AerSale Corporation

and welcome to the RSAIL Inc. second quarter 2023 earnings conference call. At this time, all participants are in a listen-only mode. A brief 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. As a reminder, this conference has been recorded. It is now my pleasure to introduce our host, Kristen Gallagher, Thank you, ma'am. You may begin.

Good afternoon. I'd like to welcome everyone to AirSail's second quarter 2023 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 31, 2022, filed with the Securities and Exchange Commission on March 7, 2023, and its other filings with the SEC. These filings identify and address other important risk 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.airsale.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 provide operational updates before turning the call over to Martin to review the numbers in greater detail. Our consolidated second quarter results were behind our internal expectations, resulting primarily from current soft demand in the cargo market for our P-2F converted 757 aircraft, and extended repair times for used serviceable material, which you'll hear me refer to as USM. Total sales in the second quarter were 69.3 million, compared to the prior year of 139.6 million. This quarter included flight equipment sales of 13.3 million, compared to 92.5 million in the prior year. Aside from reduced flight equipment sales, revenue across most of the company's business units continued to grow, supported by a strong commercial environment and demand for our products and services. I would remind investors that the year-ago comparable period included record high company revenue from the sale of multiple aircraft. As we have noted on each and every earnings call, flight equipment sales are an important component of our end-to-end solution but do create meaningful quarterly volatility in sales and profitability. Further, we allocate feedstock to the business unit that can achieve the highest risk-adjusted rates of return, whether that be through whole assets, leases, or USM parts. Therefore, the sales channel can produce, often, additional volatility quarter to quarter. With that being said, I'm pleased to report that our acquisition of feedstock through the first half of 2023 has remained robust and on track with our expectations, having acquired or been awarded over $200 million of feedstock compared to just $50 million in 2022. We've been using our balance sheet to acquire this favorably priced feedstock, and the level of inventory on hand to fuel future profitability now stands at over $300 million, a record high. This is an important leading indicator of our future performance, giving us confidence that the second quarter of 2023 should be the low point of this recent cycle. Turning to profitability, adjusted EBITDA in the second quarter of 2023 was a loss of $540,000 compared to a gain of $41.1 million in the prior year period. The lower adjusted EBITDA margin observed in the period resulted from fewer aircraft sales coupled with the expense of maintaining the strength of our multi-dimensional fully integrated infrastructure at a high readiness level to support future growth. At the segment level and beginning with asset management, second quarter sales were 37.1 million compared to 114.5 million in the prior year period, resulting from lower flight equipment sales and no aircraft on lease. In the current quarter, we sold a total of four engines and no aircraft, compared to three engines and three aircraft in the second quarter of 2022. Q2 of 2022 included two high-value P2F converted 757s and one 747 freighter. which set a company record for a single aircraft sale in terms of both revenue and total net dollar margin. We've continued to work through P2F conversions of our 757s, and our revised 2023 outlook calls for three sales and three leases by year-end, compared to our prior forecast, which included the sale of six P2F-converted 757s and three leases. This reduction to our full-year outlook is the result of a significant softening in the cargo market following the pandemic surge experienced over the past few years. Cargo operators currently suffering from reduced demand and an associated lack of liquidity has tempered the sale of our P2F-converted 757s and will likely result in a heavier mix of leases versus sales in the near term. Together, these factors led us to reduce our full year estimates for flight equipment sales on the 757 program. While this changes our forecast for 2023, it is important to underscore that we still see ample opportunity to monetize this inventory through alternative sales channels at target margins consistent with those channels. In our USM parts business, airframe and engine parts sales both grew compared to the prior year. reflecting our heavy investment in USM being repaired regardless of the extended repair cycle times. The ability to use our balance sheet to offset supply chain delays is now paying off, as over the past six to nine months, the steady stream of USM flowing through the repair process is now yielding ready, high-demand USM, which in many cases has been pre-sold while still in the repair cycle. In the second quarter of 2023, we had no aircraft leasing revenue as we fully wound down our aircraft lease portfolio in response to market dynamics. In the prior year, we had $2.1 million of revenue from aircraft on lease, primarily related to a 737 and 747 freighter that have since been sold. Comparing the sales mix of our products over time will yield varying results, as we're agnostic to the type of monetization strategy we utilize. in our asset management business. We steadfastly seek to maximize return on investment on feedstock through the highest return in current market conditions between USM parts, leasing, or the sale of whole assets. Turning to our tech ops segment, we reported second quarter 2023 sales of $32.3 million which was up 28.7% compared to second quarter 2022 sales of $25.1 million. Higher sales resulted from strong demand for services at all our MROs, with additional on-airport MRO capacity at our Goodyear, Arizona facility made available by outsourcing the 757 P2F program, together with increased utilization at all facilities. As mentioned earlier, we're seeing a favorable overall operating backdrop, and we anticipate a meaningful step up in operating tempo as our investment in feedstock works its way through the broader system. Turning to engineered solutions, we continue to work towards final FAA approval of our enhanced flight vision system, AeroWare. If you recall during our last quarter's earning call, final certification of the system will follow the completion of five sets of flight tests, proving different aspects of the system's performance and reliability. Although we successfully passed the first four, several imaging issues were identified that required minor modifications to both software and setup procedures to ensure the images projected onto our head wearable displays align within the limits prescribed by the FAA. Identifying these issues and fine-tuning the system is part of the certification process and the reason for extensive flight testing. I'm pleased to report that we've made all the minor adjustments and modifications identified during flight testing, resulting in improved performance of the system and our readiness to demonstrate these adjustments to the FAA. Earlier this week, the FAA notified us that they have accepted these modifications and requested an in-person demonstration of the changes we made. This demonstration has tentatively been scheduled for the weeks commencing August 14th or 20th, subject to final paperwork and weather. Immediately following the demonstration, the fifth and final set of flight tests will commence and is expected to take approximately one week to complete. Assuming the successful completion of the final flight tests, the FAA typically issues an STC within 30 days. Turning to capital allocation, we remain in excellent financial condition to continue to fund our feedstock program and sustain business growth. In addition to over $200 million in feedstock closed under contract or LOI year to date, we ended the quarter with $34.6 million in cash and an undrawn $180 million revolver, which was recently upsized and expandable to $200 million, providing us with total current liquidity of $215 million. Further, as we begin to monetize the feedstock already acquired and coming available post-repair, This will enable further expansion of our acquisition strategy. Besides the acquisition of feedstock, we've been very active in pursuing M&A opportunities. While it's too soon to share any specifics, we're targeting capability-enhancing acquisitions that either complement our end-to-end solution, enhance our footprint, or increase our capabilities for engineered solutions. As is the case with feedstock acquisitions, we're extremely disciplined in our approach and will not overpay for an asset that has little post-closing synergy. To conclude, despite the disappointing short-term financial results and its impact on 2023's full-year outlook, the fundamentals of our multidimensional and fully integrated business model bestows AirSale with a unique and unmatched platform to achieve significant growth in sales and profitability in the backdrop of a favorable and improving aftermarket. We're encouraged by the pace of our asset acquisition program, which combined with the near-term approval of airwear should mark the second quarter as the low point in our future results. We've navigated through some pretty turbulent headwinds so far this year, but the investments we've been making have provided us with a tailwind as we move into the second half of the year and into 2024. I would like to thank all our employees for their dedication to air sales. and for their efforts in delivering on our commitments to all our stakeholders. Now, I'll turn the call over to Martin for a closer look at the numbers.