Loar Holdings Stock

Greetings, and welcome to the Loar Holdings Q2 2026 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce Ian McKillop, Director of Investor Relations. You may begin.

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, wrapping the culture that all our mates can be proud of. So 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 accomplishments. 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 sixth quarter in a row that we have sequentially achieved a new record for adjusted EBITDA. However, what really makes this quarter in 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 today. But let me just say we do not achieve these results without a collaborative and focused culture. Let me pause 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 OE 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 our commercial OEM market grew fastest.

Comparable to last quarter, we achieved 40-plus percent adjusted EBITDA margins. This end market continues to provide strong financial returns for us on a consistent basis. Commercial aftermarket was up double-digit percentage 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 return 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, however, we continue to anticipate quarterly sales for 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 2 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 2 quarters of 2026, we have grown sales and adjusted EBITDA at approximately 38% and 47%, respectively, to state effect 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 the sales and adjusted EBITDA is something we are proud of, what we take special priding 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 1.9x.

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 2026 adjusted EBITDA guidance range to $265 million to $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.

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 1 to 2 new brands per year over the last 14-plus 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 2 years ago, we have announced 4 new acquisitions, including 1 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 2 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. So while M&A will always be unpredictable, we continue with the M&A cadence we have now had for over 14 years, and 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 and 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.

Moving over to our products. We include this slide weak quarter because it captures the breadth of Loar's product portfolio, more than 25,000 unique part numbers across the group. But the takeaway isn't any single product. It's a set of capabilities behind those products. We are not simply a collection of businesses that manufacture a wide range of components. We are an integrated platform that combines engineering, design, qualification and production expertise across disciplines to deliver tailored customer-specific solutions and adapt quickly as our customers' requirements evolve.

Our diverse set of capabilities serves as the foundation from which we capture organic new business opportunities. These opportunities come from 2 forms. First, new products or technologies for new or existing customers, ranging from clean sheet designs to meaningful product enhancements. Second, existing products expanded to new customers, driven by share gains and new platform wins. Across the group, our organic pipeline now totals approximately $750 million of revenue potential expected to convert over the next 5 years, up roughly $50 million from what we shared in May.

As you can see, the opportunity set comes from all the end markets we participate in and covers the diverse set of products we manufacture. As Dirkson mentioned earlier in the call, our teams have been working diligently to secure initial orders for these opportunities. To date, they have exceeded our expectations capturing initial orders and providing visibility to approximately $200 million of cumulative organic revenue over the next 5 years. So what does it really mean to move this revenue out of the opportunity category and into the base business? Simply put, we now have a certified or qualified product for an OEM or aftermarket application that will generate revenue over the next 5 years.

Think a new brake certification for an in-service platform. the replacement of an incumbent supplier of fluid sensors or switches or a new restraint for bespoke seating configuration. All of these are examples of how we have been able to leverage our capabilities partner with our customers and bring new products to market. Over the next 5 years, we have visibility to approximately $200 million of revenue, like anything else in manufacturing, that revenue will come in a straight line. That said, given our view of fleet dynamics and the OEM build rates, we feel confident in our ability to deliver on our estimates.

While these organic revenue growth opportunities are extremely exciting for us, I also want to highlight what we think should be the other takeaway from this slide, which is that our unique business model and differentiated approach to market we believe, creates a very powerful and consistent long-term growth compounder. The proprietary nature of our products affords us many benefits unique to others in our industry. We benefit from the secular growth nature of the industry by being the spec-in provider of parts on aircraft. We benefit from the ability to value price, and we benefit from being a supplier for all stages of an aircraft's life from in production periods all the way through the decades of aftermarket sales.

We capture all these benefits, but our proprietary positions also allow us to form embedded customer relationships that foster cross-selling opportunities and other revenue synergies, that ultimately create organic new business pipeline that we just spoke about as well as create opportunities for new businesses to be acquired. Moreover, we do this across thousands of product SKUs covering virtually every end market customer and platform in the industry, and this diversity results in consistent and predictable aggregate performance irrespective of the macro environment, whether OEM production rates are high or aftermarket is active, whether military budgets have short-term increases or not or whether consumers prefer to fly commercial aircraft or utilize private aviation, our model of capturing 30, 40, or even 50-year annuities generated from a widely diversified set of customers and platforms that is consistently growing and enhancing our new business pipeline is the reason we are so confident that Loar will generate double-digit organic growth rates for the long term and do that with ever-increasing margins, cash flow and predictability.

I'll now pass the call over to Glenn, who will take you through the financials.

Thank you, Ian. Good morning, everyone. Let me start by discussing sales by our end markets. This comparison will be on a pro forma basis as if each of our businesses were owned as the first day of the earliest period presented. This market discussion includes the acquisition of Beadlight in Q3 '25 and LMB Fans & Motors in Q4 '25 and Harper Engineering in Q1 '26. We achieved record sales during the second quarter of 2026. In total, our sales increased to $172 million, which is a 17% increase as compared to the prior year. This increase was driven by strong performances in commercial OEM, commercial aftermarket and defense sales.

Our commercial aftermarket sales saw an increase of 12% Q2 '26 versus Q2 '25. This is primarily driven by the continued secular increases in air travel. Our total commercial OEM sales saw an increase of 28% in Q2 '26 versus the prior year. This increase was driven by higher sales across a significant portion of the platforms we supply, along with the continuing improvement in the production environment for commercial OEMs. Defense sales increased 8% in Q2 '26 as compared to the prior year. Our defense sales will fluctuate quarter-to-quarter and will continue to be lumpy given the nature of the ordering patterns of our end customers for our products.

Let me recap our financial highlights for the second quarter of'26. Our net organic sales increased 12% over the prior year quarter. Our gross profit margin for Q2 '26 decreased slightly by 60 basis points as compared to the prior year quarter. This decrease was primarily due to the higher noncash amortization of acquired intangible assets related to LMB and Harper Engineering. Excluding the impact of this noncash adjustment, our gross profit margins would have been higher by 100 basis points versus the prior year quarter.

Net income was flat in Q2 '26 versus '25. The higher operating income that we saw from the increased revenues was offset by higher interest expense and higher noncash amortization of acquired intangible assets. Adjusted net income increased $9 million or 35% in Q2 '26 versus Q2 '25. This increase is due to our strong financial performance during the quarter partially offset by higher interest expense. Adjusted EBITDA was up $20 million in Q2 '26 versus the prior year. Adjusted EBITDA margins were 40.5% during Q2 '26 compared to 38.3% for Q2 '25. This increase is primarily due to our operating leverage and the execution of our strategic value drivers.

In Q2 '26, our EBITDA margins were 40.5%. This is an increase of 220 basis points from Q2 '25. From 2020 through 2026, we will have increased our EBITDA margins by 910 basis points. We've achieved this growth through operating leverage, winning new profitable business executing on our productivity initiatives and value-based pricing. All this, while fully absorbing the negative impact of costs related to SOX and additional organization expenses to support being a public company.

Let me now turn the call back over to Dirkson to share our revised outlook for '26.

Thanks, Glenn. We operate with the tailwinds of a secular growth industry, which captures the increasing human need to travel, move products from point A to point B and to defend our American Liberty that drives secular demand. These things have been proven to be true at the beginning of aviation and will continue to be so for the foreseeable future. As a result, Loar will continue to grow at above average industry rates. The building blocks of our organic growth model are stronger today than when we went public 2 years ago. We've expanded our portfolio through 4 acquisitions and the success of our new business pipeline conversion to our base business.

We have put in place an internal team led by our Chief Tech Officer, to enhance the capabilities of our mates while continually improving our talent acquisition and communication across the group. Just to name a few of the improvements we have made since we became a public company. These continuous improvements at Loar are what will drive us growth rates into the foreseeable future that looks like the historical records that we have delivered. Given the demand signals, our record backlog, the improvements in the supply chain, the success of our new business conversion and the diverse and proprietary nature of our portfolio, we expect commercial OE, commercial aftermarket and defense sales to be up high double-digit percentage, low double-digit percentage and mid-single-digit percentage, respectively, on year 2026.

As always, this view is on a pro forma basis, assuming we have owned all of our businesses since the beginning of 2025. This results in us increasing our guidance for calendar year 2026 as follows. Our increased range for net sales is now between $665 million and $675 million, adjusted EBITDA between $265 million and $270 million with margins of approximately 40%. GAAP net income will be in the range of $56 million to $60 million while adjusted EPS will be between $1.32 and $1.36, which is up from $1.26 and $1.30 per share from our last guide.

Capital expenditures will be in line with our historical rate of 3% of sales at approximately $20 million, with no change to any of our other assumptions. Please note all the amounts I've just outlined to you relating to calendar year 2026 performance assumes no additional acquisitions, however, as we have noted previously, our drumbeat is to complete 1 or 2 acquisitions each year. We just kind of predict the timing of such acquisitions.

With that, operator, let's open the line for questions.

[Operator Instructions] And your first question comes from John Godyn with Citi.

In the prepared remarks, you spent quite a lot of time, a little bit more than usual on new product innovation, expanding share within existing customers. And you gave some additional detailed numbers around that. At a high level, it sounds like you guys think that, that part of the growth engine is inflecting here. And I don't know if I'm sort of reading that right, but if it is, maybe you can kind of shed some light on that and why the stars are aligning for an inflection now? It feels like there might be some room to run.

John, thanks for the question. You are correct. We have been at an inflection point, which is why we've started sharing the new business pipeline the last, I don't know, a year or so. What we have actually seen is a lot of progress in terms of certification around some of the parts we have been chasing here for a few years. I know we've talked about breaks. We have a number of certified platforms, engage with customers around those. We intend to continue to increase the certification success there over the next 6 to 9 months, and we'll continue to have what I would describe as even more wins as we move forward.

On top of that, we spent somewhere between $30 million and $40 million a year on engineering costs. We've allocated those engineers, so the projects where we believe we have the best chance of winning as opposed to working on what I would call blue sky projects. We are seeing the benefit of that. That's a switch we made about 4 or 5 years ago. And I think as we've shared with you previously, we actually compensate folks so that correct focus. We are seeing a lot of wins in a number of products. I think Ian mentioned some switches and sensors, safety restraints, et cetera. We are doing a tremendous job. It is an inflection point.

So now I'm going to share something we haven't shared previously about the new business pipeline because we keep getting the question since we've been talking about it, well, what's your win rate? How do you think about that? And now I can honestly tell you we never think about win rate. All we think about is converting our efforts into base business sales. So I would say to you this when you get -- when we put something on a new business pipeline, we expect to win. We have a list of blue sky projects, which we allow some of our engineers to work on, and they don't get to move to the new business pipeline until we are assured we have a solution. We assure that we have a customer, we assure that we can do it profitably, all the things that check the box to get onto the new business pipeline.

So as I said in my remarks, we haven't lost $550 million. we have a renewed focus to go convert those to the base business. So yes, we are at an inflection point. Thanks for the question, John.

That was fantastic. I appreciate the color. Maybe I could ask a little bit about the guidance in the back half. Of course, it's good policy to kind of have some conservatism in the number. But is there any risk factor or anything that you flagged to people kind of in the back half that's on your mind. It does seem like given the performance in the first half, the rates could have been a little bit bigger.

Yes. Great way to ask the question, John. Look, is there anything in our mind. The things that are on our mind, we removed from our guidance, okay? That's the way to think about it. So when we guide, we expect to meet or beat, right? And when I say that, I'm talking about the high end. I mean people talk about the ranges. We shared a range because that's what lawyers tell us we should do. okay? But our expectation is that we will meet or beat the guidance that we're sharing. And I would say this relative to your question about, is there upside to that?

Look, the increase is related to the success that we're seeing in new business. That usually has a learning curve. Should be cautious, right, in terms of how that ramps and how you perform in your first set of parts we produce. It's coming from the strong demand we're seeing across all the end markets I would say this. You asked about the risk. Here's one thing that I do think about, keeping up with the demand. We have areas in our business where we know we need to invest to support the demand that we're seeing.

Fans and motors, we got investment more there. [indiscernible] regarding investment model and brakes. The demand is stronger than we thought, and we've now got to catch up to make sure that we're prepared to meet the demand.

Your next question comes from Ken Herbert with RBC Capital Markets.

Dirkson, nice results. I wanted to maybe just ask, in the aftermarket in the second quarter and with the updated expectations for the aftermarket in the back half of the year, are you seeing any specific trends on the commercial transport relative to the business jet general aviation side that you call out?

Thanks for the question, Ken, by the way. Nothing that I can think of that I would call out. I will share this, right? We see our customers in the commercial aftermarket being prudent, being pragmatic, being safe in terms of their ordering. So where one may have ordered 8 before, they may order 6, right? Just to the way -- just in terms of behavior. For us, what that usually typically means is, okay, they will order it later because they'll need it and they'll order it at a higher price. But other than that, nothing I can call out, I can.

