Q3 2023 FTAI Aviation Ltd Earnings Call
[music].
Speaker 1: you
Yeah.
Okay.
Speaker 2: Hello and welcome to FTES Aviation's third quarter 2023 earnings conference call.
Hello, and welcome to after that aviation third quarter 2023 earnings Conference call.
Speaker 2: At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask the question during this session, you will need to press star 1-1 on your telephone.
At this time all participants are in a listen only mode.
After the speaker's presentation, there will be a question and answer session to ask a question. During this session you will need to press star one on your telephone.
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Speaker 2: I would now like to hand the conference over to Alan and Dreni and that's the relations. Sir, you may begin.
I'd now like to hand, the conference over to Allen and Ginnie Investor Relations, Sir you may begin.
Speaker 3: Thank you, Tuwanda. I would like to welcome you all to the FTI Aviation Third Quarter 2023 earnings call. Joining me here today are Joe Adams, our Chief Executive Officer, and Angela Lennon, our Chief Financial Officer.
Thank you to you wanted to I would like to welcome you all to the FY Aviation third quarter 2023 earnings call. Joining me here today are Joe Adams, Our Chief Executive Officer, and Angela Nam, our Chief Financial Officer.
Speaker 3: We have posted an investor presentation and our press release on our website, which we encourage you to download if you have not already done so. Also, please note that this call is open to the public and listen only mode and is being webcast. In addition, we will be discussing some non- GAAP financial measures during the call today, including EBITDA. The reconciliation of those measures to the most directly comparable GAAP measures can be found in the earnings supplement.
We have posted an investor presentation in our press release on our website, which we encourage you to download if not already done. So also please note that this call is.
In a listen only mode and is being webcast. In addition, we will be discussing some non-GAAP financial measures during the call today, including EBITDA.
Conciliation.
To the most directly comparable GAAP measures can be found in the earnings supplement.
Speaker 3: Before I turn the call over to Joe, I would like to point out that certain statements made today will be forward-looking statements, including regarding future earnings. These statements by their nature are uncertain and may differ materially from actual results.
Before I turn the call Liberty, Joe I would like to point out that certain statements made today will be forward looking statements, including regarding future earnings.
Statements by their nature are uncertain and may differ materially from actual results.
Speaker 3: We encourage you to review the discolors that are press release and the best of presentation regarding non- GAAP financial measures and forward-looking statements. And to review the risk factors contained in our quarterly report filed with the SEC. Now I would like to turn the call over to Joe.
Encourage you review the disclaimers in our press release and Investor presentation regarding non-GAAP financial measures and forward looking statements and to review the risk factors contained in our quarterly report filed with the SEC now I would like to turn the call over to Joe.
Speaker 4: Thank you, Alan. To start today, I'm pleased to announce our 34th dividend as a public company and our 49th consecutive dividend since inception.
Thank you Alan.
To start today I am pleased to announce our 34th dividend as a public company and our 49th consecutive dividend since inception.
Speaker 4: The dividend of 30 cents per share will be paid on November 28th, based on a shareholder record date of November 14th.
The dividend of <unk> 30 per share will be paid on November 28 based on a shareholder record date of November November 14th.
Speaker 4: Now let's turn to the numbers. The key metrics for us are adjusted EBITDA.
Now, let's turn to the numbers the key metric stretch our adjusted EBITDA.
Speaker 4: We had another strong quarter with a just as EBITDA of 154.2 million in Q3 2023, which is up 1% compared to 153.1 million in Q2 of 2023, and up 42% compared to 108.9 million in Q3 2022.
We had another strong quarter with adjusted EBITDA of $154 2 million in Q3, 2023, which is up 1% compared to $153 1 million in Q2 of 2023 and up 42% compared to $108 9 million in Q3 2022.
Speaker 4: During the third quarter, the 154.2 million EBITDA number was comprised of 119.6 million from our leasing segment, 40.6 million from our aerospace product segment, and negative 6 million from corporate and other.
During the third quarter, the $154 2 million EBITDA number was comprised of $119 6 million from our leasing segment $40 6 million from our aerospace product segment and negative $6 million from corporate and other.
Speaker 4: Turning now to leasing, leasing had another good quarter posting approximately 120 million of EBITDA.
Turning now to leasing leasing had another good quarter, posting approximately $120 million of EBITDA.
Speaker 4: The pure leasing component of the 120 million of EBITDA Cain in at 102 million for Q3 versus 94 million in Q2.
The pure leasing component of the 120 million of EBITDA came in at $102 million for Q3 versus $94 million in Q2.
Speaker 4: Additionally, on the acquisition side, we closed on 10 aircraft and 23 engines at attractive prices, which will contribute to further growth in future leasing EBITDA.
Additionally, on the acquisition side, we closed on 10 aircrafts and 23 engines at attractive prices, which will contribute to further growth and future leasing EBITDA.
Speaker 4: Part of the 120 million ebbed-of for these things came from gains on acid cells.
Part of the $120 million EBITDA for leasing came from gains on asset sales, we sold $55 4 million book value of assets at a 24% margin for a gain of $17 6 million benefiting from strong demand for assets globally.
Speaker 4: We sold 55.4 million book value of assets at a 24% margin for a gain of 17.6 million, benefiting from strong demand for assets globally.
Speaker 4: We've had more asset sales coming in the final quarter of this year.
And we've had more asset sales coming in the final quarter of this year.
Speaker 4: Barrow space products had yet another excellent quarter with 40.6 million of EBITDA and an overall EBITDA margin of 38%.
Aerospace products had yet another excellent quarter with $40 6 million of EBITDA.
They're all EBITDA margin of 38%.
Speaker 4: We sold 41 modules in Q3 to 11 unique customers comprised of two new customers and nine repeat customers.
We sold 41 modules in Q3 to 11 unique customers comprised of two new customers and nine repeat customers.
Speaker 4: We see tremendous potential in aerospace products and feel very good about generating consistent EBITDA growth.
We see tremendous potential in aerospace products and feel very good about generating consistent EBITDA growth.
Speaker 4: As to the balance of 2023, we see FTI coming in above the high end of the $550 to $600 million EBITDA range, which we communicated at the beginning of 2023.
As to the balance of 2023, we see <unk> coming in above the high end of the $550 to $600 million EBITDA range, which we communicated at the beginning of 2023.
Speaker 4: Looking ahead to 2024, our current expectation is for leasing EBITDA to total $475 million for the year, including $50 million from Gaines.asset sales.
Looking ahead to 2024, our current expectation is for leasing EBITDA to total $475 million for the year, including $50 million from gains on asset sales.
Speaker 4: Based on a strong backlog and an expanding customer base, we are looking for $200 to $250 million of aerospace products either done in 2024. Up from $98 million year to date 2023, and $70 million in 2022.
Based on our strong backlog and an expanding customer base, we are looking for $200 million to $250 million of aerospace products EBITDA in 2024 up from $98 million year to date, 2023 and $70 million in 2022.
Speaker 4: Overall, we therefore expect annual aviation EBITDA for 2024 to be between 675 to 725 million, not including corporate and other.
Overall, we therefore expect annual aviation EBITDA for 2024 to be between 675 to 725 million not included in corporate and other.
Speaker 3: With that, I'll turn the call back to Alan. Thank you, Joe. Tawanda, you may now open the call to Q&A.
With that I'll turn the call back to Allen.
Thank you Joe.
You May now open the call to Q&A.
Speaker 2: Thank you, ladies and gentlemen, as a reminder to ask the question, please first start one one on your telephone and then wait to hear your name announced. To withdraw your question, please first start one again. Please stand by while we compile the Q&A roster.
Thank you, ladies and gentlemen, as a reminder to ask a question. Please press star one on your telephone and then wait to hear your name announce to withdraw your question. Please press star one again.
Please standby, while we compile the Q&A roster.
Okay.
Speaker 2: Our first question comes from the line of Josh Sullivan, which with the benchmark company, Yelana Sullivan.
Our first question comes from the line of Josh Sullivan with the Benchmark Company. Your line is open.
Speaker 5: Good morning, Joe, Angela, Ellen. Congratulations on the strong quarter here.
Hey, Good morning, Joe Angela Allen Congratulations on the strong quarter here.
Good morning.
Speaker 5: This is the earnings this week. We've had some updates from the large aerospace OEMs. Just wanted to check in on what fortresses is seen in the leasing and module market as these new generation of engines face these ongoing TV issues. And particularly as it relates to the geared turbofan engine versus the GE 56 options, fortresses offer.
This is the earnings this week, we've had some updates from the large aerospace Oems just wanted to check in on what fortress as seen on the leasing and module market as these new generation of engine safety ongoing TV issue isn't particularly as it relates to the geared turbofan engine versus <unk> 56 options.
This offering.
Speaker 4: Yes, so as you can imagine, demand for the prior technology equipment is very, very high in light of what is going to be accelerated maintenance on the new technology. And in some estimates, you know, the company or others are estimating that approximately 680, 320s of GTF engines on them will be grounded in the first half of 2024.
Yes so.
As you can imagine demand for the prior technology equipment is very very high in light of.
What is going to be accelerated maintenance on the new technology.
And some estimates.
The company or others are estimated at approximately 600, <unk> hundred twenty's with GTS engines on them will be grounded in the first half of 2024.
Speaker 4: and approximately 300 on average through 2026. So that's a significant.
And approximately 300 on average through 2026, so thats a significant.
Speaker 4: amount of assets that are going to be out of service for an extended period of time. And so anybody that has, you know, E320 CEOs.
