Q2 2024 Loar Holdings Inc Earnings Call

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Operator: David Milgrim, Dirkson Charles, Loar Holdings, [inaudible] A film by A film by A film by A film by A film by A film by A film by A film by A film by A film by, Greetings, and welcome to the Loar Holdings, Inc. Second Quarter 2024 Earnings Conference Call and Webcast. At this time, all participants are in listen-only mode. If anyone should require operator assistance, please press star zero on your telephone keypad. There will be a question and answer session following the formal presentation. You may press star 1 at any time to be placed in the question queue.

Ian Mckillop: Greetings and welcome to the Loar Holdings Inc. 2nd quarter, 2020 floor earnings conference calling webcasts.

Speaker Change: Greetings and welcome to the Lord Holdings Inc. second quarter 2024 earnings conference call and webcast. At this time all participants are in listen-only mode. If anyone should require operator assistance please press star 0 on your telephone keypad.

Operator: At this time, I will participate in listening-only mode. If anyone would require operator assistance, please press star zero on your telephone keypad.

Operator: There will be a question and answer session following the formal presentation. You may press star one at any time to be placed in the question queue.

Speaker Change: There will be a question and answer session following the formal presentation. You may press star 1 at any time to be placed in the question queue. As a reminder, this conference is being recorded. It's now my pleasure to introduce your host, Amy Killip, Investor Relations. Please go ahead, Ian.

Operator: As a reminder, this conference is being recorded.

Ian Mckillop: It's not my pleasure to introduce your host, Ian McKillop, InvestRelations.

Operator: As a reminder, this conference is being recorded. It's now my pleasure to introduce your host, Ian McKillop, Investor Relations. Please go ahead, Ian.

Ian Mckillop: Please go ahead, Ian. Thank you.

Ian Mckillop: Thank you, and welcome to the Loar Holdings 2024 Second Quarter Earnings Conference Call. Presenting on the call this morning are Loar's Chief Executive Officer and Executive Co-Chairman Dirkson Charles, Executive Co-Chairman Brett Milgrim, Chief Financial Officer and Treasurer Glenda Osandro, as well as myself, Ian McKillop, the Director of Investor Relations. As a reminder, please visit our website at loargroup.com to obtain a supplemental slide deck and call replay information. Before we begin, we at Loar would like to remind you that the statements made during this call, which are not historical in fact, are forward-looking statements.

Ian Mckillop: And welcome to the Loar Holdings, 2020 Floor Earnings Conference Call. Presenting on the call this morning are Loar's Chief Executive Officer and Executive Co-Chairman, Dirkson Charles, Executive Co-Chairman, Brett Milgrim, Chief Financial Officer and Treasurer, Gwendo Sondro, as well as myself, Ian McKillop, the Director of Investrelations.

Speaker Change: Thank you and welcome to the Lohr Holdings 2024 Second Quarter Earnings Conference Call. Presenting on the call this morning are Lohr's Chief Executive Officer and Executive Co-Chairman Dirkson Charles, Executive Co-Chairman Brett Milgrim,

Speaker Change: Chief Financial Officer and Treasurer Glenda Osandro as well as myself, Ian McKillop, the Director of Investor Relations. As a reminder, please visit our website at loregroup.com to obtain a supplemental slide deck and call replay information.

Ian Mckillop: As a reminder, please visit our website at Loargroup.com to obtain a supplemental slide deck and call weekly information. Before we begin, we would like to remind you that the statements made during this call, which are not historical in fact, are forward-looking statements. Refer their information about important factors that could cause actual results to differ materially from those expressed or implied in the forward-looking statements.

Speaker Change: Before we begin, we at Lohr would like to remind you that the statements made during this call, which are not historical in fact, are forward looking statements.

Ian Mckillop: For further information about important factors that could cause actual results to differ materially from those expressed or implied in the forward-looking statements, please refer to our website for the latest filings with the SEC, available at sec.gov. We'd also like to advise you that during the course of the call, we will be referring to adjusted EBITDA, adjusted EBITDA margin, and adjusted earnings per share, each of which is a non-GAAP financial measure. Please see the tables and related footnotes in the earnings release for the presentation of the most directly comparable GAAP measure and applicable reconciliation. I will now turn the call over to Dirkson.

Speaker Change: For further information about important factors that could cause actual results to differ materially from those expressed or implied in the forward-looking statements, please refer to our website for the latest filings with the SEC, available at sec.gov.

Ian Mckillop: Please refer to our website or latest filings with the SEC available at SEC.gov. We'd also like to advise you that during the course of the call we were referring to the adjusted even on margin and adjusted earnings per share, each of which is a non-GAAP financial measure. Please see the tables and the latest footnotes in the earnings release for the presentation of the most directly comparable GAAP measure and applicable reconciliation.

Speaker Change: We'd also like to advise you that during the course of the call, we will be referring to adjusted EBITDA, adjusted EBITDA margin, and adjusted earnings per share, each of which is a non-GAAP financial measure.

Speaker Change: Please see the tables and related footnotes in the earnings release for the presentation of the most directly comparable GAAP measure and applicable reconciliations. I will now turn the call over to Dirkson.

Ian Mckillop: I will now turn the call over to Derkson. Thanks, Ian. Good morning to all podners, analysts, and those here in our story for the first time.

Dirkson Charles: Thanks, Ian. Good morning to our partners, analysts, and those hearing our story for the first time. I am Dirkson Charles, Founder, CEO, and Co-Chairman of Loar. As this is our second earnings call as a public company, let me outline our approach to these calls. We believe that your time is valuable, and as such, we'll keep our remarks as brief as possible to allow the analysts the majority of the hour we have allocated to ask questions to ensure that we are focused on the things that matter to you. So, let us start by reminding you all of who we are.

Speaker Change: Thanks, Ian. Good morning to our partners, analysts, and those hearing our story for the first time. I am Dirkson Charles, founder, CEO, and co-chairman of L.A.W.

Dirkson Charles: I am Dirkson Charles, founder, CEO, and co-chairman of Loar. As this is our second earnings call as a public company, let me outline our approach for these calls. We believe that your time is valuable, and as such, we'll keep our remarks as brief as possible to allow the analysts the majority of the hour we have allocated to ask questions to ensure that we are focused on the things that matter to you.

Dirkson Charles: Loar is a family of companies with a very simple approach to creating shareholder value. First, we believe that by providing our business units with an entrepreneurial and collaborative environment to advance their brands, we will generate above-market growth. Since our inception in 2012 through the end of calendar year 2023, we have grown sales and adjusted EBITDA at a compound annual growth rate of 38% and 46%, respectively. We collaborate across business units by sharing best practices and ideas while assisting each other when it comes to execution. We execute along four value streams.

Speaker Change: As this is our second earnings call as a public company, let me outline our approach for these calls. As this is our second earnings call as a public company, let me outline our approach for these

Speaker Change: We believe that your time is valuable, and as such, we'll keep our remarks as brief as possible to allow the analysts the majority of the hour we have allocated to ask questions to ensure that we are focused on the things that matter to you.

Dirkson Charles: So, let us start by reminding you all of who we are. Loar as a family of companies are a very simple approach to creating shareholder value. First, we believe that by providing our business units an entrepreneurial and collaborative environment to advance their brands, we will generate above-market growth rates. Since our inception in 2012, through the end of calendar year 2023, we have grown sales and adjusted EBITDA at a compound annual growth rate of 38% and 46%, respectively. We collaborate across business units by sharing best practices and ideas while assisting each other when it comes to execution.

Speaker Change: So, let us start by reminding you all of who we are.

Speaker Change: Law is the family of companies with a very simple approach to creating shareholder value. First we believe that by providing our business units an entrepreneurial and collaborative environment to advance their brands, we will generate above market growth rates.

Speaker Change: Since our inception in 2012, through the end of calendar year 2023, we have grown sales and adjusted EBITDA at a compound annual growth rate of 38% and 46% respectively.

Speaker Change: We collaborate across business units by sharing best practices and ideas while assisting each other when it comes to execution.

Dirkson Charles: We execute along firm value streams. We identify pain points within the aerospace industry and look to solve those problems through organically launching new products, which we believe over the long term will create one to three percentage points of top-line growth. We focus on optimizing the way we manufacture, go to market, and manage our companies to enhance productivity. Each year, we will identify initiatives that will allow us to continually improve our performance, but we focus on one or two major initiatives each year that will improve margins. We also, each year across our portfolio of companies, will achieve more price than inflation, again, margin improvement.

Dirkson Charles: We identify pain points within the aerospace industry and look to solve those problems through organically launching new products, which we believe over the long term will create one to three percentage points of top line growth. We focus on optimizing the way we manufacture, go to market, and align our companies to enhance productivity. Each year, we will identify initiatives that will allow us to continually improve our performance.

Speaker Change: We execute along four value streams. We identify pain points within the aerospace industry and look to solve those problems through organically launching new products, which we believe over the long term will create one to three percentage points of top-line growth.

Speaker Change: We focus on optimizing the way we manufacture, go to market, and match our companies to enhance productivity.

Speaker Change: Each year we will identify initiatives that will allow us to continually improve our performance with a focus on one or two major initiatives each year that will improve margins.

Dirkson Charles: We focus on one or two major initiatives each year that will improve margin. We also, each year across our portfolio of companies, will achieve more price than inflation. Again, margin improvement. Most importantly, we are committed to developing and improving the talent of all our employees because our success is solely a result of their dedication and commitment. To all my mates, a big, big, big thank you for your commitment and hard work.

Speaker Change: We also, each year, across our portfolio of companies, will achieve more price than inflation. Again, margin improvement.

Dirkson Charles: Most importantly, we are committed to developing and improving the talent of all our employees because our success is solely a result of their dedication and commitment.

Speaker Change: Most importantly, we are committed to developing and improving the talent of all our employees because our success is solely a result of their dedication and commitment.

Dirkson Charles: To all my mates, a big, big, big thank you for your commitment and hard work.

Speaker Change: To all my mates, a big, big, big thank you for your commitment and hard work. I'll now turn the call over to Brett to walk you through our key characteristics of our portfolio.

Brett Milgrim: I'll now turn the call over to Brett to walk you through our key characteristics of our portfolio. Thanks, Thurks. Good morning, everybody. I think you all have seen this slide before, so I'll be brief here. This really just serves as a reminder of how we constructed our portfolio. And I think the big takeaway here is that we are a very diverse business that is balanced across not only products, but end markets, and even customers. As I've said before in the past, we are relatively agnostic to the types of end markets we serve, or the customers we serve, or the products that are in our portfolio. But what we continue to be, and is shown by our recent acquisition with Applied Avionics, is we are extremely disciplined about the characteristics of the business model, as you see in the six bubbles down below.

Brett Milgrim: I'll now turn the call over to Brett to walk you through our key characteristics of our portfolio. Thanks, Dirkson. Good morning, everybody.

Brett Milgrim: I think you all have seen this slide before, so I'll be brief here. This really just serves as a reminder of how we built our portfolio, and I think the big takeaway here is that we are a very diverse business that is balanced across not only products but end markets and even customers. As I've said before in the past, we are relatively agnostic to the types of end markets we serve, or the customers we serve, or the products that are in our portfolio, but what we continue to be, and as shown by our recent acquisition of Applied Avionics, is extremely disciplined about the characteristics of the business model, as you see in the six bubbles down below.

Brett Milgrim: Thanks Dirkson. Good morning everybody. I think you all have seen this slide before so I'll be brief here. This really just serves as a reminder how we constructed our portfolio and I think the big takeaway here is that we are a very diverse

Brett Milgrim: business that is balanced across not only products, but end markets, and even customers.

Brett Milgrim: As I've said before in the past, we are relatively agnostic.

Brett Milgrim: to the types of end markets we serve.

Brett Milgrim: or the customers we serve or the products that are in our portfolio.

Brett Milgrim: But what we continue to be, and is shown by our recent acquisition with Applied Avionics, is we are extremely disciplined about the characteristics of the business model, as you see in the six bubbles down below.

Brett Milgrim: Every business that we acquire, and make part of the Loar family has to be AMD focused. It has to have proprietary content, it has to have exposure to the aftermarket, and it has to engage in those niche markets where we feel we have a competitive advantage and high barriers to entry. Applied Avionics, I think, is a perfect example of that.

Brett Milgrim: Every business that we acquire and make part of the war family has to be A&D focused, it has to have proprietary content, it has to have an exposure to the aftermarket, and it has to engage in those niche markets where we feel we have a competitive advantage and high-direstension. Applied avionics; I think it's a perfect example of that. In fact, when you look at the charts above, what you'll find with Applied Avionics, it'll make those charts go in the direction we want in so much as Applied is virtually all proprietary product, and it's about 75% aftermarket.

Brett Milgrim: Every business that we acquire, make part of the Lohr family has to be A&D focused.

Brett Milgrim: It has to have proprietary content, it has to have an exposure to the aftermarket, and it has to engage in those niche markets where we feel we have a competitive advantage and high barriers to entry.

Brett Milgrim: In fact, when you look at the charts above, what you'll find with Applied Avionics, it'll make those charts go in the direction we want, in so much as Applied is virtually all proprietary and is about 75% aftermarket. So while those charts are based on revenues of $23, when you see those numbers at the end of 24, they'll be a little bit higher in those categories I just mentioned. Taking a look at our products, across the 16 brands at Loar, we go to market with over 15,000 unique and proprietary parts, with no one part making up more than approximately 3% of our overall net sales in 2023. Our parts are found across the aircraft, embedded in a multitude of systems and subsystems.

