10-Q 1 asle-20240331x10q.htm 10-Q
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2024

OR

   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________ to ____________.

Commission file number 001-38801

AerSale Corporation

(Exact name of registrant as specified in its charter)

Delaware

    

84-3976002

(State or other jurisdiction of

(I.R.S. Employer Identification No.)

incorporation or organization)

255 Alhambra Circle, Suite 435

Coral Gables, FL

33134

(Address of Principal Executive Offices)

(Zip Code)

(305) 764-3200

Registrant’s telephone number, including area code

N/A

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

    

Trading Symbol(s)

    

Name of each exchange on which registered

Common stock, $0.0001 par value per share

ASLE

The Nasdaq Capital Market

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. Yes No

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). Yes No

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

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 No

The number of shares of Registrant’s common stock outstanding as of May 6, 2024 was 53,009,026.

TABLE OF CONTENTS

Page

Forward-Looking Statements

i

PART I – FINANCIAL INFORMATION

1

Item 1.

Condensed Consolidated Financial Statements

1

Condensed Consolidated Balance Sheets (Unaudited)

1

Condensed Consolidated Statements of Operations (Unaudited)

2

Condensed Consolidated Statements of Stockholders’ Equity (Unaudited)

3

Condensed Consolidated Statements of Cash Flows (Unaudited)

4

Notes to the Condensed Consolidated Financial Statements (Unaudited)

5

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

18

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

23

Item 4.

Controls and Procedures

23

PART II – OTHER INFORMATION

24

Item 1.

Legal Proceedings

24

Item 1A.

Risk Factors

24

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

24

Item 3.

Defaults Upon Senior Securities

24

Item 4.

Mine Safety Disclosures

24

Item 5.

Other Information

24

Item 6.

Exhibits

25

Signatures

27

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 (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of historical facts contained in this Quarterly Report may constitute forward-looking statements, and include, but are not limited to, changes in the market for our services; changes in applicable laws or regulations; the ability to launch new services and products or to profitably expand into new markets; and expectations of 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 factors described under the section titled “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2023, filed with the Securities and Exchange Commission (“SEC”) on March 8, 2024.

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 (f/k/a Monocle Holdings, Inc.) and its consolidated subsidiaries.

i

PART I – FINANCIAL INFORMATION

ITEM 1          CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

AERSALE CORPORATION AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(in thousands, except share data and par value)

    

March 31, 

    

December 31, 

2024

2023

(Unaudited)

Current assets:

Cash and cash equivalents

$

2,637

$

5,873

Accounts receivable, net of allowance for credit losses of $978 as of March 31, 2024 and December 31, 2023

 

30,057

 

31,239

Income tax receivable

1,628

1,628

Inventory:

Aircraft, airframes, engines, and parts, net

 

203,652

 

177,770

Advance vendor payments

 

37,560

 

35,757

Deposits, prepaid expenses, and other current assets

 

12,840

 

12,507

Total current assets

 

288,374

 

264,774

Fixed assets:

 

Aircraft and engines held for lease, net

 

23,262

 

26,475

Property and equipment, net

 

30,387

 

27,692

Inventory:

 

Aircraft, airframes, engines, and parts, net

 

147,193

 

151,398

Operating lease right-of-use assets

26,307

 

27,519

Deferred income taxes

 

12,906

 

12,203

Deferred financing costs, net

 

1,424

 

1,506

Deferred customer incentives and other assets, net

 

525

 

525

Goodwill

 

19,860

 

19,860

Other intangible assets, net

 

21,456

 

21,986

Total assets

$

571,694

$

553,938

Current liabilities:

 

  

Accounts payable

$

26,278

$

29,899

Accrued expenses

 

5,720

 

5,478

Lessee and customer purchase deposits

 

805

 

1,467

Current operating lease liabilities

4,401

4,593

Current portion of long-term debt

1,033

1,278

Deferred revenue

 

2,009

 

2,998

Total current liabilities

 

40,246

 

45,713

Revolving credit facility

51,969

 

