Q1 2025 Loar Holdings Inc Earnings Call
[music].
Operator: Greetings and welcome to the Loar Holdings first quarter 2025 results conference. At this time, all participants are in a listen-only mode.
Greetings and welcome to the lower Holdings first quarter 2025 results conference call.
At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance. Please press star zero on your telephone keypad.
Operator: The question-and-answer session will follow the formal presentation.
Operator: If anyone should require operator assistance, please press star zero on your telephone. As a reminder, this conference is being recorded.
As a reminder, this conference is being recorded.
Ian Mckillop: It is now my pleasure to introduce Ian McKillop, Director of Investor Relations. Please go ahead. Thank you, Paul.
It is now my pleasure to introduce Ian Mccullough director of Investor Relations. Please go ahead.
Thank you Paul Good morning, and welcome to the Lower Holdings Q1, 2025 earnings conference call presenting on the call. This morning are lawyers, Chief Executive Officer, and Executive Chairman, Derek Charles Executive Co Chairman, Brent Milburn, Treasurer, and Chief Financial Officer, Glenda Alessandro as well as myself, Ian Mckillop, the director of Investor Relations. Please.
Ian Mckillop: Good morning and welcome to the Loar Holdings Q1 2025 earnings conference call.
Ian Mckillop: Presenting on the call this morning are Loar's Chief Executive Officer and Executive Co-Chairman Dirkson Charles, Executive Co-Chairman Brett Milgrim, Treasurer and Chief Financial Officer Glenn D'Alessandro, as well as myself, Ian McKillop, the Director of Investor Relations.
Ian Mckillop: please visit our website at loargroup.com to obtain a slide deck and call replay inbox. Before we begin, we'd like to remind you that statements made during this call, which are not historical in fact, are forward-looking statements. 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 the company's latest filings with the SEC available throughout the investor relations section of our website or 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.
Visit our website at Loar group dotcom to obtain a slide deck and call replay information before we begin we'd like to remind you that statements made during this call which are not historical in fact are forward looking statements 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 the company.
The latest filings with the SEC available through the Investor Relations section of our website or at SEC Gov.
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 a presentation of the most directly comparable GAAP measures and applicable reconciliations to begin today I will now turn the call over to Derek.
Ian Mckillop: Please see the tables and related footnotes in the earnings release for a presentation of the most directly comparable GAAP measures and applicable reconciliations.
Dirkson Charles: To begin today, I will now turn the call over to Dirkson. Thanks, Ian. Good morning. Six weeks ago, I mentioned that every day at the public company has been a school day. at least for us.
Derek: Thanks, Dan.
Derek: Good morning, six weeks ago, I mentioned that every day as a public company has been a school day.
Derek: At least for us.
Dirkson Charles: So I would be remiss by not starting today's conversation without telling you one thing I learned after our last call. What I learned is that we are boring. Yes, we at Loar are boring. Now, I have personally been called all kinds of names, but this one is new. Imagine, one of our favorite investors called us boring. Can you believe that? Here's what he said. You beat, you increase your guidance, you announce your largest acquisition, you improve your margins, and you just continue to do what you say each time. So look, listen, to that individual, and he knows who he is, I guarantee that on this call, we're going to continue to be boring.
Derek: I would be remiss by not starting today's conversation without telling you one thing I learned after our last call.
Derek: What I learned is that we are boring, yes, we had la Z boy now I have personally been called all kinds of names, but this one is new <unk>.
Derek: Imagine one of our favorite investors call. This boy.
Derek: Can you believe that that's what he said.
Derek: You beat it.
Derek: The guidance you announced your largest acquisition improve your margins and you just continue to do what you say each time.
Derek: So look listen to that individual and he know he knows who he is.
Derek: Guarantee that on this call, we're going to continue to be boring with.
Dirkson Charles: With that said, let's be boring. Here goes.
Derek: With that said.
Let's be born it goes derksen founder CEO and co chairman of law.
Dirkson Charles: I'm Dirkson, founder, CEO, and co-chairman of Loar. As always, we'll keep our remarks brief, so let's start by reminding you who we are. 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 rates. Since our inception in 2012, through the end of calendar year 2024, we have grown sales and adjusted EBITDA at a compound annual growth rate of 37% and 45% respectively. Over the long term, we expect to increase sales organically at double-digit percentages with the last three years, 22, 23, and 24, achieving organic sales growth of 18%, 14%, and 15% respectively, with, of course, adjusted EBITDA growth at an even faster rate.
Derek: As all of these will keep our remarks brief so let's start by reminding you Julio.
Derek: La is a family of companies with a very simple approach to creating shareholder value.
Derek: We believe that by providing our business units with an entrepreneurial and collaborative environment to advance the brands, we would generate above market growth rates.
Derek: Inception in 2012 to the end of calendar year 2024, we have grown sales and adjusted EBITDA at a compound annual growth rate of 37% and 45% respectively.
Derek: Over the long term, we expect to increase sales organically at double digit percentages with the last three years 'twenty to 'twenty, three and 'twenty four achieving organic sales growth of 18%, 14% and 15% respectively.
Derek: Of course, adjusted EBITDA going into even faster rate.
