WILLIS LEASE FINANCE CORP Q3 FY2026 earnings call

• Strategic Growth & Capital Deployment: The company is executing a strategy to expand its platform through services, managed capital, and balance sheet investment. Assets under management grew 10% quarter-over-quarter to $4.9 billion, while the on-balance sheet portfolio grew 12% to surpass $3 billion.
• Portfolio Expansion: In August, the company acquired 12 commercial aircraft and 13 aircraft engines. The seeding phase of the fund strategy (Willis Aviation Capital) is complete, allowing for a renewed focus on building the on-balance sheet portfolio.
• Service Infrastructure Investments: Plans are underway to replicate the engine repair center model in Asia with the purchase of land for a new Willis Engine Repair Center (WORC) in Malaysia. Additionally, the company acquired a new facility in South Florida to consolidate parts business (WASI), MRO operations (WorkUS), and corporate headquarters.
• Partnerships & Liquidity: A long-term engine storage agreement was signed with Pratt & Whitney. The company also entered into a $35 million preferred stock purchase agreement with the Development Bank of Japan, bringing total Series B preferred stock to $100 million.
• Shareholder Returns: The quarterly dividend was increased by 12.8% to 15 cents per share. The board approved an expanded share repurchase program of up to $200 million through December 31, 2031.
• Market Dynamics: Despite high fuel prices and interest rates, demand remains strong. The fleet is modernizing, with nearly 60% now consisting of modern technology engines (LEAP, GTF, GENX), which influences maintenance reserve recognition patterns.

The company reported total revenues of $246.3 million, with lease rent revenues reaching a record $84.4 million (up 10.2% year-over-year). Maintenance reserve revenues decreased to $39.3 million from $76.1 million in the prior period, primarily due to lower long-term reserves associated with engines coming off leases. Spare parts and equipment sales totaled $98.1 million, a significant increase from $5.4 million in the comparable prior period, driven by spare parts sales of $9.1 million and equipment sales of $89.1 million. Maintenance services revenue grew 208.5% to $11.2 million, though it resulted in a negative gross margin of $1.7 million for the quarter. Management and advisory fees increased 140% to $4.5 million.

• No specific quantitative forward-looking financial guidance (such as full-year EPS or revenue targets) was provided in this transcript.
• Management indicated that on-balance sheet growth will react favorably to modest amounts of growth now that the fund seeding phase is complete.
• Expectations for the effective tax rate for the full year 2026 are estimated at 28%, excluding a one-time charge related to Florida legislative changes.
• Management expects to deploy capital within the two-year investment phase of their funds, anticipating more opportunities to acquire attractive assets at good values in 2027.

• Macroeconomic Pressures: High fuel prices, high interest rates, and geopolitical risks continue to challenge the aviation sector, potentially influencing operators to park older, less fuel-efficient aircraft.
• Maintenance Reserve Recognition: Revenue recognition for long-term maintenance reserves is delayed until the end of the lease, creating a disconnect between cash flow and P&L impact, especially as the portfolio shifts toward newer tech engines on longer-term leases.
• Asset Impairment: The company recorded a $4.5 million write-down of equipment reflecting the impairment of three engines post-lease return.
• Tax Policy Changes: A one-time tax charge was incurred due to Florida's decision not to adopt certain federal tax law changes, highlighting exposure to regional legislative risks.

Q: Analyst Angelina Chow asked about demand across the engine portfolio and how the company should think about the pace of deployment between the balance sheet and managed third-party capital given available dry powder. / A: CEO Austin Willis stated that demand is consistent across the portfolio with lease rates remaining largely flat. Regarding deployment, he outlined a 'thirds' allocation strategy: one-third to joint ventures, one-third to the Blackstone fund, and one-third to the balance sheet. Since the seeding phase for the funds is largely complete, future origination will have a more direct impact on on-balance sheet growth compared to the first half of the year when assets were moved into seeded funds.

Q: Analyst Will Waller inquired about the drivers behind the significant increase in the long-term maintenance reserve liability on the balance sheet ($201.7 million vs $129.3 million) despite low revenue recognition, and whether the 60% 'new tech' statistic refers to unit count or dollar value. / A: CFO Scott Flaherty explained that the liability increase was driven by acquisitions (specifically the WNG transaction) and organic cash collections; year-to-date net cash provided by maintenance reserves rose 72% to $27.8 million. This reflects a shift toward newer tech assets on longer-term leases where cash flows occur but revenue recognition is deferred. CEO Austin Willis clarified that the 60% figure refers to the dollar amount of the portfolio carried on the balance sheet, not the number of engines.

Q: An analyst from Buckley Capital asked about the pacing of the Blackstone portfolio build-out and when the accumulated maintenance reserves would be released into the income statement. / A: Austin Willis noted that deployment depends on market opportunities in 2027, expecting quick action if attractive assets appear, though deployments can be lumpy. Scott Flaherty added that recognizing these reserves is timing-dependent based on lease terms and extensions; while cash flow is realized currently, the revenue recognition happens over the lease life, making precise timing difficult to predict.

Q: Will Waller asked if convertible debt buybacks would fall under the new $200 million share repurchase authorization and requested commentary on unrealized gains given recent appraisal data. / A: Scott Flaherty clarified that buying back convertible debt in the open market is separate from the common stock repurchase program and does not consume that $200 million authorization. He stated that capital allocation decisions (buying shares vs. debt vs. new assets) are made case-by-case for best returns. Regarding valuations, he expected no material difference in unrealized gain percentages compared to last year's appraisals, noting stable market movements.

Q: Will Waller followed up on the mix of long-term versus short-term leases. / A: Austin Willis confirmed that the split remains roughly 50-50, unchanged from historical trends.