AerSale Corporation 10-Q Summary
Business context and reporting period
AerSale Corporation is a commercial aviation aftermarket provider operating through Asset Management Solutions and Tech Ops. Its activities include aircraft and engine leasing, whole-asset and used serviceable material sales, maintenance, repair and overhaul services, aircraft modifications, component MRO, storage, and engineered solutions.
The filing covers the quarter and six months ended June 30, 2021, with comparative periods ended June 30, 2020. The financial statements are unaudited. AerSale completed its business combination with Monocle on December 22, 2020; prior-period financial statements reflect AerSale Aviation as the accounting acquirer.
Key financial metrics
| Metric | Three months ended June 30 | Six months ended June 30 |
|---|---|---|
| Total revenue | $91.9 million, up 102.7% from $45.4 million | $150.4 million, up 46.7% from $102.5 million |
| Gross profit | $30.7 million versus $(2.1) million | $50.6 million versus $13.2 million |
| Gross margin | 33.4% versus (4.7%) | 33.6% versus 12.8% |
| Income from operations | $22.2 million versus $(9.8) million | $35.1 million versus $(7.9) million |
| Net income | $16.5 million versus $(7.9) million | $26.6 million versus $(6.9) million |
| Diluted EPS | $0.38 versus $(214.48) | $0.61 versus $(185.87) |
| Operating cash flow | Not separately provided for the quarter | $8.6 million versus $38.3 million |
Quarterly revenue growth was led by Asset Management Solutions revenue of $60.3 million, up 189.2%, including aircraft revenue of $24.3 million and engine revenue of $36.0 million. Tech Ops revenue increased 29.0% to $31.6 million. Six-month Asset Management Solutions revenue rose 73.3% to $89.6 million, while Tech Ops revenue increased 19.7% to $60.8 million.
Quarterly Tech Ops gross margin was 36.8%, compared with 27.7% in the prior-year quarter; six-month margin was 29.4%, compared with 20.3%. Asset Management Solutions generated gross profit of $19.1 million in the quarter and $32.7 million for the six months, compared with prior-year gross losses or substantially lower profit.
Financial position, debt and liquidity
- Cash and cash equivalents were $41.8 million at June 30, 2021, compared with $29.3 million at December 31, 2020.
- Total assets were $420.7 million and total stockholders’ equity was $378.4 million.
- Inventory totaled $171.9 million, including $89.1 million of whole assets, $62.3 million of used serviceable materials and $20.5 million of work-in-process.
- There were no borrowings outstanding under the revolving credit facility. Availability was $137.1 million after the facility was increased to $150.0 million and maturity was extended to March 12, 2024.
- The company stated that it was in compliance with its debt covenants as of June 30, 2021.
- Cash increased by $12.5 million during the first six months, supported by $8.6 million of operating cash flow, $3.6 million of investing cash flow and $0.3 million of financing cash flow.
- Management stated that equity, internally generated funds and available debt capacity were sufficient to maintain operations through June 30, 2022.
Material changes versus the prior comparable period
- Revenue and profitability improved substantially, primarily because of higher aircraft and engine trading activity, particularly in the B757, RB211 and PW4000 product lines.
- Tech Ops benefited from increased maintenance, storage and preservation work associated with aircraft groundings and reduced passenger flight activity.
- Leasing revenue declined as lower flight hours reduced demand. Six-month leasing revenue was $12.6 million versus $27.0 million in 2020.
- Gross profit benefited from higher flight-equipment sales margins, lower inventory obsolescence reserves and no aircraft-held-for-lease impairment in 2021. Inventory reserves were $4.8 million in the first six months of 2021 versus $12.9 million in 2020.
- Operating cash flow fell $29.7 million year over year, primarily because of inventory purchases and lower trade-receivable collections.
- SG&A increased 20.9% in the quarter and 11.2% for the six months as temporary COVID-19 cost reductions were partially reversed to support higher business volumes.
Guidance, outlook, risks and unusual items
The filing does not provide specific quantitative revenue or earnings guidance. Management indicated that available liquidity was sufficient through June 30, 2022, but noted that an adverse event affecting capital requirements could constrain asset growth and future expansion.
- COVID-19 continues to create uncertainty regarding aviation demand, flight hours, asset valuations, customer solvency, leasing activity and future restrictions or variants.
- The company received and recognized $14.7 million of payroll support proceeds during the first six months of 2021, including $3.7 million under the CARES Act, $5.5 million under the Payroll Support Program Extension Law and $5.5 million under the American Rescue Plan.
- Payroll-support funds carry restrictions on employee compensation, involuntary terminations, furloughs, dividends and share repurchases. Noncompliance could require reimbursement of up to 100% of previously received relief funds.
- The company recorded $0.4 million of quarterly and $0.6 million of six-month expense from changes in the fair value of its private warrant liability after correcting the warrants’ classification from equity to liability.
- The company had $17.3 million of future operating lease payments and $22.9 million of minimum future rentals under existing flight-equipment leases.
- Management reported no material legal proceedings, no off-balance-sheet arrangements and no material changes to previously disclosed risk factors.
- The company plans to adopt the new lease standard, ASC Topic 842, in the first quarter of 2022 and was evaluating the effect on its financial statements.
Important facts for investors to verify
- Whether higher whole-aircraft and engine trading volumes and margins are sustainable after the unusually strong year-over-year comparison.
- The composition, turnover and realizable value of the $171.9 million inventory balance, including whole assets and inventory reserves.
- The effect of reduced leasing activity and continuing commercial aviation demand uncertainty on future revenue and asset values.
- Operating cash conversion, particularly the impact of inventory purchases and receivable collections on cash flow.
- Availability under the borrowing-base revolver and compliance with its covenants as business volumes and inventory levels change.
- The ongoing restrictions and potential repayment exposure associated with government payroll-support funding.
- The valuation and dilution implications of 17.95 million outstanding warrants, including the private warrant liability and the $11.50 exercise price.