AerSale Corp Stock

Hello and thank you for standing by. At this time, I would like to welcome everyone to the Airtel Inc. Second Quarter 2026 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number 1 on your telephone keypad. If you would like to withdraw your question, press star 1 again.

Thank you. I would now like to turn the conference over to Jackie Carlin, Senior Vice President of Marketing and Communications. You may begin.

Good afternoon. I'd like to welcome everyone to AirSales' second quarter 2026 earnings call. Conducting the call today are Nick Fonazzo, 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 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 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, 2025, filed with the Securities and Exchange Commission, SEC, on March 10, 2026, and is 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 AirSale website at ir.air.com. airsail.com. After prepared remarks, we will open the call for questions. With that, I'll turn the call over to Nick Fianazzo.

Thank you, Jackie, and good afternoon, everyone. Thank you for joining us today. I'll begin with a review of our second quarter financial and operational performance, including key developments during the quarter, and then discuss the actions we're taking to advance our strategic priorities. I'll then turn the call over to Martin to walk through the financials in more detail. This quarter, we continue to focus on executing our strategic priorities. monetizing our asset base, scaling our MRO operations, and growing recurring revenue streams to achieve more consistent earnings. We made progress against these priorities, giving me confidence in our momentum heading into the second half. That said, both revenue of $70.9 million and adjusted EBITDA of $2.2 million came in below the prior year period.

These results reflect timing, not trajectory. There were no flight equipment sales for the quarter. incremental improvements across most of our business units. Disregarding flight equipment sales, overall revenue decreased 4.2% year-over-year from lower USM sales. First half margins were negatively impacted by a number of factors, including the cost of standing up new capacity and capabilities at Goodyear, Millington, and Landing Gear, as we prepare for the increased revenue opportunities that will follow. We view these as investments in future earnings power, not structural cost increases, and we're already seeing the operating leverage begin to improve. In anticipation of heavy maintenance work largely related to the Spirit shutdown, we continued to carry additional labor at our Goodyear facility that weighed on margins. This work has been slower to develop than we first expected, but we're starting to see an increase in stored aircraft at the facility that will accelerate production. growth in the second half of the year.

In Millington, our new CRJ 700-900 multi-line maintenance program drove higher MRO revenue this quarter. But as noted, startup costs from the ramp-up still weigh on margins, and we're already seeing significant improvement in labor efficiency and turn time. We expect both facilities to contribute to stronger results in the second half as volume continues to build and these operations gain scale and efficiencies. In landing gear, we received gear for two key customer programs during the quarter, including 737 MAX and 787, and that progress gives us increased confidence in the long-term trajectory of this business as volume continues to build. That momentum extends across the business, and we expect a meaningfully stronger second half. On the leasing side, we placed our fourth 757 converted freighter on lease in July and executed a lease for a fifth, which is scheduled for delivery this month. This leaves just two freighters from our P2F conversion program to monetize, and we're working on multiple opportunities for this remaining flight equipment.

These transactions will support the improvement in earnings and add available liquidity in the second half. While we remain focused on growing our recurring revenue base through leasing and MRO, we're also deliberately executing on select flight equipment sales that provide higher margin realization, improved returns, and a shortened monetization cycle. That has meant dedicating additional cash in the near term to get this material ready to sell, and we expect to recover those investments plus the associated returns in the second half of the year. This is evidenced by several wins secured during and subsequent to quarter end, which include a 737 aircraft sale to the U.S. Marshal Service for $35 million, in addition to several engines, which we expect to close in the late third or early fourth quarter. Let me now turn to segment performance in order to provide more insight into the results. In our asset management segment, leasing remained a key driver.

Leasing revenue grew approximately 50% year-over-year to $12.4 million, reflecting an expanded engine and freighter lease portfolio. We ended the quarter with 18 engines and three 757 freighters on lease, compared with 16 engines and one freighter a year ago. Higher lease rates and improved utilization continued to lift asset yields and support our goal of building a larger, more consistent recurring revenue base. This growth will also benefit from the addition of currently owned engines that are completing the repair cycle, as well as the revenue from the remaining 757 freighters. This growth was offset by lower USM revenue, which reflects in part lower feedstock acquired in the first half of the year compared to the prior year. Street stock acquisitions for the second quarter were $5.6 million, down from $27.1 million a year ago, as we stayed disciplined in pricing in a hyper-competitive acquisition market. In addition, as we noted in the first quarter, we consumed USM material that have been sold to build serviceable flight equipment for sale or lease as this reallocation will enable us to realize higher returns than by simply selling the material as USM piece parts.

In our tech ops segment, revenue grew nearly 9% to $33.8 million. Both was led by the continued ramp up of our long term CRJ 700 and 900 multi-line maintenance program at Millington. Additional storage volume at Goodyear. entire landing gear and aerostructures activity. Demand for our airsafe product also remains strong and is expected to peak in the third quarter of this year, ahead of the FAA's November 2026 compliance deadline for the fuel tank flammability airworthiness directive. Tech-ops margins this quarter decreased due to softer throughput at our accessory shop as well as due to the ramp-up cost previously noted for Goodyear and Millington. These factors are exaggerated at this reduced volume level. However, as the operations continue to scale, margins will improve as utilization increases.

We also made changes to TechOps across our sales organization this quarter to sharpen our commercial focus and better align coverage with our highest opportunity accounts, and we expect these changes to support improved throughput and margin recovery in the second half. Turning to our enhanced flight vision product, AeroWare, we remain engaged with U.S. regulators and industry participants to highlight AeroWare's unique capabilities to enhance situational awareness and support safer flight operations. We believe the growing regulatory and legislative focus on ADS-B in and pilot situational awareness supports the long-term opportunity for air aware as operators increasingly evaluate solutions designed to improve flight safety. A head wearable display, such as AirWear, offers meaningful advantages over existing technologies, which we believe will have decades of utility. Stepping back, our priorities for the remainder of 2026 are unchanged. First, increase the number of assets deployed in our lease pool, including placing our remaining 757 freighters. Second, continue to strategically monetize our inventory.

Third, build available capacity across our MRO network. And fourth, improve operational profitability as our recent expansion initiatives gain scale. Execution of these priorities will lead to higher profits and a more consistent revenue stream going forward. With an active leasing pipeline and expanded operational capabilities and a clear path to monetize the inventory we built, we believe AirSale is well positioned to deliver improved and more consistent earnings going forward.

With that, I'll turn the call over to Mark. Thanks, Nick, and good afternoon, everyone. I'll walk through our second quarter results in more detail and then cover cash flow and liquidity. Total revenue for the second quarter was $70.9 million, compared with $107.4 million in the prior year period. The decline was driven primarily by the absence of flight equipment sales this quarter, which totaled $33.4 million a year ago, related to eight engines sold. As we remind investors each quarter quarter, flight equipment sales can vary meaningfully from period to period, and performance is best assessed over time with a focus on feedstock acquisition, the monetization of those investments, and profitability trends. Excluding flight equipment sales, revenue was down 4.2% as lower USM sales offset the continued growth in leasing and MRO.

Adjusted EBITDA was $2.2 million or 3.1% of revenue compared with $18.3 million or 17% of revenue in the prior year period. The decline was driven primarily by the absence of flight equipment sales in the current period. Turning to the segments, asset management solutions revenue was $37.1 million, down 51.3% compared to $76.3 million last year, which included $33.4 million of flight equipment sales. Excluding flight equipment sales, asset management revenue was $37. million, down 13.6%, as lower USM sales offset the higher leasing revenue from our expanded engine and freighter lease portfolio. TechOps revenue was $33.8 million, up 8.7%, driven by the ramp-up of our CRJ multi-line program at Millington and higher component MRO volume. overall gross margin was 22.9% compared with 32.9% last year. Decline reflects the absence of flight equipment sales, which normally carry higher margins, and lower USM gross profit. It also reflects the stand-up investment supporting new capacity and programs, which Nick described, required us to carry incremental staff ahead of volume at Goodyear, as well as incremental ramp-up costs related to the Millington CRJ line.

We expect margins to improve as utilization increases, driving both higher revenue and margin. Selling general and administrative expenses were $21 million, down from $22.8 million a year ago. primarily due to lower rent and variable expenses. SG&A included $1.3 million of share-based compensation compared with $700,000 in the prior year period. Net loss for the quarter was $5.6 million compared with net income of $8.6 million a year ago. including share-based compensation, adjusted net loss was $4.3 million compared with adjusted net income of $9.4 million last year. That decline again is primarily attributable to the timing of flight equipment sales. On a pair share basis, diluted loss per share was $0.12 and adjusted diluted loss per share was $0.09. Turning to cash flow and liquidity, cash used in operating activities was $33.5 million year-to-date, primarily reflecting continued investment in inventory through both feedstock and make-ready costs to make flight equipment available for lease or sale.

