Summary of StandardAero Conference Call Company Overview - **Company Name**: StandardAero - **Industry**: Aerospace and Defense - **Position**: World's largest independent service provider for jet engines, with 115 years of continuous operation [2][6][8] Key Segments - **Engine Services**: Focuses on commercial, military, private business jet engines, helicopters, and ground power energy-based engines [3][4] - **Component Repair Services (CRS)**: Repairs components for both StandardAero engine services and the open market, with 90% of revenue coming from external sources [50][56] Market Dynamics - **Cyclical Nature**: Aerospace is a highly cyclical business, but StandardAero's diverse subsegments provide a natural hedge against market fluctuations [4][6] - **Current Market Trends**: All end markets are currently experiencing growth, with low double-digit growth in commercial and business aviation, and high single-digit growth in military and helicopter sectors [16][17] Competitive Advantages - **Barriers to Entry**: Significant barriers include regulatory approvals, specialized workforce licensing, and the need for expensive test cells [22][24][25][26] - **Workforce Experience**: Average tenure of mechanics is 20 years, with a learning curve of 3-5 years, making it difficult for new entrants to compete [28] - **Economies of Scale**: StandardAero is authorized on 40 different engine platforms, allowing for faster turn times and competitive pricing [67] Financial Performance - **Margins**: Engine services operate at a 15% margin, with material costs being a significant factor. CRS margins are around 30% [29][33][56] - **Future Margin Expectations**: Margins in engine services are expected to improve as the company moves past initial learning curves on new programs [42][46] Growth Drivers - **New Engine Programs**: Growth is anticipated from new engine programs like LEAP and CFM56, which are expected to drive significant revenue [51][52] - **Inorganic Growth**: Acquisitions and insourcing of repairs are key strategies for growth in the CRS segment [52][56] Cash Flow and Financial Guidance - **Cash Flow Generation**: StandardAero views itself as an 80%-100% free cash flow generating business, with expectations for cash flow to align with EBITDA by 2028 [73][74] - **Share Repurchase**: A $450 million share repurchase was authorized, indicating confidence in cash flow generation [72] Risks and Challenges - **Supply Chain Issues**: Availability of parts is a risk, particularly for unique materials used in aerospace engines. StandardAero has developed strategies to mitigate these risks through component repair and asset management [80][84][85][86] Conclusion - **Market Position**: StandardAero is well-positioned in the aerospace industry with a strong competitive edge, diverse service offerings, and a focus on long-term growth through strategic investments and acquisitions [66][68][69]

Core Insights - StandardAero (NYSE: SARO) is a dedicated provider of aircraft engine MRO services, strategically positioned in a robust demand environment for both commercial and defense engine maintenance [2] Company Overview - StandardAero operates in a favorable market for aircraft engine maintenance, yet its stock has experienced a decline despite the strong demand backdrop [2] Analyst Background - The analysis is conducted by an aerospace, defense, and airline analyst with a background in aerospace engineering, focusing on identifying investment opportunities within the aerospace, defense, and airline sectors [2]

Core Insights - StandardAero (SARO) shares experienced a significant increase following its offering in October, rising to the low thirties [1] Group 1: Company Overview - StandardAero is identified as needing an overhaul towards the end of 2024 [1] - The company is covered by the investing group "Value In Corporate Events," which focuses on major corporate events such as IPOs, mergers & acquisitions, and earnings reports [1] Group 2: Investment Opportunities - The investing group provides members with opportunities to capitalize on significant corporate events, covering approximately 10 major events a month [1]

Group 1 - StandardAero Inc. is expanding its Winnipeg facility by approximately 70,000 square feet to enhance MRO services for key commercial and military turbofan engines [1][3] - The expansion will increase the facility's footprint by 40% and focus on boosting capacity for the CF34-3/8 engine, which powers regional airliners like the Embraer E175 and MHIRJ CRJ700 [2][3] - The investment supports 1,500 skilled employees and is in partnership with the Manitoba provincial government, which is contributing $3 million to the project [3] Group 2 - StandardAero provides aerospace engine aftermarket services for both fixed and rotary wing aircraft across multiple regions including the US, Canada, the UK, Europe, and Asia [4] - The company operates in two segments: Engine Services and Component Repair Services [4]

