ATSG Reports Strong First Quarter 2019 Results

Revenues, Adjusted Earnings and Adjusted EBITDA increase by
double-digit percentage amounts

WILMINGTON, Ohio–(BUSINESS WIRE)–Air Transport Services Group, Inc. (Nasdaq: ATSG), the leading provider
of medium wide-body aircraft leasing, contracted air transportation and
related services, today reported consolidated financial results for the
quarter ended March 31, 2019. Results as compared with the first quarter
of 2018 include:

  • Customer revenues were $348.2 million, up $145.1 million, or 71
    percent.

    Omni Air International, acquired in November
    2018, contributed $135.8 million to external ATSG revenues, reflected
    in revenues of the ACMI Services segment.

  • GAAP Earnings from Continuing Operations were $22.6 million, $7.0
    million higher than the prior period. GAAP Earnings per Share diluted
    were $0.25, down $0.01.

    Offsetting the first quarter
    revenue gain were increases in interest expense, depreciation and
    amortization expense, and unrealized losses from derivative interest
    rate revaluations. Other factors were increases in non-cash unrealized
    losses related to warrants issued to Amazon, and non-cash increases in
    the non-service component of retiree benefit costs.

  • Adjusted Earnings from Continuing Operations (non-GAAP) increased
    26 percent to $26.0 million. Adjusted Earnings Per Share (non-GAAP)
    were $0.37 diluted, up $0.07.

    Adjusted Earnings from
    Continuing Operations and Adjusted EPS exclude elements from GAAP
    results that in management’s opinion differ distinctly in
    predictability among periods or are not closely related to operations.
    Adjustments from GAAP include warrant value revaluations, interest
    rate derivative revaluations, and non-service retiree benefit costs.

  • Adjusted EBITDA from Continuing Operations (non-GAAP) were $113.8
    million, up $41.9 million, or 58 percent.
  • Capital spending was $91.9 million, up 16 percent.

    Capital
    expenditures in the first quarter of 2019 included $70.5 million for
    the purchase of four Boeing 767 aircraft and for freighter
    modification costs.

Adjusted Earnings per Share, Adjusted Earnings from Continuing
Operations and Adjusted EBITDA from Continuing Operations are non-GAAP
financial measures and are defined in the non-GAAP reconciliation tables
at the end of this release. (See also the paragraphs entitled
“Accounting Standards” and “Non-GAAP Financial Measures”)

Joe Hete, President and Chief Executive Officer of ATSG, said that first
quarter revenues and earnings benefited from additional flying for the
Department of Defense and other customers, and from the deployment of
freighter aircraft to lease customers during 2018. Those results, he
said, provide a solid basis for continued growth in 2019 as additional
Boeing 767 aircraft are converted to freighters and deployed to
customers in the second half. Accordingly, ATSG is raising its Adjusted
EBITDA guidance for 2019 to $450 million.

“Our acquisition of Omni Air, and recent agreements with our largest
commercial customers, Amazon and DHL, add years of contracted revenue
streams from aircraft leasing and from operations by our airlines and
related service businesses,” Hete said. “Our customers are focused on
transport options that offer optimal combinations of reliability,
flexibility, and cost-efficiency, with a particular emphasis on speed.
In response, we continue to add aircraft options, including the Boeing
777 via Omni, and a converted freighter variant of the Airbus A321-200
aircraft we are developing through our joint venture with Precision.”

Segment Results

Cargo Aircraft Management (CAM)

         
CAM       First Quarter
($ in thousands)       2019   2018
Aircraft leasing and related revenues $ 74,577 $ 56,602
Lease incentive amortization (4,227 ) (4,226 )
Total CAM revenues 70,350 52,376
Segment earnings, pretax       16,174     15,464  
 

Significant Developments:

