AerSale Corporation

Good day and welcome to the AirSail Corp second quarter 2025 earnings conference call. All participants will be in the 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 then one on your telephone keypad. 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 Jacqueline Carlin, Vice President of Marketing and Communication. Please go ahead.

Good afternoon. I'd like to welcome everyone to AirSale's second quarter 2025 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 security 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, 2024, filed with the Securities and Exchange Commission, SEC, on March 11, 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 to the nearest gap 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, Jackie. 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 performed better in the second quarter, driven in part by an increasing amount of ready-to-sell USM flowing from the feedstock investments we've been making, together with several flight equipment sales. Higher sales growth translated to increased profitability, particularly as we gained leverage in our model at higher volume. In total, we reported second quarter revenue of $107.4 million, compared to $77.1 million in the year-ago period. This also underscores the potential in our model as we improve recurring revenue through added assets in the lease pool and increased MRO capacity to provide more consistent results quarter over quarter. Excluding flight equipment sales, the balance of our business grew 25% to $74 million, Again, driven by greater ready-to-sell inventory in our USM business and higher leasing revenue. Partially offset by lower tech ops revenue as we continue working to transition our heavy MRO facilities. As we note every quarter, due to the nature of our business and the impact of flight equipment sales, our revenue levels tend to be volatile quarter to quarter. and we believe our business should be evaluated based on aggregate performance over a longer period of time with a focus on feedstock acquisitions and the value our team is able to extract from those investments. Second quarter adjusted EBITDA improved to $18.3 million compared to $3.2 million in the prior year. The increase reflects stronger execution across the business, including a higher volume of flight equipment sales, improved performance in USM operations, and continued benefits from cost reduction initiatives implemented over the past year. Turning to segment performance, starting with asset management, sales increased to 76.3 million from 41.8 million last year. This change is attributed to higher flight equipment sales, which rose to 33.4 million from 17.9 million, and a rise in USM part sales, resulting from an increase in available ready-to-sell inventory. Excluding activity related to flight equipment, segment revenue increased by 79.5% to $42.8 million. This growth is attributable to the expansion of our lease pool, as well as a substantial year-over-year increase in USM sales, which nearly doubled. During the quarter, we aggressively pursued feedstock acquisitions to support our long-term growth objectives, acquiring assets totaling $27.1 million. This brings our year-to-date total to $70.5 million. We've observed a positive trend in feedstock opportunities compared to recent years, especially in airframes and widebody engines, which has been a niche market for air sales over the past decade. Conversely, the narrowbody engine market continues to exhibit intense competition, with current valuations consistently falling below our target internal rate of return benchmarks. As we progress through the remainder of the year, our ample feedstock position will continue to underpin our growth strategy. At the end of the quarter, we held 388.3 million of total inventory and flight equipment, including 11 engines available for sale or lease and another 11 engines currently undergoing repairs. Regarding our 757 passenger to freighter conversion program, we're actively marketing the last six aircraft we converted and are seeing a meaningful uptick in customer engagement. Currently, one aircraft is on lease, and discussions are ongoing with multiple parties for the remaining units. Although deal timing is uncertain, this represents the highest level of interest we've seen since the cargo market softened in 2023, and we view the momentum as a positive signal of renewed demand. In the tech ops segment, revenue decreased 11.9% year-over-year from $35.3 million to $31.1 million. largely due to reduced activity at our heavy MRO facilities after the completion of a customer program at Goodyear. During the second quarter, a portion of this capacity was filled with shorter-duration contracts while efforts continued to engage potential long-term partners. Consequently, segment revenue rose by 17.1% from the first quarter of 2025, returning to levels comparable with the second half of 2024. Long-term agreements generally require more lead time because of scheduling constraints, but offer improved predictability of future volume, which can lead to better alignment of staffing and margin performance. We're also seeing margin improvements at our Roswell facility as the unit focuses on higher margin storage and dismantlement opportunities that have helped offset the bottom line impacts of the lower revenue. I'm pleased