Loar Holdings Inc. (LOAR) Q3 2026 Earnings Call Transcript

And welcome to the Lohr Holdings third quarter 2026 earnings 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. As a reminder, this conference is being recorded. It is now my pleasure to introduce Ian McCullough, Director of Investor Relations. Thank you. You may begin.

Thank you, Diego. Good morning, everyone, and welcome to the LOR Holdings Q3 2026 Earnings Conference Call. Presenting on the call this morning are LOR's Chief Executive Officer and Executive Co-Chairman, Dirksen Charles. Executive Co-Chairman Brett Milgram, Treasurer and Chief Financial Officer Glenn D'Alessandro, as well as myself, the Director of Investor Relations. Please visit our website at loragroup.com to obtain a slide deck and call replay information. Before we begin, we would like to remind you that statements made during the 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 filing with the SEC, available through the Investor Relations section of our website or at sec.gov. We'd like to also advise you that during the call, we may 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 Dirksen.

Thanks, Ian. Good morning to my mates, all our partners participating on this call. Let's all turn to slide four. Now, I have said this before, and I'll say it again. Law is building an aerospace industrial cash compounder fueled by a culture of growth, respect, collaboration, and entrepreneurship. Full stop. Each day, 1,800 of my mates and I show up ready to create a significantly larger cash compounder, all while preserving our foundational principles and culture. We know that we will wake up five years from now as a much larger company with even stronger cash compounding characteristics. Today, nothing, nothing at all has changed in the macro that suggests a deviation from historical growth expectations. And the breadcrumbs we leave each quarter prove we are right on the road to achieving our goals. This quarter, we achieved record sales, adjusted EBITDA, adjusted EBITDA margins, and more notably, generated record free cash flow at a growth rate of 46% over the prior year's third quarter. We grew sales organically by approximately 16% during the quarter, driven by excellent execution across all our value drivers, combined with the benefits realized from our latest new business wins. In fact, this quarter is the 17th sequential quarter of record-adjusted EBITDA, demonstrating our consistent performance. If you turn to slide 5, you'll see that we have grown each quarter in 2026 at rates higher than our growth rate since our founding in 2012. As a reminder, we have grown lower since our founding at 30-plus percent and 40-plus percent for sales and adjusted EBITDA, respectively. While we have promised such results, we know that we're really just getting started. But again, what really makes this quarter noteworthy is the strength of our cash flows. In fact, year-to-date 2026, we have converted operating cash flows minus capital expenditures at approximately 200% of net income. Turning to our end markets, please turn to slide six. Commercial OE growth continues to climb and is up 20% in the quarter versus last year's Q3. We continue to benefit from an improved supply chain and increased demand for our parts. In addition, we also realized additional value from the shipment of products related to our new business wins. As we noted last quarter, two-thirds of the business we converted to wins were for original equipment. This is now the third quarter in a row where the commercial OE end market grew the fastest. Once again, that did not stop us from achieving record results. Commercial aftermarket was up low double-ditch percentage again this quarter in line with our expectations. Given that our portfolio consists of proprietary products, we have tremendous visibility of the demand for our parts and a strong presence in the commercial aftermarket. We expect to be able to deliver such performance for the foreseeable future at the age of the active fleet during 2026 is still 17% or. Put it this way, two years older than what it was pre-COVID, despite airlines attempting to manage their capacity in light of higher fuel costs. Last quarter, we said that we expected to see increasing demand for our defense end market products. We were not surprised that in Q3, we had the highest growth in any quarter this year within this end market. The geopolitical uncertainty in the world, the increasing goals of European nations to increase their military arsenal and technology as a percentage of their GDP, and the U.S. needing to replenish their stockpiles has resulted in increased military funding across the globe.