Noah Levitz

Noah Levitz from William Blair inquired about any impact from a potential government shutdown on transportation funding and provided an update on the progress and potential scope of a successor bill to the IIJA, which concludes in September 2026. He also asked for a more detailed breakdown of the exceptional data center growth (greater than 125%), specifically whether it stemmed from existing projects, new projects coming online, or larger phases of ongoing work.

Answer

Joe Cutillo, CEO, confirmed no impact from a government shutdown on current transportation funding as it's already allocated, though grant programs could be delayed. He noted that discussions for the next federal bill are progressing well, ahead of historical timelines, and expressed optimism for a timely resolution. Cutillo assured that even with a gap, extensions would maintain spending, though states might favor smaller projects. He highlighted that the exceptional data center growth was a combination of new projects and the conversion of future phase work into backlog, allowing total backlog to grow despite burn rates.

Noah Levitz asked about any impact from the government shutdown on transportation funding and provided an update on the potential successor bill to the IIJA, including its progress and anticipated scope. He also requested a breakdown of the exceptional data center growth, specifically whether it stemmed from existing projects, new projects, or larger phases.

Answer

CEO Joe Cutillo confirmed no impact from the government shutdown on transportation funding as it's already allocated. He noted that the DC team is progressing well on the IIJA successor bill, anticipating a timely resolution, but assured that extensions would maintain spending levels if there's a gap. He explained that data center growth is a combination of new projects and existing projects, with enough new wins to offset burn rates and grow total backlog.

Noah Levitz asked for an outlook on a potential successor to the IIJA infrastructure bill and inquired about the scale of opportunities in biopharma and other onshoring projects, as well as any potential capacity constraints.

Answer

CEO Joseph Cutillo expressed optimism for a future infrastructure bill, noting that bipartisan activity in Washington D.C. is more advanced than for previous bills. On onshoring, he stated that while they are seeing individual projects in pharma, auto, and food, a large 'wave' of projects has not yet materialized, partly due to lengthy permitting processes. He affirmed that Sterling has the capacity to handle significant growth and would expand by 25-30% if the right projects emerged.

Noah Levitz (William Blair) asked about AAR's exposure to the engine aftermarket across its parts supply and repair and engineering segments, and sought an update on the progress of transforming Trax into a digital marketplace to facilitate cross-selling with the parts distribution business.

Answer

Chairman, President, and CEO John Holmes confirmed significant engine market exposure, noting that 80% of USM parts are engine-related, and engine accessories form AAR's largest product line in distribution (e.g., Unison/GE). He also highlighted engine-related capabilities in component services, particularly in Grand Prairie, Texas. Regarding Trax, he expressed encouragement about market uptake and confirmed active investment in the digital marketplace initiative, expecting announcements on progress in the first half of fiscal year 2026, aiming to leverage Trax's operator base and data for parts and repair solutions.

Noah Levitz inquired about AAR's exposure to the engine-related aftermarket services across its parts supply and repair & engineering segments, asking for key themes and insights. He also questioned the progress of transforming Trax into a digital marketplace to enhance cross-selling opportunities with the parts distribution business.

Answer

Chairman, President, and CEO John Holmes detailed AAR's significant engine market exposure, noting that 80% of USM parts are engine-related, and engine accessories are a major part of distribution and component services. Regarding Trax, Holmes expressed encouragement with its market uptake and confirmed active investment in the digital marketplace initiative, highlighting significant synergies and anticipating announcements on progress in the first half of 2026.

Noah Levitz asked about AAR's exposure to the engine aftermarket across parts supply and repair and engineering, and the progress of making Trax into a digital marketplace to foster cross-sell opportunities with the parts distribution business.

Answer

Chairman, President, and CEO John Holmes detailed significant engine market exposure, with 80% of USM parts being engine-related, and engine accessories being a major distribution line. He noted active investment in the Trax digital marketplace initiative, seeing strong synergy and expecting announcements on progress in the first half of fiscal year 2026.

Noah Levitz of William Blair & Company requested an update on the PlateRanger product and the partnership with Sound Thinking. He also asked if positive industry trends, such as the IIJA bill and upcoming ITS conferences, were creating optimism for increased product traction in 2026 and beyond.

Answer

CFO Eyal Hen noted there was not much progress to report on the Sound Thinking partnership. CEO Robert Berman added that Rekor's role is primarily providing the technology, while Sound Thinking handles sales and marketing. Regarding industry trends, Berman stated that the dialogue at conferences has shifted significantly toward data-driven decision-making, which directly aligns with Rekor's core strategy and reinforces the company's value proposition for managing roadways.

Noah Levitz of William Blair asked about Rekor's international expansion strategy, prompted by the hiring of an executive with global experience, and inquired about the adoption and revenue recognition timeline for the PlateRanger partnership with SoundThinking.

Answer

Executive Robert Berman confirmed Rekor is actively pursuing international markets, leveraging its 'box ready' Discover product and the new GM structure to meet global demand, with a pilot already underway in Europe. Regarding the SoundThinking partnership, Berman noted a contract is in place with guaranteed revenue for 2025-2027 and that Rekor is now refocusing its own efforts on the commercial applications of its Scout product.

Noah Levitz from William Blair, on behalf of Louie DiPalma, asked for details on the new partnership with SoundThinking for the PlateRanger solution. He sought to understand its competitive positioning, pricing strategy, and key differentiators, specifically inquiring about the use of solar power.

Answer

CEO David Desharnais described the partnership as combining Rekor's top-tier license plate recognition technology with SoundThinking's respected brand and market access. He stated that while SoundThinking controls the pricing as the channel partner, the integrated solution is highly competitive. Desharnais confirmed that the hardware is solar-powered, which he considers a strong differentiator for the offering.

Asked for details on the new partnership with SoundThinking for the PlateRanger product, including its competitive positioning, pricing, differentiators, and use of solar power.

Answer

The PlateRanger combines Rekor's top-tier LPR technology with SoundThinking's respected market presence. Pricing is determined by SoundThinking as the channel partner. The solution will utilize solar power, which is a key differentiator for Rekor's hardware.

Noah Levitz of William Blair questioned the second-half margin outlook, asking why margins wouldn't meet or beat Q2's exceptional level given accelerated synergies. He also inquired about the M&A pipeline and the potential for more Honeywell fuel control-style deals.

Answer

CFO Adam Cohn attributed the strong Q2 margins to the earlier-than-anticipated capture of Kaelstrom synergies and reiterated that historical seasonality, driven by inventory costs, typically leads to stronger margins in the first half. President & CEO John Cuomo described the M&A pipeline as "very, very healthy" but stated that the company will focus on perfecting the execution of the current licensed manufacturing program before pursuing similar new deals, likely not before the back end of 2026.

Noah Levitz asked about the strategic rationale for entering the commercial engine aftermarket with the Turbine and Kellstrom acquisitions and whether the projected synergies were primarily cost or revenue-based. He also inquired about the company's future M&A appetite.

Answer

CEO John Cuomo described the commercial engine aftermarket as highly attractive due to aging fleets, OEM focus shifting to new engines, and the market's complexity. He expressed high confidence in achieving the stated synergies through VSE's integration capabilities. Regarding future M&A, Cuomo stated that while the company remains acquisitive, the primary focus for 2025 will be integrating recent acquisitions and driving organic growth, rather than pursuing a roll-up strategy.