DPC Holdings Ltd Q3 FY2026 earnings call

• Strategic Partnerships: Signed fifth strategic customer partnership, a minimum 10-year contract with a major IGT OEM expected to generate over $100 million in annual revenue when fully ramped. Customer funding covers ~80% of the required $200 million capital investment.
• Joint Venture Acquisition: Acquired a 50% stake in Montana Precision Products (MPP) via a joint venture with Unison (GE Aerospace). MPP manufactures small structural castings and tubes, primarily for GE. Transaction is cash-funded ($73 million for 50% stake + freehold costs) and expected to be earnings accretive within the first year.
• Market Positioning: Doncaster’s specializes in heavy-duty frame gas turbines (~85% of IGT casting revenue), benefiting from long asset life cycles and growing replacement parts demand. Industry supply remains constrained with high barriers to entry.
• New Market Entry: Won first supply contract for UAV/drone applications using Turbo Wheel capabilities, signaling potential entry into a high-volume, high-price market.
• Capacity Expansion: Planning to double heavy-frame capacity supported by contracted Long-Term Agreements (LTAs) and customer-funded investments. Greenfield Super Alloy Facility in Alabama is on schedule.
• Operational Efficiency: Continued focus on operational efficiencies, reducing scrap rates, and leveraging operating leverage from higher volumes and value-based pricing.

Revenue grew 39% YoY to a record $308 million, with Adjusted EBITDA increasing 56% to $58 million (margin of 18.9%). Engine Products segment revenue grew 43%, contributing significantly to the top line, with Adjusted EBITDA up 70% and margin expanding 380 bps to 23.8%. In Europe, Engine Products revenue rose 47% (IGT accounts for ~80% of segment revenue), with Adjusted EBITDA up 46% but margin slightly down 20 bps to 23.9% due to metal cost pass-through dilution. In North America, Engine Products revenue grew 37% to $97 million (aerospace accounts for 80%), with Adjusted EBITDA margin improving 950 bps to 23.5%. The Turbo Wheels segment accounted for 17% of group revenue and 4% of EBITDA; excluding the divested EvoStud business, revenue grew 20% and Adjusted EBITDA margin was 10.2%.

• Full Year 2026 Guidance Raised: Revenue now expected between $1.115 billion and $1.13 billion (previously lower). Adjusted EBITDA guided between $204 million and $207 million, implying an adjusted EBITDA margin of approximately 18%.
• Full Year 2027 Guidance Introduced: Revenue guided between $1.23 billion and $1.33 billion, with a midpoint of $1.28 billion (representing ~13% growth at midpoint). Adjusted EBITDA guided between $240 million and $260 million, with a midpoint of $250 million (~22% growth). This implies an adjusted EBITDA margin of approximately 19.5%, assuming no change in metal cost pass-through.
• Key Assumptions: 2027 guidance includes 100% consolidation of MPP, excludes the divested EvoStud business, and incorporates capital expenditure related to the fifth strategic partnership.

• Metal Cost Inflation: Pass-through of metal cost inflation causes margin dilution (e.g., 90 bps dilution in Q3) despite not affecting EBITDA dollars.
• Capital Intensity & Cash Flow: High capital expenditure requirements for capacity expansion may impact near-term free cash flow, though customer funding mitigates this.
• Execution Risk: Ramp-up of new capacities (e.g., Alabama facility, MPP integration) carries execution risks regarding timelines and yield.
• Market Dependency: Heavy reliance on aerospace and IGT end markets; while structurally strong, any downturn in these sectors could impact demand.

Q: Analyst asked about the underlying assumptions for the raised 2027 guidance, specifically regarding volume, pricing, and acquisitions.

A: CFO clarified that 2027 revenue growth is driven by pronounced volume increases, some pricing benefits, and the full-year contribution of the newly acquired MPP (consolidated 100% due to controlling interest), offset by the exclusion of the divested EvoStud business. No material changes were made to metal cost assumptions. Volume growth is expected to continue as new capacity from strategic partnerships comes online towards the end of 2027.

Q: Analyst inquired about liquidity buffers, leverage targets, and the timing of customer funding given higher 2027 CapEx and breakeven free cash flow guidance.

A: CFO stated the company ended Q3 with net cash of $192 million (pre-MPP payment). While no strict leverage target exists, management feels comfortable operating between 1x and 2x leverage, well below covenant limits. Customer funding for CapEx milestones will occur throughout 2027-2029. The 2027 FCF guidance of zero midpoint includes both customer funding inflows and gross CapEx outflows.

Q: Analyst asked if the pending GE acquisition of CPP impacts Doncaster’s competitive landscape or creates opportunities to win non-GE work from CPP.

A: CEO explained that Doncaster’s core strength lies in large structural castings, whereas CPP focuses on airfoils and titanium, meaning direct competition is minimal. GE’s acquisition of CPP has no negative impact on Doncaster’s. Doncaster’s already has a robust pipeline of airfoil opportunities across multiple OEMs unrelated to this deal, and GE remains a supportive partner, evidenced by their backing of the MPP JV.

Q: Analyst questioned the rationale for 10-year contracts, pricing fixedness, and protections against cost escalations like inflation or pandemics.

A: CEO noted that contracts include annual inflation escalators covering labor, energy, and transport costs, providing robust protection. Pricing mechanisms often include five-year resets to market rates. The long tenors (10-15 years) are designed to secure long-term visibility and growth. Additionally, operational efficiency improvements serve as a key margin driver to maintain profitability over these long terms.

Q: Analyst asked about the aftermarket content in IGT versus aerospace, specifically how data center AI slowdowns might affect IGT outlooks.

A: CEO emphasized that base case growth assumptions exclude data center AI demand, which represents <10% of OEM backlogs. IGT growth is driven by broader electrification, climate policies, and renewables integration. The H-Class fleet is relatively new (ramping since 2015-2016), entering early replacement cycles, ensuring significant recurring service revenue through 2035+. In aerospace, aftermarket content is currently low as structural castings aren’t replaced frequently, but will increase as airfoil volume ramps.