AAR Corp. (AIR) Earnings Call Transcript & Summary

Please welcome Vice President, Investor Relations, Chris Tillett.

Good morning, everyone. It's great to be here with you today at our -- and thank you for coming to AAR's 2026 Investor Day. I see many familiar faces in the crowd, but for those of you I don't know, my name is Chris Tillett. I'm the Vice President of Investor Relations here at AAR. So before we begin, a couple of mandatory housekeeping items. Today's presentation contains forward-looking statements, which are subject to a number of risks. Actual results may vary for reasons that we cite in our Form 10-K and other SEC filings, and reconciliations to any non-GAAP financial measures discussed during today's presentation can be found in the back of the deck. So on the basis of presentation, you may have seen last week that we announced a resegmenting of our business and repositioning of our portfolio with the intended wind down of our Commercial Programs business. This segment realignment reflects AAR's continued focus on growth, margin expansion and cash flow generation. We have reorganized into four reporting segments, which are Parts Supply, Repair, Engineering and Software, Government Solutions, Legacy Commercial -- and Legacy Commercial Programs. We will report under this new structure beginning with the fourth quarter and fiscal year ending May 31, 2026. The details of the segment reorganization and the wind down of the Legacy Commercial Programs segment can be found in the press release and presentation posted to our website last week. For purposes of today's Investor Day presentation, we will present the company aligned to the new segmentation unless otherwise noted. Reconciliations of historical non-GAAP results aligned to the new segmentation can be found in the appendix to the presentation. This morning, we also reaffirmed our guidance for the fourth fiscal quarter and full year 2026, which we issued with our latest quarterly results on March 24. As you see here on the slide, there has been no change to our prior expectations for the quarter or the year. Now on to the main event. We will begin the day with an update on the strategic vision from our Chairman, President and CEO, John Holmes. Following John's presentation, we'll have a brief update on the aviation aftermarket, followed by a deeper dive on Parts, Repair and Software. Lastly, we will show you how this platform comes together to work for our government customers. And then our CFO, Dylan Wolin, will bring it home with a financial update and discussion of our revised framework. We will have a Q&A session after the first few presentations, followed by a brief intermission and then another Q&A session at the end of the day before wrapping up, hopefully, around noon. And with that, it is my pleasure to welcome our Chairman, President and CEO, John Holmes.

Good morning, everybody. It's awesome to be here with you today. I was thinking about all the things that have changed since we were here 3 years ago, and a lot has changed. But I think most notably, now we have professional lighting, professional announcement, music when you come in. I mean, things have been going really well. I hope everybody notices that. Just for those of you I don't know, and I'm lucky to know most of you in the room, just a little bit about my background. So started at the company, I was an investment banking analyst and spent a little bit of time in private equity, and my first role at the company was in a strategy role at corporate. And I have the distinct kind of notoriety of accepting the job to come to AAR the night of September 10, 2001, and resigning my job in private equity the morning of 9/11. And so that was a really interesting time to go from the finance industry to the aviation industry. And in all seriousness, those were very powerful early years of the company and kind of shaped a lot of what we've been driving. And what we've been driving, what you're going to see, and I want to hit on a couple of key themes. But just to finish the background, started 9/11, moved into an operating role. My first role that I'll talk about in a minute, was taking over our airframe parts trading business and then held various operating roles in the company up until I became President of the company in 2017 and then CEO in 2018. And we've had a consistent playbook that I'll talk about in a minute, but that playbook is driving a lot of change. All kidding aside, a lot has happened since we were here before. And the key messages you're going to hear today are we've got a repositioned and restructured portfolio. We've made a number of structural, durable changes to what we do that's driving results. We have a differentiated culture at AAR. We've been around for 70 years, and our culture underpins everything that we do. And anything you know about leadership in building successful businesses, it comes back to culture, and we're really proud of what we have at AAR. And we have now more than ever a very focused strategy around three key activities that we'll talk about. And this strategy has been and will continue to deliver faster and more profitable growth. Just a couple of highlights, a couple of high-level numbers just to orient everybody. First, obviously, publicly traded under the symbol AIR. We love that symbol on the New York Stock Exchange. We're actually going to the New York Stock Exchange this afternoon as a management team, never done that before to ring the bell, so that will be cool. We passed over the last 12 months, $3 billion in sales for the first time in our history. So $3.1 billion in trailing 12-month sales. We have more than 8,000 members on our team and EBITDA margin is roughly 12%. A couple of things to note off to the right, the doughnut charts there. First, we are active participants in both the commercial and government market. We're about 70% commercial and about 30% of the company is in the government. This balance has served us very well over time. And if you think about moments that we're in right now, as we talked about in the last quarter call, we're seeing a lot of activity on the government side of the business as a result of the conflict in the Middle East. So this balance is important to us. Below that, not only do we have balances in different markets, but we have balance across geography. About 65% of the company is North American focused. The remainder is split roughly between Europe and Asia. These are obviously key aviation markets and areas of growth for us. And finally, Chris just mentioned the new segments. This is a breakdown of how the sales split between each of the four new segments. So I want to talk for a minute about the journey that we've been on. And I cannot overstate the number of changes that we've made to the company since 2018, but really in the last 3 years. But before I get to that, I just want to talk for a minute about my first operating role at AAR. So I was 26 years old. I had been accepted to business school, and I was going to leave the company and go to business school. And our CEO at the time gave me the chance of a lifetime, he said, "Hey, listen. If you want to go to business school, that's great. We'll be here when you get out, you can go part time or you can put it off for a couple of years and try something new." And what he offered me was a chance to go run a P&L. I had roommates at the time. I was living in downtown Chicago, and my roommates and I thought, oh, running a P&L would be kind of cool, we can lead people. But the P&L that I stepped into was our airframe parts trading business. And this was a business that had been underperforming for years. And what occurred to me is that we didn't have focus in that business. If you're trading parts, your intellectual property is your knowledge of the parts. And we had three product lines: airframe, regional and APU. We had no specialization. So we developed specialization. We started the 737 product line and got really knowledgeable on just 737 parts. We got into the 75, 76 business and focused on that platform. We weren't doing anything in Airbus back then. We got into Airbus and developed an expertise there. So that focus, that playbook of expertise that helped turn that business around in 1 year, we went from a loss to one of the more profitable businesses in the company, it's kept going. So again, those early lessons form the basis of what we've been doing at the company, which is bringing more focus and expertise into every single thing that we do. So if you think about what's happened since 2018, we've done a lot of portfolio changes. We've made a number of divestitures. We were in composites manufacturing, we got out of that. We were in airlift where we were flying and operating and owning helicopters, we got out of that. We were in landing gear for years that was a challenging business. We divested that a little over a year ago. Other wind downs. We've exited our New York component repair facility, which has been a challenge for a very long time. Most recently, you just heard we're going to wind down our Commercial Programs activity, which is a market that's moved away from us. So choosing what you're going to not do is just as important as choosing what you're going to do. And we've been making those choices, too. Since we were here 3 years ago, we've done $1.2 billion of acquisitions, six acquisitions across our key markets. And we are deepening our expertise, our strength and our leadership position in each of our areas of focus that I'll talk about in a minute. So what does that mean? It means you should come away today knowing that AAR has transformed. The changes that we've made to the business are structural, they're durable and they're setting ourselves up for growth. We're scaling. We've got more focus than ever. What's very important is that the businesses that we are in are highly connected, and we'll talk about that in detail. It has been and will continue to deliver higher margins and higher growth. We have an incredible leadership team, and you'll meet many of them today. I'm so proud of the team I get to work with. And we've been making investments, both organic and inorganic, to continue to bolster the strategy. And today, we're focused on three things -- focused on three areas: parts, repair and software. We offer parts, we offer repairs, and we offer software that allows our customers to plan for and buy the parts and repairs that we sell. We do this in the commercial market big time. We want to move further into the government market, and we're building a value chain that does not exist in the aviation aftermarket, and we're really excited about it. And it's working. We've been at this now in a major way for the last 3 years, and you can see the results. Adjusted sales have been growing at an average of 15% CAGR over the last 4-plus years. Our EBITDA margins have been growing at a 26% CAGR. Our operating margin is growing at a 31% CAGR, and we've been adding roughly 1 point of margin each year for the last 4 years. So we've been growing and expanding margins at the same time. And of course, that's led to 19% EPS CAGR. When we were here 3 years ago, we gave some targets. I want to remind everybody what those targets were. You can see them here. When we made the Triumph acquisition a year later, we updated those targets. And I'm pleased to report that in many cases, we're exceeding the targets, are on track to achieve the margin targets. And of course, I'm sure you've all flipped to the last page in the deck, and you know what our new targets are already, but we'll be giving new targets today. This is the team that is making this happen. It's an awesome team. You'll meet most everybody is actually here in the room and several of us will present. But it's a great team. I won't go through everybody, but it's an all-star team. It's a team that is -- we are highly connected. We know each other. We trust each other. But importantly, we like each other as a team that spends a lot of time together. We really don't sleep very much. And it's a great team. And a couple of things I'll point out in addition. One, many of us are still very early in our careers. We've got a long way to go, and we've got something to prove. And we've got something to prove here at AAR, and we are deeply convinced in the opportunity to create real value with this company. Done a little bit, but we got a long way to go. That's a common thread that binds us together. Another thing that binds us together is our culture. I mentioned that at the beginning, which is underpinned by these values. And I'm extraordinary -- we all are extraordinarily proud of the values that drive our company. We've been around a long time. We're not a business that has come together overnight with a bunch of acquisitions. We've been around a long time, and we have a deep culture that drives everything we do. One of the coolest things that I got to do or participate in about 10 years ago was writing these values. And for years, AAR had this long flowing mission vision statement that was literally on bronze plaques in all of our facilities. And it started out every day, we find a way to use our speed, our strength and then it went on from there. And it was kind of like the U.S. constitution. Everybody remembered we, the people, but then you kind of didn't know all the other detail. Well, we looked at this about 10 years and we said, "Hey, listen, there are great ideas within this document, but we need to break them down into simple phrases, two and three word phrases that all of our teammates around the world can remember and use in their everyday activities." And it starts with our first one in the upper left there, quality first and safety always. We have to remember everything we do involves safety of life. And so nothing is more important when we think about the values and the culture of our company than making sure that quality and safety are at the very top of the list. Another one that we're particularly proud of is the orange square -- the lower orange square there, which is make money, have fun. We want our teammates to make money. We want to do well at the company, but we want to have a good time doing it. And if you check out any of our social media and Barry, our communications head, is awesome at social media. There's a lot of fun that happens around AAR. And this keeps our team motivated to come in and perform for our customers every day. And the last value I want to mention is the last on the lower right there, and that's own it. Whether you're the CEO, whether you're a mechanic, whether you're in accounts payable, even though we're 8,000 people in the industry, we're still relatively small. And all of us have got to show up and deliver every day. Otherwise, the company won't move forward. If you don't do it, there's no one else that's going to do it, so you got to show up and own what you do. So anyway, you can tell I'm proud about these values and they drive all of our actions. It's how we hire people, it's how we evaluate people, it's how we compensate people. Those values are everything. And that culture has led us to enjoy relationships with some of the largest airlines in the world, some of the very best OEMs in the world and some of the most important government entities in the world. AAR does business with over 3,500 customers. There's a list of them here, and we are extraordinarily proud and grateful for the relationships that we have with our customers. And I cannot overstate the visibility that we have within these entities and its growing visibility, too. We may be a $3 billion company, and there's much larger players than us out in the industry, if you're thinking about OEMs or airlines, but we box above our weight big time in terms of reputation. Just for example, in the last 2 years, we've had the CEOs of several of those airlines at the top come and have breakfast, lunch or dinner or drinks with our Board, just so our Board has a chance to meet the CEOs of our largest customers. They know who we are, they're willing to spend their time and talk to us about the value that we bring and the things they need from us. So we're really proud of the customer relationships that we have. And you'll hear from Frank about the OEM relationships that we've built over the years. These are key to the incredible growth that we've seen in distribution as we are an OEM aligned provider. And of course, Nick will talk about the government side of things and very proud of the relationships that we've got with governments around the world and the opportunities that we see. And speaking of opportunities, why do we win at those opportunities? Well, first, industry-leading expertise. I mentioned about that focus at the very beginning, driving and building expertise across different platforms and different markets. We have that, and we bring it to work every day. One of the things we've been really focused on since we were last together is driving efficiency and operational excellence throughout everything that we do, being the best and the fastest in our repair shops, delivering parts sooner than everybody else. Operational efficiency is setting us apart, and you'll hear more about that from Tom later. We've got a global footprint, and we want to continue to leverage that and expand that. That's important. It's a global industry by definition. And what we want to talk about in a minute is more and more around the unique business model that we have and that value chain I described and the connection between each of our businesses. Okay. So again, Parts, Repair and Software, you're getting the message. I'm going to talk about each of these areas in a bit more detail and then hand it over to my teammates. So in Parts, two activities in Parts. I'm going to start at the top of the slide here, two activities in Parts. First, new parts distribution. New parts distribution has been the fastest-growing business inside of AAR. I think everybody is familiar with it, but in case you are not, we are an end market distributor representing several OEMs, 35 OEMs around the world. So we take the parts that they manufacture and distribute those parts on their behalf around the world. Distribution is a well-understood industry, a well-understood business in all industries, but our approach is a bit different. We only engage in two-way exclusive distributorships. Meaning we are exclusive, we will not represent competing product for a given OEM in a given market, and that OEM will not sign up a competitive distributor in that same market. So that aligns us up. Most of these agreements are 5 to 10 years in length, so you're aligned for a long time. But what that commitment allows us to do is become deeply familiar with the products that we're selling. We are not just a stocking distributor buying inventory every quarter and letting it sit in the warehouse until we get a call, we are active participants in the market, representing our OEM partners and helping them take market share. This model is working really well, and you'll hear more about that later. On the USM side of the business, that's the other area of parts. That is the original business that founded AAR. We buy dozens of engines, about 80% of that business is engine material. We buy dozens of engines each year. We either sell them at whole, but most often, we tear them down, refurbish the parts and redistribute the parts. And we do the same thing with airframes. The good thing about this business is it's highly transactional, and it keeps us in touch with the market. You are actively out there buying and trading assets. You're following the way assets values move. You're knowing what parts are in high demand and what parts are not, and it keeps you really close to the market. And by the way, that market expertise that we gain from our USM activities is really interesting to the OEMs when we go and pitch them on a new exclusive distribution relationship. So that's Parts. Repair, two activities in Repair. One, heavy maintenance, Airframe MRO. And the second is Component repair. Just to frame this for you quickly, Airframe MRO is a low teens EBITDA business, Component MRO is a high teens EBITDA business. So in Airframe MRO, we are working on the entire aircraft. I think some of you have visited our hangars. They are really cool to climb around airplanes. We are now the largest in North America for Airframe MRO. We have industry-leading turnaround times, particularly on 737s and A320s, the platforms that we focus on. And we are taking share and expanding and acquiring to continue to bolster this business. It's a high visibility activity inside of airlines, and it leads to a lot of other opportunities that we'll talk about. One of the opportunities Airframe MRO leads to is Component MRO. Component MRO, you're not working on the whole airframe, but you're actually working on the individual components, engine accessories, hydraulics, valves, pneumatics, things like that. With the Triumph acquisition, we became a big player in Component MRO, and that's a big support to the USM business, but it also goes with Airframe MRO. Inasmuch as when we sign long-term airframe contracts, we also can lock up component work, which, as I mentioned, is higher margin. So these things go together. Third, Software, relatively new for us. Three years ago, when we were here, we had just made the Trax acquisition. And you might remember, we had the founders with us, et cetera. But Software at the time, I was -- I remember talking to a few of those like, well, why did you do that? Well, Trax and getting into the software business had been an idea, Andy Schmidt and I for over 10 years. And I'm not kidding, for over 10 years, we spent time trying to acquire the Trax business. There's a lot of dinners out in Miami to get these guys to ultimately sell. We got close a few times and it fell apart, but we finally got it done. And this is working out exactly as we hoped. So what is Trax? Andy will go in more in detail, but just at a high level, Trax is a maintenance ERP system. What does that mean? It means it runs every single element of the maintenance organization inside of an airline. You cannot run an airline without a system like Trax, you can't. In fact, you're legally required to have it. So every piece of inventory that's on the shelf, every part that's flying on an aircraft, every part that's out for repair, who's repairing it, how long did it take them to repair it, what did they pay for that repair, all of that information, all of those activities are managed with Trax. It's critical to an airline's operation. Why did we buy Trax? Because Trax is the software that allows our customers to buy the parts and repairs that we sell. It goes together, goes together. And the data that Trax houses is incredibly rich and incredibly helpful. We also bought Trax because we felt that we could help them grow. If you look at the market for maintenance ERP systems, 50% of the world's aircraft are supported by next-generation systems like Trax. Trax really has two competitors, we'll go through that. But the other 50% of the world's fleet is supported by legacy systems. These are 10, 40, in some cases, 50-year-old systems that will be replaced over time. The airlines that are still running on these old systems are the largest airlines in the world. And Trax, while they had the very best solution in the market, they were a sole proprietorship, 100 guys in Miami, and they couldn't break into those larger airlines. When we bought Trax and in the 3 years we've owned Trax, we've gotten them into Cathay Pacific. We've gotten them into Virgin Atlantic. We've gotten them into Singapore. We've gotten them into Thai. But most importantly, a year ago, we got them into Delta Airlines. The world's largest, most valuable airline chose Trax to modernize their ERP system. It's a 3-year implementation. We're almost 1 year in. It's going really well. Andy will tell you about it. And once we're successful at Delta, it opens up that whole other 50% of the market for us. In addition to Trax, we've made one acquisition and launched something else. Aerostrat, an acquisition that we made a few months ago, is a company that is engaged in long-range heavy maintenance planning. And if you're one of the largest providers of Airframe MRO heavy maintenance, it makes sense that you would want to own the software that airlines are using to plan their heavy maintenance because now you understand how those maintenance decisions are made inside of an airline and you can optimize the flow inside of your hangars. And that's -- again, these things go together. And the last thing, and we're super excited about this is we launched last month, Airvoyant. Airlines spend $60 billion a year on parts, it's a lot of money. And it is an incredibly manual effort. And we see it every day because you know why? We sell parts. And we are on the receiving end of e-mails and spreadsheets and phone calls, this manual effort conducted by airline procurement teams around the world that takes a lot of time and results in inefficient decisions. So this is a problem we've been thinking about how to solve for a long time. We have the Trax user base. We have a great partner in Aeroxchange, which provides connectivity between airlines and vendors around the world. And we have AI tools that didn't exist a couple of years ago. And we have experience in selling parts. We put all those things together and what we launched is an AI procurement tool that will automate the purchasing for airlines. We kicked it off with the MRO a couple of weeks ago. The reception has been really cool. It's early, it's really early, we'll tell you more about it, but we were thrilled with the reaction we got from the customer base. And finally, I did want to touch on our Government Solutions business that Nick Gross will talk about in a little bit. Everything I described that we do on the commercial side, we also do on the government side. Take, for example, a couple of platforms here, the P8 and the C-40, what are those? Those are 737s. They are commercial derivative aircraft. We've worked on thousands and thousands of 737s for airlines like Southwest United, et cetera. If you can do it in the commercial world, you can do it in the government world. So we're applying that expertise. And guess what, if you can maintain a 737, you can also maintain an F-16. So we're taking this commercial expertise, and we are applying it in the government space and excited about the possibilities there. And again, we like that balance between government and commercial in the portfolio. So I've mentioned a lot of this already, but I did want to highlight a couple of examples. These businesses, Parts, Repair and Software work together very well. I'll take distribution, for example, I'll start with OEMs. If we're going to go in and we're going to pitch an OEM, and that's where distribution starts, and we're going to sell an OEM to partner with us for 5 or 10 years to represent their product. Being able to say to that OEM, hey, guess what? We work on 1,200 aircraft a year in our hangars. We're supporting 15% of the North American fleet in our hangars. If you're an OEM and you have a new product that replaces a competing product, let's just say you've got a 737 pump you're manufacturing that's going to replace a competitive pump and there's 10 of them on an airplane. Well, we're going to work on 800 737s this year. We will literally be at the point of sale on the hangar floor with the airline rep, and we can explain the benefits of pulling the pump off while the aircraft is in check and putting your pump on. That goes far with an OEM. Think about Trax. We are on the desktop of tens of thousands and buyers of planners around the world, they are cutting purchase orders through a system that we own. And if we go in an OEM and say, "Hey, listen, we have visibility of that demand and we can pump your product through that," that's a proprietary channel to market. So a repair activity and a software activity helps a parts activity. Similarly, I mentioned the connection within parts between USM and OEMs. If we have a line of sight and we find out that, hey, 50 A320s or whatever are going to be torn down in the next 3 months, that's great intel to share with an OEM because it helps them understand the value of their parts in the aftermarket and may even influence their build cycle. So the connection between the USM and the new parts distribution activity is evident. I want to highlight a connection within repair. We are now the leaders in airframe heavy maintenance in North America, which is the largest market in the world. We got that way because of our, again, incredible customer relationships, but really our performance on the floor. And our hanger slots are in demand. As you know, we've been expanding our sites. We've bought HAECO, et cetera. We've been expanding, and we still don't have enough capacity to service the demand. And so we are in a position with our customers who say, "Hey, listen, we're going to be competitive on price and turnaround time on the heavy maintenance side. But in order to lock up a hangar with us, we would also like to win component work." And remember, component work is higher margin than the hangar work. And so we're looking at bundling these things and leveraging our position on the heavy maintenance side to win more component work. And again, of course, if you're working on aircraft, et cetera, you're collecting a lot of data, which helps you inform what parts you're going to put on the shelves to support the parts business, et cetera, et cetera. So I could go on. But this is a great collection of businesses that we continue to drive connectivity across, and that's unique in the industry. And so that leads us to our strategy. And our strategy is really three elements, and my teammates will talk about how each of these applies to their different area. But clearly, we want to win more core. We're in a great spot right now, but we want to leverage these customer relationships to win more and drive deeper in terms of what we're doing. Leveraging the platform. I mentioned the connectivity between businesses, leveraging the relationships that we have and this connectivity to win more across all of our business units. And I'll give you an example. One of our largest customers today, we are doing over $100 million a year of heavy maintenance business with that large -- with that customer. We're doing $3 million in component repair, totally out of balance. Just with that customer by aligning and making sure that we can sell across disciplines, there's tens of millions of dollars of business that we can achieve with that customer that we already have a relationship with. That's leveraging the platform. Similarly, there are customers that we sell tens of millions of dollars of parts to, but we do no heavy maintenance. We can cross-sell there and bring them together. So leveraging the connectivity of our platform. And we want to scale with discipline. Everyone here should expect that we will continue to make organic investments in the company to grow, and we will also make inorganic investments in the company to grow. But we're going to be disciplined. We have been and will be disciplined about the acquisitions that we make. And we are very focused on curating opportunities, not just reacting to banker-led processes, curating opportunities to build out our parts, repair and software disciplines. Okay. This -- I know everything I said doesn't matter and everybody is just focusing on, what does it mean? What does it mean? What are the targets? So we are updating our 3-year targets from where we were in 2024. And I'm going to call your attention to the right of the slide. So we went through the resegmentation. We've got commercial programs, Legacy Commercial Programs, which we are winding down over time. Just to frame that for you, it's a collection of contracts and about $160 million worth of inventory. Those contracts expire and we -- either they will expire or we will work with the customer to exit sooner. But our plan is to be out of that segment within 3 to 4 years. It frees up a lot of capital, a lot of bandwidth, and it's accretive to our results. So if you set that segment aside, call your attention to the right, forecasting growth -- organic growth of 8% to 12% over the next 3 years, adjusted EBITDA margin of 13% to 14% plus, adjusted EPS CAGR of 15% plus and conversion of EBITDA to operating cash of about 30%. And that concludes my prepared remarks. All right. So I'm going to turn it over to my esteemed colleague, Chris Jessup, who's going to tell you a little bit about the aviation aftermarket, and then we'll go through each one of those business units in detail. We'll take a break in the middle and do Q&A, and really appreciate everybody being here. Thank you.

