AerSale Corporation Common Stock 2026 Q2 Earnings Call

I'd like to welcome everyone to AerSale's Second Quarter 2026 Earnings Call. Conducting the call today are Nicolas 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 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 31st, 2025, filed with the Securities and Exchange Commission, SEC, on March 10th, 2026, 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. After prepared remarks, we will open the call for questions.

With that, I'll turn the call over to Nicolas Finazzo.

Thank you, Jackie Carlon, and good afternoon, everyone. Thank you for joining us today. I'll begin with a review of our second quarter financial and operational performance, including key developments during the quarter, and then discuss the actions we're taking to advance our strategic priorities. I'll then turn the call over to Martin Garmendia to walk through the financials in more detail. This quarter, we continued to focus on executing our strategic priorities, monetizing our asset base, scaling our MRO operations, and growing recurring revenue streams to achieve more consistent earnings. We made progress against these priorities, giving me confidence in our momentum heading into the second half. That said, both revenue of $70.9 million and adjusted EBITDA of $2.2 million came in below the prior year period. These results reflect timing, not trajectory. There were no flight equipment sales for the quarter, masking incremental improvements across most of our business units.

Disregarding flight equipment sales, overall revenue decreased 4.2% year-over-year from lower USM sales. First half margins were negatively impacted by a number of factors, including the cost of standing up new capacity and capabilities at Goodyear, Millington, and LandingGear as we prepare for the increased revenue opportunities that will follow. We view these as investments in future earnings power, not structural cost increases, and we're already seeing the operating leverage begin to improve. In anticipation of heavy maintenance work, largely related to the Spirit shutdown, we continued to carry additional labor at our Goodyear facility that weighed on margins. This work has been slower to develop than we first expected, but we're starting to see an increase in stored aircraft at the facility that will accelerate growth in the second half of the year.

In Millington, our new CRJ700/900 multi-line maintenance program drove higher MRO revenue this quarter. As noted, startup costs from the ramp-up still weigh on margins, and we're already seeing significant improvement in labor efficiency and turn times. We expect both facilities to contribute to stronger results in the second half as volume continues to build and these operations gain scale and efficiencies. In LandingGear, we received gear for two key customer programs during the quarter, including 737 MAX and 787, and that progress gives us increased confidence in the long-term trajectory of this business as volume continues to build. That momentum extends across the business, and we expect a meaningfully stronger second half.

On the leasing side, we placed our fourth 757 converted freighter on lease in July and executed a lease for a fifth, which is scheduled for delivery this month. This leaves just two freighters from our P2F conversion program to monetize, and we're working on multiple opportunities for this remaining flight equipment. These transactions will support the improvement in earnings and add available liquidity in the second half. While we remain focused on growing our recurring revenue base through leasing and MRO, we're also deliberately executing on select flight equipment sales that provide higher margin realization, improved returns, and a shortened monetization cycle. That has meant dedicating additional cash in the near term to get this material ready to sell, and we expect to recover those investments plus the associated returns in the second half of the year.

This is evidenced by several wins secured during and subsequent to quarter end, which include a 737 aircraft sale to the U.S. Marshals Service for $35 million, in addition to several engines, which we expect to close in the late third or early fourth quarter. Let me now turn to segment performance in order to provide more insight into the results. In our asset management segment, leasing remained a key driver. Leasing revenue grew approximately 50% year-over-year to $12.4 million, reflecting an expanded engine and freighter lease portfolio. We ended the quarter with 18 engines and three 757 freighters on lease, compared with 16 engines and one freighter a year ago. Higher lease rates and improved utilization continued to lift asset yields and support our goal of building a larger, more consistent recurring revenue base.

This growth will also benefit from the addition of currently owned engines that are completing the repair cycle, as well as the revenue from the remaining 757 freighters. This growth was offset by lower USM revenue, which reflects, in part, lower feedstock acquired in the first half of the year compared to the prior year. Feedstock acquisitions for the second quarter were $5.6 million, down from $27.1 million a year ago as we stayed disciplined in pricing in a hyper-competitive acquisition market. In addition, as we noted in the first quarter, we consumed USM material that could have been sold to build serviceable flight equipment for sale or lease, as this reallocation will enable us to realize higher returns than by simply selling the material as USM piece parts. In our Tech Ops segment, revenue grew nearly 9% to $33.8 million.

Growth was led by the continued ramp-up of our long-term CRJ-700 and -900 multi-line maintenance program at Millington, additional storage volume at Goodyear, and higher landing gear and aerostructures activity. Demand for our AerSafe product also remains strong and is expected to peak in the third quarter of this year, ahead of the FAA's November 2026 compliance deadline for the fuel tank flammability airworthiness directive. Tech Ops margins this quarter decreased due to softer throughput at our accessory shop, as well as due to the ramp up costs previously noted for Goodyear and Millington. These factors are exaggerated at this reduced volume level. However, as the operations continue to scale, margins will improve as utilization increases.

We also made changes to Tech Ops across our sales organization this quarter to sharpen our commercial focus and better align coverage with our highest opportunity accounts, and we expect these changes to support improved throughput and margin recovery in the second half. Turning to our enhanced flight vision product, AerAware, we remain engaged with U.S. regulators and industry participants to highlight AerAware's unique capabilities to enhance situational awareness and support safer flight operations. We believe the growing regulatory and legislative focus on ADS-B in and pilot situational awareness supports the long-term opportunity for AerAware as operators increasingly evaluate solutions designed to improve flight safety. A head-wearable display such as AerAware offers meaningful advantages over existing technologies, which we believe will have decades of utility. Stepping back, our priorities for the remainder of 2026 are unchanged.

First, increase the number of assets deployed in our lease pool, including placing our remaining 757 freighters. Second, continue to strategically monetize our inventory. Third, build available capacity across our MRO network. Fourth, improve operational profitability as our recent expansion initiatives gain scale. Execution of these priorities will lead to higher profits and a more consistent revenue stream going forward. With an active leasing pipeline and expanded operational capabilities and a clear path to monetize the inventory we built, we believe AerSale is well positioned to deliver improved and more consistent earnings going forward. With that, I'll turn the call over to Mark.

Thanks, Nick, and good afternoon, everyone. I'll walk through our second quarter results in more detail and then cover cash flow and liquidity. Total revenue for the second quarter was $70.9 million, compared with $107.4 million in the prior year period. The decline was driven primarily by the absence of flight equipment sales this quarter, which totaled $33.4 million a year ago related to eight engines sold. As we remind investors each quarter, flight equipment sales can vary meaningfully from period to period, and performance is best assessed over time with a focus on feedstock acquisition, the monetization of those investments, and profitability trends. Excluding flight equipment sales, revenue was down 4.2% as lower USM sales offset the continued growth in leasing and MRO. Adjusted EBITDA was $2.2 million or 3.1% of revenue, compared with $18.3 million or 17% of revenue in the prior year period.