Q2 2025 AerSale Corp Earnings Call

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I would now like to turn the conference silver to Jacqueline Carlin, Vice President of marketing and communication. Please go ahead.

Good afternoon.

I'd like to welcome everyone to air sales second quarter 2025 earnings call.

Speaker #3: Good day, and welcome to the AirSale Corp second quarter 2025 earnings conference call. All participants will be in the listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero.

In the call today are <unk>, Chief Executive Officer, and Martin Gum, India, Chief Financial Officer.

Before we discuss this quarter's results we want to remind you that all statements made on this call that do not relate to matters of historical fact.

Speaker #3: After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your telephone keypad.

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.

Speaker #3: 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 Jacqueline Carlon, Vice President of Marketing and Communication.

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 #3: Please go head.

Speaker #4: Good afternoon. I'd like welcome everyone to AirSale's second quarter 2025 earnings call. Conducting the call today are Nick Finazzo, Chief Executive Officer; and Martin Garmendia, Chief Financial Officer.

Factors that could cause actual results to differ materially from forward looking statements are discussed in the risk factors section of the company's annual report on Form 10-K for the year ended December 31, 2024 filed with the Securities and Exchange Commission SEC on March.

Speaker #4: 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 Security Laws, including statements regarding our current expectations for business and our financial performance.

11, 2025, and its other filings with the S E C.

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 #4: 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.

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 on the investors section of the Aircell website at IR Dot Aircell dot com with that I'll turn the call over to Nick for not though.

Speaker #4: Important factors that could cause actual results to differ materially from forward-looking statements are discussed in the risk factors section of the company's annual report on Form 10K for the year ended December 31st, 2024.

Speaker #4: Filed with the Securities and Exchange Commission, SEC, on March 11th, 2025, and its other filings with the SEC. These filings identify and address other important risks and uncertainties that could cause actual events and results to differ materially from those indicated by the forward-looking statements on this call.

Thank you Jackie.

Good afternoon, and thank you for joining our call today.

I'll begin with a brief overview of the quarter, then provide operational updates before turning the call over to Martin to review the numbers in greater detail.

We performed better in the second quarter, driven in part by an increasing amount of ready to sell U S. M flowing from the feedstock investments we've been making.

Speaker #4: 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 on the Investors section of the AirSale website, at ir dot airsale dot com.

Together with several plant equipment sales.

Higher sales growth translated to increased profitability, particularly as we gained leverage in our model at higher volume.

In total we reported second quarter revenue of $107 4 million compared to $77 1 million in the year ago period.

Speaker #4: With that, I'll turn the call over to Nick Finazzo.

Speaker #5: Thank ou, Jackie. Good afternoon, and thank you for joining our call today. I'll begin with a brief overview of the quarter, then provide operational updates before turning call over to Martin to review the numbers in greater detail.

This also underscores the potential in our model as we improve recurring revenue through added assets and the lease pool and increased MRO capacity to provide more consistent results quarter over quarter.

Speaker #5: We perform better in the second quarter. Driven in part by an increasing amount of ready-to-sell USM flowing from the feedstock investments we've been making.

Excluding flight equipment sales the balance of our business grew 25% to $74 million again, driven by greater ready to sell inventory in our USA business and higher leasing revenue.

Speaker #5: Together, with several flight equipment sales. Higher sales growth translated to increased profitability, particularly as we gained leverage in our model at higher volume. In total, we reported second quarter revenue of $107.4 million, compared to $77.1 million in the year ago period.

Partially offset by lower Tech ops revenue as we continue working to transition our heavy MRO facilities.

As we note every quarter due to the nature of our business and the impact of flight equipment sales, our revenue levels tend to be volatile quarter to quarter, and we believe our business should be evaluated based on aggregate performance over a longer period of time with a focus on feedstock acquisitions and.

Speaker #5: This also underscores the potential in our model as we improve recurring revenue through added assets in the leasepool, and increased MRO capacity to provide more consistent results quarter over quarter.

The value our team is able to extract from those investments.

Speaker #5: Excluding flight equipment sales, the balance of our business grew by 25% to $74 million, again driven by a greater ready-to-sell inventory in our USM business, and higher leasing revenue.

Second quarter, adjusted EBITDA improved to $18 3 million compared to $3 2 million in the prior year.

The increase reflects stronger execution across the business, including a higher volume of flight equipment sales improved performance and U S. M operations and continued benefits from cost reduction initiatives implemented over the past year.

Speaker #5: Partially offset by lower tech ops revenue as we continue working to transition our facilities. As we note every quarter, due to the nature our business and the impact of flight equipment sales, our revenue levels tend to be volatile quarter to quarter, and we believe our business should be evaluated based on aggregate performance over a longer period of time with a focus on feedstock acquisitions, and a value our team is able extract from those investments.

Turning to segment performance, starting with asset management.

<unk> increased to $76 3 million from $41 $8 million last year.

This change is attributed to higher flight equipment sales, which rose to $33 4 million from $17 9 million and a rise in U S and parts sales, resulting from an increase in available ready to sell inventory.

Speaker #5: Second quarter adjusted EBITDA improved to $18.3 million, compared $3.2 million in the prior year. The increase reflects stronger execution across the business, including a higher volume of flight equipment sales, improved performance in USM operations, and continued benefits from cost reduction initiatives implemented over the past year.

Excluding activity related to flight equipment segment revenue increased by 79, 5% to $42 8 million.

This growth is attributable to the expansion of our lease pool as well as a substantial year over year increase in <unk> sales, which nearly doubled.

During the quarter, we aggressively pursued feedstock acquisitions to support our long term growth objectives.

Speaker #5: Turning to segment performance, starting with asset management, sales increased to $76.3 million from $41.8 million last year. This change is attributed to higher flight equipment sales, which rose to $33.4 million from $17.9 million.

Acquiring assets totaling $27 1 million.

This brings our year to date total to $75 million.

We've observed a positive strand, a positive trend in feedstock opportunities compared to recent years.

Speaker #5: And a rise in USM parts sales resulting from an increase in available ready-to-sell inventory. Excluding activity related to flight equipment, segment revenue increased by $79.5% to $42.8 million.

Especially and airframes and wide body engines, which has been a niche market for air sales over the past decade.

Conversely, the narrow body engine market continues to exhibit intense competition with current valuations consistently falling below our target internal rate of return benchmarks.

Speaker #5: This growth is attributable to the expansion of our leasepool, as well as a substantial year-over-year increase in USM sales, which nearly doubled. During the quarter, we aggressively pursued feedstock acquisitions to support our long-term growth objectives, acquiring assets totaling $27.1 million.

As we progress through the remainder of the year, our ample feedstock position will continue to underpin our growth strategy.

At the end of the quarter, we held $388 3 million of total inventory and flight equipment, including 11 engines available for sale or lease and another 11 engines currently undergoing repairs.

Speaker #5: This brings our year-to-date total to $70.5 million. We've observed a positive trend in feedstock opportunities compared to recent years, especially in airframes and wide-body engines, which has been a niche market for AerSale over the past decade.

Regarding our 757 passenger to freighter conversion program, where.

<unk> actively marketing the last six aircraft, we converted and are seeing a meaningful uptick in customer engagement.

Speaker #5: Conversely, the narrow-body engine market continues to exhibit intense competition, with current valuations consistently falling below our target internal rate of return benchmarks. As we progress through the remainder of the year, our ample feedstock position will continue to underpin our growth strategy.

Currently one aircrafts on lease and discussions are ongoing with multiple parties for the remaining units.

Although deal timing is uncertain. This represents the highest level of interest we've seen since the cargo market softened in 2023, and we view the momentum as a positive signal of renewed demand.

Speaker #5: At the end of the quarter, we held $38.3 million of total inventory in flight equipment, including 11 engines available for sale or lease, and another 11 engines currently undergoing repairs.

And the Tech Op segment revenue decreased 11, 9% year over year from $35 3 million to $31 1 million.

