Q2 2022 AerSale Corp Earnings Call
Greetings and welcome to <unk>, Inc. Second quarter 2022 earnings conference call.
Greetings and welcome to ASL Inc. 2nd Quarter 2022 earnings conference call.
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A question answer session will follow the formal presentation.
At this time, all participants are in listen only mode. A question and answer session will follow the formal presentation.
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I'd now like to turn the conference over to your host Kirsten Gallagher. Please go ahead.
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Good afternoon, I'd like to welcome everyone to Airtel second quarter 2022 earnings call.
Good afternoon. I'd like to welcome everyone to AirSales second quarter 2022 earnings call. Conducting the call today are Nick Finazzo, Chief Executive Officer, and Martin Garmandia, Chief Financial Officer.
Ducting the call today are Nick Fernando Chief Executive Officer, and Martin Garden, India, 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 facts 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.
Before we discuss this, quarters results, we want to remind you that all statements made on this call that do not relate to matters of historical facts, should be considered forward looking statements within the meaning of the federal security 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 uncertainties and other important factors that may cause our actual results performance or achievements to be materially different from any future results important factors that could cause actual results to differ materially.
These statements are neither promises nor guarantees, but involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance, or achievements, to be materially different from any future results. Important factors that could cause actual results to differ materially from forward-looking statements are discussed in the risk factor section of the company's annual report on form 10K for the year ended December 31.
Forward looking statements are discussed in the risk factors section of the company's annual report on Form 10-K for the year ended December 31, 2021 filed with the Securities and Exchange Commission on March 15th 2022, and its other filings with the SEC. These.
These filings identify and address other important risks and uncertainties that could cause actual events and results to differ materially from those indicated by the forward looking statements on this call 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 .
The tricks to the nearest GAAP metric can be found in the earnings presentation materials made available on the investors section of the Aircell website at IR Dot Aircell dot com with that I'll turn the call over to Nick Finazzo.
of our business.
A reconciliation of those non-GAAP metrics to the nearest GAAP metric can be found in the Earnings Presentation materials made available on the Investors section of the AirSale website at ir.airsales.com. With that, I'll turn the call over to Nick Finarzo.
Thank you Kristen good afternoon, and thank you for joining our call today I'll begin with a brief overview of the quarter and operational updates and I will then turn the call over to Martin to review the numbers.
Thank you, Kristen. Good afternoon and thank you for joining our call today. I'll begin with a brief overview of the quarter and operational updates, and I'll then turn the call over to Martin to review the numbers.
We produced another record quarter for air sale with total sales up $139 6 million, which was up 51, 9% compared to the prior year and adjusted EBITDA that was up 35, 2% to $41 1 million.
We produced another record quarter for air sale with total sales of 139.6 million, which was up 51.9% compared to the prior year, and adjusted EBITDA that was up 35.2% to 41.1 million. as regards faults over ???? selling. This value rates are by higher as standard rate order time. So, it's eligible for higher base rates widely available. This increase means direction of income and standard revenue. The first rates were? 33 year olds to be getting paid the credit failure per Jesus Christ. And the Policy Act ???P Did Enter Scottish able to ?? an span, for 10 years on average. Address though. And mock the difference between a Spinal shooting meaning under video. Concerned in the order. you
Notably this higher profitability was achieved despite the absence of $8 4 million in cares Act payroll support proceeds that were received in the prior year as a result of the pandemic.
Notably, this higher profitability was achieved despite the absence of 8.4 million in CARES Act payroll support proceeds that were received in the prior year as a result of the pandemic.
This exceptional performance was achieved primarily through the broad based success of our Boeing 757 passenger to freighter conversion program, which I'll refer to as <unk> combined with an improving backdrop of commercial demand for used serviceable material, which I'll refer to as <unk>.
This exceptional performance was achieved primarily through the broad-based success of our Boeing 757 passenger to freighter conversion program, which I'll refer to as P2F, combined with an improving backdrop of commercial demand for use-serviceable material, which I'll refer to as USM Parts.
U S M parts.
This notwithstanding we think it is important to remind investors that our business can and will be lumpy quarter to quarter, depending on flight equipment transactions during the period.
This notwithstanding, we think it is important to remind investors that our business can and will be lumpy quarter to quarter, depending on flight equipment transactions during the period.
This will be the case in 2022 as a disproportionate amount of flight equipment transactions occurred in the first half of the year.
This will be the case in 2022, as a disproportionate amount of flight equipment transactions occurred in the first half of the year. In the next few years, this will be the case in 2020. This will be the case in 2020, the case in 2020, the case in 2020, the case in 2020,
Turning to segment performance and beginning with asset management second quarter sales were $114 5 million, which marks an increase of 90% over the prior year.
Turning to Segment Performance and beginning with Asset Management.
Second quarter sales were 114.5 million, which marks an increase of 90% over the prior year.
We sold a total of $92 5 million of flight equipment. During the period, which included three aircraft two of which were air sale Ptos converted 750 Sevens 747 Dash 400 freighter and three engines.
We sold a total of 92.5 million of flight equipment during the period, which included three aircraft, two of which were air-sale, P2F converted 757s, a 747-400 freighter, and three engines.
While we do expect the pace of flight equipment sales to moderate substantially in the second half based on delivery schedules. We remain positioned to continue the 757 Pizza UF program through early 2024.
While we do expect the pace of flight equipment sales to moderate substantially in the second half based on delivery schedules, we remain positioned to continue the 757 P2F program through early 2024.
Besides the six P to have conversions utilizing air sales Goodyear facility, we have committed to perform another 12 pizza web conversions on 750 Sevens by third parties with seven aircraft already owned by air sale and available for conversion and an additional four in the final stage of <unk>.
