StandardAero, Inc.(SARO) - 2025 Q1 - Quarterly Report

PART I - FINANCIAL INFORMATION Item 1. Financial Statements (unaudited) Presents StandardAero's unaudited condensed consolidated financial statements for Q1 2025, covering balance sheets, income, equity, cash flows, and key accounting notes Condensed Consolidated Financial Statements Q1 2025 saw revenue rise to $1.44 billion and net income to $62.9 million, with total assets reaching $6.50 billion and improved operating cash flow Condensed Consolidated Statements of Operations (Q1 2025 vs Q1 2024) | Metric | Three Months Ended March 31, 2025 (in millions) | Three Months Ended March 31, 2024 (in millions) | | :--- | :--- | :--- | | Revenue | $1,435.6 | $1,235.7 | | Operating income | $128.9 | $105.5 | | Interest expense | $43.8 | $77.5 | | Net income | $62.9 | $3.2 | | Basic EPS | $0.19 | $0.01 | | Diluted EPS | $0.19 | $0.01 | Condensed Consolidated Balance Sheet Highlights | Metric | As of March 31, 2025 (in billions) | As of December 31, 2024 (in billions) | | :--- | :--- | :--- | | Cash | $0.141 | $0.103 | | Total current assets | $2.795 | $2.485 | | Total assets | $6.496 | $6.214 | | Long-term debt | $2.314 | $2.208 | | Total liabilities | $4.058 | $3.840 | | Total stockholders' equity | $2.438 | $2.373 | Condensed Consolidated Statements of Cash Flows | Metric | Three Months Ended March 31, 2025 (in millions) | Three Months Ended March 31, 2024 (in millions) | | :--- | :--- | :--- | | Net cash used in operating activities | $(24.0) | $(83.6) | | Net cash used in investing activities | $(40.1) | $(18.0) | | Net cash provided by financing activities | $102.4 | $77.5 | | Net increase (decrease) in cash | $38.2 | $(23.8) | Note 1: Nature of Operations and Basis of Presentation StandardAero offers aircraft engine aftermarket services, completed a $1.2 billion IPO in October 2024, and as of March 2025, Carlyle and GIC hold 54.1% and 12.2% of common stock respectively - The company is an independent provider of aftermarket services for fixed and rotary wing aircraft gas turbine engines and APUs for commercial, business, and military markets[33] - Completed its IPO on October 2, 2024, at $24.00 per share, generating net proceeds of $1.203 billion after deducting underwriting discounts and offering expenses[37] - Following a secondary offering on March 26, 2025, affiliates of The Carlyle Group and GIC Private Limited own approximately 54.1% and 12.2% of the company's common stock, respectively[38] Note 3: Revenue Recognition Q1 2025 total revenue reached $1.436 billion, primarily from Engine Services and Commercial Aerospace, with $1.9 billion in remaining performance obligations Revenue by Segment (Q1 2025 vs Q1 2024) | Segment | Q1 2025 Revenue (in millions) | Q1 2024 Revenue (in millions) | | :--- | :--- | :--- | | Engine Services | $1,268.3 | $1,097.4 | | Component Repair Services | $167.3 | $138.3 | | Total revenue | $1,435.6 | $1,235.7 | Revenue by End Market (Q1 2025 vs Q1 2024) | End Market | Q1 2025 Revenue (in millions) | Q1 2024 Revenue (in millions) | | :--- | :--- | :--- | | Commercial Aerospace | $853.0 | $722.5 | | Military & Helicopter | $249.5 | $227.1 | | Business Aviation | $283.3 | $250.9 | | Other | $49.7 | $35.2 | | Total | $1,435.6 | $1,235.7 | - As of March 31, 2025, the company has approximately $1.9 billion of remaining performance obligations, primarily from engine utilization contracts. About 30% is expected to be recognized as revenue over the next two years[46] Note 8: Long-Term Debt As of March 31, 2025, total long-term debt was $2.314 billion. The company secured $2.25 billion in new term loan facilities and a $750 million revolving credit facility in October 2024, significantly reducing the weighted average interest rate to 6.6% from 9.5% Long-Term Debt Composition | Debt Component | As of March 31, 2025 (in billions) | As of December 31, 2024 (in billions) | | :--- | :--- | :--- | | New 2024 Term Loan Facilities | $2.244 | $2.250 | | New 2024 Revolving Credit Facility | $0.110 | — | | Finance leases & Other | $0.019 | $0.020 | | Total Debt (Gross) | $2.374 | $2.270 | | Less: Current portion, discounts, etc. | $(0.060) | $(0.062) | | Long-term debt (Net) | $2.314 | $2.208 | - On October 31, 2024, the company entered a New Credit Agreement, including $2.25 billion in term loans due 2031 and a $750 million revolving credit facility due 2029. Proceeds were used to repay prior debt facilities[57] - The weighted average interest rate of borrowings under senior credit agreements was 6.6% for Q1 2025, a significant decrease from 9.5% for Q1 2024[70] Note 18: Segment Information StandardAero operates in Engine Services and Component Repair Services. Q1 2025 saw Engine Services revenue at $1.27 billion and Segment Adjusted EBITDA at $174.0 million, while Component Repair Services reported $167.3 million revenue and $47.4 million Segment Adjusted EBITDA Segment Performance (Q1 2025 vs Q1 2024) | Segment | Metric | Q1 2025 (in millions) | Q1 2024 (in millions) | | :--- | :--- | :--- | :--- | | Engine Services | Segment Revenue | $1,268.3 | $1,097.4 | | | Segment Adjusted EBITDA | $174.0 | $150.0 | | Component Repair Services | Segment Revenue | $167.3 | $138.3 | | | Segment Adjusted EBITDA | $47.4 | $35.8 | | Total Segments | Total Segment Revenue | $1,435.6 | $1,235.7 | | | Total Segment Adjusted EBITDA | $221.4 | $185.8 | - The company's performance is evaluated based on segment Revenue and segment Adjusted EBITDA, defined as net income before interest, taxes, depreciation, amortization, and other specified non-recurring or non-cash items[118][119] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q1 2025 financial results, noting a 16.2% revenue increase to $1.44 billion and net income surge to $62.9 million, driven by growth and