StandardAero, Inc.

Greetings, and welcome to the Standard Arrow Third Quarter 2024 Earnings Conference Call and Webcast. At this time, all participants are in listen-only mode. If anyone should require operator assistance, please press star zero on your telephone keypad. A question and answer session will follow the formal presentation. You may be placed into question queue at any time by pressing star one on your telephone keypad. We ask you please ask one question and one follow-up, then return to the queue. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to your host, Alex Trapp. Alex, please go ahead.

Thank you and good afternoon, everyone. Welcome to the Standard Arrow Third Quarter 2024 Earnings Call. I'm joined today by Russell Ford, our Chairman and Chief Executive Officer, and Dan Satterfield, our Chief Financial Officer. Alongside today's call, You can find our earnings release as well as some presentation materials on our website at standardaero.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, 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 the prospectus from our initial public offering dated October 1, 2024. 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. Additionally, during today's call, we will discuss certain non-GAAP financial measures such as adjusted EBITDA, adjusted EBITDA margin, and net debt to adjusted EBITDA leverage ratio. A reconciliation of these measures to the most directly comparable GAAP measures can be found in our earnings release, in our 8 filed with the SEC and in the appendix to the slide presentation. Non-GAAP financial measures should be considered in addition to and not as a substitute for GAAP measures. I would now like to turn the call over to Russ.

