NASDAQ:WLFC Willis Lease Finance Q2 2024 Earnings Report $156.64 +5.73 (+3.80%) Closing price 05/2/2025 04:00 PM EasternExtended Trading$156.41 -0.23 (-0.15%) As of 05/2/2025 07:56 PM Eastern Extended trading is trading that happens on electronic markets outside of regular trading hours. This is a fair market value extended hours price provided by Polygon.io. Learn more. Earnings History Willis Lease Finance EPS ResultsActual EPS$6.21Consensus EPS N/ABeat/MissN/AOne Year Ago EPSN/AWillis Lease Finance Revenue ResultsActual Revenue$151.12 millionExpected RevenueN/ABeat/MissN/AYoY Revenue GrowthN/AWillis Lease Finance Announcement DetailsQuarterQ2 2024Date8/1/2024TimeN/AConference Call DateFriday, August 2, 2024Conference Call Time1:00PM ETUpcoming EarningsWillis Lease Finance's Q1 2025 earnings is scheduled for Tuesday, May 6, 2025, with a conference call scheduled at 10:00 AM ET. Check back for transcripts, audio, and key financial metrics as they become available.Q1 2025 Earnings ReportConference Call ResourcesConference Call AudioConference Call TranscriptPress Release (8-K)Quarterly Report (10-Q)Earnings HistoryCompany ProfilePowered by Willis Lease Finance Q2 2024 Earnings Call TranscriptProvided by QuartrAugust 2, 2024 ShareLink copied to clipboard.There are 6 speakers on the call. Operator00:00:00Good day, and welcome to the Willis Lease Finance Corporation Q2 2024 Earnings Call. Today's conference is being recorded. We would like to remind you that during this conference call, management will be making forward looking statements, including statements regarding our expectations related to financial guidance, outlook for the company and our expected investment and growth initiatives. Please note, these forward looking statements are based on current expectations and assumptions, which are subject to risks and uncertainties. These statements reflect WLFC's views only as of today. Operator00:00:35They should not be relied upon as representative of views as of any subsequent date, and WLFC undertakes no obligation to revise or publicly release the results of any revision to these forward looking statements in light of new information or future events. These statements are subject to a variety of risks and uncertainties that could cause actual results to differ materially from expectations. For further discussion of the material risks and other important factors that would affect WLFC's financial results, please refer to its filings with the SEC, including without limitation, WLFC's most recent quarterly report on Form 10 Q, annual report on Form 10 ks and other periodic reports, which are available on the Investor Relations section of WLFC's website at www. Wlfc. Globalinvestorrelations. Operator00:01:39At this time, I would like to turn the conference over to Austin Willis. Please go ahead. Speaker 100:01:46Thank you, Ruth. Here with me today is Brian Hull, our President and Scott Flaherty, our CFO. Firstly, I'd like to thank our employees for another great quarter. They're all working incredibly hard to deliver our results. Next, I'd like to recognize this as our 1st quarterly earnings call in recent history. Speaker 100:02:06We are engaging with the investor community to tell our story and as you'll see from our earnings, it's a good story. Our services enhanced leasing strategy coupled with favorable market dynamics is resulting in exceptional performance. We began this year strong with our 1st quarter pretax earnings or EBT of $29,900,000 representing the best quarter we've had to that point. Our 2nd quarter EBT was 57,900,000 dollars nearly double that of Q1. Approximately $14,000,000 of the Q2 earnings were the result of gain on sale, allowing us to recycle capital into new assets such as the purchase of 10 engines consisting of GTF, LEAP and GEnx. Speaker 100:02:51While we remain bullish on the long term prospects of the current technology engines such as the CFM56-5B, 7B and V2500, we are taking the opportunity to modernize the portfolio as we have done in the past. I mentioned the gain on sale because I think we need to be thoughtful about annualizing total EBT amounts for the first half when perhaps more focus should be placed on the core run rate. Our exceptional performance is the result of many factors, some macro and some resulting from decisions we have made in the past regarding our portfolio composition and augmenting our leasing business with services. The supply chain issues in aviation and more specifically amongst engines have resulted in unprecedented demand. Both CFMI and Pratt and Whitney have been and continue to have teething issues with their newest technology engines, primarily the LEAPS and the geared turbofans that powered A320neo and MAX families of aircraft. Speaker 100:03:56The teasing issues have resulted in engines requiring off wing maintenance more frequently, which is met with capacity limitations at the maintenance or MRO facilities. At the same time, the OEMs are struggling to produce and repair enough parts to service the new engines they are producing as well as the current technology engines such as the 7B, 5B and V2500. This in turn is causing further delays in MROs trying to overhaul engines. To combat this, both Airbus and Boeing are pushing the engine OEMs to meet their delivery commitments. Ultimately, this has caused an incredible strain on the supply chain and has resulted in a need to lease in spare engines to keep airplanes flying that would otherwise likely be grounded. Speaker 100:04:48As an owner of assets, the supply and demand imbalance has worked to our favor. Lease rates have risen considerably, allowing us to keep up with incremental costs due to inflation and interest rates. This paradigm has also allowed us to be more selective regarding the credit quality of our counterparties. The investments we have made in our services businesses over the past decade have proven fruitful. All of these service businesses allow us to have greater control over the lifecycle of the assets we own and manage through parts, maintenance and planning. Speaker 100:05:26And this has proved this has provided us with a competitive advantage through the supply chain constrained marketplace. We have a business that provides used serviceable engine parts making us less reliant on the OEMs. We have 2 engine repair shops, 1 in the UK and 1 in the U. S, making us less reliant upon external MROs. We have a consulting business that accurately forecasts engine maintenance events, allowing us to effectively plan ahead. Speaker 100:05:57And we have an airframe based maintenance facility in the UK that allows us to tear down aircraft when they come back off lease as well as perform C checks to bridge from one lessee to the next. We have created a platform that can provide airlines liquidity, assets and reduce maintenance expense. This offering when combined with the current market dynamic has proven to be very attractive to customers. I feel that our model will continue to