Atlas Air Worldwide Holdings, Inc. (Nasdaq: AAWW) today announced adjusted net income attributable to common stockholders of $30.7 million, or $1.23 per diluted share, for the three months ended September 30, 2015, compared with $27.5 million, or $1.10 per diluted share, for the three months ended September 30, 2014.
On a reported basis, results reflected a net loss attributable to common stockholders of $12.8 million, or $0.51 per diluted share, in the third quarter of 2015 compared with net income attributable to common stockholders of $27.6 million, or $1.10 per diluted share, in the year-ago period. Reported results in the third quarter of 2015 were primarily due to a charge on the early extinguishment of debt following the refinancing of higher-cost debt with proceeds from lower-cost debt. In addition to reducing the company’s cost of debt, the refinancing delivers significant increases in cash flows, is immediately accretive to adjusted earnings per share, and unencumbers five of our 747-400F aircraft, which adds flexibility to our fleet.
Free cash flow of $82.5 million in the third quarter of 2015 compared favorably with $54.5 million in the third quarter of 2014.
“Both our third-quarter results and our outlook highlight the positive impact of the initiatives we have undertaken to enhance our business mix and our ability to leverage the scale and efficiencies in our operations,” said William J. Flynn, President and Chief Executive Officer.
“Earnings in ACMI during the quarter were complemented by a sharp improvement in Charter contribution and the underlying strength of our Dry Leasing business. Charter results were driven by an improvement in yields excluding fuel and higher aircraft utilization, both of which are a product of our diversified global network, quality of service, and capability to meet the needs of a wide variety of commercial customers.
“With a superior fleet and global network, we are prepared for a solid peak season and pick up in market yields as year-end airfreight demand and e-commerce growth unfold. We also anticipate a typical sequential increase in earnings in the fourth quarter. Consistent with our prior outlook, we expect adjusted fully diluted earnings per share of slightly over $1.50 in the period.”
Mr. Flynn added: “Reflecting our commitment to shareholder value, we acquired 1.7% of our outstanding common stock through our share repurchase program during the third quarter and have bought back more than 10% of our outstanding shares over the past three years. Our capital allocation strategy is dedicated to creating, enhancing and returning value to our shareholders, both through business growth and returns of capital.”
Adjusted earnings in the third quarter of 2015 excluded a loss of $1.77 per diluted share on the early extinguishment of debt and a gain on investments of $0.34 per diluted share, both in connection with the refinancing of higher-cost debt with lower-cost debt; a special charge of $0.20 per diluted share in connection with the early termination of high-rate operating leases for two engines; and net expenses of $0.12 per share related to other matters.
ACMI revenues and volumes during the third quarter benefited from an increase in the number of segment aircraft compared with the third quarter of 2014. Revenue growth during the quarter, however, was partially offset by a lower blended average rate per block hour reflecting the mix impact of increases in 747-400F and CMI flying. Lower segment contribution was primarily due to higher crew training costs associated with our fleet growth initiatives and higher maintenance expense. These were partially offset by a reduction in aircraft ownership costs following the refinancing of higher-cost debt related to several of our 747-400F aircraft.
In Charter, lower revenues were primarily driven by the impact of lower fuel prices partially offset by an improvement in yields excluding fuel. Lower volumes were primarily due to the redeployment of aircraft to ACMI service. Segment contribution benefited from the improvement in yields excluding fuel; higher aircraft utilization; a reduction in heavy maintenance expense; and a reduction in aircraft ownership costs following the refinancing of higher-cost debt related to our 747-400F aircraft.
Dry Leasing revenue and contribution reflected a reduction in the number of segment aircraft following the sale of a 737-800 passenger aircraft in the first quarter of 2015.
Reported results for the third quarter of 2015 included an effective income tax rate benefit of 49.3%, reflecting the favorable resolution of an IRS exam and our continued reinvestment of the net earnings of certain foreign subsidiaries outside of the U.S.
For the nine months ended September 30, 2015, adjusted net income attributable to common stockholders of $85.9 million, or $3.44 per diluted share, compared favorably with $54.6 million, or $2.17 per diluted share, for the nine months ended September 30, 2014.
On a reported basis, nine-month 2015 net income attributable to common stockholders totaled $44.9 million, or $1.80 per diluted share, compared with $65.1 million, or $2.59 per diluted share, in the first nine months of 2014.
Free cash flow totaled $231.3 million in the first nine months of 2015 compared with $150.6 million in the first nine months of 2014.
At September 30, 2015, our cash, cash equivalents, restricted cash and short-term investments totaled $389.6 million, compared with $330.7 million at December 31, 2014.
The change in position reflected net cash of $265.8 million provided by operating activities; net cash of $6.2 million used for investing activities; and net cash of $181.5 million used for financing activities, which included $334.5 million of debt payments.
Also during the third quarter, we repurchased 425,154 shares of our common stock for $20.0 million, or 1.7% of our outstanding common stock at June 30, 2015.
Future repurchases under our remaining $25.0 million authority may be made at our discretion, and the actual timing, form and amount will depend on company and market conditions.
During the third quarter of 2015, we used approximately $113 million of the net proceeds from our June 2015 issuance of $224.5 million of convertible senior notes at 2.25% to retire higher-rate Enhanced Equipment Trust Certificates (EETCs) related to five of our 747-400F aircraft. The EETCs had a weighted average cash coupon of 8.1%.
Subsequent to the close of the third quarter, we refinanced the loans for two of the original 747-8Fs delivered to us in 2011 and reduced the interest rate from 6.37% to 3.53%.
We are encouraged by our strong performance in the first nine months of 2015, expect significant growth in adjusted diluted earnings per share this year, and are confident about our business as we look to 2016.
