Willis Lease Finance Corporation (WLFC) Earnings

Management highlights

- Overall Portfolio and Strategic Progress - Continued strong operational and financial momentum, with significant AUM growth driven by the expansion of the third-party asset management business - 60% of the consolidated portfolio by net book value consists of modern technology engines (LEAP, GTF, GENX), reflecting multi-year investments in modern fleet platforms; older CFM56 and V2500 engines remain major contributors to the bottom line - Completed the majority of seeding for the Blackstone Fund, Liberty Mutual Fund, and Willis-Mitsui joint venture; future growth will come primarily from third-party asset purchases - Has approximately $1.3 billion in additional deployable capital in discretionary funds, plus undrawn revolver capacity, with a low leverage ratio of 2.78x providing ample strategic flexibility - Declared a split-adjusted quarterly dividend of 13.3 cents per share, maintaining the prior dividend level post 3-for-1 stock split; inclusion in Russell 2000 indices has increased dollar trading volume by 82% YoY in 2026, improving shareholder liquidity - M&A and Acquisitions - Increased M&A focus in 2026, with most transactions structured as purchases of special purpose vehicles (SPVs) that own underlying assets, to avoid lengthy novation processes required for direct asset sales; this allows acquisition of assets at attractive prices but adds transaction costs and complexity, which are factored into investment decisions - Announced two recent SPV acquisitions: 1) three Airbus A330-300 aircraft leased to China Airlines and Eva Air (closed June 2026), 2) definitive agreement to acquire entities owning 12 additional commercial aircraft and 13 aircraft engines (signed July 2026) - Operational Updates - Awarded a major long-term engine storage agreement by Pratt & Whitney following audits; services will be provided at existing US and UK facilities, with advanced discussions underway to open a new maintenance/repair center in Asia - The Constant Thrust product and 'hospital shop visit' maintenance model (an alternative to costly full overhauls) is positioned to benefit from the industry-wide phase-out of older aircraft and engines in favor of modern technology - Issued $200 million of 2.5% convertible senior notes due 2031 in May 2026 (the company's first unsecured debt issuance), with proceeds used to delever the revolving credit facility and increase strategic flexibility; notes convert at a 40% premium to the split-adjusted share price at issuance and are immediately accretive to earnings

Guidance

- No formal full-year earnings guidance was provided in the call. Management confirmed that after completing portfolio seeding for its existing discretionary funds, it expects to return to balanced AUM growth through the closing of its current transaction pipeline. - Management expects share-based compensation expense to continue declining following 2025 program changes, approaching 50% of estimated 2026 costs by 2028. - The company's long-term strategy is to build out its third-party asset management business as a sustainable core line of business, with plans to raise additional larger funds after deploying capital in the current Blackstone and Liberty Mutual funds.

Segment performance

Total company revenue for Q2 2026 was $194 million, with adjusted EBITDA of $120.7 million (up 4% YoY), earnings before tax (EBT) of $38.1 million, and net income attributable to common shareholders of $28.7 million. Total assets under management (AUM) grew 21% YoY from $3.6 billion in Q2 2025 to $4.4 billion in Q2 2026, with 67% of AUM held on-balance sheet. 1. Leasing: Lease rent revenue was $77.1 million, up 6.7% YoY, with on-balance sheet portfolio book value of $2.96 billion at quarter end. Average portfolio utilization was 85%, down from 87.2% YoY, while average lease rates ticked up to 1.03% from 1.0% YoY. Maintenance reserve revenue totaled $46.5 million, down from $50.7 million YoY; short-term maintenance reserves were $39 million (down from $50.2 million YoY), while long-term maintenance reserves were $7.5 million (up from $0.5 million YoY). Gain on sale of lease equipment was $32 million, up $4.6 million YoY, from the sale of 21 engines and other equipment for $224.8 million (14.2% gross margin). 2. Willis Aviation Capital (WAC): WAC AUM grew nearly 80% YoY to $1.4 billion in Q2 2026, contributing $5.5 million in management and advisory fees (up 113% YoY). 3. Services: Maintenance services revenue grew 11.9% YoY to $9 million, driven by growth in engine and aircraft storage. Spare parts and equipment sales were $21.2 million, down from $30.4 million YoY: spare parts sales were $11.1 million (up 19.7% YoY, 10% gross margin), while equipment sales were $10.1 million (down from $21.1 million YoY, 49% gross margin trading profit).

Risks & headwinds

- Geopolitical uncertainty from the war in Iran has reduced aircraft and engine transaction volume, though it has not impacted demand for the company's assets; the conflict also contributed to elevated fuel prices that reduced flight hours for older, less fuel-efficient aircraft platforms, lowering short-term maintenance reserve revenue in the quarter. - Acquiring assets through SPV M&A transactions introduces additional transaction costs and complexity compared to direct asset purchases, which increases general and administrative expenses. - Older engine platforms (CFM56, V2500) face eventual phase-out as the industry transitions to more fuel-efficient modern engines, which will reduce their contribution to revenue over time. - Portfolio valuations are granular, with individual assets carrying varying degrees of embedded gain relative to book value, not uniform across the entire portfolio.

Analyst Q&A

• Q: The analyst asks about the composition of assets sold into special purpose vehicles for the firm's funds, and whether current book values of the company's portfolio are meaningfully understated relative to market values, similar to peer firm AirCap. /

  A: Management confirms the asset composition of SPV-seeded assets matches the broader company portfolio, with finance/loan assets primarily migrated to the Liberty Mutual fund. Sales of $224 million in seeded assets produced a $32 million (14.2%) gain, and industry appraisals indicate the full portfolio's market value is roughly 20% above current book value, with high single-digit to near 50% gross margins on recent equipment and spare parts sales, confirming this understatement. While valuations vary by individual asset, the broad trend of embedded value holds consistent with AirCap's experience.

• Q: The analyst asks about future growth capacity for the asset management business, institutional demand for WLFC's products, and plans for additional future funds. /

  A: Management confirms strong inbound institutional demand for WLFC's asset management products, with the current Blackstone and Liberty Mutual funds not intended as one-off transactions, but as the foundation of a long-term core asset management strategy. The firm's current focus is deploying the capital already raised, but it plans to pursue additional, larger fund raises after deploying current capital to deliver premium returns to investors.

• Q: The analyst asks if aviation market uncertainty and higher fuel prices have shifted the company's long/short-term lease mix away from the historical 50/50 split, following industry reports of increased demand for shorter duration leases. /

  A: Management confirms the lease mix remains approximately 50% long-term and 50% short-term, with only a marginal reduction in average lease term that is not tied to market uncertainty. A higher share of new leases are being written as long-term agreements, which is a byproduct of the ongoing modernization of the company's portfolio, not a response to recent market conditions.