AerSale Corporation Q1 2023 Earnings Call
Okay.
[music].
Good afternoon, ladies and gentlemen, and welcome to the Aircell, Inc. First quarter 2023 earnings conference call. At this time all lines are in listen only mode.
Following the presentation, we will conduct a question and answer session. If at any time. During this call you require immediate assistance. Please press star zero for the operator. This call is being recorded on Tuesday may nine 2023.
I'd now like to turn the conference over to Christine for drone VP of compliance. Please go ahead.
Good afternoon.
I'd like to welcome everyone to Air shows first quarter 2023 earnings call conducting the call today are Nixon Aldo Chief Executive Officer, and Martin Government 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 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 factors section of the company's annual report on Form 10-K for the year ended December 31, 2022 filed with the Securities and Exchange Commission S. E. T on March seven 2023.
And its other filings with the SEC.
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.
We'll 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 GAAP metrics can be found in the earnings presentation materials made available on the investors section of the Aircell website at IR Dot Airtel Cellcom with.
That I will turn the call over to Nick for novel.
Thank you for that explanation Christine good afternoon, everyone and thank you for joining our call today I'll begin with a brief overview of the quarter and provide operational updates before turning the call over to Martin to review the numbers in greater detail.
Our first quarter results were in line with our expectations and reflect the cadence of flight equipment sales, we shared last quarter.
This resulted in total first quarter sales of $78 3 million compared to $122 8 million in the first quarter of 2022.
I would remind investors that the prior year quarter included the sale of a highly modified 737 aircrafts that was used for <unk> testing in our tech ops segment, which added $24 million in high margin sales.
The remaining decline compared to the prior year period was entirely the result of the timing of whole asset sales as we had $27 7 million in aircraft and engine sales during the first quarter of 2023 compared to $51 9 million in the first quarter of 2022.
Excluding the sale of whole assets and the era, where 737, the remainder of our business grew approximately 8% year over year as strong growth in our tech ops segment more than offset a modest a modest decline in asset management.
As we note every quarter. It is important for investors to analyze air sale on a full year basis, NSS feedstock and whole asset sales to fully capture our performance as quarterly sales volatility is comment based on the size of flight equipment transactions.
Further while flight equipment sales adds substantial buyer variability by quarter. It is important to understand that these activities are an essential profitable and recurring component of our end to end solution.
Specific to 2023, we continue to expect higher whole asset sales related to our 757 <unk> conversion program in the second half.
As a result, the year over year quarterly comparisons will be more dramatic as as we report. This year is 2022 was heavier weighted towards the whole asset sales in the first half.
Further we expect the success of our feedstock acquisitions, which have included nearly $125 million in awarded deals year to date to bolster our second half results.
Turning to profitability, our adjusted EBITDA in the first quarter of 2023 was 5 million or six 4% of sales compared to $29 9 million or 24, 3% of sales in the prior year period.
The lower EBITDA margin observed in the period resulted from lower cost absorption from lower sales during the quarter combined with an unfavorable mix from fewer high margin whole asset sales.
At the segment level and beginning with asset management first quarter sales were $48 4 million compared to $74 5 million in the prior year period, primarily the result of lower flight equipment sales and planned reductions in our aircraft lease portfolio.
In the first quarter of 2023, we sold one engine one airframe and two aircraft.
This compares to six aircrafts and four engines that we sold in the prior year quarter.
Looking forward to the balance of the year, we continue to expect flight equipment sales to be stronger beginning in the third quarter.
This expectation is supported by a very strong feedstock acquisition cycle at the start of the year combined with forecasted deliveries of 757 <unk> aircraft.
As Martin will detail in our guidance, we have sub contracted for an additional 12 conversions from multiple multiple providers.
Of which one has been completed and sold in Q1 and eight more are expected to be completed over the remainder of 2023 and three in Q1 2024.
In our USA and parts business airframe and engine parts sales were roughly flat compared to the prior year.
Despite a stronger commercial backdrop was constrained somewhat by lower feedstock purchased in 2022, resulting in less feedstock available for sale in early 'twenty three.
As noted we expect sales from feedstock to improve materially as the year progresses based on asset acquisitions completed year to date.
In our leasing portfolio revenue was down compared to the prior year as we had only one aircraft and fewer engines on lease during the period.