maintain our position as the world's premier engine lessor for the foreseeable future, even as the supply chain normalizes over time. Finally, I'd like to mention that we paid a one time dividend of $1 per share on our common stock on June 7, and the Board has approved a recurring dividend policy. Speaker 100:06:46We are pleased with the performance of the company, and we wanted to take the opportunity to return capital to our shareholders while supporting growth and leverage targets. With that, I'd like to hand it over to Scott Flaherty, our CFO. Speaker 200:07:02Thank you, Austin, and good afternoon all. As you can see from our P and L, the company produced record earnings before tax or EBT in the 2nd quarter of 57 $900,000 This performance was up $38,900,000 or 205% from the comparable quarter in 2023 and up $28,000,000 or 94% sequentially from Q1 twenty the company. First half twenty twenty four EBT of $87,800,000 Speaker 100:07:36is close to Speaker 200:07:37our full year record profitability achieved in 2019. Walking through the P and L, revenues for the quarter were $151,100,000 Significant total drivers were core lease rent revenues of $55,900,000 primarily reflecting the increased total portfolio size of $2,470,000,000 atquarterend as the company purchased equipment including capitalized costs totaling 258,800,000 dollars in the quarter, only slightly offset by $65,300,000 of equipment sales. Maintenance revenues for the quarter were $62,900,000 up $27,500,000 or 78% from the comparable quarter in 2023. As you parse through these revenues, you can see that 17,000,000 reserves associated with engines coming off lease and the associated release of any maintenance reserve liabilities and 45 $900,000 of these reserves were short term maintenance reserves, which are highly correlated to the amount of time our portfolio flying as we generally get paid an hourly and cyclic rate on our lease assets. These short term maintenance revenues were up $17,300,000 or 60% when compared to the same period in 2023. Speaker 200:09:04Spare parts and equipment sales of $6,200,000 in the quarter produced 12% gross margins, while also providing a valuable outlet to recognize residual values on our engine portfolio and provide feedstock for our and our customers' fleet in a tight parts market. Gain on sale of lease equipment, a net revenue metric was $14,400,000 in the quarter. As mentioned above, this was associated with $65,300,000 of gross equipment sales and compares to $4,500,000 of gain in the comparable period of 2023. During the quarter, the company sold numerous engines and airframes to various trading partners. Maintenance services, which represents fleet management, engine and aircraft storage and repair service and revenues related to management of fixed base operator services was 6,800,000 the quarter, up 16% from the comparable period in 2023. Speaker 200:10:03The company produced 16% gross margins on these sales, while also generating significant business opportunities for our core leasing business, enabling us to become more relevant to our customers by being able to offer a broader bundled product solution. On the expense side of the equation, depreciation remained relatively flat at $22,000,000 The company had no impairments in the quarter as we have seen continued strength and appreciation in asset values. G and A was up $3,000,000 from the prior comparable period, mainly driven by increased personnel costs as we grow our services footprint as well as increases in incentive compensation, which is correlated to the profitability of the overall business. Despite this increase, G and A declined over 6 points as a percentage of total revenue relative to prior period as we leverage the platform and gain benefits from scale. Technical expense, which generally consists of non capitalized engine repair costs, engine thrust rental fees and other related costs was $4,500,000 in the quarter, down $2,200,000 from the comparable period. Speaker 200:11:16These expenses tend to vary with the timing of shop visits associated with off lease engines. Net finance costs were $24,600,000 for the quarter compared to $19,100,000 in Q2 2023. The increase in costs were related to an increase in indebtedness as total debt obligations increased from $1,800,000,000 in Q2 2023 to $1,900,000,000 in Q2 'twenty four as well as an increase in the weighted average cost of debt, which inclusive of our interest rate hedge positions was 4.93% at sixthirtytwenty 24 compared to 4.08% at sixthirtytwenty 23. The company also picked up $3,800,000 in ratable earnings from our 50 percent ownership interest in our Willis Mitsui and Cassick Willis joint ventures. As I mentioned earlier, EBT was $57,900,000 for the quarter and the company produced $41,700,000 of net income attributable to common shareholders, factoring GAAP taxes and the cost of our preferred equity. Speaker 200:12:23Diluted weighted average per share was $6.21 for the quarter, up 2 0 7% from the comparable period in 2023. Cash flows from operations for the first half of the year were up 32% to $129,700,000 driven primarily by the growth in pre tax earnings as the business enjoyed significant tax depreciation shield, slightly offset by growth in spare parts inventory as the company opportunistically purchased an attractive portfolio of engine parts earlier in the year. On the financing side of the equation, in early May, the company closed a $500,000,000 non recourse warehouse facility with a small group of banks, where alongside our $500,000,000 credit facility, we will aggregate asset portfolios to be subsequently refinanced in the term market. We continually look to diversify our sources of funding and minimize our overall cost of capital and have been successful accessing numerous markets over the years. In the Q2, our Board of Directors declared a one time special dividend of $1 per share, which was paid to record holders in early June. Speaker 200:13:34With our Q2 earnings release, we announced a $0.25 per share regular quarterly dividend, which speaks to the health of the business, provides our shareholders with a moderate current cash yield on their investment, while not degrading the strong cash flow and equity growth characteristics of the With respect to leverage, the company has brought balance sheet leverage defined as total debt obligations to equity inclusive of our preferred stock to 3.59x@q222, compared to 3.91x in the comparable period of 2023. When factoring net debt, leverage is at 3.3 times. At times, we've maintained higher levels of restricted cash as we retain and reinvest ABS asset sale proceeds, which are held as restricted cash into new assets. This allows the company to benefit from attractive fixed rate debt pricing for a longer period of time while maintaining a lower cost of capital for the business. We target leverage in the mid-3s recognizing that leverage may at times slightly tick higher should we identify purchase opportunities that enhance the