Air Transport Services (ATSG) - 2021 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - ATSG generated $1.7 billion in consolidated revenues for 2021, an increase of $164 million from the previous year, marking an all-time high for the company [11] - Adjusted EPS rose to $1.66 per share, up from $1.60 in 2020, while adjusted pretax earnings increased by 11% and adjusted EBITDA rose by 9% [11] - Adjusted EBITDA for 2021 was $541 million, exceeding the target by $6 million [9][11] - The company achieved strong adjusted free cash flow of $400 million, indicating robust cash generation capabilities [14] Business Line Data and Key Metrics Changes - CAM's pretax earnings increased by 37% for the year, while the ACMI Services segment's pretax earnings grew by 39% [11] - The airlines achieved double-digit growth in revenue block hours and improved on-time performance compared to 2020 [9] Market Data and Key Metrics Changes - The fourth quarter saw a 27% gain in adjusted EBITDA, driven by a faster pace of 767 lease deployments and improved passenger flying for military and commercial customers [11] - Federal grant proceeds for the airlines amounted to $112 million in 2021, compared to $47 million in 2020, reflecting the impact of pandemic relief assistance [12] Company Strategy and Development Direction - ATSG plans to grow its fleet substantially faster over the next five years, committing to add two new converted freighter types, the Airbus A330 and A321, to support e-commerce customers [9] - The company aims for a target of $640 million in adjusted EBITDA for 2022, which represents an 18% increase from 2021 [23] - Capital spending for 2022 is projected at $590 million, with a focus on fleet expansion and sustaining capital expenditures [23] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving nearly $100 million more in adjusted EBITDA for 2022, driven by strong growth in airline businesses and leasing returns [9][16] - The company anticipates a gradual easing of pandemic restrictions, which will positively impact operations and access to airports [23] - Management highlighted the resilience of the workforce and the ability to adapt to ongoing challenges posed by the pandemic [9] Other Important Information - The company has secured commitments for 14 of the 20 A330 conversion slots, indicating strong customer interest [20] - The transition from a power-by-cycle arrangement to a new engine service model is expected to contribute $40 million to $45 million to adjusted EBITDA in 2022 [16][32] Q&A Session Summary Question: Can you walk us through the accounting changes on maintenance expense and share count from convertible debt? - The share count will increase by about 8 million shares due to accounting changes related to convertible debt, which will also remove approximately $8 million in annual non-cash interest expense [27][29] Question: What is the current status of passenger flights returning to pre-pandemic levels? - The DoD portion of Omni's business is back to pre-pandemic levels, and commercial operations have seen a strong recovery, particularly in the fourth quarter [36][37] Question: Can you provide an update on conversion slots and customer types? - The geographic concentration of deliveries is broad-based, with new and existing customers from North America, Europe, and the Nordics [40][41] Question: What is the expected fleet utilization and ad-hoc flying included in the $640 million guide? - The projections are based on current flying schedules, with expectations for additional aircraft in the Amazon CMI this year [66] Question: What are the implications of the new maintenance agreement on EBITDA? - The new maintenance agreement is expected to add $40 million to $45 million to EBITDA, reflecting a shift in accounting treatment [81]