Dirkson Charles: We expect that to continue. 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 1 to 3 percentage points of top-line growth annually. We focus on optimizing the way we manufacture, go to market, and manage our companies to enhance productivity. Each year, we'll identify initiatives that will allow us to continually improve margins. with a focus on one or two major initiatives each year that will improve March. In addition, across our portfolio of companies, we'll achieve more price than our cost of inflation each year.
Derek: That continues.
Derek: We execute along for value streams, we identified pain points within the aerospace industry and look to solve those problems through organically launching new products.
Derek: Which we believe over the long term will create one to three percentage points of topline growth annually.
Derek: We focus on optimizing the way, we manufacture go to market and manage our companies to enhance productivity.
Derek: Each year, we've identified initiatives that will allow us to continually improve margins.
Derek: With a focus on one or two major initiatives each year that will improve.
Derek: Margins.
Derek: In addition across our portfolio of companies will achieve more price and a cost of inflation. Each year. The result is a continuous improvement in margins year over year with on occasion, a temporary dilution as a result of acquiring a business with diluted margins are incurring costs as a result of being a public company.
Dirkson Charles: The result is a continuous improvement in margins year over year, with on occasion, a temporary dilution as a result of acquiring a business with diluted margins or incurring costs as a result of being a public company. all of which we have experienced over the last five years, but regardless of these temporary headwinds, we continue to improve our margins. As seen on slide 5, during Q1 of 2025, we improved margins by 160 basis points in line with our Guide for the Year. More importantly, we are committed to developing and improving the talent of all of our employees because our success is solely a result of their dedication and commitment.
Derek: All of which we have experienced over the last five years, but regardless of these temporary headwinds we continue to improve our margins.
Derek: As seen on slide five during Q1 of 2025, we improved margins by 160 basis points in line with our guide for the year.
Derek: More importantly, we are committed to developing and improving the talents of all of our employees because our success is solely a result of their dedication and commitment.
Dirkson Charles: So to all my mates, as always, a big thank you for your commitment and hard work.
Derek: So all my mates as always a big thank you for your commitment and hard work.
Brett Milgrim: I'll now turn the call over to Brett to walk you through the key characteristics of our portfolio. Brett, be boring. Thanks, Dirkson. I am going to be boring. This slide is one that I think most of you have seen before, and as Dirkson alluded to and Glenn is going to get into later, we continue to generate really outstanding financial performance because of our very disciplined approach to our business model. Our business model starts with the proprietary nature of our product and all the barriers to aftermarket exposure, cross-selling opportunities, and niche markets that we engage in.
Derek: I'll now turn the call over to Brett to walk you through the key characteristics of our portfolio breadth.
Derek: Boring.
Speaker Change: Thanks starts and I Havent gonna be boring this law.
Speaker Change: Slide is one that I think most of you have seen before and as George alluded to and Glenn is going to get into later.
Speaker Change: We continue to generate really outstanding financial performance because of our very disciplined approach to our business model.
Speaker Change: Our business model starts with the proprietary nature of our product.
Speaker Change: And all the barriers to entry.
Speaker Change: Aftermarket exposure cross selling opportunities in niche markets that we engage in.
Brett Milgrim: We do that, though, across a very balanced portfolio in end markets. products, customers, applications on the aircraft such that we can withstand any type of market environment and continue to generate those types of financial returns that I think people have come to expect.
Speaker Change: We do that though our cross a very balanced portfolio.
Speaker Change: And markets products.
Speaker Change: The mers.
Speaker Change: Applications on the aircraft such that we can withstand any type of market environment and continue to generate those financial types of financial returns are.
Speaker Change: That I think people have come to expect with that I'll, let Ian talk to you a little bit about our products.
Ian Mckillop: With that, I'll let Ian talk to you a little bit about our product. Yeah, thank you, Brett. As we've shared with you in previous calls, this slide highlights the diversity of our proprietary product offering. At Loar, we go to market with an average of more than 20,000 unique products, of which no one product makes up more than 3% of our annual net revenue. Our customers have come to depend on our highly proprietary products, quality, on-time performance, and engineering capabilities to ensure they are able to maximize their production and aircraft operations.
Ian Mccullough: Yeah. Thank you Brett as we've shared with you in previous calls this slide highlights the diversity of our proprietary product offering at lower we go to market with an average of more than 20000 unique products of which no one product makes up more than 3% of our annual net revenue our customers have come to depend on our highly proprietary products quality on time performance and engineering capability.
Ian Mccullough: To ensure they are able to maximize their production and aircraft operations.
Ian Mckillop: One of our strategic value drivers at Loar is launching new products. Each year, the execution of this value driver delivers 1-3% of our organic top-line growth.
Ian Mccullough: One of our strategic value drivers that Laura is launching new products each year. The execution of this value driver delivers 1% to 3% of our organic top line growth.
Ian Mckillop: One product we are particularly excited about is the secondary cockpit barrier. The secondary barrier is the combination of partnership with our customer Airbus and the extensive design and engineering capabilities across Loar to meet requirements for improved safety set forth by the Federal Aviation Administration. Our mates have worked tirelessly to bring a design from a clean sheet of paper to a working concept and ultimately to production in approximately 12 months. Production units have already shipped to date and entry into service is scheduled for later this year. The secondary barrier will be found on all new production Airbus aircraft and will be available to our airline partners across the globe for retrofit.
Speaker Change: One product we are particularly excited about is the secondary cockpit area.
