Q4 2024 StandardAero Inc Earnings Call
Speaker Change: Good afternoon and welcome to StandardAero's fourth quarter in full year 2024 earnings conference call. If you require operator assistance during the conference please press star zero. I would now like to turn the call over to Alex Trap, Chief Strategy Officer. Please proceed.
Speaker Change: Thank you and good afternoon everyone. Welcome to StandardAero's fourth quarter in full year 2024 earnings call. I'm joined today by Russell Ford, our Chairman and Chief Executive Officer, Kim Ernson, our Chief Operating Officer, and Dan Satterfield, our Chief Financial Officer.
Speaker Change: and Audio Replay of this call will also be made available, which you can access on our website or by phone. The phone number for the audio replay is included in the press release announcing this call.
Speaker Change: Before we begin, as always, I would like to remind everyone that today's earnings release and statements made during this call include forward-looking statements under federal securities laws. These statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections.
Such risks and uncertainties include the factors set for it.
Speaker Change: in the earnings release and in our filings with the Securities and Exchange Commission, including in the risk factor section of our quarterly report on Form 10Q for the three months ended September 30th, 2024, and our annual report on Form 10K for the year ended December 31st, 2024.
Speaker Change: We assume no obligation to update or revise any Ford-looking statements.
Speaker Change: whether as a result of new information, future events, or otherwise accept as required by law.
Speaker Change: Additionally, during today's call, we will discuss certain non-GAAP financial measures, such as adjusted EBITDA, adjusted EBITDA margin, free cash flow, and net debt to adjusted EBITDA leverage ratio.
Speaker Change: non-GAAP financial Measures should be considered in addition to and not as a substitute for GAAP measures .
Russ: I would now like to turn the call over to Russ.
Russ: Thank you, Alex. And thank you to everyone for joining our earnings call today. Before discussing our performance, I want to take a moment to recognize StandardAero's team for their outstanding contributions, their tireless effort and customer focus mindset which led to our results.
Russ: Their dedication to this company and our collective pursuit of excellence shapes the foundation of our vision for StandardAero's future.
Russ: It goes without saying, but 2024 was a historic year at StandardAero, and I couldn't be more inspired as the leader of this team about where we're going in 2025 and beyond.
Russ: I'll start my remarks on page three of our earnings presentation by reviewing some of our key highlights from 2024.
Speaker Change: It was a year for the record books of StandardAero. We continued to deliver outstanding growth and financial performance supported by robust market demand on the engines we service and driven by strong execution.
Speaker Change: Combined, these factors enable us to grow our adjusted EBDI by 23% for the year with accelerating growth in Q4 of 37%.
Speaker Change: The environment remains extremely positive with the commercial aerospace market front and center throughout the year exhibiting 25% growth in 2024 and an even stronger 33% growth in the fourth quarter as demand continues to outpace capacity.
Speaker Change: We achieved all of this despite a market that is still working through challenges in the supply chain that delay parts availability and if you want off headwinds like the temporary V-22 grounding that impacted one of our key military platforms.
In short, it was a terrific year of financially speaking.
Speaker Change: 2024 was also a banner year in terms of making significant progress in executing our strategic plan. During the year, we invested well over $100 million in our major program initiatives that will position us for accelerated growth and success for the future.
Speaker Change: Starting with Leap, our greatest strategic priority going into 2024 is to get this program off to a strong start.
Speaker Change: and I'm happy to report that we accomplished everything that we had planned on this front.
Speaker Change: The industrialization of our state-of-the-art Leap MRO line at our flagship 810,000 square foot facility in San Antonio, Texas remains on track and achieved all milestones we set for 2024.
Speaker Change: Our facility is up and running, and during Q4 we completed correlation of our first test cell for Leap 1A engines which follows the Leap 1B correlation in the prior quarter.
Speaker Change: Correlaying our test cells was a major milestone towards opening up our ability to conduct full overhalls on both the Leap 1A and 1B that powered the next generation, the A320 NEO, and Boeing 737 Max Family.
Speaker Change: In addition, as of the end of 2024, we have industrialized over 260 lead component repairs within our CRS segment.
Speaker Change: We're very excited about these repairs and I think they will be a key differentiator for our leap offering going forward.
Speaker Change: These capabilities will drive strong, high margin growth within our CRS segment as we sell these repairs both internally and a third party.
Speaker Change: These repairs will also provide a competitive advantage for our leap engineer-marrow business by enabling us to better control costs and turn times.
Speaker Change: The breadth and speed with which we're able to industrialize these repairs speaks to the strong development expertise within our CRS business and the differentiated relationship we have with GE and Saffron.
Speaker Change: We believe we are actually the first repair business outside of the OEMs themselves to industrialize all of the known leap repairs that exist at this point.
