AerSale (ASLE) 7 Aug 242024 Q2 Earnings call transcript

Good day, and welcome to the AerSale Second Quarter 2024 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Kristen Gallagher, HR Director. Please go ahead.

Good afternoon. I'd like to welcome everyone to AerSale's second quarter 2024 earnings call. Conducting the call today are Nick Finazzo, Chief Executive Officer; and Martin Garmendia, Chief Financial Officer.

facts quarter's made want do of on to and of performance. this that remind not financial the discuss forward-looking our expectations matters statements considered for including all this historical our federal we securities results, the statements to we you relate statements laws, Before within be regarding meaning current should call business that the that and filed may but guarantees, our statements These cause statements March factors other the known section unknown or differ XX-K important ended SEC. risks, its promises that for XXXX, from forward-looking factors materially the any XXXX, and in year performance and are results, involve with uncertainties be on the different Commission Exchange are cause and actual nor could to with future results neither to X, other Securities on achievements actual Form Factors from Risk filings the materially XX, discussed December results. Important identify and results to These and and the indicated from those call. could materially forward-looking events address by that risks filings on actual differ this cause other important statements uncertainties We'll business. refer of in performance assessing to our as that non-GAAP the view also we important measures the GAAP the call A over metric made materials that, non-GAAP the turn the Nick ir.aersale.com. With the I'll section metrics found AerSale in to reconciliation of of on to earnings Investors can those nearest presentation be available website Finazzo. at

to our review for before in summary Thank objectives review I'd Kristen. call our of a you, a and of greater joining to the call. quarter of begin turning for numbers afternoon, you thank with detail. over the and like the today a Good Martin strategic

back acquisitions XXXX. our to plan levels, was stronger inventory feedstock million, revenue prior prior output up capacity half $XX.X million. our performance we second XXXX to feedstocks. improvement of in sellable are as is continued This total, driven notwithstanding, of we compared business XX.X% of in million $XX.X to outperform in have we greater short included operating year. overall inputting through year much from than of In well of Our million sales This reported by $XX.X which $XX.X quarter the acquisition asset year-over-year whole the the

driven our material of inflow entirely, post-repair, a our revenue million increased at assets steady of also a improved loss and MRO incremental XX.X%, gain whole improved to by $X.X volume a XXXX. in Excluding compared sellable AerSafe. Adjusted EBITDA $X.X million to sales facilities

based due the quarter-to-quarter, tend with business these investments. on impact asset to we and As our and of volatile the whole a longer the our quarter believe is to feedstock best of be our assessed period we aggregate value remind levels levels revenue on our focus and to every able business investors extract time is nature performance team over sales, from a of

of to or to cargo color been of on before aircraft are our on maximize has I'm Vision and how core Before In facilities a Flight business intend our to heightened recommissioning consistent turning moment aircraft assess busy, provide our components. to a driving what traditional favorable turning putting take that from I'd our I'll segment where with sorry, challenges regardless capacity, TechOps, some -- routine zoom well also our doing procedures is their revolutionary and AerAware. address are the commercial passenger where improvements. I'll performing the airline current opportunities in and and start level to we prospects are System, diversified performer customer services MRO backdrop. maintenance and satisfy Enhanced times needs discussion, call aside to business, we're like out we

through has the cost-effectively the our decommission service online X as strategic expand components capacity continuing led fleets. allow We've recovery. priority well trough and XXXX to projects it performance through service operators to a customers we and to This consistent current end the of markets cycles XXXX. end to as and to storage come seen aircraft their as As through the decline, slated MRO aircraft services across remaining toward to made into through that pandemic of are also operate

equipment in the shop. our Florida we're the at latest generation final hydraulic of installing capabilities First, stages project overhaul components. components our servicing the Miami, expands just of test and beyond of accessory for pneumatic This

revenue customers adding and current us expect components than bringing work will base aircraft capabilities We existing new repair generation components. more on double on midlife pneumatic our with

second process of a Tennessee with of pool of will our hanger online narrow-body old quarter past, the almost Second, facility, our we're labor after XX,XXX the and increase feet a Florida This scale the third, allow States United provides in filling out aerostructures and state-of-the-art foot feet our while square of in location the and the MRO X approximately XXX,XXX X.X square at we've at volume final discussed facility, years of access building construction, which from that consists us more our we're to in adding capabilities capabilities sales in qualified location up came the square to central Miami, stages equipment a also bays. facility, increases to as And throughput. new planning facility. single and quickly us and XX,XXX with in footprint on-airport on-airport which Millington, to

