Q4 2020 AerSale Corp Earnings Call
[music].
Okay.
Greetings and welcome to the.
The ear some fourth quarter earnings conference call. At this time, all participants are in a listen only mode. The question and answer session of will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad. Please note. This conference is being recorded I will now turn the conference over to your host the strength of zone.
You may begin.
Good afternoon I.
I like to welcome everyone to air sales fourth quarter 2020 earnings call conducting the call today are net panozzo, Chief Executive Officer, and Mark of our men's young Chief Financial Officer.
Before we discuss this quarter's results we want to remind you that all statements made.
On this call that do not relate to matters of historical fact should be considered forward looking statements within the meaning of the federal securities laws, including statements regarding our current expectations for the business and our financial performance.
These statements are neither promises nor guarantees, but involve known and unknown risks.
Risks uncertainties and other important factors that may cause our actual results performance or achievements to be materially different from any future results.
Factors discussed on the risk factors section of our final prospectus filed with the SEC on February 10th 2021, and our other filings with the securities.
Securities and exchange Commission could cause actual results to differ materially from those indicated by the forward looking statements on this call.
We will also refer to non-GAAP measures that we view as important in assessing the performance of our business.
A reconciliation of those non-GAAP metrics to the nearest.
Near the GAAP metric can be found in the earnings presentation materials made available on the investors section of the aerosol website at IR Dot air sales Dot com.
With that I'll turn the call over to Nick Panozzo.
Thank you Christine.
Good afternoon to everyone on the line and thank you for joining on.
Our call today I am pleased that today marks our first quarterly update as a public company and I look forward to updating you each quarter on the exciting progress, we're making at air sale.
Before digging into the results for the quarter and business updates I wanted to take a few moments to familiarize new investors with air sale and I'll begin with.
The three attributes about it yourself that position us to create value for our customers and deliver leading shareholder returns.
First we operate a purpose built fully integrated multi dimensional aviation aftermarket company that enables us to serve as a one stop shop for our customers.
This includes active.
<unk> like part procurement whole aircraft sales and leasing.
Arrow, FAA certification and aircraft storage and decommission this.
This allows us to keep a close pulse on the market identify attractive asset acquisition opportunities and deliver a higher overall value to our customers.
Second we generate attractive financial returns as a result of this integrated structure with the flexibility to pivot quickly and execute regardless of the economic backdrop.
This was never more pronounced than in 2020, when the global pandemic adversely affected commercial aviation to a degree no.
One of the industry had ever experienced.
Notwithstanding this environment, we were able to pivot quickly to high demand freighter aircraft help our customers through our aircraft storage and decommissioning business identified attractive long term asset acquisition opportunities in.
And enter 2021 fully positioned.
To resume our growth trajectory.
This was a truly remarkable results and demonstrates the resiliency of our business and workforce.
And third our integrated structure enables us to serve as a unique partner to airlines that original equipment manufacturers to bring new and innovative products to market.
In our engineered solutions business.
Currently we have three projects in our engineered solutions pipeline that include aerospace Air track and are aware that collectively represent a significant market opportunity for air sale.
Our greatest opportunity is with arrow, where debt is now.
The complete fully operational and is scheduled for pre certification testing by the FAA commencing March 23rd.
<unk> incorporates an advanced military style head wearable display and other words of flight vision goggle debt provides pilots with enhanced vision, enabling them to see it through adverse.
Conditions with an overlay of critical flight deck information.
We've been developing are aware over the past 18 months in partnership with Universal Avionics, a subsidiary of Israeli manufacturer Elbit systems too.
To deploy existing military aircraft technology to commercial aviation.
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This relationship underscores the air sales value proposition our teams successfully integrated a military application with the advanced technology into a commercial platform from concept to full integration and are working Boeing 737 Mg prototype aircraft.
We used our engineering.
Whether collagen capabilities with midlife equipment to integrate the technology conduct flight certification and demonstration and marketing support to potential key customers.