Speaker Change: Because of this, we believe that the OEMs are very happy with our progress and view us as go-to partners for continued introduction of new leap repairs.
Speaker Change: Importantly, we inducted our first leave engines during the year, including our first performance restoration shop visit induction in December . We're excited to be able to deliver the same exceptional service to our current and future customers that we've done for over a century.
Speaker Change: It's still early days in this multi-decade program and we have more to do as we complete our physical industrialization in 2025.
Speaker Change: Ramp, Capacity, and throughput. It began to move down the learning curve, but we're very pleased with the progress we've made to date, and the long-term outlook for this program remains incredibly strong.
Speaker Change: To say the outlook for leap remains very bright and we're excited about the immense opportunity that lies ahead of us on this program as it ramps. We also made significant progress investing to build capacity and further differentiated capability on other high growth platforms.
Speaker Change: In August we opened the second building at our Dallas Fort Worth campus, which will be home to our dedicated CFM 56 center of excellence, which more than doubles, our CFM 56 capacity and adds to test cells to strategically position ourselves to capture share in this very large market. We're excited to bring this.
Speaker Change: Capacity to the market in a highly strategic location in Dallas and have already begun and ducting engines at that site.
Speaker Change: Additionally in April we began a significant expansion of our Augusta, Georgia facility focused on our business aviation customers, which will allow us to meaningfully increase our engine shop capacity and throughput. This footprint expansion also allows us to support additional super mid size <unk>.
Speaker Change: Cabin aircrafts for airframe and avionics MRO, which is a key differentiator in winning work on incremental business aviation engine platforms. We're excited to cut the ribbon on this expanded facility later this year in.
Speaker Change: In addition to our physical capacity investments in Q4, we reached an agreement with GE to expand our license and relationship with them on the CF 34, narrow body platform. The <unk> 34 has long been a major engine platform. Its standard error. We've now signed a new 10 year agreement that include.
Speaker Change: <unk> expanded commercial scope it will significantly increase our annual earnings on the program.
Speaker Change: We're excited about this continued partnership with GE and believe this opportunistic investments solidifies the foundation for another decade of outstanding growth on the number one regional jet platform in the world.
Speaker Change: As we capitalize on existing market opportunities, we remain committed to maintaining the highest standards of operational excellence and continuous improvement within our business. We've consistently expanded our enterprise EBITDA margins and this year was no exception, where we grew our adjusted EBITDA margins by 90 basis points are good.
Speaker Change: Example of one of these initiatives has been our in sourced component repair content, which we grew by over 40% last year, that's been a big area of focus for us really ramping up our synergies between our engine services and component repair services segments and we think this continues to represent a big opportunity.
Speaker Change: To accelerate growth and further enhance our competitive differentiation for the future.
Speaker Change: We're also particularly excited to have Kim merchant onboard as our chief operating officer. She brings deep aerospace expertise coupled with a strong track record of successful results. She will further drive growth through our two segments continue optimizing our proprietary operating system and standardize its use across the.
Speaker Change: Enterprise.
Speaker Change: On the M&A front, we talked in detail about the Aero turbine component repair acquisition last quarter and that integration has gone very well the businesses are sharing best practices and we're already starting to realize our synergy plan. So we remain very pleased with that acquisition.
Speaker Change: We also further solidified ourselves as a key player in the next generation of commercial flight by expanding our relationship with boom supersonic, which just completed its XP one demonstrator program. The first American civil supersonic jet Xb, one successfully broke the sound barrier six times.
Speaker Change: With no audible Sonic boom.
Speaker Change: Finally, we made a landmark decision to take this 100 plus year old company public by completing our IPO in early October. Additionally, after our IPO, we were able to refinance our debt significantly reducing our leverage and improving our credit ratings profile ultimately resulting in over.
Speaker Change: $130 million of annual interest savings. This will further bolster our earnings and cash flow profile as we move forward in 2025, along with creating additional capacity for accretive acquisition opportunities overall, reflecting all the past year I'm quite proud of all of these achievements across our <unk>.
Speaker Change: Business and enthusiastic about our position for growth and market success in the coming years moving.
Speaker Change: Moving on to page four I'll touch on a few market and financial highlights for the year before Dan discusses our results and full year 2025 outlook in more detail.
Speaker Change: We continued to generate strong revenue growth of 15% in 2024 and 22% in Q4 with excellent performance from both our engine services and component repair services segments were continuing to see strong demand in the commercial aerospace aftermarket, where we saw a 20.
Speaker Change: 5% growth in 2024, and 33% growth in the fourth quarter.
