0001754170--12-312022Q1516730995168805751688057429492610.33330.6666P1Yfalse0001754170us-gaap:MeasurementInputRiskFreeInterestRateMember2022-03-310001754170us-gaap:MeasurementInputPriceVolatilityMember2022-03-310001754170us-gaap:MeasurementInputExpectedTermMember2022-03-310001754170us-gaap:AdditionalPaidInCapitalMember2022-01-012022-03-310001754170us-gaap:CommonStockMember2022-01-012022-03-310001754170us-gaap:CommonStockMember2021-01-012021-03-310001754170us-gaap:RetainedEarningsMember2022-03-310001754170us-gaap:AdditionalPaidInCapitalMember2022-03-310001754170us-gaap:RetainedEarningsMember2021-12-310001754170us-gaap:AdditionalPaidInCapitalMember2021-12-310001754170us-gaap:RetainedEarningsMember2021-03-310001754170us-gaap:AdditionalPaidInCapitalMember2021-03-310001754170us-gaap:RetainedEarningsMember2020-12-310001754170us-gaap:AdditionalPaidInCapitalMember2020-12-310001754170us-gaap:CommonStockMember2022-03-310001754170us-gaap:CommonStockMember2021-12-310001754170us-gaap:CommonStockMember2021-03-310001754170us-gaap:CommonStockMember2020-12-310001754170asle:TwoThousandAndTwentyEquityIncentivePlanMember2022-03-310001754170asle:TwoThousandAndTwentyEmployeeStockPurchasePlanMember2022-03-310001754170asle:TwoThousandAndTwentyEmployeeStockPurchasePlanMember2021-01-012021-12-310001754170asle:TwoThousandAndTwentyEmployeeStockPurchasePlanMember2021-12-310001754170us-gaap:PerformanceSharesMemberus-gaap:ShareBasedCompensationAwardTrancheTwoMember2022-01-012022-03-310001754170us-gaap:PerformanceSharesMemberus-gaap:ShareBasedCompensationAwardTrancheOneMember2022-01-012022-03-310001754170us-gaap:ServiceMemberasle:TechOpsMember2022-01-012022-03-310001754170us-gaap:ProductMemberasle:AssetManagementSolutionsMember2022-01-012022-03-310001754170us-gaap:IntersegmentEliminationMemberasle:TechOpsMember2022-01-012022-03-310001754170us-gaap:IntersegmentEliminationMemberasle:AssetManagementSolutionsMember2022-01-012022-03-310001754170asle:WholeAssetSalesMemberasle:AssetManagementSolutionsMember2022-01-012022-03-310001754170asle:UsedServiceableMaterialMemberasle:TechOpsMember2022-01-012022-03-310001754170asle:UsedServiceableMaterialMemberasle:AssetManagementSolutionsMember2022-01-012022-03-310001754170asle:LeasingArrangementsMemberasle:AssetManagementSolutionsMember2022-01-012022-03-310001754170asle:EngineeredSolutionsMemberasle:TechOpsMember2022-01-012022-03-310001754170us-gaap:IntersegmentEliminationMember2022-01-012022-03-310001754170asle:WholeAssetSalesMember2022-01-012022-03-310001754170asle:UsedServiceableMaterialMember2022-01-012022-03-310001754170asle:EngineeredSolutionsMember2022-01-012022-03-310001754170us-gaap:ServiceMemberasle:TechOpsMember2021-01-012021-03-310001754170us-gaap:ProductMemberasle:AssetManagementSolutionsMember2021-01-012021-03-310001754170us-gaap:IntersegmentEliminationMemberasle:TechOpsMember2021-01-012021-03-310001754170us-gaap:IntersegmentEliminationMemberasle:AssetManagementSolutionsMember2021-01-012021-03-310001754170asle:WholeAssetSalesMemberasle:AssetManagementSolutionsMember2021-01-012021-03-310001754170asle:UsedServiceableMaterialMemberasle:TechOpsMember2021-01-012021-03-310001754170asle:UsedServiceableMaterialMemberasle:AssetManagementSolutionsMember2021-01-012021-03-310001754170asle:LeasingArrangementsMemberasle:AssetManagementSolutionsMember2021-01-012021-03-310001754170asle:EngineeredSolutionsMemberasle:TechOpsMember2021-01-012021-03-310001754170us-gaap:IntersegmentEliminationMember2021-01-012021-03-310001754170asle:WholeAssetSalesMember2021-01-012021-03-310001754170asle:UsedServiceableMaterialMember2021-01-012021-03-310001754170asle:EngineeredSolutionsMember2021-01-012021-03-310001754170srt:MinimumMemberus-gaap:ToolsDiesAndMoldsMember2022-01-012022-03-310001754170srt:MinimumMemberus-gaap:LeaseholdImprovementsMember2022-01-012022-03-310001754170srt:MaximumMemberus-gaap:ToolsDiesAndMoldsMember2022-01-012022-03-310001754170srt:MaximumMemberus-gaap:LeaseholdImprovementsMember2022-01-012022-03-310001754170us-gaap:SoftwareAndSoftwareDevelopmentCostsMember2022-01-012022-03-310001754170us-gaap:FurnitureAndFixturesMember2022-01-012022-03-310001754170asle:EquipmentUnderCapitalLeaseMember2022-01-012022-03-310001754170us-gaap:ToolsDiesAndMoldsMember2022-03-310001754170us-gaap:SoftwareAndSoftwareDevelopmentCostsMember2022-03-310001754170us-gaap:LeaseholdImprovementsMember2022-03-310001754170us-gaap:FurnitureAndFixturesMember2022-03-310001754170asle:EquipmentUnderCapitalLeaseMember2022-03-310001754170us-gaap:ToolsDiesAndMoldsMember2021-12-310001754170us-gaap:SoftwareAndSoftwareDevelopmentCostsMember2021-12-310001754170us-gaap:LeaseholdImprovementsMember2021-12-310001754170us-gaap:FurnitureAndFixturesMember2021-12-310001754170asle:EquipmentUnderCapitalLeaseMember2021-12-310001754170asle:PaycheckProtectionProgramCaresActMember2021-01-012021-03-310001754170srt:CumulativeEffectPeriodOfAdoptionAdjustmentMemberus-gaap:AccountingStandardsUpdate201602Member2022-01-010001754170us-gaap:RetainedEarningsMember2022-01-012022-03-310001754170us-gaap:RetainedEarningsMember2021-01-012021-03-310001754170asle:AvborneComponentSolutionsMemberus-gaap:CertificationMarksMemberasle:TechOpsMember2022-03-310001754170asle:AircraftCompositeTechnologiesMemberus-gaap:TrademarksMemberasle:TechOpsMember2022-03-310001754170asle:AircraftCompositeTechnologiesMemberasle:FaaCertificatesMemberasle:TechOpsMember2022-03-310001754170asle:AersaleComponentSolutionsMemberus-gaap:TrademarksMemberasle:TechOpsMember2022-03-310001754170asle:AersaleComponentSolutionsMemberus-gaap:CertificationMarksMemberasle:TechOpsMember2022-03-310001754170asle:AvborneComponentSolutionsMemberus-gaap:CertificationMarksMemberasle:TechOpsMember2021-12-310001754170asle:AircraftCompositeTechnologiesMemberus-gaap:TrademarksMemberasle:TechOpsMember2021-12-310001754170asle:AircraftCompositeTechnologiesMemberasle:FaaCertificatesMemberasle:TechOpsMember2021-12-310001754170asle:AersaleComponentSolutionsMemberus-gaap:TrademarksMemberasle:TechOpsMember2021-12-310001754170asle:AersaleComponentSolutionsMemberus-gaap:CertificationMarksMemberasle:TechOpsMember2021-12-310001754170us-gaap:ProductMemberasle:TechOpsMember2022-01-012022-03-310001754170us-gaap:MaintenanceMemberasle:TechOpsMember2022-01-012022-03-310001754170asle:WholeAssetSalesMemberasle:TechOpsMember2022-01-012022-03-310001754170asle:EngineMemberasle:AssetManagementSolutionsMember2022-01-012022-03-310001754170asle:AircraftMemberasle:AssetManagementSolutionsMember2022-01-012022-03-310001754170asle:TechOpsMember2022-01-012022-03-310001754170asle:AssetManagementSolutionsMember2022-01-012022-03-310001754170us-gaap:ProductMemberasle:TechOpsMember2021-01-012021-03-310001754170us-gaap:MaintenanceMemberasle:TechOpsMember2021-01-012021-03-310001754170asle:EngineMemberasle:AssetManagementSolutionsMember2021-01-012021-03-310001754170asle:AircraftMemberasle:AssetManagementSolutionsMember2021-01-012021-03-310001754170asle:TechOpsMember2021-01-012021-03-310001754170asle:AssetManagementSolutionsMember2021-01-012021-03-310001754170asle:QwestAirPartsLlcMemberus-gaap:CertificationMarksMemberasle:AssetManagementSolutionsMember2022-03-310001754170asle:AvborneComponentSolutionsMemberasle:TechOpsMember2022-03-310001754170asle:AircraftCompositeTechnologiesMemberasle:TechOpsMember2022-03-310001754170asle:AersaleComponentSolutionsMemberasle:TechOpsMember2022-03-310001754170asle:QwestAirPartsLlcMemberus-gaap:CertificationMarksMemberasle:AssetManagementSolutionsMember2021-12-310001754170asle:AvborneComponentSolutionsMemberasle:TechOpsMember2021-12-310001754170asle:AircraftCompositeTechnologiesMemberasle:TechOpsMember2021-12-310001754170asle:AersaleComponentSolutionsMemberasle:TechOpsMember2021-12-310001754170asle:QwestAirPartsLlcMemberus-gaap:CustomerRelationshipsMemberasle:AssetManagementSolutionsMember2022-01-012022-03-310001754170asle:AvborneComponentSolutionsMemberus-gaap:CustomerRelationshipsMemberasle:TechOpsMember2022-01-012022-03-310001754170asle:AircraftCompositeTechnologiesMemberus-gaap:CustomerRelationshipsMemberasle:TechOpsMember2022-01-012022-03-310001754170asle:AersaleComponentSolutionsMemberus-gaap:CustomerRelationshipsMemberasle:TechOpsMember2022-01-012022-03-310001754170asle:QwestAirPartsLlcMemberus-gaap:CustomerRelationshipsMemberasle:AssetManagementSolutionsMember2022-03-310001754170asle:AvborneComponentSolutionsMemberus-gaap:CustomerRelationshipsMemberasle:TechOpsMember2022-03-310001754170asle:AircraftCompositeTechnologiesMemberus-gaap:CustomerRelationshipsMemberasle:TechOpsMember2022-03-310001754170asle:AersaleComponentSolutionsMemberus-gaap:CustomerRelationshipsMemberasle:TechOpsMember2022-03-310001754170asle:QwestAirPartsLlcMemberus-gaap:CustomerRelationshipsMemberasle:AssetManagementSolutionsMember2021-12-310001754170asle:AvborneComponentSolutionsMemberus-gaap:CustomerRelationshipsMemberasle:TechOpsMember2021-12-310001754170asle:AircraftCompositeTechnologiesMemberus-gaap:CustomerRelationshipsMemberasle:TechOpsMember2021-12-310001754170asle:AersaleComponentSolutionsMemberus-gaap:CustomerRelationshipsMemberasle:TechOpsMember2021-12-310001754170asle:PaycheckProtectionProgramCaresActMember2021-04-160001754170asle:PaycheckProtectionProgramCaresActMember2021-03-040001754170asle:PaycheckProtectionProgramCaresActMember2020-06-080001754170us-gaap:ServiceMember2022-01-012022-03-310001754170us-gaap:ProductMember2022-01-012022-03-310001754170asle:LeasingArrangementsMember2022-01-012022-03-310001754170us-gaap:ServiceMember2021-01-012021-03-310001754170us-gaap:ProductMember2021-01-012021-03-310001754170asle:LeasingArrangementsMember2021-01-012021-03-310001754170asle:AersaleAviationMember2022-03-310001754170asle:AersaleAviationMember2021-03-310001754170us-gaap:PrivatePlacementMember2022-03-3100017541702021-03-3100017541702020-12-310001754170us-gaap:CorporateMember2022-03-310001754170asle:TechOpsMember2022-03-310001754170asle:AssetManagementSolutionsMember2022-03-310001754170us-gaap:CorporateMember2021-12-310001754170asle:TechOpsMember2021-12-310001754170asle:AssetManagementSolutionsMember2021-12-310001754170us-gaap:PerformanceSharesMember2022-01-012022-03-310001754170us-gaap:AdditionalPaidInCapitalMember2021-01-012021-03-3100017541702022-05-020001754170asle:PreClosingHoldersOfAersaleAviationsCommonStockMember2022-03-310001754170srt:MinimumMemberus-gaap:PerformanceSharesMember2022-01-012022-03-310001754170srt:MaximumMemberus-gaap:PerformanceSharesMember2022-01-012022-03-310001754170asle:TwoThousandAndTwentyEmployeeStockPurchasePlanMember2022-01-012022-03-310001754170asle:PayrollSupportProgramsMember2021-03-312021-03-310001754170asle:PayrollSupportProgramsMember2021-01-012021-03-3100017541702022-02-012022-02-280001754170asle:IfClosingPricePerShareOfCompanysCommonStockIsGreaterThan15.00Member2022-01-012022-03-310001754170asle:IfClosingPricePerShareOfCompanysCommonStockIsGreaterThan13.50Member2022-01-012022-03-3100017541702022-10-222022-10-2200017541702021-02-082021-02-080001754170srt:MaximumMemberasle:AersaleAviationMemberasle:PreClosingHoldersOfAersaleAviationsCommonStockAndHoldersOfInMoneySarsMember2020-12-222020-12-220001754170asle:MonoclesFounderShareholdersMember2020-12-222020-12-2200017541702022-01-012022-03-3100017541702021-01-012021-03-3100017541702022-03-3100017541702021-12-31iso4217:USDxbrli:sharesiso4217:USDxbrli:sharesasle:aircraftasle:engineasle:leaseasle:segmentxbrli:pure

