Q1 2024 AerSale Corp Earnings Call

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Operator: Good day, and welcome to the AERSAIL First Quarter 2024 Earnings Conference Call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key, followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your touchtone phone. To withdraw your question, please press star, then 2. Please note this event is being recorded. I would now like to turn the conference over to Jackie Carlin, Vice President of Marketing and Communications. Please go ahead.

Speaker Change: Good day and welcome to the Air Shell first quarter 2024 earnings Conference call. All participants will be in a listen only mode should you need assistance. Please signal a conference specialist by pressing the Starkey followed by zero.

Speaker Change: After today's presentation there'll be an opportunity to ask questions to ask a question you May Press Star then one on your Touchtone phone to.

To withdraw your question. Please press Star then two.

Please note this.

Event is being recorded I would now like to turn the conference over to Jackie Carlin, Vice President of marketing and Communications. Please go ahead.

Jacqueline Carlon: Good afternoon. I'd like to welcome everyone to Airsales' first quarter 2024 earnings call. We are conducting the call today with Nick Finazzo, Chief Executive Officer, and Martin Garmendia, Chief Financial Officer. Before we discuss this quarter's results, we want to remind you that all statements made on this call that do not relate to matters of historical fact should be considered forward-looking statements within the meaning of the federal securities law, including statements regarding our current expectations for the business and our financial performance.

Jacqueline Carlon: Good afternoon I'd.

Jacqueline Carlon: I'd like to welcome everyone to air sales first quarter 2024 earnings call conducting the call today are Nixon ASO, Chief Executive Officer, and Martin Graham, India, Chief Financial Officer.

Jacqueline Carlon: Before we discuss this quarter's results we want to remind you that all statements made on this call that do not relate to matters of historical fact should be considered forward looking statements within the meaning of the federal securities laws, including statements regarding our current expectations for the business and our financial performance.

Jacqueline Carlon: These statements are neither promises nor guarantees but involve known and unknown risks, uncertainties, and other important factors that may cause our actual results, performance, or achievements to be materially different from any future results. Important factors that could cause actual results to differ materially from forward-looking statements are discussed in the Risk Factors section of Form 10-K for the year ended December 31, 2023, filed with the Securities and Exchange Commission, SEC, on March 8, 2024, and its other filings with the SEC.

Jacqueline Carlon: These statements are neither promises nor guarantees, but involve known and unknown risks uncertainties and other important factors that may cause our actual results performance or achievements to be materially different from any future results.

Jacqueline Carlon: Important factors that could cause actual results to differ materially from forward looking statements are discussed in the risk factor section on Form 10-K for the year ended December 31, 2023 filed with the Securities and Exchange Commission SEC on March eight 2024 and its other.

Jacqueline Carlon: Please with the SEC.

Jacqueline Carlon: These filings identify and address other important risks and uncertainties that could cause actual events and results to differ materially from those indicated by the forward-looking statements on this call. We'll also refer to non-GAAP measures that we view as important in assessing the performance of our business. A reconciliation of those non-GAAP metrics to the nearest GAAP metric can be found in the earnings presentation materials made available in the investor section of the AirSale website at ir.airsale.com. With that, I'll turn the call over to Nick Finazzo.

Jacqueline Carlon: These filings identify and address other important risks and uncertainties that could cause actual events and results to differ materially from those indicated by the forward looking statements on this call.

Jacqueline Carlon: Well also refer to non-GAAP measures that we view as important in assessing the performance of our business a reconciliation of those non-GAAP metrics to the nearest GAAP metric can be found in the earnings presentation materials made available on the investors section of the Aircell website at IR Dot Aircell Dot com.

With that I'll turn the call over to Nick Vanessa.

Nick Vanessa: Thank you Jackie good afternoon, and thank you for joining our call today I'll begin with a recap of the quarter and our strategic objectives before turning the call over to Martin to review the numbers in greater detail.

Nicolas Finazzo: Thank you, Jackie. Good afternoon, and thank you for joining us on our call today. I'll begin with a recap of the quarter and our strategic objectives before turning the call over to Martin to review the numbers in greater detail. We're off to a good start in 2024, driven by stronger feedstock acquisitions in the back half of 2023. This facilitated whole asset sales and increased USM volume and was supported by continued strength in our tech ops segment, as commercial MRO demand remains robust.

Nick Vanessa: We're off to a good start in 2024, driven by stronger feedstock acquisitions in the back half of 2023.

Martin: This facilitated whole asset sales and increased U S. M volume and was supported by continued strength in our tech ops segment as commercial MRO demand remains robust.

Nicolas Finazzo: This translated to first quarter revenue of $90.5 million, which was up $15.7 million from the first quarter of 2023, and also led to stronger profitability, as adjusted EBITDA grew 80% year-over-year to $9 million. As we remind investors every quarter, due to the nature of our business and the impact of whole asset sales, our revenue levels tend to be volatile quarter to quarter, and we believe our business is best assessed based on aggregate performance over a longer period of time, with a focus on MRO activity, feedstock levels, and our unique business model that enables us to extract significant value from our inventory.

Martin Garmendia: This translated to first quarter revenue of $90 5 million, which was up $15 7 million from the first quarter of 2023, and also led to stronger profitability as adjusted EBITDA grew 80% year over year to $9 million.

Martin: As we remind investors every quarter due to the nature of our business and the impact of whole asset sales our revenue levels tend to be volatile quarter to quarter and we believe our business is best assessed based on aggregate performance over a longer period of time with a focus on MRO activity.

Nick Vanessa: Feedstock levels.

Nick Vanessa: And our unique business model that enables us to extract significant value from our inventory.

Nicolas Finazzo: At the segment level, and beginning with asset management, first quarter sales were 59.3 million, which increased 22.4 percent year over year. Higher revenue in the first quarter of 2024 stemmed from higher flight equipment sales of $38.6 million, compared to $27.7 million in the year-ago period. Excluding whole asset sales for a period, segment level sales were relatively flat as lower leasing revenue offset gains in USM volume.

Nick Vanessa: At the segment level and beginning with asset management first quarter sales were $59 3 million, which increased 22, 4% year over year.

Nick Vanessa: Stronger revenue in the first quarter of 'twenty 'twenty four stemmed from higher flight equipment sales of $38 6 million.

Nicolas Finazzo: Compared to $27 7 million in the year ago period.

Nicolas Finazzo: Excluding whole asset sales in the period segment level sales were relatively flat as lower leasing revenue offset gains in U S sand volume.

Nicolas Finazzo: In the quarter, we sold one aircraft and four engines, compared to two aircraft and one engine in the year-ago period. Commercial demand remains strong and is particularly elevated for USM. Airline traffic and capacity continue to operate above pre-pandemic levels, which is a strong indicator for our business.

Nick Vanessa: In the quarter, we sold one aircraft and for engines compared to two aircraft and one engine in the year ago period.

Nick Vanessa: Commercial demand remains strong and is particularly elevated for U S M.

Nicolas Finazzo: Airline traffic and capacity continue to operate above pre pandemic levels, which is a strong indicator for our business.

Nicolas Finazzo: That being said, the supply side remains challenging, given OEM production and delivery delays, which substantially limit our ability to acquire feedstock. Regardless, our primary competitive advantage is in our purpose-built, end-to-end solution, which enables us to drive asset value from feedstock across various segments of the supply chain. As asset availability improves, we're ready to move decisively on acquisition. To date, we've acquired 31 million tons of feedstock and have an additional 52 million under LOI.

Nick Vanessa: That being said the supply side remains challenging given OEM production and delivery delays, which substantially limit our ability to acquire a feedstock.

Nick Vanessa: Regardless, our primary competitive advantage is in our purpose built end to end solution, which enables us to drive asset value from feedstock across various segments of the supply chain.

Nicolas Finazzo: As asset availability improves we're ready to move decisively on acquisitions to.

Nicolas Finazzo: To date, we've acquired 31 million of feedstock and have an additional $52 million under LOI.

Nicolas Finazzo: In our USM parts business, we continue to realize the benefits of better feedstock acquisitions in the second half of 2023, specifically in engine USM, which grew more than 30% year over year. In the cargo market, the environment continues to be under pressure, as we saw during 2023, as the strong demand that carried through the pandemic unwinds and cargo shipping normalizes. We expect these conditions to persist for some time but did see incrementally positive movements in quoting activity and customer interest in our 757 freighters in the first quarter.

Nick Vanessa: In our U S. M parts business, we continued to realize the benefits of better feedstock acquisitions in the second half of 2020 three.

Nick Vanessa: Specifically in engine U S N, which grew more than 30% year over year.

Nick Vanessa: In the cargo market the environment continues to be under pressure as we saw during 2023 as the strong demand that carried through the pandemic unwind and cargo shipping normalizes.

