AerSale(ASLE) - 2024 Q4 - Annual Report

Part I: Business and Risk Factors Business Overview AerSale provides aftermarket commercial aviation products and services through Asset Management Solutions and TechOps segments, contributing 62% and 38% of 2024 revenue respectively - The company's business is structured into two primary segments: Asset Management Solutions (AMS) and Technical Operations (TechOps)[26] Revenue Contribution by Segment (FY 2024 vs. FY 2023) | Segment | 2024 Revenue % | 2023 Revenue % | | :--- | :--- | :--- | | Asset Management Solutions | 62% | 64% | | TechOps | 38% | 36% | Business Segments and Operations Asset Management Solutions maximizes mid-life flight equipment value, while TechOps provides MRO services and develops proprietary Engineered Solutions like AerSafe® and AerAware™ - Asset Management Solutions monetizes mid-life flight equipment via sales, leases, and disassembly into USM, a key feedstock for the business[27] - The TechOps segment offers nose-to-tail MRO services and develops proprietary 'Engineered Solutions' such as AerSafe® and the recently FAA-approved AerAware™ for the Boeing B737NG[28][31][32] Competition and Competitive Strengths AerSale competes in a fragmented market, differentiating with an integrated 'one-stop' solution, cost-efficient USM sourcing, cross-selling, and rare FAA 'unlimited' repair station ratings - Competitors are numerous and often specialize, including AAR Corp., GA Telesis, and Delta TechOps[33][35] - A primary competitive advantage is the integrated business model, providing a 'one-stop' source for aircraft, engine, and USM support, bundled with MRO solutions[40] - The company holds legacy FAA 'unlimited' repair station ratings, enabling fast-track new MRO capabilities through a 'self-certification' process[42] Growth Strategies and Customers AerSale's growth strategy includes broadening MRO capabilities, expanding government and international presence, introducing new Engineered Solutions, and pursuing strategic acquisitions, serving over 1,000 global customers - Key growth strategies include broadening MRO capabilities using its 'unlimited' FAA licenses, expanding presence in the stable government sector, investing in new 'Engineered Solutions', expanding geographical footprint, and pursuing strategic acquisitions[43][49] - In FY2024, non-U.S. customers accounted for 37% of total revenue, with 73% of top 100 customer revenue from clients using multiple services[46][47] Human Capital and Environmental Matters As of February 2025, AerSale employed 636 people, focusing on talent retention, diversity (34% female, 62% minority), and managing environmental liabilities through indemnifications and insurance - As of February 1, 2025, the company employed 636 people, supplemented by approximately 60 contract workers[68] - As of December 31, 2024, the employee base was 34% female and 62% minority, with active recruitment from diverse communities[77] - The company is subject to numerous environmental laws and manages historical contamination risks through indemnification and an environmental impairment liability policy[78][79] Risk Factors The company faces risks from cyclical aviation industry, supply chain, geopolitical instability, fluctuating asset values, goodwill impairment, financing dependence, extensive regulation, cybersecurity, and international operations Business and Industry Risks AerSale's business is exposed to cyclical aviation industry risks, including geopolitical events, supply chain disruptions, fluctuating asset values, labor shortages, and a significant April 2024 warehouse fire - The business is affected by factors impacting the commercial aviation industry, including geopolitical conflicts (Russia-Ukraine, Israel-Hamas), economic slowdowns, and reduced flight activity[85] - In April 2024, a fire destroyed a leased parts warehouse in Roswell, NM; the company filed a $67.6 million insurance claim and collected approximately $34.6 million against a $6.0 million cost basis[121] - The company is exposed to risks from international operations, as its ERP vendor and most AerAware™ EFVS product components suppliers are based in Israel, a region currently in conflict[104] Strategic and Financial Risks The company's financial stability faces risks from financing dependence, restrictive debt covenants, and potential goodwill impairment, particularly for the Asset Management Solutions unit, which