Table of Contents

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, 2022

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

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 Global 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 02, 2022 was 51,688,057.

Table of Contents

TABLE OF CONTENTS

Page

Forward-Looking Statements

i

PART I – FINANCIAL INFORMATION

1

Item 1.

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

19

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

24

Item 4.

Controls and Procedures

24

PART II – OTHER INFORMATION

25

Item 1.

Legal Proceedings

25

Item 1A.

Risk Factors

25

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

26

Item 3.

Defaults Upon Senior Securities

27

Item 4.

Mine Safety Disclosures

27

Item 5.

Other Information

27

Item 6.

Exhibits

27

Signatures

30

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 Business Combination (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 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 suppling 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

Table of Contents

PART I – FINANCIAL INFORMATION

ITEM 1          CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

AERSALE CORPORATION AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(in thousands, except per share data)

    

March 31, 

    

December 31, 

2022

2021

(Unaudited)

Current assets:

Cash and cash equivalents

$

171,724

$

130,188

Accounts receivable, net of allowance for doubtful accounts of $1,267 and $1,692 as of March 31, 2022 and December 31, 2021

 

42,894

 

42,571

Inventory:

Aircraft, airframes, engines, and parts, net

 

80,295

 

81,759

Advance vendor payments

 

16,228

 

14,287

Deposits, prepaid expenses, and other current assets

 

3,208

 

2,724

Total current assets

 

314,349

 

271,529

Fixed assets:

 

Aircraft and engines held for lease, net

 

53,579

 

73,364

Property and equipment, net

 

8,494

 

7,350

Inventory:

 

Aircraft, airframes, engines, and parts, net

 

68,816

 

77,534

Deferred income taxes

 