  • CAM’s revenues, net of warrant-related lease incentives, increased 34
    percent. First quarter revenues benefited from ten more converted
    freighters in service versus the first quarter of 2018, including one
    completed and leased to Air Transport International in January 2019,
    and a full quarter of revenues from eleven Omni Air passenger aircraft
    that CAM acquired and leased back to Omni Air in November 2018.
  • CAM’s owned in-service fleet at March 31, 2019 comprised seventy-eight
    cargo aircraft and eleven passenger aircraft. Fifty-nine were leased
    to external customers, seven more than the prior year. Eight 767s were
    awaiting or undergoing conversion to freighters, including four
    acquired during the first quarter of 2019.
  • CAM’s pretax earnings for the quarter were $16.2 million, up 5
    percent. In addition to gains from additional aircraft leases,
    earnings reflected a $5.4 million increase in allocated interest
    expense, and a $9.9 million increase in depreciation expense largely
    due to the increase in CAM’s fleet via acquisition and organic growth.

ACMI Services

           
ACMI Services         First Quarter
($ in thousands)         2019   2018
Revenues $ 257,956 $ 119,374
Segment earnings, pretax         12,310     3,415
 

Significant Developments:

  • Revenues more than doubled to $258.0 million, principally due to a
    $135.8 million contribution from Omni Air.
  • Pretax earnings were $12.3 million, up from $3.4 million, reflecting
    increased block hours flown for the Department of Defense. Earnings
    were adversely affected by $3.0 million in unscheduled engine
    maintenance expense. Segment costs for scheduled airframe maintenance
    checks were lower than a year ago.
  • Total block hours increased 24 percent from last year’s first quarter
    principally due to the addition of, and growth in, Omni’s ACMI and
    charter operations.
  • Segment earnings now reflect allocated interest expense. Those first
    quarter amounts were $6.5 million in 2019 and $0.5 million in 2018.
    The increase is related to debt associated with the Omni Air
    acquisition.

Other Activities

Due to growth in ATSG’s consolidated revenues and earnings, ATSG’s
MRO Services segment is no longer reported as a separate segment.
Accordingly, results of MRO businesses are now reported under the Other
Activities category.

           
Other         First Quarter
($ in thousands)         2019   2018
Revenues from external customers $ 48,621 $ 47,779
Revenues from internal billings 18,741 24,119
Pretax Earnings         1,903     3,718
 

Significant Developments:

  • Total revenues from other activities of $67.4 million decreased by
    $4.5 million, or 6 percent, although revenues from external customers
    increased $0.8 million versus the prior-year period. In 2018, internal
    revenues were higher for maintenance services on the Company’s fleet,
    as more aircraft transitioned to new leases.
  • Pretax earnings fell $1.8 million, or 49 percent. Factors include
    termination of ATSG’s support of U.S. Postal Service sort facilities
    in the third quarter of 2018, and lower quarterly results from ATSG’s
    minority interest in Sweden-based West Atlantic, a European air
    carrier.

Outlook

ATSG now projects that its Adjusted EBITDA for 2019 will grow sharply
from $312 million in 2018 to $450 million in 2019. Nearly all of CAM’s
freighter deployments this year will be in the second half. As a result,
most of the Adjusted EBITDA growth that stems from aircraft leasing will
occur later in the year.

“Our strong 2019 start coupled with recent guidance from our largest
customers on their flying requirements for the balance of the year is
allowing us to increase our full-year Adjusted EBITDA guidance,” Hete
said. “Along with indications for heavier second-half flying schedules,
however, we now project that the $1.5 million in ramp-up costs we
projected in February will increase to $7 million, most of which will be
incurred in the second quarter. We continue to anticipate leasing at
least nine 767 freighters during 2019, including five we have contracted
to deploy with Amazon and at least four with United Parcel Service.”

ATSG projects that 2019 capital expenditures will increase to
approximately $475 million in 2019, principally to purchase and modify
Boeing 767 aircraft for freighter deployments. The revised plan, also
based on our latest customer demand projections, includes the purchases
of four more 767s in 2019 than we indicated last quarter for
modification and delivery by early 2020.

Hete added that “We already have customers for six aircraft for
deployment in 2020, including five 767s for Amazon.”

