EX-99.1 3 a2015q2earningsrelease.htm EXHIBIT 99.1 2015 Q2 Earnings Release


ATSG's Results Reflect Growing Returns From Fleet Investments
Second-Quarter Adjusted EBITDA from Continuing Operations up 13 Percent to $51 Million

WILMINGTON, OH, August 5, 2015 - Air Transport Services Group, Inc. (Nasdaq: ATSG), the leading provider of medium wide-body freighter aircraft leasing, air cargo transportation and related services, today reported consolidated financial results for the quarter ended June 30, 2015.
For the second quarter of 2015, compared with the second quarter of 2014 except as noted:
Pre-tax earnings from continuing operations increased 17 percent to $17.2 million, including a 35 percent increase in Cargo Aircraft Management's pre-tax earnings, driven by eight additional freighters leased to external customers.
Net earnings from continuing operations increased 14 percent to $10.6 million, or 16 cents per diluted share. 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 at the earliest.
Consolidated revenues were approximately flat at $148.4 million. Excluding revenues from reimbursed expenses, revenues increased 3 percent. Revenues from cargo aircraft leasing were up 12 percent.
Adjusted EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) increased 13 percent to $51.2 million, and increased 16 percent to $97.7 million year to date. Adjusted EBITDA is a non-GAAP financial measure, defined and reconciled to comparable GAAP results in a table at the end of this release.
Joe Hete, President and Chief Executive Officer of ATSG, said, “Our record first-half Adjusted EBITDA stems from a combination of improved airline operations and continued growth in aircraft leasing, leading us closer to full deployment of our available aircraft and reflects strong appetites from current and new customers for more of our highly efficient Boeing 767 freighters and related services."
The second quarter marked the commencement of a new four-year commercial agreement governing air network services that ATSG provides to DHL. It began with fifteen dry leases for Boeing 767 freighters dedicated to DHL through March 2019, currently operating in its U.S. network. DHL added a sixteenth dry lease, a 767-300 freighter delivered in June, and we expect to place two additional 767-300s, both under eight-year lease terms, during the fourth quarter of 2015. Accordingly, ATSG has purchased two more passenger-configured 767-300s for freighter conversion to meet DHL's requirement.





Segment Results
Cargo Aircraft Management (CAM)
CAM
Second Quarter
 
Six Months
($ in thousands)
2015
 
2014
 
2015
 
2014
Revenues
$
45,632

 
$
40,590

 
$
88,486

 
$
81,225

Pre-Tax Earnings
$
14,441

 
$
10,667

 
$
28,879

 
$
25,107

Significant Developments:
The increase in CAM’s second-quarter revenue was driven by eight additional dry-leased 767 freighters to external customers, which increased to 29 as of June 30, 2015 from 21 at June 30, 2014, and from 24 at March 31, 2015.
The 35 percent increase in pre-tax earnings for the quarter reflects the increased number of dry-leased aircraft, along with increased depreciation costs.
At June 30, 2015, CAM owned 54 Boeing cargo aircraft in serviceable condition, three more than a year ago. CAM has purchased two additional 767-300 aircraft, one in June and one in July, which will be converted to freighters and dry-leased during the fourth quarter.
ACMI Services
ACMI Services
 
Second Quarter
 
Six Months
($ in thousands)
 
2015
 
2014
 
2015
 
2014
Revenues
 

 
 
 
 
 
 
Airline services
 
$
97,897

 
$
100,288

 
$
195,592

 
$
199,805

Reimbursables
 
$
5,995

 
$
11,016

 
$
13,768

 
$
20,095

Total ACMI Services Revenues
 
$
103,892

 
$
111,304

 
$
209,360

 
$
219,900

 
 
 
 
 
 
 
 
 
Pre-Tax Earnings (Loss)
 
$
1,126

 
$
309

 
$
(1,445
)
 