To dig into the specifics of our business. We have two primary operating units asset management solutions and technical operations.
Sure.
Hearing none we referred to as Tech ops.
In our asset management segment, we supply used serviceable material or U S M parts as well as whole aircraft and engines to the marketplace, including highly customized fully supported leases of aircrafts that garner above market lease rates as well as.
With the install short term engine leases, which also command of rate premium.
At the end of their leases this flight equipment becomes the feedstock for our U S on parts business, providing the final revenue stream and our value extraction methodology.
And our Tech ops segment, we provide maintenance repair and overhaul.
Is ready MRO services and engineered solutions.
In our MRO services divisions, we performed aircrafts heavy maintenance, including passenger to freighter conversions at our two aircraft the MRO facilities in Goodyear, Arizona in Roswell, New Mexico.
Further we overhaul airframe components, including landing gear.
Ex hydraulics and composite aero structures at our facilities in Rio Rancho New Mexico, Memphis, Tennessee, and Miami, Florida.
In our engineered solutions division, we develop highly specialized products that comply with regulatory mandates <unk> enhance the safety of commercial aircrafts as.
As previously noted.
Currently marketing three products are safe and are track for which we hold supplemental type certificates in other words stc's issued by the FAA and <unk> are.
Our existing STC is have enjoyed strong margins in all of our STC products will serve a customer base of over 16000 aircrafts.
As we review our business results. There are a few important things to keep in mind first we generally do not utilize year over year analysis on a quarterly basis to assess our financial performance, which youll notice throughout our commentary.
The rationale for this is simple our asset management acquisition and whole asset sale businesses.
For a cornerstone of our success and account for large transactions at irregular intervals throughout the year.
As we discuss our result will make it a point to update our investors on these key transactions for both the current year and prior year periods.
More importantly, we believe relevant indicators for our business.
<unk>, our asset acquisitions and activities the outlook for whole asset sales throughout the year progress on engineered solutions STC development in contracts and underlying performance of our MRO business.
Turning to our results for 2020, we delivered full year revenue of 208.
Per $40 million, which compares to full year 2019 revenue of $304 $2 million with the decline in total sales stemming from the impact of COVID-19.
As the year progressed, our business began to recover nicely, which led us to increase our forecast as we started to realize higher contributions.
<unk> from our freight customers strong growth in our aircraft storage and MRO business and even some modest improvements from passenger aircraft customers.
For the full year 2020, we reported adjusted EBITDA of $51 9 million or 24, 8% of sales, which compares to full year 2019.
Adjusted EBITDA of $56 9 million or 18, 7% of sales.
As a reminder to investors adjusted EBITDA results in 2020 included $12 $7 million of cares Act benefits.
Looking at trends in our business and beginning with asset management sales of aircraft and engine the U S.
<unk> continued to improve in the fourth quarter, which increased in each sequential quarter since the low set in the second quarter of 2020.
We expect activity in these categories to continue to grow as volume across the system gradually increases back to pre pandemic levels.
Aircraft.
Pricing decreased in the fourth quarter, primarily due to the exploration of three Boeing 747 passenger aircraft leases.
The engines were removed from these aircraft and the ones in good condition are being prepared for the lease pools with the remainder of becoming feedstock for our USA on parts business as we take advantage of strong demand in this platform.
In engine from freighter customers.
This reduces our aircraft fleet to just for aircraft to passenger and two freighter both of which have been performing well.
Finally for 2020, we had only $3 1 million of whole asset sales, which occurred early in the second quarter as compared to $70 1 million.
Form $70 1 million in 2019.
This decrease in sales was the direct result of the pandemic and represented the majority of our revenue declined as compared to the prior year.
As we look ahead to 2021, we are now well positioned with cash on hand, and an Undrawn recently upsized one.
The $50 million credit facility to restock the flight equipment for our unique style of hybrid aircraft and engine leasing.
This is exemplified by our recent purchase of 'twenty for Boeing 750 Sevens that were marketing as freighter conversion aircraft to satisfy heightened demand in this category.