Speaker Change: The secondary there is a combination of partnership with our customer Airbus and extensive design and engineering capabilities across lore to meet requirements for improved safety set forth by the Federal Aviation administration. Our mates have worked tirelessly to bring a design from a clean sheet of paper to working concept and ultimately to production in approximately 12 months.
Speaker Change: <unk> production.
Speaker Change: Production units have already shipped to date and entry into service is scheduled for later this year. The secondary barrier. We found on all new production Airbus aircraft and will be available to our airline partners across the globe for retrofit we could not have done this without the hard work of our teammates and their dedication to collaboration and meeting our customers' unique needs.
Ian Mckillop: We could not have done this without the hard work of our teammates and their dedication to collaboration and meeting our customers' unique needs.
Ian Mckillop: Thank you to all at Loar who have made this a success.
Speaker Change: Thank you to all of that war, who have made this a success.
Glenn D'Alessandro: I'll now pass the call over to Glenn to walk through the end market and financial results.
Speaker Change: Now I'll pass the call over to Glenn to walk through the end market and financial results.
Glenn D'Alessandro: Thank you, Ian. Good morning, everyone. Let me start by discussing sales by our end markets. 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. This market discussion includes the acquisition of applied avionics in Q3. We achieved record sales during Q125. In total, our sales increased to $150 million, which is a 12% increase as compared to the prior year period. This increase was driven by strong performances in defense, commercial aftermarket, and commercial OEM. Our commercial aftermarket sales saw an increase of 13% in Q125 versus Q124, and was up 15% sequentially from Q424.
Glenn: Thank you Lee and good morning, everyone. Let me start by discussing sales by our end markets. This comparison will be on a pro forma basis as each of our businesses were owned as of the first day of the earliest period presented.
Glenn: This market discussion includes the acquisition of applied avionics in Q3 'twenty four.
Glenn: We achieved record sales during Q1 'twenty five in total our sales increased to $115 million, which is a 12% increase as compared to the prior year period. This increase was driven by strong performances in defense commercial aftermarket and commercial OEM commercial aftermarket.
Glenn: Aftermarket sales saw an increase of 13% in Q1 25 versus Q1, 24 and was up 15% sequentially from Q4 of 24. This is primarily driven by the continued strength and demand for commercial air travel.
Glenn D'Alessandro: This is primarily driven by the continued strength in demand for commercial ad. We continue to see record bookings and backlog across all our market sectors. Our total commercial OEM sales increased by 8% in Q1-25 as compared to the prior year period. This increase was driven primarily by higher sales across a significant portion of the platforms we sell. The increase of 30% 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: We continue to see record bookings and backlog across all our market sectors.
Glenn: Our total commercial OEM sales increased by eight 8% in Q1, 25% as compared to the prior year period. This increase was driven primarily by higher sales across a significant portion of the platforms we supply.
Glenn: The increase of 30% 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 D'Alessandro: defense sales will continue to be lumpy given the nature of the ordering patterns of our end customers for our products.
Glenn: <unk> sales will continue to be lumpy given the nature of the ordering patterns of our end customers for our products.
Glenn D'Alessandro: Let me recap our financial highlights for the first quarter of 2020. our net organic sales increased 11.1% over the prior period. Our gross profit margin for Q125 increased by 370 basis points as compared to the prior year period. This increase was primarily due to the execution of our strategic value drivers as well as operating leverage. Our increase in net income of $13 million in Q125 is primarily due to higher operating income and lower interest, partially offset by higher income tax. Adjusted EBITDA was up $10 million in Q125 versus Q125. adjusted EBIT margins were strong at 37.6 percent due to the execution of our strategic value drivers and operating leverage.
Glenn: Let me recap our financial highlights for the first quarter was 25, our net organic sales increased 11, 1% over the prior year period.
Glenn: Gross profit margin for Q1, 'twenty five increased by 370 basis points as compared to the prior year period. This increase was primarily due to the execution of our strategic value drivers as well as operating leverage.
Glenn: Our increase in net income of $13 million in Q1, 25 is primarily due to higher operating income and lower interest, partially offset by higher income taxes adjust.
Glenn: Adjusted EBITDA was up $10 million in Q1, 25 versus Q1 'twenty for adjusted EBIT margins were strong at 37, 6% due to the execution of our strategic value drivers in operating leverage this was partially offset by a higher mix of defense sales and the continued build out of our infrastructure.
Glenn D'Alessandro: This was partially offset by a higher mix of defense sales and the continued build out of our infrastructure to support our reporting, governance, and control needs as a newly public company.
Glenn: To support our reporting governance and control needs as a newly public company.
Dirkson Charles: Let me turn the call back over to Dirkson to share our outlook for 2020. Look, we are excited to share our most recent view for calendar year 25. This view, as you all can see, is in excess of what we told you six weeks ago, and that one was in excess of what we told you six weeks prior. Our confidence rests in the great strides that we have made executing on our value drivers in the first quarter of 2025 and the strength of our proprietary portfolio. Primarily, we are ahead of our plan in our value pricing and productivity in the future.
Speaker Change: Let me turn the call back over to derksen to share our outlook for 2025.
Speaker Change: Look we are excited to share our most recent view for calendar 'twenty five.
Speaker Change: This view as you all can see is in excess of what we told you six weeks ago and that one was in excess of what we told me six weeks Brian.
