Quarterly Report for Quarter Ending August 31, 2025 (Form 10-Q)

Management's Discussion and Analysis of Financial Condition and Results of Operations (Dollars in millions)

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General Overview and Outlook

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We report our activities in four business segments:

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Our chief operating decision making officer ("CODM") is our Chief Executive Officer and he evaluates performance on our operating segments using operating income as the primary profitability measure. Our operating segments are aligned principally around differences in products and services. The Company has not aggregated operating segments for purposes of identifying reportable segments. Inter-segment sales are recorded at fair value which results in intercompany profit on inter-segment sales that is eliminated in consolidation. Corporate selling, general and administrative expenses include centralized functions such as legal, finance, treasury and human resources with a portion of the costs allocated to our operating segments.

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During the first quarter of fiscal 2026, we executed a restructuring plan to streamline operations and reduce costs. As part of this plan, we eliminated approximately 60 positions and recognized severance charges of $1.0 million.

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Parts Supply

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Our Parts Supply segment primarily consists of sales and leasing of USM and aftermarket distribution of new, original equipment manufacturer ("OEM")-supplied replacement parts.

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USM is an important category of the aviation aftermarket in which parts removed from engines or airframes can be refurbished to be utilized as replacement parts in the aftermarket. We utilize a network of third-party repair facilities to perform this work. USM parts often represent a cost-effective and more timely solution for operators when compared to sourcing new parts.

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We also distribute new OEM-supplied replacement parts to aircraft operators, airlines, government customers and other MRO companies across the world. Our parts are supplied to narrow-body, wide-body and regional aircraft. In most cases, we enter exclusive relationships with OEM manufacturers for a given market where we are the only provider of that supplier's product category. We provide global scale, independence, and highly technical sales capabilities across both commercial and government end-markets.

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Repair & Engineering

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Our Airframe MRO services are primarily comprised of major airframe inspection, maintenance, repair, and overhaul services, painting services, line maintenance, airframe modifications, structural repairs, avionics service and installation, exterior and interior refurbishment and engineering services and support for many types of commercial and military aircraft. Component Services are primarily comprised of MRO services for structural components, engine and airframe accessories, and interior refurbishment.

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We are currently expanding both our Miami and Oklahoma City airframe maintenance facilities to meet growing customer demand. In Miami, we are constructing a 114,000 square foot facility with three bays adjacent to our existing hangar. In Oklahoma City, we are constructing an 80,000 square foot facility with three bays and warehouse space adjacent to our existing hangar. The Oklahoma City expansion is expected to be complete in early calendar 2026 and the Miami expansion is expected to be complete in mid-to-late calendar 2026.

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In fiscal 2025, we sold our Landing Gear Overhaul ("LGO") business to GA Telesis for net proceeds of $48 million subject to post-closing adjustments for working capital, cash, and debt. We recognized a loss on the divestiture of $71.1 million which included goodwill of $14.6 million.

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Our Repair & Engineering segment also develops Parts Manufacturer Approval ("PMA") parts for aftermarket applications. PMA is a designation under Federal Aviation Administration ("FAA") regulations that permits the design of approved parts for specific aircraft components that can be provided by non-OEM sources at cost-efficient and sometimes improved availability.

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Integrated Solutions

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Our Integrated Solutions segment primarily consists of our fleet management and operations of customer-owned aircraft, customized performance-based supply chain logistics programs in support of the DoD and foreign governments, flight hour component inventory and repair programs for commercial airlines and integrated software solutions including Trax.

Fleet management and operations of customer-owned aircraft is performed for the DoS under the INL/A WASS contract. We are the prime contractor on this ten-year performance-based contract which began in fiscal 2018. Our services under the contract include operating and maintaining the global DoS fleet of fixed- and rotary-wing aircraft.

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Supply chain logistics programs are primarily comprised of material planning, sourcing, logistics, information and program management and parts and component repair and overhaul. Flight hour component inventory and repair programs for commercial airlines are primarily comprised of outsourcing programs for airframe parts and components including warranty claim management in support of our airline customers' maintenance activities.

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Our integrated software solutions are primarily comprised of our Trax software which we acquired in fiscal 2023. Trax has the first fully cloud-based electronic enterprise resource platform for the MRO industry and also offers a full suite of "paperless" mobility apps that are in process of automating MRO workflows with artificial intelligence. In addition, we acquired Aerostrat, a leading long-range maintenance planning software company, in the first quarter of fiscal 2026 for a purchase price of $15 million plus contingent consideration of up to $5 million.

