Willis Lease Finance Corporation Aktie

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 with respect 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 the 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 reports 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.

Thank you, operator, and thank you all for joining us today to discuss Willis Lease Finance Corporation's Third Quarter 2026 Financial results.

On our call today, I'm joined by Scott Flaherty, our Chief Financial Officer. I'm pleased to announce another great quarter. We continue to deliver on our strategy to expand our platform with services, managed capital and balance sheet investment.

We grew our assets under management by 10% quarter-over-quarter and our on-balance sheet portfolio by 12% quarter-over-quarter. This was due in large part to the closing on the purchase of the WNG aircraft and engine leasing entities.

Our results reflect the strength of our core leasing business. As we add assets to the balance sheet, it has a clear, direct and positive impact to our earnings. By growing Willis Aviation Capital, we are investing in the future, driving long-term fees, carried interest and asset growth to run through our services businesses.

We continue to be selective in the types of transactions that we pursue. As we originate aircraft and engine investment opportunities, we allocate them across our different pools of capital, namely on our balance sheet and Willis Aviation Capital, which encompasses our 2 discretionary funds and our joint venture with Mitsui and CASC in China.

As we deploy capital into our different funds, we will see slower growth on our balance sheet for a period of time. Now that the seeding phase of our fund strategy is complete, we can focus more directly on building up our balance sheet, which you can see from our Q3 results reacts favorably to even modest amounts of growth.

In Q3, we took several meaningful steps forward. Beyond expanding our aircraft and engine portfolio, we announced plans to replicate our proven engine repair center model in Asia, building on the success of our operations in the U.K. and in the U.S.

We also advanced plans to expand our operations in South Florida with the acquisition of a new facility that will house and consolidate our parts business, WASI, and our MRO, WERC U.S., establish a new corporate headquarters and provide a controlled environment for storing and maintaining engines.

I will recap these updates in greater detail shortly. We are making these investments against the backdrop of strong underlying demand for our assets and services supported by persistent engine supply constraints and growing aftermarket maintenance requirements.

Financially, we ended the quarter with about $4.9 billion in assets under management, increasing this from roughly $3.7 billion in Q3 2025 and $4.4 billion in Q2 2026.

For the first time, we surpassed $3 billion in our on-balance sheet portfolio. For the quarter, we delivered earnings before tax of $19 million and adjusted EBITDA of $101 million. I'd also like to highlight our contribution margin, a key indicator of the strength of the leasing business.

Contribution margin is defined as lease rent revenue and interest income less interest expense and depreciation and amortization of assets held for lease. In Q3, it exceeded $25 million, representing 18% year-over-year growth and a record quarterly high.

This is driven largely by balance sheet growth, and it should be noted that some of this may be temporarily reversed as we take a selection of these assets we just purchased and move them from held for sale into Willis Aviation Capital.

Scott will provide more details in a few minutes. Before turning to our individual business segments, I'd like to spend a few minutes discussing market dynamics.

Fuel prices, high interest rates and geopolitical risks are challenging the aviation sector, yet we continue to see strong demand for our products and services. Having come back from a regional tour of Asia in late August, 2 things are clear. High fuel prices are influencing operators regionally and the growth that the region is experiencing is profound.

Based on our conversations with numerous airlines over the past few months, we aren't seeing a meaningful increase in retirements, but there is discussion about parking some aircraft. By and large, these are older, less fuel-efficient aircraft. You can see from our results that short-term maintenance reserves have decreased since April 2026.

This is partially driven by macro events that have resulted in less flying, but it is also a byproduct of modernizing our fleet, which is now nearly 60% modern technology like LEAP, GTF and GEnx engine platforms versus 54% 1 year ago.

Should high fuel prices and other factors continue to pressure airlines, we remain exceptionally well positioned to help provide liquidity to those airlines looking to shore up their balance sheets and to provide ConstantThrust-type solutions to airlines who would rather opt to lease in temporarily rather than pay expensive shop visits during times of tight liquidity.

Speaking of liquidity, we have a great deal of dry powder ready to deploy through our balance sheet and Willis Aviation Capital. Now let me turn to the Willis platform and our primary business segments, leasing, Willis Aviation Capital and Services.

Starting with leasing. Our leasing business is performing well as we have been focusing on reallocating assets to different pools of capital to execute our growth strategy across our balance sheet business and Willis Aviation Capital.

We saw solid utilization of our lease portfolio in Q3, averaging about 83%. In August, we announced the acquisition of 12 commercial aircraft and 13 aircraft engines.

This is a significant expansion of our portfolio that puts capital to work in assets fitting well within our existing business and reflects our continued focus on disciplined growth and long-term value creation.

Next, Willis Aviation Capital, or WAC, grew to over $1.5 billion in Q3 2026. As we stand today, we have roughly $1 billion of additional capital ready to deploy through our discretionary funds, which is in addition to the capital raised by our joint ventures and Willis Aviation Capital structure.

This liquidity, along with the undrawn revolver capacity and our low net leverage provides added flexibility that will allow us to execute our growth strategy. This model can meaningfully increase the scale of the Willis platform over time while generating additional asset management and services revenue. I'd like to point you to Slide 9 in our investor presentation, which shows our income from investments and fee-related earnings.

When you combine these 2 elements, you can see the return on equity that we generate by managing third-party capital is significant, and this is going to be a key driver for us as we grow. Finally, services.

With industry maintenance capacity constrained and shop visits taking longer, our services businesses continue to be a major strategic advantage and value creator for our own assets and those we manage. Just before our Q2 earnings call, we announced a long-term engine storage agreement with Pratt & Whitney to provide storage and lease return services for PW1100, PW1500, PW1900, PW4000 and V2500 engines. WLFC will support Pratt & Whitney's growing aftermarket storage requirements from its Florida, U.K. and Malaysia facilities.

Another exciting update from the third quarter was the purchase of land to build a new Willis Engine Repair Center, or WERC, in Malaysia.

This is our third WERC facility globally and our first in Asia. And like our facilities in Florida and the U.K., it will provide maintenance, repair and storage services for our engine portfolio and third-party assets.

Critically, this new facility allows us to get closer to our customers and partners across the Asia Pacific and will support our long-term growth across the region. As I mentioned earlier in my remarks, I recently spent 2 weeks traveling around Asia, meeting customers, partners and other stakeholders.

And a large takeaway was the level of activity and long-term confidence in aviation across the region. It's one of the world's fastest-growing aviation markets and as demand for engine maintenance continues to accelerate, we are confident that WERC in Malaysia will position Willis to capitalize on this long-term growth.

Our investment in the APAC region demonstrates the global scale of our ambition. And in Q3, we made similarly important investment in infrastructure here in South Florida with the purchase and sale agreement for a new campus that will bring our headquarters, spare parts business, maintenance and repair operations and engine storage together under one roof.

This is not only a reflection of our expanded operational footprint, but it will increase operational efficiency, promote faster decision-making process, support future customer demand and bring our people closer together.

South Florida has been an excellent home for our business, and we're proud to continue growing within the region. And to support further expansion of our global services platform, in September, we entered into a $35 million preferred stock purchase agreement with the Development Bank of Japan for our Series B preferred stock, taking us to $100 million total in Series B preferred stock.

This builds on our long-term partnership with DBJ and further diversifies the sources of capital to support growth. Finally, we recently announced an increase in our quarterly dividend to $0.15 per share, reflecting a 12.8% increase from our prior August distribution and our long-term confidence in our business.

We also announced that the Board has approved the renewal and increase of our share repurchase program under which the company may repurchase its common stock for an aggregate purchase price of up to $200 million through December 31, 2031.

While we do not have immediate plans to repurchase shares, we want the flexibility to act should the right opportunity present itself. As I've stated before, we view ourselves as a growth stock with numerous attractive opportunities to deploy capital. At the same time, we continue to evaluate ways to return capital to shareholders, including through accretive share repurchases that can deliver premium returns.

Overall, we have achieved another solid quarter, and we are confident in the progress we are making to scale our global platform, expand our portfolio and deliver long-term value for our shareholders.

With significant capital to deploy into attractive aviation assets and with strong demand across both our leasing and maintenance services, we believe WLFC is well positioned for the next phase of growth. With that, I would like to hand it over to Scott Flaherty, our CFO, to discuss our financial performance in greater depth.

Thank you, Austin, and good morning, all. Q3 was a solid quarter for Willis Lease, producing multiple records for the business from core lease rent revenues through income received from our many investments.

As we focused the first half of the year on staging and seeding our funds and joint ventures, we have now shifted to growth across the platform. The third quarter's record $246.3 million of revenues produced $18.8 million of earnings before tax, or EBT, $10.2 million of net income attributable to common shareholders and $0.47 of diluted earnings per share, as well as $100.9 million of adjusted EBITDA.

Walking through the P&L, our quarterly top line was driven by record lease rent revenues of $84.4 million in the quarter. Lease rent revenues were up 10.2% year-over-year. Growth in lease rent revenues was driven by an increase in balance sheet portfolio, up 14.2% from Q3 2025, measured as equipment held for operating lease, maintenance rights, notes receivable and investment in sales-type leases, which at the end of the third quarter was $3.3 billion in book value.

Strength in lease rates as our average lease rate ticked up from 1.04% to 1.06% in the comparable year-over-year period, all of which was slightly offset by average utilization, which was down from 86% in Q3 of '25 to 83.2% in Q3 of '26.

Maintenance reserve revenues for the quarter were $39.3 million, down from $76.1 million in the prior comparable period. The majority of that decline was due to lower long-term maintenance reserves, which is associated with engines coming off long-term leases.

This was $2.6 million in the current quarter compared to $29.5 million as we only recognized long-term maintenance reserves on 3 engines in the third quarter of 2026. $36.8 million of these revenues were short-term maintenance reserves as compared to $46.6 million in the third quarter of 2025.

Short-term maintenance reserve revenues are a proxy for both the number of engines that we have on short-term lease conditions as well as the operating tempo of these engines. New tech engines, which make up a larger percentage of our portfolio, approximately 60% today, tend to be on long-term lease conditions.

So despite the fact that we receive maintenance reserve cash flows for the monthly utilization of these assets, we do not recognize the revenues generally until the end of lease. Looking at the long-term maintenance reserve cash receipts year-to-date 2026, we see that they are up 72% to $27.8 million compared to the first 9 months of 2025. Although this does not immediately hit our P&L, they provide significant cash flow to the business and are reflective of our growth in the new tech equipment.

Spare parts and equipment sales were $98.1 million in the quarter compared to $5.4 million in the comparable period in 2025. Spare parts sales were $9.1 million in Q3 ' 26, up 67.8% from $5.4 million in the comparable prior quarter. Gross margins on spare parts were 10%. Sales in the consolidated P&L do not reflect $3.5 million of intercompany sales that are transacted at cost and eliminated in consolidation, providing incremental value to the consolidated business and our lease portfolio.

Equipment sales in the third quarter of 2026 were $89.1 million, where there were no such sales in the prior comparable period. These Q3 2026 revenues primarily reflect the sale of 5 aircraft recently acquired through our Willis Mitsui joint venture, where the company effectively warehoused these assets to effect the sale.

Also included in these sales were 2 engines and 1 airframe. The trading profit on sale of this equipment was $6.2 million, representing a 7% gross margin. Gain on sale of lease equipment, a net revenue metric, was $5.5 million in the third quarter, resulting from the sale of 8 engines as well as other equipment compared to $16.1 million in the comparable prior period.

Q3 gains on sale represented a 17% gross margin on $32.1 million of gross sales. Gain on sale was lighter than the gains in the preceding quarter as Q2 was influenced by the seeding of our leasing fund portfolio. Maintenance services revenue, which represents engine and aircraft storage and repair service and revenues related to management of fixed-based operator services, increased by $7.6 million or 208.5% to $11.2 million in the third quarter of 2026.

This growth was predominantly related to growth in engine and aircraft storage and repair services. Gross margin was a negative $1.7 million for the quarter. Our maintenance services offerings enhance our ability to provide a differentiated offering and program solution to our customer base. Intercompany revenue for maintenance services are eliminated in consolidation and therefore, not reflected in our P&L but continue to increase the profitability of our owned and managed assets.

Management and advisory fees, the fees generated through our asset management efforts, were $4.5 million in the quarter, up 140%. On the expense side of the equation, depreciation and amortization expense increased by $2.7 million or 9% to $31.4 million in Q3 2026.

The increase is primarily due to an increase in the size of our lease portfolio and the timing of placing acquired engines on lease. Write-down of equipment was $4.5 million in the third quarter, reflecting the impairment of 3 engines.

These asset write-downs are generally associated with the evaluation of engines post lease return. G&A expenses decreased by $0.5 million to $48.7 million in the third quarter. The decrease was primarily driven by a reduction in personnel costs and expenses related to the ceased sustainable aviation fuel project, partially offset by increased outside professional and insurance costs.

Technical expense increased by $5.1 million to $13.5 million in the quarter as compared to $8.4 million in the prior comparable period due to an increased level of engine repair activity. Technical expense generally relates to unplanned maintenance, whereas engine performance restorations tend to be planned and capitalized events.

Net finance costs decreased $4.3 million or 11.7% to $32.8 million in the quarter. The decrease was primarily attributable to $2.4 million of lower costs associated with debt extinguishment as we had effectively completed the paydown of our WEST VII financing and a lower overall weighted average cost of debt capital, slightly offset by increased total leverage.

Income from operations was $11.5 million compared to $38 million in the prior comparable period. Income from investments was $7.3 million, up $2.1 million or 41% from the prior period. This income was driven by growth contributions from our Willis Mitsui joint venture as well as our other asset management businesses and slightly offset by declines through our smaller China-based joint venture.

When we analyze our year-to-date income from investments and fund management and advisory fees and compare that to our 2026 average balance sheet investments, we can see that these initiatives have generated a 32% ROI.

Earnings before tax, or EBT, of $18.8 million for the quarter as compared to EBT of $43.2 million for the prior comparable period. Income tax expense was $7.1 million for the quarter, reflecting a 38% effective tax rate. Our third quarter effective tax rate includes a onetime charge of approximately $0.6 million or 3 percentage points, reflecting the impact of Florida's 2026 legislative decision not to adopt certain federal tax law changes under the One Big Beautiful Bill and the resulting updates to our current and deferred tax estimates.

