StandardAero, Inc.(SARO) - 2025 Q2 - Quarterly Report

PART I FINANCIAL INFORMATION Item 1. Financial Statements (unaudited) The unaudited condensed consolidated financial statements for StandardAero, Inc. show significant year-over-year growth in revenue and net income for the three and six months ended June 30, 2025. Total assets increased to $6.48 billion from $6.21 billion at year-end 2024, driven by higher contract assets and inventories. Total liabilities also rose, primarily due to increased long-term debt. Stockholders' equity grew to $2.51 billion. The statements reflect the impact of recent debt refinancing, acquisitions, and stock-based compensation following the company's IPO Condensed Consolidated Statements of Operations Highlights (unaudited) | Metric | Three Months Ended June 30, 2025 (in thousands) | Three Months Ended June 30, 2024 (in thousands) | Six Months Ended June 30, 2025 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | | :--- | :--- | :--- | :--- | :--- | | Revenue | $1,528,943 | $1,347,198 | $2,964,531 | $2,582,921 | | Operating Income | $135,570 | $105,077 | $264,493 | $210,584 | | Net Income | $67,713 | $5,404 | $130,656 | $8,591 | | Diluted EPS | $0.20 | $0.02 | $0.39 | $0.03 | Condensed Consolidated Balance Sheet Highlights (unaudited) | Metric | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | | :--- | :--- | :--- | | Total Current Assets | $2,769,014 | $2,485,134 | | Total Assets | $6,482,711 | $6,213,601 | | Total Current Liabilities | $1,285,227 | $1,273,544 | | Total Liabilities | $3,969,428 | $3,840,197 | | Total Stockholders' Equity | $2,513,283 | $2,373,404 | Condensed Consolidated Statements of Cash Flows Highlights (unaudited) | Metric | Six Months Ended June 30, 2025 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | | :--- | :--- | :--- | | Net cash used in operating activities | $(21,103) | $(18,154) | | Net cash used in investing activities | $(72,371) | $(44,776) | | Net cash provided by financing activities | $81,714 | $65,912 | | Net (decrease) increase in cash | $(11,068) | $2,292 | Note 3: Revenue Recognition Revenue is disaggregated into two segments: Engine Services and Component Repair Services. For the six months ended June 30, 2025, Engine Services generated $2.62 billion and Component Repair Services generated $345.5 million. Commercial Aerospace is the largest end market, contributing $1.75 billion in revenue. A single customer, Customer A, accounted for 15.9% of total revenue during this period. Contract assets grew to $1.07 billion, and remaining performance obligations stood at approximately $366.8 million as of June 30, 2025 Revenue by Segment (Six Months Ended June 30) | Segment | 2025 Revenue (in thousands) | 2024 Revenue (in thousands) | | :--- | :--- | :--- | | Engine Services | $2,618,990 | $2,308,853 | | Component Repair Services | $345,541 | $274,068 | | Total Revenue | $2,964,531 | $2,582,921 | - A single customer, Customer A, represented 15.9% of revenues for the six months ended June 30, 2025, a decrease from 22.5% in the same period of 2024[43] - As of June 30, 2025, the company had approximately $366.8 million of remaining performance obligations, primarily related to multi-year engine utilization contracts[45] Note 5: Acquisitions On August 23, 2024, the Company acquired 100% of Aero Turbine, Inc. for a purchase price of approximately $130.7 million. This price includes an initial cash payment and up to $21.0 million in contingent consideration based on future gross profit targets. The acquisition added $75.0 million in customer relationships and $51.8 million in goodwill to the Component Repair Services segment. The purchase price allocation is provisional and subject to adjustments - The company acquired Aero Turbine, Inc. on August 23, 2024, for a purchase price of approximately $130.7 million, including contingent consideration[49] - The acquisition resulted in the recognition of $75.0 million in customer relationships and $51.8 million in goodwill, which is attributed to Aero Turbine's workforce and market position[50] Note 8: Long-Term Debt As of June 30, 2025, total long-term debt, including the current portion, was $2.35 billion. In October 2024, the company entered into a New Credit Agreement, establishing a $2.25 billion Term Loan Facility and a $750 million Revolving Credit Facility. Proceeds were used to repay all amounts under prior credit agreements. This refinancing lowered the company's weighted average interest rate to 6.4% for the first six months of 2025, down from 9.2% in the same period of 2024 Long-Term Debt Composition (as of June 30, 2025) | Facility | Amount (in thousands) | | :--- | :--- | | New 2024 