AerSale Corporation

Good day and welcome to the ARCEL, Inc. Third Quarter 2023 Earnings Conference Call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, please press star then one. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Jackie Carlin, Vice President of Marketing and Communications. Please go ahead.

Good afternoon. I'd like to welcome everyone to AirSales' third 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 Factors 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, SEC, on March 7, 2023, 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 Investors section of the AirSail website at ir.airsail.com. With that, I'll turn the call over to Nick Finazzo.

Thank you, Jackie. 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 third quarter results improved notably over the second quarter and the prior year. In total, we reported sales of 92.5 million, an increase of 81% against third quarter 2022 sales of 51 million. This increase was largely the result of flight equipment sales in the period, which included 38.9 million of engine sales. Sequentially, sales increased as we were able to monetize the strong levels of feedstock acquired over the past 12 months, which included both engine and aircraft flight equipment sales during the period. While we're pleased to see the increased volume, third quarter results trailed our internal forecast expectations as several additional flight equipment sales slated for the third quarter are now expected to close in the fourth quarter. As we do each quarter, I would like to remind investors that our quarterly results tend to be lumpy because of the timing of flight equipment sales. Therefore, assessing full year time periods and feedstock acquisition rates are both better analytical tools to our performance than year-over-year or sequential revenue patterns. Turning to profitability, adjusted EBITDA in the third quarter was $1.9 million, compared to a loss of $0.5 million in the year-ago period. The improvement in EBITDA performance was the result of higher flight equipment sales during the period and better USM volume. At the segment level and beginning with asset management, third quarter sales were $65.1 million compared to just $20.6 million in the prior year's quarter. Higher sales compared to 2022 reflected the monetization of feedstock acquisitions, with the growth stemming from increased flight equipment and USM parts sales, partially offset by lower revenues from our leasing portfolio. In the current year, we sold seven engines and one P2F-converted 757 aircraft during the period, compared with two engines and no aircraft in a prior year. In addition to the flight equipment sales delivered in the third quarter, there are two aircraft, a highly modified 737-800 and a P2F converted 757 aircraft, we expected to deliver in the third quarter that are now expected to be delivered in the fourth quarter. Looking forward, with the aircraft and engines planned for delivery in the fourth quarter, we anticipate a solid finish to the year for flight equipment sales. with an additional 18 in the pipeline expected to close before year end. Turning to an update on the cargo market, conditions continue to be unfavorable as higher interest rates and lower air cargo demand create a dramatically different backdrop than what we experienced during and immediately following the pandemic when consumer demand for physical goods peaked. To date, we've sold eight aircraft under our 757 P2F conversion program and currently have an additional 10 aircraft in inventory waiting for delivery or conversion. Consistent with our communication last quarter, given the current end market conditions, we anticipate these will take longer to place than originally forecasted at the start of the year and expect a higher mix of aircraft will be leased instead of sold. In our USM parts business, airframe and engine parts sales nearly doubled compared to the prior year, which is the direct result of the success of our feedstock acquisition program converting to sales. Year to date, we've closed on approximately 130 million of feedstock, with a total of 200 million acquired or under contract. This compares to the first nine months of 2022, which included just 34 million of feedstock. Elevated feedstock levels drove higher sales in the third quarter. which is expected to continue in the fourth quarter and into 2024. Finally, in our leasing portfolio, we had no aircraft and seven engines on lease during the period, compared to one aircraft and 17 engines in the year-ago period. Because we're continuously monitoring the best and highest use of our flight equipment, we opportunistically sold some of these assets, which provided a higher return profile than continuing to lease. In our tech ops segment, we reported sales of 27.4 million compared to 30.4 million in the third quarter of 2022. Lower sales resulted from fewer aircraft in storage and the completion of several large customer programs at our aerostructures and landing gear facilities. This work at our landing gear shop has since been replaced by a larger long-term program with a major U.S. airline that began in the fourth quarter. At our aerostructure shop, we're onboarding new customers to fill the additional capacity made available after moving into our new building, which is almost triple the size of our current facility. Turning to engineered solutions, we are near the conclusion of the FAA approval process of our enhanced flight vision system, AeroWare. At this time, all tests have been completed and we're working through documentation review and completion of final checklist items in anticipation of issuance of the STC by the FAA. In addition, in late October we announced that we received FAA approval for a 50% visual advantage over the naked eye, which will make AeroWare the first and only product available with this level of visual advantage. We're proud of this award as it validates the primary benefit of AeroWare, offering a compelling value proposition to our customers as the system enhances safety, lowers operating costs by minimizing weather-related delays in fuel consumption, and provides associated environmental benefits by lowering carbon emissions. Turning to capital allocation, we have a healthy, almost unlevered balance sheet enabling continued funding of our acquisition programs to sustain business growth. To date, we've acquired roughly 130 million of feedstock and ended the quarter with approximately 175 million of liquidity, consisting of cash on our balance sheet and remaining revolver capacity. Further, as we continue to monetize the feedstock already acquired, we anticipate an increase in free cash flow generation, net of any additional feedstock purchases. In conclusion, our third quarter results have shown significant improvement over the previous quarter and the same period last year. Our growing feedstock availability is driving better quarterly performance and flight equipment sales. Given the success of our feedstock acquisition program in 2023, resulting in the significant volume of inventory we currently have available to convert to sales, we anticipate this trend to continue into the foreseeable future. We anticipate a strong fourth quarter as we finish the year, with flight equipment sales expected to continue their positive momentum. I would like to thank our employees for their dedication to airsail and their efforts in delivering on our commitments to all stakeholders. Now, I'll turn the call over to Martin for a closer look at the numbers. Martin?