The amount of assets that are going to be out of service for extended period of time.
Anybody that has <unk> hundred 20 <unk>.
Speaker 4: is keeping them and is doing the maintenance to refresh the engine.
Just keeping them and us doing the maintenance to refresh the engine so.
Speaker 4: Both of those are very good for us and in that lease rates are are trending up, you know, almost week to week. You can see increases right now. And so that's
Both of those are very good for us.
Lease rates are trending up.
Almost week to week, you can see increases right now and so that's.
Speaker 4: That's positive is likely going to continue for for some time and maintenance events people that were estimating they were going to take assets out of service or not, you know, do another shop visit or might part them out or are delaying and deferring that so There'll be more maintenance and assets will last longer. So all those factors are very, very good for the for the equipment that we maintain and own.
That's positive it is likely going to continue for for some time.
Maintenance events people that were estimating that we're going to take assets out of service or not do another shop visit or Mike part them out or delaying or deferring that so there'll be more maintenance and assets will last longer. So all of those factors are very very good for the.
So the equipment that we maintain and own.
Speaker 5: Got it. And then secondly, just on the 2024 guidance provided, what are you baking in for PMA assumptions into that number? And then if we get an approval sooner than later, what is the PMA ramp look like from manufacturing to stocking to actually getting a customer check?
Got it.
And then secondly, just on the 2024 guidance you provided what are you baking in for PMA assumptions into that number.
Then if we get an approval sooner than later what is the PMA ramp look like from manufacturing to stocking to actually getting a customer check.
Speaker 6: Yes, in that 200 to 250 million number, we've included about 15 to 20 million of EBITDA from PMA, and that that would come from both the sale of PMA parts as well as modules. And we're not sure on the ramp. It's hard to to actually forecast that. So I would assume that most of that is towards the back end of the year is our is our current assumption. Great, thank you for the time.
Yes, it's in that $200 million to $250 million number. We've included about 15 to 20 million of EBITDA from PMA.
That would come from both the sale of PMA parts as well as modules.
And we're not sure on the ramp it's hard to to actually forecast that so I would assume that most of that is towards the back end of the year as our as our.
Our current assumption.
Great. Thank you for the time.
Thanks.
Thank you.
Please Sam Pollock around next question.
Speaker 7: Our next question comes from the line of Myles Walton with Wolf Research. Your line is open. Hey, good morning, Joellen.
Our next question comes from the line of Myles Walton with Wolfe Research. Your line is open.
Hey, Good morning, Joe Allen this outlook federal one for miles.
Good morning.
Speaker 8: Maybe just within aerospace products, I want to make sure I understand what drove the sequential step-up in sales and EBITDA in the quarter. I mean, you did four more module swaps, but I'm not sure that equates to the $40 million step-up in sales and obviously the strong growth in EBITDA as well.
Maybe just within the aerospace products I want to make sure I understand what drove the sequential step up in sales and EBITDA in the quarter. I mean, you did four more module swaps. So I'm not sure that equates to about $40 million step up in <unk>.
Sales and obviously the strong growth in EBITDA as well.
Speaker 4: Yeah, so we also had growth in the sale of used serviceable material. So USM was higher and is likely to going to continue to grow. As we mentioned previously, we started a number of teardowns in the second quarter and it generally takes three to six months for that revenue to show up and
Yes. So we also had growth in the sale of used serviceable material. So USA.
It was higher and is likely to continue to grow.
As we've mentioned previously we started a number of tear downs in the second quarter and it generally takes three to six months for that <unk>.
Revenue to show up in EBITDA. So so.
Speaker 4: So we're seeing strong demand for USM, obviously, with shop visits increasing, and that's one key way of saving money on a shop visit. So we see the teardown and use service material activity growing. And then within the modules,
So we're seeing strong demand for USA, obviously with shop visits increasing and that's one key way of saving money on the shop visits so we see the.
The turndown in the used serviceable material activity growing and then within the modules.
Speaker 4: The mix of modules matters in terms of the revenue and the core has more revenue than the fan and the low pressure turbine. So it's, we had more core sales activity in the, in this third quarter than we had in the second.
Yes.
The mix of modules matters in terms of the revenue in the core has more revenue than the fan and the low pressure turbines. So.
We had more core sales activity in the in this third quarter.
Then we had in the second quarter, so its proving it.
Speaker 4: proving, you know, that's exactly, you know, what we've been expecting and what we're selling. It's a harder sell. It's a longer sell. To sell a core, it's easier to do a fan in two days or a low-pressure turbine in a week. The core is a little bit more complicated, but we've been pitching that for a couple years now, and now we've got a lot of customers that are recognizing the substantial savings
That's that's exactly what we've been expecting and what we're what we're.
Selling it's a harder sell is a longer sale to sell a car it's easier to do a fan in two days or low pressure turbine in a week.
Of course, a little bit more complicated, but we've been pitching that for a couple of years now and now we've got a lot of customers there.
<unk> the substantial savings there.
Speaker 8: All right, great. And so just so I'm clear on the USM. So that's good to know. And does that tie it all to the step up that we saw, I think, a 40 million step up in the CFM engine parts inventory? Or is it maybe not linked, but just you're building that inventory to sort of sell that? It's not again, not necessarily directly linked, but sort of along the same line.
Alright, great and so just so I'm clear on the U S M.
No it.
Does that tie at all to the step up that we saw I think a 40 million step up in the CFM engine parts inventory or is it maybe not linked but just youre building that inventory to sort of sell.
Again, not necessarily directly linked but sort of along the same line.
Speaker 9: Yeah, this is Angela. As Joe mentioned, the number of teardowns equates to an increase in inventory, but you won't see the revenue generation for three to six months. So we had a lot of teardowns in 2.2.2.3, and you'll see that revenue come through 2.4.2.3.
Yeah. This is Angela of Joe mentioned.
And the Medicare dollars equates to increases of inventory, but you won't see the revenue generation.
So we had a lot of tiered Alan Thank you.
Youll see that revenue come through.
Okay.
Speaker 8: All right, so that's kind of like a almost look at that as a leading indicator to some.
Alright, so thats kind of like almost look at that as a leading indicator to some extent yes.
Speaker 8: Okay, and then maybe just within leasing Can you comment on, you know, the strong step up in the maintenance revenue sequentially you know you're over here and sequentially while the lease income actually did step down sequentially and I think you're over a year as well.
Okay, and then maybe just within leasing can you comment on the strong step up in the maintenance revenue sequentially year over year and sequentially, while Luis income actually did step down.
Sequentially, and I think year over year as well.
Speaker 4: Yeah, there's two things went on. One is we elected to terminate for a 320 aircraft leases to a carrier in Southeast Asia. And we did that to get higher rates and better terms. And so we did that intentionally. The such strong demand for these assets has already got multiple parties that are negotiating to get them.
Yes. There is two things went on one is we elected to terminate for <unk> hundred 20 aircraft leases to a carrier in southeast Asia, and we did that to get higher rates and better terms and so we did that intentionally such.
Such strong demand for these assets, we've already got multiple parties that.
Then our negotiating to get them.
Speaker 4: So we had, when you terminate a lease, you have lease maintenance revenues that you recognize from the prior lease come through. So that's why you see a step up in the maintenance revenue. And then the lease side is a bit of an accounting issue. When we do engine swaps for aircraft that are on lease,
So we had when you terminate a lease you have.
Lease maintenance revenues that you recognized from the prior lease.
Come through so that's why you see a step up in maintenance revenue.
And then the lease side is a bit of an accounting issue. We do engine swaps for aircraft that are on lease.
Speaker 4: We book the difference in value when you put a new engine on an aircraft and you take an old engine off, there's generally an increase in the value from the new engine going in.
We book the difference in value when you put a new engine not in aircrafts and you've taken hold engine off there's generally an increase in the value from the new engine going in.
Speaker 4: that gets amortized under the rules, the lease accounting rules as lease incentive. And so that shows up as an amortization, it's a contra revenue actually. So it reduces your lease revenue strangely, but that's why you see it going down. It's a non-cash item too. So it's even more confusing from that point of view.
That gets amortized under the rules see the lease accounting rules as lease incentives and so thats.
That shows up.
Ameren as if a contra revenue actually it reduces your lease revenue strangely, but but those that's why you see it going down it's a noncash item two so it's even more confusing from that point of view.
Speaker 7: I'm thoroughly confused. So, thank you. That's all for now, thank you. Thank you, please stand by.
I'm thoroughly confused so thank you.
Thank you.
Thank you.
Please standby for our next question.
Speaker 2: Our next question comes from the line of Juliana Bologna with Compass Point. Your line is open.
Our next question comes from the line of Julianna <unk> with Compass point Your line is open.
Speaker 10: Good morning and congratulations on a great quarter.
Good morning Congrats.
Congratulations on a great quarter.
Speaker 10: One thing I'm curious about, asking about, you obviously, you know, mentioned that you're including, you know, 15 to 20 million of PMA contribution in the products outlook. So, there's obviously, you know,
Thanks.
The only thing I'm curious about asking about you obviously mentioned that you are including $15 million to $20 million of PMA contribution.
In the span of products outlook.
Yes.
Speaker 10: some great confidence about being able to receive approval for PMA in the near term. What I was curious about asking with that being said is, do you think the PMA approval timeline could be slowed down at all by the issues that the FAA is dealing with? At the moment, there's all the gear turbofan issues, the fake parts, government shutdown concerns. Just curious how you think about that and how you think it might impact the PMA approval timeline.
