Q1 2025 StandardAero Inc Earnings Call
and Michael Dahlberg.
Please go ahead.
And good afternoon, everyone. Welcome to standard Arrows first quarter 2025 earnings call I'm joined today by Russell afford our chairman and Chief Executive Officer, Dan Satterfield, Our Chief Financial Officer, and Alex Trapp, Our Chief strategy Officer, alongside today's call you can find our earnings release as well as the accompanying presentation on our website.
Our standard Arrow Dot com, an audio replay of this call will also be made available, which you can access on our website or by phone and the phone number for the audio replay is included in the press release announcing this call.
Before we begin as always I'd 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 forth in the.
The earnings release and in our filings with the Securities and Exchange Commission, including in the risk factors section of our quarterly report on Form 10-Q for the three months ending March 31, 2025, and our annual report on Form 10-K for the year ending December 31, 2024, we assume no obligation to update or revise.
Any forward looking statements, whether as a result of new information for you.
Sure events or otherwise, except as required by law. Additionally, during today's call, we will discuss certain non-GAAP financial measures measures such as adjusted EBITDA adjusted EBITDA margin free cash flow and net debt to adjusted EBITDA leverage ratio.
The definition and reconciliation of these measures to the most directly comparable GAAP measures can be found in our earnings release and in the appendix to the earnings slide presentation on our website.
non-GAAP financial measures should be considered in addition to and not as a substitute for.
For GAAP measures with that finally out of the way I'd like to now turn the call over to our chairman and CEO Russell for it rests over to you. Thank you Robin and thanks to everyone for joining our earnings call today.
Speaker Change: I can start off by welcoming Ramadan data, our new Vice President of Investor Relations to the standard error Chi we couldnt be more excited to have Rama and his experience as part of standard error. So let's begin on page three 2025 is off to a great start we delivered strong first quarter results with revenue.
Speaker Change: Growing 16% year over year, and adjusted EBITDA growing by 20% our performance. This quarter reflects strong execution across both the engine services and component repair services as well as continuing demand across our key end markets commercial aerospace business aviation.
Speaker Change: Military and helicopters are commercial aerospace grew 18% year over year, driven by strong demand across our major platforms and continued growth in engine maintenance activity. Despite recent headlines of slowing growth and some airlines, we continue to see strong global demand for me.
Speaker Change: Maintenance from our customers historically airline operators have taken a longer term view when it comes to any changes in critical engine maintenance. So we arent typically impacted by short term volatility in passenger traffic and what we're seeing the outlook for the commercial aftermarket remains very strong with long term <unk>.
Speaker Change: And visibility in an MRO constrained market and our backlog remains robust.
Speaker Change: Moving to our other end markets our business Aviation group increased 13% versus Q1 last year with solid demand on engine platforms, the power midsize and Super midsize and large cabin business aircraft, our military business grew 10% with the contribution from our Aero turbine acquisition.
Speaker Change: Last year as well as growth on R. J 85 program.
Speaker Change: Our adjusted EBITDA margins continue to expand with a 40 basis point improvement. This quarter. This was driven by our continued growth price and productivity initiatives and also favorable mix on our higher margin component repair segment, which continues to become a larger portion of our business our engine.
Speaker Change: Services segment saw favorable work scope mix, which offset initial lower margin leap work as we work through the industrialization learning curve on that platform and the component repair segment. We saw increased higher margin repairs and continued to see the benefits of pricing and productivity actions.
Speaker Change: These results highlight the strength of the standard arrow business and the inherent durability of our purposely diversified portfolio in which we serve is over 40 engine platforms covering all major engine Oems and end markets. We think this portfolio construction and our positioning.
Speaker Change: As the world's leading independent MRO enable us to smoothly navigate the dynamic global macroeconomic and trade environment in which we operate.
Speaker Change: Turning to page four on the tariff front, we're in a good position to manage through the current uncertainty and minimize the potential impact to our business, we're having daily conversations with our customers and OEM partners alike, and have mitigation actions identified and being implemented.
Speaker Change: Some of these include contractual mechanisms, where many of our contracts allow us to pass on these costs other pricing opportunities and continuous cost improvement actions. The work at our Canadian facilities continues to be U S. MCA compliant and exempt from tariffs and we expect that much of our work is performed.
Speaker Change: In the U S for international customers will have lower exposure given the recent progress on trade negotiations based on what we know today, we estimate the net impact of tariffs will be on the order of $15 million for 2025, However, given our solid performance, thus far and the strong.
