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Section 1: 8-K (8-K REPORT RE: FIRST QUARTER 2019 EARNINGS PR FOR AEROCENTURY CORP.)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
 
Date of Report (Date of Earliest Event Reported):  May 15, 2019
 

AEROCENTURY CORP.
_________________________________________
(Exact name of registrant as specified in its charter)
 
Delaware
94-3263974
(State or Other Jurisdiction of incorporation)
 
(I.R.S. Employer Identification No.)
 
   
1440 Chapin Avenue, Suite 310
Burlingame, CA 
 
94010
(Address of principal executive offices)
(Zip Code)
 
 
(650)-340-1888
Registrant’s telephone number, including area code:
 
 
Not Applicable
Former Name or Former Address, if changed since last report
 
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions: 
 ☐ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
 ☐ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
 ☐ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
 ☐ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))


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
ACY
NYSE American
 


 
Item 2.02:      Earnings Announcement
 
On May 15, 2019, AeroCentury Corp. (the "Company") announced via press release the Company's unaudited operating results for its first quarter ended March 31, 2019. A copy of the Company's press release is attached hereto as Exhibit 99.1. This Form 8-K and the attached exhibit are provided under Item 2.02 of Form 8-K and are furnished to, but not filed with, the Securities and Exchange Commission.
 
 
     
  AEROCENTURY CORP.
 
 
 
 
 
 
Date: May 15, 2019
  By:  /s/  Toni M. Perazzo
Its : Sr. Vice President - Finance

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Section 2: EX-99.1 (FORM OF MAY 15 2019 PRESS RELEASE)

Toni Prezzo
Chief Financial Officer
(650) 340-1888

AeroCentury Corp. Reports First Quarter 2019 Results

BURLINGAME, California, May 15, 2019 -- AeroCentury Corp. (“AeroCentury” or the “Company”) (NYSE American: ACY), an independent aircraft leasing company, today reported a first quarter net loss of $1.3 million, or $(0.85) per share, compared to net income $0.3 million, or $0.22 per share, for the first quarter of 2018.  First quarter 2019 results reflect the combined operations of AeroCentury and its subsidiary, JetFleet Holding Corp. (“JetFleet”), which was acquired on October 1, 2018.

The results for the first quarter ended March 31, 2019 included $1.4 million of impairment provisions related to two older off-lease turboprop aircraft and a spare engine, all of which were written down to their estimated sales values.  The Company expects the sales of these aircraft and engine to occur in the second quarter of 2019.  First quarter 2019 results also included a one-time, non-cash charge of $0.4 million related to the Company’s interest rate swaps, which is included in interest expense.  The first quarter of 2018 included $1.1 million of maintenance reserves revenue resulting from payments received during the first quarter of 2018 from a lessee that returned three leased aircraft to the Company in 2017.

“Despite the reported loss for the first quarter, there were significant positive developments for the Company that create stepping stones for the Company’s future success,” stated Michael Magnusson, AeroCentury’s President.

“First, we are indeed beginning to see the benefits of our acquisition of JetFleet in terms of cost reductions reflected in our first quarter results, and continue to expect this transaction will prove accretive to the Company’s earnings in the long term.  As a unified portfolio and management company, our results going forward now present an integrated view of the Company’s business, cost management, and financial performance, which we believe gives our shareholder base and potential new investors better insight into the Company’s business.

Second, the renewal, in February, of our revolving credit facility to February 2023, together with the refinancing of six of our aircraft with non-recourse term loans with a new lender that same month, has freed up availability of acquisition financing under our credit facility.

Third, the Company took a major step in the first quarter in furtherance of  its fleet modernization program.  We currently have three remaining older turboprop aircraft being held for sale, but we expect to sell two of them in the second quarter of 2019, and as a result of that anticipated sale, we were required to write down the book value on those two aircraft to their sales price.”