The majority of this outflow reflects the deliberate capital deployment on flight equipment we expect to monetize at attractive margins in the second half of the year, which will improve both profitability and liquidity. We ended the quarter with 376 million of inventory and 133 million of aircraft and engines held for lease. Available liquidity was $34 million, consisting of $2.2 million of cash and cash equivalents and $31.8 million of availability on our $180 million revolving credit facility, which can be expanded to $200 million subject to conditions and borrowing-based availability. Our balance sheet remains well positioned to support our growth strategy, giving us the flexibility to continue to grow both our USM and leasing revenue streams, as well as to continue to take advantage of market opportunities when they arise. In summary, our second quarter results reflect the timing of our asset monetization. rather than a change in the underlying business. As we convert our asset base through the second half and grow our recurring revenue, we expect meaningfully stronger cash flow and liquidity, an increasingly predictable financial profile over time. We entered the second half with a substantially stronger pipeline of asset sales and expanding lease portfolio and improving unit economics across our MRO facilities.

We are confident this combination, supported by a healthy balance sheet, positions us for meaningfully improved performance in the second half of the year.

With that operator, we are ready to take questions. Thank you. We will now begin the question and answer session. To ask the question, you will need to press star, then the number 1 on your telephone keypad. If you would like to withdraw your question, press star 1 again. Your first question comes from the line of Jen Van Sinderen with BYD Securities. Your line is open.

Hi, everyone. I guess one of the questions I have just on the MRO facilities, I know you're still in the process of kind of ramping those up, but at this point, what is the utilization rate running on those facilities? utilization on the MRO facilities as we're ramping up.

So, ramping up overall our Millington facility, we have two lines that are in work. We still have capacity to add an additional two lines of work at that overall facility. As we've noted in the overall comments, the biggest issue we're having there is just ramping up, getting the incremental, the labor into Gloucester to the learning curve in those overall projects, doing those overall aircraft. What I can say is we have been seeing favorable improvements in that. during the second half of the second quarter. So we are very optimistic that we are going to be able to get back to our expected profitability in the second half of the year. At our facility in Goodyear, Arizona, we do, and as we've noted in the comments, have been operating at probably less less than 20% of our available capacity. However, our storage field is starting to fill up with a lot of yellow aircrafts, and we do expect as those operators and lessors start finding opportunities for those aircrafts to start getting a meaningful pickup and hanger work at those facilities. landing gear shop, we have been working with two key accounts that are starting to bring volume into those facilities that started coming in at the latter month of the second quarter.

That facility has been operating at probably about 80% overall capacity during one shift with this incremental volume we expect to increase that and add an additional shift so we are seeing improvements in these facilities but we do still have available capacity to be able to continue to grow those numbers significantly.

Okay, great to hear. And then maybe we can just touch on any thoughts you have.

on the reasons for no flight equipment sales in the quarter? Sorry, can you repeat the question? Well, he wanted to know where we're at on flight equipment sales for the quarter. So as I mentioned in my discussion, We have under contract several engines that that we could have closed or might have closed this quarter, but for different reasons didn't. And we were awarded a $35 million sale of a 737 to the US Marshals Service that we're trying to get closed. Yet this quarter, it may move into the early fourth quarter. Besides that, we have 17 engines in work and it's been a like that now the better part of the year and it feels like they're all going to start coming out one right after the other here in the next several months and those engines will go into our leak will a some of them will go on to aircraft that we've got that were that we're placing whether B sub 57 or or the 737 they'll go into our engine leasing portfolio lots of demand for those engines that's That's the frustrating part, is if we could have got those engines out of the shop, we would have already had them on lease. So we have all these engines, or most of these engines are coming out in the near term. So we expect to see revenue from those, whether it be through trading. or lease, preferably release them.

However, If a financial buyer comes along or an airline comes along and they'll pay us more for that engine than we feel we can realistically get out of it by leasing it and then adjusting for time and risk, then we'll sell it. It's not our preference because then we're back to, we've taken a piece of supply equipment that could have produced more recurring consistent revenue, and we've moved it into trading. However, I'm going to add one more comment here because We get this all the time, which is I think that the investors don't appreciate what it takes to produce these assets and how much we pull from available inventory to keep the cost down in putting these assets together. And then ultimately, when we trade them, we get an outsized margin because we get more revenue from inventory from an engine that we put together than we would if we didn't take that engine, put it together, broke it down, and just sold it at the piece part level. So the trading that we do is really just a higher way of, you know, a greater way to achieve better net revenue than if we just broke it down. the engine down at the piece part level. And that's the analysis we make on every engine that we have in our portfolio, which is at a given time, do we lease it where demand is high or do we sell it where demand is high? And that's where we're at. So we've got a substantial number of engines coming here in the next several months.

And that's a big change from where we've been over the past year.

Okay, that's great to hear. And then if I could squeeze one more in, just curious, I know you mentioned some yellow aircraft that are being stored, and I'm wondering what you think the fate of those aircraft is. Do they give a sense of the status? Are they ready to fly? need MRO, what do you think happens there?.

So all, we refer to yellow airplanes, and I don't mind saying it, these are ex-Spirit Airlines aircraft. We have how many stored there now? 83. We have 84 stored there. I think we were over 90 at one point. All of those aircraft will need some level of maintenance as they come out. until the engines come out. The expectation is that engines for those airplanes will all come out over the next year. All of them that we have now are owned by banks or leasing companies, so we're discussing with all of those companies, what are they going to do with their flight equipment? Some have actually been broken down and sold as airframes, and the engines seem to have more value leasing a serviceable engine than you can get for leasing the whole airplane. So we've seen some of these leasing companies keep the engines that come out of the shop and then sell the aircraft for the airframe for part out.

So some of those won't come back into service, and we're parting them out, candidly. It's a shame. These are relatively new airplanes, less than five years old in many cases, and airplanes are being parted out. We've just not seen that before. And again, that's... That's because of the value of the engines being so high today because they're so rare that you can get a decent engine out of the shop. So all of that flight equipment, the lessors are waiting. If they can get their engines back, they're all hustling to get leased customers for them. So if they've decided they're going to lease them, they have engines, they've got a customer, then we're starting to get heavy checks because those airplanes have been sitting for quite a while.

So that'll keep us. That'll keep us with a lot of heavy maintenance at the facility until all of those airplanes go through the process of either being, and I would expect that most of them will be returned to service rather than parted out. So that's going to keep us busy. The frustrating part to that is the unavailability of engines is still holding airplanes on the ground. And candidly, there's so many airplanes there that if every lessor asked us today to return those airplanes to service, we're not capable of doing it. We have eight bays, and we can't return eight airplanes with heavy checks in a short amount of time. We will, you know, our expectation is as the lessors find their lessees that will fill up probably for the next year. And by the way, those Spear Airplanes and those aircraft lessors aren't our only customers there.

We have other customers that we've been dealing with long term. That's why we feel optimistic about filling up our capacity at Goodyear, despite the fact that this issue with Spirit has really created a big blob of airplanes that are going to need maintenance. But as we did during COVID, storing almost 100 airplanes there, these are ready airplanes. These aren't airplanes that are going to get, most of them are going to fly again and they're not going to get parted out.

that provides a decent amount of revenue for us as well. Okay, thanks for all that color. Thanks for taking my questions.

Okay, well thanks for asking. Your next question comes from the line of Stephens Trackhouse with RBC. Your line is open.

Hey, Martin. Thanks for taking my questions. Nick, I was hoping you might be able to just follow up on the part that you said that investors don't maybe appreciate in terms of what it takes to really put the assets together. maybe kind of speaking to that trade-off of kind of foregoing the near-term USM piece part sales in favor of building the longer term leasing assets kind of as a recurring strategic choice. Can you assign any value or numbers to that, maybe in terms of the margins that you can kind of, or maybe even the incremental margins between the two to kind of level set us up?.

We have that information we can share. Yes, I would say when we look at overall USN margins, we noted on our IRR, margins are typically in the 25% overall range. When we've done flight equipment sales and when we look at the opportunity, we've achieved margins that have exceeded those amounts, sometimes by a large overall amount. And that's when we look at the overall USN margins. look at the opportunities that have been in front of us, whether it's the opportunity with the U.S. Marshal Service or various other opportunities to put overall engines, the economics are truly attractive to have made the investments, because we have made, as Nick has noted, it's not just grabbing the engine. We have to have made significant investments to get these engines into serviceable condition and then sell those assets out. And that itself is providing not only the higher margin, but it's increasing our overall monetization cycle.

So we're getting back our capital quicker, which again is important because it'll also improve our liquidity position. Let me add a little something else to that,.

which is as we view flight equipment purchases, The highest value we can get out of buying flight equipment is to keep the aircraft as a flyable asset. The next highest value is to keep the engines as flyable engines. When the airframe is not valued as a flyable airplane, it costs too much to keep it in service, take the engines off, now we have obviously plenty of opportunity to lease or sell the engines. When the engines have greater value at the piece part level because of the cost of returning them to service, then they go into the USM parts. Along all that, there are sub-components. There's landing gear. There's APUs. There's other components that come off the aircraft as sub-assemblies that have higher value as sub-assemblies than they do at the piece part level. At the end of the day, USM, when you think about it, it's just purely piece parts.