Largely due to reduced activity at our heavy MRO facilities. After the completion of a customer program at Goodyear.

Speaker #5: Regarding our 757 passenger-to-freighter conversion program, we're actively marketing the last six aircraft we converted, and are seeing a meaningful uptick in customer engagement. Currently, one aircraft is on lease, and discussions are ongoing with multiple parties for the remaining units.

During the second quarter a portion of this capacity was filled with shorter duration contracts, while efforts continued to engage potential long term partners.

Consequently segment revenue rose by 17, 1% from the first quarter of 2025, returning to levels comparable with the second half of 2024.

Speaker #5: Although deal timing is uncertain, this represents the highest level of interest we've seen since the cargo market softened in 2023, and we view the momentum as a positive signal of renewed demand.

Long term agreements generally require more lead time because of scheduling constraints, but offer improved predictability of future volume, which can lead to better alignment of staffing and margin performance.

Speaker #5: In the tech ops segment, revenue decreased $11.9% year-over-year from $35.3 million to $31.1 million. Largely due to reduced activity at our heavy MRO facilities after the completion of a customer program at Goodyear.

We're also seeing margin improvements at our <unk> Roswell facility as the unit focuses on higher margin storage and dismantlement opportunities that have helped to offset the bottom line impacts of the lower revenue.

Speaker #5: During the second quarter, a portion of this capacity was filled with shorter-duration contracts, while efforts continued to engage potential long-term partners. Consequently, segment revenue rose by $17.1% from the first quarter 2025, returning to levels comparable with the second half of 2024.

I am pleased to provide an update on our component MRO expansion projects.

Instruction at our arrow facilities at our Aerostructures facility has been completed and we're now in the final stages of readying, our accessory shop to commence servicing pneumatics components.

We anticipate these shops will soon generate additional revenue through expanded growth and capabilities further strengthening our capacity to offer comprehensive maintenance solutions.

Speaker #5: Long-term agreements generally require more lead time because of scheduling constraints, but offer improved predictability of future volume, which can lead to better alignment of staffing and margin performance.

Across a wider range of components.

Speaker #5: We're also seeing margin improvements at our Rosvis, Roswell facility, as the unit focuses on higher margin storage and dismantlement opportunities. That has helped offset the bottom-line impacts of the lower revenue.

During the quarter, our engineered solutions division experienced an increase in deliveries of are safe, our FAA approved supplemental type certificate, which provides fuel tank flammability protection.

We expect orders to continue rising over the course of the year as we approach as we approach a 'twenty 'twenty six compliance deadline for an FAA airworthiness directive relating to field tank wiring, which can be satisfied by the installation of aerospace.

Speaker #5: I'm pleased to provide an update on our component MRO expansion projects. Construction at our aero facilities at our aero structures facility has been completed, and we're now in the final stages of readying our accessory shop to commence servicing pneumatics components.

As of quarter end, our aerospace backlog stood at $12 9 million and current secured orders position us to meet our financial objectives for 2025.

Speaker #5: We anticipate these shops will soon generate additional revenue through expanded growth and capabilities further strengthening our capacity to offer comprehensive maintenance solutions across a wider range of components.

Turning to <unk>, our revolutionary enhanced flight vision system, we continue to make incremental progress across product development customer engagement and regulatory validation.

Speaker #5: During the quarter, our engineered solutions division experienced an increase in deliveries of AirSale. Our FAA-approved supplemental type certificate, which provides fuel tank flammability protection.

Two weeks ago on July 18th we were pleased to receive transport, Canada Civil aviation validation of our era, where STC a major milestone that broadens our international market access and corroborate the safety enhancing capabilities of the system.

Speaker #5: We expect orders to continue rising over the course of the year, as we approach as we approach a 2026 compliance deadline for an FAA airworthiness directive relating to fuel tank wiring.

Speaker #5: Which can be satisfied by the installation of AirSale. As of quarter-end, our AirSale backlog stood at $12.9 million, and current secured orders position us to meet our financial objectives for 2025.

<unk> remains the only enhanced flight vision system to integrate a wearable HUD with advanced infrared imaging and synthetic vision.

Enabling pilots to see through darkness, fog smoke and other reduced visibility conditions.

Speaker #5: Turning to AeroWare, our revolutionary enhanced flight vision system, we continue to make incremental progress across product development, customer engagement, and regulatory validation. Two weeks ago, on July 18th, we were pleased to receive transport Canada civil aviation validation of our AeroWare STC.

In parallel with this regulatory process, we remain in active discussions with several commercial and government operators and have conducted in air demonstrations or multiple potential customers using our 737 test aircraft.

Product development is progressing as well evidenced by our demonstration to the FAA of the Foldable Skylines model. After a successful test flight with the agency on July 14th.

Speaker #5: A major milestone that broadens our international market access and corroborates the safety-enhancing capabilities of the system. The AeroWare remains the only enhanced flight vision system to integrate a wearable HUD with advanced infrared imaging and synthetic vision.

Furthermore, the universal avionics or air where our partner has made notable progress in integrating <unk> in functionality.

Speaker #5: Enabling pilots to see through darkness, fog, smoke, and other reduced visibility conditions. In parallel with this regulatory process, we remain in active discussions with several commercial and government operators and have conducted in-air demonstrations for multiple potential customers using our 737 test aircraft.

This feature is currently being tested on a king air aircraft equipped with Skylanders head wearable display Andrew will allow pilots to independently monitor the GPS broadcast positions of nearby aircraft directly on their skylines display.

Without dependence on air traffic control.

Although integration of <unk> into <unk> on the 737 may take several years to receive FAA approval.

Speaker #5: Product development is progressing as well. Evidenced by our demonstration to the FAA of the foldable SkyLens model, after a successful test flight with the agency, on July 14th.

We believe once it's available it will be one of the most practical solutions on the market to provide enhanced aircraft awareness two pilots in the most dynamic vision field available.

Speaker #5: Furthermore, Universal Avionics, our AeroWare partner, has made notable progress in integrating ADS-B in functionality. This feature is currently being tested on a King Air aircraft, equipped with a SkyLens head wearable display, and it allow pilots to independently monitor the GPS broadcast positions of nearby aircraft directly on their SkyLens display.

The value of this capability is underscored by aircraft navigation incidents as we have discussed in the past and most recently included a near Miss involving a delta flight in a b 52 military aircrafts highlighting.

Highlighting the critical importance of enhanced situational awareness tools.

As global demand for safer more capable flight deck systems growth era, where is well positioned to become a standard setting solutions in the enhanced flight vision system market.

Speaker #5: Without dependence on air traffic control. Although integration of ADS-B into AeroWare on the 737 may take several years to receive FAA approval, we believe once it's available, it will be one of the most practical solutions on the market to provide enhanced aircraft awareness to pilots in the most dynamic vision field available.

Overall, following an acceptable second quarter, we expect to build on this momentum through the remainder of the year with incremental financial improvement in the second half relative to the first half.

We continue to expect full year sales group with EBITDA growth outpacing revenue due to expanding margins and increased operating leverage.

Speaker #5: The value of this capability is underscored by aircraft navigation incidents as we have discussed in the past, and most recently included a near-miss involving a Delta flight and a B-52 military aircraft.

Several key drivers are contributing to this outlook.

We are well positioned with a strong base of ready to sell inventory, which continues to support robust U S M sales and flight equipment transactions.

Speaker #5: Highlighting the critical importance of enhanced situational awareness tools. As global demand for safer, more capable flight deck systems grows, AeroWare is well positioned to become a standard-setting solution in the enhanced flight vision system market.

Our lease pool has grown compared to recent years.

And we anticipate further expansion as additional assets are made ready and deployed throughout the year.

Our two component MRO expansion projects are now in the completion phase and will soon be able to generate revenue from these new and enhanced service offerings contributing more meaningfully in the months ahead.

Speaker #5: Overall, following an acceptable second quarter, we expect to build on this momentum through the remainder of the year, with incremental financial improvement in the second half relative to the first half.