10,788

 

10,013

Deferred financing costs, net

 

887

 

999

Deferred customer incentives and other assets, net

 

470

 

598

Goodwill

 

19,860

 

19,860

Other intangible assets, net

 

25,713

 

26,238

Total assets

$

502,956

$

487,485

Current liabilities:

 

  

Accounts payable

$

20,168

$

19,967

Accrued expenses

 

6,811

 

8,424

Income tax payable

 

8,418

 

3,443

Lessee and customer purchase deposits

 

25,849

 

33,212

Deferred revenue

 

2,322

 

2,860

Total current liabilities

 

63,568

 

67,906

Long-term lease deposits

 

605

 

2,053

Maintenance deposit payments and other liabilities

 

2,320

 

3,403

Deferred income taxes, net

1,113

1,113

Warrant liability

5,365

4,131

Total liabilities

72,971

78,606

Commitments and contingencies

 

  

Stockholders’ equity:

 

  

Common stock, $0.0001 par value. Authorized 200,000,000 shares; issued and outstanding 51,688,057 and 51,673,099 shares as of March 31, 2022 and December 31, 2021, respectively

 

5

 

5

Additional paid-in capital

 

317,781

 

313,901

Retained earnings

 

112,199

 

94,973

Total stockholders' equity

 

429,985

 

408,879

Total liabilities and stockholders’ equity

$

502,956

$

487,485

1

Table of Contents

AERSALE CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statements of Operations

(in thousands, except per share data)

(Unaudited)

    

Three Months Ended March 31, 

    

    

    

2022

    

2021

    

    

Revenue:

Products

$

92,368

$

25,126

Leasing

 

8,201

 

6,256

Services

 

22,237

 

27,053

Total revenue

 

122,806

 

58,435

Cost of sales and operating expenses:

Cost of products

 

57,928

 

13,806

Cost of leasing

 

2,189

 

2,767

Cost of services

 

15,986

 

22,027

Total cost of sales

 

76,103

 

38,600

Gross profit

 

46,703

 

19,835

Selling, general, and administrative expenses

 

23,766

 

13,310

Payroll support program proceeds

 

-

 

(6,363)

Income from operations

 

22,937

 

12,888

Other income (expenses):

 

 

Interest expense, net

 

(195)

 

(258)

Other income, net

 

365

 

94

Change in fair value of warrant liability

(1,234)

(224)

Total other expenses

 

(1,064)

 

(388)

Income before income tax provision

 

21,873

 

12,500

Income tax expense

 

(4,647)

 

(2,482)

Net income

$

17,226

$

10,018

Earnings per share - basic

$

0.33

$

0.24

Earnings per share - diluted

$

0.32

$

0.23

2

Table of Contents

AERSALE CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statements of Stockholders’ Equity

For the three months ended March 31, 2022 and 2021

(in thousands, except per share data)

(Unaudited)

Total

Common stock

Additional

Retained

stockholders’

    

Amount

    

Shares

    

paid-in capital

    

earnings

    

 equity

Balance at December 31, 2021

$

5

51,673,099

$

313,901

$

94,973

$

408,879

Share-based compensation

-

-

3,755

-

3,755

Shares issued under the 2020 Employee Stock Purchase Plan

-

11,988

125

-

125

Shares issued under the 2020 Equity Incentive Plan

-

2,970

-

-

-

Net income

 

-

-

 

-

 

17,226

 

17,226

Balance at March 31, 2022

$

5

51,688,057

$

317,781

$

112,199

$

429,985

Total

Common stock

Additional

Retained

stockholders’

    

Amount

    

Shares

    

paid-in capital

    

earnings

    

 equity

Balance at December 31, 2020

$

4

 

41,046,216

$

292,593

$

58,858

$

351,455

Issuance of Earn-Out shares

-

1,855,634

(269)

-

(269)

Shares issued upon exercise of warrants

-

47,411

545

-

545

Net income

-

-

-

10,018

10,018

Balance at March 31, 2021

$

4

42,949,261

$

292,869

$

68,876

$

361,749

3

Table of Contents

AERSALE CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(in thousands)