$
(6,737
)
Significant Developments:
Quarterly results for the segment improved on a year-over-year and sequential quarter basis. Results benefited from a full quarter of 767 ACMI service for Raya Airways of Malaysia, which began in February. West Coast operations for Aloha Airlines, which began in the third quarter of 2014, also contributed to improved year-over-year results.
The quarter also benefited from fewer heavy maintenance checks for our Boeing 767-200 freighters than a year ago, and from net insurance recoveries of just over $2 million. During the third quarter of 2015, the cost of unreimbursed expensed heavy maintenance checks for 767-200s is expected to be higher than in the second quarter.
Our airlines leased from CAM and operated on an ACMI basis fifteen Boeing 767 freighters as of June 30, 2015, five fewer than at March 31, 2015 and three fewer than on June 30, 2014, reflecting increasing allocations of our fleet to dry lease opportunities based upon strong customer demand.
Other Activities
Other Activities
 
Second Quarter
 
Six Months
($ in thousands)
 
2015
 
2014
 
2015
 
2014
Revenues
 
$
32,179

 
$
36,493

 
$
67,785

 
$
63,301

Pre-Tax Earnings
 
$
1,840

 
$
4,108

 
$
4,916

 
$
7,125







Significant Developments:
External customer revenues from all other activities in the second quarter were $20 million, down slightly compared to second quarter 2014. The earnings comparison reflects timing variances in revenue recognition for maintenance services for outside customers, offset in part by increased revenues for management of sorting centers for the USPS.
Outlook
As a result of strong first-half performance and a positive outlook for the rest of 2015, ATSG now projects that its baseline Adjusted EBITDA from Continuing Operations for 2015 will be in a range of $190-195 million.
Hete noted that, "In 2015, we are achieving growing returns from the significant investments we have made in our fleet and operations, as customers are stepping up to make major commitments to our assets and operating capabilities. For example, Delta Air Lines recently selected AMES, our maintenance MRO, to provide airframe maintenance services for its fleet of more than eighty Boeing 717 aircraft at AMES's expanded hangar facilities in Wilmington. This new five-year arrangement is expected to be finalized and start in the fourth quarter this year. We are pleased that Delta, our long-term engine maintenance partner, has entrusted us with airframe maintenance support for this portion of their fleet.
"We also have other multi-year commitments in the works with customers that we expect to announce and launch later this year, in addition to the two 767-300s we plan to deliver to DHL in the fourth quarter. At the same time, we will also incur some transition effects in the third quarter as we prepare our aircraft for long-duration dry-lease arrangements. But with continued strong industry demand and continued share repurchases, our shareholders can expect even greater long-term returns under our differentiated business model," Hete said.

Conference Call
ATSG will host a conference call on Thursday, August 6, 2015, at 10 a.m. Eastern time to review its financial results for the second 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 40193425.
The call will also be webcast live (listen-only mode) via a link at www.atsginc.com.
A replay of the conference call will be available by phone on Thursday, August 6, 2015, beginning at 2 p.m. and continuing through August 13, 2015, at (888) 843-7419 (international callers (630) 652-3042); use pass code 40193425#. 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 and reduce 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.
Contact:
Quint O. Turner, ATSG Inc. Chief Financial Officer
937-382-5591








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,
 
2015
 
2014
 
2015
 
2014
REVENUES
$
148,353

 
$
149,618

 
$
295,378

 
$
293,211

 
 
 
 
 
 
 
 
OPERATING EXPENSES
 
 
 
 
 
 
 
Salaries, wages and benefits
42,036

 
40,895

 
85,715

 
83,960

Depreciation and amortization
31,400

 
27,142

 
60,393

 
52,121

Maintenance, materials and repairs
23,993

 
23,168

 
46,686

 
48,047

Fuel
12,275

 
14,014

 
23,053

 
26,274

Rent
2,447

 
6,924

 
6,654

 
14,234

Travel
4,342

 
4,419

 
8,765

 
8,992

Landing and ramp
2,166

 
2,576

 
4,874

 
5,314

Insurance
546

 
1,573

 
1,804

 
2,778

Other operating expenses
9,354

 
10,790

 
20,111

 
19,538

 
128,559

 
131,501

 
258,055

 
261,258

 
 