Speaker Change: Our confidence rests in the great strides we have made executing on our value drivers in the first quarter of 2025 and the strength of our proprietary portfolio, primarily we are ahead of our plan and our value pricing and productivity initiatives. In addition, we've seen no degradation at all in demand.
Dirkson Charles: In addition, we've seen no degradation at all in demand across any of our end markets. And as Glenn said earlier, we've actually had record bookings across all of the end markets to date. When you combine that with the fact that we expect no meaningful impact to our results as a result of the current tariff environment, we feel really good, as always, about the guidance we're giving.
Speaker Change: Across any of our end market end markets.
Speaker Change: And as Glenn said earlier, we've actually had record.
Speaker Change: Bookings across all of them all of the end markets.
Speaker Change: So.
Speaker Change: When you combine that with the fact that we expect no meaningful impact to our results as a result of the current tariff environment, we feel really good as always about the guidance we're giving.
Dirkson Charles: So, therefore... For calendar year 2025, we expect on a performer basis, assuming we own. all of our business units since the beginning of 2024 that our end markets will be up as follows. Commercial OEM will be up high single digits versus 2024. Commercial aftermarket will be up double digits, up from our previous guide of high single digit growth, given the strength that we have seen early in the year in bookings and in what we've delivered. while our defense and markets will be up high double digits and again think between 17 and 20 percent. We're off to a great start in the first quarter being up 30 percent.
Speaker Change: So therefore.
For calendar 2025, we expect on a pro forma basis.
Speaker Change: Assuming we owned.
Speaker Change: All of our business units since the beginning of 'twenty 'twenty four at our end markets will be up as follows commercial OEM will be up high single digits versus 2024.
Speaker Change: Commercial aftermarket will be up double digits up from our previous guide of high single digit growth given the strength that we've seen early in the year.
Speaker Change: And bookings and what we've delivered.
Speaker Change: While our defense end markets will be up high double digits, and again think between 17 and 20% you're off to a great start in the first quarter being up 30%. These.
Dirkson Charles: These market assumptions, along with our continued execution of our value drivers, will allow us to meet or exceed the following for calendar year 2025.
Speaker Change: These market assumptions, along with our continued execution of our value drivers will allow us to meet or exceed the following for calendar year 2025.
Dirkson Charles: at Sales. between $482 and $490 million, up from $480 to $488. Adjusted EBITDA between $182 and $185 million, up from $180 to $184. With adjusted EBITDA margin of approximately 37.5%, which is 120 basis point improvement over 2020. Net income between $59 and $64 million, while EPS will be somewhere between $0.71 and $0.76 a share. in addition We expect capital expenditures of approximately $14 million, interest expense for the year of approximately $28 million, with an effective tax rate of approximately 30%. depreciation and amortization of approximately $51 million, non-cash based stock comp of approximately $50 million, with a fully diluted share count of approximately $97 million shares.
Speaker Change: Net sales.
Speaker Change: Between 482 unfortunate 90 million up from four eight to 488 adjusted.
Speaker Change: Adjusted EBITDA between 182 and $185 million up from 180 to 184.
Speaker Change: With adjusted EBITDA margin of approximately 37, 5%, which is a 120 basis point improvement over 2024.
Speaker Change: Net income between 59 to 64 million, while EPS will be somewhere between 71, and <unk> 76 a share.
Speaker Change: In addition.
Speaker Change: We expect capital expenditures of approximately $14 million interest expense for the year of 20, approximately 28 million with an effective tax rate of approximately 30%.
Speaker Change: Depreciation and amortization of approximately 51 million noncash based stock comp of approximately $50 million with a fully diluted share count of approximately 97 million shares.
Dirkson Charles: With that said, our updated guidance does not include any benefit from our most recently announced pending addition to our family of companies, L&B Fans and Motors. As stated, we expect to close the acquisition of L&B in the third quarter of calendar year 2024. And to be clear, to say it one more time, our guide includes any impact we see today related to the current tariff environment, which is insignificant.
Speaker Change: With that said I'll.
Speaker Change: Our updated guidance guidance does not include any benefit from our most recently announced pending addition to our family of companies.
Speaker Change: <unk> fans and Motors I stated, we expect to close the acquisition of LMB in the third quarter of calendar 2025.
Speaker Change: And to be clear to say one more time. Our guide includes any impact we see today related to the current tariff environment, which is insignificant.
Operator: With that, Paul, let's open the line for questions. Operator? We will now be conducting a question and answer. If you would like to ask a question, please press star 1 on your telephone. The confirmation tone will indicate your line is in the question queue. You may press star 2 to remove your question from the line.
Speaker Change: With that.
Paul: Paul Let's open the line for questions.
Paul: Yeah.
Paul: Operator.
Paul: Hey, Paul.
Speaker Change: We will now be conducting a question and answer session. If you'd 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 May press star two to remove your question from the queue.
Operator: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the start One moment, please, while we poll for questions. Thank you.
Speaker Change: For participants using speaker equipment, it would be necessary to pick up your handset before pressing with Marquis.
Speaker Change: One moment, please while we poll for questions.
Speaker Change: Thank you. Our first question is from Ken Herbert with RBC capital markets.
Ken Herbert: Our first question is from Ken Herbert with RBC Capital Markets. Yes, hi, good morning. Good morning, Ken. Good morning. Hey Dirkson, you raised the guide for the commercial aftermarket and can appreciate your comments that you're not seeing anything today in terms of airline behavior that could change relative to the strength we've seen. But I just wanted to follow up on two areas.