Speaker #5: We continue to expect full-year sales growth, with EBITDA growth outpacing revenue due to expanding margins and increased operating leverage. Several key drivers are contributing to this outlook.

Aerospace backlog continues to build with installation volume expected to increase steadily each quarter as.

As we approach a 2026 airworthiness directive compliance deadline satisfied by the installation of their site.

Speaker #5: We're well positioned with a strong base of ready-to-sell inventory, which continues to support robust USM sales and flight equipment transactions. Our leasepool has grown compared to recent years, and we anticipate further expansion as additional assets are made ready and deployed throughout the year.

And finally efficiency initiatives implemented by our team are beginning to deliver meaningful benefits and when combined with higher sales volume. We expect continued margin expansion and EBITDA growth that will exceed the pace of revenue growth.

In closing the second quarter marked a significant step forward for <unk> highlighted by improving financial performance, expanding operational execution and meaningful progress across our strategic initiatives.

Speaker #5: Our two component MRO expansion projects are now in the completion phase, and we'll soon be able to generate revenue from these new and enhanced service offerings.

Speaker #5: Contributing more meaningfully in the months head. AirSale backlog continues to build, with installation volume expected to increase steadily each quarter as we approach a 2026 airworthiness directive compliance deadline satisfied by the installation of AirSale.

As we look to the second half of 2025, we're building on a foundation of improved feedstock ask access growing recurring revenues from our lease pool and MRO operations.

Sales traction with air Safe and further product development of <unk>.

Speaker #5: And finally, efficiency initiatives implemented by our team are beginning to deliver meaningful benefits. When combined with higher sales volume, we expect continued margin expansion and EBITDA growth that will exceed the pace of revenue growth.

With a healthy balance sheet strong demand signals across core end markets and increasing operating leverage we remain confident in our ability to deliver profitable growth and long term value for our shareholders.

Speaker #5: In closing, the second quarter marked a significant step forward for AirSale. Highlighted by improving financial performance, expanding operational execution, and meaningful progress across our strategic initiatives.

I want to thank our dedicated and experienced 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.

Closer look at the numbers Martin.

Speaker #5: As we look to the second half of 2025, we're building on a foundation of improved feedstock access, growing recurring revenue from our leasepool and MRO operations, sales traction with AirSale, and further product development of AeroWare.

Thanks, Nick our second quarter revenue was $107 4 million up from $77 1 million in the second quarter of 2020 for this.

This included $33 $4 million of flight equipment sales compared to $17 9 million in the prior year period. As we have noted in past calls flight equipment sales can vary significantly from quarter to quarter and we believe long term performance is best evaluated based on the cumulative impact of asset purchases and sales.

Speaker #5: With a healthy balance sheet, strong demand signals across core and markets, and increasing operating leverage, we remain confident in our ability to deliver profitable growth and long-term value for our shareholders.

Over time.

Speaker #5: I want to thank our dedicated and experienced employees for their hard work and our investors for their continued support. We look forward to updating you on our progress.

Second quarter gross margin was 32, 9% compared to 28, 2% in the second quarter of 2024.

The year over year improvement reflects stronger execution across the business, including improved Usn sales a higher volume of flight equipment sales and continued operational efficiency gains across our platform that resulted from efficiency initiatives taken.

Speaker #5: Now, I'll turn the call over to Martin, for a loser look at the bers. Martin?

Speaker #6: Thanks, Nick. Our second quarter revenue was $107.4 million, up from $77.1 million in the second quarter of 2024. This included $33.4 million of flight equipment sales, compared to $17.9 million in the prior year period.

Selling general and administrative expenses totaled $22 8 million compared to $23 6 million in the second quarter of 2024.

Speaker #6: As we have noted in past calls, flight equipment sales can vary significantly from quarter to quarter, and we believe long-term performance is best evaluated based on the cumulative impact of asset purchases and sales over time.

SG&A included approximately 700000 and noncash stock based compensation in line with recent quarters.

The reduction in total SG&A, despite higher revenue stemmed from the cost reduction efforts taken over the past 12 months.

Speaker #6: The second quarter gross margin was $32.9%, compared to $28.2% in the second quarter of 2024. The year-over-year improvement reflects stronger execution across the business, including improved USM sales, a higher volume of flight equipment sales, and continued operational efficiency gains across our platform that resulted from efficiency initiatives taken.

Operating income for the quarter was $12 5 million compared to a $1 9 million loss in the same period last year net.

Net income was $8 6 million compared to a net loss of $3 6 million in the prior year period.

Adjusting for stock based compensation.

Let me relocation costs restructuring charges and other nonrecurring items adjusted net income was $9 4 million compared to an adjusted net loss of $2 6 million in the second quarter of 2024.

Speaker #6: Selling general and administrative expenses totaled $22.8 million, compared to $23.6 million in the second quarter of 2024. SG&A included approximately $700,000 in non-cash, stock-based compensation in line with recent quarters.

Adjusted EBITDA was $18 3 million in the second quarter up from $3 2 million in the prior year period.

Speaker #6: The reduction in total SG&A, despite higher revenue, stemmed from the cost reduction efforts taken over the past 12 months. Operating income for the quarter was $12.5 million, compared to a $1.9 million loss in the same period last year.

This improvement reflects higher revenue stronger execution across the business increased monetization of our feedstock inventory and continued cost discipline.

Adjusted diluted earnings per share was <unk> 20.

Speaker #6: Net income was $8.6 million, compared to a net loss of $3.6 million in the prior year period. Adjusting for stock-based compensation, facility relocation cost, restructuring charges, and other non-recurring items, adjusted net income was $9.4 million, compared to an adjusted net loss of $2.6 million in the second quarter of 2024.

Compared to an adjusted diluted loss per share of <unk> <unk> in the second quarter of 2024.

They are still ended the quarter with $68 8 million of liquidity consisting of $5 $7 million of cash.

And available capacity of $63 1 million on its $180 million revolving credit facility expandable to 200 million subject to conditions and the availability of lender commitment and borrowing base liabilities.

Speaker #6: Adjusted EBITDA was $18.3 million in the second quarter, up from $3.2 million in the prior year period. This improvement reflects higher revenue, stronger execution across the business, increased monetization of our feedstock inventory, and continued cost discipline.

Cash generated by operating activities during the quarter was $19 8 million, primarily due to strong results from operations and cash generated from USA and flight equipment sales offsetting inventory purchases.

This quarter demonstrated the strength of our platform and the progress we've made in executing against our strategic priorities.

Speaker #6: Adjusted diluted earnings per share was $0.20, compared to an adjusted diluted loss per share of $0.05 in the second quarter of 2024. AirSale ended the quarter with $68.8 million of liquidity, consisting of $5.7 million of cash, and available capacity of $63.1 million, on its $180 million revolving credit facility, expandable to $200 million, subject conditions and the availability of lender commitments and borrowing-based liabilities.

USA sales nearly doubled year over year supported by improved feedstock and a strong inventory position.

Our lease pool continues to expand on our MRO initiatives are beginning to generate incremental revenue with more upside expected in the second half.

SG&A declined year over year, despite higher volumes, reflecting the benefit of our cost discipline and improved operating leverage slide.

Speaker #6: Cash generated by operating activities during the quarter was $19.8 million, primarily due to strong results from operations and cash generated from USM and flight equipment sales, offsetting inventory purchases.

Flight equipment sales also contributed to the quarter's growth, but the underlying momentum is our recurring revenue streams, along with expanded margins and strong execution across the organization.

It gives us the confidence in our trajectory.

Speaker #6: This quarter demonstrated the strength of our platform and the progress we've made in executing against our strategic priorities. USM sales nearly doubled year-over-year, supported by improved feedstock and a strong inventory position.

With an improving market backdrop growing demand for our engineered solutions products and a scalable capital efficient model, we are well positioned to continue delivering profitable growth through the balance of 2025.