Speaker Change: Demand, we're seeing we're raising our sales and earnings guidance for the year, which now incorporates the additional net tariff impact of $15 million, Dan will provide more detail on our increased guidance later during this call.
Speaker Change: In addition to the strong financial performance and positive demand backdrop. We also continue to execute across our strategic priority areas that will drive value in 2025 and beyond first we're focused on the continuing ramp of our leap program after achieving multiple key milestones in <unk>.
Speaker Change: 24, we continue to make strong progress this year, we've secured additional regulatory approvals for our leap <unk> engines from Indian Japanese and Emirati authorities, expanding our ability to support a broader set of airlines globally.
Speaker Change: And while not listed in our Q1 results. We just completed our first leap shop visit and deliberate we remain on track to complete the final industrialization steps. This year deliver our first Prs V. In the second half and continue to ramp this large multi decade program the long term demand outlook for.
Speaker Change: <unk> continues to grow every quarter and we're seeing our pipeline and contract award momentum built during Q1. For example, we secured six new leap customer awards, which we expect to represent over 150 shop visits over the term of their contracts.
Speaker Change: We continue to capitalize on investments we've made in CFM 56, and CF 34 by leveraging new capacity, we added to our Dallas site, we saw a record quarter on the CF 34 platform following our investment to expand our GE relationship at the end of 2024 in addition.
Speaker Change: We continue to add key new customers for the CFM 56, such as our recent win with Indonesia is largest airline Lion air where one of the only independent MRO businesses in the world, adding capacity on the CFM 56 platform, which remains the largest installed base in the history of <unk>.
Speaker Change: Aviation and an estimated 40% of all CFM 56 engines in service have not yet gone through their very first shop visit. So this is an enduring revenue stream third we're continuing to expand our engine component repair capabilities, we made significant progress last year.
Speaker Change: Especially on developing new leap repairs and this year, we're pushing hard to grow with more high value repairs across multiple platforms that include new repair introductions that will drive both third party sales and in sourcing on addressable repairs from our own engine services business.
Speaker Change: As we continue our initiative to drive closer alignment between our two segments. This improves our cost turn times and margin. Finally, we're staying active on the M&A front, we have a growing pipeline of targets and ample balance sheet capacity, we continue to be disciplined and focused.
Speaker Change: On capital allocation, where we see strong strategic and synergistic alignment.
Speaker Change: With an excellent start to the year, a very favorable aftermarket position and our continued disciplined around specific priorities, we remain optimistic and as a result, our subsequently increasing our 2025 guidance. We continue to expect strong revenue performance with double digit growth.
As well as continued adjusted EBITDA margin expansion.
Speaker Change: I'll stop there and turn it over to Dan Satterfield, our CFO to walk through our financial results and outlook and additional detail Dan.
Dan Satterfield: Thank you Russ I will begin on page five with some highlights of our first quarter results.
Dan Satterfield: For the first quarter ended March 31, 2025, we generated revenue of $1 4 billion as compared to $1 2 billion for.
Dan Satterfield: For the first quarter last year, representing 16% growth of which 14, 4% was organic.
Dan Satterfield: We saw strong growth at both our engine services and component repair services segments.
Dan Satterfield: Adjusted EBITDA increased to $198 million for the first quarter of 2025 compared to $166 million for the prior year period, representing 20% growth.
Dan Satterfield: This was driven by top line strength, along with a favorable platform mix and continued expansion in our higher margin component repair services segment, including the acquisition of <unk>.
Adjusted EBITDA margins continue to expand with this quarter is 13, 8% 40 basis points higher than Q1 of last year.
Dan Satterfield: Net income increased to $63 million for the first quarter 2025, compared to $3 million for the prior period driven by increased earnings paired with reduced interest expense from debt Paydown and subsequent refinancing events.
Dan Satterfield: Free cash flow was a use this quarter.
Dan Satterfield: Which was in line with our expectations, given our investments and typical seasonality and represented an improvement of $38 million over Q1 last year.
Dan Satterfield: I'll dive a little deeper into cash flow on a later slide.
Dan Satterfield: Now moving into our two segments, starting with engine services on page six.
Dan Satterfield: And to the services revenue increased by $171 million to $1 3 billion in the first quarter, representing 16% growth compared to the prior year period.
Dan Satterfield: The increase was driven by robust demand in the commercial aftermarket where we saw strong performance in our turboprop engine business and a record quarter on the CF 34 regional jet platform as.
Dan Satterfield: As well as continued growth in the business aviation market.
