AerSale Corporation (ASLE) Q2 2026 Earnings Report, Transcript and Summary

Hello, and thank you for standing by. At this time, I would like to welcome everyone to the AerSale Inc. Second Quarter 2026 Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to Jackie Carlon, Senior Vice President of Marketing and Communications. You may begin.

Good afternoon. I'd like to welcome everyone to AerSale's Second Quarter 2026 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 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 31, 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 Nick Finazzo.

Thank you, Jackie, 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 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 landing gear 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 continue 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 multiline maintenance program drove higher MRO revenue this quarter. But as noted, start-up 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 landing gear, we received gear for 2 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 2 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 3 757 freighters on lease compared with 16 engines and 1 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 parts, 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 hypercompetitive 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 TechOps segment, revenue grew nearly 9% to $33.8 million. Growth was led by the continued ramp-up of our long-term CRJ700 and CRJ900 multiline 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. TechOps 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 across -- to TechOps 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. And 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 Martin.

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 8 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. The decline was driven primarily by the absence of flight equipment sales in the current period. Turning to the segments. Asset Management Solutions revenue was $37.1 million, down 51.3% compared to $76.3 million last year, which included $33.4 million of flight equipment sales. Excluding flight equipment sales, asset management revenue was $37 million, down 13.6% as lower USM sales offset the higher leasing revenue from our expanded engine and freighter lease portfolio. TechOps revenue was $33.8 million, up 8.7%, driven by the ramp-up of our CRJ multiline program at Millington and higher component MRO volume. Overall gross margin was 22.9% compared with 32.9% last year. The decline reflects the absence of flight equipment sales, which normally carry higher margins and lower USM gross profit. It also reflects the standup investments supporting new capacity and programs, which Nick described, required us to carry incremental staff ahead of volume at Goodyear as well as incremental ramp-up costs related to the Millington CRJ line. We expect margins to improve as utilization increases, driving both higher revenue and margin. Selling, general and administrative expenses were $21 million, down from $22.8 million a year ago, primarily due to lower rent and variable expenses. SG&A included $1.3 million of share-based compensation compared with $700,000 in the prior year period. Net loss for the quarter was $5.6 million compared with net income of $8.6 million a year ago. Excluding share-based compensation, adjusted net loss was $4.3 million compared with adjusted net income of $9.4 million last year. The decline again is primarily attributable to the timing of flight equipment sales. On a per share basis, diluted loss per share was $0.12 and adjusted diluted loss per share was $0.09. Turning to cash flow and liquidity. Cash used in operating activities was $33.5 million year-to-date, primarily reflecting continued investment in inventory through both feedstock and make-ready costs to make flight equipment available for lease or sale. The majority of this outflow reflects deliberate capital deployment on flight equipment we expect to monetize at attractive margins in the second half of the year, which will improve both profitability and liquidity. We ended the quarter with $376 million of inventory and $133 million of aircraft and engines held for lease. Available liquidity was $34 million, consisting of $2.2 million of cash and cash equivalents and $31.8 million of availability on our $180 million revolving credit facility, which can be expanded to $200 million, subject to conditions and borrowing base availability. Our balance sheet remains well positioned to support our growth strategy, giving us the flexibility to continue to grow both our USM and leasing revenue streams as well as to continue to take advantage of market opportunities when they arise. In summary, our second quarter results reflect the timing of our asset monetization rather than a change in the underlying business. As we convert our asset base through the second half and grow our recurring revenue, we expect meaningfully stronger cash flow and liquidity and increasingly predictable financial profile over time. We entered the second half with a substantially stronger pipeline of asset sales and expanding lease portfolio and improving unit economics across our MRO facilities. We are confident this combination supported by a healthy balance sheet, positions us for meaningfully improved performance in the second half of the year. With that, operator, we are ready to take questions.

[Operator Instructions] Your first question comes from the line of Jeff Van Sinderen with B. Riley Securities.

I guess one of the questions I have, just on the MRO facilities. I know you're still in the process of kind of ramping those up. But at this point, what is the utilization rate running on those facilities?

Utilization on the MRO facilities as we're ramping up?

