UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, ~~2022~~2023

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________ to ____________.

Commission file number 001-38801

AerSale Corporation

(Exact name of registrant as specified in its charter)


Delaware		84-3976002
(State or other jurisdiction of		(I.R.S. Employer Identification No.)
incorporation or organization)

255 Alhambra Circle, Suite 435
Coral Gables, FL		33134
(Address of Principal Executive Offices)		(Zip Code)

(305) 764-3200

Registrant’s telephone number, including area code

N/A

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock, $0.0001 par value per share	ASLE	The Nasdaq Capital Market

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☐	Accelerated filer	☒
Non-accelerated filer	☐	Smaller reporting company	☒
		Emerging growth company	☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The number of shares of Registrant’s common stock outstanding as of November ~~8, 2022~~6, 2023 was ~~51,774,665.~~51,328,800.

Table of Contents

TABLE OF CONTENTS

		Page
	Forward-Looking Statements	i
PART I – FINANCIAL INFORMATION		1
Item 1.	Condensed Consolidated Financial Statements	1
	Condensed Consolidated Balance Sheets (Unaudited)	1
	Condensed Consolidated Statements of Operations (Unaudited)	2
	Condensed Consolidated Statements of Stockholders’ Equity (Unaudited)	3
	Condensed Consolidated Statements of Cash Flows (Unaudited)	4
	Notes to the Condensed Consolidated Financial Statements (Unaudited)	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2019
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	2826
Item 4.	Controls and Procedures	2827
PART II – OTHER INFORMATION		2927
Item 1.	Legal Proceedings	2927
Item 1A.	Risk Factors	2927
Item 2.	Unregistered Sales of Equity Securities, ~~and~~ Use of Proceeds, and Issuer Purchases of Equity Securities	3029
Item 3.	Defaults Upon Senior Securities	3029
Item 4.	Mine Safety Disclosures	3029
Item 5.	Other Information	3029
Item 6.	Exhibits	3129
Signatures		3332

Table of Contents

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (this “Quarterly Report”) contains forward-looking statements. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933, as amended ~~or the Securities Act,~~(the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended ~~or the Exchange Act.~~(the “Exchange Act”). All statements other than statements of historical facts contained in this Quarterly Report ~~including~~may constitute forward-looking statements, ~~relating~~and include, but are not limited to, ~~the Merger (as defined herein), the impact of the COVID-19 pandemic and the geopolitical events related to the Russian invasion of Ukraine on our business,~~ changes in the market for our ~~services,~~services; changes in applicable laws or ~~regulations, our~~regulations; the ability to launch new services and products or to profitably expand into new ~~markets,~~markets; and ~~the possibility that we may be adversely affected by~~expectations of other economic, business and/or competitive factors. These statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.

In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “could,” “intend,” “target,” “project,” “contemplate,” “believe,” “estimate,” “predict,” “potential”, or “continue” or the negative of these terms or other similar expressions. The forward-looking statements in this Quarterly Report are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. These forward-looking statements speak only as of the date of this Quarterly Report and are subject to a number of important factors that could cause actual results to differ materially from those in the forward-looking statements, including the impact of the COVID-19 pandemic or a new pandemic, and geopolitical events related to the Russian invasion of Ukraine on our business; factors that adversely impact the commercial aviation industry; fluctuation of market values for our aviation products; our inability to repossess Flight Equipment (as defined herein) when a lessee defaults and the cost of remarketing and releasing such repossessed Flight Equipment; compliance with significant government regulations; the success at our MRO (as defined herein) facilities is dependent on continued outsourcing by airlines; a shortage of skilled personnel or work stoppages; inability to obtain certain components and raw materials from suppliers; competitive pressures; risks associated with operating internationally; the value of liens on our Flight Equipment; ownership rights over an engine affixed to an aircraft; risks associated with business acquisitions; continued availability of financing; restrictive and financial covenants in our existing debt; product and other liability claims; risks associated with supplying equipment and services to the U.S. government; cyber or other security threats or other disruptions; compliance with environmental requirements; payment of capital expenditures; our lack of ownership of certain intellectual property that is important to our business; dependence on our facilities; damage to our reputation by improper conduct of employees, agents, and others; limitations on employee compensation as a result of the CARES Act; the loss of certain key employees; insolvency of any of our customers; exposure to intellectual property litigation; and the factors described under the section titled “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2022, filed with the Securities and Exchange Commission (“SEC”) on March ~~15, 2022.~~7, 2023.

Moreover, we operate in an evolving environment. New risk factors and uncertainties may emerge from time to time, and it is not possible for management to predict all risk factors and uncertainties.

You should read this Quarterly Report and the documents that we reference in this Quarterly Report completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances or otherwise.

Unless otherwise stated or the context otherwise requires, references in this Quarterly Report to the “Company,” “AerSale,” “we,” “us,” “our” and similar terms refer to AerSale Corporation (f/k/a Monocle Holdings, Inc.) and its consolidated subsidiaries.

Table of Contents

PART I – FINANCIAL INFORMATION

ITEM 1 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

AERSALE CORPORATION AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(in thousands, except share data and par value)

September 30,

December 31,

2022

2021

(Unaudited)

Current assets:

Cash and cash equivalents

$
151,378

$
130,188
Accounts receivable, net of allowance for doubtful accounts of $1,272 and $1,692 as of September 30, 2022 and December 31, 2021

39,219

42,571
Inventory:

Aircraft, airframes, engines, and parts, net

107,150

81,759
Advance vendor payments

24,384

14,287
Deposits, prepaid expenses, and other current assets

3,471

2,724
Total current assets

325,602

271,529
Fixed assets:

Aircraft and engines held for lease, net

33,118

73,364
Property and equipment, net

11,963

7,350
Inventory:

Aircraft, airframes, engines, and parts, net

80,435

77,534
Deferred income taxes

12,852

10,013
Deferred financing costs, net

659

999
Deferred customer incentives and other assets, net

628

598
Goodwill

19,860

19,860
Other intangible assets, net

24,647

26,238
Total assets

$
509,764

$
487,485

Current liabilities:


Accounts payable

$
22,050

$
19,967
Accrued expenses

7,829

8,424
Income tax payable

1,239

3,443
Lessee and customer purchase deposits

10,116

33,212
Deferred revenue

3,524

2,860
Total current liabilities

44,758

67,906

Long-term lease deposits

152

2,053
Maintenance deposit payments and other liabilities

1,624

3,403
Deferred income taxes, net

1,297

1,113
Warrant liability

6,012

4,131
Total liabilities

53,843

78,606
Commitments and contingencies


Stockholders’ equity:


Common stock, $0.0001 par value. Authorized 200,000,000 shares; issued and outstanding 51,774,665 and 51,673,099 shares as of September 30, 2022 and December 31, 2021, respectively

5

5
Additional paid-in capital

326,275

313,901
Retained earnings

129,641

94,973
Total stockholders' equity

455,921

408,879
Total liabilities and stockholders’ equity

$
509,764

$
487,485


	September 30,		December 31,
	2023		2022
	(Unaudited)

Current assets:
Cash and cash equivalents	$	3,154	$	147,188
Accounts receivable, net of allowance for credit losses of $979 and $1,074 as of September 30, 2023 and December 31, 2022		29,721		28,273
Income tax receivable		1,313		-
Inventory:
Aircraft, airframes, engines, and parts, net		200,807		117,488
Advance vendor payments		35,798		27,585
Deposits, prepaid expenses, and other current assets		15,335		13,022
Total current assets		286,128		333,556
Fixed assets:
Aircraft and engines held for lease, net		30,096		31,288
Property and equipment, net		25,092		12,638
Inventory:
Aircraft, airframes, engines, and parts, net		126,018		66,042
Operating lease right-of-use assets		28,445		31,624
Deferred income taxes		13,618		11,287
Deferred financing costs, net		1,589		544
Deferred customer incentives and other assets, net		535		628
Goodwill		19,860		19,860
Other intangible assets, net		22,521		24,112
Total assets	$	553,902	$	531,579

Current liabilities:
Accounts payable	$	38,954	$	21,131
Accrued expenses		3,919		8,843
Lessee and customer purchase deposits		6,444		17,085
Current operating lease liabilities		4,578		4,426
Current portion of long-term debt		632		-
Deferred revenue		2,393		1,355
Total current liabilities		56,920		52,840

Revolving credit facility		8,600		-
Long-term debt		7,927		-
Long-term lease deposits		152		152
Long-term operating lease liabilities		25,238		28,283
Maintenance deposit payments and other liabilities		151		668
Warrant liability		3,652		4,656
Total liabilities		102,640		86,599
Commitments and contingencies
Stockholders’ equity:
Common stock, $0.0001 par value. Authorized 200,000,000 shares; issued and outstanding 51,328,800 and 51,189,461 shares as of September 30, 2023 and December 31, 2022		5		5
Additional paid-in capital		315,254		306,141
Retained earnings		136,003		138,834
Total stockholders' equity		451,262		444,980
Total liabilities and stockholders’ equity	$	553,902	$	531,579

See accompanying notes to condensed consolidated financial statements.

Table of Contents

AERSALE CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statements of Operations

(in thousands, except share and per share data)

(Unaudited)

Three Months Ended September 30,

Nine Months Ended September 30,



2022

2021

2022

2021

Revenue:

Products

$
16,823

$
43,613

$
217,813

$
124,914

Leasing

7,786

8,002

23,342

20,624

Services

26,390

21,683

72,258

78,116

Total revenue

50,999

73,298

313,413

223,654

Cost of sales and operating expenses:

Cost of products

12,755

30,954

133,702

85,147

Cost of leasing

1,818

2,436

6,538

7,667

Cost of services

20,937

15,276

56,001

55,635

Total cost of sales

35,510

48,666

196,241

148,449

Gross profit

15,489

24,632

117,172

75,205

Selling, general, and administrative expenses

23,983

22,803

71,252

53,079

Payroll support program proceeds

-

-

-

(14,768)

(Loss) income from operations

(8,494)

1,829

45,920

36,894

Other income (expenses):

Interest income (expense), net

393

(241)

15

(750)

Other income, net

45

9

526

258

Change in fair value of warrant liability

(2,029)

(2,104)

(1,881)

(2,735)

Total other expenses

(1,591)

(2,336)

(1,340)

(3,227)

(Loss) income before income tax provision

(10,085)

(507)

44,580

33,667

Income tax benefit (expense)

1,072

(1,129)

(9,912)

(8,737)

Net (loss) income

$
(9,013)

$
(1,636)

$
34,668

$
24,930

(Loss) earnings per share - basic

$
(0.17)

$
(0.04)

$
0.67

$
0.59

(Loss) earnings per share - diluted

$
(0.17)

$
(0.04)

$
0.64

$
0.59


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Revenue:
Products	$	66,842	$	16,823	$	149,960	$	217,813
Leasing		2,488		7,786		11,396		23,342
Services		23,154		26,390		78,725		72,258
Total revenue		92,484		50,999		240,081		313,413
Cost of sales and operating expenses:
Cost of products		48,697		12,755		107,176		133,702
Cost of leasing		1,051		1,818		3,253		6,538
Cost of services		19,262		20,937		61,647		56,001
Total cost of sales		69,010		35,510		172,076		196,241
Gross profit		23,474		15,489		68,005		117,172
Selling, general, and administrative expenses		25,403		23,983		77,724		71,252
(Loss) income from operations		(1,929)		(8,494)		(9,719)		45,920
Other income (expenses):
Interest (expense) income, net		(250)		393		1,178		15
Other income, net		127		45		498		526
Change in fair value of warrant liability		(55)		(2,029)		1,004		(1,881)
Total other (expenses) income		(178)		(1,591)		2,680		(1,340)
(Loss) income before income tax provision		(2,107)		(10,085)		(7,039)		44,580
Income tax benefit (expense)		1,959		1,072		4,208		(9,912)
Net (loss) income	$	(148)	$	(9,013)	$	(2,831)	$	34,668

(Loss) earnings per share:
Basic	$	-	$	(0.17)	$	(0.06)	$	0.67
Diluted	$	-	$	(0.17)	$	(0.07)	$	0.64
Weighted average shares outstanding:
Basic		51,321,026		51,745,354		51,252,581		51,707,809
Diluted		51,321,026		51,745,354		51,430,205		54,036,402

See accompanying notes to condensed consolidated financial statements.

Table of Contents

AERSALE CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statements of Stockholders’ Equity

For the three and nine months ended September 30, ~~2022~~2023 and ~~2021~~2022

(in thousands, except share data)

(Unaudited)

Total

Common stock

Additional

Retained

stockholders’


Amount

Shares

paid-in capital

earnings

equity
Balance at December 31, 2021

$
5

51,673,099

$
313,901

$
94,973

$
408,879
Share-based compensation

-

-

3,755

-

3,755
Shares issued under the 2020 Employee Stock Purchase Plan

-

11,988

125

-

125
Shares issued under the 2020 Equity Incentive Plan

-

2,970

-

-

-
Net income

-

-

-

17,226

17,226
Balance at March 31, 2022

$
5

51,688,057

$
317,781

$
112,199

$
429,985
Share-based compensation

-

-

3,917

-

3,917
Shares issued under the 2020 Employee Stock Purchase Plan

-

18,111

220

-

220
Net income

-

-

-

26,455

26,455
Balance at June 30, 2022

$
5

51,706,168

$
321,918

$
138,654

$
460,577
Stock-based compensation

-

-

4,357

-

4,357
Restricted Stock Units ("RSUs") vested and settled

-

20,630

-

-

-
Shares issued upon exercise of warrants

-

47,867

-

-

-
Net loss

-

-

-

(9,013)

(9,013)
Balance at September 30, 2022

$
5

51,774,665

$
326,275

$
129,641

$
455,921


								Total
	Common stock			Additional		Retained		stockholders’
	Amount		Shares	paid-in capital		earnings		equity
Balance at December 31, 2022	$	5	51,189,461	$	306,141	$	138,834	$	444,980
Share-based compensation		-	-		2,731		-		2,731
Shares issued under the 2020 Equity Incentive Plan		-	31,925		-		-		-
Shares surrendered for tax withholdings on equity awards		-	-		(70)		-		(70)
Net income		-	-		-		5		5
Balance at March 31, 2023	$	5	51,221,386	$	308,802	$	138,839	$	447,646
Share-based compensation		-	-		3,028		-		3,028
Shares issued under the 2020 Employee Stock Purchase Plan		-	21,551		278		-		278
Shares issued under the 2020 Equity Incentive Plan		-	7,470		-		-		-
Net (loss)		-	-		-		(2,688)		(2,688)
Balance at June 30, 2023	$	5	51,250,407	$	312,108	$	136,151	$	448,264
Share-based compensation		-	-		3,180		-		3,180
Shares issued under the 2020 Equity Incentive Plan		-	78,393		-		-		-
Shares surrendered for tax withholdings on equity awards		-	-		(34)		-		(34)
Net (loss)		-	-		-		(148)		(148)
Balance at September 30, 2023	$	5	51,328,800	$	315,254	$	136,003	$	451,262

Total

Common stock

Additional

Retained

stockholders’


Amount

Shares

paid-in capital

earnings

equity
Balance at December 31, 2020

$
4

41,046,216

$
292,593

$
58,858

$
351,455
Issuance of Earn-Out shares

-

1,855,634

(269)

-

(269)
Shares issued upon exercise of warrants

-

47,411

545

-

545
Net income

-

-

-

10,018

10,018
Balance at March 31, 2021

$
4

42,949,261

$
292,869

$
68,876

$
361,749
Share-based compensation

-

-

150

-

150
Net Income

-

-

-

16,548

16,548
Balance at June 30, 2021

$
4

42,949,261

$
293,019

$
85,424

$
378,447
Share-based compensation

-

-

8,749

-

8,749
Net Income

-

-

-

(1,636)

(1,636)
Balance at September 30, 2021

$
4

42,949,261

$
301,768

$
83,788

$
385,560


								Total
	Common stock			Additional		Retained		stockholders’
	Amount		Shares	paid-in capital		earnings		equity
Balance at December 31, 2021	$	5	51,673,099	$	313,901	$	94,973	$	408,879
Share-based compensation		-	-		3,755		-		3,755
Shares issued under the 2020 Employee Stock Purchase Plan		-	11,988		125		-		125
Shares issued under the 2020 Equity Incentive Plan		-	2,970		-		-		-
Net income		-	-		-		17,226		17,226
Balance at March 31, 2022	$	5	51,688,057	$	317,781	$	112,199	$	429,985
Share-based compensation		-	-		3,917		-		3,917
Shares issued under the 2020 Employee Stock Purchase Plan		-	18,111		220		-		220
Net income		-	-		-		26,455		26,455
Balance at June 30, 2022	$	5	51,706,168	$	321,918	$	138,654	$	460,577
Share-based compensation		-	-		4,357		-		4,357
Restricted Stock Units ("RSUs") vested and settled		-	20,630		-		-		-
Shares issued upon exercise of warrants		-	47,867		-		-		-
Net (loss)		-	-		-		(9,013)		(9,013)
Balance at September 30, 2022	$	5	51,774,665	$	326,275	$	129,641	$	455,921

See accompanying notes to condensed consolidated financial statements.