characteristics of the overall portfolio. Speaker 200:14:48With that, I will now open the call up to questions. And operator, if you could please provide instructions on how participants can ask questions, that would be great. Thank you. Operator00:15:00Yes, sir. Thank We'll go first to Adam Cecil with Gravity Capital. Speaker 300:15:49Yes. Hi. Thanks for taking the question and thanks more generally Austin and doing this call. I hope to learn a lot. I would hope just by way of overview or introduction, you could contrast and compare your business with Fortress. Speaker 300:16:09They're quite public about what they do, of course, and have regular slide decks and so forth. We don't know much about you in contrast. So I was hoping you could just sort of as a business model or business plan compare and contrast the 2 publicly traded engine leasing companies for us. Speaker 100:16:30Sure. Thank you for your question, Adam. So I'll refrain from really speaking to Fortress, but I will tell you a bit about ourselves. So we are about 50% short term and 50% long term in the leasing market. And I mentioned that because the short term nature of our business allows us to get very active in the programmatic side of the business. Speaker 100:16:57So that's when we do programs like constant thrust, where we'll do a sale leaseback on a portfolio of aircraft or engines. And when one of those engines becomes unserviceable, we'll exchange it for another one of our engines that we have in our portfolio. And it's really that short term leasing capability that gives us the confidence that we'll have availability of assets at any given time to be able to fill that demand. So I mentioned that particular product because it really draws on different elements of our business. So our 2 145 repair stations, they enable us to repair engines more quickly and get them out on lease to the customers. Speaker 100:17:37And they also draw from materials from our parts business, WASI. And that business buys engines or gets engines from our portfolio, disassembles them and sells the pieces. So between those 2, we're able to get engines out the door much faster than we typically would from a 3rd party MRO and more inexpensively because we're reusing materials that are coming either from our engines or 3rd party engines. And then we also draw from expertise from our consulting business, WAML, that does pretty accurate forecasting to tell you when engines will become unserviceable. So really, we're a combination of a handful of services businesses and a leasing company that enable us to provide really an enhanced leasing product to the customer where we can save them money on a maintenance as well as from a planning perspective. Speaker 300:18:30I see. That's helpful. If I could follow-up, they always talk about Fortress does about their MRO business and how they have a a better mousetrap that saves customers time and money. Are you effective and I just I don't know much about the engine leasing business or the MRO business. Are you effectively saying the same that you have the same mousetrap? Speaker 100:18:55Again, I don't really want to comment to them specifically. I think there probably are similarities. We focus on the maintenance element because that's the biggest driver of expense and we have done for years. We've been providing these products for kind of over 10 years now. So this is nothing new or novel for us. Speaker 100:19:18Thanks so much. Certainly. Operator00:19:33We'll go to our next caller, Will Waller with Speaker 400:19:39M3S. Aeroleas in their presentation and press release yesterday said they have a lot of value in their order book given all of the backlogs with the manufacturing of engines and aircraft and so on. You guys have quite a large order book and it seems like you've put in orders at pretty ideal times over the last 4 years or so. I was just wondering if you could kind of comment on the status of your order book and if you feel the same way? Speaker 100:20:08Yes. I think there's similarities to comparing our order books to the aircraft lessors, but there's certainly differences as well. We work a bit more closely with the OEMs to provide aftermarket service to their customers. We do have a strong order book and we've taken delivery of a number of engines this year and we're on course to take delivery of an additional amount and the same thing over the next few years. So that constitutes a decent proportion of our pipeline going forward. Speaker 100:20:39But we also solicit a lot of transactions from marketplace as well. Speaker 400:20:46Okay, great. And then if I could just ask one other question, and it might have been partially answered in that first question, but there's been a lot of it seems like a trend towards the use of modules to save time and money with engine overhauls. Could you kind of talk about your views on the use of modules in an engine overhauls and then kind of talk to you if that's a product that you're offering? Speaker 100:21:10Sure. So we will do module swaps from time to time. We've done, I think, 20 in this past year, but that really isn't a core focus for us. We look at a variety of different avenues to manage maintenance costs most effectively. The reality is it's very hard to get high pressure turbine HPT modules and that's going to continue for the foreseeable future. Speaker 100:21:34So each engine is different. In some cases, it makes sense to do module swaps. In some cases, it doesn't. Operator00:21:54We will take a follow-up question from Adam Cecil with Gravity Capital. Speaker 300:21:59Yes, thanks. Speaker 100:22:03I understand you don't want Speaker 300:22:04to compare and contrast with Fortress, but one thing that struck me when I spoke with both companies is, they will they have not bought any of the next gen engines. They have not bought any LEAP and not any GTS. So you guys have had a bit of both. What's your rationale for buying the new engines, especially when the GTF is essentially the service in the 1100 on the narrow bottom? Speaker 100:22:33Thanks, Adam. So for us, it's a natural progression for just modernizing our portfolio. If you look back historically, 10, 20 years ago, you'd see the majority of our portfolio was CFM56-three and JT-eight engines. So this is normal of course for us. We feel that the GTS and the LEAP-1A and LEAP-1B will be the engines that drive the future of aviation for the 737 MAX and A320neo. Speaker 100:23:01So that's the long term view. In the short term, a lot of the maintenance issues or teething issues that have plagued those engines really are causing demand events for us. So every time an engine is removed, it creates an opportunity to put another engine on lease. So we see it as both a good short term and a good long term investment. Operator00:23:28We'll go next to Andrew Delmedica with Phase II Partners. Speaker 500:23:36Hey, guys. Thanks for taking the time. Just on the gain on sales, you mentioned the positive operating backdrop