AerSale(US:ASLE)2024-05-09 21:13PART I – FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements AerSale Corporation's Q1 2024 financial statements show increased assets and liabilities, improved profitability, and detailed notes on key financial components Consolidated Financial Highlights (Q1 2024 vs Q1 2023) | Metric | Q1 2024 ($k) | Q1 2023 ($k) | Change ($k) | Change (%) | | :---------------------- | :----------- | :----------- | :---------- | :--------- | | Total Revenue | 90,540 | 78,271 | 12,269 | 15.7% | | Gross Profit | 28,796 | 24,391 | 4,405 | 18.1% | | Income (loss) from operations | 4,663 | (833) | 5,496 | N/A | | Net Income | 6,277 | 5 | 6,272 | N/A | | Basic EPS | 0.12 | - | 0.12 | N/A | Balance Sheet Snapshot (Mar 31, 2024 vs Dec 31, 2023) | Metric | Mar 31, 2024 ($k) | Dec 31, 2023 ($k) | Change ($k) | Change (%) | | :---------------------- | :---------------- | :---------------- | :---------- | :--------- | | Total Assets | 571,694 | 553,938 | 17,756 | 3.2% | | Total Liabilities | 119,711 | 108,923 | 10,788 | 9.9% | | Total Stockholders' Equity | 451,983 | 445,015 | 6,968 | 1.6% | Cash Flow Summary (Q1 2024 vs Q1 2023) | Metric | Q1 2024 ($k) | Q1 2023 ($k) | Change ($k) | | :------------------------------------ | :----------- | :----------- | :---------- | | Net cash used in operating activities | (21,473) | (62,442) | 40,969 | | Net cash provided by investing activities | 226 | 3,019 | (2,793) | | Net cash provided by (used in) financing activities | 18,011 | (70) | 18,081 | - Total inventory increased to $350.8 million as of March 31, 2024, from $329.2 million at year-end 2023, with whole assets being the largest component45 - Revolving credit facility balance increased to $52.0 million as of March 31, 2024, from $29.0 million at year-end 20231268 Condensed Consolidated Balance Sheets (Unaudited) Condensed Consolidated Statements of Operations (Unaudited) Condensed Consolidated Statements of Stockholders' Equity (Unaudited) Condensed Consolidated Statements of Cash Flows (Unaudited) Notes to the Condensed Consolidated Financial Statements (Unaudited) NOTE A— DESCRIPTION OF THE BUSINESS NOTE B — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES NOTE C — REVENUE NOTE D — INVENTORY NOTE E — INTANGIBLE ASSETS NOTE F— PROPERTY AND EQUIPMENT, NET NOTE G — LEASE RENTAL REVENUES AND AIRCRAFT AND ENGINES HELD FOR LEASE NOTE H —ACCRUED EXPENSES NOTE I – WARRANT LIABILITY NOTE J – FINANCING ARRANGEMENTS NOTE K — EARNINGS PER SHARE NOTE L— BUSINESS SEGMENTS NOTE M — STOCKHOLDERS' EQUITY Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations AerSale's Q1 2024 revenue grew 15.7%, driven by strong segment sales and improved gross profit, with enhanced liquidity and managed debt obligations - Total revenue increased by $12.3 million (15.7%) to $90.5 million in Q1 2024, driven by Asset Management Solutions ($10.8 million increase) and TechOps ($1.4 million increase)100 - Total gross profit increased by $4.4 million (18.1%) to $28.8 million in Q1 2024101 Segment Revenue Performance (Q1 2024 vs Q1 2023) | Segment / Type | Q1 2024 ($k) | Q1 2023 ($k) | Change ($k) | Change (%) | | :----------------------- | :----------- | :----------- | :---------- | :--------- | | Asset Management Solutions | | | | | | Aircraft | 16,338 | 24,895 | (8,557) | (34.4%) | | Engine | 42,924 | 23,535 | 19,389 | 82.4% | | Total AMS | 59,262 | 48,430 | 10,832 | 22.4% | | TechOps | | | | | | MRO services | 25,848 | 27,154 | (1,306) | (4.8%) | | Product sales | 5,430 | 2,687 | 2,743 | 102.1% | | Total TechOps | 31,278 | 29,841 | 1,437 | 4.8% | | Total | 90,540 | 78,271 | 12,269 | 15.7% | - Selling, general and administrative expenses decreased by $1.1 million (4.3%) to $24.1 million, mainly due to lower stock-based compensation107 - The company recorded a $2.0 million income from the change in fair value of warrant liability in Q1 2024, compared to a $0.3 million expense in Q1 2023108 - Net cash used in operating activities decreased by $40.9 million to $21.5 million in Q1 2024, primarily due to lower feedstock acquisitions and higher operating results114 - As of March 31, 2024, $52.0 million was outstanding under the Revolving Credit Agreement with $126.3 million availability, and the $4.6 million Equipment Loan was subsequently paid off in April 2024. The company was in compliance with all debt covenants119120 - A $33.8 million purchase commitment with