Willis Lease Finance Corp 2026 Q2 Earnings Call

Thank you all for joining us today to discuss Willis Lease Finance Corporation's second quarter 2026 financial results. On our call today, I'm joined by Scott Flaherty, our chief financial officer. I would like to also point you to the investor center section on our website, where we have posted a presentation to give further details supporting our prepared remarks, along with our earnings press release. We are pleased to have continued strong momentum from earlier in the year and are reporting another quarter of solid financial and operational performance. We continue to deliver on our strategy to grow assets under management and have increased this from roughly $3.6 billion in quarter two 2025 to about $4.4 billion in quarter two 2026. Furthermore, we delivered strong EBT performance of $38 million and an adjusted EBITDA of $120.7 million in an uncertain geopolitical environment.

Before discussing our business segments, it's worth briefly touching on the broader operating environment. The macro environment has been dynamic in the second quarter and remains so. While geopolitical events, including the conflict in Iran, created some temporary market disruption, the underlying fundamentals of our business remain strong. As I will discuss later, one of the strengths of WLFC is our ability to perform across different market environments, supported by our integrated platform and the flexible solutions we provide to our customers. While the war in Iran hasn't affected the demand for our assets, it has had some effect on the volume of aircraft and engine transactions taking place. Similarly, during the second quarter, we saw a reduction in short-term maintenance reserve revenue, which appears to be the result of customers flying fewer hours on less fuel-efficient platforms, such as the A320ceo and 737NGs, powered by CFM56 and V2500 engines.

By comparison, the more modern engines, like LEAP and GTF, did not see the same reduction in flight hours as they were favored due to their fuel efficiency. In fact, had an increase in flight utilization in many cases. It is also partly due to the modernization of our fleet, which Scott will speak to in a moment. Encouragingly, the maintenance reserve revenues from older engine types are improving along with trade volume. As the aircraft OEMs ramp up production of the A320neos and 737 MAX aircraft, we see the long-term prospects for LEAPS and GTF demand remaining robust. While both aircraft platforms have had entry-into-service difficulties driven primarily by the engine-related technical issues, the engines are now beginning to reach a point of maturity where scheduled removals for performance restoration and LLP replacement are beginning to accelerate.

As a result, we expect the LEAP and GTF engines to require more frequent off-wing maintenance, and this, combined with the maturing of the engine type, is likely to lead to strong demand for these engines. About 60% of our consolidated portfolio by net book value, including WLFC and WAC, consists of modern tech engines, including LEAP, GTF, and GEnx, reflecting our investments in these modern platforms for the past few years. We are well-positioned to serve this growing base of aircraft and engines into the next decade. We expect the CFM56 and V2500s to continue as big contributors to our bottom line as well. However, we remain prudent as always in our decisions to buy assets, understanding that as the market matures, these assets will be phased out in favor of more modern technology.

We believe we're well-positioned to benefit from this phase out as our product ConstantThrust is designed specifically to facilitate these transitions, and our maintenance philosophy of hospital shop visits in lieu of full overhauls will become an increasingly attractive alternative to costly full overhauls. With the hiring of David Hooke last year, we focused more on M&A in 2026. We have participated in a number of marketed processes and some off-market deals as well. Of the opportunities we are seeing, sellers are increasingly preferring to transact through the sale of entities that own the underlying assets, rather than through direct sales of assets in order to avoid lengthy novation processes. While this has created opportunities for us to acquire assets at attractive prices, acquiring them through special-purpose vehicles also introduces the additional costs and complexity associated with the M&A transactions.

These types of costs are reflected in SG&A, but are also carefully factored into our investment decisions. We were pleased to announce two M&A-type transactions recently where we acquired assets through special-purpose vehicles, and I'll speak more to that in a moment. Moving on to discuss the Willis platform and our primary business segments. Total assets under management grew from $3.6 billion in Q2 2025 to $4.4 billion in Q2 2026, a significant increase of 21%. Our assets on balance sheet made up 67% of assets under management. Next, I'll give an update on our primary business areas, Leasing, Willis Aviation Capital, and Services. Starting with Leasing. Our leasing business is performing well as we have been focused on reallocating assets to different pockets of capital in order to execute our growth strategy across both our balance sheet business as well as WAC.

We saw solid utilization of our lease portfolio in Q2, averaging about 85%, roughly equivalent to the prior quarter. This does fluctuate from time to time as engines go into maintenance, programs roll on and off, we move assets on and off balance sheet, and when we acquire new assets off lease. In June, we acquired the vehicles that own three Airbus A330-300 aircraft that were leased to China Airlines and EVA Air. In July, we signed definitive documentation to acquire the private equity entities that own an additional 12 commercial aircraft and 13 aircraft engines. These acquisitions provide us the opportunity to expand our portfolio and customer base. We intend to use our platform and programs to extract additional value from these assets as well.

As I mentioned earlier, Willis Aviation Capital, or WAC, grew to $1.4 billion in Q2 2026, representing an increase of nearly 80% from its AUM the same period last year. The muted growth of the balance sheet assets was largely the result of having ceded the portfolios of the Blackstone Fund, the Liberty Mutual Fund, and our joint venture with Mitsui. The ceding is now largely complete, and we expect the majority of further growth in the funds to come through third-party market purchases. This will help build out both our AUM as well as our balance sheet portfolio, which still represents the primary source of income for WLFC. As we stand today, we have roughly $1.3 billion of additional capital ready to deploy in our discretionary funds, which is in addition to the capital raised by our joint ventures and the WLFC capital structure.

This liquidity, along with the undrawn revolver capacity and our low leverage of 2.78 times, provides added flexibility and will allow us to execute our growth strategy. Finally, Services. Our services businesses continue to be a major strategic advantage, differentiator, and value creator, both for our own assets and those we manage. After nearly a year of on-site inspections and quality audits, we were pleased to announce last week that we signed a major engine storage agreement with Pratt & Whitney. I believe this is indicative of the confidence they have placed in us, both as a customer and a service provider. We intend to be good custodians of their assets at our maintenance facilities in the U.S., in the U.K., as well as other engine repair centers we may establish in the future.

We are currently in advanced discussions to establish another center in Asia, and we hope to have news for you on that in the near future. The Willis Engine Repair Center, or WERC, is a replicable solution we can duplicate quickly in different geographies. I also want to reiterate our commitment to allocating our capital to supporting growth, maintaining leverage targets, and providing a nominal return of capital through a dividend to our shareholders. In support of that goal, we recently declared a quarterly dividend of $0.133 per share, which, when adjusted for our three-for-one stock split, is equivalent to our prior dividend. As the market recognizes the growth and value of the Willis platform, we are pleased to see a broadening of our inclusion into various Russell 2000 indices as well as an increased trading volume in our securities, which provides more liquidity to our shareholders.

Trading volume in our equity on a dollar volume basis has increased 82% in 2026 compared to 2025. Overall, we have achieved another strong quarter. We're confident in the progress we are making to scale our global platform, expand our portfolio, and deliver long-term value for shareholders. This year, we have been focused on moving assets from our balance sheet to Willis Aviation Capital. Now that this is largely complete, we look forward to a return to balanced growth by closing on our significant pipeline. With that, I'll hand it over to Scott Flaherty, our CFO, to discuss our financial performance in greater depth.

Thank you, Austin, and good morning all. Q2 was another strong quarter for Willis Lease as our core leasing business produced solid revenues, profitability, and cash flows. We continued to vertically integrate our services solutions platform, further differentiating our product offering, creating cross-sale opportunities, and affording both Willis and our customers the benefit from the most economical maintenance solutions. The second quarter also provided for further seeding of our Blackstone and Liberty Fund portfolios, as well as the continued build of our Willis Mitsui joint venture. The second quarter's $194 million of revenues produced $38.1 million of earnings before tax, or EBT, $28.7 million of net income attributable to common shareholders, and $1.31 of diluted earnings per share, as well as $120.7 million of adjusted EBITDA.