EX-99.1 2 a2017q4earningsrelease.htm EXHIBIT 99.1 Exhibit


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ATSG Revenues, Earnings Up Sharply in 2017
CAM to Purchase More Boeing 767s for Freighter Conversion and Deployment

WILMINGTON, OH, February 27, 2018 - 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 December 31, 2017.
•
4Q Revenues increased $101.3 million, or 46 percent, to $323.0 million
- Revenues for all of 2017 rose 39 percent to $1.1 billion
ATSG's leasing, airlines, maintenance and logistics businesses all recorded double-digit revenue increases before eliminations for the fourth quarter.
•
4Q GAAP Earnings from Continuing Operations were $94.1 million, $1.60 per share basic
- 2017 GAAP Earnings were $21.7 million, $0.37 per share basic
•
4Q Adjusted Earnings increased 73 percent to $20.7 million, $0.30 per share diluted
- 2017 Adjusted Earnings were $61.1 million, or $0.90 per share diluted, up 63 percent
Adjusted Earnings from Continuing Operations exclude, among other items, a $59.9 million benefit from the effects of the 2017 Tax Cuts and Jobs Act on ATSG’s net deferred tax liabilities at the end of 2017, and $14.9 million in net gains from warrants issued to Amazon.com Service, Inc. Adjusted Earnings and other adjusted amounts referenced below are non-GAAP financial measures, and are reconciled to GAAP results in a table later in this release.
•
4Q Adjusted EBITDA increased 43 percent to $80.8 million
- 2017 Adjusted EBITDA up 27 percent to $267.9 million
Adjusted EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization), is defined and adjusted in a table later in this release.
•
2017 Capital expenditures were $296.9 million, up 12 percent
ATSG’s 2017 capex spend was lower than earlier projected. Two 767 feedstock aircraft will be purchased in the first quarter of 2018 instead of 2017.
Joe Hete, President and Chief Executive Officer of ATSG, said, “Our 2017 results reflect substantial gains in the operational effectiveness and expanded flight schedules of our airlines during peak season, strong contributions from our other businesses, and growth in our leased freighter fleet, including external leases covering fifty of our sixty-one Boeing 767s. We also assured our access to low-cost capital with a $120 million increase in our credit facility and a $259 million offering of convertible senior notes. With our attractive asset mix expanding into the narrow-body sector, strong cash-flow generation, and lower federal tax rates, we are well positioned for continued growth in the future.”
Business Developments
CAM to Acquire Additional 767s for Freighter Conversion
ATSG's Cargo Aircraft Management subsidiary has secured purchase commitments for three more 767-300 aircraft this year for freighter conversion. These are in addition to the eight already slated for conversion



and deployment during 2018. Based on ATSG's rights to conversion slots, it expects to complete modification of two of the three additional 767s by year-end 2018.
“We continue to see robust global demand for our expanding fleet of 767 freighters, and are confident we will have customers waiting for these as they emerge from our pipeline,” Hete said. "Eighty-seven percent of our 767 fleet will be under multi-year dry leases by the end of 2018. We expect strong returns from these fleet investments, thanks to our experience in acquiring, converting, and deploying midsize freighters, our unique array of support services, and e-commerce trends driving worldwide investments in regional express networks.”
ATSG Board Increases Share Repurchase Authorization
Directors of ATSG recently approved the expansion of ATSG’s authorized share repurchase program from $100 million to $150 million. At the end of 2017, ATSG’s cumulative share repurchases under the program were $85.1 million, including $11.2 million repurchased in 2017.
Segment Results
Cargo Aircraft Management (CAM)
CAM
Fourth Quarter
 
Year
 
($ in thousands)
2017
 
2016
 
2017
 
2016
 
Aircraft leasing and related revenues
$
57,813

 
$
51,721

 
$
223,546

 
$
199,598

 
Lease incentive amortization
(4,226
)
 
(2,140
)
 
(13,986
)
 
(4,506
)
 
