of inventory tied up supporting them. We're going to exit those, liquidate the inventory, and you'll see how it's accretive to us over time. Talking about the transformation, if I think about the years I became CEO in 2018, if I think about the years of change that we've been through, one of the things that occurred to the team and I early on was what you decide not to do is just as important as what you decide to do. We spent the first several years adjusting the portfolio and restructuring and getting out of things. AAR years ago was a much more diverse business mix. There was not a lot of connection between the businesses we were in. We were much lower margin, and in short, we were small and complex. That's not a very good combination. We wanted to simplify the portfolio, exiting a number of things. We've had a number of divestitures, exited a number of contracts. That commercial programs piece that I mentioned, the new segment, that's kind of the last piece in terms of what we're exiting. Now that we've got ourselves down to a core, we've been focused on building from there. The key to everything, and you'll hear this over and over again, is just focus. Focus on certain markets, focus on certain customers, focus on certain aircraft types, and really becoming leaders in the areas that we decide to serve. Today, those areas that we want to move into or have been moving into are three, and I'm going to talk about these in depth. Parts, repair, and software. This is the strategy of the company, parts, repair, and software. We sell parts, both new and used, we sell repairs, and we sell software that allows our customers around the world to plan for and buy the parts and repairs that we sell. This is a unique value chain in the industry. I'll talk about why it's unique in a minute, but we're building something that does not exist anywhere else, and it's been working. I love this chart. These are good numbers. We've been averaging a 15% CAGR over the last few years. We've been expanding our EBITDA margins on average about one point per year. Same thing with our operating income, and our EPS, thanks to the expanded margins, has been tracking ahead. Again, I'm going through like an hour's worth of material here in 10 minutes, so apologize for going fast. One thing I didn't want to forget was our culture. We are involved in safety of flight. We are involved in critical services delivering to airlines around the world, and it's very important that we have an unbelievably strong culture at the company, and that's something I'm particularly proud of having driven over the last 8 years in this role, is a very strong culture built obviously on a great foundation by my predecessor, David. It starts with Quality First, Safety Always, and it ends with Own It. We're a big company, but we're not that big, and so every one of us, all 8,000 of us on the team, have got to show up every day and own the actions that we take. Speaking of our customers, we've got a great customer base. We work with all the blue-chips airlines around the world. You can see some of them there. Very proud of our relationships with Air Canada, United, Delta, Alaska, and others. We, through our distribution business that I'll talk about, have a number of wonderful relationships that we're very proud of with the largest OEMs in the world. We also do, as I mentioned, a fair amount of government business with not only the U.S. government, but also international governments. I'll skip this, but we win. We win for a number of reasons. This is a summary slide, and I'll get into why we win here with these individual slides. Parts, repair, and software. Let's talk about parts for a second. Two activities inside of parts. The first is new parts distribution, and the second is USM. I'll talk about USM first. USM is used material. This is the original business that started AAR 70 years ago, buying used aircraft and engines, tearing them down, repairing the parts, and reselling the parts. It's a great business because it's highly transactional. It keeps us in touch with the markets. We know how asset values are moving. We know what's in demand, et cetera, but it's not the future of AAR. That has been mixing down over a period of time. We're keeping the business relatively the same size, but as a % of sales, it's less than 15% now. The future in the parts business for us is new parts distribution. New parts distribution has been growing at between 25% and 30% CAGR organically over the last four years. That's well above market. We expect above-market growth to continue, and that is because we have a unique model. We are two-way exclusive, meaning we do not represent competing product for an OEM that we represent in the market, and that OEM does not use a competing distributor. This allows us to get incredibly technically efficient with the OEMs that we partner with and help them take market share. This is very different than our competitors, which are traditional stocking distributors, buy a bunch of inventory, put it in warehouses around the world, and essentially operate a call center. We are true extensions of our OEM partners in the aftermarket, and this model is resonating. Three or four years ago, we weren't known for this. We are now, and the opportunity set that we see for ourselves in distribution is going to drive continued growth above market. Repair. Two activities inside of repair. First is heavy maintenance. Heavy maintenance, again, I think there's a kind of conception that this is a lower margin, me too business. We have become top three in the world, the leaders in North American heavy maintenance. We turn aircraft faster than anybody else. We have the best set of contracts with the best set of customers. We recently made an acquisition in this space. We bought our largest competitor here in North America. We've got close to a 50% market share in North America, and we are sold out through the end of the decade because of the quality of our work. It's important to note that our focus is narrow bodies. Those aircrafts, 737s, A320, that maintenance has to get done here. They can't go to Asia. They can't go to Europe. That has to get done here. We've got a great customer base locally that allows us to leverage this position into other areas. One example of leveraging this leadership position for heavy maintenance is in component repair. Heavy maintenance is a low teens EBITDA business. Component repair is a high teens EBITDA business. Our strategy is to leverage our leadership position in heavy maintenance to capture more component maintenance, and I'm sure we'll talk about that later. Those things go together. The last thing I want to talk about is the software piece. We've talked about parts, we've talked about repair, and now we'll talk about software. Louie's done a great job of covering the software element of our strategy. It all started about three years ago when we made an acquisition in the software space called Trax. Trax is a maintenance ERP system that's been around for about 25 years. It's used by more than 100 airlines in the world supporting over 6,000 aircraft. Trax is a next-gen system that allows the airline to manage every element of its maintenance operation, every piece of inventory on the shelf, every piece of inventory installed on an aircraft, every part that's been sent out for repair, where they sent it, what they paid for it, et cetera, et cetera, et cetera. All of that activity and that data is housed in Trax. If you're in the business of selling parts and repair, that is the holy grail of data that you want to have access to. We are on the desktop of tens of thousands of buyers and planners in airlines around the world who are making these purchasing decisions. The legacy Trax is an on-prem system. We have a new offering called eMRO, which is fully SaaS-based. We are transitioning those 100 airlines off of legacy Trax to new SaaS-based, and that will be done by the end of 2028. Again, once that data is real time in the cloud with the SaaS-based offering, that's incredibly powerful to inform the rest of what we do. We bought Trax for a couple of reasons. One, we saw that connection between what Trax does and the data that they house and the repairs and software that we sell. We also felt that we could grow it. Since we bought Trax, we've been introducing them to new customers around the world. We've gotten them into Thai Airways, we've gotten them into Cathay Pacific, we've gotten them into Virgin Atlantic. Three days after this conference last year, we announced that we got them into Delta Air Lines. Delta Air Lines, along with many of the large legacy carriers, is still on old 40-year-old systems that need to be modernized to Trax. Delta, universally recognized by most airlines as the leader in the world, the fact that they embrace Trax as a solution is a very solid endorsement of the capabilities. A year ago, we were negotiating with them, and today there are over 11,000 people at Delta Air Lines using Trax, which is awesome. It's awesome. We're just getting started in the software business. Two of the quick things there. Just want to make sure it's on here. Aerostrat, an acquisition that we made about six months ago. Think of Trax as the operating system. Think of Aerostrat as a really cool app. Aerostrat allows airlines to plan heavy maintenance. They're the leader of the world for heavy maintenance planning. If you're in the business of selling heavy maintenance, it's great that you have software that allows you to see how airlines are planning their heavy maintenance checks. I can go into more detail on that later. The last thing I want to mention that we launched in April is something called Airvoyant, and this is an AI-driven procurement tool. Buying parts at an airline is an incredibly labor-intensive process. I can describe it later, but airlines are spending $60 billion a year on parts, and they're doing it manually. They're emailing out spreadsheets. It's insane. There's no reason why this has to be manual anymore, and Airvoyant is a solution. We launched it, and we've been thrilled with the customer receptivity. It's not parts repair and software, but I did want to touch on government. All of the things that we're doing in the commercial world, we are applying to the government space. If you can repair a 737, you can repair a C-40 or a P-8 because those are commercial derivative aircraft. If you can repair those type of aircraft, you can repair an F-16, for example. All of the commercial knowhow that we've built up over the decades, we're applying to the government space, and that goes across parts repair and software. Again, in moments like we're in right now, it's really, really a good thing to have the balance between the government option or government offering and the commercial offering. I've talked a little bit about this, so I won't dwell on the side, but these things fit together. We can get into it in the Q of A, or Q&A. All of these things go together, and again, this is a unique value chain in the industry. Last thing I want to do, and then we'll go to Q&A, is we had an investor day a couple of weeks ago, and we put out three-year targets for margin growth, et cetera. What I would say about these targets is we have a high degree of confidence in achieving these targets, particularly around the margin expansion. There are multiple avenues with which we can achieve this margin expansion. If any combination of those avenues comes true, we can do much better than what's on the page. Just want to flag that. With that, do you guys want to go through the appendix? We'll go to Q&A. Fantastic. Thanks, John. Yeah. I'll stand here. I think you actually announced the Delta logo win at this conference last year. One aspect of that, you just mentioned how there's 11,000 Delta employees that have been onboarded to Trax. What's the ultimate goal, and what's the roadmap for Delta? There's a three-year roadmap for Delta. We're one year into it, and we've got two left. Think of it as kind of small, medium, and large. The small module is largely behind us, and we've started the medium set. I won't get into the details of it, but the goal was to get Trax to deploy to a large number of mechanics and employees around Delta and then gradually increase the functionality that's deployed to them. Yeah. Great. How, in general, do you view Trax as synergistic with your parts supply and your repair businesses? How is that going to fuel growth other than? Yeah Trax in and of itself? Yeah. Great question. In a couple of ways. First of all, as we move everybody to the cloud, as we have access to that data, and right now we are taking the position that that data is the customers, but we are working with the customers to agree on accessing that data. Knowing what inventory is out there, knowing repair data, repair history, et cetera, that will help inform what parts we choose to put on the shelf to supply to them. It will help inform what repair capabilities we want to develop. It will help us win new distributorships. If we go to an OEM and we say, "Hey, listen, OEM, we want to be your partner in the aftermarket. By the way, we are on the desktop, the point of sale for thousands of buyers and planners at more than 100 airlines around the world," that is a very powerful statement to make. That's a unique channel to market that other distributors don't have, and that's on top of the two-way exclusive model. We see a lot of connectivity there. Furthermore, if I think about Airvoyant, not only can we connect the dots in terms of what offerings we have, parts, and repair, but we can also automate those transactions. Whether there's a human in the loop or a human kind of around the loop, that's a solution that we're excited to bring to market. Fantastic. It seems over the past year that your parts supply business has experienced an acceleration. I'm not sure if you would attribute it to Trax. No, not yet. Doing these. No. What have been the drivers of that acceleration? Related to that, the pertinent topic is the aftermarket cycle slowing down? People have been asking that question even though. Yeah. I'm glad you went there. It's been accelerating. Yeah. It's been accelerating for us. Right. We've been growing meaningfully faster than the market. We expect to continue growing faster than the market. The offering and distribution is unique. That two-way exclusive model, we've been at it now for about eight years. It's really gotten traction in the last three or four years. We've got a number of case studies when we go in to present to OEMs to explain to them, "Hey, listen, we started out as a $15 million partner with OEM X. We've grown that relationship to $100 million by helping that OEM grow and take market share." We were not known for this a few years ago. We are now. Those proof points, again, combined with the channels to market through Trax, are getting a lot of traction. Today, we size the distribution market for ourselves at about $25 billion. We have less than 5% penetration. We have a lot of headroom, particularly now that we're becoming known for this, and the opportunity set continues to increase. Not only that, but as we scale on the heavy maintenance side and the HAECO acquisition that we made a few months ago, as we scale and we see more and more aircraft through our hangars, that's another pitch to OEMs. I'll give you an example. Let's say you're talking to an OEM that manufactures pumps, and we work on 1,200 aircraft a year in our hangars right now. We're the largest in North America. We're seeing 1,200 aircraft. That's 15% of the North American fleet we are maintaining. That's big. We go to an OEM, we say, "Okay, you're a pump manufacturer, and you have an upgrade for a pump that's on a particular 737. Guess what? We're going to work on 700 or 800 737s in our hangars this year. We can, at the point of sale, talk to the airline reps who are in the hangar with those aircraft and say, 'Hey, listen. This is an upgrade. We want to upgrade the existing pump that's on the aircraft to a new one. Here are the benefits. Let's pull off those pumps right now and put on yours.' That, again, is a unique synergy. Great. Can you walk us through the impact, if any, there has been from the Middle East conflict? Yeah High oil prices? Yeah. I'm sure this is kind of what has been a big topic. So far I would reiterate what we have said most recently at Investor Day. We have not seen any impact, we would see it in our day-to-day parts sales, the day-to-day parts sales have been as strong as ever. All right? We're not seeing it. More importantly, at this stage, we would hear it with respect to maintenance schedules. What we would expect to hear now is we would have airlines coming to us saying, "Listen, we had planned to send you four lines of maintenance starting in the fall after the busy summer flying season. We're going to pull down one of those, and you're only going to see three." We are not hearing any of that. Our customers are as bullish as ever on the future. I would say that, and I've had the opportunity over the last two days to spend time with a number of major airline CEOs, and I think, and over the last 30 days with a lot of airline CEOs, I think that they've all been pleasantly surprised with the amount of pricing power they have on the market. On average, they've been able to pass 30%-60% of the increase in fuel costs along through ticket pricing. They're realizing they have market power, given the demand environment, they didn't know that they necessarily had, and that's encouraging to them. It'd be really interesting to see, to the extent that they've achieved certain pricing levels, and once that fuel input goes down and comes back to normal, that could be a really good thing for the health of the airlines. Great. I would say travel demand appears to be one of the big drivers for your commercial aero business. What are you seeing in terms of the trends on the government side? I was going to say, this environment, not only are we insulated from what's happening for all the reasons I just described, but we actually stand to benefit from it. Because we've got this government exposure, we are seeing an up-tempo in the pace of orders. We saw it last quarter. I'll give you an example. For the government parts business last quarter, we were up 55% organically. That's a big number. That trend was starting even before the conflict, and we expect that to continue as this administration prioritizes operational readiness. We're seeing nice increases on the government side. We manufacture pallets, for example. We are the provider of pallets to the U.S. Air Force. These are pallets that are used in moving things around. These orders are public. We've seen a tremendous increase in orders out of that business, and we expect that to continue as well. We've seen growth on the government side of things. The last point I would make about not just being insulated but actually benefiting from this environment is we are a lower-cost solution. As airlines, if they are looking to defray some of the increase in fuel costs, rather than going to an OEM solution, rather than going to another higher-cost solution, we have, in the cycles that we've existed, seen over time that airlines, when moments like this occur where they're trying to save money, they come to providers like us, and we've seen some of those opportunities also. Yeah. On the government side, last October, there was a protracted shutdown, and across our defense coverage, there was very slow funding going into the turn of the year. In contrast, though, you've seen exceptional government growth. Yeah. Would you view that government growth, would you expect it to continue going into the government year-end, and are there tailwinds in terms of, I think you mentioned modernization, or would you expect that government growth to materially slow down? We expect the government growth to continue. Okay. During the shutdown, we did not have any material impact to the business. The programs that we are on are on critical programs. Again, the current administration is prioritizing operational readiness and sustainment of the existing fleet, and those are the parts and services that we offer to the government, and therefore we've seen an increase. On top of that, we do have a very meaningful pipeline of long-term government programs, bids that we have in the government. You've seen some of those convert in the last couple of quarters, which has led to growth, and we've got more of that. Another topic related to what we were discussing before was the accelerating organic growth on the parts distribution side. What has been the business development activity there in terms of whether OEMs that previously did the distribution themselves, whether they're looking to outsource or? Yeah Whether you can take away contracts from distributors that may be focusing on other portions of their business? Yeah, great question. The majority of the growth that we have seen in the distribution business has come from taking share from our competitors. That's been the vast majority. However, what we've found is that when we get into an OEM, let me say a couple of things. We've been at this two-way exclusive strategy now for about 10 years, but really eight years at scale. These agreements that we sign are typically 5-10 years in length, and we've had 100% renewal rate on these agreements in that period of time. You have the land and expand. We've got land and expand, for sure. I'll get to that. Not only have we renewed them, but in the last couple of years, we have renewed them without even being competed. The OEM's a partner, they love what we're doing, they extend the existing contract, and to your point, land and expand, we have added new product lines, new geographies, et cetera. We've signed a couple agreements recently on the defense side, and the defense side is a really good way in for us. The OEMs, it's a challenge for them dealing with the government. We've got a unique set of systems that allow us to plan for and sell parts to the government. It's an easy way into an OEM. We build a relationship there, and then we move over to the commercial side. As we do more and more of these, again, we become known for this, where we weren't before. People are coming to us, and the pipeline's big. Great. A question that I'm going to ask you, but it could also be for Dylan. In terms of your margin guidance that you outlined at your Analyst Day, there's a lot of puts and takes between the different segments that you have, whether it's the software, the distribution, and the repair. How do you bridge the gap between your current 13% margin and where you expect that to be in three years? Yeah, I think we're at 12. We put out 13%-14%+. Yeah. As I mentioned, we have a very high degree of confidence of getting to that target. As you also cited, there are a number of different areas of the business where margin is expanding. If things come together in the right combination, we could do much better than what we guided to. Right. I should also mention that those targets that we put out, that's a waypoint, right. That's not an endpoint. That's a, "Hey, we're on this journey. You've seen great expansion from us over a period of time. We put out cash flow guidance for the first time." These are not endpoints. This is, "Hey, this is a stop along the way, and we expect over time to continue to do better than all of those targets. Great. What are the potential sources of margin expansion with the recent HAECO acquisition? Yeah What you're doing on the heavy maintenance side? Yeah, great question. Just so everybody knows, we bought our largest competitor in the U.S., a company called HAECO, on the heavy maintenance side. We are in the process of dramatically restructuring their operations to improve their profitability. When we bought the business, at the same time, we signed up $850 million worth of heavy maintenance contracts for that business, which sold out their hangars through the decade. We actually, though, even with that, brought their revenue down because they were doing a lot of work that's unprofitable. We are in the process of exiting that unprofitable work, rightsizing the cost base, and ultimately will have HAECO up to the margin that we experience in our other hangars, which is low teens. What's more is we will improve the margin of our heavy maintenance business overall, because as part of HAECO, we are exiting our highest cost site, which is in Indianapolis. We will move out of that site, transfer that work predominantly to HAECO, but also other facilities, and that will improve the overall margin profile for the whole group. Great. Yeah, one final one before we head to the breakout. How do you view improving free cash flow conversion from? We put out free cash flow targets, I think, for the first time ever, and we put it at 30% EBITDA. We are still a working capital-intensive business given the significant growth in distribution. Right. The MRO, the heavy maintenance growth, the component maintenance growth, those are very cash flow healthy business. Obviously government is as well. But over time, as we scale distribution, the incremental investment required for each new distribution deal will be smaller as a percentage of the base and will improve from there. So again, I would view the 30% as a near-term waypoint, but over time, we would expect to be better. Great. Awesome. Thanks, John.