29,000

Long-term debt

3,527

 

7,281

Long-term lease deposits

 

102

 

102

Long-term operating lease liabilities

23,398

24,377

Maintenance deposit payments and other liabilities

 

62

 

64

Warrant liability

407

2,386

Total liabilities

119,711

108,923

Stockholders’ equity:

 

  

Common stock, $0.0001 par value. Authorized 200,000,000 shares; issued and outstanding 53,009,026 and 52,954,430 shares as of March 31, 2024 and December 31, 2023

 

5

 

5

Additional paid-in capital

 

312,430

 

311,739

Retained earnings

 

139,548

 

133,271

Total stockholders' equity

 

451,983

 

445,015

Total liabilities and stockholders’ equity

$

571,694

$

553,938

See accompanying notes to condensed consolidated financial statements.

1

AERSALE CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statements of Operations

(in thousands, except per share data)

(Unaudited)

    

Three Months Ended March 31, 

    

2024

    

2023

Revenue:

Products

$

61,610

$

45,495

Leasing

 

3,082

 

5,622

Services

 

25,848

 

27,154

Total revenue

 

90,540

 

78,271

Cost of sales and operating expenses:

Cost of products

 

39,619

 

31,548

Cost of leasing

 

1,193

 

1,123

Cost of services

 

20,932

 

21,209

Total cost of sales

 

61,744

 

53,880

Gross profit

 

28,796

 

24,391

Selling, general, and administrative expenses

 

24,133

 

25,224

Income (loss) from operations

 

4,663

 

(833)

Other income (expenses):

 

 

Interest (expense) income, net

 

(935)

 

1,047

Other income, net

 

169

 

233

Change in fair value of warrant liability

1,979

(334)

Total other income

 

1,213

 

946

Income before income tax provision

 

5,876

 

113

Income tax benefit (expense)

 

401

 

(108)

Net income

$

6,277

$

5

Earnings per share:

Basic

$

0.12

$

-

Diluted

$

0.12

$

-

Weighted average shares outstanding:

Basic

52,991,506

51,206,226

Diluted

53,247,979

52,958,555

See accompanying notes to condensed consolidated financial statements.

2

AERSALE CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statements of Stockholders’ Equity

For the three months ended March 31, 2024 and 2023

(in thousands, except share data)

(Unaudited)

Total

Common stock

Additional

Retained

stockholders’

    

Amount

    

Shares

    

paid-in capital

    

earnings

    

 equity

Balance at December 31, 2023

$

5

52,954,430

$

311,739

$

133,271

$

445,015

Share-based compensation

-

-

799

-

799

Shares issued under the 2020 Equity Incentive Plan

-

54,596

-

-

-

Shares surrendered for tax withholdings on equity awards

-

-

(108)

-

(108)

Net income

 

-

-

 

-

 

6,277

 

6,277

Balance at March 31, 2024

$

5

53,009,026

$

312,430

$

139,548

$

451,983

Total

Common stock

Additional

Retained

stockholders’

    

Amount

    

Shares

    

paid-in capital

    

earnings

    

 equity

Balance at December 31, 2022

$

5

 

51,189,461

$

306,141

$

138,834

$

444,980

Share-based compensation

-

-

2,731

-

2,731

Shares issued under the 2020 Equity Incentive Plan

-

31,925

-

-

-

Shares surrendered for tax withholdings on equity awards

-

-

(70)

-

(70)

Net income

-

-

-

5

5

Balance at March 31, 2023

$

5

51,221,386

$

308,802

$

138,839

$

447,646

See accompanying notes to condensed consolidated financial statements.