Total CAM revenues
$
53,587

 
$
49,581

 
$
209,560

 
$
195,092

 
Pre-Tax Earnings
$
15,940

 
$
16,759

 
$
61,510

 
$
68,608

 
Significant Developments:
•
CAM's fourth quarter revenues increased $4.0 million, or 8 percent, to $53.6 million. Those revenues were reduced by $4.2 million of non-cash amortization of warrant-related Amazon lease incentives, approximately twice as much as during the year-earlier quarter. CAM’s full-year 2017 revenues increased 7 percent, and 12 percent excluding warrant-related lease incentives.
•
CAM was leasing fifty 767s to external customers as of Dec. 31, 2017, nine more than a year earlier, and one 737-400 freighter. Three 767s and one 737 were deployed during the fourth quarter. CAM’s pre-tax earnings declined for the fourth quarter and full year 2017 from year-ago levels. Higher earnings from additional leased aircraft in service were offset by an increase in warrant-related lease incentives, higher interest expense that included non-cash amortization related to ATSG's September 2017 convertible offering, and increased depreciation from its larger fleet.
•
CAM expects to deliver ten 767s and one 737 to lease customers by the end of 2018. The first of the 767s was delivered to Northern Aviation Services in January under a multi-year lease commitment. One other 767 and the remaining 737 in modification are expected to be delivered to customers before the end of the first quarter of 2018.



ACMI Services
ACMI Services
 
Fourth Quarter
 
Year
 
($ in thousands)
 
2017
 
2016
 
2017
 
2016
 
Revenues
 
 
 
 
 
 
 
 
 
Airline services
 
$
127,152

 
$
105,011

 
$
459,272

 
$
410,598

 
Reimbursables
 
51,198

 
30,045

 
155,469

 
82,261

 
Total ACMI Services Revenues
 
178,350

 
135,056

 
614,741

 
492,859

 
 
 
 
 
 
 
 
 
 
 
Pre-Tax Earnings (Loss)
 
11,317


(4,953
)

2,476


(32,125
)
 
Significant Developments:
•
Airline services revenues increased 21 percent to $127.2 million in the fourth quarter and 12 percent to $459.3 million for the year. Pre-tax earnings improved substantially to $11.3 million for the quarter and $2.5 million for the year, versus losses in the related 2016 periods.
•
Principal factors contributing to the profitability gains were increased revenues from additional CMI customer flying, lower scheduled airframe maintenance expense, reductions in premium pilot pay and training from year-ago levels, and improved efficiency and on-time service performance. 2017 pre-tax earnings included a $5.3 million charge for transferring ATSG's employee pension obligations via a third-party annuity contract.
•
ATSG’s airlines were operating five more CAM-owned aircraft at the end of 2017 vs. 2016. Billable block hours increased 26 percent for the fourth quarter and 22 percent for 2017.
•
In February 2018, ATI reached a tentative agreement with the union representing its pilot group for amendments to their collective bargaining agreement that would extend the agreement for four years. The tentative agreement is subject to ratification by the pilots, the voting for which is to be held by the end of March.
Ground Services/Other Activities
ATSG created Ground Services, a new reportable segment effective for the fourth quarter, that includes the results of its operations providing gateway services, postal center management services, and maintenance of ground and material handling equipment. The results of ATSG’s remaining activities previously included under Other Activities, including its aircraft maintenance services and conversion services businesses, and corporate expenses, are reflected below under Other.
Ground Services
 
Fourth Quarter
 
Year
 
($ in thousands)
 
2017
 
2016
 
2017
 
2016
 
Revenues
 
$
72,085

 
$
44,463

 
$
206,631

 
$
116,796

 
Pre-Tax Earnings
 
2,118

 
1,754

 
9,369

 
10,603

 
Significant Developments:
•
Total revenues from all ground services in the fourth quarter were $72.1 million, up 62 percent. External customer revenues increased by 63 percent versus the fourth quarter of last year to $71.5 million, and by 78 percent to $204.2 million for the year. Material handling services provided at gateways for Amazon were the single largest contributor to revenue growth in Ground Services.
•
Earnings decreased $1.2 million for the year, principally reflecting the termination of hub services for Amazon in Wilmington in May 2017.