Universal Avionics for AerAware™ product technical equipment is expected to be satisfied by Q2 2025122 The Company Recent Accounting Pronouncements Results of Operations Asset Management Solutions TechOps Selling, General and Administrative Expenses Change in Fair Value of Warrant Liability Interest Income (Expense), Net Income Taxes Financial Position, Liquidity and Capital Resources Cash Flows from Operating Activities Cash Flows from Investing Activities Cash Flows from Financing Activities Debt Obligations and Covenant Compliance Off-Balance Sheet Arrangements and Contractual Obligations Critical Accounting Policies and Estimates Item 3. Quantitative and Qualitative Disclosures About Market Risk AerSale faces market risks from variable interest rates and foreign currency fluctuations, with a 10% rate hike potentially increasing annual interest expense by $0.5 million - The company is exposed to variable interest rates on $52.0 million outstanding under the Revolving Credit Agreement and $4.6 million under the Equipment Loan. A 10% increase in the average interest rate would increase annual interest expense by $0.5 million125 - AerSale primarily uses the U.S. dollar as its functional currency, and a hypothetical 10% devaluation of the U.S. dollar against foreign currencies would not have a material impact on its financial position or continuing operations126 Interest Rate Risk Foreign Currency Exchange Risk Item 4. Controls and Procedures AerSale's management confirmed effective disclosure controls and procedures at a reasonable assurance level as of March 31, 2024, with no material changes in internal control - Management recognizes that controls provide only reasonable assurance and involve judgment in balancing benefits and costs127 - The Chief Executive Officer and Chief Financial Officer concluded that disclosure controls and procedures were effective at the reasonable assurance level as of March 31, 2024128 - No material changes in internal control over financial reporting occurred during the quarter ended March 31, 2024129 Limitations on Effectiveness of Controls and Procedures Evaluation of Disclosure Controls and Procedures Changes in Internal Control over Financial Reporting PART II – OTHER INFORMATION Item 1. Legal Proceedings AerSale anticipates no material impact from incidental litigation on its financial condition or operations, supported by vigorous defense and insurance coverage - The company intends to vigorously defend against litigation and maintains significant levels of insurance to protect against adverse judgments130 - Based on current information, the ultimate liability associated with known claims or litigation is not expected to materially affect the company's consolidated financial condition or results of operations130 Item 1A. Risk Factors AerSale reports no material changes to the risk factors previously disclosed in its 2023 Annual Report on Form 10-K - There are no material changes in the information reported under Part I – Item 1A 'Risk Factors' contained in the 2023 Form 10-K131 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds AerSale did not engage in any unregistered sales of equity securities or use of proceeds during the reporting period - None132 Item 3. Defaults Upon Senior Securities AerSale reported no defaults upon senior securities during the reporting period - None132 Item 4. Mine Safety Disclosures This item is not applicable to AerSale Corporation - Not applicable132 Item 5. Other Information No director or officer adopted or terminated any Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during Q1 2024 - No director or officer adopted or terminated any 'Rule 10b5-1 trading arrangement' or 'non-Rule 10b5-1 trading arrangement' during the three months ended March 31, 2024133 Item 6. Exhibits This section lists all exhibits filed with the Quarterly Report on Form 10-Q, including merger agreements, corporate documents, and officer certifications - Exhibits include the Amended and Restated Agreement and Plan of Merger, Certificate of Incorporation, Bylaws, and certifications from the CEO and CFO135138139140141 Signatures The report is duly signed by AerSale Corporation's Chairman, CEO, and CFO, certifying its contents - The report was signed by Nicolas Finazzo (Chairman, Chief Executive Officer, and Director) and Martin Garmendia (Chief Financial Officer and Treasurer) on May 9, 2024148