AerSale Corp

Previous wording

Cost of sales in Asset Management Solutions increased $6.2 million or 20.5%, to $36.6 million for the three months ended March 31, 2024, compared to the prior year period. The increase in cost of sales was primarily driven by the sales increases discussed above. Gross profit in the Asset Management Solutions segment increased $4.6 million to $22.7 million, or 25.4%, for the three months ended March 31, 2024, compared to the three months ended March 31, 2023. The gross profit increase is mainly attributable to higher revenue generated for the three months ended March 31, 2024, as noted above.

Current wording

Cost of sales in Asset Management Solutions increased $0.7 million or 2.8%, to $26.4 million for the three months ended June 30, 2024, compared to the prior year period. The increase in cost of sales was primarily driven by the sales increase discussed above. Gross profit in the Asset Management Solutions segment increased $4.0 million to $15.4 million, or 35.3%, for the three months ended June 30, 2024, compared to the three months ended June 30, 2023. The gross profit increase is mainly attributable to higher revenue generated for the three months ended June 30, 2024, as noted above.

Previous wording

Aircraft gross profit margins decreased to 29.6% for the three months ended March 31, 2024, from 34.0% for the three months ended March 31, 2023 due to lower margins generated on Flight Equipment sales. Engine gross profit margin was 41.5% for the three months ended March 31, 2024, an increase from 40.8% for the three months ended March 31, 2023, which was primarily the result of slightly higher margins on Flight Equipment and USM sales.

Current wording

Aircraft gross profit margins increased to 37.6% for the three months ended June 30, 2024, from 14.6% for the three months ended June 30, 2023 due to higher margin contribution from USM sales. Engines gross profit margin was 36.5% for the three months ended June 30, 2024, a decrease from 38.4% for the three months ended June 30, 2023, which was primarily the result of lower margins on USM sales and leasing revenues.

Previous wording

Our revenue from TechOps increased by $1.4 million or 4.8%, to $31.3 million for the three months ended March 31, 2024, compared to the prior year period. The increase is driven by higher MRO product sales, offset by lower demand for heavy MRO services in our Goodyear, Arizona facility.

Current wording

Our revenue from TechOps increased by $3.0 million or 9.4%, to $35.3 million for the three months ended June 30, 2024, compared to the prior year period. The increase was driven in part by higher MRO product sales, as well as higher contributions by component and landing gear repair activities, offset by lower demand for heavy MRO services in our Goodyear, Arizona facility.

Previous wording

Cost of sales in TechOps increased $1.6 million, or 6.9%, to $25.1 million for the three months ended March 31, 2024 compared to the prior year period, driven by the sales increase discussed above. Gross profit in TechOps decreased $0.2 million, or 3.0%, for the three months ended March 31, 2024 compared to the three months ended March 31, 2023, driven by lower gross profit of $1.0 million on MRO services. Gross profit margin decreased to 19.6% for the three months ended March 31, 2024 compared to 21.2% for the prior year period, and was largely attributable to lower margin on MRO services of 19.0% for the three months ended March 31, 2024 compared to 21.9% for the prior year period, driven by lower component MRO and landing gear activities.

Current wording

Cost of sales in TechOps increased $5.5 million or 23.3%, to $28.9 million for the three months ended June 30, 2024 compared to the prior year period. This was driven by higher revenue discussed above. Gross profit in TechOps decreased $2.4 million, or 27.6% for the three months ended June 30, 2024 compared to the three months ended June 30, 2023, driven by lower gross profit of $2.7 million on MRO services. Gross profit margin decreased to 18.0% for the three months ended June 30, 2024 compared to 27.2% for the prior year period, and was largely attributable to lower margin on MRO services of 15.5% for the three months ended June 30, 2024 compared to 25.5% for the prior year period, driven by lower margin generated on our heavy and component MROs.

Previous wording

We account for our private warrants as a liability at their fair value, with changes in fair value recognized in our results from operations for the period. The fair value of our private warrants is determined using a Black Scholes option pricing model. For the three months ended March 31, 2024, we recorded a $2.0 million change in fair value of warrant liability income, compared to a $0.3 million expense in the prior year period.

Current wording

We account for our private warrants as a liability at their fair value, with changes in fair value recognized in our results from operations for the period. The fair value of our private warrants is determined using a Black Scholes option pricing model. For the three months ended June 30, 2024, we recorded a $0.1 million change in fair value of warrant liability income, compared to a $1.4 million income in the prior year period.

Previous wording

Interest expense was $0.9 million for the three months ended March 31, 2024, compared to $1.0 million interest income for the three months ended March 31, 2023. This was primarily related to interest expense incurred on borrowings

Current wording

Interest expense, net was $1.5 million for the three months ended June 30, 2024, compared to $0.4 million interest income, net for the three months ended June 30, 2023. This was primarily related to interest expense incurred on borrowings under our debt facilities during the current year period, compared to interest earned on our excess cash in the prior year period.

