ATSG Reports First Quarter 2014 Financial Results

  ATSG Reports First Quarter 2014 Financial Results   Executes Leases for Four 767s; Extends Credit Agreement Under More Favorable                                     Terms  Business Wire  WILMINGTON, Ohio -- May 6, 2014  Air Transport Services Group, Inc. (Nasdaq: ATSG), the leading provider of medium wide-body aircraft leasing, and air cargo transportation and related services, today reported consolidated financial results for the quarter ended March 31, 2014, and announced new, multi-year dry-leases of Boeing 767 freighter aircraft and an amendment to its credit agreement with a consortium of banks.  For the first quarter of 2014:    *Revenues were $143.6 million, flat with a year ago. Increases in revenues     from aircraft leasing and other business activities offset lower revenues     from airline operations.   *Earnings from continuing operations of $6.5 million, or $0.10 per share,     were lower than earnings of $8.5 million, or $0.13 per share a year ago. A     $4.1 million increase in depreciation and amortization expense stemming     from the addition of more modern aircraft to ATSG’s fleet, offset     decreases in other operating expenses.   *Adjusted EBITDA (Earnings Before Interest, Taxes, Depreciation and     Amortization, also adjusted for the effect of derivative transactions) was     $38.8 million, up 4 percent from $37.3 million in the prior-year quarter.     Adjusted EBITDA is a non-GAAP financial measure, defined and reconciled to     comparable GAAP results in separate tables at the end of this release.   *Today, ATSG executed a favorable amendment to its primary credit agreement     which extends the term of the agreement until May 6, 2019, reduces     interest rate pricing, adds a $50 million accordion feature, and improves     its ability to execute stock repurchases and pay dividends to     shareholders.  Separately, ATSG announced the following new-business agreements today:    *Dry-leases for two Boeing 767-200 freighters to Cargojet, a Canadian     airline, for terms of up to three years beginning in the second and third     quarters this year. These aircraft are in addition to the two 767-200     freighters Cargojet currently leases from CAM.   *Dry-leases for two Boeing 767-300 freighters to Amerijet, a Florida based     airline, under six-year terms beginning in the third quarter this year.     Amerijet currently leases three 767-200 freighters from CAM.  Joe Hete, President and Chief Executive Officer of ATSG, said, “This new business with two long-standing ATSG customers demonstrates their confidence in the value of mid-size freighters as vital components of efficient regional air-cargo networks, and in our bundled services offerings, which facilitate rapid implementation and scale efficiencies. These dry lease deployments evidence the strengthening demand for mid-size lift that we spoke of last quarter, and bolster our confidence that we can deliver at or above the upper range of our EBITDA guidance for 2014, based on improving performance, particularly in the second half of the year.”  Segment Results CAM (Aircraft Leasing)  CAM                  First Quarter ($ in thousands)     2014         2013 Revenues                 $  40,635     $  38,969 Pre-Tax Earnings     14,440       16,873                                           Significant Developments:    *Higher revenues were the result of four more CAM-owned aircraft in- or     available for service as of March 31, including four 757 combis (combined     passenger and main-deck cargo aircraft), two 767 freighters and one 757     freighter, less three retired DC-8 combis. Lower pre-tax earnings from     leasing operations reflect higher depreciation on the newer added     aircraft.   *At March 31, CAM owned 51 Boeing cargo aircraft in service condition     including 20 leased to external customers and 30 leased to CAM’s airline     affiliates, and one unassigned. A table reflecting cargo aircraft in     service is included at the end of this release.   *CAM’s seventh owned 767-300 freighter became available for service during     the first quarter, along with its fourth 757 combi. ATSG no longer has any     aircraft in modification or awaiting conversion.   *In addition to the two 767-300s that Amerijet has agreed to lease from     CAM, it also agreed to 18-month lease extensions through 2019 for two of     the three 767-200s it currently leases, and the right to terminate early     the dry lease of the third leased 767-200 when the 767-300s are fully     deployed. One of CAM's airline affiliates is operating one 767-200     freighter in Amerijet's network under an interim ACMI agreement.   *When fully implemented later this year, the new arrangements with Amerijet     and Cargojet will increase the number of CAM aircraft leased to external     customers from 20 at March 31 to 23, principally via reductions in the     number of aircraft leased to its airline affiliates.  ACMI Services  ACMI Services                    First Quarter ($ in thousands)                 2014           2013 Revenues Airline services                     $  87,507       $  94,892 Reimbursables                        21,089          18,159      Total ACMI Services Revenues         108,596          113,051                                                                   Pre-Tax Loss                     (7,046     )   (5,404     )                                                                    Significant Developments:    *First-quarter airline services revenues decreased $7.4 million to $87.5     million, compared with the first quarter last year. Segment pre-tax loss     increased to $7.0 million from $5.4 million. Reductions in non-U.S.     operations, including those for DHL in the Mideast, along with continued     carrying costs associated with underutilized aircraft, were principal     factors. Revenues from domestic airline operations for DHL increased.   *In the first quarter, the last of four 757 combis entered service for the     U.S. military, completing the modernization of that fleet. The 757 combis     have more passenger capacity and greater fuel efficiency than the DC-8     combis they replaced.   *During the first quarter, DHL ended ACMI agreements with Air Transport     International (ATI) for three 767 freighters that had supported DHL's     Mideast network. Results from three other freighters deployed by ATSG's     airlines offset a portion of the loss of the Mideast business.   *ACMI block hours decreased 3 percent during the first quarter, compared to     the prior-year period.   *As noted above, CAM's additional placements of freighter aircraft under     dry leases to third parties will reduce the number of aircraft leased to     ATSG's airlines, including three of five underutilized freighters leased     to those airlines as of March 31.  