StandardAero Stock

Good morning, everyone. I'll just start off since we're a minute late, and it's our thought because the elevators are slow, and I know that. So we have the StandardAero team here, Dan Satterfield, who's the CFO; and Rama Bondada, who's Investor Relations.

Maybe we'll just kick it off with a few questions, Dan, if that's okay to start. How do you think about StandardAero today? You've gone through the IPO now. I think it's been 2, 3 years. You're in a growth phase, both the commercial business that represents 60% of sales in military and business aviation. How do you think about the growth of your business from 2026 to 2030?

Yes. Well, we're in a great phase. Number one, coming out of the IPO, we significantly delevered, right? And now we're enjoying the fruits of that deleverage and the enormous cash flows coming in. The most satisfying part of being part of our business in the aerospace industry is the cash flow that we're generating. And you're going to see our liquidity position continue to improve, billions of dollars of cash flow available to us that we will deploy. And we've talked a lot about, Sheila, about our 5 capital deployment areas, organic growth.

Just this month, we opened the expanded CFM -- sorry, CF34 facility in Winnipeg, increased our capacity by 1/3, and that's already full. So a great example of capital deployment in organic area. In terms of license expansions, we did in Q2, the $180 million investment for expanded licenses. That's returning $25 million a year at a minimum in a couple of years, and it will peak up to about $30 million. So a fantastic return on capital there where we're getting access to new licenses and new repairs that we haven't had access to before.

Of course, M&A, we acquired Unified Turbines, a great bolt-on to the CRS business, new repairs that we didn't have before that we were able to require -- sorry, acquire. And that fits right into the CRS platforms that they already serve, but now new repairs on existing platforms. And remember, the great part about that is that we are reducing turnaround times for our customers by repairing parts instead of having to wait for new ones. And then, of course, stock repurchases through the first half, $100 million of share repurchases. We will continue that and are very, very proud to do it. So I think during the next second half of the decade, you're going to see additional capital deployment from StandardAero.

Sheila, I'll just add on there. When you think about StandardAero, right, we used to operate at 7x leverage in the private equity world. We IPO-ed at 4x. And now a few years later, we're down to about 2.5x. So that ties to what Dan was talking about the amount of deleveraging that's occurred. We're a 115-year-old company. You don't last that long if you don't generate cash. And we are -- through cycle, we're 100% free cash flow converter of GAAP net income. We've just gone through a heavy growth investment phase with LEAP over the last 3 years with CFM56 Dallas, doubling our footprint there. HTF7000, we are the exclusive heavy overhaul provider on that engine, which is the new engine for super mid cabin, which is becoming the fractionals. So these are huge fleets.

And we've also done CF34, the expansion that we just completed. So all of these growth platforms that are setting us up for double-digit earnings growth and free cash flow growth over the -- not just a few years, but for decades. That's starting to unwind. We're coming down the learning curve on LEAP. That's a 3- to 5-year learning curve that started really in 2025. And so as that comes down, the learning curve is not just about training the engines faster and getting better margins. It's also about getting more efficient on the working capital.

These are all things that are going to generate tremendous amount of free cash flow as we go forward in the next few years. So the last 2 years was deleveraging. The next few years is going to be a lot of fun because there's going to be a lot of opportunities for us to put things to work. And we have the natural growth drivers already built in.

I guess how do we think about where oil prices are today and how do we think about your backlog, which is base full for the next 6 to 12 months? And how do you think about the high level of oil and when that actually impacts demand?

Yes. We talked about this before. It's a great question. We're not a components business. We're a long-cycle business. The MRO events that we are servicing today were built on flight hours over the last 5 years, beginning in 2022. So that demand profile isn't day-to-day. It's built up over many periods. And we've not seen a single shop visit impacted this year as a result of disruption in the market. Again, long-cycle business. As a matter of fact, 2027, Sheila, is baked. On the commercial side of the business, it's booked out.

Of course, we're always going to maintain some flexibility for transactional business in our capacity. But for the long-term agreements and the demand into 2027 and into 2028, that is very clear. As you recall, almost 80% of our business is already under long-term agreement. So the transactional side of the house, we maintain for flexibility. But 2027 is solid, high visibility into demand all the way into 2028 on the commercial platforms.

And I think that's a misunderstanding that people don't understand about engine MRO is that it's not long cycle 15 and 20 years like OEM. It's not short cycle like aerospace components. It's driven by 5 years of previous flight cycle. So you'd have to be like a terminator and travel back in time and destroy demand in 2022 or 2023 to affect us this year or next year or even into early 2025 at this point.

That's a new one, terminator.

I saved that for you.

How do you, I guess, think about your commercial aerospace business? It represents 60% of your sales or maybe your top 5 platforms. Can you go through the top 5 platforms, how you think about growth? LEAP is about $400 million of revenues going to $1 billion by 2030. And how CFM56 changes in RB211 in that top 5 mix?

Yes. So first of all, look, RB211 is not in the top 5. But the...

I'm wrong again on my demand model. There we go.

LEAP is, of course, an entitlement that we earned being a very, very trusted partner to the OEs and to the end markets. There are only 8 CBSA license holders in the world. We're one of them. And we have an earlier ramp-up in our industrialization on LEAP than anyone else with very few exceptions. Also already building the repair portfolio for LEAP in conjunction with GE and Safran. And as we've said, we're very confident in $1 billion of LEAP revenue by the end of the decade and LEAP achieving incremental margins incremental to ES, our Engine Services segment by that same time period, and that has to do with a very predictable learning curve improvement as you ramp up the program.

Very satisfied with the LEAP pipeline, very satisfied with the type of customers that are coming in. It's quite international from Asian to European, even Middle Eastern growth on the LEAP engine. So it's broad-based and fundamental represented by long-term agreements and capacity for transactional work. Also on LEAP, we've got the ability to grow capacity. Of course, LEAP is being serviced out of our San Antonio facility, the largest of all of our facilities. And there's 2 ways that you can grow capacity in a program like that without expanding footprint.

Number one is the learning curve. So the learning curve is the number of hours that a technician takes to push an engine through a shop. And for a brand-new engine like LEAP, of course, at the beginning, it's much slower. We're already seeing the improvement both in revenue and turnaround times as the technicians get more proficient on the engine. That's a way to increase capacity without changing footprint. Also, the test cell capacity. Test cell, of course, the key, very highly expensive barrier to growth. And for LEAP, we have a full test cell fully dedicated to LEAP, 100%, and we have a test cell in waiting. San Antonio has a very large test cell array, and all we have to do the second test cell is correlation.

Correlation is making the test cell specific to the parameters of the engine that it's servicing. So we can do that as well. And then we've specifically put LEAP next to RB211 in San Antonio. RB211, nice program. Really at this point, it's not significant in its demand profile to the company as a whole in relation to the other programs. But as LEAP changes its demand profile, those technicians simply absorb the work for LEAP and the capacity goes up. Other platforms that are growth, of course, are CFM56. And a lot of you have had the opportunity to visit us in Dallas, beautiful facility and where we've doubled our capacity on CFM56.

And we have 7 test cells, not all dedicated to CFM56, but a test cell array that can grow with time as well. And there, it's a similar dynamic on the learning curve. Even though we've done 1,000 CFM56s up in our Winnipeg facility in the Dallas facility, it's a new platform for them. So they're going through a similar learning curve as the LEAP technicians. It's somewhat shorter because this is a program that we do know and our colleagues up north have experience with. But as that learning curve goes up and the turnaround times come down, we have additional capacity and CFM56 demand looks great. Other platforms where we're seeing growth, of course, are the turboprop engines.

One of my favorite set of platforms because they're highly fuel efficient and really immune to the extent of jet fuel prices, and we're seeing that on the turboprop programs. Also, the customer base is extremely varied, not just commercial operators, but fire and rescue, municipal operators there as well. And that is where we invested most recently in expanded licenses on turbofans on the biz av side, but then turboprops on the commercial side. We have additional licenses on that already robust and very profitable suite of engine programs, the turboprops. HTF7000 on the biz av side, it's really the #1 engine from my former employer, Honeywell. It is the engine of choice for the super midsized engine -- sorry, aircraft platforms, and it continues to grow at a very impressive rate. And remember, on the HTF7000, we are the exclusive heavy shop visit provider globally.

And then also -- you talked about the top 5, right? CFM56 wasn't even the top 10 for us last year. It's just entering into the top 10, right? We've never really focused on that until we doubled our footprint here. And it's purposeful, right? You have the second, third mover advantage when you're an OEM. You can wait until you get to a much more mature platform where USM starts increasing and you could start taking share because we have the CRS business that creates USM. You do need retirements to pick up to get USM.

So we're preparing for that as retirements pick up to be able to take share, make faster turnaround times through stub builds or module swaps or whatever the market is looking for at that time. So that's still growing pretty tremendously. It will eventually get to top 5, but it's not even -- they just entered the top 10. AE2100, which is the ubiquitous engine on the C-130, that is a top program for us as is the AE1107 on V-22 Osprey. So there's a pretty good blend of military, commercial, biz av where we have exclusive positions on where that are all going to be growing as we look into.

Yes. On those 2 fixed wing military platforms that Rama just mentioned, we have 80% of the work there on those programs and high visibility into the future. As I mentioned earlier, 77% of our business is under long-term agreements. So our ability to see out into the future, 18, 24, 36 months and even beyond is quite unique.

And Sheila, that on those 2 platforms, future variants, we also get 80% rights though.

Can we talk back about the LEAP, if that's okay. As you think about the revenues going from $400 million today to about $1 billion in 2030, how do we think about the number of shop visits that includes how you think about the market share and then from a profitability perspective, how we think about the learning curve?

Sure. So really 2 types of shop visits on LEAP. Right now, it's dominated by the CTEMs, continuous time engine maintenance programs, shop visits. Those are really shop visits that are intended to bridge an operator to his next PRSV or performance restoration shop visit, the heavier shop visits. So right now, early on the ramp of LEAP, we're seeing more of the CTEMs. And that is now shifting to the PRSVs. Those are where we are being swamped with RFPs every day on PRSV slot availability out into the future. We're booking those up. And so you'll see shop visits -- you'll see the revenue increase steeply towards that $1 billion mark and then continuing on into about a $3 billion mark...

[Audio Gap] you go from CTEMs to PRSVs?

Yes, the PRSVs are more valuable shop visits. So per shop visit, you're going to see the revenue increase. And so that's fueling the climb from where we are today to that $1 billion mark.

And we don't stop at $1 billion, right? It goes from $1 billion to several billion by the middle of next decade. And that's just simple math based upon what the delivery schedules have been and what they will be and based upon the way the engines are flying and the amount of work that comes out of there. And we don't really need to do much to capture that several billion. It would be adding the second test cell in terms of correlating it, which takes about 12 to 18 months, at least it's already there and then adding a second shift. So it's not like we need to do an expansion or anything for that.

In terms of the margin profile, great success story there, right? LEAP achieving profitability here in Q2 and right on schedule from double-digit million industrialization costs at the beginning of the program to black numbers here in Q2, it's right on schedule, and we're very, very happy. Two of the reasons that we've got there, and these are the same reasons that will drive profitability up. Remember that we've said at the $1 billion mark of revenue, we expect the LEAP margins to be accretive to Engine Services segment margins.

Very confident in that because of the following. First of all, revenue growth, right? We did put in the right amount of indirect costs early in the program to make sure that it's successful. And so as we increase revenue, we're absorbing those indirect costs. And then the learning curve. Again, that's the amount of time -- amount of hours a technician needs to push an engine through the shop up to what we call specified margins -- sorry, hours or spec hours.

And for the LEAP engine, we anticipate that to take about 5 years, and we're already seeing it happen because of the turnaround times are decreasing on LEAP, revenues going up because we're pushing the engines through faster. And of course, all of that has a positive effect on margins. So very confident in achieving that level. Remember also being in the exclusive club of the CBSA license holders, we have commercial advantages that non-CBSA license holders do not have, and we're taking advantage of those as well. That not only makes us competitive in the marketplace, but also greater margins.

Is that just parts agreements with the OEMs, the CBSA?

It primarily has to do with parts agreements.

There's also a technical engineering access. So when you're doing an MRO repair, we're sharing notes with GE sharing their notes with us that if you're not part of that network, you don't get that sort of.

Well, and that's driving -- good point. That's driving the repair side of the house. Because we have that full access to the engineering teams at GE, together, we're developing component repairs. We're well ahead of anybody else in the CBSA license network outside of the OE in building that repair portfolio. Remember, our CRS business has already 20,000 license approved repairs at very accretive margins. And that LEAP entitlement will grow as the shop visits grow.

Actually, the repair guys should be running at a little bit faster pace and providing that accretive growth, not only there, but also on CFM56, we're continuing to develop new repairs. Customers love our component repair business because not only is a repair less expensive than a new part, it's increasing your turnaround time -- sorry, decreasing your turnaround time.

Can I ask any metrics you could provide around that 5-year mark of how you expect LEAP to improve profitability to be accretive, whether it's the amount of time a shop visit takes?

It's primarily that. It's primarily the amount of time that the engine technicians take. And then they are able to increase capacity simply by being faster. And then less time in the shop means higher profitability. And like I said, we've tracked this on a line to the point now where we've hit black numbers. There's really nothing in the way to continue to improve profitability. And then the additional kicker there are the LEAP repairs that we will be performing as well. That repair portfolio has already grown to 500 repairs. It continues to grow every single day, and that will provide additional juice in the LEAP margins.

Can we talk about CFM56? GE previously raised its shop visit guidance to 2,300 to 2,400 annual shop visits. How do we think about StandardAero's share in that and where your current capacity is and where you look it to plateau out?

Yes. We don't really discuss market share too much.

I know.

So I'll be honest with you, like I said, like CFM56, this year is the first year it's going to be a top 10 platform for us, right? We have never been a big market share leader there. The way I think about CFM56 and the way you guys should think about it is the parallel to the CF34. 10 years ago, we were a mid-single-digit market share in the CF34. There was close to 10 providers in that engine. We took our time. It's a fleet that has not grown much in the last 10 years. It's been about a flat fleet. flat fleet. That's an interesting dynamic. And so as that has -- our share has grown in that through using CRS and using parts repairs to reduce the turnaround time that increases our ability to price better.

And therefore, we started shoving out the other competitors. So now we are the dominant market share there. GE is #2. There's only 2 other players -- or 3 other players left. One is exiting at the end of the year, the second in 2028, third will be shortly after that. And so we have grown over 10 years on that at the end of the life on a fleet that has not grown. That's basically how we approach the CFM56. As it's maturing, there is going to be -- in the CFM56 market, people think of it as a monolith. It is something that you can slice and dice in so many different ways, whether it's geography, whether it's fleet size, small fleet operators, medium-sized operators, large and then also on the variants, right?

There's the classics, the tech insertion, the EVO/PEP. We tend to -- our customer base is mostly the EVO/PEP. These are pretty young engines. 1/3 of them have not gone through their first heavy workshop visit yet. 70% haven't gone through their first or second. So these are young engines that are still flying and the operators still want to fly them a lot. And so that's where we're kind of focused at. And these tend to be more of your medium to large fleet size. So we are actually just getting started in the CFM56 because that's kind of what we do best is come in at the late stages, and we are able to grow through market share gains. And it's big enough that you can have -- you can go from the 40 providers that are out there today to mid-single-digit, high single-digit number, and everybody is going to do really well because there are so many different ways to slice this portfolio.

How many CFM56 repairs do you have? I'm just curious of the 20,000.

We have not disclosed that number. It's...

Okay. All right. You said beat was 500. I was like maybe that...

Platform usually, it's about 2,500 to 3,000.

Okay. Makes sense. Can we talk about the Winnipeg facility? You recently opened up. What does that mean? I meant to call you Rama, but it was mid-August, and I. So what does Winnipeg mean?

Yes. So Winnipeg, the company was founded 115 years ago and really at the core of the company, a very important site, the whole actually campus of facilities there. The biggest facility in Winnipeg is Plant 6, where we do the CF34 and the CFM56. Recall, I said earlier, we've done 1,000 CFM56 overhauls in that shop. However, the CF34 platform for the dynamics that Rama mentioned before, continues to grow. We are the consolidator of choice. As matter of fact, on all of our 41 engine platforms, we typically end up being the consolidator of choice. CF34 is by no means in its end-of-life phase, but it is becoming more mature and the demand continues to grow. So having -- owning our land up there, we decided with the help of the Manitoba government, big government sort of unveiling as well, we increased the facility size by 1/3. A couple of things will happen there. That shop was absolutely packed with people and material. They now have room to grow and to spread out. You'll see efficiency or we'll see efficiency rates climb like crazy, just the ability for the technicians to access their parts and material. It's also providing additional floor space for more engine throughput. So the CF-34 platform is one of my favorites, a strong profitability, great turnaround times, actually really low working capital demands because of our strong repair portfolio for the CF-34, our USM capacity on CF-34, one of our greater programs. So that's going to provide extra profitability and growth for many years to come.

And what are the knock-on effects of that because the demand had come in so quickly and so strong. And that 40% expansion, the backlog is already there for that. So it's not like we need to go out and fund it. It's already booked up. And so -- what happened was we were spilling work into other facilities in Winnipeg, where we do helicopter and military that we're using to store CF-34 material. And so by having this expansion, not only did it expand the CF-34 facility, it frees up capacity for military where we're winning a lot of new NATO contracts. And so we don't need to expand capacity there. Just this capacity has a knock-on effect of gives us more military...

That's great color. One of the growth drivers you mentioned was additional licensing agreements. You recently signed $180 million with a turboprop OEM. I think it's set to contribute $25 million of EBITDA per year starting in 2029. Can we talk about that -- what these licensing agreements mean in the first place and what's that $180 million?

Turboprop and turbofan.

Yes. So business aviation turbofans, commercial turbofans and also commercial turboprops. Fantastic investment. We talked about our capital deployment. This is one of our favorite ones with -- it's like an acquisition with a 7x multiple. So getting access to -- the really variance of existing engines is providing additional revenue and profitability on already profitable programs. The turboprop suite of engines is quite profitable. So it's simply that, getting access to new engine variants and the associated component repairs with an entitlement of $25 million a year by 2029. And by the way, I'll be disappointed if it doesn't grow to $30 million, I'll tell you now. It's going to expand to $30 million shortly thereafter. These are programs that are long-lived, and we expect to see an entitlement margins on this for many, many years.

Can we talk about the military business? You've alluded to it several times. How do we think about the military business growth rate relative to commercial going forward?

Going forward, okay, good question. Q2, it went slightly backwards for really funding outlay delays. But going forward, we are on the platforms that are never cut, right, the fixed-wing transport primarily represented by the C-130, the AE2100 engine that flies on that and the 2100 1107 engine that flies on the V-22 Osprey, which is the tilt rotor transport aircraft for the Marine Corps. These programs don't have replacements in the near future, and it will continue to fly. And on these programs, recall, we have 80% market share at a minimum. So those are continuing to grow as well as now attack platforms like the F-35, where we do important European NATO work. That shop is filled to the gills as well as demand on the F-110 engine, which is on the F-16, where we do the new build. And we've had specific requests to increase capacity there. Thankfully, that's in our big shop in San Antonio, where that's not a problem. Also the J85 trainer program, the U.S. Air Force continues to beg for more capacity there as they need more pilots. And the J85 is the first turbofan engine that a new pilot can fly on, and there's a backlog of demand for new pilots. So on those programs, we see really long-term growth. And again, a very high transparency into growth into the future. So the military business will continue to be an important different cycle business versus the commercial business runs really fuel cost immune. And as operating tempos, of course, increase with conflicts, we'll see growth there as well.

And Sheila, just generally speaking, right, like our revenue and budget comes from the O&M line. And the O&M line, right, it hasn't declined below 3% growth since the Vietnam war. And if you slice it even further, you look at the flight cycles, particularly tied to our engine platforms, the fit -- if you look at the 5-year defense plan, you'll see that, that growth puts you in that high single-digit kind of range. And that's just the organic side and then new awards and then OTempO and what's going on in the Middle East, that will add to that growth rate.

Can we talk about ES margins? It's 80% of your business, the profit -- well, I guess the profitability is a little less. How do we think about margins, volume-based volume, pricing, how that all plays into margin expansion going forward?

ES margins continue to grow, right? I'm really satisfied with the growth of earnings in Q2. They are going to continue to be bolstered by the ramp-up on those 2 0 margin platforms now, slightly Black, LEAP and CFM56 Dallas. Those will march steadily upwards. And we have an extremely strong continuous improvement program where even on mature or mid-cycle programs, we continue to see an entitlement of improved margins on those programs. HTF7000, we continue to see improved margins there year-on-year. And now CF-34, I can't wait to see the efficiency rates go out of the roof on this extremely large program in Winnipeg as a result of the expansion of the facility. Where else can we go and see increased margins. On the Bizv Pratt & Whitney programs, there, we're also becoming the consolidator of record. Remember on even some of our older platforms, they simply don't die. And when I joined the industry, when I joined StandardAero coming from Honeywell, I was like, okay, well, some of these programs are really end of life. But as the smaller providers drop out, the demand comes to us. And so these really high-margin older programs continue to live on. So we'll see -- I have high confidence now with achieving profitability on the ramp programs in our margin profile going forward, plus now the additional adder on the license expansion where we spent that capital allocation in Q2.

And we've historically, over the last 10 years, have done about 40 to 50 basis points of margin improvement in engine services organically through continuous improvement. So -- and lately, it's been closer to 80 basis points. And so we expect to see continued growth from the margin primarily from that.

Maybe we could talk about CRS quickly as I know we're kind of running out of time here. How do we think about the growth drivers from CRS and the business has been through a little bit of a transition in the first half of '26. What are the ongoing transformations there at the moment?

CRS, of course, fantastic business with margins in the 30% range. What's unique about CRS, if you haven't followed them, is their ability to generate revenue on their own through new product introduction or new repair development, new repair development being a great engine of revenue growth. Again, huge demand for that as customers see new repairs lower their turnaround times. So we've expanded our engineering team there, dedicated group of engineers that only are doing NPI, not only for third-party repairs, but remember, there is an in-sourcing effort repairs that the engine services group has been doing with third parties. We're now bringing that internally to -- back to StandardAero as Standard Aero develops additional capacity to bring those repairs in. All of these repairs, I guarantee you, are accretive to CRS. So that's a huge driver of growth. The other advantage that we've been taking advantage of is pricing, as you mentioned, Sheila, at CRS. There's a unique pricing capability there as we have intellectual property that no one else has. It's a very fragmented market. And you'll see lots of shops have 1 or 2 or a half dozen types of repairs. We have 20,000 repairs, and we can price for that. Again, customers are willing to pay those margins for improved turnaround times. And then the CRS will grow on the platforms that are growing at ES. So we will do all of the LEAP repairs at CRS, the CFM56 repairs at CRS, CF34 is going to be done at CRS. So they'll benefit from that as well. Not only that, CRS does engine platforms that we don't service at engine services, including wide-body platforms.

Maybe as we're out of time, one thing that investors might underappreciate about Standard Aero today to close.

Other -- it's really the -- I think it's the exciting -- how I there's going to be an exciting period coming up with our extremely strong cash flow generation. We've not shown you what we can do here since the IPO. We -- on capital deployment. You're starting to see those now with the LEAP and CFM56 investment cycle coming to an end. You're now seeing Standard Aro invest in new areas of growth. The license expansion is just one of them. Over the next several years, there is billions of dollars of liquidity that we will put to use on a very disciplined return set of metrics.

And then I would add in there, one thing that Dan said earlier, I don't think investors understand that '27 is vaped, '28 is starting to get vaped. We are a very long-cycle business. It's we're not components for long cycle.

Well, thank you so much, Dan and Rama for being here. I appreciate it.

Speaker 4

Thank you.

Good afternoon, and welcome to StandardAero's Second Quarter 2026 Earnings Conference Call. [Operator Instructions]

I would now like to turn the call over to Rama Bondada, Senior Vice President of Investor Relations. Please proceed.

Thank you, and good afternoon, everyone. Welcome to StandardAero's Second Quarter 2026 Earnings Call. I'm joined today by Russell Ford, our Chairman and Chief Executive Officer; Dan Satterfield, our Chief Financial Officer; and Alex Trapp, our Chief Strategy Officer.

Alongside today's call, you can find our earnings release as well as the accompanying presentation on our website at ir.standardaero.com. An audio replay of this call will also be made available, which you can access on our website or by phone. The phone number for the audio replay is included in the press release announcing this call.

Before we begin, as always, I would like to remind everyone that today's earnings release and statements made during this call include forward-looking statements under federal securities laws. These statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections. Such risks and uncertainties include the factors set forth in the earnings release and in our filings with the Securities and Exchange Commission, including in the Risk Factors section of our Annual Report on Form 10-K for the year ended December 31, 2025. We assume no obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise, except as required by law.