Previous wording

The effective tax rate for the three months ended March 31, 2024 was (6.8%) compared to 95.6% for the three months ended March 31, 2023. The difference between the effective tax rate and the statutory tax rate of 21% for the three months ended March 31, 2024, is primarily due to the benefit of the foreign derived intangible income deduction and R&D credits. The difference between the effective tax rate and the statutory tax rate of 21% for the three months ended March 31, 2023, is primarily due to the non-deductible change in the fair value of the warrant liability.

Current wording

The effective tax rate for the three months ended June 30, 2024 was (15.8%) compared to 46.7% for the three months ended June 30, 2023. The difference between the effective tax rate and the statutory tax rate of 21% for the three months ended June 30, 2024 is primarily due to the exclusion of the foreign derived intangible income deduction previously assumed. The difference between the effective tax rate and the statutory tax rate of 21% for the three months ended June 30, 2023 is primarily due to the impact of state income taxes and non-deductible executive compensation, offset by the foreign derived intangible income deduction and R&D credits.

Previous wording

Sales in the Asset Management Solutions segment increased $10.8 million or 22.4%, to $59.3 million for the three months ended March 31, 2024, due to a $19.4 million, or 82.4%, increase in revenue from Engines, partially offset by a $8.6 million, or 34.4%, decrease in revenue from Aircraft. The increase in Engines revenue is due to higher Flight Equipment sales in the amount of $16.7 million primarily attributable togreater activity in the CFM56 and V2500 product lines and higher USM sales in the amount of $2.9 million, partly offset by lower leasing revenue in the amount of $0.6 million. The decrease in Aircraft revenue is primarily attributable to reduced activity in the B757 product line as a result of lower Flight Equipment sales in the amount of $5.7 million, as well as lower leasing activity of the B737 product line in the amount of $1.9 million.

Current wording

Sales in the Asset Management Solutions segment increased $15.6 million or 18.2%, to $101.1 million for the six months ended June 30, 2024, due to a $27.1 million, or 55.7%, increase in revenue from Engines; offset by a $11.5 million, or 31.1%, decrease in revenue from Aircraft. The increase in Engines revenue is primarily attributable to increased activity in the CFM56 and V2500 product lines as a result of higher Flight Equipment sales in the amount of $19.9 million, and higher USM sales. The decrease in Aircraft revenue is primarily attributable todecreased activity in the B757 product line due to lower Flight Equipment sales in the amount of $8.9 million due to softer demand in the freighter market, and lower leasing revenue of $1.9 million, partially offset by higher USM sales activity.

Previous wording

Selling, general and administrative expenses decreased $1.1 million, or 4.3%, to $24.1 million for the three months ended March 31, 2024, compared to the prior year period. The decrease was mostly related to lower stock based compensation, partly offset by higher payroll and information technology support costs.

Current wording

Selling, general and administrative expenses decreased $4.6 million, or 8.8% to $47.7 million for the six months ended June 30, 2024, compared to the prior year period. The decrease was primarily related to lower share-based compensation and payroll costs.

Previous wording

As of March 31, 2024, we had $2.6 million of cash and cash equivalents. We finance our growth through cash flows generated from operations and borrowings secured by our assets. We had $52.0 million outstanding under the Revolving Credit Agreement (as defined below) as of March 31, 2024, and we had $126.3 million of availability thereunder. We used cash in operations of $21.5 million for the three months ended March 31, 2024, and generated cash from investing activities of $0.2 million for the three months ended March 31, 2024.

Current wording

As of June 30, 2024, we had $4.3 million of cash and cash equivalents. We finance our growth through cash flows generated from operations and borrowings secured by our assets. We had $81.0 million outstanding under the Revolving Credit Agreement as of June 30, 2024, and we had $97.5 million of availability thereunder. We used cash in operations of $36.8 million for the six months ended June 30, 2024, primarily for feedstock acquisitions, and used cash in investing activities of $9.0 million for the six months ended June 30, 2024.

Previous wording

During the year ended December 31, 2023, we entered into a revolving term loan collateralized by our property and equipment (the “Equipment Loan”), and borrowed $8.6 million, of which $4.6 million remained outstanding as of March 31, 2024.

Current wording

During the year ended December 31, 2023, we entered into a revolving term loan collateralized by our property and equipment (the “Equipment Loan”), and borrowed $8.6 million, which was paid off during the six months ended June 30, 2024. During the three months ended June 30, 2024, the Company financed additional equipment purchases of $0.6 million, which remain outstanding as of June 30, 2024.

Previous wording

Net cash used in operating activities was $21.5 million for the three months ended March 31, 2024, compared to cash used of $62.4 million for the same period in 2023. The reduction in cash used in operating activities of $40.9 million was primarily due to lower feedstock acquisitions of $25.0 million, applications of advanced vendor payments, and higher results from operations.