Thanks, John. Good morning, everyone. Chris Jessup, Chief Commercial Officer with AAR. I've been with the company 24 years now. I have a unique history of starting out with a company called Avborne in 2002, which today is our Miami Airframe MRO facility. AAR acquired that location in 2008, and I expanded with the company over the years, heavy sales, marketing background, started repair, evolved in the parts supply, did a little bit of an operational stint and P&L oversight of our airframe network before assuming the role that I sit in today in 2017, starting with the Chief Commercial Officer role. Let's just kick off with some strong secular trends that are driving the aftermarket growth that we operate in today. First, global air travel is resilient -- I'm sorry, global air travel growth remains resilient, driving more repair and maintenance cycles. Two, global aircraft fleets are growing and they're aging, which increases the demand for new and used parts. Third, new aircraft deliveries are constrained. And fourth, supply channels are also constrained. Both those constraints are driving aftermarket demand and the need for an independent solution provider like AAR. Before we go into these in detail, let's first just talk about what makes our market durable and why our independent position helps AAR win in the market and gain market share year-over-year. When we look at what makes the market durable, first, you've got essential safety and reliability. Safety is paramount in this industry. It is table stakes for what has to happen day in, day out. Secondly, reliability. Airlines value the cost of an aircraft out of service at north of $100,000 a day and lost revenue. You'll also hear as we get into some of the data, airlines are stressed with having enough aircraft spares given the market dynamics that are going on with the growing aging fleet and challenges in the new aircraft deliveries. Maintenance is mandatory, number two. Airlines have got to do the maintenance at defined intervals that are set by the manufacturer and the regulatory authorities that are overseeing those airlines in operation. And third, there's a need for efficiency. Again, we'll talk about this in a few slides coming up, but there's competition, cost and regulatory pressures that are all driving for the need for operational efficiency being paramount. More focus on why independent wins for a few minutes for me. Neutral industry partner. AAR is able to compete in the market, and we are not owned or affiliated by an airline entity nor are we owned by an OEM for that matter. Airlines increasingly value an independent partner who's able to manage sensitive data without competitive conflicts. This cannot be more front and center of mind, and you'll hear this from Andy when he comes up and talks about software. But when John talks about those three pillars, software, really key in this area of neutral industry partnership. Broad industry relationships. This, to me, speaks to what you'll hear from Frank in our Parts Supply segment. Industry is looking for channel partners that can reach a broad customer base. We are able to operate in multiple segments of this space, whether it's business general aviation market, whether it's the airlines, a regional carrier, a mainline carrier, international carrier, cargo airlines to lessors, all the way through to OEMs. Plus with our diversified portfolio of service offerings that we carry, we're able to stay relevant and go see customers on a frequent basis. We're not just in there only talking about one topic, one subject matter, one product line. We have the ability to go in there throughout the days, the weeks, the months, the quarters and stay relevant and informed on market intel and what is -- what are the challenges facing airlines on a daily basis. And last, cost and efficiency. Speed, reliability and consistency of turnaround times, combined with the ability to leverage data to drive efficiency, speaks wholeheartedly to what you'll hear from Tom when he comes up and speaks about our repair segment of the company. We're in control of a lot of data. Our ability to look at that data, look for ways to preplan parts. What are we going to be finding when we're overhauling a component or overhauling an aircraft in one of our shops. How we take lessons learned and modify that workflow to get better and smarter all the way through our investments in the paperless journey to automate a lot of what we're doing in the hangars, and you'll hear Tom talk about that more in detail, is critical and key to our ability to maintain a competitive cost profile and drive efficient operations. Let's now transition to a little bit of detail around the global commercial air travel market and how it remains resilient. Largely global air traffic base supports continued fleet growth and long-term aftermarket demand. Year-to-date, you're seeing the demand side of the market globally up 1% to 2%. You're seeing capacity down 1% to 2%. The key here is those capacity reductions are a function of route profitability, not demand, and that is an important distinction to call out. We all know what we're facing in the world right now with the Middle East conflict that has been going on for several weeks now. But when you saw IATA put out their March transportation results, it led to a 2.1% rise in demand globally, while capacity was down just 1.7%. So even with a shock like that of what's going on in the market, the demand is resilient, and you still saw a rise of 2.1% year-over-year from the month of March. And airlines expect to remain risk adverse to not overly rely on aircraft retirements. And again, on the next slide, we'll dive into more of that in detail just given the challenges and shortages that are ongoing right now. When you look at the chart on the right, you can see that you've got a very narrow range of 3% on the low side to 5% on the high side, baseline 4%. And this really speaks to a structural resilient demand that we're seeing in the market which we operate in today. Transitioning over to the global aircraft fleet. We are currently sitting at around circa 29,000 aircraft in operation today. The way AAR defines this fleet is we start with regional aircraft, 70 seats or greater, spanning up through narrow-body and wide-body aircraft is how we get to these numbers. So we're sitting at circa 29,000 aircraft today in the market. And when we get out to 2035, we're going to be around 42,000 aircraft in total. When you look at that whole growth from left to right, that is going to require over 22,000 aircraft to be manufactured and delivered in that period of time. When we look at 2026, in particular, the market is on pace to deliver around 1,700 to 1,800 aircraft in this year. So when you just do the math for the 9 years remaining, the market needs to continue to scale and drive over 2,200 to 2,300 aircraft per year. There's a lot of challenges there. There's a lot that has to be done. Any hiccups that we see in those areas are only going to further promote a strong demand for the aftermarket services that we provide and that we support. The other interesting thing on this page is today, we're sitting at an average fleet age of 13.4 years. While that's going to get elevated as we get into 2030 and '31 at around 14.4 years, even when you get out into 2035, you're still at 14 years of average compared to 13.4 years average today. So again, there's a lot of demand. It's resilient. OEMs have got to do a really good job of making sure they can continue to scale those deliveries. But on the flip side, retirements have been low because of all these challenges. Industry today is only at retiring about 500 to 600 aircraft per year. Most people talked about the bow wave coming out of COVID. And as OEMs caught up with production, we'd see a huge mass exodus of aircraft retirements. We've not seen that. We've been living in the 500 to 600 aircraft retirement bandwidth, if you will, for the last couple of years. Next year, provided we have a smooth year with the ramp in the deliveries, we should start to tick back up to that 800 and 900 aircraft retirements per year and hopefully stabilize there again if the OEMs can get up to that 2,200 to 2,300 aircraft production range. So a lot to watch there as we navigate all this. When we look at the addressable market as we sit today and we look at just the parts supply segment and we look at repair when it comes to both components and modification and maintenance on the airframe side of the house. We view that market at an $80 billion market today, growing to $90 billion by 2029. That's a 4% CAGR, and that's assuming 2026 constant U.S. dollars. There is a lot of swim lanes that we can navigate within just these boxes of parts supply and MRO component and MRO airframe and modification repairs that we can navigate. When you look at us today, and we are less than a 4% market share of this addressable market, it just translates to a long and bright runway that we have to continue to grow and outpace the market, taking shares from our competition. We wanted to break software out separately. You heard John speak about that a few minutes ago. It's a fairly new segment to us in the last 3 years. We're really excited about it. But when we look at the foundation of how we got into software, specifically looking at Trax, the core M&E workflow area, we view that addressable market at $3 billion today. It's a very fragmented landscape with consolidating -- with consolidation occurring. Many of you will find it interesting that a lot of airlines around the world that have not decided to upgrade and move to more of the emerging softwares like Trax are still operating on 1970s, 1980s era technology software that's just been kind of updated slowly, if you will. But when you look at the world we live in with advancements in AI, the need to go off-premises to cloud hosting, to the need for mobile apps, the need to connect channels. There's a lot of investment needed in those areas, and we're really excited about where we sit in that space, and you'll hear a little bit more from Andy as we get into that. But more importantly, if you look at the bottom bullet, the planning and the procurement represents an additional multibillion opportunity for us. We look at Aerostrat and what we did to move into the planning software, expanding out of those maintenance and engineering workflows and the recent Airvoyant launch where we're now moving into procurement and marketplace. It really helps us tie things in, if you will, end-to-end. And our overall view is software is not a stand-alone product. We view that connecting software with the parts and the repair strategy is going to make those using it a much more informed decision-making process. You're going to be able to navigate decisions at quicker speeds and with better outcomes on cost. Shifting priorities over to the government sector for a few minutes here. Just like there is positive demand signals for the commercial sector, same is -- it's true for government. The presidential budget for FY '27 when compared to FY '26 is showing a 7% to 9% growth in budget spend year-over-year. You can see the breakout on this slide between the different services, whether it's the Air Force, the Navy, the Marine Corps or the Army, there is heavy spend in those high single digits being planned. The biggest thing that you'll hear Nick talk about when we get into that in more detail is there's a big shift in focus from acquisition to sustainment and overall aircraft readiness. And more importantly, we've got a lot of good track record in the last few years with that defense base being stressed on how we continue to grow and meet the 7% to 9% budget increase, utilizing commercial best practices. You'll hear Nick go into detail about a few of those things that we've been able to expand across our whole pillars to help us succeed there. Not only in the U.S. market, are we seeing a positive high 7% to 9% growth rate, we're also seeing positive trends in the international markets as well. You've got Europe, in particular, who's averaged a 2% GDP spend on their defense budgets being pushed to get up to 5% defense spend. You also have the Indo-Pacific region looking to spend -- accelerate with what's going on in the world as well. So there's a positive view overall, whether it's commercial or whether it's defense. And so I would just say, in summary, as I wrap up my slides, when you take that all together and you look at our focus of leveraging our independent position to be able to market parts, repair and software to a commercial and to a government sector, it leads to a very attractive growth category and segment for ARR to continue to grow in market share. And with that, I will wrap up, and I will turn it over to Frank Landrio, who will go into parts supply for us.

