Atsg reports first quarter 2023 results
Wilmington, ohio--(business wire)--air transport services group, inc. (nasdaq: atsg), the leading provider of medium wide-body aircraft leasing, contracted air transportation, and related services, today reported consolidated financial results for the quarter ended march 31, 2023. those results, as compared with the same quarter in 2022 were as follows: first quarter 2023 results revenues $501 million, up 3% gaap eps (basic) from continuing operations $0.28, down $0.39 gaap pretax earnings from continuing operations of $27 million, versus $65 million adjusted pretax* earnings $38 million, down from $64 million adjusted eps* $0.36, versus $0.56 adjusted ebitda* $138 million, down $20 million rich corrado, president and chief executive officer of atsg, said, "these results, while disappointing, do reflect the operating headwinds we talked about in february, including lower 2023 results at our airlines. the first quarter adjusted ebitda reflected lower than expected passenger airline revenues, and the continued impact of inflation at our airlines. our aircraft leasing business, cam, has seen no reduction in demand for its desirable leased freighters, and continues to invest with the expectation of delivering attractive returns for the midsize freighter aircraft we expect to lease during the rest of 2023 and into 2024." *adjusted eps (earnings per share), adjusted pretax earnings, adjusted ebitda (earnings before interest, taxes, depreciation and amortization) and adjusted free cash flow are non-gaap financial measures and are defined and reconciled to gaap measures at the end of this release. segment results cargo aircraft management (cam) aircraft leasing and related revenues from external customers in the first quarter were up 8% compared to the first quarter of 2022, primarily reflecting the benefit of eight newly converted boeing 767-300 freighters leased since the beginning of the first quarter of 2022, offset by lower revenues from engine pooling arrangements for customers leasing 767-200 freighters. cam’s first-quarter pretax earnings decreased 2% to $34 million versus the prior-year quarter. those earnings were impacted by $2.3 million more interest expense allocated to cam, driven by more aircraft assets, including feedstock in or awaiting freighter modification. cam deployed two 767-300 freighters to an external customer during the quarter. one 767-200 freighter was returned upon lease expiration. ninety-two cam-owned 767 freighter aircraft were leased to external customers at the end of the quarter, six more than a year ago. cam intends to deploy eighteen more freighters in 2023, including twelve 767s and six a321s. twenty-seven cam-owned aircraft were in or awaiting conversion to freighters, twelve more than a year ago. that quarter-end total includes nine a321 aircraft and eighteen 767s. acmi services pretax earnings were a loss of $2 million in the first quarter, versus earnings of $22 million in the first quarter of 2022. nearly all the decrease compared to the prior year is attributable to our acmi and charter airline, omni air. segment results overall were affected by inflation, including increases in line maintenance personnel and flight crew travel and training costs. revenue block hours for atsg's airlines were essentially flat for the first quarter compared to the prior-year period despite operating six more aircraft in 2023. cargo block hours increased 4%. hours flown by the four boeing 757 combination freighter-passenger aircraft were up significantly due to the resumption of a pacific route in late 2022. passenger block hours flown by omni air decreased by 25%. the prior year quarter included passenger hours flown for additional routes to europe. 2023 outlook atsg now expects its adjusted ebitda for 2023 to be in a range of $610 million to $620 million, and full year adjusted eps in a range of $1.55 to $1.70, based on lower acmi services passenger flying than was projected and inflationary effects associated with acmi airline operations since initial 2023 guidance in february. cam is projected to deliver results consistent with february guidance. the adjusted ebitda and adjusted eps forecasts for 2023 continue to assume: acmi services pretax results will be slightly positive in the first half, and improving in the second half. dry leases this year for up to six airbus a321-200 freighters currently awaiting approval by the foreign