Good day, and welcome to the AerSale Corp. Second Quarter 2025 Earnings Conference Call. Please note this event is being recorded. I would now like to turn the conference over to Jacqueline Carlon, Vice President of Marketing and Communications. Please go ahead.

Good afternoon. I'd like to welcome everyone to AerSale's Second 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 that all statements made on this call that do not relate to matters of historical facts should be considered forward-looking statements within the meaning of the federal securities laws, including statements regarding our current expectation 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 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 Investors section of the AerSale website at ir.aersale.com. With that, I'll turn the call over to Nick Finazzo.

Thank you, Jackie. Good afternoon, 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 performed better in the second quarter, driven in part by an increasing amount of ready-to-sell USM flowing from the feedstock investments we've been making, together with several flight equipment sales. Higher sales growth translated to increased profitability, particularly as we gained leverage in our model at higher volume. In total, we reported second quarter revenue of $107.4 million compared to $77.1 million in the year-ago period. This also underscores the potential in our model as we improved recurring revenue through added assets in the lease pool and increased MRO capacity to provide more consistent results quarter-over-quarter. Excluding flight equipment sales, the balance of our business grew 25% to $74 million, again, driven by greater ready-to-sell inventory in our USM business and higher leasing revenue, partially offset by lower TechOps revenue as we continue working to transition our heavy MRO facilities. As we note every quarter, due to the nature of our business and the impact of flight equipment 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. Second quarter adjusted EBITDA improved to $18.3 million compared to $3.2 million in the prior year. The increase reflects stronger execution across the business, including a higher volume of flight equipment sales, improved performance in USM operations and continued benefits from cost reduction initiatives implemented over the past year. Turning to segment performance, starting with Asset Management. Sales increased to $76.3 million from $41.8 million last year. This change is attributed to higher flight equipment sales, which rose to $33.4 million from $17.9 million, and a rise in USM parts sales resulting from an increase in available ready-to-sell inventory. Excluding activity related to flight equipment, segment revenue increased by 79.5% to $42.8 million. This growth is attributable to the expansion of our lease pool as well as a substantial year-over-year increase in USM sales, which nearly doubled. During the quarter, we aggressively pursued feedstock acquisitions to support our long-term growth objectives, acquiring assets totaling $27.1 million. This brings our year-to-date total to $70.5 million. We've observed a positive trend in feedstock opportunities compared to recent years, especially in airframes and wide-body engines, which has been a niche market for AerSale over the past decade. Conversely, the narrow-body engine market continues to exhibit intense competition with current valuations consistently falling below our target internal rate of return benchmarks. As we progress through the remainder of the year, our ample feedstock position will continue to underpin our growth strategy. At the end of the quarter, we held $388.3 million of total inventory in flight equipment, including 11 engines available for sale or lease, and another 11 engines currently undergoing repairs. Regarding our 757 passenger-to-freighter conversion program, we're actively marketing the last 6 aircraft we converted and are seeing a meaningful uptick in customer engagement. Currently, 1 aircraft is on lease and discussions are ongoing with multiple parties for the remaining units. Although deal timing is uncertain, this represents the highest level of interest we've seen since the cargo market softened in 2023, and we view the momentum as a positive signal of renewed demand. In the TechOps segment, revenue decreased 11.9% year-over-year from $35.3 million to $31.1 million, largely due to reduced activity at our heavy MRO facilities after the completion of a customer program at Goodyear. During the second quarter, a portion of this capacity was filled with shorter duration contracts, while efforts continued to engage potential long-term partners. Consequently, segment revenue rose by 17.1% from the first quarter of 2025, returning to levels comparable with the second half of 2024. Long-term agreements generally require more lead time because of scheduling constraints, but offer improved predictability of future volume, which can lead to better alignment of staffing and margin performance. We're also seeing margin improvements at our Roswell facility as the unit focuses on higher-margin storage and dismantlement opportunities that have helped offset the bottom-line impacts of the lower revenue. I'm pleased to provide an update on our component MRO expansion projects. Construction at our aero facilities has been completed, and we're now