(Unaudited)

    

Three Months Ended March 31, 

    

2022

    

2021

Cash flows from operating activities:

Net income

$

17,226

$

10,018

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

Depreciation and amortization

 

2,865

 

3,487

Amortization of debt issuance costs

 

112

 

150

Inventory reserve

 

(50)

 

74

Provision for doubtful accounts

 

(424)

 

(144)

Deferred income taxes

 

(775)

 

(284)

Change in fair value of warrant liability

1,234

224

Stock-based compensation

3,755

-

Changes in operating assets and liabilities:

 

 

  

Accounts receivable

 

(5,527)

 

1,713

Inventory

 

28,174

 

(27,020)

Deposits, prepaid expenses, and other current assets

 

(484)

 

2,590

Deferred customer incentives and other assets

 

123

 

-

Advance vendor payments

 

(1,941)

 

(4,514)

Accounts payable

 

201

 

2,857

Income tax payable

4,975

5

Accrued expenses

 

(1,611)

 

(1,420)

Deferred revenue

 

(538)

 

(1,777)

Lessee and customer purchase deposits

 

(3,184)

 

-

Other liabilities

 

(1,083)

 

80

Net cash provided by (used in) operating activities

 

43,048

 

(13,961)

Cash flows from investing activities:

 

  

 

  

Proceeds from sale of assets

 

-

 

4,420

Purchase of property and equipment

 

(1,637)

 

(443)

Net cash (used in) provided by investing activities

 

(1,637)

 

3,977

Cash flows from financing activities:

 

  

 

  

Cash paid for employee taxes on withholding shares

-

(269)

Proceeds from exercise of warrants

-

545

Proceeds from the issuance of Employee Stock Purchase Plan shares

125

-

Net cash provided by financing activities

 

125

 

276

Increase (decrease) in cash and cash equivalents

 

41,536

 

(9,708)

Cash and cash equivalents, beginning of period

 

130,188

 

29,317

Cash and cash equivalents, end of period

$

171,724

$

19,609

Supplemental disclosure of cash activities

 

 

Income taxes

277

98

Interest

141

167

Supplemental disclosure of noncash investing activities

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

(17,942)

(2,061)

4

Table of Contents

AERSALE CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

MARCH 31, 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 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 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 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 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 2021 Annual Report, wherein a more complete discussion of significant accounting policies and certain other information can be found.

5

Table of Contents

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

Table of Contents

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 will be 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

Table of Contents

(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.

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 is evaluating this new standard, but does not expect it to have a material impact on the Company's financial statements or disclosures.

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 first quarter of 2021. 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, of which $2.7 million was recognized as payroll support program proceeds during the first quarter of 2021. The total unrecognized amount of collected proceeds from payroll support programs as of March 31, 2021 is $2.9 million. 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. No amounts were received or recognized under any of these programs during the three months ended March 31, 2022.

In connection with the financial assistance the Company has received under the Payroll Support Program, it is 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 requires 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 is subject to provisions prohibiting the repurchase of common stock and the payment of common stock dividends through September 30, 2022, as well as limitations 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

8

Table of Contents

to attract and retain senior management or attract other key employees during this critical time. As of March 31, 2022, we have been 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 three leases with operators doing business in Russia, successfully recovering two aircraft and seeking to recover one engine with a low book value and for which we have insurance coverage. Although the current sanctions prohibit the continuation of certain business activities, the three leases referenced were naturally 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.

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):

    

March 31, 2022

    

December 31, 2021

    

Change

Contract assets

$

14,173

$

13,221

$

952

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 performed. For the three months ended March 31, 2022, the Company recognized as revenue $1.3 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.