Brett Milgrim: Applied avionics I think is a perfect example of that.

Brett Milgrim: In fact, when you look at the charts above, what you'll find with Applied Avionics, it'll make those charts go in the direction we want in so much as Applied is virtually all proprietary product.

Brett Milgrim: So, while those charts are based on 23 revenues, when you see those numbers at the end of 24, it'll be a little bit higher in those categories, as I just mentioned. The thinking we'll look at our products, across the 16 brands at lower we go to market with over 15,000 unique proprietary parts, with no one part making up more than approximately 3% of our overall net sales in 2023. Our parts are found across the aircraft, embedded in a multitude of systems and subsets. The proprietary nature of our products makes them mission critical for the end customer and ties us to the overall life of the aircraft.

Brett Milgrim: and it is about 75% aftermarket. So while those charts are based on 23 revenues, when you see those numbers at the end of 24, they'll be a little bit higher in those categories I just mentioned.

Speaker Change: So taking a look at our products, across the 16 brands at Lohr we go to market with over 15,000 unique and proprietary parts, with no one part making up more than approximately 3% of our overall net sales in 2023.

Brett Milgrim: The proprietary nature of our products makes them mission-critical for the end customer and ties us to the overall life of the aircraft. As many of you know, the life of an aircraft can exceed 50 years with multiple operators. The design and spec'd-in nature of our products allows us to serve not only the original equipment manufacturer but also the aftermarket through the many operators that Loar sees over its lifetime. We believe that the diversity and proprietary nature of our product offering provides us with the capabilities to serve our customers in a way that is unique to Loar. Thank you, Ian. Good morning, everyone.

Speaker Change: Our parts are found across the aircraft, embedded in a multitude of systems and subsystems. The proprietary nature of our products makes them mission-critical for the end customer and ties us to the overall life of the aircraft. As many of you know, the life of an aircraft can exceed 50 years and multiple operators.

Brett Milgrim: As many of you know, the life of an aircraft can exceed 50 years and multiple operators. The design-inspect in nature of our products allows us to serve not only the original equipment manufacturer, but also the aftermarket through the many operators that aircraft sees over its lifetime.

Speaker Change: The design and spec'd-in nature of our products allows us to serve not only the original equipment manufacturer, but also the aftermarket through the many operators that Aircraft sees over its lifetime.

Brett Milgrim: We believe that the diversity and proprietary nature of our product offering provides us with the capability to serve our customers in a way that is unique to law.

Speaker Change: We believe that the diversity and proprietary nature of our product offering provides us with the capabilities to serve our customers in a way that is unique to Lowell. I'm now going to pass the call over to Glenn to run through the financials.

Brett Milgrim: So, I'm now going to pass the calling of big lands, run into the financials.

Glenda Osandro: Let me start by discussing sales by our end market. This comparison will be on a pro forma basis as if each of our businesses were owned as of the first day of the earliest period presented. We had record sales during the second quarter of 2024. In total, our sales increased to $97 million, a 17% increase as compared to the prior year period.

Glenn Sondro: Thank you, Ian. Good morning, everyone. Let me start by discussing sales by our end markets. This comparison will be on a performance basis as if each of our businesses were owned as of the first day of the earliest period presented. We had record sales during the second quarter of 24. In total, our sales increased the 97 million, a 17% increase as compared to the prior year period. This increase was driven by strong performances in defense, up 57%; commercial aftermarket, up 19%; and commercial OEM, up 11%. The increase in total commercial aftermarket sales of 19% was primarily due to the continuing recovery in commercial air travel demand and an end to the destocking as a handful of our distributors and end customers that affected us in Q124.

Glenn: Thank you, Ian. Good morning, everyone. Let me start by discussing sales by our end markets.

Glenn: This comparison will be on a pro forma basis as if each of our businesses were owned as of the first day of the earliest period presented.

Glenda Osandro: This increase was driven by strong performances in defense, up 57 percent, commercial aftermarket, up 19 percent, and commercial OEM, up 11 percent. The increase in total commercial aftermarket sales of 19% was primarily due to the continuing recovery in commercial air travel demand and an end to the de-stocking by a handful of our distributors and end customers that affected us in Q1 2014. During Q2-24, we continue to see strength in our commercial aftermarket focus. Our total commercial OEM sales increased by 11% in Q2-24 as compared to the prior year period.

Glenn: We had record sales during the second quarter of 2024. In total, our sales increased to $97 million, a 17% increase as compared to the prior year period.

Glenn: This increase was driven by strong performances in defense up 57%, commercial aftermarket up 19%, and commercial OEM up 11%.

Glenn: The increase in total commercial aftermarket sales of 19% was primarily due to the continuing recovery in commercial air travel demand and an end to the de-stocking as a handful of our distributors and end customers that affected us in Q1-24

Glenn Sondro: During Q2 224, we continued to see strength in our commercial aftermarket bookings. Our total commercial OEM sales increased by 11% in Q224 as compared to the prior year period. This increase was driven primarily by higher sales across a significant portion of the platforms' resupply, including general aviation, wide body, and narrow body aircraft. As an improving supply chain has allowed us to deliver parts that were previously held because of our customers, who were experiencing bottlenecks in other areas of their supply chain. The increase of 57% in our defense sales was primarily due to strong demand across multiple platforms and an increase in market share as a result of new product launches.

Glenn: During Q2-24, we continue to see strength in our commercial aftermarket bookings.

Glenn: Our total commercial OEM sales increased by 11% in Q2-24 as compared to the prior year period.

Glenda Osandro: This increase was driven primarily by higher sales across a significant portion of the platforms we supply, including general aviation, widebody, and narrowbody aircraft. Furthermore, an improving supply chain has allowed us to deliver parts that were previously held because our customers were experiencing bottlenecks in other areas of their supply chain. The increase of 57% in our defense sales was primarily due to strong demand across multiple platforms and an increase in market share as a result of new product launches.

Glenn: This increase was driven primarily by higher sales across a significant portion of the platforms we supply, including general aviation, wide-body, and narrow-body aircraft, as an improving supply chain has allowed us to deliver parts

Glenn: that were previously held because our customers were experiencing bottlenecks in other areas of their supply chain.

Glenn: The increase of 57% in our defense sales was primarily due to strong demand across multiple platforms and an increase in market share as a result of new product launches.

Glenda Osandro: Defense sales will continue to be lumpy given the nature of the auditing patterns of our end customers for our products. Let me recap our financial highlights for the second quarter of 24. Our net organic sales increased 17% over the prior period.

Glenn Sondro: Defense sales will continue to be lumpy given the nature of the ordinary patterns of our end customers for our products.

Glenn: Defense sales will continue to be lumpy given the nature of the auditing patterns of our end customers for our products.

Glenn Sondro: Let me recap our financial highlights for the second quarter of 24. Our net organic sales increase 17% over the prior period. Our gross profit margin for Q224 was slightly lower than the prior year period. This was primarily due to higher defense sales in Q224, which were 22% of total sales in 24 versus 18% for Q223. Our defense sales make a lot of money, but typically of lower margins than our more profitable commercial products. We also continued to see some dilute of effects from one of the acquisitions that we acquired in the second half of 2023, as well as course related to the move of one of our manufacturing facilities.

Glenda Osandro: Our gross profit margin for Q2'24 was slightly lower than the prior year period. This was primarily due to higher defense sales in Q2-24, which were 22% of total sales in Q2-24 versus 18% for Q2-23. Our defense sales make a lot of money, but typically have lower margins than our more profitable commercial products. We also continue to see some dilutive effects from one of the acquisitions that we made in the second half of 2023, as well as costs related to the move of one of our manufacturing facilities. These items were partially offset by pricing and operating leverage.

Glenn: Let me recap our financial highlights for the second quarter of 2024. Our net organic sales increased 17% over the prior period.

Glenn: Our gross profit margin for Q2'24 was slightly lower than the prior year period.

Glenn: This was primarily due to higher defense sales in Q2-24, which were 22% of total sales in Q2-24 versus 18% for Q2-23. Our defense sales make a lot of money, but typically have lower margins than our more profitable commercial products.

Glenn: We also continued to see some dilutive effects from one of the acquisitions that we acquired in the second half of 2023 as well as costs related to the move of one of our manufacturing facilities.

Glenn Sondro: These items were partially offset by pricing and operating leverage. Our increase in net income of 7 million in Q224 versus Q223 is primarily due to higher operating income, as well as from the lower interest expense as a result of paying down 285 million of indebtedness with the proceeds from the IPO, as well as the amendment to our credit agreement in May 2024, lowering our interest rate by 250 basis points. Adjusted EBITDA was up $7 million in Q2 24 versus the prior year. Adjusted EBITDA margins remained strong at 36%, but were lower than the prior year quarter.

Glenda Osandro: Our increase in net income of $7 million in Q2'24 versus Q2'23 is primarily due to higher operating income as well as lower interest expense as a result of paying down $285 million of indebtedness with the proceeds from the IPO, as well as the amendment to our credit agreement in May 2024, lowering our interest rate by 250 basis points. Adjusted EBITDA was up $7 million in Q2'24 versus the prior Adjusted EBITDA margins remained strong at 36%, but they were lower than the prior year quarter.

Glenn: These items were partially offset by pricing and operating leverage.

Glenn: Our increase in net income of $7 million in Q2'24 versus Q2'23 is primarily due to higher operating income as well as from the lower interest expense as a result of paying down $285 million of

Glenn: Indebtedness with the proceeds from the IPO, as well as the amendment to our credit agreement in May 2024, lowering our interest rate by 250 basis points.

Glenn: Adjusted EBITDA was up $7 million in Q2'24 versus the prior year.

Glenn: Adjusted EBITDA margins remained strong at 36%, but were lower than the prior year quarter.

Dirkson Charles: This was a result of the sales mix that I discussed above, the temporary dilution from one of the acquisitions completed in the second half of 2023, and the continued build-out of our infrastructure to support our reporting, governance, and control needs as a newly public company. Now, I will turn the call back over to Dirkson to share the outlook for the remainder of the year. Thanks, Glenn.

Glenn Sondro: This was a result of the sales mix that I discussed above, the temporary dilution from one of the acquisitions completed in the second half of 23, and the continued build-out of our infrastructure to support our reporting, governance, and control needs as a newly public company.

Glenn: This was a result of the sales mix that I discussed above, the temporary dilution from one of the acquisitions completed in the second half of 2023, and the continued build-out of our infrastructure to support our reporting, governance, and control needs as a newly public company.

Dirkson Charles: Let me turn the call back over to DERX and to share the outlook for the remainder of the year. Thanks, Glenn. Given the strong performance across all end markets, as Glenn has just outlined, in addition to the strengthen available seat mouths, which is projected by IATA to be above 2019 levels in 2024, when combined with the challenges of the OEM to produce a new aircraft, has resulted in strong orders in our commercial aftermarket. In addition, the geopolitical instability in the world driving demand for our products sold to the defense end market is driving greater sales.

Glenn: Let me turn the call back over to Dirkson to share.

Dirkson Charles: Given the strong performance across all end markets, as Glen has just outlined, in addition to the strength in the available receipt miles, which is projected by IATA to be above 2019 levels in 2024, when combined with the challenges of the OEMs to produce new aircraft, has resulted in strong orders in our commercial aftermarket. In addition, the geopolitical instability in the world driving demand for our products sold to the defense and security market driving greater sales, combined with our continued execution of our value drivers, gives us a high degree of confidence, a high degree of confidence that we will achieve organically a mid-double digit percentage improvement in sales across each of our end markets in 2024 on a pro forma basis. Note that these results do not include our recently announced acquisition of Applied Avionics, which we expect to close in the third quarter of this year. Thank you.

Dirkson Charles: The outlook for the remainder of the year

Dirkson Charles: Thanks, Glenn. Given the strong performance across all our end markets, as Glenn has just outlined, in addition to the strength in the available receipt miles, which is projected by IATA to be above 2019 levels in 2024,

Dirkson Charles: when combined with the challenges of the OEMs to produce new aircraft has resulted in strong orders in our commercial aftermarket.

Dirkson Charles: In addition, the geopolitical instability in the world driving demand for our products sold to the defense and market is driving greater sales.

Dirkson Charles: Combined with our continued execution of our value drivers gives us a high degree of confidence, a high degree of confidence, that we will achieve organically mid-double digit percentage improvement in sales across each of our end markets in 2024 on a pro-former basis.

Dirkson Charles: combined with our continued execution of our value drivers gives us a high degree of confidence.

Dirkson Charles: a high degree of confidence that we will achieve organically mid-double-digit percentage improvement in sales across each of our end markets in 2024 on a pro-forma basis.

Dirkson Charles: Note that these results do not include a recently announced acquisition of Applied Avionics, which we expect to close in the third quarter of this year. for calendar year 2024. We expect net sales between 374 to 378 million, up from our previous guidance of 370 to 374 million. Adjust an EBITDA between 134 and 136 million, again up from our previous guidance range of 132 and 134 million. Adjust an EBITDA margin we expect to be approximately 36% for calendar 2024, while net income we expect to be between 28.4 and 29.6 million dollars per year. Adjust an EPS between $0.44 and $0.46 per year.

Dirkson Charles: Note that these results do not include our recently announced acquisition of Applied Avionics, which we expect to close in the third quarter of this year.