in the final stages of readying our accessory shop to commence servicing pneumatic components. We anticipate these shops will soon generate additional revenue through expanded growth and capabilities, further strengthening our capacity to offer comprehensive maintenance solutions across a wider range of components. During the quarter, our Engineered Solutions division experienced an increase in deliveries of AerSafe, our FAA-approved Supplemental Type Certificate, which provides fuel tank flammability protection. We expect orders to continue rising over the course of the year as we approach a 2026 compliance deadline for an FAA Airworthiness Directive relating to fuel tank wiring, which can be satisfied by the installation of AerSafe. As of quarter end, our AerSafe backlog stood at $12.9 million, and current secured orders position us to meet our financial objectives for 2025. Turning to AerAware, our revolutionary Enhanced Flight Vision System. We continue to make incremental progress across product development, customer engagement and regulatory validation. Two weeks ago, on July 18, we were pleased to receive Transport Canada Civil Aviation validation of our AerAware STC, a major milestone that broadens our international market access and corroborates the safety-enhancing capabilities of the system. AerAware remains the only Enhanced Flight Vision System to integrate a wearable HUD with advanced infrared imaging and synthetic vision, enabling pilots to see through darkness, fog, smoke and other reduced visibility conditions. In parallel with this regulatory process, we remain in active discussions with several commercial and government operators and have conducted in-air demonstrations for multiple potential customers using our 737-test aircraft. Product development is progressing as well, evidenced by our demonstration to the FAA of the foldable SkyLens model after a successful test flight with the agency on July 14. Furthermore, Universal Avionics, our AerAware partner, has made notable progress in integrating ADS-B In functionality. This feature is currently being tested on a King Air aircraft equipped with a SkyLens Head Wearable Display and will allow pilots to independently monitor the GPS broadcast positions of nearby aircraft directly on their SkyLens display without dependence on air traffic control. Although integration of ADS-B into AerAware on the 737 may take several years to receive FAA approval, we believe once it's available, it will be one of the most practical solutions on the market to provide enhanced aircraft awareness to pilots in the most dynamic vision field available. The value of this capability is underscored by aircraft navigation incidents as we have discussed in the past and most recently included a near miss involving a Delta flight and a B-52 military aircraft, highlighting the critical importance of enhanced situational awareness tools. As global demand for safer, more capable flight deck systems grows, AerAware is well positioned to become a standard setting solution in the Enhanced Flight Vision System market. Overall, following an acceptable second quarter, we expect to build on this momentum through the remainder of the year with incremental financial improvement in the second half relative to the first half. We continue to expect full year sales growth with EBITDA growth outpacing revenue due to expanding margins and increased operating leverage. Several key drivers are contributing to this outlook. We're well positioned with a strong base of ready-to-sell inventory, which continues to support robust USM sales and flight equipment transactions. Our lease pool has grown compared to recent years, and we anticipate further expansion as additional assets are made ready and deployed throughout the year. Our two-component MRO expansion projects are now in the completion phase, and we'll soon be able to generate revenue from these new and enhanced service offerings, contributing more meaningfully in the months ahead. AerSafe backlog continues to build with installation volume expected to increase steadily each quarter as we approach a 2026 Airworthiness Directive compliance deadline satisfied by the installation of AerSafe. And finally, the efficiency initiatives implemented by our team are beginning to deliver meaningful benefits. And when combined with higher sales volume, we expect continued margin expansion and EBITDA growth that will exceed the pace of revenue growth. In closing, the second quarter marked a significant step forward for AerSale, highlighted by improving financial performance, expanding operational execution and meaningful progress across our strategic initiatives. As we look to the second half of 2025, we're building on a foundation of improved feedstock access, growing recurring revenue from our lease pool and MRO operations, sales traction with AerSafe and further product development of AerAware. With a healthy balance sheet, strong demand signals across core end markets and increasing operating leverage, we remain confident in our ability to deliver profitable growth and long-term value for our shareholders. I want to thank our dedicated and experienced employees for their hard work and our investors for their continued support. We look forward to updating you on our progress. Now I'll turn the call over to Martin for a closer look at the numbers.

