Loar Holdings Inc. Q4 FY2024 earnings call

• Loar is a family of companies focused on creating shareholder value through entrepreneurial environment for business units, aiming for above-market growth. Grew sales and adjusted EBITDA at CAGR of 37% and 45% from 2012 to 2024.
• Execute on four value streams: solving aerospace industry pain points via new products, optimizing manufacturing and go-to-market, margin improvement initiatives, and achieving more price than cost of inflation. Aim to improve margins by 660 basis points by 2025.
• Hired Chief Talent Officer to develop employee talent. Portfolio focused on proprietary content in aerospace and defense, balanced across end markets. Recent acquisition of LMB Fans and Motors, headquartered in France, under regulatory review, expected to close by Q3 2025, fits the acquisition criteria with proprietary content and strong market position in fan market.
• Full year 2024 net income increased $27 million, driven by higher operating income and lower interest. Free cash flow conversion over 200% for 2024.

In the fourth quarter and full year 2024, Loar Holdings saw strong financial performance. Net organic sales increased 14.9% in Q4 2024 and 15% for the full year. Gross profit margin for Q4 2024 increased by 250 basis points, and for the full year 2024 was 49.4%. Adjusted EBITDA was a record $146 million for the full year 2024, up $34 million from the prior year. End markets: Defense sales increased 39% in Q4 2024 due to strong demand and new product launches. Commercial aftermarket sales increased 15% in 2024 and 12% in Q4 2024. Commercial OEM sales increased 16% in Q4 2024. Defense now makes up about 24% of sales, down from 19-20% a year ago, and non-aviation business dropped from 12% to 7%. Aftermarket sales were 55% of overall sales in 2024, up from 52% a year ago.

• For 2025, on pro forma basis, expects end markets: commercial OEM and aftermarket up high single digits, defense up 17-20%.
• Net sales between $480 million to $488 million (up from $470 million to $480 million).
• Adjusted EBITDA between $180 million and $184 million (up from $176 million to $180 million), with adjusted EBITDA margins ~37.5% (120 basis point improvement over 2024).
• Net income between $58 million and $63 million, adjusted EPS between $0.70 and $0.75 per share.
• CapEx ~$14 million, full year interest expense ~$28 million. Effective tax rate ~30%, depreciation and amortization ~$51 million, noncash stock-based compensation ~$15 million, fully diluted share count ~97 million shares. Guidance does not include benefit from LMB acquisition.

• Tariffs could impact input costs, but Loar expects to pass along cost increases and has second sources in the US. Inventory accumulated in previous years helps mitigate immediate impact. Market choppiness could affect M&A pipeline, but sector outlook is optimistic.
• Defense sales are lumpy due to end customer ordering patterns.

Q: Sheila Kahyaoglu asked about aftermarket guidance, backlog, price, and volume.

A: Dirkson Charles said backlog is strong, aftermarket lead times are shorter, challenge is keeping up with demand, and guidance reflects strong aftermarket.

Q: Kristine Liwag asked about PMA pipeline.

A: Dirkson Charles said PMA initiatives are developing, parts are qualified but not certified yet, progress made in testing, and benefit expected in second half of 2025.

Q: Jason Gursky asked about M&A pipeline, OE customer ordering patterns, and tariffs.

A: Ian McKillop said M&A pipeline is good, expecting more of the same; Dirkson Charles and Brett Milgrim discussed OE customer ordering patterns varying by product, and tariffs impact is manageable with passing along costs and inventory mitigation.