AerSale Corporation

Greetings and welcome to ASL Inc. Second Quarter 2022 Earnings Conference Call. At this time, all participants are in 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 then zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Kirsten Gallagher. Please go ahead.

Good afternoon. I'd like to welcome everyone to AirSail's second 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 factors section of the company's annual report on Form 10-K for the year ended December 31, 2021, filed with the Securities and Exchange Commission on March 15, 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 of the AirSale website at ir.airsales.com. With that, I'll turn the call over to Nick Finazzo.

Thank you, Kristen. Good afternoon, and thank you for joining our call today. I'll begin with a brief overview of the quarter and operational updates, and I'll then turn the call over to Martin to review the numbers. We produced another record quarter for air sale, with total sales of 139.6 million, which was up 51.9% compared to the prior year, and adjusted EBITDA that was up 35.2% to 41.1 million. Notably, this higher profitability was achieved despite the absence of $8.4 million in CARES Act payroll support proceeds that were received in the prior year as a result of the pandemic. This exceptional performance was achieved primarily through the broad-based success of our Boeing 757 passenger-to-freighter conversion program, which I'll refer to as P2F. combined with an improving backdrop of commercial demand for used serviceable material, which I'll refer to as USM parts. This notwithstanding, we think it is important to remind investors that our business can and will be lumpy quarter to quarter, depending on flight equipment transactions during the period. This will be the case in 2022, as a disproportionate amount of flight equipment transactions occurred in the first half of the year. Turning to segment performance and beginning with asset management, second quarter sales were 114.5 million, which marks an increase of 90% over the prior year. We sold a total of 92.5 million of flight equipment during the period, which included three aircraft, two of which were airsail P2F converted 757s, a 747-400 freighter, and three engines. While we do expect the pace of flight equipment sales to moderate substantially in the second half based on delivery schedules, we remain positioned to continue the 757 P2F program through early 2024. Besides the six P2F conversions utilizing AirSail's Goodyear facility, we have committed to perform another 12 P2F conversions on 757s by third parties. with seven aircraft already owned by AirSail and available for conversion, and an additional four in the final stage of purchase negotiations. Upon completion of these additional 12 aircraft, AirSail will have sold, leased, or have available for sale or lease 18 P2F-converted 757 freighters. Beyond the 757 P2F program, Our feedstock pipeline has continued to markedly improve over the past several quarters, and current flight equipment purchase opportunities are the strongest we've seen in years. These are generally smaller packages of less than 10 aircraft or engines, and include platforms such as the Airbus A320, A330, A340, and 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 enable us to leverage the approximately $347 million of cash and revolver capacity to increase our USM parts feedstock and aircraft available for sale or lease. This available liquidity becomes an even stronger market differentiator in an environment where the availability of financing for some of our less capitalized competitors has become scarcer, and the increase to their cost of capital has further eroded their smaller return opportunities. In our USM parts business, airframe and engine parts sales also grew compared to the prior year, reflecting the benefit of a stronger commercial backdrop and recent feedstock acquisitions. As we look out beyond the next couple of quarters, we anticipate feedstock availability will improve further as we're able to execute on the broadening aircraft availability in the market. During the quarter, our leasing revenue also increased for General Electric CF6-80C2 engines due to strong demand from wide-body freighter operators utilizing these engines. In consideration of the current soft lease market for older passenger flight equipment, We purposely reduced our aircraft leasing portfolio down to just one 737-400 freighter aircraft, with the 747-400 freighter we previously had on lease being sold during the quarter at an exceptional price. With plenty of dry powder and utilizing our multi-dimensional value-added capabilities, we believe there will be ample opportunities to rebuild our specialized aircraft lease portfolio as the leasing market improves. As noted in the prior quarter, we own just one engine currently located in Russia and held by our Russian airline customer. Although they have not been using the engine since the Russian sanctions took effect and continue to reassure us they want to return the engine as soon as possible, it appears the political situation is stifling the process. Without certainty of whether this engine will ultimately be returned to air sale and the lack of progress on our insurance claim, we considered it prudent to record an impairment for the full book value of the engine, which was taken this quarter. In our tech ops segment, total sales were $25.1 million, which declined approximately $6.6 million compared to the prior year. Lower tech ops revenue was the result of fewer aircraft in our storage facilities, as airlines have brought these aircraft back into service, combined with the continued strategic capacity reallocation to our 757 P2F conversion program. This reallocation of resources results in a deferral of any revenue and associated margin for the work performed until the aircraft is subsequently sold, at which time the value-added benefit will appear on the asset management side of the ledger. Although this may distort the timing and true value of the P2F work we perform at our on-airport Goodyear MRO, we still receive the full benefit of the higher value created at the company level. Our sixth and final air cell converted 757 is expected to be completed by the end of the third quarter, which will open up that capacity for third-party work in the fourth quarter. Regarding AeroWare, I am pleased to announce that together with our partner Universal Avionics and Elbit Systems subsidiary, we've completed the software validation process This represents more than two years of engineering and development effort, and we're very excited to reach this important milestone. As we're nearing the commercialization phase of AeroWare, we've stepped up our marketing efforts with airline operators and have received favorable feedback across the board. We've been hearing positive reviews about the system following our many demonstration flights, with pilots frequently noting that AirAware's advanced technology is, quote, decades ahead of anything existing today, end quote. The visual clarity of our enhanced flight vision system provides a strong advantage compared to older technology head-up displays that were developed over two decades ago. Importantly, AirAware product availability could not be timelier for airline operators and other commercial air travel stakeholders, as the global airline industry struggles to meet higher passenger volume amid airport congestion and increasing weather-related delays. AirAware directly addresses and helps alleviate these important issues while improving operational safety, minimizing diversions, fuel burn, and carbon emissions. As we believe final AirAware certification will be granted by the FAA in the near term, we are investing in our ability to begin delivering AirAware to our prospective customers. To that end, in July, we ordered $33 million of airware components from Elbit Systems, subsidiary Universal Avionics, so that we can begin installations at the earliest time. In summary, at the halfway point of the year, we're in an excellent position to deliver on our full-year commitments. Our 757 P2F conversion program is on schedule, while the balance of our business continues to gain momentum as airline operators recover from the pandemic. Regarding our business development efforts, we're progressing toward commercialization of airwear and continue to actively seek feedstock opportunities with nearly $350 million of capacity ready to deploy, comprised of nearly $200 million of cash on the balance sheet and $150 million undrawn on our revolver. I want to thank all our employees and stakeholders for their support. which has allowed us to reach this record performance as we executed on our purpose-built, multidimensional, integrated, and adaptive business model. At this time, I'll turn the call over to Martin for a closer look at the numbers. Martin?