Okay. Well, based on that, are you at all concerned that there's an inventory or sort of destocking risk as we think about '27 on the aftermarket as airlines have been and operators have been, I think, over-provisioning, considering supply chain challenges and being more risk averse, but could that materialize in either destocking pressure or perhaps greater pricing pressure beyond 2026?

No, I'm not concerned there. I would say this, where we are in terms of inventory in the supply chain for our parts, I would describe it this way. March of this year. If folks were holding somewhere between 5 and 7 months' worth of inventory on their shelf to support their production. It's probably now 3 to 5 in terms of the order impact and going back to people ordering 6 instead of 8. That's what I've seen. So I think we have seen whatever destocking to use your terminology risk is really sitting behind us.

And we would expect, as we get into 2027, we would see stronger growth in the commercial aftermarket and we see this year. Plus I would say this. Last year, we were up 19%. I believe that was the number. So we're lapping really strong numbers in the previous year. So really proud given everything I just said, of the 12%, 13% growth that we have this year.

Your next question comes from Sheila Kahyaoglu with Jefferies.

Maybe if we could talk about your revenue guidance, you raised it on the commercial OE side for commercial OEM, Biz Jet and general aviation as well. I guess, how do you think about the growth rate for that sector in terms of rank order by subsector. And then specifically for Business Aviation and GA, that's significantly above market growth. What's sort of driving that in terms of new products or share gains or price?

Yes. So Sheila, it's a great question. When you think about ranking, obviously, I think the health of Boeing and Airbus would probably put the large commercial aircraft at the top of that ranking in terms of growth. Second to that would be GA and slightly behind that would be business jets. I think we haven't seen super huge rate increases there for our business jet folks. But all that said, I think that comes across all of our value drivers, right? There's new business in that there is rate and volume growth there.

And then there's obviously some pricing as we value price appropriately across all of our products. So I wouldn't say that any one outweighs the other, it's pretty evenly spread across the group.

Okay. Got it. And then maybe can you talk about what's going on within your defense markets? Is it just the tougher comps creating that organic headwind in the first half of the year or just lumpiness of the business? Any color you could give on Pacific defense end markets as well?

Yes, it's definitely a choppy end market for us for sure. Last year, it was stellar. I think we were somewhere in the north of 20% range through the first half of the year growth. So it's a tough comp for sure. But we experienced this, and I think we've talked about this before, where the order -- the government orders in such choppy ways. They provision for a large order, and then they'll show up a certain amount of time later to replenish. No change in the underlying strength of the business, just the timing of orders as they come in.

Your next question comes from Kristine Liwag with Morgan Stanley.

I wanted to dive a little bit deeper in terms of organic growth. You had 12% in the quarter, which is pretty good. But when we kind of look at some of your peers, some are printing organic growth in the quarter that are in the mid- to high teens, even north of 20%. So when we think about the roughly 207 -- sorry, the $200 million of orders that you have the baseline for of that $750 million pipeline, I guess I would have thought that you can convert this into higher organic growth. Can you talk about where your portfolio is versus others? How do we think about that gap. And as we see more of these conversions, would you expect that to narrow over time and maybe get you towards more of that higher end of the peer set.

Kristine. So I have nothing but respect for all of my peers in the industry. and seeing the results that we've reported, quite impressive, truly proud of them. I'll start with that. Like I've said before, 13 is my favorite number in the whole -- but 13 weeks does not make the answer to the question that you're asking. So yes, I've seen some of the results that they have. Great job. The way we think about Loar, not looking at how they perform is that we will have consistent performance over the long term. We said this just now, but we are lapping significant organic growth and if you went back and looked at some of the results, prior quarters and prior years, you will note that our organic growth was much stronger than the full year that you're referring to. So we are lapping big numbers.

Now with all that said, I am super, super happy with our organic growth so far this year, one. Two, in terms of the new business, the new business is future state, right? The way we think about it is we have been building for this over the last 4 or 5 years. And I think I've said this before. Historically, if you look back in time of first 14 years, I would rank it in this order in terms of organic growth. Secular growth being the biggest one, then priced than new business in that order.

As we look forward, given the efforts and the relationships we've built with our customers going forward, we believe new business will be the highest rank in terms of driving growth. Then it would be secular growth and then price in that order going forward. So let's just look at the $200 million that we just won, which is the first cut at that $750 million, which is growing. I would expect that to continue to accrete up as we move forward. So we've said 1% to 3% of organic growth for new business. And as we've said in the last few calls, and I think hopefully, it resonates with folks now that we believe we'll be closer to the 3% than 1%.

And I also said, 4%, 5%, whatever that number is, we'll be closer to 3% than 1%. So, Yes, no, we're really proud of what we've created. We're really proud of the results for Q2. And I said at the beginning of our remarks, truly, truly proud of my team in terms of what they have delivered. We have gone from a company 10 years ago that was doing $20 million of revenues to doing $675 million this year, and I would not be surprised if we woke up 3 years from now and it's double that, right? Because that's the engine that we have built. So I'm really proud. So I don't look at it just the 13 weeks, but applaud to all my mates in the industry who have done well. Good for them.

Great. Super helpful, Dirkson. And just following up that $200 million that you have visibility into, I just want to confirm, are these now in long-term agreements? Or were you able to win the initial contracts, you know we'll have follow-ons?

Yes. So actually, none of them are under LTA. It's PO-to-PO, which is what we want. It's -- we're certified, we're sole source, let us break where we are the second source in terms of carbon brakes where we have PMA. But how that works is that customer is going to convert all of their needs to us, right? That's in writing, that's agreed to delivering all new products. So when we say $200 million, it like saying that we're going to meet or exceed our guidance. We are 99.9999% sure, right? Unless it's a black Swan brand that we will achieve that.

Your next question comes from Connor Deser with Goldman Sachs.

You have got Connor on for Noah today. I wanted to ask a quick one about free cash conversion. It's trending just below 200% of net income year-to-date. Is there a framework we should be thinking about for cash conversion for the rest of the year? Or if you're not willing to speak to that specifically just longer-term free cash conversion in general, given the focus on it?

So great question, Connor. The way I would think about it sitting your seat is that first half looks like the second half. That's what I would say. Maybe a little bit stronger in the back half because I think as we've said previously, first half of the year, we're usually paying bonuses and taxes at a higher rate than we do in the back half. But no, we are going to continue to print money. I guess that should be the answer to your question, but it is going [indiscernible].

Noted. And then if I could ask one more on the recent acquisitions of Beadlight LMB and Harper. How are the integration processes going for all of those? And then are the expected revenue contributions of those businesses for 2026 now higher than when you first acquired them. I think the one you called out and specifically was that was LMB was expected to contribute $60 million or so to 2026 results. Just wondering how that is shaping up for the year, if you're able to talk about it.

So the answer to your question on all 3 is yes, all higher, all doing extremely well. I will answer the question in this way. We bought Beadlight with the goal of finding synergies across the group check. That's going really, really well. We actually have them working hand-in-hand, which throw our Schroth belt business where they share similar customers, et cetera, and that's going really, really well.

LMB, in spite of the drama to get the deal done, it's been great. The demand there is such that -- that's one of the places where we're going to see investing some capital going into 2027 as we expand our footprint beyond the borders of Europe because the demand is so good. So that's going really, really well.

And in terms of Harper. Harper will probably achieve in how we say we want to double EBITDA in 3 to 5 years. Harper will probably achieve it faster than all of those businesses I just described. So that's going really, really well.

And there are no further questions at this time. So I'll hand the floor back over to -- actually, we do have one that just came up. Our question comes from Sheila Kahyaoglu with Jefferies.

You gave me an idea with the Harper doubling faster than the others. So I wanted to ask because I did realize the acquisition contribution came in a lot better. What's kind of driving that doubling of the -- faster, given how good of a supplier it is? Are you seeing other revenue synergy opportunities? If you could just expand on that.

Yes, and you're hitting on all the right things, right, because we do focus on top line synergies. We're seeing the benefits of having to put Harper aside for a second. All our other business units having a different kind of relationships with Boeing. We're actually seeing growth with our customer Boeing probably faster than any other customer at this point in time across the group. So synergies there in spades.

And in terms of Harper, we're just seeing increasing demand for their products. I mean 787, perfect example, one of the drivers of our OEM outperformance this year. Those guys are a sole source a number of products on the 787. As you know, bill rates have gone up. The supply chain is unlocking, helping them, and it's just going really, really well, Sheila. Thanks for asking.

And now I'll hand it over to Dirkson Charles, Co-Chairman and Chief Executive Officer, for closing remarks.

So look, a big thank you to everyone that is taking the time to hear our story today. We continue to be really excited about building our aerospace and defense cash compounder. That's a business we call at Loar and we're really looking forward to speaking to you all in November where we'll take a look at what 2027 looks like and answer some of the questions that I cannot answer today. So speak to you guys in November.

And this concludes today's conference. You may disconnect your lines at this time. Thank you all for your participation.

Greetings, and welcome to the Loar Holdings Q1 2026 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host, Ian McKillop, Director of Investor Relations. You may begin.

Thank you, Barak. Good morning, everyone, and welcome to the Loar Holdings Q1 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.

But 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 our website and 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, adjusted net income and adjusted earnings per share, each of which is a non-GAAP financial measure. Please see the tables and related footnotes in the earnings presentation for 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, everyone. I'm Dirkson, Founder, CEO and Executive Co-Chairman of Loar. As you all know, Loar was founded with the mission and vision to build an aerospace industrial cash compounder, wrapped in a culture that all our mates can be proud of.

13 weeks ago, I shared with all of you how excited I was about what we would accomplish in 2026. I stated that we planned on achieving record financial results through consistent and resilient performance. The results for Q1 of 2026 are all quarterly records for sales, adjusted EBITDA and adjusted EBITDA margins. More importantly, our cash conversion coverage to net income was 230%.

Our strong Q1 provides a resilient foundation for 2026, positioning us to break all our annual records. Strength in orders from our customers, resulting in a book-to-bill ratio of greater than 1.2x, the tremendous progress we have made towards launching new business and continuing to successfully execute on our value drivers, also strengthens our confidence in achieving a record-breaking 2026.

But first, let's take a moment to check 2 of the boxes we shared with you during our IPO process 2 years ago. We said in a short period of time, we would achieve 40% adjusted EBITDA margins. In a word, check. We also stated that we had a balanced and resilient portfolio of products, platforms and end markets, which would allow us to perform in spite of most headwinds in the industry. Again, check. During the first quarter, we had reduced sales in our defense end market, which we have always said can fluctuate unexpectedly. The year-over-year decline reflects a deviation from our customers' normal ordering pattern for the F-18 brakes and RC-135 Auto Throttle. These proprietary products, supplied exclusively by us, are shipped at the discretion of our customers and are significantly sensitive to the ebb and flow of the defense end market.

Q1 highlighted reduced demand for these proprietary products. However, if history provides any indication, we expect our customers to return to the habitual, albeit somewhat unpredictable ordering patterns for the remainder of 2026. I will emphasize that despite the Q1 decline in sales, our book-to-bill ratio in the defense end market was the highest of our end markets during Q1 of 2026, and we ended the quarter with record backlog for our defense products.

With that said, the Q1 defense sales results were more than offset by the strength in our commercial OE and aftermarket end markets. This quarter allows us to demonstrate what we always say. We realized financial success in all the end markets we support. We do not take a razor/razor blade approach in our business model and take into account the totality of all the sectors we supply. So during a quarter when our highest growth end market was commercial OE, we achieved record adjusted EBITDA margins. Once again, I love it when the numbers prove what we say.

In addition, I'm happy to say that collaboration across our business units continues to drive increasing opportunities for top line growth. As a result, our new business pipeline is at a record high of approximately $700 million. Today, Ian will take you behind the curtain of our new business pipeline, so you can get a greater appreciation for why we believe we will grow our new business sales organically at the higher end of our long-term goal of 1% to 3% each year for the next few years.

With that said, Loar is a family of companies with a simple approach to creating shareholder value. First, we believe that providing our business units with an entrepreneurial and collaborative environment to advance their brands, we will generate above-market rates -- growth rates. Since our inception in 2012 through the end of calendar year 2025, we have grown sales and adjusted EBITDA at a compound annual growth rate that's over 30% and 40%, respectively.

Second, we execute along 4 value streams. We identified pain points within the aerospace industry and look to solve those problems through organically launching new products. In calendar year 2026, we expect that new product growth will be the #1 driver of our organic growth as we qualify new parts in the first half of the year, fueling increased sales starting in the second half of 2026. We focus on optimizing the way we manufacture, go to market and manage our companies to enhance productivity.

Each year, we identify initiatives that allow us to continually improve our performance. Historically, we focus on 1 or 2 major efforts that are expected to expand margins. We continuously investigate ways to improve how we mine, collect, gather and utilize data, enhancing our management, ERP and other systems and processes, which allows us to efficiently leverage such data and drive financial and operational efficiencies.

