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 September 30, 2015.

Results for the third quarter of 2015, compared with the third quarter of 2014, are as follows:

  • Revenues increased three percent to $142.3 million, including a six percent increase in freighter aircraft leasing revenues. Excluding revenues from reimbursements, third-quarter 2015 revenues increased 6 percent.
  • Both pre-tax and net earnings from continuing operations decreased 34 percent, reflecting the revenue and expense effects of aircraft transitioning between contracts and scheduled maintenance activities during the third quarter. Net earnings from continuing operations were $6.3 million, or $0.10 per share for the quarter, down from $9.6 million, or $0.15 per share in the third quarter of 2014.
  • Operating loss carryforwards for U.S. federal income tax purposes offset much of the company’s federal tax liabilities. ATSG does not expect to pay significant federal income taxes until 2017 or later.
  • Adjusted EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization, also adjusted for the effect of derivative transactions) was $43.7 million, down two percent from a year ago. Adjusted EBITDA is a non-GAAP financial measure, defined and reconciled to comparable GAAP results in separate tables at the end of this release.

Joe Hete, President and Chief Executive Officer of ATSG, said, “We advised you in August that the third quarter would be a transitional time for us, with intensive preparations to ready aircraft and services for new assignments in the fourth quarter. We deployed three Boeing 767 cargo aircraft under new arrangements during the third quarter, and will deploy eight others, five of those under dry lease arrangements, in the fourth quarter.

"We also signed commitments during the third quarter to invest in a new joint venture that will provide air express services in China and other points in Asia, starting in mid-2016 after pending regulatory approvals. That airline, United Star Express, will serve rapidly growing e-commerce markets from an operating base in Tianjin. We expect to be a source of leased aircraft to United Star Express as it expands over the next several years."

Through nine months, ATSG earned $25.8 million, or $0.40 per share diluted from continuing operations in 2015, up two percent from the same period in 2014. Revenues increased 1 percent to $437.7 million, and increased 4 percent excluding revenues from reimbursements. Adjusted EBITDA for the first nine months of 2015 was $141.4 million, up 10 percent.

Capital spending for the first nine months of 2015 was $111.0 million, compared with $90.9 million in the same 2014 period. ATSG purchased three 767-300 aircraft this year, one more than in 2014. ATSG plans to purchase one more 767-300 in November to modify and deploy with an existing customer in 2016 under an eight-year dry lease. ATSG projects capital expenditures for 2015 of approximately $165 million.

Share repurchases, which began in May, have totaled $8.4 million to date. That includes $4.3 million during the third quarter.

Segment Results

CAM (Aircraft Leasing)

CAM       Third Quarter   Nine Months
($ in thousands)       2015   2014   2015   2014
Revenues $ 42,574 $ 40,226 $ 131,060 $ 121,451
Pre-Tax Earnings       $ 13,482     $ 13,574     $ 42,361     $ 38,681

Significant Developments:

  • CAM’s third-quarter revenues from external customers increased $3.4 million versus a year ago. Pre-tax earnings reflect the benefit of those additional revenues, offset by higher depreciation for aircraft placed in service since September 2014, and by costs for aircraft transitioning between customer arrangements.
  • In the fourth quarter, CAM expects to deploy three 767 freighters under new leases to DHL: two 767-300s under eight-year leases, and one 767-200 leased through March 2019. Two 767-200s are expected to go to West Atlantic in Europe under multi-year dry leases.
  • At September 30, 2015, CAM owned 54 Boeing cargo aircraft in serviceable condition, and two 767-300 aircraft undergoing freighter modification for fourth-quarter lease deployments to DHL. A table reflecting cargo aircraft in service is included at the end of this release.

ACMI Services

ACMI Services       Third Quarter   Nine Months
($ in thousands)       2015   2014   2015   2014
Revenues
Airline services $ 93,632 $ 92,237 $ 289,224 $ 292,042
Reimbursables $ 6,286   $ 10,616   $ 20,054   $ 30,711  
Total ACMI Services Revenues $ 99,918 $ 102,853 $ 309,278 $ 322,753
 
Pre-Tax Earnings (Loss)       $ (4,914 )   $ (126 )   $ (6,359 )   $ (6,863 )

Significant Developments:

  • Third-quarter revenues from airline services increased two percent, even as our airlines operated five fewer aircraft than the prior-year quarter as we allocated more aircraft to external leasing customers. Aircraft utilization improved for non-DHL customers as CMI operations for DHL declined.
  • Pre-tax profitability for the airlines declined for the quarter because of increased scheduled maintenance services, expenses to prepare express-network services for new customers, and a reduction in military flying due to an out-of-service runway in Greenland.
  • One CAM-owned freighter leased to ATSG’s airlines was underutilized during the quarter. All are expected to be serving customers during the fourth-quarter peak holiday season.

