Greetings, and welcome to the Loar Holdings Inc. Fourth Quarter and Full Year 2024 Results Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Ian McKillop, Director of Investor Relations for Loar Holdings. Thank you. You may begin.

Thank you, Melissa, and good morning, everyone. Welcome to, as Melissa mentioned, to the Loar Holdings fourth quarter and full year 2024 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 at Loar would 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 our latest filings 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 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 Dirkson.

Thanks, Ian. Good morning. I'm Dirkson, Founder, CEO and Co-Chairman of Loar. And as always, to respect your time, we will keep our remarks as brief as possible. So let us 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 we're 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've grown sales and adjusted EBITDA at a compound annual growth rate of 37% and 45%, respectively. We execute along four 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 one to three 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 will identify initiatives that would allow us to continually improve margins -- our performance with a focus on one or two 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 last five years. But regardless of these temporary headwinds, we continue to improve our margins. By the time we end calendar year 2025, we will have improved margins by 660 basis points in five years. This level of margin improvement, we expect to continue for the foreseeable future as we execute on our value drivers. Most 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. This is the value driver that we have doubled down on most recently. We've hired a Chief Talent Officer whose primary purpose is to ensure that we recruit the best athletes and develop our current mates to ensure that we are more than ready for the outsized gains that we see over the next few years. Again, to all my mates a big thank you for your commitment and hard work. With that said, I will now turn it over to Brett to walk you through the key characteristics of our portfolio. Brett?

Thanks, Dirkson. Good morning, everyone. On Slide 6, entitled Our Portfolio, you will see an updated look at how our business has been constructed. As we've said previously, our business is focused on proprietary content across all parts of the aerospace and defense industry. As such, it's worth repeating something I've said in the past, which is that we are relatively agnostic to the end markets, customers and application of the parts, so long as we maintain a broad, balanced and diverse platform across all the segments. However, what we are very disciplined about is that our platform fits and maintains the business model we like, which is highlighted in those six criteria at the bottom of the page. With all that in mind, given we're approaching the one-year anniversary of our IPO, it's probably worth reminding people where we were about a year ago. If you look at the end market pie chart, we are still balanced across our three primary end markets in commercial, business jet and general aviation and defense. Defense has grown a little bit faster than some of the other markets such that a year ago, it was about 19%, 20% of our business. Today, it's about 24%, of which 3% is only direct to DoD, which is still about the same as it was. But of note in this segment or in this chart, the non-aviation piece of the business, which I think we told people would shrink over time as we continue to do acquisitions that are exclusively A&D focused has dropped from 12% a year ago to about 7% today. On the aftermarket side, our aftermarket business continues to grow very nicely such that a year ago, it represented about 52% of our overall sales. Today, it's about 55%. And we expect…

Yes. Thank you, Brett. One thing I wanted to highlight here is that last year, we closed the acquisition of Applied Avionics and the Loar family now goes to market with an average of more than 20,000 unique parts on an annual basis. Our customers have come to depend on our highly proprietary products, the quality we deliver, on-time performance and engineering capabilities to ensure they're able to maximize their production in aircraft operations. As Brett mentioned, our business model is highly diverse. Nowhere is this more visible than our product offering, where no more than -- no product makes up more than approximately 3% of our net sales. Whether it's sensors or switches, water purification systems, deicing technologies, human interface devices, ceiling solutions, autothrottle systems or one of our many other products, we continue to believe that we have the capabilities to serve our customers in a way that is unique to Loar. I'll now pass the call over to Glenn to walk through end market and financial results.

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 each of our businesses were owned as of the first day of the earliest period presented. This market discussion includes the recent acquisition of Applied Avionics in the third quarter of 2024. We achieved record sales during calendar year '24. In total, our sales increased 15% as compared to the prior year. Our Q4 '24 sales were also a record, also increasing 15% versus the prior year quarter. These increases were driven by strong performances in defense, commercial OEM and commercial aftermarket. Our commercial aftermarket sales saw an increase of 15% in calendar year '24 versus '23. This is primarily driven by the continuing strength in demand for commercial air travel. We continue to see strong commercial aftermarket bookings. Our commercial aftermarket sales remained strong in Q4 with a 12% increase as compared to the prior year quarter. Our total commercial OEM sales increased by 16% in Q4 '24 as compared to the prior year period. This increase was driven primarily by higher sales across a significant portion of the platforms we supply, including wide-body and narrow-body aircraft and general aviation aircraft, as we continue to see an improving environment for commercial OEMs. The increase of 39% 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 will 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 fourth quarter of '24. Our net organic sales increased 14.9% over the prior period. Our gross profit margin for Q4 '24 increased…

