Loar Holdings Inc. Q3 FY2025 earnings call

Key Points

• Focus on building shareholder value over the long term with an emphasis on intellectual property.
• Highlighted organic product launches to solve aerospace industry pain points, with a pipeline of opportunities growing by $100 million since the last call, representing over $600 million in sales over five years.
• Plan to optimize manufacturing, go-to-market, and management systems to enhance productivity, including enhancing data utilization via ERP systems.
• Aim to achieve price above cost of inflation annually, leading to continuous margin improvement despite temporary headwinds from public company costs and acquisitions.
• Commitment to developing talent as a key driver of success.

In Q3 2025, Loar Holdings Inc. saw record sales. Commercial aftermarket sales increased 19% due to strong demand for commercial air travel and an aging commercial fleet. Commercial OEM sales rose 11% as a result of higher sales across platforms and an improving production environment. Defense sales jumped 70% driven by strong demand across multiple platforms and new product launches. Absolute figures: total sales in Q3 2025 were $127 million. Revenue contribution percentages weren't explicitly stated in the transcript but the breakdown by end markets is as described.

2025 Outlook

• Exceeded previous outlook for 2025, driven by executing value drivers in the first nine months and strength of the proprietary portfolio. Net sales, adjusted EBITDA, net income, diluted EPS, and adjusted EPS all exceeded prior expectations.

2026 Outlook

• Net sales expected to be between $540 million to $550 million.
• Adjusted EBITDA between $209 million and $214 million, with an adjusted EBITDA margin of approximately 39%.
• Net income between $80 million and $85 million, adjusted EPS between $0.98 and $1.03 per share.
• Capital expenditures ~$17 million, full-year interest expense $25 million, effective tax rate ~25%, depreciation and amortization $15 million, non-cash stock-based comp $17 million.
• Operating cash flow minus capital expenditures expected to be >125% of net income assuming no additional acquisitions.

• Costs related to being a public company such as Sarbanes-Oxley compliance and organizational costs, though the run rate of these costs is reflected in Q3 2025 results.
• Temporary dilution of margins from acquisitions with dilutive margins.

Q: Congratulations on your record margin in the quarter despite the two headwinds that you called out, including the dilution from the recent deal. Can you provide more color now with what the operating and integration playbook looks like thirty, sixty, ninety days after a deal? Are there some heuristics operationally that you could call out? And where do you usually find low hanging fruit?

A: So, good morning, Kristine. So it varies by the business that we acquire, right? Some businesses require, put it this way, a lot of handholding, others just require strategic direction. Specifically, to Beadlight our recent acquisition, great business, great team, great leader in Gina. It's more about in this case, the first thirty, sixty days which is always the case, I should start there. Is listen and observe first. We don't believe that we're smarter than the folks that have been running the business for years. Right. So we listen and watch and learn first. And help wherever they come to us initially. In Beadlight's case, it's more about the synergy with customers and focusing in that manner, which we have started with really have a tremendous runway ahead of us in terms of opportunity.

Q: Your Defense growth has been superb this year. Your guidance is for about 5%. Why the deceleration? And maybe can you talk about, yes, what's driving the deceleration, whether domestic or international?

A: So first of all, I'll say it this way, lessons learned been doing this for three decades. And when you have a defense market that one year is up, as we've seen it somewhere between 16% to 20%. It usually is time for it to be rationalized, right? It should be a mid-single-digit-ish growth rate on the defense side. I'll give you a little bit of specifics. Ground vehicles were strong in 2025. I will tell you as we put together our budget, is a month or so ago now, we looked at terms of our product and ground vehicles and we said, to ourselves that that's a slowdown. We didn't have the backlog at the time. To support it. But what I would tell you today, Sheila, if we were building that forecast today, probably come up with a different result. But since that time, we've seen improved bookings for ground vehicle product.

Q: You did nudge up slightly the aftermarket expectations for this year. Curious if you can talk about what's specifically driving that or how we think about sort of volume versus price in the aftermarket growth this year?

A: It's all across our products. I can't think of any one that stood out in terms of driving the aftermarket growth change. It's really across all the products. And it's volume driven not price. We're just seeing well, I guess I'll put it this way. When we put together a guide as we always do, we think of it in such a way to make sure that we meet or exceed, I think you know that. So it's actually what's not surprising to us that it's low double-digit growth. Just like we're starting out this year, thinking it's low double-digit growth. Commercial aftermarket, I got to tell you is extremely strong. I know some folks we talk to worry about it slowing down. I got to tell you Ken, don't see it. So going back to your question, volume driven not price and it's across all of our product offerings.