ATSG Reports Second Quarter 2021 Results

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 ended June 30, 2021.

ATSG's second-quarter 2021 results, as compared with the second quarter of 2020 include:

Customer revenues increased $32.1 million, or 8 percent, to $409.9 million.

Second-quarter aircraft leasing and ground services revenues increased substantially from a year ago, while airline services revenues decreased, largely due to a surge in pandemic-related charter operations last year. Aircraft leasing and related revenues from external customers for the quarter increased $16.7 million from seventeen more leases of Boeing 767 freighters since June 2020, including five in the second quarter this year.

GAAP Earnings from Continuing Operations were $79.9 million, or $1.17 per share basic, versus a loss of $105.2 million, or $1.78 per share basic, for the same period last year.

The re-measurements of financial instrument values, including warrants to purchase ATSG shares, increased ATSG's second-quarter after-tax earnings by $27.6 million in 2021 and reduced them by $107.6 million in 2020. Warrant effects in this year's quarter stemmed primarily from a decrease in the traded value of ATSG shares. Government grants intended to mitigate pandemic effects on ATSG's passenger airline operations added $29.5 million to ATSG's second-quarter 2021 net income, compared with $7.6 million a year ago. Results for the second quarter also included $5.0 million in after-tax debt restructuring costs in 2021, and a $30.2 million after-tax impairment charge in 2020, primarily for four Boeing 757 freighters retired from service.

Adjusted Earnings from Continuing Operations (non-GAAP) were $28.1 million, versus $32.5 million a year ago. Adjusted Earnings Per Share (non-GAAP) were $0.35 diluted, down $0.09.

Adjusted Earnings from Continuing Operations and Adjusted EPS exclude the above-mentioned GAAP items and other elements from GAAP results that differ distinctly in predictability among periods or are not closely related to operations. Adjusted EPS for both periods are based on share counts that reflect Amazon's May 2021 exercise of a portion of its ATSG warrants.

Adjusted EBITDA from Continuing Operations (non-GAAP) increased $2.2 million to $127.8 million vs the prior-year quarter and by $22.2 million vs the first quarter of 2021.

ATSG’s airlines, even excluding the benefit of pandemic relief grants, generated positive cash returns for the quarter, as strong growth in e-commerce-driven cargo operations offset reductions in passenger flying and increased operating expenses as a result of the pandemic.

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.

Rich Corrado, president and chief executive officer of ATSG, said, "As we had forecast, ATSG's revenue, earnings and Adjusted EBITDA improved significantly from first-quarter levels as our airline businesses achieved their performance targets, and leasing of our Boeing 767 freighters remained on a record pace. We have delivered seven of the eleven additional Boeing 767s we will lease to, and fly for Amazon this year during the first half, and accelerated our plans to offer Airbus A321-200 converted freighters to our lease customers. While our ongoing Boeing 757 combi and passenger flying assignments have not yet fully recovered from the pandemic, we are optimistic about continued steady improvement on those fronts, and about meeting or outperforming the overall results we have projected for 2021."

Financial Highlights

Adjusted EBITDA from Continuing Operations increased 21 percent, or $22.2 million, sequentially from the first quarter, and ended the first half of 2021 at $233.4 million, which represents 44 percent of ATSG's target of at least $525 million in Adjusted EBITDA for calendar 2021.

Capital spending for the first half of 2021 was $300.2 million, up $34.4 million. First-half spending included $200.1 million for the acquisition and modification of passenger aircraft for freighter conversion, as ATSG expands its fleet for new orders from customers. Spending for required heavy maintenance and for other equipment, including aircraft engines and components, was $100.1 million for the first half of 2021.

ATSG completed a follow-on issuance of $200 million in seven-year unsecured notes bearing a 4.75 percent coupon rate and an equivalent yield of 3.96 percent, and amended its Senior Credit Facility to pay off its term debt and increase access to revolver credit.

Amazon completed the conversion of 14.9 million warrants for the purchase of ATSG common shares under both cashless and cash exercises. Amazon paid ATSG $132 million for the purchase of 13.6 million ATSG shares. As a result of the cash and cashless exercise of its ATSG warrants, Amazon now owns 14.4 million shares, or 19.5 percent, of ATSG’s outstanding common shares. Amazon still holds warrants for the purchase of an additional 21.8 million ATSG shares under other agreements. ATSG's per-share adjusted earnings for prior periods are adjusted for the increase in shares outstanding.

Significant Developments:

CAM's second quarter revenues, net of warrant-related lease incentives, increased 18 percent versus the prior year. Revenues increased primarily from seventeen more leases of 767 freighters to customers. Revenues from CAM's external customers increased 33 percent for the quarter.

Segment pretax earnings for the quarter were $22.6 million, up 15 percent from 2020's second quarter. Depreciation expense increased $8.0 million and interest expense allocated to CAM was flat versus the prior-year period.

As of June 30, 2021:

ATSG’s total in-service fleet comprised 110 Boeing aircraft, sixteen more than a year ago. Ninety one were cargo aircraft, four were combis, and fifteen were passenger aircraft.

