UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For the quarterly period ended
OR
For the transition period from ___________ to ____________.
Commission file number
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of | (I.R.S. Employer Identification No.) | |
incorporation or organization) | ||
(Address of Principal Executive Offices) | (Zip Code) |
(
Registrant’s telephone number, including area code
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
| Trading Symbol(s) |
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The |
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | ☒ | |
Non-accelerated filer | ☐ | Smaller reporting company | |
Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
The number of shares of Registrant’s common stock outstanding as of November 8, 2022 was
TABLE OF CONTENTS
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q (this “Quarterly Report”) contains forward-looking statements. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. All statements other than statements of historical facts contained in this Quarterly Report, including statements relating to the Merger (as defined herein), the impact of the COVID-19 pandemic and the geopolitical events related to the Russian invasion of Ukraine on our business, changes in the market for our services, changes in applicable laws or regulations, our ability to launch new services and products or to profitably expand into new markets, and the possibility that we may be adversely affected by other economic, business and/or competitive factors. These statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.
In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “could,” “intend,” “target,” “project,” “contemplate,” “believe,” “estimate,” “predict,” “potential”, or “continue” or the negative of these terms or other similar expressions. The forward-looking statements in this Quarterly Report are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. These forward-looking statements speak only as of the date of this Quarterly Report and are subject to a number of important factors that could cause actual results to differ materially from those in the forward-looking statements, including the impact of the COVID-19 pandemic or a new pandemic, and geopolitical events related to the Russian invasion of Ukraine on our business; factors that adversely impact the commercial aviation industry; fluctuation of market values for our aviation products; our inability to repossess Flight Equipment (as defined herein) when a lessee defaults and the cost of remarketing and releasing such repossessed Flight Equipment; compliance with significant government regulations; the success at our MRO (as defined herein) facilities is dependent on continued outsourcing by airlines; a shortage of skilled personnel or work stoppages; inability to obtain certain components and raw materials from suppliers; competitive pressures; risks associated with operating internationally; the value of liens on our Flight Equipment; ownership rights over an engine affixed to an aircraft; risks associated with business acquisitions; continued availability of financing; restrictive and financial covenants in our existing debt; product and other liability claims; risks associated with supplying equipment and services to the U.S. government; cyber or other security threats or other disruptions; compliance with environmental requirements; payment of capital expenditures; our lack of ownership of certain intellectual property that is important to our business; dependence on our facilities; damage to our reputation by improper conduct of employees, agents, and others; limitations on employee compensation as a result of the CARES Act; the loss of certain key employees; insolvency of any of our customers; exposure to intellectual property litigation; and the factors described under the section titled “Risk Factors” in our Annual Report on Form 10-K, filed with the Securities and Exchange Commission (“SEC”) on March 15, 2022.
Moreover, we operate in an evolving environment. New risk factors and uncertainties may emerge from time to time, and it is not possible for management to predict all risk factors and uncertainties.
You should read this Quarterly Report and the documents that we reference in this Quarterly Report completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances or otherwise.
Unless otherwise stated or the context otherwise requires, references in this Quarterly Report to the “Company,” “AerSale,” “we,” “us,” “our” and similar terms refer to AerSale Corporation and its consolidated subsidiaries.