that you're experiencing. Can you just talk to kind of the sustainability that you see on the gain on sale of the engines? How you guys are thinking about the value of the portfolio as some of these come off lease? Speaker 500:23:54And kind of what you're looking at in the operating environment that's leading to this positive backdrop? Thanks. Speaker 100:24:03Sure. Thanks, Andrew. We did an investor information call recently, and I think there was some publications that covered this as well. Our portfolio is fairly undervalued from a book value relative to market value basis, and I think we're seeing that reflected in the gain on sale. Gain on sale for assets right now is probably a bit higher than it has been historically. Speaker 100:24:26But we generally have a run rate in the sort of mid low teens for gain on sale. And once things normalize, at some point, I expect it to be back in that neighborhood. Great. Thanks. Speaker 500:24:43I guess also on the as a follow-up, on some of the assets that have been tied up in Russia and obviously there's a lot of litigation etcetera going on around that. Do you have any color that you could give us on kind of when you would expect some ruling or some type of recovery, whatever potential there might be on those? Speaker 100:25:06I wish I could. No, we're pursuing our rights to the extent that we can. I really can't get into too much detail because we're very much in discussion with the insurance companies. What I can say is we were very proactive early on in the war between Russia and Ukraine, and we were able to get some assets out. And frankly, we've been very fortunate in the low value assets that we had confiscated Russia relative to a lot of competitors. Speaker 100:25:37We do still feel strongly that we will recover that value, but it's just a matter of 1. Speaker 500:25:43Great. Thanks. And then just as a reminder, could you how much do you have tied up? And I guess if you were to recover those, how big of a gain would that be for the portfolio? Speaker 100:25:55I won't comment on that now. But if you look back at our previous disclosures, I think you can find that historically. Operator00:26:07There are no other questions over the phone lines. Speaker 200:26:13Yes. Operator, I think we'll switch to a couple of questions that we have. We have one question here from MUFG and the question is congratulating us, thank you, on the quarter. And the question, how do we see the rest of the year in the context of some of the signs of overcapacity in the U. S. Speaker 200:26:38Domestic or the European market? And what are the potential risk factors you see for the second half of the year? Speaker 100:26:48Thanks, Scott. I'll take this initially if I can. So obviously, we've read the same headlines that you guys have read with regards to overcapacity issues. I really can't opine on what trends that may or may not mean. I think part of it is due to the U. Speaker 100:27:07S. And Europe emerging more quickly than Asia Pac and other countries from the pandemic. But more importantly, I'd like to focus on what we have seen in the past when there are difficulties among the airlines and they're cash strapped, they tend to avoid overhauling engines. So when they have an engine become unserviceable, they'll remove it from wing, park it and lease in engines from us. And this is reflected in our earnings post-nineeleven, post economic crisis. Speaker 100:27:38There is an element of countercyclicality in our business. So I think it's worth noting that. And then was there a second part of that question, Scott? Speaker 200:27:50No, I think that's the I think that was the key question, Austin there. I think Austin, the next question we have is within your maintenance reserves and this question comes again from Phase 2 partners. Within your maintenance reserve revenue, how sustainable is the long term portion of it? I realize as it relates related to when leases come off lease, but any additional color would be appreciated. So Speaker 100:28:23Sure. So the long term element of maintenance reserves occur when we have an engine come off of long term lease. And by their nature, they tend to be lumpy. When we have a lot of engines extending, as is the case now and what we expect in the near future, I would expect it to be a bit lower. Now that being said, I do recognize we had significant long term maintenance reserve recognition in the quarter and that was due to a few circumstances that were somewhat outside of the normal. Speaker 100:28:55Scott, if you'd like to add any color to that, please do so. Speaker 200:29:00Yes. No, Austin, I think you've got that right. I agree with that. I think the last question that we have is coming from M3, Jason Stockover at M3. The company has historically done an excellent job repurchasing shares in the past via both open market, private transactions and tender offers. Speaker 200:29:30With how inexpensive your shares still trade on both book value and now earnings, what are your views on repurchases going forward? Speaker 100:29:41Well, I appreciate your view on us being inexpensive. Beyond that, I can't really speak to any specific strategy on repurchasing shares in the foreseeable future. Speaker 200:29:54Yes, I guess I would add, fortunately, the shares are not as inexpensive as they were some time ago. Operator, I think that was the last question that we had in the queue. So we want to thank everybody for joining the call and we look forward to speaking to everybody in the next quarter. So thanks for your time. Speaker 100:30:26Thank you, everybody. I appreciate you joining us today. Operator00:30:32This does conclude today's conference call. Thank you for your participation. You may now disconnect.Read morePowered by Conference Call Audio Live Call not available Earnings Conference CallWillis Lease Finance Q2 202400:00 / 00:00Speed:1x1.25x1.5x2x Earnings DocumentsPress Release(8-K)Quarterly report(10-Q) Willis Lease Finance Earnings HeadlinesWillis Lease Finance declares $0.25 dividendMay 2 at 11:07 AM | msn.comWillis Lease Finance Corporation Announces Quarterly DividendMay 2 at 8:00 AM | investing.comWhy Elon put $51 million into thisWhy Elon Musk Just Invested $51 Million Into Brand New “Miracle Metal” Developed by MIT ScientistsMay 4, 2025 | True Market Insiders (Ad)Willis Lease Finance Corporation Announces Quarterly DividendMay 2 at 7:30 AM | globenewswire.comWillis Lease Finance Corporation Closes Three Additional JOLCO Deals, Bringing Total JOLCO Financings to Nearly $120MApril 29, 2025 | finance.yahoo.comQ1 Earnings Scorecard and Analyst Reports for Costco, American Express & Goldman SachsApril 24, 2025 | msn.comSee More Willis Lease Finance Headlines Get Earnings Announcements in your inboxWant to stay updated on the latest earnings announcements and upcoming reports for companies like Willis Lease Finance? Sign up for Earnings360's daily newsletter to receive timely earnings updates on Willis Lease Finance and other key