Wednesday, August 2, 2017 — Atlas Air Worldwide Holdings, Inc. (Nasdaq: AAWW) today announced income from continuing operations, net of taxes, of $39.0 million, which included an unrealized gain on financial instruments of $13.8 million related to outstanding warrants, for the three months ended June 30, 2017. Results compared with income from continuing operations, net of taxes, of $20.9 million, which included an unrealized gain on financial instruments of $26.5 million related to outstanding warrants, for the three months ended June 30, 2016.
On an adjusted basis, income from continuing operations, net of taxes, in the second quarter of 2017 totaled $29.1 million compared with $20.2 million in the year-ago quarter.
Diluted earnings per share from continuing operations, net of taxes, were $0.92 for the three months ended June 30, 2017 and a loss of $0.26 for the three months ended June 30, 2016, reflecting the impact of warrant accounting and transaction-related expenses. Adjusted diluted EPS from continuing operations, net of taxes, totaled $1.09 in the second quarter of 2017 and $0.80 in the second quarter of 2016.
“Earnings growth in the second quarter reflected a 17% increase in revenue, 15% increase in block hours, and higher direct contribution in all of our segments,” said President and Chief Executive Officer William J. Flynn. “Our growth also reflected an increase in aircraft utilization and a rise in commercial charter yields. During the quarter, we started flying for Cathay Pacific and Yangtze River Airlines and added four 767-300 freighters for Amazon, including our fifth and sixth aircraft in June.
“We are experiencing good momentum in our business, and we expect that to carry through 2017, into 2018 and beyond. As a result, we are increasing our full-year 2017 outlook.
“We anticipate that our adjusted income from continuing operations, net of taxes, will grow by a percentage in the mid-teens this year, approximately double the midpoint of our previous outlook.
“As announced today, we have entered into an ACMI agreement to operate three 747-400s for Hong Kong Air Cargo, the first of which will start flying in September. We have a strategic focus on the fast-growing Chinese and Asian markets, and we have added five new customers there this year.
“We also continue to move more deeply into the faster-growing express and e-commerce markets. More than 70% of our current freighters operate for customers in these markets, and that percentage will increase as we ramp up from six aircraft for Amazon currently to an expected 20 by the end of 2018.
“The evolution of e-commerce is transforming the global supply chain and creating significant new opportunities for Atlas. Freighter aircraft in scaled route networks, such as those that we operate, provide the just-in-time service that enables consumers to receive their orders as quickly as possible.”
Second-Quarter Results
Higher ACMI contribution in the second quarter of 2017 was primarily driven by an increase in flying, partially offset by higher heavy maintenance costs. Segment revenue growth benefited from an increase in block-hour volumes, reflecting greater 767 and 747-400 CMI flying as well as higher aircraft utilization. Average rates reflected the growth in 767 and 747-400 CMI flying.
Higher Charter segment contribution during the period was primarily due to improved commercial cargo yields, lower costs related to crew training, and an increase in commercial and military demand. These impacts were partially offset by higher heavy maintenance costs and lower rates paid by the military. Segment revenue growth was driven by an increase in block-hour volumes and average rates.
In Dry Leasing, higher revenue and segment contribution were primarily driven by the placement of six 767-300 converted freighter aircraft with Amazon between August 2016 and June 2017. Segment contribution also benefited from a reduction in interest expense due to the scheduled repayment of debt related to dry leased 777 aircraft in our portfolio.
Higher unallocated income and expenses in the second quarter of 2017 primarily reflected an increase in unallocated interest expense, growth initiatives, and amortization of a customer incentive asset, partially offset by an accrual for legal matters in the year-ago period.
Both reported and adjusted income from continuing operations in the second quarter of 2017 included a $2.7 million, or $0.10 per diluted share, benefit related to the timing of heavy maintenance that has moved to the third quarter of 2017 from the second quarter.
Reported earnings in the second quarter also included an effective income tax rate of 21.6%, due mainly to nontaxable changes in the value of outstanding warrants and our assertion to indefinitely reinvest the net earnings of foreign subsidiaries outside the U.S. On an adjusted basis, our results reflected an effective income tax rate of 29.4%.
Half-Year Results
For the six months ended June 30, 2017, income from continuing operations totaled $39.1 million, which included an unrealized gain on financial instruments of $8.6 million related to outstanding warrants. Results compared with income from continuing operations of $21.4 million, which included an unrealized gain on financial instruments of $26.5 million, for the six months ended June 30, 2016.
