What changed in this filing

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Item 7. Management’s Discussion and Analysis

2024-03-08 compared with 2023-03-07 · 62 added, 77 removed, 91 unchanged (60% of the section changed)

ITEM 7 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following management’s discussion and analysis together with the financial statements and related notes included elsewhere in this Annual Report.

You should read the following management’s discussion and analysis together with the Consolidated Financial Statements.

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 by AerSale because of the factors described in the sections entitled “Risk Factors” and “Cautionary Note Regarding Forward Looking Statements.” A discussion of the year ended December 31, 2021 compared to the year ended December 31, 2020 is included in our Annual Report on Form 10-K for the year ending December 31, 2021, filed with the SEC on March 15, 2022 under Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

AerSale’s future results and financial condition may differ materially from those currently anticipated by AerSale because of the factors described in the sections entitled “Risk Factors” and “Special Note Regarding Forward-looking Statements.” A discussion of the year ended December 31, 2022 compared to the year ended December 31, 2021 is included in our Annual Report on Form 10-K for the year ending December 31, 2022, filed with the SEC on March 7, 2023 under Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

We operate as a platform for serving the commercial aviation aftermarket sector.

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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.

Asset Management Solutions, comprised of activities that extract value from strategic Flight Equipment 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.

We focus on mid-life Flight Equipment and monetize them through our Asset Management Solutions segment.

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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 from this segment are segregated between Aircraft and Engine depending on the asset type that generated the revenue.

Lease revenues and the related depreciation from aircraft and engines installed on those aircrafts is recognized under the Aircraft category.

Revenues 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.

Revenue from this segment is segregated between Aircraft and Engine depending on the asset type that generated the revenue.

Lease revenue and the related depreciation from aircraft and engines installed on those aircraft are recognized under the Aircraft category.

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.

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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.

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.

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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.

An example of these solutions is the AerSafe® product line, which we designed and for which we obtained Federal Aviation Administration (“FAA”) approval to sell as a solution for compliance with the FAA’s fuel tank flammability regulations.

Another example of these solutions is our AerAware™ product, an industry-leading, next generation Enhanced Flight Vision System (“EFVS”) that has recently received approval by the FAA for the Boeing B737NG product line.

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 activities that are expensed as incurred.

Continued impact of COVID-19

The COVID-19 pandemic continues to negatively affect the global economy, our business and operations, supply chains, inflation, the labor market and the aviation industry.

Commercial air travel has been significantly disrupted by the pandemic and government and business actions in response.

Although we continue to see signs of ongoing recovery, there continues to be uncertainty with respect to when commercial air traffic will fully return to and/or exceed pre-COVID-19 levels.

For additional information related to the COVID-19 pandemic, see Part I, Item 1A.

“Risk Factors” of this Annual Report.

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.

Results of Operations

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Whole Asset Sale

Total revenues for the year ended December 31, 2022 increased by $68.1 million or 20.0% compared to 2021, driven by an increase of $45.6 million, or 19.7%, within Asset Management Solutions and an increase of $22.5 million, or 20.8%, within TechOps.

Total revenues for the year ended December 31, 2023 decreased by $74.0 million or 18.1% compared to 2022, driven by a decrease of $62.4 million, or 22.5%, within Asset Management Solutions and a decrease of $11.6 million, or 8.9%, within TechOps.

Asset Management Solutions

Sales in the Asset Management Solutions segment increased by $45.6 million to $277.6 million, or 19.7%, for the year ended December 31, 2022 compared to 2021, due to a $14.1 million increase in revenues from Aircraft, and a $31.5 million increase in revenues from Engines.

The increase in Aircraft revenue is primarily attributable to increased activity in the B747 product line driven by Flight Equipment sales, which amounted to a total increase of $18.4 million compared to 2021, which was partly offset by lower leasing volume of $7.8 million driven by the termination of certain leases as a result of the Ukraine war, as well as the sale of previously leased Flight Equipment at the end of the lease term.