Speaker Change: Sales to the business aviation end market grew 8% last year with particular strength on the ACF 7000 program, where we are the worldwide exclusive independent MRO provider of heavy engine overhauls in our military and helicopter end market revenue increased slightly compared to the prior year.
Speaker Change: Overcoming a headwind related to the volume declines in the AE 11 O seven platform. Following the temporary grounding of the V 22 Osprey between December of 'twenty three in May of 'twenty for the V. 22 has returned to run rate operations, we continue to see steady demand on other platforms within there.
Speaker Change: It's in market.
Speaker Change: Moving to earnings adjusted EBITDA increased 23% in 2024, and 37% in the fourth quarter, reflecting strong growth in both segments leverage on our fixed costs and a favorable mix, particularly in our engine services segment, where we saw lighter material content works.
Speaker Change: <unk> with higher labor content that led to stronger margins on those engines adjusted EBITDA margin expanded by 90 basis points year over year.
Speaker Change: Now that we've summarized 2024 results, let's move on to page five and talk about what we expect to accomplish in 2025, we're expecting 2025 would be another great year, we will deliver double digit growth on both the topline and the Bottomline Dan will get further into the details in his section but to give you a pre.
Dan Satterfield: You have our guidance, we're projecting revenue between $5 8 billion and $5 95 billion. This year underpinned by the continued strong demand we're seeing across our end markets, particularly in the commercial Aero market, where we're seeing low double digit to mid teens growth for the year or two.
Dan Satterfield: 2025 guidance calls for adjusted EBITDA of $770 million to $790 million, including continued margin expansion based on our performance excellence initiatives and growth of our high margin Crs business.
Let's get into the priorities for the year, which will be familiar as we continue to achieve major milestones on our primary strategic initiatives at the core of our strategy is to deliver exceptional aerospace services powering our customers' missions worldwide. This means continuously improving our capabilities and ensuring that we are.
The MRO partner of choice in the industry to support this we're focused on growth opportunities and streamlining operations to drive efficiency and enhanced profitability in a few areas first on the leap program. Our priority remains finalizing the build out of our line at San Antonio This year so that.
Dan Satterfield: We can be in the best position to meet the increasing demand on this platform, we will deliver our first performance restoration shop visit this year, a major milestone going from new engine contract. The Prs the delivery and just over two years plus will continue to pursue additional long.
Dan Satterfield: Term customer programs as a trusted partner to major airlines.
Dan Satterfield: We want to make sure we capitalize on our major investments and the CFM 56, and see a 34 current generation narrow body platforms to leverage capacity at our new Dallas Fort worth shop, and take advantage of strong demand, we're seeing in both markets.
Dan Satterfield: Third component repair is a big strategic driver for us and continuing to develop new repairs and accelerated expansion of that business is a top priority last year a lot of focus was on industrialization of the leap repairs that I talked about earlier looking forward, we will accelerate the pursuit of opportunities to it.
Dan Satterfield: Reduced new repairs on other platforms in alignment with our OEM partners will also continue identifying and executing on additional in sourcing opportunities, thus capturing profit back into our business and expanding our process intellectual property as well as enhancing our ability to control cost.
Dan Satterfield: Inherent Pat.
Dan Satterfield: Finally, we will continue to pursue accretive M&A opportunities from our pipeline that complement our existing portfolio of engine and component repair offerings. Our priorities are centered on strengthening our long term competitive position and delivering service excellence to our customers are sustainable.
Dan Satterfield: Company for employees and consistent and predictable compounding returns for our shareholders. Clearly we're excited about our performance and our trajectory with that I'd like to turn the call over to Dan Satterfield, Our Chief financial officer to walk through our results and outlook in more detail.
Dan Satterfield: Thank you Russ.
Dan Satterfield: I will begin on page six with some highlights for our fourth quarter results.
Dan Satterfield: For the fourth quarter ended December 31, 2024, we generated revenue of $1 $4 billion as compared to $1 $2 billion for the fourth quarter last year, representing 22% growth.
Dan Satterfield: 20%, if you fully pro forma for the acquisition of Aero turbine as if it had occurred at the beginning of 2023.
Dan Satterfield: That brings the 2020 for full year revenue growth to 15% versus 2023.
<unk> <unk> thousand 14, 5% fully pro forma for ATI.
Dan Satterfield: We saw strong growth at both our engine services and component repair services segments, which I will get into in a moment.
Dan Satterfield: Adjusted EBITDA increased to $186 2 million for the fourth quarter of 2024.
Dan Satterfield: Compared to $135 7 million for the prior year period, representing 37% growth.
Dan Satterfield: As a result of the revenue growth and higher margins from favorable engine shop visits and work scope mix pricing productivity improvements and continued growth in our higher margin component repair services segment.
