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)) |
AIR TRANSPORT SERVICES GROUP, INC. | |
By: | /S/ W. JOSEPH PAYNE |
W. Joseph Payne | |
Chief Legal Officer & Secretary | |
Date: | August 6, 2018 |
• | GAAP revenues were $203.6 million based on new revenue recognition standards adopted in 2018. 2Q 2018 revenues increased six percent after excluding $61.1 million in reimbursed expenses from 2Q 2017 revenues. |
• | GAAP Earnings from Continuing Operations were $24.5 million, $0.42 per share basic, vs. a loss of $53.9 million, $0.91 per share basic in 2Q 2017. |
– | Provision for income tax was $5.4 million for 2Q18. Due to deferred tax assets, including loss carryforwards, ATSG does not expect to pay significant federal income taxes until 2023 or later. |
• | Adjusted Earnings (non-GAAP) from Continuing Operations were $19.2 million, $0.28 per share diluted, up 38 percent from $13.9 million, $0.21 per share diluted in 2Q 2017. |
– | Adjusted Earnings from Continuing Operations exclude the net effects of warrants issued to Amazon.com Services, Inc., including a $63.4 million loss from mark-to-market warrant revaluation in 2Q 2017, and a share of development costs for ATSG's Airbus A321 freighter conversion venture. |
• | Adjusted EBITDA (non-GAAP) from Continuing Operations was $69.7 million, up 9 percent. |
– | Adjusted Earnings and Adjusted EBITDA from continuing operations are non-GAAP measures. (See Revenue Recognition, Non-GAAP Financial Measures, also reconciliation tables at the end of this release) |
• | First-half 2018 capital spending was $150.8 million vs. $144.3 million in 1H 2017. |
– | Capital expenditures in 2018 included $116.6 million for the acquisition of Boeing aircraft and freighter modification costs, up from $96.7 million in the first half of 2017. |
CAM | Second Quarter | Six Months | ||||||||||||||
($ in thousands) | 2018 | 2017 | 2018 | 2017 | ||||||||||||
Aircraft leasing and related revenues | $ | 58,603 | $ | 52,813 | $ | 115,205 | $ | 103,382 | ||||||||
Lease incentive amortization | (4,226 | ) | (3,283 | ) | (8,452 | ) | (5,874 | ) | ||||||||
Total CAM revenues | 54,377 | 49,530 | 106,753 | 97,508 | ||||||||||||
Pre-Tax Earnings | 15,394 | 12,795 | 30,858 | 26,125 |
• | CAM's revenues increased $4.8 million, or 10 percent, to $54.4 million, net of warrant-related lease incentives. |
• | CAM deployed five additional cargo aircraft in the second quarter. Four were 767-300s, including a six-year dry lease with Air Incheon in April, an eight-year dry-lease with Amerijet in May, and a seven-year dry lease with Northern Aviation Services in June. One 767 was leased internally to Air Transport International. One 737-400 was dry-leased to West Atlantic in April for five years. At June 30, two 767-200s returned from customers were being staged for redeployment. |
• | CAM’s pre-tax earnings increased 20 percent to $15.4 million, primarily due to the increase in leased freighters in service since June 2017. CAM had 73 cargo aircraft in service at June 30 this year, including seven more 767s and two 737s. Fifty-four of those cargo aircraft were under lease to external customers, and 19 were being operated by ATSG airlines on an ACMI basis. |
• | Since it completed its 20-aircraft commitment to Amazon in August 2017, CAM has delivered nine more freighters to dry-lease customers through June 2018. |
• | CAM acquired one 767 aircraft during the second quarter, and four in total in the first half of 2018, for freighter conversion and redeployment in 2018. |