Dan Satterfield: The military end market was flat this quarter, primarily due to timing of inputs.
Dan Satterfield: On the earnings front engine services adjusted EBITDA grew 16% in the first quarter driven by the strong revenue growth.
Dan Satterfield: Adjusted EBITDA margins were roughly flat compared to the prior year period, driven by mix headwinds from the leap and CFM 56, Dallas growth programs, which initially have lower margins as production ramps.
Dan Satterfield: On page seven component repair services first quarter revenue increased 21% compared to the prior year period to $167 million.
Dan Satterfield: Growth was supported by our ACI acquisition, which contributed $22 million in Q1, and also strong performance in our land and marine Aero derivative programs.
Dan Satterfield: This was somewhat offset by temporary headwinds from the impact of a facility consolidation, which resulted in some machinery and labour downtime.
Dan Satterfield: And the exit of low margin noncore accessories product line.
Dan Satterfield: Which were two business improvement initiatives, we executed in the quarter.
Dan Satterfield: We also saw some slower timing of inputs, which are now expected to arrive in the second half of this year.
Dan Satterfield: In the quarter Crs adjusted EBITDA grew 32%, which was the result of our revenue growth in over 240 basis points of margin expansion to 28%.
Dan Satterfield: Driven by productivity improvements pricing and good performance and synergy realization at ATI.
Dan Satterfield: Now moving to page eight I will discuss our free cash flow for the quarter.
Dan Satterfield: Free cash flow was a use of $64 million.
Dan Satterfield: Q1 tends to be our lowest cash flow quarter due to working capital seasonality and payment of year end taxes. So this was expected.
Dan Satterfield: And the figure represented a $38 million improvement year over year versus Q1.
Dan Satterfield: Our strong earnings performance and interest expense reductions this quarter were offset by higher working capital requirements and increased capital expenditures aligned with our strategic growth initiatives, specifically, the CF 34 license payment as well as tooling and other investments for the leap program and the new CFM 56.
Dan Satterfield: Telus site.
Dan Satterfield: Turning to page nine.
Dan Satterfield: Our leverage at the end of the quarter improved to three nine times compared to $5 seven at the end of Q1, 2024 and $3. One four times at the end of fiscal 2024.
While we are pleased with where we sit from a leverage perspective. We are also focused on continuing to deliver the business through earnings and cash flow growth.
Dan Satterfield: And are targeting long term net leverage between two and three times and remain on plan to do so.
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 leap and accretive acquisitions like ATI, where we can create meaningful synergies.
Dan Satterfield: Now to our guidance on page 10, we feel really strong about the start to the year with outstanding results in both engine services and Crs.
Dan Satterfield: Given by strong demand across our end markets and we expect performance to continue throughout the year based on outlooks from our customers.
Dan Satterfield: We are executing well and our operational improvements continue to support increased levels of performance.
Dan Satterfield: As Russ mentioned earlier, we are increasing our revenue and adjusted EBITDA guidance ranges from our March earnings call.
Dan Satterfield: You May now also incorporate our estimated net impact of tariffs on our business.
Dan Satterfield: $15 million based on where we are today.
Dan Satterfield: We now expect revenue in 2025 to be between five 855 billion and $5 97, 5 billion and adjusted EBITDA is now expected in the range of $775 million and $795 million.
Dan Satterfield: The increase in our sales and adjusted EBITDA guidance is from our engine services segment.
Dan Satterfield: This increase 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.
With that I'll turn it back over to Russ to wrap things up.
Russ: Thank you Dan now to summarize we are off to a terrific start in 2025 highlighted by double digit revenue growth continued margin expansion as well as an increased outlook for the year, while we recognize the geopolitical and macroeconomic uncertainty all businesses face today.
Russ: We've built a solid foundation, we continue to see good momentum in the engine aftermarket and have positioned ourselves to benefit from our strategic investments expanded component repair capabilities and new business awards that will enable us to deliver our committed results in 2025.
Russ: And beyond that concludes our remarks for Q1 and with that operator, we're now ready to move to the Q&A session.
Speaker Change: Certainly we will now be conducting a question and answer session if you'd like to be placed in the question queue. Please press star one on your telephone keypad and as a reminder, we ask you. Please ask one question. One follow up then return to the queue. Once again Thats star one to be placed in the question queue and please ask one question one follow up.
Russ: The return to the queue.
Speaker Change: Our first question today is coming from Seth <unk> from Jpmorgan. Your line is now live.
