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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 September 30, 2024

OR

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

For the transition period from ___________ to ____________.

Commission file number: 001-38801

AerSale Corporation

(Exact name of registrant as specified in its charter)

Delaware

    

84-3976002

(State or other jurisdiction of

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

incorporation or organization)

9850 NW 41st Street, Suite 400

Doral, FL

33178

(Address of Principal Executive Offices)

(Zip Code)

(305) 764-3200

Registrant’s telephone number, including area code

255 Alhambra Circle, Suite 435

Coral GablesFL 33134

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

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

Title of each class

    

Trading Symbol(s)

    

Name of each exchange on which registered

Common stock, $0.0001 par value per share

ASLE

The Nasdaq Capital Market

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

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

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

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

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

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

The number of shares of Registrant’s common stock outstanding as of November 5, 2024 was 53,210,842.

Table of Contents

TABLE OF CONTENTS

Page

Forward-Looking Statements

i

PART I – FINANCIAL INFORMATION

1

Item 1.

Condensed Consolidated Financial Statements

1

Condensed Consolidated Balance Sheets (Unaudited)

1

Condensed Consolidated Statements of Operations (Unaudited)

2

Condensed Consolidated Statements of Stockholders’ Equity (Unaudited)

3

Condensed Consolidated Statements of Cash Flows (Unaudited)

4

Notes to the Condensed Consolidated Financial Statements (Unaudited)

5

Item 2.

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

19

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

26

Item 4.

Controls and Procedures

27

PART II – OTHER INFORMATION

28

Item 1.

Legal Proceedings

28

Item 1A.

Risk Factors

28

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

28

Item 3.

Defaults Upon Senior Securities

28

Item 4.

Mine Safety Disclosures

28

Item 5.

Other Information

28

Item 6.

Exhibits

29

Signatures

32

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, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of historical facts contained in this Quarterly Report may constitute forward-looking statements, and include, but are not limited to, changes in the market for our services; changes in applicable laws or regulations; the ability to launch new services and products or to profitably expand into new markets; the sufficiency of our liquidity; and expectations of other economic, business and/or competitive factors. These statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.

In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “could,” “intend,” “target,” “project,” “contemplate,” “believe,” “estimate,” “predict,” “potential”, or “continue” or the negative of these terms or other similar expressions. The forward-looking statements in this Quarterly Report are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. These forward-looking statements speak only as of the date of this Quarterly Report and are subject to a number of important factors that could cause actual results to differ materially from those in the forward-looking statements, including the following: disruptions in supply chain; factors that adversely impact the commercial aviation industry; the fluctuating market value of our products; our ability to repossess mid-life commercial aircraft and engines (“Flight Equipment”) when a lessee defaults; success at our maintenance, repair and overhaul (“MRO”) facilities is dependent upon continued outsourcing by airlines; shortage of skilled personnel or work stoppages; the inability to obtain certain components and raw materials from suppliers; the highly competitive nature of the markets in which we operate; risks associated with our international operations; the risks from business acquisitions and integration of new businesses acquired; the unique risks we encounter by supplying equipment and services to the U.S. government; further consolidation of customers and suppliers in our markets; cyber or other security threats or disruptions; the significant capital expenditures that may be required to keep pace with technological developments in our industry lack of ownership of certain intellectual property and tooling that is important to our business; litigation to protect our intellectual property; our dependence on our facilities, which are subject to physical and other risks that could disrupt production; risks from any improper conduct by our employees, agents, subcontractors, suppliers, business ventures or joint ventures in which we participate; loss of services from key employees; the failure of our subcontractors to perform their contractual obligations; impacts from future outbreaks and infectious diseases on flight activity, demand for MRO and leasing services, our business partners or customers, and the related macro environment; our dependence on continued availability of financing to manage our business and to execute our business strategy, and unavailability of additional financing on terms acceptable to us; our failure to comply with the covenants in the documents governing our existing and future indebtedness; limitations of our current and future operations from restrictive covenants contained in documents governing our indebtedness; unanticipated changes in our tax provision; possible goodwill and other asset impairments; changes in interest rates, foreign currency exchange rates and swap counterparty risks; we are subject to significant government regulation and may need to incur significant expenses to comply with new or more stringent government regulation; compliance with U.S. and other anti-corruption laws, export control laws, import control laws, trade and economic sanction laws and other laws governing our operations; current or future regulatory proceedings or litigation including product liability, intellectual property disputes and other claims not adequately covered by insurance; the liens of Flight Equipment could exceed the value of such Flight Equipment; the risk that our leased aircraft engines are deemed accessions to the aircraft and our ability to repossess an engine is impaired; product and other liability claims not covered by insurance; the extensive environmental requirements with which we must comply; global climate change, or by legal, regulatory or market responses to such change; depressed stock price as a result of substantial future sales of our common stock, or the perception in the public markets that these sales may occur; lack of analyst coverage for our common stock; actual or anticipated sales of significant amounts of our common stock; the fact that we do not intend to pay dividends on our common stock for the foreseeable future; reduced disclosure due to our filing status as an “emerging growth company”; ineffective internal control over financial reporting; insolvency of our customers; the adverse effect of negative economic conditions and other factors described under the section titled “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2023, filed with the Securities and Exchange Commission on March 8, 2024.

