Q3 2024 AerSale Corp Earnings Call
Today's call is being recorded I will be standing by if you should need any assistance. It is now my pleasure to turn the conference over to MS. Christine <unk> Vice President of compliance. Please go ahead.
Christine: Good afternoon.
Speaker Change: I like to welcome everyone to air shows third quarter 2024 earnings call conducting the call today are <unk>, Chief Executive Officer, Martin <unk>, Chief Financial Officer.
Speaker Change: Before we discuss this quarter's results we want to remind you that all statements made on this call that do not relate to matters of historical fact should be considered forward looking statements within the meaning of the federal securities laws, including statements regarding our current expectations for the business and our financial performance.
These statements are neither promises nor guarantees, but involve known and unknown risks uncertainties and other important factors that may cause our actual results performance or achievements to be materially different from any future results.
Speaker Change: Important factors that could cause our actual results to differ materially from forward looking statements are discussed in the risk factors section of our Form 10-K for the year ended December 31, 2023 filed with the Securities and Exchange Commission S E C.
Speaker Change: March eight 2024, and its other filings with the SEC.
Speaker Change: 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.
Speaker Change: We'll also refer to non-GAAP measures that we view as important for assessing the performance of our business.
Speaker Change: 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 ear cells website.
Speaker Change: I R Dot yourself dotcom.
Nick: With that I'll turn the call over to Nick for nothing.
Nick: Thank you Christine good afternoon, and thank you for joining our call.
Nick: Like to begin today with a summary of the quarter and a review of our strategic objectives before turning the call over to Martin for a closer look at the numbers.
Underlying business trends continue to improve and our core business and we remain focused on the factors we can control.
Nick: This included the following drivers and key takeaways from the quarter.
Nick: We expanded our lease pool, which drove a meaningful uptick in our leasing revenue, which will recur through the balance of the lease terms.
Nick: This is consistent with the strategic priorities, we discussed last quarter.
Nick: Second as a result of the increased feedstock availability our U S. M business performed well and we have sufficient stock remaining throughout the next 12 months as we navigate a challenging used aircrafts backdrop.
Nick: Third our MRO business continue to improve in the quarter and was the primary driver of an 18% growth year over year in this segment.
Nick: And lastly, we remain on track with our MRO expansion product projects.
Nick: Which will drive increased revenue incrementally each quarter in 2025 and to improve margins as the investment period concludes.
Nick: Turning to our consolidated results third quarter revenue of $82 7 million trailed the prior year of $92 5 million as a result of lower flight equipment sales in the quarter, primarily related to the sale of a 757 freighter that occurred in 2023.
Nick: Excluding a flight equipment sales that tend to be volatile the underlying trends were positive year over year across our business and revenue increased 26%.
Nick: Improved underlying performance resulted from a stronger U S. M sales as volume from feedstock Acquisition's worked its way through the system.
Nick: Additional assets in our lease pool compared to the prior year and continued strength in demand for MRO services.
Nick: Light equipment sales in the third quarter of 2024 were $22 6 million compared to $44 8 million in the prior year.
Nick: As we reminded investors every quarter due to the nature of our business and the impact of flight equipment sales.
Nick: Our topline revenue levels can vary significantly 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 feedstock levels and the value our team is able to extract from those investments.
Nick: Third quarter, adjusted EBITDA improved to $8 2 million compared with $1 9 million in 2023.
Nick: Higher EBITDA in the period resulted from stronger gross margin and lower operating expense.
Nick: Next I'd like to provide an update on the strategic priorities that we laid out last quarter, beginning with our MRO facility expansion projects.
Nick: And our Miami component facility, which will add nomadic capabilities to our MRO for footprint and expand our addressable market.
Nick: We remain on track to complete this project at the end of the year.
We expect it to be operational in the first quarter of 2025 at which point, we will begin to generate revenue.
Nick: Second at our expansion project for the Miami Aerostructures facility, where we are tripling. Our total capacity. We also remain on track to complete this investment by the end of the fourth quarter and be operational by the end of the first quarter of 2025.
