StandardAero, Inc. (SARO) Earnings

Management highlights

- Overall Quarterly Performance • Delivered strong Q2 2026 results with 4.6% year-over-year total revenue growth ($1.6 billion total revenue), 12.3% adjusted EBITDA growth to $230 million, and a record adjusted EBITDA margin of 14.4% (up 100 basis points year-over-year). • Net income grew 43.7% year-over-year to $97 million, adjusted EPS grew 24% to $0.40, and free cash flow was a positive $50 million. • Two key growth programs, LEAP and CFM56 DFW, reached profitability in the quarter as planned, meeting a major milestone. • Received credit rating upgrades from both Moody's (to BA2) and S&P (to BB) during the quarter, citing strong strategic execution and stable growth. - End Market Demand • Commercial aerospace: Reported revenue grew 6% year-over-year, with underlying mid-teens growth after excluding eliminated pass-through revenue; backlog continued to grow, no demand impact from elevated jet fuel prices to date, and industry MRO capacity remains tight. • Business aviation: Revenue grew 6% year-over-year, supported by rising global flight activity and high fleet utilization driving MRO demand for midsize and super midsize platforms. • Military and helicopter: Reported revenue declined 3% year-over-year due to temporary input delays on select platforms, but long-term demand remains strong with growing defense budgets, rising operating tempo, and constrained industry capacity; volumes are expected to ramp in the second half of 2026. - Strategic Progress • LEAP program achieved profitability in Q2, continues to ramp and win new customers, with shop visit slots booked into the next decade; on track to hit $1 billion in annual revenue by the end of the 2020s, reaching several billion in annual revenue by the mid-2030s as heavier maintenance visits become more common. • CFM56 DFW Center of Excellence reached profitability in Q2, with growing backlog; CF34 expansion in Winnipeg remains on track for Q3 2026 completion, with new capacity already effectively sold out. • Signed an $180 million license expansion with a key OEM partner, spanning multiple turbofan and turboprop platforms; expected to ramp to $25 million in incremental annual adjusted EBITDA by 2029, with margins accretive to the company average, 80% of which will accrue to Engine Services. • Completed the acquisition of Unified Turbines component repair business, which enhances hot section repair capabilities and advances insourcing strategy; the new license expansion increases the strategic and financial benefits of this acquisition. • Returned $40 million to shareholders via share repurchases in Q2, bringing year-to-date repurchases to $100 million, consistent with the company's disciplined capital allocation framework.

Guidance

- Management raised full-year 2026 revenue guidance by $50 million to a new range of $6.375 billion to $6.5 billion, with the increase concentrated in the Engine Services segment. End market growth expectations are maintained: low double-digit to mid-teens for commercial aerospace (after adjusting for eliminated pass-through revenue), high single-digit to low double-digit for business aviation, and low double-digit for military and helicopter, with military growth weighted to the second half of the year. - Adjusted EBITDA guidance was raised to $885 million to $910 million, with Engine Services adjusted EBITDA expected to come in between $770 million and $785 million. Full-year 2026 CRS revenue and adjusted EBITDA guidance are reiterated, with CRS margins expected to return to the high 20% range in the second half as temporary pressure dissipates. - Adjusted EPS guidance was raised to $1.50 to $1.57, with the increase driven by higher core earnings, a lower expected tax rate, and a reduced share count from repurchases. - Adjusted free cash flow guidance is maintained at $270 million to $300 million, excluding the $180 million license acquisition cost which is treated as M&A for capital deployment purposes. Full-year CapEx guidance is maintained at $100 million to $110 million. - Long-term, the company targets sustained double-digit adjusted earnings growth, combining top-line growth, margin expansion, and high-return capital deployment.