ATSG also expects to continue investing in its joint venture with
Precision for development of a freighter variant of the Airbus A321-200.
ATSG’s contributions to the venture are likely to approximate $12
million during 2019, with the goal of FAA approval in early 2020 of the
certificate application to produce the new freighters.

Accounting Standards

On January 1, 2019, ATSG adopted new accounting rules related to lease
transactions that result in the recognition of right-of-use (“ROU”)
assets and lease liabilities on its balance sheet. ROU assets represent
the lessee’s right to use the leased asset for the lease term and lease
liabilities represent the obligation to make operating lease payments.
Operating lease ROU assets and liabilities are recognized at
commencement date based on the present value of lease payments over the
lease term. ATSG’s consolidated balance sheet for the period ended March
31, 2019, reflects the recognition of ROU assets and related lease
liabilities. The changes did not have a significant impact on ATSG’s
consolidated statement of operations or consolidated statement of cash
flows.

On January 1, 2019, new accounting rules for share-based payments
granted to non-employees became effective, while rules previously
applied by ATSG for share-based payments granted to a customer were
replaced. These rule changes impacted the accounting for warrants
granted to Amazon in conjunction with the investment agreement reached
with Amazon in December 2018. Applying the rules changes through a
cumulative-effect adjustment resulted in the recognition of $176.9
million for warrant liabilities, $100.1 million for customer incentives
and $71.4 million to retained earnings as of January 1, 2019.

Non-GAAP Financial Measures

This release, including the attached tables, contains non-GAAP financial
measures that management uses to evaluate historical results. Management
believes that these non-GAAP measures assist in highlighting operational
trends, facilitate period-over-period comparisons, and provide
additional clarity about events and trends affecting core operating
performance. Disclosing these non-GAAP measures provides insight to
investors about additional metrics that management uses to evaluate past
performance and prospects for future performance. Non-GAAP measures are
not a substitute for GAAP. The non-GAAP financial measures are
reconciled to GAAP results in tables later in this release.

Annual Meeting of Stockholders

ATSG’s 2019 Annual Meeting of Stockholders will be held on May 9, 2019,
at 11:00 a.m. Eastern time at The Roberts Centre in Wilmington, Ohio.
Stockholders are expected to consider and vote on, among other items,
the election of directors to the Board, ratification of the selection of
auditors for 2019, an advisory vote on executive compensation, and
changes regarding the calling of special meetings of shareholders. In
addition, shareholders will consider an increase in the number of
authorized shares of the Company and other measures related to the
issuance of additional warrants to Amazon for the purchase of ATSG
shares.

Conference Call

ATSG will host a conference call on May 8, 2019, at 10 a.m. Eastern time
to review its financial results for the first quarter of 2019.
Participants should dial (800) 708-4540 and international
participants should dial (847) 619-6397 ten minutes before the
scheduled start of the call and ask for conference pass code 48600999.
The call will also be webcast live (listen-only mode) via www.atsginc.com.
A replay of the conference call will be available by phone on May 8,
2019, beginning at 2 p.m. and continuing through May 15, 2019, at (888)
843-7419
(international callers (630) 652-3042; use pass code 48600999#.
The webcast replay will remain available via www.atsginc.com
for 30 days.

About ATSG

ATSG is a leading provider of aircraft leasing and air cargo
transportation and related services to domestic and foreign air carriers
and other companies that outsource their air cargo lift requirements.
ATSG, through its leasing and airline subsidiaries, is the world’s
largest owner and operator of converted Boeing 767 freighter aircraft.
Through its principal subsidiaries, including three airlines with
separate and distinct U.S. FAA Part 121 Air Carrier certificates, ATSG
provides aircraft leasing, air cargo lift, passenger ACMI and charter
services, aircraft maintenance services and airport ground services.
ATSG’s subsidiaries include ABX Air, Inc.; Airborne Global Solutions,
Inc.; Airborne Maintenance and Engineering Services, Inc., including its
subsidiary, Pemco World Air Services, Inc.; Air Transport International,
Inc.; Cargo Aircraft Management, Inc.; and Omni Air International, LLC.
For more information, please see www.atsginc.com.