Nick: And finally at our Millington on airport MRO facility, we are operational and have begun to generate revenue during the quarter.
Nick: As we fill capacity, we expect this facility to contribute to our overall EBITDA.
Nick: But initial volume during the ramp up phase traded $8 $9 million drag on EBITDA in the period.
Nick: With all of these facilities, we expect a sequential step up from initial volumes in 2025 and into 2026 with an ultimate run rate of at least $50 million annually.
Nick: Further as we complete these projects the associated Capex in excess operating costs will abate.
Nick: Benefiting the operating run rates in our Tech ops segment.
Nick: In total we have been incurring approximately $1 million in annualized cost for incremental rent as we work to expand these facilities.
Nick: These amounts are in addition to the point $9 billion EBITDA loss in Millington, which is now operational and we will have a more positive impact on our operating results.
Nick: As I noted last quarter, we're utilizing a portion of our feedstock to expand our specialty lease pool, which is more in line with our pre pandemic operating structure.
Nick: To that end, we added four engines during the period.
Nick: This led to a year over year improvement in our leasing revenue and as we continue to add engines will help smooth our quarterly performance in subsequent quarters through the duration of these leases.
Nick: Regarding our 727 or 757 Pizza web conversion program. The end market showed additional signs of loosening with enhanced customer interest and bidding activity.
Nick: These opportunities range from sales to leases and while we're still in discussions with multiple customers and the outcome is uncertain. We are encouraged by the enhanced level of activity occurring.
Nick: Turning to our segments and beginning with asset management third quarter sales were $50 4 million compared to $65 1 million in the prior year.
Nick: Similar to our consolidated results lower revenue was entirely attributable to flight equipment sales during the period, particularly from the sale of a 757 freighter in the third quarter of 'twenty three.
Nick: Excluding applied equipment sales segment sales were up 36, 9% year over year, driven by better feedstock availability from the $139 $9 million acquired in 2023, and the addition of four engines to our lease pool.
Nick: In the quarter, we sold five engines compared to seven engines and a 757 freighter in 2023.
Nick: The backdrop for acquiring feedstock remains challenged primarily as a result of OEM production delays that have led airlines to continue operating midlife aircraft.
Nick: Fewer aircraft available and more competition for these aircrafts has led to higher asset pricing, which has also decreased our overall acquisition rate.
Nick: We've continued to bid on select available assets following our disciplined guidelines with more than $253 million in bids submitted in the third quarter of which over $117 million were awarded to somebody with Aricept, winning $3 6 million. However, our success rate of just three 1%.
Nick: Of awarded deals.
Nick: Put in perspective. This compares to our historical win rate of approximately 10%.
Nick: Year to date, we've acquired $42 million in total feedstock, which is at a level below our annual target of $150 million, but we still retained sufficient inventory levels to support our business for at least the next 12 months as we envision market conditions will begin to normalize.
Nick: Turning to our Tech ops segment second quarter sales continued to grow amid strong commercial demand.
Nick: Segment revenue increased 17, 6% to $32 3 million compared to the year ago period.
Nick: Growth was widespread across most of our facilities included mark including modest initial sales volume from our new Millington on airport MRO.
Nick: We expect growth at Millington to continue as we expand our customer base and also from the additional capacity and new capabilities being added to our component and accessory shops coming online by the end of 2024.
Nick: Turning to engineered solutions, we had an active quarter of dialogue with multiple perspective customers regarding era, where our revolutionary enhanced flight vision system, incorporating a dual head wearable display applicable to the 737 for which we hold the only supplemental type certificate.
Nick: For its type issued by the FAA, which we received last December.
Nick: This error, where sales activity included demonstration flight support three different operators.
Nick: Despite the long commercialization phase for this advanced system, we remain optimistic about the prospects for air where as we work to win a launch customer and we will continue to update investors on incremental developments.
