acy2020pr42q2020earningsf
AeroCentury
Corp. Reports 2Q2020 Earnings
August
13, 2020
Harold
M. Lyons
Chief
Financial Officer
(650)
340-1888
AeroCentury Corp. Reports Second Quarter 2020 Results
BURLINGAME, California, August
13, 2020 -- AeroCentury Corp. (“AeroCentury” or the
“Company”) (NYSE American: ACY), an independent
aircraft leasing company, today reported a second quarter 2020 net
loss of $13.5 million, or ($8.74) per share, compared to a net loss
of $0.1 million, or ($0.05) per share, for the second quarter of
2019.
In the
first six months of 2020, the Company reported a net loss of $23.7
million, or $(15.33) per share, compared to a net loss of $1.4
million, or $(0.90) per share, in the first six months of
2019.
Results
for the quarter ended June 30, 2020 included impairment losses
totaling $9.7 million. Those losses arise from appraised values for
three regional jet aircraft that are held for sale; estimated sales
proceeds for an older turboprop aircraft that is held for sale and
which the Company expects to sell during the fourth quarter of
2020, and estimated fair value of two regional jet aircraft that
are held for lease. Results for the second quarter of
2020 also included $2.0 million of charges arising from the
conversion of the Company’s revolving credit facility to a
term loan in May of 2020, including a $1.5 million write-off of a
portion of the Company’s unamortized debt issuance costs
included in interest expense and $0.5 million of costs that is
included in professional fees and other.
On May
1, 2020, the Company and the MUFG Credit Facility Lenders
(“MUFG Lenders”) executed an amendment to the MUFG
Credit Facility (as amended, the “MUFG Loan Agreement”)
to convert the MUFG Credit Facility into a term loan facility (as
converted, the “MUFG Loan”). The amendment includes
certain requirements and establishment of deadlines for achievement
of milestones toward execution of Company strategic alternatives
for the Company and/or its assets acceptable to the MUFG Lenders.
The MUFG Lenders have the right to exercise any and all remedies
for default under the MUFG Loan Agreement. Such remedies include,
but are not limited to, declaring the entire indebtedness
immediately due and payable and, if the Company were unable to
repay such accelerated indebtedness, foreclosing upon the assets of
the Company that secure the indebtedness under the MUFG Loan, which
consist of all of the Company’s assets except for certain
assets held in the Company’s single asset special-purpose
financing subsidiaries.
On May
20, 2020, JetFleet Management Corp. (the “PPP
Borrower”), a subsidiary of AeroCentury Corp., was granted a
loan (the “PPP Loan”) from American Express National
Bank in the aggregate amount of $276,353, pursuant to the Paycheck
Protection Program (the “PPP”) under Division A, Title
I of the CARES Act, which was enacted March 27, 2020. The PPP Loan,
which was in the form of a Note dated May 18, 2020 issued by the
PPP Borrower, matures on April 22, 2022 and bears interest at a
rate of 1.00% per annum, payable in 18 monthly payments commencing
on November 20, 2020. Funds from the PPP Loan may only be used for
payroll costs and any payments of certain covered interest, lease
and utility payments. The Company intends to use the entire PPP
Loan amount for qualifying expenses. Under the terms of the PPP,
certain amounts of the Loan may be forgiven if they are used for
qualifying expenses as described in the CARES Act. No assurance can
be provided that the Company will obtain forgiveness of the PPP
Loan in whole or in part.
“During
our second quarter, the COVID pandemic’s impact continued to
play out more fully,” explained Michael Magnusson, President
of AeroCentury Corp. “Airlines around the world
drastically reduced their operations or ceased operating entirely.
Many defaulted on lease payments or demanded rent
concessions,” Magnusson continued. “As a result,
aircraft lessors have experienced increasing difficulties
meeting financial obligations to their lenders. AeroCentury
is no exception. A number of our customers were unable to
make rental payments during the second quarter, which
dramatically reduced the Company’s free cash flow.
The pandemic also delayed sales of surplus assets
anticipated to close in the second quarter. Finally,
the worldwide decrease in demand put significant downward
pressure on our aircraft valuations, which required the
Company during the last quarter to re-appraise our aircraft and
take significant asset value write-offs, which further eroded
our performance. All of these factors continued to
negatively affect the Company’s ability to comply with its
debt obligations.” Mr. Magnusson continued,
“To meet the unprecedented impact that the pandemic has had
on the Company, we have enacted cost-cutting measures,
including reductions in overhead and office space, and we
continue to work closely and cooperatively with our
defaulting lessees and our lenders to negotiate a workout
of our customers’ lease defaults and to restructure our debt
obligations accordingly. Many great challenges lie
ahead, but we remain hopeful
as we are beginning to see signs of
adaptation by airlines and passengers to the
post-pandemic world and of a slow but steady recovery of the
airline industry.”