Speaker Change: Okay. Thanks, very much good morning, sorry, good afternoon and good results.
Speaker Change: I think I know the answer to this question, probably but just wanted to dig in on it a little bit more because it is something that came up during the quarter.
Speaker Change: We've seen U S Airlines talk a little bit about SAR capacity.
Speaker Change: I think there is an association that that people have with maybe CF 34 in particular.
Speaker Change: With the U S Airlines, obviously that was very strong in the quarter and so if you could just talk about what gives you confidence in the visibility.
Speaker Change: On that platform and the ability to keep growing there.
Speaker Change: Okay, Yes. Thank you Seth good question and not unique to see at 34, but clearly CF 34 is one of the.
Speaker Change: The largest embedded platforms flying out there and what we see is that there really hasnt been any.
Speaker Change: Pull back on maintenance activity from airlines despite.
Speaker Change: Some of the comments I've made about the volatility in passenger loading.
Speaker Change: As you are aware engineer MRO is non discretionary it's usually the last thing that airlines look at if theyre experienced some tides experiencing some type of a weak air travel demand they will cut discretionary aftermarket things like cabin upgrades long.
Speaker Change: Before they will move into the engine maintenance because of the lead time involved in getting slots for engine MRI. So that's been our experience over the years and that dynamic has not changed.
Speaker Change: Okay excellent and then.
Speaker Change: Paul.
Speaker Change: Maybe just.
Speaker Change: The M&A environment.
Speaker Change: You talked about having opportunities on the capital deployment front, I guess kind of off.
Speaker Change: At the top end of our leverage range right now.
Speaker Change: A lot going on right now in terms of probably the way that people are thinking about the future. What does that mean for your just making more app less apt to do M&A are there more opportunities fewer opportunities how are you thinking about that.
Speaker Change: Yes, Seth Alex.
Speaker Change: Really no differently.
Speaker Change: We're obviously spending money on these key programs.
Speaker Change: But that doesn't keep us off off of the M&A Hunt.
Speaker Change: We still see ourselves as having plenty of balance sheet capacity.
Speaker Change: Plenty of.
Speaker Change: Free cash flow to two.
Speaker Change: To invest in so we feel well positioned to to stay on the hunt for M&A opportunities and.
Speaker Change: The environment out there is is gotten more robust.
Speaker Change: Over the last few months, so so lots of attractive targets.
Speaker Change: It's still that meet the key criteria for us, which is strategic fit synergies and both of our segments have.
Speaker Change: A handful of different opportunities.
Speaker Change: That are sort of sitting in the pipeline so.
Speaker Change: We like how the environment looks out there can't predict the timing of course.
Speaker Change: But full of attractive opportunities.
Thank you next question today is coming from Myles Walton from Wolfe Research. Your line is now live.
Myles Walton: Thanks, Good evening.
I was hoping you could comment on.
Myles Walton: Services and the growth there in the quarter looked more military in CF 34, driven I'm curious.
Myles Walton: 56, and the Libra, obviously big parts of the twenty-five revenue drivers should that occur in the second quarter and kind of how much margin headwind.
Myles Walton: Should we expect as that folds in.
Myles Walton: Yeah.
Myles Walton: Thanks miles on the military side the real drivers are.
Myles Walton: Both transport as well as military we have.
Speaker Change: Large position on C 130 aircraft, both the classic <unk> models, and Jane model, which operate the <unk>.
Speaker Change: <unk> 56 in the 'twenty 100, respectively.
Speaker Change: That set of actions is pretty consistent over time, you might see some pickups. If there if there is.
Speaker Change: Some type of award that escalates, and you have more troops a material that need to move but that's fairly consistent and then we also have our.
Speaker Change: Our fighter business, where we do engines for the F 16 F <unk>.
Speaker Change: And we also.
Speaker Change: Do work now on the.
Speaker Change: The T 38 trainer platform, which we just recently expanded to pick up the <unk> five which is the.
Speaker Change: Foreign military application for the J 85, and all of those programs are not really impacted by anything thats going on over in the Ukraine at the moment. So this is.
Speaker Change: Good solid type of steady state underpinning on the military side of the business.
Speaker Change: Maybe just a quick follow up if I could.
Speaker Change: Leap business transformation leaking CFM six business transformation costs.
Speaker Change: Are those expected to be running at this run rate or how quickly do those run off through the course of 'twenty five thanks again.
Speaker Change: Yes, we're on track miles, we talked about that in Q4, the business transformation costs actually that's included.