In expanded few sales, our these smooth asset regard expect these XXXX, in volatility online, whole at the add full the will facilities over to come expect will which by created recognize desirability at next significant quarter-to-quarter. incrementally performance to With occur XXXX. although as we throughout revenue least capacity, anticipate volume, we million we they operating contribute limited $XX total to facilities annual sales build begin we to and step-ups we years. the in As

That asset discussed, to we this is our given on believe maximize quarterly transaction the To EBITDA, the volatility. the we've at purpose-built prudent be large case of to some this sale the over for as assets investment. USM. The model volume AerSale said, aid come focus but platform expense whole on time long-term assets, will should will of return As the but as whole some operations in calls it take specialized in to add for strategic and value, leasing feedstock dollars build we through our into building significant term. sales long predictability effect our the the plan greater of our extent, deploy and always increasing include initiative

-- pricings Regarding end very USM, are and favorable. market demand are user prices robust is user end

demand is and reliability elevated pricing, engine issues. and as some reduced high in been competition amid feedstock environment are and production a now we've despite available However, used OEM new aircraft time tight for favorable fewer aircraft

of feedstock lifeblood business. is discussed, our Asset the Management we've As

resulted forever, improvements fluctuates last our we and steadily to improve which our strategically and the at side to [ of in remain capacity year-over-year demand not which flow cargo would and disciplined USM we operating million These fixed to environment as time in been allow, has production substantially ROI side our while performance, in process do available and million growth acquisition it XX.X% more and ] more were lower become increase remain has placed and does we've supply to and the that exceed year. quarterly some and the dynamics the sellable we new as has our We a Year-to-date, as cost than prior OEM a which anticipate in we our level fueling of that repair think results, double in in So capacity. approach of are allowing acquisitions, deploying simply assets deliveries successful as XXXX, successful securing from aggregate into more relative capital serve our XXXX. improvement $XXX to it's sold quickly periods alleviate finding and supply can of available. In USM, have consistently critical aircraft passenger feedstock continuous the been pressure. $XX.X our aftermarket inventory, turn hurdles us program, a Longer term can feedstock which has is driven to than reach our hurdles. will monetizing

cargo and passenger-to-freighter elevated during XXX our scrambled find amplified home enjoyed that on asset program, channels. the market [ carriers of as during of years further prices orders to far multiple to a of ] e-commerce period through early available demand Lastly, goods where This demand volume consumer exceeded the at were was stay capacity. more Lyft fueled cargo the by we supply pandemic the conversion

performance remaining in the of challenging happens was during to assets. perfect stages a the these months case of early the aircraft one the of freighters, This in This history. types XXXs, consumer program led the these there but flows timing long-term in and in of the conversion and and our converted for one company's market of PXF remains X today, end these Our has our times, launch marking in to success and of supply periods. XXX normal carried we of a for fantastic demand XXX demand for most monetization a successful have It market, the remaining has pandemic, the assets. to dramatically demand slowed normalized Fast slowed has used following aviation's darkest COVID financial as cooling extremely backdrop trends XX forwarding resulting effect pandemic. use aircraft ebbs which programs

life and converted and family We as a the XXX in engines. We'll fortunate XXXs demand, these XXXs monetize through therefore, youngest their equipment freighter After older to interest of market the in to aircraft recently customers' starting whole and/or recovering. age particularly customer of cargo aircraft for this existing from new equipment as aircraft, and most the economic older upgrading returning, benefits a continue among on over ideally or are fleets, significant demand expanding much our on XXX niche, lull intent are have business XX-month that the sale market suited lease an converted the market we existing their useful is fleet. ours is within or the for are in flight the available

above the an our lens, our recurring revenue strengthened enhance hurdles lease capacity freighters, our strategic remaining smooth Taken acquire additional more stability and portfolios. a we substantially operation balance sheet that more and financial initiatives provide longer-term stable to through footprint are and a will larger, priorities. expanded following the a and as specialized expect the sophisticated One, baseline MRO with expansion Two, by together stronger, volatility. our out more driven quarterly to cost feedstock. And we a fixed to revenue. through emerge of predictable company, looking These designed as XXX enhancing USM three, more monetize

