Michael Leshock

Michael Leshock inquired about AAR's M&A strategy, asking if there are opportunities for further acquisitions in the next 6-12 months or if the focus will shift more towards integration. He also sought an update on the Trax customer upgrade cycle, including the percentage of customers upgraded and expected timing.

Answer

CEO John Holmes stated that M&A remains a key part of AAR's growth strategy, with several self-sourced opportunities actively being pursued. He emphasized balancing integration bandwidth with the desire to curate and close new deals. Regarding Trax, Holmes indicated that approximately 30%-35% of customer upgrades (agreed to but not fully implemented) are complete, with the goal to finish the bulk of these by the end of 2028.

Michael Leshock (KeyBanc Capital Markets Inc.) inquired about AAR's M&A pipeline and future acquisition opportunities over the next 6-12 months, considering recent acquisitive activity, and which segments might be targeted. He also requested an update on the Trax customer upgrade cycle, including the percentage of customers upgraded and the expected timing for further upgrades.

Answer

Chairman, President, and CEO John Holmes confirmed that M&A remains a key part of AAR's growth strategy, with several self-sourced opportunities being actively pursued, while also being mindful of integration bandwidth. He indicated that approximately 30%-35% of Trax customer upgrades have been agreed to or are underway, with a goal to complete the bulk of these by the end of 2028.

Michael Leshock inquired about AAR's updated fiscal year 2026 guidance, specifically if the company still expects to outgrow the market in distribution at a mid-teens rate, and the cross-selling opportunities within repair and engineering for component services.

Answer

Chairman, President, and CEO John Holmes affirmed the expectation to maintain above-market growth in distribution. Regarding cross-selling, he stated AAR is in the 'early innings' of leveraging heavy maintenance leadership to drive volume into component repair shops, with integration efforts recently completed and a long pipeline of opportunities ahead.

Michael Leshock (KeyBanc Capital Markets) asked for clarification on AAR's updated guidance for fiscal year 2026, specifically if the company still anticipates distribution activities to outgrow the market at a mid-teens rate, and sought insights into cross-selling opportunities within the repair and engineering segment, particularly for component services.

Answer

Chairman, President, and CEO John Holmes affirmed that AAR maintains its outlook for distribution, expecting it to continue growing above market. Regarding cross-selling, he stated that the company is in the "early innings" of leveraging its heavy maintenance leadership to drive volume into component repair shops, with the integration of product support acquisition now complete. He noted that while the sales cycle for component repair is longer than for parts, a significant pipeline of opportunities exists, with more meaningful results expected in the future.

Michael Leshock asked for clarification on AAR's updated FY26 guidance, specifically whether the company still anticipates outgrowing the market within its distribution activities at a mid-teens rate. He also questioned the progress and future potential of cross-selling opportunities between repair and engineering and component services.

Answer

Chairman, President, and CEO John Holmes affirmed that AAR maintains its outlook for distribution, expecting to continue growing above market rates. Regarding cross-selling, Holmes stated that the strategy is in its early stages, with the past year focused on integration. He noted a significant pipeline of opportunities and encouraging conversations, but emphasized that meaningful results will materialize in the future due to the longer sales cycles inherent in component repair agreements.

Michael Leshock of KeyBanc Capital Markets inquired about the long-term vision for the USM business as a percentage of total sales and asked for more detail on the scale of the new Delta agreement for the Trax software solution.

Answer

CEO John Holmes explained that AAR is strategically reducing USM's mix as a percentage of sales to focus on areas with more consistent growth, like new parts distribution. Regarding the Trax-Delta deal, he noted it is a multi-year implementation but also highlighted significant revenue upside from upgrading the existing Trax customer base to new, higher-priced offerings, which can increase license fees by four or five times.

Michael Leshock from KeyBanc Capital Markets questioned the long-term vision for the USM business as a percentage of total sales and asked for a way to frame the size and significance of the new Trax agreement with Delta Airlines.

Answer

CEO John Holmes explained that AAR is strategically reducing the USM business as a percentage of the total portfolio to focus on areas with more consistent growth, like new parts distribution. Regarding the Delta deal, Holmes described it as a multi-year implementation that will be a meaningful single-customer addition to Trax's revenue, while also highlighting the significant revenue upside from upgrading the existing Trax customer base to new software suites.

Michael Leshock asked for details on efficiency improvements and throughput gains in the MRO facilities and requested an update on the progress of defense opportunities, particularly with the DOGE commission.

Answer

CEO John Holmes stated that MRO hangars have seen substantial margin gains from increased throughput, driven by initiatives like the paperless hangar rollout, with more improvements expected. Regarding defense, he noted that while USM sales to the government have not yet seen a notable increase, he is hopeful that the DOGE commission could be a catalyst for significant uptake, representing pure upside to current results.

Michael Leshock asked about the finalization of Archimedes engine design and its readiness for first flight, the speed at which Archimedes production can ramp up for Neutron's debut, and whether Neutron's original budget of $250 million-$300 million remains intact given the updated launch timing, along with current spending and peak spending estimates.

Answer

Peter Beck, Founder and CEO, Rocket Lab, confirmed the Archimedes engine design is stable, meets performance criteria, and the vast majority of Flight 1 components are complete or in build. He noted the production machine is ready to support, emphasizing extensive testing for reusability. Adam Spice, CFO, Rocket Lab, stated the Neutron program is now estimated to have spent approximately $360 million cumulatively by the end of 2025, exceeding the original budget due to delays, and indicated that peak R&D spending is approaching, possibly in Q4.

