Greetings. Welcome to Loar Holdings, Inc. Second Quarter 2025 Results Conference Call. Please note, this conference is being recorded. I will now turn the conference over to Ian McKillop, Director of Investor Relations. Thank you. You may begin.

Thank you, Darryl. Good morning, and welcome to the Loar Holdings Q2 2025 Earnings Conference Call. Presenting on the call this morning are Loar's Chief Executive Officer and Executive Co-Chairman, Dirkson Charles; Executive Co-Chairman, Brett Milgrim; Treasurer and Chief Financial Officer, Glenn D'Alessandro; as well as myself, Ian McKillop, the Director of Investor Relations. Please visit our website at loargroup.com 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's latest filings with the SEC available through 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. Please see the tables and related footnotes in the earnings release for a presentation of the most directly comparable GAAP measures and applicable reconciliation. To begin today, I will now turn the call over to Dirkson.

Thanks, Ian. So I have a confession to make. But before I tell you what that is, let me share one last school day moment we had during our IPO roadshow regarding giving guidance. We call it the Heather rule. So look, everyone we met during the roadshow told us, when you give guidance, ensure that you will achieve it. Do not be overly aggressive, be clear, keep it simple, all good advice. One person we met, Heather, gave us the same advice, but there was something about how she said it that in the elevator ride after the meeting, we drew straws to see who would deliver the message if ever we were not meeting or exceeding what we guided to. Heather, your message resonated. And for the record, Ian drew the short straw. Fortunately, for Ian, we once again are delivering great news. We have exceeded every performance metric that we measure that demonstrates the strength of the aerospace component, cash compounder that we are building, including record sales, adjusted EBITDA, adjusted EBITDA margins and tremendous growth across all our market sectors. So hi Heather. Now for the confession. We usually start our earnings call 2 minutes late because most of you call in late. For the record, it has gotten worse. So here's my confession. I'm stalling to make sure that when we start, I have most folks on the line, especially since the number of callers have more than tripled since our last call. So let's get started. We're good. I'm Dirkson, Founder, CEO and Co-Chairman of Loar. As always, we keep our remarks brief. So let's start by reminding you who we are. Loar is a family of companies with a very, 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 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 3 years, 2022, 2023 and 2024, achieving organic sales growth of 18%, 14% and 15%, respectively, with adjusted EBITDA growing at a faster rate. We execute along 4 value streams. We identified 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 track the pipeline of new product introductions monthly. It represents a list of opportunities across our portfolio of companies that are derived from listening to our customers to identify their pain points to determine how we can help. It is created from the sharing of ideas, best practices and customer synergies across the group through the high degree of collaboration that we foster across our business units. This list currently represents over $500 million of sales over the next 5 years. So let's do some simple math. Let's assume that the opportunity is equal weighted by year. So in other words, we have a pipeline of $100 million of new product launches in calendar year 2026. All we need to do to be successful is deliver $5 million to $15 million of such opportunities to achieve our 1% to 3% annual growth rate. Here's the beauty of the list though. It is a living, breathing entity that grows each year. Look, we also 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 our performance with a focus on 1 or 2 major initiatives each year that will improve margins. In addition, across our portfolio of companies, we'll achieve more price than our 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 dilutive margins or incurring costs as a result of being a public company, all of which we have experienced over the years, but regardless of these temporary headwinds, we continue to improve our margins. Most importantly, we are committed to developing and improving the talent of our employees because our success is solely a result of their dedication and commitment. So again, as always, to all my mates, a big thank you for your commitment and hard work. Before I turn the call over to Brett, I wanted to highlight one metric that we measure relative to the quality of the cash flow that we generate. It is our cash flow conversion percentage. As shown on Slide 6, in the first 2 quarters of 2025, the total of our cash flow from operations minus capital expenditures when divided by net income was 175% and 125%, respectively. Year-to-date, our conversion percentage was 148%. While there's no real seasonality in our business when it comes to cash flow, we do pay out bonuses and make our first installments to the IRS related to our annual income tax payment requirements in the second calendar quarter. As we said last quarter, we expect our cash flow conversion percentage to be greater than 125% for calendar year '25. Look at this chart, think of this guide as a Heather moment. I will now turn it over to Brett to walk you through the key characteristics of our portfolio and discuss our most recent addition to our family of companies.