Nick Vanessa: We expect these conditions to persist for some time, but did see incrementally positive movements in quoting activity and customer interest in our 757 freighters in the first quarter.

Nicolas Finazzo: As of quarter end, we have one converted 757 available for sale, with six more that will complete the conversion process through the remainder of this year. Finally, in our leasing portfolio, full-year sales declined by approximately 45% as we had fewer assets under lease during the period and no aircraft on lease in the first quarter of 2024, compared to one aircraft in the prior year that was subsequently sold.

Nick Vanessa: As of quarter end, we had one converted 757 available for sale with six more that we'll complete the conversion process through the remainder of this year.

Nick Vanessa: Finally in our leasing portfolio full year sales declined by approximately 45% as we had fewer assets under lease during the period and no aircraft on lease in the first quarter of 2024 compared to one aircraft in the prior year that was subsequently sold.

Nicolas Finazzo: We expect to see an increase in leasing activity as more engines become available and placed on lease this year, resulting from increased feedstock availability. Turning to our Tech Ops segment, our MRO facilities were busy during the quarter. Sales improved across all of our facilities, with additional growth from the sale of components by our off-airport MRO shops, which includes landing gear, thrust reversers, and other complex assemblies. As a result, segment sales were $31.3 million, compared to $29.8 million in the year-ago period.

Nick Vanessa: We expect to see an increase in leasing activity as more engines become available and placed on lease this year, resulting from increased feedstock availability.

Nick Vanessa: Turning to our Tech ops segment, our MRO facilities were busy during the quarter.

Nick Vanessa: Sales improved across all of our facilities with additional growth from the sale of components by our off airport MRO shops, which includes landing gear thrust reversers and other complex assemblies.

Nick Vanessa: As a result segment sales were $31 3 million compared to $29 8 million in the year ago period.

Nicolas Finazzo: We anticipate continued strength throughout the forecast period because of a supportive end market. As we look to increase our MRO business beyond the current run rate, we see growth opportunities in component MRO, heavy MRO, and aero structures. In our Goodyear Heavy MRO, we're realigning our operations to create additional facility capacity for heavy maintenance activities, coupled with a significant initiative to increase the availability of trained mechanics. We've been actively recruiting and training new employees for our on-airport heavy MROs, which has been assisted by awards of over $2 million in state and federal training grants this year. We also expect to commence operations at our on-airport heavy MRO facility in Millington, Tennessee, in the third quarter and anticipate this facility to be a positive contributor in the latter half of 2024 and beyond.

Nick Vanessa: We anticipate continued strength throughout the forecast period because of a supportive end market.

Nick Vanessa: As we look to increase our MRO business beyond the current run rate.

Nick Vanessa: We see growth opportunities on component MRO heavy MRO and Aerostructures.

Nick Vanessa: In our Goodyear heavy MRO, we're realigning our operation our operations to create additional facility capacity for heavy maintenance activities, coupled with a significant initiative to increase the availability of trained mechanics. We've.

Nick Vanessa: We've been actively recruiting and training new employees for our on airport heavy M or OS which has been assisted by awards of over $2 million in state and federal training grants this year.

Nicolas Finazzo: We also expect to commence operations at our on airport heavy MRO facility in Millington tenancy in the third quarter and anticipate this facility to be a positive contributor in the latter half of 'twenty 'twenty four and beyond.

Nicolas Finazzo: In our component MROs, we're winning new contracts that are generating recurring and predictable revenue using existing facility capacity to significantly grow these businesses. Next, I'd like to provide an update on our Engineered Solutions business, beginning with Airware. In the first quarter, we continued our go-to-market efforts, and all five of the written proposals we made remain outstanding and under consideration since we reported these in March. We continue engagement with these customers, and notably, we've had incrementally positive discussions with several as it relates to the safety enhancements that Airware provides.

Nick Vanessa: In our component MRO, we're winning new contracts that are generating recurring and predictable revenue utilizing existing facility capacity to significantly grows these business units.

Nicolas Finazzo: Next I'd like to provide an update on our engineered solutions business, beginning with the air where in.

Nicolas Finazzo: In the first quarter, we continued our go to market efforts and all five of the written proposals we made remain outstanding and under consideration since we reported these in March.

Nick Vanessa: We continue engagement with these customers and notably we've had incrementally positive discussions with several as it relates to the safety enhancement that enhancements that are where it provides.

Nicolas Finazzo: Across the airline system, the pandemic led to early retirements of commercial pilots, and experience levels have decreased as new pilots are brought online. Airware can enhance safety under these circumstances, and it has been a focus area with potential launch customers beyond the ROI associated with decreased diversions and ground stock. This has led some discussions to expand well beyond the original scope.

Nicolas Finazzo: Across the airline system. The pandemic led to early retirements of commercial pilots and experience levels have decreased as new pilots are brought online.

Nick Vanessa: Era, where can enhance safety under these circumstances and has been a focus area with potential launch customers beyond the ROI associated with decreased diversions in ground stops.

Nick Vanessa: This has led to some discussions to expand well beyond the original scope.

Nicolas Finazzo: All of the proposals remain under review, but we consider this enhanced focus on the safety profile of the airware system to be a meaningfully positive note to our overall market acceptance of this product. Besides the existing proposals we've made, we're engaged with three new operators who have expressed a requirement for their 737. As word spreads throughout the industry, there is also interest in other aircraft models, including the A320, widebodies, and regional aircraft.

Nick Vanessa: All of the proposals remain under review, but we consider this enhanced focus on the safety profile of the era, where system to be a meaningfully positive.

Nick Vanessa: Note to our overall market acceptance of this product.

Nick Vanessa: Besides the existing proposals we've made we're engaged with three new operators, who have expressed their requirement for their 730 sevens.

Nick Vanessa: As word spreads throughout the industry. There is also interest in other aircraft models, including the <unk> hundred 20 wide bodies and regional aircraft.

Nicolas Finazzo: Concurrently with our go-to-market strategy, in April, we successfully demonstrated our airware ground and flight training program to the FAA, which included classroom and flight training for six airline and four FAA pilots. Once our airware training program is published by the FAA, it will be the first and only FAA-validated training program covering the operation of a 737, incorporating an enhanced flight vision system. Although FAA validation of this training program was not a requirement of our STC, it will assist in the adoption process for airlines that install airware in their fleets.

Nicolas Finazzo: Concurrently with our go to market strategy in April we successfully demonstrated our air where ground and flight training program to the FAA, which included classroom and flight training of six airline and for FAA pilots.

Nick Vanessa: Once our era, where training program is published by the FAA. It will be the first and only S. A a validated training programming covering operation of a 737, incorporating an enhanced flight vision system.

Nick Vanessa: Although F. A a validation of this training program was not a requirement of our S. T. C. It will assist in the adoption process for airlines that install air where in their fleets.

Nicolas Finazzo: Besides airware, we've increased our marketing efforts for AirSafe, our STC product covering fuel tank flammability. Operators that do not have an existing system to prevent fuel tank explosions must provide a means to mitigate a potential electrical short in the wiring of an aircraft's fuel quantity indication system from causing a catastrophe. Installation of AirSAFE complies with this requirement, with regulatory compliance deadlines for different aircraft types running through 2026. We expect increasing sales of AirSafe throughout the balance of this year and into 2026, with sustainment sales lasting the life of a given airframe. AirSafe is approved for the Boeing 727, 737, 757, 767, and 777 and the Airbus A320 family of aircraft.

Nicolas Finazzo: Besides the air where we've increased our marketing efforts for air Sea or S. H R. S. T C product covering fuel tank flammability.

Nick Vanessa: Operators that do not have an existing system to prevent fuel tank explosions must provide a means to mitigate a potential electrical short in the wiring of an aircraft's feel quantity indication system from causing a catastrophe.

Nick Vanessa: Installation of Air say it complies with this requirement with regulatory compliance deadlines for different aircraft types running through 2026.

Nick Vanessa: We expect to increasing sales of air safe throughout the balance of this year and into 2026 with Sustainment Sustainment sales lasting the life I've been giving airframe.

Nick Vanessa: Air Safe is approved for the Boeing 727, 737, 757, and 767 and Triple Sevens and the Airbus <unk> hundred 20 family of aircraft.

Nicolas Finazzo: In closing, we're off to a good start in 2024, and end market demand remains strong. Our team is working hard to maximize the ROI on feedstock we've acquired, and we continue to evaluate additional opportunities amid a challenging supply environment. Meanwhile, we're working diligently to advance conversations with potential customers for our Engineered Solutions products. I want to thank our dedicated employees for their hard work and our investors for their continued support. We look forward to updating you on our progress. Now, I'll turn the call over to Martin for a closer look at the numbers. Martin

Nicolas Finazzo: In closing we're off to a good start in 'twenty 'twenty four and end market demand remains strong our team is working hard to maximize the ROI on feedstock, we've acquired and we continue to evaluate additional opportunities amid a challenging supply environment.