3

AERSALE CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(in thousands)

(Unaudited)

    

Three Months Ended March 31, 

    

2024

    

2023

Cash flows from operating activities:

Net income

$

6,277

$

5

Adjustments to reconcile net income to net cash used in operating activities:

Depreciation and amortization

 

2,779

 

2,469

Amortization of debt issuance costs

 

82

 

39

Amortization of operating lease assets

40

 

101

Inventory reserve

 

504

 

773

Deferred income taxes

 

(703)

 

72

Change in fair value of warrant liability

(1,979)

334

Share-based compensation

799

2,731

Changes in operating assets and liabilities:

 

 

  

Accounts receivable

 

1,182

 

(7,996)

Inventory

 

(23,961)

 

(48,983)

Deposits, prepaid expenses, and other current assets

 

(332)

 

(2,966)

Deferred customer incentives and other assets

 

-

 

68

Advance vendor payments

 

(1,803)

 

(12,476)

Accounts payable

 

(3,619)

 

14,018

Accrued expenses

 

914

 

(3,396)

Deferred revenue

 

(989)

 

1,343

Lessee and customer purchase deposits

 

(662)

 

(7,985)

Other liabilities

 

(2)

 

(593)

Net cash used in operating activities

 

(21,473)

 

(62,442)

Cash flows from investing activities:

 

  

 

  

Proceeds from sale of assets

 

3,800

 

4,500

Purchase of property and equipment

 

(3,574)

 

(1,481)

Net cash provided by investing activities

 

226

 

3,019

Cash flows from financing activities:

 

  

 

  

Repayments of long-term debt

 

(4,000)

 

-

Proceeds from revolving credit facility

 

61,600

 

-

Repayments of revolving credit facility

 

(39,481)

 

-

Taxes paid related to net share settlement of equity awards

(108)

(70)

Net cash provided by (used in) financing activities

 

18,011

 

(70)

Decrease in cash and cash equivalents

 

(3,236)

 

(59,493)

Cash and cash equivalents, beginning of period

 

5,873

 

147,188

Cash and cash equivalents, end of period

$

2,637

$

87,695

Supplemental disclosure of cash activities

 

 

Income tax payments, net

3

(100)

Interest paid

925

141

Supplemental disclosure of noncash investing activities

Reclassification of aircraft and aircraft engines inventory to (from) aircraft and engine held for lease, net

(2,020)

3,573

See accompanying notes to condensed consolidated financial statements.

4

AERSALE CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

MARCH 31, 2024

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, Monocle consummated the previously announced 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” or the “Business Combination” and in connection therewith, Monocle merged with and into us, whereby we survived the merger and became the successor issuer to Monocle by operation of Rule 12g-3 under the Securities Exchange Act, as amended.

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 Business Combination (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 continued as a wholly owned subsidiary of the Company.

The Company’s corporate headquarters are based in Miami, Florida, with additional offices, hangars, and warehouses located 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 Principles 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, 2023 (the “2023 Form 10-K”), wherein a more complete discussion of significant accounting policies and certain other information can be found.

5

Revenue Recognition

Products Revenue — Used Serviceable Material (“USM”) Sales

Revenues from sales of USM are measured based on consideration specified in a contract with a customer, and excludes any sales commissions and taxes collected and remitted to government agencies. We recognize revenue when we satisfy a performance obligation by transferring control over 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, and the buyer is responsible for any loss in transit, and the Company has a legal right to payment for the spare parts once shipped. We generally sell our 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”) 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 Revenue — 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 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 customers’ acceptance of the whole asset on the date of the transfer, unless the Company extends credit terms to customers it deems creditworthy.

Leasing Revenue

The Company leases aircraft and engines (“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 payments and other 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 are beyond the customers’ deposits held. Flight Equipment leases are billed in accordance with the lease agreement and invoices are due upon receipt.

6

Service Revenue

Service revenues are recognized as performance obligations are fulfilled and the benefits are transferred to the customer. At contract inception, we evaluate if the contract should be accounted for as a single performance obligation or if the contract contains multiple performance obligations. In some cases, our 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.

For most service contracts, our performance obligations are satisfied over time as work progresses or at a point in time based on transfer of control of products and services to our customers. We receive payments from our customers based on billing schedules or other terms as written in our contracts.

