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 September 30, 2022

☐ 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 Capital Market

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☐	Accelerated filer	☒
Non-accelerated filer	☐	Smaller reporting company	☒
		Emerging growth company	☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The number of shares of Registrant’s common stock outstanding as of November 8, 2022 was 51,774,665.

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FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (this “Quarterly Report”) contains forward-looking statements. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. All statements other than statements of historical facts contained in this Quarterly Report, including statements relating to the Merger (as defined herein), the impact of the COVID-19 pandemic and the geopolitical events related to the Russian invasion of Ukraine on our business, changes in the market for our services, changes in applicable laws or regulations, our ability to launch new services and products or to profitably expand into new markets, and the possibility that we may be adversely affected by other economic, business and/or competitive factors. These statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.

In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “could,” “intend,” “target,” “project,” “contemplate,” “believe,” “estimate,” “predict,” “potential”, or “continue” or the negative of these terms or other similar expressions. The forward-looking statements in this Quarterly Report are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. These forward-looking statements speak only as of the date of this Quarterly Report and are subject to a number of important factors that could cause actual results to differ materially from those in the forward-looking statements, including the impact of the COVID-19 pandemic or a new pandemic, and geopolitical events related to the Russian invasion of Ukraine on our business; factors that adversely impact the commercial aviation industry; fluctuation of market values for our aviation products; our inability to repossess Flight Equipment (as defined herein) when a lessee defaults and the cost of remarketing and releasing such repossessed Flight Equipment; compliance with significant government regulations; the success at our MRO (as defined herein) facilities is dependent on continued outsourcing by airlines; a shortage of skilled personnel or work stoppages; inability to obtain certain components and raw materials from suppliers; competitive pressures; risks associated with operating internationally; the value of liens on our Flight Equipment; ownership rights over an engine affixed to an aircraft; risks associated with business acquisitions; continued availability of financing; restrictive and financial covenants in our existing debt; product and other liability claims; risks associated with supplying equipment and services to the U.S. government; cyber or other security threats or other disruptions; compliance with environmental requirements; payment of capital expenditures; our lack of ownership of certain intellectual property that is important to our business; dependence on our facilities; damage to our reputation by improper conduct of employees, agents, and others; limitations on employee compensation as a result of the CARES Act; the loss of certain key employees; insolvency of any of our customers; exposure to intellectual property litigation; and the factors described under the section titled “Risk Factors” in our Annual Report on Form 10-K, filed with the Securities and Exchange Commission (“SEC”) on March 15, 2022.

Moreover, we operate in an evolving environment. New risk factors and uncertainties may emerge from time to time, and it is not possible for management to predict all risk factors and uncertainties.

You should read this Quarterly Report and the documents that we reference in this Quarterly Report completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances or otherwise.

Unless otherwise stated or the context otherwise requires, references in this Quarterly Report to the “Company,” “AerSale,” “we,” “us,” “our” and similar terms refer to AerSale Corporation and its consolidated subsidiaries.

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PART I – FINANCIAL INFORMATION

ITEM 1 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

AERSALE CORPORATION AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(in thousands, except share data and par value)


	September 30,		December 31,
	2022		2021
	(Unaudited)

Current assets:
Cash and cash equivalents	$	151,378	$	130,188
Accounts receivable, net of allowance for doubtful accounts of $1,272 and $1,692 as of September 30, 2022 and December 31, 2021		39,219		42,571
Inventory:
Aircraft, airframes, engines, and parts, net		107,150		81,759
Advance vendor payments		24,384		14,287
Deposits, prepaid expenses, and other current assets		3,471		2,724
Total current assets		325,602		271,529
Fixed assets:
Aircraft and engines held for lease, net		33,118		73,364
Property and equipment, net		11,963		7,350
Inventory:
Aircraft, airframes, engines, and parts, net		80,435		77,534
Deferred income taxes		12,852		10,013
Deferred financing costs, net		659		999
Deferred customer incentives and other assets, net		628		598
Goodwill		19,860		19,860
Other intangible assets, net		24,647		26,238
Total assets	$	509,764	$	487,485

Current liabilities:
Accounts payable	$	22,050	$	19,967
Accrued expenses		7,829		8,424
Income tax payable		1,239		3,443
Lessee and customer purchase deposits		10,116		33,212
Deferred revenue		3,524		2,860
Total current liabilities		44,758		67,906

