AerSale Corporation

Thank you for standing by. This is the conference operator. Welcome to the Airsail Corporation first quarter 2022 earnings conference call. As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. To join the question queue, you may press star then 1 on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star and zero. I would now like to turn the conference over to Kristen Gallagher, the HR Director. Please go ahead.

Good afternoon. I'd like to welcome everyone to AirSail's first quarter 2022 earnings call. Conducting the call today are Nick Finazzo, 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 securities laws, including statements regarding our current expectations for the business and our financial performance. These statements are neither promises nor guarantees, but involve known and unknown risks, uncertainties, and other important factors that may cause our actual results, performance, or achievements to be materially different from any future results. Important factors that could cause actual results to differ materially from forward-looking statements are discussed in the risk factor section of the company's annual report on Form 10-K for the year ended December 31st, 2021, filed with the Securities and Exchange Commission on March 15th, 2022, 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. 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 investor section on the AirSail website at ir.airsail.com. With that, I'll turn the call over to Nick Finazzo.

Thank you, Kristen. Good afternoon, everyone, and thank you for listening in today. I'll begin with a brief overview of the quarter, followed by operational updates and progress we're making on our key objectives. I'll then turn the call over to Martin for a detailed review of our first quarter financial results. In the first quarter of 2022, we built on the strong momentum we had exiting 2021. Revenue in the quarter was $122.8 million, up 110% compared to the prior year. Higher revenue was driven by the success of our 757 passenger to freighter conversion program, the sale of a 737 that was utilized for airwear testing, and the recovery in commercial aerospace. These gains versus the prior year were partially offset by reduced sales in our MRO business as we reallocated resources in our Goodyear facility to support the 757 freighter conversion program as we have detailed in past quarters. Turning to profitability, we reported strong revenue of $22.9 million of operating profit during the period, which compares to $12.7 million in the prior year. Adjusted EBITDA during the quarter was 29.9 million or 24.4% of total sales, setting another single quarter record compared to 16.5 million or 28.3% of sales in the prior year. Higher adjusted EBITDA resulted from the strength of our 757 program coupled with an improving commercial aviation environment. Turning to segment specifics and beginning with asset management, In the first quarter, we sold 51.9 million of flight equipment that included six aircraft and four engines in the quarter. I do want to take a moment to reiterate to investors that flight equipment sales like the 757 program are a very important part of our business and overall strategy. It is critical to our competitive advantage to fully use our end-to-end solution to acquire and ultimately direct these assets to get the highest return on investment. whether it be as whole flight equipment, leases, or feedstock to our customers. That being said, these large flight equipment sales can be lumpy and should be assessed by both the feedstock going into them and the long-term performance of these programs. I am pleased to report that we retain sufficient aircraft to continue feeding our 757 freighter conversion program through 2023, giving us good visibility in our current guidance period that Martin will elaborate on further during his remarks. Beyond the 757 program, our feedstock pipeline has markedly improved over the past several quarters, and our current pipeline of flight equipment acquisition opportunities is the strongest we have seen since 2015, which was the end of the previous aviation down cycle caused by the Great Recession. These are generally smaller packages of less than 10 aircraft or engines. and include platforms such as the A320, A330, A340, Boeing 737, 757, 767, and 777. We view this change in the market backdrop as a significant positive tailwind for our medium-term outlook, as it will allow us to leverage the approximately $322 million of cash and available revolver capacity to increase our feedstock and aircraft available for sale or lease. Within our used serviceable material or USM parts business, airframe and engine parts sales were notably higher than the prior year, as we are starting to benefit from the recent feedstock acquisitions that we made and increased demand from the commercial aviation recovery. As we look out beyond the next couple of quarters, we anticipate feedstock will improve further as we are able to execute on the broadening asset availability in the market. During the first quarter, our leasing revenue increased due to higher engine utilization, as well as additional engines on lease compared to the prior year. Leasing revenues also included recognition of deposits related to the two aircraft leases that were terminated due to the sanctions against Russia that we discussed last quarter. Currently, we have two cargo aircraft on lease and 17 engines, excuse me, 29 engines. We were able to redeploy some engines quickly, which has led to upside to our forecast following the lease terminations with airlines serving Russia. Further, we have recovered all of our flight equipment with the exception of one engine, and we continue to work with the lessee and our insurance companies to recover any potential losses associated with the detention of this engine. In our tech ops segment, total sales were $48.3 million compared to $29.2 million in the prior year. Higher sales were entirely attributable to the initial AirAware 737 test aircraft that was sold during the period for $23.9 million. This was partially offset by a decline in third-party sales as we continued the strategic reallocation of resources to intercompany activities in support of the 757 freighter conversion program. Airline demand during the quarter remains strong and in excess of our capacity during the first quarter, particularly as we continue to allocate MRO resources to our 757 conversion program. This strategic initiative was instrumental in delivering record results last year and through the first quarter of 2022. Looking forward, we have been successful in identifying several additional MRO partners to perform 757 freighter conversion freighter conversions, which will allow us to free up MRO capacity while maintaining overall 757 program profitability. This is a meaningful development as it will allow us to service commercial airline MRO demand and further grow our business beyond its existing capacity. Moving to engineered solutions, we have continued work on product development and obtaining FAA approval of AeroWare. which is our advanced technology enhanced flight vision system incorporating a military-style head-wearable display that allows pilots to see through poor weather conditions. We have developed it in partnership with Universal, a subsidiary of Elbit Systems. Our partner has indicated a completion date of software upgrades late this quarter, at which point we will be positioned for final FAA flight testing and STC certifications. Before turning the call over to Martin, I would like to touch a bit on the macro environment. On the commercial side, the market continues to firm, particularly for domestic air travel, where anticipated volume will be at or near pre-pandemic levels over the summer. On the international side, passenger demand is still down, but steadily improving. This favorable backdrop creates steady demand across air sales integrated business model. which we anticipate will drive further improvement throughout the balance of the year and into 2023. The freighter market also remains critically undersupplied, both from the lasting effects of the shift in consumer habits to e-commerce and lower system capacity from reduced freight tonnage on commercial aircraft. We have continued to invest in this end market, and our 757 conversion program is secured through at least 2023. Lastly, air sale is at its strongest against a backdrop of plentiful feedstock and attractive pricing. We have spoken for some time regarding the eventual rising tide of asset availability as airline operators assess their post-pandemic fleets. We believe we're in the early stages of this environment, and there has been a notable shift in the number of deals our team has identified during the first quarter. In the long term, air sale is excellently positioned. We operate a purpose-built, fully integrated, multidimensional, adaptive aftermarket aviation model that includes part procurement, flight equipment sales and leasing, MRO, FAA certifications, and aircraft storage and decommissioning. Our unique model enables us to closely monitor the market, capitalize on opportunities in advance of our peers, and drive internal and external value to all of our stakeholders. At this time, I'll turn the call over to Martin for a closer look at the numbers.