Additionally, during today's call, we will discuss certain non-GAAP financial measures, such as adjusted EBITDA, adjusted EBITDA margin, adjusted net income, adjusted earnings per share, free cash flow, adjusted free cash flow and net debt to adjusted EBITDA leverage ratio. The definition and reconciliation of these measures to the most directly comparable GAAP measures can be found in our earnings release and in the appendix to the earnings slide presentation on our website at ir.standardaero.com. Non-GAAP financial measures should be considered in addition to and not as a substitute for GAAP measures.

And with that out of the way, I would now like to turn the call over to Russ.

Thank you, Rama, and thank you to everyone for joining our call today. I'll begin on Slide 3 of our earnings presentation.

StandardAero delivered a strong second quarter marked by double-digit earnings growth, record margins, significant progress on our strategic priority, and continued strength in customer demand. Revenue was up 4.6% year-over-year. Adjusted EBITDA grew 12.3% year-over-year to $230 million. Adjusted EBITDA margin expanded 100 basis points to a record level of 14.4%. And free cash flow was an inflow of $50 million in the quarter. These results mark the earnings and margin inflection we outlined last quarter and demonstrate the operating leverage embedded in our business.

Three things drove the quarter. First, continued strong demand, productivity improvements and pricing across our commercial aerospace and business aviation platforms. Second, learning curve progress on our LEAP and CFM56 DFW programs, which reached profitability in the quarter. And third, the margin uplift from the previously announced elimination of low to no-margin material pass-through revenue on the contracts we restructured last year. Partially offsetting those was mix from delays on certain military platforms.

Let's move now to each of our end markets. Commercial aerospace revenue grew 6% year-over-year. Excluding the impact of the elimination of pass-through revenue, commercial aerospace growth would have been mid-teens year-over-year growth. Demand remains at historically strong levels across the platforms we support, and we have not experienced any reduction in demand from higher jet fuel prices. MRO capacity across the industry remains tight and our commercial backlog continued to grow in the quarter.

Business aviation revenue increased 6% year-over-year, supported by continued strong activity on our key midsize and super midsize platforms. Global business jet flight activity was up and fleet utilization continues to translate into engine MRO demand at our facilities.

The growth in the commercial and business aviation end markets was partially offset by military and helicopter where revenue declined 3% due to input delays on select military platforms. That said, we remain confident in the long-term military demand outlook. Operating tempo and flight hours are up, defense budgets in the U.S. and across our NATO customers continue to grow, and MRO capacity remains constrained.

We are seeing that in our order book. Helicopter volumes are running well ahead of last year, and our volumes on fighter and transport platforms are ramping into the second half. We remain confident in our full year military growth outlook. And as Dan will cover, our full year guidance continues to expect military and helicopter growth in the low double digits, with growth weighted to the back half of the year.

Before getting into the strategic updates, I want to provide a brief word on the broader environment. Jet fuel prices remain elevated and the geopolitical backdrop remains complex. To date, we have not seen a reduction in demand as a result. We track shop visit bookings, inductions, part orders and asset trading activity closely, and all of them remain consistent with the strength we entered the year.

We think that there are structural reasons for this. The MRO market remains constrained, aircraft retirements remained very low, and our customers are reluctant to give up induction slots that are difficult to get back. We're positioned on the most fuel-efficient engine platforms and nearly 40% of our business sits in end markets that are not sensitive to jet fuel prices. We will continue to monitor the environment closely and we remain confident in the resilience of our portfolio and our position in engine MRO.

Turning to Slide 4 and our strategic priorities. Our priorities remain unchanged, and we made meaningful progress across each of them in the quarter. Starting with LEAP. We achieved profitability in the second quarter while continuing to ramp the program and win new awards. This is an important milestone. It is evidence we're moving down the learning curve, improving throughput, expanding repair capabilities and scaling the program as promised. We continue to expect LEAP to reach $1 billion in annual revenue by the end of the decade and several billion in annual revenue by the middle of the next decade. We also added new customers in the quarter and our shop visit slots continue to fill out into next decade.

On CFM56 and CF34, demand on both platforms remain strong. our CFM56 Center of Excellence in Dallas Fort Worth reached profitability in the quarter, also as promised, and we continue to add new customers and are growing its backlog. On CF34, our Winnipeg expansion remains on track for completion in the third quarter of this year. This additional capacity is effectively sold out and further solidifies our leadership in the CF34 market. We expect the expansion to begin to scale throughout 2027.

While on the topic of growth, we have an exciting update for you. We recently signed a significant $180 million license expansion with 1 of our key OEM partners, spanning multiple turbofan and turboprop platforms. This agreement broadens our authorizations, adds new engine variants at several of our locations improved economics on existing work and adds component repair authorizations that benefit both of our segments. In total, we expect it to ramp to approximately $25 million of incremental annual adjusted EBITDA over the next few years, at margins that are accretive to the company average. This is exactly the type of investment we like: strategically aligned, high return and concentrated on platforms where we already have deep technical capability and a leading position. Dan will take you through more details on the license expansion in a few minutes.

In Component Repair Services, commercial aerospace as well as land and marine volumes are both growing. We continue to industrialize new repairs across the portfolio and we are migrating work across our network to further expand throughput capacity and capture the strong demand environment. Continuous improvement remains a core focus of how we operate. We remain dedicated to improving shop-level productivity, standardizing best practices, reducing variability, and ensuring our pricing reflects the value we deliver in a capacity-constrained aftermarket environment.

On capital deployment, we were active again during the quarter. In addition to the expanded license agreement, we also completed the acquisition of the Unified Turbines component repair business, which we announced in May. Unified is a targeted strategic addition to CRS as it enhances our hot section repair capabilities on engines we already support and advances our in-sourcing strategy across both segments. Importantly, the license expansion increases the strategic and financial benefits of the Unified Turbines acquisition. Integration is underway and progressing as planned.

Finally, we continue to return capital to shareholders, repurchasing $40 million of shares in the second quarter, bringing our year-to-date repurchases to $100 million. We view share repurchases as a valuable tool within our broader capital allocation framework, particularly when our shares trade meaningfully below our assessment of intrinsic value.

Overall, we're pleased with the operational progress made in the first half of 2026 and excited by the investments we've made for future growth and shareholder value creation. We're executing on our priorities. Our growth platforms are progressing. Our balance sheet remains strong. And we continue to see robust demand environments across the markets we serve. As a result, we are raising our 2026 guidance for revenue, adjusted EBITDA and adjusted EPS.

With that, I'll turn the call over to Dan to walk through the financial results and our increased guidance in more detail.

Thank you, Russ. I will begin on Slide 5 with highlights from our second quarter results. For the second quarter ended June 30, 2026, we generated revenue of $1.6 billion, an increase of 4.6% compared to the prior year period. Continued strength in commercial aerospace and business aviation was partially offset by lower activity on select military platforms.

The results reflect the previously announced elimination of $300 million to $400 million of low to no-margin material pass-through revenue in 2026. Excluding the impact of the eliminated material pass-through, the commercial aerospace end market grew mid-teens year-over-year.

Adjusted EBITDA increased to $230 million, up 12.3% year-over-year, and adjusted EBITDA margin expanded to a record 14.4%, an increase of 100 basis points compared to the prior year period. The improvement was driven by higher volumes, pricing and productivity, together with the margin accretion from the pass-through revenue elimination.

Net income was $97 million, representing 43.7% growth year-over-year, driven by higher operating earnings, lower interest expense and a lower tax rate. Adjusted EPS was $0.40, up 24% year-over-year, reflecting higher earnings and a lower share count from our share repurchase activity. Free cash flow was an inflow of $50 million in the quarter, which I will come back to shortly.

Now moving to our segments, starting with Engine Services on Slide 6. Engine Services revenue increased 4.0% year-over-year to $1.405 billion, with growth across our 3 major end markets. As noted, reported revenue growth was impacted by the elimination of low to no-margin material pass-through revenues. In other words, the underlying demand across the segment was meaningfully stronger than the headline rate suggests.

Engine Services segment adjusted EBITDA increased 14.4% year-over-year to $204 million, and segment adjusted EBITDA margin expanded 130 basis points to 14.5%. There were 3 main drivers of this growth and margin expansion. First, volume, productivity improvements and pricing. Second, coming down the learning curve on our LEAP and CFM56 DFW programs, both of which reached profitability in the quarter. And third, the margin accretion from the elimination of low to no-margin material pass-through revenue.

Turning to the Component Repair Services segment on Slide 7. Component Repair Services revenue increased 9.2% year-over-year to $195 million. Growth was tied to strong commercial aerospace growth on platforms such as the CFM56, GTF and CF34, as well as continued growth in our aero derivative platforms in the land and marine power generation market. Partially offsetting these tailwinds were lower revenues on certain military platforms due to timing, which had a greater effect on CRS than Engine Services.

CRS segment adjusted EBITDA was $51 million, down 0.9% year-over-year, as segment adjusted EBITDA margin was 26.3%, down 270 basis points. The decline in margin was driven by 3 main items. One, our continued migration of component repair work to the back shop of existing facilities to keep up with strong commercial end market demand. Two, temporary inefficiency resulting from ramping new employees at existing CRS facilities. And three, negative mix from input delays on select military platforms. We expect margin pressure from the work migration and labor ramp to dissipate in the second half of this year.

The CRS margin pressure was timing related and does not reflect a change in the underlying earnings profile of the segment. The commercial and land and marine demand backdrop remains strong. New repair development continues at a strong pace. And Unified Turbines adds capability on engines we already serve.

We are reiterating our full year CRS revenue and adjusted EBITDA guidance, which implies a return to our expected high 20% margin profile in the second half.

Now moving to Slide 8, free cash flow. Free cash flow was a positive $50 million in the second quarter. a meaningful improvement both sequentially and year-over-year. Working capital was a $56 million use of cash and we had $7 million of major growth CapEx in the quarter, with the Winnipeg expansion the largest component of that CapEx as the LEAP and CFM56 Dallas-Fort Worth CapEx and start-up costs are winding down.

Despite a continued tight supply chain environment, we have made significant progress with our supply chain initiatives, particularly in materials management. These initiatives helped drive a strong positive free cash flow in the second quarter, a period that has seasonally been a use of cash. We will continue to execute on these supply chain initiatives. But given that the industry supply chain dynamics remain fluid, we think it is prudent at the midpoint of the year to maintain our 2026 adjusted free cash flow guidance of $270 million to $300 million. As a reminder, our businesses typically generate a greater portion of cash flow in the second half of the year, and we expect 2026 to follow that pattern.

Turning to Slide 9, our balance sheet and liquidity. We ended the quarter with net debt to adjusted EBITDA of 2.6x, down from 3.0x a year ago. The year-over-year improvement was driven by adjusted EBITDA growth and cash flow improvement. We remain comfortably within our long-term target range of 2 to 3x, with meaningful balance sheet flexibility. And we received ratings upgrades from both Moody's and S&P during the quarter, to Ba2 and BB, respectively. In upgrading our ratings, Moody's and S&P cited our strategic expansion investments, stable margins, consistent revenue and earnings growth, diversified global end market exposure, and an expanding positive cash flow.

Our capital deployment framework remains centered on 5 primary avenues. First, investments in new engine platforms such as LEAP. Second, organic capacity expansion in existing platforms, such as CFM56 in DFW, CF34 in Winnipeg and HTF7000 in Augusta. Third, license expansion, such as the CF34 expansion in 2024 and the license expansion we are announcing today. Fourth, M&A, such as the Unified Turbines acquisition that we closed in Q2. And fifth, share repurchases, as evidenced by the $100 million we have repurchased year-to-date, including $40 million repurchased in the second quarter.

Across all 5 of these capital deployment avenues, we applied a disciplined return framework with expected IRR, ROIC over time, cash generation and strategic fit serving as key inputs in our decision-making.

Although leverage is now well within our target range, and with clear visibility and confidence in our ability to deliver sustained double-digit adjusted EBITDA growth, we will remain disciplined allocators of shareholder capital, focused on maximizing long-term value and delivering attractive returns.

Before getting to the guidance update, let me spend a moment discussing the expanded license investment. The agreement is expected to generate $25 million in incremental annual adjusted EBITDA at full run rate and at margins accretive to the company average. We expect the license to add $10 million of adjusted EBITDA in 2027, $20 million in 2028 and $25 million annually in 2029 and beyond. About 80% of the incremental adjusted EBITDA will be recognized in Engine Services.

Now turning to our updated 2026 guidance on Slide 10. We are raising full year revenue guidance by $50 million to a range of $6.375 billion to $6.5 billion, with this increase reflected in our updated revenue guidance for the Engine Services segment. From an end market perspective, we continue to expect commercial aerospace growth in the low double digits to mid-teens range once you normalize for the pass-through material revenue that was eliminated. We expect business aviation growth in the high single-digit to low double-digit range, and military and helicopters growth in the low double-digit range, with this growth back half loaded.

We are also raising our adjusted EBITDA guidance to a range of $885 million to $910 million. This reflects our new adjusted EBITDA guidance for the Engine Services segment of $770 million to $785 million. We are reiterating our Component Repair Services segment revenue and adjusted EBITDA guidance as well as our corporate expense guidance of approximately $105 million.

We are also raising our adjusted EPS guidance to a range of $1.50 to $1.57, which now excludes the tax adjusted amortization of all intangible assets and improves comparability with our peers. This increase is supported by higher earnings and a lower tax rate and share count.

Our guidance now assumes interest expense of $150 million to $160 million, a low adjusted effective tax rate of 23.5% to 25.5% and a lower average diluted shares outstanding of approximately 332.5 million.

We are now providing adjusted free cash flow guidance of $270 million to $300 million, which, for clarity, excludes the acquisition cost of new license intangible assets, which we consider more like M&A from a capital deployment perspective. Our CapEx guidance stays at a range of $100 million to $110 million.

With that, I'll turn it back over to Russ to wrap up.

Thank you, Dan. StandardAero delivered a strong second quarter and exited the first half with increasing operating momentum. We generated double-digit adjusted EBITDA growth, achieved record margins, delivered positive free cash flow and reached profitability on 2 of our most important growth programs.

Our strategic focus areas are seeing meaningful progress and we continue to find attractive opportunities to invest and deploy capital, evidenced by our license expansion agreement, the Unified Turbines acquisition and continued share repurchase activity. Demand remains strong. Our growth investments are delivering positive results. And our diversified portfolio continues to provide resilience and predictability. With increased visibility into continued double-digit earnings growth, we are confident in our increased outlook for 2026 and our ability to compound long-term shareholder value.

This concludes our prepared remarks for today. I look forward to speaking with you again next quarter when Paul McElhinney will join me for his first earnings call as our new CEO. Operator, we're now ready to move to Q&A.

[Operator Instructions] And our first question comes from the line of Seth Seifman with JPMorgan.

I guess, Russ, I wonder if you could talk a little bit more, you guys mentioned the kind of fluid supply chain environment. And as much as things are improving, when we listen to the GE call, they talked about their delinquencies being up 20%. So I wonder if you could talk a little bit about the degree to which things are getting more challenging or less challenging for StandardAero. You've cited a depth of delay in the past, I believe, as a metric, and maybe how things are trending on that basis, and the path you see to kind of a more normalized throughput environment.

Sure, Seth. Relative to supply chain, all of our planning and our guidance assumes that there is no recovery in the supply chain from the OEMs. We have the ability to work around any types of supply chain disruptions through our Component Repair business. We purposefully invested there. So our assumptions and our guidance include what the supply chain is doing right now. Any improvements in the supply chain would be upside for us, and in fact, provides somewhat of a tailwind for our component repair business as the OEMs would begin to take advantage of our technical ability to develop new repairs.

So at this point, we don't see any deterioration, and we have ways to keep that in check. And that's why our guidance is not dependent upon any assumptions about improvements in supply chains.

Okay. Great. And then actually that goes into the follow-up question I had about CRS. At what point does the LEAP and CFM56 and maybe CF34 have to reach a certain scale of activity before we see the internal sales of the CRS business start to really move off of this level of $20 million or so per quarter, which we've been seeing for a while?

Yes. I mean the LEAP and CFM56 are strong revenue drivers for CRS, and will ramp in concert with the internal ramp. But remember, of course, we're selling those repairs externally as well and doing a good job at it. So that's providing an extra boost.

Our next question comes from the line of Gavin Parsons with UBS.

Russ, I think you said you expect LEAP revenue to reach several billion mid-next decade. I think that's a new comment. Could you expand just a little bit on what assumptions underpin that and what you would need from a capacity standpoint to support that?

Yes, good question. In the past, what we've said is that the ramp on LEAP -- first of all, the major milestone was in the first half of this year to -- for the program to cross into profitability, which is done exactly as planned. Next step is between now and the end of the decade, we expect it to reach $1 billion in annual revenue. We see no reason to -- that that number would be any different. And then as you move into the early 2030s, you start to see a shift of the work scopes moving more from lighter work scopes, or CTAMs, towards heavier work scopes, the full up performance restoration visits. And that's what's going to start to drive the revenue into several million (sic) [ billion ] dollars in the early 2030s.

And when you talk about that program becoming margin accretive, is that specific to ES? Or does that also contemplate Component Repair, to Seth's question?

It includes Component Repair.

Okay. Could you quantify the cost of the license expansion? I don't know if I heard that.

Yes, $180 million.

USD 180 million.

Our next question comes from the line of Myles Walton with Wolfe Research.

Hoping to touch on what Gavin left off with the license agreement. How do we think about how much of that is sort of a renewal aspect of your current base business and sort of proportional costs associated with that versus sort of paying to get on to new product line expansion?

It's really about the expansion is we're speeding that $25 million. The license agreement opens up new applications and new platforms we haven't serviced before. Some of them are variants of current platforms that we have. And then along with that comes the additional repairs on those same platforms. All of that is included in the license expansion. Some include some improved pricing as well, some reduced costs on some items. But it really is about the expansion of those new licenses, new repairs and improved pricing.

Okay. And maybe just as a bigger business model question, how much of your business does it go through where you're having these license expansions and what's the average duration between renegotiating your current book with a customer and having one of these events?

Myles, it's Alex. Our license agreements are longer-term type agreements that are enablers to our doing business in markets. And we're always kind of working with our partners who find mutually beneficial routes to improving upon those. And so those happen when we reach agreement on them. But it's -- I wouldn't say it's sort of a constant part of doing business.

Okay. And Dan, just one question on the EPS raise. Is it fair to think that maybe $0.07 of the raise is from the amortization move?

I think most of it really is on the increased earnings. The amortization move is really small, maybe 5% of it.

Our next question comes from the line of Doug Harned with Bernstein.

You talked about CapEx and the CFM56, the DFW work and LEAP work, you're coming down on CapEx there but going up on CF34. Just how, in general, do you think about CapEx longer term? Is there a certain level that you would be at because that will always fund growth? Or are we coming out in the period here of heightened CapEx and we should expect less longer term?

That's a great question. We've spoken about it before, it always holds true for the business, maintenance CapEx will always be about 1%. This year, it will be about 1.3%, right? So that number you can pencil into your models.

As we look at the major platform investments, we are coming off -- if you compare it to 2024, at least, in 2025, CapEx is significantly lower. 2025 CapEx was $134 million. It will be a couple, $20 million or so less than that this year. Of course, now we always have great places to deploy capital. And importantly, we've deployed it this quarter to $180 million of the license expansion, right? That's not CapEx, but it's a deployment of capital.

So we've got the liquidity to put our assets to use to the best possible return outcomes. This quarter, we're very proud of the license expansion that we've done. You're not -- unless we do another major platform, there's not going to be a lot of CapEx similar to what we did for LEAP.

There's a few dollars of CapEx that's related to the license expansion, but not significant, and we'll disclose that as we go forward. But going forward, our asset allocation strategy remains.

Well, you're in a position now with very strong demand out there. It seems like right now, it's more about your ability to increase capacity, increase the work scope. It seems like those are the real drivers of growth. Is there a growth rate when you're looking forward that you're really targeting? In other words, is there sort of a stable growth to this business that you're going to invest to peak? Should we think of something in the mid to high single digits long term?

Yes, Doug. There's not a kind of long-term basic growth rate that you should think about. Because remember, our company is purposefully designed to be able to attack different segments across the aerospace industry. And each one of those segments, they operate on different maintenance cycles. Because the flight profiles, which create the maintenance cycle, are very different for commercial aircraft than they are from military aircraft or business aviation.

So each one of those subsectors will have normal variability. And then you pile all that together and it would be -- we try to keep that natural hedge position as a condition that helps us damp the normal volatility, but there still is volatility because you're mixing 3 different subsegments that all have very different maintenance requirements. And I'm not sure that there's a way to completely dampen that to a precise growth rate that you should target.

There is from time to time surges that occur. For instance, there could be up-tempo in military if there's some conflict. There could be something to do with a new aircraft or a new engine being introduced. And so from time to time, you'll get surges and spikes in that normal path. But if you look over the last 40 years, one thing is for sure, if you put a regression line through the growth rate, it's going to have a positive slope, right? It doesn't go down. It always goes up, but it just surges.

Doug, this is Rama. What we say long term is we target double-digit earnings growth. And then -- and so it's a combination of not just top line growth but also margin expansion and return opportunities for the company. So that's really kind of how we think long term, is double-digit earnings growth.

I mean we've demonstrated that, our CAGR over the last 10 to 15 years has been in that range.

Our next question comes from the line of Sheila Kahyaoglu with Jefferies.

This is Kyle on for Sheila. If I could ask maybe just a shorter-term one related to the CRS segment in the quarter. I know you guys talked about the EBITDA pressure from 3 things, labor and efficiency, the migration of work and then material inputs. And Russ, I think you said you're not really assuming much material improvement in supply chain as you get into the second half.

So maybe just the line of sight you have on the material shortage in the quarter, whether that's something that's already resolved here in the first couple of weeks of Q3 or whether that's something you're keeping an eye on.

Yes, it's really not a material shortage issue for us. It's a demand to capture move on our part. The demand is growing. And as a result, the most efficient demand -- or the most efficient capacity that you have is capacity that you already own. So before you start building buildings and doing things like that to capture additional capacity, what you do is you use your available capacity across your entire network. So that's what we've been doing over the last 6 to 9 months, is we look at Component Repair capability. Beyond just the dedicated CRS facilities that we have in our company, we also have Component Repair back shops in many of our engine assembly facilities that have available capacity for us to move work and that we're able to handle the increasing demand faster.

But there are some costs associated with spinning those other sites up in terms of hiring and training people and getting appropriate authorizations to migrate the work from one site to another. So we are consciously doing that in order to capture the demand increase that we see coming our way over the next couple of years.

Okay. And then just maybe the confidence level in getting all the way up to that low double-digit growth for military in the second half? And whether those kind of -- the things you just talked about right there, whether that's affecting military within the Engine Services segment as well?

Yes, we feel pretty good about military growth in the second half. Certainly, it got impacted by some select platforms. But in the second half, there are some real great drivers out there. Continued strong demand on the F110 platform. We typically don't talk about platforms, but being an attack platform, we've got strong indications of growth there. On some of our helicopter programs, we've got improved positions, contractual positions and new business. And helicopter is really strong business, had a great second quarter. And we expect that to continue to be a good driver next -- in the second half.

Remember, when there is a conflict, the demand for new aircraft is immediate. The demand for maintenance is a lag effect because you got to put the aircraft out there, they got to collect flying hours and then the maintenance appears. So the increased up-tempo over the last 6 months, you don't see the maintenance quite yet. But it's a leading indicator for us, when we see the increased flying hours on the F110 engine, which powers the F-16 and the F-15 EX, which are both in service, the T700 engine, which flies on the Black Hawk and the Apache, which are both collecting flying hours as well as the Chinook. And then the AE 2100 and the 1107 engines, which power the C-130, air transport as well as the V-22. Those were all aircraft that are seeing increased flight hours to the up-tempo in military.

So we have high confidence that those flying hours will create maintenance events that we start to see in the second half of this year and will continue into next year.

Our next question comes from the line of Kristine Liwag with Morgan Stanley.

I wanted to follow up a little bit more on the supply chain dynamics. So GE had said that they were about 20% delinquent in spare parts that they're delivering to the industry. I was wondering, can you connect that kind of information to your inventory management and your ability to source all the parts that you need to service the engines that you have in backlog for the year?

Yes. Great question, Kristine. As Russ has said consistently, supply chain issues in the aerospace industry are not new. They're not new for you either, with everyone that you've been following. This company has consistently avoided the temptation to expect an improvement in the supply chain.

Okay. Then let's go back to the second step underneath that. Supply chain issues for us are really driven by constrained parts. When we have constrained parts, and as you know well those are typically in castings and forgings. Good materials management aligns your supply chain to the longest lead time item, which are typically those. And if you look at our cash flow, and in particular, this quarter, we actually reduced contract assets. Remember what those are. Our contract assets are the nearly complete engines that we have on the shop. Those actually reduced because we're a lot smarter about materials management on those constrained parts.

