Gregory Dahlberg

Greg Dahlberg, on behalf of Myles Walton, asked for a deeper insight into the repeat business aspect, questioning if the company is assuming a specific win rate for repeat customers in its long-term planning assumptions.

Answer

CEO Michael Colglazier responded that while it's too early for statistically significant predictions, the feedback from flown astronauts is overwhelmingly positive, with a consistent desire to fly again. He noted that a low-to-mid double-digit percentage of past flyers have already expressed interest in repeating the experience. Colglazier emphasized that the referral factor, driven by the powerful customer experience, is likely more meaningful for near-term customer acquisition than repeat business alone, as it provides an easier path into the total addressable market.

Gregory Dahlberg, on for Myles Walton, inquired about the M&A pipeline as a strategic priority, with a focus on the Component Repair Services (CRS) segment, and asked if valuations in that area have expanded.

Answer

Executive Alex Trapp confirmed strong interest in CRS acquisitions due to their accretive nature and successful integration history. He mentioned an active pipeline of opportunities but did not provide specifics on current market valuations, stating that M&A remains a key part of their value creation strategy.

Gregory Dahlberg of Wolfe Research asked for the company's view on using PMA (Parts Manufacturer Approval) parts and inquired about recent engine acquisition activity and the availability of engines for purchase.

Answer

Executive Austin Willis explained the company's cautious stance on PMA parts, citing customer preference for OEM parts and potential negative impacts on asset remarketability. Regarding acquisitions, Willis described a broad origination strategy that includes direct OEM orders, programmatic sale-leaseback deals like the one with Air India, and open-market purchases, which are enabled by the company's integrated business model.

Gregory Dahlberg questioned the Aerospace segment's Q2 margin performance, asking why it wasn't stronger given the favorable mix shift towards the higher-margin aftermarket. He also inquired about the company's path to achieving 100% or better cash conversion in 2025, considering the expected shortfall in the current year.

Answer

SVP, Finance and CFO Julie Streich explained that while the aftermarket sales mix was a benefit, it was offset by productivity challenges on the OEM side. These inefficiencies stemmed from demand fluctuations, including the costs of starting and stopping production lines and retaining labor to meet future customer needs. Regarding cash flow, she stated that the 2024 dip is directly tied to a temporary increase in working capital, specifically inventory from OEM disruptions, and affirmed there is no structural reason the company should not return to its normal cash conversion levels in the future.

Gregory Dahlberg inquired about the drivers behind the second-quarter Aerospace margins, which were lower than expected given the favorable mix, and asked about the path to 100% cash conversion in 2025.

Answer

SVP, Finance and CFO Julie Streich explained that while the aftermarket sales mix was a positive, overall Aerospace margins were weighed down by productivity challenges and inefficiencies on the OEM side due to fluctuating demand. Regarding cash flow, she stated the current dip is temporary, caused by an inventory build-up from OEM disruptions, and expects a return to normal cash conversion levels going forward.

Gregory Dahlberg of Wolfe Research, LLC asked for clarification on the moving parts within the updated 2024 Aerospace sales outlook, specifically regarding the expected performance of OE, aftermarket, and RSP sales.

Answer

CEO Thomas Hook stated that the outlook reflects an expectation for stronger growth in the aftermarket, driven by delays in new aircraft deliveries. He noted this mix shift is favorable for profitability. Hook emphasized that the combined company is now well-balanced across engine platforms and geographies, allowing it to absorb market shifts and capitalize on strong overall travel demand.