Loar Holdings Inc. 2026 Q2 Earnings Call

Thank you, Diego. Good morning, everyone, and welcome to the Loar Holdings Q2 2026 earnings conference call. Presenting on the call this morning are Loar's Chief Executive Officer and Executive Co-Chairman, Dirkson Charles, Executive Co-Chairman, Brett Milgrim, Treasurer and Chief Financial Officer, Glenn D'Alessandro, as well as myself, Ian McKillop, the Director of Investor Relations. Please visit our website at loargroup.com to obtain a slide deck and call replay information. Before we begin, we'd like to remind you that statements made during this call, which are not historical in fact, are forward-looking statements. 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 at sec.gov.

We'd also like to advise you that during 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. To begin today, I'll now turn the call over to Dirkson.

Thanks, Ian. Good morning to my mates and all our partners participating on this call. I am Dirkson, founder, CEO, and Executive Co-Chairman of Loar. As you all know, Loar's foundational mission and vision is to build an aerospace industrial cash compounder wrapped in a culture that all our mates can be proud of. First and foremost, to my mates, I extend a huge thank you. Loar's continued success in executing on our mission and vision is the direct result of the efforts of every individual contributor. What we have accomplished this quarter is beyond remarkable and a collective accomplishment. I will start with the obvious. Once again, we had a quarterly record for sales, adjusted EBITDA, and adjusted EBITDA margins. This quarter represents the 16th quarter in a row that we have sequentially achieved a new record for adjusted EBITDA.

What really makes this quarter noteworthy is we demonstrated the strength of the collaboration across business units and functions. Our intentional emphasis on collaboration, combined with the strategic discipline that we live by and ensuring our resources were focused on the correct opportunities, we converted approximately 25% of our new business pipeline into wins. While we expected greater visibility in our new business pipeline would result in favorable data and use of our resources, we did not anticipate the significant success achieved. In a few minutes, Ian will remind folks how we think about developing our new business pipeline and where we have found success to date. Let me just say, we do not achieve these results without a collaborative and focused culture. Let me pause here for a minute and answer the question that is on everyone's mind. Does this mean we lost 75% of the pipeline?

The simple answer is no. We are currently still working on those opportunities in addition to identifying new projects to add to the pipeline. With regards to our end markets, commercial OEM growth was once again stellar, up 28% in the quarter versus last year's Q2. We are benefiting from an improved supply chain that has unlocked demand for our parts. While we do not expect this growth every quarter, we do expect continuing strength to support the 10-year plus backlog of orders at Boeing and Airbus. The platforms where we saw the greatest increase in sales in the quarter were the Boeing 787, the A320 family, and the 737 family of aircraft. This is the second quarter in a row where the commercial OEM market grew the fastest. Comparable to last quarter, we achieved 40-plus% adjusted EBITDA margins.

This end market continues to provide strong financial returns for us on a consistent basis. Commercial aftermarket was up double-digit% again this quarter. This is predictable and consistent with our long-term projections. Given that our portfolio consists of proprietary products, we have tremendous visibility of the demand for our parts and a strong presence in the commercial aftermarket. In the second quarter, as expected, our customers for our defense end market products returned to their habitual ordering and delivery patterns. We saw sales improve 8% over last year's Q2. We expect increased demand for our military end market products moving forward as the geopolitical uncertainty in the world has resulted in increased military funding across the globe. To be clear, we continue to anticipate quarterly sales to this end market to be choppy. Consistent execution of our value drivers continues to stimulate Loar's growth and create shareholder value.

We continue to emphasize collaboration, entrepreneurship, enabling above-market growth rates, solving problems through launching new products, optimizing manufacturing and productivity to increase performance, and achieving price over inflation to improve margins annually. I only have two words to describe our success implementing these value drivers, onward and upward. In 2026, we are poised to grow sales and adjusted EBITDA at a higher rate than our historical average. In the first two quarters of 2026, we have grown sales and adjusted EBITDA at approximately 38% and 47%, respectively. To state a fact, once again, Q2 of 2026 is the 16th consecutive quarter of sequential growth in adjusted EBITDA at Loar. While our focus is not on quarterly results, but the long-term benefit of compounding our financial success over many years, this does demonstrate the consistency and performance from a clear focus on executing our value drivers.

While the growth in sales and adjusted EBITDA is something we are proud of, what we take special pride in is the fact that we continue to generate cash flow at an impressive rate. In fact, year-to-date, operating cash flow minus capital expenditures divided by net income is 1.9 times. To be clear, our free cash flow is close to 200% of our reported net income. We focus on generating cash flow above all else. This consistent performance we have demonstrated since we founded Loar in 2012. We have also updated our calendar year 2026 adjusted EBITDA guidance range to $265 million-$270 million. The strong tailwinds from each end market, plus the execution of our strategic value drivers, gives us confidence that we will meet or exceed our updated guidance.

I will now turn it over to Brett to walk you through the key characteristics of our portfolio and the current state of our M&A pipeline. Brett? Thanks, Dirkson. In order to drive consistent and predictable performance, we have created a diverse portfolio of products that covers essentially all end markets, platforms, and customers with an uncompromising emphasis on proprietary offerings and high service levels for both OEM and aftermarket customers as they continue to look for reliable supply chain partners like Loar.

We have purposely created this model in order to position Loar to benefit from the long-term secular growth nature of the industry, without some of the short-term market fluctuations that can arise when a company is overweight to a particular technology, end market, or product category. This disciplined and balanced strategy has served us well by, as Dirkson highlighted earlier, resulting in exceptional financial performance as it relates to growth, margins, and a new business pipeline that we fully expect will yield consistent organic growth in subsequent years.

Our portfolio is designed to be balanced, resilient, and have wide exposure across a very large and overall growing aerospace and defense market. The same disciplined and consistent approach to market also applies to our M&A strategy. Our demonstrated track record of acquiring one to two new brands per year over the last 14+ years is still our best indicator of future activity, with the key ingredient being that we maintain our rigor in evaluating and acquiring businesses that have similar characteristics to our existing portfolio. Proprietary offerings within niche categories of aerospace and defense that have high barriers to entry, and an OEM aftermarket balance. Since going public approximately two years ago, we have announced four new acquisitions, including one new member to our family this calendar year, Harper Engineering, and have invested over $1.1 billion of capital in M&A.

Our most recent two deals, LMB and Harper, continue to perform well, with both businesses performing ahead of expectations and providing us with a plethora of new opportunities and cross-selling activities across the group. While M&A will always be unpredictable, we continue with the M&A cadence we have now had for over 14 years. The current very active M&A market certainly doesn't suggest that is stopping in the short term. That said, I will repeat something I have mentioned for a few quarters now, which is that we continue to have a large pipeline of opportunities, but it's still an M&A market that requires an appropriate amount of discipline to ensure we continue adding the same high-quality businesses that meet the return thresholds we seek.

I remain excited about the new opportunities we are currently evaluating in M&A, coupled with our organic growth opportunities and current portfolio, feel confident that our ability to generate outsized and consistent long-term returns is still in the early innings of Loar's history.