Thank you, Chris. I'm Frank Landrio, Senior Vice President of Distribution. I will be presenting the Parts Supply segment with a focus on the New Parts Distribution business. But before I begin, a quick background for me. I'm in my 20th year at AAR, 35 years of industry experience, held various leadership roles in areas such as finance accounting, M&A, operations, OEM development. And 3 years ago, I took on the role of leading our New Parts Distribution business. Okay. Key messages. So we're a large global independent parts provider. I will touch upon the financials, the market position, the size and our ability to capitalize on a growing aviation market. We will then go to differentiated offering. This is in the new parts business, two-way exclusive distribution model that John started to define. I'll go a step further and beyond the definition, but our distribution structure as well as our value proposition is what's resonating right now in the market. And you've seen -- I know we had a couple of conversations during breakfast. You've seen the growth, and there's a lot more to go. And then that leads to the third point, which is the growth strategy, where do we take the business from this point forward. Okay. Our Parts Supply segment has delivered strong results over the last 12 months, sales of $1.4 billion, 30% growth year-over-year. $200 million of adjusted EBITDA, that's 42% growth year-over-year and 14.7% adjusted EBITDA margin, which is 123 basis points improvement. It's made up of two businesses. That's the New Parts Distribution and our USM, Used Serviceable Material. On the new parts business, it's about 65% of the total, $900 million of LTM sales. And on a run rate basis, we're over $1 billion from that standpoint. Mainly the commercial and government markets is what we serve and 90% of our OEM agreements are exclusive in nature, and we renewed 100% of our contracts over the last several years. On the USM side, makes up 35% of the total, about $500 million in LTM sales. We are the largest independent provider of USM in both engine and airframe components. And we demonstrate our value by providing cost savings and industry-leading availability to our customers globally. Okay. So a little deeper dive now on the parts distribution overview. So we distribute over 35,000 parts to 2,500 customers. Major airlines like Delta and United, major government customers, for example, Defense Logistics Agency here in the U.S. and the Japanese Military of Defense, and major MROs like Lufthansa and Technik. Now our value proposition benefits both our customers and our OEMs. From a customer standpoint, we simplify complexity is probably the best way of putting this. We do that by fast delivery, reduced inventory costs and a single point of contact for a range of parts. For OEMs, we provide access to the customers. We provide global scale and proprietary market intelligence, which I'll go into a little bit deeper. And then we have our proven execution of our two-way exclusive distribution model, which is kind of the umbrella of all of the value offerings. Okay. So let's do a little deeper dive into what that means. So the two-way exclusive distribution model, as John told you. So this is where we partner with an OEM, and we agreed not to distribute a competing product or product line. And in exchange, they would partner only with us. So what does that allow us to do? It allows us to invest in the relationship. So what they get for that and what we've implemented over the 3 years is a market-driven value proposition. So it's all about the process and how we gain our market intelligence. So think about everything you've heard so far from both John and Chris, we're a global company, market intelligence coming from whether it's commercial markets, military markets, whether it's coming from our component shops, our heavy maintenance shops, even our software businesses, but it's that market intelligence that's important. It allows us to figure out the market share for each OEM by product, by product line and the gap to get the rest of the business, right? And let's use 100% as that. It's that gap that we focus in on. That's where the strategy comes in. That's where we come in and we figure out. Maybe it's bundling OEMs, maybe it's PMA threats, maybe it's -- and there's a long list of actions by the way. And we customize that to gain that market share back for our OEM and of course, with AAR. So that's resonated a lot with our OEMs and AAR. What I would tell you, it sounds somewhat simple, right? You say, well, you just get the market intelligence, just go get the other 30% or 40%. It's the team that we have that one could get that intelligence and then execute that strategy. It is just -- you can't just say it and it just happens, right? And we have demonstrated that by the numbers and by -- you'll see some more of this in a couple of slides. That is the core to our growth. Another differentiator for us, and I just mentioned some of it, is that AAR distribution is part of the fully integrated platform. And we work together, OEMs work with a lot of the other parts of AAR already. So there's a reciprocal arrangement here, again, the market intelligence and how we could work with those OEMs, whether it's on the heavy maintenance side or the component side or the Government Solutions side. So that's a differentiator for us, and it provides a lot of value. And then we roll that all together with our digital tools. So we have customized proprietary digital tools that make it easy for customers and OEMs to work with us. And in addition to that, I'll add the whole Trax and the software that we're working with on Airvoyant and how we bring those OEMs to the desktop of all the airline customers that are out there today. Okay. This is the structure of distribution, and I'll go through each one of these. But this structure lends itself, it's an integral part of our growth strategy. So each of these market verticals, and again, I'll go through all five of them, are stand-alone businesses. So we're not just dabbling in each one of these segments. They're stand-alone businesses. They all share the same value proposition. So we're not changing value propositions, what we're changing is how you go to market in each one of these. So they all have their own infrastructure, their people, experts, I'll say, in that -- in each market. They have the investment, the inventory and then the individual systems from a market capture standpoint. So for each one, so let's take commercial, starting with commercial. So we have a global technical sales force that is strategically positioned around the world. And again, it's the market intelligence. They know what the markets are doing. They bring that intelligence to us. We figure out what those strategies are, we deploy it back to them and then they go and execute. And again, just an awesome team in how they do that. On the defense side, same thing here. So we have a captains of industry contract, only non-OEM to have that. We have a DLA supply chain alliance, both on the land and maritime and aviation. You couple that all together, only non-OEM to have that. What that does for us is again about market intelligence to capture. We're close to the customer. We're able to take that information and then relay it back to our OEMs, and we strategize, again, how to capture that market efficiently. Next is business general aviation. We carved this out in 2023. Independent sales force also huge growth. It's been growing, but a lot more to go. Japanese military. Now this is a unique opportunity that we had. And again, instead of dealing with on a transactional basis, we know it needed a lot more infrastructure. So we invested in a joint venture, and this growth has been an enormous growth for us. And then those four are all aftermarket serving. The piece that was missing, but it was part of our strategy was we wanted to help the OEMs on the supply chain side. So we acquired ADI. As you probably remember, September of 2025. And this is where this tucks in. It started out in electronics, but we're looking to broaden it to other parts, and we're going to -- this is just tip of the iceberg. I mean they've been doing well, but there's a lot more to go here. And again, helping OEMs, as we all know about the supply chain constraints out there, this is going to be a focal point for us. So as many of us know, on the larger OEMs, they're structured like this. Many OEMs are just not in one market, right? Their parts go across many of these markets. So I would tell you right now, so we have 10 or more OEMs that are in two or more of these market verticals, and we have one now that's across all five. Those opportunities today are active. We are talking to our current OEMs. We're executing, and we are expanding across these market verticals. Okay. So when you execute the value prop and the structure, you wind up with results like this. So over the last 3 years, you could see that aggressive growth. We've added 25 new product lines. We've added -- our CAGR for that period of time is 28% and 100% renewal rate for the last several years. One point I always like to bring out is you'll see the same OEM logo repeated. That is new product lines or new business, it's not just repeat business. I will also point out that some of those OEMs going back to 2012 and '13 and '14 are still with us today. So that's a testament of execution. You'll start to see new names here over the last 3 years, and that's because in our business development pitch, they resonate with what I just said. They want somebody who partners with them, who helps them grow that piece that they're looking for, right? So we're not just stocking. We're not just being a distributor. We're a strategic aftermarket partner and not just a distributor. Okay. So when you look at our market size now, right, some of the key market drivers, I'll start with that. Airlines, you got oil prices. We talked about that already, but they want to reduce cost. They want to destock inventory. They want to improve the supplier reliability from a parts standpoint. On an OEM side, they have supply chain challenges. They're going to have them for the foreseeable future. We've talked about this. Everybody says it will end in 3 to 5 years. I don't know. I think it's going to go on longer than that. But what's increasingly happened, they are talking to companies like AAR, where they're saying, I used to go direct. I think now I want to go and embrace the distribution model. So although we have critical scale here at $900 million, over $1 billion, we're still only 4% of our addressable market at $25 billion. So a long way to go here, a lot of runway in front of us. Okay. So now we go to the growth strategy. Where do we go from here? First thing I want to reiterate is our core business is growing still. So we don't need to look at these other options. But I want to make sure that we're very clear that our core business is absolutely growing at a healthy rate. But in addition to that, we want to further penetrate adjacent aftermarket opportunities, which includes our business general aviation, foreign militaries, where we're very selective in what regions of the world we'll work in, but huge opportunities. We're going to keep driving international expansion, mainly on the commercial side. APAC region has been a huge region for us, but there's a lot more to go, and we'll be strategic about that. The expanding OEM supply that I just mentioned on the supply chain constraints, we could play a bigger role with our OEMs on the supply side and the ADI acquisition obviously gives us that critical mass. So now as we execute our growth strategy, we want to be very disciplined. I think John brought that up about being disciplined. We're already doing that in our business where we're using tools and increasing automation, we're looking at our workflow to get more throughput in a very efficient way. We want to maintain our margins and grow as we grow the top line. Okay. Let me go back. Sorry. So let me put it in summary here. I believe we have the right strategy. We have the right model. We have the right structure. More importantly, we have the right team. The team and the results that you've seen, they're executing. They understand the mission. They understand the market intelligence, what it's needed, what to do with it and how to execute it. So I am very -- I think we're going to just gain more market share for the foreseeable future. I'll leave it at that. Thank you very much. And next is Tom Hoferer. Tell us about repair and engineering.