Term Loan Facilities | $2,238,750 | | New 2024 Revolving Credit Facility | $95,000 | | Finance leases & Other | $20,227 | | Total | $2,353,977 | - On October 31, 2024, the Company entered into a new credit agreement, refinancing its debt structure with new term loan and revolving credit facilities, and used the proceeds to repay prior facilities[57] - The weighted average interest rate on borrowings decreased to 6.4% for the six months ended June 30, 2025, compared to 9.2% for the same period in 2024, due to the refinancing[70] Note 19: Segment Information The company operates in two segments: Engine Services and Component Repair Services. For the six months ended June 30, 2025, Engine Services revenue was $2.62 billion with a Segment Adjusted EBITDA of $352.5 million (13.5% margin). Component Repair Services revenue was $345.5 million with a Segment Adjusted EBITDA of $99.0 million (28.7% margin). Both segments showed year-over-year growth in revenue and profitability Segment Performance (Six Months Ended June 30, 2025) | Segment | Total Segment Revenue (in thousands) | Segment Adjusted EBITDA (in thousands) | Segment Adjusted EBITDA Margin | | :--- | :--- | :--- | :--- | | Engine Services | $2,618,990 | $352,518 | 13.5% | | Component Repair Services | $345,541 | $99,001 | 28.7% | Segment Performance (Six Months Ended June 30, 2024) | Segment | Total Segment Revenue (in thousands) | Segment Adjusted EBITDA (in thousands) | Segment Adjusted EBITDA Margin | | :--- | :--- | :--- | :--- | | Engine Services | $2,308,853 | $303,681 | 13.2% | | Component Repair Services | $274,068 | $70,310 | 25.7% | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes the 14.8% revenue growth for the first six months of 2025 to continued strength in commercial aerospace and business aviation, alongside contributions from the Aero Turbine acquisition. Adjusted EBITDA margin improved to 13.6% from 13.0% year-over-year, driven by favorable product mix, volume growth, and pricing. The company's liquidity remains strong with $715.5 million available as of June 30, 2025. Key operational factors include the aging aircraft fleet driving maintenance demand, offset by ongoing supply chain risks - Key business drivers include an aging installed base of aircraft requiring more maintenance, while supply chain disruptions pose a risk to parts availability and engine throughput[144][145][146] Reconciliation of Net Income to Adjusted EBITDA (Six Months Ended June 30) | Metric | 2025 (in thousands) | 2024 (in thousands) | | :--- | :--- | :--- | | Net Income | $130,656 | $8,591 | | Income tax expense | $46,211 | $37,879 | | Depreciation and amortization | $97,223 | $92,876 | | Interest expense | $87,626 | $155,599 | | Other Adjustments | $41,148 | $41,005 | | Adjusted EBITDA | $402,864 | $335,950 | | Adjusted EBITDA Margin | 13.6% | 13.0% | Results of Operations For Q2 2025, revenue increased 13.5% to $1.53 billion, and net income surged to $67.7 million from $5.4 million in Q2 2024. For H1 2025, revenue grew 14.8% to $2.96 billion, with net income reaching $130.7 million compared to $8.6 million in H1 2024. The significant increase in profitability was primarily driven by higher revenue and a 43.7% decrease in interest expense due to debt refinancing - Q2 2025 revenue grew 13.5% YoY, driven by strength in commercial aerospace (+13.7%), business aviation (+8.9%), and military/helicopter (+11.7%) end markets[169] - Interest expense for H1 2025 decreased by $68.0 million (43.7%) compared to H1 2024, mainly due to the repayment of Prior Senior Notes and the new credit agreement[181] - SG&A expense for H1 2025 increased by $31.6 million, primarily due to higher personnel costs, professional fees related to being a public company, and stock compensation expense[179] Segment Results In Q2 2025, Engine Services revenue grew 11.5% to $1.35 billion, with Segment Adjusted EBITDA up 16.2% to $178.5 million. Component Repair Services revenue surged 31.3% to $178.3 million, with Segment Adjusted EBITDA up 49.6% to $51.6 million. The strong performance in Component Repair was significantly aided by the Aero Turbine acquisition, which contributed $27.3 million in revenue for the quarter - Engine Services Segment Adjusted EBITDA for H1 2025 increased 16.1% to $352.5 million, driven by favorable product mix, volume growth, pricing, and improved productivity[192] - Component Repair Services segment revenue for H1 2025 grew 26.1%, with the Aero Turbine acquisition contributing $49.2 million of this growth[193] Liquidity and Capital Resources As of June 30, 2025, the company had total available liquidity of $715.5 million, consisting of $91.5 million in cash and $639.0 