Air T, Inc. Form 10-Q Summary
Reporting period: Three months ended June 30, 2021, representing the first quarter of fiscal 2022. The request metadata identifies “2020 Q1,” but the filing itself reports the June 30, 2021 quarter and compares it with June 30, 2020.
Business Context
Air T is a holding company operating in overnight air cargo, ground equipment sales, commercial jet engines and parts, and corporate and other activities. On May 5, 2021, the company formed Contrail Asset Management, LLC and Contrail JV II LLC to source, acquire, manage, lease, trade, and disassemble commercial aircraft and engines.
Key Financial Metrics
| Metric | Q1 FY2022 | Q1 FY2021 |
|---|---|---|
| Revenue | $37.0 million | $37.0 million |
| Operating income (loss) | $(4) thousand | $(266) thousand |
| Net income (loss) | $327 thousand | $(956) thousand |
| Net income (loss) attributable to Air T stockholders | $289 thousand | $(841) thousand |
| Diluted earnings (loss) per share | $0.10 | $(0.29) |
| Adjusted EBITDA | $283 thousand | $87 thousand |
| Net cash used in operating activities | $(8.8) million | $(3.3) million |
Revenue was essentially flat year over year. Segment operating income was $732 thousand for overnight air cargo, $1.4 million for ground equipment sales, a $238 thousand loss for commercial jet engines and parts, and a $1.9 million loss for corporate and other.
At June 30, 2021, cash and cash equivalents were $7.1 million, restricted cash was $4.3 million, marketable securities were $2.3 million, and restricted investments were $1.0 million. Total cash, cash equivalents, and restricted cash were $11.4 million, down from $15.9 million at March 31, 2021. Working capital was $79.2 million.
Total debt was $94.4 million, or $93.3 million net of unamortized debt issuance costs, compared with $88.6 million and $87.5 million, respectively, at March 31, 2021. Total liabilities were $123.2 million and total equity was $14.9 million at June 30, 2021.
Material Changes Versus the Prior Comparable Period
- Overnight air cargo revenue increased 17% to $18.9 million, primarily due to higher FedEx pass-through activity and increased maintenance revenue.
- Ground equipment sales revenue declined 48% to $8.2 million due mainly to lower commercial truck and ultimate deicer sales. Backlog fell to $7.1 million from $48.7 million at June 30, 2020.
- Commercial jet engines and parts revenue increased 104% to $9.6 million as aviation activity and component sales improved following easing COVID-19 restrictions.
- Operating results improved by $262 thousand, with the consolidated operating loss narrowing to $4 thousand.
- Non-operating results improved from a $990 thousand expense to $326 thousand of income. The current quarter included a $0.5 million gain from the liquidation of Delphax France and a $0.2 million warrant fair-value gain.
- Operating cash flow deteriorated because accounts receivable increased by $4.7 million and inventories increased by $3.3 million.
- Financing activities generated $5.8 million, including $4.3 million from issuance of Trust Preferred Securities and net borrowing activity.
- Adjusted EBITDA increased to $283 thousand from $87 thousand.
Guidance, Outlook, Risks, and Unusual Items
- Management expects COVID-19-related disruption to continue and stated that some businesses may generate reduced operating cash flow or operate at a loss during at least the first half of fiscal 2022.
- The company is seeking to refinance its Air T revolving credit facility, which expires August 31, 2021. There is no assurance that refinancing will be completed or that terms will be favorable.
- Contrail and its lender were discussing reducing Contrail’s minimum tangible net worth covenant from $15 million to $8 million in exchange for other credit agreement amendments. No assurance was provided that the change would be approved.
- The company had applied for forgiveness of its $8.2 million PPP loan; forgiveness was not assured, and any unforgiven amount would require repayment with interest.
- The seller of a 21% interest in Contrail had put and call rights beginning July 18, 2021. Neither party had indicated an intent to exercise the option as of the filing date. The recorded redeemable non-controlling interest was $7.0 million.
- Air T committed approximately $8 million to CJVII, with approximately $6.9 million unfunded at June 30, 2021. No capital had yet been deployed to CJVII, and the timing of deployment was not known.
- The company stated that cash on hand, operating cash flow, and revolving credit availability, as amended or replaced, were expected to fund obligations for at least 12 months after issuance of the financial statements.
- The ground equipment business is seasonal, with typically lower revenue and operating income in the first and fourth fiscal quarters.
- Interest-rate swaps hedge certain variable-rate borrowings. The swaps had a fair-value liability of approximately $0.6 million and mature in January 2028.
Important Facts for Investors to Verify
- Completion and terms of refinancing for the Air T revolving facility before its August 31, 2021 maturity.
- Final SBA determination regarding forgiveness of the $8.2 million PPP loan.
- Whether the Contrail put or call option is exercised and the amount and funding source of any required redemption.
- Progress, capital deployment, and future funding requirements for CJVII and the company’s approximately $8 million commitment.
- Recovery of ground equipment backlog and the status of the pending U.S. Air Force deicing-truck contract renewal.
- Conversion of improved earnings into operating cash flow, particularly given increases in accounts receivable and inventories.
- Continuing effects of COVID-19 on commercial aviation demand, jet engine and parts activity, and segment profitability.