Q3 2025 AerSale Corp Earnings Call

Speaker #3: Good afternoon and welcome to the AerSale Corp. . Third quarter 2020 Earnings Conference call . All participants will be in listen only mode .

Speaker #3: Should you need assistance , please signal a conference operator by pressing the star key , followed by zero . After today's presentation , there will be an opportunity to ask questions , to ask a question , you may press star , then one on your telephone keypad .

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 Christine Padron , Vice President of Compliance .

Speaker #3: Please go ahead .

Speaker #4: Good afternoon . I'd like to welcome everyone to AerSale third quarter 2020 Earnings call . Conducting the call today are Nicolas Finazzo Chief Executive Officer and Martin Garmendia chief Financial Officer .

Speaker #4: Before we discuss this quarter's quarter's results , we want to remind you all the 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 .

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 .

Speaker #4: Performance or achievements to be materially different from any future results . Important factors that could cause actual results to differ materially from forward looking statements are discussed in the risk Factors section of the company's annual Report on Form 10-K for the year ended December 31st , 2020 .

Speaker #4: For 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 .

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 non-GAAP metrics to the nearest GAAP metric can be found in the earnings presentation .

Speaker #4: Materials made available on the investors section of the AerSale website . At Q3 . With that , I'll turn the call over to Nicolas Finazzo .

Speaker #5: Thank you . Christine . Good afternoon , and thank you for joining our call today . I'll begin with a brief overview of the quarter .

Speaker #5: Then provide operational updates before turning the call over to Martin to review the numbers in greater detail . We reported revenue of $71.2 million for the third quarter , compared to 82.7 million in the prior year period .

Speaker #5: The year over year decline was entirely driven by the absence of engine or aircraft sales in the quarter , compared to five engine sales in the prior year period , excluding whole asset sales , which tend to be lumpy quarter to quarter .

Speaker #5: The balance of our business grew 18.5% to 71.2 million , driven by a strong inventory position supporting our USM business and higher leasing revenue in Techops .

Speaker #5: Sales were down modestly versus last year as strength in component sales and higher AerSale volume partially offset lower services revenue , particularly at our Roswell facility .

Speaker #5: As we've repurposed that site for teardown and decommissioning work, that yields higher margins, as we note every quarter due to the nature of our business and the impact of whole asset sales.

Speaker #5: 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 to value .

Speaker #5: Our team is able to extract value from those investments. Turning to profitability, we delivered solid margin performance despite the absence of whole asset sales in the quarter.

Speaker #5: Adjusted EBITDA was $9.5 million, or 13.3% of sales, compared to $8.2 million, or 10.0% of sales in the prior year period.

Speaker #5: This improvement reflects stronger leasing contributions , higher USM activity and the ongoing benefits from our cost reduction efforts over the past year that have trimmed G&A expenses and increased MRO profit margins by segment and starting with asset management revenue was 39.2 million in the third quarter , compared to 50.4 million in the prior year period .

Speaker #5: This year over year decline reflects the absence of engine or aircraft sales this quarter versus five engine sales in the same period last year , excluding whole asset transactions , segment revenue increased nearly 40.9% year over year to 39.2 million , driven by strong USN volume and higher leasing activity .

Speaker #5: As we've discussed in past calls , we've made a strategic decision to balance whole asset transactions with assets deployed on lease , which is more in line with our historical operating model .

Speaker #5: Consequently , we expect more stability in quarterly operating results , which was evident in the quarter . We've continued this effort throughout the year , and as of quarter end , we had 15 engines and one 757 freighter aircraft on lease with a second 757 lease executed at the end of the quarter .

Speaker #5: During the quarter , we remained active on feedstock acquisitions to drive our future growth . We acquired a total of 13.7 million in the quarter , which brings the year to date total to 84.2 million .

Speaker #5: As we've reported for the past few quarters , we're continuing to see opportunities in the market . But overall supply of attractively priced feedstock has been limited as new OEM production has yet to catch up with demand .

