PURCHASE, N.Y., February 20, 2020 – Atlas Air Worldwide Holdings, Inc. (Nasdaq: AAWW) today announced fourth-quarter and full-year 2019 results that reflected a peak season with a pickup in customer demand and improved yields compared with the middle of the year.
In addition, the results reflected an impairment charge as well as actions taken to improve operating efficiencies and align resources with the company’s strategic priorities. The impairment resulted in lower aircraft rent and depreciation expense, which added to already higher than anticipated fourth-quarter and full-year 2019 adjusted results. The impact of lower aircraft rent and depreciation expense, coupled with actions to improve our business, are expected to benefit earnings in 2020 and beyond.
Reported results in the fourth quarter and full year of 2019 primarily reflected a noncash special charge associated with the write-down of the company’s 747-400 freighter fleet due to global airfreight and macroeconomic conditions resulting in lower 747-400 commercial cargo yields and utilization, as well as the disposition of certain nonessential Dry Leasing aircraft and engines.
“Our fourth-quarter reported results were certainly impacted by the one-time impairment. However, our solid adjusted results were driven by our team coming together to deliver the high-quality service that our customers appreciate,” said President and Chief Executive Officer John Dietrich.
As expected, reported and adjusted fourth-quarter results benefited from a refund of excess aircraft rent paid in previous years, lower heavy maintenance expense and aircraft ownership costs, an increase in military passenger and cargo flying, and the peak-season flying we do for express customers. Results were also impacted by the global airfreight environment and macroeconomic conditions, which reflected the effects of tariffs, global trade tensions and geopolitical unrest in certain countries in South America, and certain labor-related service disruptions.
Mr. Dietrich continued: “The airfreight industry, like most others, is experiencing the impacts of the unfortunate coronavirus outbreak. The effects are yet to be fully determined, and therefore our visibility into the full year ahead is evolving.
“In these unprecedented circumstances, we are playing a key role in our customers’ operating networks as they navigate this challenging time. We are also currently accommodating special charter demand, and we are well-prepared for the anticipated surge of volumes once manufacturing resumes in full force.”
He concluded: “Our focus remains on express, e-commerce, the U.S. military and faster-growing markets, where the demand for our aircraft and services is solid. As the global supply chain rebalances, we will continue to leverage our significant commercial charter business to capitalize on customer demand. Looking ahead, we anticipate that our financial performance in 2020 will be an improvement over 2019.”
The company’s 2020 outlook includes benefits from lower aircraft rent and depreciation, as well as a further refund in 2020 of excess aircraft rent paid in previous years. It also includes the impact in 2020 from an increase in the amortization of deferred maintenance; the absence in 2020 of return conditions income realized in the first quarter of 2019; and improved operating efficiencies and cost savings.
As a result, adjusted EBITDA is anticipated to grow by a mid-teens percentage in 2020, and adjusted net income is expected to increase by a high-30% to low-40% level compared with 2019.*
Volumes in the fourth quarter of 2019 totaled 84,488 block hours compared with 83,437 in the fourth quarter of 2018, with operating revenue of $747.0 million versus $765.0 million in 2018.
Reported results for the three months ended December 31, 2019, reflected a loss from continuing operations, net of taxes, of $410.2 million, or $15.86 per diluted share, which included a noncash special charge of $616.2 million ($485.2 million after tax) and an unrealized loss on financial instruments of $3.8 million. For the three months ended December 31, 2018, our reported income from continuing operations, net of taxes, totaled $211.0 million, or $2.73 per diluted share, which included an unrealized gain on financial instruments of $134.8 million.
On an adjusted basis, EBITDA totaled $204.7 million in the fourth quarter of 2019 compared with $196.4 million in the fourth quarter of 2018. Also on an adjusted basis, income from continuing operations, net of taxes, totaled $98.2 million, or $3.80 per diluted share, in the fourth quarter of 2019 compared with $87.0 million, or $3.12 per diluted share, in the fourth quarter of 2018. Adjusted net income in the fourth quarter of 2019 included $7.6 million (after tax) of lower aircraft rent and $2.9 million (after tax) of lower depreciation as a result of the impairment.
Lower operating revenue in the fourth quarter of 2019 compared with the fourth quarter of 2018 was primarily due to the impact of tariffs and global trade tensions on average Charter segment revenue per block hour and on ACMI segment volumes, and certain labor-related service disruptions, partially offset by an increase in Charter segment volumes.
Lower ACMI segment revenue during the period reflected a decline in 747-400 ACMI flying due to the impact of tariffs and global trade tensions on customer demand, partially offset by growth in 747-400, 777 and 737 CMI cargo flying.
Higher ACMI segment contribution during the quarter reflected a reduction in heavy maintenance expense, a decrease in aircraft rent and lower depreciation, and growth in 747-400, 777 and 737 CMI cargo flying.
Charter segment revenue in the fourth quarter of 2019 was relatively in line with the fourth quarter of 2018, driven by increases in cargo and passenger flying that were mainly offset by a decline in commercial cargo yields (excluding fuel) due to the impact of tariffs and global trade tensions, as well as geopolitical unrest in certain South American countries and certain labor-related service disruptions. Block-hour volume growth during the period primarily reflected increases in passenger and cargo demand by the military, as well as an increase in commercial cargo flying.
