StandardAero, Inc. (NYSE:SARO) Q4 2024 Earnings Conference Call March 10, 2025 5:00 PM ET Company Participants Alex Trapp - Chief Strategy Officer Russell Ford - Chairman and Chief Executive Officer Dan Satterfield - Chief Financial Officer Conference Call Participants Seth Seifman - JPMorgan Sheila Kahyaoglu - Jefferies Ken Herbert - RBC Capital Gavin Parsons - UBS Greg Dahlberg - Wolfe Research Krista Friesen - CIBC Operator Good afternoon, and welcome to StandardAero's Fourth Quarter and Full-Year 2024 E ...

Q4 & FY 2024 EARNINGS PRESENTATION MARCH 10, 2025 1 DISCLAIMER – FORWARD LOOKING STATEMENTS & NON-GAAP DISCLOSURE This presentation contains forward-looking statements that involve substantial risks and uncertainties. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and Section 27A of the Securities Act of 1933, as amended (the "Securities Act" ...

Revenue Growth - Fourth Quarter 2024 revenue was $1,409.6 million, a 21.8% increase from $1,157.8 million in the prior year period, driven by a 33% growth in the commercial aerospace market[5] - Full Year 2024 revenue reached $5,237.2 million, a 14.8% increase compared to $4,563.3 million in the prior year, supported by a 25% increase in the commercial aerospace market[13] - Engine Services segment revenue for Full Year 2024 increased 14.7% to $4,644.8 million, driven by a 26% increase in the commercial aerospace market[16] - Component Repair Services segment revenue for Full Year 2024 increased 15.4% to $592.4 million, with a 17% increase in the commercial aerospace end market[19] - Revenue for Q4 2024 reached $1,409.6 million, a 21.7% increase from $1,157.8 million in Q4 2023[45] - Total revenue for the year ended December 31, 2024, was $5,237.2 million, a 14.8% increase from $4,563.3 million in 2023[51] Profitability and Income - Adjusted EBITDA for the Fourth Quarter 2024 increased 37.2% year-over-year to $186.2 million, with an Adjusted EBITDA margin of 13.2%, up 150 basis points from the prior year[6][8] - Net income for Full Year 2024 was $11.0 million, a significant recovery from a net loss of $35.1 million in the prior year[14] - Operating income for the year ended December 31, 2024, was $403.2 million, up 19.5% from $337.4 million in 2023[45] - The company reported a basic loss per share of $0.04 for Q4 2024, compared to a loss of $0.02 in Q4 2023[45] - Profit before tax for the year ended December 31, 2023, was $5.1 million, compared to a loss of $35.1 million in 2022[54] Financial Position and Debt Management - The company completed a $1.7 billion IPO, generating net proceeds of approximately $1,202.8 million, which were used to pay down debt and improve the capital structure[6][21] - The Net Debt to Adjusted EBITDA Leverage Ratio improved to 3.1x as of December 31, 2024, reflecting a stronger balance sheet post-IPO[24] - Long-term debt decreased to $2,207,977 thousand in 2024 from $3,172,108 thousand in 2023, a reduction of about 30.4%[43] - Total liabilities decreased to $3,840,197 thousand in 2024 from $4,612,690 thousand in 2023, indicating a decline of approximately 16.7%[43] - Interest expense for the year was $282.5 million, down from $309.6 million in 2023, indicating improved debt management[45] Asset Growth - Total assets increased to $6,213,601 thousand as of December 31, 2024, compared to $5,759,402 thousand in 2023, reflecting a growth of approximately 7.9%[43] - Current assets rose to $2,485,134 thousand in 2024, up from $2,135,770 thousand in 2023, marking an increase of about 16.4%[43] - Cash balance increased significantly to $102,581 thousand in 2024 from $57,982 thousand in 2023, representing a growth of approximately 76.8%[43] - Stockholders' equity increased to $2,373,404 thousand in 2024, up from $1,146,712 thousand in 2023, reflecting a growth of about 106.5%[43] Future Guidance and Investments - Full Year 2025 revenue guidance is set between $5,800 million and $5,950 million, with expectations of continued double-digit growth in both Engine Services and Component Repair Services segments[26] - Major platform expansion investments for Full Year 2025 are projected at $90 million, supporting ongoing growth initiatives[26] - The company plans to continue monitoring market conditions and adjusting strategies accordingly to enhance growth and operational efficiency[32] - The company is focusing on business transformation costs related to the LEAP engine line and expanding CFM56 capabilities, indicating