AerSale Q2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
August 7, 2024

There are 7 speakers on the call.

Operator

Good day, and welcome to the Aerosil Second Quarter 20 24 Earnings Conference Call. All participants will be in a listen only mode. After today's presentation, there will be an opportunity to ask Please note this event is being recorded. I would now like to turn the conference over to Kristin Gallagher, HR Director. Please go ahead.

Speaker 1

Good afternoon. I'd like to welcome everyone to AerSales' 2nd quarter 2024 earnings call. Conducting the call today are Nick Fonazzo, Chief Executive Officer and Martin Garmindia, 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.

Speaker 1

Important factors that could cause actual results to differ materially from forward looking statements are discussed in the Risk Factors section on Form 10 ks for the year ended December 31, 2023, filed with the Securities and Exchange Commission on March 8, 2024 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 AerCell website at ir. Aircell.com.

Speaker 1

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

Speaker 2

Thank you, Kristen. Good afternoon and thank you for joining our call. I'd like to begin today with a summary of the quarter and a review of our strategic objectives before turning the call over to Martin for a review of the numbers in greater detail. Our business continued to outperform prior year levels driven by stronger feedstock acquisitions in the back half of twenty twenty three. This improvement notwithstanding, our overall operating performance is well short of our plan as we have much greater capacity to output sellable inventory than we are inputting through the acquisition of feedstock.

Speaker 2

In total, reported 2nd quarter revenue of $77,100,000 which was up 11.2% year over year from $69,300,000 This included $17,900,000 of whole asset sales in 2024 compared to $17,600,000 in the prior year. Excluding whole assets entirely, our revenue improved 14.3% driven by a steady inflow of sellable material post repair, increased volume at our MRO facilities and incremental sales of AirSafe. Adjusted EBITDA also improved to a $3,200,000 gain compared to a $500,000 loss in 2023. As we remind investors 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 is best assessed based on aggregate performance over a longer period of time with a focus on feedstock levels and the value our team is able to extract from these investments. Before turning the call I'm sorry, before turning to our segment level discussion, I'd like to take a moment to zoom out and assess where we are in our traditional core business, putting aside prospects from our revolutionary enhanced flight vision system, AeroWare.

Speaker 2

I'll also provide some color on what we're doing to address challenges and how we intend to maximize current opportunities that are driving favorable improvements. I'll start with tech ops, where our MRO business has been a consistent performer and is well diversified to satisfy customer needs regardless of the commercial passenger or cargo backdrop. In times of heightened airline capacity, our facilities are busy performing aircraft recommissioning services and routine maintenance procedures on aircraft and their components. As end markets decline, we service customers through aircraft decommission and storage services as well as continuing to service aircraft components to allow operators to cost effectively operate their remaining fleets. This has led to consistent performance across cycles as seen through the trough of the pandemic and through the current recovery.

Speaker 2

We've made it a strategic priority to expand our MRO capacity through 3 projects that are also slated to come online toward the end of 2024 and into 2025. First, we're in the final stages of installing the latest generation of equipment for the test and overhaul of pneumatic components at our Miami, Florida accessory shop. This project expands our capabilities beyond just servicing hydraulic components. We expect adding capabilities on pneumatic components will more than double our existing revenue base with new customers bringing us repair work on midlife and current generation aircraft components. 2nd, after a year and a half of planning and construction, we're also in the final stages of building out our new Miami, Florida Aerostructures facility, which increases our footprint to almost 90,000 square feet from approximately 30,000 square feet at our old facility, while adding more state of the art equipment and capabilities to increase sales and throughput.