Nick: We also continued to pursue sales opportunities for air safe, our proprietary STC developed to provide fuel tank flammability protection applicable to a number of popular narrow and widebody commercial aircraft, including the $727 737 767 Triple seven.
Nick: And the <unk> hundred 20 family of aircraft.
Nick: As we approach a $20 26 regulatory compliance deadline, requiring aircrafts not equipped with air safe or another approved system to have fuel tanks flammability protection, we anticipate our current order backlog of approximately $11 million to accelerate and doubled over this timeframe.
Nick: As commented during previous earnings calls, our engineered solutions products have generated sales margins in excess of 50%.
Nick: Which we expect will be consistent for future sales.
Nick: In the third quarter, we sold to aerospace systems.
Nick: In closing our core business demonstrated strong underlying growth driven by better feedstock and a robust commercial aerospace backdrop.
Nick: We are working hard to stabilize our base revenue and have added additional lease equipment, which will provide recurring quarterly revenue.
Nick: Longer term, we're excited to bring the capacity expansion projects online and our tech ops segment and look forward to pursuing the monetization of the $72 seven pizza, who have conversions that will help drive meaningful cash flow.
Nick: Finally, we remain confident that our revolutionary enhanced flight vision system are where we'll gain market acceptance and become a significant distributor contributor to our long term financial performance and ultimate company valuation.
Nick: I want to thank our dedicated employees for their hard work and our investors for their continued support.
Nick: We look forward to updating you on our progress now.
Nick: Now I'll turn the call over to Martin for a closer look at the numbers Martin.
Martin: Thanks, Nick.
Martin: Third quarter revenue was $82 7 million, which included $22 6 million in flight equipment sales consisting of five engines and no aircraft.
Revenue in the third quarter of 2023 was $92 5 million and included $44 8 million of flight equipment sales consisting of seven engines and our pizza West converted Boeing 757 aircraft.
Martin: As we have pointed out during all of our earnings calls flight equipment sales may significantly vary from quarter to quarter, and we believe monitoring our progress based on asset purchases and sales over the long term is a more appropriate measure of our progress.
Martin: Third quarter gross margin was 28, 6% compared to 25, 4% in the third quarter of 2023.
Martin: Primarily driven by sales mix that included higher margin engine leasing and flight equipment sales.
Martin: Selling general and administrative expenses were $21 7 million in the third quarter of 2024, which included $1 2 million of noncash equity based compensation expenses.
Martin: Selling general and administrative expenses were $25 4 million in the third quarter of 2023 and included $3 2 million of noncash equity based compensation expenses. The decrease in selling general and administrative expenses were primarily driven by lower payroll research and development costs and repair.
Martin: And maintenance expenses during the quarter.
Martin: Third quarter income from operations was 2 million compared to a loss from operations of $1 9 million in the third quarter of 2023.
Martin: Net income was <unk> 5 million in the third quarter compared to a net loss of $1 million in the third quarter of 2023.
Martin: Adjusted for noncash equity based compensation Mark to market adjustment to the private warrant liability facility relocation costs inventory reserves and secondary issuance costs. Adjusted net income was $1 8 million in the third quarter of 2024.
Martin: Adjusted for the same items the third quarter of 2023 had an adjusted net income point $9 million.
Martin: Third quarter diluted earnings per share was <unk> <unk> compared to diluted earnings per share of zero in the third quarter of 2023.
Excluding the adjustments mentioned above third quarter adjusted diluted earnings per share was <unk> <unk> compared to adjusted diluted earnings per share of <unk> for the third quarter of 2023.
Martin: Adjusted EBITDA was $8 2 million in the third quarter of 2024 compared to $1 9 million in the prior year period.
Martin: The growth in adjusted EBITDA was a result of increased leasing revenue and higher margins on flight equipment sales.
Martin: Next in terms of our cash flow metrics year to date cash used in operating activities was $26 4 million, resulting from a gross investment of over $62 6 million in newly acquired feedstock and make ready costs to prepare inventory for sale.