Second Quarter 2020 Highlights and Comparative Data
●
Net loss was $13.5
million compared to a loss of $10.2 million in the preceding
quarter and a loss of $0.1 million a year ago.
● EBITDA(1) was ($8.3) million compared to ($4.7)
million in the preceding quarter and $5.3 million a year
ago.
●
Average portfolio
utilization was 91% during the second quarter of 2020, compared to
83% in the preceding quarter and 99% in the second quarter of 2019.
The year-to-year
decrease was due to aircraft that were on lease in the 2019 period,
but off lease in the 2020 period.
●
Revenues in the
second quarter of 2020 and the first six months of 2020 consisted
primarily of operating lease revenue. Revenue of $4.4 million in
the second quarter of 2020 was 8% less than the $4.8 million in
revenue recorded in the first quarter of 2020 as a result of rent
concessions granted to one of the Company’s customers due to
the COVID-19 pandemic. Second quarter operating lease revenue in
the current year was 37% lower than the $7.0 million in the second
quarter of 2019 primarily due to rent concessions
and reduced rent income resulting from the early termination of
four aircraft leases with one of the Company’s customers in
the third quarter of 2019.
●
Total operating
expenses increased by 9% to $19.2 million in the second quarter of
2020 from $17.7 million in the preceding quarter, and increased 72%
from $7.3 million in the second quarter a year ago.
o
During the second
quarter of 2020, the Company recognized asset impairments of $9.7
million as a result of appraised values on three regional jet
aircraft held for sale and estimated sales proceeds for three
aircraft, one of which is held for sale, compared to the first
quarter of 2020 when the Company recognized asset impairments of
$6.7 million based on estimated sales proceeds for some of its
aircraft. During the second quarter of 2019, the Company recognized
a $160,000 asset impairment for an asset held for sale based on a
third-party appraised value.
o
Depreciation
expense decreased by 8% to $2.0 million in the second quarter of
2020 from $2.2 million in the preceding quarter and decreased by
33% from $3.0 million in the second quarter a year ago, due to the
reclassification of several aircraft from held for lease to held
for sale [during the third quarter of 2019.
o
Interest expense
decreased by 26% to $4.5 million in the second quarter of 2020 from
$6.0 million in the preceding quarter, primarily due a decrease in
non-cash charges and interest related to the Company’s
interest rate swaps, two of which were terminated during the first
quarter of 2020. Such decreases were partially offset by a $1.5
million write-off of a portion of the Company’s unamortized
debt issuance costs during the second quarter that resulted from
the conversion of the Company’s revolving credit facility to
a term loan in May 2020. Interest expense increased 80% from $2.5
million in the second quarter of 2019, primarily as a result of a
higher average interest rate and the write-off discussed
above.
o
The Company
recorded no bad debt expense during the second quarter of 2020. As
a result of payment delinquencies by two customers that leased two
of the Company’s aircraft subject to finance leases, the
Company recorded a bad debt expense of $1.2 million during the
first quarter of 2020. The Company recorded no bad debt expense
during the first quarter of 2019.
o
Salaries, employee
benefits and professional fees and other expenses increased by 78%
to $2.9 million from $1.6 million in the second quarter of 2019 and
increased 85% from $1.6 million in the first quarter of 2020
primarily due to increased legal fees arising from the May 2020
conversion of the Company’s revolving credit facility to a
term loan in May 2020 and litigation relating to an activist
shareholder, consulting fees related to the May 2020 debt
conversion and increased amortization related to the
Company’s office lease right of use.
●
Book value per
share was $0.22 as of June 30, 2020, compared to $8.84 at March 31,
2020 and $24.88 a year ago.
Aircraft and Engine Portfolio
AeroCentury’s portfolio currently consists of thirteen
aircraft, spread over six different aircraft types. Eleven of the
aircraft, comprised of nine regional jets and two turboprops, are
held for lease. Two additional turboprops are held under sales-type
leases. The Company also has three turboprop aircraft, two of which
are being sold in parts, and three regional jet aircraft that are
held for sale. The current customer base comprises seven customers
operating in five countries.
