Good day, and welcome to the Willis Lease Finance Corporation First Quarter 2025 Earnings Call. Today’s conference is being recorded. We would like to remind you that during this conference call, management will be making forward-looking statements, including statements regarding our expectations related to financial guidance, outlook for the company and our expected investment and growth initiatives. Please note that these forward-looking statements are based on current expectations and assumptions, which are subject to risks and uncertainties. These statements reflect WLFC’s views only as of today. They should not be relied upon as representative of views as of any subsequent date, and WLFC undertakes no obligation to revise or publicly release the results of any revision to these forward-looking statements in light of new information or future events. These statements are subject to a variety of risks and uncertainties that could cause actual results to differ materially from expectations. For further discussion of the material risks and other important factors that could affect WLFC’s financial results, please refer to its filings with the SEC, including, without limitation, WLFC’s most recent quarterly report on Form 10-Q, annual report on Form 10-K and other periodic reports. which are available on the Investor Relations section of WLFC’s website at https://www.wlfc.global/investor-relations. At this time, I’d like to turn the conference over to Austin Willis, Chief Executive Officer. Please go ahead.

Thank you, operator, and thank you all for joining us. On our call today, I am joined by Scott Flaherty, our Chief Financial Officer; and Brian Hole, our President. In our first quarter, WLFC continued to deliver strong financial performance, underpinned by the growth of our core leasing business. While average utilization for the quarter was 79.9%, we ended the quarter at over 86%, evidencing our ability to produce revenue from off-lease engine purchases in a timely manner. For the first quarter, our total revenue was $157.7 million and pre-tax income was $25.2 million. Our performance has enabled us to return capital to our shareholders while meaningfully expanding our business. And in April, we paid our fourth consecutive quarterly dividend of $0.25 per share. In a moment, Scott will provide more detail on our results. Following a transformative 2024, we were off to a strong start to the year, particularly as our differentiated flywheel business model enables us to generate premium returns. The macroeconomic concerns over tariffs have created market volatility, but the drivers of our business over the long term remain unchanged. The cost of new engines continues to drive operators towards leasing and our maintenance capabilities and programs aid cost-conscious airlines who would prefer to focus on flying passengers rather than engine maintenance planning. We remain confident in our business model and ability to continue to lead the sector in value creation. To that end, I want to highlight three notable transactions announced during the quarter that advance our strategy to provide efficient solutions to airlines. For those of you on the webcast, we have some accompanying slides. First, in February, we announced that we would exercise purchase rights to buy 30 additional LEAP engines from CFM International, a joint venture between GE Aerospace and Safran Aircraft Engines.…

Thank you, Austin and good morning all. As you can see from our P&L, we are off to a good start in 2025. Q1 produced record quarterly revenues of $157.7 million, driving $25.3 million of earnings before taxes or EBT. Our consolidated revenues of $157.7 million were up 33% from the comparable quarter in 2024 and were driven by our core lease rent revenue and maintenance reserve revenues, which were further enhanced by our vertically integrated services business. Walking through the P&L, as it relates to revenue, core lease rent revenue for the quarter was $67.7 million and interest revenue was $3.9 million, which reflects interest income on long-term loan-like financings. Growth in these line items primarily reflects our increased total portfolio size of $2.82 billion as of March 31. Our total owned portfolio is reflected on our balance sheet as equipment held for operating lease, maintenance rights, notes receivable and investment in sales-type leases. We have seen portfolio utilization grow from 76.7% at year-end 2024 to 86.4% by the end of Q1, an almost 10-point pickup as we were able to quickly deploy on to lease our December 2024 purchase of 9 GTF engines from Pratt & Whitney. Additionally, we continue to see a solid average lease rate factor across the portfolio of 1.0%. Maintenance reserve revenues for the quarter were $54.9 million, up $11 million or 25% from the comparable quarter in 2024. As you peel back the numbers, you can see that $9.6 million of these maintenance reserve revenues were long-term maintenance reserve revenue associated with engines coming off lease and the associated elimination of any maintenance reserve liabilities. $7.7 million of the $9.6 million related to an end of lease payment for which the company has subsequently been paid by a Chinese-based lessee customer. $45.3 million…

[Operator Instructions] And we will take our first question from Hillary Cacanando with Deutsche Bank. Please go ahead.