Speaker 2: Good afternoon. I'm Louie DiPalma. I cover aerospace and defense on William Blair's equity research team. A lot of familiar faces in the audience. This is the second day of the 46th Annual William Blair Growth Stock Conference, and we're pleased to be hosting a presentation/fireside chat with AAR's management team. Joining me today are Chairman, President, and CEO, John Holmes, and in the audience, CFO Dylan Wolin, and Vice President of Investor Relations, Chris Tillett. Following the presentation, we will move for a more in-depth discussion in the Adler Room on the second floor. I am required to inform the audience that a complete list of conflicts of interest and disclosures are available on our website at williamblair.com. Thanks, John, take it away. Good afternoon. good afternoon I'm Louie DiPalma. i'm louie dipalma I cover aerospace and defense on William Blair's equity research team. i cover aerospace and defense on william blair's equity research team A lot of familiar faces in the audience. a lot of familiar faces in the audience This is the second day of the 46th Annual William Blair Growth Stock Conference, and we're pleased to be hosting a presentation/fireside chat with AAR's management team. this is the second day of the 46th annual william blair growth stock conference and we're pleased to be hosting a presentation/fireside chat with aar's management team Joining me today are Chairman, President, and CEO, John Holmes, and in the audience, CFO Dylan Wolin, and Vice President of Investor Relations, Chris Tillett. joining me today are chairman president and ceo john holmes and in the audience cfo dylan wolin and vice president of investor relations chris tillett Following the presentation, we will move for a more in-depth discussion in the Adler Room on the second floor. following the presentation we will move for a more in-depth discussion in the adler room on the second floor I am required to inform the audience that a complete list of conflicts of interest and disclosures are available on our website at williamblair.com. i am required to inform the audience that a complete list of conflicts of interest and disclosures are available on our website at williamblair.com Thanks, John, take it away. thanks john take it away