Dirkson Charles: For calendar year 2024, we expect net sales between $374 and $378 million, up from our previous guidance of $370 to $374 million. Adjusted EBITDA between $134 million and $136 million, again up from our previous guidance range of $132 million and $134 million. Adjusted EBITDA margin we expect to be approximately 36% for calendar year 2024, while net income we expect to be between $28.4 and $29.6 million for the year, with adjusted EPS between $0.44 and $0.46 per share.

Dirkson Charles: Next slide.

Dirkson Charles: So calendar year 2024, we expect net sales between $374 to $378 million, up from our previous guidance of $370 to $374 million.

Dirkson Charles: adjusted EBITDA between $134 million and $136 million, again up from our previous guidance range of $132 million and $134 million.

Dirkson Charles: Adjusted EBITDA margin, we expect to be approximately 36% for calendar year 2024, while net income, we expect to be between $28.4 and $29.6 million for the year.

Dirkson Charles: Adjusted EPS between 44 cents and 46 cents per share in addition

Dirkson Charles: In addition, Capital expenditures, approximately $11 million for the year. Full year interest expense, approximately $42 million. Effective tax rate of 30%, DNA, approximately $40 million, and on non-cash stock-based compensation, about $10 million, up from $9 million from our previous guidance. A fully deadlooted share count remains at approximately 91 million shares.

Dirkson Charles: In addition, tackle expenditures, approximately 11 million per year, foliar interest expense, approximately 42 million, effective tax rate of 30%, DNA, approximately 40 million, and a non-cash stock base compensation about $10 million, up from 9 million from our previous guidance. Fully debt-looted share count remains at approximately 91 million shares.

Dirkson Charles: Capital expenditures, approximately $11 million for the year. Full year interest expense, approximately $42 million.

Dirkson Charles: Effective tax rate of 30%, DNA approximately $40 million, and on non-cash stock-based compensation about $10 million up from $9 million from our previous guidance.

Dirkson Charles: A fully deadlooted share count remains at approximately 91 million shares.

Dirkson Charles: With that, I said we'd keep it brief.

Operator: With that, I said we'd keep it brief. So with that. Operator, let's open the line for questions. Let's go. Certainly. We will now be conducting a question and answer session. If you would like to be placed in the question queue, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue.

Operator: So, with that, operate it or let's open the line for questions. Let's dig in.

Speaker Change: With that, I said we'd keep it brief, so with that...

Operator: Certainly, we're now conducting your question and answer session. If you'd like to be placed into question Q, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question Q. You may press star two if you'd like to move your question from the Q.

Speaker Change: Operator, let's open the line for questions. Let's dig in.

Speaker Change: Certainly. We'll now be conducting a question and answer session. If you'd like to be placed into question queue, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to remove your question from the queue.

Operator: One moment, please, while we pull for questions.

Ken Herbert: Our first question is coming from Ken Herbert from RBC Capital Markets for Lines of our Life. Yeah, hi, good morning, everybody. Nice quarter.

Operator: You may press star 2 if you'd like to remove your question from the queue. One moment, please, while we poll for questions. Our first question is coming from Ken Herbert from RBC Capital Markets. Your line is now live. Yeah, hi. Good morning, everybody.

Speaker Change: One moment please while we poll for questions. Our first question is coming from Ken Herbert from RBC Capital Markets. Your line is now live.

Dirkson Charles: Nice quarter. Thanks Ken. Hey Dirkson, maybe to start off, is it possible to quantify sort of the book-to-bill for the commercial aftermarket in the quarter either at the aggregate level or by transport and business jets? I mean, you've called out very strong bookings a few times.

Dirkson Charles: Thanks, Ken. Hey, Edirkson, maybe to start off, is it possible to quantify sort of the book-to-bill for commercial aftermarket in the quarter, either at the aggregate or by transport and business jets? I mean, you've called out very strong bookings a few times. I'm wondering if you can just put a finer point on that. So, Ken, if you remember the last quarter, we said we had record backlog for commercial aftermarket. I'll respond to your question in this way. We have beaten that record as we stand here today in terms of what that backlog looks like going forward.

Ken Herbert: Yeah, hi, good morning everybody. Nice quarter.

Speaker Change: Thanks Ken. Hey Dirkson maybe to start off is it possible to quantify sort of the book to bill

Ken Herbert: for commercial aftermarket in the quarter either at the aggregate or by transport and business jets. I mean you've called out very strong bookings a few times. I'm wondering if you can just put a finer point on that.

Dirkson Charles: I'm wondering if you can just put a finer point on that. So, Ken, if you remember the last quarter, we said we had a record backlog for the commercial aftermarket. I'll respond to your question in this way. We have beaten that record as we stand here today in terms of what that backlog looks like going forward. So very, very strong bookings due in a year. I would say this way, above one, right? So think, between 1.1 and 1.2. I don't know the exact number off the top of my head, but very, very strong orders. So we continue to see aftermarket orders trending strongly. Okay, very helpful.

Dirkson Charles: So, Ken, if you remember the last quarter, we said we had record backlog for commercial aftermarket.

Ken Herbert: I'll respond to your question in this way. We have beaten that record as we stand here today in terms of what that backlog looks like going forward. So very, very strong bookings due in a year. I would say this way, above one, right? So think...

Dirkson Charles: So, very, very strong bookings due in a year. I would say this way above one, so think between 1.1 and 1.2. I don't know the exact number off the top of my head, but very, very strong orders. So, we continue to see the aftermarket orders trending strongly. Okay, very helpful.

Ken Herbert: Between 1.1 and 1.2, I don't know the exact number off the top of my head, but very, very strong orders. So we continue to see the aftermarket orders trending strongly.

Dirkson Charles: And, you know, there's been a lot of speculation recently about the strength of the aftermarket into the second half of this year and early next year with some more cautionary comments on capacity growth from some airlines. Are you seeing anything that would give you any sort of incremental concern on the aftermarket outlook into the back half of this year, early next year, either end? You know, order activity, you know, RFQ activity within the aftermarket. Is there anything else you'd call out as you think about this year, the latter part of this year? So Ken, we're reading the same articles. I've read the same thing. I've seen the same thing.

Dirkson Charles: There's been a lot of speculation recently about the strength of the aftermarket into the second half of this year and early next year, with some more cautionary comments on capacity growth from some airlines. Are you seeing anything that would give you any sort of incremental concern on the aftermarket outlook into the back half of this year, early next year, either in order activity, RFQ activity within the aftermarket as anything else you'd call out as you think about into this year, latter part of this year. So, Ken, we're reading the same articles. I've read the same thing.

Speaker Change: Okay, very helpful and you know there's been a lot of speculation recently about strength of the aftermarket into the second half of this year and early next year with some

Speaker Change: More cautionary comments on capacity growth from some airlines. Are you seeing anything that would give you any sort of incremental concern on the aftermarket outlook into the back half of this year, early next year, either in

Speaker Change: you know, order activity, you know, RFQ activity within the aftermarket, just anything else you'd call out as you think about into this year, latter part of this year.

Dirkson Charles: I've seen the same thing. I will tell you, for us, we have not seen anything that remotely comes close to slowing down in the commercial aftermarket. Like I said earlier, bookings are strong. The quotes to answer your question is a very good question. We see it's higher than it was a year ago, and the quoting activity that is so, no, it's blue skies. Perfect. Thanks, Dersen. I'll pass it back there. Thank you.

Ken Herbert: So Ken, we're reading the same articles. I've read the same thing. I've seen the same thing. I will tell you for us

Dirkson Charles: I will tell you, for us, we have not seen anything that remotely comes close to slowing down in the commercial aftermarket. Like I said earlier, bookings are strong. The quotes, to answer your question, are a very good question. We see that they're higher than they were a year ago, and the quoting activity, that is. So no, we, it's blue skies.

Ken Herbert: We have not seen anything that remotely comes close to a slowing down in the commercial aftermarket. Like I said earlier, bookings are strong.

Ken Herbert: The quotes to answer your question, very good question, we see it's higher than it was a year ago and the quoting activity that is. So no, it's blue skies.

Dirkson Charles: Perfect. Thanks, Dirkson. I'll pass it on back there.

Speaker Change: Perfect. Thanks, Dirkson. I'll pass it back there.

Operator: Thank you. The next question is coming from Sheila Kigaloo from Jefferies. Your line is now live.

Sheila Kahyaoglu: Next question is from Sheila Kahyaoglu from Jeffries; your line is alive. Thank you, guys, and congratulations on your first Q&A session.

Speaker Change: Thank you, next question is coming from Sheila Kigaloo from Jeffrey's, your line is now live.

Dirkson Charles: Thank you guys, and congratulations on your first Q&A sessions. So maybe if we could stick to the aftermarket, you know. I think it was 38% total, 19% organic. Is that the number? You know, Dirkson, how can you, can you talk about the strategy you deployed over the last year? Thank you. A few months in terms of changing the pricing and having more visibility there, how that contributed to that 19% organic growth, how do you kind of see that book-to-bill progressing? Does that give you about three to six months of visibility?

Dirkson Charles: So maybe it's a good thick to the aftermarket. I think it was 38% total, 19% organic. Is that number? Dersen, can you talk about the strategy you deployed over the last few months in terms of changing the pricing and having more disabilities there, how that contributed to that 19% organic growth. How do you kind of see that book to build progressing? Does that give you about three to six months of visibility?

Sheila Kigaloo: Thank you guys and congratulations on your first Q&A sessions. So maybe if we could stick to the aftermarket, you know, I think it was 38% total, 19% organic, is that number? You know, Dirkson, how can you, can you talk about the strategy you deployed over the last...

Speaker Change: few months in terms of changing the pricing and having more visibility there, how that contributed to that 19% organic growth, how do you kind of see that book-to-bill progressing? Does that give you about three to six months of visibility?

Dirkson Charles: I'm happy to answer the question, but I have to say, I'm not sure everybody in the room is excited about the Q&A section, as you just said, but we're keeping it easy. We're going off of very good numbers. Yes, yes, yes.

Dirkson Charles: No, happy to answer the question, but I have to say I'm not sure everybody in the room is excited about the Q&A section. As you just said, but we're keeping it easy. We're going off of very good numbers. Like I said before, we see strong aftermarket growth trends. We did, at the beginning of this year, change the way that we are going to market in terms of lead times. So previously, we had looked at lead times of two weeks or less for a lot of our commercial aftermarket products. And we saw a number of our end market customers, namely a number of distributors, use us as the warehouse to stock their inventory.

Speaker Change: I'm happy to answer the question but I have to say I'm not sure everybody in the room is excited about the Q&A section as you just said but we understand. We're keeping it easy, we're going off of very good numbers.

Dirkson Charles: Like I said before, we see strong aftermarket growth trends. We did, at the beginning of this year, change the way that we go to market in terms of lead times. So previously, we had looked at lead times of two weeks or less for a lot of our commercial aftermarket products, and we saw a number of our end market customers, namely a number of distributors, use us as a warehouse to stock their inventory. But we saw orders decline.

Speaker Change: So yeah, like I said before, we see strong aftermarket growth trends.

Speaker Change: We did, at the beginning of this year, change the way that we are going to market in terms of lead times.

Speaker Change: So previously we had looked at

Speaker Change: lead times of two weeks or less for a lot of our commercial aftermarket products. And we saw a number of our end market customers, namely a number of distributors, use us as the warehouse to stock their inventory. So we saw orders decline.

Dirkson Charles: So we saw orders decline. What we've seen since we've changed our strategy to requiring folks to, at a minimum, have 90-day lead times to get the best price, if I can say that way, is actually, it's rough wonders. We've been able to get more visibility, so we can see three and four months out. That's why I was comfortable answering Ken's question earlier. So strongly about we don't see any weakness because we have the backlog in the aftermarket where we only have two weeks a year ago. We have three, four, or five months look ahead in terms of the aftermarket.

Operator: Please continue to hold.

Dirkson Charles: What we've seen since we changed our strategy to require folks to, at a minimum, have 90-day lead times to get the best price, if I can say it that way, is actually... It's worked wonders. We've been able to get more visibility, so we can see three and four months out. That's why I was comfortable answering Ken's question earlier so strongly about we don't see any weakness because we have the backlog in the aftermarket where we only had two weeks a year ago. We have three, four, five months ahead in terms of the aftermarket. So that is stuck. The pricing is stuck.

Operator: Once again, our conference of beginning started momentarily. Please continue to hold. We do thank you for your patience.

Speaker Change: What we've seen since we've changed our strategy to requiring folks to, at a minimum, have 90-day lead times to get the best price, if I can say it that way, is actually...

Speaker Change: It's worked wonders. We've been able to get more visibility so we can see three and four months out. That's why I was comfortable answering Ken's question earlier so strongly about we don't see any weakness because we have the backlog in the aftermarket where we only have two weeks.

Speaker Change: a year ago, we have three, four, five months look ahead in terms of the aftermarket. So that is stuck, the pricing is stuck, so it's working really, really well. Greater visibility and one of the benefits...

Dirkson Charles: So that is stuck. The pricing is stuck. So it's working really, really well. Great visibility. And, you know, one of the benefits is we are now able to level out our shop instead of guessing at what people are going to order. So it's, it's what wonders both on the top line and lower cost. Got it. Now, thank you for that.