Dan Satterfield: Including the acquisition of <unk> turbines.
Dan Satterfield: With a strong Q4 adjusted EBITDA for the year was $691 million.
Dan Satterfield: Representing 23% growth over 2023.
Dan Satterfield: Moving to net income we recorded a net loss in Q4 of $14 $1 million Pri.
Dan Satterfield: Primarily due to the impact of nonrecurring costs incurred.
Dan Satterfield: Including $29 million of onetime refinancing costs $26 million of IPO related costs, including catch up stock compensation expense tied to our 2019 pre IPO equity plan.
Dan Satterfield: As well as $18 million of costs related to acquisitions integration and startup costs in our lead program and CFM 56, new facility investments.
Dan Satterfield: Full year net income was $11 million, including the full year impact of the same nonrecurring costs noted above.
Dan Satterfield: Free cash flow for the fourth quarter improved to $57 $1 million, reflecting solid operating cash generation.
Dan Satterfield: It was also offset by several one time items related to the IPO and refinancing activities and additional costs tied to the industrialization of leap and CFM programs.
Dan Satterfield: On a full year basis free cash flow was negative $45 million also including one time effects that I will describe in detail further on.
Dan Satterfield: I would also note that both net income and cash flow were burdened by higher interest expense associated with our pre IPO capital structure.
Dan Satterfield: Where are we de levered with the IPO proceeds and refinance our remaining debt at lower interest rates.
Dan Satterfield: Now moving on to our two segments starting with engine services.
Dan Satterfield: Engine services revenue increased $595 million to $4 6 billion in 2024, representing 15% growth compared to 2023.
Dan Satterfield: Revenue from the commercial aerospace end market was up 26% compared to the prior year period on strong demand across both our narrow body turbo fans and our turboprops businesses, particularly on the CF 34, <unk> hundred 11, and Pratt <unk> Whitney Canada turboprop platforms.
Dan Satterfield: I would note that this growth was not meaningfully driven by our leap or CFM 56, Dallas Center of excellence businesses as they are still very early in their development.
Dan Satterfield: Moving to business aviation revenue in that end market grew 8% compared to 2023, driven by a sustained strength across the platforms with service, particularly the <unk> 7000.
Dan Satterfield: Offsetting these gains was our military helicopter end market revenue, which declined 3% compared to the 2023 period, primarily from lower inductions on the Rolls Royce AE 11, O seven engine, which powers. The V 22, Osprey and was impacted by the temporary grounding of that platform earlier in the year as Russ mentioned.
Dan Satterfield: On the earnings front engine services adjusted EBITDA grew 18% in 2024, driven by the strong revenue growth.
Dan Satterfield: Margins were up 33 basis points, largely due to work scope mix and lower pass through material content across the platforms we serve.
Dan Satterfield: Our component repair services segment saw 'twenty 'twenty, four revenue increased 15% compared to 2000 $23 million to $592 million or 13%.
Dan Satterfield: Fully pro forma for the acquisition of Aero turbine.
Dan Satterfield: Crs sales to the commercial Aero end market grew 17%.
Dan Satterfield: All of which was organic with our military and other end markets growing 12%.
Or 8% pro forma for ATI.
Dan Satterfield: Over the year Crs adjusted EBITDA grew 23%.
Dan Satterfield: Which was driven by our revenue growth and over 170 basis points of margin expansion to 26% for the year.
Dan Satterfield: Driven by operating leverage productivity improvement initiatives and good performance at ATI.
Dan Satterfield: Now moving to page nine.
Dan Satterfield: I'll dive a little deeper into our free cash flow for the quarter and the full year.
Dan Satterfield: We saw positive free cash flow of $57 million for the quarter.
Dan Satterfield: Despite being burdened by a number of nonrecurring outflows.
Dan Satterfield: Including $26 million of IPO and debt refinancing related costs.
Dan Satterfield: On a full year basis, our free cash flow was negative $45 million burdened by $27 million of IPO related expenses.
Dan Satterfield: $24 million of debt refinancing fees and $6 million of acquisition and integration costs.
Dan Satterfield: In addition to these one time expenses related to our IPO capital structure and M&A activities. We continued to make substantial platform investments, which will lay the foundation for growth at standard Arrow in the future.
Dan Satterfield: In fiscal year 2024, we invested $116 million in major platforms.
Dan Satterfield: Including $75 million on leap $20 million for our CFM 56 facility at Dallas, Fort worth and $20 million related to our expanded CF 34 license.
Dan Satterfield: These values include $43 million of startup costs on leap and CFM as we ramp on those platforms and San Antonio and Dallas.
Dan Satterfield: As previously mentioned in addition to our physical capacity investments we.