Lower Charter segment contribution was primarily driven by a decrease in commercial cargo yields and lower 747 freighter utilization. This impact was partially offset by increased military passenger and cargo flying, a reduction in heavy maintenance expense, and lower aircraft rent and depreciation.
In Dry Leasing, lower segment revenue and contribution during the quarter primarily reflected the scheduled return of a 777-200 freighter in 2019.
Lower unallocated income and expenses, net, during the quarter primarily reflected a $27.6 million refund of aircraft rent paid in previous years, partially offset by fleet-growth initiatives, leadership transition costs and increased amortization of a customer incentive asset.
Reported results in the fourth quarter of 2019 also included an effective income tax benefit rate of 21.4%, 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 17.7%.
Volumes in 2019 totaled 321,140 block hours compared with 296,264 in 2018, with operating revenue increasing to $2.74 billion in 2019 from $2.68 billion in 2018.
Reported results for the twelve months ended December 31, 2019, reflected a loss from continuing operations, net of taxes, of $293.1 million, or $11.35 per diluted share, which included a noncash special charge of $638.4 million ($503.1 million after tax), partially offset by an unrealized gain on financial instruments of $75.1 million. For the twelve months ended December 31, 2018, our reported income from continuing operations totaled $270.6 million, or $5.22 per diluted share, which included an unrealized gain on financial instruments of $123.1 million.
On an adjusted basis, EBITDA totaled $504.8 million in 2019 compared with $551.3 million in 2018. For the twelve months ended December 31, 2019, adjusted income from continuing operations, net of taxes, totaled $139.6 million, or $5.24 per diluted share, compared with $204.3 million, or $7.27 per diluted share, in 2018. Adjusted net income in 2019 included $7.6 million (after tax) of lower aircraft rent and $2.9 million (after tax) of lower depreciation as a result of the impairment.
Reported results in 2019 also included an effective income tax benefit rate of 38.0%, primarily due to proactive tax planning resulting in the favorable completion of an IRS examination of our 2015 income tax return and, to a lesser extent, a tax benefit from nontaxable changes in the value of outstanding warrants. On an adjusted basis, our results reflected an effective income tax expense rate of 12.5%.
Cash and Short-Term Investments
At December 31, 2019, our cash and cash equivalents, short-term investments and restricted cash totaled $114.3 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 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.
Based on global economic conditions and our current expectations, and subject to coronavirus developments, we expect to fly approximately 325,000 block hours this year, with about 75% of the hours in ACMI and the balance in Charter. We also anticipate full-year 2020 revenue of approximately $2.8 billion.
Including the impact in 2019 and the expected impact in 2020 of lower aircraft rent and depreciation resulting from the impairment charge in 2019, we expect adjusted EBITDA to grow by a mid-teen percentage in 2020 compared with adjusted EBITDA of $504.8 million in 2019. We also expect adjusted net income to increase by a high-30% to low-40% level in 2020 compared with adjusted net income of $139.6 million in 2019. Excluding the impact of lower aircraft rent and depreciation in both years, we anticipate that adjusted EBITDA and adjusted net income in 2020 will be comparable to or slightly higher than their 2019 levels.*
Our outlook reflects an expected refund in 2020 of excess aircraft rent paid in previous years; an increase in amortization of deferred maintenance compared with 2019; the absence in 2020 of return conditions income that we realized in 2019; and improved operating efficiencies and cost savings.
It also reflects the parking of four less-efficient 747-400 converted freighters since the beginning of 2020. We also plan to return one 747-400 freighter to its lessor in the first half of this year. In addition, we have sold a 757 freighter and expect to sell a 777 freighter and a 737 passenger aircraft.
Similar to historical patterns, we anticipate that more than three-quarters of our adjusted net income in 2020 will occur in the second half of the year.
Aircraft maintenance expense in 2020 is expected to total approximately $380 million. Depreciation and amortization is expected to total about $250 million. In addition, core capital expenditures, which exclude aircraft and engine purchases, are projected to total approximately $90 to $100 million, significantly lower than $134 million in 2019, mainly for parts and components for our fleet.
We also expect our full-year 2020 adjusted effective income tax rate will be approximately 21.0%.
Depending on developments related to the coronavirus, we expect to fly approximately 75,000 block hours (about 75% in ACMI) in the first quarter of 2020, with revenue of approximately $640 million. We also anticipate adjusted EBITDA of about $90 million, and adjusted net income ranging from approximately breakeven to a modest profit.
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 fourth-quarter and full-year 2019 financial and operating results at 11:00 a.m. Eastern Time on Thursday, February 20, 2020.
Interested parties may listen to the call live at Atlas Air Worldwide’s Investor site or at https://edge.media-server.com/mmc/p/f7kdxxxq.
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 February 28 by dialing (855) 859-2056 (U.S. Toll Free) or (404) 537-3406 (from outside the U.S.) and using Access Code 9016708#.
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:
*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.
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 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 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; changes in U.S. and foreign government trade policies; economic conditions; the impact of geographical events or health epidemics; 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; 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 2020 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 publically any forward-looking statement to reflect future events or circumstances.
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