We are excited to share our most recent view for calendar year '25. This view is in excess of what we told you last month, as we have made great, great strides executing on our value drivers in the first quarter of '25. Primarily, we are ahead of our plan on our value pricing and productivity initiatives. In addition, we have seen no degradation in demand in any of our end markets. In fact, the challenge we see this year is keeping up with demand. This strong level of demand we see continuing into the foreseeable future driven by airlines extending the life of older aircraft, a trend that should continue into early 2030 as the demand for aircraft will outstrip supply even in the event whereby both Airbus and Boeing reach their monthly production goals. Secondly, the continuing geopolitical uncertainty in the world, I mean, who would have ever thought that the European nations would increase their investment in their military at rates that are being discussed today. In addition, the capacity constraints in the supply base created by the strong demand across our end markets, the loss of capabilities throughout the industry, resulting from experienced and talented folks leaving in the aftermath of COVID and the reluctance of some in the supply base to invest given the cash challenges they have been dealing because of the stops and starts of production from the large OEMs. When all combined, this gives us a tremendous amount of opportunity to leverage our increasing capabilities across the group to drive above-industry average organic growth. With that said, for calendar year 2025, we expect on a pro forma basis, assuming we owned all of our business units since the beginning of 2024, that our end markets will be up as follows: commercial OEM…

[Operator Instructions] Our first question comes from the line of Sheila Kahyaoglu with Jefferies. Please proceed with your question.

Hi, good morning, guys, and thank you for the time.

Good morning.

Dirkson, since you're treating every day as a school day, we expect, and we know we'll get all A-pluses from you. So maybe the first question, you alluded to your aftermarket or all your segments being quite strong, but let's focus on the aftermarket perhaps. As you think about your guidance, what's embedded into your guidance, whether it's price and volume and what you already have booked in your backlog, if you could talk a little bit about that, please?

Sure. In terms -- I think Glenn mentioned this earlier, we have seen strong bookings, right? So backlog is fairly strong. Now with that said, in the aftermarket the lead times on most of our parts are shorter than some of our defense end markets. So think one month, two months, three months in some cases, but the backlog looks really, really strong. What we do every quarter, Sheila, is we have conversations with our customers updating what they believe is the forecast for the next 12 months. And that has also led us to be very, very comfortable with what we see going forward. As I said earlier, I think our challenge this year is going to be really keeping up with demand. There's pockets of demand for certain parts that we make where I see we will need to have to increase our capacity to meet the demand going forward. And we're investing along those lines. And what our expectations are for the year is baked into the guidance. So very, very strong aftermarket.

Okay. And then maybe if I could ask on profitability. You have about 130 basis points of margin expansion in 2025. Our assumptions, say, 120 bps of that perhaps comes from Applied given the strong profitability there. How do we think about the defense mix? How dilutive is it? And just any other contributors to the margin mix?

Yes. So Applied aviation is accretive. I think when we acquired the business, we shared with everyone that their EBITDA margins of approximately 50%, God bless a day at the time we acquired them, it was around $40 million of revenue. So think of it as 10% of our overall revenues. So accretive, but not by 100 basis points in total for the overall group, but it is accretive. We see -- I guess, I would answer your question this way, Sheila, to lead you in the right direction. When we give guidance, we give it understanding that we want to meet or exceed. The 120 basis point increase that we see for this year, we are highly confident of achieving it. So we have answered your question because -- we know for a fact we've got more price than cost inflation. We know we're getting operating leverage that's going to drop through and improve margins. And there's a number of initiatives that we've been working on that we actually see light at the end of the tunnel that's going to improve margins going forward also. So you should see a true reflection of where we believe margins are will be going forward in the second half of this year. But very, very comfortable with the 120 basis point improvement.

Thank you.