Dan Satterfield: Reached an agreement with GE to expand our license in relationship with them on the CF 34 platform.
Dan Satterfield: The total investment for us will be $50 million with.
Dan Satterfield: With $20 million paid in Q4 of last year.
Dan Satterfield: And the remaining $30 million in the first half of this year.
Dan Satterfield: And we expect with this new arrangement to generate in excess of $10 million.
Dan Satterfield: Of incremental EBITDA annually beginning in 2025.
Dan Satterfield: Finally, as previously mentioned, we closed on a full refinancing of our capital structure following the IPO of <unk>.
Dan Satterfield: Associated debt pay down and credit ratings upgrade.
Dan Satterfield: As a result of this activity we expect our go forward cash interest savings to be greater than $130 million going forward.
Dan Satterfield: It is important to note that many of these discrete cash outflows will not reoccur in 2025 and as a result, we expect to see meaningful improvements in cash flow going forward.
Dan Satterfield: Moving onto our balance sheet and liquidity on page 10.
Dan Satterfield: As you know we completed our IPO on October 2nd.
Dan Satterfield: And used our $1 $2 billion of net proceeds from primary share sales to pay down debt.
Dan Satterfield: And at the end of October we completed a refinancing of our remaining debt putting in place a new term loan facility with an annual interest rate of sulfur plus two to five and a new $750 million revolving credit facility with a rate of <unk> plus two 8%.
Dan Satterfield: These new rates represent a 125 basis point reduction in rate from our pre IPO term loans.
Dan Satterfield: And we expect to save over $130 million of annual interests to be realized in 2025.
Dan Satterfield: We are also now significantly delever to three one times.
Dan Satterfield: And as a result, we have received a multi notch upgrade in our credit ratings from all three agencies.
Dan Satterfield: Putting us solidly in the double B category.
Dan Satterfield: While we are pleased with where we sit from a leverage perspective.
Dan Satterfield: We are also focused on continuing to delever the business through earnings and cash flow growth and are targeting long term net leverage between two and three times.
Dan Satterfield: We believe that level provides ample cushion and flexibility on our balance sheet to invest across our strategic priorities.
Dan Satterfield: We are in an attractive position with multiple avenues, where we can allocate our capital to drive strong returns.
Dan Satterfield: This includes continued focus on organic investments.
Dan Satterfield: Winning new engine platforms like we did with the leap.
Dan Satterfield: And accretive and synergistic acquisitions as we did with ATI.
Dan Satterfield: Underpinning all of that is a disciplined approach focused on strategic fit and returns on investment.
Dan Satterfield: Which are key criteria whenever we make a significant investment decision.
Dan Satterfield: Now, let's review our outlook for fiscal year 2025 as shown on page 11.
Dan Satterfield: We are entering 2025 with a solid foundation.
Dan Satterfield: Driven by our firmly entrenched positions on key engine fleets visibility into new wins and capabilities to expand our portfolio.
Dan Satterfield: Our current outlook calls for total revenue in the range of $5 8 billion to $5 95 billion.
Dan Satterfield: This reflects continued strong demand in our core aftermarket services, including low double digit to mid teens growth from our commercial aerospace end market high single digit growth in the business aviation end market and high single digit growth in the military and helicopter end market.
Dan Satterfield: For engine services, we are forecasting revenue in the range of $5 <unk> 5 billion to five to $1 5 billion.
Dan Satterfield: And for commercial repair services revenue in the range of $715 million to $735 million.
Dan Satterfield: We are guiding to adjusted EBITDA between $770 million and $790 million for fiscal year 2025.
Dan Satterfield: In engine services, we project adjusted EBITDA margins in the 13% area.
Dan Satterfield: And then component repair services adjusted EBITDA margins of approximately 27%.
Dan Satterfield: Margins in engine services are anticipated to be roughly constant year over year.
Dan Satterfield: As increased efficiency in our core engine programs is offset by initially low margins on the leap and CFM 56 programs as production ramps up.
Dan Satterfield: So part of repair services margins are expected to increase year over year with continued operating leverage in sourcing and pricing initiatives.
Dan Satterfield: Shifting to cash flow, we will generate significantly improved free cash flow for fiscal year 2025, with a range of 155 million to $175 million.
Dan Satterfield: This guidance reflects our growth in earnings and a reduced interest expense as.
Dan Satterfield: As well as $90 million of investments for the final phases in our development of our new leap CFM and CF 34 platform initiatives and the expansion of our Augusta facility.
Dan Satterfield: Similar to investments and M&A. We believe these major platform investments will create strong returns and enable us to continue to deliver double digit earnings growth overtime.
Dan Satterfield: I would note that our guidance does not include any impacts from potential tariffs given the significant uncertainty surrounding them at this point.