Martin: Which should drive our revenue and earnings going forward.
Martin: As an improvement for the quarter of $10 4 million in cash generated from operations as we begin to monetize previously purchased feedstock.
Martin: We ended the quarter with a substantial balance sheet with $103 5 million of liquidity, consisting of $9 8 million in cash and available capacity of $93 7 million on a 180 million revolving credit facility, which can be expanded to $200 million.
Martin: As an update to pending insurance claims as we mentioned during the second quarter earnings call. We suffered a loss due to a fire at one of our least auxiliary USA inventory facilities located in Roswell, New Mexico in.
Martin: And that facility, we had approximately $67 6 million of inventory valued at market prices, which is fully covered by insurance and for which we have made a $67 $6 million claim subject to a $10000 deductible.
Martin: In addition, we also have an outstanding claim of $5 5 million against our war risk insurers for a general electric C. F. Six ADC to engine that has been detained in Russia since the start of Russias War with Ukraine.
Martin: Although the exact amount that will be paid to us for these claims totaling over $70 million has yet to be finalized in both cases, alright insurers have indicated they anticipate making payment before year end.
Martin: Looking forward, we have an opportunity to drive significant near term cash flow through the monetization of our 757 <unk> aircraft existing feedstock inventory and increased contributions from our MRO as we take advantage of available capacity and new capabilities.
Speaker Change: With that operator, we are ready to take questions.
Speaker Change: Thank you very much as a reminder, ladies and gentlemen, if you would like to ask a question. Please press star one on your telephone keypad, you may remove yourself from the queue at any time by pressing star two and we will take our first question from Guatemala from TD Cowen. Please go ahead.
Speaker Change: Hi.
Speaker Change: Thanks for taking my call my questions guys. Good afternoon afternoon Gautam.
Speaker Change: Yes. My first question is on <unk> and sort of how.
Speaker Change: How close are you do you think.
Speaker Change: With maybe getting the customer to <unk>.
Speaker Change: On board and what is sort of a pushback.
Speaker Change: Pushback or what is the hesitancy you've seen over the last year.
Speaker Change:
Speaker Change: To get to get them over the line, Okay. So got them.
Speaker Change: I've been asked that question multiple times and giving my opinion.
When I thought things would happen and based on <unk>.
Speaker Change: Based on prior experience I think it's not prudent to give another opinion on when this will happen I can tell you. This much we have been diligently working with multiple customers.
Speaker Change: To help them figure out what it will take to get this system over the line for them. It's it's not simple it'd be simpler for a small carrier, but sort of a bigger carriers.
Speaker Change: It's much more complex.
Speaker Change: And requires much more planning so they're there hasn't been pushback yet other than that.
Speaker Change: The complexity of dealing with in the case of a large carrier of what it takes to get the system implemented and just to give you just a little heads up of what are those complexities pilot training simulators.
Speaker Change: Updating training manuals.
Speaker Change: The logistics of when you can get aircraft to be available to have there can be <unk>.
Speaker Change: The system installed in it.
Speaker Change: It's it's future planning for.
Speaker Change: It needs to be included in the budgetary process.
Speaker Change: Besides the economic analysis that comes with looking at it from both a yeah.
Speaker Change: The perspective of <unk>.
Speaker Change: Does it save flights for travel into inclement weathers, what's the what's the benefit the economic benefit of that in and how do you put a cost on that.
Speaker Change: The safety benefit of it so all of those things go into an airline's decision on whether to take this.
Speaker Change: And in the cases of.
Speaker Change: Almost across the board that is taking time.
Speaker Change: One of the things that.
Speaker Change: One of the things that I think well clearly I didn't get right was fully understand was the long commercialization phase of this.
Speaker Change: Since we've got this product certified and we've talked to a number of airlines.
Speaker Change: Only pushback has been guys just doesn't happen overnight. This is going to take us time to figure out how to implement this system and we're working through that it's I think in the prior earnings call I said that the we expect the commercialization phase from start to finish with a carrier from a day, we first talked to him about it would be 18 months.