It's not components. It's not landing gear. It's just components. It's just piece parts. That's the lowest value you can get out of that because, now it can move relatively quickly and if there's certain very high demand USM parts that are not as good as can quickly be sold after you've torn it down, got it to the piece part level, sent it to the shop, got it back, and as soon as you predict all your scrap rates and yield and the sales value correctly, you'll get your value out of it. We strive for at least a 25% margin on USM parts, and sometimes, you know, Most of the time we get it, but when we take those parts and we sell and we put it together as part of a whole airplane or a whole engine and then are able to monetize the whole engine, we're not just getting value as a product, at a 25% margin off of, or more, off of the parts that are easy to sell, we'll also get value out of all the other things on the airframe or engine that we probably won't sell. And so that's why the total margin becomes much greater because some of that we wouldn't have otherwise... been able to sell. And then when you look at the incremental dollars we're talking about, these are big transactions. These are transactions where we'll make four, five, 10 million or more on the sale of an asset.

And do you know how many USM piece parts you have to sell to make that kind of margin? So when we can use our infrastructure to put together an asset and get a higher margin than selling it at the piece part level and a large incremental dollar amount with... Not so much additional effort because we're using our existing infrastructure to do it. by just piecing it back together rather than piecing it, taking it apart at the piece part level. That's why we pull USM and use it in the repair of our own flight equipment. And we'll continue to do that as long as we feel that we're going to get a greater value out of it.

That is really, really helpful, color. And a couple of questions here are really just around. I can appreciate the investment that you guys are making to really kind of get the revenue model into a recurring stream and to really take advantage of the margin potential. So my second question is also in a similar line of thought where I know you talked about the CRJ ramp and the good. your labor investments that you're making, maybe not even kind of when they turn accretive to like the back half, but what can kind of some of the incremental margins or the margin capability look like on that MRO work in like 2027 or 2028?.

So, in our on-airport MRO, margins have, usually when we're running at full operations, have been in the 20 to 30 percent overall range. Now, margins improve, as you would understand. The more volume you have, the better absorption you have of your fixed costs. So, you know, one of the things that we're suffering from now is that as we're ramping up, volume is low. We have to ramp up and get the staffing that's needed to support that value, whether it's the Millington ramp up or in Goodyear in preparation for the large amount of work that we're seeing ahead of us. And that's where we're seeing kind of a lower margin profile. As we start increasing that volume, and give an example as Nick noted on Goodyear, as there's this need to run aircrafts and run them quickly through our pipeline, we'll add additional shifts, and that will start improving our margin profile going forward.

And again, as Nick has noted, for Goodyear, there's a large amount of aircrafts that when those assets start becoming available, there's going to definitely be a need from our customers for us to ramp up to go through that increased volume.

That's helpful as well. And then very last question from me. I can appreciate that there's a bit of a drop off after AirSafe in the peak of like 3Q26. But can you talk about the investment cycle that you could be making in new product offerings? We've heard a lot from a lot of other peer companies this quarter on their earnings calls talk about new product development. I was wondering if you could share any investments that you're making into other new products that could eventually replace AirSafe and drive some longer-term growth.

So apart from airwear, which we've been discussing for many quarters now, we are looking at other PMA opportunities or even DER repairs where we're basically providing a solution to an airline that they can't get from the existing OEM of a part, or they can't get the parts all together, and we could manufacture parts for them. because they can't get it. What we're seeing, especially with the current CRJ line that we're doing, is there's a lot of need for additional services that will use our PMA capability and what we really need to understand is, okay, guys, what do you need? What can we do for you? So although in all candor, we don't have any additional PMA developments at this time, there's a number that we're working on that we will look, to potentially develop and monetize on a go-forward basis. I don't expect any of that to make a substantial contribution. It takes a better part of a year to identify a product that you're going to develop and then go through the whole process of developing it and then assuming you have a customer that wants it. we're not going to develop anything on a green just on a hey let's just we did that with air where we We had a very interested customer, which is dragged and dragged and dragged. The next time we do something, when we develop it, it's going to be for a customer who says, give me this, and I'll give you an order for hundreds of them. But don't have one yet, and I can't tell you that we have visibility on what we're going to see coming in the next year.

Really appreciate the color. I hope I could keep. There are no more further questions at this time. I will now turn to go back over to Nick Finazzo, CEO, for closing remarks.

Okay, thank you. I really want to thank you gentlemen for your good questions and gave me an opportunity, Martin and I, an opportunity to explain in a little more detail some of the things maybe we missed during the call. I want to thank everyone else who's expressed an interest by listening to AirSail today for your interest. Thank you very much. The numbers don't reflect the story and we're going to show you. The second half this year is not going to look like the first half this year. And you'll see that if you look at the chart. listen to us next quarter and the last quarter of the year. So we remain optimistic and confident, and we're eager to make things happen here. So, again, everyone, thanks for listening, and we hope you'll listen in next time we have our earnings call.

Hope everyone has a really good night. Thank you. Concludes today's call. Thank you all for joining, and you may now disconnect.

This live transcript is auto-generated without human intervention or review.

[Call has ended.]

Hello, and thank you for standing by. My name is Ian, and I will be your conference operator today. At this time, I would like to welcome everyone to the AerSale Inc. Q1 2026 Earnings Conference Call.[Operator Instructions] I would like to now turn the call over to Christine Padron, Vice President, Global Trade and Compliance. Christine, please go ahead.

Good afternoon. I'd like to welcome everyone to AerSale's First Quarter 2026 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 facts 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, 2025, filed with the Securities and Exchange Commission, SEC, on March 10, 2026, 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 AerSale's website at ir.aersale.com. After prepared remarks, we will open the call for questions. With that, I'll turn the call over to Nick Finazzo.

Thank you, Christine, and good afternoon, everyone. Thank you for joining us today. I'll begin with an overview of our first quarter performance and key operational developments and then discuss how we're progressing against our strategic priorities for 2026. I'll then turn the call over to Martin to walk through the financials in more detail.

This quarter, our team stayed focused on executing our strategy across asset management and TechOps, prioritizing: one, disciplined acquisition and monetization of flight equipment and used serviceable material, you hear me say USM; two, expanding and optimizing our MRO capabilities; and three, building a recurring and more predictable revenue base through MRO services and leasing, while maintaining our high standards for safety, quality and on-time performance.

First quarter revenue was $70.6 million, an increase of 7.4% from the prior year period. Adjusted EBITDA also increased by $4.2 million or 131.9% to $7.4 million from the prior year period. Excluding flight equipment sales, which tend to be volatile quarter-to-quarter, revenue increased 2.2% year-over-year, reflecting growth in leasing and increased demand across our MRO facilities. This is supported by healthy activity across our core aviation end markets.

Customer demand remains supported by high utilization levels and the ongoing need for reliable parts availability and turnaround performance. Leasing demand remained a key driver of performance during the quarter, growing 57.9% compared to the prior year period. We placed an additional Boeing 757 freighter aircraft into service, ending the quarter with 3 aircraft on lease and 1 additional aircraft under a letter of intent for lease. We continue to engage in discussions with potential customers as increased demand for cargo continues to make us bullish on deploying the remaining 4 757 freighters we converted in 2026. We also expanded our engine lease portfolio, ending the quarter with 18 engines on lease compared to 16 engines in the prior year period.

Higher average lease rates and improved utilization contributed to stronger asset yields across both aircraft and engines and reflect our continued progress towards building a larger and more consistent recurring revenue base. Partially offsetting the increased leasing revenue was a decrease in USM sales resulting from the internal consumption of engine material for our own engine builds.

At present, we have multiple engines in work where most of the material required has come from our own inventory. And our decision to utilize this USM results from our determination that we will achieve a higher value and total dollar margin consuming this material rather than selling as USM piece parts to third parties.

Across our TechOps platform, we continue to make progress on several strategic growth initiatives. At our on-airport MRO facility in Millington, Tennessee, we commenced work under a recently awarded long-term multiline aircraft maintenance agreement for a fleet of CRJ700 and CRJ900 regional jets. In addition, operations began at our expanded Aerostructures facility located in Hialeah Gardens, Florida.

Both initiatives contributed to higher TechOps revenue in the quarter. As expected, when ramping up operations at new facilities, we incurred incremental training costs and early-stage operating inefficiencies that created margin pressure during the quarter. We view these impacts as temporary and expect margins and throughput to improve as volumes continue to increase and operations stabilize. TechOps was also impacted by lower MRO parts sales in the quarter.

Lastly, our Roswell facility experienced revenue and gross profit declines due to fewer aircraft in storage during the quarter. Related to our Engineered Solutions products, AerSafe continues to remain strong in advance of a Federal Aviation Administration November 2026 compliance deadline for the fuel quantity indication system, Airworthiness Directive related to fuel tank safety systems. We closed the quarter with a backlog of $15.3 million, of which the majority will close in 2026.