Dirkson Charles: So it's working. It's working really, really well. Greater visibility, and one of the benefits is that we are now able to level load our shop instead of guessing at what people are going to order. So it's worked wonders both on the top line and lower costs. Got it. No, thank you for that.

Speaker Change: is we are now able to level out our shop instead of guessing at what people are going to order. So it's worked wonders, both on the top line and lower cost.

Dirkson Charles: And maybe if we could go to, you know, just large commercial OE, leading up with this jet BGA growth, I think it grew 11% organically in the quarter, correct me if I'm wrong there. And your full year guidance is mid to double digits. So how do we think about your OE assumptions, whether it's the max or the 787 on the Boeing platform, what are you thinking about that trending for the year? And what did they do in the quarter?

Dirkson Charles: And maybe if we could go to, you know, just large commercial OE, leaving out the Vizjet BGA growth. I think grew 11% organically in the quarter. Correct me if I'm wrong there. And your full guidance is mid to double digits. So how do we think about your OE assumptions, whether it's the max or the 787 on the Boeing platform. And how you're thinking about that trending for the year. And what do they do? quarter. Yeah, so I guess I'll take it in this order. Max first, we don't believe what the OEM says in terms of what their bill rates are going to be in the production rates.

Speaker Change: got it no thank you for that and maybe if we could go to

Speaker Change: you know, just large commercial OE.

Speaker Change: leading up to BizJet's BGA growth, I think grew 11% organically in the quarter, correct me if I'm wrong there, and your full year guidance is mid to double digits, so how do we think about your OE assumptions, whether it's the max or the 787 on the Boeing platform?

Dirkson Charles: Yeah, so I guess I'll take them in this order: Max first. We don't believe what the OEM says in terms of what their bill rates are going to be and their production rates. We think it will be significantly less, and that's what we plan for. I will tell you, over the past few weeks, I have gotten information from my mates at the business units about folks, our customers, pushing out OEM, Boeing-related orders, okay? So that's kind of how we feel about the MAC.

Speaker Change: How you're thinking about that trending for the year and what did they do in the quarter?

Speaker Change: Yeah, so I guess I'll take it in this order. Max first.

Speaker Change: We don't believe what the OEM says in terms of what their bill rates are going to be.

Dirkson Charles: We think it will be significantly less, and that's what we plan for. I will tell you, over the past few weeks, I have gotten information from my mates at the business units with folks, our customers, pushing out OEM, Boeing-related orders, okay? So that's kind of how we feel about the MAX. So we're not planning on anything turning around significantly here in the near term. With regard to Airbus, they continue to struggle with the supply chain, not as much so as on the MAX in terms of the narrow body. We actually have pretty good orders out there.

Speaker Change: production rates, we think it will be significantly less. And that's what we plan for. I will tell you over the past few weeks, I have gotten information from my mates at the business units with

Speaker Change: folks, our customers, pushing out OEM

Ian Mckillop: Greetings and welcome to the Loar Holdings Inc. 2nd quarter, 2020 Floor Earnings Conference calling webcasts. At this time, I will participate in listening only mode. If anyone would require operator assistance, please press star zero on your telephone keypad. There will be a question and answer session following the formal presentation. You may press star one at any time to be placed in the question queue. As a reminder, this conference is being recorded.

Speaker Change: Boeing related orders. Okay, so that's kind of how we feel about about the MAC So we're not we're not planning on anything turning around significantly here in the near term

Dirkson Charles: So we're not planning on anything turning around significantly in the near term. With regard to Airbus, they continue to struggle with the supply chain, not as much so as on the MACs in terms of the narrow body. We actually have pretty good orders there. That's been one of the stronger uplifts in sales in the first half of the year, and we see it continuing. But beyond that, everybody else that no one ever talks about in the media, right?

Speaker Change: with regard to Airbus, they continue to struggle with the supply chain, not as much so as on the MAX in terms of the narrowbody. We actually have pretty good orders there. That's been one of the stronger uplifts.

Dirkson Charles: That's been one of the stronger uplifts in sales in the first half of the year, and we see it continuing. But beyond that, everybody else that no one ever talks about in the media, right? You're talking about the embryars, the services, the diamonds. Check, check, check. Those guys are killing it. We're seeing large orders on the OEM side, and that's really what's driving double-digit growth rates for those guys. So we're showing strong orders for those guys.

Ian Mckillop: It's not my pleasure to introduce your host, Ian McKillop, Investrelations. Please go ahead, Ian. Thank you. And welcome to the Loar Holdings, 2020 Floor Earnings Conference call. Presenting on the call this morning are Loar's Chief Executive Officer and Executive Co-Chairman, Dirkson Charles, Executive Co-Chairman, Brett Milgrim, Chief Financial Officer and Treasurer, Gwendo Sondro, as well as myself, Ian McKillop, the Director of Investrelations. As a reminder, please visit our website at Loargroup.com to obtain a supplemental slide deck and call weekly information.

Speaker Change: and Sales and...

Speaker Change: First half of the year and we see it continuing

Speaker Change: But beyond that...

Dirkson Charles: You're talking about the Embryers, the Services, the Diamonds. Check, check, check. Those guys are killing it. We're seeing large orders on the OEM side, and that's really what's driving the double-digit growth rates for those guys. So we're issuing strong orders for those guys. So hopefully, somewhere in there, I answered your question. Sure. Thank you so much.

Speaker Change: Everybody else that no one ever talks about in the media, right? You're talking about the Embryers, the services, the diamonds.

Speaker Change: Check, check, check. Those guys are killing it. We're seeing large orders on the OEM side, and that's really what's driving the double-digit growth rates for those guys. So we're seeing strong orders for those guys. So hopefully somewhere in there I answered your question.

Dirkson Charles: So hopefully somewhere in the air, I answered your question. Sure, thank you so much. Thank you.

Ian Mckillop: Before we begin, we would like to remind you that the statements made during this call, which are not historical in fact, are forward-looking statements. Refer their information about important factors that could cause actual results to differ materially from those expressed or implied in the forward-looking statements. Please refer to our website or latest filings with the SEC available at SEC.gov. We'd also like to advise you that during the course of the call we were referring to the adjusted even on margin and adjusted earnings per share, each of which is a non-gap financial measure.

Operator: Thank you. The next question is coming from Christine Leeweg from Morgan Stanley. Your line is now live.

Christina Liwag: There's questions coming from Christina Leeweg from Morgan Stanley. Your line is now live. Hey, Dirkson, Brett, and Glenn, you know, a plighty-vionic with the proprietary and aftermarket exposure seems like a strong pick for the portfolio. It's very clear. But with a price of, you know, $385 million, EBITDA of $21 million, it seems like, I mean, the implied multiple for the deals 18.3 excluding tax benefits. So when you look at a plighty-vionics today, I mean, margins are already at 52.5%.

Speaker Change: Sure, thank you so much.

Speaker Change: Thank you. Next question is coming from Christine Leweg from Morgan Stanley. Your line is now live.

Brett Milgrim: Hey Dirkson, Brett, and Glenn, you know, Applied Avionics is proprietary, and aftermarket exposure seems like a strong fit for the portfolio. I mean, it's very clear, but with a price of, you know, $385 million, and EBITDA of $21 million, it seems like, I mean, the implied multiple for the deal is $18.3 excluding tax benefits. So, when you look at applied avionics today, I mean, margins are already at 52.5%. So, can you talk about your return thresholds for the, for incremental deals, the availability of assets in the pipeline, and then should we see incremental deals closing similarly priced to this one, or is this an anomalous expensive asset? Thanks. Yeah, hey Christine, it's Brett.

Speaker Change: Hey Dirkson, Brett, and Glenn. You know, Applied Avionics, with the proprietary and aftermarket exposure, seems like a strong fit for the portfolio. I mean, it's very clear. But with a price of, you know, $385 million, EBITDA of $21 million, it seems like, I mean, the implied multiple for the deal is $18.3 million, excluding tax benefits.

Ian Mckillop: Please see the tables and the latest footnotes in the earnings release for the presentation of the most directly comparable gap measure and applicable reconciliation.

Brett Milgrim: So, Keith, talk about your return thresholds for incremental deals, the availability of assets, and the pipeline. And then should we see incremental deals closing similarly priced to this one, or is this anomalous expense of asset? Thanks.

Speaker Change: So when you look at applied avionics today, I mean, margins are already at 52.5%.

Speaker Change: So can you talk about your return thresholds for incremental deals, the availability of assets in the pipeline, and then should we see incremental deals closing similarly priced to this one, or is this an anomalous expensive asset? Thanks.

Ian Mckillop: I will now turn the call over to Derkson. Thanks, Ian.

Dirkson Charles: Good morning to all podners, analysts, and those here in our story for the first time. I am Dirkson Charles, founder, CEO, and co-chairman of Loar. As this is our second earnings call as a public company, let me outline our approach for these calls. We believe that your time is valuable, and as such, we'll keep our remarks as brief as possible, to allow the analysts the majority of the hour we have allocated to ask questions to ensure that we are focused on the things that matter to you.

Brett Milgrim: Hey, Christina, it's Brett. Let me start from the end and work back towards applied. Because what we're seeing in the M&A market today is one that's really, really active. And it may not be a surprise, the folks, given one, what you see in valuations generally. Two, what you see in terms of performance, not only from law, but from, I think, the industry as a whole. And I think three, in terms of the visibility and expectations that people in our sector have, particularly those who have aftermarket exposure, it's all very, very positive. So, as a result, you are seeing some higher multiples out there.

Brett Milgrim: Let me start from the end and work back towards applying it, because what we're seeing in the M&A market today is one that's really, really active. And it may not be a surprise to folks given what you see in valuations generally. Two, what you see in terms of performance, not only from Loar but from, I think, the industry as a whole. And, three, in terms of the visibility and expectations that people in our sector have, particularly those who have aftermarket exposure. It's all very, very positive. As a result, you are seeing some higher multiples out.

Speaker Change: Hey Christine, it's Brett. Let me start from the end and work back towards applying because what we're seeing in the M&A market today is one that's really really active and it may not be a surprise to folks given

Speaker Change: One, what you see in valuations generally.

Speaker Change: Two, what you see in terms of performance, not only from Lohr, but from, I think, the industry as a whole.

Dirkson Charles: So, let us start by reminding you all of who we are. Loar as a family of companies are a very simple approach to creating shareholder value. First, we believe that by providing our business units an entrepreneurial and collaborative environment to advance their brands, we will generate above-market growth rates. Since our inception in 2012, through the end of calendar year 2023, we have grown sales and adjusted EBITDA at a compound annual growth rate of 38% and 46% respectively.

Speaker Change: and I think three, in terms of the visibility and expectations.

Speaker Change: that people in our sector have.

Speaker Change: particularly those who have aftermarket exposure. It's all very, very positive. So, as a result, you are seeing some higher multiples out there.

Brett Milgrim: And I think for us, the exercise and the trick, if you will, is to make sure that we are buying very good, very high-quality assets with a lot of opportunities attached to them. And as such, we're willing to pay full multiplier, but make sure we're not buying average assets at Heimel. And so what I think you can find with Applied is it's in the former category. It's a very high-quality asset. Yes, your math is correct on the multiple.

Brett Milgrim: And I think for us, the exercise and the trick, if you will, is to make sure that we are buying very good, very high quality assets with a lot of opportunities attached to them. And as such, we're willing to pay for them. and I think you can find with Applied is in the former category. It's a very high quality asset. Yes, your math is correct on the multiple. We tend to look at it more as a 16 times multiple with the tax benefits, which we think could be even greater than the ones we cited. But nonetheless, Applied is a business that has a great market position.

Speaker Change: And I think, for us, the exercise and the trick, if you will, is to make sure that we are buying very good, very high-quality assets with a lot of opportunities attached to them.

Dirkson Charles: We collaborate across business units by sharing best practices and ideas while assisting each other when it comes to execution. We execute along firm value streams. We identify pain points within the aerospace industry and look to solve those problems through organically launching new products, which we believe over the long term will create one to three percentage points of top-line growth. We focus on optimizing the way we manufacture, go to market and manage our companies to enhance productivity.

Speaker Change: And as such, we're willing to pay for multiples.

Speaker Change: but making sure we're not buying average assets.

Speaker Change: and High Multiples.

Speaker Change: And so what I think you can find with applied is it's in the former category. It's a very high quality asset

Brett Milgrim: We tend to look at it more as a 16 times multiple with the tax benefits, which we think could be even greater than the ones we cited. But nonetheless, Applied is a business that has a great market position. It's one of three competitors in that space. We think there are lots of opportunities across all our value drivers to not only grow the business significantly but actually improve margins significantly. So whether it's productivity improvements, cross-selling opportunities, the way they go to market, or pricing, all those drivers are at play here. And so our threshold for returns has not changed.

Speaker Change: Yes, your math is correct on the multiple.

Speaker Change: We tend to look at it more as a 16 times multiple with the tax benefits, which we think could be even greater than the ones we cited. But nonetheless, Applied is a business that has a great market position.

Brett Milgrim: It's one of the recompensators in that space. We think there are lots of opportunities across all our value drivers to not only grow the business significantly, but actually to improve margins significantly. So whether it's through productivity improvements, cross selling opportunities, the way they go to market and door pricing, all those drivers are at play here. And so our threshold for returns is not changed. And just to repeat it, we look at every deal and say we need to see a path to doubling the EBTA in no more than three to five years. Well, given the multiple that we've acquired applied for, I think the implication, without giving a projection here, is that we think we can do even better than that with Applied.

