AAR Corp. (NYSE:AIR) Q1 2021 Earnings Conference Call - Final Transcript

Sep 24, 2020 • 04:45 pm ET

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AAR Corp. (NYSE:AIR) Q1 2021 Earnings Conference Call - Final Transcript

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Presentation
Executive
John M. Holmes

warranty and value engineering services.

In addition to the wins this quarter, we saw stabilization in certain of our businesses. Our order volume in trading and distribution were consistent throughout the quarter at a level above what we saw in April and May, but well below pre-COVID levels.

In our MRO business, as we head into the fall, we incurred -- we are encouraged by the loading we expect to see in our hangars. While our customers continue to operate in an uncertain environment and their maintenance schedules could change, the early indications are positive relative to our earlier expectations. We are in a constant contact with our commercial customers globally and are continuing to look for ways to support them during this difficult time.

In our Government business, where we saw growth during the quarter, we continue to pursue new opportunities and the pipeline remains full.

With that, I'll turn it over to our CFO, Sean Gillen.

Executive
Sean Gillen

Thanks, John. As John mentioned, we continue to take action to reduce our costs and exit underperforming activities in the quarter. These actions and other items resulted in predominantly non-cash pretax charges of $37.3 million.

Also, as previously disclosed, we received financial aid under the CARES Act in the quarter. The total amount received was $57.2 million, of which $48.5 million was a grant and $8.7 million was a low interest pre-payable loan.

In the quarter, we utilized $8 million of the CARES Act grant and $3 million of other non-U.S. government labor subsidies for a total of $11 million. This amount is included in the GAAP income statement but excluded from adjusted earnings.

As of the quarter-end, the unutilized portion of the grant was $40.8 million, which was recorded as a current liability. This amount will flow through the P&L, as it is utilized, which we expect to be complete by mid-Q4.

Turning to some additional financial detail in the quarter. SG&A expense was $45.3 million for the quarter. On an adjusted basis, SG&A was $39.7 million, down $10.5 million from the prior year quarter, which reflects the reduction of our overhead cost structure.

In the quarter, adjusted SG&A as a percentage of sales was 9.9%. Net interest expense for the quarter was $1.6 million compared to $2.1 million last year, which reflects the lower interest rate in the period.

During the quarter, we generated $39.8 million of cash in our operating activities from continuing operations. This includes the $48.5 million grant portion of the CARES Act funding and a net use of cash of $18.6 million, as we reduce the level of our accounts receivable financing program.

Excluding the CARES Act and accounts receivable financing program impacts, cash flow provided by operating activities from continuing operations was $9.9 million. Additionally, as we are focused on lowering our working capital, we were able to reduce inventory by $19 million during the quarter.

Also, we repaid $355 million of our revolving credit facility during the quarter. We had previously drawn the full