Form: 10-Q

Quarterly report pursuant to Section 13 or 15(d)

August 13, 2024

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ROC

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2024

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______________, ____ to _______________, ____

Commission File Number: 001-42030

 

Loar Holdings Inc.

(Exact name of registrant as specified in its charter)

 

Delaware

82-2665180

( State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer
Identification No.)

20 New King Street

White Plains, New York

10604

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (914) 909-1311

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Common Stock, par value $0.01 per share

 

LOAR

 

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

 

 

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. Yes

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No

 

As of August 12, 2024, the registrant had 89,703,571 shares of common stock, $0.01 par value per share, outstanding.

 

 

 

 


 

2


 

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

Loar Holdings Inc.

Condensed Consolidated Balance Sheets

(Unaudited, in thousands except share amounts)

 

 

 

June 30, 2024

 

 

December 31, 2023

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

73,203

 

 

$

21,489

 

Accounts receivable, net

 

 

60,612

 

 

 

59,002

 

Inventories

 

 

84,944

 

 

 

77,962

 

Other current assets

 

 

14,490

 

 

 

11,830

 

Income taxes receivable

 

 

336

 

 

 

393

 

Total current assets

 

 

233,585

 

 

 

170,676

 

Property, plant and equipment

 

 

70,754

 

 

 

72,174

 

Finance lease assets

 

 

2,310

 

 

 

2,448

 

Operating lease assets

 

 

5,959

 

 

 

6,297

 

Other long-term assets

 

 

14,065

 

 

 

11,420

 

Intangible assets, net

 

 

301,063

 

 

 

316,542

 

Goodwill

 

 

472,589

 

 

 

470,888

 

Total assets

 

$

1,100,325

 

 

$

1,050,445

 

 

 

 

 

 

 

 

Liabilities and equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

16,116

 

 

$

12,876

 

Current portion of long-term debt

 

 

2,498

 

 

 

6,896

 

Current portion of finance lease liabilities

 

 

210

 

 

 

190

 

Current portion of operating lease liabilities

 

 

606

 

 

 

609

 

Income taxes payable

 

 

6,520

 

 

 

6,133

 

Accrued expenses and other current liabilities

 

 

22,089

 

 

 

24,776

 

Total current liabilities

 

 

48,039

 

 

 

51,480

 

Deferred income taxes

 

 

33,918

 

 

 

36,785

 

Long-term debt, net

 

 

248,159

 

 

 

528,582

 

Finance lease liabilities

 

 

3,291

 

 

 

3,401

 

Operating lease liabilities

 

 

5,490

 

 

 

5,802

 

Environmental liabilities

 

 

1,080

 

 

 

1,145

 

Other long-term liabilities

 

 

1,908

 

 

 

5,109

 

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity:

 

 

 

 

 

 

Preferred stock, $0.01 par value, 1,000,000 shares authorized and no shares issued or outstanding

 

 

 

 

 

 

Common stock, $0.01 par value, 485,000,000 shares authorized; 89,703,571 issued and outstanding at June 30, 2024

 

 

897

 

 

 

 

Additional paid-in capital

 

 

790,397

 

 

 

 

Accumulated deficit

 

 

(32,901

)

 

 

 

Accumulated other comprehensive income

 

 

47

 

 

 

 

Member's equity

 

 

 

 

 

418,141

 

Total equity

 

 

758,440

 

 

 

418,141

 

Total liabilities and equity

 

$

1,100,325

 

 

$

1,050,445

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

3


 

Loar Holdings Inc.

Condensed Consolidated Statements of Operations

(Unaudited, in thousands except per common share and per common unit amounts)

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2024

 

 

2023

 

 

2024

 

 

2023

 

Net sales

 

$

97,015

 

 

$

73,989

 

 

$

188,859

 

 

$

148,235

 

Cost of sales

 

 

49,489

 

 

 

36,517

 

 

 

96,900

 

 

 

74,728

 

Gross profit

 

 

47,526

 

 

 

37,472

 

 

 

91,959

 

 

 

73,507

 

Selling, general and administrative expenses

 

 

27,276

 

 

 

19,502

 

 

 

50,176

 

 

 

38,347

 

Transaction expenses

 

 

929

 

 

 

421

 

 

 

1,105

 

 

 

604

 

Other income

 

 

2,867

 

 

 

79

 

 

 

2,867

 

 

 

127

 

Operating income

 

 

22,188

 

 

 

17,628

 

 

 

43,545

 

 

 

34,683

 

Interest expense, net

 

 

10,636

 

 

 

16,568

 

 

 

28,370

 

 

 

31,970

 

Refinancing costs

 

 

1,645

 

 

 

 

 

 

1,645

 

 

 

 

Income before income taxes

 

 

9,907

 

 

 

1,060

 

 

 

13,530

 