 
 
 
 
 
 
OPERATING INCOME
19,794

 
18,117

 
37,323

 
31,953

OTHER INCOME (EXPENSE)
 
 
 
 
 
 
 
Interest income
24

 
24

 
46

 
43

Interest expense
(2,839
)
 
(3,481
)
 
(5,904
)
 
(7,304
)
Net gain (loss) on derivative instruments
264

 
31

 
251

 
330

 
(2,551
)
 
(3,426
)
 
(5,607
)
 
(6,931
)
 
 
 
 
 
 
 
 
EARNINGS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
17,243

 
14,691

 
31,716

 
25,022

INCOME TAX EXPENSE
(6,673
)
 
(5,393
)
 
(12,251
)
 
(9,202
)
 
 
 
 
 
 
 
 
EARNINGS FROM CONTINUING OPERATIONS
10,570

 
9,298

 
19,465

 
15,820

 
 
 
 
 
 
 
 
EARNINGS FROM DISCONTINUED OPERATIONS, NET OF TAX
214

 
211

 
428

 
422

NET EARNINGS
$
10,784

 
$
9,509

 
$
19,893

 
$
16,242

 
 
 
 
 
 
 
 
EARNINGS PER SHARE - Basic
 
 
 
 
 
 
 
Continuing operations
$
0.16

 
$
0.14

 
$
0.30

 
$
0.25

Discontinued operations
0.01

 
0.01

 
0.01

 

NET EARNINGS PER SHARE
$
0.17

 
$
0.15

 
$
0.31

 
$
0.25

 
 
 
 
 
 
 
 
EARNINGS PER SHARE - Diluted
 
 
 
 
 
 
 
Continuing operations
$
0.16

 
$
0.14

 
$
0.30

 
$
0.24

Discontinued operations

 
0.01

 

 
0.01

NET EARNINGS PER SHARE
$
0.16

 
$
0.15

 
$
0.30

 
$
0.25

 
 
 
 
 
 
 
 
WEIGHTED AVERAGE SHARES
 
 
 
 
 
 
 
Basic
64,541

 
64,285

 
64,498

 
64,217

Diluted
65,471

 
65,207

 
65,404

 
65,174







AIR TRANSPORT SERVICES GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
 
June 30,
 
December 31,
 
2015
 
2014
ASSETS
 
 
 
CURRENT ASSETS:
 
 
 
Cash and cash equivalents
$
22,182

 
$
30,560

Accounts receivable, net of allowance of $315 in 2015 and $812 in 2014
36,663

 
43,513

Inventory
10,709

 
10,665

Prepaid supplies and other
10,583

 
12,613

Deferred income taxes
19,770

 
19,770

TOTAL CURRENT ASSETS
99,907

 
117,121

 
 
 
 
Property and equipment, net
859,482

 
847,268

Other assets
26,904

 
28,230

Goodwill and acquired intangibles
38,870

 
39,010

TOTAL ASSETS
$
1,025,163

 
$
1,031,629

 
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
CURRENT LIABILITIES:
 
 
 
Accounts payable
$
39,316

 
$
40,608

Accrued salaries, wages and benefits
20,485

 
25,633

Accrued expenses
8,022

 
8,201

Current portion of debt obligations
24,672

 
24,344

Unearned revenue
12,812

 
12,914

TOTAL CURRENT LIABILITIES
105,307

 
111,700

Long term debt
290,781

 
319,750

Post-retirement obligations
86,102

 
92,050

Other liabilities
59,266

 
57,647

Deferred income taxes
115,985

 
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; 64,987,351 and 64,854,950 shares issued and outstanding in 2015 and 2014, respectively
650