The increase in Engines revenue is primarily attributable to increased activity in the CF6-80, CFM56 and PW4000 product lines as a result of higher Flight Equipment sales of $23.4 million and higher leasing activity of $5.9 million.

The increase in Flight Equipment sales is directly related to the sale of previously leased Flight Equipment and asset acquisitions of Flight Equipment we carried out during 2021 and 2022, as we identified increased demand in product lines that served the cargo market as a result of the COVID-19 pandemic.

Cost of sales in Asset Management Solutions increased by $16.9 million to $159.4 million, or 11.9%, for the year ended December 31, 2022 compared to 2021.

The increase in cost of sales was primarily driven by the sales increase discussed above.

Gross profit in Asset Management Solutions increased by $28.7 million to $118.2 million, or 32.0%, for the year ended December 31, 2022 compared to 2021.

The margin increase is mainly attributable to higher margins on Flight Equipment sales and USM sales of $29.8 million, as well as lower impact of inventory reserves recorded during the year ended December 31, 2022, which amounted to $1.8 million compared to $6.4 million in 2021.

Aircraft gross profit margins increased to 35.6% for the year ended December 31, 2022, from 34.5% for the year ended December 31, 2021, due to the impact of Flight Equipment’s sales which generated an average margin of 37.9%, as well as lower inventory reserves.

Engines gross profit margins increased to 46.6% for the year ended December 31, 2022, from 41.1% for the year ended December 31, 2021, mainly due to the impact of Flight Equipment’s sales which generated an average margin of 47.6%, partly offset by the impact of USM sales due to fluctuations in the product mix.

AerSale’s revenue from the TechOps segment increased by $22.5 million to $130.9 million, or 20.8%, for the year ended December 31, 2022, compared to 2021.

The increase was primarily driven by the sale of Flight Equipment, which was purchased and controlled by the TechOps segment prior to its ultimate sale, along with improved landing gear and component repair activities;

offset by lower revenues from storage 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.

Cost of sales in TechOps increased by $19.2 million to $97.7 million, or 24.4%, for the year ended December 31, 2022 compared to 2021, driven by costs generated from the sale of Flight Equipment of $16.1 million and cost associated with revenue fluctuations noted above .

Gross profit in TechOps increased $3.3 million to $33.2 million, or 11.1%, for the year ended December 31, 2022, compared to 2021, driven by the profit generated from the sale of Flight Equipment of $7.6 million, offset by lower gross profit of $7.0 million on MRO services.

Gross profit margin decreased to 25.3% for the year ended December 31, 2022 compared to 27.5% for the year ended December 31, 2021, and was largely attributable to lower margins generated on MRO services of 22.2% for the year ended December 31, 2022 compared to 28.2% for the year ended December 31, 2021, driven by lower margin on storage related maintenance at our Roswell facility.

Sales in the Asset Management Solutions segment decreased by $62.4 million to $215.2 million, or 22.5%, for the year ended December 31, 2023 compared to 2022, due to a $20.6 million decrease in revenues from Aircraft, and a $41.8 million decrease in revenues from Engines.

The decrease in Aircraft revenue is primarily attributable to decreased activity in the B747 and B757 product lines due to lower Flight Equipment sales in the amount of $21.1 million resulting from softer demand in the freighter market, and lower leasing revenue of $6.3 million, partly offset by higher USM sales.

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 of $40.4 million, and lower leasing revenue of $7.9 million, partially offset by higher USM sales.

Cost of sales in Asset Management Solutions decreased by $11.9 million to $147.5 million, or 7.4%, for the year ended December 31, 2023 compared to 2022.

The decrease in cost of sales was primarily driven by the sales decrease discussed above.

Gross profit in Asset Management Solutions decreased by $50.6 million to $67.7 million, or 42.8%, for the year ended December 31, 2023 compared to 2022.

The gross profit decrease is mainly attributable to lower revenue generated for the year ended December 31, 2023, as noted above.