In addition, we continue to market our revolutionary enhanced flight vision system, AerAware, to select interested customers. We're also continuing our efforts to educate our U.S. regulators and the agencies responsible for the safety of our air transportation system on how the unique features of AerAware can improve safety and provide economic efficiency to the industry. During the quarter, we deployed $25.1 million in feedstock acquisitions to support future leasing and monetization opportunities. We remain disciplined in our acquisition approach and continue to focus on assets where we see strong long-term demand and attractive risk-adjusted returns.

Our win rate in the quarter was 6.3% compared to 10.4% in the first quarter of 2025, which shows our commitment to discipline on pricing and continues to -- as we continue to evaluate opportunities to redeploy and monetize inventory in ways that improve velocity and cash conversion without compromising value.

Looking ahead, our priorities for the remainder of 2026 remain consistent with those we have previously outlined. These include increasing the number of assets deployed in our lease pool, including the placement of the remaining 4 757 freighters during this year, continuing to monetize our inventory through USM sales, filling available capacity across our MRO network and improving overall operational profitability as recent expansion initiatives continue to gain scale.

Despite the expected start-up costs incurred in the first quarter, we remain confident in our ability to deliver improved financial performance as we progress throughout the year. With a strong inventory position and active leasing pipeline and expanded operational capabilities, we believe AerSale is well positioned to deliver more consistent and growing earnings. With that, I'll turn the call over to our Chief Financial Officer, Martin Garmendia.

Thanks, Nick, and good afternoon, everyone. I'll walk through additional details on our first quarter financial performance, then touch on cash flow, liquidity and our outlook for the remainder of 2026. Revenue for the first quarter of 2026 was $70.6 million compared to $65.8 million in the prior year period. Flight equipment sales totaled $5.2 million and consisted of engine sale compared to $1.8 million from engine sold in the first quarter of 2025. Excluding flight equipment sales, revenue increased 2.2% year-over-year, driven by growth in leasing activity, partially offset by lower USM and MRO parts sales. As we note each quarter, flight equipment sales can vary meaningfully from period to period.

As a result, we believe performance is best assessed over time with a focus on feedstock acquisition, monetization of those investments and profitability trends. Adjusted EBITDA for the quarter was $7.4 million or 10.4% of revenue compared to $3.2 million or 4.8% of revenue in the prior year period. The EBITDA dollar and margin increase was primarily driven by higher leasing revenue and flight equipment sales during the quarter. Asset Management Solutions revenue increased 10% year-over-year to $43.1 million in the first quarter. Excluding flight equipment sales, revenue grew modestly, supported by an expanded lease pool and favorable engine mix, but partially offset by lower USM volumes. We ended the quarter with 18 engines and 3 Boeing 757 freighters on lease compared to 16 engines and 1 freighter on lease in the prior year period.

Technical operations revenue increased 3.4% year-over-year to $27.5 million, driven primarily by higher on-airport MRO activity. Growth was led by increased activity at our Goodyear and Millington facilities, including the initial ramp-up of CRJ work at Millington. These gains were partially offset by lower MRO parts sales during the quarter. Gross margin for the quarter was 26.7% compared to 27.3% in the same period last year. The modest and temporary decline reflects start-up and training costs related to the CRJ line in Millington and the Aerostructures expansion as well as higher labor costs at Goodyear as we maintained elevated staffing levels in anticipation of increased demand expected later in the year. We expect these margins to normalize and begin to improve as we increase labor and facility utilization.

Selling, general and administrative expenses were $22.2 million in the first quarter, down from $24.6 million in the prior year period. The decrease reflects the benefits of our ongoing efficiency initiatives and the absence of onetime severance costs incurred last year. Current year expenses included $1.8 million of share-based compensation expense compared to $1.2 million in the prior year. Net loss for the first quarter was $3.5 million compared to a net loss of $5.3 million in the prior year period. Adjusted net income was approximately breakeven compared to an adjusted net loss of $2.7 million last year. Adjusted EBITDA for the quarter was $7.4 million compared to $3.2 million in the prior year period, which benefited from a higher margin product mix and lower expenses.

Year-to-date cash used in operating activities was $26.7 million, primarily related to feedstock acquisitions of $25.1 million as we continue to make disciplined investments to grow the Asset Management segment. We ended the quarter with inventory of $369.5 million and aircraft and engines held for lease of $121.5 million. Available liquidity at the end of the quarter was $41.8 million, which included $2.1 million in cash and $39.7 million of availability on our $180 million asset-backed revolver, which can be expanded to $200 million. This available liquidity, growing performance and our strong inventory position provides us with the tool needed to continue to grow our business through the remainder of 2026 and beyond.

In conclusion, we remain focused on monetizing the investments that we have made. In a competitive market, we have built a strong inventory position that will allow us to continue to grow our leasing and USM activities. The commencement of a multiline maintenance program at our Millington facility and new work commencing at our expanded Aerostructures facility put us on a positive trajectory to exceed the incremental $50 million revenue expectations for our expansion initiatives with the expectation that margins will improve as we increase utilization of our additional capacity and start-up initiatives mature. All of this will allow us to continue to grow both our revenue and profitability in a more predictable and recurring revenue quarter-over-quarter.

With that, operator, we are ready to take questions.

[Operator Instructions] Our first question comes from the line of Kevin Liu with RBC Capital Markets.

Could you guys maybe talk about what you guys are currently hearing from customers in light of the ongoing conflict in the Middle East as it relates to your business, whether that's in USM, spare parts or lease rates?

Kevin, I'm sorry. Thanks for the question. We're not really hearing much from our customers at this point because that's a question that internally we ask, which is, hey, how is this going to affect -- how is the Middle East situation going to affect us in the short run. We're not seeing it yet. What do we expect? We expect that if this continues for a prolonged period of time, and we see airlines will park more and more aircraft. The result of that will be more aircraft will be in storage, which we'll benefit from. And there may be eventually a downturn in the demand for used serviceable material parts.

However, as I've said every quarter, this question gets asked, there's -- is there enough USM out there to support demand? And the answer is the -- for the proper amount of USM, I don't mean every part from every engine, but the parts that sell from an airframe or engine there continues to be excess demand than there is available inventory. So until that may eventually equalize if a number of airplanes, certainly during the COVID environment, there were enough airplanes on the ground that there was no requirement or very little requirement for USM because aircraft were on the ground, aircraft could be cannibalized for parts, engines were not going into the shop because engines on wing were being cannibalized to keep other aircraft flying. So over time, if this prolongs, if the fuel costs stay high and that results in a substantial grounding of the fleet, then we expect that, that will have an impact. But I don't know when that would be. I believe that, that impact would still be years off unless you had a COVID type event where a substantial amount of the fleet is grounded. So that's a long answer to your question.

But the answer is we're not seeing an effect at this point. And based on the type of USM that we sell, we don't expect there to be an effect in the short, certainly not in the short run.

Okay. Got it. That's helpful. And then maybe on a separate note, could you guys give us an update on your current capacity additions in MRO and maybe talk about the potential impact to revenues in your business, both this year as well as in 2027?

Sure. So as we stated in the prepared remarks, Millington has come online, and we have started the CRJ line there. We have kind of gone through some start-up costs and learning curve. But right now, that is potentially going to expand to 3 aircraft. So we'll be at full capacity at the Millington location in a very profitable contract with a very good customer that we can provide multiple services to.

At our Goodyear facility, we continue to ramp up with work, especially from the lows that we incurred last year after a long-term contract has finalized, and we continue to be bullish there. We continue to serve multiple operators, including Spirit, and we are seeing a ramp-up of return of service work for some of those overall aircraft. And based on the recent news, we expect that to accelerate during the remainder of the year. At our Roswell facility, we did note that we primarily do storage work there. We have seen a decline in aircraft being stored. But as you noted, if for some reason, this -- the war in the Middle East continues and there is an overall reduction in aircraft operating, we could potentially see aircraft being returned into that overall location from a storage perspective.

On our component MRO side, we noted that our Aerostructures facility came online during the first quarter. but we are ramping up there. That's a 90,000 square foot facility. So we have a lot of capacity to fill. We've made a lot of inroads with customers getting that process finalized. So we expect to quickly start ramping up our demand there. Our landing gear shop has also been doing extremely well. We are starting 2 agreements, one with an OEM and one with an international carrier that are expected to significantly increase our volume at that facility as we progress through the overall quarter. And our component shop also, we've seen some increased overall demand, and we continue to do additional initiatives to fill that capacity because we also have a good amount of available capacity there. So as the market continues and there is overall demand, we are definitely poised to grow and to fulfill some of those needs.

Got it. And I guess just one last follow-up. As you guys are selling this capacity today, could you guys maybe give us more color on what kind of margins you guys are getting on this new capacity and how we should be thinking about the potential EBITDA contribution from this?