Other
 
Fourth Quarter
 
Year
 
($ in thousands)
 
2017
 
2016
 
2017
 
2016
 
Revenues
 
$
61,567

 
$
40,484

 
$
227,205

 
$
145,743

 
Pre-Tax Earnings
 
(371
)
 
1,782

 
4,355

 
6,020

 
Significant Developments:
•
Total revenues from other activities in the fourth quarter were $61.6 million. External customer revenues from other activities increased $25.7 million to $36.8 million for the fourth quarter and increased $65.3 million to $108.9 million for the year. Pemco, acquired in December 2016, accounted for $79.5 million of the group’s revenues of $227.2 million during 2017.
•
The fourth-quarter pre-tax loss of $371 thousand compared with a profit of $1.8 million a year ago. Additional earnings from expanded aircraft maintenance and modification services were offset by reduced aviation fuel sales, higher administrative expenses and ATSG’s share of losses from its minority investment in a European airline.
Outlook
ATSG expects that its Adjusted EBITDA from Continuing Operations for 2018 will be approximately $310 million, or a 16 percent increase from 2017, as ten 767-300 freighters enter service during the year. One 737-400 freighter will enter service in March.
"Our outlook for 2018 is very positive," Hete said. "We have firm customer commitments for all six of the 767 freighters we expect to deploy in the first half, and strong interest from customers for the others. We expect that as e-commerce retailers come to rely even more on air express networks to satisfy their customers’ need for speed, demand for the unique blend of aircraft assets and services that ATSG provides will remain strong."
ATSG projects 2018 capital expenditures of $300 million, roughly equivalent to what was spent in 2017, principally for purchases of additional 767 aircraft and related freighter modification costs.
ATSG will also continue to invest in the design and certification of new narrow-body freighter variants of the Next Gen Boeing 737-700, and via a joint venture, the Airbus 321-200. The first converted A321 is targeted to be re-delivered to its launch customer in 2019.
ATSG's loss carryforwards, along with accelerated tax depreciation associated with our capital investments will be used to offset and reduce future federal income tax liabilities. ATSG does not expect to pay significant federal income taxes until 2023 or later. The Company estimates its effective tax rate for 2018, excluding the effects of the stock warrant re-measurement, related incentive amortization, and the benefit of the stock compensation, will decline to approximately 24 percent due to the lower federal corporate tax rates.
Revenue Recognition
Beginning in 2018, revenues related to the cost of aircraft fuel, certain contracted aviation services and airport related expenses that are directly reimbursed to ATSG and controlled by the customer will be reported net of the corresponding expenses. ACMI Services revenues included $155.5 million of such revenues in 2017. Similarly, revenues from contracts that ATSG arranges for cargo handling and related services will also be reported net of the corresponding expenses. The Ground Services segment included $134.0 million of such revenues in 2017.
Segment Reporting
For the fourth quarter of 2017, ATSG reported its results in three reportable segments - Cargo Aircraft Management (CAM), ACMI Services, and Ground Services, plus Other businesses. As a result of the



effects of the revenue recognition changes described above, and other factors, the company’s reportable segments will change again in 2018. First-quarter 2018 results will be reported in three segments, CAM, ACMI Services, and MRO Services, the latter consisting primarily of results of the company’s aircraft maintenance and conversion businesses. Businesses that were included in the Ground Services segment in the fourth quarter of 2018 will be reported as Other Activities in 2018.

Conference Call
ATSG will host a conference call on February 28, 2018, at 10 a.m. Eastern time to review its financial results for the fourth quarter and full year 2017. 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 46504139. 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 February 28, 2018, beginning at 2 p.m. and continuing through March 7, 2018, at (888) 843-7419 (international callers (630) 652-3042); use pass code 46504139#. 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. including its division, Pemco World Air 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; 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, which may result in mark-to-market charges on certain financial instruments; the number, timing and scheduled routes of our aircraft deployments to customers; 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
 
Year Ended
 
December 31,
 
December 31,
 
2017
 
2016
 
2017
 
2016
REVENUES
$
322,971

 
$
221,675

 
$
1,068,200

 
$
768,870

 
 
 
 
 
 
 
 
OPERATING EXPENSES
 
 
 
 
 
 
 