The company has the signed letter of intent to.
100 for aircraft to an international customer, which is expected to close over the next 30 to 90 days.
We expect to sell the majority of our Boeing 757 fleet in 2021 to.
To facilitate these deliveries we expect to convert at least five of these aircraft at our Goodyear hanger over the next year with the first converted aircraft.
The sell through to be completed in May.
With five aircrafts committed to conversion, we have primed the pump to meet the growing demand for Boeing 757 freighters.
And our Tech Ops segment, we continued to experience robust demand for aircraft MRO services.
And our facilities are running at or near capacity.
Projected volume at our Goodyear in Roswell storage facilities hit record highs in 2020, which resulted from a higher number of grounded aircraft by airlines and leasing companies during the pandemic.
We expect the strong volume to continue through 2021, as we benefit from a full year of storage activities at both of our dry desert storage locations.
Which includes the reactivation work from existing customer aircrafts and continued work for additional aircraft entering storage programs.
Looking forward as these aircrafts are brought back into service, we expect our storage revenue to gradually decrease but the offset by reactivation revenue in our aircraft MRO facilities.
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Moving to our engineered solutions business, we had modest sales in 2020 due to the unprecedented number of aircraft on the ground.
In the fourth quarter, we saw a pickup in demand for our aerospace product as aircraft began repositioning to new markets.
In addition, we made significant progress towards obtaining FAA certification of.
For where product having completed over 60 flight hours with an FAA designated engineering representative of day, our test pilot performing our test flights and showcasing the capabilities of this product to a potential customer.
As mentioned previously we will begin test flights and less than two weeks, which.
Of our ARY requisite to the to the FAA issuing air sale, an STC for air where.
Based on feedback from airline test pilots, who have flown our bowling 737 N. G prototype aircraft with air aware of installed we expect to receive the launch order from a potential customer this year.
As a per summary, we were pleased with where we are positioned as we begin 2021 air sales first full year as a public company.
Demand in our aircraft the MRO facilities as robust volume is poised to steadily improve for use on parts and the market is offering attractive feedstock opportunities.
Added.
In that we're enthusiastic about the prospects for our engineered solutions Stc's, which we expect will be of meaningful growth contributor to our overall sales mix as this division continues to evolve.
We exited 2020 with a strong balance sheet and ample financial flexibility to fund our capital allocation priorities.
Added to the I want to thank all of our investors and we look forward to updating you on our progress our progress throughout the year now I'll turn the call over to Martin for a closer look at the numbers.
Thanks, Nick I'll start with an overview of our financial performance before ending with an update on our guidance our fourth quarter revenue was 49.
$4 million.
Which did not include any whole asset sales.
This compares to fourth quarter of 2019 revenue of $129 million, which.
<unk> $57 million of whole asset sales as.
As Nick mentioned, our business will fluctuate quarter to quarter based on whole asset sales during the period and therefore.
Important to monitor our progress based on asset purchases and sales over a longer period.
As you look ahead to 2021, our most notable asset activity as the purchase of the 24 Boeing 750 Sevens that we announced in September we are working diligently with our customers to finalize the first of the sales, which we expect to.
For it in the next few weeks.
In addition to asset sales used serviceable material for use on parts revenue declined as opportunities to buy feedstock did not materialize and demand for existing inventory decreased.
Utilization rates on our flight equipment also dropped against the backdrop of the COVID-19 pandemic.
<unk>.
The pandemic led to the grounding of the significant portion of the global passenger fleet and lower passenger air travel, resulting in decreased demand for U S. M parts used for maintenance and overhaul activity and short term engine leasing.
Our tech ops segment offset some of the decline in our asset management solutions volume with total segment revenue.
The occur up 41% compared to the fourth quarter of 2000 $19 million to $32 million.
The increase in Tech ops revenue was largely driven by aircraft MRO services as this business benefited from increased storage demand.
Hi desert locations of our heavy MRO facilities in new Mexico and Arizona.