9

Table of Contents

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, 2022 and 2021 (in thousands):

    

Three months ended March 31, 

    

    

2022

    

Asset Management

    

    

    

 Solutions

    

TechOps

    

Total Revenues

    

USM

$

14,409

$

819

$

15,228

Whole asset sales

 

51,920

 

23,955

 

75,875

Engineered solutions

 

-

 

1,265

 

1,265

Total products

 

66,329

 

26,039

 

92,368

Leasing

 

8,201

 

-

 

8,201

Services

 

-

 

22,237

 

22,237

Total revenues

$

74,530

$

48,276

$

122,806

    

Three months ended March 31, 

    

    

2021

    

Asset Management

    

 Solutions

    

TechOps

    

Total Revenues

    

USM

$

9,225

$

1,143

$

10,368

Whole asset sales

13,771

-

13,771

Engineered solutions

 

-

 

987

 

987

Total products

 

22,996

 

2,130

 

25,126

Leasing

 

6,256

 

-

 

6,256

Services

 

-

 

27,053

 

27,053

Total revenues

$

29,252

$

29,183

$

58,435

NOTE E — INVENTORY

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

    

March 31, 2022

    

December 31, 2021

Used serviceable materials

$

62,990

$

65,496

Work-in-process

20,104

12,462

Whole assets

66,017

81,335

$

149,111

159,293

Less short term

 

(80,295)

 

(81,759)

Long term

$

68,816

$

77,534

The Company did not record inventory reserves for the three months ended March 31, 2022 and 2021.

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

Table of Contents

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):

    

March 31, 2022

    

December 31, 2021

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, 2022

December 31, 2021

Qwest:

Customer relationships

10

$

6,870

$

7,109

ALGS:

  

 

 

Customer relationships

10

 

65

 

70

ACS:

  

 

  

 

  

Customer relationships

10

 

1,400

 

1,453

ACT:

  

 

 

Customer relationships

10

 

7,048

 

7,276

Total intangible assets with definite lives

$

15,383

$

15,908

Total amortization expense amounted to $0.5 million and $0.5 million for the three months ended March 31, 2022 and 2021, respectively. Accumulated amortization amounted to $5.6 million and $5.1 million as of March 31, 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.  

11

Table of Contents

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

March 31, 2022

December 31, 2021

Tooling and equipment

 

7 - 15

$

13,674

$

13,530

Furniture and other equipment

 

5

 

9,107

 

7,928

Computer software

 

5

 

2,160

 

1,998

Leasehold improvements

 

3 - 6

 

3,787

 

3,632

Equipment under capital lease

 

5

 

192

 

192

 

28,920

 

27,280

Less accumulated depreciation

 

(20,426)

 

(19,930)

$

8,494

$

7,350

Depreciation expense, which includes amortization of equipment under capital lease, amounted to $0.5 million and $0.5 million for the three months ended March 31, 2022 and 2021, respectively.

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):

    

March 31, 2022

    

December 31, 2021

Aircraft and engines held for operating leases

$

172,486

$

197,397

Less accumulated depreciation

 

(118,907)

 

(124,033)

$

53,579

$

73,364

Total depreciation expense amounted to $1.9 million and $2.5 million for the three months ended March 31, 2022 and 2021, respectively, and is included in cost of leasing in the Condensed Consolidated Statements of Operations.

Supplemental rents recognized as revenue totaled $3.5 million and $1.1 million for the three months ended March 31, 2022 and 2021, respectively.

The Company’s current operating lease agreements for leased flight equipment expire over the next month to 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):

Year ending December 31:

    

Remainder of 2022

$

6,424

2023

1,026

Total minimum lease payments

$

7,450

12

Table of Contents

NOTE I — ACCRUED EXPENSES

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

    

March 31, 2022

    

December 31, 2021

Accrued compensation and related benefits

$

3,897

$

6,294

Accrued legal fees

 

559

 

377

Commission fee accrual

 

220

 

115

Accrued federal, state and local taxes and fees

 

154

 

243

Other

 

1,981

 

1,395

$

6,811

$

8,424

NOTE J – WARRANT LIABILITY

Warrants to purchase a total of 750,000 and 835,014 shares of the Company’s common stock were outstanding as of March 31, 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. The 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 March 31, 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 as of March 31, 2022 with the following assumptions:

    

March 31, 2022

Risk-free interest rate

2.51%

Expected volatility of common stock

41.16%

Dividend yield

-

Expected option term in years

3.7

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.