So as we're ramping up overall our Millington facility, we have 2 lines that are in work. We still have capacity to add an additional 2 lines of work at that overall facility. As we've noted in the overall comments, the biggest issue we're having there is just ramping up, getting the incremental, the labor, and to go through the learning curve in those overall -- doing those overall aircraft. What I can say is we have been seeing favorable improvements on that during the second half of the second quarter. So we are very optimistic that we are going to be able to get back to our expected profitability in the second half of the year. In our facility in Goodyear, Arizona, we do, and as we've noted in the comments, have been operating at probably less than 20% of our available capacity. However, our storage field is starting to fill up with a lot of yellow aircrafts, and we do expect as those operators and lessors start finding opportunities for those aircraft, to start getting a meaningful tick-up in hangar work at those facilities. At our landing gear shop, we have been working with 2 key accounts that are starting to bring volume into those facilities that started coming in, in the second -- at the latter month of the second quarter that, that facility has been operating at probably about 80% overall capacity at -- during one shift. With this incremental volume, we expect to increase that and add an additional shift. So we are seeing improvements in these facilities, but we do still have available capacity to be able to continue to grow those numbers significantly.

Okay. Great to hear. And then maybe you could just touch on any thoughts you have on the reasons for no flight equipment sales in the quarter?

Sorry, can you repeat the question?

Well, he wanted to know where we're at on flight equipment sales for the quarter. So as I mentioned in my discussion, we have under contract several engines that we could have closed or might have closed this quarter, but for different reasons, didn't. And we were awarded a $35 million sale of a 737 to the U.S. Marshals Service that we're trying to get closed yet this quarter. It may move into the early fourth quarter. Besides that, we have 17 engines -- 17 engines in work, and it's been like that now for the better part of the year. And it feels like they're all going to start coming up one right after the other here in the next several months. And those engines will go into our lease pool, some of them will go on to aircraft that we've got that we're placing, whether it be 757 or the 737. They'll go into our engine leasing portfolio. Lots of demand for those engines. That's the frustrating part, is if we could've get -- got those engines out of the shop, we would have already had them on lease. So we have all these engines are -- most of these engines are coming out in the near term. So we expect to see revenue from those, whether it be through trading or lease. Preferably, we'll lease them. However, if a financial buyer comes along or if an airline comes along, and they'll pay us more to -- for that engine, and we feel we can realistically get at it -- get out of it by leasing it and then adjusting for time and risk, then we'll sell it. It's not our preference because then we're back to -- we've taken that piece of flight equipment that could have produced more recurring, consistent revenue, and if we've moved it into trading. However, I'm going to add one more comment here because we get this all the time, which is I think that the investors don't appreciate what it takes to produce these assets and how much we pull from available inventory to keep the cost down in putting these assets together. And then ultimately, when we trade them, we get an outsized margin because we get more revenue from an engine that we put together than we would if we didn't take that engine, put it together, broke it down and just sold it at the piece part level. So the trading that we do is really just a higher way of -- a greater way to achieve better net revenue than if we just broke the engine down at the piece part level. And that's the analysis we make on every engine that we have in our portfolio, which is at a given time, do we lease it where demand is high or do we sell it where demand is high. And that's where we're at. So we've got a substantial number of engines coming here in the next several months, and that's a big change from where we've been over the past year.

Okay. That's great to hear. And then if I could squeeze one more in. Just curious, I know you mentioned some yellow aircraft that are being stored. And I'm wondering what you think the state of those aircraft is? Are they -- do you have a sense of the status? Are they ready to fly? Do they need MRO? What do you think happens there?

So all -- we refer to yellow airplanes, and I don't mind saying, these are ex Spirit Airlines aircraft. We have how many stored there now?

84.