Aircraft gross profit margins decreased to 28.1% for the year ended December 31, 2023, from 35.6% for the year ended December 31, 2022, due to lower margin on Flight Equipment sales resulting from lower mix of B757 freighters.

Engines gross profit margins decreased to 33.4% for the year ended December 31, 2023, from 46.6% for the year ended December 31, 2022, mainly due to lower margin on Flight Equipment sales, partly offset by higher margin on USM sales.

AerSale’s revenue from the TechOps segment decreased by $11.6 million to $119.3 million, or 8.9%, for the year ended December 31, 2023, compared to 2022.

The decrease was primarily driven by the sale of Flight Equipment during 2022, which was acquired and dedicated to the TechOps segment prior to its ultimate sale, partly offset by higher revenues from component repair activities and heavy MRO services.

Cost of sales in TechOps decreased by $3.2 million to $94.6 million, or 3.3%, for the year ended December 31, 2023 compared to 2022, driven by costs generated from the sale of Flight Equipment of $16.1 million, partially offset by cost associated with revenue fluctuations noted above.

Gross profit in TechOps decreased $8.4 million to $24.8 million, or 25.3%, for the year ended December 31, 2023, compared to 2022, driven by the profit generated from the sale of Flight Equipment of $7.1 million, and lower gross profit on Product sales and MRO services.

Gross profit margin decreased to 20.8% for the year ended December 31, 2023 compared to 25.3% for the year ended December 31, 2022, and was largely attributable to margins generated from the sales of Flight Equipment of 32.2% for the year ended December 31, 2022, as well as lower margin on MRO services of 19.9% for the year ended December 31, 2023 compared to 22.2% for the year ended December 31, 2022.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased by $6.9 million to $103.2 million, or 7.1%, for the year ended December 31, 2023, as compared to 2022.

The increase was mostly related to higher payroll expenses of $10.7 million associated with market adjustments, additional headcount, and higher share-based compensation expense of $3.8 million, as well as higher cost incurred on improvements with respect to information technology and cybersecurity, professional consulting fees, and facility costs associated with new facilities.

CARES Act Proceeds

No CARES Act Proceeds were received or recognized for the year ended December 31, 2022, as compared to $14.8 million recognized during 2021.

The amount recognized during 2021 was the result of the Payroll Support Extension Law and American Rescue Plan Act of 2021, which was enacted into law during 2021.

Unrealized loss on investments

AerLine Holdings, Inc.

(“AerLine”) was a consolidating VIE prior to August 31, 2018.

Refer to Note S for additional disclosures.

On August 31, 2018, AerLine sold the customer relationships of its operating company, XTRA Airways, in consideration for a 9.99% interest in the buyer (“Buyer”), which rolled into the equity interest of a larger holding company when the Buyer was acquired.

On November 10, 2021, AerLine transferred this equity interest to us in settlement of trade amounts due totaling $5.4 million.

Based on the deterioration of the Buyer’s financial condition noted by the Company in the fourth quarter of 2021, we recognized an unrealized loss on the investment of $5.4 million during the three-month period ended December 31, 2021.

The increase was mostly related to Company-wide cost of living adjustments, additional headcount, along with higher facility costs focused on increasing MRO capacity, as well as higher legal costs incurred.

Change in fair value of warrant liability

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The fair value of our private warrants was determined using the Black-Scholes option pricing model.

For the year ended December 31, 2022, we recorded a $0.5 million loss on the change in fair value of the warrant liability, compared to a $2.9 loss in the prior year.

Interest Expense

Interest expense, net decreased by $2.1 million to $1.1 million income for the year ended December 31, 2022, as compared to 2021 and was primarily related to higher interest yields on our deposits and lack of borrowings under the Company’s revolving credit facility.

For the year ended December 31, 2023, we recorded a $2.3 million gain on the change in fair value of the warrant liability, compared to a $0.5 million loss in the prior year.