Thank you, Alex. Thank you to everyone for joining our first earnings call as a publicly traded company following our IPO in October. I'd like to express my deep gratitude to our internal team, all of our advisors, and to our new investors who participated in the transaction and contributed to its success. I would also like to thank the research analysts who invested their time to participate in the process, and we look forward to continuing to build our relationship with each of you. We're very excited about Standard Aero's future, and we look forward to partnering with our stockholders as we focus on continuing to grow the business and creating value in the years to come. As this is our first earnings call as a public company, and since many of you may be new to our story, I'd like to start a little differently than we typically will during future calls by providing some highlights about our company and what we believe makes us unique. We believe Standard Aero is the world's largest independent pure play provider of aerospace engine aftermarket services for fixed and rotary wing aircraft. Well, we provide a comprehensive suite of aftermarket solutions, including engine maintenance, repair and overhaul, as well as engine component repairs. We have a pure play focus on the aerospace engine aftermarket, which we believe is the largest, most attractive, profitable, and fastest growing vertical of the aerospace market, which itself is a highly attractive market that has historically achieved long-term growth above GDP. We are also fully independent and OEM aligned, which allows us to serve as a key and preferred partner to both the engine OEMs and aircraft operators. Within the engine services aftermarket, we're a market leader and hold the number one or number two positions globally on many of the major engine platforms that fly today's and tomorrow's most prevalent aircraft. with these top positions representing approximately 80% of our engine services revenues in 2023. We have a scaled global footprint, differentiated positions on critical growth platforms, a rapidly growing engine component repair franchise, and a proven playbook for investing to expand our capabilities, capturing new engine platforms and executing on accretive, highly synergistic acquisitions. These factors result in an attractive financial profile with over three-quarters of our revenue tied to long-term contractual agreements, a long track record of strong double-digit growth, and resilience to outperform the broader aerospace market during downturns, coupled with the ability to quickly recover if there is a downturn. Turning to page four of the presentation, this page lays out our two business segments. Engine Services, our full engine repair, overhaul, and other value-added services business, as well as Component Repair Services, which focuses on synergistic repairs of the components in and around the engine and which we've grown into one of the largest independent engine component repair businesses worldwide. It also shows our diversification across end markets and platforms in commercial aerospace, military, helicopter, and business aviation. Within each end market, we're positioned as a leader, having close relationships with blue chip customers and differentiated positions on many of the most prevalent engine platforms in service. such as the CFM56, which is currently the largest installed base of any engine platform, and the LEAP 1A and 1B, which is expected to quickly become the industry's largest engine platform in the world, and where we have a strong position as the only independent holder in the Americas of a CBSA license. This license officially designates Standard Aero as a premier MRO provider for LEAP engines and significantly differentiates us in the market. Across end markets, we're seeing secular industry tailwinds driven by demand growth, outpacing capacity, an aging global fleet, increased MRO work, and increasing global defense spending needs, which we believe positions us in the early innings of an aerospace aftermarket super cycle that is expected to drive attractive growth for our business. So we're clearly excited about the positioning and outlook for our business and the aftermarket in general. Hopefully that gives a good flavor for who we are and the core tenets of our forward strategy. Now turning to page five, I'd like to describe the progress of the business over the last few months and update you on some of our recent strategic milestones. Starting on the left side of the page, we're making great progress on our key organic initiatives. The industrialization of our LEAP program that began with our landmark CBSA license win last year remains on track. This quarter, our flagship 810,000 square foot facility in San Antonio, Texas, completed correlation of its first test cell for both the LEAP 1A and 1B engines, achieving another major milestone as we introduced LEAP 1A and 1B MRO capabilities. The San Antonio facility is now able to undertake full functional and performance engine testing in support of both Boeing 737 MAX and Airbus A320 NEO customers. Our LEAP pipeline continues to expand, and during the quarter, we announced our first LEAP customer agreements, including a five-year agreement with Avianca. These customers joined a growing list of operators who rely on Standard Aero as their LEAP engine support partners. During the quarter, we also achieved important milestones on two other major organic investment initiatives. First, at our new Greenfield CFM 56 Center of Excellence building at Dallas-Fort Worth, we recently held our ribbon cutting to open the building. Also, we celebrated Standard Aero's 1,000th CFM 56 shop visit during the quarter. Second, we broke ground on an 80,000 square foot expansion of our Augusta Business Aviation Facility that will allow us to support additional super midsize and large cabin aircraft for airframe and avionics, while also significantly expanding our engine shop to further support many of those aircraft. Additionally, we received two significant prime contract awards with the U.S. Navy, First, we were selected for a five-year, $1.2 billion IDIQ contract for the Navy's P-8 Poseidon fleet, where we'll perform MRO on the fleet's CFM-56 engines. Second, we were also selected to perform engine services for the Navy's T-56-427A engines that power its E-2D advanced Hawkeye aircraft. Moving to the middle of the page, we'll hit on another major strategic pillar of our value creation strategy through M&A. During the quarter, we acquired Aeroturbine, which provides engine component repair and other value-added engine aftermarket services for the U.S. military and other international customers. This acquisition continues to accelerate the expansion of our component repair segment and provides new repairs and differentiated military SAR expertise that we intend to utilize to drive third-party sales growth and increasing insourcing of component repairs on its engine services work. Aeroturbine also brings new positions on military platforms and an attractive mix of work with approximately 90% of its revenues from prime sole source contracts, and it enhances our position to capture future growth military programs in the market. The total potential purchase price for the acquisition was $141 million, of which $120 million was paid upfront and $21 million is contingent on hitting certain earnings metrics. We expect ATI to contribute $25 million of EBITDA in 2025. I believe this deal is a great example of Standard Aero's ability to identify and execute on value-accreed M&A. This was a carefully executed acquisition where we had unique knowledge of their platforms, a relationship with the seller, and the ability to generate synergies, all of which enabled us to acquire this business at an attractive valuation. Then, on the right, Dan will get further into the details, but of course we completed our IPO in early October, which coupled with the refinancing of our debt that we completed a couple weeks ago, significantly reduces our leverage, improves our ratings profile, and will result in over $130 million of annual interest savings. This should further bolster our net income and strong cash flow profile as we move forward. Moving on to the next page, I'll touch on a few market and financial highlights from the quarter before Dan discusses our results in more detail. We continue to generate double-digit revenue growth at 13% year-over-year with good performance across both our engine services and component repair services segments. we're continuing to see strong demand in the commercial aerospace aftermarket, particularly in the regional jet market as it recovers from the pilot shortages last year, which along with good performance at our turboprop business drove 19% year-over-year sales growth in that end market. Sales to the business aviation end market grew 15% with continued strong customer demand, particularly on our HTF 7000 program, where we are the exclusive independent provider of heavy engine overhauls. This quarter did see an offsetting decline in our military business, where revenues were 3% below Q3 of last year, which was primarily driven by reduced volumes on the Rolls-Royce AE1107 platform that powers the V22 Osprey tilt rotor, which was grounded temporarily earlier this year. That platform is now back in full operation, which should drive volume recovery in military, which is seeing steady demand on most other platforms. Moving now to earnings. Adjusted EBITDA increased 26%, approximately double the rate of revenue, reflecting strong growth in both segments, leverage on our fixed costs, a favorable mix, particularly in our engine services segment where we saw lighter material content work scopes that led to lower revenues on those engines but stronger margins. Adjusted EBITDA margin expanded by a very healthy 137 basis points, versus the same period last year. To wrap up, I'm pleased with our strong performance in the quarter, which represents a great start as a public company and sets us up to close out a successful 2024. With that, I'd like to turn the call over to Dan Satterfield to walk through the financials in further detail. Thank you, Russ.