UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For the quarterly period ended
OR
For the transition period from ___________ to ____________.
Commission file number
(Exact name of registrant as specified in its charter)
| ||
(State or other jurisdiction of | (I.R.S. Employer Identification No.) | |
incorporation or organization) | ||
(Address of Principal Executive Offices) | (Zip Code) |
(
Registrant’s telephone number, including area code
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
| Trading Symbol(s) |
| Name of each exchange on which registered |
The |
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | ☒ | |
Non-accelerated filer | ☐ | Smaller reporting company | |
Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
The number of shares of Registrant’s common stock outstanding as of November 8, 2022 was
TABLE OF CONTENTS
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q (this “Quarterly Report”) contains forward-looking statements. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. All statements other than statements of historical facts contained in this Quarterly Report, including statements relating to the Merger (as defined herein), the impact of the COVID-19 pandemic and the geopolitical events related to the Russian invasion of Ukraine on our business, changes in the market for our services, changes in applicable laws or regulations, our ability to launch new services and products or to profitably expand into new markets, and the possibility that we may be adversely affected by other economic, business and/or competitive factors. These statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.
In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “could,” “intend,” “target,” “project,” “contemplate,” “believe,” “estimate,” “predict,” “potential”, or “continue” or the negative of these terms or other similar expressions. The forward-looking statements in this Quarterly Report are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. These forward-looking statements speak only as of the date of this Quarterly Report and are subject to a number of important factors that could cause actual results to differ materially from those in the forward-looking statements, including the impact of the COVID-19 pandemic or a new pandemic, and geopolitical events related to the Russian invasion of Ukraine on our business; factors that adversely impact the commercial aviation industry; fluctuation of market values for our aviation products; our inability to repossess Flight Equipment (as defined herein) when a lessee defaults and the cost of remarketing and releasing such repossessed Flight Equipment; compliance with significant government regulations; the success at our MRO (as defined herein) facilities is dependent on continued outsourcing by airlines; a shortage of skilled personnel or work stoppages; inability to obtain certain components and raw materials from suppliers; competitive pressures; risks associated with operating internationally; the value of liens on our Flight Equipment; ownership rights over an engine affixed to an aircraft; risks associated with business acquisitions; continued availability of financing; restrictive and financial covenants in our existing debt; product and other liability claims; risks associated with supplying equipment and services to the U.S. government; cyber or other security threats or other disruptions; compliance with environmental requirements; payment of capital expenditures; our lack of ownership of certain intellectual property that is important to our business; dependence on our facilities; damage to our reputation by improper conduct of employees, agents, and others; limitations on employee compensation as a result of the CARES Act; the loss of certain key employees; insolvency of any of our customers; exposure to intellectual property litigation; and the factors described under the section titled “Risk Factors” in our Annual Report on Form 10-K, filed with the Securities and Exchange Commission (“SEC”) on March 15, 2022.
Moreover, we operate in an evolving environment. New risk factors and uncertainties may emerge from time to time, and it is not possible for management to predict all risk factors and uncertainties.
You should read this Quarterly Report and the documents that we reference in this Quarterly Report completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances or otherwise.
Unless otherwise stated or the context otherwise requires, references in this Quarterly Report to the “Company,” “AerSale,” “we,” “us,” “our” and similar terms refer to AerSale Corporation and its consolidated subsidiaries.
i
PART I – FINANCIAL INFORMATION
ITEM 1 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
AERSALE CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(in thousands, except share data and par value)
| September 30, |
| December 31, | |||
2022 | 2021 | |||||
(Unaudited) | ||||||
Current assets: | ||||||
Cash and cash equivalents | $ | $ | ||||
Accounts receivable, net of allowance for doubtful accounts of $ |
|
| ||||
Inventory: | ||||||
Aircraft, airframes, engines, and parts, net |
|
| ||||
Advance vendor payments |
|
| ||||
Deposits, prepaid expenses, and other current assets |
|
| ||||
Total current assets |
|
| ||||
Fixed assets: |
|
| ||||
Aircraft and engines held for lease, net |
|
| ||||
Property and equipment, net |
|
| ||||
Inventory: |
| |||||
Aircraft, airframes, engines, and parts, net |
|
| ||||
Deferred income taxes |
|
| ||||
Deferred financing costs, net |
|
| ||||
Deferred customer incentives and other assets, net |
|
| ||||
Goodwill |
|
| ||||
Other intangible assets, net |
|
| ||||
Total assets | $ | $ | ||||
Current liabilities: |
|
| ||||
Accounts payable | $ | $ | ||||
Accrued expenses |
|
| ||||
Income tax payable |
|
| ||||
Lessee and customer purchase deposits |
|
| ||||
Deferred revenue |
|
| ||||
Total current liabilities |
|
| ||||
Long-term lease deposits |
|
| ||||
Maintenance deposit payments and other liabilities |
|
| ||||
Deferred income taxes, net | ||||||
Warrant liability | ||||||
Total liabilities | ||||||
Commitments and contingencies |
|
| ||||
Stockholders’ equity: |
|
| ||||
Common stock, $ |
|
| ||||
Additional paid-in capital |
|
| ||||
Retained earnings |
|
| ||||
Total stockholders' equity |
|
| ||||
Total liabilities and stockholders’ equity | $ | $ |
1
AERSALE CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(in thousands, except per share data)
(Unaudited)
| Three Months Ended September 30, |
| Nine Months Ended September 30, |
| |||||||||
| 2022 |
| 2021 |
| 2022 |
| 2021 |
| |||||
Revenue: | |||||||||||||
Products | $ | $ | $ | $ | |||||||||
Leasing |
|
|
|
| |||||||||
Services |
|
|
|
| |||||||||
Total revenue |
|
|
|
| |||||||||
Cost of sales and operating expenses: | |||||||||||||
Cost of products |
|
|
|
| |||||||||
Cost of leasing |
|
|
|
| |||||||||
Cost of services |
|
|
|
| |||||||||
Total cost of sales |
|
|
|
| |||||||||
Gross profit |
|
|
|
| |||||||||
Selling, general, and administrative expenses |
|
|
|
| |||||||||
Payroll support program proceeds |
| - |
| - |
| - |
| ( | |||||
(Loss) income from operations |
| ( |
|
|
| ||||||||
Other income (expenses): |
|
|
|
| |||||||||
Interest income (expense), net |
|
| ( |
|
| ( | |||||||
Other income, net |
|
|
|
| |||||||||
Change in fair value of warrant liability | ( | ( | ( | ( | |||||||||
Total other expenses |
| ( |
| ( |
| ( |
| ( | |||||
(Loss) income before income tax provision |
| ( |
| ( |
|
| |||||||
Income tax benefit (expense) |
|
| ( |
| ( |
| ( | ||||||
Net (loss) income | $ | ( | $ | ( | $ | $ | |||||||
(Loss) earnings per share - basic | $ | ( | $ | ( | $ | | $ | | |||||
(Loss) earnings per share - diluted | $ | ( | $ | ( | $ | | $ | |
2
AERSALE CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Stockholders’ Equity
For the three and nine months ended September 30, 2022 and 2021
(in thousands, except share data)
(Unaudited)
Total | ||||||||||||||
Common stock | Additional | Retained | stockholders’ | |||||||||||
| Amount |
| Shares |
| paid-in capital |
| earnings |
| equity | |||||
Balance at December 31, 2021 | $ | | $ | $ | $ | |||||||||
Share-based compensation | - | - | - | |||||||||||
Shares issued under the 2020 Employee Stock Purchase Plan | - | | - | |||||||||||
Shares issued under the 2020 Equity Incentive Plan | - | | - | - | - | |||||||||
Net income |
| - | - |
| - |
|
| |||||||
Balance at March 31, 2022 | $ | | $ | $ | $ | |||||||||
Share-based compensation | - | - | - | |||||||||||
Shares issued under the 2020 Employee Stock Purchase Plan | - | | - | |||||||||||
Net income |
| - | - |
| - |
|
| |||||||
Balance at June 30, 2022 | $ | | $ | $ | $ | |||||||||
Stock-based compensation | - | - | - | |||||||||||
Restricted Stock Units ("RSUs") vested and settled | - | | - | - | - | |||||||||
Shares issued upon exercise of warrants | - | | - | - | - | |||||||||
Net loss | - | - | - | ( | ( | |||||||||
Balance at September 30, 2022 | $ | | $ | $ | $ |
Total | ||||||||||||||
Common stock | Additional | Retained | stockholders’ | |||||||||||
| Amount |
| Shares |
| paid-in capital |
| earnings |
| equity | |||||
Balance at December 31, 2020 | $ |
| | $ | $ | $ | ||||||||
Issuance of Earn-Out shares | - | | ( | - | ( | |||||||||
Shares issued upon exercise of warrants | - | | - | |||||||||||
Net income | - | - | - | |||||||||||
Balance at March 31, 2021 | $ | | $ | $ | $ | |||||||||
Share-based compensation | - | - | - | |||||||||||
Net Income | - | - | - | |||||||||||
Balance at June 30, 2021 | $ | | $ | $ | $ | |||||||||
Share-based compensation | - | - | - | |||||||||||
Net Income | - | - | - | ( | ( | |||||||||
Balance at September 30, 2021 | $ | | $ | $ | $ |
3
AERSALE CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
| Nine Months Ended September 30, |
| |||||
2022 |
| 2021 | |||||
Cash flows from operating activities: | |||||||
Net income | $ | $ | |||||
Adjustments to reconcile net income to net cash (used in) provided by operating activities: | |||||||
Depreciation and amortization |
|
| |||||
Amortization of debt issuance costs |
|
| |||||
Inventory reserve |
|
| |||||
Impairment of aircraft held for lease | - | ||||||
Provision for doubtful accounts |
| ( |
| ( | |||
Deferred income taxes |
| ( |
| ( | |||
Change in fair value of warrant liability | |||||||
Share-based compensation | |||||||
Changes in operating assets and liabilities: |
|
|
| ||||
Accounts receivable |
|
| |||||
Inventory |
| ( |
| ( | |||
Deposits, prepaid expenses, and other current assets |
| ( |
| ||||
Deferred customer incentives and other assets |
|
| - | ||||
Advance vendor payments |
| ( |
| ( | |||
Accounts payable |
|
| ( | ||||
Income tax payable | ( | ( | |||||
Accrued expenses |
| ( |
| ( | |||
Deferred revenue |
|
| |||||
Lessee and customer purchase deposits |
| ( |
| ||||
Other liabilities |
| ( |
| ||||
Net cash (used in) provided by operating activities |
| ( |
| ||||
Cash flows from investing activities: |
|
|
|
| |||
Proceeds from sale of assets |
|
| |||||
Acquisition of aircraft and engines held for lease, including capitalized cost |
| ( |
| ( | |||
Purchase of property and equipment |
| ( |
| ( | |||
Net cash provided by investing activities |
|
| |||||
Cash flows from financing activities: |
|
|
|
| |||
Cash paid for employee taxes on withholding shares | - | ( | |||||
Proceeds from exercise of warrants | - | ||||||
Proceeds from the issuance of Employee Stock Purchase Plan shares | - | ||||||
Net cash provided by financing activities |
|
| |||||
Increase in cash and cash equivalents |
|
| |||||
Cash and cash equivalents, beginning of period |
|
| |||||
Cash and cash equivalents, end of period | $ | $ | |||||
Supplemental disclosure of cash activities |
|
| |||||
Income taxes paid | |||||||
Interest paid | |||||||
Supplemental disclosure of noncash investing activities | |||||||
Reclassification of aircraft and aircraft engines inventory (from) to equipment held for lease, net | ( | ||||||
Reclassification of customer purchase deposits to sale of assets | - |
4
AERSALE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2022
NOTE A — DESCRIPTION OF THE BUSINESS
Organization
Monocle Acquisition Corporation (“Monocle”) was initially formed on August 20, 2018 for the purpose of effecting a merger, share exchange, asset acquisition, stock purchase, recapitalization, reorganization or similar business combination with one or more businesses.
On December 22, 2020, (the “Closing Date”), Monocle consummated a business combination pursuant to that certain Amended and Restated Agreement and Plan of Merger, dated September 8, 2020 (the “Merger Agreement”) by and among Monocle, AerSale Corporation (f/k/a Monocle Holdings Inc.), a Delaware corporation (the “Company”), AerSale Aviation, Inc. (f/k/a AerSale Corp.), a Delaware corporation (“AerSale Aviation”), Monocle Merger Sub 1 Inc., a Delaware corporation (“Merger Sub 1”), Monocle Merger Sub 2 LLC, a Delaware limited liability company (“Merger Sub 2”), and Leonard Green & Partners, L.P., a Delaware limited partnership, solely in its capacity as the initial Holder Representative (as defined in the Merger Agreement). The transactions contemplated by the Merger Agreement are referred to herein as the “Merger” and in connection therewith, Monocle merged with and into us, whereby the Company survived the merger and became the successor issuer to Monocle by operation of Rule 12g-3 under the Exchange Act.
Upon the consummation of the Merger: (a) Merger Sub 1 was merged with and into Monocle, with Monocle surviving the merger as a wholly-owned direct subsidiary of the Company (the “First Merger”), and (b) Merger Sub 2 was merged with and into AerSale Aviation, with AerSale Aviation surviving the merger as a wholly-owned indirect subsidiary of the Company (the “Second Merger”). In connection with the closing of the Merger (the “Closing”), AerSale Aviation changed its name from “AerSale Corp.” to “AerSale Aviation, Inc.” and the Company changed its name from “Monocle Holdings Inc.” to “AerSale Corporation.” Immediately following the Merger, the Company contributed all of its ownership in Monocle to AerSale Aviation which will continue as a wholly owned subsidiary of the Company.
The Company’s corporate headquarters are based in Miami, Florida, with additional offices, hangars, and warehouses globally.
NOTE B — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Interim Financial Statements
The accompanying unaudited interim consolidated financial statements have been prepared from the books and records of the Company in accordance with Generally Accepted Accounting Policies in the United States (“U.S. GAAP”) for interim financial information and Rule 10-01 of Regulation S-X promulgated by the U.S. Securities and Exchange Commission (“SEC”), which permits reduced disclosures for interim periods. Although these interim consolidated financial statements do not include all of the information and footnotes required for complete annual consolidated financial statements, management believes all adjustments, consisting only of normal recurring adjustments, and disclosures necessary for a fair presentation of the accompanying condensed consolidated balance sheets, statements of operations, stockholders’ equity, and cash flows have been made. Unaudited interim results of operations and cash flows are not necessarily indicative of the results that may be expected for the full year. Unaudited interim condensed consolidated financial statements and footnotes should be read in conjunction with the audited consolidated financial statements and footnotes included in Part II, Item 8 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 (the “2021 Annual Report), wherein a more complete discussion of significant accounting policies and certain other information can be found.
5
Revenue Recognition
Products — Used Serviceable Material (“USM”) Sales
Revenues from sales of USM are measured based on consideration specified within customer contracts, and excludes any sales commissions and taxes collected and remitted to government agencies. The Company recognizes revenue when performance obligations are satisfied by transferring control of a product or service to a customer. The parts are sold at a fixed price with no right of return. In determining the performance obligation, management has identified the promise in the contract to be the shipment of the spare parts to the customer. Title passes to the buyer when the goods are shipped, the buyer is responsible for any loss in transit and the Company has a legal right to payment for the spare parts once shipped. The Company generally sells its USM products under standard 30-day payment terms, subject to certain exceptions. Customers neither have the right to return products nor do they have the right to extended financing. The Company has determined that physical acceptance of the spare parts to be a formality in accordance with Accounting Standards Codification (“ASC”) Topic 606, “Revenue from Contracts with Customers” (“ASC 606”).
Spare parts revenue is based on a set price for a set number of parts as defined in the purchase order. The performance obligation is completed once the parts have shipped and as a result, all of the transaction price is allocated to that performance obligation. The Company has determined that it is appropriate to recognize spare parts sales at a point in time (i.e., the date the parts are shipped) in accordance with ASC 606.
Products — Whole Asset Sales
Revenues from whole asset sales are measured based on consideration specified in the contract with the customer. The Company and customer enter into an agreement which outlines the place and date of sale, purchase price, condition of the whole asset, bill of sale and the assignment of rights and warranties from the Company to the customer. The Company believes the whole asset holds standalone value to the customer as it is not dependent on any other services for functionality purposes and therefore is distinct within the context of the contract and as described in ASC 606-10. Accordingly, the Company has identified the transfer of the whole asset as the performance obligation. The transaction price is set at a fixed dollar amount per fixed quantity (number of whole assets) and is explicitly stated in each contract. Whole asset sales revenue is based on a set price for a set number of assets, which is allocated to the performance obligation discussed above, in its entirety. The Company has determined the date of transfer to the customer is the date the customer obtains control over the asset and would cause the revenue recognition. Payment is required in full upon a customer’s acceptance of the whole asset on the date of the transfer.
Leasing Revenues
The Company leases flight equipment under operating leases that contain monthly base rent and reports rental income straight line over the life of the lease as it is earned. Additionally, the Company’s leases provide for supplemental rent, which is calculated based on actual hours or cycles of utilization and, for certain components, based on the amount of time until maintenance of that component is required. In certain leases, the Company records supplemental rent paid by the lessees as maintenance deposit payment liabilities in recognition of the Company’s contractual commitment to reimburse qualifying maintenance. Reimbursements to the lessees upon receipt of evidence of qualifying maintenance work are charged against the existing maintenance deposit payment liabilities. In leases where the Company is responsible for performing certain repairs or replacement of aircraft components or engines, supplemental rent is recorded as revenue in the period earned. In the event of premature lease termination or lessee default on the lease terms, revenue recognition will be discontinued when outstanding balances beyond the customers’ deposits are held. Payment terms for leased flight equipment are due upon receipt.
6
Service Revenues
Service revenues are recognized as performance obligations when they are fulfilled and the benefits are transferred to the customer. At contract inception, the Company evaluates if the contract should be accounted for as a single performance obligation or if the contract contains multiple performance obligations. In some cases, the Company’s service contract with the customer is considered one performance obligation as it includes factors such as the good or service being provided is significantly integrated with other promises in the contract, the service provided significantly modifies or customizes the other good or service or the goods or services are highly interdependent or interrelated with each other. If the contract has more than one performance obligation, the Company determines the standalone price of each distinct good or service underlying each performance obligation and allocates the transaction price based on their relative standalone selling prices. The transaction price of a contract, which can include both fixed and variable amounts, is allocated to each performance obligation identified. Some contracts contain variable consideration, which could include incremental fees or penalty provisions related to performance. Variable consideration that can be reasonably estimated based on current assumptions and historical information is included in the transaction price at the inception of the contract but limited to the amount that is probable that a significant reversal in the amount of cumulative revenue recognized will not occur. Variable consideration that cannot be reasonably estimated is recorded when known.
