Loar Q1 2024 Earnings Call Transcript

Quartr
Provided by Quartr
May 14, 2024

There are 5 speakers on the call.

Operator

Please note this conference is being recorded. I will now turn the conference over to Ian McKillop, Director of Investor Relations. Thank you. You may begin.

Speaker 1

Thank you. Welcome to Loar's 2024 First Quarter Earnings Conference Call. Presenting on the call this morning are Loar's Founder, Chief Executive Officer and Executive Co Chairman, Dirksen Charles Executive Co Chairman, Brett Milgram Treasurer and Chief Financial Officer, Glenn D'Alessandro and myself. Please visit our website at lorgroupdot com to obtain a supplemental slide deck and call replay information. Before we begin, the company would like to remind you that statements made during this call, which are not historical in fact, are forward looking statements.

Speaker 1

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 the company's latest filings with the SEC available through the Investor Relations section of our website or atsec.gov. The company would also like to 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. Please also note, given that we have been a public company for 2 weeks, our analysts are in a quiet period and we will not be taking questions after today's call. I'll now turn the call over to Derksen.

Speaker 2

Thanks, Ian. I'm going to start on Slide number 4. And let me make one brief remark here. As Ian mentioned, on today's call, we'll do something a little bit different than we'll be doing in the future, which is we're not going to take questions at the end, because the analysts are really still in their quiet period. But just wanted people to know that, but we'll do our best here to walk you through our story, our portfolio, etcetera.

Speaker 2

So you can follow along with what we've been up to. So good morning, especially to our new partners, analysts and those of you hearing our story for the first time. As Ian mentioned, I'm Dirk St. Charles. I'm the Founder, CEO and Co Chairman of Law.

Speaker 2

Law is a family of companies with a very simple approach to creating shareholder value. First, we believe that providing our business units an entrepreneurial and collaborative environment to advance their brands, we will generate above market growth rates. Since our inception in 2012, we have grown sales and adjusted EBITDA at a compound annual growth rate of 38% and 46%, respectively. We collaborate across business units by sharing best practices and ideas while assisting each other when it comes to execution. We execute along 4 value streams.

Speaker 2

We identify 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 1 to 3 percentage points of top line growth annually. We focus on optimizing our productivity, which in simple terms is the ratio of output to input. Each year, we'll identify initiatives that will allow us to continually improve with a focus on 1 or 2 major initiatives each year that will improve the ratio. In other words, think margin improvement and enhancing our competitive advantage. We also each year across our portfolio of companies will achieve more price than inflation, again, margin improvement.

Speaker 2

Executing on these three simple value drivers along with the secular growth rate of the aerospace and defense industry, we believe allows us to organically achieve 10% growth in sales and 15% growth in adjusted EBITDA over the long term. 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. That's why I'm proud to call them my mates. So our most important value driver is making sure we have the talent within our 4 walls and under our roof to support our customers and to continue to achieve above market growth. I will now turn the call over to Brett to walk you through our portfolio.

Speaker 3

Thanks, Derksen. Good morning, everybody. This chart on Page 5 represents the way we have constructed Loar today. It will probably look familiar to a lot of you, certainly those of you who we met on the road show or even those of you who read the S1. So I don't want to belabor all the points and charts in here, but there are 2 things I do want to highlight.

Speaker 3

1st and foremost, I want to highlight our extremely, extremely disciplined approach to how we construct the business and the business model. 1st and foremost, we are an aerospace and defense focused company. Maybe most importantly, we like business is where there's true proprietary content, where we own the intellectual property, the product is specked in and or we have leading market positions in those categories, which we participate. And those categories are typically niche markets across the aircraft where there are true barriers to entry, particularly at the price points of the products that we sell, which Ian is going to talk about in a minute. Those barriers to entry are created in large part due to the fact that certification costs and recertifying or requalifying a product typically is diseconomic not only for the customer, but also for competitors who want to enter into our market space.