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

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

Unless otherwise stated or the context otherwise requires, references in this Quarterly Report to the “Company,” “AerSale,” “we,” “us,” “our” and similar terms refer to AerSale Corporation (f/k/a Monocle Holdings, Inc.) and its consolidated subsidiaries.

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Table of Contents

PART I – FINANCIAL INFORMATION

ITEM 1          CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

AERSALE CORPORATION AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(in thousands, except share data and par value)

(Unaudited)

    

September 30, 

    

December 31, 

2024

2023

Current assets:

Cash and cash equivalents

$

9,787

$

5,873

Accounts receivable, net of allowance for credit losses of $1,173 and $978 as of September 30, 2024 and December 31, 2023, respectively

 

33,745

 

31,239

Income tax receivable

2,039

1,628

Inventory:

Aircraft, airframes, engines, and parts, net

 

263,728

 

177,770

Advance vendor payments

 

12,257

 

35,757

Deposits, prepaid expenses, and other current assets

 

18,180

 

12,507

Total current assets

 

339,736

 

264,774

Fixed assets:

 

Aircraft and engines held for lease, net

 

40,163

 

26,475

Property and equipment, net

 

32,710

 

27,692

Inventory:

 

Aircraft, airframes, engines, and parts, net

 

109,706

 

151,398

Operating lease right-of-use assets

24,796

 

27,519

Deferred income taxes

 

11,736

 

12,203

Deferred financing costs, net

 

1,259

 

1,506

Other assets

 

525

 

525

Goodwill

 

19,860

 

19,860

Other intangible assets, net

 

20,965

 

21,986

Total assets

$

601,456

$

553,938

Current liabilities:

 

  

Accounts payable

$

34,870

$

29,899

Accrued expenses

 

6,221

 

5,478

Lessee and customer purchase deposits

 

914

 

1,467

Current operating lease liabilities

4,062

4,593

Current portion of long-term debt

193

1,278

Deferred revenue

 

854

 

2,998

Total current liabilities

 

47,114

 

45,713

Revolving credit facility

78,513

 

29,000

Long-term debt

376

 

7,281

Long-term lease deposits

1,537

102

Long-term operating lease liabilities

22,297

24,377

Maintenance deposit payments and other liabilities

 

57

 

64

Warrant liability

38

2,386

Total liabilities

149,932

108,923

Stockholders’ equity:

 

  

Common stock, $0.0001 par value. Authorized 200,000,000 shares; issued and outstanding 53,210,842 and 52,954,430 shares as of September 30, 2024 and December 31, 2023

 

5

 

5

Additional paid-in capital

 

315,099

 

311,739

Retained earnings

 

136,420

 

133,271

Total stockholders' equity

 

451,524

 

445,015

Total liabilities and stockholders’ equity

$

601,456

$

553,938

See accompanying notes to condensed consolidated financial statements.

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Table of Contents

AERSALE CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statements of Operations

(in thousands, except share and per share data)

(Unaudited)

    

Three Months Ended September 30, 

    

Nine Months Ended September 30, 

    

    

2024

    

2023

    

2024

    

2023

    

Revenue:

Products

$

47,719

$

66,842

$

152,627

$

149,960

Leasing

 

6,900

 

2,488

 

14,268

 

11,396

Services

 

28,065

 

23,154

 

83,430

 

78,725

Total revenue

 

82,684

 

92,484

 

250,325

 

240,081

Cost of sales and operating expenses:

Cost of products

 

31,680

 

48,697

 

99,830

 

107,176

Cost of leasing

 