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Expeditionary Services

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The Expeditionary Services segment primarily consists of products and services supporting the movement of equipment and personnel by the U.S. and foreign governments and non-governmental organizations. We design, manufacture, and repair transportation pallets and a wide variety of containers and shelters used in support of military and humanitarian tactical deployment activities. The containers and shelters are used in numerous mission requirements, including armories, supply and parts storage, refrigeration systems, tactical operation centers, briefing rooms, laundry and kitchen facilities, water treatment, and sleeping quarters. Shelters include both stationary and vehicle-mounted applications. We also provide engineering, design, and system integration services for specialized command and control systems.

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Over the long-term, we expect to see strength in our aviation products and services given our offerings of value-added solutions to both commercial and government and defense customers. We believe long-term commercial aftermarket growth trends are favorable. As we continue to invest in the pipeline of opportunities in the government market, our long-term strategy continues to emphasize investing in the business and capitalizing on opportunities in both the commercial and government markets.

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Discussion of Results of Operations

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Consolidated sales for the first quarter of fiscal 2026 increased $77.9 million, or 11.8%, over the prior year quarter primarily due to an increase in sales to commercial customers. Consolidated sales to commercial customers increased $50.4 million, or 10.7%, over the prior year quarter primarily due to strong demand and volume growth in our Parts Supply segment from both our new parts Distribution and USM. Our consolidated sales to government customers increased $27.5 million, or 14.6%, primarily due to volume growth in our Parts Supply segment from new parts Distribution activities.

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Consolidated cost of sales increased $61.4 million, or 11.3%, over the prior year quarter which was largely in line with the consolidated sales increase of 11.8% discussed above.

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Consolidated gross profit for the first quarter of fiscal 2026 increased $16.5 million, or 14.1%, over the prior year quarter. Gross profit on sales to government customers increased $19.8 million, or 81.1%, with the gross profit margin increased to 20.4% from 12.9% in the prior year quarter. These increases across government customers are primarily attributable to strong demand and volume growth for our new parts Distribution activities.

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Gross profit on sales to commercial customers decreased $3.3 million, or 3.6%, from the prior year quarter with the gross profit margin decreased to 17.1% from 19.6%. These decreases are primarily due to lower profitability in our power-by-the-hour programs activities.

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Selling, General, and Administrative Expenses

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Selling, general and administrative expenses decreased $4.7 million, or 6.2%, from the prior year quarter primarily due to the FCPA matters which were settled in the second quarter of fiscal 2025.

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As a percent of sales, selling, general and administrative expenses decreased to 9.6% from 11.5% in the prior year primarily due to settlement of the FCPA matters.

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Interest Expense

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Interest expense remained consistent at $18.8 million in the first quarter of fiscal 2026 compared to the prior year quarter reflecting the impact of lower interest rates offset by higher average borrowings used to fund inventory and other investments in the business. Our average borrowing rate on our Revolving Credit Facility was 6.14% in the first quarter of fiscal 2026 compared to 6.80% in the prior year quarter.

Income Taxes

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Our effective income tax rate for continuing operations was 26.8% for the first quarter of fiscal 2026 compared to 27.7% in the prior year quarter. The decrease in the effective tax rate was primarily attributable to higher tax benefits from stock compensation in fiscal 2026.

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Operating Segment Results of Operations

Three-Month Periods Ended August 31, 2025 and 2024

Parts Supply Segment

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Sales in the Parts Supply segment increased $68.1 million, or 27.3%, over the prior year quarter primarily due to double-digit increases in both our new parts Distribution activities which increased 23.9% and in our USM activities which increased 32.1%. Whole asset sales in our aftermarket parts trading activities increased $27.8 million in the first quarter of fiscal 2026 over the prior year quarter.

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Operating income in the Parts Supply segment increased $10.8 million, or 35.9%, over the prior year quarter, primarily due to volume growth in our new parts Distribution activities.

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Repair & Engineering Segment

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Sales in the Repair & Engineering segment decreased $3.0 million, or 1.4%, from the prior year quarter primarily due to the divestiture of our LGO business in the fourth quarter of fiscal 2025. The LGO business contributed sales of $19.2 million in the first quarter of fiscal 2025. In addition, sales increased $13.2 million at our airframe maintenance facilities in the first quarter of fiscal 2026 over the prior year quarter.