 
649

Additional paid-in capital
525,104

 
526,669

Accumulated deficit
(77,060
)
 
(96,953
)
Accumulated other comprehensive loss
(80,972
)
 
(82,876
)
TOTAL STOCKHOLDERS’ EQUITY
367,722

 
347,489

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
$
1,025,163

 
$
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
 
Six Months Ended
 
June 30,
 
June 30,
 
2015
 
2014
 
2015
 
2014
Revenues
 
 
 
 
 
 
 
CAM
$
45,632

 
$
40,590

 
$
88,486

 
$
81,225

ACMI Services
 
 
 
 
 
 
 
Airline services
97,897

 
100,288

 
195,592

 
199,805

Reimbursables
5,995

 
11,016

 
13,768

 
20,095

Total ACMI Services
103,892

 
111,304

 
209,360

 
219,900

Other Activities
32,179

 
36,493

 
67,785

 
63,301

Total Revenues
181,703

 
188,387

 
365,631

 
364,426

Eliminate internal revenues
(33,350
)
 
(38,769
)
 
(70,253
)
 
(71,215
)
Customer Revenues
$
148,353

 
$
149,618

 
$
295,378

 
$
293,211

 
 
 
 
 
 
 
 
Pre-tax Earnings from Continuing Operations
 
 
 
 
 
 
CAM, inclusive of interest expense
14,441

 
10,667

 
28,879

 
25,107

ACMI Services
1,126

 
309

 
(1,445
)
 
(6,737
)
Other Activities
1,840

 
4,108

 
4,916

 
7,125

Net, unallocated interest expense
(428
)
 
(424
)
 
(885
)
 
(803
)
Net gain on derivative instruments
264

 
31

 
251

 
330

Total Pre-tax Earnings
$
17,243

 
$
14,691

 
$
31,716

 
$
25,022

 
 
 
 
 
 
 
 
Adjustments to Pre-tax Earnings
 
 
 
 
 
 
Less net gain on derivative instruments
(264
)
 
(31
)
 
(251
)
 
(330
)
Adjusted Pre-tax Earnings
$
16,979

 
$
14,660

 
$
31,465

 
$
24,692


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 six month periods ending June 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
 
Six Months Ended
 
June 30,
 
June 30,
 
2015
 
2014
 
2015
 
2014
 
 
 
 
 
 
 
 
Earnings from Continuing Operations Before Income Taxes
$
17,243

 
$
14,691

 
$
31,716

 
$
25,022

Interest Income
(24
)
 
(24
)
 
(46
)
 
(43
)
Interest Expense
2,839

 
3,481

 
5,904

 
7,304

Depreciation and Amortization
31,400

 
27,142

 
60,393

 
52,121

EBITDA from Continuing Operations
$
51,458

 
$
45,290

 
$
97,967

 
$
84,404

Less net gain on derivative instruments
(264
)
 
(31
)
 
(251
)
 
(330
)
 
 
 
 
 
 
 
 
Adjusted EBITDA from Continuing Operations
$
51,194

 
$
45,259

 
$
97,716

 
$
84,074


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,
 
 
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,
 
June 30,
 
December 31,
 
 
2014
 
2015
 
2015 Projected
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Dry leased without CMI
 
 
 
11
 
 
 
 
 
13
 
 
 
 
 
15-16
 
 
Dry leased with CMI
 
 
 
13
 
 
 
 
 
16
 
 
 
 
 
17-18
 
 
ACMI/Charter
 
 
 
28
 
 
 
 
 
23
 
 
 
 
 
22-24
 
 
Staging/Unassigned
 
 
 
1
 
 
 
 
 
2
 
 
 
 
 
 
 
 
 
 
 
53
 
 
 
 
 
54
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

Note: Cargo Aircraft Management (CAM) has acquired two Boeing 767-300 aircraft in passenger configuration (one in June, one in July) that will undergo conversion to freighter aircraft this year. Those aircraft are not reflected in the June totals above.