Nick Vanessa: Meanwhile, Meanwhile, we're working diligently to advance conversations with potential customers for our engineered solutions products.

Nick Vanessa: I want to thank our dedicated employees for their hard work and our investors for their continued support.

Nick Vanessa: We look forward to updating you on our progress.

Nick Vanessa: Now I'll turn the call over to Mark for a closer look at the D. A closer look at the numbers Martin.

Mark: Thanks, Nick first quarter revenue was $90 5 million, which included $38 6 million of flight equipment sales comprising of one aircraft and four engines are revenue in the first quarter of 2023 was $78 3 million and included $27 7 million of flight equipment sales.

Martin Garmendia: First quarter revenue was $90.5 million, which included $38.6 million of flight equipment sales, comprising one aircraft and four engines. Our revenue in the first quarter of 2023 was $78.3 million and included $27.7 million of flight equipment sales, consisting of two aircraft and one engine. Excluding flight equipment, the company continues to demonstrate underlying growth as our base revenue increased to $51.9 million from $50.6 million in the prior year. However, as we have pointed out in the past, flight equipment sales fluctuate significantly from quarter to quarter, and we believe monitoring our progress based on asset purchases and sales over the long term is more appropriate.

Mark: Assisting with two aircraft and one engine.

Mark: Excluding flight equipment. The company continues to demonstrate underlying growth as our base revenue increased to $51 9 million from $50 6 million in the prior year.

Mark: As we have pointed out in the past flight equipment sales fluctuate significantly from quarter to quarter, and we believe monitoring our progress based on asset purchases and sales over the long term is more appropriate.

Martin Garmendia: First quarter gross margin was 31.8% compared to 31.2% in the first quarter of 2023, largely due to the sales mix in the first quarter, which included additional higher-margin flight equipment sales. Selling General Administrative Expenses were $24.1 million in the first quarter of 2024, which included $800,000 of non-cash, equity-based compensation expenses. Selling General Administrative Expenses were $25.2 million in the first quarter of 2023 and included $2.7 million of non-cash equity-based compensation expenses.

Mark: First quarter gross margin was 31, 8% compared to 31, 2% in the first quarter of 2023.

Mark: Largely due to the sales mix in the first quarter, which included additional higher margin flight equipment sales.

Mark: Selling general and administrative expenses were $24 1 million in the first quarter of 'twenty 'twenty, four which included 800000 of noncash equity based compensation expenses.

Martin Garmendia: Selling general and administrative expenses were $25 2 million in the first quarter of 2023 and included $2 7 million of noncash equity based compensation expenses.

Martin Garmendia: First quarter 2024 income from operations was $4.7 million, while loss from operations was $800,000 in the first quarter of 2023. Net income was $6.3 million in the first quarter, compared to $5,000 in the first quarter of 2023, adjusted for non-cash equity-based compensation, mark-to-market adjustment to the private warrant liability, and facility relocation costs. The first quarter adjusted net income was $5.5 million, while adjusted net income was $3.3 million in the first quarter of 2023.

Mark: First quarter 2020 for income from operations was $4 7 million while loss from operations was 800000 in the first quarter of 2023.

Mark: Net income was $6 3 million in the first quarter compared to 5000 in the first quarter of 2023.

Mark: Adjusted for noncash equity based compensation Mark to market adjustment to the private warrant liability and facility relocation costs first quarter. Adjusted net income was $5 5 million, while adjusted net income was $3 3 million in the first quarter of 2023.

Martin Garmendia: First quarter diluted earnings per share was $0.12, compared to zero earnings in the first quarter of 2023. Excluding the adjustments mentioned, first quarter adjusted diluted earnings per share was $0.11, compared to $0.07 for the first quarter of 2023.

Mark: First quarter diluted earnings per share was <unk> 12 cents compared to zero earnings in the first quarter of 2023.

Mark: Excluding the adjustments mentioned first quarter adjusted diluted earnings per share was <unk> 11 cents come.

Martin Garmendia: Compared to seven for the first quarter of 2023.

Martin Garmendia: Our adjusted EBITDA was $9 million in the first quarter of 2024 compared to $5 million in the prior year. The increase in adjusted EBITDA was primarily due to an increase in flight equipment sales. Cash used in operating activities was $21.5 million, primarily as a result of cash deployed to increase inventory availability.

Mark: Our adjusted EBITDA was 9 million in the first quarter of 2024 compared to 5 million in the prior year.

Martin Garmendia: The increase in adjusted EBITDA was primarily due to the increase in flight equipment sales.

Mark: Cash used in operating activities was $21 5 million, primarily as a result of cash deployed to increase inventory availability.

Martin Garmendia: As we look to the balance of the year, we expect to see continued demand in our tech ops segment driven by a healthy commercial backdrop and several contract wins that will allow us to benefit from our available capacity. We also remain focused on monetizing the inventory we have on hand from a stronger feedstock environment in 2023. While the current supply side for feedstock remains challenged, we have a healthy pipeline of deals recently completed or in process to drive volume through 2024 and into early 2025. We continue to make progress on our go-to-market with Airware, and anticipate Airsafe will be supportive to our results as the year progresses. With that operator, we are ready to take questions.

Mark: As we look to the balance of the year, we expect to see continued demand in our tech ops segment, driven by a healthy commercial backdrop and several contract wins that will allow us to benefit from our available capacity.

Martin Garmendia: We also remain focused on monetizing the inventory we have on hand from our stock or feedstock environment in 2023.

Mark: While the current supply side for feedstock remains challenged we have a healthy pipeline of deals recently completed or in process to drive volume through 2024 and into early 2025.

Martin Garmendia: We continue to make progress on our go to market with are aware and anticipate air safe will be supportive to our results as the year progresses.

Mark: With that operator, we are ready to take questions.

Operator: We will now begin the question and answer session. To ask a question, you may press star then 1 on your touchtone phone. If you are using a speakerphone, please pick up the handset before pressing the keys. If at any time your question has been answered and you would like to withdraw your question, please press star then 2. The first question comes from Gautam Khanna from TD Cowan. Please go ahead.

Speaker Change: We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.

Speaker Change: If youre using a speakerphone, please pick up the handset before pressing the keys.

Speaker Change: If at any time. Your question has been addressed and you would like to withdraw your question. Please press Star then two.

Speaker Change: The first question comes from Gautam Khanna from TD Cowen. Please go ahead.

Gautam J. Khanna: Hi, good afternoon, guys.

Gautam J. Khanna: Hi, good afternoon guys.

Gautam J. Khanna: Good afternoon, Gautam. Hey, I had a question.

Gautam J. Khanna: Afternoon Gotham.

Gautam J. Khanna: I had a couple questions. First, I was wondering if you could comment on whether you see any used equipment monetization in the second quarter and what your visibility is for that, in general, for the remainder of the year. And if you could just update us on, like, the 757s in particular.

Gautam J. Khanna: Hey, I had a couple of questions first I was wondering if you could comment on whether you see any used equipment monetization isn't.

Gautam J. Khanna: In the second quarter.

Gautam J. Khanna: And you know what your visibility is for that.

Gautam J. Khanna: In general in the for the remainder of the year and if you could just update us on like the 75 Sevens in particular.

Nicolas Finazzo: We have no pending sales or transactions involving the 757s for the second quarter. And as far as other equipment sales go, I mean, we are selling other things. We are seeing a very supportive overall market. We are definitely already in negotiations for several engine sales that we've acquired overall in the overall portfolio, so we expect to see continued growth in whole asset opportunities in Q2, and again, we're also working on opportunities in Q3 and Q4.

Speaker Change: That's part of the answer.

Nicolas Finazzo: We have no pending sales or transactions involving the 750 sevens for the second quarter and as far as other equipment sales I mean, we are selling them other.

Speaker Change: We are selling edges I mean, that's typical.

Speaker Change: We're seeing a very supportive overall market we are definitely already in negotiations for several engine sales that we've acquired overall in the overall portfolio. So we expect to see continued growth in the whole asset opportunities in Q2 and again. We're also working on opportunities in Q3 and Q4, we're also starting to monetize inventory through the U S. M line. So we saw.

Nicolas Finazzo: We're also starting to monetize inventory through the USM line, so we saw some modest increases in USM sales in Q1, and we expect that to continue through Q2 and then start getting even better through the latter part of the year.

Speaker Change: Some modest increases in the U S. M sales in Q1, and we expect that to continue through Q2, and they start getting even better toward the latter part of the year.