ongoing investment in new technologies[49] - The company plans to continue expanding its CFM56 capabilities into Dallas, Texas, as part of its ongoing product industrialization efforts[54] Non-GAAP Measures and Operational Performance - Adjusted EBITDA and Adjusted EBITDA Margin are key metrics for evaluating operational performance, although specific forward-looking figures are not provided[40] - The company emphasizes the importance of non-GAAP financial measures for understanding financial condition and operational results[36] - Management acknowledges the limitations of non-GAAP measures and advises against relying solely on them for evaluating business performance[38]

Group 1 - CCC has been awarded an IDIQ contract worth over $80 million from the U.S. Department of Defense for engine repair services by StandardAero, specifically for the 501-K34 Turbine Engines used by the U.S. Navy surface fleet [1] - StandardAero is recognized as a leading provider of Maintenance, Repair, and Overhaul (MRO) services, offering tailored solutions that extend the lifecycle of naval assets [2] - Over the past two decades, StandardAero has performed over $160 million in MRO services for the U.S. Air Force, Navy, and Army, including maintenance for Rolls-Royce T56 Series III engines and CFM56-7B engines [3] Group 2 - CCC serves as the U.S. DoD's designated contracting authority for purchases from Canada over $250,000, facilitating Canadian businesses like StandardAero to supply the U.S. DoD [4] - StandardAero's reputation for quality service is highlighted by its commitment to excellence and its ability to meet customer expectations [5] - CCC has facilitated billions in trade between Canadian businesses and governments globally, emphasizing its role in government-to-government contracting [6]

IPO and Financing - The company completed its IPO on October 2, 2024, at a price of $24.00 per share, generating net proceeds of $1,202.8 million after deducting underwriting discounts and commissions of approximately $67.1 million and estimated offering expenses of $8.1 million[140]. - The company entered into a New Credit Agreement on October 31, 2024, providing for a senior secured dollar term loan B facility of $1,630.0 million and a senior secured multicurrency revolving credit facility of up to $750.0 million[143]. - The company has a senior secured dollar term loan B facility due August 24, 2028, with an original aggregate principal amount of $1,802.5 million, which was refinanced in August 2023[207]. - The company redeemed $200.0 million of the Senior Notes on March 29, 2024, reducing the outstanding principal amount from $675.5 million[216]. - The company incurred additional 2024 Term Loans of $200.0 million on September 6, 2024, partly used to pay down advances under the ABL Credit Facility[208]. - The company is in compliance with the covenants in the Senior Secured Credit Agreements as of September 30, 2024[223]. Revenue and Performance - Revenue increased by $145.2 million, or 13%, to $1,244.6 million for the three months ended September 30, 2024, compared to $1,099.4 million for the same period in 2023[172]. - Revenue from the commercial aerospace end market rose by $116.7 million, or 19%, to $720.6 million, driven by increased demand for engine and component maintenance[172]. - Revenue from the business aviation end market increased by $32.5 million, or 15%, to $253.3 million, attributed to higher demand on serviced platforms[172]. - Revenue for the nine months ended September 30, 2024, increased by 12% to $3,827.5 million compared to $3,405.5 million for the same period in 2023[181]. - Engine Services segment revenue increased by 12% to $3,399.1 million, with a 22% increase in commercial aerospace revenue driven by higher engine maintenance demand[196]. - Component Repair Services segment revenue rose by 12% to $428.4 million, with a 20% increase in commercial aerospace revenue attributed to higher component usage[198]. Costs and Expenses - Cost of revenue increased by $110.4 million, or 12%, to $1,058.4 million, primarily due to growth in volumes leading to higher material and labor expenses[173]. - Cost of revenue rose by 12% to $3,275.3 million, driven by increased material and labor expenses due to higher volumes[182]. - Selling, general and administrative (SG&A) expenses rose to $62.9 million, a 19% increase from $53.0 million, largely due to increased personnel and professional fees related to