First Quarter 2019 Highlights and Comparative Data
·
Net loss was $1.3 million compared to the $3.8 million loss in the preceding quarter and net income of $0.3 million a year ago.
·
EBITDA1 was $4.4 million compared to $1.9 million in the preceding quarter and $5.7 million a year ago.
·
Average portfolio utilization was 98% during the first quarter of 2019, compared with 95% in the preceding quarter.  The increase was a result of the sale of off-lease aircraft during 2018.  Average portfolio usage was 90% during the first quarter of 2018.  The year-over-year increase was a result of the net effect of the acquisition of two aircraft during the second quarter of 2018 and sales of off-lease assets during 2018.
·
Total revenue and other income increased 18% to $7.6 million for the first quarter of 2019, compared to $6.4 million in the preceding quarter.  The increase from the preceding quarter was a result of gains on sale of aircraft during the first quarter, compared to losses on sales of aircraft in the fourth quarter of 2018.  Total revenue and other income decreased 4% from $7.9 million in the first quarter a year ago, as a result of lower maintenance reserves revenue, the effect of which was partially offset by increases in operating lease revenue and gains on sale of aircraft.
o
Operating lease revenue remained steady at $7.1 million in the first quarter of 2019, approximately the same as the fourth quarter of 2018, and increased 11% from $6.5 million in the first quarter of 2018.  The year-to-year change reflects assets purchased during 2018.
o
The Company recorded no maintenance reserves revenue in the first quarter of 2019 or fourth quarter of 2018 and $1.1 million in the first quarter of 2018.
o
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.  The Company expects to sell all three assets during the second quarter of 2019.  During the fourth quarter of 2018, the Company recognized $1.0 million loss on sale of an aircraft.  During the first quarter of 2018, the Company recognized $8,200 in losses from disposal of assets.
·
Total expenses decreased 9% to $9.2 million from $10.1 million in the preceding quarter.  Although the first quarter of 2019 included higher asset impairments and interest expense, including a one-time, non-cash charge related to the Company’s interest rate swaps, the increases in such expenses were less than the settlement loss recorded in the fourth quarter of 2018 in connection with the acquisition of JetFleet on October 1, 2018.  Total expenses increased 25% from $7.4 million in the year-ago quarter, primarily due to asset impairments and higher interest expense, the effects of which were partially offset by a $0.5 million decrease in salaries, employee benefits and professional fees and other compared to the pre-Merger management fees and professional fees and other incurred in the year-ago quarter.
·
Book value per share was $25.59 as of March 31, 2019, compared to $26.71 at December 31, 2018 and $33.66 a year ago.

Aircraft and Engine Portfolio

AeroCentury’s portfolio currently consists of twenty-two aircraft, spread over nine different aircraft types.  Sixteen of the aircraft, comprised of thirteen regional jets and three turboprops, are held for lease.  Three additional regional jets and three turboprops are held under sales-type or direct finance leases.  The Company also has one engine and five turboprop aircraft that are held for sale, two of which are being sold in parts.  The current customer base comprises nine customers operating in eight countries.

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

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, without limitation, statements regarding (a) the expectation that the Company’s acquisition of JetFleet Holding Corp. will be accretive to the Company’s earnings in the long term; (b) the anticipated sale of two turboprops and an engine in the second quarter of 2019, and (c) the Company’s continued pursuit of a fleet modernization program.  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 (a)  unanticipated increases in costs and expenses in connection with management of the Company; (b) a substantial change in the character of the aircraft portfolio or the status of aircraft lessees such that management of the portfolio would require additional expenditures of human and other resources; (c) failure of the Company to reach a final definitive agreement and consummate the sale of the two older turboprops and an engine due to the failure of either party to meet conditions precedent for the purchase and sale of the aircraft or the engine .   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 "Management’s Discussion and Analysis of Financial Condition and Results of Operations—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 as of the date hereof and speak only as of such date. The Company does not intend, and assumes no obligation, to update any forward-looking statements made in this press release. For these reasons, readers are cautioned not to place undue reliance on forward-looking statements.