2,424

 

1,051

 

5,511

 

3,253

Cost of services

 

24,905

 

19,262

 

70,793

 

61,647

Total cost of sales

 

59,009

 

69,010

 

176,134

 

172,076

Gross profit

 

23,675

 

23,474

 

74,191

 

68,005

Selling, general, and administrative expenses

 

21,679

 

25,403

 

69,384

 

77,724

Income (loss) from operations

 

1,996

 

(1,929)

 

4,807

 

(9,719)

Other (expenses) income:

 

 

 

 

Interest (expense) income, net

 

(1,768)

 

(250)

 

(4,231)

 

1,178

Other income, net

 

128

 

127

 

399

 

498

Change in fair value of warrant liability

231

(55)

2,348

1,004

Total other (expenses) income

 

(1,409)

 

(178)

 

(1,484)

 

2,680

Income (loss) before income tax provision

 

587

 

(2,107)

 

3,323

 

(7,039)

Income tax (expense) benefit

 

(78)

 

1,959

 

(174)

 

4,208

Net income (loss)

$

509

$

(148)

$

3,149

$

(2,831)

Earnings (loss) per share:

Basic

$

0.01

$

(0.00)

$

0.06

$

(0.06)

Diluted

$

0.01

$

(0.00)

$

0.06

$

(0.07)

Weighted average shares outstanding:

Basic

53,208,538

51,321,026

53,076,733

51,252,581

Diluted

53,385,111

51,321,026

53,272,973

51,430,205

See accompanying notes to condensed consolidated financial statements.

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Table of Contents

AERSALE CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statements of Stockholders’ Equity

For the three and nine months ended September 30, 2024 and 2023

(in thousands, except share data)

(Unaudited)

Total

Common stock

Additional

Retained

stockholders’

    

Amount

    

Shares

    

paid-in capital

    

earnings

    

 equity

Balance at December 31, 2023

$

5

52,954,430

$

311,739

$

133,271

$

445,015

Share-based compensation

-

-

799

-

799

Shares issued under the 2020 Equity Incentive Plan

0

54,596

-

-

-

Shares surrendered for tax withholdings on equity awards

-

-

(108)

-

(108)

Net income

 

-

-

 

-

 

6,277

 

6,277

Balance at March 31, 2024

$

5

53,009,026

$

312,430

$

139,548

$

451,983

Share-based compensation

-

-

1,144

-

1,144

Shares issued under the 2020 Employee Stock Purchase Plan

0

48,202

325

-

325

Shares issued under the 2020 Equity Incentive Plan

0

26,986

-

-

-

Shares surrendered for tax withholdings on equity awards

-

-

(16)

-

(16)

Net loss

 

-

-

 

-

 

(3,637)

 

(3,637)

Balance at June 30, 2024

$

5

53,084,214

$

313,883

$

135,911

$

449,799

Share-based compensation

-

-

1,216

-

1,216

Shares issued under the 2020 Equity Incentive Plan

0

126,628

-

-

-

Shares surrendered for tax withholdings on equity awards

-

-

-

-

-

Net income

-

-

-

509

509

Balance at September 30, 2024

$

5

53,210,842

$

315,099

$

136,420

$

451,524

Total

Common stock

Additional

Retained

stockholders’

    

Amount

    

Shares

    

paid-in capital

    

earnings

    

 equity

Balance at December 31, 2022

$

5

 

51,189,461

$

306,141

$

138,834

$

444,980

Share-based compensation

-

-

2,731

-

2,731

Shares issued under the 2020 Equity Incentive Plan

0

31,925

-

-

-

Shares surrendered for tax withholdings on equity awards

-

-

(70)

-

(70)

Net income

-

-

-

5

5

Balance at March 31, 2023

$

5

51,221,386

$

308,802

$

138,839

$

447,646

Share-based compensation

-

-

3,028

-

3,028

Shares issued under the 2020 Employee Stock Purchase Plan

0

21,551

278

-

278

Shares issued under the 2020 Equity Incentive Plan

0

7,470

-

-

-

Net loss

-

-

-

(2,688)

(2,688)

Balance at June 30, 2023

$

5

51,250,407

$

312,108

$

136,151

$

448,264

Share-based compensation

-

-

3,180

-

3,180

Shares issued under the 2020 Equity Incentive Plan

0

78,393

-

-

-

Shares surrendered for tax withholdings on equity awards

-

-

(34)

-

(34)

Net loss

-

-

-

(148)

(148)

Balance at September 30, 2023

$

5

51,328,800

$

315,254

$

136,003

$

451,262

See accompanying notes to condensed consolidated financial statements.

