• Significant Revenue and Volume Growth
• Warrant Accounting Resulted in Reported Loss from Continuing Operations of $24.2 Million
• Excluding Warrant Accounting, Adjusted Income from Continuing Operations Was $29.7 Million After $1.7 Million Impact Related to Hurricanes
• 10 Aircraft Now Placed with Amazon
• Anticipating Strong Fourth Quarter; Slight Adjustment to Full-Year Outlook
Tuesday, November 7, 2017 -- Atlas Air Worldwide Holdings, Inc. (Nasdaq: AAWW) today announced a loss from continuing operations, net of taxes, of $24.2 million, or $0.96 per diluted share, including an unrealized loss on warrants of $44.8 million, for the three months ended September 30, 2017. Results compared with a loss from continuing operations, net of taxes, of $7.5 million, or $0.30 per diluted share, for the three months ended September 30, 2016, which was primarily due to the tax impact of nondeductible expenses.
On an adjusted basis, income from continuing operations, net of taxes, in the third quarter of 2017 totaled $29.7 million, or $1.08 per diluted share, which included a negative impact of $1.7 million, or $0.06 per diluted share, related to hurricanes. Results for the period compared with adjusted income of $27.4 million, or $1.09 per diluted share, in the year-ago quarter.
“We are encouraged by our performance in the third quarter, with 20% increases in both revenue and block hours, and higher direct contribution in all of our segments,” said President and Chief Executive Officer William J. Flynn. “Reflecting the strong demand for our services, yields rose and the utilization of our aircraft increased.
“We also placed and began operating our seventh 767-300 aircraft for Amazon in August, and introduced aircraft eight, nine and 10 in October. We remain on track to ramp up to a full 20 aircraft for Amazon by the end of 2018.
“In addition, we commenced flying for two new customers during the quarter - DHL Global Forwarding and Hong Kong Air Cargo, and we started operating our second 747-400 freighter for Nippon Cargo Airlines.
“While demand, volumes, yields and utilization increased during the third quarter, some of that performance was offset by higher maintenance expenses, labor-related operational disruptions and Hurricanes Irma and Harvey.”
Mr. Flynn added: “We were pleased to provide support and assistance for communities affected by the recent hurricanes. In September, we provided relief to affected pilots, other employees, and their families in the Miami and Houston areas as well as charitable donations for local recovery efforts. In October, we donated to the relief efforts in Puerto Rico following Hurricane Maria, and we partnered with JetBlue to deliver 117 tonnes of humanitarian aid to the island on our aircraft. We also operated multiple hurricane-relief charters on behalf of Atlas Air and our customers, with the speed that only airfreight can provide.
“We are looking forward to a strong fourth quarter, and anticipate solid peak-season yields and volumes. Reflecting our year-to-date results and our fourth-quarter expectations, we anticipate that our full-year 2017 adjusted income from continuing operations, net of taxes, will grow by a high-single-digit to low-double-digit percentage compared with our 2016 adjusted income of $114.3 million.”
Mr. Flynn concluded: “The future for Atlas and for airfreight is bright. Growth in Asia and an expansion of the global middle class are transforming the global economy. Increased disposable income will support a strong future for global trade and the consumption of goods. And our strategic focus on express and e-commerce service and the faster-growing Asian markets positions us for further business growth as we carry through the balance of 2017, into 2018 and beyond.”
ACMI segment contribution in the third quarter of 2017 was slightly higher compared with the prior-year period, as an increase in flying was largely offset by higher maintenance costs and labor-related operational disruptions. Segment revenue growth benefited from an increase in block-hour volumes as well as higher aircraft utilization.
Higher Charter segment contribution during the period was primarily driven by an increase in commercial yields, partially offset by higher maintenance costs, the redeployment of a 747-8F aircraft to the ACMI segment, hurricane-related impacts and labor-related operational disruptions. Higher average rates during the quarter primarily reflected the impact of Charter capacity we purchased from our ACMI customers on flights that had no associated Charter block hours, higher fuel prices and higher commercial yields.
In Dry Leasing, higher segment contribution primarily reflected a reduction in interest expense due to the scheduled repayment of debt related to dry leased 777 aircraft and the placement of 767-300 converted aircraft.
Reported earnings in the third quarter also included an effective income tax expense rate of 72.7%, due mainly to nontaxable changes in the value of outstanding warrants. On an adjusted basis, our results reflected an effective income tax rate of 24.3%.
For the nine months ended September 30, 2017, our continuing operations generated income of $14.9 million, or $0.58 per diluted share, which included the impact of an unrealized loss on financial instruments of $36.2 million related to outstanding warrants. For the nine months ended September 30, 2016, our income from continuing operations totaled $13.9 million, or a loss of $0.49 per diluted share, after the impact of warrant accounting and transaction-related expenses.
On an adjusted basis, income from continuing operations in the first nine months of 2017 totaled $67.1 million, or $2.48 per diluted share, compared with $55.3 million, or $2.20 per diluted share, in the first nine months of 2016.
Cash and Short-Term Investments
At September 30, 2017, our cash, cash equivalents, short-term investments and restricted cash totaled $187.0 million, compared with $142.6 million at December 31, 2016.
The change in position resulted from cash provided by operating and financing activities, partially offset by cash used for investing activities.
Net cash provided by financing activities during the first nine months of 2017 primarily reflected proceeds from our issuance of convertible notes and our financings of 767-300 aircraft, partially offset by payments on debt obligations. In October, we completed the financings of three additional 767-300 aircraft, which generated cash of $72.6 million.
Net cash used for investing activities during the first nine months primarily related to capital expenditures and payments for flight equipment and modifications, including the acquisition of 767-300 aircraft to be converted to freighter configuration, spare engines and GEnx engine performance upgrade kits.
In September 2017, the company requested the U.S. District Court for the District of Columbia to issue a preliminary injunction to require the International Brotherhood of Teamsters to meet its obligations under the Railway Labor Act and stop its illegal, intentional work slowdowns and service interruptions, which are intended to gain leverage in pilot contract negotiations with the company.
The hearing was completed in early November and a ruling on the request for a preliminary injunction is expected later this month.
Looking to the fourth quarter and full year, we anticipate increased peak-season yields and volumes, including our additional seasonal flying for express and e-commerce operators.
Consistent with our year-to-date performance and our fourth-quarter expectations, we anticipate that our full-year 2017 adjusted income from continuing operations, net of taxes, will grow by a high-single-digit to low-double-digit percentage compared with our 2016 adjusted income of $114.3 million.
For the full year, we expect total block hours to increase approximately 20% compared with 2016, with about 75% of our hours in ACMI and the balance in Charter.
Aircraft maintenance expense in 2017 should total approximately $275 million, and depreciation and amortization is expected to total approximately $165 million. In addition, core capital expenditures, which exclude aircraft and engine purchases, are expected to total approximately $75 to $80 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.