Speaker Change: A major platform investments of $90 million that includes both the capital expenditures in the business industrialization costs, you'll see on page eight.
Speaker Change: That figure is now $36 million in Q1, that's right in line with our expectations. So we did see margin headwinds and engine services as a result of lethal CFM 56 revenue growth. That's why the engine services margins are flat excluding that they would be accretive.
Speaker Change: Okay. Thank you.
Speaker Change: Okay.
Speaker Change: Thank you. Your next question today is coming from Sheila <unk> from Jefferies. Your line is now live.
Sheila: Good afternoon, guys and thank you for the time so.
Sheila: Maybe two questions related to each other.
Sheila: But first on margins when we think about margins started off very strong for the year. The 13.8 EBITDA margin versus the full year guide implies about 70 bps of contraction for the remainder of the three quarters, what's really driving that is that.
Sheila: Let's say a 30 parts program picking up can you talk about that please.
Sheila: No we're still holding well of course, we've increased our guidance and we're also managing the tariff headwind. So you can tell that our margins are pretty strong and the expectations are strong for the rest of the year in particular as a result of the ability to absorb that tariff impact that Russ talked about.
Sheila: If you talk about margin headwinds throughout the rest of the year. They are really only on the leaf and CFM 56 growth.
Sheila: So those are going to grow we've talked about those being zero margin or approaching profitability during 2025 and as those as those revenues grow.
Sheila: Have a greater dilutive impact.
Sheila: Of course I have to reiterate we expect both of those programs to be accretive long term.
Sheila: Great and then if I could ask another one on free cash flow. Please if you could just talk about how much of the $90 million of major platform investments and free cash flow, where in the first quarter and how do we think about that extra $4 million in usage in Q1 versus the full year guidance.
Sheila: Yeah no problem. So if you look at page eight we do call it out and that box is really equivalent to the $90 million right. So it's $36 million of major platform investments in Q1 and are composed it's composed of leaf of 19, CFM 56 of two and then importantly, the CFM 34 license of <unk>. So it's a little weighted average.
Sheila: Heavy because that 15 license I'm paying in Q1 and in Q2, so the weighting of that $90 million is a little heavier in the first quarter and the first half, but that is representative of that and we're still on track to spend at $990 million for the full year on those highly accretive programs.
Sheila: Awesome. Thank you so much.
Speaker Change: As a reminder, that star one to be placed in the question queue. Our next question is coming from Ron Epstein from Bank of America. Your line is now lives.
Ron Epstein: Hey, guys how are you.
Ron Epstein: Hey, Brad circling up on when we talked a while back you had suggested maybe there'd be some opportunities for you all with widebody engines I'm just curious how that's going.
Brad: Yes, Thank you Ron.
Speaker Change: We are constantly looking at growth opportunities and we have.
We've made very good progress in terms of platform expansion and new platform acquisition for both regionals and narrow body.
Speaker Change: Continue to look at the wide body market there are not as many engine DRAP locations in that part of the market, but we continue to be very close to the oes and as they.
Speaker Change: Get more and more of the bigger <unk> into the market.
Speaker Change: We are considering ways that we may enter into that market and there's a number of ways you can do that through.
Speaker Change: Acquisitions through joint ventures or through just initial startup so.
Speaker Change: We are watching it very closely looking for the right opportunity for us to begin to deploy capital in that area. In the meantime, we have terrific opportunities even stronger opportunities for deployment of capital into things like expanding our Crs business, which has a lot more value accretive.
Speaker Change: For us.
Speaker Change: Gotcha Gotcha Gotcha, and then it might be early days, but do you have any initial thoughts on the section 232.
Speaker Change: The investigation, that's going on and maybe what implications that could have if any.
Speaker Change: On MRO.
Speaker Change: Yes. Thank you for that Ron we've we spent a little bit of time.
Speaker Change: You are talking about is thinking about it its a new.
Speaker Change: Hurdle that debt.
Speaker Change: It's just come about really in about the last 72 hours. So not really much is known about this other than just it's been announced.
Speaker Change: Theres going to be some some work here, we obviously don't even know exactly what's going to be within the scope. We don't know what the outcome is going to be so.
Speaker Change: At this point.
Speaker Change: I would not want to speculate on any type of impact because we don't yet exactly know what is going to be looked at but one thing is I think is reasonably.
Speaker Change: Sounds to say and that is that this is likely wrapped up in the trade negotiations that are going on and.
Speaker Change: Could be a lever there but.
Speaker Change: It's just too early for us to speculate.
Speaker Change: Got it alright, thank you very much.
Speaker Change: Thank you Ron.
Speaker Change: Thank you. Your next question is coming from Doug Harned from Bernstein. Your line is now live.
Doug Harned: Good afternoon, and thank you.
Doug Harned: And when you when Youre looking at building out more and more not more capacity, but actually more activity both on the leap and CFM 56.
Doug Harned: You've talked about.
Doug Harned: Right now as you said, it's margin dilutive, but presumably once you fill those facilities, who have better operating leverage it should be they should both be very attractive programs.
Doug Harned: Trying to get a sense for how long you think it will take to sort of fully utilized the San Antonio in DFW facilities.
Doug Harned: Well.
Doug Harned: Great point, and Youre right Theres, a couple of factors on the accretive nature of those programs, which we are completely.
Doug Harned: Convinced.
Doug Harned: Hope that they will get there first of all don't forget what we call the learning curve as technicians get more experienced on an engine, we see that the hours go down the margins go up so that's one and that learning curve is both on the leaf and the CFM 56, even though we did the <unk> 56 in Winnipeg today in Dallas, It's a newer programs.
Doug Harned: Graham So two things are going to happen margins will go up as we build out the sites and have a stronger revenue and be as we go up the learning curve and both of those are proceeding as planned.
Doug Harned: There was a comment earlier today.
Doug Harned: Lead the CFM 56 are big drivers know they are absolute drivers of Q1 revenue and they are in the top four of our platforms that are creating revenue and we are seeing the impact of chewing up the industrialization costs on that and then the learning curve. So we both we think for both of those regions those platforms will be accretive.
And then separately when you look at your sort of geographic opportunities.
Doug Harned: You've made the announcement about regulatory approval in UAE, India, Japan, but you've already you already arranged for a deal with Spice jet.
Doug Harned: When you look at some of those regions India UAE.
Doug Harned: You have harsh environments and how do you think about those contracts and managing the risk on an will leap given that youre working in tougher places.
Doug Harned: Honestly, Doug we love them.
Doug Harned: <unk> maintenance businesses love harsh environments.
Doug Harned: As the entity, that's writing the maintenance service contract that has to be very careful about.
Doug Harned: Replacement factors that are used but anything that causes accelerated maintenance.
Doug Harned: Good for us and clearly we take that into account when we price things.
Doug Harned: Because of our experience working on engines that operate in all kinds of environments and the big workhorses like CFM and <unk> 34, and soon to be leap.
Doug Harned: We have lots of experience thousands of engines that we've worked on that have operated in Dusty sandy conditions.
Doug Harned: Highly corrosive saltwater types of environments.
Doug Harned: Environments, and we have a very good.
Doug Harned: Database on the replacement factors that are required when you do work on engines like that so.
Doug Harned: From a maintenance perspective, it's actually a very good thing.
Doug Harned: Great. Thank you.
Speaker Change: Thank you. Your next question today is coming from Christopher <unk> from CIBC. Your line is now live.
Speaker Change: Hi, Thanks for taking my question.
Speaker Change: I was just wondering if you could maybe elaborate a little bit more on the non core business that you exited in and its stairs are there other parts of the business that you are looking at doing the same with <unk>.
Speaker Change: Yeah.
Speaker Change: The hydraulics business that really wasn't core to Crs.
Speaker Change: A big deal and it's part of what the Crs business has done to accrete margins is really focusing on the higher value high margin high volume product lines. This was in the hydraulics area really wasn't core so they exited that yes, Chris. Thank you for the question because this ties into broad.
Speaker Change: Our view of the expansion of our CRM business, we can see the demand coming at US we've had a record number of Rfps and our our win rate is above 80%. So we know we've got a lot of work coming our way and so what we've done to prepare for that.
And make sure that we can take advantage is.
Speaker Change: Part of that is consolidation.
Speaker Change: Some smaller factories into larger factories that have greater expansion capability and the exit we will continue to look at things that are lower margin less attractive businesses will bring those out and redeploy that capacity towards higher margin repair.
Speaker Change: Processes.
Speaker Change: Okay, great. Thanks.
Speaker Change: And maybe if you can just provide us with an update on the.
Speaker Change: <unk> acquisition and its integration is going as expected there.
Speaker Change: Yes so.
Speaker Change: <unk> is doing great.
Speaker Change: About $22 million of revenue in Q1 margins continue to be really strong.
Speaker Change: And the Great News is is that it's really integrating well.