 

 

2,713

 

Income tax provision

 

 

(2,266

)

 

 

(437

)

 

 

(3,640

)

 

 

(9,609

)

Net income (loss)

 

$

7,641

 

 

$

623

 

 

$

9,890

 

 

$

(6,896

)

Net income per common share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.09

 

 

n/a

 

 

$

0.11

 

 

n/a

 

Diluted

 

$

0.09

 

 

n/a

 

 

$

0.11

 

 

n/a

 

Weighted average common shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

87,534

 

 

n/a

 

 

 

87,534

 

 

n/a

 

Diluted

 

 

89,242

 

 

n/a

 

 

 

89,242

 

 

n/a

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) per common unit

 

n/a

 

 

$

3,061.24

 

 

n/a

 

 

$

(33,799.70

)

Weighted average common units outstanding - basic and diluted

 

n/a

 

 

 

204

 

 

n/a

 

 

 

204

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

4


 

Loar Holdings Inc.

Condensed Consolidated Statements of Comprehensive Income (Loss)

(Unaudited, in thousands)

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2024

 

 

2023

 

 

2024

 

 

2023

 

Net income (loss)

 

$

7,641

 

 

$

623

 

 

$

9,890

 

 

$

(6,896

)

Cumulative translation adjustments, net of tax

 

 

36

 

 

 

(119

)

 

 

204

 

 

 

290

 

Comprehensive income (loss)

 

$

7,677

 

 

$

504

 

 

$

10,094

 

 

$

(6,606

)

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

5


 

Loar Holdings Inc.

Condensed Consolidated Statements of Stockholders' Equity

(Unaudited, in thousands)

 

 

 

Loar Holdings, LLC and Subsidiaries (Prior to Corporate Conversion)

 

 

Loar Holdings Inc. Stockholders' Equity

 

 

 

 

 

 

Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Member's Equity

 

 

Shares

 

 

Amount

 

 

Additional Paid-in Capital

 

 

Accumulated Deficit

 

 

Accumulated Other Comprehensive Income

 

 

Total Equity

 

Balance, January 1, 2024

 

$

418,141

 

 

 

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

418,141

 

Net income

 

 

2,249

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,249

 

Stock-based compensation

 

 

87

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

87

 

Cumulative translation
    adjustments, net of tax

 

 

168

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

168

 

Balance, March 31, 2024

 

 

420,645

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

420,645

 

Stock-based compensation prior
    to Corporate Conversion

 

 

1,111

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,111

 

Reclassification of members
   equity upon Corporate
   Conversion

 

 

40,531

 

 

 

 

 

 

 

 

 

 

 

 

(40,542

)

 

 

11

 

 

 

 

Effect of the Corporate
   Conversion

 

 

(462,287

)

 

 

77,000

 

 

 

770

 

 

 

461,517

 

 

 

 

 

 

 

 

 

 

Issuance of common stock sold in
   initial public offering, net of
   offering costs

 

 

 

 

 

12,650

 

 

 

126

 

 

 

325,605

 

 

 

 

 

 

 

 

 

325,731

 

Issuance of common stock to
   Directors under the 2024
   Equity Incentive Plan

 

 

 

 

 

54

 

 

 

1

 

 

 

1,349

 

 

 

 

 

 

 

 

 

1,350

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

7,641

 

 

 

 

 

 

7,641

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

1,926

 

 

 

 

 

 

 

 

 

1,926

 

Cumulative translation
   adjustments, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

36

 

 

 

36

 

Balance, June 30, 2024

 

$

 

 

 

89,704

 

 

$

897

 

 

$

790,397

 

 

$

(32,901

)

 

$

47

 

 

$

758,440

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

6


 

Loar Holdings Inc.

Condensed Consolidated Statements of Member's Equity

(Unaudited, in thousands)

 

 

 

 

Member's Equity

 

Balance, January 1, 2023

 

$

421,974

 

Net loss

 

 

(7,519

)

Stock-based compensation

 

 

92

 

Cumulative translation adjustments, net of tax

 

 

409

 

Balance, March 31, 2023

 

 

414,956

 

Net income

 

 

623

 

Stock-based compensation

 

 

94

 

Cumulative translation adjustments, net of tax

 

 

(119

)

Balance, June 30, 2023

 

$

415,554

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

7


 

Loar Holdings Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited, in thousands)

 

 

 

Six Months Ended June 30,

 

 

 

2024

 

 

2023

 

Operating Activities

 

 

 

 

 

 

Net income (loss)

 

$

9,890

 

 

$

(6,896

)

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating
   activities:

 

 

 

 

 

 

Depreciation

 

 

5,408

 

 

 

4,983

 

Amortization of intangibles and other long-term assets

 

 

14,304

 

 

 

13,768

 

Amortization of debt issuance costs

 

