AeroCentury Corp. (“AeroCentury” or the “Company”) (NYSE American:
ACY), an independent aircraft leasing company, today reported a
second quarter 2020 net loss of $13.5 million, or ($8.74) per
share, compared to a net loss of $0.1 million, or ($0.05) per
share, for the second quarter of 2019.
In the first six months of 2020, the Company
reported a net loss of $23.7 million, or $(15.33) per share,
compared to a net loss of $1.4 million, or $(0.90) per share, in
the first six months of 2019.
Results for the quarter ended June 30, 2020
included impairment losses totaling $9.7 million. Those
losses arise from appraised values for three regional jet aircraft
that are held for sale; estimated sales proceeds for an older
turboprop aircraft that is held for sale and which the Company
expects to sell during the fourth quarter of 2020, and estimated
fair value of two regional jet aircraft that are held for
lease. Results for the second quarter of
2020 also included $2.0 million of charges arising from the
conversion of the Company’s revolving credit facility to a term
loan in May of 2020, including a $1.5 million write-off of a
portion of the Company’s unamortized debt issuance costs included
in interest expense and $0.5 million of costs that is included in
professional fees and other.
On May 1, 2020, the Company and the MUFG Credit
Facility Lenders (“MUFG Lenders”) executed an amendment to the MUFG
Credit Facility (as amended, the “MUFG Loan Agreement”) to convert
the MUFG Credit Facility into a term loan facility (as converted,
the “MUFG Loan”). The amendment includes certain requirements
and establishment of deadlines for achievement of milestones toward
execution of Company strategic alternatives for the Company and/or
its assets acceptable to the MUFG Lenders. The MUFG Lenders have
the right to exercise any and all remedies for default under the
MUFG Loan Agreement. Such remedies include, but are not
limited to, declaring the entire indebtedness immediately due and
payable and, if the Company were unable to repay such accelerated
indebtedness, foreclosing upon the assets of the Company that
secure the indebtedness under the MUFG Loan, which consist of all
of the Company’s assets except for certain assets held in the
Company’s single asset special-purpose financing
subsidiaries.
On May 20, 2020, JetFleet Management Corp. (the
“PPP Borrower”), a subsidiary of AeroCentury Corp., was granted a
loan (the “PPP Loan”) from American Express National Bank in the
aggregate amount of $276,353, pursuant to the Paycheck Protection
Program (the “PPP”) under Division A, Title I of the CARES Act,
which was enacted March 27, 2020. The PPP Loan, which was in
the form of a Note dated May 18, 2020 issued by the PPP Borrower,
matures on April 22, 2022 and bears interest at a rate of 1.00% per
annum, payable in 18 monthly payments commencing on November 20,
2020. Funds from the PPP Loan may only be used for payroll costs
and any payments of certain covered interest, lease and utility
payments. The Company intends to use the entire PPP Loan amount for
qualifying expenses. Under the terms of the PPP, certain amounts of
the Loan may be forgiven if they are used for qualifying expenses
as described in the CARES Act. No assurance can be provided
that the Company will obtain forgiveness of the PPP Loan in whole
or in part.
“During our second quarter, the COVID pandemic’s
impact continued to play out more fully,” explained Michael
Magnusson, President of AeroCentury Corp.
“Airlines around the world drastically reduced their
operations or ceased operating entirely. Many defaulted
on lease payments or demanded rent concessions,” Magnusson
continued. “As a result, aircraft lessors have
experienced increasing difficulties meeting financial
obligations to their lenders. AeroCentury is no
exception. A number of our customers were unable to make
rental payments during the second quarter, which
dramatically reduced the Company’s free cash flow.
