- Reported Net Income of $60.0 million, $2.32 per Share
- Reported Results Reflect Gain on Warrant Accounting
- Reported and Adjusted Results Impacted by Tariffs and Trade Tensions, Labor-Related Service Disruptions
- Adjusted EBITDA of $95.6 Million
- Adjusted Net Income of $9.5 million, $0.37 per Share
- Updating Full-Year Outlook
PURCHASE, N.Y., Oct. 30, 2019 (GLOBE NEWSWIRE) -- Atlas Air Worldwide Holdings, Inc. (Nasdaq: AAWW) today announced third-quarter 2019 income from continuing operations, net of taxes, of $60.0 million, or $2.32 per diluted share, compared with reported income of $71.1 million, or $0.84 per diluted share, in the third quarter of 2018.
Reported results in the third quarter of 2019 included an unrealized gain on outstanding warrants of $83.2 million, partially offset by a special charge, net, of $18.9 million, compared with an unrealized gain on outstanding warrants of $46.1 million in the year-ago period.
On an adjusted basis, EBITDA totaled $95.6 million in the third quarter this year compared with $123.9 million in the third quarter of 2018. Adjusted income from continuing operations, net of taxes, in the third quarter of 2019 totaled $9.5 million, or $0.37 per diluted share, compared with $43.8 million, or $1.54 per diluted share, in the year-ago quarter.
“Our third-quarter performance was affected by the uncertain global macroenvironment, driven by ongoing tariff and trade tensions,” said Chairman and Chief Executive Officer William J. Flynn. “In addition to lower yields and volumes than we anticipated, labor-related service disruptions had a significant impact on our performance during the third quarter.
“Looking to the full year, we expect revenue of about $2.75 billion, adjusted EBITDA of approximately $500 million, and adjusted net income of approximately 60-65% of our 2018 adjusted net income.*
“We expect to benefit from peak-season volumes and yields, including the seasonal flying we do for express and e-commerce customers. In addition, our outlook anticipates increased passenger flying for the military and lower maintenance expense compared with the fourth quarter of 2018, as well as from a refund of aircraft rent paid in previous years.”
Mr. Flynn continued: “We have recently received favorable arbitration rulings that confirm the contractual process to negotiate a new agreement for our pilots. We value the contributions of our pilots, and we look forward to reaching a competitive contract that recognizes their efforts supporting our customers and our company.”
He concluded: “Airfreight is a long-term growth industry. Despite current macroeconomic issues, the global middle class continues to expand and supply chains continue to grow and develop to meet demand. And as consumption increases and supply chains evolve, airfreight is vital in transporting the goods and materials required by consumers safely, reliably, and efficiently. With the scale and scope of our operations, and our strategic focus on express, e-commerce and faster-growing markets, we are positioned well to serve the demand for airfreight today and in the future.”
President and Chief Operating Officer, John W. Dietrich added: “We have the right platform to serve our customers and future airfreight demand. We have a strong core of long-term customers, and we play a key role in their operating networks.
“We are also taking steps to navigate through the current headwinds. We continually assess the market to best balance our capacity with the demand for our aircraft and services. We are adjusting our business to adapt to the changing market environment with a focus on reducing costs, enhancing productivity, improving profitability, and generating cash.
“Not only will these actions benefit Atlas in the near term, they will also contribute to the long-term success of the company.”
Third-Quarter Results
Revenue in the third-quarter of 2019 was relatively in line with the third quarter of 2018. Higher volumes during the period reflected increases in ACMI and Charter flying.
ACMI segment revenue increased slightly during the period reflecting higher levels of flying, partially offset by a decrease in the average rate per block hour due to the growth of smaller-gauge 767 and 737 CMI flying. Block-hour growth was primarily driven by incremental CMI flying, partially offset by a decrease in ACMI flying due to the impact of tariffs and global trade tensions. In addition, ACMI segment revenue was impacted by the two-month redeployment of two 747-8F aircraft to the Charter segment prior to their subsequent placement with an ACMI customer that needed to obtain a required regulatory approval, as well as labor-related service disruptions.
ACMI segment contribution decreased during the quarter as increased levels of flying were more than offset by the impact of tariffs and global trade tensions on customer demand; labor-related service disruptions; additional heavy maintenance expense; increased amortization of deferred maintenance costs; and the two-month redeployment of two 747-8F aircraft to the Charter segment. In addition, segment contribution was impacted by start-up costs for customer-growth initiatives and higher crew costs, including enhanced wages and work rules resulting from our interim agreement with pilots at Southern Air.
Charter segment revenue increased during the period reflecting higher levels of flying, partially offset by a decrease in the average rate per block hour due to the impact of tariffs and global trade tensions on commercial cargo yields (excluding fuel). Block-hour volume growth primarily reflected increased passenger demand from the military and the two-month redeployment of two 747-8F aircraft from the ACMI segment. These drivers were partially offset by lower cargo demand from commercial customers as well as labor-related service disruptions.
Lower Charter segment contribution was primarily driven by a decrease in commercial cargo yields related to the impact of tariffs and global trade tensions and labor-related service disruptions. These items were partially offset by earnings from the two-month deployment of two 747-8F aircraft from the ACMI segment; an increase in military passenger flying; and lower heavy maintenance expense.
In Dry Leasing, lower segment revenue and contribution during the quarter primarily reflected the scheduled return of a 777-200 freighter, partially offset by the placement of additional aircraft.
In the third quarter of 2019, we incurred a special charge primarily due to an impairment loss for four aircraft engines to be disposed of and the permanent parking of two 737-400 passenger aircraft used for training purposes.
Higher unallocated income and expenses, net, during the quarter primarily reflected fleet growth initiatives and increased amortization of a customer incentive asset, partially offset by a ratification bonus in 2018 related to the interim agreement with the Southern Air pilots.
