AerSale Corporation Price & Performance (ASLE)

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 sectors section of the Aerso website at ir.aericil.com. With that, I'll turn the call over to Nick Finazo.

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 dollars which was slightly higher than the previous year even with a $16,400,000 reduction 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 [indiscernible] Increased revenue boosted profitability with adjusted EBITDA up 118% to $13,100,000 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 seven fifty seven 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 345,100,000.0 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 33,400,000.0 from $12,300,000 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 $64,000,000 due to fewer whole asset sales.

Excluding whole assets, revenue rose by 91.7% driven by strong USM engine parts sales and a larger lease pool. For the full year, sales remained flat at $215,000,000 Excluding whole assets, segment revenue increased by 34% to $105,700,000 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 We acquired $18,400,000 of FEET's in Q4 and $61,700,000 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 destock 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 seven fifty seven 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 seven fifty seven program since late twenty twenty three. 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 TechOps, revenue rose 3.1% to $30,700,000 in Q4, driven by strong commercial demand for MRO, and increased AirSafe unit sales, ahead of the 2026 FAA compliance deadlines for fuel tank protection systems. This was partially offset by lower parts sales in our MRO units.

For the full year, our TechOps segment saw a revenue increase of 8.6% reaching $129,600,000 This growth was primarily driven by heightened demand for MRO services across our system, along with a robust increase in sales of AirSafe. 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 twenty twenty five 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 sample 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 ability on our facility expansion projects in the fourth quarter and into early twenty twenty five.

However, continued construction delays at our Pneumatic and Miami Aerostructures facilities have pushed the opening dates to the second quarter of twenty twenty five. As these facilities become operational, we anticipate incremental revenue growth Each quarter, with a potential to achieve $50,000,000 in additional in additional annualized revenue at full capacity. In our Engineered Solutions business, we increased the backlog in the fourth quarter for AirSafe, as we approach 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 14,000,000 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 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 challenging 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 Airwear 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, would like to provide an update on our cash position and the status of our insurance claim. We ended the quarter with $4,700,000 in cash and total debt of $41,000,000 During the year, we generated $11,200,000 in free cash flow which included a payment of 30,900,000.0 in insurance proceeds related to the Roswell fire previously disclosed. As noted in our eight ks 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 seven fifty seven 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 seven fifty seven 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 seven fifty seven 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 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 $10,400,000 annually, accumulating throughout the year This is in addition to the $10,000,000 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 AirSale on both the top and bottom line. Performance should improve incrementally ex 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. A closer look at the numbers.

Martin? Thanks, Nick. Our fourth quarter revenue was $94,700,000 which included $31,000,000 in flight equipment sales consisting of six engines.

Revenue in the fourth quarter of twenty twenty three was $94,400,000 and included $47,400,000 of flight equipment sales, consisting of five engines and one P2F converted Boeing seven fifty seven aircraft.

As we point out during all of our earnings calls, flight equipment sales will significantly vary from quarter to quarter. And we believe monitoring our progress based on asset purchases and sales over the long term, is a more appropriate measure of our progress. Fourth quarter gross margin was 31.4% compared to 25.9% in the fourth quarter of twenty twenty three. Primarily driven by sales mix that included higher margin engine leasing and flight equipment sales. Selling, general and administrative expenses were $24,800,000 dollars in the fourth quarter of twenty twenty four, which included $1,200,000 of non cash equity based compensation expenses. Selling, general and administrative expenses were $25,500,000 in the fourth quarter of twenty twenty three and included $3,100,000 of non cash equity based compensation expenses. The decrease in selling, general and administrative expenses were primarily driven by the lower payroll related expenses during the quarter. Fourth quarter income from operations was 4,900,000.0 compared to a loss from operations of 1,100,000.0 in the fourth quarter of twenty twenty three.