We expect airfreight to grow at a reasonable rate in 2015 despite tougher year-over-year monthly industry data comparisons in recent months. We anticipate solid peak-season volumes and yields driven by end-of-the-year airfreight demand, supported by continued e-commerce growth. And we expect the demand we are seeing for our aircraft and services to continue next year.
As a result, we anticipate adjusted fully diluted earnings per share of slightly more than $1.50 in the fourth quarter, which excludes the cost of refinancing debt and noncash expenses and income.
For the full year, we continue to expect that block-hour volumes will increase approximately 10% compared with 2014, including the impact of the 747-8 freighter scheduled to be delivered to us this month. More than 70% of our total block hours should be in ACMI and the balance in Charter. Our outlook reflects our market leadership in ACMI, our strong presence in the global charter market, and military demand that has stabilized at higher levels compared with 2014.
In Dry Leasing, our portfolio is expected to include two 767 passenger aircraft being converted to freighter configuration. Following their conversion, which is expected to be completed during the fourth quarter of this year and the first quarter of 2016, the aircraft will be leased to DHL Express on a long-term basis. Similar to the dry leases, we expect to begin CMI flying of the two aircraft during the fourth quarter of 2015 and first quarter of 2016.
Given the flying levels that we anticipate, we continue to expect that aircraft maintenance expense in 2015 should total approximately $190 million. In addition, depreciation should be approximately $130 million. Core capital expenditures, excluding aircraft and engine purchases, are expected to total approximately $45 million, mainly for spare parts for our fleet. Expenditures for additional aircraft and engines, including our new 747-8F, should total approximately $225 million.
Mr. Flynn concluded: “We are looking forward to a strong finish to a strong year in 2015. We are confident about 2016. We are going into next year with a stronger fleet, stronger balance sheet, and a great portfolio of customers.”
Management will host a conference call to discuss Atlas Air Worldwide’s third-quarter 2015 financial and operating results at 11:00 a.m. Eastern Time on Thursday, November 5, 2015.
Interested parties are invited to listen to the call live over the Internet at www.atlasair.com (click on “Investor Information,” click on “Presentations” and on the link to the third-quarter call) or at the following Web address:
For those unable to listen to the live call, a replay will be available on the above Web sites following the call. A replay will also be available through November 12 by dialing (855) 859-2056 (domestic) and (404) 537-3406 (international) and using Access Code 63978999#.
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 EBITDAR, as adjusted; EBITDA, as adjusted; Direct Contribution; Adjusted Net Income Attributable to Common Stockholders; Adjusted Diluted EPS; and Free Cash Flow, which exclude certain items. 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 measures of performance prepared in accordance with U.S. GAAP.
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 provide meaningful information to assist investors and analysts in understanding our financial results and assessing our prospects for future performance.
Atlas Air Worldwide is a leading global provider of outsourced aircraft and aviation operating services. It is the parent company of Atlas Air, Inc. (Atlas) and Titan Aviation Holdings, Inc. (Titan), and is the majority shareholder of Polar Air Cargo Worldwide, Inc. (Polar). Through Atlas and Polar, Atlas Air Worldwide operates the world’s largest fleet of Boeing 747 freighter aircraft.
Atlas, Titan and Polar offer a range of outsourced aircraft and aviation operating services that include ACMI service – in which customers receive an aircraft, crew, maintenance and insurance on a long-term basis; CMI service, for customers that provide their own aircraft; express network and airport-to-airport cargo service; cargo and passenger charters; and dry leasing of aircraft and engines.
Atlas Air Worldwide’s press releases, SEC filings and other information can be accessed through the Company’s home page, www.atlasair.com.
This release contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 that reflect Atlas Air Worldwide’s current views with respect to certain current and future events and financial performance. Such forward-looking statements are and will be, as the case may be, subject to many risks, uncertainties and factors relating to the operations and business environments of Atlas Air Worldwide and its subsidiaries (collectively, the “companies”) that may cause the actual results of the companies to be materially different from any future results, express or implied, in such forward-looking statements.
Factors that could cause actual results to differ materially from these forward-looking statements include, but are not limited to, the following: the ability of the companies to operate pursuant to the terms of their financing facilities; the ability of the companies to obtain and maintain normal terms with vendors and service providers; the companies’ ability to maintain contracts that are critical to their operations; the ability of the companies to fund and execute their business plan; the ability of the companies to attract, motivate and/or retain key executives and associates; the ability of the companies to attract and retain customers; the continued availability of our wide-body aircraft; demand for cargo services in the markets in which the companies operate; economic conditions; the effects of any hostilities or act of war (in the Middle East or elsewhere) or any terrorist attack; labor costs and relations; financing costs; the cost and availability of war risk insurance; our ability to maintain adequate internal controls over financial reporting; aviation fuel costs; security-related costs; competitive pressures on pricing (especially from lower-cost competitors); volatility in the international currency markets; weather conditions; government legislation and regulation; consumer perceptions of the companies’ products and services; anticipated and future litigation; and other risks and uncertainties set forth from time to time in Atlas Air Worldwide’s reports to the United States Securities and Exchange Commission.
For additional information, we refer you to the risk factors set forth under the heading “Risk Factors” in the most recent Annual Report on Form 10-K and subsequent reports on Form 10-Q filed by Atlas Air Worldwide with the Securities and Exchange Commission. Other factors and assumptions not identified above may also affect the forward-looking statements, and these other factors and assumptions may also cause actual results to differ materially from those discussed.
Except as stated in this release, Atlas Air Worldwide is not providing guidance or estimates regarding its anticipated business and financial performance for 2015 or thereafter.
Atlas Air Worldwide assumes no obligation to update such statements contained in this release to reflect actual results, changes in assumptions or changes in other factors affecting such estimates other than as required by law.
* * *