AerSale Corporation

Greetings. Welcome to the AirSell Fourth Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note, this conference is being recorded. I will now turn the conference over to your host, Christine Pagone. You may begin.

Good afternoon. I'd like to welcome everyone to AirSell's Fourth Quarter 2020 Earnings Call. Conducting the call today are Nick Panazzo, Chief Executive Officer, and Martin Garmendia, Chief Financial Officer. Before we discuss this quarter's results, we want to remind you that all statements made on this call that do not relate to matters of historical fact should be considered forward-looking statements within the meaning of the federal security laws, including statements regarding our current expectations for the business and our financial performance. These statements are neither promises nor guarantees. but involve known and unknown risks, uncertainties, and other important factors that may cause our actual results, performance, or achievements to be materially different from any future results. Factors discussed in the risk factors section of our final prospectus follows with the SEC on February 10, 2021, and our other filings with the Securities and Exchange Commission could cause actual results to differ materially, from those indicated by the forward-looking statements on this call. We'll also refer to non-GAAP measures that we view as important in assessing the performance of our business. A reconciliation of those non-GAAP metrics to the nearest GAAP metric can be found in the earnings presentations materials made available on the Investors section of the AirSale website at ir.airsale.com. With that, I'll turn the call over to Nick Spinozzo.

Thank you, Christine. Good afternoon to everyone on the line, and thank you for joining our call today. I'm pleased that today marks our first quarterly update as a public company, and I look forward to updating you each quarter on the exciting progress we're making at AirSail. Before digging into the results for the quarter and business updates, I wanted to take a few moments to familiarize new investors with AirSail. and I'll begin with three attributes about AirSail that position us to create value for our customers and deliver leading shareholder returns. First, we operate a purpose-built, fully integrated, multidimensional aviation aftermarket company that enables us to serve as a one-stop shop for our customers. This includes activities like part procurement, whole aircraft sales and leasing, MRO, FAA certifications, and aircraft storage and decommission. This allows us to keep a close pulse on the market, identify attractive asset acquisition opportunities, and deliver a higher overall value to our customers. Second, we generate attractive financial returns as a result of this integrated structure with the flexibility to pivot quickly and execute regardless of the economic backdrop. This was never more pronounced than in 2020 when the global pandemic adversely affected commercial aviation to a degree no one in the industry had ever experienced. Notwithstanding this environment, we were able to pivot quickly to high demand freighter aircraft, help our customers through our aircraft storage and decommissioning business, identify attractive long-term asset acquisition opportunities, and enter 2021 fully positioned to resume our growth trajectory. This was a truly remarkable result and demonstrates the resiliency of our business and workforce. And third, our integrated structure enables us to serve as a unique partner to airlines and original equipment manufacturers to bring new and innovative products to market in our engineered solutions business. Currently, we have three projects in our engineered solutions pipeline that include AirSafe, AirTrack, and AirAware that collectively represent a significant market opportunity for air sales. Our greatest opportunity is with AeroWare that is now complete, fully operational, and is scheduled for precertification testing by the FAA commencing March 23rd. AeroWare incorporates an advanced military-style head-wearable display, in other words, a flight vision goggle, that provides pilots with enhanced vision, enabling them to see through adverse weather conditions with an overlay of critical flight deck information. We've been developing airware over the past 18 months in partnership with Universal Avionics, a subsidiary of Israeli manufacturer Elbit Systems, to deploy existing military aircraft technology to commercial aviation. This relationship underscores the air sale value proposition. Our team successfully integrated a military application with advanced technology into a commercial platform from concept to full integration in a working Boeing 737 NG prototype aircraft. We used our engineering knowledge and capabilities with mid-life equipment to integrate the technology, conduct flight certification, and demonstration and marketing support to potential key customers. To dig into the specifics of our business, we have two primary operating units, asset management solutions and technical operations, or what we refer to as tech ops. In our asset management segment, We supply used serviceable material, or USM parts, as well as whole aircraft and engines to the marketplace, including highly customized, fully supported leases of aircraft that garner above market lease rates, as well as ready-to-install short-term engine leases, which also command a rate premium. At the end of their leases, this flight equipment becomes the feedstock for our USM parts business, providing the final revenue stream in our value extraction methodology. In our tech ops segment, we provide maintenance, repair, and overhaul, MRO services, and engineered solutions. In our MRO services divisions, we perform aircraft heavy maintenance, including passenger to freighter conversions, at our two aircraft MRO facilities in Goodyear, Arizona, and Roswell, New Mexico. Further, we overhaul airframe components, including landing gear, pneumatics, hydraulics, and composite aerostructures, at our facilities in Rio Rancho, New Mexico, Memphis, Tennessee, and Miami, Florida. In our engineered solutions division, we develop highly specialized products that comply with regulatory mandates and or enhance the safety of commercial aircraft. As previously noted, we're currently marketing three products, AirSafe and AirTrack, for which we hold supplemental type certificates, in other