Long-term lease deposits		152		2,053
Maintenance deposit payments and other liabilities		1,624		3,403
Deferred income taxes, net		1,297		1,113
Warrant liability		6,012		4,131
Total liabilities		53,843		78,606
Commitments and contingencies
Stockholders’ equity:
Common stock, $0.0001 par value. Authorized 200,000,000 shares; issued and outstanding 51,774,665 and 51,673,099 shares as of September 30, 2022 and December 31, 2021, respectively		5		5
Additional paid-in capital		326,275		313,901
Retained earnings		129,641		94,973
Total stockholders' equity		455,921		408,879
Total liabilities and stockholders’ equity	$	509,764	$	487,485

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AERSALE CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statements of Operations

(in thousands, except per share data)

(Unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Revenue:
Products	$	16,823	$	43,613	$	217,813	$	124,914
Leasing		7,786		8,002		23,342		20,624
Services		26,390		21,683		72,258		78,116
Total revenue		50,999		73,298		313,413		223,654
Cost of sales and operating expenses:
Cost of products		12,755		30,954		133,702		85,147
Cost of leasing		1,818		2,436		6,538		7,667
Cost of services		20,937		15,276		56,001		55,635
Total cost of sales		35,510		48,666		196,241		148,449
Gross profit		15,489		24,632		117,172		75,205
Selling, general, and administrative expenses		23,983		22,803		71,252		53,079
Payroll support program proceeds		-		-		-		(14,768)
(Loss) income from operations		(8,494)		1,829		45,920		36,894
Other income (expenses):
Interest income (expense), net		393		(241)		15		(750)
Other income, net		45		9		526		258
Change in fair value of warrant liability		(2,029)		(2,104)		(1,881)		(2,735)
Total other expenses		(1,591)		(2,336)		(1,340)		(3,227)
(Loss) income before income tax provision		(10,085)		(507)		44,580		33,667
Income tax benefit (expense)		1,072		(1,129)		(9,912)		(8,737)
Net (loss) income	$	(9,013)	$	(1,636)	$	34,668	$	24,930

(Loss) earnings per share - basic	$	(0.17)	$	(0.04)	$	0.67	$	0.59
(Loss) earnings per share - diluted	$	(0.17)	$	(0.04)	$	0.64	$	0.59

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AERSALE CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statements of Stockholders’ Equity

For the three and nine months ended September 30, 2022 and 2021

(in thousands, except share data)

(Unaudited)


								Total
	Common stock			Additional		Retained		stockholders’
	Amount		Shares	paid-in capital		earnings		equity
Balance at December 31, 2021	$	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
Share-based compensation		-	-		3,917		-		3,917
Shares issued under the 2020 Employee Stock Purchase Plan		-	18,111		220		-		220
Net income		-	-		-		26,455		26,455
Balance at June 30, 2022	$	5	51,706,168	$	321,918	$	138,654	$	460,577
Stock-based compensation		-	-		4,357		-		4,357
Restricted Stock Units ("RSUs") vested and settled		-	20,630		-		-		-
Shares issued upon exercise of warrants		-	47,867		-		-		-
Net loss		-	-		-		(9,013)		(9,013)
Balance at September 30, 2022	$	5	51,774,665	$	326,275	$	129,641	$	455,921


								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
Share-based compensation		-	-		150		-		150
Net Income		-	-		-		16,548		16,548
Balance at June 30, 2021	$	4	42,949,261	$	293,019	$	85,424	$	378,447
Share-based compensation		-	-		8,749		-		8,749
Net Income		-	-		-		(1,636)		(1,636)
Balance at September 30, 2021	$	4	42,949,261	$	301,768	$	83,788	$	385,560

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AERSALE CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(in thousands)

(Unaudited)


