StandardAero's Q3 2025: Contradictions Emerge on Supply Chain Improvements, Cash Flow Targets, and LEAP Projections

Date of Call: November 10, 2025

Financials Results

• Revenue: $1.5B, up 20.4% YOY (19% organic)
• Operating Margin: Adjusted EBITDA margin 13.1%, compared to 13.5% prior year (impacted by lower-margin mix and LEAP/CFM56 ramps)

Guidance:

• 2025 total company revenue: $5.97B–$6.03B (midpoint implies ~14.5% YOY growth)
• 2025 engine services revenue: $5.27B–$5.31B (midpoint ~14% growth); engine services adj. EBITDA margin guidance ~13.2%
• 2025 component repair services revenue: $700M–$720M (midpoint ~20% growth); CRS adj. EBITDA margin ~29%
• 2025 adjusted EBITDA: $795M–$815M
• 2025 free cash flow: $170M–$190M (raised by $15M at midpoint)

Business Commentary:

* Strong Financial Performance: - StandardAero reported revenue of $1.5 billion for Q3 2025, up 20% year-over-year, and adjusted EBITDA of $196 million, up 16% year-over-year. - The growth was driven by demand strength across their end markets, operational discipline, and contributions from specific platforms like LEAP and CFM56 engines.

• Component Repair Services (CRS) Success:
• The company's CRS revenue increased 14% to $154 million in Q3, with adjusted EBITDA growing 32% year-over-year to $54 million.

• This growth was attributed to select military platforms, demand in land and marine business for aero-derivative engines, and strong performance from the Aeroturbine acquisition.

• Supply Chain Challenges and Cash Flow:

• Free cash flow was a $4 million use in Q3 due to increased working capital, with contract assets up $108 million, primarily due to constrained parts delays.

• The company expects significant improvement in Q4 due to shipping of completed engines, raising their full-year free cash flow guidance by $15 million.

• LEAP Program Progress:

• LEAP revenues nearly doubled sequentially in Q3, with nearly 50 engines inducted and an expectation for over 60 in 2025.

• The program's scale-up is driven by strong demand, large opportunities in the pipeline, and expected revenues of over a billion dollars annually in the next few years.

Sentiment Analysis:

Overall Tone: Positive

• Management called Q3 “another strong performance,” reporting $1.5B revenue (+20% YOY) and raised full‑year guidance across revenue, adjusted EBITDA and free cash flow. They highlighted LEAP scaling, record CRS margins, and improved Q4 cash visibility tied to an expected unwind of contract assets.

Q&A:

• Question from Michael Ceromie (Truist Securities): LEAP billion target timeline and what parts are causing contract-asset chokepoints that affect cash flow visibility?
  Response: LEAP billion target unchanged (late‑2029/2030); constrained parts are primarily forgings and castings causing ~dozen engine slips into Q4, but management has line‑of‑sight to Q4 shipments and raised FCF guidance on that basis.

• Question from Ken Herbert (RBC Capital Markets): Will the $300M–$400M of pass‑through revenue elimination be realized in 2026 or bleed into 2027, and update on LEAP backlog?
  Response: Most of the $300M–$400M revenue reduction will occur in 2026 (after contract changes and burning down inventory); LEAP backlog was just over $1B and grew ~5% this quarter.

• Question from Gavin Parsons (UBS): What unlocked the supply‑chain improvement, is it sustainable versus a one‑time reallocation, and how should we think about DSO/cash conversion?
  Response: Improvement reflects reduced depth‑of‑delay on constrained forgings/castings (not a one‑time parts surge), giving confidence in the Q4 unwind; company targets ~80%–90% pre‑cash conversion of net income and says DSO is not the primary driver—supply constraints are.

• Question from Miles Walton (Wolf Research): Why was CRS top‑end trimmed, any deterioration, and will the $300M–$400M pass‑through reduction translate to working‑capital liquidation?
  Response: No core deterioration—CRS is lumpy but strong (ATI, Land & Marine); the $300M–$400M pass‑through reduction will begin to free working capital in 2026 and deliver significant cash benefit in 2027 as inventory burns down; the change applies broadly across contracts.

• Question from Christine Leewag (Morgan Stanley): How much visibility do you have on getting constrained parts this year and are you changing procurement? Also, how is LEAP learning curve progressing?
  Response: Visibility for Q4 is strong and procurement approaches are being adjusted though constrained part suppliers shift; LEAP is in early production and coming down the learning curve—management expects programs to turn margin‑positive in early 2026 with continued accretion thereafter.