companies, straight to your email. Email Address About Willis Lease FinanceWillis Lease Finance (NASDAQ:WLFC) operates as a lessor and servicer of commercial aircraft and aircraft engines worldwide. The company operates through two segments, Leasing and Related Operations, and Spare Parts Sales. The Leasing and Related Operations segment engages in acquiring and leasing commercial aircraft, aircraft engines, and other aircraft equipment, as well as the purchase and resale of commercial aircraft engines and other aircraft equipment, and other related businesses. The Spare Parts Sales segment purchases and resells after-market engine parts, whole engines, engine modules, and portable aircraft components. The company also focuses on engine management and consulting business. It serves commercial aircraft operators, as well as maintenance, repair, and overhaul organizations. As of December 31, 2023, it had a total lease portfolio of 337 engines, 12 aircraft, one marine vessel, and other leased parts and equipment, and with 74 lessees in 42 countries; and managed a total lease portfolio of 198 engines, aircraft, and related equipment for other parties. The company was founded in 1985 and is headquartered in Coconut Creek, Florida.View Willis Lease Finance ProfileRead more More Earnings Resources from MarketBeat Earnings Tools Today's Earnings Tomorrow's Earnings Next Week's Earnings Upcoming Earnings Calls Earnings Newsletter Earnings Call Transcripts Earnings Beats & Misses Corporate Guidance Earnings Screener Earnings By Country U.S. Earnings Reports Canadian Earnings Reports U.K. Earnings Reports Latest Articles Amazon Earnings: 2 Reasons to Love It, 1 Reason to Be CautiousMeta Takes A Bow With Q1 Earnings - Watch For Tariff Impact in Q2Palantir Earnings: 1 Bullish Signal and 1 Area of ConcernVisa Q2 Earnings Top Forecasts, Adds $30B Buyback PlanMicrosoft Crushes Earnings, What’s Next for MSFT Stock?Qualcomm's Earnings: 2 Reasons to Buy, 1 to Stay AwayAMD Stock Signals Strong Buy Ahead of Earnings Upcoming Earnings Palantir Technologies (5/5/2025)Vertex Pharmaceuticals (5/5/2025)Realty Income (5/5/2025)Williams Companies (5/5/2025)CRH (5/5/2025)Advanced Micro Devices (5/6/2025)American Electric Power (5/6/2025)Constellation Energy (5/6/2025)Marriott International (5/6/2025)Energy Transfer (5/6/2025) Get 30 Days of MarketBeat All Access for Free Sign up for MarketBeat All Access to gain access to MarketBeat's full suite of research tools. 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There are 6 speakers on the call. Operator00:00:00Good day, and welcome to the Willis Lease Finance Corporation Q2 2024 Earnings Call. Today's conference is being recorded. We would like to remind you that during this conference call, management will be making forward looking statements, including statements regarding our expectations related to financial guidance, outlook for the company and our expected investment and growth initiatives. Please note, these forward looking statements are based on current expectations and assumptions, which are subject to risks and uncertainties. These statements reflect WLFC's views only as of today. Operator00:00:35They should not be relied upon as representative of views as of any subsequent date, and WLFC undertakes no obligation to revise or publicly release the results of any revision to these forward looking statements in light of new information or future events. These statements are subject to a variety of risks and uncertainties that could cause actual results to differ materially from expectations. For further discussion of the material risks and other important factors that would affect WLFC's financial results, please refer to its filings with the SEC, including without limitation, WLFC's most recent quarterly report on Form 10 Q, annual report on Form 10 ks and other periodic reports, which are available on the Investor Relations section of WLFC's website at www. Wlfc. Globalinvestorrelations. Operator00:01:39At this time, I would like to turn the conference over to Austin Willis. Please go ahead. Speaker 100:01:46Thank you, Ruth. Here with me today is Brian Hull, our President and Scott Flaherty, our CFO. Firstly, I'd like to thank our employees for another great quarter. They're all working incredibly hard to deliver our results. Next, I'd like to recognize this as our 1st quarterly earnings call in recent history. Speaker 100:02:06We are engaging with the investor community to tell our story and as you'll see from our earnings, it's a good story. Our services enhanced leasing strategy coupled with favorable market dynamics is resulting in exceptional performance. We began this year strong with our 1st quarter pretax earnings or EBT of $29,900,000 representing the best quarter we've had to that point. Our 2nd quarter EBT was 57,900,000 dollars nearly double that of Q1. Approximately $14,000,000 of the Q2 earnings were the result of gain on sale, allowing us to recycle capital into new assets such as the purchase of 10 engines consisting of GTF, LEAP and GEnx. Speaker 100:02:51While we remain bullish on the long term prospects of the current technology engines such as the CFM56-5B, 7B and V2500, we are taking the opportunity to modernize the portfolio as we have done in the past. I mentioned the gain on sale because I think we need to be thoughtful about annualizing total EBT amounts for the first half when perhaps more focus should be placed on the core run rate. Our exceptional performance is the result of many factors, some macro and some resulting from decisions we have made in the past regarding our portfolio composition and augmenting our leasing business with services. The supply chain issues in aviation and more specifically amongst engines have resulted in unprecedented demand. Both CFMI and Pratt and Whitney have been and continue to have teething issues with their newest technology engines, primarily the LEAPS and the geared turbofans that powered A320neo and MAX families of aircraft. Speaker 100:03:56The teasing issues have resulted in engines requiring off wing maintenance more frequently, which is met with capacity limitations at the maintenance or MRO facilities. At the same time, the OEMs are struggling to produce and repair enough parts to service the new engines they are producing as well as the current technology engines such as the 7B, 5B and V2500. This in turn is causing further delays in MROs trying to overhaul engines. To combat this, both Airbus and Boeing are pushing the engine OEMs to meet their delivery commitments. Ultimately, this has caused an incredible strain on the supply chain and has resulted in a need to lease in spare engines to keep airplanes flying that would otherwise likely be grounded. Speaker 100:04:48As an owner of assets, the supply and demand imbalance has worked to our favor. Lease rates have risen considerably, allowing us to keep up with incremental costs due to inflation and interest rates. This paradigm has also allowed us to be