	Nine Months Ended September 30,
	2022		2021
Cash flows from operating activities:
Net income	$	34,668	$	24,930
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Depreciation and amortization		8,589		9,868
Amortization of debt issuance costs		340		366
Inventory reserve		2,010		5,033
Impairment of aircraft held for lease		857		-
Provision for doubtful accounts		(379)		(122)
Deferred income taxes		(2,655)		(988)
Change in fair value of warrant liability		1,881		2,735
Share-based compensation		12,029		8,899
Changes in operating assets and liabilities:
Accounts receivable		3,730		5,279
Inventory		(26,441)		(44,104)
Deposits, prepaid expenses, and other current assets		(747)		3,628
Deferred customer incentives and other assets		661		-
Advance vendor payments		(10,097)		(3,201)
Accounts payable		2,082		(57)
Income tax payable		(2,205)		(987)
Accrued expenses		(594)		(2,234)
Deferred revenue		664		363
Lessee and customer purchase deposits		(24,996)		16,649
Other liabilities		(1,779)		327
Net cash (used in) provided by operating activities		(2,382)		26,384
Cash flows from investing activities:
Proceeds from sale of assets		37,107		6,995
Acquisition of aircraft and engines held for lease, including capitalized cost		(6,945)		(60)
Purchase of property and equipment		(6,935)		(1,060)
Net cash provided by investing activities		23,227		5,875
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		345		-
Net cash provided by financing activities		345		276

Increase in cash and cash equivalents		21,190		32,535
Cash and cash equivalents, beginning of period		130,188		29,317
Cash and cash equivalents, end of period	$	151,378	$	61,852

Supplemental disclosure of cash activities
Income taxes paid		14,637		8,095
Interest paid		856		452
Supplemental disclosure of noncash investing activities
Reclassification of aircraft and aircraft engines inventory (from) to equipment held for lease, net		(25,025)		14,650
Reclassification of customer purchase deposits to sale of assets		12,500		-

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Service Revenues

Service revenues are recognized as performance obligations when they are fulfilled and the benefits are transferred to the customer. At contract inception, the Company evaluates if the contract should be accounted for as a single performance obligation or if the contract contains multiple performance obligations. In some cases, the Company’s service contract with the customer is considered one performance obligation as it includes factors such as the good or service being provided is significantly integrated with other promises in the contract, the service provided significantly modifies or customizes the other good or service or the goods or services are highly interdependent or interrelated with each other. If the contract has more than one performance obligation, the Company determines the standalone price of each distinct good or service underlying each performance obligation and allocates the transaction price based on their relative standalone selling prices. The transaction price of a contract, which can include both fixed and variable amounts, is allocated to each performance obligation identified. Some contracts contain variable consideration, which could include incremental fees or penalty provisions related to performance. Variable consideration that can be reasonably estimated based on current assumptions and historical information is included in the transaction price at the inception of the contract but limited to the amount that is probable that a significant reversal in the amount of cumulative revenue recognized will not occur. Variable consideration that cannot be reasonably estimated is recorded when known.

For most service contracts, performance obligations are satisfied over time as work progresses based on transfer of control of products and services to our customers. The Company receives payments from our customers based on billing schedules or contractual terms.

For performance obligations that are satisfied over time, the Company measures progress in a manner that depicts the performance of transferring control to the customer. As such, the Company utilizes the input method of cost-to-cost to recognize revenue over time as this depicts when control of the promised goods or services are transferred to the customer. Revenue is recognized based on the relationship of actual costs incurred to date to the estimated total cost at completion of the performance obligation. The Company is required to make certain judgments and estimates, including estimated revenues and costs, as well as inflation and the overall profitability of the arrangement. Key assumptions involved include future labor costs and efficiencies, overhead costs and ultimate timing of product delivery. Differences may occur between the judgments and estimates made by management and actual program results. Under most of the Company’s Maintenance, Repair and Overhaul (“MRO”) contracts, if the contract is terminated for convenience, the Company is entitled to payment for items delivered, fair compensation for work performed, the costs of settling and paying other claims and a reasonable profit on the costs incurred or committed.

Changes in estimates and assumptions related to our arrangements accounted for using the input method based on labor hours are recorded using the cumulative catchup method of accounting. These changes are primarily adjustments to the estimated profitability for our long term programs where the Company provides MRO services.

The Company has elected to use certain practical expedients permitted under ASC 606. Shipping and handling fees and costs incurred associated with outbound freight after control over a product has transferred to a customer are accounted for as a fulfillment cost, are included in cost of sales in our Condensed Consolidated Statements of Operations and are not considered a performance obligation to our customers. The Company’s reported sales on our Condensed Consolidated Statements of Operations are net of any sales or related non income taxes. The Company also utilizes the “as invoiced” practical expedient in certain cases where performance obligations are satisfied over time and the invoiced amount corresponds directly with the value the Company is providing to the customer.