lower interest expense post-refinancing Results of Operations Q1 2025 revenue grew 16.2% to $1.436 billion, with operating income up 22.2% to $128.9 million, and net income surged to $62.9 million due to a 43.5% decrease in interest expense Comparison of Operations (Q1 2025 vs Q1 2024) | Metric | Q1 2025 (in millions) | Q1 2024 (in millions) | Change ($M) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Revenue | $1,435.6 | $1,235.7 | $199.9 | 16.2% | | Cost of revenue | $1,217.9 | $1,054.3 | $163.6 | 15.5% | | Operating income | $128.9 | $105.5 | $23.4 | 22.2% | | Interest expense | $43.8 | $77.5 | $(33.8) | (43.5)% | | Net income | $62.9 | $3.2 | $59.8 | 1,875.0% | - The increase in revenue was driven by continued strength across the commercial aerospace and business aviation end markets, which grew 18.1% and 12.9% respectively[160] - Interest expense decreased by $33.8 million (43.5%) due to the repayment of Prior Senior notes post-IPO and entering into the New Credit Agreement with more favorable terms[164] Segment Results Engine Services revenue grew 15.6% to $1.27 billion and Component Repair Services revenue increased 20.9% to $167.3 million, boosted by the Aero Turbine acquisition Segment Performance Summary (Q1 2025) | Segment | Revenue (in millions) | Segment Adjusted EBITDA (in millions) | Segment Adjusted EBITDA Margin | | :--- | :--- | :--- | :--- | | Engine Services | $1,268.3 | $174.0 | 13.7% | | Component Repair Services | $167.3 | $47.4 | 28.3% | - Engine Services revenue growth was driven by high engine aftermarket demand in commercial aerospace and business aviation[170] - Component Repair Services revenue growth was primarily attributable to increased demand and $21.9 million of revenue from the acquisition of Aero Turbine[172] Liquidity and Capital Resources As of March 31, 2025, the company had $764.9 million in available liquidity and $2.34 billion in total debt, with improved operating cash flow Liquidity Summary | Metric | As of March 31, 2025 (in millions) | | :--- | :--- | | Cash | $140.8 | | Available under New 2024 Revolving Credit Facility | $624.1 | | Total Available Liquidity | $764.9 | Cash Flow Summary (Q1 2025 vs Q1 2024) | Cash Flow Activity | Q1 2025 (in millions) | Q1 2024 (in millions) | | :--- | :--- | :--- | | Net cash used in operating activities | $(24.0) | $(83.6) | | Net cash used in investing activities | $(40.1) | $(18.0) | | Net cash provided by financing activities | $102.4 | $77.5 | - As of March 31, 2025, the company was in compliance with all covenants in the New Credit Agreement[180] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company manages interest rate risk on variable-rate debt via swaps and caps, addresses inflation through pricing, and considers foreign currency risk limited - Interest rate risk on floating-rate debt is mitigated using a $400.0 million interest rate swap (fixing SOFR at 3.71%) and interest rate caps on a notional amount of $1.5 billion (capping SOFR at 4.45% until Sep 2025, then 5.00% until Dec 2026)[194] - Inflation impacts costs of labor, materials, and utilities. The company aims to pass these increases to customers through contractual provisions and price adjustments[195] - Foreign currency risk is limited, with only 2.4% of revenue in Q1 2025 attributable to non-U.S. Dollar currencies. A hypothetical 10% change in the U.S. dollar value would not have a material effect[196] Item 4. Controls and Procedures Management concluded disclosure controls were ineffective as of March 31, 2025, due to material weaknesses in internal control over financial reporting, with remediation efforts underway - Management concluded that disclosure controls and procedures were not effective as of March 31, 2025, due to existing material weaknesses[199] - Material weaknesses identified include deficiencies in the control environment (insufficient personnel with accounting knowledge), risk assessment, monitoring controls, and information/communication controls[203] - Remediation efforts are underway, including hiring more accounting and IT staff, developing better monitoring protocols, and improving the design and testing of IT controls[202][204] PART II - OTHER INFORMATION Item 1. Legal Proceedings The company is involved in various legal proceedings in the normal course of business, with no expected material adverse effect on financial position - The company is involved in legal proceedings such as commercial claims, product liability, and personal injury claims, which are considered part of the normal course of business[207] - Reserves are established when a liability is probable and can be reasonably estimated. The company does not anticipate these proceedings will have a material adverse effect[207] Item 1A. Risk Factors No material changes have occurred to the risk factors previously disclosed in the company's 2024 Annual Report on Form 10-K - No material changes have occurred to the risk factors disclosed in the 2024 Form 10-K[208] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company reports no unregistered sales of equity securities or purchases of equity securities by the issuer or affiliated purchasers during the period - None[209] Item 3. Defaults Upon Senior Securities The company reports no defaults upon senior securities - None[210] Item 4. Mine Safety Disclosures This item is not applicable to the company - Not applicable[211] Item 5. Other Information The company reports no other material information required to be disclosed - None[215] Item 6. Exhibits This section lists exhibits filed with the Quarterly Report on Form 10-Q, including corporate governance documents and officer certifications - Exhibits filed include corporate governance documents and required officer certifications under the Sarbanes-Oxley Act[217]