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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 | $ | $ | ||||
Accounts receivable, net of allowance for doubtful accounts of $ |
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Inventory: | ||||||
Aircraft, airframes, engines, and parts, net |
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Advance vendor payments |
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Deposits, prepaid expenses, and other current assets |
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Total current assets |
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Fixed assets: |
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Aircraft and engines held for lease, net |
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Property and equipment, net |
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Inventory: |
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Aircraft, airframes, engines, and parts, net |
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Deferred income taxes |
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Deferred financing costs, net |
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Deferred customer incentives and other assets, net |
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Goodwill |
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Other intangible assets, net |
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Total assets | $ | $ | ||||
Current liabilities: |
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Accounts payable | $ | $ | ||||
Accrued expenses |
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Income tax payable |
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Lessee and customer purchase deposits |
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Deferred revenue |
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Total current liabilities |
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Long-term lease deposits |
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Maintenance deposit payments and other liabilities |
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Deferred income taxes, net | ||||||
Warrant liability | ||||||
Total liabilities | ||||||
Commitments and contingencies |
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Stockholders’ equity: |
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Common stock, $ |
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Additional paid-in capital |
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Retained earnings |
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Total stockholders' equity |
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Total liabilities and stockholders’ equity | $ | $ |
1
AERSALE CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(in thousands, except per share data)
(Unaudited)
| Three Months Ended September 30, |
| Nine Months Ended September 30, |
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| 2022 |
| 2021 |
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Revenue: | |||||||||||||
Products | $ | $ | $ | $ | |||||||||
Leasing |
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Services |
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Total revenue |
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Cost of sales and operating expenses: | |||||||||||||
Cost of products |
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Cost of leasing |
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Cost of services |
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Total cost of sales |
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Gross profit |
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Selling, general, and administrative expenses |
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Payroll support program proceeds |
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(Loss) income from operations |
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Other income (expenses): |
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Interest income (expense), net |
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Other income, net |
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Change in fair value of warrant liability | ( | ( | ( | ( | |||||||||
Total other expenses |
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(Loss) income before income tax provision |
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Income tax benefit (expense) |
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Net (loss) income | $ | ( | $ | ( | $ | $ | |||||||
(Loss) earnings per share - basic | $ | ( | $ | ( | $ | | $ | | |||||
(Loss) earnings per share - diluted | $ | ( | $ | ( | $ | | $ | |
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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 | $ | | $ | $ | $ | |||||||||
Share-based compensation | - | - | - | |||||||||||
Shares issued under the 2020 Employee Stock Purchase Plan | - | | - | |||||||||||
Shares issued under the 2020 Equity Incentive Plan | - | | - | - | - | |||||||||
Net income |
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Balance at March 31, 2022 | $ | | $ | $ | $ | |||||||||
Share-based compensation | - | - | - | |||||||||||
Shares issued under the 2020 Employee Stock Purchase Plan | - | | - | |||||||||||
Net income |
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Balance at June 30, 2022 | $ | | $ | $ | $ | |||||||||
Stock-based compensation | - | - | - | |||||||||||
Restricted Stock Units ("RSUs") vested and settled | - | | - | - | - | |||||||||
Shares issued upon exercise of warrants | - | | - | - | - | |||||||||
Net loss | - | - | - | ( | ( | |||||||||
Balance at September 30, 2022 | $ | | $ | $ | $ |
Total | ||||||||||||||
Common stock | Additional | Retained | stockholders’ | |||||||||||
| Amount |
| Shares |
| paid-in capital |
| earnings |
| equity | |||||
Balance at December 31, 2020 | $ |
| | $ | $ | $ | ||||||||
Issuance of Earn-Out shares | - | | ( | - | ( | |||||||||
Shares issued upon exercise of warrants | - | | - | |||||||||||
Net income | - | - | - | |||||||||||
Balance at March 31, 2021 | $ | | $ | $ | $ | |||||||||
Share-based compensation | - | - | - | |||||||||||
Net Income | - | - | - | |||||||||||
Balance at June 30, 2021 | $ | | $ | $ | $ | |||||||||
Share-based compensation | - | - | - | |||||||||||
Net Income | - | - | - | ( | ( | |||||||||
Balance at September 30, 2021 | $ | | $ | $ | $ |
3
AERSALE CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
| Nine Months Ended September 30, |
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2022 |
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Cash flows from operating activities: | |||||||
Net income | $ | $ | |||||
Adjustments to reconcile net income to net cash (used in) provided by operating activities: | |||||||
Depreciation and amortization |
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Amortization of debt issuance costs |
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Inventory reserve |
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Impairment of aircraft held for lease | - | ||||||
Provision for doubtful accounts |
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Deferred income taxes |
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Change in fair value of warrant liability | |||||||
Share-based compensation | |||||||
Changes in operating assets and liabilities: |
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Accounts receivable |
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Inventory |
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Deposits, prepaid expenses, and other current assets |
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Deferred customer incentives and other assets |
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Advance vendor payments |
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Accounts payable |
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Income tax payable | ( | ( | |||||
Accrued expenses |
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Deferred revenue |
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Lessee and customer purchase deposits |
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Other liabilities |
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Net cash (used in) provided by operating activities |
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Cash flows from investing activities: |
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Proceeds from sale of assets |
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Acquisition of aircraft and engines held for lease, including capitalized cost |
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Purchase of property and equipment |
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Net cash provided by investing activities |
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Cash flows from financing activities: |
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Cash paid for employee taxes on withholding shares | - | ( | |||||
Proceeds from exercise of warrants | - | ||||||
Proceeds from the issuance of Employee Stock Purchase Plan shares | - | ||||||
Net cash provided by financing activities |
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Increase in cash and cash equivalents |
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Cash and cash equivalents, beginning of period |
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Cash and cash equivalents, end of period | $ | $ | |||||
Supplemental disclosure of cash activities |
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Income taxes paid | |||||||
Interest paid | |||||||
Supplemental disclosure of noncash investing activities | |||||||
Reclassification of aircraft and aircraft engines inventory (from) to equipment held for lease, net | ( | ||||||
Reclassification of customer purchase deposits to sale of assets | - |
4
AERSALE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2022
NOTE A — DESCRIPTION OF THE BUSINESS
Organization
Monocle Acquisition Corporation (“Monocle”) was initially formed on August 20, 2018 for the purpose of effecting a merger, share exchange, asset acquisition, stock purchase, recapitalization, reorganization or similar business combination with one or more businesses.