Change in fair value of warrant liability expense recognized in the Company's Condensed Consolidated Statement of Operations was $1.2 million and $0.2 million during the three months ended March 31, 2022 and 2021, respectively.

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.

13

Table of Contents

The following table provides a reconciliation of the computation for basic and diluted earnings per share for the three months ended March 31, 2022 and 2021, respectively (in thousands, except share and per share data):

Three Months Ended March 31, 

    

2022

    

2021

Net income

$

17,226

$

10,018

Reversal of loss on change in fair value of warrant liability

 

-

 

224

Net income adjusted for EPS - diluted

$

17,226

$

10,242

Weighted-average number of shares outstanding - basic

 

51,686,583

 

42,212,134

Additional shares from assumed stock-settled restricted stock units

1,818,745

115,959

Additional shares from assumed exercise of public warrants

481

1,869,098

Additional shares purchasable for employee stock purchase plan

4,703

-

Weighted-average number of shares outstanding - diluted

53,510,512

44,197,191

Earnings per share – basic:

$

0.33

$

0.24

Earnings per share – diluted:

$

0.32

$

0.23

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

Additional shares from assumed exercise of Private Warrants

188,913

-

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 provides short-term and long-term leasing solutions of aircraft and jet engines to passenger and cargo operators worldwide. Assets considered to be at or near the end of their useful lives, supplied by our leasing portfolio or acquisitions, are analyzed for return maximization to assess whether they will be traded as whole assets or disassembled and sold as individual spare parts and components.

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. Periodically, the Company’s TechOps segment engages in the repair and sale of used serviceable materials through its ability to overhaul existing inventory, or sale of whole assets dedicated to its business.

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.

14

Table of Contents

Selected financial information for each segment for the three months ended March 31, 2022 and 2021 is as follows (in thousands):

Three Months Ended March 31, 

2022

    

2021

    

Revenues

 

Asset Management Solutions

 

Aircraft

$

14,983

$

10,452

Engine

 

59,547

 

18,800

 

74,530

 

29,252

TechOps

 

 

MRO services

 

22,237

 

27,053

Product sales

 

2,084

 

2,130

Whole asset sales

23,955

 

 

48,276

 

29,183

Total

$

122,806

$

58,435

Three Months Ended March 31, 

2022

2021

Gross profit

 

 

Asset Management Solutions

 

 

Aircraft

$

5,365

$

4,463

Engine

 

26,010

 

9,124

 

31,375

 

13,587

TechOps

 

 

MRO services

 

6,251

 

5,026

Product sales

 

1,204

 

1,222

Whole asset sales

7,873

 

 

15,328

 

6,248

Total

$

46,703

$

19,835

March 31, 2022

December 31, 2021

Total Assets

Asset Management Solutions

$

378,369

$

370,378

Tech Ops

117,848

112,742

Corporate

6,739

4,365

$

502,956

$

487,485

The following table reconciles segment gross profit to net income for the three months ended March 31, 2022 and 2021 (in thousands):

    

Three Months Ended March 31, 

    

2022

    

2021

    

Segment gross profit

$

46,703

$

19,835

Selling, general and administrative expenses

 

(23,766)

 

(13,310)

Payroll support program proceeds

 

-

 

6,363

Interest expense, net

 

(195)

 

(258)

Other income, net

 

365

 

94

Change in fair value of warrant liability

(1,234)

(224)

Income tax expense

 

(4,647)

 

(2,482)

Net income

$

17,226

$

10,018

15

Table of Contents

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 months ended March 31, 2022 and 2021, is as follows (in thousands):

    

Three Months Ended March 31, 

    

    

2022

    

2021

    

    

Asset Management Solutions

$

64

$

1,447

TechOps

 

7,005

 

2,158

Total intersegment revenues

$

7,069

$

3,605

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):

Year ending December 31:

Remainder of 2022

$

3,071

2023

 

3,618

2024

 

3,150

2025

 

2,149

2026

 

1,851

Thereafter