Air T(AIRT) - 2023 Q3 - Quarterly Report

PART I Financial Statements Air T, Inc. reported a 37.7% revenue increase to $172.9 million for the nine months ended December 31, 2022, but recorded a $3.3 million net loss primarily due to the absence of a prior-year PPP loan forgiveness gain and increased interest expenses Condensed Consolidated Statements of Income (Loss) For the nine months ended December 31, 2022, revenues increased 37.7% to $172.9 million, but the company reported a net loss of $3.3 million primarily due to the absence of a prior-year PPP loan forgiveness gain Financial Performance Summary (in thousands, except per share data) | Metric | Three Months Ended Dec 31, 2022 | Three Months Ended Dec 31, 2021 | Nine Months Ended Dec 31, 2022 | Nine Months Ended Dec 31, 2021 | | :--- | :--- | :--- | :--- | :--- | | Operating Revenues | $61,396 | $45,433 | $172,946 | $125,640 | | Operating Income | $135 | $25 | $1,147 | $724 | | Net (Loss) Income Attributable to Air T, Inc. Stockholders | $(590) | $(1,262) | $(3,255) | $6,582 | | Diluted (Loss) Income per share | $(0.21) | $(0.44) | $(1.14) | $2.28 | Condensed Consolidated Statements of Comprehensive Income (Loss) For the nine months ended December 31, 2022, the company reported a total comprehensive loss of $966 thousand, a significant downturn from $7.3 million in comprehensive income in the prior year Comprehensive Income (Loss) Summary (in thousands) | Metric | Nine Months Ended Dec 31, 2022 | Nine Months Ended Dec 31, 2021 | | :--- | :--- | :--- | | Net Income (Loss) | $(2,029) | $7,141 | | Total Other Comprehensive Income | $1,063 | $129 | | Total Comprehensive Income (Loss) | $(966) | $7,270 | Condensed Consolidated Balance Sheets As of December 31, 2022, total assets increased slightly to $212.4 million, while total liabilities grew to $177.8 million primarily due to increased current portion of long-term debt, leading to a decrease in total equity Balance Sheet Summary (in thousands) | Metric | December 31, 2022 | March 31, 2022 | | :--- | :--- | :--- | | Total Current Assets | $131,096 | $128,243 | | Total Assets | $212,361 | $207,599 | | Total Current Liabilities | $67,945 | $30,907 | | Total Liabilities | $177,846 | $171,121 | | Total Equity | $22,452 | $25,717 | Condensed Consolidated Statements of Cash Flows For the nine months ended December 31, 2022, net cash used in operating activities improved to $3.8 million, while net cash used in investing activities decreased to $3.1 million, and net cash provided by financing activities declined to $4.9 million Cash Flow Summary (in thousands) | Metric | Nine Months Ended Dec 31, 2022 | Nine Months Ended Dec 31, 2021 | | :--- | :--- | :--- | | Net cash used in operating activities | $(3,815) | $(19,690) | | Net cash used in investing activities | $(3,090) | $(19,546) | | Net cash provided by financing activities | $4,866 | $29,079 | | Net Decrease in Cash | $(1,858) | $(10,088) | Notes to Condensed Consolidated Financial Statements The notes detail key accounting policies, acquisitions, and financing arrangements, notably disclosing a forecasted debt service coverage ratio covenant violation for the Contrail subsidiary and significant income from equity method investments - Management forecasts a violation of the debt service coverage ratio for its Contrail subsidiary's credit agreement during the next twelve months, primarily due to a principal payment on its Main Street loan becoming due in November 2023 Contrail is in discussions with the lender (ONB) for a waiver or alternative financing[28][29] - The company completed the acquisition of GdW Beheer B.V., a Dutch aviation data company, on February 10, 2022, for a total consideration of $15.3 million, resulting in $6.3 million of goodwill[37][39] - Income from equity method investments for the nine months ended Dec 31, 2022 was $2.9 million, a substantial increase from $0.2 million in the prior year, primarily driven by a $1.8 million income recognition from Insignia Systems, Inc. following a litigation settlement[9][67] Total Debt Summary (in thousands) | Category | December 31, 2022 | March 31, 2022 | | :--- | :--- | :--- | | Total Debt | $142,796 | $136,932 | | Less: Unamortized Debt Issuance Costs | $(912) | $(1,124) | | Total Debt, net | $141,884 | $135,808 | Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the 37.7% revenue increase to $172.9 million for the first nine months of fiscal 2023, a net loss due to higher interest expenses and the absence of a prior-year PPP loan forgiveness gain, and the forecasted breach of a debt covenant by the Contrail subsidiary Results of Operations For the nine months ended December 31, 2022, consolidated revenue increased 