IPO Market Overview - The IPO market has shown vibrancy despite a recent government shutdown that lasted 28 days, which temporarily impacted the process [1][2] - Notable companies going public include Circle and Bullish, which attracted significant retail and institutional interest, while Alliance Laundry represents slower, consistent growth [1] Government Shutdown Impact - The government shutdown hindered the SEC's ability to process and approve IPOs, affecting companies' timelines to go public before year-end [2] - Approximately 8 companies opted for a specific pricing avenue during the SEC shutdown, which allows for automatic effectiveness within a 20-day period, albeit with less flexibility [2] Investment Opportunities - A list of the 10 best new stocks to invest in has been compiled, focusing on those popular among elite hedge funds and analysts [3][5] - Netskope Inc. (NASDAQ:NTSK) is highlighted as a strong investment, with a price target of $30 set by TD Cowen, indicating a belief in its potential to disrupt a $150 billion total addressable market (TAM) and sustain over 30% revenue growth [8] - StandardAero Inc. (NYSE:SARO) is also noted for its recent expansion of a facility in Winnipeg, which aims to increase capacity for MRO services on key turbofan engines, supported by a $3 million contribution from the Manitoba provincial government [12][14]

Financial Data and Key Metrics Changes - The company reported revenue of $1.5 billion for Q3 2025, representing a 20% year-over-year growth [5][16] - Adjusted EBITDA increased to $196 million, reflecting a 16% year-over-year growth, with an adjusted EBITDA margin of 13.1% [5][16] - Net income was $68 million, an increase of $52 million compared to the prior year, driven by higher operating income and reduced interest expenses [16] Business Line Data and Key Metrics Changes - Commercial aerospace revenue grew 18% year-over-year, with significant contributions from LEAP, CF-34, CFM56, and Turboprop engine platforms [6][7] - Business aviation revenue increased by 28% year-over-year, supported by growth in mid and super-mid-sized aircraft [6] - Military and helicopter revenue rose 21% year-over-year, driven by AE 1107 engine volumes and ongoing strength in C-130 transport aircraft programs [7] Market Data and Key Metrics Changes - The MRO supply-demand environment remains tight globally, with a strong backlog of MRO work [6] - The company anticipates continued favorable dynamics in the MRO market for the foreseeable future [6] Company Strategy and Development Direction - The company is focused on ramping growth platforms efficiently, driving productivity, and expanding component repair services [14] - Strategic priorities include investing in organic growth and potential acquisitions to capitalize on long-term opportunities [14] - The company is raising its 2025 guidance across all key metrics, reflecting confidence in continued operational performance [13][26] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the company's performance, which is ahead of IPO targets, and highlighted a positive market backdrop [27] - The company expects cash flow to improve significantly in Q4 due to the resolution of supply chain issues [17][63] - Management noted that the supply chain is improving, particularly regarding constrained parts, which has been a core issue throughout the year [46][63] Other Important Information - The company plans to expand its MRO facility in Winnipeg, Canada, to capture growth in the CF-34 program [11] - The company has made progress in renegotiating long-term contracts to eliminate low-margin material pass-through revenue, which is expected to improve working capital efficiency [22][23] Q&A Session Summary Question: What is the target for LEAP revenues? - Management confirmed that the target for LEAP revenues remains at a billion dollars annually in the next few years [30] Question: What are the specific parts causing supply chain choke points? - Management identified constrained parts, primarily forgings and castings, as the main issues affecting cash flow and shipment timelines [34] Question: How will the adjustments to long-term contracts impact revenue and cash flow? - Most of the revenue reduction from contract adjustments will occur in 2026, with a significant cash flow benefit expected in 2027 [38][56] Question: What is the backlog for the LEAP business? - The backlog for the LEAP business was reported to be over a billion dollars, with a 5% growth this quarter [39] Question: How is the company addressing supply chain issues? - Management indicated that they are making changes to the procurement process to ensure better access to constrained parts [63] Question: What is the outlook for business aviation? - The company is optimistic about the business aviation market, with increasing flight hours and strong demand for the HTF 7000 engine [84]

Financial Performance - Revenue for Q3 2025 reached $1498 million, a 204% increase year-over-year[15] - Adjusted EBITDA for Q3 2025 was $196 million, up 161% year-over-year[15] - The adjusted EBITDA margin was 131% in Q3 2025, a decrease of 40 bps year-over-year[15] - Free Cash Flow for Q3 2025 was $(4) million[32] - The company is raising its 2025 revenue guidance to $5970 - $6030 million, representing a 14% to 15% year-over-year increase[21] - The company is raising its 2025 Free Cash Flow guidance to $170 - $190 million[21] Segment Performance - Engine Services revenue grew by 213% year-over-year in Q3 2025[34] - Component Repair Services revenue grew by 139% year-over-year in Q3 2025[39] - Component Repair Services achieved an adjusted EBITDA margin of 307% in Q3 2025, an increase of 430 bps year-over-year[39] Balance Sheet - The Net Debt to Adjusted EBITDA leverage ratio improved to 29x[50]

IPO and Acquisitions - The Company completed its initial public offering (IPO) on October 2, 2024, at a price of $24.00 per share, generating net proceeds of $1,202.8 million after deducting underwriting discounts and commissions of approximately $67.1 million and estimated offering expenses of $8.1 million[155]. - The Company acquired Aero Turbine, Inc. for an estimated purchase price of approximately $132.0 million, funded through borrowings under the Prior ABL Credit Facility[159]. Revenue and Income - Revenue increased by $253.3 million, or 20.4%, to $1,497.962 million for the three months ended September 30, 2025, compared to $1,244.627 million for the same period in 2024[178]. - Net income for the three months ended September 30, 2025, was $68.120 million, a significant increase of $51.684 million or 314.5% from $16.436 million in the prior year[178]. - Revenue increased by $634.9 million, or 16.6%, to $4,462.5 million for the nine months ended September 30, 2025, compared to $3,827.5 million for the same period in 2024[186]. - Net income surged to $198.8 million for the nine months ended September 30, 2025, a significant increase of $173.7 million or 694.2% compared to $25.0 million in 2024[186]. Segment Performance - The Engine Services segment primarily derives revenue from the repair and overhaul of gas turbine engines and auxiliary power units, serving commercial aerospace, military, and business aviation markets[149]. - The Component Repair Services segment generates revenue from engine piece part and accessory repairs, with a focus on commercial aerospace and military markets[150]. - The military and helicopter end market revenue increased by 21.1% compared to the prior year, aided by the acquisition of Aero Turbine on August 23, 2024[178]. - Engine Services segment revenue increased by $542.0 million, or 15.9%, to $3,941.2 million for the nine months ended September 30, 2025, supported by strong commercial aerospace growth[201]. - Component Repair Services segment revenue rose by $92.9 million, or 21.7%, to $521.3 million for the nine months ended September 30, 2025, aided by the Aero Turbine acquisition[203]. Expenses and Costs - Cost of revenue increased by $216.4 million, or 20.4%, to $1,274.803 million for the three months ended September 30, 2025, driven by higher material and direct labor expenses[179]. - Selling, general and administrative (SG&A) expenses were $60.944 million for the three months ended September 30, 2025, down from $62.895 million in the prior year, representing 4.1% of revenue[180]. - Selling, general and administrative expenses increased by $29.7 million, or 17.3%, to $201.4 million for the nine months ended September 30, 2025, primarily due to stock compensation and personnel costs[188]. - Cost of revenue rose by $510.1 million, or 15.6%, to $3,785.4 million for the nine months ended September 30, 2025, driven by higher material and labor expenses[187]. Financial Metrics - Adjusted EBITDA is defined as net income before interest, taxes, depreciation, and amortization, adjusted for non-cash items and non-recurring expenses, providing a clearer view of operational performance[164]. - Adjusted EBITDA for the three months ended September 30, 2025, was $195.560 million, compared to $168.417 million for the same period in 2024, reflecting a margin of 13.1%[178]. - Component Repair Services Segment Adjusted EBITDA increased by $41.9 million, or 37.7%, to $153.0 million for the nine months ended September 30, 2025, with an adjusted EBITDA margin of 29.3%[204]. Tax and Interest - Income tax expense increased to $24.656 million for the three months ended September 30, 2025, compared to $0.211 million in the same period in 2024, reflecting a significant increase due to higher pretax income[185]. - Income tax expense rose by $32.8 million, or 86.1%, to $70.9 million for the nine months ended September 30, 2025, reflecting increased pretax income[194]. - Interest expense decreased by $35.3 million, or 44.2%, to $44.566 million for the three months ended September 30, 2025, due to the repayment of prior debt obligations[183]. - Interest expense decreased by $103.3 million, or 43.9%, to $132.2 million for the nine months ended September 30, 2025, due to debt repayment and refinancing[191]. Cash Flow and Liquidity - The company reported net cash used in operating activities of $6.3 million for the nine months ended September 30, 2025, compared to $32.0 million for the same period in 2024[210]. - Net cash used in investing activities for the nine months ended September 30, 2025, was $91.1 million, primarily due to $66.7 million in purchases of property and equipment[213]. - Net cash provided by financing activities for the nine months ended September 30, 2025, was $90.9 million, mainly from long-term debt proceeds of $545.0 million[214]. - The company had $722.8 million of available liquidity as of September 30, 2025, consisting of cash and a revolving credit facility[205]. - As of September 30, 2025, the company had cash of $97.5 million and net working capital of $1.6 billion, an increase from $1.2 billion as of December 31, 2024[205]. Debt and Compliance - Total debt as of September 30, 2025, was $2.36 billion, up from $2.27 billion as of December 31, 2024[206]. - The New 2024 Term Loan Facilities had an outstanding principal amount of $2.23 billion, maturing on October 31, 2031[206]. - The company was in compliance with the covenants in the New Credit Agreement as of September 30, 2025[209]. Currency and Interest Rates - Approximately $34.8 million, or 2.3%, of revenue for the three months ended September 30, 2025, was attributable to non-U.S. Dollar currencies[226]. - The company entered into an interest rate swap contract for a notional amount of $400.0 million, providing an effective fixed SOFR rate of 3.71%[224]. - The New 2024 Term Loan Facilities have a SOFR based rate with a margin of 2.00% to 2.25%[227]. - The New 2024 Revolving Credit Facility for Euro loans has a EURIBOR based rate with a margin of 1.50% to 2.00%[227]. - The New 2024 Revolving Credit Facility for Canadian Dollar loans has a CORRA based rate with a margin of 1.50% to 2.00%[227]. - The New 2024 Revolving Credit Facility for Pounds Sterling loans has a SONIA based rate with a margin of 1.50% to 2.00%[227]. - The New 2024 Term Loan Facilities for U.S. Dollar loans have a base rate margin of 1.00% to 1.25%[227]. - The New 2024 Revolving Credit Facility for U.S. Dollar loans has a base rate margin of 0.50% to 1.00%[227].

