DE | 000-50368 | 26-1631624 | ||
(State or other jurisdiction of incorporation) | Commission File Number: | (IRS Employer Identification No.) |
o | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
o | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
o | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
o | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Exhibit No. | Description |
99.1 | Press release issued by Air Transport Services Group, Inc. on August 7, 2017, relating to its results for the second quarter ended June 30, 2017. |
AIR TRANSPORT SERVICES GROUP, INC. | |
By: | /S/ W. JOSEPH PAYNE |
W. Joseph Payne | |
Chief Legal Officer & Secretary | |
Date: | August 7, 2017 |
• | Revenues increased $77 million, or 43 percent, to $253.2 million. Excluding revenues from reimbursable airline expenses, revenues increased $60 million, or 37 percent. ATSG's airline services operations, and maintenance and logistics businesses, recorded double-digit revenue increases. |
• | GAAP Earnings from Continuing Operations were a loss of $53.9 million or $0.91 per share diluted and included charges totaling $67.8 million for the warrants granted last year in connection with operating and lease agreements with Amazon Fulfillment Services, Inc. The value of the warrants increased sharply during the quarter in conjunction with a 36 percent increase in the traded price of ATSG stock since March 31, 2017, resulting in a significant mark-to-market loss for the quarter. Earnings from Continuing Operations were a positive $11.5 million, or $0.12 per share diluted a year earlier. |
• | Adjusted Earnings from Continuing Operations, which exclude non-cash warrant-related items, were $13.9 million, up 64 percent. Adjusted Earnings Per Share from Continuing Operations were $0.21, up eight cents per share. These Adjusted Earnings and other adjusted amounts referenced below are non-GAAP financial measures, and are reconciled to comparable GAAP results in tables in this release. Adjustments include both dollar-amount and share count items. |
• | GAAP Pre-tax Earnings from Continuing Operations were a negative $48.4 million, versus a positive $18.8 million a year ago. Adjusted Pre-tax Earnings, which exclude warrant effects along with additional non-cash items, increased 39 percent to $22.7 million. |
• | Adjusted EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization, as defined and adjusted in a table later in this release) increased 23 percent to $64.2 million. |
• | Capital expenditures in the first half of 2017 were $144.3 million, versus $125.1 million in the first half of 2016. |
• | Share repurchases were $11.2 million for the first half. This includes 380,637 shares ATSG repurchased in June as part of an underwritten secondary offering by an affiliate of Red Mountain Capital Partners. |
CAM | Second Quarter | Six Months | ||||||||||||||
($ in thousands) | 2017 | 2016 | 2017 | 2016 | ||||||||||||
Aircraft leasing and related revenues | $ | 52,813 | $ | 48,373 | $ | 103,382 | $ | 100,099 | ||||||||
Lease incentive amortization | (3,283 | ) | (934 | ) | (5,874 | ) | (934 | ) | ||||||||
Total CAM revenues | $ | 49,530 | $ | 47,439 | $ | 97,508 | $ | 99,165 | ||||||||
Pre-Tax Earnings | $ | 12,795 | $ | 16,229 | $ | 26,125 | $ | 35,739 |
• | CAM's revenues increased $2.1 million to $49.5 million from the second quarter last year, and included $3.3 million of non-cash amortization associated with the warrant-related Amazon lease incentive. Excluding this lease incentive, CAM’s revenues increased nine percent. CAM was leasing forty-five 767s to external customers as of June 30, 2017, ten more than a year earlier. |