Speaker Change: Well into the existing work that we do on the <unk> five program and that has a benefit not only for <unk> stand alone P&L, which were really dissolving into the business, but also on the JD five work that's being done in San Antonio So we're super happy about it great margins in line with Crs operationally it is delivering.
Speaker Change: The synergies expect exactly as we expected and strategically its opened up this entire new market space for us to begin to look at the F. Five market, which uses the JD <unk> engine as well.
Speaker Change: Great. Thank you I'll jump back in the queue.
Speaker Change: Thank you. Your next question today is coming from Ken Herbert from RBC capital markets. Your line is now live.
Ken Herbert: Yes, hi, good afternoon, I think you indicated that you delivered your first.
Full performance restoration on leap this quarter can you talk about what youre seeing on supply chain for leap parts and and obviously on that first engine, how how it one relative to your expectations.
Ken Herbert: Yes, Thank you Ken.
Ken Herbert: What we actually did during the first first part of this year was.
Ken Herbert: We inducted our first full Prs.
Ken Herbert: In December this past December is going through the shop now.
Ken Herbert: And it will be delivered later this year.
Ken Herbert: Simultaneously, we have been inducting.
Ken Herbert: <unk> Saar lighter work scope engines.
Ken Herbert: Engine that I mentioned that we just delivered about two weeks ago was our first see temps so that was a.
Ken Herbert: A lighter work scope that we now have delivered and there'll be a mixture of <unk> and Prs days as we go through the year, so just to be clear.
Ken Herbert: Inducted.
Speaker Change: Work delivered our first <unk> leap and we have in Doug did and are currently working on our first full prs. The heavy work scope that will be delivered here a little bit later this year in.
Speaker Change: In terms of supply chain, we've not seen any significant holds relative delayed.
Speaker Change: Mainly because we don't.
Speaker Change: Have the volumes built on leap as we move through this year as final industrialization and moving into low rate initial production. So we've not been hampered to any significant degree by parts availability.
Speaker Change: Okay, great. Thanks, Thanks, Ross if I could you you indicated or you called out I think you've won or put under contract 150.
Speaker Change: Shop visits for the leap in the first quarter can you just comment on maybe how big your backlog is for the leap of either the <unk> or the full performance restorations and maybe what your expectations are for that backlog growth. This.
Speaker Change: This year on the leap in particular.
Speaker Change: Yes, we got more than a billion dollars under backlog.
Speaker Change: Currently for leap so.
Speaker Change: Pipeline is very healthy we're continuing to win customers, we have a number of other rfps in various stages, but.
Speaker Change: In the last few months, we have we've.
Speaker Change: We've actually been awarded more than a billion dollars worth of leap programs already.
Speaker Change: Great Alright, Thanks Ross.
Speaker Change: Thank you. Your next question today is coming from Kristine <unk> from Morgan Stanley. Your line is now live.
Speaker Change: Hey, good afternoon guys.
Speaker Change: A question on repair Rusty you talked about how youre still getting more repair capabilities approved so can we talk about a.
Speaker Change: What percent of capabilities do you have today and how much sort of runway. There is for this business because the margins are pretty attractive and then also how quickly could you get to that potential addressable market how much time does that take.
Speaker Change: Thank you Christine.
Speaker Change: The component repair business is.
Speaker Change: A bottomless well.
Speaker Change: The different types of.
Repair offerings that we could offer and we don't just.
Speaker Change: Don't randomly move through that series of opportunities. The fact is this is where one of the areas where it's important for us to be very closely coupled with the OEM.
Speaker Change: Cause they will along with us.
Speaker Change: Lead us towards those particular parts of the engine, where the greatest need is for having repair schemes that are authorized and a lot of times. It has to do with design robustness of certain.
Speaker Change: Components or it could be.
Speaker Change: Something that is sole sourced or constraint and so they will need our help to help relieve pressure on the supply chain to be able to continue to put engines back in service. So we're we're methodical and in close coordination with the Oes as we move through the development of the repair process.
Speaker Change: And there are some engines I mean look theres always repairs that are not yet developed.
Speaker Change: But again, we try to work on the ones that are most important for us and for the OE to be able to continue to get.
Speaker Change: Engines back to the customers in.
Speaker Change: The lowest turn times possible. So that's kind of the the objective and then as we as we look at the opportunities for acquisitions in the Crs area, we bear that in mind as we as we look at the different process capability that acquisition targets.
Speaker Change: Half does that process capability give us.