the IPO and acquisition[174]. - Selling, general and administrative (SG&A) expenses increased by 16% to $171.7 million, primarily due to higher personnel and professional fees related to growth investments and acquisitions[183]. Profitability - Adjusted EBITDA for the three months ended September 30, 2024, was $168.4 million, compared to $133.6 million for the same period in 2023, reflecting a margin increase to 13.5%[172]. - Net income for the three months ended September 30, 2024, was $16.4 million, a significant improvement from a net loss of $17.9 million in the same period of 2023[172]. - Operating income for the nine months ended September 30, 2024, increased by 20% to $308.6 million compared to $257.5 million in 2023[181]. - Net income for the nine months ended September 30, 2024, was $25.0 million, a significant recovery from a net loss of $30.5 million in the same period of 2023[181]. Debt and Liquidity - The company had $560.2 million of available liquidity as of September 30, 2024, including $51.3 million in cash and $358.9 million available under the ABL Credit Facility[201]. - Total debt outstanding as of September 30, 2024, was $3,072.3 million, including $2,947.8 million under the 2024 Term Loan Facilities[202]. - As of September 30, 2024, the company's long-term debt stood at $3,391.4 million, an increase of 6.9% from $3,172.1 million as of December 31, 2023[203]. - The total debt agreements as of September 30, 2024, amounted to $3,469.3 million, compared to $3,259.3 million at the end of 2023, reflecting a year-over-year increase of 6.4%[203]. Market Trends and Projections - Global commercial air traffic has grown at a rate of 5.6% per annum over the last 40 years, expected to continue driving the number of aircraft in service to increase by a 3.5% CAGR from 2023 to 2042[146]. - The military aviation aftermarket is projected to grow by approximately 2-3% in 2024, with the U.S. accounting for approximately 40% of global military spend[149]. - The LEAP engine platform is expected to represent over 35% of the global fleet by 2033, driving demand for engine aftermarket services as these engines enter maintenance cycles[148]. - The company expects continued growth in revenue driven by demand in commercial aerospace and business aviation markets, despite challenges in military and helicopter segments[180]. Cash Flow - For the nine months ended September 30, 2024, net cash used in operating activities was $32.0 million, a significant improvement compared to $95.9 million for the same period in 2023[224][225]. - The net cash used in investing activities for the nine months ended September 30, 2024 was $184.1 million, primarily due to the acquisition of ATI for $114.1 million and capital expenditures of $70.4 million[227]. - Net cash provided by financing activities for the nine months ended September 30, 2024 was $209.1 million, mainly from the issuance of long-term debt totaling $765.0 million[228]. Foreign Currency and Interest Rate Risks - For the three months ended September 30, 2024, approximately $41.2 million, or 3.3%, of revenue was attributable to non-U.S. Dollar currencies, compared to $34.6 million, or 3.1%, for the same period in 2023[243]. - For the nine months ended September 30, 2024, revenue from non-U.S. Dollar currencies was $120.7 million, or 3.2%, compared to $112.5 million, or 3.3%, for the same period in 2023[243]. - The company reported a $0.8 million loss due to foreign currency transactions for the three months ended September 30, 2024, compared to a $0.4 million gain for the same period in 2023[243]. - Each 0.125% change in interest rates would result in a $3.7 million change in annual interest expense on term loan borrowings[234]. - The company entered into interest rate swap contracts to manage interest rate risk, with a notional amount decreasing from $1,000.0 million to $500.0 million[241]. - An interest rate cap contract was established to limit exposure to rising interest rates, with a capped SOFR rate of 4.45% on a notional amount of $500.0 million[241]. Inflation and Cost Management - Inflation risks are impacting costs related to labor, equipment, and raw materials, with the company striving to offset these through price increases and operational improvements[242]. - Inflation affects costs of labor, equipment, raw materials, freight, and utilities, with the company striving to offset these through price increases and cost-saving initiatives[242].