Yes. Hi. Thanks for taking my questions. I just wanted to find out if you are impacted in anyway by – direct impact – directly impacted by tariffs? I guess I wasn’t sure if you import any, like, parts or any materials from overseas for your maintenance services or anything like that, if you would be impacted directly. Thank you.

Thanks Hillary. So, thus far, our impacts have really been de minimis, both on the import side of parts as well as on the leasing side. You got to remember, a lot of our business, at least with our MROs, the parts come from our own parts capability. So, we really haven’t seen too much of an impact there yet. And on the leasing side, by and large, we really haven’t seen very much of an impact. There was a little bit of noise around China early on with respect to the implication of tariffs on lease rent revenue, but it looks like that has largely gone away. So, things are pretty much business as usual.

Okay. So, not too much. I mean so pretty much – I guess minimal impact. Okay. Great. And then I just wanted to get your thoughts on what happens to the value of your existing portfolio in terms of market values and lease rates if tariffs, let’s say, escalate with Europe, let’s say, in 90 days. I would think that newer aircraft gets expensive, so older – maybe older asset values and lease rates go up. But then I don’t know what would happen to the demand side. And like, then what the demand for travel, let’s say, or for aircraft. So, like what the net impact will be on the existing assets. So, just kind of wanted to get your thoughts on what you think the market values on lease rates will be for older maybe like your existing portfolio.

Sure. So, it’s hard to tell. I mean the reality is trying to look at what the future looks like at this point is really nothing more than pure speculation. That being said, I don’t think it’s unreasonable to expect some degree of asset inflation with our existing portfolio. I think when engines coming out of the OEMs are likely to be a bit more expensive because of the tariffs that they incur I think that will drive up values elsewhere. And exactly, to your point, I think there is a reasonable case to be said that incumbent assets in particular jurisdictions are likely to see some level of appreciation as well because obviously they won’t be subject to cross-border tariffs, should reciprocals be put in place. And then finally, I think there is a scenario where less expensive assets could be more attractive even if they do cross borders, just by the nature of the tariff being a percentage on value.

Got it. Great. Thank you very much. Very helpful.

No problem.

[Operator Instructions] We will move next to Louis Raffetto with Wolfe Research. Please go ahead.

Hey. Good morning.

Good morning Louis.

There is a nice step-up in the spare parts sales. I guess maybe you can say what are you seeing in the USM market? It’s been tight for the right assets for a long time, I guess. And many engines were being repaired as opposed to being torn down. Are you seeing a shift there? And how are you balancing the decision to either repair an engine or tear it down?

Yes. So, a lot of the step-up in part sales from the – from our parts business was due to a large transaction that we had where we purchased a portfolio of parts and then subsequently sold them back-to-back. But even taking that into account, we still did have a pretty good step-up in part sales. And I think that is symbolic of the overall demand for used serviceable now, and we expect that to continue for the foreseeable future. As we think about repairing engines ourselves, we run a process. Whenever one of our engines becomes unserviceable, we look at do we part it out and what does that net revenue generate, do we fix that engine and what’s the present value based upon that. And then we will also solicit bids from the third-party market as to determine what that would get in cash for us right now. And ultimately, we look at the three scenarios and just do a present value analysis. And then finally, we also look at, does it make sense to repair engines versus what we can purchase engines for out on the market. And historically, we have been pretty darn good at spot market trading. So, in many cases, we can actually procure engines on a better value on a cost per cycle basis than one can overhauling them.

Alright. Great. Appreciate that. Maybe just two quick clarification questions, the one engine that was sold out of the sort of spare parts and equipment, I will call it portfolio versus the other leased engine portfolio. Just how, like what’s the differentiation between those?

I think – are you referring to the spare parts, yes, the $7 million of spare parts?

I know – just in that paragraph it’s said that it was one engine...

Sure. What you probably saw is if you look at the line item of our financials, its spare parts and equipment sales, right. So, in the comparable period, we did not have any equipment sales. And what equipment sales are is really effectively like a trading. So, it’s not a leased asset, not an asset that was on lease. It’s an engine or a piece of equipment that we bought and ultimately sold and without having it in a lease portfolio. So, really, what you saw in the quarter was a $2 million step-up in that one line item, specifically related to that.

Okay. Great. Appreciate that.

Our next question or comment comes from the line of Will Waller with M3. Please go ahead.

Yes. I just had a couple of questions regarding the utilization rate. It was stated in the press release; it was 76.7% at the end of the year of 2024. You mentioned the average, if I heard it right, it was 79.9% for the quarter and then the quarter ended at 86.4%. Is it safe to assume that the GTF engines that affected that at the end of the year weren’t leased out until pretty close to the end of the first quarter, based on sort of what the average utilization rate was?

Yes. Hey will. How are doing? No, that is a good assumption, right. So, I think that if you kind of go back and look like you said or we talk about quite often average utilization, and then if you also look at the actual at period ends, at the end of the year, we were at 76.67% utilization at the end of Q4, and now we are at 86.4%, and a lot of that was related to some of the GTFs that we picked up late in the fourth quarter. And then over time, we have got that portfolio on to lease. And you are right, they all didn’t go on lease at one point in time and some of those went on lease even late into the month of March.

And what is the going rate for, say, a GTF or a LEAP in today’s market? And how does that compare with, say, six months ago?

So, Will, I appreciate the question, but I hope you appreciate, for competitive reasons we are not going to get into specific lease rates on assets.

Okay. And then as it relates to the long-term maintenance revenues, you kind of walked through a number of numbers, and I might have heard something wrong, but there was $7 million related to a Chinese airline where some engines came back off the lease. Was that during the quarter or after the quarter end?

Sure. So, that was a – so what that was, was in end of lease. So, long-term related. And that was recognized in the quarter and cash was received subsequent to quarter end.

Okay. Sounds good. So, that – but it was counted in the long-term maintenance revenue for the first quarter, that $7 million?

Sure. It’s revenue recognition, correct.

Okay. Prefect. And then when I look at the liability, the maintenance reserve liability, it grew from year-end $97.8 million to about $104.5 million at the end of the first quarter. So, that’s sort of the additional buildup that’s occurring where you are having – there are some probably lease extensions that are going on and so on, but that’s where the buildup is. And then eventually, that’s what will become revenue once the engines are returned, correct?

Correct.

Okay. So, in a sense, that $104.45 million that’s in that maintenance reserve liability, basically, that is the revenue associated with the long-term leases that just haven’t been recognized as income yet, correct? And then it will be recognized once the engines are returned, similar to the seven that the Chinese airline returned?

Sure. So, think about it like this, Will, like the short-term components are the monthly payments that we are getting from the operators for their usage. And those are not maintenance reserves. They are – we would never have to give those back, right. So, those are the monthly payments. The long-term are the payments that come either at the end of a lease or the payments that we have received over the life of the lease that are the payments that are – or are the balance that you see on the balance sheet. And at the end of the lease, where the operator chooses not to shop, visit that engine and return it in the condition in which it was provided to them, they give us the engine back in its current state and then we release those maintenance reserves and recognize them as revenues.

Okay. Great. So, those are sort of building. So, in a way, when we are looking at things, if there are lease extensions going on, which it sounds like in the industry, there is a lot of – a lot higher than normal lease extensions going on, then you are just going to always kind of have a much higher number that’s being deferred and not being recognized as revenue, whereas if it was a short-term lease, you would be recognizing that all along, sort of all the way along the life of the lease. It wouldn’t be one lump sum at the end?

That’s correct.

Okay. And what the utilization rate changed a decent amount. I think historically, dating back three months or six months ago, the last time that you disclosed that about 53% of your leases were long-term leases, 47% were short-term leases. What is that mix at the end of the first quarter?

