Attached files
| file | filename |
|---|---|
| 8-K - 8-K - Air Transport Services Group, Inc. | a2017form8kcoverfeb14inves.htm |
The global leader in midsize wide-body
leasing and operating solutions
Joe Hete
President & CEO
Quint Turner
Chief Financial Officer
Stifel, Nicolaus & Co.
Transportation & Logistics Conference
February 14, 2017
Safe Harbor Statement
Except for historical information contained herein, the matters discussed in this presentation
contain forward-looking statements that involve risks and uncertainties. There are a number of
important factors that could cause Air Transport Services Group's ("ATSG's") actual results to
differ materially from those indicated by such forward-looking statements. These factors include,
but are not limited to, our operating airlines' ability to maintain on-time service and control costs;
ABX Air's ability to provide flight crews to meet its customers' requirements; the number and
timing of deployments and redeployments of our aircraft to customers; the cost and timing with
respect to which we are able to purchase and modify aircraft to a cargo configuration; the
successful implementation and operation of the new air network for Amazon; changes in market
demand for our assets and services, and other factors that are contained from time to time in
ATSG's filings with the U.S. Securities and Exchange Commission, including its Annual Report
on Form 10-K and Quarterly Reports on Form 10-Q. Readers should carefully review this
presentation and should not place undue reliance on ATSG's forward-looking statements. These
forward-looking statements were based on information, plans and estimates as of the date of this
presentation. ATSG undertakes no obligation to update any forward-looking statements to reflect
changes in underlying assumptions or factors, new information, future events or other changes.
2
World’s Only Comprehensive Turn-key Solution Provider
For customers seeking midsize freighter services, ATSG offers all elements of the
solution set, ranging from an entry-point ACMI lease to a dedicated dry-leased fleet with
flight crews, maintenance and logistical support from five strong operating companies.
Dry Leasing of 767-300s,
767-200s, 757-200s
Engine Leasing
Conversion Management
Engine PBH Services
Certification Support
Leasing ACMI-CMI Support Services
ACMI
CMI
Wet Leasing
Ad-Hoc Charter
Heavy & Line Maintenance
Component Services
Engineering Services
Boeing & Airbus Experience
P-to-F Conversions
3
Sort Operations
GSE Leasing, Service
MHE Service
2016 Accomplishments
Freighter fleet expands as five Boeing 767-300s entered service in 2016, with more due in 2017
based on current commitments. 80% of 767s in service at year-end are leased for terms averaging
4+ years.
Agreements with Amazon completed in March call for long-term placements of 20 leased and
operated 767 freighters, plus warrants for Amazon to acquire up to 19.9% of ATSG shares.
Diversified, growing revenue streams Revenues up 19% excluding reimbursements thru nine
months of 2016. DHL represented 35% of revenues; Amazon 24%, U.S. Military 13%.
Record projected Adjusted EBITDA for 2016 of $211 million, up 7%.
Logistics business grows through expanded ground support roles for major customers.
PEMCO acquired at year-end, expanding AMES’s MRO capabilities and capacity, and adding
conversion and MRO facilities in China, S. America and U.S. serving Boeing and Airbus airframes.
Improved shareholder value as stock price increased 58% in 2016, exceeding peers and major
market indices, backed by $63 million in share repurchases. Credit facility amendment added
$100M in capacity and more buyback flexibility.
4
10
47
7
10
41
7
17
30
220
24
1
Externally Leased 767 Fleet on Track to Double in 3 Years
5
YE 2014 YE 2015
CAM-Owned 767Fs
YE 2016
Focus on regional air networks driving demand for more of our midsize 767 freighters,
longer-term dry leases, and more CMI, maintenance and logistics support.
