Air Transport Services Group

AIR TRANSPORT SERVICES GROUP ANNOUNCES SECOND-QUARTER RESULTS

WILMINGTON, Ohio - August 8, 2013 - Air Transport Services Group, Inc. (Nasdaq: ATSG), a leading provider of aircraft leasing, and air cargo transportation and related services, today reported consolidated financial results for the quarter ended June 30, 2013.

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

  • Revenues decreased 9.5 percent to $138.9 million.
  • Net earnings from continuing operations decreased 38.4 percent to $6.9 million, or $0.11 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 2016.
  • Adjusted EBITDA decreased 16.7 percent to $35.9 million. This non-GAAP financial measure is defined and reconciled to comparable GAAP results in a table at the end of this release. Second-quarter Adjusted EBITDA was negatively impacted by $4 million due to unanticipated regulatory certification and training requirements.

Joe Hete, President and Chief Executive Officer of ATSG, said, "Our second quarter results include substantial lost revenue and additional operating expenses in our ACMI Services operations, and in particular at Air Transport International (ATI). While our core business with DHL and other customers remains strong and profitable, we continue to face delays in achieving expense and revenue goals at ATI following its merger with its former affiliate airline in March. The losses were due in large part to unanticipated regulatory certification and training requirements that delayed the deployment of our Boeing 757 combi aircraft and reduced ATI's ability to provide flight crews for both contracted and ad-hoc operations.

“The effect of these issues has eased since early July, when the deployment of our first two 757 combis restored our combi fleet to full strength. We now have sufficient aircraft assets to meet our customer commitments, and anticipate achieving sequential improvement in our ACMI Services operations during the second half, while our aircraft leasing and other businesses continue to generate solid returns.”

“The effect of these issues has eased since early July, when the deployment of our first two 757 combis restored our combi fleet to full strength. We now have sufficient aircraft assets to meet our customer commitments, and anticipate achieving sequential improvement in our ACMI Services operations during the second half, while our aircraft leasing and other businesses continue to generate solid returns.”

Segment Results

CAM

Second Quarter                     First Half

($ in thousands)

2013

 

2012

 

2013

 

2012

Revenues

$

39,362

 

 

$

38,067

 

 

$

78,331

 

 

$

75,918

 

Pre-Tax Earnings

17,214

 

 

16,667

 

 

34,087

 

 

33,485

 



Fleet Developments:

  • On June 30, 2013, ATSG owned 48 aircraft in serviceable condition - 20 leased to external customers and 28 leased to ATSG affiliate airlines. A table reflecting aircraft in service is included at the end of this release.
    • The in-service fleet consisted of forty-one Boeing 767 freighters, four Boeing 757 freighters, two DC-8 combis (combined passenger and main-deck cargo aircraft) and one 757 combi.
    • One 757 freighter and one 757 combi aircraft entered service during the second quarter. One DC-8 combi aircraft was retired during the quarter.
    • Since the second quarter of 2012, CAM has retired six older freighters; four 727s and two DC-8s.
  • Two Boeing 767-300s were in passenger-to-freighter conversion as of June 30, 2013.
  • One other 757 combi entered service in July. Two more 757 combis will enter service in the second half, replacing the two remaining DC-8 combis.



ACMI Services

ACMI Services

Second Quarter                    First Half  

($ in thousands)

2013

 

2012

 

2013

 

2012

Revenues

 

 

 

 

 

 

 

Airline services

$

89,920

 

 

$

101,020

 

 

$

183,077

 

 

$

197,362

 

Reimbursables

16,684

 

 

20,369

 

 

34,843

 

 

37,222

 

Total ACMI Services Revenues

106,604

 

 

121,389

 

 

217,920

 

 

234,584

 

 

 

 

 

 

 

 

 

Pre-Tax Loss

(9,093

)

 

(1,582

)

 

(14,497

)

 

(9,797

)



Significant Developments:

  • Airline services revenues decreased $11.1 million as a result of fewer aircraft in revenue service, delayed aircraft certification, and flight crew shortages due primarily to additional regulatory requirements.
    • ATI operated during late May and most of June with only two combi aircraft due to delayed 757 combi certification. As a result, ATI missed some scheduled combi flights and forfeited approximately $3 million in associated revenue until late June, when the first 757 combi entered revenue service. A second 757 combi entered service in early July, bringing the combi fleet to full strength at four, including two DC-8s.
    • Unanticipated additional training was mandated for flight crews and other personnel of former airline CCIA as a condition of CCIA's merger with ATI, resulting in the forfeiture of another $3 million in additional revenue due to the lack of available crews, and increased training costs. Synergy-related expense reductions from the merger were minimal for the quarter, and will remain so through the balance of the year.
    • The net effect of these certification delays and crew shortages on second-quarter pretax income was approximately $4 million.
  • During the second quarter, one 757 freighter entered service with ATI, and four 767 freighters remained underutilized.
  • Block hours decreased 17 percent during the second quarter, compared to the prior-year period. The decline in block hours was greater than the 11 percent decline in airline services revenues primarily because of fewer longer-range international operations this year.



Other Activities

Other Activities

 Second Quarter                          First Half

($ in thousands)

2013

 

2012

 

2013

 

2012

Revenues

$

26,951

 

 

$

26,682

 

 

$

53,205

 

 

$

55,103

 

Pre-Tax Earnings

2,607

 

 

3,228

 

 

4,788

 

 

5,229

 


  • Pre-tax earnings reflect a reduction in aircraft maintenance operations for third parties, but stronger results from management of U.S. Postal Service sorting facilities.

Outlook

ATSG's baseline outlook for Adjusted EBITDA for the second half of 2013 is a range of $82 to $87 million, which is consistent with a range of $155 to $160 million for the full year. This outlook includes approximately $10 million in reduced revenues and higher costs this year that will not recur in 2014, that are due to delays in ATI's combi transition program and regulatory delays affecting flight crew availability. The outlook does not include potential results from new business that may develop during the remainder of the year.

Hete said, "Our fundamental business strategy of acquiring and leasing out cargo aircraft remains sound, and our customer relationships are strong. We expect our aircraft leasing and other businesses to continue to generate good returns in the second half. We also anticipate restoring the profitability of our ACMI Services business in 2014 as we capture the full benefits of our 757 combi fleet investment and airline merger. We remain optimistic about the improving trends in the domestic and international markets we serve and will remain focused on rapidly completing all of the regulatory requirements we face, and deploying all of our available aircraft as markets improve."

Conference Call

ATSG will host an investor conference call on Friday, August 9, 2013, at 10:00 a.m. Eastern time to review its financial results for the second quarter ended June 30, 2013. On the day of the conference call, 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 35347362. The call also will be webcast live (listen-only mode) via the link below, via 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 beginning Friday, August 9, 2013 at 1:00 p.m. and continuing through Friday, August 16, 2013, at 888-843-7419 (international callers 630-652-3042; use pass code 35347362#. The webcast replay will remain available via the link above 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 to customers, achievement of the benefits we anticipated from the merger of two of our airline businesses, 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.

ATTACHMENTS:
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
CONDENSED CONSOLIDATED BALANCE SHEETS
PRE-TAX EARNINGS AND ADJUSTED PRE-TAX EARNINGS SUMMARY FROM CONTINUING OPERATIONS NON-GAAP RECONCILIATION
UNAUDITED ADJUSTED EBITDA FROM CONTINUING OPERATIONS NON-GAAP RECONCILIATION
IN-SERVICE AIRCRAFT FLEET




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,

 

2013

 

2012

 

2013

 

2012

REVENUES

$

138,904

 

 

$

153,554

 

 

$

282,183

 

 

$

299,060

 

 

 

 

 

 

 

 

 

OPERATING EXPENSES

 

 

 

 

 

 

 

Salaries, wages and benefits

41,964

 

 

44,570

 

 

85,273

 

 

91,674

 

Fuel

12,440

 

 

14,084

 

 

26,801

 

 

27,924

 

Maintenance, materials and repairs

25,005

 

 

25,270

 

 

47,139

 

 

48,384

 

Depreciation and amortization

21,765

 

 

21,514

 

 

42,685

 

 

41,814

 

Rent

6,791

 

 

6,244

 

 

13,570

 

 

11,974

 

Travel

4,772

 

 

5,566

 

 

9,499

 

 

11,544

 

Landing and ramp

1,972

 

 

3,880

 

 

6,037

 

 

7,946

 

Insurance

1,396

 

 

1,826

 

 

2,907

 

 

3,836

 

Other operating expenses

8,630

 

 

8,998

 

 

17,690

 

 

18,560

 

 