Some great confidence about.
Being able to.
We received approval for Canada.
In the near term.
Curious about asking kind of with that being said as you think.
The PMA approval timeline could be slowed down at all.
Because of the FAA is dealing with.
At the moment all the gear turbofan issue that will take parts government shutdown concerns.
I'm just curious how you think about that and how you're thinking about.
In fact, a PMA approval timeline.
Speaker 4: Sure, so yeah, we've had a very good progress on the parts that are in the works and a very good dialogue. So we haven't seen anything significant on that front, but recognizing that the FAA does have a lot on its plate and probably never more.
Sure. So yes, we've had.
Very very good progress on on the parts that are that are in the in the <unk>.
Works in a very good dialogue. So we haven't seen anything significant on that front, but recognizing that the FAA does have a lot on his plate will probably never more.
Speaker 4: more than ever in history, and they now have an administrator, so that's a good thing, and they've added people.
More than ever in history, and they now have an administrator. So that's that's a good thing and they've added people. So.
Speaker 4: You know, we see it moving ahead, but it is inherently very difficult to be precise about when you expect things to actually be resolved.
We see it moving moving ahead, but it is it is inherently very difficult to be precise about when you expect things actually the resolved.
Speaker 10: Got it. That's very helpful. And then one more on a topic that, you know, kind of came up earlier, but, you know, there's obviously a lot of tightening and MRO capacity across the industry. And I'm curious how you think about that in your business and how long that trend could continue.
Got it Thats very helpful.
And then one more on cargo topic.
Hi came up earlier, but there's obviously a lot of tightening in MRO capacity.
Across the industry and I'm curious, how you think about that impacting your business and how long that trend to continue.
Speaker 4: Yeah, it's good for us because our pitch to airlines is we can save you time and save you money on maintenance events. And the longer the time you'd have to spend by sending an engine into the NMRO, the more savings we provide. So, and I think the GTF issue, there's some basically every GTF engine is going to have to go through a shop visit in the next couple of years, fix on an an ex-Origant basis. So, that's going to push out.
Yes.
Good for us because our pitch to airlines as we can save you time and save you money on maintenance events and the longer the time you'd have to spend by sending an engineer into an MRO. The more savings. We can provide so so and I think the GTS issue. There is basically every every.
<unk> engine is going to have to go through a shop visit in the next couple of years.
On an accelerated basis, so thats going to push out.
Speaker 4: what was potentially available capacity is going to be used up, you know, by the GTF. So the market is definitely very, getting tight and going to get tighter, and that's very good for us because we're essentially just pre-building modules to supply people in a short period of time and have them avoid or skip the agony of the shop.
What was potentially available capacity is going to be used up.
The GTS so the market is definitely very getting tight.
Tighter.
And that's very good for us because we're essentially just pre building modules to supply people in a short period of time and have them avoid or or skip the agony of a shop visit.
Yes.
Speaker 10: That's very helpful. I appreciate it. Well, congrats on the great quarter and I will jump back in with you. Thanks.
That's very helpful. I appreciate it.
Unknown Executive: Hello and welcome to FTI Aviation 3rd quarter 2023 earnings conference call. At this time, all participants on a listen only mode. After the speakers presentation, there will be a question and answer session. To ask the question during this session, you will need to press start 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To restore your question, please press start 1-1 again.
Well congrats on the quarter, great quarter, and I will jump back in the queue.
Thanks.
Thank you ladies standby for our next question.
Speaker 2: Our next question comes from the line of Hillary Kakanandu with Dutcher Bank. Your line is open.
Our next question comes from the line of Hillary <unk> with Deutsche Bank. Your line is open.
Speaker 11: Thank you. Congratulations on the great quarter. Just a quick question on the 2024 guidance. I was wondering if you could also provide how many modules you're expecting to sell, if you could maybe give us some guidance on that as well. And then on the USN side, could you tell us how much of the EBITDA was attributed to USN for the third quarter? And then for 2024, if you could talk about how many engines you expect to part out during the year. 2028.
Thank you congratulations on the great quarter.
Quick question on the 2000 clinical David I was wondering if you could also provide how much margin you're expecting.
Alan Andreini: I will now like to hand the conference over to Alan Andreini and vest the relations. Sorry, you may begin. Thank you, Tuanda.
Hello.
Can you give us some guidance on that as well and then on the.
Alan Andreini: I would like to welcome you all to the FTI Aviation 3rd quarter 2023 earnings call. Joining me here today are Joe Adams, our Chief Executive Officer, and Angela Lam, our Chief Financial Officer. We have posted an investor presentation in our press release on our website, which we encourage you to download if not already done so. Also, please note that this call is open to the public and listen only mode and is being webcast. In addition, we will be discussing some non-gap financial measures during the call today, including EBITDA. The reconciliation of those measures to the most directly comparable gap measures can be found in the earnings supplement.
Western side could you call it like how much of the EBITDA with it then.
For the third quarter and then for 2020.
If you could talk about a permanent.
Yes.
Great. Thank you.
Yes.
Speaker 4: Thank you. OK, I'll take two, and I'll give one to.
Okay.
Okay, I'll take two and I'll get one to Angela.
Speaker 4: We expect to part out, I think this year we're parting out of roughly 40 engines and next year we're expecting it
I think.
We expect to part out I think this year, we're parting out of roughly 40 engines and next year, we're expecting it to go to <unk>.
Speaker 4: and we essentially make approximately a million dollars per engine from that activity.
And we essentially make approximately $1 million per engine from that activity.
Speaker 4: On the number of modules next year that were our, our assumption is in the neighborhood of 200 modules for next year, but there's a wide range on that. And there's different mix. So I wouldn't, you know,
Alan Andreini: Before I turn the call over to Joe, I would like to point out that certain statements made today will be forward-looking statements, including regarding future earnings. These statements by their nature are uncertain and may differ materially from actual results. We encourage you to review the disclinators in our press release and invest the presentation regarding non-gap financial measures in forward-looking statements and to review the risk factors contained in our quarterly report filed with the SEC.
On the number of modules next year that were or our assumption is in the neighborhood of 200 modules for next year, but there is a wide range on that and theres different mix, so I wouldn't.
Speaker 4: That's not terribly precise, but that's sort of order of magnitude where we are. What was this year? What would we think this year will be, 100 or 150?
That's not terribly precise but.
But that sort of order of magnitude and where we are and what was this year. What do we think this year will be a 100.
Yes go ahead.
130 of this year.
Joe Adams: Now, I would like to turn the call over to Joe. Thank you, Alan.
So.
Speaker 4: That's sort of the order of magnitude of growth on that. And then USM and.
That's sort of the order of magnitude of growth on that and then U S M and U S.
Joe Adams: To start today, I'm pleased to announce our 34th dividend as a public company and our 49th consecutive dividend since inception. The dividend of $0.30 per share will be paid on November 28 based on a shareholder record date of November 14th. Now, let's turn to the numbers. The key metrics for us are adjusted EBITDA. We had another strong quarter with adjusted EBITDA of $154.2 million in Q3 2023, which is up 1% compared to 153.1 million in Q2 of 2023, and up 42% compared to 108.9 million in Q3 2022.
Speaker 7: USM for board quarter. Q3. Q3. It's about 25 of our aerospace, even though it's from USM. No, for the third quarter. Yeah.
Fourth quarter Q3.
It's about 25 of our aerospace Ebitdas.
For the third quarter this year third quarter.
Yes, 25%.
Okay percent roughly.
Joe Adams: During the third quarter, the 154.2 million EBITDA number was comprised of 119.6 million from our leasing segment, 40.6 million from our aerospace product segment, and negative 6 million from corporate and other. Turning now to leasing, leasing had another good quarter posting approximately 120 million of EBITDA. The pure leasing component of the 120 million of EBITDA came in at 102 million for Q3 versus 94 million in Q2. Additionally, on the acquisition side, we closed on 10 aircraft and 23 engines at attractive prices, which will contribute to further growth in future leasing EBITDA.
Roughly.
$10 million.
Okay.
Speaker 11: That, thank you. That's really helpful. Thank you very much. And then I just have one more follow up question. So it looks like you stole fewer engines in the third quarter, a eight engine versus seven engine's last quarter. And just given the strong environment, just strong demand for engines, I was just wondering why you stole fewer than last quarter. Was that deliberate or just timing?
Got it. Thank you that's really helpful. Thank you very much and then I just have one more follow up question.
So it looks like you saw in the third quarter.
Good question.
Quarter, I guess, given the strong <unk>.
Strong demand for AMOLED I was just wondering why.
You are that March quarter was that deliberate.
With timing.
Speaker 4: We have been selling mostly the non CFM 56 or non V2500 engines. So those engine sales we've been
We had been selling mostly to non CFM 56, or non V 2500 engine. So those engine sales we've been.
Speaker 4: Signing up in the last few quarters have been a lot of Pratt 4000s, CF680s, RB211s.
Signing up in the last few quarters have been a lot of Pratt 4600, <unk> hundred Evans.
Speaker 4: which we now own fewer and fewer of those. So that's why I think engine sales, we're not interested in selling a lot of our CFM 56 or V25 100 assets today because we think they're still going up in value.
We now own fewer and fewer of those so that's why I think engine sales were not were not interested in selling.
A lot of our CFM 56, or <unk> 25 assets today, because we think they are still going up in value and we would.