Dan Satterfield: And that we have historically not been materially affected given our industry's exemptions and free trade arrangements.
Dan Satterfield: However of course, we're monitoring it and believe we are well prepared to take actions to mitigate any impacts to our business as a result of future policy developments.
Dan Satterfield: With that I'll turn it back over to Russ to wrap things up.
Russ: Thank you Dan, bringing it all together 2024 was a record year with exceptional growth driven by robust momentum in commercial aerospace the expansion of repair capabilities within Crs major new business Awards and progress on strategic investments in our high growth platform.
Russ: As we look ahead, we're excited for what's to come and we're confident we have the right strategy and positioning in place to capitalize on the strong market demand and the opportunities we're seeing.
Russ: Thank you again for joining us today and with that operator, we're now ready to move to questions and answers.
Thank you we will now be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue you.
Russ: You May press Star two if you would like to remove your question for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys.
Russ: So that we may address questions from as many participants as possible. We ask that you limit yourself to one question and one follow up if you have additional questions you may re queue and time permitting those questions will be addressed.
Russ: One moment, please while we poll for questions.
Russ: Yeah.
Russ: Thank you.
Speaker Change: Our first question comes from the line of Seth Steven with J P. Morgan. Please proceed.
Seth Steven: Hey, thanks, very much and good afternoon.
Seth Steven: Florida kick off asking about the growth in commercial Aero, the kind of strong low double digits to mid teens and kind of the contributions there if we think about it.
Seth Steven: In rough terms, we buy imagine small at this point, but also CFM 56, and this new CF 34 agreement and then.
Seth Steven: And anything else in kind of the broader environment, whether it's more material, becoming available or hired matt or pricing or whats kind of driving that that robust growth.
Speaker Change: Yeah. Thanks Seth.
We see really strong.
Speaker Change: Growth for as far forward as we can see in the commercial area and if you look at it by platform, which is how we do our buildup.
Speaker Change: We see CF 34 would have been a really strong platform for us for more than a decade is growing quite strong along with our turboprop segment, which is also quite large and is growing very healthy CFM 56 is going to be the largest revenue growth platform for us in.
Speaker Change: 2025, although is going to be biased more towards the end of the year and then as you indicated.
Speaker Change: <unk> is not yet a big revenue driver because this year is really our first Prs These and we're still.
Speaker Change: Just realizing but we'll still see pretty healthy growth there and the pipeline looks really strong so on the commercial side.
Speaker Change: That's what we're seeing including robust demand on attractive Crs component repair work that feeds into the commercial sector is driven by that.
Speaker Change: And then on our business aviation side, we still see.
Speaker Change: Increasing volumes on some of the flagship products like the ACF 7000, where we're the exclusive heavy MRO provider as well as PW 305, hundreds that are powering the latest super mid size types of aircrafts. So overall across the end markets.
Speaker Change: We're seeing very robust maintenance demand.
Speaker Change: Okay excellent excellent and then just.
Speaker Change: Just as a follow up.
Speaker Change: Maybe to add on the castle I know there was some working capital build last year I think a little over $100 million can you talk about what sort of plugged into the cash flow guide for this year from a from a working capital perspective.
Speaker Change: Yeah, you're right, we did build working capital this year.
Speaker Change: In advance of growth and there'll be some incremental working capital build.
Speaker Change: For you to think about it going forward working capital is always going to be about 25% of revenue, but next year there'll be some of that in particular on the backend sorry, the front end of the year as it relates to getting ready for the leap CFM 56 demand.
Speaker Change: Thank you. Our next question comes from the line of Sheila <unk>.
Speaker Change: With Jefferies. Please proceed.
Sheila: Good afternoon, and thank you so much.
Speaker Change: Youre welcome great execution as well so I just wanted to ask maybe something that investors are going to have top of mind tomorrow is that delta pre announced negatively one of the questions. We're getting is how to maintenance trends in aftermarket trends work out so well.
Sheila: See airline.
Speaker Change: Cutting capacity are seeing consumer confidence weakness.
Any thoughts.
That said.
Speaker Change: And that's for a very long time on your on the standard Arab isn't that somehow it principally around placebo at parity with the airlines.
Speaker Change: Yes. Thank you Sheila that's one of the beauties of the part of the value chain, where we operate.
Speaker Change: Is there is a dampened or a delayed effect to any changes in.
Speaker Change: Flight operations on the commercial side and military most of the work that we do on maintenance is as a result of flight hours that have already occurred so we don't see.
Speaker Change: Immediate disruption anytime that there is volatility with.
Speaker Change: With normal flight loading or flight frequency or off campus.
Speaker Change: For us we feel very very confident about the forward looking plans that we have for 2025 based upon what we can see.