ACMI Services | Second Quarter | Six Months | |||||||||||||||
($ in thousands) | 2018 | 2017 | 2018 | 2017 | |||||||||||||
Revenues | $ | 119,606 | $ | 111,851 | $ | 238,980 | $ | 219,917 | |||||||||
Pre-Tax Earnings (Loss) | 991 | 258 | 4,932 | (3,276 | ) |
• | ACMI Services revenues, excluding revenues from reimbursed expenses in 2017, increased 7 percent to $119.6 million in the second quarter. Pre-tax earnings improved by $0.7 million. |
• | Additional flying for CMI customers was the principal contributor to higher ACMI Services earnings. ATSG’s airlines were operating two more CAM-leased aircraft on a CMI basis at June 30 versus a year earlier. Billable block hours increased 5 percent from last year's quarter. |
• | In March, ATI pilots represented by the Air Line Pilots Association ratified an amendment to the collective bargaining agreement with Air Transport International. The amendment set new compensation levels that increased costs by $2.2 million over the previous quarter for pilot compensation at ATI. |
MRO Services | Second Quarter | Six Months | |||||||||||||||
($ in thousands) | 2018 | 2017 | 2018 | 2017 | |||||||||||||
Revenues | $ | 45,794 | $ | 66,336 | $ | 98,517 | $ | 106,674 | |||||||||
Pre-Tax Earnings (Loss) | 1,321 | 11,103 | 5,783 | 14,291 |
• | Total revenues from MRO Services were $45.8 million, down 31 percent. Revenues decreased compared to 2017 which included the completion of more large, airframe maintenance projects. |
• | The decline in revenues also reflects a 2018 change in accounting standards that affects the timing of revenue recognition. Revenues for aircraft modification and heavy maintenance are now recorded as work tasks are completed. In prior years, revenues were recorded in large amounts upon redelivery of an aircraft. |
• | Pre-tax earnings decreased to $1.3 million. Second-quarter 2017 results included more higher-margin aircraft maintenance services. PEMCO completed conversion work for one 737 in the second quarter this year as compared to three in the same period last year. |
Other | Second Quarter | Six Months | |||||||||||||||
($ in thousands) | 2018 | 2017 | 2018 | 2017 | |||||||||||||
Revenues | $ | 19,730 | $ | 21,706 | $ | 39,013 | $ | 53,104 | |||||||||
Pre-Tax Earnings | 2,749 | 1,400 | 5,330 | 3,863 |
• | Total revenues from other activities, excluding 2017 revenues from reimbursed expenses, decreased by nine percent, reflecting the elimination of ground service at Amazon's former hub in Wilmington, Ohio, in May 2017. |
• | Our LGSTX Services group began performing gateway services at Amazon's Tampa location in June, and is positioned to serve other Amazon locations when the opportunity arises. |
• | Pre-tax earnings of $2.7 million nearly doubled from a year ago. Additional earnings were driven from ATSG’s minority investment in a European airline and increased mail and package volumes at the USPS and Amazon locations it manages. |
Three Months Ended | Six Months Ended | ||||||||||||||
June 30, | June 30, | ||||||||||||||
2018 | 2017 | 2018 | 2017 | ||||||||||||
REVENUES | $ | 203,607 | $ | 253,211 | $ | 406,647 | $ | 491,128 | |||||||
OPERATING EXPENSES | |||||||||||||||
Salaries, wages and benefits | 74,049 | 65,833 | 144,832 | 138,319 | |||||||||||
Depreciation and amortization | 41,620 | 37,781 | 81,624 | 74,223 | |||||||||||
Maintenance, materials and repairs | 36,817 | 37,588 | 73,683 | 67,870 | |||||||||||
Fuel | 5,913 | 32,258 | 11,701 | 67,099 | |||||||||||
Contracted ground and aviation services | 2,444 | 32,151 | 4,828 | 52,838 | |||||||||||