Net income was $2,700,000 in the fourth quarter compared to a net loss of $2,700,000 in the fourth quarter of twenty twenty three. Adjusted for non cash equity based compensation mark to market adjustment to the private warrant liability, facility relocation costs inventory reserves, restructuring costs and gain on the insurance proceeds Adjusted net income was $4,800,000 in the fourth quarter of twenty twenty four. Adjusted for the same items, the fourth quarter of twenty twenty three had an adjusted net loss of $100,000 Fourth quarter diluted earnings per share was $0.05 compared to diluted loss per share of $0.08 in the fourth quarter of twenty twenty three. Excluding the adjustments mentioned above, fourth quarter adjusted diluted earnings per share was $0.09 compared to adjusted diluted loss per share of $0.02 for the fourth quarter of twenty twenty three.

Adjusted EBITDA was 13,000,000 in the fourth quarter of twenty twenty four, compared to $6,000,000 in the prior year period. The growth in adjusted EBITDA was a result of higher sales volume during the period and lower expenses. Next, in terms of our cash flow metrics, year to date cash provided in operating activities was $11,200,000 resulting from the benefit of insurance proceeds received related to the Rodwall fire which occurred in April twenty twenty four. These amounts partially offset cash utilized for growth investments, of over 78,000,000 in newly acquired feedstock and make ready costs to prepare inventory for sale. These investments should drive our revenue and earnings going forward. This is an improvement for the quarter of $43,600,000 in cash gen generated from operations. As we begin to monetize previously purchased feedstock. We ended the quarter with a substantial balance sheet with $142,800,000 of liquidity consisting of $4,700,000 in cash, and available capacity of $138,100,000 on our $180,000,000 revolving credit facility. Which can be expanded to $200,000,000 Looking forward to 2025, we are well positioned to capitalize on the favorable market conditions we're seeing. As Nick mentioned, expect to start from a lower base in the first quarter of twenty twenty five relative to the fourth quarter and step up incrementally as new revenue streams come online and cost reduction programs gain traction.

In total for the year, we expect to grow both the top and bottom line relative to 2024. We are supported by a strong commercial environment robust activity in our Asset Management segment and multiple expansion projects which will increase our capacity, and capabilities. In addition, efficiency changes instituted at the end of the fourth quarter and through the first quarter we'll also start to improve our profitability in 2025. With that operator, we are ready to take questions.

Momentarily to assemble the roster. Our first question comes from Michael, Ciarmoli from Truist. Please go ahead with your question.

Hey, good evening guys. Thanks for taking the questions. Nick, I think just on Arrowware, you mentioned some enhancements. You obviously mentioned two more customers. Can you maybe just talk to us how the enhancements kind of sync up with your already existing inventory, presumably I wouldn't imagine there's any rework. And then maybe just what's what's kind of happening with your other partners on that program, Elbit, it seems like it's just in a holding pattern, I guess, but is everybody presumably ready to ramp if orders do come? Hey, Mike.

Okay, answering the question. The enhancements that we have been working on mostly are being done by Elbit subsidy or Universal.

In So most of them are software. Some of them are hardware. As an example, our headwear will display today is not foldable. All the new head wearable displays that we've ordered and we are are actually replacing the initial order of head wearable displays, which were not foldable. So that just allows us to stow the head wearable displays differently. The customers have requested that we add capability to the system. And I may have mentioned some of these before, One of and this comes from different customers, so it's not all the same one that's requesting these. But some have requested that we add runway length so that as the pilot is approaching the runway, whether he's taken off or landing, he knows what the remaining runway length Has he making that approach or or taking off and verifies whether it's got enough runway to stop or enough runway to take off. So that's one additional feature besides the folding of the skylines.

Another is a tail strike indication. Which is which allows the pilots if the airplane is likely to incur a tail strike, whether it be on landing or take [indiscernible] today with a lot of young pilots transitioning from smaller regional aircraft up to these larger transport category aircraft. Airlines are having issues with Pilots suffering tail strikes and tail strikes can be extremely damaging to an aircraft take it out of service for a prolonged period of time, expensive to repair. Finally, and I think that this is This is the most important feature that is in work. Now the certification of this has yet to happen. But it's in flight testing. Not on our aircraft at this point. But on a on an Elbit aircraft, Elbit universal aircraft, It's on a I think it's their flight testing it on a King Air. Really much different whether you're seeing it through the headwear display on a King Air or you're seeing it through the headwearable display on a seven thirty seven? But the feature that I'm about to describe is is called ADSBN. Now if you don't know what that is, I'll just describe it this way. Our aircraft currently and all aircraft flying in The United States have equipment installed that's called ADS B out.