Speaker #6: Our leasepool continues expand, and our MRO initiatives are beginning to generate incremental revenue with more upside expected in the second half. SG&A declined year-over-year, despite higher volumes, reflecting the benefit of our cost discipline and improved operating leverage.

With that operator, we are ready to take questions.

We will now begin the question and answer session.

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If youre using a speakerphone please pick up your handset before pressing the keys.

Speaker #6: Flight equipment sales also contributed to the quarter's rowth, but the underlying momentum is our recurring revenue streams, along with expanded margins and strong execution across the organization, give us the confidence in our trajectory.

If at any time. Your question has been addressed and you would like to withdraw your question. Please.

Please press Star then two.

At this time, we will pause momentarily to assemble our roster.

Speaker #6: With an improving market backdrop, growing demand for our ineered solutions products, and a scalable, capital-efficient model, we are well positioned to continue delivering profitable growth through the balance of 2025.

Okay.

Our first question comes from Ken Herbert with RBC capital markets. Please.

Please go ahead.

Yes, hi, good morning, or good afternoon, Nick and Martin Nice results.

Speaker #6: With that operator, we are ready to take questions.

Kent.

And then maybe just to start off it sounds like you saw a pickup in activity in assets you were able to acquire and obviously so can you just maybe give a little bit more detail on the types of assets Youre seeing.

Speaker #2: We will now begin the question-and-answer session. To ask a question, you may press star, then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys.

As we think about sort of a whole assets and is the pace of activity in the second quarter, something we can extrapolate into the back half of the year.

Speaker #2: If at any time your question has been addressed, and you would like to withdraw your question, please press star, then two. At this time, we will pause momentarily to assemble our roster.

Yeah.

The type of equipment that we're that we're finding that we can make sense out of it is really more on the airframe.

Speaker #2: Our first question comes from Ken Herbert with RBC Capital Markets. Please go head.

And whether it be narrow body or wide body.

And wide body engines now.

Why airframe I think we've got really really good at extracting value out of airframes, regardless of whether it's narrow body or wide body and we've developed a very strong market niche on the wide body side that goes all the way back to the first 747 transaction were about $21 740 Sevens in 2010 from Japan Airlines.

Speaker #7: Yeah. Hi. Good morning or good afternoon. Nick and Martin, nice results.

Speaker #8: Good afternoon, Ken.

Speaker #7: Hey, Nick. Maybe just to start off, it sounds like you saw a pickup in activity in, in assets you were able to acquire, and obviously sell.

Speaker #7: Can you miss maybe give a little bit more detail on the, the types of assets you're seeing? as we think about sort of the whole assets and is the pace, of, activity in the second quarter something we could extrapolate into the back half of the year?

We've learned the wide body engine market.

Wide body engines and wide body aircrafts scare a lot of investors that are not familiar with it.

Speaker #8: The type of equipment that we're that we're finding that, we can make sense out of is really more on the airframe, and, and whether it be narrow-body or wide-body, and wide-body engines.

It can be a tough market not something I expected to build over the course of this business.

To the extent that we have but but we have and that's really been an advantage for us as we see 740 Sevens being retired <unk> hundred 30 is being retired and the associated engines, whether they'd be the Pratt four thousands are the general electric <unk> six engines.

Speaker #8: Now, why airframe? I think we've gotten really, really good at extracting value out of airframes, regardless of whether it's narrow-body or wide-body. And we've developed re a very strong market niche on the wide-body side that goes all the way back to the first 747 transaction we bought, 21 747s in 2010 from Japan Airlines.

We understand the market.

How to sell Workstyle the parts.

We know what to do with the engines whether it be.

Sell them as whole engines or breaking it down to the piece parts and sell Usn parts. If you look historically over the last let's say 345 years and you look at where our engine sales in engine parts sales have com its wide body, it's substantially wide body engine.

Speaker #8: And we've learned the, the wide-body engine market. Wide-body engines and wide-body aircraft scare a lot of investors. They're familiar with it. It's a it can be a tough market.

Speaker #8: Not something I ected to, to, to, to build over the course of this business, to the to the extent that we have. But, but that we have.

No.

What is what is continuing.

The fact that we can make sense I think better sense than most on the wide body and.

Speaker #8: And that's really been an advantage for us as we see 747s being retired, A330s being retired, and the associated engines, whether they be the Pratt 4000s or the General Electric CF6 engines.

<unk> side, which generates the candidly the most amount of revenue.

On the parts side.

And we continue to struggle to make sense out of anything on the narrow body side.

Speaker #8: You know, we understand the market. We know how to sell. We know where to sell the parts. we know what to do with the engines, whether it be sell them as whole engines or break them down into the piece parts and sell a USM parts.

Why why is that I've explained this before and you know it the geared turbofan problem on the <unk> hundred 20, Neo and the issues that we've had with the 737, Max including engine problems on the.

Speaker #8: If you look historically, over the last, let's say, three, four, five years, and you look at where our engine sales and engine parts sales have come, it's wide-body.

On the.

And the Max engine.

In GTS.

Okay.

Speaker #8: It's substantially wide-body engines. So what is what is continuing the, the fact that we can make sense? I think better sense than most on the wide-body engine side, which generates the candidly the most amount of revenue.

Next engine.

Otherwise drawing a blank on that one on the leap engine.

Besides coupled out with FAA issues with Boeing on the Max is kept those airplanes.

Out of service.

Speaker #8: on the parts side, and we continue to struggle to make sense out of anything on the narrow-body side. Why, why is that? I mean, I've explained this before, and you know it.

For different reasons, whether it be maintenance or we're not being able to get enough into service to replace the older aircraft, which is which is what we generally tend to focus on which is to a 320 <unk>.

Speaker #8: The geared turbofan problem on the A320neo, and the issues that, that, that, we've had with the 737max, including engine problems on, on the, on the, on the max engine, on the GTS.

The older generation and the 737 N G that has been what we expected to be our primary market for.

For everything for engine leasing for U S and parts et cetera.

Because those aircraft are still very reliable very good durable engines, they're staying in service longer than anybody anticipated and the bad thing Theres, good and bad with that part of that the bad thing is keeping a substantial amount of that older equipment, which is kind of where are we.

Speaker #8: On the what? The max engine. On the Leap. That's how the wise draw the blank on that one. On the Leap engine. and besides couple that with FAA issues and, with Boeing on the on the max, has kept those airplanes, out of service for, for different reasons, whether it be maintenance or, or not being able to get enough into service to replace the, the older aircraft, which is, which is what we generally tend to focus on, which is the A320, CEO, the older generation, and the 737NG.

We expect that our market to be.

Becoming available at reasonable prices.

Whatever does become available.

Usually it's pretty run down needs a lot of work.

And when we windows, we window it because.

We have a lot of ways to extract value out of stock that needs a lot of work, we can cobble together pieces from multiple engines and aircraft and put an engine our aircraft back together part it out.

Speaker #8: That has been what we expected to be our primary market for everything, for engine leasing, for USM parts, etc. Because those aircraft are still very reliable, and they have very durable engines, they're staying in service longer.

Put it together for trading leasing et cetera, but we're not winning a lot of those so it's a very very competitive market.

Speaker #8: Than, than anybody anticipated. And the bad thing there's a good and bad of that part of that. The bad thing is it's keeping a substantial amount of that older equipment, which is kind of where we expected our, our market to be, from becoming available at reasonable prices.

Aero body side, and we remain disciplined on the acquisition of narrow body engine. So.

Very tough market continues on the narrow body side.

I wouldn't say, it's not a tough market on the wide body side is a tough market on the wide body side, but I think we've got a we've created a real niche for ourselves there.

Speaker #8: Whatever does become available, usually is pretty run down. Needs a lot of work. And when we win those, we win those because we have a lot of ways to extract value out of stuff that needs a lot of work.

So if you look at if you look at the combination of those factors.

It doesn't appear that the amount of available feedstock on the stuff that we can make sense out of has really changed much.

Speaker #8: We, we can cobble together pieces from multiple engines and aircraft, and put an engine or aircraft back together, part it out, put it together for trading, leasing, etc.