Condensed Consolidated Statements of Income
(in thousands, except share and per share data) (Unaudited)

   
For the Three Months Ended
 
   
March 31,
   
December 31,
   
March 31,
 
   
2019
   
2018
   
2018
 
                   
Operating lease revenue
 
$
7,148
   
$
7,177
   
$
6,463
 
Maintenance reserves revenue2
   
-
     
-
     
1,050
 
Finance lease revenue
   
236
     
249
     
379
 
Gain/(loss) on disposal of assets
   
179
     
(1,034
)
   
(8
)
Other income
   
4
     
4
     
1
 
     
7,567
     
6,396
     
7,885
 
                         
Depreciation
   
3,201
     
3,217
     
2,942
 
Interest
   
2,912
     
2,419
     
2,254
 
Professional fees and other
   
1,004
     
1,141
     
680
 
Salaries and employee benefits
   
599
     
592
     
-
 
Maintenance costs
   
107
     
231
     
91
 
Management fees
   
-
     
-
     
1,447
 
Provision for impairment
   
1,408
     
-
     
-
 
Settlement loss
   
-
     
2,527
     
-
 
     
9,231
     
10,127
     
7,414
 
                         
(Loss)/income before
income taxes
   
(1,664
)
   
(3,731
)
   
471
 
                         
Income tax (benefit)/provision
   
(356
)
   
103
     
154
 
                         
Net (loss)/income
 
$
(1,308
)
 
$
(3,834
)
 
$
317
 
                         
(Loss)/earnings per share:
                       
Basic
 
$
(0.85
)
 
$
(2.48
)
 
$
0.22
 
Diluted
 
$
(0.85
)
 
$
(2.48
)
 
$
0.22
 
                         
Shares used in per share computations:
                 
Basic
   
1,545,884
     
1,545,884
     
1,416,699
 
Diluted
   
1,545,884
     
1,545,884
     
1,416,699
 




2 Maintenance reserves revenue is dependent upon the amount of reserves retained upon lease terminations.  The quarter ended March 31, 2018 included $1.1 million of maintenance reserves revenue resulting from payments received by the Company during the first quarter of 2018 from a lessee that returned three leased aircraft to the Company in 2017.


Condensed Consolidated Balance Sheets
(in thousands) (Unaudited)

ASSETS
 
   
March 31,
   
December 31,
 
   
2019
   
2018
 
             
Cash and cash equivalents
 
$
8,045
   
$
1,543
 
Securities
   
121
     
121
 
Accounts receivable
   
5,131
     
3,967
 
Finance leases receivable
   
14,249
     
15,251
 
Aircraft, net of accumulated depreciation
   
174,311
     
184,020
 
Assets held for sale
   
10,135
     
10,223
 
Property, equipment and furnishings, net of accumulated depreciation
   
69
     
69
 
Lease right of use, net of accumulated amortization
   
1,373
     
-
 
Favorable lease acquired, net of accumulated
  amortization
   
-
     
863
 
Deferred tax asset
   
315
     
255
 
Prepaid expenses and other assets
   
365
     
840
 
Total assets
 
$
214,114
   
$
217,152
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
 
Liabilities:
               
Accounts payable and accrued expenses
 
$
412
   
$
1,026
 
Accrued payroll
   
100
     
79
 
Notes payable and accrued interest, net of
  unamortized debt issuance costs
   
131,231
     
131,092
 
Derivative liability
   
941
     
-
 
Lease liability
   
574
     
-
 
Maintenance reserves
   
25,797
     
28,527
 
Accrued maintenance costs
   
667
     
463
 
Security deposits
   
3,053
     
3,368
 
Unearned revenues
   
4,595
     
3,275
 
Deferred income taxes
   
7,020
     
7,537
 
Income taxes payable
   
172
     
497
 
Total liabilities
   
174,562
     
175,864
 
                 
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
   
26,232
     
27,540
 
Accumulated other comprehensive income
   
(428
)
   
-
 
Treasury stock
   
(3,037
)
   
(3,037
)
Total stockholders’ equity
   
39,552
     
41,288
 
Total liabilities and stockholders’ equity
 
$
214,114
   
$
217,152
 


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 (benefit)/provision.  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 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
 
   
March 31,
   
December 31,
   
March 31,
 
   
2019
   
2018
   
2018
 
Reconciliation of Net (loss)/income to EBITDA:
                 
Net (loss)/income
 
$
(1,308
)
 
$
(3,834
)
 
$
317
 
Depreciation
   
3,201
     
3,217
     
2,942
 
Interest
   
2,912
     
2,419
     
2,254
 
Income tax (benefit)/provision
   
(356
)
   
103
     
154
 
EBITDA:
   
4,449
     
1,905
     
5,667
 


Transmitted on Globenewswire on May 15, 2019 at 4:00 a.m. PDT.
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