has a small fair value margin - The company is dependent on continued financing availability, and existing debt agreements contain restrictive covenants that could limit operations[130][133][135] - A significant risk of goodwill impairment exists, particularly for the Asset Management Solutions reporting unit with $13.4 million in goodwill, whose fair value only slightly exceeded its carrying value at year-end[139][239] Legal and Regulatory Risks AerSale operates in a highly regulated industry, facing risks from FAA compliance, export controls, product liability claims, and environmental liabilities for facility contamination - The aviation industry is highly regulated by the FAA and other international bodies; revocation of licenses or certificates could adversely impact operations[141][142] - The company is subject to U.S. and international anti-corruption laws (e.g., FCPA), export controls, and economic sanctions, requiring significant compliance efforts[146][149] - The business is exposed to product liability claims and environmental liabilities, which may not be fully covered by insurance or indemnification[155][156] Cybersecurity AerSale maintains a comprehensive cybersecurity program based on NIST and CIS frameworks, overseen by the Audit Committee and led by an experienced CIO, with no material incidents reported to date - The company maintains a cybersecurity program based on NIST and CIS frameworks, overseen by the Audit Committee and managed by an experienced CIO[172][174] - The program includes security awareness training, internal and external assessments, third-party risk management, and an incident response plan[173] - AerSale has not identified any risks from cybersecurity threats or prior incidents reasonably likely to materially affect the company[173] Properties AerSale's principal office is in Doral, Florida, with major MRO and storage facilities in Goodyear, Roswell, and Millington, offering over 760,000 square feet and capacity for 650 aircraft - The company operates three major on-airport MRO facilities in Goodyear (AZ), Roswell (NM), and Millington (TN)[176] - These facilities provide over 760,000 square feet of hangar space and long-term storage capacity for up to 650 aircraft[29][176] - USM parts are primarily distributed from a dedicated warehouse in Memphis, TN, and a bulk storage facility in Roswell, NM, with over 500,000 square feet of space[177] Part II: Market, Financial Analysis, and Statements Management's Discussion and Analysis (MD&A) In FY2024, AerSale's total revenue grew 3.2% to $345.1 million, with gross profit up 12.5% to $103.9 million, driven by Asset Management's improved mix despite TechOps margin pressure, and significantly improved operating cash flow Results of Operations (FY 2024 vs. FY 2023) In 2024, total revenue grew 3.2% to $345.1 million, and gross profit rose 12.5% to $103.9 million, with Asset Management's gross profit up 21.9% and TechOps' down 13.2% due to margin compression, resulting in a net income of $5.9 million Consolidated Financial Performance (in thousands) | Metric | FY 2024 | FY 2023 | % Change | | :--- | :--- | :--- | :--- | | Total Revenue | $345,066 | $334,503 | 3.2% | | Asset Management Solutions | $215,467 | $215,167 | 0.1% | | TechOps | $129,599 | $119,336 | 8.6% | | Total Gross Profit | $103,936 | $92,421 | 12.5% | | Asset Management Solutions | $82,441 | $67,655 | 21.9% | | TechOps | $21,495 | $24,766 | (13.2)% | | Net Income (Loss) | $5,851 | ($5,563) | N/A | - The decrease in Asset Management aircraft revenue was primarily due to reduced activity in the B757 product line, reflecting softer demand in the freighter market[199] - TechOps gross margin declined from 20.8% in 2023 to 16.6% in 2024, driven by lower margins on MRO services due to facility expansion projects[205] Financial Position, Liquidity and Capital Resources As of December 31, 2024, AerSale had $4.7 million cash, generated $11.2 million from operations (up from $174.2 million used in 2023), used $16.1 million in investing, and maintains strong liquidity with $138.1 million available on its credit facility Key Balance Sheet and Liquidity Metrics (as of Dec 31, 2024) | Metric | Amount (in millions) | | :--- | :--- | | Cash and cash equivalents | $4.7 | | Revolving Credit Facility Outstanding | $39.2 | | Revolving Credit Facility Availability | $138.1 | - Year-over-year, cash from operations increased by $185.3 million to $11.2 million provided, primarily from lower feedstock acquisitions and insurance proceeds; cash from investing shifted to $16.1 million used; and cash from financing decreased to $3.8 million provided[218][219][221] Debt Obligations and Covenant Compliance AerSale's primary debt is a $180 million revolving credit facility, with $39.2 million outstanding at year-end 2024, and the company was in compliance with all debt covenants - The main credit facility is a $180 million revolver maturing in July 2028, with $39.2 million drawn and $138.1 million available at year-end[222][224] - In 2024, the company paid off the Synovus Equipment Loan and entered into a new $10.0 million CIBC Equipment Loan to finance capital expenditures[226][228] Critical Accounting Policies and Estimates Management identifies critical accounting policies including revenue recognition, inventory costing, and goodwill valuation, noting a heightened risk of future goodwill impairment for the Asset Management Solutions unit due to its small fair value margin - The cost of USM inventory from dismantled aircraft is determined using a ratio based on the estimated sales value of all parts, requiring significant management judgment[236][254] - A significant decline in the company's stock price triggered goodwill impairment testing in 2024, indicating a higher risk of future impairment for the Asset Management Solutions reporting unit as its fair value only slightly exceeded its carrying value[238][239] Financial Statements and Supplementary Data The 2024 consolidated financial statements, audited by Grant Thornton LLP with an unqualified opinion, show a return to profitability with $5.9 million net income and total assets growing to $604.7 million, with two Critical Audit Matters identified Consolidated Financial Highlights (in thousands) | Metric | Dec 31, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $4,698 | $5,873 | | Total Inventory | $355,790 | $329,168 | | Total Assets | $604,723 | $553,938 | | Liabilities & Equity | | | | Total Liabilities | $149,103 | $108,923 | | Total Stockholders' Equity | $455,620 | $445,015 | Consolidated Statement of Operations Highlights (in thousands, except EPS) | Metric | FY 2024 | FY 2023 | FY 2022 | | :--- | :--- | :--- | :--- | | Total Revenue | $345,066 | $334,503 | $408,544 | | Gross Profit | $103,936 | $92,421 | $151,394 | | Net Income (Loss) | $5,851 | $(5,563) | $43,861 | | Diluted EPS | $0.11 | $(0.15) | $0.83 | - The independent auditor, Grant Thornton LLP, identified two Critical Audit Matters: assessment of USM inventory cost and assessment of goodwill impairment for the AMS and ACT reporting units[253][254][259] Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2024, a conclusion affirmed by Grant Thornton LLP's unqualified opinion - Management concluded that disclosure controls and procedures were effective as of December 31, 2024[436] - Management concluded that the company maintained effective internal control over financial reporting as of December 31, 2024[440] - No material changes to internal control over financial reporting occurred during the fourth quarter of 2024[441] Part III & IV: Governance, Compensation, and Exhibits Corporate Governance and Executive Compensation Information on corporate governance, executive compensation, and related matters is incorporated by reference from the 2025 proxy statement, with a table detailing equity compensation plan securities - Detailed information for Items 10, 11, 12, 13, and 14 is incorporated by reference from the forthcoming 2025 proxy statement[454][455][457][458] Equity Compensation Plan Information (as of Dec 31, 2024) | Plan Category | Securities to be Issued Upon Exercise | Weighted-Average Exercise Price | Securities Remaining Available for Future Issuance | | :--- | :--- | :--- | :--- | | Approved by security holders | 2,026,578 | $7.95 | 1,611,825 | Exhibits and Financial Statement Schedules This section lists all exhibits filed with the Form 10-K, including governance documents, material contracts, and certifications, with financial statement schedules omitted - A comprehensive list of all exhibits filed with the annual report is provided, including governance documents, credit agreements, and executive offer letters[463][464] - Certifications by the Principal Executive Officer and Principal Financial Officer pursuant to Sarbanes-Oxley Sections 302 and 906 are included as exhibits[473]