But maybe that we've seen a little bit more availability on the wide body side, and we've been able to capture a reasonable portion of that and again I think our market niche helps us because we understand what to do with it.

Speaker #8: But we're not winning lot of those. So it's a very, very competitive market. On the narrow-body side. And we remain disciplined on the acquisition of narrow-body engines.

And a little bit.

We've seen that the buyers have diminished because.

Speaker #8: So very tough market continues on the narrow-body side. I wouldn't say it's not a tough market on the wide-body side. 's a tough market on the wide-body side, I think we've got a we've ated a real niche for ourselves there.

We know that we know theres still plenty of people out there, making offers but those but there's not plenty of people that can close. So I think that that's helped us a little bit because ultimately we've always accused of not paying very much but people know that when we make an offer we close.

Speaker #8: So if you look at if you ok at the combination of those factors, it doesn't appear that the amount of available feedstock on the stock that we can make sense out of has really changed much.

O I.

I think from an air sales perspective, that's how we see the market.

That's very helpful. I think in the quarter you called out that you did sell $33 4 million of flight equipment is that a run rate.

Speaker #8: But it may be the we've seen a little bit more availability on the wide-body side, and 've been able to capture a reasonable portion that.

We should be comfortable with for the second half of the year or I know it can be very volatile and lumpy, but what's the visibility in the next couple of quarters like for flight equipment sales.

Speaker #8: And again, I think our market niche helps us because we understand what do with it. And a little bit, you know, we've seen that the, the buyers have diminished because we know they're we know 're still plenty of people out there making offers.

That's not a question I'm going to answer yet, it's not that I don't want to answer that because we're evaluating to flight equipment that we have and every time, we have quite a bit that's already in inventory thats, that's ready for sale or lease and.

Speaker #8: But those same but there's not plenty of people that can close. So I think that that's helped us a little bit because ultimately, you know, we we're always accused of not paying very much.

And that's in work that will be available for sale and lease and we consistently make the determination which is.

Speaker #8: But people know that when we make an offer, we close. So I think from an air sales perspective, that's how we see the market.

Are we better off to put something out on kind of the hybrid leases that we do which as you know like I say, it's like where Hertz rental car, we're not Ford motor leasing company, it's not a long term lease. It's a short term lease we take operational risk we get a a significant premium for doing that and we have to decide based on our long term view of the value of that.

Speaker #7: Nick, that's, that's very pful. I, I think in the quarter you, you called out that you did sell, you know, $33.4 million of flight equipment.

Speaker #7: Is that a run rate week, we should comfortable with for the second half of the year, or, or I know it can be very volatile and lumpy, but what's visibility in the next couple of quarters like for flight equipment sales?

Engine, if we're going to put it out on lease are we better off to sell it to somebody today, who needs an engine, who does who has the balance sheet to afford to buy an engine and they will pay up for it and we would collect all the revenue that we reasonably would expect to collect over the course of future years adjusted for risk. If we can collect that all upfront.

Speaker #8: You know, that's not a estion I'm going to answer yet. It's not that I don't want to answer that because we're evaluating the flight equipment that we have, and every time you know, we have quite a bit that's already in inventory that's, that's ready for sale or lease.

Speaker #8: And that's in that's in work that will be available for sale and lease. And we, we consistently make the determination which is, are we better off to put something out on kind of the hybrid leases that we do, which is, you know, like I said, it's like 're Hertz rental car.

It's really difficult to turn a deal like that down.

And the reason I would say, it's really difficult. It's because we can do the same thing and collect similar revenue.

Speaker #8: We're Ford Motor leasing company. It's not a long-term lease. It's short-term lease. We take operational risk. We get a, you know, a significant premium for, for doing that.

Taking into account risk over a longer period of time.

And that will generate a lot more recurring revenue, which is what which is what I know our investors.

Speaker #8: And we have to decide, based on our long-term view of the value of that engine, if we're going to it out on lease, are we better off to sell it to somebody today who needs an engine, who doesn't who has the balance sheet to afford to buy an engine, and they'll pay up for it and, and we would collect all the revenue that we reasonably would expect to collect over the course of future years adjusted for risk.

We all want to see more recurring revenue. So we're balancing do we put this stuff out on hybrid leases and we take a little bit of risk we understand what their risk is but we have more recurring revenue or do we take the I don't want to say the short money because that really short money do we take all the margin upfront moralized risk adjusted and.

Speaker #8: If we can collect that all upfront, it's really difficult to turn a deal like that down. And, and the reason I say it's really difficult is because we could do the same thing and collect similar revenue, you ow, taking into account risk, over a longer period of time, and that will generate a lot more recurring revenue, which is what which is what I know our estors and, and every we all want to see more recurring revenue.

And make a trade in it's a little bit of a long answer to your question.

That's the analysis that we go through so as we look forward and we say well we have 20 plus engines available.

To monetize over the balance of the year.

What is it that which of those are we going to sell which of those or we can put on lease and I don't know the answer to that so the b and we continue to acquire more flight equipment to and so that will change as we find specific.

Speaker #8: So we're balancing: do we put the stuff out on hybrid leases? And we take a little bit of risk. We understand what the risk is.

Flight equipment to sell we may decide what we bought this we have a customer for it.

We don't need to do much to to make it available for that customer and then we will we will service that make it available for that customer and then we would sell it but so everything is on a case by case basis, that's why I'm not being evasive I just I just don't know the answer to that.

Speaker #8: But we have more recurring revenue, or do we take the I don't want to say the short money because it's not really short money.

Speaker #8: It's do we take all the margin upfront more or less, risk adjusted, and, and, and, and make a trade? And it's a little bit a long answer to your question, but that's the that's the analysis that we go through.

Okay I can appreciate.

We do have 22 engines. We have 11 engines that are currently being marketed for sale or lease and we've had engine repair. Another 11 engines that will also be available for.

Speaker #8: So as we look forward and we say, well, we have, you know, 20-plus engines available, to monetize over the balance of the ar, you know, what is it that which of those are we going to sell?

For lease or for sale. So we have a good inventory level and we feel confident as Nick noted now it's what opportunities that we want to pursue.

Speaker #8: Which of those are we going to put on lease? And I don't know the answer to that. So the, the and we continue to acquire more flight equipment too.

That's great and if I could Martin and then maybe just two more quick questions. The first is as you look at the balance sheet today.

Speaker #8: And so that'll change as we find specific, flight equipment to sell. We may decide, you know what? We bought this. We have a customer for it.

Is there any areas you'd call out maybe at risk in terms of the carrying value of the assets on the balance sheet, whether it be engines or whole assets.

Speaker #8: we don't need to do much to, to make it available for that customer. And then we'll, we'll service that, ake it available for that customer, and then we would sell it.

Or any other equipment and then second maybe Nick if you could just comment on.

Speaker #8: But so everything is on a case-by-case basis. That's why I'm not being evasive. I just I just don't know the answer to that. But, h.

Obviously, your MRO business is coming through a pretty significant restructuring sort of how we think about that progressing through the back half of this year and into 'twenty six.

Speaker #7: Okay. I can appreciate.

Speaker #8: So

Speaker #8: We do have 22 engines. We have 11 engines that are currently being marketed for sale or lease, and we've had engines in repair.

I'll start with the balance sheet question overall, we evaluate all of our assets and the overall inventory I'm, sorry, and our overall balance sheet inventory PP&E and intangible assets and at this point Theres nothing that leads us to believe that there would be any impairment risk on those overall assets, we're seeing strong opportunities.

Speaker #8: Another 11 engines that will also be available for lease or for sale. So we have a good inventory level, and we feel confident, as Nick noted. Now it's what opportunities do we want to pursue?

Speaker #7: That's great. And if I could, Martin and Nick, maybe just two more quick questions. The first is, as you look at the balance sheet today, is there any areas you'd call out maybe a risk in terms the carrying value of the assets on the balance sheet, whether it be engines or whole assets?