Speaker 1: All right. Thanks, Louie. I'm required to tell you all of this here in the forward-looking statements, there is one other statement I want to make before I get into the remark, and that is I'm very proud to say that I'm a William Blair alum. I started my career here coming out of the University of Illinois in 1999 and joined the William Blair investment banking team, and that is actually what led me to AAR because AAR was and is a William Blair client. It's cool to be up here. I'm going to talk for about 10 minutes. I could talk for a lot longer, but I'm going to go quickly through some slides and then Louie and I will do questions. The messages that we want to convey or that I want to convey today are, AAR's been around for a long time. All right. all right Thanks, Louie. thanks louie I'm required to tell you all of this here in the forward-looking statements, there is one other statement I want to make before I get into the remark, and that is I'm very proud to say that I'm a William Blair alum. i'm required to tell you all of this here in the forward-looking statements there is one other statement i want to make before i get into the remark and that is i'm very proud to say that i'm a william blair alum I started my career here coming out of the University of Illinois in 1999 and joined the William Blair investment banking team, and that is actually what led me to AAR because AAR was and is a William Blair client. i started my career here coming out of the university of illinois in 1999 and joined the william blair investment banking team and that is actually what led me to aar because aar was and is a william blair client It's cool to be up here. it's cool to be up here I'm going to talk for about 10 minutes. i'm going to talk for about 10 minutes I could talk for a lot longer, but I'm going to go quickly through some slides and then Louie and I will do questions. i could talk for a lot longer but i'm going to go quickly through some slides and then louie and i will do questions The messages that we want to convey or that I want to convey today are, AAR's been around for a long time. the messages that we want to convey or that i want to convey today are aar's been around for a long time We've been in business since 1955. I think we are known for certain things in the market, but we have been doing a lot of work to transform the company over the last several years. We've repositioned the portfolio. We've really doubled down on building a differentiated culture. We have a more focused strategy than ever, and we have been and will continue to deliver faster, more profitable growth. Sorry, I got to move this so I can see the slides here. Here's some stats on the company, obviously publicly traded, LTM sales of $3.1 billion. We crossed $3 billion for the first time ever. We are at about 8,000 members of the team at about 12% EBITDA margins, which we are increasing. An important thing to note about AAR is we are balanced between government and commercial. About 70% of the company is commercial, about 30% is government. We've been in business since 1955. we've been in business since 1955 I think we are known for certain things in the market, but we have been doing a lot of work to transform the company over the last several years. i think we are known for certain things in the market but we have been doing a lot of work to transform the company over the last several years We've repositioned the portfolio. we've repositioned the portfolio We've really doubled down on building a differentiated culture. we've really doubled down on building a differentiated culture We have a more focused strategy than ever, and we have been and will continue to deliver faster, more profitable growth. we have a more focused strategy than ever and we have been and will continue to deliver faster more profitable growth Sorry, I got to move this so I can see the slides here. sorry i got to move this so i can see the slides here Here's some stats on the company, obviously publicly traded, LTM sales of $3.1 billion. here's some stats on the company obviously publicly traded ltm sales of $3.1 billion We crossed $3 billion for the first time ever. we crossed $3 billion for the first time ever We are at about 8,000 members of the team at about 12% EBITDA margins, which we are increasing. we are at about 8,000 members of the team at about 12% ebitda margins which we are increasing An important thing to note about AAR is we are balanced between government and commercial. an important thing to note about aar is we are balanced between government and commercial About 70% of the company is commercial, about 30% is government. about 70% of the company is commercial about 30% is government Being in the government space in times like we're in right now is a very good thing. I'll talk about that in a minute. We are geographically diverse with a concentration in North America, and we recently resegmented the company. We report in four segments: Parts Supply, Repair and Engineering, Government Solutions, and we have a fourth segment, Legacy Commercial Programs. As the name implies, this is a set of contracts and businesses that are a set of contracts with airlines that we are winding down over time. That's a market that we've been talking about for the last several years moving away from us. We have a number of contracts that are not performing at the new, I would say, requirements that we have for the business. Being in the government space in times like we're in right now is a very good thing. being in the government space in times like we're in right now is a very good thing I'll talk about that in a minute. i'll talk about that in a minute We are geographically diverse with a concentration in North America, and we recently resegmented the company. we are geographically diverse with a concentration in north america and we recently resegmented the company We report in four segments: Parts Supply, Repair and Engineering, Government Solutions, and we have a fourth segment, Legacy Commercial Programs. we report in four segments parts supply repair and engineering government solutions and we have a fourth segment legacy commercial programs As the name implies, this is a set of contracts and businesses that are a set of contracts with airlines that we are winding down over time. as the name implies this is a set of contracts and businesses that are a set of contracts with airlines that we are winding down over time That's a market that we've been talking about for the last several years moving away from us. that's a market that we've been talking about for the last several years moving away from us We have a number of contracts that are not performing at the new, I would say, requirements that we have for the business. we have a number of contracts that are not performing at the new i would say requirements that we have for the business We have a fair amount of inventory tied up supporting them. We're going to exit those, liquidate the inventory, and you'll see how it's accretive to us over time. Talking about the transformation, if I think about the years I became CEO in 2018, if I think about the years of change that we've been through, one of the things that occurred to the team and I early on was what you decide not to do is just as important as what you decide to do. We spent the first several years adjusting the portfolio and restructuring and getting out of things. AAR years ago was a much more diverse business mix. There was not a lot of connection between the businesses we were in. We were much lower margin, and in short, we were small and complex. That's not a very good combination. We have a fair amount of inventory tied up supporting them. we have a fair amount of inventory tied up supporting them We're going to exit those, liquidate the inventory, and you'll see how it's accretive to us over time. we're going to exit those liquidate the inventory and you'll see how it's accretive to us over time Talking about the transformation, if I think about the years I became CEO in 2018, if I think about the years of change that we've been through, one of the things that occurred to the team and I early on was what you decide not to do is just as important as what you decide to do. talking about the transformation if i think about the years i became ceo in 2018 if i think about the years of change that we've been through one of the things that occurred to the team and i early on was what you decide not to do is just as important as what you decide to do We spent the first several years adjusting the portfolio and restructuring and getting out of things. we spent the first several years adjusting the portfolio and restructuring and getting out of things AAR years ago was a much more diverse business mix. aar years ago was a much more diverse business mix There was not a lot of connection between the businesses we were in. there was not a lot of connection between the businesses we were in We were much lower margin, and in short, we were small and complex. we were much lower margin and in short we were small and complex That's not a very good combination. that's not a very good combination We wanted to simplify the portfolio, exiting a number of things. We've had a number of divestitures, exited a number of contracts. That commercial programs piece that I mentioned, the new segment, that's kind of the last piece in terms of what we're exiting. Now that we've got ourselves down to a core, we've been focused on building from there. The key to everything, and you'll hear this over and over again, is just focus. Focus on certain markets, focus on certain customers, focus on certain aircraft types, and really becoming leaders in the areas that we decide to serve. Today, those areas that we want to move into or have been moving into are three, and I'm going to talk about these in depth. Parts, repair, and software. This is the strategy of the company, parts, repair, and software. We wanted to simplify the portfolio, exiting a number of things. we wanted to simplify the portfolio exiting a number of things We've had a number of divestitures, exited a number of contracts. we've had a number of divestitures exited a number of contracts That commercial programs piece that I mentioned, the new segment, that's kind of the last piece in terms of what we're exiting. that commercial programs piece that i mentioned the new segment that's kind of the last piece in terms of what we're exiting Now that we've got ourselves down to a core, we've been focused on building from there. now that we've got ourselves down to a core we've been focused on building from there The key to everything, and you'll hear this over and over again, is just focus. the key to everything and you'll hear this over and over again is just focus Focus on certain markets, focus on certain customers, focus on certain aircraft types, and really becoming leaders in the areas that we decide to serve. focus on certain markets focus on certain customers focus on certain aircraft types and really becoming leaders in the areas that we decide to serve Today, those areas that we want to move into or have been moving into are three, and I'm going to talk about these in depth. today those areas that we want to move into or have been moving into are three and i'm going to talk about these in depth Parts, repair, and software. parts repair and software This is the strategy of the company, parts, repair, and software. this is the strategy of the company parts repair and software We sell parts, both new and used, we sell repairs, and we sell software that allows our customers around the world to plan for and buy the parts and repairs that we sell. This is a unique value chain in the industry. I'll talk about why it's unique in a minute, but we're building something that does not exist anywhere else, and it's been working. I love this chart. These are good numbers. We've been averaging a 15% CAGR over the last few years. We've been expanding our EBITDA margins on average about one point per year. Same thing with our operating income, and our EPS, thanks to the expanded margins, has been tracking ahead. Again, I'm going through like an hour's worth of material here in 10 minutes, so apologize for going fast. One thing I didn't want to forget was our culture. We sell parts, both new and used, we sell repairs, and we sell software that allows our customers around the world to plan for and buy the parts and repairs that we sell. we sell parts both new and used we sell repairs and we sell software that allows our customers around the world to plan for and buy the parts and repairs that we sell This is a unique value chain in the industry. this is a unique value chain in the industry I'll talk about why it's unique in a minute, but we're building something that does not exist anywhere else, and it's been working. i'll talk about why it's unique in a minute but we're building something that does not exist anywhere else and it's been working I love this chart. i love this chart These are good numbers. these are good numbers We've been averaging a 15% CAGR over the last few years. we've been averaging a 15% cagr over the last few years We've been expanding our EBITDA margins on average about one point per year. we've been expanding our ebitda margins on average about one point per year Same thing with our operating income, and our EPS, thanks to the expanded margins, has been tracking ahead. same thing with our operating income and our eps thanks to the expanded margins has been tracking ahead Again, I'm going through like an hour's worth of material here in 10 minutes, so apologize for going fast. again i'm going through like an hour's worth of material here in 10 minutes so apologize for going fast One thing I didn't want to forget was our culture. one thing i didn't want to forget