Now turning segments with and beginning to our Management. Asset

quarter were in year-over-year. Stronger well USM quarter year-over-year. million, $XX.X volume from as revenue leasing XX.X% engine asset an increase and better mostly sales the as sales in which whole increased Second stemmed stable

unserviceable X grew periods, quarter, in in current ago sales X of and improved both were on asset the a level the sold to year whole X year better segment Margins as Excluding compared we demand. prior the market sales than sales airframes period. XX.X%. engines X.X% engines result In in

segment. TechOps our to Turning

aerospace Second and resulting Segment our across as from incremental needing comply ago facilities million aircraft capacity continued we is XXXX. a to grow backdrop. I directive quantity compared deadlines airworthiness -- for to in AerSafe of amid investments segment expect to we capacity. solution. period. And into customers our growth fairly cost-effective FAA $XX.X also end Growth quarter the to X.X% strong AerSafe indication as of fuel to was contributed to sales system revenue advantage earlier, widespread we which commercial XXXX begin quarter, the year an regulatory to a Solutions available as wiring, sales took targeting began increased the Engineered delivering to noted level to see toward meet efficient with and kits

$XX on continuing year, our to to over the installation deadline. more with in interested orders to step-up this have project. anyone we view encourage AerSale efforts about and AerSafe in are date, increase XXXX I of operators of videos sales this of website. in a product into AerSafe million in an continue as the marketing understanding a AerSafe the on XXXX our available back compliance expect meet backlog XXXX We incremental November and To half

to continues potential our our be launch pipeline, to progress update with positive. active And AerAware. within we're making on overwhelmingly Turning feedback an customers. Customer sales

different As nice last be and process for to AerAware through are is customer potential Other FAA getting much just start approval than diverse in noted quarter, we've we been market types our approval anticipated on with With approval have we familiarizing to size availability. product of potential the commercialization customers the operators longer several some customers, and a last of them and time as has highly a head addressable process. know the The largest dependent years. we is each since December. originally proving

However, future cases to of busy with if, available demonstrations, decision multiple it with visits AerAware. question We'll look to our our based their closing, and our ready-to-sell the that I back quarter it through business in the to thank scheduled come about that hard we're through driving cash customers drive side feedback, as and several customers. In for MRO based disciplined margin. navigate on for want progress. their employees and incremental broader XXXs support. on a forward is encouraged capital for for is continued the acquisitions, our half We a we adopt optimistic remain new begin work last not the third challenged our remain supply be is the revenue investors you confident We're at from facilities begin flight in a monetization to feedstock. updating online improving and inventory XXXX operators we're feedstock dedicated and we of or as internal on and our group prospective to from our flowing of flow lows makers in of when, committed continued allocation

Now look the closer a at turn the Martin over Martin? for I'll to call numbers.

Thanks, Nick.

flight was which revenue included quarter $XX.X engines. X equipment million, sales comprising of million of Second $XX.X

XXXX revenue X engines Our quarter was sales equipment million and in unserviceable of of second flight airframes. included of consisting and $XX.X X million the $XX.X

continued flight the base to Excluding company million in demonstrate revenue the million growth equipment, year. $XX.X as from our $XX.X prior increased to underlying

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

gross quarter margin quarter second was to in XX.X% the Second compared XXXX. XX.X% of

as were reduced in on efficiencies awarded As at units the facilities million sales a result, mix expenses margins $XX.X Selling, administrative MRO gained and the recently company's general the contracts. component $X.X the were expenses. second included expenses. of stock-based expenses million general which stock-based and compensation of $XX.X XXXX, Selling, $X in of million quarter of XXXX included second compensation administrative the quarter million and and

of adjusted loss XXXX on in to was compared quarter loss million, quarter in million million quarter loss benefit relocation of the million and mark-to-market warrant $X.X $X.X $X from GAAP the the loss first second while net decline XXXX, a XXXX. operations quarter quarter operations second was Second was higher expense. Adjusted caused $X.X equity-based with compensation, from private in was mark-to-market in the and facility to $X.X while XXXX. adjusted costs, lower million was adjustment liability, second noncash liability interest of the for quarter the second warrant loss $X.X net million, the net from