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Operating income in the Repair & Engineering segment decreased $0.7 million, or 3.3%, from the prior year quarter primarily due to lower profitability in our Component Services activities. Operating margin decreased to 9.5% from 9.7% in the prior year quarter, reflecting the lower profitability in our Component Services activities.

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Integrated Solutions Segment

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Sales in the Integrated Solutions segment increased $16.1 million, or 9.5%, over the prior year quarter primarily due to higher government program activity.

Changes in estimates and assumptions related to our arrangements accounted for using the cost-to-cost method are recorded using the cumulative catch-up method of accounting. In the first quarter of fiscal 2026, we recognized no cumulative catch-up adjustments compared to favorable cumulative catch-up adjustments of $2.4 million in the prior year quarter. These adjustments primarily relate to our long-term, power-by-the-hour programs where we provide component inventory management and repair services.

Operating income in the Integrated Solutions segment increased $2.0 million, or 26.0%, over the prior year quarter and the operating margin increased to 5.2% from 4.6%. These increases were primarily attributable to our government programs activity and its sales growth as well as higher profitability from the mix of products and services.

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Expeditionary Services Segment

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Sales in the Expeditionary Services segment decreased $3.3 million, or 12.9%, from the prior year period. During the first quarter of fiscal 2025, our Next Generation Pallet contract was terminated for convenience by our U.S. Government customer and we recognized sales of $9.5 million in that period reflecting our estimated recovery on our incurred costs. This sales decrease from the prior year period was partially offset by sales growth across multiple product lines including pallets, containers, and shelters.

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Operating income in the Expeditionary Services segment increased $4.7 million, or 276.5%, over the prior year quarter primarily due to the prior year impact of the termination of the Next Generation Pallet contract. In conjunction with the termination, we expensed equipment and inventory of $12.7 million and recognized a contract asset of $9.5 million reflecting the estimated recovery on our incurred costs. Operating margin increased to 13.5% from (6.7)% in the prior year quarter, primarily due to the prior year contract termination.

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Liquidity, Capital Resources and Financial Position

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Our operating activities are funded and commitments met through the generation of cash from operations. Our ability to generate cash from operations is influenced primarily by our operating performance and changes in working capital. In addition to operations, our current capital resources include an unsecured revolving credit facility under the Credit Agreement referred to below and an accounts receivable financing program. Periodically, we may also raise capital through common stock and debt financings in the public or private markets. We continually evaluate various financing arrangements, including the issuance of common stock or debt, which would allow us to improve our liquidity position and finance future growth on commercially reasonable terms. Our continuing ability to borrow from our lenders and issue debt and equity securities to the public and private markets in the future may be negatively affected by a number of factors, including the overall health of the credit markets, general economic conditions, airline industry conditions, geo-political events, our debt service obligations, and our operating performance.

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At August 31, 2025, our liquidity and capital resources included working capital of $1,028.4 million inclusive of cash of $80.0 million. We expect that our cash on hand, coupled with future cash flows from operations and other available sources of liquidity discussed below, will provide ample liquidity to enable us to meet our cash requirements for at least the next 12 months and foreseeable future thereafter.

Borrowings

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On March 1, 2024, we entered into an amendment (the "Revolver Amendment") to our Credit Agreement, which governs the Company's existing revolving credit facility (the revolving credit facility as amended by the Revolver Amendment, the "Amended Revolving Credit Facility"). Among other things, the Revolver Amendment (i) increased the aggregate commitments under the Amended Revolving Credit Facility to $825.0 million from $620.0 million under the Revolving Credit Facility, (ii) increased the maximum leverage ratio permitted under the financial covenants applicable to the Amended Revolving Credit Facility and (iii) included an additional pricing level that increases the interest rate margins on the Amended Revolving Credit Facility to 250 basis points (in the case loans based on the secured overnight financing rate ("SOFR")) and 150 basis points (in the case of Base Rate loans) if our adjusted total debt to EBITDA ratio exceeds 3.75:1.00.

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Under certain circumstances, we may request an increase to the lending commitments under the Credit Agreement by an aggregate amount of up to $300 million, not to exceed $1,125 million in total. The Credit Agreement expires on December 14, 2027. Borrowings under the Credit Agreement bear interest at a variable rate based on SOFR plus 112.5 to 250 basis points based on certain financial measurements if a SOFR loan, or at the offered fluctuating Base Rate plus 12.5 to 150 basis points based on certain financial measurements if a Base Rate loan.