Okay. So generally, the constrained parts are -- continue to be an issue for the overall aerospace supply chain ecosphere. We know that and we're managing it well. And we're keeping our guidance estimates current with that assumption.

That's super helpful. And also, when you think about working capital in 2027, does that improve working capital as these inventories improve?

Yes, we're not guiding to 2027 yet. But I would be surprised if any of us said things are going to break loose.

Our next question comes from the line of David Strauss with Wells Fargo.

This is Josh Korn on for David. I wanted to ask to what extent do you have a further opportunity to eliminate more pass-through revenue?

Yes. For now -- this was a big effort, right? And to get to $300 million, $400 million, by the way, we're on track for that, it was a contract-by-contract effort that we've been going after. There is a larger pull out there still of low-margin pass-through revenue. We'll get to it as we can. Right now, this is where I would size it. And I wouldn't expect it to have a material impact going forward because of the very contractual nature of it.

Okay. And then I guess, to what extent has working capital benefited from lower pass-through so far?

Oh, yes, it's a benefit for sure. Listen, I'll do this all day, to reduce revenue on the behalf of margins and working capital. The biggest advantage we've had in working capital in the quarter has been the materials management, as I mentioned.

And really the benefit to the pass-through material on working capital, you'll see primarily next year.

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

Maybe just a question for Alex. I wanted to just get a sense as to what you're seeing in terms of M&A opportunities, how you're thinking about sort of incremental opportunities into the second half of this year with what seems to be relatively elevated multiples, at least with what we're hearing in the marketplace.

Ken, so as always, right, we have a very robust pipeline. I'd say that pipeline this year has translated into more opportunities that have been coming across be it through formal processes or informal interactions with sellers. So everything has looked great this year. We've studied every opportunity that comes across. And as always, we will be very disciplined with respect to strategic fit. And we'll pounce where there is one.

And then maybe just a follow-up question on the supply chain discussion. Yesterday, Honeywell in particular was talking about some significant challenges with some of its mechanical components. And I'm just curious if you've seen any issues with the HTF7000 in terms of your ability to ramp that program with getting material.

No, we have not.

Our next question comes from the line of Andre Madrid with U.S. Bancorp-BTIG.

So you mentioned that fuel prices are not impacting demand now, that's clear. But at what point does that stop being the case?

Yes, Andre. First of all, remember about 40%, so nearly half of our portfolio of engines that we serve is going to applications that are not sensitive to fuel price like military applications. It's really just the commercial part of the business that may have some sensitivity there. But there is a normal progression that commercial airlines go through whenever there is volatility in fuel price. And we've seen major world events that we've tracked over the last 25 years where this has happened several times.

And in each case, there is a pattern that's predictable and consistent. And that pattern is that during the first 12 months, what you're going to see is airlines will pass along these fuel prices via increased ticket prices. And then after some time, and that's going on right now, and the flight loadings eventually could be impacted by that. But the flight loadings are still -- the average flight loadings are operating in the mid-80%, which is very high. So ticket prices and fuel price -- jet fuel price pass-through have not really started to impact flight loading.

Eventually, if it continues on long enough, the flight loading starts to drop. Then the airlines will move to optimizing some of their flight routes and some of their aircraft and they'll rotate different aircraft into different flights. That goes on for a number of months. And if it continues beyond that, then they might start thinking about optimizing some of the work scopes for maintenance.

But we're a long way away from that. And typically, these fuel price increases don't -- they don't stick around for several years. They're typically shorter in nature than that. And so it never gets to a point of impacting the maintenance schedule.

And the reason for that is because airlines, they're used to this. They're designed to handle this. And there are many levers that they can pull before they get to the lever of adjusting maintenance schedules because that is the last lever they want to pull, especially in an environment where maintenance capability is constrained. The last thing they want to do is give up a slot that they've contracted for years in advance, because then they might not be able to get it back if something changes.

So we are in a very nice position relative to how that process works. And we're a couple of months into this increased jet fuel price scenario, but we still have a long way to go before we would expect to see any of this coming through all the way to the maintenance side of the business.

That makes sense. Thank you for the really thorough response there. I guess pivoting maybe to LEAP, I guess, looking ahead at the $1 billion sales by end of the decade, are you able to share just kind of what the mix of heavy shop visits that implied to reach that level? And maybe how do you expect the mix of heavy shop visits to kind of trend thereon out?

Andre, this is Rama. We haven't broken out what the split is going to be on the mix at the end of the decade. But I mean what we have said is that CTAMs are obviously heavy last year and heavy this year in terms of volumes. But as we go through the decade, you'll start seeing more of that PRSV. And given that these are bigger revenue events, more of the revenue will be generated from the PRSV. But we haven't explicitly broken out the volume mix.

One of the reasons we don't want to give guidance on that is this is a brand-new engine platform. If this was an existing platform that have been around for a while, then we might have a better forward forecast of that before a brand-new engine. We don't know about the long-term durability of the engine and when those light work scopes are going to be shifting to heavy work scopes. I mean, we have a range that we're using for planning purposes, but we don't guide on that.

And we have reached the end of the question-and-answer session. And I'll hand it back over to management for closing remarks.

Okay. Very good. Thanks, everyone. We appreciate your continued interest and support of StandardAero. We have no further comments for this quarter. We look forward to speaking with everyone for third quarter. Thanks again.

Thank you. And this concludes today's conference and you may disconnect your lines at this time. We thank you for your participation.

Good afternoon, and welcome to StandardAero's First Quarter 2026 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the call over to Rama Bondada, Senior Vice President of Investor Relations. Please proceed.

Thank you, and good afternoon, everyone. Welcome to StandardAero's First Quarter 2026 Earnings Call. I'm joined today by Russell Ford, our Chairman and Chief Executive Officer; Dan Satterfield, our Chief Financial Officer; and Alex Trapp, our Chief Strategy Officer.

Alongside today's call, you can find our earnings release as well as the accompanying presentation on our website at ir.standardaero.com. An audio replay of this call will also be made available, which you can access on our website or by phone. The phone number for the audio replay is included in the press release announcing this call.

Before we begin, as always, I would like to remind everyone that today's earnings release and statements made during this call include forward-looking statements under federal securities laws. These statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections. Such risks and uncertainties include the factors set forth in the earnings release and in our filings with the Securities and Exchange Commission, including in the Risk Factors section of our annual report on Form 10-K for the year ended December 31, 2025. We assume no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

Additionally, during today's call, we will discuss certain non-GAAP financial measures such as adjusted EBITDA, adjusted EBITDA margin, adjusted net income, adjusted earnings per share, free cash flow and net debt to adjusted EBITDA leverage ratio. A definition and reconciliation of these measures to the most directly comparable GAAP measures can be found in our earnings release and in the appendix to the earnings slide presentation on our website at ir.standardaero.com. Non-GAAP financial measures should be considered in addition to and not as a substitute for GAAP measures. And with that out of the way, I would like now to turn the call over to Russ.

Thank you, Rama, and thank you to everyone for joining our call today. I'll begin on Slide 3 of our earnings presentation. StandardAero delivered a solid start to 2026 with double-digit revenue growth across each of our 3 major end markets. We raised our full year revenue, adjusted EBITDA and adjusted EPS guidance, repurchased $60 million of our shares in the first quarter and are today announcing the acquisition of Unified Turbines. Demand across our end markets remain strong. Our growth platforms continue to scale, and our underlying earnings power is improving even faster than the headline numbers suggest.

For the first quarter, revenue grew organically by 13.3% year-over-year supported by continued demand across commercial aerospace, business aviation, military and helicopter with all of our major end markets experiencing double-digit growth and expanded backlog. Adjusted EBITDA increased 2.5% year-over-year, and adjusted EPS grew 14%. We benefited from strong execution across our portfolio, but Dan will discuss later. These benefits were partially offset by 4 main factors: First, the ramp of our LEAP and CFM56 DFW growth programs, which are still coming down the learning curve; second, earlier-than-anticipated inventory burn down of existing low-margin pass-through material on the contracts we restructured last year, drawing more of that inventory through the P&L; third, the timing of engine shipments that impacted mix; and fourth, the nonrecurring costs from the closeout of a military program that ended in the quarter.

We expect to return to double-digit EBITDA growth beginning in the second quarter with pass-through material elimination, productivity improvements and better mix driving higher margin expansion for the rest of the year. Excluding the impact of these mostly transitory and onetime items, adjusted EBITDA margins in the quarter would have exceeded 14%, and adjusted EBITDA growth year-over-year would have been double digit. Therefore, the underlying business' operating strength, along with the demand we're seeing across our platforms, is what is driving our increase to guidance.

Looking at our end markets. Commercial aerospace grew 11% year-over-year in the first quarter as it continued to benefit from robust global aftermarket demand and a very tight MRO capacity environment. We saw strong activity across our platforms, including LEAP, CFM56 and turboprops as well as continued growth from our CF34 business, where demand remains strong, and we're realizing the benefits of the expanded license with the OEM last year. Commercial demand remains robust with no signs of softening.

In the first quarter, business aviation grew 20% year-over-year, supported by strong demand on key midsized and super-midsized platforms. This includes the HTF7000, where we are benefiting from the capacity investments we made in Augusta last year. This facility will continue to ramp throughout the year, and we expect business aviation to remain a meaningful contributor to growth in 2026 and beyond.

I also want to spend a few minutes on our military and helicopter business, which grew 10% year-over-year and remains an increasingly attractive part of the StandardAero portfolio. When we presented our initial 2026 guidance in February, we had not yet seen a meaningful recovery from the U.S. government shutdown. However, the last few weeks of the quarter saw a very strong rebound with robust activity across several military platforms, including the AE2100 and AE1107, which power the C-130 and the V-22 Osprey, respectively.

Looking beyond the fading impact of the U.S. government shutdown, the rising operational tempo and increased defense spending across multiple regions are driving a noticeable acceleration in our military business. We're seeing early signs of increasing activity and strong demand signals on key engines that support transport aircraft, fighters, helicopters and other mission-critical applications. The global environment remains complex, and it's reinforcing the importance of readiness, sustainment and mission availability, areas where StandardAero has deep technical capability, long-standing customer relationships and a differentiated ability to support critical engine programs.

While U.S. defense budgets continue to see strong year-over-year growth, the budgets of our NATO allies are also expanding rapidly. We're well positioned to capture this growth through recent awards we've won but not announced due to customer sensitivities. We've been awarded the rights to 80% of all OEM-directed MRO work on both the AE1107 and AE2100 engines globally, including future derivatives, and we are the largest independent MRO provider on these engines for U.S. and NATO allies. These agreements go well into the next decade.

The expansion in Winnipeg that we launched in the fourth quarter of 2025 is tied to many of these military awards. CF34 growth in Winnipeg has been so significant that it has expanded into our military facilities. Our expansion, which was supported by the Canadian and Manitoba governments, not only expands our CF34 capacity, it also frees up our military capacity to accommodate growing demand.

In addition, we have seen strong signaling from GE, our partner on the F110 engine for a multiyear acceleration on this platform likely beginning in the second half of this year. We believe our military and helicopter exposure gives StandardAero an additional layer of durable growth opportunities this year and for several years to come. This end market enhances the resiliency of our business model, provides access to attractive demand drivers and reinforces the value of our diversified portfolio of engines across all end markets.

Turning now to Slide 4. Before speaking to our strategic priorities, I want to spend a few minutes on the broader operating environment, including the conflict in Iran. The situation is dynamic, and we've been monitoring the environment closely. I want to share what we're seeing today and how we are positioned, which gives us confidence in our outlook.

Starting with what we have seen to date. Through the first quarter and into April, we have not seen any impact on our commercial business. Bookings momentum remains positive across our portfolio. Induction patterns at our facilities have been consistent with our internal plans, and our customers have not pulled back on work scopes or deferred shop visits. Demand across our end markets remain strong, and our supply chain has continued to perform relatively well. The early indicators we track, shop visit bookings, inductions, part orders and asset trading activity, all remain consistent with the underlying strength with which we entered the year. That said, we're mindful that we are navigating a more complex operating environment with elevated jet fuel prices, selected capacity adjustments announced by a few airlines and global airline profitability under some near-term pressure. We're tracking these factors closely, but we believe the structural dynamics in the market, combined with where we sit in the ecosystem, leaves us well positioned.

There are a few reasons for our confidence. First is the structural tightness of the MRO market itself. Demand continues to exceed supply, lead times remain extended, and our customers are highly reluctant to change schedules or release induction slot positions because regaining slot access is difficult. Aircraft retirements remain very low as OEMs continue to struggle to lift production rates against their backlogs. And early durability challenges on certain new generation platforms have increased maintenance costs, offsetting portions of the fuel savings that those platforms were expected to deliver. All of this means engines are staying in service longer, working harder and requiring more MRO support, not less.

Second, our portfolio is purposefully diversified across end markets, platforms and geographies. That diversification has historically provided real resilience during periods of macro volatility, and it's doing so again today. A meaningful portion of our revenue comes from end markets such as business aviation, military and helicopter, which are less correlated with fuel prices. I highlighted earlier that our military business is seeing an increasingly powerful tailwind with step-change defense spending across the globe and increased operational tempo, particularly across the platforms we support.

Furthermore, our major MRO facilities have been strategically designed to serve multiple end markets, and our labor is mostly flexible across these multiple lines. This means we can reallocate labor and cost rapidly in response to changing market dynamics as we did during COVID. It's this business portfolio diversity and our operationally flexible model that enabled us to outperform our peer group in previous times of macro uncertainty and industry instability.

Third, we hold differentiated positions on fuel-efficient new generation platforms. Our position as a LEAP premier MRO is a great example. LEAP is precisely where we've made our largest organic investment, which positions us well if elevated fuel prices accelerate retirements of older, less fuel-efficient aircraft over time. Mature widebody aircraft have historically absorbed the bulk of capacity adjustments during periods of sustained high fuel prices. As a reminder, we're focused on single-aisle aircraft platforms in the commercial market and have limited widebody exposure.

Fourth, our supply chain. While industry-wide constraints around parts availability and supplier delivery remain persistent, we've not seen incremental disruption from the conflict at this point. Material flow remains relatively stable. We have close engagement with our suppliers, and we have multiple sourcing strategies and long-term agreements in place on our most critical inputs. This environment continues to favor scaled MRO operators with deep, long-standing OEM relationships where part allocations and material flow are most reliable, and that's exactly where StandardAero sits. It also reinforces the strategic importance of our component repair and asset management businesses to reduce turnaround times and material costs for our customers and to allow us to offer a broader suite of solutions such as used serviceable material and engine exchanges, which help our customers manage through periods of supply tightness. Further, energy costs are a relatively small portion of our cost base, and our pricing structures provide protection against most input cost inflation.

The bottom line is that we have not seen a material impact to our business to date from the situation in Iran and demand remains strong. We believe the structural characteristics of our portfolio and operations, combined with the underlying tightness of the global MRO market, position us very well to navigate this environment. We would also note that historically, the lag from an oil price shock to meaningful MRO revenue impact has been measured in years, not quarters, because the engine MRO is driven by the accumulation of flight cycles over multiple years. Further, nearly 100% of what we do in our commercial aerospace engine MRO business is nondiscretionary. We will, of course, remain vigilant, continue to engage actively with our customers and our supply chain and keep you updated as conditions evolve.

Turning to Slide 5. I'll speak to our 2026 strategic priorities, which remain consistent with the framework we discussed last quarter. First, on LEAP, our focus remains execution. The program continues to scale with first quarter LEAP revenues growing 4x year-over-year. We also hit the milestone of delivering our first LEAP 1A full overhaul early this quarter, and we're continuing to improve throughput, productivity and component repair capability as we move down the learning curve. We are on track to achieve profitability in the first half of 2026 while pursuing additional long-term customer awards.

Second, we're focused on fully leveraging our investments in CFM56 and CF34. On CFM56, our DFW Center of Excellence continues to ramp, and we also expect that program to reach profitability in the first half of the year. On CF34, our expanded authorization from GE and the Winnipeg expansion continue to be key pillars of our growth strategy. The facility expansion is on track for completion in the second half of this year. Demand remains robust with the additional capacity already booked, reinforcing our view that our CF34 leadership position is both durable and differentiated.

Third, Component Repair Services remains a strategic engine for value creation. We're continuing to accelerate new repair initiatives with several new wins across both new and existing platforms in the quarter, and we remain focused on in-sourcing capture across the enterprise. The business is also doing a great job optimizing production flow and performance, which can be seen in the strong segment margins we saw in the quarter, overcoming the small facility fire that they had late last year and the impact of the government shutdown on the military components business.

Fourth, continuous improvement remains core to how we operate. We're focused on improving productivity across our portfolio and standardizing best practices, which subsequently increases throughput and revenue organically. These continuous improvement initiatives are constantly measured and supported by our incentive programs at all levels of the company and key to supporting margin expansion as volumes continue to grow.

Finally, on capital deployment, we remain focused on disciplined value-accretive uses of capital. That includes high-return organic investments, strategic M&A, new platforms, license expansions and opportunistic share repurchases. In the first quarter, we repurchased $60 million of shares under our $450 million repurchase program, and we will continue to look at future repurchase opportunities.

We also announced today the acquisition of Unified Turbines, a specialty provider of hot section component repair and overhaul services for a range of Pratt & Whitney and Honeywell engines that power commercial aerospace and business aviation turboprop aircraft. Unified adds critical repair capability on important engines we already serve, including the PT6A and PW100 and supports faster component repair turnaround times for our MRO customers.

Unified Turbines is a highly synergistic addition to our Component Repair Services segment and aligns directly with our strategy to expand repair capabilities, increase in-sourcing capture and to use disciplined M&A to strengthen our position on platforms where we already have meaningful scale. As a trusted supplier to StandardAero since 2001, this is a business we know well, and we look forward to welcoming the team to the StandardAero family. This is exactly the type of acquisition we look for, strategically aligned, synergistic with our existing network and capabilities, and supportive of long-term value-accretive growth.

With that, I'll turn the call over to Dan to walk through the financial results and outlook in more detail. Dan?

Thank you, Russ. I will begin on Slide 6 with some highlights from our first quarter results. For the first quarter ended March 31, 2026, we generated revenue of $1.63 billion, representing 13.3% growth compared to the prior year period. Growth was broad-based across our end markets, with commercial aerospace up 11% year-over-year, business aviation up 20% year-over-year and military and helicopter up 10% year-over-year. We saw growth in both of our segments with Engine Services revenue increasing 14.1% year-over-year and Component Repair Services revenue increasing 7.4% year-over-year.

Adjusted EBITDA increased to $203 million in the quarter, representing a $5 million increase from the prior year period. The increase was driven primarily by higher volumes, offset by the timing of engine shipments that impacted mix in engine services and the onetime costs from the closeout of a military program as we prepare for the next contract. Excluding the impact of these items, adjusted EBITDA year-over-year in the quarter was above 10%.

Adjusted EBITDA margin was 12.5% compared to 13.8% in the prior year period. As Russ noted, the year-over-year margin compression reflects a faster-than-expected burn down of existing inventory of pass-through material for restructured commercial contracts, the continued ramp of our LEAP and CFM56 DFW growth platforms, timing of engine shipments and a onetime cost from the contract closeout. The closeout costs, which occurred in March, was anticipated in our full year 2026 guidance, although we were uncertain about the timing. Excluding the effects of these mostly transitory or onetime items, margin in the quarter was above 14%.

Net income was $80 million for the quarter compared to $63 million in the prior year period. The year-over-year change was driven by higher operating earnings and lower interest expense. Adjusted EPS of $0.33 came in 14% higher than the year ago period. Free cash flow was a $134 million use, reflecting typical first quarter seasonality and working capital timing as we continue the ramp of our LEAP and CFM56 DFW programs.

Now moving to our 2 segments, starting with Engine Services on Slide 7. Engine Services revenue increased 14.1% year-over-year to $1.45 billion. Growth was driven by continued strength in our commercial aerospace platforms, including LEAP, CF34, CFM56 and turboprop as well as continued demand for business aviation or super-midsized engine programs such as the HTF7000 and a strong military ramp late in the quarter as we progressed through the residual impact of the U.S. government shutdown.

Engine Services segment adjusted EBITDA increased 3% year-over-year to $179 million. These results were heavily affected by the timing of engine shipments that impacted mix and the contract closeout costs. Excluding these onetime items, segment level adjusted EBITDA grew above 12% year-over-year. Segment adjusted EBITDA margin was 12.3% compared to 13.7% in the prior year period. The drivers of the lower margin rate included the impact of the ramp in LEAP and CFM56 DFW revenues, transitory items such as the earlier-than-anticipated existing inventory burn down of pass-through materials on commercial contracts that we restructured and the previously mentioned onetime costs from a contract expiration, along with the timing of engine shipments. If you strip out those items, Engine Services adjusted EBITDA margin was over 14% this quarter, and we expect margins in this segment to exceed 14% through the remainder of the year.

We continue to expect to eliminate $300 million to $400 million of low to no margin material pass-through revenue in 2026, with subsequent margin benefit and revenue impact now coming over the next 3 quarters as implied in our updated guidance.

Turning to Component Repair Services on Slide 8. Component Repair Services revenue increased 7% year-over-year to $180 million. Growth was driven by good underlying demand across the portfolio, including strong performance on narrowbody aircraft components, particularly on the CFM56 and GTF, where we've been able to expand repair content. This was partially offset by the impact of the small fire at our Phoenix facility in December that closed the facility during the first few weeks of the quarter. In addition, the segment's military business was also affected by the residual impact from the U.S. government shutdown.

As of the end of the first quarter, the Phoenix facility was up and running at full capacity with no impact from the fire expected in the second quarter. While we expect the residual impact of the government shutdown to fade through the second quarter, it is progressing at a slower rate in our CRS business than we previously expected.

CRS segment adjusted EBITDA increased 11% year-over-year to $52 million. Segment adjusted EBITDA margin expanded 90 basis points year-over-year to 29.2%, driven by favorable mix and strong productivity performance.

Now moving to Slide 9, free cash flow. Free cash flow for the quarter was a $134 million use. This reflected typical first quarter seasonality as well as working capital investment to support continued growth across our ramping platforms. As we have discussed in the past, our business historically has been more heavily weighted towards second half cash generation. As a result, we continue to expect a similar cadence in 2026, but with a heavier first half cash usage in 2026 versus 2025 due to the significant ramp of our growth platforms.

Turning to Slide 10, our balance sheet and liquidity. We ended the quarter with net debt to adjusted EBITDA of 2.6x compared to 3.1x in the prior year period. Our leverage remains within our long-term target range of 2 to 3x, and we continue to have significant balance sheet flexibility for shareholder accretive capital deployment, such as the $60 million in shares we repurchased in the first quarter and today's announcement of our acquisition of Unified Turbines.

Our priority is to support long-term shareholder returns through a disciplined and balanced approach to capital allocation that includes organic investments, accretive M&A, new platforms, license expansions and opportunistic repurchases, all while maintaining a strong balance sheet.

Now turning to our 2026 outlook on Slide 11. We are increasing our full year 2026 guidance for revenue, adjusted EBITDA and adjusted EPS. Specifically, we now expect revenue of $6.325 billion to $6.45 billion, a $38 million increase at the midpoint. On adjusted EBITDA, we are raising guidance by $5 million at the bottom end of the range, which now stands at $875 million to $905 million. Our adjusted EPS guidance increases $0.05 to a range of $1.40 to $1.50, representing 22% year-over-year growth at the midpoint. Finally, we are reiterating our free cash flow guidance of $270 million to $300 million.

As a reminder, our revenue growth guidance includes the previously discussed elimination of $300 million to $400 million of low to no margin material pass-through revenue from restructured commercial contracts in Engine Services. Engine Services delivered higher-than-expected first quarter revenue growth, partially because we drew down existing inventory of this pass-through material sooner in the year than anticipated. Again, our new guidance implies that we now expect to achieve margins higher than 14% in the Engine Services segment over the rest of the year.

In addition, we are raising our end market growth guidance for military and helicopters from the previous high single-digit growth rate to low double-digit growth year-over-year. We are also raising business aviation end market growth guidance from high single digit to a range of high single-digit to low double-digit percentage growth year-over-year. With that, I'll turn it back over to Russ to wrap up our prepared remarks.

Thank you, Dan. In summary, first quarter results were solid, and we continue to see strong demand across commercial aerospace, business aviation and military and helicopters. These markets are supported by durable demand drivers, rising utilization and the need for trusted technically capable MRO partners. We believe StandardAero is well positioned to capture these opportunities.

