StandardAero, Inc.

Good afternoon and welcome to Standard Arrow's first quarter 2026 earnings conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance, press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the call over to Rama Bhandara, Senior Vice President of Investor Relations. Please proceed.

Thank you and good afternoon, everyone. Welcome to Standard Aero's first quarter 2026 earnings call. I'm 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 ir.standardero.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 31, 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. Additionally, during today's call, we will discuss certain non-GAAP financial measures, such as adjusted EBITDA, adjusted EBITDA margin, adjusted net income, adjusted earnings per share, 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 ir.standardero.com. Non-GAAP financial measures should be considered in addition to and not as a substitute for GAAP measures. And with that out of the way, I would like now 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. Standard Arrow delivered a solid start to 2026 with double-digit revenue growth across each of our three major end markets. We raised our four-year revenue, adjusted EBITDA, and adjusted EPS guidance, repurchased $60 million of our shares in the first quarter, and are today announcing the acquisition of Unified Turbines. Demand across our end markets remains strong, our growth platforms continue to scale, and our underlying earnings power is improving even faster than the headline numbers suggest. For the first quarter, revenue grew organically by 13.3% year-over-year, supported by continued demand across commercial aerospace, business aviation, military, and helicopter, with all of our major end markets experiencing double-digit growth and expanded backlogs. Adjusted EBITDA increased 2.5% year-over-year, and adjusted EPS grew 14%. We benefited from strong execution across our portfolio, but Dan will discuss later these benefits were partially offset by four main factors. First, the ramp of our LEAP and CFM 56 DFW growth programs, which are still coming down the learning curve. Earlier than anticipated inventory burn down of existing low margin pass through material on the contracts we restructured last year, drawing more of that inventory through the P&L. Third, the timing of engine shipments that impacted mix. And fourth, the non-recurring costs from the closeout of a military program that ended in the quarter. We expect to return to double-digit EBITDA growth beginning in the second quarter with pass-through material elimination, productivity improvements, and better mix driving higher margin expansion for the rest of the year. Excluding the impact of these mostly transitory and one-time items, adjusted EBITDA margins in the quarter would have exceeded 14%, and adjusted EBITDA growth year over year would have been double-digit. Therefore, the underlying business's operating strength Along with the demand we're seeing across our platforms is what is driving our increase to guidance. Looking at our end markets, commercial aerospace grew 11% year over year in the first quarter as it continued to benefit from robust global aftermarket demand and a very tight MRO capacity environment. We saw a strong activity across our platforms, including LEAP, CFN 56, and TurboProps, as well as continued growth from our CF34 business, where demand remains strong, and we're realizing the benefits of the expanded license with the OEM last year. Commercial demand remains robust with no signs of softening. In the first quarter, business aviation grew 20% year over year, supported by strong demand on key midsize and super midsize platforms. This includes the HTF 7000, where we are benefiting from the capacity investments we made in Augusta last year. This facility will continue to ramp throughout the year, and we expect business aviation to remain a meaningful contributor to growth in 2026 and beyond. I also want to spend a few minutes on our military and helicopter business, which grew 10% year over year and remains an increasingly attractive part of the Standard Aero portfolio. When we presented our initial 2026 guidance in February, we had not yet seen a meaningful recovery from the U.S. government shutdown. However, the last few weeks of the quarter saw a very strong rebound with robust activity across several military platforms, including the AE-2100 and the AE-1107, which power the C-130 and the B-22 Osprey, respectively. Looking beyond the fading impact of the U.S. government shutdown, The rising operational tempo and increased defense spending across multiple regions are driving a noticeable acceleration in our military business. We're seeing early signs of increasing activity and strong demand signals on key engines that support transport aircraft, fighters, helicopters, and other mission critical applications. The global environment remains complex, and it's reinforcing the importance of readiness, sustainment, and mission availability. areas where Standard Aero has deep technical capability, long-standing customer relationships, and a differentiated ability to support critical engine programs. While U.S. defense budgets continue to see strong year-over-year growth, the budgets of our NATO allies are also expanding rapidly. We're well-positioned to capture this