Joe Adams: Part of the 120 million EBITDA for leasing came from gains on asset sales. We sold 55.4 million book value of assets at a 24% margin for a gain of 17.6 million benefiting from strong demand for assets and we've had more asset sales coming in the final quarter of this year. Aerospace products had yet another excellent quarter with 40.6 million of EBITDA and an overall EBITDA margin of 38%. We sold 41 modules in Q3 to 11 unique customers comprised of two new customers and nine repeat customers.
Speaker 4: We expect to hold those rather than monetize them. We could actually monetize them today a very nice game, but that would probably be short-lived. I mean, they're going to go up in value.
With respect to hold those.
Rather than rather than monetize them, we can actually monetize them today, a very nice game, but that would probably be short lived that maybe they're going to go up in value.
Speaker 4: So we're, and that's one of the reasons why we've stepped down, gained on sale for next year is we've repositioned our fleet to more CFN 56 and increasingly now be 2500. And we have fewer assets that we're looking to sell. And we also think they're all going up in value.
So were and Thats one of the reasons why we've.
Stepped down gain on sale through next year as we reposition our fleet to Morris CFM 56, and increasingly now be 25, 100, and we have fewer assets that we're looking to sell and we also think they are all going up in value.
Speaker 11: Okay, so your strategy is more towards just meeting the engines rather than selling the CFM, right? You would rather do stuff rather than go.
Okay.
Thank you.
I would rather lukewarm.
Joe Adams: We see tremendous potential in aerospace products and feel very good about generating consistent EBITDA growth. As to the balance of 2023, we see FTI coming in above the high end of the $550 to $600 million EBITDA range which we communicated at the beginning of 2023. Looking ahead to 2024, our current expectation is for leasing EBITDA to total $475 million for the year including $50 million from gains on asset sales. Based on a strong backlog and an expanding customer base, we are looking for $200 to $250 million of aerospace products EBITDA in 2024. Up from 98 million year to date 2023 and 70 million in 2022.
Speaker 4: Yeah, on that basis, yes. We're also still, you know, we're effectively selling modules. So we're selling engines for engine shop as it's been rebuilding them. So, but just outright selling an engine, we don't see that as a big activity.
Yeah.
Yes on that basis, Yes, we're also still.
We are effectively selling modules, so we're selling engines.
Joe Adams: Overall, we therefore expect annual aviation EBITDA for 2024 to be between $675 to $725 million not including corporate and other.
For engine shop visits and then rebuilding them, so, but just outright selling an engine.
You don't see that as a big activity.
Speaker 11: Thank you so much. Really helpful.
Got it great. Thank you so much.
Yep.
Thank you.
Please standby for our next question.
Speaker 2: Our next question comes from the line of Brian McKinnon with JMP Securities. Yelena's up.
Our next question comes from the line of Ryan Mckenna with JMP Securities. Your line is open.
Speaker 8: Thanks, good morning all. So it will be great just to get an update on where you are in the process around insurance claims related to the Russia and Ukraine war. And then is there any updated timeline around selling the ship's portfolio? And can you just remind us how much liquidity both of these situations could bring in?
Thanks, Good morning, all so it will be great just to get an update on where you are in the process around insurance claims related to that Russia, and Ukraine War.
And then is there any updated timeline around selling the ships portfolio and can you just remind us how much liquidity both of these situations could bring in.
Speaker 4: Yes, I think a good number for the combined...
Yes, I think a good number for the combined.
Speaker 4: proceeds that we would expect to think it's reasonable to get from both of those would be around 300 million. And I would break that out roughly half and half. So on the insurance side, it's now turned into a negotiation with the airlines who wrongfully took our assets. But they're using Russian money like AeroFod has done a couple of occasions already.
Proceeds that we would expect to take is it reasonable to us to get from both of those would be around $300 million and I would break that out roughly half and half. So on the on the insurance side. It's now turned into a negotiation with the airlines who.
Joe Adams: With that, I'll turn the call back down. Thank you, Joe.
Unknown Executive: To wander, you may now open the call to Q&A. Thank you. Ladies and gentlemen, as a reminder to ask the question, please first start one more on your telephone and then wait to hear your name announced.
Unknown Executive: To withdraw your question, please first start one more again. Please stand by while we compile the Q&A roster.
Wrong fully took our assets.
But they are using Russian.
Many like Aeroflot has done a couple of cases already.
Speaker 4: We have three separate negotiations that are advancing to settle.
We have three separate negotiations that are.
Joshua Sullivan: Our first question comes from the line of Josh Sullivan which with the benchmark company, your line is open. Good morning, Joe.
Advancing.
Two to settle.
Speaker 4: So that would avoid the lengthy litigation that is the fallback strategy. So we're hoping we can resolve, you know, one or two of those possibly fairly soon, and the other one by say the middle of next year.
So that would avoid the lengthy litigation.
Joe Adams: Angela Allen, congratulations on the strong quarter here. Good morning. This is the earnings this week. We've had some updates from the large aerospace OEMs. Just wanted to check in on what Fortress has seen in the leasing and module market as these new generation of engines face these ongoing TV issues. Particularly as it relates to the geared turbofan engine versus the GE56 options Fortress is offering. Yes, so as you can imagine, demand for the prior technology equipment is very, very high in light of what is going to be accelerated maintenance on the new technology.
As the fallback strategy. So we're hoping we can resolve one or two of those possibly fairly soon and the other one by say the middle of next year.
Joe Adams: And in some estimates, you know, the company or others are estimating that approximately 600 A320s of TTF engines on them will be grounded in the first half of 2024 and approximately 300 on average through 2026. So that's a significant amount of assets that are going to be out of service for an extended period of time. And so anybody that has E320 CEOs is keeping them and is doing the maintenance to refresh the engine.
Speaker 4: On the ship side, we also have two assets, both of which are being marketed. The macro for that industry is really good. People are not building any new ships and they're very strong demand. So I would also expect that we could monetize though those ships possibly the smaller one fairly soon, but by the middle of next year would be a reasonable target on that as well.
On the ship side, we also have two assets both of which are.
Being marketed.
<unk> for that industry has really good people are not building any new ships and there's very strong demand. So I would also expect.
That we could monetize those ships.
Possibly the smaller one fairly soon but by the middle of next year would be a reasonable target on that as well.
Speaker 12: helpful. Thanks, Joe. And then just switching gears a little bit. So it's been a few quarters since you acquired QuickTurn. So can you just give us an update on how this acquisition is going so far and then where you are in the integration process? And then just more broadly on M&A, in this environment, are you seeing any up thick and strategic opportunities that could accelerate the strategy or the growth of the company longer term?
Helpful. Thanks, Joe and then just switching gears a little bit. So it's been a few quarters. Since you acquired quick turn so can you just give us an update on how this acquisition is going so far and then where you are in the integration process and then just more broadly on M&A. In this environment are you seeing any uptick in strategic opportunities that can occur.
Accelerate the strategy or the growth of the.
Company longer term.
Speaker 4: Yes, so quick turns to great. We have stream on the activity focused mostly on engine tests.
Yes, so quick turn its doing great.
We have streamlined the activity focused mostly on engine tests.
Joe Adams: So both of those are very good for us in that lease rates are trending up, you know, almost week to week you can see increases right now. And so that's positive is likely going to continue for for some time and maintenance events. People that were estimating they were going to take assets out of service or not, you know, do another shop visit or might part them out or delaying and deferring that. So there will be more maintenance and assets will last longer. So all those factors are very, very good for the equipment that we maintain and own. Got it.
Speaker 4: and very light hospital shop visits and module swaps, which was a big driver while we really were interested in that facility. We did over 20 end-intests in September and what's our estimate for October .
And very light hospital shop visits and module swaps and which was the big driver of why we really were interested in that facility.
We did over 20 antigen tests in September and what's our estimate for October.
Speaker 4: So that's a pretty good run rate and demand from industry partners, you know, major airlines around the world is good. So we think that is playing out very nicely and we'll continue to use that for delivering and exchanging modules. So very happy.
About 20, so that's a pretty good run rate and demand.
From industry partners major airlines around the world as it is good so we think that.
It's playing out very nicely and we will continue to use that for.
Delivering and exchanging module so very happy.
Joe Adams: And then secondly, just on the 2024 guidance provided, what are you baking in for PMA assumptions into that number? And then if we get an approval soon in the later, what is the PMA ramp look like from manufacturing to stocking to actually getting a customer check? Yes, in that 200 to 250 million number, we've included about 15 to 20 million of EBITDA from PMA and that that would come from both the sale of PMA parts as well as modules. And we're not sure on the ramp. It's hard to actually forecast that so I would assume that most of that is towards the back end of the year is our current assumption.
Speaker 4: With that acquisition on the broader topic of M&A, there are things happening in the industry. It's obviously the industry that...
With that acquisition.
On a broader topic of M&A, there are things happening in the industry. It's obviously the industry the <unk>.
Unknown Executive: Great. Thank you for the time. Thanks. Thank you. Please stand by for our next question.
Speaker 4: After market segment has got people's attention, it's performing very well in a market where not a lot of things are performing well.
Aftermarket segment as Scott People's attention is performing its performing very well.
Market, we're not a lot of things theyre performing well so thats.
Speaker 4: That's sort of a bit of a rising
That's sort of a bit of a rising.
Speaker 4: sector. And we are seeing things that are being offered for sale. We're very focused on engines and engine maintenance, so we're not going to get off of that track, but there are.
<unk>.
Sector.
And we are seeing things that are being offered for sale we're very.
Focus.
Engines and engine maintenance, so we're not going to get.
Off of that track, but there are <unk>.