regulatory agencies, and fourteen newly converted 767-300s. cam's results will also be affected by the re-lease or sale of five boeing 767-200 freighters currently leased to amazon. atsg continues to project 2023 capital spending of $850 million, including $260 million in sustaining capex and $590 million for growth. corrado said that demand for atsg’s freighter aircraft remains very strong, including its boeing 767s, the narrow-body a321s, and the airbus a330 freighters the company will begin to deploy next year. cam is expected to generate more than $70 million in 2024 revenues from freighters it expects to lease this year. “our customers remain eager to lease the freighter aircraft we intend to deliver,” he said. “the persistent growth in online commerce throughout the world, and the need to replace older, less efficient aircraft types, means that midsize freighters will remain essential to global economic growth." corrado added that "if future market conditions were to affect projected returns on our fleet investments, we have the flexibility to significantly reduce our planned growth investments in 2024 and beyond, in favor of other options, such as debt reduction and additional share repurchases. our decisions about capital allocation will always be driven by what creates the most value for shareholders.” non-gaap financial measures this release, including the attached non-gaap reconciliation tables, contains financial measures that are not calculated and presented in accordance with generally accepted accounting principles in the united states ("non-gaap financial measures"). management uses these non-gaap financial measures to evaluate historical results and project future results. management believes that these non-gaap financial measures assist in highlighting operational trends, facilitating period-over-period comparisons, and providing additional clarity about events and trends affecting core operating performance. disclosing these non-gaap financial measures provides insight to investors about additional metrics that management uses to evaluate past performance and prospects for future performance. non-gaap measures should not be considered in isolation or as a substitute for analysis of the company's results as reported under gaap and may be calculated differently by other companies. the historical non-gaap financial measures included in this release are reconciled to the most directly comparable financial measure calculated and presented in accordance with gaap in the non-gaap reconciliation tables included later in this release. the company does not provide a reconciliation of projected adjusted ebitda or adjusted eps because it is unable to predict with reasonable accuracy the value of certain adjustments. certain adjustments can be significantly impacted by the re-measurements of financial instruments including stock warrants issued to a customer. the company’s earnings on a gaap basis, including its earnings per share on a gaap basis, and the non-gaap adjustments for gains and losses resulting from the re-measurement of stock warrants, will depend on the future prices of atsg stock, interest rates, and other assumptions which are highly uncertain. conference call atsg will host an investor conference call on friday, may 5, 2023, at 10 a.m. eastern time to review its financial results for the first quarter of 2023, and its outlook for remainder of the year. live call participants must register via this link that is also available at atsg’s website, www.atsginc.com under “investors” and “presentations.” once registered, call participants will receive dial-in numbers and a unique personal identification number (pin) that must be entered to join the live call. listen-only access to live and replay versions of the call, including slides, will be available via a webcast link at the same atsg website location. slides that accompany management’s discussion of fourth-quarter results also may be downloaded there shortly before the start of the call at 10 a.m. annual meeting of stockholders atsg's 2023 annual meeting of stockholders will be held virtually on may 24, 2023, at 11 a.m. eastern time. stockholders of record as of march 27, 2023, may participate by phone or online at www.virtualshareholdermeeting.com/atsg2023 to consider and vote on, among other items, the election of directors to the board, ratification of the selection of auditors for 2023, and an advisory vote on executive compensation. atsg's 2023 proxy statement, its 2022 annual report, and its 2022 sustainability report issued in april are also on the company's website, www.atsginc.com, and include important information you should consider before casting your vote. 