Second of to quarter diluted share $X.XX compared second loss per $X.XX in the XXXX. was quarter

above, Excluding of to $X.XX per diluted for the $X.XX loss adjustments second share compared mentioned quarter was second quarter XXXX. the adjusted

EBITDA to in we $XX.X of various USM was balance of a recovery. and led year. The Further, was expenses In $XX.X deem within sheet a in $X to our operating we current in our due the to market activities Roswell, which assets prepaid million the availability. in million, quarter parts, increase a adjusted value April parts the inventory million warehouse EBITDA $X destroyed to in receivable used probable expenses, in adjusted million Cash New higher million, deposits, on fire. which to XX-Q, our deployed was XXXX, increase in loss Mexico a cash loss second of loss value This XXXX recorded due book $X.X carry of for of $X period. and Our a primarily a $X.X compared the the of impairment prior of and was million and other related revenue primarily to lower of non-trade of million. secondary

amount, the policy of made have is a our deductible. $XX,XXX on we on which to a entire $XX claim payout maximum subject million, Our

look ensuring monetize on redeploy that, that and a investor second to and the community the from we investments business half value remain best criteria, strategy our that way in TechOps to is in as market. With execute continue MRO this capital on our a forward while while pursuing AerSafe allocators, we robust benefit strategy the go-to-market for the We are meet operator, the we grow sales, to expect as of XXXs feedstock XXXX questions. disciplined that continue the in we updating remain portfolio, extraction we model earlier. through have we make deciding USM, remaining improvement only long-term ROI with see we in to bullish further progress in as leasing, capital we AerAware, with the ready continued demand benefit quarters constrained our our year, to the As take increased the multidimensional and from the our coming Nick to to mentioned navigate environment, our businesses that industry. Overall, our opportunities that unique segment, trajectory of we look MRO as to in we

from The Bert Instructions] first [Operator Subin question Stifel. from comes

to seems inventory now? just just us of down for whole give the market right and some more certainly there? Can Just like seen you that's increases a just It side. inventory. sort maybe sequential Nick, continued in that USM up understand color start there's we've where to assets. and going out demand for trying talk on not Can why about demand you

conversions the Some relates XXXs. our to of it on completing

So right? total I looking the you're at inventory, mean,

Yes.

being cost we those conversions, are conversions complete value. our as of inventory added those So to

kits out are We of out of Universal. are taking AerAware delivery of -- coming

to as USM. whole acquiring adding that or as sellable inventory that's take And future into inventory. to to that feedstock be we in while So a opportunistic sale turn -- we're to continues our that to we're continue leases, The timing finding assets, well. some to going for breakdown

is growing. inventory So it's to a things combination as X of the why those

all you guidance not revenue feel about think sort have I as right but maybe expectations little we I your we the So like and EBITDA. place of giving -- think been formal as a now, over are know guys about

had sit seeing what's starting half? than half? you what second you for the a the guess, half the year? mean, past half you almost, unfurl? of second sort Are change the viewpoint through broader the guess challenges of like halfway here And second in first then of with just, shaping now some to I the better see As you sort I of year, and I the up month are the is

Yes, engines. overall, I second half ability to think seeing look at good the prospects as from we we're sell

engines X at sold In fact, month alone the first good we in margins. very

we're So opportunities there. seeing

you also we're lot pickup, lease inventory including inventory, either noted is preparing a assets sales. of the overall on kind that or of As whole for

So MRO that's the contributing We've strategies assets we've also making of some component and our is that investments end which the leasing also, significant to of MRO won start overall our to into business. side at we're some add seeing that. We're the increasing starting business. And then the lastly, to of in about talked long-term improvements side on of again, portfolio, year. that our that we're contracts the one

to that to our starting improving in utilization margin profile our through. we're that get the So flow side improving of business. so our volume of labor, We're

So well. as side And noted has also, in AerSafe well. some sales that Nick as we're pickup pickup as seeing on a on remarks, his

in definitely and all are half. things in looking second half than more in favorable projection the the So the of forward first a

it. Got

Okay.