Thank you. Our next question comes from the line of Kristine Liwag with Morgan Stanley. Please proceed with your question.

Hi. Good morning, everyone.

Good morning. Hi Kristine, welcome back.

Thanks. Glad to be back. Happy to share pictures if they're wanted. So maybe picking up - I am biased. I do think she's the cutest baby, but we'll save that for after the call. So Dirkson, in your prepared remarks, you said, look, new product launches, you're assuming 1% to 3% of annual growth and this has been part of your playbook in some time. But look, for PMA parts, once you get something adopted, I would have expected that when you get a new part accepted and certified, that you could get a higher growth in that. So I was wondering, can you give us an update in terms of your PMA pipeline? And how conservative is this 1% to 3%.

How conservative is the one to three points. Look, so the one to three points of improvement every year, we say that over a period of time. You are 100% correct that the way the PMA market, especially the strategic initiatives that we're focused on will work is you get qualified and you should get adopted into the market at a very rapid rate. So you should see a very big job. Now with that said, Glenn said earlier that our organic growth is mid-double digits. I don't think I've seen that from any of our other colleagues in the space, if I can say that way. So there is some of that already baked in. Now with that said, specifically, the key initiatives in PMA that we've been working on is actually still developing. We have made a tremendous amount of progress in terms of getting our parts qualified but not certified yet. So we've gone through a number of tests. On the brake side of it, we're now through dynamometer testing, for a number of the programs that we are looking to implement. So I would say, Kristine, as we think about the latter part of this year going into early next year, we should start to see the adoption of some of those PMA initiatives that we've talked about. On the other big piece of the initiative, we have actually just entered into, I won't announce the customer, but entered into an agreement with a customer to market and sell some of those products for us going forward. And again, you should start seeing the benefit of that in the second half of this year going into early next year. So stay tuned. But I think the one to three points of improvement over intimated period to foreseeable future is a good goal for us.

Great. Looking forward for those certification announcements because, I mean, presumably, there will be a big jump in revenue there. So looking forward to that Dirkson and Glenn. Thank you.

[Operator Instructions] Our next question comes from the line of Jason Gursky with Citigroup. Please proceed with your question.

Hi. Good morning, everybody.

Good morning, Jason.

Maybe let me start with just dynamics with your OE customer set and talk a little bit about what you're seeing ordering patterns, inventory levels in the channel, so to speak. You've got Boeing that is trying to lean out inventory, and we've been hearing that their restart after the strike last fall hasn't been all that wholesome from an ordering perspective. So I'm just kind of curious, ordering into this, back end of the supply I'm just kind of curious what you all are seeing at this point.

I'll give you a short answer and a really long one. The short answer is we're seeing all of the above. So it depends on the product, right? We have parts that the orders -- the level of orders for it is above what we thought it should be. Leading us believe there's less inventory in the supply chain than we would have, okay? We have parts where we're still seeing not the level of orders that we think there should be. So leading us to believe there's more inventory in the supply chain. So it's all over the map, Jason, in that regard. But when you add it all up, keeping in mind how we built our original guide, right? We built our original guide -- now taking you back to November of last year, where we were thinking that Boeing was not really going to get off their strong footing until the latter part of this year. It's a lot stronger than we expected because Boeing is doing a lot better, and folks are starting to believe that they'll actually get there. The way we see leaving the year from Boeing is about 30 aircraft per month in terms of narrow-body. With Airbus, Airbus has been in line, if not a little bit stronger than we were originally thinking in terms of ordering patterns. Our projections see us leaving the year with about 50 a month for Airbus. So -- you can compare that to Teal and what other folks are saying. I think we're slightly a little bit conservative. But again, going to how we think about forecasting. We want to forecast where we'll meet or exceed. So it's choppy, Jason. It's a great question. We -- depends on the part product.

Right. And that 30 and 50 that you just mentioned, that would be the rate that you're producing, not necessarily with the OEs are producing.

Yes, that would be their production. That's kind of where we're assuming they're going to be at the exiting the year. And again, to Dirkson's point, it's probably a little conservative given their relative strength as they started the year, but that's kind of our current thinking.