Speaker Change: Kind of the wherewithal to be able to handle a broader slate of repairs, so that when customers come to us.
Speaker Change: Typically a part whether it's a case or whatever it is.
Speaker Change: It doesn't come in meeting one single repair it's often several repairs multiple repairs that have to be done on that part and if we have the bandwidth and we have the process capability and the authorization to do all of those repairs. Then we can return the part of service completely a lot faster.
Speaker Change: Then if we can only do some of those repairs and then it has to go to another company for additional outside processing. So we're always looking.
Speaker Change: At what repairs would allow us to be able to perform a complete overhaul on some of those products that are the most.
Speaker Change: The most constrained or.
Speaker Change: Need the most help according to the Oes.
Speaker Change: Thanks, Ross and if I could add one more.
Speaker Change: Are there any milestones for process a repair authorization that you could get this year that could provide upside to your outlook.
Speaker Change: You can always yes, you can always move faster and on process repairs.
Speaker Change: Yes.
Speaker Change: See a need and so that's why we try to stay closely coupled with them. There is no question that several of the Oes are seeing sole source supply constraints and that is opening the aperture for us.
Speaker Change: With the Oes to.
Speaker Change: To encourage additional repair development so.
Speaker Change: I was visiting with just one of those always last week and that was exactly one of the topics of conversation was.
Speaker Change: We just we have started to suppliers that can't keep up and we'd like to.
Speaker Change: Work closely with you guys to develop new repairs to be able to.
Speaker Change: Offset some of the.
Speaker Change: Hi.
Speaker Change: Log jams in the supply chain. So that's that's why we build this whole Crs business is not only to service the engines that we work on but to serve as the rest of the industry as well.
Speaker Change: Thank you.
Speaker Change: Thank you next question today is coming from Gavin Parsons from UBS. Your line is now live.
Gavin Parsons: Thanks, Good afternoon guys.
Gavin Parsons: Okay.
Gavin Parsons: Hey, Kevin.
Speaker Change: In terms of seasonality I think you are kind of 24% of the full year revenue guide in the first quarter, but I might have thought that'd be a little more heavily second half skewed given the leap and the CFM ramp up.
Speaker Change: Typically you're <unk> weighted but love to just get your thoughts on revenue seasonality.
Speaker Change: There is some seasonality that we've seen over the years that.
Speaker Change: There may have been some disturbances during the pandemic for a year or two but if you take a 15 year view.
Speaker Change: For what our business looks like there is a definite trend and the trend.
Speaker Change: Builds from first to second quarter, and then it builds again towards the second half of the year and the reason that we can say that is because we're authorized to work on 40 different platforms.
Speaker Change: No.
Speaker Change: Those individuals' variances tend to.
Speaker Change: Fit together and give you a more traditional view.
Speaker Change: We only worked on two or three or four or five engines then.
Speaker Change: What's going on with those engines are with that customer you see a lot more volatility. The fact that we work on so many engines across multiple Oems across multiple end market users and customers that tends to wash out a lot of that short term kind of volatility and it lead you towards a.
Speaker Change: More normal view of what a typical season looks like.
Speaker Change: And so it is as I described it usually builds from first and second quarter and then it builds more again in the second half of the year. That's that's typically what we've seen over the last 15 or so years.
Speaker Change: That's helpful and then.
Speaker Change: And CFM 56, a meaningful contributor to the 18% commercial growth rate or still not big enough to move the needle.
Speaker Change: Yes, they are right in line with what we were expecting like I said earlier comment if you look at the main revenue drivers we talked about this.
In the 10 and the <unk> weeks.
Speaker Change: We expect the top four revenue drivers to be number one CFM 56 in 2025 and it is right on track to achieving that.
Speaker Change: And as well as leap so pretty satisfied with.
Speaker Change: Permits in both of those platforms in Q1.
Speaker Change: Thank you.
Speaker Change: Thank you there are no further questions at this time I would like to turn the call back over to Russell for closing remarks.
Russell Afford: Okay. Thank you Kevin.
Russell Afford: The only color for closing remark is that just to thank everybody for joining us. We appreciate your continued support.
Russell Afford: Just in the business and we look forward to seeing you all regularly continue to keep you updated on progress and doing exactly what we say we're going to do so we will speak to you again next quarter. Thanks, everyone. Thank.
Speaker Change: Thank you that does conclude today's teleconference and webcast you may disconnect. Your lines at this time and have a wonderful day.
Russell Afford: Thank you for your participation today.
Russell Afford: Yeah.