ATSG Air Transport Services Group Inc

Sequential Improvements Extend Progress Toward 2013 Adjusted EBITDA Goal

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 September 30, 2013.

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

• Revenues decreased 8.4 percent to $140.9 million. Revenues increased 1.4 percent from the second quarter of 2013.
• Net earnings from continuing operations decreased 32.5 percent to $7.8 million, or $0.12 per fully diluted share, but were up 12.8 percent from this year's second quarter. The Company is not a significant payer of federal income taxes and does not expect to be until 2016.
• Adjusted EBITDA decreased 7.7 percent from a year ago to $40.0 million. The sequential increase from the second quarter was $4.1 million, or 11.3 percent. This non-GAAP financial measure is 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 third quarter results reflect progress versus the second quarter in restoring the growth and profitability of our ACMI Services segment, and keep us on pace toward our Adjusted EBITDA goal for the year. Our cargo airline Air Transport International (ATI) captured more revenue and improved its pre-tax results compared with the second quarter, while adding two more Boeing 757 combi aircraft to its fleet. Curtailment of U.S. Federal Aviation Administration operations during the government shutdown in October did delay progress on our combi fleet upgrade, but we are now back on track, and garnering the operating benefits of our 757 combis.”

Nine-month 2013 revenues decreased 6.6 percent to $423.1 million compared with the same 2012 period. Pre-tax earnings for the nine months decreased 22.4 percent to $37.2 million. Adjusted EBITDA, which excludes gains or losses on derivative instruments, decreased 6.1 percent to $113.3 million from a year ago.

Segment Results

CAM (Aircraft Leasing)

      CAM         Third Quarter Nine Months ($ in thousands)         2013   2012   2013   2012 Revenues $ 40,089 $ 39,155 $ 118,420 $ 115,073 Pre-Tax Earnings         15,893     17,334     49,980     50,819  

Significant Developments:

• Higher revenues for the quarter stem from more modern Boeing 767 and 757 aircraft in service, replacing older legacy aircraft removed from service since the same quarter a year ago.
• Reductions in pre-tax earnings reflect fewer aircraft in service than a year ago, and also higher depreciation on aircraft added since the third quarter of 2012.
• On September 30, 2013, ATSG owned 50 aircraft in serviceable condition - 20 leased to external customers and 30 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 three 757 combis.
  • Two 757 combi aircraft entered service during the third quarter - one in July and another in September.
• Two Boeing 767-300s were completing passenger-to-freighter conversion as of September 30, 2013.
• A fourth 757 combi is expected to enter service late this year or early in 2014. The two remaining DC-8 combis will be retired by year-end.

ACMI Services

      ACMI Services         Third Quarter Nine Months ($ in thousands)         2013   2012   2013   2012 Revenues Airline services $ 93,116 $ 102,072 $ 276,193 $ 299,434 Reimbursables 16,313   20,454   51,156   57,676   Total ACMI Services Revenues 109,429 122,526 327,349 357,110   Pre-Tax Loss         (7,113 )   (1,746 )   (21,610 )   (11,543 )  

Significant Developments:

• Third-quarter airline services revenues decreased $9.0 million primarily as a result of reduced international ACMI operations, compared with the third quarter last year. Pre-tax results, while improved versus second quarter, were down versus a year ago, due primarily to lower revenues, and higher costs associated with slower than expected regulatory approvals and combi transition.
  • ATI’s third-quarter operating loss, while larger than a year ago, improved 31 percent from the second quarter of 2013, and sequential improvements continued to be realized into the fourth quarter. ATI served the U.S. Military during most of the third quarter with two DC-8 and two 757 combi aircraft. Operating expenses were reduced from the second quarter, but still elevated due to continued DC-8 combi operations. A third 757 combi entered service in September.
• Block hours decreased 14 percent during the third quarter compared to the prior-year period, but increased 2 percent from the second quarter. The decrease versus a year ago stemmed primarily from fewer long-haul international ACMI operations at ABX Air and ATI. The improvement versus second quarter was driven by a 12 percent increase in combi hours for the U.S. Military.