The pandemic also delayed sales of surplus assets
anticipated to close in the second quarter. Finally,
the worldwide decrease in demand put significant downward
pressure on our aircraft valuations, which required the
Company during the last quarter to re-appraise our aircraft and
take significant asset value write-offs, which further eroded
our performance. All of these factors continued to
negatively affect the Company’s ability to comply with its
debt obligations.” Mr. Magnusson continued, “To meet
the unprecedented impact that the pandemic has had on
the Company, we have enacted cost-cutting measures, including
reductions in overhead and office space, and we continue to
work closely and cooperatively with our defaulting lessees and
our lenders to negotiate a workout of our customers’ lease
defaults and to restructure our debt obligations
accordingly. Many great challenges lie ahead, but we
remain hopeful as we are beginning to see signs
of adaptation by airlines and passengers to the
post-pandemic world and of a slow but steady recovery of the
airline industry.”
Second Quarter 2020 Highlights and Comparative
Data
- Net loss was $13.5 million compared to a loss of $10.2 million
in the preceding quarter and a loss of $0.1 million a year
ago.
- EBITDA(1) was ($8.3) million compared to ($4.7) million in the
preceding quarter and $5.3 million a year ago.
- Average portfolio utilization was 91% during the second quarter
of 2020, compared to 83% in the preceding quarter and 99% in the
second quarter of 2019. The year-to-year decrease was due to
aircraft that were on lease in the 2019 period, but off lease in
the 2020 period.
- Revenues in the second quarter of 2020 and the first six months
of 2020 consisted primarily of operating lease revenue. Revenue of
$4.4 million in the second quarter of 2020 was 8% less than the
$4.8 million in revenue recorded in the first quarter of 2020 as a
result of rent concessions granted to one of the Company’s
customers due to the COVID-19 pandemic. Second quarter
operating lease revenue in the current year was 37% lower than the
$7.0 million in the second quarter of 2019 primarily due to rent
concessions and reduced rent income resulting from the early
termination of four aircraft leases with one of the Company’s
customers in the third quarter of 2019.
- Total operating expenses increased by 9% to $19.2 million in
the second quarter of 2020 from $17.7 million in the preceding
quarter, and increased 72% from $7.3 million in the second quarter
a year ago.
- During the second quarter of 2020, the Company recognized asset
impairments of $9.7 million as a result of appraised values on
three regional jet aircraft held for sale and estimated sales
proceeds for three aircraft, one of which is held for sale,
compared to the first quarter of 2020 when the Company recognized
asset impairments of $6.7 million based on estimated sales proceeds
for some of its aircraft. During the second quarter of 2019,
the Company recognized a $160,000 asset impairment for an
asset held for sale based on a third-party appraised value.
- Depreciation expense decreased by 8% to $2.0 million in the
second quarter of 2020 from $2.2 million in the preceding quarter
and decreased by 33% from $3.0 million in the second quarter a year
ago, due to the reclassification of several aircraft from held for
lease to held for sale [during the third quarter of 2019.
- Interest expense decreased by 26% to $4.5 million in the second
quarter of 2020 from $6.0 million in the preceding quarter,
primarily due a decrease in non-cash charges and interest related
to the Company’s interest rate swaps, two of which were terminated
during the first quarter of 2020. Such decreases were partially
offset by a $1.5 million write-off of a portion of the Company’s
unamortized debt issuance costs during the second quarter that
resulted from the conversion of the Company’s revolving credit
facility to a term loan in May 2020. Interest expense
increased 80% from $2.5 million in the second quarter of 2019,
primarily as a result of a higher average interest rate and the
write-off discussed above.
- The Company recorded no bad debt expense during the second
quarter of 2020. As a result of payment delinquencies by two
customers that leased two of the Company’s aircraft subject to
finance leases, the Company recorded a bad debt expense of $1.2
million during the first quarter of 2020. The Company
recorded no bad debt expense during the first quarter of 2019.
