Loar Holdings (LOAR) Q1 2025 Earnings Call May 13, 2025 10:30 AM ET Company Participants Ian Mckillop - Director - Investor RelationsDirkson Charles - Founder, CEO & Executive Co-ChairmanBrett Milgrim - Executive Co-ChairmanGlenn D’Alessandro - CFOKen Herbert - Managing DirectorSheila Kahyaoglu - Managing DirectorBrad Eyster - Automotive Equity Research Senior Associate Conference Call Participants Kristine Liwag - Analyst Operator Greetings, and welcome to the Lohr Holdings First Quarter twenty twenty five ...

For the quarter ended March 2025, Loar Holdings Inc. (LOAR) reported revenue of $114.66 million, up 24.9% over the same period last year. EPS came in at $0.20, compared to $0.02 in the year-ago quarter.The reported revenue represents a surprise of +1.93% over the Zacks Consensus Estimate of $112.49 million. With the consensus EPS estimate being $0.16, the EPS surprise was +25.00%.While investors closely watch year-over-year changes in headline numbers -- revenue and earnings -- and how they compare to Wall ...

Financial Data and Key Metrics Changes - In Q1 2025, total sales increased to $150 million, representing a 12% increase compared to the prior year period [15] - Net organic sales increased by 11.1% over the prior period [17] - Gross profit margin for Q1 2025 increased by 370 basis points compared to the prior year period [17] - Adjusted EBITDA was up $10 million in Q1 2025 versus Q1 2024, with adjusted EBIT margins at 37.6% [18][22] Business Line Data and Key Metrics Changes - Commercial aftermarket sales increased by 13% in Q1 2025 versus Q1 2024 and were up 15% sequentially from Q4 2024 [16] - Total commercial OEM sales increased by 8% in Q1 2025 compared to the prior year period [16] - Defense sales increased by 30% due to strong demand across multiple platforms and an increase in market share from new product launches [17] Market Data and Key Metrics Changes - The company expects commercial OEM to grow in high single digits and commercial aftermarket to grow in double digits for 2025 [20] - Defense end markets are expected to grow in high double digits, between 17% to 20% [20] Company Strategy and Development Direction - The company aims to achieve above-market growth rates by providing an entrepreneurial and collaborative environment for its business units [6] - Focus on launching new products to drive organic top-line growth of 1% to 3% annually [13] - Continuous improvement in margins through strategic initiatives and price increases above inflation [9][22] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the strength of demand across all end markets, with no degradation observed [20] - The company is ahead of its plan on value pricing and productivity initiatives, expecting to meet or exceed guidance for 2025 [20] - Management noted that the current tariff environment has had an insignificant impact on results [22] Other Important Information - The company plans to close the acquisition of L and B Fans and Motors in Q3 2025, which is not included in the current guidance [22] - Capital expenditures for the year are expected to be approximately $14 million, with an effective tax rate of around 30% [22] Q&A Session Summary Question: Are you seeing any incremental pushback on pricing from airlines in your commercial aftermarket channel? - Management noted no pushback on pricing and indicated they are actually receiving more price this year than last year [28][30] Question: What drove the robust growth in defense sales, and what is expected for the remainder of the year? - Management indicated that defense sales are typically lumpy and the strong Q1 growth is not necessarily indicative of the entire year [41] Question: Can you discuss the impact of potential procurement reforms on your business? - Management stated they would assess any changes once finalized but emphasized their current efficiency in working with government procurement [60]

Loar Holdings Inc. (LOAR) came out with quarterly earnings of $0.20 per share, beating the Zacks Consensus Estimate of $0.16 per share. This compares to earnings of $0.02 per share a year ago. These figures are adjusted for non-recurring items.This quarterly report represents an earnings surprise of 25%. A quarter ago, it was expected that this company would post earnings of $0.07 per share when it actually produced earnings of $0.11, delivering a surprise of 57.14%.Over the last four quarters, the company ...