Dirkson Charles: Each year, we will identify initiatives that will allow us to continually improve our performance, but we focus on one or two major initiatives each year that will improve margins. We also each year across our portfolio of companies will achieve more price than inflation, again, margin improvement. Most importantly, we are committed to developing and improving the talent of all our employees because our success is solely a result of their dedication and commitment.

Speaker Change: It's one of three competitors in that space.

Speaker Change: We think there are lots of opportunities across all our value drivers to not only grow the business significantly, but actually to improve margins significantly.

Speaker Change: Don't worry.

Speaker Change: So whether it's through productivity improvements

Speaker Change: Cross-selling opportunities

Speaker Change: The way they go to market.

Speaker Change: and door pricing. All those drivers are at play here.

Brett Milgrim: And just to repeat it, we look at every deal and say, we need to see a path to doubling EBITDA in no more than three to five years. Well, given the multiple that we've acquired or applied for, I think the implication, without giving a projection here, is that we think we can do even better than that with Applied. So Applied checks all the boxes we like, all the ones that we mentioned on the slide earlier. We think this is gonna be a great one for us. It fits right down the middle of the types of businesses we're trying to acquire. That's a great color, too.

Speaker Change: And so, our threshold for returns has not changed, and just to repeat it, we look at every deal.

Dirkson Charles: To all my mates, a big, big, big thank you for your commitment and hard work.

Brett Milgrim: I'll now turn the call over to Brett to walk you through our key characteristics of our portfolio. Thanks, Thurks.

Speaker Change: and say, we need to see a path to doubling the EBITDA in no more than three to five years. Well, given the multiple that we've.

Brett Milgrim: Good morning, everybody. I think you all have seen this slide before, so I'll be brief here. This really just serves as a reminder of how we constructed our portfolio. And I think the big takeaway here is that we are a very diverse business that is balanced across not only products, but end markets and even customers. As I've said before the past, we are relatively agnostic to the types of end markets we serve, or the customers we serve, or the products that are in our portfolio, but what we continue to be and is shown by our recent acquisition with Applied Avionics is we are extremely disciplined about the characteristics of the business model as you see in the six bubbles down below.

Speaker Change: acquired, applied for, I think the implication

Speaker Change: without giving a projection here, is that we think we can do even better than that with Applied. So Applied checks all the boxes we like, all the ones that we mentioned on the slide earlier. We think this is going to be a great one for us. It fits right down the middle of the types of businesses we're trying to acquire.

Brett Milgrim: So Applied checks all the boxes we like, all the ones that we mentioned on the slide earlier. We think this is going to be a great one for us. It fits right down the middle of the types of businesses we're trying to acquire.

Brett Milgrim: That's great color. Thank you, Brett.

Dirkson Charles: Thank you, Brett. And maybe, shifting gears, are there any pending product approvals in the next 6 to 12 months or increased customer acceptance that would maintain commercial aerospace aftermarket growth to grow above industry trends, which is what you've been seeing anyway? Anything to watch out for would be great.

Dirkson Charles: And maybe shifting gears to the PMA portfolio. Are there any pending product approvals in the next six to 12 months or increased customer acceptance that would maintain commercial aerospace aftermarket growth to grow above industry trends, which is what you've been seeing anyway. Anything to watch out for would be great. Thanks. So the short answer to your question is, yes, there are. We have a number of, I use a certain application sitting on the desk of folks into FAA for approval. They've been slow to execute because, as most of you know on this call, they've been busy with, you know, with Boeing and others.

Speaker Change: That's great color. Thank you, Brett. And maybe shifting gears to the PMA portfolio, are there any pending product approvals in the next 6 to 12 months?

Speaker Change: or increased customer acceptance that would...

Speaker Change: maintain commercial airspace after market growth to grow above industry trends, which is what you've been seeing anyway. Anything to watch out for would be great. Thanks.

Dirkson Charles: Thanks. So, the short answer to your question is yes, there are. We have a number of, I'll use this term, applications sitting on the desk of folks at the FAA for approval. They've been slow to execute, because, as most of you know on this call, they've been busy with Boeing and others. So it's been slow to get things done.

Brett Milgrim: Every business that we acquire and make part of the war family has to be A&D focused, it has to have proprietary content, it has to have an exposure to the aftermarket, and it has to engage in those niche markets where we feel we have a competitive advantage and high-direstension. Applied avionics, I think it's a perfect example of that. In fact, when you look at the charts above, what you'll find with Applied avionics, it'll make those charts go in the direction we want in so much as Applied is virtually all proprietary product, and it's about 75% aftermarket.

Speaker Change: So, the short answer to your question is yes, there are.

Speaker Change: We have a number of, I'll use this term,

Speaker Change: of folks at the FAA for approval. They've been slow to execute, because as most of you know on this call, they've been busy with Boeing and others.

Dirkson Charles: So it's been slow to get things done. I would have hoped that we've had more done today in some, and some of the PMA applications that we have pending. But, as you know, the way we think about PMA is we want to be strategic in terms of how we're chasing it. So we're focused on things like breaks, you know, composite breaks or steel breaks in the aftermarket on the let what I described as legacy platforms. And in those areas, yes, Christine, you 100% right. As we get those applications approved, it will continue to drive our commercial aftermarket growth rates above what I call industry averages.

Dirkson Charles: I would have hoped that we'd have had more done today on some of the PMA applications that we have pending. But as you know, the way we think about PMA is we want to be strategic in terms of how we're chasing it. So we're focused on things like composite brakes or steel brakes in the aftermarket on what I describe as legacy platforms. And in those areas, yes, Christine, you're 100% right.

Speaker Change: It's been slow to get things done. I would have hoped that we'd have had more done today in some of the PMA applications that we have pending. But as you know, the way we think about PMA is we want to be strategic.

Speaker Change: in terms of how we're chasing it. So we're focused on things like composite brakes or steel brakes in the aftermarket on what I describe as legacy platforms.

Brett Milgrim: So while those charts are based on 23 revenues, when you see those numbers at the end of 24, it'll be a little bit higher in those categories as I just mentioned. The thinking we'll look at our products, across the 16 brands at lower we go to market with over 15,000 unique proprietary parts, with no one part making up more than approximately 3% of our overall net sales in 2023. Our parts are found across the aircraft embedded in a multitude of systems and subsets.

Dirkson Charles: As we get those applications approved, it will continue to drive our commercial aftermarket growth rates above what I would call the industry average. Thanks, Dirkson. If I could follow up on one more on that. I just want to confirm, in terms of your outlook, right, your outlook does not expect any incremental PMAs to be approved. Therefore, if you actually get these approvals to come through, these are all incremental to what you've already provided. I love the fact that you ask very specific questions.

Speaker Change: And in those areas, yes, Christine, you're 100% right. As we get those applications approved, it will continue to drive our commercial aftermarket growth rates above what I would call industry averages.

Dirkson Charles: Great. Thanks, Dirkson. If I could follow up one more on that, I just want to confirm in terms of your outlook, right? Your outlook does not expect any incremental PMAs to be approved. Therefore, if you actually get these approvals to come through, these are all incremental to what you've already provided. I love the fact that you ask very specific questions. So the answer to your question is that would be true. It would not be a material impact to the outlook, though, that you have in front of you the approvals that are currently pending. They will drive 2025.

Speaker Change: Great, thanks Dirkson. If I could follow up one more on that. I just want to confirm, in terms of your outlook, right, your outlook does not expect any incremental PMAs to be approved. Therefore, if you actually get these approvals to come through, these are all incremental to what you've already provided.

Brett Milgrim: The proprietary nature of our products makes them mission critical for the end customer and ties us to the overall life of the aircraft. As many of you know, the life of an aircraft can exceed 50 years and multiple operators. The design-inspect in nature of our products allows us to serve not only the original equipment manufacturer, but also the aftermarket through the many operators that aircraft seeds over its lifetime. We believe that the diversity and proprietary nature of our product offering provides us with the capability to serve our customers in a way that it's unique to law.

Speaker Change: I love the fact that you ask very specific questions.

Dirkson Charles: So the answer to your question is that would be true. It would not be a material impact on the outlook, though, that you have in front of you, the approvals that are currently pending. They will drive 2025.

Speaker Change: Thank you.

Speaker Change: So the answer to your question is that would be true, it would not be a material impact to the outlook though that you have in front of you, the approvals that are currently pending. They will drive 2025, but you know, we're not ready to talk about that yet.

Dirkson Charles: But, you know, we're not ready to talk about that. Well, great. Well, thank you very much, and I'll pass it on.

Dirkson Charles: But you know, we're not ready to talk about that yet. Well, great. Well, thank you very much, and I'll pass it on. Thanks. Thank you.

Glenn Sondro: So, I'm now going to pass the calling of big lands, run into the financials. Thank you, Ian.

Speaker Change: Well, great. Well, thank you very much and I'll pass it on. Thanks.

Glenn Sondro: Good morning, everyone. Let me start by discussing sales by our end markets. This comparison will be on a performance basis as if each of our businesses were owned as of the first day of the earliest period presented. We had record sales during the second quarter of 24. In total, our sales increased the 97 million, a 17% increase as compared to the prior year period. This increase was driven by strong performances in defense, up 57%, commercial aftermarket, up 19% and commercial OEM, up 11%.

Operator: Thanks. Thank you. Thank you. As a reminder, that's star number one to be placed in the question queue. Our next question is coming from Jason Gursky from City. Your line is now live. Hey, good morning, everybody. Hey, Jason. Good morning.

Jason Gursky: As a reminder, that star one to be placed in the question queue. Our next question is coming from Jason Gursky from City; your life is now live. Hey, good morning, everybody. Jason, good morning. I just wanted to ask you about LTAs and pricing negotiations that might be on the come here. We heard from some others that there are some significant LTAs rolling off that were priced prior to the pandemic and that there might be an opportunity to go get some price and kind of help compensate for the inflationary environment that we've seen here over the last few years.

Speaker Change: Thank you.

Speaker Change: Thank you. As a reminder, that's star one to be placed in the question queue. Our next question is coming from Jason Gursky from Citi. Your line is now live.

Speaker Change: Hey, good morning everybody. Hey Jason, good morning.

Dirkson Charles: I just wanted to ask you about LTAs. Please pray. Negotiations that, Happy Armored, from some others that there's some significant LTAs rolling off that were priced prior to the pandemic and that there might be an opportunity to go get some price help compensate for the inflationary environment that we've seen here in the last few years, and I'm talking specifically about LTAs on. So I'm just kind of curious what your... Profile of your LTAs look like? customers and whether there's maybe some opportunity here for you all of upward pricing pressure. Great question.

Speaker Change: I just wanted to ask you about LTAs and pricing.

Speaker Change: Negotiations that Might be on the come here. We heard from some others that there's some significant LTAs rolling off that were priced prior to

Glenn Sondro: The increase in total commercial aftermarket sales of 19% was primarily due to the continuing recovery in commercial air travel demand and an end to the destocking as a handful of our distributors and end customers that affected us in Q124. During Q2224, we continued to see strength in our commercial aftermarket bookings. Our total commercial OEM sales increased by 11% in Q224 as compared to the prior year period. This increase was driven primarily by higher sales across a significant portion of the platforms resupply, including general aviation, wide body and narrow body aircraft.

Speaker Change: the pandemic, and that there might be an opportunity to go get some price and, you know, kind of help compensate for

Speaker Change: the inflationary environment that we've seen here over

Dirkson Charles: And I'm talking specifically LTAs of, you know, on the commercial OE side of things.

Speaker Change: the last few years, and I'm talking specifically LTAs, you know, on the commercial OE side of things. So I'm just kind of curious what your what the profile of your LTAs look like with some of your OEM.

Dirkson Charles: So I'm just going to curious what your, what the profile of your LTAs look like with some of your OEM customers and whether there's maybe some opportunity here for you all between now and the end of the year or maybe over the next 12 months to see what we're pricing pressure on your OE revenue streams. Great question. You know, clearly each year we do have LTAs that come up for review. I can, you know, say that way. But, as a reminder, long-term agreements are not a big part of our business. Ten percentish of our revenues think of it that way.

Speaker Change: customers and whether there's maybe some opportunity here for you all between now and the end of the year or maybe over the next 12 months to see some upward pricing pressure on your OE revenue streams.

Glenn Sondro: As an improving supply chain has allowed us to deliver parts that were previously held because of our customers were experiencing bottlenecks in other areas of their supply chain. The increase of 57% in our defense sales was primarily due to strong demand across multiple platforms and an increase in market share as a result of new product launches. Defense sales will continue to be lumpy given the nature of the ordinary patterns of our end customers for our products.

Dirkson Charles: Clearly, each year we do have LTAs that come up for review, if I can say it that way. But as a reminder, long-term agreements are not a big part of our business. 10%-ish of our revenues. Think of it that way. It's not a significant amount.

Speaker Change: Great question.

Speaker Change: Clearly, each year we do have LTAs that come up for review, if I can say it that way. But as a reminder, long-term agreements are not a big part of our business.

Speaker Change: 10%-ish of our revenues.

Dirkson Charles: It's not a significant amount. It's mostly on the military side. I'll say that because you're asking about commercial, so I want to put a box around my answer here. But you're right. We are in discussions on a few LTAs here, and look, our LTAs typically last three to five years, right? Typically, we will have a, I'll use this term, a firm fixed price with escalation clauses, right? But over that period of time, over that period of time, three to five years, but closer to three years than the five, costs do go up. And, as is our mission, as a portfolio, we get more price and inflation.

