Release Date: August 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 $97 million for Q2 2024, a 17% increase compared to the prior year.
- Strong performance in Defense (up 57%), commercial aftermarket (up 19%), and commercial OEM (up 11%).
- The company has a diverse portfolio with over 15,000 unique and proprietary parts, ensuring no single part makes up more than 3% of overall net sales.
- Loar Holdings Inc (LOAR) has successfully implemented a strategy to improve visibility and lead times, resulting in a more predictable and stable order backlog.
- The recent acquisition of Applied Avionics is expected to enhance the company's portfolio with high-margin, proprietary products and significant aftermarket exposure.
Negative Points
- Gross profit margin for Q2 2024 was slightly lower than the prior year, primarily due to higher defense sales which typically have lower margins.
- The company is experiencing temporary dilution from an acquisition completed in the second half of 2023.
- Costs related to the move of one of their manufacturing facilities have impacted margins.
- Despite strong sales, the adjusted EBITDA margin decreased to 36%, down from the prior year quarter.
- The company faces challenges in the OEM sector, particularly with Boeing's MAX production rates and supply chain issues affecting Airbus.
Q & A Highlights
Q: Is it possible to quantify the book-to-bill for commercial aftermarket in the quarter?
A: We have beaten our previous record backlog for commercial aftermarket. The book-to-bill ratio is very strong, between 1.1 and 1.2.
Q: Are you seeing any concerns on the aftermarket outlook into the back half of this year or early next year?
A: We have not seen any slowdown in the commercial aftermarket. Bookings and quoting activities are higher than a year ago.
Q: Can you talk about the strategy deployed over the last few months in terms of changing the pricing and having more visibility?
A: We changed our strategy to require a minimum of 90-day lead times for the best price, which has provided greater visibility and allowed us to level load our shop.
Q: How are you thinking about large commercial OE assumptions for the year?
A: We are cautious about the MAX production rates and have seen some orders pushed out. However, orders for Airbus and other OEMs like Embraer and Cirrus are strong, driving double-digit growth.
Q: Can you talk about your return thresholds for incremental deals and the availability of assets in the pipeline?
A: We aim to double EBITDA in three to five years for acquisitions. Applied Avionics is a high-quality asset with significant opportunities for growth and margin improvement.
Q: Are there any pending product approvals in the next 6 to 12 months that would maintain commercial aerospace aftermarket growth above industry trends?
A: Yes, we have several PMA applications pending approval, which will drive growth in 2025.
Q: What is the profile of your LTAs with OEM customers, and is there an opportunity for pricing adjustments?
A: LTAs are about 10% of our revenues, mostly on the military side. We expect to get price adjustments in the near term, impacting 2025 more than 2024.
Q: What are the initiatives you are working on this year to drive productivity or cost improvements?
A: We moved a business from California to Ohio, expecting synergies that will impact 2025. We focus on high-return CapEx and productivity improvements identified through a bottoms-up approach.
Q: Are you tracking to the 1-3% organic growth from new products this year?
A: Yes, we are tracking to that range. We invest 2-3% of sales in R&D, focusing on returns tied to new business opportunities across all our brands.
Q: Are you agnostic to the end markets within aerospace and defense for M&A?
A: We focus on being balanced across commercial, general aviation, business jet, and military markets. We aim to avoid disproportionate exposure to any single market.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