Our priorities remain clear and consistent: execute on the LEAP and CFM56 DFW ramp; fully leverage our CF34 investments; expand component repair capabilities; drive continuous improvement; and deploy capital with discipline. We are confident in our strategy, confident in our ability to navigate the market backdrop and confident in delivering another year of double-digit earnings growth and strong cash generation.

Thank you again for joining us today. Operator, we're now ready to move to Q&A.

[Operator Instructions] And your first question comes from David Strauss with Wells Fargo.

I wanted to touch on cash flow and working capital. Maybe discuss why the working capital outflow was so much worse this quarter than what we typically see in Q1. I know you're -- seasonally, it's typically an outflow in Q1, but we had a much higher outflow here this year. I would have thought maybe with some of the pass-through inventory kind of flowing through that, that would have helped. And what you're assuming for the full year in terms of working capital?

Great question. Thanks, David. No, we're -- I'm satisfied with the free cash flow use of this quarter. It was a build of about $247 million. Let me break that down a little bit. A lot of that was movement into billed accounts receivable, which is really great. That gets -- we've got great collections performance typically within 30 days. And inventory actually dropped in the quarter, a $65 million improvement. Good news there.

Where we did increase was primarily on contract assets, and that's on the great performance of our CF34 business. As that business continues to grow and we're expanding our facility in Winnipeg, there is a related build of working capital in that regard. And that makes perfect sense for us, in particular, as it's occurring here in the first quarter, which is typically, for us, a seasonal build. So our cash flow guidance doesn't change for the full year. We do expect working capital to decline in the second half and cash flows to reach the free cash flow conversion rates that we've guided you to.

Your next question comes from Andre Madrid with BTIG.

I think you guys had mentioned last quarter that you were largely filled for your LEAP slots in '26. I mean, is this now fully sold out? And what kind of, I guess, early look could we get into '27?

Our LEAP programs are continuing to pick up steam. We have inducted now more than 70 LEAP engines since we began to induct them. About a dozen of those have been PRSVs, full performance shop visits. So we see our pipeline is robust, and we have plenty of work heading our way. So we're comfortable that our plans for the amount of demand out there are correct, and we are busily coming down the learning curve, which is why we are quadrupling the LEAP revenue over last year.

Yes. No, that's helpful. I guess to stay on that, you mentioned the PRSVs. How should we expect the mix of that to shift over time? I mean, how much of LEAP revenue will flow through this over CTEMs as you look through '26 and into '27?

Yes. We're still heavily biased towards CTEMs just because of the nature of the number of accumulated flying hours on the engines and the customers that we're servicing right now. I suspect it will take more than 12 months before you see a meaningful shift in the balance. We will continue to be more leveraged towards CTEMs for likely the next 2 to 3 years and then PRSV volume will obviously increase during that time.

Your next question comes from Kristine Liwag with Morgan Stanley.

Russ, you were very clear in your prepared remarks that you're not really seeing any change about the demand environment and customer behavior so far. I guess I wanted to follow up on the structural MRO tightness in the industry you called out. Like how much buffer do you think there is in the supply-demand dynamics? And is there a way to quantify that from your seat? Perhaps is it the number of engines already scheduled for induction in 2027 in a given time frame? Just want to understand how to think about if this Iran thing kind of draws out longer.

Yes. Thanks, Kristine. There are some dynamics in the aftermarket that, I think, really give us resilience through some type of a conflict like this. Let me talk about that first, and then I'll talk a little bit about the kind of the route that airlines go through. But right now, historically, what we've seen is that fuel shocks like we're seeing right now, they don't immediately impact maintenance slots, which is our business. Historically, the air traffic demand that's underlying what we're seeing right now is still very strong. The load factors on commercial airlines are very high. And so consequently, if there was some adjustment, the load factors will support that without any real big impacts to equipment changes and things of that nature.

Also, airlines have been pretty successful, so far, in passing along these fuel costs, and they really haven't seen any changes. So that, coupled with the fact that MRO capacity still is being outpaced by demand and then you also couple the fact that existing equipment is having to fly longer, that just gives you confidence that the MRO projections that we have, in fact, are correct.

Now in addition to those things that I mentioned earlier for the general market, StandardAero has some additional benefits that not everyone in the sector has. That includes, first of all, we're on the right platforms. We're on the single-aisle platforms, both regional and narrowbody. Those are the platforms that tend to be more resilient if there is any type of rebalancing of equipment that goes on.

Secondly, because of the way that we are structured, we have a very naturally hedged position by being evenly spread across multiple end markets or subsector areas like military, like business aviation. These things all react differently and have different fuel sensitivity. Commercial airline is more fuel sensitive than military is. So the fact that we have that natural diversification built into our overall company portfolio means that we have the ability to shift resources and capture either upside or mitigate downside. So if you get a surge in military, we can shift and capture that. If you get a downside in commercial, we can mitigate that. So I think the structure of our company is a little bit different than what all other folks in the industry might have, and that gives us the ability to just react faster and more accurately.

So the underlying resilience is there. StandardAero has some additional capability that enhances our speed of reaction. And then you couple that with what we are physically seeing. And what we're physically seeing is exactly in line with the plan that we put in place, our annual plan we put in place late last year. We're not seeing any sudden shifts in work scope reduction or deferred slots or anything of that nature. So that tends to follow historically what we would expect.

Now there is a normal progression that sometimes if you have a very long period of either demand reduction like COVID or sustained high fuel prices, you're talking about a couple of years. First thing that would happen, which is what you see now, is the airlines would increase prices. That's basically where we're at. Second thing you might see after a year would be some reduction in work scope. Past that, months beyond that, then you might begin to see some deferring of maintenance. And then after that, you're talking for a very long period of time, you might actually see some aircraft retirements, which would result in some canceled events.

But we're monitoring all of these things very carefully, front-end indicators. We're not seeing retirements change at all. It's very low. So we have high confidence that beyond this year that this will be a normal or not a normal, but it will be not a super unusual perturbation in airline and commercial traffic that because we react to an accumulation of flight hours over several years, it will get washed out in the future.

And your next question comes from Sheila Kahyaoglu with Jefferies.

This is Eegan McDermott on for Sheila. Wondering, given you've raised the outlook for business aviation and military and helicopter, if you could just unpack the strength behind what's driving the strength behind each of those raises? And maybe specific to the military side, the degree to which this is a function of government shutdown recovery versus some sort of demand step-up?

Yes. No, great. We're really excited about the improvement in our guidance, $38 million at the midpoint. That's occurred primarily or, in large part, at military programs. We talked about our strong position on the fixed-wing programs that support military, and that's as represented by the AE2100 program. That program was -- had extremely strong revenue growth in Q1, and we're seeing that continue throughout the rest of the year. Similarly, with the AE1107, which, of course, flies on the Marine Osprey helicopter program, that was also extremely strong in Q1, and we're seeing that also continue throughout the rest of the year. So it's primarily on those 2 programs where we're seeing strong upsides. Also on the F110, we have a good position there, and that also had strong growth that we're passing on for the full year as well. Those 3 programs primarily are the beneficiary of that.

And your next question comes from Myles Walton with Wolfe Research.

Wondering if you could quantify, if at all, the financials associated with the Unified acquisition, the size, maybe number of employees. Did it have a role in the guidance uplift? Or is it more neutral at this point? Maybe just a little bit of color on that.

Myles, it's Alex. So we see that acquisition as sort of run rate post synergies in the mid-single-digit EBITDA range. We have a synergy plan that's focused on sales growth that should be achievable for the next 18 to 24 months. And so that's right in line with a lot of the acquisitions that we've done in the past in terms of multiple paid. For this year, we expect the impact to fit within the range of our CRS segment guidance to answer that part of your question.

Okay. Got it. And then just maybe one quick one on the CFM56. And how are the parts availability doing on that -- on those overhauls and restorations? And if you look across your supply chain, is that where you're most focused on parts availability getting over the hump of what's in and what's coming out?

Well, the -- thanks, Myles, for the question. Obviously, volume drives attention and concern. CFM56 is one of the big volume programs. CF34 is another big volume program. So we're watching both of those very carefully. And at this point, as I said a little earlier, what we're seeing is that the material supply for those big volume engine programs has not gotten any worse. And we are -- look, it can always get better. But I would say the things that we have done over the last couple of years to help provide paths around any constrained source control parts on engines like that are working. They're being very effective. So our asset management trading business that we spun up is providing good used serviceable material, coupled with the repair development that we've invested in, in our CRS division allows us to take that USM and return it to flight status. And that's really kept the engines moving through our factories.

We would love to have unconstrained supplies on some of these highly restricted parts. But that's not the nature of the aerospace business. And so you have to have detours around some of these road blocks. And we've been pretty effective at pulling that off. So we'll continue, obviously, to develop more repairs. We'll continue to source USM, and we continue to work with the OEs. As they work with some of the source control material trying to increase the volume, we'll work with them to provide our resources because what helps them helps us and helps the whole industry. We are all aligned in trying to accomplish that.

Your next question comes from Seth Seifman with JPMorgan.

I wanted to ask about the business transformation costs. We're talking about fairly small numbers here, but they have been trending a tiny bit higher for 2 quarters now. Maybe if you could talk a little bit about how those are trending versus your forecast and still on a path to be at breakeven by the end of this quarter.

Yes. Thanks, Seth. We're actually very pleased with the ramp programs. Both LEAP and CFM56 are looking great. The LEAP revenues are up 4x versus the prior year position. And the business transformation costs are right in line. Plus, I'm happy to report we are absolutely confident that both programs will turn positive margins here in the first half.

[Operator Instructions] Your next question comes from Ronald Epstein with Bank of America.

Russ, could you speak to what you guys are seeing in the portfolio of business jet engines that you work on? What kind of usage you're seeing there? And if there's been any slowdown or speed up to what's going on in the world?

I'm sorry, Ron. Can you repeat what engines? It came through a little muffled.

Yes, apologies. What you're seeing on business jet engines?

Yes, yes, yes. Okay. Yes. Thanks, Ron. Business aviation is doing really well. We're super stoked about that. You saw the note Dan made about 20% growth. What's driving that is a couple of things, but highly tied to decisions that we made a couple of years ago. We knew where the growth in the biz jet market was going to be, and it was going to be in the super midsized aircraft, most of which are powered by HTF7000 engines. And that's why we competed very hard to win the exclusive worldwide heavy maintenance ticket from Honeywell on that particular engine. You couple that with the investment that we made a year ago in our Augusta, Georgia facility, which is where we do the HTF7000 engine rebuilds and also opened up the ability to take in larger aircraft.

And that was a very good business decision that is now beginning to pay off in spades and will continue for many years because many of the aircraft that were the midsized aircraft moving to super midsize over the last 20 years were powered by the precursor to the HTF, which was the TFE731. And we built the leading market share on TFE731. And then when we captured the exclusive heavy license on the HTF, that put us in a perfect position to be on the pitching and catching end of that equation. And that's exactly what we see is as the TFEs begin to mature over time and shift towards super midsized aircraft, newer aircraft that all have the HTF power, we're picking up all of that. So it just moves from a more mature engine to a newer engine. We have brand-new facilities to be able to handle that growth. So we are super excited about BizAv in the coming years.

Your next question comes from Gavin Parsons with UBS.

Guys, what are the bottlenecks to CRS growth? And the context of that question being, I think on Engine Services, you only outsource -- or outsource 90% of your repairs and only do 10% in-house. So I mean, is CRS just kind of independent of the end market growth narrative? Or what are your bottlenecks there?

Well, first of all, that 90-10 split continues to change every day as we do more in-sourcing. And you'll see that in-sourcing improved again for the fourth quarter. Actually, fifth quarter in a row, we've grown that. So that 90-10 split is changing. We're in the teens now that is in-sourced for CRS. So I would -- that's certainly not a bottleneck.

And secondly, we talked about the 7.4% growth we had this year. That would have been clearly in the double digits were it not for the government shutdown and the fire at the Phoenix facility. Those are sort of short-term impacts. I think you're asking more long term. But that business continues to grow double digit as we expected and continues to be able to generate outsized growth because of that in-sourcing activity.

But not only that, it's the -- what we call NPI, or new repair introduction, that we do every day as well, brand-new repairs. Not only for the LEAP, but also on platforms that we don't even service under the MRO side of the house, we continue to grow repairs there as well. And now the addition of Unified Turbines is just another perfect step in the direction of additional repairs and outsized growth.

So bottlenecks, if you were to force me to ask that, it's probably around ensuring that we have labor. That has, however, not proven to be an issue for us so far. But -- so we'll continue to drive new repairs and post the growth that we've been showing.

To Myles' question, how dependent is your cash flow for the year on supply chain improvement?

Actually, not at all. We have, I think, appropriately, not had -- not put a lot of optimism in a significantly better supply chain. What we have done is our vendor management or working capital ourselves. And that means really ordering material according to a tight SIOP process and improving our TAT times, which is core to what we do. And that's going to result in sustainable cash flow on an ongoing basis. We're not expecting the supply chain to come to the rescue.

Thank you. And we have reached the end of the Q&A session. I'll now turn the call over to Russell Ford for closing remarks.

Okay. Very good. Thank you, Diego. Thanks, everyone, for joining us for our first quarter call. We appreciate your continued interest and support. StandardAero is looking forward to another strong year for growth, revenue, earnings and cash flow, and we're well on our way to achieve our plans, and we don't see anything that's going to stop us at this point to -- from achieving the goals that we've set out. So thank you again, and we look forward to talking to everyone next quarter.

Thank you. And with that, we conclude today's call. All parties may disconnect. Have a good day.

Okay. Well, maybe we'll get going. Good afternoon, everyone, and welcome back to the aerospace and defense track here at the 2026 JPMorgan Industrials Conference. And I'm Seth Seifman, the A&D analyst here. And we are very grateful to have StandardAero with us, and we have the company's CFO, Dan Satterfield. Dan, thanks very much for coming.

Thanks, Seth. Appreciate it.

We'll do some Q&A for a little while, and we'll also go out to the room and see if anyone in the room has any questions as well. But I guess, Dan, maybe just to kind of start off and level set us, you reported the fourth quarter recently. How are things looking into 2026? And specifically, how is the ramp proceeding on some of the capacity that you've added recently for CFM56 engines in Dallas and to be one of the early network providers for LEAP engines in San Antonio?

Yes. Great. And thanks for inviting me. Happy to be here. Hi, everybody. So 2026 is shaping up to as we expected, and you pointed out the key drivers. There's some little bumps in the road that we'll talk about with our Phoenix fire and the government shutdown, which have a small impact and temporary impact in Q1. We can get into that in more detail. But in a larger sense, 2026 is a lot about the ramp programs where we do expect those to double in size in revenue size. That will be pretty significant, not only from a revenue standpoint, but also profitability.

One of the things we're very happy about with -- on LEAP and CFM56 is during 2025, the industrialization costs or losses on those programs cut by 60% second half versus first half. So the ramp to profitability on those is proceeding as planned. We anticipate both programs to reach profitability in the first half of 2026 and then begin their march up. What does that mean march up? There's really 2 impacts on both LEAP and CFM56 profitability. Number one is burning down the industrialization costs. In particular, on LEAP being such an important program for us and for our customers, we put in the entire direct and indirect workforce in place in San Antonio. And so that results in industrialization costs that weren't absorbed when revenues were ramping. As revenues ramp, those costs are absorbed, and we're seeing profitability improve.

And then the other key point is what we call the learning curve that if you've met us, you've heard about the learning curve. It's the amount of time it takes for a technician approaching a new engine for him or her to get to their entitlement efficiency on that engine. For LEAP, we expect that to take 3 to 5 years, over which time the technicians will become fully proficient on the engine. Turn times will increase, profitability increases as well as working capital efficiency. So all of that is now in its second year for both programs and proceeding according to plan.

Okay. Excellent. Really briefly, I guess, to level set, when you talk about the revenue on those programs doubling, I have been thinking that maybe in terms of what those programs contributed in '25, maybe it was kind of a high single-digit percentage of sales, something in that.

More mid-single digits.

Mid-single. Okay. Cool. Okay. So mid-single and then those dollars doubling this year. I guess a couple of questions to follow-up. First of all, on LEAP, what are you -- you talked about learning. What are you learning as you work on the engine? Are turn times at this life cycle stage of the program about what you've expected? Is the workforce kind of taking to the engine?

Yes. So certainly, turn times aren't where we want them to be at, I call entitlement level, which is more near the end of the decade. But yes, as evidenced by the improving cost position and profitability of these programs and frankly, the working capital burden, it's occurring as anticipated. As matter of fact, tonight, I'll be there to be with the team and celebrate some of the great work they've done on the early PRSVs or performance restoration shop visits. What's great about that is as we get better on these big heavy work scopes, we're actually creating more capacity.

Right now, LEAP is fully booked. The San Antonio facility, which is our largest facility in terms of square feet, is -- all the gantries are full of LEAP engines. And so you say, well, what does that mean for the future? What that means for the future is as the technicians get better, get faster, come down the learning curve, those engines move faster through the MRO process, which is a series of 4 gates, ending with testing and then shipping of the engine. And so as that speeds up, we create capacity.

The same thing is happening in Dallas at the CFM56 facility in Dallas. All of the gantries and a gantry is a big structure upon which an engine hangs and then is serviced, they're all full. So you'd say to yourself, well, okay, how are you going to get better? But through our 115 years of history, we've seen very clearly as technicians get better at the engine, faster at the engine, and that's through all of the cycles of component repair or kitting or rebuild, testing, the engine moves faster through the cycle, and you create capacity. And so we're satisfied that the capacity we've put in place, both in Dallas and in San Antonio are what we need.

Excellent. Excellent. When you think about the go-to-market strategy for that capacity and maybe for LEAP in particular, population of engines that's growing quickly and a lot of maintenance required for those engines. Is the idea to go out and build kind of as big of a backlog as possible and fill things up? Do you want to have a certain amount of capacity that's open and kind of more available in the moment? How do you think about what the right level of filling that up over several years is? And then also to the extent that you do have long-term agreements with customers on LEAP, what is the type of risk that you take on, on those contracts for work that might not be done until years in the future?

Sure. Yes. So right now, the majority of the work coming in for LEAP is under a long-term agreement. And different work scopes. And of course, the work scopes will change. Work scope is best defined as really the amount of material versus labor in a work scope. PRSV or performance restoration shop visit being the maximum amount of material required and typically the longest turn time and CTEM or continuous time engine maintenance being a work scope that's much lighter. And what it's intended to do is to bridge that engine to its next PRSV just to keep it going until a heavy overhaul where that engine will be taken out of service for a much longer amount of time.

Customers need both. They need both CTEMs and they need PRSV. So we're smart about allocating our capacity towards having the ability for customers to have to both types of work scopes, even within their long-term agreements. So a long-term agreement with a particular airline will be a mixed work scope of a number of engines of both flavors that I've mentioned. And we'll ensure that, that's always the case that a customer does have the opportunity to bring in an engine for a CTEM or even a hospital visit. Listen, these are long-term customers that we have. They're blue-chip customers. They're the type of airlines that you want to work with on a long-term basis. And we are developing custom maintenance portfolios for them or profiles for them that makes sense for them over the long term.

So that was the question of how that looks. And yes, the majority of it is long term. Interestingly, you didn't ask, but a lot of the business for LEAP right now is international. A lot of people, they're not certain that engines can't be shipped globally, and that's certainly the case. And we're definitely seeing it with LEAP. Great demand out of the Middle East, great demand even out of Asia. It's a total global marketplace, and we're able to service it out of San Antonio.

Excellent. And on the risk side in terms of if you've got a contract and you might be doing work in 2028, how do you think about the risk?

Yes. So it's a form of time and material type of contracts. So we typically don't put ourselves at risk on material. Certainly, we've got escalation clauses in or it's linked to the OEM catalog, that's rarely a risk for us. We do take risk on labor, which is the true value add of the individual -- these technicians that we've talked about so much today. We are taking -- that's where we take our risk, and that's where most of the value comes. Work scopes, we are protected against work scope creep is what we call it. So as that might expand during the inspection process, there might be something that's uncovered that wasn't anticipated. In particular, on the LEAP contracts that we're signing now, we're protecting ourselves against that.

Okay. Excellent. When you talked about getting to that sort of entitlement margin out around the end of the decade, I guess, 4 years or so from now. How does that margin look compared to the current Engine Services?

Sure. Yes. So the intent and the belief in the business case is that those margins will be accretive to Engine Services. So that -- and it's proceeding according to the pace that we designed in the original business case. Not a lot of surprises there. One of the bigger obstacles to getting there more on the cash flow side, Seth, is parts availability, right? That's really -- there is some inefficiency about not having parts available that has an impact to margins, but it's more immediately evident in working capital and as a result, cash flow. So that's where a lot of the focus is.

And it's difficult to predict what the constrained part will be. As we've talked about before, it's usually in the casting and forging space, and that's been the case here on LEAP. But we've also seen some constraints on part repair from the OE. Our response to that is to expand our repair portfolio for LEAP. So I think we've said we've got about 475 authorized repairs now for LEAP, and that's a constantly growing number. And in tight cooperation with CFM, we're expanding that portfolio. Everybody likes more repairs on LEAP, including CFM, including the OE. Why? It takes pressure off of their supply chain.

You would say, well, don't they want to sell a new part? Of course, they do. Not every customer wants new parts in every case. And certainly, if you only had new parts, that engine would be less economically feasible than if you had repair parts. So we have the full support of CFM as we expand our repair portfolio on the LEAP engine. And so it lowers the overall cost to the customer. It speeds up the turnaround times. In particular, it's probably the biggest impact, and that's better for the customer to get that engine back in service. And it's good for StandardAero, we have lower working capital.

Yes. Where do you think -- I want to say it was a low double-digit percentage of sales from component repair segment last year were internal sales to Engine Services. If LEAP is up at $1 billion of sales around the end of the decade, what portion of component repair could you see going -- being directed internally?

Well, that's assuming everything is sort of static, right? So it's probably better to say steady state. Will that low double digits get bigger? Yes, it will. That's 100% the intent. Because of the pure economic reasons for the company, as component repair with its approximately 30% EBITDA margin grows, that's -- has an enterprise impact for StandardAero margins. Again, it lowers the working capital burden for the customer and for ourselves and increases their turnaround time. And by the way, in-sourced repairs increased 16%, 15.7% in 2025, which is great.

And we've put aside additional capital in our plan in 2026 to enable an even larger expansion of what we call new repair development. And so new repair development is not only for the in-source parts. It's also for brand-new repairs that we might not have today. Certainly, the in-source parts, it's sort of a captive audience, right? Why wouldn't I bring that work in. But we can also develop new repairs that's brand-new revenue for the company and for platforms that we might not service today on the MRO side. So famously, we do great work on the GTF engine, even though we don't service it. On the MRO side of the house, we do component repairs for that. And that's an area of potential expansion of our repair catalog as well.

So when you talk about devoting capital to that, is that just having your engineers doing the work to investigate tests new repairs?

Not just that. So certainly, we do have a dedicated team of engineers, and we've told that team, you can grow as large as you need to, right? There's no limitations on how big that group should be because the entitlement of new repairs is extremely large. What I meant by capital is actual capital expenditures on equipment. So the component repair business, it's not very complex equipment, but they are CNC machines, thermal spray machines. We've got some robotic welding that requires some capital, and they have great return on investment. That is the easiest capital to deploy.

Since we're talking about component repair, I imagine there -- or you guys have talked in the past about having thoughts about doing M&A in that business, and it's something that we saw prior to the IPO. What is the target environment like these days in terms of potential acquisitions? And how are you thinking about that here in 2026?

Yes, it's great. So it's clearly the larger target environment between traditional MRO and CRS opportunities, there's simply more. Why is that? Because there are -- it's not really that hard to set up a component repair shop. We found small businesses out there even with 1 or 2 specific repairs that, that person might have done for an OE or somehow develop that competency, and they'll open up a shop and have a great sort of captive market for that specific repair, fascinating. And there's dozens and dozens of these.

I hesitate to call them mom-and-pops because they're quite successful businesses. So there's lots of those. There's larger component repair businesses as evidenced by the ATI acquisition, I think you were referring to. And by the way, that's been a home run, not only on 2 counts, right? Not only is it a component repair business, it's also a military component repair business, which is fantastic. We love to see our military business get larger. The DoD and the military are fantastic customers. They want StandardAero to be successful. And we've really turned around the J85 program for the U.S. Air Force. That's the engine that flies on the U.S. Air Force trainer jet.

So it's the first jet you'll fly as you're learning -- jet turbine engine that you'll fly as you're learning to become a pilot. And we're the premier provider of services on that engine. We already were the heavy MRO service provider. And then with the acquisition of ATI, we are now doing component repairs on that engine. So double home run. Yes. And are there more of those out there? Yes, I'd like to find another military component repair business, but we're looking at all of them.

