Release Date: August 07, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Second quarter revenue increased by 11.2% year-over-year to $77.1 million.
- Adjusted EBITDA improved to a $3.2 million gain compared to a $0.5 million loss in 2023.
- AerSale Corp (ASLE, Financial) is expanding its MRO capacity with new facilities in Miami and Millington, expected to add at least $50 million in annual sales.
- USM sales increased significantly, with $46.6 million sold year-to-date, a $24.6 million increase from the prior year.
- AerSafe product has a backlog of over $13 million in orders, with expected sales increases in the back half of the year and into 2025.
Negative Points
- Overall operating performance is below plan due to limited feedstock acquisitions.
- Second quarter gross margin decreased to 28.2% from 29.1% in the prior year.
- GAAP net loss was $3.6 million in the second quarter, compared to $2.7 million in the prior year.
- The commercialization of AerAware is taking longer than anticipated, affecting revenue projections.
- The demand for 757 freighters has slowed, impacting the monetization of remaining converted aircraft.
Q & A Highlights
Q: Can you provide more color on the inventory side and why it is increasing despite the demand for USM and whole assets?
A: Some of the increase relates to completing the conversions on our 757s, adding costs to our inventory value. We are also taking delivery of AerAware kits and continue to acquire feedstock opportunistically for future sales, leases, or breakdown to USM. The timing to turn this into sellable inventory takes a while.
Q: What are your expectations for the second half of the year in terms of revenue and EBITDA?
A: We see good prospects for selling engines, with three engines sold in the first month alone at good margins. We are preparing inventory for lease or sale and adding assets to our leasing portfolio. Improvements are also seen in our MRO side, with significant contracts won and better utilization of labor. Overall, the second half looks more favorable than the first half.
Q: Can you update us on the progress of AerAware and the timeline for landing the first customer?
A: We are talking to both large and small customers. Smaller customers can get equipment delivered faster, while larger ones take longer due to reconfiguration and training needs. We have four customers flying our test aircraft soon. We have 150 kits in stock and are receiving more from Elbit Universal. While it could take several months to secure an order, it is unlikely to take multiple years.
Q: What is the current capacity utilization of your existing MRO footprint, and what are your expectations for the future?
A: We have a lot of available capacity even without the new facilities. Our landing gear and accessory shops are gearing up with new customers and contracts. We expect to more than double our MRO business, with significant improvements in margin profiles as we fill these units.
Q: Is there any risk that the carrying value of your inventory might not match the market value when sold?
A: We do not feel there is any risk. We constantly evaluate our inventory cost-carrying basis and remain disciplined in our capital allocation. We bid on $600 million of feedstock this quarter with a 6% win rate, ensuring we only deploy capital where we are confident of recovering the investment and making expected returns.
Q: How many AerAware kits do you currently have in inventory, and how quickly can you ramp up delivery if a major order comes in?
A: We have built 150 kits and are not producing more currently. We can ramp up production to 10-20 kits a month using our existing facility. We believe third parties could produce kits faster and more cost-effectively if needed.
Q: What does the competitive landscape look like for AerSafe, and are there alternatives in the marketplace?
A: The main alternative is a nitrogen system from the OEM, used in new aircraft deliveries. We have one competitor producing a kit with foam for fuel tanks, but we believe we sell more kits despite ongoing litigation with this competitor.
Q: What are your plans for the MRO business, and what kind of EBITDA margins do you expect?
A: We plan to more than double our MRO business, leveraging our new facilities. While margin profiles will vary, we are confident that filling these units will improve both gross and EBITDA margins. We are already absorbing incremental costs for facilities and personnel, which will benefit margins as we grow.
Q: How do you ensure the value of your inventory aligns with market dynamics?
A: We use a proprietary model targeting a 25% IRR and remain disciplined in our acquisitions. We constantly evaluate market dynamics and adjust our bids accordingly, ensuring we only acquire feedstock that meets our ROI criteria.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
