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)
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(State or other jurisdiction of | (I.R.S. Employer Identification No.) | |
incorporation or organization) | ||
(Address of Principal Executive Offices) | (Zip Code) |
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Registrant’s telephone number, including area code
(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 |
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 5, 2024 was
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, 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; the sufficiency of our liquidity; 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 following: disruptions in supply chain; factors that adversely impact the commercial aviation industry; the fluctuating market value of our products; our ability to repossess mid-life commercial aircraft and engines (“Flight Equipment”) when a lessee defaults; success at our maintenance, repair and overhaul (“MRO”) facilities is dependent upon continued outsourcing by airlines; shortage of skilled personnel or work stoppages; the inability to obtain certain components and raw materials from suppliers; the highly competitive nature of the markets in which we operate; risks associated with our international operations; the risks from business acquisitions and integration of new businesses acquired; the unique risks we encounter by supplying equipment and services to the U.S. government; further consolidation of customers and suppliers in our markets; cyber or other security threats or disruptions; the significant capital expenditures that may be required to keep pace with technological developments in our industry lack of ownership of certain intellectual property and tooling that is important to our business; litigation to protect our intellectual property; our dependence on our facilities, which are subject to physical and other risks that could disrupt production; risks from any improper conduct by our employees, agents, subcontractors, suppliers, business ventures or joint ventures in which we participate; loss of services from key employees; the failure of our subcontractors to perform their contractual obligations; impacts from future outbreaks and infectious diseases on flight activity, demand for MRO and leasing services, our business partners or customers, and the related macro environment; our dependence on continued availability of financing to manage our business and to execute our business strategy, and unavailability of additional financing on terms acceptable to us; our failure to comply with the covenants in the documents governing our existing and future indebtedness; limitations of our current and future operations from restrictive covenants contained in documents governing our indebtedness; unanticipated changes in our tax provision; possible goodwill and other asset impairments; changes in interest rates, foreign currency exchange rates and swap counterparty risks; we are subject to significant government regulation and may need to incur significant expenses to comply with new or more stringent government regulation; compliance with U.S. and other anti-corruption laws, export control laws, import control laws, trade and economic sanction laws and other laws governing our operations; current or future regulatory proceedings or litigation including product liability, intellectual property disputes and other claims not adequately covered by insurance; the liens of Flight Equipment could exceed the value of such Flight Equipment; the risk that our leased aircraft engines are deemed accessions to the aircraft and our ability to repossess an engine is impaired; product and other liability claims not covered by insurance; the extensive environmental requirements with which we must comply; global climate change, or by legal, regulatory or market responses to such change; depressed stock price as a result of substantial future sales of our common stock, or the perception in the public markets that these sales may occur; lack of analyst coverage for our common stock; actual or anticipated sales of significant amounts of our common stock; the fact that we do not intend to pay dividends on our common stock for the foreseeable future; reduced disclosure due to our filing status as an “emerging growth company”; ineffective internal control over financial reporting; insolvency of our customers; the adverse effect of negative economic conditions and other 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 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.
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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)
(Unaudited)
| September 30, |
| December 31, | |||
2024 | 2023 | |||||
Current assets: | ||||||
Cash and cash equivalents | $ | $ | ||||
Accounts receivable, net of allowance for credit losses of $ |
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Income tax receivable | ||||||
Inventory: | ||||||
Aircraft, airframes, engines, and parts, net |
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Advance vendor payments |
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Deposits, prepaid expenses, and other current assets |
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Total current assets |
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Fixed assets: |
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Aircraft and engines held for lease, net |
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Property and equipment, net |
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Inventory: |
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Aircraft, airframes, engines, and parts, net |
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Operating lease right-of-use assets |
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Deferred income taxes |
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Deferred financing costs, net |
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Other assets |
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Goodwill |
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Other intangible assets, net |
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Total assets | $ | $ | ||||
Current liabilities: |
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Accounts payable | $ | $ | ||||
Accrued expenses |
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Lessee and customer purchase deposits |
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Current operating lease liabilities | ||||||
Current portion of long-term debt | ||||||
Deferred revenue |
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Total current liabilities |
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Revolving credit facility |
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Long-term debt |
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Long-term lease deposits | ||||||
Long-term operating lease liabilities | ||||||
Maintenance deposit payments and other liabilities |
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Warrant liability | ||||||
Total liabilities | ||||||
Stockholders’ equity: |
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Common stock, $ |
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Additional paid-in capital |
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Retained earnings |
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Total stockholders' equity |
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Total liabilities and stockholders’ equity | $ | $ | ||||
See accompanying notes to condensed consolidated financial statements.
