Good day, and welcome to the Willis Lease Finance Corporation third quarter 2024 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 these forward-looking statements are based on current expectations and assumptions, which are subject to risk 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, the annual report on Form 10-K, and other periodic reports, which are available on the investor relations section of WLFC's website at https://wlfc.global/investor-relations. At this time, I would like to turn the conference over to Austin Willis, Chief Executive Officer. Please go ahead. Thank you. Here with me today is Scott Flaherty, our CFO, and Brian Hole, our president. Firstly, I'd like to thank our employees for delivering another strong quarter. And in particular, I'd like to recognize our legal department, finance department, and those others who have been involved in our capital markets transactions over the past two years, from completing our eighth ABS last year to establishing what we understand to be the industry's first-ever engine warehouse and closing the first engine JOLCO. And more recently, expanding our revolver to $1 billion and extending and expanding the company's preferred stock with an increased investment from the Development Bank of Japan. I would also like to announce our second quarterly dividend of $0.25 per share to be paid on November 21st, 2024, to holders as of November 12th, 2024. Our core leasing business is performing extremely well and continues to show improvement relative to prior quarters. Our Q3 pre-tax earnings, or EBT, of approximately $35 million is our second highest on record and represents our highest when you adjust for long-term maintenance reserves, which tend to run lower when lessees opt to extend leases rather than return engines. Demand for engines remains robust. Little has changed from the second quarter in that supply chain issues continue to affect the OEM's ability to produce new assets and parts, and the MROs continue to struggle to repair engines in a timely manner. This continues to bode well for our utilization and rates. The Boeing strike is exacerbating this problem and is resulting in more of our customers seeking to extend the lives of their current generation narrowbody aircraft. We have seen specific examples recently where airlines had RFPs in the market to sell their fleets of aircraft over the next 12 months but have recently retracted those RFPs as they don't have a clear picture of when they can expect their new aircraft to deliver. Generally, airlines will plan to retire a fleet when they have used the green time or serviceable life of an engine and when the airframes require major checks. By extending the lives of their fleets, many airlines are faced with the prospect of making major investments in their aircraft that they may not fully realize the value of. Our programs, like Constant Thrust, where we insource the airlines' engine maintenance, enable the airlines to only pay for the incremental hours and cycles that they consume on their engines rather than paying for full overhauls. We have seen an increase in airlines requesting this service in recent months. We are exceptionally well-placed to fulfill these program requirements due to our size, diversity of engine assets, and in-house materials and maintenance capabilities. While some airlines have looked to reduce capacity in recent months, we have not seen a reduction in demand, and in fact, our average lease rental factor has increased over the prior quarter. While we feel that some engine lease rates may be stabilizing at a higher level, there is still significant upside from our existing portfolio. Our ability to reprice a lease is a distinguishing factor relative to the aircraft lessors given the proportion of our portfolio on short-term leases. Growth has been a focal point for us as we are seeing opportunities to acquire assets that are resulting in attractive returns. During the third quarter, we purchased 27 engines and four airframes and sold 13 engines, resulting in net portfolio growth of $182 million. Our ability to grow in this environment is the direct result of our flywheel business model, where our different businesses create value and opportunity. For example, we purchased a number of turboprops that will be added to our pool of engines used to support Constant Thrust programs we have with an ATR operator. We provided a debt-like product to a customer where the underlying collateral is V2500 and GTF engines because we are exceptionally comfortable with the asset types, and we speculatively purchased a number of new generation engines both from the OEM as well as on the open market. The ability to pursue multiple asset strategies as well as offering a services-enhanced leasing product enables us to grow in a variety of market conditions. I mentioned our recent completion and upsizing of our preferred stock and revolving credit facility. When combined with our warehouse facility, these financings evidence our exceptional ability to access diverse capital at attractive rates. We intend to deploy this