For our performance obligations that are satisfied over time, we measure progress in a manner that depicts the performance of transferring control to the customer. As such, we utilize 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. We are required to make certain judgments and estimates, including estimated revenue 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 our maintenance, repair and overhaul (“MRO”) contracts, if the contract is terminated for convenience, we are 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 we provide MRO services.

We have 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 and are included in cost of sales in our condensed consolidated statements of operations and are not considered a performance obligation to our customers. Our reported revenue on our condensed consolidated statements of operations is net of any sales or related non-income taxes.

Revision of Prior Period Financial Statements

Certain balances in the condensed consolidated financial statements as of December 31, 2023, and for the three months ended March 31, 2023, have been reclassified to conform to the presentation in the condensed consolidated financial statements for the three months ended March 31, 2024, primarily the reclassification of amounts related to deposits for Flight Equipment purchases from the deposits, prepaid expenses, and other current assets to advance vendor payments. Such reclassification did not impact net income, stockholder’s equity or total operating cash, and did not have a material impact on the consolidated financial statements.

7

New Accounting Pronouncements Adopted

In December 2023, the FASB issued ASU 2023-09, Income Taxes (“Topic 740”): Improvements to Income Tax Disclosures, which would require additional transparency for income tax disclosures, including the income tax rate reconciliation table and cash taxes paid both in the United States and foreign jurisdictions. This standard is effective for annual periods beginning after December 15, 2024. We are currently assessing the impact this standard will have on our disclosures.

There have been no other accounting pronouncements issued but not yet adopted by us which are expected to have a material impact on our consolidated financial statements.

NOTE C — 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. We record a receivable when revenue is recognized prior to invoicing and we have an unconditional right to consideration (only the passage of time is required before payment of that consideration is due) and a contract asset when the right to payment is conditional upon our future performance. Contract liabilities include advance payments and billings in excess of revenue recognized. Certain customers make advance payments prior to our satisfaction of our 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):

    

March 31, 2024

    

December 31, 2023

    

Change

Contract assets

$

6,134

$

6,474

$

(340)

Contract assets are reported within deposits, prepaid expenses, and other current assets 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 $3.0 million as of December 31, 2023, of which $2.7 million was related to contract liabilities for services to be performed. For the three months ended March 31, 2024, the Company recognized as revenue $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.

8

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 months ended March 31, 2024 and 2023 (in thousands):

    

Three Months Ended March 31, 

    

2024

Asset Management

    

    

    

 Solutions

    

TechOps

    

Total Revenues

USM

$

17,532

$

5,375

$

22,907

Whole asset sales

 

38,648

 

-

 

38,648

Engineered solutions

 

-

 

55

 

55

Total products

 

56,180

 

5,430

 

61,610

Leasing

 

3,082

 

-

 

3,082

Services

 

-

 

25,848

 

25,848

Total revenues

$

59,262

$

31,278

$

90,540

    

Three Months Ended March 31, 

    

2023

Asset Management

    

 Solutions

    

TechOps

    

Total Revenues

USM

$

15,152

$

2,416

$

17,568

Whole asset sales

27,656

-

27,656

Engineered solutions

 

-

 

271

 

271

Total products

 

42,808

 

2,687

 

45,495

Leasing

 

5,622

 

-

 

5,622

Services

 

-

 

27,154

 

27,154

Total revenues

$

48,430

$

29,841

$

78,271

NOTE D — INVENTORY

Following are the major classes of inventory as of the below dates (in thousands):

    

March 31, 2024

    

December 31, 2023

USM

$

112,116

$

120,053

Work-in-process

28,974

22,270

Whole assets

209,755

186,845

$

350,845

329,168

Less short term

 

(203,652)

 

(177,770)

Long term

$

147,193

$

151,398

The Company recorded inventory scrap loss reserves of $0.5 million for the three months ended March 31, 2024 and 2023. Additions to inventory reserves are included in cost of products in the accompanying condensed consolidated statements of operations.

Our allocation of inventory between short term and long term reflects the inventory’s operating cycle, which is longer than one year due to teardown and repair lead times. Inventory expected to be monetized within 18 months as well as work-in-process are reported under current assets.