Speaker 2

And third, as we've discussed in the past, we're in the process of filling volume at our Millington, Tennessee on airport MRO facility, which came online in the Q2 and consists of a single 112,000 square foot hangar with 2 narrow body bays. This location provides us with on airport capabilities in a central location of the United States and access to a qualified labor pool that will allow us to quickly scale up the facility. As these facilities begin to come online, although we expect they will contribute limited revenue in 2024, we anticipate significant step ups throughout 2025. In total and at full capacity, which will occur incrementally as we build volume, we expect these expanded facilities to add at least $50,000,000 in annual sales over the next few years. With regard to the volatility created by whole asset sales, we recognize the desirability to smooth our operating performance quarter to quarter.

Speaker 2

As we've discussed, whole asset sales add significant dollars to EBITDA given the large transaction value, but come at the expense of quarterly volatility. To some extent, this will always be the case for AerSale as we believe it is prudent to include whole assets in our purpose built model to maximize return on investment. That said, our long term strategic plan calls for greater focus on building our specialized leasing platform and increasing volume through the sale of USM. The effect of this initiative will take some time as we build the feedstock and deploy the assets, but should aid in predictability into our operations over the long term. Regarding USM, market demand is very robust and end user prices are favorable.

Speaker 2

However, despite high demand and favorable pricing, we've been in a tight feedstock environment for some time now as fewer aircraft used aircraft are available and competition is elevated amid reduced new aircraft OEM production and engine reliability issues. As we've discussed, feedstock is the lifeblood of our asset management business. So while we remain successful in finding and securing assets that can reach our ROI hurdles and are monetizing that inventory, which has driven improvements in our year over year results, it has been at a lower aggregate level relative to our available capacity. These time periods simply do not last forever and we would anticipate improvement as OEM production and deliveries alleviate some of the aftermarket supply side pressure. We think it's strategically critical to remain disciplined in our acquisition approach as the environment can and does turn quickly and cargo demand fluctuates and new aircraft become available.

Speaker 2

In 2023, we were successful in deploying more than $130,000,000 of capital to feedstock acquisitions, which has been steadily placed into the repair process and has resulted in a continuous flow of sellable USM fueling our growth in 2024. Year to date, we've sold $46,600,000 of USM, which is a $24,600,000 increase from the prior year. Longer term and as supply side dynamics allow, we have the capacity to more than double our feedstock program, which will serve to substantially improve our quarterly operating performance, allowing us to more consistently exceed our fixed cost hurdles. Lastly, on our 757 passenger to freighter conversion program, we were early to the market during the pandemic and enjoyed multiple years of elevated asset prices as cargo carriers scrambled to find lift during a period where demand far exceeded the supply of available cargo capacity. This demand was further amplified by the stay at home orders that fueled more volume of consumer goods through e commerce channels.

Speaker 2

Our timing was perfect to launch the 757 conversion program and a fantastic financial success in the early stages of the COVID pandemic, marking one of aviation's darkest periods. It carried our performance during extremely challenging times resulting in one of the most successful programs in our company's history. Fast forwarding 18 months to today, we have 7 remaining P2F converted 757s, but the demand backdrop has dramatically slowed for these types of aircraft as consumer trends normalized following the pandemic. This has led to a cooling of end market demand for 757 freighters, which has slowed the monetization of these remaining assets. This effect happens in normal ebbs and flows of supply and demand in the used aircraft market and there remains a long term use case for these assets.

Speaker 2

We are fortunate that within the 757 family of converted freighter aircraft, ours are among the youngest in age and the most recently converted 757s available on the market and therefore have a significant useful life and economic benefits over the much older existing 757 fleet. After an 18 month low in demand, customer interest in these aircraft is returning, particularly as cargo demand for the market niche our 757s are ideally suited for is recovering. We'll continue to monetize this flight equipment as we market to customers' intent on expanding their existing fleets, upgrading from older equipment or starting a new business through the sale or lease of whole aircraft and or their engines. Taken together and looking through a longer term lens, we expect to emerge as a stronger, more stable company driven by the following strategic priorities. 1, a strengthened balance sheet as we monetize the remaining 7 57 freighters, enhancing our financial capacity to acquire more feedstock 2, a larger, more sophisticated MRO operation with an expanded footprint that will provide more predictable and recurring revenue and 3, additional stability through the expansion of our specialized lease and USM portfolios.