Interest Income (Expense), Net

Interest income, net for the year ended December 31, 2023 was $0.2 million, as compared to $1.1 million for the year ended December 31, 2022.

The decrease in interest income, net is due to deployment of cash on feedstock acquisitions.

Other Income, Net

Other Income for the Year ended December 31, 2022 increased by $1.8 million to $2.3 million, as compared to 2021 primarily due to the collection of insurance proceeds in the amount $4.3 million for the full settlement of the Air Indus insurance claim, of which $1.8 million was classified as other income.

Other income, net for the year ended December 31, 2023 decreased by $1.6 million to $0.7 million, as compared to 2022 primarily due to the collection of insurance proceeds during 2022 in the amount $4.3 million for the full settlement of the Air Indus insurance claim, of which $1.8 million was classified as other income, net.

The effective tax rate for the year ended December 31, 2023 was 27.5% compared to 24.2% for the year ended December 31, 2022.

The modest decrease in the effective tax rate was mainly a result of a decrease in favorable permanent differences offset by an increase in credits.

The difference between the effective tax rate and the statutory tax rate of 21% for the year ended December 31, 2022, was primarily due to the impact of state income taxes and executive compensation, offset by the foreign derived intangible income deduction.

The increase in the effective tax rate was mainly a result of a valuation allowance release offset and an increase in credits offset by higher nondeductible executive compensation.

The difference between the effective tax rate and the statutory tax rate of 21% for the year ended December 31, 2023, was primarily due to the impact of a valuation allowance release and an increase in credits offset by executive compensation.

The difference between the effective tax rate and the statutory tax rate of 21% for the year ended December 31, 2022, was primarily due to the impact of state income taxes, a valuation allowance and permanent differences partially offset by the foreign derived intangible income deduction.

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We finance our growth through cash flows generated from operations and borrowings secured by our assets.

There were no borrowings during the year ended December 31, 2022.

We had no outstanding balance on the Amended and Restated Credit Agreement as of December 31, 2022, and we had $106.8 million of availability as of the end of 2022.

Cash used in operations was $0.1 million, cash generated from investing activities was $41.4 million, and cash used in financing activities was $24.3 million for the year ended December 31, 2022.

We believe our equity base, internally generated funds, and existing availability under our debt facility are sufficient to maintain our level of operations over the next 12 months.

Any projections of future cash needs and cash flows beyond the next 12 months are subject to substantial uncertainty, but we believe our sources of liquidity as discussed above will be sufficient to meet our long-term cash requirements.

We had $29.0 million outstanding under the Revolving Credit Agreement as of December 31, 2023, and we had $131.0 million of availability thereunder.

We used cash in operations of $174.2 million, mostly for feedstock acquisitions of $131.9 million, generated cash from investing activities of $3.1 million, and generated cash from financing activities in the amount of $29.7 million for the year ended December 31, 2023.

During the year ended December 31, 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 December 31, 2023.

We believe our equity base, internally generated funds, and existing availability under our debt facilities are sufficient to maintain our level of operations over the next 12 months.

Any projections of future cash needs and cash flows beyond the next twelve months are subject to substantial uncertainty, but we believe our sources of liquidity, as discussed above, will be sufficient to meet our long-term cash requirements.

If an event occurs that would affect our ability 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.

We may, from time to time, purchase our outstanding shares of common stock through cash purchases and/or exchanges for equity or debt, 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—Year ended December 31, 2023 compared to Year ended December 31, 2022

Cash Flows from Operating Activities

Net cash used in operating activities was $0.1 million for the year ended December 31, 2022 compared to cash provided of $79.1 million for the same period in 2021.

The decrease of $79.2 million was primarily due to the application of previously collected deposits to the sale of whole assets during the period, along with timing of cash advances to vendors.

Net cash used in operating activities was $174.2 million for the year ended December 31, 2023 compared to cash used of $0.1 million for the same period in 2022.