Year-over-year, we achieved more price than our cost of inflation, executing this strategy results in continuously improving margins on an annual basis, except for the occasional temporary dilution due to acquiring a business with dilutive margins.

Lastly, and more importantly than anything else, we are committed to developing and improving the talent of all our mates because our success is solely a result of their dedication and commitment. So thank you to all my mates.

With that, let me turn it over to Brett to walk you through the key characteristics of our portfolio.

Thanks, Dirkson. As you can see on Slide 6, a key driver of our consistent performance is Loar's diverse portfolio of products that cover essentially all end markets, platforms and customers, and it's also balanced across the OE aftermarket spectrum. Said another way, we have content on virtually anything that flies today, and that is by design, as opposed to relying on any particular platform, end market or type of product that may produce short or intermediate term benefits at the expense of the long-term consistency and growth we strive to produce.

Our portfolio is designed to be balanced, resilient and have wide exposure across a very large and overall growing aerospace and defense market. Our performance really starts with the proprietary nature of our products, which creates high barriers to entry and attractive margins, in addition to forming embedded customer relationships that foster cross-selling opportunities and other revenue synergies for both new businesses we acquire as well as our organic new business pipeline. Effectively, proprietary products not only produce great margins, as you can see by our results, that they position us to capture the 20, 30, 40 or even 50-year annuity that any one particular platform may provide, whether that is a commercial aircraft, military aircraft or general aviation aircraft, and whether that aircraft is coming off the production line or well into its aftermarket cycle.

Our proprietary product portfolio is not only growing as a percentage of our total portfolio, but it's also growing in the aggregate, as we have a demonstrated 14-year history now of supplementing our organic growth with M&A activity. I will repeat something I mentioned last time, 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 high-quality proprietary products that meet the return thresholds we seek from the businesses we acquire.

That discipline is something we continue to be very focused on and is evident in our 2 most recent acquisitions, LMB and Harper Engineering, both of which exemplify the types of businesses we like, and both of which are off to a great start. From looking at this chart on Page 7 and from past experience in the aerospace and defense market, I do also want to add that we think we have created a very powerful, very differentiated and unique business model that will generate and sustain exceptional financial performance over the long term.

Adding to that, we will remain an active acquirer of assets. And given the market size and opportunity set, have very high confidence that our cadence of 1 to 2 deals a year over the past 14 years will continue for the upcoming decade and beyond and continue to expand our breadth of capabilities and generate the outsized and consistent long-term returns we have seen in our first 14 years.

We include this slide each quarter because it captures the breadth of Loar, more than 25,000 unique part numbers across the group. But the real key takeaway here isn't any one single product. It's the set of capabilities behind them. We're not simply a collection of businesses that manufacture a wide range of components. We're an integrated platform that combines engineering, design, qualification and production expertise across disciplines to deliver tailored customer-specific solutions.

Those capabilities show up most clearly in our organic new business pipeline. Before we get into the specific opportunities, let me define for you what we mean by new business at Loar. We see it coming through 2 primary channels: first, new products or technologies or new or existing customers, think clean sheet designs and meaningful product enhancements; second, existing products expanded to new customers, think market share gains and new platform wins. Across the group, our organic pipeline now totals approximately $700 million of revenue potential expected to convert over the next 5 years, up roughly $100 million from what we shared with you in February. As the chart shows, slightly more than half of these opportunities are tied to the commercial end market, with general aviation and defense, each representing roughly a quarter.

The slide includes examples of the product families that we're pursuing today, but our development and growth efforts extend well beyond what is shown. Simply, every Loar business is actively engaged in capturing new organic opportunities. We expect this pipeline to continue to expand as we add capabilities, broaden customer relationships and support additional platforms. And importantly, it does not take a large capture rate for this to be meaningful. Converting less than 15% of the current pipeline over time would be sufficient to support our targeted 3% annual growth from new business.

I'll now pass it over to Glenn.

Thank you, Ian. Good morning, everyone. Let me start by discussing sales by our end markets. This comparison will be on a pro forma basis as if each of our businesses were owned as of the first day of the earliest period presented. This market discussion includes the acquisition of Beadlight in Q3 '25, LMB Fans & Motors in Q4 '25, and Harper Engineering in Q1 2026.

We achieved record sales during the quarter of '26. In total, our sales increased to $156 million, which is an 11% increase as compared to the prior year. This increase was driven by strong performances in commercial OEM and commercial aftermarket, partially offset by a slightly lower defense sales. Our commercial aftermarket sales saw an increase of 11% in Q1 '26 versus Q1 '25. This is primarily driven by the continued strength in demand for commercial air travel and an aging commercial fleet. Our total commercial OEM sales saw an increase of 18% in Q1 '26 versus Q1 25. This increase was driven by higher sales across a significant portion of the platforms we supply, along with the continuing improvement in the production environment for commercial OEMs. Defense sales saw a decrease of 2% in Q1 '26 as compared to the prior year. As Dirkson said, in so many words, defense sales are lumpy given the nature of the ordering patterns of our end customers for our products.

Let me recap our financial highlights for the first quarter of '26. Our net organic sales increased by 11% over the prior year quarter. Our gross profit margin for Q1 '26 decreased by 130 basis points as compared to the prior year. This decrease was primarily due to the higher noncash amortization of acquired intangible assets and the nonrecurring noncash recognition of an inventory step-up adjustment, both related to the LMB and Harper Engineering acquisitions. The total of these 2 noncash items was $11 million. Excluding these 2 adjustments, our gross profit would have increased to 57.6% as a result of our operating leverage, the execution of our strategic value drivers as well as a favorable sales mix. Our decrease in net income of $4 million in Q1 '26 is primarily due to higher interest as well as the 2 noncash items discussed above.

We've added a new metric this quarter, adjusted net income. Adjusted net income excludes the noncash amortization of acquired intangible assets and certain other nonrecurring charges. We believe this metric provides a more consistent view of our earnings. Adjusted net income increased $5 million or 20% in Q1 '26. This increase is due to our strong financial performance during the quarter, partially offset by higher interest expense.

Adjusted EBITDA was up $20 million in Q1 '26 versus the prior year quarter. This is primarily due to our operating leverage and the execution of our strategic value drivers. Again, Q1 '26, we achieved a record 40.5% EBITDA margins. This is an increase of 290 basis points from Q1 '25. From 2020 through 2026, we will have increased our EBITDA margins by 910 basis points. We've achieved this growth through operating leverage, winning new profitable business, executing on productivity initiatives, value-based pricing, all this while fully absorbing the negative impact of costs related to Sarbanes-Oxley compliance and additional organizational expenses to support being a public company.

Let me now turn the call back over to Dirkson to share our revised outlook for '26.

Thanks, Glenn. Based on what we have said today, it should come as no surprise that in spite of the temporary, and again, I say temporary uncertainty that may be created by the geopolitical challenges the world is facing today, that we're increasing our guidance for 2026.

But before I share the details, let's take a moment to remind everyone that we operate with the tailwinds of a secular growth industry, which captures the increasing human need to travel, move products from point A to point B, and to defend our American liberties, driving secular demand. These things have been proven to be true since the beginning of aviation, and will continue to be so for the foreseeable future. As a result, Loar will continue to grow at an above-average industry rate.

Here is what we are currently experiencing by end market in 2026. Demand in the commercial aftermarket remained strong as reflected by a book-to-bill of greater than 1 in Q1 of 2026. To date, our customers have maintained moderate reaction to the temporary impact of higher fuel costs. In fact, our challenge is ensuring that we continue to increase our capacity to keep up with the secular growth in this end market. We do recognize that airlines are rationalizing their capacity given the elevated cost of fuel, which will result in a temporary reduction in unit demand. However, that rationalization typically takes a few quarters before it will impact any of the demand for our products. Given our portfolio of proprietary products and execution of our value drivers, we fully expect to mitigate any financial impact and anticipate continued growth of 10-plus percent organically for the foreseeable future as we continue to expect the age of the active fleet not to peak until the end of the decade.

Looking at the commercial original equipment end market, our customers continue to report significant backlog supporting multiyear deliveries. Both Airbus and Boeing have approximately 9,000 and 7,000 aircraft in backlog, respectively. This represents over 10 years of production at today's stated rates. As the supply chain continues to improve capacity and quality, we expect sales for our proprietary products that line-fit on these aircraft to generate increased sales for us as production ramps. This is clearly reflected in the growth in this end market in Q1 of approximately 18%.

The defense market has been heavily influenced by the current geopolitical environment, as I've stated before. European nations have increased their military spending to the highest percentage of GDP in decades. In addition, the U.S. defense budget has seen considerable growth, while the timing of orders and sales can fluctuate significantly over the long term, we are well positioned to benefit from these upward trends going forward.

Given our balanced portfolio of 50% OE, 50% aftermarket, the broad spectrum of our products across all end markets, combined with executing all our value drivers, let me say it again, we expect to continue to grow sales at 10%-plus organically and adjusted EBITDA at 15%-plus annually into the foreseeable future.

Now we're excited to share our upward revision to our 2026 outlook. As each of our end markets are experiencing strong demand tailwinds, our focus is on executing our value drivers to continue to position Loar to at least triple adjusted EBITDA every 5 years, including acquisitions, as we have done consistently since our inception, except during COVID. As always, our view is on a pro forma basis, assuming we owned all of our business units since the beginning of 2025.

With that said, we still expect commercial OE and aftermarket growth will be low double digits in 2026 for all the reasons I highlighted earlier, while our defense end market sales will be up mid-single digits in 2026, driven by a record backlog of orders at the end of Q1. These market assumptions, along with the strong performance of our 2 most recent additions to our family of companies, LMB and Harper, and our continued execution of our value drivers, allows us to increase our guidance by $5 million of sales and $4 million of adjusted EBITDA. And of course, we expect to meet or exceed this increased guidance for calendar year 2026.

Our increased range for net sales is now between $645 million and $655 million; adjusted EBITDA between $257 million and $262 million, with adjusted EBITDA margin of approximately 40%. GAAP net income will be in the range of $53 million to $57 million, reflecting the noncash acquisition-related charges that Glenn referred to earlier. Adjusted EPS will be between $1.26 and $1.30 per share. In addition, capital expenditures to be in line with our historical rate of 3% at around $19 million. There's no change to our full year interest expense, effective tax rate, depreciation or fully diluted share count. Amortization is up $5 million to reflect noncash acquisition-related charges, while noncash stock-based compensation is up $1 million to $18 million.

Please note that all the amounts I've just outlined to you relating to calendar year '26 performance assume no additional acquisitions. However, as we've noted and as Brett has said just earlier, our drumbeat is to complete 1 or 2 acquisitions each year. We just cannot predict the timing of such acquisitions.

With that, Barak, let's turn it over for questions.

[Operator Instructions] Our first question today comes from Kristine Liwag of Morgan Stanley.

I just wanted to follow up on your discussion of the $700 million revenue potential over the next 5 years, up $100 million from February. I guess, first, I want to recognize that you tend to be very conservative, but it seems like a 15% conversion over this time line seems too conservative and fairly reasonable for you to hit your 3% targeted annual growth from new business. But when you look at your capabilities, can you share with us what's a reasonable conversion of this opportunity? How much of these existing opportunity do you have line of sight on regarding the customer wanting you as a supplier like some sort of like pull mechanism? And is 50% a reasonable number? Any color you could provide there would be helpful.

Kristine, thanks for the question. Look, I'll say this because I've been called all kinds of things. Conservative, yes, yes, yes. I -- no, we accept that, all 4 of us here. Look, we have line of sight on all $700 million. All $700 million, I would describe it as more pull than push, right, because we have a customer attached to it. We have plans to either certify the part or the parts already certified, and have had conversations, not just with engineering team but operations in terms of how we operationalize, design, whatever it is, those typical products. So clear, clear line of sight.

The reason that we say 15%, right, because we guide to 1% to 3%, that would take us to the 3%. Should we do better? I'll say this. Just between you and I, we should, right? But with that said, here's what happens in this industry. Things just move to the right for no other reason than just timing. It could be because the FAA is shut down, which they've done twice since we've been public, and slowed down the certification of some of our products, which has happened twice now, and things can move to the right. But what will not change is the opportunity set, right? So could we win 50%? Yes, why not. But it may not happen as we have projected over the next 5 years. It could take 6, 7, whatever it is, to move to the right. So conservative, sure.

And one other thing I should add, the great news about the pipeline, it's a living, breathing entity, and it continues to grow. So $600 million to $700 million, whatever into the future, that's probably the most powerful news. Sorry to interrupt you. Go ahead.

No, super helpful, Dirkson. I just wanted to follow up then. So in terms of the milestone to watch, the gating factor for the $700 million opportunity, is it then the FAA approval of your offering? Or is it some sort of contracting mechanism from the customer? I guess just want to understand what the next step would be for getting that. And then also, if you get that approval, when you, let's say, you unlock a portion of this, is that a run rate for the following year that you would get? Or is that an immediate kind of a number? Or is that an overtime kind of number? Just want to understand a little bit more the timing and then also the duration of how that kind of flows through?