Speaker 2

These initiatives are designed to enhance our baseline revenue substantially above our fixed cost hurdles and smooth out quarterly volatility. Now turning to our segments and beginning with Asset Management. 2nd quarter sales were 41,800,000 dollars which increased 12.8% year over year. Stronger revenue in the quarter mostly stemmed from better USM volume and an increase in engine leasing as well as stable whole asset sales year over year. Excluding whole asset sales in both periods, segment level sales grew 21.1%.

Speaker 2

In the quarter, we sold 5 engines compared to 4 engines and 2 unserviceable airframes in the year ago period. Margins on current sales were 7.6% better than in the prior year as a result of improved market demand. Turning to our TechOps segment. 2nd quarter sales continued to grow amid a strong commercial aerospace backdrop. Segment levels segment revenue increased 9.4 percent to $35,300,000 compared to the year ago period.

Speaker 2

Growth was fairly widespread across our facilities as we took advantage of available capacity. And as I noted earlier, we expect to begin to see sales resulting from our incremental capacity investments toward the end of 2024 and into 2025. Engineered solutions also contributed to growth in the quarter as we began delivering AirSafe Kits to customers needing to meet regulatory deadlines to comply with an FAA airworthiness directive targeting aircraft fuel quantity indication system wiring for which AirSafe is a cost effective and efficient solution. We expect AirSafe sales to continue to increase in the back half of the year with an incremental step up in 2025 and into 2026 as operators meet a November 2026 compliance deadline. To date, we have a backlog of over $13,000,000 in orders of AirSafe and are continuing our marketing efforts on this project.

Speaker 2

I encourage anyone interested in understanding more about this product to view our AirSafe installation videos available on the AerCell website. Turning to an update on Airwear. Customer feedback continues to be overwhelmingly positive. And within our active sales pipeline, we're making progress with our potential launch customers. As we noted last quarter, the addressable market is diverse in size and types of operators and each has a different approval process.

Speaker 2

With some of our largest potential customers, we have a nice head start as we've been familiarizing them with the product through the approval process for several years. Other potential customers are just getting to know Airwear since FAA approval last December. The commercialization time is proving to be much longer than we originally anticipated and highly dependent on customer availability. However, based on continued feedback, we remain confident that it is a question of when, not if operators begin to adopt Airwear. We'll be busy in the Q3 with multiple customers scheduled for visits or flight demonstrations, and we're encouraged that in several cases, it is with a broader group of internal decision makers at the prospective customers.

Speaker 2

In closing, our business is improving from the lows of 2023 based on available ready to sell inventory flowing from our feedstock acquisitions and we're optimistic about the back half as new MRO facilities begin to come online and drive incremental revenue and margin. We're committed to driving cash flow through the monetization of our last 757s and remain disciplined in our capital allocation as we navigate through a challenge supply side for feedstock. I want to thank our dedicated employees for their hard work and our investors for their continued support. We look forward to updating you on our future progress. Now, I'll turn the call over to Martin for a closer look at the numbers.

Speaker 2

Martin?

Speaker 3

Thanks, Nick. 2nd quarter revenue was $77,100,000 which included $17,900,000 of flight equipment sales, comprising of 5 engines. Our revenue in the Q2 of 2023 was $69,300,000 dollars and included $17,600,000 of flight equipment sales, consisting of 4 engines and 2 unserviceable airframes. Excluding flight equipment, the company continued to demonstrate underlying growth as our base revenue increased to $59,200,000 from 51 $800,000 in the prior year. As we have pointed out in the past, flight equipment sales fluctuate significantly from quarter to quarter and we believe monitoring our progress based on asset purchase and sales over the long term is more appropriate.