In April 2024, there was a fire which damaged one of the USM long-term storage warehouses in our Roswell facility. We are still assessing the impact to our condensed consolidated financial statements; however, the loss associated with our inventory and property and equipment is not expected be material and is covered by our insurance policy. Furthermore, we do not expect a significant disruption to our revenue generating operations as a result of this event.

9

NOTE E — INTANGIBLE ASSETS

In accordance with ASC 350, Intangibles — Goodwill and Other (“ASC 350”), 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 Federal Aviation Administration (“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 Air Parts (“Qwest”), which is included under the Asset Management Solutions segment.

Goodwill and other intangibles as of the below dates are (in thousands):

    

March 31, 2024

    

December 31, 2023

Qwest:

FAA Certifications

$

724

$

724

Goodwill

 

13,416

 

13,416

ALGS:

 

  

 

  

FAA Certifications

 

710

 

710

Goodwill

 

379

 

379

ACS:

 

  

 

  

Trademarks

 

600

 

600

FAA Certifications

 

7,300

 

7,300

Goodwill

 

63

 

63

ACT:

 

Trademarks

 

200

 

200

FAA Certificates

 

796

 

796

Goodwill

 

6,002

 

6,002

Total intangible assets with indefinite lives

$

30,190

$

30,190

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):

    

Useful Life

    

    

 In Years

March 31, 2024

December 31, 2023

Qwest:

Customer relationships

10

$

4,920

$

5,163

ALGS:

  

 

 

Customer relationships

10

 

25

 

30

ACS:

  

 

  

 

  

Customer relationships

10

 

980

 

1,033

ACT:

  

 

 

Customer relationships

10

 

5,201

 

5,430

Total intangible assets with definite lives

$

11,126

$

11,656

10

Total amortization expense amounted to $0.5 million for the three months ended March 31, 2024 and 2023. Accumulated amortization amounted to $9.9 million and $9.3 million as of March 31, 2024 and December 31, 2023, respectively.

In the first quarter of 2024, the Company identified a triggering event indicating the fair value of one or more of the Company’s reporting units more likely than not did not exceed their carrying values. The triggering event was due to the significant decline in the market price of the Company’s common stock during the quarter. As a result, the Company performed an interim quantitative goodwill impairment test for the Asset Management and ACT reporting units as of March 31, 2024, and determined that the fair values exceeded the carrying values for each reporting unit. As such, the interim quantitative test did not result in a goodwill impairment for the Company’s reporting units.  In addition, the Company performed a qualitative assessment of long-lived assets and concluded it is not more likely than not that long-lived assets are impaired.  

The fair value determination of the Company’s reporting units and goodwill is judgmental in nature and requires the use of estimates and assumptions that are sensitive to changes. While the Company believes it has made reasonable estimates and assumptions to calculate the fair values of the reporting units, it is possible a material change could occur. As a result, there can be no assurance that the estimates and assumptions made for purposes of the quantitative goodwill and indefinite-lived intangible impairment tests will prove to be an accurate prediction of future results.

NOTE F — PROPERTY AND EQUIPMENT, NET

Property and equipment, net, as of the below dates consisted of the following (in thousands):

    

Useful Life

    

    

 In Years

March 31, 2024

December 31, 2023

Tooling and equipment

 

7 - 15

$

16,221

$

16,024

Furniture and other equipment

 

5

 

11,942

 

12,076

Computer software

 

5

 

2,538

 

2,374

Leasehold improvements

 

3 - 10

 

18,819

 

16,269

Equipment under capital lease

 

5

 

192

 

192

Flight equipment held for R&D

2

7,994

7,784

 

57,706

 

54,719

Less accumulated depreciation

 

(27,319)

 

(27,027)

$

30,387

$

27,692

Depreciation expense, which includes amortization of equipment under capital lease, amounted to $1.1 million and $0.9 million for the three months ended March 31, 2024 and 2023, respectively.