As a reminder to investors we are agnostic to the type of sale and our asset management business and seek to maximize return on investment on feedstock through the highest return and current market conditions between USAA and parts sales leasing or hold assets.
As a result, we decided to sell our remaining aircraft on lease during the quarter of 737 Dash 400 freighter as we concluded that the ROI associated with continued leasing would be significantly less than a sale in a very favorable market for this type of flight equipment.
In our Tech Ops segment reported sales were $29 8 million compared to $48 3 million in the prior year.
Excluding the $24 million sale of the <unk> were 737 in 2022, our underlying our underlying sales grew 22, 7% as a stronger commercial aerospace backdrop and better MRO availability bolstered volume in the quarter.
In our engineered solutions unit, we made substantial progress in our effort to obtain FAA approval of our enhanced flight vision system era, where product during the quarter.
We've been testing this product on two aircrafts since August 2020 in order to be issued a supplemental type certificate to me Henry referred to as an STC.
And to commercialize this product.
As part of the certification process the FAA a required among other things that we proved this system through FAA observed flight tests with the SaaS scheduling five sets of flight tests beginning in February 2023.
We successfully completed the first four sets of flight tests from February through the end of April the most important of which proved that the enhanced flight vision capability met the criteria set out by both air sale and the FAA for STC certification.
We're currently working diligently to schedule the fifth set of flight tests, which will complete the flight testing aspect of this certification process.
We expect this to occur once our engineering team has completed a minor software change to address FAA comments from the first four flights.
The FAA approval process is lengthy and exhaustive to ensure public safety, which is underscored by the excellent safety record of the U S commercial aviation network.
Through this process, we have continually approved improved the system.
To near perfection and as a result, we believe the safety and quality aspects of our advanced technology product is superior to anything available on the commercial market today.
Further given the substantial investment of time and resources to them to obtain an STC of this complexity.
We believe we'll be in an excellent position to become the market leader in the category.
To that end after demonstrating to the FAA how the system worked at low visibility conditions that feedback was very complementary.
We're excited to be near completion, considering all the positive comments from the FAA and the interest of multiple potential customers.
Turning to capital allocation and our feedstock program, we remain ready with ample liquidity to execute on equipment packages that satisfy our financial requirements.
In total we have more than $230 million of capital to deploy to support our growth strategy comprised of $87 million on our balance sheet and an additional $150 million undrawn on our revolver.
As we noted several weeks ago during our year end call. We had a notable uptick in feedstock availability at year end and into the first couple of months of the year.
Year to date, we have won nearly $125 million in flight equipment packages with slightly over $50 million already closed and another $70 million awarded and in the process of closing.
We expect this added inventory to support our full year projections and drive a stronger second half of the year.
To add further context this rate of feedstock acquisitions compares to just $50 million and all of 2022 and is the most important leading indicator to the future performance of our asset management segment.
Before turning the call over to Martin I would also like to welcome Andrew Levy to our board of Directors, which we announced in April Andrew joins us with over three decades of corporate and entrepreneurial experience in the aviation and telecommunications sectors and he brings a wealth of knowledge to air sale as a five.
We're thrilled to have Andrew on the board and we look forward to working with him.
To conclude we're exactly where we expect it to be as of the first quarter and we continue to make progress in securing the feedstock we need to drive higher volume in the back half of the year.
An area, where we have past significant milestones to being awarded our STC and look forward to the final steps of the certification process.
I would like to thank all our employees for their dedication to air sales and for their efforts in delivering on our commitments to all our stakeholders.
Now I'll turn the call over to Martin for a closer look at the numbers.
Martin.
Now, let's start with an overview of our first quarter financial performance and ended with our guidance for 2023, our first quarter revenue was $78 3 million, which included $27 $7 million of flight equipment sales comprising a two cargo aircrafts, one airframe and one engine.
Our revenue in the first quarter of 2022 was $122 8 million and included $75 9 million of flight equipment sales consisting of six aircrafts and four engines.
Excluding flight equipment companies.
To demonstrate underlying growth as our base revenue increased to $50 6 million from $46 9 million in the prior year.
As a result of these factors first quarter asset management revenue was down 35% to $48 4 million, mainly as a result of lower flight equipment sales consisting of two cargo aircrafts, one airframe and one engine.