About AeroCentury: AeroCentury is an independent global
aircraft operating lessor and finance company specializing in
leasing regional jet and turboprop aircraft and related engines.
The Company's aircraft and engines are leased to regional airlines
and commercial users worldwide.
This press release contains
forward-looking statements within the “safe harbor”
provisions of the Private Securities Litigation Reform Act of 1995.
All statements in this press release other than statements that are
purely historical are forward-looking statements. Forward-looking
statements in this press release include statements regarding
the ability of the Company to work together with its
defaulting lessees and our lenders to negotiate a workout
of our customers’ lease defaults and to restructure our debt
obligations; and adaptation by airlines and passengers to
the post-pandemic world and of a slow but steady recovery of the
airline industry. The Company’s
beliefs, expectations, forecasts, objectives and strategies for the
future are not guarantees of future performance and are subject to
risks and uncertainties that could cause actual results to differ
materially from the results contemplated by the forward-looking
statements, including but not limited to unanticipated further
defaults under the Company’s debt agreements, failure to
obtain favorable offers for strategic transactions or to come to
agreement with potential offerors, and further disruptions to the
airline industry due to the COVID pandemic, other unforeseen events
or general economic conditions. The forward-looking statements in
this press release and the Company’s future results of
operations are subject to additional risks and uncertainties set
forth under the heading “Factors that May Affect Future
Results and Liquidity” in
documents filed by the Company with the Securities and Exchange
Commission, including the Company's quarterly reports on Form 10-Q
and the Company’s latest annual report on Form 10-K, and are
based on information available to the Company on the date hereof.
The Company does not intend, and assumes no obligation, to update
any forward-looking statements made in this press release. Readers
are cautioned not to place undue reliance on forward-looking
statements, which speak only as of the date of this press
release.
AeroCentury
Corp. Reports 2Q2020 Earnings
August
13, 2020
Page
2
Condensed Consolidated Statements of Income
(in thousands, except share and per share data)
(Unaudited)
|
|
For the Three
Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating lease
revenue
|
$4,379
|
$4,768
|
$6,966
|
$9,147
|
$14,114
|
|
Finance lease
revenue
|
-
|
56
|
260
|
56
|
496
|
|
Net (loss)/gain on
disposal
of
assets
|
13
|
(24)
|
100
|
(11)
|
278
|
|
Loss on sales-type
finance leases
|
-
|
-
|
(171)
|
-
|
(171)
|
|
Other
(loss)/income
|
-
|
(23)
|
6
|
(23)
|
11
|
|
|
4,392
|
4,777
|
7,161
|
9,169
|
14,728
|
|
|
|
|
|
|
|
|
Interest
|
4,460
|
6,013
|
2,485
|
10,472
|
5,398
|
|
Impairment
|
9,727
|
6,655
|
160
|
16,382
|
1,568
|
|
Professional fees
and other
|
2,398
|
1,063
|
1,021
|
3,461
|
2,024
|
|
Depreciation
|
2,002
|
2,170
|
2,970
|
4,173
|
6,171
|
|
Bad debt
expense
|
-
|
1,170
|
-
|
1,170
|
-
|
|
Salaries and
employee benefits
|
518
|
517
|
621
|
1,035
|
1,220
|
|
Maintenance
costs
|
88
|
80
|
10
|
168
|
117
|
|
|
19,193
|
17,668
|
7,267
|
36,861
|
16,498
|
|
|
|
|
|
|
|
|
Loss before income
tax benefit
|
(14,801)
|
(12,891)
|
(106)
|
(27,692)
|
(1,770)
|
|
|
|
|
|
|
|
|
Income tax
benefit
|
(1,283)
|
(2,713)
|
(28)
|
(3,996)
|
(384)
|
|
|
|
|
|
|
|
|
Net
loss
|
$(13,518)
|
$(10,178)
|
$(78)
|
$(23,696)
|
$(1,386)
|
|
|
|
|
|
|
|
|
Loss per
share:
|
|
|
|
|
|
|
Basic
|
$(8.74)
|
$(6.58)
|
$(0.05)
|
$(15.33)
|
$(0.90)
|
|
Diluted
|
$(8.74)
|
$(6.58)
|
$(0.05)
|
$(15.33)
|
$(0.90)
|
|
|
|
|
|
|
|
Shares
used in per share computations:
|
|
|
|
|
|
Basic
|
1,545,884
|
1,545,884
|
1,545,884
|
1,545,884
|
1,545,884
|
|
Diluted
|
1,545,884
|
1,545,884
|
1,545,884
|
1,545,884
|
1,545,884
|
AeroCentury
Corp. Reports 2Q2020 Earnings
August
13, 2020
Page
3
Condensed Consolidated Balance Sheets
(in thousands) (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents
|
$1,531
|
$2,350
|
|
Restricted
cash
|
28
|
1,077
|
|
Accounts
receivable
|
3,379
|
1,140
|
|
Finance leases
receivable, net of allowance for
doubtful
accounts
|
2,880
|
8,802
|
|
Aircraft, net of
accumulated depreciation
|
97,693
|
108,369
|
|
Assets held for
sale
|
15,225
|
26,036
|
|
Property, equipment
and furnishings, net of
accumulated
depreciation
|
17
|
63
|
|
Office lease right
of use, net of accumulated
amortization
|
-
|
948
|
|
Deferred tax
asset
|
1,962
|
518
|
|
Prepaid expenses
and other assets
|
477
|
293
|
|
Total
assets
|
$123,192
|
$149,596
|
LIABILITIES AND
STOCKHOLDERS’ EQUITY
|
|
Liabilities:
|
|
|
|
Accounts payable
and accrued expenses
|
$799
|
$736
|
|
Accrued
payroll
|
143
|
164
|
|
Notes payable and
accrued interest, net of unamortized debt issuance
costs
|
112,693
|
111,638
|
|
Derivative
liability
|
1,054
|
1,825
|
|
Derivative
termination liability
|
3,075
|
-
|
|
Lease
liability
|
-
|
337
|
|
Maintenance
reserves
|
2,280
|
4,413
|
|
Accrued maintenance
costs
|
46
|
446
|
|
Security
deposits
|
666
|
1,034
|
|
Unearned
revenues
|
1,951
|
3,039
|
|
Deferred income
taxes
|
-
|
2,530
|
|
Income taxes
payable
|
151
|
175
|
|
Total
liabilities
|
122,858
|
126,337
|
|
|
|
|
|
Stockholders’
equity:
|
|
|
|
Preferred stock,
$0.001 par value
|
-
|
-
|
|
Common stock,
$0.001 par value
|
2
|
2
|
|
Paid-in
capital
|
16,783
|
16,783
|
|
Retained
earnings
|
(12,814)
|
10,882
|
|
Accumulated other
comprehensive loss
|
(600)
|
(1,371)
|
|
Treasury
stock
|
(3,037)
|
(3,037)
|
|
Total
stockholders’ equity
|
334
|
23,259
|
|
Total liabilities
and stockholders’ equity
|
$123,192
|
$149,596
|
AeroCentury
Corp. Reports 2Q2020 Earnings
August
13, 2020
Page
4
Use of Non-GAAP Financial Measures
To supplement the Company’s financial information presented
in accordance with accounting principles generally accepted in the
United States of America (“GAAP”), this press release
includes the non-GAAP financial measure of EBITDA. The Company
defines EBITDA as net (loss)/income, plus depreciation expense,
plus interest expense and plus/(minus) income tax
provision/(benefit). The table below
provides a reconciliation of this non-GAAP financial measure to its
most directly comparable financial measure calculated and presented
in accordance with GAAP. This non-GAAP financial measure should not
be considered as an alternative to GAAP measures such as net
(loss)/income or any other measure of
financial performance calculated and presented in accordance with
GAAP. Rather, the Company presents this measure as supplemental
information because it believes it provides meaningful additional
information about the Company’s performance for the following
reasons: (1) this measure allows for greater transparency with
respect to key metrics used by management, as management uses this
measure to assess the Company’s operating performance and for
financial and operational decision-making; (2) this measure
excludes the impact of items management believes are not directly
attributable to the Company’s core operating performance and
may obscure trends in the business; and (3) this measure may be
used by institutional investors and the analyst community to help
analyze the Company’s business. The Company’s non-GAAP
financial measures may not be comparable to similarly-titled
measures of other companies because they may not calculate such
measures in the same manner as the Company
does.
|
|
For
the Three Months Ended
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of
Net loss to EBITDA:
|
|
|
|
|
Net
loss
|
$(13,518)
|
$(10,178)
|
$(78)
|
|
Depreciation
|
2,002
|
2,170
|
2,970
|
|
Interest
|
4,460
|
6,013
|
2,485
|
|
Income tax
benefit
|
(1,283)
|
(2,713)
|
(28)
|
|
EBITDA:
|
(8,339)
|
(4,708)
|
5,349
|