Financial Performance - Net sales for Q1 2025 increased by $22.8 million, or 24.8%, reaching $114.7 million compared to $91.8 million in Q1 2024[84] - Net organic sales rose by $10.2 million, or 11.1%, to $102.0 million, driven by a 32.6% increase in defense sales and a 12.3% increase in aftermarket total commercial sales[86] - Gross profit for Q1 2025 was $59.7 million, a 34.4% increase from $44.4 million in Q1 2024, with a gross profit margin of 52.1%[89] - Operating income for Q1 2025 was $26.1 million, representing 22.8% of net sales, compared to $21.4 million, or 23.3% of net sales, in Q1 2024[83] - Net income for Q1 2025 was $15.3 million, or 13.4% of net sales, significantly up from $2.2 million, or 2.4% of net sales, in Q1 2024[83] - Adjusted EBITDA for Q1 2025 reached $43,133,000, up from $33,030,000 in Q1 2024, reflecting a year-over-year increase of 30.6%[118] - The net income margin improved to 13.4% in Q1 2025, compared to 2.4% in Q1 2024[118] - Adjusted EBITDA margin increased to 37.6% in Q1 2025, up from 36.0% in Q1 2024[118] Expenses and Costs - Cost of sales for Q1 2025 was $54.9 million, representing 47.9% of net sales, down from 51.6% in the same period last year[89] - Selling, general and administrative expenses increased by $10.2 million to $33.1 million, representing 28.9% of net sales for Q1 2025, up from 24.9% in Q1 2024[90] - Research and development expenses rose by $887,000, or 43.7%, to $2.9 million, representing 2.6% of net sales in Q1 2025[90] - Interest expense decreased by $11.3 million, or 63.6%, to $6.5 million in Q1 2025, attributed to the repayment of $284.6 million in debt[95] - Stock-based compensation increased significantly to $3,089,000 in Q1 2025 from $87,000 in Q1 2024[118] - Transaction expenses for Q1 2025 were $0.5 million, up from $0.2 million in Q1 2024[93] Cash Flow and Debt - Net cash provided by operating activities increased by $17.5 million to $28.4 million in Q1 2025, driven by a $13.1 million increase in net income[99] - Total debt as of March 31, 2025, was $280.8 million, with a total debt to total capitalization ratio of 20%[98] - Cash and cash equivalents increased to $80.5 million as of March 31, 2025, compared to $54.1 million at the end of 2024[98] - The company has $100 million available in delayed draw term loan commitments and a $50 million revolving line of credit as of March 31, 2025[98] Strategic Plans and Acquisitions - The company plans to finance the acquisition of LMB for €365 million plus net debt through additional borrowings and cash on hand[79] - The acquisition of LMB is expected to close in Q3 2025, pending regulatory approvals[79] - The company anticipates continued net sales growth driven by organic growth and strategic acquisitions, despite inflationary pressures and supply chain disruptions[81] - Net acquisition sales for Q1 2025 were $12.6 million, contributing 13.7% to the total net sales increase compared to Q1 2024[88] Market and Regulatory Environment - The company remains an "emerging growth company" under the JOBS Act, allowing it to delay adopting new accounting standards[120] - Market risks have not materially changed for the three months ended March 31, 2025, as detailed in the Annual Report[121]