- Salaries, employee benefits and professional fees and other
expenses increased by 78% to $2.9 million from $1.6 million in the
second quarter of 2019 and increased 85% from $1.6 million in the
first quarter of 2020 primarily due to increased legal fees arising
from the May 2020 conversion of the Company’s revolving credit
facility to a term loan in May 2020 and litigation relating to an
activist shareholder, consulting fees related to the May 2020 debt
conversion and increased amortization related to the Company’s
office lease right of use.
- Book value per share was $0.22 as of June 30, 2020, compared to
$8.84 at March 31, 2020 and $24.88 a year ago.
(1) EBITDA is a non-GAAP measure. See
below for its method of calculation and reconciliation to its most
directly comparable GAAP measure, as well as other information
about the use of non-GAAP measures generally, at the end of this
press release.
Aircraft and Engine
Portfolio
AeroCentury’s portfolio currently consists of
thirteen aircraft, spread over six different aircraft types.
Eleven of the aircraft, comprised of nine regional jets and two
turboprops, are held for lease. Two additional turboprops are
held under sales-type leases. The Company also has three
turboprop aircraft, two of which are being sold in parts, and three
regional jet aircraft that are held for sale. The current
customer base comprises seven customers operating in five
countries.
About AeroCentury: AeroCentury
is an independent global aircraft operating lessor and finance
company specializing in leasing regional jet and turboprop aircraft
and related engines. The Company's aircraft and engines are leased
to regional airlines and commercial users worldwide.
This press release contains forward-looking
statements within the “safe harbor” provisions of the Private
Securities Litigation Reform Act of 1995. All statements in this
press release other than statements that are purely historical are
forward-looking statements. Forward-looking statements in this
press release include statements regarding the ability of the
Company to work together with its defaulting lessees and our
lenders to negotiate a workout of our customers’ lease
defaults and to restructure our debt obligations; and
adaptation by airlines and passengers to the
post-pandemic world and of a slow but steady recovery of the
airline industry. The Company’s beliefs, expectations,
forecasts, objectives and strategies for the future are not
guarantees of future performance and are subject to risks and
uncertainties that could cause actual results to differ materially
from the results contemplated by the forward-looking statements,
including but not limited to unanticipated further defaults under
the Company’s debt agreements, failure to obtain favorable offers
for strategic transactions or to come to agreement with potential
offerors, and further disruptions to the airline industry due to
the COVID pandemic, other unforeseen events or general economic
conditions. The forward-looking statements in this press release
and the Company’s future results of operations are subject to
additional risks and uncertainties set forth under the heading
“Factors that May Affect Future Results and Liquidity” in documents
filed by the Company with the Securities and Exchange Commission,
including the Company's quarterly reports on Form 10-Q and the
Company’s latest annual report on Form 10-K, and are based on
information available to the Company on the date hereof. The
Company does not intend, and assumes no obligation, to update any
forward-looking statements made in this press release. Readers are
cautioned not to place undue reliance on forward-looking
statements, which speak only as of the date of this press
release.