Speaker Change: How much of your business is already in the backlog are long term contracts that you saw.
Speaker Change: Yes.
Speaker Change: Our long term contract that's still about the 77% that we close before where we have long term agreements with customers that's great because it gives us great visibility towards the future.
Speaker Change: And that number is about is going to stay about the same and of course, it'll increase as as we have our leaf business and backlog Sheila backlog varies by end market. It also varies by platform type. So youll see things like CF 34 that are more mature program.
Speaker Change: We have very deep backlog, there we have very deep backlog on our military part of the business and growing backlog on late.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Ken.
Herbert with RBC capital. Please proceed.
Ken Herbert: Yeah, Hi, good afternoon.
Speaker Change: Hey, Rob Hey, Ken Hey, Russ wanted to see you called out you've signed up nine customers for leap service contracts.
Speaker Change: How do we think about that progressing through this year and maybe how do we think about that $1 billion in sort of revenue opportunity growing as we think about.
Speaker Change: You didn't really hear a number of airlines that have rfps out for their sort of.
Speaker Change: Keep service work.
Speaker Change: Yes. Thank you Ken what we're seeing on leap is.
Speaker Change: The pipeline is actually looking better and better as we go forward because what we're finding is two things number one.
Speaker Change: A lot of the maintenance on these engines is moving to the left so we're seeing maintenance requirements come in earlier lighter work scopes like we call them <unk> continued time engine maintenance events.
Speaker Change: So we're seeing more of those but in the near term, but coupled with that we are seeing airlines, who got large orders for new aircraft new engines. They recognize that they really need to have maintenance slots locked up for these things and so.
We are contracting our pipeline has quite a number of rfps out there that are for events that don't start for another four to five years within continue one for 15 years. So it's not it's not so much of our transactional environment like you might see on <unk>.
Speaker Change: More mature platform because there's a limited number of people out there that can do leap work and can even more so can do leap repairs. So people are locking up wanting to lock us up early for these long term contracts. So we're actually.
Speaker Change: Very excited about the pipeline that we're engaged in for late.
Speaker Change: I mentioned last quarter that we had a lot of optimism about that and now fast forward into the new year and our pipeline looks even stronger so.
Speaker Change: And we're very well positioned with our CBS a license to be able to put forward compelling rfps around the world. If you looked at look at where the customers are that we've won so far they are literally around the world is not just North America.
Speaker Change: Well that's helpful. Thanks, and you called up the CFM 56 is perhaps one of the bigger growth drivers in 25 can you talk about where you are today in terms of turnaround times on that engine, what kind of improvement sort of the 25 guide in beds and when do we maybe hear about an initial contract.
Speaker Change: Track for the five D on that engine. Thank you.
Speaker Change: Yes, Thanks, Ken.
Speaker Change: Turnaround times continue to come down across all of our platforms not just <unk>, but we've made very good progress and I think that's driven by some.
Speaker Change: Some of the work that we've done over the last two years to increase the ability for us to find used serviceable material and bring it to bear.
Speaker Change: For those parks that have traditionally been a long lead time or shortage type parks. We also continue to invest and expand in our component repair business, which gives us access to extending the life repairing returning to new.
Speaker Change: Some of these other components that may be hard to find so that activity is really paying off so that.
Speaker Change: As the supply chain continues to improve and there is investment there. The oes are investing a lot of money there, but we want to move faster than that and so that's why we bought <unk> with <unk> and with repair development and as a result, we're seeing the benefit of that with our turn times coming down back to where they were in <unk>.
Speaker Change: 19 timeframe.
Speaker Change: Okay.
Speaker Change: Thank you. Our next question comes from the line of Gavin Parsons with UBS. Please proceed.
Thanks, guys good afternoon.
Speaker Change: Hey, Gavin.
Speaker Change: You mentioned the margin dilution from the leap and the CFM 56 ramp up so I was hoping you could give us just a sense of how much dilution you're offsetting this year and whether 2025 as peak headwind.
Speaker Change: Yes, I mean this year, we talk about the investment in leaf and that of course that includes some startup losses that are really a cash flow item not an earnings item for adjusted EBITDA next year, we're going to of course see the significant growth our largest single single platform, that's growing will be CFM 56.
Speaker Change: Followed by very closely T pass program.
Speaker Change: And leap.
Speaker Change: We will continue to have industrialization losses, which is will be a cash headwind, but but zero EBITDA, but significantly less than in than in 2024.
Speaker Change: CFM 56.
Speaker Change: We don't really negligible.
Speaker Change: But of course, thats going to have a little bit higher margins than leap in 2025, but with the growth on those programs and their margins being.
Speaker Change: Still.