growth through recent awards we've won but not announced due to customer sensitivities. We've been awarded the rights to 80% of all OEM directed MRO work on both the AE1107 and AE2100 engines globally, including future derivatives. And we are the largest independent MRO provider on these engines for US and NATO allies. These agreements go well into the next decade. The expansion of Winnipeg that we launched in the fourth quarter of 2025 is tied to many of these military awards. CF34 growth in Winnipeg has been so significant that it has expanded into our military facilities. Our expansion, which was supported by the Canadian and Manitoba governments, not only expands our CF34 capacity, it also frees up our military capacity to accommodate growing demand. In addition, We have seen strong signaling from GE, our partner on the F-110 engine, for a multi-year acceleration on this platform, likely beginning in the second half of this year. We believe our military and helicopter exposure gives Standard Air an additional layer of durable growth opportunities this year and for several years to come. This end market enhances the resiliency of our business model, provides access to attractive demand drivers, and reinforces the value of our diversified portfolio of engines across all end markets. Turning now to slide four. Before speaking to our strategic priorities, I want to spend a few minutes on the broader operating environment, including the conflict in Iran. The situation is dynamic, and we've been monitoring the environment closely. I want to share what we're seeing today and how we are positioned, which gives us confidence in our outlook. Starting with what we have seen today. Through the first quarter and into April, we have not seen any impact on our commercial business. Booking's momentum remains positive across our portfolio. Induction patterns at our facilities have been consistent with our internal plans, and our customers have not pulled back on work scopes or deferred shop visits. Demand across our end markets remains strong, and our supply chain has continued to perform relatively well. The early indicators we track, shop visit bookings, inductions, part orders, and asset trading activity, all remain consistent with the underlying strength with which we entered the year. That said, we're mindful that we are navigating a more complex operating environment with elevated jet fuel prices, selected capacity adjustments announced by new airlines, and global airline profitability under some near-term pressure. We're tracking these factors closely, but we believe the structural dynamics in the market, combined with where we sit in the ecosystem, leaves us well-positioned. There are a few reasons for our confidence. First is the structural tightness of the MRO market itself. Demand continues to exceed supply, lead times remain extended, and our customers are highly reluctant to change schedules or release induction slot positions because regaining slot access is difficult. Aircraft retirements remain very low as OEMs continue to struggle to lift production rates against their backlogs and early durability challenges on certain new generation platforms have increased maintenance costs, offsetting portions of the fuel savings that those platforms were expected to deliver. All of this means engines are staying in service longer, working harder, and requiring more MRO support, not less. Second, our portfolio is purposefully diversified across end markets, platforms, and geographies. That diversification has historically provided real resilience during periods of macro volatility, and it's doing so again today. A meaningful portion of our revenue comes from in markets such as business aviation, military, and helicopter, which are less correlated with fuel prices. I highlighted earlier that our military business is seeing an increasingly powerful tailwind with step-change defense spending across the globe and increased operational tempo, particularly across the platforms we support. Furthermore, our major MRO facilities have been strategically designed to serve multiple end markets, and our labor is mostly flexible across these multiple lines. This means we can reallocate labor and cost rapidly in response to changing market dynamics as we did during COVID. It's this business portfolio diversity and our operationally flexible model that enabled us to outperform our peer group in previous times of macro uncertainty and industry instability. Third, we hold differentiated positions on fuel-efficient new generation platforms. Our position as a LEAF Premier MRO is a great example. LEAF is precisely where we've made our largest organic investment, which positions us well if elevated fuel prices accelerate retirements of older, less fuel-efficient aircraft over time. Mature widebody aircraft have historically absorbed the bulk of capacity adjustments during periods of sustained high fuel prices. As a reminder, we're focused on single aisle aircraft platforms in the commercial market and have limited wide body exposure. Fourth, our supply chain. While industry-wide constraints around parts availability and supplier delivery remain persistent, we've not seen incremental disruption from the conflict at this point. Material flow remains relatively stable, we have close engagement with our suppliers, and we have