Please standby. Good day and welcome to the AerSale Inc. Third Quarter 2021 Earnings Conference Call. Today’s conference is being recorded. At this time, I’d like to turn the conference over to, Kristen Gallagher, Human Resources, Director. Please go ahead.

Good afternoon. I’d like to welcome everyone to AerSale’s third quarter 2021 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 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, 2020 filed with the Securities and Exchange Commission on March 16, 2021, 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 metrics 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, Kristen. Good afternoon to everyone on the line, and thank you for joining our call today. I’ll begin with a brief overview of the quarter, followed by operational updates and progress we're making on our engineered solutions products, AerSafe and AerAware. I’ll then turn the call over to Martin to review the numbers. We produced strong results in the quarter, which was driven by the broad-based success of our 757 program and an increasingly supportive commercial aerospace end market as airline operations begin the process of normalization. Our third quarter revenue was $73.3 million, which included $27.4 million of flight equipment sales, compared to $57.1 million in the prior year, which did not include any flight equipment sales. The increase in flight equipment sales was partially offset by lower leasing revenue, primarily related to an end of lease payment recognized last year. A decline in TechOps revenue on account of lower aircraft storage and related maintenance activities moderated the increase in our asset management solutions revenue to some extent. Demand for passenger to freighter conversions remain strong, and our plans to monetize the remaining Boeing 757 fleet are on track. Adjusted EBITDA in the third quarter of 2021 was $13.9 million or 18.9% of revenues, compared to $25.6 million or 44.8% of revenues in the third quarter of 2020. The company recognized $6.3 million in payroll support program proceeds during the third quarter of 2020. But there were no corresponding proceeds in the third quarter of 2021. Our lower margins this quarter were largely due to the absence of these proceeds, as well as the contribution from the lease return condition payments we received last year. These results are in line with our internal expectations for the year, and we believe we're well positioned to deliver on our…

Thanks, Nick. I will start with an overview of our financial performance before ending with an update on our guidance. Our third quarter revenue was $73.3 million, which included $27.4 million of flight equipment sales. Revenue in the third quarter of 2020 was $67.1 million and did not include any flight equipment sales. As a reminder, our business may fluctuate from quarter to quarter and year to year based on flight equipment sales. And therefore it is important to monitor our progress on asset purchases and sales over the long term. Third quarter Asset Management Solutions increase to $48.9 million from $29.7 million in the third quarter of 2020. The improvement was primarily on account of the above mentioned flight equipment sales. Consumption of used serviceable material or USM parts for maintenance was strong for the quarter as airlines continued to return aircraft into operation against the backdrop of the upswing in air travel. The increase was partially offset by lower leasing revenues due to a least return payment recognized in the prior year. Looking forward, we expect the ongoing recovery and commercial markets to continue. I'll be it at a mixed pace as effects of the COVID-19 Delta variant makes the outlook less clear. We are on track to monetize our 757 investment through the remainder of 2021 and first half of 2022. Third quarter revenue from TechOps was $24.4 million, down from $27.4 million in the third quarter of 2020, primarily due to a shift in resources at our Goodyear facility away from third-party work, and towards our 757 cargo conversion line, as well as lower aircraft storage and related maintenance activities at our Roswell MRO facility as airlines returned aircraft into operation. We are in a great position to benefit from additional reactivation work, heavy maintenance and…

Thank you. [Operator Instructions] And we will take our first question today from Gautam Khanna with Cowen and Company.

Yes. Thanks guys. Good afternoon.

Good afternoon.

I had a couple questions. First just on the, guidance change the revenue range and the EBITDA taken up. Could you, is the entire $20 million EBITDA raise related to monetization of the 757s? And relatedly, the revenue reduction was that did what you did to prepare for the modernizations, if you can walk me for that?

Yeah. So as Nick noted, part of the reduction in the overall revenues was one. We removed resources at our MRL facilities to focus on the conversion process. So that revenue will be recognized as we monetize on the 757 transaction. In addition, as Nick noted, based on our original projections, we did have area where we originally included, we had taken those amounts out. So, looking at kind of what we had already deals that were in the overall pipeline. And we did reduce revenue slightly, due to the timing of the flight equipment sales. But margins have been so far for sales that we have actually done and that we expect the remaining quarter have been much higher, than what we expected. Again, because we have been able to do much more value add by using all four sections of our business.

That makes sense. And could you remind us on how many of them five 757s are remaining to monetize and engines and what the plans are for the ones that may not have a resale, but get them tarmac or do what you have to do just can you give us an update on where -- really have MOUs cetera?

Sure we have the 24 actually 26, we parted out two airframes. First, the first two of the remaining 24 aircraft with engines. We have under contract or LOI, 22 of those aircraft. Martin can give you the details on 23--

21.

We have 21, I'm sorry of those aircraft and two aircraft that -- three aircraft actually that we will schedule for spec Prater conversions should we don't have customers for, but we'll be looking for customers for those. So, we expect to monetize the entire package. We're not -- nothing is going to get parted out from the original 24. As a matter of fact, we've got an additional 25 all of which will end up being placed as whole aircraft.