Table of Contents

AERSALE CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(in thousands)

(Unaudited)

Nine Months Ended September 30,


2022

2021

Cash flows from operating activities:

Net income

$
34,668

$
24,930

Adjustments to reconcile net income to net cash (used in) provided by operating activities:

Depreciation and amortization

8,589

9,868

Amortization of debt issuance costs

340

366

Inventory reserve

2,010

5,033

Impairment of aircraft held for lease

857

-

Provision for doubtful accounts

(379)

(122)

Deferred income taxes

(2,655)

(988)

Change in fair value of warrant liability

1,881

2,735

Share-based compensation

12,029

8,899

Changes in operating assets and liabilities:



Accounts receivable

3,730

5,279

Inventory

(26,441)

(44,104)

Deposits, prepaid expenses, and other current assets

(747)

3,628

Deferred customer incentives and other assets

661

-

Advance vendor payments

(10,097)

(3,201)

Accounts payable

2,082

(57)

Income tax payable

(2,205)

(987)

Accrued expenses

(594)

(2,234)

Deferred revenue

664

363

Lessee and customer purchase deposits

(24,996)

16,649

Other liabilities

(1,779)

327

Net cash (used in) provided by operating activities

(2,382)

26,384

Cash flows from investing activities:





Proceeds from sale of assets

37,107

6,995

Acquisition of aircraft and engines held for lease, including capitalized cost

(6,945)

(60)

Purchase of property and equipment

(6,935)

(1,060)

Net cash provided by investing activities

23,227

5,875

Cash flows from financing activities:





Cash paid for employee taxes on withholding shares

-

(269)

Proceeds from exercise of warrants

-

545

Proceeds from the issuance of Employee Stock Purchase Plan shares

345

-

Net cash provided by financing activities

345

276

Increase in cash and cash equivalents

21,190

32,535

Cash and cash equivalents, beginning of period

130,188

29,317

Cash and cash equivalents, end of period

$
151,378

$
61,852

Supplemental disclosure of cash activities

Income taxes paid

14,637

8,095

Interest paid

856

452

Supplemental disclosure of noncash investing activities

Reclassification of aircraft and aircraft engines inventory (from) to equipment held for lease, net

(25,025)

14,650

Reclassification of customer purchase deposits to sale of assets

12,500

-


	Nine Months Ended September 30,
	2023		2022
Cash flows from operating activities:
Net (loss) income	$	(2,831)	$	34,668
Adjustments to reconcile net (loss) income to net cash (used in) operating activities:
Depreciation and amortization		7,585		8,589
Amortization of debt issuance costs		316		340
Amortization of operating lease assets		286		-
Inventory reserve		1,255		2,010
Impairment of aircraft held for lease		-		857
Provision for credit losses		-		(379)
Deferred income taxes		(2,331)		(2,655)
Change in fair value of warrant liability		(1,004)		1,881
Share-based compensation		8,939		12,029
Changes in operating assets and liabilities:
Deferred financing costs		(1,361)		-
Accounts receivable		(1,447)		3,730
Income tax receivable		(1,313)		-
Inventory		(168,313)		(26,441)
Deposits, prepaid expenses, and other current assets		(2,313)		(747)
Deferred customer incentives and other assets		93		661
Advance vendor payments		(8,212)		(10,097)
Accounts payable		17,824		2,082
Income tax payable		-		(2,205)
Accrued expenses		(5,015)		(594)
Deferred revenue		1,038		664
Lessee and customer purchase deposits		(10,641)		(24,996)
Other liabilities		(606)		(1,779)
Net cash (used in) operating activities		(168,051)		(2,382)
Cash flows from investing activities:
Proceeds from sale of assets		14,450		37,107
Acquisition of aircraft and engines held for lease, including capitalized cost		-		(6,945)
Purchase of property and equipment		(7,766)		(6,935)
Net cash provided by investing activities		6,684		23,227
Cash flows from financing activities:
Proceeds from long-term debt		8,559		-
Proceeds from Revolving Credit Facility		26,100		-
Repayments of Revolving Credit Facility		(17,500)		-
Taxes paid related to net share settlement of equity awards		(104)		-
Proceeds from the issuance of Employee Stock Purchase Plan shares		278		345
Net cash provided by financing activities		17,333		345

(Decrease) increase in cash and cash equivalents		(144,034)		21,190
Cash and cash equivalents, beginning of period		147,188		130,188
Cash and cash equivalents, end of period	$	3,154	$	151,378

Supplemental disclosure of cash activities
Income tax payments, net		1,306		14,637
Interest paid		575		856
Supplemental disclosure of noncash investing activities
Reclassification of aircraft and aircraft engines inventory to (from) aircraft and engine held for lease, net		9,312		(25,025)
Reclassification of customer purchase deposits to sale of assets		-		12,500

See accompanying notes to condensed consolidated financial statements.

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AERSALE CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

SEPTEMBER 30, ~~2022~~2023

NOTE A — DESCRIPTION OF THE BUSINESS

Organization

Monocle Acquisition Corporation (“Monocle”) was initially formed on August 20, 2018 for the purpose of effecting a merger, share exchange, asset acquisition, stock purchase, recapitalization, reorganization or similar business combination with one or more businesses.

On December 22, 2020 (the “Closing Date”), Monocle consummated athe previously announced business combination pursuant to that certain Amended and Restated Agreement and Plan of Merger, dated September 8, 2020 (the “Merger Agreement”), by and among Monocle, AerSale Corporation (f/k/a Monocle Holdings Inc.), a Delaware corporation (the “Company”), AerSale Aviation, Inc. (f/k/a AerSale Corp.), a Delaware corporation (“AerSale Aviation”), Monocle Merger Sub 1 Inc., a Delaware corporation (“Merger Sub 1”), Monocle Merger Sub 2 LLC, a Delaware limited liability company (“Merger Sub 2”), and Leonard Green & Partners, L.P., a Delaware limited partnership, solely in its capacity as the initial Holder Representative (as defined in the Merger Agreement). The transactions contemplated by the Merger Agreement are referred to herein as the “Merger” or the “Business Combination” and in connection therewith, Monocle merged with and into us, whereby ~~the Company~~we survived the ~~merger~~Merger and became the successor issuer to Monocle by operation of Rule 12g-3 under the Securities Exchange ~~Act.~~Act, as amended.

Upon the consummation of the Merger: (a) Merger Sub 1 was merged with and into Monocle, with Monocle surviving the ~~merger~~Merger as a wholly-owned direct subsidiary of the Company (the “First Merger”), and (b) Merger Sub 2 was merged with and into AerSale Aviation, with AerSale Aviation surviving the ~~merger~~Merger as a wholly-owned indirect subsidiary of the Company (the “Second Merger”). In connection with the closing of the ~~Merger~~Business Combination (the “Closing”), AerSale Aviation changed its name from “AerSale Corp.” to “AerSale Aviation, Inc.” and the Company changed its name from “Monocle Holdings Inc.” to “AerSale Corporation.” Immediately following the Merger, the Company contributed all of its ownership in Monocle to AerSale Aviation which ~~will continue~~continued as a wholly owned subsidiary of the Company.

The Company’s corporate headquarters ~~are~~is based in Miami, Florida, with additional offices, hangars, and warehouses located globally.

NOTE B — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Interim Financial Statements

The accompanying unaudited interim consolidated financial statements have been prepared from the books and records of the Company in accordance with Generally Accepted Accounting ~~Policies~~Principles in the United States (“U.S. GAAP”) for interim financial information and Rule 10-01 of Regulation S-X promulgated by the U.S. Securities and Exchange Commission ~~(“SEC”~~(the “SEC”), which permits reduced disclosures for interim periods. Although these interim consolidated financial statements do not include all of the information and footnotes required for complete annual consolidated financial statements, management believes all adjustments, consisting only of normal recurring adjustments, and disclosures necessary for a fair presentation of the accompanying condensed consolidated balance sheets, statements of operations, stockholders’ equity, and cash flows have been made. Unaudited interim results of operations and cash flows are not necessarily indicative of the results that may be expected for the full year. Unaudited interim condensed consolidated financial statements and footnotes should be read in conjunction with the audited consolidated financial statements and footnotes included in Part II, Item 8 of the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2021 (the “2021 Annual Report)~~2022(the “2022 Form 10-K”), wherein a more complete discussion of significant accounting policies and certain other information can be found.

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Revenue Recognition

Products — Used Serviceable Material (“USM”) Sales

Revenues from sales of USM are measured based on consideration specified ~~within~~in a contract with a customer, ~~contracts,~~ and excludes any sales commissions and taxes collected and remitted to government agencies. ~~The Company recognizes~~We recognize revenue when we satisfy a performance ~~obligations are satisfied~~obligation by transferring control ofover a product ~~or service~~ to a customer. The parts are sold at a fixed price with no right of return. In determining the performance obligation, management has identified the promise in the contract to be the shipment of the spare parts to the customer. Title passes to the buyer when the goods are shipped, and the buyer is responsible for any loss in transit and the Company has a legal right to payment for the spare parts once shipped. ~~The Company~~We generally ~~sells its~~sell our USM products under standard 30-day payment terms, subject to certain exceptions. Customers neither have the right to return products nor do they have the right to extended financing. The Company has determined that physical acceptance of the spare parts to be a formality in accordance with Accounting Standards Codification (“ASC”) ~~Topic~~ 606 ~~“Revenue~~– Revenue from Contracts with ~~Customers”~~Customers (“ASC 606”).

Spare parts revenue is based on a set price for a set number of parts as defined in the purchase order. The performance obligation is completed once the parts have shipped and as a result, all of the transaction price is allocated to that performance obligation. The Company has determined that it is appropriate to recognize spare parts sales at a point in time (i.e., the date the parts are shipped) in accordance with ASC 606.

Products — Whole Asset Sales

Revenues from whole asset sales are measured based on consideration specified in the contract with the customer. The Company and customer enter into an agreement which outlines the place and date of sale, purchase price, condition of the whole asset, bill of sale and the assignment of rights and warranties from the Company to the customer. The Company believes the whole asset holds standalone value to the customer as it is not dependent on any other services for functionality purposes and therefore is distinct within the context of the contract and as described in ASC 606-10. Accordingly, the Company has identified the transfer of the whole asset as the performance obligation. The transaction price is set at a fixed dollar amount per fixed quantity (number of whole assets) and is explicitly stated in each contract. Whole asset sales revenue is based on a set price for a set number of assets, which is allocated to the performance obligation discussed above, in its entirety. The Company has determined the date of transfer to the customer is the date the customer obtains control over the asset and would cause the revenue recognition. Payment is required in full upon ~~a customer’s~~customers’ acceptance of the whole asset on the date of the ~~transfer.~~transfer, unless the Company extends credit terms to customers it deems creditworthy.

Leasing Revenues

The Company leases ~~flight equipment~~aircraft and engines (“Flight Equipment”) under operating leases that contain monthly base rent and reports rental income straight line over the life of the lease as it is earned. Additionally, the Company’s leases provide for supplemental rent, which is calculated based on actual hours or cycles of utilization and, for certain components, based on the amount of time until maintenance of that component is required. In certain leases, the Company records supplemental rent paid by the lessees as maintenance deposit ~~payment~~payments and other liabilities in recognition of the Company’s contractual commitment to reimburse qualifying maintenance. Reimbursements to the lessees upon receipt of evidence of qualifying maintenance work are charged against the existing maintenance deposit payment liabilities. In leases where the Company is responsible for performing certain repairs or replacement of aircraft components or engines, supplemental rent is recorded as revenue in the period earned. In the event of premature lease termination or lessee default on the lease terms, revenue recognition will be discontinued when outstanding balances are beyond the customers’ deposits held. Flight Equipment leases are ~~held. Payment terms for leased flight equipment~~billed in accordance with the lease agreement and invoices are due upon receipt.

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Service Revenues

Service revenues are recognized as performance obligations ~~when they~~ are fulfilled and the benefits are transferred to the customer. At contract inception, ~~the Company evaluates~~we evaluate if the contract should be accounted for as a single performance obligation or if the contract contains multiple performance obligations. In some cases, ~~the Company’s~~our service contract with the customer is considered one performance obligation as it includes factors such as the good or service being provided is significantly integrated with other promises in the contract, the service provided significantly modifies or customizes the other good or service or the goods or services are highly interdependent or interrelated with each other. If the contract has more than one performance obligation, the Company determines the standalone price of each distinct good or service underlying each performance obligation and allocates the transaction price based on their relative standalone selling prices. The transaction price of a contract, which can include both fixed and variable amounts, is allocated to each performance obligation identified. Some contracts contain variable consideration, which could include incremental fees or penalty provisions related to performance. Variable consideration that can be reasonably estimated based on current assumptions and historical information is included in the transaction price at the inception of the contract but limited to the amount that is probable that a significant reversal in the amount of cumulative revenue recognized will not occur. ~~Variable consideration that cannot be reasonably estimated is recorded when known.~~

For most service contracts, our performance obligations are satisfied over time as work progresses or at a point in time based on transfer of control of products and services to our customers. ~~The Company receives~~We receive payments from our customers based on billing schedules or ~~contractual terms.~~other terms as written in our contracts.

For our performance obligations that are satisfied over time, ~~the Company measures~~we measure progress in a manner that depicts the performance of transferring control to the customer. As such, ~~the Company utilizes~~we utilize the input method of cost-to-cost to recognize revenue over time as this depicts when control of the promised goods or services are transferred to the customer. Revenue is recognized based on the relationship of actual costs incurred to date to the estimated total cost at completion of the performance obligation. ~~The Company is~~We are required to make certain judgments and estimates, including estimated revenues and costs, as well as inflation and the overall profitability of the arrangement. Key assumptions involved include future labor costs and efficiencies, overhead costs and ultimate timing of product delivery. Differences may occur between the judgments and estimates made by management and actual program results. Under most of ~~the Company’s Maintenance, Repair~~our maintenance, repair and ~~Overhaul~~overhaul (“MRO”) contracts, if the contract is terminated for convenience, ~~the Company is~~we are entitled to payment for items delivered, fair compensation for work performed, the costs of settling and paying other claims and a reasonable profit on the costs incurred or committed.

Changes in estimates and assumptions related to our arrangements accounted for using the input method based on labor hours are recorded using the cumulative catchup method of accounting. These changes are primarily adjustments to the estimated profitability for our ~~long term~~long-term programs where ~~the Company provides~~we provide MRO services.

~~The Company has~~We have elected to use certain practical expedients permitted under ASC 606. Shipping and handling fees and costs incurred associated with outbound freight after control over a product has transferred to a customer are accounted for as a fulfillment cost and are included in cost of sales in our Condensed Consolidated Statements of Operations, and are not considered a performance obligation to our customers. ~~The Company’s~~Our reported ~~sales~~revenue on our Condensed Consolidated Statements of Operations ~~are~~is net of any sales or related ~~non income~~non-income taxes. The Company also utilizes the “as invoiced” practical expedient in certain cases where performance obligations are satisfied over time and the invoiced amount corresponds directly with the value the Company is providing to the customer.

New Accounting Pronouncements ~~Not Yet~~ Adopted

On February 2016, the Financial Accounting Standards Board (“FASB”) issued “Leases (Topic 842)”, which generally requires companies to recognize operating and financing lease liabilities and corresponding right-of-use assets on the balance sheet. In July 2018, the FASB issued ASU No. 2018-10, “Codification Improvements to Topic 842, Leases,” and ASU No. 2018-11, “Leases (Topic 842): Targeted Improvements.” Topic 842 became effective for the Company for the annual period beginning on January 1, 2022, the impact of which will be reflectedThere have been no recent accounting pronouncements, changes in the fourth quarter of 2022 recorded retroactively at the beginning of the period of adoption through a cumulative-effect adjustment. We plan to elect the practical expedients, which permits us to not reassess (i) whether any expiredaccounting pronouncements, or ~~existing contracts are or contain leases,~~

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(ii) the lease classification for any expired leases and (iii) indirect costs for any existing leases. In addition, the practical expedient allows us not to separate lease and non-lease components for both lessee and lessor relationships and to not apply the recognition requirements to leases with terms of less than 12 months. Based on preliminary estimates, our adoption is expected to result in the recognition of operating lease right of use assets of approximately $13.8 million and lease liabilities of approximately $14.9 million on January 1, 2022. We are continuing our assessment, which may identify additional impacts that Topic 842 could have on our financial statements.

