Earnings call transcript: AerSale Q1 2025 results miss expectations, stock drops

AerSale Corporation reported its Q1 2025 earnings, revealing a significant shortfall compared to forecasts. The company posted a net loss and revenues that missed analyst expectations, leading to a notable after-hours stock decline. According to InvestingPro analysis, AerSale currently appears undervalued, with a Financial Health Score of 2.02, indicating FAIR overall condition. Get access to 8 additional exclusive ProTips and comprehensive analysis through InvestingPro’s detailed research reports.

Key Takeaways

• AerSale reported a Q1 2025 EPS of -$0.05, missing the forecast of $0.09.
• Revenue was $65.8 million, below the expected $99.52 million.
• The stock fell 7.67% in after-hours trading, closing at $6.50.
• Despite challenges, AerSale anticipates incremental improvements in future quarters.

Company Performance

AerSale’s Q1 2025 results reflected a challenging quarter, with revenue declining to $65.8 million from $90.5 million in the same period last year. The company reported a net loss of $5.3 million, contrasting with a net income of $6.3 million in Q1 2024. Despite these challenges, InvestingPro data shows the company maintains strong liquidity with a current ratio of 3.79 and operates with moderate debt levels, with a debt-to-equity ratio of 0.17. Factors contributing to this performance include lower whole asset sales and increased operating costs.

Financial Highlights

• Revenue: $65.8 million, down from $90.5 million in Q1 2024
• Adjusted EBITDA: $3.2 million, down from $9 million in Q1 2024
• Net Loss: $5.3 million, compared to net income of $6.3 million in Q1 2024
• Diluted Loss per Share: $0.10, compared to earnings of $0.12 per share in Q1 2024

Earnings vs. Forecast

AerSale’s actual EPS of -$0.05 fell short of the forecasted $0.09, marking a significant deviation. Revenue also missed expectations, with a reported $65.8 million against a forecast of $99.52 million. This represents a substantial 33.8% shortfall in revenue, which is a key factor in the market’s negative reaction.

Market Reaction

Following the earnings release, AerSale’s stock dropped by 7.67% in after-hours trading, closing at $6.50. This decline reflects investor disappointment with the company’s performance relative to expectations. The stock’s current price is closer to its 52-week low of $4.53 than its high of $9.40, indicating a challenging environment for the company’s shares. InvestingPro data reveals the stock trades at a P/E ratio of 64.27, while analysts maintain a moderate buy consensus with a unified price target. Unlock complete valuation metrics and analyst forecasts with an InvestingPro subscription.

Outlook & Guidance

AerSale remains optimistic about future performance, expecting incremental improvements each quarter. The company anticipates full-year sales growth, with EBITDA growth projected to outpace revenue increases. InvestingPro forecasts support this outlook, projecting 10% revenue growth for FY2025 and positive net income growth. Access the full Pro Research Report covering AerSale and 1,400+ other US stocks to make more informed investment decisions. Key focus areas include expanding USM sales, lease pool growth, and enhancing MRO service offerings.

Executive Commentary

CEO Nick Sinazzo remarked, "The underlying fundamentals in the first quarter were strong, notwithstanding the lower whole asset sales volume year over year." CFO Martin Garmendia added, "We are actively monetizing our feedstock investments and advancing key growth initiatives."

Risks and Challenges

• Volatile whole asset sales could impact revenue stability.
• Tight feedstock availability may constrain growth.
• Macroeconomic pressures could affect demand for MRO services.
• Compliance costs related to FAA regulations could increase.
• Competitive pressures in the aircraft and engine markets.

Q&A

During the earnings call, analysts questioned the volatility in whole asset sales and the demand for engines. AerSale’s management highlighted strong demand across engine types and emphasized the company’s flexible approach to asset monetization.

Full transcript - AerSale Corp (ASLE) Q1 2025:

Conference Operator: Day, and welcome to the AirSale Corporation First Quarter twenty twenty five Earnings Conference Call. All participants will be in listen only mode. After today’s presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Jackie Carlin, Vice President of Marketing and Communication at AirSale.

Please go ahead.

Jackie Carlin, Vice President of Marketing and Communication, AirSale Corporation: Good afternoon. I’d like to welcome everyone to AirSale’s first quarter twenty twenty five earnings call. Conducting the call today are Nick Sinazzo, 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 ks for the year ended 12/31/2024, filed with the Securities and Exchange Commission, SEC, on 03/11/2025, 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 Airesail website at ir.airesail.com. With that, I’ll turn the call over to Nick Finazzo.

Nick Sinazzo, Chief Executive Officer, AirSale Corporation: Great job. Thank you, Jackie. Good afternoon and thank you for joining our call today. I’ll begin with a brief overview of the quarter, then provide operational updates before turning the call over to Martin to review the numbers in greater detail. Our first quarter results were highlighted by continued growth in our USM, landing gear and component MRO business units, higher leasing revenue and increased sales of AirSafe.

This was offset by fewer aircraft in work at our Goodyear facility and Roswell on airport MROs, which was anticipated due to the completion of a multi line customer contract at Goodyear and reducing our service offering at Roswell by eliminating aircraft heavy maintenance and performing only lower top line revenue but higher margin aircraft storage and part out. Sale of a single engine during the period also contributed to the decline in revenue, although additional engine sales that were anticipated to close in the quarter did close in April. Taken together, our consolidated revenue for the first quarter was $65,800,000 compared to $90,500,000 in the prior year period. Excluding whole asset sales, the underlying fundamentals of our business were strong and in line with our expectations as demonstrated by a 23.4% increase in revenue to 64,000,000 As we know every quarter, due to the nature of our business and the impact of whole asset sales, our revenue levels tend to be volatile quarter to quarter and we believe our business should be evaluated based on aggregate performance over a longer period of time with a focus on feedstock acquisitions and the value our team is able to extract from these investments.

First quarter adjusted EBITDA was $3,200,000 compared to $9,000,000 in the prior year. This was partially offset by increased contributions from the rest of the business and cost reduction efforts instituted in recent quarters. Turning to segment performance and beginning with asset management. Sales declined 33.8%, which was entirely related to a lower volume of whole asset sales during the period. Excluding whole assets, segment level revenue increased 81.7% to $37,500,000 driven by stronger USM sales and a larger active lease pool.

During the quarter, we acquired a total of $43,400,000 of feedstock. The availability of favorably priced feedstock improved considerably in the first quarter and we were able to take advantage of market conditions to add to our inventory which puts us in an excellent position to build volume across all our business units. Although overall feedstock availability remains tight, we’ve been able to win more deals as pricing has come in line with our target IRR hurdle rates. We attribute this favorable change in part to our ability to extract greater value from feedstock than most of our competitors, coupled with fewer buyers having access to cash required to close the deals we won. This led to a 10.4% win rate in the quarter.

Looking forward, we’re balancing lease pool expansion against quicker turn whole asset transactions while market conditions are favorable for us. This will more rapidly generate cash, EBITDA dollars, and a higher IRR per transaction to fund additional feedstock acquisitions without having to increase borrowings under our credit facility. In total, we also expect our lease pool to continue to grow as assets that are already in our inventory are deployed throughout the year. In our seven fifty seven P2F conversion program, we are in active discussions with multiple customers for these assets. The end market has firmed since the start of 2024 and we generated lease revenue on one aircraft in the first quarter of twenty twenty five.

We ended the quarter with six remaining aircraft from our seven fifty seven freighter conversion program and our current customer pipeline is sufficient to place them all should they proceed to LOI. Turning to Tech Ops, segment revenue declined 15.1% to $26,600,000 As I noted, this segment level decline was anticipated as we concluded a maintenance check line with a large customer in Goodyear and are working to replace that volume. As discussed on our fourth quarter call, we’ve made a strategic decision to take advantage of the strong demand backdrop for MRO services to pursue longer term, more predictable contracts in these facilities that allow us to better match staffing levels with volume. These contracts take a bit longer to establish and commence, particularly given the lead time on maintenance planning with larger airlines. Our team has been in active conversations with numerous potential airline customers, and we continue to expect a strong recovery at this facility in the second half of the year.

Regarding our component MRO facility expansion projects, we continued to make progress with the build out of our accessories and aerostructure shops, which are now substantially complete and expected to come online and generating new incremental revenue within the next thirty to sixty days. In our engineered solutions unit, we saw an increase in air safe deliveries during the quarter and we anticipate backlog will further increase throughout the year as we get closer to the 2026 deadline for compliance with an FAA airworthiness directive, which is satisfied by installation of air safe. At quarter end, our backlog totaled $11,000,000 and we have sufficient orders already secured to achieve our 2025 financial plan for AirSafe. Turning to our revolutionary enhanced flight vision system AeroAir, we’ve continued to market the product and remain in active discussions with multiple airlines and government operators interested in the system. During the first quarter, we operated our seven thirty seven test aircraft to demonstrate the benefits of AeroWare to potential customers representing three different operators.

Further, we continue to progress on future product improvements of the system, including making the SkyLens foldable and adding ADS B in capability, which will enable our pilots to see the same information broadcast through satellite to the FAA’s air traffic control system. The invaluable benefit of adding ADS B in capability to what the pilots see in their sky lens is increased visibility of nearby objects, such as other aircraft, both large and small, including helicopters within their potential flight path. This benefit couldn’t be more evident than during the air traffic control incident on April 28 in Newark, which caused ATC controllers to lose complete visibility of all aircraft under their control. Pilots using AeroAir will be able to see ADS B transmissions from other aircraft in the area regardless if ATC cannot see them as these transmissions come from each aircraft and are relayed via satellite and will be displayed on our pilots sky lenses. As we look to the balance of the year, we expect significantly improved results incrementally each quarter, continue to expect full year growth in sales, and expect EBITDA growth to exceed our growth in revenue.

There are several factors driving this outlook. First, we’re in a strong position with ready to sell inventory, which we expect to drive higher volume of USM sales and full year whole asset transactions. Second, we have more assets in our lease pool than we’ve seen in recent years and this is expected to grow further throughout the year. Third, we’re at the completion stage of our two component MRO expansion projects. We expect to begin generating revenue from these new and expanded service offerings within the next thirty to sixty days with increasing incremental revenue particularly in the back half of twenty twenty five.

Fourth, we anticipate building a robust air safe backlog with installation volume incrementally increasing each quarter as we approach the 2026 compliance deadline. And lastly, our team has implemented efficiency measures to enhance profitability, which we expect will be additive in the second half of twenty twenty five. When combined with the operating leverage on higher sales, we expect EBITDA growth to meaningfully outpace revenue growth for the year. The underlying fundamentals in the first quarter were strong, notwithstanding the lower whole asset sales volume year over year. The investments we’ve made in both MRO infrastructure and make ready costs to provide more available USM and flight equipment have positioned us very well to enjoy greater sales and result in profitability as we progress throughout the year.

We’ve been extremely disciplined in the prices we’ve paid to acquire feedstock, but with our substantial experience dealing with aircraft, engines and parts in the aftermarket, coupled with our unique purpose built multi dimensional and fully integrated business model, we’ve been unafraid to use our balance sheet and credit facility to fuel growth. I want to thank our dedicated and experienced employees for their hard work and our investors for their continued support. We look forward to updating you on our progress. Now, I’ll turn the call over to Martin for a closer look at numbers. Martin?

Martin Garmendia, Chief Financial Officer, AirSale Corporation: Thanks, Nick. Our first quarter revenue was $65,800,000 which included 1,800,000.0 whole asset sales consisting of one engine. Revenue in the first quarter of twenty twenty four was $90,500,000 and included $38,600,000 of flight equipment sales consisting of one aircraft and four engines. As we have pointed out during all of our earnings calls, flight equipment sales may significantly vary from quarter to quarter. And we believe monitoring our progress based on asset purchases and sales over the long term is a more appropriate measure of our progress.

First quarter gross margin was 27.3% compared to 31.8% in the first quarter of twenty twenty four, due to lower whole asset sales, which carry higher margin. Selling, general and administrative expenses were $24,600,000 in the first quarter of twenty twenty five, which included $1,200,000 of non cash equity based compensation expenses. Selling, general and administrative expenses were 24,100,000.0 in the first quarter of twenty twenty four and included 800,000.0 of non cash equity based compensation expenses. In the first quarter of twenty twenty five, we reported a loss from operations of 6,600,000.0 compared to income from operations of 4,700,000.0 in the first quarter of twenty twenty four. Net loss for the first quarter of twenty twenty five was 5,300,000.0 compared to net income of 6,300,000.0 in the same period last year.

Adjusting for the following items, stock based compensation of 1,200,000.0, restructuring costs of 1,100,000.0, a legal settlement of 400,000.0, facility relocation costs of 400,000.0, a 57,000 change in the fair value of the warrant liability and 18,000 in payroll taxes related to stock based compensation, partially offset by 400,000.0 income tax benefits related to these items. Adjusted net loss for the first quarter of twenty twenty five was 2,700,000.0. This compares to adjusted net income of 5,500,000.0 in the first quarter of twenty twenty four adjusted for similar items. First quarter diluted loss per share was zero one zero dollars compared to diluted earnings per share of $0.12 in the first quarter of twenty twenty four. Excluding for the adjustments mentioned above, first quarter adjusted diluted loss per share was $0.5 compared to adjusted diluted earnings per share of $0.11 for the first quarter of twenty twenty four.

Adjusted EBITDA was $3,200,000 in the first quarter of twenty twenty five, compared to $9,000,000 in the prior year period. The decrease in adjusted EBITDA was primarily the result of lower whole asset transactions during the period. Next, in terms of our cash flow metrics, year to date cash used in operating activities was $45,200,000 resulting from a growth investment in newly acquired feedstock and make ready costs that increased inventory available for sale by $39,700,000 which we expect will drive our revenue and earnings going forward. This is an increase in cash used in operating operations for the quarter of $23,700,000 as we took advantage of a higher win rate on feedstock opportunities. We ended the quarter with $48,900,000 of liquidity consisting of $4,700,000 in cash and available capacity of $44,200,000 on our $180,000,000 revolving credit facility, which can be expanded to 200,000,000 While our first quarter results reflect a slower start to 2025 from fewer whole asset sales, our core business fundamentals remain strong, as demonstrated by the 23.4% year over year revenue growth, excluding whole asset sales.

Our asset management segment showed particular robust performance with sales up nearly 81.7% year over year excluding whole assets supporting supported by our strong inventory position. We are actively monetizing our feedstock investments and advancing key growth initiatives, including our seven fifty seven conversion program and expanded MRO capabilities. The efficiency measures we’ve implemented at the beginning of the year are beginning to yield results and we expect these improvements to drive enhanced profitability as we progress through the year. With a strong balance sheet and favorable market conditions, we are well positioned to drive profitability as we progress through the year. With that operator, we are ready to take questions.

Conference Operator: Thank you. We will now begin the question and answer session. If you’re using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press then 2. At this time, we will pause momentarily to assemble our roster.

The first question comes from Ken Herbert with RBC Capital Markets. Please go ahead.

Nick Sinazzo, Chief Executive Officer, AirSale Corporation: Yes. Hi. Good afternoon, Martin and Nick. Hey, Nick.

Ken Herbert, Analyst, RBC Capital Markets: Maybe just wanted to first start on the whole asset sales. Can appreciate the lumpiness here, and I know you guys don’t like to give guidance. But with what you’ve done in the second quarter so far, can we is it fair to assume that whole asset sales could be at twenty twenty four levels this year, just considering what you’re seeing in the marketplace? Or maybe any benchmarks or framework you can provide on how we should think about that this year over the course of the year would be very helpful.

Nick Sinazzo, Chief Executive Officer, AirSale Corporation: Yeah, it’s really difficult for us to determine exactly what will end up as a whole asset sale or will end up being put in our lease pool. We had expected to close more engines in the first quarter than the one that we did, but we closed them at the beginning of the second quarter. So we were off a little bit on that, but that’s not unusual. Mean, we’ve said this quarter after quarter after quarter sometimes these things happen and we get a bunch in one quarter and none in the next, and sometimes they just delay from one quarter to the next. As we look at the whole year, we have enough whole assets both on hand.

I think we’ve got 10 available engines on hand to either put in our trading or leasing pool, and another 11 in work that are coming out. As we continue to buy engines, we will take those engines, most of the engines we’re buying by the way, we’re having to put through shops or do some minor repairs, it would be best, but sometimes we’re having to do a heavier repair. So the equipment that we’re buying, we’re putting through the shops, we’re getting them repaired, we’re making them available for sale or lease. So as you think about it, we’re at the fifth month of the year, we’ve got 21 engines that we are working to put on to be able to trade or lease, and we’ll probably have a significantly higher amount of engines becoming available in the second half of the year as we continue to buy engines. So trying to predict exactly how many engines we’re going to have or compare that to year over year and say which ones are going to be sold as whole assets and which ones are going to be leased, we don’t have that information.

We make those determinations based on the particular opportunities at the time, and if we feel we’re better off to lease an engine because the risk associated with the leasing and the reward associated with leasing is far greater than we can get trading currently, then we lease. If we feel that we can recover on a trade, significantly all of the money that we would recover on a lease without any risk and adjusted for present value, we get substantially all that money upfront, we’ll trade. And that’s been the dilemma for everybody, which is you see this trading revenue that bounces from quarter to quarter. And I understand it’s frustrating for you as an analyst to try to predict it and for our investors to see the volatility, but we’re making the decisions we feel are the best decisions to generate the proper amount of revenue for the company, risk adjusted.

Ken Herbert, Analyst, RBC Capital Markets: Yeah, that’s very helpful, Nick. Maybe one other question for me. Obviously, as you look at the optionality of putting the assets into the lease pool or parting them out, or of course, trading them or selling them as whole assets. As you look at those different streams, as we’ve gone through the first quarter and now into sort of April and early May, have you seen any fundamental shift in demand from your airline customers or other customers, either in terms of the desire to in terms of reflected in pressure on lease rates or values at all that could be pushing down on these assets. I’m just wondering what you’re seeing from a demand perspective here five months into the year and if anything has shifted just with some of the broader macro concerns?

Nick Sinazzo, Chief Executive Officer, AirSale Corporation: That’s a conversation we discussed at our deal call this week and the comment made by Craig Wright, who heads up our trading and leasing group, is that we’ve never seen, we’ve never experienced a period of time where just about every engine type we own is in high demand. So there’s no lack of demand for engines today, there’s just a lack of supply. And the time it takes to get an engine through the shop has not gotten any better. And that’s also creating the issue of the lack of demand to satisfy the lack of supply rather to satisfy the demand, because everything is just takes forever to get through the shop.

Martin Garmendia, Chief Financial Officer, AirSale Corporation: Yeah, I think we’ve been in a good position for the last few for the last few quarters that we have been investing in repairing engines and getting them out and getting ready to be deployed. So we have engines available. And as Nick noted, we have some engines that are coming out of maintenance that are going to give us that optionality, whether we can continue to increase our leasing portfolio, and also take advantage of some whole asset opportunities. And we’ve been fortunate with a strong win rate that we’re going to be able to potentially grow both, obviously understanding and managing cash flow expectations.

Ken Herbert, Analyst, RBC Capital Markets: Great. Thanks, Martin. Thanks, Nick. I’ll pass it back there.

Nick Sinazzo, Chief Executive Officer, AirSale Corporation: Okay. Thanks.

Conference Operator: Thank you. This concludes our question and answer session. I would like to turn the conference back over to Mr. Nicolas Finazzo, Chief Executive Officer for any closing remarks.

Nick Sinazzo, Chief Executive Officer, AirSale Corporation: Thank you. As always, I want to thank Ken for his insightful questions. It always helps when when he asks them and allows us to further explain our business. And for the rest of you listening, thank you, and for your interest in Aerosail. I hope you all will again join us when we provide our second quarter earnings and our earnings call to come.

All of you have a good evening and again thanks for listening. Good night.

Conference Operator: The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.

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