NOTE G — 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):

    

March 31, 2024

    

December 31, 2023

Aircraft and engines held for lease

$

52,055

$

58,136

Less accumulated depreciation

 

(28,793)

 

(31,661)

$

23,262

$

26,475

Total depreciation expense amounted to $1.2 million and $1.1 million for the three months ended March 31, 2024 and 2023, respectively, and is included in cost of leasing in the condensed consolidated statements of operations.

Supplemental rents recognized as revenue totaled $1.5 million and $3.1 million for the three months ended March 31, 2024 and 2023, respectively.

11

The Company’s current operating lease agreements for leased Flight Equipment expire over the next three 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):

Year ending December 31:

    

Remaining nine months of 2024

$

5,363

2025

903

2026

 

599

2027

549

Total minimum lease payments

$

7,414

NOTE H — ACCRUED EXPENSES

The following is a summary of the components of accrued expenses as of the below dates (in thousands):

    

March 31, 2024

    

December 31, 2023

Accrued compensation and related benefits

$

2,469

$

2,241

Accrued legal fees

 

553

 

854

Commission fee accrual

 

696

 

260

Accrued federal, state and local taxes and fees

 

152

 

105

Other

 

1,850

 

2,018

$

5,720

$

5,478

NOTE I – WARRANT LIABILITY

Warrants to purchase a total of 623,834 shares of the Company’s common stock were outstanding as of March 31, 2024 and December 31, 2023. 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, subject to adjustment. The outstanding Private Warrants will expire at 5:00 p.m., New York City time, on December 22, 2025, 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 Private 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 statements of operations. The fair value of the Private Warrants is determined using the Black-Scholes option pricing model. The following table represents the assumptions used in determining the fair value of the Private Warrants as of March 31, 2024 and December 31, 2023:

    

March 31, 2024

December 31, 2023

Risk-free interest rate

4.21%

3.84%

Expected volatility of common stock

41.98%

41.66%

Expected option term in years

1.7

2.0

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.

12

The warrant liability adjustment recognized in the Company's condensed consolidated statements of operations related to the change in fair value of warrant liability was $2.0 million income and $0.3 million expense during the three months ended March 31, 2024 and 2023, respectively.

NOTE J – FINANCING ARRANGEMENTS

Outstanding debt obligations as of March 31, 2024 and December 31, 2023 consisted of the following (in thousands):

    

March 31, 

    

December 31, 

2024

2023

$180.0 million Wells Fargo Senior Secured Revolving Credit Agreement

$

51,969

$

29,000

$10.0 million Synovus Property and Equipment Revolving Term Loan

4,560

8,559

Total

 

56,529

37,559

Less current portion

 

(1,033)

(1,278)

Total long-term portion

$

55,496

$

36,281

At March 31, 2024 and December 31, 2023, total deferred financing costs were $1.4 and $1.5 million, respectively. Amortized debt issuance costs are recorded in interest expense through maturity of the related debt using the straight-line method, which approximates the effective interest method. Amortization expense amounted to $0.1 million for the three months ended March 31, 2024 and 2023, respectively.

$180.0 million Wells Fargo Senior Secured Revolving Credit Agreement

On July 20, 2018, the Company and other subsidiary borrowers’ signatory thereto entered into a secured amended and restated revolving credit agreement (as amended, the “Revolving Credit Agreement”), which provides for a $150.0 million aggregate amount of revolver commitments subject to borrowing base limitations. Effective July 25, 2023, the Company amended the Revolving Credit Agreement to increase the maximum commitments thereunder to $180.0 million aggregate amount, expandable to $200.0 million, subject to borrowing base limitations, and to extend the maturity date to July 24, 2028.

The interest rate applicable to loans outstanding on the Revolving Credit Agreement is a floating rate of interest per annum of Secured Overnight Financing Rate (“SOFR”) plus a margin of 2.75%. The interest rate as of March 31, 2024 was 8.67%. Interest expense on the Revolving Credit Agreement was $0.6 million for the three months ended March 31, 2024.