Thanks, Dirkson. I think this is a slide most of you have seen before. It's basically a graphical representation of how our business has been constructed. As you know, we have constructed Loar on 2 basic tenets. First, we want to be a balanced company that participates in the annuity stream that any platform can provide starting from initial production all the way through the aftermarket life cycle of the aircraft flying. And whether that's a commercial aircraft, a business jet, a general aviation aircraft or something in the military, we just want to participate in that annuity, both in the new production side or the OEM piece of the business and the aftermarket piece of the business for its life cycle. Second, we do that around a business model that looks like this. It starts with being solely focused on the aerospace and defense industry and is centered around proprietary products. Those products oftentimes participate in niche markets that have significant aftermarket exposure that provides us cross-selling opportunities that we can bring to all our customers so we can bring a suite of products to solve our customers' pain points. All these characteristics meet our most recent acquisition, which we're very excited about called Beadlight. Beadlight is a business located in the U.K. that is a relatively new business, making lighting products for premium seat applications, particularly in the commercial OE and aftermarket business segments. The business has had a lot of growth recently, starting from new, where they've been able to recently win some new programs, gain some market share and start a path of real cash flow generation that we'll talk about in a little bit, where we think the growth over the next several years is going to be very, very significant.

So if we move on to our products. As we've shared with you in previous calls, this graphic represents the many products that we go to market with. The acquisition of Beadlight brings with it a suite of niche products and capabilities. You can find Beadlight's bespoke lighting and interior components across premium areas of the cabin in commercial airlines around the globe. And as a reminder, at Loar, we go to market with an average of more than 20,000 unique parts, of which no one product makes up more than 3% of our annual net revenue. Our customers have come to depend on our proprietary products, quality, on-time performance and engineering capabilities to ensure that they are able to maximize their production and aircraft operations. If we move on to OEM build rates, as many of you know, narrow-body aircraft demand is at an all-time high, with Boeing and Airbus working to increase production to meet the market. The A320 and 737 platforms are also our 2 largest platforms by net sales at 7% and 6%, respectively. As such, we wanted to provide an update with our present forecast for demand exiting 2025. But before I do, I remind you of something that we've said before, we make things for a living. This is our way of saying that over the long term, beyond 13-week quarters, demand will follow airframe build rates. However, quarter-to-quarter, week-to-week and even day-to-day, every one of our 18 businesses is managing unique material, labor, inventory and technological challenges that impact production. This is just the nature of being a manufacturing organization. To demonstrate the variability in monthly demand we see for our parts for the 737 and A320 family original equipment, we've delivered anywhere from 10 shipsets to 60 shipsets of parts per month. This has nothing to do with the overall demand as more than 3/4 of the backlog of 15,000 aircraft are for these 2 platforms. It's just because we make parts for a living. That said, we see the Airbus A320 shipsets demand exiting the year at 53 per month, while the 737 MAX family is at 33 per month. I'll now pass the call over to Glenn.