Salaries, wages and benefits
76,832

 
66,196

 
282,211

 
231,667

Depreciation and amortization
42,728

 
35,891

 
154,556

 
135,496

Maintenance, materials and repairs
40,605

 
28,155

 
141,575

 
119,123

Fuel
48,445

 
28,963

 
149,579

 
87,134

Contracted ground and aviation services
53,809

 
24,827

 
147,092

 
57,491

Travel
6,847

 
5,122

 
27,390

 
20,048

Landing and ramp
7,933

 
3,932

 
22,271

 
13,455

Rent
3,538

 
3,110

 
13,629

 
11,625

Insurance
1,369

 
1,121

 
4,820

 
4,456

Other operating expenses
7,194

 
6,218

 
31,782

 
24,627

 
289,300

 
203,535

 
974,905

 
705,122

 
 
 
 
 
 
 
 
OPERATING INCOME
33,671

 
18,140

 
93,295

 
63,748

OTHER INCOME (EXPENSE)
 
 
 
 
 
 
 
Net loss on financial instruments
20,424

 
(14,664
)
 
(79,789
)
 
(18,107
)
Interest expense
(5,365
)
 
(3,089
)
 
(17,023
)
 
(11,318
)
Loss from non-consolidated affiliate

(2,190
)
 
—

 
(3,135
)
 
—

Interest income
31

 
33

 
116

 
131

 
12,900

 
(17,720
)
 
(99,831
)
 
(29,294
)
 
 
 
 
 
 
 
 
EARNINGS (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
46,571

 
420

 
(6,536
)
 
34,454

INCOME TAX EXPENSE
47,520

 
(1,175
)
 
28,276

 
(13,394
)
 
 
 
 
 
 
 
 
EARNINGS (LOSS) FROM CONTINUING OPERATIONS
94,091

 
(755
)
 
21,740

 
21,060

 
 
 
 
 
 
 
 
EARNINGS (LOSS) FROM DISCONTINUED OPERATIONS, NET OF TAX
1,026

 
2,287

 
(3,245
)
 
2,428

NET EARNINGS (LOSS)
$
95,117

 
$
1,532

 
$
18,495

 
$
23,488

 
 
 
 
 
 
 
 
EARNINGS (LOSS) PER SHARE - CONTINUING OPERATIONS
 
 
 
 
 
 
 
Basic
$
1.60

 
$
(0.01
)
 
$
0.37

 
$
0.34

Diluted*
$
1.11

 
$
(0.01
)
 
$
0.36

 
$
0.33

 
 
 
 
 
 
 
 
WEIGHTED AVERAGE SHARES - CONTINUING OPERATIONS
 
 
 
 
 
 
 
Basic
58,733

 
59,083

 
58,907

 
61,330

Diluted
68,987

 
59,083

 
59,686

 
62,994


Revenues and operating expenses include the activities of PEMCO World Air Services, Inc., a wholly owned subsidiary, for periods since its acquisition by ATSG on December 30, 2016. Certain historical expenses have been reclassified to conform to the presentation above.

*For additional information about the calculation of diluted earnings per share, see accompanying schedule.





AIR TRANSPORT SERVICES GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
 
December 31,
 
December 31,
 
2017
 
2016
ASSETS
 
 
 
CURRENT ASSETS:
 
 
 
Cash and cash equivalents
$
32,699

 
$
16,358

Accounts receivable, net of allowance of $2,445 in 2017 and $1,264 in 2016
109,114

 
77,247

Inventory
22,169

 
19,925

Prepaid supplies and other
20,521

 
19,123

TOTAL CURRENT ASSETS
184,503

 
132,653

 
 
 
 
Property and equipment, net
1,159,962

 
1,000,992

Lease incentive
80,684

 
54,730

Goodwill and acquired intangibles
44,577

 
45,586

Convertible note hedges
53,683

 
—

Other assets
25,435

 
25,369

TOTAL ASSETS
$
1,548,844

 
$
1,259,330

 
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
CURRENT LIABILITIES:
 
 
 
Accounts payable
$
99,728

 
$
60,704

Accrued salaries, wages and benefits
40,127

 
37,044

Accrued expenses
10,455

 
10,324

Current portion of debt obligations
18,512

 
29,306

Unearned revenue
15,850

 
18,407

TOTAL CURRENT LIABILITIES
184,672

 
155,785

Long term debt
497,246

 
429,415

Convertible note obligations
54,359

 
—

Stock warrant obligations
211,136

 
89,441

Post-retirement obligations
61,355

 
77,713

Other liabilities
45,353

 
52,542

Deferred income taxes
99,444

 
122,532

 
 