I understand the question. Great question. So I'll give you a couple of examples, kind of give everyone a sense as to what we deal with. So I'll take the FAA since I did bring it up first, shutting down a couple of times.

So let's take brakes. We have 11 platforms that we're looking to certify. That's how we started our mission. We've done 7, there's another 4 that we expect to complete within the next 12 to 18 months, okay? So I'll share, the available market for those 11 platforms is hundreds of millions of dollars, right? We won't win all of that, right? So when I think about, is that a gating item for brakes? It is, okay?

We are collaborating across -- the second example, we're collaborating across 5 of our business units for an opportunity that one of our customers brought us because it's a big pain point for them. We have the capability across the 5 business units that we -- that are collaborating to solve this thing that no one else has. Everyone else would have to go out to a vendor, a supplier to support them at the capability. That is something that we've been working on for the last 3 months.

I will tell you that our customer would tell us, we want to have it done by the end of the year. I will tell you that for whatever reason, I can name a plethora of them, it typically moves to the right. It has nothing to do with certifications, it's just the drumbeat of how slow this industry moves, especially engineers, right? So there's a number of reasons that it can move to the right.

So the way to measure how successful we are is by measuring our organic growth. Our organic growth, as I said before, over the next couple of years, the biggest driver will be coming from this new business. So as we get into the second half of the year, we get into 2027 and beyond, we would expect our organic growth to ramp second half into the future. That's, I think, how you would be able to judge it.

The next question is from John Godyn of Citi.

What I wanted to ask about was just the portfolio mix and kind of give you an opportunity to kind of speak through the mix a bit. There's a concern out there, as you guys very well know that some of the higher-margin aftermarket companies are overearning. And perhaps that margin profile is at risk, even if there's a slight shock to aftermarket demand and traffic growth. I know that you guys don't hold that view, but I wanted to just sort of use the opportunity to address that question.

Yes. No, John, thanks for the question. And yes, we get that question a lot. Look, I think as I said in my remarks, we don't take a razor/razor blade approach to any of our product lines, any of our products. How many do we have? 25,000. None of them do we take that approach with, okay? So let's start with that.

Two, I believe -- we believe that we should get paid for what we supply. You can call it OE, you could call it aftermarket, you can call it military, whatever you like, right? All of our parts, we make good money. Some we make better than good, but we make good money across all of them. And I hope this quarter helps people get a better sense of that given the fact that OE commercial was our largest growth sector, and we have record margins.

So I'll say it this way. I personally don't care where the growth comes from. I know everybody is focused on aftermarket, which we love, and it's half of our business. But I don't care if it's defense. I don't care if it's OE commercial. We're going to make good money and margins, in spite of which one grows faster, it's going to continue to grow. Operating leverage, price over inflation, focus on the right parts, pricing things right, it's going to continue to grow. So John, hopefully I answered your question there.

That's very helpful. And if we could spend an additional moment on military aviation, what's going on in defense and the outlook there? Obviously, there's a lot of activity in the Middle East. And I'm just kind of curious to maybe get a little bit more color on the outlook and if you're seeing clear signs of that kind of picking up and what that might mean for the portfolio if this activity continues or if the activity stops altogether?

Yes. I would say this, John. It's interesting. So you're marrying up demand, right? Because we see the same thing you're seeing. There's a lot of conflict, a lot of airplanes are flying, that kind of thing. And then with inventory levels and our ability to meet that demand over time, I would say this, right? Clearly, the operations that are happening in the Middle East and on a global scale will drive demand for our parts. The trouble we always have is saying, hey, is that going to hit Q1, Q2, Q3, Q4, whatever. It's just really challenging.

Dirkson highlighted the F-18 brakes were -- didn't have recurring revenue this year that they had last year. And that's a product where the military buys a lot in bulk and then they burn it down, and then they'll come back and they have to come back to us. So I would say this, conflict breeds demand, but the timing of when we support it is going to be varied.

And if I can add to that to what Ian just said, I can share this with you, John. I know that we are currently working on a number, a number of opportunities on the military side. It's not in our backlog yet that gives us great comfort that as we think about beyond 2026 and beyond, that the military end market is going to be super strong.

Okay. Okay. I mean, we'll look forward to that. That's good color. And if I could just ask one more, a little bit kind of splitting hairs, but you guys have bizjet and general aviation exposure. You also have commercial aftermarket exposure. Is there anything kind of tea-leaf reading, anything to point out between the two exposures? Just in the context of kind of evolving a little bit of kind of macro volatility out there. I'm just curious if they're zigging and zagging, kind of any different ways or if the demand signals are different?

No. I mean, we're all looking at each other, shaking our heads. No, nothing zigging or zagging. I guess -- I would say this. I mean, as you know, the general aviation market is going to be the most sensitive to the economy, right? But it has remained fairly strong for the parts that we are shipping. So don't see a significant amount of weakness in terms of backlog. So, no, no zigging or zagging that we see.

The next question is from Noah Poponak of Goldman Sachs Asset Management.

Guys, can we talk more about these margins? It's a pretty big year-over-year lift, sequential lift. That's despite just folding in some newly acquired revenue, although I guess we know LMB is pretty high margin, maybe that's part of it. But if you could just discuss a little more how you got the margins there? Is there anything kind of favorable in the quarter? The guidance for the rest of the year would imply you're kind of flat, maybe even down a little bit the rest of the year. Is that right?

And then beyond this year, Dirkson, you talked about the algorithm of top line organic 10%; EBITDA organic 15%. I think that implies from where your margins are today, something close to 200 basis points of annual expansion. You've done that in the past, but it's not what the consensus has. I just wanted to make sure I understood that.

Thanks for the question, Noah. First of all, I'm never going to disagree with your math. Would you say 200, it's 200. Just to say that out loud. But here's what I would say about margins and where they came from. So yes, you're right. We highlighted that LMB started out with very, very good margins that were accretive to our margin.

But I will tell you this because we haven't said this out loud, that Harper was significantly in the opposite direction in terms of it being significantly dilutive.

So where is the margin growth coming from? It's coming from price over inflation, it's coming from operating leverage because, look, we have -- what's the number today, 38 people on the corporate team. And when we're twice the size, guys, stick with this, we will have maybe 45, right?

So we look at costs very seriously in terms of how we think about adding, we've got to add value, right? So the operating leverage, the way we approach it, especially around productivity, all the initiatives that we have going on is to continually drive margin. I will tell you that one of the first things that a business that joins our family learns to speak is our language. And our language is price -- price over inflation, productivity. And productivity we define as follows, which is the improvement in margin when you take away price and inflation. So everything else, margin has to go up. So you can't tell me that you're working on some project that's going to reduce variable cost by X. If I don't see it in the margin, I don't believe you. So I think it goes to our culture and the focus on how we think about margins.

And the last thing I would add, Noah, because I think sometimes some people get this wrong. 90% of what we do is proprietary, which is why I said on the call earlier that given the visibility we'll have because airlines are reducing capacity, we can flex. I'll say it that way. We can flex any of our leverage points in terms of value drivers to make sure that we continually grow the business, 10% top line, 15% EBITDA organically. So highly, highly confident that margins are only going up from here. I'm not going to commit to 200 basis points a year though.

Okay. Yes, we try to get the math right, but a lot of times, it's on the fly. I appreciate all that, Dirkson. And then just you alluded to it right there and you spoke to it earlier, but it would just be great to have you elaborate a little bit more on what you're hearing from your customers vis-a-vis geopolitics and higher crude. It sounds like from the industry and from you that the changes the airlines are making thus far are pretty small. I'd love if you could just talk about why do you think that is? I mean it's actually a little surprising they haven't changed a little more? And what's the threshold for them to take further action?

So the conversations we're having with customers have been pretty rational, I guess, is the term I would use, right? Everybody is rubbing their crystal ball to decide how long this conflict is going to go on. Right now, the crystal ball says it should not be months, right? It's going to be a shorter period of time. So everybody is reacting in that manner.

I'll share a little bit. Approximately 2.5% of our revenues come from the area where the conflict is, if I can say it that way. In the first quarter, we saw no impact to that in sales or orders, okay? So I think that goes to how people are thinking about it at this moment in time. Now 13 weeks from now, if we wake up and we're still in this malaise, I may have a slightly different answer. But that answer will be followed up by the following: we have proprietary products that our customers need, and we have the ability to flex in terms of any of our value drivers to make sure that we're going to grow 10% top line, 15% EBITDA. Can I end there?

That's a good ending.

The next question is from Sheila Kahyaoglu of Jefferies.

This is [ Jack Yue ] on for Sheila. Just following up on Noah's question in a higher-for-longer fuel environment where we do potentially see a lagged aftermarket volume headwind, you're noting that you'll be able to offset any of that through price. Can you just talk about what's driving Loar's pricing power whether that's through contracts or elsewhere?

So Jack, I didn't say price. I said we flex our value drivers, but let's go with that. So what drives that? I'll give you an example. So the F-18 brakes that we referred to, that we had orders last year and we shipped, we haven't seen them this year. I'll describe what we do for that brake, right? So we do the needling and the heat treat for the brakes that doesn't have our name on it, okay? And that process, if we took that piece of equipment and moved it across the street, we have to -- our customer would have to recertify that brake on that particular aircraft. So when we say proprietary, we mean there's nowhere else for you to go, right, especially in a 12-month period, right? So we will flex. I'll use my terminology, our value drivers to offset any reduction.

Now the reduction that probably people are talking about at this moment in time is low single digits because that's what we've seen with people reducing capacity. Where we may have a greater flex, I'll admit this, it's probably at a distributor or two who may decide to reduce inventory for cash flow reasons in the interim. But all that would mean, Jack, is that when they do decide to order, they'll be ordering at a higher price. I will use the term then.

And so to us, it's just noise. Every 13-week to us is noise. 5 years from now we'll be a much bigger, better business with greater proprietary content, driving a lot more new business, et cetera, et cetera, and that's kind of how we think about it. Hopefully, somewhere in there, I answered your question.

No. Absolutely. That was very helpful. And then just for a quick follow-up. You guys employ a very disciplined M&A approach targeting 1 or 2 acquisitions a year and looking for high IP suppliers that can double EBITDA within a 3- to 5-year time range. Can you just talk about the M&A pipeline now and Loar's appetite in the medium term?

Well, the appetite is high, and the pipeline continues to be large and very active. Look, I mentioned it in my discussion around the slides that although it's a very large pipeline and it's very active, it's one that requires discipline, and I say that because certainly in the last year or two, there's been a lot of capital markets activity around aerospace. That falls on the ears of everybody in the supply chain, particularly those who are thinking about selling their businesses.

And we have seen a greater array of businesses with a more disparate range of quality, if I can call it that, such that you have to be very careful around making sure that the businesses you buy can generate the returns that you just mentioned, have the proprietary content that we like and have all the requisite dynamics to generate the type of growth and financial performance that you've seen, again, I'll say it again, over the last 14 years from us.

And so that's really the challenge in the market. It's not a dearth of opportunities. There's actually too many opportunities where we have to prioritize the things that we like, the things that we think are a good fit, maybe most importantly, the things that we can execute on.

The next question is from Ken Herbert of RBC Capital Markets.

Maybe just to level set us, Dirkson, as we think about the aerospace aftermarket, how much of your business is backlog driven versus book and ship? Like as you head into the second or the third quarter, how much visibility do you have? And maybe what percentage of the mix is basically book and ship as you think about aftermarket, in particular, on the aerospace side?

That's a great question. So look, for aftermarket products, we'll typically enter a month with half of it in backlog, the other half of it book and ship. But we are really good at forecasting what that book and ship looks like, again, because we're proprietary. I'll say this, we're exclusive. I don't say it's sole source, guys, exclusive provider. So we get -- we have pretty good visibility. So we can start a quarter and know pretty close to where we're going to be. Now that's aftermarket. OE, defense, longer lead time, we have quarters in front of us in terms of visibility, how we think about things. So about 50% typically in backlog when we start a month.

That's helpful. And I just wanted to maybe push a little bit on the new business opportunity. I know this has been an important part of the story for several quarters now. It seems a little bit maybe like your estimates could be conservative as we think about some of the wins you've had and the $700 million opportunity you talk about. How do we think about that phasing in maybe this year versus what could be sort of incremental upside in '27 and '28, sort of the near term on that versus the mid- to longer term?

Yes. So what we're comfortable sharing at this moment in time, Ken, is what we've said, which is we expect new business to be 1% to 3% and over the next few years, closer to 3%. But as I tell people, the number 4 is closer to 3 than 1. So could it be 3-plus? Yes. I could see that in terms of percentage growth year-over-year.

The beauty of it is, I don't think Ian mentioned this, but 2/3 of that $700 million is OE, 1/3 is aftermarket. So let's put the aftermarket aside because I think everybody gets that. You get aftermarket. It's going to be high margin. It's going to be a beautiful business, all that stuff. What I'm most excited about is 2/3 that OE because what it means is repetitive future aftermarket sales for decades to come.