multiple sourcing strategies and long-term agreements in place on our most critical inputs. This environment continues to favor scaled MRO operators with deep, long-standing OEM relationships where part allocations and material flow are most reliable, and that's exactly where Standard Aero sits. It also reinforces the strategic importance of our component repair and asset management businesses to reduce turnaround times and material costs for our customers and to allow us to offer a broader suite of solutions, such as used serviceable material and engine exchanges, which help our customers manage through periods of supply tightness. Energy costs are a relatively small portion of our cost base and our pricing structures provide protection against most input cost inflation. The bottom line is that we have not seen a material impact to our business to date from the situation in Iran and demand remains strong. We believe the structural characteristics of our portfolio and operations combined with the underlying tightness of the global MRO market position us very well to navigate this environment. We would also note that historically, the lag from an oil price shock to meaningful MRO revenue impact has been measured in years, not quarters, because engine MRO is driven by the accumulation of flight cycles over multiple years. Further, nearly 100% of what we do in our commercial aerospace engine MRO business is non-discretionary. We will, of course, remain vigilant, continue to engage actively with our customers and our supply chain, and keep you updated as conditions evolve. Turning to slide five, I'll speak to our 2026 strategic priorities, which remain consistent with the framework we discussed last quarter. First, on LEAP, our focus remains execution. The program continues to scale with first quarter LEAP revenues growing four times year over year. We also hit the milestone of delivering our first LEAP 1A full overhaul early this quarter, and we're continuing to improve throughput, productivity, and component repair capability as we move down the learning curve. We are on track to achieve profitability in the first half of 2026, while pursuing additional long-term customer awards. Second, we're focused on fully leveraging our investments in CFN 56 and CF 34. On CFN 56, our DFW Center of Excellence continues to ramp, and we also expect that program to reach profitability in the first half of the year. On CF 34, our expanded authorization from GE and the Winnipeg expansion continue to be key pillars of our growth strategy. The facility expansion is on track for completion in the second half of this year. Demand remains robust, with the additional capacity already booked, reinforcing our view that our CF34 leadership position is both durable and differentiated. Third, component repair services remains a strategic engine for value creation. We're continuing to accelerate new repair initiatives with several new wins across both new and existing platforms in the quarter, and we remain focused on insourcing capture across the enterprise. The business is also doing a great job optimizing production flow and performance, which can be seen in the strong segment margins we saw in the quarter, overcoming the small facility fire that they had late last year and the impact of the government shutdown on the military components business. Fourth, continuous improvement remains core to how we operate. We're focused on improving productivity across our portfolio and standardizing best practices, which subsequently increases throughput and revenue organically. These continuous improvement initiatives are constantly measured and supported by our incentive programs at all levels of the company and key to supporting margin expansion as volumes continue to grow. Finally, on capital deployment, we remain focused on disciplined, value-accretive uses of capital. That includes high-return organic investments, strategic M&A, new platforms, license expansions, and opportunistic share repurchases. In the first quarter, we repurchased $60 million of shares under our $450 million repurchase program, and we will continue to look at future repurchase opportunities. We also announced today the acquisition of Unified Turbines, a specialty provider of hot section component repair and overhaul services for a range of Pratt & Whitney and Honeywell engines that power commercial aerospace and business aviation turboprop aircraft. Unified adds critical repair capability on important engines we already serve, including the PT6A and PW100, and supports faster component repair turnaround times for our MRO customers. Unified Turbines is a highly synergistic addition to our component repair services segment and aligns directly with our strategy to expand repair capabilities, increase insourcing capture, and to use disciplined M&A to strengthen our positional platforms where we already have meaningful scale. As a trusted supplier to Standard Aero since 2001, this is a business we know well and we look forward to welcoming the team to the Standard Aero family. This is exactly the type of acquisition we look for, strategically aligned, synergistic with our existing network and capabilities, and supportive of long-term value accretive growth. With that, I'll turn the call over to Dan to walk through the financial results and outlook in more detail. Dan?