Other Activities

Other Activities         Third Quarter   Nine Months
($ in thousands)         2015   2014   2015   2014
Revenues $ 38,398 $ 42,055 $ 106,183 $ 105,356
Pre-Tax Earnings         $ 2,077     $ 2,010     $ 6,993     $ 9,135

Significant Developments:

  • While aggregate revenues declined, revenues from external customers for our other businesses increased 29 percent, with increases in revenues from both aircraft maintenance and postal-center management services. Pre-tax earnings were up slightly, as maintenance-service margins were affected by preparations to support a new contract with Delta Air Lines.

Outlook

ATSG continues to project that its Adjusted EBITDA from Continuing Operations for 2015 will be in a range of $190 to 195 million. Final results for the year will reflect ATSG’s ability to deploy and operate aircraft quickly and efficiently for peak season, and to support new and existing customers with additional logistical and technical services.

Hete said, "The market for ATSG's scale and expertise as an innovative source of comprehensive solutions for regional air networks is expanding rapidly. That's evidenced in part by our new airline joint venture in China, United Star Express, which will focus on e-commerce opportunities in Asia starting in mid-2016. Through this new China venture and others, we will demonstrate our innovation, flexibility and speed to deliver competitive advantages to e-commerce operators. We look forward to allocating significantly more aircraft and operating resources toward these new opportunities in 2016.”

Conference Call

ATSG will host a conference call on Nov. 6, 2015, at 10:00 a.m. Eastern time to review its financial results for the third quarter of 2015. 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 41077146. 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 Nov. 6, 2015, beginning at 2:00 p.m. and continuing through Nov. 13, 2015, at (888) 843-7419 (international callers (630) 652-3042); use pass code 41077146#. 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 Ended Nine Months Ended
September 30, September 30,
2015   2014 2015   2014
REVENUES $ 142,305 $ 138,443 $ 437,683 $ 431,654
 
OPERATING EXPENSES
Salaries, wages and benefits 41,624 39,096 127,339 123,056
Depreciation and amortization 30,754 26,307 91,147 78,428
Maintenance, materials and repairs 24,655 17,082 71,341 65,129
Fuel 12,029 14,059 35,082 40,333
Rent 2,246 6,689 8,900 20,923
Travel 3,989 4,189 12,754 13,181
Landing and ramp 2,108 2,450 6,982 7,764
Insurance 832 1,109 2,636 3,887
Other operating expenses 11,151   9,175   31,262   28,713  
129,388 120,156 387,443 381,414
       
OPERATING INCOME 12,917 18,287 50,240 50,240
OTHER INCOME (EXPENSE)
Interest income 18 23 64 66
Interest expense (2,684 ) (3,309 ) (8,588 ) (10,613 )
Net gain on derivative instruments 96   639   347   969  
(2,570 ) (2,647 ) (8,177 ) (9,578 )
       
EARNINGS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 10,347 15,640 42,063 40,662
INCOME TAX EXPENSE (4,000 ) (6,045 ) (16,251 ) (15,247 )
       
EARNINGS FROM CONTINUING OPERATIONS 6,347 9,595 25,812 25,415
 
EARNINGS FROM DISCONTINUED OPERATIONS, NET OF TAX 214   312   642   734  
NET EARNINGS $ 6,561   $ 9,907   $ 26,454   $ 26,149  
 
EARNINGS PER SHARE - Basic
Continuing operations $ 0.10 $ 0.15 $ 0.40 $ 0.40
Discontinued operations —   —   0.01   0.01  
NET EARNINGS PER SHARE $ 0.10   $ 0.15   $ 0.41   $ 0.41  
 
EARNINGS PER SHARE - Diluted
Continuing operations $ 0.10 $ 0.15 $ 0.40 $ 0.39
Discontinued operations —   —   —   0.01  
NET EARNINGS PER SHARE $ 0.10   $ 0.15   $ 0.40   $ 0.40  
 
WEIGHTED AVERAGE SHARES
Basic 64,239   64,286   64,411   64,240  
Diluted 65,171   65,271   65,341   65,207  
 
   
AIR TRANSPORT SERVICES GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

 
September 30, December 31,
2015 2014
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 14,861 $ 30,560
Accounts receivable, net of allowance of $360 in 2015 and $812 in 2014 39,160 43,513
Inventory 11,901 10,665
Prepaid supplies and other 13,552 12,613
Deferred income taxes 19,770   19,770  
TOTAL CURRENT ASSETS 99,244 117,121
 
