Loar Holdings Inc. Q1 FY2025 earnings call

• Loar is a family of companies with a focus on creating shareholder value through an entrepreneurial and collaborative environment for business units. • They have grown sales and adjusted EBITDA at CAGR of 37% and 45% respectively since 2012. • Execute four value streams: launching new products (1-3% organic top-line growth annually), optimizing manufacturing and go-to-market, improving margins with annual initiatives, and achieving more price than cost of inflation. • Proprietary product offering with over 20,000 unique products, no single product making up more than 3% of net revenue. • Excited about secondary cockpit barrier product, which will be on new Airbus production aircraft and available for retrofit, developed in ~12 months. • Focus on developing and improving employee talent as success is due to their dedication.

In Q1 2025, Loar's net organic sales increased 11.1% over the prior period. Gross profit margin for Q1 2025 increased by 370 basis points. Adjusted EBITDA was up $10 million in Q1 2025 versus Q1 2024, with adjusted EBIT margin at 37.6%. On end markets: Commercial OEM is expected to be up high single-digits vs 2024; commercial aftermarket is up double-digits, up from previous guide of high single-digit growth; defense end markets are up high double digits, with 30% growth in Q1.

• For calendar year 2025, net sales expected between $482 million and $490 million (up from $480M-$488M). • Adjusted EBITDA between $182 million and $185 million (up from $180M-$184M), with adjusted EBITDA margin ~37.5% (120 basis point improvement over 2024). • Net income between $59 million and $64 million, EPS between $0.71 and $0.76 a share. • Capital expenditures ~$14 million, interest expense ~$28 million, effective tax rate ~30%, depreciation/amortization ~$51 million, noncash-based stock comp ~$50 million, fully diluted share count ~97 million shares. • Guidance does not include impact from pending acquisition of LMB Fans and Motors, expected to close in Q3 2025. • No significant impact from current tariff environment.

• Tariff environment noise, with vendors making unfounded price increase claims not impacting Loar directly as they require vendors to prove cost increases. • Defense sales being lumpy due to nature of end customer ordering patterns. • Potential inventory issues in some parts with lighter demand in certain areas.

Q: Good morning, Dirkson, you raised the guide for the commercial aftermarket, and I appreciate your comments that you're not seeing anything today in terms of airline behavior that could change relative to the strength we've seen. But I just wanted to follow-up on two areas, are you seeing any incremental pushback on pricing from airlines in your commercial aftermarket channel or any incremental concern about inventory levels that could be with the airlines that could potentially be a risk down the road?

A: So the first part of your question, not seeing any pushback on price. And I'll add a little. We're actually probably getting more price this year than we did last year, but no pushback there. With regards to inventory there's – there's a lot of stories we can tell there, right? In some areas there are parts where there is inventory in the system, where we see lighter demand. And then there's parts where there's not enough inventory, where we're trying to actually keep up with the pace of demand. But when I net all of those together, the demand we're seeing right now is actually stronger than it was I would say even this time last year. So really good demand. I mean to what I said when we're seeing no degradation. In fact it's really, really strong in terms of the demand.

Q: On defense, organic growth was up 33% in the quarter just very robust. What's driving the decel throughout the year? Is it just lumpiness? Any programs you'd call out? If you could talk about your defense end market?

A: Yes. Sheila, this is Ian. I would say it is defense as we always look at is very lumpy. We had a great Q1 at up 30%. And we are guiding in a conservative way throughout the balance of the year. We do see a lot of programs come and go within the quarter. So – what I would say is for now, it's more about just trying to make sure we have a level playing field for the year and we'll continue to watch it and see if we need to adjust guidance appropriately.

Q: With the supply chain going well, the demand environment being strong. What are you spending the majority of your time doing today? What's your key priority? And how do you measure success?

A: Wow. So I'm going to start answering -- because I have a lot. But I'm going to start answering the questions so I can get Brett to chime in here. But one of the things that we're spending a lot of time on is the pipeline of opportunities that we see. It's been actually taken us in many different directions here. It's probably stronger than we've seen it in a... Brett Milgrim: Long time. We've been probably as busy as we've ever been quite candidly on the M&A stuff across all different sectors. And honestly with all the macroeconomic noise and volatility out there, one may have thought that M&A activity would have slowed down. In fact I think it's going the opposite way. I think it's accelerated. We are in any number of discussions with a handful of potential sellers. And it sure seems like the rest of the year is going to be very, very busy. So at least on the inorganic front that's been taking up a lot of our time. But the good news is a lot of great opportunity. Dirkson Charles: And organically focus has been on really on talent. We're seeing a lot of growth with the inorganic opportunities that we're seeing. We want to make sure that we have the right team in place to support that growth. So there's been a huge focus around that. So I've spent a lot of time there. Those are probably the top two things other than the day-to-day blocking and tackling.

Q: Just a quick question on the defense side of the business. So, the new administration looks like they're going to engage in some procurement reform, including a potential rewrite of federal acquisition regulation and the consolidation of much more purchasing power at the GSA. Can you just talk a little bit on what you like about the existing procurement system and what you like to see change? And then can you also discuss how this change might impact your business?

A: Yeah. I mean, I think when it comes to any potential changes in regulation or how the government business, we'll wait until those rules are finalized and we'll assess them appropriately. Today, we have a great system in place where our teams work well with either the Tier 1 supply in the US government or directly with the US government. So I withhold my judgment on any changes until we know what those are. But I think we have figured out the best way to be efficient, and that's really what our teams are always challenged to do depending on the environment. Brett Milgrim: Yeah. And look, the good news for us procurement methods aside, we're sticking with the model that we've had success with, which is the proprietary products that I'll say it this way, are important to our customers and are critical to aircraft flying and equipment moving from A to B. And I think, as long as we stick with that model, we're going to continue to find success, not only in the US defense market, but as per our most recent acquisition, even in Europe and elsewhere in the world.