All right. Good morning. My name is Tom Hoferer. I'm the Senior Vice President of Repair and Engineering. I've been with AAR about 3 years. Prior to that, I was at GE Aviation for 32 years. So I survived Jack Welch, and I also learned some things from Larry Culp. So all good. I'm also retired Chief Financial Officer from there National Guard. So 3 years ago, again, my first Investors Day, I was 2 months into the role. I was just talking slides, right? So I'm still grateful no one asked any questions back then because I had the like depth of a Petri dish back then. So thank you. Deeper now, and a lot has been accomplished since then. That was the cool part about preparing for this is sometimes you forget what happened in the past year, past 2 years, 3 years. And when I looked back and we talked about these are the strategies we are going to go after. These are things we're going to do. And now to look and see that we actually did them. We executed. Our [indiscernible] is like 100%. It was super exciting, super energized, and I can't wait to share with my team because they probably forget too everything they've been doing. So pretty cool stuff that we've, again, reflected on the past months preparing for this. So repair, $950 million business and a very highly fragmented $50 billion market. So you got to deliver. You got to be laser-focused on your customer. You got to deliver on safety, quality, delivery and cost every day. In addition to that, we are part of the integrated group, component MRO, same customers as Frank. Frank talked about the OEM relationships, super important on component MRO. Andy will talk about software. We provide data for software. And Nick will talk about government solutions. We support Nick's group by preparing the Navy P-8, the Marine C-40, and we also do some flight testing with the U.S. Navy E-6. So we are all together, looking to win. And we also know when we win, we all win together. So a pretty cool culture that John has created. All right. Key messages that I'm going to cover today. Number one, in this highly fragmented market, we are the #1 leading independent global provider. Even though it's highly fragmented, I'll talk about the size of the market and how much we play. We lead independently within MRO, so I'm repeating myself, but we deliver high-quality, safe products with a lot of labor efficiency and industry-leading turnaround time. Our offering is differentiated. Again, labor efficiency, turnaround time, deep experience with our workforce and a global footprint that is tied to what our customers need. Our growth strategy has been very profitable. We deliver that growth through different value propositions, both on component and airframe. We've added capacity with HAECO and also organically with Oklahoma City and Miami, and we are constantly developing more solutions for the next-gen engines and airframes. And finally, margin expansion. The efficiencies and productivities that we see both through mix and our productivity improvements, a focus on lean and investments in digital solutions like our paperless hanger system have proven to be margin accretive to the airframe and component MRO businesses. So the segment that you saw announced last week, repair, engineering and software, $1 billion in LTM sales, $127 million in EBITDA, LTM and 12.7% margins. You see the [indiscernible]. We do not like [indiscernible]. That small blip on the BPS is driven by the HAECO acquisition. I'll talk later about the integration and where we are with that. We're clearly on a path to make that [indiscernible] go away and make the HAECO sites, Greensboro and Lake City, which have been a slight drag on our margins, they will be margin accretive as planned and why we made that acquisition. Making up the segment, airframe MRO, $575 million of LTM sales, focused, like John mentioned, on narrow-body and regional jets, 737, A320s, E175s. It's a product focus, and it's also a customer focus because of the geographic concentration of narrow-bodies and regional jets in North America. It also provide us great efficiency gains with our workforce and technicians, they come in every day, and they know they're going be working on a narrowbody. There are obvious benefits to that when you work on the same product day in, day out, you get really good at it. We have multiyear agreements with those blue-chip customers that extend well into 2030, and our proprietary operating model delivers superior performance. We deliver all that from 8 heavy maintenance facilities across the U.S. and Canada. Component MRO, $375 million of LTM sales, focused on engine accessories, structures and components. We pride ourselves on high-value, very complex repairs that are created by our engineering teams working with OEMs, and we enjoy really strong OEM relationships with the likes of GE, Boeing, Woodward, Collins, which enables us to do those engineering development. We also have a growing portfolio of DER repairs where OEMs do not provide that. We deliver all that from 6 facilities globally. And finally, software, welcomed Andy and the team to our segment, $50 million of LTM sales. You might say, why is software in this segment? MRO, fleet management, procurement software. Andy is going to talk a lot about that. We have the same customers. We work with the same data, and there are some synergies that really get us super excited about what those solutions are going to enable from a digital standpoint. Repairs just flat out about execution. Execution for our customers. We got to meet them where they are and meet them what they expect us to do. So 7 million labor hours annually. Beneath this number is a pretty cool stat actually. So 7 million because of the acquisition, right? Greensboro and Lake City added about 1.6 million hours to that. In the previous 3 years, with the same footprint, same capacity, our team went from 5 million hours to 5.3 million to 5.5 million. That's throughput, that's execution without expanding our footprint. And that's also why we're expanding our footprint because we know we're really good at this. 1,000 aircraft serviced annually and 15,000 components. The value prop reads pretty consistent with what you would expect from a repair business, decades of experience, customer focus, global footprint, differentiated offerings. But I'll take you back to the very top one, industry-leading labor efficiency and turnaround times driven by continuous improvement and meeting, again, what our customers' expectations are and driving to exceed those expectations. It is all about turnaround times, right? The biggest financial lever in this business is turning aircraft back to our customers, right? It means revenue for them, and it means they are a very happy customer and they'll send us more aircraft. So some of you may be familiar with D-checks, C-checks, see some familiar faces from the Miami visit, you saw and we're able to go through a couple of the aircraft. So these C-checks and D-checks are required by regulatory requirements, right? C-checks every 1 to 3 years, D-checks every 6 to 10 years. And we also do modifications beyond that, whether it's cabin reconfigures, we're doing Starlink installations now. So we have that flexibility. But the primary core of our business is C-checks and D-checks, and we've reduced those turnaround times by almost 15% in the past couple of years. So we are focused on that, right? Maintenance visits taking days out. We've implemented Kaizen. We've done over 75 Kaizen events. Over 200 projects are in process across our network. And we got our proprietary paperless hanger system, which also has yielded efficiency and productivity gains. And then finally, you may recall or you may not recall, we had the first safety management system implemented by an independent MRO in the entire world. Customer benefits, like I said, nothing more important, right? Getting their aircraft back, flying passengers on it, paying money to fly, that's revenue, improved first-time yield quality, again, by reducing our quality escapes and our damages, we get a quality aircraft back to the customer, they make money and a safe quality product is always top of mind for both of us. Benefits for us, if we get more aircraft through, it's good for us, too, like I mentioned, 5 million to 5.3 million to 5.5 million hours in the same footprint. Now we're at 7 million with the acquisition. That's more revenue for AAR. And it expands our customer relationships, right? If my team does well, Nick does well. My team does well, Andy does well. My team does well, Frank does well. We're all -- we all win because we all have the same customers. And those customers, if they're happy with what they're getting from an airframe MRO standpoint or component MRO, it makes the conversation a lot easier for Chris Jessup to have when he was in front of a customer. Since last Investor Day, 16% CAGR. So very proud of those results, but we've been super busy also, like I mentioned at the very beginning. So in March of '24, we acquired the Triumph product support business. November of '25, we acquired HAECO Americas. And a couple of weeks ago, we closed the acquisition of Aircraft Reconfig Technologies or ART. We also, as John mentioned, divested of a noncore business landing gear. We're expanding our footprint or have expanded our footprint in Oklahoma City. I'll talk more about the expansions in Oklahoma City and Miami in a couple of slides here. The additional revenue streams from enhancing our offerings, like I said, being very flexible with what the airline customers need while their airplanes come in for C-checks and D-checks and doing more than just that. And also on the component side, developing, like I said, more complex and advanced solutions and then operational excellence, just nailed on lean, the paperless hanger I'll talk about in SMS. So as I opened, crazy big market, $50 billion, very fragmented. And with all we're doing well and everything we've been doing, we still only have 2% market share. So huge runway, huge opportunity for us to continue to go after. And it's real, right? So the market size is real, and we believe the market drivers that Chris touched on are real also. Air travel is increasing, which means there's more demand for airlines to have their planes and have them back and have a quality plane back. Regulations are not going away, right? Regular maintenance is required. Fleets continue to age every day and the delivery constraints on new aircraft still remain. And then finally, four, limited network capacity. So let me take a moment to talk about the acquisitions. John mentioned, we've been very busy acquiring and doing a lot of really cool strategic acquisitions, 3 of which have been in the business that I'm responsible to lead. Number one, Triumph product support. Again, March of '24, $725 million value, and we realized about $21 million in cost synergies. In addition to the cost synergies, we've unlocked a lot of new repair capabilities. We've got much more increased presence in the Asia Pacific with our Thailand facility, and we can serve our customers better with Thailand, Amsterdam and our facilities in the United States. So the business has been successfully integrated into our portfolio, and like I said, delivering some really nice synergies there. At Aircraft Reconfig Technologies, smaller in size, but not smaller in strategic importance. So $35 million dollar value, 100-plus employees, which is almost 3x the size of the pre-engineering services business, right? So this is a big one for us and for that business unit within my team. The exciting part about this is with those 100 employees, we also pick up 100 STC supplemental type certificates -- sorry, 400 STCs, 100 PMAs, parts manufacturing approvals and 33 patents. So we pick up a really nice group of smart people who know what they're doing, big pipeline. So there's revenue synergies with the pipeline that we also acquired from this business, and we believe there's cost synergies from the ODA self-certification that we have now to certify our own PMAs and FTCs, but also in-house manufacturing that's been outsourced to date to make the monuments and the cabin reconfigure products that go into our engineering solutions. So pretty excited about this one. HAECO Americas, you all know about this one. So to me, the strategic rationale on this one was almost -- it was crystal clear, right? We needed more hangar capacity. Our customers needed more hangar capacity. Greensville is absolutely huge, and Lake City has also got a nice footprint. So we picked up capacity to meet that customer demand. It's in North America, where we like to operate, narrow-bodies, right? Narrow-bodies in E-175. So North America, again, where our core customers are, and we're asking for, we need more space. We needed to do more work for us and deepen those customer relationships. We found while looking at this business that a lot of customers were already customers we had on the airframe MRO side and then the opportunity for synergies, we saw that there was a clear opportunity for us to apply our operating model, our systems, our procedures and really take a, I'd say, a low profit business to more of the levels of what we expect. And like I mentioned at the very beginning, it's a little bit of a drag right now, but we're well on our way to make it very profitable. So 3 pieces of that playbook, revenue optimization. Chris and his team went out and secured $850 million in contracts, takes us to 2030. So we knew, all right, we're going to get this new footprint and we could fill it up and customers are going to come and now they're committed. Cost reductions and process improvements. We've already replaced all the old IT systems that were at Greensboro and Lake City, put our systems in place. And those are all operating, and we will go paperless in Greensboro here in the next few months and we also have to adjust the cost structure. So there was a lot of, I'd say, just different approach to business, right? Volume was good no matter what kind. That's not how we work. We'd like to, I'd say, rationalize the volume to where we know we can run an operation that we want to run it and be profitable. And that's where we're well on a path to do that. The footprint rationalization, you've heard in previous meetings or in the news. As a result of this acquisition, we are exiting the Indianapolis facility. It was our highest cost facility. So we are -- but just by nature of that, we're reducing our total airframe MRO cost structure by exiting Indie and moving most of that work to what were the HAECO sites. And the improvements are clear. We had a review with a very big customer a couple of weeks ago from a safety, quality delivery standpoint. They shared with us, hey, we're feeling the change. We see and you sense the change when you walk out of the hangar. So we are well on our way to, again, doing what we said we were going to do. We're going to acquire this business, apply our operating process procedures and make it more -- make it as profitable as the rest of our facilities. So inorganic growth, organic growth. So you've heard about the expansions. We're super excited about this also. Oklahoma City opened up for business on March 1, rolled in the first customer aircraft and things are going great. As you would imagine, it's like when you get a new house, the team loves working there, right? We literally had to -- we were able to select the guys that were going to -- guys and ladies, I should say, that are working in the new facility. So 200,000 square feet between Oklahoma City and Miami. Miami will open in September, incremental revenue with the same fixed base cost. So this is all margin accretive. Customer demand was there. Like I said, it's already spoken for. And the labor pools of these 2 facilities is another big reason why we did this. We have great labor pools in Oklahoma City and Miami and fully expect us to be able to add the technicians that we need to execute and deliver for our customers. More organic growth, components. So adding repair capabilities for next-gen components. Capabilities on LEAP, GTF, NEO, MAX, these are a result of the OEM relationships we have and also the engineering expertise that we've built in the second -- in the middle piece there, you see, we quickly discovered that we had to have really good engineers in order to work with the OEMs who, quite frankly, also needed us, right? There's -- with all the new or next-gen engines and airframes coming to the market, they just don't have the capacity to keep repairing the older aircraft and engines. So we added engineering expertise. We've collaborated with several of those OEMs to develop these complex, very highly valued repairs. And that part of the business is really doing well. And it speaks again to the third one around these OEM relationships. You cannot do OEM repairs without the OEM working with you, right? They own the IP, they own the manuals, and they like to keep that. So it really speaks to the need and the value of making -- having those OEM partnerships, which again ties back to Frank doing well for them, right? Andy working with them, et cetera, so we can have those relationships and that they're strong from an AAR standpoint, so we can work together with those OEMs to deliver. PMA, DER. So customers have told us over and over again. I'm sure a lot of you know this, there are challenges out there in supply chain constraints. Supply chain is not coming back from COVID, right? This is the new normal. You hear all those taglines, if you will, about what's going on with supply chain. So they've come to many companies out there, now us and saying, "Hey, how can you help us with -- we don't have availability. We can't do these repairs." Competitors struggle with just doing the repairs. Our solution is PMA, DER. Again, parts manufacturing approval, designated engine repair. We're working with our own engineering teams, we can have and are going to continue to develop these repairs that are proprietary for us, but FAA approved, again, to address this customer need of they just need parts. They need components, and they can't get them right now. So the outcomes are parts availability, increased uptime, predictable, lower cost outcomes and then for us, improved margins without additional fixed costs. We're doing this within our fixed cost structure of component repair. Paperless hanger, super proud about this. So the picture says it, right? I mean we had -- and some of you saw this in Miami. Actually, I think you saw it after we had already got rid of the planning room, right? But that's a picture of it. Tons of paper gone, right? The resources and cost required to administer all that paper, by the way, 9 million pieces of paper saved since we went paperless. So we're saving trees. We're saving space. And we have technicians walking around with tablets now. And I should say, not walking around as much. You used to have to go to a home base, get their assignments for the day, go complete the assignment and go back, get another one. Now it's all in a tablet. So decreased downtime for our customers. Maintenance turnaround times have improved. All these digital records enhances our ability to have records about safety, quality, compliance. You see the margin improvement of 200 bps and 38% of our network is currently paperless. That's 100% of Miami and Rockford. Oklahoma City will be by August. And our plan now with our digital technology team is to have the entire network paperless by the end of fiscal year '27. So this gets us super excited. We've seen, again, big efficiency gains. Our technicians absolutely love this system. So I think beyond all these numbers and savings from a retention and recruitment standpoint, this is how you get new technicians, right? Because when the newer generation, younger generation shows up and you give them a book, a manual, this is how you do your job, they're literally gone. So having it on a tablet, this is how you work in the digital world. We're seeing the impact also on our stability of our workforces at those facilities. So wrapping up, expanding hanger capacity, meet the customer where they need us to be. The demand is there. We're expanding capacity both inorganically at HAECO Americas, organically with Oklahoma City, Miami. Utilizing our range of repairs, both on the airframe and component standpoint. Again, we need to stay flexible, again, meet the customer where they are. They're asking for Starlink installations now, as I mentioned before, which is pretty cool. If you're ever flowing on a Starlink aircraft, you're happy we're doing that. It is amazing. So we're doing those. Geographic expansions. We're always looking at expansions, right? We know our biggest competition, especially on the airframe MRO side, is lower cost, I'd say, countries and place where you can -- where you enjoy a lower cost of labor. And we've also been approached to look at potential wide-body solutions where companies are looking to reduce their exposure to the China region. We have invested. We will invest in service next-gen components and efficiencies. Like I said, that's the name of the game. Digital solutions, whether it's paperless, tying in with Andy Schmidt's team with -- he talked about Aerostrat. Our customers use Aerostrat. So when I heard the news we acquired Aerostrat, I was excited because I literally get screen prints of Aerostrat fleet schedules from our customers. And I'm confident Andy and his team are going to help me digitize that, right? So look, it's sustainable growth, it's margin accretion and it's strong return on invested capital. And that's how we're going to continue -- have been growing. It's how we're going to continue to grow. So that completes, I think, the first half Q&A time, right?