So I would say from at least what we're seeing on the on-airport MRO side, there is still a need and there's still a limited supply of available slots. So we have been seeing margin improvement in that area overall. As I mentioned, in the quarter, we were temporarily -- margins were impacted by the Millington overall issue. But again, as Millington comes back on, we expect margins that will definitely, at least from a gross profit perspective, be in excess of 20%. And then our Goodyear facility, as we start doing return of service work, depending on the type of work that we're doing, we definitely expect margins to be better than they have been historically.

And there are no further questions at this time. I would like to call -- turn the call back over to Nick Finazzo, Chief Executive Officer, for closing remarks.

Okay. Thanks. Despite nonrecurring start-up costs from our facilities expansion projects in the first quarter, our operating business has continued to improve. These results validate our unique multidimensional and fully integrated business model. And as our -- as these units continue to develop and mature, will put us in an excellent position to achieve substantial growth in the years ahead. I thank -- I want to thank Kevin for his insightful questions today, which I think provides good insight into our business model and will help our investors better understand how we are performing. To all the rest of you, I very much appreciate your interest in listening to our call today and look forward to bringing you up to date during our next earnings call. I wish you all have a good evening, and thank you.

Good day, and thank you for standing by. Welcome to the AerSale Corp. Q4 2025 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions]

I would now like to hand the conference over to your speaker today, Jackie Carlon, Senior Vice President of Marketing.

Good afternoon. I'd like to welcome everyone to AerSale's Fourth Quarter and Full Year 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 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, 2025, filed with the Securities and Exchange Commission, SEC, to be filed on March 9, 2026, 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 AerSale website at ir.aersale.com.

With that, I'll turn the call over to Nick Finazzo.

Thank you, Jackie. Good afternoon, everyone, and thank you for joining us today. I'll begin with an overview of our fourth quarter and full year 2025 results, highlight key operational developments, and then discuss our priorities for 2026 before turning the call over to Martin to review the numbers in greater detail.

We finished 2025 on a strong note. Our fourth quarter adjusted EBITDA increased $2.2 million or 17.1% to $15.2 million, compared to $13 million in the fourth quarter of 2024. Fourth quarter revenue was $90.9 million, a 4% decrease from the prior year period.

Excluding flight equipment sales, which tend to be volatile quarter-to-quarter, fourth quarter revenue actually increased 9.8%, reflecting continued growth across our component MROs, USM and leasing. Sales of our Engineered Solutions product, AerSafe, also increased as operators began upgrades in advance of a Federal Aviation Administration 2026 compliance deadline for a Fuel Quantity Indication System Airworthiness Directive related to fuel tank safety systems. You'll hear me refer to this as the FQISAD.

This overall growth has improved profitability and provides more consistency in our quarter-over-quarter performance. This also led to improvement in our adjusted EBITDA, supported by stronger operating performance and the continued benefits of the efficiency initiatives we implemented in early 2025.

For the full year, we generated $335.3 million in total revenue, a decrease of $9.8 million, or 2.8% year-over-year, primarily due to fewer flight equipment sales. Excluding flight equipment sales, full year revenue increased 18.7%, driven by stronger USM demand, higher average lease rates and asset yields and robust growth in sales at our component MROs and of AerSafe products. Full year adjusted EBITDA also increased $12.8 million to $46.1 million, up 38.2% year-over-year, reflecting higher volumes, favorable mix and margin and cost benefits from our efficiency program.

During the fourth quarter of 2025, we acquired $15.4 million of feedstock, bringing full year acquisitions to $99.6 million. While the feedstock environment remains constrained, we have been steadfast in our disciplined acquisition pricing and believe opportunities will improve as OEM production normalizes.

Our win rate in the quarter was 4.8% versus 17.2% in the fourth quarter of 2024. We disclosed this number to provide investors with a measure of how conservative we are when buying feedstock in a hypercompetitive environment, although a quarter-over-quarter comparison may not fully reflect this discipline. Year-over-year, our win rate was 6% in 2025 versus 8.6% in 2024.

Regarding our Boeing 757 passenger to freighter converted aircraft, we ended 2025 with 2 on lease and 5 aircraft we converted remaining in inventory. We are actively engaged in discussions with potential customers. Increased demand for cargo and the FAA's recent grounding of the MD11 freighter fleet continue to make us bullish. We'll deploy all our 757 freighters in 2026, with two of these aircraft under letters of intent at year-end.

During 2025, we made several strategic adjustments across our on-airport MRO facilities. In Goodyear, we transitioned from an expiring contract to new business at higher rates resulting in improved profitability.

In Roswell, we shifted our focus to storage and end-of-life fleet activities, largely offsetting lost heavy check margin. Our on-airport MRO expansion project in Millington, Tennessee is now fully operational and productive with heavy check work that began in December, following the award of a multiyear maintenance agreement with a regional airline, positioning the facility to significantly contribute to profitability in 2026.

Regarding our component MRO facility expansion initiatives, we moved into our new 90,000 square foot aerostructures facility in January 2026. With existing customer approvals and more underway, we expect aerostructure's volumes to ramp up throughout 2026. Our pneumatic expansion project is also progressing with all construction now complete, and we expect this additional capability will come online by the end of the first quarter.

As these 3 expansion initiatives begin to contribute in 2026, we remain confident in their revenue potential. While we previously communicated an incremental annualized opportunity of approximately $50 million, updated assessments indicate that the full capacity potential is likely to exceed that original estimate. As we ramp up in 2026, we will provide an update on the progress of these projects as contributions from this additional capacity and capability are realized.

We're also proud to announce that our landing gear shop received FAA approval to overhaul Boeing 737 MAX and 787 landing gear, which supplements our existing authority to overhaul gear for 737 Classic and NG Series 757, 767 and the Airbus A320 series of aircraft. This expansion to include MRO for new technology flight equipment allows us to better support our expanding customer base as mid-technology flight equipment is eventually replaced.

Looking ahead to 2026, we're mitigating earnings volatility by growing the more recurring and predictable parts of our business. These initiatives include filling capacity at all our on-airport MRO facilities, growing USM sales, generating significant additional component MRO revenue with our available expanded capacity and new capabilities, increasing the number of assets deployed in our lease pool, and continued strength in AerSafe revenue as the FAA's November 2026 deadline to comply with the FQISAD comes due.

Finally, we remain committed to the success of our revolutionary Enhanced Flight Vision System AerAware, by marketing this to select interested customers, both commercial and governmental. Concurrently, we are taking steps to educate our U.S. regulators and the agencies responsible for the safety of our air transportation system on how the unique features of AerAware will improve safety and provide economic efficiency to the industry.

On the cost side, the enhanced efficiency programs we implemented last year have allowed us to streamline workflow at each facility with a goal to better match facility scheduling with volume while opening available capacity at other facilities to maximize profitability.

Taken together, we expect 2026 to be another growth year for AerSale on both the top and bottom lines. Our strong balance sheet will support increased USM sales and leasing, thereby providing improving recurring revenue from our Asset Management segment. Customer expansion, increased capacity and efficiency initiatives have put us in a position with all our MROs to see significant incremental revenue progression quarter-over-quarter.

I want to conclude by thanking our employees for their dedication and hard work in meeting our growth initiatives in 2025 and our investors for their continued support as we work on maturing the business and reducing volatility. We look forward to updating you on our progress throughout 2026.

With that, I'll turn the call over to our Chief Financial Officer, Martin Garmendia.

Thanks, Nick, and good afternoon, everyone. I'll walk through some additional details on our fourth quarter and full year financial results, then touch on cash flow and liquidity and close with our outlook for 2026.

Fourth quarter revenue was $90.9 million, which includes $20.9 million of flight equipment sales consisting of 4 engines. This compares to $94.7 million in the fourth quarter of last year, which included $31 million of flight equipment sales consisting of 6 engines. As we note each quarter, flight equipment sales can vary meaningfully from period to period. As a result, we believe performance is best assessed over time with a focus on feedstock acquisition, monetization of those investments and profitability trends. Fourth quarter revenue for Asset Management declined approximately 11.1% year-over-year to $56.9 million due to fewer flight equipment sales. Excluding flight equipment sales, revenue increased 9.1%, driven by continued strength in USM and an expanded lease pool.

For the full year, asset management revenue was $211.6 million, down 1.8% year-over-year. Excluding flight equipment sales, segment revenue increased 47.3%, supported by strong inventory levels and demand that allowed us to grow our USM and leasing activity.

Turning to TechOps. Fourth quarter revenue increased 10.7% to $34 million, driven by higher sales in our aerostructures and landing gear MROs as we have been successful in winning new contracts. A focus on higher-margin opportunities and the efficiency measures taken in early 2025, allowed us to further improve our profitability and set the foundation to grow our on-airport MROs beyond historical levels and with a greater profit profile in 2026 and beyond.

