Air Transport Services Group's Q1 earnings rise 32.2% to US$8.5M as revenues fall 1.5% to US$143.3M; CEO says business remains strong despite challenging operating conditions

WILMINGTON, Ohio , May 10, 2013 (press release) – Air Transport Services Group, Inc. (ATSG), a leading provider of aircraft leasing and air cargo transportation and related services, today reported consolidated financial results for the quarter ended March 31, 2013.

"We made a major investment in our combi business with the U.S. military, placed more of our Boeing 767 and 757 freighters with DHL, and completed the merger of two of our airlines during the first quarter,” said Joe Hete, President and Chief Executive Officer of ATSG. “The results were significant increases in our net income and in our Adjusted EBITDA, compared with the year-earlier quarter. Our baseline business remains solid, and we are moving quickly to capture the rest of the $5 to $6 million in merger synergies we projected a few months ago.”

For the first quarter of 2013, compared with first quarter 2012:

  • Revenues were $143.3 million, a decrease of 1.5%.
  • Total operating expenses were $126.9 million, down 3.7%, including a $3.8 million reduction in salaries, wages and benefits expense due in large part to reductions in airline related costs prior to the merger of Air Transport International and Capital Cargo International Airlines in March 2013.
  • Pre-tax income was $13.6 million, an increase of 26.5%.
  • Net earnings from continuing operations increased 27.6% to $8.5 million, or $0.13 per fully diluted share. Net earnings include a non-cash federal income tax provision. The company does not expect to pay significant federal income taxes until 2015.
  • First-quarter Adjusted EBITDAwas $37.3 million, a 9.5% increase from $34.1 million in the same period of the prior year. This non-GAAP financial measure is defined and reconciled to comparable GAAP results in a table at the end of this release.
  • Capital expenditures totaled $59.4 million for the quarter, including the purchase of two 757-200 combi aircraft.

Segment Results

CAM (Aircraft Leasing)

         
CAM       First Quarter
($ in thousands)       2013       2012       % Chg.
Revenues       $ 38,969         $ 37,851         3.0
Pre-Tax Earnings       16,873         16,818         0.3
                             

Fleet Developments:

  • On March 31, 2013, ATSG owned 47 aircraft in serviceable condition - 20 leased to external customers and 27 leased to ATSG affiliate airlines.
    • The in-service fleet consisted of forty-one 767 freighters, three 757 freighters and three DC-8 combis. A table reflecting aircraft in service is included at the end of this release.
  • On March 31, 2012, CAM owned 51 in-service aircraft, including thirty-nine 767s, three 757s, six DC-8s (two freighters, four combis) and three 727 freighters. All of the 727 and DC-8 freighters, one DC-8 combi and one 767 passenger aircraft have since been removed from service.
  • Three other aircraft - two 767-300s and one 757-200 - were undergoing passenger-to-freighter conversion as of March 31, 2013.
  • Four 757-200 combi aircraft, including one modified in 2012, one purchased in December 2012 and two purchased in January 2013, are completing certification requirements. They will enter service for the U.S. military as replacements for the three remaining DC-8 combis starting later this quarter.

ACMI Services

         
ACMI Services       First Quarter
($ in thousands)       2013       2012       % Chg.
Revenues                        
Airline services       $ 94,892         $ 96,342         (1.5)
Reimbursables       18,159         16,853         7.7
Total ACMI Services Revenues       113,051         113,195         (0.1)
                         
Pre-Tax Loss       (5,404 )       (8,215 )       34.2
                             

Significant Developments:

  • Signed agreements with DHL in January for four additional freighters, including one 757 and three 767s, to replace the 727 freighters the company operated in DHL's U.S. domestic network.
  • Extended agreements for three 767s operating in DHL's network in the Mideast.
  • Airline-related headcount in the first quarter decreased approximately 26% compared with the beginning of 2012, principally as a result of combining ATI and CCIA operations prior to their merger in March.
  • Four 767 freighters leased from CAM were underutilized during the quarter.

Other Activities

         
Other Activities       First Quarter
($ in thousands)       2013       2012       % Chg.
Revenues       $ 26,254         $ 28,421         (7.6 )
Pre-Tax Earnings       2,181         2,001         9.0  
                               
  • Improved first quarter pre-tax earnings were driven by greater efficiencies and higher volumes at the U.S. Postal Service facilities we operate.

Outlook

For 2013, Adjusted EBITDA from continuing operations is expected to be in the range of $175 to $180 million, reflecting the deployment of ATSG's current fleet and related ACMI services and other activities. Capital expenditures for 2013, including two 757-200 combis purchased in January, are currently projected at $110 million, of which approximately $20 million is maintenance-related. Any remaining free cash flow will be invested opportunistically in new aircraft at acceptable returns, or will be used to retire debt or return capital to shareholders to the extent permissible in the context of the company's credit agreements.