was our culture We are involved in safety of flight. We are involved in critical services delivering to airlines around the world, and it's very important that we have an unbelievably strong culture at the company, and that's something I'm particularly proud of having driven over the last 8 years in this role, is a very strong culture built obviously on a great foundation by my predecessor, David. It starts with Quality First, Safety Always, and it ends with Own It. We're a big company, but we're not that big, and so every one of us, all 8,000 of us on the team, have got to show up every day and own the actions that we take. Speaking of our customers, we've got a great customer base. We work with all the blue-chips airlines around the world. You can see some of them there. We are involved in safety of flight. we are involved in safety of flight We are involved in critical services delivering to airlines around the world, and it's very important that we have an unbelievably strong culture at the company, and that's something I'm particularly proud of having driven over the last 8 years in this role, is a very strong culture built obviously on a great foundation by my predecessor, David. we are involved in critical services delivering to airlines around the world and it's very important that we have an unbelievably strong culture at the company and that's something i'm particularly proud of having driven over the last 8 years in this role is a very strong culture built obviously on a great foundation by my predecessor david It starts with Quality F irst, Safety Always, and it ends with Own It. it starts with quality f irst safety always and it ends with own it We're a big company, but we're not that big, and so every one of us, all 8,000 of us on the team, have got to show up every day and own the actions that we take. Speaking of our customers, we've got a great customer base. we're a big company but we're not that big and so every one of us all 8,000 of us on the team have got to show up every day and own the actions that we take. speaking of our customers we've got a great customer base We work with all the blue-chips airlines around the world. we work with all the blue-chips airlines around the world You can see some of them there. you can see some of them there Very proud of our relationships with Air Canada, United, Delta, Alaska, and others. We, through our distribution business that I'll talk about, have a number of wonderful relationships that we're very proud of with the largest OEMs in the world. We also do, as I mentioned, a fair amount of government business with not only the U.S. government, but also international governments. I'll skip this, but we win. We win for a number of reasons. This is a summary slide, and I'll get into why we win here with these individual slides. Parts, repair, and software. Let's talk about parts for a second. Two activities inside of parts. The first is new parts distribution, and the second is USM. I'll talk about USM first. USM is used material. Very proud of our relationships with Air Canada, United, Delta, Alaska, and others. very proud of our relationships with air canada united delta alaska and others We, through our distribution business that I'll talk about, have a number of wonderful relationships that we're very proud of with the largest OEMs in the world. we through our distribution business that i'll talk about have a number of wonderful relationships that we're very proud of with the largest oems in the world We also do, as I mentioned, a fair amount of government business with not only the U.S. government, but also international governments. we also do as i mentioned a fair amount of government business with not only the u.s government but also international governments I'll skip this, but we win. i'll skip this but we win We win for a number of reasons. we win for a number of reasons This is a summary slide, and I'll get into why we win here with these individual slides. this is a summary slide and i'll get into why we win here with these individual slides Parts, repair, and software. parts repair and software Let's talk about parts for a second. let's talk about parts for a second Two activities inside of parts. two activities inside of parts The first is new parts distribution, and the second is USM. the first is new parts distribution and the second is usm I'll talk about USM first. i'll talk about usm first USM is used material. usm is used material This is the original business that started AAR 70 years ago, buying used aircraft and engines, tearing them down, repairing the parts, and reselling the parts. It's a great business because it's highly transactional. It keeps us in touch with the markets. We know how asset values are moving. We know what's in demand, et cetera, but it's not the future of AAR. That has been mixing down over a period of time. We're keeping the business relatively the same size, but as a % of sales, it's less than 15% now. The future in the parts business for us is new parts distribution. New parts distribution has been growing at between 25% and 30% CAGR organically over the last four years. That's well above market. We expect above-market growth to continue, and that is because we have a unique model. This is the original business that started AAR 70 years ago, buying used aircraft and engines, tearing them down, repairing the parts, and reselling the parts. this is the original business that started aar 70 years ago buying used aircraft and engines tearing them down repairing the parts and reselling the parts It's a great business because it's highly transactional. it's a great business because it's highly transactional It keeps us in touch with the markets. it keeps us in touch with the markets We know how asset values are moving. we know how asset values are moving We know what's in demand, et cetera, but it's not the future of AAR. we know what's in demand et cetera but it's not the future of aar That has been mixing down over a period of time. that has been mixing down over a period of time We're keeping the business relatively the same size, but as a % of sales, it's less than 15% now. we're keeping the business relatively the same size but as a % of sales it's less than 15% now The future in the parts business for us is new parts distribution. the future in the parts business for us is new parts distribution New parts distribution has been growing at between 25% and 30% CAGR organically over the last four years. new parts distribution has been growing at between 25% and 30% cagr organically over the last four years That's well above market. that's well above market We expect above-market growth to continue, and that is because we have a unique model. we expect above-market growth to continue and that is because we have a unique model We are two-way exclusive, meaning we do not represent competing product for an OEM that we represent in the market, and that OEM does not use a competing distributor. This allows us to get incredibly technically efficient with the OEMs that we partner with and help them take market share. This is very different than our competitors, which are traditional stocking distributors, buy a bunch of inventory, put it in warehouses around the world, and essentially operate a call center. We are true extensions of our OEM partners in the aftermarket, and this model is resonating. Three or four years ago, we weren't known for this. We are now, and the opportunity set that we see for ourselves in distribution is going to drive continued growth above market. Repair. Two activities inside of repair. First is heavy maintenance. We are two-way exclusive, meaning we do not represent competing product for an OEM that we represent in the market, and that OEM does not use a competing distributor. we are two-way exclusive meaning we do not represent competing product for an oem that we represent in the market and that oem does not use a competing distributor This allows us to get incredibly technically efficient with the OEMs that we partner with and help them take market share. this allows us to get incredibly technically efficient with the oems that we partner with and help them take market share This is very different than our competitors, which are traditional stocking distributors, buy a bunch of inventory, put it in warehouses around the world, and essentially operate a call center. this is very different than our competitors which are traditional stocking distributors buy a bunch of inventory put it in warehouses around the world and essentially operate a call center We are true extensions of our OEM partners in the aftermarket, and this model is resonating. we are true extensions of our oem partners in the aftermarket and this model is resonating Three or four years ago, we weren't known for this. three or four years ago we weren't known for this We are now, and the opportunity set that we see for ourselves in distribution is going to drive continued growth above market. we are now and the opportunity set that we see for ourselves in distribution is going to drive continued growth above market Repair. repair Two activities inside of repair. two activities inside of repair First is heavy maintenance. first is heavy maintenance Heavy maintenance, again, I think there's a kind of conception that this is a lower margin, me too business. We have become top three in the world, the leaders in North American heavy maintenance. We turn aircraft faster than anybody else. We have the best set of contracts with the best set of customers. We recently made an acquisition in this space. We bought our largest competitor here in North America. We've got close to a 50% market share in North America, and we are sold out through the end of the decade because of the quality of our work. It's important to note that our focus is narrow bodies. Those aircrafts, 737s, A320, that maintenance has to get done here. They can't go to Asia. They can't go to Europe. That has to get done here. Heavy maintenance, again, I think there's a kind of conception that this is a lower margin, me too business. heavy maintenance again i think there's a kind of conception that this is a lower margin me too business We have become top three in the world, the leaders in North American heavy maintenance. we have become top three in the world the leaders in north american heavy maintenance We turn aircraft faster than anybody else. we turn aircraft faster than anybody else We have the best set of contracts with the best set of customers. we have the best set of contracts with the best set of customers We recently made an acquisition in this space. we recently made an acquisition in this space We bought our largest competitor here in North America. we bought our largest competitor here in north america We've got close to a 50% market share in North America, and we are sold out through the end of the decade because of the quality of our work. we've got close to a 50% market share in north america and we are sold out through the end of the decade because of the quality of our work It's important to note that our focus is narrow bodies. it's important to note that our focus is narrow bodies Those aircrafts, 737s, A320, that maintenance has to get done here. those aircrafts 737s a320 that maintenance has to get done here They can't go to Asia. they can't go to asia They can't go to Europe. they can't go to europe That has to get done here. that has to get done here We've got a great customer base locally that allows us to leverage this position into other areas. One example of leveraging this leadership position for heavy maintenance is in component repair. Heavy maintenance is a low teens EBITDA business. Component repair is a high teens EBITDA business. Our strategy is to leverage our leadership position in heavy maintenance to capture more component maintenance, and I'm sure we'll talk about that later. Those things go together. The last thing I want to talk about is the software piece. We've talked about parts, we've talked about repair, and now we'll talk about software. Louie's done a great job of covering the software element of our strategy. It all started about three years ago when we made an acquisition in the software space called Trax. Trax is a maintenance ERP system that's been around for about 25 years. We've got a great customer base locally that allows us to leverage this position into other areas. we've got a great customer base locally that allows us to leverage this position into other areas One example of leveraging this leadership position for heavy maintenance is in component repair. one example of leveraging this leadership position for heavy maintenance is in component repair Heavy maintenance is a low teens EBITDA business. heavy maintenance is a low teens ebitda business Component repair is a high teens EBITDA business. component repair is a high teens ebitda business Our strategy is to leverage our leadership position in heavy maintenance to capture more component maintenance, and I'm sure we'll talk about that later. our strategy is to leverage our leadership position in heavy maintenance to capture more component maintenance and i'm sure we'll talk about that later Those things go together. those things go together The last thing I want to talk about is the software piece. the last thing i want to talk about is the software piece We've talked about parts, we've talked about repair, and now we'll talk about software. we've talked about parts we've talked about repair and now we'll talk about software Louie's done a great job of covering the software element of our strategy. louie's done a great job of covering the software element of our strategy It all started about three years ago when we made an acquisition in the software space called Trax. it all started about three years ago when we made