TechOps was also strengthened by strong demand from our component MROs and continued momentum in AerSafe products as customers prepare for the 2026 compliance deadline. For the full year, TechOps revenues declined 4.5% to $123.7 million, primarily due to lower on-airport MRO activity. However, improved mix and efficiency initiatives improved gross margin for the year to 25.6%, compared to 16.6% in the prior year period, due to favorable mix and benefits of the efficiency measures taken in early 2025.

Selling, general and administrative expenses for the year were $90 million, including $4.9 million of noncash equity-based compensation compared to $94.2 million last year, which included $4.3 million of noncash equity compensation. The decrease was primarily driven by lower payroll-related expenses, which also benefited from the efficiency measures taken in 2025.

Income from operations was $15.8 million for the full year of 2025, compared to $9.7 million in the prior year. On an adjusted basis, net income for the year was $15.8 million compared to adjusted net income of $9.5 million last year. Adjusted diluted earnings per share for the year was $0.33 compared to adjusted diluted earnings per share of $0.18 in 2024. Adjusted EBITDA for the year was $46.1 million compared to $33.4 million in the prior year period, which benefited from a higher margin product mix as well as improved overall margins and lower expenses.

Year-to-date cash used in operating activities was $23 million, primarily related to feedstock acquisitions as we continue to make strategic investments to grow the Asset Management segment. We ended the year with $71.6 million of total liquidity, including $4.4 million in cash and $67.2 million of revolver availability on our $180 million asset-backed revolver, which can be expanded to an additional $200 million -- sorry, to an additional $20 million. This available liquidity and our strong inventory position provide us with the fuel to continue to grow our business into 2026.

Looking ahead, as we shift our emphasis away from trading and toward expanding the more recurring core elements of our business, we expect both full year revenue and profitability to increase relative to 2025. We anticipate steady incremental improvements as new revenue streams ramp up and their efficiency initiatives continue to gain traction.

With that, operator, we're ready to take questions.

[Operator Instructions] Our first question comes from Michael Ciarmoli with Truist.

I guess, Nick or Martin, do you have a sort of a goal in mind of kind of how much material feedstock you think you can buy? I know you're being pretty conservative, and it's still a tight market out there. Just trying to get a sense of what do you think you can close and out of -- and maybe the other part, out of what you have on hand right now? Do you think you can move all of that product this year?

As far as feedstock -- this is Nick speaking. Thanks for the question, Mike. As far as feedstock purchases, we anticipate a lower level of feedstock purchases this year than we did last year. And why is that? The market is just hypercompetitive at this point. The pricing that we see, the reason that I mentioned the -- our win rate not that it's materially different from last year, it's just under 10%, which means that we lose 9 out of 10 deals that we bid on, not to mention the hundreds of deals that we don't bid on at all because we just don't think we would be competitive. And because of the extreme competition in the market for, I candidly believe less informed people who don't understand how difficult it is to make money buying used flight equipment, and then parting it out, and then finding a way to extract value out of it that we see people buying stuff at prices. And I've said this many quarters in a row at prices that are well beyond what we believe we can make in total margin based on what they have to pay for to win the deal.

So we will continue to be disciplined on our buy side. And look, I've been doing this for a long time. This isn't the first company I've been with or that have been -- that I founded that buys -- that has bought in the aftermarket. And in my prior experience, lots of money moves into the space. uneducated investors don't know what they're buying, don't know how to properly monetize it. They spend too much money, and then eventually, they go away. And so we have to remain disciplined because overpaying kills companies. So as far as what do we think we could do this year? We think we could do -- if last year, we did $100 million. We don't think we'll do $100 million this year, but it could happen. And as far as monetizing the existing inventory that we have, I may defer a little bit of that to Martin, but we have ample inventory to continue to grow our business without buying as much as we did last year. I mean, I don't know, Martin, if you want to add any more color to that.

Yes. No, absolutely. I was going to say we're coming into starting 2026, with about $364 million of inventory, and that includes about -- almost roughly $150 million that's ready to be deployed in the USM channels as well as almost $118 million that's still in whole assets that we can put as USM or continue to grow our leasing portfolio. So on a positive, even as we're being very prudent as we always have been in deploying capital, we have more than enough to continue our growth trajectory, and that will increase our liquidity position. So when the opportunities are right, we'll continue to deploy capital.

Okay. Okay. Got it. That's really helpful. And then just on that growth trajectory. I think, the press release mentioned some of the storage revenues may have been benefiting from GTF. If I think about kind of GTF revenues and as that normalizes, and then you've got the AerSafe '26 deadline, which we kind of always see this dynamic across various end markets and industries. That probably is going to create a big uptick this year, but then maybe backfilling that. Should we think about GTF normalization, maybe AerSafe, kind of how you backfill that, maybe some of the new capacity coming online? And I guess, I'm thinking into '27, too, as maybe those trends normalize a bit with the GTF and AerSafe. Is that maybe the right way to think about it? .

Well, not 100% sure I got your question, but with regard to the GTF situation, we don't see that normalizing in '26 because we're hearing that before track and get the engines back to the aircraft that is going to drag into '27. So the opportunity for us isn't so much in the GTF storage as it is in returning the aircraft that have been parked now for several years, and returning those to service those aircraft require heavy checks. And we have -- I don't know how many, 70, 80 airplanes sitting in Goodyear and Roswell. So we've got -- we have got a lot of GTF-powered airplane sitting in our facility in Goodyear and Roswell. The Goodyear ones are going to require a return to service if they're not parted out, believe it or not. We are seeing the part out of brand new -- or relatively brand-new several-year-old A320Neos. But the opportunity for us is really yet to come. It's not through storing these airplanes and pulling engines off and putting engines on, it's that is helping.

And at this point, because of the volume of it, it kind of reminds me of the COVID situation where we had 500 airplanes parked. And although you wouldn't think you make much money doing storage, you're removing engines, putting engines on, putting airplanes into storage, taking airplanes out of storage, and then prepping them for the next lessee. With that number of airplanes in one facility, that really creates a capacity issue, not so much a demand issue. So the demand is there. We see that, that will continue through '26 and '27 as we begin doing return to service work on the aircraft that are parked and are getting engines that are coming back from Pratt. Now -- the other part of your question was?

Just AerAware, does that create a big headwind next year as everybody preps for the deadline later this year?

With regard to -- it's AerSafe actually, with regards to AerSafe, the greatest amount of sales are going to happen this year. I mean, we have a backlog that already exceeds last year, sales for all of last year, and then we're still in the first quarter. As we -- it doesn't mean that it goes away altogether, but it will be significantly diminished. Now, it's not that we're sitting around waiting to sell these, and then we have nothing else to sell. We are working on other engineered products and STCs that airlines have asked us about to say, "Hey, can you make this product for us? Can you help us resolve this technical issue?" So we are -- our engineering group is working on airline demand for engineering products or engineered products that they need to keep their fleet flying because they're not getting -- it's not getting properly addressed by the OEMs that are producing those components. .

So that is an active business that we are pursuing now, which will help us with our customers. Not to mention that we continue to look for opportunities to deploy our AerAware product not just across the 737, but we're talking across multiple other platforms, including 757 and even ATR 72.

And I'm not showing any further questions at this time. I would now like to turn the call back over to Nick Finazzo for any closing remarks. .

Okay. Thank you, Ben. Thanks again. So as we've explained and mentioned the last quarter, even with just a few whole asset trades, no AerAware sales and no incremental revenue from our facility expansion projects in the fourth quarter. Our operating margins have continued to grow. I believe this validates our unique multidimensional and fully integrated business model. And as our businesses continue to develop will put us in an excellent position to achieve substantial growth in the years ahead.

As always, I want to thank Mike Ciarmoli for his questions, which I believe provides additional insight into our business model and progress to date. I very much appreciate your interest in listening to our call today and look forward to bringing you up to date during our next earnings call. I wish you all a good evening. Thank you.

This concludes the conference. Thank you for your participation. You may now disconnect.

Good afternoon, and welcome to the AerSale Corp. Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded.

I would now like to turn the conference over to Christine Padron, Vice President of Compliance. Please go ahead.

Good afternoon. I'd like to welcome everyone to AerSale's Third 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 all that statements made on this call that do not relate to matters of historical facts 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, 2024, filed with the Securities and Exchange Commission, SEC, on March 11, 2025, and its other filings with the SEC.

These findings 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 AerSale website at ir.aersale.com.

With that, I'll turn the call over to Nick Finazzo.

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 reported revenue of $71.2 million for the third quarter compared to $82.7 million in the prior year period. The year-over-year decline was entirely driven by the absence of engine or aircraft sales in the quarter compared to 5 engine sales in the prior year period.

Excluding whole asset sales, which tend to be lumpy quarter-to-quarter, the balance of our business grew 18.5% to $71.2 million, driven by a strong inventory position supporting our USM business and higher leasing revenue. In TechOps, sales were down modestly versus last year as strength in component sales and higher AerSafe volume partially offset lower services revenue, particularly at our Roswell facility as we've repurposed that site for teardown and decommissioning work that yields higher margins.