So I think someone asked this question earlier, maybe I didn't answer it properly. But when I think about winning that new business, we're talking about uplifting the whole company in terms of revenues going forward. So it's not win, ship and that's it. It's win, ship and then replace and repair and have recurring revenues, the annuity stream that we're looking for.

So when we talk about looking for acquisitions and looking for the types of business we love, it's also the same discipline we have when we think about the products that we have in the new business pipeline because we have choice, right? We're looking for the things where we're going to get great margins, where we can continue to grow it, where we can position ourselves with a customer and be their supplier of choice. Exclusive, whatever, however you want to call it, going forward.

So conservative, okay, second time I've been called out today, I accept it. We are being conservative in how we think about it. But for us, the conservatism comes from the fact that the timing, just like acquisitions, it's the hardest thing to predict, right? So I'll stick with the 1% to 3%, closer to 3% at this moment in time.

There are no further questions at this time. I'd like to turn the floor back over to management for closing comments.

So look, look, thank you, everyone, for taking the time to hear our story again today. Hopefully, we were able to clarify some of the things that's been on your mind. We are excited about what we're going to accomplish in 2026 and beyond because, look, we're building that aerospace and defense cash compounder that we dreamed of 14 years ago. And I'll say this, I'm looking forward to speaking to you guys in 13 weeks.

So with that said, thank you, and we'll chat in 13 weeks.

Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines, and have a wonderful day.

Greetings, and welcome to Loar Q4 and Full Year 2025 Earnings Call. [Operator Instructions]. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Ian McKillop, Director of Investor Relations. You may begin.

Thank you, Brock. Good morning, everyone, and welcome to the Loar Q4 and Full Year 2025 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 from my mates, and all our partners participating on this call. I am Dirkson, Founder, CEO, Executive Co-Chairman of Loar. As you all know, Loar was founded 14 years ago with the mission of building an aerospace, industrial cash compounder, wrapped in a culture that all our made can be proud of. 4 years into our journey, I am as excited about our future as I've ever been. In 2025, we once again delivered predictable and consistent financial performance exceeding all our key annual financial goals.

Sales, adjusted EBITDA, adjusted EBITDA margins and free cash flow were all annual records for a but my excitement really comes from looking forward to 2026 and the opportunity to break all those records we set last year. Look, looking into the future, all our end markets have strong tailwinds. The commercial aftermarket has experienced an increase in the average age of the in-service fleet. Pre-COVID, the average was approximately 11 years. Today, it sits at 14-plus years. So over the fleet, the more demand for aftermarket parts. We love that.

This is a trend we expect to continue well into the 2030s as the delivery of new aircraft continues to fall short of demand. In addition, the commercial aftermarket has witnessed a decrease in the number of aircraft retired each year. Historically, 2.5% of the fleet is retired. However, from 2022 to 2025 and the retirement rate is continuously decreased, reaching a low of 1.5% for 2025, aging fleets, reduced retirement, all lead to one thing. Greater demand for our parts into the future. With regards to ritual equipment manufacturers who are sitting on record backlog of audits for future delivery. They have done an excellent job in addressing ongoing supply chain challenges, shortages of skilled labor and raw materials, constrained production and geopolitical uncertainty to now be able to increase production.

For example, Airbus and Boeing plan to produce approximately 1,900 and 1,300 aircraft over the next 2 years, respectively. This would represent a compound annual growth rate increase 15% over 2025 production rates. Our proprietary products that align fit on these aircraft will generate increased sales for us as production rents. Now with regard to the defense market, which has been heavily influenced by the current geopolitical environment European nations have increased their military spending for the highest percentage of GDP in decades. In the U.S., there is stock of a $1.5 trillion defense budget Combined, these trends will lead to greater opportunities for us to provide more products and solutions.

So given our balanced portfolio, 50% OE, approximately 50% aftermarket the board spectrum of our products across all end markets, combined with executing all our value drivers, we expect to continue to grow sales at 10% plus organically and adjusted EBITDA at 15% plus annually into the foreseeable future. We continue to grow inorganically as well. Every time we add a new member to our family of companies, we view it as adding capabilities to the law toolkit, the larger the tool kit, the larger the revenue synergies. I'm pleased to welcome our new makes from LMB and Harper.

LMB brings new capabilities to our toolkit and we're excited to add our new makes to the team. Harper is a company I've personally known for 18 years and could not be happier knowing that this once employee-owned company chose us to carry their brand into the future. No option, just a goal fashion of getting to know each other and realizing that our culture is made for a perfect match. Bob and Carlo, welcome to Team Loar. With that said, Loar is a family of companies with a very simple approach to creating shareholder value.

First, we believe that providing our business units with an entrepreneurial and collaborative environment to advance their brands, we will generate above-market growth rates. Since our inception in 2012 through the end of calendar year 2025 and we have grown sales and adjusted EBITDA at a compound annual growth rate of over 30% and 40%, respectively. Second, we executed a long 4 value streams. We identified pain points within the aerospace industry and look to solve those problems through organically launching new products. In calendar year 2026, we expect that new product growth will be the #1 driver of our organic growth as we qualify new parts in the first half of the year, fueling increased sales starting in the second half of 2026.

As you all know, we track this pipeline of opportunities and [indiscernible]. This pipeline represents a list of opportunities derived from listening to our customers, identifying their pain points and developing direct solutions for them. These solutions are created on the sharing of ideas, best practices and customer synergies across the group, which directly results in the high degree of collaboration that we foster across our business units.

The pipeline represents over $600 million in sales over the next 5 years without including the benefit of top line synergies we expect to achieve since having the capability to produce fans, models, interior latching mechanisms and C-TRACK filings to our toolkit to the additions of LMB and Harper. We focus on optimizing the way we manufacture, go to market and manage our companies to enhance productivity. Each year, we'll identify initiatives that would allow us to continually improve our performance with a focus on 1 or 2 major efforts that can be expected to expand margins.

We continuously investigate ways to improve only mine, collect, gather and utilize data, enhancing our management, ERP and other systems and processes allows us to efficiently leverage data and drive financial and operational efficiencies. Each year, we achieved more price than our cost of inflation, which is one of the levers we use to continuously improve margins in the past year except for the occasional temporary dilution due to acquiring a business with diluted margins or incurring costs because of being a public company.

Regardless of these temporary headwinds we continue to improve our margins. Most importantly, we are committed to developing and improving the talent of our makes because our success is solely, solely a result of their dedication and commitment. To all my mates, as always, thank you so much for your commitment and hard work. I will now turn it over to Brett to walk you through the key characteristics of our portfolio, and our commitment to our inorganic growth.

Thanks, Dirkson. Good morning, everybody. One of the key drivers of our exceptional performance this quarter and this year, and maybe more importantly, our consistent performance over a very long period of time is because we have a very diverse portfolio of products that covers virtually all end markets, platforms, customers and is balanced across the OE and aftermarket spectrum. Said another way, we have content on virtually anything that flies today and that's by design as opposed to relying on any particular platform, end market or specific product line.

We just want to have exposure to and be balanced across a very large and growing overall aerospace and defense market. We accomplished this through a very broad portfolio, the vast majority of which consists of proprietary products which allows us to drive growth, achieve value pricing and create strong customer relationships and corresponding cross-selling opportunities.

Effectively, we have positioned ourselves to capture the 40 or even 50 year annuity that any one particular platform may provide, whether it's a commercial aircraft, military aircraft, or in part of its OE or aftermarket portion of its life cycle. Our proprietary products are not only growing as a percentage of our total portfolio, but also growing in the aggregate. As we have a long history now of supplementing our organic growth with M&A activity and a large pipeline of opportunities. What we're seeing today with M&A is a very active market with many willing potential sellers.

But as such, we think a market like this requires an appropriate amount of discipline, whether it's related to price or just the quality of the assets for sale. That discipline is something we have been very focused about in creating the portfolio we have today. And as a result, we have done 1 to 2 deals a year for a fairly long time now, irrespective of macro conditions or the like, so we remain a very active and consistent acquirer of assets and fully inspect 2026 to be another active year.

In fact, since going public, less than 2 years ago, we've invested over $1.1 billion of capital in M&A, which is far and away our greatest use of free cash flow and along with strong organic growth has resulted in us doubling the size of the business in 2 years as a public company when you include our latest announced deals. To Dirkson's earlier point, we feel very confident in our business model that through organic means and acquisition-related growth can at least triple every 5 years, and we are certainly ahead of that base since becoming a public company.

Our newest family members, LMB and Harper both represent the type of businesses that we want in the portfolio. We obviously haven't had the chance to speak since announcing the closures of either LMB or Harper but we're really excited about both. I think these companies represent what I was mentioning earlier, two very different product lines serving different end markets and customers but both right down the middle of the types of businesses we want to own, proprietary content in niche markets with meaningful aftermarket opportunities.

Just to review two of the names that are on this page here. LMB, I think, most of you know because that's a business that we announced many, many months ago. We're very glad to finally have closed that, I think, in the last week of December. LMB is a business located in the southern portion of France. It's a great business that manufacture what we call engineered cooling devices and solutions Said another way, seeing customized and ruggedized fans and motors and systems that go into niche applications in military content, whether it's an aircraft or a ground vehicle. It's 100% proprietary product portfolio with what we think is a very, very meaningful opportunity to increase the aftermarket side of the business today, which is less heavily weighted towards currently.

It also serves an end market that we haven't really had a lot of exposure to, but has a lot of headwinds -- excuse me, a lot of tailwinds today, which is the European defense market. So we think that's going to be very strong for the next couple of years. And it's a business that today is margin accretive to overall or and it has a real growth opportunity to enter the world's largest loyalitary market here in the U.S., which it does very, very little. So we're very excited about the opportunities in front of us.

Harper, as Dirkson referenced, is actually a business that we've been through later with since our days at the [indiscernible]. This is a business that, again, we call has interior securing components but think until you're latching mechanisms and the like. We are familiar with it through [indiscernible] because we had a latching business called Hartwell back in the 2007 to 2010 time frame, and we are very familiar with Harper due to its stellar reputation, high-quality products, an excellent, excellent relationship with Boeing. So Harper serves a completely different market than LMB and that it primarily serves the commercial market. Like I said, it has an excellent, excellent representation with Boeing. They have been recognized as one of Boeing's most trusted suppliers.

And we think that relationship can foster further cross-selling opportunities with Boeing with other parts of the commercial market and really the value-added piece of the portfolio. We're really, really excited about both LMB and Harper, and we can already see the collaboration with other business units as we think these new products are going to be value-added to the overall portfolio, which Ian will tell you about next.

Every quarter, we share this slide about highlighting our products that the real power of this portfolio isn't just any one of these products. It's the combined capabilities that Dirkson spoke about earlier. We've added two new capabilities, interior latching assemblies, as you can see in the top right, hyper fans and cooling devices with our acquisition of LMB. This product offering with over 25,000 SKUs, of which no one more -- makes up more than 3% of our overall revenue. brings our customers something that is incredibly unique, a set of capabilities that can serve them and can be adjusted to meet their needs. I'll now pass the call back to Glenn.

Thank you, Ian. Good morning, everyone. Let me start by discussing sales by our end markets. This comparison will be on a pro forma basis as of each of our businesses were owned as of the first day of the earliest period presented. This market discussion includes the acquisition of Applied Avionics in Q3 '24 and B Light in Q3 '25. It does not include our latest acquisitions of LMB fans and Motors and Harper Engineering.

We achieved record sales during calendar year '25. In total, our sales decreased to $500 million, which is a 15% increase as compared to the prior year. Our Q4 sales were also a record, increasing 17% versus the prior year quarter. These increases were driven by strong performances in commercial aftermarket, commercial OEM and defense. Our commercial aftermarket sales saw an increase of 19% in calendar year '25 versus '24. It increased 34% in Q4 '25 versus Q4 '24. This is primarily driven by the continued strength in demand for commercial air travel and an aging commercial fleet.

Our total commercial OEM sales saw an increase of 11% in calendar year '25 versus '24. It increased 8% in Q4 '25 versus Q4 '24. This increase was driven by higher sales across a significant portion of the platforms we supply, along with an improving production environment for commercial OEMs. The increase of 19% in our defense sales in calendar year '25 versus 24% and 14% in Q4 '25 versus Q4 '24, was primarily due to strong demand across multiple platforms and an increase in market share as a result of new product launches.

Defense sales will continue to be lumpy given the nature of the ordering patterns of our end customers for our products. Let me recap our financial highlights for the fourth quarter of Sales increased 19.3% or 16.9%, excluding acquisition sales over the prior period. Our gross profit margin for Q4 '25 increased by 320 basis points as compared to the prior year period. This increase was primarily due to our operating leverage the execution of our strategic value drivers as well as a favorable sales mix. Our increase in net income of $9 million in Q4 '25 versus Q4 '24 is primarily due to lower interest.