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 presented. This market discussion includes the acquisition of Applied Avionics in Q3 '24. We achieved record sales during Q2 '25. In total, our sales increased to $123 million, which is a 13% increase as compared to the prior year. This increase was driven by strong performances in commercial aftermarket, commercial OEM and defense. Our commercial aftermarket sales saw an increase of 13% in Q2 '25 versus Q2 '24. This is primarily driven by the continued strength in demand for commercial air travel. We continue to see strong commercial aftermarket bookings. Our total commercial OEM sales increased by 14% in Q2 '25 as compared to the prior year period. This increase was driven by higher sales across a significant portion of the platforms we supply. The increase of 19% in our defense sales was primarily due to strong demand across multiple platforms and an increase in market share as a result of new product launches. Defense sales continue to be lumpy given the nature of the ordering patterns of our end customers for our products. Let me recap our financial highlights for the second quarter of '25. Our net organic sales increased 11.3% over the prior period. Our gross profit margin for Q2 '25 increased by 480 basis points as compared to the prior year period. This increase was primarily due to the execution of our strategic value drivers, operating leverage as well as a favorable sales mix. Our increase in net income of $9 million in Q2 '25 versus Q2 '24 is primarily due to higher operating income and lower interest. Adjusted EBITDA was up $12 million in Q2 '25 versus Q2 '24. Adjusted EBITDA margins were a record 38.3% in Q2 '25 due to the execution of our strategic value drivers, operating leverage and a favorable sales mix. This was partially offset by additional costs associated with being a public company, including Sarbanes-Oxley compliance and additional organizational costs to support our reporting, governance and control needs. We do not see a material increase in these type of costs going forward. We believe the run rate of these costs is fully reflected in our Q2 '25 results. From 2020 through '25, we will have increased our EBITDA margin by 710 basis points. We achieved this growth through the following: operating leverage, winning new profitable business, executing on productivity initiatives and from value-based pricing. In Q2 '25, our margins grew 220 basis points from Q2 '24 to a record 38.3%. This was achieved even with the negative impact of costs related to Sarbanes-Oxley compliance and additional organizational costs to support being a public company. And before I turn it back over to Dirkson, I wanted to mention I had a different take on the Heather rule. I'm pretty sure she looked directly at me when she was sharing her advice. I'm pretty sure that stare lasted for at least 30 minutes. And now I'd like to turn it back to Dirkson to share our outlook for '25.

We are eager to present our latest outlook for calendar year 2025. This projection exceeds what we communicated 13 weeks ago, and our confidence is backed by the significant progress we've made in executing our value drivers during the first half of 2025 and the robustness of our proprietary portfolio. We are ahead of schedule with our value pricing and productivity efforts. Furthermore, we have not observed any decline in demand across our end markets and do not anticipate any significant impact on our results due to the current tariff situation. Notably, there is volatility in demand for OE commercial products, as OEMs and Tier 1 suppliers adjust to changes in OE production while managing inventory and supply chain disruptions. This may lead to fluctuating growth rates over a 13-week period. Consequently, despite robust organic growth in the OE commercial sector this quarter, we will maintain our organic growth target for this market at high single digits for 2025. Regarding the commercial aftermarket, we project low double-digit growth, while sales in our defense market are expected to rise in high double digits, possibly between 17% and 20%. These market expectations, combined with our ongoing implementation of value drivers, will enable us to achieve or surpass the following for calendar year 2025: net sales of $486 million to $494 million, an increase from $482 million to $490 million; adjusted EBITDA of $184 million to $187 million, up from $182 million to $185 million, and an adjusted EBITDA margin of roughly 38%, reflecting a 170 basis point improvement over 2024. We forecast net income between $65 million and $70 million and adjusted EPS of $0.83 to $0.88, which represents a 16% increase from our prior guidance. Additionally, we anticipate CapEx of around $14 million, approximately 2% to 3% of sales, a decrease of $2 million in full-year interest expenses to $26 million, and an effective tax rate of 25%. Depreciation, amortization, noncash stock-based compensation, and our fully diluted share count will remain unchanged. That said, our updated guidance does not account for any benefits from our recently announced acquisition of LMB Fans & Motors. To clarify, our guidance incorporates any current impacts from the tariff environment, which has been largely negligible, as well as the benefits of five months of ownership from Beadlight. For the entire year of 2025, we expect Beadlight to generate mid-single-digit millions in sales with EBITDA margins slightly above breakeven. We are particularly enthusiastic about Beadlight's contribution to our results in calendar year 2026 and beyond, given its substantial pipeline of opportunities and recent contract wins. Once we integrate our value drivers into Beadlight, we anticipate a significant increase in opportunities, mainly due to the top-line synergies with our customers, particularly from our seatbelt restraint business. We believe Beadlight will positively impact our results in 2026. With that, let's open the line for questions.

Our first questions come from Sheila Kahyaoglu with Jefferies.

Dirkson, I also have a confession to make. I might change my name to Heather after this call because she sounds like a pretty cool girl. But maybe if we could start off with your guidance or with the contribution of the new acquisition in the $5 million range. How do we think about where LMB is in terms of that process still pending? And is it still expected to close in Q3? And then how do you think about potential for future transactions from here?