As this adjustment relates to prior year tax positions, we do not expect it to recur. We would expect that our year-to-date 28% ETR to be the best estimate for a full year ETR. The company produced $10.2 million of net income attributable to common shareholders, which factors in GAAP taxes, net income attributable to our noncontrolling interest and the cost of our preferred equity.

Diluted weighted average income per share was $0.47 in the third quarter of 2026. Adjusted EBITDA for the third quarter of 2026 was $100.9 million. We believe that our adjusted EBITDA reflects the normalized cash flow generation capability of the Willis enterprise. Our adjusted EBITDA makes adjustments to our net income attributable to common shareholders for income tax expense, interest expense, preferred stock dividends and costs, the loss on debt extinguishment, depreciation and amortization expense, stock-based compensation expense, write-down of equipment, acquisition financing and divestitures-related expenses and other discrete gains and expenses.

Net cash provided by operating activities year-to-date was $239 million, up 14% compared to Q3 year-to-date 2025. Fluxes with the prior period predominantly related to changes in net income, net of tax effects, the cash tax effects, losses on debt extinguishment, the noncash effects of impairment on equipment, the prior year gain on sale of our WAML business to Willis Mitsui and a period-over-period $44 million increase in cash provided by changes in assets and liabilities.

On the financing and capital structure side of the business, the company, in July, effected a 3-for-1 common stock split effective July 21, 2026, to provide for more liquidity in our common shares.

On September 29, we closed a private placement of $35 million of Series B Preferred stock with our partner, the Development Bank of Japan, increasing their par investment in our preferred shares to $100 million.

The incremental $35 million investment carries an 8.09% dividend. On October 28, the Board of Directors approved the expansion and extension of our share repurchase program. The program was increased to $200 million in total size and extended through December 31, 2031.

In August, we paid our ninth consecutive regular quarterly dividend, which was $0.133 per share. Subsequent to quarter end, our Board of Directors has declared our 10th consecutive recurring quarterly dividend at a rate of $0.15 per share, reflecting a 12.8% increase from our prior dividend.

This dividend will be payable on November 25 to holders at November 16, 2026.

Our recurring dividend provides shareholders with a moderate current cash yield on their investment while not degrading the strong cash flow of our business and speaks to the health of the business and its underlying cash flow generation.

With respect to leverage, as defined as total debt obligations, net of cash and restricted cash to equity, inclusive of preferred stock, our leverage was 2.88x at the end of the third quarter of 2026.

Our leverage and capital availability across the entire Willis platform provides us the flexibility to access market opportunities as they become available. With that, I will hand the call back to Austin.

Thank you, Scott. As you can see, we are delivering on our strategy to supplement our on-balance sheet leasing business with asset management. While this strategy moderates on-balance sheet growth as we deploy third-party capital, it is consistent with our long-term strategy, and we expect it to ultimately deliver premium returns. With that, I'd like to open up the call for Q&A.

[Operator Instructions] We'll take our first question from Angelina Zhao with Deutsche Bank.

This is Angelina Zhao on for Shannon. So my first question is this quarter saw a solid increase in lease revenue. What are you seeing in terms of demand across your engine portfolio by engine types?

Thanks, Angelina. We're seeing pretty consistent demand across our portfolio, both in the legacy or current tech as well as the more modern tech.

We generally don't break it down engine by engine. But I can tell you that it still remains robust. There's always fluctuations. You might have a 5B or a 7B high one quarter and a little bit lower the next quarter, and the same goes for GTF or LEAPs.

So we continue to see fluctuations, but demand remains pretty consistent. Lease rates have remained on average pretty flat for the majority of the year for most of the engine types. So some going up a little bit and some going down a little bit.

Got it. And I have another question. So you called out focusing on growing the Willis platform, including your balance sheet.

And with remaining capital available across the Liberty Mutual and Blackstone strategies, how should we think about the pace of deployment from here and the mix of incremental asset growth between the balance sheet and the managed third-party capital?

Sure. So we have in round terms, about $3 billion in capital that we can deploy or dry powder, so to speak.

We tend to think about our origination opportunities in terms of 1/3, 1/3, 1/3. We try to allocate about 1/3 between our joint ventures, 1/3 between our fund with Blackstone and 1/3 on balance sheet. The first half of the year, we really focused on seeding the Blackstone and Liberty Mutual funds.

So that was both trying to originate from the market, but also taking assets from our own balance sheet and putting them into those funds. So that slowed our pace of growth on balance sheet somewhat while we did that. We've done the majority of that seeding now. So as we originate, it's going to have a more direct impact to our on-balance sheet growth as we also grow the other pockets of capital as well. And that's sort of what I was trying to allude to in my prepared remarks.

We will take our next question from Will Waller with M3F.

Great quarter operationally. From my perspective, this is probably one of the strongest quarters I've seen in the history of Willis. So great job.

On the maintenance reserve liability, in the press release, you discussed the timing of recognition of long-term maintenance revenue -- long-term maintenance reserve revenue. I track the build of that through the balance sheet liability, which increased to $201.7 million at September 30, up from $129.3 million at June 30.

I don't recall ever seeing a growth of that magnitude while only $2.6 million was recognized as long-term maintenance revenue during the quarter. Could you walk us through kind of the primary drivers of that liability increase and specifically, how much of that came from net collections of reimbursable reserves versus any amounts that were assumed in acquisitions or other portfolio activity?

So I will just say one quick thing, and then I'll hand it over to Scott. We did have the highest number of lease extensions in the third quarter that we saw in over a year and higher than -- 2026 to date has been higher than 2025, but a little bit lower than '24.

And as you know, lease extensions do play a role in rev rec with respect to long-term reserves. So I wanted to quickly mention that, but I'll hand it over to Scott, who's going to be able to give you a more concise answer.

Sure. Thanks, Austin. And thanks, Will. Thanks for the comments on the quarter. So yes, you're talking about a couple of things, Will, that have happened.

Obviously, we were acquisitive in the quarter. And Austin, I think, discussed the WNG transaction.

So some of the assets we brought over did come with reserves, right? So that's going to adjust -- that will have an effect on our pro forma balance sheet. But then -- and you'll see this when we come out later today with our 10-Q. Then if you just look on our cash flow statement and you look at the net cash provided by maintenance reserves, right? And the maintenance reserves are going to be associated with those long term -- with the long-term leases was $27.8 million compared to -- year-to-date compared to $16.2 million year-to-date in the prior year.

So what we are seeing, right, is that shift or the mix shift slightly to newer tech assets, which tend to be on a longer-term lease.

And whereas you might not see that in the P&L, long-term MR, you definitely see it on a cash basis.

Okay. That makes sense. And Austin, you mentioned that the kind of lease extension rate is a bit elevated. Do you guys have any sense of what percentage of long-term leases are being extended that would then obviously defer the recognition of some of that maintenance reserve revenue on the long-term leases?

I don't have those numbers handy right now. But I will say that, generally speaking, the lease extensions were, I'd say, 10% to 15% higher than they had been in previous quarters.

And I wouldn't attribute that to anything in particular other than just the normal fluctuations in our business.

Yes, probably shows that there's good demand. Nobody wants to -- a lot of airlines don't want to return engines, which I'd say is probably a positive trend.

And then on the -- you kind of mentioned that a lot of these are new generation engines. I think you gave the statistic that 60% of your portfolio is now sort of the new tech engines. Is that by number or by dollar amount that's carried on your balance sheet of your equipment? Is it by number of engines or by dollar amount of engines that 60% is new tech engines?

That's by dollar amount.

Okay. Great quarter. And if there's no other questions, I might ask one more, but I'll drop back into the queue.

We'll take our next question from Buckley Capital.

Congrats on the quarter. I think Will asked the majority of my questions. I guess I just want to make sure I understand sort of how much of that balance sheet increase related to maintenance reserves was acquisitions versus organic?

So the amount of the increase that was related to cash flow for -- on a year-to-date, like I said, was $27.8 million, right? And the rest -- so on a year-to-date basis, so looking back and the rest was related to acquisition.

Got it. And then any commentary you guys have on like the pacing of how the Blackstone portfolio will kind of build over time?

Yes. I mean it's going to be consistent with our general origination. And I'll say we've been pretty judicious about what we bought over the past year. It's going to come down to where the market opportunities play out in 2027.

I think there's a view that there may be more opportunities to acquire attractive assets at good values. And should that manifest itself, and I think we'll deploy pretty quickly. But these also do tend to be lumpy. So I know that's not a very precise answer for you.

But we have -- I believe it's 2 years for the investment phase of the funds, and our expectation is to deploy the capital well inside of that.

Got it. And then I guess just last thing, is there any commentary you can have on kind of when the balance sheet item will be released into the income statement? Like will that happen in the next 12 months? Or any specificity you can provide would be helpful.

You're talking about the specific.

Maintenance reserves...

No, it's hard for us to do that for a lot of the reasons that we're talking about. The assets get extended on lease.

But it's just -- it's over time, it does get recognized, right? I mean it's really all timing, right? The cash flow is happening on a current basis.

Most of the engines that we have that are on long-term lease are going to be paying current MRs. So the cash flow is being realized in real time. But over time, the long-term MR will be realized.

But it's really hard for us to say exactly when it is because the various terms of the lease. We look at our average portfolio is approximately 2 years, but the longer-term leases are obviously longer than that, and they'll be realized over that period.

[Operator Instructions] We'll go back to Will Waller with M3F.

Yes. As it relates to the $200 million share repurchase authorization, when you look at the convertible debt, how do you look at buying back common stock versus potentially buying back that convertible debt? And would that -- if you did go back into the markets and buy some of the debt that you recently issued, would that go against that repurchase authorization that you just authorized? Or would that be something you could do outside of that?

Yes. So good question. It's 2 different things, right? The convertible bond is not part of a share repurchase program.

So can we go out and buy debt in the open market and retire at a discount? Yes, we can. And that would not go against the $200 million program that we have on the share repurchase side.

But as always, we kind of look where we get the most bang for the buck for how we spend our dollars and how we allocate our capital. And does it make sense to buy a share back or does it make sense to buy debt back in the open market? I mean, we've done all of these things in the past or does it make sense to put the next dollar into a new asset?

We kind of evaluate all these things on a case-by-case basis to where we're going to generate the best returns for the business.

Okay. That makes sense. And then I think at the end of last year, you had about appraisals were kind of showing the current market value of engines. I think we're about $700 million above what was -- what they're carried out on the balance sheet.

Does it feel like to you guys, and I know you only get appraisals done once a year, I think, on those, but with all the changes that have gone on with your portfolio with sales and so on, do you have any sense of what that gain might be today, the unrealized gain?

Sure. Yes. So well, as you know, we do this once a year. So -- and definitely, I want to encourage you to stay tuned for when we do it, when we tell you next year.

But I wouldn't expect there to be any material difference in kind of percentages, right? We haven't seen material movements. And our portfolio is material enough that it doesn't change over any specific quarter. So I would expect to have consistent percentages that we've had in the past there.

Great. That's good to hear. And it seems like the stock trades at such a discount to sort of what the intrinsic value of the equity and the value of the engines you have that would make great sense if you buy back stock or buy back some of the debt.

So glad to see the authorization and hope to see that you act on it. And then one last question, just kind of circling back to the topic I asked about before on long-term maintenance revenues and so on. Do you know roughly what percentage of your leases are long term versus short term? I know historically, it's kind of 50-50, but just kind of curious what that is these days.

Yes. That really hasn't changed very much, Will. It's still roughly 50-50.

With no additional questions in the queue at this time, I'd like to turn the call back over to Austin Willis for any additional or closing remarks.

Thank you, operator. We appreciate everybody giving us their time today, and we look forward to speaking to you again in the new year.

That will conclude today's call. We appreciate your participation.

Good day, and welcome to the Willis Lease Finance Corporation Q2 2026 Earnings Conference 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 recently 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 would like to turn the conference over to Mr. Austin Willis, CEO. Please go ahead.

Thank you, operator, and thank you all for joining us today to discuss Willis Lease Finance Corporation's Second Quarter 2026 Financial results. On our call today, I am joined by Scott Flaherty, our Chief Financial Officer. I would like to also point you to the Investor Center section on our website, where we have posted a presentation to give further details supporting our prepared remarks, along with our earnings press release.

We are pleased to have continued strong momentum from earlier in the year and are reporting another quarter of solid financial and operational performance. We continue to deliver on our strategy to grow assets under management and have increased this from roughly $3.6 billion in quarter 2 2025 to about $4.4 billion in quarter 2 2026. Furthermore, we delivered strong EBT performance of $38 million and an adjusted EBITDA of $120.7 million in an uncertain geopolitical environment.

Before discussing our business segments, it's worth briefly touching on the broader operating environment. The macro environment has been dynamic in the second quarter and remains so. While geopolitical events, including the conflict in Iran, created some temporary market disruption, the underlying fundamentals of our business remain strong. As I will discuss later, one of the strengths of WLFC is our ability to perform across different market environments, supported by our integrated platform and the flexible solutions we provide to our customers.

While the war in Iran hasn't affected the demand for our assets, it has had some effect on the volume of aircraft and engine transactions taking place. Similarly, during the second quarter, we saw a reduction in short-term maintenance reserve revenue, which appears to be the result of customers flying fewer hours on less fuel-efficient platforms such as the A320ceo and 737NGs, powered by CFM56 and V2500 engines.

By comparison, the more modern engines like LEAP and GTF did not see the same reduction in flight hours as they were favored due to their fuel efficiency and, in fact, had an increase in flight utilization in many cases. It is also partly due to the modernization of our fleet, which Scott will speak to in a moment. Encouragingly, the maintenance reserve revenues from older engine types are improving along with trade volume.

As the aircraft OEMs ramp up production of the A320neos and 737 MAX aircraft, we see the long-term prospects for LEAPs and GTF demand remaining robust. While both aircraft platforms have had entry into service difficulties driven primarily by the engine-related technical issues, the engines are now beginning to reach a point of maturity where scheduled removals for performance restoration and LLP replacement are beginning to accelerate. As a result, we expect the LEAP and GTF engines to require more frequent off-wing maintenance. And this, combined with the maturing of the engine type is likely to lead to strong demand for these engines.

About 60% of our consolidated portfolio by net book value, including WLFC and WAC, consists of modern tech engines, including LEAP, GTF and GEnx, reflecting our investments in these modern platforms for the past few years. We are well positioned to serve this growing base of aircraft and engines into the next decade.