Revenue allowed us to monetize on the increased demand for aircraft storage maintenance programs.
Looking forward, we expect the substantial quantity of aircrafts that are on airport MRO facility to provide us with upside opportunities for reactivation work heavy maintenance and cargo conversion.
And also providing us the strategic advantage.
And identifying feedstock for our asset management segment.
The revenue split between our asset management and Tech Ops segment was approximately 50 50 in 2020 as the business mix changed as a result of the pandemic.
This change in mix demonstrated our ability to respond effectively to changing market dynamics.
<unk> of the passenger aviation market recovers, we expect both asset management and tech ops to grow.
Gross margin was 26, 6% in the fourth quarter of 2020, which was approximately the same level as the fourth quarter of 2019 as all the measures we took during the year translated into efficiencies and cost savings.
Across our business lines.
Selling general and administrative expenses declined 15, 5% in the fourth quarter of 2000 $20 million to $15 million, primarily due to COVID-19 cost savings initiatives.
Net income for the fourth quarter of 2020 was $6 million compared to 9 million.
<unk> for the fourth quarter of 2019.
Cash flow used in operating activities was $12 2 million in 2020 compared to $45 $5 million in 2019.
The main driver of cash utilization in 2020 was net inventory purchases of $55 3 million.
Primarily related to the Boeing 757 transaction.
At year end <unk> had approximately $29 million of cash on its balance sheet and then on drawn revolver of $110 million.
Which has now been increased to $150 million. This provides us with ample financial flexibility.
To fund our asset acquisition priorities in 2021 and beyond.
Finally, our guidance update on summary.
We expect revenue of $340 million to $316 million and adjusted EBITDA of $60 million to $70 million in 2021.
This out.
Ability of flex of increase in activity in our asset management segment continued strong demand for our on airport MRO services accelerating demand in cargo and e-commerce markets and increased requests for passenger to freighter conversions and other tech ops products and services the.
The main growth driver of the asset management.
Segment will be the monetization of the Boeing 757 package secured in 2020.
Because of the strong demand for cargo conversion aircrafts, we project selling the majority of the available aircraft in 2021.
For Tech Ops. In addition to the continued contributions from our storage maintenance and component MRO active.
Activities. We also expect to commence sales of our era, where product in late 2021.
Our projected ranges for 2021 sector and possible delays in the start of sales for era, where due to uncertainties regarding the pace of initial production scale up the company is diligently working on solutions that will allow us to meet the.
The anticipated demand for this product from a potential large customer.
Lastly, cares Act grant proceeds of $9 $2 million were awarded for the company in 2021.
In summary, our strong financial performance is the result of the multi dimensional and fully integrated business model.
We have spent the last decade building post COVID-19, we made adjustments, but continued to invest in business unit experienced the greatest demand debt.
The diversity of our revenue sources has created a counter cyclical hedge enabling air sorts of thrive in a challenging commercial aviation market. We believe we are welcome.
Configured to outperform our competitors in the upcoming recovery.
With that operator, we are ready to take some questions.
And at this time, we will be conducting a question and answer session.
I would like to ask the question. Please press star one on your telephone keypad.
Confirmation tone will indicate your line is on the question.
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One moment, please while the poll for question on.
Our first question is from Gautam Khanna with Cowen. Please proceed with your question.
Yes, thanks, guys.
Good afternoon, I was wondering if you could talk a little bit about the 757.
Turnarounds. So you mentioned the floor that might be sold.
I would imagine.
Maybe it's in Q2.
But if you could talk to the rest.
Of the quote majority of that you expect to sell this year.
Do you have letters of intent for those just kind of how firm.
Is that planning and what gives you that conviction and if you can.
Maybe talk to the timing this is going to the Q4 weighted.
Based on what needs to be done for them et cetera.
I've got a comment at the high got them. How are you doing this afternoon. So we've got a combination of potential sales ongoing right now with probably.
The minimum of three and is minimal and as many as for.
