AerSale Corporation

the Aercel Inc. 4th Quarter 2024 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, you may press star and then one on your touch-tone phones. To withdraw your questions, you may press star and two. Please also note today's event is being recorded. At this time, I'd like to turn the floor over to Christine Padron, Vice President of Compliance. Please go ahead.

Good afternoon. I'd like to welcome everyone to Airtel's fourth quarter and full year 2024 earnings call. Conducting the call today are Nick Fianazzo, 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 31st, 2024, filed with the Securities and Exchange Commission, SEC, to be filed on March 10th, 2025, 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, the nearest GAAP metric, can be found in the earnings presentation materials made available on the investor's section of the AirSale website at ir.airsale.com. With that, I'll turn the call over to Nick Finozzo.

Thank you, Christine. Good afternoon, and thank you for joining our call today. I'll begin with a brief overview of the quarter, then provide operational updates before turning the call over to Martin to review the numbers in greater detail. We concluded the year positively with fourth quarter revenue amounting to $94.7 million, which was slightly higher than the previous year, even with a $16.4 million reduction in whole asset sales compared to 2023. When excluding whole asset sales, which can be volatile on a quarterly basis, our fourth quarter sales increased by 35.5%. This growth was evident across USM, leasing, and sales of our engineered solutions product, AirSafe. Increased revenue boosted profitability, with adjusted EBITDA up 118% to $13.1 million. Operational performance improved in 2024 due to strategic initiatives such as deploying capital to cost-effective feedstock, expanding our lease pool to stabilize revenue, monetizing our remaining 757 assets, and growing our MRO capabilities amid strong demand. This strategy is gaining momentum and is reflected in our results. For the full year of 2024, we reported revenue of $345.1 million, representing an increase of 3.2% compared to 2023. Excluding whole asset sales, Revenue for the full year increased by 18.7%, reflecting stronger USM volume, robust demand for MRO services, and an expanded lease pool. Full year adjusted EBITDA rose to $33.4 million from $12.3 million last year. This increase was due to higher volume, a favorable sales mix, and better cost controls, although it was partially offset by lower whole asset sales. In asset management, sales fell by about 1% year-over-year to $64 million due to fewer whole asset sales. Excluding whole assets, revenue rose by 91.7%, driven by strong USM engine part sales and a larger lease pool. For the full year, sales remained flat at $215 million. Excluding whole assets, segment revenue increased by 34% to $105.7 million, thanks to better feedstock availability in the USM business and an expanded lease pool. We remind investors quarterly that due to whole asset sales, our revenue can be volatile. We believe our business should be evaluated based on long-term performance, focusing on feedstock acquisitions and the value our team is able to extract from these investments. We acquired 18.4 million of feedstock in Q4 and 61.7 million for the full year. Despite a competitive market, our multi-dimensional, fully integrated value extraction approach led to a 17.2% win rate in Q4, surpassing our long-term average of 10%. We remain disciplined in acquisitions, and IRR targets. Additionally, our strong finish in feedstock acquisitions in 2023 has provided ample inventory for 2025, offering us extra flexibility. We anticipate future opportunities similar to this quarter that will help us meet our financial goals. Deal pacing may be uneven due to tight feedstock conditions, likely persisting until OEM production and deliveries enable retirement of older aircraft by airlines. In our 757 passenger to freighter conversion program, end market demand increased in the fourth quarter with an uptick in bidding activity leading to the leasing of one aircraft. This is the first transaction for the 757 program since late 2023, reflecting a steady improvement in the end market over the past few quarters. The quarter concluded with six 757s remaining from the conversion program, and discussions continue with multiple potential customers. Turning to tech ops, revenue rose 3.1% to $30.7 million in Q4, driven by strong commercial demand for MRO and increased air-safe unit sales ahead of the 2026 FAA compliance deadline for fuel tank protection systems. This was partially offset by lower part sales in our MRO units. For the full year, our tech ops segment saw a revenue increase of 8.6%, reaching $129.6 million. This growth was primarily driven by heightened demand for MRO services across our system, along with a robust increase in sales of air safes. At our Goodyear facility, we completed a contract with a major commercial airline which has opened up additional capacity at the site. Demand for MRO services in the end market remains robust, and we're focusing on securing long-term, predictable contracts that align our staffing levels with anticipated volume. These contracts typically take longer to initiate and finalize, especially considering the maintenance planning timelines involved with larger airlines. Consequently, we expect to see reduced