AerSale Corporation 2021 Form 10-K Summary
Business context and reporting period
AerSale Corporation provides aftermarket commercial aviation products and services, including aircraft and engine sales and leasing, used serviceable material, maintenance, repair and overhaul, aircraft storage, conversions and engineered solutions. It reports two segments: Asset Management Solutions and TechOps. The filing covers the fiscal year ended December 31, 2021; it is an annual report rather than a standalone fourth-quarter filing.
Asset Management Solutions generated 68% of 2021 revenue, compared with 47% in 2020. TechOps generated 32%, compared with 53% in 2020. Approximately 61% of revenue came from non-U.S. customers.
Financial performance and liquidity
| Metric | 2021 | 2020 | Change |
|---|---|---|---|
| Revenue | $340.4 million | $208.9 million | +62.9% |
| Gross profit | $119.4 million | $52.8 million | +126.2% |
| Gross margin | 35.1% | 25.3% | +9.8 points |
| Income from operations | $56.7 million | $11.3 million | +402.4% |
| Operating margin | 16.6% | 5.4% | +11.2 points |
| Net income | $36.1 million | $8.1 million | +346.1% |
| Diluted EPS | $0.76 | $7.39 | Not comparable due to share-count changes |
| Operating cash flow | $79.1 million | $(12.2) million | +$91.3 million |
Asset Management Solutions revenue increased 135.0% to $232.0 million, driven primarily by aircraft and engine sales and USM sales. Segment gross profit increased 205.6% to $89.5 million. TechOps revenue declined 1.6% to $108.4 million, but gross profit increased 27.0% to $29.8 million; its gross margin rose to 27.5% from 21.3%.
Cash and cash equivalents were $130.2 million at December 31, 2021, compared with $29.3 million at year-end 2020. The company had no outstanding debt and $113.9 million of availability under its amended $150.0 million revolving credit facility, which matures March 12, 2024, subject to conditions. The company reported compliance with its debt covenants and no off-balance-sheet arrangements.
Total assets were $487.5 million and stockholders’ equity was $408.9 million at year-end. Inventory totaled $159.3 million, including $81.3 million of whole assets and $65.5 million of USM. Minimum contracted lease rentals receivable were $25.8 million through 2023.
Material changes versus the prior comparable period
- Revenue growth was concentrated in Asset Management Solutions, particularly aircraft and engine transactions serving cargo-market demand during the COVID-19 period.
- Product revenue increased to $209.9 million from $49.4 million, while leasing revenue declined to $30.7 million from $55.6 million and service revenue declined modestly to $99.9 million from $103.9 million.
- SG&A increased 39.3% to $77.5 million, including $12.7 million of stock-based compensation, principally from performance-based equity awards, and higher public-company costs.
- Inventory reserves declined to $6.4 million from $13.1 million; no impairment of Flight Equipment was recorded in 2021, compared with a $3.0 million leased-asset impairment in 2020.
- Operating cash flow improved substantially, while investing cash flow turned positive at $13.2 million, primarily reflecting $17.1 million of asset-sale proceeds.
- The company issued earn-out shares after meeting share-price targets and completed the cashless redemption of public warrants, resulting in approximately 6.1 million additional common shares. Shares outstanding increased to 51.7 million from 41.0 million.
Guidance, outlook, commentary and unusual items
The filing does not provide clear numerical revenue, earnings or cash-flow guidance. Management stated that equity, internally generated funds and available debt capacity were sufficient to maintain operations through December 31, 2022, but cautioned that insufficient financing could limit future asset growth.
- COVID-19 continued to affect commercial aviation demand, operating activity, customer financial condition and liquidity. Management emphasized that the duration and effects of the pandemic and variants remained uncertain.
- The company received $14.7 million of Payroll Support Program proceeds during 2021 and remained subject to restrictions on dividends, share repurchases and certain employee compensation. Noncompliance could require repayment of up to 100% of received relief funds.
- A $5.4 million unrealized loss was recognized on an investment received in settlement of related-party amounts after deterioration in the investee’s financial condition.
- A $2.9 million loss resulted from the change in fair value of the private warrant liability.
- The company recognized $12.7 million of stock-based compensation, including $12.1 million related to performance-based awards for which achievement of the relevant milestones was deemed probable.
- Supply-chain disruptions, skilled-labor availability, aircraft and engine values, customer insolvency, repossession risk, airline outsourcing levels, regulatory compliance and international geopolitical conditions remain significant exposures.
- The company expects adoption of lease accounting Topic 842 on January 1, 2022 to add approximately $13.8 million of operating lease right-of-use assets and $14.9 million of lease liabilities, subject to continuing assessment.
- Goodwill and indefinite-lived intangible assets were tested for impairment in 2021 with no impairment recorded. Future declines in aviation demand, asset values or projected cash flows could result in impairment charges.
Most important facts for investors to verify
- Whether 2021 Asset Management Solutions sales and margins are repeatable or reflect unusually favorable cargo-market demand, asset transactions and product mix.
- The sustainability of the sharp increase in operating cash flow, including the effects of customer deposits, lease collections, inventory reductions and asset sales.
- Current aircraft, engine and USM inventory valuations and exposure to future reserves or impairment charges.
- Customer concentration, including one customer representing 14% of 2021 revenue and a $46.2 million Asset Management Solutions transaction.
- The effect of share issuances, earn-out shares, warrants and performance-based awards on future diluted EPS and ownership.
- Compliance with CARES Act restrictions and the timing of the expiration of dividend, repurchase and compensation limitations.
- The company’s ability to maintain airline outsourcing demand, skilled labor, supplier access, regulatory approvals and access to revolving-credit capacity.
- The final impact of Topic 842 lease adoption and any subsequent changes in liquidity, debt capacity or covenant calculations.
- Potential exposure from the unresolved $2.5 million insurance receivable related to a damaged aircraft and from environmental, litigation, regulatory and product-liability matters.