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StandardAero, Inc. (SARO)·Q3 2024 Earnings Summary

Executive Summary

  • Q3 revenue grew 13.2% to $1.2446B with Adjusted EBITDA up 26% to $168.4M and margin expanding 137 bps to 13.5% YoY; GAAP net income was $16.4M (1.3% margin), aided by favorable mix, pricing and operating leverage .
  • Commercial aerospace (+19% revenue YoY) and business aviation (+15%) drove results; military/helicopter declined 3% due to the earlier V‑22 Osprey grounding, which has since returned to service .
  • Post-quarter, SARO completed an IPO and comprehensive refinancing, using ~$1.2B of net proceeds to de‑lever and reset rates; management expects >$130M annual interest savings versus pre‑IPO levels—an important earnings/cash flow catalyst into 2025 .
  • Management guided qualitatively to sequential improvement in Q4 revenue, Adjusted EBITDA, and operating cash flow; formal 2025 guidance will begin with Q4 reporting .

What Went Well and What Went Wrong

What Went Well

  • Broad-based growth with strong end-market performance in commercial aerospace (+19% YoY) and business aviation (+15%), reflecting robust MRO demand and platform strength .
  • Margin expansion from mix and execution: lighter material content work scopes and price/productivity actions lifted Adjusted EBITDA +26% and margin +137 bps YoY; Engine Services margin +83 bps YoY .
  • Strategic progress and awards: LEAP industrialization milestones (first test cell correlations, first inductions), Dallas CFM56 Center of Excellence opening, and key US Navy wins (5‑year $1.2B IDIQ for P‑8 CFM56; T56‑427A on E‑2D) underpinning future volume .
  • CEO tone/quote: “Our quarterly performance reflects strong growth from higher volumes and solid execution… particularly within the commercial aerospace and business aviation markets…” .

What Went Wrong

  • Military/helicopter end-market decline (‑3% YoY) tied to temporary grounding of V‑22; management expects normalization as flight hours recover in 2025 .
  • Operating cash flow timing headwinds in Q3 due to one‑time IPO/debt/ATI costs ($25M), LEAP/CFM start‑up ($10.5M), working capital unwind from Q2 timing, and shipment delays (Hurricane Helene) .
  • Interest expense remained heavy in Q3 ($79.9M) reflecting pre‑IPO capital structure; the refinancing impact (rate cuts, deleveraging) comes post-quarter .

Financial Results

Consolidated P&L and Cash Metrics (YoY)

MetricQ3 2023Q3 2024YoY Change
Revenue ($USD Millions)$1,099.4 $1,244.6 +13.2%
Operating Income ($M)$74.8 $98.0 +31%
Net Income ($M)$(17.9) $16.4 +$34.3
Net Income Margin (%)(1.6)% 1.3% +3.0 ppts
Adjusted EBITDA ($M)$133.6 $168.4 +26.0%
Adjusted EBITDA Margin (%)12.2% 13.5% +1.37 ppts
CapEx ($M)$13.9 $25.3 +$11.4

Notes: Q3’24 Adjusted EBITDA uplift driven by revenue growth, favorable mix (lower pass‑through materials), pricing and cost initiatives . CapEx supports LEAP and CFM56 expansion .

Segment Performance (YoY)

SegmentQ3 2023 Revenue ($M)Q3 2024 Revenue ($M)Q3 2023 Seg Adj EBITDA ($M)Q3 2024 Seg Adj EBITDA ($M)Q3 2023 Margin (%)Q3 2024 Margin (%)
Engine Services$965.5 $1,090.3 $122.5 $147.4 12.7% 13.5%
Component Repair Services$133.9 $154.3 $33.7 $40.8 25.1% 26.4%

Revenue by End-Market (YoY)

End-MarketQ3 2023 ($M)Q3 2024 ($M)YoY
Commercial Aerospace$604.0 $720.6 +19%
Military & Helicopter$231.7 $225.6 -3%
Business Aviation$220.8 $253.3 +15%
Other$43.0 $45.1 +5%
Total$1,099.4 $1,244.6 +13%

Additional KPIs (Q3 2024)

  • Adjusted EBITDA uplift drivers: “favorable engine shop visit and work scope mix, price escalations, productivity improvements” .
  • Working capital efficiency: Net working capital as % of revenue declined 160 bps YoY (management commentary) .
  • In‑sourcing: Intersegment CRS sales up ~70% YoY, supporting enterprise margins via internalization of repairs .
  • Post‑quarter capital structure: new term loan at SOFR+2.25% and $750M revolver at SOFR+2.00%; expected >$130M annual interest savings vs pre‑IPO .