We've actually been talking to are two are kind of the airline that we started with for more than 18 months by now and I think we are in advanced phase with that.
Speaker Change: Saying that they're committed to take it.
Speaker Change: Standards continue to be interested in taking it and so we're working there so well.
Speaker Change: The only pushback we've received from people as they don't have the money for it.
Speaker Change: So they don't have the money for it it doesn't matter, whether they could use a system or not.
Speaker Change: Or they're in there they're operating in an area that they don't have a need for it. They they don't they don't appreciate the safety aspect of it and they don't fly into areas that don't have the weather.
Speaker Change: Gotcha Thats helpful.
Speaker Change: And then.
Speaker Change: On the feedstock bids.
Speaker Change: Couple of quarters now you guys have been pretty disciplined on.
Speaker Change: Not prevailing in.
Speaker Change: At a high percentage.
Speaker Change: Maybe you could just talk about who the who.
Speaker Change: Who are you seeing pursuing a lot of these businesses.
Speaker Change: The engine Oems.
Speaker Change: Or is that.
Speaker Change: Private equity or what kind of.
Speaker Change: What is the competitive marketplace comprised of from the U S, 7% when you're going up against Yeah, Oh, that's a good question because.
Speaker Change: I ask it every day why how are we losing these deals enter into who.
Speaker Change: So the.
Speaker Change: It's a combination of.
Speaker Change: Everybody.
Speaker Change: Typically we would we would acquire a flight equipment from airlines that are that are retiring flight equipment and from leasing companies that have taken backslide equipment off lease and they don't have a home for for these assets in today's environment with the <unk> hundred 20 engine problems and the 737.
Speaker Change: Max delivery problems you now.
Speaker Change: Airlines are holding that midlife flight equipment, which is our that's our bread and butter is the midlife flight equipment, they're holding that flight equipment and airlines.
Speaker Change: Airlines at what otherwise might turn an airplane back to the lessor or buying the aircraft directly from the lessor and they never get to us.
Speaker Change: <unk> gotten very smart and they realized that the best way to sell an airplane is with a couple of years of lease revenue attached to it.
Speaker Change: And you know we've not been successful in winning deals where you're just buying paper because the residual values that somebody can put on an asset assuming two to three years could be.
Speaker Change: Dramatically different than what we view the residual value would be so we have to be disciplined because we know what the subsequent to be worth in the near future and we're going up against companies that may not know that as well as we do or more aggressive than we are and we're going to continue to stay to stay discipline. So we're seeing it from and then we have.
Speaker Change: Other leasing we have leasing companies buying equipment. If it comes off lease and as that is a ready to lease asset which are very few by the way.
Speaker Change: From a leasing companies that are there partnering with them.
Speaker Change: Then we have a whole host of other.
Speaker Change: The new money that's come into this space.
Speaker Change: Whether it be from private equity hedge funds or family offices that that believe there is an opportunity to invest at this space and buy used equipment again, if its equipment on lease and if youre buying paper I think those companies are better suited to acquire that flight equipment than we are because their return.
Speaker Change: <unk> are much lower than ours.
Speaker Change: If it's off lease equipment that requires a lot of work I don't think those companies are excluded at all to or have a very short tail left on the lease I don't think those companies are well suited at all to monetize those at the end of at the end of the lease Nonetheless.
Speaker Change: We see those aircraft get.
Speaker Change: But by.
Speaker Change: Again hedge funds family offices private equity backed companies that don't fully understand the value of flight equipment and may have trouble with it when they ultimately get it back off lease if they don't have the infrastructure that we have one of the things that I that I have been trying to explain to investors from the very beginning here is that.
Speaker Change: We've got a multi dimensional value extraction business here that is fully integrated and that makes a big difference because we look at an asset and we find whichever is the best way for us to monetize it and we've got a lot of capability to do that across many disciplines and.