an acquisition in the software space called trax Trax is a maintenance ERP system that's been around for about 25 years. trax is a maintenance erp system that's been around for about 25 years It's used by more than 100 airlines in the world supporting over 6,000 aircraft. Trax is a next-gen system that allows the airline to manage every element of its maintenance operation, every piece of inventory on the shelf, every piece of inventory installed on an aircraft, every part that's been sent out for repair, where they sent it, what they paid for it, et cetera, et cetera, et cetera. All of that activity and that data is housed in Trax. If you're in the business of selling parts and repair, that is the holy grail of data that you want to have access to. We are on the desktop of tens of thousands of buyers and planners in airlines around the world who are making these purchasing decisions. The legacy Trax is an on-prem system. We have a new offering called eMRO, which is fully SaaS-based. It's used by more than 100 airlines in the world supporting over 6,000 aircraft. it's used by more than 100 airlines in the world supporting over 6,000 aircraft Trax is a next-gen system that allows the airline to manage every element of its maintenance operation, every piece of inventory on the shelf, every piece of inventory installed on an aircraft, every part that's been sent out for repair, where they sent it, what they paid for it, et cetera, et cetera, et cetera. trax is a next-gen system that allows the airline to manage every element of its maintenance operation every piece of inventory on the shelf every piece of inventory installed on an aircraft every part that's been sent out for repair where they sent it what they paid for it et cetera et cetera et cetera All of that activity and that data is housed in Trax. all of that activity and that data is housed in trax If you're in the business of selling parts and repair, that is the holy grail of data that you want to have access to. if you're in the business of selling parts and repair that is the holy grail of data that you want to have access to We are on the desktop of tens of thousands of buyers and planners in airlines around the world who are making these purchasing decisions. we are on the desktop of tens of thousands of buyers and planners in airlines around the world who are making these purchasing decisions The legacy Trax is an on-prem system. the legacy trax is an on-prem system We have a new offering called eMRO, which is fully SaaS-based. we have a new offering called emro which is fully saas-based We are transitioning those 100 airlines off of legacy Trax to new SaaS-based, and that will be done by the end of 2028. Again, once that data is real time in the cloud with the SaaS-based offering, that's incredibly powerful to inform the rest of what we do. We bought Trax for a couple of reasons. One, we saw that connection between what Trax does and the data that they house and the repairs and software that we sell. We also felt that we could grow it. Since we bought Trax, we've been introducing them to new customers around the world. We've gotten them into Thai Airways, we've gotten them into Cathay Pacific, we've gotten them into Virgin Atlantic. Three days after this conference last year, we announced that we got them into Delta Air Lines. We are transitioning those 100 airlines off of legacy Trax to new SaaS-based, and that will be done by the end of 2028. we are transitioning those 100 airlines off of legacy trax to new saas-based and that will be done by the end of 2028 Again, once that data is real time in the cloud with the SaaS-based offering, that's incredibly powerful to inform the rest of what we do. again once that data is real time in the cloud with the saas-based offering that's incredibly powerful to inform the rest of what we do We bought Trax for a couple of reasons. we bought trax for a couple of reasons One, we saw that connection between what Trax does and the data that they house and the repairs and software that we sell. one we saw that connection between what trax does and the data that they house and the repairs and software that we sell We also felt that we could grow it. we also felt that we could grow it Since we bought Trax, we've been introducing them to new customers around the world. since we bought trax we've been introducing them to new customers around the world We've gotten them into Thai Airways, we've gotten them into Cathay Pacific, we've gotten them into Virgin Atlantic. we've gotten them into thai airways we've gotten them into cathay pacific we've gotten them into virgin atlantic Three days after this conference last year, we announced that we got them into Delta Air Lines. three days after this conference last year we announced that we got them into delta air lines Delta Air Lines, along with many of the large legacy carriers, is still on old 40-year-old systems that need to be modernized to Trax. Delta, universally recognized by most airlines as the leader in the world, the fact that they embrace Trax as a solution is a very solid endorsement of the capabilities. A year ago, we were negotiating with them, and today there are over 11,000 people at Delta Air Lines using Trax, which is awesome. It's awesome. We're just getting started in the software business. Two of the quick things there. Just want to make sure it's on here. Aerostrat, an acquisition that we made about six months ago. Think of Trax as the operating system. Think of Aerostrat as a really cool app. Aerostrat allows airlines to plan heavy maintenance. They're the leader of the world for heavy maintenance planning. Delta Air Lines, along with many of the large legacy carriers, is still on old 40-year-old systems that need to be modernized to Trax. delta air lines along with many of the large legacy carriers is still on old 40-year-old systems that need to be modernized to trax Delta, universally recognized by most airlines as the leader in the world, the fact that they embrace Trax as a solution is a very solid endorsement of the capabilities. delta universally recognized by most airlines as the leader in the world the fact that they embrace trax as a solution is a very solid endorsement of the capabilities A year ago, we were negotiating with them, and today there are over 11,000 people at Delta Air Lines using Trax, which is awesome. a year ago we were negotiating with them and today there are over 11,000 people at delta air lines using trax which is awesome It's awesome. it's awesome We're just getting started in the software business. we're just getting started in the software business Two of the quick things there. two of the quick things there Just want to make sure it's on here. just want to make sure it's on here Aerostrat, an acquisition that we made about six months ago. Think of Trax as the operating system. aerostrat an acquisition that we made about six months ago. think of trax as the operating system Think of Aerostrat as a really cool app. think of aerostrat as a really cool app Aerostrat allows airlines to plan heavy maintenance. aerostrat allows airlines to plan heavy maintenance They're the leader of the world for heavy maintenance planning. they're the leader of the world for heavy maintenance planning If you're in the business of selling heavy maintenance, it's great that you have software that allows you to see how airlines are planning their heavy maintenance checks. I can go into more detail on that later. The last thing I want to mention that we launched in April is something called Airvoyant, and this is an AI-driven procurement tool. Buying parts at an airline is an incredibly labor-intensive process. I can describe it later, but airlines are spending $60 billion a year on parts, and they're doing it manually. They're emailing out spreadsheets. It's insane. There's no reason why this has to be manual anymore, and Airvoyant is a solution. We launched it, and we've been thrilled with the customer receptivity. It's not parts repair and software, but I did want to touch on government. If you're in the business of selling heavy maintenance, it's great that you have software that allows you to see how airlines are planning their heavy maintenance checks. if you're in the business of selling heavy maintenance it's great that you have software that allows you to see how airlines are planning their heavy maintenance checks I can go into more detail on that later. i can go into more detail on that later The last thing I want to mention that we launched in April is something called Airvoyant, and this is an AI-driven procurement tool. the last thing i want to mention that we launched in april is something called airvoyant and this is an ai-driven procurement tool Buying parts at an airline is an incredibly labor-intensive process. buying parts at an airline is an incredibly labor-intensive process I can describe it later, but airlines are spending $60 billion a year on parts, and they're doing it manually. i can describe it later but airlines are spending $60 billion a year on parts and they're doing it manually They're emailing out spreadsheets. they're emailing out spreadsheets It's insane. it's insane There's no reason why this has to be manual anymore, and Airvoyant is a solution. there's no reason why this has to be manual anymore and airvoyant is a solution We launched it, and we've been thrilled with the customer receptivity. we launched it and we've been thrilled with the customer receptivity It's not parts repair and software, but I did want to touch on government. it's not parts repair and software but i did want to touch on government All of the things that we're doing in the commercial world, we are applying to the government space. If you can repair a 737, you can repair a C-40 or a P-8 because those are commercial derivative aircraft. If you can repair those type of aircraft, you can repair an F-16, for example. All of the commercial knowhow that we've built up over the decades, we're applying to the government space, and that goes across parts repair and software. Again, in moments like we're in right now, it's really, really a good thing to have the balance between the government option or government offering and the commercial offering. I've talked a little bit about this, so I won't dwell on the side, but these things fit together. All of the things that we're doing in the commercial world, we are applying to the government space. all of the things that we're doing in the commercial world we are applying to the government space If you can repair a 737, you can repair a C-40 or a P-8 because those are commercial derivative aircraft. if you can repair a 737 you can repair a c-40 or a p-8 because those are commercial derivative aircraft If you can repair those type of aircraft, you can repair an F-16, for example. if you can repair those type of aircraft you can repair an f-16 for example All of the commercial knowhow that we've built up over the decades, we're applying to the government space, and that goes across parts repair and software. all of the commercial knowhow that we've built up over the decades we're applying to the government space and that goes across parts repair and software Again, in moments like we're in right now, it's really, really a good thing to have the balance between the government option or government offering and the commercial offering. again in moments like we're in right now it's really really a good thing to have the balance between the government option or government offering and the commercial offering I've talked a little bit about this, so I won't dwell on the side, but these things fit together. i've talked a little bit about this so i won't dwell on the side but these things fit together We can get into it in the Q of A, or Q&A. All of these things go together, and again, this is a unique value chain in the industry. Last thing I want to do, and then we'll go to Q&A, is we had an investor day a couple of weeks ago, and we put out three-year targets for margin growth, et cetera. What I would say about these targets is we have a high degree of confidence in achieving these targets, particularly around the margin expansion. There are multiple avenues with which we can achieve this margin expansion. If any combination of those avenues comes true, we can do much better than what's on the page. Just want to flag that. With that, do you guys want to go through the appendix? We'll go to Q&A. We can get into it in the Q of A, or Q&A. we can get into it in the q of a or q&a All of these things go together, and again, this is a unique value chain in the industry. all of these things go together and again this is a unique value chain in the industry Last thing I want to do, and then we'll go to Q&A, is we had an investor day a couple of weeks ago, and we put out three-year targets for margin growth, et cetera. last thing i want to do and then we'll go to q&a is we had an investor day a couple of weeks ago and we put out three-year targets for margin growth et cetera What I would say about these targets is we have a high degree of confidence in achieving these targets, particularly around the margin expansion. what i would say about these targets is we have a high degree of confidence in achieving these targets particularly around the margin expansion There are multiple avenues with which we can achieve this margin expansion. there are multiple avenues with which we can achieve this margin expansion If any combination of those avenues comes true, we can do much better than what's on the page. if any combination of those avenues comes true we can do much better than what's on the page Just want to flag that. just want to flag that With that, do you guys want to go through the appendix? with that do you guys want to go through the appendix We'll go to Q&A. we'll go to q&a