Current wording

Net cash used in operating activities was $36.8 million for the six months ended June 30, 2024, compared to cash used of $129.2 million for the same period in 2023. The decrease in cash deployed of $92.4 million was primarily due to lower feedstock acquisitions and the timing of advances to vendors during the six months ended June 30, 2024 compared to the prior year period.

Previous wording

Net cash provided by investing activities was $0.2 million for the three months ended March 31, 2024, compared to cash provided of $3.0 million in the same period for 2023. Cash provided by investing activities during the three months ended March 31, 2024 and 2023, respectively, was driven by the sale of Flight Equipment.

Current wording

Net cash used in investing activities was $9.0 million for the six months ended June 30, 2024, compared to cash provided of $7.9 million in the same period for 2023. Cash used in investing activities during the six months ended June 30, 2024 was driven by purchases of property and equipment in support of TechOps expansion. Cash generated by investing activities during the six months ended June 30, 2023 was driven by Flight Equipment sales.

Previous wording

Net cash provided by financing activities was $18.0 million for the three months ended March 31, 2024, compared to cash used of $0.1 million for the three months ended March 31, 2023. Cash provided by financing activities during the three months ended March 31, 2024 relate toborrowing under our Revolving Credit Agreement. Cash used in financing activities during the three months ended March 31, 2023 related to payments of tax withholdings from equity awards.

Current wording

Net cash provided by financing activities was $44.2 million for the six months ended June 30, 2024, compared to cash provided of $8.8 million in the same period for 2023. Cash provided by financing activities during the six months ended June 30, 2024 was primarily related to the proceeds from net borrowings under our Revolving Credit Agreement. Cash provided by financing activities during the six months ended June 30, 2023 is the result of proceeds from borrowings under the Equipment Loan.

Previous wording

As of March 31, 2024, there was $52.0 outstanding under the Revolving Credit Agreement and we had $126.3 million of availability thereunder. We were in compliance with our debt covenants for the Revolving Credit Agreement as of March 31, 2024.

Current wording

As of June 30, 2024, there was $81.0 million outstanding under the Revolving Credit Agreement and we had $97.5 million of availability thereunder. We were in compliance with our debt covenants for the Revolving Credit Agreement as of June 30, 2024.

Previous wording

On June 30, 2023, the Company entered into a property and equipment revolving term loan (the “Equipment Loan”) with a total advance commitment of $10.0 million for the purpose of financing capital expenditures on property and equipment. Once the total advance commitment is reached or commencing on June 30, 2024, whichever comes first, this facility will become a term loan with a maturity date of June 30, 2027. This loan is collateralized by the property and equipment it finances and requires interest only payment until converted to a term loan, at which point, principal and interest payments will be required.

Current wording

On June 30, 2023, the Company entered into a property and equipment revolving term loan (the “Equipment Loan”) with a total advance commitment of $10.0 million for the purpose of financing capital expenditures on property and equipment. Once the total advance commitment is reached or commencing on June 30, 2024, whichever came first, this facility would become a term loan with a maturity date of June 30, 2027. This loan is collateralized by the property and equipment it finances and requires interest only payment until converted to a term loan, at which point, principal and interest payments will be required.

Previous wording

As of March 31, 2024, the outstanding balance under the Equipment Loan was $4.6 million, which was subsequently paid off during April 2024. We were in compliance with our debt covenants for the Equipment Loan as of March 31, 2024.

Current wording

We were in compliance with our debt covenants for the Equipment Loan as of June 30, 2024.

Previous wording

The Company has entered into a purchase commitment with Universal Avionics, a subsidiary of Elbit Systems, valued at $33.8 million for the acquisition of technical equipment for manufacturing our AerAware TM product. The commitment is expected to be satisfied by the second quarter of 2025.

Current wording

The Company has entered into a purchase commitment with Universal Avionics valued at $27.5 million for the acquisition of technical equipment for manufacturing our AerAware TM product. The commitment is expected to be satisfied by the second quarter of 2025.

Previous wording

The preparation of the condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States (“U.S. GAAP”) requires our management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. A summary of our critical accounting estimates is included in Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in the 2023 Form 10-K. We continually review these estimates and their underlying assumptions to ensure they are appropriate for the circumstances. Changes in the estimates and assumptions we use could have a material impact on our financial results. During the three months ended March 31, 2024, there were no material changes in our critical accounting estimates and policies.

Current wording

The preparation of the condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States (“U.S. GAAP”) requires our management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. A summary of our critical accounting estimates is included in Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in the 2023 Form 10-K. We continually review these estimates and their underlying assumptions to ensure they are appropriate for the circumstances. Changes in the estimates and assumptions we use could have a material impact on our financial results. During the six months ended June 30, 2024, there were no material changes in our critical accounting policies and estimates.