- Ongoing Market Strength, Customer Demand, Core Business Development Drove Record Volumes
- Reported Results Reflect Impact of Warrant Accounting
- Adjusted Income and Adjusted EBITDA Increased Sharply
- 2018 Adjusted Earnings Now Expected to Grow Near or Above 50%*
Atlas Air Worldwide Holdings, Inc. (Nasdaq: AAWW) today announced strong third-quarter earnings growth and raised its outlook for full-year 2018, driven by ongoing market strength, customer demand and business development.
“We continue to leverage the scale and scope of our enterprise and our leadership in global aviation outsourcing,” said President and Chief Executive Officer William J. Flynn.
“We are in a good place to deliver quality results today and in the future. We have the aircraft and provide the services that customers want. We are focused on the right markets. And we are executing on strategic initiatives to grow and diversify our fleet, expand our customer base and enhance our business mix.
“Secular trends are driving opportunities and growth in airfreight. And our focus is on express, e-commerce and fast-growing regions where efficient, time-definite, freighter networks are essential to meet the growing demands of businesses and consumers.
“Looking to the full year, we continue to expect our revenue to exceed $2.6 billion. We project adjusted EBITDA to increase to more than $525 million. And we anticipate our full-year adjusted net income to grow near or above 50% compared with 2017.”
Mr. Flynn continued: “Our full-year outlook reflects our expectations for another great fourth quarter. We see solid peak-season yields and volumes, including the additional seasonal flying we do for express and e-commerce operators. And we anticipate record fourth-quarter block hours, revenue, adjusted EBITDA and adjusted net income.
“The fourth quarter will also benefit from our second 747-400 freighter for Asiana Cargo, which began flying in September, and our first 747-400 freighter for SF Express, China’s leading express operator, which began service in October. In addition, we expect to add two more 767-300 converted freighters for Amazon before Thanksgiving, which will bring us to 20 aircraft in line with the schedule we announced in May 2016.”
He concluded: “While tariffs and trade are important topics, neither we nor our customers, with whom we are in close contact, have seen a material impact on airfreight demand. Airfreight tonnage continues to grow from record levels, and airfreight demand is growing in line with its longer-term rate of about 4% per year, with express and e-commerce growing much more than that.”
Third-Quarter Results
Volumes in the third quarter of 2018 increased 14% to a record 73,672 block hours, with revenue growing 23% to $656.6 million.
Reported income from continuing operations, net of taxes, totaled $71.1 million, or $0.84 per diluted share, during the period compared with a reported loss of $24.2 million, or $0.96 per diluted share, in the third quarter of 2017. Reported results in the third quarter of 2018 included an unrealized gain on outstanding warrants of $46.1 million compared with an unrealized loss on outstanding warrants of $44.8 million in the year-ago period.
On an adjusted basis, income from continuing operations, net of taxes, in the third quarter of 2018 increased $14.1 million to $43.8 million, or $1.54 per diluted share, from $29.7 million, or $1.08 per diluted share, in the year-ago quarter. Adjusted EBITDA increased $25.3 million over the year-ago period to $124.8 million.
ACMI segment contribution in the third quarter of 2018 increased slightly compared with the prior-year period, primarily due to a significant increase in block-hour volumes partially offset by the impact of unscheduled maintenance; higher crew costs, including enhanced wages and work rules resulting from an interim labor agreement with our Southern Air pilots; and the redeployment of 747-400 VIP-configured passenger aircraft to Charter after acquisition from a former CMI customer. Block hours grew 13% during the period, reflecting increased 767 flying for Amazon and the start-up of 747-400 flying for several new customers. Revenue per block hour during the quarter was relatively in line with the third quarter of 2017, primarily due to a mix effect reflecting an increase in widebody 747-400F ACMI flying that was offset by an increase in smaller-gauge 767 CMI flying.
Higher Charter segment contribution during the period was primarily driven by an increase in military and commercial cargo demand and higher yields excluding fuel, partially offset by an increase in heavy maintenance. Higher average block-hour rates during the quarter primarily reflected higher fuel prices and higher yields excluding fuel.
In Dry Leasing, higher segment contribution primarily reflected the placement of additional 767-300 converted freighter aircraft throughout the second half of 2017 and first three quarters of 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 a ratification bonus related to an interim agreement to enhance the terms and conditions of employment of our Southern Air, Inc. pilots; fleet growth initiatives; amortization of a customer incentive asset; and an increase in unallocated interest expense.
Reported earnings in the third quarter of 2018 also included an effective income tax rate of 0.0%, due mainly to nondeductible or nontaxable changes in the value of outstanding warrants as well as a deferred income tax benefit of approximately $8.7 million 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 0.0%.
Nine-Month Results
Reported income from continuing operations, net of taxes, for the nine months ended September 30, 2018, totaled $59.6 million, or $2.27 per diluted share, which included an unrealized loss on financial instruments of $11.7 million related to outstanding warrants and a special charge of $9.4 million related to engines held for sale. Results for the first nine months compared with income from continuing operations of $14.9 million, or $0.58 per diluted share, which included an unrealized loss on financial instruments of $36.2 million, for the nine months ended September 30, 2017.
On an adjusted basis, income from continuing operations, net of taxes, in the first nine months of 2018 totaled $117.3 million, or $4.17 per diluted share, compared with $67.1 million, or $2.48 per diluted share, in the first nine months of 2017. Adjusted EBITDA in the first nine months of 2018 increased $78.2 million to $344.1 million.
Cash and Short-Term Investments
At September 30, 2018, our cash and cash equivalents, short-term investments and restricted cash totaled $244.7 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 the first nine months of 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 the period primarily reflected proceeds from our financings of 777-200 and 767-300 aircraft, partially offset by payments on debt obligations.
Enhanced 2018 Outlook
Consistent with our strong year-to-date performance and our fourth-quarter expectations, we expect our full-year 2018 revenue to exceed $2.6 billion; our adjusted EBITDA to increase to more than $525 million; and our adjusted net income to increase near or above 50% compared with 2017 adjusted net income of $133.7 million.
We see volumes for the year rising approximately 17% to around 297,000 block hours, with about 75% of the hours in ACMI and the balance in Charter.
Aircraft maintenance expense in 2018 is expected to total approximately $335 million, mainly reflecting an increase in daily line maintenance due to the growth in block hours. Depreciation and amortization is expected to total approximately $215 million. In addition, core capital expenditures, which exclude aircraft and engine purchases, are expected to total approximately $105 to $115 million, mainly for parts and components for our fleet.
We also expect our full-year 2018 adjusted effective income tax rate to be approximately 15%.
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.*