Gautam J. Khanna: Okay, that's helpful. And just curious about the AirAware product and the customer consideration for it. Is it like, you know, you worked with the hope of a launch customer, you know, while it was being developed? What do you think is sort of a hesitation on the side of customers pulling the trigger and maybe? Do you think it's a function of price, is it a function of ability to train? What is sort of the sticking point?

Speaker Change: Okay. That's helpful.

Nicolas Finazzo: Just curious on the era, where product and in the cart that customer a consideration of it.

Speaker Change: Is it a like.

Speaker Change: You'd worked with with the hoped for a launch customer you know while it was being developed what do you think is sort of a hesitation on.

Speaker Change: On the side of customers pulling the trigger and maybe.

Speaker Change: Do you think it's a function of price is it a function of our ability to train like what is sort of a sticking point.

Nicolas Finazzo: Well, I wouldn't characterize. Yeah, I don't think we have a sticking point. I just think it's a process. It's very complicated, it involves, you know, multiple facets of the airline, from, you know, pilot training, FAA, finance, operations, planning, engineering, and if you look across the industry today, the things that are going on are very distracting to pretty much everybody we're talking to, and certainly all the domestic airlines that we're talking to, which on the one hand is a little frustrating, but on the other I think that the safety aspect of our system could be a catalyst to get a number of these domestic airlines that are focused on things that they can do to improve safety to accelerate the process of organizing all their people together at the same time to take advantage of a system that will actually enhance their safety and potentially avoid some of the issues that airlines are having today.

Speaker Change: Well I wouldn't characterize there yeah I don't think we have a sticking point I just think it's a process it's a.

Speaker Change: It's it's very complicated it involves you know multiple facets of of the airline from pilot.

Speaker Change: Pilot training F. A a finance operations planning.

Nicolas Finazzo:

Speaker Change: Engineering, and if you look across the industry today the.

Nicolas Finazzo: Things that are going on are very distracting to pretty much everybody. We're talking to is certainly all the domestic airlines that were talking to which on the one hand is is a little frustrating, but on the other I think that.

Speaker Change: Think that the safety aspect of our system could be a catalyst to to get a number of these domestic airlines that are focused on you know things that they can do to improve safety to accelerate the process of getting of organizing all their people together at the same time to take advantage of it.

Speaker Change: A system that will actually enhance their safety and potentially avoid.

Nicolas Finazzo: Avoid some of the issues that airlines are having today.

Gautam J. Khanna: Have your pricing expectations for the product changed, just given what you've learned over the last, you know, several months, or do you still think? It's going to confer the level of unit price and gross margins you guys have spoken about in the past.

Speaker Change: How have your pricing expectations for the product changed.

Speaker Change: Just given.

Speaker Change: What you've learned over the last several months or do you still think.

Speaker Change: It's gonna confer the the level of unit price and gross margins you guys have spoke about.

Nicolas Finazzo: So, you know, we previously stated, two and a half years ago, that our list price for our system was about 700, a total of about $770,000. That included our portion, which was about $300,000, and Elbit's, which was about $370,000. Our list price today is $1,495,000, I think.

Speaker Change: In the past so you know we previously two and a half years ago. We previously stated that our that our list price for our system was about 700, a total of about 770000 that included our portion which was about 300000 in elbit switches about 370.

Speaker Change: We are our list price today is.

Speaker Change: Is $1 million 495000, I think.

Nicolas Finazzo: And obviously, that's for both Elbit's portion or Elbit Universal's portion and Aircel's portion. Now, obviously, we feel that if we get a launch order and we get a multiple aircraft order, we can discount that price. We've got room there, and as I've mentioned previously, our cost in the system is still in line with our original expectations, so we're optimistic that we can deliver this product at a price that the airlines will find attractive.

Speaker Change: And obviously that's for both Elbit portion of Universal Elbit Universal's portion in air sales portion.

Speaker Change: Now the.

Speaker Change: Obviously, we feel that.

Speaker Change: If we get a launch order you know that that will and we get a multiple aircraft order.

Nicolas Finazzo: We can we can discount that price. So you know we've.

Speaker Change: We've.

Speaker Change: We've got room, there as I've mentioned previously our costs in the system is is still in.

Speaker Change: In line with our original expectations. So.

Speaker Change: You know, we're we're optimistic that we can deliver this this product out at a price that the airlines will find attractive and we don't think there's a competitive system out there. That's a they're available today that does what our system does and when they become available we believe they're going to be much higher priced than the system we have.

Nicolas Finazzo: And we don't think there's a competitive system out there that's A, available today that does what our system does, and when they become available, we believe they're going to be much higher priced than the system we have.

Gautam J. Khanna: Okay, that's helpful. I appreciate it. I'll get back in the queue. Thank you.

Speaker Change: Okay. That's helpful. I appreciate it I'll get back in the queue. Thank you okay.

Nicolas Finazzo: Thanks, Gautam.

Speaker Change: Okay. Thank you thanks Gautam.

Kenneth George Herbert: The next question comes from Ken Herbert from RBC Capital Markets. Please go ahead.

Speaker Change: The next question comes from Ken Herbert from RBC Capital markets. Please go ahead.

Kenneth George Herbert: Yeah, hey, good afternoon, Nick and Martin. Good afternoon.

Kenneth George Herbert: Yeah, Hey, good afternoon, Nick and Martin.

Kenneth George Herbert: Good afternoon.

Kenneth George Herbert: Hey, Nick, I maybe just wanted to start on AeroWare. You've indicated that you're waiting for some of the manuals and the training documentation to be published by the FAA. Do you have any update on timing on that, or can you give us any more expectations around sort of how that maybe could play out over the next few months?

Kenneth George Herbert: Hey, Nick maybe just wanted to first start on air where you've indicated that you're you're waiting for.

Kenneth George Herbert: Some of the manuals and the training documentation to be published by the U S. A a do you have any update on timing on that or can you give us any more.

Kenneth George Herbert: Expectations around sort of how that maybe could play out over the next few months.

Nicolas Finazzo: Yeah, I actually think that's a very short process. So we finished the demonstration, which included, again, ground school training for... for 10 pilots, and then flight training. We were going to do five sets of crews. I think we ended up doing four, and then they were satisfied that we passed. And so the process is the FAA reviews that whole training manual, the whole process, the ground school training, and they basically, it's called validation, they recommend validation of our system.

Nick Vanessa: Yeah, I actually think that's.

Nick Vanessa: It's very it's a very short in our process. So we finished we finished the the demonstration.

Kenneth George Herbert: Which included again ground school training for.

Nicolas Finazzo: For 10 pilots and then.

Nicolas Finazzo: Flight training.

Kenneth George Herbert: We were gonna do that's five sets of crews.

Nicolas Finazzo: We ended up doing for.

Kenneth George Herbert: And then they were satisfied that that.

Kenneth George Herbert: We passed and so the processes the FAA reviews that whole that whole our flight training manuals the whole process the ground school training and they they recommend basically they called validation they recommend validation of our system and.

Nicolas Finazzo: Verbally, we've been told our system meets the requirements, and they're going to set it for publication. I don't know if it's been published yet, and I'm not exactly sure where it will be published, but it will be published. Then there's a comment period for anybody who wants to make a comment about the publication of the validation of our system, and then it just automatically becomes validated. So I think that will likely occur within the next 30 days.

Speaker Change: Verbally we'd been told our system meets our requirements and they're gonna set it for publication I don't know if it's been published yet.

Speaker Change: And I'm not exactly sure where it gets published but it gets published and there was a comment period for anybody who wants to make a comment about this about the publication of the validation of our system and then it just automatically becomes a validated.

Speaker Change: I I think I think that's that will likely occur within the next 30 days.

Kenneth George Herbert: Great. And then do you see, beyond that, any other sort of significant roadblocks to a potential initial order, or is there anything else that the airlines could be waiting for?

Speaker Change: Great and then do you see beyond that do you see any other.

Speaker Change: Significant roadblocks to a potential initial order or is there anything else that the airlines could be waiting for.

Nicolas Finazzo: I don't think the airlines waited for that. That was something that we always told them that we were going to work on.

Speaker Change: I don't I don't think the airlines waited for that you know that was something we always told them that we were going to work on more.

Speaker Change: More larger airlines could have done that on their own we just made it easier for them smaller airlines, it's more difficult that's actually why we did it and spend the money to do it. So you know it.

Nicolas Finazzo: Larger airlines could have done that on their own. We just made it easier for them. For smaller airlines, it's more difficult. That's actually why we didn't spend the money to do it.