As we note every quarter, due to the nature of our business and the impact of whole asset 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.

Turning to profitability. We delivered solid margin performance despite the absence of whole asset sales in the quarter. Adjusted EBITDA was $9.5 million or 13.3% of sales compared to $8.2 million or 10.0% of sales in the prior year period. This improvement reflects stronger leasing contributions, higher USM activity and the ongoing benefits from our cost reduction efforts over the past year that have trimmed SG&A expenses and increased MRO profit margins.

By segment and starting with Asset Management, revenue was $39.2 million in the third quarter compared to $50.4 million in the prior year period. This year-over-year decline reflects the absence of engine or aircraft sales this quarter versus 5 engine sales in the same period last year. Excluding whole asset transactions, segment revenue increased nearly 40.9% year-over-year to $39.2 million, driven by strong USM volume and higher leasing activity.

As we've discussed in past calls, we've made a strategic decision to balance whole asset transactions with assets deployed on lease, which is more in line with our historical operating model. Consequently, we expect more stability in quarterly operating results, which was evident in the quarter.

We've continued this effort throughout the year. And as of quarter end, we had 15 engines and 1,757 freighter aircraft on lease with a second 757 lease executed at the end of the quarter. During the quarter, we remained active on feedstock acquisitions to drive our future growth. We acquired a total of $13.7 million in the quarter, which brings the year-to-date total to $84.2 million.

As we've reported for the past few quarters, we're continuing to see opportunities in the market, but overall supply of attractively priced feedstock has been limited as new OEM production has yet to catch up with demand. We remain extremely disciplined not to overpay for feedstock in this highly competitive market, which has been driving up pricing.

For the balance of the year, we're in a strong inventory position with more than $371.1 million of feedstock inventory, which includes 9 engines that are available for sale or lease and another 10 engines currently undergoing repairs.

Turning to our 757 passenger to freighter conversion program. We continued to make steady progress. As I noted, we had 1 aircraft on lease during the quarter, and we placed an additional 757 freighter on lease that will begin generating revenue in the fourth quarter. Customer interest is high, and we're in active discussions to place the remaining 5 757s we converted across multiple potential customers. While the timing of these transactions is still uncertain and will likely take some time, we're encouraged by the clear improvement in market interest since a low point in 2023.

Turning to TechOps. Revenue was $32.0 million, down modestly from $32.3 million in the prior year period. During the period, we reported stronger sales of component parts and Engineered Solutions, which mostly offset a modest aggregate decline in MRO services revenue. At Goodyear, sales have stabilized following the conclusion of a contract encompassing multiple aircraft heavy checks that started to wind down in the second quarter of last year, supported by a strong pipeline of recommissioning work that is expected to keep the facility operating at or near full capacity through 2026.

We're also in discussions to secure long-term contracts that would provide greater volume visibility going forward. At our Roswell facility, results were lower, but in line with our expectations as we continue transitioning the facility to focus exclusively on teardown and decommissioning activity, which is yielding higher margins.

Looking forward, construction of our expansion projects at both our Aerostructures and pneumatics facilities are now complete, and we're in the process of transitioning to production in both facilities. We expect this to be a significant driver of revenue growth in 2026 and beyond.

In Engineered Solutions, we saw a strong increase in AerSafe deliveries year-over-year, and we anticipate volume will remain at elevated levels for the balance of the year and through 2026 as we get closer to the deadline for compliance with an FAA airworthiness directive, which is satisfied by installation of AerSafe. At quarter end, our 2025 deliveries of AerSafe plus current backlog totaled more than $22 million, and we have sufficient orders secured to achieve our 2025 financial plan.

Turning to AerAware. We continue to enhance the functionality of the system and engage with potential customers as we work toward a launch order. We believe the ongoing enhancements to the product, combined with the increased focus by both operators and the FAA on situational awareness will drive long-term adoption of this advanced technology across the industry.

As we've seen throughout the year with several safety incidents, we're now seeing system-wide air traffic control delays as a result of the government shutdown. In each of these scenarios, AerAware could serve to help alleviate air traffic congestion and enhance safety, particularly as we gain ADS-B in functionality to the system.

To that end, we're expanding our outreach and education efforts with government authorities, including the FAA and congressional leaders. This will raise awareness of how technologies like AerAware can contribute to addressing industry-wide challenges such as airport congestion, air traffic control staffing shortages and overall flight safety enhancement.

Looking to the balance of the year and into 2026, we're positioned for continued progress. We have ample feedstock availability to support growth across our USM, leasing and asset trading activities, providing a solid foundation for our core operations. Our lease pool continues to expand, creating a more predictable and recurring revenue stream, which will strengthen further as additional 757s are placed.

This has been a strategic priority for us in 2025 and demonstrated its effectiveness in the third quarter through EBITDA margin improvement even without the sale of an aircraft or engine. In TechOps, construction is now complete on our new MRO facilities, and we're in the process of transitioning into operations. These additions will be an important growth driver in 2026, enhancing both capacity and capability.

Finally, AerSafe remains a steady contributor, and we expect it to continue supporting results through the regulatory compliance deadline in the fourth quarter of 2026. Taken together, these initiatives position AerSale for a stronger, more stable and more diversified earnings profile as we move into 2026.

In closing, I want to thank our dedicated team for their continued focus and execution. We are invigorated by the underlying performance of our business. And despite the absence of whole asset sales this quarter, we delivered solid margins and made meaningful progress across key initiatives. We're entering the fourth quarter with strong momentum, a growing base of recurring revenue and a platform that is more diversified and resilient.

Now over to Martin.

Thanks, Nick. Our third quarter revenue was $71.2 million compared to $82.7 million in the third quarter of 2024. As Nick mentioned, the prior year included $22.6 million of flight equipment sales consisting of 5 engines, while this quarter did not include any whole asset sales. As we've noted in past calls, flight equipment sales can vary significantly from quarter-to-quarter, and we believe our progress based on asset purchases and sales over the long term is a more appropriate measure of our progress.

Third quarter gross margin was 30.2% compared to 28.6% in the third quarter of 2024. This year-over-year improvement reflects stronger execution across the business, including higher lease revenue, sales mix and cost control measures that we've implemented over the past year that have allowed us to improve MRO margins.

Selling, general and administrative expenses totaled $18.6 million compared to $21.7 million in the third quarter of 2024. SG&A included approximately $1.3 million of noncash stock-based compensation, which is in line with recent quarters. The reduction in total SG&A stems from lower fixed and variable payroll-related expenses, which benefited from the cost reduction efforts taken over the last 12 months.

Operating income for the quarter was $2.9 million compared to $2 million in the same period last year. Net loss for the quarter was $0.1 million compared to net income of $0.5 million for the prior year period. Adjusting for stock-based compensation, facility relocation costs, restructuring charges and other nonrecurring items, adjusted net income was $1.5 million compared to an adjusted net income of $1.8 million in the third quarter of 2024.

Adjusted EBITDA was $9.5 million in the third quarter, up from $8.2 million in the prior year period. This improvement reflects higher leasing revenue, lower operating expenses across the business and increased monetization of our feedstock inventory, partially offset by the absence of whole asset transactions compared to the prior year.

Adjusted diluted earnings per share was $0.04, which was flat compared to the third quarter of 2024. We ended the quarter with $58.9 million of liquidity, consisting of $5.3 million of cash and available capacity of $53.6 million on our $180 million revolving credit facility, expandable to $200 million, subject to conditions and the availability of lender commitment and borrowing base liabilities.

Cash used by operating activities year-to-date was $34.3 million, primarily due to continued investment in feedstock acquisitions as we continue to grow USM and leasing. Looking to the fourth quarter and full year performance, excluding flight equipment sales, we continue to expect full year revenue in excess of 2024 levels with a greater increase in EBITDA year-over-year as a result of more robust lease pool, continued monetization of our USM inventory and the cost reduction initiatives we've taken over the past 12 months that have improved MRO margins and reduced SG&A expenses.

We remain focused on executing with financial discipline and maintaining a strong balance sheet to support our growth initiatives. This progress we've made in leveraging our strong inventory position, improving operating efficiency and optimizing working capital is translating into a more resilient business model with greater earnings stability.

With ample liquidity, a growing base of recurring revenue and solid demand trends across our end markets, we believe AerSale is well positioned to deliver continued improvement in profitability and shareholder value as we move into 2026.

With that, operator, we're ready to take questions.

[Operator Instructions] Our first question comes from Steven Strackhouse of RBC Capital.

First question is that you guys have had some nice capacity expansion in your MRO business. And I can appreciate that you don't want to necessarily give a formal guide, but how should we be thinking about a baseline EBITDA for your MRO business into '26? Is there may be a revenue or margin range that we can kind of get a target from on the nice recurring piece of the business?

