StandardAero, Inc. 2026 Q2 Earnings Call

Please proceed. Thank you. Good afternoon, everyone.

Welcome to StandardAero's second quarter 2026 earnings call. I am joined today by Russell Ford, our Chairman and Chief Executive Officer, Dan Satterfield, our Chief Financial Officer, and Alex Trapp, our Chief Strategy Officer. Alongside today's call, you can find our earnings release as well as the accompanying presentation on our website at irstandardaero.com. An audio replay of this call will also be made available, which you can access on our website or by phone. The phone number for the audio replay is included in the press release announcing this call. Before we begin, as always, I would like to remind everyone that today's earnings release and statements made during this call include forward-looking statements under Federal Securities laws. These statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections.

Such risks and uncertainties include the factors set forth in the earnings release and in our filings with the Securities and Exchange Commission, including in the Risk Factors section of our annual report on Form 10-K for the year ended December 31st, 2025. We assume no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by law. During today's call, we will discuss certain non-GAAP financial measures such as adjusted EBITDA, adjusted EBITDA margin, adjusted net income, adjusted EPS, free cash flow, adjusted free cash flow, and net debt to adjusted EBITDA leverage ratio. A definition and reconciliation of these measures to the most directly comparable GAAP measures can be found in our earnings release and in the appendix to the earnings slide presentation on our website at irstandardaero.com.

Non-GAAP financial measures should be considered in addition to and not as a substitute for GAAP measures. With that out of the way, I would now like to turn the call over to Russ.

Thank you, Rama, and thank you to everyone for joining our call today. I'll begin on slide three of our earnings presentation. StandardAero delivered a strong second quarter marked by double-digit earnings growth, record margins, significant progress on our strategic priorities, and continued strength in customer demand. Revenue was up 4.6% year-over-year. Adjusted EBITDA grew 12.3% year-over-year to $230 million. Adjusted EBITDA margin expanded 100 basis points to a record level of 14.4%, and free cash flow was an inflow of $50 million in the quarter. These results mark the earnings and margin inflection we outlined last quarter and demonstrate the operating leverage embedded in our business. Three things drove the quarter. First, continued strong demand, productivity improvements, and pricing across our commercial aerospace and business aviation platforms. Second, learning curve progress on our LEAP and CFM56 DFW programs, which reached profitability in the quarter.

Third, the margin uplift from the previously announced elimination of low to no margin material pass-through revenue on the contracts we restructured last year. Partially offsetting those was mix from delays on certain military platforms. Let's move now to each of our end markets. Commercial aerospace revenue grew 6% year-over-year. Excluding the impact of the elimination of pass-through revenue, commercial aerospace growth would've been mid-teens year-over-year growth. Demand remains at historically strong levels across the platforms we support, and we have not experienced any reduction in demand from higher jet fuel prices. MRO capacity across the industry remains tight, and our commercial backlog continued to grow in the quarter. Business aviation revenue increased 6% year-over-year, supported by continued strong activity on our key midsize and super midsize platforms.

Global business jet flight activity was up, and fleet utilization continues to translate into engine MRO demand at our facilities. The growth in the commercial and business aviation end markets was partially offset by military and helicopter, where revenue declined 3% due to input delays on select military platforms. That said, we remain confident in the long-term military demand outlook. Operating tempo and flight hours are up. Defense budgets in the U.S. and across our NATO customers continue to grow, and MRO capacity remains constrained. We are seeing that in our order book. Helicopter volumes are running well ahead of last year, and our volumes on fighter and transport platforms are ramping into the second half.

We remain confident in our full-year military growth outlook, as Dan will cover, our full-year guidance continues to expect military and helicopter growth in the low double digits with growth weighted to the back half of the year. Before getting into the strategic updates, I want to provide a brief word on the broader environment. Jet fuel prices remain elevated, and the geopolitical backdrop remains complex. To date, we have not seen a reduction in demand as a result. We track shop visit bookings, inductions, part orders, and asset trading activity closely, and all of them remain consistent with the strength we entered the year. We think that there are structural reasons for this. The MRO market remains constrained, aircraft retirements remain very low, and our customers are reluctant to give up induction slots that are difficult to get back.

We're positioned on the most fuel-efficient engine platforms. Nearly 40% of our business sits in end markets that are not sensitive to jet fuel prices. We will continue to monitor the environment closely, and we remain confident in the resilience of our portfolio and our position in Engine MRO. Turning to slide four and our strategic priorities. Our priorities remain unchanged, and we made meaningful progress across each of them in the quarter. Starting with LEAP, we achieved profitability in the second quarter while continuing to ramp the program and win new awards. This is an important milestone. It is evidence we're moving down the learning curve, improving throughput, expanding repair capabilities, and scaling the program as promised. We continue to expect LEAP to reach $1 billion in annual revenue by the end of the decade, and several billion in annual revenue by the middle of the next decade.

We also added new customers in the quarter. Our shop visit slots continue to fill out into the next decade. On CFM56 and CF34, demand on both platforms remains strong. Our CFM56 Center of Excellence in Dallas-Fort Worth reached profitability in the quarter, also as promised. We continue to add new customers and are growing its backlog. On CF34, our Winnipeg expansion remains on track for completion in the third quarter of this year. This additional capacity is effectively sold out and further solidifies our leadership in the CF34 market. We expect the expansion to begin to scale throughout 2027. While on the topic of growth, we have an exciting update for you. We recently signed a significant $180 million license expansion with one of our key OEM partners, spanning multiple turbofan and turboprop platforms.

This agreement broadens our authorizations, adds new engine variants at several of our locations, improves economics on existing work. Adds component repair authorizations that benefit both of our segments. In total, we expect it to ramp to approximately $25 million of incremental annual adjusted EBITDA over the next few years at margins that are accretive to the company average. This is exactly the type of investment we like, strategically aligned, high return, and concentrated on platforms where we already have deep technical capability and a leading position. Dan will take you through more details on the license expansion in a few minutes. In Component Repair Services, commercial aerospace, as well as land and marine volumes are both growing. We continue to industrialize new repairs across the portfolio. We are migrating work across our network to further expand throughput capacity and capture the strong demand environment.

Continuous improvement remains a core focus of how we operate. We remain dedicated to improving shop-level productivity, standardizing best practices, reducing variability. Ensuring our pricing reflects the value we deliver in a capacity-constrained aftermarket environment. On capital deployment, we were active again during the quarter. In addition to the expanded license agreement, we also completed the acquisition of the Unified Turbines component repair business, which we announced in May. Unified is a targeted strategic addition to CRS as it enhances our hot section repair capabilities on engines we already support and advances our insourcing strategy across both segments. Importantly, the license expansion increases the strategic and financial benefits of the Unified Turbines acquisition. Integration is underway and progressing as planned. Finally, we continue to return capital to shareholders, repurchasing $40 million of shares in the second quarter, bringing our year-to-date repurchases to $100 million.

We view share repurchases as a valuable tool within our broader capital allocation framework, particularly when our shares trade meaningfully below our assessment of intrinsic value. Overall, we're pleased with the operational progress made in the first half of 2026 and excited by the investments we've made for future growth and shareholder value creation. We're executing on our priorities. Our growth platforms are progressing. Our balance sheet remains strong, and we continue to see robust demand environments across the markets we serve. As a result, we are raising our 2026 guidance for revenue, adjusted EBITDA, and adjusted EPS. With that, I'll turn the call over to Dan to walk through the financial results and our increased guidance in more detail.