We expect the CFM56 and V2500s to continue as big contributors to our bottom line as well. However, we remain prudent, as always, in our decisions to buy assets, understanding that as the market matures, these assets will be phased out in favor of more modern technology. We believe we're well positioned to benefit from this phaseout as our product constant thrust is designed specifically to facilitate these transitions. And our maintenance philosophy of hospital shop visits in lieu of full overhauls will become an increasingly attractive alternative to costly full overhauls.

With the hiring of David Hooke last year, we focused more on M&A in 2026. We have participated in a number of marketed processes and some off-market deals as well. Of the opportunities we are seeing, sellers are increasingly preferring to transact through the sale of entities that own the underlying assets rather than through direct sales of assets in order to avoid lengthy novation processes.

While this has created opportunities for us to acquire assets at attractive prices, acquiring them through special purpose vehicles also introduces the additional costs and complexity associated with the M&A transactions. These types of costs are reflected in SG&A, but are also carefully factored into our investment decisions. We were pleased to announce 2 M&A-type transactions recently where we acquired assets through special purpose vehicles, and I'll speak more to that in a moment.

Moving on to discuss the Willis platform and our primary business segments. Total assets under management grew from $3.6 billion in Q2 2025 to $4.4 billion in Q2 2026, a significant increase of 21%. Our assets on balance sheet made up 67% of assets under management.

Next, I'll give an update on our primary business areas: leasing, Willis Aviation Capital and Services. Starting with leasing. Our leasing business is performing well as we have been focused on reallocating assets to different pockets of capital in order to execute our growth strategy across both our balance sheet business as well as WAC. We saw solid utilization of our lease portfolio in Q2, averaging about 85%, roughly equivalent to the prior quarter. This does fluctuate from time to time as engines go into maintenance, programs roll on and off, we move assets on and off balance sheet and when we acquire new assets off lease.

In June, we acquired the vehicles that own 3 Airbus A330-300 aircraft that were leased to China Airlines and EVA Air. Then in July, we signed definitive documentation to acquire the private equity entities that own an additional 12 commercial aircraft and 13 aircraft engines. These acquisitions provide us the opportunity to expand our portfolio and customer base. We intend to use our platform and programs to extract additional value from these assets as well.

As I mentioned earlier, Willis Aviation Capital, or WAC, grew to $1.4 billion in Q2 2026, representing an increase of nearly 80% from its AUM the same period last year. The muted growth of the balance sheet assets was largely the result of having seeded the portfolios of the Blackstone Fund, the Liberty Mutual Fund and our joint venture with Mitsui. The seeding is now largely complete, and we expect the majority of further growth in the funds to come through third-party market purchases. This will help build out both our AUM as well as our balance sheet portfolio, which still represents the primary source of income for WLFC.

As we stand today, we have roughly $1.3 billion of additional capital ready to deploy in our discretionary funds, which is in addition to the capital raised by our joint ventures and the WLFC capital structure. This liquidity, along with the undrawn revolver capacity and our low leverage of 2.78x provides added flexibility and will allow us to execute our growth strategy.

Finally, Services. Our Services businesses continue to be a major strategic advantage, differentiator and value creator, both for our own assets and those we manage. After nearly a year of on-site inspections and quality audits, we were pleased to announce last week that we signed a major engine storage agreement with Pratt & Whitney. I believe this is indicative of the confidence they have placed in us, both as a customer and a service provider.

We intend to be good custodians of their assets at our maintenance facilities in the United States, in the United Kingdom as well as other engine repair centers we may establish in the future. We are currently in advanced discussions to establish another center in Asia, and we hope to have news for you on that in the near future. The Willis Engine Repair Center or WERC, is a replicable solution we can duplicate quickly in different geographies.

I also want to reiterate our commitment to allocating our capital to supporting growth, maintaining leverage targets and providing a nominal return of capital through a dividend to our shareholders. In support of that goal, we recently declared a quarterly dividend of $0.133 per share, which when adjusted for our 3-for-1 stock split is equivalent to our prior dividend.

As the market recognizes the growth and value of the Willis platform, we're pleased to see a broadening of our inclusion into various Russell 2000 indices as well as an increased trading volume in our securities, which provides more liquidity to our shareholders. Trading volume in our equity on a dollar volume basis has increased 82% in 2026 compared to 2025. Overall, we have achieved another strong quarter, and we are confident in the progress we are making to scale our global platform, expand our portfolio and deliver long-term value for shareholders. This year, we have been focused on moving assets from our balance sheet to Willis Aviation Capital. Now that this is largely complete, we look forward to a return to balanced growth by closing on our significant pipeline.

And with that, I'll hand it over to Scott Flaherty, our CFO, to discuss our financial performance in greater depth.

Thank you, Austin, and good morning all. Q2 was another strong quarter for Willis Lease as our core leasing business produced solid revenues, profitability and cash flows. We continue to vertically integrate our services solutions platform, further differentiating our product offering, creating cross-sell opportunities and affording both Willis and our customers the benefit from the most economical maintenance solutions.

The second quarter also provided for further seeding of our Blackstone and Liberty fund portfolios as well as the continued build of our Willis Mitsui joint venture. The second quarter's $194 million of revenues produced $38.1 million of earnings before tax or EBT. $28.7 million of net income attributable to common shareholders and $1.31 of diluted earnings per share as well as $120.7 million of adjusted EBITDA.

Walking through the P&L, our quarterly top line was driven by solid lease rent revenues of $77.1 million in the quarter, 6.7% year-over-year growth in lease rent revenue driven by a marginal increase in the average portfolio size as we built assets year-over-year, while at the same time seeding our fund businesses. Our owned portfolio reflected on balance sheet as equipment held for operating lease maintenance rights, notes receivable and investments in sales-type leases at the end of the second quarter was $2.96 billion in book value. Average utilization was down from 87.2% in the second quarter of 2025 to 85% in the second quarter of 2026. That said, we saw strength in lease rates as our average lease rate ticked up from 1.0% to 1.03% in the comparable year-over-year periods.

Maintenance reserve revenues for the quarter were $46.5 million, down from $50.7 million in the prior comparable period. $39 million of these revenues were short-term maintenance reserves as compared to $50.2 million in Q2 2025. Short-term maintenance reserve revenues are a proxy for both the number of engines that we have on short-term lease conditions as well as the operating tempo of these engines. The average number of engines that we had on short-term conditions declined by 4.9% from the comparable prior quarter as the portfolio mix shifted slightly towards new tech engines, which tend to be on long-term leases.

We also saw a reduction in hours and cycles in April and May by certain operators due to elevated fuel pricing. At the tail end of the second quarter, we started to see a recovery in operating tempo and the related maintenance reserve revenues as a cease fire took hold in Iran and fuel prices began to decline. $7.5 million of these maintenance reserve revenues were long-term maintenance reserve revenues in Q2 2026 associated with engines coming off long-term leases compared to $0.5 million in Q2 2025. $6.8 million of these revenues related to one V2500 coming off long-term lease and the release of its maintenance reserves.

Spare parts and equipment sales were $21.2 million in the quarter compared to $30.4 million in the comparable period in 2025. Spare parts sales were $11.1 million in Q2 2026, up 19.7% from $9.2 million in the comparable prior quarter. Gross margins on spare parts sales were 10%. Sales reflected in the consolidated P&L are net of $8 million of intercompany sales that are transacted at cost but provide incremental value to the consolidated businesses.

Equipment sales in the second quarter of 2026 were $10.1 million compared to $21.1 million in the prior comparable period. These Q2 2026 revenues reflect the sale of 2 engines and 1 airframe that were not part of the lease portfolio. The trading profit on sale of this equipment was $5 million, representing a 49% gross margin.

Gain on sale of leased equipment, a net revenue metric, aggregated to $32 million in the second quarter, up $4.6 million from $27.6 million in the comparable prior period. The $32 million gain on leased equipment was associated with the sale of 21 engines and other parts and equipment for $224.8 million, less economic closing adjustments, representing a gross margin of 14.2%. Included in these sales were 14 engines sold as part of our seed portfolio to a Blackstone fund.

We are predominantly done with seeding our fund portfolios and we'll now focus on growing our assets under management, including the balance sheet portfolio with purchases from third parties. The company recognized $0.2 million of gain on sale of financial assets where we sold one engine recorded on our balance sheet as a note receivable for $16.8 million. The sale of these financial assets are generally part sales.

Maintenance services revenue, which represents fleet management, engine and aircraft storage and repair services and revenues related to management of fixed base operator services increased by $1 million or 11.9% to $9 million in Q2 2026. This growth reflects the growth of engine and aircraft storage and was partially offset by the sale on 6/30/2025 of our fleet management or BAML business to our Willis Mitsui joint venture.

Gross margin was a negative $1.4 million and influenced by the seasonality of the base maintenance activity in the second quarter. Our maintenance service offerings enhance our ability to provide a differentiated offering and program solution to our customer base as well as vertical integration to increase the profitability of our owned and managed assets. Intercompany maintenance services are not reflected in our P&L, but would represent 21% of our gross maintenance service sales in the second quarter.

Management and advisory fees, the fees generated through our asset management efforts were $5.5 million in the quarter, up $2.9 million or 113%, which was primarily driven by $2.8 million of fees earned from our Blackstone and Liberty Mutual Funds in the company's role as GP. These fees also include fees earned from our Willis Mitsui joint venture and to a lesser extent, our CASC joint venture in Shanghai. The Blackstone fund commenced operations in April of this year, and the LMI fund commenced operations in March.

The company recognized $1.4 million in other revenue during the 3 months ended June 30, 2026, compared to $0.3 million in the prior year period. Other revenue was primarily attributable to lease end billings to satisfy lessee lease-end contractual conditions.

On the expense side of the equation, depreciation and amortization expense increased by $1.5 million or 5.5% to $29.1 million in Q2 2026 compared to $27.6 million in the prior comparable period. The increase is primarily due to an increase in the size of our lease portfolio and the timing of placing acquired engines on lease. Write-down of equipment was $4.9 million in the second quarter, reflecting the write-down of 4 engines. There was $11.5 million in write-downs of equipment in the comparable prior period, reflecting the write-down of 6 engines.

General and administrative expenses increased by $5.1 million to $55.6 million in the second quarter compared to $50.4 million in the prior comparable period. The increase was primarily driven by the prior comparable period, including $6.3 million in government grant receipts for the now discontinued sustainable aviation fuel project, along with the current period including a $2.7 million increase in legal fees, primarily related to the company's financing and strategic initiatives. These increases were partially offset by a $3.4 million decrease in personnel costs primarily reflecting $4.0 million reduction in share-based compensation resulting from changes made to the structuring of new employee equity awards following the appreciation in the company's stock price.

General and administrative costs also included $1.6 million of costs, which were recharged to the LMI fund and Blackstone Fund with the associated revenue of $1.6 million included in management and advisory fees. As we look forward, based upon the January 2025 changes to our share-based compensation program, we would expect pursuing consistent practices that this expense would continue to decline, approaching 50% of its estimated 2026 cost in 2028.

Technical expense increased by $2.4 million to $9.9 million for the 3 months ended June 30, 2026, compared to $7.5 million in the prior comparable period due to increased level of engine repair activity as compared to that of the prior period. Technical expense generally relates to unplanned maintenance, whereas engine performance restorations tend to be planned and capitalized events.

Net finance costs increased $1.5 million or 4.6% to $35.1 million for the 3 months ended June 30, 2026, compared to $33.6 million in the prior comparable period. The increase was primarily attributable to a $5.4 million loss on debt extinguishment recognized in the current period with no comparable loss in the prior period, resulting from the company's refinancing and capital restructuring activities, $1.5 million of the $5.4 million loss in the quarter and $7.6 million of the $12.4 million loss year-to-date was noncash and reflected an acceleration of previously incurred debt issuance costs.

Income from operations was $34 million, up 20.2% from the prior comparable period. The company also picked up $4.2 million in ratable earnings from our investments, which predominantly consisted of investments in our Willis Mitsui joint venture and our Blackstone and Liberty funds. Earnings before tax or EBT of $38.1 million for the quarter as compared to EBT of $74.3 million for the prior comparable period, which included a onetime gain of $43 million associated with our sale of BAML business to our joint venture.

Income tax expense was $7.8 million for the second quarter of 2026, which reflects a 20.5% effective tax rate as compared to an 18.7% rate in the prior comparable period, both of which were lower than the U.S. federal statutory rate of 21%. The rate for the second quarter of 2026 was positively impacted by a worthless stock deduction the company recognized on a foreign subsidiary involved in the discontinued sustainable aviation fuel project. The prior comparable period separately benefited from no statutory tax being owed on the sale of the BAML business.

The company produced $28.7 million of net income attributable to common shareholders, which factors in GAAP taxes, net income attributable to our noncontrolling interest and the cost of our preferred equity. Diluted weighted average income per share was $1.31 in the second quarter of 2026. Diluted weighted average income per share in the prior comparable period was positively impacted by a onetime gain on the sale of our BAML business, which was affected on a tax-free basis.

Adjusted EBITDA for the second quarter of 2026 was $120.7 million, up 4% from $116.1 million in the second quarter of 2025. We believe that our adjusted EBITDA reflects the normalized cash flow generation capability of the Willis enterprise. Our adjusted EBITDA makes adjustments to our net income attributable to common shareholders for income tax expense, interest expense, preferred stock dividends and costs, loss on debt extinguishment, depreciation and amortization expense, stock-based compensation expense, write-down of equipment, acquisition financing and divestitures-related expenses and other discrete gains and expenses.

Net cash provided by operating activities year-to-date was $134.2 million compared to $145.2 million in the comparable period of 2025. Fluxes with the prior period predominantly related to changes in net income, losses on debt extinguishment, the net effect of gains on the sale of leased equipment and the gain on sale of our BAML business and a period-over-period $18.4 million decrease in cash provided by changes in assets and liabilities.

On the financing and capital structure side of the business, the company issued in May $200 million aggregate principal amount of 2.5% convertible senior notes due 2031. We utilized these proceeds, our first unsecured to delever our $1.75 billion revolving credit facility and to provide the business more flexibility to evolve its business strategy. The notes convert at a split adjusted share price of $89.60 per share, which represented a 40% premium at issuance and are immediately accretive to the P&L as we convert higher cost revolver leverage to lower coupon convertible debt.

We amended our revolving credit facility to allow for the convertible issuance under the documents covenant structure. We also effected a 3-for-1 stock split to provide for incremental liquidity to our investor base, which became effective on July 21, 2026.

