ATSG Reports Continued Growth in Third Quarter

ATSG Reports Continued Growth in Third Quarter

Air Transport Services Group,  the leading provider of medium wide-body aircraft leasing, contracted air transportation and related services, today reported consolidated financial results for the quarter and nine months ended September 30, 2020.

ATSG's third quarter 2020 results, as compared with the third quarter of 2019, include:

Customer revenues up 10 percent, or $38.1 million, to $404.1 million.

ATSG's principal business segments, aircraft leasing and air transport, increased revenues by seven percent and 10 percent, respectively, before eliminations.

 

Revenues from other businesses decreased six percent on the same basis.

 

GAAP Earnings from Continuing Operations were a loss of $5.7 million, or $0.10 per share basic, versus a profit of $105.1 million, or $1.78 per share.

 

Quarterly re-measurements of financial instrument values reduced after-tax earnings by $50.5 million and increased them by $90.8 million in the third quarters of 2020 and 2019, respectively. These non-cash impacts in the third quarter each year stemmed primarily from quarterly changes in the traded value of ATSG shares and their impact on ATSG’s liabilities for warrants issued to Amazon.com, Inc.

Adjusted Earnings from Continuing Operations (non-GAAP) rose 48 percent to $31.8 million. Adjusted Earnings Per Share (non-GAAP) were $0.44 diluted, up from $0.31 in 2019

 

Adjusted Earnings from Continuing Operations and Adjusted EPS exclude elements from GAAP results that differ distinctly in predictability among periods or are not closely related to operations. Adjustments from GAAP for 2020 include financial instrument revaluations, federal CARES Act grants to two ATSG airlines, amortization of aircraft customer incentives, retiree benefit costs, and losses of non-consolidated ATSG affiliates.

Adjusted EBITDA from Continuing Operations (non-GAAP) increased 15 percent to $125.5 million.

Increased contributions from ATSG’s airlines, and from eleven more externally leased 767 freighters compared to a year ago, drove the majority of the increase in Adjusted EBITDA.

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.

Capital spending through the first nine months totaled $394.3 million, up 17 percent.

Capital expenditures included $273.4 million for the purchase of eight Boeing 767 aircraft in the first nine months of 2020, and for freighter modification costs.

Rich Corrado, president and chief executive officer of ATSG, said, "In the third quarter, ATSG’s businesses continued to deliver better than expected results, aided by a quarterly record seven deployments of 767 freighter aircraft to its aircraft leasing customers, and by seizing opportunities for charter and cargo ACMI operations to supplement the capacity of our customers. These opportunities helped to offset pandemic-driven year-over-year declines in commercial passenger and Boeing 757 combi operations at two of our airlines. We will achieve our goal of delivering a record twelve 767-300 freighters in 2020 to external customers, including four in the fourth quarter, while also re-leasing three 767-200s to customers in Kenya, Malaysia and Mexico."

Segment Results

Cargo Aircraft Management (CAM)

CAM		Third Quarter								Nine Months
($ in thousands)		2020				2019				2020				2019
Aircraft leasing and related revenues		80,976				75,160				238,930				223,017
Lease incentive amortization		(4,708	)			(4,156	)			(13,629	)			(12,407	)
Total CAM revenues		76,268				71,004				225,301				210,610
Depreciation expense		41,421				39,269				126,492				116,787
Allocated interest expense		9,747				9,494				29,709				28,838
Segment earnings, pretax		19,781				17,428				55,241				50,285

Significant Developments:

• CAM's third quarter revenues, net of warrant-related lease incentives, increased seven percent versus the prior year. Revenues increased primarily from eleven more converted 767-300 freighters in service, compared with September 30, 2019. CAM’s revenues from external customers increased 22 percent for the third quarter versus the same prior-year period.
• ATSG’s total fleet consisted of 101 aircraft in service at the end of the third quarter, nine more than at the same point in 2019. CAM owned ninety-six of those aircraft; three were leased to ATSG airlines by third parties and two were customer-provided for ATSG to operate. Sixty-nine of those in-service, CAM-owned cargo aircraft were dry-leased to external customers on September 30, 2020, eleven more than a year ago.
• CAM owned nine 767-300 aircraft in or awaiting cargo conversion as of September 30, versus ten a year ago and eight at the end of 2019. CAM expects to lease at least fifteen 767-300 newly modified freighters during 2021, including eleven already under firm customer commitments with Amazon, and four for which CAM is finalizing lease arrangements.
• Through nine months of 2020, CAM has purchased two 767 freighters, and six 767 passenger aircraft for freighter modification, all for lease deployment in 2020 and 2021. It expects to purchase three more feedstock 767s in the fourth quarter, and at least seven in 2021. One other CAM owned, in-service 767 passenger aircraft will be converted to a freighter for lease in 2021.
• CAM’s pretax segment earnings for the quarter were $19.8 million, $2.4 million more than the prior-year's third quarter. Earnings reflected a $0.3 million increase in allocated interest and a $2.2 million increase in depreciation expense. Results for the third quarter also reflect reduced earnings from Boeing 757 freighters compared to a year ago. Three of four in service at the end of 2019 were removed from service during the first half of 2020; one will operate for the remainder of 2020.

ACMI Services

ACMI Services		Third Quarter				Nine Months
($ in thousands)		2020		2019		2020		2019
Revenues		300,189		272,188		871,958		785,082
Allocated interest expense		4,803		6,530		15,749		19,520
Segment earnings, pretax		18,637		4,375		56,699		17,658

Significant Developments:

• Third-quarter revenues for ACMI Services increased 10 percent from the prior-year period, stemming from incremental charter assignments for Omni Air International from the federal government and expanded flying for package delivery networks. These revenues offset revenue reductions versus the prior-year period. Due to pandemic restrictions, Omni's block hours for commercial passenger operations were down over 80 percent while ATI’s Boeing 757 combi block hours were down nearly 50 percent. Additionally, Boeing 757 freighter revenues declined, reflecting the termination of three aircraft by DHL.
• ATSG's airlines operated seventy-one aircraft at September 30. Total block hours increased 13 percent for the third quarter versus a year ago, principally due to more aircraft in service and expanded route commitments from Amazon and DHL.
• Pretax segment earnings for the quarter were $18.6 million versus $4.4 million a year ago. Principal factors were lower than expected aircraft and engine maintenance expenses, reduced travel costs for positioning flight crews, lower ramp-up expenses versus those associated with last year's expansion of Amazon’s air network. In addition, interest expense allocated to ACMI Services for the third quarter decreased $1.7 million.

Other Activities

Other		Third Quarter							Nine Months
($ in thousands)		2020				2019			2020				2019
Total Revenues		$	82,281			$	87,762		$	239,373			$	226,228
Revenues from external customers		52,548				51,895			151,168				140,270
Pretax Earnings (Loss)		(724		)		2,939			(2,915		)		8,848

Significant Developments:

• Total third-quarter external revenues from other activities were relatively flat compared to the previous year. The slight increase in external revenues reflect additional aviation fuel sales at the air park in Wilmington, Ohio beginning in mid 2019.
• The decline in pretax earnings compared to the prior year periods reflects a revenue mix of lower margin aircraft maintenance and ground services in 2020 compared to 2019, start up cost for new US post office sorting locations and additional unallocated corporate costs for consulting and marketing compared to 2019.