 
 
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; 85,000,000 shares authorized; 59,057,195 and 59,461,291 shares issued and outstanding in 2017 and 2016, respectively
591

 
595

Additional paid-in capital
471,456

 
443,416

Accumulated deficit
(13,748
)
 
(32,243
)
Accumulated other comprehensive loss
(63,020
)
 
(79,866
)
TOTAL STOCKHOLDERS’ EQUITY
395,279

 
331,902

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
$
1,548,844

 
$
1,259,330







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
 
Year Ended
 
December 31,
 
December 31,
 
2017
 
2016
 
2017
 
2016
Revenues
 
 
 
 
 
 
 
CAM
 
 
 
 
 
 
 
Aircraft leasing and related revenues
$
57,813

 
$
51,721

 
$
223,546

 
$
199,598

Lease incentive amortization
(4,226
)
 
(2,140
)
 
(13,986
)
 
(4,506
)
Total CAM
53,587

 
49,581

 
209,560

 
195,092

ACMI Services
 
 
 
 
 
 
 
Airline services
127,152

 
105,011

 
459,272

 
410,598

Reimbursables
51,198

 
30,045

 
155,469

 
82,261

Total ACMI Services
178,350

 
135,056

 
614,741

 
492,859

Other Activities
 
 
 
 
 
 
 
Ground services
72,085

 
44,463

 
206,631

 
116,796

Other
61,567

 
40,484

 
227,205

 
145,743

Total Other Activities
133,652

 
84,947

 
433,836

 
262,539

Total Revenues
365,589

 
269,584

 
1,258,137

 
950,490

Eliminate internal revenues
(42,618
)
 
(47,909
)
 
(189,937
)
 
(181,620
)
Customer Revenues
$
322,971

 
$
221,675

 
$
1,068,200

 
$
768,870

 
 
 
 
 
 
 
 
Pre-tax Earnings (Loss) from Continuing Operations
 
 
 
 
 
 
CAM, inclusive of interest expense
15,940

 
16,759

 
61,510

 
68,608

ACMI Services
11,317

 
(4,953
)
 
2,476

 
(32,125
)
Other Activities
 
 
 
 
 
 
 
Ground services
2,118

 
1,754

 
9,369

 
10,603

Other
(371
)
 
1,782

 
4,355

 
6,020

Net, unallocated interest expense
(667
)
 
(258
)
 
(1,322
)
 
(545
)
Net gain (loss) on financial instruments
20,424

 
(14,664
)
 
(79,789
)
 
(18,107
)
Non-consolidated affiliate
(2,190
)
 
—

 
(3,135
)
 
—

Total Earnings (Loss) from Continuing Operations before Income Taxes
$
46,571

 
$
420

 
$
(6,536
)
 
$
34,454

 
 
 
 
 
 
 
 
Adjustments to Pre-tax Earnings
 
 
 
 
 
 
Add non-service components of retiree benefit costs, net
222

 
206

 
6,105

 
6,815

Add loss from non-consolidated affiliates
2,190

 
—

 
3,135

 
1,229

Add lease incentive amortization
4,226

 
2,140

 
13,986

 
4,506

Add net loss on financial instruments
(20,424
)
 
14,664

 
79,789

 
18,107

Adjusted Pre-tax Earnings
$
32,785

 
$
17,430

 
$
96,479

 
$
65,111

Non-GAAP financial measures: This report contains non-GAAP financial measures that management uses to evaluate the Company’s historical 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 impacting core operating performance. Disclosing these non-GAAP measures provides insight to investors about additional metrics that the Company’s management uses to evaluate past performance and prospects for future performance.
Adjusted Pre-tax Earnings excludes certain items included in GAAP based pre-tax 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. Adjusted Pre-tax Earnings should not be considered an alternative to Earnings from Continuing Operations Before Income Taxes or any other performance measure derived in accordance with GAAP.





