Loar's Silent Inflection: A $750M Pipeline Starts to Convert
Record margins and near-200% cash conversion mark the shift from secular growth to new-business-driven compounding
LOAR · Earnings Call · 2026-08-06
Loar's Q2 2026 report was a record quarter — $172M of sales (+17% yoy), record adjusted EBITDA, and its 16th consecutive quarter of sequential adjusted EBITDA growth. But the real news wasn't the quarter itself; it was management's decision to finally put a number on the question the Street has asked for a year: how much of the new business pipeline is actually converting.
The Inflection Point Gets a Number
Dirkson Charles revealed Loar converted roughly 25% of its new business pipeline into wins, locking in ~$200M of cumulative organic revenue visibility over five years from a pipeline now worth ~$750M. The subtle capitulation is the admission in his framing:
we never think about win rate. All we think about is converting our efforts into base business sales.
That is a strategic shift for a company that built its reputation on secular growth discipline. A year ago the pipeline was a concept — $600M, then $700M — and the mechanistic question went unanswered. In May, Dirkson told Morgan Stanley, “We have line of sight on all $700 million,” — Dirkson R. Charles, Founder, CEO, and Executive Co-Chairman · 2026-05-07 but the 1%-to-3%-of-organic-growth framework remained. Now $200M of that opportunity has migrated into what Loar calls the base business, with PO-to-PO orders on certified products — brakes, restraints, sensors — rather than letters of intent. The 2026 ranking of growth drivers is explicit: new business first, ahead of secular growth and price. He had teed this up back in February — “new product introduction is really the largest driver of our organic growth” — Dirkson R. Charles, Founder, CEO, Executive Co-Chairman · 2026-02-26 — but this quarter he quantified the mechanism, noting the engineering spend was reallocated to winnable projects four or five years ago, away from what he calls blue sky projects. The inflection point, as he told Citi, is here.
Cash Compounding While GAAP Cries
The second leg is cash generation. Dirkson: “operating cash flow minus capital expenditures divided by net income is 1.9x. To be clear, our free cash flow is close to 200% of our reported net income.” — Dirkson Charles, Founder, CEO and Executive Co-Chairman · 2026-08-06 The fundamentals corroborate it:
In the latest quarter, free cash flow of $27M ran roughly 2.5x reported net income of $11M.
Yet the GAAP portrait is far less flattering: operating margin is down ~130 bps yoy to 21.5%, net margin slipped to 7.1%, and interest coverage has compressed to 1.8x as debt, higher non-cash amortization, and transaction costs from Harper and LMB weigh on reported earnings. This is the classic "cash compounder" pattern — buying proprietary assets with debt and amortizing intangibles while adjusted EBITDA margin hits 40.5% (+220 bps), another sequential record. Total revenue is up ~81% over three years, led this quarter by commercial OE up 28% on the 787, A320, and 737 lines, defense sales up 8% as government ordering normalizes, and aftermarket up double digits.
Riding Against the Macro Tide
Notably, Loar's editorial keyword set stands apart from the market's. The global tape this quarter is dominated by AI, energy, and tariff themes — Batch Zero sits atop the entire market's keyword trajectory — while Loar's keywords are purely operational: pipeline conversion, base business, blue sky projects. Classic aerospace compounding is running against the macro narrative, not with it.
The tape has been slow to re-rate the story. LOAR is up 53.7% since its 2024 debut but still sits 24.6% below its May 2025 peak of $99.49; the last 90 days show +16.6% as the stock grinds back from the drawdown. Valuation has normalized — price-to-FCF has collapsed from over 400x post-IPO froth to the mid-50x range — while cash flow and EBITDA keep compounding. Whether the new business pipeline conversion becomes the re-rating catalyst depends on that $200M turning into actual revenue rather than slipping on certification timing — the same FAA delays that have twice pushed programs to the right. Q2 was the first quarter where Loar converted its intangible promise into a hard, disclosed number. That alone is genuinely new.