In May, we paid our eighth consecutive regular quarterly dividend, which was $0.40 per share. Subsequent to quarter end, our Board of Directors has declared our ninth consecutive recurring quarterly dividend, which is at a split adjusted rate of $0.133 per share payable to holders at August 11, 2026, on August 21, 2026. Our recurring dividend provides shareholders with a moderate current cash yield on their investment while not degrading the strong cash flow of our business.

With respect to leverage, as defined as total debt obligations, net of cash and restricted cash to equity, inclusive of preferred stock, our leverage was 2.78x at the end of the second quarter of 2026. We have made significant strides over the last several years to reduce leverage to position Willis to be able to access market opportunities when they become available, not unlike the $379 million leased aircraft and engine portfolio transaction we announced as a Q2 subsequent event in July.

With that, I will hand the call back to Austin.

Thank you, Scott. As you can see, we are delivering on our strategy to supplement our balance sheet leasing business with asset management. We're deploying capital in a steady, judicious way.

With that, I'd like to open up the call for Q&A.

[Operator Instructions] And we'll go to your first question, and that will come from the line of Jordan Hymowitz with Philadelphia Financial.

On a great quarter. Can you talk a little bit about the assets you've put into the SPV and the mark on them and how it kind of highlights the undervaluation of the current marks on your balance sheet?

Jordan, thanks for the question. I'll touch on the first part, and I'll ask Scott to talk to the second part. The composition of the portfolio broadly echoes what we have in our broader portfolio. So you're going to see it looking essentially like the portfolio on our own balance sheet. It's really, really not much different. And that was the point of the Blackstone fund. On the Liberty Mutual side, it's primarily finance leases or loans and loan-like products. So the few finance leases we had on our balance sheet, we migrated the majority of those over.

And Scott, do you want to touch on the second point?

Sure. Sure. Jordan. As you heard in our prepared remarks, we sold about $224 million of assets and recognized a $32 million gain on those assets. So that's 14.2%. I think as we've talked about the mark of the overall portfolio, and as you know, we do this on an annual basis, we see that the overall portfolio is coming in at about 20% below the value that we have appraised. So the book value that we have is -- theoretically, if one were to sell the overall portfolio and compare that to where the market value of the overall portfolio is based on industry appraisals, there'd be an embedded 20% gain.

But you also have to keep -- sorry, this is Austin again. You also have to keep in mind the granular nature of what we sell. Sometimes you're going to have some assets that have higher book value, some have lower book values. It's just going to depend upon what happens to get moved over.

But similar to AerCap, which has been a phenomenal story for a dozen years, they're getting similar levels of gains. And again, not everything is comparable. But it's similar in that the asset is appreciated so much that the book value is inherently understated. Is that a -- broadly, is that a fair statement?

I think that is. And I also think I kind of draw your attention to our spare parts and equipment sales. And we did pick up on equipment sales of 50% or 49% gross margin on those. So to Austin's point, it's granular, and you really have to look at the portfolio in its entirety.

And if I could just follow one more quick thing. I mean it's unfortunate that all the people that you paid money to underwrite to convert you have yet to pick up coverage, which is very disappointing. But hopefully, that will happen. And my question is, when they do, do you think you'll be similar to what AerCap does in guiding to earnings without gains? Or will they be with gains? Or might it be some combination?

Well, I don't want to -- Jordan, I don't want to get ahead of ourselves on guidance, but your point is taken.

Your next question will come from the line of Will Waller with M3.

Can you talk about the capacity you see for the asset management business and how that might grow in the future and the type of institutional demand you're seeing for those products, realizing there's kind of 2 different products with the Liberty Mutual product and the one that was -- that Blackstone invested in. So just kind of curious to hear if you're seeing additional demand for the potential of future funds in future years and what type of product mix there might be?

Will, this is Austin. Thanks for the question. The answer is yes. We are seeing a lot of demand for the product. Since we closed on the funds, we've received a lot of inbounds from institutional investors looking to replicate that. Our focus for the time being is deploying the capital that we've raised. But I think I mentioned this in a previous earnings call. The 2 discretionary funds we raised, it's not a one-off for us. This is not intended to be sort of a one-off sidecar. This is a genuine long-term asset management strategy. So our intention is to deploy the capital in these 2 funds and then go out and raise additional larger funds in the future, really relying on our platform to deliver a premium return to the investors.

Great. That sounds great. And then a second question for you is, historically, long-term leases versus the short-term lease mix was around 50%. With the sort of uncertainty that exists in the aviation market with higher fuel prices, has there been a shift at all to shorter-term leases? Or is that mix still around 50%?

It's still around 50%. The term of our leases is a little bit shorter than it was last year, but I wouldn't attribute that to anything really in particular. It's still about 50-50.

Okay. So you haven't seen kind of a change in the last 2 months or something with as new leases are being originated or as leases are coming due that there's a demand for a lot shorter-term lease. We had kind of heard at a conference recently on a panel that, that was the case in the industry, but it sounds like you're probably not seeing that same trend or maybe we heard that incorrectly.

Well, I'd say not really, but I will say this. Look, there's long term and short term in terms of the duration that the assets on lease and then there's long term and short term in terms of the the redelivery conditions and how that's structured. We are seeing more of our leases going out on long-term conditions, but that's largely a byproduct of us just modernizing our portfolio.

And it appears there are no further questions at this time. Mr. Austin, I will turn the call back to you for any closing or additional remarks.

Thank you, operator. Before we conclude today, I wanted to highlight that we will attend Deutsche Bank's 16th Annual Aviation Forum, which will be held in New York the second week of September falling Labor Day. We hope to see many of you there. We appreciate everybody giving us their time today, and we'll speak to you again in the fall. Bye-bye.

This concludes today's call. Thank you for your participation. You may now disconnect.

Good day, and welcome to the Willis Lease Finance Corporation First Quarter 2026 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 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 www.wlfc.global/investor-relations.

At this time, I would like to turn the conference over to Mr. Austin Willis, CEO. Please go ahead, sir.

Thank you, operator, and thank you all for joining us today to discuss Willis Lease Finance Corporation's First Quarter 2026 Financial Results. On our call today, I'm joined by Scott Flaherty, our Chief Financial Officer. We have posted an accompanying presentation on our website to give further details supporting our remarks. This morning, I'd like to start by taking a step back and discussing our industry's macro environment. Since the conflict began in Iran, we haven't seen a material impact on pricing or lease rates. Demand remains robust. We have minimal exposure in the Middle East, where the effects are being felt most acutely. Airlines are reacting to higher fuel prices and the prospect of fuel shortages by reducing capacity, in some cases, flying less frequently and in other cases, parking aircraft. Should high fuel prices persist into the fall, we expect the airlines to feel liquidity pressure.

Historically, we have been countercyclical in such environments. When airlines are trying to preserve cash, they tend to opt for leasing solutions rather than overhauling engines for $10 million or more, which drives up utilization in our portfolio. We have seen this phenomenon firsthand following prior periods of macro disruption. If fuel prices remain elevated longer than anticipated, some of the parked aircraft will likely be retired, and that could lead to lower lease rates and values for midlife aircraft. We would expect changes in midlife engine values to be more resilient than aircraft as they will continue to support shop visit avoidance, as I described earlier.

However, and even in spite of this, we consider ourselves to be well hedged with over 50% of our engine portfolio in modern technology, specifically the LEAP, GTF and GEnx engine types. Another way for airlines to address short-term liquidity concerns is the sale and leaseback transactions for their unencumbered aircraft and engines. Our capital strategy over the past year has positioned us well to capture such opportunities. Turning to the quarter. We ended with $4.1 billion of assets under management, approximately $1.5 billion of capital that is ready to deploy through our discretionary funds and capital through our joint ventures to include a $750 million revolving credit facility. This, combined with undrawn amounts in our recently expanded $1.75 billion revolver and our low net leverage of 2.7x, we are positioned for significant growth.

As we have talked about in prior quarters, the aviation market remains increasingly engine-centric, and that dynamic is driving demand across our platform. Engine availability remains a key constraint to both delivering new aircraft and keeping operational aircraft flying. And we continue to see extended maintenance timelines and sustained pressure on spare engine supply. This environment supports strong lease rate dynamics and ongoing demand for our leasing and services offerings. Continued strong demand for our products and services helped us deliver first quarter adjusted EBITDA of $124 million and fully diluted earnings per share of $3.26 as compared to $2.21 during the same period in 2025. We have also seen strong stock price appreciation during the first quarter despite market volatility driven by geopolitical uncertainties. We attribute this primarily to the strength of our underlying business as well as investors' confidence in our growth strategy, both on and off balance sheet.

This strategy will deliver synergistic benefits through fees and carried interest, along with additional advantages such as a larger asset base that we can service through our two engine MROs, our airframe MRO, our parts business and our consulting business. Let me take a few minutes to discuss the 3 key areas of our business: leasing, Willis Aviation Capital and services. First, leasing. Leasing utilization for the quarter was up to 86% from 80% year-over-year, and the lease rate factor of our on-lease assets was 1.04%.

As mentioned earlier, we continue to modernize the portfolio towards the next generation of assets. And although higher in value, we are experiencing similar lease rate factors as compared to the current generation of assets. These factors led the company to experience an all-time high lease rent revenue during the first quarter of 2026, totaling $77 million, demonstrating the strength of the aviation market, demand for next-generation assets and improved lease rate dynamics. We are able to effectively optimize asset placement across global customer base through our programs such as ConstantThrust. Under ConstantThrust, operators' engines are seamlessly exchanged with fully serviceable replacements from our pool of owned and managed assets as they come off-wing.

This program specifically leverages WLFC's global expertise in spare engine provisioning, technical management and maintenance and repair services to ensure uninterrupted operational performance for airlines worldwide. Earlier this year, we expanded our constant thrust program by signing a new purchase and leaseback agreement with Nauru Airlines for CFM56-7B engines. The agreement will provide Nauru with reliable constant thrust support for the airline's entire fleet of CFM56-7B engines, powering Boeing 737-700 and 800 aircraft for 6-plus years. Turning to Willis Aviation Capital, or WAC.

Last quarter, we announced Willis Aviation Capital, which is a natural extension of our business and enables us to manage third-party capital alongside our balance sheet and significantly expand our addressable market. This creates a flywheel effect where greater scale drives more opportunities to deploy our services across a larger asset base, enhancing returns and accelerating platform growth. Through our partnerships with Blackstone Credit & Insurance and Liberty Mutual Investments as well as our existing joint ventures, Black now manages more than $2.7 billion of committed or deployed capital.

In the first quarter of 2026, we funded approximately $90 million of finance leases through our Liberty Mutual Fund, which do not generate gain on sale as these were par sales to the fund. In April, we began selling operating lease engines from our balance sheet to the Blackstone fund. We are encouraged by the early traction we're seeing with a solid pipeline of opportunities as we move through the year. This platform is designed to generate high-quality recurring earnings through the management fees and carried interest while also driving incremental demand for our services capabilities.

And finally, services. Our services businesses remain a core strength for our platform, reducing both off-wing time across our fleet and turnaround times for our own customers' assets as compared to larger MROs. As I've mentioned before, the outlook for engine shop visits remains strong through the mid-2030s and our services businesses remain a key differentiator, playing a critical role as engine maintenance demand grows. Having multiple geographically distinct hospital shops, we are well positioned to capitalize on demand across those markets since we are the low-cost alternative to more costly full overhauls. To meet growing demand for the technical and maintenance expertise of our engine shops, which contributed revenue of $10 million in the first quarter. Exclusive of intercompany sales and to enhance our vertical integration, we continue to invest in deepening our in-house technical capabilities.

In February, we announced the successful completion of our first core engine restoration of the CFM56-7B in our U.S.-based Willis Engine repair center. We have branded this new capability as Willis Module Shop, allowing us to complete comprehensive core restorations that reduce maintenance cost, improve turnaround time and strengthen the control over our assets. Over time, we believe this capability will be an important driver of both operational efficiency and portfolio returns.

Now to touch briefly on our capital deployment priorities. To support future growth across our platform, we have increased our financial flexibility through an amendment and extension of our revolving credit facility from $1 billion to $1.75 billion. The amended facility positions us with the liquidity and flexibility to further expand our business. Additionally, we closed 2 Japanese operating lease with call option or JOLCO transactions, totaling approximately $50 million. These transactions reflect the strength of our lender relationships and our ongoing focus on maintaining a well-capitalized flexible balance sheet. Scott will speak to the specifics of these transactions momentarily. We have also continued to invest in top talent where we see growth opportunities, particularly in the Asia Pacific region. We welcomed Marilyn Gan as Head of Origination for the region, strengthening our ability to source and execute opportunities in a key growth market.

Looking ahead, we remain well positioned to deploy capital across a broad range of opportunities. We see attractive prospects across leasing and services, supported by strong long-term fundamentals in the aviation market. We also remain committed to returning capital to our shareholders as evidenced by the quarterly recurring dividend of $0.40 per share that we declared earlier this quarter.

Overall, we are confident in our strategy and the progress we are making as we continue to scale our platform and deliver long-term value for our shareholders. And with that, I'll hand it over to Scott Flaherty, our CFO, to discuss our financial performance in greater depth.

Thank you, Austin, and good morning all. Another strong quarter for Willis Lease Finance. Our first quarter experienced record quarterly lease rent revenues of $77.4 million, quarterly adjusted EBITDA of $123.8 million, $36.8 million of quarterly earnings before taxes, or EBT, and $23.7 million of net income attributable to common shareholders or $3.26 of diluted weighted average income per common share.

Walking through the P&L, our strong top line performance reflected solid growth in nearly every revenue channel, record lease rent revenues of $77.4 million in the quarter. 14.2% quarter-over-quarter growth in lease rent revenues were driven by a combination of increased portfolio size, utilization and lease rates. Our owned portfolio at the end of the first quarter was $2.86 billion. Our own portfolio is reflected on the balance sheet as equipment held for operating lease, maintenance rights, notes receivable and investment in sales type leases.

Average utilization was up from 79.9% in Q1 of 2025 to 85.8% in Q1 of 2026, a nearly 6-point pickup. Additionally, we continue to see a solid average on-lease lease rate factor across the portfolio of 1.04% compared to 1.0% in the first quarter of 2025.