Four of five customers. So we're negotiating with each we have.
As I mentioned.
So we have a letter of intent to sell for at this point, we expect those for will be delivered as the buyer is conducting due diligence.
In preparation for closing I think those will all close probably over the next 60 days could could go to 90 days.
Simultaneously we're working.
<unk>.
An LOI with another customer that will potentially take as many as 10 aircraft.
Again, they are closing would be as fast as we can put the airplane those of aircraft that we don't have to convert so those aircrafts, we could close on those as fast as we could deliver the aircraft.
Working with the proper engines and the records all updated we expect that those aircraft.
We finished the LOI that we are close to finishing now.
We think that those aircraft will also close in the second and third quarter could drag into the fourth quarter.
And finally.
We have another operator that is interested in.
Two one that's interested in three to six another debt.
And then another one that's interested in as many as it does now we don't have as many airplanes as I just mentioned.
Our expectation is that those additional customers will take aircraft that were converted.
The way.
So we've got we have.
We signed up to buy five cargo kits from precision that we intend to convert the aircraft's ourselves. The first aircraft is nearing completion of conversion. It will be finished in May and then we'll roll will real run in right behind it and then there'll be a total of five.
We expect to be able to deliver three of those because the demand for converted aircraft. Today is extremely high we believe we will have customers for those aircraft either as they rollout the hanger, but we believe we will have customers for those aircraft.
Before they rollout the hangar ideally before we can before we put the next one.
Version so.
I would expect that we'll have three converted aircraft sold this year. If we can do a fourth if we can finish of fourth will be able to put a fourth one this year and the balance will roll into the balance of converted aircraft will roll into.
On.
2021, so the experts.
And the commission is we'll sell the majority of aircraft. This year whatever we have left over to sell will be sold next year.
And we will once we decide which aircraft are not going to be converted those aircraft will be fed into our parts of machine.
Got it Okay and then.
Air of where I was wondering if you could expand upon what's.
Expect Hill stones.
Investors should be tracking.
For the.
Of the tight certification like.
What is your best guess, what still needs to be done if you will.
What's the lead time to getting back on so when is the earliest you could actually see.
Certification.
Coming through.
So okay. Good question the.
We're flying with the FAA in two weeks less than two weeks, we expected debt, we will have debt FAA certification of our pre certification flying done.
That same week, so before the end of this month, we will no longer have to fly the airplane to demonstrate our.
The mutation by the way is we won't have the fly the airplane to demonstrate to the FAA any longer after we do our net.
Ex flights remember we've flown over 60 hours on the airplane already with an FAA designated engineering representative of D. R.
And we have a.
FAA designated person who is.
Our expect certified at the airplane meets the all of our drawings and conforms to airworthiness certification, which you'll be able to issue when the FAA can places its test flights.
When that happens we're still waiting on some documentation from universal on.
On the software validation, which we expect to have by the end of April at least we hope to have by the end of April so once the FAA won't issue of the STC until it has the validation of paperwork on the software.
We are therefore hopeful that sometime in may after the validation.
Of the software is finished that all of the documentation will be enhanced with the FAA and we'll just be waiting for them to approve our expectation is we should have.
We believe because the FAA seems to be really interested in this project debt.
That will have the certification our best guess is by.
End of May sometime in June by the state before the end of the second quarter. We believe we will have a certified.
Okay, that's great to hear and then my last one for now anyway is.
If you could just talk about the.
The equipment acquisition environment. So we didn't see as many retirements as we bought.
Maybe last year, but wondering if you're expecting a powered to show up in 2020 one.
And if so are you already seen you know of.
A lot of opportunity to deploy our cash.
Capital to acquire of U S M.
If you could just talk to that environment.
So so we've been saying it all year.
The year, but it has not been net pricing thats attractive for us. So I don't know if the ultimately these assets had been selling because the.
Of the price at which we'd be willing to pay its not suitable to the sellers.
Ben I would say predominantly what we've experienced to date, however, what we're starting to see now.