Condensed Consolidated Statements of Income (in
thousands, except share and per share data) (Unaudited)
|
For the Three Months Ended |
For the Six Months Ended |
|
June 30, |
March 31, |
June 30, |
June 30, |
June 30, |
|
|
2020 |
|
|
2020 |
|
|
2019 |
|
|
2020 |
|
|
2019 |
|
|
|
|
|
|
|
Operating lease revenue |
$ |
4,379 |
|
$ |
4,768 |
|
$ |
6,966 |
|
$ |
9,147 |
|
$ |
14,114 |
|
Finance lease revenue |
|
- |
|
|
56 |
|
|
260 |
|
|
56 |
|
|
496 |
|
Net (loss)/gain on disposal
of assets |
|
13 |
|
|
(24 |
) |
|
100 |
|
|
(11 |
) |
|
278 |
|
Loss on sales-type finance
leases |
|
- |
|
|
- |
|
|
(171 |
) |
|
- |
|
|
(171 |
) |
Other (loss)/income |
|
- |
|
|
(23 |
) |
|
6 |
|
|
(23 |
) |
|
11 |
|
|
|
4,392 |
|
|
4,777 |
|
|
7,161 |
|
|
9,169 |
|
|
14,728 |
|
|
|
|
|
|
|
Interest |
|
4,460 |
|
|
6,013 |
|
|
2,485 |
|
|
10,472 |
|
|
5,398 |
|
Impairment |
|
9,727 |
|
|
6,655 |
|
|
160 |
|
|
16,382 |
|
|
1,568 |
|
Professional fees and
other |
|
2,398 |
|
|
1,063 |
|
|
1,021 |
|
|
3,461 |
|
|
2,024 |
|
Depreciation |
|
2,002 |
|
|
2,170 |
|
|
2,970 |
|
|
4,173 |
|
|
6,171 |
|
Bad debt expense |
|
- |
|
|
1,170 |
|
|
- |
|
|
1,170 |
|
|
- |
|
Salaries and employee
benefits |
|
518 |
|
|
517 |
|
|
621 |
|
|
1,035 |
|
|
1,220 |
|
Maintenance costs |
|
88 |
|
|
80 |
|
|
10 |
|
|
168 |
|
|
117 |
|
|
|
19,193 |
|
|
17,668 |
|
|
7,267 |
|
|
36,861 |
|
|
16,498 |
|
|
|
|
|
|
|
Loss before income tax
benefit |
|
(14,801 |
) |
|
(12,891 |
) |
|
(106 |
) |
|
(27,692 |
) |
|
(1,770 |
) |
|
|
|
|
|
|
Income tax benefit |
|
(1,283 |
) |
|
(2,713 |
) |
|
(28 |
) |
|
(3,996 |
) |
|
(384 |
) |
|
|
|
|
|
|
Net loss |
$ |
(13,518 |
) |
$ |
(10,178 |
) |
$ |
(78 |
) |
$ |
(23,696 |
) |
$ |
(1,386 |
) |
|
|
|
|
|
|
Loss per share: |
|
|
|
|
|
Basic |
$ |
(8.74 |
) |
$ |
(6.58 |
) |
$ |
(0.05 |
) |
$ |
(15.33 |
) |
$ |
(0.90 |
) |
Diluted |
$ |
(8.74 |
) |
$ |
(6.58 |
) |
$ |
(0.05 |
) |
$ |
(15.33 |
) |
$ |
(0.90 |
) |
|
|
|
|
|
|
Shares used in per
share computations: |
|
|
|
|
Basic |
|
1,545,884 |
|
|
1,545,884 |
|
|
1,545,884 |
|
|
1,545,884 |
|
|
1,545,884 |
|
Diluted |
|
1,545,884 |
|
|
1,545,884 |
|
|
1,545,884 |
|
|
1,545,884 |
|
|
1,545,884 |
|
Condensed Consolidated Balance Sheets (in
thousands) (Unaudited)
ASSETS |
|
June 30, |
December 31, |
|
|
2020 |
|
|
2019 |
|
|
|
|
Cash and cash equivalents |
$ |
1,531 |
|
$ |
2,350 |
|
Restricted cash |
|
28 |
|
|
1,077 |
|
Accounts receivable |
|
3,379 |
|
|
1,140 |
|
Finance leases receivable, net
of allowance for doubtful accounts |
|
2,880 |
|
|
8,802 |
|
Aircraft, net of accumulated
depreciation |
|
97,693 |
|
|
108,369 |
|
Assets held for sale |
|
15,225 |
|
|
26,036 |
|
Property, equipment and
furnishings, net of accumulated depreciation |
|
17 |
|
|
63 |
|
Office lease right of use, net
of accumulated amortization |
|
- |
|
|
948 |
|
Deferred tax asset |
|
1,962 |
|
|
518 |
|
Prepaid expenses and other
assets |
|
477 |
|
|
293 |
|
Total assets |
$ |
123,192 |
|
$ |
149,596 |
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
Liabilities: |
|
|
Accounts payable and accrued
expenses |
$ |
799 |
|
$ |
736 |
|
Accrued payroll |
|
143 |
|
|
164 |
|
Notes payable and accrued
interest, net of unamortized debt issuance costs |
|
112,693 |