We have 84 stored there. I think we were over 90 at one point. All of those aircraft will need some level of maintenance as they come out. Many of them, the NEOs require engines. So they'll be stuck there until the engines come out. The expectation is that engines for those airplanes will all come out over the next year. All of them that we have now are owned by banks or leasing companies. So we're discussing with all of those companies, what are they going to do with their flight equipment? Some have actually been broken down and sold as airframes and the engines seem to have more value leasing a serviceable engine than you get for leasing the whole airplane. So we've seen some of these leasing companies keep the engines that come out of the shop, and then sell the aircraft for the airframe for part out. So some of those won't come back into service, and we're parting them out candidly. It's a shame. These are relatively new airplanes, less than 5 years old in many cases, and airplanes are being parted out. We've just not seen that before. And again, that's because of the value of the engines being so high today because they're so rare to get a decent engine out of the shop. So all of that flight equipment, the lessors are waiting if they can get their engines back, they're all hustling to get lease customers for them. So if they've decided they're going to leave them, they have engines, they've got a customer, and we're starting to get heavy checks because those airplanes have been sitting for quite a while. So that will keep us with a lot of heavy maintenance at the facility until all of those airplanes go through the process of either being -- and I would expect that most of them will be returned to service rather than parted out. So that's going to keep us busy. The frustrating part to that is engines -- the unavailability of engines is still holding airplanes on the ground. And candidly, there's so many airplanes there that every lessor asked us today to return those airplanes to service, we're not capable of doing. We have 8 bays, and we can't return 8 airplanes with heavy checks in a short amount of time. So we will -- our expectation is as the lessors find their lessees that we will fill up probably for the next year. And by the way, those Spirit airplanes and those aircraft lessors aren't our only customers there. We have other customers that we've been dealing with long term. So that's why we feel optimistic about filling up our capacity at Goodyear despite the fact that this issue with Spirit has really created a big glut of airplanes that are need maintenance. But as we did during COVID, storing almost 100 airplanes there. These are ready airplanes. These aren't airplanes that are going to get -- most of them are going to fly and they're not going to get parted out. So that provides a decent amount of revenue for us as well.

Your next question comes from the line of Stephen Strackhouse with RBC.

Nick, I was hoping you might be able to just follow up on the part that you said that investors don't maybe appreciate in terms of what it takes to really put the assets together. Maybe kind of speaking to that trade-off of kind of foregoing the near-term USM piece part sales in favor of building the longer-term leasing assets kind of as a recurring strategic choice. Can you assign any value or numbers to that maybe in terms of the margins that you can kind of -- or maybe even the incremental margins between the 2 to kind of level set us there?

We have that information we can share.

Yes. I would say when we look at overall USM margins, we noted on our IR, margins are typically in the 25% overall range. When we've done flight equipment sales and when we look at the opportunity, we've achieved margins that have exceeded those amounts, sometimes by a large overall amount. And that's when we look at the opportunities that have been in front of us, whether it's the opportunity with the U.S. Marshals Service or various other opportunities to put overall engines, the economics are truly attractive to have made the investments because we have made, as Nick has noted, it's not just grabbing the engine. We have to have made significant investments to get these engines into serviceable condition and then sell those assets out. And that itself is providing not only the higher margin, but it's increasing our overall monetization cycle. So we're getting back our capital quicker, which again is important because it will also improve our liquidity position.

Let me add a little something else to that, which is as we view flight equipment purchases, the highest value we can get out of buying flight equipment is to keep the aircraft as a flyable asset. The next highest value is to keep the engines as flyable engines. When the airframe is not valued as a flyable airplane, it costs too much to keep it in service. You take the engines off. Now we have obviously plenty of opportunity to lease or sell the engines. When the engines have greater value at the piece part level because of the cost of returning them to service, then they go into the USM parts. Along all that, there are subcomponents. There's landing gear. There's APUs. There's other components that come off the aircraft as subassemblies that have higher value as subassemblies than they do at the piece part level. At the end of the day, USM, when you think about it, it's just purely piece parts. It's not components, it's not landing gear. It's just components. It's just piece parts, that's the lowest value you could get out of that because now it can move relatively quickly, and there are certain very high demand USM parts that can quickly be sold after you've torn it down, got it to the piece part level, then at the shop, got it back. And as soon as you predict all your scrap rates and yields and the sales value correctly, you'll get your value out of it. We strive for at least a 25% margin on USM parts. And sometimes, most of the time we get it. But when we take those parts and we sell and we put it together as part of the whole airplane or a whole engine and then are able to monetize the whole engine, we're not just getting value at a 25% margin off of or more off of the parts that are easy to sell, we also get value out of all the other things on the airframe or engines that we probably won't sell. And so that's why the total margin becomes much greater because some of that we wouldn't have otherwise been able to sell. And then when you look at the incremental dollars we're talking about, this is -- these are big transactions. These are transactions where we'll make $4 million, $5 million, $10 million or more on the sale of an asset. And do you know how many USM piece parts you have to sell to make that kind of margin? So when we can use our infrastructure to put together an asset and get a higher margin than selling it at the piece part level and a large incremental dollar amount with not so much additional effort because we're using our existing infrastructure to do it. But by just by piecing it back together rather than piecing it -- taking it apart at the piece level. That's why we pull USM and use it in the repair of our own -- our own flight equipment. We'll continue to do that as long as we feel that we're going to get a greater value out of it.