Commenting on the outlook for the rest of the year, Hete stated, “While the air cargo marketplace continues to be challenged, the unique characteristics of our fleet, the quality of our customers, our operating efficiencies and the long-term nature of our leases differentiate our business model. We expect to continue to grow our Adjusted EBITDA returns in 2013 as we replace our DC-8 combis with 757 combis, and deploy two newly converted 767-300s and one 757-200. Even under current conditions, our business remains strong.”

Conference Call

ATSG will host a conference call on Thursday, May 9, 2013, at 10:00 a.m. Eastern time to review its financial results for the first quarter of 2013. Participants should dial 888-895-5479 and international participants should dial 847-619-6250 ten minutes before the scheduled start of the call and ask for conference pass code 34725954. The call will also be webcast live (listen-only mode) via www.atsginc.com and www.earnings.com for individual investors, and via www.streetevents.com for institutional investors.

A replay of the conference call will be available by phone on Thursday, May 9, 2013, beginning at 2:00 p.m. and continuing through noon on Thursday, May 16, 2013, at 888-843-7419 (international callers 630-652-3042); use pass code 34725954#. The webcast replay will remain available via www.atsginc.com and www.earnings.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 two airlines with separate and distinct U.S. FAA Part 121 Air Carrier certificates, ATSG provides aircraft leasing, air cargo lift, aircraft maintenance services and airport ground services. ATSG's subsidiaries include ABX Air, Inc.; Airborne Global Solutions, Inc.; Air Transport International, Inc.; Cargo Aircraft Management, Inc.; and Airborne Maintenance and Engineering Services, Inc. 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. There are a number of important factors that 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, the costs and timing associated with the modification and certification testing of Boeing 767 and Boeing 757 aircraft, the timing associated with the deployment of aircraft among customers, 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,
    2013   2012
REVENUES   $ 143,279     $ 145,506  
         
OPERATING EXPENSES        
Salaries, wages and benefits   43,309     47,104  
Fuel   14,361     13,840  
Maintenance, materials and repairs   22,134     23,114  
Depreciation and amortization   20,920     20,300  
Rent   6,779     5,730  
Travel   4,727     5,978  
Landing and ramp   4,065     4,066  
Insurance   1,511     2,010  
Other operating expenses   9,060     9,562  
    126,866     131,704  
         
OPERATING INCOME   16,413     13,802  
OTHER INCOME (EXPENSE)        
Interest income   21     28  
Interest expense   (3,132 )   (3,547 )
Unrealized gain on derivative instruments   290     460  
    (2,821 )   (3,059 )
         
EARNINGS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES   13,592     10,743  
INCOME TAX EXPENSE   (5,091 )   (4,081 )
         
EARNINGS FROM CONTINUING OPERATIONS   8,501     6,662  
         
LOSS FROM DISCONTINUED OPERATIONS, NET OF TAX   (1 )   (230 )
NET EARNINGS   $ 8,500     $ 6,432  
         
EARNINGS PER SHARE - Basic        
Continuing operations   $ 0.13     $ 0.11  
Discontinued operations       (0.01 )
NET EARNINGS PER SHARE   $ 0.13     $ 0.10  
         
EARNINGS PER SHARE - Diluted        
Continuing operations   $ 0.13     $ 0.10  
Discontinued operations        
NET EARNINGS PER SHARE   $ 0.13     $ 0.10  
         
WEIGHTED AVERAGE SHARES        
Basic   63,810     63,431  
Diluted   64,524     64,374  
             

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

         
    March 31,   December 31,
    2013   2012
ASSETS        
CURRENT ASSETS:        
Cash and cash equivalents   $ 35,142     $ 15,442  
Accounts receivable, net of allowance of $702 in 2013 and $749 in 2012   43,153     47,858  
Inventory   9,446     9,430  
Prepaid supplies and other   7,306     8,855  
Deferred income taxes   19,154     19,154  
Aircraft and engines held for sale   2,952     3,360  
TOTAL CURRENT ASSETS   117,153     104,099  
         
Property and equipment, net   860,144     818,924  
Other assets   19,794     20,462  
Intangibles   5,083     5,146  
Goodwill   86,980     86,980  
TOTAL ASSETS   $ 1,089,154     $ 1,035,611  
         
LIABILITIES AND STOCKHOLDERS’ EQUITY        
CURRENT LIABILITIES:        
Accounts payable   $ 35,752     $ 36,521  
Accrued salaries, wages and benefits   21,524     22,917  
Accrued expenses   9,183     8,502  
Current portion of debt obligations   23,282     21,265  
Unearned revenue   10,580     10,311  
TOTAL CURRENT LIABILITIES   100,321     99,516  
             
Long term debt obligations   386,791     343,216  
Post-retirement liabilities   179,487     185,097  
Other liabilities   61,634     62,104  
Deferred income taxes   52,062     46,422  
         
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; 75,000,000 shares authorized; 64,585,208 and 64,130,056 shares issued and outstanding in 2013 and 2012, respectively   646     641  
Additional paid-in capital   523,069     523,087  
Accumulated deficit   (98,685 )   (107,185 )
Accumulated other comprehensive loss   (116,171 )   (117,287 )
TOTAL STOCKHOLDERS’ EQUITY   308,859     299,256  
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY   $ 1,089,154     $ 1,035,611  
                 

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

     
    Three Months Ended
    March 31,
    2013   2012
Revenues        
CAM Leasing   $ 38,969     $ 37,851  
ACMI Services        
Airline services   94,892     96,342  
Reimbursables   18,159     16,853  
Total ACMI Services   113,051     113,195  
Other Activities   26,254     28,421  
Total Revenues   178,274     179,467  
Eliminate internal revenues   (34,995 )   (33,961 )
Customer Revenues   $ 143,279     $ 145,506  
         
Pre-tax Earnings (Loss) from Continuing Operations        
CAM, inclusive of interest expense   16,873     16,818  
ACMI Services   (5,404 )   (8,215 )
Other Activities   2,181     2,001  
Net, unallocated interest expense   (348 )   (321 )
Net gain on derivative instruments   290     460  
Total Pre-tax Earnings   $ 13,592     $ 10,743  
         
Adjustments to Pre-tax Earnings        
Less Net Gain on derivative instruments   (290 )   (460 )
Adjusted Pre-tax Earnings   $ 13,302     $ 10,283  
                 

Adjusted Pre-tax Earnings is defined as Earnings from Continuing Operations Before Income Taxes less derivative gains. Management uses Adjusted Pre-tax Earnings from Continuing Operations to assess the performance of its operating results among periods. Adjusted Pre-tax earnings from Continuing Operations is a non-GAAP financial measure and 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
UNAUDITED ADJUSTED EARNINGS FROM CONTINUING OPERATIONS BEFORE INTEREST, TAXES, DEPRECIATION AND AMORTIZATION
NON-GAAP RECONCILIATION
(In thousands)

     
    Three Months Ended
    March 31,
    2013   2012
         
Earnings from Continuing Operations Before Income Taxes   $ 13,592     $ 10,743  
Interest Income   (21 )   (28 )
Interest Expense   3,132     3,547  
Depreciation and Amortization   20,920     20,300  
EBITDA from Continuing Operations   $ 37,623     $ 34,562  
Less Net Gain on derivative instruments   (290 )   (460 )
         
Adjusted EBITDA from Continuing Operations   $ 37,333     $ 34,102  
                 

EBITDA and Adjusted 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.

EBITDA from Continuing Operations is defined as Earnings from Continuing Operations Before Income Taxes plus net interest expense, depreciation, and amortization expense. Adjusted EBITDA from Continuing Operations is defined as EBITDA from Continuing Operations less derivative gains.

Management uses EBITDA from Continuing Operations as an indicator of the cash-generating performance of the operations of the Company. Management uses Adjusted EBITDA and Adjusted Pre-tax Earnings from Continuing Operations to assess the performance of its operating results among periods. EBITDA and Adjusted EBITDA from Continuing Operations, and Adjusted Pre-tax Earnings should not be considered in isolation or as a substitute for analysis of the Company's results as reported under GAAP, or as an alternative measure of liquidity.

AIR TRANSPORT SERVICES GROUP, INC. AND SUBSIDIARIES
IN-SERVICE AIRCRAFT FLEET

 
Aircraft Types
    December 31,   March 31,   December 31,
    2012   2013   2013 Projected
            Operating           Operating           Operating
    Total   Owned   Lease   Total   Owned   Lease   Total   Owned   Lease
B767-200   40   36   4   40   36   4   40   36   4
B767-300   7   5   2   7   5   2   9   7   2
B757-200   3   3     3   3     4   4  
B757 Combi               4   4  
DC-8 Combi   4   4     3   3        
Total Aircraft In-Service   54   48   6   53   47   6   57   51   6
                                     
Owned Aircraft In Serviceable Condition
    December 31,   March 31,   December 31,
    2012   2013   2013 Projected
                                     
ATSG airlines       28           27           30-32    
External customers       20           20           19-21    
        48           47                

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