Speaker 3

2nd quarter gross margin was 28.2% compared to 29.1% in the Q2 of 2023. As a result of sales mix and reduced margins at the company's component MRO facilities as the units gain efficiencies on recently awarded contracts. Selling, general and administrative expenses were $23,600,000 in the Q2 of 2024, which included $1,100,000 of stock based compensation expenses. Selling, general and administrative expenses were $27,100,000 in the Q2 of 20 while loss from operations was $7,000,000 in the Q2 of 20 while loss from operations was $7,000,000 in the Q2 of 2023. GAAP net loss was $3,600,000 in the Q1 compared to $2,700,000 in the Q2 of 2023 with a decline caused from a lower mark to market benefit on the warrant liability and higher interest expense.

Speaker 3

Adjusted for non cash equity based compensation, mark to market adjustment to the private warrant liability and facility relocation costs, 2nd quarter adjusted net loss was $2,600,000 while adjusted net loss was $600,000 in the Q2 of 20 23. 2nd quarter diluted loss per share was 0 point 0 $7 compared to $0.08 in the Q2 of 2023. Excluding the adjustments mentioned above, 2nd quarter adjusted diluted loss per share was 0 point $0.03 for the Q2 of 2023. Our adjusted EBITDA was $3,200,000 in the Q2 of 2024 compared to a loss of $500,000 in the prior year. The increase in adjusted EBITDA was primarily due to higher revenue and lower expenses for the period.

Speaker 3

Cash used in operating activities was $36,800,000 primarily due to cash deployed to increase our inventory availability. Further, in April of 2024, our secondary parts warehouse in Roswell, New Mexico was destroyed in a fire. This led to the loss of various USM parts, which carry a market value of $52,800,000 and a book value of $6,000,000 In our 10 Q, we recorded a balance sheet impairment of $6,000,000 related to the loss and a non trade receivable within deposits, prepaid on expenses and other current assets of $6,000,000 which we deem probable of recovery. Our maximum payout on our policy is $50,000,000 of which we have made a claim on the entire amount subject to a $10,000 deductible. As we look to the second half of the year, we expect to see continued demand in our tech ops segment with further improvement in 2025 as we benefit from the MRO investments that Nick mentioned earlier.

Speaker 3

We look forward to updating the investor community in the coming quarters as we execute on our strategy to monetize the remaining 757s we have in our portfolio. While deciding the best way to redeploy this capital as we navigate through a constrained feedstock environment, while ensuring that we remain disciplined capital allocators pursuing only opportunities that meet our ROI criteria and that benefit from our multidimensional value extraction model that is unique in the industry. Overall, we remain bullish on the long term trajectory of the business as we continue to make progress with our go to market strategy for AeroWare, increased AirSafe sales and continue to grow our USM leasing and MRO businesses in a robust market. With that operator, we are ready to take questions.

Operator

We will now begin the question and answer session. The first question comes from Bert Subin from Stifel. Please go ahead.

Speaker 4

Hey, good afternoon and thank you for the questions.

Speaker 2

Good afternoon, Bert.

Speaker 4

Nick, maybe just to start out on the inventory side, can you just give us some more color there? Just trying to understand that we've seen sort continued sequential increases in inventory. It seems like a market where there's certainly demand for USM and demand for whole assets. Can you just talk about why that's going up and not

Speaker 2

down right now? Some of it relates to completing the conversions on our 757s. So I mean you're looking at the total inventory, right? Yes. As we complete those conversions, cost of those conversions are being added to our inventory value.

Speaker 2

We are taking delivery of, AeroWare Kits, out of are coming out of Universal. So that's adding some to our inventory as well. And we continue to be opportunistic in finding feedstock that we're going to that we're acquiring for future sale as whole assets leases or breakdown to USM. The timing continues to take a while to turn that into sellable inventory. So the combination of those three things as to why the inventory is growing.