The in-service fleet included seven aircraft not owned by CAM: four passenger 767s leased to Omni Air, and three 767 freighters provided by Amazon for Air Transport International to operate in Amazon's air network.

Eighty CAM-owned Boeing 767 freighter aircraft were leased to external customers, seventeen more than a year ago and seven more than at December 31, 2020.

CAM owned fifteen 767 aircraft that were in or awaiting conversion to freighters, up from eight at the start of the year. CAM has purchased twelve passenger 767s during the first half for freighter modification, all for lease deployment in 2021 or 2022. One CAM-owned 767-200 freighter was being prepared for re-lease.

CAM continues to expect that it will lease sixteen or more 767-300 freighters to external customers during 2021 with nine in the second half, and at least ten more in 2022. Customers continue to place orders to lease additional 767s from CAM for delivery as late as 2025.

Segment Results

Cargo Aircraft Management (CAM)

CAM		Second Quarter						First Half
($ in thousands)		2021			2020			2021			2020
Aircraft leasing and related revenues		93,624			79,345			181,853			157,954
Lease incentive amortization		(5,030	)		(4,475	)		(9,982	)		(8,921	)
Total CAM revenues		88,594			74,870			171,871			149,033
Depreciation expense		50,012			42,024			97,007			85,071
Allocated interest expense		9,669			9,707			18,895			19,962
Segment earnings, pretax		22,554			19,640			44,016			35,460

ACMI Services

ACMI Services		Second Quarter				First Half
($ in thousands)		2021		2020		2021		2020
Revenues		273,301		287,604		520,432		571,769
Allocated interest expense		4,473		5,645		8,996		10,946
Segment earnings, inclusive of government grants, pretax		44,762		29,505		66,021		47,883

Other Activities

Other		Second Quarter							First Half
($ in thousands)		2021			2020				2021			2020
Total Revenues		$	97,236		$	77,056			$	190,934		$	157,092
Revenues from external customers		69,901			40,240				138,062			98,620
Pretax Earnings (Loss)		3,161			(2,244		)		3,550			(2,191		)

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AIR TRANSPORT SERVICES GROUP, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (In thousands, except per share data)
	Three Months Ended								Six Months Ended
	June 30,								June 30,
	2021				2020				2021				2020
REVENUES	$	409,872			$	377,794			$	785,960			$	767,071
OPERATING EXPENSES
Salaries, wages and benefits	141,524				119,503				283,540				245,034
Depreciation and amortization	75,633				68,291				146,684				137,633
Maintenance, materials and repairs	45,913				43,704				87,920				85,381
Fuel	36,592				36,787				67,034				80,586
Contracted ground and aviation services	18,794				13,546				33,597				27,895
Travel	18,501				17,315				36,905				38,972
Landing and ramp	3,026				2,772				6,135				5,517
Rent	5,726				5,198				11,594				8,684
Insurance	3,068				2,508				6,204				4,176
Other operating expenses	14,750				15,738				31,173				30,954
Government grants	(38,274		)		(9,821		)		(66,304		)		(9,821		)
Impairment of aircraft and related assets	—				39,075				—				39,075
	325,253				354,616				644,482				694,086
OPERATING INCOME	84,619				23,178				141,478				72,985
OTHER INCOME (EXPENSE)
Interest income	9				12				28				124
Non-service component of retiree benefit credits (costs)	4,456				2,898				8,913				5,796
Debt issuance costs	(6,505		)		—				(6,505		)		—
Net gain (loss) on financial instruments	35,703				(109,723		)		45,175				(2,679		)
Gain (loss) from non-consolidated affiliates	965				(6,513		)		(218		)		(9,277		)
Interest expense	(15,021		)		(16,045		)		(29,543		)		(32,368		)
	19,607				(129,371		)		17,850				(38,404		)
EARNINGS (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES	104,226				(106,193		)		159,328				34,581
INCOME TAX EXPENSE	(24,357		)		1,031				(37,169		)		(6,010		)
EARNINGS (LOSS) FROM CONTINUING OPERATIONS	79,869				(105,162		)		122,159				28,571
EARNINGS FROM DISCONTINUED OPERATIONS, NET OF TAX	65				236				65				4,008
NET EARNINGS (LOSS)	$	79,934			$	(104,926	)		$	122,224			$	32,579
EARNINGS PER SHARE - CONTINUING OPERATIONS
Basic	$	1.17			$	(1.78	)		$	1.91			$	0.48
Diluted	$	0.74			$	(1.78	)		$	1.23			$	0.14
WEIGHTED AVERAGE SHARES - CONTINUING OPERATIONS
Basic	68,206				59,130				63,851				59,085
Diluted	72,964				59,130				73,849				68,104