more selective regarding the credit quality of our counterparties. The investments we have made in our services businesses over the past decade have proven fruitful. All of these service businesses allow us to have greater control over the lifecycle of the assets we own and manage through parts, maintenance and planning. Speaker 100:05:26And this has proved this has provided us with a competitive advantage through the supply chain constrained marketplace. We have a business that provides used serviceable engine parts making us less reliant on the OEMs. We have 2 engine repair shops, 1 in the UK and 1 in the U. S, making us less reliant upon external MROs. We have a consulting business that accurately forecasts engine maintenance events, allowing us to effectively plan ahead. Speaker 100:05:57And we have an airframe based maintenance facility in the UK that allows us to tear down aircraft when they come back off lease as well as perform C checks to bridge from one lessee to the next. We have created a platform that can provide airlines liquidity, assets and reduce maintenance expense. This offering when combined with the current market dynamic has proven to be very attractive to customers. I feel that our model will continue to maintain our position as the world's premier engine lessor for the foreseeable future, even as the supply chain normalizes over time. Finally, I'd like to mention that we paid a one time dividend of $1 per share on our common stock on June 7, and the Board has approved a recurring dividend policy. Speaker 100:06:46We are pleased with the performance of the company, and we wanted to take the opportunity to return capital to our shareholders while supporting growth and leverage targets. With that, I'd like to hand it over to Scott Flaherty, our CFO. Speaker 200:07:02Thank you, Austin, and good afternoon all. As you can see from our P and L, the company produced record earnings before tax or EBT in the 2nd quarter of 57 $900,000 This performance was up $38,900,000 or 205% from the comparable quarter in 2023 and up $28,000,000 or 94% sequentially from Q1 twenty the company. First half twenty twenty four EBT of $87,800,000 Speaker 100:07:36is close to Speaker 200:07:37our full year record profitability achieved in 2019. Walking through the P and L, revenues for the quarter were $151,100,000 Significant total drivers were core lease rent revenues of $55,900,000 primarily reflecting the increased total portfolio size of $2,470,000,000 atquarterend as the company purchased equipment including capitalized costs totaling 258,800,000 dollars in the quarter, only slightly offset by $65,300,000 of equipment sales. Maintenance revenues for the quarter were $62,900,000 up $27,500,000 or 78% from the comparable quarter in 2023. As you parse through these revenues, you can see that 17,000,000 reserves associated with engines coming off lease and the associated release of any maintenance reserve liabilities and 45 $900,000 of these reserves were short term maintenance reserves, which are highly correlated to the amount of time our portfolio flying as we generally get paid an hourly and cyclic rate on our lease assets. These short term maintenance revenues were up $17,300,000 or 60% when compared to the same period in 2023. Speaker 200:09:04Spare parts and equipment sales of $6,200,000 in the quarter produced 12% gross margins, while also providing a valuable outlet to recognize residual values on our engine portfolio and provide feedstock for our and our customers' fleet in a tight parts market. Gain on sale of lease equipment, a net revenue metric was $14,400,000 in the quarter. As mentioned above, this was associated with $65,300,000 of gross equipment sales and compares to $4,500,000 of gain in the comparable period of 2023. During the quarter, the company sold numerous engines and airframes to various trading partners. Maintenance services, which represents fleet management, engine and aircraft storage and repair service and revenues related to management of fixed base operator services was 6,800,000 the quarter, up 16% from the comparable period in 2023. Speaker 200:10:03The company produced 16% gross margins on these sales, while also generating significant business opportunities for our core leasing business, enabling us to become more relevant to our customers by being able to offer a broader bundled product solution. On the expense side of the equation, depreciation remained relatively flat at $22,000,000 The company had no impairments in the quarter as we have seen continued strength and appreciation in asset values. G and A was up $3,000,000 from the prior comparable period, mainly driven by increased personnel costs as we grow our services footprint as well as increases in incentive compensation, which is correlated to the profitability of the overall business. Despite this increase, G and A declined over 6 points as a percentage of total revenue relative to prior period as we leverage the platform and gain benefits from scale. Technical expense, which generally consists of non capitalized engine repair costs, engine thrust rental fees and other related costs was $4,500,000 in the quarter, down $2,200,000 from the comparable period. Speaker 200:11:16These expenses tend to vary with the timing of shop visits associated with off lease engines. Net finance costs were $24,600,000 for the quarter compared to $19,100,000 in Q2 2023. The increase in costs were related to an increase in indebtedness as total debt obligations increased from $1,800,000,000 in Q2 2023 to $1,900,000,000 in Q2 'twenty four as well as an increase in the weighted average cost of debt, which inclusive of our interest rate hedge positions was 4.93% at sixthirtytwenty 24 compared to 4.08% at sixthirtytwenty 23. The company also picked up $3,800,000 in ratable earnings from our 50 percent ownership interest in our Willis Mitsui and Cassick Willis joint ventures. As I mentioned earlier, EBT was $57,900,000 for the quarter and the company produced $41,700,000 of net income attributable to common shareholders, factoring GAAP taxes and the cost of our preferred equity. Speaker 200:12:23Diluted weighted average per share was $6.21 for the quarter, up 2 0 7% from the comparable period in 2023. Cash flows from operations for the first half of the year were up 32% to $129,700,000 driven primarily by the growth in pre tax earnings as the business enjoyed significant tax depreciation shield, slightly offset by growth in spare parts inventory as the company opportunistically purchased an attractive portfolio of engine parts earlier in the year. On the financing side of the equation, in early May, the company closed a $500,000,000 non recourse warehouse facility with a small group of banks, where alongside our $500,000,000 credit facility, we will aggregate asset portfolios to be subsequently refinanced in the term market. We continually look to diversify our sources of funding and minimize our overall cost of capital and have been