Travel | 7,288 | 6,820 | 13,920 | 14,186 | |||||||||||
Landing and ramp | 1,311 | 4,357 | 2,459 | 9,656 | |||||||||||
Rent | 3,760 | 3,753 | 6,990 | 7,039 | |||||||||||
Insurance | 1,420 | 955 | 2,777 | 2,217 | |||||||||||
Other operating expenses | 5,087 | 8,590 | 12,292 | 16,626 | |||||||||||
179,709 | 230,086 | 355,106 | 450,073 | ||||||||||||
OPERATING INCOME | 23,898 | 23,125 | 51,541 | 41,055 | |||||||||||
OTHER INCOME (EXPENSE) | |||||||||||||||
Net gain (loss) on financial instruments | 11,697 | (67,649 | ) | 10,812 | (65,780 | ) | |||||||||
Interest expense | (5,366 | ) | (3,759 | ) | (10,728 | ) | (7,307 | ) | |||||||
Non-service component of retiree benefit costs | 2,045 | (177 | ) | 4,090 | (354 | ) | |||||||||
Loss from non-consolidated affiliate | (2,417 | ) | — | (4,953 | ) | — | |||||||||
Interest income | 54 | 16 | 77 | 48 | |||||||||||
6,013 | (71,569 | ) | (702 | ) | (73,393 | ) | |||||||||
EARNINGS (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES | 29,911 | (48,444 | ) | 50,839 | (32,338 | ) | |||||||||
INCOME TAX EXPENSE | (5,447 | ) | (5,474 | ) | (10,693 | ) | (11,784 | ) | |||||||
EARNINGS (LOSS) FROM CONTINUING OPERATIONS | 24,464 | (53,918 | ) | 40,146 | (44,122 | ) | |||||||||
EARNINGS FROM DISCONTINUED OPERATIONS, NET OF TAX | 170 | 192 | 366 | 384 | |||||||||||
NET EARNINGS (LOSS) | $ | 24,634 | $ | (53,726 | ) | $ | 40,512 | $ | (43,738 | ) | |||||
EARNINGS (LOSS) PER SHARE - CONTINUING OPERATIONS | |||||||||||||||
Basic | $ | 0.42 | $ | (0.91 | ) | $ | 0.68 | $ | (0.75 | ) | |||||
Diluted | $ | 0.21 | $ | (0.91 | ) | $ | 0.48 | $ | (0.75 | ) | |||||
WEIGHTED AVERAGE SHARES - CONTINUING OPERATIONS | |||||||||||||||
Basic | 58,739 | 59,035 | 58,790 | 59,084 | |||||||||||
Diluted | 68,363 | 59,035 | 68,784 | 59,084 |
June 30, | December 31, | ||||||
2018 | 2017 | ||||||
ASSETS | |||||||
CURRENT ASSETS: | |||||||
Cash and cash equivalents | $ | 31,704 | $ | 32,699 | |||
Accounts receivable, net of allowance of $1,130 in 2018 and $2,445 in 2017 | 100,805 | 109,114 | |||||
Inventory | 24,147 | 22,169 | |||||
Prepaid supplies and other | 13,017 | 20,521 | |||||
TOTAL CURRENT ASSETS | 169,673 | 184,503 | |||||
Property and equipment, net | 1,200,997 | 1,159,962 | |||||
Lease incentive | 72,232 | 80,684 | |||||
Goodwill and acquired intangibles | 43,999 | 44,577 | |||||
Convertible note hedges | — | 53,683 | |||||
Other assets | 30,573 | 25,435 | |||||
TOTAL ASSETS | $ | 1,517,474 | $ | 1,548,844 | |||
LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||
CURRENT LIABILITIES: | |||||||
Accounts payable | $ | 85,691 | $ | 99,728 | |||
Accrued salaries, wages and benefits | 34,189 | 40,127 | |||||
Accrued expenses | 10,833 | 10,455 | |||||
Current portion of debt obligations | 14,860 | 18,512 | |||||
Unearned revenue | 15,022 | 15,850 | |||||
TOTAL CURRENT LIABILITIES | 160,595 | 184,672 | |||||
Long term debt | 505,853 | 497,246 | |||||
Convertible note obligations | — | 54,359 | |||||
Stock warrant obligations | 203,426 | 211,136 | |||||
Post-retirement obligations | 53,032 | 61,355 | |||||
Other liabilities | 45,417 | 45,353 | |||||
Deferred income taxes | 113,571 | 99,444 | |||||
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; 59,080,387 and 59,057,195 shares issued and outstanding in 2018 and 2017, respectively | 591 | 591 | |||||
Additional paid-in capital | 469,412 | 471,456 | |||||
Retained earnings (accumulated deficit) | 27,278 | (13,748 | ) | ||||
Accumulated other comprehensive loss | (61,701 | ) | (63,020 | ) | |||
TOTAL STOCKHOLDERS’ EQUITY | 435,580 | 395,279 | |||||