1
AERSALE CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(in thousands, except share and per share data)
(Unaudited)
| Three Months Ended September 30, |
| Nine Months Ended September 30, |
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| 2024 |
| 2023 |
| 2024 |
| 2023 |
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Revenue: | |||||||||||||
Products | $ | $ | $ | $ | |||||||||
Leasing |
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Services |
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Total revenue |
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Cost of sales and operating expenses: | |||||||||||||
Cost of products |
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Cost of leasing |
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Cost of services |
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Total cost of sales |
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Gross profit |
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Selling, general, and administrative expenses |
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Income (loss) from operations |
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Other (expenses) income: |
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Interest (expense) income, net |
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Other income, net |
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Change in fair value of warrant liability | ( | ||||||||||||
Total other (expenses) income |
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Income (loss) before income tax provision |
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Income tax (expense) benefit |
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Net income (loss) | $ | $ | ( | $ | $ | ( | |||||||
Earnings (loss) per share: | |||||||||||||
Basic | $ | | $ | ( | $ | | $ | ( | |||||
Diluted | $ | | $ | ( | $ | | $ | ( | |||||
Weighted average shares outstanding: | |||||||||||||
Basic | | | | | |||||||||
Diluted | | | | | |||||||||
See accompanying notes to condensed consolidated financial statements.
2
AERSALE CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Stockholders’ Equity
For the three and nine months ended September 30, 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 | $ | | $ | $ | $ | |||||||||
Share-based compensation | - | - | - | |||||||||||
Shares issued under the 2020 Equity Incentive Plan | | - | - | - | ||||||||||
Shares surrendered for tax withholdings on equity awards | - | - | ( | - | ( | |||||||||
Net income |
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Balance at March 31, 2024 | $ | | $ | $ | $ | |||||||||
Share-based compensation | - | - | - | |||||||||||
Shares issued under the 2020 Employee Stock Purchase Plan | | - | ||||||||||||
Shares issued under the 2020 Equity Incentive Plan | | - | - | - | ||||||||||
Shares surrendered for tax withholdings on equity awards | - | - | ( | - | ( | |||||||||
Net loss |
| - | - |
| - |
| ( |
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Balance at June 30, 2024 | $ | | $ | $ | $ | |||||||||
Share-based compensation | - | - | - | |||||||||||
Shares issued under the 2020 Equity Incentive Plan | | - | - | - | ||||||||||
Shares surrendered for tax withholdings on equity awards | - | - | - | - | - | |||||||||
Net income | - | - | - | |||||||||||
Balance at September 30, 2024 | $ | | $ | $ | $ | |||||||||
Total | ||||||||||||||
Common stock | Additional | Retained | stockholders’ | |||||||||||
| Amount |
| Shares |
| paid-in capital |
| earnings |
| equity | |||||
Balance at December 31, 2022 | $ |
| | $ | $ | $ | ||||||||
Share-based compensation | - | - | - | |||||||||||
Shares issued under the 2020 Equity Incentive Plan | | - | - | - | ||||||||||
Shares surrendered for tax withholdings on equity awards | - | - | ( | - | ( | |||||||||
Net income | - | - | - | |||||||||||
Balance at March 31, 2023 | $ | | $ | $ | $ | |||||||||
Share-based compensation | - | - | - | |||||||||||
Shares issued under the 2020 Employee Stock Purchase Plan | | - | ||||||||||||
Shares issued under the 2020 Equity Incentive Plan | | - | - | - | ||||||||||
Net loss | - | - | - | ( | ( | |||||||||
Balance at June 30, 2023 | $ | | $ | $ | $ | |||||||||
Share-based compensation | - | - | - | |||||||||||
Shares issued under the 2020 Equity Incentive Plan | | - | - | - | ||||||||||
Shares surrendered for tax withholdings on equity awards | - | - | ( | - | ( | |||||||||
Net loss | - | - | - | ( | ( | |||||||||
Balance at September 30, 2023 | $ | | $ | $ | $ | |||||||||
See accompanying notes to condensed consolidated financial statements.