Dirkson Charles: It's mostly on the military side, I'll say that because you're asking about commercial, so I don't want to put a box around my answer here. But you're right; we are in discussions on a few LTAs here. Look, our LTAs typically last three to five years, right? Typically, we will have a, I'll use this term, a firm fixed price with escalation clauses, right? But over that period of time, over that period of time, three to five years, but closer to the three years than the five, costs do go up, and as is our mission as a portfolio, we get more price and inflation. So yes, we do expect to get a price here and in their term.

Speaker Change: Think of it that way. It's not a significant amount. It's mostly on the military side. I'll say that because you're asking about commercials, so I don't want to put a box around my answer here. But you're right. We are in discussions on a few LTAs here.

Glenn Sondro: Let me recap our financial highlights for the second quarter of 24. Our net organic sales increase 17% over the prior period. Our gross profit margin for Q224 was slightly lower than the prior year period. This was primarily due to higher defense sales in Q224, which were 22% of total sales in 24 versus 18% for Q223. Our defense sales make a lot of money, but typically of lower margins than our more profitable commercial products.

Speaker Change: Look, our LTAs typically last three to five years, right? Typically, we will have a, I'll use this term, a firm fixed price with escalation clauses, right?

Speaker Change: But, over that period of time, over that period of time, three to five years...

Speaker Change: but closer to the three years than the five.

Speaker Change: um

Speaker Change: Plus to go up and as is our mission

Dirkson Charles: So, yes, we do expect to get price here, and in the end term, it will impact 2025 more than 2024, given where we are in the year at this point, and those negotiations. But yes, we do intend to get price on those contracts. Good question. Great. Thanks.

Speaker Change: as a portfolio, we get more price than inflation. So yes, we do expect to get price here and in their term. It will impact 2025 more than 2024, given where we are in the year at this point and those negotiations. But yes, we do intend to get price on those contracts.

Glenn Sondro: We also continued to see some dilute of effects from one of the acquisitions that we acquired in the second half of 2023, as well as course related to the move of one of our manufacturing facilities. These items were partially offset by pricing and operating leverage. Our increase in net income of 7 million in Q224 versus Q223 is primarily due to higher operating income as well as from the lower interest expense as a result of paying down 285 million of indebtedness with the proceeds from the IPO, as well as the amendment to our credit agreement in May 2024, lowering our interest rate by 250 basis points.

Dirkson Charles: It will impact 2025 more than 2024 given where we are in the year at this point and those negotiations. But yes, we do intend to get a price on those contracts. Good question. Brief, and then. I don't remember exactly how you described it, But the note that I took was an initiative that you have each year. I've had the...

Dirkson Charles: And then I don't remember exactly how you describe. in your prepared remarks. But the note that I took was kind of an initiative that you have each year that you kind of have the portfolio companies working on, the drive productivity or cost or whatever. So I'm just going to be curious, what is it this year? What do you think it might be in the next couple of years, and just kind of curious how you all kind of approach this, and what do we work on this year might be a good kind of illustrated example of what you're working on?

Speaker Change: Good question. Great. Thanks. And then I don't remember exactly how you described it in your prepared remarks but the note that I took was kind of

Speaker Change: an initiative that you have each year, that you kind of have the portfolio companies working on to drive productivity or cost or whatever. So I'm just kind of curious, what is it this year? What do you think it might be in the next couple of years? I'm just kind of curious how you all...

Dirkson Charles: Portfolio, working on to drive productivity or cost. So I'm just kind of curious, what is it this year? What do you think it might be in the next couple of years? I'm just kind of curious how you all kind of approach this. What are we working on? Yeah. So, so, Jason, is that always you telling me I should probably remove that from what you describe as my prepared remarks? I'm just kidding. No, no, no, not at all. I think it was interesting.

Glenn Sondro: Adjusted EBITDA was up 7 million in Q224 versus the prior year. Adjusted EBITDA margins remained strong at 36%, but were lower than the prior year quarter. This was a result of the sales mix that I discussed above, the temporary dilution from one of the acquisitions completed in the second half of 23, and the continued build-out of our infrastructure to support our reporting, governance, and control needs as a newly public company.

Speaker Change: kind of approach this and what are we working on this year might be a good kind of illustrative example of what you're working on.

Dirkson Charles: Yeah. So Jason, is that it always you telling me I should probably move that from what you described as my prepared remarks? And just kidding. No, not at all. I think it was interesting. No, no, yeah. So let me give you a little bit of background and how we get to that statement, okay? Every year, we start the process around now. We do a bottoms up at all our businesses in terms of how we're thinking about the upcoming year, two years, five years, okay? As part of that, everyone is required to share with us their wish list of all the things that they want to do in terms of Quebec, in terms of productivity, etc., etc., etc.

Speaker Change: Yeah, so, so, so Jason, is that is always you telling me I should probably remove that from what you describe as my prepared remarks? I'm just kidding. No, no, no, not at all. I think it was interesting.

Dirkson Charles: No, no, yeah. So let me give you a little bit of background on how we get to that statement. Okay. Every year, and we start the process around now, we do a bottoms up at all our businesses in terms of how we're thinking about the upcoming year, two years, five years. As part of that, everyone is required to share with us their wish list of all the things that they want to do in terms of CapEx, in terms of productivity, etc, etc, etc.

Dirkson Charles: Let me turn the call back over to DERX and to share the outlook for the remainder of the year. Thanks, Glenn. Given the strong performance across all end markets as Glenn has just outlined, in addition to the strengthen available seat mouths, which is projected by IATA to be above 2019 levels in 2024, when combined with the challenges of the OEM to produce a new aircraft, has resulted in strong orders in our commercial aftermarket. In addition, the geopolitical instability in the world driving demand for our products sold to the defense end market is driving greater sales.

Jason Gursky: No, no, yeah, so

Speaker Change: Let me give you a little bit of background on how how we get to that statement, okay? Every year and we start the process around now

Dirkson Charles: We will go through that wish list and identify the things that we do want to focus on. So clearly, and I know this is a favorite of Glenn's, if it is a CapEx that we can get the return on in two years or less, we'll take a billion dollars worth of debt, right? So we'll identify them in that manner based on the returns we expect to get, how quickly we can make our money back, etc. There are usually one or two items that will jump out at us, where we go, wow, that's a great idea.

Speaker Change: We do bottoms up at all our businesses in terms of how we're thinking about the upcoming year, two years, five years.

Speaker Change: Okay, as part of that everyone is required to share with us their wish list

Speaker Change: of all the things that they want to do in terms of CapEx, in terms of productivity, et cetera, et cetera, et cetera.

Dirkson Charles: We will go through that wish list and identify the things that we do want to focus on. So clearly, and I noticed the favorite of plans, if there's a cap X that we can get the return back in two years or less, we'll do a billion dollars or rate of death, right? So we'll identify it in that manner based on the returns we expect to get, how quickly we can make our money back, et cetera. They are usually one or two items that will jump out of us where we go, wow, that's a great idea.

Speaker Change: We will go through that wish list and identify the things that we do want to focus on. So clearly, and I know this is a favorite of Glenn's, if there's a CapEx that we can get the return back in two years or less.

Dirkson Charles: Combined with our continued execution of our value drivers gives us a high degree of confidence, a high degree of confidence, that will achieve organically mid-double digit percentage improvement in sales across each of our end markets in 2024 on a pro-former basis. Note that these results do not include a recently announced acquisition of applied avionics, which we expect to close in the third quarter of this year, for calendar year 2024. We expect net sales between 374 to 378 million up from our previous guidance of 370 to 374 million.

Glenn: We'll do a billion dollars worth of that Right, so we'll identify it in that manner based on the returns. We expect again. How quickly we can make our money back etc

Dirkson Charles: And we should definitely dive in on that because the returns are higher than the rest. I will focus on that on all our weekly calls to make sure that we do execute. Now, the execution sometimes doesn't go as quickly as we would like. For example, this year, since you asked this year, we moved the business from California to Ohio, and we expected certain synergies as part of that move that would impact this year's results. It's actually taken a little bit longer to get up the learning curve; how do we move the business in terms of manufacturing the parts that I'm thinking about?

Speaker Change: There are usually one or two items that will jump out at us where we go, wow, that's a great idea. And we should definitely dive in on that because the returns are higher than the rest. And we'll focus on that on all our weekly calls to make sure that we do execute.

Dirkson Charles: And we should definitely dive in on that because the returns are higher than the rest. And we'll focus on that on all our weekly calls to make sure that we do execute. Now, the execution sometimes doesn't go as quickly as we would like.

Speaker Change: Now, the execution sometimes doesn't go as quickly as we would like. For example, this year, since you asked, this year, we moved the business from California

Dirkson Charles: For example, this year, since you asked, this year, we move the business from California to Ohio, and we expected certain synergies as part of that move that would impact this year's results. It's actually taken a little bit longer to get up the learning curve. How do we move the business in terms of manufacturing the parts that I'm thinking about. And we'll probably get those benefits as we think about into 2020-25 and beyond. But that's how we go about it. So every year, this usually wanted to really, really good ideas that the team comes up with.

Dirkson Charles: Adjust an EBITDA between 134 and 136 million again up from our previous guidance range of 132 and 134 million. Adjust an EBITDA margin we expect to be approximately 36% for calendar 2024 while net income we expect to be between 28.4 and 29.6 million dollars per year. Adjust an EPS between $0.44 and $0.46 per year. In addition, tackle expenditures, approximately 11 million per year, foliar interest expense, approximately 42 million, effective tax rate of 30%, DNA, approximately 40 million, and a non-cash stock base compensation about $10 million up from 9 million from our previous guidance. Fully debt-looted share count remains at approximately 91 million shares.

Speaker Change: to Ohio, and we expected certain synergies as part of that move that would impact this year's results.

Speaker Change: It's actually taken a little bit longer to get up the learning curve now that we've moved the business in terms of manufacturing the parts that I'm thinking about

Dirkson Charles: And we'll probably get those benefits as we think about into 2020 to 25 and beyond. But that's how we go about it. So every year, there's usually one or two really, really good ideas that the team comes up with.

Speaker Change: and we'll probably get those benefits as we think about into 2020-25 and beyond.

Speaker Change: But that's how we go about it. So every year, there's usually one or two really, really good ideas that the team comes up with. This is a team sport, Jason, and the ideas are not the four of us in this room.

Dirkson Charles: This is a team sport, Jason. And the ideas are not the four of us in this room. It is from the 1,400 people that we have working with us, our mates, right? We will find one or two ideas to just drive, drive's return. Now, I just told you that we're not achieving the returns that we expected at the beginning of the year. I do want to tell you that’s embedded in the outlook that we shared with you. But we will get those benefits as we think to 2025 and beyond. So stay tuned. Right. Okay, that's that's good color on 25 as well.

Dirkson Charles: This is a team sport, Jason, and the ideas are not the four of us in this room; it is from the 1400 people that we have working with us, our friends, right? We will find one or two ideas that just drive returns. Now, I just told you that we're not achieving the returns that we expected at the beginning of the year. I do want to tell you that it's embedded in the outlook that we shared with you. But we will get those benefits as we think to 2025 and beyond. So stay tuned. Okay, that's a good color. 5 as well.

Speaker Change: It is from the 1,400 people that we have working with us, our mates, right? We will find one or two ideas that just drives return.

Speaker Change: Now I just told you that we're not achieving the returns that we expected at the beginning of the year I do want to tell you that's embedded in the outlook that we shared with you But we will get those benefits as we think to 2025 and beyond so stay tuned

Ian Mckillop: With that, I said we'd keep it brief. So with that, operate it or let's open the line for questions. Let's dig in.

Brett Milgrim: And then lastly for me, Brett, I believe in your prepared remarks that you mentioned being a little bit agnostic on the M&A side of things to the end market that any of the targets might be focused on. I just want to make sure, though, or... I guess it doesn't really matter what you do, or choose to pursue, as long as the financial metrics are there. But was that a statement on end markets within aerospace and defense, or not?

Brett Milgrim: And then lastly for me, Brett, I believe in your prepared remarks, Jim. and being a little bit agnostic on the M&A side of things to the end-market than any of the targets might be focused on. I just want to make sure; I guess it doesn't really matter what you choose to pursue as long as the financial metrics are there. But was that a statement on end-market within aerospace and defense, or where there are the opportunities for you guys to move outside of aerospace? No, no, just to be clear, because I did mention when I talk about the metrics and the qualitative aspects of what we look for in acquisition, it has to be any of these focus.

Speaker Change: right okay that's that's good color on 20

Speaker Change: And then lastly for me, Brett, I believe in your prepared remarks, you mentioned being a little bit agnostic on the M&A side of things to the end market that any of the targets might be focused on. I just want to make sure though,

Operator: Certainly, we're now conducting your question and answer session. If you'd like to be placed into question Q, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question Q. You may press star two if you'd like to move your question from the Q. One moment, please, while we pull for questions.

Speaker Change: I guess it doesn't really matter what you, you know, choose to pursue as long as the financial metrics are there. But was that a statement on end markets within aerospace and defense or?

Ken Herbert: Our first question is coming from Ken Herbert from RBC Capital Market for Lines of our Life. Yeah, hi, good morning, everybody. Nice quarter. Thanks, Ken.