Except for historical information contained herein, the matters
discussed in this release contain forward-looking statements that
involve risks and uncertainties. A number of important factors could
cause Air Transport Services Group’s (ATSG’s) actual results to differ
materially from those indicated by such forward-looking statements.
These factors include, but are not limited to, changes in market demand
for our assets and services; our operating airlines’ ability to maintain
on-time service and control costs; the cost and timing with respect to
which we are able to purchase and modify aircraft to a cargo
configuration; fluctuations in ATSG’s traded share price, which may
result in mark-to-market charges on certain financial instruments; the
number, timing and scheduled routes of our aircraft deployments to
customers, changes in general economic and/or industry specific
conditions; and other factors that are contained from time to time in
ATSG’s filings with the U.S. Securities and Exchange Commission,
including its Annual Report on Form 10-K and Quarterly Reports on Form
10-Q. Readers should carefully review this release and should not place
undue reliance on ATSG’s forward-looking statements. These
forward-looking statements were based on information, plans and
estimates as of the date of this release. ATSG undertakes no obligation
to update any forward-looking statements to reflect changes in
underlying assumptions or factors, new information, future events or
other changes.

 

AIR TRANSPORT SERVICES GROUP, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per
share data)

 
    Three Months Ended
March 31,
2019   2018
REVENUES $ 348,183 $ 203,040
 
OPERATING EXPENSES
Salaries, wages and benefits 99,341 70,783
Depreciation and amortization 62,637 40,004
Maintenance, materials and repairs 44,738 36,866
Fuel 34,750 5,788
Contracted ground and aviation services 15,598 2,384
Travel 20,098 6,632
Landing and ramp 3,048 1,148
Rent 3,753 3,230
Insurance 1,911 1,357
Transaction fees 373
Other operating expenses 15,408   7,205  
301,655 175,397
   
OPERATING INCOME 46,528 27,643
OTHER INCOME (EXPENSE)
Net loss on financial instruments 4,500 (885 )
Interest expense (17,390 ) (5,362 )
Non-service component of retiree benefit (costs) credits (2,351 ) 2,045
Loss from non-consolidated affiliate (3,816 ) (2,536 )
Interest income 96   23  
(18,961 ) (6,715 )
   
EARNINGS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 27,567 20,928
INCOME TAX EXPENSE (4,933 ) (5,246 )
   
EARNINGS FROM CONTINUING OPERATIONS 22,634 15,682
 
EARNINGS FROM DISCONTINUED OPERATIONS, NET OF TAX 31   196  
NET EARNINGS $ 22,665   $ 15,878  
 
EARNINGS PER SHARE – CONTINUING OPERATIONS
Basic $ 0.38 $ 0.27
Diluted $

0.25

$ 0.26
 
WEIGHTED AVERAGE SHARES – CONTINUING OPERATIONS
Basic 58,838   58,840  
Diluted 60,437   59,558  
 

Certain historical expenses have been reclassified to conform to the
presentation above.

 
 

AIR TRANSPORT SERVICES GROUP, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)

 
    March 31,   December 31,
2019 2018
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 49,407 $ 59,322
Accounts receivable, net of allowance of $2,998 in 2019 and $1,444
in 2018
133,995 147,755
Inventory 32,750 33,536
Prepaid supplies and other 23,225   18,608  
TOTAL CURRENT ASSETS 239,377 259,221
 
Property and equipment, net 1,569,840 1,555,005
Lease incentive 159,629 63,780
Goodwill and acquired intangibles 536,229 535,359
Operating lease assets 50,586
Other assets 76,301   57,220  
TOTAL ASSETS $ 2,631,962   $ 2,470,585  
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable $ 117,408 $ 109,843
Accrued salaries, wages and benefits 40,258 50,932
Accrued expenses 11,821 19,623
Current portion of debt obligations 34,707 29,654
Current portion of lease obligations 16,558
Unearned revenue 21,381   19,082  
TOTAL CURRENT LIABILITIES 242,133 229,134
Long term debt 1,373,426 1,371,598
Stock warrant obligations 372,476 203,782
Post-retirement obligations 62,233 64,485
Long term lease obligations 32,631
Other liabilities 44,875 51,905
Deferred income taxes 113,374 113,243
 