In June 2016, the FASB issued ASU No. 2016-13 (“ASU 2016-13”), “Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” In November 2018, the FASB issued ASU No. 2018-19, “Codification Improvements to Topic 326, Financial Instruments — Credit Losses,” which amends the scope and transition requirements of ASU 2016-13. Topic 326 requires a financial asset (or a group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected. The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions and reasonable and supportable forecasts that affect the collectability of the reported amount. Topic 326 will become effective for the Company beginning January 1, 2023, with early adoption permitted, on a modified retrospective basis. The Company is currently evaluating the impact thisrecently adopted accounting guidance ~~will have on our consolidated financial statements and related disclosures.~~

~~New Accounting Pronouncements Recently Adopted~~

On May 3, 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options. This new standard provides clarification and reduces diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options (such as warrants) that remain equity classified after modification or exchange. This standard is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Under this standard, issuers should apply the new standard prospectively to modifications or exchanges occurring after the effective date of the new standard. Early adoption is permitted, including adoption in an interim period. If an issuer elects to early adopt the new standard in an interim period, the guidance should be applied as of the beginning of the fiscal year that includes that interim period. The Company adopted the new standards as of January 1, 2022 and the adoption did not have a material impact to the Condensed Consolidated Financial Statements.

~~Payroll Support Programs~~

The Company has also taken steps to improve our liquidity, including seeking financial assistance under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). Certain of the Company’s subsidiaries have received $16.4 million from the U.S. Treasury Department (“Treasury”) through the Payroll Support Program under the CARES Act, of which $3.7 million was received and recognized as payroll support program proceeds during the nine months ended September 30, ~~2021. No amount was received~~2023 that are of significance or ~~recognized under the CARES Act during the quarter ended September 30, 2022.~~potential significance to us.

~~As part of the~~ Payroll Support Extension Law, the Company entered into an agreement with the Treasury on March 4, 2021 for the receipt of relief funds of $5.5 million. During the nine months ended September 30, 2021, we received $5.5 million in grant proceeds under the Payroll Support Extension Law. During the three- and nine- month periods ended September 30, 2021, $0.0 million and $5.5 million was recognized as payroll support program proceeds in the Condensed Consolidated Statements of Operations.

Pursuant to the American Rescue Plan Act of 2021 (“ARP”), we entered into an agreement with the Treasury on April 16, 2021 for the receipt of relief funds of an additional $5.5 million. During the three- and nine- month periods ended September 30, 2021, $0.0 million and $5.5 million was recognized as payroll support program proceeds in the Condensed Consolidated Statements of Operations.

Programs

In connection with the financial assistance the Company received under the Payroll Support Program, itthe Company was required to comply with certain provisions of the Coronavirus Aid, Relief and Economic Security Act (“CARES ~~Act,~~Act”), including the requirement that funds provided pursuant to

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the Payroll Support Program be used exclusively for the continuation of payment of employee wages, salaries and ~~benefits;~~benefits and the requirement against

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involuntary terminations and furloughs and reductions in employee pay rates and benefits from the signing date of the Payroll Support Program agreement through September 30, 2021. The agreement also required the Company to issue a recall to any employee who was terminated or furloughed between October 1, 2020 and March 4, 2021 and enable such employee to return to employment. In addition, the Company was subject to provisions prohibiting the repurchase of common stock and the payment of common stock dividends through September 30, 2022, and ~~remains~~ limited on the payment of certain ~~employee~~employees’ compensation, ~~through~~which lapsed on April 1, 2023. ~~These restrictions may affect the Company’s operations and if~~If the Company does not comply with these provisions, it may be required to reimburse up to 100% of any previously received relief funds. ~~In particular, limitations on compensation may adversely impact our ability to attract and retain senior management or attract other key employees during this critical time.~~ As of September 30, ~~2022,~~2023, we were in compliance with all applicable provisions of the CARES Act, Payroll Support Program and ~~ARP.~~American Rescue Plan Act of 2021.

NOTE C — SIGNIFICANT RISKS AND UNCERTAINTIES
Impact of Ukraine Conflict and Russia Sanctions
In February of 2022, Russia invaded Ukraine and is still engaged in an active conflict against the country. As a result, governments in the European Union, the United States, the United Kingdom, Switzerland, and other countries have enacted sanctions against Russia and Russian interests. These sanctions include controls on the export and re-export of certain goods, supplies, and technologies, supply of aircraft and aircraft components to Russian persons or for use in Russia, subject to certain wind-down periods, and the imposition of restrictions on doing business with certain state-owned Russian customers and other investments and business activities in Russia. In order to comply with these sanctions, we ceased pursuing future business in Russia and terminated ~~our~~ three leases in 2022 with operators doing business in Russia, successfully recovering two aircraft with one engine still unrecovered. Due to continued uncertainty in the ability to recover this engine from Russia or to collect insurance coverage, we ~~have fully~~ impaired this ~~asset.~~asset during the second quarter of 2022. Although the current sanctions prohibit the continuation of certain business activities, the three leases referenced were contractually scheduled to expire in 2022 and therefore ~~will~~did not have a material impact on our ~~business or 2022 financial condition.~~business. While it is difficult to predict the short or long term implications of this conflict and sanctions on the global economy and the aviation industry, we intend to fully comply with all applicable sanctions and embargoes, and do not expect the current situation will have a material adverse effect on our results of operations.

Emerging Military Conflict in Israel
On October 7, 2023, Hamas militants launched an extensive military operation into Israel’s southern border from the Gaza Strip and conducted a series of attacks, followed by an invasion of Israeli territory by land, air and sea directed at civilian and military targets. On October 8, 2023 Israel formally declared war on Hamas after their deadly attack. The intensity and duration of Israel’s current war against Hamas is difficult to predict, as are such war’s global economic impact and impact on the Company’s business and operations and on the businesses and operations of the Company’s suppliers, customers and other third parties with which the Company conducts business. Although we do not expect the current situation will have a material adverse effect on our results of operations, our supplier of most of the components in our Enhanced Flight Vision System “AerAware” and our ERP supplier are both based in Israel.

NOTE D — REVENUE
The timing of revenue recognition, customer billings and cash collections results in a contract asset or contract liability at the end of each reporting period. Contract assets consist of unbilled receivables or costs incurred where revenue recognized over time exceeds the amounts billed to customers. Contract liabilities include advance payments and billings in excess of revenue recognized. Certain customers make advance payments prior to the satisfaction of performance obligations on the contract. These amounts are recorded as contract liabilities until such performance obligations are satisfied. Contract assets and contract liabilities are determined on a ~~contract by contract~~contract-by-contract basis.
~~Contract assets are as follows (in thousands):~~


September 30, 2022

December 31, 2021

Change
Contract assets

$
7,580

$
13,221

$
(5,641)

Contract assets are reported within accounts receivable on our Condensed Consolidated Balance Sheets. Changes in contract assets primarily results from the timing difference between the performance of services. Contract liabilities are reported as deferred revenue on our Condensed Consolidated Balance Sheets and amounted to $2.9 million as of December 31, 2021, of which $2.6 million was related to contract liabilities for services to be performed. For the three and nine months ended September 30, 2022, the Company recognized as revenue $0.1 million and $2.3 million of contract liabilities included in the beginning balance for services performed as the timing between customer payments and our performance of the services is generally no longer than six months.

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Contract assets are as follows (in thousands):


September 30, 2023

December 31, 2022

Change
Contract assets

$
7,007

$
7,277

$
(270)

Contract assets are reported within deposits, prepaid expenses, and other current assets on our Condensed Consolidated Balance Sheets. Changes in contract assets primarily result from the timing difference between the performance of services. Contract liabilities are reported as deferred revenue on our Condensed Consolidated Balance Sheets and amounted to $1.4 million as of December 31, 2022, of which $1.1 million was related to contract liabilities for services to be performed. For the nine months ended September 30, 2023, the Company recognized as revenue the full amount of contract liabilities included in the beginning balance for services performed as the timing between customer payments and our performance of the services is generally no longer than six months. No such revenue was recognized for the three months ended September 30, 2023.
Disaggregation of Revenue
The Company reports revenue by segment. The following tables present revenue by segment, as well as a reconciliation to total revenue for the three and nine months ended September 30, ~~2022~~2023 and ~~2021~~2022 (in thousands):


Three Months Ended September 30,

Nine Months Ended September 30,


Three Months Ended September 30,

Nine Months Ended September 30,


2022

2022


2023

2023

Asset Management




Asset Management




Asset Management




Asset Management





Solutions

Tech Ops

Total Revenues

Solutions

TechOps

Total Revenues


Solutions

Tech Ops

Total Revenues

Solutions

TechOps

Total Revenues
USM

$
10,128

$
3,455

$
13,583

$
38,869

$
5,209

$
44,078

$
17,754

$
3,884

$
21,638

$
49,348

$
9,709

$
59,057
Whole asset sales

2,677

-

2,677

147,451

23,605

171,056

44,812

-

44,812

89,811

218

90,029
Engineered solutions

-

563

563

-

2,679

2,679

-

392

392

-

874

874
Total products

12,805

4,018

16,823

186,320

31,493

217,813

62,566

4,276

66,842

139,159

10,801

149,960
Leasing

7,786

-

7,786

23,342

-

23,342

2,488

-

2,488

11,396

-

11,396
Services

-

26,390

26,390

-

72,258

72,258

-

23,154

23,154

-

78,725

78,725
Total revenues

$
20,591

$
30,408

$
50,999

$
209,662

$
103,751

$
313,413

$
65,054

$
27,430

$
92,484

$
150,555

$
89,526

$
240,081


Three Months Ended September 30,

Nine Months Ended September 30,


Three Months Ended September 30,

Nine Months Ended September 30,


2021

2021


2022

2022

Asset Management

Asset Management

Asset Management

Asset Management


Solutions

Tech Ops

Total Revenues

Solutions

TechOps

Total Revenues


Solutions

Tech Ops

Total Revenues

Solutions

TechOps

Total Revenues
USM

$
13,466

$
1,315

$
14,781

$
33,935

$
3,574

$
37,509

$
10,128

$
3,455

$
13,583

$
38,869

$
5,209

$
44,078
Whole asset sales

27,408

-

27,408

83,868

-

83,868

2,677

-

2,677

147,451

23,605

171,056
Engineered solutions

-

1,424

1,424

-

3,537

3,537

-

563

563

-

2,679

2,679
Total products

40,874

2,739

43,613

117,803

7,111

124,914

12,805

4,018

16,823

186,320

31,493

217,813
Leasing

8,002

-

8,002

20,624

-

20,624

7,786

-

7,786

23,342

-

23,342
Services

-

21,683

21,683

-

78,116

78,116

-

26,390

26,390

-

72,258

72,258
Total revenues

$
48,876

$
24,422

$
73,298

$
138,427

$
85,227

$
223,654

$
20,591

$
30,408

$
50,999

$
209,662

$
103,751

$
313,413

NOTE E — INVENTORY
Following are the major classes of inventory as of the below dates (in thousands):


September 30, 2022

December 31, 2021

September 30, 2023

December 31, 2022
Used serviceable materials

$
73,551

$
65,496

$
91,680

$
73,827
Work-in-process

21,145

12,462

20,113

16,659
Whole assets

92,889

81,335

215,032

93,044

$
187,585

159,293

$
326,825

183,530
Less short term

(107,150)

(81,759)

(200,807)

(117,488)
Long term

$
80,435

$
77,534

$
126,018

$
66,042

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The Company recorded inventory scrap loss reserves of $0.5 million and $1.3 million for the three and nine months ended September 30, 2023, respectively.

The Company did not record an inventory reserve for the three and nine months ended September 30, ~~2022~~2023, and ~~2021, respectively, and~~ recorded an inventory reserve ~~of $1.8 million and $4.8~~$1.8 million for the nine months ended September 30, 2022, ~~and 2021, respectively,~~ due to the Company’s evaluation of the inventory’s net realizable value. ~~These amounts~~Additions to inventory reserves are included in cost of products in the accompanying Condensed Consolidated Statements of Operations.

NOTE F — INTANGIBLE ASSETS
In accordance with ASC 350, Intangibles — Goodwill and Other (“ASC 350”), goodwill and other intangible assets deemed to have indefinite lives are not amortized, but are subject to annual impairment tests. The Company reviews and evaluates our goodwill and indefinite life intangible assets for potential impairment at a minimum annually or more frequently if circumstances indicate that impairment is possible.

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The Company determined the fair value of assets acquired and liabilities assumed using a variety of methods. An income approach based on discounted cash flows was used to determine the values of our trademarks, certifications, customer relationships and ~~FAA~~Federal Aviation Administration (“FAA”) certificates. The assumptions the Company used to estimate the fair value of our reporting units are based on historical performance, as well as forecasts used in our current business plan and require considerable management judgment.
The Company’s goodwill and intangible assets as defined by ASC 350 is related to our subsidiaries, AerSale Component Solutions (d/b/a AerSale Landing Gear Solutions) (“ALGS”), Avborne Component Solutions (d/b/a AerSale Component Solutions) (“ACS”), and Aircraft Composite Technologies (“ACT”), which are included in the TechOps segment, as well as Qwest, which is included under the Asset Management Solutions segment.
Goodwill and other intangibles as of the below dates are (in thousands):


September 30, 2022

December 31, 2021

September 30, 2023

December 31, 2022
Qwest:

FAA Certifications

$
724

$
724

$
724

$
724
Goodwill

13,416

13,416

13,416

13,416
ALGS:








FAA Certifications

710

710

710

710
Goodwill

379

379

379

379
ACS:








Trademarks

600

600

600

600
FAA Certifications

7,300

7,300

7,300

7,300
Goodwill

63

63

63

63
ACT:

Trademarks

200

200

200

200
FAA Certificates

796

796

796

796
Goodwill

6,002

6,002

6,002

6,002
Total intangible assets with indefinite lives

$
30,190

$
30,190

$
30,190

$
30,190

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The Company performed its annual quantitative impairment analysis on the indefinite lived intangible assets as of July 1, 2023 and 2022 and concluded there was no impairment.
Intangible assets with definite useful lives are amortized on a straight-line basis over their estimated useful lives. Intangible assets with definite lives as of the below dates are as follows (in thousands):


Useful Life





Useful Life




In Years

September 30, 2022

December 31, 2021

In Years

September 30, 2023

December 31, 2022
Qwest:

Customer relationships

10

$
6,381

$
7,109

10

$
5,408

$
6,136
ALGS:





Customer relationships

10

55

70

10

35

50
ACS:












Customer relationships

10

1,295

1,453

10

1,085

1,243
ACT:





Customer relationships

10

6,586

7,276

10

5,663

6,353
Total intangible assets with definite lives

$
14,317

$
15,908

$
12,191

$
13,782

Total amortization expense amounted to $0.5 million ~~and $0.5 million~~ for the three months ended September 30, ~~2022~~2023 and ~~2021, respectively.~~2022. Total amortization expense amounted to ~~$1.6 million and~~ $1.6 million for the nine months ended September 30, ~~2022~~2023 and ~~2021, respectively.~~2022. Accumulated amortization amounted to ~~$6.7~~$8.8 million and ~~$5.1~~$7.2 million as of September 30, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively.

~~Table of Contents~~

Other intangible assets are reviewed at least annually or more frequently if any event or change in circumstance indicates that an impairment may have occurred.

NOTE G — PROPERTY AND EQUIPMENT, NET
Property and equipment, net, as of the below dates consisted of the following (in thousands):


Useful Life





Useful Life




In Years

September 30, 2022

December 31, 2021

In Years

September 30, 2023

December 31, 2022
Tooling and equipment

7 - 15

$
14,445

$
13,530

7 - 15

$
15,791

$
14,649
Furniture and other equipment

5

9,740

7,928

5

12,030

10,090
Computer software

5

2,152

1,998

5

2,244

2,152
Leasehold improvements

3 - 6

6,680

3,632

3 - 10

13,085

7,390
Equipment under capital lease

5

192

192

5

192

192
Flight equipment held for R&D

2

7,784

-

33,209

27,280

51,126

34,473
Less accumulated depreciation

(21,246)

(19,930)

(26,034)

(21,835)

$
11,963

$
7,350

$
25,092

$
12,638

Depreciation expense, which includes amortization of equipment under capital lease, amounted to ~~$0.6~~$0.9 million and ~~$0.5~~$0.6 million for the three months ended September 30, ~~2022~~2023 and ~~2021,~~2022, respectively. Depreciation expense, which includes amortization of equipment under capital lease, amounted to ~~$1.6~~$2.7 million and ~~$1.5~~$1.6 million for the nine months ended September 30, ~~2022~~2023 and ~~2021,~~2022, respectively.