(13 with CMI) (15 with CMI)
(28 with CMI)
Dry leased ACMI/Charter Staging/Unassigned Undergoing cargo modification
767 Dry Leases
During 2016
Q1: DHL 1 – 767-300
Raya 1 – 767-200
Q2: Amazon 8 – 767-200
Amerijet 1 – 767-300
Q3: Amazon 3 – 767-200
Q4: Amazon 1 – 767-200
Amazon 2 – 767-300
DHL 1 – 767-300
July 2017E
(32 with CMI)
1
Target Growing Network Demand
E-commerce, distributed manufacturing trends creating demand for new express networks
Abundant ACMI and Dry Lease Opportunities
MIDDLE EAST
• Strong double-digit growth in 2015
• Aging network fleets due for replacement
• CAM completes two 767 dry leases to DHL-Mideast
ASIA
• Rapid e-commerce, distributed manufacturing growth
• Air express markets growing at similar pace
• Air networks operating narrow-body freighters will
require upgrades as payloads increase
AMERICAS
• Consistent DHL network growth
• Amazon’s rapid e-commerce growth
• Miami airport hub supports Latin America trade lanes
• 767 range/payload an ideal fit for north-south routes
EUROPE
• Investment in Sweden’s West Atlantic AB yields
additional 767 dry leases
• Opportunities with other carriers
6
767-300 Investments & Deployments
7
CAM-Owned 767-300Fs 2015 2016 7 / 2017E
In Service at Start 8 11 16
Complete Modification & Deploy 3 5 5
Deploying To DHL, CargoJet
Amazon,
DHL, Amerijet
Amazon
In Service at End 11 16 21
In/Awaiting Modification 2 7 7
Customer demand for additional 767-300 freighters in 2017 beyond the eight we will
lease to and operate for Amazon
• Five-year operating agreement signed
March 8, 2016, effective April 1
• Seven-year lease terms for 767-300s;
five-year terms for 767-200s
• Aircraft are CAM-leased, ABX Air/ ATI
operated, AMES maintained, LGSTX
supported
• Network based in centrally located
Wilmington Air Park, hub operated by
LGSTX
Trial network launched in September 2015 with support from five ATSG businesses leads to
contracts for 20 CAM-leased 767 freighters, crews and support services
ATSG to lease, operate & support 20 767s by mid-2017
February 2017 July 2017
767-300 767-200
Amazon Support
LEASING CMI SERVICES HUB & GATEWAY MAINTENANCE
8
9
Amazon to receive ATSG warrants for purchase of up to 19.9% of ATSG
common shares at $9.73 per share through March 2021
Warrant A Warrant B-1
7.7M shares
issued, vested
1.6M shares
to be issued and vest
March 2018
Warrant B-2
~0.5M shares (adjusts to 19.9%)
now expected to be issued and vest
September 2020 based on subsequent
share buybacks
5.1M shares
Pro-rata vesting as eight
767Fs are leased
through mid-2017
• Investment Agreement for warrants signed March 8, 2016
• ATSG shareholders overwhelmingly approved increase in authorized shares and other enabling measure at annual
meeting on May 12, 2016
• Amazon may appoint a Board observer, and, alternatively, upon acquiring 10% of ATSG shares, nominate one candidate
for election to ATSG’s Board
• Approximately 9.0 million ATSG warrants issued and vested through 12/31/2016
• Share repurchases will reduce final number of warrants required to true-up Amazon holdings to 19.9% in 2020
Amazon Pact Sealed With Investment Agreement
Dry leasing and airline fleet utilization, along with support services
backing, driving revenue and cash flow growth in 2016 and beyond
10
• 9 Mo. revenue gain driven by more
767 dry leases, Amazon support,
maintenance and logistics gains
• Adjusted Pre-tax Earnings excludes
non-cash pension expense, affiliate’s
debt issuance charge, lease
incentive, financial Instrument gain
o Includes $6.5 million in extra
expense in 3Q, stemming from
premium pilot pay and other
costs
• Adjusted EPS for 2016 excludes
$0.05 for lease incentive
amortization and warrant revaluation,
net of tax
• 4Q ABX pilot work stoppage
projected to have $7M negative
impact on 4Q and YE revenues,
Adj. Pre-tax and Adj. EBITDA.
~$0.07 impact on Adj. EPS.
$438
$547
$41
$48
$0.40 $0.39 $141
$155
2016 Nine Months Results & 2016 Outlook
Revenues Adj. Pre-Tax
Earnings*
(Cont. Oper.)
Adj. EPS*
(Cont. Oper.)
Adj. EBITDA*
(Cont. Oper.)
2015 2016 2015 2016 2015 2016 2015 2016
* Non-GAAP metrics. See table at end of this presentation for reconciliation to nearest GAAP results for
Adjusted Pretax Earnings and Adjusted EBITDA. See the following slide for Adjusted EPS reconciliation.
$M $M $M
$197
$211
FY2016
Adj. EBITDA
Guidance
(Cont. Oper.)
2015 2016E
$M
E
EPS Adjustments Reflect Warrant Valuation
11
Going forward, ATSG’s GAAP earnings will reflect:
• Incremental non-cash gain or loss in financial instruments each quarter, net of tax, based on effect of mark-to-market
changes in ATSG stock price on value of warrant liability.
• non-cash lease revenue reduction associated with the amortization of value for warrants
These changes will be excluded on a quarterly basis from Adjusted Pretax Earnings, Adjusted EPS, and Adjusted EBITDA
from continuing operations
2.2x
2.4x
1.9x
1.6x
2.1x
2012 2013 2014 2015 9/30/2016
Debt Obligations / Adjusted EBITDA*
44
49
53
55
58
Strong Capital Base to Support Fleet Growth
• Adjusted EBITDA is a non-GAAP metric. Debt Obligations, fleet totals are as of end of period.
See table at end of this presentation for reconciliation to nearest GAAP results.