Brett Milgrim: Where there will be opportunities for you guys to move outside. No, no, no, just to be clear, because I did mention when I talk about the metrics and the qualitative aspects of what we look for in acquisition, it has to be A&D focused. So when I say I'm agnostic about the end market, I'm referring to whether it's commercial versus general aviation, versus business jet, versus military. The thing that we think about all the time from a top-down perspective is being balanced.

Speaker Change: Will there be opportunities for you guys to move outside of your league?

Dirkson Charles: Hey, Edirkson, maybe to start off, is it possible to quantify sort of the book to bill for commercial aftermarket in the quarter, either at the aggregate or by transport and business jets? I mean, you've called out very strong bookings a few times, I'm wondering if you can just put a finer point on that. So, Ken, if you remember the last quarter, we said we had record backlog for commercial aftermarket. I'll respond to your question in this way.

Brett Milgrim: speaking I agree with you most of the time. Just to be clear... I did mention when I talk about the metrics and qualitative aspects of what we look for in an acquisition... it has to be an A&D focus... I'm not agnostic...

Brett Milgrim: So when I say I'm agnostic to the end market, I'm referring to whether it's commercial versus general aviation versus business jet versus military. The thing that we think about all the time from a top-down perspective is being balanced. So we don't want to have any one end market be completely disproportionate to the others, but at the same time we don't look at that pie and say within a percentage point or two or three or five, it has to be within a particular segment. We just want to be balanced so that when any macroeconomic event may occur, we have risk and opportunities.

Brett Milgrim: to the end market. I'm referring to whether it's commercial

Brett Milgrim: versus General Aviation, versus BusinessJet, versus Military. The thing that we think about all the time from a top-down perspective is being balanced.

Brett Milgrim: So we don't want any one end market to be completely disproportionate to the others. But at the same time... We don't look at that pie and say, within a percentage point or two or three or five, it has to be within a particular segment.

Dirkson Charles: We have beaten that record as we stand here today in terms of what that backlog looks like going forward. So, very, very strong bookings due in a year. I would say this way above one, so think between 1.1 and 1.2, I don't know the exact number of the top of my head, but very, very strong orders. So, we continue to see the aftermarket orders trending strongly. Okay, very helpful.

Brett Milgrim: So we don't want to have any one end market be completely disproportionate to the others

Brett Milgrim: but at the same time

Brett Milgrim: We don't look at that pie and say...

Brett Milgrim: within a percentage point or two or three or five, it has to be within a particular segment. We just want to be balanced so that when any macroeconomic event may occur,

Brett Milgrim: We just want to be balanced so that when any macroeconomic event may occur, we have risks and opportunities. And I think that's served us really, really well during COVID. Okay, I'll pass the line.

Brett Milgrim: And I think that served us really, really well during COVID. Perfect.

Brett Milgrim: We have risks and opportunities.

Brett Milgrim: and I think that served us really really well during COVID.

Jason Gursky: Okay, I'll pass the line. Appreciate the time today. Thanks, Jason. Nice to see you. Thank you.

Dirkson Charles: There's been a lot of speculation recently about strength of the aftermarket into the second half of this year and early next year with some more cautionary comments on capacity growth from some airlines. Are you seeing anything that would give you any sort of incremental concern on the aftermarket outlook into the back half of this year, early next year, either in order activity, RFQ activity within the aftermarket as anything else you'd call out as you think about into this year, latter part of this year.

Operator: Appreciate the time. Thanks, Jason. Thanks, Jason. Your next question today is a follow-up from Ken Herbert from RBC Capital Markets. Your line is now live.

Speaker Change: Perfect. Okay, I'll pass the line. Appreciate the time today. Thanks, Jason. Thanks, Jason.

Ken Herbert: Next question, today's a follow-up from Ken Herbert from RBC Capital Markets; provided is our line. Yeah, thanks. Dirkson, I maybe just wanted to follow up on your comment regarding expectations that new products can add sort of one to three points of organic growth each year. Are you tracking to that this year? And then I guess the second question would be, is you think about moving forward? These obviously aren't necessarily book and ship type products, but can you talk about then the setup as you think about that one to three range in the next year? And maybe any ideas of some of what you're working on without obviously giving things away, but I know you've had some nice history here. When we think about for often some other opportunities, just any ideas to where you're investing today as you think about the new product introductions and the opportunity.

Speaker Change: Thank you. Your next question today is a follow-up from Ken Herbert from RBC Capital Markets. Your line is now live.

Dirkson Charles: Hey, thanks. Dirkson, I maybe just wanted to follow up on your comment regarding expectations that, you know, new products can add sort of one to three points of organic growth each year. Are you tracking to that this year? And then I guess the second question would be, as you think about moving forward, he's obviously, aren't necessarily book and ship type products, but can you talk about the setup as you think about that one to three range in the next year and maybe any ideas of some of what you're working on without obviously giving things away, but I know you've had some nice history here when we think about froth and Yeah, sure, I sure can.

Speaker Change: Hey, thanks. Dirkson, I maybe just wanted to follow up on your comment regarding expectations that, you know, new products can add sort of one to three points of organic growth each year. Are you tracking to that this year? And then I guess the second question would be, as you think about moving forward, these obviously

Dirkson Charles: So Ken, we're reading the same articles. I've read the same thing. I've seen the same thing. I will tell you for us, we have not seen anything that remotely comes close to slowing down in the commercial aftermarket. Like I said earlier, bookings are strong. The quotes to answer your question is very good question. We see it's higher than it was a year ago, and the quoting activity that is so no, it's blue skies. Perfect. Thanks, Dersen. I'll pass it back there. Thank you.

Speaker Change: aren't necessarily book and ship type products, but can you talk about then the setup as you think about that one to three range in the next year and maybe any ideas of some of what you're working on without

Speaker Change: Obviously giving things away, but I know you've had some nice history here when we think about froth and some other opportunities. Just any ideas to where you're investing today as you think about the new product introductions and the opportunity.

Dirkson Charles: Yeah, sure, sure, Ken. So, first part of your question: are we tracking? The answer is absolutely. We're tracking to that one to three percent this year. And, as you know, but probably not everybody on the call, we do track our new business pipeline. And we track it formally. We actually have a sales team that actually have calls once a month to go through and address how we're doing against expectations around that new business. New business to us is across all of our business units, all of our brands. And not just them independently; they'll also get together and collaborate to see how they can solve pain points within the industry.

Dirkson Charles: So the first part of your question, are we tracking? The answer is absolutely. We're tracking to that 1% to 3% this year. As you know, but probably not everybody on the call, we do track our new business pipeline. And we track it formally. We actually have a sales team that holds calls once a month to go through and address how we're doing against expectations around that new business. New business for us is across all of our business units, all of our brands.

Speaker Change: Yeah, sure, sure I can.

Speaker Change: So, first part of your question, are we tracking? The answer is absolutely, we're tracking to that 1-3% this year.

Speaker Change: As you know, but probably not everybody on the call, we do track our new business pipeline.

Sheila Kahyaoglu: Next question is from Sheila Kahyaoglu from Jeffries, your line is Alive. Thank you, guys, and congratulations on your first Q&A session.

Speaker Change: and we track it formally. We actually have a sales team that actually have calls once a month to go through and address how we're doing against expectations around that new business.

Dirkson Charles: So maybe it's a good thick to the aftermarket. I think it was 38% total, 19% organic. Is that number? Dersen, can you talk about the strategy you deployed over the last few months in terms of changing the pricing and having more disabilities there, how that contributed to that 19% organic growth. How do you kind of see that book to build progressing? Does that give you about three to six months of visibility?

Speaker Change: New business to us is across all of our business units.

Dirkson Charles: And not just them independently; they also get together and collaborate to see how they can solve pain points within the industry. For example, as you just said, the short and the cockpit door barrier, which we've talked to folks about, that will drive sales in 2025 and beyond, and we'll be part of that one to three points. In terms of areas where we're looking, it's all across the board. It's everything that we do, from the house, the rate control devices, the restraints to whole open rods, latching mechanisms. Brake, steel, carbon, et cetera, et cetera, et cetera.

Speaker Change: all of our brands, and not just them independently, they also get together and collaborate to see how they can solve pain points within the industry.

Dirkson Charles: For example, as you just said, short and the cockpit door barrier, which we've talked to folks about, that will drive sales in 2025 and beyond, and we'll be part of that one to three points. In terms of areas where we're looking, it's all across the board. It's everything that we do. From the house to rate control devices, to restraints, to hole open rods, lodging mechanism. Breaks steel, carbon, et cetera, et cetera, et cetera; everything we touch. We're looking at investment. Now, with that said, we're disciplined. R&D budget is usually around 2 to 3% of sales every year.

Speaker Change: For example, as you just said, Schrott and the cockpit door barrier, which we've talked to folks about, that will drive sales in 2025 and beyond, and we'll be part of that one to three points.

Dirkson Charles: No, happy to answer the question, but I have to say I'm not sure everybody in the room is excited about the Q&A section. As you just said, but we're keeping it easy. We're going off of very good numbers. Like I said before, we see strong aftermarket growth trends. We did, at the beginning of this year, change the way that we are going to market in terms of lead times. So previously, we had looked at lead times of two weeks or less for a lot of our commercial aftermarket products.

Speaker Change: In terms of areas where we're looking, it's all across the board. It's everything that we do, from valves to rate control devices to restraints to whole open rods, latching mechanisms.

Dirkson Charles: And we saw a number of our end market customers, namely a number of distributors, use us as the warehouse to stock their inventory. So we saw orders decline. What we've seen since we've changed our strategy to requiring folks to, at a minimum, have 90-day lead times to get the best price, if I can say that way, is actually, it's rough wonders. We've been able to get more visibility so we can see three and four months out.

Dirkson Charles: Everything we touch, we're looking at investment. Now, with that said, we're disciplined. Our R&D budget is usually around 2% to 3% of sales every year. And we track that against that list of new business. So nobody invests in R&D unless it's tied to a return that we can see and touch. Otherwise, Glenn puts a hammer on them. So no one wants that.

Speaker Change: Break steel, carbon, etc, etc, etc, everything we touch.

Speaker Change: We're looking at Investment now with that said we're disciplined R&D budget is usually around two to three percent of sales every year and we track that Against that list of new business

Dirkson Charles: And we track that against that list of new business. So nobody invests in R&D unless it's tied to a return that we can see and touch. Otherwise, Glenn puts a hammer on them. So no one wants that.

Speaker Change: So, nobody invests in R&D unless it's tied to a return that we can see and touch. Otherwise, Glenn puts a hammer on them. So, no one wants that.

Dirkson Charles: All right, thanks for all the color, Dirkson. Thanks. Thanks again. Thanks for the question. Thank you.

Dirkson Charles: All right, thanks for all the color, Dirkson. Thanks. Thanks, Ken. Thanks for the question.

Speaker Change: All right. Thanks for all the color, Dirkson.

Operator: Thank you. We've reached the end of our question and answer session. I'd like to turn the floor back over to anyone who wants to make further closing comments. So, look, this is our second call. On this one, folks got a chance to ask us questions.

Dirkson Charles: We appreciate our question and answer session.

Speaker Change: Thanks. Thanks again. Thanks for the question.

Dirkson Charles: I'd like to turn the floor back over for further closing comments. So look, it's our second poll. This one, folks, got a chance to access questions. We want to be as transparent with you guys as possible. You are our partners is the way we think about it. The one thing will stop short of doing is say anything that will give our competitors an advantage over us. So appreciate, sometimes we won't answer the question fully.

Speaker Change: Thank you. We've reached the end of our question and answer session. I'd like to turn the floor back over for any further closing comments.

Speaker Change: So look, this is our second call. This one, folks got a chance to ask us questions.

Dirkson Charles: That's why I was comfortable answering Ken's question earlier. So strongly about we don't see any weakness because we have the backlog in the aftermarket where we only have two weeks a year ago. We have three, four or five months look ahead in terms of the aftermarket. So that is stuck. The pricing is stuck. So it's working really, really well. Great visibility. And, you know, one of the benefits is we are now able to level out our shop instead of guessing at what people are going to order. So it's, it's what wonders both on the top line and lower cost. Got it.

Dirkson Charles: We want to be as transparent with you guys as possible. You are our partners, is the way we think about it. The one thing we'll stop short of doing is saying anything that will give our competitors an advantage over us.

Dirkson Charles: Now, thank you for that.

Speaker Change: We want to be as transparent with you guys as possible. You are our partners.

Speaker Change: is the way we think about it. The one thing we'll stop short of doing is say anything that...

Dirkson Charles: So, with that said, I wanna thank, thank, thank everybody for their time and listening to the call today and being our partners. And, most importantly, I want to thank our mates. I mean... Our mates are killing it, as you can see from the results.

Speaker Change #100: will give our competitors an advantage over us. So, appreciate. Sometimes we won't answer the question fully.

Dirkson Charles: Now, with that said, I want to thank, thank, thank everybody for their time listening to the call today and being our partners. And most importantly, I want to thank our mates. I mean, our mates are killing it, as you can see from the results. So thank you. Thank everyone for participating.

Operator: So thank you, thank everyone for participating. Talk to you in 13 weeks. Thank you. This does conclude today's teleconference and webcast. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.

