Q3 2024 Earnings Summary
- LOAR projects a strong overall revenue growth of 14% year-over-year on a pro forma basis for 2025, driven by high single-digit growth (9-10%) in the commercial OEM and aftermarket segments, and very strong growth in the defense segment.
- LOAR is outperforming peers in the commercial aftermarket segment, with a 16% sequential increase in Q3, attributed to increased market share, new product introductions, and effective execution of value drivers, indicating strong competitive positioning and growth prospects.
- LOAR has a history of exceeding guidance and expresses high confidence in achieving or surpassing its 2025 guidance, supported by minimal exposure to OEM production challenges, strong pricing leverage, and a solid backlog in both commercial aftermarket and defense segments.
- Reliance on Defense Sector Growth: LOAR is projecting high double-digit growth in its defense segment for 2025, which is crucial for achieving its overall mid-teens organic growth target. However, defense sales are historically "lumpy" due to the nature of ordering patterns and geopolitical uncertainties. Any delays or reductions in defense spending could negatively impact LOAR's growth projections. ( , )
- Exposure to OEM Production Delays: LOAR's Commercial OEM segment is expected to grow at high single digits, but the company has acknowledged challenges due to strikes and supply chain issues at major OEM customers like Boeing and Textron. The CEO mentioned receiving notices to halt shipments, resulting in approximately $3 million of revenues being pushed out. Continued OEM production delays could pose a risk to LOAR's financial performance. ( , )
- Margin Pressure from Product Mix Shift: The guidance for Q4 2024 indicates a deceleration in adjusted EBITDA margins to 36%, down from year-to-date margins of approximately 36.3%. This is partly due to an increased proportion of defense sales, which have lower margins compared to the commercial segment. A sustained shift towards defense sales could exert pressure on LOAR's overall profitability. ( )
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue | +6.7% | Total revenue increased to $103.5M in Q3 2024 from $97.02M in Q2 2024 (a 6.7% rise), driven by robust net sales performance across multiple segments and strong organic growth initiatives that built upon previous quarter momentum. |
Commercial Aerospace | N/A (Segment Data Provided) | The Commercial Aerospace segment generated $44.9M in Q3 2024, split into $15.8M from OEM and $29.1M from aftermarket sales, reflecting consistency and resilience in this business unit from prior periods, as it continues to benefit from steady demand and post-pandemic recovery in supply chains. |
Business Jet & General Aviation | +10% | Business Jet & General Aviation net sales increased to $30.0M in Q3 2024, marking roughly a 10% improvement over Q2; this growth is likely due to recovering demand, enhanced OEM and aftermarket performance, and sustained investor confidence in the segment’s long‐term prospects. |
Defense | +5.5% | The Defense segment grew modestly by 5.5%, reaching $22.0M in Q3 2024 (with OEM at $10.2M and aftermarket at $11.8M), driven by stable geopolitical demand and incremental market share gains following the previous period’s strong performance. |
Net Income | +13% | Net Income surged by approximately 13% to $8.656M in Q3 2024 compared to $7.641M in Q2, reflecting improved operational efficiency, higher revenue levels, and cost reductions such as lower interest expense that built on improvements seen in prior quarters. |
Operating Income | +3% | Operating Income rose moderately by nearly 3% in Q3 2024 (to $22.848M from $22.2M in Q2), indicating that while increased net sales helped boost earnings, higher selling, general, and administrative expenses and cost-of-sales increases tempered the pace of profit expansion compared to previous performance. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Net Sales | FY 2025 | $374 million to $378 million | $470 million to $480 million | raised |
Adjusted EBITDA | FY 2025 | $134 million to $136 million | $176 million to $180 million | raised |
Adjusted EBITDA Margin | FY 2025 | 36% | Approximately 37.5% | raised |
Net Income | FY 2025 | $28.4 million to $29.6 million | $33 million to $37 million | raised |
Adjusted EPS | FY 2025 | $0.44 to $0.46 per share | $0.45 to $0.50 per share | raised |
Capital Expenditures | FY 2025 | Approximately $11 million | Approximately $14 million | raised |
Interest Expense | FY 2025 | Approximately $42 million | Approximately $60 million | raised |
Effective Tax Rate | FY 2025 | 30% | Approximately 30% | no change |
Depreciation and Amortization | FY 2025 | Approximately $40 million | Approximately $51 million | raised |
Noncash Stock-Based Compensation | FY 2025 | About $10 million | Approximately $15 million | raised |
Fully Diluted Share Count | FY 2025 | Approximately 91 million shares | 93 million shares | raised |
Operating Cash Flow Minus CapEx | FY 2025 | no prior guidance | Expected to be greater than 125% of net income | no prior guidance |
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2025 Guidance Risks
Q: What are the risks and opportunities around 2025 guidance?
A: CEO Dirkson Charles expressed strong confidence in their 2025 guidance, stating that unless there's a "black swan event," they feel "really, really good" about their numbers. He acknowledged challenges in the commercial OEM segment due to strikes at Boeing and Textron but noted the impact on them is small. They are "extremely comfortable" with the commercial aftermarket, expecting "high single digits" growth. In defense, they are starting the year with a "solid, solid backlog," with deliveries picking up more in the second half of 2025. -
2025 Free Cash Flow Conversion
Q: What drives the 125% free cash flow conversion in 2025?
A: CFO Glenn D'Alessandro explained they expect "no significant use in working capital for 2025". Inventory levels are leveling out, and receivables will increase due to higher sales. With stable interest and capital expenditures, they anticipate free cash flow conversion to be "above 125%" of net income. -
Commercial Aftermarket Growth
Q: What drove strong commercial aftermarket growth?
A: The CEO noted that commercial aftermarket was up 19% sequentially and 16% year-over-year on a pro forma basis. This robust growth is driven across all platforms by increased market share, new product introductions, and strong execution on value drivers. They feel the commercial aftermarket "really, really feels good" moving forward. -
2025 Growth Calculation
Q: How does the 2025 guidance reflect mid-teens organic growth?
A: The CEO confirmed that while the commercial OEM and aftermarket, which are 70% of the business, are expected to grow at "high single digits" around 9-10% , the military segment, about 15% of the business, is growing "really, really strong". Overall, they anticipate being "up 14% in total year-over-year on a pro forma basis". Non-aviation segments are down year-over-year, impacting the calculations. -
Q4 Margin Decline
Q: What causes the Q4 margin deceleration?
A: The CEO attributed the margin decline in Q4 to a shift in mix, with defense growing faster but having lower margins than commercial. Additionally, they experienced a small impact on the commercial OEM side due to strikes at Boeing and Textron, receiving "love letters" to stop shipments, causing approximately $3 million in revenues to shift to later periods. Some customers also requested to move shipments into January for balance sheet management, affecting Q4 margins.
Research analysts covering Loar Holdings.