Willis Lease(US:WLFC)2024-05-03 10:31Part I - Financial Information This section presents the company's unaudited condensed consolidated financial statements and related management discussion and analysis Condensed Consolidated Financial Statements The company reported Q1 2024 total revenue of $119.1 million and net income of $20.0 million, driven by increased maintenance reserve revenue and equipment sales Condensed Consolidated Balance Sheets This section presents the company's financial position, detailing assets, liabilities, and equity at specific points in time Balance Sheet Items (In thousands) | Balance Sheet Items (In thousands) | March 31, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $7,622 | $7,071 | | Equipment held for operating lease, net | $2,130,327 | $2,112,837 | | Total assets | $2,674,462 | $2,652,344 | | Liabilities & Equity | | | | Debt obligations | $1,735,570 | $1,802,881 | | Total liabilities | $2,162,689 | $2,163,417 | | Total shareholders' equity | $461,797 | $438,963 | | Total liabilities, redeemable preferred stock and shareholders' equity | $2,674,462 | $2,652,344 | Condensed Consolidated Statements of Income This section outlines the company's financial performance over a period, showing revenues, expenses, and net income Income Statement Items (In thousands) | Income Statement Items (In thousands) | Three months ended March 31, 2024 | Three months ended March 31, 2023 | | :--- | :--- | :--- | | Total revenue | $119,083 | $89,535 | | Total expenses | $91,865 | $81,537 | | Income from operations | $27,218 | $7,998 | | Net income | $20,869 | $4,394 | | Net income attributable to common shareholders | $19,957 | $3,572 | | Diluted weighted average income per common share | $3.00 | $0.55 | Condensed Consolidated Statements of Cash Flows This section details the sources and uses of cash from operating, investing, and financing activities Cash Flow Items (In thousands) | Cash Flow Items (In thousands) | Three months ended March 31, 2024 | Three months ended March 31, 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $59,827 | $51,871 | | Net cash used in investing activities | ($63,764) | ($64,282) | | Net cash used in financing activities | ($69,850) | ($12,100) | | Decrease in cash, cash equivalents and restricted cash | ($73,787) | ($24,511) | | Cash, cash equivalents and restricted cash at end of period | $94,242 | $64,505 | Notes to Condensed Consolidated Financial Statements This section provides detailed disclosures and explanations supporting the condensed consolidated financial statements - As of March 31, 2024, the company's operating lease portfolio included 337 engines, 14 aircraft, and one marine vessel, with a total net book value of $2.13 billion38 - The company has two reportable segments: Leasing and Related Operations, and Spare Parts Sales. For Q1 2024, the Leasing segment generated $27.9 million in income from operations, while the Spare Parts Sales segment had a loss of $0.7 million7678 - Total debt obligations stood at $1.74 billion as of March 31, 2024, secured by virtually all of the company's assets. The company was in full compliance with all financial covenants4750 - The company utilizes interest rate swaps to hedge against interest rate volatility on its variable rate debt. As of March 31, 2024, the net fair value of these swaps was a $15.2 million asset5155 - The effective tax rate for Q1 2024 was 30.2%, compared to 35.7% for Q1 2023. The rate differs from the 21% U.S. federal statutory rate primarily due to limitations on the deductibility of executive compensation58 Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes Q1 2024 revenue growth to maintenance reserve and equipment sales, managing finance costs, and maintaining strong liquidity Results of Operations This section analyzes the company's revenue and expense drivers, explaining changes in operational performance Revenue Breakdown (In thousands) | Revenue Breakdown (In thousands) | Q1 2024 | Q1 2023 | % Change | | :--- | :--- | :--- | :--- | | Lease rent revenue | $52,881 | $53,220 | (0.6)% | | Maintenance reserve revenue | $43,870 | $23,498 | 86.7% | | Gain (loss) on sale of leased equipment | $9,201 | ($133) | nm | | Total revenue | $119,083 | $89,535 | 33.0% | - Maintenance reserve revenue increased by $20.4 million (86.7%), driven by $6.3 million in long-term maintenance revenue from engines coming off lease and a significant increase in short-term usage fees93 - The company sold eight engines from its lease portfolio, resulting in a net gain of $9.2 million in Q1 2024, compared to a net loss of $0.1 million from selling two engines in Q1 202396 - Net finance costs increased by $4.6 million (25.1%) to $23.0 million, primarily due to higher short-term interest rates and costs associated with the new 8.0% fixed-rate WEST VII notes105 - Technical expense increased by $3.9 million to $8.3 million, driven by a higher level of engine repair activity and industry-wide demand104 Financial Position, Liquidity and Capital Resources This section discusses the company's financial health, cash flow, debt compliance, and future capital commitments - Cash provided by operating activities increased by 15.3% to $59.8 million in Q1 2024, up from $51.9 million in Q1 2023, mainly due to higher maintenance reserve revenue collections109 - The company invested $62.8 million in equipment for its operating lease portfolio during Q1 2024110 - As of March 31, 2024, the company was in full compliance with all debt covenants, including its Interest Coverage Ratio and Total Leverage Ratio requirements115 - The company has contractual commitments to purchase 26 new LEAP engines for $445.2 million by 2027 and has future overhaul commitments ranging from $88.5 million to $121.5 million by 2030117118 Quantitative and Qualitative Disclosures About Market Risk Primary market risk is interest rate fluctuations on variable-rate debt, with minor impact after hedges, and currency devaluation risk from non-U.S. lessees - The primary market risk exposure is interest rate risk on $290.0 million of outstanding variable rate debt as of March 31, 2024122 - A one percent change in interest rates on variable rate debt would result in an estimated annual interest expense change of $0.1 million, net of interest rate swaps122 - The company is exposed to currency devaluation risk, with 69% of lease rent revenues in Q1 2024 originating from non-United States domiciled lessees124 Controls and Procedures Management concluded disclosure controls were effective as of March 31, 2024, with no material changes to internal control over financial reporting - The CEO and CFO concluded that as of March 31, 2024, the company's disclosure controls and procedures were effective125 - There were no changes in internal control over financial reporting during the fiscal quarter ended March 31, 2024, that materially affected, or are reasonably likely to materially affect, internal controls127 Part II - Other Information This section provides additional disclosures not covered in the financial statements, including risk factors and equity transactions Risk Factors The company reported no material changes to the risk factors previously disclosed in its Annual Report on Form 10-K for the year ended December 31, 2023 - There have been no material changes in the company's risk factors from those discussed in the Annual Report on Form 10-K for the year ended December 31, 2023130 Unregistered Sales of Equity Securities and Use of Proceeds The company did not repurchase any of its common stock during the three months ended March 31, 2024. The existing common stock repurchase plan, allowing for up to $60.0 million in repurchases, remains in effect through December 31, 2024 - No shares were repurchased during the three months ended March 31, 2024131 - The Board of Directors approved the renewal of the common stock repurchase plan in October 2022, authorizing up to $60.0 million in repurchases through December 31, 2024131 Other Information The company disclosed that Executive Chairman Charles Willis terminated a Rule 10b5-1 trading arrangement on February 9, 2024. The plan, adopted on September 6, 2023, had provided for the potential sale of up to 50,000 shares of common stock - Executive Chairman Charles Willis terminated a Rule 10b5-1 trading arrangement on February 9, 2024. The plan was originally adopted on September 6, 2023, for the sale of up to 50,000 shares132