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 three airlines with separate and distinct u.s. faa part 121 air carrier certificates, atsg provides aircraft leasing, air cargo lift, passenger acmi and charter services, aircraft maintenance services and airport ground services. atsg's subsidiaries include abx air, inc.; airborne global solutions, inc.; airborne maintenance and engineering services, inc., including its subsidiary, pemco world air services, inc.; air transport international, inc.; cargo aircraft management, inc.; and omni air international, llc. 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. a number of important factors could cause air transport services group, inc.'s ("atsg's") actual results to differ materially from those indicated by such forward-looking statements. these factors include, but are not limited to: (i) unplanned changes in the market demand for our assets and services, including the loss of customers or a reduction in the level of services we perform for customers; (ii) our operating airlines' ability to maintain on-time service and control costs; (iii) the cost and timing with respect to which we are able to purchase and modify aircraft to a cargo configuration; (iv) fluctuations in atsg's traded share price and in interest rates, which may result in mark-to-market charges on certain financial instruments; (v) the number, timing, and scheduled routes of our aircraft deployments to customers; (vi) our ability to remain in compliance with key agreements with customers, lenders and government agencies; (vii) the impact of current supply chain constraints both within and outside the united states, which may be more severe or persist longer than we currently expect; (viii) the impact of a competitive labor market, which could restrict our ability to fill key positions; (ix) changes in general economic and/or industry-specific conditions, including inflation; and (x) the impact of geographical events or health epidemics such as the covid-19 pandemic. other factors that could cause atsg’s actual results to differ materially from those indicated by such forward-looking statements 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. except as may be required by applicable law, 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 (unaudited) (in thousands, except per share data) three months ended march 31, 2023 2022 revenues $ 501,095 $ 485,860 operating expenses salaries, wages and benefits 176,715 161,762 depreciation and amortization 84,728 82,071 maintenance, materials and repairs 43,833 35,709 fuel 66,755 60,358 contracted ground and aviation services 17,788 18,331 travel 29,553 24,199 landing and ramp 4,124 4,578 rent 8,112 6,663 insurance 2,548 2,552 other operating expenses 19,516 19,843 453,672 416,066 operating income 47,423 69,794 other income (expense) interest income 215 9 non-service component of retiree benefit credits (3,218 ) 5,388 net (loss) gain on financial instruments (1,740 ) 2,696 gain (loss) from non-consolidated affiliates (406 ) (1,403 ) interest expense (15,705 ) (11,399 ) (20,854 ) (4,709 ) earnings from continuing operations before income taxes 26,569 65,085 income tax expense (6,428 ) (15,289 ) earnings from continuing operations 20,141 49,796 net earnings $ 20,141 $ 49,796 earnings per share - continuing operations basic $ 0.28 $ 0.67 diluted $ 0.25 $ 0.57 weighted average shares - continuing operations basic 71,802 73,888 diluted 83,057 88,744 air transport services group, inc. and subsidiaries condensed consolidated balance sheets (unaudited) (in thousands, except share data) march 31, 2023 december 31, 2022 assets current assets: cash and cash equivalents $ 89,602 $ 27,134 accounts receivable, net of allowance of $1,053 in 2023 and $939 in 2022 227,122 301,622 inventory 57,727 57,764 prepaid supplies and other 33,555 31,956 total current assets 408,006 418,476 property and equipment, net 2,553,674 2,402,408 customer incentive 73,828 79,650 goodwill and acquired intangibles 490,088 492,642 operating lease assets 66,329 74,070 other assets 110,354 122,647 total assets $ 3,702,279 $ 3,589,893 liabilities and stockholders’ equity current liabilities: accounts