Is that aircraft that have now been on the ground for coming up on a year.
Net the sellers of those aircrafts are realizing that many of them are not going to get redeployed with all of the aircraft on the ground and the status of the passenger airline industry. Those airplanes are not likely to be deployed anytime soon the.
The.
The lessors, who have aircraft and the.
Aircraft that are still in the hands of lessees that are unable to pay have no place to put the aircraft right now.
That'll be alleviated as some aircrafts are returned to service freeing up some storage space for other aircraft to go into service so what.
The thing is that pricing is now finally getting to the point, where we're our bad ass separation is very is very small.
Arguably we could take some of the deals that are being offered today, but we still think that pricing is going to soften.
So we're not overeat.
We are to spend money today until we really feel that we're at or close to the bottom and I think that Thats. This is my personal opinion debt. We're six months away from really seeing pricing in volume coming to us.
Again, we're seeing a little little trickles.
We're eager and we are we are starting to acquire some assets, but not in the volume that we anticipate I expect debt as we get towards the.
End of the third quarter things are kind of the dam is going to break I think just by then.
Aircrafts are or whatever aircraft had been returned to service.
Of it during the summer for those airplanes go down again, many of those airplanes will be retired permanently and I think that's when we believe we'll start seeing.
Aircraft available at attractive pricing.
We think it's going to be the we think it's going to be after the summer in the third quarter.
Okay. Thank you.
For flights guys.
Youre welcome.
And again now the reminder, if anyone has any questions you May press star one on your telephone keypad doing so will ensure actually do join the question and ask the queue.
You very much.
Our next question is from Gautam Khanna Cowen. Please proceed with your other question.
Yes, sorry, I don't mean on monopolize, but I was going to ask a couple of follow ups. The.
The other thing I was curious about was on.
The.
The cares act funding and so that was $9 2 million. That's included in the EBITDA guide for the year I presume.
Alright, I just want to confirm the RFS correct for 2020.
Okay.
And can you remind me where there any nonrecurring items.
That we should be thinking about that are in the number this year or.
That we should just.
Mentally model out from last year, because if I recall there was.
Like a $10 million one time item that was Q3 of last year, maybe Martin if he could just kind of.
Call out any.
The specific items that we should be.
Making sure we have in mind, so we don't have kind of crazy year over year.
Dynamics for.
From last year, which had you know the.
Some of the cares act on.
Some of the other one you got it right besides of the $12 $7 million of cares Act that was in 2000.
We also had a return condition payment related to a freighter asset that we have on lease that was a little over $10 million that came in in 2020. So that was a onetime overall item obviously in 2021, what youre going to see is an increase in whole asset sales related to the 757 transaction.
When that number was relatively small of about $3 million in 2020, so that will be driving a lot of our revenue and margin improvements for 'twenty one.
Got it that makes sense of then the other thing I was curious in Q4 itself was there any carryover of cares Act.
The proceeds.
From the prior.
<unk> of course.
Okay for the fourth quarter, we had no additional cares act all of the amounts that we received for it utilized in the second and third quarter.
Got it and of the $9 million that you've talked about is that.
How does that flow through like in what periods in fact Q1 cash.
Okay.
Prior to the <unk> yeah. So what we were awarded in February and we can use those proceeds once the proceeds were received so you will see.
A good majority of that amount coming in in the first quarter as of as it'll cover qualify on payroll in the first quarter with the remaining coming in in the second quarter, but it will be fully utilized by the end of the second quarter.
Is there any additional extensions to that program.
Got it and then maybe just bigger picture in terms of the MRO facilities on how but what youre seeing with respect to demand from third party.
The customers.
Are we starting to see an uptick in either.
Neither of U S M inquiries.
Request for D. R. Repairs are you I mean, I'm just curious like how you know, we're seeing a little bit of an uptick in flight activity.
I'm wondering how that is if it has translated yet in the first quarter with respect to kind of.
The run of the mill aftermarket demand at the various.
On the at.
At the site.