Thanks, Nick. Our second quarter revenue was $107.4 million, up from $77.1 million in the second quarter of 2024. This includes $33.4 million of flight equipment sales compared to $17.9 million in the prior year period. As we have noted in past calls, flight equipment sales can vary significantly from quarter-to-quarter, and we believe long-term performance is best evaluated based on the cumulative impact of asset purchases and sales over time. Second quarter gross margin was 32.9% compared to 28.2% in the second quarter of 2024. The year-over-year improvement reflects stronger execution across the business, including improved USM sales, a higher volume of flight equipment sales and continued operational efficiency gains across our platform that resulted from efficiency initiatives taken. Selling, general and administrative expenses totaled $22.8 million compared to $23.6 million in the second quarter of 2024. SG&A included approximately $700,000 in noncash stock-based compensation, in line with recent quarters. The reduction in total SG&A despite higher revenue stemmed from the cost reduction efforts taken over the past 12 months. Operating income for the quarter was $12.5 million compared to a $1.9 million loss in the same period last year. Net income was $8.6 million compared to a net loss of $3.6 million in the prior year period. Adjusting for stock-based compensation, facility relocation cost, restructuring charges and other nonrecurring items, adjusted net income was $9.4 million compared to an adjusted net loss of $2.6 million in the second quarter of 2024. Adjusted EBITDA was $18.3 million in the second quarter, up from $3.2 million in the prior year period. This improvement reflects higher revenue, stronger execution across the business, increased monetization of our feedstock inventory and continued cost discipline. Adjusted diluted earnings per share was $0.20 compared to an adjusted diluted loss per share of $0.05 in the second quarter of 2024. AerSale ended the quarter with $68.8 million of liquidity, consisting of $5.7 million of cash and available capacity of $63.1 million on its $180 million revolving credit facility, expandable to $200 million, subject to conditions and the availability of lender commitments and borrowing base liabilities. Cash generated by operating activities during the quarter was $19.8 million, primarily due to strong results from operations and cash generated from USM and flight equipment sales offsetting inventory purchases. This quarter demonstrated the strength of our platform and the progress we've made in executing against our strategic priorities. USM sales nearly doubled year-over-year, supported by improved feedstock and a strong inventory position. Our lease pool continues to expand and our MRO initiatives are beginning to generate incremental revenue with more upside expected in the second half. SG&A declined year-over-year despite higher volumes, reflecting the benefit of our cost discipline and improved operating leverage. Flight equipment sales also contributed to the quarter's growth, but the underlying momentum is our recurring revenue streams, along with expanded margins and strong execution across the organization, gives us the confidence in our trajectory. With an improving market backdrop, growing demand for our Engineered Solutions products and a scalable, capital-efficient model, we are well positioned to continue delivering profitable growth through the balance of 2025. With that, operator, we are ready to take questions.

Our first question comes from Ken Herbert with RBC Capital Markets.

Nick and Martin, nice results. Maybe just to start off, it sounds like you saw a pickup in activity in assets you were able to acquire and obviously sell. Can you maybe give a little bit more detail on the types of assets you're seeing as we think about sort of the whole assets? And is the pace of activity in the second quarter something we could extrapolate into the back half of the year?

We're focusing on airframe equipment, particularly both narrow-body and wide-body aircraft, as well as wide-body engines. Our expertise in deriving value from airframes has improved significantly, especially in the wide-body segment, which we've been involved in since our first 747 transaction in 2010 when we purchased 21 747s from Japan Airlines. This experience has given us a strong understanding of the wide-body engine market, which often intimidates investors due to its complexity. As we see aircraft like the 747s and A330s being retired, along with their engines, we have a solid grasp of the market, including how to sell parts, whether as whole engines or in components. Historically, our sales have predominantly been in wide-body engines. We believe we have a better understanding of this market compared to most, leading to higher revenue generation from parts, while we find it challenging to navigate the narrow-body sector. The difficulties with geared turbofans on the A320neo and the 737 MAX, along with related FAA issues, have limited the opportunities in the narrow-body market, particularly for older aircraft like the A320ceo and 737NG, which remain in service longer than expected. While this can be a double-edged sword, as fewer older planes become available at reasonable prices, we are adept at extracting value from those that do, although the competition remains intense. We maintain a disciplined approach when it comes to acquiring narrow-body engines. While the narrow-body market is tough, the wide-body sector also presents challenges; however, we've carved out a profitable niche there. Overall, the supply of suitable assets hasn't changed much, but there has been a slight increase in availability for wide-body, which we've managed to capitalize on. Despite a decrease in buyers, we have a reputation for closing deals, making our offers more appealing, a factor that positions us well in the market.

Nick, that's very helpful. I think in the quarter, you called out that you did sell $33.4 million of flight equipment. Is that a run rate we should be comfortable with for the second half of the year? Or I know it can be very volatile and lumpy, but what's visibility in the next couple of quarters like for flight equipment sales?