Speaker 2: Fantastic. Thanks, John. Yeah. Fantastic. fantastic Thanks, John. thanks john Yeah. yeah

Speaker 1: I'll stand here. I'll stand here. i'll stand here

Speaker 2: I think you actually announced the Delta logo win at this conference last year. One aspect of that, you just mentioned how there's 11,000 Delta employees that have been onboarded to Trax. What's the ultimate goal, and what's the roadmap for Delta? I think you actually announced the Delta logo win at this conference last year. i think you actually announced the delta logo win at this conference last year One aspect of that, you just mentioned how there's 11,000 Delta employees that have been onboarded to Trax. one aspect of that you just mentioned how there's 11,000 delta employees that have been onboarded to trax What's the ultimate goal, and what's the roadmap for Delta? what's the ultimate goal and what's the roadmap for delta

Speaker 1: There's a three-year roadmap for Delta. We're one year into it, and we've got two left. Think of it as kind of small, medium, and large. The small module is largely behind us, and we've started the medium set. I won't get into the details of it, but the goal was to get Trax to deploy to a large number of mechanics and employees around Delta and then gradually increase the functionality that's deployed to them. There's a three-year roadmap for Delta. there's a three-year roadmap for delta We're one year into it, and we've got two left. we're one year into it and we've got two left Think of it as kind of small, medium, and large. think of it as kind of small medium and large The small module is largely behind us, and we've started the medium set. the small module is largely behind us and we've started the medium set I won't get into the details of it, but the goal was to get Trax to deploy to a large number of mechanics and employees around Delta and then gradually increase the functionality that's deployed to them. i won't get into the details of it but the goal was to get trax to deploy to a large number of mechanics and employees around delta and then gradually increase the functionality that's deployed to them

Speaker 2: Yeah. Great. How, in general, do you view Trax as synergistic with your parts supply and your repair businesses? How is that going to fuel growth other than? Yeah. yeah Great. great How, in general, do you view Trax as synergistic with your parts supply and your repair businesses? how in general do you view trax as synergistic with your parts supply and your repair businesses How is that going to fuel growth other than? how is that going to fuel growth other than

Speaker 1: Yeah Yeah yeah

Speaker 2: Trax in and of itself? Trax in and of itself? trax in and of itself

Speaker 1: Yeah. Great question. In a couple of ways. First of all, as we move everybody to the cloud, as we have access to that data, and right now we are taking the position that that data is the customers, but we are working with the customers to agree on accessing that data. Knowing what inventory is out there, knowing repair data, repair history, et cetera, that will help inform what parts we choose to put on the shelf to supply to them. It will help inform what repair capabilities we want to develop. It will help us win new distributorships. If we go to an OEM and we say, "Hey, listen, OEM, we want to be your partner in the aftermarket. Yeah. yeah Great question. great question In a couple of ways. in a couple of ways First of all, as we move everybody to the cloud, as we have access to that data, and right now we are taking the position that that data is the customers, but we are working with the customers to agree on accessing that data. first of all as we move everybody to the cloud as we have access to that data and right now we are taking the position that that data is the customers but we are working with the customers to agree on accessing that data Knowing what inventory is out there, knowing repair data, repair history, et cetera, that will help inform what parts we choose to put on the shelf to supply to them. knowing what inventory is out there knowing repair data repair history et cetera that will help inform what parts we choose to put on the shelf to supply to them It will help inform what repair capabilities we want to develop. it will help inform what repair capabilities we want to develop It will help us win new distributorships. it will help us win new distributorships If we go to an OEM and we say, "Hey, listen, OEM, we want to be your partner in the aftermarket. if we go to an oem and we say "hey listen oem we want to be your partner in the aftermarket By the way, we are on the desktop, the point of sale for thousands of buyers and planners at more than 100 airlines around the world," that is a very powerful statement to make. That's a unique channel to market that other distributors don't have, and that's on top of the two-way exclusive model. We see a lot of connectivity there. Furthermore, if I think about Airvoyant, not only can we connect the dots in terms of what offerings we have, parts, and repair, but we can also automate those transactions. Whether there's a human in the loop or a human kind of around the loop, that's a solution that we're excited to bring to market. By the way, we are on the desktop, the point of sale for thousands of buyers and planners at more than 100 airlines around the world," that is a very powerful statement to make. by the way we are on the desktop the point of sale for thousands of buyers and planners at more than 100 airlines around the world," that is a very powerful statement to make That's a unique channel to market that other distributors don't have, and that's on top of the two-way exclusive model. that's a unique channel to market that other distributors don't have and that's on top of the two-way exclusive model We see a lot of connectivity there. we see a lot of connectivity there Furthermore, if I think about Airvoyant, not only can we connect the dots in terms of what offerings we have, parts, and repair, but we can also automate those transactions. furthermore if i think about airvoyant not only can we connect the dots in terms of what offerings we have parts and repair but we can also automate those transactions Whether there's a human in the loop or a human kind of around the loop, that's a solution that we're excited to bring to market. whether there's a human in the loop or a human kind of around the loop that's a solution that we're excited to bring to market

Speaker 2: Fantastic. It seems over the past year that your parts supply business has experienced an acceleration. I'm not sure if you would attribute it to Trax. Fantastic. fantastic It seems over the past year that your parts supply business has experienced an acceleration. it seems over the past year that your parts supply business has experienced an acceleration I'm not sure if you would attribute it to Trax. i'm not sure if you would attribute it to trax

Speaker 1: No, not yet. No, not yet. no not yet

Speaker 2: Doing these. Doing these. doing these

Speaker 1: No. No. no

Speaker 2: What have been the drivers of that acceleration? Related to that, the pertinent topic is the aftermarket cycle slowing down? People have been asking that question even though. What have been the drivers of that acceleration? what have been the drivers of that acceleration Related to that, the pertinent topic is the aftermarket cycle slowing down? related to that the pertinent topic is the aftermarket cycle slowing down People have been asking that question even though. people have been asking that question even though

Speaker 1: Yeah. I'm glad you went there. Yeah. yeah I'm glad you went there. i'm glad you went there

Speaker 2: It's been accelerating. It's been accelerating. it's been accelerating

Speaker 1: Yeah. It's been accelerating for us. Yeah. yeah It's been accelerating for us. it's been accelerating for us

Speaker 2: Right. Right. right

Speaker 1: We've been growing meaningfully faster than the market. We expect to continue growing faster than the market. The offering and distribution is unique. That two-way exclusive model, we've been at it now for about eight years. It's really gotten traction in the last three or four years. We've got a number of case studies when we go in to present to OEMs to explain to them, "Hey, listen, we started out as a $15 million partner with OEM X. We've grown that relationship to $100 million by helping that OEM grow and take market share." We were not known for this a few years ago. We are now. Those proof points, again, combined with the channels to market through Trax, are getting a lot of traction. Today, we size the distribution market for ourselves at about $25 billion. We have less than 5% penetration. We've been growing meaningfully faster than the market. we've been growing meaningfully faster than the market We expect to continue growing faster than the market. we expect to continue growing faster than the market The offering and distribution is unique. the offering and distribution is unique That two-way exclusive model, we've been at it now for about eight years. that two-way exclusive model we've been at it now for about eight years It's really gotten traction in the last three or four years. it's really gotten traction in the last three or four years We've got a number of case studies when we go in to present to OEMs to explain to them, "Hey, listen, we started out as a $15 million partner with OEM X. we've got a number of case studies when we go in to present to oems to explain to them "hey listen we started out as a $15 million partner with oem x We've grown that relationship to $100 million by helping that OEM grow and take market share." We were not known for this a few years ago. we've grown that relationship to $100 million by helping that oem grow and take market share." we were not known for this a few years ago We are now. we are now Those proof points, again, combined with the channels to market through Trax, are getting a lot of traction. those proof points again combined with the channels to market through trax are getting a lot of traction Today, we size the distribution market for ourselves at about $25 billion. today we size the distribution market for ourselves at about $25 billion We have less than 5% penetration. we have less than 5% penetration We have a lot of headroom, particularly now that we're becoming known for this, and the opportunity set continues to increase. Not only that, but as we scale on the heavy maintenance side and the HAECO acquisition that we made a few months ago, as we scale and we see more and more aircraft through our hangars, that's another pitch to OEMs. I'll give you an example. Let's say you're talking to an OEM that manufactures pumps, and we work on 1,200 aircraft a year in our hangars right now. We're the largest in North America. We're seeing 1,200 aircraft. That's 15% of the North American fleet we are maintaining. That's big. We go to an OEM, we say, "Okay, you're a pump manufacturer, and you have an upgrade for a pump that's on a particular 737. Guess what? We have a lot of headroom, particularly now that we're becoming known for this, and the opportunity set continues to increase. we have a lot of headroom particularly now that we're becoming known for this and the opportunity set continues to increase Not only that, but as we scale on the heavy maintenance side and the HAECO acquisition that we made a few months ago, as we scale and we see more and more aircraft through our hangars, that's another pitch to OEMs. not only that but as we scale on the heavy maintenance side and the haeco acquisition that we made a few months ago as we scale and we see more and more aircraft through our hangars that's another pitch to oems I'll give you an example. i'll give you an example Let's say you're talking to an OEM that manufactures pumps, and we work on 1,200 aircraft a year in our hangars right now. let's say you're talking to an oem that manufactures pumps and we work on 1,200 aircraft a year in our hangars right now We're the largest in North America. we're the largest in north america We're seeing 1,200 aircraft. we're seeing 1,200 aircraft That's 15% of the North American fleet we are maintaining. that's 15% of the north american fleet we are maintaining That's big. that's big We go to an OEM, we say, "Okay, you're a pump manufacturer, and you have an upgrade for a pump that's on a particular 737. we go to an oem we say "okay you're a pump manufacturer and you have an upgrade for a pump that's on a particular 737 Guess what? guess what We're going to work on 700 or 800 737s in our hangars this year. We can, at the point of sale, talk to the airline reps who are in the hangar with those aircraft and say, 'Hey, listen. This is an upgrade. We want to upgrade the existing pump that's on the aircraft to a new one. Here are the benefits. Let's pull off those pumps right now and put on yours.' That, again, is a unique synergy. We're going to work on 700 or 800 737s in our hangars this year. we're going to work on 700 or 800 737s in our hangars this year We can, at the point of sale, talk to the airline reps who are in the hangar with those aircraft and say, 'Hey, listen. we can at the point of sale talk to the airline reps who are in the hangar with those aircraft and say 'hey listen This is an upgrade. this is an upgrade We want to upgrade the existing pump that's on the aircraft to a new one. we want to upgrade the existing pump that's on the aircraft to a new one Here are the benefits. here are the benefits Let's pull off those pumps right now and put on yours.' That, again, is a unique synergy. let's pull off those pumps right now and put on yours.' that again is a unique synergy