Speaker #5: We remain extremely disciplined not to overpay for feedstock in this highly competitive market , which has been driving up pricing for the balance of the year .

Speaker #5: We're in a strong inventory position with more than $371.1 million of feedstock inventory, which includes nine engines that are available for sale or lease and another ten engines currently undergoing repairs.

Speaker #5: Turning to our 757 passenger to freighter conversion program , we continued to make steady progress . As I noted , we had one aircraft on lease during the quarter and we placed an additional 757 freighter on lease that will begin generating revenue in the fourth quarter .

Speaker #5: Customer interest is high and we're in active discussions to place the remaining five . 757 we converted across multiple potential customers . While the timing of these transactions is still uncertain and will likely take some time , we're encouraged by the clear improvement in market interest since a low point in 2023 .

Speaker #5: Turning to Techops , revenue was 32.0 million , down modestly from 32.3 million in the prior year period . During the period , we reported stronger sales of component parts and engineered solutions , which mostly offset a modest aggregate decline in MRO services revenue at Goodyear .

Speaker #5: Sales have stabilized following the conclusion of a contract encompassing multiple aircraft heavy checks that started to wind down in the second quarter of last year , supported by a strong pipeline of recommissioning work that is expected to keep the facility operating at or near full capacity through 2026 .

Speaker #5: We're also in discussions to secure long term contracts that would provide greater volume , visibility going forward at our Roswell facility . Results were lower , but in line with our expectations as we continue transitioning to facility to focus exclusively on tear down and decommissioning activity , which is yielding higher margins .

Speaker #5: Looking forward , construction of our expansion projects at both our aerostructures and pneumatics facilities are now complete and we're in the process of transitioning to production in both facilities .

Speaker #5: We expect this to be a significant driver of revenue growth in 2026 and beyond . In engineered Solutions , we saw a strong increase in air safe deliveries year over year , and we anticipate volume will remain at elevated levels for the balance of the year and through 2026 , as we get closer to the deadline for compliance with an FAA airworthiness directive , which is satisfied by installation of air safe at quarter end .

Speaker #5: Our 2025 deliveries of Air Safe plus current backlog totaled more than 22 million , and we have sufficient orders secured to achieve our 2025 financial plan .

Speaker #5: Turning to Aero, where we continued to enhance the functionality of the system and engage with potential customers as we work toward a launch order.

Speaker #5: We believe the ongoing enhancements to the product , combined with the increased focus by both operators and the FAA on situational awareness , will drive long term adoption of this advanced technology across the .

Speaker #5: We've seen throughout the year, with several safety incidents, we're now seeing system-wide air traffic control delays as a result of the government shutdown.

Speaker #5: We've seen throughout the year with several safety incidents , we're now seeing industry gain Ads-b in functionality to the system . To that end , we're expanding our outreach and education efforts with government authorities , including the FAA and congressional leaders .

Speaker #5: This will raise awareness of how technologies like Aero can contribute to addressing industry wide challenges , such as airport congestion , air traffic control , staffing shortages , overall flight safety enhancement .

Speaker #5: Looking to the balance of the year and into 2026 , we're positioned for continued progress . We have ample feedstock availability to support growth across our USM leasing and asset trading activities , providing a solid foundation for our core operations .

Speaker #5: Our lease pool continues to expand , creating a more predictable and recurring revenue stream , which will and strengthen further as additional 757 are placed .

Speaker #5: This has been a strategic priority for us in 2025 and demonstrated its effectiveness in the third quarter through EBITDA margin improvement , even without the sale of an aircraft or engine in Techops .

Speaker #5: Construction is now complete on our new MRO facilities and we're in the process of transitioning into operations . These additions will be an important growth driver in 2026 , enhancing both capacity and capability .

Speaker #5: Finally , air safety remains a steady contributor and we expect it to continue supporting results through the regulatory compliance deadline in the fourth quarter of 2026 .

Speaker #5: Taken together , these initiatives position AerSale for a stronger , more stable and more diversified earnings profile as we move into 2026 . In closing , I want to thank our dedicated team for their continued focus and execution .

Speaker #5: We're invigorated by the underlying performance of our business , and despite the absence of whole asset sales this quarter , we delivered solid margins and made meaningful progress across key initiatives .

Speaker #5: We're entering the fourth quarter with strong momentum , a growing base of recurring revenue and a platform that is more diversified and resilient .

Speaker #5: Now over to Martin .

Speaker #6: Thanks , Nick . Our third quarter revenue was 71.2 million , compared to 82.7 million in the third quarter of 2020 . For .

Speaker #6: As Nick mentioned , the prior year included 22.6 million of flight equipment sales consisting of five engines . While this quarter did not include any whole asset sales , as we've noted in past calls , flight equipment sales can vary significantly from quarter to quarter , and we believe our progress based on asset purchases and sales over the long term is a more appropriate measure of our progress .

Speaker #6: Third quarter gross margin was 30.2% compared to 28.6% in the third quarter of 2024 . This year over year improvement reflects stronger execution across the business , including higher lease revenue , sales mix and cost control measures that we've implemented over the past year that have allowed us to improve MRO margins .

Speaker #6: Selling general and administrative expenses totaled 18.6 million , compared to 21.7 million in the third quarter of 2024 . G&A included approximately 1.3 million of non-cash stock based compensation , which is in line with recent quarters .

Speaker #6: The reduction in total G&A stems from lower fixed and variable payroll related expenses , which benefited from the cost reduction efforts taken over the last 12 months .

Speaker #6: Operating income for the quarter was 2.9 million , compared to 2 million in the same period last year . Net loss for the quarter was 0.1 million , compared to net income of 0.5 million for the prior year period .

Speaker #6: Adjusting for stock based compensation facility relocation costs , restructuring charges and other non-recurring items , adjusted net income was 1.5 million compared to an adjusted net income of 1.8 million in the third quarter of 2020 .

Speaker #6: For adjusted EBITDA was 9.5 million in the third quarter , up from 8.2 million in the prior year period . This improvement reflects higher leasing revenue , lower operating expenses across the business and increased monetization of our feedstock inventory , partially offset by the absence of whole asset transactions compared to the prior year .

Speaker #6: Adjusted diluted earnings per share was $0.04 , which was flat compared to the third quarter of 2020 . For we ended the quarter with 58.9 million of liquidity , consisting of 5.3 million of cash and available capacity of 50 53.6 million .

Speaker #6: On our 180 million revolving credit facility facility , expandable to 200 million subject to conditions . And the availability of lender commitments and borrowing based liabilities .

Speaker #6: Cash used by operating activities year to date was 34.3 million , primarily due to continued investments in feedstock acquisitions . As we continue to grow , USM and leasing .

Speaker #6: Looking to the fourth quarter and full year performance , excluding flight equipment sales , we continue to expect full year revenue in excess of 2024 levels , with a greater increase in EBITDA year over year .

Speaker #6: As a result of more robust lease pool continued monetization of our USM inventory and the cost reduction initiatives we've taken over the past 12 months that have improved MRO margins and reduced G&A expenses .

Speaker #6: We remain focused on executing with financial discipline and maintaining a strong balance sheet to support our growth initiatives . This progress we've made in leveraging our strong inventory position , improving operating efficiency , and optimizing working capital is translating into a more resilient business model with greater earnings stability , with ample liquidity , a growing base of recurring revenue and solid demand trends across our end markets .

Speaker #6: We believe AerSale is well positioned to deliver continued improvement in profitability and shareholder value as we move into 2026 . With that , operator , we're ready to take questions .

Speaker #3: Thank you . We will now begin the question and answer session . Just so you're aware , to ask a question , you may press star , then one on your telephone keypad .

Speaker #3: If you are using a speakerphone , please pick up your handset before pressing any keys . To withdraw your question , please press star then two .

Speaker #3: At this time , we will pause momentarily to assemble our roster . Our first question comes from Stephen Stackhouse of RBC capital . Please go ahead .

Speaker #7: Hey , Nicky Martin , thanks for taking the question . First question is that you guys have had some nice capacity expansion in your MRO business .

Speaker #7: And I can appreciate that . You don't want to necessarily give a formal guide , but how should we be thinking about a baseline EBITDA for MRO business into 26 ?

Speaker #7: Is there maybe a revenue or margin range that we can kind of get a target from on the nice recurring piece of the business ?

Speaker #6: Yeah . As we noted from the three expansion projects that that we have , we gave a full year projection of $50 million at full overall capacity .

Speaker #6: Looking at 2026 , we think those numbers will be approximately $25 million of revenue . And generating pretty strong margins of 4 to $5 million .

Speaker #6: So we're excited that those facilities will be coming online . We're already seeing progress at our Millington facility and the the two remaining facilities will start generating towards the end of this quarter .

Speaker #7: So the 50,000,000 in 25 , is that an incremental 25 in 26 .

Speaker #6: The 50 million was total capacity . The 50 million , sorry , the 25 would be our expectations for 2026 .

Speaker #7: Got it . Okay . And then you may be able to just speak on your passenger to freighter conversions . It sounds like you guys got another aircraft on lease in the quarter .

Speaker #7: Has the market at all changed there, or has the demand kind of shifted at all? Kind of in your favor?

Speaker #5: And we think that due to the lack of availability of a of a of an aircraft , really that provides the same operating performance as a 757 that , that that the operating community has paid attention , that there really is not a replacement aircraft for the seven , 57 and seven 67 seconds , which even though they have greater capacity , could fly routes at a 757 fly because it's a longer range aircraft , they're not available .

Speaker #5: A330s are really yet to be converted to freighters in mass , and so really , and the A321 is not a true competitor to the 757 and neither is the 737 800 converted freighter .

Speaker #5: Those aircraft are much smaller , with smaller range and smaller capacity . So there isn't a competitive product really today in existence for the 757 .

Speaker #5: And we only have a few left . And although we didn't stay at stated in this announcement , we do have another two under Loi at this point , which we expect to deliver this this quarter and the next quarter , which will put us at four aircraft for the year , or at least four aircraft under contract for the year , leaving only three left to place .

Speaker #5: And we're talking to enough operators to take those three and and some others . So we feel that things have definitely changed from a low point in 2023 , where we saw a little demand , and just due to a variety of factors , and really the quality of the aircraft , you know , we're very optimistic about our ability to place the balance of these aircraft in the relatively near term .

Speaker #5: .

Speaker #7: That sounds great . And then maybe just last one from me . I was hoping you might be able to give us a quick update on your USM strategy .

Speaker #7: Are there any changes about how you're thinking of of it kind of into 26 ? Are you seeing any better demand signals or maybe any relaxation of the supply at all ?

Speaker #5: Yeah . So I'm not sure if we followed that question . Could you I apologize , but you state that again because I didn't really follow it .

Speaker #5: Neither . Neither Martin really followed your question .

Speaker #7: Sorry . But just trying to understand your availability of USM . How you anticipate USM to maybe kind of grow as as we get into 2026 .

Speaker #5: Okay , good . I understood that availability of USM , as we mentioned , we've got a substantial amount of USM that we've had in work and is becoming available for sale , and we're selling it even though the market is very is very tight for USM , we still buy USM .

Speaker #5: We're disciplined . We could buy a lot more if we weren't as disciplined , but we're not going to do that . So we , you know , remain disciplined in making sure we hit our our target margin and IRR profiles when we acquire inventory .

Speaker #5: We're still acquiring it . We've got ample inventory to carry us , I think all the way through 26 without buying much more .

Speaker #5: But we expect to continue to buy more . So , you know , we think that it's because of the way we can extract value out of feedstock that allows us to win deals .

Speaker #5: And so that even though it's tough to buy things in an overheated market where pricing has gone up , if you can extract greater value out of it than somebody else , because you can do more than just sell parts , you can sell parts , you can sell engines , you can lease engines .

Speaker #5: You could put a whole airplane together . You could use pieces to put other airplanes together that you have . It's the it's really the multidimensional integrated business model .

Speaker #5: We have that I think is allowing us to win deals . So we're optimistic that even in a really tough buying market that we'll be able to continue to acquire feedstock to grow the business in the future .

Speaker #7: I appreciate the details to all my questions . I'll hop back in the queue .

Speaker #3: Our next question comes from Sam Stirzaker of Truist Securities . Please go ahead .

Speaker #8: Hey , guys . Appreciate you taking the questions . Just trying to I guess , clarify for my sake as much as anything on the Roswell and Goodyear facilities , do you have any I guess , line of sight to when those facilities would kind of be fully transitioned to the new scope of work and operating at the level that you guys would ideally like , either in timeline or just any thoughts there in terms of visibility ?

Speaker #5: In Roswell facility , we have substantially transitioned that away from heavy maintenance work . And to be more focused on storage and and and and part out and tear down of aircraft .

Speaker #5: So we're we're substantially there now . There's still opportunity for significant growth , even doing that work . And there are other opportunities that if we fill up at Goodyear and and Millington that , you know , we may have no choice but to put some heavy maintenance work back into Roswell .

Speaker #5: And there are some programs that are under consideration right now where we may do that . But at this time , we don't want to develop any additional overhead necessary to support heavy maintenance in Roswell until we fill up completely our Goodyear and Millington facilities .

Speaker #5: Now , progress on those is outstanding . In in in Goodyear . Although we've yet to conclude a substantial number of long term contracts .

Speaker #5: We you know , we're almost full I think we have seven , seven out of our eight base operating right now with transition work from the 70 or so A320neo , Neos and CEOs that have been parked there that are transitioning to new lessors .

Speaker #5: Those airplanes are requiring seat checks and paint jobs and and other transitioning work engine work because the A320 neo , half the airplanes out there , I take it back .

Speaker #5: Most of the airplanes that are parked there don't have engines . So we have lots of activity going on surrounding the , the the engine problem on the A320neo .

Speaker #5: That problem is being resolved . And those aircraft are being returned to service . So that's creating a fantastic opportunity for us . While while we also while we have that work , we also have we also are generating repetitive work from some of the customers that we've historically dealt with .

Speaker #5: And we've got 757 in work and we've had leasing company aircraft and work and 767 in work . So , you know , we're in a much different position than we were in six , eight months ago where we had just completed a heavy check line on multiple aircraft , heavy check line for a major airline , and had to backfill all that work .

Speaker #5: Now , as we move into 2026 , with the amount of work that we see , we we it's going to be tough for us to take much long term revenue in there because there'd be so much short term revenue .

Speaker #5: So the so the key for us is to make sure that we make available enough , you know , slots of work so that we can attract long term customers and then have a variety of , you know , between the eight days we have in Goodyear to have a variety of long term customers and short term customers that we can satisfy that that come in and out and provide a nice mix of , of revenue opportunity .

Speaker #5: One being a little more steady . The other being maybe a little bit higher margin . The shorter term business that's in respect to Goodyear with regard to Millington , we've intentionally not done anything in Millington up until now .

Speaker #5: I mean , at this point , we we said until we fill up Goodyear , we're not going to commit resources to Millington until we feel like we need to .

Speaker #5: Well, we need to know. And we've had a customer come to us that has initially indicated to us we signed an LOI.

Speaker #5: It's a regional carrier that has agreed to give us a number of their aircraft to start . And based on our performance , do their entire fleet .

Speaker #5: That's a program that will run anywhere from six months . If it's just an initial program to as long as three years , covering over 100 regional aircraft .

Speaker #5: So so we feel pretty optimistic about Millington at this point . So if you look across , if you look across our on airport facilities , we feel like we were in excellent position to start filling those facilities up and generating significant revenue that we haven't seen , which is we haven't seen to date .

Speaker #5: This amount of revenue that we're looking at today . And in 26 across those facilities .

Speaker #8: That's really great color , I appreciate it . And that sounds great . I guess you kind of touched sort of on this topic in terms of engines .

Speaker #8: You guys mentioned , you have I think nine available and I guess ten under repair . And I was just curious if you had any sort of line of sight or kind of how you're feeling about demand for that in general , and maybe timeline on converting those ten engines that are undergoing repair before they're actually available for they're fully ready to go .

Speaker #8: Thanks .

Speaker #5: I don't know that . I know , I don't know that I know specifically how long each of the ten engines will take .

Speaker #5: But my guess is we've got engines that are coming available in the next month or so , and probably not longer than several months after that .

Speaker #5: So I would guess that those ten engines will all be out by the end of the first quarter of 26 , but then there'll be more that'll go in as we continue to acquire engines to repair the what's going on with the engine shops today is it's taking a ridiculously long time to get anything through the shop .

Speaker #5: And so we're having to we're just having to bear through that . But it doesn't change the fact that when we need an engine to get work , we're going to put it in the shop .

Speaker #5: If we feel we can get higher value out of it as a whole engine , we're going to put it through the shop .

Speaker #5: What was the other part of that? Anticipation of.

Speaker #8: The growth . I think just just general like kind of , I guess demand trends you guys might be seeing within .

Speaker #5: Yeah .

Speaker #8: Okay . Yeah .

Speaker #5: Yeah . Demand is demand is insatiable at this point . The you know , if whether we're talking about a narrowbody engine , whether it be on a seven , three , seven ng , an A320 , there is more demand that there are available engines at this point .

Speaker #5: So if you've got a good engine and then , you know , even on the widebody side , P.W. for Pratt and Whitney Pw4000 that go on 767 and 747 and and on some Airbus aircraft and same thing with GE 680 .

Speaker #5: We can't get them , you know , the issue we have is as we get them through the shop and we want to put them out on lease , we have customers that are coming up to us and they want to buy them for cash .

Speaker #5: And so we're having to wait , wait a minute , do we , do we take do we sell this for cash or do we put it on long term lease ?

Speaker #5: The preference would be to put it on long term lease . So the issue we face is not a lack of demand . But what do we do with that .

Speaker #5: So it's difficult to answer the question . So how do you view your engine situation on a go forward basis . Are you going to have more trading opportunities and more leasing opportunities ?

Speaker #5: And the answer is we have opportunities for both . The question is where are we going to put the asset and where will we get the highest .

Speaker #5: The highest margin on a risk adjusted basis ?

Speaker #8: Sounds a good problem to have at least . Fair enough . Appreciate the time , guys .

Speaker #5: Okay , no problem . You're welcome .

Speaker #3: Once again , if you have a question , please press star . Then one . This concludes the question and answer session . I would like to turn the conference back over to Nicolas Finazzo for any closing remarks .

Speaker #5: All right . Thank you . As we've explained , even without any whole asset trades , er where sales or incremental revenue from our facilities expansion projects , our operating margins have continued to grow .

Speaker #5: I believe this validates our unique , multi-dimensional and fully integrated business model . And as our businesses continue to develop , will put us in an excellent position to achieve substantial growth in the years ahead .

Speaker #5: As always , I want to thank Steven and Sam for their questions , which I believe provide additional insight into our business model and progress to date .

Speaker #5: I very much appreciate your interest in listening to our call today and look forward to bringing you up to date during our next earnings call.

Speaker #5: I wish you all a good evening . Thank you .