Atlas Air Worldwide Reports Record Fourth-Quarter and Full-Year Results, Outlook for Continued Growth in 2019
- 4Q Reported Net Income Up 1% to $211.0 Million, 2018 Up 21% to $270.6 Million
- Reported Results Reflect Impact of Warrant Accounting
- 4Q Adjusted Net Income Rose 31% to $87.0 Million, 2018 Grew 53% to $204.3 Million
- Record Volumes and Earnings Expected in 2019
Atlas Air Worldwide Holdings, Inc. (Nasdaq: AAWW) today announced record fourth-quarter and full-year volumes, revenue and earnings in 2018, and an outlook for continued growth in 2019.
“2018 was another great year for Atlas, with substantial growth in the scale, diversity and profitability of our business,” said President and Chief Executive Officer William J. Flynn.
“Going forward, we are excited about Atlas’ future and the future of airfreight. We expect record Atlas volumes and earnings in 2019 driven by our multiyear initiatives, which enable us to serve a greater range of customers and provide a solid platform for future growth initiatives.
“Our focus is on express and e-commerce, and fast-growing markets in Asia and elsewhere, such as South America, where we had the strongest year in the company’s history. As airfreight tonnage continues to grow, further globalization will require time-definite air networks to facilitate the flow of goods.”
He added: “We are well-positioned to capitalize on the scale and scope of our domestic and worldwide operations, to drive record volume, revenue, adjusted EBITDA and adjusted net income this year, and to further reduce our net leverage ratio.*
“We expect to benefit from a full-year of flying by the aircraft we added in 2018 for customers such as Asiana, DHL Express, Inditex and SF Express. We will see our first year of flying twenty 767-300s for Amazon. We look forward to operating three incremental 747-400 freighters for Nippon Cargo Airlines, which will increase our near-term fleet to 115 aircraft. And we anticipate that the flying we do for the military will be higher than the flying we did in 2018.
“As a result of the momentum that we see, we anticipate that our adjusted net income in 2019 will grow by a mid- to upper-single-digit percentage this year.”*
Mr. Flynn continued: “These opportunities build on the growth in our business mix, customer base, fleet and operational capabilities.
“In addition to delivering record results in 2018, we added 16 aircraft to our operating fleet in response to customer demand, with more than 100 planes for the first time. We ended the year with 112 aircraft across five fleet types that are well-suited to our growing domestic and regional cargo and passenger operations, as well as our long-haul, international operations.
“We also ramped up for Amazon as scheduled, which included successfully managing multiple station openings throughout the U.S. We implemented continuous improvement initiatives and tax planning that enhanced our bottom line. We also enhanced our balance sheet by lowering our net leverage ratio.
“Thanks to our strong and experienced team, we executed our peak-season operations extremely well. Overlapping the end of peak, we also operated 32 flights during the college football bowl season for 15 universities.”
Fourth-Quarter Results
Volumes in the fourth quarter of 2018 increased 17% to 83,437 block hours, with revenue growing 22% to a record $765.0 million.
Reported income from continuing operations, net of taxes, during the period increased 1% to $211.0 million, or $2.73 per diluted share, compared with $209.5 million, or $6.71 per diluted share, in the fourth quarter of 2017. Reported results in the latest quarter included an unrealized gain on outstanding warrants of $134.8 million compared with a $130.0 million benefit related to the revaluation of deferred tax liabilities as a result of the U.S. Tax Cuts and Jobs Act and an unrealized gain on outstanding warrants of $23.7 million in the year-ago period.
On an adjusted basis, income from continuing operations, net of taxes, in the fourth quarter of 2018 increased 31% to a record $87.0 million, or $3.12 per diluted share, from adjusted income of $66.6 million, or $2.43 per diluted share, in the year-ago quarter. Adjusted EBITDA increased 21% over the year-ago period to $196.5 million.
ACMI segment contribution in the fourth quarter of 2018 increased slightly compared with the prior-year period, primarily due to increases in 747-400F revenue per block hour and volumes. These were partially offset by higher heavy maintenance costs, including an increase in the proportion of heavy maintenance costs attributed to the segment due to our volume-based allocation methodology and the higher levels of ACMI flying during the December ACMI peak flying period; amortization of deferred maintenance costs; and higher crew costs, including enhanced wages and work rules resulting from an interim labor agreement with our Southern Air pilots. Block hours grew 19% during the period, reflecting the start-up of 747-400 flying for several new customers and increased 767 flying for Amazon. Overall revenue per block hour during the quarter was relatively in line with the fourth quarter of 2017, primarily due to a mix effect reflecting the increase in smaller-gauge 767 CMI flying.
Higher Charter segment contribution during the period was primarily driven by increases in military and commercial cargo yields excluding fuel and higher military cargo demand, partially offset by higher heavy maintenance costs.
Both ACMI and Charter segment contribution during the quarter reflected the redeployment of two 747-400 VIP-configured passenger aircraft from ACMI to Charter following our acquisition of these aircraft from a former CMI customer. We have used the aircraft to grow our VIP charter business and earnings.