I'm not ready to answer that question yet. It’s not that I don't want to respond. We’re assessing our flight equipment, and we have a significant amount already in inventory that is ready for sale or lease, along with more that will soon be available. We consistently evaluate whether it makes more sense to offer equipment through our hybrid leases, akin to a rental car model, rather than taking on longer-term leases. We manage operational risk and receive a notable premium for that. We must consider our long-term outlook on the engine's value and decide whether to lease it or sell it to a buyer who can afford it and pay a good price. If we can collect expected revenue upfront, it's hard to pass that up. It’s challenging because while we can achieve similar revenue over a longer term with recurring income—which is what our investors desire—we also have to balance the risk involved. So, as we look ahead with over 20 engines available to monetize this year, I can't say definitively which we will sell or lease. We are also acquiring more flight equipment, and that will influence our decisions. If we find specific equipment to sell with an interested customer, we may choose to service that and facilitate the sale. It’s all evaluated on a case-by-case basis, which is why I can't give a clear answer.

We do have 22 engines. We have 11 engines that are currently being marketed for sale or lease, and we've had engines in repair, another 11 engines that will also be available for lease or for sale. So we have a good inventory level, and we feel confident. As Nick noted, now it's what opportunities do we want to pursue.

That's great. And if I could, Martin and Nick, maybe just two more quick questions. The first is, as you look at the balance sheet today, is there any areas you'd call out maybe at risk in terms of the carrying value of the assets on the balance sheet, whether it be engines or whole assets or any other equipment? And then second, maybe, Nick, if you could just comment on, obviously, your MRO business is coming through a pretty significant restructuring, sort of how we think about that progressing through the back half of this year and into '26?

I'll start with the balance sheet question overall. We evaluate all of our assets on the overall inventory, sorry, in our overall balance sheet inventory, PP&E and intangible assets. And at this point, there's nothing that leads us to believe that there would be any impairment risk on those overall assets. We're seeing strong opportunities, both in passenger and we're starting to see an uptick in cargo demand. So that's going well for our 757 fleet. So right now, based on what we're seeing in the market outlook, we do not anticipate any impairments in our inventory position.

I'll address the second part of your question about our MRO operations, both on-airport and with the components. As I mentioned earlier, we have faced significant challenges with our component MRO, taking two years longer than expected to complete our component and aerostructure shop. It has been a difficult process, but we are finally ready to move into the new aerostructure shop in the coming weeks, bringing business with us. While we are generating some revenue, it’s not yet from the new shop since we are still operating from the old facility. With the increased capacity in aerostructures and the added pneumatics capability, we anticipate new business opportunities from our existing customers rather than having to search for new ones. We are currently at maximum capacity in our old facility, which limits our ability to take on more work. Fortunately, we will vacate the old facility this month and move into the new one, allowing us to expand. Major airlines have approved our new shop, promising new work that we are not able to undertake at present. I am very optimistic about the potential for significant growth in these operations over the next few months, especially as we demonstrate our new capabilities to customers. Regarding our on-airport MRO, specifically at Goodyear, for the first time ever, we have several bays fully occupied.

Seven bays.

We currently have 7 out of 8 bays in Goodyear full of aircraft, marking a first in our business history. We've made significant progress from having just 3 bays plus some additional spot business from our major customer program. This program previously occupied most of our labor resources, but we have since restructured our compensation to attract the necessary labor to meet the demand for the 7 bays we currently have, with 8 bays prepared for future use. As we continue to fill our Goodyear facility with more stable, long-term revenue instead of sporadic revenue, we will then shift our attention to filling our Millington facility. The Millington facility consists of one hangar with 2 bays, and we are actively engaging with potential customers to ensure its utilization over multiple years. However, our immediate goal is to fill the remaining bay in Goodyear before focusing on Millington. We have already invested significantly in Millington's build-out and have credit available for future rentals, allowing us to manage cash flow despite not currently using the facility. In Roswell, we have reassessed the facility's capabilities and concluded that its strengths lie in aircraft storage and management, given its expansive storage space. We believe it is more efficient to focus on aircraft storage and dismantlement in Roswell, as this approach requires fewer mechanics and can generate equal or higher revenue compared to heavy maintenance, repair, and overhaul operations. Our expertise in Goodyear will also be leveraged in Millington. We are confident about all six of our MRO businesses, across both our airport and off-airport facilities.