Both in passenger and we're starting to see an uptake in passenger and cargo demand. So that's going well for our 757 fleet.

Right now based on what we're seeing in the market outlook, while we do not anticipate any impairments in our inventory position.

Speaker #7: Or any other equipment? And then second, maybe, Nick, if you could just comment on, obviously, your MRO business is coming through a pretty significant restructuring sort of how we think about that progressing through the, the back half of this year and into '26.

Regarding.

I'll answer the second part of that question regarding.

How do we feel about our MRO operations, whether it be an airport or the component MRO.

Speaker #8: I'll start with the, the balance sheet question overall. We evaluate, all of our assets on the overall inventory, sorry, in, in our overall balance sheet, inventory, VP&E, and intangible assets.

As I mentioned earlier in the call that.

The <unk>.

Component MRO side, we have agonized and I don't know what other word to use but agonized over a two year.

Speaker #8: And at this point, there's nothing that leads us to believe, that there would be any impairment risk on those overall assets. we're eing strong opportunities, both in passenger and we're starting to see an uptick in passen in cargo demand.

It took us two more year two years longer to finish our component in Aerostructures shop than we anticipated and it's just been agonizing for us they are finally complete.

Speaker #8: So that's going well for our 757 fleet. so right now, based on what we're eing in the market outlook, we do not anticipate, any impairments in our inventory position.

We're moving into the Aerostructures shop in the next couple of weeks, we have business to bring with US we'll bring the business with us I wish I could say, we're already generating revenue because we're not we're generating revenue, but not in the shop. We are still in the old shop, we expect with that tripling of capacity on the aerostructures side and adding the pneumatics.

Speaker #8: Regarding, I'll, I'll answer the second part of that question. regarding, how do we feel about our MRO operations, whether it be on airport or the component MROs?

Speaker #8: You know, as I mentioned earlier in the call, that on the component MRO side, you know, we have agonized. And I don't know what other word to use, but agonized over a two-year expi it, it took us two more year two years longer to finish our component and aero structure shop than we anticipated.

Ability on the accessory side that that we will see that we will start to see new incremental business.

That we don't it's something that we have to go out and find customers for that it's the same customers that we already have it's just doing other other products that they've got that we don't have the capability of today or the case of Aerostructures, it's taking on more work.

Speaker #8: And it's just been agonizing for us. They're finally complete. We're moving into the aero structure shop in the next couple of weeks. We have business to bring with us.

Were filled to the rafters in our old facility for Aerostructures, we can't even take any more business, because we can't fit well thankfully, we'll be out of the old facility. This month and into the new facility and able to expand the business and we've got customers big customers Major airlines that have approved our new shop, and and and we will be bringing us new work.

Speaker #8: We'll bring the business with us. I wish I could say we're ready generating revenue because we're not. We're generating revenue, but not in the shop.

Speaker #8: We're still in, in the old shop. We expect, with that tripling of capacity on the aero structure side, and adding the pneumatics capability on the accessory side, that, that we will see that we will start to see new incremental business that we don't it's not like we have to go out and, and find customers for that.

That we're not getting today, so very optimistic about about those businesses starting to see significant expansion.

And overall business.

Over the next couple of months and accelerating as we get through the end of the year and we're in the new facility and we have customers coming to see them and were demonstrating new capability.

Speaker #8: It, it's the same customers that we already have. It's just doing other, other products that they've got that we don't have the capability of today, or in the case of aero structures, it's taking on more.

With regard to our on airport MRO.

And I'll talk specifically about good year for.

Speaker #8: We're, we're full to the rafters in our old facility for aero structures. We can't even take any more business because we can't fit it.

For the first time in the history of us running that business, we have six or seven Batesville right now seven days, we have added eight bays and good year.

Speaker #8: Well, thankfully, we'll, we'll be out of the old facility this, this month and into the new facility. And able to expand the business. And we've got customers, big customers, major airlines that have approved our new shop.

We have seven base full of aircraft.

First time in the history of the business. So we've come a long way from three days plus some spot business that we have received previously when we had a major customer program. Previously we had a major customer program that that sucked up most of our labor and today, we've restructured our compensation.

Speaker #8: And, and, and we'll be bringing us new work that we're not getting today. So very optimistic about, about those businesses starting to see significant expansion in, in, overall business.

Speaker #8: over the next couple of months and accelerating, as we get through the end of the year, and we're in the new facility, and we have customers coming to see them, and we're demonstrating new capability.

So that we're able to attract the labor that we need to provide labor to fill that.

Speaker #8: With regard to our on-airport MRO, and I'll talk specifically about Goodyear. For the first time in the history of us running that business, we have it's been six or seven days full right now.

Demand for labor for the seven base that we've got an eight bay is being readied for.

For it to be filled and as we fill up our Goodyear facility with.

More recurring long term revenue versus spot revenue that comes in AD hoc revenue that comes in.

Speaker #7: Seven days.

Speaker #8: We

Speaker #8: have, out of eight days in Goodyear, we have seven days full of aircraft. First time in the history of the business. So we've come a long way from three days plus some, you know, spot business that we've, we've received previously, when we had a major customer program.

We will then shift our focus to filling up our Millington facility now our Millington facility is basically one hanger to base and we're talking with potential customers even to keep that facility busy over a multiyear period.

Speaker #8: Previously, we had a major customer program that, that, sucked up most of our labor. And today, you know, we've restructured our compensation so that we're able attract the labor that we need to, to provide labor to fill that, the demand for labor for the seven days that 've got.

But at this point still.

Still have one more beta fill up and Goodyear will stay focused on that and then we'll focus on millington.

In Roswell I mean think about Millington is we spent a lot of money building out that facility and we have a lot of credit against future rentals. So.

Speaker #8: It's an eight days being ready for, for it to be filled. And as we fill up our Goodyear facility, with more recurring long-term revenue versus spot revenue that comes in ad hoc revenue that comes in, you know, we will then shift our focus to filling up our Millington facility.

We're we're fine from a cash point of view in Millington, even though we're carrying a facility that were not utilizing at this point.

Our Roswell facility.

We've just taken a second look our second and third look at Roswell to determine what can Roswell do best and we think what Roswell does best is aircraft storage because of the vast storage field there.

Speaker #8: Now, our Millington facility is basically one hangar, two bays, and, and we're talking with potential customers even to keep that facility busy over a multi-year period.

And.

Return to service of aircraft coming out of storage storage are going into storage and taking <unk> party on an airplane whether it be for our own account or for third parties, who have been storing aircrafts in Roswell.

Speaker #8: But at this point, we've still have one more bay to fill up in, in Goodyear. Well, stay focused on that. And, then we'll ocus on Millington.

With doing less work and an evolving fewer mechanics, we can make the same or more money than we could if we're trying to work heavy MRO in Roswell, we've got the expertise in Goodyear and.

Speaker #8: In Roswell, I am thinking about Millington, as we spent a lot of money building out that facility, and we have a lot of credit against future rentals.

Speaker #8: So, you know, we're, we're, we're, we're fine from a cash point of view in Millington, even though we're carrying a facility that, that we're not utilizing at this point.

And that will over that will flow into into millington.

Speaker #8: In our Roswell facility, we've just taken a second look, a second and third look at Roswell to determine, what can Roswell do best? And we think what Roswell does best is aircraft storage because of the vast storage field there.

Not that we can't do it in Roswell, We just think that Ross was better suited for.

For storage in aircraft dismantlement.

We feel good about we feel good about all six of our <unk>.

Speaker #8: And, return to service of aircraft coming out of storage storage or going into storage. And taking an air, you know, parting out an airplane, whether it be for our own account or for third parties who've been storing aircraft in Roswell.

Morrow businesses, whether it be the three airport three on airport or three off airport and if I could add as Nick noted Roswell is a perfect example of some of the efficiency measures that we've done really looking at labor utilization kind of maximizing our efficiency rates.

Speaker #8: With doing less work and involving fewer mechanics, we can make the same or more money than, than we could if we're trying to heavy MRO in Roswell.