Other Activities

      Other Activities         Third Quarter Nine Months ($ in thousands)         2013   2012   2013   2012 Revenues $ 30,037 $ 26,773 $ 83,242 $ 81,876 Pre-Tax Earnings         4,400     3,373     9,188     8,602  

• Revenue and earnings improvement reflects good growth in aircraft maintenance operations, along with continued solid results from our management of U.S. Postal Service sorting facilities, compared with a year ago.

OutlookATSG reiterates its guidance for 2013 Adjusted EBITDA to be within a range of $155 to $160 million.

Hete said, “The curtailment of operations of the U.S. Federal Aviation Administration due to the government shutdown delayed final approval of ETOPS certification for our 757 combis from mid-September until earlier this week. However, with contributions from our seasonal fourth-quarter ad-hoc ACMI and charter operations, we still expect to achieve our 2013 Adjusted EBITDA goal.

“We also are beginning to see positive shifts in various air cargo networks that are creating new opportunities for us to deploy our aircraft assets and expertise. In addition to these new potential opportunities, with the regulatory and transition delays largely behind us, improving free cash flow due to minimal capital expenditure commitments, and expected positive pension developments, we will have the flexibility to opportunistically deploy capital at optimal, risk-adjusted returns heading into 2014.”

Conference CallATSG will host a conference call on Thursday, November 7, 2013, at 10:00 a.m. Eastern time to review its financial results for the third quarter of 2013. 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 35929294. The call will also be webcast live (listen-only mode) via www.atsginc.com and 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 on Thursday, November 7, 2013, beginning at 2:00 p.m. and continuing through Thursday, November 14, 2013, at (888) 843-7419 (international callers 630-652-3042); use pass code 35929294#. The webcast replay will remain available via www.atsginc.com and www.earnings.com for 30 days.

About ATSGATSG 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 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.

             

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, 2013   2012 2013   2012 REVENUES $ 140,877 $ 153,826 $ 423,060 $ 452,886   OPERATING EXPENSES Salaries, wages and benefits 41,498 44,153 126,771 135,827 Fuel 11,356 12,038 38,157 39,962 Maintenance, materials and repairs 24,644 26,751 71,783 75,135 Depreciation and amortization 23,392 21,057 66,077 62,871 Rent 6,958 6,745 20,528 18,719 Travel 4,409 5,618 13,908 17,162 Landing and ramp 2,227 3,877 8,264 11,823 Insurance 1,559 1,944 4,466 5,780 Other operating expenses 8,224   9,348   25,914   27,908   124,267 131,531 375,868 395,187         OPERATING INCOME 16,610 22,295 47,192 57,699 OTHER INCOME (EXPENSE) Interest income 17 38 56 104 Interest expense (3,814 ) (3,668 ) (10,500 ) (10,886 ) Net gain (loss) on derivative instruments (317 ) 294   425   956   (4,114 ) (3,336 ) (10,019 ) (9,826 )         EARNINGS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 12,496 18,959 37,173 47,873 INCOME TAX EXPENSE (4,697 ) (7,403 ) (13,958 ) (18,436 )         EARNINGS FROM CONTINUING OPERATIONS 7,799 11,556 23,215 29,437   LOSS FROM DISCONTINUED OPERATIONS, NET OF TAX —   (186 ) (2 ) (576 ) NET EARNINGS $ 7,799   $ 11,370   $ 23,213   $ 28,861     EARNINGS PER SHARE - Basic Continuing operations $ 0.12   $ 0.18   $ 0.36   $ 0.46   Discontinued operations —   —   —   (0.01 ) NET EARNINGS PER SHARE $ 0.12   $ 0.18   $ 0.36   $ 0.45     EARNINGS PER SHARE - Diluted Continuing operations $ 0.12   $ 0.18   $ 0.36   $ 0.46   Discontinued operations —   —   —   (0.01 ) NET EARNINGS PER SHARE $ 0.12   $ 0.18   $ 0.36   $ 0.45     WEIGHTED AVERAGE SHARES Basic 64,052   63,456   63,972   63,439   Diluted 65,036   64,667   64,807   64,478                  