Yes. As we noted from the 3 expansion projects that we have, we gave a full year projection of $50 million at full overall capacity. Looking at 2026, we think those numbers will be approximately $25 million of revenue and generating pretty strong margins of $4 million to $5 million. So, we're excited that those facilities will be coming online. We're already seeing progress on our Millington facility and the 2 remaining facilities will start generating towards the end of this quarter.

So, the $50 million in '25, is that an incremental $25 million in '26?

The $50 million was total capacity, the $50 million, sorry, the $25 million would be our expectations for 2026.

Got it. Okay. And then are you may be able to just speak on your passenger to freighter conversions? It sounds like you guys got another aircraft on lease in the quarter. Has the market at all changed there? Or has the demand kind of shifted at all kind of in your favor?

And we think that due to the lack of availability of an aircraft really that provides the same operating performance as a 757 that the operating community has paid attention that there really is not a replacement aircraft for the 757. And 767s, which even though they have greater capacity, could fly routes that are 757 fly because it's a longer-range aircraft. They're not available. A330s are really yet to be converted to freighters and [ MAS ]. And so really -- and the A321 is not a true competitor to the 757 and neither is the 737-800 converted freighter. Those aircraft are much smaller with smaller range and smaller capacity.

So there isn't a competitive product really, say, in existence for the 757. And we only have a few left. And although we didn't state it in this announcement, we do have another 2 under LOI at this point, which we expect to deliver this quarter and the next quarter, which will put us at 4 aircraft for the year or at least 4 aircraft under contract for the year, leaving only 3 left to place. And we're talking to enough operators to take those 3 and some others. So, we feel that things have definitely changed from a low point in 2023, where we saw a little demand. And just due to a variety of factors and really the quality of the aircraft, we're very optimistic about our ability to place the balance of these aircraft in the relatively near term.

That sounds great. And then maybe just last one for me. I was hoping you might be able to give us a quick update on your USM strategy. Are there any changes about how you're thinking of it kind of into '26? Are you seeing any better demand signals or maybe any relaxation of the supply at all?

Yes. So, I'm not sure I followed that question. Could you -- I apologize, could you state that again because I didn't really follow it. Neither Martin and I really follow your question.

Sorry about that. Just trying to understand your availability of USM, how you anticipate USM to maybe kind of grow as we kind of get into 2026?

Okay. Good. I understood that. Availability of USM, as we mentioned, we've got a substantial amount of USM that we've had in work and is becoming available for sale, and we're selling it. Even though the market is very tight for USM, we still buy USM. We're disciplined. We could buy a lot more if we weren't as disciplined, but we're not going to do that. So, we remain disciplined in making sure we hit our target margin and IRR profiles when we acquire inventory. We're still acquiring it. We've got ample inventory to carry us, I think, all the way through '26 without buying much more, but we expect to continue to buy more.

So, we think that it's because of the way we can extract value out of feedstock that allows us to win deals. And so that even though it's tough to buy things in an overheated market where pricing has gone up, if you can extract greater value out of it than somebody else because you can do more than just sell parts, you can sell parts, you can sell engines, you could lease engines, you could put a whole airplane together, you can use pieces to put other airplanes together that you have. It's really the multidimensional integrated business model we have that I think is allowing us to win deals.

So, we're optimistic that even in a really tough buying market that we'll be able to continue to acquire feedstock to grow the business in the future.

Our next question comes from Sam Struhsaker of Truist Securities.

Just trying to, I guess, clarify for my sake as much as anything. On the Roswell and Goodyear facilities, do you have any, I guess, line of sight to when those facilities would kind of be fully transitioned to the new scope of work and operating at the level that you guys would ideally like either in time line? Or just any thoughts there in terms of visibility?

In our Roswell facility, we have substantially transitioned that away from heavy maintenance work and to be more focused on storage and part out and tear down of aircraft. So, we're substantially there. Now there's still opportunity for significant growth even doing that work. And there are other opportunities that if we fill up at Goodyear and Millington, that we may have no choice but to put some heavy maintenance work back into Roswell. And there are some programs that are under consideration right now where we may do that.

But at this time, we don't want to develop any additional overhead necessary to support heavy maintenance in Roswell until we fill up completely our Goodyear and Millington facilities. Now progress on those is outstanding. In Goodyear, although we've yet to conclude a substantial number of long-term contracts, we're almost full. I think we have 7 out of our 8 days operating right now with transition work from the 70 or so A320neos and ceos that have been parked there that are transitioning to new lessors. Those airplanes are requiring seat checks and paint jobs and other transitioning work, engine work because the A320neo, half the airplanes out there, I take it back, most of the airplanes that are parked there don't have engines.

So, we have lots of activity going on surrounding the engine problem on the A320neo that problem is being resolved and those aircraft are being returned to service. So that's creating a fantastic opportunity for us. While we also -- while we have that work, we also have -- we also are generating repetitive work from some of the customers that we've historically dealt with. And we've got 757s in work, and we've had leasing company aircraft in work and 767s in work.

So, we're in a much different position than we were in 6, 8 months ago, where we had just completed a heavy check line, a multiple aircraft heavy check line for a major airline and had to backfill all that work. Now as we move into 2026, with the amount of work that we see, we -- it's going to be tough for us to take much long-term revenue in there because there'll be so much short-term revenue.

So the key for us is to make sure that we make available enough slots of work so that we can attract long-term customers and then have a variety of -- between the 8 days we have in Goodyear to have a variety of long-term customers and short-term customers that we can satisfy that come in and out and provide a nice mix of revenue opportunity, one being a little more steady and the other being maybe a little bit higher margin, the shorter-term business. That's in respect to Goodyear.

With regard to Millington, we've intentionally not done anything in Millington up until now. I mean, at this point, we said until we fill up Goodyear, we're not going to commit resources to Millington until we feel like we need to. Well, we need to now. And we've had a customer come to us that has initially indicated to us, we signed an LOI. It's a regional carrier that has agreed to give us a number of their aircraft to start and based on our performance, do their entire fleet. That's a program that will run anywhere from 6 months, if it's just an initial program to as long as 3 years covering over 100 regional aircraft.

So, we feel pretty optimistic about Millington at this point. So if you look across our on-airport facilities, we feel like we were in excellent position to start filling those facilities up and generating significant revenue that we haven't seen, which is we haven't seen to date, this amount of revenue that we're looking at today and in '26 across those facilities.

That's really great color. I appreciate it, and that sounds great. I guess you kind of touched sort of on this topically in terms of engines, you guys mentioned you have, I think, 9 available and I guess, 10 under repair. And I was just curious if you have any sort of line of sight or kind of how you're feeling about demand for that in general and maybe time line on converting those 10 engines that are undergoing repair before they're actually available for -- they're fully ready to go.

I don't know that I know specifically how long each of the 10 engines will take. But my guess is that, we've got engines that are coming available in the next month or so and probably not longer than several months after that. So I would guess that those 10 engines will all be out by the end of the first quarter of '26. But then there'll be more that will go in as we continue to acquire engines to repair.

The -- what's going on with the engine shops today is it's taking a ridiculously long time to get anything through the shop. And so we're having to -- we're just having to bear through that. It doesn't change the fact that when we need an engine to get work, we're going to put it in the shop. If we feel we can get higher value out of it as a whole engine, we're going to put it through the shop.

What was the other part of that?

Anticipation of the growth.

I think just general like kind of, I guess, demand trends you guys might be seeing within...

Okay. Yes, yes. Demand is insatiable at this point. The -- if -- whether we're talking about a narrow-body engine, whether it be on a 737NG, an A320, there is more demand that there are available engines at this point. So if you've got a good engine or and then even on the wide-body side, Pratt & Whitney PW 4000s that go on 767s and 747 and on some Airbus aircraft. And same thing with GE CF680s. We can't get them -- the issue we have is as we get them through the shop and we want to put them out on lease, we have customers that are coming up to us and they want to buy them for cash. And so we're having to wait, wait a minute, do we take -- do we sell this for cash or do we put it on a long-term lease?

The preference would be to put it on a long-term lease. So the issue we face is not a lack of demand, but what do we do with that? So it's difficult to answer the question. So how do you view your engine situation on a go-forward basis? Are you going to have more trading opportunities, more leasing opportunities? And the answer is we have opportunities for both. The question is where are we going to put the asset and where will we get the highest margin on a risk-adjusted basis.

[Operator Instructions] This concludes the question-and-answer session. I would like to turn the conference back over to Nick Finazzo for any closing remarks.

All right. Thank you. As we've explained, even without any whole asset trades, AerAware sales or incremental revenue from our facilities expansion projects, our operating margins have continued to grow. I believe this validates our unique multidimensional and fully integrated business model. And as our businesses continue to develop, will put us in an excellent position to achieve substantial growth in the years ahead. As always, I want to thank Steven and Sam for their questions, which I believe provide additional insight into our business model and progress to date. I very much appreciate your interest in listening to our call today and look forward to bringing you up to date during our next earnings call. I wish you all a good evening. Thank you.

This conference has now concluded. Thank you for attending today's presentation. You may now disconnect.