• | Pre-tax earnings were $12.8 million for the quarter, down $3.4 million. Principal effects were the warrant-related lease incentive, increased depreciation, and higher pre-deployment expenses. |
• | At June 30, 2017, CAM owned 64 Boeing cargo aircraft, all of which were in service, including fifty-six 767s. Eight other aircraft were awaiting or undergoing modification from passenger to freighter configuration at the end of the quarter, including six 767s and two 737s. In addition to the six 767s in mod, CAM expects to close on purchases of seven additional 767s in the last half of 2017. CAM currently has no 767 purchase commitments in 2018. |
• | In July, CAM announced long-term dry lease commitments for three 767-300 freighters with Northern Aviation Services, for deployments beginning with the first in October and two during the first quarter of 2018. Some may replace 767 freighters that ATSG's airlines operate for Northern on an ACMI basis. |
• | Production delays at CAM's freighter modification contractor this year will defer two 767s expected to be deployed in the second half of 2017 into 2018. |
ACMI Services | Second Quarter | Six Months | |||||||||||||||
($ in thousands) | 2017 | 2016 | 2017 | 2016 | |||||||||||||
Revenues | |||||||||||||||||
Airline services | $ | 111,851 | $ | 98,187 | $ | 219,917 | $ | 199,840 | |||||||||
Reimbursables | 32,648 | 15,958 | 69,531 | 29,261 | |||||||||||||
Total ACMI Services Revenues | 144,499 | 114,145 | 289,448 | 229,101 | |||||||||||||
Pre-Tax Earnings (Loss) | 87 | (7,130 | ) | (3,618 | ) | (17,486 | ) |
• | Airline services revenues increased 14 percent to $111.9 million and the segment recorded a pre-tax profit of $0.1 million in the second quarter. The improvement reflects continued growth of CMI operations for Amazon, and reduced pension expense compared with the second quarter last year. |
• | Costs for pilot training and premium pay for pilots who accept additional flying assignments declined from the first quarter, and heavy maintenance expense was lower than projected for the second quarter. |
• | Second-quarter block hours increased 29 percent from the year-earlier period. ACMI Services revenues are dependent in part on hours flown as determined by customer network designs, which can change as additional aircraft come on line and networks evolve. Average per-aircraft utilization rates began to decline in late May this year as CMI customers reconfigured their air networks. |
Other Activities | Second Quarter | Six Months | |||||||||||||||
($ in thousands) | 2017 | 2016 | 2017 | 2016 | |||||||||||||
Revenues | $ | 116,508 | $ | 57,253 | $ | 205,714 | $ | 112,264 | |||||||||
Pre-Tax Earnings | 6,539 | 4,130 | 11,322 | 7,998 |
• | Total revenues from all other activities in the second quarter more than doubled from a year ago to $116.5 million. External customer revenues increased $43.3 million, to $76.3 million. External maintenance revenues and those from parcel handling and logistical support services increased substantially during the quarter. PEMCO, acquired in December 2016, accounted for $21.1 million of external revenues during quarter. |
• | Second-quarter pre-tax earnings of $6.5 million increased 58 percent, reflecting improved results from heavy maintenance and logistics services. |
• | As announced this morning, ATSG completed a joint-venture agreement with Precision Aircraft Solutions, LLC, to develop a passenger-to-freighter conversion program for Airbus A321-200 aircraft. The venture anticipates approval of a supplemental type certificate in 2019. |