Financial Performance - Net sales for Q1 2025 reached $114.7 million, an increase of $22.8 million or 24.8% compared to the prior year's quarter[3] - Net income for the quarter increased to $15.3 million, up $13.1 million from $2.2 million in the comparable quarter a year ago[4] - Adjusted EBITDA for the quarter was $43.1 million, reflecting a 30.6% increase or $10.1 million compared to the prior year's quarter[5] - Adjusted EBITDA margin improved to 37.6%, compared to 36.0% in the first quarter of the prior year[5] - Gross profit for Q1 2025 was $59,706,000, up 34% from $44,433,000 in Q1 2024[22] - Net income for Q1 2025 was $15,316,000, compared to $2,249,000 in Q1 2024, representing a significant increase[22] - Adjusted EBITDA for Q1 2025 was $43,133,000, a 30.5% increase from $33,030,000 in Q1 2024[24] - Net income margin improved to 13.4% in Q1 2025 from 2.4% in Q1 2024[24] - The company reported a net income margin of 13.4% for the quarter, significantly improved from 2.4% in the prior year's quarter[6] Cash Flow and Assets - Operating cash flow for Q1 2025 was $28.4 million, highlighting strong cash generation capabilities[8] - Cash and cash equivalents at the end of Q1 2025 were $80,498,000, up from $28,152,000 at the end of Q1 2024[23] - Operating cash flow for Q1 2025 was $28,360,000, significantly higher than $10,813,000 in Q1 2024[23] - Total assets as of March 31, 2025, were $1,478.8 million, an increase from $1,450.6 million at the end of 2024[21] Outlook and Guidance - The company revised its full-year 2025 outlook, expecting net sales between $482 million and $490 million, up from previous guidance of $480 million to $488 million[11] - Adjusted earnings per share for the full year are expected to be between $0.71 and $0.76, up from the previous range of $0.70 to $0.75[11] - The company anticipates continued strong demand, with commercial and defense market growth projected in high single to double digits[11] Segment Performance - Total sales in the Commercial Aerospace segment for Q1 2025 were $79,325,000, compared to $66,956,000 in Q1 2024, reflecting a growth of 18.4%[26] Earnings Per Share - The company reported a diluted earnings per share of $0.16 for Q1 2025, consistent with the previous year[27] - Adjusted earnings per share for Q1 2025 increased to $0.20, compared to the previous year[27]

Acquisition Strategy - The company entered into a purchase agreement to acquire LMB Fans & Motors, a global player in high-performance fans and motors, on March 7, 2025[30]. - The company has a disciplined acquisition strategy, having successfully integrated 17 acquisitions since 2012, targeting businesses with proprietary products and significant aftermarket potential[49]. - The company’s growth strategy includes a value-driven operating strategy and a disciplined acquisition strategy, focusing on aerospace and defense component businesses[53]. Market Performance - In 2024, the commercial aerospace market represented approximately 43% of net sales, driven by increased orders for next-generation aircraft and aftermarket requirements[33]. - The business jet and general aviation market accounted for approximately 27% of 2024 net sales, with strong demand due to new asset-light fleet models and increased accessibility to private aviation[36]. - The defense end market represented approximately 22% of 2024 net sales, benefiting from increased global defense spending amid geopolitical tensions[38]. - Aftermarket revenue accounted for 53% of 2024 net sales, supported by a growing installed base of aircraft and recurring maintenance requirements[46]. Financial Resilience - The company’s diversified revenue streams reduce dependence on any particular product or market sector, enhancing financial resilience[47]. - The total addressable market opportunity includes over 84,000 discrete aircraft across more than 250 platforms, indicating significant growth potential in the aftermarket[46]. - Sales to U.S. government agencies accounted for approximately 3% of net sales for the year ended December 31, 2024[57]. Operational Efficiency - The company is focused on driving operational efficiencies to improve cost structure and profitability, with a strategy to achieve price increases greater than inflation[56]. - The company expects to mitigate inflation impacts through manufacturing efficiencies and reevaluating pricing strategies[292]. Talent Management - The company has a strong emphasis on attracting and retaining talent, with approximately 1,500 employees and various training and development programs[69]. Regulatory Compliance - The company is subject to various governmental regulations, including those from the FAA and international aviation authorities, ensuring compliance with safety and operational standards[59]. Intellectual Property - The company has maintained 98 issued patents, with expiration dates ranging from April 2, 2025, to February 22, 2041, and has 35 pending or published patents[66]. Financial Position - The company had cash holdings of $54.1 million as of December 31, 2024, which are exposed to market risk due to fluctuations in interest rates[290]. - A 1.0% increase in average interest rates for the year ended December 31, 2024, would have resulted in an estimated $2.8 million increase in interest expense[289]. Currency Risk - The company is monitoring potential impacts from foreign currency fluctuations, with a 10% change in the U.S. dollar not expected to materially affect operating results for the year ended December 31, 2024[294]. Leadership Experience - The company’s leadership team has an average industry experience of over 25 years, contributing to a well-designed and diversified platform[51]. Industry Position - The company is well positioned in the aerospace and defense component industry, benefiting from long-term growth trends and strong customer relationships, with established positions on nearly every major aircraft platform[56].