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 1,517,474 | $ | 1,548,844 |
Three Months Ended | Six Months Ended | ||||||||||||||
June 30, | June 30, | ||||||||||||||
2018 | 2017 | 2018 | 2017 | ||||||||||||
Revenues | |||||||||||||||
CAM | |||||||||||||||
Aircraft leasing and related revenues | $ | 58,603 | $ | 52,813 | $ | 115,205 | $ | 103,382 | |||||||
Lease incentive amortization | (4,226 | ) | (3,283 | ) | (8,452 | ) | (5,874 | ) | |||||||
Total CAM | 54,377 | 49,530 | 106,753 | 97,508 | |||||||||||
ACMI Services | 119,606 | 111,851 | 238,980 | 219,917 | |||||||||||
MRO Services | 45,794 | 66,336 | 98,517 | 106,674 | |||||||||||
Other Activities | 19,730 | 21,706 | 39,013 | 53,104 | |||||||||||
Total Revenues | 239,507 | 249,423 | 483,263 | 477,203 | |||||||||||
Eliminate internal revenues | (35,900 | ) | (57,326 | ) | (76,616 | ) | (101,542 | ) | |||||||
Customer Revenues - non reimbursed | 203,607 | 192,097 | 406,647 | 375,661 | |||||||||||
Revenues recorded for reimbursed expenses | — | 61,114 | — | 115,467 | |||||||||||
Customer Revenues (GAAP) | $ | 203,607 | $ | 253,211 | $ | 406,647 | $ | 491,128 | |||||||
Pre-tax Earnings (Loss) from Continuing Operations | |||||||||||||||
CAM, inclusive of interest expense | 15,394 | 12,795 | 30,858 | 26,125 | |||||||||||
ACMI Services | 991 | 258 | 4,932 | (3,276 | ) | ||||||||||
MRO Services | 1,321 | 11,103 | 5,783 | 14,291 | |||||||||||
Other Activities | 2,749 | 1,400 | 5,330 | 3,863 | |||||||||||
Inter-segment earnings eliminated | (1,031 | ) | (5,958 | ) | (4,356 | ) | (6,820 | ) | |||||||
Net, unallocated interest expense | (838 | ) | (216 | ) | (1,657 | ) | (387 | ) | |||||||
Net gain (loss) on financial instruments | 11,697 | (67,649 | ) | 10,812 | (65,780 | ) | |||||||||
Other non-service components of retiree benefit costs, net | 2,045 | (177 | ) | 4,090 | (354 | ) | |||||||||
Non-consolidated affiliate | (2,417 | ) | — | (4,953 | ) | — | |||||||||
Earnings (loss) from Continuing Operations before Income Taxes (GAAP) | $ | 29,911 | $ | (48,444 | ) | $ | 50,839 | $ | (32,338 | ) | |||||
Adjustments to Pre-tax Earnings | |||||||||||||||
Add non-service components of retiree benefit costs, net (gain) loss | (2,045 | ) | 177 | (4,090 | ) | 354 | |||||||||
Add loss from non-consolidated affiliates | 2,417 | — | 4,953 | — | |||||||||||
Add lease incentive amortization | 4,226 | 3,283 | 8,452 | 5,874 | |||||||||||
Add net (gain) loss on financial instruments | (11,697 | ) | 67,649 | (10,812 | ) | 65,780 | |||||||||
Adjusted Pre-tax Earnings (non-GAAP) | $ | 22,812 | $ | 22,665 | $ | 49,342 | $ | 39,670 |
Three Months Ended | Six Months Ended | ||||||||||||||
June 30, | June 30, | ||||||||||||||
2018 | 2017 | 2018 | 2017 | ||||||||||||
Earnings (loss) from Continuing Operations Before Income Taxes | $ | 29,911 | $ | (48,444 | ) | $ | 50,839 | $ | (32,338 | ) | |||||
Interest Income | (54 | ) | (16 | ) | (77 | ) | (48 | ) | |||||||
Interest Expense | 5,366 | 3,759 | 10,728 | 7,307 | |||||||||||
Depreciation and Amortization | 41,620 | 37,781 | 81,624 | 74,223 | |||||||||||
EBITDA from Continuing Operations | $ | 76,843 | $ | (6,920 | ) | $ | 143,114 | $ | 49,144 | ||||||
Add non-service components of retiree benefit costs, net (gain) loss | (2,045 | ) | 177 | (4,090 | ) | 354 | |||||||||
Add losses for non-consolidated affiliates | 2,417 | — | 4,953 | — | |||||||||||
Add lease incentive amortization | 4,226 | 3,283 | 8,452 | 5,874 | |||||||||||
Add net (gain) on financial instruments | (11,697 | ) | 67,649 | (10,812 | ) | 65,780 | |||||||||