Property and equipment, net 868,897 847,268
Other assets 26,810 28,230
Goodwill and acquired intangibles 38,799   39,010  
TOTAL ASSETS $ 1,033,750   $ 1,031,629  
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable $ 50,018 $ 40,608
Accrued salaries, wages and benefits 25,229 25,633
Accrued expenses 7,872 8,201
Current portion of debt obligations 29,565 24,344
Unearned revenue 14,051   12,914  
TOTAL CURRENT LIABILITIES 126,735 111,700
 
Long term debt 279,782 319,750
Post-retirement obligations 78,323 92,050
Other liabilities 56,950 57,647
Deferred income taxes 120,632 102,993
 
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; 64,519,363 and 64,854,950 shares issued and outstanding in 2015 and 2014, respectively 645 649
Additional paid-in capital 521,107 526,669
Accumulated deficit (70,499 ) (96,953 )
Accumulated other comprehensive loss (79,925 ) (82,876 )
TOTAL STOCKHOLDERS’ EQUITY 371,328   347,489  
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 1,033,750   $ 1,031,629  
 
   
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 Nine Months Ended
September 30, September 30,
2015   2014 2015   2014
Revenues
CAM $ 42,574 $ 40,226 $ 131,060 $ 121,451
ACMI Services
Airline services 93,632 92,237 289,224 292,042
Reimbursables 6,286   10,616   20,054   30,711  
Total ACMI Services 99,918 102,853 309,278 322,753
Other Activities 38,398   42,055   106,183   105,356  
Total Revenues 180,890 185,134 546,521 549,560
Eliminate internal revenues (38,585 ) (46,691 ) (108,838 ) (117,906 )
Customer Revenues $ 142,305   $ 138,443   $ 437,683   $ 431,654  
 
Pre-tax Earnings from Continuing Operations
CAM, inclusive of interest expense 13,482 13,574 42,361 38,681
ACMI Services (4,914 ) (126 ) (6,359 ) (6,863 )
Other Activities 2,077 2,010 6,993 9,135
Net, unallocated interest expense (394 ) (457 ) (1,279 ) (1,260 )
Net gain on derivative instruments 96   639   347   969  
Total Pre-tax Earnings $ 10,347 $ 15,640 $ 42,063 $ 40,662
 
Adjustments to Pre-tax Earnings
Less net gain on derivative instruments (96 ) (639 ) (347 ) (969 )
Adjusted Pre-tax Earnings $ 10,251   $ 15,001   $ 41,716   $ 39,693  
 

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.

Reimbursable revenues shown above include revenues related to fuel, landing fees, navigation fees, aircraft rent and certain other operating costs that are directly reimbursed to the airlines by their customers. Effective April 1, 2015, the costs of engine and airframe maintenance for all CAM-owned aircraft operated for DHL are the responsibility of the airlines, including Boeing 767-200 maintenance costs previously reimbursed directly by DHL. For all periods presented above, airline service revenues include compensation for maintenance provided by the airlines on aircraft operated for DHL. Reimbursables revenues declined for the three and nine-month periods ending September 30, 2015 compared to the corresponding periods of 2014 due to lower fuel prices and the return of four DHL-owned Boeing 767-200 aircraft.

   
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 Nine Months Ended
September 30,   September 30,
2015   2014 2015   2014
 
Earnings from Continuing Operations Before Income Taxes $ 10,347 $ 15,640 $ 42,063 $ 40,662
Interest Income (18 ) (23 ) (64 ) (66 )
Interest Expense 2,684 3,309 8,588 10,613
Depreciation and Amortization 30,754   26,307   91,147   78,428  
EBITDA from Continuing Operations $ 43,767 $ 45,233 $ 141,734 $ 129,637
Less net gain on derivative instruments (96 ) (639 ) (347 ) (969 )
       
Adjusted EBITDA from Continuing Operations $ 43,671   $ 44,594   $ 141,387   $ 128,668  
 

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,   September 30,   December 31,
2014 2015 2015 Projected
    Operating     Operating     Operating
Total Owned Lease Total Owned Lease Total Owned Lease
B767-200 38 36 2 36 36 — 36 36 —
B767-300 10 9 1 10 10 — 12 12 —
B757-200 4 4 — 5 4 1 5 4 1
B757 Combi 4 4 — 4 4 — 4 4 —
Total Aircraft 56 53 3 55 54 1 57 56 1
 
Owned Aircraft In Serviceable Condition
December 31, September 30, December 31,
2014 2015 2015 Projected
 
Dry leased without CMI 11 11 14
Dry leased with CMI 13 16 18
ACMI/Charter 28 23 24
Staging/Unassigned 1 4 —
53 54
 
Undergoing freighter modification 2 1
 

Note: Cargo Aircraft Management (CAM) has acquired two Boeing 767-300 aircraft in passenger configuration (one in June, one in July) that are undergoing conversion to freighter aircraft this year; CAM also expects to complete the purchase of another Boeing 767-300 aircraft in November.