Okay. Okay. I guess one of the things if we talk about margin in the Engine Services business that I thought was notable is the margin has been pretty steady for the past 2 years, which I think is probably pretty good given 2 things. One is we look at -- I follow GE and we look at all the price increases on spares and you look at everybody else and the price increases that they put on spares. And to some extent, those need to be absorbed, not so much into your profits because you can pass them through, but they do affect your margin rate.

And also, even though the industrialization costs of the new programs adjusted out of EBITDA, but it's still coming in at 0, but still growing. There's a mix headwind from that. So those 2 absorbing the cost of higher materials and this mix headwind, the Engine Services margin has managed to stay about flattish. What would you attribute that to? What do you guys do to maintain that margin?

Yes, great question. And the same dynamic is now happening in 2026 in a good way. And that's why I think we've talked about the headwinds. Where does the underlying growth come from? And where is it going to come from in 2026? It's really operating leverage and productivity on the existing programs. We talk a lot about the ramp programs, and we should, right? They're significant. But there's a total of 41 platforms that StandardAero services. a whole suite of turboprop engines that is accretive to margins in -- on Pratt & Whitney and Rolls-Royce engines with a very diverse customer base of small operators, search and rescue police type operators, small tourism operators for turboprops. It's a fantastic business. It's greater than $1 billion, and it's mature.

Those technicians, and they're primarily up in Prince Edward Island in Canada, those technicians are at the peak of their learning, right? So they're where we want to get everybody to. And -- but that learning curve continues even on programs that get quite old, quite mature. For example, the TFE731 is fantastic Honeywell business aviation platform that's being slowly replaced by the HTF7000, an even better engine. We have the leading position on both of those. Does the TFE731 accrete margins every year? Yes, it does. And it does through really that continuous improvement methodologies that we put in place. There are thousands of projects across our 50-plus sites on continuous improvement every year. And we obviously are still continuing to lever our fixed costs.

So that will happen again in 2026. The big -- you're probably going to get to this stuff, the big margin drivers in '26 are, number one, yes, the dilutive impact of LEAP and CFM56. So even though those margins will flip from negative to positive, they'll still be dilutive. And then those programs will double, and we kind of sized it with your earlier question, so you can start running those models. Offsetting that and almost exactly offsetting that is the material cost takeout that we've talked about of $300 million to $400 million, where we're taking out and rightly so revenue with low to 0 margin contribution to contractually out of the programs.

Those 2 items will more or less offset each other. And then what's left according to the midpoint of our guidance is about 70 basis points of margin improvement, and that comes from the continuous improvement on all of those other 39 platforms from the continuing improvement of the CRS business and the outsized growth there as well. So it's great to have such a broad scope of business across 3 end markets and a whole different segment with component repair to allow us to fund the growth of the ramp programs.

Not to put you on the spot, but if we think about the ramp programs getting to that accretive place and we think about growth in component repair and the continued stuff that you guys do day in and day out, is there kind of a path to the -- we talk about this end of decade period, is there -- is high teens realistic for a margin?

That's putting me on the spot. I'll repeat what we're doing, right? So component repair, will it max out at 30%? I don't know, right? They can probably do better as the in-sourcing effort is pure margin, right? It's a pure margin play for the company. New repair development is always accretive. We would never create a new repair that would be dilutive. Why would you do that? So that's accretive and then the overall growth of that business.

And then at the same time, the evidence of the LEAP profitability curve is just very black and white to us at this point, and we're watching it go straight up. So if you look at both of those elements -- and then when I said the business case is being fulfilled to anticipate an accretive margin at Engine Services for LEAP and then you run your model about how big that is for you, you can do your own math. And the number is going to increase.

Yes. CFM56, I wanted to ask a couple of questions about that. One is, I think I know the answer. Some people in the room that you guys probably do, but I'll get the question sometimes, okay, there are no more CFM56s being built and there's a potential GE will talk about maybe sometime later in the decade, the number of shop visits starting to decline. And so StandardAero has just invested in new capacity to maintain CFM56 engines mature engine. Why did you do that?

The business case was compelling. It's a great question. So first of all, a lot of talk about when the peak year will be for shop visits for CFM56 and a lot of different discussion about what that is. It's important to note that when we talk about it, when StandardAero talks about that peak year, we're talking about total shop visits. When GE has been talking about it, they've been talking about just heavy shop visits. So our data is a little bit different, and it makes sense because we do the whole scope of work scopes from low to high. And so our peak year of shop visits is a little bit later than GE. And that business case that we put together back in 2023 still is holding, right? We still expect that total shop visit peak to be near the end of the decade. Okay. So -- and in that environment, with the rising number of shop visits, we were the only big MRO to put in significant additional capacity.

The other thing that we see over time, and this is the longer business case. This is a long-cycle business. And the business case on 56 and LEAP, they go out as long as you want. What we have seen over our 115-year history as engine programs get even more mature, there's consolidation around some suppliers, and it's the big suppliers. And that's typically us. And if you look at some of our very mature platforms like the Tay, like the Spey, like the TFE731...

RB211?

RB211 to an extent as well, a little bit different market because that's kind of freighters, a little bit different, lower number of customers being served there. But you see that consolidation. And the businesses that have put in capacity that have the high technician efficiency that can still grow new programs while maintaining the old. That's what we can do with our 50 facilities and 8,000 employees, then we're the consolidator of record. So that's what we're anticipating will also happen at 56 and which supports the business case.

Another thing about profitability on the mature engines that I've been thinking about. I imagine from a stock perspective, when we start seeing some CFM56 retirements, from a multiple perspective, there's probably going to be some kind of freak out. But from an actual business perspective, to the extent that you started to see engines being torn down, does that affect your profitability? And does that create a further margin enhancement potential for StandardAero?

Thanks. That was a layup. That's a good one. From my perspective, in particular, as a CFO, retirements are a good thing when you're StandardAero. And we do expect retirements ultimately to increase at CFM56. Will they increase as a result of the Arabian conflict? Way too early to say. But yes, there will be some older engines that will get retired during this little period that we're in right now. We'll see if it extends.

But when those retirements occur, it's nothing but opportunity for a provider like ourselves. First of all, we're usually first in line and with a really high degree of visibility of those engines or even those aircraft being retired, and we have the financial capability to bring them on. And then there's multiple ways to prosecute that retired engine. A, we can part it out and deploy it into our sales channel of used parts, which is fantastic, right? When I was at Honeywell, Honeywell has a very active used part business, even an online business, very, very profitable and customers love it, so does StandardAero, number one.

Number two, we can tear down that engine and deploy it into MRO events and lower the overall cost of the event for the customer and increase profitability for StandardAero. Number three, we can rebuild that engine, put more green time on it and offer it as an engine perhaps within that asset exchange thing we talked about a couple of ago, which, by the way, is still continuing successfully, and there's good margins for StandardAero on all sides of that. So we like retirements. We're not afraid of them. And on a program like CFM56, I wouldn't anticipate any level of sort of forecasted retirements to change that overall revenue picture. Again, remember that consolidating effect that we anticipate to happen.

Yes. Absolutely. Okay. Another engine I wanted to ask about is CF34 because that's another place where you guys have been adding some capacity. How do we think about the incremental growth that comes from that capacity and then the kind of the scale of CF34 in your portfolio, your position as a maintainer of that engine and its profitability within the portfolio?

Yes. Thank you. So CF34 is a great program. One of the proudest programs that we're on. First of all, it's a fantastic engine that flies on the regional aircraft, the very small narrow-body 130-seat aircraft that rarely are grounded. Those airplanes are always flying. And we're the leading provider of CF34, which is a service today in our Winnipeg facility where the company was founded. That facility has typically done CF34 and CFM56. And the CF34 business was getting so large, it caused that expansion into the CFM56 to result in the new Dallas facility. So that's where the expansion occurred down in Dallas. We doubled the size. We added a whole new part of our campus there for 56.

Now as you might remember, we had the additional license agreement, we call the GBSA with CFM on the CF34 engine, and that has worked out fantastic. The investment in that has resulted in greater -- even greater volumes of business, which is now forcing that site in Winnipeg to need to expand. So we're expanding that. It will be done this summer, low double-digit million dollars of expansion capital and a significant help from the Manitoba government, where we have a very strong relationship. Of course, that's where the company was founded many years ago. So that's going to be a great growth driver, not so much in '26, but definitely in '27 for CF34.

You asked about the profitability. CF34 is accretive to Engine Services margins for all the reasons we've given. More of a mature platform, the engineers have come down the learning curve. I can't tell you how many thousands of CF34s we've done, but the CI engine there is very tight, plus the new license, which not only expanded volumes, it also had some profitability drivers in there as well. So great program and happy to expand it.

Just going to check to see how we're doing on time. Cool. Any questions in the room? Okay. One question. You brought up earlier some of the maybe near-term challenges in the component repair business. I think you spoke about those on the Q4 call. But just to make sure everyone understands what's coming up, kind of what's happened there? And then what's the progress like in moving beyond those challenges to give you the confidence to reach the component repair guidance?

Thanks for asking. Yes, so 2 things have occurred on CRS that we discussed at the last earnings call. One was a fire at our plating facility in Phoenix. It happened early December. No employees were hurt, but the facility was taken down until really sort of the second half of January. And now it's ramping back up and that impact will have a resultant impact on revenue and margins for CRS. Really, the greater impact for CRS in Q1 was the government shutdown, which still has a spillover effect.

When you gum up that whole process, which includes the Tinker Air Force Base, where a lot of the component repairs are coming out of, when that gets gummed up, it takes a while to on gum. Is the demand gone? No. We might have lost some revenue on the plating facility and the fire, but the larger impact on the government shutdown, that will all come back and get caught up, but we'll see the impact of it in Q1.

Right. And if I recall, that was that we should expect a lower growth rate but we should still expect growth?

Yes.

Okay. And likewise, a lower pace of margin expansion, but margins still...

That's correct.

Yes. Okay. Okay. Maybe just in our last few minutes here, if we just talk about cash conversion. I know that's been a concern for investors as you're in this investment heavy period. When should we think about -- I think last year's conversion was about 75%. When should we think about cash conversion getting into that 80% or solidly north of 80%?

So I think if you look at our guidance, we're guiding you to, again, about 75% in 2026. Again, I think that will be a great success for the company with the growth that we're experiencing and the investment we're still putting in, it's a pretty good number. What are the headwinds to keeping that greater than 75%? Again, it's really the turn times and the amount of time that a part or material sits on an engine in our shop greater than what it should be for the ramp programs, right? So the turn times on a LEAP engine and the turn times on a CFM56 Dallas engine are greater than they would be for the other programs we talked about, CF34 or HFT7000, the turn times are greater. So the working capital sits there longer.

The good news is we control that algorithm to an extent outside of supply chain constraints as the engines -- as the technicians get better at their learning curve, all of that improves. So that's number one reason why we're still at 75% in 2026. The other one is that still some capital to deploy. We're enabling another test cell for LEAP. That's a good thing that increases capacity, and I'll be looking at that again also this week. So a little bit of capital there, some more capital expenditures to enable CRS growth that we talked about earlier. So capital expenditures will be similar year-over-year, and then we'll achieve that 75%. Okay. So at some point, that cycle on LEAP in Dallas will end. And then we're also putting a few dollars into Winnipeg. That's going to be a great payback. So that 80% to 100% certainly in this decade. And certainly, 100% is something that we should look about -- look and target.

Excellent. Very good. Dan, thanks so much for being here. Appreciate it.

Thank you.

Thanks.

Good afternoon, and welcome to StandardAero's Fourth Quarter and Full Year 2025 Earnings Conference Call. [Operator Instructions] Please note this conference is being recorded.

I would now like to turn the call over to Rama Bondada, Senior Vice President of Investor Relations. Please proceed.

Thank you, and good afternoon, everyone. Welcome to StandardAero's Fourth Quarter and Full Year 2025 Earnings Call. I'm joined today by Russell Ford, our Chairman and Chief Executive Officer; Dan Satterfield, our Chief Financial Officer; and Alex Trapp, our Chief Strategy Officer.

Alongside today's call, you can find our earnings release as well as the accompanying presentation on our website at ir.standardaero.com. An audio replay of this call will also be made available, which you can access on our website or by phone. The phone number for the audio replay is included in the press release announcing this call.

Before we begin, as always, I would like to remind everyone that today's earnings release and statements made during this call include forward-looking statements under federal securities laws. These statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections. Such risks and uncertainties include the factors set forth in the earnings release and in our filings with the Securities and Exchange Commission, including in the Risk Factors section of our annual report on Form 10-K for the year ended December 31, 2025. We assume no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

Additionally, during today's call, we will discuss certain non-GAAP financial measures such as adjusted EBITDA, adjusted EBITDA margin, adjusted net income, adjusted earnings per share, free cash flow and net debt to adjusted EBITDA leverage ratio. A definition and reconciliation of these measures to the most directly comparable GAAP measures can be found in our earnings release and in the appendix to the earnings slide presentation. Non-GAAP financial measures should be considered in addition to and not as a substitute for GAAP measures.

I would now like to turn the call over to Russ. Russ?

Thank you, Rama, and thank you to everyone for joining our call today.

I'll start on Slide 3 of our earnings presentation with a review of several highlights from 2025, our 114th year as a company and our first full year as a publicly traded company. 2025 was another record year for StandardAero and one in which we made significant progress on our strategic objectives, enabled by a relentless focus and dedication to quality and performance by our 8,000 employees worldwide. We saw excellent growth with revenues increasing 16% year-over-year and adjusted EBITDA up 17%. This strong financial performance was underpinned by continued robust demand for our solutions and high-quality execution.

We also generated meaningful free cash flow of $209 million. This included more than $300 million generated in the second half of the year, in line with typical seasonal trends and is reinforced by our asset-light business model and cash management initiatives. We accomplished this while investing $90 million in our growth platforms and navigating a supply chain that continues to be characterized by part availability delays. Importantly, we expect to see continued growth in our free cash flow generation again in 2026 and into the future.

A key highlight in 2025 was the strong progress we made on our LEAP program, where we saw a substantial ramp in work throughout the year and continue to progress along the learning curve. Specifically, we inducted 60 LEAP engines in 2025, up from 10 in 2024 and generated revenues in the second half of 2025 that were approximately 2.5x the revenues we generated in the first half of the year.

As we look ahead, we had several significant customer wins during the year that provide very good visibility for 2026 with most of our planned slots already filled. Equally important is how we are expanding the content and value of what we do on LEAP. We've now developed more than 475 LEAP component repairs, which directly support turnaround time, customer value and long-term economics as the fleet matures. And we recently delivered our first full overhaul on the platform, which marks a meaningful milestone for us in our ability to address the full market opportunity.

As we stated before, we continue to see the market for LEAP MRO only getting stronger, and we expect this program to continue to demonstrate substantial growth for many decades to come. We completed the expansion of our Augusta business aviation facility during the year, adding additional MRO capacity and expanded hangar space to handle large cabin jets. This additional capacity will help us accelerate growth on the popular HTF7000 engine, where we are the market leader and have the worldwide exclusive independent heavy overhaul license.

We also fortified our already market-leading position on the CF34 engine, which powers the majority of the world's regional jets. We're seeing even stronger demand on this platform than we expected, both near and long term, leading us to announce late last year that we're expanding our flagship CF34 facility in Winnipeg. We expect the expansion to be complete in the second half of 2026. Combining this initiative with the expanded license relationship with GE from earlier in 2025 as well as the long-term contracts we have with some of the largest operators around the world, we feel really confident in our position on this platform. We've only just begun to realize the value creation from these strategic investments.

Next, performance excellence remains core to our culture and how we operate. As discussed last quarter, we made progress in restructuring customer contracts to get rid of pass-through material, which will eliminate $300 million to $400 million of low-margin revenue and result in higher reported margins that better reflect our true operating performance of the underlying business. We continue to make progress in capturing more high-value component repair work in-house with in-source component repair revenue increasing by 15%. And importantly, ATI synergies are producing above plan, which supported performance and strong margin expansion at CRS.

On capital allocation, we ended the year with our leverage ratio improving to 2.4x, giving us meaningful capital allocation flexibility. We are well positioned to invest organically pursue strategic M&A when it's value accretive and return capital to shareholders. Consistent with this third point, we authorized a $450 million share repurchase program in December.

Turning to Slide 4. Market demand remains strong for our MRO solutions and the groundwork we've laid in key end markets is driving growth. In commercial aerospace, we saw nearly 18% growth year-over-year, driven by the strong ramp in LEAP, CFM56, our investments in the CF34 platform and continued global demand for turboprop MRO needs. In business aviation, revenues grew 12% year-over-year, driven by continued strength on both mature engine platforms such as the TFE731 and growth platforms such as the HTF7000. In military, revenues grew 9% despite the longest government shutdown in U.S. history, which impacted the fourth quarter. We saw a healthy rebound in the AE1107 platform and continued steady demand on key engines that operate on military transport aircraft, which makes up the vast majority of our military business.

Turning to margins. Even while ramping our LEAP and CFM56 DFW growth programs, we delivered margin expansion in 2025. Margin progress was not accidental. It was driven by deliberate actions and a focus on continuous improvement. As Dan will discuss shortly, we are only in the early stages of our margin expansion journey. Driving the total company margin improvement was strong component repair growth and synergy realization on our 2024 acquisition of ATI, which helped push the margin profile of our CRS segment into the high 20s from the mid-20s previously.

Turning to Slide 5. I'll talk about 2026 and our priorities for the year. We continue to see a really positive market backdrop with robust demand, particularly in the commercial end market that will lead to double-digit earnings growth, continued margin expansion and accelerating free cash flow generation in 2026. From a strategic and operational standpoint, we remain focused on the same pillars that have defined our success.

Starting first with LEAP. Our top priority here in 2026 continues to be execution and specifically achieving profitability in the first half of the year while continuing to build commercial momentum by winning additional contracts. The way to improve margins is by continuing to improve throughput and productivity as we progress down the learning curve, expanding our repair and process capabilities and delivering the high quality and turnaround performance our customers expect. As we prove out scalability and performance, we expect to continue converting demand into incremental long-term customer wins.

Second, we're focused on fully leveraging our investments in CFM56 and CF34. On CFM56, the key is to drive higher utilization and efficiency in our DFW Center of Excellence to support profitable growth. On CF34, we're focused on fully leveraging our expanded license and completing the Winnipeg expansion. The rationale for this expansion is to support demand visibility and position StandardAero to continue to take share on a platform where we have deep experience and a durable competitive position.

Third, on component repair. CRS remains a strategic engine for value creation, and our priorities this year are to continue to accelerate new repair development while also expanding in-sourcing capture. This means continuing to industrialize additional repairs, increasing the breadth of what we can do internally and intentionally pulling more repair content into our network. All of this supports better turn times, stronger margin mix and improved overall economics across the enterprise.

Fourth, continuous improvement. It remains core to what we do and our culture, and we're looking to lean even more into this in 2026 to execute continuous improvement and pricing opportunities across the portfolio to enhance productivity and margin improvement. Practically, this means continuing to standardize best practices, drive operating discipline at the shop level, reduce variability and ensure our pricing reflects the value we deliver, especially in an environment where capacity remains constrained and customer demand remains strong.

Then finally, on capital deployment. We will continue the disciplined pursuit of high-return organic growth investments, remain active in evaluating accretive M&A and be opportunistic on share repurchases, all with a consistent focus on strategic fit and long-term shareholder returns. Our priorities are consistent. We're centered on strengthening our long-term competitive position, delivering service excellence to our customers and driving consistent and predictable double-digit growth. And we remain, as always, committed to delivering on what we say we will do.

With that, I'd like to turn the call over to Dan to walk through our results and outlook with additional detail. Dan?

Thank you, Russ. I will begin on Slide 6 with some highlights from our fourth quarter and full year 2025 results. For the quarter ended December 31, 2025, we generated revenue of $1.6 billion as compared to $1.4 billion for Q4 2024, representing 13.5% growth, all organic. This helped drive 2025 full year total company revenue growth of 15.8% versus 2024 or about 14.5% on an organic basis. We saw strong growth in both our Engine Services and Component Repair Services segments, which I will get into in a moment.

Adjusted EBITDA increased to $210 million for the fourth quarter 2025 compared to $186 million for the prior year period, representing 12.7% growth. Growth was primarily driven by continued end market strength, productivity gains and pricing improvement. As a result, adjusted EBITDA for the year was $808 million, representing 17% growth year-over-year.

We reported net income of $79 million in the fourth quarter of 2025 versus a net loss of $14 million in the prior year period. This year-over-year improvement was primarily driven by growth in our operating earnings, along with lower interest and lower onetime costs as Q4 of 2024 was burdened by costs related to the IPO and the refinancing of our debt post-IPO. Full year 2025 net income was $277 million, representing a $266 million year-over-year increase. Adjusted net income came in at $398 million with adjusted EPS at $1.19 per share.

Free cash flow for the fourth quarter 2025 improved to $308 million as we were able to complete and deliver engines that were previously held up by supply chain constraints for a significant part of the year. On a full year basis, we generated free cash flow of $209 million.

Now to our segment performance, starting with Engine Services on Slide 7. Engine Services revenue increased to $5.35 billion in 2025, representing 15.3% growth compared to 2024. Notable drivers included the CF34, HTF7000, our turboprop platforms, LEAP and CFM56, with the latter 2 contributing several hundred million dollars in revenue growth.

On the earnings front, Engine Services adjusted EBITDA grew 15.7% in 2025, driven by the strong revenue growth and mix. Margins were flat year-over-year with operating leverage and productivity offsetting the initially dilutive LEAP and CFM56 DFW programs. For the fourth quarter, adjusted EBITDA margins of 13.4% were up 60 basis points year-over-year, which was driven by mix and productivity gains.

Turning to Component Repair Services on Slide 8. CRS revenue increased to $709 million in 2025, representing 19.6% growth compared to 2024. We continue to see strong demand for our Aero derivative solutions in the segment and growth in our military helicopter and other end markets, including at our Aero Turbine acquisition, which was impacted by the U.S. government shutdown in Q4, but overall had strong performance this year. CRS adjusted EBITDA grew 31%, which was driven by volume growth, price, mix and synergies from the ATI acquisition. These combined to drive a 250 basis points margin increase year-over-year.

There were 2 situations that affected CRS performance in Q4 worth noting. First, we experienced a small fire at our Phoenix CRS facility in early December. It was in the overnight hours, and fortunately, no employees, civilians or firefighters were injured. However, the facility was shut down for nearly all of December, and this did impact revenue growth and margins in the quarter. The facility came back online in the second half of January, but it will take a few months for it to reach its previous levels of activity. Second, our military business, which had seen strong demand and had been performing very well through September was affected by the U.S. government shutdown, which impacted its growth.

Now moving to Slide 9. I'll dive a little deeper into our free cash flow for the quarter and the full year. We generated free cash flow of $308 million in the fourth quarter as we delivered engines that had been awaiting parts in some cases, for several quarters. This drove a reduction in our inventory and contract assets of $183 million, marking a meaningful improvement in our working capital. On a full year basis, 2025 free cash flow was $209 million, which compared to a use of $45 million in 2024. This represents a 75% free cash flow conversion on net income in 2025.

Driving this year-over-year cash improvement was primarily our EBITDA growth, the reduction in interest expense to a more normalized level, our lower investments in LEAP and CFM56 DFW facility and the reduction in capital market expenses related to the IPO and refinancing of debt in 2024. These cash flow improvements were partially offset by the increase in working capital year-over-year, much of which was related to our ramping of LEAP and CFM56 programs that continue to come down the learning curve.

Moving on to our balance sheet and liquidity on Slide 10. Over the course of 2025, our net debt to adjusted EBITDA leverage ratio declined from 3.1x to 2.4x. This reduction was driven by both cash generation and our adjusted EBITDA growth. We are now well within our target leverage ratio range of 2 to 3x with ample liquidity and financial flexibility to continue to pursue accretive capital deployment for our shareholders.

To that end, we are in an attractive position with multiple avenues where we can allocate our capital to drive strong returns. This includes continued focus on organic investments, investing in new engine platforms as we have with LEAP, license expansions, such as we did with the CF34 program and accretive and synergistic acquisitions. We also now have the additional tool of share repurchases available to us. Underpinning all of this is a disciplined approach focused on strategic fit and return on investments, which are key criteria whenever we make a significant investment decision.

Now let's review our outlook for fiscal year 2026, as shown on Slide 11. We are entering 2026 with solid momentum, driven by our entrenched positions on key engine platforms, visibility into new wins and opportunities to expand our portfolio. As a result, we are forecasting revenue in the range of $6.275 billion and $6.425 billion. Underpinning this outlook is continued strong demand in our core end markets, where we expect low double-digit to mid-teens growth from our commercial aerospace end market and high single-digit growth in both our business aviation end market and our military and helicopter end market.

I'd note that the 4% to 6% growth in our company revenue guidance includes the previously disclosed elimination of $300 million to $400 million of low-margin material pass-through revenue from restructured contracts in our Engine Services segment. This pass-through revenue consumed a significant amount of working capital with little earnings benefit.

For Engine Services, we are forecasting revenue in the range of $5.5 billion and $5.625 billion or 4% year-over-year growth at the midpoint. Excluding this pass-through revenue impact, segment revenue guidance implies greater than 10% year-over-year growth at the midpoint. Our Engine Services guidance incorporates a year-over-year doubling of our LEAP and CFM56 DFW revenues.

For Component Repair Services, we are guiding to a revenue range of $775 million to $800 million or 11% year-over-year growth at the midpoint. For full year 2026, we expect total company adjusted EBITDA of $870 million to $905 million or approximately 10% year-over-year growth at the midpoint. This implies a 70 basis point margin improvement year-over-year to about 14%.

We forecast 2026 Engine Services adjusted EBITDA of $755 million to $780 million. This reflects a 60 basis point margin improvement versus the previous year at the midpoint. We continue to expect our growth platforms, namely LEAP and CFM56 DFW to reach profitability in the first half of this year. CRS segment adjusted EBITDA is expected to be in the range of $220 million to $230 million, which at the midpoint implies 11% year-over-year growth with margins in the 28.5% to 29.5% range.

With many of the onetime IPO and capital market expenses behind us, we are adding adjusted EPS to our guidance metrics. For 2026, we expect adjusted EPS of $1.35 to $1.45 versus 2025 adjusted EPS of $1.19, which implies 18% EPS growth at the midpoint. On free cash flow, we expect cash generation of $270 million to $300 million or 36% growth at the midpoint. Remember, we are historically a second half cash-generating business, and we do not expect 2026 to be much different.

I would also like to provide some additional color on the expected cadence of our financials through this year. As evident in our results, there is seasonality to our business. The fourth quarter is typically our strongest revenue quarter, followed by the second quarter, then the third quarter and finally, the first quarter. We expect 2026 to be no different. We don't usually provide quarterly information, but given how far we are into the first quarter, we thought it would be helpful to provide some color on Q1, which is already baked into our full year 2026 guidance, specific to the Component Repair segment.

We expect growth in margins in Q1 in CRS to be below our normal levels and likely below what you have come to expect. There are 2 main drivers: First, the spillover effect of the U.S. government shutdown in the fourth quarter last year; and second, the previously mentioned small fire at our Phoenix CRS facility. Again, both of these situations are factored into our full year 2026 CRS segment guidance of double-digit revenue and earnings growth.

With that, I'll turn it back over to Russ on Slide 12 to wrap up our prepared comments. Russ?

Thank you, Dan. Putting it all together, 2025 was another record year for StandardAero with exceptional growth driven by robust demand across our end markets, accretive organic and inorganic investments we've made over the last several years, our focus on continuous improvement and margin expansion, all of which we believe position us to continue to drive compounding growth and value creation for our shareholders. We are really excited about what lies ahead in 2026, and we're confident we have the right strategy in place to capitalize on the strong market demand and the opportunities we're seeing.

Thank you again for joining us today. And with that, operator, we're now ready to move into Q&A.

[Operator Instructions] And our first question comes from the line of Krista Friesen from CIBC.

Maybe just a clarification on the last comment you made there on CRS margins in Q1. Are you speaking to the growth in margins being less than what we've seen or that we could expect to see margins down on a year-over-year basis?

Yes. I mean what we're -- Krista, by the way, good to hear from you. We're talking about the 2 impacts, the government shutdown and the fire are obviously going to impact both revenue and earnings. So we mean both. And as a result, that would also imply the growth of those items.

Okay. Perfect. And then maybe a higher-level question. Just thinking about your military business and the exposure there and as we're seeing a rearmament in Europe that's expected kind of over the next 5 to 10 years, are there any thoughts to expanding your European exposure or just exposure outside of North America?

If you think about military, the bulk of the work we do in military is on transport aircraft C-130. There's really no good equivalent to that. On the fighter side, there are European fighters that would be comparable to F-15, F-16, Joint Strike Fighter, F-22s. But from an MRO side, there's a lagged effect of anything that would come our way. The flight hours have to occur and then you start seeing MRO picking up from that. So I would say, at this stage, we don't see anything that would significantly impact growth in military in the near term. But if there was some type of a conflict perhaps in Central Europe or other parts of the world, then there could be hours that are flown that would generate some additional uplift in MRO work on some of the fighter engines that we work on specifically for the F-15 and F-16 and Joint Strike Fighter, but we would likely not see those in the near term.

Krista, it's Alex. I would also add that we serve customers globally. So it's allied nations, U.S. government. So it's more a question of where they fly more so than it is where they're serviced. And so I think wherever aircraft are operating, we will be able to take advantage of those opportunities.

And our next question comes from the line of Seth Seifman with JPMorgan.

I was wondering if you could speak a little bit more. You mentioned fairly robust demand environment. I think that's the signal we get from a bunch of different sources. But can you talk about the quality of conversations that you're having with customers now? I think you mentioned most of the slots for this year are full. When we think out how -- are you looking to kind of keep slots full for multiple years? Are you looking to have kind of spare capacity? Maybe just some additional color on the state of the market right now.

Yes. Thanks, Seth. I'll talk about it from an end market perspective, right? We talked just previously with Krista about military. But specifically on the commercial side of the business, the big growth drivers, you have to look at it by platform and by mission, obviously, for MRO. So the big platforms are going to be driving growth for us in the near term are LEAP, CFM, CF34 and turboprops, all of which remain highly active. And so we have excellent pipeline of long-term contracts lined up.

Now some of those engines dependent upon the age of those engines and the age in service like LEAP being newer than, for instance, CF34. There are more light work scopes than heavy work scopes and so we try to leave a certain amount of capacity available to do those types of work scopes on top of the heavy work scopes. But right now, for all the engine platforms, we pretty much have filled the slots that we need for 2026. We have some open capacity for lighter work scopes that might come along.

But then as we continue down the learning curve, specifically on the additional capacity that we've added for CFM56 and the new capacity on LEAP, we will generate incremental capacity simply from the learning curve as we produce another 100, 150 engines through each one of those sites. So that's what will give us incremental capacity over the next year or 2 to be able to increase our growth presence there.

Great. And just maybe following up, Dan, if you could talk about the -- in terms of the cash conversion, it looks like maybe there's -- if we think about taxes and CapEx and interest, maybe there's $200 million plus or approaching $250 million of kind of working capital growth that's in there, I guess. Is that, a, the right way to think about it? And then b, how can we think about that evolving beyond 2027?

Yes. So interest, of course, significantly reduced 2024 over 2025 on the IPO proceeds, and that's going to remain at a manageable level. Working capital, we had the great working capital performance in Q4, where we took working capital down $168 million. And now it's at a more manageable level. So the 75% free cash flow conversion that we achieved in 2025. We should expand on that. We will expand on that next year and beyond. We should be an 80% to 100% free cash flow conversion company. Capital expenditures next year will be -- we're guiding you to $100 million to $110 million. That seems to be the right number as well to invest in the business. And all of that's going to contribute to that 80% to 100% conversion rate that we're anticipating.

And our next question comes from the line of Sheila Kahyaoglu with Jefferies.

Maybe if I could ask on the margins. If we think about the margin profile, it looks like margins are expanding an implied 60 basis points, but the pass-through helps. So what are the puts and takes of margins and why are margins essentially flattish ex pass-through?

Ex -- next year?

Yes.

Yes. Margins are going to expand next year. And of course, the pass-through reduction is a benefit. Counteracting that, as we've talked about before, will be LEAP and CFM56 as those volumes grow. And even though those programs, of course, they will become more profitable during 2026, and we expect them to reach profitability in the second half, that will continue to be a dilutive headwind. So all of the things that contributed to good margin performance in 2025 are still there. But now we've got the extra good guide of the material takeout. So material takeout is a good guide on margins. The LEAP and CFM will continue to be dilutive. And then the rest of the business, the operating leverage and the productivity and the pricing were fantastic upsides for us this year in 2025 and will continue to contribute in 2026.

Is there any way to quantify that LEAP and CFM dilution, Dan? I guess...

No. We've talked about the revenue growth there doubling -- it doubled in the -- for the first half versus the second half. It's going to double again year-over-year. And of course, we booked those at 0 margins in adjusted EBITDA. And next year, it will be 0 margins until they hit profitability. So I think you could run your models, and that will be an accurate representation.

Got it. And can I just ask one more related to that? You mentioned, I think, 75 repairs that you guys have developed on the LEAP. How do we think about those repairs being additive to margins of an engine platform?

Yes. I mean the in-house repairs that we develop are always accretive. And as a matter of fact, the CRS margins that are 30% or so, the in-house margins are at similar levels. And so as we increase our capacity and our number of LEAP repairs, that's going to add to LEAP profitability for sure.

And our next question comes from the line of Kristine Liwag with Morgan Stanley.

Russ, in your prepared comments, you had talked about pricing and making sure that you are getting paid for the value that you're adding. I was wondering, can you expand more about what that environment is like? And it seems like in the market, there continues to be significant engine shortage. Everybody wants engines and then the MRO shops are also pretty tight with capacity. So can you talk about what that dynamic is like? What's the customer reception potentially for higher pricing? Is there price inelasticity here? And what other MRO shops are doing on pricing?

Yes. Thanks, Kristine. And yes, in fact, what we're seeing is the market is still accepting of what I would consider to be above-average price increases compared to what we saw pre-COVID. In the decade of 2010 to 2020, price increases have pretty much settled down in the 3%, 3.5% range. And then COVID came along, they tripled. And then there became on top of that, a stress in the supply chain. So part shortages leading to MRO constraints as well as new production constraints as well. So that condition still persists. And as a result, I think there is still a higher appetite for price increases than what we've seen historically.

Now it has begun to moderate from what it was in 3 or 4 years ago, right, at the height of COVID. So as more capacity comes online, then I think you'll see the prices return to a more stable level. But that's not the case yet. So we are actively aware of what market pricing is for the various commodities that we do repairs on, if there's IP involved as well as on the engine services side with respect to capacity and slot availability. And so we price to the market in all of our proposals. And I don't see that changing real soon, frankly. So I think we're pretty much in line with the market there.

And the next question comes from the line of Ken Herbert with RBC.

This is actually Steve Strackhouse on for Ken Herbert. I wanted to focus on the significant growth that you had called out within the Aero derivatives within your CRS segment. Can you talk about how much revenue that generated in 2025? Or how much you maybe expect that business to evolve into '26 or into the next few years?

Stephen, it's Alex. We're not really giving out specific numbers there. I mean what we do see is obviously an uptick in activity for those platforms that are pointed at that market. For example, in the CRS business, we do repairs on LM2500, LM6000. We've been doing that for a decade. And like I said, we've seen an uptick there. So we're happy to see that. We're going to continue to look to add to our catalog of repairs on those platforms and others and studying the end market in general, just making sure that we understand the different ways to take advantage of that market, to invest in that market and just stay ahead of the developments that occur out there.

And then maybe just shifting gears a little bit. Could you maybe talk about your ability or likelihood to sign kind of a long-term agreement with -- directly with an airline, something similar to Ryanair signing with the big deal with CFM. Is that eventually work it could come to you guys? I'm kind of looking at that as maybe an out-year opportunity again kind of into filling that backlog in those slots.

Yes, Stephen. So I think what we understand to be the case there is Ryanair is on an agreement with the OEM, and they'll continue to be through the end of the decade. And then after that, if they go forward with some of the plans that they've been discussing on starting up an MRO shop, that's what they'll do, and that will take time and effort to get industrialized similar to how we're experiencing the LEAP and the CFM56 industrialization that we started a few years ago, right? They'll have to get going, get moving down the learning curve, and it's sort of a several years from now dynamic that we see.

And our next question comes from the line of Doug Harned with Bernstein.

When you talk about your end market revenue growth assumptions, when I -- if I look at your guide and adjust for the pass-through revenue, it looks like you're -- it's about a little over 10% growth rate for '26, which if I'm trying to tie that back to your view on the end markets, how should we think about that? I mean, do you expect to grow kind of in sync with the end markets or higher in some cases or lower? How do you interpret that?

Depending upon the market you're talking about, so I'm assuming, Doug, that you're talking about the commercial market. On the commercial market, our throughput capacity is actually greater right now than the supply chain can support. So we have the ability to accelerate, bring -- there is revenue upside for us with commercial programs. So we're obviously trying to stay ahead of that and generating more capacity through learning curve effects.

On business aviation, similarly, there is still a high demand for the platforms that we service, namely the midsized jets that fly the TFE731. We've got leading position there and all of the super midsized jets that are now coming online that are using the newer HTF7000, we've got the worldwide independent heavy license authorization to do all that work, and we just expanded our engine shop in Augusta to get ahead of that demand. So I think we're very optimistic about our ability to take advantage of additional growth and frankly, to be able to drive disproportionate market share.

And you -- Russ, you got right to my follow-on question, which is when you -- how significant is the supply constraint in terms of parts? And do you see that being relieved over the next -- I'm not sure how long, next couple of years that would increase growth?

Supply chain is still a constraint. What we're seeing today is better than it was during the summer, last summer, but still not as good as it was at the beginning of the year last year. And we look at the top level, which is the on-time delivery metric, same thing that we're held accountable for to our end customers like the airlines. We look at our suppliers, which is their on-time delivery. On-time delivery had been in the 90% range, and it dropped down in the 60% range last summer. It's improved from that, but the leading indicator to on-time delivery is depth of delay. And that's where we began to see improvements in the fourth quarter last year as the depth of delays started to come down, and that gave us a better feel for engines we would be able to put through the shop, which is why we gave the guidance that we did during the fourth quarter for improving cash flow. And that's exactly what happened.

So if you look at depth of delay, it matters if you miss the on-time delivery by 20%, it matters if that miss is 1 month or if it's 1 day. So as the depth of delay starts approaching 0, then you start seeing the on-time delivery tick up. And that's exactly what we're seeing is the depth of delay is coming down. It's still there. The on-time delivery is still lower than it needs to be. And I suspect that we will continue to see improving depth of delay as we go through the entire year of 2026. Our guidance and our assumptions don't say that supply chain is going to return to fantastic 90% plus on-time deliveries in the next 12 months. It will likely take longer than that.

And our next question comes from the line of Ron Epstein with Bank of America.

Maybe a couple of follow-ups to some stuff. You talked about the supply chain getting better, but still being a little bit of a headwind. How is it on the labor front? Are you in the supply chain? Are there labor challenges? And as you ramp, do you have any challenges finding capable mechanics? My understanding is there is -- correct me if I'm wrong, there is competition now out there for folks to work on industrial gas turbines and aero derivatives and everything else. I mean spinning equipment right now is sort of very, very in favor. So I mean, how are you thinking about that from a labor perspective?

Yes. Thanks, Ron. That's a good question. It's something that we have been focused on for several years now because it became apparent actually pre-COVID that there was a fair amount of retirements that were going to be occurring across the aerospace industry. So we started a multiphased approach to building the input for getting people into the aerospace industry and with enough lead time to get the proper training and certifications. As you know, technicians, particularly that work on flight critical systems like the engine, they generally have to have certain certifications, right? They have to have A&P licenses and things that take a couple of years to get.

So we started down that path early. We started with different recruiting techniques using more advanced versions of social media to get access to people to recruit. We also beefed up our internship programs with selected universities around the world that help develop A&P types of mechanics. We also -- in addition to the intern program programs that we have, we created StandardAero University, our own internal university at our site in San Antonio, Texas, where we have a dozen full-time instructors teachers, if you will, that are running people through classes every 16 weeks to get them through essentially basic training and then they are returned to their sites where they receive engine-specific certifications. And so that's one element.

The other element is the cheapest labor to find is people that you already have. And so what that means is you got to look at your attrition rate. And fortunately, for us, our attrition rate is low, has been low. And one of the proxies for that is the average tenure. And if you look at the average tenure for StandardAero employees, it's roughly double what the average tenure is that you would expect for a company like ours. So people tend to -- we recruit them and they tend to stay. They will spend their entire professional career with us. And that helps minimize the number of people that we have to recruit and train. So we've done actually very well on the labor front, and we expect to be able to continue that. We've not had any labor constraints that have prevented us from expanding.

Got it. Got it. Got it. And then if we can maybe revisit just quickly. When we think about potential new opportunities on maybe platforms that you're not that concentrated on today, -- is there -- I mean, is there an opportunity with Pratt? Is there an opportunity on some other biz jet engines that you guys aren't currently exposed to? Maybe wide-body. I know we've talked about that in the past, Russ, that if the right conditions came up, that maybe there would be an opportunity in wide-body. What are you thinking there?

Ron, it's Alex. Absolutely, that's a big part of my job is making sure that we're talking to OEMs about obtaining licenses in markets that we think are accretive to our business. So always an ongoing discussion across the different end markets.

Anything we can double click on?

Not at the moment.

I think it's fair to say though, Ron, we've got a couple of engine platforms that look quite interesting in the commercial side of the business. We have a couple on the military side of the business. And there's even a couple in the biz app side of the business. So it's not just limited to commercial engine platforms that we can add to our product portfolio. It's across all 3 of our end markets.

Got you. Correct me if I'm wrong, you guys are the largest MRO for business aviation in the world, right?

For business aviation?

Yes.

Yes. Ron, we service the ubiquitous engine platforms in the sort of the big part of the market like super midsize and long-range cabins. So yes, I mean, we definitely are a big player in engine MRO. But of course, you've got the OEMs as well, and I can't speak to size-wise how big that part of their business is.

That's the wildcard. But as far as external, I think we are.

And our next question comes from the line of Michael Ciarmoli with Truist Securities.

Maybe, Dan, just to hone in a little bit more on the margins and kind of back to Sheila's question just to make sure I've got it understand it. I guess those underlying ex pass-through in ES look to be 12.9% maybe down 30 bps. And that dilution is stemming primarily from a doubling of LEAP and CFM56, but it sounds like your sort of core business, you're still getting pricing productivity efficiencies and those core margins are still trending in line with kind of your expectations?

That's exactly right. Even the LEAP and CFM56 programs, if you look at their losses during 2025 have been narrowing. They've declined over 60%. And then so next year, that will be a loss early on probably in Q1 and then for the rest of the year, it will flip to profitability, still dilutionary and revenues double again in 2026. But the underlying business has really been satisfying in order to offset that. And then now in 2026, we've got the material takeout.

Okay. Okay. Got it. And then on the CRS margins, you talked about the shutdown, you talked about the fire being a drag. You've got flattish margins this year. As we get -- as you guys digest that and get through it, is there more runway to push those margins higher as you expand repairs, license capabilities? I mean, how should we think about the potential on CRS margins?

I mean we're giving you guidance next year of 28.5% to 29.5%, which is good guidance for 2026. Looking beyond that, of course, we're going to grow that segment as fast as we can through NPI or what we call new repair development, acquisition opportunities where they become available, the in-sourcing effort, all of that is accretive for sure. As we develop new repairs, we will ensure that those are accretive. So I think expanding beyond the guidance we have for next year is definitely possible.

And our next question comes from the line of Gavin Parsons with UBS.

Can you hear me?

Yes. We can just hear you barely, Gavin. Go ahead.

Sorry about that. Hopefully, it's a little bit clearer. You guys have talked about expanding the in-source repair capture. I think that's still only something like 10% of engine services repairs are done by CRS. How much can you mix that up? And what are the bottlenecks to doing that?

That's a really interesting area of expansion for CRS because as we mentioned, it's tied to two things. It's tied to our repair development processes, and we are actively expanding that, investing in engineering resources to go develop more repairs. And it's also tied to any of the acquisition work that we do. Anytime we do an acquisition in that end market, it brings new repairs. That's one of the things we look for is we're not just buying the same repairs at the same capacity. We're buying new repairs. So every time we get a new repair, either one that we've developed or one that we have added into the portfolio, that gives us the ability to in-source more of the work from our Engine Services segment that presently would be going out simply because we -- it would be ostensibly for something that we don't have that process in-house.

But as we add those processes, all that work comes in, number one. Number two -- and we've increased that amount of work by 15% just in 2025. There's still more work to do there. But more importantly, every time we add one of those repairs or acquire one of those repairs, it's something we can sell to the market. And nearly 90% of the work that our CRS division does is for outside of StandardAero. So adding to that portfolio of repairs gives us a very strong expansion tool into the overall market as well as internally.

And you mentioned being growth constrained at Engine Services by the availability of parts. Are you also supply constrained at CRS?

Not so much because CRS, someone is typically supplying you the part to be repaired versus in an engine services area, you may be waiting for an actual part. So it's a different situation where you're doing repair on existing parts.

And with that, this now does conclude our question-and-answer session. I would now like to turn the floor back to Russell Ford for any closing comments.

Okay. Thank you. Thanks again, everybody, for joining us today. We appreciate your continuing interest in StandardAero, and we look forward to speaking with you again next quarter.

Thank you, ladies and gentlemen. This now does conclude today's teleconference. We thank you for your participation. You may disconnect your lines at this time.

Okay. Good afternoon. I'm Doug Harned, Bernstein's aerospace and defense analyst. And I'm really happy today to have with us StandardAero. So we've got Russ Ford, CEO, Chairman; Alex Trapp, who's Head of Strategy; and Rama Bondada, Investor Relations. So to start off here, Russ, maybe you can give us an overview of the company for those who may be less familiar with it.

Sure. Be happy to. Thank you, Doug. Welcome, everyone. StandardAero is the world's largest independent service provider for jet engines. We've been around since the dawn of powered aviation. We're about to start our 115th year of continuous operations. So pretty sure the 2 gentlemen that started the company, Mr. Pearce and Mr. Bickell probably knew Orbital and Wilbur right back in the day.

You don't get to be in business for 115 years by accident. We started out actually originally in providing engine services for automotive. In 1911, the aerospace industry was still very much experimental. But by the end of the first World War and ever since, we focused exclusively on doing service for aerospace engines. We are organized in 2 end market segments. One being engine services and the other being component repair services for engines.

The Engine Services segment focuses on commercial aircraft engines, military aircraft engines, private business jet engines as well as helicopter and ground power energy-based engines. So across the entire spectrum of where gas turbines are utilized, pretty much anything that flies, some things that don't actually have gas turbine engines. We operate in 50 facilities in 12 countries, and we have customers in more than 80 countries.

So you pretty much can pick any time zone in the world and StandardAero has a facility there. And we provide entire -- an entire array of engine services once any engine reaches a repair interval, it's typically removed from the aircraft, sent back to StandardAero at one of our facilities where you'll receive whatever the maintenance requirements are, everything from a minor check and inspect all the way up to a complete engine disassembly, a full maintenance event that we call a PRSV.

So we provide that entire spectrum. We have about 8,000 employees across those different facilities. We are purposefully structured across the subsegments of aerospace so that we don't have any concentration in just one of those subsectors. That's a conscious decision because in aerospace, as I'm sure you know, aerospace is a highly cyclical business. It always has been since the dawn of commercial flight in the 1920s, aerospace has been cyclical and it likely always will be.

The trick for us is when it comes to the maintenance on engines and aircraft, the maintenance is driven by how the engine is operated, meaning whatever aircraft it goes in and what the mission of that aircraft is. And that can be very different for a commercial engine versus a military engine. The maintenance requirements are quite different across those different subsectors. So it's important that as we built the company over the years, we purposefully have put together these different subsegments that operate on different cycles. So not everything moves up or down at the same time.

And as a result, when it comes to perturbations within the market, even up to and including extreme things like a pandemic or a worldwide financial crisis or even just the normal cyclicality within aerospace, not everything is up at the same time or down at the same time. And so by not having overly concentrated focuses in these subsegments, what we've created is a natural hedge in the actual revenue in the business that runs through the company because the cycles typically they counterbalance each other.

So that's an important element, I think, of our company. And one of the things that has made us as a newly minted public company, even though we've been around 115 years, we've been a public company now. We just celebrated our first anniversary about 60 days ago. And it's one of the things that suits us well for the public environment is that we have an operating practice for 100 years of being very predictable about the way we run the business and how the business operates. So it's a highly rational type of business that does not see the volatility that some other areas of the aerospace industry, particularly airlines which interface directly with the flying public, we don't see the volatility that they do because maintenance events occur over a period of years and the hours that are flown during that time, which generates a maintenance event.

So as flight loading moves up and down day by day, hour by hour, we don't see that volatility. We tend to ride through that a lot more smoothly where we sit in the ecosystem. So that's just kind of a brief overview of the company.

Russ, one of the things you said there is you've got these sort of different end markets. But I have to say, when you look at it right now, all the end markets are going in a good direction. Perhaps you could give us a little bit of a picture. I know you had a very good quarter for business aviation last quarter. But maybe you could characterize how you're looking at the growth rates of those different segments, business, but large commercial and defense.

Yes. They're all different, but you're correct. They are all moving up. And so fortunately, for us, when you have situations where all of the markets tend to move at the same direction upward, which is where that would likely happen. During the pandemic, the commercial piece moved down for a short period of time, but offsetting that was business aviation and military, which all moved up to help counterbalance.

But in the good times where things all seem to be moving upward like right now, then we're very happy because we have rich people problems. We're trying to eat as much of that as we can. Fortunately, we have the ability to surge capacity between sites or within a site with our workforce and with the certifications that we have. So it's something that they typically don't move at exactly the same time. So we can flex and move the workforce around.

We do have open capacity. We don't run at 100% utilization. We do have the ability to surge on off shifts and weekends. So we are not limited by our testing capability. We're not limited by facilities. We're not limited by tooling because we're not running 3 shifts 7 days. So there is some surge capacity to take into account any time you have things moving forward.

And what we are seeing is you'll see a low double-digit growth in some of the businesses like commercial and like business aviation. You'll see high single-digit growth in other areas like military and helicopter. So that's what we're experiencing now. That's what we expect to see in the near term.

Yes. And when you -- one of the things you know -- I've talked about this before, sometimes people will look at MRO, and they'll say, well, MRO, it's just rents turning. Anybody can do that. There's not a high barrier to entry. I know you all believe they're, in fact, you have some serious barriers to the competitors right now. So maybe you could talk us through that.

Yes. Yes, I appreciate that. And the answer is there are some people, the same people that say that working on a jet engine is just turning wrenches. Those same people would say that heart surgery is just sewing things together. It's a little more complicated than that, okay? And when you work on a jet engine that has thousands of parts that have tolerances of 1,000 or 2,000, 10,000 of an inch and they turn at speeds of 20,000 to 60,000 RPM and they have very specialized coatings and everyone who touches those engines has to be licensed in order to do that.

It's more complicated than just turning wrenches on some other mechanical device. And so some of the barriers to entry as a result of that is, first of all, you have to recognize that not just any company can work on a jet engine. And it's not because of capability, but it's because of the licensing and regulatory environment. On an aircraft, the engine is the most critical flight system for an airplane.

You can lose a lot of stuff on an airplane at 30,000 feet and still land the airplane safely. The engine is not one of those things. So the engine has the most highly regulated environment because of its criticality to flight. So consequently, you have to have regulatory approval from all of the regulatory agencies around the world to begin with. So beyond the FAA, there's EASA, there's CASA, there's a myriad of regulatory, governmental regulatory agencies that you have to have authorizations.

Then beyond that, there's authorizations you have to get from every individual OEM. So General Electric, Rolls-Royce, Pratt, Honeywell, Safran, the 5 major engine producers, you have to have authorizations from those folks as well. These authorizations take years to get. Secondly, once you have the authorization, you have to have a workforce that is licensed to be able to do the work.

Once again, the technicians that work on these engines, they have to have licenses that take years to get. You can't just get somebody down the learning curve in a couple of months. Third, you have to have the facilities to not only build the jet engine, but more importantly, you have to be able to test the engine. Anytime you do maintenance work of any order of magnitude on a jet engine, that engine must be run in flight simulated conditions for hours.

It's not like an automobile where you take it in for an oil change and they give you the keys and say, "Drive it home and if it makes noise, bring it back to us." You can't do that at 30,000 feet. So those engines have to be run in dedicated test cells for hours before they're allowed to be bolted onto an aircraft and go fly people in the airplane. Those test cells are complicated to build and complicated to correlate. It takes 3 or 4 years to build and correlate a test cell and these things cost anywhere from $50 million to $100 million each.

So test cells are a very significant barrier. That's why you'll find many MRO companies don't even have test cells, but if they have the authorizations to do the work, they'll have to send the engines to either the OE or to a company like us to have the testing done. Some companies may have a handful of test cells because of the expense and the capital infrastructure. StandardAero has more than 50 of these test cells. Think about the infrastructural cost of putting that in place. It's taken us years to do that.

So you've got to have the testing capability in addition to the regulatory, the OE and the technical certifications. You also have to have access to all of the technical specs from the OEMs, which are not generally available to just any company. So you have to have access to the technical specs. You also have -- because when you get access to the technical specs in many instances, the OEs are giving you access to intellectual property.

And they guard that fiercely because that's what they've invested in when they spend a couple of billion dollars in 10 years developing a new engine, they've developed intellectual property along the way, and they protect that. So you have to have relationships with the OEs that demonstrate to them that you can protect their IP. And you can't demonstrate that to them in a year or 2. You have to demonstrate that to them over decades, many years of programs where you have protected their IP. StandardAero has that pedigree with all of the OEs.

So there are some very significant barriers to entry, which is why not just any company can work on a jet engine. There's a lot of companies that can work on other parts of the airplane because many people can bend sheet metal and buck rivets, but you don't want those same people digging around in the hot section of your jet engine that must operate all the time without reserve.

And Doug, I would add to that, of the 8,000 employees we have, average tenure for our mechanics are 20 years. The learning curve to -- come down the learning curve is 3 to 5 years. So it's not like somebody can wake up and say, okay, I'm going to build $2.5 billion of test cells and then go out there and try to start an MRO business. The learning curve and the retention and the experience of the workforce is critical business.

So when you look at the Engine Services business, this is like you all now about a 15% type margin business. So given the barriers to entry here, one might think, you could price higher. There's obviously a lot of demand out there. Perhaps you could talk about what drives the margin profile here, if we can expect margin expansion. We'll get to the component repairs in a little bit. But in that Engine Services business, how should we expect margins to flow going forward?

Yes. So I'm going to pull in CRS a little bit for an example of what the margins look like in ES. So margins in CRS were about 30% EBITDA. right? And that's 20% material and 80% labor at CRS. Those same labor margins are also in Engine Services. The Engine Services margins are also 30% at labor or higher. And then -- but the difference is that in Engine Services, it's 80% material and only 20% labor. So the material washes it out.

And that material is a flow-through that's pass-through.

A good chunk of that, about $1 billion of that -- it's about a -- call it, $5 billion business, about 20% to 25% of that is 0 to close to 0 margin where we just get a handling fee. And then the remaining material, we get some margin on it, but it's not as anywhere near what the labor margins are. And so that's kind of what skews it into that mid-teens kind of. But actually, it is a very high-margin business to begin with because of the difficulty of, one, finding an MRO slot fewer the airline. And then two, just there's not a lot of capacity out there on a go-forward basis, too.

But you've got -- so right now, you've got a couple of really important programs, the LEAP, CFM56 that you're still coming down the learning curve on those. And so those are a little bit dilutive to margins. But how should we think about this if you got through those programs, can we expect to see some margin expansion in the overall business?

So what we said at our last earnings call is that 2025 represents the bottom for margins in this LEAP and 56 Dallas ramp. We expect to see margin improvement on a go-forward basis. One, so LEAP and 56 Dallas will hit breakeven in early 2026 and then begin to start their climb up to becoming accretive to the segment level by the end of the decade.

We also talked about the pass-through revenue that we're taking out about $350 billion of this low single-digit kind of margin revenue that's coming out. The combination of those 2 kind of help give that margin climb up. And so yes, we would -- historically speaking, Engine Services is roughly a 50 to 70 basis point margin improvement story. Yes, annually. Yes, and 20 basis points has been primarily from acquisition. So really, it's close to like 50 basis points. And so we should start getting back on that trend build again, as we put in the decks here with coming down the learning curve on LEAP and 56...

Now if I turn over to the other business, component repair services, that's where you make the 30% type margins. And also, you're looking at double-digit growth, I think, as well. Can you talk about how you get to that profile, that double-digit growth combined with the higher margin?

Yes, sure. It's a combination of things. First of all, our component repair business does repairs on components for not only standard aero engine services products, but for the open market. So other MRO shops, even the OEs, they send components to us for our repair capability. As a matter of fact, almost 90% of the revenue that runs through our component repair business comes from outside of standard era.

Some of it, however, though, comes from our own Engine Services segment, and our Engine Services segment is going to be growing pretty significantly because of the new programs that we're adding on top of the existing baseload of work. So we see big growth coming from LEAP as a new commercial engine, CFM56 as a commercial engine that is just now hitting its -- almost half of that is just now hitting its first shop visit.

CF-34, which is an engine that is still in production on regional jets, and we've captured a large share of the market on that particular program. On the Business Aviation Group, HTF7000 is the latest engine from Honeywell that is probably the most ubiquitous engine in the business aviation world on super midsized aircraft. And then also, we have a big turboprop business that does work on things like PW100s and 127s, the engines that power some of the aircraft like ATR 72s and Q400s. Those are the big growth drivers. And as those engine programs grow, we will in-source work from those engine programs into the CRS segment. As we continue to add repairs to our CRS segment, we will be able to drive more work inside also because we're developing repairs that we don't currently have.

And those repairs, they still have to be done. So we have to take them to outside sources. And when we develop those repairs, then all that work just comes back inside. So there's the indigenous growth of the existing platforms. There is growth from additional in-sourcing as we develop more repairs. And then finally, the third leg of the stool is through inorganic acquisition business.

And then I would add and pricing. So these are -- component repair is a kind of a -- it's similar to OEM pricing kind of model. And so we get some pretty good pricing there, too.

Okay. And because of that, what's the outlook for CRS in terms of margins? Can we expect expansion beyond the kind of 10% level you're at?

Yes. So I would say that when you look at CRS margins, this year was a phenomenal year. We had almost 400 basis points of margin improvement. Traditionally, this is a 50 to 100 basis points kind of margin improvement story, mainly because of pricing. But what's happened is -- and then also the in-sourcing opportunity that we continuously get. But we -- Alex did an amazing acquisition with AeroTurbine that now has fully come into the company.

We tend to be very aggressive in assimilating those acquisitions, and it has far exceeded our expectations. And so that really is what rebased the margins there higher into this like a high 20s, 30% range. But it is a business that should see steady margin improvement. And it's also a little bit of a mix, right? Like it will be depending -- it's very mix dependent on what the work scopes are that are coming in and which parts are getting used and which parts can be replaced with a component repair.

So if I take the LEAP, I would argue, whether it's repairs or whether it's services, that is probably the highest growth program that anybody has ever seen in this industry. And you are 1 of 5 now called premier players on this. But some people have said to me, oh, well, MTU just got one. Now they're the sixth. What does it mean to be a premier player on this? What kind of advantage does it give you? And how does that growth look?

Yes. So it starts with being a big shop, right? So you have to be a big credible player to be a premier MRO, and you had a lot of the names of the 6 providers, you'll find that to be the common thread. Again, Russ mentioned decades of proven experience working with the OEMs in an aligned way. Them, right, having decades of relationship experience kind of doing business the right way, building trust over that period of time.

The infrastructure to stand up the capability. So it's no small short to stand up a new engine platform industry. You have to have the physical footprint. You have to have the ability to onboard, train employees, by the tooling, bringing together the entire kind of cellular operation plus have a test cell, right?

If you don't have a test cell that can test, then you're going to be waiting for years and to be able to get a capability put in place, the OEM is not going to sort of look at you first if you don't have that infrastructure already in place. And of course, since CFM has designed this premier MRO network to face the customer base the airlines directly instead of the OEM going to the customers and pushing work to the MRO providers. They expect the premier MROs to go straight to the airlines and sell parts through the premier MROs as a channel, right? That's how they make their money selling parts.

We consume their parts, but we're dealing directly with the airlines. So you have to have a global sales team to operate in a global market and you have to have a bid team that knows how to bid complex RFPs that airlines require with their very fast-growing fleets in a world where nobody really understands the engine just yet, right? It's new technology.

And so everybody is trying to get their head around what the best structure approach is to doing maintenance. So you got to have a team that can accommodate that. So those are some of the key factors that allow us to take a position there, and you'll see that pretty consistently with those particular 6, right? There's not a lot of big companies that can do that.

The -- one of the questions I get a lot is -- this is such a good business. Why doesn't GE just do it all themselves? I think we all know GE is deliberately trying to move work out. But maybe just comment on that.

Yes. That's not just a GE issue. That is a fundamental maturation within the aerospace ecosystem. And so you have to look back over the last 30 years. And what you'll see is there have always been 3 main components of the aerospace ecosystem. On one end of the spectrum, you have the OEMs that design, develop and certify new airplanes and new engines. And it takes all of their critical resources, both cash and engineering to do that.

On the other end of the spectrum, you have the operators. So these are airlines or their militaries that operate. The center piece, the third piece, which is the bridge between those 2 is the maintenance piece, which is where we fit. So the OEs over time, what's happened is the OEs on the left-hand side have started to focus their clinical resources on the development of new engines and they don't want to or can't spend the resources on developing buildings and additional test cells and maintenance techniques for the thousands of engines that they have deployed into the market over the last 40 years.

They don't want to, they can't do that. So that work has been moving towards the center. On the right-hand side, you have the operators. And similarly, airlines since deregulation in the mid-80s, they have been -- had to be a lot more cost competitive, and they can no longer afford to do maintenance on aircraft as their -- one of their primary investments. They focus on flight operations. So over the last 20, 30 years, you've seen work from the airlines move towards the center. There are still some airlines that do some maintenance.

But by and large, that both of those things have moved towards the center. And that's where we're at, so the work migrates to us. Could airlines do more engine maintenance? Sure, but they'd have to go invest a lot of time and money to build up test cells and things to do that. Could the OEs do a lot more of this work? Well, sure, they could, but they have better ways to spend their engineering resources and their dollars, and that is developing new engines and producing parts where they make money.

They don't make money on doing the actual maintenance work because at the end of the day, the reason that the OEs and the airlines cannot really compete on the maintenance piece is because of the economies of scale. Airlines typically, if they do work on their engines, they typically only do work on the engines that they fly. They're not going to do work on engines that are not even in their fleet. So they may have 4 or 5 engines that they work on. Similarly with the OE, GE is not going to do development work on a Rolls-Royce engine, right? So they're limited to the engines that they design and develop, which is just a handful. StandardAero , on the other hand, we are authorized on 40 different engine platforms. So that gives us the benefit of economies of scale, faster turn times. We're a tough competitor.

So how do you think of, say, Delta TechOps, Lufthansa Technik, Air France. I mean they have large MRO operations. They even have premier positions on fleet. How do they differ as a competitor from you as an independent...

Yes. So I think there's degrees of the extent to which an airline shop is out there in a third-party market. So I won't rank them in order, but different airline shops exist on one extreme as a cost center for the airline and perhaps on the other extreme is actually servicing third-party customers besides their parent company. But airline shops generally are there to reduce the CASM for their parent airline and allow the parent airline to have some control of the dispatch reliability of their fleet, right? So they can get point people from point A to point B and there. So that's why airline maintenance shops exist and there are just kind of different degrees to which they're out there competing with us. They're mostly focused on their parent airline.

Well, we're in a situation today where demand for the aftermarket is very, very large. You described the growth opportunities, but people want to see cash. And this year, we haven't seen any. I know you raised your guide for the year at Q3. Can you tell us how we should start thinking about first, how this year finishes and how should we think about cash going forward?

Yes, sure. So yes, we raised guidance in the third quarter free cash flow. It's a timing issue with some supply chain issues that were going on. We see the reason why we felt confident 6 weeks into the fourth quarter to raise our guidance when we did earnings was because we're starting to see the engine shift, the parts arriving. And so we can kind of like back into what we think is happening on the free cash flow front. This morning, we -- obviously, our Board authorized a $450 million repurchase.

Again, this is based upon -- if you look at our guidance for the midpoint, it would imply that we're going to exit the year at about 2.5x leverage with 2 to 3 being our ideal range. And then when you look at our internal forecast for free cash flow is what really drove the size of that $450 million repurchase authorization. We feel quite comfortable with that amount without having to dip into any sort of leverage or anything like that.

So we look at this business as an 80% to 100% free cash flow generating business. And the reason why we say 80% is because we always have growth opportunities to invest, whether it's M&A, whether it's organic, whether it's expansions. We tend to be very focused on ROIC and IRR when we're making these investment decisions. The repurchase is just another capital deployment tool in the toolbox. It would go under the same kind of lens as an M&A deal or any other investment that we do.

But 80% to 100% is kind of how we kind of view the free cash flow generation. Now obviously, we're ramping up LEAP in 56 Dallas as we go through '26 and '27. So really, you're probably looking at '28 or beyond when you start getting into that 80% to 100% free cash flow.

And at that time, we should think of your free cash flow more tracking with EBITDA...

That's right. That's correct. Yes, it should be growing along those lines.

Part of what's going on here is just timing of when we happen to go public versus the investment cycle. So about 2 years ago, we had the opportunity to make some very important investments, specifically on the LEAP program, on the CF34 program, on the CFM56 program. We chose to make those investments because they're generating -- these are going to create a 30-year revenue stream for us. And you don't get a chance, these opportunities don't come along all the time. It may be years before we have something like that present itself.

So when it does, you have to be able to make that investment to capture that opportunity because of the long-term revenue stream that comes with it. Now unfortunately, then a year later, we entered the IPO process. And so coming out of the IPO process, the first year just happens to be on the backside of a couple of years of heavy investment. And so we -- in our guidance, told people that the cash flow was going to be back-end loaded towards the back of this year. And that's exactly what's happening.

So as we kind of wind up that heavy investment cycle and then we move into next year, a more normal year, you'll see the underlying cash flow generation from the company. So we're not concerned because we have a view of the company's cash flow for more than just a 12-month period. We're not looking at the company through a straw. We're looking at the company over a much wider range, and we see what the cash flow is going to be like.

And we don't limit ourselves for -- we have the bandwidth, we have the balance sheet capacity to make these big investments. And when we have the opportunity, then we're going to do that, and then we're going to keep people advised as to what that means to cash flow.

So if we think of the whole sort of StandardAero story now, I mean the market is all moving in the right direction, but I think of one thing out there that is a risk, and the risk is the availability of parts.

Yes.

Can you comment on that and how -- sort of where we are in getting through any supply chain issues that can constrain your growth?

Yes, you correctly identified one of the risks. And so as we think about the business holistically, where we're at today, where we're going to be over the next 10 years, we have the facilities needed to satisfy our long-range plan. We've got the test cells. We've got the assembly facilities. We've got the tooling. So facilities, not a concern. We have the workforce that we need, and we have the ability to recruit additional and train additional people as we need.

We have our own StandardAero University that has 11 full-time instructors that we can generate our own people in addition to working with some of the local colleges and universities that we do. So people are not the constraint. We have the balance sheet capacity and leverage to be able to make additional investments as needed. None of those things are an issue. So if you think about the kind of the 3Ms that you worry about, which is manpower, machines and material, it's really just the material that presents some risk.

Now here's what we're doing about that. First of all, you have to understand that supply constraints are not new to the aerospace industry. In the 45 years I've been in the aerospace industry, the number of times that supply of certain parts has not been a problem so far as 0 in 45 years. Supply is always going to be an issue in the aerospace industry. And it's not because people just don't build parts. It's because specifically when you're talking about supply of parts that go into an aerospace engine, these are very unique materials.

They're super nickel alloys. They are not materials that are used for anything else on the planet because they have to operate at 3,000 degrees Fahrenheit. You're not going to find them in cell phones and water bottles and pencils and pens. So there's a very limited supply of this kind of material because of the unique aspect. So there's always pressure on the supply chain.

Now from time to time, you have situations like the pandemic that may create additional stress on the supply chain. So what StandardAero has done is we have developed 2 workarounds or 2, I would say, detours around the roadblocks on the highway that may appear from time to time. And the first is we have invested heavily in growing our component repair business. This business a few years ago was less than $100 million. Today, it's approaching $0.75 billion. If we took that division and carved it out and spun it off as a separate company, it'd be one of the largest component repair businesses on the planet.

And that component repair capability gives us the ability to take parts out of used engines and restore them to flightworthy new condition. And if there is a constrained part like blades or shafts, many times, we can find used serviceable material and restore it to flight status and therefore, not have to wait for a new part. So investing in repair development is one of the aspects that we put in place to give us an alternative to waiting for these constrained parts.

The second thing we've done is we've created an asset management part of our business. We did an acquisition for a company that did this quite well, and we've now inculcated that into the core business. And we actively go out and source used serviceable material or USM. And when we can find engines and material that are available to purchase and be restored, then we do that. And then we put it in our CRS division and restore these things supply.

So repair, development, USM, those are 2 detours that we have invested heavily in that give us the ability to drive around [indiscernible] gives us the ability to drive around some of these supply constraints for certain parts. And it's not everything in the aerospace industry that's constrained. Don't let people lead and believe that.

It's really only a handful, a couple of part groupings that tend to be the constrained parts, and it's because those particular parts generally are sole sourced to one supplier or to 2 suppliers. And so those are the ones you really have to worry about, and that's why repair development on some of those parts and USM are very effective ways for us to continue to work around those constraints.

Well, we're out of time, but I want to thank all 3 of you for joining us. This has been great.

Thank you.

Thanks, Doug.

Good afternoon, and welcome to StandardAero's Third Quarter 2025 Earnings Conference Call. [Operator Instructions]. I'd now like to turn the call over to Rama Bondada, Vice President, Investor Relations. Please proceed.

Thank you, and good afternoon, everyone. Welcome to Standard Aero's Third Quarter 2025 Earnings Call. I'm joined today by Russell Ford, our Chairman and Chief Executive Officer; Dan Satterfield, our Chief Financial Officer; and Alex Trapp, our Chief Strategy Officer.

Alongside today's call, you can find our earnings release as well as the accompanying presentation on our website at ir.standardaero.com. An audio replay of this call will also be made available, which you can access on our website or by phone. The phone number for the audio replay is included in the press release announcing this call. Before we begin, as always, I would like to remind everyone that statements made during this call include forward-looking statements under federal securities laws. These statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections.

Such risks and uncertainties include the factors set forth in the earnings release and in our filings with the Securities and Exchange Commission, including in the Risk Factors section of our annual report on Form 10-K for the year ended December 31, 2024. We assume no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. Additionally, during today's call, we will discuss certain non-GAAP financial measures such as adjusted EBITDA, adjusted EBITDA margin, free cash flow, net debt to adjusted EBITDA leverage ratio and organic revenue growth. Definition and reconciliation of these measures to the most directly comparable GAAP measures can be found in our earnings release and in the appendix to the earnings slide presentation on our website.

Non-GAAP financial measures should be considered in addition to and not as a substitute for GAAP measures. With that out of the way, I'd like to now turn the call over to our Chairman and CEO, Russell Ford. Russ, over to you.

Thank you, Rama, and thanks to everyone for joining our earnings call today. Before we begin, I'd like to take a moment to wish an early Happy Veterans Day to all of those who have served and those currently serving in the armed forces. I'm proud to say that in StandardAero, nearly 20% of our domestic workforce are veterans, and we are immensely grateful for their sacrifices they and their families have made through their service. Now let's turn to our results beginning on Slide 3. The third quarter was another strong performance by StandardAero. We delivered revenue of $1.5 billion, growing 20% year-over-year and adjusted EBITDA of $196 million, up 16% year-over-year growth.

This marks another quarter of double-digit top line and earnings growth driven by demand strength across our end markets and continued operational discipline throughout our business. Within a complex operating environment, our diversified business model across end markets, OEMs and more than 40 platforms we serve continues to provide us with growth opportunities and resilience enabling us to perform well through industry cycles.

Now turning to our end market performance in the quarter. Our commercial aerospace revenue grew 18% year-over-year led by a near doubling of LEAP revenues from last quarter and strong contributions from the CF34, CFM56 and turboprop engine platforms. Our backlog of MRO work remains strong and the MRO supply demand environment remains tight globally, we expect this favorable dynamic to continue for the foreseeable future. Business Aviation revenue was up 28% year-over-year driven by growth across mid- and super midsized aircraft. We saw strong growth in our HTF7000 program, which should continue, supported by the successful expansion of our Augusta facility. Our military and helicopter revenue grew 21% year-over-year, fueled by AE1107 engine volumes after the V-22 grounding last year ongoing strength of our C-130 transport aircraft programs and the J85 engine, which powers the T38 trainer as well as the contribution from our Aero Turbine acquisition.

From an earnings perspective, we continue to generate strong high-quality growth. Adjusted EBITDA rose 16% year-over-year, driven by volume growth, pricing and mix particularly within component repair services where we delivered another record margin quarter. Even as we invest heavily in ramping our newest programs, we've continued to demonstrate double-digit earnings growth and margin resiliency. Our adjusted EBITDA margin was 13.1%, inclusive of some lower-margin work scopes and the expected short-term impact of the ramps of our LEAP program and the new CFM56 DFW facility both the boards are expanding at a rapid pace while we come down the learning curve as planned. This result underscores the strength of our overall portfolio design. We anticipate these ramping programs will turn profitable in early 2026 and continue to accrete from there.

Starting on the right side of Page 4. I'll give some updates on the status of our strategic priorities, which we expect to drive long-term compounding value for our shareholders. We continue to be pleased with the progress of our LEAP industrialization and the outlook for this program. LEAP revenues continue to scale rapidly and are a key driver of our commercial growth. Through the end of the third quarter, we've inducted nearly 50 LEAP engines and expect to complete more than 60 LEAP inductions this year. LEAP sales in the third quarter nearly doubled sequentially from Q2. Importantly, the long-term demand outlook for LEAP is getting even more robust with multiple wins this quarter and a large number of sizable opportunities in the pipeline.

With our recent wins, our planned 2026 slots are rapidly filling up and we continue to gain even more confidence that our LEAP revenues alone will reach $1 billion annually in the next few years. Moving to our other growth platform investments. The CFM56 expansion at our DFW facility is also progressing well with strong bookings momentum, including a significant 3-year award from a major North American carrier during the quarter. Last quarter, we talked about the expansion of our business aviation facility in Augusta, Georgia. That expansion is now operational with the added capacity helping drive significant growth on our HTF7000 program, where we are seeing strong demand for our mid- and super midsized business jets and are positioned as the worldwide exclusive independent heavy overhaul provider on this engine platform.

We are also pleased to announce today the planned expansion of our MRO facility in Winnipeg, Canada. This facility is home to our CF34 program, where we expanded our license relationship with GE last year. We continue to see outsized demand and share gains on this platform and are adding approximately 70,000 square feet to the facility to capture that growth. This expansion will increase our Winnipeg footprint for both the CF34 and CFM56 programs by more than 40% as well as significantly increase our CRS insourcing opportunities. We broke ground on the expansion in September and expect to complete it in the second half of 2026. The investment is supported by contributions from the government of Manitoba with whom we've been working closely in planning this project, resulting in a total net investment for StandardAero in the high single-digit millions.

We view this as an attractive and high-return investment opportunity given the long-term contracts we already have in place to fill a large portion of this capacity. Our component repair business continues to execute, delivering record margins this quarter and driving 32% adjusted EBITDA growth year-over-year. The team is performing well on synergy capture from the ATI acquisition, and we've expanded our portfolio of OEM authorized lead repairs to more than 450. Additionally, we're now the first non-OEM provider of source-controlled LEAP 1A and 1B fan blade repairs, including structural edge and coating repairs and have stood up our dedicated LEAP fan blade repair cell at our CRS facility in Cincinnati.

Furthermore, our CRS segment was awarded new OEM authorizations on two critical source substantiated fan blade repairs on the CF34-8 engine, we are continuing to expand our portfolio of over 20,000 licensed component repairs, which we expect to drive third-party sales growth and strengthen the synergies between our CRS and Engine Services business. As a result of our continuing strong performance and execution on our strategic priorities, we are raising our full year 2025 guidance across all key metrics: revenue, earnings and free cash flow reflecting our confidence in the fourth quarter and continued strength across both segments.

Dan will detail this guidance shortly. In addition, our balance sheet remains a source of strategic flexibility and gives us ample liquidity for both organic investments and accretive M&A. As we move forward, our priorities are clear. First, continue to ramp our growth platforms efficiently. Second, drive productivity and cash conversion across the enterprise. Third, continue expanding our CRS repair capabilities and finally, continue investing organically and through acquisition in programs and capabilities that capitalize on our long-term growth opportunities.

With that, I'll turn the call over to Dan to discuss our financial performance and outlook with additional detail. Dan?

Thank you, Russ. I will begin on Slide 5 with some highlights from our third quarter results. For the third quarter ended September 30, 2025, and revenue of $1.5 billion, up 20.4% year-over-year, including 19% organic growth. Adjusted EBITDA increased to $196 million for the third quarter representing 16.1% growth with adjusted EBITDA margins of 13.1% compared to 13.5% year-over-year, driven by some lower-margin work scope mix, and the ramp of LEAP and CFM56 DFW programs as those come down the learning curve, partially offset by record CRS margins.

The prior period Q3 2024 included the onetime impact of our liability extinguishment that added $9.3 million to revenue and adjusted EBITDA and boosted margins by 60 basis points. Net income was $68 million, an increase of $52 million versus the prior year period, reflecting higher operating income, reduced interest expense and lower nonrecurring costs. Free cash flow was a $4 million use this quarter, a meaningful sequential improvement, but still reflective of a challenging supply chain across various platforms that continues to drive record levels of contract assets in our shops due to specific constrained parts.

Importantly, this is mainly a timing issue, and we expect a surge in shipping of completed engines in the fourth quarter, which will unwind a substantial portion of the increase in working capital experienced in the first 9 months of 2025. As such, we are confident in raising our free cash flow guidance for 2025. I'll dive a little deeper into cash flow shortly. Now moving into our two segments, starting with Engine Services on Slide 6. Engine Services revenue increased 21% to $1.32 billion in Q3, driven by the LEAP CFM56, CF34 and Turboprop platforms and the HTF7000 Business Aviation platform. Engine Services adjusted EBITDA increased 12% year-over-year, with margins of 12.5% and consistent with expectations given some lower-margin work scope mix in the quarter and a substantial growth on the LEAP and CFM56 DFW platforms. Keep in mind that in the quarter last year, Q3 2024, we had a liability extinguishment that added $9.3 million to revenue and EBITDA and boosted margins by 70 basis points. Without that onetime gain, Q3 2024 margins would have been 12.8%.

So excluding the currently dilutive effect of our growth platforms, we would have had significant year-over-year margin improvement this quarter. As Russ mentioned, we continue to expect both of these programs to become margin positive in early 2026. And as we move down the learning curve. On to Slide 7, CRS. Component repair services revenue increased 14% to $154 million in Q3. We Notable drivers included select military platforms, continued robust demand in our land and marine business for aeroderivative engines, which is benefiting from growth in applications like data centers and strong performance from our ATI acquisition. This was partly offset by the timing of some commercial volumes that moved to the right. CRS segment adjusted EBITDA grew 32% year-over-year, reaching $54 million Margins continued to see strong improvement and once again marked a record quarter. We did see some favorable mix in Q3 that we expect to normalize in the fourth quarter, which is reflected in our guidance and more on this shortly.

Now moving to Slide 8. Free cash flow for the quarter was a $4 million use, continuing to reflect the impact of increased working capital, which was up $108 million in the quarter tied to key constrained part delays that persist. A significant amount of this working capital increase is purely timing related, driven by parts availability on a number of our platforms, which has been particularly challenging year-to-date. As a result, we had many engines largely completed and awaiting specific parts before shipment to the customer and invoicing and thus, cash collection. This situation is reflected in our contract assets balance sheet line item, which has increased $300 million over the last 12 months, with a vast majority tied to certain commercial programs. However, the good news is this is purely a matter of timing. The situation is improving, and we expect a significant unwind in Q4. As such, we expect cash flow in Q4 to be exceptionally strong and we are raising our full year free cash flow outlook by $15 million at the midpoint from our prior guidance as we are now expecting free cash flow for the full year 2025 to be in the range of $170 million to $190 million.

Along these lines, we also have some additional positive developments to share that will fundamentally improve the quality and sustainability of our margins and cash flow going forward. Over the past year, we have continued to execute on our goal of negotiating structural changes to several long-term customer contracts within our Engine Services segment. Historically, many of these contracts included a substantial amount of 0 or low margin material pass-through revenue. Material that sits in inventory and contract assets consumes significant cash and obscures our true operating performance. We have now made meaningful progress renegotiating several contracts that achieved structural changes to reduce or eliminate this pass-through activity, and we expect to see a clear positive impact in 2026.

As a result of these contract amendments, we now expect approximately $300 million to $400 million of material pass-through revenue to be eliminated next year. While it will appear to reduce our nominal top line growth rate at the outset, it will have minimal impact on EBITDA or earnings growth, resulting in higher reported margins that better reflect the true operating performance of these programs. Importantly, these changes will improve our working capital efficiency and free cash flow conversion over time as they take effect through 2026. Turning to Slide 9. Our leverage at the end of the quarter improved to 2.9x net debt to EBITDA and is down 2.4 turns from our leverage at the end of Q3 last year. We expect to continue to delever through organic earnings and cash flow growth with our long-term net leverage target unchanged at between 2 and 3x. At the current level, we have ample balance sheet capacity to conduct organic investments and accretive and strategic M&A.

Now to our guidance on Slide 10. As Russ mentioned earlier, we are increasing our outlook ranges across all 3 of our main metrics from our August earnings call to reflect our continued operational outperformance. When we provided initial guidance for 2025 back in March, we expect a 12% year-over-year revenue growth and 13% year-over-year adjusted EBITDA growth at the midpoint. Our new guidance calls for 14.5% revenue growth and 16.5% adjusted EBITDA growth at the midpoint. Expressed differently, we have increased our full year guidance relative to our initial outlook by 350 basis points for adjusted EBITDA growth. This has come about despite the challenging 2025 supply chain environment, we have referenced several times on this and prior calls.

We now expect 2025 Engine Services revenue of $5.27 billion to $5.31 billion which at the midpoint implies a 14% full year growth rate. For our Component Repair Services segment, we now expect 2025 revenue of $700 million to $720 million, which at the midpoint translates to a 20% growth rate. On EBITDA, we have adjusted our 2025 Engine Services segment adjusted EBITDA margin guidance to 13.2% and are raising our 2025 component repair segment adjusted EBITDA margin from about 28.3% to 29%. This drives an increase to our total company 2025 revenue guidance to a range of $5.97 billion to $6.3 billion. Our 2025 adjusted EBITDA guidance increases to a range of $795 million to $815 million. As I mentioned before, we are also raising our free cash flow guidance for the year to $170 million to $190 million as we are confident in our Q4 cash generation as earnings continue to grow and working capital unwinds.

With that, I'll now turn it back over to Russ to wrap things up.

Thank you, Dan. This call marks an important milestone for us as we recently completed our first full year as a publicly traded company last month. We continue to be pleased with the performance of the business which is well ahead of the targets we set in advance of the IPO. And we're optimistic about the prospects for StandardAero through this year and into the future with a positive market backdrop and the continued relentless focus on execution that's been a hallmark of our business since it was founded 114 years ago.

That concludes our remarks for Q3. And with that, operator, we're now ready to move to the Q&A session.

[Operator Instructions]. Our first question comes from the line of [ Michael Rome ] with Truist Securities.

Nice results. Thanks -- not sure Russ or Dan, I think I heard this. LEAP, are we now targeting $1 billion in revenues next couple of years? I think the previous target was 2030?

Yes. In the next few years, meaning towards the end of the late '29, '30 time frame.

Okay. So still there, no change.

No change. But because we approach '26, '29 starts getting a lot closer.

Got it. Yes, makes sense. And then just the confidence level on the cash flow, I mean, you mentioned the contract assets with receivables or inventory up $185 million sequentially. What are the parts that are causing the choke points there? Do you already have them in stock? And I mean, raising the free cash flow guidance, I guess you've got good line of sight and confidence there.

Yes, we do listen, first of all, Q3 would have been at my sort of my expectation level if it weren't for about a dozen engines that just slipped into Q4 in terms of shipment. And all of that is really due to the constrained parts specific constrained parts primarily around forgings and castings. As a result, we have a line of sight on the engines that we'll ship in Q4 and result in that outcome. We're seeing the depth of delay on some of these constrained parts get better. As a matter of fact, that's been the core issue all year is even though on-time delivery might be improving for the OEs on certain constrained parts for me, the depth of delay got worse. So as that begins to improve, it's just a few parts on several hundred engines that result in the cash flow improvement quarter-over-quarter.

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

Nice results. maybe Dan or Russ, the adjustments you've made in some of your long-term contracts, which, obviously, I think you called out $300 million to $400 million of revenues eliminated next year at 0 margin. Do you see all of that benefit in 2026? Or how much of that maybe then bleeds into 2027 as well?

Yes. Most of it happens in 2026. So it starts to feather in. First of all, the contracts change. I've also got to burn down existing inventory, but we believe over these contracts, the $300 million to $400 million accrues as a reduction of revenue year-over-year in 2026.

Okay. That's great. And can you remind us what's the backlog on your LEAP business? I know you've called that out in the more recent quarters. And is there a reason maybe you're not giving it [indiscernible]. Can you give us an update on that?

Yes. During the quarter, Ken, I think we reported last time that we were a little over $1 billion in backlog, and we're seeing about 5% growth this quarter.

Your next question comes from the line of Gavin Parsons with UBS.

I just want to go back to supply chain for a second. What unlock there? Is your sense that that's sustainable? Or was that just kind of a surge or a reallocation of parts maybe amongst customers?

I don't think it's going to be a surge of parts. During the year, I had this depth of delay on the constrained parts. That really got bad over the summer. We're seeing these constrained parts and they really are the smallest part of our supply chain that's holding up these very large dollar values of, in particular, contract assets. So you'll see that the contract assets unwind as these come in. It's forgings and castings, it's the same characters. And so it is true that the supply chain overall is getting somewhat better. But if it doesn't get better on my constrained parts for standard aero engines sitting in the shop, those engines don't ship.

We are seeing that occurring now. As a matter of fact, there's a discrete list of engines with ship dates on them that makes us pretty confident that all of this will unwind.

This is an important part of our measurement system because people tend to focus on the measurement of on-time delivery, but on-time delivery only tells part of the story. You really do have to look at a second order measure, which is we call depth of delay, a lot of other companies use that same terminology. And the reason for that is because if you are 2 days late, versus 2 months late, that's a big difference. But in the on-time delivery measure, they both count the same. So your on-time delivery may not be changing or may move one point. So you have to look to the next -- the second order, which is your depth of delay. And if you see the delays that were 30 days now becoming 7 days and 5 days, then that gives you confidence, you know that the supply chain, in fact, is getting closer to supporting the actual line flow that we need that we use for our forecasting.

So that's what gives us confidence. We saw the depth of delay actually increase over the summer, and then it started drawing back. So we feel comfortable that the supply chain is, in fact, improving. Even though we've not seen all of those parts flush completely through to us, we have good line of sight.

I appreciate the detail. I guess speaking of days, when you think about long-term cash flow conversion, do you guys have a target DSO and how much cash is this 1 day?

Yes. I mean we're going to -- we've said before, we're going to be 80% to 90% free cash flow conversion company on net income, and that hasn't changed. That's the DSO, if that's what you're referring to, is not the driver. We get paid on time. DSOs are great. Our terms are typically what you'd expect in this industry. That's not the issue. It really is related to the supply chain on a ton of demand. But supply chain as it relates to some specific constrained parts. That's what the -- as that gets better over time, that will be the trigger for sustainable cash flows at the levels I'm talking about.

Our next question comes from the line of Myles Walton with Wolfe Research.

I was wondering, if you could you could start with CRS. And the revenue outlook was trimmed at the top end. Was that an internalization of the sales? Is that any deterioration in the core outlook?

I didn't understand the first part. There's not a deterioration of the core outlook. If you're asking about insourcing...

[indiscernible] 700 to 720.

All right. No. I mean it's a lumpy business. We're really excited about a lot of the growth we're getting in particular from the ATI acquisition. Land and Marine had a fantastic quarter. So did the LEAP revenues were up really strong as a lot of that work is getting in-sourced. And the military platforms are great. On the accessory side and the commercial side, it's lumpy. And it's kind of the same issue that we have on the MRO side of our house. Remember, my customer -- my third-party customers for CRS business are MRO operators themselves. And when they see constrained parts issues, that bleeds into their demand for component repair services as well. So a lot of the dynamics that my MRO customers are having with supply chain issues are the same issues that flow through to CRS.

But no, we're very bullish about the business. It drove strongly in-sourcing activities up. Like I said, a lot of the -- this business has 20,000 authorized repairs. And to Russ's point, that's growing rapidly no concerns here over the medium term.

Okay. And the $300 million to $400 million reduction in sales from not having to pass through can you translate that to a benefit explicit on cash that you don't have to hold or maintain? Is there a direct working capital liquidation that you have in 2026 as a result?

Yes. It does have a free cash flow benefit. And by the way, like personally, I'm super excited that we're making progress on this. We've been talking about this for a long time. The material pass-through overhang, depressing our margins. And now we're beginning to show the true underlying margins of the ES segment. How does it benefit cash flow? It will further into 2026 as the existing inventory winds down. And then the real benefit we'll see the significant benefit we'll see is in 2027. There was a fair amount of discussion about this during the run-up to the IPO, Myles. And we view this as -- we talk about this. And in my opinion, this has promises made, promises kept. We said we were going to do this.

And in fact, we've made very good progress. And like Dan said, moving this kind of revenue away from the balance sheet, it helps to illuminate the true financial and operational performance of the underlying business, and that's exactly why we've done it.

Yes. No, I completely concur makes a ton of sense. Is there platforms or customers specifically who are more interested in this than not?

I wouldn't say that. It's been a theme in a lot of the contracts that have been put in place over the last 15 years. And so really, there's application for this as these contracts come up for renegotiation and renewal, and we're viewing this as something that we can pursue across all of our various customers. It's not just limited to 1 or 2.

Our next question comes from the line of Kristine Liwag with Morgan Stanley.

Good afternoon, everyone. I just wanted to follow up on your discussion on the supply-constrained parts. So regarding your visibility, like how much visibility do you have that you're going to get these parts available to you this year and also look next year when we look at the industry, demand from the OEs continue to go up. aftermarket's also very strong. Are you looking at your procurement process a little differently to make sure that you can have access to these parts?

First of all, visibility is strong for Q4. Otherwise, I wouldn't be raising my raising guidance on cash flow. So we feel really good about those engines shipping what will we do differently in the future? Yes. You should -- we are making some supply chain changes as it relates to constrained parts ordering those differently However, our pleasure, Kristine, this constrained parts can change quarter-to-quarter. If you've looked into it into the forging and casting suppliers, it can change quarter-to-quarter what exactly the constraint is. But I'm confident that we'll have our Q4 cash flow improvement, and we will have strong cash flow next year.

Great. And following up on the LEAP engine. You've now done quite a few of these engines going through your shop. Can you provide some qualitative or any sort of quantitative information regarding what you've learned so far how the processes versus what you had planned? And when you think about the potential cost reduction you could have over time in servicing these engines, are there areas that have set out to you so far?

Yes. Thanks. Good question, Kristine. Still we're still in low rate initial production. We're kind of in our first year of full production. So we're coming down the learning curve very quickly. We are learning lots of things. At the front end of the business, the backlog is really strong. The RFP environment is very busy. We're getting more than our fair share of wins here. And what we're beginning to see is more PRSV full performance shop visits versus the -- early on, it was very heavily biased towards CTM hospital business, lower work scope visits. So the fuller work scopes are now beginning to come through.

That's important because it's really those engines that advance us down the learning curve and give us the full cycles of learning. Early on, we said that our experience with a new platform like this, Typically, we start reaching an equilibrium state after about 3 years. And we are 1 year into it, and we are coming down the learning curve exactly as anticipated. And that's why the second year, which will be next year, you'll see these things become margin positive. And then in the third year, you'll see these things start approaching accretive levels at the enterprise or at the company level. So we're happy with the progress that we're making. As we come down the learning curve, the other impact that has is it creates more capacity for us. We're not -- we don't have to spend as many hours on a set work scope, and that gives us essentially free capacity. So no surprises we're actually quite happy with how this program is progressing.

Our next question comes from the line of Seth Seifman with JPMorgan.

Thanks very much, and good afternoon. I want to check in on the engine services. Is there anything you could say with regard to the mix in Q4, it looks like we'll see the margin rate step kind of back up above 13%, but fairly big revenue quarter. Based on your comments on LEAP, it seems like LEAP is growing pretty quickly. So just in terms of the ability to kind of see that uptick in the sequential margin, is there any kind of mix element to that you point out?

Yes. Thanks, Seth. First of all, great quarter for Engine Services. If you look at -- excluding that prior period item and excluding the effect of the ramp, margins at ES actually accreted 70 basis points year-over-year in the quarter. So fantastic. In Q4, we're going to see better mix out of some of our platforms, primarily on the [ biz av ] side and some of the military programs is LEAP and CFM56, both those programs as they grow, they're growing at 0% margins. And that will be the case until early 2026. And we feel really good about those turning into positive margins in '26 and then marching their way up the learning curve. So super excited about that. But quarter-over-quarter, we're going to see benefit. And like I said, some of the mix on some of our platforms in military biz av.

Okay. Okay. Great. And then really, just more of a clarification on the last part. I think you said earlier that you expect to see just about all of the 300 to 400 million impact of changes in contract terms in '26, but also that they would feather in as inventory on those particular contracts and as your work on the existing contract winds down. Does that mean there's a stub that's left to affect 2027 revenue and margin?

Yes, right. So what happens is the cash impact doesn't come as fast as the earnings -- the revenue impact because I've got different turns on each of these engine platforms. They all turn differently. So that's one. Two, I'm going to burn down my current inventory on hand. And so you'll see the cash impact begin in '26 and get really strong at '27.

Okay. But no more revenue and margin impact beyond 2027?

Great question. No, thanks for clearing that up. It is a onetime impact. So you reset the level with these particular contracts to lower material pass-through and then you're done. Then you go forward on a normalized run rate.

Yes, you don't recreate that in your forward contract.

But the margin, of course, the margin benefit is ongoing.

Your next question comes from the line of Sheila Kahyaoglu with Jeffries.

Good afternoon, guys, and thank you for the time. Maybe if you could talk about Business Aviation, it just drove some of the guidance revenue increase across end markets. How do we think about what's surprised the upside how much of the HTF7000 capacity is now at full run rate? And how do you think about the growth of that business going forward in 2016?

Yes. Thanks, Sheila. We're actually quite excited about that particular end market. If you look at flight hours for BizAv, they continue to increase. And if you look at the concentration of where those flying hours are, they're in the larger aircraft, which is where we're at on many of the engines that we work on, in particular, the HTF7000, where we've got the best possible position as being the worldwide independent holder of that license along with Honeywell. And we're seeing those aircraft platforms are just as fast as they can be built and the flying hours are continuing to go up. So that's why we saw that coming. And we've experienced that over the last couple of years as the embedded base for the HTF7000 continues to grow.

And that's why we made the investment developed program with the state of Georgia and the Economic Development Council to expand the facility there in Augusta, where our HTF7000 engine shop is at primary one. And we opened that new facility just a couple of months ago, and it's pretty much full already. So it's allowed us to take on more aircraft and bigger aircraft, which generally have bigger work scopes as well as more of those HTF7000 engines. And this engine is going to be the predominant BizAv engine that you're going to see in the market for the next 20 or 30 years. So we're excited that we're on the front end of this thing. We move quickly. We have a really strong unique exclusive position on this program.

And overall, our business aviation group is out in front of this and the relationships we have with our customers are excellent. We're able to bring in new customers on the larger aircraft like Gulfstream class aircraft that we really just -- we had limited access to before because of the facilities. But now that we've opened up that additional capacity gives us access to the fastest-growing portion of that end market.

Yes. Just to clarify, we were just down in the Augusta facility just a couple of weeks ago. So the airframe shop is full, right? It's full of these super midsized jets. The engine shop is ramping, right? So that's what's going to provide the strong revenue growth in 2016 and beyond is the engine shop ramping up. So there's a lot of pent-up demand there that we're now going to be able to fully take advantage of.

Can I just ask one more follow-up on the cash flow if that is possible just to better understand the contract adjustment. Why would an airline engine OEM agree to this change? And how does that like pass-through change work, I guess, and impact the free cash flow?

Sure. So it's really no difference, if not some advantage to the operator. So the operator today purchases the material from the OE through StandardAero with a small handling fee. And we talked about that before, right? Low single-digit margins on this. So that will go away that incremental profit that I'm getting, and they will work directly with DOE, which really for the end customer is no change to a positive impact for them. So it's -- it hasn't been -- it's a long negotiation, but it's not -- it is value accretive to the end customer for sure.

Our next question comes from the line of Jordan Lyonnais with Bank of America.

I wanted to just touch on the M&A pipeline. I know you guys have said it's robust. So where are you looking to supplement the portfolio now? And what are you seeing for valuations?

This is Alex, by the way. The same as in past quarters where there's a lot out there -- and we're evaluating everything we see and just waiting for the right one to jump on. So no change really. There continues to be quite a few things out there. There's just a very fragmented industry with a lot of different opportunities and not everyone is a perfect fit.

There are no further questions at this time. I'd like to pass the call back over to Russell for any closing remarks.

Thanks, Alicia. I appreciate everybody's continued support. We're real happy with the progress. Looking forward to a strong full year here and real happy to be part of your public market coverage and StandardAero will continue to deliver as promised. So thanks, everyone. Appreciate your continued support. That is all.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.