AIR TRANSPORT SERVICES GROUP, INC. AND SUBSIDIARIES
ADJUSTED EARNINGS FROM CONTINUING OPERATIONS BEFORE INTEREST, TAXES, DEPRECIATION AND AMORTIZATION
NON-GAAP RECONCILIATION
(In thousands)
 
 
Three Months Ended
 
Year Ended
 
December 31,
 
December 31,
 
2017
 
2016
 
2017
 
2016
 
 
 
 
 
 
 
 
Earnings (Loss) from Continuing Operations Before Income Taxes
$
46,571

 
$
420

 
$
(6,536
)
 
$
34,454

Interest Income
(31
)
 
(33
)
 
(116
)
 
(131
)
Interest Expense
5,365

 
3,089

 
17,023

 
11,318

Depreciation and Amortization
42,728

 
35,891

 
154,556

 
135,496

EBITDA from Continuing Operations
$
94,633

 
$
39,367

 
$
164,927

 
$
181,137

Add non-service components of retiree benefit costs, net
222

 
206

 
6,105

 
6,815

Add losses for non-consolidated affiliates
2,190

 
—

 
3,135

 
1,229

Add lease incentive amortization
4,226

 
2,140

 
13,986

 
4,506

Add net loss on financial instruments
(20,424
)
 
14,664

 
79,789

 
18,107

 
 
 
 
 
 
 
 
Adjusted EBITDA
$
80,847

 
$
56,377

 
$
267,942

 
$
211,794


Management uses Adjusted EBITDA to assess the performance of its operating results among periods. It is a metric that facilitates the comparison of financial results of underlying operations. Additionally, these non-GAAP adjustments are similar to the adjustments used by lenders in the Company’s Senior Credit Agreement to assess financial performance and determine the cost of borrowed funds. The adjustments also exclude the non-service cost components of retiree benefit plans because they are not closely related to on-going operating activities. Management presents EBITDA from Continuing Operations, a commonly referenced metric, as a subtotal toward computing Adjusted EBITDA.
 
EBITDA from Continuing Operations is defined as Earnings (Loss) from Continuing Operations Before Income Taxes plus net interest expense, depreciation, and amortization expense. Adjusted EBITDA is defined as EBITDA from Continuing Operations less financial instrument revaluation gains or losses, non-service components of retiree benefit costs including pension plan settlements, amortization of lease incentive costs recorded in revenue and costs from non-consolidated affiliates.

Adjusted EBITDA and 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. Adjusted EBITDA and 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
ADJUSTED EARNINGS PER SHARE FROM CONTINUING OPERATIONS
NON-GAAP RECONCILIATION
(In thousands)

Management presents Adjusted Earnings and Adjusted Earnings per Share from Continuing Operations, non-GAAP calculations, to provide additional information regarding earnings per share without the volatility otherwise caused by the items below. Management uses Adjusted Earnings and Adjusted Earnings per Share from Continuing Operations to compare the performance of its operating results among periods.
 
Three Months Ended
 
Year Ended
 
December 31, 2017
 
December 31, 2016
 
December 31, 2017
 
December 31, 2016
 
$
 
$ Per Share
 
$
 
$ Per Share
 
$
 
$ Per Share
 
$
 
$ Per Share
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Earnings (loss) from Continuing Operations - basic (GAAP)
$
94,091

 
 
 
$
(755
)
 
 
 
$
21,740

 
 
 
$
21,060

 
 
Gain from warrant revaluation, net tax
(17,551
)
 
 
 
—

 
 
 
—

 
 
 
—

 
 
Earnings (loss) from Continuing Operations - diluted (GAAP)
76,540

 
$
1.11

 
(755
)
 
$
(0.01
)
 
21,740

 
$
0.36

 
21,060

 
$
0.33

Adjustments, net of tax
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loss from warrant revaluation 1
—

 
—

 
10,817

 
0.17

 
77,464

 
1.18

 
13,049

 
0.20

Lease incentive amortization 2
2,692

 
0.04

 
1,917

 
0.03

 
16,400

 
0.27

 
3,424

 
0.05

Pension settlement charge 3
—

 
—

 
—

 
—

 
3,400

 
0.06

 
—

 
—

Loss from joint venture 4
1,395

 
0.02

 
—

 
—

 
1,997

 
0.03

 
—

 
—

Effect of 2017 tax law 5
(59,944
)
 