|
|
111,638 |
|
Derivative liability |
|
1,054 |
|
|
1,825 |
|
Derivative termination
liability |
|
3,075 |
|
|
- |
|
Lease liability |
|
- |
|
|
337 |
|
Maintenance reserves |
|
2,280 |
|
|
4,413 |
|
Accrued maintenance costs |
|
46 |
|
|
446 |
|
Security deposits |
|
666 |
|
|
1,034 |
|
Unearned revenues |
|
1,951 |
|
|
3,039 |
|
Deferred income taxes |
|
- |
|
|
2,530 |
|
Income taxes payable |
|
151 |
|
|
175 |
|
Total liabilities |
|
122,858 |
|
|
126,337 |
|
|
|
|
Stockholders’ equity: |
|
|
Preferred stock, $0.001 par
value |
|
- |
|
|
- |
|
Common stock, $0.001 par
value |
|
2 |
|
|
2 |
|
Paid-in capital |
|
16,783 |
|
|
16,783 |
|
Retained earnings |
|
(12,814 |
) |
|
10,882 |
|
Accumulated other
comprehensive loss |
|
(600 |
) |
|
(1,371 |
) |
Treasury stock |
|
(3,037 |
) |
|
(3,037 |
) |
Total stockholders’
equity |
|
334 |
|
|
23,259 |
|
Total liabilities and
stockholders’ equity |
$ |
123,192 |
|
$ |
149,596 |
|
|
|
|
|
|
|
|
Use of Non-GAAP Financial Measures
To supplement the Company’s financial
information presented in accordance with accounting principles
generally accepted in the United States of America (“GAAP”), this
press release includes the non-GAAP financial measure of EBITDA.
The Company defines EBITDA as net (loss)/income, plus depreciation
expense, plus interest expense and plus/(minus) income tax
provision/(benefit). The table below provides a
reconciliation of this non-GAAP financial measure to its most
directly comparable financial measure calculated and presented in
accordance with GAAP. This non-GAAP financial measure should
not be considered as an alternative to GAAP measures such as net
(loss)/income or any other measure of financial performance
calculated and presented in accordance with GAAP. Rather, the
Company presents this measure as supplemental information because
it believes it provides meaningful additional information about the
Company’s performance for the following reasons: (1) this measure
allows for greater transparency with respect to key metrics used by
management, as management uses this measure to assess the Company’s
operating performance and for financial and operational
decision-making; (2) this measure excludes the impact of items
management believes are not directly attributable to the Company’s
core operating performance and may obscure trends in the business;
and (3) this measure may be used by institutional investors and the
analyst community to help analyze the Company’s business. The
Company’s non-GAAP financial measures may not be comparable to
similarly-titled measures of other companies because they may not
calculate such measures in the same manner as the Company does.
|
For the Three Months Ended(in thousands) |
|
June 30, |
March 31, |
June 30, |
|
|
2020 |
|
|
2020 |
|
|
2019 |
|
Reconciliation of Net loss to
EBITDA: |
|
|
|
Net loss |
$ |
(13,518 |
) |
$ |
(10,178 |
) |
$ |
(78 |
) |
Depreciation |
|
2,002 |
|
|
2,170 |
|
|
2,970 |
|
Interest |
|
4,460 |
|
|
6,013 |
|
|
2,485 |
|
Income tax benefit |
|
(1,283 |
) |
|
(2,713 |
) |
|
(28 |
) |
EBITDA: |
|
(8,339 |
) |
|
(4,708 |
) |
|
5,349 |
|
Harold M. LyonsChief Financial Officer(650) 340-1888
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