For most service contracts, performance obligations are satisfied over time as work progresses based on transfer of control of products and services to our customers. The Company receives payments from our customers based on billing schedules or contractual terms.
For performance obligations that are satisfied over time, the Company measures progress in a manner that depicts the performance of transferring control to the customer. As such, the Company utilizes the input method of cost-to-cost to recognize revenue over time as this depicts when control of the promised goods or services are transferred to the customer. Revenue is recognized based on the relationship of actual costs incurred to date to the estimated total cost at completion of the performance obligation. The Company is required to make certain judgments and estimates, including estimated revenues and costs, as well as inflation and the overall profitability of the arrangement. Key assumptions involved include future labor costs and efficiencies, overhead costs and ultimate timing of product delivery. Differences may occur between the judgments and estimates made by management and actual program results. Under most of the Company’s Maintenance, Repair and Overhaul (“MRO”) contracts, if the contract is terminated for convenience, the Company is entitled to payment for items delivered, fair compensation for work performed, the costs of settling and paying other claims and a reasonable profit on the costs incurred or committed.
Changes in estimates and assumptions related to our arrangements accounted for using the input method based on labor hours are recorded using the cumulative catchup method of accounting. These changes are primarily adjustments to the estimated profitability for our long term programs where the Company provides MRO services.
The Company has elected to use certain practical expedients permitted under ASC 606. Shipping and handling fees and costs incurred associated with outbound freight after control over a product has transferred to a customer are accounted for as a fulfillment cost, are included in cost of sales in our Condensed Consolidated Statements of Operations and are not considered a performance obligation to our customers. The Company’s reported sales on our Condensed Consolidated Statements of Operations are net of any sales or related non income taxes. The Company also utilizes the “as invoiced” practical expedient in certain cases where performance obligations are satisfied over time and the invoiced amount corresponds directly with the value the Company is providing to the customer.
New Accounting Pronouncements Not Yet Adopted
On February 2016, the Financial Accounting Standards Board (“FASB”) issued “Leases (Topic 842)”, which generally requires companies to recognize operating and financing lease liabilities and corresponding right-of-use assets on the balance sheet. In July 2018, the FASB issued ASU No. 2018-10, “Codification Improvements to Topic 842, Leases,” and ASU No. 2018-11, “Leases (Topic 842): Targeted Improvements.” Topic 842 became effective for the Company for the annual period beginning on January 1, 2022, the impact of which will be reflected in the fourth quarter of 2022 recorded retroactively at the beginning of the period of adoption through a cumulative-effect adjustment. We plan to elect the practical expedients, which permits us to not reassess (i) whether any expired or existing contracts are or contain leases,
7
(ii) the lease classification for any expired leases and (iii) indirect costs for any existing leases. In addition, the practical expedient allows us not to separate lease and non-lease components for both lessee and lessor relationships and to not apply the recognition requirements to leases with terms of less than 12 months. Based on preliminary estimates, our adoption is expected to result in the recognition of operating lease right of use assets of approximately $
In June 2016, the FASB issued ASU No. 2016-13 (“ASU 2016-13”), “Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” In November 2018, the FASB issued ASU No. 2018-19, “Codification Improvements to Topic 326, Financial Instruments — Credit Losses,” which amends the scope and transition requirements of ASU 2016-13. Topic 326 requires a financial asset (or a group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected. The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions and reasonable and supportable forecasts that affect the collectability of the reported amount. Topic 326 will become effective for the Company beginning January 1, 2023, with early adoption permitted, on a modified retrospective basis. The Company is currently evaluating the impact this guidance will have on our consolidated financial statements and related disclosures.
New Accounting Pronouncements Recently Adopted
On May 3, 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options. This new standard provides clarification and reduces diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options (such as warrants) that remain equity classified after modification or exchange. This standard is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Under this standard, issuers should apply the new standard prospectively to modifications or exchanges occurring after the effective date of the new standard. Early adoption is permitted, including adoption in an interim period. If an issuer elects to early adopt the new standard in an interim period, the guidance should be applied as of the beginning of the fiscal year that includes that interim period. The Company adopted the new standards as of January 1, 2022 and the adoption did not have a material impact to the Condensed Consolidated Financial Statements.
Payroll Support Programs
The Company has also taken steps to improve our liquidity, including seeking financial assistance under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). Certain of the Company’s subsidiaries have received $
As part of the Payroll Support Extension Law, the Company entered into an agreement with the Treasury on March 4, 2021 for the receipt of relief funds of $
Pursuant to the American Rescue Plan Act of 2021 (“ARP”), we entered into an agreement with the Treasury on April 16, 2021 for the receipt of relief funds of an additional $
In connection with the financial assistance the Company received under the Payroll Support Program, it was required to comply with certain provisions of the CARES Act, including the requirement that funds provided pursuant to
8
the Payroll Support Program be used exclusively for the continuation of payment of employee wages, salaries and benefits; the requirement against involuntary terminations and furloughs and reductions in employee pay rates and benefits from the signing date of the Payroll Support Program agreement through September 30, 2021. The agreement also required the Company to issue a recall to any employee who was terminated or furloughed between October 1, 2020 and March 4, 2021 and enable such employee to return to employment. In addition, the Company was subject to provisions prohibiting the repurchase of common stock and the payment of common stock dividends through September 30, 2022, and remains limited on the payment of certain employee compensation through April 1, 2023. These restrictions may affect the Company’s operations and if the Company does not comply with these provisions, it may be required to reimburse up to 100% of any previously received relief funds. In particular, limitations on compensation may adversely impact our ability to attract and retain senior management or attract other key employees during this critical time. As of September 30, 2022, we were in compliance with all applicable provisions of the CARES Act, Payroll Support Program and ARP.
NOTE C — SIGNIFICANT RISKS AND UNCERTAINTIES
Impact of Ukraine Conflict and Russia Sanctions
In February of 2022, Russia invaded Ukraine and is still engaged in an active conflict against the country. As a result, governments in the European Union, the United States, the United Kingdom, Switzerland, and other countries have enacted sanctions against Russia and Russian interests. These sanctions include controls on the export and re-export of certain goods, supplies, and technologies, supply of aircraft and aircraft components to Russian persons or for use in Russia, subject to certain wind-down periods, and the imposition of restrictions on doing business with certain state-owned Russian customers and other investments and business activities in Russia. In order to comply with these sanctions, we ceased pursuing future business in Russia and terminated our
NOTE D — REVENUE
The timing of revenue recognition, customer billings and cash collections results in a contract asset or contract liability at the end of each reporting period. Contract assets consist of unbilled receivables or costs incurred where revenue recognized over time exceeds the amounts billed to customers. Contract liabilities include advance payments and billings in excess of revenue recognized. Certain customers make advance payments prior to the satisfaction of performance obligations on the contract. These amounts are recorded as contract liabilities until such performance obligations are satisfied. Contract assets and contract liabilities are determined on a contract by contract basis.
Contract assets are as follows (in thousands):
| September 30, 2022 |
| December 31, 2021 |
| Change | ||||
Contract assets | $ | $ | $ | ( |
Contract assets are reported within accounts receivable on our Condensed Consolidated Balance Sheets. Changes in contract assets primarily results from the timing difference between the performance of services. Contract liabilities are reported as deferred revenue on our Condensed Consolidated Balance Sheets and amounted to $
9
Disaggregation of Revenue
The Company reports revenue by segment. The following tables present revenue by segment, as well as a reconciliation to total revenue for the three and nine months ended September 30, 2022 and 2021 (in thousands):
| Three Months Ended September 30, |
| Nine Months Ended September 30, |
| |||||||||||||||
| 2022 |
| 2022 |
| |||||||||||||||
Asset Management |
|
| Asset Management |
|
| ||||||||||||||
| Solutions |
| Tech Ops |
| Total Revenues |
| Solutions |
| TechOps |
| Total Revenues |
| |||||||
USM | $ | $ | $ | $ | $ | $ | |||||||||||||
Whole asset sales |
|
| - |
|
|
|
| ||||||||||||
Engineered solutions |
| - |
|
|
| - |
|
| |||||||||||
Total products |
|
|
|
|
|
| |||||||||||||
Leasing |
|
| - |
|
|
| - |
| |||||||||||
Services |
| - |
|
|
| - |
|
| |||||||||||
Total revenues | $ | $ | $ | $ | $ | $ |
|
| Three Months Ended September 30, |
| Nine Months Ended September 30, |
| ||||||||||||||
|
| 2021 |
| 2021 |
| ||||||||||||||
Asset Management | Asset Management | ||||||||||||||||||
| Solutions |
| Tech Ops |
| Total Revenues |
| Solutions |
| TechOps |
| Total Revenues |
| |||||||
USM | $ | $ | $ | $ | $ | $ | |||||||||||||
Whole asset sales | - | - | |||||||||||||||||
Engineered solutions |
| - |
|
|
| - |
|
| |||||||||||
Total products |
|
|
|
|
|
| |||||||||||||
Leasing |
|
| - |
|
|
| - |
| |||||||||||
Services |
| - |
|
|
| - |
|
| |||||||||||
Total revenues | $ | $ | $ | $ | $ | $ |
NOTE E — INVENTORY
Following are the major classes of inventory as of the below dates (in thousands):
| September 30, 2022 |
| December 31, 2021 | |||
Used serviceable materials | $ | $ | ||||
Work-in-process | ||||||
Whole assets | ||||||
$ | ||||||
Less short term |
| ( |
| ( | ||
Long term | $ | $ |
The Company did
NOTE F — INTANGIBLE ASSETS
In accordance with ASC 350, Intangibles — Goodwill and Other, goodwill and other intangible assets deemed to have indefinite lives are not amortized, but are subject to annual impairment tests. The Company reviews and evaluates our goodwill and indefinite life intangible assets for potential impairment at a minimum annually or more frequently if circumstances indicate that impairment is possible.
10
The Company determined the fair value of assets acquired and liabilities assumed using a variety of methods. An income approach based on discounted cash flows was used to determine the values of our trademarks, certifications, customer relationships and FAA certificates. The assumptions the Company used to estimate the fair value of our reporting units are based on historical performance, as well as forecasts used in our current business plan and require considerable management judgment.
The Company’s goodwill and intangible assets as defined by ASC 350 is related to our subsidiaries, AerSale Component Solutions (d/b/a AerSale Landing Gear Solutions) (“ALGS”), Avborne Component Solutions (d/b/a AerSale Component Solutions) (“ACS”), and Aircraft Composite Technologies (“ACT”), which are included in the TechOps segment, as well as Qwest, which is included under the Asset Management Solutions segment.
Goodwill and other intangibles as of the below dates are (in thousands):
| September 30, 2022 |
| December 31, 2021 | |||
Qwest: | ||||||
FAA Certifications | $ | $ | | |||
Goodwill |
|
| | |||
ALGS: |
|
|
|
| ||
FAA Certifications |
|
| | |||
Goodwill |
|
| | |||
ACS: |
|
|
|
| ||
Trademarks |
|
| | |||
FAA Certifications |
|
| | |||
Goodwill |
|
| | |||
ACT: |
|
|
| |||
Trademarks |
|
| | |||
FAA Certificates |
|
| | |||
Goodwill |
|
| | |||
Total intangible assets with indefinite lives | $ | $ | |
The Company performed its annual quantitative impairment analysis on the indefinite lived intangible assets as of July 1, 2022 and concluded there was
| Useful Life |
|
| |||||
In Years | September 30, 2022 | December 31, 2021 | ||||||
Qwest: | ||||||||
Customer relationships | $ | $ | ||||||
ALGS: |
|
|
| |||||
Customer relationships |
|
| ||||||
ACS: |
|
|
|
|
| |||
Customer relationships |
|
| ||||||
ACT: |
|
|
| |||||
Customer relationships |
|
| ||||||
Total intangible assets with definite lives | $ | $ |
Total amortization expense amounted to $
11
Other intangible assets are reviewed at least annually or more frequently if any event or change in circumstance indicates that an impairment may have occurred.
NOTE G — PROPERTY AND EQUIPMENT, NET
Property and equipment, net, as of the below dates consisted of the following (in thousands):
| Useful Life |
|
| |||||
In Years | September 30, 2022 | December 31, 2021 | ||||||
Tooling and equipment |
| - | $ | $ | ||||
Furniture and other equipment |
|
|
| |||||
Computer software |
|
|
| |||||
Leasehold improvements |
| - |
|
| ||||
Equipment under capital lease |
|
|
| |||||
|
| |||||||
Less accumulated depreciation |
| ( |
| ( | ||||
$ | $ |
Depreciation expense, which includes amortization of equipment under capital lease, amounted to $
NOTE H — LEASE RENTAL REVENUES AND AIRCRAFT AND ENGINES HELD FOR LEASE
Aircraft and engines held for operating leases, net, as of the below dates consisted of the following (in thousands):
| September 30, 2022 |
| December 31, 2021 | |||
Aircraft and engines held for operating leases | $ | $ | ||||
Less accumulated depreciation |
| ( |
| ( | ||
$ | $ |
Total depreciation expense amounted to $
The Company recorded an impairment of Flight Equipment in the amount of $
Supplemental rents recognized as revenue totaled $
The Company’s current operating lease agreements for leased flight equipment expire over the next
12
leased for the length of time specified by the respective lease agreements.
Year ending December 31: |
| ||
Remainder of 2022 | $ | ||
2023 | |||
2024 |
| ||
Total minimum lease payments | $ |
NOTE I — ACCRUED EXPENSES
The following is a summary of the components of accrued expenses as of the below dates (in thousands):
| September 30, 2022 |
| December 31, 2021 | |||
Accrued compensation and related benefits | $ | $ | ||||
Accrued legal fees |
|
| ||||
Commission fee accrual |
|
| ||||
Accrued federal, state and local taxes and fees |
|
| ||||
Other |
|
| ||||
$ | $ |
NOTE J – WARRANT LIABILITY
Warrants to purchase a total of
The Private Warrants include provisions that affect the settlement amount. Such variables are outside of those used to determine the fair value of a fixed-for-fixed instrument, and as such, the warrants do not meet the criteria for equity treatment under guidance contained in ASC Topic 815, “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in a Company’s Own Stock.” The Company classifies the Private Warrants as a liability at their fair value subject to re-measurement at each balance sheet date and adjusted at each reporting period until exercised or expired, and any change in fair value is recognized in the Company's Condensed Consolidated Statement of Operations. The fair value of the Private Warrants as of September 30, 2021 was determined using the market price of the Company’s public warrants adjusted for their lack of liquidity. Effective December 29, 2021 all public warrants were redeemed on a cashless basis and ceased trading on Nasdaq. As a result, the Black-Scholes option pricing model was adopted. The following table represents the assumptions for the Black-Scholes option-pricing model used in determining the fair value of the Private Warrants as of September 30, 2022:
| September 30, 2022 | |
Risk-free interest rate | ||
Expected volatility of common stock | ||
Dividend yield | - | |
Expected option term in years | |
13
The significant assumptions utilized in the Black-Scholes calculation consist of interest rate for U.S. Treasury Bonds, as published by the U.S. Federal Reserve, and expected volatility estimated using historical daily volatility of guideline public companies.
The expense recognized in the Company's Condensed Consolidated Statement of Operations related to the change in fair value of warrant liability was $
NOTE K — EARNINGS PER SHARE
The computation of basic and diluted earnings per share (“EPS”) is based on the weighted average number of common shares outstanding during each period.
The following table provides a reconciliation of the computation for basic and diluted earnings per share for the three and nine months ended September 30, 2022 and 2021, respectively (in thousands, except share and per share data):
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||
2022 |
| 2021 |
| 2022 |
| 2021 | ||||||
Net (loss) income | $ | ( | $ | ( | $ | $ | ||||||
Net (loss) income for EPS - diluted | $ | ( | $ | ( | $ | $ | ||||||
Weighted-average number of shares outstanding - basic |
| |
| |
| |
| | ||||
Additional shares from assumed stock-settled restricted stock units | - | - | | | ||||||||
Additional shares from assumed exercise of public warrants | - | - | | - | ||||||||
Additional shares purchasable for employee stock purchase plan | - | - | | | ||||||||
Weighted-average number of shares outstanding - diluted |
| | |
| | | ||||||
(Loss) earnings per share – basic: | $ | ( | $ | ( | $ | | $ | | ||||
(Loss) earnings per share – diluted: | $ | ( | $ | ( | $ | | $ | | ||||
Anti-dilutive shares/units excluded from (loss) earnings per share - diluted: | ||||||||||||
Additional shares from assumed exercise of warrants | | | | | ||||||||
Additional shares from assumed stock-settled restricted stock units | | | - | - | ||||||||
Additional shares purchasable for employee stock purchase plan | | | - | - |
NOTE L — BUSINESS SEGMENTS
Consistent with how our chief operating decision maker (Chairman and Chief Executive Officer) evaluates performance and utilizes gross profit as a profitability measure, the Company reports its activities in
● | Asset Management Solutions — comprised of activities to extract value from strategic asset acquisitions through leasing, trading, or disassembling for product sales. |
● | TechOps — comprised of MRO activities; and product sales of internally developed engineered solutions and other serviceable products. |
The Asset Management Solutions segment activities include monetization of assets through the lease or sale of whole assets, or through disassembly activities in support of our USM-related activities. Our monetizing services have been developed to maximize returns on mid-life Flight Equipment throughout their operating life, in conjunction with realizing the highest residual value of Flight Equipment at its retirement.
14
The TechOps segment consists of aftermarket support and services businesses that provide maintenance support for aircraft and aircraft components, and sale of engineered solutions. Our MRO business also engages in longer term projects such as aircraft modifications, cargo conversions of wide-body aircraft, and aircraft storage. The segment also includes MRO of landing gear, thrust reversers, and other components. Cost of sales consists principally of the cost of product, direct labor, and overhead. Our engineered solutions revenues consist of sales of products internally developed as permitted by Supplemental Type Certificates issued by the FAA. These products are proprietary in nature and function as non-original equipment manufacturer solutions to airworthiness directives and other technical challenges for operators. In order to develop these products, the Company engages in research and development activities, which are expensed as incurred. The TechOps segment also engages in the repair and sale of used serviceable material inventory for which it has the overhaul capabilities and relationships to sell.
15
Gross profit is calculated by subtracting cost of sales from sales. The assets and certain expenses related to corporate activities are not allocated to the segments. Our reportable segments are aligned principally around the differences in products and services. The segment reporting excludes the allocation of selling, general and administrative expenses, interest expense and income tax expense.
Selected financial information for each segment for the three and nine months ended September 30, 2022 and 2021 is as follows (in thousands):
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||
2022 |
| 2021 | 2022 |
| 2021 |
| |||||||
Revenues |
|
| |||||||||||
Asset Management Solutions |
|
| |||||||||||
Aircraft | $ | | $ | | $ | | $ | | |||||
Engine |
| |
| |
| |
| | |||||
| |
| |
| |
| | ||||||
TechOps |
|
|
|
| |||||||||
MRO services |
| |
| |
| |
| | |||||
Product sales |
| |
| |
| |
| | |||||
Whole asset sales | - |
| - |
| |
| - | ||||||
| |
| |
| |
| | ||||||
Total | $ | | $ | | $ | | $ | | |||||
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||
2022 | 2021 | 2022 |
| 2021 | |||||||||
Gross profit |
|
|
|
| |||||||||
Asset Management Solutions |
|
|
|
| |||||||||
Aircraft | $ | | $ | | $ | | $ | | |||||
Engine |
| |
| |
| |
| | |||||
| |
| |
| |
| | ||||||
TechOps |
|
|
|
| |||||||||
MRO services |
| |
| |
| |
| | |||||
Product sales |
| |
| |
| |
| | |||||
Whole asset sales | - |
| - |
| |
| - | ||||||
| |
| |
| |
| | ||||||
Total | $ | | $ | | $ | | $ | | |||||
September 30, 2022 | December 31, 2021 | ||||||||||||
Total Assets | |||||||||||||
Asset Management Solutions | $ | | $ | | |||||||||
Tech Ops | | | |||||||||||
Corporate | | | |||||||||||
$ | | $ | |
16
The following table reconciles segment gross profit to income before income tax provision for the three and nine months ended September 30, 2022 and 2021 (in thousands):
| Three Months Ended September 30, |
| Nine Months Ended September 30, | ||||||||||
2022 |
| 2021 | 2022 |
| 2021 |
| |||||||
Segment gross profit | $ | $ | $ | $ | |||||||||
Selling, general and administrative expenses |
| ( |
| ( |
| ( |
| ( | |||||
Payroll support program proceeds |
| - |
| - |
| - |
| ||||||
Interest expense, net |
|
| ( |
|
| ( | |||||||
Other income, net |
|
|
|
| |||||||||
Change in fair value of warrant liability | ( | ( | ( | ( | |||||||||
(Loss) income before income tax provision | $ | ( | $ | ( | $ | $ |
Intersegment sales include amounts invoiced by a segment for work performed for another segment. Amounts are based on actual work performed or products sold and agreed-upon pricing which is intended to be reflective of the arm’s length value of the contribution made by the supplying business segment. All intersegment transactions have been eliminated upon consolidation.
| Three Months Ended September 30, |
| Nine Months Ended September 30, |
| |||||||||
2022 |
| 2021 |
| 2022 |
| 2021 |
| ||||||
Asset Management Solutions | $ | $ | $ | $ | |||||||||
TechOps |
|
|
|
| |||||||||
Total intersegment revenues | $ | $ | $ | $ |
NOTE M— COMMITMENTS AND CONTINGENCIES
Litigation
The Company may be involved in litigation incidental to the operation of the business. The Company intends to vigorously defend all matters in which the Company is named as defendant and, for insurable losses, maintain significant levels of insurance to protect against adverse judgments, claims or assessments that may affect the Company. Although the adequacy of existing insurance coverage of the outcome of any legal proceedings cannot be predicted with certainty, based on the current information available, the Company does not believe the ultimate liability associated with known claims or litigation, if any, in which the Company is involved will materially affect the Company’s condensed consolidated financial condition or results of operations.
Lease Commitments
The Company leases office space, warehouses, hangars and equipment in connection with its operations under various operating leases, many of which contain escalation clauses.
17
Future minimum lease payments under non-cancelable operating leases (with initial lease terms in excess of one year) are (in thousands):
| Operating | ||
Leases | |||
Year ending December 31: | |||
Remainder of 2022 | $ | ||
2023 | |||
2024 |
| ||
2025 |
| ||
2026 |
| ||
Thereafter |
| ||
Total minimum lease payments | $ |
Expenses incurred under the operating lease agreements was $
NOTE N — STOCKHOLDERS’ EQUITY
Common Stock
The Company’s common stock, $
Earn-Out Shares
Upon consummation of the Merger and in each case on or prior to the fifth anniversary of the Closing, the pre-closing holders of AerSale Aviation’s common stock and the holders of in-the-money SARs (as defined in the Merger Agreement) received a contingent right to receive up to
The Company determined the Earn-Out Shares (as defined by the Merger Agreement) to be classified as equity under ASC Topic 815, “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in a Company’s Own Stock” as the contingent right is indexed to the Company’s stock and accordingly, the accrual of the Earn-Out Shares had no impact on the Company’s condensed consolidated financial statements for the three and nine month periods ended September 30, 2021. There are
18
Unvested Founder Shares
Upon the consummation of the Merger, certain pre-closing holders of AerSale Corporation’s common stock agreed to defer the vesting of an aggregate of
Effective February 8, 2021, the contingency event related to the Minimum Target was met and half of the Unvested Founder Shares vested. Effective October 22, 2021, the contingent event related to the Maximum Target was met and the other half of the Unvested Founder Shares vested. There are
2020 Equity Incentive Plan
The Company maintains a 2020 Equity Incentive Plan (the “2020 Plan”) and has registered
Restricted stock unit activity under the 2020 Plan for the nine months ended September 30, 2022 and 2021 was as follows:
Weighted Average | ||||||||
Weighted Average | Remaining Contractual | |||||||
| Amount |
| Grant Date Fair Value |
| Life (Years) | |||
Outstanding at December 31, 2021 | | $ | | $ | ||||
Granted | |
| | |||||
Forfeited | ( |
| | |||||
Vested | ( | | - | |||||
Outstanding September 30, 2022 | | $ | | $ |
Weighted Average | ||||||||
Weighted Average | Remaining Contractual | |||||||
| Amount |
| Grant Date Fair Value |
| Life (Years) | |||
Outstanding at December 31, 2020 | - | $ | - | $ | - | |||
Granted | |
| | |||||
Forfeited | ( | | ||||||
Outstanding September 30, 2021 | | $ | | $ |
19
The Company’s restricted stock units include
For the restricted stock unit awards granted under the 2020 Plan containing both service and performance conditions, the Company recognizes compensation expense when the awards are considered probable of vesting. Restricted stock units are considered granted, and the service inception date begins, when a mutual understanding of the key terms and conditions between the Company and the employee have been established. The fair value of these awards is determined based on the closing price of the shares on the grant date. The probability of restricted share awards granted with future performance conditions is evaluated at each reporting period and compensation expense is adjusted based on the probability assessment.
2020 Employee Stock Purchase Plan
The Company also maintains a 2020 Employee Stock Purchase Plan (the “ESPP”) and has registered
ITEM 2 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis provides information that our management believes is relevant to an assessment and understanding of our condensed consolidated results of operations and financial condition. You should read the following management’s discussion and analysis together with the financial statements and related notes including Part II, Item 7 of AerSale’s Annual Report on Form 10-K for the year ended December 31, 2021 (the “2021 Form 10-K”). This discussion contains forward-looking statements about AerSale’s business, operations and industry that involve risks and uncertainties, such as statements regarding AerSale’s plans, objectives, expectations and intentions. AerSale’s future results and financial condition may differ materially from those currently anticipated because of the factors described in the section titled “Risk Factors” in the 2021 Form 10-K.
The Company
We operate as a platform for serving the commercial aviation aftermarket sector. Our top executives have on average over 30 years of experience in aircraft and engine (“Flight Equipment”) management, sales and maintenance services, and are supported by an experienced management team. We have established a global purpose built and fully integrated aviation company focused on providing products and services that maximize the value of Flight Equipment in the middle to end of its operating life cycle.
We are a worldwide provider of aftermarket commercial aircraft, engines, and their parts to passenger and cargo airlines, leasing companies, original equipment manufacturers (“OEM”), government and defense contractors, and maintenance, repair and overhaul (“MRO”) service providers. We report our activities in two business segments: Asset Management Solutions, comprised of activities that extract value from strategic asset acquisitions either as whole assets or by disassembling for used serviceable material (“USM”); and TechOps, comprised of MRO activities for aircraft and their components, sales of internally developed engineered solutions and other serviceable products.
20
We focus on mid-life Flight Equipment and monetize them through our Asset Management Solutions segment. Asset Management Solutions’ activities include monetization of assets through the lease or sale of whole assets, or through disassembly activities in support of our USM-related activities. Our monetizing services have been developed to maximize returns on mid-life Flight Equipment throughout their operating life, in conjunction with realizing the highest residual value of Flight Equipment at its retirement. We accomplish this by utilizing deep market and technical knowledge related to the management of Flight Equipment sales, leasing and MRO services. To extract value from the remaining flight time on whole assets, we provide flexible short-term (generally less than five years) leasing solutions of Flight Equipment to passenger and cargo operators across the globe. Once the value from the Flight Equipment’s flight time has been extracted, Flight Equipment is considered to be at or near the end of its useful life and is analyzed for return maximization as either whole asset sales or disassembled for sale as USM parts. Revenues from this segment are segregated between Aircraft and Engine depending on the asset type that generated the revenue. Lease revenues and the related depreciation from aircraft and engines installed on those aircrafts is recognized under the Aircraft category. Revenues from sales of whole aircraft and related cost of sales are allocated between the Aircraft and Engine categories based on the allocated cost basis of the asset sold.
Our TechOps segment provides internal and third-party aviation services, including internally developed engineered solutions, full heavy aircraft maintenance and modification, component MRO, as well as end-of-life disassembly services. Our MRO business also engages in longer-term projects such as aircraft modifications, cargo and tanker conversions of aircraft, and aircraft storage. The TechOps segment also includes MRO services for landing gear, thrust reversers, hydraulic systems, and other aircraft components.
We utilize these capabilities to support our customers’ Flight Equipment, as well as to maintain and improve our own Flight Equipment, which is subsequently sold or leased to our customers. These processes require a high degree of expertise on each individual aircraft or component that is being serviced. Our knowledge of these processes allows us to assist customers to comply with applicable regulatory and OEM requirements. A significant amount of skilled labor is required to support this process, which the Company has accumulated through its diversified offerings.
In addition to our aircraft and USM parts offerings, we develop Engineered Solutions consisting of Supplemental Type Certificates (“STCs”) that can be installed on existing Flight Equipment to improve performance, comply with regulatory requirements, or improve safety. An example of these solutions is the AerSafe® product line, which we designed and obtained Federal Aviation Administration (“FAA”) approval to sell as a solution for compliance with the FAA’s fuel tank flammability regulations. These products are proprietary in nature and function as non-OEM solutions to regulatory requirements and other technical challenges, often at reduced delivery time and cost for operators. In order to develop these products, we engage in research and development activities that are expensed as incurred.
Impact of Ukraine Conflict and Russia Sanctions
In February of 2022, Russia invaded Ukraine and is still engaged in an active conflict against the country. As a result, governments in the European Union, the United States, the United Kingdom, Switzerland, and other countries have enacted sanctions against Russia and Russian interests. These sanctions include controls on the export and re-export of certain goods, supplies, and technologies, supply of aircraft and aircraft components to Russian persons or for use in Russia, subject to certain wind-down periods, and the imposition of restrictions on doing business with certain state-owned Russian customers and other investments and business activities in Russia. In order to comply with these sanctions, we ceased pursuing future business in Russia and terminated our three leases with operators doing business in Russia, successfully recovering two aircraft with one engine still unrecovered. Due to continued uncertainty in the ability to recover this engine from Russia or to collect insurance coverage, we have fully impaired this asset. Although the current sanctions prohibit the continuation of certain business activities, the three leases referenced were contractually scheduled to expire in 2022 and therefore will have no material impact on our business or 2022 financial condition. While it is difficult to predict the short or long term implications of this conflict and sanctions on the global economy and the aviation industry, we intend to fully comply with all applicable sanctions and embargoes, and do not expect the current situation will have a material adverse effect on our results of operations.
21
Recent Accounting Pronouncements
The most recent adopted and to be adopted accounting pronouncements are described in Note A to our condensed consolidated financial statements as well as in Item 8, Note B of the 2021 Form 10-K.
Results of Operations
Three months ended September 30, 2022 compared to the three months ended September 30, 2021
Sales and gross profit for AerSale’s two business segments for the three months ended September 30, 2022 and 2021 were as follows:
Three Months Ended September 30, |
| ||||||||
(in thousands, except percentages) |
| 2022 |
| 2021 |
| Percent Change |
| ||
Revenue |
|
|
|
| |||||
Asset Management Solutions |
|
|
|
|
|
| |||
Aircraft | $ | 6,503 | $ | 15,204 |
| (57.2) | % | ||
Engines |
| 14,088 |
| 33,672 |
| (58.2) | % | ||
20,591 | 48,876 |
| (57.9) | % | |||||
TechOps |
|
|
|
| |||||
MRO | 26,390 | 21,683 |
| 21.7 | % | ||||
Product Sales | 4,018 | 2,739 |
| 46.7 | % | ||||
30,408 | 24,422 |
| 24.5 | % | |||||
Total | $ | 50,999 | $ | 73,298 |
| (30.4) | % |
Three Months Ended September 30, |
| ||||||||
(in thousands, except percentages) |
| 2022 |
| 2021 |
| Percent Change |
| ||
Gross Profit |
|
|
|
| |||||
Asset Management Solutions |
|
|
|
| |||||
Aircraft | $ | 2,480 | $ | 6,729 | (63.1) | % | |||
Engines |
| 6,210 | 10,084 | (38.4) | % | ||||
8,690 | 16,813 | (48.3) | % | ||||||
TechOps |
|
|
| ||||||
MRO | 5,453 | 6,407 | (14.9) | % | |||||
Product Sales | 1,346 | 1,412 | (4.7) | % | |||||
6,799 | 7,819 | (13.0) | % | ||||||
Total | $ | 15,489 | $ | 24,632 | (37.1) | % |
Total revenues for the three months ended September 30, 2022 decreased $22.3 million or 30.4% compared to 2021, driven by a decrease of $28.3 million, or 57.9%, within Asset Management Solutions, partially offset by an increase of $6.0 million, or 24.5%, within TechOps.
Asset Management Solutions
Sales in the Asset Management Solutions segment decreased $28.3 million or 57.9%, to $20.6 million for the three months ended September 30, 2022, due to an $8.7 million, or 57.2%, decrease in revenues from Aircraft; and a $19.6 million, or 58.2%, decrease in revenues from Engines. The decrease in Aircraft revenues is primarily attributable to decreased activity in the B757 product line as a result of lower Flight Equipment sales in the amount of $4.9 million; as well as lower leasing activity in the B737 and B767 product lines totaling $2.8 million, as a result of early lease terminations due to the Russia-Ukraine conflict. The decrease in Engines revenue is primarily attributable to lower activity
22
in the RB211 product line due to lower Flight Equipment sales in the amount of $21.0 million, offset by higher CF6-80 leasing activity in the amount of $2.7 million.
Cost of sales in Asset Management Solutions decreased $20.2 million or 62.9%, to $11.9 million for the three months ended September 30, 2022, compared to the prior year period. The decrease in cost of sales was primarily driven by the sales decrease discussed above. Gross profit in the Asset Management Solutions segment decreased $8.1 million to $8.7 million, or 48.3%, for the three months ended September 30, 2022, compared to the three months ended September 30, 2021. The gross profit decrease is mainly attributable to lower revenues generated for the three months ended September 30, 2022, as noted above.
Aircraft gross profit margins decreased to 38.1% for the three months ended September 30, 2022, from 44.3% for the three months ended September 30, 2021 due to lower margin generated on USM sales. Engine gross profit margin was 44.1% for the three months ended September 30, 2022, an increase from 29.9% for the three months ended September 30, 2021, which was primarily the result of higher margin on Flight Equipment sales.
TechOps
Our revenue from TechOps increased by $6.0 million or 24.5%, to $30.4 million for the three months ended September 30, 2022, compared to the prior year period. The increase was largely driven by improved landing gear and component repair activities, along with increased demand for heavy MRO services in our Goodyear facility, partially offset by lower storage and related maintenance activities in our Roswell facility as operators continue to return aircraft into active status.
Cost of sales in TechOps increased $7.0 million or 42.2%, to $23.6 million for the three months ended September 30, 2022 compared to the prior year period, driven by higher cost of sales from landing gear and component repair activities due to additional volume. Gross profit in TechOps decreased $1.0 million, or 13.0% for the three months ended September 30, 2022 compared to the three months ended September 30, 2021, driven by lower gross profit of $1.0 million on MRO services. Gross profit margin decreased to 22.4% for the three months ended September 30, 2022 compared to 32.0% for the three months ended September 30, 2021, and was largely attributable to lower margin on MRO services of 20.7% for the three months ended September 30, 2022 compared to 29.5% during the three month ended September 30, 2021, driven by lower margin maintenance work at our Roswell facility.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $1.2 million, or 5.2% to $24.0 million for the three months ended September 30, 2022, compared to the prior year period. The increase was mostly related to higher payroll expenses associated with market adjustments and additional headcount, as well as higher cost incurred on information technology and cybersecurity, and professional consulting fees.
Change in Fair Value of Warrant Liability
We account for our private warrants as a liability at their fair value, with changes in fair value recognized in our results from operations for the period. The fair value of our private warrants is determined using a Black Scholes option pricing model. For the three months ended September 30, 2022, we recorded a $2.0 million expense in fair value of warrant liability income, compared to a $2.1 million expense in the prior year period.
Interest Income (Expense)
Interest income was $0.4 million for the three months ended September 30, 2022, compared to $0.2 million expense for the three months ended September 30, 2021 and was primarily related to higher interest income, offset by unused balance fees on our amended and restated revolving credit agreement (the “Revolving Credit Agreement”).
23
Income Taxes
The effective tax rate for the three months ended September 30, 2022 was 10.6% compared to (222.7%) for the three months ended September 30, 2021. The difference between the effective tax rate and the statutory tax rate of 21% for the three months ended September 30, 2022 is primarily due to the impact of state income taxes and non-deductible executive compensation, offset by the foreign derived intangible income deduction. The difference between the effective tax rate and the statutory tax rate of 21% for the three months ended September 30, 2021 is primarily due to the impact of state income taxes and non-deductible changes in the fair value of the warrant liability.
Nine months ended September 30, 2022 compared to the nine months ended September 30, 2021
Sales and gross profit for AerSale’s two business segments for the nine months ended September 30, 2022 and 2021 were as follows:
Nine Months Ended September 30, |
| ||||||||
(in thousands, except percentages) |
| 2022 |
| 2021 |
| Percent Change |
| ||
Revenue |
|
|
|
| |||||
Asset Management Solutions |
|
|
|
|
|
| |||
Aircraft | $ | 78,343 | $ | 49,925 |
| 56.9 | % | ||
Engines |
| 131,319 |
| 88,502 |
| 48.4 | % | ||
209,662 | 138,427 |
| 51.5 | % | |||||
TechOps |
|
|
|
| |||||
MRO | 72,258 | 78,116 |
| (7.5) | % | ||||
Product Sales | 7,888 | 7,111 |
| 10.9 | % | ||||
Whole Asset Sale | 23,605 | - |
| 100.0 | % | ||||
103,751 | 85,227 |
| 21.7 | % | |||||
Total | $ | 313,413 | $ | 223,654 |
| 40.1 | % |
Nine Months Ended September 30, |
| ||||||||
(in thousands, except percentages) |
| 2022 |
| 2021 |
| Percent Change |
| ||
Gross Profit |
|
|
|
| |||||
Asset Management Solutions |
|
|
|
| |||||
Aircraft | $ | 29,779 | $ | 16,370 | 81.9 | % | |||
Engines |
| 60,439 |
| 33,129 | 82.4 | % | |||
90,218 | 49,499 | 82.3 | % | ||||||
TechOps |
|
|
| ||||||
MRO | 16,257 | 22,481 | (27.7) | % | |||||
Product Sales | 3,174 | 3,225 | (1.6) | % | |||||
Whole Asset Sale | 7,523 | - | 100.0 | % | |||||
26,954 | 25,706 | 4.9 | % | ||||||
Total | $ | 117,172 | $ | 75,205 | 55.8 | % |
Total revenues for the nine-months ended September 30, 2022 increased $89.8 million or 40.1% compared to 2021, driven by an increase of $71.2 million, or 51.5%, within Asset Management Solutions, and an increase of $18.5 million, or 21.7%, within TechOps.
24
Asset Management Solutions
Sales in the Asset Management Solutions segment increased $71.2 million or 51.5%, to $209.7 million for the nine months ended September 30, 2022, due to a $42.8 million, or 48.4%, increase in revenues from Engines; and a $28.4 million, or 56.9%, increase in revenues from Aircraft. The increase in Engines revenues is primarily attributable to increased activity in the RB211 and CF6-80 product line as a result of higher Flight Equipment sales in the amount of $31.5 million, and higher leasing revenue in the CF6-80 product line totaling $7.4 million. The increase in Aircraft revenue is primarily attributable to increased activity in the B747 and B757 product line due to higher Flight Equipment sales in the amount of $31.1 million, offset by lower B737 Flight Equipment sales in the amount of $3.9 million.
Cost of sales in Asset Management Solutions increased $30.5 million or 34.3%, to $119.4 million for the nine months ended September 30, 2022, compared to the prior year period. The increase in cost of sales was primarily driven by the sales increase discussed above and the impairment of Flight Equipment in Russia of $0.9 million, offset by lower inventory obsolescence reserves of $3.0 million. Gross profit in the Asset Management Solutions segment increased $40.7 million to $90.2 million, or 82.3%, for the nine months ended September 30, 2022, compared to the nine months ended September 30, 2021. The gross profit increase is mainly attributable to higher revenues generated for the nine months ended September 30, 2022, as noted above.
Aircraft gross profit margins increased to 38.0% for the nine months ended September 30, 2022, from 32.8% for the nine months ended September 30, 2021 due to higher margin on Flight Equipment sales, and lower inventory obsolescence reserves of $3.8 million. Engine gross profit margin was 46.0% for the nine months ended September 30, 2022, an increase from 37.4% for the nine months ended September 30, 2021, which was primarily the result of higher margins on Flight Equipment sales and engine leasing activity, offset by higher inventory obsolescence reserves of $0.8 million and the impairment of Flight Equipment in Russia of $0.9 million.
TechOps
Our revenue from TechOps increased by $18.5 million or 21.7%, to $103.8 million for the nine months ended September 30, 2022, compared to the prior year period. The increase was primarily driven by the sale of Flight Equipment, which was purchased and controlled by the TechOps segment prior to its ultimate sale, along with improved landing gear and component repair activities; offset by lower revenues from storage and related maintenance activities in our Roswell facility as operators continue to return aircraft into active status, as well as a shift in resources at our Goodyear facility to support our cargo conversion projects on the B757 product line.
Cost of sales in TechOps increased $17.3 million or 29.0%, to $76.8 million for the nine months ended September 30, 2022 compared to the prior year period, driven by costs generated from the sale of Flight Equipment of $16.1 million and cost associated with revenue fluctuations noted above. Gross profit in TechOps increased $1.2 million, or 4.9% for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021, driven by the profit generated from the sale of Flight Equipment of $7.5 million, offset by lower gross profit of $6.2 million on MRO services. Gross profit margin decreased to 26.0% for the nine months ended September 30, 2022 compared to 30.2% for the nine months ended September 30, 2021, and was largely attributable to lower margin generated on MRO services of 22.5% for the nine months ended September 30, 2022 compared to 28.8% during the nine month ended September 30, 2021, driven by lower margin maintenance work at our Roswell facility.
25
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $18.2 million, or 34.2% to $71.3 million for the nine months ended September 30, 2022, compared to the prior year period. The increase was mostly related to higher payroll expenses associated with market adjustments, additional headcount, and higher share-based compensation expense of $3.1 million, as well as higher cost incurred on information technology and cybersecurity, professional consulting fees, and facility costs.
Payroll Support Program Proceeds
We recognized CARES Act proceeds of $14.8 million during the nine months ended September 30, 2021. No such proceeds have been received or recognized during the nine months ended September 30, 2022.
As of September 30, 2022, we were in compliance with the applicable provisions of the CARES Act, Payroll Support Extension Law, and American Rescue Plan Act of 2021.
Change in Fair Value of Warrant Liability
We account for our private warrants as a liability at their fair value, with changes in fair value recognized in our results from operations for the period. The fair value of our private warrants is determined using a Black Scholes option pricing model. For the nine months ended September 30, 2022, we recorded a $1.9 million expense in fair value of the warrant liability income, compared to a $2.7 million expense in the prior year period.
Interest Income (Expense)
There was no interest expense during the nine months ended September 30, 2022, compared to $0.8 million expense for the nine months ended September 30, 2021 and was primarily related to higher interest income on available cash balance, offset by unused balance fees on our amended and restated revolving credit agreement (the “Revolving Credit Agreement”).
Income Taxes
The effective tax rate for the nine months ended September 30, 2022 was 22.2% compared to 26.0% for the nine months ended September 30, 2021. The difference between the effective tax rate and the statutory tax rate of 21% for the nine months ended September 30, 2022 is primarily due to the impact of state income taxes and non-deductible executive compensation, offset by the foreign derived intangible income deduction. The difference between the effective tax rate and the statutory tax rate of 21% for the nine months ended September 30, 2021 is primarily due to the impact of state income taxes and non-deductible changes in the fair value of the warrant liability.
Financial Position, Liquidity and Capital Resources
As of September 30, 2022, we had $151.4 million of cash and cash equivalents. We finance our growth through cash flows generated from operations and borrowings secured by our assets. There were no borrowings during the nine months ended September 30, 2022. We had no outstanding balance on the Company’s Revolving Credit Agreement as of September 30, 2022, and we had $108.0 million of availability thereunder. We used cash in operations of $2.4 million for the nine months ended September 30, 2022, and generated cash from investing activities of $23.2 million for the nine months ended September 30, 2022.
We believe our equity base, internally generated funds, and existing availability under our debt facility are sufficient to maintain our level of operations through September 30, 2023. If an event occurs that would affect our ability to meet our capital requirements, our ability to continue to grow our asset base consistent with historical trends could be impaired and our future growth limited to that which can be funded from internally generated capital.
26
We may, from time to time, purchase our outstanding shares of common stock through cash purchases and/or exchanges for equity or debt, in open-market purchases, privately negotiated transactions or otherwise. Such purchases or exchanges, if any, will be upon such terms and at such prices as we may determine, and will depend on prevailing market conditions, our liquidity requirements, legal and regulatory considerations, contractual restrictions and other factors. Purchases, if any, will be funded through our available cash from operations. The amounts involved may be material.
Cash Flows— Nine months ended September 30, 2022 compared to nine months ended September 30, 2021
Cash Flows from Operating Activities
Net cash used in operating activities was $2.4 million for the nine months ended September 30, 2022, compared to cash provided of $26.4 million for the same period in 2021. The decrease of $28.8 million was primarily due to the application of previously collected deposits to sale of whole assets during the period, along with timing of cash advances to vendors.
Cash Flows from Investing Activities
Net cash provided by investing activities was $23.2 million for the nine months ended September 30, 2022, compared to cash provided of $5.9 million in the same period for 2021. Cash provided by investing activities during the nine months ended September 30, 2022 was driven by the sale of Flight Equipment. Cash provided by investing activities during the nine months ended September 30, 2021 was also driven by the sale of Flight Equipment.
Cash Flows from Financing Activities
Net cash provided by financing activities was $0.3 million for the nine months ended September 30, 2022 and 2021. Cash provided by financing activities during the nine months ended September 30, 2022 is primarily related to the proceeds from the issuance and the sale of shares under the Employee Stock Purchase Plan (“ESPP”). Cash provided by financing activities during the nine months ended September 30, 2021 is the result of proceeds from the exercise of public warrants.
Debt Obligations and Covenant Compliance
Our Revolving Credit Agreement provided commitments for a $110.0 million revolving credit facility and includes a $10.0 million sub facility for letters of credit and for borrowings on same-day notice referred to as “swingline loans.” The maximum amount of such commitments available at any time for borrowings and letters of credit is determined according to a borrowing base calculation equal to the sum of eligible inventory and eligible accounts receivable reduced by the aggregate amount, if any, of trade payables of the loan parties, as defined in the Revolving Credit Agreement. Extensions of credit under the Revolving Credit Agreement are available for working capital and general corporate purposes.
Effective March 12, 2021, we amended our Revolving Credit Agreement to increase our maximum commitments under the Revolving Credit Agreement to a $150.0 million aggregate amount, subject to borrowing base limitations, and to extend the maturity date to March 12, 2024, subject to certain conditions.
As of September 30, 2022, there was no outstanding balance under the Revolving Credit Agreement and we had $108.0 million of availability thereunder. We were in compliance with our debt covenants as of September 30, 2022.
Off-Balance Sheet Arrangements and Contractual Obligations
We did not have any off-balance sheet arrangements as of September 30, 2022. Refer to Note M – Commitments and Contingencies within our Condensed Consolidated Financial Statements for a listing of our non-cancelable contractual obligations under operating leases.
27
The Company has entered into a purchase commitment with Universal Avionics, a subsidiary of Elbit Systems, valued at $33.1 million for the acquisition of technical equipment for manufacturing our AerAware product. The commitment is expected to be satisfied by the fourth quarter of 2023. The Company has expanded its commitment for the purchase of cargo conversion kits to support its B757 freighter conversion program in the amount of $40.9 million. The commitment is expected to be satisfied during 2023.
Critical Accounting Policies and Estimates
The preparation of the Condensed Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States (“U.S. GAAP”) requires our management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the Condensed Consolidated Financial Statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. A summary of our critical accounting estimates is included in Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in the 2021 Annual Report. We continually review these estimates and their underlying assumptions to ensure they are appropriate for the circumstances. Changes in the estimates and assumptions we use could have a material impact on our financial results. During the three and nine months ended September 30, 2022, there were no material changes in our estimates and critical accounting policies.
ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
In the normal course of business, we are subject to market risks. Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and sales. Our exposure to market risk includes fluctuating interest rates and changes in foreign exchange rates.
Interest Rate Risk
We are exposed to the risk that our earnings and cash flows could be adversely impacted by fluctuations in interest rates associated with borrowings under our Amended and Restated Credit Agreement, or the Credit Facility, which has variable interest rates tied to LIBOR. As of September 30, 2022, we had no outstanding variable rate borrowings under our Credit Facility. Therefore, a ten percent increase in the average interest rate affecting our variable rate debt outstanding as of September 30, 2022 would not have had a material impact on our interest expense, financial position or continuing operations.
Foreign Currency Exchange Risk
We primarily use the U.S. dollar as our functional currency in all markets in which we operate in order to reduce our foreign currency market risk. Only general office expense and payroll transactions for our international locations are denominated in local currency. A hypothetical ten percent devaluation of the U.S. dollar against foreign currencies would not have had a material impact on our financial position or continuing operations as of and for the three months ended September 30, 2022.
ITEM 4 CONTROLS AND PROCEDURES
Limitations on Effectiveness of Controls and Procedures
In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints, and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.
28
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)) under the Exchange Act as of September 30, 2022.
Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of September 30, 2022.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended September 30, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
We are not subject to any material legal proceedings.
ITEM 1A RISK FACTORS
There are no material changes in the information reported under Part I – Item 1A “Risk Factors” contained in the Annual Report except as set forth below.
We are exposed to risks associated with operating internationally.
We conduct business in a number of foreign countries, certain of which are politically unstable or subject to military, civil conflicts or other risks. Consequently, we are subject to a variety of risks that are specific to international operations, including the following:
● | military conflicts, civil strife, and political risks; |
● | export regulations that could erode profit margins or restrict exports; |
● | compliance with the U.S. Foreign Corrupt Practices Act, the United Kingdom Bribery Act of 2010, and other anti-bribery and anticorruption laws; |
● | the burden and cost of compliance with foreign laws, treaties, and technical standards and changes in those regulations; |
● | contract award and funding delays; |
● | potential restrictions on transfers of funds; |
● | import and export duties and value added taxes; |
● | foreign exchange risk; |
● | transportation delays and interruptions; |
● | natural disasters, adverse weather and climate change; |
29
● | uncertainties arising from foreign local business practices and cultural considerations; and |
● | changes in United States policies on trade relations and trade policy, including implementation of or changes in trade sanctions, tariffs, and embargoes. |
Measures that we have or will adopt to reduce the potential impact of losses resulting from the risks of doing business internationally may not be adequate, and the regions in which we operate might not continue to be stable enough to allow us to operate profitably or at all.
The war in the Ukraine is creating an adverse climate for our business. The U.S. government has imposed enhanced export restrictions and controls on certain products and technology, as well as sanctions on certain industry sectors and parties in Russia, Belarus and parts of the Ukraine. The governments of other jurisdictions in which we may conduct business, such as the European Union, have also implemented sanctions or other restrictive measures. These sanctions include controls on the export and re-export of certain goods, supplies, and technologies, supply of aircraft and aircraft components to Russian persons or for use in Russia, subject to certain wind-down periods, and the imposition of restrictions on doing business with certain state-owned Russian customers and other investments and business activities in Russia. In order to comply with these sanctions, the Company ceased pursuing future business in Russia and terminated our three leases with operators doing business in Russia, successfully repossessing two aircraft with one engine still unrecovered. Due to continued uncertainty in the ability to recover this engine from Russia or to collect insurance coverage, we have fully impaired this asset. These sanctions and enhanced export controls, as well as any responses from Russia may adversely affect the Company and/or our supply chain, business partners or customers, flight activity, demand for MRO and leasing services and the related macro environment. The economic and security conditions may limit the Company’s ability to provide its services or products to certain customers, as well as limit its ability to receive payments. The totality of these events, sanctions and restrictions may have a material adverse effect on our business, financial condition, liquidity and results of operations. These sanctions and restrictions may also jeopardize and adversely impact the availability and cost of insurance that covers any assets or operations that may be subject to these restrictions and enhanced sanctions.
ITEM 2 UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Recent Sales of Unregistered Equity Securities
None.
Use of Proceeds
None.
Issuer Purchases of Equity Securities
None.
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4 MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5 OTHER INFORMATION
None.
30
ITEM 6 EXHIBITS
The following is a list of exhibits filed as part of this Quarterly Report on Form 10-Q.