12
Strong Adjusted EBITDA generation in 2016 backing expanded capacity under May
2016 credit facility amendments to maintain conservative balance sheet
757 & 767 Owned Freighters
Share Repurchases since May 2015
13
$-
$20
$40
$60
$80
$100
$120
2Q15 3Q15 4Q15 1Q16 2Q16 3Q16
Authorized Repurchases
Continuing at moderate pace following $50M Red Mountain repurchase in 3Q 2016
Highlights and Outlook
Strong growth trajectory Double-digit revenue growth from business with new express networks,
global network integrators and regional operators attracted to midsize freighter assets, and unique model that
offers short-term ACMI flexibility and long-term dry-leasing cost advantages backed by support services.
Attractive assets World’s largest fleet of 100% owned midsize converted Boeing freighters available
on a dedicated basis, with wide range of freighter network applications. Converted freighters offer decades of
reliable service with lower investment, backed by best-in-class maintenance and conversion capabilities.
Lease-driven sustained cash flow Business model emphasizes long-term returns from dry-
leasing freighter assets to leading network operators, enhanced by unique combinations of airline,
maintenance, logistics and network management services. Not a federal cash taxpayer until 2019 or later.
Strong balance sheet Debt leverage over last two years less than 2X Adjusted EBITDA, not
expected to exceed 2.5X in 2016; credit facility amended in May to provide access to more credit at attractive
rates to achieve growth objectives, return capital to shareholders.
Appetite for strategic growth through targeted, complementary acquisitions such as PEMCO to
extend footprint, add capabilities and add support capacity for current and prospective customers worldwide.
Delivering shareholder value Fleet investments and share repurchases will continue to generate
attractive returns, generating even greater ATSG value. Adjusted EBITDA for 2016 projected at $211M, up 7%
14
ATSG – a solid growth story with value appeal
Non-GAAP Reconciliation Statement
15
2012 2013 2014 2015 T T M 9/2016* 9 M o 2015 9 M o 2016
66,320$ (359)$ 51,776$ 62,563$ 54,534$ 42,063$ 34,034$
Impairment Charges - 52,585 - - - - -
Pension Settlement - - 6,700 - - - -
Non-service components retiree benefit costs 6,349 (780) 6,609
Debt issuance charge, non-consolidating aff iliate - - - - 1,229 - 1,229
Lease Incentive Amortization - - - - 2,366 - 2,366
Financial Instruments Loss (Gain) (1,879) (631) (1,096) (920) 2,870 (347) 3,443
64,441 51,595 57,380 61,643 67,348 40,936 47,681
Interest Income (136) (74) (92) (85) (119) (64) (98)
Interest Expense 14,383 14,249 13,937 11,232 10,873 8,588 8,229
Depreciation and amortization 84,477 91,749 108,254 125,443 133,901 91,147 99,605
163,165$ 157,519$ 179,479$ 198,233$ 212,003$ 140,607$ 155,417$
364,481$ 384,515$ 344,094$ 317,658$ 449,133$
2.23 2.44 1.92 1.60 2.12
Reconciliation Stmt. ($ in 000s except Ratios)
Debt Obligations/Adjusted E BIT DA Ratio*
GAAP P re-T ax E arnings (Loss) f rom Cont. Oper.
Adjusted E BIT DA from Cont. Oper.
Debt Obligations - end of period
Adjusted Pre-tax Earnings from Cont. Operations
Adjusted EBITDA from Continuing Operations, Debt Obligations/Adjusted EBITDA Ratio, and Adjusted Pre-Tax Earnings from Continuing Operations
are non-GAAP financial measures and should not be considered alternatives to net income or any other performance measure derived in accordance
with GAAP.
Adjusted EBITDA from Continuing Operations is defined as Earnings from Continuing Operations Before Income Taxes plus net interest expense,
depreciation and amortization expense, pension settlement costs, debt issuance charges from non-consolidating affiliates, and lease incentive
amortization. It excludes the net effect of financial instrument gains and losses, and beginning in 2016, excludes the net effect of non-service
components of retiree benefit costs.
Debt Obligations/Adjusted EBITDA Ratio is defined as Debt Obligations (Long-term Debt Obligations plus Current Portion of Debt Obligations at end
of period) divided by Adjusted EBITDA from Continuing Operations.
Adjusted Pre-Tax Earnings from Continuing Operations is defined as Earnings from Continuing Operations Before Income Taxes plus pension
settlement costs, debt issuance charges from non-consolidating affiliates, and lease incentive amortization. It excludes the net effect of financial
instrument gains and losses, and beginning in 2016, excludes the net effect of non-service components of retiree benefit costs.
Management uses Adjusted EBITDA from Continuing Operations, Debt Obligations/Adjusted EBITDA Ratio, and Adjusted Pre-Tax Earnings from
Continuing Operations to assess the performance of its operating results among periods. These measures should not be considered in isolation or as
a substitute for analysis of the Company's results as reported under GAAP, or as an alternative measure of liquidity.