Speaker 12: segments that have aspects that would be interesting to us that we're looking at. And I mentioned before, engine piece part of repair is still a focus for us. And we make progress on that. But still think of that as an interesting segment for us to get bigger in. Great. Thanks, Yael, and congrats on another nice quarter.
Segments that have.
Aspects it would be interesting to us and we're looking at and I mentioned before engine piece part repair is still a focus for us.
We've made progress on that but.
Still think of that as an interesting segment for us too.
Myles Walton: Our next question comes from the line of mouth, Walton with wolf research. The line is open. Hey, good morning, Joe Allen. It's a lower federal one from miles. Morning.
To get bigger in.
Great. Thanks, Joe and congrats on another nice quarter.
Thanks.
Thank you.
Please standby for our next question.
Joe Adams: Maybe just within the air stage products, I want to make sure I understand what drove the sequential step up in in sales and EBITDA in the quarter. I mean, you did four more module swaps, but I'm not sure that equates to the 40 million step up, you know, in sales and obviously the strong growth in EBITDA as well. Yeah, so we also had growth in the sale of used serviceable material. So USM was higher and is likely to continue to grow.
Speaker 2: Our next question comes from the line of Sharif El-Mograbi with BTIG Yaline.
Our next question comes from the line of <unk> Al Maguire with BTG. Your line is open.
Speaker 3: Hey, good morning. Thanks for taking my questions. So first, you talked about having more core sales in Q3. Could we see some lumpiness going forward as the mixture between corn, fan, or is this kind of a more of a hockey sticker deck?
Hey, good morning, Thanks for taking my questions.
So firstly you talked about having more core sales in Q3 could we see some lumpiness going forward as the mix shifts between corn fan or is this kind of a more of a hockey stick trajectory.
Speaker 4: I think it's moderate. I mean, the mix is not going to shift dramatically because again, you have an engine that has three different modules, so you're going to ultimately move all of them at some point. So it's really just a quarter to quarter fluctuation, not something that I would say would be that dramatic over a longer measurement period.
I think it's moderate the <unk>.
Joe Adams: As we mentioned previously, we started a number of tear downs in the second quarter and it generally takes three to six months for that revenue to show up and EBITDA. So we're seeing strong demand for USM, obviously, with shop visits increasing and that's one key way of saving money on a shop visit. So we see the tear down and used serviceable material activity growing. And then within the modules, the mix of modules matters in terms of the revenue and the core has more revenue than the fan and the low pressure turbines.
Mix is not going to shift dramatically because again you have an engine has three different modules youre going to ultimately move all of them at some point. So it's really just a quarter to quarter fluctuation.
Something that I would say it would be that dramatic over a longer measurement period.
Speaker 3: Okay, and then given KMA sounding more of a 2025 story, and I know you said it's hard to be precise, but can you remind us of the timeline between KMA approval and when we start seeing them show up in the modules, and where do we sit on that timeline for the four PMAs going through approval right now?
Okay, and then given the PMA is sounding more of a 2025 story and I know you said, it's hard to be precise but can you remind us of the timeline between PMA approval and when we when we should start seeing them show up in the modules and.
And where do we sit on that timeline for the for PMA going through approval right now.
Joe Adams: So we had more core sales activity in this third quarter than we had in the second quarter. So it's proving it, you know, that's exactly what we've been expecting and what we're selling. It's a harder sell. It's a longer sell. The sell courts easier to do a fan in two days or low pressure turbine in a week. The core is a little bit more complicated, but we've been pitching that for a couple of years now and now we've got a lot of customers there recognizing the substantial savings there.
Speaker 4: So as I said, good progress on all of them. We will, as soon as those part numbers, parts are approved, we will put them into our engines. So they will be available almost immediately. Chromoid begins production usually ahead of when.
So.
As I said good progress on all of them.
We will as soon as those part numbers are parts of our approved we will put them into our engines and so they will be available almost immediately.
Chromalloy begins production usually ahead of when they submit finally submit so there's inventory available immediately what the.
Speaker 3: they finally submit, so they just inventory available immediately. What the longer lead time will be third party sales or other airlines who have to go through an approval process and an engineering review, and that varies airline to airline, which is why it's always difficult to predict how long that will take and what the ramp period is. But we're talking months, not years. That's very helpful. Thanks for taking my question.
The longer lead time will be third party sales or other airlines, who have to go through an approval process and engineering review and that various airline to airline.
That's why it's always difficult to predict how long that will take and what the ramp periods, but youre talking months.
Joe Adams: All right, great. And so just so I'm clear on the USM, so that's good to know. Does that tie it all to the step up that we saw? I think a 40 million step up in the CFM engine parts inventory, or is it maybe not linked, but just you're building that inventory to sort of sell that it's not again, not necessarily directly linked, but sort of along the same line.
Nine years.
That's very helpful. Thanks for taking my question.
Yes.
Thank you.
Please standby for our next question.
Angela Lam: Yeah, this is Angela. As Joe mentioned, the number of tear downs equates to increase the inventory, but you won't see the revenue generation for three to six months. So we had a lot of tear downs in two to two three and you'll see that revenue come through keyboard. Okay, one. All right, so that's kind of like a almost look at that as a leading indicator to some extent. Yeah. Okay, and then maybe just within leasing, can you comment on, you know, the strong step up in the maintenance revenue sequentially, you know, you're over here and sequentially while leasing come actually did step down sequentially.
Speaker 2: Our next question comes from the line of Frank Galanti with Stephen. Your line is up.
Our next question comes from the line of Frank Galanti with Stifel. Your line is open.
Speaker 12: Great, thanks for taking my questions. I wanted to dig in as sort of a true up question. Earlier in your comments, you'd said this year, you expect 130 modules to be sold.
Great. Thanks for taking my question.
I wanted to sort of dig in sort of a.
True up question earlier.
Earlier in your comments you had said this year you expect 130 module to be sold.
Speaker 12: That would be something like 10 modules in 4Q. I just want to sort of give an opportunity to correct that number if that number is indeed wrong. But then on a bigger scale,
That would be something like 10 modules and <unk>.
It's hard to give an opportunity to correct that number if that if that number is indeed wrong.
But then.
Angela Lam: And I think you're over a year as well. Yeah, there's two things went on. One is we elected to terminate for a 320 aircraft leases to a carrier and Southeast Asia. And we did that to get higher rates and better terms. And so we did that intentionally, the such strong demand for these assets has already got multiple parties that are negotiating to get them. So we had, when you terminate a lease, you have lease maintenance revenues that you recognize from the prior lease come through.
On a bigger scale.
Speaker 12: In the prepared remarks you mentioned that evita kind of growing sequentially in order to see that especially around next year, if there's only 200 modules sold, your margins are in the 50 plus percent range, which means a lot more cores. How do you sort of think about the lumpiness and then the kind of sequential growth of casulas out of module sold?
In the <unk>.
Prepared remarks, you had mentioned that EBITDA kind of growing sequentially.
And in order to see that especially around next year.
If theres only 200 module installed.
Margins are in the 50 plus percent range, which means a lot more cores how.
How do you sort of think about.
The Lumpiness and then they kind of sequential growth of cash flows out of modules sold.
Speaker 13: On the first question, you're right, the 130 is low. We should be in the 150 to 160 for the year total for modules, for the year for modules.
Angela Lam: So that's why you see a step up in the maintenance revenue. And then the lease side is a bit of a counting issue when we do engine swaps for aircraft that are on lease, we book the difference in value when you put a new engine on an aircraft and you take an old engine off, there's generally an increase in the value from the new engine going in. And that gets amortized under the rules, the lease, the counting rules as lease incentive.
On the first question you're right.
One 130 is low we should be in the $1 50 to $1 60 for the year total for modules for free.
For the year for modules.
So that is correct.
Speaker 4: And the second question was margins. I mean, we've been talking about blended margins of around 35% for aerospace products.
And the second question was margins I mean, we've been talking about blended margins of around 35% for aerospace products.
Speaker 13: The USM margins tend to be lower than module margins. So it sort of blends out to a mid-30s is what we've been indicating.
On the USS margins tend to be lower than module.
Angela Lam: And so that that shows up as an amort, it's a contra revenue actually. So it reduces your lease revenue strangely. But those, that's why you see it going down. It's a non cash item too. So it's even more confusing from that point of view. Okay. I'm thoroughly confused. So thank you. Thank you. Please stand by for our next question.
Module margins, so it sort of blends out to a.
Mid Thirty's is what we've been indicating.
Speaker 13: And there could be some variations. We've had quarters, we're in the 40s. We haven't had any low quarters yet, but we could. And so it's really hard to, you know, I think we're comfortable with the mid 30s range, but actually how it, you know, plays out each quarter is going to be left.
And there could be some variations we've had quarters, where it was in the <unk>, we haven't had any low quarters, yet, but we could and so it's really hard to.
I think we're comfortable with the mid <unk> range.
But actually how it plays out each quarter is going to be.
We will have to.
Talking about it when it happens.
Giuliano Bologna: Our next question comes from the line of Gulliana, the live now with comments point. The line is open. Good morning. Congratulations on a great quarter. Thanks. One thing I'm curious about asking about it, you obviously, you know, mentioned that you're including, you know, 15 to 20 million of PMA contribution and the products out because obviously, you know, some some great confidence about being able to receive approval for PMA. You know, in the near term, what I was curious about asking kind of what that being said is, do you think the PMA approval timeline to be slowed down at all, but the issues of the FAA is dealing with.