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Table of Contents

AERSALE CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(in thousands)

(Unaudited)

    

Nine Months Ended September 30, 

    

2024

    

2023

Cash flows from operating activities:

Net income (loss)

$

3,149

$

(2,831)

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

Depreciation and amortization

 

10,945

 

7,585

Amortization of debt issuance costs

 

248

 

316

Amortization of operating lease assets

111

 

286

Inventory reserve

 

1,809

 

1,255

Provision for doubtful accounts

 

195

 

-

Deferred income taxes

 

467

 

(2,331)

Change in fair value of warrant liability

(2,348)

(1,004)

Share-based compensation

3,159

8,939

Changes in operating assets and liabilities:

 

 

  

Deferred financing costs

-

 

(1,361)

Accounts receivable

 

(2,700)

 

(1,447)

Income tax receivable

(411)

(1,313)

Inventory

 

(62,587)

 

(168,313)

Deposits, prepaid expenses, and other current assets

 

(5,673)

 

(2,313)

Other assets

 

(575)

 

93

Advance vendor payments

 

23,500

 

(8,212)

Accounts payable

 

4,973

 

17,824

Accrued expenses

 

657

 

(5,015)

Deferred revenue

 

(2,144)

 

1,038

Lessee and customer purchase deposits

 

882

 

(10,641)

Other liabilities

 

(11)

 

(606)

Net cash used in operating activities

 

(26,354)

 

(168,051)

Cash flows from investing activities:

 

  

 

  

Proceeds from sale of assets

 

3,800

 

14,450

Acquisition of aircraft and engines held for lease, including capitalized cost

 

(6,488)

 

-

Purchase of property and equipment

 

(8,768)

 

(7,766)

Net cash (used in) provided by investing activities

 

(11,456)

 

6,684

Cash flows from financing activities:

 

  

 

  

Proceeds from long-term debt

615

 

8,559

Repayments of long-term debt

 

(8,605)

 

-

Proceeds from revolving credit facility

 

132,294

 

26,100

Repayments of revolving credit facility

 

(82,781)

 

(17,500)

Taxes paid related to net share settlement of equity awards

(124)

(104)

Proceeds from the issuance of Employee Stock Purchase Plan shares

325

278

Net cash provided by financing activities

 

41,724

 

17,333

Increase (decrease) in cash and cash equivalents

 

3,914

 

(144,034)

Cash and cash equivalents, beginning of period

 

5,873

 

147,188

Cash and cash equivalents, end of period

$

9,787

$

3,154

Supplemental disclosure of cash activities

 

 

Income tax payments, net

$

(20)

$

1,306

Interest paid

$

4,173

$

575

Supplemental disclosure of noncash investing activities

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

$

12,711

$

9,312

See accompanying notes to condensed consolidated financial statements.

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Table of Contents

AERSALE CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

SEPTEMBER 30, 2024

NOTE A — DESCRIPTION OF THE BUSINESS

Organization

Monocle Acquisition Corporation (“Monocle”) was initially formed on August 20, 2018 for the purpose of effecting a merger, share exchange, asset acquisition, stock purchase, recapitalization, reorganization or similar business combination with one or more businesses.

On December 22, 2020, Monocle consummated the previously announced business combination pursuant to that certain Amended and Restated Agreement and Plan of Merger, dated September 8, 2020 (the “Merger Agreement”) by and among Monocle, AerSale Corporation (f/k/a Monocle Holdings Inc.), a Delaware corporation (the “Company”), AerSale Aviation, Inc. (f/k/a AerSale Corp.), a Delaware corporation (“AerSale Aviation”), Monocle Merger Sub 1 Inc., a Delaware corporation (“Merger Sub 1”), Monocle Merger Sub 2 LLC, a Delaware limited liability company (“Merger Sub 2”), and Leonard Green & Partners, L.P., a Delaware limited partnership, solely in its capacity as the initial Holder Representative (as defined in the Merger Agreement). The transactions contemplated by the Merger Agreement are referred to herein as the “Merger” or the “Business Combination” and in connection therewith, Monocle merged with and into us, whereby we survived the Merger and became the successor issuer to Monocle by operation of Rule 12g-3 under the Exchange Act.