124,735

 

 

131,952

 

 

251,601

 

 

263,656

 

 

 

 

 

 

 

 

 

OPERATING INCOME

14,169

 

 

21,602

 

 

30,582

 

 

35,404

 

OTHER INCOME (EXPENSE)

 

 

 

 

 

 

 

Interest income

18

 

 

38

 

 

39

 

 

66

 

Interest expense

(3,554

)

 

(3,671

)

 

(6,686

)

 

(7,218

)

Unrealized gain on derivative instruments

452

 

 

202

 

 

742

 

 

662

 

 

(3,084

)

 

(3,431

)

 

(5,905

)

 

(6,490

)

 

 

 

 

 

 

 

 

EARNINGS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES

11,085

 

 

18,171

 

 

24,677

 

 

28,914

 

INCOME TAX EXPENSE

(4,170

)

 

(6,952

)

 

(9,261

)

 

(11,033

)

 

 

 

 

 

 

 

 

EARNINGS FROM CONTINUING OPERATIONS

6,915

 

 

11,219

 

 

15,416

 

 

17,881

 

 

 

 

 

 

 

 

 

LOSS FROM DISCONTINUED OPERATIONS, NET OF TAX

(1

)

 

(160

)

 

(2

)

 

(390

)

NET EARNINGS

$

6,914

 

 

$

11,059

 

 

$

15,414

 

 

$

17,491

 

 

 

 

 

 

 

 

 

EARNINGS PER SHARE - Basic

 

 

 

 

 

 

 

Continuing operations

$

0.11

 

 

$

0.18

 

 

$

0.24

 

 

$

0.28

 

Discontinued operations

 

 

(0.01

)

 

 

 

 

NET EARNINGS PER SHARE

$

0.11

 

 

$

0.17

 

 

$

0.24

 

 

$

0.28

 

 

 

 

 

 

 

 

 

EARNINGS PER SHARE - Diluted

 

 

 

 

 

 

 

Continuing operations

$

0.11

 

 

$

0.17

 

 

$

0.24

 

 

$

0.28

 

Discontinued operations

 

 

 

 

 

 

(0.01

)

NET EARNINGS PER SHARE

$

0.11

 

 

$

0.17

 

 

$

0.24

 

 

$

0.27

 

 

 

 

 

 

 

 

 

WEIGHTED AVERAGE SHARES

 

 

 

 

 

 

 

Basic

64,050

 

 

63,431

 

 

63,931

 

 

63,431

 

Diluted

64,859

 

 

64,393

 

 

64,692

 

 

64,383

 




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

 

June 30,

 

December 31,

 

2013

 

2012

ASSETS

 

 

 

CURRENT ASSETS:

 

 

 

Cash and cash equivalents

$

20,932

 

 

$

15,442

 

Accounts receivable, net of allowance of $601 in 2013 and $749 in 2012

43,840

 

 

47,858

 

Inventory

8,491

 

 

9,430

 

Prepaid supplies and other

7,584

 

 

8,855

 

Deferred income taxes

19,154

 

 

19,154

 

Aircraft and engines held for sale

2,716

 

 

3,360

 

TOTAL CURRENT ASSETS

102,717

 

 

104,099

 

 

 

 

 

Property and equipment, net

855,954

 

 

818,924

 

Other assets

20,419

 

 

20,462

 

Intangibles

5,021

 

 

5,146

 

Goodwill

86,980

 

 

86,980

 

TOTAL ASSETS

$

1,071,091

 

 

$

1,035,611

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

CURRENT LIABILITIES:

 

 

 

Accounts payable

$

39,455

 

 

$

36,521

 

Accrued salaries, wages and benefits

18,893

 

 

22,917

 

Accrued expenses

8,797

 

 

8,502

 

Current portion of debt obligations

23,426

 

 

21,265

 

Unearned revenue

10,408

 

 

10,311

 

TOTAL CURRENT LIABILITIES

100,979

 

 

99,516

 

Long term debt obligations

365,330

 

 

343,216

 

Post-retirement liabilities

169,858

 

 

185,097

 

Other liabilities

60,592

 

 

62,104

 

Deferred income taxes

56,806

 

 

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; 64,672,632 and 64,130,056 shares issued and outstanding in 2013 and 2012, respectively

647

 

 

641

 

Additional paid-in capital

523,706

 

 

523,087

 