Reported earnings in the third quarter of 2019 also included an effective income tax benefit rate of 16.0%, due mainly to nontaxable changes in the value of outstanding warrants. On an adjusted basis, our results reflected an effective income tax expense rate of 5.7%.
Nine-Month Results
Reported income from continuing operations, net of taxes, for the nine months ended September 30, 2019, totaled $117.1 million, or $1.34 per diluted share, which included an unrealized gain on financial instruments of $78.9 million as well as $59.8 million of tax benefits related to the favorable completion of an IRS examination of our 2015 income tax return. Results for the first nine months compared with income from continuing operations of $59.6 million, or $2.27 per diluted share, which included an unrealized loss on financial instruments of $11.7 million, for the nine months ended September 30, 2018.
On an adjusted basis, EBITDA totaled $300.1 million in the first nine months of 2019 compared with $354.9 million in the first nine months of 2018. For the nine months ended September 30, 2019, adjusted income from continuing operations, net of taxes, totaled $41.4 million, or $1.54 per diluted share, compared with $117.3 million, or $4.17 per diluted share, in first nine months of 2018.
Cash and Short-Term Investments
At September 30, 2019, our cash and cash equivalents, short-term investments and restricted cash totaled $82.8 million, compared with $248.4 million at December 31, 2018.
The change in position resulted from cash used for investing and financing activities, partially offset by cash provided by operating activities.
Net cash used for investing activities during the first nine months of 2019 primarily related to capital expenditures and payments for flight equipment and modifications, including the acquisition of 747-400 passenger aircraft, 767-300 aircraft and related freighter conversion costs, spare engines and GEnx engine performance upgrade kits.
Net cash used for financing activities during the period primarily reflected payments on debt obligations.
2019 Outlook*
Based on global economic conditions and our current expectations, we anticipate full-year 2019 revenue of approximately $2.75 billion; adjusted EBITDA of approximately $500 million; and adjusted net income, including a benefit related to an expected refund of aircraft rent paid in previous years, to be about 60-65% of our 2018 adjusted net income of $204.3 million.*
We expect to fly approximately 325,000 block hours this year, with about 75% of the hours in ACMI and the balance in Charter.
Aircraft maintenance expense in 2019 is expected to total approximately $380 million, mainly reflecting an increase in daily line maintenance due to the growth in block hours. Depreciation and amortization is expected to total about $260 million. In addition, core capital expenditures, which exclude aircraft and engine purchases, are projected to total approximately $135 to $145 million, mainly for parts and components for our fleet.
We also expect our full-year 2019 adjusted effective income tax rate will be approximately 12% due to proactive tax planning to maximize income tax benefits.
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.*
Conference Call
Management will host a conference call to discuss Atlas Air Worldwide’s third-quarter 2019 financial and operating results at 11:00 a.m. Eastern Time on Wednesday, October 30, 2019.
Interested parties may listen to the call live at Atlas Air Worldwide’s Investor site or at https://edge.media-server.com/mmc/p/b97icjpn.
For those unable to listen to the live call, a replay will be archived on the Investor site following the call. A replay will also be available through November 7 by dialing (855) 859-2056 (U.S. Toll Free) or (404) 537-3406 (from outside the U.S.) and using Access Code 2347678#.
About Non-GAAP Financial Measures
To supplement our financial statements presented in accordance with U.S. GAAP, we present certain non-GAAP financial measures to assist in the evaluation of our business performance. These non-GAAP measures include Adjusted EBITDA; Adjusted income from continuing operations, net of taxes; Adjusted Diluted EPS from continuing operations, net of taxes; Adjusted effective tax rate; and Free Cash Flow, which exclude certain noncash income and expenses, and items impacting year-over-year comparisons of our results. These non-GAAP measures may not be comparable to similarly titled measures used by other companies and should not be considered in isolation or as a substitute for Income (loss) from continuing operations, net of taxes; Diluted EPS from continuing operations, net of taxes; Effective tax rate; and Net Cash Provided by Operating Activities, which are the most directly comparable measures of performance prepared in accordance with U.S. GAAP. Effective during the three months ended September 30, 2019, we changed our method of calculating Adjusted EBITDA to include Other Non-operating expenses (income) to enhance the usefulness for investors and analysts, and the comparability of the calculation to that of other companies. Prior period amounts have been adjusted for comparability.
Our management uses these non-GAAP financial measures in assessing the performance of the company’s ongoing operations and in planning and forecasting future periods. We believe that these adjusted measures, when considered together with the corresponding U.S. GAAP financial measures and the reconciliations to those measures, provide meaningful supplemental information to assist investors and analysts in understanding our financial results and assessing our prospects for future performance. For example:
- Adjusted EBITDA; Adjusted income from continuing operations, net of taxes; and Adjusted Diluted EPS from continuing operations, net of taxes, provide a more comparable basis to analyze operating results and earnings and are measures commonly used by shareholders to measure our performance. In addition, management’s incentive compensation is determined, in part, by using Adjusted EBITDA and Adjusted income from continuing operations, net of taxes.
- Adjusted effective tax rate provides improved insight into the tax effects of our ongoing business operations.
- Free Cash Flow helps investors assess our ability, over the long term, to create value for our shareholders as it represents cash available to execute our capital allocation strategy.
*We provide guidance on an adjusted basis and are unable to provide forward-looking guidance on a U.S. GAAP basis or a reconciliation to the most directly comparable U.S. GAAP measures because we are unable to predict with reasonable certainty the ultimate outcome of certain significant items. The principal item is the impact on our results of our outstanding warrants, which are highly dependent on the change in our stock price during the period reported. These items are uncertain, depend on various factors, and could have a material impact on our U.S. GAAP results.