In Dry Leasing, higher segment contribution primarily reflected the placement of eight additional 767-300 converted aircraft throughout 2018, as well as the placement of one 777-200 freighter in February 2018 and a second one in July 2018.
Higher unallocated income and expenses, net during the quarter primarily reflected fleet growth initiatives; increases in unallocated interest expense and amortization of a customer incentive asset; and a ratification bonus related to an interim agreement with our Southern Air pilots.
Reported earnings in the fourth quarter of 2018 also included an effective income tax rate of 9.4%, due mainly to nondeductible or nontaxable changes in the value of outstanding warrants. On an adjusted basis, our results reflected an effective income tax rate of 20.5%.
Full-Year Results
Volumes in 2018 increased 17% to 296,264 block hours, with revenue growing 24% to a record $2.7 billion.
Reported income from continuing operations, net of taxes, for the twelve months ended December 31, 2018, increased 21% to $270.6 million, or $5.22 per diluted share, which included an unrealized gain on financial instruments of $123.1 million related to outstanding warrants. For the twelve months ended December 31, 2017, our reported income from continuing operations totaled $224.3 million, or $8.68 per diluted share, which included $130.0 million of benefit related to the revaluation of deferred tax liabilities as a result of the U.S. Tax Cuts and Jobs Act, partially offset by an unrealized loss on financial instruments of $12.5 million related to outstanding warrants.
On an adjusted basis, income from continuing operations, net of taxes, in 2018 increased 53% to a record $204.3 million, or $7.27 per diluted share, compared with $133.7 million, or $4.93 per diluted share, in 2017. Adjusted EBITDA in 2018 rose 26% to $540.6 million.
Reported earnings in 2018 also included an effective income tax rate of 12.5%, primarily due to nondeductible and nontaxable changes in the value of outstanding warrants as well as a deferred income tax benefit related to the renewal of our Titan dry-leasing subsidiary’s participation in an aircraft leasing incentive program in Singapore. On an adjusted basis, our results reflected an effective income tax rate of 15.2%.
Cash and Short-Term Investments
At December 31, 2018, our cash, cash equivalents, short-term investments and restricted cash totaled $248.4 million, compared with $305.5 million at December 31, 2017.
The change in position resulted from cash used for investing activities, partially offset by cash provided by operating and financing activities.
Net cash used for investing activities during 2018 primarily related to capital expenditures and payments for flight equipment and modifications, including the acquisition of 777-200 aircraft, 767-300 passenger aircraft and related freighter-conversion costs, spare engines and GEnx engine performance upgrade kits.
Net cash provided by financing activities during 2018 primarily reflected proceeds from our financings of 777-200 and 767-300 aircraft, partially offset by payments on debt obligations.
2019 Outlook*
We expect continued solid business and earnings growth in 2019.
In addition to the essential building blocks we have set in place, we will have a full year of flying by the aircraft we added to our fleet in 2018. We also see opportunities to grow with existing customers, such as the incremental flying we will begin to do for Nippon Cargo Airlines, and to add new ones.
Global economic activity and airfreight demand are expected to expand at a moderate pace, while airfreight tonnage continues to grow from record levels.
As a result, we expect to generate higher volumes, revenue, adjusted EBITDA and adjusted net income in 2019. We see volumes rising to around 340,000 block hours (with over 75% in ACMI and the balance in Charter), revenue of approximately $3.0 billion, and adjusted EBITDA of about $600 million.
We also anticipate that our adjusted net income will grow by a mid- to upper-single-digit percentage compared with 2018. We expect our full-year 2019 adjusted income tax rate to be approximately 20%.
Similar to historical patterns, we anticipate over three-quarters of our adjusted net income in 2019 occurring in the second half.
In addition, we expect to fly approximately 75,000 block hours (over 75% in ACMI) in the first quarter of 2019, with revenue of approximately $680 million, adjusted EBITDA of about $110 million, and adjusted net income similar to our adjusted net income of $23.8 million in the first quarter of 2018. Our first-quarter 2019 outlook includes revenue in our Dry Leasing segment from maintenance payments related to the scheduled return of a 777-200 cargo aircraft, which we expect to receive late in the quarter, partially offset by higher heavy maintenance expense compared with the year-ago first quarter.
Aircraft maintenance expense in 2019 is expected to total approximately $420 million. The increase from 2018 mainly reflects an increase in daily line maintenance driven by the growth of our fleet and the anticipated growth in our block hours this year. Similar to 2018, we expect line maintenance to comprise about two-thirds of our total maintenance expense for the year.
Depreciation and amortization is expected to total approximately $260 million. In addition, core capital expenditures, which exclude aircraft and engine purchases, are expected to total approximately $135 to $145 million, mainly for parts and components for our fleet.
We provide guidance on an adjusted basis because we are unable to predict, with reasonable certainty, the effects of outstanding warrants and other items that could be material to our reported results.*