AIR TRANSPORT SERVICES GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

  September 30, December 31, 2013 2012 ASSETS CURRENT ASSETS: Cash and cash equivalents $ 16,864 $ 15,442 Accounts receivable, net of allowance of $543 in 2013 and $749 in 2012 45,680 47,858 Inventory 8,952 9,430 Prepaid supplies and other 11,075 8,855 Deferred income taxes 19,154 19,154 Aircraft and engines held for sale 2,491   3,360   TOTAL CURRENT ASSETS 104,216 104,099   Property and equipment, net 848,550 818,924 Other assets 21,427 20,462 Intangibles 4,958 5,146 Goodwill 86,980   86,980   TOTAL ASSETS $ 1,066,131   $ 1,035,611     LIABILITIES AND STOCKHOLDERS’ EQUITY CURRENT LIABILITIES: Accounts payable $ 32,988 $ 36,521 Accrued salaries, wages and benefits 22,936 22,917 Accrued expenses 8,258 8,502 Current portion of debt obligations 23,572 21,265 Unearned revenue 9,771   10,311   TOTAL CURRENT LIABILITIES 97,525 99,516   Long term debt obligations 368,331 343,216 Post-retirement liabilities 149,326 185,097 Other liabilities 61,592 62,104 Deferred income taxes 62,066 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 524,554 523,087 Accumulated deficit (83,972 ) (107,185 ) Accumulated other comprehensive loss (113,938 ) (117,287 ) TOTAL STOCKHOLDERS’ EQUITY 327,291   299,256   TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 1,066,131   $ 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 Nine Months Ended September 30, September 30, 2013   2012 2013   2012 Revenues CAM $ 40,089 $ 39,155 $ 118,420 $ 115,073 ACMI Services Airline services 93,116 102,072 276,193 299,434 Reimbursables 16,313   20,454   51,156   57,676   Total ACMI Services 109,429 122,526 327,349 357,110 Other Activities 30,037   26,773   83,242   81,876   Total Revenues 179,555 188,454 529,011 554,059 Eliminate internal revenues (38,678 ) (34,628 ) (105,951 ) (101,173 ) Customer Revenues $ 140,877   $ 153,826   $ 423,060   $ 452,886     Pre-tax Earnings (Loss) from Continuing Operations CAM, inclusive of interest expense 15,893 17,334 49,980 50,819 ACMI Services (7,113 ) (1,746 ) (21,610 ) (11,543 ) Other Activities 4,400 3,373 9,188 8,602 Net, unallocated interest expense (367 ) (296 ) (810 ) (961 ) Net gain (loss) on derivative instruments (317 ) 294   425   956   Total Pre-tax Earnings $ 12,496 $ 18,959 $ 37,173 $ 47,873   Adjustments to Pre-tax Earnings Less net gain (loss) on derivative instruments 317   (294 ) (425 ) (956 ) Adjusted Pre-tax Earnings $ 12,813   $ 18,665   $ 36,748   $ 46,917    

Adjusted Pre-tax Earnings is defined as Earnings from Continuing Operations Before Income Taxes less derivative gains and losses. 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.

     

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, 2013   2012 2013   2012   Earnings from Continuing Operations Before Income Taxes $ 12,496 $ 18,959 $ 37,173 $ 47,873 Interest Income (17 ) (38 ) (56 ) (104 ) Interest Expense 3,814 3,668 10,500 10,886 Depreciation and Amortization 23,392   21,057   66,077   62,871   EBITDA from Continuing Operations $ 39,685 $ 43,646 $ 113,694 $ 121,526 Less net gain (loss) on derivative instruments 317 (294 ) (425 ) (956 )         Adjusted EBITDA from Continuing Operations $ 40,002   $ 43,352   $ 113,269   $ 120,570    

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 and losses.

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,     September 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 — — — 3 3 — 4 4 — DC-8 Combi 4 4 — 2 2 — — — — Total Aircraft In-Service 54 48 6 56 50 6 57 51 6   Owned Aircraft In Serviceable Condition December 31, September 30, December 31, 2012 2013 2013 Projected   ATSG airlines 28 30 30-31 External customers 20 20 20-21 48 50  

ATSG, Inc.Quint O. Turner, 937-382-5591Chief Financial Officer