(0.87
)
 
—

 
—

 
(59,944
)
 
(1.00
)
 
—

 
—

Adjusted Earnings from Continuing Operations (non-GAAP)
$
20,683

 
$
0.30

 
$
11,979

 
$
0.19

 
$
61,057

 
$
0.90

 
$
37,533

 
$
0.58

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Shares
 
 
 
Shares
 
 
 
Shares

 
 
 
Shares
 
 
Weighted Average Shares - diluted (GAAP)
68,987

 
 
 
59,083

 
 
 
59,686

 
 
 
62,994

 
 
Additional weighted average shares 1
—

 
 
 
5,255

 
 
 
7,838

 
 
 
1,940

 
 
Adjusted Shares (non-GAAP)
68,987

 
 
 
64,338

 
 
 
67,524

 

 
64,934

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

Adjusted Earnings from Continuing Operations, Adjusted Shares and Adjusted Earnings per Share from Continuing Operations are non-GAAP financial measures and should not be considered as alternatives to Earnings from Continuing Operations, Weighted Average Shares - diluted or Earnings per Share from Continuing Operations or any other performance measure derived in accordance with GAAP. Adjusted Earnings and Adjusted Earnings per Share from Continuing Operations should not be considered in isolation or as a substitute for analysis of the company's results as reported under GAAP.

1.
Removes the unrealized losses for a large grant of stock warrants granted to a customer as a lease incentive and adds the effect of the warrants to the weighted average number of shares. Under U.S. GAAP, these warrants are reflected as a liability and unrealized warrant gains are typically removed from diluted earnings per share (“EPS”) calculations while unrealized warrant losses are not removed because they are dilutive to EPS. As a result, the Company’s EPS, as calculated under U.S. GAAP, can vary significantly among periods due to unrealized mark-to-market losses created by an increased trading value for the Company's shares.
2.
Removes the amortization of the customer lease incentive which is recorded against revenue over the term of the related aircraft leases.
3.
Removes the pension charge to settle certain retirement obligations of former employees through the purchase of a third party group annuity contract during the third quarter of 2017.
4.
Removes losses for the Company's share of development costs for a new joint venture accounted for under the equity method.
5.
Removes the effects of U.S. federal tax rate changes on deferred tax assets and deferred tax liabilities due to the enactment of the Tax Cuts and Jobs Act.





AIR TRANSPORT SERVICES GROUP, INC. AND SUBSIDIARIES
CARGO AIRCRAFT FLEET

Owned Aircraft Types
 
 
December 31,
 
December 31,
 
December 31,
 
 
2016
 
2017
 
2018 Projected
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
B767-200
 

 
36
 
 
 

 
36
 
 
 

 
36
 
 
B767-300
 

 
16
 
 
 

 
25
 
 
 

 
35
 
 
B757-200
 

 
4
 
 
 

 
4
 
 
 

 
4
 
 
B757 Combi
 

 
4
 
 
 

 
4
 
 
 

 
4
 
 
B737-400
 

 
—
 
 
 

 
1
 
 
 

 
2
 
 
Total Aircraft in Service
 

 
60
 

 

 
70
 

 

 
81
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
B767-300 in or awaiting cargo conversion
 
 
 
7
 
 
 
 
 
6
 
 
 
 
 
1
 
 
B737-400 in or awaiting cargo conversion
 
 
 
—
 
 
 
 
 
1
 
 
 
 
 
—
 
 
Total Aircraft
 
 
 
67
 
 
 
 
 
77
 
 
 
 
 
82
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Aircraft in Service Deployments
 
 
December 31,
 
December 31,
 
December 31,
 
 
2016
 
2017
 
2018 Projected
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Dry leased without CMI
 
 
 
13
 
 
 
 
 
18
 
 
 
 
 
32
 
 
Dry leased with CMI
 
 
 
28
 
 
 
 
 
33
 
 
 
 
 
32
 
 
ACMI/Charter
 
 
 
18
 
 
 
 
 
19
 
 
 
 
 
17
 
 
Staging/Unassigned
 
 
 
1
 
 
 
 
 
—
 
 
 
 
 
—