On December 22, 2020, (the “Closing Date”), Monocle consummated a business combination pursuant to that certain Amended and Restated Agreement and Plan of Merger, dated September 8, 2020 (the “Merger Agreement”) by and among Monocle, AerSale Corporation (f/k/a Monocle Holdings Inc.), a Delaware corporation (the “Company”), AerSale Aviation, Inc. (f/k/a AerSale Corp.), a Delaware corporation (“AerSale Aviation”), Monocle Merger Sub 1 Inc., a Delaware corporation (“Merger Sub 1”), Monocle Merger Sub 2 LLC, a Delaware limited liability company (“Merger Sub 2”), and Leonard Green & Partners, L.P., a Delaware limited partnership, solely in its capacity as the initial Holder Representative (as defined in the Merger Agreement). The transactions contemplated by the Merger Agreement are referred to herein as the “Merger” and in connection therewith, Monocle merged with and into us, whereby the Company survived the merger and became the successor issuer to Monocle by operation of Rule 12g-3 under the Exchange Act.
Upon the consummation of the Merger: (a) Merger Sub 1 was merged with and into Monocle, with Monocle surviving the merger as a wholly-owned direct subsidiary of the Company (the “First Merger”), and (b) Merger Sub 2 was merged with and into AerSale Aviation, with AerSale Aviation surviving the merger as a wholly-owned indirect subsidiary of the Company (the “Second Merger”). In connection with the closing of the Merger (the “Closing”), AerSale Aviation changed its name from “AerSale Corp.” to “AerSale Aviation, Inc.” and the Company changed its name from “Monocle Holdings Inc.” to “AerSale Corporation.” Immediately following the Merger, the Company contributed all of its ownership in Monocle to AerSale Aviation which will continue as a wholly owned subsidiary of the Company.
The Company’s corporate headquarters are based in Miami, Florida, with additional offices, hangars, and warehouses globally.
NOTE B — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Interim Financial Statements
The accompanying unaudited interim consolidated financial statements have been prepared from the books and records of the Company in accordance with Generally Accepted Accounting Policies in the United States (“U.S. GAAP”) for interim financial information and Rule 10-01 of Regulation S-X promulgated by the U.S. Securities and Exchange Commission (“SEC”), which permits reduced disclosures for interim periods. Although these interim consolidated financial statements do not include all of the information and footnotes required for complete annual consolidated financial statements, management believes all adjustments, consisting only of normal recurring adjustments, and disclosures necessary for a fair presentation of the accompanying condensed consolidated balance sheets, statements of operations, stockholders’ equity, and cash flows have been made. Unaudited interim results of operations and cash flows are not necessarily indicative of the results that may be expected for the full year. Unaudited interim condensed consolidated financial statements and footnotes should be read in conjunction with the audited consolidated financial statements and footnotes included in Part II, Item 8 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 (the “2021 Annual Report), wherein a more complete discussion of significant accounting policies and certain other information can be found.
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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.
