StandardAero Inc (SARO) Q2 2025 Earnings Call Highlights: Strong Revenue Growth and Margin Expansion

Revenue: $1.53 billion, a 13.5% increase from the prior year. Adjusted EBITDA: $205 million, representing a 20% growth. Adjusted EBITDA Margin: Expanded by 80 basis points to 13.4%. Net Income: Increased to $68 million from $5 million in the prior year. Free Cash Flow: $31 million use, driven by growth investments. Engine Services Revenue: $1.35 billion, an 11.5% growth. Component Repair Services Revenue: $178 million, a 31% increase. Component Repair Services Adjusted EBITDA Margin: Expanded by 360 basis points to 29%. Leverage Ratio: Improved to 2.99 times net debt to EBITDA. 2025 Revenue Guidance: Increased to $5.875 billion - $6.025 billion. 2025 Adjusted EBITDA Guidance: Increased to $790 million - $810 million.

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Release Date: August 13, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

StandardAero Inc (NYSE:SARO) reported a 13.5% increase in revenue and a 20% increase in adjusted EBITDA compared to the prior-year period. The company experienced strong demand across its key end markets, including commercial aerospace, business aviation, and military sectors. Margins expanded by 80 basis points year over year to 13.4%, driven by sales growth, favorable mix, pricing, and productivity initiatives. The Component Repair Services segment delivered a record margin this quarter, contributing significantly to overall business performance. StandardAero Inc (NYSE:SARO) increased its 2025 guidance, expecting double-digit revenue growth and adjusted EBITDA margin expansion.

Negative Points

The ramp-up of new growth platforms, such as the LEAP program, is currently a near-term headwind to margins. Free cash flow was a $31 million use in the quarter, impacted by higher working capital and CapEx investments. The company faces ongoing supply chain challenges and macroeconomic uncertainties. The LEAP and CFM56 programs are currently margin-dilutive as they ramp up, impacting overall profitability. There is a significant build-up of working capital, particularly due to the growth ramp for the LEAP and CFM56 programs.

Q & A Highlights

Q: How should we think about the revenue cadence for Engine Services, given the higher-than-expected revenues in Q2? A: Russell Ford, CEO: The revenue guidance has been increased based on the strength of the Engine Services segment, particularly the CF34 program. The top growth drivers remain consistent, and the expectations align with earlier projections, especially for LEAP. We are confident in the second half and the guidance provided.

Story Continues

Q: Can you quantify the margin dilution from new programs and how it might evolve? A: Daniel Satterfield, CFO: The company expanded margins by 80 basis points in the quarter, which would have been higher without the ramp programs. The losses on these programs are narrowing significantly, and we expect them to become profitable late this year or early next year. The margin drag is known and expected.

Q: How is the growth for LEAP, CFM56, and CF34 programs progressing, and are you seeing work come in faster than expected? A: Russell Ford, CEO: LEAP is expanding throughput carefully to ensure precision. CFM56 benefits from existing process knowledge, allowing for strong throughput capacity. CF34 is seeing increased flow due to the maturity of the program and the surge of deliveries from 2015 to 2019.

Q: Can you describe the engine exchange strategy and its impact on inventory? A: Russell Ford, CEO: The engine exchange program is asset-light, involving a one-time investment for an exchange engine. It allows for swapping engines with customers, and the returned engine is overhauled and reused. This program leverages our CRS capabilities for cost-effective and fast processing.

Q: What is the status of the M&A pipeline, and how does it compare to organic growth opportunities? A: Alex Trapp, SVP of Business Development: The M&A pipeline is robust, and we are patient and disciplined in capital deployment. We prioritize opportunities that align strategically and offer strong returns. Organic investments, like the Dallas-Fort Worth expansion and Augusta facility, are also key focus areas.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.

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