• | Seven additional freighters will be dry leased in the second half, including five 767s and two 737s. Production delays to complete aircraft cargo modifications have deferred delivery of two 767s from the second half to 2018, reducing Adjusted EBITDA from continuing operations by between $2.0 to $2.5 million in the second half. |
• | A new contract for engine overhauls on General Electric-powered 767-300 aircraft with Delta TechOps will result in $3.0 to $4.0 million in additional maintenance expense for the second half of 2017, with a corresponding decrease in Adjusted EBITDA. The payments to Delta are now recorded as maintenance expense as engine cycles occur, and will yield cash flow savings compared with the prior arrangement. Previously, overhaul events for these engines were capitalized and depreciated. |
• | Recent changes by CMI customers to their air networks, which have reduced average utilization and associated variable revenue compared with previous run-rates. |
Three Months Ended | Six Months Ended | ||||||||||||||
June 30, | June 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
REVENUES | $ | 253,211 | $ | 176,549 | $ | 491,128 | $ | 353,934 | |||||||
OPERATING EXPENSES | |||||||||||||||
Salaries, wages and benefits | 66,010 | 53,647 | 138,673 | 106,066 | |||||||||||
Depreciation and amortization | 37,781 | 33,132 | 74,223 | 65,666 | |||||||||||
Maintenance, materials and repairs | 37,588 | 30,345 | 67,870 | 60,772 | |||||||||||
Fuel | 32,258 | 17,168 | 67,099 | 33,799 | |||||||||||
Contracted ground and aviation services | 32,151 | 8,931 | 52,838 | 19,799 | |||||||||||
Travel | 6,820 | 4,678 | 14,186 | 9,486 | |||||||||||
Landing and ramp | 4,357 | 2,652 | 9,656 | 6,303 | |||||||||||
Rent | 3,753 | 2,579 | 7,039 | 5,206 | |||||||||||
Insurance | 955 | 1,087 | 2,217 | 2,236 | |||||||||||
Other operating expenses | 8,590 | 6,529 | 16,626 | 13,449 | |||||||||||
230,263 | 160,748 | 450,427 | 322,782 | ||||||||||||
OPERATING INCOME | 22,948 | 15,801 | 40,701 | 31,152 | |||||||||||
OTHER INCOME (EXPENSE) | |||||||||||||||
Interest income | 16 | 37 | 48 | 61 | |||||||||||
Interest expense | (3,759 | ) | (2,633 | ) | (7,307 | ) | (5,332 | ) | |||||||
Net gain (loss) on financial instruments | (67,649 | ) | 5,558 | (65,780 | ) | 5,030 | |||||||||
(71,392 | ) | 2,962 | (73,039 | ) | (241 | ) | |||||||||
EARNINGS (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES | (48,444 | ) | 18,763 | (32,338 | ) | 30,911 | |||||||||
INCOME TAX EXPENSE | (5,474 | ) | (7,235 | ) | (11,784 | ) | (11,212 | ) | |||||||
EARNINGS (LOSS) FROM CONTINUING OPERATIONS | (53,918 | ) | 11,528 | (44,122 | ) | 19,699 | |||||||||
EARNINGS FROM DISCONTINUED OPERATIONS, NET OF TAX | 192 | 47 | 384 | 94 | |||||||||||
NET EARNINGS (LOSS) | $ | (53,726 | ) | $ | 11,575 | $ | (43,738 | ) | $ | 19,793 | |||||
EARNINGS (LOSS) PER SHARE - CONTINUING OPERATIONS | |||||||||||||||
Basic | $ | (0.91 | ) | $ | 0.18 | $ | (0.75 | ) | $ | 0.31 | |||||
Diluted* | $ | (0.91 | ) | $ | 0.12 | $ | (0.75 | ) | $ | 0.25 | |||||
WEIGHTED AVERAGE SHARES - CONTINUING OPERATIONS | |||||||||||||||
Basic | 59,035 | 63,267 | 59,084 | 63,452 | |||||||||||
Diluted | 59,035 | 66,763 | 59,084 | 65,910 |
June 30, | December 31, | ||||||
2017 | 2016 | ||||||
ASSETS | |||||||
CURRENT ASSETS: | |||||||
Cash and cash equivalents | $ | 63,020 | $ | 16,358 | |||
Accounts receivable, net of allowance of $1,380 in 2017 and $1,264 in 2016 | 75,303 | 77,247 | |||||
Inventory | 16,412 | 19,925 | |||||
Prepaid supplies and other | 23,918 | 19,123 | |||||
TOTAL CURRENT ASSETS | 178,653 | 132,653 | |||||