Adjusted EBITDA was up $10 million in Q4 '25 versus Q4 '24. Adjusted EBIT margin. Adjusted EBITDA margins were 38.7% due to our operating leverage the execution of our strategic value drivers and a favorable sales mix. This was partially offset by additional costs associated with being a public company, including Sarbanes-Oxley compliance and additional organizational costs to support our reporting, governance and control needs. For the full year of in sales increased 23.2% or 12.7%, excluding acquisition sales.

Our gross profit margin for the full year was 52.7%, which is up 330 basis points as compared to the prior year period. Our net income increased $50 million in calendar year '25 versus $24 million. This was driven by lower interest expense and higher operating income. Our adjusted EBITDA was a record of $189 million in calendar year '25. This is up $43 million versus $24 million. Adjusted EBITDA margins were up 180 basis points due to our operating leverage, the execution of our strategic value drivers and a favorable sales mix. This partially offset by the additional costs associated with being a public company.

We do not see an increase in these type of public company costs going forward. We believe the run rate of these costs are fully reflected in our calendar year '25 results. Our free cash flow conversion, which is defined as cash flow from operations less capital expenditures was 138% for calendar year '25, and it's 160% and if you exclude a onetime $10 million tax benefit we received from the one big beautiful Bill Act. Let me now turn the call back over to Dirkson to share our outlook for '26.

Thanks, Glenn. Look, we are extremely excited to share upward revision to our 2026 outlook. As I said earlier, each of our end markets are experiencing strong demand tailwinds. So our focus is on executing our value drivers to continue to position us to at least, as Brett said earlier, at least triple adjusted EBITDA every 5 years including acquisitions, as we've done consistently since our inception, except during cover.

As always, our view is on a pro forma basis, assuming all of our business units since the beginning of 2025. With that said, we still expect commercial OEM aftermarket growth will be low double digits in 2026 for all the reasons I highlighted earlier. While our defense end market sales will be up mid-single digits as we come off a fantastic year of 19% growth in 2025 over 2024. As we've always said, growth in the defense and end market will be choppy. These market assumptions, along with the additions of LMB and Harper to our family of companies and our continued execution of our value drivers will allow us to meet or exceed the following for calendar year 2026.

Net sales between $640 million and $650 million; adjusted EBITDA between $253 million and $258 million, adjusted EBITDA margin of approximately 40%. Once again, we demonstrate our ability to continually improve margins. Net income between $59 million and $63 million while adjusted EPS between $0.76 and $0.80 per share, which is a reduction in our guide on only because of the incremental noncash depreciation and amortization related to the acquisitions, L&B and hopper as well as the interest associated with funding those acquisitions, as we discussed earlier.

Capital expenditures will be in line with our historical rate of approximately 3% of sales at $19 million. We have increased full year interest expense to $80 million because of the funds reverted to fund the acquisitions of L&B and Hopper. We expect both acquisitions to meet our investment hurdle of Dublin adjusted EBITDA in 3 to 5 years and to be accretive to earnings in calendar year 2026. Our effective tax rate, 25%, depreciation and amortization of $75 million and noncash stock-based comp of approximately $17 million. Share count remains the same, 97 million.

Please note that all of the amounts I've just outlined for you relating to Calendar 2026 performance assume no additional acquisitions. However, as Brett said earlier, our drug be is to complete 1 or 2 acquisitions each year. We just cannot predict the timing of such acquisitions, and I will add that the activity around acquisitions is even at a higher level than it was when we chatted last quarter. So we're excited about that also. Okay. With that, operator, let's turn it over for questions.

[Operator Instructions]. Our first question today comes from John Godyn of Citi.

I have one clarification and one kind of more real question. The clarification is Obviously, we see the revised outlook and across all the metrics that I think drive the stock most, it's gone up, margin EBITDA, et cetera. And I think the analysts that are close to the name kind of understand what's going on here. But I wanted to just give you a chance to spend an extra second on the adjusted EPS kind of revision lower and what's driving that and just make sure that it's super clear for everybody.

Yes, John. Look, thank you for asking the question. I really appreciate that. because we realize that can be a little bit confusing for folks. Look, when we gave our guide last quarter, we didn't have the acquisitions included in it, right? So that did include LMB and it did not include Harper. As happens always when you do an acquisition, you incur accounting, legal fees and the like, we call those transaction expenses, right? That's incurred. That affects EPS. In addition...

Those are onetime in nature.

Yes. In addition, we're required for accounting reasons to write up the asset and also write off some of the intangible assets through amortization, all noncash that gets charged against net income. All of those is what's driving the change, including the additional interest to the EPS. So noncash, mostly the biggest driver.

Got it. [indiscernible] for a second there. That's very helpful. My sort of more real question is you sounded very optimistic about the M&A pipeline. And that's something we've heard from other companies as well, and we've seen it in rising deal activity across IND. You mentioned 1 to 2 M&A deals a year. I want to just sort of press on that. And the question is, could we see an elevated rate above that range for a bit? Could we see deal size go up? How do you -- how do you think that this kind of more active and maybe more interesting deal environment manifests itself for Loar versus historical norms.

The short answer, John, is yes and yes. meaning we're seeing more deal flow. We're seeing more active sellers. We're just overall seeing a more active market in this space, given what we see as good visibility, good performance and quite candidly, good valuations, which makes for active sellers. Like I said before, though, is that also means that we need to have more discipline because we need to make sure that we see the requisite return in anything we do. So we talk about 1 to 2 deals a year simply as a proxy given the historical trends. In any given year, it could be significantly more. It really just depends on the opportunities in front of us, and we will always, always be opportunistic and always, always be disciplined such that if prices get too high or quality of assets for sale are too well, there are things that we don't see the return in, we're not going to do it simply and exclusively because it's an active market. We've been very, very consistent over, I think, a relatively long period of time now. And I think our track record kind of speaks for itself. So I use the 1 to 2 deals as a proxy and nothing more, and we're going to be opportunistic as we go here in 2026.

The next question is from Kristine Liwag of Morgan Stanley.

Good morning, everyone. And thanks for all the color you provided. In the quarter, you guys called out 17% organic sales growth. I was wondering if you could talk about the building blocks of that organic growth, it's pretty robust above industry market. So if you were to look at on a same-store apples-to-apples volume, what would it have been? And then also how much of this growth was from your new product introduction? And how do we think about this throughout 2026?

Hi, Kristine, and thanks for asking the question. In terms of what's driving our user terminology, organic growth, Look, I think I've said this before, prior to the most recent time, I would say volume was the biggest driver. If you break it up between volume, price and new business, but as we think about 2026 and going forward and 2025, the new product introduction is really the largest driver of our organic growth, and which is where we think we actually differentiate ourselves from others because that $600 million of profitability that I talked about earlier, where actually at the cost now of really starting to get the benefit of that.

So in 2026 and beyond, so think 2026, 2027, we expect that, that will be the largest driver of organic growth going into the next 12 to 24 months?

And just to add something for the calendar year 2025, I think our organic growth actually better than is represented as the number we put in the queue and you saw it on one of Glenn's slide, pro forma growth with really the more appropriate measure to measure organic because it gives us credit for the organic growth and the acquisitions we did was actually closer to 15% relative to the 12.9% as reported. So 15% organic pro forma growth as if we had owned all the businesses at the beginning of the initial period, I think is really, really spectacular and something that we're very proud.

Thanks for the colors. I mean these are standout numbers. And following up on the deal dynamics, being able to close LMB Fans & Motor being a French asset, I think it seems like a pretty incredible way to close that kind of deal, especially the French government ownership. When you're looking at the pool of available assets, how much more interest you have in expanding out international capabilities. Is there more of a potentially like roll-up fragmented pool you can pull from in the European market? And how does your ability to close LMB give you confidence that maybe, hey, you've got another rich pool to pull from?

Yes. Excellent question. So look, as you guys know and you know particularly, Kristine, it's a global industry, aerospace, that is. And so I think over time, you will see us continuing to do more and more outside the borders of the U.S. specifically. That being said, the opportunity set remains huge, particularly for the size deals that we are looking to acquire. We have more opportunities than we'll ever get to. I've said that many, many times.

And in Europe, in particular, now that we have 4 businesses over there, which really serve as a base of infrastructure and management talent and resources that we never had before. it exponentially increases our ability to build off those things to own more assets. So Europe, obviously, is a very big market. We're just getting started there. So whether it's Europe, the U.S. or elsewhere, I think you're going to continue to see us expand internationally and mirror the footprint of the overall industry.

Super helpful. And if I could sneak a third one in. We mostly focus on your commercial aerospace business, but defense has been also seeing significant increases Dirkson, you talked about the potential $1.5 trillion. And look, in Europe, if they want to increase to 5% of GDP, you're seeing fairly large numbers across the board. What we've seen is that the concern about the ability of the supply chain and the industrial base to support this growth has been a priority.

When you look at your role as a supplier in this environment, with strong operational skills and you look at your margin and your ability to deliver to your customers, how do you see yourself in that ecosystem? What problems could you incrementally solve. And could you see outsized growth in your defense business versus what top lines are just from that vertical integration in the supply chain and your ability to be able to get product in the hands of your customer? So not to lead the witness, but maybe I did a little bit, it would be helpful to understand how you think about that defense growth.

Yes. I mean, Kristine, this is Ian. We always view defense growth as lumpy right? But I think that actually, given that fact, we have a very strong operational mindset that we can react when our customers need us to react. So I think that's positioned us well because you're right. I mean across the global environment, everything is pointing to strong tailwinds in defense. And our team is ready to meet that need. Should it be there when it's there. So I think we're well positioned to capture those things.

And I think to Dirkson's point on that, million list of opportunities, right? Defense opportunities are in there. And so we're focused on helping it support our customers in the way they need it and we welcome any new opportunities as they come.

Yes. If I can add. And by the way, Kristine, that's another really, really great question. Just want to piggyback a little bit on what were Ian was leading you. So yes, we think that we could solve a lot of the supply chain, I'll use the terminology issues relative to the plethora of capabilities that we have, right, which is why we think about our toolkit. And I will tell you that we've had numerous conversations with customers that lead to opportunities that's not adding to that $600 million at this point.

So I'll just give you an example, there are a number of opportunities where we could solve issues on this side of the pond that's not being solved overseas because of the lack of the customer synergies that MB had existing lags, right? So we'll be able to solve a lot more issues, well, it's the supply chain because we can now introduce that capability to customers on this side of the pond. That's just one. There's a plethora of others. And so I wouldn't be surprised if I'm giving a little bit of guidance here if that $600 million went up significantly by the time we get to the next quarter in terms of the opportunity set, driven by your question, there's going to be a number of defense opportunities that we can we can be helpful with adding those capabilities. So great question. And by the way, congratulations on the promotion I heard.

The next question is from Sheila Kahyaoglu of Jefferies.

I have three questions, if that's okay. So maybe I'll start on the acquisitions, Harper and LMB. I know you guys have given lots of color, and I appreciate it on LMB, what it does in Harper too, given it's such a great supplier to Boeing. Maybe can you clarify the 100% proprietary products? How much of the process do you own the manufacturing, the IP at all, as I've been asked a few times, and I think there's some misconceptions around the type of assets you guys buy. And what proprietary means.

And then as you think about the scope, I think LMB makes a lot of sense as you answered to Kristine on expanding it. How do you think about other markets, Harper or other suppliers Harper could get into?

No. Another really good question. Let me start from your last, and I'll go through your initial question. Okay. Let's start with Harper. 100% proprietary, 99.9%. Some of them are listening. So I'll be totally straight, 99.9% proprietary. And the way we think about proprietary I'll use this terminology, I know it's Loar is listening, but we think of it as where you are the primary source of use that terminology of the product that you supply, it's your design, 99.9% for copper their design, their name is on the drawing, you cannot go anywhere else to get that part and to go to Harper.

So let's take that definition and expand it to the total portfolio of law because we get this question a lot. When we did our S1 2 years ago, we said 85% of our portfolio was proprietary. I will tell you this today because we just recently did that math, 85 was now 89%. So it's all heading in the right direction. And the reason being is because that's where the growth is coming from our proprietary products, and that's where we are investing our capacity and not just inorganically, but also organically. So that has grown tremendously.

And the other place you can say and you can check the boxes to whether or not you have a business or a portfolio that's really proprietary is to look at margins, especially one of the reasons we don't talk about it a lot, but it's one of the reasons why our margins continuously goes up into the right. right? Because we're investing in the proprietary nature and products where we're solving issues for our customers using those proprietary products. So it is increasing tremendously.

Now I'll go back to Harper. Harper is 1 of 4 companies, 4 out of thousands of suppliers to Boeing that has a collaborative agreement. Now what does that mean? That means they joined the hip. That means they're audits. That means Boeing has an issue, they pick up the phone and they call copper relative to capabilities at Harper has. Here is the beauty of what we've just done by adding them to the Law platform. They now pick up the phone and call Harper. Harper calls the group and says, can you solve any of these problems? So we're just expanding that collaboration with Boeing to include all of the low business units. That's the way we think about it. So no, we're excited about that being for the reasons I just answered Kristine's question on, but I'm super, super excited about Harper. And the relationships and the synergies we're going to get from adding the company, it's its reputation, its capabilities and most importantly, the talented folks in that building to our team.