Yes. Sheila, this is Brett. Actually, I'll answer the LMB question. As it relates to LMB, we are still in, I'll call, holding pattern with the regulators. We are waiting for regulatory approval, which we're still optimistic about. We have had a lot of contact over the last several weeks with a number of the French authorities, answering some follow-up questions, having them speak to some of the management at LMB. As you may remember, we overwhelmingly had approval by the work council there for the acquisition. The management team is excited about our upcoming ownership. And we still think we are the best buyer for the asset given our plans to grow the business, to keep it where it's currently located and to support the employees, all benefiting the French economy and the French military. That being said, as you know, most folks, particularly those in the government go on holiday in August. So I think the earliest we will hear something is September. So hopefully, we can get that in before the end of the third quarter, but it's obviously taken a bit more time than we had hoped. So no promises, but we're still optimistic.

And Sheila, I’ll address the other part of your question regarding Beadlight. As I mentioned earlier, Beadlight has mid-single-digit million in top-line sales. It’s a recently started business, much younger than most of the ones we own, but it’s run by a dynamic team with an excellent leader, Gina Ames. Hopefully, you’ll have the chance to meet her someday. She has built an incredible pipeline of opportunities, and that’s without the additional support we will provide in terms of new customers for Beadlight. As we consider our guidance, we’ve factored in that we will only own them for about five months, and they are new to us, which is something we thought about regarding Heather. We have included around $2 million in sales and minimal profit in our guidance. The improvement in our guidance is entirely organic. We are hopeful that in about 13 weeks, once we’ve had more time with Beadlight, which we just finalized two weeks ago, we will be able to share further progress regarding Beadlight. We’re excited to have them on board.

Yes. What we can say is 2026 is going to be a very exciting year where I can set the expectation that the price that we paid for Beadlight will look very, very attractive relative to the '26 earnings, given what we know is in the pipeline and given what we know are some of the new program wins that they've had, which, again, to Dirkson's point, are not inconsequential given this is a relatively new entrant into the lighting marketplace. They've done a great job. They've gotten and developed great customer relationships that have some real synergy, particularly with our Schroth business because they both have seating customers as well as airline customers that overlap. So this is a really good strategic fit for us as well as one that will starting, I think, next year, have real significant financial performance.

Okay. That's really helpful information. May I ask one more question, if that's alright? The commercial aftermarket appears to have grown 12.5% organically on a pro forma basis. We've heard various opinions about the distinctions between engine and airframe. Do you have any insights on what you're observing in your business? I understand your portfolio is well diversified, but do you have any involvement with engines in your commercial aftermarket?

Yes. I'll say this. So just to give a little bit more information in the detail, and this is Ian, by the way. Engines are roughly 7% of our overall revenue, and they grew in line with our commercial aftermarket and OE growth rates, so low double digits. So no big degradation or deviation between engines and the broader aftermarket in our portfolio.

And I'll take a little step beyond. We haven't seen any changes in terms of the demand dynamics relative to commercial aftermarket. So still consistently strong. We're still taking, I'll use this market share with our new product introductions and the pricing dynamics have been pretty good.

Our next questions come from the line of Ken Herbert with RBC Capital Markets.

Dirkson, I wanted to follow up on your previous comments regarding the new business opportunities in the pipeline. What is our perspective on the timing of these opportunities? I understand that the 5% to 15% range aligns with the 1% to 3%. Are you anticipating a higher impact in 2025, or is it more likely to be in 2026 or 2027 as you turn some of these new opportunities into actual revenues?

So I'll answer it this way, Ken, and thanks for the question, by the way. In 2025, new product introduction is probably closer to the lower end of that 1% to 3% guide, okay? I'll say it that way. And that's due to a number of things, including a number of certifications that we've seen delayed that we see growing nicely in 2026 and 2027. Some of our new entrants into the market have been most recent, so we'll see the benefit of that in '26 and '27. So as I think about 2026 and '27, I would expect we'll be closer to the higher end of the guide that we typically give 1% to 3% in those years in terms of the growth rate because we're actually seeing a lot of improvement in terms of the FAA actually moving now on some of our certifications that we've talked about in the past. And we're going through flight tests and pretty close to getting a lot of the platforms certified that we've been focused on. So great question, greater rate in 2026 and '27 than 2025 in terms of growth.

