Willis Lease(WLFC) - 2025 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Condensed Consolidated Financial Statements (Unaudited) The unaudited condensed consolidated financial statements for Q1 2025 present key financial positions and performance metrics Condensed Consolidated Balance Sheets The balance sheet as of March 31, 2025, reflects total assets of $3.27 billion and liabilities of $2.65 billion Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Total Assets | $3,274,633 | $3,297,196 | | Equipment held for operating lease, net | $2,597,792 | $2,635,910 | | Cash and cash equivalents | $32,356 | $9,110 | | Total Liabilities | $2,645,953 | $2,684,736 | | Debt obligations | $2,231,593 | $2,264,552 | | Total Shareholders' Equity | $565,488 | $549,338 | Condensed Consolidated Statements of Income Total revenue for Q1 2025 increased 32.5% to $157.7 million, but net income declined due to increased expenses Statement of Income Summary (in thousands, except per share data) | Metric | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Total revenue | $157,732 | $119,083 | | Lease rent revenue | $67,739 | $52,881 | | Maintenance reserve revenue | $54,859 | $43,870 | | Spare parts and equipment sales | $18,240 | $3,288 | | Total expenses | $133,829 | $91,865 | | General and administrative | $47,720 | $29,581 | | Net income attributable to common shareholders | $15,476 | $19,957 | | Diluted weighted average income per common share | $2.21 | $3.00 | Condensed Consolidated Statements of Comprehensive Income Total comprehensive income for Q1 2025 was $12.3 million, reflecting net income offset by other comprehensive losses Comprehensive Income Summary (in thousands) | Item | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Net income | $16,869 | $20,869 | | Other comprehensive loss | $(4,535) | $(1,114) | | Total comprehensive income | $12,334 | $19,755 | Condensed Consolidated Statements of Redeemable Preferred Stock and Shareholders' Equity Shareholders' equity increased to $565.5 million by March 31, 2025, primarily due to net income and stock-based compensation - Key changes in shareholders' equity for Q1 2025 included net income of $16.9 million, other comprehensive loss of $4.5 million (net of tax), stock-based compensation of $6.9 million, and payment of common and preferred dividends totaling $3.2 million[23] Condensed Consolidated Statements of Cash Flows Net cash from operations was $41.0 million in Q1 2025, with investing providing cash and financing using cash Cash Flow Summary (in thousands) | Cash Flow Activity | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $41,013 | $59,827 | | Net cash provided by (used in) investing activities | $13,689 | $(63,764) | | Net cash used in financing activities | $(38,111) | $(69,850) | | Increase (decrease) in cash | $16,591 | $(73,787) | Notes to Condensed Consolidated Financial Statements The notes detail accounting policies, portfolio, debt, and segment performance, highlighting key financial commitments - The financial statements are prepared in accordance with U.S. GAAP for interim reporting and do not include all disclosures required for annual statements. Management asserts that all necessary adjustments for a fair presentation have been included[33] - As of March 31, 2025, the company had a total of five engines with a net book value of $43.5 million on lease with China-based lessees. Additionally, its joint ventures had five engines with a net book value of $38.9 million on lease with China-based lessees[38] - The company's lease portfolio as of March 31, 2025, was valued at $2.6 billion and included 347 engines, 15 aircraft, and one marine vessel[41] - In March 2025, the company formed a new joint venture, Willis Global Engine Testing ("WGET"), with Global Engine Maintenance, holding a 70% interest. The company made an initial capital contribution of $1.6 million[46] - As of March 31, 2025, the company had $1.1 billion in purchase commitments for equipment expected to be satisfied within five fiscal years[63] - The company has two reportable segments: Leasing and Related Operations, and Spare Parts Sales. For Q1 2025, Leasing and Related Operations generated $22.6 million in operating income, while Spare Parts Sales generated $1.4 million[88][91] - Subsequent to the quarter end, on April 23, 2025, the company closed a JOLCO (Japanese operating lease with call option) transaction that provided $19.8 million in financing. On April 30, 2025, the Board declared a quarterly dividend of $0.25 per common share[95] Management's Discussion and Analysis of Financial Condition and Results of Operations Management's discussion highlights Q1 2025 revenue growth, offset by increased G&A expenses, while maintaining strong liquidity - The company's core business is leasing commercial aircraft and engines. As of March 31, 2025, its portfolio included 347 engines and 15 aircraft, with a total value of $2.6 billion in equipment held for operating lease[98] - The company is evaluating the potential impact of the high interest rate and inflationary environment, as well as new or increased tariffs, on its business and financial position[101] Results of Operations Q1 2025 revenue grew 32.5% to $157.7 million, driven by lease and parts sales, but net income declined due to increased expenses Revenue Changes: Q1 2025 vs Q1 2024 | Revenue Category | Q1 2025 (in thousands) | Q1 2024 (in