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
ATSG Reports First Quarter 2014 Financial Results
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