Willis Lease Finance Corporation

day and welcome to the Willis Lease Finance Corporation third quarter 2025 earnings call. Today's call is being recorded. We would like to remind you that during this conference call, management will be making forward-looking statements, including statements regarding our expectations related to financial guidance, outlook for the company, and our expected investment and growth initiatives. Please note these forward-looking statements are based on current expectations and assumptions of which are subject to risks and uncertainties. These statements reflect WLFC's views only as of today. They should not be relied upon as representative of views as any subsequent date, and WLFC undertakes no obligation to revise or publicly release the results of any revision to these forward-looking statements in light of new information or future events. These statements are subject to a variety of risks and uncertainties that could cause actual results to differ materially from expectations. For further discussion of the material risks and other important factors that could affect WLFC's financial results, please refer to its filings with the SEC, including, without limitation, WLFC's most recent quarterly report on Form 10Q, annual report on Form 10K, and other periodic reports. which are available on the Investor Relations section of WLFC's website at https://www.wlfc.global/.investor-relations. At this time, I'd like to turn the call over to Austin Willis, CEO of Willis Lease Finance Corporation. Please go ahead.

Thank you, Operator. And thank you all for joining us today to discuss Willis Lease Finance Corporation's third quarter 2025 financial results. On our call today, I'm joined by Scott Flaherty, our Chief Financial Officer. In the third quarter, WLSC continued our trend of strong financial performance. We delivered quarterly revenue of $183.4 million. a 25.4% increase year-over-year, reflecting sustained demand for our core leasing business and a strengthening aviation market as airlines continue to rely upon our leasing, parts and modules, and maintenance services to minimize costly, time-consuming engine shop visits. During the third quarter, WLSC purchased 16 engines and six aircraft for a lease portfolio. totaling approximately 136.4 million. This includes 12 engines from Air India Express. This expansion of our second constant thrust with Air India Group further demonstrates the success and value we have achieved for them as a customer. We also purchased 6-8-400 aircraft from Porter Aircraft Leasing Corp. and four PW1524G engines from RTX Corporation. Our steady performance underscores the strong market we're in and how our platform and portfolio are well positioned to return capital to our shareholders. We are declaring our seventh consecutive quarterly dividend and we are increasing it to 40 cents per share, symbolic of our ongoing confidence in the strength of our business. Taking a step back, I'd like to revisit the fundamentals of our business. 2025 has been an unusual year in that there have been multiple one-time events. Q1 was impacted by expenses related to our SAF project. The sale of our consulting business to our joint venture impacted our revenue in Q2. But the third quarter was indicative of the strength of our leasing business without the noise. A testament to that strength is the record leasing revenues produced in the third quarter, where leasing, maintenance reserve, and interest revenue totaled $156 million, a 32% increase from the same quarter in 2024. At our core, we provide engines and services to our customers to address planning, financing, and maintenance needs. Demand for our engines remains robust, and is evidenced by our average third-quarter utilization of approximately 86% and our lease rental factor of over 1%. Our engine shops continue to operate near capacity with the biggest limiting factor being engine testing capability, which we are addressing through our engine test cell development in Florida, Willis Global Engine Testing, just down the road from Pratt & Whitney. As the cost of engine shop visits and CFM56s continue to escalate. We are seeing more airlines considering shop visit avoidance strategies. I think this trend will accelerate as the OEMs begin to provide greater clarity on new aircraft delivery dates, giving the airlines more confidence in timing their fleet transitions. During the quarter, we also opened our new aircraft maintenance hangars in Teesside. These additional lines will provide us the scale necessary to offer competitive products to airlines, and our new hangar space is already fully booked through the winter season. Before I hand the call over to Scott to provide more detail on our financial results, I want to briefly welcome Pascal Takano to our team as Senior Vice President of Aircraft Leasing and Trading. Pascal is an industry veteran with experience in services, aircraft leasing, and most recently, at an airline operator. Our vision is to be a premier partner in aviation propulsion, helping our customers connect to the world through sustainable flight. The next logical step for us to becoming the best partner for airlines is to grow our aircraft leasing capability, where we can add value to our customers through engines and services. Pascal bolsters our intellectual capability on the airframe side to help take our existing aircraft leasing business to the next level. As we near the end of 2025, we believe that we continue to be well-positioned to fulfill customers' increasing needs for lease engines as well as our own growth as we continue to see good opportunities to deploy capital thanks to our flywheel business model. And with that, I'll hand it over to Scott Flaherty, our CFO, to discuss our financial performance in greater depth.

