PURCHASE, NY, November 5, 2020 – Atlas Air Worldwide Holdings, Inc. (Nasdaq: AAWW) today announced third-quarter 2020 net income of $74.1 million, or $2.78 per diluted share, compared with net income of $60.0 million, or $2.32 per diluted share, in the third quarter of 2019.
On an adjusted basis, EBITDA totaled $196.3 million in the third quarter this year compared with $95.6 million in the third quarter of 2019. Adjusted net income in the third quarter of 2020 totaled $82.7 million, or $2.84 per diluted share, compared with $9.5 million, or $0.37 per diluted share, in the third quarter of 2019.
“The positive momentum of our business continued in the third quarter, despite a more complex, costly and challenging operating environment caused by the COVID-19 pandemic.” said Chief Executive Officer John W. Dietrich. “Our performance is the result of our entire team pulling together to increase utilization of our aircraft and execute on strong market demand and higher yields.
“We continue to broaden our customer base and grow with existing customers to maximize market opportunities. We further increased our roster of long-term charter customers, including the addition of Cainiao, the logistics arm of Alibaba, as well as expanding with HP Inc. and several large global freight forwarders.
“We also expanded operations for Amazon, where we began CMI flying three additional 737 freighters since September. We are now operating eight 737s for Amazon, complementing the large fleet of 767s that we have with them.
“Importantly, these long-term customer agreements provide secure and attractive earnings streams and deepen our strategic position in the fast-growing e-commerce sector, as well as in important global markets like China and South America.
“We are seeing substantial demand for our long-haul widebody services, both near- and long-term, at attractive yields. We are leveraging the agility of our business model and the scale of our fleet and global operations to serve this increased customer demand.
“We are also excited to announce that Titan Aircraft Investments, the joint venture between our Titan subsidiary and Bain Capital Credit, has arranged $500 million in financing facilities. The funds are available for the acquisition of freighter aircraft on lease and passenger aircraft for conversion to freighters. This important step will enable the joint venture to serve the strong market demand for leasing freighters.
“I am proud of the important role Atlas is playing in responding to this pandemic globally, and thank our crew and ground staff for their dedication in delivering safe and reliable service. We are taking wide-ranging precautions to safeguard our employees, while navigating through this complex operating backdrop.
“Air cargo has always been a vital component in the global supply chain as it provides speed, security and reliability that are unmatched by other modes of transportation. We remain committed to moving goods the world needs most, including medical equipment, pharmaceuticals, personal protective equipment, e-commerce, and other manufacturing and consumer products. We are also actively preparing for our expected role in the timely distribution of vaccines.”
Mr. Dietrich continued: “Looking to the fourth quarter, and subject to any material COVID-19 developments, we anticipate solid volumes and yields driven by continued e-commerce growth and end-of-the-year airfreight demand, coupled with the reduction of available cargo capacity in the market. To meet customer demand, we are reactivating our fourth 747 freighter that had been previously parked. This will add to the three 747 freighters and the 777 we placed back into service during the second quarter of 2020.
“As a result, we anticipate fourth-quarter revenue of about $850 million and adjusted EBITDA of approximately $215 million.*
“We also expect fourth-quarter 2020 adjusted net income to grow approximately 25% compared with adjusted net income of $82.7 million in the third quarter of this year.
“On a full-year basis, we now anticipate revenue of approximately $3.1 billion and adjusted EBITDA of about $780 million in 2020.”
He concluded: “Atlas is continuing to adapt and navigate through the challenges of 2020. With our talented team, world-class fleet, strong balance sheet and agile business model, we will continue to serve the demand for airfreight and deliver high-quality service for our customers – in these uncertain times and beyond.”
Third-Quarter Results
Volumes in the third quarter of 2020 increased to 90,528 block hours compared with 79,310 in the third quarter of 2019, with revenue rising to $809.9 million compared with $648.5 million in the prior-year quarter.
Higher ACMI segment revenue during the period primarily reflected an increase in the average revenue per block hour and increased flying, partially offset by the redeployment of 747-400 aircraft to the Charter segment. ACMI segment contribution during the quarter was primarily driven by increased aircraft utilization, reflecting strong demand from our customers, and a reduction in aircraft rent and depreciation. Partially offsetting these improvements were higher pilot costs related to premium pay for pilots operating in certain areas significantly impacted by COVID-19 and increased pay rates resulting from our recent interim agreement with our pilots. In addition, ACMI segment contribution reflected higher heavy maintenance, including additional engine overhauls to take advantage of slot availability and opportunities for vendor pricing discounts, and the redeployment of 747-400 aircraft to the Charter segment to support long-term charter programs.