If I could add, as Nick noted, Roswell is a perfect example of some of the efficiency measures that we've done, really looking at labor utilization, kind of maximizing our efficiency rates. So we're starting to see that benefit. Roswell is a great example where even though we're doing pretty much half the revenue overall, we're still meeting the gross margin overall requirements. And we've done that for Goodyear as well. So as we're seeing that expanded growth, we're getting those benefits and also in all of our component shops. So as these new capacity and capabilities come online, we'll start enjoying some of those higher margins as well.

Our next question comes from Sam Struhsaker with Truist Securities.

To start, you guys were kind of just speaking to this a little bit. The ongoing cost kind of cutting initiative and the margin benefit you're seeing from that, how should we think about sort of where you guys are in the trajectory of that effort overall in terms of ongoing or getting close to the end there?

I think overall from a cost perspective, we anticipate for the year to be about a $5 million to $6 million overall benefit. Halfway through the year, we kind of realized half of that overall. From a margin perspective, the benefit depends on the overall unit, but we're seeing about a 200-basis point overall improvement that we are anticipating. We expect those efficiencies will gain and we'll get better margin improvement also as we get more fixed work, especially at the heavy MROs. That will improve it because we'll have better cost absorption of our fixed cost. But it's something that we're continuing to look at. There's more opportunities, and I think we did that in a great time as we have this growth kind of in front of us to really be as efficient as possible as we grow.

Great to hear. Makes good sense. I think kind of staying on the margin line a little bit there. It sounds like the USM is getting somewhat more favorable. How should we think about kind of like the net impact of that on the margin you guys are getting there? Is it kind of net-net the same? Is there a bit of a positive impact or just kind of the puts and takes on that?

The overall margin on USM will vary depending on product mix, but any new feedstock acquisition that we're acquiring, we are not going away from our 25% IRR. So we expect that to stay overall stable as we continue to buy additional feedstock.

Okay, I understand. That sounds reasonable. For my final question, could you provide insights on AerAware? Should we expect any contributions from that this year, or is it still uncertain?

Without a customer identified at this point, I think it's unlikely that we could achieve an AerAware delivery, even one delivery this year. It might be possible if it's for one aircraft. However, as far as securing a program goes, we are not there yet. We are still refining the product, even though it's already usable in its current state. Our priority is to get the system installed on customer aircraft. We understand that even if we say, "Go ahead and fly it; we won't charge you for it," and offer to install it on your aircraft, we need operational experience. We want pilots to communicate with air traffic control to showcase the system's benefits, such as allowing dispatch in lower visibility conditions. This will demonstrate the safety advantages it provides beyond just operating in reduced visibility. We anticipate starting to receive feedback from our customers soon. So, if we can find three to five operators globally willing to trial the system, we can begin gathering operational data with both air traffic control systems and operators. We have an ATR operator in Europe using the system and finding it very beneficial, but we need someone flying a 737 to gain valuable insights. Until we can provide potential customers with the assurance that this system is reliable and that the FAA will approve its use, progress may be slow. Questions around FAA compliance and training complexities remain prevalent, especially for larger airlines. Honestly, we underestimated how long the integration would take. This is a complicated system, and implementing new technology requires more time than we initially expected. Despite this, the current aviation climate, marked by proximity incidents and gaps in aircraft tracking, emphasizes the need for new safety technology. Recent legislative calls for mandatory ADS-B In and Out further highlight the urgency for advancements. With all this momentum towards incorporating safety technology, it’s puzzling why adoption of our system is taking so long. While I recognize the challenges involved, I believe safety should be the priority, and our system offers numerous benefits that make its delay hard to comprehend. We remain optimistic about progress, though I've been cautious to provide a timeline until we have better clarity on our next steps.

No, that's totally understandable and everything. It all makes good sense. And yes, I'm sure it's frustrating for you to get the momentum going, but it's completely reasonable. And congratulations on the nice results.

Thanks, Sam.

Thank you. We have no further questions at this time. I would like to turn the conference back over to Nicolas Finazzo for any closing remarks.

I want to thank Ken and Sam for their insightful questions and to our listening audience for joining us today. We look forward to keeping you informed at our next earnings call. I hope you all have a good evening. Thank you for listening. Good night.

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