Besides the six P2F conversions utilizing AirSales Good Year facility, we have committed to perform another 12 P2F conversions on 757's by third parties.
with seven aircraft already owned by Air Sale and available for conversion and an additional four in the final stage of purchase negotiations.
Purchase negotiations.
Upon completion of these additional 12 aircrafts Aircell will have sold leased or have available for sale or lease 18, <unk> converted 757 freighters.
Upon completion of these additional 12 aircraft, Air Sale will have sold, leased, or have available for sale or lease, 18 P2F converted 757 freighters.
Beyond the 757 <unk> program, our feedstock pipeline has continued to markedly improve over the past several quarters and current flight equipment purchase opportunities are the strongest we've seen in years.
Beyond the 757 P2F program, our feedstock pipeline has continued to markedly improve over the past several quarters, and current flight equipment purchase opportunities are the strongest we've seen in years.
These are generally smaller packages of less than 10 aircraft or engines and include platforms such as the Airbus <unk> hundred 20, <unk> hundred 30, <unk> hundred 40, and Boeing 737, 757, 767 and Triple seven.
These are generally smaller packages of less than 10 aircraft or engines.
and include platforms such as the Airbus A320, A330, A340, and Boeing 737, 757, 767, and 777.
We view this change in the market backdrop as a significant positive tailwind for our medium term outlook as it will enable us to leverage the approximately $347 million of cash and revolver capacity to increase our U S M parts feedstock and aircraft available for sale or lease.
We view this change in the market backdrop as a significant positive tailwind for our medium-term outlook, as it will enable us to leverage the approximately $347 million of cash and revolver capacity to increase our USM parts feedstock and aircraft available for sale or lease.
This available liquidity becomes an even stronger market differentiator in an environment, where the availability of financing for some of our less capitalized competitors has become scarcer.
This available liquidity becomes an even stronger market differentiator in an environment where the availability of financing for some of our less capitalized competitors has become scarcer.
And the increase to their cost of capital has further eroded there are smaller return opportunities.
and the increase to their cost of capital has further eroded their smaller return opportunities.
In our USA and parts business airframe and engine parts sales also grew compared to the prior year, reflecting the benefit of a stronger commercial backdrop and recent feedstock acquisitions.
In our USM parts business, airframe and engine part sales also grew compared to the prior year, reflecting the benefit of a stronger commercial backdrop and recent feedstock acquisitions.
As we look out beyond the next couple of quarters, we anticipate feedstock availability will improve further as we're able to execute on the broadening aircraft availability in the market.
As we look out beyond the next couple of quarters, we anticipate feedstock availability will improve further as we're able to execute on the broadening aircraft availability in the market.
During the quarter, our leasing revenue also increased for general Electric C. F. Six dash ADC two engines due to strong demand from wide body freighter operators utilizing these engines.
During the quarter, our leasing revenue also increased for General Electric CF6-ADC2 engines due to strong demand from wide-body freighter operators utilizing these engines.
In consideration of the current soft lease market for older passenger flight equipment, we purposely reduced our aircraft leasing portfolio down to just one 737 400 freighter aircrafts with a 747 dash 400 freighter. We previously had on lease being sold during the quarter at an exceptional price.
In consideration of the current soft lease market for older passenger flight equipment, we purposely reduced our aircraft leasing portfolio down to just one 737-400 freighter aircraft.
with the 747-400 Freighter we previously had on lease being sold during the quarter at an exceptional price.
With plenty of dry powder and utilizing our multi dimensional value added capabilities. We believe there will be ample opportunities to rebuild our specialized aircraft lease portfolio as the leasing market improves.
With plenty of dry powder and utilizing our multi-dimensional value-added capabilities, we believe there will be ample opportunities to rebuild our specialized aircraft lease portfolio as the leasing market improves.
As noted in the prior quarter, we own just one engine currently located in Russia and held by our Russian airline customer.
As noted in the prior quarter, we own just one engine currently located in Russia and held by our Russian airline customer.
Although they have not been using the engine since the Russian sanctions took effect and continue to reassure us they want to return the engine as soon as possible. It appears the political situation is stifling the process.
Although they have not been using the engine since the Russian sanctions took effect, we have to continue to reassure them that they want to return the engine as soon as possible.
Without certainty of whether this engine will ultimately be returned to air sale and the lack of progress on our insurance claim we considered it prudent to record an impairment for the full book value of the engine, which was taken this quarter.
It appears the political situation is stifling the process.
Without certainty of whether this engine will ultimately be returned to air sale, and the lack of progress on our insurance claim, we considered it prudent to record an impairment for the full book value of the engine, which was taken this quarter.
In our Tech Ops segment total sales were $25 1 million, which declined approximately $6 6 million compared to the prior year.
In our TechOps segment, total sales were $25.1 million, which declined approximately $6.6 million compared to the prior year.
Lower Tech ops revenue was the result of fewer aircraft in our storage facilities as airlines have brought these aircraft back into service combined with the continued strategic capacity reallocation to our 750 <unk> conversion program.
Lower tech ops revenue was the result of fewer aircraft in our storage facilities, as airlines have brought these aircraft back into service, combined with the continued strategic capacity reallocation to our 757 P2F conversion program.
This reallocation of resources results in a deferral of any revenue and associated margin for the work performed until the aircraft is subsequently sold at which time the value added benefit will appear on the asset management side of the ledger.
This reallocation of resources results in a deferral of any revenue and associated margin for the work performed until the aircraft is subsequently sold, at which time the value-added benefit will appear on the asset management side of the ledger.
Although this may distort the timing and true value of the pizza at work we perform at our on airport Goodyear MRO, we still receive the full benefit of the higher value created at the company level.
Although this may distort the timing and true value of the P2F work we perform at our on-airport Goodyear MRO, we still receive the full benefit of the higher value created at the company level.
Our sixth and final aerosol converted 757 is expected to be completed by the end of the third quarter, which will open up that capacity for our third party work in the fourth quarter.
Our sixth and final air cell converted 757 is expected to be completed by the end of the third quarter, which will open up that capacity for third party work in the fourth quarter.
Regarding era, where I am pleased to announce that together with our partner Universal avionics and Elbit systems subsidiary, we have completed the software validation process.
Regarding AeroWare, I'm pleased to announce that together with our partner Universal Avionics and Elbit Systems subsidiary, we've completed the software validation process.
This represents more than two years of engineering and development effort and we're very excited to reach this important milestone.
This represents more than two years of engineering and development effort, and we're very excited to reach this important milestone.
As we're nearing the commercialization phase of <unk>, we have stepped up our marketing efforts with airline operators and have received favorable feedback across the board.
As we're nearing the commercialization phase of Airware, we've stepped up our marketing efforts with airline operators and have received favorable feedback across the board.
We've been hearing positive reviews about the system. Following our many demonstration flights with pilots frequently noting that air whereas advanced technology is quote decades ahead of anything existing today and quote.
We've been hearing positive reviews about the system following our many demonstration flights, with pilots frequently noting that Airware's advanced technology is, quote, decades ahead of anything existing today, end quote.
The visual clarity of our enhanced flight vision system provides a strong advantage compared to older technology head up displays that were developed over two decades ago.
The visual clarity of our enhanced flight vision system provides a strong advantage compared to older technology head-up displays that were developed over two decades ago.
Importantly, air where product availability could not be timelier for airline operators and other commercial air travel stakeholders as the global airline industry struggles to meet higher passenger volume amid airport congestion and increasing weather related delays.
Importantly, airwear product availability could not be timelier for airline operators and other commercial air travel stakeholders, as the global airline industry struggles to meet higher passenger volume amid airport congestion and increasing weather-related delays.
Era, where directly addresses and helps alleviate these important issues, while improving operational safety minimizing diversions fuel burn and carbon emissions.
Airware directly addresses and helps alleviate these important issues while improving operational safety, minimizing diversions, fuel burn, and carbon emissions.
As we believe final error, where certification will be granted by the FAA and the near term we are investing in our ability to begin delivering air where to our prospective customers to that end in July we ordered $33 million of the air where components from Elbit systems subsidiary Universal avionics. So that we can begin.
As we believe final airwear certification will be granted by the FAA in the near term, we are investing in our ability to begin delivering airwear to our prospective customers.
To that end, in July , we ordered $33 million of airwear components from Elbit Systems, subsidiary Universal Avionics, so that we can begin installations at the earliest time.
Installations at the earliest time.
In summary at the halfway point of the year, we're in an excellent position to deliver on our full year commitments.
In summary, at the halfway point of the year, we're in an excellent position to deliver on our full year commitments.
757, <unk> conversion program is on schedule, while the balance of our business continues to gain momentum as airline operators recover from the pandemic.
Our 757 P2F conversion program is on schedule, while the balance of our business continues to gain momentum as airline operators recover from the pandemic.
Regarding our business development efforts, we're progressing toward commercialization of air were and continue to actively seek feedstock opportunities with nearly $350 million of capacity ready to deploy comprised of nearly $200 million of cash on the balance sheet and $150 million Undrawn on.
Regarding our business development efforts, we're progressing toward commercialization of airware and continue to actively seek feedstock opportunities with nearly $350 million of capacity ready to deploy, comprised of nearly $200 million of cash on the balance sheet and $150 million undrawn on our revolver.
Our revolver.
I want to thank all our employees and stakeholders for their support which has allowed us to reach this record performance as we executed on our purpose built multi dimensional integrated and adaptive business model.
I want to thank all our employees and stakeholders for their support, which has allowed us to reach this record performance as we executed on our purpose-built, multi-dimensional, integrated, and adaptive business model.
At this time I'll turn the call over to Martin for a closer look at the numbers Martin.
At this time, I'll turn the call over to Martin for a closer look at the numbers.
Thanks, Nick.
I will start with an overview of our second quarter financial performance and end with our guidance for 2022 or.
Martin?
Thanks, Nick.
I will start with an overview of our second quarter financial performance and end with our guidance for 2022.
Our second quarter revenue was $139 6 million, which included $92 5 million of flight equipment sales.
Our second quarter revenue was $139.6 million, which included $92.5 million of flight equipment sales.
Revenue in the second quarter of 2021 was $91 9 million and included $42 7 million of flight equipment sales.
Revenue in the second quarter of 2021 was $91.9 million and included $42.7 million of flight equipment sales.
Second quarter asset management solutions revenue increased to $114 5 million from $60 3 million in the second quarter of 2022, primarily on account of the flight equipment sales as mentioned before.
Second quarter Asset Management Solutions revenue increased to $114.5 million from $60.3 million in the second quarter of 2022, primarily on account of the flight equipment sales mentioned before.
Uhm part sales also improved due to the pent up demand and the ongoing recovery in passenger travel as compared to the prior year period.
USM parts sales also improved due to the pent-up demand and the ongoing recovery in passenger travel as compared to the prior year period.
In addition, our leasing business benefited from higher volume and utilization of our least flight equipment.
In addition, our leasing business benefited from higher volume and utilization of our leased flight equipment.
Within our U S and parts business, we see an increasingly favorable market for feedstock availability against the backdrop of growing demand for airframe and engine parts as airline USA parts consumption expand in addition demand for 757 <unk> converted aircraft is expected to remain strong and we are well positioned to monetize.