Speaker Change: Low very low single digit range, Thats, where the dilutions coming from if you take those two programs out Es has got nice basis points growth year over year.
Speaker Change: Great. That's helpful. And then just any sense of price versus volume and driving revenue growth this year.
Speaker Change: Yes.
Speaker Change: We really don't talk about volume, we don't disclose shop visit volumes, but we are seeing price growth in line with our industry. The component repair market is particularly where we're seeing attractive pricing opportunity and that's an initiative for us going forward.
Speaker Change: On the volume side difficult to call out a shop visit number I know people would like to but because we have such a diversified shop visit types across our platforms and variation of work scope mixes. That's why we don't call out that specific value.
Speaker Change: But we are seeing significant volumes saw this year and of course next.
Speaker Change: Thank you.
Speaker Change: Thank you. Our next question comes from the line of Greg Dahlberg with Wolfe Research. Please proceed.
Speaker Change: Hi, good afternoon I'm on for Myles.
Speaker Change: One quick one here. So you mentioned M&A as a strategic priority for 2025, I'd imagine Crs is a big focus there just curious if you could comment on the pipeline of opportunities Youre seeing.
Speaker Change: I'd imagine that's a competitive area have valuations expanded from recent deals you've done.
Alex Trapp: Hey, Greg it's Alex.
Greg: So I mean, certainly we've discussed our enthusiasm about Crs acquisitions, given our past success and just the accretive nature of those types of companies.
Greg: And our ability to integrate that into our large Crs segment as a platform. So definitely interested in there we're not giving specifics necessarily on things that are in the works, but we are always in the market of course and looking at potential deals where were the right buyer for our business.
Greg: So we have a tracker, we've got a lot of <unk>.
Greg: <unk> opportunities and there is some organic some likely formal processes.
Greg: Many are actionable between now and the next couple of years, and obviously M&A is going to continue to be part of our value creation playbook.
Greg: Got it thank you.
Greg: Thank you. Our next question comes from the line of Doug <unk>.
Art: Art with Bernstein. Please proceed.
Art: Okay.
Art: Doug are you there.
Art: Yeah.
Okay.
Art: All right I'll go to the next question.
Art: Yeah.
Speaker Change: Our next question comes from the line of Chris <unk> with CIBC. Please proceed.
Speaker Change: Thanks for taking my question maybe.
Speaker Change: Maybe just to follow up on the last one there.
Speaker Change: And do you think about M&A.
Do you think about the time to integrate and how quickly.
Speaker Change: You can do M&A deals.
Speaker Change: Yes, so historically, we've been pretty good about keeping pace on formal processes and those usually.
Speaker Change: Where you really have to.
Speaker Change: To work hard to keep pace with other buyers on the more organic stuff.
Speaker Change: We can take our time, a little bit more but we've been we've done a good job I think historically keeping pace with your typical formal process. So that that's the timeline on M&A process on integration it kind of depends on the deal right at the size of the deal with the complexity.
Speaker Change: How many different different kind of work streams that that gets touched, especially with kind of a highly synergistic opportunity. So I think it ranges from sort of <unk>.
Speaker Change: 6% to 24 months, just depending on the size and complexity.
Speaker Change: Okay, Great and then just one other question you touched on it in your prepared remarks about chatting about tariffs and how you are not typically impacted but is there anything.
You're hearing that's maybe a little bit different this time around possibly from your customers or just internally.
Speaker Change: No we're not.
Speaker Change: And Chris just to be clear.
Speaker Change: We've done a complete contract review, we're carefully monitoring all of the tariff proposals that are out there.
Speaker Change: You know everyone knows it's a fluid situation, but we are.
Breath Sivley on top of this for any type of potential impacts and we are prepared to respond to a multiple of different scenarios.
Speaker Change: We are and will continue to be in compliance, which is the most important thing with all of the customs and regulatory requirements.
Speaker Change: Historically aircraft engines and components are within the U S. MCA duty free treatment and we expect that to continue we've got multiple outside experts that are looking at these.
Speaker Change: <unk> to make sure that nothing significant has changed or is likely to change so.
Speaker Change: Obviously.
Speaker Change: We will keep very close tabs on this.
Speaker Change: Great. Thank you congrats on the quarter and I will jump back in the queue.
Speaker Change: Good Thanks Kristen.
Speaker Change: Thank you there are no further questions at this time I'd like to pass the call back over to Russell for closing remarks.
Speaker Change: Okay very good. Thank you Alicia really appreciate everyone. Joining us today. We also appreciate your investments in sport and standard error, we will continue to be good stewards of your investment we look forward to speaking with you again next quarter and continued progress as we move through the year. Thanks, everyone.
Speaker Change: That concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
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