The Company’s ability to borrow on the Revolving Credit Agreement is subject to ongoing compliance by the Company and the borrowers with various customary affirmative and negative covenants. The Revolving Credit Agreement requires the Company and borrowers to meet certain financial and nonfinancial covenants. The Company was in compliance with these covenants as of March 31, 2024 and December 31, 2023.

$10.0 million Synovus Property and Equipment Revolving Term Loan

On June 30, 2023, the Company entered into a Property and Equipment Revolving Term Loan (the “Equipment Loan”) with a total advance commitment of $10.0 million for the purpose of financing capital expenditures on property and equipment. Once the total advance commitment is reached or commencing on June 30, 2024, whichever comes first, this facility will become a term loan with a maturity date of June 30, 2027. This loan is collateralized by the property and equipment it finances and requires interest only payment until converted to a term loan, at which point, principal and interest payments will be required.

The Equipment Loan bears interest at a rate per annum equal to one-month SOFR plus 3.50%, which will be adjusted monthly. The effective rate on this facility as of March 31, 2024 was 8.83%. Interest expense on the Equipment Loan was $0.1 million for the three months ended March 31, 2024. The schedule of payments on the Equipment Loan as of March 31, 2024 is as follows (in thousands):

13

Year ending December 31:

2024

$

681

2025

1,453

2026

 

1,582

2027

844

Total payments

$

4,560

Subsequent to March 31, 2024, the outstanding balance on the Equipment Loan was paid off.

The Equipment Loan is subject to ongoing compliance by the Company in the form of various customary affirmative and negative covenants, as well as certain financial covenants. The Company was in compliance with these covenants as of March 31, 2024.

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 months ended March 31, 2024 and 2023, respectively (in thousands, except share and per share data):

    

Three Months Ended March 31, 

2024

    

2023

Net income

$

6,277

$

5

Weighted-average number of shares outstanding - basic

 

52,991,506

 

51,206,226

Additional shares from assumed stock-settled restricted stock units

247,438

1,745,293

Additional shares issued under the employee stock purchase plan

9,035

7,036

Weighted-average number of shares outstanding - diluted

53,247,979

52,958,555

Earnings per share – basic:

$

0.12

$

-

Earnings per share – diluted:

$

0.12

$

-

Anti-dilutive shares/units excluded from earnings per share - diluted:

Additional shares from assumed exercise of private warrants

-

220,428

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:

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 revenue consists 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 USM inventory for which it has the overhaul capabilities and relationships to sell.

Gross profit is calculated by subtracting cost of sales from revenue. 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 income (expense) and income tax expense.

Selected financial information for each segment is as follows (in thousands):

Three Months Ended March 31, 

2024

    

2023

    

Revenue

 

Asset Management Solutions

 

Aircraft

$

16,338

$

24,895

Engine

 

42,924

 

23,535

 

59,262

 

48,430

TechOps

 

 

MRO services

 

25,848

 

27,154

Product sales

 

5,430

 

2,687

 

31,278

 

29,841

Total

$

90,540

$

78,271

Three Months Ended March 31, 

2024

    

2023

Gross profit

 

 

Asset Management Solutions

 

 

Aircraft

$

4,837

$

8,455

Engine

 

17,815

 

9,604

 

22,652

 

18,059

TechOps

 

 

MRO services

 

4,916

 

5,945

Product sales

 

1,228

 

387

 

6,144

 

6,332

Total

$

28,796

$

24,391

March 31, 2024

December 31, 2023

Total assets

Asset Management Solutions

$

388,041

$

372,326

Tech Ops

170,369

163,883

Corporate

13,284

17,729

$

571,694

$

553,938

15

The following table reconciles segment gross profit to income before income tax provision for the three months ended March 31, 2024 and 2023 (in thousands):

    

    

Three Months Ended March 31, 

2024

    

2023

    

Segment gross profit

$

28,796

$

24,391

Selling, general and administrative expenses

 

(24,133)

 

(25,224)

(Expense) interest income, net