successful accessing numerous markets over the years. In the Q2, our Board of Directors declared a one time special dividend of $1 per share, which was paid to record holders in early June. Speaker 200:13:34With our Q2 earnings release, we announced a $0.25 per share regular quarterly dividend, which speaks to the health of the business, provides our shareholders with a moderate current cash yield on their investment, while not degrading the strong cash flow and equity growth characteristics of the With respect to leverage, the company has brought balance sheet leverage defined as total debt obligations to equity inclusive of our preferred stock to 3.59x@q222, compared to 3.91x in the comparable period of 2023. When factoring net debt, leverage is at 3.3 times. At times, we've maintained higher levels of restricted cash as we retain and reinvest ABS asset sale proceeds, which are held as restricted cash into new assets. This allows the company to benefit from attractive fixed rate debt pricing for a longer period of time while maintaining a lower cost of capital for the business. We target leverage in the mid-3s recognizing that leverage may at times slightly tick higher should we identify purchase opportunities that enhance the characteristics of the overall portfolio. Speaker 200:14:48With that, I will now open the call up to questions. And operator, if you could please provide instructions on how participants can ask questions, that would be great. Thank you. Operator00:15:00Yes, sir. Thank We'll go first to Adam Cecil with Gravity Capital. Speaker 300:15:49Yes. Hi. Thanks for taking the question and thanks more generally Austin and doing this call. I hope to learn a lot. I would hope just by way of overview or introduction, you could contrast and compare your business with Fortress. Speaker 300:16:09They're quite public about what they do, of course, and have regular slide decks and so forth. We don't know much about you in contrast. So I was hoping you could just sort of as a business model or business plan compare and contrast the 2 publicly traded engine leasing companies for us. Speaker 100:16:30Sure. Thank you for your question, Adam. So I'll refrain from really speaking to Fortress, but I will tell you a bit about ourselves. So we are about 50% short term and 50% long term in the leasing market. And I mentioned that because the short term nature of our business allows us to get very active in the programmatic side of the business. Speaker 100:16:57So that's when we do programs like constant thrust, where we'll do a sale leaseback on a portfolio of aircraft or engines. And when one of those engines becomes unserviceable, we'll exchange it for another one of our engines that we have in our portfolio. And it's really that short term leasing capability that gives us the confidence that we'll have availability of assets at any given time to be able to fill that demand. So I mentioned that particular product because it really draws on different elements of our business. So our 2 145 repair stations, they enable us to repair engines more quickly and get them out on lease to the customers. Speaker 100:17:37And they also draw from materials from our parts business, WASI. And that business buys engines or gets engines from our portfolio, disassembles them and sells the pieces. So between those 2, we're able to get engines out the door much faster than we typically would from a 3rd party MRO and more inexpensively because we're reusing materials that are coming either from our engines or 3rd party engines. And then we also draw from expertise from our consulting business, WAML, that does pretty accurate forecasting to tell you when engines will become unserviceable. So really, we're a combination of a handful of services businesses and a leasing company that enable us to provide really an enhanced leasing product to the customer where we can save them money on a maintenance as well as from a planning perspective. Speaker 300:18:30I see. That's helpful. If I could follow-up, they always talk about Fortress does about their MRO business and how they have a a better mousetrap that saves customers time and money. Are you effective and I just I don't know much about the engine leasing business or the MRO business. Are you effectively saying the same that you have the same mousetrap? Speaker 100:18:55Again, I don't really want to comment to them specifically. I think there probably are similarities. We focus on the maintenance element because that's the biggest driver of expense and we have done for years. We've been providing these products for kind of over 10 years now. So this is nothing new or novel for us. Speaker 100:19:18Thanks so much. Certainly. Operator00:19:33We'll go to our next caller, Will Waller with Speaker 400:19:39M3S. Aeroleas in their presentation and press release yesterday said they have a lot of value in their order book given all of the backlogs with the manufacturing of engines and aircraft and so on. You guys have quite a large order book and it seems like you've put in orders at pretty ideal times over the last 4 years or so. I was just wondering if you could kind of comment on the status of your order book and if you feel the same way? Speaker 100:20:08Yes. I think there's similarities to comparing our order books to the aircraft lessors, but there's certainly differences as well. We work a bit more closely with the OEMs to provide aftermarket service to their customers. We do have a strong order book and we've taken delivery of a number of engines this year and we're on course to take delivery of an additional amount and the same thing over the next few years. So that constitutes a decent proportion of our pipeline going forward. Speaker 100:20:39But we also solicit a lot of transactions from marketplace as well. Speaker 400:20:46Okay, great. And then if I could just ask one other question, and it might have been partially answered in that first question, but there's been a lot of it seems like a trend towards the use of modules to save time and money with engine overhauls. Could you kind of talk about your views on the use of modules in an engine overhauls and then kind of talk to you if that's a product that you're offering? Speaker 100:21:10Sure. So we will do module swaps from time to time. We've done, I think, 20 in this past year, but that really isn't a core focus for us. We look at a variety of different avenues to manage maintenance costs most effectively. The reality is it's very hard to get high pressure turbine HPT modules and that's going to continue for the foreseeable future. Speaker 100:21:34So each engine is different. In some cases, it makes sense to do module swaps. In some cases, it doesn't. Operator00:21:54We will take a follow-up question from Adam Cecil with Gravity Capital. Speaker 300:21:59Yes, thanks. Speaker 100:22:03I understand you don't want Speaker 300:22:04to compare and contrast with Fortress, but one thing that struck me when I spoke with both