AIR TRANSPORT SERVICES GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share data)
		Three Months Ended										Nine Months Ended
		September 30,										September 30,
		2020					2019					2020				2019
REVENUES		$	404,146				$	366,073				$	1,171,217			$	1,048,832
OPERATING EXPENSES
Salaries, wages and benefits		128,608					110,706					373,642				307,897
Depreciation and amortization		67,974					64,149					205,607				190,052
Maintenance, materials and repairs		48,767					41,496					134,148				125,501
Fuel		36,202					41,193					116,788				110,311
Contracted ground and aviation services		19,840					17,190					47,735				47,319
Travel		20,254					25,366					59,226				66,401
Landing and ramp		3,378					2,539					8,895				7,978
Rent		5,137					4,123					13,821				11,860
Insurance		3,119					1,833					7,295				5,601
Other operating expenses		18,623					16,712					49,577				50,763
Government grants		(21,726		)			—					(31,547		)		—
Impairment of aircraft and related assets		—					—					39,075				—
Transaction fees		—					—					—				373
		330,176					325,307					1,024,262				924,056
OPERATING INCOME		73,970					40,766					146,955				124,776
OTHER INCOME (EXPENSE)
Interest income		93					78					217				255
Non-service component of retiree benefit (costs) credits		2,897					(2,351		)			8,693				(7,053		)
Net (loss) gain on financial instruments		(53,393		)			91,952					(56,072		)		60,566
Loss from non-consolidated affiliates		(2,485		)			(2,645		)			(11,762		)		(12,459		)
Interest expense		(15,440		)			(16,712		)			(47,808		)		(50,906		)
		(68,328		)			70,322					(106,732		)		(9,597		)
EARNINGS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES		5,642					111,088					40,223				115,179
INCOME TAX EXPENSE		(11,387		)			(6,003		)			(17,397		)		(14,092		)
EARNINGS (LOSS) FROM CONTINUING OPERATIONS		(5,745		)			105,085					22,826				101,087
EARNINGS FROM DISCONTINUED OPERATIONS, NET OF TAX		154					243					4,162				305
NET EARNINGS (LOSS)		$	(5,591	)			$	105,328				$	26,988			$	101,392
EARNINGS (LOSS) PER SHARE - CONTINUING OPERATIONS
Basic		$	(0.10	)			$	1.78				$	0.39			$	1.72
Diluted		$	(0.10	)			$	0.19				$	0.38			$	0.43
WEIGHTED AVERAGE SHARES - CONTINUING OPERATIONS
Basic		59,146					58,919					59,106				58,889
Diluted		59,146					68,718					59,863				69,382

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)
		September 30,				December 31,
		2020				2019
ASSETS
CURRENT ASSETS:
Cash and cash equivalents		$	61,078			$	46,201
Accounts receivable, net of allowance of $1,170 in 2020 and $975 in 2019		149,804				162,870
Inventory		39,638				37,397
Prepaid supplies and other		22,916				20,323
TOTAL CURRENT ASSETS		273,436				266,791
Property and equipment, net		1,904,940				1,766,020
Customer incentive		131,634				146,678
Goodwill and acquired intangibles		519,079				527,654
Operating lease assets		53,151				44,302
Other assets		80,591				68,733
TOTAL ASSETS		$	2,962,831			$	2,820,178
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable		$	142,173			$	141,094
Accrued salaries, wages and benefits		58,230				59,429
Accrued expenses		18,206				17,586
Current portion of debt obligations		13,742				14,707
Current portion of lease obligations		14,551				12,857
Unearned revenue and grants		65,832				17,566
TOTAL CURRENT LIABILITIES		312,734				263,239
Long term debt		1,466,844				1,469,677
Stock warrant obligations		210,319				383,073
Post-retirement obligations		22,946				36,744
Long term lease obligations		38,353				30,334
Other liabilities		49,814				49,293
Deferred income taxes		147,201				127,476
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; 150,000,000 shares authorized; 59,589,770 and 59,329,431 shares issued and outstanding in 2020 and 2019, respectively		596				593
Additional paid-in capital		700,757				475,720
Retained earnings		72,883				45,895
Accumulated other comprehensive loss		(59,616		)		(61,866		)
TOTAL STOCKHOLDERS’ EQUITY		714,620				460,342
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY		$	2,962,831			$	2,820,178