Speaker 12: Sure, that's helpful. It's pushing over to sort of the lease income on the aviation side. You mentioned lease amortization is sort of each into that lease income number, but looking quarter of a quarter, that's only a $5 million increase in lease and tangible amortization. So if you back that in, you're only at 41 million.
Sure that's helpful.
And then switching over to the lease income on the aviation side.
You mentioned lease amortization that sort of eat into that lease income number, but looking quarter over quarter, that's almost $5 billion increase in.
Lease intangible amortization.
So if you back that in you're only at $41 million.
Speaker 12: which is still a $7 million lease income for the quarter. And that seems like too much relative to utilization increasing.
Which is still at $7 million.
And lease income for the quarter.
And that seems like too much relative to utilization increasing.
Speaker 12: And really the question is maybe if there's any comment on that, but then secondly, in the guide for 24, can you sort of break down what your assumptions are from a utilization perspective relative to a portfolio growth?
And.
Giuliano Bologna: You know, at the moment, you know, this is all the year turbofan issues, the fake parts, government shutdown concerns. I'm just curious how you think about that and how you think it might impact the PMA approval timeline. Sure. So, yeah, we've had a very, very good progress on the parts that are in the, in the works and a very good dialogue. So we haven't seen anything significant on that front, but recognizing that the FAA does have a lot on its plate, probably never more, more than ever in history and they now have an administrator. So that's, that's a good thing and they've added people.
Really.
The question is maybe if there's any comment on that.
But then secondly in the guide for 'twenty four can.
Can you sort of breakdown.
Our assumptions are from a utilization perspective relative to our portfolio growth perspective.
Speaker 4: Yeah, so we indicated that leasing for 2024 would be approximately 425 million if you exclude gain on sale.
Yes. So we've we indicated that leasing for 2024 would be approximately $425 million. If you exclude gain on sale.
Speaker 4: and we have put, we are seeing fire.
And we have put we are seeing higher lease rates and we have added quite a few engines on lease in Q3, and Q4 and we have some acquisitions were making so when you put that together if you take 100 million run rate currently.
Speaker 4: lease rates and we have added quite a few engines on lease in Q3 and Q4.
Joe Adams: So, you know, we see it moving, moving ahead, but it is, it is inherently very difficult to be precise about when you expect things to actually be resolved. Go, that's very helpful. And then one more on a topic that you know, kind of came up earlier, but you know, does not feel a lot of tightening and emerald capacity across the industry. And I'm curious, you know, how you think about that and that new business and how long I could try to continue.
Speaker 4: and we have some acquisitions we're making. So when you put that together, if you take 100 million run rate.
Speaker 4: currently 425 assumes I think modest, you know growth going forward for 2024 for leasing
425 assumes I think modest growth going forward for 2024 for leasing and certainly we're seeing very strong market, which.
Speaker 4: And certainly we're seeing a very strong market, which if it continues and would provide, I think some potential.
If it continues will provide I think.
Some potential upside.
Speaker 12: Okay, and that's helpful. And one more if I could. On the PMA side, is there any possibility you can comment on if the engineering work is complete for the four modules' draining to be approved?
Okay. That's helpful and one more if I could.
Joe Adams: Yeah, it's, it's good for us because you know, our pitch to airlines is we can save you time and save you money on maintenance events. And the longer of the time, you, you'd have to spend by sending an engine into an MRO, the more savings we provide. So, so, and I think the GTF issue. There's some basically every, every GTF engine is going to have to go through a shop is it in the next couple of years fixed on an accelerated basis.
On the PMA side is there.
Any possibility you can comment on if the engineering work is complete for the four months of granting to be approved.
Speaker 13: No, I wouldn't comment on specific parts at this point.
No I wouldn't comment on specifics.
<unk>.
Parts at this point.
Okay, great. Thank you for taking my question I appreciate it.
Thank you.
Speaker 2: As a reminder, ladies and gentlemen, that start one one to ask the question. Please stand by.
Joe Adams: So, that's going to push out what was potentially available capacity is going to be used up, you know, via the GTF. So, the market is definitely very getting tight and going to get tighter. And that's very good for us because we're essentially just pre building modules to supply people in short period of time and have them avoid or skip the agony of the shop is it. That's very helpful. I appreciate it. Yeah, well, we got some on the quarter, great quarter and I will jump back into you. Thanks. Thank you, please stand by for our next question.
As a reminder, ladies and gentlemen, Thats star one to ask the question.
Please standby for our next question.
Speaker 2: Our next question comes from the line of Brandon Oglinski with Barclays, and the? flour on a pan preparing the beans and soybean powder.
Our next question comes from the line of Brandon <unk> with Barclays. Your line is open.
Yeah.
Speaker 14: Hey, this is David Zooland from Brandon. I think you should take it a question and then you're congrats on the real growth in aerosol products this quarter.
Hey, this is David <unk> on for Brandon.
Thanks for taking my question and congrats on the real growth in aerospace products this quarter.
Speaker 14: Joe, if I could ask, you know, kind of a broad one to start. You guys have done very well at the pier dust anyway on the cargo side, you know, during the last couple of years and that market's been under at least a little bit more pressure from what we can tell. Can you talk a little bit about your exposure there and how you're thinking about the cargo mix, what you're hearing from those type of customers right now?
Joe if I could ask kind of a broad one to start.
You guys had done very well.
To us anyway.
On the cargo side.
During the last couple of years in that market has been under at least a little bit more pressure from all we can tell can you talk a little bit about your exposure, there and how youre thinking about the cargo mix what youre hearing from from those type of customers right now.
Hillary Cacanando: Our next question comes from the line of Hillary Calconando with digital bank. Gilaan is open. Thank you.
Joe Adams: Congratulations on the great quarter. This question on the 2024 guidance. I was wondering if you could also provide how many modules you're expecting to sell. If you could have maybe give us some guidance on that as well. And then on the US side, could you tell us like how much of the visa was distributed to USN for the third quarter. And then for 2024, if you could talk about how many engines you expect to part out during the year from the USN.
Speaker 4: Yeah, our cargo exposure is to Minimus. We decided, I think starting 18 months ago to basically get out. It was a very, very, you know.
Yes, we are.
<unk> exposure is de Minimis.
<unk> decided I think starting 18 months ago to basically get out there.
It was a very very strong.
Speaker 4: Market sort of driven by COVID and e-commerce and we didn't see, we saw a lot more downside than upside and so we basically got out of the cargo market.
Market sort of driven by Covid in E Commerce, and we didn't see we saw a lot more downside than upside and so we basically got out of the cargo market.
Very helpful. Thanks.
Speaker 4: I don't, you know, I don't see an immediate rebound, so I wouldn't rush to go back in.
I don't see an immediate rebound so I wouldn't rush to go back in.
Joe Adams: Thank you. Okay, I'll take two and I'll give one to Angela. I think we expect to part out. I think this year we're parting out of roughly 40 engines and next year we're expecting it to go to 50. And we essentially make approximately a million dollars per engine from that activity. On the number of modules next year that we're, our assumption is in the neighborhood of 200 modules for next year. But there's a wide range on that and there's different mix so I wouldn't, you know, that's not terribly precise.
Speaker 14: And then on the module side, it seemed like you had an uptick in repeat customers. I guess can you talk anything about the composition of those customers and what feedback you're getting there?
And then on the.
Module side. It seemed like you had an uptick in repeat customers I guess can you talk anything about the composition of those customers and what feedback youre getting there.
Speaker 4: Yeah, we're getting great repeat. I mean, every customer, I think we've had sold them a module to have his come back for more.
Yes, we're getting great repeat I mean every customer I think we've had sold them a module two has come back for more so we have 100% success rate on repeat customers and.
Speaker 4: So we have 100% success rate on repeat customers and
Speaker 4: We actually have a number of those customers who've given us orders for 2024 or indications they've said.
We actually have a number of those customers who have given us orders for 2024 indications I've said, we want eight fans are we one six <unk>.
Speaker 4: You know, we want eight fans or we want, you know, six LPTs or, you know, five cores next year. So...
Joe Adams: But, but that sort of order of magnitude where we are. What, what was this year? What would we think this year will be 100 or 100? 130 this year. So that's sort of the order of magnitude of growth on that. And then USM Angela. USM for quarter. 23. It's about 25 of our aerospace, but that's from USM. No, for the third quarter this year. Third quarter this year. Yeah, 25. Thank you. That's really helpful. Thank you very much.
Five quarters next year. So so that helps us because we can predict position that and plan for the year.
Speaker 4: So that helps us because we can position that and plan for the year.
Speaker 4: ahead of time and and people have I mean it really is it's an amazingly simple concept that really saves people time and money and so people once they do it they're like wow I mean why didn't we do this for years you know so so it's we haven't I don't think we've had a single negative you know comment from anybody on the on the customer side indicating they wouldn't do it they wouldn't use it more.
Ahead of time and people have it really is it's amazingly simple.
Concept that really save people time and money and so people once they do it they're like Wow I mean, why didn't we do this for years.
So it's.
We haven't I don't think we've had a single negative comment from anybody on the customer side, indicating they wouldn't do it they wouldnt use it more.
Great. Thanks very much.
Speaker 14: And then for Angela, it looked like you drew down the revolver a little bit this quarter and then Joe was talking about, you know, some kind of exciting opportunities down the pike. Is there anything you can tell us about kind of the incremental capital policy or what you're thinking about, at least as you stand right now?
And then for Angela.
It looks like you drew down the revolver a little bit this quarter and then Joe was talking about some kind of exciting opportunities down. The Pike is there anything you can tell us about the kind of the incremental capital policy.