capital over time as we grow our equity in order to properly manage our leverage in accordance with our long-term goals. We see many opportunities to grow and believe our platform and financial structure will help support that growth, earning us a premium return. Thank you, and I'll hand it off to Scott Flaherty, our CFO. Thank you, Austin, and good morning all. As you can see from this morning's earnings release, the company produced strong earnings as evidenced by both the $34.5 million of third quarter earnings before tax, or EBT, and $122.3 million of year-to-date EBT achieved, which exceeds full-year performance in any prior year of our company's history. This performance was up $14.1 million, or 69%, on a comparable quarter of 2023, and up $76.1 million, or 165%, on a comparable year-to-date basis. Walking through the P&L, revenues for the quarter were $146.2 million. Significant revenue drivers were core leasing revenues, inclusive of lease rent revenues and interest revenues on notes receivables and sales-type leases, were $68.3 million, another all-time high, reflecting the increased total portfolio size of nearly $2.7 billion at quarter-end as the company purchased equipment totaling $229.8 million in the quarter, only slightly offset by $47.9 million of equipment sales. Maintenance reserve revenues for the quarter were $49.8 million, up $12.1 million, or 32%, from the comparable quarter in 2023. $1.2 million of these revenues were long-term maintenance reserve revenues associated with engines coming off lease and the associated release of any maintenance reserve liabilities. 48.5 million of these revenues were short-term maintenance revenues, which are highly correlated to the amount of time our portfolio is flying as we get paid an hourly and cyclic rate on our lease assets. These short-term maintenance revenues were up $14.2 million, or 41%, when compared to the comparable period in 2023. Spare parts and equipment sales of $10.9 million in the quarter were up $7.5 million, or 223.4%, from the comparable quarter in 2023, and produced 18.4% gross margins. The increase in spare parts sales reflects the demand for surplus materials that we are seeing as operators extend the lives of their current generation fleets. We have also benefited from some strategic surplus material purchases made in the first quarter of the year, as well as our vertically integrated platform allowing us to provide this value to our customers as well as our own portfolio. Gain on sale of our portfolio assets, a net revenue metric, was $9.5 million in the quarter, as mentioned above, associated with $47.9 million of gross sales and compares to $0.8 million of gain on sale in the comparable period in 2023, which was associated with $4.7 million of gross sales. During the quarter, the company sold 13 engines and other parts and equipment to various trading partners. Maintenance services, which represents fleet management, engine and aircraft storage, repair services, and revenues related to management of fixed base operator services, was $5.9 million, slightly down from the $6.2 million in the comparable period of 2023. Reported revenues reflect only our sales to third parties and not our intercompany sales, which support our fleet and our material to those businesses. Our maintenance capability allows us to be more efficient in our leasing operations as well as more relevant to our customers by being able to offer a broader bundled product solution, which provides other business opportunities for our core leasing business. On the expense side of the equation, cost of spare parts and equipment sales was $8.9 million, up $6.8 million, or 337.9%, which was influenced by the large increase in third-party sales from the comparable period in 2023. Depreciation slightly up 2.4% from the comparable quarter in 2023 to $23.7 million, reflective of the growth in the portfolio. Technical expense of $5.2 million was down $3.5 million from the comparable period, as Willis generally has had less unplanned non-capitalized maintenance visits. G&A was $40 million, up $13.4 million from the comparable period in 2023. The cost increases include $7.8 million of costs related to share-based compensation, which was influenced by depreciation in the price of the company's public equity securities, $3.0 million related to a special bonus paid to our executive chairman at the direction of the compensation committee for the company's performance, and $2.5 million of incentive compensation, which is derivative to the performance of the company. Net finance costs were $27.8 million for the quarter compared to $19.1 million in Q3 2023. The $8.8 million increase in costs was related to an increase in average indebtedness in the respective quarters by $161 million, an increase in financing costs as the weightings of borrowing shifted across finance vehicles, and $3.3 million reduction in derivative-related receipts as certain hedge positions that the company had matured. The weighted average cost of debt, inclusive of our interest rate hedge positions, was 4.04% at 9/30/2023 compared to 5.13% at 