EX-99.1 2 a2015q3earningsrelease.htm EXHIBIT 99.1 Exhibit


767 Freighter Leases Drive ATSG Revenue Growth
Freighters Prepped for Fully Deployed Fourth Quarter
WILMINGTON, OH, November 5, 2015 - 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.
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
 
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.