Speaker 4

So maybe as we think about I know you guys are not giving formal guidance right now, but I feel like expectations have been still all over the place as we think about sort of your revenue and EBITDA. As you sit here almost now, I guess, a month and change past halfway through with the year, like what are you seeing in the second half? I mean, is the second half shaping up better than the first half? You starting to see some of the challenges you had sort of unfurl? And what sort of the just, I guess, the broader viewpoint for the second half of the year?

Speaker 3

Yes, I think as we look at the second half overall, we're seeing good prospects from ability to sell engines. In fact, we sold 3 engines in the 1st month alone at very good margins. We're seeing opportunities there. As you noted on the inventory kind of pickup, a lot of that is also we're preparing inventory including whole assets for either lease or overall sales. So that's contributing to that.

Speaker 3

We're starting to add assets into the leasing portfolio, which is also again one of our long term strategies start increasing that overall business. And then lastly, we're seeing improvements in our MRO side of our business. We've talked about some of the investments that we're making on the component MRO side and also that we've won some significant contracts at the end of the year. So we're starting to get that volume to flow through. We're improving our utilization of our labor, so improving our margin profile in that side of the business.

Speaker 3

So we're seeing a pickup on that side as well. And also as Nick has noted in his remarks, some pickup on AirSafe sales as well. So all of the things are definitely in a forward projection and looking more favorably in the second half than in the first half.

Speaker 4

Got it. Okay. Just one more and I'll pass it back over. On EraWear, it seems like you guys have moved down this path and sort of marketing, it seems like the pilot modials are really positive and obviously it's an interesting product. Can you give us just an update of I think it was STC was received in December and so here we are in August.

Speaker 4

Where are we from an inning perspective you think in sort of landing that first customer? Is that something that you're thinking about as like a 2025 outcome? You said it's when, not if. So I'm just trying to understand sort of what your confidence level is now that you've been through several months of the marketing process for the product?

Speaker 2

We're talking to both very large and very small customers. The easiest one to get equipment delivered would be a small one. A larger customer is going to take much longer to be able to start spooling a large customer to reconfigure their airplanes, do simulators, get all their flight training done, etcetera. It doesn't mean we won't have an order, it just means that if it's a larger customer, it will be it may be a while before they can actually start using the equipment. In the case of the customer that we've been dealing with for, I don't know, seems like the whole since the very beginning we started this whole certification process, they remain interested.

Speaker 2

We've got 4 different customers that will be flying our test aircraft starting this week, starting 2 this week, 1 next week and I think one right after that. And 2 of those are large, 2 of those are small. So it's so hard for me to predict which one of those will be the first to place an order and when we'll be able to deliver product. However, we have product. We've been we've built up an inventory as I mentioned before.

Speaker 2

We've got 150 kits of our own in stock and we're receiving kits that we ordered from Elbit Universal. Those kits are now being produced and delivered and inventory to kind of make sure that we've got enough to fulfill any initial order that we get. When will we get that? I'm not going to commit to that because it could be I'll just give you an idea. It could be as soon as in the next several months.

Speaker 2

It could take us 6 months or longer. And I hate giving you that kind of answer, but I just really have no way to know.

Speaker 4

But maybe just a clarification there, you don't think this is a situation where it's like multiple years, you think it's still measured in months?

Speaker 2

I don't think it's going to be multiple years, correct. I think the sale of this product will go out 5 to 10 years. And I think this is a 5 to 10 year delivery to the industry. Doesn't mean it's going to take 10 years, but it will from the day we start delivering, I think that's probably it's going to be at least 5 years to 10 years of deliveries, if not longer, especially as the product evolves and is upgraded.

Speaker 4

That's helpful. Thanks, Nick.

Speaker 2

You're welcome.

Operator

The next question comes from Ken Herbert, RBC Capital Markets. Please go ahead.

Speaker 5

Yes. Hey, good afternoon, Nick and Martin.

Speaker 2

Good afternoon.

Speaker 3

Hey, I

Speaker 5

wanted to, Nick, first ask you about sort of you're making some investments in your MRO capability. It looks like that business today is on sort of an annual, call it, 110 ish million sort of a run rate. But what's capacity utilization at with your existing MRO footprint sort of ahead of the expansions you're making in the new facilities?