That is really, really helpful color. And a couple of questions here are really just around -- I can appreciate the investment that you guys are making to really kind of get the revenue model into a recurring stream and to really take advantage of the margin potential. So my second question is also in a similar line of thought where I know you talked about the CRJ ramp and the Goodyear labor investments that you're making, maybe not even kind of when they turn accretive to like the back half, but what can kind of some of the incremental margins or the margin capability look like on that MRO work in like 2027 or 2028?

So in our on-airport MRO margins have -- usually when we're running at full operations have been in the 20% to 30% overall range. Now margins improve, as you would understand, the more volume you have, the better absorption you have of your fixed cost. So one of the things that we're suffering from now is that as we're ramping up, volume is low. We have to ramp up and get the staffing that's needed to support that value, whether it's the Millington ramp-up or in Goodyear in preparation for the large amount of work that we're seeing ahead of us. And that's where we're seeing kind of a lower margin profile. As we start increasing that volume and give an example, as Nick noted on Goodyear, as there's this need to run aircraft and run them quickly through our pipeline, we'll add additional shifts, and that will start improving our margin profile going forward. And again, as Nick has noted, specifically for Goodyear, there's a large amount of aircraft that when those assets start becoming available, there's going to definitely be a need from our customers for us to ramp up to go through that increased volume.

That's helpful. And then very last question for me. I appreciate that there's a bit of a drop-off after AerSafe and the peak of like 3Q '26. But can you talk about the investment cycle that you could be making in new product offerings? We've heard a lot from a lot of other peer companies this quarter on their earnings calls talk about new product development. I was wondering if you could share any investments that you're making into other new products that could eventually replace AerSafe and drive some longer-term growth.

Apart from AerAware, which we've been discussing for many quarters now, we are looking at other PMA opportunities or even DER repairs where we're basically providing a solution to an airline that they can't get from the existing OEM of a part or they can't get the parts altogether, and we can manufacture parts for them because they can't get it. And what we're seeing is, especially with the current CRJ line that we're doing is there's a lot of need for additional services that will use our PMA capability and what we really need to understand is, okay, guys, what do you need? What can we do for you? So although in all candor, we don't have any additional PMA developments at this time. There's a number that we're working on that we will look to potentially develop and monetize on a go-forward basis. I don't expect any of that to make a substantial contribution. It takes a better part of the year to identify a product that you're going to develop and then go through the whole process of developing it and then assuming you have a customer that wants it because we're not going to develop anything on a -- just on a, hey, let's just -- we did that with AerAware. We didn't have a -- we had a very interested customer who just dragged and dragged and dragged. The next time we do something, when we develop it, it's going to be for a customer who says, give me this and I'll give you an order for hundreds of them. But don't have one yet. And I can't tell you that we have visibility on what we're going to see coming in the next year.

There are no more further questions at this time. I will now turn the call back over to Nick Finazzo, CEO, for closing remarks.

Okay. Thank you. I really want to thank you, gentlemen, for your good questions and it gave me an opportunity -- Martin and I an opportunity to explain in a little more detail some of the things maybe we missed during the call. I want to thank everyone else who's expressed an interest by listening to AerSale today for your interest. Thank you very much. The numbers don't reflect the story. And we'll have to -- we're going to show you that the second half of this year is not going to look like the first half of this year. And you'll see that if you listen to us next quarter and in the last quarter of the year. So we remain optimistic and confident, and we're eager to make things happen here. So again, everyone, thanks for listening, and we hope you listen in next time we have our earnings call. I hope everyone has a really good night. Thank you.

This concludes today's call. Thank you all for joining, and you may now disconnect.