ATSG Reports Second Quarter 2024 Results
Source: Business Wire
Raises 2024 Adjusted EBITDA Outlook
Generates Strong Free Cash Flow
Leases Four Boeing 767 Freighters to Customers since June 30
Air Transport Services Group, Inc. (Nasdaq: ATSG), the leading provider of medium wide-body freighter aircraft leasing, contracted air transportation, and related services, today reported consolidated financial results for the second quarter ended June 30, 2024. Those results, as compared with the same period in 2023, were as follows:
Second Quarter Results
Revenues of $488 million, versus $529 million
GAAP Earnings per Share (diluted) from Continuing Operations of $0.11, versus $0.49
GAAP Pretax Earnings from Continuing Operations of $10.7 million, versus $49.7 million
Adjusted Pretax* Earnings of $17.3 million, versus $57.9 million
Adjusted EPS* of $0.19, versus $0.57
Adjusted EBITDA* of $130.4 million, versus $157.1 million
Free Cash Flow was $91.8 million, versus negative $1.3 million
Mike Berger, chief executive officer of ATSG, said, "Our second quarter results were affected by fewer block hours by our airlines and the scheduled return of Boeing 767-200 freighters since a year ago. We beat our internal expectations for the quarter, however, and are positioned for further improvement in the second half of the year, particularly in the fourth quarter. We're encouraged by the free cash flow we're generating and have again raised our full year guidance for Adjusted EBITDA. We have leased four aircraft to customers since the end of June and are encouraged by the momentum we're seeing in the global markets we serve. We remain proud of the service levels we deliver every day and are particularly pleased that we met commitments to our customer Amazon during this year's Prime Week."
* Adjusted EPS (Earnings per Share), Adjusted Pretax Earnings, Adjusted EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization), Free Cash Flow, and Adjusted Free Cash Flow are non-GAAP financial measures used in this release, which are defined and reconciled to the most directly comparable financial measures calculated and presented in accordance with GAAP at the end of this release.
Segment Results
Cargo Aircraft Management (CAM)
Aircraft leasing and related revenues decreased 7% for the second quarter, including the benefit of revenues from fourteen additional freighter leases, including eleven additional 767-300s and three Airbus A321-200s since the end of June 2023. These lease revenues were more than offset by the scheduled returns of nine 767-200 freighters and four 767-300 freighters over that same period. Revenue reductions associated with the 767-200 fleet include the effect of fewer cycles operated by lessees under our 767-200 engine power program.
CAM’s second quarter pretax earnings decreased $16 million, or 51%, to $15 million versus the prior-year quarter. The biggest driver of the year-over-year decrease was the previously mentioned reduction in 767-200 freighter lease and engine power program revenues. Segment interest expense increased by $4 million and depreciation increased by $9 million versus the prior-year quarter.
CAM leased three 767s and sold five others to external customers in the second quarter. Six 767-200 freighters were returned by external customers upon lease expiration. At the end of the second quarter, eighty-seven CAM-owned freighter aircraft were leased to external customers, one more than a year ago.
Twenty-three CAM-owned aircraft were in or awaiting conversion to freighters at the end of the second quarter, six fewer than at the end of the prior-year quarter. This included twelve 767s, six A321s, and five A330s. Two of the A330s are expected to complete conversion and be leased to an external customer in the fourth quarter 2024.
ACMI Services
Pretax loss was $7 million in the second quarter, versus earnings of $24 million in the second quarter of 2023. Revenue block hours for ATSG's airlines decreased 10% versus the prior-year quarter. Cargo block hours decreased 11% for the second quarter, reflecting the removal of certain 767-200 freighter aircraft from service and less international flying versus the prior year. Passenger block hours decreased 4% in the quarter. In addition to the reduced flying hours and reduced revenues, ACMI Services experienced increased expenses for crew training, maintenance, travel and ground service rates. Of the decrease in pretax earnings, $3 million was attributable to an increase in non-cash amortization for Amazon warrants.
2024 Outlook
Taking into account the four aircraft leases that commenced since the end of June, ATSG expects Adjusted EBITDA of approximately $526 million in 2024. That is an increase, concentrated in the fourth quarter, of $10 million from the outlook provided in May 2024. This forecast excludes any contribution from additional aircraft leases not currently under contractual commitment. The Company continues to see the potential for additional Adjusted EBITDA from new lease commitments for available aircraft and opportunities for additional flying.