Maintenance reserve revenues for the quarter were $55.5 million, up slightly from $54.9 million in the first quarter of 2025. $12.4 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 as well as the receipt of end of the lease cash payments. $12.3 million of this related to one engine coming off-lease and included both the release of a maintenance reserve and the receipt of an end-of-lease cash payment. The $12.4 million in long-term maintenance reserve revenue compared to $9.6 million in the first quarter of 2025. $43.1 million of our maintenance reserve revenues were short-term maintenance reserves compared to $45.3 million in the prior comparable period. Spare parts and equipment sales increased by $3.4 million or 18.9% to $21.7 million in the first quarter of 2026 compared to $18.2 million in the first quarter of 2025. Spare parts sales were $10 million and $16 million in Q1 of '26 and 2025, respectively, a decrease of $5.8 million.

The decrease in spare parts sales reflects variations in the timing of sales to third parties and were not reflective of $7.5 million of intercompany sales, which was up from the prior comparable period and eliminated in our financial consolidation. These intercompany sales represent the added value of having a vertically integrated parts business. Equipment sales in the first quarter of 2026 were $11.4 million, up $9.2 million from the prior comparable period. These revenues reflect the sale of 3 engines that were not previously leased.

The trading profit on sale of these 3 engines was $5.7 million, representing a 50% margin on these sales, validating the significant discount that exists between the book value and the market value of our portfolio. Equipment sales for the 3 months ended March 31, '25, were $2.2 million for the sale of 1 engine. Gain on sale of leased equipment, together with our gain on sale of financial assets, a net revenue metric, aggregated to $18.4 million in the first quarter, up $13.6 million from the $4.8 million in the comparable prior period. The $18 million gain on leased equipment was associated with the sale of 14 engines for $60 million of gross sales. Included in our engine sales were 5 engines sold to our Willis Mitsui joint venture.

The gain on sale represents an effective 30% margin on such sales, further validating the significant discount that exists between the book value and the market value of our portfolio. The company recognized $0.4 million of gain on sale of financial assets where we sold 11 notes receivable and investment in sales-type leases for $87.1 million of gross sales, which generally reflects car sales of these financial assets.

Maintenance services revenue, which represents fleet management, engine and aircraft storage and repair services and revenues related to management of fixed base operator services was $9.8 million in the first quarter of 2026, up 74.9% from $5.6 million in the comparable period in 2025. The increase reflects growth in engine and aircraft storage and repair services, especially when factoring the lack of comparable period fleet management revenues in the current period due to the sale of our BAML business in late Q2 2025. Gross margins grew to 9.3% from 4.6% in the prior comparable period. Our maintenance service offering enhance our customer program solutions and provide vertical integration to increase the profitability of our owned and managed assets.

Management and advisory fees represent the fees generated through our asset management efforts. These fees include those made from our joint ventures and other managed assets as well as through our new fund strategy announced at the end of 2025. Management and advisory fees increased by $5.9 million to $7.9 million for the 3 months ended March 31, 2026, from $2 million for the 3 months ended March 31, 2025. This increase was primarily driven by $4.9 million of fees earned from our LMI or Liberty Mutual Fund in the company's role as general partner. The LMI fund commenced operations in March of '26 and reimbursed formation and other costs to the company, which flowed through both revenue and the G&A lines of our P&L. On the expense side of the equation, depreciation in the first quarter increased by $5.2 million or 20.6% to $30.2 million as compared to $25 million in the prior comparable quarter. The increase is primarily due to an increase in the size of our lease portfolio and the timing of placing acquired engines on lease, which starts their depreciation through the P&L.

Write-down of equipment was $1.1 million in the first quarter, reflecting the write-down of 1 engine. There was $2.1 million of write-downs of equipment for the 3 months ended March 31, 2025, reflecting the write-down of 5 engines. G&A expenses increased by $8.9 million or 18.6% to $56.6 million in the first quarter of 2026 compared to $47.7 million for the first quarter of the prior comparable period. The increase primarily reflects a $12.5 million increase in personnel costs, which included an increase of $6.9 million in share-based compensation and an increase of $4.1 million in wages. The increase in share-based compensation reflects appreciation of the market value of the company's equity as well as share awards to new personnel to support the continued growth of the company.

In January of '25, the company modified its share-based compensation program due to the significant rise in our stock price. The nearly 300% increase in the company's stock price since mid-2024 had a P&L effect as the company's historical plan was structured with predetermined share grants occurring after the achievement of specified goals or performance metrics. Generally, the share grants had a 3-year vesting, which created a noncash P&L effect over the vesting period. Our new share-based compensation plan will reduce share-based compensation expense savings, but such savings will not be fully realized until prior grants flow through the P&L.

The $4.1 million increase in wages was driven by higher headcount to support the company's growth. Also contributing to the higher G&A cost was $4.9 million of costs, which were recharged to the LMI fund, with the associated revenue of $4.9 million included in management and advisory fees.

Lastly, G&A also included $2 million increase in acquisition, financing and divestiture-related expenses as compared to the prior period. Partially offsetting these increases was an $11.7 million reduction in project expense due to our decision to cease investment in and pursue strategic alternatives for the sustainable aviation fuels project.

Technical expense was $9.7 million in the first quarter, up from $6.2 million in the comparable period of 2025. Technical expense generally relates to unplanned maintenance, whereas engine performance restorations tend to be planned and capitalized events. Net finance costs were up $7.6 million to $39.7 million in the first quarter compared to $32.1 million in the comparable period in 2025. The increase in costs was predominantly related to $7 million in loss on debt extinguishment related to refinancings completed in the quarter. Less than $1 million of the $7 million was a cash expense as the lion's share was related to an acceleration of previously incurred capitalized issuance costs.

Total indebtedness remained relatively flat at $2.25 billion as compared to $2.23 billion in the comparable period of 2025. Our weighted average cost of debt capital, inclusive of swap agreements was 5.12%. The company also picked up $3 million in ratable earnings from our investments, which include our joint ventures and fund interests. Income from investments was up 126% and most significantly influenced by our Willis Mitsui joint venture. The company produced $23.7 million of net income attributable to common shareholders, which factors in GAAP taxes and the cost of our preferred equity, which was up 52.9% from the comparable period in 2025.

Diluted weighted average income per share was $3.26 per share in the first quarter, up 47.5% from the $2.21 in the first quarter of 2025. Adjusted EBITDA for the quarter of 2026 was $123.8 million, up 19.9% from $103.3 million in the first quarter of 2025. We believe that our adjusted EBITDA reflects the normalized cash flow generation of the Willis enterprise. Our adjusted EBITDA makes adjustments to our net income attributable to common shareholders for income tax expense, interest expense, preferred stock dividends and costs, loss on debt extinguishment, depreciation and amortization expense, stock-based compensation expense, write-down of equipment, acquisition financing and divestiture-related expenses and other discrete gains and expenses.

Net cash provided by operating activities was up 38.3% to 56.7% in the first quarter of 2026 as compared to $41 million in the first quarter of 2025. The increase was predominantly related to increased net income, the noncash effects of stock-based compensation, depreciation and the loss on debt extinguishment expenses and a period-over-period $10 million increase in cash flows from changes in other assets. On the financing and capital structure side of the business, the company completed its seventh and eighth JOLCO financings in the first quarter, bringing total JOLCO financings at quarter end to approximately $170 million.

In March of 2026, the company amended and extended its existing revolving credit facility, increasing total commitments from $1 billion to $1.75 billion and extending the maturity out to April of 2031. The expansion of our credit facility provides Willis with increased liquidity and flexibility to pursue our growth strategy. Concurrent with the $750 million expansion of our credit facility, we terminated our $500 million warehouse facility. We regularly access the capital markets as we endeavor to source competitively priced capital to help continue to grow our balance sheet and P&L.

In February, we paid our seventh consecutive regular quarterly dividend of $0.40 per share. Subsequent to quarter end, our Board of Directors declared our eighth consecutive recurring quarterly dividend of $0.40 per share, payable to holders at May 11, 2026, on May 22, 2026. Our recurring dividend provides shareholders with a moderate current cash yield on their investment while not degrading the strong cash flow of our business. With respect to leverage, as defined as total debt obligations, net of cash and restricted cash to equity, inclusive of preferred stock, our leverage ticked lower to 2.68x at the end of the first quarter of 2026. We have made significant strides over the last several years to reduce leverage to position Willis to be able to access market opportunities when they become available.

With that, I will hand the call back to Austin.

Thank you, Scott. Q1 set in motion great momentum for the year ahead as we track towards our long-term strategy. growing our portfolio on balance sheet and managed assets through Willis Aviation Capital while bringing exciting opportunities to the entire Willis platform.

Thank you for joining us on our call today. And with that, I will let the operator open up to Q&A.

[Operator Instructions]. We'll go to Will Waller with M3F.

Excellent looking quarter. I was wondering if you could comment a bit more on the asset management business, like the Blackstone funds and so on. What the management fee and incentive fee will look like, if there's kind of any general parameters that you could give out as it relates to that?

Will, thanks for the question. So in terms of the funds, we're not disclosing what the specific management fees are. But I can tell you that they're roughly in line with what's standard for discretionary funds, a percentage of the value of the assets managed and then a percentage of the profitability via carried interest. We started deploying capital into Liberty Mutual in the first quarter, and you're really going to start to see the fees from that come in when we deploy more capital over time. And with respect to Blackstone, I think you'll start to see fees kicking in here in the next quarter. And as I mentioned earlier on my prepared remarks, we started to deploy capital there in April, so just subsequent to the quarter. I think we're probably going to see about $200 million from our balance sheet into the Blackstone portfolio. So that's a good starting point and then hopefully get the remainder deployed in relatively short order.

Great. That's super useful to hear, and we think it's a very wise strategy and that you're using all your knowledge to the fullest. So we really think highly of that strategy. So thanks for that additional information.

With no other questions holding, I'll turn the conference back for any additional or closing remarks.

Thank you very much. We appreciate everybody giving us their time today. And I guess we answered all the questions in our lengthy prepared remarks. So thank you very much. Take care.

Thank you. Ladies and gentlemen, that will conclude today's call. We thank you for your participation. You may disconnect at this time.

Good day, and welcome to the Willis Lease Finance Corporation Fourth Quarter 2025 Earnings Call. Today's call 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, 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 call over to Austin Willis. Please go ahead.

Thank you, operator, and thank you all for joining us today to discuss Willis Lease Finance Corporation's fourth quarter 2025 financial results. On our call today, I'm joined by Scott Flaherty, our Chief Financial Officer. I encourage you to view our accompanying presentation illustrating, details from our prepared remarks.

We finished the year with strong performance, delivering record revenues for the fourth quarter of $193.6 million, a 27% increase year-over-year. For the full year, we achieved record revenues of $730.2 million, a 28% increase, and record earnings before tax of $160.6 million, reflecting the growing demand for our products and services and the strength across the aviation market as our global airline partners continue to rely upon Willis' leasing and services solutions to keep their fleets operating reliably and cost effectively.

In addition to the revenue numbers described above, I would like to highlight our adjusted EBITDA of $459 million. We felt that highlighting EBITDA while adjusting for selected items would give investors a look at the immense cash generating capability of our enterprise.

We saw strong utilization of our lease portfolio throughout the year, averaging 85%, up from 83% in 2024, while retaining an average lease rental factor in excess of 1% per month. Utilization is affected by engines that are in maintenance and engines that we keep off-lease to support programs like ConstantThrust.

Our consistent business performance and confidence in the strength of the aviation market has enabled WLFC to return capital to our shareholders. Accordingly, we recently declared a recurring dividend of $0.40 per share, reflecting our continued commitment to delivering long-term total returns to our shareholders.

The aviation market has become engine centric. Engines are a critical constraint to both new aircraft deliveries as well as maintaining an operational aircraft fleet. While there is some optimism about improvements in aircraft AOGs resulting from delays in engine repairs, there are still over 600 aircraft powered by GTF engines that remain grounded and new technical issues that have arisen around LEAPs that threaten to require additional maintenance.

The outlook for engine shop visits remain strong through the mid-2030s. While we expect to see shop visits taper for the CFM56 and V2500 engine types, this will be more than replaced by the shop visits for the GTF and LEAP engines, which represent a growing proportion of our portfolio and we feel will require more frequent and more expensive shop visits than previous generations even after the big issues have been resolved.

We lease engines to airlines needing replacement power during shop visits. We sell spare parts to repair facilities overhauling engines. And finally, we repair endings ourselves. So the long-term demand environment for our business model looks robust.

Willis Aviation Capital is our recently announced asset manager comprised of three key elements: discretionary fund management, management of joint ventures and management of engines and aircraft for investors where WLFC has no equity interest. And I'm pleased to say that we are ready to begin deploying capital into our discretionary funds.

We established a $600 million fund with Liberty Mutual Insurance, where we are minority investors and a general partner. This fund will provide financing for aircraft engines at attractive interest rates and advance rates. We have provided loan-like products on our balance sheet for some time, but this structure enables us to be even more competitive. We are uniquely positioned to add value in that our leasing business gives us comfort in the asset should we need to repossess at any point.

We established a separate fund with Blackstone Credit and Insurance for over $1 billion. This fund will invest in engines and aircraft similarly to Willis' proprietary investments. Willis will also be a minority investor and general partner in this fund as well. Both funds are funds of one.

Our strategy is to deploy the capital alongside our joint ventures and our own balance sheet, then establish follow-on funds with additional limited partners. We earn a servicing fee from both funds as well as carried interest or a promote that is payable based upon the fund's performance. We look forward to building upon our 2025 fee-related revenue of $17.2 million found in other revenue in our financials.

These funds are not a shift in focus, but rather an expansion of our focus on to both on- and off-balance sheet aspects of managing assets. By establishing these funds, we can increase our return on equity through fee income and carried interest, pursue more transactions that otherwise would have been too large for us, pursue larger transactions with single parties where we can disperse concentration among more pockets of capital, grow our services businesses, namely parts, MRO and consulting, which benefit from significant intercompany revenue more quickly than we could strictly with on balance sheet growth.

Finally, we can offer a more broad spectrum of products to our customers. Many airlines taking delivery of large numbers of engines are looking to finance some and sell some to leaseback. With these funds, we can do both competitively. Our platform also provides unique value to the limited partners invested in the funds.

As mentioned with Liberty Mutual, we are well positioned to manage the collateral in the loans since it is the same collateral we lease out daily. With respect to the Blackstone fund, our services businesses will enable us to manage assets owned by these funds efficiently by getting them repaired quickly at our MROs and cost effectively with our used serviceable material and module exchanges.

Our services businesses continue to provide a great deal of value to our overall platform. Of the 475 or so employees at WLFC, nearly 300 are in our services businesses. WASI, our parts business, continues to create value by monetizing our unserviceable engines at a premium to what they would otherwise be sold for. In the fourth quarter, 57% of WASI sales were intercompany, supporting our 2 MROs.

Our work U.S. and work U.K. MROs at 15% and 31%, respectively, of their revenues from intercompany. The material and the MROs help us keep our book values and turn times down for our engines as well as our customers. I'm proud to say that work U.S. recently performed its first core module performance restoration, replacing both LLPs as well as air foils. And when the engine tested, it achieved approximately 51.7 degrees of EGT margin at high thrust, a testament to the quality of the product we are producing. While this event alone is not significant, it is a big step towards becoming a more comprehensive maintenance provider.

Similarly, we entered into a very novel materials agreement with CFM that was disclosed in a recent press release. We worked closely with CFM throughout 2025 on this initiative, and I'm proud to say that we helped design a structure that we expect will facilitate the repair of CFM56 engines in order to keep the fleet flying. We expect this to be a structure to help drive further business to and for our MROs.

WASL, our airframe maintenance facility in the U.K., is now fully up and running and certified to perform all C checks on 737 NG and up to 6 Y checks on A320 CO aircraft. We have performed 12 maintenance checks in 2025 and have good line of sight on business for the next 12 months. The airframe maintenance is going to become increasingly important as our aircraft leasing portfolio grows.

Equally important is the support WASL can provide for aircraft teardowns, which we expect to track with fleet retirements in the future. In the European market, we see robust and for maintenance checks in the winter season. During the summer season, we focus more on supporting leasing companies and airlines for maintenance and aircraft disassembly, where we also buy or lease out engines as they are removed from the disassembled airframes.

We elected to no longer pursue our sustainable aviation fuel project. This was a very difficult decision. But we decided that ultimately, our right to win in the space wasn't as strong as we feel is necessary to support the type of investment that is required. We hope another party can carry it forward because it is a strong project, and we feel that decarbonizing aviation is critical for ensuring the long-term viability of commercial air travel.

Finally, I'd like to welcome David Hooke to our team, who will run M&A for us. David is a reformed investment banker from Bank of America and a long-time pilot in the Marine Corps. He brings a wealth of knowledge and perspective, and we are fortunate to have him. Similarly, Brian Hole, who is the President of WLFC from 2016 until 2025 and has moved to head up Willis Aviation Capital. And he has hired Steve Bridgland, a well-respected industry veteran, to act as the Head of Investor Relations and Capital Markets for Willis Aviation Capital.

Thanks to you, three gentlemen, and thank you to the Willis team for delivering another great year of performance. With that, I'll hand it over to Scott Flaherty.

Thank you, Austin, and good morning all. 2025 was another record year for Willis Lease: revenues of $730.2 million, up 28.3% from 2024 and record earnings before tax, or EBT, of $160.6 million for the year. Adjusted EBITDA, a new metric we are reporting, highlighting the strength of the cash flow of the Willis enterprise, was $459.1 million up 16.6% from $393.7 million in the prior year.

Walking through the P&L. Record revenues driven by core lease rent revenues of $291.6 million and interest revenues of $14.1 million. Growth in these line items reflects our increased total portfolio size of $3 billion at year-end 2025. Our total owned portfolio is presented on our balance sheet as equipment held for operating lease, maintenance rights, notes receivable and investment in sales-type leases.

In 2025, the company purchased equipment, including capitalized shop visit costs, totaling $524.6 million. This growth was partially offset on the balance sheet by $215.6 million of equipment book value sales, $106.3 million of lease portfolio asset depreciation, $41.5 million of asset transfers into held for sale, $32.9 million of impairment write-downs and $23.1 million of payments received against our outstanding notes receivable and sales-type leases.

Maintenance reserve revenues for the year were $232 million, up $18.1 million or 8.4% from 2024. As you peel back the numbers, you can see that $44.5 million of these maintenance reserve revenues were long-term maintenance reserves associated with engines cutting off long-term lease, up from $39.4 million in the prior year.

In 2025, we had 19 assets come off long-term lease compared to 20 assets in 2024. $187.5 billion of our maintenance reserve revenues were short-term maintenance reserves compared to $174.5 million in 2024. This continued strong cash flow is representative of the demand for our portfolio, the number of engines on short-term lease conditions and the success of our program offerings.

Spare parts and equipment sales to third parties of $95.5 million in 2025 compared to $27.1 million in 2024. The $68.4 million increase in sales was driven by $37.7 million of spare parts sales, up $11.6 million or 44.4% from the prior year. Gross margin on these spare parts sales were 2% for the year but, more importantly, provided the Willis platform and our customers access to high-demand used service material to keep fleet flying.

$57.8 million of these sales related to equipment sales, primarily to a joint venture partner, Willis Mitsui, compared to $1 million of similar sales in 2024. We recognize gross revenues on equipment sales when the asset has not been on lease in our portfolio. Margin on the equipment sales was $2.1 million or 3.6%.

Gain on sale of lease equipment, a net revenue metric, was $54 million in 2025 and was associated with $269.7 million of gross equipment sales, representing an effective 20% margin on such sales. This compares to a gain of $45.1 million in 2024, where we saw similar healthy margins in excess of 20%.

Our trading activities are an important part of Willis' efforts to recycle the portfolio, keeping it relevant to our customer base. Maintenance services revenue, which represents fleet management, engineered craft storage and repair services and revenues related to management of fixed base operator services, was marginally up in 2025 to $25.5 million as compared to $24.2 million in 2024.

The 5.5% growth in Maintenance Services was driven by a $5.3 million increase in aircraft maintenance services and partially offset by a decline of $4.5 million related to the sale of our fleet management business in the second quarter of 2025. Gross margins in maintenance services were minus 9.5% as we are still in the buildout stages of our fixed-based operator services. Furthermore, these sales exclude the intercompany sales, which are eliminated in consolidation.

We believe that our maintenance service offering provides a differentiated solution to our customers and create incremental lease opportunities for our business.

Other revenue increased by $8.1 million or 89% to $17.2 million from $9.1 million in 2024. Other revenue primarily is driven by management fees and has grown alongside the growth of our Willis Mitsui joint venture portfolio. We would expect our fund initiatives as well as the continued growth of our Willis Mitsui joint venture and our management of engines for third parties to fuel this growth on a go-forward basis.

On the expense side of the equation, depreciation for 2025 was up $19.1 million to $111.6 million as we increase the portfolio size but also as we place new assets on lease for the first time, which starts their depreciation cycle. Write-down of equipment was $32.9 million for the year as compared to $11.2 million in 2024.

As we go through our annual impairment process, we obtain appraisals on all of our engines and aircraft assets. When looking at our year-end 2025, maintenance adjusted market value of our portfolio, which includes our equipment held for operating lease, maintenance rate and financial assets in the aggregate representing our portfolio, and comparing this value to the book value of our portfolio net of any on-balance sheet maintenance reserves, this excess value excludes any potential future end-of-lease payments or other contractual return conditions, which adds even more value to the portfolio.

G&A was $194.7 million in 2025 compared to $146.8 million in 2024. G&A as a percentage of total revenue remained relatively flat year-over-year. Increases in the overall G&A spend were related to a $23.7 million increase in personnel costs, which included a $15.3 million increase in share-based compensation expense and a $4.2 million increase in wages.

Of the $15.3 million increase in share-based comp, $5.3 million related to the acceleration of vesting of shares associated with the departure of our former General Counsel. The remainder of increased share-based compensation costs was associated with the appreciation of our share price and the effect of such appreciation on older stock-based compensation awards. To a lesser extent, there was also the effect of share-based compensation awards associated with new hires.

In 2025, the company modified its share-based compensation program to reflect significant appreciation in the price of the company's public equity. These changes phase in over time as historical awards which expense over multiple years as they vest flow through the P&L. Also starting in 2026, the company has modified its cash incentive compensation plan, incorporating caps, which will further reduce cash compensation expense.

$12.6 million of the increase in G&A was related to increased consultant fees primarily associated with our sustainable aviation fuel project. The company made the recent decision to cease its investment in this effort, as mentioned by Austin in his earlier remarks. Lastly, $4.7 million of the increase relates to higher legal fees, primarily associated with finance initiatives as well as start-up costs of the company's new partnerships on the fund side of the business.

Technical expense, which is predominantly unplanned maintenance and is expensed rather than capitalized, was $31.4 million for the year up $9.1 million from the prior year. The increased level of technical expense is in line with the growth of the portfolio, the number of engines on short-term lease conditions and the usage of the portfolio.

Net finance costs were $135.1 million in 2025 compared to $104.8 million in 2024. The increase in costs were related to an increase in indebtedness as total debt obligations increased from $2.264 billion at year-end 2024 to $2.7 billion at year-end 2025, a $4.7 million increase in year-over-year interest expense on our warehouse facility as this facility was not in place until May of 2024 and therefore only had half a year of interest expense related fees; $17.8 million of incremental expense associated with our WEST VIII notes, which did not close until June of 2025; $6.2 million of less derivative receipts as certain swap positions matured in 2024 and 2025.

The increase in interest expense were partially offset by increasing interest income associated with the increased restricted cash on our ABS financings and savings on our fully paid-off WEST IV ABS notes and partially paid off WEST VII ABS notes.

In 2025, the company recognized $43 million gain associated with the sale of our wholly owned subsidiary, Bridgend Asset Management Limited, or BAML, to our joint venture, Willis Mitsui, for $45 million. BAML, now doing business as Willis Mitsui and Company Asset Management Limited, continues to provide services to Willis' platform on an arm's length market pricing basis.

The company also picked up $13.4 million in earnings from our 50% ownership interest in our Willis Mitsui and CASC Willis joint ventures, which was up 62% from $8.2 million in 2024. Income from joint ventures was primarily driven by growth in our Willis Mitsui joint venture.

Income tax expense was $46.8 million for the year, up $2.8 million or 6.4% from the prior year. The company's effective tax rate for the year was 29.2%, which differed from the 21% federal statutory rate, predominantly due to Section 162M add-backs as well as certain discrete tax effects associated with the sale of our BAML business. The company's actual cash tax payment in 2025 was $3.4 million as we benefit from significant depreciation tax shields associated with our leasing portfolio.

The company produced $108.1 million of net income attributable to common shareholders [ after ] GAAP taxes and the cost of our preferred equity, which was up 3.5% from $104.4 million in 2024. Diluted weighted average income per share was $15.39 in 2025 compared to $15.34 in 2024.

Adjusted EBITDA, a metric we have included in our new financial disclosures, speak to the normalized cash flow generation of the Willis enterprise. Our adjusted EBITDA makes adjustments to our net income attributable to common shareholders for income tax expense, interest expense, preferred stock dividends and costs, depreciation and amortization expense, stock-based compensation expense, the write-down of equipment, acquisition financing and divestitures-related expenses and other discrete gains and expenses, including the onetime gain on the sale of our BAML business and our sustainable aviation fuel project related expenses incurred in 2024 and 2025.

The adjusted EBITDA for 2025 was $459.1 million, up 16.6% from $393.7 million in 2024. Cash flow from operations was $283.2 million in 2025, in line with 2024.

On the financing and capital structure side of the business, the company completed a series of capital market and strategic transactions, many in the fourth quarter, to support the growth of our on and off-balance sheet businesses.

2025 included approximately $3.4 billion of capital and strategic activity for Willis and our affiliate businesses, including 3 transactions raising approximately $60 million of capital between March and April, $596 million of ABS financings through our WEST VIII transaction in June, a first time $750 million revolving credit facility at our Willis Mitsui joint venture in October, $392.9 million of ABS financing through our WEST IX transaction in December, a $600 million partnership with Liberty Mutual to support our fund business focused on loan and loan-like assets in December and a $1 billion-plus partnership with Blackstone Credit and Insurance to also support our fund business focused on operating lease assets and also in December.

We continually look to diversify our sources of funding and minimize our overall cost of capital. and have been successful accessing numerous markets over the years.

In 2025, we returned $8.7 million of capital to our shareholders in the form of common dividends. In November of 2025, we paid our sixth consecutive quarterly dividend at an increased rate of $0.40 per share. Subsequent to year-end, we declared and then paid in February our seventh consecutive regular quarterly dividend, which was at the higher $0.40 per share rate. Our recurring dividend provides shareholders with a moderate current cash yield on their investment while not degrading the strong cash flow of our business.

With respect to leverage, as defined as total debt obligations net of cash and restricted cash to equity inclusive of preferred stock, our leverage ticked lower over the year by over 0.5x to 2.97x at year-end 2025 from a 3.48x at year-end 2024. This level of leverage provides the company with flexibility to make opportunistic purchases and investments.

With that, I hand the call back to Austin.

Thank you, Scott. Putting it all together, 2025 was a terrific year from a performance perspective. But more importantly, we laid the groundwork for a long-term strategy using Willis Aviation Capital to accelerate growth in both assets under management as well as through our services businesses.

Thank you all for joining us today. And with that, I'll hand it back to the operator for Q&A.

[Operator Instructions] We'll take our first question from [ Zach ] with Buckley Capital.

Can you talk a little bit about your plans for seeding the Blackstone portfolio? How much of your own engines do you think you might end up selling into that entity?

Zach, good to hear from you. So we're not going to disclose specific amounts, but I will say that we do have a small seed portfolio that we intend to move over into both Blackstone and Liberty Mutual. But the lion's share of the assets that we expect to populate in these funds will be from origination in the marketplace.

Got it. And then the assets that you would be seeding those funds with, would there be a gain on sale associated with those, I'm assuming, if they're trading below fair market value?

Yes. I mean, I'd say it's consistent with other asset sales you've seen in the marketplace generally.

Got it. But you're not going to give the sort of direction or specificity around what percentage of the portfolio you might be selling into that?

Sure. Zach, it's Scott. No, we're not going to give an exact number. But as Austin said, there's materiality to the portfolio. And as I mentioned in my earlier comments about the value of the portfolio when we looked at the maintenance adjusted market values and the premium to the book values, we would expect to continue to see gains on the movement of those assets.