No, makes a lot of sense. And I ask another one. On these two deals, how do we think about the pathway to accretion on EPS? And how do we think about accretion on cash EPS?

Well, it's very simple. Growth. And growth is a function of all the things that Dirkson just spoke about. So in every deal we do, as I think you know, we've said many, many times, we look to see a path to doubling EBITDA, at least in no more than 3 to 5 years. Quite frankly, in certain cases, and I'll use one that you all know since it was the first deal we did going public. Applied avionics is well ahead of that schedule. We think for LMB and Harper, and quite frankly, for any deal going forward, which we use debt financing for, which, by definition, will make it dilutive to net income, we think most of these deals, but in particular, Harper because you asked about it, will be accretive within a year.

So in 2027, on a net income basis, we think Harper will be accretive on -- and that's a function of growing the earnings, growing the EBITDA and doing all the things that we do to add value for these businesses. Does that answer your question?

Yes, it does. And then last one, the 34% commercial aftermarket growth was pretty stellar any way to parse that out?

Yes. Let me start with this. So I'm going to share a little bit of who I am. So my lucky number is 13. What it's going to go you saying that something [indiscernible] January 13. So 13 is my lucky number. The only time I don't like 13 is when I have to report earnings every 13 weeks. That's the only time I don't like 13. So there's good and bad reporting 13 weeks at a time, right? The great news is we produce proprietary products in the aftermarket, that's a high demand, right? We have customers who -- I'll give you an example, distributors who want to be exclusive and we 100% say no, right?

But again, the demand exists. What we saw in the fourth quarter, tremendous demand for our parts, folks placing orders, I -- is actually, I would say, positively surprised me, again, it's only 13 weeks, right? Because usually, at the end of the calendar year, most people are trying to manage inventory. In this case, we have customers who want to distribute our products, and we just see more of it. Now going forward, as I said earlier, where we see growth and where we have really put our foot down on growth is our new business introduction. And I'll use two examples. The only two I ever use, breaks. We got about a dozen programs that we're working on, half of them are now certified the other half we hope to have done by the end of the year. That's why I'm excited about the second half of the year growth rate.

I'll go back to Harper one last time. Harper makes the locking mechanisms that go in the comped barrier for Boeing aircraft. Now the [indiscernible] was so often on Airbus. Nobody ever asked about Boeing. Boeing, yes, I did say so. Boeing -- Boeing now having popular as part of us, it gives us the opportunity in the aftermarket to really chase those thoughts, right, in terms of [indiscernible] barriers. So as we think about growth in 2026, commercial aftermarket will continue to be low double digits for the year, maybe a little choppy. But really, really strong given the strength in the fourth quarter that we've seen this year. So Sheila, if I can just say this because thanks for asking the question, we see no slowdown in demand for commercial aftermarket. And I think it's reflected in our numbers.

The next question is from Ken Herbert of RBC Capital Markets.

As I think about -- just to follow up on that point, Dirkson, as we think about, call it, low double-digit organic growth in your commercial markets in the guide for '26. Can I interpret what you're saying that new business will be the largest contributor to that growth relative to volume and price?

Yes. That's the right short answer. So let me just say something relative to that, right? Because we say this all the time, and it's probably a good time to really send this message across. Brett always says, I listen and say it all the time that we use price as just the [indiscernible], right? It's discretionary. Could we increase price significantly? 100%. Every day of the week on the well. That's a proprietary means going back to the previous question.

We want to grow up five years from now, we will be 3x the size, check, check, check that box. We want to grow up to be a company that people don't point out and go, you up going me, right? You are chasing price above everything else. We want to truly partner with our customers, right? And so yes, and the answer to your question is, yes, we are focused on new business, and that's going to be a big driver.

Yes. And just as it relates to price, again, with the caveat being that we want to drive margins only one way. So I think there is a slide in our investment deck that we put in the appendix that shows you over the last 5, 6, 7 years, margins have only gone a long way. We will have our margins start with a 4 in front of it. I think everybody on the IPO roadshow had asked us when are you going to reach 40% EBITDA margin. And of course, at the time, we can't give specific guidance in that regard. But here we are just 2 years later. And I can tell you unequivocally, margins are only going one way, and that's about it.

Appreciate that, Brett. Just -- yes, just to clarify one other point. The up 34% in the fourth quarter, I think Dirkson. Was any part of that from like new distribution agreements or maybe any pull forward ahead of either price increases or inventory build in the channel. I just want to make sure there wasn't not anything unusual, but understand the dynamics of that 34%.

No. Great question. The short answer, again, is no. No pull forward, no special distribution agreements I will tell you that we have distributors that are fighting over their end customers and wanting to be good suppliers to them. And again, whether it's a kit that they're trying to put together and our plots are included or they wanted to be able to say, I can sell that part that no one else can, right? We're just seeing more demand, Ken, but no full had none of that.

Okay. Perfect. And just one final question on the '26 guide, do you have any -- how would you frame the risk around the commercial aftermarket versus OE growth? And to what extent maybe have you sort of derisked the guide relative to what could be choppiness on the OE side versus what sounds like pretty consistent sort of aftermarket performance.

A great question. So this is to at -- so on the OE side, what we've done, if you take Boeing and Airbus' build rate, depending on the product line that we're producing, we have discounted it anywhere from 10% to 20%. Kind of the low end, 20% at the high end relative to the bill rates that people are projecting. So could there be upside there? Absolutely. With regards to the aftermarket, yes, I do agree with you that we believe that that's going to continuously grow significantly double digits.

Again, the only problem I have is reporting every 13 weeks, right? Can we have a period of time where it's 14% and then the next quarter, it's 9.5% or whatever, Absolutely, but over the year and the long term, double-digit growth is what we see, Ken.

. SP1 There are no additional questions at this time. I'd like to turn the floor back over to Dirkson Charles for closing comments.

Look, thanks, everyone, participating on today's call. I love it when we can share our story. We're super, super excited about our future I'll say it for the third time, maybe the fourth, given what we've done over the last 14 years, we expect to continue to do the same, which means adjusted EBITDA goes from $1 today to, $3, 5 years from now. That's our focus, and that's how we want to build this business, and we want to build it in a very special way.

If you want to have great makes live in a great environment, not being gauges to our customers, but growing the business consistently. We want to build this aerospace and event cash compounded for a very, very long time. So look, with that, I have two things to say. One, happy birthday, Allen. Thanks for participating on the call. You know who you are. And two, I look forward to talking to you guys in 13 weeks, even though it's 13 weeks. Thanks, guys.

Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference.

Greetings, and welcome to Loar Holdings Third Quarter 2025 Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Ian Mckillop. Thank you. You may begin.

Thank you, Rob. Good morning, everyone. And as Rob said, welcome to the Loar Holdings Q3 2025 earnings [indiscernible]. 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 DelSandro; as well as myself, Ian McKillop, 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. 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 our latest filings with the SEC available through the Investor Relations section of our website.

Also as a reminder, during the call, we will be referring to adjusted EBITDA, adjusted EBITDA margin, adjusted earnings per share and free cash flow conversion, 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 the prepared remarks this morning, I'll pass it over to Dirkson.

Thanks, Ian. So my mates at Loar and I, we get up every day to create shareholder value over the long term. When we went public, we added a plethora of new partners to join our journey in building our aerospace and defense cash compounder. I got up this morning thinking about one such partner who we know is totally, totally aligned in our approach of building our business over years and decades as opposed to a quarter at a time.

He was the one that told us we are boring. I did not name him on the call, so it was interesting when we spoke to him after the call. He said, Dirkson, Brett, was I'm not the one that called you boring first. Of course, the answer is yes. He then reminded us about the importance of intellectual property. How could we quote him without saying who he was. It is his IP after all. As you all know, we love IP. Here's the good news. We're going to be boring today. We're going to name the whole of the patent over the additive that truly describes us. He has been with us since we went public, which is going on 2 years now and along the way, is continue to invest more in us. So before he named him to respect his IP, let's remind everyone what it means to be boring. It means we're about to tell you that we beat -- we're raising our guidance, but more importantly, we generated strong cash flows.

In addition to telling you we continue to improve our margins while achieving record sales, adjusted EBITDA and adjusted EBITDA margins. During the quarter. We're then going to give you guidance in 2026 that we're doing with the head the rule in mind. Given that we do not want to sacrifice in which means we're only going to tell you what we believe we can meet or beat. I'm going to get started with my remarks, but first, let me name the person that call this board. His name is Steve. Good morning, Steve. Good morning, all. We are about to be super boring, so here [indiscernible] I'm Dirkson, Founder, CEO and Co-Chairman of Loar. As always, we'll keep our remarks brief. So let's start by reminding you who we are.

Loar is a family of companies with a very simple approach to creating shareholder value. First, we believe that providing our business units with an entrepreneurial and collaborative environment to advance their brands will generate above-market growth rates. Since our inception in 2012 through the end of calendar year 2024, we have grown sales and adjusted EBITDA at a compound annual growth rate of 37% and 45%, respectively. Over the long term, we expect to increase sales organically at double-digit percentage with the last 3 years, '22, '23 and '24 achieving organic sales growth of 18%, 14% and 15%, respectively, with adjusted EBITDA growing at a faster rate. We executed a loan for value streams.

First, we identified 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. Over the next 2 years, we expect that new product growth will be closer to 3% and 1% as we qualify new bots, sell existing products to new customers and just dive deeper into our mission of solving our customers' pain points. As you all know, we track this pipeline of opportunities monthly. It represents a list of opportunities across our portfolio of that are derived from listening to our customers, to identify their pain points to determine how we can [indiscernible]. It is created from sharing ideas, best practices, customer synergies across the group. -- to the high degree of collaboration that we foster across our business units.

This list, as you can see, has grown by $100 million since our last call and represents over $600 million in sales over the next 5 years. As you can see, the beauty of the list is it is a living, breathing entity that continuously grows. We also focus on optimizing the way we manufacture, go-to-market and manage to enhance productivity. Each year, we'll identify initiatives that will allow us to continually improve our performance with a focus on 1 or 2 major initiatives each year that will improve margins.

Over the next couple of years, we are looking to enhance the way we mine, collect, gather and utilize data. This means enhancing our management, ERP and other systems and processes to improve our leverage of data to drive the improvement in our cash flows. In addition, across our portfolio of companies, we'll achieve more price than our cost of inflation. Each year, the result is a continuous improvement in margins year-over-year with on occasion, a temporary dilution as a result of acquiring business with dilutive margins or incurring costs as a result of [indiscernible] being a public company. all of which we have experienced over the years. But regardless of these temporary headwinds, we continue to improve our margins.

Most importantly, we are committed to developing and improving the talent of all our mates because our success is solely a result of the dedication and commitment to all our mates, thank you so much for your commitment and hard work. pI will now turn it over to Brett to walk you through the key characteristics of our portfolio.

Thanks, Dirkson. Everybody, I think, you've seen this slide, we've had in all our presentations. So I don't want to belabor it, but the reason this slide is in there is really just to remind people that we have a very consistent and very attractive business model, as highlighted by all the boxes on the bottom of the page, that we apply all our parts to. And those parts cut across a very broad and very diverse set of end markets, customers and virtually any platform that you can think of that flies. And the way that ultimately manifests itself is in the strong performance that we've had that is consistent, reliable, and Dan, I even say boring.

Thank you, Brett. Over the last 13 years, we brought together a unique set of capabilities and products that are highlighted here. We go to market with more than 20,000 unique products, none of which makes more than 3% of our annual revenue, whether it's sensors or switches, water purification systems, deicing technologies, human interface device [indiscernible] Autothrottle systems or one of our many other products, we are an essential supplier across the aerospace and defense industry.

Our customers have come to depend on our highly proprietary products quality, on-time performance and engineering capabilities to ensure they are able to maximize their production and aircraft operations.

I'll now pass it over to Glenn to walk through the financials.

Thank you, Ian. Good morning, everyone. Let me start by discussing sales by our end markets. This comparison will be on a pro forma basis as if each of our businesses were owned as of the first day of the earliest period presented. This market discussion includes the acquisition of Applied Avionics in Q3 '24 and be light in Q3 '25. We achieved record sales during Q3 '25. In total, our sales increased to $127 million, which is a 15% increase as compared to the prior year. This increase was driven by strong performances in commercial aftermarket, commercial OEM and defense.

Our commercial aftermarket sales saw an increase of 19% in Q3 '25 versus Q3 '24. This is primarily driven by the continued strength in demand for commercial air travel and an aging commercial fleet. We continue to see strong commercial aftermarket bookings. Our total commercial OEM sales increased by 11% in Q3 '25 as compared to the prior year period. This increase was driven by higher sales across a significant portion of the platforms we supply, along with an improvement production environment for commercial OEMs.