payable $ 218,218 $ 192,992 accrued salaries, wages and benefits 60,272 56,498 accrued expenses 11,371 12,466 current portion of debt obligations 642 639 current portion of lease obligations 22,524 23,316 unearned revenue 33,784 21,546 total current liabilities 346,811 307,457 long term debt 1,544,454 1,464,285 stock obligations 1,509 695 post-retirement obligations 33,702 35,334 long term lease obligations 44,727 51,575 other liabilities 56,020 62,861 deferred income taxes 260,989 255,180 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; 150,000,000 shares authorized; 71,451,610 and 72,327,758 shares issued and outstanding in 2023 and 2022, respectively 715 723 additional paid-in capital 964,026 986,303 retained earnings 549,023 528,882 accumulated other comprehensive loss (99,697 ) (103,402 ) total stockholders’ equity 1,414,067 1,412,506 total liabilities and stockholders’ equity $ 3,702,279 $ 3,589,893 air transport services group, inc. and subsidiaries condensed consolidated summary of cash flows (unaudited) (in thousands) three months ended march 31, 2023 2022 operating cash flows $ 216,378 $ 125,668 investing activities: aircraft acquisitions and freighter conversions (164,608 ) (71,915 ) planned aircraft maintenance, engine overhauls and other non-aircraft additions to property and equipment (54,193 ) (36,337 ) proceeds from sales of property and equipment 9,860 76 acquisitions and investments in businesses (800 ) — total investing cash flows (209,741 ) (108,176 ) financing activities: principal payments on debt (25,214 ) (90,100 ) proceeds from borrowings 105,000 40,000 payments for financing costs (484 ) — purchase of common stock (21,918 ) — taxes paid for conversion of employee awards (1,553 ) (1,350 ) total financing cash flows 55,831 (51,450 ) net increase (decrease) in cash $ 62,468 $ (33,958 ) cash and cash equivalents at beginning of period $ 27,134 $ 69,496 cash and cash equivalents at end of period $ 89,602 $ 35,538 air transport services group, inc. and subsidiaries pretax earnings from continuing operations and adjusted pretax earnings summary non-gaap reconciliation (in thousands) three months ended march 31, 2023 2022 revenues cam aircraft leasing and related revenues $ 117,074 $ 111,935 lease incentive amortization (5,030 ) (5,030 ) total cam 112,044 106,905 acmi services 334,127 330,090 other activities 110,588 102,535 total revenues 556,759 539,530 eliminate internal revenues (55,664 ) (53,670 ) customer revenues $ 501,095 $ 485,860 pretax earnings (loss) from continuing operations cam, inclusive of interest expense 34,200 34,995 acmi services, interest expense (2,411 ) 22,165 other activities 654 1,551 net, unallocated interest expense (510 ) (307 ) non-service components of retiree benefit credit (3,218 ) 5,388 net gain (loss) on financial instruments (1,740 ) 2,696 loss from non-consolidated affiliates (406 ) (1,403 ) earnings from continuing operations before income taxes (gaap) $ 26,569 $ 65,085 adjustments to pretax earnings from continuing operations add customer incentive amortization 5,822 5,798 add loss from non-consolidated affiliates 406 1,403 less net (gain) loss on financial instruments 1,740 (2,696 ) less non-service components of retiree benefit credit 3,218 (5,388 ) add net charges for hangar foam incident 41 — adjusted pretax earnings (non-gaap) $ 37,796 $ 64,202 adjusted pretax earnings excludes certain items included in gaap-based pretax earnings (loss) from continuing operations before income taxes because these items 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 pretax 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 march 31, 2023 2022 earnings (loss) from continuing operations before income taxes $ 26,569 $ 65,085 interest income (215 ) (9 ) interest expense 15,705 11,399 depreciation and amortization 84,728 82,071 ebitda from continuing operations (non-gaap) $ 126,787 $ 158,546 add customer incentive amortization 5,822 5,798 add start-up loss from non-consolidated affiliates 406 1,403 less net (gain) loss on financial instruments 1,740 (2,696 ) add non-service components of retiree benefit credits 3,218 (5,388 ) add net charges for hangar foam incident 41 — adjusted ebitda (non-gaap) $ 138,014 $ 157,663 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 secured credit facility to assess financial performance and determine the cost of borrowed funds. the adjustments also remove the non-service cost components of retiree benefit plans because they are not closely related to ongoing operating activities. to improve comparability between periods, the adjustments also exclude from ebitda from continuing operations charges related to the discharge of a fire suppression system in the company's aircraft hangar, net of related insurance recoveries. 