Upon the consummation of the Merger: (a) Merger Sub 1 was merged with and into Monocle, with Monocle surviving the Merger as a wholly-owned direct subsidiary of the Company (the “First Merger”), and (b) Merger Sub 2 was merged with and into AerSale Aviation, with AerSale Aviation surviving the Merger as a wholly-owned indirect subsidiary of the Company (the “Second Merger”). In connection with the closing of the Business Combination (the “Closing”), AerSale Aviation changed its name from “AerSale Corp.” to “AerSale Aviation, Inc.” and the Company changed its name from “Monocle Holdings Inc.” to “AerSale Corporation.” Immediately following the Merger, the Company contributed all of its ownership in Monocle to AerSale Aviation which continued as a wholly owned subsidiary of the Company.

The Company’s corporate headquarters is based in Miami, Florida, with additional offices, hangars, and warehouses located globally.

NOTE B — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Interim Financial Statements

The accompanying unaudited interim consolidated financial statements have been prepared from the books and records of the Company in accordance with Generally Accepted Accounting Principles in the United States (“U.S. GAAP”) for interim financial information and Rule 10-01 of Regulation S-X promulgated by the U.S. Securities and Exchange Commission, which permits reduced disclosures for interim periods. Although these interim consolidated financial statements do not include all of the information and footnotes required for complete annual consolidated financial statements, management believes all adjustments, consisting only of normal recurring adjustments, and disclosures necessary for a fair presentation of the accompanying condensed consolidated balance sheets, statements of operations, stockholders’ equity, and cash flows have been made. Unaudited interim results of operations and cash flows are not necessarily indicative of the results that may be expected for the full year. Unaudited interim condensed consolidated financial statements and footnotes should be read in conjunction with the audited consolidated financial statements and footnotes included in Part II, Item 8 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 (the “2023 Form 10-K”), wherein a more complete discussion of significant accounting policies and certain other information can be found.

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Revenue Recognition

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

Revenues from sales of USM are measured based on consideration specified in a contract with a customer, and excludes any sales commissions and taxes collected and remitted to government agencies. We recognize revenue when we satisfy a performance obligation by transferring control over a product or service to a customer. The parts are sold at a fixed price with no right of return. In determining the performance obligation, management has identified the promise in the contract to be the shipment of the spare parts to the customer. Title passes to the buyer when the goods are shipped, and the buyer is responsible for any loss in transit and the Company has a legal right to payment for the spare parts once shipped. We generally sell our USM products under standard 30-day payment terms, subject to certain exceptions. Customers neither have the right to return products nor do they have the right to extended financing. The Company has determined that physical acceptance of the spare parts to be a formality in accordance with Accounting Standards Codification (“ASC”) 606 – Revenue from Contracts with Customers (“ASC 606”).

Spare parts revenue is based on a set price for a set number of parts as defined in the purchase order. The performance obligation is completed once the parts have shipped and as a result, all of the transaction price is allocated to that performance obligation. The Company has determined that it is appropriate to recognize spare parts sales at a point in time (i.e., the date the parts are shipped) in accordance with ASC 606.

Products Revenue — Whole Asset Sales

Revenues from whole asset sales are measured based on consideration specified in the contract with the customer. The Company and customer enter into an agreement which outlines the place and date of sale, purchase price, condition of the whole asset, bill of sale and the assignment of rights and warranties from the Company to the customer. The Company has identified the transfer of the whole asset as the performance obligation. The transaction price is set at a fixed dollar amount per fixed quantity (number of whole assets) and is explicitly stated in each contract. Whole asset sales revenue is based on a set price for a set number of assets, which is allocated to the performance obligation discussed above, in its entirety. The Company has determined the date of transfer to the customer is the date the customer obtains control over the asset and would cause the revenue recognition. Payment is required in full upon customers’ acceptance of the whole asset on the date of the transfer, unless the Company extends credit terms to customers it deems creditworthy.

Leasing Revenue

The Company leases aircraft and engines (“Flight Equipment”) under operating leases that contain monthly base rent and reports rental income straight line over the life of the lease as it is earned. Additionally, the Company’s leases provide for supplemental rent, which is calculated based on actual hours or cycles of utilization and, for certain components, based on the amount of time until maintenance of that component is required. In certain leases, the Company records supplemental rent paid by the lessees as maintenance deposit payments and other liabilities in recognition of the Company’s contractual commitment to reimburse qualifying maintenance. Reimbursements to the lessees upon receipt of evidence of qualifying maintenance work are charged against the existing maintenance deposit payment liabilities. In leases where the Company is responsible for performing certain repairs or replacement of aircraft components or engines, supplemental rent is recorded as revenue in the period earned. In the event of premature lease termination or lessee default on the lease terms, revenue recognition will be discontinued when outstanding balances are beyond the customers’ deposits held. Flight Equipment leases are billed in accordance with the lease agreement and invoices are due upon receipt.