Actually, our air track system is ADS B out. What that allows the aircraft to do is to transmit information through the global satellite system to be received by air traffic control at the other end again, through satellite, not through traditional radar. At the other end of the system, the FAA air traffic control system receives that data using what's called ADS BIN. The transponders we have in our aircraft are capable of doing ADS B out, which we have And receiving ADS B in signals So what Elbit and Universal have been working on is taking the ADS B in data and putting it on the SkyLens so that the pilots can see [indiscernible] on their Sky Lens rather than than not seeing it or having to rely on the FAA to tell it what traffic is in its vicinity. Now in light of recent events, safety is a big issue and knowing where other aircraft are is super important. It's a major safety issue and we believe that the addition of ADS BIN to the system will eventually add a feature and functionality that is as good as what the system can do from an from a weather point of view.

Because if pilots can see through their head wearable display, where other aircraft are based on how they transmit data to the air traffic control system, that's a huge benefit. From a safety perspective. [indiscernible] That's pretty interesting. And then I guess on AerSale, I mean it sounds like the Incoming order flows exceeding expectations, I mean, any color on on maybe the revenue cadence, 26% isn't that far off. I mean, do you expect sort of a wave of further orders as we get closer to that [indiscernible] [indiscernible] I anticipated that we would reach a $20,000,000 backlog. We're at $14,000,000 now. I think last year we were at eleven.

And we have delivered kits So we are seeing a backlog growing There is no one wants to spend money today if they can push the expenditure of funds off into a later year, But because of the volume of aircraft that need to be made compliant, Airlines don't really have much of a choice because they they really want to install these kits when an aircraft is down for maintenance. So if you've got five or 10 or 15 aircraft that need to be done you can't wait until November because you'll put all these aircraft down at the same time and obviously that's not good for an airline. So we're finding now is that yes, airlines have been pushing this off as long as they can. But as we get closer to that compliance deadline, I would bet by the time we get to November, December, because of scheduling issues we will probably see a peak backlog by as we approach the end of the year.

Okay, good. That's good color. Great guys. I'll jump back in the queue and give some others a chance here.

And our next question comes from [indiscernible] Heybert from RBC Capital. Please go ahead with your question. Hey, Nick and Martin. This is Steve Strykhaus on for Ken Herbert.

So just to touch on MRO services, it looks like your revenue was up about $108,000,000 for the full year 2024. Can you maybe discuss how that will maybe grow organically and then maybe just some cadence on some of the new MRO capacity that you have coming online in the quarter as well or in the year?

Yes. So as Nick noted, we expect our component MRO to continue to increase throughout the year.

Even from Q4's levels One, as we've talked about some of the cost reductions that we've done and really kind of greater efficiency and running those units better. Not only do we expect revenue growth, but we're expecting margins to also improve Nick did note that we did have a program that did cease at our Goodyear facility that was a a line maintenance program our heavy maintenance program, that is causing a temporary decline. And I think the biggest impact of that you're going to see is in the in the first quarter of this year compared to the fourth quarter of last year. Again, we've right sized that unit and we expect that profitability to start to increase in the second quarter and then really to grow in the second half of the overall year. [indiscernible] in a good position. We still see a real focus on improving our profitability and our heavy MROs. We've also rightsized our Millington facility understanding that it's better economies to focus on the Goodyear facility fill that all the eight days in that facility before we move over to Philly Millington. But having said that, we're getting already customer interest in that facility due to its central geographic location.

And then we'll have plans to start increasing that. But we're taking a much more cautious approach, being very cost cost conscious and making sure that we focus on profitability. As we grow.

Great. And then maybe just separately on Airwear, I think thinking more so in terms of like a testimonial where is there maybe some way you can demonstrate to an airline customer or even to the FAA administrators a way in which AerSale might have prevented or reduced the likelihood of maybe one of the aircraft incidents, whether it was weather related or just site visibility, it just seems like you guys might have an opportunity there?