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 warrant-based customer incentive costs recorded in revenue, costs from non-consolidated affiliates and charges related to the discharge of a fire suppression system, net of insurance recoveries. air transport services group, inc. and subsidiaries adjusted free cash flow non-gaap reconciliation (in thousands) three months ended trailing 12 months ended march 31, march 31, 2023 2022 2023 operating cash flows (gaap) $ 216,378 $ 125,668 $ 562,830 sustaining capital expenditures (54,193 ) (36,337 ) (204,692 ) adjusted free cash flow (non-gaap) $ 162,185 $ 89,331 $ 358,138 sustaining capital expenditures includes cash outflows for planned aircraft maintenance, engine overhauls, information systems and other non-aircraft additions to property and equipment. it does not include expenditures for aircraft acquisitions and related passenger-to-freighter conversion costs. adjusted free cash flow (non-gaap) includes cash flow from operations net of expenditures for planned aircraft maintenance, engine overhauls and other non-aircraft additions to property and equipment. management believes that adjusting gaap operating cash flows is useful for investors to evaluate the company's ability to generate adjusted free cash flow for growth initiatives, debt service, cash returns for shareholders or other discretionary allocations of capital. air transport services group, inc. and subsidiaries adjusted earnings and adjusted earnings per share non-gaap reconciliation (in thousands) management presents adjusted earnings and adjusted earnings per share, both non-gaap measures, to provide additional information regarding earnings per share without the volatility otherwise caused by the items below among periods. three months ended march 31, 2023 march 31, 2022 $ $ per share $ $ per share earnings from continuing operations - basic (gaap) $ 20,141 $ 49,796 gain from warrant revaluation, net tax1 (108 ) — convertible notes interest charges, net of tax2 776 760 earnings from continuing operations - diluted (gaap) 20,809 $ 0.25 50,556 $ 0.57 adjustments, net of tax customer incentive amortization3 4,546 0.06 4,475 0.05 non-service component of retiree benefits4 2,513 0.03 (4,158 ) (0.05 ) financial instrument revaluations5 1,466 0.02 (2,081 ) (0.02 ) loss from affiliates6 317 — 1,083 0.01 hangar foam incident7 32 — — — adjusted earnings and adjusted earnings per share (non-gaap) $ 29,683 $ 0.36 $ 49,875 $ 0.56 shares shares weighted average shares - diluted 83,057 88,744 additional shares - warrants 1 — — adjusted shares (non-gaap) 83,057 88,744 this presentation does not give effect to convertible note hedges the company purchased having the same number of the company's common shares, 8.1 million shares, and the same strike price of $31.90, that underlie the convertible notes. the convertible note hedges are expected to reduce the potential equity dilution with respect to the company's common stock upon conversion of the convertible notes. adjusted earnings and adjusted earnings per share 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 should not be considered in isolation or as a substitute for analysis of the company's results as reported under gaap. air transport services group, inc. and subsidiaries aircraft fleet aircraft types march 31, 2022 december 31, 2022 march 31, 2023 december 31, 2023 projected freighter passenger freighter passenger freighter passenger freighter passenger b767-200 33 3 32 3 31 3 24 3 b767-300 67 9 78 8 80 8 94 8 b777-200 — 3 — 3 — 3 — 3 b757 combi — 4 — 4 — 4 — 4 a321-200 — — — — — — 6 — total aircraft in service 100 19 110 18 111 18 124 18 b767-300 in or awaiting cargo conversion 12 — 15 — 18 — 14 — a321 in cargo conversion 3 — 7 — 9 — 5 — a330 in cargo conversion — — — — — — 3 — b767-200 staging for lease 1 — — — — — 1 — total aircraft 116 19 132 18 138 18 147 18 aircraft in service deployments march 31, december 31, march 31, december 31, 2022 2022 2023 2023 projected dry leased without cmi 36 39 40 55 dry leased with cmi 50 52 52 47 customer provided for cmi 7 13 13 16 acmi/charter1 26 24 24 24
