GlobeNewswire Inc | Aug 13, 2020 08:00PM EDT

August 14, 2020

BURLINGAME, Calif., Aug. 13, 2020 (GLOBE NEWSWIRE) -- 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 Companys revolving credit facility to a term loan in May of 2020, including a $1.5 million write-off of a portion of the Companys 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 Companys assets except for certain assets held in the Companys 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 pandemics impact continued to play out more fully, explained Michael Magnusson, President of AeroCentury Corp. Airlinesaround the world drastically reduced their operations or ceased operating entirely. Manydefaulted onlease payments or demanded rent concessions, Magnusson continued. As a result, aircraft lessors have experiencedincreasing difficulties meeting financial obligations to their lenders. AeroCentury is no exception.Anumber of our customers were unable to make rentalpayments during the second quarter,which dramatically reduced the Companys free cash flow. The pandemic also delayed sales of surplus assets anticipated to close in the second quarter. Finally, theworldwide decrease in demand put significant downward pressure on our aircraftvaluations, whichrequired the Company during the last quarter to re-appraise our aircraft and take significant asset valuewrite-offs, which further eroded our performance. All of these factors continued to negatively affect the Companys ability to comply with its debtobligations. Mr. Magnusson continued, To meet the unprecedented impact that the pandemic has had on theCompany, we have enacted cost-cutting measures, including reductions in overhead and office space,and we continue to work closely and cooperatively with our defaultinglessees and our lenders tonegotiate a workout of our customers lease defaults and to restructure our debt obligations accordingly.Many great challenges lie ahead, but we remain hopeful aswearebeginningto see signs of adaptationby airlines and passengersto 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 Companys 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 Companys 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 Companys 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 Companys unamortized debt issuance costs during the second quarter that resulted from the conversion of the Companys 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 Companys 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 Companys 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 Companys 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

AeroCenturys 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 defaultinglessees and our lenders tonegotiate a workout of our customers lease defaults and to restructure our debt obligations; and adaptationby airlines and passengersto the post-pandemic world and of a slow but steady recovery of the airline industry. The Companys 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 Companys 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 Companys 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 Companys 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 Operatinglease $ 4,379 $ 4,768 $ 6,966 $ 9,147 $ 14,114 revenueFinancelease - 56 260 56 496 revenueNet (loss)/gain on 13 (24 ) 100 (11 ) 278 disposal of assetsLoss onsales-type - - (171 ) - (171 )financeleasesOther (loss) - (23 ) 6 (23 ) 11 /income 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 Professionalfees and 2,398 1,063 1,021 3,461 2,024 otherDepreciation 2,002 2,170 2,970 4,173 6,171 Bad debt - 1,170 - 1,170 - expenseSalaries andemployee 518 517 621 1,035 1,220 benefitsMaintenance 88 80 10 168 117 costs 19,193 17,668 7,267 36,861 16,498 Loss beforeincome tax (14,801 ) (12,891 ) (106 ) (27,692 ) (1,770 )benefit Income tax (1,283 ) (2,713 ) (28 ) (3,996 ) (384 )benefit 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 2,880 8,802 doubtful accountsAircraft, net of accumulated depreciation 97,693 108,369 Assets held for sale 15,225 26,036 Property, equipment and furnishings, net of 17 63 accumulated depreciationOffice lease right of use, net of accumulated - 948 amortizationDeferred tax asset 1,962 518 Prepaid expenses and other assets 477 293 Total assets $ 123,192 $ 149,596 LIABILITIES AND STOCKHOLDERS? EQUITYLiabilities: Accounts payable and accrued expenses $ 799 $ 736 Accrued payroll 143 164 Notes payable and accrued interest, net of 112,693 111,638 unamortized debt issuance costsDerivative 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 Companys 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 Companys 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 Companys 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 Companys 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 Companys business. The Companys 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