<unk> sales were close to the prior year quarter levels, but are expected to increase due to improved demand and availability of feedstock going forward.
Aircraft leasing revenue was lower because of a planned reduction in the number of aircraft in the leasing portfolio.
Checkups revenue fell 38, 3% to $29 8 million in the first quarter from $48 3 million in the year ago period.
The decrease is primarily due to the sale of our Boeing 737 Mg in the first quarter of 2022.
Boeing 737, and G was highly modified for a U S governmental agency and previously used for air where flight testing.
Excluding the aircraft sale, which is not typical in our tech ops segment sales grew 22, 7% as a result of strong demand for MRO services, particularly at our Goodyear on airport facility.
We're still sub contracted third party providers at the beginning of the fourth quarter of 2022 to perform 12 757 Pizza web conversions, which were initially planned to be completed at our Goodyear facility in line with our plan to transition opened up our own capacity to expand volume for third party services and drive.
Revenue and margin growth.
First quarter gross margin was 31, 2% compared to 38% in the first quarter of 2022, largely due to the sales mix in the first quarter, which included fewer higher margin flight equipment sales.
Selling general and administrative expenses were $25 2 million in the first quarter of 2023, which included $2 7 million of noncash equity based compensation expenses.
Selling general and administrative expenses were $23 8 million in the first quarter of 2022 and included $3 8 million of noncash equity based compensation expenses.
First quarter loss from operations was $8 million, while income from operations was $22 9 million in the first quarter of 2022.
Net income was 5000 in the first quarter compared to $17 2 million in the first quarter of 2022.
Adjusted for noncash equity based compensation Mark to market adjustment to the private warrant liability and facility relocation first quarter. Adjusted net income was $3 3 million, while adjusted net income was $22 2 million in the first quarter of 2022.
First quarter diluted earnings per share was zero cents compared to 32 cents.
In the first quarter of 2022.
Excluding the adjustments mentioned first quarter adjusted diluted earnings per share was seven <unk> compared to 41 four.
For the first quarter of 2022.
Our adjusted EBITDA was $5 million in the first quarter of 2023 compared to $29 9 million in the prior year the.
The decrease in adjusted EBITDA was largely a consequence of lower flight equipment sales.
Cash used in operating activities was $62 4 million, primarily as a result of cash deployed to increase inventory availability.
Finally, moving to our guidance for 2023.
We are reiterating our full year guidance and continue to expect to generate revenue of $460 million to $490 million and adjusted EBITDA of $70 million to $80 million in 2023.
This guidance reflects our expected flight equipment sales during the year and anticipated volume in our ongoing operations Guy.
Guidance for 2023 does not reflect potential sales of are aware as the product is in its final stages of approval and will be updated once the FTC is issued and we can assess initial order and delivery schedules.
As anticipated our first quarter results included significantly lower flight equipment sales than in the prior year, which adversely impacted our margins. We expect this trend to continue through the second quarter and improve into the second half of the year.
As a reminder, this will produce significant variation in year over year performance. As 2022 included record first half flight equipment sales with softness in the second half. While this year is expected to have low flight equipment sales in the first half with a stronger second half.
The underlying momentum of our other businesses remained strong and we are confident that they will continue to perform well we expect our second half to be underscored by stronger U S M and flight equipment sales incremental deliveries on our pizza web conversion program and supported by a continued recovery in commercial aerospace.
We have ample liquidity available to execute on our feedstock acquisition program that will drive revenue and margin growth going forward.
With that operator, we are ready to take questions.
Thank you ladies and gentlemen, we will now begin the question and answer session.
Should you have a question. Please press star followed by one on your Touchtone phone you will hear a three ton prompt acknowledging our request and your questions will be pulled in the order they are received.
If you are using a speaker phone please lift the handset before pressing any keys.
Your first question comes from Bert Subban Stifle Burton. Please go ahead.
Hey, good afternoon Martin.
Hey, maybe I'll answer the U S. M comments I think there was an expectation coming into the year that that was going to pick up.
Pretty substantially as their feedstock acquisitions, we're starting to ramp can you just talk about what you think the revenue tailwind from USA could be this year versus 22.
And then can you delineate between the U S M feedstock acquisitions and feedstock acquisitions that were intended more for the whole asset side. When you were talking about your comments on what you've acquired so far this year.
And what that one I'll do it okay.
With regard to the revenue tailwind on U S. We.
We started seeing a pickup available U S. M. At the end available feedstock that would feed both U S and whole asset.
Refurbishment <unk> sale or lease towards the end of 'twenty.
2002 and into the first quarter of 'twenty, three and as we announced in the last earnings call. We had under contract $107 million of feedstock that was that we were expecting to buy which which consisted really everything.
Aircraft airframes.
<unk> of all types.
I found that CFM 56 dash five dash seven <unk> hundred 2700, 30 Sevens <unk> hundred <unk>.
I don't know if I'm missing anything 750 sevens.
Some of that equipment.
I'll give you the breakdown because I don't really have it but some of that equipment will end up as whole aircraft that will that will be fed into our potential aircraft trading and leasing portfolio. Some of it will be refurbished as whole engines that will be fed into our engine leasing portfolio.
And some of the airframes and engines would be broken down into U S and parts. So we're in we're in very good shape based on what we have acquired thus far we're not quite we're almost halfway to.
To what we projected to buy for the whole year and we are not yet finished with the first half.
The cadence of <unk> sales follows the purchase the acquisition of <unk>.
By anywhere from 90 to 180 days and during that time, we're acquiring equipment and we're completing the records were getting it.
We're getting a refurbished or modified for ultimate resale is a whole asset or at the <unk> level. So we start seeing sales of that again as early as 90 days, if we find something that doesn't need much work, but it could be as late as it could be as late as that.
80 days.
So that if you think about what we've acquired thus far in the first half it will it will start making substantial results and our second half.
And what we're buying in the second half some of it although not a substantial portion of it but some of it will be available for <unk>.
For sale or lease or sale at the <unk> level in the second half, but most of it that we buy in the second half will flow into into 2024.
I think that was your question I don't I don't remember your second one.
No no that's good.
To clarify the 112 that the year to date number or what was the what was the period through which that was.
125, sorry.
Alright.
Year to date.
But we're not finished.
Yes got it.
Thanks for that.
757 deliveries I think you mentioned the cadence.
Could you just.
Say, what that was again I think you had nine this year and three scheduled for the first quarter of 'twenty four.
Of those 750 sevens.
How many will you already own how many do you need to acquire and are you seeing any sort of impact from lower demand in the cargo market.
So we now have all the flight equipment, and we need to to slight both aircraft and engines too.
Accommodate to 12 <unk>.
Conversions that we've that we've committed to first actual aircraft was converted and was sold in the first quarter. So there's 11 left so we still expect to have this year.
Eight more aircraft available for.
That will become available for sale or lease and then there will be three into we think in the first quarter of 24. So we started off slow because of the delay in getting a second or third provider by our FCC holder precision, but now everything is on track and we are we are set to do.
You have deliveries of again eight more aircraft this year three next year.
Okay got it and just my final question and I'll turn it back over.
It sounds like <unk> is getting pretty close to the finish line.
Fifth flight tests, Doug is completed are there any additional hurdles you would have to for the year I mean, not flight testing, but sort of otherwise with the FAA or do they become compelled I guess at that time to rule.
Assuming this does clear that final stage can you just talk about what steps you've taken thus far towards booking initial customer and once you get a customer ultimately how the revenue flows.
Do you have to wait until yet.
Outfit half of the fleet or any sort of dynamics around it so.
So actually that varies it varies from customer to customer some customers have indicated that they want they don't want the system until operational until they get half the fleet other customers don't seem to me it doesn't seem to matter to them. They want wherever they can get as soon as they can get it everybody wants to know when the system is going to become available.
We're working diligently we are definitely on track to to build a number of installed kits that we indicated at the beginning of the year that we would be we'd be at 100 for the year I think we're at 55 already and we're not at the halfway point. So we're and we're increasing that amount of <unk> 15 per month. So we're on track to have available the kits we need to.
<unk> selling <unk>.
<unk> still has elevated universal still has to produce the hard work. So we can finish the installations, we have got to find.
A customer that is ready to take these kits now.
Soon as we get this thing approved pilot.
Pilots will have to do pilot training.
We may have to make modifications to their simulators. So that they can do simulator training with the with the system installed in their simulator and that process is going to take time, which is why even if we have orders. Soon soon after we received the STC is going to take time before the airlines can take them in.
Their system and start using that but.
But we are talking to multiple customers. It's not just one we've got tremendous interest from all the customers we've talked to.
The more and more customers want to fly the airplane.
When we get them on the airplane and they fly it they're amazed candidly as a system if they're lucky enough to fly it in <unk>.
Bad weather conditions. They can appreciate what this system will do for them.
When they face inclement weather and potentially have to divert their aircraft to other airports. So good customer feedback thus far multiple customers that were talking to including still nothing has changed.
Our major customer we've been talking to that debt.
I am still optimistic will be our launch customer.
For a substantial number of aircraft that you are large U S domestic.
Thanks, a lot.
Thank you. Your next question comes from Ken Herbert RBC Capital markets. Ken. Please go ahead.
Yeah, Hey, good afternoon, Nick and Martin.
They can take them.
Hey, Nick maybe initially just on the seven five sevens for the for the <unk> you expect to get back this year out of conversion and then three and 'twenty four.
Many of those are under some sort of purchase agreement or or how many do you still have left to just sort of get customer commitments for and is this a risk that you see in and what would be the timing on sort of locking up contracts for these aircraft.
So one of the questions I didn't answer was is there a softness in the freight market and the answer is generally yes. There is clearly a softness in the freight market now is there a softness in the freight market with customers operating 750 Sevens and I would say the answer to that is no is there.
Supply of 750 Sevens converted freighters available to satisfy that demand the answer to that is no now airlines are tight our cargo airlines today are tight they're holding onto cash so the the easy ability to sell these into a market that where you've got cargo carriers.
Eating 750 sevens that are flushed with cash it's not so easy this year. So it clearly it clearly is a challenge for us to find a way to get the customers sales to cash customers that can pay cash and buy these airplanes to preference would be selling them for cash.
The alternative is to put them out on leases and we are talking with both cash customers and lease customers. If we put aircraft out on lease we have historically found.
Customers that would take the aircraft on a longer term lease at an ROI that Dave was less desirable for us, but very desirable for a financial buyer. So we have sold aircraft when we put them on lease to financial buyers. So if we go the lease route because we've been unable to.
Find the number of purchase customers at the time. These aircrafts get delivered we will seek to put them on lease we're not going to sit on aircraft. If we can help it we will place them, one way or the other and there are multiple ways to sell an aircraft. It doesn't just have to be one you sell naked.
Matter of fact, the first aircraft we sold were aircraft that we sold on lease.
I think so.
A question I didn't answer.
Well I guess, how many I guess, maybe how many of the eight this year or 11 total than are currently under contract or was it sounds like maybe none of them are no known I'm not going to say that we have.
We have some under contract not all of the ones that we had put in our forecast. So that is clearly a risk factor for us we're working hard on it again. Good thing is is that we've got pretty much the balance of available 750 sevens that are that can that can be converted to freighter. The remaining ones. We've got them all so.
So we've got some work to do and yes. It is a risk I'm not going to deny that.
We fit.
Finding a purchaser for all of these.
<unk>.
Is something that we've got to continue working on it but we're still optimistic that we will and if we don't we'll put them out on lease and maybe it will sell them with leases attached. So nothing has changed as far as our view on how we will perform on that package. It may slip to the right a little bit, but we don't know that yet I mean, we still have plenty of time left in the year and we have a lot of aircrafts.
Some of which are committed that our early deliveries and the later ones are the ones that we've got to work on and I'm not going to give you. The specific numbers I don't think that thats.
I think that that's not something that isn't worth that we should be discussing at this point.
Okay, That's fair Nick.
So I think you indicated.
I mean last year you did.
Asset sales, excluding the 770 <unk> test aircraft you sold you did about $200 million.
And asset sales it sounds like the second quarter from an asset sale standpoint looks to be similar to the first quarter and then you see a pretty significant step up in the third and fourth quarters are the or the third and fourth quarter similar with with your visibility today and how do we think about sort of this.
Through the year for four whole asset sales.
I can appreciate there's risk around what gets leased then and timing, but how does it look under the current plan.
It's definitely back end loaded to the second half of the year I think that we will only have one additional aircraft.
That's available and this and that accident and it would be late in <unk> and we think it's going to be late in June so even even even delivering that airplane to a customer this quarter is going to be problematic because of how late it isn't being delivered that changes a lot and once we get into the third and fourth quarter were just everything is on.
On track, it's already in work, where all most of it is in work it's they're all in position. They all need today, all are where they need to be to get converted so theres no delivery delays in getting equipment, where it needs to be.
And things are on track as far as.
<unk>.
Hey, good evening guys. Thanks for taking the question.
Nick just how are you.
I just found era, where good good you mentioned software modifications were something that the FDA came back with can you maybe give some details if you can on what they were looking for and I'm assuming.
Because it's software your existing inventory that you are building up that should be too complicated to make upgrades. There and then it just really what what needs to happen after that fifth flight, assuming everything goes well.
So we've already we.
Between our CFA and.
And Elbit Universal we've already identified a very minor software switch.
To.
Get the system to perform better than we observed some of the flight so not all of the placement of some of the plant.
So we review that with the FAA, we've all agreed on it at a matter of fact, they came up with the same solution we did independently.
It's been tested now in the lab. So we know that we know that it works in the lab, we are installing it in in our aircrafts. So we're going to make this a software patch into aircraft and it's really just changing.
And input from one source to another and.
And we think we're confident it solves the problem because we saw it in the land once we test it and we see that it works in the airplane exactly like it works on the lab, which is our expectation and we have high confidence of that of that because of what we've done it's not complicated.
We will tell the FAA, we're ready to start.
So the last set of flight tests, what will they do that's about 20 hours of flying I think they've given us warehouses.
You know that they wanted to it could be less.
Basically they just want to fly the airplane with multiple pilots and see how reliable. It is over a 20 hour a period that will be scheduled we I'm pretty confident that once we get on their schedule, we'll finish that in less than a week.
I don't think it should take more than four or five days and that's pretty cool days of applying now that assumes that everything that we expect to perform performs as it does and that and that they see the reliability of the system, which you know we've got over 300 hours on the aircraft already between the first and second aircrafts. So.
And this one.
<unk> anomaly, which we observed.
On long flights.
We think we are there I mean, we think the system does what it's what it's supposed to do.
And I expect that the epic now when they're done they are going to review the results of the software change they're going to assemble all of their paperwork and typically typically you get the STC within 30 days.
But take longer could take less some of the things that we're going to ask the FAA to do is to work concurrently with reviewing all the all the paperwork.
Between now and the time, we start doing the the final flight testing when will we get the final flight testing done that last set of tests I don't know and so I know you guys are kind of pressed me on Wednesday, it going to be what's the what's the best case and a worst case I'm not going to say I said that too many times I think its imminent I've said that before.
The fact that the FAA has said hey, guys.
As soon as you confirm this thing let us know if you want to schedule the flight test.
I think that's a real positive sign that they want to finish this too I think it's going to be a big feather in their cap too.
To approve this in this you know superior technology equipment.
And you know and further there's just nothing like it out there today and the.
The fact that this takes us so long to get done and so many flight hours of testing and.
Is going through such a rigor to the FAA really creates a major barrier to entry for anybody else that wants to bring a system like this up to speed at anytime in the foreseeable future. So.
We're confident that we're gonna be a market leader with this product.
Okay. Okay. Good.
I think you said you're at 55 kits doing 15, a month, but it sounds like universal in Elbit still need to produce hardware I mean everything.
Component supply chain, what's the confidence level that you know, let's just say you get the FAA approval everything goes well or are they going to be able to meet your kind of your demand.
It depends on the first order, we get and how quickly that airline will start installing them.
The carriers that we're talking to are smaller.
The Big one no no way I mean, if we get that one first you know built it.
It's going to take a while to staff up for the you know the the several hundred <unk>.
137, and <unk> and maxes that they've got in their fleet. So that'll that will take years to build up to supply that customer again, I've said this before and I continually been reassured by Universal and Elbit that they build the order as soon as they know what their requirement is they'll build for it they've got the capacity to.
To do that so I am optimistic that they will deliver on what they've committed.
Got it okay, and last one and I'll jump back in the queue here.
Commentary.
I think Ken was talking about on the 750 Sevens that does the guidance your revenue guidance assume all sales for the seven five sevens presumably.
There'd have to be some tweaking of guidance. If you had more of those customers opt for leases.
Right now the guidance has a mix of leasing in and and us and write out sales.
So okay, right now where there's no we're not seeing any need to change that but like Nick said, obviously, we're working on that.
If we see a need for adjustments, we'll communicate that but right now that are our projections already had that included.
Okay perfect. Thanks, guys I'll jump back in the queue, Okay Youre welcome Mike.
Thank you. Your next question comes from Ken Herbert RBC Capital markets. Please go ahead.
Yeah, Hey, Nick I, just wanted to follow up on your comments regarding the sort of the market opportunity.
For feedstock and asset acquisitions.
The 150 or 125 year to date, obviously, we're early in the second quarter, but also the environment changed in the last maybe three months in terms of.
Airlines and lessors desire to maybe.
Move some older assets I mean, we continue to face delays in new aircraft deliveries.
And there seems to be.
Traffic coming back strong and there certainly seems to be in.
Increased utilization of some of the older aircrafts. So how has that market evolved and how do you expect it to sort of play out over the next few months.
So I can talk about why we're.
Winning more.
More deals that we bid on than we have historically you know our hit rate is higher.
I got to give you the exact number but you know it is it is substantially higher than it has been and why is that and I've said this before but it's worth reiterating.
Airlines need more flight equipment, but what the leasing companies and the owners and the airlines are not doing is taking aircraft that need heavy work landing gear overhaul engine overhaul heavy airframe checks structures work and theyre not investing the money to refurbish those airplanes because.
You know theres still hoping that they'll eventually get to new aircraft and they don't want to invest and refurbishing. These older.
Maintenance intensive pieces of equipment, because unless they're going to keep that for the long term, they're not going to get the return on that investment.
Those are the assets that are coming our way and the reason, we're winning more of those assets than than many others because of the very full.
Balsam integrated multi dimensional infrastructure, we have where we can do the things necessary to refurbish.
Those aircraft at the whole level and at the <unk> level, including including the engines. So the financial buyers either they can't do that so they.
They're stepping away they can buy an aircraft on lease and they can.
Pay a price at which you're getting much lower IRR than we would and we would seek so we're not getting those deals but pretty much. If it's if it's something needs a lot of work or only has I think it's an airframe and engine or just engines, that's right up our alley, we've got the machinery to process that and extract maximum value and.
That's our market today.
Occasionally we pop an airplane that Wow this was a.
Did better than we thought we picked up a good airplane with decent with decent equipment on it but but that's rare and for the most part because other people could buy that and they can find places to put it because if they don't have to do much work on it.
But the stuff that needs a lot of work that's that's our that's our cup of tea.
I could add I think our multi dimensional model also has allowed us to get better returns and a lot of our competitors and I think we've noted in the past that we target IRR of 25% or greater and with a cost of capital and some of our competitors that have.
A much more levered than we are and I didn't do not have the ability to monetize the way that we do that's really taking a big bite of the Apple of their profits and that's that's going our way because again, we have been used to operating in an environment, where we target a high IRR.
Just let me further elaborate on that I mean, we've seen deals where we feel and this has been the last several years that investors are acquiring assets with the expectation to get our LOE.
A low double digit or even at very high single digit return well that just got wiped out almost completely by by an imputed interest rate debt for people that have to go out there and.
Acquired capital or look at alternate uses of capital that they have you know as you're approaching a 10% hurdle rate of deal. It's high single digits doesn't work and even low double digits does it doesn't work when you factor in the effort and the risk adjustment.
That's another reason why we're winning deals.
Okay very helpful. Thanks, Nick Thanks Martin.
Welcome.
Thank you, ladies and gentlemen, as a reminder.
I apologize.
There are no further questions at this time I will now turn it back to Nick <unk> CEO for closing remarks.
Okay, Burton, Ken and Mike Thanks for the good questions and for everyone listening today. Thank you for listening to our air sales first quarter financial results.
We will continue to work hard and smart to deliver on our full year guidance I Hope you will listen in on next quarter call on next quarters call to get an update on our progress as we go forward.
Have a good evening everyone.
Thank you ladies and gentlemen. This concludes your conference call for today, we thank you for participating and ask that you. Please disconnect your lines.