Financial Data and Key Metrics Changes - Total sales increased by 15% compared to the prior year, achieving record sales in calendar year 2024 [26][32] - Adjusted EBITDA reached a record $146 million in calendar year 2024, up $34 million from 2023 [32] - Gross profit margin for the full year of 2024 was 34.4%, reflecting continued execution of productivity and pricing initiatives [32] Business Line Data and Key Metrics Changes - Commercial aftermarket sales increased by 15% in calendar year 2024, driven by strong demand for commercial air travel [26] - Defense sales grew by 39%, attributed to strong demand across multiple platforms and increased market share from new product launches [27] - The aftermarket business now represents approximately 55% of overall sales, up from 52% a year ago [18] Market Data and Key Metrics Changes - Defense segment has grown from about 20% of the business a year ago to approximately 24% today [17] - The non-aviation segment has decreased from 12% to about 7% as the company focuses on aerospace and defense [18] Company Strategy and Development Direction - The company aims to improve margins by 660 basis points by the end of calendar 2025 through strategic initiatives [12] - Focus on developing talent and enhancing productivity across all business units [13] - The company is committed to maintaining a diverse portfolio across various segments of the aerospace and defense industry [16] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in meeting or exceeding guidance for calendar year 2025, with expectations for strong demand across all end markets [35] - The company anticipates commercial OEM and aftermarket to grow in high single digits, while defense markets are expected to grow in high double digits [37] - Management noted that geopolitical uncertainties and supply chain constraints present opportunities for growth [36] Other Important Information - The acquisition of LMB Fans and Motors is expected to close by the beginning of the third quarter of 2025, enhancing the company's portfolio [20][41] - Free cash flow conversion was over 200% for calendar year 2024, indicating strong operational efficiency [32] Q&A Session Summary Question: Insights on aftermarket guidance and backlog - Management indicated strong bookings and a robust backlog in the aftermarket, with lead times shorter than in defense markets [48] Question: Profitability and margin expansion contributors - Management confirmed that Applied Avionics is accretive and highlighted confidence in achieving margin improvements through pricing and operational leverage [52][54] Question: Update on PMA parts pipeline and growth expectations - Management acknowledged progress in getting parts qualified and anticipated adoption in the latter part of the year [62] Question: Dynamics of ordering patterns and inventory levels - Management noted variability in ordering patterns, with some parts seeing higher orders than expected, indicating less inventory in the supply chain [74] Question: M&A pipeline expectations - Management expressed optimism about the M&A pipeline, expecting to continue executing one to two deals per year [82] Question: Impact of tariffs and input costs - Management stated that tariffs are not expected to have a material impact this year, with strategies in place to pass on cost increases [92][94]

Financial Results - Loar Holdings Inc. is set to release its fourth-quarter financial results on March 31, after the closing bell [1] - Analysts anticipate quarterly earnings of 10 cents per share for Loar Holdings [1] - The company projects quarterly revenue of $102.54 million [1] Company Developments - On March 3, Loar Holdings announced the promotion of TC Queener to Executive Vice President [1] - The company's shares experienced a decline of 2.6%, closing at $65.97 on Friday [1] Analyst Ratings - RBC Capital analyst Ken Herbert maintained an Outperform rating but reduced the price target from $100 to $92 [3] - Morgan Stanley analyst Kristine Liwag maintained an Equal-Weight rating and raised the price target from $75 to $89 [3]

Core Insights - Loar Holdings (NYSE: LOAR) has been identified as a speculative buy opportunity, but the stock has declined by 15%, underperforming the S&P 500, which lost 6.4% [1]. Company Analysis - The investment group, The Aerospace Forum, focuses on identifying investment opportunities within the aerospace, defense, and airline sectors, leveraging data analytics for informed decision-making [2]. - The analyst behind the investment group has a background in aerospace engineering, providing a nuanced understanding of the industry's growth prospects and developments [2]. Performance Context - The performance of Loar Holdings is highlighted as a concern, with a significant drop in stock value compared to broader market trends [1].