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| 8-K - AEROCENTURY CORP. REPORT ON FORM 8-K DTD JUNE 3, 2020 - AEROCENTURY CORP | act8k1q2020earningspr.htm |
AeroCentury
Corp. Reports 1Q2020 Earnings
June 2,
2020
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|
Hal
Lyons
Chief
Financial Officer
(650)
340-1888
AeroCentury Corp. Reports First Quarter 2020 Results
BURLINGAME, California, June 2,
2020 -- AeroCentury Corp. (“AeroCentury” or the
“Company”) (NYSE American: ACY), an independent
aircraft leasing company, today reported a first quarter 2020 net
loss of $10.2 million, or ($6.58) per share, compared to a net loss
of $1.3 million, or ($0.85) per share, for the first quarter of
2019.
Results
for the quarter ended March 31, 2020 included impairment losses
totaling $6.7 million, arising from revised estimated sales
proceeds for three regional jet aircraft and an older turboprop
aircraft that is being sold in parts. Results also included a $1.2
million bad debt allowance related to two of the Company’s
aircraft that are subject to finance leases and a $1.9 million non-cash charge related
to the Company’s interest rate swaps, which is included
in interest expense.
The
results for the first quarter ended March 31, 2019 included $1.4
million of impairment provisions related to the write-down of two
older off-lease turboprop aircraft and a spare engine to their
estimated sales values, and a non-cash charge of $0.4 million
related to the Company’s interest rate swaps, which was
included in interest expense.
During
the first quarter ended March 31, 2020, the COVID-19 pandemic had a
significant impact on the Company’s financial circumstances,
mainly due to the impact on the Company’s primary customers,
regional airlines. The Company’s customers have experienced a
steep decline in revenue, and some requested lease payment
concessions and/or deferrals from the Company.
On May 1, 2020, the Company and its credit facility lenders entered
into a Fourth Amended and Restated Loan and Security
Agreement, which converted the Company’s revolving
credit facility with MUFG Union Bank as Agent, into a term loan
with an initial principal balance of $83,689,900. The amendment
provides for a forbearance of the existing defaults and events of
default under the Company’s indebtedness to at least June 29,
2020, which is the milestone for the Company entry into a written
agreement for a strategic transaction that would enable repayment of the MUFG
indebtedness. The loan has a stated final maturity date
of March 31, 2021, but also
requires that the Company close on such strategic transaction by
August 15, 2020. A more detailed description of the agreement, as
well as the full text of the agreement, is available in the
Company’s Current Report on Form 8-K filed with the
Securities and Exchange Commission on May 5,
2020.
“The
COVID pandemic has had a severe negative impact on the airline
industry and our lessees and their compliance with lease
obligations,” explained Michael Magnusson, President of
AeroCentury Corp. “We were, however, with the cooperation of
our lenders, able to consummate in early May an amendment to our
MUFG loan agreement ,” Magnusson continued. “We believe
the terms of the amendment make it possible for the Company to
negotiate and execute a strategic transaction aimed at resolving
our MUFG loan default, and puts the Company in a better position to
weather the COVID impact as it plays out in the coming
quarters. The Company faces many challenges outside of
its control, but we remain steadfast in our aim to preserve
shareholder value as much as possible as we work through these
unprecedented times for the aircraft leasing
industry.”
AeroCentury
Corp. Reports 1Q2020 Earnings
June 2,
2020
Page
2
First Quarter 2020 Highlights and Comparative Data
●
Net loss was $10.2
million compared to a loss of $7.0 million in the preceding quarter
and a loss of $1.3 million a year ago.
● EBITDA(1) was ($4.7) million compared to ($2.9)
million in the preceding quarter and $4.4 million a year
ago.
●
Average portfolio
utilization was 83% during the first quarter of 2020 and fourth
quarter of 2019, compared to 98% in the first 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.
●
Total revenues
decreased 2% to $4.8 million for the first quarter of 2020,
compared to $4.9 million in the preceding quarter, and decreased
37% from $7.6 million in the first quarter a year ago.
o
Operating lease revenue was
approximately the same in the first quarter of 2020 and fourth
quarter of 2019 and decreased 33% to $4.8 million in the first
quarter of 2020 from $7.1 million in the first quarter of
2019 primarily due to 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 and the sale
of an asset in the first quarter of 2019 that had been on lease
until the time of sale.
o
During the first
quarter of 2020, the Company recorded losses totaling $41,800 on
the sale of four aircraft, which was partially offset by $17,600 of
gains on the sale of aircraft parts. During the fourth quarter of 2019,
the Company recognized net gains of $5,000 related primarily to the
sale of aircraft parts and an aircraft. During the first
quarter of 2019, the Company recorded gains totaling approximately
$0.2 million on the sale of an aircraft and aircraft
parts.
●
Total operating
expenses increased 28% to $17.7 million from $13.8 million in the
preceding quarter, and increased 91% from $9.2 million in the first
quarter a year ago.
o
During the first
quarter of 2020, the Company recognized asset impairments of $6.7
million, based on estimated sales proceeds, compared to the fourth
quarter of 2019, when the Company recognized asset impairments of
$6.1 million, based on third-party appraised values or expected
sales proceeds. During the first quarter of 2019, the Company
recognized $1.4 million of asset impairments on three assets held
for sale, based on estimated sales proceeds.
o
Depreciation
expense decreased by 11% to $2.2 million in the first quarter of
2020 from $2.4 million in the preceding quarter and decreased by
32% from $3.2 million in the first quarter a year ago, due to sales
of aircraft during 2019 and the reclassification of several
aircraft from held for lease to held for sale.
o
Interest expense
increased by 69% to $6.0 million in the first quarter of 2020 from
$3.6 million in the fourth quarter of 2019 and increased 106% from
$2.9 million in the first quarter of 2019, primarily as a result of
a higher average interest rate and charges related to the
Company’s interest rate swaps, the effects of which were partially offset by a
lower average debt balance.
o
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 compared to a $1.0 million reversal of bad debt
allowance related to the same to customers in the fourth quarter of
2019 based on payments made early in the first quarter of 2020. The
Company recorded no bad debt expense during the first quarter of
2019.
o
Salaries, employee
benefits and professional fees and other expenses were
approximately the same in the first quarters of 2019 and 2020. Such
expenses were $0.6 million higher than in the fourth quarter of
2019, primarily due to the writeoff of a portion of the
Company’s unamortized legal
costs and other legal expenses related to credit facility in the
fourth quarter.