STOCKHOLDERS’ EQUITY:
Preferred stock, 20,000,000 shares authorized, including 75,000
Series A Junior Participating Preferred Stock

Common stock, par value $0.01 per share; 110,000,000 shares
authorized; 59,351,326
and 59,134,173 shares issued and
outstanding in 2019 and 2018, respectively

594 591
Additional paid-in capital 471,245 471,158
Retained earnings 7,358 56,051
Accumulated other comprehensive loss (88,383 ) (91,362 )
TOTAL STOCKHOLDERS’ EQUITY 390,814   436,438  
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 2,631,962   $ 2,470,585  
 
 

AIR TRANSPORT SERVICES GROUP, INC. AND SUBSIDIARIES
PRETAX
EARNINGS AND ADJUSTED PRETAX EARNINGS SUMMARY
FROM CONTINUING
OPERATIONS
NON-GAAP RECONCILIATION
(In thousands)

 
    Three Months Ended
March 31,
2019   2018
Revenues
CAM
Aircraft leasing and related revenues $ 74,577 $ 56,602
Lease incentive amortization (4,227 ) (4,226 )
Total CAM 70,350 52,376
ACMI Services 257,956 119,374
Other Activities 67,362   71,898  
Total Revenues 395,668 243,648
Eliminate internal revenues (47,485 ) (40,608 )
Customer Revenues $ 348,183   $ 203,040  
 
Pretax Earnings (Loss) from Continuing Operations
CAM, inclusive of interest expense 16,174 15,464
ACMI Services, inclusive of interest expense 12,310 3,415
Other Activities 1,903 3,718
Net, unallocated interest expense (780 ) (293 )
Net loss on financial instruments 4,500 (885 )
Other non-service components of retiree benefit (costs) credits,
net
(2,351 ) 2,045
Transaction fees (373 )
Non-consolidated affiliate (3,816 ) (2,536 )
Earnings from Continuing Operations before Income Taxes (GAAP) $ 27,567 $ 20,928
 
Adjustments to Pretax Earnings
Add non-service components of retiree benefit costs (credits), net 2,351 (2,045 )
Add loss from non-consolidated affiliates 3,816 2,536
Add transaction fees 373
Add lease incentive amortization 4,227 4,226
Add net loss on financial instruments (4,500 ) 885  
Adjusted Pretax Earnings (non-GAAP) $ 33,834   $ 26,530  
 

Revenues recorded for reimbursed expenses reflect certain revenues that
were reported during 2017, prior to the adoption in 2018 of Accounting
Standards Update No. 2014-09, “Revenue from Contracts with Customers
(Topic 606).” The adoption of Topic 606 resulted in the netting of these
revenues with the directly reimbursed expenses for 2018 financial
reporting. This application of Topic 606 did not affect the Company’s
earnings.

Adjusted Pretax Earnings excludes certain items included in GAAP based
pretax earnings (loss) from continuing operations because they are
distinctly different in their predictability among periods or not
closely related to our operations. Presenting this measure provides
investors with a comparative metric of fundamental operations, while
highlighting changes to certain items among periods. Adjusted Pretax
Earnings should not be considered an alternative to Earnings from
Continuing Operations Before Income Taxes or any other performance
measure derived in accordance with GAAP.