Joe Adams: And then I just have one more follow up question. So it looks like you stole fewer engines in the third quarter, you know, eight engines versus 17 engines last quarter, and just given the strong, you know, environment, just strong demand for engines. I was just wondering why you stole fewer than last quarter? Was that deliberate or timing? We have been selling mostly the non CFM 56 or non V 2500 engines. So those engine sales, we've been signing up in the last three quarters have been a lot of crap 4000 CF680s RB20 Evans, which we now own fewer and fewer of those.
What youre thinking about at least as you stand right now.
Speaker 4: We do have some needs for some of the opportunities, the investment opportunities are very attractive right now. And we're looking at several debt financing alternatives of not a huge amount, but some amount. And it may be temporary given the $300 million of potential liquidity we get from the Russia assets and the ship sales. So we're in good shape. It's really just potentially timing.
Yeah, we do have some needs for some of the opportunities the investment opportunities are very attractive right now.
We're looking at several debt financing alternatives.
Not a huge amount, but some some amount and it may be temporary given the $300 million of.
<unk>.
Liquidity, we get from.
The Russia assets and the ship sails. So so we're in good shape. It's just it's really just potentially timing.
Okay. Thanks, very much Rob pardon me Ken.
Joe Adams: So that's why I think engine sales, we're not we're not interested in selling. So a lot of our CFM 56 or V 2500 assets today, because we think they're still going up in value and, you know, we would we respect to hold those rather than rather than monetize them. We could actually monetize them today a very nice game, but, but that would probably be short lived and maybe they're going to go up in value.
Yes.
Speaker 2: Thank you. Please stand by.
Thank you.
Please standby for our next question.
Speaker 2: Our next question comes from the line of Ken Herbert with RBC Capital Markets, Shilana's open.
Our next question comes from the line of Ken Herbert with RBC capital markets. Your line is open.
Speaker 15: Hey, thanks for squeezing me on. Joe, maybe wanted to see if I could ask a question on an earlier comment you made specifically around just tightness in the CFM56 from more broadly than narrow body MRO network. Are you starting to see that reflected yet in quotes for sort of extended turn times as we think about turn around times on the CFM56 sort of where they are now and where they could go into the first part of the next year?
Hey, Thanks for squeezing me on Joe maybe wanted to see if I could ask a question on an earlier comment you made specifically around just tightness in the CFM 56 or more broadly the narrow body MRO network are you starting to see that reflected yet in in quotes were sort of extended turn times.
Joe Adams: So we're and that's one of the reasons why we've stepped down gain on sale for next year is we've repositioned our fleet to more CFM 56 and increasingly now V 2500 and we have fewer assets that we're looking to sell and we also think they're all going up in value. Okay, so your strategy is more towards just missing the engines rather than selling the CFM, right? You would rather do so. Yeah, on that basis, yes, we're also still, you know, we're effectively selling modules, so we're selling engines for engine shop visits and then rebuilding them. So, but just outright selling an engine, we don't we don't see that as a big activity. Okay, got it. Okay, thank you so much. Really helpful. Thank you. Please stand by for our next question.
We think around as we think about turnaround times on the CFM 56 sort of where they are now and where they could go into the first part of next year.
You want to take that.
Sure.
Speaker 16: So broadly speaking, we are starting to see a longer lead time on Peace Part Repair. So one of the key drivers for turn time on shop visit is going to be Peace Part Repairs. And what we're seeing is a delay in that supply chain side of the business.
So broadly speaking we are starting to see a longer lead time on peace.
<unk> part repair so one of the key drivers for our turn time on shop visit is going to be peace part repairs.
We are seeing is a delay in that supply chain side of the business.
Speaker 16: Our position on peace parts is we have a program where we're able to carry use service material as we discussed the engines that were tearing down. The 40 engines this year, a lot of those engines we can tear down and use and mitigate a lot of those delays on turn times.
Our position on piece parts as we have a program, where we're able to carry you surface material as we've discussed the engines that we're tearing down the 40 engines. This year a lot of those engines, we can tear down and use and mitigate a lot of those delays on turn times.
Brian McKenna: Our next question comes from the line of Brian McKinna with JMP Securities. The line is open. Thanks. Good morning, all.
Speaker 16: And that's also going to drive a lot of demand for modules because modules in a way are a replacement of doing a full-shot visit. And you can do a lot of these shot visits outside of a traditional overall shot.
And Thats also going to drive a lot of demand for modules <unk> modules in a way or a replacement of doing a full shop visit and you can do a lot of these shop visits outside of a traditional overhaul shop.
Joe Adams: So we'll be great just to get an update on where you are in the process around insurance claims related to the Russia and Ukraine war. And is there any updated timeline around selling the ship's portfolio? And can you just remind us how much liquidity both of these situations could bring in? Yes, I think a good number for the combined proceeds that we would expect to think it's reasonable to get from both of those would be around 300 million.
Speaker 16: So the delay in a way is very good for our module program and we're mitigated through having peace-park repairs in our care-down program. But we are starting to see that delay creep up and we're expecting that to continue to creep up as the new technology engines are going to take up more capacity in the OEM and MRO space.
So the delay in a way is very good for our module program and were mitigated through having.
Piece part repairs in our care down program, but we are starting to see that delay.
And we're expecting that to continue to creep up as the new technology engines are going to take up more capacity in the OEM and MRO space.
Joe Adams: And I would break that out roughly half and half. So, on the insurance side, it's now turned into a negotiation with the airlines who wrongfully took our assets. But they're using Russian money, like AeroFod has done a couple of occasions already. We have three separate negotiations that are advancing to settle. So that would avoid the lengthy litigation that is the fallback strategy. So we're hoping we can resolve one or two of those possibly fairly soon and the other one by say the middle of next year.
Speaker 15: Great, helpful. And just one follow up. Are you expecting any incremental pushback from your airline customers on piece part pricing in 2024 as you sort of think about your ability and the demand for USM and maybe even new parts or PMA parts? How was the pricing dynamic playing now? And is that going to continue to be sort of a nice tailwind for the alternative material marketplace?
Great helpful and just one follow up are you are you expecting any incremental pushback from from your airline customers on piece part pricing in 2024, as you sort of think about your ability and the demand for U S M and maybe even new parts or PMA parts, how was the <unk>.
<unk> dynamic playing out and is that going to continue to be.
Sort of a nice tailwind for the alternative material marketplace.
Speaker 4: It's a great tailwind. I mean, the OEMs have taken significant price hikes. And as you're, I'm sure you're aware, it was low double digits in 2022. And then it was a sort of 9% to 10% price hike on parts that was implemented in August of this year. So it wasn't even a full year.
It's a great tailwind I mean, the Oems have taken.
Significant price hikes.
As you're I'm sure you're aware it was low double digits.
Joe Adams: On the ship side, we also have two assets, both of which are being marketed. The macro for that industry is really good. People are not building any new ships and they're very strong demand, so I would also expect that we could monetize those ships possibly the smaller one fairly soon, but by the middle of next year would be a reasonable target on that as well. So, helpful. Thanks, Joe.
2022 and that it was a.
Sort of 9% to 10% price hike on parts that was implemented in August of this year. So it wasn't even a full year.
Speaker 4: So that's sort of the pricing umbrella that USM operates under. And so to the extent...
So that that's sort of the pricing umbrella that <unk> operates under and so to the extent the OEM.
Speaker 4: The OEMs continue to raise prices like that, which I believe they will.
<unk> continued to raise prices like that which I believe they will.
Speaker 13: We will benefit from that. And it also makes the whole engine worth a lot more as basically the replacement value of that is it goes up with really in lockstep with the T-Spart prices.
We will benefit from that and it also makes the whole engine worth a lot more as basically the replacement value of that as it goes up with really in lockstep with the T sport prices.
Joe Adams: And then just switching gears a little bit, so it's been a few quarters since you acquired quick turns, so he just gives an update on how this acquisition is going so far and then where you are in the integration process. And then just more broadly on M&A, in this environment, are you seeing any up thick and strategic opportunities that could accelerate the strategy or the growth of the company longer term? Yes, so quick turns doing great.
Great Alright, I appreciate the color. Thank you.
Yes.
Thank you.
Speaker 2: I'm showing no further questions in the queue. I would now like to turn the call back over to Alan for closing remarks.
I'm showing no further questions in the queue I would now like to turn the call back over to Alan for closing remarks. Thank.
Speaker 3: Thank you to one of them and thank you all for participating today's conference call. We look forward to updating you after Q4.
Thank you to Linda and thank you all for participating in today's conference call. We look forward to updating you after Q4.
Joe Adams: We have streamlined the activity focused mostly on engine tests and very light hospital shop visits and module swaps, which was the big driver why we really were interested in that facility. We did over 20 engine tests in September and what's our estimate for October? About 20. So that's a pretty good run rate and demand from industry partners, you know, major airlines around the world is good. So we think that is playing out very nicely and we'll continue to use that for delivering and exchanging modules.
Speaker 2: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.
Okay.
[music].
Okay.
Okay.
Okay.
Okay.
Okay.
Okay.
Okay.
[music].
Joe Adams: So we're very happy with that acquisition on the broader topic of M&A, there are things happening in the industry. It's obviously, you know, the industry, the aftermarket segment has got people's attention. It's performing very well in a market where not a lot of things are performing well. So that's sort of a bit of a rising sector. And we are seeing things that are being offered for sale. We're very focused on engines and engine maintenance.