Other Activities  Other Activities     First Quarter ($ in thousands)     2014         2013 Revenues                 $  26,808     $  26,254 Pre-Tax Earnings     3,017        2,181                                             *Pre-tax earnings in the first quarter were driven by higher revenues from     the Company's aircraft maintenance and postal operations. The aircraft     maintenance business, Aircraft Maintenance and Engineering Services (AMES)     is preparing to serve more third-party customers after its new hangar     opens in Wilmington in June of this year.  Credit Agreement Amendment Today, ATSG executed an amendment to its senior secured credit facility which includes a term loan of $127.5 million, and access to a revolving credit facility of up to $275 million, of which the Company has drawn $188.0 million. Key features of the amendment include:    *Extended the maturity of the term loan and revolving credit facility from     July 2017 to May 6, 2019.   *Reduced EBITDA-based pricing by approximately 25 basis points.   *An accordion feature which would allow ATSG to expand the revolver     capacity from $275 million to $325 million, subject to lenders' consent.   *Allows for stock buybacks and dividends when the debt-to-EBITDA ratio is     below 2.5 times after giving effect of the buyback or dividend (the     previous requirement was under 2.0 times).  Outlook In March, ATSG projected that its Adjusted EBITDA for 2014 would be in a range of $165 to $170 million, excluding any results from deployments of under-utilized aircraft. Based on today's new-business announcements, virtually all of which commence in the second half of the year, ATSG has greater confidence that its Adjusted EBITDA for 2014 from all sources will meet or exceed the upper end of that guidance range, assuming improving base-business progress in 2014.  Hete said, “Uncertainties that discouraged major investments in air-cargo networks for many months appear to have eased, and we are seeing broad interest in our aircraft beyond the agreements we have announced today. Cargojet and Amerijet have signed for four of our six under-utilized freighters, and discussions with others give us a good chance to be fully deployed by the end of this year.  “The growing EBITDA we project, and reductions in our obligations for capital expenditures and pension funding, will significantly improve our cash flow this year. Our recent success at placing additional aircraft under multi-year customer arrangements, and continued interest in those still available for deployment, gives us confidence that we will make even greater cash flow gains as the year progresses. With a strong balance sheet and cash flow, we are poised to invest where it can generate the most attractive shareholder returns.”  Conference Call ATSG will host a conference call on May 7, 2014, at 9:00 a.m. Eastern time to review its financial results for the first quarter of 2014. 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 37157156. 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 May 7, 2014, beginning at 2:00 p.m. and continuing through March 14, 2014, at (888) 843-7419 (international callers 630-652-3042); use pass code 37157156#. The webcast replay will remain available via www.atsginc.com and www.earnings.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.                                                                                                     AIR TRANSPORT SERVICES GROUP, INC. AND SUBSIDIARIES  CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS  (In thousands, except per share data)                                                                                                        Three Months Ended                                                    March 31,                                                    2014          2013 REVENUES                                           $ 143,593       $ 143,279                                                                               OPERATING EXPENSES Salaries, wages and benefits                       43,065          43,309 Fuel                                               12,260          14,361 Maintenance, materials and repairs                 24,879          22,134 Depreciation and amortization                      24,979          20,920 Rent                                               7,310           6,779 Travel                                             4,573           4,727 Landing and ramp                                   2,738           4,065 Insurance                                          1,205           1,511 Other operating expenses                           8,748          9,060                                                         129,757         126,866                                                                            OPERATING INCOME                                   13,836          16,413 OTHER INCOME (EXPENSE) Interest income                                    19              21 Interest expense                                   (3,823    )     (3,132    ) Net gain on derivative instruments                 299            290                                                           (3,505    )     (2,821    )                                                                            EARNINGS FROM CONTINUING OPERATIONS BEFORE         10,331          13,592 INCOME TAXES INCOME TAX EXPENSE                                 (3,809    )     (5,091    )                                                                            EARNINGS FROM CONTINUING OPERATIONS                6,522           8,501                                                                               EARNINGS (LOSS) FROM DISCONTINUED                  211            (1        ) OPERATIONS, NET OF TAX NET EARNINGS                                       $ 6,733        $ 8,500                                                                                  EARNINGS PER SHARE - Basic Continuing operations                              $ 0.10         $ 0.13     Discontinued operations                            —              —          NET EARNINGS PER SHARE                             $ 0.10         $ 0.13                                                                                   EARNINGS PER SHARE - Diluted Continuing operations                              $ 0.10         $ 0.13     Discontinued operations                            —              —          NET EARNINGS PER SHARE                             $ 0.10         $ 0.13                                                                                   WEIGHTED AVERAGE SHARES Basic                                              64,148         63,810     Diluted                                            65,141         64,524                                                                                                                                                                                                                 AIR TRANSPORT SERVICES GROUP, INC. AND SUBSIDIARIES  CONDENSED CONSOLIDATED BALANCE SHEETS  (In thousands, except share data)                                                                                                                  March 31,         December 31,                                                2014              2013 ASSETS CURRENT