Revenue Performance - Revenue for Q3 2024 increased 13.2% year-over-year to $1,244.6 million, driven by strong performance in commercial aerospace and business aviation markets[2] - Year-to-date revenue for the nine months ended September 30, 2024, was $3,827.5 million, a 12.4% increase compared to the prior year[11] - Revenue for the three months ended September 30, 2024, was $1,244,627, an increase of 13.2% compared to $1,099,441 for the same period in 2023[29] - Revenue from external customers in Engine Services for the three months ended September 30, 2024, was $1,109,804 thousand, compared to $976,896 thousand in the same period of 2023, indicating a growth of approximately 13.5%[34] - Total segment revenue for the nine months ended September 30, 2024, reached $3,827,548 thousand, compared to $3,827,548 thousand in the same period of 2023[33] Net Income and Profitability - Net income for Q3 2024 was $16.4 million, with a net income margin of 1.3%, an increase of 3.0 percentage points from the prior year[5] - Net income for the three months ended September 30, 2024, was $16,436, compared to a net loss of $17,933 for the same period in 2023[29] - Net income for the nine months ended September 30, 2024, was $25,027 thousand, a significant improvement from a net loss of $30,502 thousand in the same period of 2023[30] - The company reported a net loss of $30.5 million for the nine months ended September 30, 2023, compared to a net income of $25.0 million for the same period in 2024[37] Adjusted EBITDA - Adjusted EBITDA rose 26.0% year-over-year to $168.4 million, with an adjusted EBITDA margin of 13.5%, up 137 basis points compared to the previous year[6] - Adjusted EBITDA is defined as net income before interest, taxes, depreciation, and amortization, adjusted for non-cash and non-recurring items, providing a clearer view of operational performance[26] - Segment Adjusted EBITDA for the nine months ended September 30, 2024, was $562,164 thousand, reflecting a strong operational performance[33] - Adjusted EBITDA margin for the nine months ended September 30, 2023, was 12.5%, an increase from 12.2% in the previous year[37] Capital Expenditures and Investments - Capital expenditures for Q3 2024 were $25.3 million, reflecting continued investment in growth initiatives, including the LEAP-1A/-1B program[6] - The company incurred capital expenditures of $(70,422) thousand for the nine months ended September 30, 2024, compared to $(35,367) thousand in the same period of 2023, reflecting increased investment in growth initiatives[30] Assets and Liabilities - Total assets increased to $6,059,146 as of September 30, 2024, compared to $5,759,402 as of December 31, 2023, reflecting a growth of 5.2%[27] - Total liabilities rose to $4,895,284 as of September 30, 2024, up from $4,612,690 as of December 31, 2023, indicating an increase of 6.1%[27] - Cash decreased to $51,265 as of September 30, 2024, from $57,982 as of December 31, 2023, a decline of 11.8%[27] - Accounts receivable increased to $621,298 as of September 30, 2024, compared to $518,334 as of December 31, 2023, representing a growth of 19.9%[27] Corporate Actions and Strategic Initiatives - The company completed a $1.7 billion IPO, generating net proceeds of approximately $1.2 billion, which were used to pay down debt[3] - The acquisition of Aero Turbine Inc. was completed for a total purchase price of up to $141.0 million, expected to contribute $25 million of adjusted EBITDA in 2025[14][15] - The company expects annual interest savings of over $130 million following the refinancing of its capital structure post-IPO[17] - The company is focusing on the business transformation of the LEAP 1A/1B engine line and expanding CFM56 capabilities, indicating a strategic push towards innovation and market expansion[32] - The company is expanding its CFM56 capabilities into Dallas, Texas, as part of its new product industrialization efforts[35] Expenses - Selling, general, and administrative expenses increased to $62,895 for the three months ended September 30, 2024, compared to $53,020 for the same period in 2023, an increase of 18.5%[29] - Corporate costs, including executive and staff functions, amounted to $57,797 thousand, impacting overall profitability[33] - The company incurred business transformation costs of $5.4 million related to the LEAP and CFM projects during the nine months ended September 30, 2023[36] - Integration costs and severance for the nine months ended September 30, 2023, totaled $2.6 million[37] - Interest expense for the nine months ended September 30, 2023, was $230.5 million, reflecting ongoing debt obligations[36]