Speaker 3

Lastly, in every business that we acquire, we need to have businesses that have a balance between the OE and the aftermarket. If a business that we acquire doesn't currently sell into the aftermarket, it's something which we at a minimum need to see a path that we can enter, so that we can capture the annuity of the 50 year life of that aircraft and the cash flows that, that product provides. The other thing I want to highlight is the diversity and broad scope of our platform, whether it's the end markets, which you see here, or the aircraft platforms that we're on, because we're on virtually any platform that you can think of, or all the customers we serve, which we have no significant concentration with. We want to have a broad and diverse platform, not only because we want the opportunity to capture that 50 year annuity, but we also don't want to be exposed with any meaningful concentration to changing macroeconomic conditions that may affect any end market or platform or any one customer. I think everybody saw how we performed during COVID and that was a testament to our diversity.

Speaker 3

And if we are diverse across all spectrums of the sector, then we can continue to generate

Speaker 1

Thank you, Brett. As Brett mentioned, diversity was a common focus in building lore. Diversity across end markets, platforms and notably for those viewing the presentation are products. Across the 16 brands of LORE, we go to market with over 15,000 unique and proprietary parts with no one part making up more than 3% of our overall annual net sales. And our parts have an average selling price of less than $1,000 Our products are found across the aircraft embedded in engines as part of the avionics within hydraulic systems as de icing systems, restraint and safety systems, galleys, landing gear, actuation and included in many other systems and subsystems that we will not be able to cover on today's call.

Speaker 1

The proprietary nature of our products makes the mission critical for our end customer and ties us to the overall life of the aircraft. As many of you know the life of an aircraft can exceed 50 years over multiple operators. The design and spec in nature of our products allows us to serve not only the original aircraft manufacturer, but also the aftermarket through the many operators the aircraft sees over its lifetime. We believe that the diversity and proprietary nature of our product offering provides us the opportunity and more importantly the capabilities to serve our customers in a way that is unique to LoRa. Now I'll hand the call over to Glenn.

Speaker 4

Thank you, Ian. Good morning, everyone. Let me start by discussing sales by our end markets. This comparison will be on a pro form basis as if each of our businesses were owned as of the 1st day of the earliest period presented. We had record sales during the Q1 of 2024.

Speaker 4

In total, our sales increased to $92,000,000 a 12.3% increase as compared to the prior year period. This increase was driven by strong performances in commercial OEM, commercial aftermarket and defense sales. Our total commercial OEM sales increased by 29% in Q1 2024 as compared to the prior year. This increase was driven primarily by higher sales across a significant portion of the platforms we supply, including general aviation, wide body and narrow body aircraft. As an improvement supply chain has allowed us to deliver parts that were previously held because our customers were experiencing bottlenecks in other areas of their supply chain.

Speaker 4

The increase in total commercial aftermarket sales of 5% was primarily due to the continuing recovery in commercial air travel demand, partially offset by destocking at a handful of our distributors and Our Q1 'twenty four commercial aircraft bookings were strong and our commercial aftermarket year over year backlog is up 25% at March of 'twenty four versus 'twenty three. The strong bookings and backlog support our full year 'twenty four outlook for commercial aftermarket sales growth of low double digits. The increase of 8% in our defense sales was primarily due to strong aftermarket demand across multiple platforms and an increase in the market share as a result of our new product launches. So let me recap our financial highlights for the Q1 of 2024. These are actuals.

Speaker 4

So our net organic sales increased 11.1% over the prior period. Our gross profit margin for Q1 2024 was flat with the prior year period. This was due to sales mix with slightly lower margin OEM sales as well as charges related to the moving of 1 of our manufacturing facilities. These items were offset by pricing and operating leverage. Our increase in net income of $9,800,000 in Q1 versus Q1 'twenty four versus Q1 'twenty three is primarily due to higher operating income as well as from the establishment of a valuation allowance during Q1 2023 against the company's deferred tax asset related to our disallowed interest carry forward.