So we're starting to see that benefit rather is a great example, where even though we're doing pretty much half. The revenue overall, we're still meeting the margin the gross margin overall requirements and we've done that for Goodyear as well. So as we're seeing that expanded growth we're getting those benefit and also in all of our components shop. So as these new capacity and capabilities come online, we'll start enjoying some of those.

Speaker #8: You know, we've got the expertise in, in Goodyear, and, and that will over that will flow into into Millington. And it's not that we can't do it in Roswell.

Speaker #8: We just think that Roswell's better suited for, for, storage and, h, aircraft dismantlement. So we feel good about we feel good about all six of our, MRO businesses, whether it be the three airport, three on-airport, or, or three off-airport.

Higher margins as well.

Great.

Thanks, Nick Thanks, Martin I appreciate all the detail there okay quite welcome.

Thank you.

Our next question comes from Sam <unk> with <unk> Securities. Please go ahead.

Speaker #9: Maybe I could add, as Nick noted, Roswell's a perfect example of some of the efficiency measures that, that we've done. Really looking at labor utilization, kind of maximizing our efficiency rates.

To start you guys were kind of just speaking to this a little bit.

Speaker #9: So we're starting to see that benefit. Roswell's a great ample where even though we're doing pretty much half the revenue overall, we're still meeting the mar the, the gross margin overall requirements.

Ongoing costs kind of cutting initiative and the margin benefit you're seeing from that how should we think about sort of where you guys are in the trajectory of that effort overall in terms of ongoing or getting close to them there.

Speaker #9: And we've done that for Goodyear as well. So as we're eing that expanded growth, we're etting those benefits. And also in all of our component shops.

Speaker #9: So as these new capacity and capabilities come online, we'll start enjoying some of those higher margins as well.

I think overall from a cost perspective, we anticipate for the year to be about $5 million to $6 million overall benefit halfway through the year, we kind of realized.

Speaker #7: Great. thanks, Nick. Thanks, Martin. Appreciate all the all the detail there.

Half of that overall from a margin perspective dependent benefit depends on the overall unit, but we're seeing about a 200 basis point overall improvement that were that we are anticipating we expect those efficiencies will gain and will get better margin improvement also as we get more.

Speaker #8: Okay. Quite welcome.

Speaker #2: Thank ou. Our next question comes from Sam Straseco with Truist Securities. Please go ahead.

Speaker #10: To start, you guys were kind of just speaking to this a little bit. The, ongoing costs kind of cutting initiative, and the margin benefit you're seeing from that.

Fixed work so she had a heavy MRO that'll improve it because we'll have better cost absorption of our of our fixed costs, but it's something that we're continuing to look at it theres more opportunities and I think we did that and a great time as we have this growth kind of in front of us to really be as efficient as possible as we grow.

Speaker #10: How should we think about sort of where you guys are in the trajectory of that effort overall? In terms of ongoing or getting close to the end there.

Speaker #8: I think overall in the from a cost perspective, we had faced anticipate for the year to be about a five to six million dollar, overall benefit.

Great. It makes good sense, I think kind of staying on the margin line a little bit there.

Speaker #8: Halfway through the year, we just kind of realized, half of that, overall. From a margin perspective, depend the benefit ben depends on the overall unit, but we're seeing about a, a 200 basis point, overall improvement that, we're, that we are anticipating.

It sounds like the U S.

Getting somewhat more favorable how should we think about kind of like the net impact of that on the margin you guys are getting there or is it kind of net net the same or is there a bit of a positive impact or just kind of the puts and takes on that.

Speaker #8: We expect those efficiencies will gain, and we'll get better, margin improvement also as we get more, fixed work. Especially at a heavy MROs, that'll im-improve it because we'll better cost absorption of our of our fixed costs.

The overall margin on USA and will vary depending on product mix, but any new feedstock acquisition that were acquiring we are not going away from our 25% IRR. So we expect that to stay overall stable as we continue to buy additional feedstock.

Speaker #8: But it's something that we're ing to look at. There's more opportunities, and I think we did that in a great time as we have these, this growth kind of in front of us to really be as efficient as possible as we grow.

Okay got it it makes good sense.

And then I guess.

Final question for me would sort of be.

Speaker #7: Great here. nice good sense. I think kind of staying on margin line a little bit there. it sounds like the USM is getting somewhat more favorable.

Arrow, where are we should be thinking about any kind of.

Contribution this year from that or are you guys going to kind of hold on that because it's a TBD situations.

Speaker #7: How should we think about, kind of like, the net impact of that on the margin you guys are getting there? Is it kind of net, net the same, or is there a bit of a positive impact, or just kind of the puts and takes on that?

Without without a customer identified at this point I think it's improbable that we could we could get a narrower delivery even one delivery. This year. It's I guess, it's possible if it's for one aircrafts, what we're but as far as getting our program.

Speaker #8: The overall margin on USM will, will vary depending product mix, but any new feedstock acquisition that we're quiring, we are not going away from our 25% IRR.

We're not there yet we're still we're still working on refining the product, even though it's certainly usable indication that it's in <unk>.

Speaker #8: So we expect that to stay, overall, stable, as we continue to buy additional feedstock.

So what we need to do is we need to get the system installed on customer on customer aircrafts.

Speaker #7: Okay. Got it. Makes good e. and then I guess, final question to me would sort be, AeroWare, are we should we think about any kind of, contribution this year from that, or are you guys going to kind of hold on that because it's a TBD situation?

And we know that even if we do so by saying look client we won't charge you for it we will put it on your aircraft, which by the way we are offering to do fly it put it on your aircraft why would we do that let's let the operator flight for six months.

Because we need operational experience, we need the pilots to communicate with the air traffic control and say Hey, I have this system allows me to display to be dispatched in.

Speaker #8: You know, without, without a customer identified at this point, I think it's improbable that we could we could get an AeroWare delivery this even one delivery this year.

Speaker #8: It's, I guess it's possible if it's from one aircraft. What we're, what you know, but as far as getting a program, we're we're not there yet.

Two a lower visibility condition, then you're just you're allowing other aircraft to be dispatched so let me use my system.

In land I can see the airports others can't so let me land in these conditions, where the diverting others.

Speaker #8: You know, we're still we're still working on refining the product. Even though it's certainly usable in the condition that it's in, but what we need to do is we need to get the system installed on customer on customer aircraft and, and we know that even if we do so by saying, "Look, fly it." We won't charge you for .

There clearly is a safety benefit associated with this besides just the ability to dispatch and in lesser visibility conditions, and we expect our customers to start giving us some feedback on that so.

Speaker #8: We'll put it on your aircraft, which by the way, we are offering do. "Fly it. Put it on your aircraft." Why, why would we do that?

Even if again, if we can find three four or five operators in different portions of the world that will use this system on a trial basis, we will start getting will start getting operational experience with both the air traffic control systems and the operators now there is a there is a.

Speaker #8: Let, let the operator fly it for six months. Because we need operational experience. We need the pilots to communicate with the air traffic control and say, "Hey, I have this system.

Speaker #8: Allows me to dis to be dispatched in, you know, to a lower visibility condition than you're just you're owing other aircraft to be dispatched." So let me use my system.

ATR operator, that's flying in.

Southern Europe is in Europe.

Europe that has to have the system installed in it and they find it to be.

Speaker #8: oh, I can land I can see the airport. Others can't. So let me land in these conditions where the diverting others. there clearly is a safety benefit associated with this besides just the ability to dispatch in, in lesser visibility conditions.

Extremely beneficial, but we need we need somebody flying a 737 to give us some operational experience with it.

So I think that until we start getting that and and.

Speaker #8: And, you ow, we expect our customers to start giving us some feedback on that. So even if, again, if we can find three, four, or five operators in different portions of the world that will use this system on a trial basis, we'll start getting we'll start getting operational experience with both the air traffic control systems and the operators.