Table of Contents

NOTE H — LEASE RENTAL REVENUES AND AIRCRAFT AND ENGINES HELD FOR LEASE
Aircraft and engines held for ~~operating leases,~~lease, net, as of the below dates consisted of the following (in thousands):


September 30, 2022

December 31, 2021

September 30, 2023

December 31, 2022
Aircraft and engines held for operating leases

$
100,650

$
197,397
Aircraft and engines held for lease

$
64,430

$
83,902
Less accumulated depreciation

(67,532)

(124,033)

(34,334)

(52,614)

$
33,118

$
73,364

$
30,096

$
31,288

Total depreciation expense amounted to ~~$1.7~~$1.1 million and ~~$2.1~~$1.7 million for the three months ended September 30, ~~2022~~2023 and ~~2021,~~2022, respectively. Total depreciation expense amounted to ~~$5.4~~$3.3 million and ~~$6.8~~$5.4 million for the nine months ended September 30, ~~2022~~2023 and ~~2021,~~2022, respectively, and is included in cost of leasing in the Condensed Consolidated Statements of Operations.
The Company did not record any impairment of Flight Equipment for the three and nine months ended September 30, 2023. The Company recorded an impairment of Flight Equipment in the amount of $0.9 million for the nine months ended September 30, 2022, which is included in cost of leasing in the Condensed Consolidated Statements of Operations.
Supplemental rents recognized as revenue totaled ~~$3.6~~$0.9 million and ~~$2.3~~$3.6 million for the three months ended September 30, ~~2022~~2023 and ~~2021,~~2022, respectively. Supplemental rents recognized as revenue totaled ~~$10.1~~$5.4 million and ~~$5.2~~$10.1 million for the nine months ended September 30, ~~2022~~2023 and ~~2021,~~2022, respectively.
The Company’s current operating lease agreements for leased ~~flight equipment~~Flight Equipment expire over the next two years. The amounts in the following table are based upon the assumption that ~~flight equipment~~Flight Equipment under operating leases will remain

~~Table of Contents~~

leased for the length of time specified by the respective lease agreements. Minimum future annual lease rentals contracted to be received under existing operating leases of ~~flight equipment~~Flight Equipment were as follows (in thousands):

Year ending December 31:




Remainder of 2022

$
3,976
2023

4,867
Remainder of 2023

$
1,256
2024

132

1,010
Total minimum lease payments

$
8,975

$
2,266

NOTE I — ACCRUED EXPENSES
The following is a summary of the components of accrued expenses as of the below dates (in thousands):


September 30, 2022

December 31, 2021

September 30, 2023

December 31, 2022
Accrued compensation and related benefits

$
5,050

$
6,294

$
1,055

$
6,040
Accrued legal fees

680

377

686

716
Commission fee accrual

211

115

169

251
Accrued federal, state and local taxes and fees

183

243

188

142
Other

1,705

1,395

1,821

1,694

$
7,829

$
8,424

$
3,919

$
8,843

NOTE J – WARRANT LIABILITY

Warrants to purchase a total of 623,834 ~~and 835,014~~ shares of the Company’s common stock were outstanding as of September 30, ~~2022~~2023 and December 31, ~~2021.~~2022. 750,000 warrants were issued to founders in a private placement (the “Private Warrants”). Each of the Private Warrants entitles the registered holder to purchase one share of the Company’s common stock at a price of $11.50 per ~~share. In the three months ended September 30,~~share, subject to adjustment. During 2022, a private warrant holder initiated a cashless exercise of 126,166 warrants for the purchase of shares of common stock at an exercise price of $11.50 per share (remaining term on exercised warrants at September 30, ~~2022~~2023 was ~~3.2~~2.2 years) and we issued 47,867 shares of common

Table of Contents

stock based on the fair value at the date of exercise of $18.5306 per share. The remaining Private Warrants will expire at 5:00 p.m., New York City time, on ~~the fifth anniversary of the completion of the Merger,~~December 22, 2025, or earlier upon redemption or liquidation.
The Private Warrants include provisions that affect the settlement amount. Such variables are outside of those used to determine the fair value of a fixed-for-fixed instrument, and as such, the ~~warrants~~Private Warrants do not meet the criteria for equity treatment under guidance contained in ASC Topic 815, “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in a Company’s Own Stock.” The Company classifies the Private Warrants as a liability at their fair value subject to re-measurement at each balance sheet date and adjusted at each reporting period until exercised or expired, and any change in fair value is recognized in the Company's Condensed Consolidated ~~Statement~~Statements of Operations. The fair value of the Private Warrants ~~as of September 30, 2021 was~~is determined using the market price of the Company’s public warrants adjusted for their lack of liquidity. Effective December 29, 2021 all public warrants were redeemed on a cashless basis and ceased trading on Nasdaq. As a result, the Black-Scholes option pricing ~~model was adopted.~~model. The following table represents the assumptions ~~for the Black-Scholes option-pricing model~~ used in determining the fair value of the Private Warrants as of September 30, ~~2022:~~2023:

September 30, ~~2022~~2023
Risk-free interest rate

~~3.98%~~4.60%
Expected volatility of common stock

~~42.37%~~41.48%
Dividend yield

-
Expected option term in years

~~3.2~~2.2

~~Table of Contents~~

The significant assumptions utilized in the Black-Scholes calculation consist of interest rate for U.S. Treasury Bonds, as published by the U.S. Federal Reserve, and expected volatility estimated using historical daily volatility of guideline public companies.

The warrant liability adjustment recognized in the Company's Condensed Consolidated Statements of Operations related to the change in fair value of warrant liability was $0.1 million expense and $1.0 million income during the three and nine months ended September 30, 2023, respectively. The warrant liability expense recognized in the Company's Condensed Consolidated Statement of Operations related to the change in fair value of warrant liability was $2.0 million and $1.9 million during the three and nine months ended September 30, 2022, respectively. The expense recognized in the Company's Condensed Consolidated Statement of Operations related to the change in fair value of warrant liability was $2.1 million and $2.7 million during the three and nine months ended September 30, 2021, respectively.

NOTE K — EARNINGS PER SHARE

The computation of basic and diluted earnings per share (“EPS”) is based on the weighted average number of common shares outstanding during each period.

Table of Contents

~~NOTE K — EARNINGS PER SHARE~~
~~The computation of basic and diluted earnings per share (“EPS”) is based on the weighted average number of common shares outstanding during each period.~~
The following table provides a reconciliation of the computation for basic and diluted earnings per share for the three and nine months ended September 30, ~~2022~~2023 and ~~2021,~~2022, respectively (in thousands, except share and per share data):


Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended September 30,

Nine Months Ended September 30,

2022

2021

2022

2021

2023

2022

2023

2022
Net (loss) income

$
(9,013)

$
(1,636)

$
34,668

$
24,930

$
(148)

$
(9,013)

$
(2,831)

$
34,668
Net (loss) income for EPS - diluted

$
(9,013)

$
(1,636)

$
34,668

$
24,930
Change in fair value of warrant liability

-

-

(1,004)

-
Net (loss) income for EPS - Diluted

$
(148)

$
(9,013)

$
(3,835)

$
34,668

Weighted-average number of shares outstanding - basic

51,745,354

42,599,261

51,707,809

42,358,069

51,321,026

51,745,354

51,252,581

51,707,809
Additional shares from assumed stock-settled restricted stock units

-

-

2,326,858

24,299

-

-

-

2,326,858
Additional shares from assumed exercise of public warrants

-

-

180

-
Additional shares purchasable for employee stock purchase plan

-

-

1,555

7,875
Additional shares from assumed exercise of warrants

-

-

177,624

180
Additional shares issued under the employee stock purchase plan

-

-

-

1,555
Weighted-average number of shares outstanding - diluted

51,745,354

42,599,261

54,036,402

42,390,243

51,321,026

51,745,354

51,430,205

54,036,402

(Loss) earnings per share – basic:

$
(0.17)

$
(0.04)

$
0.67

$
0.59

$
-

$
(0.17)

$
(0.06)

$
0.67
(Loss) earnings per share – diluted:

$
(0.17)

$
(0.04)

$
0.64

$
0.59

$
-

$
(0.17)

$
(0.07)

$
0.64

Anti-dilutive shares/units excluded from (loss) earnings per share - diluted:

Anti-dilutive shares/units excluded from earnings per share - diluted:

Additional shares from assumed exercise of warrants

188,150

1,063,357

179,695

1,666,400

126,154

188,150

-

179,695
Additional shares from assumed stock-settled restricted stock units

2,415,638

21,501

-

-

2,007,217

2,415,638

1,869,782

-
Additional shares purchasable for employee stock purchase plan

4,626

5,257

-

-

6,542

4,626

1,043

-

NOTE L — BUSINESS SEGMENTS
Consistent with how our chief operating decision maker (Chairman and Chief Executive Officer) evaluates performance and utilizes gross profit as a profitability measure, the Company reports its activities in two business segments:
● Asset Management Solutions — comprised of activities to extract value from strategic asset acquisitions through leasing, trading, or disassembling for product sales.
● TechOps — comprised of MRO ~~activities;~~activities and product sales of internally developed engineered solutions and other serviceable products.
The Asset Management Solutions segment activities include monetization of assets through the lease or sale of whole assets, or through disassembly activities in support of our USM-related activities. Our monetizing services have been developed to maximize returns on mid-life Flight Equipment throughout their operating life, in conjunction with realizing the highest residual value of Flight Equipment at its retirement.

~~Table of Contents~~

The TechOps segment consists of aftermarket support and services businesses that provide maintenance support for aircraft and aircraft components, and sale of engineered solutions. Our MRO business also engages in longer term projects such as aircraft modifications, cargo conversions of wide-body aircraft, and aircraft storage. The segment also includes MRO of landing gear, thrust reversers, and other components. Cost of sales consists principally of the cost of product, direct labor, and overhead. Our engineered solutions ~~revenues consist~~revenue consists of sales of products internally developed as permitted by Supplemental Type Certificates issued by the FAA. These products are proprietary in nature and function as non-original equipment manufacturer solutions to airworthiness directives and other technical challenges for operators. In order to develop these products, the Company engages in research and development activities, which are expensed as incurred. The TechOps segment also engages in the repair and sale of used serviceable material inventory for which it has the overhaul capabilities and relationships to sell.

1514

Table of Contents

as permitted by Supplemental Type Certificates issued by the FAA. These products are proprietary in nature and function as non-original equipment manufacturer solutions to airworthiness directives and other technical challenges for operators. In order to develop these products, the Company engages in research and development (“R&D”) activities, which are expensed as incurred. The TechOps segment also engages in the repair and sale of USM inventory for which it has the overhaul capabilities and relationships to sell.
Gross profit is calculated by subtracting cost of sales from ~~sales.~~revenue. The assets and certain expenses related to corporate activities are not allocated to the segments. Our reportable segments are aligned principally around the differences in products and services. The segment reporting excludes the allocation of selling, general and administrative expenses, interest ~~expense~~income (expense) and income tax expense.
Selected financial information for each segment for the three and nine months ended September 30, ~~2022~~2023 and ~~2021~~2022 is as follows (in thousands):

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended September 30,

Nine Months Ended September 30,

2022

2021

2022

2021


2023

2022

2023

2022
Revenues

Revenue

Asset Management Solutions

Aircraft

$
6,503

$
15,204

$
78,343

$
49,925

$
20,888

$
6,503

$
57,836

$
78,343
Engine

14,088

33,672

131,319

88,502

44,166

14,088

92,719

131,319

20,591

48,876

209,662

138,427

65,054

20,591

150,555

209,662
TechOps

MRO services

26,390

21,683

72,258

78,116

23,154

26,390

78,725

72,258
Product sales

4,018

2,739

7,888

7,111

4,276

4,018

10,583

7,888
Whole asset sales

-

-

23,605

-

-

-

218

23,605

30,408

24,422

103,751

85,227

27,430

30,408

89,526

103,751
Total

$
50,999

$
73,298

$
313,413

$
223,654

$
92,484

$
50,999

$
240,081

$
313,413

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended September 30,

Nine Months Ended September 30,

2022

2021

2022

2021

2023

2022

2023

2022
Gross profit

Asset Management Solutions

Aircraft

$
2,480

$
6,729

$
29,779

$
16,370

$
6,656

$
2,480

$
16,871

$
29,779
Engine

6,210

10,084

60,439

33,129

11,881

6,210

31,080

60,439

8,690

16,813

90,218

49,499

18,537

8,690

47,951

90,218
TechOps

MRO services

5,453

6,407

16,257

22,481

3,892

5,453

17,078

16,257
Product sales

1,346

1,412

3,174

3,225

1,045

1,346

2,600

3,174
Whole asset sales

-

-

7,523

-

-

-

376

7,523

6,799

7,819

26,954

25,706

4,937

6,799

20,054

26,954
Total

$
15,489

$
24,632

$
117,172

$
75,205

$
23,474

$
15,489

$
68,005

$
117,172

September 30, 2023

December 31, 2022

September 30, 2022

December 31, 2021

Total Assets

Total assets

Asset Management Solutions

$
369,040

$
370,378

$
382,624

$
233,034
Tech Ops

131,352

112,742

156,672

141,406
Corporate

9,372

4,365

14,606

157,139

$
509,764

$
487,485

$
553,902

$
531,579

1615

Table of Contents

The following table reconciles segment gross profit to (loss) income before income tax provision for the three and nine months ended September 30, ~~2022~~2023 and ~~2021~~2022 (in thousands):


Three Months Ended September 30,

Nine Months Ended September 30,


Three Months Ended September 30,

Nine Months Ended September 30,

2022

2021

2022

2021


2023

2022

2023

2022
Segment gross profit

$
15,489

$
24,632

$
117,172

$
75,205

$
23,474

$
15,489

$
68,005

$
117,172
Selling, general and administrative expenses

(23,983)

(22,803)

(71,252)

(53,079)

(25,403)

(23,983)

(77,724)

(71,252)
Payroll support program proceeds

-

-

-

14,768

Interest expense, net

393

(241)

15

(750)

Interest (expense) income, net

(250)

393

1,178

15
Other income, net

45

9

526

258

127

45

498

526
Change in fair value of warrant liability

(2,029)

(2,104)

(1,881)

(2,735)

(55)

(2,029)

1,004

(1,881)
(Loss) income before income tax provision

$
(10,085)

$
(507)

$
44,580

$
33,667

$
(2,107)

$
(10,085)

$
(7,039)

$
44,580

Intersegment sales include amounts invoiced by a segment for work performed for another segment. Amounts are based on actual work performed or products sold and agreed-upon pricing which is intended to be reflective of the arm’s length value of the contribution made by the supplying business segment. All intersegment transactions have been eliminated upon consolidation. Intersegment revenue for the three and nine months ended September 30, ~~2022~~2023 and ~~2021,~~2022, is as follows (in thousands):


Three Months Ended September 30,

Nine Months Ended September 30,


Three Months Ended September 30,

Nine Months Ended September 30,

2022

2021

2022

2021


2023

2022

2023

2022
Asset Management Solutions

$
1,705

$
959

$
4,886

$
2,942

$
168

$
1,705

$
1,241

$
4,886
TechOps

3,168

6,015

15,771

14,747

3,761

3,168

13,952

15,771
Total intersegment revenues

$
4,873

$
6,974

$
20,657

$
17,689

$
3,929

$
4,873

$
15,193

$
20,657

NOTE M— ~~COMMITMENTS AND CONTINGENCIES~~FINANCING ARRANGEMENTS
~~Litigation~~$180.0 million Wells Fargo Senior Secured Revolving Credit Facility
On July 20, 2018, the Company and other subsidiary borrowers signatory thereto entered into a secured amended and restated revolving credit agreement (as amended, the “Revolving Credit Agreement”), which provides for a $150.0 million aggregate amount of revolver commitments subject to borrowing base limitations. Effective July 25, 2023, the Company amended the Revolving Credit Agreement to increase the maximum commitments thereunder to $180.0 million aggregate amount, expandable to $200.0 million, subject to borrowing base limitations, and to extend the maturity date to July 24, 2028.
The interest rate applicable to loans outstanding under the Revolving Credit Agreement is a floating rate of interest per annum of Secured Overnight Financing Rate (“SOFR”) plus a margin of 2.75%. The applicable interest rate as of September 30, 2023 was 9.75%.
The Company’s ability to borrow under the Revolving Credit Agreement is subject to ongoing compliance by the Company ~~may be involved in litigation incidental~~and the borrowers with various customary affirmative and negative covenants. The Revolving Credit Agreement requires the Company and borrowers to ~~the operation of the business.~~meet certain financial and nonfinancial covenants. The Company ~~intends to vigorously defend all matters~~was in ~~which~~compliance with these covenants as of September 30, 2023.
During the three and nine months ended September 30, 2023, the Company ~~is named as defendant~~borrowed $26.1 million, and ~~for insurable losses, maintain significant levels~~made repayments of ~~insurance to protect against adverse judgments, claims or assessments that may affect~~$17.5 million under the ~~Company. Although~~Revolving Credit Agreement. As of September 30, 2023, the ~~adequacy~~balance outstanding under this facility was $8.6 million, and the Company had $149.0 million of ~~existing insurance coverage of the outcome of any legal proceedings cannot be predicted with certainty, based~~availability.
Interest expense on the ~~current information available,~~Revolving Credit Agreement for the Company does not believe the ultimate liability associated with known claims or litigation, if any, in which the Company is involved will materially affect the Company’s condensed consolidated financial condition or results of operations.three and nine months ended September 30, 2023 was $0.1 million.
~~Lease Commitments~~
~~The Company leases office space, warehouses, hangars and equipment in connection with its operations under various operating leases, many of which contain escalation clauses.~~