words, STCs, issued by the FAA, and AirAware. Our existing STCs have enjoyed strong margins, and all of our STC products will serve a customer base of over 16,000 aircraft. As we review our business results, there are a few important things to keep in mind. First, we generally do not utilize year-over-year analysis on a quarterly basis to assess our financial performance, which you'll notice throughout our commentary. The rationale for this is simple. Our asset management, acquisition, and whole asset sale businesses are a cornerstone of our success and account for large transactions at irregular intervals throughout the year. As we discuss our results, we'll make it a point to update our investors on these key transactions for both the current year and prior year periods. More importantly, we believe relevant indicators for our business performance are asset acquisitions and activities, the outlook for whole asset sales throughout the year, progress on engineered solutions STC development and contracts, and underlying performance of our MRO business. Turning to our results for 2020, we delivered full-year revenue of $208.9 million, which compares to full-year 2019 revenue of $304.2 million, with the decline in total sales stemming from the impact of COVID-19. As the year progressed, our business began to recover nicely, which led us to increase our forecasts as we started to realize higher contributions from our freight customers, strong growth in our aircraft storage and MRO business, and even some modest improvements from passenger aircraft customers. For the full year 2020, we reported adjusted EBITDA of 51.9 million, or 24.8% of sales, which compares the full year 2019 adjusted EBITDA of 56.9 million, or 18.7% of sales. As a reminder to investors, Adjusted EBITDA results in 2020 included $12.7 million of CARES Act benefits. Looking at trends in our business and beginning with asset management, sales of aircraft and engine USM parts continued to improve in the fourth quarter, which increased in each sequential quarter since the low set in the second quarter of 2020. We expect activity in these categories to continue to grow as volume across the system gradually increases back to pre-pandemic levels. Aircraft and engine leasing decreased in the fourth quarter, primarily due to the expiration of three Boeing 747 passenger aircraft leases. The engines were removed from these aircraft, and the ones in good condition are being prepared for the lease pool, with the remainder becoming feedstock for our USM parts business, as we take advantage of strong demand in this platform from freighter customers. This reduces our aircraft fleet to just four aircraft, two passenger and two freighter, both of which have been performing well. Finally, for 2020, we had only 3.1 million of whole asset sales, which occurred early in the second quarter as compared to 70.1 million in 2019. This decrease in sales was a direct result of the pandemic and represented the majority of our revenue decline as compared to the prior year. As we look ahead to 2021, we're now well positioned with cash on hand and an undrawn recently upsized $150 million credit facility to restock flight equipment for our unique style of hybrid aircraft and engine leasing. This is exemplified by our recent purchase of 24 Boeing 757s that we're marketing as freighter conversion aircraft to satisfy heightened demand in this category. The company has a signed letter intent to sell four aircraft to an international customer, which is expected to close over the next 30 to 90 days. We expect to sell the majority of our Boeing 757 fleet in 2021. To facilitate these deliveries, we expect to convert at least five of these aircraft at our Goodyear hangar over the next year, with the first converted aircraft projected to be completed in May. With five aircraft committed to conversion, we have primed the pump to meet the growing demand for Boeing 757 freighters. In our tech ops segment, we continue to experience robust demand for aircraft MRO services, and our facilities are running at our near capacity. Volume at our Goodyear and Roswell storage facilities hit record highs in 2020, which resulted from a higher number of grounded aircraft by airlines and leasing companies during the pandemic. We expect this strong volume to continue through 2021 as we benefit from a full year of storage activities at both of our dry desert storage locations, which includes reactivation work from existing customer aircraft and continued work for additional aircraft entering storage programs. Looking forward, as these aircraft are brought back into service, we expect our storage revenue to gradually decrease but be offset by reactivation revenue in our aircraft MRO facilities. Moving to our engineered solutions business, we had modest sales in 2020 due to the unprecedented number of aircraft on the ground. In the fourth quarter, we saw a pickup in demand for our AirSafe product as aircraft began repositioning to new markets. In addition, we made significant progress towards obtaining FAA certification of our airwear product, having completed over 60 flight hours with an FAA-designated engineering representative, a DER, test pilot performing our test flights, and showcasing the capabilities of this product to a potential customer. As mentioned previously, we will begin FAA test flights in less than two weeks, which is a prerequisite to the FAA issuing air sale and STC for airware. Based on feedback from airline test pilots who have flown our Boeing 737NG prototype aircraft with airware installed, we expect to receive a launch order from a potential customer this year. In summary, we're pleased with where we are positioned as we begin 2021, air sales' first full year as a public company. Demand in our aircraft MRO facilities is robust, volume is poised to steadily improve for USM parts, and the market is offering attractive feedstock opportunities. Added to that, we're enthusiastic about the prospects for our engineered solutions STCs. which we expect will be a meaningful growth contributor to our overall sales mix as this division continues to evolve. We exited 2020 with a strong balance sheet and ample financial flexibility to fund our capital allocation priorities. I want to thank all our investors, and we look forward to updating you on our progress throughout the year. Now, I'll turn the call over to Martin for a closer look at the numbers.