Incorporated by Reference | Filed/ | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Exhibit |
| Exhibit Description |
| Form |
| File No. |
| Exhibit |
| Filing |
| Furnished Herewith |
2.1 | 8-K | 001-38801 | 2.1 | 12/9/2019 | ||||||||
2.2 | 10-Q | 001-38801 | 2.1 | 8/14/2020 | ||||||||
2.3 | 8-K | 001-38801 | 2.1 | 09/08/2020 | ||||||||
2.4 | 8-K | 001-38801 | 10.5 | 12/17/2020 | ||||||||
3.1 | Amended and Restated Certificate of Incorporation of Monocle Holdings Inc., dated October 13, 2020. | S-4/A | 333-235766 | 3.1 | 10/14/2020 | |||||||
3.2 | 8-K | 001-38801 | 3.2 | 12/23/2020 | ||||||||
3.3 | 10-Q | 001-38801 | 3.3 | 08/09/2021 | ||||||||
3.4 | Amended and Restated By laws of Monocle Holdings Inc., dated October 13, 2020. | S-4/A | 333-235766 | 3.2 | 10/14/2020 | |||||||
3.5 | 8-K | 001-38801 | 3.4 | 12/23/2020 |
31
Incorporated by Reference | Filed/ | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Exhibit |
| Exhibit Description |
| Form |
| File No. |
| Exhibit |
| Filing |
| Furnished Herewith |
4.1 | S-4/A | 333-235766 | 4.2 | 02/14/2020 | ||||||||
4.2 | S-4/A | 333-235766 | 4.3 | 02/14/2020 | ||||||||
4.3 | 8-K | 001-38801 | 4.1 | 02/12/2019 | ||||||||
31.1 | Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a). | * | ||||||||||
31.2 | Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a). | * | ||||||||||
32.1 | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350. | ** | ||||||||||
32.2 | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350. | ** | ||||||||||
101.INS | Inline XBRL Instance Document | * | ||||||||||
101.SCH | Inline XBRL Taxonomy Extension Schema Document | * | ||||||||||
101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | * | ||||||||||
101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | * | ||||||||||
101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | * | ||||||||||
101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | * | ||||||||||
104 | Cover Page Interactive Data File (formatted as inline XBRL with applicable taxonomy extension information continued in Exhibits 101*) | * | ||||||||||
* | Filed herewith | |||||||||||
** | Furnished herewith |
32
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
AerSale Corporation | |||
Date: | November 9, 2022 | By: | /s/ Nicolas Finazzo |
Nicolas Finazzo | |||
Chairman, Chief Executive Officer, Division President, TechOps and Director | |||
(Principal Executive Officer) |
Date: | November 9, 2022 | By: | /s/ Martin Garmendia |
Martin Garmendia | |||
Chief Financial Officer and Treasurer | |||
(Principal Financial and Accounting Officer) |
33
Exhibit 31.1
CERTIFICATION
I, Nicolas Finazzo, certify that:
1. | I have reviewed this Quarterly Report on Form 10-Q of AerSale Corporation; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: November 9, 2022 |
| By: | /s/ Nicolas Finazzo |
| | | Nicolas Finazzo |
| | | Chief Executive Officer |
| | | (Principal Executive Officer) |
Exhibit 31.2
CERTIFICATION
I, Martin Garmendia, certify that:
1. | I have reviewed this Quarterly Report on Form 10-Q of AerSale Corporation; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: November 9, 2022 |
| By: | /s/ Martin Garmendia |
| | | Martin Garmendia |
| | | Chief Financial Officer |
| | | (Principal Financial Officer) |
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of AerSale Corporation (the “Company”) for the period ended September 30, 2022 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:
(1) | The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
(2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Date: November 9, 2022 |
| By: | /s/ Nicolas Finazzo |
| | | Nicolas Finazzo |
| | | Chief Executive Officer |
| | | (Principal Executive Officer) |
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of AerSale Corporation (the “Company”) for the period ended September 30, 2022 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:
(1) | The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
(2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Date: November 9, 2022 |
| By: | /s/ Martin Garmendia |
| | | Martin Garmendia |
| | | Chief Financial Officer |
| | | (Principal Financial Officer) |
Condensed Consolidated Balance Sheets (Parenthetical) - USD ($) $ in Thousands |
Sep. 30, 2022 |
Dec. 31, 2021 |
---|---|---|
Condensed Consolidated Balance Sheets | ||
Allowance for doubtful accounts | $ 1,272 | $ 1,692 |
Common Stock, Par or Stated Value Per Share | $ 0.0001 | $ 0.0001 |
Common Stock, Shares Authorized | 200,000,000 | 200,000,000 |
Common Stock, Shares, Issued | 51,774,665 | 51,673,099 |
Common Stock, Shares, Outstanding | 51,774,665 | 51,673,099 |
Condensed Consolidated Statements of Operations - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2022 |
Sep. 30, 2021 |
Sep. 30, 2022 |
Sep. 30, 2021 |
|
Revenue: | ||||
Total revenue | $ 50,999 | $ 73,298 | $ 313,413 | $ 223,654 |
Cost of sales and operating expenses: | ||||
Total cost of sales | 35,510 | 48,666 | 196,241 | 148,449 |
Gross profit | 15,489 | 24,632 | 117,172 | 75,205 |
Selling, general, and administrative expenses | 23,983 | 22,803 | 71,252 | 53,079 |
Payroll support program proceeds | (14,768) | |||
(Loss) income from operations | (8,494) | 1,829 | 45,920 | 36,894 |
Other income (expenses): | ||||
Interest income (expense), net | 393 | (241) | 15 | (750) |
Other income, net | 45 | 9 | 526 | 258 |
Change in fair value of warrant liability | (2,029) | (2,104) | (1,881) | (2,735) |
Total other expenses | (1,591) | (2,336) | (1,340) | (3,227) |
(Loss) income before income tax provision | (10,085) | (507) | 44,580 | 33,667 |
Income tax benefit (expense) | 1,072 | (1,129) | (9,912) | (8,737) |
Net (loss) income | $ (9,013) | $ (1,636) | $ 34,668 | $ 24,930 |
Earnings per share - basic | ||||
(Loss) earnings per share - basic | $ (0.17) | $ (0.04) | $ 0.67 | $ 0.59 |
Earnings per share - diluted | ||||
(Loss) earnings per share - diluted | $ (0.17) | $ (0.04) | $ 0.64 | $ 0.59 |
Product | ||||
Revenue: | ||||
Total revenue | $ 16,823 | $ 43,613 | $ 217,813 | $ 124,914 |
Cost of sales and operating expenses: | ||||
Total cost of sales | 12,755 | 30,954 | 133,702 | 85,147 |
Leasing | ||||
Revenue: | ||||
Total revenue | 7,786 | 8,002 | 23,342 | 20,624 |
Cost of sales and operating expenses: | ||||
Total cost of sales | 1,818 | 2,436 | 6,538 | 7,667 |
Services | ||||
Revenue: | ||||
Total revenue | 26,390 | 21,683 | 72,258 | 78,116 |
Cost of sales and operating expenses: | ||||
Total cost of sales | $ 20,937 | $ 15,276 | $ 56,001 | $ 55,635 |
DESCRIPTION OF THE BUSINESS |
9 Months Ended |
---|---|
Sep. 30, 2022 | |
DESCRIPTION OF THE BUSINESS | |
DESCRIPTION OF THE BUSINESS | NOTE A — DESCRIPTION OF THE BUSINESS Organization Monocle Acquisition Corporation (“Monocle”) was initially formed on August 20, 2018 for the purpose of effecting a merger, share exchange, asset acquisition, stock purchase, recapitalization, reorganization or similar business combination with one or more businesses. On December 22, 2020, (the “Closing Date”), Monocle consummated a business combination pursuant to that certain Amended and Restated Agreement and Plan of Merger, dated September 8, 2020 (the “Merger Agreement”) by and among Monocle, AerSale Corporation (f/k/a Monocle Holdings Inc.), a Delaware corporation (the “Company”), AerSale Aviation, Inc. (f/k/a AerSale Corp.), a Delaware corporation (“AerSale Aviation”), Monocle Merger Sub 1 Inc., a Delaware corporation (“Merger Sub 1”), Monocle Merger Sub 2 LLC, a Delaware limited liability company (“Merger Sub 2”), and Leonard Green & Partners, L.P., a Delaware limited partnership, solely in its capacity as the initial Holder Representative (as defined in the Merger Agreement). The transactions contemplated by the Merger Agreement are referred to herein as the “Merger” and in connection therewith, Monocle merged with and into us, whereby the Company survived the merger and became the successor issuer to Monocle by operation of Rule 12g-3 under the Exchange Act. Upon the consummation of the Merger: (a) Merger Sub 1 was merged with and into Monocle, with Monocle surviving the merger as a wholly-owned direct subsidiary of the Company (the “First Merger”), and (b) Merger Sub 2 was merged with and into AerSale Aviation, with AerSale Aviation surviving the merger as a wholly-owned indirect subsidiary of the Company (the “Second Merger”). In connection with the closing of the Merger (the “Closing”), AerSale Aviation changed its name from “AerSale Corp.” to “AerSale Aviation, Inc.” and the Company changed its name from “Monocle Holdings Inc.” to “AerSale Corporation.” Immediately following the Merger, the Company contributed all of its ownership in Monocle to AerSale Aviation which will continue as a wholly owned subsidiary of the Company. The Company’s corporate headquarters are based in Miami, Florida, with additional offices, hangars, and warehouses globally. |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
9 Months Ended |
---|---|
Sep. 30, 2022 | |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | NOTE B — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Interim Financial Statements The accompanying unaudited interim consolidated financial statements have been prepared from the books and records of the Company in accordance with Generally Accepted Accounting Policies in the United States (“U.S. GAAP”) for interim financial information and Rule 10-01 of Regulation S-X promulgated by the U.S. Securities and Exchange Commission (“SEC”), which permits reduced disclosures for interim periods. Although these interim consolidated financial statements do not include all of the information and footnotes required for complete annual consolidated financial statements, management believes all adjustments, consisting only of normal recurring adjustments, and disclosures necessary for a fair presentation of the accompanying condensed consolidated balance sheets, statements of operations, stockholders’ equity, and cash flows have been made. Unaudited interim results of operations and cash flows are not necessarily indicative of the results that may be expected for the full year. Unaudited interim condensed consolidated financial statements and footnotes should be read in conjunction with the audited consolidated financial statements and footnotes included in Part II, Item 8 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 (the “2021 Annual Report), wherein a more complete discussion of significant accounting policies and certain other information can be found. Revenue Recognition Products — Used Serviceable Material (“USM”) Sales Revenues from sales of USM are measured based on consideration specified within customer contracts, and excludes any sales commissions and taxes collected and remitted to government agencies. The Company recognizes revenue when performance obligations are satisfied by transferring control of a product or service to a customer. The parts are sold at a fixed price with no right of return. In determining the performance obligation, management has identified the promise in the contract to be the shipment of the spare parts to the customer. Title passes to the buyer when the goods are shipped, the buyer is responsible for any loss in transit and the Company has a legal right to payment for the spare parts once shipped. The Company generally sells its USM products under standard 30-day payment terms, subject to certain exceptions. Customers neither have the right to return products nor do they have the right to extended financing. The Company has determined that physical acceptance of the spare parts to be a formality in accordance with Accounting Standards Codification (“ASC”) Topic 606, “Revenue from Contracts with Customers” (“ASC 606”). Spare parts revenue is based on a set price for a set number of parts as defined in the purchase order. The performance obligation is completed once the parts have shipped and as a result, all of the transaction price is allocated to that performance obligation. The Company has determined that it is appropriate to recognize spare parts sales at a point in time (i.e., the date the parts are shipped) in accordance with ASC 606. Products — Whole Asset Sales Revenues from whole asset sales are measured based on consideration specified in the contract with the customer. The Company and customer enter into an agreement which outlines the place and date of sale, purchase price, condition of the whole asset, bill of sale and the assignment of rights and warranties from the Company to the customer. The Company believes the whole asset holds standalone value to the customer as it is not dependent on any other services for functionality purposes and therefore is distinct within the context of the contract and as described in ASC 606-10. Accordingly, the Company has identified the transfer of the whole asset as the performance obligation. The transaction price is set at a fixed dollar amount per fixed quantity (number of whole assets) and is explicitly stated in each contract. Whole asset sales revenue is based on a set price for a set number of assets, which is allocated to the performance obligation discussed above, in its entirety. The Company has determined the date of transfer to the customer is the date the customer obtains control over the asset and would cause the revenue recognition. Payment is required in full upon a customer’s acceptance of the whole asset on the date of the transfer. Leasing Revenues The Company leases flight equipment under operating leases that contain monthly base rent and reports rental income straight line over the life of the lease as it is earned. Additionally, the Company’s leases provide for supplemental rent, which is calculated based on actual hours or cycles of utilization and, for certain components, based on the amount of time until maintenance of that component is required. In certain leases, the Company records supplemental rent paid by the lessees as maintenance deposit payment liabilities in recognition of the Company’s contractual commitment to reimburse qualifying maintenance. Reimbursements to the lessees upon receipt of evidence of qualifying maintenance work are charged against the existing maintenance deposit payment liabilities. In leases where the Company is responsible for performing certain repairs or replacement of aircraft components or engines, supplemental rent is recorded as revenue in the period earned. In the event of premature lease termination or lessee default on the lease terms, revenue recognition will be discontinued when outstanding balances beyond the customers’ deposits are held. Payment terms for leased flight equipment are due upon receipt. Service Revenues Service revenues are recognized as performance obligations when they are fulfilled and the benefits are transferred to the customer. At contract inception, the Company evaluates if the contract should be accounted for as a single performance obligation or if the contract contains multiple performance obligations. In some cases, the Company’s service contract with the customer is considered one performance obligation as it includes factors such as the good or service being provided is significantly integrated with other promises in the contract, the service provided significantly modifies or customizes the other good or service or the goods or services are highly interdependent or interrelated with each other. If the contract has more than one performance obligation, the Company determines the standalone price of each distinct good or service underlying each performance obligation and allocates the transaction price based on their relative standalone selling prices. The transaction price of a contract, which can include both fixed and variable amounts, is allocated to each performance obligation identified. Some contracts contain variable consideration, which could include incremental fees or penalty provisions related to performance. Variable consideration that can be reasonably estimated based on current assumptions and historical information is included in the transaction price at the inception of the contract but limited to the amount that is probable that a significant reversal in the amount of cumulative revenue recognized will not occur. Variable consideration that cannot be reasonably estimated is recorded when known. For most service contracts, performance obligations are satisfied over time as work progresses based on transfer of control of products and services to our customers. The Company receives payments from our customers based on billing schedules or contractual terms. For performance obligations that are satisfied over time, the Company measures progress in a manner that depicts the performance of transferring control to the customer. As such, the Company utilizes the input method of cost-to-cost to recognize revenue over time as this depicts when control of the promised goods or services are transferred to the customer. Revenue is recognized based on the relationship of actual costs incurred to date to the estimated total cost at completion of the performance obligation. The Company is required to make certain judgments and estimates, including estimated revenues and costs, as well as inflation and the overall profitability of the arrangement. Key assumptions involved include future labor costs and efficiencies, overhead costs and ultimate timing of product delivery. Differences may occur between the judgments and estimates made by management and actual program results. Under most of the Company’s Maintenance, Repair and Overhaul (“MRO”) contracts, if the contract is terminated for convenience, the Company is entitled to payment for items delivered, fair compensation for work performed, the costs of settling and paying other claims and a reasonable profit on the costs incurred or committed. Changes in estimates and assumptions related to our arrangements accounted for using the input method based on labor hours are recorded using the cumulative catchup method of accounting. These changes are primarily adjustments to the estimated profitability for our long term programs where the Company provides MRO services. The Company has elected to use certain practical expedients permitted under ASC 606. Shipping and handling fees and costs incurred associated with outbound freight after control over a product has transferred to a customer are accounted for as a fulfillment cost, are included in cost of sales in our Condensed Consolidated Statements of Operations and are not considered a performance obligation to our customers. The Company’s reported sales on our Condensed Consolidated Statements of Operations are net of any sales or related non income taxes. The Company also utilizes the “as invoiced” practical expedient in certain cases where performance obligations are satisfied over time and the invoiced amount corresponds directly with the value the Company is providing to the customer. New Accounting Pronouncements Not Yet Adopted On February 2016, the Financial Accounting Standards Board (“FASB”) issued “Leases (Topic 842)”, which generally requires companies to recognize operating and financing lease liabilities and corresponding right-of-use assets on the balance sheet. In July 2018, the FASB issued ASU No. 2018-10, “Codification Improvements to Topic 842, Leases,” and ASU No. 2018-11, “Leases (Topic 842): Targeted Improvements.” Topic 842 became effective for the Company for the annual period beginning on January 1, 2022, the impact of which will be reflected in the fourth quarter of 2022 recorded retroactively at the beginning of the period of adoption through a cumulative-effect adjustment. We plan to elect the practical expedients, which permits us to not reassess (i) whether any expired or existing contracts are or contain leases, (ii) the lease classification for any expired leases and (iii) indirect costs for any existing leases. In addition, the practical expedient allows us not to separate lease and non-lease components for both lessee and lessor relationships and to not apply the recognition requirements to leases with terms of less than 12 months. Based on preliminary estimates, our adoption is expected to result in the recognition of operating lease right of use assets of approximately $13.8 million and lease liabilities of approximately $14.9 million on January 1, 2022. We are continuing our assessment, which may identify additional impacts that Topic 842 could have on our financial statements. In June 2016, the FASB issued ASU No. 2016-13 (“ASU 2016-13”), “Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” In November 2018, the FASB issued ASU No. 2018-19, “Codification Improvements to Topic 326, Financial Instruments — Credit Losses,” which amends the scope and transition requirements of ASU 2016-13. Topic 326 requires a financial asset (or a group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected. The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions and reasonable and supportable forecasts that affect the collectability of the reported amount. Topic 326 will become effective for the Company beginning January 1, 2023, with early adoption permitted, on a modified retrospective basis. The Company is currently evaluating the impact this guidance will have on our consolidated financial statements and related disclosures. New Accounting Pronouncements Recently Adopted On May 3, 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options. This new standard provides clarification and reduces diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options (such as warrants) that remain equity classified after modification or exchange. This standard is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Under this standard, issuers should apply the new standard prospectively to modifications or exchanges occurring after the effective date of the new standard. Early adoption is permitted, including adoption in an interim period. If an issuer elects to early adopt the new standard in an interim period, the guidance should be applied as of the beginning of the fiscal year that includes that interim period. The Company adopted the new standards as of January 1, 2022 and the adoption did not have a material impact to the Condensed Consolidated Financial Statements. Payroll Support Programs The Company has also taken steps to improve our liquidity, including seeking financial assistance under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). Certain of the Company’s subsidiaries have received $16.4 million from the U.S. Treasury Department (“Treasury”) through the Payroll Support Program under the CARES Act, of which $3.7 million was received and recognized as payroll support program proceeds during the nine months ended September 30, 2021. No amount was received or recognized under the CARES Act during the quarter ended September 30, 2022. As part of the Payroll Support Extension Law, the Company entered into an agreement with the Treasury on March 4, 2021 for the receipt of relief funds of $5.5 million. During the nine months ended September 30, 2021, we received $5.5 million in grant proceeds under the Payroll Support Extension Law. During the three- and nine- month periods ended September 30, 2021, $0.0 million and $5.5 million was recognized as payroll support program proceeds in the Condensed Consolidated Statements of Operations. Pursuant to the American Rescue Plan Act of 2021 (“ARP”), we entered into an agreement with the Treasury on April 16, 2021 for the receipt of relief funds of an additional $5.5 million. During the three- and nine- month periods ended September 30, 2021, $0.0 million and $5.5 million was recognized as payroll support program proceeds in the Condensed Consolidated Statements of Operations. In connection with the financial assistance the Company received under the Payroll Support Program, it was required to comply with certain provisions of the CARES Act, including the requirement that funds provided pursuant to the Payroll Support Program be used exclusively for the continuation of payment of employee wages, salaries and benefits; the requirement against involuntary terminations and furloughs and reductions in employee pay rates and benefits from the signing date of the Payroll Support Program agreement through September 30, 2021. The agreement also required the Company to issue a recall to any employee who was terminated or furloughed between October 1, 2020 and March 4, 2021 and enable such employee to return to employment. In addition, the Company was subject to provisions prohibiting the repurchase of common stock and the payment of common stock dividends through September 30, 2022, and remains limited on the payment of certain employee compensation through April 1, 2023. These restrictions may affect the Company’s operations and if the Company does not comply with these provisions, it may be required to reimburse up to 100% of any previously received relief funds. In particular, limitations on compensation may adversely impact our ability to attract and retain senior management or attract other key employees during this critical time. As of September 30, 2022, we were in compliance with all applicable provisions of the CARES Act, Payroll Support Program and ARP.
|
SIGNIFICANT RISKS AND UNCERTAINTIES |
9 Months Ended |
---|---|
Sep. 30, 2022 | |
SIGNIFICANT RISKS AND UNCERTAINTIES | |
SIGNIFICANT RISKS AND UNCERTAINTIES | NOTE C — SIGNIFICANT RISKS AND UNCERTAINTIES Impact of Ukraine Conflict and Russia Sanctions In February of 2022, Russia invaded Ukraine and is still engaged in an active conflict against the country. As a result, governments in the European Union, the United States, the United Kingdom, Switzerland, and other countries have enacted sanctions against Russia and Russian interests. These sanctions include controls on the export and re-export of certain goods, supplies, and technologies, supply of aircraft and aircraft components to Russian persons or for use in Russia, subject to certain wind-down periods, and the imposition of restrictions on doing business with certain state-owned Russian customers and other investments and business activities in Russia. In order to comply with these sanctions, we ceased pursuing future business in Russia and terminated our three leases with operators doing business in Russia, successfully recovering two aircraft with one engine still unrecovered. Due to continued uncertainty in the ability to recover this engine from Russia or to collect insurance coverage, we have fully impaired this asset. Although the current sanctions prohibit the continuation of certain business activities, the three leases referenced were contractually scheduled to expire in 2022 and therefore will not have a material impact on our business or 2022 financial condition. While it is difficult to predict the short or long term implications of this conflict and sanctions on the global economy and the aviation industry, we intend to fully comply with all applicable sanctions and embargoes, and do not expect the current situation will have a material adverse effect on our results of operations.
|
REVENUE |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
REVENUE. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
REVENUE | NOTE D — REVENUE The timing of revenue recognition, customer billings and cash collections results in a contract asset or contract liability at the end of each reporting period. Contract assets consist of unbilled receivables or costs incurred where revenue recognized over time exceeds the amounts billed to customers. Contract liabilities include advance payments and billings in excess of revenue recognized. Certain customers make advance payments prior to the satisfaction of performance obligations on the contract. These amounts are recorded as contract liabilities until such performance obligations are satisfied. Contract assets and contract liabilities are determined on a contract by contract basis. Contract assets are as follows (in thousands):
Contract assets are reported within accounts receivable on our Condensed Consolidated Balance Sheets. Changes in contract assets primarily results from the timing difference between the performance of services. Contract liabilities are reported as deferred revenue on our Condensed Consolidated Balance Sheets and amounted to $2.9 million as of December 31, 2021, of which $2.6 million was related to contract liabilities for services to be performed. For the three and nine months ended September 30, 2022, the Company recognized as revenue $0.1 million and $2.3 million of contract liabilities included in the beginning balance for services performed as the timing between customer payments and our performance of the services is generally no longer than six months. Disaggregation of Revenue The Company reports revenue by segment. The following tables present revenue by segment, as well as a reconciliation to total revenue for the three and nine months ended September 30, 2022 and 2021 (in thousands):
|
INVENTORY |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
INVENTORY | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
INVENTORY | NOTE E — INVENTORY Following are the major classes of inventory as of the below dates (in thousands):
The Company did not record inventory reserve for the three months ended September 30, 2022 and 2021, respectively, and recorded an inventory reserve of $1.8 million and $4.8 million for the nine months ended September 30, 2022 and 2021, respectively, due to the Company’s evaluation of the inventory’s net realizable value. These amounts are included in cost of products in the accompanying Condensed Consolidated Statements of Operations. |
INTANGIBLE ASSETS |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
INTANGIBLE ASSETS | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
INTANGIBLE ASSETS | NOTE F — INTANGIBLE ASSETS In accordance with ASC 350, Intangibles — Goodwill and Other, goodwill and other intangible assets deemed to have indefinite lives are not amortized, but are subject to annual impairment tests. The Company reviews and evaluates our goodwill and indefinite life intangible assets for potential impairment at a minimum annually or more frequently if circumstances indicate that impairment is possible. The Company determined the fair value of assets acquired and liabilities assumed using a variety of methods. An income approach based on discounted cash flows was used to determine the values of our trademarks, certifications, customer relationships and FAA certificates. The assumptions the Company used to estimate the fair value of our reporting units are based on historical performance, as well as forecasts used in our current business plan and require considerable management judgment. The Company’s goodwill and intangible assets as defined by ASC 350 is related to our subsidiaries, AerSale Component Solutions (d/b/a AerSale Landing Gear Solutions) (“ALGS”), Avborne Component Solutions (d/b/a AerSale Component Solutions) (“ACS”), and Aircraft Composite Technologies (“ACT”), which are included in the TechOps segment, as well as Qwest, which is included under the Asset Management Solutions segment. Goodwill and other intangibles as of the below dates are (in thousands):
The Company performed its annual quantitative impairment analysis on the indefinite lived intangible assets as of July 1, 2022 and concluded there was no impairment. Intangible assets with definite useful lives are amortized on a straight-line basis over their estimated useful lives. Intangible assets with definite lives as of the below dates are as follows (in thousands):
Total amortization expense amounted to $0.5 million and $0.5 million for the three months ended September 30, 2022 and 2021, respectively. Total amortization expense amounted to $1.6 million and $1.6 million for the nine months ended September 30, 2022 and 2021, respectively. Accumulated amortization amounted to $6.7 million and $5.1 million as of September 30, 2022 and December 31, 2021, respectively. Other intangible assets are reviewed at least annually or more frequently if any event or change in circumstance indicates that an impairment may have occurred. |
PROPERTY AND EQUIPMENT, NET |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
PROPERTY AND EQUIPMENT, NET | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
PROPERTY AND EQUIPMENT, NET | NOTE G — PROPERTY AND EQUIPMENT, NET Property and equipment, net, as of the below dates consisted of the following (in thousands):
Depreciation expense, which includes amortization of equipment under capital lease, amounted to $0.6 million and $0.5 million for the three months ended September 30, 2022 and 2021, respectively. Depreciation expense, which includes amortization of equipment under capital lease, amounted to $1.6 million and $1.5 million for the nine months ended September 30, 2022 and 2021, respectively. |
LEASE RENTAL REVENUES AND AIRCRAFT AND ENGINES HELD FOR LEASE |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
LEASE RENTAL REVENUES AND AIRCRAFT AND ENGINES HELD FOR LEASE | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
LEASE RENTAL REVENUES AND AIRCRAFT AND ENGINES HELD FOR LEASE | NOTE H — LEASE RENTAL REVENUES AND AIRCRAFT AND ENGINES HELD FOR LEASE Aircraft and engines held for operating leases, net, as of the below dates consisted of the following (in thousands):
Total depreciation expense amounted to $1.7 million and $2.1 million for the three months ended September 30, 2022 and 2021, respectively. Total depreciation expense amounted to $5.4 million and $6.8 million for the nine months ended September 30, 2022 and 2021, respectively, and is included in cost of leasing in the Condensed Consolidated Statements of Operations. The Company recorded an impairment of Flight Equipment in the amount of $0.9 million for the nine months ended September 30, 2022, which is included in cost of leasing in the Condensed Consolidated Statements of Operations. Supplemental rents recognized as revenue totaled $3.6 million and $2.3 million for the three months ended September 30, 2022 and 2021, respectively. Supplemental rents recognized as revenue totaled $10.1 million and $5.2 million for the nine months ended September 30, 2022 and 2021, respectively. The Company’s current operating lease agreements for leased flight equipment expire over the next two years. The amounts in the following table are based upon the assumption that flight equipment under operating leases will remain leased for the length of time specified by the respective lease agreements. Minimum future annual lease rentals contracted to be received under existing operating leases of flight equipment were as follows (in thousands):
|
ACCRUED EXPENSES |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
ACCRUED EXPENSES. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
ACCRUED EXPENSES | NOTE I — ACCRUED EXPENSES The following is a summary of the components of accrued expenses as of the below dates (in thousands):
|
WARRANT LIABILITY |
9 Months Ended | ||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2022 | |||||||||||||||||||
WARRANT LIABILITY | |||||||||||||||||||
WARRANT LIABILITY | NOTE J – WARRANT LIABILITY Warrants to purchase a total of 623,834 and 835,014 shares of the Company’s common stock were outstanding as of September 30, 2022 and December 31, 2021. 750,000 warrants were issued to founders in a private placement (the “Private Warrants”). Each of the Private Warrants entitles the registered holder to purchase one share of the Company’s common stock at a price of $11.50 per share. In the three months ended September 30, 2022, a warrant holder initiated a cashless exercise of 126,166 warrants for the purchase of shares of common stock at an exercise price of $11.50 per share (remaining term on exercised warrants at September 30, 2022 was 3.2 years) and we issued 47,867 shares of common stock based on the fair value at the date of exercise of $18.5306 per share. The remaining Private Warrants will expire at 5:00 p.m., New York City time, on the fifth anniversary of the completion of the Merger, or earlier upon redemption or liquidation. The Private Warrants include provisions that affect the settlement amount. Such variables are outside of those used to determine the fair value of a fixed-for-fixed instrument, and as such, the warrants do not meet the criteria for equity treatment under guidance contained in ASC Topic 815, “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in a Company’s Own Stock.” The Company classifies the Private Warrants as a liability at their fair value subject to re-measurement at each balance sheet date and adjusted at each reporting period until exercised or expired, and any change in fair value is recognized in the Company's Condensed Consolidated Statement of Operations. The fair value of the Private Warrants as of September 30, 2021 was determined using the market price of the Company’s public warrants adjusted for their lack of liquidity. Effective December 29, 2021 all public warrants were redeemed on a cashless basis and ceased trading on Nasdaq. As a result, the Black-Scholes option pricing model was adopted. The following table represents the assumptions for the Black-Scholes option-pricing model used in determining the fair value of the Private Warrants as of September 30, 2022:
The significant assumptions utilized in the Black-Scholes calculation consist of interest rate for U.S. Treasury Bonds, as published by the U.S. Federal Reserve, and expected volatility estimated using historical daily volatility of guideline public companies. The expense recognized in the Company's Condensed Consolidated Statement of Operations related to the change in fair value of warrant liability was $2.0 million and $1.9 million during the three and nine months ended September 30, 2022, respectively. The expense recognized in the Company's Condensed Consolidated Statement of Operations related to the change in fair value of warrant liability was $2.1 million and $2.7 million during the three and nine months ended September 30, 2021, respectively. |
EARNINGS PER SHARE |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
EARNINGS PER SHARE | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
EARNINGS PER SHARE | NOTE K — EARNINGS PER SHARE The computation of basic and diluted earnings per share (“EPS”) is based on the weighted average number of common shares outstanding during each period. The following table provides a reconciliation of the computation for basic and diluted earnings per share for the three and nine months ended September 30, 2022 and 2021, respectively (in thousands, except share and per share data):
|
BUSINESS SEGMENTS |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
BUSINESS SEGMENTS | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
BUSINESS SEGMENTS | NOTE L — BUSINESS SEGMENTS Consistent with how our chief operating decision maker (Chairman and Chief Executive Officer) evaluates performance and utilizes gross profit as a profitability measure, the Company reports its activities in two business segments:
The Asset Management Solutions segment activities include monetization of assets through the lease or sale of whole assets, or through disassembly activities in support of our USM-related activities. Our monetizing services have been developed to maximize returns on mid-life Flight Equipment throughout their operating life, in conjunction with realizing the highest residual value of Flight Equipment at its retirement. The TechOps segment consists of aftermarket support and services businesses that provide maintenance support for aircraft and aircraft components, and sale of engineered solutions. Our MRO business also engages in longer term projects such as aircraft modifications, cargo conversions of wide-body aircraft, and aircraft storage. The segment also includes MRO of landing gear, thrust reversers, and other components. Cost of sales consists principally of the cost of product, direct labor, and overhead. Our engineered solutions revenues consist of sales of products internally developed as permitted by Supplemental Type Certificates issued by the FAA. These products are proprietary in nature and function as non-original equipment manufacturer solutions to airworthiness directives and other technical challenges for operators. In order to develop these products, the Company engages in research and development activities, which are expensed as incurred. The TechOps segment also engages in the repair and sale of used serviceable material inventory for which it has the overhaul capabilities and relationships to sell. Gross profit is calculated by subtracting cost of sales from sales. The assets and certain expenses related to corporate activities are not allocated to the segments. Our reportable segments are aligned principally around the differences in products and services. The segment reporting excludes the allocation of selling, general and administrative expenses, interest expense and income tax expense. Selected financial information for each segment for the three and nine months ended September 30, 2022 and 2021 is as follows (in thousands):
The following table reconciles segment gross profit to income before income tax provision for the three and nine months ended September 30, 2022 and 2021 (in thousands):
Intersegment sales include amounts invoiced by a segment for work performed for another segment. Amounts are based on actual work performed or products sold and agreed-upon pricing which is intended to be reflective of the arm’s length value of the contribution made by the supplying business segment. All intersegment transactions have been eliminated upon consolidation. Intersegment revenue for the three and nine months ended September 30, 2022 and 2021, is as follows (in thousands):
|
COMMITMENTS AND CONTINGENCIES |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2022 | |||||||||||||||||||||||||||||||||||||||||||||
COMMITMENTS AND CONTINGENCIES. | |||||||||||||||||||||||||||||||||||||||||||||
COMMITMENTS AND CONTINGENCIES | NOTE M— COMMITMENTS AND CONTINGENCIES Litigation The Company may be involved in litigation incidental to the operation of the business. The Company intends to vigorously defend all matters in which the Company is named as defendant and, for insurable losses, maintain significant levels of insurance to protect against adverse judgments, claims or assessments that may affect the Company. Although the adequacy of existing insurance coverage of the outcome of any legal proceedings cannot be predicted with certainty, based on the current information available, the Company does not believe the ultimate liability associated with known claims or litigation, if any, in which the Company is involved will materially affect the Company’s condensed consolidated financial condition or results of operations. Lease Commitments The Company leases office space, warehouses, hangars and equipment in connection with its operations under various operating leases, many of which contain escalation clauses. Future minimum lease payments under non-cancelable operating leases (with initial lease terms in excess of one year) are (in thousands):
Expenses incurred under the operating lease agreements was $2.9 million and $1.4 million for the three months ended September 30, 2022 and 2021, respectively. Expenses incurred under the operating lease agreements were $4.3 million and $4.6 million for the nine months ended September 30, 2022 and 2021, respectively. Operating lease expense is recognized on a straight-line basis over the term of the lease, including any option periods, as appropriate. The same lease term is used for lease classification, the amortization period of related leasehold improvements, and the estimation of future lease commitments. |
STOCKHOLDERS' EQUITY |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
STOCKHOLDERS' EQUITY | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
STOCKHOLDERS' EQUITY | NOTE N — STOCKHOLDERS’ EQUITY Common Stock The Company’s common stock, $0.0001 par value, consists of 200,000,000 authorized shares, of which 51,774,665 and 51,673,099 shares were and as of September 30, 2022 and December 31, 2021, respectively.Earn-Out Shares Upon consummation of the Merger and in each case on or prior to the fifth anniversary of the Closing, the pre-closing holders of AerSale Aviation’s common stock and the holders of in-the-money SARs (as defined in the Merger Agreement) received a contingent right to receive up to 3,000,000 additional shares of the Company’s common stock. Additionally, certain pre-closing holders of AerSale Aviation’s common stock received a contingent right to receive 746,876 shares of the Company’s common stock. Effective February 8, 2021, the contingent event related to the Minimum Target Earn-Out Shares (as defined by the Merger Agreement) was met and 1,855,634 shares were issued. Effective October 22, 2021, the contingent event related to the Maximum Target Earn-Out Shares was met and 1,854,169 shares were issued. The remaining shares pursuant to the contingent rights were withheld to cover employee taxes. The Company determined the Earn-Out Shares (as defined by the Merger Agreement) to be classified as equity under ASC Topic 815, “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in a Company’s Own Stock” as the contingent right is indexed to the Company’s stock and accordingly, the accrual of the Earn-Out Shares had no impact on the Company’s condensed consolidated financial statements for the three and nine month periods ended September 30, 2021. There are no Earn-Out Shares contingent as of September 30, 2022 and December 31, 2021. Unvested Founder Shares Upon the consummation of the Merger, certain pre-closing holders of AerSale Corporation’s common stock agreed to defer the vesting of an aggregate of 700,000 shares (the “Unvested Founder Shares”), half of which was to vest at such time as the Minimum Target (as defined in the Merger Agreement) and the other half of which was to vest at the Maximum Target (as defined in the Merger Agreement). The Unvested Founder Shares would also vest upon the occurrence of a Liquidity Event (as defined by the Merger Agreement) on or prior to the fifth anniversary of the date of the Amended and Restated Founder Shares Agreement, solely to the extent the Liquidity Event Consideration (as defined in the Merger Agreement) would be greater than $13.50, in which case half of the Unvested Founder Shares which would vest, or $15.00, in which case the other half of the Unvested Founder Shares would also vest. Pursuant to the Amended and Restated Founder Shares Agreement, the holders of the Unvested Founder Shares retained the right to vote such Unvested Founder Shares prior to vesting. Unvested Founder Shares that did not vest on or prior to the fifth anniversary of the Closing Date would be forfeited. Effective February 8, 2021, the contingency event related to the Minimum Target was met and half of the Unvested Founder Shares vested. Effective October 22, 2021, the contingent event related to the Maximum Target was met and the other half of the Unvested Founder Shares vested. There are no Unvested Founder Shares as of September 30, 2022 and December 31, 2021. 2020 Equity Incentive Plan The Company maintains a 2020 Equity Incentive Plan (the “2020 Plan”) and has registered 4,200,000 shares of common stock issuable under the Plan. The 2020 Plan authorizes discretionary grants of incentive stock options to employees of the Company and its qualifying subsidiaries. The 2020 Plan also authorizes discretionary grants of non-qualified stock options, stock appreciation rights, restricted stock, restricted stock units, dividend equivalents or other equity or cash-based awards to employees and consultants of the Company and its subsidiaries and to members of the Board of Directors of the Company. To the extent that an award under the 2020 Plan expires, is cancelled, forfeited, terminated, settled in cash or is otherwise settled without issuance of the full number of shares to which it relates, will become or again be available for awards under the 2020 Plan. The 2020 Plan is administered by the Company's Compensation Committee. The Compensation Committee has complete, full and final authority to: designate participants; determine the types of awards to be granted; determine the terms of awards; interpret and administer the 2020 Plan and any agreements and awards thereunder. Restricted stock unit activity under the 2020 Plan for the nine months ended September 30, 2022 and 2021 was as follows:
The Company’s restricted stock units include 1,595,000 performance restricted stock units (“2021 PSUs”) that performance vested at the 200% milestone as of March 31, 2022. This is the highest level of performance condition to be achieved and results in total shares to be issued of 3,190,000, subject to a time vesting schedule of on December 22, 2022 and on December 22, 2023. For the three and nine months ended September 30, 2022, the Company recognized share-based compensation expense for the 2021 PSUs of $3.6 million and $10.6 million, respectively, given the achievement of the 200% performance milestone. For the three and nine months ended September 30, 2021, the Company recognized share-based compensation expense for the 2021 PSUs of $8.5 million.For the restricted stock unit awards granted under the 2020 Plan containing both service and performance conditions, the Company recognizes compensation expense when the awards are considered probable of vesting. Restricted stock units are considered granted, and the service inception date begins, when a mutual understanding of the key terms and conditions between the Company and the employee have been established. The fair value of these awards is determined based on the closing price of the shares on the grant date. The probability of restricted share awards granted with future performance conditions is evaluated at each reporting period and compensation expense is adjusted based on the probability assessment. 2020 Employee Stock Purchase Plan The Company also maintains a 2020 Employee Stock Purchase Plan (the “ESPP”) and has registered 500,000 shares of common stock issuable under the ESPP. During the nine-months ended September 30, 2022, the Company issued 30,099 shares pursuant to the ESPP. No shares were issued during the nine-month period ended September 30, 2021. |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies) |
9 Months Ended |
---|---|
Sep. 30, 2022 | |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | |
Interim Financial Statements | Interim Financial Statements The accompanying unaudited interim consolidated financial statements have been prepared from the books and records of the Company in accordance with Generally Accepted Accounting Policies in the United States (“U.S. GAAP”) for interim financial information and Rule 10-01 of Regulation S-X promulgated by the U.S. Securities and Exchange Commission (“SEC”), which permits reduced disclosures for interim periods. Although these interim consolidated financial statements do not include all of the information and footnotes required for complete annual consolidated financial statements, management believes all adjustments, consisting only of normal recurring adjustments, and disclosures necessary for a fair presentation of the accompanying condensed consolidated balance sheets, statements of operations, stockholders’ equity, and cash flows have been made. Unaudited interim results of operations and cash flows are not necessarily indicative of the results that may be expected for the full year. Unaudited interim condensed consolidated financial statements and footnotes should be read in conjunction with the audited consolidated financial statements and footnotes included in Part II, Item 8 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 (the “2021 Annual Report), wherein a more complete discussion of significant accounting policies and certain other information can be found. |
Revenue Recognition | Revenue Recognition Products — Used Serviceable Material (“USM”) Sales Revenues from sales of USM are measured based on consideration specified within customer contracts, and excludes any sales commissions and taxes collected and remitted to government agencies. The Company recognizes revenue when performance obligations are satisfied by transferring control of a product or service to a customer. The parts are sold at a fixed price with no right of return. In determining the performance obligation, management has identified the promise in the contract to be the shipment of the spare parts to the customer. Title passes to the buyer when the goods are shipped, the buyer is responsible for any loss in transit and the Company has a legal right to payment for the spare parts once shipped. The Company generally sells its USM products under standard 30-day payment terms, subject to certain exceptions. Customers neither have the right to return products nor do they have the right to extended financing. The Company has determined that physical acceptance of the spare parts to be a formality in accordance with Accounting Standards Codification (“ASC”) Topic 606, “Revenue from Contracts with Customers” (“ASC 606”). Spare parts revenue is based on a set price for a set number of parts as defined in the purchase order. The performance obligation is completed once the parts have shipped and as a result, all of the transaction price is allocated to that performance obligation. The Company has determined that it is appropriate to recognize spare parts sales at a point in time (i.e., the date the parts are shipped) in accordance with ASC 606. Products — Whole Asset Sales Revenues from whole asset sales are measured based on consideration specified in the contract with the customer. The Company and customer enter into an agreement which outlines the place and date of sale, purchase price, condition of the whole asset, bill of sale and the assignment of rights and warranties from the Company to the customer. The Company believes the whole asset holds standalone value to the customer as it is not dependent on any other services for functionality purposes and therefore is distinct within the context of the contract and as described in ASC 606-10. Accordingly, the Company has identified the transfer of the whole asset as the performance obligation. The transaction price is set at a fixed dollar amount per fixed quantity (number of whole assets) and is explicitly stated in each contract. Whole asset sales revenue is based on a set price for a set number of assets, which is allocated to the performance obligation discussed above, in its entirety. The Company has determined the date of transfer to the customer is the date the customer obtains control over the asset and would cause the revenue recognition. Payment is required in full upon a customer’s acceptance of the whole asset on the date of the transfer. Leasing Revenues The Company leases flight equipment under operating leases that contain monthly base rent and reports rental income straight line over the life of the lease as it is earned. Additionally, the Company’s leases provide for supplemental rent, which is calculated based on actual hours or cycles of utilization and, for certain components, based on the amount of time until maintenance of that component is required. In certain leases, the Company records supplemental rent paid by the lessees as maintenance deposit payment liabilities in recognition of the Company’s contractual commitment to reimburse qualifying maintenance. Reimbursements to the lessees upon receipt of evidence of qualifying maintenance work are charged against the existing maintenance deposit payment liabilities. In leases where the Company is responsible for performing certain repairs or replacement of aircraft components or engines, supplemental rent is recorded as revenue in the period earned. In the event of premature lease termination or lessee default on the lease terms, revenue recognition will be discontinued when outstanding balances beyond the customers’ deposits are held. Payment terms for leased flight equipment are due upon receipt. Service Revenues Service revenues are recognized as performance obligations when they are fulfilled and the benefits are transferred to the customer. At contract inception, the Company evaluates if the contract should be accounted for as a single performance obligation or if the contract contains multiple performance obligations. In some cases, the Company’s service contract with the customer is considered one performance obligation as it includes factors such as the good or service being provided is significantly integrated with other promises in the contract, the service provided significantly modifies or customizes the other good or service or the goods or services are highly interdependent or interrelated with each other. If the contract has more than one performance obligation, the Company determines the standalone price of each distinct good or service underlying each performance obligation and allocates the transaction price based on their relative standalone selling prices. The transaction price of a contract, which can include both fixed and variable amounts, is allocated to each performance obligation identified. Some contracts contain variable consideration, which could include incremental fees or penalty provisions related to performance. Variable consideration that can be reasonably estimated based on current assumptions and historical information is included in the transaction price at the inception of the contract but limited to the amount that is probable that a significant reversal in the amount of cumulative revenue recognized will not occur. Variable consideration that cannot be reasonably estimated is recorded when known. For most service contracts, performance obligations are satisfied over time as work progresses based on transfer of control of products and services to our customers. The Company receives payments from our customers based on billing schedules or contractual terms. For performance obligations that are satisfied over time, the Company measures progress in a manner that depicts the performance of transferring control to the customer. As such, the Company utilizes the input method of cost-to-cost to recognize revenue over time as this depicts when control of the promised goods or services are transferred to the customer. Revenue is recognized based on the relationship of actual costs incurred to date to the estimated total cost at completion of the performance obligation. The Company is required to make certain judgments and estimates, including estimated revenues and costs, as well as inflation and the overall profitability of the arrangement. Key assumptions involved include future labor costs and efficiencies, overhead costs and ultimate timing of product delivery. Differences may occur between the judgments and estimates made by management and actual program results. Under most of the Company’s Maintenance, Repair and Overhaul (“MRO”) contracts, if the contract is terminated for convenience, the Company is entitled to payment for items delivered, fair compensation for work performed, the costs of settling and paying other claims and a reasonable profit on the costs incurred or committed. Changes in estimates and assumptions related to our arrangements accounted for using the input method based on labor hours are recorded using the cumulative catchup method of accounting. These changes are primarily adjustments to the estimated profitability for our long term programs where the Company provides MRO services. The Company has elected to use certain practical expedients permitted under ASC 606. Shipping and handling fees and costs incurred associated with outbound freight after control over a product has transferred to a customer are accounted for as a fulfillment cost, are included in cost of sales in our Condensed Consolidated Statements of Operations and are not considered a performance obligation to our customers. The Company’s reported sales on our Condensed Consolidated Statements of Operations are net of any sales or related non income taxes. The Company also utilizes the “as invoiced” practical expedient in certain cases where performance obligations are satisfied over time and the invoiced amount corresponds directly with the value the Company is providing to the customer. |
New Accounting Pronouncements Not Yet Adopted | New Accounting Pronouncements Not Yet Adopted On February 2016, the Financial Accounting Standards Board (“FASB”) issued “Leases (Topic 842)”, which generally requires companies to recognize operating and financing lease liabilities and corresponding right-of-use assets on the balance sheet. In July 2018, the FASB issued ASU No. 2018-10, “Codification Improvements to Topic 842, Leases,” and ASU No. 2018-11, “Leases (Topic 842): Targeted Improvements.” Topic 842 became effective for the Company for the annual period beginning on January 1, 2022, the impact of which will be reflected in the fourth quarter of 2022 recorded retroactively at the beginning of the period of adoption through a cumulative-effect adjustment. We plan to elect the practical expedients, which permits us to not reassess (i) whether any expired or existing contracts are or contain leases, (ii) the lease classification for any expired leases and (iii) indirect costs for any existing leases. In addition, the practical expedient allows us not to separate lease and non-lease components for both lessee and lessor relationships and to not apply the recognition requirements to leases with terms of less than 12 months. Based on preliminary estimates, our adoption is expected to result in the recognition of operating lease right of use assets of approximately $13.8 million and lease liabilities of approximately $14.9 million on January 1, 2022. We are continuing our assessment, which may identify additional impacts that Topic 842 could have on our financial statements. In June 2016, the FASB issued ASU No. 2016-13 (“ASU 2016-13”), “Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” In November 2018, the FASB issued ASU No. 2018-19, “Codification Improvements to Topic 326, Financial Instruments — Credit Losses,” which amends the scope and transition requirements of ASU 2016-13. Topic 326 requires a financial asset (or a group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected. The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions and reasonable and supportable forecasts that affect the collectability of the reported amount. Topic 326 will become effective for the Company beginning January 1, 2023, with early adoption permitted, on a modified retrospective basis. The Company is currently evaluating the impact this guidance will have on our consolidated financial statements and related disclosures. New Accounting Pronouncements Recently Adopted On May 3, 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options. This new standard provides clarification and reduces diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options (such as warrants) that remain equity classified after modification or exchange. This standard is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Under this standard, issuers should apply the new standard prospectively to modifications or exchanges occurring after the effective date of the new standard. Early adoption is permitted, including adoption in an interim period. If an issuer elects to early adopt the new standard in an interim period, the guidance should be applied as of the beginning of the fiscal year that includes that interim period. The Company adopted the new standards as of January 1, 2022 and the adoption did not have a material impact to the Condensed Consolidated Financial Statements. |
Payroll Support Programs | Payroll Support Programs The Company has also taken steps to improve our liquidity, including seeking financial assistance under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). Certain of the Company’s subsidiaries have received $16.4 million from the U.S. Treasury Department (“Treasury”) through the Payroll Support Program under the CARES Act, of which $3.7 million was received and recognized as payroll support program proceeds during the nine months ended September 30, 2021. No amount was received or recognized under the CARES Act during the quarter ended September 30, 2022. As part of the Payroll Support Extension Law, the Company entered into an agreement with the Treasury on March 4, 2021 for the receipt of relief funds of $5.5 million. During the nine months ended September 30, 2021, we received $5.5 million in grant proceeds under the Payroll Support Extension Law. During the three- and nine- month periods ended September 30, 2021, $0.0 million and $5.5 million was recognized as payroll support program proceeds in the Condensed Consolidated Statements of Operations. Pursuant to the American Rescue Plan Act of 2021 (“ARP”), we entered into an agreement with the Treasury on April 16, 2021 for the receipt of relief funds of an additional $5.5 million. During the three- and nine- month periods ended September 30, 2021, $0.0 million and $5.5 million was recognized as payroll support program proceeds in the Condensed Consolidated Statements of Operations. In connection with the financial assistance the Company received under the Payroll Support Program, it was required to comply with certain provisions of the CARES Act, including the requirement that funds provided pursuant to the Payroll Support Program be used exclusively for the continuation of payment of employee wages, salaries and benefits; the requirement against involuntary terminations and furloughs and reductions in employee pay rates and benefits from the signing date of the Payroll Support Program agreement through September 30, 2021. The agreement also required the Company to issue a recall to any employee who was terminated or furloughed between October 1, 2020 and March 4, 2021 and enable such employee to return to employment. In addition, the Company was subject to provisions prohibiting the repurchase of common stock and the payment of common stock dividends through September 30, 2022, and remains limited on the payment of certain employee compensation through April 1, 2023. These restrictions may affect the Company’s operations and if the Company does not comply with these provisions, it may be required to reimburse up to 100% of any previously received relief funds. In particular, limitations on compensation may adversely impact our ability to attract and retain senior management or attract other key employees during this critical time. As of September 30, 2022, we were in compliance with all applicable provisions of the CARES Act, Payroll Support Program and ARP. |
REVENUE (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
REVENUE. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of contract assets | Contract assets are as follows (in thousands):
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of revenue by segment, as well as total revenue | The Company reports revenue by segment. The following tables present revenue by segment, as well as a reconciliation to total revenue for the three and nine months ended September 30, 2022 and 2021 (in thousands):
|
INVENTORY (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
INVENTORY | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of inventory | Following are the major classes of inventory as of the below dates (in thousands):
|
INTANGIBLE ASSETS (Tables) |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
INTANGIBLE ASSETS | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of intangible assets with indefinite lives | Goodwill and other intangibles as of the below dates are (in thousands):
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of intangible assets with definite lives | The Company performed its annual quantitative impairment analysis on the indefinite lived intangible assets as of July 1, 2022 and concluded there was no impairment. Intangible assets with definite useful lives are amortized on a straight-line basis over their estimated useful lives. Intangible assets with definite lives as of the below dates are as follows (in thousands):
|
PROPERTY AND EQUIPMENT, NET (Tables) |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
PROPERTY AND EQUIPMENT, NET | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Property, Plant and equipment | Property and equipment, net, as of the below dates consisted of the following (in thousands):
|
LEASE RENTAL REVENUES AND AIRCRAFT AND ENGINES HELD FOR LEASE (Tables) |
9 Months Ended | |||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2022 | ||||||||||||||||||||||||||||||||||||
LEASE RENTAL REVENUES AND AIRCRAFT AND ENGINES HELD FOR LEASE | ||||||||||||||||||||||||||||||||||||
Summary of aircraft and engines held for operating leases, net | Aircraft and engines held for operating leases, net, as of the below dates consisted of the following (in thousands):
|
|||||||||||||||||||||||||||||||||||
Summary of minimum future annual lease rentals contracted to be received under existing operating leases of flight equipment | Minimum future annual lease rentals contracted to be received under existing operating leases of flight equipment were as follows (in thousands):
|
ACCRUED EXPENSES (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
ACCRUED EXPENSES. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Accrued expenses | The following is a summary of the components of accrued expenses as of the below dates (in thousands):
|
WARRANT LIABILITY (Tables) |
9 Months Ended | ||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2022 | |||||||||||||||||||
WARRANT LIABILITY | |||||||||||||||||||
Assumptions of Black-Scholes option pricing model |
|
EARNINGS PER SHARE (Tables) |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
EARNINGS PER SHARE | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of reconciliation of the computation for basic earnings per share | The following table provides a reconciliation of the computation for basic and diluted earnings per share for the three and nine months ended September 30, 2022 and 2021, respectively (in thousands, except share and per share data):
|
BUSINESS SEGMENTS (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
BUSINESS SEGMENTS | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of selected financial information for each segment | Selected financial information for each segment for the three and nine months ended September 30, 2022 and 2021 is as follows (in thousands):
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of reconciliation segment gross profit to income before income tax provision | The following table reconciles segment gross profit to income before income tax provision for the three and nine months ended September 30, 2022 and 2021 (in thousands):
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of intersegment revenues | Intersegment revenue for the three and nine months ended September 30, 2022 and 2021, is as follows (in thousands):
|
COMMITMENTS AND CONTINGENCIES (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2022 | |||||||||||||||||||||||||||||||||||||||||||||
COMMITMENTS AND CONTINGENCIES. | |||||||||||||||||||||||||||||||||||||||||||||
Summary of future minimum lease payments under non-cancelable operating leases | Future minimum lease payments under non-cancelable operating leases (with initial lease terms in excess of one year) are (in thousands):
|
STOCKHOLDERS' EQUITY (Tables) |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
STOCKHOLDERS' EQUITY | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Restricted Stock Unit activity |
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - New Accounting Pronouncements Not Yet Adopted (Details) - USD ($) $ in Thousands |
Sep. 30, 2022 |
Jan. 01, 2022 |
Dec. 31, 2021 |
---|---|---|---|
New Accounting Pronouncements or Change in Accounting Principle [Line Items] | |||
Operating lease right of use assets | $ 33,118 | $ 73,364 | |
Cumulative Effect, Period of Adoption, Adjustment | Accounting Standards Update 2016-02 | |||
New Accounting Pronouncements or Change in Accounting Principle [Line Items] | |||
Operating lease right of use assets | $ 13,800 | ||
Operating lease liabilities | $ 14,900 |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Cares Act (Details) - USD ($) |
3 Months Ended | 9 Months Ended | |||||
---|---|---|---|---|---|---|---|
Sep. 30, 2022 |
Sep. 30, 2021 |
Mar. 31, 2021 |
Sep. 30, 2021 |
Apr. 16, 2021 |
Mar. 04, 2021 |
Jun. 08, 2020 |
|
Short term debt | |||||||
Payroll support program proceeds | $ (14,768,000) | ||||||
Paycheck Protection Program, Cares Act | |||||||
Short term debt | |||||||
Debt instrument, face | $ 5,500,000 | $ 5,500,000 | $ 16,400,000 | ||||
Proceeds from short term debt | $ 3,700,000 | ||||||
Payroll support program proceeds | $ 0 | ||||||
Payroll Support Programs | |||||||
Short term debt | |||||||
Payroll support program proceeds | $ 0.0 | $ 5,500,000 |
SIGNIFICANT RISKS AND UNCERTAINTIES - Impact of Ukraine Conflict and Russia Sanctions (Details) |
1 Months Ended |
---|---|
Feb. 28, 2022
engine
lease
aircraft
| |
SIGNIFICANT RISKS AND UNCERTAINTIES | |
Number of leases terminated | lease | 3 |
Number of aircrafts | aircraft | 2 |
Number of engines | engine | 1 |
REVENUE (Details) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | |
---|---|---|---|
Sep. 30, 2022 |
Sep. 30, 2022 |
Dec. 31, 2021 |
|
ASC impact, balance sheet | |||
Contract assets | $ 7,580 | $ 7,580 | $ 13,221 |
Increase (decrease) customer asset | (5,641) | ||
Customer liability, current | 3,524 | 3,524 | 2,860 |
Customer liability | $ 2,600 | ||
Contract liabilities, revenue recognized | $ 100 | $ 2,300 |
INVENTORY (Details) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | |||
---|---|---|---|---|---|
Sep. 30, 2022 |
Sep. 30, 2021 |
Sep. 30, 2022 |
Sep. 30, 2021 |
Dec. 31, 2021 |
|
INVENTORY | |||||
Used serviceable materials | $ 73,551 | $ 73,551 | $ 65,496 | ||
Work-in-process | 21,145 | 21,145 | 12,462 | ||
Whole assets | 92,889 | 92,889 | 81,335 | ||
Inventory, Net, Total | 187,585 | 187,585 | 159,293 | ||
Less short term | (107,150) | (107,150) | (81,759) | ||
Inventory, Noncurrent | 80,435 | 80,435 | $ 77,534 | ||
Inventory reserve | $ 0 | $ 0 | $ 1,800 | $ 4,800 |
INTANGIBLE ASSETS - Estimated useful lives (Details) - USD ($) $ in Thousands |
9 Months Ended | |
---|---|---|
Sep. 30, 2022 |
Dec. 31, 2021 |
|
Intangible assets | ||
Total intangible assets with definite lives | $ 14,317 | $ 15,908 |
Asset Management Solutions | Qwest | Customer relationships | ||
Intangible assets | ||
Useful life (in years) | 10 years | |
Total intangible assets with definite lives | $ 6,381 | 7,109 |
TechOps | ACS | Customer relationships | ||
Intangible assets | ||
Useful life (in years) | 10 years | |
Total intangible assets with definite lives | $ 1,295 | 1,453 |
TechOps | ALGS | Customer relationships | ||
Intangible assets | ||
Useful life (in years) | 10 years | |
Total intangible assets with definite lives | $ 55 | 70 |
TechOps | ACT | Customer relationships | ||
Intangible assets | ||
Useful life (in years) | 10 years | |
Total intangible assets with definite lives | $ 6,586 | $ 7,276 |
INTANGIBLE ASSETS - Amortization expense (Details) - USD ($) $ in Millions |
3 Months Ended | 9 Months Ended | |||
---|---|---|---|---|---|
Sep. 30, 2022 |
Sep. 30, 2021 |
Sep. 30, 2022 |
Sep. 30, 2021 |
Dec. 31, 2021 |
|
INTANGIBLE ASSETS | |||||
Amortization expense | $ 0.5 | $ 0.5 | $ 1.6 | $ 1.6 | |
Accumulated amortization | $ 6.7 | $ 6.7 | $ 5.1 |
PROPERTY AND EQUIPMENT, NET - Depreciation expense (Details) - USD ($) $ in Millions |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2022 |
Sep. 30, 2021 |
Sep. 30, 2022 |
Sep. 30, 2021 |
|
PROPERTY AND EQUIPMENT, NET | ||||
Depreciation expense | $ 0.6 | $ 0.5 | $ 1.6 | $ 1.5 |
LEASE RENTAL REVENUES AND AIRCRAFT AND ENGINES HELD FOR LEASE - Components (Details) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | |||
---|---|---|---|---|---|
Sep. 30, 2022 |
Sep. 30, 2021 |
Sep. 30, 2022 |
Sep. 30, 2021 |
Dec. 31, 2021 |
|
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items] | |||||
Depreciation expense | $ 1,700 | $ 2,100 | $ 5,400 | $ 6,800 | |
Contingent rental fees | $ 3,600 | $ 2,300 | $ 10,100 | $ 5,200 | |
Lease term (in years) | 2 years | 2 years | |||
Aircraft and Engines | |||||
Aircraft and engines held for operating leases | $ 100,650 | $ 100,650 | $ 197,397 | ||
Less accumulated depreciation | (67,532) | (67,532) | (124,033) | ||
Property held for operating leases, net | $ 33,118 | 33,118 | $ 73,364 | ||
Flight Equipment | |||||
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items] | |||||
Impairment of Flight Equipment | $ 900 |
LEASE RENTAL REVENUES AND AIRCRAFT AND ENGINES HELD FOR LEASE - Future payments received (Details) $ in Thousands |
Sep. 30, 2022
USD ($)
|
---|---|
Minimum future annual lease rentals contracted to be received | |
Remainder of 2022 | $ 3,976 |
2023 | 4,867 |
2024 | 132 |
Total minimum lease payments | $ 8,975 |
ACCRUED EXPENSES (Details) - USD ($) $ in Thousands |
Sep. 30, 2022 |
Dec. 31, 2021 |
---|---|---|
ACCRUED EXPENSES. | ||
Accrued compensation and related benefits | $ 5,050 | $ 6,294 |
Accrued legal fees | 680 | 377 |
Commission fee accrual | 211 | 115 |
Accrued federal, state and local taxes and fees | 183 | 243 |
Other | 1,705 | 1,395 |
Total accrued expenses | $ 7,829 | $ 8,424 |
WARRANT LIABILITY (Details) - USD ($) $ / shares in Units, $ in Thousands |
3 Months Ended | 9 Months Ended | |||
---|---|---|---|---|---|
Sep. 30, 2022 |
Sep. 30, 2021 |
Sep. 30, 2022 |
Sep. 30, 2021 |
Dec. 31, 2021 |
|
Class of Warrant or Right [Line Items] | |||||
Exercise price of warrants | $ 11.50 | $ 11.50 | |||
Number of warrants outstanding | 623,834 | 623,834 | 835,014 | ||
Change in fair value of warrant liability | $ 2,029 | $ 2,104 | $ 1,881 | $ 2,735 | |
Cashless exercise of warrants | 126,166 | ||||
Remaining term | 3 years 2 months 12 days | 3 years 2 months 12 days | |||
Common stock issued based on fair value | 47,867 | ||||
Share price | $ 18.5306 | $ 18.5306 | |||
Private Placement | |||||
Class of Warrant or Right [Line Items] | |||||
Number of shares of common stock called by each warrant | 1 | 1 | |||
Exercise price of warrants | $ 11.50 | $ 11.50 | |||
Number of warrants outstanding | 750,000 | 750,000 |
BUSINESS SEGMENTS (Details) |
9 Months Ended |
---|---|
Sep. 30, 2022
segment
| |
BUSINESS SEGMENTS | |
Number of business segments | 2 |
BUSINESS SEGMENTS - Selected financial information (Details) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | |||
---|---|---|---|---|---|
Sep. 30, 2022 |
Sep. 30, 2021 |
Sep. 30, 2022 |
Sep. 30, 2021 |
Dec. 31, 2021 |
|
Segments | |||||
Revenues | $ 50,999 | $ 73,298 | $ 313,413 | $ 223,654 | |
Gross profit | 15,489 | 24,632 | 117,172 | 75,205 | |
Total assets | 509,764 | 509,764 | $ 487,485 | ||
Asset Management Solutions | |||||
Segments | |||||
Revenues | 20,591 | 48,876 | 209,662 | 138,427 | |
Gross profit | 8,690 | 16,813 | 90,218 | 49,499 | |
Total assets | 369,040 | 369,040 | 370,378 | ||
Asset Management Solutions | Aircraft | |||||
Segments | |||||
Revenues | 6,503 | 15,204 | 78,343 | 49,925 | |
Gross profit | 2,480 | 6,729 | 29,779 | 16,370 | |
Asset Management Solutions | Engine | |||||
Segments | |||||
Revenues | 14,088 | 33,672 | 131,319 | 88,502 | |
Gross profit | 6,210 | 10,084 | 60,439 | 33,129 | |
TechOps | |||||
Segments | |||||
Revenues | 30,408 | 24,422 | 103,751 | 85,227 | |
Gross profit | 6,799 | 7,819 | 26,954 | 25,706 | |
Total assets | 131,352 | 131,352 | 112,742 | ||
TechOps | Product | |||||
Segments | |||||
Revenues | 4,018 | 2,739 | 7,888 | 7,111 | |
Gross profit | 1,346 | 1,412 | 3,174 | 3,225 | |
TechOps | Whole Asset Sales | |||||
Segments | |||||
Revenues | 23,605 | ||||
Gross profit | 7,523 | ||||
TechOps | MRO services | |||||
Segments | |||||
Revenues | 26,390 | 21,683 | 72,258 | 78,116 | |
Gross profit | 5,453 | $ 6,407 | 16,257 | $ 22,481 | |
Corporate | |||||
Segments | |||||
Total assets | $ 9,372 | $ 9,372 | $ 4,365 |
BUSINESS SEGMENTS - Gross profit to net income (Details) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2022 |
Sep. 30, 2021 |
Sep. 30, 2022 |
Sep. 30, 2021 |
|
BUSINESS SEGMENTS | ||||
Segment gross profit | $ 15,489 | $ 24,632 | $ 117,172 | $ 75,205 |
Selling, general, and administrative expenses | (23,983) | (22,803) | (71,252) | (53,079) |
Payroll support program proceeds | 14,768 | |||
Interest expense, net | 393 | (241) | 15 | (750) |
Other income, net | 45 | 9 | 526 | 258 |
Change in fair value of warrant liability | (2,029) | (2,104) | (1,881) | (2,735) |
(Loss) income before income tax provision | $ (10,085) | $ (507) | $ 44,580 | $ 33,667 |
BUSINESS SEGMENTS - Intersegment revenues (Details) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2022 |
Sep. 30, 2021 |
Sep. 30, 2022 |
Sep. 30, 2021 |
|
Segment Reporting Information [Line Items] | ||||
Revenue from contract with customer | $ 50,999 | $ 73,298 | $ 313,413 | $ 223,654 |
Intersegment | ||||
Segment Reporting Information [Line Items] | ||||
Revenue from contract with customer | 4,873 | 6,974 | 20,657 | 17,689 |
Asset Management Solutions | ||||
Segment Reporting Information [Line Items] | ||||
Revenue from contract with customer | 20,591 | 48,876 | 209,662 | 138,427 |
Asset Management Solutions | Intersegment | ||||
Segment Reporting Information [Line Items] | ||||
Revenue from contract with customer | 1,705 | 959 | 4,886 | 2,942 |
TechOps | ||||
Segment Reporting Information [Line Items] | ||||
Revenue from contract with customer | 30,408 | 24,422 | 103,751 | 85,227 |
TechOps | Intersegment | ||||
Segment Reporting Information [Line Items] | ||||
Revenue from contract with customer | $ 3,168 | $ 6,015 | $ 15,771 | $ 14,747 |
COMMITMENTS AND CONTINGENCIES - Future minimum lease payments under non-cancelable operating leases (Details) $ in Thousands |
Sep. 30, 2022
USD ($)
|
---|---|
Future minimum lease payments under non-cancelable operating leases | |
Remainder of 2022 | $ 1,270 |
2023 | 6,350 |
2024 | 5,976 |
2025 | 5,071 |
2026 | 4,873 |
Thereafter | 19,526 |
Total minimum lease payments | $ 43,066 |
COMMITMENTS AND CONTINGENCIES - Expense charged to operations under the operating lease agreements (Details) - USD ($) $ in Millions |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2022 |
Sep. 30, 2021 |
Sep. 30, 2022 |
Sep. 30, 2021 |
|
COMMITMENTS AND CONTINGENCIES. | ||||
Rent expense | $ 2.9 | $ 1.4 | $ 4.3 | $ 4.6 |
STOCKHOLDERS EQUITY - Cumulative Preferred Shares (Details) |
Sep. 30, 2022
$ / shares
|
---|---|
STOCKHOLDERS' EQUITY | |
Share price | $ 18.5306 |
STOCKHOLDERS' EQUITY - Common Stock (Details) - $ / shares |
Sep. 30, 2022 |
Dec. 31, 2021 |
---|---|---|
Class of Stock [Line Items] | ||
Par value per share | $ 0.0001 | $ 0.0001 |
Shares authorized | 200,000,000 | 200,000,000 |
Shares issued | 51,774,665 | 51,673,099 |
Shares outstanding | 51,774,665 | 51,673,099 |
AerSale Aviation | ||
Class of Stock [Line Items] | ||
Shares issued | 51,774,665 | 51,673,099 |
Shares outstanding | 51,774,665 | 51,673,099 |
STOCKHOLDERS' EQUITY - Earn-Out Shares (Details) - shares |
Oct. 22, 2021 |
Feb. 08, 2021 |
Dec. 22, 2020 |
Sep. 30, 2022 |
Dec. 31, 2021 |
---|---|---|---|---|---|
Class of Stock [Line Items] | |||||
Number of earn-out shares issuable | 1,854,169 | 1,855,634 | |||
Contingent earn-out shares outstanding | 0 | 0 | |||
Monocle's founder shareholders | |||||
Class of Stock [Line Items] | |||||
Number of earn-out shares issuable | 746,876 | ||||
AerSale Aviation | Pre-closing holders of AerSale Aviation's common stock and the holders of In-the-Money SARs | Maximum | |||||
Class of Stock [Line Items] | |||||
Number of earn-out shares issuable | 3,000,000 |
STOCKHOLDERS' EQUITY - Restricted Stock Unit Activity (Details) - 2020 Employee Stock Purchase Plan - $ / shares |
9 Months Ended | 12 Months Ended | |
---|---|---|---|
Sep. 30, 2022 |
Sep. 30, 2021 |
Dec. 31, 2021 |
|
Stock Option (in Shares) | |||
Outstanding, beginning balance | 1,669,300 | ||
Granted | 278,473 | 1,702,280 | |
Forfeited | (11,048) | (2,210) | |
Vested | (23,643) | ||
Outstanding, ending balance | 1,913,082 | 1,700,070 | 1,669,300 |
Weighted Average Grant Date Fair Value | |||
Weighted Average Fair Value Beginning Balance | $ 10.10 | ||
Weighted Average Fair Value Granted | 14.80 | $ 10.10 | |
Weighted Average Fair Value Forfeited | 13.39 | 12.46 | |
Weighted Average Fair Value Vested | 12.24 | ||
Weighted Average Fair Value Ending Balance | $ 10.74 | $ 10.10 | $ 10.10 |
Weighted Average Contractual Life | |||
Weighted Average Contractual Life Granted | 2 years 5 months 26 days | 2 years 2 months 26 days | |
Weighted Average Contractual Life Forfeited | 2 years 2 months 12 days | 2 years 4 months 24 days | |
Weighted Average Contractual Life | 2 years 1 month 9 days | 2 years 2 months 26 days | 2 years 7 days |
W'2JS$>C\):1K.4-I2."1IXD:9CBA3+\KWO!6J-$L(V]>RLD#\
ML37%?UA?H?>0!?E)272YD-JY$!X%>>^!+00Y&;H=R$8',J\#OPG-JA< S&R
M)(H#,H-HBQ$(&+(0"SB8*#7P)NP/Y2-0J(=2!OTS)>VYK)UZ>]1 X!?E;1="
M0[ZB/:^*KD!7''JLQ9P=3)_L%,5XSC(.L832>"&:\$3^V,NWVX\2VF&IGWKH
M0(BM2=MEM,3.2IS%=([6%DOH41TZ!3NQ-Z;_@0:PE_N_.J3.9.W4U8G^\3/\
M_Q^I -L\G 8AC>8;98LE2427PFKB:^SE2:BS.PXEJH!6.1 F]A,EE+>VLYE,?,""P0<R=JITT>#M)]+QYD-FE\SL#D=MIF1D,!JT1UB.,OBA>Z7
M3 Q*_ ,P0)0'/G6]3HC4YH24S&N<0RH-E[I;,O$>\?/>AY$OO*MHTQ8FU(+H
MF%C#<($SR,1MQ,]M/W/(.]X?(WRIQ.U!YGMH\U Q#!A.U"X2PSB>P[;%*"68
M+.">N(Z\D.LDAS;JX%Y8F[EH1*RR84N1Q2),)H(C?H([G6V.2H<3J4U189A$
M
(!P](HAV@NBY@N%.,'2)
MMF0NK0MJ:#I5
DV@\^R:MOTRB5 RY9-%G02DH/2BUTNBS(E4*Y,U6BG<(P
MV@(DLR54#'/6#:$5)!&'>3Q4N1@8,?E92,YQ&^(O;AHCYNVC49!0$2+3C8<$
MBU&TA'?^0$Z:>T^+P%EQ$3@C"FLI+&YDWZ&HF"IG2:+L]4%VL5,P!QY*7(R$
MW6G(6A'-V66#GF\'HX\=+<7X #UD*['<$**DN,$@>XR4D6T'VN!_%_!_85C)
M0"ETA1D-ZB,7+H->8($JT356_]J[E00:P *N8WN(I>:@= :DNAZ&0=B?(&SU
MOE^WJ6B_ @UH'-5Y\NZ*'9:P]TM6=]*5$=C;2;+F/;K@M
Q"%36/-F[35B2K%0\VG1\-C,CS8KI^;87H[PVJ.>NU&
M
\F'-(BQJ\%HA\T%2: O#Y,)MC"H-Z[P 0.F2)JM>
M$22-)\1NEO)\E H%KLDEL6.W=@\1 \":I!F06-R@TC:MEF'Z1L-LA\-W/QAH
M?V1'2+P36@T1\Z$;1:S0$N)*1$ -^6Z=M"T+R,1K;APMYT2H:Q$PVS8ERTYO
M#CY)PVNY=5I&?5T=LY_]?"[A6;PJFA9H87S3+%S:I- H=IR]S:!MMB-!NSQ
M.Z&4L "87BN&]
UWB(_6Y>F E
M:KA
.
M9!&-*CT8#X<[@THJTSLYBF.?WT]8>J+I6>'.0
MS8B'G<,13B4$BV + @&L@C%5#C<0%H!U*JRB> [M/'%!@&"!:J35IK(=RW"7
MZ5L<4B?Q$J7!/TT:OE_*.V%(Z??*.[_;%H+5'VD-3RYG%TI72N\J[A2
=*%Q(PL3.U2JM)HXY(*-M@-C;X_=6AIV
M%;434*,Z 7('>OWQPP13 6GM-.%L4;L*X&S1)D/ 8E_%0X 0 :"&+8.'70I1
M;H%4ARN;P]HYOR-I(*-!?%)(,V^.AJ=45=RWGB#*M :1IGNDZR%S<_ 61EP,
MQ"N\V,PSGL09P>W3"_+VE(6#X=.UL*!UFQ%!H!0@S=9XU>]MTD^0YCRDE?L,
MI$6EM(M4?VX9[-7C?X
2S;23(*/+8&ZM<(@@.
MM]:F*A,V$@'$82*HW$