Speaker 2: Great. Can you walk us through the impact, if any, there has been from the Middle East conflict? Great. great Can you walk us through the impact, if any, there has been from the Middle East conflict? can you walk us through the impact if any there has been from the middle east conflict

Speaker 1: Yeah Yeah yeah

Speaker 2: High oil prices? High oil prices? high oil prices

Speaker 1: Yeah. I'm sure this is kind of what has been a big topic. So far I would reiterate what we have said most recently at Investor Day. We have not seen any impact, we would see it in our day-to-day parts sales, the day-to-day parts sales have been as strong as ever. All right? We're not seeing it. More importantly, at this stage, we would hear it with respect to maintenance schedules. What we would expect to hear now is we would have airlines coming to us saying, "Listen, we had planned to send you four lines of maintenance starting in the fall after the busy summer flying season. We're going to pull down one of those, and you're only going to see three." We are not hearing any of that. Our customers are as bullish as ever on the future. Yeah. yeah I'm sure this is kind of what has been a big topic. i'm sure this is kind of what has been a big topic So far I would reiterate what we have said most recently at Investor Day. so far i would reiterate what we have said most recently at investor day We have not seen any impact, we would see it in our day-to-day parts sales, the day-to-day parts sales have been as strong as ever. we have not seen any impact we would see it in our day-to-day parts sales the day-to-day parts sales have been as strong as ever All right? all right We're not seeing it. we're not seeing it More importantly, at this stage, we would hear it with respect to maintenance schedules. more importantly at this stage we would hear it with respect to maintenance schedules What we would expect to hear now is we would have airlines coming to us saying, "Listen, we had planned to send you four lines of maintenance starting in the fall after the busy summer flying season. what we would expect to hear now is we would have airlines coming to us saying "listen we had planned to send you four lines of maintenance starting in the fall after the busy summer flying season We're going to pull down one of those, and you're only going to see three." We are not hearing any of that. we're going to pull down one of those and you're only going to see three." we are not hearing any of that Our customers are as bullish as ever on the future. our customers are as bullish as ever on the future I would say that, and I've had the opportunity over the last two days to spend time with a number of major airline CEOs, and I think, and over the last 30 days with a lot of airline CEOs, I think that they've all been pleasantly surprised with the amount of pricing power they have on the market. On average, they've been able to pass 30%-60% of the increase in fuel costs along through ticket pricing. They're realizing they have market power, given the demand environment, they didn't know that they necessarily had, and that's encouraging to them. It'd be really interesting to see, to the extent that they've achieved certain pricing levels, and once that fuel input goes down and comes back to normal, that could be a really good thing for the health of the airlines. I would say that, and I've had the opportunity over the last two days to spend time with a number of major airline CEOs, and I think, and over the last 30 days with a lot of airline CEOs, I think that they've all been pleasantly surprised with the amount of pricing power they have on the market. i would say that and i've had the opportunity over the last two days to spend time with a number of major airline ceos and i think and over the last 30 days with a lot of airline ceos i think that they've all been pleasantly surprised with the amount of pricing power they have on the market On average, they've been able to pass 30%-60% of the increase in fuel costs along through ticket pricing. on average they've been able to pass 30%-60% of the increase in fuel costs along through ticket pricing They're realizing they have market power, given the demand environment, they didn't know that they necessarily had, and that's encouraging to them. they're realizing they have market power given the demand environment they didn't know that they necessarily had and that's encouraging to them It'd be really interesting to see, to the extent that they've achieved certain pricing levels, and once that fuel input goes down and comes back to normal, that could be a really good thing for the health of the airlines. it'd be really interesting to see to the extent that they've achieved certain pricing levels and once that fuel input goes down and comes back to normal that could be a really good thing for the health of the airlines

Speaker 2: Great. I would say travel demand appears to be one of the big drivers for your commercial aero business. What are you seeing in terms of the trends on the government side? Great. great I would say travel demand appears to be one of the big drivers for your commercial aero business. i would say travel demand appears to be one of the big drivers for your commercial aero business What are you seeing in terms of the trends on the government side? what are you seeing in terms of the trends on the government side

Speaker 1: I was going to say, this environment, not only are we insulated from what's happening for all the reasons I just described, but we actually stand to benefit from it. Because we've got this government exposure, we are seeing an up-tempo in the pace of orders. We saw it last quarter. I'll give you an example. For the government parts business last quarter, we were up 55% organically. That's a big number. That trend was starting even before the conflict, and we expect that to continue as this administration prioritizes operational readiness. We're seeing nice increases on the government side. We manufacture pallets, for example. We are the provider of pallets to the U.S. Air Force. These are pallets that are used in moving things around. These orders are public. I was going to say, this environment, not only are we insulated from what's happening for all the reasons I just described, but we actually stand to benefit from it. i was going to say this environment not only are we insulated from what's happening for all the reasons i just described but we actually stand to benefit from it Because we've got this government exposure, we are seeing an up-tempo in the pace of orders. because we've got this government exposure we are seeing an up-tempo in the pace of orders We saw it last quarter. we saw it last quarter I'll give you an example. i'll give you an example For the government parts business last quarter, we were up 55% organically. for the government parts business last quarter we were up 55% organically That's a big number. that's a big number That trend was starting even before the conflict, and we expect that to continue as this administration prioritizes operational readiness. that trend was starting even before the conflict and we expect that to continue as this administration prioritizes operational readiness We're seeing nice increases on the government side. we're seeing nice increases on the government side We manufacture pallets, for example. we manufacture pallets for example We are the provider of pallets to the U.S. we are the provider of pallets to the u.s Air Force. air force These are pallets that are used in moving things around. these are pallets that are used in moving things around These orders are public. these orders are public We've seen a tremendous increase in orders out of that business, and we expect that to continue as well. We've seen growth on the government side of things. The last point I would make about not just being insulated but actually benefiting from this environment is we are a lower-cost solution. As airlines, if they are looking to defray some of the increase in fuel costs, rather than going to an OEM solution, rather than going to another higher-cost solution, we have, in the cycles that we've existed, seen over time that airlines, when moments like this occur where they're trying to save money, they come to providers like us, and we've seen some of those opportunities also. We've seen a tremendous increase in orders out of that business, and we expect that to continue as well. we've seen a tremendous increase in orders out of that business and we expect that to continue as well We've seen growth on the government side of things. we've seen growth on the government side of things The last point I would make about not just being insulated but actually benefiting from this environment is we are a lower-cost solution. the last point i would make about not just being insulated but actually benefiting from this environment is we are a lower-cost solution As airlines, if they are looking to defray some of the increase in fuel costs, rather than going to an OEM solution, rather than going to another higher-cost solution, we have, in the cycles that we've existed, seen over time that airlines, when moments like this occur where they're trying to save money, they come to providers like us, and we've seen some of those opportunities also. as airlines if they are looking to defray some of the increase in fuel costs rather than going to an oem solution rather than going to another higher-cost solution we have in the cycles that we've existed seen over time that airlines when moments like this occur where they're trying to save money they come to providers like us and we've seen some of those opportunities also

Speaker 2: Yeah. On the government side, last October, there was a protracted shutdown, and across our defense coverage, there was very slow funding going into the turn of the year. In contrast, though, you've seen exceptional government growth. Yeah. yeah On the government side, last October, there was a protracted shutdown, and across our defense coverage, there was very slow funding going into the turn of the year. on the government side last october there was a protracted shutdown and across our defense coverage there was very slow funding going into the turn of the year In contrast, though, you've seen exceptional government growth. in contrast though you've seen exceptional government growth

Speaker 1: Yeah. Yeah. yeah

Speaker 2: Would you view that government growth, would you expect it to continue going into the government year-end, and are there tailwinds in terms of, I think you mentioned modernization, or would you expect that government growth to materially slow down? Would you view that government growth, would you expect it to continue going into the government year-end, and are there tailwinds in terms of, I think you mentioned modernization, or would you expect that government growth to materially slow down? would you view that government growth would you expect it to continue going into the government year-end and are there tailwinds in terms of i think you mentioned modernization or would you expect that government growth to materially slow down

Speaker 1: We expect the government growth to continue. We expect the government growth to continue. we expect the government growth to continue

Speaker 2: Okay. Okay. okay

Speaker 1: During the shutdown, we did not have any material impact to the business. The programs that we are on are on critical programs. Again, the current administration is prioritizing operational readiness and sustainment of the existing fleet, and those are the parts and services that we offer to the government, and therefore we've seen an increase. On top of that, we do have a very meaningful pipeline of long-term government programs, bids that we have in the government. You've seen some of those convert in the last couple of quarters, which has led to growth, and we've got more of that. During the shutdown, we did not have any material impact to the business. during the shutdown we did not have any material impact to the business The programs that we are on are on critical programs. the programs that we are on are on critical programs Again, the current administration is prioritizing operational readiness and sustainment of the existing fleet, and those are the parts and services that we offer to the government, and therefore we've seen an increase. again the current administration is prioritizing operational readiness and sustainment of the existing fleet and those are the parts and services that we offer to the government and therefore we've seen an increase On top of that, we do have a very meaningful pipeline of long-term government programs, bids that we have in the government. on top of that we do have a very meaningful pipeline of long-term government programs bids that we have in the government You've seen some of those convert in the last couple of quarters, which has led to growth, and we've got more of that. you've seen some of those convert in the last couple of quarters which has led to growth and we've got more of that

Speaker 2: Another topic related to what we were discussing before was the accelerating organic growth on the parts distribution side. What has been the business development activity there in terms of whether OEMs that previously did the distribution themselves, whether they're looking to outsource or? Another topic related to what we were discussing before was the accelerating organic growth on the parts distribution side. another topic related to what we were discussing before was the accelerating organic growth on the parts distribution side What has been the business development activity there in terms of whether OEMs that previously did the distribution themselves, whether they're looking to outsource or? what has been the business development activity there in terms of whether oems that previously did the distribution themselves whether they're looking to outsource or