Michael Leshock asked for an update on the performance of the Archimedes engine for Neutron and inquired about the long-term strategy and timeline for a potential Rocket Lab-owned satellite constellation.

Answer

Founder and CEO Sir Peter Beck stated that while the basic performance of the Archimedes engine is strong, the main challenge is qualifying it for a wide range of operating conditions required for reuse, including re-entry and landing burns. Regarding a proprietary constellation, he confirmed the company's ambition but emphasized that the primary focus remains on completing the Neutron rocket to avoid 'entrepreneurial drift,' positioning a constellation as a post-Neutron opportunity.

Michael Leshock inquired about how Rocket Lab prioritizes building government constellations versus its own, and asked about the target burn duration for the Archimedes engine versus current test durations.

Answer

CEO Peter Beck explained that the company balances these opportunities with the primary goal of building a large, profitable business, and will not commit to a massive internal constellation project at the expense of the company's security. Regarding Archimedes, he stated that a full-duration burn is around 5 minutes, but the team's focus is on testing challenging start-up, shutdown, and reignition transients under various conditions, as steady-state burns offer less learning value.

Michael Leshock from KeyBanc Capital Markets inquired about technical changes to the Archimedes engine since its initial testing and the long-term strategy for Electron's launch cadence.

Answer

CEO Sir Peter Beck reported that the Archimedes engine is undergoing a rigorous qualification campaign, with recent changes focused on improving producibility and reducing mass. Regarding Electron, he stated the goal is to conduct as many launches as possible, driven by consistently growing year-over-year market demand.

Michael Leshock asked for an update on Rocket Lab's M&A pipeline and its organic growth initiatives, such as the expansion of clean room capacity.

Answer

CEO Peter Beck noted that organic product development is continuous, with products announced once they are complete. CFO Adam Spice elaborated on the M&A strategy, stating they remain selective and disciplined. He identified satellite payloads as the most significant remaining gap in their vertically integrated Space Systems portfolio, suggesting that future acquisitions in this area would be strategic and could signal the company's direction for its own space applications.

Michael Leshock from KeyBanc Capital Markets asked about the potential timing for an Italian spaceport, specifically what milestones must be achieved with the existing fleet before construction would begin. He also inquired about the expected cadence of quarterly spending in 2026, asking if it would decline gradually or in a large step-down.

Answer

CEO Michael Colglazier stated that the primary focus is achieving cash-positive operations at Spaceport America first. He estimated that after the LVX launch vehicle program delivers new ships around 2029, the company would have the capacity to begin building for an Italian spaceport around 2030. CFO Doug Ahrens confirmed that the spending decline in 2026 will be a gradual, continued trend rather than a large step-down, until commercial service begins and flips cash flow positive.

Inquired about design changes to the Delta class rocket motor, the strategy for mixing research and private astronaut flights to optimize margins, and the long-term outlook for the commercial research market, referencing the Redwire announcement.

Answer

The rocket motor itself is unchanged from Unity, but the propellant tank has been redesigned for a much longer lifespan. The company will fly a mix of research and private astronaut flights, as the high capacity of Delta ships allows for both. The commercial research market is seen as a significant opportunity, particularly for human-tended research, and Virgin Galactic's platform serves as a valuable testbed for longer-duration space missions.

Michael Leshock inquired about technical changes to the Delta-class rocket motor, the potential for a higher mix of research flights to accelerate profitability, and the long-term commercial research market opportunity following the Redwire announcement.

Answer

President of Spaceline Mike Moses clarified that the rocket motor's performance is unchanged from Unity, but the oxidizer tank was redesigned for a much longer lifespan. CEO Michael Colglazier explained that the Delta fleet's capacity allows for a mix of both private astronaut flights to clear the backlog and high-margin research flights. Both executives highlighted the growing research market, emphasizing the value of human-tended experiments as a testbed for longer-duration space missions.

Asked for clarification on the 2024 cash burn, questioning if the lower figure was due to spending shifts or cost savings, and how the Delta Class program is tracking against its budget. He also inquired about labor availability at the Arizona facility.

Answer

Doug Ahrens attributed the lower cash burn to active spending management and confirmed the Delta program is tracking well against its budget. Michael Colglazier explained that hiring needs in Phoenix are modest for now because experienced staff from New Mexico will temporarily relocate to lead assembly. He expressed confidence in the Phoenix labor market for future hiring.

Michael Leshock of KeyBanc Capital Markets Inc. inquired about international growth opportunities from increased European defense spending and whether current ISS partners might seek alternatives to the eventual CLD contract winner.

Answer

CEO Dylan Taylor highlighted the strategic partnership with Airbus as a key channel to capture increased European defense spending, positioning Voyager as an innovation partner. Regarding Starlab, he expressed confidence that international partners would not build their own stations and see Starlab as the premier international option. He envisions a future LEO economy with multiple stations differentiated by function (e.g., science, manufacturing) rather than by geography.

Sought details on the specific asset involved in the unplanned Kokomo outage, the potential of the cold-finished flats business, activity related to the 777X program, and the sustainability of strong pricing in the 'other markets' segment.

Answer

The company identified the specific furnace that had issues in September but is now running well. The cold-finished flats business was impacted on margin, but reliability upgrades should help restore shipment volumes. The 777X program is a slow start but provides strategic exposure. Pricing in 'other markets' is benefiting from mix management but is variable and the recent high average selling price may not be sustainable at that exact level.