Thanks, Tom. And thank you, everyone. Just a quick reminder as we get into Q&A here, please state your name before you ask your question. And also a friendly reminder to please keep your questions to the sections we just discussed. And Dylan is obviously going to go into the financial framework in more detail later. So if we can hold those as well. Appreciate it.

Questions on the first half, Ken.

If you think about your 10% sort of top line outlook, excluding the legacy commercial services piece, can you give any more detail as to how we should think about that either by segment or for some of the broader buckets, heavy MRO, component MRO, maybe parts distribution versus USM?

Sure, we can. If it's okay, I'd like to talk about the framework after Dylan goes at the end just because he's going to go into more detail on a lot of assumptions. So if we can pick that back up. Yes. I know you'll ask it again.

Okay. Perfect. Well, maybe then if I could, on the Parts Supply segment. Can you talk about for the industry today, what percent do you see going through distribution? How does that look in 5 years? And because I think it's a nice secular sort of industry tailwind. You're obviously taking share. What's the environment like? What are the conversations like with OEM partners? Why are they looking to go more through distribution. Just how do you see that market evolving and obviously, your ability to continue to take share in that?

Sure. I can start, and then, Frank, do you want to fill it in. So generally speaking, obviously, we've been taking share. And I'd like to remind everybody that our -- if I think about our 2 biggest competitors, the combined revenue of our 2 largest competitors is about $6 billion or $7 billion. So we got a lot of runway from where we are at $1 billion roughly in distribution to where we get to relative to certain of our competitors. We do see a trend amongst the OEMs that we talk to of being more confident in distribution and looking at that in a more efficient way to approach the market. We have been taking share, but what we've also found is that when we get into an OEM, they say, okay, we're going to give you this market to focus on. But we're -- and you're going to focus on that, but we're still direct over here. But over time, they see the efficiency with which we approach that market, and they'll move more work that's direct over to us. Frank, do you want to...

I'd like to add that 50% of our growth has been where OEMs have gone direct. So I think they're looking at the market and saying, how can I serve it better? And I think they're going back to investing in new technology, producing parts, and whatever, but not trying to increase their sales force, for example, increase on the military side, hold inventory for the DLA, for example, when there's better companies that are equipped already to do this and give them that return.

Great. And if I could, just one follow-up. On the PMA, DER piece, can you size that for us? And then just moving forward, how are you going to better continue to manage sort of conflicts between that and your OEM partners if that's small issue.

Sure. PMA is still very, very small. You're talking about single-digit millions in terms of revenue inside the portfolio. What we are excited about with the ART acquisition is now we've got this ODA capability and we can self-certify so we can bring PMAs faster to market. So that's important. But it would still, from an organic standpoint, be a -- it might be high growth, but it's going to be small in terms of its percentage of the total. In terms of conflict, there are lots and lots of parts out there that we can go after, lots of parts that are not in conflict with our distribution parts, our distribution partners. So we are not concerned about finding areas to PMA. I'd like to remind everybody, I think Tom and I mentioned that our biggest product line is window shade. We're selling millions of dollars of PMA window shades each year. And I've got 4 young sons and every time around an aircraft, I'm telling them to pull those things out and stab them with pen, et cetera, so that we can replace them. But interior parts like that are low tech, high margin and not in conflict with any of the OEMs we work with.

John, a quick question on the parts supply business. You have about 4% market share right now, still a lot of room to grow. If we think 3 to 5 years from now, where do you see your market share? And do you view that industry as ripe for consolidation?

Interesting set of questions. So I'd like to pick up a couple of points in market share over that period of time. Frank and I talk about, hey, listen, it's a $1 billion business today. There's no reason why it shouldn't be a $2 billion business. And as you know, we have been growing meaningfully faster than the market. We've been putting up 25%, 30% organic growth in that business over the last several years. We would expect above-market growth to continue and therefore, end up with a couple of points of market share. So excited about that. And in terms of consolidation, yes, I think there have been and will be consolidation opportunities for us, not necessarily just in the end market distribution space, but also the electronics world that we -- where we made the ADI acquisition. And that's a whole new growth vector for us. Now we're selling parts to the OEMs themselves for use of manufacture as opposed to distributing end products, which is the core business today.

Scott Blumenthal from Emerald Advisors. My question is for Frank. Frank, it hasn't been lost on us your parts supply business really started to accelerate after the acquisition of Trax. Maybe you can give us a few examples of how you've been able to leverage Trax to drive the business until now.

Well, I think we're just starting on the Trax front. So I think what we had to do is first prove out our model that I spoke about, right, execution of our model, everything from the market intelligence piece, which is a differentiator, leveraging the team. And now what we're doing is we're working with Airvoyant and Trax to now bring that model and those OEMs into the Trax system. So this is an ongoing event right now.

So it's coincidence that the business started to accelerate when we bought Trax. It's not necessarily related. and Trax can be and will be an accelerant going forward now that we've got it integrated and connected and particularly with Airvoyant.

Sheila Kahyaoglu with Jefferies. Maybe, John, if you could talk about the parts distribution market, and you mentioned in your strategy slide, business and general aviation as your third growth lever. So your business mix is currently commercial and defense. How do you think about leaning into [indiscernible] what the growth rate looks like in that market? And how do you think about expanding share?

Yes. Good question. So the 4 areas, so commercial, we've been growing significantly there. We've also seen accelerated growth in the defense market. So very happy with the position there and expect that growth to continue. We do very little in BG&A today. It's relatively small. However, that market has consolidated in a way where it now makes sense for us to pursue, meaning that in the business jet world, you now have large fleets concentrated with fractional operators, et cetera, where we are set up to be able to go after them. So we see that as a meaningful growth opportunity. To size that as a percentage, it could grow faster than the core commercial and defense. But that's another area where we would look at inorganic opportunities as well to build a bigger presence. And I don't know, Frank, do you want to add anything?

The only thing I'll say is it's a fragmented market, right? So we needed the tools in order to on that, and we have those now. So I think the growth will be continuing on at this point.

Great. Scott Blumenthal from... So we got to ask Tom a question because last time he got off. So yes, Tom, you referred to the Thailand and Amsterdam facilities. You have beachhead in APAC and also in Europe. But we don't really hear too much about them. How can you kind of leverage those and grow in those areas as well.

Yes. I'd say a lot of the focus is on Thailand and growing the capacity and the footprint there, Scott. So it's a unique facility where meaning at the U.S. facilities, they concentrate on edge components or structures, right, or airframe components. At Thailand, they can do it all and they do it well. It's a very, let's say, young and energetic and pretty fired up workforce, highly educated. So our strategy there is grow the footprint and expand all the capabilities that we have there.

Yes. Maybe 2 questions then. On the heavy MRO side, in particular, how far out are you sold? Like what are you seeing in terms of bookings today from your customers? And then related to that, obviously, I know you've addressed this multiple times, John, but if you think about sort of the higher crude pricing and ultimately impact on your business or the market in general, where would you start to see that? Like how would you think about your portfolio and sort of what's backlog driven, what's short cycle? Just anything else around that as you think about maybe some of the scenario planning, I'm sure you're going through back half of this year and into '27.

Sure. So 2 questions there. So from a heavy maintenance standpoint, we're sold out essentially through the end of the -- so we've got customer commitments through 2030. That's unique. Our competitors do not have that level of commitment. There are minimums in terms of hours that are guaranteed to us by our customers. And certainly, if we have capacity, they can do more, but we've got -- we're sold out through the end of the decade, which is a good position to be in. As it relates to -- if we think about past cycles where we would see things, we would see it in the daily parts volume first. That's where you would actually see it in the business first in terms of -- if there was going to be a slowdown. We have not seen that. Across our parts businesses, volume has remained very, very steady, and we are continuing to have -- we're continuing to see growth. So we haven't seen that. Where you would hear it first, though, this will be your first indication would be the signals, the demand signals from the customers around heavy maintenance. In other words, post -- the hangers go down a little bit in the summer, it's seasonal because the aircraft fly. And then usually, then you'd fill back up in the fall. You would be seeing things from the customer saying, "Hey, we were going to give you this many aircraft in the fall, but you're going to see a little bit less." We have not heard those demand signals from our customers either. So you hear it in heavy maintenance, but you'd see it in parts. And again, at this moment, we're still feeling very good. Any other questions?

Tom, I'm sorry, Frank, what's your expectation for parts supply growth once all of the capacity is up and running fully at both Oklahoma and Miami. The direct -- I guess, is there a direct correlation between the amount of capacity and what we can expect in the parts -- I guess, parts and MRO pull-through once all those facilities are up and online.

Yes, maybe some clarity there. So in the airframe MRO, we have our own -- our team does its own purchasing and material. A lot of -- some of the material is also customer -- so we're not connected into Frank's business from a parts supply standpoint. We do that within each of the MROs. So I mean, the parts supply will naturally grow because we'll have more aircraft, right? So we have 3 additional lines in Oklahoma City and 3 in Miami. So yes, it's incremental to -- I don't know the exact numbers, but it's incremental to overall revenue and op profit because of the material that comes from the natural repair cycle.

Noah Levitz from William Blair. Tom and John, in the slide about repair and engineering expansion. You noted greater than 200 basis points, largely driven by the paperless initiative. There's still 62% of the initiative left. Was that greater than 200 basis points really the low-hanging fruit? Or could you not -- is there anything preventing you from getting that level of margin expansion as you finish that, I think, through 2027?

You had a few things going that contributed to that 200% expansion, not just paperless. It was a big contributor, but we had a lot of other things. Tom mentioned the Kaizen event, et cetera, some other efficiency that we brought across the hangar, some favorable contractual terms we were able to get from the customers. So there were a number of things that helped with that. But we would expect further margin expansion beyond that as we continue to roll out -- so it was a portion of that $200 million, but it wasn't the whole thing.

All right. If there are no further questions, I think it's time for a break. Thanks, everyone, for your attention this morning, and we'll be back in about 20, 25 minutes.

Thank you. We will resume Part 2 of our program at 10:25 AM. We will now take a 20-minute break. [Break]

If everyone could please take their seats, we'll go ahead and get started with the second half. And to kick things off, we'll start with Andrew Schmidt, our SVP of Software.