ASSETS: Cash and cash equivalents                      $ 27,102          $ 31,699 Accounts receivable, net of allowance          50,827            52,247 of $698 in 2014 and $717 in 2013 Inventory                                      10,608            9,050 Prepaid supplies and other                     12,754            9,730 Deferred income taxes                          13,957            13,957 Aircraft and engines held for sale             2,487            2,995        TOTAL CURRENT ASSETS                           117,735           119,678                                                                               Property and equipment, net                    817,441           838,172 Other assets                                   36,761            21,143 Pension assets, net of obligations             16,887            14,855 Intangibles                                    4,826             4,896 Goodwill                                       34,395           34,395       TOTAL ASSETS                                   $ 1,028,045      $ 1,033,139                                                                                LIABILITIES AND STOCKHOLDERS’ EQUITY CURRENT LIABILITIES: Accounts payable                               $ 30,361          $ 34,818 Accrued salaries, wages and benefits           23,400            23,163 Accrued expenses                               9,497             9,695 Current portion of debt obligations            23,873            23,721 Unearned revenue                               8,887            8,733        TOTAL CURRENT LIABILITIES                      96,018            100,130                                                                               Long term debt                                 350,718           360,794 Post-retirement obligations                    30,207            30,638 Other liabilities                              62,243            62,740 Deferred income taxes                          113,273           109,869                                                                               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; 64,850,537 and 64,618,305 shares               649               646 issued and outstanding in 2014 and 2013, respectively Additional paid-in capital                     525,347           524,953 Accumulated deficit                            (120,080    )     (126,813    ) Accumulated other comprehensive loss           (30,330     )     (29,818     ) TOTAL STOCKHOLDERS’ EQUITY                     375,586          368,968      TOTAL LIABILITIES AND STOCKHOLDERS’            $ 1,028,045      $ 1,033,139  EQUITY                                                                                  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                                                 March 31,                                                 2014          2013 Revenues CAM                                             $ 40,635        $ 38,969 ACMI Services Airline services                                87,507          94,892 Reimbursables                                   21,089         18,159     Total ACMI Services                             108,596         113,051 Other Activities                                26,808         26,254     Total Revenues                                  176,039         178,274 Eliminate internal revenues                     (32,446   )     (34,995   ) Customer Revenues                               $ 143,593      $ 143,279                                                                             Pre-tax Earnings from Continuing Operations CAM, inclusive of interest expense              14,440          16,873 ACMI Services                                   (7,046    )     (5,404    ) Other Activities                                3,017           2,181 Net, unallocated interest expense               (379      )     (348      ) Net gain on derivative instruments              299            290        Total Pre-tax Earnings                          $ 10,331        $ 13,592                                                                            Adjustments to Pre-tax Earnings Less net gain on derivative instruments         (299      )     (290      ) Adjusted Pre-tax Earnings                       $ 10,032       $ 13,302                                                                               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.    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                                              March 31,                                              2014              2013                                                                              Earnings from Continuing Operations Before Income                     $  10,331           $  13,592 Taxes Interest Income                              (19        )        (21        ) Interest Expense                             3,823               3,132 Depreciation and                             24,979             20,920      Amortization EBITDA from Continuing                       $  39,114           $  37,623 Operations Less net gain on derivative                  (299       )        (290       ) instruments                                                                           Adjusted EBITDA from                         $  38,815          $  37,333   Continuing Operations                                                                               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,                March 31,                   December 31,                    2013                          2014                          2014 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           8       6       2             9       7       2             9       7       2 B757-200           4       4       —             4       4       —             4       4       — B757 Combi         3       3       —             4       4       —             4       4       — Total Aircraft           55      49      6             57      51      6             57      51      6 In-Service                                                                                                 Owned Aircraft In Serviceable Condition                    December 31,                  March 31,                     December 31,                    2013                          2014                          2014 Projected                                                                                                 ATSG                       29                            30                            24-28 airlines External                   20                            20                            23-27 customers Unassigned                 —                             1                             —                            49                            51                                                                                                  Contact:  ATSG Inc. Quint O. Turner, 937-382-5591 Chief Financial Officer  
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