Speaker Change #101: Now, with that said, I want to thank, thank, thank everybody for their time and listening to the call today and being our partners. And most importantly, I want to thank our mates. I mean...

Speaker Change #102: Our mates are killing it as you can see from the results. So thank you. Thank everyone for participating Talk to you in 13 weeks

Operator: Talk to you in 13 weeks. Thank you.

Dirkson Charles: And maybe if we could go to, you know, just large commercial OE, leaving out the Vizjet BGA growth. I think grew 11% organically in the quarter correct me if I'm wrong there. And your full your guidance is mid to double digits. So how do we think about your OE assumptions, whether it's the max or the 787 on the Boeing platform. And how you're thinking about that trending for the year. And what does they do? quarter.

Operator: That does conclude today's telecom for the webcast. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.

Speaker Change #101: Thank you.

Speaker Change #103: Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.

Dirkson Charles: Yeah, so I guess I'll take it in this order. Max first, we don't believe what the OEM says in terms of what their bill rates are going to be in the production rates. We think it will be significantly less, and that's what we plan for. I will tell you over the past few weeks, I have gotten information from my mates at the business units with folks, our customers, pushing out OEM, Boeing-related orders, okay?

Dirkson Charles: So that's kind of how we feel about the MAX. So we're not planning on anything turning around significantly here in the near term. With regard to Airbus, they continue to struggle with the supply chain, not as much so as on the MAX in terms of the narrow body. We actually have pretty good orders out there. That's been one of the stronger uplifts in sales in first half of the year, and we see it continuing.

Dirkson Charles: But beyond that, everybody else that no one ever talks about in the media, right? You're talking about the embryars, the services, the diamonds. Check, check, check. Those guys are killing it. We're seeing large orders on the OEM side, and that's really what's driving double digit growth rates for those guys. So we're showing strong orders for those guys. So hopefully somewhere in the air, I answered your question.

Dirkson Charles: Sure, thank you so much.

Dirkson Charles: Thank you.

Christina Liwag: There's questions coming from Christina Leeweg from Morgan Stanley. Your line is now live. Hey, Dirkson, Brett and Glenn, you know, a plighty-vionic with the proprietary and aftermarket exposure seems like a strong pick for the portfolio. It's very clear. But with a price of, you know, $385 million, EBITDA of $21 million, it seems like, I mean, it implied multiple for the deals 18.3 excluding tax benefits. So when you look at a plighty-vionics today, I mean, margins are already at 52.5%.

Brett Milgrim: So, Keith, talk about your return thresholds for incremental deals, the availability of assets and the pipeline. And then should we see incremental deals closing similarly priced to this one, or is this anomalous expense of asset? Thanks. Hey, Christina, it's Brett. Let me start from the end and work back towards applied. Because what we're seeing in the M&A market today is one that's really, really active. And it may not be a surprise, the folks, given one, what you see in valuations generally.

Brett Milgrim: Two, what you see in terms of performance, not only from law, but from, I think, the industry as a whole. And I think three, in terms of the visibility and expectations that people in our sector have, particularly those who have aftermarket exposure, it's all very, very positive. So as a result, you are seeing some higher multiples out there. And I think for us, the exercise and the trick, if you will, is to make sure that we are buying very good, very high quality assets with a lot of opportunities attached to them.

Brett Milgrim: And as such, we're willing to pay for them, and I think you can find with Applied is in the former category. It's a very high quality asset. Yes, your math is correct on the multiple. We tend to look at it more as a 16 times multiple with the tax benefits, which we think could be even greater than the ones we cited. But nonetheless, Applied is a business that has a great market position.

Brett Milgrim: It's one of the recompensators in that space. We think there are lots of opportunities across all our value drivers to not only grow the business significantly, but actually to improve margins significantly. So whether it's through productivity improvements, cross selling opportunities, the way they go to market and door pricing, all those drivers are at play here. And so our threshold for returns is not changed. And just to repeat it, we look at every deal and say we need to see a path to doubling the EBTA in no more than three to five years.

Brett Milgrim: Well, given the multiple that we've acquired applied for, I think the implication without giving a projection here is that we think we can do even better than that with Applied. So Applied checks all the boxes we like, all the ones that we mentioned on the slide earlier. We think this is going to be a great one for us. It fits right down the middle of the types of businesses we're trying to acquire. That's great color.

Christina Liwag: Thank you, Brett.

Dirkson Charles: And maybe shifting gears to the PMA portfolio. Are there any pending product approvals in the next six to 12 months or increased customer acceptance that would maintain commercial aerospace after market growth to grow above industry trends, which is what you've been seeing anyway. Anything to watch out for would be great.

Dirkson Charles: Thanks. So the short answer to your question is, yes, there are. We have a number of, I use a certain application sitting on the desk of folks into FAA for approval. They've been slow to execute because as most of you know on this call, they've been busy with, you know, with Boeing and others. So it's been slow to get things done. I would have hoped that we've had more done today in some and some of the PMA applications that we have pending.

Dirkson Charles: But as you know, the way we think about PMA is we want to be strategic in terms of how we're chasing it. So we're focused on things like breaks, you know, composite breaks or steel breaks in the aftermarket on the let what I described as legacy platforms. And in those areas, yes, Christine, you 100% right. As we get those applications approved, it will continue to drive our commercial aftermarket growth rates above what I call industry averages.

Dirkson Charles: Great. Thanks, Dirkson. If I could follow up one more on that, I just want to confirm in terms of your outlook, right? Your outlook does not expect any incremental PMAs to be approved. Therefore, if you actually get these approvals to come through, these are all incremental to what you've already provided. I love the fact that you ask very specific questions. So the answer to your question is that would be true. It would not be a material impact to the outlook though that you have in front of you the approvals that are currently pending. They will drive 2025. But you know, we're not ready to talk about that yet.

Operator: Well, great. Well, thank you very much, and I'll pass it on. Thanks. Thank you. As a reminder, that star one to be placed in the question queue.

Jason Gursky: Our next question is coming from Jason Gursky from City, your life is now live. Hey, good morning, everybody. Jason, good morning. I just wanted to ask you about LTAs and pricing negotiations that might be on the come here. We heard from some others that there are some significant LTAs rolling off that were priced prior to the pandemic and that there might be an opportunity to go get some price and kind of help compensate for the inflationary environment that we've seen here over the last few years. And I'm talking specifically LTAs of, you know, on the commercial OE side of things.

Dirkson Charles: So I'm just going to curious what your, what the profile of your LTAs look like with some of your OEM customers and whether there's maybe some opportunity here for you all between now and the end of the year or maybe over the next 12 months to see what we're pricing pressure on your OE revenue streams. Great question. You know, clearly each year we do have LTAs that come up for review. I can, you know, say that way.

Dirkson Charles: But as a reminder, long-term agreements are not a big part of our business. Ten percentish of our revenues think of it that way. It's not a significant amount. It's mostly on the military side. I'll say that because you're asking about commercial, so I want to put a box around my answer here. But you're right. We are in discussions on a few LTAs here and look, our LTAs typically last three to five years, right?

Dirkson Charles: Typically we will have a, I'll use this term, a firm fixed price with escalation clauses, right? But over that period of time, over that period of time, three to five years, but closer to three years than the five, costs do go up. And as is our mission, as a portfolio, we get more price and inflation. So, yes, we do expect to get price here and in the end term, it will impact 2025, more than 2024, given where we are in the year at this point, and those negotiations.

Dirkson Charles: But yes, we do intend to get price on those contracts. Good question. Great. Thanks. And then I don't remember exactly how you describe, in your prepared remarks. But the note that I took was kind of an initiative that you have each year that you kind of have the portfolio companies working on, the drive productivity or cost or whatever. So I'm just going to curious, what is it this year?

Dirkson Charles: What do you think it might be in the next couple of years and just kind of curious how you all kind of approach this and what do we work on this year might be a good kind of illustrated example of what you're working on? Yeah. So Jason, is that is it always you telling me I should probably move that from what you described as my prepared remarks and just kidding. No, not at all, I think it was interesting.

Dirkson Charles: No, no, yeah. So let me give you a little bit of background and how we get to that statement, okay? Every year and we start the process around now. We do a bottoms up at all our businesses in terms of how we're thinking about the upcoming year, two years, five years, okay? As part of that, everyone is required to share with us their wish list of all the things that they want to do in terms of Quebec, in terms of productivity, et cetera, et cetera, et cetera.

Dirkson Charles: We will go through that wish list and identify the things that we do want to focus on. So clearly, and I noticed the favorite of plans, if there's a cap X that we can get the return back in two years or less, we'll do a billion dollars or rate of death, right? So we'll identify it in that manner based on the returns we expect to get, how quickly we can make our money back, et cetera.

Dirkson Charles: They are usually one or two items that will jump out of us where we go, wow, that's a great idea. And we should definitely dive in on that because the returns are higher than the rest. And we'll focus on that on all our weekly calls to make sure that we do execute. Now, the execution sometimes doesn't go as quickly as we would like.

Dirkson Charles: For example, this year, since you asked, this year, we move the business from California to Ohio, and we expected certain synergies as part of that move that would impact this year's results. It's actually taken a little bit longer to get up the learning curve, how do we move the business in terms of manufacturing the parts that I'm thinking about. And we'll probably get those benefits as we think about into 2020-25 and beyond.

Dirkson Charles: But that's how we go about it. So every year, this usually wanted to really, really good ideas that the team comes up with. This is a team sport, Jason. And the ideas are not the four of us in this room. It is from the 1,400 people that we have working with us, our mates, right? We will find one or two ideas to just drive, drive's return. Now, I just told you that we're not achieving the returns that we expected at the beginning of the year.

Dirkson Charles: I do want to tell you that's embedded in the outlook that we shared with you. But we will get those benefits as we think to 2025 and beyond. So stay tuned. Right. Okay, that's that's good color on 25 as well.

Brett Milgrim: And then lastly for me, Brett, I believe in your prepared remarks, Jim, and being a little bit agnostic on the M&A side of things to the end-market than any of the targets might be focused on. I just want to make sure, I guess it doesn't really matter what you choose to pursue as long as the financial metrics are there, but was that a statement on end-market within aerospace and defense or where there are the opportunities for you guys to move outside of aerospace?

Brett Milgrim: No, no, just to be clear, because I did mention when I talk about the metrics and the qualitative aspects of what we look for in acquisition, it has to be any of these focus. So when I say I'm agnostic to the end-market, I'm referring to whether it's commercial versus general aviation versus business jet versus military. The thing that we think about all the time from a top-down perspective is being balanced. So we don't want to have any one end-market be completely disproportionate to the others, but at the same time we don't look at that pie and say within a percentage point or two or three or five, it has to be within a particular segment.

Brett Milgrim: We just want to be balanced so that when any macroeconomic event may occur, we have risk and opportunities. And I think that served us really, really well during COVID. Perfect. Okay, I'll pass the line. Appreciate the time today. Thanks, Jason. Nice to see you. Thank you.

Ken Herbert: Next question, today's a follow-up from Ken Herbert from RBC Capital Market, provided is our line. Yeah, thanks. Dirkson, I maybe just wanted to follow up on your comment regarding expectations that new products can add sort of one to three points of organic growth each year. Are you tracking to that this year? And then I guess the second question would be, is you think about moving forward? These obviously aren't necessarily book and ship type products, but can you talk about then the setup as you think about that one to three range in the next year?

Ken Herbert: And maybe any ideas of some of what you're working on without obviously giving things away, but I know you've had some nice history here when we think about for often some other opportunities, just any ideas to where you're investing today as you think about the new product introductions and the opportunity. Yeah, sure, sure, Ken. So first part of your question, are we tracking? The answer is absolutely. We're tracking to that one to three percent this year.

Ken Herbert: And as you know, but probably not everybody on the call, we do track our new business pipeline. And we track it formally. We actually have a sales team that actually have calls once a month to go through and address how we're doing against expectations around that new business. New business to us is across all of our business units, all of our brands. And not just them independently, they'll also get together and collaborate to see how they can solve pain points within the industry.

Ken Herbert: For example, as you just said, short and the cockpit door barrier, which we've talked to folks about, that will drive sales in 2025 and beyond, and we'll be part of that one to three points. In terms of areas where we're looking, it's all across the board. It's everything that we do. From the house to rate control devices, to restraints, to hole open rods, lodging mechanism. Breaks steel, carbon, et cetera, et cetera, et cetera, everything we touch.

Ken Herbert: We're looking at investment. Now with that said, we're disciplined. R&D budget is usually around 2 to 3% of sales every year. And we track that against that list of new business. So nobody invests in R&D unless it's tied to a return that we can see and touch. Otherwise Glenn puts a hammer on them. So no one wants that. All right, thanks for all the color, Dirkson. Thanks. Thanks again. Thanks for the question. Thank you. We appreciate of our question and answer session.

Dirkson Charles: I'd like to turn the floor back over for further closing comments. So look, it's our second poll. This one folks got a chance to access questions. We want to be as transparent with you guys as possible. You are our partners is the way we think about it. The one thing will stop short of doing is say anything that will give our competitors an advantage over us. So appreciate sometimes we won't answer the question fully.

Dirkson Charles: Now with that said, I want to thank, thank, thank everybody for their time listening to the call today and being our partners. And most importantly, I want to thank our mates. I mean, our mates are killing it as you can see from the results. So thank you. Thank everyone for participating. Talk to you in 13 weeks. Thank you. That does conclude today's telecom for the webcast. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.