Services Revenue

Revenues for services are recognized as performance obligations are fulfilled and the benefits are transferred to the customer. At contract inception, we evaluate if the contract should be accounted for as a single performance obligation or if the contract contains multiple performance obligations. In some cases, our service contract with the customer is considered one performance obligation as it includes factors such as the good or service being provided is significantly integrated with other promises in the contract, the service provided significantly modifies or customizes the other good or service or the goods or services are highly interdependent or interrelated with each other. If the contract has more than one

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performance obligation, the Company determines the standalone price of each distinct good or service underlying each performance obligation and allocates the transaction price based on their relative standalone selling prices. The transaction price of a contract, which can include both fixed and variable amounts, is allocated to each performance obligation identified. Some contracts contain variable consideration, which could include incremental fees or penalty provisions related to performance. Variable consideration that can be reasonably estimated based on current assumptions and historical information is included in the transaction price at the inception of the contract but limited to the amount that is probable that a significant reversal in the amount of cumulative revenue recognized will not occur.

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

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

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

We have elected to use certain practical expedients permitted under ASC 606. Shipping and handling fees and costs incurred associated with outbound freight after control over a product has transferred to a customer are accounted for as a fulfillment cost and are included in cost of sales in our condensed consolidated statements of operations, and are not considered a performance obligation to our customers. Our reported revenue on our condensed consolidated statements of operations is net of any sales or related non-income taxes.

Revision of Prior Period Financial Statements

Certain balances in the condensed consolidated balance sheet as of December 31, 2023, and the condensed consolidated statements of cash flows for the nine months ended September 30, 2023, have been reclassified to conform to the presentation in the condensed consolidated financial statements as of and for the three and nine months ended September 30, 2024, primarily the reclassification of amounts related to deposits for Flight Equipment purchases from deposits, prepaid expenses, and other current assets to advance vendor payments. Such reclassification did not impact net income (loss), stockholders’ equity or total cash flows from operating activities, and did not have a material impact on the condensed consolidated financial statements.

New Accounting Pronouncements Adopted

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

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

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NOTE C — REVENUE

The timing of revenue recognition, customer billings, and cash collections results in a contract asset or contract liability at the end of each reporting period. Contract assets consist of unbilled receivables or costs incurred where revenue recognized over time exceeds the amounts billed to customers. We record a receivable when revenue is recognized prior to invoicing and we have an unconditional right to consideration (only the passage of time is required before payment of that consideration is due) and a contract asset when the right to payment is conditional upon our future performance. Contract liabilities include advance payments and billings in excess of revenue recognized. Certain customers make advance payments prior to our satisfaction of our performance obligations on the contract. These amounts are recorded as contract liabilities until such performance obligations are satisfied. Contract assets and contract liabilities are determined on a contract by contract basis.

Contract assets are as follows (in thousands):

    

September 30, 2024

    

December 31, 2023

    

Change

Contract assets

$

5,460

$

6,474

$

(1,014)

Contract assets are reported within deposits, prepaid expenses, and other current assets on our condensed consolidated balance sheets. Changes in contract assets primarily result from the timing difference between the performance of services. Contract liabilities are reported as deferred revenue on our condensed consolidated balance sheets and amounted to $3.0 million as of December 31, 2023, of which $2.7 million was related to contract liabilities for services to be performed. For the three and nine months ended September 30, 2024, the Company recognized as revenue $0.1 million and $2.5 million of contract liabilities included in the deferred revenue beginning balance for services performed as the timing between customer payments and our performance of the services is generally no longer than six months.

