AerSale Corp Q3 2025 earnings call

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 the 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, 2024, filed with the Securities and Exchange Commission, SEC, on March 11, 2025, 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 investor 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 five 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 tech ops, 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 tear-down 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 five 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 one 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 nine engines that are available for sale or lease and another ten engines currently undergoing repairs. Turning to our 757 passenger-to-freighter conversion program, we continued to make steady progress. As I noted, we had one 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 five 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 tech ops, 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 tear-down and decommissioning activity, which is yielding higher margins.

Looking forward, construction of our expansion projects at both our air structures 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 AeroWare, 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's 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 tech ops, 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're 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 five 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 total $18.6 million compared to $21.7 million in the third quarter of 2024. SG&A included approximately $1.3 million of non-cash 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 non-recurring 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 commitments and borrower-based liabilities. Cash used by operating activities year-to-date was $34.3 million, primarily due to continued investments 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.