Ken Herbert: Yes, hi, good morning.
Speaker Change: Hey, good morning, Ken Good morning.
Derksen: Hey, derksen.
Derksen: Raised the guide for the commercial aftermarket and can appreciate your comments that youre not seeing anything today in terms of airline behavior could change relative to the strength, we've seen but I just wanted to follow up on two areas are you seeing any incremental pushback on pricing from airlines and your commercial aftermarket channel or any incremental concern about inventory.
Dirkson Charles: Are you seeing any incremental pushback on pricing from airlines in your commercial aftermarket channel or any incremental concern about inventory levels that could be with the airlines that could potentially be a risk down the road? So, the first part of your question, not seeing any pushback on price, and I'll add a little, we're actually probably getting more price this year than we did last year, but no pushback there. With regards to inventory, there's a... There's a lot of stories we can tell there, right? In some areas, there are parts where there is inventory in the system, where we see lighter demand, and then there's parts where there's not enough inventory, where we're trying to actually keep up with the pace of demand.
Derksen: <unk>.
Derksen: It could be with the airlines that could potentially be a risk down the road.
Derksen: So the first part of your question.
Derksen: <unk> seen any pushback on price.
Derksen: And I'll add a little.
Derksen: We actually probably getting more price this year than we did last year, but no pushback there.
Derksen: With regards to inventory.
There's a there's a lot of stories, we can tell they're right and some in some areas.
Derksen: There are parts, where there is inventory in the system, where we see lighter demand.
Derksen: And then there's parts, where theres not enough inventory, where we're trying to actually keep up with the pace at a pace of demand, but when I net all of those together the demand. We're seeing right now is actually stronger than it was I would say even this time last year. So.
Dirkson Charles: But when I net all of those together, the demand we're seeing right now is actually stronger than it was, I would say, even this time last year. So, really good demand. I meant to what I said when we're seeing no degradation. In fact, it's really, really strong in terms of the demand.
Derksen: Really good demand I meant what I said, when we're seeing no degradation in fact, it's really really strong in terms of the demand.
Ken Herbert: That's helpful.
Dirkson Charles: And if I could, just to follow up then, I'm guessing it would be fair to say that you didn't see any pre-buying activity ahead of a potential tariff impact and maybe into China or other parts of the world. No, actually, uh, did not. I'll tell you where... So I'll say it this way. TARIS has just been noisy for us, right? As you know, we have a proprietary portfolio, so we can pass along any costs that we incur, and our thought process around that, especially in the early stages here, because this is still a moving target, is that as we incur costs related to TARIS, we pass along just that cost, so no margin on top of that.
Speaker Change: That's helpful and if I could just a follow up then I'm guessing it would be fair to say that you didn't see any pre buying activity ahead of potential tariff impact and maybe into China or other parts of the world.
Derksen: No actually did not I would tell you we are.
Derksen: So I'll say it this way tariffs are just been noisy for US right. As you know we have a proprietary portfolio. So we can pass along any cost that we incur.
Speaker Change: And our board.
Speaker Change: Thought process around that especially in the early stages here because this is still a moving target is that as we incurred costs related to tariffs. We pass along just that cost. So no margin on top of that we're not trying to be that guy right.
Dirkson Charles: We're not trying to be that guy, right? Now, if we wake up a year from now, and I'll make up a number I keep hearing a lot, 10% being the minimum, we'll view that as cost, as we do everything else, consider inflation and price to get margin on top of that. So no one pushing and pulling within the orders for our parts. Where I've seen it is in some of our vendors actually taking advantage of the, what I would call, the media stories. So I'll give you an example. Early February, we were already getting vendors telling us, oh, we got to increase our price 25% because TARIS is up 25%.
Speaker Change: Now if we wake up a year from now and I'll make up a number I keep hearing a lot 10% being the minimum we will view that as costs as we do everything else considered inflation and price to get margin on top on top of that so no no no one pushing and pulling within.
Speaker Change: The Oh, this where a part where.
Speaker Change: Where we have seen it is in some of our vendors actually taken advantage of the what I would call the media.
Stories. So I'll give you. An example early February we go out we are already getting vendors, telling us Oh, we got to increase our price, 25% because tariffs of 25%.
Dirkson Charles: Of course, as we all know, that was not true at that time. It was just conversation. Nothing went into effect out of that day. So what we have been doing, and this goes back to why it's been noisy for us, is anyone who has said to us that they have a cost increase because of TARIS, they have to prove it to us. They actually have to show us that they actually made those payments before we will even accept having a conversation around that. So Ken, it's been more noisy than anything else and hasn't been a real impact to us.
Speaker Change: Of course, as we all know that was not true at that time. It was just conversation nothing went into effect out of that day. So what we have been doing and this goes back to why it's been noisy for us.
Speaker Change: Anyone who is set to us that they have a cost increase.
Speaker Change: The terrorists they have to prove it to us they actually have to show us that they actually made those payments.
Speaker Change: Before we will unexpected except having a conversation around that so so ken it's been more noisy than anything else and hasnt been a real impact for us.
Speaker Change: Yeah.
Ken Herbert: Thanks, Dirkson. I'll pass it back there. Thank you.
Burton: Thanks Burton.
Speaker Change: Back there.
Speaker Change: Yeah.
