PURCHASE, N.Y., May 1, 2019 – Atlas Air Worldwide Holdings, Inc. (Nasdaq: AAWW) today announced continued volume, revenue and earnings growth, excluding the impact of warrant accounting, for the first quarter of 2019. The company also provided an updated full-year growth outlook that reflects the scheduled start-up in 2019 of new long-term 737-800 CMI business.
On a reported basis, results for the first quarter of 2019 were a net loss of $29.7 million, or $1.15 per diluted share, compared with reported income of $9.6 million, or $0.37 per diluted share, in the first quarter of 2018. Reported results for the latest quarter included an unrealized loss on outstanding warrants of $46.6 million compared with an unrealized loss on outstanding warrants of $7.7 million in the year-ago period.
On an adjusted basis, net income in the first quarter of 2019 increased $3.5 million to $27.3 million, or $0.98 per diluted share, from adjusted income of $23.8 million, or $0.86 per diluted share, in the year-ago quarter. Adjusted EBITDA in the quarter rose $27.3 million to $121.1 million.
“Our first-quarter results exceeded our expectations,” said Atlas Air Worldwide President and Chief Executive Officer William J. Flynn. “We are benefitting from a full year of flying the 16 aircraft we added during 2018 for customers such as Amazon, Asiana Cargo, DHL Express, Inditex and SF Express, as well as the three aircraft for Nippon Cargo Airlines that we are adding this year.
Mr. Flynn also noted: “Our focus on express, e-commerce and fast-growing markets provides a solid foundation to deliver continued business and earnings growth this year.
“We were pleased to announce an expansion of our relationship with Amazon in March. We are scheduled to begin flying five 737-800 aircraft on a CMI basis for Amazon this year, including two starting this month, with up to 15 more by May 2021. This opportunity provides a path to continued expansion in a desirable aircraft type, and it will enhance scale in the 737 platform we operate through Southern Air.
“Reflecting the scale and scope of our domestic and worldwide operations, we continue to anticipate that our adjusted net income in 2019 will grow by a mid- to upper-single-digit percentage compared with the record adjusted net income of $204.3 million that we reported in 2018.*
“In providing our current outlook, it is important to note that we are now including start-up expenses that we expect to incur in 2019 in connection with our new 737 CMI service. These start-up expenses were not incorporated in the full-year outlook we announced in February 2019.”
Volumes in the first quarter of 2019 increased 16% to 77,061 block hours, with revenue growing 15% to $679.7 million and total direct contribution for reportable segments rising 21% to $104.7 million.
Increased ACMI segment revenue in the first quarter of 2019 primarily reflected an increase in flying partially offset by a slight decline in average rate per block hour. Block-hour growth during the period reflected increased 767 flying for Amazon, incremental 777 flying for DHL and the start-up of 747-400 flying for new customers. The change in average rate per block hour was primarily due to an increase in smaller-gauge 767 CMI flying.
ACMI segment contribution in the quarter was relatively unchanged compared with the year-ago period, primarily reflecting increases in 767 and 777 flying that were more than offset by higher crew costs, including enhanced wages and work rules resulting from our interim agreement with pilots at Southern Air; additional non-heavy maintenance and repairs; and increased amortization of deferred maintenance costs.
Higher Charter segment revenue during the period was primarily driven by increased flying and an increase in average rate per block hour. Higher block-hour volumes primarily reflected increases in military passenger and commercial cargo demand that were partially offset by a decrease in military cargo flying related to the unusually late cancellations of a number of flights by the military that did not permit adequate time to take advantage of alternative opportunities in the commercial market. Higher average rates during the quarter primarily reflected an increase in yields (excluding fuel) on passenger flying, mainly due to an increase in rates for the military and expanded flying for sports teams and other VIP charter customers.
Lower Charter segment contribution reflected the decrease in military cargo flying and additional non-heavy maintenance and repairs, partially offset by the increase in military passenger volumes and the expansion of our flying for sports teams and VIP-charter customers.
In Dry Leasing, higher segment revenue and contribution primarily reflected $22.3 million ($17.9 million after tax) from maintenance payments related to the scheduled return of a 777 freighter in March 2019 as well as the placement of incremental aircraft with customers.