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								Nine Months Ended
		September 30,								September 30,
		2020				2019				2020				2019
Revenues
CAM
Aircraft leasing and related revenues		$	80,976			$	75,160			$	238,930			$	223,017
Lease incentive amortization		(4,708		)		(4,156		)		(13,629		)		(12,407		)
Total CAM		76,268				71,004				225,301				210,610
ACMI Services		300,189				272,188				871,958				785,082
Other Activities		82,281				87,762				239,373				226,228
Total Revenues		458,738				430,954				1,336,632				1,221,920
Eliminate internal revenues		(54,592		)		(64,881		)		(165,415		)		(173,088		)
Customer Revenues		$	404,146			$	366,073			$	1,171,217			$	1,048,832
Pretax Earnings (Loss) from Continuing Operations
CAM, inclusive of interest expense		19,781				17,428				55,241				50,285
ACMI Services, inclusive of interest expense		18,637				4,375				56,699				17,658
Other Activities		(724		)		2,939				(2,915		)		8,848
Net, unallocated interest expense		(797		)		(610		)		(2,133		)		(2,293		)
Government grants		21,726				—				31,547				—
Impairment of aircraft and related assets		—				—				(39,075		)		—
Other non-service components of retiree benefit (costs) credits, net		2,897				(2,351		)		8,693				(7,053		)
Net (loss) gain on financial instruments		(53,393		)		91,952				(56,072		)		60,566
Non-consolidated affiliates		(2,485		)		(2,645		)		(11,762		)		(12,459		)
Transaction fees		—				—				—				(373		)
Earnings from Continuing Operations before Income Taxes (GAAP)		$	5,642			$	111,088			$	40,223			$	115,179
Adjustments to Pretax Earnings
Add customer incentive amortization		5,291				4,334				15,044				12,585
Less government grants		(21,726		)		—				(31,547		)		—
Add impairment of aircraft and related assets		—				—				39,075				—
Add non-service components of retiree benefit costs (credits), net		(2,897		)		2,351				(8,693		)		7,053
Add net loss (gain) on financial instruments		53,393				(91,952		)		56,072				(60,566		)
Add loss from non-consolidated affiliates		2,485				2,645				11,762				12,459
Add transaction fees		—				—				—				373
Adjusted Pretax Earnings (non-GAAP)		$	42,188			$	28,466			$	121,936			$	87,083

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								Nine Months Ended
		September 30,								September 30,
		2020				2019				2020				2019
Earnings from Continuing Operations Before Income Taxes		$	5,642			$	111,088			$	40,223			$	115,179
Interest Income		(93		)		(78		)		(217		)		(255		)
Interest Expense		15,440				16,712				47,808				50,906
Depreciation and Amortization		67,974				64,149				205,607				190,052
EBITDA from Continuing Operations (non-GAAP)		$	88,963			$	191,871			$	293,421			$	355,882
Add customer incentive amortization		5,291				4,334				15,044				12,585
Less government grants		(21,726		)		—				(31,547		)		—
Add impairment of aircraft and related assets		—				—				39,075				—
Add non-service components of retiree benefit costs (credits), net		(2,897		)		2,351				(8,693		)		7,053
Add net loss (gain) on financial instruments		53,393				(91,952		)		56,072				(60,566		)
Add loss from non-consolidated affiliates		2,485				2,645				11,762				12,459
Add acquisition related transaction fees		—				—				—				373
Adjusted EBITDA (non-GAAP)		$	125,509			$	109,249			$	375,134			$	327,786