• Question from Seth Seasman (JP Morgan): Any mix drivers for Q4 engine‑services margin improvement and will there be residual revenue/margin impact beyond 2026 from the contract changes?
  Response: Excluding last year's one‑time item and current dilutive ramps, ES margins improved ~70 bps Y/Y; Q4 benefits from BizAv and military mix while LEAP/CFM56 remain dilutive until early‑2026; the $300M–$400M change is a one‑time revenue reset (ongoing margin improvement) with cash benefits starting 2026 and peaking 2027.

• Question from Sheila Kahyaoglu (Jefferies): What drove BizAv upside, HTF7000 capacity status, and why would OEMs agree to remove material pass‑throughs?
  Response: BizAv demand and flight hours are rising, Augusta expansion is operational and already near capacity—engine shop ramping supports 2026 growth; OEMs accept pass‑through removal because operators face no adverse change (they transact directly with OEMs), and the changes are value‑accretive to end customers while improving StandardAero margins and cash.

• Question from Jordan Leonese (Bank of America): Update on M&A pipeline and valuations?
  Response: Pipeline remains robust and fragmented; management is evaluating many opportunities and waiting for the right strategic, accretive fit—no change in approach.

Contradiction Point 1

Supply Chain Improvements and Sustainability

It involves the perceived sustainability of supply chain improvements, which directly impacts operational efficiency and profitability.

How sustainable are your supply chain improvements? What are your targets for DSO and cash flow conversion? - Gavin Parsons(UBS)

2025Q3: Supply chain improvements are due to a reduction in the depth of delay for constrained parts, which is improving. - Russell Ford(CEO)

Does your guidance reflect material sustainability in the supply chain improvements you're seeing? - Kristine T. Liwag(Morgan Stanley)

2025Q2: We now expect to have meaningful supply chain improvements, which we believe to be sustainable. - Daniel Satterfield(CFO)

Contradiction Point 2

Cash Flow Conversion Target

It involves the company's cash flow conversion targets, which are crucial for financial planning and investor expectations.

Can you explain the supply chain improvements and their sustainability? Do you have targets for DSO and cash flow conversion? - Gavin Parsons(UBS)

2025Q3: We're on track to become an 80-90% pre-cash flow conversion company. - Russell Ford(CEO)

Can you confirm your goal to exceed 70% pre-cash conversion this year? Can you confirm the $300 million year-to-date revenue? - Jordan J. Lyonnais(BofA Securities)

2025Q2: We do think we can exceed the 70% threshold by year end. - Daniel Satterfield(CFO)

Contradiction Point 3

LEAP Revenue and Backlog Projections

It involves projections for LEAP engine revenue and backlog, which are key growth indicators for the company.