Disaggregation of Revenue

The Company reports revenue by segment. The following tables present revenue by segment, as well as a reconciliation to total revenue for the three and nine months ended September 30, 2024 and 2023 (in thousands):

    

Three Months Ended September 30, 

    

Nine Months Ended September 30, 

    

2024

    

2024

Asset Management

    

    

Asset Management

    

    

    

 Solutions

    

Tech Ops

    

Total Revenues

    

 Solutions

    

TechOps

    

Total Revenues

USM

$

20,928

$

3,718

$

24,646

$

58,060

$

13,211

$

71,271

Whole asset sales

 

22,586

 

-

 

22,586

 

79,147

 

-

 

79,147

Engineered solutions

 

-

 

487

 

487

 

-

 

2,209

 

2,209

Total products

 

43,514

 

4,205

 

47,719

 

137,207

 

15,420

 

152,627

Leasing

 

6,900

 

-

 

6,900

 

14,268

 

-

 

14,268

Services

 

-

 

28,065

 

28,065

 

-

 

83,430

 

83,430

Total revenues

$

50,414

$

32,270

$

82,684

$

151,475

$

98,850

$

250,325

    

Three Months Ended September 30, 

    

Nine Months Ended September 30, 

    

2023

    

2023

Asset Management

Asset Management

    

 Solutions

    

Tech Ops

    

Total Revenues

    

 Solutions

    

TechOps

    

Total Revenues

USM

$

17,754

$

3,884

$

21,638

$

49,348

$

9,709

$

59,057

Whole asset sales

44,812

-

44,812

89,811

218

90,029

Engineered solutions

 

-

 

392

 

392

 

-

 

874

 

874

Total products

 

62,566

 

4,276

 

66,842

 

139,159

 

10,801

 

149,960

Leasing

 

2,488

 

-

 

2,488

 

11,396

 

-

 

11,396

Services

 

-

 

23,154

 

23,154

 

-

 

78,725

 

78,725

Total revenues

$

65,054

$

27,430

$

92,484

$

150,555

$

89,526

$

240,081

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NOTE D — INVENTORY

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

    

September 30, 2024

    

December 31, 2023

USM

$

88,781

$

58,857

Whole assets

193,955

186,845

Work-in-process

31,694

22,270

MRO and engineered solutions

59,004

61,196

$

373,434

329,168

Less short term

 

(263,728)

 

(177,770)

Long term

$

109,706

$

151,398

The Company recorded inventory scrap loss reserves of $1.7 million and $2.0 million for the three and nine months ended September 30, 2024, respectively. The Company recorded inventory scrap loss reserves of $0.5 million and $1.3 million for the three and nine months ended September 30, 2023, respectively. Additions to inventory reserves are included in cost of products in the accompanying condensed consolidated statements of operations.

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

In April 2024, one of the Company’s leased secondary parts warehouses in Roswell, New Mexico, was destroyed by a fire. Inside the warehouse were various aircraft parts typically sold by AerSale as USM. The replacement value of that inventory, which was also destroyed or rendered not sellable by the fire, is estimated at $67.6 million. AerSale carries insurance covering these parts, with a limit of $100 million and a $10,000 deductible, for which it has submitted a claim. The cost basis of the destroyed inventory is $6.0 million; accordingly, since the insurance claim has yet to be paid, the Company recorded an impairment of $6.0 million and a $6.0 million non-trade receivable within deposits, prepaid expenses, and other current assets, in the condensed consolidated balance sheets as of September 30, 2024. The recovery of the $6.0 million claim is deemed to be probable.  Pursuant to ASC 450-30, Gain Contingencies, any higher amount than our book value that is to be collected from the insurance claim will not be recorded until the insurance claim is paid.

NOTE E — INTANGIBLE ASSETS

In accordance with ASC 350, Intangibles — Goodwill and Other (“ASC 350”), goodwill and other intangible assets deemed to have indefinite lives are not amortized, but are subject to annual impairment tests. The Company reviews and evaluates our goodwill and indefinite life intangible assets for potential impairment at a minimum annually or more frequently if circumstances indicate that impairment is possible.

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

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

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Goodwill and other intangible assets, net as of the below dates are (in thousands):

    

September 30, 2024

    

December 31, 2023

Qwest:

FAA Certifications

$

724

$

724

Goodwill

 

13,416

 

13,416

ALGS:

 

  

 

  

FAA Certifications

 

710

 

710

Goodwill

 

379

 

379

ACS:

 

  

 

  

Trademarks

 

600

 

600

FAA Certifications

 

7,300

 

7,300

Goodwill

 

63

 

63

ACT:

 

Trademarks

 

200

 

200

FAA Certificates

 

796

 

796

Goodwill

 

6,002

 

6,002

Total intangible assets with indefinite lives