3
AERSALE CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
| Nine Months Ended September 30, |
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2024 |
| 2023 | |||||
Cash flows from operating activities: | |||||||
Net income (loss) | $ | $ | ( | ||||
Adjustments to reconcile net income (loss) to net cash used in operating activities: | |||||||
Depreciation and amortization |
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Amortization of debt issuance costs |
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Amortization of operating lease assets |
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Inventory reserve |
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Provision for doubtful accounts |
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Deferred income taxes |
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Change in fair value of warrant liability | ( | ( | |||||
Share-based compensation | |||||||
Changes in operating assets and liabilities: |
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Deferred financing costs | - |
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Accounts receivable |
| ( |
| ( | |||
Income tax receivable | ( | ( | |||||
Inventory |
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Deposits, prepaid expenses, and other current assets |
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Other assets |
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Advance vendor payments |
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Accounts payable |
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Accrued expenses |
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Deferred revenue |
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Lessee and customer purchase deposits |
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Other liabilities |
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Net cash used in operating activities |
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Cash flows from investing activities: |
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Proceeds from sale of assets |
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Acquisition of aircraft and engines held for lease, including capitalized cost |
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Purchase of property and equipment |
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Net cash (used in) provided by investing activities |
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Cash flows from financing activities: |
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Proceeds from long-term debt |
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Repayments of long-term debt |
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Proceeds from revolving credit facility |
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Repayments of revolving credit facility |
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Taxes paid related to net share settlement of equity awards | ( | ( | |||||
Proceeds from the issuance of Employee Stock Purchase Plan shares | |||||||
Net cash provided by financing activities |
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Increase (decrease) in cash and cash equivalents |
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Cash and cash equivalents, beginning of period |
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Cash and cash equivalents, end of period | $ | $ | |||||
Supplemental disclosure of cash activities |
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Income tax payments, net | $ | ( | $ | ||||
Interest paid | $ | $ | |||||
Supplemental disclosure of noncash investing activities | |||||||
Reclassification of aircraft and aircraft engines inventory to (from) aircraft and engine held for lease, net | $ | $ | |||||
See accompanying notes to condensed consolidated financial statements.
4
AERSALE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 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 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 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 is 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, 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.
Services Revenue
Revenues for services 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
6
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 balance sheet as of December 31, 2023, and the condensed consolidated statements of cash flows for the nine months ended September 30, 2023, have been reclassified to conform to the presentation in the condensed consolidated financial statements as of and for the three and nine months ended September 30, 2024, primarily the reclassification of amounts related to deposits for Flight Equipment purchases from deposits, prepaid expenses, and other current assets to advance vendor payments. Such reclassification did not impact net income (loss), stockholders’ equity or total cash flows from operating activities, and did not have a material impact on the condensed consolidated financial statements.
New Accounting Pronouncements Adopted
In December 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update 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.
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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):
| September 30, 2024 |
| December 31, 2023 |
| Change | ||||
Contract assets | $ | $ | $ | ( | |||||
Contract assets are reported within deposits, prepaid expenses, and other current assets on our condensed consolidated balance sheets. Changes in contract assets primarily result 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 $
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, 2024 and 2023 (in thousands):
| Three Months Ended September 30, |
| Nine Months Ended September 30, | |||||||||||||||
| 2024 |
| 2024 | |||||||||||||||
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, | ||||||||||||||
|
| 2023 |
| 2023 | ||||||||||||||
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 | $ | $ | $ | $ | $ | $ | ||||||||||||
8
NOTE D — INVENTORY
Following are the major classes of inventory as of the below dates (in thousands):
| September 30, 2024 |
| December 31, 2023 | |||
USM | $ | $ | ||||
Whole assets | ||||||
Work-in-process | ||||||
MRO and engineered solutions | ||||||
$ | ||||||
Less short term |
| ( |
| ( | ||
Long term | $ | $ | ||||
The Company recorded inventory scrap loss reserves of $
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
In April 2024, |
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 primarily 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. See Note L for information about our business segments.
9