New Accounting Pronouncements Not Yet Adopted

On February 2016, the Financial Accounting Standards Board (“FASB”) issued “Leases (Topic 842)”, which generally requires companies to recognize operating and financing lease liabilities and corresponding right-of-use assets on the balance sheet. In July 2018, the FASB issued ASU No. 2018-10, “Codification Improvements to Topic 842, Leases,” and ASU No. 2018-11, “Leases (Topic 842): Targeted Improvements.” Topic 842 became effective for the Company for the annual period beginning on January 1, 2022, the impact of which will be reflected in the fourth quarter of 2022 recorded retroactively at the beginning of the period of adoption through a cumulative-effect adjustment. We plan to elect the practical expedients, which permits us to not reassess (i) whether any expired or existing contracts are or contain leases,

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(ii) the lease classification for any expired leases and (iii) indirect costs for any existing leases. In addition, the practical expedient allows us not to separate lease and non-lease components for both lessee and lessor relationships and to not apply the recognition requirements to leases with terms of less than 12 months. Based on preliminary estimates, our adoption is expected to result in the recognition of operating lease right of use assets of approximately $13.8 million and lease liabilities of approximately $14.9 million on January 1, 2022. We are continuing our assessment, which may identify additional impacts that Topic 842 could have on our financial statements.

In June 2016, the FASB issued ASU No. 2016-13 (“ASU 2016-13”), “Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” In November 2018, the FASB issued ASU No. 2018-19, “Codification Improvements to Topic 326, Financial Instruments — Credit Losses,” which amends the scope and transition requirements of ASU 2016-13. Topic 326 requires a financial asset (or a group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected. The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions and reasonable and supportable forecasts that affect the collectability of the reported amount. Topic 326 will become effective for the Company beginning January 1, 2023, with early adoption permitted, on a modified retrospective basis. The Company is currently evaluating the impact this guidance will have on our consolidated financial statements and related disclosures.

New Accounting Pronouncements Recently Adopted

On May 3, 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options. This new standard provides clarification and reduces diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options (such as warrants) that remain equity classified after modification or exchange. This standard is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Under this standard, issuers should apply the new standard prospectively to modifications or exchanges occurring after the effective date of the new standard. Early adoption is permitted, including adoption in an interim period. If an issuer elects to early adopt the new standard in an interim period, the guidance should be applied as of the beginning of the fiscal year that includes that interim period. The Company adopted the new standards as of January 1, 2022 and the adoption did not have a material impact to the Condensed Consolidated Financial Statements.

Payroll Support Programs

The Company has also taken steps to improve our liquidity, including seeking financial assistance under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). Certain of the Company’s subsidiaries have received $16.4 million from the U.S. Treasury Department (“Treasury”) through the Payroll Support Program under the CARES Act, of which $3.7 million was received and recognized as payroll support program proceeds during the nine months ended September 30, 2021. No amount was received or recognized under the CARES Act during the quarter ended September 30, 2022.

As part of the Payroll Support Extension Law, the Company entered into an agreement with the Treasury on March 4, 2021 for the receipt of relief funds of $5.5 million. During the nine months ended September 30, 2021, we received $5.5 million in grant proceeds under the Payroll Support Extension Law. During the three- and nine- month periods ended September 30, 2021, $0.0 million and $5.5 million was recognized as payroll support program proceeds in the Condensed Consolidated Statements of Operations.

Pursuant to the American Rescue Plan Act of 2021 (“ARP”), we entered into an agreement with the Treasury on April 16, 2021 for the receipt of relief funds of an additional $5.5 million. During the three- and nine- month periods ended September 30, 2021, $0.0 million and $5.5 million was recognized as payroll support program proceeds in the Condensed Consolidated Statements of Operations.

In connection with the financial assistance the Company received under the Payroll Support Program, it was required to comply with certain provisions of the CARES Act, including the requirement that funds provided pursuant to

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the Payroll Support Program be used exclusively for the continuation of payment of employee wages, salaries and benefits; the requirement against involuntary terminations and furloughs and reductions in employee pay rates and benefits from the signing date of the Payroll Support Program agreement through September 30, 2021. The agreement also required the Company to issue a recall to any employee who was terminated or furloughed between October 1, 2020 and March 4, 2021 and enable such employee to return to employment. In addition, the Company was subject to provisions prohibiting the repurchase of common stock and the payment of common stock dividends through September 30, 2022, and remains limited on the payment of certain employee compensation through April 1, 2023. These restrictions may affect the Company’s operations and if the Company does not comply with these provisions, it may be required to reimburse up to 100% of any previously received relief funds. In particular, limitations on compensation may adversely impact our ability to attract and retain senior management or attract other key employees during this critical time. As of September 30, 2022, we were in compliance with all applicable provisions of the CARES Act, Payroll Support Program and ARP.