●
Book value per
share was $8.84 as of March 31, 2020, compared to $15.05 at
December 31, 2019 and $25.59 a year ago.
AeroCentury
Corp. Reports 1Q2020 Earnings
June 2,
2020
Page
3
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 eight customers
operating in six 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 that the
terms of the amendment make it possible for the Company to
negotiate and execute a strategic transaction aimed at resolving
its MUFG loan default, and puts the Company in a better position to
weather the COVID impact as it plays out in the coming quarters;
and that the Company aims to preserve shareholder value as
much as possible while working through unprecedented times for the
aircraft leasing 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.
AeroCentury
Corp. Reports 1Q2020 Earnings
June 2,
2020
Page
4
Condensed Consolidated Statements of Income
(in thousands, except share and per share data)
(Unaudited)
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For the Three
Months Ended
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March
31,
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December
31,
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March
31,
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2020
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2019
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2019
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Operating lease
revenue
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$4,768
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$4,789
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$7,148
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Finance lease
revenue
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56
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88
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236
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Net (loss)/gain on
disposal of assets
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(24)
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5
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179
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Other
(loss)/income
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(23)
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1
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4
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4,777
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4,883
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7,567
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Impairment
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6,655
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6,084
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1,408
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Interest
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6,013
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3,559
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2,912
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Depreciation
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2,170
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2,447
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3,201
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Bad debt
expense
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1,170
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(1,009)
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-
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Professional fees
and other
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1,063
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1,614
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1,004
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Salaries and
employee benefits
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517
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618
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599
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Maintenance
costs
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80
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478
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107
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17,668
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13,791
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9,231
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Loss before income
tax benefit
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(12,891)
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(8,908)
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(1,664)
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Income tax
benefit
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(2,713)
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(1,867)
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(356)
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Net
loss
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$(10,178)
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$(7,041)
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$(1,308)
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Loss per
share:
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Basic
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$(6.58)
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$(4.55)
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$(0.85)
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Diluted
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$(6.58)
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$(4.55)
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$(0.85)
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Shares
used in per share computations:
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Basic
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1,545,884
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1,545,884
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1,545,884
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Diluted
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1,545,884
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1,545,884
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1,545,884
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AeroCentury
Corp. Reports 1Q2020 Earnings
June 2,
2020
Page
5
Condensed Consolidated Balance Sheets
(in thousands) (Unaudited)
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ASSETS
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March
31,
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December
31,
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2020
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2019
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|
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Cash and cash
equivalents
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$1,746
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$2,350
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Restricted
cash
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2,252
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1,077
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Accounts
receivable
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2,470
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1,140
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Finance leases
receivable, net of allowance for doubtful accounts
|
2,880
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8,802
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Aircraft, net of
accumulated depreciation
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106,200
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108,369
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Assets held for
sale
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18,289
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26,036
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Property, equipment
and furnishings, net of accumulated depreciation
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18
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63
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Office lease right
of use, net of accumulated amortization
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442
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948
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Deferred tax
asset
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631
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518
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Prepaid expenses
and other assets
|
995
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293
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Total
assets
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$135,923
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$149,596
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LIABILITIES AND
STOCKHOLDERS’ EQUITY
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Liabilities:
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|
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Accounts payable
and accrued expenses
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$1,234
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$736
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Accrued
payroll
|
107
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164
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Notes payable and
accrued interest, net of unamortized debt issuance
costs
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110,958
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111,638
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Derivative
liability
|
1,105
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1,825
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Derivative
termination liability
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3,075
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-
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Lease
liability
|
36
|
337
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Maintenance
reserves
|
2,396
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4,413
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Accrued maintenance
costs
|
58
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446
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Security
deposits
|
666
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1,034
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Unearned
revenues
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2,460
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3,039
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Deferred income
taxes
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-
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2,530
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Income taxes
payable
|
164
|
175
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Total
liabilities
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122,259
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126,337
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Stockholders’
equity:
|
|
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Preferred stock,
$0.001 par value
|
-
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-
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Common stock,
$0.001 par value
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2
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2
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Paid-in
capital
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16,783
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16,783
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Retained
earnings
|
704
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10,882
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Accumulated other
comprehensive income
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(788)
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(1,371)
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Treasury
stock
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(3,037)
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(3,037)
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Total
stockholders’ equity
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13,664
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23,259
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Total liabilities
and stockholders’ equity
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$135,923
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$149,596
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AeroCentury
Corp. Reports 1Q2020 Earnings
June 2,
2020
Page
6
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.
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For
the Three Months Ended
(in thousands)
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March
31,
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December
31,
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March
31,
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2020
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2019
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2019
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Reconciliation of
Net loss to EBITDA:
|
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Net
loss
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$(10,178)
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$(7,041)
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$(1,308)
|
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Depreciation
|
2,170
|
2,447
|
3,201
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Interest
|
6,013
|
3,559
|
2,912
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Income tax
benefit
|
(2,713)
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(1,867)
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(356)
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EBITDA:
|
(4,708)
|
(2,902)
|
4,449
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