Got it. That's helpful. And then I guess maybe just a follow-up on that. For the engines that you will be buying for those portfolios, can you maybe talk about your competitive advantages in sort of sourcing those engines and buying at full on market prices?

Sure. So it's consistent with our business model generally. We've got a good relationship with the OEMs and we do have an order book with CFMI for LEAP engines. That's one source. Another source is buying from other leasing companies where we think we've got value-add on the power plant side. And a lot of that is aircraft for engine strategy.

And then lastly is programs. We've been very successful at originating high-volume, low-priced assets for programs because we're adding more value than simply the dollars that we're spending to acquire the asset. It's really helping them defer maintenance long term. So those are some key areas for us, and we expect to continue originating through those pathways.

We'll take our next question from Will Waller with M3F.

As it relates to Willis Aviation Capital and the Blackstone investment, you mentioned the $1 billion number. I'm curious if you can utilize the access that you guys have had to the asset-backed securities market to then lever that. You guys are probably pretty unique in that you have a much lower cost of funds given the success you've had and the history you've had in the asset-backed securities market. So just curious if that $1 billion could then be leveraged kind of as you've done with your own capital in the past, or how you're looking at that.

Sure. Thanks for the question I think one thing to note is when we talk about $1 billion plus, we're talking about $1 billion plus of metal. And therefore, the fund or the equity dollars themselves will be less than the $1 billion. And that $1 billion plus does contemplate the leverage on those assets. And yes, we are a regular issuer into the ABS market. So I wouldn't be surprised if ultimately debt financing was structured in a way that was not dissimilar from what you've seen historically.

Okay. Great. And then on the appraised value number, your stated common equity is about $662 million. You mentioned the appraised value in excess of what you carry them on the books at of your equipment is about $700 million. You then also mentioned the maintenance dynamic. Would that be reflected in the maintenance reserve liability related to long-term leases, where you haven't had those engines come back off lease? Or you'd add that in as well?

Sure. What I talked about was the $700 million, and that was looking at the disparity in the maintenance adjusted market value, the exercise that we go through every year on our entire portfolio and the book value of our assets adjusted for the maintenance reserves, right? Ultimately, those maintenance reserves will come back into the value of the assets.

What I said on top of that, and I did not quantify, was that we do have engines that are on long-term lease conditions that maybe are not paying a maintenance reserve, have an end of lease component or have a contractual return condition to come back following a full shop visit. That would all be incremental value above and beyond the $700 million disparity.

Okay. Great. And then your order book, there's nothing being factored into that for the order book. So the order book, if you have, say, prices for options to acquire LEAP engines at below current market value prices, that wouldn't be included in that $700 million as well, correct?

Correct, correct.

Okay. Great. And then as it relates to your long-term maintenance revenue, that number was down in the fourth quarter. And I realize it's lumpy given you only account for that as you get the engines back in your possession. I see that maintenance reserve liability increased by about $13.3 million from the third quarter of 2025 to the fourth quarter of 2025. Would it be safe to assume that had you gotten those back, your earnings would have almost been double what you reported, correct?

Sure. So I think you're highlighting a good point, right? The long-term maintenance reserve component is lumpy. We had in the fourth quarter of 2024, we had approaching $15 million in the fourth quarter of 2025, we had approximately $5 million. But when you look for the full year, we had in 2025 almost $45 million compared to $39 million or approaching $40 million in 2024. That is lumpy over time. But consistently, we see growth as the portfolio builds. So I think that is something, if you're thinking about modeling, you really have to normalize over time.

Yes. And to reiterate what Scott is saying, if you look at the annualized numbers for '24 and '25, the percentage or the proportion of long term relative to short term is pretty consistent.

Okay. Great. And then just one or two more quick ones. We saw on 8-K that you repurchased some shares during the fourth quarter. What are your views on share repurchases given it looks like you'll be going more towards an asset-light model, where I'm guessing the need for all the cash and the capital that you're generating may not be as significant going forward. How are you looking at repurchases?

So I'll first challenge the asset-light terminology, I think. I know it sounds a bit tongue-in-cheek, but I would probably call us asset medium. We've been the beneficiaries of owning assets on balance sheet for 40-plus years. And I think we've shown that we're good at it and it serves us quite well. So we're going to continue to grow to the extent that we can with respect to leverage.

I do think you're right. There is an opportunity to deploy the existing capital in Blackstone and Liberty Mutual and potentially not deploy as much on balance sheet. But that's not necessarily the strategy for us now. We're really pursuing growth on all fronts.

Okay. And then lastly, the engines that you guys wrote down related to Russia, we've seen most companies like AerCap and Air Lease recapture a lot of that value in the form of insurance claims. Are you guys -- do you still have any sort of insurance claims pending on that? Surprised we haven't seen anything. Just kind of curious as to an update on that.

Yes, we do. And for that reason, I can't go into too much detail. But I think if you look at some of the judgments that we've seen both in Europe and in the U.S., we feel pretty confident in what recovery is going to look like. But I'll kind of leave it there.

That will conclude our question-and-answer session. At this time, I'd like to turn the call back over to Austin Willis for any additional or closing remarks.

Only to say thank you for joining us today, and thank you for being shareholders. 2025 was a great year, and we look forward to 2026.

Thank you. That will conclude today's call. We appreciate your participation.

"

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" Wolfe Research, LLC

" M3F, Inc.

" Four Tree Island Advisory LLC

Good day, and welcome to the Willis Lease Finance Corporation Third Quarter 2025 Earnings Call. Today's call 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 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 call over to Austin Willis, CEO of Willis Lease Finance Corporation. Please go ahead.

Thank you, operator, and thank you all for joining us today to discuss Willis Lease Finance Corporation's Third Quarter 2025 Financial Results. On our call today, I am joined by Scott Flaherty, our Chief Financial Officer.

In the third quarter, WLSC continued our trend of strong financial performance. We delivered quarterly revenue of $183.4 million, a 25.4% increase year-over-year, reflecting sustained demand for our core leasing business and the strengthening aviation market as airlines continue to rely upon our leasing, parts and modules and maintenance services to minimize costly, time-consuming engine shop visits.

During the third quarter, WLSC purchased 16 engines and 6 aircraft for a lease portfolio, totaling approximately $136.4 million. This includes 12 engines from Air India Express. This expansion of our second constant thrust with Air India Group further demonstrates the success and value we have achieved for them as a customer. We also purchased 6 Dash 8-400 aircraft from Porter Aircraft Leasing Corp. and 4 PW1524G engines from RTX Corporation.

Our steady performance underscores the strong market we're in and how our platform and portfolio are well-positioned to return capital to our shareholders. We are declaring our seventh consecutive quarterly dividend, and we are increasing it to $0.40 per share, symbolic of our ongoing confidence in the strength of our business.

Taking a step back, I'd like to revisit the fundamentals of our business. 2025 has been an unusual year in that there have been multiple one-time events. Q1 was impacted by expenses related to our SAF project. The sale of our consulting business to our joint venture impacted our revenue in Q2, but the third quarter was indicative of the strength of our leasing business without the noise. A testament to that strength is the record leasing revenues produced in the third quarter, where leasing, maintenance reserve, and interest revenue totaled $156 million, a 32% increase from the same quarter in 2024.

At our core, we provide engines and services to our customers to address planning, financing, and maintenance needs. Demand for our engines remains robust and is evidenced by our average third-quarter utilization of approximately 86% and our lease rental factor of over 1%. Our engine shops continue to operate near capacity with the biggest limiting factor being engine testing capability, which we are addressing through our engine test cell development in Florida, Willis Global Engine Testing, just down the road from Pratt & Whitney.

As the cost of engine shop visits [indiscernible] and CFM56s continues to escalate, we are seeing more airlines considering shop visit avoidance strategies. I think this trend will accelerate as the OEMs begin to provide greater clarity on new aircraft delivery dates, giving airlines more confidence in timing their fleet transitions.

During the quarter, we also opened our new aircraft maintenance hangar in Teesside. These additional lines will provide us with the scale necessary to offer competitive products to airlines, and our new hangar space is already fully booked through the winter season.

Before I hand the call over to Scott to provide more detail on our financial results, I want to briefly welcome Pascal Picano to our team as Senior Vice President of Aircraft Leasing and Trading. Pascal is an industry veteran with experience in services, aircraft leasing, and, most recently, at an airline operator. Our vision is to be the premier partner in aviation propulsion, helping our customers connect the world through sustainable flight. The next logical step for us to become the best partner for airlines is to grow our aircraft leasing capability, where we can add value to our customers through engines and services. Pascal bolsters our intellectual capability on the airframe side to help take our existing aircraft leasing business to the next level.

As we near the end of 2025, we believe that we continue to be well-positioned to fulfill customers' increasing needs for lease engines as well as our own growth, as we continue to see good opportunities to deploy capital, thanks to our flywheel business model.

And with that, I'll hand it over to Scott Flaherty, our CFO, to discuss our financial performance in greater depth.

Thank you, Austin, and good morning, all.

Q3 2025 was another quarter of solid performance for Willis Lease as the business produced record core quarterly lease rent revenues of $76.6 million, record maintenance reserve revenue of $76.1 million, $16.1 million of gain on sale of leased equipment, continuing to highlight the unrecognized value of our lease portfolio, $43.2 million of earnings before tax or EBT for the quarter up 25% from the comparable period in 2024 and $22.9 million of net income attributable to common shareholders for the quarter, all while continuing to develop and vertically integrate our services platform in order to enhance our customer-focused leasing solution and experience.

Walking through the P&L as it relates to the top line, core lease rent revenue for the quarter was $76.6 million, up 17.9% from the prior comparable period, and interest revenue, which reflects interest income on long-term loan-like financing, was $3.4 million. The relative growth we see from the comparable quarter in 2024 was driven in part by an increase in our equipment held for operating lease, which sits at $2.70 billion as of September 30, 2025, but more so by our average portfolio utilization, which ticked up to 86.0% for the quarter from 82.9% from the comparable period in 2024. Our total owned portfolio is reflected on our balance sheet as equipment held for operating lease, maintenance rights, notes receivable and investments and sales type leases, which aggregate to $2.89 billion.

Average lease rate factors for on-lease operating lease assets in the portfolio were in line with the comparable period of 2024 at 1.04% and slightly up sequentially from the prior quarter. Maintenance reserve revenues for the quarter was $76.1 million, up $26.3 million or 52.8% from the prior comparable period. As you dissect these numbers, you can see that short-term maintenance reserve revenues associated with the cyclical and hourly usage of our engines came in at $46.6 million, negligibly down from $48.5 million in the comparable period of 2024, continuing to reflect the high level of asset usage by our customer base, which is represented in monthly, hourly and cyclical-related billings and long-term maintenance revenues generally associated with the release of maintenance reserve liabilities or end of lease payments came in at $29.5 million compared to $1.2 million in the comparable prior period.

Spare parts and equipment sales through our WASI business to third parties was $5.4 million in the third quarter compared to $10.9 million in the prior comparable period. This downtick in revenues is reflective of the fluctuations we see in spare parts sales as well as the fact that in Q3 2025, there were no discrete equipment sales and there were $1.0 million of such sales in the comparable prior year period. Q3 margins in spare parts and equipment sales were a negative $1.3 million and not typical of this segment due to a larger scrap expense. During the quarter and not reflected in the consolidated P&L were sales to our largest customer, Willis Lease, which demonstrates the value of our vertical integration efforts. WASI provides valuable feedstock supporting both the Willis and our customers' fleets. The recycling of these spare parts often occurs at one of our two engine MRO facilities, which are located in Coconut Creek, Florida and Bridgend, Wales.

Gain on sale of lease equipment, a net revenue metric, was $16.1 million in the third quarter, up $6.6 million or 69.5% from the comparable period. This gain was associated with gross sales of $73.7 million less economic closing adjustments. Included in this gain was the sale of 10 engines, 1 airframe and other parts and equipment from the lease portfolio. The implicit margin on these sales was 21.9% and is supportive of our view that there is substantial unrecognized value in our company's lease portfolio. Our trading efforts allow us to recycle capital for growth and maintain portfolio relevance. Maintenance services revenue, which represents our engine and aircraft storage and repair services and revenues related to the management of fixed base operator services decreased by $2.3 million to $3.6 million in the third quarter of 2025. 56% or $1.3 million of this reduction relative to the comparable period was related to the sale of our engine consulting business to our 50% owned joint venture, and we, therefore, did not directly recognize such revenues in the current period. Willis Lease through our 50% investment in our joint venture, Willis Mitsui still enjoys and benefits from such services. Gross margins were negative $1.5 million as we are still in the build-out stage of our aircraft line and base maintenance business.

On the expense side of the equation, depreciation and amortization of $28.7 million in Q3 increased by $5.0 million as compared to the prior year. Growth in depreciation was primarily attributed to portfolio growth and new off-lease assets going on initial lease, which starts their depreciation cycle through the P&L. To a lesser extent, accelerated depreciation, which is reviewed on an annual basis, also contributed to the increase in depreciation.

Write-down of equipment was $10.2 million for the quarter, representing impairment on 8 engines, 6 of which were moved to held for sale. In-period write-downs generally reflect older and unserviceable engines being positioned for monetization rather than a full performance restoration shop visit.

G&A was $49.2 million in the third quarter, up $9.2 million compared to $40.0 million in the comparable period in 2024. Increases in the overall G&A spend were mainly related to a $3.5 million increase in consultant fees influenced by our sustainable aviation fuel efforts relative to the comparable period in 2024 and $2.8 million of increased personnel costs, including $1.6 million of incentive compensation, which is derivative of business performance and $0.9 million of share-based compensation expense.

Technical expense, which consists of noncapitalized repairs, engine thrust rental fees, outsourced technical support services, sublease engine rental expense, engine storage and freight costs increased by $3.2 million to $8.4 million in the third quarter compared to $5.2 million in the prior year period. This increase was primarily due to an increased level of engine repair activity as the portfolio increases in size and utilization.

Net finance costs were up $9.3 million to $37.1 million in the third quarter compared to $27.8 million in the comparable period in 2024. The increase in costs was primarily related to an increase in indebtedness as total debt obligations increased from $1.99 billion at September 30, 2024, to $2.24 billion at September 30, 2025, and indebtedness throughout the third quarter was temporarily inflated due to our late Q2 WEST VIII financing, which had a delayed paydown of refinanced debt which is typical characteristic of this type of financing. $3.0 million of the increase was noncash in nature and related to the early paydown of indebtedness of our WEST IV and WEST VII transactions. Another $3 million was related to the contractual unwind of interest rate swap transactions on the back end of warehouse facility reductions associated with our late Q2 WEST VIII ABS capital raise. Offsetting the increase was a $3 million increase in interest income, driven by the larger restricted cash balances over the last quarter associated with our WEST VIII ABS financing.