Speaker 2

I don't know the number off the top of my head to

Speaker 3

you. I'll tell you right now that our utilization, we have a lot of capacity still available even without the overall improvement that we've made. Our landing gear facility, again, as a reminder, that was pretty much a new facility opened up about year and a half ago. We've made inroads with new customers, bringing in new kind of contracted gears that will be coming in. So we're going to start filling up that business.

Speaker 3

We're already seeing other prospects that potentially we can even exceed kind of our current capacity at that unit. At our accessory shop, one of the investments that we did on adding pneumatics is that it will also bring customers that would take of hydraulic and other type of activities that we do. So we've been successful there and being able to gear up, being able to get the overall qualified staff. And we absolutely have the ability not only to grow the existing facilities, but also based on the investments that we've made have an additional revenue stream, which is the $50,000,000 that Nick noted in his remarks.

Speaker 5

Yes. So I guess what I'm getting at is, I mean, as you fill the existing footprint and you layer in the new capacity, I mean, could the MRO footprint alone sort of exiting $25,000,000 be potentially a $200,000,000 business? And if we're looking at those kind of numbers, maybe just rough ballpark of sort of normalized what kind of EBITDA margins you think the MRO business should support?

Speaker 3

I think absolutely our plan and as Nick noted, part of our strategic plan has been to grow the overall MRO business and to more than double that. And we're in a very good position with the Millington additions, having a very good location in our Goodyear on airport MRO to be able to do that. As far as margin profiles, obviously, that will vary depending on the actual customers that we bring in overall. So that's hard to kind of estimate at this moment. What I can say is, we are right now in our P and L kind of absorbing a lot of these incremental costs to be able to bring in the business.

Speaker 3

So when it comes to facilities, we already have the expanded facilities. We're incurring those higher facility costs. When it even comes to personnel, we've had to make sure that we have qualified mechanics and technicians so that when we showcase the facilities, people can see that we have the talent and not only the equipment to be able to do the work. So what we're confident is as we start filling in those units, margin profiles will improve not only from a gross margin perspective, but from an EBITDA perspective as well.

Speaker 5

Okay. That's great. Thanks, Martin. And just one final question. As you look at the build of sort of inventory and the all the acquisitions you're making in terms of whole assets and flight equipment, Is there any risk that the carrying value of some of this inventory might not match value as you look to eventually sell some of that.

Speaker 5

I'm just trying to get at sort of potential balance sheet risk as you look at what you've built and as you market test sort of what you've acquired over the last few years?

Speaker 2

No, we don't feel we have any risk. We look at our inventory cost carrying basis all the time, whether it be fixed assets, assets held for lease or sale or USM inventory. And we don't feel we have any issue with the actual value of the equipment being less than

Speaker 3

our book value. Yes, Ken, if I could add is we're very cautious when we allocate capital. In a proprietary model, we look at a 25% IRR. In fact, that's why and probably in the last amount, last couple of probably last 18 months, we haven't bought as much feedstock as we would like, which is Nick's comments on we could process a whole lot more. But we always have exactly what you're talking about as a risk in our mind, which is what we always value the inventory, understanding how the market dynamics could change and we're staying disciplined in that overall.

Speaker 3

Mean just to give you an example, we bid in the current quarter almost $600,000,000 of feedstock and we had a win rate of around 6%. So that's lower than our historical and we're okay with that because again we want to make sure that when we deploy capital we are comfortable that we're going to recover the investment and make our expected returns.

Speaker 5

Perfect. Thanks, Martin. Thanks, Nick.

Speaker 2

Welcome.

Operator

The next question comes from Pete Osterland from Truist Securities. Please go ahead.

Speaker 6

Hey, good evening. I'm on for Mike Ciarmoli tonight. Thanks for taking the question.

Speaker 3

Hi, Pete.

