Release Date: November 13, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Loar Holdings Inc (LOAR, Financial) reported record sales of $110 million in Q3 2024, a 16% increase compared to the prior year period.
- The company achieved a 17% increase in net organic sales over the prior period, driven by strong performances in defense, commercial OEM, and commercial aftermarket sectors.
- Adjusted EBITDA was up $9 million in Q3 2024 versus the prior year period, with strong margins at 36.8%.
- Loar Holdings Inc (LOAR) successfully integrated the acquisition of Applied Avionics, enhancing its proprietary product offerings and market position.
- The company provided an optimistic outlook for 2025, expecting net sales between $470 to $480 million and adjusted EBITDA margins to grow to 37.5%.
Negative Points
- The company faced challenges due to supply chain issues and strikes affecting OEM production, impacting sales and margins.
- Interest expenses increased due to the borrowing of $360 million for the acquisition of Applied Avionics.
- The move of one of Loar Holdings Inc (LOAR)'s manufacturing facilities had a dilutive effect on gross profit.
- Defense sales, while strong, are expected to remain choppy due to the nature of ordering patterns.
- The company anticipates a higher effective tax rate of approximately 30% for the full year.
Q & A Highlights
Q: Can you walk us through the risks and opportunities around your 2025 guidance? You mentioned these are the minimums you expect to achieve.
A: (Dirkson Charles, CFO) We are confident in our guidance due to strong visibility from our proprietary content and record backlogs. Risks include potential impacts from OEM supply chain challenges, but these are minimal. Opportunities lie in strong aftermarket demand and defense sales, which are expected to grow significantly. We feel very good about our projections barring any unforeseen events.
Q: Can you explain the drivers behind your 2025 cash flow guidance and the 125% conversion rate of free cash flow to net income?
A: (Glenn D'alessandro, VP and Controller) We expect minimal use of working capital in 2025, with inventory leveling out and receivables increasing due to higher sales. Our capital expenditures and interest expenses are accounted for, supporting our expectation of exceeding a 125% conversion rate.
Q: What drove the commercial aftermarket's strong performance in Q3, and how much did the Applied Avionics acquisition contribute?
A: (Dirkson Charles, CFO) The growth was broad-based across all platforms, driven by market share gains, new product introductions, and strong execution of our value drivers. We don't break down contributions by business unit, but overall performance was strong.
Q: How do you justify the mid-teens organic growth guidance for 2025 when most of your business is growing high single digits?
A: (Dirkson Charles, CFO) The high single-digit growth in commercial OEM and aftermarket, combined with strong defense growth, supports our overall mid-teens growth projection. Non-aviation segments are expected to decline, which may affect the overall calculation.
Q: What factors contribute to the expected Q4 margin deceleration compared to year-to-date performance?
A: (Dirkson Charles, CFO) The mix shift towards defense, which has lower margins than commercial, affects Q4 margins. Additionally, OEM supply chain issues have delayed some revenue, impacting Q4 performance. We also anticipate some typical year-end customer behavior affecting aftermarket sales.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