That gives us.
Speaker Change: Good insight into what the future value of that flight equipment will be and the maximum amount of money that we can pay for it when we lose base today golf and we're losing bids not by a little we lose bids by more than we think we can net out of it.
Speaker Change: From based on our projected margin. So that's why we're staying disciplined I don't know how people who beat us on deals are going to make money with it.
Speaker Change: Great helpful context, Thank you guys.
Speaker Change: You're welcome.
Speaker Change: Thank you and next we're going to go to Ken Herbert with RBC capital markets. Please go ahead.
Ken Herbert: Yeah, Hi, good afternoon, Nick and Martin.
Ken Herbert: Okay, Yeah, Hey, Nick you typically enjoy.
Ken Herbert: <unk>, a nice step up in terms of.
Ken Herbert: Revenues and EBITDA from the third to the fourth quarter.
Speaker Change: You've typically had seasonal seasonal benefit there I'm wondering if you could just help us at all sort of how the fourth quarter books now is it shaping up and any at least maybe Nick any any guidepost you can provide as we think about that.
Speaker Change: Typical seasonal benefit you can or how we should be thinking about the fourth quarter.
Speaker Change: Maybe in terms of the EBITDA run rate or anything else you're comfortable to comment on.
Speaker Change: You know Idaho.
Speaker Change: I don't think theres any seasonality associated with where the where the quarter is going to end up I know it may feel like that.
Speaker Change:
Speaker Change: Based on a few.
Speaker Change: Looking at the fourth quarter over over a several year period, but I just have not you know if you look all the way back in the history of the company. It doesn't really feel like the fourth quarter is better or worse than any other quarter. It really just depends on what if we purchased with respect of feedstock and the year to year and a half that preceded the fourth quarter.
Speaker Change: Generally we do we do see in it.
Speaker Change: Yeah.
Speaker Change: An improvement in purchasing in the first quarter and that and that will you'll start realizing the benefit of that by the time you get into the third and fourth quarter that may have played some part of it but.
Speaker Change: But thats, but right now the market is in flux. So much that we're just not seeing any consistency to any any historical patterns. So I don't I don't really feel that I can give you good guidance on that to say is the fourth quarter, they're going to look like.
Speaker Change: The fourth quarter of last year, where we had I assume we had an uptick in the fourth quarter, Yeah, I mean, Ken as a reminder, fourth quarter of last year had the sale of $2 $75 seven P to fs that were in that overall quarter. So <unk> seen an increase in the fourth quarter its been related to the timing of flight equipment sales, having said that we do have good line of sight on some edge.
Speaker Change: The whole asset sales that will occur in the fourth quarter, but that seasonality has really been just the timing of that equipment.
Speaker Change: Okay. Thanks, Brian Thats helpful.
Speaker Change: But just to say that not not to say, we don't expect improvement in the fourth quarter. We're just pointing out that there's no seasonality to that.
Speaker Change: Got it.
Speaker Change: Helpful. And then you called out with the with the MRO investments, you're making you expect to get to sort of sounded like an incremental $50 million run rate through the three.
Speaker Change: Or the few programs you identified two in Miami and the Burlington facility.
Speaker Change: Maybe today you could just maybe.
Speaker Change: Or is the MRO business today, as we think about sort of the revenue run rate what should be a good sort of normalized EBIT margin or you put a number on that base business. As we then start to layer in.
Speaker Change: The incremental revenue opportunity from the programs.
Speaker Change: In the first quarter of next year and that $50 million will be kind of incremental through 2025 and enter 2026, and we believe based on kind of the margin profile of those units those will contribute about 20% to 30% margins depending on what kind of work, we'll be doing that those facilities.
Speaker Change: Okay very helpful and do you sort of the run rate today of the base MRO business is it possible to give any commentary on that and sort of what kind of growth you've seen in that business across this year.
Speaker Change: I think right now, we're probably running around.