Speaker Change: Thank you. Our next question is from Sheila <unk> with Jefferies.
Sheila Kahyaoglu: Our next question is from Sheila Kahyaoglu with Jeffries. Good morning, guys, and thank you for your time. Just on the end market, I'll continue on with Ken's line of questioning. If we could talk about defense, not a business you talk about as often as commercial aftermarket, but the growth was very robust at 33% organically, and you're implying a slowdown to high teams in the year. How do we think about what drove that growth? How we think about it? Is it just lumpy? And what's driving the decel as we head into the next three quarters?
Sheila: Good morning, guys and thank you for the time and good morning.
Speaker Change: Yes, Don.
Speaker Change: The end market will continue on with Ken's line of questioning if we could talk about defense.
Speaker Change: That business can you talk about as often as commercial aftermarket, but the kratz was very robust at 33% organically and you're implying a slowdown.
Speaker Change: High teens on a year, how do we think about what drove that growth. How we think about it is it just lumpy and what's driving the diesel as we head into the next two quarters.
Ian Mckillop: So, Sheila, I apologize. Can you ask the question again? You broke up. We're having a little trouble with our audio. I'm so sorry. It's probably my fault. Can you hear me better now? Yes. Okay, on defense, organic growth was up 33% in the quarter, just very robust. You know, what's driving the decel throughout the year? Is it just lumpiness? Any programs you'd call out? If you could talk about your defense.
Speaker Change: So shall I apologize can you ask the question again, you broke up we havent traveling without Audi.
Speaker Change: I'm, so sorry, it's probably my fault I am can you hear me better now.
Speaker Change: Yeah.
Speaker Change: Okay.
Speaker Change: Organic growth was up 33% in the quarter just Gary robot.
Speaker Change: You know, what's driving that he felt throughout the year or is it just lumpiness any programs you'd call out.
Speaker Change: If you could talk about two times on market.
Ian Mckillop: Yeah, Sheila, this is Ian. I would say it is defense as we always look at is very lumpy. We had a great Q1 at up 30%. And, you know, we are guiding in, you know, a conservative way throughout the balance of the year. We do see a lot of programs come and go within the quarter. So what I would say is for now, it's more about just trying to make sure we have a level playing field for the year, and we will continue to watch it and see if we need to adjust guidance appropriately. Got it.
Speaker Change: Yeah. Sheila this is Ian I would say it is defenses. We always look at is very lumpy, we had a great Q1 and up 30%.
Speaker Change: And we are guiding in a conservative way throughout the balance of the year, we do see a lot of programs come and go within the quarter. So what I would say it's for now it's more about.
Speaker Change: Just trying to make sure we have a level playing field for the year and we will continue to watch it and see if we need to adjust guidance appropriately.
Sheila Kahyaoglu: Thank you.
Speaker Change: Got it. Thank you and then maybe just on the commercial OE business I think the large.
Dirkson Charles: And then maybe just on the commercial OE business, I think the large, you know, Boeing and Airbus was down slightly. Can you talk to us what you're seeing on rates and how you're, you know, how you're aligning your facilities for production for the remainder of the year? Yeah, so we're still holding the way we think about ending the year, if I can start there and I can tell you what we've been seeing. With the max in the 20s, I think we have about 24 a month is how we're thinking about the year in our guide.
Speaker Change: Boeing and Airbus.
Speaker Change: I'm slightly can you talk to us what you're seeing on rates and how you are now.
Speaker Change: You're aligning your facilities for production for the remainder of the year.
Speaker Change: Yeah. So.
Speaker Change: Still holding.
Speaker Change: The way, we think about ending the year, if I can start there and I can tell you what we've been seeing with the Max into 'twenty.
Speaker Change: We have about 24.
Speaker Change: <unk> is how we're thinking about the year in our guide.
Dirkson Charles: Now, Boeing is doing significantly better than that, so we should do better. Again, just telling you how we built our guide. So I'll stay with Boeing for a second. First quarter, orders higher than we were thinking. Probably around 28 on the average across the group, is what I would say, it varies depending on the part per month in terms of max. And in terms of Airbus, we have leaving the year in our guide in the 30s, 35, 36-ish, something along those lines. Ian's double-checking me. And for the quarter, it's been pretty consistent around those levels.
Speaker Change: Now Boeing is doing significantly better than that and so we should do better again going just telling you how we how we build our guide.
Speaker Change: So I'll stay with bond for a second first quarter.
Speaker Change: Orders higher than we were thinking.
Speaker Change: Probably around 28th on the average across the group is what I'd say it varies depending on the pod.
Speaker Change: A month in terms of the Max and in terms of Airbus.
Speaker Change: Have leaving the year in our guide in the Thirty's 35 36 ish.
Speaker Change: Something along those lines.
Speaker Change: And double checking me.
Speaker Change: And for the quarter, it's been pretty it's been pretty consistent.
Speaker Change: Around those levels, we haven't seen the same choppiness, we see on Boeing OEM parts that we do on Airbus.
Dirkson Charles: We haven't seen the same choppiness we see on Boeing OEM parts that we do on Airbus. So it's actually off to a stronger start for the year than we were originally thinking. If you remember, we had close to zero, if not zero, in terms of our thinking about in the first quarter for the max. So much better than we were thinking.
Speaker Change: So.
Speaker Change: It's actually also stronger strongest start for the year than we originally thinking.