On an adjusted basis, first-half 2017 income from continuing operations totaled $37.4 million compared with $27.9 million in the first half of 2016.
Diluted earnings per share from continuing operations were $1.13 for the first six months of 2017 and a loss of $0.24 per share for the first half of 2016, reflecting the impact of warrant accounting and transaction-related expenses.
Adjusted diluted EPS from continuing operations totaled $1.39 in the first six months of 2017 and $1.11 in the first half of 2016.
Cash and Short-Term Investments
At June 30, 2017, our cash, cash equivalents, short-term investments and restricted cash totaled $290.7 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 half 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.
Net cash used for investing activities 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.
Outlook
We are increasing our outlook for the full year.
We expect our adjusted income from continuing operations, net of taxes, in 2017 to grow by a percentage in the mid-teens compared with 2016 adjusted income of $114.3 million, approximately double the midpoint of our prior view of mid-single-digit to low-double-digit percentage growth.
In addition, we expect adjusted income from continuing operations, net of taxes, in the third quarter of 2017 to increase by a percentage in the low- to mid-teens compared with our third-quarter 2016 adjusted income of $27.4 million.
Our view reflects solid demand from our customers, the benefits we expect from our growth initiatives, and the steps we have taken to align our business with the faster-growing express and e-commerce markets.
We believe the current demand, including our new services for Asiana Cargo, Cathay Pacific Cargo, FedEx, Hong Kong Air Cargo, Nippon Cargo Airlines and Yangtze River Airlines, the initial accretion from our Amazon operations, and the first full year of contribution from Southern Air provide a strong foundation for earnings growth.
Given the inherent seasonality of airfreight demand, we anticipate that results in 2017 will reflect historical patterns, with more than 70% of our adjusted income occurring in the second half.
For the full year, we expect total block hours to increase approximately 20% compared with 2016, with more than 75% of our hours in ACMI and the balance in Charter.
Aircraft maintenance expense in 2017 should total approximately $255 million, and depreciation and amortization is expected to total approximately $170 million. In addition, core capital expenditures, which exclude aircraft and engine purchases, are expected to total approximately $65 to $75 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.
Conference Call
Management will host a conference call to discuss Atlas Air Worldwide’s second-quarter 2017 financial and operating results at 11:00 a.m. Eastern Time on Wednesday, August 2, 2017.
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 second-quarter call) or at the following Web address:
http://edge.media-server.com/m/p/chhvexim
For those unable to listen to the live call, a replay will be archived on the above websites following the call. A replay will also be available through August 8 by dialing (855) 859-2056 (U.S. Toll Free) or (404) 537-3406 (from outside the U.S.) and using Access Code 52437591#.
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 EBITDA, as adjusted; Direct Contribution; 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 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.
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. In addition, management’s incentive compensation will be determined, in part, by using Adjusted Income from continuing operations, net of taxes. 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.
About Atlas Air Worldwide:
Atlas Air Worldwide is a leading global provider of outsourced aircraft and aviation operating services. It is the parent company of Atlas Air, Inc., Southern Air Holdings, Inc. and Titan Aviation Holdings, Inc., and is the majority shareholder of Polar Air Cargo Worldwide, Inc. Our companies operate the world’s largest fleet of 747 freighter aircraft and provide customers a broad array of Boeing 747, 777, 767, 757 and 737 aircraft for domestic, regional and international applications.
Atlas Air Worldwide’s press releases, SEC filings and other information may 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. Those statements are based on management’s beliefs, plans, expectations and assumptions, and on information currently available to management. Generally, the words “will,” “may,” “should,” “expect,” “anticipate,” “intend,” “plan,” “continue,” “believe,” “seek,” “project,” “estimate,” and similar expressions used in this release that do not relate to historical facts are intended to identify forward-looking statements.
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: our ability to effectively operate the network service contemplated by our agreements with Amazon, including the cost and timing of securing any aircraft necessary to fulfill our agreements; the risk that the anticipated benefits of our agreements with Amazon will not be realized when expected, or at all; the possibility that Amazon may terminate its agreements with the companies; the effect of the announcement or pendency of the transactions contemplated by the agreements with Amazon; failure to successfully integrate the Southern Air business; 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 2017 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.
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