Segment performance

1. Engine Services: Revenue increased 4.0% year-over-year to $1.405 billion, representing 87.8% of total company revenue. Segment adjusted EBITDA increased 14.4% year-over-year to $204 million, with an adjusted EBITDA margin of 14.5% (up 130 basis points year-over-year). Reported growth was suppressed by the elimination of low-to-no margin material pass-through revenue, with underlying demand significantly stronger than headline growth. 2. Component Repair Services (CRS): Revenue increased 9.2% year-over-year to $195 million, representing 12.2% of total company revenue. Segment adjusted EBITDA was $51 million, down 0.9% year-over-year, with an adjusted EBITDA margin of 26.3% (down 270 basis points year-over-year). The margin decline was driven by temporary factors including work migration to internal back shops, inefficiencies from ramping new employees, and negative mix from military platform input delays.

Risks & headwinds

- Ongoing fluid and constrained aerospace industry supply chain dynamics, with continued delays in OEM spare part deliveries; management has built current guidance around the assumption of no near-term supply chain improvement, with any incremental improvement being upside rather than a required baseline. - Elevated and volatile jet fuel prices, which could eventually impact commercial air traffic and maintenance demand if high prices persist long-term; approximately 40% of the company's end markets are not sensitive to jet fuel price changes, limiting overall exposure. - Sustained elevated geopolitical uncertainty, which creates volatility in military operating tempo and leads to lags in maintenance demand generation from increased flight activity. - Temporary margin pressure in the CRS segment from ongoing capacity reconfiguration and labor ramping, though this is expected to resolve in the second half of 2026.

Analyst Q&A

• Q: How is Standard Aero navigating current aerospace supply chain constraints, and what is the trend for delays vs. improvement? /

  A: Management’s guidance assumes no recovery in OEM supply chains, and the company has proactively invested in internal component repair capabilities to work around disruptions. No further deterioration has been observed to date, and any supply chain improvement would be upside for results, and specifically for the CRS segment. The company manages materials planning around the longest lead time constrained parts and has improved contract asset (nearly complete engine) management to maintain throughput.

• Q: What is the long-term growth outlook for the LEAP program, and what is driving the expectation of several billion in annual revenue by mid-next decade? /

  A: LEAP remains on track to hit $1 billion in annual revenue by the end of the 2020s, as previously guided. As the fleet matures into the 2030s, work scopes will shift from lighter visits to heavier full performance restoration visits, which drive much higher per-visit revenue, pushing annual revenue to several billion. This expected growth includes contributions to both engine services and internal CRS business.

• Q: What is the nature of the new $180 million license expansion, and how often do these types of agreements occur? /

  A: The agreement is primarily new expansion, not just a renewal of existing business: it adds new engine variants and platforms that Standard Aero was not previously authorized to service, plus new component repair capabilities, and improved economics for existing work. Standard Aero’s existing OEM license agreements are long-term, and these expansion opportunities arise opportunistically when mutually beneficial terms can be reached with partners, rather than on a fixed regular schedule.

• Q: At what point would elevated jet fuel prices start to impact maintenance demand, and how exposed is the business? /

  A: Almost 40% of the portfolio is in non-fuel-sensitive end markets (notably military), so only the commercial segment has meaningful exposure. The typical pattern after a fuel price increase is that airlines first pass price increases to consumers via ticket prices, which have not yet impacted flight loads that remain in the mid-80% range. It would take an extended period of sustained high prices for airlines to reach the point of adjusting maintenance schedules, and the company is still very early in this cycle, so no impact is expected in the near term.

• Q: What is the outlook for long-term CapEx, and what long-term growth should investors expect? /

  A: Sustained maintenance CapEx will remain roughly 1% of revenue annually. The company has recently completed the bulk of major platform investments for LEAP and CFM56 DFW, so overall CapEx will be lower than in recent years, with the exception of smaller incremental capacity investments. Long-term, the company targets double-digit earnings growth (not just top-line revenue growth), relying on a mix of organic expansion, high-return investments like the recent license expansion, selective M&A, and margin expansion to deliver this target.