And we can start telling potential customers look this is all figured out the Fas and I'll. Let you use it you are going to get the operational benefit of 50% visual advantage. They know how to they know how to implement the system and again allow you to get the benefits of it because those are the questions that we're getting constantly when we're talking to airlines, which as well as yet.

Speaker #8: Now, there is a there is a, ATR operator that's flying in it's not in Europe. Is in Europe? Europe. In, in Europe that has that has this system installed in it.

Going to give us that allow us to use this system. How do we go about the training I mean, it's still a very complicated system. It takes.

It takes a lot to get it to get it implemented into an airline that the larger the airline to more difficult and I'll tell you candidly I've said this before.

Speaker #8: And, and they find it to be you know, extremely beneficial. But we need we need somebody flying a 737 to give some operational experience with it.

We just we just missed.

Identifying how long it was going to take for any airline really to get this into this is a this is a complex system with new technology.

Speaker #8: So I think that until we start getting that and, and, and we can start telling potential customers, "Look, this is all figured out. The FAA is going to you use it.

And it's just taken much longer than expected now having said that.

Speaker #8: You're going to the operational benefit of 50% visual advantage. They know how the they know how to implement the system. And, and, again, allow you to get the benefits of it." Because those are the questions that we're etting constantly when we're king to airlines, which is, "Well, is the FAA going to give us the allow us to use this system?

If you look at what's going on in aviation today with near misses smoke from from wildfires.

Aircraft that are better not being tracked by by local.

Speaker #8: How do we go about the training?" I mean, it's still a very complicated system. It takes it, it takes a lot to get it to get it, implemented into an airline in the, the larger the airline, the more difficult.

Eric.

Troll towers.

Collisions near collisions.

Recent push by.

<unk>.

Ted Cruz to mandate <unk>.

Speaker #8: And I'll tell ou candidly, I've said this before, you know, we, we just we just missed identifying how long it was going to take for any airline really to get this into it.

And to be turned on at all times, which may have avoided the accident in and in D C and to even mandate a DSP I'm.

Speaker #8: This, this is a this is a complex system with new technology. And, and it's just taken much longer than expected. Now, having said that, if you look at what's going on in, in aviation today with near misses, smoke from, from wildfires, aircraft that are that are, not being tracked by, by local, air you know, control towers, collisions, near collisions, recent push by, Ted Cruz to mandate ADS-BN to be turned on at all times, which may have avoided the accident in, in, in DC.

I'm sorry, the other way on <unk> and to mandate within five years, eight ESPN, which is which as I mentioned earlier is.

Is what we're is what's being worked out with our partner to incorporate in the head wearable display. So when you can when you've got all this activity and you've got Congress, saying.

We need to see new technology to avoid these mishaps.

Now that's not even to mention the fact that the primary driver for <unk> in safety Aside which I think is I think thats just not a proper statement to say safety side, but safety side, because ethane wasn't looking at it when it when it thought about head wearable displays in ESPN was to allow.

Speaker #8: And to even mandate ADS-B I'm sorry. The other way around. ADS-B out to be on. And to mandate within five years ADS-BN, which is as I which as I mentioned earlier, is, is what we're is what's being worked on with our partner to incorporate in the head-wearable display.

And aircraft to track the aircraft in front of it to make following aircrafts.

Landing pattern.

Faster and more efficient and to take pressure off of air traffic controllers had.

Speaker #8: So when you can when you know, you've got all this activity, and you've got Congress saying, "I need you got we ed to see new technology to avoid these mishaps." Now, that's not even to mention the fact that the primary driver for ADS-BN safety aside, which, I think is I think that's just not a proper statement to say safety aside.

Adding to tell the pilots hey speed up slowdown followed the aircraft in front of me you get a DSP in working now you can track the aircrafts you identify.

Whose aircraft. It is are you approaching it.

Are you of speeding up in Europe, and you're actually approaching airplane faster are you pulling behind and you're going slower.

Are you <unk>.

Speaker #8: But safety aside because the FAA wasn't looking at it when it when it thought about head-wearable displays and ADS-BN. Was to allow an aircraft to track the aircraft in front of it to make you ow, following aircraft in a ch in a ch in a landing pattern, you ow, faster and more efficient and to take pressure off of off of air traffic controllers having to tell the pilots, "Hey, speed up.

Who is the aircraft carrier.

Ken I track it.

And Ken I, even see it well if you have a DSP in on a head wearable display youll be able to whether you see it or not you'll be able to track it and you'll be able to follow it and you'll be able to set youll be able to set your trailing distance and that is really why adding ASB and functionality from an aircraft point of view is something that.

<unk> traffic control and the FAA is sought with the next generation air traffic control system. So if you've got the technology to date available to do that.

Speaker #8: Slow down. Follow the aircraft in front of you." You get ADS-BN working, now you can track the aircraft. You identify whose aircraft it is.

To me I guess, maybe it does take Congress to Scream to say, we need this technology implemented in current aircraft, whether we do it now or whether we do it over the next five years. So we've got a system that substantially does everything I just described today so.

Speaker #8: Are you approaching it? You know, are you speeding up and you're and you're actually approaching the airplane faster? Are you pulling behind and you're going slower?

Speaker #8: are you you know, who is the aircraft? Can I can I can I track it? So if and can I even see it? Well, if you have ADS-BN on a head-wearable display, you'll be able to whether you see it or not, ou'll be able to track it, and you'll be le to follow it, and you'll be able to set you'll be able to set your trailing distance.

What.

What just amazes me is with that with that technology available.

Why this is taking so long to get somebody to use it I understand it's complicated but it.

Speaker #8: And that is really why having ADS-BN functionality from an aircraft point of view is something that the airc the air traffic control and the FAA sought with the xt-generation air traffic control system.

<unk> safety is the overriding you get so many other benefits with this system.

It's hard to understand.

It doesn't mean that we don't feel optimistic that it's going to happen and it's going to happen soon but I've been saying that now for two years and I'm hesitant to give you a date on when that's going to happen until we until I know for sure when it's going to happen.

Speaker #8: So if you've got the technology today to available to do that, you ow, to me, I guess maybe it does take Congress to scream to say, "We need this technology implemented in current aircraft," whether we do it now or we whether we do it over the next five years.

No that's totally understandable and everything it all makes good sense and I'm sure. It's frustrating for you guys to get the momentum going but totally understandable and I appreciate all the color and congrats again on the nice results.

Speaker #8: So we've got a system that's substantially does everything I just described today. So you know, what's what what just amazes me is with that with that technology available, why this is taking so long to get somebody to use it.

Thanks Sam.

Thank you.

Again, if you have a question. Please press Star then one.

Speaker #8: I understand it's complicated, but to me, safety the overriding. And you get so many other benefits with this system. That, it's just it's hard to understand.

Okay.

We have no further questions at this time.

Speaker #8: Doesn't mean that we don't feel optimistic that it's going to happen, and it's going to appen soon, but I've been saying that now for two years, and, I'm hesitant to give you a ate on when that's going to happen until we until I know for sure when it's going to appen.

I would like to turn the conference back over to Nikolas Finazzo for any closing remarks.

I want to thank Ken and sand for their insightful questions and to our listening audience for joining us today.

Speaker #7: No, that's totally understandable. everything it all makes good sense. And, yeah, I'm sure it's frustrating for you guys to, get the momentum going, but totally understandable.

We look forward to keeping you informed at our next earnings call.

Speaker #7: And, I appreciate all the color, and congrats again on the nice results.

Hope you all have a good evening.

Thank you for lithium good.

Good day.

Speaker #8: Thanks, Sam.

The conference has now concluded.

Speaker #2: Thank you. Again, if you have a question, please press star, then one. We have no further questions at this time. I would like to turn the conference back over to Nicholas Finazzo for any closing remarks.

Thank you for attending today's presentation you may now disconnect.

Speaker #7: I want thank Ken and Sam for their insightful questions. And to our listening audience for joining us today. We look forward to keeping you informed at our next earnings call.

Speaker #7: I hope you have a good ing. Thank you for listening. Good night.