The increase of 17% in our defense sales was primarily due to strong demand across multiple platforms and an increase in market share as a result of new product launches. Defense sales will continue to be lumpy given the nature of the ordering pattern of our end customers for our products.

Let me recap our financial highlights, for the third quarter of '25. Our net organic sales increased 11.1% over the prior period. Our gross profit margin for Q3 '25 increased by 380 basis points as compared to the prior year period. This increase was primarily due to our operating leverage, the execution of our strategic value drivers as well as a favorable sales mix.

Our increase in net income of $19 million in Q3 '25 is primarily due to a tax benefit as a result of the enactment of the one big beautiful Bill Act higher operating income and lower interest. Adjusted EBITDA was up $11 million in Q3 '25 versus Q3 '24. Adjusted EBITDA margins were a record 38.7% through our operating leverage, the execution of our strategic value drivers and a favorable sales mix. This was partially offset by additional costs with being a public company, including our bank fleet compliance and additional organizational costs to support our reporting, governance and control needs. We did not see a material increase in these types of costs going forward. We believe the run rate of these costs is fully reflected in our Q3 '25 results.

From 2020 through 2025, we will have increased our EBITDA margin by 710 basis points. We have achieved this growth with the following: operating leverage, winning new profitable business, executing on productivity initiatives and from value-based pricing. In Q3 '25, our margins grew by 190 basis points from the prior year to a record 38.7%. This was achieved even with the negative impact of costs related to Sarbanes-Oxley from being a public company as well as the dilution of margins from our most recent acquisition, SpeedLift. We are excited to share our most recent view for calendar year '25. This view is in excess of what we told you 13 weeks ago. Our confidence rests in the great strides we've made executing on our value drivers in the first 9 months of '25 and the strength of our proprietary portfolio.

Primarily, we are ahead of our plan on value pricing and productivity initiatives. In addition, we have not seen any material reduction in demand on any of our end markets and expect no meaningful impact on our end market as a result of the tariff environment. The one end market to know it is total commercial aftermarket. Given the strength we have seen in the first 9 months of '25, we are increasing our outlook to low double-digit growth from high single-digit growth. Commercial OEM and defense are in line with our prior outlook.

These market assumptions, along with our continued execution of our value drivers will allow us to exceed the following: metrics for calendar year '25 versus our previous outlook. Net sales were up $1 million, adjusted EBITDA is up $1 million. Net income is up $5 million. Diluted earnings per share is up $0.05 and adjusted earnings per share is up $0.10. We see a further reduction in our interest expense of $1 million. All other assumptions are consistent with our previous outlook.

Let me now turn the call back over to Dirkson to share our outlook for '26.

Thanks, Gleen. Look, we are extremely excited to share our initial -- I'll say again, initial view for calendar year 2026 -- but as a reminder, we can share such a detailed forecast so early in the year because of the substantial proprietary content of our product and service portfolio combined with our record backlog as of the end of the third quarter of 2025, both of which allows for tremendous visibility into 2026. This view is on a pro forma basis, assuming we own all of our business units since the beginning of 2025. So with that said, we expect commercial OEM and aftermarket growth will be low double digits in 2026.

With the strong backlog at the commercial aircraft producers, including Boeing, Airbus, Embraer, Gulfstream, service, Diamond, just to name a few of the manufacturers that we have content on, we see another year of double-digit growth. With regards to our assumptions about monthly production rates for the Boeing 737 MAX and A320 family of aircraft we have assumed that monthly production will average 38 and 54 due in 2026, respectively. This is between a 15% to 20% reduction from the OEM skyline projections that they all talk about.

This is how we adjust for any supply chain challenges, destocking that are inevitable part of the complicated ecosystem of making parts for aircraft. So let's meet and exceed. Commercial aftermarket growth, again, will be driven by the continuing secular growth rate of air travel, combined with an older in-service fleet as OEM production continues to not meet demand for aircraft. It is noteworthy that the average age of the passenger fleet worldwide is a record 14-plus years currently.

Given that airlines have learn to affordably maintain aircraft for longer combined years. We expect that with the production of aircraft not covering retirements and plus a secular growth, that the aftermarket will stay strong for quite a period of time. We also see strength in general aviation with Q3 2025 departures setting a record at over 1 million. How do we see it? We love the aftermarket. While our defense end markets will be up mid-single digits as we come off a fantastic year of growth. As we've always said, growth in the defense end market will be choppy. So up, down over the long term, lots of cash. That's how we think about it.

These market assumptions, along with our continued execution of our value drivers will allow us to meet or exceed the following for calendar year 2026. Net sales between $540 million to $550 million; adjusted EBITDA between $209 million and $214 million, adjusted EBITDA margin of approximately 39%, once again demonstrating our ability to continually improve margins. Net income between $80 million and $85 million, adjusted EPS between $0.98 and $1.03 per share. In addition, we expect capital expenditures of approximately $17 million. Full year interest expense, $25 million, effective tax rate will be approximately 25%.

Depreciation and amortization of $15 million noncash stock-based comp of $17 million with the fully diluted share count of 97 million shares. Please note that all of the amounts I've just outlined for you relating to calendar year 2026 performance assume no additional acquisition and does not include the previously announced pending acquisition of LNB Fans and Motors. However, as we have noted previously, our drumbeat is to complete 1 or 2 acquisitions each year, but we just cannot predict the timing of such acquisitions. One last metric I will share related to calendar year 2026. We expect operating cash flow minus capital expenditures to be greater than 125% of our net income, assuming no additional acquisition.

With that, operator, let's open up the line for questions.

[Operator Instructions] Our first question comes from Kristine Liwag with Morgan Stanley.

Congratulations on your record margin in the quarter despite the 2 headwinds that you called out, including the dilution from the recent deal I guess can you provide more color now with what the operating and integration playbook looks like, 30, 60, 90 days after a deal? Are there some heuristics operationally that you could call out and where do you usually find low-hanging fruits?

So Christine, so it varies by the business that we acquired, right? Some businesses require -- I'll put it this way, a lot of hand holding, others just require a strategic direction. Specifically, to be like our recent acquisition, great business, great team, great leader in Gina it's more about, in this case, the first 30, 60 days, which is always the case, I should start there, is listen and observe first. We don't believe that we're smarter than the the folks who have been running the business for years, right, so we listen and watch and learn first and help wherever they come to us initially. In [indiscernible] case, it's more about top line synergies, right?

We have embedded Blight with our short business. So Gina actually reports to President at Short to incorporate the outreach to customers in a synergistic way. In short, as you know, we make seat belts and strains for effectively the same customers that Blight is selling to. So in the case of Blight, it's more about the synergy with customers and focus in that manner, which we have started, but really have a tremendous runway ahead of us in terms of opportunity.

Great. That makes sense. And then with your commercial aerospace OE outlook for next year, Dickson, can you provide some color regarding the underlying production rates that underpin those assumptions?

Yes, I think what I outlined was the production numbers that we have dealing to 38 and 54, that's Boeing and Airbus respectively. That's what we're looking at. Now I will tell you, that varies tremendously by [indiscernible]. That's the net-net, net of everything that we have seen and touch across the group. So we can have a track liner at one number, and we can have a water purification system at another number just driven by what's in the pipeline, what customers are expecting, those types of things. But on the average, we're looking at 38 for the MAX and 54 for the A320 family.

And for the wide-bodies, too.

For the wide-bodies, the -- I would say it this way, the discount isn't as great. I think we discounted the 15% to 20% on the narrow bodies on the wide-bodies versus skyline is about 10%. And just keeping in mind, the way we think about it is really going back to our rule of engagement when we give guidance, which is the we want to make sure, especially at this early stage. I mean, we're in November predicting what's going to happen to the end of 2026, which is 13-plus months away. We just want to be conservative.

Our next question comes from Sheila Kahyaoglu with Jefferies.

Congrats on a great quarter. Maybe if I could ask on the same light up Christine, but just focusing on defense, our defense growth has been superb this year. and your guidance was for about 5%. Why the deceleration? And maybe can you talk about what's driving the detail, whether domestic or international?

So first of all, I'll describe it this way, lessons learned. I've been doing this for 3 decades. And when you have a defense market at 1 year is as we sense, somewhere between 16% and 20%. It usually it's time for it to be -- I'll be rationalized, right? It should be a mid-single digit-ish growth rate on the defense side. But I'll give you a little bit of specifics. Ground vehicles were strong in 2025. I will tell you, as we put together our budget, which is a month or so ago now, we looked in terms of our product and ground vehicles and we said to ourselves that, that should slow down.

We didn't have the backlog at the time to support it. But what I would tell you today, Sheila, is if we were building that forecast today, I'd probably come up with a different result because since that time, we've seen improved bookings for ground vehicle products.

Okay. Got it. So just normalization of the market and being conservative? Cool. And then Dirkson at the beginning, you gave some introductory comments that said new product growth now could be 3% versus your, I think, 1% to 3% historically. Can you talk about some of the areas where you're making particular headway, whether it's end market, a certain OEM? Or is it a synergy with Speed light, as you pointed to? Where are you seeing that new product growth coming from?

So this was a little sensitive. -- because you're the only 1 listening, and I don't want to share information that would make it harder to compete in the market, get people focused. But I know there's 2 things that we talk about quite a bit. happy to share because those are -- these are 2 of the reasons why it is improving and we do see it. So one is on brakes. We are getting certification on our PMA brake applications. We've gotten 5 done this year, most of those within the last 3, 4 months. And in the pipeline, what for the government shutting down, we're probably a little bit ahead -- we have another 4 or so certifications to get. That's one of the reasons that we're going to see higher growth rates over the next couple of years because we're now getting into that business. So that I can talk to it.

The other one I can speak to is -- as we think about -- so that was aftermarket. I'll give you one that's OE. As we think about the carpet or barrier, I think we've told folks that we got that certified this year, started producing in May on the Ables platform we're going to see more of that content growth next year and in the years to come because we're exclusive on the majority of the Airbus narrowbody aircraft. Those 2 alone would get us, as I said, I didn't say 3%, I said closer to 3% than 1%. Those 2 alone gets us closer to 3% than 1%

Got it. Okay. Great. And also, as Steve said, I don't know why anybody would listen to a boring call like this. So you could share with us all you want.

Our next question comes from Ken Herbert with RBC Capital Markets.

Dirksen, Brett and Glenn, Ian. Maybe just to start, you did nudge up slightly the aftermarket expectations for this year. I'm curious if you can talk about the -- what's specifically driving that or how we think about sort of volume versus price in the aftermarket growth this year?

It's all across our products. I can't think of anyone that stood out in terms of driving the aftermarket growth change. So it's really across all the products. and it's volume driven, not price. We're just seeing -- well, I guess I'll put it this way. When we put together our guide as we always do, we think of it in such a way and make sure that we meet or exceed. I think you know that. So it actually was not surprising to us that it's low double-digit growth. just like we're starting out this year, thinking it's low double-digit growth. Commercial after market, I got to tell you, is extremely, extremely strong. I know some folks we talk to worry about it slowing down. I got to tell you, Ken, don't see it.

So going back to your question, volume driven, not price, and it's across all of our product offer.

That's great. And then as we think about the initial outlook for 26, again, up sort of low double, similar contributions as we think about the volume and price mix in '26 on the aftermarket? And -- and then under that, I guess, as we think about 2016, are you seeing any acceleration or deceleration underpinning that by end market from '25 to '26.

No. No, I don't see anything. So I guess I should say this way, right? So across all the end markets, I see this. I see over the last 3 years or so, that as we think about the mix of what drove growth that I would put it in this way, volume, price and then new business. That's probably the last 3 years or the next 2 or 3 years, I would rank it this way, new business, volume and then price. So to answer your question, don't see any slowdown on volume. I don't see any risk in terms of any long-term destocking. Now with that said, I know we're talking about 26, but it does remind me, as we think about I hate guiding for 13 weeks, which is what you guys force us to do when we get to this point in the year, and we're talking about the end of 2025. I will tell you, Ken, I am seeing more noise from customers, by the way, we love them from customers in terms of cosmetically managing their balance sheet and managing working capital and there's a lot of push pull within our system as to the timing of deliveries, it's all timing. It's all proprietary products, all those things. I would say that about 2025.

But in terms of 2026, fairly strong across all the end markets, talked about military, just trying to normalize what we think about what [indiscernible]. should look like.

If that's the last question, operator.

Yes, it is. Would you like to do closing comments?

Yes, I can close it up real quick. First of all, a big thank you to everyone that has taken the time to hear our story again today. Believe me when I say, we continue to be excited at building our Aerospace cash compounder. We call it law. Looking forward to speaking to you all again in late February 2026 just to give you a date this time. Thank you. Thank you very much. And by the way, thank you, everyone, for calling in on time. Love you, guys. Thank you.

This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.