Thank you, Chris. Good morning, everybody. My name is Andrew Schmidt, and I run our software business. I've been with ARR for 11 years. And of those 11 years, 10 years have been spent with John taking the Trax owners out to dinner on a recurring basis. So we've had fun. Seriously, of my 11 years with ARR, the majority of it has been spent taking technology and initially rolling it out at ARR to improve operations. John and I then figured out, boy, we might be able to commercialize some of this stuff. So we began building digital services and eventually built up the portfolio of software companies that we have today. 35 years of experience in the industry. I worked with Oliver Wyman. I was a partner there and co-led the Aviation and Aerospace group. We did a considerable amount of work helping our clients understand technology and the benefits that it could bring to their operations. In some cases, we help those airlines select technology and then in many cases, where we help them select the technology in. Also spent time with Seabury Capital, where I co-led an investment fund that was started to focus on investments in aviation aftermarket software and travel tech more broadly. So 3 key messages that I'll deliver today. The first one is that we believe hands down, we have the most comprehensive portfolio of software in the business today. It's focused on the aviation aftermarket. And specifically, we're looking at technical operations. As John mentioned, with Trax at our core, we support all maintenance workflows and then we capture data on our customers' behalf at each and every one of those maintenance workflows. We're focused on growth, and we'll go through the stats for both Aerostrat and Trax since we bought them. But we're focused on bringing in new customers since we purchased the companies, we brought in 24 new customers. For Trax, we've added about 2,500 aircraft to what we support. For Aerostrat, they brought on about 2,000 new tails since we bought them. We're also very focused, and this is part of our investment thesis was to expand and get to new customers that are on legacy systems, but then also to take our existing customers and upgrade them. So a good portion of Trax's customers, we'll talk about this more specifically, they're still using Trax's legacy ERP system. So we've got a big opportunity to upgrade all of those customers to the latest technology. And now with Aerostrat and Airvoyant, we also have opportunities to cross-sell. The last key message here is that we will continue to use AAR's scale in connections with airlines around the world to accelerate the growth of all of our software businesses. So John mentioned Delta, that would not have happened without the AR acquisition, just would not have happened. Recently, Aerostrat won American Airlines. That may have happened without our support, but where we're taking Aerostrat over into Europe and Asia, we'll make the introductions and help them win the work. So it has been a big differentiator for us, has been a big accelerator for us. Most of the software companies, there's a few big ones out there that we compete with on a regular basis. But for the most part, they're small. Diving into the portfolio. John has already introduced this. We've talked about it a lot, but we have 3 software companies today. Trax is very much our flagship software company. They have the most customers. They operate in 35 countries, the most revenue. They have the most applications. It is our flagship product. We'll go through the applications that they sell shortly here. The second product is Aerostrat. Aerostrat today focuses on long-range heavy maintenance check planning. So Tom gets the output of Aerostrat, and there are a lot of other MROs that get it as well. The key thing, though, with Aerostrat is we want them to be the cornerstone of our MRO planning software. So there is a big opportunity to help airlines plan better, get more utilization out of the assets that they have, reduce their maintenance costs and ensure they have capacity to do the maintenance work that they need. So a big growth opportunity for us in planning. We've talked about Airvoyant. This opportunity has been sitting out there for a long, long time. I've been involved in the industry 35 years, and we've been talking about it for 35 years. So with the confluence of a bunch of different things, AI being one of them, we believe we can transform the way that airlines and MROs buy parts. Now is the time for us to shine with Airvoyant. Last thing on this page. All of the products are integrated. All the products of all the companies are integrated. We invested heavily in integrating Trax and Aerostrat. Why did we do it? We did it because we can roll it out faster at Trax's customers. We can share data more completely. Airvoyant, same story, very integrated with Trax. So if a customer says that they want to implement Airvoyant, we can take loads of historical purchasing data, send it over to Airvoyant, let the agents crunch away on it, get smarter about past decisions that have been made. They can understand why airlines made decisions to go with certain parts suppliers in the past. The data that could be shipped to like an Aerostrat or sorry, to an Airvoyant, very rich, very rich. We know who they bought the part from. We know who they bought the part from. We know a lot of information about the suppliers' performance. Did they deliver the part on time? Did it come across at the price that they promised. Okay. Focusing now on Trax, again, flagship software product. It has over 100 customers that operate in 35 countries. We support 6,000 aircraft, which is about 20% of the commercial industry's aircraft. So we see 20% of the industry's aircraft. The average tenure of the customer is 14 years. It's a very sticky product. Cost a lot of money to replace Trax. As long as we do a good job, we meet our customers' needs, help them meet their regulatory requirements, they're happy, they'll stick with us. Since we bought Trax, and this was March of '23, so a little over 3 years ago, we've grown the top line by 90%. And another key metric that's not on the page here is we've grown our annual recurring revenue by over 100%, over 100%. So we spent a lot of time looking for ways to convert old revenue streams to SaaS recurring revenue streams. Key customers here. We've talked a lot about Delta, Cathay Pacific Tie. These are all new wins since we bought the company. With Delta, we went live in a year. We went live in a year. So we're live on the line. We support over 13,000 users, 1,000 aircraft, a bunch of turns every day. So they're very happy with the product. They want us to accelerate the rollout. So our first phase with Delta is on the line. The second phase with Delta is in the hangers. Third phase is potentially in the component and engine shops. We're working through that with them now. And then the final phase is in engineering when we replace their legacy ERP system. Trax, 3 products. We have EMRO that we sell today, EMRO, e-mobility and then Trax Cloud. EMRO, as John mentioned, that's the MRO ERP system. So this is the system. You could call it the regulatory system of record, but you can also call it the system of work execution. So all workflows get managed through tracks, which means we're collecting data at every step of every process. So an example of what might happen is our customers, they have a tech comes in, turns on the iPad, tells him what work needs to be done, if parts need to be collected, he can go collect those parts, tells them what aircraft he needs to go to, what hangar it's in, tells him that he needs to replace the part, the procedures to replace that part are there, the procedures to install the part, whether or not it needs to be inspected, they're all there. But we are capturing data for our customers every step of the way. Where did that part come from? Who repaired it? What are they supposed to do with the part that just came off the airplane? Is it supposed to be routed to somebody for repair. So all of that information is in the Trax system for our customers to use. The second product is e-mobility, and this is a suite of 14 mobile applications. Right around the time that Trax was building EMRO, talked with a number of customers who said they wanted mobile applications because it would enable them to be paperless. So we built 3 applications in the first round and then every year thereafter, we built a mobile application. Why mobile? A couple of reasons. One, super easy to use, super easy to use, super intuitive. All of our mobile apps are role-based. If you're a technician, there's maybe 2 or 3 mobile apps that you use. If you're working in a warehouse, there's one application that you use. If you're a production planner, 3 applications that you use. If you work in quality, there's an application that you use. So instead of logging into a big ERP system and navigating around all of that, you come in, you have your iPad, you turn it on and it tells you what to do. So again, 14 of those. We'll look to add to those as we go. And then the last product that we have is Trax Cloud. I mentioned that we grew our recurring revenue by over 100%. Our cloud revenue, our hosting revenue has gone up by 160%. So this business is growing because our customers are pushing to offer the service. Customers want to get out of data centers. If they're using third parties to host their software, they find that we can host it better. We can do it more cost effectively, which allows them to reduce their IT cost, and we can also provide a better service level when we host our software. So those are the 3 products. Key takeaways then for Trax. We are the, as John mentioned, legal regulatory system of record. So you need -- if you're using Trax, this is what you need to ensure that you're running a compliant operation. We enable 100% paperless digital workflows. Breeze, one of our first customers, 100% paperless. They don't use any paper in their technical operations. So we can facilitate that, allows better information. And with the mobile apps, it's very much a 2-way street. We can give information to the user and the user can send information back to the system. So we capture data real time, typically better information, we facilitate efficient workflows. Other big things that our customers get from the application, clearly, efficiency across their operations and better asset utilization. Okay. Second product, Aerostrat, as I mentioned, big growth vehicle for us, and we'll go through how they're going to help us grow. But at their core is planning. At their core is planning. So they've got a whole bunch of data scientists, a whole bunch of smart people that are figuring out how to build a forecast for an airline that says, these are all the line checks that you need to do, and this is when you should do them, and that's going to optimize your workforce, and it's going to optimize your maintenance program to make sure that you're getting the most out of the components that you have. So a few ways to grow Aerostrat. One is today, they only offer one product. Their customers have been pushing them to develop a long-range planning product for components and engines. We're developing that now. We'll roll that out in FY '27. With this product, we don't quite double the revenue at all their existing customers, but we increase it by about 80% or 90%. Looking over at the stats on the right, the bottom 2, 2/3 of the revenue is coming from non-Trax customers. So if you look at Trax customers, only 10% of them are using Aerostrat today, and we have over 100 customers. So with this integration that I talked about that we developed, we can implement Aerostrat at Trax customers in weeks instead of months. So it's a matter of flipping a switch. And the way Aerostrat sells to its customers is through a trial program. Customers, Trax customers get to use it for a couple of months, see if they like it. If they like it, they start paying for it. So another big area where we expect to grow. The last area where we want to grow Aerostrat is the stat here bottom right box. Right now, the majority of their customers operate aircraft or their aircraft are based in the Americas. Their market share in the Americas is quite high. So what we want to do is bring them to Europe. We want to bring them to Asia. We're talking with some of the largest airlines in Europe today. Hopefully, we'll announce a win there soon. APAC, Trax was able to bring Aerostrat into that new business win there. So when Thai bought Trax, they also bought Aerostrat. So that was an addition that we made at the very end of the sales process. So great opportunity to cross-sell them. Since we purchased Aerostrat less than a year, their annual recurring revenue has grown by 60%. They pulled into American Airlines as a big customer, Thai, and they pulled in 4 other customers as well. Okay. Airvoyant, our new product. And I know some of you in the room actually got a demo of Airvoyant. But just quickly, what are we trying to do? The process today, very fragmented, very manual, systems are disconnected. So the gray shaded boxes up here, this is where all the manual activity is occurring. And you can see there's a whole bunch of Trax logos above all the other steps. So if this customer that we're talking about here is using Trax, Trax is constantly looking to see what parts are needed to support the operation. And they put that on to a requisition list. So today, what happens is that requisition list gets put in a spreadsheet, printed out and you got a whole bunch of buyers that are trying to source the parts that the airline doesn't have. So they're sending e-mails, they're making phone calls. They're getting on to websites. They're going to third-party marketplaces to try and find those parts. They then will get a quote for the part. And once they have a quote, they have to make a decision, which one are they going to choose. Not a lot of science behind it unless they did something in an Excel spreadsheet. So those 3 activities are what we are trying to go after and everybody has been trying to go after for years. Opportunity is huge. So airlines, MRO spend about $60 billion on parts and materials, and this is across the gamut every year. Trax's customers represent about -- and their suppliers, Trax's customers, the airline customers and their suppliers represent 20% of that spend. So our system is capturing all that information. So big opportunity, great place to start with Trax sitting right at the core of our software business. So where is this going? Where is this going? So all those 3 steps get boiled down to one screen and picking one pink button up there to click. One screen, one button to click. So the parts go into the Airvoyant platform. John mentioned that we're working with Aeroxchange. They have access to over 5,000 suppliers. So all that part requirement goes out to the 5,000 suppliers. They come back with quotes and then our platform starts to crunch away and make recommendations. So up here, kind of hard to see. But on the bottom right, you'll see we sent out a request for a part. We ended up getting 5 quotes back. And what our system will do, it's going to rank order those quotes, and they're actually going to evaluate and score every response. So that's the first thing we do. The second thing that we do is we deploy our agent, our agents. So we built this on the AWS Bedrock platform using agent core. And at this point, we're using an AWS LLM, but we can shift over to any large language model that we'd like to shift over to, but that comes back with buy this part, buy this part. And then in plain English, it could be any language for that matter, it says this is why we're recommending you buy that part. And then we come up with a confidence score. So we're 92% -- our agent is 92% confident that this is the right supplier for you to go with. This is the right place for you to buy that part. So if you agree, you click that button. If you disagree, you click one of the buttons down on the bottom. If you click one of the buttons down on the bottom, you have to tell it why you didn't pick it. Why didn't you pick the recommendation? So as John mentioned, though, where we want to go is we want to automate this. So the confidence score can be used by the customer to say, if you come back with 92% or above, just buy it for us. Let the agent buy it for us. So that's what we're doing. We're trying to take that very fragmented process, simplify it, put it all into Airvoyant and come back with one screen that you can click or eventually you let the system buy it on your behalf. All right. So what did we hear? We launched on April 21, very positive feedback. As John mentioned, everybody validated the issue. Everybody validated the opportunity for improvement. We demoed before we launched to many customers, but we also demoed at the show. Everybody loved the user experience. It's totally different. So it's designed to manage an agentic workforce, right? So it's no longer you have to look at a whole bunch of information and make a decision, it comes back with a recommendation. So what the application is all about is managing the agentic workforce. If you want to let them make -- you want to let them do something or do you want to keep monitoring their performance. Once you let them do stuff, you want to be able to monitor their performance. So that's the way the application is designed. The other big piece of feedback that we have is just the acceptance by everybody that we talk to that an agentic workforce is something they've been thinking about and they would support. So this is what we have to build out quickly. On the right side of the page up here is we're not just going to build one agent, but we want to build, again, a workforce of agents. So the first one is helping make decisions about what part to select. We'll build an agent to order it. We'll also build a demand agent. And this is big. This is big. So look at the supply chain, are there shortages of parts. If you know you need a part, so we have Aerostrat, it knows what you need 5 years out. If you know next year, you're going to need a part and the supply chain is all clogged up, buy it now. So that's where we want to go with the demand agent and then there's some other agents that we have on here. All right. I'm running out of time. So we'll go through this quickly. It's exciting stuff to talk about. So our growth, 2 axis, 2 axes. We want to go after customers, as John mentioned, that are still using legacy systems to support their fleets. Big opportunity for us there. We've been going at it. A lot of our wins. Delta is a great example. They are on a legacy ERP. They've chosen us. We've got a long-term process to replace that legacy ERP. We want to go after that. The other big opportunity for us is even for the customers that are off those legacy platforms, we believe, and it's our goal to have the best software in the business, use us, use us. Delta has over 160 software applications that they use to support their technical operations. They want to skinny that down. They'd like us to be one of the partners that provides the same functionality that they get out of that 160 applications with MRO, e-mobility, Airvoyant and Aerostrat. So that's where we believe the industry is going. So a big growth opportunity for us. Our growth strategy looks a little bit different than everybody else is here, but we basically have 3 pillars: one, bring on new customers, bring on new customers. Second part is to land and expand at existing customers. We've increased the size of our sales team. They're very consultative. You have to be consultative to help customers make a decision on whether or not they want to go with your software. And then we want to sell more stuff. So we have to build more applications that our customers like, our customers love. So that's what we're doing through partnerships, organic efforts like Airvoyant and acquisitions like Aerostrat. So these are some examples of customers that we won. Delta, biggie, we've talked a lot about them. But in the APAC region, significant expansion over the last 3 years, brought in Singapore Airlines, Cathay Pacific and Thai. There's more for us to go after in the APAC region. American Airlines, a big win for Aerostrat. They now support 3 of the 4 majors in the U.S. Hopefully, the other one will come shortly. And then again, we're looking over in Europe, and we're looking at APAC to expand them. Expanding at existing customers. These are some examples where we increased our annual recurring revenue 4 to 5x by getting them on to Trax's new products. And then lastly, we'll just continue to look for organic opportunities to build new software. We'll also look for opportunities to acquire additional companies that fit well with us in our very strategic in nature. So in summary, we have a very complete and compelling portfolio of software to offer our customers. We're very focused on growth. And lastly, we are looking to expand wherever we can, and we're looking to continue to leverage AAR's scale and capabilities to do that. Thanks. Up next is Mr. Nick.