Speaker Change: If you remember.
Speaker Change: We have we had close to zero if not zero in terms of our thinking about the in the first quarter for the Max so much better than we were thinking.
Dirkson Charles: Thank you so much, Dirkson, appreciate it.
Jackson: Thank you so much Jackson I appreciate it.
Kristine Liwag: Our next question is from Kristine Liwag with Morgan Stanley. Hey, good morning, everyone. And Dirkson, you know, having a boring business in this volatile market, you must feel like a king. So a good problem to have. With that said, you know, with the supply chain going well, the demand environment being strong, what are you spending the majority of your time doing today? What's your key priority? And how do you measure success?
Speaker Change: Our next question from Kristine <unk> with Morgan Stanley.
Kristine: Hey, good morning, everyone and Georgetown you know, having a boring business in this volatile market you must feel like a king [laughter].
Speaker Change: So a good problem to have.
Speaker Change: With that said you know with the supply chain going while the demand environment being strong what are you spending the majority of your time doing today, what's your key priority and how do you measure success.
Dirkson Charles: Wow. So I'm going to start answering, because I have a lot, but I'm going to start answering the questions so I can get Brett to chime in here. But one of the things that we're spending a lot of our time on is the pipeline of opportunities that we see. It's been actually taking us in many different directions here. It's probably stronger than we've seen it in a long time. We've been probably as busy as we've ever been, quite candidly, on the M&A stuff across all different sectors. And honestly, with all the macroeconomic noise and volatility out there, one may have thought that M&A activity would have slowed down.
Speaker Change: Wow.
Speaker Change: So I'm going to I'm going to start answering that because they have a lot.
Speaker Change: But I'm going to start answering the question. So I can get breath to chime in here, but one of the things that we're spending a lot of time on is the pipeline.
Speaker Change: Opportunities that we see.
Speaker Change: It's been actually taking us in many different directions here, it's probably stronger than we've seen it.
Speaker Change: In a long time, we've been in probably as busy as we've ever been quite candidly on the M&A stuff across all different sectors.
Speaker Change: Honestly with all the macroeconomic noise and volatility out there one may have thought that M&A activity, what has slowed down and in fact I think it's gone the opposite way I think it's accelerated.
Dirkson Charles: In fact, I think it's gone the opposite way. I think it's accelerated. We are in any number of discussions with a handful of potential sellers, and it sure seems like the rest of the year is going to be very, very busy. So at least on the inorganic front, that's been taking up a lot of our time. But the good news is it's a lot of great opportunities. And organically, focus has been really on talent. We're seeing a lot of growth, and the inorganic opportunities that we're seeing, we want to make sure that we have the right team in place to support that growth.
Speaker Change: We are in any number of discussions with a handful of potential sellers and.
Speaker Change: It sure seems like the rest of the year is going to be very very busy so at least on the inorganic front that's been taking up a lot of our time, but the good news is a lot of great opportunity.
Speaker Change: And organically.
Speaker Change: Focus has been on really on talent.
Speaker Change: We're seeing a lot of growth in the inorganic opportunities that we're seeing we want to make sure that we have the right team in place to support support that growth. So there's been a huge focus around thats I've spent a lot of time there.
Kristine Liwag: So there's been a huge focus around that. So I've spent a lot of time there. Those are probably the top two things, other than the day-to-day blocking and tackling. Talent is always great for us, particularly in an environment where we see a lot of growth ahead of us. And as you've seen in our numbers and our guide, we're raising for the year because we think the year's, you know, got the right trajectory upwards. Yeah, that makes sense. Thank you.
Speaker Change: Those are probably the top two things other than the day.
Speaker Change: Day to day blocking and tackling.
Speaker Change: Talent is always.
Speaker Change: For us, particularly in an environment, where we see a lot of growth ahead of us.
Speaker Change: And as you've seen in our numbers.
Speaker Change: And our and our guide we're raising for the year, because we think the years.
Speaker Change: Got the right trajectory upward.
Speaker Change: Yeah that makes sense. Thank you and I'm following up on the pipeline I guess I'm surprised by the commentary that you are seeing more activity now I can provide more color on what's driving that especially with the end markets are strong I would have thought that people would want to hold onto their assets. So what's driving that incremental pipeline and then also with this opportunity.
Dirkson Charles: And following up on the pipeline, I guess I'm surprised by the commentary that you're seeing more activity now. Can you provide more color on what's driving that? I mean, especially with the end market so strong, I would have thought that people would want to hold on to their assets. So what's driving that incremental pipeline? And then also, with this opportunity set sounding fairly rich, are you willing to lever up above your leverage target? Well, I'll answer your last question first. The good news is, given where our balance sheet is, I don't think we're going to need to.
Speaker Change: <unk> sat sounding fairly rich are you willing to lever up above your leverage target.
Speaker Change: Well I'll answer your last question first the good news is given where our balance sheet is I don't think we're going to need it.
Dirkson Charles: So that's number one. Number two, look, every seller is a little different and their motivation is a little different. But typically, what we see is an environment where earnings are good and visibility is good. Oftentimes, that leads to more willing sellers. And so we are seeing not just in defense, not just in commercial, not just aftermarket, not just OE, but kind of across the board, dialogues with sellers that, you know, are very constructive. Now, you can never predict exactly when and if you'll get to the finish line on all of them. But like I said before, I can say that the activity level, the dialogue we're having, and the opportunity set is about as good as we've seen it in quite a long time.