ATSG expects capital spending for 2024 to be $390 million, down from the $410 million estimated in May 2024, and down $400 million from 2023 actual spending. ATSG's total projected capital spend includes growth capital of $225 million. ATSG expects third quarter Adjusted EBITDA to be similar to the second quarter as ramp-up costs for adding ten Amazon supplied 767 freighters continue, but higher in the fourth quarter when the last few enter service and other peak-season operations occur.
Berger added, “We are on track to achieve our improved 2024 outlook. We expect contracted pricing increases and seasonal charter opportunities in the fourth quarter, which should drive improved sequential results in our ACMI Services segment. This expected improvement, combined with momentum in our core leasing business, positions us well to drive earnings growth in 2025. We are ahead of our target for positive free cash flow for the year, with $107 million generated in the first half and an expectation to add to that total in the second half."
Non-GAAP Financial Measures
This release, including the attached tables, contains financial measures that are calculated and presented in accordance with Generally Accepted Accounting Principles ("GAAP") in the United States, and financial measures that are not calculated and presented in accordance with GAAP ("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 financial 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, as permitted by Item 10(e)(1)(i)(B) of Regulation S-K, because it is unable to predict with reasonable accuracy the value of certain adjustments and as a result, the comparable GAAP measures are unavailable without unreasonable efforts. For example, 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, among other things, the future prices of ATSG stock, interest rates, and other assumptions which are highly uncertain. As a result, the Company believes such reconciliations of forward-looking information would imply a degree of precision and certainty that could be confusing to investors.
Conference Call
ATSG will host an investor conference call on Friday, August 9, 2024, at 10 a.m. Eastern Time to review its results for the second quarter of 2024, and its outlook for the remainder of the year. Live call participants must register via this link, which 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 first-quarter results may be downloaded from there starting shortly before the start of the call at 10 a.m.
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.
Cautionary Note Regarding Forward-Looking Statements
Throughout this release, Air Transport Services Group, Inc. (“ATSG") makes “forward-looking statements” within the meaning of the U.S. Private Securities Litigation Reform Act of 1995, as amended (the “Act”). Except for historical information contained herein, the matters discussed in this release contain forward-looking statements that involve inherent risks and uncertainties. Such statements are provided under the “safe harbor” protection of the Act. Forward-looking statements include, but are not limited to, statements regarding anticipated operating results, prospects and aircraft in service, technological developments, economic trends, expected transactions and similar matters. The words “may,” “believe,” “expect,” “anticipate,” “target,” “goal,” “project,” “estimate,” “guidance,” “forecast,” “outlook,” “will,” “continue,” “likely,” “should,” “hope,” “seek,” “plan,” “intend” and variations of such words and similar expressions identify forward-looking statements. Similarly, descriptions of ATSG’s objectives, strategies, plans, goals or targets are also forward-looking statements. Forward-looking statements are susceptible to a number of risks, uncertainties and other factors. While ATSG believes that the assumptions underlying its forward-looking statements are reasonable, investors are cautioned that any of the assumptions could prove to be inaccurate and, accordingly, ATSG’s actual results and experiences could differ materially from the anticipated results or other expectations expressed in its forward-looking statements. A number of important factors could cause ATSG's actual results to differ materially from those indicated by such forward-looking statements. These factors include, but are not limited to: (i) changes in the market demand for ATSG's assets and services, including the loss of customers or a reduction in the level of services it performs for customers; (ii) its operating airlines' ability to maintain on-time service and control costs; (iii) the cost and timing with respect to which it is 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 its aircraft deployments to customers; (vi) ATSG's ability to remain in compliance with key agreements with customers, lenders and government agencies; (vii) the impact of current supply chain constraints, which may be more severe or persist longer than it currently expects; (viii) the impact of the current competitive labor market; (ix) changes in general economic and/or industry-specific conditions, including inflation and regulatory changes; and (x) the impact of geopolitical tensions or conflicts and human health crises, and other factors that could cause ATSG’s actual results to differ materially from those indicated by such forward-looking statements, which are discussed in “Risk Factors” in Item 1A of ATSG's 2023 Form 10-K and may be contained from time to time in its other filings with the U.S. Securities and Exchange Commission, including its annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K. Readers should carefully review this release and should not place undue reliance on ATSG's forward-looking statements. These forward-looking statements were based only on information, plans and estimates as of the date of this release. New risks and uncertainties arise from time to time, and factors that ATSG currently deems immaterial may become material, and it is impossible for ATSG to predict these events or how they may affect it. 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. ATSG does not endorse any projections regarding future performance that may be made by third parties.
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