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At August 31, 2025, borrowings outstanding under the Amended Revolving Credit Facility were $330.0 million and there were approximately $9.1 million of outstanding letters of credit, which reduced the availability under this facility to $485.9 million. There are no other terms or covenants limiting the availability of the Amended Revolving Credit Facility. As of August 31, 2025, we also had other financing arrangements that did not limit availability on our Amended Revolving Credit Facility, including foreign lines of credit of $10.0 million.

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On March 1, 2024, we issued $550.0 million aggregate principal amount of 6.75% Senior Notes due 2029 (the "Notes") to fund a portion of the purchase price for the acquisition of the Product Support business. The Notes bear interest at a rate of 6.75% per year, payable semiannually in cash in arrears on March 15 and September 15 of each year, commencing September 15, 2024. The Notes will mature on March 15, 2029.

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At any time prior to March 15, 2026, the Company may redeem the Notes, in whole or in part, at a redemption price equal to 100% of the principal amount of the Notes to be redeemed, plus accrued and unpaid interest, if any, to, but excluding, the redemption date plus an applicable "make-whole" premium. At any time prior to March 15, 2026, the Company may also redeem up to 40% of the Notes with net cash proceeds of certain equity offerings at a redemption price equal to 106.75% of the principal amount of the Notes to be redeemed, plus accrued and unpaid interest, if any, to, but excluding, the redemption date. On or after March 15, 2026, the Company may redeem the Notes, in whole or in part, at specified redemption prices ranging from 100.000% to 103.375% depending on the date of redemption.

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On August 14, 2025, we issued an additional $150.0 million aggregate principal amount of our Notes (the "Additional Notes"). Other than with respect to the date of issuance and the offering price, the Additional Notes have the same terms as the Notes. Debt issuance costs of $2.5 million were incurred in connection with the Additional Notes which were issued at an original issuance premium 102% of their principal amount, or $3.0 million.

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Our financing arrangements require us to comply with leverage and interest coverage ratios and comply with certain affirmative and negative covenants, including those relating to financial reporting and notification, compliance with applicable laws, and limitations on additional liens, indebtedness, acquisitions, investments and disposition of assets. Our financing arrangements also generally require our significant domestic subsidiaries to provide a guarantee of payment. At August 31, 2025, we were in compliance with the financial and other covenants under each of our financing arrangements.

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Sale of Receivables

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We maintain a Purchase Agreement with Citibank N.A. ("Purchaser") for the sale, from time to time, of certain accounts receivable due from certain customers (the "Purchase Agreement"). Under the Purchase Agreement, the maximum amount of receivables sold is limited to $150.0 million and Purchaser may, but is not required to, purchase the eligible receivables we offer to sell. The term of the Purchase Agreement expires after February 22, 2026, but, the Purchase Agreement may be terminated earlier under certain circumstances. The term of the Purchase Agreement is automatically extended for annual terms unless either party provides advance notice that they do not intend to extend the term.

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We have no retained interests in the sold receivables, other than limited recourse obligations in certain circumstances, and only perform collection and administrative functions for the Purchaser. We account for these receivable transfers as sales under Accounting Standards Codification 860, Transfers and Servicing, and de-recognize the sold receivables from our Condensed Consolidated Balance Sheet. At August 31, 2025, we have utilized $21.0 million which reduced the availability under the Purchase Agreement to $129.0 million.

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Customer Matters

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During fiscal 2024, we experienced delayed collections from one of our significant regional airline customers and issued the customer a Notice of Payment and Other Defaults during the second quarter of fiscal 2024 to request payment and reserve our rights under our agreements. In the fourth quarter of fiscal 2024, we terminated a power-by-the-hour ("PBH") program with this customer which resulted in a net termination charge of $4.8 million. The charge included a reduction in contract assets and revenue of $7.8 million and the establishment of repair reserves of $2.5 million partially offset by a $5.5 million gain recognized from the customer's obligation to purchase the rotable assets we utilized to perform the PBH services. In conjunction with the termination for default, the customer is obligated to purchase the rotable assets and we sold the assets to the customer in the fourth quarter of fiscal 2025 for $18.7 million.

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We expect full payment from the customer of all amounts due under the terminated agreement and all other agreements and do not believe a reserve for credit loss is warranted. Our Condensed Consolidated Balance Sheet as of August 31, 2025 included accounts receivable of $33.5 million, including $9.0 million past due, and contract assets of $3.2 million related to this customer.