Okay. Got it. And while we've got you engaged here, why don't we shift really quickly and Brett to -- I mean everybody chime in here, but I know, Ian, you kind of helped execute on the M&A pipeline. What are you guys seeing at this point in the M&A pipeline? You've obviously been able to successfully get a couple of done here. Since going public, what should we expect for the next 12 to 18 months from you all?

I'd say more of the same. The pipeline is good. I'd say the year really started out very active and working on a number of things. Obviously, we got LMB signed up, and we'll get that closed here in a few months. We'll see what the overall market choppiness what effect that may have on M&A generally speaking. But I'd say in our sector, aerospace and defense, given most people's relatively optimistic view of this year going into next year, which certainly we have and we've shown with our upward revision I would expect that there are going to be lots of active sellers. So as I've always said, hard to predict what's going to ultimately be executable -- the pattern for us has been one to two deals a year. Certainly, within the first year of being public, we've executed on two. So I think that's a pretty good pace to consider for the future.

Okay. And then maybe lastly from me. Let me talk a little bit about tariffs. And your input costs and maybe start it with input costs and talk about any potential impact there and then how you might deal with higher input costs as a result of tariffs? And then with a completed product that you might be either shipping overseas or you've now got a French company in your portfolio here potentially in the next few months, whether the tariffs that have come about, here recently impact the financial model for the acquisition that you just made?

Thanks Dirkson, you want me to take that on LMB or...

Sure. Since you volunteering, go for it.

Well, I think, Jason, for LMB, it's not going to have much of an effect. LMB's business primarily the vast majority of it serves the European defense market. So the good news there is, we should have some pretty good tailwinds behind us for quite a while. So shipping to the U.S., as an example, is a very, very, very small portion of the business such that any tariff isn't really going to have any kind of meaningful impact. As it relates to the rest of our business, Dirkson, I'll let you kind of take that.

Yes, sure. So Jason, I'll say to you this way. Sometimes, it's better to be lucky than good, if I could say it that way. So I'll tell you, and you appreciate why I say that in a second. I'll tell you about a fall. As you know, we do our calls on Tuesday, we have our KPI calls where we talk to all the business units. And one of the things that our CFO, Glenn goes through with the business units, is what's going on with inventory. And there was a call late last year where Glenn set one of our presidents, what are you thinking? Why do you have so much inventory? Why have you ordered so much steel and aluminum? Why do we need that? And then Trump gets elected, and then we have that same KPI call this year, and our CFO says to that same individual, you're genius ordering those parts in advance. So sometimes it takes a little bit of luck to be good. So yes, we have exposure to steel. We have exposure to aluminum. We expect that if there's tariffs imposed that our costs will go up. Now with that said, what we make is proprietary, right? We will pass along any increase in cost, like we said, our portfolio -- over our portfolio will get more price than inflation. I throw tariffs into that. Some people say it's onetime and all of that, whatever it is, we will pass it along. The good news is that there's not going to be a lot of a hit for us this year to given the extra inventory that the genius leaders at our business units have accumulated this year. And in terms of sourcing parts from folks overseas that we have to bring in, I will say this, we have in 99% of the cases, a second source in the U.S., check. And we are working, like everybody else on the planet in terms of positioning, how we receive our product in such a way that we minimize any impact of tariffs going forward. So that's a long answer to don't see an impact, a material impact this year and any impact that we see is baked into the guidance that we've shared which, again, we believe we will meet or exceed. So no major impact yet, Jason.

Okay, great. I appreciate the thoughts, guys.

Thanks Jason.

Thank you. Ladies and gentlemen, that concludes our question-and-answer session. I'll turn the floor back to Mr. Charles for any final comments.

I once again would like to thank our mates for everything that you do. I mean you guys see the results. I was just reading one of your reports, and you guys say that we beat and we raise, we beat and we raise -- I like that drumbeat. That's a good jump beat, but that has nothing to do with the four people that are talking here. I should say very little to do. It's all the other 1,500 that we're working with, who are making this happen. So I want to thank them. I also want to thank once again all of our public shareholders and -- you guys have thought us a lot. And Sheila, yes, every day has been a school day for us, and we're enjoying it. And we hope to speak to you guys again, I guess, now in about six weeks. So stay tuned. So thanks for joining the call. Thanks for taking the time. We'll talk soon. Thank you.

Thank you. This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.