好的，我现在需要处理用户提供的这个任务。用户希望我作为专业的金融文章作者，总结并精简来自美股上市公司财报电话会议中的问题。用户特别强调要保持原意，同时让问题更简洁、精准，去掉多余的装饰词，并且符合美式英语习惯。输出只需要简化后的问题，且必须保留问号。首先，我需要仔细阅读用户提供的原始问题。原问题有两个部分，用逗号分隔。第一个问题是关于LEAP发动机在未来几年是否目标达到十亿美元的收入。第二个问题分为两部分：询问合同资产中的瓶颈部分，以及对现金流改善的信心如何。接下来，我要分析如何简化这些问题。第一个问题中的“Are we now targeting a billion in revenues from LEAP engines in the next few years?”可以简化为“Are you targeting $1B in LEAP engine revenue over the next few years?”这里将“revenues”改为“revenue”更符合美式英语的常用表达，同时用“$1B”代替“a billion”更简洁，且“next few years”保持原意。第二个问题分为两部分，用户用“Also”连接。原句是“what parts are causing the choke points in contract assets, and how confident are you in the cash flow improvement?”这里需要拆分为两个问题。首先，“what parts are causing the choke points in contract assets”可以简化为“What contract assets are causing bottlenecks?”将“choke points”替换为“bottlenecks”更常见，且“parts”可能指代不明确，改为“assets”更准确。其次，“how confident are you in the cash flow improvement?”可以简化为“How confident are you in cash flow improvements?”去掉“in”使句子更直接，同时“improvement”改为复数形式“improvements”更符合美式英语习惯，但需要确认是否有必要。不过原句是单数，可能用户指的是整体的改善，所以可能保持单数更准确。不过通常在这种情况下，使用复数更常见，比如“cash flow improvements”可能更合适，但需要根据上下文判断。不过用户可能希望保持原意，所以可能需要保留单数。不过原句是“cash flow improvement”，所以可能用户指的是整体的改善，所以单数更合适。因此，可能需要保持“How confident are you in cash flow improvement?”但需要确认是否符合美式英语习惯。通常，这样的表达可能用复数，但用户可能希望保持原意，所以可能需要保留单数。不过，可能用户的问题是关于整体的现金流改善，所以单数更合适。但需要进一步确认。或者可能用户的问题中的“cash flow improvement”是单数，所以保持原样。但可能更常见的表达是复数，比如“cash flow improvements”，但需要根据原意决定。这里可能用户的问题是关于整体的现金流改善情况，所以单数更合适。因此，第二个问题简化为“How confident are you in cash flow improvement?” 现在需要检查是否所有改动都符合用户的要求，没有改变原意，并且符合美式英语习惯。同时确保输出只包含简化后的问题，每个问题以问号结尾，并且用英文逗号分隔。用户提供的例子中，原问题有两个部分，所以简化后应该分成两个独立的问题，用问号结束。例如：Are you targeting $1B in LEAP engine revenue over the next few years? What contract assets are causing bottlenecks? How confident are you in cash flow improvement?但用户可能希望保持两个问题，而原问题有两个部分，所以可能需要将第二个问题拆分为两个问题。原问题的第二个部分是“Also, what parts are causing the choke points in contract assets, and how confident are you in the cash flow improvement?” 这里有两个问题，所以需要拆分为两个独立的问题。因此，正确的简化应该是：Are you targeting $1B in LEAP engine revenue over the next few years? What contract assets are causing bottlenecks? How confident are you in cash flow improvement?但用户可能希望每个问题独立，所以可能需要将原问题拆分为三个问题？不，原问题有两个主要部分，第二个部分有两个子问题，所以可能需要拆分为三个问题？原问题的结构是：1. Are we now targeting a billion in revenues from LEAP engines in the next few years?2. Also, what parts are causing the choke points in contract assets, and how confident are you in the cash flow improvement?第二个问题包含两个部分，所以应该拆分为两个独立的问题。因此，正确的处理方式是将原问题拆分为三个问题，但用户可能希望保持两个问题？或者用户可能希望将第二个问题拆分为两个问题？需要仔细分析。原问题中的“Also, what parts are causing the choke points in contract assets, and how confident are you in the cash flow improvement?” 这里的“ - Michael Ceromie(Truist Securities)

2025Q3: LEAP sales are now expected to reach a billion dollars annually in the next few years. - Russell Ford(CEO)

What was the second quarter LEAP booking amount, and when will it convert to revenue? - Kenneth George Herbert(RBC Capital Markets)

2025Q2: LEAP bookings approached $1 billion in the first quarter and are now at $1.5 billion. - Russell Ford(CEO)

Contradiction Point 4

LEAP Engine Revenue Projections

It involves changes in revenue projections for the LEAP engine, which is a critical revenue stream for the company and significantly impacts investor expectations.

Are we targeting $1 billion in revenue from LEAP engines in the next few years? - Michael Ceromie (Truist Securities)

2025Q3: LEAP sales are now expected to reach a billion dollars annually in the next few years. - Russell Ford(CEO)

What is the size of the LEAP backlog and its expected growth? - Ken Herbert (RBC Capital Markets)

2025Q1: LEAP bookings approached $1 billion in the first quarter and are now at $1.5 billion. - Daniel Satterfield(CFO)

Contradiction Point 5

Supply Chain Improvements and Sustainability

It involves statements regarding supply chain improvements and their sustainability, which are crucial for operational efficiency and revenue projections.

Are the supply chain improvements sustainable? - Gavin Parsons (UBS)

2025Q3: Supply chain improvements are due to a reduction in the depth of delay for constrained parts, which is improving. - Russell Ford(CEO)

What supply chain challenges affect LEAP parts, and how did the first full performance restoration perform? - Ken Herbert (RBC Capital Markets)

2025Q1: No significant holds on LEAP parts. The first LEAP CTAMS engine delivered, and a full PRSV is in process. - Daniel Satterfield(CFO)