1716

Table of Contents

~~Future minimum lease payments under non-cancelable operating leases (with initial lease terms in excess~~$10.0 million Synovus Property and Equipment Revolving Term Loan
On June 30, 2023, the Company entered into a Property and Equipment Revolving Term Loan (“Equipment Loan”) with a total advance commitment of ~~one year) are (in thousands):~~

Operating

Leases
Year ending December 31:

Remainder of 2022

$
1,270
2023

6,350
2024

5,976
2025

5,071
2026

4,873
Thereafter

19,526
Total minimum lease payments

$
43,066

~~Expenses incurred under the operating lease agreements was $2.9 million and $1.4~~$10.0 million for the ~~three months ended~~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.
The Equipment Loan bears interest at a rate per annum equal to one-month SOFR + 3.50%, which will be adjusted monthly. The effective rate on this facility as of September 30, ~~2022~~2023 was 8.83%.
The Equipment Loan is subject to ongoing compliance by the Company in the form of various customary affirmative and ~~2021, respectively. Expenses incurred under the operating lease agreements were $4.3 million and $4.6 million for~~negative covenants, as well as certain financial covenants. The Company was in compliance with these covenants as of September 30, 2023.
During the nine months ended September 30, ~~2022~~2023 the Company borrowed $8.6 million under this facility, which remained outstanding as of September 30, 2023.
Interest expense on the Equipment Loan for the three and ~~2021, respectively. Operating lease expense~~nine months ended September 30, 2023 was 0.2 million.
The schedule of payments on the Equipment Loan as of September 30, 2023 is ~~recognized on a straight-line basis over the term of the lease, including any option periods,~~ as ~~appropriate. The same lease term is used for lease classification, the amortization period of related leasehold improvements, and the estimation of future lease commitments.~~follows (in thousand):

Year ending December 31:

2023
$
-
2024

1,278
2025

2,727
2026

2,971
2027

1,583
Total payments
$
8,559

NOTE N — STOCKHOLDERS’ EQUITY

Common Stock
The Company’s common stock, $0.0001 par value, consists of 200,000,000 authorized shares, of which ~~51,774,665~~51,328,800 and ~~51,673,099~~51,189,461 shares were issued and outstanding as of September 30, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively.
~~Earn-Out Shares~~
Upon consummation of the Merger and in each case on or prior to the fifth anniversary of the Closing, the pre-closing holders of AerSale Aviation’s common stock and the holders of in-the-money SARs (as defined in the Merger Agreement) received a contingent right to receive up to 3,000,000 additional shares of the Company’s common stock. Additionally, certain pre-closing holders of AerSale Aviation’s common stock received a contingent right to receive 746,876 shares of the Company’s common stock. Effective February 8, 2021, the contingent event related to the Minimum Target Earn-Out Shares (as defined by the Merger Agreement) was met and 1,855,634 shares were issued. Effective October 22, 2021, the contingent event related to the Maximum Target Earn-Out Shares was met and 1,854,169 shares were issued. The remaining shares pursuant to the contingent rights were withheld to cover employee taxes.
The Company determined the Earn-Out Shares (as defined by the Merger Agreement) to be classified as equity under ASC Topic 815, “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in a Company’s Own Stock” as the contingent right is indexed to the Company’s stock and accordingly, the accrual of the Earn-Out Shares had no impact on the Company’s condensed consolidated financial statements for the three and nine month periods ended September 30, 2021. There are no Earn-Out Shares contingent as of September 30, 2022 and December 31, 2021.

~~Table of Contents~~

~~Unvested Founder Shares~~
Upon the consummation of the Merger, certain pre-closing holders of AerSale Corporation’s common stock agreed to defer the vesting of an aggregate of 700,000 shares (the “Unvested Founder Shares”), half of which was to vest at such time as the Minimum Target (as defined in the Merger Agreement) and the other half of which was to vest at the Maximum Target (as defined in the Merger Agreement). The Unvested Founder Shares would also vest upon the occurrence of a Liquidity Event (as defined by the Merger Agreement) on or prior to the fifth anniversary of the date of the Amended and Restated Founder Shares Agreement, solely to the extent the Liquidity Event Consideration (as defined in the Merger Agreement) would be greater than $13.50, in which case half of the Unvested Founder Shares which would vest, or $15.00, in which case the other half of the Unvested Founder Shares would also vest. Pursuant to the Amended and Restated Founder Shares Agreement, the holders of the Unvested Founder Shares retained the right to vote such Unvested Founder Shares prior to vesting. Unvested Founder Shares that did not vest on or prior to the fifth anniversary of the Closing Date would be forfeited.

Effective February 8, 2021, the contingency event related to the Minimum Target was met and half of the Unvested Founder Shares vested. Effective October 22, 2021, the contingent event related to the Maximum Target was met and the other half of the Unvested Founder Shares vested. There are no Unvested Founder Shares as of September 30, 2022 and December 31, 2021.

2020 Equity Incentive Plan
The Company maintains a 2020 Equity Incentive Plan (the “2020 Plan”) and has registered ~~4,200,000~~6,200,000 shares of common stock issuable under the 2020 Plan. The 2020 Plan authorizes discretionary grants of incentive stock options to employees of the Company and its qualifying subsidiaries. The 2020 Plan also authorizes discretionary grants of non-qualified stock options, stock appreciation rights, restricted stock, restricted stock units, dividend equivalents or other equity or cash-based awards to employees and consultants of the Company and its subsidiaries and to members of the Board of Directors of the Company. To the extent that an award under the 2020 Plan expires, is cancelled, forfeited, terminated, settled in cash or is otherwise settled without issuance of the full number of shares to which it relates, will become or again be available for awards under the 2020 Plan. The 2020 Plan is administered by the Company's Compensation Committee. The Compensation Committee has complete, full and final authority to: designate participants; determine the types of awards to be granted; determine the terms of awards; interpret and administer the 2020 Plan and any agreements and awards thereunder.

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Restricted stock unit activity under the 2020 Plan for the nine months ended September 30, ~~2022~~2023 and ~~2021~~2022 was as follows:

Weighted Average

Weighted Average

Weighted Average

Remaining Contractual

Weighted Average

Remaining Contractual


Amount

Grant Date Fair Value

Life (Years)

Amount

Grant Date Fair Value

Life (Years)
Outstanding at December 31, 2021

1,669,300

$
10.10

$
2.02
Outstanding at December 31, 2022

1,374,383

$
10.72

$
2.88
Granted

278,473

14.80

2.49

359,036

15.01

2.30
Forfeited

(11,048)

13.39

2.20

(33,526)

14.86

2.10
Vested

(23,643)

12.24

-

(121,737)

14.28

-
Outstanding September 30, 2022

1,913,082

$
10.74

$
2.11
Outstanding September 30, 2023

1,578,156

$
11.34

$
2.99

Weighted Average

Weighted Average

Weighted Average

Remaining Contractual

Weighted Average

Remaining Contractual


Amount

Grant Date Fair Value

Life (Years)

Amount

Grant Date Fair Value

Life (Years)
Outstanding at December 31, 2020

-

$
-

$
-
Outstanding at December 31, 2021

1,669,300

$
10.10

$
2.02
Granted

1,702,280

10.10

2.24

278,473

14.80

2.49
Forfeited

(2,210)

12.46

2.40

(11,048)

13.39

2.20
Outstanding September 30, 2021

1,700,070

$
10.10

$
2.24
Vested

(23,643)

12.24

-
Outstanding September 30, 2022

1,913,082

$
10.74

$
2.11

~~Table of Contents~~

The Company’s restricted stock units include ~~1,595,000~~1,073,736 performance-based awards that have vesting provisions subject to both time vesting and the achievement of certain performance ~~restricted stock units (“~~milestones at 100% and 200% vesting targets. Effective March 31, 2022, the performance-based awards granted in 2021 (the “2021 PSUs”) ~~that~~met the performance ~~vested~~metric at the ~~200% milestone as of March 31, 2022. This is the highest~~maximum level of ~~performance condition to be achieved and results in total shares to be issued of 3,190,000, subject to a time vesting schedule of~~200% with one-third vested on December 22, 2022 and two-thirds vesting on December 22, 2023. For the three and nine months ended September 30, 2023, the Company recognized share-based compensation expense for the 2021 PSUs of $2.0 million and $6.0 million, respectively, given the achievement of the 200% performance milestone. For the three and nine months ended September 30, 2022, the Company recognized share-based compensation expense for the 2021 PSUs of $3.6 million and $10.6 million, respectively, given the achievement of the 200% performance milestone. For the three and nine months ended September 30, 2021, the Company recognized share-based compensation expense for the 2021 PSUs of $8.5 million.respectively.

For the restricted stock unit awards granted under the 2020 Plan containing both service and performance conditions, the Company recognizes compensation expense when the awards are considered probable of vesting. Restricted stock units are considered granted, and the service inception date begins, when a mutual understanding of the key terms and conditions between the Company and the employee have been established. The fair value of these awards is determined based on the closing price of the shares on the grant date. The probability of restricted share awards granted with future performance conditions is evaluated at each reporting period and compensation expense is adjusted based on the probability assessment.

2020 Employee Stock Purchase Plan

The Company also maintains athe Aersale Corporation 2020 Employee Stock Purchase Plan (the “ESPP”) and has registered 500,000 shares of common stock issuable under the ESPP. During the nine-months ended September 30, 2023 and 2022, the Company issued 21,551 and 30,099 shares, respectively, pursuant to the ESPP. ~~No shares were issued during the nine-month period ended September 30, 2021.~~

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ITEM 2 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis provides information that our management believes is relevant to an assessment and understanding of our condensed consolidated results of operations and financial condition. You should read the following management’s discussion and analysis together with the financial statements and related notes including Part II, Item 7 of AerSale’s Annual Report on Form 10-K for the year ended December 31, ~~2021~~2022 (the ~~“2021~~“2022 Form 10-K”). This discussion contains forward-looking statements about AerSale’s business, operations and industry that involve risks and uncertainties, such as statements regarding AerSale’s plans, objectives, expectations and intentions. AerSale’s future results and financial condition may differ materially from those currently anticipated because of the factors described in the section titled “Risk Factors” in the ~~2021~~2022 Form 10-K.
The Company
We operate as a platform for serving the commercial aviation aftermarket sector. Our top executives have on average over 30 years of experience in aircraft and engine (“Flight Equipment”) management, sales and maintenance services, and are supported by an experienced management team. We have established a global purpose built and fully integrated aviation company focused on providing products and services that maximize the value of Flight Equipment in the middle to end of its operating life cycle.
We are a worldwide provider of aftermarket commercial aircraft, engines, and their parts to passenger and cargo airlines, leasing companies, original equipment manufacturers (“OEM”), government and defense contractors, and maintenance, repair and overhaul (“MRO”) service providers. We report our activities in two business segments: Asset Management Solutions, comprised of activities that extract value from strategic asset acquisitions either as whole assets or by disassembling for used serviceable material (“USM”);, and TechOps, comprised of MRO activities for aircraft and their components, sales of internally developed engineered solutions and other serviceable products.

~~Table of Contents~~

We focus on mid-life Flight Equipment and monetize them through our Asset Management Solutions segment. Asset Management Solutions’ activities include monetization of assets through the lease or sale of whole assets, or through disassembly activities in support of our USM-related activities. Our monetizing services have been developed to maximize returns on mid-life Flight Equipment throughout their operating life, in conjunction with realizing the highest residual value of Flight Equipment at its retirement. We accomplish this by utilizing deep market and technical knowledge related to the management of Flight Equipment sales, leasing and MRO services. To extract value from the remaining flight time on whole assets, we provide flexible short-term (generally less than five years) leasing solutions of Flight Equipment to passenger and cargo operators across the globe. Once the value from the Flight Equipment’s flight time has been extracted, Flight Equipment is considered to be at or near the end of its useful life and is analyzed for return maximization as either whole asset sales or disassembled for sale as USM parts. ~~Revenues~~Revenue from this segment ~~are~~is segregated between Aircraft and Engine depending on the asset type that generated the revenue. Lease ~~revenues~~revenue and the related depreciation from aircraft and engines installed on those ~~aircrafts~~aircraft is recognized under the Aircraft category. ~~Revenues~~Revenue from sales of whole aircraft and related cost of sales are allocated between the Aircraft and Engine categories based on the allocated cost basis of the asset sold.

Our TechOps segment provides internal and third-party aviation services, including internally developed engineered solutions, full heavy aircraft maintenance and modification, component MRO, as well as end-of-life disassembly services. Our MRO business also engages in longer-term projects such as aircraft modifications, cargo and tanker conversions of aircraft, and aircraft storage. The TechOps segment also includes MRO services for landing gear, thrust reversers, hydraulic systems, and other aircraft components.

We utilize these capabilities to support our customers’ Flight Equipment, as well as to maintain and improve our own Flight Equipment, which is subsequently sold or leased to our customers. These processes require a high degree of expertise on each individual aircraft or component that is being serviced. Our knowledge of these processes allows us to assist customers to comply with applicable regulatory and OEM requirements. A significant amount of skilled labor is required to support this process, which the Company has accumulated through its diversified offerings.

Table of Contents

In addition to our aircraft and USM parts offerings, we develop Engineered Solutions consisting of Supplemental Type Certificates (“STCs”) that can be installed on existing Flight Equipment to improve performance, comply with regulatory requirements, or improve safety. An example of these solutions is the AerSafe® product line, which we designed and obtained Federal Aviation Administration (“FAA”) approval to sell as a solution for compliance with the FAA’s fuel tank flammability regulations. These products are proprietary in nature and function as non-OEM solutions to regulatory requirements and other technical challenges, often at reduced delivery time and cost for operators. In order to develop these products, we engage in research and development (“R&D”) activities that are expensed as incurred.

~~Impact of Ukraine Conflict and Russia Sanctions~~

In February of 2022, Russia invaded Ukraine and is still engaged in an active conflict against the country. As a result, governments in the European Union, the United States, the United Kingdom, Switzerland, and other countries have enacted sanctions against Russia and Russian interests. These sanctions include controls on the export and re-export of certain goods, supplies, and technologies, supply of aircraft and aircraft components to Russian persons or for use in Russia, subject to certain wind-down periods, and the imposition of restrictions on doing business with certain state-owned Russian customers and other investments and business activities in Russia. In order to comply with these sanctions, we ceased pursuing future business in Russia and terminated our three leases with operators doing business in Russia, successfully recovering two aircraft with one engine still unrecovered. Due to continued uncertainty in the ability to recover this engine from Russia or to collect insurance coverage, we have fully impaired this asset. Although the current sanctions prohibit the continuation of certain business activities, the three leases referenced were contractually scheduled to expire in 2022 and therefore will have no material impact on our business or 2022 financial condition. While it is difficult to predict the short or long term implications of this conflict and sanctions on the global economy and the aviation industry, we intend to fully comply with all applicable sanctions and embargoes, and do not expect the current situation will have a material adverse effect on our results of operations.

~~Table of Contents~~

Recent Accounting Pronouncements

The most ~~recent~~recently adopted and to be adopted accounting pronouncements are described in Note ~~A to~~B of our condensed consolidated financial statements included in this Quarterly Report, as well as in Item 8, Note B of our consolidated financial statements included in the ~~2021~~2022 Form 10-K.

