News Column

ATSG Reports Strong Second Quarter Results

August 5, 2014

Revenues up 8%, Pre-tax Earnings increase 33%, and Adjusted EBITDA grows 26% from 2Q 2013

WILMINGTON, Ohio--(BUSINESS WIRE)-- Air Transport Services Group, Inc. (Nasdaq: ATSG), the leading provider of medium wide-body aircraft leasing, air cargo transportation and related services, today reported consolidated financial results for the quarter ended June 30, 2014.

For the second quarter of 2014:

  • Revenues were $149.6 million, up $10.7 million, or 8 percent from a year ago. Excluding revenues from reimbursable expenses, revenues increased $4.8 million, or 4 percent. The year-over-year gain stemmed from an improvement in combi revenue from the U.S. military and more aircraft maintenance services performed for external customers.
  • Pre-tax earnings from continuing operations increased 33 percent to $14.7 million. Sharp improvement in the profitability of ATSG's airline operations more than offset margin reductions in ATSG's aircraft leasing business, which incurred greater costs without compensating revenues while preparing 767 freighters for redeployment to external lease customers.
  • Net earnings from continuing operations of $9.3 million, or $0.14 per share, were up 34 percent from $6.9 million, or $0.11 per share a year ago. The Company has operating loss carryforwards for U.S. federal income tax purposes that offset its federal income tax liabilities. As a result, ATSG does not expect to pay significant federal income taxes until 2016 or later.
  • Adjusted EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization, also adjusted for the effect of derivative transactions) was $45.3 million, up 26 percent from $35.9 million in the prior-year quarter, and up 17 percent from $38.8 million in the first quarter of 2014. Adjusted EBITDA is a non-GAAP financial measure, defined and reconciled to comparable GAAP results in separate tables at the end of this release.

    Separately today, ATSG announced that its Board of Directors has authorized the purchase of up $50 million of the company's common shares, with discretion to determine whether and to what extent such repurchases might take place. Also, ATSG said that its aircraft leasing business, CAM, has agreed to purchase from Guggenheim Aviation Partners, Ltd., two 767-300 freighters that ATSG is already operating under leases from Guggenheim.

    Joe Hete, President and Chief Executive Officer of ATSG, said, "The second quarter provided strong evidence of the efficiency with which our businesses convert revenue growth into cash flow and higher earnings. The new agreements with Amerijet and Cargojet we announced in May, including dry leases of four more of our 767s, led to the return of several 767 freighters from our airlines to our leasing business, CAM. That shift, plus significant reductions in personnel related costs, fewer heavy maintenance checks in the second quarter, and stronger returns from our operations for the U.S. military, led to a profitable quarter in our ACMI Services segment. I'm also pleased with the contribution of our aircraft maintenance business, AMES, which opened its new hangar facility in Wilmington in late June."

    For the first half of 2014, ATSG earned $15.8 million, or $0.24 per share from continuing operations, up 3 percent from the first half of 2013. Revenues increased 4 percent to $293.2 million. Adjusted EBITDA for the first half of 2014 was $84.1 million, up 15 percent from the first half of 2013.

    Capital expenditures in the first half, including expenses related to construction of new leased hangar facilities, were $23.5 million, compared with $72.8 million in the first half of 2013. The company increased its projection for 2014 capital spending from $45 million to approximately $95 million to reflect the purchase of two currently leased-in 767-300 freighters at the end of the third quarter.

    Segment Results

    CAM (Aircraft Leasing)

    CAM         Second Quarter
    ($ in thousands)         2014     2013
    Revenues $ 40,590 $ 39,362
    Pre-Tax Earnings         10,667     17,214
     


    Significant Developments:

  • Lower pre-tax earnings from leasing operations reflect a $5.5 million increase in depreciation from additional and newer aircraft, including four Boeing 757 combis (combined passenger and main-deck cargo aircraft) that offer significant operating cost savings compared with the DC-8s they replaced. At the same time, CAM's costs to prepare aircraft for redeployment to lessees, and the associated loss of lease revenues from CAM's airline affiliates for those aircraft, reduced its second-quarter earnings by about $1.5 million.
  • At June 30, CAM owned 51 Boeing cargo aircraft in serviceable condition. Four CAM-owned 757 combis have entered service since the first one was deployed in June 2013, and three DC-8 combis were retired, including one that was removed at the end of the second quarter last year. One more 767-300 freighter was added earlier this year. A table reflecting cargo aircraft in service is included at the end of this release.
  • CAM delivered the first of two 767-200 freighters to Cargojet in June under a dry-lease agreement. It expects to deliver four more 767 freighters this year, including two 767-300s to Amerijet and another 767-200 to Cargojet this summer. Amerijet also extended for 18 months the dry-lease agreements for two of the three 767-200s that it currently leases from CAM. Finally, West Atlantic of Sweden is expected to lease a 767 freighter from CAM later this quarter.
  • When fully implemented, the new arrangements with Amerijet, Cargojet and West Atlantic are expected to expand the number of CAM aircraft leased to external customers from 21 to 25.

    ACMI Services

    ACMI Services         Second Quarter
    ($ in thousands)         2014     2013
    Revenues
    Airline services $ 88,657 $ 89,920
    Reimbursables 22,647   16,684  
    Total ACMI Services Revenues 111,304 106,604
     
    Pre-Tax Earnings (Loss)         309       (9,093 )
     


    Significant Developments:

  • A pre-tax profit in the second quarter contrasts with losses of $9 million a year ago and $7 million in the first quarter of this year. Principal factors were reductions in personnel costs including pension expense, fewer heavy maintenance checks than in the prior periods, stronger results from combi operations for the U.S. Military, and lower lease costs compared with the second quarter last year.
  • ACMI block hours decreased 6 percent compared with the prior-year quarter, principally reflecting reduced operations for DHL in the Mideast that ended early this year.

    Other Activities

    Other Activities         Second Quarter
    ($ in thousands)        

    2014

       

    2013

    Revenues $ 36,493 $ 26,951
    Pre-Tax Earnings         4,108     2,607
  • A $1.5 million increase in pre-tax earnings was driven largely by a $5.8 million gain in revenues from external customers at AMES. They also supported CAM's efforts to prepare its freighters during the second quarter for new dry lease assignments. A new two-bay, 105,000 square foot hangar opened in Wilmington in June, which will support AMES's growth.

    Outlook

    ATSG now projects that its Adjusted EBITDA for 2014 will exceed $170 million, with final results for the year dependent on its ability to continue to deploy its aircraft.

    "The broad interest in our aircraft that we noted in May has persisted into the summer," Hete said. "We expect our cash flow this year to continue to benefit from operating gains from additional aircraft leases, plus reduced pension funding obligations. As we deploy more aircraft under multi-year customer arrangements, we have also demonstrated our confidence in the cash-generating power of the business through a Board authorization for share repurchase flexibility. We now have the option to choose from a wide range of non-exclusive capital allocation alternatives, mindful of the interests of our shareholders for long-term growth, a strong balance sheet, and optimal returns on their investments."

    Conference Call

    ATSG will host a conference call on August 6, 2014, at 10:00 a.m. Eastern time to review its financial results for the second quarter of 2014. 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 37765304. The call will also be webcast live (listen-only mode) via www.atsginc.com.

    A replay of the conference call will be available by phone on August 6, 2014, beginning at 2:00 p.m. and continuing through August 13, 2014, at (888) 843-7419 (international callers 630-652-3042); use pass code 37765304#. The webcast replay will remain available via www.atsginc.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 number and timing of deployments of our aircraft, our operating airlines' ability to maintain on-time service and control costs, 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 EndedSix Months Ended
    June 30,June 30,
    2014   20132014   2013
    REVENUES $ 149,618 $ 138,904 $ 293,211 $ 282,183
     
    OPERATING EXPENSES
    Salaries, wages and benefits 40,895 41,964 83,960 85,273
    Maintenance, materials and repairs 23,168 25,005 48,047 47,139
    Depreciation and amortization 27,142 21,765 52,121 42,685
    Fuel 14,014 12,440 26,274 26,801
    Rent 6,924 6,791 14,234 13,570
    Travel 4,419 4,772 8,992 9,499
    Landing and ramp 2,576 1,972 5,314 6,037
    Insurance 1,573 1,396 2,778 2,907
    Other operating expenses 10,790   8,630   19,538   17,690  
    131,501 124,735 261,258 251,601
                   
    OPERATING INCOME 18,117 14,169 31,953 30,582
    OTHER INCOME (EXPENSE)
    Interest income 24 18 43 39
    Interest expense (3,481 ) (3,554 ) (7,304 ) (6,686 )
    Net gain on derivative instruments 31   452   330   742  
    (3,426 ) (3,084 ) (6,931 ) (5,905 )
                   
    EARNINGS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 14,691 11,085 25,022 24,677
    INCOME TAX EXPENSE (5,393 ) (4,170 ) (9,202 ) (9,261 )
                   
    EARNINGS FROM CONTINUING OPERATIONS 9,298 6,915 15,820 15,416
     
    EARNINGS (LOSS) FROM DISCONTINUED OPERATIONS, NET OF TAX 211   (1 ) 422   (2 )
    NET EARNINGS $ 9,509   $ 6,914   $ 16,242   $ 15,414  
     
    EARNINGS PER SHARE - Basic
    Continuing operations $ 0.14   $ 0.11   $ 0.25   $ 0.24  
    Discontinued operations 0.01        
    NET EARNINGS PER SHARE $ 0.15   $ 0.11   $ 0.25   $ 0.24  
     
    EARNINGS PER SHARE - Diluted
    Continuing operations $ 0.14   $ 0.11   $ 0.24   $ 0.24  
    Discontinued operations 0.01     0.01    
    NET EARNINGS PER SHARE $ 0.15   $ 0.11   $ 0.25   $ 0.24  
     
    WEIGHTED AVERAGE SHARES
    Basic 64,285   64,050   64,217   63,931  
    Diluted 65,207   64,859   65,174   64,692  
     
     

    AIR TRANSPORT SERVICES GROUP, INC. AND SUBSIDIARIES

    CONDENSED CONSOLIDATED BALANCE SHEETS

    (In thousands, except share data)

               
    June 30,December 31,
    20142013
    ASSETS
    CURRENT ASSETS:
    Cash and cash equivalents $ 23,763 $ 31,699
    Accounts receivable, net of allowance of $863 in 2014 and $717 in 2013 57,126 52,247
    Inventory 9,777 9,050
    Prepaid supplies and other 12,810 9,730
    Deferred income taxes 13,957 13,957
    Aircraft and engines held for sale 1,015   2,995  
    TOTAL CURRENT ASSETS 118,448 119,678
     
    Property and equipment, net 809,810 838,172
    Other assets 38,214 21,143
    Pension assets, net of obligations 18,862 14,855
    Intangibles 4,755 4,896
    Goodwill 34,395   34,395  
    TOTAL ASSETS$1,024,484   $1,033,139  
     
    LIABILITIES AND STOCKHOLDERS’ EQUITY
    CURRENT LIABILITIES:
    Accounts payable $ 33,971 $ 34,818
    Accrued salaries, wages and benefits 21,061 23,163
    Accrued expenses 10,121 9,695
    Current portion of debt obligations 24,027 23,721
    Unearned revenue 9,487   8,733  
    TOTAL CURRENT LIABILITIES 98,667 100,130
     
    Long term debt 328,103 360,794
    Post-retirement obligations 29,985 30,638
    Other liabilities 64,134 62,740
    Deferred income taxes 118,335 109,869
     
    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; 64,939,895 and 64,618,305 shares issued and outstanding in 2014 and 2013, respectively 649 646
    Additional paid-in capital 526,023 524,953
    Accumulated deficit (110,571 ) (126,813 )
    Accumulated other comprehensive loss (30,841 ) (29,818 )
    TOTAL STOCKHOLDERS’ EQUITY 385,260   368,968  
    TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY$1,024,484   $1,033,139  
     
           

    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 EndedSix Months Ended
    June 30,June 30,
    2014   20132014   2013
    Revenues
    CAM $ 40,590 $ 39,362 $ 81,225 $ 78,331
    ACMI Services
    Airline services 88,657 89,920 176,164 183,077
    Reimbursables 22,647   16,684   43,736   34,843  
    Total ACMI Services 111,304 106,604 219,900 217,920
    Other Activities 36,493   26,951   63,301   53,205  
    Total Revenues 188,387 172,917 364,426 349,456
    Eliminate internal revenues (38,769 ) (34,013 ) (71,215 ) (67,273 )
    Customer Revenues$149,618   $138,904   $293,211   $282,183  
     
    Pre-tax Earnings from Continuing Operations
    CAM, inclusive of interest expense 10,667 17,214 25,107 34,087
    ACMI Services 309 (9,093 ) (6,737 ) (14,497 )
    Other Activities 4,108 2,607 7,125 4,788
    Net, unallocated interest expense (424 ) (95 ) (803 ) (443 )
    Net gain on derivative instruments 31   452   330   742  
    Total Pre-tax Earnings$14,691$11,085$25,022$24,677
     
    Adjustments to Pre-tax Earnings
    Less net gain on derivative instruments (31 ) (452 ) (330 ) (742 )
    Adjusted Pre-tax Earnings$14,660   $10,633   $24,692   $23,935  
     


    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 EndedSix Months Ended
    June 30,June 30,
    2014   20132014   2013
     
    Earnings from Continuing Operations Before Income Taxes $ 14,691 $ 11,085 $ 25,022 $ 24,677
    Interest Income (24 ) (18 ) (43 ) (39 )
    Interest Expense 3,481 3,554 7,304 6,686
    Depreciation and Amortization 27,142   21,765   52,121   42,685  
    EBITDA from Continuing Operations $ 45,290 $ 36,386 $ 84,404 $ 74,009
    Less net gain on derivative instruments (31 ) (452 ) (330 ) (742 )
                   
    Adjusted EBITDA from Continuing Operations $ 45,259   $ 35,934   $ 84,074   $ 73,267  
     


    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 from Continuing Operations to assess the performance of its operating results among periods. EBITDA and Adjusted EBITDA from Continuing Operations 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 CARGO AIRCRAFT FLEET

     
    Aircraft Types
            December 31,     June 30,     December 31,
    201320142014 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 8 6 2 9 7 2 9 9
    B757-200 4 4 4 4 4 4
    B757 Combi 3 3 4 4 4 4
    Total Aircraft In-Service554965751657534
     
    Owned Aircraft In Serviceable Condition
    December 31,June 30,December 31,
    201320142014 Projected
    ATSG airlines 29 26 27-28
    External customers 20 21 25-26
    Staging/Unassigned 4
    495153
     





    ATSG Inc.

    Quint O. Turner, 937-382-5591

    Chief Financial Officer

    Source: Air Transport Services Group, Inc.


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