Speaker Change: So that's number one number two.
Speaker Change: Look every seller has a little different and their motivation is a little different.
Speaker Change: But typically what we see as an environment where earnings are good and visibility is good.
Speaker Change: Oftentimes that leads to more willing sellers and so we are seeing not just in defense not just in commercial not just aftermarket not just we but kind of across the board dialogues with sellers that are very constructive now you can never you can never predict exactly when and if youll get to the finish line.
Speaker Change: And all of them.
Speaker Change: But like I said before I can say that the activity level. The dialogue, we're having and the opportunity set is about as good as we've seen it in quite a long time.
Dirkson Charles: Part of that may be part and parcel with, you know, us now being a public company, where we have had comments oftentimes of people saying, we didn't even know who you were before last year. And so maybe that's an explanation for some folks who are reaching out to us proactively, as opposed to the other way around. But either way, it's an active environment for us.
Speaker Change: Part of that May be part and parcel with us now being a public company, where we have had comments oftentimes of people, saying, we didn't even know who you were before last year and so maybe that's an explanation for some folks who are reaching out to us proactively as opposed to the other way around but either way.
It's a it's an active environment for us.
Speaker Change: Great. Thank you.
Speaker Change: Okay.
Bradley Eister: Our next question is from Bradley Eister with Citi. Great, thank you. Good morning.
Speaker Change: Our next question is from Bradley Eisner with Citi.
Speaker Change: Great. Thank you. Good morning, just a quick question on the defense side of the business. So the new administration looks like they're going to engage with some procurement reform recruiting potential rewrite of east Federal acquisition regulation.
Dirkson Charles: Just a quick question on the defense side of the business. So the new administration looks like they're going to engage in some procurement reform, including a potential rewrite of the Federal Acquisition Regulation and the foundation of much more person's power at the GSA. Can you just talk a little bit what you like about the existing procurement system and what you like to see change? And then can you also discuss how this change might impact your business? Yeah, I mean, I think, you know, when it comes to any potential changes in regulation or how the government does business, we'll wait until those rules are finalized, and we'll assess them appropriately.
Speaker Change: And the foundation of a much more personal power with the GSA.
Speaker Change: Can you just talk a little bit of what you like about the existing procurement system and what you like to see changed and they can also discussed how this change might impact your business. Thanks.
Speaker Change: Yeah, I mean, I think when it comes to any potential changes in regulation or how the.
Speaker Change: Government business, we'll wait until those rules are finalized and we'll assess them appropriately.
Dirkson Charles: Today, we have a great system in place where our teams work well with either the tier one supplying the US government or directly with the US government. So I withhold my judgment on any changes until we know what those are. But, you know, I think I think we have figured out the best way to be efficient. And that's really what our teams are always challenged to do, depending on the environment. Yeah, look, the good news for us But procurement methods aside, we're sticking with the model that we've had success with, which is to have proprietary products that I'll say are important to our customers and are critical to aircraft flying and equipment moving from A to B.
Speaker Change: Today, we have a great system in place, where our teams work well with either the tier one supply in the U S government or directly with the U S government. So.
I will hold my judgment on any changes until we know what those are but I think I think we have figured out the best way to be efficient and Thats really what our teams are always challenged you depending.
Speaker Change: Depending on the environment, Yeah look the good news for us.
Speaker Change: <unk> procurement methods aside.
Speaker Change: We're sticking with the model that we've had success with which is the proprietary products that I'll say, because we are important to our customers and.
Speaker Change: Our critical to aircraft flying and equipment moving from a to B and I think as long as we stick with that model, we're going to continue to find success not only in the U S defense market, but as per our most recent acquisition even in Europe and elsewhere in the war.
Dirkson Charles: And I think as long as we stick with that model, we're going to continue to find success not only in the U.S. defense market, but as per our most recent acquisition, even in Europe and elsewhere in the world.
Speaker Change: World.
Operator: I appreciate all the color, that thing. It's very helpful. Thank you. I'll pass it along. Thank you. There are no further questions at this time.
Speaker Change: I appreciate all the color that's very helpful. Thank you I'll pass it along.
Speaker Change: Thanks.
Speaker Change: Thank you there are no further questions at this time I would like to hand, the call back over to management for any closing remarks.
Dirkson Charles: I would like to hand the call back over to management for any closing remarks. Yeah, so look, a big thank you to everyone that is, you know, taking the time to hear our story again today. Believe me when I say we continue to be extremely excited about building our aerospace and defense cash compounder that we call Loar. And again, looking forward to speaking to you all in 13 weeks. It will feel like a long time since we've been speaking to you guys every six weeks here recently. So look, thank you, thank you, thank you for taking the time to hear our story.
Speaker Change: Yeah. So.
Speaker Change: A big Thank you to everyone that has taken the time to hear our story again today.
Speaker Change: Believe me when I say, we continue to be extremely excited about building, a our aerospace and defense cash compound that we call low.
Speaker Change: And again looking forward to speaking to you all in 13 weeks.
Speaker Change: Will feel like a long time since we've been speaking to you guys. Every six weeks here recently so thank you. Thank you. Thank you for taking the time to hear and I'm sorry.
Operator: This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.
Speaker Change: This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.
Speaker Change: Yeah.