Yeah.
We're really at or above we're at capacity, we are just being slammed at the at our at our heavy MRO as well and Thats, it's hard to separate the storage revenue.
From retired of service revenue from new new aircraft going in because we're seeing both the aircraft exiting storage and aircraft entering storage and so it's tying up so much of our resources our personnel resources doing that while we've got well we've got a conversion line going on while we have customers that are.
Revenue jumping up and down for.
Their aircraft to be ready for the next customer.
Getting painted.
I would tell you that from our perspective.
This is the best we've ever seen it from.
From an airframe MRO perspective.
Where we've been.
Where we have suffered.
Since the start of the pandemic and we're starting to see signs of recovery is on the component MRO side, because as aircraft were grounded similar Tianjin leasing other than wide body engine leasing to support cargo customers there.
The demand for component MRO has been severely diminished.
In post.
As a result of Covid the signs of life, there as well and we anticipate to see.
Rising volumes.
Volumes in our component of MRO landing gear is right now on.
The issue with landing gear is going to be to make sure that we have enough personnel to.
Accommodate the amount of landing gear work that we expect to have this year. So.
The component MRO side is coming back live on.
The U S M part site Interestingly bank debt because the wide body market is so soft with respect of passengers you would think that the demand for.
<unk>.
Engine parts for wide body aircraft would be would be diminished. It's not it's just the opposite what we're seeing is that for aircraft that operate the PW 4000 is the Pratt and Whitney 4000. It goes on the side of the $67 747, and likewise, the <unk> hundred 80.
We're seeing demand for that material is is is recovering nicely right now as well as the demand for those engines.
Oh.
And that is that of freighter driven dynamic of rats.
Yes that is the freight that's of freighter driven dynamic.
Got it.
And Martin.
Looking through the earnings release, and if I recall, there was something like a 1.87.
Adjustments to EBITDA quarter on for Ken.
In the quarter from recall.
What was that for the one.
Day.
Yeah.
Hello.
Let me go back is that the one it says equity compensation.
It's on the adjusted EBITDA table at the back of the release.
It was like 1.869.
The credit.
It was the debit sorry.
There was some sort of it wasn't it was a net it was the <unk>.
Negative.
The EBIT negative.
That's related to transaction costs, so and last year, we expense legal fees related to the overall merger and we had adjusted debt out of our EBITDA calculation. We ended up booking that was eligible to be run as a transaction cost.
So then we reverse that out of the overall EBITDA number not to take credit for it in 2020.
Got it okay. That's all of the teams.
Okay terrific well. Thank you so much I appreciate the color.
Youre welcome.
And our next question.
Question is from Ken Herbert with Canaccord. Please proceed with your question.
Hey, Nick and Martin Good afternoon.
Good afternoon Kim.
Hey, Nick I, just wanted to follow up on your comments regarding your storage facilities at what point. This year do you expect to start to see a net outflow of aircraft.
Traffic out of those facilities and when we when we hit that point or get close to that point, what does that do for you from a revenue standpoint.
So I'm not sure we're going to see of net outflow. This year I think we projected it but that's not that's not my belief and the reason I say that is because.
As.
As I mentioned Theres, just not enough storage available storage capacity for the amount of aircraft that are not.
Generating positive revenue by the carriers that are operating them. So we are constantly being asked for the for airlines.
Two.
Asking us to store more aircraft at our facilities and we're turning the MLA.
So what I expect to happen is as debt as some of these narrow bodies exit we're going to see more wide body enter more wide body aircraft enter storage and.
That's going to keep us busy for really the balance of the year I don't.
See any material reduction in.
In storage revenue associate the and the maintenance associated with storage.
This year when when aircraft when that balance switches and.
Our shifts and more aircraft are coming out that are going in what thats going to do is that's going to.
Two.
It's going to result in really loading up our aircraft.
Aircraft MRO facilities with a lot of return to service work, which would include heavy checks potentially cargo conversions painting interior reconfigurations.
Cetera. So.