All right. Thank you, Andy. I promise I will not use the word agentic in my overview. No, but thanks again, and welcome. Good morning. I am Nicholas Gross. I'm Senior Vice President for our Government Solutions business. I've had the pleasure to be at AAR for the last 10 years, mostly in the government space and spent the last 30 years basically in the government market between my military and industry time frame. You've heard a lot this morning about this incredible platform that we built at AAR and how our solutions help deliver value and create better results for our customers, our employees and our shareholders. And I get the -- just great benefit here to talk a little bit about the Government Solutions story, how we go to market, why it's differentiated, why it's durable and then also why it's just an important growth piece of the overall AAR portfolio. And really, it's one that brings together everything you heard about from my colleagues here, all the capabilities you heard about from Tom, from Frank, from Andy, everything that we do more broadly across the commercial side, we do the same thing for the government side as well. At a high level, you'll see a business that is scaling, expanding in margins and aligning closely with structural trends in defense around commercial companies and commercial capabilities, improve readiness and total life cycle cost. At its core, really, what we try to do is bring those commercial best practices into mission-critical government operations, all about improving performance, accelerating readiness and again, lowering total life cycle costs. And I think those 3 themes are really something that's going to underpin a lot of what I'm talking about today. In addition to those 3 themes, there are 3 key messages that I want to highlight. First, this is a scaled and growing segment, about $500 million today with a very substantial pipeline of opportunity of approximately $48 billion. And that opportunity, again, is supported by long-term structural tailwinds, including increased defense funding, procurement reform and this really push toward overall commercial solutions. Second, we are differentiated in how we approach the market. AAR brings commercial best practices. I know we talk about a lot, but speed, efficiency, cost discipline into government environments. And frankly, that's why we win in the government space. And those requirements and capabilities are becoming increasingly more and more valuable to our global customers as they look to find ways to increase the readiness of their fleets, but at the same time, and those costs for readiness are going up at the same time, managing their overall budgets. And third, our growth strategy is focused and it's disciplined and really focused on profitability. We have purposely targeted areas where AAR or the AAR portfolio has a clear advantage. So drive towards commercial solutions, higher value modification work, growing our foreign military sales and then finally, software integration through Trax. And the final piece I do want to mention is for the government business, it's not only a growth story, it's also a margin expansion and return profile story as well. So let me just put some metrics behind that real quick. So as I mentioned before, the Government Solutions business is roughly $0.5 billion and has grown by low double digits over the last year. More importantly, though, our earnings are growing significantly faster. So our LTM EBITDA of $56 million is up 50% year-over-year, which has translated to margins of 11%, which is up 300 basis points over that same time. What that means is we're scaling efficiency, and we're more profitable as we replace some of our legacy work with more profitable new work. Our roles are basically key offerings and our embedded positions in some of the most critical platforms in use today, and that's key tactical tanker and mobility fleets is really what gives us a competitive advantage. And frankly, our ability to support both U.S. and allied customers through our global footprint also brings us a competitive advantage. Our role, so what we do really spans, again, everything you heard of today. So maintenance, supply chain, logistics, even in some case, flight operations. So on the supply chain side, everything from 3PL warehousing to add demand planning, demand forecasting, point-of-use availability, so performance-based logistics, maintenance, everything from OI&D level maintenance. So think flight line to depot, everything in between, pilot training, flight operations, flying aircraft for government, everything in between. A lot of what we do is organically, but a lot of what we do relies on other parts of the business as well. So our touch points into the broader AAR is actually really significant. And really, this combination of platform relevance and expanding margin is what underpins the quality of ordering profiles that we have. I do want to highlight, we are not a niche service provider. We really are an increasingly integrated mission-critical partner in sustaining global seats. So I'd like to talk a little bit about what makes us different. And really, our differentiation is at how we operate. At the end of the day, we apply commercial, again, commercial operating principles, speed, efficiency and cost discipline into environments where traditional defense companies have struggled to produce these outcomes in that market. We operate on more than 30 platforms across more than 35 different countries, which not only gives us scale, but also gives us geographic presence to many of our global customers. But at the end of the day, our real benefit and our real advantage is that we can deliver. So we deliver faster turnaround times. We deliver lower cost structures and efficient cost structures. We deliver tailored customized solutions that help our customers meet their end requirement to increase the overall fleet availability. In short, we're able to simplify complex global operations by doing what AAR does best. Also critically, we're able to leverage the entire AAR platform, meaning we bring together multiple aspects of the value chain rather than be a point of solution single provider. In many cases, because of our ability to wrap in the larger part of AAR, we're able to solve problems, frankly, that our government customers have struggled with for years over traditional structures. And I think this, again, allows us to win work and expand our share. If you've heard John speak before, you hear him say a lot that no one in the industry does what AAR does in the way that we do it. And that's especially true in the government space. No one can wrap together all the pieces of the aviation market like we can and bring them together in a customized tailored solution to solve our government customer challenges. And again, that's allowing us to win work. All this kind of directly feeds into the size and durability of the opportunity ahead. And if you see the number on the page, $48 billion, that opportunity is pretty significant. The pipeline for us is divided into time horizon. So $12 billion in the near term, $16 billion in the midterm defined by 1 to 3 years and 3 to 5 years. And I do want to highlight that when we look at this $48 billion, these are opportunities that fit within AAR's current capability set. So this isn't just like the broad duty or broad aviation modification or fleet sustainment budgets. These are specific opportunities that fit directly within our capability set. I also want to highlight, too, that the underlying drivers behind this pipeline are structural and durable. And what I mean by that really 4 kind of key things. One, an increasing and sustained focus on readiness and total life cycle costs. If you follow the President's budget, that obviously was a key theme of some of the increase in defense spending is how do we not only buy new, but how are we making sure that we keep the fleets that we have in service longer. Two, policy-driven commercialization of the defense industrial base. Again, another key theme, I'd say, in this administration specifically is how do we think and act more commercially. If you've heard any of us at AAR talk in the government space before, and we've been saying that for a decade. How do we get the commercial or how do we get the military industry, Department of War, especially on aviation, to think and act more like Delta. And regardless of administrations, I do believe that some of the things that they're doing with procurement reform and FAR reform and those sort of things will hold regardless of who the next administration is. Third, a rise in global defense spending. You've heard Chris Jessup mentioned a little bit about defense spending in INDOPACOM in Europe, I remember not too long ago, we were talking about 2% basically for NATO, right, 2% defense budgets for NATO and our European allies. Now they're talking 5%, which I think would have been unheard of back in the day. And I don't see that changing anytime soon. And then finally, the extension of existing fleet life cycles. A lot has talked about on the commercial side about how long aircraft are flying and new aircraft deliveries. I mean that's been status quo in the government for decades. I mean they fly very old aircraft, and they've always flown very old aircraft, and they continually have to find ways to make sure that supply chain can keep those aircraft flying longer and longer. So for us, when we look at these, these are not short-cycle dynamics. These are long-term shifts, what we believe in how the government procures and sustain their fleets. So with expanding needs in global defense, never-ending budget pressures, I mean, we honestly see the opportunity for this to continue long into the future. And I think those elements are really what give us confidence that this is really a durable growth strategy for a company like AAR to apply a commercial best practices approach and not just a temporary upswing. In addition to the growth aspect of it, I do want to just quickly highlight the value that the government business brings to the overall portfolio. Our Government Solutions business really is a key component of AAR's balanced portfolio. It drives incremental work across other parts of AAR and requires very limited to no capital investment, which obviously is a great value creation story. And if we think about that, before this meeting, I actually got asked the question is how does the interconnect in this work between the government and other parts of the business? I'd say probably 50% of our work in the government touches another part of AAR. So whether that's Tom, who does the heavy maintenance on the P-8s and C-40s and others, or Frank, who's supplying parts into some of our long-term supply chain contracts, or a component repair facility who's working on the aircraft that we support, all of this is so interconnected. And at the end of the day, it is a growth driver for other parts of the business. So it also provides a stable revenue stream. Government customers obviously provide consistent demand and reliable payment, which helps mitigate cyclicality in the other parts of the business. And if we think about cyclicality, obviously, during market downturns, it provides resilience. Obviously, the most recent example of COVID, which is an extreme example of it, but it is a great example of obviously that resilience. I believe our commercial business was down 90% during that time frame, where our government business remains strong and steady. And then finally, because of the size and scale of AAR, we're able to leverage our infrastructure efficiently in the sense that we can bring on and take on new work with, again, relatively little investment. So all this translates into what we would consider a high-quality revenue stream that contributes to growth, profitability and stability. So let me just quickly connect to how we're executing that strategically now. So as I mentioned before, our focus for strategy is really trying to scale where we have clear competitive advantage. First, we're expanding our commercial services for the military offerings, and that's trying to increase the adoption of commercial parts, repair and software. And that's really been the story of AAR for the last decade since I've been here. And if you think of over that time, we have successfully secured and gotten to allow USM and broader commercial services on just about every single commercially derivative fleet aircraft that's out there today, including new aircraft such as the KC-46 and P-8, which is really unheard of just 10 years ago. And additionally to that, if you look at the commercially derivative sustainment contracts, we own, i.e., we're the prime or we support most of those that are currently fielded today. Now there are a few basically that we're not on, but we are laser-focused basically. We believe we're the market leader in that market, and we're laser-focused on bringing those back on board, but we do touch or support almost all of them that are out. Second, when we think about -- sorry, excuse me, moving into higher-value work. So the classified model work is something that's new. Actually, this is -- I think about the last time we had this presentation that was not on here. But as we really kind of refocus the business and how do we reshape who we are and find ways where our operating ethos, our mentality brings a clear advantage, this is one area that came about that is kind of a new area for us. But that's expansion of our classified model work and a further push into kind of key noncommercially derivative fleets. We'll talk a little bit about F-16s in an upcoming slide, but we've really targeted fleets that not only are broadly in service across the U.S., but more broadly in service globally. So I think F-16, C-130, UH-60, those sort of aircraft. And F-16 specifically over the course of the last 2 years, we've built probably one of the largest global avionics contract field teams workforce in the world. So again, something we're very proud of. Third, we're growing our foreign military sales business, and that's really by leveraging our existing relationships and commercial infrastructure that we have. I mentioned the defense budgets in Europe. And I think that's important because we see great opportunity not only to sell directly to these foreign governments, but also if you think of the European defense industrial base specifically, they've expressed concern about their ability to ramp up to meet these long-term support trends as well. So we see an opportunity not only to sell to the governments, but also support their local industrial base, which I think is important because there is an inward push basically in Europe right now to try to keep things intercontinent, so to speak. But we can be a value add to them to help them scale and help them support those actions long. And then finally, we're integrating Trax. And this is probably one of the ones I'm most excited about. Obviously, Trax provides not only efficiency, data visibility, but also stickiness with some of these customers long term. And that's including not only implementing Trax on our internal contracts where we support government customers, but also Trax. Trax currently supports the KC-46 and VC-25 fleets, and we see a tremendous amount of opportunity for further adoption of that software platform across the Department of War. This is a need, whether it be Air Force, Navy, whoever it is, they have just a dramatic, drastic need for a new and enhanced kind of eMRO software solution. And this is exactly what they're looking for, a commercial off-the-shelf solution in use by some of the major best airlines in the world today, constantly updated, security parameters in place that allow them to secure their data. So again, we're pretty excited about that and see just a great opportunity there. And then all this is really anchored in disciplined execution focused on win rates, retention and then scaling selectively. So I do want to just briefly talk about this case study real quick. And to me, this kind of highlights our execution. We talk a lot about our commercial offerings and our commercial driven offerings, but this really highlights our execution and kind of complex mission-critical programs and how our commercial operating ethos or mindset transforms into more military-specific fleets. Just to set the stage here a little bit, the Air Force was facing significant cost overruns and schedule delays across their F-16 modification program. So there's a variety of different models that they do. I mean if you know these aircraft, basically, it's just one mode after another year after year where they're just constantly upgrading those aircraft. As part of our -- we had awarded a 10-year $365 million IDIQ for F-16 maintenance. They basically had to stand up one site. They needed some help they had to stand up one site. We very quickly established the trust and confidence in that, one, we're able to deliver quality aircraft; but two, we're able to do it much more efficiently and rapidly than we've seen in the past. In less than 2 years, that has grown to over 200 mechanics worldwide at 12 global sites. I think the results have been fantastic. We've delivered over 240 aircraft for modification. We have accelerated that fleet modification time line by years. And I think most importantly, we've improved the delivery of advanced war fighter capabilities that are currently being used in action today, and we've earned the trust and confidence of our Air Force partners to look to give us more work on the F-16 as well as ancillary fleets. So just in closing, I just want to highlight these key points again. First, we have a scaled business with a large and durable pipeline that is backed by structural defense trends. Second, we're differentiated. We bring commercially speed, efficiency and integration into government end markets. And then finally, we're executing a disciplined strategy focused on profitable margin-accretive growth. So if you take all that together, our Government Solutions business is a high confidence growth platform that enhances both the performance and the resilience of AAR. And I'd like to turn it over now to Dylan Wolin, our Chief Financial Officer.

Thanks, Nick. I'm Dylan Wolin, Chief Financial Officer. By way of background, I have 7 years with AAR, 19 years in aerospace, and 24 years of finance experience overall. That includes 4 years actually covering Investor Relations at AAR. And as many of you know, I actually left AAR about 20 months ago. I had a very unique opportunity to go to an operational role outside of the industry. And while I was gone, I sort of was able to observe from afar, this team really kind of accelerate its pace of execution. And it was exciting to see when the opportunity came up to come back in this role, I was excited to rejoin the team and really be part of the momentum that we are continuing to drive here. So with that, I will start with a few key points. First, over the last several years, we have delivered consistent and exceptional financial results. That's across sales, margin expansion and adjusted EPS growth. Second, we've done that while demonstrating balance sheet flexibility and strength, and we're very well positioned to continue to fund our growth. Third, we've been using M&A successfully as a tool to support execution of our strategy and to add to shareholder value creation, and we expect to continue to do so. Finally, as I just said, we have been executing at an accelerated rate, and we plan to continue to do that to drive further growth and margin expansion and deliver additional cash conversion. I want to take a minute to summarize further the actions we've taken over the past several years. We've added differentiated capability through acquisitions in each of parts, repair and software that have bolstered our integrated business model and improved our financial performance. We've simplified and strengthened the portfolio by exiting or restructuring operations that were underperforming or did not fit our model. So that's airlift, composites, landing gear and most recently, commercial programs. Finally, we've extended our leadership position organically by strengthening our core activities, particularly in distribution and airframe MRO, where we have continued to innovate our offerings and drive efficiency. And it has resulted, as I said, in exceptional financial performance. Since FY '22, we have grown sales at a 15% CAGR. We have grown adjusted EBITDA at a 26% CAGR. We've expanded adjusted EBITDA margin by 350 basis points, and we have grown adjusted EPS at a 19% CAGR. We've been doing what we said we would do, and it has translated into results. We've done that while keeping our balance sheet strong. We ended Q3 with less than 2.2x net debt to adjusted EBITDA. We have over $800 million of liquidity and no near-term maturities. Our leverage is within our target range of 2 to 2.5x. Turning to cash. Improving our conversion from adjusted EBITDA to cash from operations is a key priority. We've already set ourselves up to be more cash generative through our portfolio actions. As we grow our more cash-generative activities and importantly, drive higher inventory turns in certain of our businesses and lower AAR days, we expect to drive further cash conversion. We're targeting run rate operating cash as a percentage of EBITDA by 30% plus by 2029, and expect to ramp to that level over the 3-year window. Our capital allocation priorities have not changed. First, we're going to continue to invest in organic growth. That means supporting new distribution wins, additional repair capability and have warranted capacity, PMA or proprietary parts development and building out our software platform. Second, as I mentioned, we'll continue to use M&A as a tool to accelerate execution of our strategy. We'll continue to be disciplined, both strategically and financially as we do it, and I'll touch on that further in a few minutes. Third, we'll continue to prioritize a strong balance sheet with a target leverage ratio of 2 to 2.5x, as I mentioned, with willingness to go higher temporarily to support M&A and then rapidly delever, which we have demonstrated the ability to do. And finally, we will look to return capital to shareholders through share repurchase opportunistically. I want to spend a moment on where we are in terms of being able to create value through M&A. We've done 6 acquisitions over the last 3 years. They've added margin, growth and scale. Importantly, they've accelerated the build-out of our parts, repair and software platform and all are on track to generate returns in excess of the cost of capital. At the same time, we've developed a reputation as an acquirer that can be trusted to execute in a fair way. And as a result, we've become a buyer of choice in the market, which positions us favorably to continue to use M&A as a tool to drive execution and shareholder value creation. Importantly, we've also exited a number of businesses over the last few years that were either not core or not meeting our return thresholds. The result is a simplified, enhanced and higher-performing portfolio today. In terms of our M&A approach going forward, we will continue to be disciplined, as I mentioned. We'll focus on the 3 key legs of our platform. So in parts, that will be distribution, which could be new end markets or new product lines. In repair, that could be capability, capacity or improved cost position. In software, we'll look to continue to expand our offering. Strategically, anything that we do has to accelerate execution against our overall strategic objectives. We want to add differentiated capabilities or offerings that complement what we have. And accordingly, there have to be clear synergy opportunities. Financially, we will target accretion to both growth and margin. Of course, any acquisition must have expected returns in excess of the cost of capital. And finally, we'll prioritize targets with strong cash flow profiles. Turning to the financial framework that John introduced earlier in the presentation. With respect to sales, we're targeting a CAGR of 6% to 10% over the 3-year window off of a full year FY '26 base. Excluding commercial programs, which we will be winding down over this time frame, we are targeting an 8% to 12% CAGR. In both cases, we would expect growth next year to be around the top end of those ranges as we get a full year of the FY '26 acquisitions. We are targeting adjusted EBITDA margin by FY '29 of 13-plus percent and excluding commercial programs, 13% to 14% plus. We're targeting adjusted EPS CAGR of 15%. And as I mentioned earlier, we're targeting operating cash as a percentage of EBITDA of 30% plus. Note that over a short measurement period, that metric will vary, particularly as we make strategic growth investments in inventory. This framework does not reflect any additional M&A, which would be upside opportunity. Regarding the drivers of our growth, they will come from each of our Parts Supply; Repair, Engineering & Software; and Government businesses. Our commercial growth is supported by extremely resilient demand for air travel and aircraft fleet age that is expected to remain elevated well beyond the forecast period, which supports continued demand for Parts and Repair. We expect to continue to get above-market growth in distribution as that offering continues to resonate with OEMs, as Frank described. We expect continued penetration by our software offerings. As Airframe MRO efficiency continues to increase, that creates growth capacity. We have capacity today to do more component MRO volumes. And finally, our government businesses are well supported by the administration's prioritization of operational readiness, as Nick described. In terms of potential headwinds, I'll note this does not assume any meaningful impact from elevated fuel prices, although so far, that is not something our customers are seeing or expecting or seeking to pass to us. Finally, turning to our margin expansion walk. First, mix shift. That means mix shift towards higher-margin parts, software and component repair work, as well as improved mix within Government Solutions, as Nick described, which we're already starting to see. Second, more efficiency in the hangar, as Tom described. That includes completing our work at Greensboro, closing Indianapolis, and rolling paperless out to the rest of our facilities. And then finally, we expect to continue to leverage our fixed cost base through scale and growth. Based on those growth drivers, excluding commercial programs, which we expect to still be in the process of winding down in FY '29, we are targeting 13% to 14% plus adjusted EBITDA margin. And with that, we will turn to another round of Q&A.