Higher unallocated income and expenses, net, during the quarter primarily reflected fleet growth initiatives; increased amortization of a customer incentive asset; and a reduction in capitalized interest.
Reported earnings in the first quarter of 2019 also included an effective income tax expense rate of 19.7%, due mainly to the nondeductible change in the value of outstanding warrants. On an adjusted basis, our results reflected an effective income tax rate of 15.3%.
Cash and Short-Term Investments
At March 31, 2019, our cash and cash equivalents, short-term investments and restricted cash totaled $175.9 million, compared with $248.4 million at December 31, 2018.
The change in position resulted from cash used for investing activities and financing activities, partially offset by cash provided by operating activities.
Net cash used for investing activities during the first quarter of 2019 primarily related to capital expenditures and payments for flight equipment and modifications, including 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, partially offset by proceeds from debt issuance.
Updating 2019 Outlook*
We continue to expect solid full-year business and earnings growth in 2019.
Global economic activity and airfreight demand, supported by ongoing faster growth in express and e-commerce, are expected to continue to expand at a modest pace, while airfreight tonnage continues to grow from record levels.
Looking ahead, we expect to generate higher volumes, revenue, adjusted EBITDA and adjusted net income in 2019. We see volumes rising to around 340,000 block hours (with over 75% in ACMI and the balance in Charter), revenue of approximately $3.0 billion, and adjusted EBITDA of about $600 million.
We continue to anticipate that our adjusted net income will grow by a mid- to upper-single-digit percentage compared with 2018. However, our outlook now includes expected start-up expenses in 2019 associated with our new 737 CMI service, which were not incorporated in the full-year outlook we announced in February 2019. We continue to expect our full-year 2019 adjusted income tax rate to be approximately 20%.
We expect to fly approximately 80,000 block hours (over 75% in ACMI) in the second quarter of 2019, with revenue of about $710 million and adjusted EBITDA of about $105 million. We also expect that our second-quarter adjusted net income will represent slightly more than a mid-single-digit percentage of our full-year adjusted net income.
Earnings in the second quarter will benefit from flying by the incremental aircraft added to our fleet during 2018. However, we expect this benefit to be offset during the quarter by the timing of heavy and non-heavy maintenance; higher crew costs related primarily to our interim agreement with pilots at Southern Air; start-up expenses associated with the new 737 CMI agreement we announced in March; and the receipt in the second quarter of 2018 of an $8.6 million refund of aircraft rent paid in previous years.
For the full year, aircraft maintenance expense is expected to total approximately $420 million, mainly reflecting an increase in daily line maintenance due to the anticipated growth in block hours. Depreciation and amortization is expected to total approximately $260 million. In addition, core capital expenditures, which exclude aircraft and engine purchases, are expected to total approximately $135 to $145 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.*
Management will host a conference call to discuss Atlas Air Worldwide’s first-quarter 2019 financial and operating results at 11:00 a.m. Eastern Time on Wednesday, May 1, 2019.
Interested parties may listen to the call live over the Internet at www.atlasairworldwide.com (click on “Investors,” click on “Presentations” and on the link to the first-quarter call) or at the following Web address:
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 May 9 by dialing (855) 859-2056 (U.S. Toll Free) or (404) 537-3406 (from outside the U.S.) and using Access Code 3469979#.
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.
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:
*We provide guidance on an adjusted basis and are unable to provide forwarding-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.
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 the broadest array of Boeing 747, 777, 767, 757 and 737 aircraft for domestic, regional and international cargo and passenger operations.
Atlas Air Worldwide’s press releases, SEC filings and other information may be accessed through the company’s home page, www.atlasairworldwide.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 speak only as of the date of this release. They 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; our ability to coordinate with Amazon to accept newly converted aircraft; 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 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, pilots 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; significant data breach or disruption of our information technology systems; labor costs and relations, work stoppages and service slowdowns; the outcome of pending negotiations with our pilots’ union; financing costs; the cost and availability of war risk insurance; 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; additional regulatory guidance or changes in interpretations and assumptions with respect to the impact of the U.S. Tax Cuts and Jobs Act of 2017; 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 2019 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 and expressly disclaims any obligation to revise or update publicly any forward-looking statement to reflect future events or circumstances.
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