And then could you comment on the acquisition environment for equipment, what are you seeing? What are you betting on? Any way you want to frame it, but what are you seeing out there? I previously described the acquisition market as an incoming tide and the tide continues to come in. We're not in a flood state yet but we are seeing incrementally almost every week, or aircraft that are becoming available at pricing that starts to work for us. Now why is that? Is it because or aircraft are actually hitting the market or it's because aircraft have now been on the market for a year and a half and haven't moved and pricing is becoming more realistic to what the real market is. I think it's the latter. I think that more aircraft are becoming realistically priced because they're not moving in this market. So, incrementally, gradually, we continue to see more aircraft coming onto the market. We're bidding on and that we're starting to win. Now, what are those? And I've also mentioned this previously, what we're still seeing crap where the engines are stripped off and kept by the airlines or leasing companies and best primarily leasing companies and the airframes are being sold really which, in essence removes an aircraft from service by selling the airframe, but the engines remain and the cost is being placed on the engines. It's not in all cases we are we are still acquiring whole aircraft with engines. But most of the aircraft that we're seeing that makes sense for us to acquire are aircraft that are either run out or close to run out. And the ones that again the pricing works for us, they need a lot of work to put back into service or their only…

Excellent. So I’ll get back in the queue. Thank you.

Sure.

[Operator Instructions] and we do have a follow-up from Gautam Khanna with Cowen

Sorry, I didn't want to monopolize but I was going to ask also just do you have a placeholder target for what you expect to deploy for equipment buys next year that you could share with us. [Technical Difficulty] can you hear me guys/

It'll be one moment.

Hi. Can you hear me?

Our apologies. Just as a brief interruption, please stand by.

Hi. Can you hear me, sir?

Yes we can hear you, be one moment.

This is Nick. So speaking….back on

Yes sir, please go ahead.

Okay. This is this is Nick Finazzo speaking, we got cut off. The only thing that we heard was Gautam had – Kristen said he would stay -- he would get back in the queue. I didn't hear anything after that.

We do have Mr. Khanna – open to ask question.

Great. Can you hear me guys?

Yes. We can.

Terrific. Okay. Sorry about that. I don't know what happened. Hey – I was going to ask, if you had a preliminary view on what would be the amount of capital you might deploy for equipment buys next year or maybe just over the next 24 months just based on the pipeline, what you're seeing? So it sounds like it's more promising, but any sense of sizing, what the opportunity might be?

Yeah. It's a really hard question to answer. I can only tell you historically, we have deployed significant capital early on in our business $500 million in the first five years of our business. So by comparison, we – we can move so quickly today and monetizing whatever acquisitions we make. I would expect over the next several years that we can just – we can deploy hundreds of millions. I can't tell you, if it's going to be a 100 million a year or greater or less. But based on our prior performance, where we had less infrastructure we were able to – we were able to on average, deploy 100 million a year on average. So I think it's realistic to assume that we can double that at this time on an annual basis.

Okay. And then on – that make sense. On AerAware, so it sounds like, is that do you think it's first half of next year where we'll get approval? You mentioned kind of soon after the – all the testing is done. But I just wonder like how, what is the lag there do you think? Like, how soon could this happen? Do you think it's the June quarter do you it's the September quarter next year? And then on the back of that any sense for what an initial order might be for the product based on your customer conversations?

I feel like the boy who cried wolf on this side. I hate answering that specifically, so let me give you the milestones for us. We're waiting on validate – verification and validation of the software by our partner. And we've been told that we won't receive that – well, that we will receive that at the latest at the end of February. So let's assume that's on time. And we get that – get it early, we get it at the end of February, if by the end of February the software is validated. But we are hoping is that prior to software validation FAA will let us perform our final flight testing. So that – so that the issuance of the STC is not predicated on – well, they will be predicated on the validation of the software. But the flight testing will not be held up due to software validation, because the system works and we've been flying with it. We've demonstrated to the FAA now three times, so that they see that the system works. The validation of the software it's just an audit process that's necessary to verify that all the testing has been done. So hopefully, we will get the FAA to fly with us, and do the final flight testing prior to the end of February. If we're able to do that, our expectation is all that will be left will just be our validation of the – of the software once Elbit, Universal issues their certification. And we're working that concurrently with them. So we would anticipate that may in the best case that we could be sometime in March, but more realistically, I think it's going to be -- I think it's going to be in the second quarter. Could it be -- could it roll into the third quarter? I can't imagine why it should roll into the third quarter. But it really depends on the FAA. The FAA gives us the attention that they've been giving us, because they're waiting on us at this point too. If get that kind of attention and that remains because the interest level is there. We are hopeful that we could receive certification in the -- at the end of the first quarter or during the second quarter of next year.

Okay. The other question was just on the initial orders that you might receive on the back of that certification. Do you have a sense for how big that might be based on your conversations with the customer?

We we've heard multiple times that because the FAA will require airline to have half of its fleet with the AerAware system installed before they'll be able to use the AerAware system, that would be half of the -- it would be a minimum of half of the existing fleet of 737 aircraft. That would be both 737 NG and 737 Max is working on both. And a 250 aircraft order would not seem to be reasonable with that some number that's been bandied about already. We don't have any specifics on that as I've mentioned previously. Our conversation has been primarily with one of our -- with our potential launch customer, but we have had discussions with other airlines as well. But if our -- if the customer we've been talking to gives us a lot shorter. I would imagine that it would be 250 aircraft range.

Thank you very much.

You’re welcome.

That will conclude today's question and answer session. I'll turn the conference over to Nick Finazzo for any additional closing remarks.

Okay. Well, thank you all again for your interest in AerSale and listening to our call this afternoon. I look forward to speaking -- Martin and I look forward to speaking with you again when we do our fourth quarter earnings call. Have a good evening, everyone.

That will conclude today's conference. Thank you for your participation. You may now disconnect.