Results of Operations

Three months ended September 30, ~~2022~~2023 compared to the three months ended September 30, ~~2021~~2022

Sales and gross profit for AerSale’s two business segments for the three months ended September 30, ~~2022~~2023 and ~~2021~~2022 were as follows:

Three Months Ended September 30,

(in thousands, except percentages)

2022

2021

Percent Change

Revenue







Asset Management Solutions







Aircraft

$
6,503

$
15,204

(57.2)
%
Engines

14,088

33,672

(58.2)
%

20,591

48,876

(57.9)
%
TechOps







MRO

26,390

21,683

21.7
%
Product Sales

4,018

2,739

46.7
%

30,408

24,422

24.5
%

Total

$
50,999

$
73,298

(30.4)
%

Three Months Ended September 30,

(in thousands, except percentages)

2022

2021

Percent Change

Gross Profit







Asset Management Solutions







Aircraft

$
2,480

$
6,729

(63.1)
%
Engines

6,210

10,084

(38.4)
%

8,690

16,813

(48.3)
%
TechOps







MRO

5,453

6,407

(14.9)
%
Product Sales

1,346

1,412

(4.7)
%

6,799

7,819

(13.0)
%

Total

$
15,489

$
24,632

(37.1)
%

Three Months Ended September 30,

(in thousands, except percentages)

2023

2022

Percent Change

Revenue







Asset Management Solutions







Aircraft

$
20,888

$
6,503

221.2
%
Engines

44,166

14,088

213.5
%

65,054

20,591

215.9
%
TechOps







MRO

23,154

26,390

(12.3)
%
Product Sales

4,276

4,018

6.4
%
Whole Asset Sale

—

—

—
%

27,430

30,408

(9.8)
%

Total

$
92,484

$
50,999

81.3
%

Three Months Ended September 30,

(in thousands, except percentages)

2023

2022

Percent Change

Gross Profit







Asset Management Solutions







Aircraft

$
6,656

$
2,480

168.4
%
Engines

11,881

6,210

91.3
%

18,537

8,690

113.3
%
TechOps







MRO

3,892

5,453

(28.6)
%
Product Sales

1,045

1,346

(22.4)
%
Whole Asset Sale

—

—

—
%

4,937

6,799

(27.4)
%

Total

$
23,474

$
15,489

51.6
%

Table of Contents

Total ~~revenues~~revenue for the three months ended September 30, ~~2022 decreased $22.3~~2023 increased $41.5 million or ~~30.4%~~81.3% compared to ~~2021,~~the three months ended September 30, 2022, driven by ~~a decrease~~an increase of ~~$28.3~~$44.5 million, or ~~57.9%~~215.9%, in revenues within Asset Management Solutions, partially offset by an ~~increase~~decrease of ~~$6.0~~$3.0 million, or ~~24.5%~~9.8%, in revenues within TechOps.

Asset Management Solutions

Sales in the Asset Management Solutions segment ~~decreased $28.3~~increased $44.5 million or ~~57.9%~~215.9%, to ~~$20.6~~$65.1 million for the three months ended September 30, 2023, due to a $14.4 million, or 221.2%, increase in revenue from Aircraft; and a $30.1 million, or 213.5%, increase in revenue from Engines. The increase in Aircraft revenue is primarily attributable to increased activity in the B757 and A320 product lines, as a result of higher Flight Equipment sales in the amount of $13.1 million due to the timing and availability of assets, as well as higher USM sales due to increased feedstock acquisitions; partly offset by lower leasing activity in the amount of $2.6 million as a result of planned reduction of the Aircraft leasing portfolio. The increase in Engines revenue is primarily attributable to higher activity across most product lines due to higher Flight Equipment sales in the amount of $29.1 million, and higher CF6-80 and CFM56 USM sales, partly offset by lower leasing activity in the amount of $2.7 million.
Cost of sales in Asset Management Solutions increased $34.6 million or 290.9%, to $46.5 million for the three months ended September 30, 2023, 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 $9.8 million to $18.5 million, or 113.3%, for the three months ended September 30, 2023, compared to the three months ended September 30, 2022. The gross profit increase is mainly attributable to higher revenue generated for the three months ended September 30, 2023, as noted above.
Aircraft gross profit margins decreased to 31.9% for the three months ended September 30, 2023, from 38.1% for the three months ended September 30, 2022 due to ~~an $8.7 million, or 57.2%, decrease in revenues~~lower margin contribution from Aircraft; and a $19.6 million, or 58.2%, decrease in revenues from Engines. The decrease in Aircraft revenues is primarily attributable to decreased activity in the B757 product line as a result of lower Flight Equipment sales in the amount of $4.9 million; as well as lower leasing activity in the B737 and B767 product lines totaling $2.8 million, as a result of early lease terminations due to the Russia-Ukraine conflict. The decrease insales. Engines ~~revenue is primarily attributable to~~ ~~lower~~ ~~activity~~

~~Table of Contents~~

~~in the RB211 product line due to lower Flight Equipment sales in the amount of $21.0 million, offset by higher CF6-80 leasing activity in the amount of $2.7 million.~~

~~Cost of sales in Asset Management Solutions decreased $20.2 million or 62.9%, to $11.9 million~~gross profit margin was 26.9% for the three months ended September 30, ~~2022, compared to the prior year period. The~~2023, a decrease in cost of sales was primarily driven by the sales decrease discussed above. Gross profit in the Asset Management Solutions segment decreased $8.1 million to $8.7 million, or 48.3%, for the three months ended September 30, 2022, compared to the three months ended September 30, 2021. The gross profit decrease is mainly attributable to lower revenues generated for the three months ended September 30, 2022, as noted above.
~~Aircraft gross profit margins decreased to 38.1% for the three months ended September 30, 2022,~~ from ~~44.3% for the three months ended September 30, 2021 due to lower margin generated on USM sales. Engine gross profit margin was~~ 44.1% for the three months ended September 30, 2022, ~~an increase from 29.9% for the three months ended September 30, 2021,~~ which was primarily the result of ~~higher margin~~lower margins on Flight Equipment ~~sales.~~sales and leasing activity.
TechOps
Our revenue from TechOps ~~increased~~decreased by ~~$6.0~~$3.0 million or ~~24.5%~~9.8%, to ~~$30.4~~$27.4 million for the three months ended September 30, ~~2022,~~2023, compared to the prior year period. The ~~increase~~decrease was ~~largely~~ driven ~~by improved landing gear and component repair activities, along with increased demand for heavy MRO services~~ in ~~our Goodyear facility, partially offset~~part by lower storage ~~and related~~ maintenance ~~activities in our~~at AerSale’s Roswell facility, largely due to fewer customer aircraft in storage as ~~operators continue~~compared to ~~return aircraft into active status.~~prior periods, as well as lower contributions by component and landing gear repair activities.
Cost of sales in TechOps ~~increased $7.0~~decreased $1.1 million or ~~42.2%~~4.7%, to ~~$23.6~~$22.5 million for the three months ended September 30, ~~2022~~2023 compared to the prior year ~~period,~~period. This was driven by ~~higher~~lower cost of sales from AerSale’s Roswell facility, component repairs and landing gear ~~and component repair activities due to additional volume.~~activities.. Gross profit in TechOps decreased ~~$1.0~~$1.9 million, or ~~13.0%~~27.4% for the three months ended September 30, ~~2022~~2023 compared to the three months ended September 30, ~~2021,~~2022, driven by lower gross profit of ~~$1.0~~$1.6 million on MRO services. Gross profit margin decreased to ~~22.4%~~18.0% for the three months ended September 30, ~~2022~~2023 compared to ~~32.0%~~22.4% for the ~~three months ended September 30, 2021,~~prior year period, and was largely attributable to lower margin on MRO services of ~~20.7%~~16.8% for the three months ended September 30, ~~2022~~2023 compared to ~~29.5% during~~20.7% for the ~~three month ended September 30, 2021,~~prior year period, driven by lower ~~margin maintenance work at our Roswell facility.~~component MRO and landing gear activities.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased ~~$1.2~~$1.4 million, or ~~5.2%~~5.9% to ~~$24.0~~$25.4 million for the three months ended September 30, ~~2022,~~2023, compared to the prior year period. The increase was mostly related to higher ~~payroll expenses associated with market adjustments~~facility, research and ~~additional headcount, as well as higher cost incurred on information technology~~development, and ~~cybersecurity,~~repair and ~~professional consulting fees.~~maintenance costs incurred.
Change in Fair Value of Warrant Liability
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 September 30, 2022, we recorded a $2.0 million expense in fair value of warrant liability income, compared to a $2.1 million expense in the prior year period.~~
~~Interest Income (Expense)~~
Interest income was $0.4 million for the three months ended September 30, 2022, compared to $0.2 million expense for the three months ended September 30, 2021 and was primarily related to higher interest income, offset by unused balance fees on our amended and restated revolving credit agreement (the “Revolving Credit Agreement”).

2321

Table of Contents

pricing model. For the three months ended September 30, 2023, we recorded a $0.1 million change in fair value of warrant liability loss, compared to a $2.0 million loss in the prior year period.

Interest Income (Expense), Net

Interest expense, net was $0.3 million for the three months ended September 30, 2023, compared to $0.4 million interest income, net for the three months ended September 30, 2022. 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.

Income Taxes

The effective tax rate for the three months ended September 30, ~~2022~~2023 was ~~10.6%~~93.0% compared to ~~(222.7%)~~10.6% for the three months ended September 30, ~~2021.~~2022. The difference between the effective tax rate and the statutory tax rate of 21% for the three months ended September 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, release of the valuation allowance and R&D credits. The difference between the effective tax rate and the statutory tax rate of 21% for the three months ended September 30, 2022 is primarily due to the impact of state income taxes and non-deductible executive compensation, offset by the foreign derived intangible income deduction. The difference between the effective tax rate and the statutory tax rate of 21% for the three months ended September 30, 2021 is primarily due to the impact of state income taxes and non-deductible changes in the fair value of the warrant liability.

Nine months ended September 30, ~~2022~~2023 compared to the nine months ended September 30, ~~2021~~2022

Sales and gross profit for AerSale’s two business segments for the nine months ended September 30, ~~2022~~2023 and ~~2021~~2022 were as follows:

Nine Months Ended September 30,

Nine Months Ended September 30,

(in thousands, except percentages)

2022

2021

Percent Change


2023

2022

Percent Change

Revenue













Asset Management Solutions













Aircraft

$
78,343

$
49,925

56.9
%

$
57,836

$
78,343

(26.2)
%
Engines

131,319

88,502

48.4
%

92,719

131,319

(29.4)
%

209,662

138,427

51.5
%

150,555

209,662

(28.2)
%
TechOps













MRO

72,258

78,116

(7.5)
%

78,725

72,258

8.9
%
Product Sales

7,888

7,111

10.9
%

10,583

7,888

34.2
%
Whole Asset Sale

23,605

-

100.0
%

218

23,605

(99.1)
%

103,751

85,227

21.7
%

89,526

103,751

(13.7)
%

Total

$
313,413

$
223,654

40.1
%

$
240,081

$
313,413

(23.4)
%

Nine Months Ended September 30,

(in thousands, except percentages)

2022

2021

Percent Change

Gross Profit







Asset Management Solutions







Aircraft

$
29,779

$
16,370

81.9
%
Engines

60,439

33,129

82.4
%

90,218

49,499

82.3
%
TechOps







MRO

16,257

22,481

(27.7)
%
Product Sales

3,174

3,225

(1.6)
%
Whole Asset Sale

7,523

-

100.0
%

26,954

25,706

4.9
%

Total

$
117,172

$
75,205

55.8
%

Total revenues for the nine-months ended September 30, 2022 increased $89.8 million or 40.1% compared to 2021, driven by an increase of $71.2 million, or 51.5%, within Asset Management Solutions, and an increase of $18.5 million, or 21.7%, within TechOps.

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Nine Months Ended September 30,

(in thousands, except percentages)

2023

2022

Percent Change

Gross Profit







Asset Management Solutions







Aircraft

$
16,871

$
29,779

(43.3)
%
Engines

31,080

60,439

(48.6)
%

47,951

90,218

(46.8)
%
TechOps







MRO

17,078

16,257

5.1
%
Product Sales

2,600

3,174

(18.1)
%
Whole Asset Sale

376

7,523

(95.0)
%

20,054

26,954

(25.6)
%

Total

$
68,005

$
117,172

(42.0)
%

Total revenue for the nine-months ended September 30, 2023 decreased $73.3 million or 23.4% compared to the nine months ended September 30, 2022, driven by a decrease of $59.1 million, or 28.2%, in revenues within Asset Management Solutions and a decrease of $14.2 million, or 13.7%, in revenues within TechOps.
Asset Management Solutions
Sales in the Asset Management Solutions segment ~~increased $71.2~~decreased $59.1 million or ~~51.5%~~28.2%, to ~~$209.7~~$150.6 million for the nine months ended September 30, 2023, due to a $38.6 million, or 29.4%, decrease in revenue from Engines; and a $20.5 million, or 26.2%, decrease in revenue from Aircraft. The decrease in Engines revenue is primarily attributable to decreased activity in the RB211 and CF6-80 product lines as a result of lower Flight Equipment sales in the amount of $37.1 million, and lower leasing revenue in the CF6-80 product line totaling $6.3 million, partially offset by higher USM sales. The decrease in Aircraft revenue is primarily attributable to decreased activity in the B747 and B757 product line due to lower Flight Equipment sales in the amount of $20.5 million due to softer demand in the freighter market, and lower leasing revenue of $5.6 million, partially offset by higher USM sales activity.
Cost of sales in Asset Management Solutions decreased $16.8 million, or 14.1%, to $102.6 million for the nine months ended September 30, 2023, compared to the prior year period. The decrease in cost of sales was primarily driven by the sales decrease discussed above. Gross profit in the Asset Management Solutions segment decreased $42.3 million to $48.0 million, or 46.8%, for the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022. The gross profit decrease is mainly attributable to lower revenue generated for the nine months ended September 30, 2023, as noted above.
Aircraft gross profit margin decreased to 29.2% for the nine months ended September 30, 2023, from 38.0% for the nine months ended September 30, 2022, due to a $42.8 million, or 48.4%, increase in revenues from Engines; and a $28.4 million, or 56.9%, increase in revenues from Aircraft. The increase in Engines revenues is primarily attributable to increased activity in the RB211 and CF6-80 product line as a result of higherlower margin on Flight Equipment ~~sales in the amount of $31.5 million, and higher leasing revenue in the CF6-80 product line totaling $7.4 million. The increase in Aircraft revenue is primarily attributable to~~ ~~increased~~ ~~activity in the B747 and B757 product line due to higher Flight Equipment sales in the amount of $31.1 million, offset by lower B737 Flight Equipment sales in the amount of $3.9 million.~~
~~Cost of sales in Asset Management Solutions increased $30.5 million or 34.3%, to $119.4 million~~sales. Engine gross profit margin was 33.5% for the nine months ended September 30, 2022, compared to the prior year period. The increase in cost of sales was primarily driven by the sales increase discussed above and the impairment of Flight Equipment in Russia of $0.9 million, offset by lower ~~inventory obsolescence reserves of $3.0 million~~. Gross profit in the Asset Management Solutions segment increased $40.7 million to $90.2 million, or 82.3%, for the nine months ended September 30, 2022, compared to the nine months ended September 30, 2021. The gross profit increase is mainly attributable to higher revenues generated for the nine months ended September 30, 2022, as noted above.
~~Aircraft gross profit margins increased to 38.0% for the nine months ended September 30, 2022,~~2023, a decrease from ~~32.8% for the nine months ended September 30, 2021 due to higher margin on Flight Equipment sales, and lower~~ ~~inventory obsolescence reserves of $3.8 million. Engine gross profit margin was~~ 46.0% for the nine months ended September 30, 2022, ~~an increase from 37.4% for the nine months ended September 30, 2021,~~ which was primarily the result of ~~higher~~lower margins on Flight Equipment sales ~~and engine leasing activity~~, partly offset by higher ~~inventory obsolescence reserves of $0.8 million and the impairment of Flight Equipment in Russia of $0.9 million.~~margins on USM sales.
TechOps
Our revenue from TechOps ~~increased~~decreased by ~~$18.5~~$14.2 million, or ~~21.7%~~13.7%, to ~~$103.8~~$89.5 million for the nine months ended September 30, ~~2022,~~2023, compared to the prior year period. The ~~increase~~decrease was primarily driven by the sale of Flight Equipment during 2022, which was purchased and controlled by the TechOps segment prior to its ultimate sale, ~~along with improved landing gear and~~partly offset by higher revenues from component repair ~~activities; offset by lower revenues from storage~~activities and related maintenance activities in our Roswell facility as operators continue to return aircraft into active status, as well as a shift in resources at our Goodyear facility to support our cargo conversion projects on the B757 product line.heavy MRO services.

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Cost of sales in TechOps ~~increased $17.3~~decreased $7.3 million, or ~~29.0%~~9.5%, to ~~$76.8~~$69.5 million for the nine months ended September 30, ~~2022~~2023, compared to the prior year period, driven by lower costs ~~generated from~~related to the sale of Flight Equipment of $16.1 million ~~and~~during the nine months ended September 30, 2022, partially offset by cost associated with revenue fluctuations noted above. Gross profit in TechOps ~~increased $1.2~~decreased $6.9 million, or ~~4.9%~~25.6% for the nine months ended September 30, ~~2022~~2023, compared to the nine months ended September 30, ~~2021,~~2022, driven by ~~the~~lower profit generated from the sale of Flight Equipment of ~~$7.5~~$7.1 million and USM sales, partially offset by ~~lower~~higher gross profit of ~~$6.2~~$0.8 million on MRO services. Gross profit margin decreased to 22.4% for the nine months ended September 30, 2023 compared to 26.0% for the nine months ended September 30, 2022, ~~compared to 30.2% for the nine months ended September 30, 2021,~~ and was largely attributable to ~~lower~~the margin generated ~~on MRO services~~from the sale of ~~22.5%~~Flight Equipment of 31.9% for the nine months ended September 30, 2022, as well as lower margins on MRO services of 21.7% for the nine months ended September 30, 2023, compared to ~~28.8%~~22.5% during the nine ~~month~~months ended September 30, ~~2021, driven by lower margin maintenance work at our Roswell facility.~~2022.