Within our USM parts business, we see an increasingly favorable market for feedstock availability against the backdrop of growing demand for airframe and engine parts as airline USM parts consumption expands. In addition, demand for 757 P2F converted aircraft is expected to remain strong and we are well positioned to monetize on an additional 12 aircraft, 10 in 2023 and 2 in early 2024.
<unk> on an additional 12 aircraft 10 in 2023 and two in early 2024.
Second quarter revenue from Tac ops was $25 1 million compared to $31 6 million in the second quarter of 2021.
Second quarter revenue from TechOps was $25.1 million compared to $31.6 million in the second quarter of 2021.
The decline in revenue largely reflected lower storage maintenance at our Roswell in Goodyear facilities as the return of aircraft by airlines into operations continued.
The decline in revenue largely reflected lower storage maintenance at our Roswell and Goodyear facilities as the return of aircraft by airlines into operations continued.
In addition, we have reduced third party capacity at our Goodyear facility due to the company 757, <unk> conversion program as.
In addition, we have reduced third-party capacity at our Goodyear facility due to the company's 757 P2S conversion program.
As you're aware, we have been able to generate higher margins from the sale of five internally converted $75 seven since the second half of 2021 as a result of this reallocation. We expect one additional internal conversion to be completed and sold in the remainder of 2022.
As you are aware, we have been able to generate higher margins from the sale of five internally converted 757s since the second half of 2021 as a result of this reallocation.
We expect one additional internal conversion to be completed and sold in the remainder of 2022.
After which we will transition to a third party provider to perform an additional 12 conversions, which will allow us to increase our capacity for third party work at Goodyear that.
after which we will transition to a third-party provider to perform an additional 12 conversions.
The decrease in revenue from an airport MRO activities was partially offset by higher revenue from our component MRO.
which will allow us to increase our capacity for third-party work at Goodyear.
The decrease in revenue from on-airport MRO activities was partially offset by higher revenue from our component MROs.
Second quarter gross margin was 39, 4% compared to 33, 4% in the second quarter of 2021, driven mainly by a favorable product mix comprised of high margin flight equipment sales.
Second quarter gross margin was 39.4% compared to 33.4% in the second quarter of 2021.
driven mainly by a favorable product mix comprised of high-margin flight equipment sales.
Selling general and administrative expenses were $23 5 million in the second quarter compared to $8 6 million in the second quarter of 2021.
Selling general and administrative expenses were $23.5 million in the second quarter compared to $8.6 million in the second quarter of 2021.
Largely on account of the absence of cares Act payroll support program proceeds received in the prior period.
largely on account of the absence of CARES Act Tarot Support Program proceeds received in the prior period.
We received $8 4 million in payroll support program proceeds during the second quarter of 2021 and did not receive any corresponding proceeds in the second quarter of 2022.
We received $8.4 million in payroll support program proceeds during the second quarter of 2021 and did not receive any corresponding proceeds in the second quarter of 2022.
We also incurred $3 9 million of noncash equity based compensation expense in the second quarter, which was de minimis in the second quarter of 2021.
We also incurred $3.9 million of non-cash, equity-based compensation expense in the second quarter, which was de minimis in the second quarter of 2021.
Income from operations was 31 5 million in the second quarter versus $22 2 million in the second quarter of 2021.
Income from operations with $31.5 million in the second quarter versus $22.2 million in the second quarter of 2021.
Net income was $26 5 million in the second quarter compared to $16 5 million in the second quarter of 2021.
Net income was $26.5 million in the second quarter compared to $16.5 million in the second quarter of 2021.
Adjusted for noncash equity based compensation impairments and mark to market adjustments related to our private warrants adjusted net income was $31 7 million in the second quarter versus $21 8 million in the second quarter of 2021.
Adjusted for non-cash, equity-based compensation, impairments, and mark-to-market adjustments related to our private warrants, adjusted net income was $31.7 million in the second quarter versus $21.8 million in the second quarter of 2021.
Diluted earnings per share was <unk> 47 for the second quarter compared to <unk> 38 in the second quarter of 2021.
Diluted Earnings per Share was $0.47 for the second quarter compared to $0.38 in the second quarter of 2021.
Adjusted for noncash equity based compensation impairments and mark to market adjustments related to our private warrants diluted earnings per share was <unk> 56 for the second quarter of 2022 compared to <unk> 50 in the second quarter of 2021.
Adjusted for non-cash equity-based compensation, impairments, and mark-to-market adjustments related to our private warrants, diluted earnings per share was $0.56 for the second quarter of 2022 compared to $0.50 in the second quarter of 2021.
Second quarter, adjusted EBITDA was $41 1 million or 29, 4% of revenues, while adjusted EBITDA in the corresponding year ago period was $30 4 million or 33, 1% of sales the.
Second quarter adjusted EBITDA was $41.1 million or 29.4% of revenues, while adjusted EBITDA in the corresponding year ago period was $30.4 million or 33.1% of sales.
The improvement in adjusted EBITDA is primarily due to the increase in revenues from our higher margin businesses.
The improvement in adjusted EBITDA is primarily due to the increase in revenues from our higher margin businesses.
In addition, adjusted EBITDA for the second quarter of 2021 reflected the benefit of $8 4 million in payroll support program proceeds for which there were no corresponding proceeds in the second quarter of 2022.
In addition, adjusted EBITDA for the second quarter of 2021 reflected the benefit of 8.4 million in Payroll Support Program proceeds for which there were no corresponding proceeds in the second quarter of 2022.
Year to date cash flow provided by operating activities was $41 2 million in the second quarter compared to $8 6 million in the second quarter of 2021.
Year-to-date cash flow provided by operating activities was $41.2 million in the second quarter compared to $8.6 million in the second quarter of 2021.
The key drivers of the increase in cash generation were stronger operating income and flight equipment sales.