We think that although the although the storage business is higher margin business than that.
The Ah.
And it's also very easy to do it because the labor is the.
On the labor involved is not real high Tech labor.
We think there is theres more man hours to.
To be built doing returned to service work that just Dan just storage work. So we think thats going to be on offset.
Okay. That's helpful and it sounds like from your comments Nick that your.
Obviously, you see more I guess the opportunity of getting better as we go through this year for your ability to acquire feedstock it perhaps.
It's more attractive prices.
Is it possible for you to quantify that at all I mean do you I mean, obviously, if the risk of maybe trying to time the market too much and I think you would know better than anybody, but how much more downside could you expect to see on on some of these feedstock opportunities and what do you what.
Do you need to see to start to get maybe as a signal of where you start to get more aggressive on on starting to procure material.
So.
Where we're where we're not competitive is to acquire aircraft and do a sale leaseback because that just in my opinion debt.
Uses of different a different capital structure than we have where we have an advantage is when an aircraft is make it comes off of it comes off lease it's parked by an airline it needs work to restore it to service and to place it with another another company. If you get a fleet of them you have to be able to take the best equipment.
Cobble it together to create flyable aircraft or engines, and then figure out what to do with the residual that's what our value add is which is to take an aircraft without of lease and to do whatever it takes to get the model.
Get maximum value out of that so.
We see our advantage.
<unk>.
The leasing companies Theres, a lot of money, that's coming into the space or has come into the space.
And most of those investors are scarfing up whatever aircraft are able to be are either debt or on lease currently or ready for lease.
And we're not seeing that.
But thats the majority of aircraft that are part of the majority of aircraft that are part of today, our aircraft debt required a significant amount of work before they can be returned to service for somebody.
And just like our 757 transactions I think the reason we won that transaction is our ability to do all of the things to get.
Some of value out of that package because there were no leases attached there were no buyers. We have to go find the buyers we had to create the value figure out where the highest value on that.
It was whether it be as freighter of passenger what do you do with the stuff Thats left over of the engines and the parts airframe and engines. If you don't have the ability to monetize the air.
The <unk> engines at.
At the parts level, it's pretty hard to buy a package of aircrafts, so as more and more aircraft.
Continued to stay stagnant in storage.
And the airlines and leasing companies are writing them down to a point at which they'll get out of the assets regardless.
Airframe, because theyre not going on.
Most of these are not going to go up in value.
That's when we see the value of these assets will come into.
Our price range and again.
What's going to be well well will tell us that.
Just we're just going to see it I don't know if theres any event or anything I.
Speak to specifically the says.
<unk>.
What what events will trigger.
The aircrafts coming into our price range other than.
<unk> got a peak of flying coming up during the summer after the summer travel is over I think debt in your into September October.
I can point of doldrums for the airline passenger carriers. That's one I think carriers are going to rationalize their fleets and thats, what I think the leasing companies will realize that they didn't get the aircraft out during the summer there are not likely to get them out for a while more and after having.
Airplanes out of revenue service.
During the half it just feels to me like Thats, the time at which people will just give up and they'll sell them into the market or they'll just continue to write them down but I think the most rational sellers will we'll sell them for what they're worth of not and not hold them and just spend money on storage and maintenance.
While the writing them down on their.
<unk> debt.
Just didn't feel like the right economic answer.
It might be the right P&L answer, but this is not the right economic cancer.
Alright, thanks for all of the detail.
Youre welcome.
And once again for anyone has any questions.
For you the press star one on the telephone keypad.
The man it seems as if you're on no.
No more questions for me reached the end of the question and answer session and I will now turn the call over to Nicolas for NASA for closing remarks.
Okay, So Gotham and Ken. Thank you very much for the good questions I appreciate the good talking to you guys today and thank you everyone else for joining our call and we look forward to updating.
So again next quarter.
Goodbye Goodbye.
This concludes today's conference and you may disconnect. Your lines at this time. Thank you for your participation.
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<unk>.
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