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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 $
In June 2016, the FASB issued ASU No. 2016-13 (“ASU 2016-13”), “Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” In November 2018, the FASB issued ASU No. 2018-19, “Codification Improvements to Topic 326, Financial Instruments — Credit Losses,” which amends the scope and transition requirements of ASU 2016-13. Topic 326 requires a financial asset (or a group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected. The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions and reasonable and supportable forecasts that affect the collectability of the reported amount. Topic 326 will become effective for the Company beginning January 1, 2023, with early adoption permitted, on a modified retrospective basis. The Company is currently evaluating the impact this guidance will have on our consolidated financial statements and related disclosures.
New Accounting Pronouncements Recently Adopted
On May 3, 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options. This new standard provides clarification and reduces diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options (such as warrants) that remain equity classified after modification or exchange. This standard is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Under this standard, issuers should apply the new standard prospectively to modifications or exchanges occurring after the effective date of the new standard. Early adoption is permitted, including adoption in an interim period. If an issuer elects to early adopt the new standard in an interim period, the guidance should be applied as of the beginning of the fiscal year that includes that interim period. The Company adopted the new standards as of January 1, 2022 and the adoption did not have a material impact to the Condensed Consolidated Financial Statements.
Payroll Support Programs
The Company has also taken steps to improve our liquidity, including seeking financial assistance under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). Certain of the Company’s subsidiaries have received $
As part of the Payroll Support Extension Law, the Company entered into an agreement with the Treasury on March 4, 2021 for the receipt of relief funds of $
Pursuant to the American Rescue Plan Act of 2021 (“ARP”), we entered into an agreement with the Treasury on April 16, 2021 for the receipt of relief funds of an additional $
In connection with the financial assistance the Company received under the Payroll Support Program, it was required to comply with certain provisions of the CARES Act, including the requirement that funds provided pursuant to
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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
NOTE D — REVENUE
The timing of revenue recognition, customer billings and cash collections results in a contract asset or contract liability at the end of each reporting period. Contract assets consist of unbilled receivables or costs incurred where revenue recognized over time exceeds the amounts billed to customers. Contract liabilities include advance payments and billings in excess of revenue recognized. Certain customers make advance payments prior to the satisfaction of performance obligations on the contract. These amounts are recorded as contract liabilities until such performance obligations are satisfied. Contract assets and contract liabilities are determined on a contract by contract basis.
Contract assets are as follows (in thousands):
| September 30, 2022 |
| December 31, 2021 |
| Change | ||||
Contract assets | $ | $ | $ | ( |
Contract assets are reported within accounts receivable on our Condensed Consolidated Balance Sheets. Changes in contract assets primarily results from the timing difference between the performance of services. Contract liabilities are reported as deferred revenue on our Condensed Consolidated Balance Sheets and amounted to $
9
Disaggregation of Revenue
The Company reports revenue by segment. The following tables present revenue by segment, as well as a reconciliation to total revenue for the three and nine months ended September 30, 2022 and 2021 (in thousands):
| Three Months Ended September 30, |
| Nine Months Ended September 30, |
| |||||||||||||||
| 2022 |
| 2022 |
| |||||||||||||||
Asset Management |
|
| Asset Management |
|
| ||||||||||||||
| Solutions |
| Tech Ops |
| Total Revenues |
| Solutions |
| TechOps |
| Total Revenues |
| |||||||
USM | $ | $ | $ | $ | $ | $ | |||||||||||||
Whole asset sales |
|
| - |
|
|
|
| ||||||||||||
Engineered solutions |
| - |
|
|
| - |
|
| |||||||||||
Total products |
|
|
|
|
|
| |||||||||||||
Leasing |
|
| - |
|
|
| - |
| |||||||||||
Services |
| - |
|
|
| - |
|
| |||||||||||
Total revenues | $ | $ | $ | $ | $ | $ |
|
| Three Months Ended September 30, |
| Nine Months Ended September 30, |
| ||||||||||||||
|
| 2021 |
| 2021 |
| ||||||||||||||
Asset Management | Asset Management | ||||||||||||||||||
| Solutions |
| Tech Ops |
| Total Revenues |
| Solutions |
| TechOps |
| Total Revenues |
| |||||||
USM | $ | $ | $ | $ | $ | $ | |||||||||||||
Whole asset sales | - | - | |||||||||||||||||
Engineered solutions |
| - |
|
|
| - |
|
| |||||||||||
Total products |
|
|
|
|
|
| |||||||||||||
Leasing |
|
| - |
|
|
| - |
| |||||||||||
Services |
| - |
|
|
| - |
|
| |||||||||||
Total revenues | $ | $ | $ | $ | $ | $ |
NOTE E — INVENTORY
Following are the major classes of inventory as of the below dates (in thousands):
| September 30, 2022 |
| December 31, 2021 | |||
Used serviceable materials | $ | $ | ||||
Work-in-process | ||||||
Whole assets | ||||||
$ | ||||||
Less short term |
| ( |
| ( | ||
Long term | $ | $ |
The Company did
NOTE F — INTANGIBLE ASSETS
In accordance with ASC 350, Intangibles — Goodwill and Other, goodwill and other intangible assets deemed to have indefinite lives are not amortized, but are subject to annual impairment tests. The Company reviews and evaluates our goodwill and indefinite life intangible assets for potential impairment at a minimum annually or more frequently if circumstances indicate that impairment is possible.
