ATSG Reports First Quarter 2023 Results
Source: Business Wire
Demand for medium-size cargo aircraft remains strong
2023 Outlook revised to reflect macro effects on ATSG airlines
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.