Income from operations was $38 million, up 12.8% from the comparable prior period. The company also picked up $5.2 million in ratable earnings from our 50% ownership interest in our Willis Mitsui and Classic Willis joint ventures. EBT for the quarter was $43.2 million, up 25.4% from the comparable period in 2024. Income tax expense was $18.9 million, an ETR of 43.7%. The company's ETR differed from the 21% federal statutory rate, primarily due to Section 162(m) compensation treatment and recent tax law changes. The company's favorable tax position provides a significant cash tax shield for our business.

The company produced $22.9 million of net income attributable to common shareholders, which factors in GAAP taxes and the cost of our preferred equity. Diluted weighted average income per share was $3.25. Net cash provided by operating activities was $209.1 million through the third quarter of 2025 as compared to $216.4 million in the comparable period of 2024. The $7.4 million or 3.4% decrease in operating cash flows was primarily driven by a $23.2 million decrease in payments on sales-type leases, a period-over-period $28.1 million decrease in cash flow from changes in accounts receivable and a period-over-period $24.0 million decrease in cash flows from changes in accounts payable and accrued expenses. Partially offsetting the decreases was a period-over-period $52.1 million increase in cash flows from changes in inventory.

Cash flows used in investing activities were $108.2 million for the 9 months ended September 30, 2025, and primarily reflected $310 million for the purchase of equipment held for operating lease, partially offset by proceeds from sale of equipment, net of the selling expenses of $194.3 million. Cash flows used in investing activities were $455 million for the 9 months ended September 30, 2024. On a year-to-date basis, cash flows from financing activities were a net $62.4 million use of proceeds as compared to $175.6 million source of proceeds in the comparable period of 2024 as the company was in a net paydown position of debt for the quarter given the strong cash flow characteristics of the business.

On the financing and capital structure side of the business, during the quarter, the company unwound several swap positions for contractual requirements under its warehouse facility. At quarter end, 89% of our indebtedness was fixed rate and our weighted average cost of debt was 5.11%. We amended and extended our $500 million warehouse facility to provide the company with more favorable asset advance rates, reduced borrowing costs and extensions of the commitment period and final repayment date to May 3, 2027 and May 3, 2030, respectively. Subsequent to quarter end, we paid off our WEST IV ABS financing. The company continues to assess the broader capital markets to lower our cost of capital, spread refinance risk and diversify our capital sources.

In August, we paid our fifth consecutive regular quarterly dividend of $0.25 per share. Subsequent to quarter end, we declared our sixth consecutive regular quarterly dividend at an increased $0.40 per share rate, which is expected to be paid on November 26, 2025, to stockholders of record at the close of business on November 17, 2025. We believe that our ability to pay an increased recurring dividend speaks to the health of the business and provides our shareholders with a moderate current cash yield on their investment while not degrading the strong cash flow characteristic and equity growth of the business, which supports our overall growth.

With respect to leverage, as defined as total debt obligations, net of cash and restricted cash to equity, inclusive of preferred stock, our leverage ticked lower to 2.90x as compared to 3.48x at year-end 2024. The flexibility of our capital structure, our liquidity due to our $1 billion credit facility and $500 million warehouse facility as well as our current leverage profile provides us the flexibility to quickly and opportunistically access the market as we look to continue to build our lease portfolio and provide the best and most creative solutions to our customers.

With that, I will now open the call to questions. Operator?

[Operator Instructions] We'll move first to Louis Raffetto with Wolfe Research.

Scott, first, thanks for the clarification on the spares margin. I noticed that earlier. I guess it seems like the demand backdrop remains really strong. Austin, you mentioned about how the improving new aircraft delivery rates may help airlines get a better sense of how to sort of manage their current fleets. I think this will benefit you guys and your services offerings as airlines look to push out some of their full shop visits. But how do you see that potentially impacting legacy engine values, if at all?

Yes. Thanks. So there's a few things at play. But if the OEMs are able to increase aircraft at the rates that they're authorized to do, we think it's certainly going to provide some additional supply to the market, but it's still coming from a pretty big aircraft deficit. Keep in mind that there's something like 5,000 aircraft that are never going to be built between 2018 and 2030. That's a pretty big hole to dig out of. If you take that and divide it by the number of months between now and 2030, I think it's something like 80-some aircraft per month. So that's a long way to go.

Now that being said, if the airlines are able to ramp up significantly, that will add additional supply to the market. And I think it will hasten the retirement of the current generation aircraft, which could have some downward pressure on values. But it's also going to really play well into our services businesses and also the programs that we offer.

Like you mentioned, constant thrust for us where we do a sale leaseback and when an engine becomes unserviceable, we just replace it with one from our portfolio. Programs like that are really custom designed to help the airlines avoid having to make big expensive shop visits when they might only have a few years remaining on a lease. So I think that's a big part of it.

And then we've also made ourselves ready for when that transition does come. We think it's still a pretty long way out, but it's not a coincidence that we've got a little over 53%, 54% of our portfolio is in future generation equipment. So that's LEAPs, GTS, GEnx. So the goal is really to ensure we always have the most in-demand asset types for our customers long term.

We'll take our next question from Will Waller with M3F.

I've got a few questions. First, the common equity increased by $32.3 million based on my calculation, but reported earnings for common shareholders were only $22.9 million. You also paid out a $1.7 million dividend during the third quarter. So just curious if you could reconcile the difference there for me.

Sure. I think that walking through the different components that we have, Will, on the rec table that we have. I think that the different pieces that we have are obviously the net income that we have of $24 million. Then we're also going to have different components of paid-in capital, such as stock-based compensation expense. And when you aggregate those as well as the other small changes, we'll get to the number that you're referring to, Will. I could walk you through, if you want, on a very detailed basis in our schedule of our Q that comes out a little bit later today, all of those on a line-by-line item basis, if that's helpful.

Okay. Great. It might be helpful in the future to issue your 10-Q before you have this call because I think a lot of numbers you went through, there were so many of them. It was very hard to understand them. But my next question is on the general and administrative expense. It was $49.2 million versus if I just look at last quarter, second quarter of 2025, it was $50.4 million. So it was down by about $1.2 million. But last quarter, included in that was the severance related to your General Counsel of $6.8 million. And if I recall correctly, the reimbursement of the grant related to the SAF project of $6.2 million. So there was a fairly substantial increase in G&A costs. You walked through a couple of those items. But quite honestly, I was pretty confused by the numbers. Can you walk through and kind of walk us through what the compensation component line item of that was this quarter?

Sure. When you look at the compensation line item, I think if you reflect on the numbers that I discussed on the call, I was really comparing quarter-over-quarter numbers. So Q3 '24 as compared to Q3 '25. I think when you look at those numbers for the third quarter, incentive compensation, which is derivative of the company's performance was up about $1.6 million to $7.5 million as looking at Q3 '25 compared to Q3 '24. Share-based compensation, which, as you know, we've made changes to how we do share-based compensation earlier this year to reflect the increased share price that we have. And as we've discussed in the past, the effect of those changes in share-based compensation will wean off over the next several years, but they are noncash in basis -- they are noncash basis. Share-based compensation was $11.2 million or $11.3 million in the third quarter of '25, up $900,000 from $10.3 million in the same quarter of the prior year.

And then all in personnel expenses, right, which those numbers were a part of because we've increased headcount as we've built out the business, was $32 million in the third quarter of '25 compared to $29.2 million in the third quarter of '24, so up $2.7 million.

Will, if I can add something to what Scott said, and forgive me for being a little bit redundant. But the stock-based comp is - it appears a little bit high because of the way we used to deliver our long-term equity awards. And I know Scott kind of touched on this. But historically, we would fix the quantity of shares but not grant them until the end of the performance period. And this resulted in increased expense if the stock price appreciated before that grant date, very much like it did in 2024. So even though it's not a cash expense, it will still take a few years to run off the P&L.

And as Scott mentioned, we since rectified this by actually granting our shares at the beginning of the performance period, allowing them to be canceled if targets aren't met, which we understand is more commonplace. So I hope that helps.

And Will, and not to just maybe give you a little bit more because you mentioned the sequential performance. If you looked at the personnel expenses that I referenced on a quarter-over-quarter basis, sequentially, those personnel expenses went down a little over $8 million.

Okay. I'll study it a bit more in the 10-Q. There just isn't enough information in the press release to - the numbers just seem extremely high as they have for several quarters now. And then could you also walk through again the income tax expense of $18.9 million? Could you walk through what the Section 162 compensation treatment is and how that affected the tax levels?

Sure. Well, it's actually several items that affected the tax. So I think if you look at the third quarter, you're going to see a higher tax rate. Now that higher tax rate is temporary, and it was affected by - as it has been in the past by 162(m), but it was also affected by tax law changes. So the One Big Beautiful Bill, which had its benefits as long-term benefits, but it had a negative effect in the quarter on a net basis. So the long-term benefits are the bonus depreciation, which it introduced and we are taking advantage of in the quarter. But it also had -- and I don't want to get too nuanced on tax, but with respect to the GILTI and the 250 deductions, it had a negative effect in the quarter. . And that was because the One Big Beautiful Bill was implemented in July, so in Q3 of this year. I think as you look at the rest of the year and how the year will play out on a tax basis, you'll see more of a reversion to where we are on a year-to-date basis on a tax rate as opposed to where we were in Q3. Q3 is an anomaly. And I would say the anomalous characteristics of Q3 were more geared towards the tax law change rather than the 162(m) nuance.

Okay. And then one last question. You guys have about $650 million of stated common equity. At the end of 2024, you had about $600 million in value of engines that's not reflected in stated equity. And I would assume that's probably gone higher since the end of 2024. So if I just add the two of those together, I get well above $1.2 billion in value. If I look at the value of the company in the market today, it's about $850 million. So what are your views on the share repurchases?

Yes. So Will, I'll just say essentially what I've said in the past with this. We're always looking at ways to maximize shareholder value. Share repurchases are something that we have done in the past, and we would consider doing in the future. But we do appreciate that you acknowledge the inherent value in our portfolio relative to market, we agree.

Great. And that doesn't factor in you've got also an order book that should have quite a bit of value to it, it seems like. So we've seen AerCap and some others that have really walked through the math and then executed on it, and it seems like the market has really rewarded them for doing such.

We'll take our next question from Eric Gregg with Four Tree Island Advisory.

Congratulations on the strong top line and pre-tax earnings results for the quarter. I have three questions. First one I'll start with is for you, Scott. This is the third quarter in a row of a multimillion dollar write-down. Year-to-date, the write-downs are up, I think if my math is right, 26x the same year-to-date period in 2024. Keeping in context and what Will just said, a $24 million write-down is not a lot compared to $200 million higher appraised value you talked about at the beginning of the year on the year-end revaluation of the portfolio. But it's three quarters in a row of multimillion dollar write-downs. Is this just the new norm? Or why is it really so much higher this year, just from a higher level? And why are we seeing these write-downs so frequently?

So Eric, good to hear from you, and I appreciate the question. This is Austin, by the way. Let me jump in and field it quickly and then Scott can provide a bit more color. But write-downs are a little bit different in the engine space than they are in the aircraft space as it pertains to assets coming off of a long-term lease and just how reserves are treated and how impairments are treated. In this last quarter, we had a handful of engines coming off lease, the majority of which were in China, I believe. And we took some write-downs as we move those to held-for-sale as we look to take those assets and deploy them elsewhere. So that's a lot of what it is. But Scott, would you like to add to that?

Yes. I mean I don't think there's that much, Eric, to add to that other than, obviously, as you see increased utilization and increased run rate of these engines and short-term maintenance reserves as well. Engines are being utilized more. And at the end of the lease, quite often as we move an engine to the extent we're not moving it to a full performance shop visit restoration, you could see some incremental write-down. But the incremental write-downs pale in comparison to the short-term maintenance and long-term maintenance reserves that you're seeing.

Yes. And again, oftentimes, at the end of the lease, you'll have EOL comp, which will go to long-term reserves and go to revenue. And then oftentimes, you'll also have commensurate write-downs associated with the value of the asset.

My other two questions, I'll just give them both right now. Austin, you talked about taking aircraft leasing to the next level with Pascal hire. Is the plan to ramp up investment in aircraft and specifically aircraft leasing and start tilting more that way than engines? And so that's one question. Then the second question is about your SAF effort. Saw the press release about Wilton International being chosen for your SAF project. As I understand that building out a 14,000-ton SAF facility would cost a few hundred million dollars. And the question is, what is Willis' intention in terms of funding that? Is it having third parties providing the bulk of that? And if that's the case, how are those conversations going?

Yes. So on the aircraft leasing front, we are looking to get more involved in aircraft leasing, but we've been in aircraft leasing for a long time. We're certainly not looking to change the strategy. It's really just taking our existing strategy and expanding it. So right now, we've got, I believe, 20 aircraft, and we'd like to grow that. But it's -- we've got no intention of becoming sort of the next AerCap or Air Lease or NAVAIR, big aircraft leasing company. We want to get more into aircraft leasing where we can add value to the customers.

And ConstantThrust, which I mentioned earlier, is a great example of that. It's really -- it's an aircraft lease, but what we're really doing is leasing engines and managing the maintenance of those engines within the context of an aircraft lease. So that's what we're planning to do. We will invest more heavily in this. But again, I wouldn't see it as a divorce from what we've done in the past. It's really just growing what we already do in a more thoughtful way.

On the SAF side, yes, we did sign the lease for Wilton, and we're excited about that. It's a good site that's got a lot more infrastructure to be able to support the plant when we do get to the point of final investment decision and look to start developing it. We've got stage gates that we have in place that kind of take us from where we are now to really considerable additional expense for when the development does happen. But the intent is to invest not just on behalf of ourselves as equity, but to solicit third-party equity as well. I can't tell you exactly what that percentage or ratio is going to look like yet, but it's going to be on a conservative risk basis, I'll put it that way.

Thank you. That will conclude our Q&A session and the Willis Lease Finance Corporation's third quarter 2025 earnings conference call. We appreciate your participation. You may now disconnect.