companies is, they will they have not bought any of the next gen engines. They have not bought any LEAP and not any GTS. So you guys have had a bit of both. What's your rationale for buying the new engines, especially when the GTF is essentially the service in the 1100 on the narrow bottom? Speaker 100:22:33Thanks, Adam. So for us, it's a natural progression for just modernizing our portfolio. If you look back historically, 10, 20 years ago, you'd see the majority of our portfolio was CFM56-three and JT-eight engines. So this is normal of course for us. We feel that the GTS and the LEAP-1A and LEAP-1B will be the engines that drive the future of aviation for the 737 MAX and A320neo. Speaker 100:23:01So that's the long term view. In the short term, a lot of the maintenance issues or teething issues that have plagued those engines really are causing demand events for us. So every time an engine is removed, it creates an opportunity to put another engine on lease. So we see it as both a good short term and a good long term investment. Operator00:23:28We'll go next to Andrew Delmedica with Phase II Partners. Speaker 500:23:36Hey, guys. Thanks for taking the time. Just on the gain on sales, you mentioned the positive operating backdrop that you're experiencing. Can you just talk to kind of the sustainability that you see on the gain on sale of the engines? How you guys are thinking about the value of the portfolio as some of these come off lease? Speaker 500:23:54And kind of what you're looking at in the operating environment that's leading to this positive backdrop? Thanks. Speaker 100:24:03Sure. Thanks, Andrew. We did an investor information call recently, and I think there was some publications that covered this as well. Our portfolio is fairly undervalued from a book value relative to market value basis, and I think we're seeing that reflected in the gain on sale. Gain on sale for assets right now is probably a bit higher than it has been historically. Speaker 100:24:26But we generally have a run rate in the sort of mid low teens for gain on sale. And once things normalize, at some point, I expect it to be back in that neighborhood. Great. Thanks. Speaker 500:24:43I guess also on the as a follow-up, on some of the assets that have been tied up in Russia and obviously there's a lot of litigation etcetera going on around that. Do you have any color that you could give us on kind of when you would expect some ruling or some type of recovery, whatever potential there might be on those? Speaker 100:25:06I wish I could. No, we're pursuing our rights to the extent that we can. I really can't get into too much detail because we're very much in discussion with the insurance companies. What I can say is we were very proactive early on in the war between Russia and Ukraine, and we were able to get some assets out. And frankly, we've been very fortunate in the low value assets that we had confiscated Russia relative to a lot of competitors. Speaker 100:25:37We do still feel strongly that we will recover that value, but it's just a matter of 1. Speaker 500:25:43Great. Thanks. And then just as a reminder, could you how much do you have tied up? And I guess if you were to recover those, how big of a gain would that be for the portfolio? Speaker 100:25:55I won't comment on that now. But if you look back at our previous disclosures, I think you can find that historically. Operator00:26:07There are no other questions over the phone lines. Speaker 200:26:13Yes. Operator, I think we'll switch to a couple of questions that we have. We have one question here from MUFG and the question is congratulating us, thank you, on the quarter. And the question, how do we see the rest of the year in the context of some of the signs of overcapacity in the U. S. Speaker 200:26:38Domestic or the European market? And what are the potential risk factors you see for the second half of the year? Speaker 100:26:48Thanks, Scott. I'll take this initially if I can. So obviously, we've read the same headlines that you guys have read with regards to overcapacity issues. I really can't opine on what trends that may or may not mean. I think part of it is due to the U. Speaker 100:27:07S. And Europe emerging more quickly than Asia Pac and other countries from the pandemic. But more importantly, I'd like to focus on what we have seen in the past when there are difficulties among the airlines and they're cash strapped, they tend to avoid overhauling engines. So when they have an engine become unserviceable, they'll remove it from wing, park it and lease in engines from us. And this is reflected in our earnings post-nineeleven, post economic crisis. Speaker 100:27:38There is an element of countercyclicality in our business. So I think it's worth noting that. And then was there a second part of that question, Scott? Speaker 200:27:50No, I think that's the I think that was the key question, Austin there. I think Austin, the next question we have is within your maintenance reserves and this question comes again from Phase 2 partners. Within your maintenance reserve revenue, how sustainable is the long term portion of it? I realize as it relates related to when leases come off lease, but any additional color would be appreciated. So Speaker 100:28:23Sure. So the long term element of maintenance reserves occur when we have an engine come off of long term lease. And by their nature, they tend to be lumpy. When we have a lot of engines extending, as is the case now and what we expect in the near future, I would expect it to be a bit lower. Now that being said, I do recognize we had significant long term maintenance reserve recognition in the quarter and that was due to a few circumstances that were somewhat outside of the normal. Speaker 100:28:55Scott, if you'd like to add any color to that, please do so. Speaker 200:29:00Yes. No, Austin, I think you've got that right. I agree with that. I think the last question that we have is coming from M3, Jason Stockover at M3. The company has historically done an excellent job repurchasing shares in the past via both open market, private transactions and tender offers. Speaker 200:29:30With how inexpensive your shares still trade on both book value and now earnings, what are your views on repurchases going forward? Speaker 100:29:41Well, I appreciate your view on us being inexpensive. Beyond that, I can't really speak to any specific strategy on repurchasing shares in the foreseeable future. Speaker 200:29:54Yes, I guess I would add, fortunately, the shares are not as inexpensive as they were some time ago. Operator, I think that was the last question that we had in the queue. So we want to thank everybody for joining the call and we look forward to speaking to everybody in the next quarter. So thanks for your time. Speaker 100:30:26Thank you, everybody. I appreciate you joining us today. Operator00:30:32This does conclude today's conference call. Thank you for your participation. You may now disconnect.Read morePowered by