Higher Charter segment revenue during the quarter was primarily due to an increase in flying, partially offset by a decrease in the average revenue per block hour due to lower fuel costs. Charter segment contribution was primarily driven by the increase in commercial cargo yields (excluding fuel) and demand for freighter aircraft, reflecting a reduction of available capacity in the market, the disruption of global supply chains due to the pandemic and our ability to increase utilization. In addition, segment contribution benefited from a reduction in aircraft rent and depreciation, and the redeployment of 747-400 aircraft from ACMI and the operation of a 777-200 freighter from Dry Leasing. These improvements were partially offset by: higher heavy maintenance expense, including additional engine overhauls to take advantage of slot availability and opportunities for vendor pricing discounts; higher pilot costs related to premium pay for pilots operating in certain areas significantly impacted by COVID-19; and increased pay rates resulting from our recent interim agreement with our pilots.
In Dry Leasing, lower segment revenue and contribution in the third quarter of 2020 primarily related to changes in leases and the disposition of certain nonessential Dry Leased aircraft during the first quarter of 2020.
Lower unallocated income and expenses, net, during the quarter primarily reflected CARES Act grant income of $64.2 million.
Reported earnings in the third quarter of 2020 included an unrealized loss on outstanding warrants of $43.6 million, compared with an unrealized gain on outstanding warrants of $83.2 million in the year-ago period.
Reported earnings in the third quarter of 2020 also included an effective income tax rate of 32.8%, due mainly to nondeductible changes in the value of outstanding warrants. On an adjusted basis, our results reflected an effective income tax rate of 22.8%.
Nine-Month Results
Reported results for the nine months ended September 30, 2020 reflected net income of $176.3 million, or $6.72 per diluted share, which included a $73.4 million unrealized loss on financial instruments. Results compared with net income of $117.1 million, or $1.34 per diluted share, which included an unrealized gain on financial instruments of $78.9 million, for the nine months ended September 30, 2019.
On an adjusted basis, EBITDA totaled $564.5 million in the first nine months of 2020 compared with $300.1 million in the first nine months of 2019. For the nine months ended September 30, 2020, adjusted net income totaled $235.8 million, or $8.71 per diluted share, compared with $41.4 million, or $1.54 per diluted share, in the first nine months of 2019.
Cash
At September 30, 2020, our cash and cash equivalents, restricted cash and short-term investments totaled $729.3 million, compared with $114.3 million at December 31, 2019.
Our improved cash balance primarily reflected cash provided by operating activities, and also included the funds we received through the Payroll Support Program available to air cargo carriers under the CARES Act, partially offset by cash used for investing and financing activities.
Net cash used for investing activities during the first nine months of 2020 primarily related to capital expenditures and payments for flight equipment and modifications, including spare engines and GEnx engine performance upgrade kits, partially offset by proceeds from the disposal of aircraft.
Net cash used for financing activities during the first nine months of 2020 primarily related to payments on debt obligations, including our revolving credit facility, partially offset by debt issuances.
To mitigate the impact of any continuation or worsening of the pandemic, we have implemented a number of cost-reduction initiatives, including a significant reduction in nonessential employee travel and the use of contractors. We have also taken actions to increase liquidity and strengthen our financial position, such as the sale of certain nonessential assets and our participation in the Payroll Support Program under the CARES Act.
Amazon Warrants
On October 9, 2020, Amazon elected a cashless exercise with respect to 3,607,477 shares vested under a Warrant issued in 2016. As a result, Amazon acquired 1,375,421 shares of AAWW common stock, representing approximately 4.99% (after the exercise) of our outstanding common shares.
2020 Outlook*
Looking to the fourth quarter, and subject to any material COVID-19 developments, we anticipate solid volumes and yields driven by continued e-commerce growth and end-of-the-year airfreight demand, coupled with the reduction of available cargo capacity in the market.
To meet customer demand, we are reactivating our fourth 747 freighter that had been previously parked. This will add to the three 747 freighters and the 777 we placed back into service during the second quarter of 2020.
As a result, we expect to fly approximately 95,000 block hours in the fourth quarter of 2020, with about 65% of the hours in ACMI and the remainder in Charter.
We also anticipate revenue of about $850 million and adjusted EBITDA of approximately $215 million. In addition, we expect fourth-quarter 2020 adjusted net income to grow approximately 25% compared with adjusted net income of $82.7 million in the third quarter of this year.*
Aircraft maintenance expense in the fourth quarter of 2020 is expected to total about $116 million, with depreciation and amortization totaling around $65 million. Core capital expenditures, which exclude aircraft and engine purchases, are projected to total approximately $25 to $35 million, mainly for parts and components for our fleet.
We also now anticipate full-year 2020 revenue of approximately $3.1 billion and adjusted EBITDA of about $780 million.
We estimate our full-year 2020 adjusted effective income tax rate will be approximately 23%.
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 third-quarter 2020 financial and operating results at 11:00 a.m. Eastern Time on Thursday, November 5, 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/ps7u7bvv.
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 November 12 by dialing (855) 859-2056 (U.S. Toll Free) or (404) 537-3406 (from outside the U.S.) and using Access Code 1347526#.
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 net income; Adjusted Diluted EPS; 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 Net income (loss); Diluted EPS; 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 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 warrant liability, which is 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 such as the COVID-19 pandemic; our compliance with the requirements and restrictions under the Payroll Support Program; 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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