10
The Company determined the fair value of assets acquired and liabilities assumed using a variety of methods. An income approach based on discounted cash flows was used to determine the values of our trademarks, certifications, customer relationships and FAA certificates. The assumptions the Company used to estimate the fair value of our reporting units are based on historical performance, as well as forecasts used in our current business plan and require considerable management judgment.
The Company’s goodwill and intangible assets as defined by ASC 350 is related to our subsidiaries, AerSale Component Solutions (d/b/a AerSale Landing Gear Solutions) (“ALGS”), Avborne Component Solutions (d/b/a AerSale Component Solutions) (“ACS”), and Aircraft Composite Technologies (“ACT”), which are included in the TechOps segment, as well as Qwest, which is included under the Asset Management Solutions segment.
Goodwill and other intangibles as of the below dates are (in thousands):
| September 30, 2022 |
| December 31, 2021 | |||
Qwest: | ||||||
FAA Certifications | $ | $ | | |||
Goodwill |
|
| | |||
ALGS: |
|
|
|
| ||
FAA Certifications |
|
| | |||
Goodwill |
|
| | |||
ACS: |
|
|
|
| ||
Trademarks |
|
| | |||
FAA Certifications |
|
| | |||
Goodwill |
|
| | |||
ACT: |
|
|
| |||
Trademarks |
|
| | |||
FAA Certificates |
|
| | |||
Goodwill |
|
| | |||
Total intangible assets with indefinite lives | $ | $ | |
The Company performed its annual quantitative impairment analysis on the indefinite lived intangible assets as of July 1, 2022 and concluded there was
| Useful Life |
|
| |||||
In Years | September 30, 2022 | December 31, 2021 | ||||||
Qwest: | ||||||||
Customer relationships | $ | $ | ||||||
ALGS: |
|
|
| |||||
Customer relationships |
|
| ||||||
ACS: |
|
|
|
|
| |||
Customer relationships |
|
| ||||||
ACT: |
|
|
| |||||
Customer relationships |
|
| ||||||
Total intangible assets with definite lives | $ | $ |
Total amortization expense amounted to $
11
Other intangible assets are reviewed at least annually or more frequently if any event or change in circumstance indicates that an impairment may have occurred.
NOTE G — PROPERTY AND EQUIPMENT, NET
Property and equipment, net, as of the below dates consisted of the following (in thousands):
| Useful Life |
|
| |||||
In Years | September 30, 2022 | December 31, 2021 | ||||||
Tooling and equipment |
| - | $ | $ | ||||
Furniture and other equipment |
|
|
| |||||
Computer software |
|
|
| |||||
Leasehold improvements |
| - |
|
| ||||
Equipment under capital lease |
|
|
| |||||
|
| |||||||
Less accumulated depreciation |
| ( |
| ( | ||||
$ | $ |
Depreciation expense, which includes amortization of equipment under capital lease, amounted to $
NOTE H — LEASE RENTAL REVENUES AND AIRCRAFT AND ENGINES HELD FOR LEASE
Aircraft and engines held for operating leases, net, as of the below dates consisted of the following (in thousands):
|