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Stock Repurchase Program

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On December 16, 2021, our Board of Directors authorized a renewal of our stock repurchase program, under which we may repurchase up to $150 million of our common stock with no expiration date. No repurchases were made during the three-month period ended August 31, 2025. Since inception of the renewal authorization, we have repurchased 2.4 million shares for an aggregate purchase price of $107.5 million. The timing and amount of repurchases are subject to prevailing market conditions and other considerations, including our liquidity and acquisition and other investment opportunities.

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Cash Flows from Operating Activities

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Net cash used in operating activities was $44.9 million in the first quarter of fiscal 2026 compared to $18.6 million in the prior year quarter. The increase in cash used in operating activities over the prior year of $26.3 million was primarily attributable to working capital changes, including increased inventory investments in both new parts and used serviceable material in the current year.

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Cash Flows from Investing Activities

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Net cash used in investing activities was $23.8 million during the first quarter of fiscal 2026 compared to $5.3 million in the prior year period. The increase in cash used in investing activities over the prior year of $18.5 million was primarily related to the acquisition of the Aerostrat business in the first quarter of fiscal 2026.

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Cash Flows from Financing Activities

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Net cash provided by financing activities was $51.1 million during the first quarter of fiscal 2026 compared to cash used of $9.1 million in the prior year quarter. The increase in cash provided by financing activities over the prior year of $60.2 million was primarily related to net proceeds from incremental borrowings in the current year to finance the Aerostrat acquisition as well as inventory and other investments in the business.

Critical Accounting Policies and Significant Estimates

We make a number of significant estimates, assumptions and judgments in the preparation of our financial statements. See Management's Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended May 31, 2025 for a discussion of our critical accounting policies. There have been no significant changes to the application of our critical accounting policies during the first quarter of fiscal 2026.

Forward-Looking Statements

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This report contains certain forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements often address our expected future operating and financial performance and financial condition, or targets, goals, commitments, and other business plans, and often may also be identified because they contain words such as "anticipate," "believe," "continue," "could," "estimate," "expect," "intend," "likely," "may," "might," "plan," "potential," "predict," "project," "seek," "should," "target," "will," "would," or similar expressions and the negatives of those terms.

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These forward-looking statements are based on beliefs of our management, as well as assumptions and estimates based on information available to us as of the dates such assumptions and estimates are made, and are subject to certain risks and uncertainties that could cause actual results to differ materially from historical results or those anticipated, depending on a variety of factors, including: (i) factors that adversely affect the commercial aviation industry; (ii) adverse events and negative publicity in the aviation industry; (iii) a reduction in sales to the U.S. government and its contractors; (iv) cost overruns and losses on fixed-price contracts; (v) nonperformance by subcontractors or suppliers; (vi) our ability to manage our operational footprint; (vii) a reduction in outsourcing of maintenance activity by airlines; (viii) a shortage of skilled personnel or work stoppages; (ix) competition from other companies; (x) financial, operational and legal risks arising as a result of operating internationally; (xi) inability to integrate acquisitions effectively and execute operational and financial plans related to the acquisitions; (xii) failure to realize the anticipated benefits of acquisitions; (xiii) circumstances associated with divestitures; (xiv) inability to recover costs due to fluctuations in market values for aviation products and equipment; (xv) cyber or other security threats or disruptions; (xvi) a need to make significant capital expenditures to keep pace with

technological developments in our industry; (xvii) restrictions on use of intellectual property and tooling important to our business; (xviii) inability to fully execute our stock repurchase program and return capital to stockholders; (xix) limitations on our ability to access the debt and equity capital markets or to draw down funds under loan agreements; (xx) non-compliance with restrictive and financial covenants contained in our debt and loan agreements; (xxi) changes in or non-compliance with laws and regulations related to federal contractors, the aviation industry, international operations, safety, and environmental matters, and the costs of complying with such laws and regulations; and (xxii) exposure to product liability and property claims that may be in excess of our liability insurance coverage. Should one or more of these risks or uncertainties materialize adversely, or should underlying assumptions or estimates prove incorrect, actual results may vary materially from those described.

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For a discussion of these and other risks and uncertainties, refer to our Annual Report on Form 10-K, Part I, "Item 1A, Risk Factors" and our other filings from time to time with the SEC. These events and uncertainties are difficult or impossible to predict accurately and many are beyond our control. The risks described in these reports are not the only risks we face, as additional risks and uncertainties are not currently known or foreseeable or impossible to predict accurately or risks that are beyond our control or deemed immaterial may materially adversely affect our business, financial condition or results of operations in future periods. We assume no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.

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