Speaker 1: Yeah Yeah yeah

Speaker 2: Whether you can take away contracts from distributors that may be focusing on other portions of their business? Whether you can take away contracts from distributors that may be focusing on other portions of their business? whether you can take away contracts from distributors that may be focusing on other portions of their business

Speaker 1: Yeah, great question. The majority of the growth that we have seen in the distribution business has come from taking share from our competitors. That's been the vast majority. However, what we've found is that when we get into an OEM, let me say a couple of things. We've been at this two-way exclusive strategy now for about 10 years, but really eight years at scale. These agreements that we sign are typically 5-10 years in length, and we've had 100% renewal rate on these agreements in that period of time. Yeah, great question. yeah great question The majority of the growth that we have seen in the distribution business has come from taking share from our competitors. the majority of the growth that we have seen in the distribution business has come from taking share from our competitors That's been the vast majority. that's been the vast majority However, what we've found is that when we get into an OEM, let me say a couple of things. however what we've found is that when we get into an oem let me say a couple of things We've been at this two-way exclusive strategy now for about 10 years, but really eight years at scale. we've been at this two-way exclusive strategy now for about 10 years but really eight years at scale These agreements that we sign are typically 5-10 years in length, and we've had 100% renewal rate on these agreements in that period of time. these agreements that we sign are typically 5-10 years in length and we've had 100% renewal rate on these agreements in that period of time

Speaker 2: You have the land and expand. You have the land and expand. you have the land and expand

Speaker 1: We've got land and expand, for sure. I'll get to that. Not only have we renewed them, but in the last couple of years, we have renewed them without even being competed. The OEM's a partner, they love what we're doing, they extend the existing contract, and to your point, land and expand, we have added new product lines, new geographies, et cetera. We've signed a couple agreements recently on the defense side, and the defense side is a really good way in for us. The OEMs, it's a challenge for them dealing with the government. We've got a unique set of systems that allow us to plan for and sell parts to the government. It's an easy way into an OEM. We build a relationship there, and then we move over to the commercial side. We've got land and expand, for sure. we've got land and expand for sure I'll get to that. i'll get to that Not only have we renewed them, but in the last couple of years, we have renewed them without even being competed. not only have we renewed them but in the last couple of years we have renewed them without even being competed The OEM's a partner, they love what we're doing, they extend the existing contract, and to your point, land and expand, we have added new product lines, new geographies, et cetera. the oem's a partner they love what we're doing they extend the existing contract and to your point land and expand we have added new product lines new geographies et cetera We've signed a couple agreements recently on the defense side, and the defense side is a really good way in for us. we've signed a couple agreements recently on the defense side and the defense side is a really good way in for us The OEMs, it's a challenge for them dealing with the government. the oems it's a challenge for them dealing with the government We've got a unique set of systems that allow us to plan for and sell parts to the government. we've got a unique set of systems that allow us to plan for and sell parts to the government It's an easy way into an OEM. it's an easy way into an oem We build a relationship there, and then we move over to the commercial side. we build a relationship there and then we move over to the commercial side As we do more and more of these, again, we become known for this, where we weren't before. People are coming to us, and the pipeline's big. As we do more and more of these, again, we become known for this, where we weren't before. as we do more and more of these again we become known for this where we weren't before People are coming to us, and the pipeline's big. people are coming to us and the pipeline's big

Speaker 2: Great. A question that I'm going to ask you, but it could also be for Dylan. In terms of your margin guidance that you outlined at your Analyst Day, there's a lot of puts and takes between the different segments that you have, whether it's the software, the distribution, and the repair. How do you bridge the gap between your current 13% margin and where you expect that to be in three years? Great. great A question that I'm going to ask you, but it could also be for Dylan. a question that i'm going to ask you but it could also be for dylan In terms of your margin guidance that you outlined at your Analyst Day, there's a lot of puts and takes between the different segments that you have, whether it's the software, the distribution, and the repair. in terms of your margin guidance that you outlined at your analyst day there's a lot of puts and takes between the different segments that you have whether it's the software the distribution and the repair How do you bridge the gap between your current 13% margin and where you expect that to be in three years? how do you bridge the gap between your current 13% margin and where you expect that to be in three years

Speaker 1: Yeah, I think we're at 12. We put out 13%-14%+. Yeah, I think we're at 12. yeah i think we're at 12 We put out 13%-14%+. we put out 13%-14%+

Speaker 2: Yeah. Yeah. yeah

Speaker 1: As I mentioned, we have a very high degree of confidence of getting to that target. As you also cited, there are a number of different areas of the business where margin is expanding. If things come together in the right combination, we could do much better than what we guided to. As I mentioned, we have a very high degree of confidence of getting to that target. as i mentioned we have a very high degree of confidence of getting to that target As you also cited, there are a number of different areas of the business where margin is expanding. as you also cited there are a number of different areas of the business where margin is expanding If things come together in the right combination, we could do much better than what we guided to. if things come together in the right combination we could do much better than what we guided to

Speaker 2: Right. Right. right

Speaker 1: I should also mention that those targets that we put out, that's a waypoint, right. That's not an endpoint. That's a, "Hey, we're on this journey. You've seen great expansion from us over a period of time. We put out cash flow guidance for the first time." These are not endpoints. This is, "Hey, this is a stop along the way, and we expect over time to continue to do better than all of those targets. I should also mention that those targets that we put out, that's a waypoint, right. i should also mention that those targets that we put out that's a waypoint right That's not an endpoint. that's not an endpoint That's a, "Hey, we're on this journey. that's a "hey we're on this journey You've seen great expansion from us over a period of time. you've seen great expansion from us over a period of time We put out cash flow guidance for the first time." These are not endpoints. we put out cash flow guidance for the first time." these are not endpoints This is, "Hey, this is a stop along the way, and we expect over time to continue to do better than all of those targets. this is "hey this is a stop along the way and we expect over time to continue to do better than all of those targets

Speaker 2: Great. What are the potential sources of margin expansion with the recent HAECO acquisition? Great. great What are the potential sources of margin expansion with the recent HAECO acquisition? what are the potential sources of margin expansion with the recent haeco acquisition

Speaker 1: Yeah Yeah yeah

Speaker 2: What you're doing on the heavy maintenance side? What you're doing on the heavy maintenance side? what you're doing on the heavy maintenance side

Speaker 1: Yeah, great question. Just so everybody knows, we bought our largest competitor in the U.S., a company called HAECO, on the heavy maintenance side. We are in the process of dramatically restructuring their operations to improve their profitability. When we bought the business, at the same time, we signed up $850 million worth of heavy maintenance contracts for that business, which sold out their hangars through the decade. We actually, though, even with that, brought their revenue down because they were doing a lot of work that's unprofitable. We are in the process of exiting that unprofitable work, rightsizing the cost base, and ultimately will have HAECO up to the margin that we experience in our other hangars, which is low teens. Yeah, great question. yeah great question Just so everybody knows, we bought our largest competitor in the U.S., a company called HAECO, on the heavy maintenance side. just so everybody knows we bought our largest competitor in the u.s a company called haeco on the heavy maintenance side We are in the process of dramatically restructuring their operations to improve their profitability. we are in the process of dramatically restructuring their operations to improve their profitability When we bought the business, at the same time, we signed up $850 million worth of heavy maintenance contracts for that business, which sold out their hangars through the decade. when we bought the business at the same time we signed up $850 million worth of heavy maintenance contracts for that business which sold out their hangars through the decade We actually, though, even with that, brought their revenue down because they were doing a lot of work that's unprofitable. we actually though even with that brought their revenue down because they were doing a lot of work that's unprofitable We are in the process of exiting that unprofitable work, rightsizing the cost base, and ultimately will have HAECO up to the margin that we experience in our other hangars, which is low teens. we are in the process of exiting that unprofitable work rightsizing the cost base and ultimately will have haeco up to the margin that we experience in our other hangars which is low teens What's more is we will improve the margin of our heavy maintenance business overall, because as part of HAECO, we are exiting our highest cost site, which is in Indianapolis. We will move out of that site, transfer that work predominantly to HAECO, but also other facilities, and that will improve the overall margin profile for the whole group. What's more is we will improve the margin of our heavy maintenance business overall, because as part of HAECO, we are exiting our highest cost site, which is in Indianapolis. what's more is we will improve the margin of our heavy maintenance business overall because as part of haeco we are exiting our highest cost site which is in indianapolis We will move out of that site, transfer that work predominantly to HAECO, but also other facilities, and that will improve the overall margin profile for the whole group. we will move out of that site transfer that work predominantly to haeco but also other facilities and that will improve the overall margin profile for the whole group

Speaker 2: Great. Yeah, one final one before we head to the breakout. How do you view improving free cash flow conversion from? Great. great Yeah, one final one before we head to the breakout. yeah one final one before we head to the breakout How do you view improving free cash flow conversion from? how do you view improving free cash flow conversion from

Speaker 1: We put out free cash flow targets, I think, for the first time ever, and we put it at 30% EBITDA. We are still a working capital-intensive business given the significant growth in distribution. We put out free cash flow targets, I think, for the first time ever, and we put it at 30% EBITDA. we put out free cash flow targets i think for the first time ever and we put it at 30% ebitda We are still a working capital-intensive business given the significant growth in distribution. we are still a working capital-intensive business given the significant growth in distribution

Speaker 2: Right. Right. right

Speaker 1: The MRO, the heavy maintenance growth, the component maintenance growth, those are very cash flow healthy business. Obviously government is as well. But over time, as we scale distribution, the incremental investment required for each new distribution deal will be smaller as a percentage of the base and will improve from there. So again, I would view the 30% as a near-term waypoint, but over time, we would expect to be better. The MRO, the heavy maintenance growth, the component maintenance growth, those are very cash flow healthy business. the mro the heavy maintenance growth the component maintenance growth those are very cash flow healthy business Obviously government is as well. obviously government is as well But over time, as we scale distribution, the incremental investment required for each new distribution deal will be smaller as a percentage of the base and will improve from there. but over time as we scale distribution the incremental investment required for each new distribution deal will be smaller as a percentage of the base and will improve from there So again, I would view the 30% as a near-term waypoint, but over time, we would expect to be better. so again i would view the 30% as a near-term waypoint but over time we would expect to be better

Speaker 2: Great. Awesome. Great. great Awesome. awesome Thanks, John. Thanks, John. thanks john