Speaker Change: At $8 million to $10 million EBIT contribution in those and those overall unit and we expect that to again not only improve because of the new additions, but we also have additional capacity that's existing both on our on airport MRO as well as our component and accessories shop. So as we continue to kind of fill those units. We also take advantage of that.
Speaker Change: New contracts that we won in both our accessories and landing gear shops and have those that additional volume flow through that will improve our margin profile with better absorption of fixed cost and labor utilization. So we expect that number to significantly increase through 2025.
Speaker Change: Perfect. Thanks, Martin I appreciate the detail.
Speaker Change: Thank you and next we're going to go to Sam <unk> with <unk> Securities. Please go ahead.
Speaker Change: Hi, Good evening guys on for Mike.
Speaker Change: Thanks for taking the questions I guess building on the MRO line of questioning and as you kind of build outs.
Speaker Change: You guys mentioned that Millington was a little low on volume to start how are you guys thinking do you have I guess contracted business, you're expecting to kind of dive right into once the other projects come online or how are you sort of thinking about the timeline with new work in those facilities once they are operational.
Speaker Change: The facility is operational so far for us right the incremental ones sorry, that's just well I mean, we are we are actively soliciting.
Speaker Change: Customers to do for their on airport MRO work and we expect it will start filling that facility up until we get to the point, where it's only it's only two basis. So it's not it's new.
Speaker Change: We've got a lot to fill up.
Speaker Change: But it is new location and new location, we do have an existing customer in there. So it's a regional customer we have had a a large airline in there that had 730 sevens. We're doing some we're doing so many of your work for them. So.
This is our typical customer base, it's just getting them familiar with that location. It's a good one.
Speaker Change: Mid country.
Speaker Change: Rather than went out went out west like our Roswell or Goodyear facilities are.
Speaker Change: So just introducing the customer so that facility. It's a you know we've spent a lot of money on that facility candidly it shows better than any of our other on airport MRO. It looks about as good as you would expect that MRO to look in an airport to MRO. So just introducing customers to the facility and ramping up.
Speaker Change: Just like we have at the other facilities is coming natural naturally over time, but we just started and we did have ramp up expenses, because we're paying we're having to bring in mechanics trained them bring the tooling and getting them experience and you know you have to do that before you have any revenue. So that's the reason for the for the upfront ramp up loss.
Speaker Change: With regard to that.
Speaker Change: With regard to our component MRO.
Speaker Change: The good thing about our Aerostructures shop is we already have the opportunity for more business than we could get out of our current facility, one where we are space constrained.
Speaker Change: There's a current facility we have is about 30000 square feet. The one we the one that we've been paying for for over a year is 90000 square feet. It's a little lies approximately 90000 square feet.
Speaker Change: And it's got all the bells and whistles that we would want in an aerostructures shop, we have shown that facility to you know some very large commercial operators that love it and have approved us to do work in that facility and dairy and they've indicated that they're going to give us work.
Speaker Change: That facility, where we're already physically out of space in our old facility. So even if they wanted to give it to us which they don't they want they want is they want to see the work done in the new facility.
Speaker Change: We feel being able to ramp up work in our Aerostructures shop quickly what will happen because we have customers waiting for it and we are limited on what we can do today in our existing facility due to the size of the facility.
Speaker Change: Regarding our job.
Speaker Change: Regarding our dramatic sorry go ahead finish with that one.
Speaker Change: That's our that's the same existing customer base, we have it's just adding additional capability instead of just being able to do there hydraulics and and other accessories, we're able to do their pneumatics and the nice thing about the pneumatics capability. We have as you know we've acquired state of the art equipment from from Bauer, We unlike R. R.
Speaker Change:
Speaker Change: Hydraulics capability, which is limited to more mid and older technology equipment, our new test equipment for pneumatics covers.
Speaker Change: The latest generation most current airplane out there.
Speaker Change: Got it understood. That's very helpful color I appreciate it and it makes good sense in terms of the demand trends there.