Property and equipment, net | 1,074,239 | 1,000,992 | |||||
Other assets | 86,526 | 80,099 | |||||
Goodwill and acquired intangibles | 45,455 | 45,586 | |||||
TOTAL ASSETS | $ | 1,384,873 | $ | 1,259,330 | |||
LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||
CURRENT LIABILITIES: | |||||||
Accounts payable | $ | 77,945 | $ | 60,704 | |||
Accrued salaries, wages and benefits | 30,963 | 37,044 | |||||
Accrued expenses | 9,902 | 10,324 | |||||
Current portion of debt obligations | 20,133 | 29,306 | |||||
Unearned revenue | 22,480 | 18,407 | |||||
TOTAL CURRENT LIABILITIES | 161,423 | 155,785 | |||||
Long term debt | 508,152 | 429,415 | |||||
Post-retirement obligations | 71,866 | 77,713 | |||||
Other liabilities | 50,143 | 52,542 | |||||
Stock warrants | 177,850 | 89,441 | |||||
Deferred income taxes | 135,506 | 122,532 | |||||
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; 85,000,000 shares authorized; 59,123,112 and 59,461,291 shares issued and outstanding in 2017 and 2016, respectively | 591 | 595 | |||||
Additional paid-in capital | 432,510 | 443,416 | |||||
Accumulated deficit | (75,981 | ) | (32,243 | ) | |||
Accumulated other comprehensive loss | (77,187 | ) | (79,866 | ) | |||
TOTAL STOCKHOLDERS’ EQUITY | 279,933 | 331,902 | |||||
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 1,384,873 | $ | 1,259,330 |
Three Months Ended | Six Months Ended | ||||||||||||||
June 30, | June 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Revenues | |||||||||||||||
CAM | |||||||||||||||
Aircraft leasing and related revenues | $ | 52,813 | $ | 48,373 | $ | 103,382 | $ | 100,099 | |||||||
Lease incentive amortization | (3,283 | ) | (934 | ) | (5,874 | ) | (934 | ) | |||||||
Total CAM | 49,530 | 47,439 | 97,508 | 99,165 | |||||||||||
ACMI Services | |||||||||||||||
Airline services | 111,851 | 98,187 | 219,917 | 199,840 | |||||||||||
Reimbursables | 32,648 | 15,958 | 69,531 | 29,261 | |||||||||||
Total ACMI Services | 144,499 | 114,145 | 289,448 | 229,101 | |||||||||||
Other Activities | 116,508 | 57,253 | 205,714 | 112,264 | |||||||||||
Total Revenues | 310,537 | 218,837 | 592,670 | 440,530 | |||||||||||
Eliminate internal revenues | (57,326 | ) | (42,288 | ) | (101,542 | ) | (86,596 | ) | |||||||
Customer Revenues | $ | 253,211 | $ | 176,549 | $ | 491,128 | $ | 353,934 | |||||||
Pre-tax Earnings (Loss) from Continuing Operations | |||||||||||||||
CAM, inclusive of interest expense | 12,795 | 16,229 | 26,125 | 35,739 | |||||||||||
ACMI Services | 87 | (7,130 | ) | (3,618 | ) | (17,486 | ) | ||||||||
Other Activities | 6,539 | 4,130 | 11,322 | 7,998 | |||||||||||
Net, unallocated interest expense | (216 | ) | (24 | ) | (387 | ) | (370 | ) | |||||||
Net gain (loss) on financial instruments | (67,649 | ) | 5,558 | (65,780 | ) | 5,030 | |||||||||
Total Earnings (Loss) from Continuing Operations before Income Taxes | $ | (48,444 | ) | $ | 18,763 | $ | (32,338 | ) | $ | 30,911 | |||||
Adjustments to Pre-tax Earnings | |||||||||||||||
Add non-service components of retiree benefit costs, net | 177 | 2,203 | 354 | 4,406 | |||||||||||
Add debt issuance charge from non-consolidating affiliate | — | — | — | 1,229 | |||||||||||
Add lease incentive amortization | 3,283 | 934 | 5,874 | 934 | |||||||||||
Add (subtract) net loss (gain) on financial instruments | 67,649 | (5,558 | ) | 65,780 | (5,030 | ) | |||||||||
Adjusted Pre-tax Earnings | $ | 22,665 | $ | 16,342 | $ | 39,670 | $ | 32,450 |
Three Months Ended | Six Months Ended | ||||||||||||||
June 30, | June 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Earnings (Loss) from Continuing Operations Before Income Taxes | $ | (48,444 | ) | $ | 18,763 | $ | (32,338 | ) | $ | 30,911 | |||||