9/30/2024. As mentioned earlier, EBT was $34.5 million for the quarter, and the company produced $23.1 million of net income attributable to common shareholders, factoring GAAP taxes and the cost of our preferred equity. Diluted weighted average income per share was $3.37, up 58.2% from the comparable period in 2023. Cash flow from operations through the third quarter of the year was up 28.1% to $216.4 million, and driven by growth in pre-tax earnings as the business enjoys significant tax depreciation shields, strong cash flows associated with our sales-type leases, solid collections relative to the prior comparable period, slightly offset by growth in spare parts inventory as the company opportunistically purchased an attractive portfolio of engine parts earlier in the year. In September, the company refinanced and expanded its $50 million preferred stock position held by the Development Bank of Japan into a $65 million preferred stock position. The new preferred position will accrue quarterly dividends at a rate of 8.35% per annum. The incremental capital raise will be utilized to further support the growth of the business. Just last week, on October 31st, the company refinanced and expanded its $500 million revolving credit facility into a new $1 billion size facility with a five-year term and a $250 million accordion feature. This facility, alongside the $500 million warehouse facility we put in place in May of this year, will provide capital to support the continued growth of the company. Historically, we have looked to diversify capital sources to support the growth of our business. As we continue to see opportunities for growth, we do not foresee any changes to this strategy. With our Q3 earnings release this morning, we announced a $0.25 per share regular quarterly dividend, our second. This will be payable on November 21st to record holders at November 12th. The company has brought balance sheet leverage, defined as total debt obligations to equity, inclusive of preferred stock, to 3.43 times at Q3 2024, compared to 3.71 times in the comparable period of 2023. When factoring debt, net of cash and restricted cash, leverage is at 3.25 times. We have been successful in continuing to reduce our leverage levels while also growing our lease portfolio by a net $460 million, or 17.3%, on the year-to-date basis. At times, we maintain higher levels of restricted cash as we recycle ABS asset sale proceeds, which are held as restricted cash, to purchase new assets. This allows the company to benefit from attractive fixed-rate debt pricing and therefore a lower cost of capital. With that, I will now open up the call to questions. Operator? Thank you. And if you would like to ask a question, please signal by pressing star one on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. A voice prompt on the phone line will indicate that your line is open, so please state your name and your company name before posing your question. Again, you can press star one to ask a question, and we'll pause for just a brief moment to allow everyone an opportunity to signal for questions. Yeah, hi. This is Frank Galanti calling from Stifel. I appreciate you guys taking my questions. I wanted to ask about asset values and lease rates, particularly for the narrowbody engines, the older ones, the CFM56 and V2500s, sort of what you're seeing from a recent trends perspective. Hi, Frank. This is Austin Willis. We've seen year-over-year about 37% increase in lease rates, and I believe we published our book values at the end of last year from an appraisal to book value perspective, so you can see that change there. We're not going to get into details on specific engine types, but we have seen a significant increase. What's interesting, though, is if you look at lease rates now relative to where they were in 2019, for the most part, they're not that dissimilar. So while there has been a significant increase in rates year-over-year, I think there's still room to go. Certain types, I think, have stabilized at a higher level, but others certainly have a lot more runway. On the newer engine types, the LEAPs, GTFs, GEnx, lease rates have been climbing, but I think that's more reflective of asset values than anything else. I mean, when you've got engines that are selling in excess of $20 million, it's going to be reflected in the lease rates. Great. Thanks for that. And then for another question, if I could, I wanted to ask about sort of maintenance overhaul costs, what you've seen from that perspective in terms of trends and sort of maintenance or MRO availability? And then if I could, could you sort of walk through how you guys think about the decision to repair your engines versus using modules for your own assets? Sure. Yeah, I'd be happy to. In terms of MRO availability, it's fairly tight, but it's tightest with the larger MROs, the Lufthansas, KLMs, MTUs. The smaller MROs, I think there's a little bit more availability currently. In terms of overhaul cost, the 5B, 7B, V2500, I'll sort of paint them with a similar brush, but you're looking at $10 million plus for a full