Thank you, Austin, and good morning all. Q3 2025 was another quarter of solid performance for Willis Lease as the business produced record core quarterly lease rent revenues of 76.6 million, record maintenance reserve revenue of 76.1 million, 16.1 million of gain on sale of leased equipment, continuing to highlight the unrecognized value of our lease portfolio. 43.2 million of earnings before tax, or EBT, for the quarter up 25% from the comparable period in 2024, and 22.9 million of net income attributable to common shareholders for the quarter, all while continuing to develop and vertically integrate our services platform in order to enhance our customer-focused leasing solution and experience. Walking through the P&L, As it relates to the top line, core lease rent revenue for the quarter was $76.6 million, up 17.9% from the prior comparable period, and interest revenue, which reflects interest income on long-term loan-like financing, was $3.4 million. The relative growth we see from the comparable quarter in 2024 was driven in part by an increase in our equipment held for operating lease, which sits at $2.70 billion as of September 30th 2025, but more so by our average portfolio utilization, which ticked up to 86.0% for the quarter from 82.9% from the comparable period in 2024. Our total owned portfolio is reflected on our balance sheet as equipment held for operating lease, maintenance rights, notes receivable, and investments in sales-type leases, which aggregate to $2.89 billion. Average lease rate factors for on-lease operating lease assets in the portfolio were in line with the comparable period of 2024 at 1.04% and slightly up sequentially from the prior quarter. Maintenance reserve revenues for the quarter was 76.1 million, up 26.3 million, or 52.8% from the prior comparable period. As you dissect these numbers, you can see that short-term maintenance reserve revenues associated with the cyclical and hourly usage of our engines came in at $46.6 million, negligibly down from $48.5 million in the comparable period of 2024, continuing to reflect the high level of asset usage by our customer base, which is represented in monthly, hourly, and cyclical related billings. And long-term maintenance revenues generally associated with the release of maintenance reserve liabilities or end-of-lease payments came in at $29.5 million compared to $1.2 million in the comparable prior period. Spare parts and equipment sales through our WASI business to third parties was $5.4 million in the third quarter compared to $10.9 million in the prior comparable period. This downtick in revenues is reflective of the fluctuations we see in spare parts sales as well as the fact that in Q3 2025 there were no discrete equipment sales, and there were 1.0 million of such sales in the comparable prior year period. Q3 margins in spare parts and equipment sales were a negative 1.3 million and not typical of this segment due to a larger scrap expense. During the quarter and not reflected in the consolidated P&L were sales to our largest customer, Willis Lease, which demonstrates the value of our vertical integration efforts. WASI provides valuable feedstock supporting both the Willis and our customers' fleets. The recycling of these spare parts often occurs at one of our two engine MRO facilities, which are located in Coconut Creek, Florida, and Bridge End, Wales. Gain on sale of lease equipment, a net revenue metric was $16.1 million in the third quarter, up $6.6 million, or 69.5% from the comparable period. This gain was associated with gross sales of $73.7 million, less economic closing adjustments. Included in this gain was the sale of 10 engines, one airframe, and other parts and equipment from the lease portfolio. The implicit margin on these sales was 21.9% and is supportive of our view that there is substantial unrecognized value in our company's lease portfolio. Our trading efforts allow us to recycle capital for growth and maintain portfolio relevance. Maintenance services revenue, which represents our engine and aircraft storage and repair services, and revenues related to the management of fixed base operator services decreased by 2.3 million to 3.6 million in the third quarter of 2025. 56% or 1.3 million of this reduction, relative to the comparable period, was related to the sale of our engine consulting business to our 50% owned joint venture and we therefore did not directly recognize such revenues in the current period. Willis Lease, through our 50% investment in our joint venture Willis Mitsui, still enjoys and benefits from such services. Gross margins were negative 1.5 million, as we are still in the build-out stage of our aircraft line and base maintenance business. On the expense side of the equation, Depreciation and amortization of $28.7 million in Q3 increased by $5.0 million as compared to the prior year. Growth and depreciation was primarily attributed to portfolio growth and new off-lease assets going on initial lease, which starts their depreciation cycle through the P&L. To a lesser extent, accelerated depreciation, which is reviewed on an annual basis, also contributed to the increase in depreciation. Write-down of equipment was $10.2 million for the quarter, representing impairment on eight engines, six of which were moved to help for sale. In-period write-downs generally reflect older and unserviceable engines being positioned for monetization rather than a full performance restoration shop visit. GNA was $49.2 million in the third quarter, up $9.2 million compared to $40.0 million in the comparable period in 2024. Increases in the overall G&A spend were mainly related to a $3.5 million increase in consultant fees influenced by our sustainable aviation fuel efforts relative to the comparable period in 2024 and $2.8 million of increased personnel costs, including $1.6 million of incentive compensation, which is derivative of business performance, and $0.9 million of share-based compensation expense. Technical expense, which consists of non-capitalized repairs, engine thrust rental fees, outsourced technical support services, sublease engine rental expense, engine storage and freight costs, increased by $3.2 million to $8.4 million in the third quarter compared to $5.2 million in the prior year period. This increase was primarily due to an increased level of engine repair activity as the portfolio increases in size and utilization. Net finance costs were up 9.3 million to 37.1 million in the third quarter, compared to 27.8 million in the comparable period in 2024. The increase in costs was primarily related to an increase in indebtedness, as total debt obligations increased from $1.99 billion at September 30th 2024 to $2.24 billion at September 30, 2025. And indebtedness throughout the third quarter was temporarily inflated due to our late Q2 West 8 financing, which had a delayed pay down of refinance debt, which is typical characteristic of this type of financing. $3.0 million of the increase was non-cash in nature and related to the early pay down of indebtedness of our West 4 and West 7 transactions. Another $3 million was related to the contractual unwind of interest rate swap transactions on the back end of warehouse facility reductions associated with our late Q2 West 8 ABS capital raise. Offsetting the increase was a $3 million increase in interest income driven by the larger restricted cash balances over the last quarter associated with our West 8 ABS financing. Income from operations was $38 million, up 12.8% from the comparable prior period. The company also picked up $5.2 million in ratable earnings from our 50% ownership interest in our Willis-Mitsui and Casick-Willis joint ventures. EBT for the quarter was $43.2 million, up 25.4% from the comparable period in 2024. Income tax expense was $18.9 million, an ETR of 43.7%. The company's ETR differed from the 21% federal statutory rate, primarily due to Section 162M compensation treatment and recent tax law changes. The company's favorable tax position provides a significant cash tax shield for our business. The company produced $22.9 million of net income attributable to common shareholders, which factors in gap taxes and the cost of our preferred equity. Diluted weighted average income per share was $3.25. Net cash provided by operating activities was $209.1 million through the third quarter of 2025, as compared to $216.4 million in the comparable period of 2024. The 7.4 million or 3.4% decrease in operating cash flows was primarily driven by a 23.2 million decrease in payments on sales-type leases, a period-over-period 28.1 million decrease in cash flow from changes in accounts receivable, and a period-over-period 24.0 million decrease in cash flows from changes in accounts payable and accrued expenses, partially offsetting the decreases was a period-over-period 52.1 million increase in cash flows from changes in inventory. Cash flows used in investing activities were 108.2 million for the nine months ended September 30, 2025, and primarily reflected 310 million for the purchase of equipment held for operating lease, partially offset by proceeds from sale of equipment, net of the selling expenses of 194.3 million. Cash flows used in investing activities were $455 million for the nine months ended September 30, 2024. On a year-to-date basis, cash flows from financing activities were a net $62.4 million use of proceeds as compared to $175.6 million source of proceeds in the comparable period of 2024 as the company was in a net pay down position of debt for the quarter given the strong cash flow characteristics of the business. On the financing and capital structure side of the business, during the quarter, the company unwound several swap positions for contractual requirements under its warehouse facility. At quarter end, 89% of our indebtedness was fixed rate, and our weighted average cost of debt was 5.11%. We amended and extended our $500 million warehouse facility to provide the company with more favorable asset advance rates, reduced borrowing costs and extensions of the commitment period and final repayment date to May 3, 2027 and May 3, 2030, respectively. Subsequent to quarter end, we paid off our West 4 ABS financing. The company continues to assess the broader capital markets to lower our cost of capital, spread refinance risk, and diversify our capital sources. In August, we paid our fifth consecutive regular quarterly dividend of 25 cents per share. Subsequent to quarter end, we declared our sixth consecutive regular quarterly dividend at an increased 40 cents per share rate, which is expected to be paid on November 26, 2025 to stockholders of record at the close of business on November 17, 2025. We believe that our ability to pay an increased recurring dividend speaks to the health of the business and provides our shareholders with a moderate current cash yield on their investment, while not degrading the strong cash flow characteristic and equity growth of the business, which supports our overall growth. With respect to leverage, as defined as total debt obligations, net of cash and restricted cash to equity, inclusive of preferred stock, our leverage ticked lower to 2.90 times as compared to 3.48 times at year-end 2024. The flexibility of our capital structure, our liquidity due to our $1 billion credit facility and $500 million warehouse facility, as well as our current leverage profile, provides us the flexibility to quickly and opportunistically access the market as we look to continue to build our lease portfolio and provide the best and most creative solutions to our customers. With that, I will now open the call to questions. Operator?