Accumulated deficit

(91,772

)

 

(107,185

)

Accumulated other comprehensive loss

(115,055

)

 

(117,287

)

TOTAL STOCKHOLDERS’ EQUITY

317,526

 

 

299,256

 

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

$

1,071,091

 

 

$

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

 

Six Months Ended

 

June 30,

 

June 30,

 

2013

 

2012

 

2013

 

2012

Revenues

 

 

 

 

 

 

 

CAM Leasing

$

39,362

 

 

$

38,067

 

 

$

78,331

 

 

$

75,918

 

ACMI Services

 

 

 

 

 

 

 

Airline services

89,920

 

 

101,020

 

 

183,077

 

 

197,362

 

Reimbursables

16,684

 

 

20,369

 

 

34,843

 

 

37,222

 

Total ACMI Services

106,604

 

 

121,389

 

 

217,920

 

 

234,584

 

Other Activities

26,951

 

 

26,682

 

 

53,205

 

 

55,103

 

Total Revenues

172,917

 

 

186,138

 

 

349,456

 

 

365,605

 

Eliminate internal revenues

(34,013

)

 

(32,584

)

 

(67,273

)

 

(66,545

)

Customer Revenues

$

138,904

 

 

$

153,554

 

 

$

282,183

 

 

$

299,060

 

 

 

 

 

 

 

 

 

Pre-tax Earnings (Loss) from Continuing Operations

 

 

 

 

 

 

CAM, inclusive of interest expense

17,214

 

 

16,667

 

 

34,087

 

 

33,485

 

ACMI Services

(9,093

)

 

(1,582

)

 

(14,497

)

 

(9,797

)

Other Activities

2,607

 

 

3,228

 

 

4,788

 

 

5,229

 

Net, unallocated interest expense

(95

)

 

(344

)

 

(443

)

 

(665

)

Net gain on derivative instruments

452

 

 

202

 

 

742

 

 

662

 

Total Pre-tax Earnings

$

11,085

 

 

$

18,171

 

 

$

24,677

 

 

$

28,914

 

 

 

 

 

 

 

 

 

Adjustments to Pre-tax Earnings

 

 

 

 

 

 

Less Net Gain on derivative instruments

(452

)

 

(202

)

 

(742

)

 

(662

)

Adjusted Pre-tax Earnings

$

10,633

 

 

$

17,969

 

 

$

23,935

 

 

$

28,252

 




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

 

Six Months Ended

 

June 30,

 

June 30,

 

2013

 

2012

 

2013

 

2012

 

 

 

 

 

 

 

 

Earnings from Continuing Operations Before Income Taxes

$

11,085

 

 

$

18,171

 

 

$

24,677

 

 

$

28,914

 

Interest Income

(18

)

 

(38

)

 

(39

)

 

(66

)

Interest Expense

3,554

 

 

3,671

 

 

6,686

 

 

7,218

 

Depreciation and Amortization

21,765

 

 

21,514

 

 

42,685

 

 

41,814

 

EBITDA from Continuing Operations

$

36,386

 

 

$

43,318

 

 

$

74,009

 

 

$

77,880

 

Less Net Gain on derivative instruments

(452

)

 

(202

)

 

(742

)

 

(662

)

 

 

 

 

 

 

 

 

Adjusted EBITDA from Continuing Operations

$

35,934

 

 

$

43,116

 

 

$

73,267

 

 

$

77,218

 



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,

 

June 30,

 

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

 

 

4

 

4

 

 

4

 

4

 

B757 Combi

 

 

 

 

1

 

1

 

 

4

 

4

 

DC-8 Combi

 

4

 

4

 

 

2

 

2

 

 

 

 

Total Aircraft In-Service

 

54

 

48

 

6

 

54

 

48

 

6

 

57

 

51

 

6

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Owned Aircraft In Serviceable Condition

 

 

December 31,

 

June 30,

 

December 31,

 

 

2012

 

2013

 

2013 Projected

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ATSG airlines

 

 

 

28

 

 

 

 

 

28

 

 

 

 

 

30-31

 

 

External customers

 

 

 

20

 

 

 

 

 

20

 

 

 

 

 

20-21

 

 

 

 

 

 

48

 

 

 

 

 

48

 

 

 

 

 

 

 

 





For more information, contact:
Air Transport Services Group, Inc.
Quint Turner
Chief Financial Officer
937-382-5591


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