Air T, Inc. Form 10-Q Summary
Reporting period: Quarter and six months ended September 30, 2022, compared with the corresponding 2021 periods. The request metadata identifies “2021 Q2,” but the filing itself is for Air T’s second quarter of fiscal 2023.
Business Context
Air T is a holding company with four operating segments: overnight air cargo, ground equipment sales, commercial jet engines and parts, and corporate and other. The company’s fiscal year ends March 31. The financial statements are unaudited.
Key Financial Metrics
| Metric | Three Months Ended September 30, 2022 | Three Months Ended September 30, 2021 | Six Months Ended September 30, 2022 | Six Months Ended September 30, 2021 |
|---|---|---|---|---|
| Revenue | $60.7 million | $43.2 million | $111.6 million | $80.2 million |
| Operating income | $0.2 million | $0.7 million | $1.0 million | $0.7 million |
| Net income attributable to Air T stockholders | $(1.2) million | $7.6 million | $(2.7) million | $7.8 million |
| Diluted earnings per share | $(0.43) | $2.60 | $(0.93) | $2.71 |
| Adjusted EBITDA | $2.3 million | $1.1 million | $3.8 million | $1.4 million |
| Net cash used in operating activities | Not provided for the quarter | Not provided for the quarter | $(13.9) million | $(22.8) million |
Revenue increased 40% in the quarter and 39% for the six-month period. Approximate operating margins were 0.3% for the quarter and 0.9% for the six months, compared with 1.6% and 0.9%, respectively, in the prior-year periods. Net margin attributable to Air T stockholders was approximately negative 2.0% for the quarter and negative 2.4% for the six months.
At September 30, 2022, cash and cash equivalents were $7.1 million, restricted cash was $2.4 million, restricted investments were $1.6 million, and marketable securities were $0.8 million. Total cash, cash equivalents, and restricted cash were approximately $9.5 million. Working capital was $73.4 million, down $24.0 million from March 31, 2022.
Total debt was $153.7 million gross, or $152.7 million net of issuance costs, versus $136.9 million gross at March 31, 2022. Current debt was $44.7 million and long-term debt was $108.0 million. The company reported approximately $19.0 million of available funds under its lines of credit, including $4.1 million of unused Overline Note capacity.
Material Changes Versus the Prior Comparable Period
- Quarterly revenue increased by $17.5 million, led by ground equipment sales, which rose 96% to $18.0 million; commercial jet engines and parts, which rose 27% to $19.0 million; and overnight air cargo, which rose 17% to $22.1 million.
- Six-month revenue increased by $31.3 million, or 39%. Commercial jet engines and parts revenue rose 71% to $41.8 million, while ground equipment sales rose 37% to $23.8 million.
- Quarterly operating income declined to $0.2 million from $0.7 million. Commercial jet engines and parts shifted to a $0.2 million operating loss from $1.9 million of operating income, primarily because a high-margin airframe sale did not recur and the segment recorded a $1.0 million inventory write-down.
- The company recorded a $0.5 million asset impairment in the quarter, including approximately $0.3 million related to a software project, and $1.0 million of inventory write-downs. No comparable charges were recorded in the prior-year quarter.
- Net results were adversely affected by the absence of the prior-year $8.3 million gain from forgiveness of a Paycheck Protection Program loan. Interest expense increased by $0.8 million in the quarter and $1.7 million for the six months.
- Operating cash use improved to $13.9 million from $22.8 million, but the company continued to consume cash from operations, primarily because of increases in receivables and inventories.
- Adjusted EBITDA increased to $2.3 million from $1.1 million in the quarter and to $3.8 million from $1.4 million for the six months, although the measure included add-backs for impairment and inventory charges.
Guidance, Outlook, Risks, and Unusual Items
- No formal revenue or earnings guidance is provided in the filing.
- Management expects COVID-19 effects, supply-chain disruptions, inflation, foreign currency volatility, higher interest rates, commodity-price increases, and the war in Eastern Europe to continue to negatively affect operations in the short term.
- Management states that some businesses may generate reduced operating cash flow or operate at a loss from time to time during fiscal 2023.
- The ground equipment business is seasonal, with stronger activity generally occurring before the winter season. Its order backlog was $21.1 million at September 30, 2022, compared with $10.9 million a year earlier.
- Revolving credit facilities at Air T and Contrail mature or expire within the following twelve months. The company is seeking refinancing but provides no assurance that refinancing will be completed or that terms will be favorable.
- The Overline Note matures on the earlier of March 31, 2023 or receipt of specified employee retention credits and tax refunds. As of September 30, 2022, the company had received $1.4 million of an estimated $9.1 million employee retention credit and none of an estimated $2.6 million tax refund; management states that timing or receipt of the remaining amounts is uncertain.
- On September 30, 2022, the company issued a $2.0 million subordinated promissory note to Cadillac Casting bearing 10% interest and maturing December 30, 2022.
- Contrail’s November 2022 loan amendment revised tangible-net-worth covenants and requires certain asset-sale proceeds to prepay Term Loan G. Effectiveness is conditioned on assigning two aircraft engine lease agreements as collateral.
- The company believes cash on hand, current financing, operating cash flow, and available revolver capacity will be sufficient for obligations for at least twelve months after issuance of the financial statements; this conclusion depends in part on refinancing and continued access to credit.
- Interest-rate swaps produced approximately $1.0 million of other comprehensive income in the quarter and $1.4 million for the six months. These gains are non-operating and may not be indicative of recurring performance.
Important Facts for Investors to Verify
- Confirm the ability to refinance or repay revolving obligations due within twelve months, including the $44.7 million of current debt.
- Track operating cash flow, inventory growth, and working-capital requirements, particularly in the commercial aviation businesses.
- Assess whether the $21.1 million ground-equipment backlog converts to revenue and cash flow at expected margins.
- Evaluate the sustainability of earnings excluding the prior-year PPP forgiveness gain and including current impairment and inventory charges.
- Monitor receipt of the remaining employee retention credits and tax refunds supporting the Overline Note maturity provisions.
- Review Contrail’s revised tangible-net-worth covenant, collateral requirements, and potential put/call obligations related to redeemable non-controlling interests.
- Consider the effect of higher interest rates, inflation, supply constraints, aviation demand, foreign currency movements, and geopolitical developments on liquidity and profitability.