Nicolas Finazzo: Impediments to getting this system in, across the board, everyone we're talking to is asking how are we gonna implement it into our simulators and how long is that gonna take? Okay, we've got your FAA-validated flight training program subject to publication, the you know, lots of questions across a number of airlines on the safety aspect of the system. And again, I think that that's a little bit of what the catalyst here is, you know, what's just going on in the industry and the heightened amount of attention the industry is getting from things, candidly, that happen every day and have been happening every day for a long time.

Speaker Change: Pediments too to getting this system in across the board everyone were talking to us.

Nicolas Finazzo: How are we going to implement it into our stimulators and how long is that going to take.

Speaker Change: Okay. We've got your F. A validated flight training program subject to publication.

Speaker Change: Yeah.

Speaker Change: Lots of questions across a number of airlines on the safety aspect of the system and again I think that that's a little bit being there.

Speaker Change: List here is you know, what's just going on in the industry and the heightened a heightened amount of.

Nicolas Finazzo:

Nicolas Finazzo: Of attention.

Speaker Change: The industry is getting from things candidly that happen every day and have been happening everyday for a long time, it's just they're just getting a heightened level of security do it due to a few events. So everybody is focused on.

Nicolas Finazzo: They're just getting a heightened level of security due to a few events. So everybody's focused on that and we've had customers, potential customers, one of the three that I mentioned earlier, and new customers actually came to us because they heard about the system and they were interested in the safety aspect. So I don't think there are any impediments to moving forward other than the process of getting it installed in the system, getting it installed in their simulators, integrating it into their flight manuals, flight training manuals, and figuring out when and how long it's going to take for the system to get up and running.

Speaker Change: And and that we've had customers potential customers one of the three that I mentioned earlier, the new customers actually came to us because they heard about the system.

Speaker Change: And you know and they're interested in the safety aspects. So.

Nicolas Finazzo: I I I don't think there's any impediments to moving forward other than the process of getting it installed in the system and they're getting it installed in their simulators.

Speaker Change: And integrating it into their flight manuals flight training manuals and figuring out when and how long it's going to take for the system to get up and running you know price.

Speaker Change: Price has not been an issue in our discussions at this point.

Kenneth George Herbert: Okay, great. Very helpful. And I guess that was just my final question. With what looks like almost basically a doubling in your list price, so to speak, at that higher price, how much of that drops down to your gross margins and how much of that reflects just maybe a higher cost than you envisioned when you first started to talk about bringing this system to market?

Speaker Change: Okay, Great very helpful and I guess that was just my final question with the.

Speaker Change: With what looks like almost basically a doubling in your your list price so to speak.

Kenneth George Herbert: At higher price does that how much how much of that drops down to your gross margins.

Speaker Change: And how much of that reflects just maybe higher cost than you envisioned when you first started to talk about this to bring the system to market.

Nicolas Finazzo: Our customers would love to know that information, so I'm sorry, Ken, I can't answer that.

Speaker Change: Our customers would love to know that information, so I'm, sorry, I can't I can't answer that.

Kenneth George Herbert: All right, Nick. I appreciate that. All right, thanks. I'll get back in the queue. You're welcome.

Speaker Change: Alright, I appreciate that alright, thanks, I'll get back in the queue you are welcome.

Bert William Subin: The next question comes from Bert Subin from Stiefel. Please go ahead.

Speaker Change: The next question comes from Susan from Stifel. Please go ahead.

Bert William Subin: Hey, good afternoon; I appreciate the question. Ah, hey Bert.

Bert William Subin: Hey, good afternoon I appreciate the question.

Bert William Subin: Hey, Bert.

Bert William Subin: And Nick, maybe just to start out, you know? I guess if we go back three months, you guys were to stop providing guidance. It seems like you're sort of off to a good start here in 24, and you're acquiring feedstock, maybe a little less than you'd like, but you're acquiring it. And it sounds like you're starting to get a handle on sort of monetizing a good portion of the inventory outside of the 757s. So with that in mind, would you agree that, maybe, relative to three months ago, your visibility is improving? And is there anything in terms of forward-thinking commentary you can provide about how to think about this?

Susan: Maybe just to start out you know I guess, if we go back three months, you guys sort of stopped providing guidance.

Bert William Subin: It seems like you're sort of off to a good start here in 'twenty, four and youre acquiring feedstock, maybe the less than you'd like but youre acquiring it and it sounds like youre starting to get a handle on sort of monetizing you know a good portion of the inventory outside of the seven five sevens. So with that in mind I guess would you agree that maybe relative to three months ago. Your visibility is improving.

Susan: And is there anything in terms of forward thinking commentary you can provide about how to think about the rest of the year.

Martin Garmendia: I definitely think it's overall improving. We feel strong on the inventory position that we have. We have $350 million of inventory. We have another $50 million of feedstock, so that definitely is giving us some support on kind of the forward projections. We still have the variability and timing of flight equipment sales and whole assets between whole assets, USM, or leasing, so we're still trying to kind of have a better grasp on that kind of overall.

Susan: I think our our definitely our it's overall improving we feel strong on the inventory position that we have we have $350 million of inventory, we have another $50 million of feedstocks. So that definitely is getting us some support on kind of the forward projections, we still have the variability and timing of flight equipment sales in <unk>.

Susan: Is it between whole assets U S M or leasing so we're still trying to kind of have a better grasp on that kind of overall, we're also very optimistic on what we're seeing in the tech op side of the business. We have a lot of capacity that we're starting to utilize at our component MRO Aerostructures landing gear facilities, we're getting new contracts.

Martin Garmendia: We're also very optimistic about what we're seeing in the tech ops side of the business. We have a lot of capacity that we're starting to utilize at our component MROs, our aerostructures, and landing gear facilities. We're getting new contracts that are starting to give us more of a backlog of work, and once that becomes more established, we'll have greater visibility into that overall unit. We have initiatives to increase our heavy MROs by adding additional labor and also kind of reconfiguring some of the facilities to have more assets flow through those facilities, so we feel really good about the overall dynamics.

Susan: That are starting to give us more of a backlog of work and once that becomes more established will have a greater visibility and so that overall unit where have initiatives to increase our heavy M rose by adding additional labor.

Martin Garmendia: And also kind of Reconfiguring some of the facilities to have more more more assets flow through those facilities. So we feel really good on the overall dynamics I think this year, we're starting to capture all of that and get that better visibility. So we expect to definitely have improvement as far as providing guidance, we'd probably won't return to that until the.

Martin Garmendia: I think this year we're starting to capture all of that and get that better visibility, so we expect to definitely have improvements. As far as providing guidance, we probably won't return to that until the business kind of grows. We see more establishment of some of these new aspects, and frankly, whole assets will become a smaller part of the overall business.

Susan: Business kind of grows we see more establishment in some of these new aspects.

Susan: And frankly whole assets becomes a smaller part of the overall business.

Bert William Subin: Got it. Okay.

Susan: Got it okay on on the I guess, the other piece of that inventory the freighter side Trans time posted the earnings call yesterday.

Bert William Subin: On the, I guess, the other piece of that inventory on the freighter side, you know, Transdime posted the earnings call yesterday and called out sort of the weakness in freighters as a result of what they're seeing in belly capacity. How does that make you think about those assets? Is it still just sort of a wait and monetize those as cargo rebounds, or have you started to think about other alternatives?

Susan: Called out sort of the weakness in freighters as a result of what they're seeing in belly capacity.

Susan: How does that make you think about those assets. It is it is it still just sort of a wait and monetize those as cargo rebounds or have you started to think about other alternatives.

Nicolas Finazzo: So once we made the investment in the airframes to convert them to freighters and basically took them, you know, did heavy checks on landing gear, et cetera, that, you know, there really is no better option for those airframes at that point than to wait it out and put them on the freighter market. Now to mitigate the delay associated with when the freighter market returns, and again, 757 is a niche freighter, we are looking at placing the engines off those airplanes, which are in very, very high demand, and putting those engines on lease with different carriers.

Susan: So once we made the investment into airframes to convert them to freighter and basically take them you know do heavy checks and landing gear et cetera that you know.

Susan: There really is no better option for those airframes at that point than to wait it out and put them in the freighter market now to mitigate to mitigate the.

Susan: Delay associated with when the freighter market returns and again sub 57 is a is a niche freighter.

Nicolas Finazzo: We are looking at placing the engines off those airplanes, which is very very high demand putting those engines.

Susan: On lease with with different carriers.

Nicolas Finazzo: The risk that we face with that is if we put the engines on lease and then, for whatever reason, we can't get them back in the time that we need, then it would impair our ability to put the aircraft out. So we're doing a little bit of a balancing act. Because we have seven airplanes that will be available this year, we feel we can take that risk with some of the later deliveries until we see we get, let's say we get three or four delivered. Then, if we have aircraft engines on lease, we should have sufficient time to pull them back to accommodate any future requirements.

Bert William Subin: The risks that we face with that as we put the engines on lease and then for whatever reason, we can't get them back in the time that we need then it then it would impair our ability to put the aircraft out.

Nicolas Finazzo: So we're doing a little bit of a balancing act because we have we have seven airplanes that'll be available. This year, we feel we can take that risk with some of the later deliveries until we see we get let's say, we get three or four delivered then.

Nicolas Finazzo: Then if we have aircraft engines on lease.

Nicolas Finazzo: We should have sufficient time to pull them back to accommodate any future requirements.

Martin Garmendia: And if I could add, what we're seeing right now and kind of some of the inquiries that we're receiving, market information that we have providing estimated values on the 757, we have a good book value position on those assets. And definitely, at this point, we can afford to wait for the highest use or the highest monetization strategy, which we deploy in those as passenger or freighter assets into the cargo market, either through lease or through sale.

Speaker Change: If I could add I mean, what we're seeing right now and kind of some of the increase that we're receiving market information that we have.

Susan: Providing estimated values on the 757, we have a good book value position on those assets and definitely not at this point, we can afford to wait for the highest use are the highest monetization strategy, which we deploy those S. T as passenger to freighter assets into the cargo market either through lease or through sale.

Bert William Subin: Got it. Okay.

Speaker Change: Got it Okay I've got I've got one final and then just a clarification, but I guess my last question here, Nick I'm, just as you think over time.

Bert William Subin: I've got one final question and then just a clarification. But I guess for my last question here, Nick, just as you think over time, you've been in this business a long time, and you've seen a lot of different cycles, and it seems like right now the aftermarket cycle is really looking favorable, and it's sort of a consensus expectation that's extending out. As you think about that in the context of your USM business, that's maybe not..., you know, performed as well, just broadly across the industry because it's tough to get feedstock, and that feedstock gets priced at a higher rate.

Bert William Subin: No.

Speaker Change: This is a long time and you've seen a lot of different cycles and it seems like right now the aftermarket cycles.

Speaker Change: Really looking favorable.

Bert William Subin: Sort of a consensus expectation that extending out as you thought.

Bert William Subin: Think about that in the context of your U S. M business, that's maybe not.

Speaker Change: <unk> performed as well just broadly across the industry, because it's tough to get feedstock in that feedstock gets priced at a higher rate.

Bert William Subin: Where do you think we are in the USM cycle? Do you think that it's counter-cyclical and gets better at the aftermarket, and starts to weaken because of retirement? So, like, what do you expect out of that business over the next few years?

Speaker Change: Where do you think we are in the U S. M cycle do you think that is countercyclical and gets better at aftermarket starts to weaken because of retirement. So like what do you expect out of that business over the next few years.

Nicolas Finazzo: I think the USM availability will continue to be constrained because we're seeing so few aircraft today that things that, you know, like, what do we want, A320s, 737s; we're not seeing any 767s reaching the retirement age where they're being parted out. We have acquired some 747s for their engine value, that's the wide body, and that is primarily those engines will feed 767 freighters and passenger aircraft But we're not seeing, you know, unless an airline is retiring a fleet of aircraft, like, for example, we're buying four 747s now; we closed down the first one.

Speaker Change: I think the I think the U S. M availability will continue to be constrained because we're seeing so few aircraft.

Susan: Aircraft today with things that you know like what do we want a 320 730 sevens, we're not seeing any 760 sevens, reaching retirement age where theyre being parted out.

Nicolas Finazzo: We have we have acquired some 740 sevens for their engine value first wide body in that and that is primarily those engines will feed 767 freighters and passenger aircrafts.

Susan: But we're not seeing you know unless an airline is retiring a fleet of aircraft like as an example, we're buying we're buying for 740 Sevens now we closed on the first one.

Nicolas Finazzo:

Nicolas Finazzo: We don't, we don't, I don't expect to see any significant improvement in the availability of aircraft for that will eventually become USM parts unless, and I've said this multiple times over the last several quarters, unless the flight equipment is so run down that you need to do everything to it. Landing gear overhaul, AP overhaul, airframe overhaul, engine overhaul, and then what we're finding is we're buying an aircraft with multiple of those problems or just an airframe or just an engine that needs to be fixed.

Nicolas Finazzo: We don't we don't I don't expect to see any significant.

Nicolas Finazzo: Improvement in the availability of our aircraft for.

Susan: That it will eventually become U S M parts, unless and I've said this multiple times over the last several quarters unless the flight equipment is so run down that you need to do everything to it landing gear overhaul Apu overhaul our airframe overhaul the engine overhaul and then and then what we're finding is we're finding.

Nicolas Finazzo: We're buying an aircraft with multiple of those problems are just an airframe or just an engine that needs to be fixed.

Nicolas Finazzo: What we're doing with that is because we're buying in volume all of these things and because of our ability to extract value in multiple ways, we have cobbled together engines and aircraft using the best pieces from the feedstock that we acquire. So that's our advantage, and that's why we're able to continue to buy in a very, you know, in a very, very competitive market. Candidly, when, you know, when we, And by the way, it's not that we're not bidding; we're bidding, but we're very careful with our bidding. I think we bid on over $500 million worth of feedstock in the last quarter. And we closed on $15 million of it, roughly under a 3% win rate. Typically, our win rate is about 10%.

Nicolas Finazzo: What we're doing with that.

Susan: Is we're because we're buying in volume all of these things and because of our ability to extract value in multiple ways.

Nicolas Finazzo: We cobble together that we cobble together engine and airframe using the best engines and aircraft using the best pieces from the inventory that we got from the feedstock that we acquire so that's our advantage and that's why we're able to continue to buy in a in a very you know.

Nicolas Finazzo: In a very very competitive market candidly when you know when we.

Nicolas Finazzo: It's by the way and it's not that.

Nicolas Finazzo: We're not betting we're bidding.

Nicolas Finazzo: But we're very we're very careful on our bidding I think we bid on them I think we.

Nicolas Finazzo: We bid on over $500 million worth of feedstock.

Nicolas Finazzo: Seedstock and and are in the last quarter, and we closed on a $15 million of it roughly.

Nicolas Finazzo: Under 3% win rate typically our win rate is about 10%.

Nicolas Finazzo: So that tells you how competitive the market is.

Nicolas Finazzo: So that tells you how competitive the market is. But just because it's competitive doesn't mean that the people who are winning those deals are going to make sense out of it. If you're buying it because you need the material, you're an engine shop, or you're an airline and you're keeping a piece of flight equipment, okay, that's different. You're not buying that for resale. You're buying that for your own consumption.

Nicolas Finazzo: Just because it's competitive doesn't mean that the people who are winning those deals can make sense out of it you are buying it because you need the material, you're an engine shop or you're an airline and you're keeping in a piece of flight equipment. Okay. That's different you're not buying that for resale you're buying that for your own consumption, but if you're buying it for resale and you don't have the ability to extract value in multiple ways.

Nicolas Finazzo: But if you're buying it for resale and you don't have the ability to extract value in multiple ways, I think you're severely challenged in acquiring feedstock. So, it's a complicated answer to your question, which is, you know, how do I foresee the feedstock market and the USM market in the coming years? What I foresee is it will continue to be challenged by people who can't extract the kind of value out of it we can. It'll be diminished from normal because it's an overcompetitive market. I don't even think it's a rational market, irrationally over-competitive.

Nicolas Finazzo: I think it's I think you were severely challenged on acquiring feedstock. So it's a complicated answer to your question which is.

Nicolas Finazzo: How do I foresee that the feedstock market in the U S. M market you know in the coming years, what I foresee is it will continue to be challenged for people, who can't extract the kind of value out of it we can it'll be diminished from normal.

Nicolas Finazzo: Because it's been over competitive market I don't even think it's a rational market I think it's irrationally over competitive.

Nicolas Finazzo: What's going to change? When the new airplanes catch up, and the A320 engine problems are solved, and more of the new aircraft are delivered, this isn't new information, and I've said this multiple times before. We will see a new wave of flight equipment, our kind of stuff, come into being, and we'll be positioned to pounce on that and have the infrastructure to, again, figure out how to extract value out of all the pieces, and so I think the best is yet to come for us, that whatever we're seeing today and is growing is going to be dramatically better when the new aircraft problems are solved.

Nicolas Finazzo: What's going to change.

Nicolas Finazzo: When they do airplanes catch up in <unk> hundred 20 engine problems are solved and more of the new aircraft will get delivered.

Nicolas Finazzo: This isn't new this isn't new information and I've said this multiple times before we will see a bow wave of of <unk>.

Nicolas Finazzo: Flight equipment are kind of stuff.

Nicolas Finazzo: In come into being.

Nicolas Finazzo: And we'll we'll be positioned to pounce on that and have the infrastructure to two again figure out how to extract value out of out of all the pieces and and and so I think the best is coming yet for us that whatever whatever we're we're seeing today and it's growing.

Nicolas Finazzo: Is gonna be dramatically better when the when the.

Nicolas Finazzo: When the when the aircraft problem the new aircraft problems are solved.

Bert William Subin: Thanks, Nick. And just clarification on some of your earlier ERAWARE comments. Have you started the process for approval with international regulators and for the A320? Not yet. I'm...

Speaker Change: Thanks deck and just the clarification on some of your earlier comments have you started the process for approval with the international regulators and for the <unk> hundred 20.

Nicolas Finazzo: Not yet on the A320, but yes on the International Regulator in multiple jurisdictions.

Speaker Change: Not yet on the <unk> hundred 20, but yes on the international regulators.

Nicolas Finazzo: In multiple jurisdictions.

Speaker Change: Thank you.

Speaker Change: Youre welcome.

Michael Frank Ciarmoli: The next question comes from Michael Ciarmoli from Truist. Please go ahead.

Nicolas Finazzo: The next question comes from Michael Mueller from tourists. Please go ahead.

Michael Frank Ciarmoli: Hey, good evening, guys. Nice quarter. Thanks for taking the question here.

Michael Frank Ciarmoli: Hey, good evening, guys nice quarter. Thanks for taking my question here.

Michael Frank Ciarmoli: Nick, you just said you bid on $500 million in the first quarter. How's it looking quarter to date? I mean, are you still as active?

Michael Frank Ciarmoli: You just said you bid on $500 million.

Michael Frank Ciarmoli: In the first quarter, how does it how is it looking quarter to date I mean are you still as active.

Nicolas Finazzo: Well, you know, we're still, we're still, yes, we are still active in looking at everything, and I would tell you that our hit rate is no better.

Nick: Well you know we're still we're still yes, we are still active on looking at everything.

Nicolas Finazzo: And I would tell you that our hit rate is no better.

Michael Frank Ciarmoli: Okay, how's the documentation issue? I know that that came up last quarter and even at the MRO America show, a lot of guys were saying you don't even much by the equipment you really are paying for the accuracy.

Nicolas Finazzo: Okay. How does the documentation issue I know that came up last quarter and even at the MRO.

Michael Frank Ciarmoli: America show a lot of a lot of guys are saying that you don't even much by the equipment you really are paying for the accurate documentation, so what's sort of the update there.

Nicolas Finazzo: It's the same, you know; we continue to assess the records condition of pretty much everything we look at, and in almost every case, the records that we see have deficiencies. And, you know, we have developed an AI tool that we've been working on for a year where we can take a records package now, and what would normally take us a week to do, in about four hours, we can take an engine, we can run it through our system And what does that do for us?

Michael Frank Ciarmoli: It's the same.

Nicolas Finazzo: We continue to do well.

Nicolas Finazzo: Says.

Nicolas Finazzo: The records condition of pretty much everything we look at and in almost every case the records that we see have deficiencies in.

Nicolas Finazzo: We have we have developed an AI tool that we've been working on for a year, where we can take our records package now and what would normally take us a week to do and about four hours. We can take an engine we can run it through our our system and the four hours, we could get a full summary of everything.

Speaker Change: We need to know about that engine.

Nicolas Finazzo: And what does that do for us that one it allows the limited amount of resources that are available to you to review records to instead of assembled a records and figure out.

Nicolas Finazzo: One, it allows the limited amount of resources that are available to review records to, instead of assembling the records and figuring out what the condition of the records is and what's missing. It would take a week to do that. A computer could do it in four hours, or AI does it in four hours, spits out a report that would otherwise take one of our people a week to do, and that person can now focus on solving the problems that exist immediately rather than spending a week just understanding what the problems are.

Nicolas Finazzo: What the condition of their records are and what's missing a.

Nicolas Finazzo: A week to do that a computer can do it in four hours our AI does it in four hours spits out the reported that would've otherwise take one of our people or we could do and that person can now focus on solving the problems that exist.

Nicolas Finazzo: Immediately rather than spending a week just to understand what the problems are.

Nicolas Finazzo: So that's a significant investment we made to facilitate the rapid review of records and to help solve some of these records issues. They exist, they're always going to exist, and the key is how quickly can you get through them and can you get your people focused on fixing them.

Nicolas Finazzo: So that's a significant investment we made to.

Nicolas Finazzo: Facilitate the.

Nicolas Finazzo: To facilitate that.

Nicolas Finazzo: The rapid review of records and to help solve some of these records issues. They exist. It's just they're always going to exist and the key is how quickly can you get through them and you can get your people focused on fixing them.

Michael Frank Ciarmoli: We noted in the meeting that if anything, that's a competitive advantage that we have, that we have the expertise, and we have the records team that can actually go through this material and make sense of it. Other competitors might just move away from it, but we can work with counterparties to clean up those records and make sense of them. And if we can't, we adjust the pricing fairly, so if we do not have the records, we do not pay for that material, and subsequently, we continue to work on it to see if we can fill in the gaps and sell that material. So, if anything, that is a competitive advantage. And in this market where feedstock is more limited, having that ability is absolutely something that we are proud of, and we're making investments to continue to support.

Speaker Change: Got it and Mike and I noted in the in the meeting if anything that's a competitive advantage that we have that we have the expertise we have the records team that can actually go through this material. It makes sense of it other competitors might just move away from it but we can work with counterparties to clean up those records and come through it and if we can't we adjust the pricing.

Michael Frank Ciarmoli: Got it. That's helpful. And then, I don't know if it's Nick or Martin, and I don't know how much intel you want to give us here, but

Michael Frank Ciarmoli: Fairly so if we cannot do not have the records, we do not pay for those that material and subsequently we continue to work on it to see if we can fill in the gaps and sell that material. So if anything that has a competitive advantage in this market where feedstock is is more limited having that ability is absolutely something that we are we are proud of and we're making investments.

Speaker Change: To continue to support.

Speaker Change: Got it that's helpful and then.

Speaker Change: I don't know if the snicker Martin and I don't know how much until you want to give up share, but either the inventory of 350 million significantly higher than its been and you've got $50 million of feedstock added to that can you give us any color in terms of how much is readily available for sale right now.

Michael Frank Ciarmoli: <unk> versus something like the 750 sevens can even slice. It in terms of do you have X amount of value or percentage in whole assets versus more sort of U S. N piece parts or components, and then I guess.

Speaker Change: Just an update on how many Aero where kids you have and kind of how much of that is reflected in the inventory.

Martin Garmendia: So, overall, let me try to go through all the overall points. Airsafe kits: we have 150 kits overall. Can't provide you with an overall exact inventory value for that for competitive reasons, but there are 150 kits in that overall number. 757s, we've noted we have nine assets that are better. Well, sorry, we have seven assets. That's one that's ready and another six that are in the process, so those inventory costs are there. That's a mixture of the airframe value and the engine value.

Speaker Change: So overall from a let me let me try to go through all of the overall points.

Martin Garmendia: Aerospace kits, we have 150 kits overall can't provide you an overall inventory value for that for competitive reasons, but there are 150 kits in that in that overall number seven.

Martin Garmendia: 750 Sevens, we've noted we have.

Martin Garmendia: Nine assets.

Martin Garmendia: That are better well start we have seven assets, one what's that's ready and another.

Martin Garmendia: Another six that are in process that those inventory costs are there.

Martin Garmendia: That's a mixture of the airframe valeant the engine value.

Martin Garmendia: I can't give you those specific amounts either for competitive reasons, as we've given out the numbers already. So, giving you a dollar value would merely note what our net book value is there. But I think we made the comment earlier, we feel confident in the position that we have and the book value based on what we're seeing in the market, that we can monetize those assets going forward. As far as a breakdown of overall inventory, as a reminder, our whole assets are pretty much assets that are being evaluated to either be monetized through USM, whole asset opportunities, or leasing.

Martin Garmendia: I can't give you those specific amounts either for competitive reasons.

Martin Garmendia: Even up the numbers, so giving you a dollar value with nearly no but our net book value is there, but I think we made the comment earlier, we feel confident in the position that we have in the book value based on what we're seeing in the market that we can monetize those assets going forward as far as a breakdown of overall inventory.

Martin Garmendia: [noise] Minder, our whole assets are pretty much assets that are being evaluated to either be monetized through U S. N full asset opportunities are leasing but.

Martin Garmendia: But I can't tell you about three-quarters of that inventory value is engine material that's readily available. We have a variety of engines, CFM56, CF680s, PWs, RB211s, V2500s, no, overall engines, flight equipment material overall. A lot of that is still with us.

Martin Garmendia: But I can't tell you about three quarters of that inventory value is engine material that's readily available.

Martin Garmendia: Have a variety of engines CFM $56 six eighties dws RV to 11 cities engine materials not readily lead twenty-five under an overall engines flight equipment materials and so forth.

Martin Garmendia: A lot of that is still with yeah yeah.

Martin Garmendia: All of material that is being processed and it may cause noting some of that is being processed at the U S. M channel and engines, we're definitely seeing a slowdown in our ability to monetize that which is a good sign that means that there's a lot of demand for that material, which is why it is taking longer for us to get that through the system overall, but we also have bought with the two.

Martin Garmendia: With the amount of feedstock that we bought last year inventory to replenish our inventory portfolio. So we already have opportunities of various engine types to add those into the leasing portfolio, we're starting to deploy those out.

Martin Garmendia: We've added a couple already in the current quarter, we have more that are available and we're starting to see demand. We have about 10 additional engines that are in repair that will come into the leasing portfolio. So what I expect to see in the remainder of the year as youre going to see growth in our engine leasing portfolio as we start monetizing some of those assets.

Speaker Change: From a U S perspective, we're also gonna be monetizing at a faster rate we started seeing a pickup during March we expect the second quarter to be comparable to Q1 and as you start seeing a more a stronger growth in the second half of the year.

Michael Frank Ciarmoli: Got it. That's helpful. Last one for me.

Speaker Change: Got it.

Speaker Change: Thats helpful.

Speaker Change: Last last one for me I know you don't want to disclose the margins on our Aero, where with the updated pricing, but I know you've been building needs kits for quite some time.

Michael Frank Ciarmoli: I know you don't want to disclose the margins on AeroWear with the updated pricing, but I know you've been building these kits for quite some time. I mean, assuming we get an order, is it realistic to think that the drop-through is significantly better on these first 150 kits? I mean, it seems like they're ready to go. You just have to have the labor for the install.

Michael Frank Ciarmoli: Assuming we get an order or is it is it realistic to think that the drop through is significantly better on these first 150 kicks in and it seems like you know they are ready to go you just have to.

Nicolas Finazzo: Should we get maybe a disproportionate margin better?

Nicolas Finazzo: Have the labor to install is that should we get maybe a disproportionate margin benefit on this first one to go out the door.

Michael Frank Ciarmoli: I think we'll get a better margin profile for the ones that are made after the first ones because I don't think we did it. I'm very happy with our cost, by the way, but I think that there's, it can be done more efficiently than we did it in house. So I'm not concerned about the gross margin that we can make off of the sale of the kits. As far as, and again, we're not going to reveal, drop through at some point, when you start seeing airware sales, we'll talk about how many airware sales we made, and I guess we'll talk about, we'll disclose gross dollars and margins you're probably not going to see.

Nicolas Finazzo: I think we'll get a better margin profile for the ones that are made after the first months because I think I don't think we did it I'm very happy with our cost by the way, but I think that there is it can be done more efficiently than we did it in house.

Speaker Change: Got it okay, we're not concerned about the margin.

Michael Frank Ciarmoli: The gross margin that we can make off of the off the sale of the kids as far as.

Michael Frank Ciarmoli: And again, we're not we're not going to reveal drop through at some point when we start you start seeing air where sales will talk about.

Michael Frank Ciarmoli: How many are where sales that we make and I guess yeah.

Michael Frank Ciarmoli: I guess, well we'll talk about.

Michael Frank Ciarmoli: We'll just we'll disclose gross dollars.

Michael Frank Ciarmoli: And margins Youre, probably not going to see I think you'll see the margin in our tech outside maybe you'll see them, maybe youll see the dollar margin.

Michael Frank Ciarmoli: I think you'll see the margin on our tech ops site; maybe you'll see the dollar margin. But, you know, I just think it's really tough to start disclosing that type of level. You know, we're negotiating with, you know.

Speaker Change: But okay.

Michael Frank Ciarmoli: That's really tough to start disclosing that type of level.

Michael Frank Ciarmoli: We are negotiating with.

Michael Frank Ciarmoli: Because you're getting with the industry.

Michael Frank Ciarmoli: Understandable. All right. Perfect. Thanks, guys. I appreciate it.

Speaker Change: Understandable alright, perfect. Thanks, guys appreciate it.

Kenneth George Herbert: And we have a follow-up question from Ken Herbert. Please go ahead.

Michael Frank Ciarmoli: Okay, and we have a follow up question from Ken Herbert. Please go ahead.

Kenneth George Herbert: Yeah, hey, Martin, I maybe just wanted to follow up on a comment you made earlier in the call. You know, we're sort of five to six weeks into the second quarter. I can appreciate you don't want to give any sort of full year guidance, but it sounds like you were just commenting that second quarter EBITDA, I wasn't clear if that was for the company or a particular segment, but second quarter EBITDA looks very similar to first quarter EBITDA. Did I get that correctly, with maybe a more pronounced step up in the second half over the first half? No.

Kenneth George Herbert: Yeah, Hey, Martin I, maybe just wanted to follow up on a comment you made earlier in the call.

Kenneth George Herbert: We're sort of five to six weeks here into the second quarter. I can appreciate you don't want to give any sort of full year guidance, but it sounds like you were just commenting that second quarter EBITDA I mean, it wasn't clear if that was for the company or particular segment second quarter EBITDA looks very similar to first.

Kenneth George Herbert: Quarter, EBITDA did I get that correctly with with maybe more pronounced step up in the second half over the first half.

Martin Garmendia: No, that comment was specifically about USM sales overall. We're seeing USM activity improving. Probably, Q2 will be similar to Q1. And then as more material flows through, specifically engine material, we'll see an acceleration of that through the remainder of the year.

Speaker Change: No that comment was specifically to U S M sales overall okay.

Martin Garmendia: Activity, improving probably Q2 will be similar to Q1 activities and then as more material flows through specifically engine material, we'll see an acceleration of that through the remainder of the year.

Speaker Change: Okay, but are you.

Speaker Change: Any sort of high level views on an EBITDA in the second quarter and sort of maybe expectations relative to the first quarter or just anything you can help with as we think about.

Kenneth George Herbert: Okay, but are you, any sort of high-level views on EBITDA for the second quarter and sort of maybe expectations relative to the first quarter or just anything you can help with as we think about sort of the setup here, near-term?

Martin Garmendia: Sort of the setup here near term.

Martin Garmendia: Yeah, I think we won't provide any specific financial guidance overall. What we can say is we are seeing good opportunities in all sides of the business. We're starting to see the air safe sales that Nick mentioned in his remarks, so we're starting to see that contribution flow through the P&L. We're seeing the pickup in our component MROs that we've talked about with some of the new contract sales, so we're expecting improvements there.

Speaker Change: I think we won't provide any specific financial guidance.

Martin Garmendia: Guidance overall, what we can say is we are seeing good opportunities in all sides of the business.

Martin Garmendia: We're starting to see aerospace sales that Nick mentioned in his in his remarks. So we're starting to see that contribution flow through the P&L, we're seeing the pick up in our component MRO that we've talked about with some of the new contract sales. So we're expecting improvements there.

Martin Garmendia: And then from the asset management side, we've already done some deals related to engines, so we expect whole asset sales in the second quarter, and USM, as I noted, being overall. And you will start seeing some increase in leasing, but that also will be stronger acceleration starting in Q3.

Martin Garmendia: And then from the asset management side, we've already have done some deals related to engine. So we expect whole asset.

Martin Garmendia: Whole asset sales in the second quarter and U S. M. As I noted being overall and you will start seeing some increase in leasing.

Martin Garmendia: But that also will be a stronger acceleration starting in Q3.

Kenneth George Herbert: Perfect. Thanks, Martin.

Speaker Change: Perfect. Thanks Martin.

Nicolas Finazzo: This concludes our question and answer session. I would like to turn the conference back over to Nick Finazzo, CEO. Please go ahead.

Kenneth George Herbert: This concludes our question and answer session I would like to turn the conference back over to Nick Panozzo CEO. Please go ahead.

Nicolas Finazzo: You know, I want to thank Gautam, Ken, Bert, and Michael for the good questions because they really do help our investors better understand our business, so thank you guys. For everyone else, we appreciate you listening to our call today and for your interest in Aircel. And I hope everyone has a good evening.

Operator: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

Nicolas Finazzo: You know I want to thank our Gotham can burden Michael for the good questions because it really does help our investors better understand our business. So thank you guys.

Operator: For everyone else. We appreciate you listening to our call today and for your interest in herself and I hope everyone has a good evening Goodnight.

Operator: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.

Operator: Okay.