Air Transport Services (ATSG) - 2020 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Revenues increased by 13% to $378 million, with adjusted earnings per share rising 74% to $0.47 compared to the previous year [9][17] - Adjusted EBITDA increased by 20% to $126 million for the second quarter and 14% to $250 million for the first half [9][17] - The company reported a GAAP loss from continuing operations of $105 million or $1.78 per share basic, primarily due to the impact of warrants and an impairment charge [14][15] Business Line Data and Key Metrics Changes - The ACMI Services segment earned $20 million on a pretax basis, up from $1 million a year ago, with increased aircraft operations and block hours [18] - The leasing business (CAM) reported pre-tax earnings up 18% to $20 million, with external revenues increasing by $10 million to $50 million [20] - The aircraft maintenance business experienced a decline due to external customers parking aircraft, leading to reduced service volumes [20] Market Data and Key Metrics Changes - 72% of first half revenues came from three largest customers: Department of Defense (32%), Amazon (29%), and DHL (11%) [13] - The company noted a significant increase in demand for freighter services due to reduced belly freight capacity from passenger airlines [41][42] Company Strategy and Development Direction - The company plans to expand its freighter aircraft dry leasing, with an order from Amazon for 12 more 767s, enhancing cash flow through 2021 and beyond [10][26] - The company aims to convert charter flying into ACMI or dry lease plus CMI flying over time, while maintaining a focus on long-term returns [24][49] - The company is looking to complete its Airbus A321 freighter conversion initiative, with expectations for FAA certification in the fourth quarter [27][68] Management Comments on Operating Environment and Future Outlook - Management expressed confidence in the long-term growth of express package transport due to changing consumer behaviors driven by the pandemic [23] - The company anticipates adjusted EBITDA for 2020 to be at least $470 million, despite challenges in the second half due to lower passenger demand [12][29] - Management acknowledged the potential for increased free cash flow in 2021, with a projected reduction in capital expenditures [30][45] Other Important Information - The company received $75 million in grant funds under the CARES Act to offset reductions in passenger operations, with ongoing recognition of these funds through 2021 [11][16] - The company has available revolver capacity of $408 million at the end of June, with total debt to adjusted EBITDA declining from 3.6 to 3.25x [18] Q&A Session Summary Question: Guidance for 2020 and differences from initial projections - Management explained that the initial guidance was impacted by the pandemic, but strong first-half performance led to an updated expectation of at least $470 million for the year [32][36] Question: E-commerce demand and outlook for freighter assets - Management noted that demand for freighter assets is expected to remain strong due to increased online shopping habits, with major customers operating at peak levels [39][41] Question: Impact of available passenger feedstock on costs and cash flow - Management indicated that while there is available feedstock, prices for 767s remain stable, and they foresee increasing free cash flow in the coming years [43][45] Question: Demand in new markets and customer payment issues - Management confirmed that they do not foresee collectability issues with customers, as most are high-quality and prompt payers [61][62] Question: A321 conversion and capital allocation plans - Management discussed plans for A321 conversions and indicated that capital allocation will focus on long-term investments and potential M&A opportunities [66][72]