37.7% to $172.9 million, primarily driven by the Commercial Jet Engines and Parts segment, while a net loss was recorded due to the absence of a prior-year PPP loan forgiveness gain and increased interest expense Revenue by Segment - Nine Months Ended Dec 31 (in thousands) | Segment | 2022 | 2021 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Overnight Air Cargo | $64,464 | $55,946 | $8,518 | 15.2% | | Ground Equipment Sales | $39,981 | $32,603 | $7,378 | 22.6% | | Commercial Jet Engines and Parts | $63,577 | $35,902 | $27,675 | 77.1% | | Corporate and Other | $4,924 | $1,189 | $3,735 | 314.1% | | Total | $172,946 | $125,640 | $47,306 | 37.7% | Operating Income (Loss) by Segment - Nine Months Ended Dec 31 (in thousands) | Segment | 2022 | 2021 | Change | | :--- | :--- | :--- | :--- | | Overnight Air Cargo | $2,931 | $2,063 | $868 | | Ground Equipment Sales | $3,122 | $2,929 | $193 | | Commercial Jet Engines and Parts | $3,603 | $2,000 | $1,603 | | Corporate and Other | $(8,509) | $(6,268) | $(2,241) | | Total | $1,147 | $724 | $423 | - The significant decrease in net non-operating income for the nine-month period was primarily due to an $8.3 million gain on PPP loan forgiveness in the prior year that did not recur in the current period[136] Liquidity and Capital Resources As of December 31, 2022, the company had $6.5 million in cash and $22.0 million available credit, but faces a significant liquidity risk from a forecasted debt service coverage ratio covenant violation by its Contrail subsidiary - The company faces a significant liquidity risk as management forecasts a violation of the debt service coverage ratio covenant for its subsidiary Contrail within the next twelve months The company is pursuing a waiver or refinancing to avoid default[151][152] - As of December 31, 2022, the company had approximately $6.5 million in cash and restricted cash, $0.6 million in marketable securities, and $22.0 million available under its lines of credit[143] - Working capital decreased significantly to $63.2 million from $97.4 million at March 31, 2022, primarily due to the reclassification of revolving credit facilities at Air T and Contrail to current liabilities as they become due within a year[144] Non-GAAP Financial Measures The company uses Adjusted EBITDA, a non-GAAP measure, which for the nine months ended December 31, 2022, increased substantially to $5.2 million from $1.9 million in the prior year, driven by higher operating income Reconciliation of Operating Income to Adjusted EBITDA (in thousands) | | Nine Months Ended Dec 31, 2022 | Nine Months Ended Dec 31, 2021 | | :--- | :--- | :--- | | Operating income | $1,147 | $724 | | Depreciation and amortization | $1,810 | $956 | | Asset impairment, restructuring or impairment charges | $2,174 | — | | (Gain) Loss on disposition of assets | $(2) | $3 | | Securities expenses | $38 | $215 | | Adjusted EBITDA | $5,167 | $1,898 | Adjusted EBITDA by Segment - Nine Months Ended Dec 31 (in thousands) | Segment | 2022 | 2021 | | :--- | :--- | :--- | | Overnight Air Cargo | $3,331 | $2,106 | | Ground Equipment Sales | $3,252 | $3,074 | | Commercial Jet Engines and Parts | $5,802 | $2,524 | | Corporate and Other | $(7,218) | $(5,806) | | Total Adjusted EBITDA | $5,167 | $1,898 | Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate risk on its variable-rate debt, which it mitigates using derivative instruments like interest rate swaps - The company's primary market risk is interest rate risk on its variable-rate debt It employs a risk management policy that permits using derivative instruments like interest rate swaps to hedge against this exposure[165] Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2022, with no material changes to internal control over financial reporting during the quarter - Management concluded that as of December 31, 2022, the company's disclosure controls and procedures are effective[166] - No changes occurred during the quarter ended December 31, 2022, that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[167] PART II Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased a total of 28,752 shares of its common stock on the open market during the quarter ended December 31, 2022, under its authorized share repurchase program Share Repurchases - Quarter Ended December 31, 2022 | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | October 2022 | 9,781 | $20.17 | | November 2022 | 7,527 | $21.98 | | December 2022 | 11,444 | $24.35 | | Total | 28,752 | | Other Information No other information was reported for this item during the period Exhibits This section lists the exhibits filed with the Form 10-Q, including amendments to loan agreements and CEO/CFO certifications