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 secured credit facility to assess financial performance and determine the cost of borrowed funds. The adjustments also remove the non-service cost components of retiree benefit plans because they are not closely related to ongoing operating activities. Adjustments also remove charges for the impairment of certain aircraft valuations and related assets. 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 warrant-based customer 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, both non-GAAP measures, 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																	Nine Months Ended
		September 30, 2020									September 30, 2019								September 30, 2020								September 30, 2019
		$				$ Per Share					$				$ Per Share				$				$ Per Share				$				$ Per Share
Earnings (loss) from Continuing Operations - basic (GAAP)		$	(5,745	)							$	105,085							$	22,826							$	101,087
Gain from warrant revaluation, net tax1		—									(91,849		)						—								(71,319		)
Earnings (loss) from Continuing Operations - diluted (GAAP)		(5,745		)		$	(0.10	)			13,236				$	0.19			22,826				$	0.38			29,768				$	0.43
Adjustments, net of tax
Customer incentive amortization2		4,083				0.07					3,310				0.05				11,610				0.19				9,611				0.14
Remove effects of government grants3		(16,767		)		(0.28		)			—				—				(24,347		)		(0.41		)		—				—
Remove effects of aircraft impairments4		—				—					—				—				30,157				0.50				—				—
Non-service component of retiree benefits 5		(2,236		)		(0.04		)			1,795				0.02				(6,710		)		(0.11		)		5,385				0.08
Derivative and warrant revaluation6		50,516				0.76					1,081				0.02				50,088				0.62				9,234				0.13
Loss from affiliates7		1,918				0.03					2,020				0.03				9,929				0.17				11,771				0.17
Omni acquisition fees8		—				—					—				—				—				—				285				—
Adjusted Earnings from Continuing Operations (non-GAAP)		$	31,769			$	0.44				$	21,442			$	0.31			$	93,553			$	1.34			$	66,054			$	0.95
		Shares									Shares								Shares								Shares
Weighted Average Shares - diluted		59,146									68,718								59,863								69,382
Additional weighted average shares1		13,278									—								9,741								—
Adjusted Shares (non-GAAP)		72,424									68,718								69,604								69,382

Adjusted Earnings from Continuing Operations and Adjusted Earnings Per Share from Continuing Operations are non-GAAP financial measures and should not be considered as alternatives to Earnings from Continuing Operations, Weighted Average Shares - diluted or Earnings Per Share from Continuing Operations or any other performance measure derived in accordance with GAAP. Adjusted Earnings and Adjusted Earnings Per Share from Continuing Operations should not be considered in isolation or as a substitute for analysis of the company's results as reported under GAAP.

1. Under U.S. GAAP, certain 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. Adjustment removes the unrealized gains for a large grant of stock warrants granted to a customer as a lease incentive.
2. Removes the amortization of the warrant-based customer incentives which are recorded against revenue over the term of the related aircraft leases and customer contracts.
3. Removes the effects of the government grants received through the CARES Act.
4. Removes the effects of impairment charges for aircraft valuations and related assets.
5. Removes the non-service component of post-retirement costs and credits.
6. Removes gains and losses from derivative interest rate instruments and warrant revaluations.
7. Removes losses for the Company's non-consolidated affiliates.
8. Removes the fees incurred for the acquisition of Omni Air International.

 

AIR TRANSPORT SERVICES GROUP, INC. AND SUBSIDIARIES
AIRCRAFT FLEET
Aircraft Types
		December 31, 2019				September 30, 2020				December 31, 2020 Projected
		Freighter		Passenger		Freighter		Passenger		Freighter		Passenger
B767-200		33		3		32		3		33		3
B767-300		42		8		49		9		52		10
B777-200		—		3		—		3		—		3
B757-200		4		—		1		—		1		—
B757 Combi		—		4		—		4		—		4
B737-400		1		—		—		—		—		—
Total Aircraft in Service		80		18		82		19		86		20
B767-300 in or awaiting cargo conversion		8		—		9		—		8		—
B767-300 staging for lease		—		—		—		—		—		—
B767-200 staging for lease		2		—		2		—		—		—
Total Aircraft		90		18		93		19		94		20
Aircraft in Service Deployments
		December 31,				September 30,				December 31,
		2019				2020				2020 Projected
Dry leased without CMI		27				30				34
Dry leased with CMI		35				39				40
Customer provided for CMI		2				2				2
ACMI/Charter1		34				30				30

1. Includes three Boeing 767-300ER passenger aircraft and one 767-200ER passenger aircraft leased from external companies by December 31, 2020.

Recommended for you...