NOTE C — SIGNIFICANT RISKS AND UNCERTAINTIES

Impact of Ukraine Conflict and Russia Sanctions

In February of 2022, Russia invaded Ukraine and is still engaged in an active conflict against the country. As a result, governments in the European Union, the United States, the United Kingdom, Switzerland, and other countries have enacted sanctions against Russia and Russian interests. These sanctions include controls on the export and re-export of certain goods, supplies, and technologies, supply of aircraft and aircraft components to Russian persons or for use in Russia, subject to certain wind-down periods, and the imposition of restrictions on doing business with certain state-owned Russian customers and other investments and business activities in Russia. In order to comply with these sanctions, we ceased pursuing future business in Russia and terminated our three leases with operators doing business in Russia, successfully recovering two aircraft with one engine still unrecovered. Due to continued uncertainty in the ability to recover this engine from Russia or to collect insurance coverage, we have fully impaired this asset. Although the current sanctions prohibit the continuation of certain business activities, the three leases referenced were contractually scheduled to expire in 2022 and therefore will not have a material impact on our business or 2022 financial condition. While it is difficult to predict the short or long term implications of this conflict and sanctions on the global economy and the aviation industry, we intend to fully comply with all applicable sanctions and embargoes, and do not expect the current situation will have a material adverse effect on our results of operations.

NOTE D — REVENUE

The timing of revenue recognition, customer billings and cash collections results in a contract asset or contract liability at the end of each reporting period. Contract assets consist of unbilled receivables or costs incurred where revenue recognized over time exceeds the amounts billed to customers. Contract liabilities include advance payments and billings in excess of revenue recognized. Certain customers make advance payments prior to the satisfaction of performance obligations on the contract. These amounts are recorded as contract liabilities until such performance obligations are satisfied. Contract assets and contract liabilities are determined on a contract by contract basis.

Contract assets are as follows (in thousands):


	September 30, 2022		December 31, 2021		Change
Contract assets	$	7,580	$	13,221	$	(5,641)

Contract assets are reported within accounts receivable on our Condensed Consolidated Balance Sheets. Changes in contract assets primarily results from the timing difference between the performance of services. Contract liabilities are reported as deferred revenue on our Condensed Consolidated Balance Sheets and amounted to $2.9 million as of December 31, 2021, of which $2.6 million was related to contract liabilities for services to be performed. For the three and nine months ended September 30, 2022, the Company recognized as revenue $0.1 million and $2.3 million of contract liabilities included in the beginning balance for services performed as the timing between customer payments and our performance of the services is generally no longer than six months.

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Disaggregation of Revenue

The Company reports revenue by segment. The following tables present revenue by segment, as well as a reconciliation to total revenue for the three and nine months ended September 30, 2022 and 2021 (in thousands):


	Three Months Ended September 30,						Nine Months Ended September 30,
	2022						2022
	Asset Management						Asset Management
	Solutions		Tech Ops		Total Revenues		Solutions		TechOps		Total Revenues
USM	$	10,128	$	3,455	$	13,583	$	38,869	$	5,209	$	44,078
Whole asset sales		2,677		-		2,677		147,451		23,605		171,056
Engineered solutions		-		563		563		-		2,679		2,679
Total products		12,805		4,018		16,823		186,320		31,493		217,813
Leasing		7,786		-		7,786		23,342		-		23,342
Services		-		26,390		26,390		-		72,258		72,258
Total revenues	$	20,591	$	30,408	$	50,999	$	209,662	$	103,751	$	313,413