As they get the chairs set up here, just a reminder to please state your name before you ask the question.

I'd like to point out that Dylan and I completely coordinated our outfit today for everybody. It shows you how aligned we are as a team.

All right, who wants to go first?

So, Dylan, you touched on CapEx to sales or CapEx ratio -- sorry... [indiscernible] Can you touch on -- you said 30% operating cash flow, I guess, EBITDA, but can you touch a little bit on the implied CapEx to sales or total CapEx dollar that you kind of expect over that period and the shape of it?

Sure. So CapEx is not part of that, that the guidance is related to cash from operations. We've historically not been a particularly intensive CapEx business. We run kind of between 1% and sometimes up to 1.5% of sales. So I'd expect that to continue generally going forward. We don't have particular CapEx requirements. As I mentioned, the efficiency in the hangars actually create additional capacity there. We have additional capacity in the component repair shops. So I expect to continue to run at that level.

Josh Bennett with Weatherbie Capital. Could you talk a little bit more about Trax? You're talking about and we heard on the government side that there might be an opportunity there. So what are the discussions that have happened with Trax so far with the Department of War and other parts of the government? And then what are they using today? We talked about these ancient systems. I imagine the government may be more ancient still. So just talk about what are they using today? What discussions have happened? And what would you need to do to Trax to kind of make it meet government demands?

Sure. I don't necessarily want to get into too much of the discussions happen today, but currently, the Air Force -- I'll talk about the Air Force first. The Air Force, I think, has been on a 10-year implementation of a software system that I don't think has ever fully been implemented. So I think they've had 2 iterations now of basically trying to implement something that hasn't worked -- hasn't necessarily worked out. I will say that the Air Force and specifically Department of Water as they look to the commercial industry, one of the companies that they revere and look up to is Delta, right? And they say, how do we -- how can we treat our aviation assets and look and act more like Delta. When we announced the Delta win through that Trax recently had, they actually reached out to us and talk about the Trax platform. And I guess I'll leave it there for right now, but we just do think there's great opportunity because they have a need for it, and we have a great product.

Kyle Wenclawiak, Jefferies. Within the sort of 100 bps of margin expansion that you have planned in there over the forecast period, it seems like the largest lift is probably in heavy MRO as well as software. So when you think of sort of the composite of what is contributing to the expansion. Can you sort of bucket that between the segments and where you think the greatest areas of opportunity are?

Yes. As you said, it actually comes in all of the segments. With parts that probably have the greatest opportunity for growth driven by distribution, that's among our highest margin activities, airframe efficiencies, as I said, in repair as well as growth of the component work. And in Government Solutions, although we've already seen some of this, we haven't fully seen the mix shift that Nick described. So it will come from all the segments.

Sheila Kahyaoglu with Jefferies, and I'm going to follow up on Kyle's question. Can you -- just specifically on the airframe MRO? Can you talk about the heavy maintenance? And I know that maybe it has more labor hours than the component, but how do you think about low double digits ever getting to high teens? And what's the runway for component MRO?

I make sure I understand the question. You're asking about the potential for margin expansion at Airframe?

Within Airframe on the heavy checks, where can those low double-digit margins go again?

Yes. So low teens margin. Can we get into mid-teens margin in the Airframe business? We believe so. And so that is continued rollout of our paperless system that's leveraging the expansion over the fixed cost base, completing the integration of HAECO, and making sure that we're attracting the right work. In other words, not all heavy maintenance visits are created equal, we want to make sure that we are getting those that allow us the greatest opportunity from a margin perspective, and that is an ongoing dialogue with the customer. Our customers use multiple providers. They send out lots of different work to each of those providers, and we want to make sure that the best work is coming to us. And we earn that through performance. So if we're turning aircraft faster than everybody else at the highest level of qualities, we're going to get rewarded with better mix shift. So all of those things -- and Sheila, you and I have talked about this, heavy maintenance has come a long way, particularly for us. I mean this is a critical service. The engine guys and their overhaul shop, they get a lot of attention, but airframe heavy maintenance is a critical service, and we are a critical partner to the airlines. And as we've seen only recently -- only recently, we've seen that they will pay more for performance. And so we're counting on getting some price over time as well. So short answer to your question is, yes, we see opportunity ultimately to get that business to the mid-teens. And then on components, similarly, we are operating. If you look at our shops right now, we're at about 1.25, 1.5 shifts per shop. And so we've got capacity to essentially double throughput through our fixed cost base, and that's a higher margin gross margin activity than heavy maintenance. And so as we increase throughput, we could see high teens margins getting into the low 20s. Ken, I keep waiting.

Ken Herbert with RBC. I'll ask a high-level growth question, but I'd be really interested, particularly in the parts supply business and sort of the underlying assumptions for distribution relative to USM in terms of growth and how to think about that? Because I think the high-level number implies clearly some normalization of what's been probably one of your fastest-growing businesses over the last few years as we think about that over the next few years. So how should we think about parts supply in particular and the pieces within that?

Yes. So the growth is coming from distribution. USM is a business we're very happy with it. As I mentioned, there's a lot of ties with USM to the other businesses that keeps us really in touch with the markets. But in terms of growth, we can expect very modest growth in USM. What you would get out of USM over time is margin expansion. Margins in USM are about half of what they normally would be, and that's because material is so tight and it costs so much to acquire material that you eventually sell. So we would expect margin improvement in USM, not necessarily a lot of growth. And then your point on growth from distribution, it is true. I mean we've been putting up some very impressive numbers, we believe, 25% to 30% organic growth. It's north of $1 billion business now. So you start to lap some tougher comps, but we would absolutely expect our distribution business to continue to grow at meaningfully above market rates.

And just real quick within that, what's the underlying assumption for like sort of new distribution contracts relative to sort of same-store sales, so to speak?

Yes. At this point, I would say, and I think it's consistent with the last couple of quarters, we're about half same-store sales, call it, 40% from the ramp-up of new contracts and then the balance is price.

Michael Leshock, KeyBanc. You talked about the divestitures and winding down this commercial business. Do you see more room to go on that front? And if so, is there incremental? Could that -- is that incorporated in your guidance at all for the long-term targets?

Yes. I would say from the portfolio, we are always evaluating the portfolio. 15 years ago, commercial programs was a growth area for us. That market moved away and the returns no longer met our thresholds. So this was an action we decided to take. And as you can see in the numbers, it's going to be accretive in all respects. In terms of the remaining portfolio, at this point, we feel like we're in a pretty good spot. Again, we're always evaluating things, but we've dealt with the significant areas of the portfolio that are a drag on our returns. I'll answer this just because I know it's on everybody's mind. The Mobility Systems business, the manufacturing business that we have, that's a good business. It's good cash flow. It's good margins. It doesn't require a lot of management time. To remind everybody, that's a legacy manufacturing business where we manufacture shelters, pallets and containers. It's 100% U.S. They perform well for the government. And as you've seen from recent press releases, they're getting a lot of orders right now as a result of what's going on. So even though it doesn't fit neatly on the page, it's a good business to be in, and it's not dilutive to us in any way as the businesses were that we've gotten out of.

Scott Mikus from Melius Research. John, Dylan, quick question. What is the revenue right now for Aircraft Reconfig? What's the EBITDA margins? What is the growth outlook and margin expansion there over the 3-year targets? And how should we be thinking about the cadence of expanding the PMA catalog there?

I think, we haven't disclosed Aircraft Reconfig financial specifically, so I probably won't get into that. I think you can think about it broadly as both a higher margin and higher growth business than much of the rest of the portfolio. John, do you want to talk about expansion on proprietary elements?

Growth opportunity. So we bought the business with a very healthy backlog and a built-in ramp to revenue that's meaningful. Again, it's small relative to the total, but as a percentage, it actually is expected to ramp up really nicely over the next couple of years based on work they've already done. But similar to our other businesses, we made the acquisition because we believe we can open doors for them. And we believe that their technology, their capabilities are significant, and we believe we can introduce them to other customers around the world. And as Dylan pointed out, this is good high-margin work. Going back to your point on PMA opportunity, that is something -- I mean, we sell parts. We have an incredible commercial front end and defense front end to put parts out. We like keeping PMA in the portfolio because it's very, very high margin. The ART acquisition will accelerate our ability to develop more PMAs. Even so, it is a -- it will remain a small part of the revenue for some time as we ramp.

Any further questions?

Matthew Hayes with G2 Investment Partners. You've been pretty clear about having a line of sight for Trax going from $50 million in revenue to $100 million with all we've learned about software today with Airvoyant? And how should we think about the software growth algorithm once you hit the $100 million fee?

Yes. I mean we -- I think I've said publicly that we see -- we've doubled it since we've added from $25 million to $50 million. You just said we've got a clear path to go from $50 million to $100 million. And based on what we see, we see a path to go from $100 million to $200 million. And the $50 million to $100 million is that's kind of already captured. That's upgrading new -- existing customers to eMRO. It's ramping the implementations that we've already won. That gets you there. What we're able -- we didn't talk about the business model -- specific business model for Airvoyant. Our goal right now is to get it out there and get users, thousands of users at airlines around the world using this platform and transacting this platform. We want this to be the standard by which airlines are making purchase decisions and buying parts. And ultimately, we see this as a -- I hate the term, but it's accurate, a marketplace model where you've got subscription fees by buyers and transaction fees by sellers. And certainly, we've got our own internal models of what that could be, but it's very, very early days. As you heard from Andy, we're extremely encouraged by the response that we got both in terms of saying, yes, that is a problem that needs to be solved. And then the next question was, okay, great, but can it also do this? Can it also do this? Can it also do this? And then the second thing, we weren't sure how this was going to go over was -- and I don't think it would have been this way a year ago. I think we came out with this at just the right time. Airlines looking at this going, I'm willing to turn key purchasing decisions over to an Agentic purchasing agent. I'm willing to do that. I don't think we were there a year ago. The conversations we've had with airlines is kind of like, yes, all right, let's try this out. And so that's encouraging. But just to go back to your question, all of those things, those new offerings, the scaling of Aerostrat would contribute to go from $100 million to $200 million.

Yes, John, just to follow up on the software offering, the whole story when you bought Trax was it had underinvested for several years. You put a lot of money into Trax, you really upgraded the offering. And since then, you've seen sort of a real acceleration in market adoption. Where are you today with the broader software package in terms of the competitive position? Are there more sort of significant upgrades you need to make? Or should this really be a real sort of accelerator from a margin standpoint as you go from $50 million to $100 million from a revenue side?

Yes. We believe that we have the best offering in the market. Since we have made these investments -- since we made the acquisition and made the subsequent investments, our win rate has been materially higher. And it's hard to explain the significance of the Delta win. I mean that opens so many doors for us. And the cool thing is Delta has been a willing advocate out there for us in the market. We were concerned that some of our existing customers when we won Delta, we're going to be like, "Oh, wow, I'm worried that Trax resources are now going to be diverted towards Delta as opposed to me an existing customer. It's actually the opposite because those customers know that we are building new additional functionality for Delta that they will ultimately benefit from. So the profile of Trax and the fact that we're spending, I mean, think about this. I mean 3 years ago, we had this meeting here. We had just bought the company. I don't believe any notes that came after our Analyst Day mentioned Trax. And now it's at the forefront or a key point. So we're excited about the market adoption. In terms of building the program out, we -- there are still investments that we need to make. Obviously, Airvoyant is just launched, and we got a ton of feedback over the last couple of weeks of, okay, this is awesome, but what else can it do that's going to require more investment. Similarly, as we enter into the remaining stages of Delta implementation, we'll be investing in Delta and capability for Delta, but then we can then sell it to other customers. So a lot of work has been done, but this is a situation where the more we get into it, the more opportunity that we see.

Any further questions? All right. Maybe with that, I'll take it back to you, John, for concluding comments.

Sure. I would just say that very happy that everybody joined us here today. It's great to be back in New York and kind of tell the full story. I know we've had lots of meetings with all -- many of you over the last several months talking about the Parts, Repair and Software strategy. It was great to be together and bring it home all in one place and talk about the way our businesses work together. Hopefully, it's coming through that the changes that we've made to the company are structural and durable and will continue to drive improved growth and improved margins. And we're very happy that you were here and appreciate the interest and support. So thanks.