overhaul with LLP. So it's a significant investment. The core modules are going to be in the neighborhood of $7 million, and that's HPT blades, LLP, and the remainder of the engine. So again, it's expensive. And in terms of your last question, how do we think about what we do with our assets when they come off lease or they become unserviceable? We have a formal process to evaluate engines where we really look at four different outcomes, and we run a present value analysis on each. So first is sort of the repair end, and that could be module swaps or overhaul. And the preference is module swaps when we have the appropriate modules available. The real difficulty is finding core modules that are serviceable because there isn't a great deal of availability for core modules, much less core module LLPs. So then you look at the overhaul scenario, and then you look at the part out scenario where we send it through our parts business, WASI. And then the final scenario is looking at selling it outright, where we take multiple bids from the marketplace, and we evaluate each scenario in whichever one results in the highest present values, generally the path that we take. Great. I really appreciate it. Thanks for taking my questions. Yep, no problem. Hi, good morning, everyone. This is Greg Dalberg on for Miles Walton at Wolfe Research. I guess given Chromalloy had a part approved last week in the hot section, PMA-wise, I guess, can you just comment philosophically your view on PMA usage? Sure. So PMA certainly has the potential of saving money on the bill of an overhaul. I think the question is really twofold. One, is it going to have the same on-wing life as an OEM part? And that really is reflected in the cost per cycle. And then two, what are the impacts with remarketability of the asset? For us, historically, we've found that most of our airline customers, or the lion's share of our airline customers, have opted for engines that are free of OEM or, I'm sorry, are free of DER and PMA parts. So if we were to introduce those, it would limit the ability to remarket those assets both for lease and sale considerably. So we're watching what happens in the future. Got it. Thank you. And then just on engine acquisition activity, I saw you acquired 19 engines. Can you comment broadly on the availability of engines? I guess, are you seeing any signs of a slowdown at all? Yeah. Our originations are fairly broad. We've got an order book with the OEMs, so we purchase some engines directly from them. Others are through big programmatic deals we do, like the one we did with Air India, which is a classic ConstantT hrust deal where we do a sale- lease back, and when one of the engines becomes unserviceable, we take that engine back and replace it with one from our portfolio. And then with that unserviceable engine, we run it through the formal process that I mentioned earlier, where we may sell it, we may part it out, we may repair it. So we do originate a fair amount from programs, and then we also originate from just the open market generally, where we find that because of the different elements of our business model, having the in-house parts business, having our own MROs, and also just having diversity of assets, we're usually able to originate assets where other people may struggle because we've got better avenues of monetizing them. Got it. Thank you for the time. You bet. This is Will Waller from M3. Just wondering if you could comment on what your average utilization rate for equipment for lease was in the third quarter. Sure. Yep. Hey, Will, this is Austin Willis. It was a little under 83% for the third quarter. Okay. One question I have, and it kind of ran that same level in the second quarter. I'm just curious if we go back a couple of years, and I know that 83% is actually a pretty high number when it comes to leasing any sort of asset because there's just times when things are down, but you had been in the upper 80s a couple, I don't know, it's probably been three or four years ago. Just kind of curious to hear if you think you could ever get back to those levels, and if there's something that's keeping the levels down in the low 80s. It just seems like the demand for equipment is so high right now that it would be the highest it's ever been historically. So just wondering if there's something that's going on different in today's world versus, I don't know, four or five years ago? Sure. Yeah. No, it's a few different things. One of them is it's a little bit deceptive because when we originate new transactions, oftentimes those assets are off-lease, and it takes sometimes a little bit of time to put them on lease. Some of it is holding a selection of assets for our big programmatic deals, and then it is just putting assets through maintenance and just the normal churn of assets coming on and off-lease. Great. That makes perfect sense. And then one last question. On your order book that you have, what does the order book look like for engines that you've got orders placed on but haven't yet taken delivery on? Sure. It's about $400 million more. Okay. And when were most of those orders placed? Those orders are through 2027. They'll be purchased through 2027. And you'll see that in more detail, Will, later today when we post our Q. Okay. Great. Thank you. I'm Eric Gregg from Four Tree Island Advisory. A few questions here. What is the average lease life on the engine portfolio at this point? Our average lease term remaining is in the neighborhood of two years. Okay. All right. And AerCap came out last week and announced that they were taking a provision for last quarter for Azul, which I saw based on your October 14th update is a meaningful customer for Willis. What do you anticipate, if anything, is going to happen there with a potential provision or steps that need to be taken with regards to that situation? Sure. So I won't get into too much detail with regard to specific discussions with Azul other than to say we have a zero AR balance with them right now, so we don't have any issues, and we don't have any immediate expectations for provisions. Okay. Great. And then in terms of capital allocation, I know you have a lot of, obviously, commitments to buy more engines here, but as per that update you provided back in the middle of October, there's very significant daylight between your valuation and that of FTAI, which a lot of people look at as your closest comparable. How are you thinking about capital allocation with regards to stock buybacks and shareholder payouts? So, I'm not going to speak specifically on capital markets transactions other than to say the appreciation in our share price over, I don't know, the last nine months has been welcomed, I think, by all investors, and it certainly gives us optionality. Okay. And then finally, we saw this year-over-year, some negative operating leverage, specifically in G&A. We also saw kind of negative operating leverage quarter-over-quarter from Q2 to Q3 with revenues down a little bit, but costs up in the kind of double digits. When do we start, or when do you forecast we're going to start seeing actually positive operating leverage here with the great growth in the top line leading to margins improving again on a quarter-over-quarter basis? Sure. I think one thing that we did mention in our script earlier in the call was a lot of what you saw on the G&A side was related to stock-based comp and specifically the movement in the stock price. What we are seeing, as you know, Eric, is we are getting better or improvement. I think if you look on a year-to-date basis, you're seeing improvement in G&A margins. So I think you're going to continue to see that improvement in the G&A margins, so leverage through the P&L with growth as we move forward. But I think that there was a large component that we did experience in Q3 due to the stock-based comp phenomenon. Okay. And then finally, in terms of the maintenance reserve revenues, that seems pretty lumpy. It was pretty lumpy or a big difference between, I mean, it was great basic lease rent improvement, but the maintenance reserve revenues were down a bit in Q3 over Q2. Is there a way for us to think about that going forward? And I appreciate those comments you made earlier about how a lot has to do with that being lower when leases are extended with customers, but any more color you can provide there would be helpful. Yeah. That's the majority of it. I mean, it is lumpy exactly as you described. And when lessees opt to extend rather than return engines, we do tend to see lower long-term reserves. And the increased short-term reserves, the significant increased short-term reserves year-over-year are really the result of both portfolio growth as well as increased utilization. Scott, is there anything else you'd like to touch on there? Yeah. No, no. I think that's right. I think if you look at the short-term maintenance component, which we disaggregate in our discussion and in our Q, you can see that that is the recurring piece which we see strong growth in. And clearly, you can see from quarter to quarter the lumpiness in the long term, but we think it's simply that. Great results. Thanks a lot, guys. Thank you. Thanks, Eric. Hi, this is Justin Hughes at Phase 2. Hi, Justin. Hi. Hey, just two questions. One on leverage. If I look year-over-year, as you highlighted in your comments, your financial leverage came down. That's despite a lot of really good growth prospects, initiating a dividend, paying a special dividend, etc. Going forward, would you expect to continue to deleverage, or do you think that there's enough demand for the leasing side that the portfolio growth will pick up enough to kind of offset the capital generation that you're doing right now? Our objective is to both grow and delever. In terms of whether or not we'll delever further from where we are, our objective is generally to have a double B type credit profile. So Scott, do you want to talk to that anymore? Yeah. I think, as we mentioned on the prepared remarks, Justin, we're on a net basis. We're in the low threes, three and a quarter on a net basis. I think as you start to get in that area, that's probably reflective of where a double B is. I think we will delever just as the company produces earnings like we've been producing, but we're probably getting to more of a comfort zone in that low three range. Okay. Thank you. And then second question on the $3 million bonus for Charlie, is that something we should build into forward numbers? Is that a one-time item? How should we think about that going forward? Sure. That was a one-time item where he was compensated for strategic initiatives and goals that he executed upon through the year. Okay. Are there similar targets for next year that we could look at so that we can see if they're going to get hit that we can build them into estimates? Not currently. Okay. Thank you. Thank you. Hi. This is Josh Strauss from Pekin Hardy Strauss. Guys, great quarter. Very happy about that. Had a couple of questions. I guess one of the things that I was looking at was with regards to revenues per employee based on publicly available data. You look at FTAI, they're looking at $1.2 million in revenues for every employee. While Willis is far short of that, around $420,000. And I just was curious, why is Willis's operation so much more labor-intensive versus FTAI, and is there some sort of opportunity in order for Willis to improve on that metric? Yeah. Thanks for that. So I won't speak to specifics about FTAI and compare ourselves there, but I'll tell you that there's really two elements. One, when you comp us to the majority of leasing companies, we are much more hands-on. Half of our portfolio is short-term leases. So when you look at us relative to an aircraft lessor where they put an aircraft out on lease for 10 years, they really don't interact with the customers frequently as we do. It takes a lot more touch. And that's everything from accounting to legal to really technical. And there's a lot more manpower involved there. So that's part of the story. And the other part of the story is the services businesses. If we were strictly a leasing company, you would see the dollar amount per employee be much higher, but the nature of the services business obviously is lower revenue per person. And as we've grown that over the past few years, that's influenced that number pretty significantly. Great. Okay. Thank you. I mean, is any parts of manufacturing, which FTAI does and Willis is not, is that an area that Willis is looking to get into? So you're talking about PMA? Yeah. I covered that briefly a moment ago, and that's something that we've shied away from in the past for the reasons that I discussed, particularly from a remarketing and marketability standpoint. But we're not proud. We sit back and we evaluate what happens in the marketplace all the time. Got it. Got it. And your utilization rates prior to COVID were in the very high 80s%. And I think I missed what utilization rate was this quarter, but it just seemed like through Q2, you're on 84%. And I was curious, given how strong the environment is, why those utilization rates aren't just through the roof? Yeah. And again, I touched on that briefly earlier, so I would point you back to those prior comments. Okay. Thank you. Thanks very much. You bet. Thank you. And our final question is coming from Josh Sullivan with The Benchmark Company. Hey, good morning. Hi, Josh. Just wanted to get your perspective on kind of the life cycle of the CFM and V2500. I think you talked about shop visits peaking in 2025, then flattening out 2027. But what's your perspective on the life of those queue curves? And I guess for the V2500 as well, does that seem right, or do you think these engines, given the market dynamics, might have a little bit longer life cycle? I think the engines in general have a long time to continue an operation on wing. The 5B, the 7B, V2500, a lot of these, I'd say slightly less than half haven't even had their first shop visit yet. So I think they've got a lot of longevity. But you've also got the introduction of a lot of newer generation assets as well, the LEAP, the GEnx, the GTF. So that's why we're trying to really make sure we have a well-balanced portfolio that's of the most in-demand asset types for our customers going forward. Then you talked a bit about originations for leases. You mentioned the Air India deal. How important is it to have a dynamic offering at this point? Is the market strong enough where it's just get out there, or the specialization offerings that come with a lot of your lease constructs, is that important or more important than it's been in the past? Look, I think this is certainly a seller's market if you've got assets. I think if you're a lessor and you have the right in-demand assets, you're going to be doing okay right now. But our model and our programmatic business definitely enables us to fetch a premium return relative to competition. And I think it offers an element of resilience too. If and when things do change, having that long-term built-in programmatic work is important for helping maintain long-term demand for the assets. Thank you for the time. Thanks. This concludes today's call. Thank you so much for your participation. You may now disconnect.