 

AIR TRANSPORT SERVICES GROUP, INC. AND SUBSIDIARIES
ADJUSTED
EARNINGS FROM CONTINUING OPERATIONS BEFORE INTEREST, TAXES,
DEPRECIATION AND AMORTIZATION
NON-GAAP RECONCILIATION
(In
thousands)

 
    Three Months Ended
March 31,
2019   2018
 
Earnings from Continuing Operations Before Income Taxes $ 27,567 $ 20,928
Interest Income (96 ) (23 )
Interest Expense 17,390 5,362
Depreciation and Amortization 62,637   40,004  
EBITDA from Continuing Operations (non-GAAP) $ 107,498 $ 66,271
Add non-service components of retiree benefit costs (credits), net 2,351 (2,045 )
Add losses for non-consolidated affiliates 3,816 2,536
Add acquisition related transaction fees 373
Add lease incentive amortization 4,227 4,226
Add net (gain) loss on financial instruments (4,500 ) 885
   
Adjusted EBITDA (non-GAAP) $ 113,765   $ 71,873  
 

Management uses Adjusted EBITDA to assess the performance of its
operating results among periods. It is a metric that facilitates the
comparison of financial results of underlying operations. Additionally,
these non-GAAP adjustments are similar to the adjustments used by
lenders in the Company’s Senior Credit Agreement to assess financial
performance and determine the cost of borrowed funds. The adjustments
also exclude the non-service cost components of retiree benefit plans
because they are not closely related to ongoing operating activities.
Management presents EBITDA from Continuing Operations, a commonly
referenced metric, as a subtotal toward computing Adjusted EBITDA.

EBITDA from Continuing Operations is defined as Earnings (Loss) from
Continuing Operations Before Income Taxes plus net interest expense,
depreciation, and amortization expense. Adjusted EBITDA is defined as
EBITDA from Continuing Operations less financial instrument revaluation
gains or losses, non-service components of retiree benefit costs
including pension plan settlements, amortization of lease incentive
costs recorded in revenue, and costs from non-consolidated affiliates.

Adjusted EBITDA and EBITDA from Continuing Operations are non-GAAP
financial measures and should not be considered as alternatives to
Earnings from Continuing Operations Before Income Taxes or any other
performance measure derived in accordance with GAAP. Adjusted EBITDA and
EBITDA from Continuing Operations should not be considered in isolation
or as substitutes for analysis of the Company’s results as reported
under GAAP, or as alternative measures of liquidity.

 

AIR TRANSPORT SERVICES GROUP, INC. AND SUBSIDIARIES

ADJUSTED EARNINGS PER SHARE FROM CONTINUING OPERATIONS
NON-GAAP RECONCILIATION
(In thousands)
 

Management presents Adjusted Earnings and Adjusted Earnings Per Share
from Continuing Operations, non-GAAP calculations, to provide additional
information regarding earnings per share without the volatility
otherwise caused by the items below. Management uses Adjusted Earnings
and Adjusted Earnings Per Share from Continuing Operations to compare
the performance of its operating results among periods.

    Three Months Ended
March 31, 2019   March 31, 2018
$  

$ Per
Share

$  

$ Per
Share

 
Earnings (loss) from Continuing Operations – basic (GAAP) $ 22,634 $ 15,682

Gain from warrant revaluation, net of tax 1

(7,653 )  
Earnings from Continuing Operations – diluted (GAAP) 14,981 $ 0.25 15,682 $ 0.26
Adjustments, net of tax
Lease incentive amortization 2 3,228 0.05 3,272 0.06
Non-service component of retiree benefits 3 1,795 0.03 (1,562 ) (0.02 )
Loss from joint venture 4 2,914 0.05 1,963 0.03
Omni acquisition fees 5 285
Derivative and warrant revaluation 6 2,748   (0.01 ) 1,161   (0.03 )
Adjusted Earnings from Continuing Operations (non-GAAP) $ 25,951   $ 0.37   $ 20,516   $ 0.30  
 
Shares Shares
Weighted Average Shares – diluted 60,437 59,558
Additional weighted average shares 1 9,232   9,651  
Adjusted Shares (non-GAAP) 69,669   69,209  
 

Contacts

Quint Turner, ATSG Inc. Chief Financial Officer
937-366-2303

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Author: dmnnewswire