you you On seems you're testimonials and and inning first that obviously just give if. when, in not and like was more, marketing. It guys XXXX of I'll really we think, a that about product. of seems we STC that us Where it August. -- it's back in it Just have like are sort moved customer? said in one update landing the down pilot as an it this thinking sort an Can AerAware, of you interesting here outcome? You it's positive, received December, are in are I path pass like perspective, from think something an Is was so over.

for just product. now marketing months trying level to through the of I'm understand the several is sort been your So of you've process what confidence that

equipment. their mean order. -- a to large do training We're customer a It will able be to The using process. beginning dealing may certification of case much be customer, delivered been actually and won't next flight of their In to reconfigure that a started done, larger spooling it is remain of after while the simulators, longer the can the to whole that starting customers. get week, test both be X all one. think very this to don't this -- next X interested. this with will would very those know, take customer that. And doesn't larger airplanes, customer -- cetera. get X aircraft it small before it's talking like A got we've for, We've flying our if right are It seems the have different They very be large starting easiest start I since be an start and that small. large, they -- to X a I small week, are we X equipment this just customers X week, one et means it those going we

the first be So product. so will of me to we'll be it's deliver those which to order and an when predict place for able to one hard

really I'll When in you no give several months. get soon be have idea, it I'm And not It to However, enough Elbit/Universal. -- own make will inventory, could as ordered be being the we're -- kits inventory I any of XXX or that? because built could delivered. from get. that, up know. fulfill I receiving order we got answer, us months as that that just we in and of longer. of that now but I you we it commit and sure we've could And to Those are way that have we to before. hate We've to take initial giving kits kind We've product. stock, just an been produced mentioned X we've to going our got as kits kind next an

maybe there. clarification But just a

measured situation it's in this You where don't multiple think a is still it's months? think like You years?

be it's think don't I years. multiple to Correct. going

-- mean years to think years XX-year it's we day the XX as I from years out evolves the going to of to to at product the if is years to sale it's XX X will this not I XX a upgraded. going industry. It think this of to X years. will especially take X I product doesn't years, delivery is And X-year it that's go probably to think and but deliveries, the -- start least longer, be delivering,

[Operator from next Instructions] Markets. I'm The sorry, Capital question RBC Hubert Ken comes -- Herbert,

I Yes. capacity to, business sort ask new today in of of about expansions an -- the wanted run looks of call MRO MRO a you facilities? you're that But making the in first it, some with Nick, what's your of like It annual, million sort capability. your investments you're rate. is utilization on sort making footprint of ahead at $XXX-ish sort existing

I the top you? number head. my don't off the of know Do

our years now X.X reminder, of without up a available, We've we've made again, contracted utilization, customers, made. even have about the new right In new capacity you opened we new improvements a in. with as overall be gears of inroads bringing tell I'll landing that pretty will lot that a facility, gear much ago. that kind still our that was in coming facility,

and adding to our current that business. seeing bring capacity exceed on of that pneumatics other did prospects we customers of that shop, that is that going investments that even also kind we're one it the activities we up will of So type unit. At start that already We're hydraulic we our accessory can potentially at do. take other advantage would of filling

million which absolutely to the revenue up, able able have his but and $XX to stream, in overall get been remarks. staff. on we've noted we've existing being And an the the based the to Nick ability there additional gear that have being also investments successful is facilities, made, qualified not only the we grow that So

margins Yes, could you MRO I existing I as exiting think footprint $XXX those normalized, if is, layer business? alone new sort I capacity, And and of what you support? of mean, in of footprint getting numbers, million the rough sort kind the guess we're 'XX the a of ballpark be MRO looking what business at mean, EBITDA maybe just of you I'm potentially kind at fill the should

absolutely. think I

has to addition, the a Our with part on-airport to Goodyear the and very more our than MRO to location of plan, to that. that. Nick and having as double able been a position very MRO strategic good do grow noted, in And business Millington we're plan in good our overall be

will bring far obviously we customers depending overall. in that vary the actual As as that on profiles, margin

of What that's I to a lot this now, So of hard in these are kind absorbing costs say in P&L, moment. the to is kind be at bring we estimate can incremental business. our able to right of

equipment the incurring when facilities, do to already qualified facilities, facilities. sure So to make we have and to personnel, only that have talent be to comes we've expanded to facility when it the not work. technicians We're that the so have able it higher had we showcase those and costs. When mechanics the even can we comes we the people see that

is perspective in not what a EBITDA profiles from an filling only So from as margin gross we margin but those perspective, as start improve units, confident we're will well.