Prior Two Quarters’ Earnings

  • Q1 & Q2 2024 standalone public earnings materials were not available (company’s first public earnings call occurred post‑IPO in Q3); trend analysis provided via YoY/Q3 and YTD disclosures in the 10‑Q .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
RevenueQ4 2024NA (no prior formal guidance) Sequential improvement vs Q3 Qualitative improve
Adjusted EBITDAQ4 2024NA Sequential improvement vs Q3 Qualitative improve
Operating Cash FlowQ4 2024NA Sequential improvement vs Q3 Qualitative improve
2025 OutlookFY 2025NAWill initiate annual guidance with Q4 results New process

Earnings Call Themes & Trends

TopicPrevious Mentions (Q‑2, Q‑1)Current Period (Q3 2024)Trend
LEAP program ramp/industrializationNo public calls in Q1/Q2 2024; first public call this quarter First test cell correlations completed; first engine inducted in July; pipeline stronger than expected Up
CFM56 Center of Excellence (Dallas)N/A Grand opening; capacity underpinning growth and in-sourcing Up
Supply chain and pass‑through materialsN/A Constraints improving; detours via USM and repair development; lighter work scopes improved margins Improving
Military/V‑22 OspreyN/A V‑22 back to full operation; expect progressive volume recovery into 2025; F110 contract resolution Recovering
Capital structure/deleveragingN/A IPO and refinancing reduce leverage/cost; >$130M interest savings expected Positive
In‑sourcing (CRS→ES)N/A Intersegment CRS sales +~70% YoY; enterprise margin accretion Up

Management Commentary

  • Strategic positioning: “We believe StandardAero is the world’s largest independent pure‑play provider of aerospace engine aftermarket services… with #1 or #2 positions… representing ~80% of Engine Services revenues in 2023.” .
  • LEAP/CFM56 milestones: “San Antonio… completed correlation of its first test cell for both the LEAP‑1A and 1B… opened [the] CFM56 Center of Excellence [in Dallas].” .
  • M&A execution: “We expect ATI to contribute $25 million of EBITDA in 2025… acquired at an attractive valuation with synergy opportunities.” .
  • Post‑quarter financing: “We expect to save over $130 million of annual interest expense versus pre‑IPO levels.” .

Q&A Highlights

  • LEAP/CFM capacity and OEM network: Management views OEM investments in LEAP MRO network as supportive of long‑term maintenance demand; LEAP pipeline “very healthy” .
  • Cash flow cadence: Q4 operating/free cash flow expected to improve sequentially as one‑time IPO/debt/ATI costs abate; interest expense run‑rate materially lower post‑refinance .
  • Mix effects: Lighter work scopes with lower pass‑through material content boosted margins in Q3; not necessarily a structural trend but indicative of quarterly mix .
  • In‑sourcing momentum: CRS intersegment sales up ~70% YoY; accelerates enterprise margin via internal repair capabilities .
  • Military outlook: V‑22 back in service; expect progressive unwind of deferred work into 2025; F110 contract resolved, driving higher volumes .

Estimates Context

  • We attempted to retrieve S&P Global (Capital IQ) consensus for Q3 2024 and adjacent periods, but the service returned a daily request limit error. As a result, consensus estimates were unavailable at the time of analysis. Values would normally be sourced from S&P Global; due to unavailability, we cannot provide beat/miss analysis versus Wall Street for this quarter (Values retrieved from S&P Global).

Key Takeaways for Investors

  • Durable growth and mix tailwinds: Double‑digit revenue growth with margin expansion driven by lighter material content work scopes, pricing and productivity—supportive for continued EBITDA compounding .
  • Deleveraging as a core catalyst: IPO and refinancing reduce leverage and borrowing costs; management expects >$130M annual interest savings, lifting earnings and cash conversion into 2025 .
  • LEAP/CFM56 structural runway: Industrialization milestones and capacity build position SARO to capture a multi‑year aftermarket super‑cycle on LEAP and sustained CFM56 demand .
  • In‑sourcing drives margins: CRS growth and internalization of repairs should continue to accrete enterprise margins and resilience .
  • Military normalization: V‑22 grounding impact fades; additional program wins (e.g., P‑8 CFM56, T56/E‑2D, F110) support medium‑term stability and growth .
  • Cash flow set to improve: One‑time IPO/M&A/start‑up costs and Q3 timing headwinds should abate; management anticipates sequential improvement in Q4 revenue, EBITDA, and operating cash flow .

Citations:

  • Q3 2024 8‑K including Exhibit 99.1 press release and financials:
  • Q3 2024 10‑Q (financial statements, end‑market breakout, MD&A):
  • Q3 2024 earnings call transcript: