Loar Holdings Inc

Previous wording

This Quarterly Report on Form 10-Q contains both historical information and, “forward-looking statements”within the meaning of Section 21E of the Securities Exchange Act of 19.4, as amended (the Exchange Act), and 27A of the Securities Act of 1933, as amended. All statements other than statements of historical fact included that address activities, events or developments that we expect, believe or anticipate will or may occur in the future are forward-looking statements, including, in particular, the statements about our plans, objectives, strategies and prospects regarding, among other things, our financial condition, results of operations and business. We have identified some of these forward-looking statements with words like “believe,” “may,” “will,” “should,” “expect,” “intend,” “plan,” “predict,” “anticipate,” “estimate” or “continue” and other words and terms of similar meaning. These forward-looking statements may be contained throughout this Quarterly Report on Form 10-Q. These forward-looking statements are based on current expectations about future events affecting us and are subject to uncertainties and factors relating to, among other things, our operations and business environment, all of which are difficult to predict and many of which are beyond our control. Many factors mentioned in our discussion in this Quarterly Report on Form 10-Q, including the risks outlined under “Risk Factors,” will be important in determining future results. Although we believe that the expectations reflected in these forward-looking statements are reasonable, we do not know whether our expectations will prove correct. They can be affected by inaccurate assumptions we might make or by known or unknown risks and uncertainties, including those described under “Risk Factors” in the Quarterly Report on Form 10-Q. Since our actual results, performance or achievements could differ materially from those expressed in, or implied by, these forward-looking statements, we cannot give any assurance that any of the events anticipated by these forward-looking statements will occur or, if any of them does occur, what impact they will have on our business, results of operations and financial condition. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date they are made. We do not undertake any obligation to update these forward-looking statements or the risk factors contained in this Quarterly Report on Form 10-Q to reflect new information, future events or otherwise, except as may be required under federal securities laws.

Current wording

This Quarterly Report on Form 10-Q contains both historical information and, “forward-looking statements”within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act), and 27A of the Securities Act of 1933, as amended. All statements other than statements of historical fact included that address activities, events or developments that we expect, believe or anticipate will or may occur in the future are forward-looking statements, including, in particular, the statements about our plans, objectives, strategies and prospects regarding, among other things, our financial condition, results of operations and business. We have identified some of these forward-looking statements with words like “believe,” “may,” “will,” “should,” “expect,” “intend,” “plan,” “predict,” “anticipate,” “estimate” or “continue” and other words and terms of similar meaning. These forward-looking statements may be contained throughout this Quarterly Report on Form 10-Q. These forward-looking statements are based on current expectations about future events affecting us and are subject to uncertainties and factors relating to, among other things, our operations and business environment, all of which are difficult to predict and many of which are beyond our control. Many factors mentioned in our discussion in this Quarterly Report on Form 10-Q, including the risks outlined under “Risk Factors,” will be important in determining future results. Although we believe that the expectations reflected in these forward-looking statements are reasonable, we do not know whether our expectations will prove correct. They can be affected by inaccurate assumptions we might make or by known or unknown risks and uncertainties, including those described under “Risk Factors” in the Quarterly Report on Form 10-Q. Since our actual results, performance or achievements could differ materially from those expressed in, or implied by, these forward-looking statements, we cannot give any assurance that any of the events anticipated by these forward-looking statements will occur or, if any of them does occur, what impact they will have on our business, results of operations and financial condition. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date they are made. We do not undertake any obligation to update these forward-looking statements, or the risk factors contained in this Quarterly Report on Form 10-Q, to reflect new information, future events or otherwise, except as may be required under federal securities laws.

Previous wording

On April 29, 2024, we completed our IPO in which we issued and sold 12.65 million shares of our common stock at an IPO price of $28.00 per share. We received net proceeds from the IPO of $326.1 million after deducting underwriting discounts and offering costs.

Current wording

On April 29, 2024, we completed our IPO in which we issued and sold 12.6 million shares of our common stock at an IPO price of $28.00 per share. The Company received net proceeds from the IPO of approximately $325.7 million after deducting underwriting discounts, commissions and other offering costs of $28.5 million.

Previous wording

As we look to the remainder of 2024, we anticipate net sales growth to be driven by organic growth, in particular the conversion of high levels of backlog of our existing products, and the impact from strategic acquisitions. Backlog primarily consists of firm orders for products that have not yet shipped. Additionally, continued inflationary pressures and supply chain disruptions may lead to higher material and labor costs. These pressures and disruptions have not had a material effect on our results of operations or capital resources, and we do not expect them to materially affect our outlook or business goals. During 2024, we have continued and plan to continue our commitment to develop new products and services, further market penetration, and pursue an aggressive acquisition strategy while seeking to maintain our financial strength and flexibility.

Current wording

As we look to the remainder of 2024, we anticipate net sales growth to be driven by organic growth, in particular the conversion of high levels of backlog of our existing products, and the impact from strategic acquisitions. Backlog primarily consists of firm orders for products that have not yet shipped. Continued inflationary pressures and supply chain disruptions may lead to higher material and labor costs although these pressures and disruptions have not had a material effect on our year-to-date results of operations or capital resources, and we do not expect them to materially affect our outlook or business goals. During 2024, we have continued and plan to continue our commitment to develop new products and services, further market penetration, and pursue an aggressive acquisition strategy while seeking to maintain our financial strength and flexibility.

Previous wording

The following table sets forth, for the three months ended March 31, 2024 and 2023, certain operating data of the Company, including presentation of the amounts as a percentage of net sales (in thousands unless otherwise indicated):

Current wording

The following table sets forth, for the three months and six months ended June 30, 2024 and 2023, certain operating data of the Company, including presentation of the amounts as a percentage of net sales (in thousands unless otherwise indicated):

Previous wording

Net acquisition sales of $9.3 million for the three months ended March 31, 2024 is made up of DAC and CAV which were acquired on July 3, 2023 and September 1, 2023, respectively. This represents 12.6% of the increase in total net sales for the three months ended March 31, 2024 compared to the three months ended March 31, 2023.

Current wording

Net acquisition sales of $10.5 million for the three months ended June 30, 2024 is made up of DAC and CAV which were acquired on July 3, 2023 and September 1, 2023, respectively. This represents 14.1% of the increase in total net sales for the three months ended June 30, 2024 compared to the three months ended June 30, 2023.

Previous wording

Cost of sales for the three months ended March 31, 2024 increased $9.2 million or 24.1% to $47.4 million compared to $38.2 million for the three months ended March 31, 2023. Cost of sales and the related percentage of net sales for the three months ended March 31, 2024 and 2023 were as follows (in thousands except for percentages):

Current wording

Cost of sales for the three months ended June 30, 2024 increased $13.0 million, or 35.5%, to $49.5 million compared to $36.5 million for the three months ended June 30, 2023. Cost of sales and the related percentage of net sales for the three months ended June 30, 2024 and 2023 were as follows (in thousands except for percentages):

Previous wording

Cost of sales for the three months ended March 31, 2024 increased 0.1% as a percentage of net sales to 51.6% from 51.5% in the comparable period last year. This increase in cost of sales is primarily attributable to the impact of costs related to the consolidation of certain operations as well as the DAC and CAV acquisitions which were not included in the results for the three months ended March 31, 2023. These increases were partially offset by the effect of our fixed overhead costs supporting higher production and sales levels.

Current wording

Cost of sales for the three months ended June 30, 2024 increased 1.6% as a percentage of net sales to 51.0% from 49.4% in the comparable period last year. This increase in cost of sales is primarily attributable to the impact of increased defense sales which typically have higher costs as a percentage of sales and the dilutive effects of an acquisition which was not included in the results for the three months ended June 30, 2023. These increases were partially offset by the leveraging of our fixed overhead costs supporting higher production and sales levels.

Previous wording

Selling, general and administrative expenses increased by $4.1 million to $22.9 million, or 24.9% as a percentage of net sales, for the three months ended March 31, 2024 from $18.8 million, or 25.4% as a percentage of net sales, for the three months ended March 31, 2023. Selling, general and administrative expenses and the related percentage of net sales for the three months ended March 31, 2024 and 2023 were as follows (amounts in thousands except for percentages):

Current wording

Selling, general and administrative expenses increased by $7.8 million to $27.3 million, or 28.1% as a percentage of net sales, for the three months ended June 30, 2024 from $19.5 million, or 26.3% as a percentage of net sales, for the three months ended June 30, 2023. Selling, general and administrative expenses and the related percentage of net sales for the three months ended June 30, 2024 and 2023 were as follows (amounts in thousands except for percentages):

Previous wording

Selling, general and administrative expenses declined by 0.5% as a percentage of net sales for the three months ended March 31, 2024 when compared to the same period in 2023. This was primarily driven by increased sales volume and the leveraging of fixed costs, offset by the DAC and CAV acquisitions in 2023.

Current wording

Selling, general and administrative expenses increased by 1.8% as a percentage of net sales for the three months ended June 30, 2024 when compared to the same period in 2023. This was primarily driven by stock-based compensation expense, research and development costs, and infrastructure costs related to being a public company, partially offset by the leveraging of fixed costs.

Previous wording

Transaction expenses for the three months ended March 31, 2024 and 2023 were $0.2 million. Transaction costs can fluctuate depending on the size and number of acquisitions in each year.

Current wording

Transaction expenses for the three months ended June 30, 2024 and 2023 were $0.9 million and $0.4 million, respectively. Transaction costs can fluctuate depending on the size and number of acquisitions in each year.

Previous wording

Operating income for the three months ended March 31, 2024, was $21.4 million, or 23.3% as a percentage of net sales, compared to $17.1 million, or 23.0% as a percentage of net sales for the three months ended March 31, 2023. The increase in operating income is due to the factors discussed above.

Current wording

Operating income for the three months ended June 30, 2024, was $22.2 million, or 22.9% as a percentage of net sales, compared to $17.6 million, or 23.8% as a percentage of net sales for the three months ended June 30, 2023. The increase in operating income is due to the factors discussed above.

Previous wording

Net income for the three months ended March 31, 2024 was $2.2 million, or 2.4% as a percentage of net sales, compared to the net loss for the three months ended March 31, 2023 of $7.5 million, or 10.1% as a percentage of net sales. The improvement in results is primarily due to the valuation allowance recognized in the year ago period in addition to the factors discussed above.

Current wording

Net income for the three months ended June 30, 2024 was $7.6 million, or 7.9% as a percentage of net sales, compared to net income for the three months ended June 30, 2023 of $0.6 million, or 0.8% as a percentage of net sales. The improvement in results is primarily due to the factors discussed above.

Previous wording

Net organic sales represent net sales from our existing businesses for comparable periods and exclude net sales from acquisitions. We include net sales from new acquisitions in net organic sales from the 13th-month after the acquisition on a comparative basis with the prior period. Net acquisition sales for the three months ended March 31, 2024 represent net sales from acquisitions that were completed in 2023 for which there are no comparable net sales during the prior year. We believe this measure provides an understanding of underlying sales trends as it provides net sales comparisons on a consistent basis. We do not believe our net sales are subject to significant seasonal variations. See Note 3, Acquisitions, of the Notes to Condensed Consolidated Financial Statements for further information on the Company’s acquisition activities.

Current wording

Net organic sales represent net sales from our existing businesses for comparable periods and exclude net sales from acquisitions. We include net sales from new acquisitions in net organic sales from the 13th-month after the acquisition on a comparative basis with the prior period. Net acquisition sales for the six months ended June 30, 2024 represent net sales from acquisitions that were completed in 2023 for which there are no comparable net sales during the prior year. We believe this measure provides an understanding of underlying sales trends as it provides net sales comparisons on a consistent basis. We do not believe our net sales are subject to significant seasonal variations. See Note 3, Acquisitions, of the Notes to Condensed Consolidated Financial Statements for further information on the Company’s acquisition activities.

Previous wording

Net organic sales for the three months ended March 31, 2024 increased $8.3 million, or 11.1%, to $82.5 million as compared to $74.2 million for the three months ended March 31, 2023. The increase in net organic sales was primarily related to increases in OEM total commercial sales ($6.0 million, an increase of 27.9%), aftermarket total commercial sales ($1.0 million, an increase of 3.3%) and defense sales ($1.2 million, an increase of 7.9%). The increase in OEM total commercial sales was driven primarily by increases in aircraft production across a significant portion of the platforms we supply, including general aviation, wide-body and narrow-body aircraft, as an improving supply chain has allowed us to deliver parts that were previously held because our customers were experiencing bottlenecks in other areas of their supply chains. The increase in aftermarket total commercial sales was primarily due to the continuing recovery in commercial air travel demand, partially offset by destocking at a handful of our distributors and end customers. The increase in defense sales was primarily driven by increased market share due to new product launches.

Current wording

Net organic sales for the six months ended June 30, 2024 increased $20.8 million, or 14.1%, to $169.0 million compared to $148.2 million for the six months ended June 30, 2023. The increase in net organic sales was primarily related to increases in defense sales ($8.6 million, an increase of 30.2%), OEM total commercial sales ($8.2 million, an increase of 17.9%) and aftermarket total commercial sales ($6.4 million, an increase of 11.4%). The increase in defense sales was primarily driven by increased market share due to new product launches. The increase in OEM total commercial sales was driven by increases in aircraft production for general aviation, wide-body and narrow-body aircraft, as an improving supply chain has allowed us to deliver parts that were previously held because our customers were experiencing bottlenecks in other areas of their supply chains. The increase in aftermarket total commercial sales was primarily due to the continuing recovery in commercial air travel demand, partially offset by destocking at a handful of our distributors and end customers.

Previous wording

The income tax provision for the three months ended March 31, 2024 decreased $7.8 million to $1.4 million compared to $9.2 million for the three months ended March 31, 2023. The decrease was a result of establishment of a valuation allowance against the Company’s deferred tax asset for its disallowed interest carryforward during the three months ended March 31, 2023.

Current wording

The effective income tax rate for the six months ended June 30, 2024 was 26.9% compared to 354.2% for the six months ended June 30, 2023. The decrease in the effective tax rate was primarily due to the establishment of a valuation allowance against the Company's deferred tax asset for its disallowed interest carryforward during the first quarter of 2023.

Previous wording

Our principal historical liquidity requirements have been for acquisitions, capital expenditures, servicing indebtedness and working capital needs. We fund our investing activities primarily from cash provided by our operating and financing activities. As of March 31, 2024, we had availability of $47 million of a Delayed Draw Term Loans Commitment (as defined below) and a $20 million revolving line of credit. Based on our current outlook, we believe that net cash provided by operating activities and available borrowings under our Credit Agreement will be sufficient to fund our cash requirements for at least the next twelve months. As we continue to expand our business, including by any acquisitions we may make, we may in the future require additional working capital for increased costs. See “Credit Agreement” (below) for additional detail regarding our financing activities.

Current wording

Our principal historical liquidity requirements have been for acquisitions, capital expenditures, servicing indebtedness and working capital needs. We fund our investing activities primarily from cash provided by our operating and financing activities. As of June 30, 2024, we had availability of $100 million of a Delayed Draw Term Loans Commitment (as defined below) and a $50 million revolving line of credit. Based on our current outlook, we believe that net cash provided by operating activities and available borrowings under our Credit Agreement will be sufficient to fund our cash requirements for at least the next twelve months. As we continue to expand our business, including by any acquisitions we may make, we may in the future require additional working capital for increased costs. See “Credit Agreement” (below) for additional detail regarding our financing activities.

Previous wording

Net cash used in investing activities in the three months ended March 31, 2024 and 2023 was due to capital expenditures of $2.4 million and $1.9 million, respectively.

Current wording

Net cash used in investing activities in the six months ended June 30, 2024 and 2023 of $3.8 million and $4.7 million, respectively, was primarily due to capital expenditures of $4.5 million and $4.7 million, respectively.

Previous wording

Our long-term debt consists of borrowings under our Credit Agreement, originally entered into on October 2, 2017.

Current wording

The Company’s long-term debt consists primarily of borrowings under its Credit Agreement.

