Air Transport Services Group Inc (ATSG) Q2 2020 Earnings Ca…

Air Transport Services Group Inc (ATSG) Q2 2020 Earnings Ca…


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Air Transport Services Group Inc (NASDAQ:ATSG)
Q2 2020 Earnings Call
Aug 7, 2020, 10:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Welcome to Second Quarter 2020 Air Transport Services Group, Inc. Earnings Conference Call. My name is Sylvia, and I’ll be operator for today’s call. [Operator Instructions] I will now turn the call over to Joe Payne, Chief Legal Officer. Mr. Payne, you may begin.

Joe PayneChief Legal Officer

Good morning, Sylvia. During the course of this call, we will make projections or other forward-looking statements that involve risks and uncertainties. Our actual results and other future events may differ materially from those we describe here. These forward-looking statements are based on information, plans and estimates as of the date of this call. Air Transport Services Group undertakes no obligation to update any forward-looking statements to reflect changes in underlying assumptions, factors, new information or other changes. These factors include, but are not limited to the following, which relate to the current COVID-19 pandemic and related economic downturn: the pandemic may continue for a longer period, or its effect on commercial and military passenger flying may be more substantial than what we currently expect; disruptions to our workforce and staffing capability and our ability to continue to access airports and maintenance facilities; the impact on our customers’ creditworthiness; and the continuing ability of our vendors and third party service providers to maintain customary service levels; and other factors that could impact the market demand for our assets and services, including our operating airlines’ ability to maintain on-time service and control costs; the cost and timing with respect to which we are able to purchase and modify aircraft to a cargo configuration; fluctuations in ATSG’s traded share price and in interest rates, which may result in mark-to-market charges on certain financial instruments; the number, timing and scheduled routes of our aircraft deployments to customers; our ability to remain in compliance with key agreements with customers, lenders and government agencies; changes in general economic and/or industry specific conditions; and other factors that’s contained from time to time in our filings with the SEC, including the Form 10-Q we expect to file tomorrow.

We will also refer to non-GAAP financial measures from continuing operations, including adjusted earnings, adjusted earnings per share, adjusted pre-tax earnings and adjusted EBITDA. Management believes these metrics are useful to investors in assessing ATSG’s financial position and results. These non-GAAP measures are not meant to be a substitute for our GAAP financials, and we advise you to refer to the reconciliations to GAAP measures, which were included in our earnings release and on our website.

And now, I’ll turn the call over to Rich Corrado, President and CEO.

Rich CorradoChief Executive Officer and President

Thanks Joe. Welcome everyone to our second quarter 2020 earnings conference call. Quint Turner, our Chief Financial Officer, is with me today, along with Mike Berger, our Chief Commercial Officer, who is standing by to field any questions you may have about our market outlook. We issued our earnings release today after the market closed. It’s on our website, atsginc.com. We will file our 10-Q tomorrow.

I’m happy to tell you that during the second quarter, the cash-generating potential of ATSG’s unique business model was on full display. We delivered more of our strong ongoing cash flow from more long-term leases of midsize freighter aircraft. We also achieved better-than-expected returns from our cargo and passenger airlines, which found innovative ways to serve our customers and our nation. Our revenues increased by 13% to $378 million and adjusted earnings minus warrant and other effects were $0.47, up $0.20 or 74% from a year ago. On a similar basis, our adjusted EBITDA increased 20% to $126 million in the second quarter and 14% to $250 million for the first half.

In this economic climate, those results are remarkable, but even more impressive is the fact that we sharply expanded our leading role in freighter aircraft dry leasing during the quarter. The order from Amazon for 12 more 767s that we announced in June will extend our leadership position and ensures an expanding stream of cash flow from those leases through 2021 and beyond. 11 of the 12 leases will be delivered next year. One was delivered in June. Even so, our 767 dry lease schedule for 2020 has grown from what we projected in May. We now plan to execute 12 767-300 freighter leases this year, up from our prior guidance of 8 to 10. We also expect to release at least three 767-200s this year, including 2 in the second half.

Of course, we are not immune to the pandemic. As we told you in May, we asked for $75 million in grant funds for Omni and ATI under the airline provisions of the CARES Act. We were granted that amount to offset reductions in our ongoing passenger operations, including combi flying for the Department of Defense and also flying for certain commercial passenger customers. Those reductions did occur and are continuing. We recognized a bit less than $10 million of CARES support in the second quarter pre-tax GAAP earnings, and we’ll recognize the remaining CARES proceeds in GAAP quarterly earnings through the second quarter of 2021. We are excluding those amounts from our adjusted results.

In addition to the effect on our airlines, our aircraft maintenance business is also down due to the pandemic as some of its external customers have parked the aircraft we were servicing. Matching our second half outlook for airline and other businesses, with CAM’s leasing growth, we now expect our adjusted EBITDA for 2020 to be at least $470 million, up $18 million from our 2019 total of $452 million.

Quint is ready to fill you in on the details of our consolidated and operating results. I’ll close with more comments on our second half outlook, including why and how our business model helps us to weather and even grow during economic storms like the ones we are facing today. Quint?

Quint TurnerChief Financial Officer

Thanks Rich, and thanks to all of you on the call for joining us this morning. As Rich said, our second quarter results were very good on both our top and adjusted bottom line. We’re proud of our high-quality service reputation, both for our superior everyday performance and particularly for our ability to deliver in tough times.

On a consolidated basis, second quarter revenues rose 13% or $43 million from the prior year to $378 million. The increase stems primarily from more leased aircraft in service and expanded airline operations versus a year ago. 72% of our first half revenues came from our three largest customers. The Department of Defense represented 32%, Amazon 29% and DHL 11% of the total.

On a GAAP basis, we had a second quarter loss from continuing operations of $105 million or $1.78 per share basic. The 22% increase in ATSG’s share price during the quarter plus $7 million in additional warrants awarded to Amazon in June in…

Transportation Services Jonathan Cartu

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