Core Insights - StandardAero, Inc. (SARO) is expected to report a year-over-year increase in earnings and revenues for the quarter ended September 2025, with earnings per share (EPS) estimated at $0.20, reflecting a 233.3% increase, and revenues projected at $1.44 billion, a 15.4% increase from the previous year [1][3]. Earnings Expectations - The earnings report is scheduled for November 10, and if the results exceed expectations, the stock may rise; conversely, missing estimates could lead to a decline [2]. - The consensus EPS estimate has been revised 5.56% higher in the last 30 days, indicating a positive reassessment by analysts [4]. Earnings Surprise Prediction - The Zacks Earnings ESP (Expected Surprise Prediction) model suggests that the Most Accurate Estimate matches the Zacks Consensus Estimate, resulting in an Earnings ESP of 0%, which complicates predictions of an earnings beat [8][12]. - The stock currently holds a Zacks Rank of 4 (Sell), further indicating challenges in predicting a positive earnings surprise [12][13]. Historical Performance - In the last reported quarter, StandardAero was expected to post earnings of $0.21 per share but delivered $0.20, resulting in a -4.76% surprise. Over the last four quarters, the company has only beaten consensus EPS estimates once [14][15]. Industry Context - In comparison, Redwire Corporation (RDW), another player in the Aerospace - Defense industry, is expected to report a loss of $0.12 per share, with revenues projected at $126.06 million, reflecting an 83.7% increase year-over-year. However, it also faces challenges with a Zacks Rank of 5 (Strong Sell) and has not beaten consensus EPS estimates in the last four quarters [19][20][21].

Core Points - StandardAero, Inc. will report its third quarter 2025 earnings results on November 10, 2025, after market close [1] - A conference call to discuss the results will take place at 5:00 PM ET on the same day [1] - The earnings release and presentation will be available on the investor relations website prior to the conference call [2] Company Overview - StandardAero is a leading independent provider of aerospace engine aftermarket services for both fixed- and rotary-wing aircraft, catering to commercial, military, and business aviation markets [4] - The company offers a comprehensive suite of aftermarket solutions, including engine maintenance, repair and overhaul, engine component repair, on-wing and field service support, asset management, and engineering solutions [4] - StandardAero is listed on the NYSE under the ticker symbol SARO [4]