volume at Goodyear in the first half of 2025 as we work to bring in new long-term agreements. This strategy will also impact the ramp-up at our Millington facility, as both locations provide complementary services. By maintaining lower staffing levels in Millington, we can effectively manage resources while building volume at Goodyear and securing customers who prefer Millington as a maintenance location. We made progress on our facility expansion projects in the fourth quarter and into early 2025. However, continued construction delays at our pneumatics and Miami Aerostructures facilities have pushed the opening dates to the second quarter of 2025. As these facilities become operational, we anticipate incremental revenue growth each quarter. with a potential to achieve $50 million in additional annualized revenue at full capacity. In our engineered solutions business, we increased the backlog in the fourth quarter for airsafe as we approached the 2026 deadline to comply with an FAA airworthiness directive concerning aircraft fuel quantity indication systems. At the end of the quarter, our backlog totaled $14 million. We anticipate that quarterly revenue from this program will grow as we near the deadline and aircraft come in for routine maintenance. Regarding our revolutionary enhanced flight vision system, AeroAir, we have continued to market the product and hosted two new customer demonstration flights since our last earnings call. Customer interest is ongoing, although no customer orders have been secured at this time. As commercial safety has gained more attention in recent months, It highlights the potential use case of the system. The FAA faces challenges in maintaining a high level of safety due to increasing congestion in the skies and airports, limited availability of experienced candidates for air traffic control positions, and outdated systems restricting capacity. These factors underscore the urgency of enhanced flight safety and airworthiness. aims to address and simplify many of these issues. Additionally, while working with potential customers, we have improved the system by adding new features and indicators requested by airlines. This direct feedback loop has significantly enhanced the product, which is anticipated to support its long-term success. Next, I would like to provide an update on our cash position and the status of our insurance claim. We ended the quarter with $4.7 million in cash and total debt of $41 million. During the year, we generated $11.2 million in free cash flow, which included a payment of $30.9 million in insurance proceeds related to the Roswell fire previously disclosed. As noted in our 8K on January 8, this was a payment made toward the claim while the insurers continue their review process. Based on this, we have recorded the amounts received as a liability until the claim is fully adjusted. We will update investors on the conclusion of this matter at the earliest opportunity. Before I hand the call over to Martin for a detailed analysis of the numbers, I would like to provide an overview of our goals for 2025 and discuss some key drivers for the coming year. Our primary focus will be on expanding growth opportunities and converting our inventory into cash. The main contributors to our top line in 2025 will include expanding our lease pool, which saw significant progress in 2024, ending the year with 17 engines and one 757 freighter aircraft on lease. This revenue stream is expected to recur and grow as we add more assets to the lease pool. Second, monetizing our remaining 757 freighter aircraft. We have successfully leased one in the fourth quarter, and have six additional aircraft available. These assets are highly attractive due to their recent conversion and servicing, low flight hours, and are amongst the youngest of the 757 fleet converted to freighters. Third, generating additional MRO revenue from our facility expansions and the growth of our customer base at our Goodyear facility as the year progresses. And fourth, anticipating strong performance for AirSafe in 2025 and 2026 as we assist customers in achieving AD compliance ahead of the November 2026 deadline. We're improving our margin profile with an enhanced efficiency program at Airsail, aiming to optimize operations. We streamlined workflow and facility scheduling, opening spare capacity to increase profitability. We examined costs against current revenue expectations. leading to a reduction in headcount. Our efficiency program is expected to save $10.4 million annually, accumulating throughout the year based on demand. This is in addition to the $10 million saved in 2024 through increased efficiency. In summary, we're starting the year with a stronger foundation, multiple revenue streams, and an optimized cost structure. Taken together, We expect 2025 to be a growth year for air sale on both the top and bottom line. Performance should improve incrementally, excluding any impact from whole asset sales, as new capacity comes online and efficiency programs flow through to the bottom line. On balance, we're entering 2025 on a much stronger foundation with multiple growing revenue streams and an optimized cost structure. I want to thank our dedicated employees for their hard work and our investors for their ongoing support. We look forward to providing you with updates on our progress. Now, I'll turn the call over to Martin for a closer look at the numbers. Martin?