The key drivers of the increase in cash generation were stronger operating income and flight equipment sales.
At quarter end, <unk> had $197 2 million of cash on its balance sheet and an undrawn revolver of $150 million.
At quarter-end, Airslaw had $197.2 million of cash on its balance sheet and an undrawn revolver of $150 million.
Finally, moving to our guidance for 2022 and summary.
As a result of our strong second quarter performance and a supportive outlook for the remainder of the year. We are reaffirming our 2022 guidance for revenue of 422 $450 million and adjusted EBITDA of $80 million to $90 million.
Finally, moving to our guidance for 2022 and summary.
As a result of our strong second quarter performance and a supportive outlook for the remainder of the year, we are reaffirming our 2022 guidance for revenue of $420 to $450 million and adjusted EBITDA of $80 to $90 million.
The implied reduction in performance in the second half as compared to the first half reflects an earlier than anticipated sale of our 747 400 freighter at the end of the second quarter, which was planned for the third quarter also deferral of $2 $75 seven aircrafts to the 2023 third party Ptos conversion.
The implied reduction in performance in the second half, as compared to the first half, reflects an earlier than anticipated sale of our 747-400 Freighter at the end of the second quarter, which was planned for the third quarter. Also, deferral of two 757 aircraft to the 2023 third-party P2S conversion program in order to benefit from higher margin returns.
In order to benefit from higher margin returns.
And consideration of the ongoing risks in the global economy.
Looking forward beyond 2022, we expect flight equipment deliveries on our 757 <unk> program to accelerate in 2023, coupled with meaningful contributions from <unk> as product deliveries ramp up.
and consideration of the ongoing risks in the global economy.
Looking forward beyond 2022, we expect flight equipment deliveries on our 757 P2F program to accelerate in 2023, coupled with meaningful contributions from AeroWare as product deliveries ramp up.
In summary, we are excited to report our record performance. This quarter, we have again demonstrated the strength of our purpose built model as well as our excellent execution capabilities. We believe we are well positioned to continue to generate strong returns to all our stakeholders.
In summary, we are excited to report our record performance this quarter. We have again demonstrated the strength of our purpose-built model, as well as our excellent execution capabilities. We believe we are well positioned to continue to generate strong returns to all our stakeholders.
With that operator, we are ready to take some questions.
Thank you Sir.
With that operator, we are ready to take some questions.
Ladies and gentlemen at this time, we will be conducting a question and answer session.
Thank you so. Ladies and gentlemen, at this time we will be conducting a question and answer session.
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One moment.
The first question we have is from.
Good Tom <unk> from Cowen. Please go ahead.
One moment.
The last question we have is from Gautam Khanna from Cohen. Please go ahead.
Hi, good afternoon guys.
Good afternoon, I was wondering if you could.
Hi, good afternoon guys.
Ill elaborate on the Aero aware.
Or are you placed with universal.
I was wondering if you could elaborate on the Airware order you placed with Universal. And could you just talk about how…
Can you maybe just talk about how.
Once once it's approved by the FAA and one from the airline was placed an order how quickly can these actually be.
Once it's approved by the FAA and once an airline is placed in order, how quickly can these actually be?
Manufactured and installed.
What's the process around that that Youre planning for now.
Manufactured and installed.
Okay sure Gautam good afternoon.
And just sort of what's the process around that that you're planning for now?
Yes.
So the order that we made with Elbit Universal for Air where components is to ensure that we have a substantial amount of equipment that we can start delivering and do a complete conversion process that means not only doing the installation wherever you modify the radome work.
Okay, sure, Gotham, good afternoon.
So the order that we made with Elbit Universal for airwear components is to ensure that we have a substantial amount of equipment that we can start delivering and do a complete conversion process. That means not only doing the installation where we modify the radome, we put the
Could be.
<unk> harnesses on the airplane and we Mount to eye tracker, we've put a location into eyebrow band, where we are we make an eyebrow band to store the the head wearable display and we amount to everything due to system tests calibrate and basically issue the supplemental type certificate authorization for that specific aircraft.
wire harnesses on the airplane, we mount the eye tracker, we put a location in the eyebrow bin where we or we make an eyebrow bin to store the head wearable display and we mount everything, do the system tests, calibrate and basically issue the supplemental type certificate authorization for that specific aircraft.
So we've got to do all of that in anticipation of installing of being able to install a fleet full of of a completed systems. So first step is for us to do all of the work that I just described.
So we've got to do all of that in anticipation of being able to install a fleet full of completed systems.
Currently we're doing that work, which we believe can be done over a several day period would be the installation of those components. However, the components.
So, first step is for us to do all of the work that I just described.
Concurrently with doing that work, which we believe can be done over a several day period, would be the installation of those components. However, the components...
Other than an installation set to certify the aircraft.
We don't need to have the components in hand or at least a large order of components to start delivering on air sales half of the.
other than an installation set to certify the aircraft, we don't need to have the components in hand, or at least a large order of components, to start delivering on air sales half of the sale of an airware converted aircraft. We just need to have enough, we just need to have our installation kit, modified radome, etc. performed, and several sets of components so that we can certify an aircraft.
Of the sale of.
Of of an error were converted aircrafts, we just need to have enough. We just need to have our installation kit modified radome etcetera performed and several sets of components. So that we can certify an aircraft and then if it's a large order and it may take.
Several months or depending on the size of the order it could take years to develop enough to build enough hardware to comply with an order of potentially thousands of aircrafts that wouldn't affect our ability to start doing our portion of their conversion and for us for <unk> to start making sales once the hardware.
And then if it's a large order and it may take, you know, several months or depending on the size of the order, it could take years to develop enough, to build enough hardware to comply with an order of, you know, potentially thousands of aircraft. That wouldn't affect our ability to start doing our portion of the conversion and for us, for AirSail to start making sales. Once the hardware became available, we think on an overnight once the aircraft were certified.
It became available we think on an overnight once the aircraft were certified had all of the was set up basically to accept all of the components that elbit Universal or manufacturing then we believe we could we could do the reinstallation of just the hardware on it on an overnight. So if we had a huge order we can do our part.
had all of the... was set up basically to accept all of the components that L-bit Universal were manufacturing, then we believe we could do the reinstallation of just the hardware on an overnight. So if we had a huge order, we could do our part. When L-bit Universal eventually catches up on manufacturing of the component pieces, we then could install the component pieces and that would really complete their half of the complete installation, but our half would already have been done.
When elbit Universal eventually catches up on manufacturing of the component pieces. We then could install the component pieces and that would really complete their half of the of the complete installation, but our half would already have been done.
Okay interesting and do you guys have any greater clarity on whether yes.
Okay, interesting. Do you guys have any greater clarity on whether...
<unk> still requires that over half.
All the operators fleet.
The FAA still requires that over half
Yes, what our system, if they're going to fly them or is that has.
of the operator's fleet.
Has that changed at all.
have
the airware system if they're going to fly them or is it has that changed at all? That's that's not changed yet. You know our understanding is now whether that's an operator requirement or an FAA requirement We're still not we're still not sure we're hearing it's an FAA requirement But it makes sense that before an operator would release a new system into into their Operation that they would have all the pilots trained on the system. They would have enough
That's not changed yet our understanding is now whether that's an operator required mentored and FAA requirement. We're still not we're still not sure. We're hearing it's an FAA requirement, but it makes sense that before an operator would release a new system into into their operation that they would have all of the pilots trained on the system They would have.
Enough equipment installed in the aircrafts so that as pilots are rotating from one aircraft to another that they hop into an airplane with air were installed they already been trained they know how to use it and there is enough aircraft flying around out there to get some proficiency using it.
equipment installed in the aircraft so that as pilots are rotating from one aircraft to another that they hop into an airplane with airwear installed they already been trained they know how to use it and there's enough aircraft flying around out there to get some proficiency using it.
So whether it's an ethical requirement or not I think it's prudent that the airlines Wade.
Wait until they get half their fleet.
So whether it's an FAA requirement or not, I think it's prudent that the airlines, you know, wait until they get half their fleet modified before they start using the system.
Modified before before they start using the system.
Okay, and do you guys have a timetable.
The earliest.
You might actually get approval and how has that gone.
Okay, and do you guys have a timetable on when the earliest, the soonest you might actually get approval? And how has it gone – if you could just kind of describe your interactions with the regulatory bodies since the software was –
You can just kind of describe your interactions with.
The regulatory bodies.
The software was.
The software package is finalized and submitted.
So a few weeks ago, we conducted another round of Familiarization flights with the human factors.
the software package is finalized and submitted.
So a few weeks ago, we conducted another round of familiarization flights with the human factors area of the FAA. What those guys do is those are engineers working for the FAA that actually verify that the pilots wearing this head wearable display can wear it comfortably, that they can use it, so that it doesn't interfere with their operation of other systems in the aircraft.
Area of the FAA on what those guys do is those are those are.
<unk> engineers working for the FAA that actually verify that the pilots wearing this head wearable display.
Can can comfortably.
Comfortably that they can use it it doesn't interfere with their operation of other systems in the aircraft and the reason that they had requested that the human factors people had requested us to do to take them up on some demonstration familiarization flights is because they want it to be ready so that when we actually saw.
And the reason that they had requested, that the human factors people had requested us to do to take them up on some demonstration familiarization flights is because they wanted to be ready so that when we actually started our certification flights, they were already familiar with the system because we've already, that was our third set of tests flying with different people from the FAA, some out of the Atlanta region, some out of the Seattle region and now the human factors people. So we think that all of the required
<unk> our certification flights they were already familiar with the system because we've already that was our third set of test flying with different.
People from the FAA some out of the Atlanta region, some out of the Seattle region and now the human factors people. So we think that all of the required.
Engineers and.
Test pilots with the FAA that <unk> that are going to participate in our in our certification in place. We believe that they have already seen the aircraft and understand how it works and they will be able to check the boxes to validate that the airplane does seed through the weather. It does all the things that we say, it's going to do that it functions correctly it doesn't enter.
engineers and test pilots with the FAA that are going to participate in our certification flights. We believe that they've already seen the aircraft and understand how it works, and they'll be able to check the boxes to validate that the airplane does see through the weather, it does all the things that we say it's going to do, that it functions correctly, it doesn't interfere, and that when we do the certification flights...
<unk> and that when we do the certification flights. It's really just it's just a it's final final check the boxes. We think we've demonstrated the system now effectively to all of that people at the FDA that will ultimately approve it for us. So we're extremely optimistic that were that were.
It's really just a final check the boxes. We think we've demonstrated the system now effectively to all of the people at the FAA that will ultimately approve it for us. So we're extremely optimistic that we're on the home stretch now.
We're in a we're in the homestretch now.
Okay and last one before I turn it over I just wanted to ask you mentioned that the.
Okay, and last one before I turn it over, I just wanted to ask, you mentioned that the protest was ready and I will end on, I find at 27 this is what took place as a police
Markets for acquiring U S.
Seems to be showing some.
for acquiring USM seems to be showing some...
Some life.
And that some of the competition.
Is waning a bit so maybe it's more of a buyer's market I was wondering if you could elaborate on kind.
some life and that some of the competition.
is waning a bit. So, you know, maybe it's more of a buyer's market. I was wondering if you could elaborate on.
What's in your pipeline of pursuits, maybe just bite size.
Are you in fact, seeing a more rational market right now in terms of.
kind of what's in your pipeline of pursuits, maybe despite size.
Bids that are prevailing Andrew who is actually.
Are you in fact seeing a more rational market right now in terms of
In the market competing against you for these assets any color there would be helpful. Thank you.
you know, bids that are prevailing and or who is actually
in the market competing against you for these assets. Any color there would be helpful. Thank you. So we do feel that.
So we do feel that we're.
As it has been a seller's market that that sellers market is starting to wane.
Leasing companies and airlines that have looked at trying to determine what to do with their idle equipment leasing companies now flip kept aircraft in storage and have not found customers to operate those aircraft again are after two and a half years of writing them down have gotten them to the point where.
Whereas it has been a seller's market that that seller's market is starting to wane
leasing companies and airlines that have looked
They're trying to determine what to do with their idle equipment. Leasing companies now who have kept aircraft in storage and have not found customers to operate those aircraft again are, after two and a half years of writing them down, have gotten them to the point where they're going to keep, whether it be engines or APUs or landing gear or whatever, they're going to take the equipment that they feel that they're going to need in the near term off those aircraft and they're going to sell those aircraft into our market.
They're going to keep whether it be engines or <unk> or landing gear or whatever theyre going to take we're going to take the equipment that they feel that they're going to need in the near term off those aircraft and theyre going to sell those aircraft into the into our market. So we're seeing that more and more where we're getting whatever it could be a whole aircraft it could be on aircrafts.
So we're seeing that more and more where we're getting whatever, it could be a whole aircraft, it could be an aircraft with one engine, it could be an aircraft with no engines and no landing gear or run-out landing gear. So we're really perfectly positioned to acquire that type of flight equipment because we know what to do with an airframe that's missing an engine or an airframe that's missing a landing gear or has a run-out landing gear that's coming with it.
One engine could be an aircraft with no engines and landing gear.
Run out landing gear. So we're really perfectly positioned to acquire that type of flight equipment, because we know what to do with an airframe, that's missing an engine or an airframe and or an airframe. That's missing a landing gear because or has a run out landing gear, that's coming with it because we have overhaul capability.
For the landing gear, we're putting engines through the shop that we're buying on the serviceable.
We've got the infrastructure to.
Two basically restore an aircraft that's still has life left.
Based on the.
The multi dimensional infrastructure that we've created over the last decade, and Thats what sets us apart from our one dimensional competitors or financial buyers, who want to come into this space. They have cash maybe to have somebody that has some experience in the market, but they don't have the the overall breadth of capacity.
they have cash, maybe they have somebody that has some experience in the market, but they don't have the overall breadth of capacity that we do, and so their ability to find profitable outlets for
That we do and so they or their ability to find profitable outlets for <unk>.
For a less than a whole aircraft or an aircraft on lease they can't do that as well as we can in an integrated fashion, where we've got multi dimensional capability. So so I'm not sure that the market is changing that much or it's the composition of the buyers that are changing or maybe it's just the evolution of the <unk> bid.
for a less than a whole aircraft or an aircraft on lease, they can't do that as well as we can in an integrated fashion where we've got multidimensional capability. So I'm not sure that the market is changing that much or it's the composition of the buyers that are changing or maybe it's just the evolution of the air-cell business model where we've gotten to the point after a decade that we're really we've gotten really good at extracting value out of midlife equipment or pieces of midlife equipment.
This model, where we've gotten to the point after a decade that where we've gotten really good at extracting value out of midlife equipment or pieces that midlife equipment, and I think thats, what differentiates us from everybody. So it's a combination of time.
Aircraft Lessors, who have had aircraft on lease for two and a half years to nonperforming lessees and they didn't take them back because candidly there was no storage capacity to put them. So we found that we had lessors asking us and you know in the last two years for storage space and we didn't have any.
And I think that's what differentiates us from everybody. So it's a combination of time, you know, aircraft lessors, who have had aircraft on lease for two and a half years to non-performing lessees, and they didn't take them back because, candidly, there was no storage capacity to put them.
So we found that we had less sores asking us in the last two years for storage space and we didn't have any. And so air leasing companies were literally leaving flight equipment with non-performing lessees because they had no place to put it. Now as aircraft are coming out of the desert, the ones that are ultimately going to fly again with new customers.
And so are leasing companies, where literally leading flight equipment with nonperforming lessees because they had no place to put it now as aircraft are coming out of the desert the ones that are ultimately going to fly again with new customers.
We're seeing storage availability free up and we're now starting to see an influx of aircraft coming out of lessees that werent paying so I don't know how whether we're going to replenish all the storage that we had previously but we're seeing definitely.
we're seeing storage availability free up, and we're now starting to see an influx of aircraft coming out of lessees that weren't paying. So I don't know how, whether we're gonna replenish all the storage that we had previously, but we're seeing definitely a recovery of aircraft storage with aircraft coming out of leasing companies, coming out of airlines that were not performing. So when you look at all of that together.
A recovery of aircraft storage with aircraft coming out of.
Leasing companies coming out of airlines that were not performing so when you look at when you look at all of that together.
We're well situated to take advantage of flight equipment, Thats coming back off lease going into storage that from nonperforming lessees and then with all the other things that we do to extract greater value out of out of all this equipment than our peers do.
We're well situated to take advantage of flight equipment that's coming back off lease, going into storage from non-performing lessees, and then with all the other things that we do to extract greater value out of all this equipment than our peers do.
Thank you.
Youre welcome.
Thank you.
Ladies and gentlemen, just a reminder, if you would like to ask a question. Please press star and then one now.
Welcome.
Ladies and gentlemen, just a reminder, if you would like to ask a question, please press 1 no.
The moment to see if we have any further questions.