The increase in cash deployed of $174.1 million was primarily due to feedstock acquisitions of $131.9 million and the impact of lower results from operations.

Cash Flows from Investing Activities

Net cash provided by investing activities was $3.1 million for the year ended December 31, 2023, compared to cash provided of $41.4 million in the same period for 2022.

Cash provided from investing activities during the year ended December 31, 2022 was primarily related to the sale of Flight Equipment totaling $52.8 million, compared to $17.1 million during the year ended December 31, 2021.

Cash provided by investing activities during the years ended December 31, 2023 and 2022 was driven by Flight Equipment sales.

Cash Flows from Financing Activities

Net cash used in financing activities for the year ended December 31, 2022 was $24.3 million, compared to cash provided of $8.6 million in the same period for 2021.

The cash used in financing activities for 2022 is driven by the repurchase of common stock.

The cash provided by financing activities in 2021 is primarily driven by proceeds from the exercise of warrants.

Net cash provided by financing activities for the year ended December 31, 2023 was $29.7 million, compared to cash used of $24.3 million in the same period for 2022.

The cash provided by financing activities during 2023 was primarily related to the proceeds from the Equipment Loan, as more fully described below, as well as borrowing under our Revolving Credit Agreement.

The cash used in financing activities in 2022 was primarily driven by the repurchase of common stock.

Debt Obligations and Covenant Compliance

Our amended and restated revolving credit agreement (the “Revolving Credit Agreement”) provided commitments for a $150.0 million revolving credit facility and includes a $10.0 million sub facility for letters of credit and for borrowings on same-day notice referred to as “swingline loans.” 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.

Wells Fargo Senior Secured Revolving Credit Facility

Effective July 25, 2023, we amended our Revolving Credit Agreement to increase our maximum commitments under the Revolving Credit Agreement to $180.0 million aggregate amount, expandable to $200.0 million, subject to conditions and the availability of lender commitments and 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 $150.0 million revolving credit facility, including a $10.0 million sub facility for letters of credit and for borrowings on same-day notice referred to as “swingline 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 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.

As of December 31, 2022, there was no outstanding balance under the Revolving Credit Agreement, as amended, and we had $106.8 million of availability.

We were in compliance with our debt covenants as of December 31, 2022.

Off-Balance Sheet Arrangements

As of December 31, 2023, there was $29.0 million outstanding under the Revolving Credit Agreement and we had $131.0 million of availability thereunder.

We were in compliance with our debt covenants for the Revolving Credit Agreement as of December 31, 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 year ended December 31, 2023, the Company borrowed $8.6 million under this facility, which remained outstanding as of December 31, 2023.

We were in compliance with our debt covenants for the Equipment Loan as of December 31, 2023.

Off-Balance Sheet Arrangements and Contractual Obligations

We did not have any off-balance sheet arrangements as of December 31, 2023.

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The commitment is expected to be satisfied by the fourth quarter of 2024.

The Company has a commitment for the purchase of cargo conversion kits to support its B757 freighter conversion program in the amount of $37.9 million.

The commitment is expected to be satisfied during 2023.

Critical Accounting Policies and Estimates

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Actual results could differ from those estimates.

Refer to Note A to the Consolidated Financial Statements in Item 8 of this Annual Report, for a listing of our significant accounting policies and estimates.

Refer to Note B to the Consolidated Financial Statements in Item 8 of this Annual Report for a listing of our significant accounting policies and estimates.

The following is a summary of critical accounting estimates and additional information on the level of uncertainty regarding relevant changes to the estimates and assumptions.

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During the year ended December 31, 2023, we adjusted the estimated return in certain product lines as a result of new material received into inventory as well as changes in demand for certain product lines.

During the year ended December 31, 2022, we recorded an inventory reserve of $1.8 million mostly related to changes in projected demand for certain materials driven by changing market conditions.

During the year ended December 31, 2023, there were no adjustments to the inventory reserve.

Recent Accounting Pronouncements

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis