Raises Adjusted EBITDA Guidance for 2020 to $490 Million

WILMINGTON, Ohio–(BUSINESS WIRE)–Air Transport Services Group, Inc. (Nasdaq: ATSG), 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.

Outlook

ATSG now expects Adjusted EBITDA for 2020 to be approximately $490 million, comparable to ATSG’s Adjusted EBITDA projection issued in February, before the full effects of the pandemic became clear. While ATSG’s aircraft leasing demand is exceptionally strong, the pandemic’s effects on the global economy and on commercial and military passenger operations remain difficult to predict. This new Adjusted EBITDA projection reflects ATSG’s current assumptions about the level and duration of pandemic impacts during the fourth quarter including opportunities to mitigate those effects, and the outlook for ad-hoc cargo aircraft operations during the holiday peak season.

Corrado said that ATSG’s long-term outlook remains very bright. “We expect another record year for cargo aircraft leasing in 2021, given an order book that already calls for us to modify and dry-lease at least fifteen more 767 freighters, while redeploying others to new customers. We are also hopeful that demand from Omni’s commercial passenger charter customers resumes in early 2021.”

“ATSG’s capital expenditures for 2021 are projected to be lower than in 2020, as we indicated last quarter. However, given the continued strong demand for our leased mid-size freighters, we now project purchasing at least seven feedstock 767s next year with continued opportunity for lease deployments at attractive long-term returns on capital extending into 2022. We now project that 2021 capital expenditures will be in the range of $425 million, down from the approximately $485 million we anticipate for 2020.”

“The pandemic has demonstrated the value of dedicated cargo aircraft during a period when our customers are processing growing volumes of freight through their networks as e-commerce ordering accelerates,” Corrado said. “Rather than focus mainly on short-term charter opportunities, we are capitalizing on the opportunity to book long-term lease commitments to our fleet that will continue to generate strong cash returns long after the pandemic ends. As our leased aircraft portfolio expands, we look forward to allocating those ongoing earnings streams among a wide range of value-enhancing alternatives.”

Warrant Liabilities

During September 2020, the maximum number of common ATSG shares issuable from the initial 2016 investment agreement with Amazon, was determined. As a result, under US GAAP, the value of the entire grant of warrants, $221 million, was reclassified from balance sheet liabilities to additional paid-in-capital in stockholders’ equity. Under the 2016 investment agreement, Amazon was granted up to 19.9% of ATSG’s outstanding common shares in conjunction with the initial twenty aircraft leases. This group of warrants for 14.9 million shares of ATSG, at a strike price of $9.73, is fully vested and expires in March 2021. Amazon has the option to settle the warrants for cash of $145 million and receive all 14.9 million shares, or it may choose a cashless settlement option and receive a lesser number of shares equivalent in market value of the stock’s appreciation above the strike price.

Non-GAAP Financial Measures

This release, including the attached tables, contains non-GAAP financial measures that management uses to evaluate historical results and project future results. Management believes that these non-GAAP measures assist in highlighting operational trends, facilitate period-over-period comparisons, and provide additional clarity about events and trends affecting core operating performance. Disclosing these non-GAAP measures provides insight to investors about additional metrics that management uses to evaluate past performance and prospects for future performance. Non-GAAP measures are not a substitute for GAAP. The historical non-GAAP financial measures included in this release are reconciled to GAAP earnings in tables included later in this release. The Company does not provide a reconciliation of projected Adjusted EBITDA because it is unable to predict with reasonable accuracy the value of certain adjustments. Certain adjustments can be significantly impacted by the re-measurements of financial instruments including stock warrants issued to a customer. The Company’s earnings on a GAAP basis and the non-GAAP adjustments for gains and losses resulting from the re-measurement of stock warrants, will depend on the future prices of ATSG stock, interest rates, and other assumptions which are highly uncertain.

Conference Call

ATSG will host an investor conference call on October 30, 2020, at 10 a.m. Eastern time to review its financial results for the third quarter of 2020. Participants should dial (800) 708-4540 and international participants should dial (847) 619-6397 ten minutes before the scheduled start of the call and ask for conference pass code 49994622. The call will also be webcast live (in listen-only mode) via a link at www.atsginc.com using the same passcode. The conference call also will be available on webcast replay 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 three airlines with separate and distinct U.S. FAA Part 121 Air Carrier certificates, ATSG provides aircraft leasing, air cargo lift, passenger ACMI and charter services, aircraft maintenance services and airport ground services. ATSG’s subsidiaries include ABX Air, Inc.; Airborne Global Solutions, Inc.; Airborne Maintenance and Engineering Services, Inc., including its subsidiary, Pemco World Air Services, Inc.; Air Transport International, Inc.; Cargo Aircraft Management, Inc.; and Omni Air International, LLC. 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. A number of important factors 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, (i) the following, which relate to the current COVID-19 pandemic and related economic downturn: the pandemic may continue for a longer period, or its impact on commercial and military passenger flying, may be more substantial than what we currently expect; disruptions to our workforce and staffing capability or in our ability to access airports and maintenance facilities; the impact on our customers’ creditworthiness; and the continuing ability of our vendors and third party service providers to maintain customary service levels; and (ii) other factors that could impact the market demand for our assets and services, including our operating airlines’ ability to maintain on-time service and control costs; the cost and timing with respect to which we are able to purchase and modify aircraft to a cargo configuration; fluctuations in ATSG’s traded share price and in interest rates, which may result in mark-to-market charges on certain financial instruments; the number, timing and scheduled routes of our aircraft deployments to customers; our ability to remain in compliance with key agreements with customers, lenders and government agencies; changes in general economic and/or industry specific conditions; 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. Except as may be required by applicable law, 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

 

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.

Contacts

Quint Turner, ATSG Inc. Chief Financial Officer

937-366-2303

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