Operator: And our next question comes from Brian McKenna from JMP Securities.
Brian McKenna: Thanks. Good morning, everyone. So what’s the outlook for asset acquisitions for the remainder of the year? It seems like it continues to be a good environment to acquire assets, particularly for assets off lease. And then is there any increasing opportunity for sale leasebacks, given that we’re likely going to see a softening economic backdrop here broadly?
Joseph Adams: Yes, you’re right on both counts. We’re seeing a lot of off leased assets available that we continue to be the best, one of the best buyers for because we have the ability to scrap airframes and just lease engines, which a lot of other people don’t. And so we’re acquiring two packaged deals right now that fall right into that category at great prices, and then a lot of one off, leasing companies trying to clean up assets that they want to just get rid of and move on. So that area is pretty active. And we also in the module business probably half of our module sales involve us taking back a module in return or as an exchange, so we’re not really depleting the inventory on half of those transactions. We just — we then take that, replace the run out module, and then put it back through our factory and do it all over again.
So we’re able to replenish that. And then you’re right on the there’s still a number of airlines, COVID and Russia -Ukraine were pretty big jolts to the aviation system, and so there are airlines that have been sort of living on the edge for quite a while and sale lease backs are returning in terms of activity because of it’s a great way of raising capital and we’ve done quite a bit of that. And so, particularly end of, if an airline is looking at, they have a new aircraft order and they’re looking at phasing out a fleet. It’s a way of raising cash today and forward selling their airplane. So we see all those areas of activity. And the good news about the CFM56 market is there’s 20,000 of those engines in the world. So it’s enormous and will be for many, many years so.
Brian McKenna: Super helpful. Thanks, Joe. And then just a question on capital and liquidity. If the preferred market opens up again over the next few quarters, would you look to raise some additional capital through this part of the market? And then on liquidity more broadly, is there a minimum level of cash we like to run the business at?
Joseph Adams: We typically run around $25 million to $50 million in cash and then we have availability on a revolver. So we feel that’s very comfortable and have been doing that. In Q1, we actually paid down debt, so that was a good result in the quarter. We generated a lot of cash flow. And in terms of the preferred market, we will look to that periodically. We’ve always liked that market when it’s open and if it becomes available, we’ll look at it again for sure.
Operator: And our next question comes from Robert Dodd from Raymond James.
Robert Dodd: Hi, everybody. And congratulations on the quarter. Back to that capital question if I can. I mean, obviously you paid down debt. You’re now on just Q1 run rate EBITDA. You’re at 4x debt-to- EBITDA. If things go right, by the end of the year, you could be pretty close to three. So, I mean, can you give us, given where that leverage path is heading, can you give us idea of what you plan to do with the potential additional, at least from a metric perspective and additional capital you could have available while being in your ranges? Like, is it accelerated asset purchases, accelerated inventory build in the module swap, or maybe a dividend increase? Or can you give some idea of how you’re thinking about allocating what could be an increased capital availability as we go through the year? Conceptual capital availability.
Joseph Adams: Yes. I would speak in terms of priorities. Our first priority, as you mentioned, is to be sort of in the 3.5x debt to total EBITDA range, which we think gets us into the solid, strong BB with all agencies. So that’s number one priority. I think we’ve been consistent about that. So right now, that is what we’re shooting for, and obviously we’re on track to do that with these numbers. So that’s good. Then the second priority has always been investments. When you can generate 20% or 25% unlevered returns on new investments, those are things we’ve never not been able to do a deal we wanted to do so that is obviously having the firepower to do that is critically important from an earnings growth point of view. And then beyond that, we would look at all other options, including a dividend increase, stock buyback, or further debt pay down it’s sort of it would be, we take a look at what the market opportunities are at the time and what the various security prices are.
We also have securities we could buy back as well, other than just common. So we’ve got a lot of different opportunities, and we would like to be able to avail ourselves of those if things get disrupted.
Robert Dodd: Just to that point. On the inventory of the modules, I mean, I think I asked about this before, you talked about it before. Are you revising up the inventory level you’d like to keep, or would you revise up the inventory level that you’d like to keep of modules and parts, et cetera? If demand plays out the way you expect it to or the way you turn the more thing, the components doesn’t necessarily demand higher inventory levels.
Joseph Adams: Yes, it’s more the latter. Right now, we’re running the aerospace products business with between $150 million and $200 million of capital, or working capital, which we churn frequently. And we think as we grow the business, that number probably goes up to $250 million to $300 million. But we’re talking about doubling and tripling the volume with that. So it’s not very capital intensive. It really is driven more by inventory turns and you become more efficient as you have more volume.
Operator: And I am showing no further questions. I would now like to turn the call back over to Alan Andreini, you are available.
Alan Andreini: Thanks Justin. And thank you all for participating in today’s conference call. We look forward to updating you after Q2.
Operator: This concludes today’s conference call. Thank you for participating. You may now disconnect.