Yes.
[music].
Okay.
Joe Adams: So we're not going to get off of that track. But there are segments that have aspects that would be interesting to us and we're looking at. And I mentioned before engine piece part repair is still a focus for us and we make progress on that. But still think of that as an interesting segment for us to to get bigger in.
Unknown Executive: Great. Thanks, you all and congrats on another nice quarter. Thank you.
Unknown Executive: Please stand by for our next question.
Sharif El-Mograbi: Our next question comes from the line of Sharif El-Mograbi with BTIG. Yaline is open.
Joe Adams: Hey, good morning. Thanks for taking my questions. So first, you talked about having more core sales in Q3. Could we see some lumpiness going forward as the mixture between core and fan or is this kind of a more of a hockey stick trajectory? I think it's modern. I mean, the mix is not going to shift dramatically because again, you have, you know, an engine has three different modules. So you're going to ultimately move all of them at some point. So it's really just a quarter to quarter fluctuation.
Joe Adams: So not something that I would say would be that traumatic over a longer measurement period. Okay.
Joe Adams: And then given KMA is sounding more of a 2025 story. And I know you said it's hard to be precise. But can you remind us of the timeline between KMA approval and when we when we start seeing them show up in the modules? And where do we sit on that timeline for the four PMAs going through approval right now? So there, as I said, you know, good progress on all of them.
Joe Adams: We will as soon as those part numbers parts are approved, we will put them into our engines. And so they will be available almost immediately. Chromoid begins production usually ahead of when they submit finally submit today's inventory available immediately. What the longer lead time will be third party sales or other airlines who have to go through an approval process and an engineering review. And that varies airline to airline, which is why, you know, it's always difficult to predict how long that will take and what the ramp area is. But we're talking months, not, you know, not years.
Unknown Executive: That's very helpful. Thanks for taking my question. Yeah. Thank you. Please stand by for our next question.
Frank Galanti: Our next question comes from the line of Frank Galanti with Stephen. The line is open. Great. Thanks for taking my question. I wanted to sort of dig in as sort of a true up question. Earlier in your comments, you said this year you expect 130 modules to be sold. That would be something like 10 modules in 4Q. I just want to sort of give the opportunity to correct that number if that number is indeed wrong.
Frank Galanti: But then on a bigger scale. You sort of in the prepared remarks you mentioned that even a kind of growing sequentially. And in order to see that, especially around next year. If there's only 200 module sold your margins are in the 50 plus percent range, which means a lot more cores. How do you sort of think about the lumpiness and then the kind of sequential growth of cash flows out of out of modules old?
Frank Galanti: On the first question, you're right, the one 130 is low. We should be in the 150 to 160 for the year total for modules for the year for modules. So that is correct. And the second question was margins. I mean, we've been talking about blended margins of around 35% for aerospace products. The USM margins tend to be lower than module margins. So it sort of blends out to a mid 30s is what we've been indicating.
Frank Galanti: And there could be some variations. We've had quarters. We're in the 40s. We haven't had any low quarters yet, but we could. And so it's really hard to, you know, I think we're comfortable with the mid 30s range. But actually how it plays out each quarter is going to be. We'll have to, you know, talk about it when it happens. Sure, that's helpful. I'm just pushing over to sort of the lease income on the aviation side.
Frank Galanti: You mentioned lease amortization is sort of each into that lease income number but looking quarter of a quarter that's only a $5 million increase in lease intangible amortization. So if you back that in, you're only at 41 million, which is still a $7 million lease income for the quarter and that seems like too much relative to utilization increasing and really the question is maybe if there's any comment on that. But then secondly, in the guide for 24, can you sort of break down what your assumptions are from a utilization perspective relative to a portfolio growth perspective.
Frank Galanti: Yeah, so we've we indicated that leasing for 2024 would be approximately 425 million if you exclude gain on sale. And we have put, we are seeing higher lease rates and we have added quite a few engines on lease in Q3 and Q4 and we have some acquisitions we're making. So when you put that together, if you take 100 million run rate currently 425 assumes, I think modest, you know, growth going forward for 2024 for leasing.
Frank Galanti: And certainly we're seeing a very strong market, which if it continues, it would provide, I think, you know, some potential upside. Okay, and that's helpful. And one more if I could, on the PMA side, is there any possibility you can comment on if the engineering work is complete for the four modules raining to be approved? No, I wouldn't comment on specific parts at this point. Okay, great. Thank you for taking our questions. Appreciate it. Thank you. As a reminder, ladies and gentlemen, that start one one to ask the question. Please stand by for our next question.
David Zazula: Our next question comes from the line of Brandon Oglinski with Barclays. Hey, this is David Zoolong for Brandon. Thanks for taking the question and your congrats on the real growth in aerosolous products this quarter.
Joe Adams: Joe, if I could ask, you know, kind of a broad one to start. You guys had done very well. It appeared to us anyway on the cargo side, you know, during the last couple of years and that market has been under at least a little bit more pressure from what we can tell. Can you talk a little bit about your exposure there and how you're thinking about the cargo mix, what you're hearing from those type of customers right now?
Joe Adams: Yeah, our cargo exposure is diminimous. We decided, I think, starting 18 months ago to basically get out. It was a very, very strong, on the market, driven by COVID and e-commerce. We saw a lot more downside than upside and so we basically got out of the cargo market.
Joe Adams: Very helpful, thanks. I don't see an immediate rebound, so I wouldn't rush to go back in.
Joe Adams: And then on the module side, it seemed like you had an uptick in repeat customers. Can you talk anything about the composition of those customers and what feedback you're getting there? Yeah, we're getting great repeat. I mean, every customer, I think we've had sold them a module to this come back for more. So we have 100% success rate on repeat customers. And we actually have a number of those customers who've given us orders for 2024 or indications.
Joe Adams: They've said, you know, we want eight fans or we want, you know, six LPTs or five cores next year. So that helps us because we can position that and plan, you know, for the year ahead of time. And people have, I mean, it really is, it's an amazingly simple concept that really saves people time and money. And so people, once they do it, they're like, wow. I mean, why didn't we do this for years? You know, so, so it's, we haven't, I don't think we've had a single negative comment from anybody on the customer side indicating they wouldn't do it. They wouldn't use it more.
Angela Lam: Great. Thanks very much.
Angela Lam: And then for Angela, yeah, look like you drew down the revolver a little bit this quarter and then Joe, we're talking about, you know, some kind of exciting opportunities down the pike. Is there anything you can tell us about kind of the incremental capital policy or what you're thinking about at least as you stand right now? Yeah, we do have some leads for some of the opportunities, the investment opportunities are very attractive right now.
Angela Lam: And we're looking at several debt financing alternatives of, you know, not a huge amount, but some, some amount. And it may be temporary given the $300 million of potential, you know, liquidity we get from the Russia assets and the ship sale. So, so we're in good shape. It's just, it's really just potentially timing.
David Zazula: Thanks very much for dropping me. Yeah.
Unknown Executive: Thank you.
Ken Herbert: Please stand by for our next question.
Joe Adams: Our next question comes from the line of Ken Herbert with RBC capital markets. July is open. Okay, thanks for squeezing me on Joe. Maybe wanted to see if I could ask a question on an earlier comment you made specifically around just tightness in the CFM 56 or more broadly the narrow body MRO network. Are you starting to see that reflected yet in quotes for sort of extended turn times as we think around as we think about turnaround times on the CFM 56 sort of where they are now and where they could go into the first part of the next year.
Joe Adams: Do you want to take that? Sure. So broadly speaking, we are starting to see a longer lead time on piece part repair. So one of the key drivers for turn time on shop visits is going to be piece part repairs. And what we're seeing is a delay in that supply chain side of the business. Our position on peace parts is we have a program where we're able to carry use service material.
Joe Adams: As we discussed, the engines that we're tearing down, the 40 engines this year, a lot of those engines we can tear down and use and mitigate a lot of those delays on turn times. And that's also going to drive a lot of demand for modules because modules in a way are a replacement of doing a full shot visit. And you can do a lot of these shot visits outside. So the delay in a way is very good for our module program and we're mitigated through having, you know, peace part repairs in our tear down program.
Joe Adams: But we are starting to see that delay creep up and we're expecting that to continue to creep up as the new technology engines are going to take up more capacity in the in the OEM and tomorrow space.
Joe Adams: Great, helpful. And just one follow up. Are you are you expecting any incremental pushback from from your airline customers on peace part pricing in 2024 as you as you sort of think about your ability and the demand for USM and maybe even new parts or PMA parts, how was the pricing dynamic playing out and is that going to continue to be, you know, sort of a nice tailwind for the alternative material marketplace.
Joe Adams: It's a great tailwind. I mean, the OEMs have taken, you know, significant price hikes in this, as you're I'm sure you're where it was, you know, low double digits in 2022 and then it was a sort of nine to 10% price hike on parts that was implemented in August of this year. So it wasn't even a full year. So the that that's sort of the pricing umbrella that USM operates under and so to the extent the OEMs continue to raise prices like that, which I believe they will.
Joe Adams: We will benefit from that and it also makes the whole engine worth a lot more as basically the replacement value of that is it goes up with this really in lockstep with the peace part prices. All right, appreciate the cover. Thank you. Yeah. Thank you. I'm sure no further questions in the queue.
Alan Andreini: I would now like to turn the call back over to Alan for closing remarks. Thank you to one up and thank you all for participating in today's conference call. We look forward to updating you after Q4. Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.
Unknown Executive: Thank you.