million available under its revolving credit facility. Total debt stood at $2.32 billion. Net cash used in operating activities was $21.1 million for the first six months of 2025, reflecting working capital investments to support business growth. The company was in compliance with all debt covenants - Total available liquidity as of June 30, 2025, was $715.5 million, comprising $91.5 million in cash and $639.0 million in revolving credit facility availability[195] - Net cash used in operating activities for H1 2025 was $21.1 million, primarily due to a $251.3 million increase in operating assets and liabilities (working capital) driven by business growth[204] - The company was in compliance with all covenants in the New Credit Agreement as of June 30, 2025[201] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company is exposed to interest rate, inflation, and currency risks. Interest rate risk on its variable-rate debt is managed through interest rate swap and cap agreements. Inflation risk affects costs for labor and materials, which the company attempts to mitigate through price increases and operational efficiencies. Currency risk from foreign operations is managed through natural hedges and foreign exchange contracts - The company uses interest rate swaps and caps to manage exposure on its floating-rate debt. As of March 2023, it has a $400 million swap fixing SOFR at 3.71% and a $1.5 billion cap on SOFR at 4.45%[215] - To manage currency risk, the company entered into a foreign currency contract on April 7, 2025, with a notional value of GBP 39.5 million and CAD 136.5 million, maturing at year-end[217] Item 4. Controls and Procedures Management concluded that as of June 30, 2025, the company's disclosure controls and procedures were not effective at a reasonable assurance level. This is due to previously identified material weaknesses in internal control over financial reporting related to the control environment, risk assessment, monitoring, IT general controls, and the period-end financial reporting process. The company is in the process of implementing remediation efforts, including hiring additional personnel and improving control design and testing - Management concluded that disclosure controls and procedures were not effective as of June 30, 2025, due to existing material weaknesses in internal control over financial reporting[220] - Material weaknesses identified include deficiencies in the control environment, risk assessment, monitoring, written policies, management review processes, and IT general controls[221][224] - Remediation efforts are underway, including hiring more accounting and IT staff, developing monitoring controls, and improving the design and testing of IT controls[223][225] PART II OTHER INFORMATION Item 1. Legal Proceedings The company is involved in various legal proceedings arising in the normal course of business. Management does not expect the outcome of these matters to have a material adverse effect on the company's consolidated financial position - The company is involved in legal actions and claims in the ordinary course of business but does not expect them to have a material adverse effect on its financial position[228] Item 1A. Risk Factors There have been no material changes from the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2024 - No material changes have occurred to the risk factors disclosed in the 2024 Form 10-K[229] 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 during the period - There were no unregistered sales of equity securities or use of proceeds to report for the period[230] Item 3. Defaults Upon Senior Securities The company reports no defaults upon senior securities - None[231] Item 4. Mine Safety Disclosures This item is not applicable to the company - Not applicable[232] Item 5. Other Information The company disclosed the adoption of Rule 10b5-1 trading plans by two executive officers, Alexander Trapp and Marc Drobny, on June 11, 2025. These plans cover the potential sale of up to 46,320 and 90,626 shares of common stock, respectively, and are scheduled to expire on September 18, 2026 Executive Rule 10b5-1 Trading Plans Adopted | Name and Title | Date of Adoption | Expiration Date | Aggregate Number of Securities to be Sold | | :--- | :--- | :--- | :--- | | Alexander Trapp, Chief Strategy Officer | 6/11/2025 | 9/18/2026 | Up to 46,320 shares | | Marc Drobny, President, Engine Services | 6/11/2025 | 9/18/2026 | Up to 90,626 shares | Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including certifications by the Principal Executive Officer and Principal Financial Officer as required by the Sarbanes-Oxley Act, and Inline XBRL documents