Previous wording

On May 10, 2024, the Credit Agreement was amended and restated to extend the maturity date to May 10, 2030 and reduce the applicable margin by between 2.0 and 2.5 percentage points based on our leverage ratio. At our election, interest on loans will accrue at the SOFR rate plus the applicable margin of 4.75% or at the base rate plus the applicable margin of 3.75% as long as we maintain a leverage ratio of less than 5.5 to 1. We also increased the existing availability under our Delayed Draw Term Commitment to $100 million, which terminates if not drawn upon by May 10, 2026. In addition, the existing revolving line of credit under the Credit Agreement was replaced with a new revolving credit commitment of $50 million. The unused portion of the revolving line of credit carries a commitment fee of 0.375%. Loans outstanding under the revolving line of credit, if any, mature on May 10, 2029.

Current wording

On May 10, 2024, the Credit Agreement was amended to extend the maturity date to May 10, 2030 from April 2, 2026 and reduce the applicable margin by between 2.0 and 2.5 percentage points based on the Company’s leverage ratio. At the Company’s election, interest on loans will accrue at the SOFR rate plus the applicable margin of 4.75% or at the base rate plus the applicable margin of 3.75% as long as the Company maintains a leverage ratio of less than 5.5 to 1. The Company also increased the existing availability under its Delayed Draw Term Commitment to $100 million, which terminates if not drawn upon by May 10, 2026. In addition, the existing revolving line of credit under the Credit Agreement was replaced with a new revolving credit commitment of $50 million. The unused portion of the revolving line of credit carries a commitment fee of 0.375%. Loans outstanding under the revolving line of credit, if any, mature on May 10, 2029. The Company capitalized approximately $0.9 million in debt issuance costs associated with the amendment during the three and six months ended June 30, 2024.

Previous wording

We have future obligations under various contracts relating to debt and interest payments, finance and operating leases and our post-retirement benefit plan. During the three months ended March 31, 2024, there were no material changes to these obligations as described in our December 31, 2023 annual financial statements reported in the Company’s Form S-1 filed with the Securities and Exchange Commission.

Current wording

We have future obligations under various contracts relating to debt and interest payments, finance and operating leases and our post-retirement benefit plan. During the six months ended June 30, 2024, there were no material changes to these obligations as described in our December 31, 2023 annual financial statements reported in the Company’s Form S-1 filed with the Securities and Exchange Commission.

Previous wording

A complete and comprehensive discussion of our most critical accounting policies that require management to make judgments about matters that are inherently uncertain was included in Management’s Discussion and Analysis of Financial Condition and Results of Operations– Critical Accounting Estimates for the year ended December 31, 2023 which was filed with Amendment No. 2 to Form S-1 filed on April 23, 2024. Refer to Note 2, Basis of Presentation, of the notes to the condensed consolidated financial statements included herein for updates to disclosures of accounting standards recently adopted or required to be adopted in the future.

Current wording

A complete and comprehensive discussion of our most critical accounting policies that require management to make judgments about matters that are inherently uncertain was included in Management’s Discussion and Analysis of Financial Condition and Results of Operations– Critical Accounting Estimates for the year ended December 31, 2023 which was filed with Amendment No. 2 to Form S-1 on April 23, 2024. Refer to Note 2, Basis of Presentation, of the notes to the condensed consolidated financial statements included herein for updates to disclosures of accounting standards recently adopted or required to be adopted in the future.

Previous wording

The following table sets forth a reconciliation of net income (loss) to EBITDA, Adjusted EBITDA, and Adjusted EBITDA Margin for the three months ended March 31, 2024 and 2023 (in thousands unless otherwise indicated):

Current wording

The following table sets forth a reconciliation of net income (loss) to EBITDA, Adjusted EBITDA, and Adjusted EBITDA Margin for the three and six months ended June 30, 2024 and 2023 (in thousands unless otherwise indicated):

Previous wording

Other income for the three months ended March 31, 2023, of $48 thousand was related to a grant from the U.S. Department of Transportation under the Aviation Manufacturing Jobs Protection Program (AMJP). There was no other income during the three months ended March 31, 2024.

Current wording

Represents the reduction in the estimated contingent purchase price for the CAV acquisition in 2024 and a grant from the U.S. Department of Transportation under the Aviation Manufacturing Jobs Protection Program in 2023..

Previous wording

Represents the non-cash compensation expense recognized by the Company for our restricted equity unit awards.

Current wording

Represents the non-cash compensation expense recognized by the Company for equity awards.