Speaker 6

So first, I wanted to ask on Airwear. I was just wondering how many kits you currently have in inventory and whether you're still building more inventory there? And just in general, how quickly can your supply chain ramp up delivery of kits if a major order comes in?

Speaker 2

We have as I said before, we've built 150 kits. We are not producing any more kits right now because we feel realistically it probably would take a year to put 150 kits in an airplane or in airplanes to start. And but we have the capacity because we have the infrastructure, we have the people to basically ramp production of kits back up using our existing facility at the rate of between 10 to 20 kits a month depending on how many people we want to put on it. And as I've also said before, Pete, that we don't think we do it the most cost effective and efficient way. We think that people who do the some of the kit pieces that we work that we've been working on, which are wire harnesses, complex wire harnesses.

Speaker 2

We think there are other companies that could do that maybe faster and more cost effective than we can. We've not taken advantage of that because we wanted to understand completely what it would take to build a kit, doing it our way, which again, that may not be the most efficient way. But so we know we were able to produce roughly 15 sets a month And we know what our cost is and we're very satisfied that our cost is in line or lower than our original expectations. And candidly, we'd like to think that if we had to double or triple that capacity, we could farm that out to 3rd parties and that they would do it for a better price than our internal cost would be.

Speaker 6

That's helpful. Thanks. And then, wanted to ask one on Airspace as well. What does the competitive landscape look like there? Are there alternatives in the marketplace?

Speaker 6

Or is Air Safe the only option in order for operators to comply with this FAA requirement?

Speaker 2

So the option for AirSafe, it comes from the OEM, which is a nitrogen system that removes oxygen from the fuel tanks that Boeing and Airbus incorporate that in new aircraft deliveries. And we have one competitor that produces a kit that also puts foam in fuel tanks to comply with the various regulatory requirements. That's a company we've been in litigation with now forever. And litigation has not gone well for that company, but regardless, we've spent money defending it. And I don't think that company produces or sells as many kits as we do, but we do have competition.

Operator

This concludes our question and answer session. I would like to turn the conference back over to Nick Fonazzo for closing remarks.

Speaker 2

Everyone, I hope this discussion today has given you a better understanding of what we've been doing to position the company for substantial growth. The things we do are not easy. They take time and money. And as we've suffered through this period of building, our investments will reap financial benefits in both the near and long term. Our experienced management team is committed to the long term growth and success of the company and will continue to work hard and smart to create value for our shareholders.

Speaker 2

Thank you for listening today. And thank you, Bert, Ken and Pete for your thoughtful questions. Good evening, everyone.

Operator

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

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Key Takeaways

  • In Q2 2024 AerSale reported $77.1 million in revenue, up 11.2% year-over-year, and achieved a $3.2 million adjusted EBITDA gain versus a $0.5 million loss in Q2 2023, with underlying revenue (excluding whole asset sales) up 14.3%.
  • AerSale is finalizing three major MRO expansions—an upgraded Miami pneumatic components shop, a 90,000 sq ft Aerostructures facility in Miami, and a new 112,000 sq ft on-airport hangar in Millington—which together are expected to add at least $50 million in annual sales once fully ramped by 2025.
  • The company faces feedstock constraints that limit inventory input, prompting a strategic emphasis on building its specialized leasing platform and expanding its USM business; AerSale deployed over $130 million in feedstock acquisitions in 2023 and has sold $46.6 million of USM YTD.
  • After a pandemic-driven success with its 757 passenger-to-freighter conversions, demand has cooled, but AerSale still holds seven of the youngest converted 757s, which it plans to monetize to strengthen its balance sheet and fund further growth.
  • New product initiatives are gaining traction: the AirSafe fuel-tank kit has a >$13 million backlog with sales expected to step up into 2025, while the AeroWare (Airwear) enhanced flight vision system secured FAA STC last December and is in customer demo phases ahead of anticipated orders.
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Earnings Conference Call
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