Perfect. And if I could, as a follow-up, there's a growing narrative that aftermarket sales could see incremental pressure as a lot of the airlines are able to sort of bring more savings out of either their maintenance spending or maybe more particular, through parts inventory. And I think we can all appreciate airlines have built up significant sort of buffer stocks as a result of just supply chain disruptions over the last few years. How much of a headwind do you think sort of better efficiency out of the airlines could be to your aftermarket business, not so much in '25, but maybe in '26 and '27? And is that a longer-term thematic risk you view to the end market? Or where do you think we stand from that standpoint?

So I think that the portfolio that we have is likely a lot different than some of the other companies that you're probably thinking about this question for. And I hate using this word because the lawyers will tell me, keep it to a minimum, but I'll use it this one time, sole source, proprietary. It's very difficult for an airline to manage the way you describe it without having an alternative. So what we're seeing is consistent demand, right? I don't want to give quarterly guidance, and I don't want to give guidance beyond what we've done. But I really, really have not seen any change on the commercial aftermarket in terms of the strength of demand. Where we're seeing the choppiness is on the OE side, which is why I want to spend some time in this call sharing that information. We are seeing companies do the following: truly, truly manage hard their stock of inventory on the commercial OE side because as they now convince themselves that Boeing has gotten their act together, Airbus is going to continue to get better. They don't need to keep the extra stock around. The supply chain is getting a little bit better and all of those things. So there may be some choppiness on the commercial OE side, but I don't see it on the commercial aftermarket at this point.

Our next questions come from the line of Kristine Liwag with Morgan Stanley.

Just a few questions on Beadlight. It looks like you paid GBP 25 million or $33 million for this. So with mid-single-digit revenue and almost breakeven EBITDA, it does seem a little steep on valuation. Can you provide more color on how much of the accretion on 2026 is from orders that you already received that you alluded to versus from the Loar toolbox? And also as a follow-up on that on Beadlight, is this BFE, SFE? And how much of the portfolio is sole source and proprietary?

The business we acquired is entirely proprietary, and once it starts operating, it significantly contributes to our growth. Beadlight would be beneficial even without our input, which is why I emphasized its potential for growth. With our support and strategic focus, we believe the impact will be notably positive. To address your point, Kristine, we evaluate acquisitions based on their future potential rather than past performance. The GBP 25 million we invested may seem high now, but looking back two or three years from now, we'll likely see it as a bargain. This perspective is similar to our experience with Applied Avionics, which had $40 million in revenues when we acquired it. In the latest quarter, it generated over $15 million, even though we’ve only owned it for about 11 months. Our approach focuses on future possibilities rather than historical results. Regarding Beadlight, I can confidently say we secured it at a favorable price since the acquisition is already complete, and the former owners might be listening.

No, that's great to know. Significant accretion is the name of the game. So just I guess a follow-up on that broadly on M&A. So can you talk about the bidding process of this? How competitive was this? How many more assets like this is there in your pipeline?

Kristine, this is Brett. I can tell you that this was a unique process for us. We were introduced to the owner some time ago, had several discussions, and at the air show, we managed to finalize a detailed diligence process to better understand the business and reach the deal we achieved. These are the types of deals we prefer. I can assure you that our list of opportunities remains very strong, many of which involve similar proprietary discussions with owners. As we've mentioned before, the time it takes for many of these opportunities to develop can be significant, especially considering that the owners are often owner-operators or involved in family-owned businesses, where legacy and employee treatment play critical roles in their decision-making. It often requires time for them to feel comfortable or to decide they're ready to sell. Our list is continually growing because there are countless companies that fit this profile and align with our business model. As I’ve often said, we will never get to all of the opportunities within any reasonable investment timeframe. The more challenging aspect to predict is when these opportunities can be executed.

We have reached the end of our question-and-answer session. I would now like to turn the floor back to management for any closing comments.

A big thank you to everyone that has taken the time to hear our story today. Believe me when I say we continue to be excited about building our aerospace and defense cash compounder that we call Loar. Looking forward to speaking to you all in 13 weeks. Please call in on time. Thank you.

Thank you. This does now conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.