to provide an update on our component MRO expansion projects. Construction at our aerostructures facility has been completed, and we're now in the final stages of readying our accessory shop to commence servicing pneumatics components. We anticipate these shops will soon generate additional revenue through expanded growth and capabilities, further strengthening our capacity to offer comprehensive maintenance solutions across a wider range of components. During the quarter, our Engineered Solutions Division experienced an increase in deliveries of AirSafe, our FAA-approved supplemental type certificate, which provides fuel tank flammability protection. We expect orders to continue rising over the course of the year as we approach a 2026 compliance deadline for an FAA airworthiness directive relating to fuel tank wiring. which can be satisfied by the installation of AirSafe. As of quarter end, our AirSafe backlog stood at 12.9 million, and current secured orders position us to meet our financial objectives for 2025. Turning to AeroWare, our revolutionary enhanced flight vision system, we continue to make incremental progress across product development, customer engagement, and regulatory validation. Two weeks ago, on July 18th, we were pleased to receive Transport Canada Civil Aviation Validation of our AeroWare STC, a major milestone that broadens our international market access and corroborates the safety-enhancing capabilities of the system. AeroWare remains the only enhanced flight vision system to integrate a wearable HUD with advanced infrared imaging and synthetic vision. enabling pilots to see through darkness, fog, smoke, and other reduced visibility conditions. In parallel with this regulatory process, we remain in active discussions with several commercial and government operators and have conducted in-air demonstrations for multiple potential customers using our 737 test aircraft. Product development is progressing as well, evidenced by our demonstration to the FAA of the foldable SkyLens model after a successful test flight with the agency on July 14th. Furthermore, Universal Avionics, our airware partner, has made notable progress in integrating ADS-B in functionality. This feature is currently being tested on a King Air aircraft equipped with a SkyLens head wearable display, and it will allow pilots to independently monitor the GPS broadcast positions of nearby aircraft directly on their Skylens display, without dependence on air traffic control. Although integration of ADS-B into AirAware on the 737 may take several years to receive FAA approval, we believe once it's available, it will be one of the most practical solutions on the market to provide enhanced aircraft awareness to pilots in the most dynamic vision field available. The value of this capability is underscored by aircraft navigation incidents, as we have discussed in the past, and most recently included a near miss involving a Delta flight and a B-52 military aircraft, highlighting the critical importance of enhanced situational awareness tools. As global demand for safer, more capable flight deck systems grows, AirAware is well positioned to become a standard setting solution in the enhanced flight vision system market. Overall, following an acceptable second quarter, we expect to build on this momentum through the remainder of the year, with incremental financial improvement in the second half relative to the first half. We continue to expect full-year sales growth, with EBITDA growth outpacing revenue due to expanding margins and increased operating leverage. Several key drivers are contributing to this outlook. We're well positioned with a strong base of ready-to-sell inventory, which continues to support robust USM sales and flight equipment transactions. Our lease pool has grown compared to recent years, and we anticipate further expansion as additional assets are made ready and deployed throughout the year. Our two component MRO expansion projects are now in the completion phase, and we'll soon be able to generate revenue from these new and enhanced service offerings. contributing more meaningfully in the months ahead. AirSafe backlog continues to build, with installation volume expected to increase steadily each quarter as we approach a 2026 airworthiness directive compliance deadline satisfied by the installation of AirSafe. And finally, efficiency initiatives implemented by our team are beginning to deliver meaningful benefits, and when combined with higher sales volume, we expect continued margin expansion and EBITDA growth that will exceed the pace of revenue growth. In closing, the second quarter marked a significant step forward for AirSale, highlighted by improving financial performance, expanding operational execution, and meaningful progress across our strategic initiatives. As we look to the second half of 2025, we're building on a foundation of improved feedstock access growing recurring revenue from our lease pool and MRO operations, sales traction with AirSafe, and further product development of AeroWare. With a healthy balance sheet, strong demand signals across core end markets, and increasing operating leverage, we remain confident in our ability to deliver profitable growth and long-term value for our shareholders. I want to thank our dedicated and experienced employees for their hard work.