Speaker Change: I can just sneak in one other you guys mentioned that it sounds like the U S M feedstock availability and supply is trending a little bit better.
Speaker Change: Could you just give any kind of detail on.
Speaker Change: Exactly what within the U S and you guys are seeing more supply and kind of puts and takes there. Thank you.
Speaker Change: I I am not sure.
Speaker Change: Neither stated that correctly, we didn't understand it correctly you use some availability today, because because the win with the win rate of what we're bidding on because we're in a very competitive market with a very limited amount of Av.
Speaker Change: that we won't end the year. I mean there is only a little less than two months left in the year. It doesn't mean we can't end the year, you know, on a very positive note but hitting a $150 million purchase of feedstock by year end is probably the right thing to do.
Speaker Change: We've got a lot of work to do to make that up in a competitive market and and we've got to stay discipline, because if we pay too much but I'm going to make any money selling it or we're going to lose money. So you're gonna take write offs. So for us. It's just a balancing act between how aggressive are we going to be in buying feedstock.
Are we going to chase the market. The answer's no how aggressive are going to are we going to be no more aggressive than we've been historically because one of the things that you.
Speaker Change: We've learned over a long period of time is that if you could become too aggressive on things. If you pay more than you think you should pay the likelihood is youre going to youre going to own that stuff youre going to get stuck with it and youre going to take a loss and thats what puts a lot of companies out of the business. So I'd, rather I'd, rather make lesser margin today it'd be a little more conservative.
Speaker Change: And live to fight Tomorrow, because overpaying today is just the depth of the company Tomorrow and we're not doing that so the discipline is is.
Speaker Change: My opinion is not an option it's required and will.
Speaker Change: To stay discipline, which effects, which affects the amount of acquisition, but it doesn't matter.
Speaker Change: Buying feedstock isn't the only thing we do it's just one piece of the overall business and if buying feedstock. It's off at this time you know it will change over over time is as we move forward.
Speaker Change: On that subject.
Speaker Change: What's going to happen here when the when the Oems.
Speaker Change: Catch up on production of their new aircraft, the 737, and the 737, Max and the <unk> hundred 20 engine problem.
Speaker Change: Becomes is more or less resolved and the airlines are able to deliver aircraft that can be used by the airlines by the airlines I'm sorry, the Oems can deliver airplanes that can be used by the airlines rather than sit waiting for maintenance or waiting to be waiting to come out of the factory. After the FAA approved the release of the airplanes.
Speaker Change: When that happens, it's going to push out a lot of older flight equipment and to properly monetize the older flight equipment, the multi dimensional value extraction fully integrated business that we've got here at herself today, which we do not see anybody has replicated.
Speaker Change: We think were in perfect position to capitalize on what's coming.
Speaker Change: So yes, we're struggling through today with limited amount of feedstock acquisitions.
Speaker Change: We are staying disciplined.
Speaker Change: We will be in business when this bow wave of stuff, that's coming out when the Oems catch up and we are the perfect company to monetize it.
Speaker Change: And just as Nick noted during as we wait for the market to recover we are in a very good inventory position, having deployed to over $130 million last year of material that that required work with serviceable and thats why its taken us some investments to get that inventory marketable and we're starting to see the benefits of that through the P&L. So again following.
Speaker Change: Very very strategic and very disciplined approach, we were able to deploy last year. So we definitely have a good line of sight at least for the next 12 months enabled to support our U S N business.
Speaker Change: Thank you and I'd like to turn it back over to Nick <unk> for any closing or additional remarks.
Nick: Thank you.
Nick <unk>: Many thanks to everyone for listening to our call today.
Nick <unk>: We have a lot of we have a lot to look forward to in the year ahead, our heavy investment in inventory and infrastructure is beginning to yield results and we believe that will accelerate over time.
Nick <unk>: Our business is strong and we have ample liquidity to continue our growth trajectory.
Have a good evening everyone.
Speaker Change: Thank you and that does conclude today's conference. We thank you for your participation you may now disconnect.
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