Adjusted EBITDA | $ | 69,744 | $ | 64,189 | $ | 141,617 | $ | 121,152 |
Three Months Ended | Six Months Ended | ||||||||||||||||||||||||||||||
June 30, 2018 | June 30, 2017 | June 30, 2018 | June 30, 2017 | ||||||||||||||||||||||||||||
$ | $ Per Share | $ | $ Per Share | $ | $ Per Share | $ | $ Per Share | ||||||||||||||||||||||||
Earnings (loss) from Continuing Operations - basic (GAAP) | $ | 24,464 | $ | (53,918 | ) | $ | 40,146 | $ | (44,122 | ) | |||||||||||||||||||||
Gain from warrant revaluation, net tax | (10,448 | ) | — | (7,473 | ) | — | |||||||||||||||||||||||||
Earnings (loss) from Continuing Operations - diluted (GAAP) | 14,016 | $ | 0.21 | (53,918 | ) | $ | (0.91 | ) | 32,673 | $ | 0.48 | (44,122 | ) | $ | (0.75 | ) | |||||||||||||||
Adjustments, net of tax | |||||||||||||||||||||||||||||||
Loss from warrant revaluation 1 | — | — | 63,396 | 1.05 | — | — | 61,857 | 1.01 | |||||||||||||||||||||||
Lease incentive amortization 2 | 3,272 | 0.05 | 4,378 | 0.07 | 6,544 | 0.09 | 7,340 | 0.12 | |||||||||||||||||||||||
Loss from joint venture 3 | 1,871 | 0.02 | — | — | 3,834 | 0.06 | — | — | |||||||||||||||||||||||
Adjusted Earnings from Continuing Operations (non-GAAP) | $ | 19,159 | $ | 0.28 | $ | 13,856 | $ | 0.21 | $ | 43,051 | $ | 0.63 | $ | 25,075 | $ | 0.38 | |||||||||||||||
Shares | Shares | Shares | Shares | ||||||||||||||||||||||||||||
Weighted Average Shares - diluted | 68,363 | 59,035 | 68,784 | 59,084 | |||||||||||||||||||||||||||
Additional weighted average shares 1 | — | 8,474 | — | 7,152 | |||||||||||||||||||||||||||
Adjusted Shares (non-GAAP) | 68,363 | 67,509 | 68,784 | 66,236 | |||||||||||||||||||||||||||
1. | Adjustment removes the unrealized losses for a large grant of stock warrants granted to a customer as a lease incentive. Under U.S. GAAP, these warrants are reflected as a liability and unrealized warrant gains are typically removed from diluted earnings per share (“EPS”) calculations while unrealized warrant losses are not removed because they are dilutive to EPS. As a result, the Company’s EPS, as calculated under U.S. GAAP, can vary significantly among periods due to unrealized mark-to-market losses created by an increased trading value for the Company's shares. |
2. | Adjustment removes the amortization of the customer lease incentive which is recorded against revenue over the term of the related aircraft leases. |
3. | Adjustment removes losses for the Company's share of development costs for a joint venture accounted for under the equity method. |
Owned Aircraft Types | ||||||||||||||||||
December 31, | June 30, | December 31, | ||||||||||||||||
2017 | 2018 | 2018 Projected | ||||||||||||||||
B767-200 | 36 | 34 | 35 | |||||||||||||||
B767-300 | 25 | 29 | 34 | |||||||||||||||
B757-200 | 4 | 4 | 4 | |||||||||||||||
B757 Combi | 4 | 4 | 4 | |||||||||||||||
B737-400 | 1 | 2 | 2 | |||||||||||||||
Total Aircraft in Service | 70 | 73 | 79 | |||||||||||||||
B767-300 in or awaiting cargo conversion | 6 | 5 | 5 | |||||||||||||||
B737-400 in or awaiting cargo conversion | 1 | — | — | |||||||||||||||
B767-200 staging for lease | — | 2 | 1 | |||||||||||||||
Total Aircraft | 77 | 80 | 85 | |||||||||||||||
Aircraft in Service Deployments | ||||||||||||||||||
December 31, | June 30, | December 31, | ||||||||||||||||
2017 | 2018 | 2018 Projected | ||||||||||||||||
Dry leased without CMI | 18 | 22 | 31 | |||||||||||||||
Dry leased with CMI | 33 | 32 | 30 | |||||||||||||||
ACMI/Charter | 19 | 19 | 18 | |||||||||||||||
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