thousands) | % Change | | :--- | :--- | :--- | :--- | | Lease rent revenue | $67,739 | $52,881 | 28.1% | | Maintenance reserve revenue | $54,859 | $43,870 | 25.0% | | Spare parts and equipment sales | $18,240 | $3,288 | 454.7% | | Total revenue | $157,732 | $119,083 | 32.5% | - General and administrative expenses increased by $18.1 million (61.3%), primarily due to an $11.4 million increase in consultant-related fees for the company's sustainable aviation fuel project and a $4.3 million increase in personnel costs[117] - Net finance costs increased by $9.1 million (39.5%) due to a higher level of debt and a higher weighted average borrowing cost[119] - The effective tax rate for Q1 2025 was 33.2%, up from 30.2% in Q1 2024. The rate is higher than the 21% federal statutory rate primarily due to limitations on the deductibility of executive compensation[120] Financial Position, Liquidity and Capital Resources As of March 31, 2025, the company maintained $32.4 million in cash, generated $41.0 million from operations, and complied with debt covenants - Cash flow from operations decreased by $18.8 million (31.4%) YoY, primarily due to changes in accounts payable and inventory, reflecting significant inventory purchases in the prior period to meet high demand for spare parts[123] - At March 31, 2025, the company was in compliance with all debt covenants, including the Interest Coverage Ratio and Total Leverage Ratio[131] - The company paid $1.8 million in common stock dividends and $1.6 million in preferred stock dividends during Q1 2025[126][128] Contractual Obligations and Commitments Total contractual commitments as of March 31, 2025, were $3.84 billion, including debt and significant equipment purchase obligations Summary of Contractual Commitments (in thousands) | Obligation Type | Total | Less than 1 Year | 1-3 Years | 3-5 Years | More than 5 Years | | :--- | :--- | :--- | :--- | :--- | :--- | | Debt obligations | $2,258,346 | $71,232 | $666,264 | $1,426,047 | $94,803 | | Purchase obligations | $1,055,225 | $250,221 | $339,615 | $340,074 | $125,315 | | Total | $3,838,467 | $455,850 | $1,240,948 | $1,912,139 | $229,530 | - The company has commitments to purchase 30 new LEAP-1A and 21 new LEAP-1B engines for an aggregate total of $912.6 million by 2030, plus 28 used engines for approximately $142.6 million in 2025[133] - The company has committed to future overhaul and maintenance services related to a 2020 engine purchase, anticipated to range between $97.1 million and $126.6 million by 2030[134] Quantitative and Qualitative Disclosures About Market Risk The company faces primary market risks from interest rate fluctuations on variable debt and currency devaluation impacting non-U.S. lease revenues - As of March 31, 2025, $862.7 million of the company's debt is variable rate. A 1% increase or decrease in interest rates on this debt would change annual interest expense by approximately $4.4 million, net of interest rate swaps[138] - The company is exposed to currency risk as 73% of its lease rent revenues in Q1 2025 came from non-U.S. domiciled lessees. Devaluation of local currencies against the U.S. dollar could make it difficult for lessees to make payments[140] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of March 31, 2025, with no material changes to internal controls - The CEO and CFO concluded that as of March 31, 2025, the company's disclosure controls and procedures were effective to provide reasonable assurance that required information is recorded, processed, and reported in a timely manner[141] - No changes occurred in the company's internal control over financial reporting during the quarter ended March 31, 2025, that have materially affected, or are reasonably likely to materially affect, these controls[143] PART II. OTHER INFORMATION Legal Proceedings The company reported no legal proceedings for the period - None[145] Risk Factors No material changes to risk factors occurred, except for a new risk concerning potential adverse effects of duties, tariffs, and trade barriers - A new risk factor has been identified concerning the potential adverse effects of the imposition of duties, tariffs, and other trade barriers by the U.S. and other governments[147] - In early 2025, the U.S. announced significant new tariffs on foreign imports, including a baseline 10% tariff from most countries, creating uncertainty for the company's business[148] Unregistered Sales of Equity Securities and Use of Proceeds No common stock repurchases occurred in Q1 2025, with approximately $39.6 million remaining available under the current plan - No shares were repurchased during the three months ended March 31, 2025[149] - As of March 31, 2025, approximately $39.6 million remained available for purchase under the company's common stock repurchase plan[149] Defaults Upon Senior Securities The company reported no defaults upon senior securities - None[150] Mine Safety Disclosures This item is not applicable to the company - Not applicable[151] Other Information President Brian R. Hole adopted a Rule 10b5-1 trading arrangement on March 27, 2025, for the sale of up to 18,453 common shares - On March 27, 2025, Brian R. Hole, President, adopted a Rule 10b5-1 trading arrangement to sell up to 18,453 shares of common stock[153] Exhibits This section lists exhibits filed with the Form 10-Q, including corporate governance documents and required certifications