AIR TRANSPORT SERVICES GROUP, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except share data)
	June 30,				December 31,
	2021				2020
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	84,909			$	39,719
Accounts receivable, net of allowance of $890 in 2021 and $997 in 2020	176,146				153,511
Inventory	44,501				40,410
Prepaid supplies and other	27,931				39,096
TOTAL CURRENT ASSETS	333,487				272,736
Property and equipment, net	2,097,256				1,939,776
Customer incentive	114,510				126,007
Goodwill and acquired intangibles	511,001				516,290
Operating lease assets	63,925				68,824
Other assets	90,675				78,112
TOTAL ASSETS	$	3,210,854			$	3,001,745
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable	$	172,286			$	141,425
Accrued salaries, wages and benefits	58,888				56,506
Accrued expenses	18,213				19,005
Current portion of debt obligations	622				13,746
Current portion of lease obligations	16,889				17,784
Unearned revenue and grants	68,970				53,522
TOTAL CURRENT LIABILITIES	335,868				301,988
Long term debt	1,398,470				1,465,331
Stock warrant obligations	63,085				103,474
Post-retirement obligations	25,626				35,099
Long term lease obligations	47,192				51,128
Other liabilities	47,183				47,963
Deferred income taxes	178,703				141,265
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; 74,202,815 and 59,560,036 shares issued and outstanding in 2021 and 2020, respectively	742				596
Additional paid-in capital	989,611				855,547
Retained earnings	200,234				78,010
Accumulated other comprehensive loss	(75,860		)		(78,656		)
TOTAL STOCKHOLDERS’ EQUITY	1,114,727				855,497
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	3,210,854			$	3,001,745

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								Six Months Ended
	June 30,								June 30,
	2021				2020				2021				2020
Revenues
CAM
Aircraft leasing and related revenues	$	93,624			$	79,345			$	181,853			$	157,954
Lease incentive amortization	(5,030		)		(4,475		)		(9,982		)		(8,921		)
Total CAM	88,594				74,870				171,871				149,033
ACMI Services	273,301				287,604				520,432				571,769
Other Activities	97,236				77,056				190,934				157,092
Total Revenues	459,131				439,530				883,237				877,894
Eliminate internal revenues	(49,259		)		(61,736		)		(97,277		)		(110,823		)
Customer Revenues	$	409,872			$	377,794			$	785,960			$	767,071
Pretax Earnings (Loss) from Continuing Operations
CAM, inclusive of interest expense	22,554				19,640				44,016				35,460
ACMI Services, inclusive of government grants and interest expense	44,762				29,505				66,021				47,883
Other Activities	3,161				(2,244		)		3,550				(2,191		)
Net, unallocated interest expense	(870		)		(681		)		(1,624		)		(1,336		)
Impairment of aircraft and related assets	—				(39,075		)		—				(39,075		)
Non-service components of retiree benefit credit (costs)	4,456				2,898				8,913				5,796
Debt issuance costs	(6,505		)		—				(6,505		)		—
Net gain on financial instruments	35,703				(109,723		)		45,175				(2,679		)
Loss from non-consolidated affiliates	965				(6,513		)		(218		)		(9,277		)
Earnings (Loss) from Continuing Operations before Income Taxes (GAAP)	$	104,226			$	(106,193	)		$	159,328			$	34,581
Adjustments to Pretax Earnings
Add customer incentive amortization	5,798				4,896				11,497				9,753
Less government grants	(38,274		)		(9,821		)		(66,304		)		(9,821		)
Add impairment of aircraft and related assets	—				39,075				—				39,075
Add non-service components of retiree benefit (credits) costs	(4,456		)		(2,898		)		(8,913		)		(5,796		)
Add debt issuance costs	6,505				—				6,505				—
Less net gain on financial instruments	(35,703		)		109,723				(45,175		)		2,679
Add loss from non-consolidated affiliates	(965		)		6,513				218				9,277
Adjusted Pretax Earnings (non-GAAP)	$	37,131			$	41,295			$	57,156			$	79,748

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								Six Months Ended
	June 30,								June 30,
	2021				2020				2021				2020
Earnings (Loss) from Continuing Operations Before Income Taxes	$	104,226			$	(106,193	)		$	159,328			$	34,581
Interest Income	(9		)		(12		)		(28		)		(124		)
Interest Expense	15,021				16,045				29,543				32,368
Depreciation and Amortization	75,633				68,291				146,684				137,633
EBITDA from Continuing Operations (non-GAAP)	$	194,871			$	(21,869	)		$	335,527			$	204,458
Add customer incentive amortization	5,798				4,896				11,497				9,753
Less government grants	(38,274		)		(9,821		)		(66,304		)		(9,821		)
Add impairment of aircraft and related assets	—				39,075				—				39,075
Add non-service components of retiree benefit (credits) costs	(4,456		)		(2,898		)		(8,913		)		(5,796		)
Less debt issuance costs	6,505				—				6,505				—
Less net gain on financial instruments	(35,703		)		109,723				(45,175		)		2,679
Add loss from non-consolidated affiliates	(965		)		6,513				218				9,277
Adjusted EBITDA (non-GAAP)	$	127,776			$	125,619			$	233,355			$	249,625

 

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