	Three Months Ended September 30,						Nine Months Ended September 30,
	2021						2021
	Asset Management						Asset Management
	Solutions		Tech Ops		Total Revenues		Solutions		TechOps		Total Revenues
USM	$	13,466	$	1,315	$	14,781	$	33,935	$	3,574	$	37,509
Whole asset sales		27,408		-		27,408		83,868		-		83,868
Engineered solutions		-		1,424		1,424		-		3,537		3,537
Total products		40,874		2,739		43,613		117,803		7,111		124,914
Leasing		8,002		-		8,002		20,624		-		20,624
Services		-		21,683		21,683		-		78,116		78,116
Total revenues	$	48,876	$	24,422	$	73,298	$	138,427	$	85,227	$	223,654

NOTE E — INVENTORY

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


	September 30, 2022		December 31, 2021
Used serviceable materials	$	73,551	$	65,496
Work-in-process		21,145		12,462
Whole assets		92,889		81,335
	$	187,585		159,293
Less short term		(107,150)		(81,759)
Long term	$	80,435	$	77,534

The Company did not record inventory reserve for the three months ended September 30, 2022 and 2021, respectively, and recorded an inventory reserve of $1.8 million and $4.8 million for the nine months ended September 30, 2022 and 2021, respectively, due to the Company’s evaluation of the inventory’s net realizable value. These amounts are included in cost of products in the accompanying Condensed Consolidated Statements of Operations.

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.

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The Company determined the fair value of assets acquired and liabilities assumed using a variety of methods. An income approach based on discounted cash flows was used to determine the values of our trademarks, certifications, customer relationships and FAA certificates. The assumptions the Company used to estimate the fair value of our reporting units are based on historical performance, as well as forecasts used in our current business plan and require considerable management judgment.

The Company’s goodwill and intangible assets as defined by ASC 350 is related to our subsidiaries, AerSale Component Solutions (d/b/a AerSale Landing Gear Solutions) (“ALGS”), Avborne Component Solutions (d/b/a AerSale Component Solutions) (“ACS”), and Aircraft Composite Technologies (“ACT”), which are included in the TechOps segment, as well as Qwest, which is included under the Asset Management Solutions segment.

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


	September 30, 2022		December 31, 2021
Qwest:
FAA Certifications	$	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

The Company performed its annual quantitative impairment analysis on the indefinite lived intangible assets as of July 1, 2022 and concluded there was no impairment. Intangible assets with definite useful lives are amortized on a straight-line basis over their estimated useful lives. Intangible assets with definite lives as of the below dates are as follows (in thousands):


	Useful Life
	In Years	September 30, 2022		December 31, 2021
Qwest:
Customer relationships	10	$	6,381	$	7,109
ALGS:
Customer relationships	10		55		70
ACS:
Customer relationships	10		1,295		1,453
ACT:
Customer relationships	10		6,586		7,276
Total intangible assets with definite lives		$	14,317	$	15,908

Total amortization expense amounted to $0.5 million and $0.5 million for the three months ended September 30, 2022 and 2021, respectively. Total amortization expense amounted to $1.6 million and $1.6 million for the nine months ended September 30, 2022 and 2021, respectively. Accumulated amortization amounted to $6.7 million and $5.1 million as of September 30, 2022 and December 31, 2021, respectively.

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Other intangible assets are reviewed at least annually or more frequently if any event or change in circumstance indicates that an impairment may have occurred.

NOTE G — PROPERTY AND EQUIPMENT, NET

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


	Useful Life
	In Years	September 30, 2022		December 31, 2021
Tooling and equipment	7 - 15	$	14,445	$	13,530
Furniture and other equipment	5		9,740		7,928
Computer software	5		2,152		1,998
Leasehold improvements	3 - 6		6,680		3,632
Equipment under capital lease	5		192		192
			33,209		27,280
Less accumulated depreciation			(21,246)		(19,930)
		$	11,963	$	7,350

Depreciation expense, which includes amortization of equipment under capital lease, amounted to $0.6 million and $0.5 million for the three months ended September 30, 2022 and 2021, respectively. Depreciation expense, which includes amortization of equipment under capital lease, amounted to $1.6 million and $1.5 million for the nine months ended September 30, 2022 and 2021, respectively.

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):

		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	20
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	28
Item 4.	Controls and Procedures	28
PART II – OTHER INFORMATION		29
Item 1.	Legal Proceedings	29
Item 1A.	Risk Factors	29
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	30
Item 3.	Defaults Upon Senior Securities	30
Item 4.	Mine Safety Disclosures	30
Item 5.	Other Information	30
Item 6.	Exhibits	31
Signatures		33