Speaker 4

Adjusted EBITDA margins remained strong at 30 6% despite the temporary dilution from 2 acquisitions completed in the second half of twenty twenty three and the continued build out of our infrastructure to support our reporting, governance and control needs as a newly public company. We expect to increase the EBITDA margins of our 2 newly acquired businesses as we continue to integrate them into law. So what have we been up to since March 31? Well, we closed the IPO on April 29, which raised $333,000,000 with the exercise of the green chute. We used $285,000,000 of those proceeds to pay down borrowings.

Speaker 4

With both of these transactions, our pro form a net leverage to our trailing 12 months of EBITDA through March 24 was 1.6 times. We also amended and restated our credit agreement on May 10, 24. This was done with no incremental fees. With this amendment, we extended the maturity of the term loans through May of 2030. Our interest rate was reduced by 2 50 basis points as long as we maintain a leverage ratio of less than 5.5:one.

Speaker 4

With the pay down of the $285,000,000 of indebtedness and the reduction of the interest rate, our pro form a annual interest expense would be $26,000,000 We also increased our liquidity to support reinvestment and inorganic growth by increasing the unused commitment under our delayed short term loan to $100,000,000 and establishing a new $50,000,000 revolving credit facility.

Speaker 2

With that said, if you guys remember, the S we gave a flash range of our expectation of the Q1 results. The quarter came in at record sales and adjusted EBITDA right on top of the high end of our range. This is a strong start to the year. This is why we feel very, very strongly and we have high confidence in achieving the outlook we put in front of you here. That plus the strength in available seat miles, which domestically are above 2019 levels and globally as projected by ADA to be above 2019 levels in 2024.

Speaker 2

So strong, strong tailwinds. In addition, as Glenn mentioned, and I want to make sure everyone gets this, that we have seen a 25% increase in our commercial aftermarket backlog at quarter end year over year. It's the strongest backlog we have seen in our history. And this strong backlog for our products and services also we've seen it in our defense end market. Add all that up combined with our continued execution of our value drivers gives us a high degree of confidence that we will achieve organically double digit percentage improvement in sales across all our end markets in 2024 on a pro form a basis.

Speaker 2

So what do we expect? Sales between $370,000,000 to 374,000,000 dollars for calendar year 2024, adjusted EBITDA between $132,000,000 $134,000,000 for the calendar year, Adjusted EBITDA margin of approximately 36%. And as we said, we continue to improve results of DAC and CAF, recent acquisitions, and we are developing our infrastructure to meet our public company needs. That's all baked into that 36%. We expect net income between $25,700,000 $27,100,000 and adjusted EPS we expect capital expenditures to be approximately $11,000,000 full year interest expense of approximately $42,000,000 with effective tax rate of around 30%, B and A approximately $40,000,000 non cash stock based comp of $9,000,000 and our fully diluted share count will be approximately $91,000,000 shares sorry.

Speaker 2

Most importantly, if we do not acquire business this year, we will have approximately $100,000,000 of cash on hand at the end of 2024. With that said, our drumbeat since our formation is to acquire 1 or 2 businesses each year, which is not included in our outlook for 2024 that you see here. As you guys know, the timing of such acquisitions, we cannot predict, but we are focused on that value driver also. So with that, as Ian stated at the beginning of the call, given that we've been a public company for only a little over 2 weeks, our analysts are in their version of a quiet period and cannot ask questions. So we will not take questions today, but look forward to the future quarterly calls when they can dig in.

Speaker 2

With that, thank you for joining LoRa's first quarterly earnings call and hope to see you guys in 13 weeks. Thank you.

Operator

Thank you. This will conclude today's conference. You may disconnect your lines at this time and thank you for your participation.

Powered by Quartr
Earnings Conference Call
Loar Q1 2024
00:00 / 00:00