That's Okay. great.

question. final one Just

value just test terms potential sort what the balance at as the is you're of sort of you you've inventory look that you market few of years. at to equipment, I'm sell some at you've look the whole this get over trying eventually flight you acquired to might the and built there risk of the as last it? what and and carrying sheet in build look as you of of sort As the making acquisitions inventory risk -- value all not assets match some any market of of

USM time, basis feel be risk. we less issue don't for any or No, any don't cost of We our value value. have feel it lease or fixed sale actual whether all assets, have we look and carrying the the we equipment being assets book the with at inventory our we than held inventory,

could very we add, I cautious if capital. allocate we're Ken, Yes, when

proprietary We model. a IRR. XX% look have at We a

is we fact, like, about could and is we probably as lot we you're that's why what feedstock last last a amount exactly have on In in Nick's bought disciplined in that current what probably process couple market a more. we're million haven't win talking as which much -- XX we our in quarter which the feedstock, rate $XXX of we you comment the risk example, -- of But minds, staying and as months, in dynamics would whole X%. the always could how a bid last change, overall. inventory, value of an understanding we mean, always we the almost just had the and around to give I

because, we when our deploy and returns. our capital, lower expected investment that, we're are again, we're the with we recover okay that's sure historical, make want and to comfortable that going make than So that we to

Pete The Osterland from next question Truist Securities. from comes

on for Ciarmoli I'm Mike tonight.

I AerAware. how kits ask you're supply there. of I and ramp wondering general, And still in major if order first, how building chain just your inventory in you whether to can inventory quickly currently just wanted So was up a in? comes on have kits more many delivery

before, We built XXX have I said -- kits. we've as

of we or We using are people because capacity to kits pieces production complex we But are think and to we've the back triple And to most of our to to which other faster month, the we companies and as most maybe understand that more sets kits to way. that know start. advantage many completely would don't we we parties able that we would we we cost that -- depending right so they or could to that price is do are that better not cost-effective than We third airplane basically in there on, not a that And which month, the we'd now it working know not kits a a would would be people kit, between our do and up I've a think we out feel or for wanted we it. that at doing satisfied want do airplanes think some before, XXX the that ramp in could been have year infrastructure, producing Pete, who that have had roughly wire farm than any very an work, -- it like internal that's existing way. facility lower candidly, of on put again, we're XX capacity, harnesses, we line we it kit efficient may the way, the be. more our And that to to also cost-effective in our if and our said to efficient build do it rate people XX think on is, but cost were than it harnesses, our we take have what original of realistically a kits we XX that wire produce and we the how what because to -- probably we can. We've put double expectations. because taken cost the take

there? on wanted ask well. like I with landscape competitive for the Are then alternatives there is in look does one to the the in And order helpful. comply to That's FAA Or AerSafe AerSafe as requirement? What operators only marketplace? this option

the that incorporate removes system that new comply have it. we company which many OEM, sells kit Airbus produces AerSafe, have And a litigation or tanks, So from a think forever, That's the in nitrogen in as it also that is puts competitor fuel litigation that tanks one fuel and a the now we've that that produces aircraft foam oxygen I do, we to deliveries. kits from well in option that Boeing with But as and requirements. with comes we've for various for has the regardless, we spent competition. money company. do company been And but gone not regulatory don't defending

Nick This back remarks. to closing like I concludes session. for over conference to turn our would Finazzo question-and-answer the

this a money. better position The reap easy. time the has the do They things substantial will we this company not you in for long-term. what building, to been take today doing benefits of period given are we've both I investments of near and and And suffered financial growth. understanding discussion our we've Everyone, hope as through

Pete, create Our everyone. value success the shareholders. thoughtful our thank to and work Thank the for experienced Ken, team and continue for Bert, evening, today, is questions. Good to management growth you hard listening smart to committed and and will for of long-term and you, your company

The conference attending Thank today's presentation. has now concluded. for you

now may You disconnect.