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Selling, General and Administrative Expenses

Selling, general and administrative expenses increased ~~$18.2~~$6.5 million, or ~~34.2%~~9.1% to ~~$71.3~~$77.7 million for the nine months ended September 30, ~~2022,~~2023, compared to the prior year period. The increase was mostly related to ~~higher payroll expenses associated with market~~Company-wide cost of living adjustments, additional headcount, along with higher facility and ~~higher share-based compensation expense of $3.1 million, as well as higher cost incurred on information technology and cybersecurity, professional consulting fees, and facility costs.~~legal costs incurred.
~~Payroll Support Program Proceeds~~
~~We recognized CARES Act proceeds of $14.8 million during the nine months ended September 30, 2021. No such proceeds have been received or recognized during the nine months ended September 30, 2022.~~
~~As of September 30, 2022, we were in compliance with the applicable provisions of the CARES Act, Payroll Support Extension Law, and American Rescue Plan Act of 2021.~~
Change in Fair Value of Warrant Liability
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 nine months ended September 30, ~~2022,~~2023, we recorded a ~~$1.9 million expense~~change in fair value of the warrant liability ~~income,~~gain of $1.0 million, compared to a ~~$2.7~~$1.9 million ~~expense~~loss in the prior year period.
Interest Income (Expense), Net
Interest income, net for the nine months ended September 30, 2023 was $1.2 million and was primarily related to interest generated on excess cash. There was nonominal interest expense during the nine months ended September 30, 2022, compared to $0.8 million expense for the nine months ended September 30, 2021 and was primarily related to higher interest income on available cash balance, offset by unused balance fees on our amended and restated revolving credit agreement (the “Revolving Credit Agreement”).2022.
Income Taxes
The effective tax rate for the nine months ended September 30, ~~2022~~2023 was ~~22.2%~~59.8% compared to ~~26.0%~~22.2% for the nine months ended September 30, ~~2021.~~2022. The difference between the effective tax rate and the statutory tax rate of 21% for the nine months ended September 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, release of the valuation allowance and R&D credits. The difference between the effective tax rate and the statutory tax rate of 21% for the nine months ended September 30, 2022 is primarily due to the impact of state income taxes and non-deductible executive compensation, offset by the foreign derived intangible income deduction. The difference between the effective tax rate and the statutory tax rate of 21% for the nine months ended September 30, 2021 is primarily due to the impact of state income taxes and non-deductible changes in the fair value of the warrant liability.
Financial Position, Liquidity and Capital Resources
As of September 30, ~~2022,~~2023, we had ~~$151.4~~$3.2 million of cash and cash equivalents. We finance our growth through cash flows generated from operations and borrowings secured by our assets. ~~There were no borrowings during the nine months ended September 30, 2022.~~ We had no$8.6 million outstanding ~~balance on~~under the ~~Company’s~~ Revolving Credit Agreement as of September 30, ~~2022,~~2023, and we had ~~$108.0~~$149.0 million of availability thereunder. We used cash in operations of ~~$2.4~~$168.1 million for the nine months ended September 30, ~~2022,~~2023, mostly for feedstock acquisitions, and generated cash from investing activities of ~~$23.2~~$6.7 million for the nine months ended September 30, ~~2022.~~2023.
During the nine months ended September 30, 2023, we entered into a revolving term loan collateralized by our property and equipment (the “Equipment Loan”), and borrowed $8.6 million, which remained outstanding as of September 30, 2023.
We believe our equity base, internally generated funds, and existing availability under our debt ~~facility~~facilities are sufficient to maintain our level of operations through September 30, ~~2023.~~2024. If an event occurs that would affect our ability

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to meet our capital requirements, our ability to continue to grow our asset base consistent with historical trends could be impaired and our future growth limited to that which can be funded from internally generated capital.

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We may, from time to time, purchase our outstanding shares of common stock through cash purchases and/or exchanges for equity or debt, in open-market purchases, privately negotiated transactions or otherwise. Such purchases or exchanges, if any, will be upon such terms and at such prices as we may determine, and will depend on prevailing market conditions, our liquidity requirements, legal and regulatory considerations, contractual restrictions and other factors. Purchases, if any, will be funded through our available cash from operations. The amounts involved may be material.

Cash Flows— Nine months ended September 30, ~~2022~~2023 compared to nine months ended September 30, ~~2021~~2022

Cash Flows from Operating Activities

Net cash used in operating activities was ~~$2.4~~$168.1 million for the nine months ended September 30, ~~2022,~~2023, compared to cash ~~provided~~used of ~~$26.4~~$2.4 million for the same period in ~~2021.~~2022. The ~~decrease~~increase in cash deployed of ~~$28.8~~$165.7 million was primarily due to ~~the application~~feedstock acquisitions and impact of ~~previously collected deposits to sale of whole assets during~~lower results from operations, partially offset by the ~~period, along with~~ timing of ~~cash advances to vendors.~~purchase deposits.
Cash Flows from Investing Activities
Net cash provided by investing activities was ~~$23.2~~$6.7 million for the nine months ended September 30, ~~2022,~~2023, compared to cash provided of ~~$5.9~~$23.2 million in the same period for ~~2021.~~2022. Cash provided by investing activities during the nine months ended September 30, 2023 and 2022 was driven by Flight Equipment sales.
Cash Flows from Financing Activities
Net cash provided by financing activities was $17.3 million for the ~~sale~~nine months ended September 30, 2023, compared to cash provided of ~~Flight Equipment.~~$0.3 million in the same period for 2022. Cash provided by ~~investing~~financing activities during the nine months ended September 30, ~~2021~~2023 was ~~also driven by~~primarily related to the ~~sale of Flight Equipment.~~
~~Cash Flows~~proceeds from ~~Financing Activities~~
~~Net cash provided by financing activities was $0.3 million for~~ the ~~nine months ended September 30, 2022 and 2021.~~Equipment Loan, as more fully described below; as well as borrowing under our Revolving Credit Agreement (as defined below). Cash provided by financing activities during the nine months ended September 30, 2022 is ~~primarily related to~~ the result of proceeds from the issuance and the sale of shares of common stock under the AerSale Corporation 2020 Employee Stock Purchase ~~Plan (“ESPP”). Cash provided by financing activities during the nine months ended September 30, 2021 is the result of proceeds from the exercise of public warrants.~~Plan.
Debt Obligations and Covenant Compliance
~~Our~~Wells Fargo Senior Secured Revolving Credit Facility
Effective July 25, 2023, we amended our revolving credit agreement (as amended, the “Revolving Credit Agreement”) to increase our maximum commitments under the Revolving Credit Agreement to $180.0 million aggregate amount, subject to borrowing base limitations, and to extend the maturity date to July 24, 2028, subject to certain conditions.
Prior to the amendment, our Revolving Credit Agreement was scheduled to mature on March 12, 2024, and provided commitments for a ~~$110.0~~$150.0 million revolving credit facility, ~~and includes~~including a $10.0 million sub facility for letters of credit and for borrowings on same-day notice referred to as “swingline ~~loans.”~~ loans”, which has been retained.
The maximum amount of such commitments available at any time for borrowings and letters of credit is determined according to a borrowing base calculation equal to the sum of eligible inventory and eligible accounts receivable reduced by the aggregate amount, if any, of trade payables of the loan parties, as defined in the Revolving Credit Agreement. Extensions of credit under the Revolving Credit Agreement are available for working capital and general corporate purposes.

Effective March 12, 2021, we amended our Revolving Credit Agreement to increase our maximum commitments under the Revolving Credit Agreement to a $150.0 million aggregate amount, subject to borrowing base limitations, and to extend the maturity date to March 12, 2024, subject to certain conditions.25

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As of September 30, ~~2022,~~2023, there was no$8.6 million outstanding ~~balance~~ under the Revolving Credit Agreement and we had ~~$108.0~~$149.0 million of availability thereunder. We were in compliance with our debt covenants for the Revolving Credit Agreement as of September 30, ~~2022.~~2023.

Synovus Equipment Loan

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.

During the nine months ended September 30, 2023, the Company borrowed $8.6 million under this facility, which remained outstanding as of September 30, 2023.

We were in compliance with our debt covenants for the Equipment Loan as of September 30, 2023.

Off-Balance Sheet Arrangements and Contractual Obligations

We did not have any off-balance sheet arrangements as of September 30, ~~2022.~~2023. Refer to Note MQ – ~~Commitments and Contingencies~~Leases within our ~~Condensed~~ Consolidated Financial Statements in our 2022 Form 10-K for a listing of our non-cancelable contractual obligations under operating leases.

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The Company has entered into a purchase commitment with Universal Avionics, a subsidiary of Elbit Systems, valued at $33.1 million for the acquisition of technical equipment for manufacturing our AerAware product. The commitment is expected to be satisfied by the fourth quarter of ~~2023.~~2024. The Company has ~~expanded its~~a commitment for the purchase of cargo conversion kits to support its B757 freighter conversion program in the amount of ~~$40.9~~$11.9 million. The commitment is expected to be satisfied ~~during 2023.~~by 2024.

Critical Accounting Policies and Estimates

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 ~~2021 Annual Report.~~2022 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 and~~ nine months ended September 30, ~~2022,~~2023, there were no material changes in our critical accounting estimates and ~~critical accounting~~ policies.

ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
In the normal course of business, we are subject to market risks. Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and sales. Our exposure to market risk includes fluctuating interest rates and changes in foreign exchange rates.
Interest Rate Risk
We are exposed to the risk that our earnings and cash flows could be adversely impacted by fluctuations in interest rates associated with borrowings under ~~our Amended and Restated~~the Revolving Credit Agreement orand the ~~Credit Facility,~~Equipment Loan, which ~~has~~have variable interest rates tied to ~~LIBOR. As of September 30, 2022, we had no outstanding variable rate borrowings under our Credit Facility. Therefore, a~~SOFR. A ten percent increase in the average interest rate affecting our variable rate debt outstanding

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as of September 30, ~~2022~~2023 would not have had a material impact on our interest expense, financial position or continuing ~~operations.~~operations as of and for the three and nine months ended September 30, 2023.

Foreign Currency Exchange Risk

We primarily use the U.S. dollar as our functional currency in all markets in which we operate in order to reduce our foreign currency market risk. Only general office expense and payroll transactions for our international locations are denominated in local currency. A hypothetical ten percent devaluation of the U.S. dollar against foreign currencies would not have had a material impact on our financial position or continuing operations as of and for the three and nine months ended September 30, ~~2022.~~2023.

ITEM 4 CONTROLS AND PROCEDURES
Limitations on Effectiveness of Controls and Procedures
In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints, and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.

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Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)) under the Exchange Act as of September 30, ~~2022.~~2023.

Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of September 30, ~~2022.~~2023.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended September 30, ~~2022~~2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
~~We are~~The Company could be involved in litigation incidental to the operation of the business. The Company intends to vigorously defend all matters in which the Company is named defendants, and, for insurable losses, maintain significant levels of insurance to protect against adverse judgments, claims or assessments that may affect the Company. Although the adequacy of exiting insurance coverage of the outcome of any legal proceedings cannot be predicted with certainty, based on the current information available, the Company does not ~~subject to~~believe the ultimate liability associated with known claims or litigations, if any, ~~material legal proceedings.~~in which the Company is involved will materially affect the Company’s consolidated financial condition or results of operations.
ITEM 1A RISK FACTORS
~~There are no material changes~~The following should be read in conjunction with, and supplements and amends, the ~~information reported~~factors that may affect our business or operations described under Part I – Item 1A “Risk Factors” contained in the ~~Annual Report except~~2022 Form 10-K. Other than as ~~set forth below.~~described in this Item 1A, there have been no material changes to our risk factors from the risk factors previously disclosed in the 2022 Form 10-K.

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We are exposed to risks associated with operating internationally.

We conduct business in a number of foreign countries, certain of which are politically unstable or subject to military or civil ~~conflicts or other risks.~~conflicts. Consequently, we are subject to a variety of risks that are specific to international operations, including the following:

●

military conflicts, civil strife, and political risks;

●

export regulations that could erode profit margins or restrict exports;

●

compliance with the U.S. Foreign Corrupt Practices Act, the United Kingdom Bribery Act of 2010, and other anti-bribery and anticorruption laws;

●

the burden and cost of compliance with foreign laws, treaties, and technical standards and changes in those regulations;

●

contract award and funding delays;

●

potential restrictions on transfers of funds;

●

import and export duties and value added taxes;

●

foreign exchange risk;

●

transportation delays and interruptions;

●

~~natural disasters, adverse weather and climate change;~~

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●

uncertainties arising from foreign local business practices and cultural considerations; and

●

changes in United States policies on trade relations and trade policy, including implementation of or changes in trade sanctions (such as those imposed on Russia), tariffs, and embargoes.

Following a national referendum and enactment of legislation by the government of the United Kingdom, the United Kingdom formally withdrew from the European Union and ratified a trade and cooperation agreement governing its future relationship with the European Union. The agreement, which is being applied provisionally from January 1, 2021 and entered into force on May 1, 2021, addresses trade, economic arrangements, law enforcement, judicial cooperation and a governance framework including procedures for dispute resolution, among other things. Because the agreement merely sets forth a framework in many respects and will require complex additional bilateral negotiations between the United Kingdom and the European Union as both parties continue to work on the rules for implementation, significant political and economic uncertainty remains about how the precise terms of the relationship between the parties will differ from the terms before withdrawal. These developments, or the perception that any related developments could occur, have had and may continue to have a material adverse effect on global economic conditions and financial markets, and could significantly reduce global market liquidity, restrict the ability of key market participants to operate in certain financial markets, increase restrictions on imports and exports between the United Kingdom and other countries and increase regulatory complexities. Asset valuations, currency exchange rates and credit ratings have been and may continue to be subject to increased market volatility. Lack of clarity about future United Kingdom laws and regulations as the United Kingdom determines which European Union laws to replace or replicate, including with respect to trade relations could depress economic activity and restrict our access to capital.

Measures that we have or will adopt to reduce the potential impact of losses resulting from the risks of doing business internationally may not be adequate, and the regions in which we operate might not continue to be stable enough to allow us to operate profitably or at all.

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The war in the Ukraine is creating an adverse climate for our business. The U.S. government has imposed enhanced export restrictions and controls on certain products and technology, as well as sanctions on certain industry sectors and parties in Russia, Belarus and parts of the Ukraine. The governments of other jurisdictions in which we may conduct business, such as the European Union, have also implemented sanctions or other restrictive measures. These sanctions include controls on the export and re-export of certain goods, supplies, and technologies, supply of aircraft and aircraft components to Russian persons or for use in Russia, subject to certain wind-down periods, and the imposition of restrictions on doing business with certain state-owned Russian customers and other investments and business activities in Russia. In order to comply with these sanctions, the Company ceased pursuing future business in Russia and terminated our three leases with operators doing business in Russia, successfully repossessing two aircraft with one engine still unrecovered. Due to continued uncertainty in the ability to recover this engine from Russia or to collect insurance coverage, we have fully impaired this asset. These sanctions and enhanced export controls, as well as any responses from Russia, ~~may~~could adversely affect the Company and/or our supply chain, business partners or customers, flight activity, demand for MRO and leasing services and the related macro environment. The economic and security conditions ~~may~~could also limit the Company’s ability to provide its services or products to certain customers, as well as limit its ability to receive payments. The totality of these events, sanctions and restrictions may have a material adverse effect on our business, financial condition, liquidity and results of operations. These sanctions and restrictions may also jeopardize and adversely impact the availability and cost of insurance ~~that~~which covers any assets or operations that may be subject to these restrictions and enhanced sanctions.

On October 7, 2023, Hamas militants launched an extensive military operation into Israel’s southern border from the Gaza Strip and conducted a series of attacks, followed by an invasion of Israeli territory by land, air and sea directed at civilian and military targets. On October 8, 2023 Israel formally declared war on Hamas after their deadly attack. The intensity and duration of Israel’s current war against Hamas is difficult to predict, as are such war’s global economic impact and impact on the Company’s business and operations and on the businesses and operations of the Company’s suppliers, customers and other third parties with which the Company conducts business. Of note, the Company’s ERP vendor and the supplier of most of the components of our Enhanced Flight Vision System “AerAware” are both based in Israel.

ITEM 2    UNREGISTERED SALES OF EQUITY SECURITIES, ~~AND~~ USE OF PROCEEDS
~~Recent Sales of Unregistered Equity Securities~~
~~None.~~
~~Use of Proceeds~~
~~None.~~
~~Issuer Purchases of Equity Securities~~, AND ISSUER PURCHASES OF EQUITY SECURITIES
None.
ITEM 3    DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4    MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5    OTHER INFORMATION
~~None.~~Not applicable.

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ITEM 6    EXHIBITS
The following is a list of exhibits filed as part of this Quarterly Report on Form 10-Q.