Yes. So, the mix is pretty similar. It’s – we usually keep it in the neighborhood of 50-50. And that short-term lease capability is really one of the drivers that differentiates us and enables us to do what we do, both on the programmatic side as well as the trading side because that gives us the real-time information on what assets are worth, so we can go out and speculatively buy them and put them out on lease. And a good example of that is with some of the assets we purchased off lease at the end of the year, without having that real-time information, you are not going to be as certain about your ability to get those assets to produce revenue. And that’s why we were able to get those assets on lease quickly.

Great. Thanks both and I appreciate it.

Thanks Will.

[Operator Instructions] We will go next to Eric Gregg with 43 Island Advisory.

It’s Four Tree Island Advisory, but thank you. Great job on the lease rent revenue and maintenance reserve revenue growth this quarter gentlemen. A few questions first for Scott and then one to finish up with you, Austin, the average quarterly gain on sale of flight equipment in 2024 was about $11.3 million. This quarter was less than $5 million. In such a strong environment, just curious why the quarter was so much lower than what you have been averaging in the last four quarters and how you are thinking about likely gains on sale of flight equipment in the coming quarters for 2025?

Sure. Yes, Eric, it’s always – it’s hard to predict, and it’s hard to time exactly the trading component. But we continue to see significant value in the portfolio, and as we have talked about in the past, above and beyond the book value. So, it really depends on how we package in any period assets that we are selling. So, I think that we would really look to a consistent type margin over the longer term and I wouldn’t judge any one specific period to dictate a longer term margin.

Okay. Alright. Moving on to the consultant-related fees, the way the press release reads, it says increase in consultant-related fees predominantly related to the company’s sustainable aviation fuel project. If this was an increase, is that an 11.4% increase off what baseline in the prior year? Is it off of zero, or is it off of some kind of normal kind of consultant fees that are going out the door every quarter? I didn’t find much in historical notes in the financials to be able to determine that.

Yes. So, I would say, we don’t disaggregate that, right. But it’s a lot less material than the aggregate that you are seeing there. And that’s why we specifically highlighted that, kind of given the fact that it does jump out in that one period.

Yes. And if I can add to what Scott is saying – sorry, just to jump in. Yes, the amounts that we have experienced historically are pretty immaterial. The amounts that we are spending right now or that we have spent in this first quarter really represent the lion’s share of what we expect the expense to be for this year.

And you are saying the lion’s share based on the credits you expect to get back from the UK government or whatever body that is on a net basis, correct?

Well, we do expect to get a fair amount back from the UK government when they pay us over the next few quarters.

Yes. Okay. Great. And then finally, this last question is for you, Austin. This is a high-level question. But if you look back to year-end 2022 and go out to year-end 2024, where all this data is available, the owned number of engines that Willis has is up about 4%. The managed engine count is actually down over 14%, but the number of employees is actually up about 60%. So, the question is this, with an asset base in terms of number of assets that hasn’t grown much over the last few years, why is it necessary to have 60% more employees?

Thanks. So, yes, I mean if you look at our portfolio, by and large, it’s considerably larger than it was in 2022. But I get your point on the quantity of assets being owned and managed. A lot of the growth you are seeing in – on the G&A side and headcount is really a function of the people that we have in our services businesses. So, leasing has grown somewhat commensurate, but to a lesser extent than the growth in our balance sheet. But we have grown as we have built out our engine MRO work U.S. in Florida, our engine MRO in the UK and our aircraft MRO in Teesside in the UK as well. So, that’s the predominant factor.

And at this time, we have no further signals. I will turn the floor back to our speakers for any additional or closing remarks.

Yes, I will make one last closing remark. Just to say, we certainly don’t know what the landscape of tariffs is going to look like going forward. But I will say that our platform is remarkably well structured to manage it, because we do have the ability to manage and service our assets through our 145 repair stations, both in the U.S. and the UK, which will work well in the event that the world does become more of a bifurcated system where assets tend to live their lives more in particular regions. So, I just wanted to quickly mention that and thank everybody for taking the time to be with us today.

This concludes today’s conference. We thank you for your participation. You may disconnect at this time.