On the recent event, we're not really going to I don't really comment on that because all the details about that event are yet to be determined. So we don't know if our system would have helped or not. But I will say this, as far as [indiscernible] pilot awareness of their surroundings [indiscernible] other aircraft regardless of whether it's day or night, but probably [indiscernible] at night, We believe and we've seen our pilots have told us that that they're what they see is dramatically improved when they look through the head wearable display versus looking through the naked eye. So whether [indiscernible] in this circumstances that caused this recent tragedy whether our system would have made a difference or not, we don't know. We just don't have enough facts we don't have enough facts to conclude that one way or the other. We may eventually an opinion on that on whether we think that would have helped But in general, we think it does help with visibility [indiscernible] anything that improves pilot situational awareness is going to improve safety. So whether you're landing in inclement weather whether you're approaching a runway with traffic on the runway that you didn't see for whatever reason, but you have a head wearable display that is going to camera, is going to display what's on the runway We think that all of the events that have led to tragedies recently [indiscernible] [indiscernible] helped by using a system that has an enhanced light vision camera and a head wearable display.

We do have a follow-up question from Michael Atrous. Please go ahead with your question.

Hey, guys. Thanks for taking the follow-up. Just Nick, maybe any color on the availability of feedstock as we're almost through the first quarter here, anything loosening up? I think it was maybe in early January when you're competitors reported and talked about some availability hitting the marketplace, but anything you're seeing out there? I know Boeing and Airbus are obviously still struggling to get planes out the door, so the in service fleet remain high and retirements are down. But any color you can have? [indiscernible] We continue to see a very tight [indiscernible] Because of the OEM production issues, engine issues, and FAA issues that are preventing the two OEMs from putting aircraft out that are staying in service in enabled the displacement of the older equipment that's kind of what we're looking for. Notwithstanding what I just said, that we continue to win deals and why do we continue to win deals?

If it's it's not an aircraft on lease or an aircraft that's that's coming off lease that meets all kinds of return conditions and is in perfect condition.

That's not our we don't win those deals The deals we win and I've said this many times in prior quarters, earnings calls We win deals when flight equipment comes out and it needs a lot of work. And because of the infrastructure we have, and the multiple ways that we can we can work that flight equipment to get value That's how we're finding that when we win a deal. And we win deals today not even from being the the most aggressive bidder, typically are not the most aggressive bidder. There's other people who bid more than we do. But we close. And we may not pay the most, [indiscernible] And today, there's a lot of money that's chased assets in this space. And investors that have placed money with companies that can't get the value out of can't squeeze sponge like we can, and are finding that they're stuck with assets that [indiscernible] The assets have less value than their carrying cost.

And so we're not seeing us much new money being invested with there on the buy side. And so and the sellers are figuring that out. And they've now come across potential buyers that they look at and they find out that these guys don't close, they They'll tie up an asset, they'll try to round up the money, but they can't close. Because they don't have the money. And where again, our advantage is we have the balance sheet, we have the availability of cash, We have the infrastructure to monetize flight equipment that needs a lot of work. And so that's why we keep winning deals. And And so we're able to continue to maintain a buy rate.

Win rate was pretty good in this first quarter. I don't say we're going to consistently win 17% of our deals.

But that's really a testament to our ability to extract value and multiple ways. So maybe that will continue and we'll continue and we'll have maintain a higher than historical win rate in this market. But I think the market is going to be tough. Inventory is going to be constrained.

Very competitive on the buy side, Despite the fact that they're investors that have previously invested and found that they've not made good deals may not be investing. There are still other investors that step into the space and are willing to invest with somebody else and that continues in a way poison the market for us because we remain extremely disciplined on the buy side. We are not going to chase deals where we don't feel we can attain our 25% unlevered IRR or high margins.

Got it. Thanks guys.

Session. I'd like to turn the floor back over to Nick Venazzo for any closing remarks.

I want to thank Mike from Truist and Steve from RBC for their insightful questions, which I believe will help investors understand our business model, and the progress that we've made to date. I also very much appreciate your interest in listening to our call today And I look forward to bringing you up to date during our next earnings call. I wish you all a good evening. Thank you.

Conclude today's conference call and presentation. We do thank you for joining. You may now disconnect your lines.