Incorporated by Reference

Filed/
Exhibit
Number

Exhibit Description

Form

File No.

Exhibit

Filing
Date

Furnished
Herewith

2.1

Agreement and Plan of Merger, dated December 8, 2019, by and among Monocle Acquisition Corporation, Monocle Holdings Inc., AerSale Corp., Monocle Merger Sub 1 Inc., Monocle Merger Sub 2 LLC, and Leonard Green & Partners, L.P., in its capacity as the Holder Representative.

8-K

001-38801

2.1

12/9/2019

2.2

Amendment No. 1 to the Agreement and Plan of Merger, dated August 13, 2020, by and among Monocle Acquisition Corporation, Monocle Holdings Inc., AerSale Corp., Monocle Merger Sub 1 Inc., Monocle Merger Sub 2 LLC, and Leonard Green & Partners, L.P., in its capacity as the Holder Representative.

10-Q

001-38801

2.1

8/14/2020

2.3

Amended and Restated Agreement and Plan of Merger, dated September 8, 2020, by and among Monocle Acquisition Corporation, Monocle Holdings Inc., AerSale Corp., Monocle Merger Sub 1 Inc., Monocle Merger Sub 2 LLC, and Leonard Green & Partners, L.P., in its capacity as the Holder Representative.

8-K

001-38801

2.1

09/08/2020

2.4

Amendment No. 1 to the Amended and Restated Agreement and Plan of Merger, dated December 16, 2020, by and among Monocle Acquisition Corporation, Monocle Holdings Inc., AerSale Corp., Monocle Merger Sub 1 Inc., Monocle Merger Sub 2 LLC, and Leonard Green & Partners, L.P., in its capacity as the Holder Representative.

8-K

001-38801

10.5

12/17/2020

3.1

Amended and Restated Certificate of Incorporation of Monocle Holdings Inc., dated October 13, 2020.

S-4/A

333-235766

3.1

10/14/2020

3.2

Certificate of Amendment to the Amended and Restated Certificate of Incorporation of Monocle Holdings Inc., dated December 22, 2020.

8-K

001-38801

3.2

12/23/2020

3.3

Certificate of Amendment to the Amended and Restated Certificate of Incorporation of AerSale Corporation, dated June 17, 2021.

10-Q

001-38801

3.3

08/09/2021

3.4

Amended and Restated By laws of Monocle Holdings Inc., dated October 13, 2020.

S-4/A

333-235766

3.2

10/14/2020

3.5

Amendment No. 1 to the Amended and Restated Bylaws of Monocle Holdings Inc., dated December 22, 2020.

8-K

001-38801

3.4

12/23/2020

Incorporated by Reference

Filed/
Exhibit
Number

Exhibit Description

Form

File No.

Exhibit

Filing
Date

Furnished
Herewith

2.1

Agreement and Plan of Merger, dated December 8, 2019, by and among Monocle Acquisition Corporation, Monocle Holdings Inc., AerSale Corp., Monocle Merger Sub 1 Inc., Monocle Merger Sub 2 LLC, and Leonard Green & Partners, L.P., in its capacity as the Holder Representative.

8-K

001-38801

2.1

12/9/2019

3129

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Incorporated by Reference

Filed/
Exhibit
Number

Exhibit Description

Form

File No.

Exhibit

Filing
Date

Furnished
Herewith

4.1

Specimen Common Stock Certificate of Monocle Holdings Inc.

S-4/A

333-235766

4.2

02/14/2020

4.2

Specimen Warrant Certificate of Monocle Holdings Inc.

S-4/A

333-235766

4.3

02/14/2020

4.3

Warrant Agreement, dated February 6, 2019, between Monocle Acquisition Corporation and Continental Stock Transfer & Trust Company, as warrant agent.

8-K

001-38801

4.1

02/12/2019

31.1

Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a).

*
31.2

Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a).

*
32.1

Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350.

**
32.2

Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350.

**
101.INS

Inline XBRL Instance Document

*
101.SCH

Inline XBRL Taxonomy Extension Schema Document

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Inline XBRL Taxonomy Extension Calculation Linkbase Document

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Inline XBRL Taxonomy Extension Definition Linkbase Document

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Inline XBRL Taxonomy Extension Label Linkbase Document

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Cover Page Interactive Data File (formatted as inline XBRL with applicable taxonomy extension information continued in Exhibits 101*)

*

*

Filed herewith

**

Furnished herewith

Incorporated by Reference

Filed/
Exhibit
Number

Exhibit Description

Form

File No.

Exhibit

Filing
Date

Furnished
Herewith

2.2

Amendment No. 1 to the Agreement and Plan of Merger, dated August 13, 2020, by and among Monocle Acquisition Corporation, Monocle Holdings Inc., AerSale Corp., Monocle Merger Sub 1 Inc., Monocle Merger Sub 2 LLC, and Leonard Green & Partners, L.P., in its capacity as the Holder Representative.

10-Q

001-38801

2.1

8/14/2020

2.3

Amended and Restated Agreement and Plan of Merger, dated September 8, 2020, by and among Monocle Acquisition Corporation, Monocle Holdings Inc., AerSale Corp., Monocle Merger Sub 1 Inc., Monocle Merger Sub 2 LLC, and Leonard Green & Partners, L.P., in its capacity as the Holder Representative.

8-K

001-38801

2.1

09/08/2020

2.4

Amendment No. 1 to the Amended and Restated Agreement and Plan of Merger, dated December 16, 2020, by and among Monocle Acquisition Corporation, Monocle Holdings Inc., AerSale Corp., Monocle Merger Sub 1 Inc., Monocle Merger Sub 2 LLC, and Leonard Green & Partners, L.P., in its capacity as the Holder Representative.

8-K

001-38801

10.5

12/17/2020

3.1

Amended and Restated Certificate of Incorporation of Monocle Holdings Inc., dated October 13, 2020.

S-4/A

333-235766

3.1

10/14/2020

3.2

Certificate of Amendment to the Amended and Restated Certificate of Incorporation of Monocle Holdings Inc., dated December 22, 2020.

8-K

001-38801

3.2

12/23/2020

3.3

Certificate of Amendment to the Amended and Restated Certificate of Incorporation of AerSale Corporation, dated June 17, 2021.

10-Q

001-38801

3.3

08/09/2021

3.4

Amended and Restated By laws of Monocle Holdings Inc., dated October 13, 2020.

S-4/A

333-235766

3.2

10/14/2020

3.5

Amendment No. 1 to the Amended and Restated Bylaws of Monocle Holdings Inc., dated December 22, 2020.

8-K

001-38801

3.4

12/23/2020

4.1

Specimen Common Stock Certificate of Monocle Holdings Inc.

S-4/A

333-235766

4.2

02/14/2020

4.2

Specimen Warrant Certificate of Monocle Holdings Inc.

S-4/A

333-235766

4.3

02/14/2020

4.3

Warrant Agreement, dated February 6, 2019, between Monocle Acquisition Corporation and Continental Stock Transfer & Trust Company, as warrant agent.

8-K

001-38801

4.1

02/12/2019

Table of Contents

Incorporated by Reference

Filed/
Exhibit
Number

Exhibit Description

Form

File No.

Exhibit

Filing
Date

Furnished
Herewith

10.22

AerSale Corporation Second Amended and Restated Non-Employee Director Compensation Policy

10-Q

001-38801

10.22

08/09/2023

*
10.23

Amendment No. 3 to Amended and Restated Credit Agreement, dated as of March 9, 2023, by and among AerSale Aviation Inc., the existing borrowers thereto, the lenders thereto, Wells Fargo Bank, National Association, as administrative agent and lender

10-Q

001-38801

10.22

08/09/2023

*
10.24

Amendment No. 4 to the Amended and Restated Credit Agreement, dated as of July 25, 2023, by and among the Company, the lenders and other parties from time to time party thereto, Synovus Bank, as documentation agent, and Wells Fargo Bank, National Administration, as administrative agent and collateral agent.

8-K

001-38801

1.1

08/01/2023

31.1

Certification of Principal Executive Officer pursuant to Rule 13a-14(a)/15d-14(a).

*
31.2

Certification of Principal Financial Officer pursuant to Rule 13a-14(a)/15d-14(a).

*
32.1

Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350.

**
32.2

Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350.

**
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Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document

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Inline XBRL Taxonomy Extension Schema Document

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Inline XBRL Taxonomy Extension Calculation Linkbase Document

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Inline XBRL Taxonomy Extension Definition Linkbase Document

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Inline XBRL Taxonomy Extension Label Linkbase Document

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101.PRE

Inline XBRL Taxonomy Extension Presentation Linkbase Document

*
104

Cover Page Interactive Data File (formatted as Inline XBRL with applicable taxonomy extension information contained in Exhibit 101*)

*

*

Filed herewith

**

Furnished herewith

3231

Table of Contents

SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

AerSale Corporation

Date:
November ~~9, 2022~~8, 2023
By:
/s/ Nicolas Finazzo

Nicolas Finazzo

Chairman, Chief Executive Officer, Division President, TechOps and Director

(Principal Executive Officer)

Date:
November ~~9, 2022~~8, 2023
By:
/s/ Martin Garmendia

Martin Garmendia

Chief Financial Officer and Treasurer

(Principal Financial and Accounting Officer)

3332


	Nine Months Ended September 30,
	2022		2021
Cash flows from operating activities:
Net income	$	34,668	$	24,930
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Depreciation and amortization		8,589		9,868
Amortization of debt issuance costs		340		366
Inventory reserve		2,010		5,033
Impairment of aircraft held for lease		857		-
Provision for doubtful accounts		(379)		(122)
Deferred income taxes		(2,655)		(988)
Change in fair value of warrant liability		1,881		2,735
Share-based compensation		12,029		8,899
Changes in operating assets and liabilities:
Accounts receivable		3,730		5,279
Inventory		(26,441)		(44,104)
Deposits, prepaid expenses, and other current assets		(747)		3,628
Deferred customer incentives and other assets		661		-
Advance vendor payments		(10,097)		(3,201)
Accounts payable		2,082		(57)
Income tax payable		(2,205)		(987)
Accrued expenses		(594)		(2,234)
Deferred revenue		664		363
Lessee and customer purchase deposits		(24,996)		16,649
Other liabilities		(1,779)		327
Net cash (used in) provided by operating activities		(2,382)		26,384
Cash flows from investing activities:
Proceeds from sale of assets		37,107		6,995
Acquisition of aircraft and engines held for lease, including capitalized cost		(6,945)		(60)
Purchase of property and equipment		(6,935)		(1,060)
Net cash provided by investing activities		23,227		5,875
Cash flows from financing activities:
Cash paid for employee taxes on withholding shares		-		(269)
Proceeds from exercise of warrants		-		545
Proceeds from the issuance of Employee Stock Purchase Plan shares		345		-
Net cash provided by financing activities		345		276

Increase in cash and cash equivalents		21,190		32,535
Cash and cash equivalents, beginning of period		130,188		29,317
Cash and cash equivalents, end of period	$	151,378	$	61,852

Supplemental disclosure of cash activities
Income taxes paid		14,637		8,095
Interest paid		856		452
Supplemental disclosure of noncash investing activities
Reclassification of aircraft and aircraft engines inventory (from) to equipment held for lease, net		(25,025)		14,650
Reclassification of customer purchase deposits to sale of assets		12,500		-


	September 30, 2022		December 31, 2021		Change
Contract assets	$	7,580	$	13,221	$	(5,641)


	September 30, 2023		December 31, 2022		Change
Contract assets	$	7,007	$	7,277	$	(270)


	Useful Life					Useful Life
	In Years	September 30, 2022		December 31, 2021		In Years	September 30, 2023		December 31, 2022
Qwest:
Customer relationships	10	$	6,381	$	7,109	10	$	5,408	$	6,136
ALGS:
Customer relationships	10		55		70	10		35		50
ACS:
Customer relationships	10		1,295		1,453	10		1,085		1,243
ACT:
Customer relationships	10		6,586		7,276	10		5,663		6,353
Total intangible assets with definite lives		$	14,317	$	15,908		$	12,191	$	13,782


Year ending December 31:
Remainder of 2022	$	3,976
2023		4,867
Remainder of 2023			$	1,256
2024		132		1,010
Total minimum lease payments	$	8,975	$	2,266


		September 30, ~~2022~~2023
Risk-free interest rate		~~3.98%~~4.60%
Expected volatility of common stock		~~42.37%~~41.48%
Dividend yield		-
Expected option term in years		~~3.2~~2.2


	Operating
	Leases
Year ending December 31:
Remainder of 2022	$	1,270
2023		6,350
2024		5,976
2025		5,071
2026		4,873
Thereafter		19,526
Total minimum lease payments	$	43,066


				Weighted Average					Weighted Average
		Weighted Average		Remaining Contractual			Weighted Average		Remaining Contractual
	Amount	Grant Date Fair Value		Life (Years)		Amount	Grant Date Fair Value		Life (Years)
Outstanding at December 31, 2021	1,669,300	$	10.10	$	2.02
Outstanding at December 31, 2022						1,374,383	$	10.72	$	2.88
Granted	278,473		14.80		2.49	359,036		15.01		2.30
Forfeited	(11,048)		13.39		2.20	(33,526)		14.86		2.10
Vested	(23,643)		12.24		-	(121,737)		14.28		-
Outstanding September 30, 2022	1,913,082	$	10.74	$	2.11
Outstanding September 30, 2023						1,578,156	$	11.34	$	2.99


	Three Months Ended September 30,
(in thousands, except percentages)	2022		2021		Percent Change
Revenue
Asset Management Solutions
Aircraft	$	6,503	$	15,204	(57.2)	%
Engines		14,088		33,672	(58.2)	%
		20,591		48,876	(57.9)	%
TechOps
MRO		26,390		21,683	21.7	%
Product Sales		4,018		2,739	46.7	%
		30,408		24,422	24.5	%

Total	$	50,999	$	73,298	(30.4)	%

		Incorporated by Reference				Filed/
Exhibit Number	Exhibit Description	Form	File No.	Exhibit	Filing Date	Furnished Herewith

2.1	Agreement and Plan of Merger, dated December 8, 2019, by and among Monocle Acquisition Corporation, Monocle Holdings Inc., AerSale Corp., Monocle Merger Sub 1 Inc., Monocle Merger Sub 2 LLC, and Leonard Green & Partners, L.P., in its capacity as the Holder Representative.	8-K	001-38801	2.1	12/9/2019
2.2	Amendment No. 1 to the Agreement and Plan of Merger, dated August 13, 2020, by and among Monocle Acquisition Corporation, Monocle Holdings Inc., AerSale Corp., Monocle Merger Sub 1 Inc., Monocle Merger Sub 2 LLC, and Leonard Green & Partners, L.P., in its capacity as the Holder Representative.	10-Q	001-38801	2.1	8/14/2020
2.3	Amended and Restated Agreement and Plan of Merger, dated September 8, 2020, by and among Monocle Acquisition Corporation, Monocle Holdings Inc., AerSale Corp., Monocle Merger Sub 1 Inc., Monocle Merger Sub 2 LLC, and Leonard Green & Partners, L.P., in its capacity as the Holder Representative.	8-K	001-38801	2.1	09/08/2020
2.4	Amendment No. 1 to the Amended and Restated Agreement and Plan of Merger, dated December 16, 2020, by and among Monocle Acquisition Corporation, Monocle Holdings Inc., AerSale Corp., Monocle Merger Sub 1 Inc., Monocle Merger Sub 2 LLC, and Leonard Green & Partners, L.P., in its capacity as the Holder Representative.	8-K	001-38801	10.5	12/17/2020
3.1	Amended and Restated Certificate of Incorporation of Monocle Holdings Inc., dated October 13, 2020.	S-4/A	333-235766	3.1	10/14/2020
3.2	Certificate of Amendment to the Amended and Restated Certificate of Incorporation of Monocle Holdings Inc., dated December 22, 2020.	8-K	001-38801	3.2	12/23/2020
3.3	Certificate of Amendment to the Amended and Restated Certificate of Incorporation of AerSale Corporation, dated June 17, 2021.	10-Q	001-38801	3.3	08/09/2021
3.4	Amended and Restated By laws of Monocle Holdings Inc., dated October 13, 2020.	S-4/A	333-235766	3.2	10/14/2020
3.5	Amendment No. 1 to the Amended and Restated Bylaws of Monocle Holdings Inc., dated December 22, 2020.	8-K	001-38801	3.4	12/23/2020

		AerSale Corporation

Date:	November ~~9, 2022~~8, 2023	By:	/s/ Nicolas Finazzo
			Nicolas Finazzo
			Chairman, Chief Executive Officer, Division President, TechOps and Director
			(Principal Executive Officer)


Date:	November ~~9, 2022~~8, 2023	By:	/s/ Martin Garmendia
			Martin Garmendia
			Chief Financial Officer and Treasurer
			(Principal Financial and Accounting Officer)