Interest Income | (16 | ) | (37 | ) | (48 | ) | (61 | ) | |||||||
Interest Expense | 3,759 | 2,633 | 7,307 | 5,332 | |||||||||||
Depreciation and Amortization | 37,781 | 33,132 | 74,223 | 65,666 | |||||||||||
EBITDA from Continuing Operations | $ | (6,920 | ) | $ | 54,491 | $ | 49,144 | $ | 101,848 | ||||||
Add non-service components of retiree benefit costs, net | 177 | 2,203 | 354 | 4,406 | |||||||||||
Add debt issuance charge from non-consolidating affiliate | — | — | — | 1,229 | |||||||||||
Add lease incentive amortization | 3,283 | 934 | 5,874 | 934 | |||||||||||
Add (subtract) net loss (gain) on financial instruments | 67,649 | (5,558 | ) | 65,780 | (5,030 | ) | |||||||||
Adjusted EBITDA | $ | 64,189 | $ | 52,070 | $ | 121,152 | $ | 103,387 |
Three Months Ended | Six Months Ended | ||||||||||||||
June 30, | June 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Earnings (loss) from Continuing Operations - basic (GAAP) | $ | (53,918 | ) | $ | 11,528 | $ | (44,122 | ) | $ | 19,699 | |||||
Gain from warrant revaluation, net of tax | — | (3,664 | ) | — | (3,405 | ) | |||||||||
Earnings (loss) from Continuing Operations - diluted (GAAP) | (53,918 | ) | 7,864 | (44,122 | ) | 16,294 | |||||||||
Loss from warrant revaluation, net of tax | 63,396 | — | 61,857 | — | |||||||||||
Lease incentive amortization, net of tax | 4,378 | 595 | 7,340 | 595 | |||||||||||
Adjusted Earnings from Continuing Operations (non-GAAP) | $ | 13,856 | $ | 8,459 | $ | 25,075 | $ | 16,889 | |||||||
Weighted Average Shares - diluted (GAAP) | 59,035 | 66,763 | 59,084 | 65,910 | |||||||||||
Additional weighted average shares | 8,474 | — | 7,152 | — | |||||||||||
Adjusted Shares (non-GAAP) | 67,509 | 66,763 | 66,236 | 65,910 | |||||||||||
Earnings (loss) per Share from Continuing Operations - diluted (GAAP) | $ | (0.91 | ) | $ | 0.12 | $ | (0.75 | ) | $ | 0.25 | |||||
Effect of warrant revaluation, net of tax | 1.05 | — | 1.01 | — | |||||||||||
Effect of lease incentive amortization, net of tax | 0.07 | 0.01 | 0.12 | 0.01 | |||||||||||
Adjusted Earnings per Share from Continuing Operations (non-GAAP) | $ | 0.21 | $ | 0.13 | $ | 0.38 | $ | 0.26 | |||||||
Aircraft Types | ||||||||||||||||||
December 31, | June 30, | December 31, | ||||||||||||||||
2016 | 2017 | 2017 Projected | ||||||||||||||||
Operating | Operating | Operating | ||||||||||||||||
Total | Owned | Lease | Total | Owned | Lease | Total | Owned | Lease | ||||||||||
B767-200 | 36 | 36 | — | 36 | 36 | — | 36 | 36 | — | |||||||||
B767-300 | 16 | 16 | — | 20 | 20 | — | 25 | 25 | — | |||||||||
B757-200 | 4 | 4 | — | 4 | 4 | — | 4 | 4 | — | |||||||||
B757 Combi | 4 | 4 | — | 4 | 4 | — | 4 | 4 | — | |||||||||
B737-400 | — | — | — | — | — | — | 2 | 2 | — | |||||||||
Total Aircraft | 60 | 60 | — | 64 | 64 | — | 71 | 71 | — | |||||||||
Owned Aircraft In Serviceable Condition | ||||||||||||||||||
December 31, | June 30, | December 31, | ||||||||||||||||
2016 | 2017 | 2017 Projected | ||||||||||||||||
Dry leased without CMI | 13 | 15 | 20 | |||||||||||||||
Dry leased with CMI | 28 | 30 | 32 | |||||||||||||||
ACMI/Charter | 18 | 19 | 19 | |||||||||||||||
Staging/Unassigned | 1 | — | — | |||||||||||||||
60 | 64 | 71 | ||||||||||||||||
Owned Aircraft In or Awaiting Cargo Conversion | ||||||||||||||||||
December 31, | June 30, | December 31, | ||||||||||||||||
2016 | 2017 | 2017 Projected | ||||||||||||||||
B767-300 | 7 | 6 | 8 | |||||||||||||||
B737-400 | — | 2 | — | |||||||||||||||
Total Aircraft | 7 | 8 | 8 | |||||||||||||||
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