 

692

 

 

 

1,724

 

Stock-based compensation

 

 

4,474

 

 

 

186

 

Deferred income taxes

 

 

(2,451

)

 

 

5,343

 

Non-cash lease expense

 

 

277

 

 

 

397

 

Refinancing costs

 

 

1,645

 

 

 

 

Other income

 

 

(2,867

)

 

 

 

Changes in assets and liabilities:

 

 

 

 

 

 

Accounts receivable

 

 

(1,714

)

 

 

(5,969

)

Inventories

 

 

(7,201

)

 

 

(9,397

)

Other assets

 

 

(4,550

)

 

 

(2,377

)

Accounts payable

 

 

3,428

 

 

 

1,906

 

Other liabilities

 

 

(3,123

)

 

 

(3,865

)

Environmental liabilities

 

 

(65

)

 

 

(29

)

Operating lease liabilities

 

 

(252

)

 

 

(407

)

Net cash provided by (used in) operating activities

 

 

17,895

 

 

 

(633

)

 

 

 

 

 

 

 

Investing Activities

 

 

 

 

 

 

Capital expenditures

 

 

(4,452

)

 

 

(4,731

)

Proceeds from sale of fixed assets

 

 

322

 

 

 

 

Proceeds from acquisition purchase price adjustment

 

 

289

 

 

 

 

Net cash used in investing activities

 

 

(3,841

)

 

 

(4,731

)

 

 

 

 

 

 

 

Financing Activities

 

 

 

 

 

 

Net proceeds from issuance of common stock

 

 

325,731

 

 

 

 

Payments of long-term debt

 

 

(286,349

)

 

 

(2,597

)

Proceeds from issuance of long-term debt

 

 

 

 

 

20,000

 

Financing costs and other, net

 

 

(1,676

)

 

 

(400

)

Payments of finance lease liabilities

 

 

(90

)

 

 

(72

)

Net cash provided by financing activities

 

 

37,616

 

 

 

16,931

 

 

 

 

 

 

 

 

Effect of translation adjustments on cash and cash equivalents

 

 

44

 

 

 

(272

)

Net increase in cash and cash equivalents

 

 

51,714

 

 

 

11,295

 

 

 

 

 

 

 

 

Cash and cash equivalents, beginning of period

 

 

21,489

 

 

 

35,497

 

Cash and cash equivalents, end of period

 

$

73,203

 

 

$

46,792

 

 

 

 

 

 

 

 

Supplemental information

 

 

 

 

 

 

Interest paid during the period, net of capitalized amounts

 

$

28,035

 

 

$

30,544

 

Income taxes paid during the period, net

 

$

5,596

 

 

$

4,131

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

8


 

Loar Holdings Inc.

Notes to Condensed Consolidated Financial Statements

1. Organization

Prior to April 16, 2024, Loar Holdings Inc. (the Company) operated as a Delaware limited liability company under the name Loar Holdings, LLC. On April 16, 2024, the Company converted to a Delaware corporation and changed its name to Loar Holdings Inc. (the Corporate Conversion). In the Corporate Conversion, all of the equity interests of the Company outstanding as of the date thereof were converted into shares of common stock. Specifically, holders of Loar Holdings, LLC units received 377,450.980392157 shares of common stock of Loar Holdings Inc. for each unit of Loar Holdings, LLC. The purpose of the Corporate Conversion was to reorganize the Company’s structure in advance of the public offering of common stock so that the entity offering the common stock to the public in the offering was a corporation rather than a limited liability company, so that the existing investors and new investors in the offering would own the Company’s common stock rather than equity interests in a limited liability company.

The registration statement related to the Company’s initial public offering (IPO) was declared effective on April 24, 2024, and the
Company’s common stock began trading on the New York Stock Exchange on April 25, 2024. On April 29, 2024, the Company
completed its IPO for the sale of
12.6 million shares of common stock, $0.01 par value per share, at a public offering 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.

 

2. Basis of Presentation

As used in this Quarterly Report on Form 10-Q, unless expressly stated otherwise or the context otherwise requires, the terms “Loar,” the “Company,” “we,” “us” and “our” refer to Loar Holdings Inc. and its subsidiaries, collectively.

Principles of Consolidation

The financial information included herein is unaudited; however, the information reflects all adjustments (consisting of normal recurring adjustments) that are, in the opinion of management, necessary for a fair presentation of the Company’s condensed consolidated financial statements for the interim periods presented. These financial statements and notes should be read in conjunction with the financial statements and related notes for the year ended December 31, 2023 included in Loar Holdings Inc. Amendment No. 2 to Form S-1 filed on April 23, 2024. As disclosed therein, the Company’s annual consolidated financial statements were prepared in conformity with generally accepted accounting principles in the United States (GAAP). Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been omitted pursuant to the rules and regulations of the United States Securities and Exchange Commission (SEC). The December 31, 2023 condensed consolidated balance sheet was derived from Loar Holdings, LLC’s audited financial statements for the year then-ended. The results of operations for the three and six months ended June 30, 2024 are not necessarily indicative of the results to be expected for the full year.

Recent Accounting Pronouncements

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which expands disclosures about reportable segments, and provides requirements for more detailed reporting of a segment’s expenses that are regularly provided to the Chief Operating Decision Maker (CODM) and included within each reported measure of a segment’s profit or loss. Additionally, ASU 2023-07 requires all segment profit or loss and assets disclosures to be provided on an annual and interim basis. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning one year later. Early adoption is permitted, and the amendments must be applied retrospectively to all prior periods presented. The adoption of this guidance will not affect the Company’s consolidated results of operations, financial position or cash flows, and the Company is currently evaluating the standard to determine its impact on the Company’s disclosures.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which requires a public business entity to disclose specific categories in its annual effective tax rate reconciliation and provide disaggregated information about significant reconciling items by jurisdiction and by nature. The ASU also requires entities to disclose their income tax payments (net of refunds) to international, federal, and state and local jurisdictions. The standard makes several other changes to income tax disclosure requirements. This standard is effective for annual periods beginning after December 15, 2024, and requires prospective application with the option to apply it retrospectively. The adoption of this guidance will not affect the Company’s consolidated results of operations, financial position or cash flows, and the Company is currently evaluating the standard to determine its impact on the Company’s disclosures.

 

9


 

3. Acquisitions

DAC Engineered Products, LLC

On July 3, 2023, the Company acquired Desser Aerospace’s Proprietary Solutions businesses from VSE Corporation (NASDAQ:VSEC; VSE) for $31.1 million in cash. The Company received $0.3 million during the three and six months ended June 30, 2024 related to an adjustment to the working capital calculation used to arrive at the final purchase price. The acquired entities operate as DAC Engineered Products, LLC (DAC). Under the purchase agreement, there is a potential future payout of up to $7.0 million to the seller related to achieving certain financial targets for 2024 and 2025. The fair value of the liability in connection with this contingent payout is de minimis. DAC’s products include, but are not limited to, carbon brake discs, steel brake discs, starter generators and vacuum generators, primarily for general aviation and regional jets.

The total purchase price was allocated to the underlying assets acquired and liabilities assumed based upon the estimated fair values at the date of acquisition in accordance with Accounting Standards Codification (ASC) 805, Business Combinations. The following table summarizes the final purchase price allocation of the estimated fair values of the assets acquired and the liabilities assumed at the transaction date (in thousands):

 

Assets acquired:

 

 

 

Current assets

 

$

3,768

 

Property, plant and equipment

 

 

763

 

Intangible assets

 

 

10,500

 

Goodwill

 

 

17,240

 

Deferred taxes

 

 

448

 

Total assets acquired

 

 

32,719

 

Liabilities assumed:

 

 

 

Current liabilities

 

 

1,341

 

Long-term liabilities

 

 

249

 

Total liabilities assumed

 

 

1,590

 

Net assets acquired

 

$

31,129

 

The results of operations of DAC are included in the Company’s condensed consolidated financial statements for the period subsequent to the completion of the acquisition.

Had the acquisition of DAC occurred as of January 1, 2023, net sales and income before income taxes on a pro forma basis for the three and six months ended June 30, 2023 would not have been materially different than the reported amounts.

CAV Systems Group Limited

On September 1, 2023, the Company, through its newly formed UK subsidiary, Change Acquisition Limited, acquired 100% of the stock of CAV Systems Group Limited (CAV), a leading provider of highly engineered ice protection and drag reduction systems for $29.0 million in cash. The Company recorded an additional $3.1 million in purchase price consideration that may be paid to the seller if CAV achieves certain financial targets for the years 2023 through 2026. During the three months ended June 30, 2024, the Company determined the estimated fair value of the contingent purchase price consideration should be reduced by $2.9 million and recorded this impact as other income on the condensed consolidated statements of operations. The maximum payout to the seller related to achieving these financial targets is $18.4 million.

 

10


 

The total purchase price was allocated to the underlying assets acquired and liabilities assumed based upon the estimated fair values at the date of acquisition in accordance with ASC 805, Business Combinations. The following table summarizes the preliminary purchase price allocation of the estimated fair values of the assets acquired and the liabilities assumed at the transaction date (in thousands):

 

Assets acquired:

 

 

 

Current assets

 

$

7,922

 

Property, plant and equipment

 

 

6,555

 

Intangible assets

 

 

9,884

 

Goodwill

 

 

12,809

 

Deferred taxes

 

 

100

 

Total assets acquired

 

 

37,270

 

Liabilities assumed:

 

 

 

Current liabilities

 

 

7,245

 

Long-term liabilities

 

 

1,019

 

Total liabilities assumed

 

 

8,264

 

Net assets acquired

 

$

29,006

 

The results of operations of CAV are included in the Company’s condensed consolidated financial statements for the period subsequent to the completion of the acquisition.

Had the acquisition of CAV occurred as of January 1, 2023, net sales and income before income taxes on a pro forma basis for the three and six months ended June 30, 2023 would not have been materially different than the reported amounts.

 

4. Revenue Recognition

All revenue recognized in the condensed consolidated statements of operations is considered to be revenue from contracts with customers.

Revenue is recognized in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services when control of the promised good or service is transferred to the customer. Substantially all of the Company’s revenue from contracts with customers is recognized at a point in time, which is generally upon shipment of goods to the customer.

The Company sells specialty aerospace components based on a customer purchase order, which generally includes a fixed price per unit. The Company satisfies the single performance obligation generally upon shipment of the goods, as this is when contractual control transfers to the customer and recognizes revenue at that point in time. Total revenues do not include taxes, such as sales tax or value-added tax, which are assessed by governmental authorities and collected by the Company.

Products are covered by a standard assurance warranty, generally extended for a period of 25 days to two years depending on the customer, which promises that delivered products conform to contract specifications. The Company does not offer refunds or accept returns, unless related to a defect or warranty related matter. The Company does not sell extended warranties and does not provide warranties outside of fixing defects that existed at the time of sale. As such, warranties are accounted for under ASC 460, Guarantees and not as a separate performance obligation.

Customers generally have payment terms between 30 and 90 days from the satisfaction of the performance obligations. As a practical expedient, the Company does not adjust the amount of consideration for a financing component, as the period between the transfer of goods or services and the customer’s payment is, at contract inception, expected to be one year or less.

 

11


 

Net sales by end market were as follows (in thousands):

 

 

 

Three Months Ended June 30,

 

 

 

2024

 

 

2023

 

 

 

OEM
Net Sales

 

 

Aftermarket
Net Sales

 

 

Total
Net Sales

 

 

OEM
Net Sales

 

 

Aftermarket
Net Sales

 

 

Total
Net Sales

 

Commercial Aerospace

 

$

14,299

 

 

$

26,894

 

 

$

41,193

 

 

$

13,702

 

 

$

20,211

 

 

$

33,913

 

Business Jet and General Aviation

 

 

17,438

 

 

 

9,725

 

 

 

27,163

 

 

 

10,430

 

 

 

6,308

 

 

 

16,738

 

Total Commercial

 

 

31,737

 

 

 

36,619

 

 

 

68,356

 

 

 

24,132

 

 

 

26,519

 

 

 

50,651

 

Defense

 

 

8,855

 

 

 

12,022

 

 

 

20,877

 

 

 

7,150

 

 

 

5,996

 

 

 

13,146

 

Other

 

 

3,451

 

 

 

4,331

 

 

 

7,782

 

 

 

5,066

 

 

 

5,126

 

 

 

10,192

 

Total

 

$

44,043

 

 

$

52,972

 

 

$

97,015

 

 

$

36,348

 

 

$

37,641

 

 

$

73,989

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended June 30,

 

 

 

2024

 

 

2023

 

 

 

OEM
Net Sales

 

 

Aftermarket
Net Sales

 

 

Total
Net Sales

 

 

OEM
Net Sales

 

 

Aftermarket
Net Sales

 

 

Total
Net Sales

 

Commercial Aerospace

 

$

30,492

 

 

$

52,043

 

 

$

82,535

 

 

$

25,913

 

 

$

43,130

 

 

$

69,043

 

Business Jet and General Aviation

 

 

33,645

 

 

 

19,132

 

 

 

52,777

 

 

 

19,690

 

 

 

12,787

 

 

 

32,477

 

Total Commercial

 

 

64,137

 

 

 

71,175

 

 

 

135,312

 

 

 

45,603

 

 

 

55,917

 

 

 

101,520

 

Defense

 

 

16,641

 

 

 

20,871

 

 

 

37,512

 

 

 

14,542

 

 

 

13,838

 

 

 

28,380

 

Other

 

 

7,751

 

 

 

8,284

 

 

 

16,035

 

 

 

9,656

 

 

 

8,679

 

 

 

18,335

 

Total

 

$

88,529

 

 

$

100,330

 

 

$

188,859

 

 

$

69,801

 

 

$

78,434

 

 

$

148,235

 

 

5. Inventories

Inventories consisted of the following (in thousands):

 

 

 

June 30, 2024

 

 

December 31, 2023

 

Raw materials

 

$

33,279

 

 

$

30,834

 

Work-in-process

 

 

28,127

 

 

 

25,394

 

Finished goods

 

 

23,538

 

 

 

21,734

 

Total

 

$

84,944

 

 

$

77,962

 

 

6. Property, Plant and Equipment

Property, plant and equipment consisted of the following (in thousands):

 

 

 

June 30, 2024

 

 

December 31, 2023

 

Land

 

$

12,312

 

 

$

12,312

 

Buildings and improvements

 

 

33,685

 

 

 

29,763

 

Machinery, equipment, furniture and fixtures

 

 

79,932

 

 

 

80,062

 

Total

 

 

125,929

 

 

 

122,137

 

Less: accumulated depreciation and amortization

 

 

(55,175

)

 

 

(49,963

)

Total

 

$

70,754

 

 

$

72,174

 

 

For the three and six months ended June 30, 2024 there were sales of property, plant and equipment of $0.3 million. There were no sales of property, plant and equipment during the three and six months ended June 30, 2023.

 

 

12


 

7. Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consisted of the following (in thousands):

 

 

 

June 30, 2024

 

 

December 31, 2023

 

Compensation and related benefits

 

$

10,111

 

 

$

12,926

 

Other

 

 

11,978

 

 

 

11,850

 

Total accrued expenses and other current liabilities

 

$

22,089

 

 

$

24,776

 

 

8. Long-Term Debt

The Company’s debt consisted of the following (in thousands):

 

 

 

June 30, 2024

 

 

December 31, 2023

 

Term loans

 

 

252,899

 

 

$

539,247

 

Less: unamortized debt issuance costs

 

 

(2,242

)

 

 

(3,769

)

Total net debt

 

 

250,657

 

 

 

535,478

 

Less: current portion

 

 

(2,498

)

 

 

(6,896

)

Long-term debt

 

$

248,159

 

 

$

528,582

 

 

The Company’s long-term debt at June 30, 2024 consisted of borrowings under its Credit Agreement, dated as of October 2, 2017, as amended from time to time (the Credit Agreement). On March 26, 2024, the Credit Agreement was amended to extend the termination date of the Delayed Draw Term Loan Commitment by approximately nine months, extending it from April 1, 2024 to December 31, 2024.

On May 3, 2024, the Company used a portion of the net proceeds from its IPO to voluntarily repay $284.6 million of aggregate principal amount of term loans under its Credit Agreement plus accrued interest of $0.3 million. The Company wrote off $0.8 million in unamortized debt issuance costs and expensed $0.8 million in refinancing costs associated with the amendment of the Credit Agreement. These charges are included in refinancing costs in the Condensed Consolidated Statements of Operations during the three and six months ended June 30, 2024.

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.

At June 30, 2024, there was $252.9 million outstanding under the Credit Agreement, and there remained availability of $100.0 million in Delayed Draw Term Loan Commitments and $50.0 million in Revolving Loans.

The Credit Agreement requires the maintenance of a quarterly leverage ratio. There are also certain non-financial covenants in place limiting us from, among other things, incurring other indebtedness, creating any liens on our properties, entering into merger or consolidation transactions, disposing of all or substantially all of our assets and payment of certain dividends and distributions. The Company was in compliance with all financial and non-financial covenants of the Credit Agreement as of June 30, 2024.

The Credit Agreement requires mandatory prepayments of the principal amount if there is excess cash flow, as defined, during a calendar year. The Credit Agreement permits voluntary principal prepayments, in whole or in part, at no premium.

 

9. Stock Compensation

Restricted Equity Unit Awards

Under the terms of the Loar Acquisition 13, LLC Amended and Restated Limited Liability Agreement, the Company was permitted to and did grant restricted equity units to eligible management of Loar Group. The consummation of the IPO was an event that triggered the vesting of any outstanding unvested equity units. At April 16, 2024, there were 552.5 unvested incentive units outstanding. The unrecognized compensation expense related to these incentive units of $1.1 million was recorded during the three months ended June 30, 2024.
 

 

13


 

2024 Equity Incentive Plan

On April 16, 2024, in connection with the IPO, the Board of Directors adopted, and the Company shareholders approved the 2024 Equity Incentive Plan (2024 Plan), pursuant to which employees, consultants and directors of the Company and employees, consultants and directors of affiliates performing services for the Company, including the executive officers, will be eligible to receive awards. Nine million shares of the Company's authorized shares of common stock have been reserved for future issuance under the 2024 Plan.

On April 24, 2024, the Company granted 53,571 fully vested shares to non-employee directors of the Company who purchased shares of common stock under the directed share program of the IPO. The shares granted represented a matching grant equal to 25% of the aggregate fair value of the purchased shares, up to a maximum aggregate matching grant equal to $500,000 per director (Matching Grant Shares). The Matching Grant Shares are restricted from sale prior to the third anniversary of the non-employee director’s stock purchase date. The stock awards were fully vested on their grant date and all compensation expense was recognized on the grant date. Since there are post-vesting restrictions, a Finnerty model was utilized to calculate a valuation discount from the market value of common shares reflecting the restriction embedded in the shares preventing the sale of the underlying shares for a three-year period of time. The calculation under the Finnerty model yielded a valuation discount of 10%. The Company recognized $1.4 million of stock compensation expense related to the Matching Grant Shares during the three months ended June 30, 2024.

On April 24, 2024, the Company granted 4.6 million options to purchase shares of common stock to certain employees. The options expire on the earlier of (i) ten years from the grant date or (ii) 90 days after termination of employment other than upon death, disability or cause. The weighted-average grant date fair value of these options was $11.25. The fair value of the stock options was estimated at the date of grant using a binomial lattice option-pricing model with the following weighted average assumptions:

 

Risk-free interest rate

 

4.65%

Expected dividend yield of stock

 

-

Expected volatility of stock

 

29.30%

 

The risk-free interest rate was based upon the U.S. Treasury bond rates with a term similar to the maturity date of the award. The Company will account for forfeitures as they occur and forfeiture estimates were not included in the valuation. The Company does not anticipate declaring and paying regular cash dividends in future periods; thus, no dividend yield assumption was used. As there was no trading history as of the grant date, the Company estimated the volatility of its stock based on selected guideline companies over a ten-year lookback period. The Company recognized $1.9 million of stock compensation expense related to stock options during the three months ended June 30, 2024. As of June 30, 2024, there was approximately $50.2 million of total unrecognized compensation expense related to non-vested awards expected to vest, which is expected to be recognized over a weighted-average period of 4.8 years.

 

10. Fair Value of Financial Instruments

The Company’s financial instruments consist primarily of cash and cash equivalents, accounts receivable, accounts payable, finance leases and debt. The carrying amounts of all financial instruments reported on the condensed consolidated balance sheets at June 30, 2024 and December 31, 2023 are considered to approximate fair value either due to the relatively short period of time between the origination of these financial instruments and their expected realization, or the interest rates associated with the debt obligations approximate current market rates.

 

11. Commitments and Contingencies

There are various lawsuits and claims pending against the Company incidental to its business. Although the final results in such suits and proceedings cannot be predicted with certainty, in the opinion of management, the ultimate liability, if any, will not have a material impact on the condensed consolidated financial statements.

 

 

14


 

12. Net Income (Loss) per Common Share and Common Unit

Net income (loss) per common share and common unit was computed as follows (in thousands, except net income per common share and net income (loss) per common unit amounts):

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2024

 

 

2023

 

 

2024

 

 

2023

 

Net income (loss)

 

$

7,641

 

 

$

623

 

 

$

9,890

 

 

$

(6,896

)

Denominator for basic and diluted earnings per common share:

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average common shares outstanding - basic

 

 

87,534

 

 

n/a

 

 

 

87,534

 

 

n/a

 

Effect of dilutive common shares

 

 

1,708

 

 

n/a

 

 

 

1,708

 

 

n/a

 

Weighted average common shares outstanding—diluted

 

 

89,242

 

 

n/a

 

 

 

89,242

 

 

n/a

 

Net income per common shares—basic

 

$

0.09

 

 

n/a

 

 

$

0.11

 

 

n/a

 

Net income per common shares—diluted

 

$

0.09

 

 

n/a

 

 

$

0.11

 

 

n/a

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Denominator for basic and diluted earnings per common unit:

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common units outstanding—basic

 

n/a

 

 

 

204

 

 

n/a

 

 

 

204

 

Effect of dilutive common units

 

n/a

 

 

 

 

 

n/a

 

 

 

 

Weighted average common units outstanding—diluted

 

n/a

 

 

 

204

 

 

n/a

 

 

 

204

 

Net income (loss) per common unit—basic and diluted

 

n/a

 

 

$

3,061.24

 

 

n/a

 

 

$

(33,799.70

)

 

13. Income Taxes

 

At the end of each quarter, the Company makes an estimate of its annual effective income tax rate. The estimate used in the year-to-date period may change in subsequent periods.

The effective income tax rate for the three months ended June 30, 2024 was 22.9% compared to 41.2% for the three months ended June 30, 2023. The decrease in the effective tax rate was driven by a decrease in the Company's valuation allowance against its deferred tax asset for disallowed interest carryforward due to the repayment and refinancing of the Company's debt during the second quarter of 2024.

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.

The Company's effective income tax rate for the six months ended June 30, 2024 differs from the U.S. federal statutory tax rate of 21% primarily due to the Company's valuation allowance and nondeductible expenses.

14. Subsequent Events

Entry into a Material Definitive Agreement

On July 18, 2024, Loar Group Inc. (Loar Group), a wholly owned subsidiary of Loar Holdings Inc., entered into a purchase agreement (the Purchase Agreement) with Applied Avionics, Inc., a Texas corporation (AAI), AAI Holdings, Inc., a Delaware corporation (AAI Parent), and Shareholder Representative Services LLC, a Colorado limited liability company, solely in its capacity as the representative of AAI Parent, pursuant to which, Loar Group agreed to purchase from AAI Parent all the issued and outstanding equity interests of AAI in exchange for aggregate cash consideration of approximately $385 million, subject to certain adjustments as set forth in the Purchase Agreement. AAI Parent is owned by certain individual shareholders thereof, including certain members of AAI’s management team. Additionally, Loar Holdings Inc. agreed to guarantee the due, complete, and punctual payment of, as well as the observance, performance and discharge of all of Loar Group’s obligations under the Purchase Agreement, all on customary terms and conditions.

The transaction is expected to close shortly after receiving requisite regulatory approvals and is subject to customary closing conditions. The acquisition will be financed through additional borrowings under the Company's existing credit agreement and cash on hand.

 

15


 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion in conjunction with our condensed consolidated financial statements including the related notes thereto, included elsewhere in this Quarterly Report on Form 10-Q.

 

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.

Important factors that could cause actual results to differ materially from the forward-looking statements made in this Quarterly Report on Form 10-Q include but are not limited to: the sensitivity of our business to the number of flight hours that our customers’ planes spend aloft and our customers’ profitability, both of which are affected by general economic conditions; future geopolitical or other worldwide events; cyber-security threats and natural disasters; our reliance on certain customers; the U.S. defense budget and risks associated with being a government supplier including government audits and investigations; failure to maintain government or industry approvals; failure to complete or successfully integrate acquisitions; our indebtedness; potential environmental liabilities; liabilities arising in connection with litigation; increases in raw material costs, taxes and labor costs that cannot be recovered in product pricing; risks and costs associated with our international sales and operations; and other factors. Refer to Part II, Item 1A included in this Quarterly Report on Form 10-Q and to the sections of our Form S-1 titled “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements” for additional information regarding the foregoing factors that may affect our business.

Overview

We specialize in the design, manufacture, and sale of niche aerospace and defense components that are essential for today’s aircraft and aerospace and defense systems. We focus on mission-critical, highly engineered solutions with high intellectual property content. Furthermore, our products have significant aftermarket exposure, which has historically generated predictable and recurring revenue.

The products we manufacture cover a diverse range of applications supporting nearly every major aircraft platform in use today and include auto throttles, lap-belt airbags, two- and three-point seat belts, water purification systems, fire barriers, polyimide washers and bushings, latches, hold-open and tie rods, temperature and fluid sensors and switches, carbon and metallic brake discs, fluid and pneumatic-based ice protection, RAM air components, sealing solutions and motion and actuation devices, among others.

We primarily serve three core end markets: commercial, business jet and general aviation, and defense, which have long historical track records of consistent growth. We also serve a diversified customer base within these end markets where we maintain long-standing customer relationships. We believe that the demanding, extensive and costly qualification process for new entrants, coupled

 

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with our history of consistently delivering exceptional solutions for our customers, has provided us with leading market positions and created significant barriers to entry for potential competitors. By utilizing differentiated design, engineering, and manufacturing capabilities, along with a highly targeted acquisition strategy, we have sought to create long-term, sustainable value with a consistent, global business model.

As a specialized supplier in the aerospace and defense component industry, we believe we are well positioned to deliver innovative, mission-critical solutions to a wide array of aerospace and defense customers. Our key competitive strengths support our ability to offer differentiated solutions to our customers. We have a portfolio of mission-critical, niche aerospace and defense components that we believe hold leading market positions. We have intellectual property-driven proprietary products and expertise in an industry with high barriers to entry. We are strategically focused on higher-margin aftermarket content. We have highly diversified revenue streams, and our diversification stretches across end-markets, customers, platforms, and product category or application. We have an established business model with a lean, entrepreneurial structure. We have a disciplined and strategic approach to acquisitions with a history of successful integration. We have a track record of strong growth, margins and cash flow generation.

 

Corporate Conversion

Prior to April 16, 2024, we operated as a Delaware limited liability company under the name Loar Holdings, LLC. On April 16, 2024, we converted to a Delaware corporation and changed our name to Loar Holdings Inc. In the conversion, holders of Loar Holdings, LLC units received 377,450.980392157 shares of common stock of Loar Holdings Inc. for each unit of Loar Holdings, LLC. The purpose of the corporate conversion was to reorganize our structure so that the entity that offered our common stock to the public in our initial public offering (IPO) was a corporation rather than a limited liability company, so that existing investors and new investors in the offering would own our common stock rather than equity interests in a limited liability company.

 

Initial Public Offering

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.