We'll pause a moment to see if we have any further questions.
Ladies and gentlemen, it seems we have reached the end of our question and answer session and I would like to turn the call back to Nick for closing remarks.
Ladies and gentlemen, it seems we have reached the end of our question and answer session. And I would like to turn the call back to Nick Fornado for closing remarks.
Okay. Thank you.
So we had another record quarter and Thats, great, but we're just performing exactly as we expected maybe a little ahead, because we were able to close a 747 transaction that that we thought was going to take place in the third quarter and instead it happened at the very end of the second quarter. So that's great. We're excited about that but we need to make sure.
Okay, thank you.
So we had another record quarter, and that's great, but we're just performing exactly as we expected. Maybe a little ahead because we were able to close the 747 transaction that we thought was going to take place in the third quarter and instead it happened at the very end of the second quarter. So that's great, we're excited about that, but we need to make sure that you understand to stay focused on what we expect to do for the year. So we're not yet increasing our guidance for the year, despite the fact that we're well underway to
You understand to stay focused on what we expect to do for the year. So we're not yet increasing our guidance for the year. Despite the fact that we're we're well underway to to hit the guidance.
For the whole year, and we're confident that we're going to do that we will evaluate.
to hit the guidance for the whole year, and we're confident that we're going to do that. We will evaluate.
Opportunities that will come up in the next quarter and reassess whether we're going to increase our guidance for the year and I'm optimistic that based on our performance to date that we will figure out a way to beat our guidance.
opportunities that will come up in the next quarter and reassess whether we're going to increase our guidance for the year. And I'm optimistic that based on our performance to date that we'll figure out a way to beat our guidance. But if we don't, it doesn't matter because there are things we've done this year to defer revenue into 2023. And we're well situated. We've got the largest backlog of available equipment that we've had in the history of the company.
But if we don't it doesn't matter because there are things we've done this year to deferred revenue into 2023, and we're well situated we've got the largest backlog of available equipment that we've had in the history of the company with basically a 10 75 seven freighter conversions under car.
with basically 10 757 freighter conversions under contract to be converted next year and two in 2024. So with that sizable amount of equipment, we've never had that much available equipment that we knew that we'd be able to take to market in the coming year. So we feel great about that. There were also two 757s that we thought we would sell this year that we pulled from a transaction that we thought was...
On track to be converted next year and two in 2024, so with that sizable amount of equipment, we've never had that much available equipment.
We knew that we would be able to take to market in the coming year. So we feel great about that there were also $2 750 sevens that we thought we would sell this year that we pulled from a transaction that we thought was undervalued and we would get a greater return not selling that aircraft as a as a whole aircraft not converted.
undervalued and we would get a greater return not selling that aircraft as a whole aircraft not converted to didn't have a P2F conversion but rather for us to hold that aircraft put it as one of the 10 that we're going to convert next year and then and then sell or lease that aircraft in 23 or 24 as a converted freighter getting a much higher margin. So we've actually pulled revenue from 22 into 23 so that we could gain more margin.
It didn't have a <unk> conversion, but rather for us to hold at aircraft put it as one of the 10 that were going to convert next year, and then and then sell or lease that aircraft in 'twenty three 'twenty four as a converted freighter getting a much higher margin. So we've actually pulled revenue from 'twenty two into 'twenty three so that we could gain more.
Margin that ought to give you an indication of the confidence that we have in hitting our guidance. Despite the fact that we have taken things out of our <unk> internal forecast and move them to next year, where we expect to have a higher return.
That ought to give you an indication of the confidence that we have in hitting our guidance, despite the fact that we have taken things out of our internal forecast and moved them to next year where we expect to have a higher return.
I can't.
Overstate, how big a milestone we finished with our air where product, finishing two years' worth of engineering development and software validation is a big deal. The fact that we placed an order for $33 million worth of equipment.
I can't
overstate how big a milestone we finished with our Airware product. Finishing two years worth of engineering development and software validation is a big deal. The fact that we placed an order for $33 million worth of equipment ought to give all of you a good idea how confident we are that we're going to have this system certified in the short run and that we're going to have a multiple number of customers.
To give all of you a good idea of how confident we are that that we're going to have this system certified in the short run and that we're going to have.
Multiple a number of customers that are will be waiting to take that equipment. So we're in we're in also we.
that will be waiting to take that equipment. So we're in also, you know, we feel very optimistic and confident about our position, you know, vis-a-vis air wear.
We feel very optimistic and confident about our position vis vis the era, where so going into 'twenty three and beyond we're in perfect position. We're happy we're not patting ourselves on the back yet.
So going into 23 and beyond, we're in perfect position. We're happy, we're not patting ourselves on the back yet. We always have a lot of work to do, but we are confident about how we'll finish 22 and the future of 23 and 24 with the amount of 757 conversions that will be completed and available and the commercialization of our Airware product, which we are confident.
We always have a lot of work to do but we are we are confident about how we'll finish 'twenty, two and and the future of 'twenty three 'twenty four with the amount of $75 seven conversions that will be completed and available and the.
The commercialization of our air where product, which we are which we are confident if we don't start experiencing that at the end of this year, we will definitely experienced that in 'twenty three.
If we don't start experiencing that at the end of this year, we will definitely experience that in 23.
So again, thank you for listening and I Hope you all have a wonderful evening and we'll see you next quarter.
So again, thank you for listening, and I hope you all have a wonderful evening. We'll see you next quarter.
Alright.
Thank you Sir.
Ladies and gentlemen that concludes today's conference. Thank you for joining US you may now disconnect your lines.
Good night.
Thank you, Sal. Ladies and gentlemen, that concludes today's conference. Thank you for joining us. You may now disconnect your lines. Thank you for joining us.
Okay.
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Thanks.
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