Air T, Inc. Form 10-K Summary
Business context and reporting period
This filing is Air T, Inc.’s Annual Report on Form 10-K for the fiscal year ended March 31, 2023, filed June 27, 2023. The request metadata refers to “2021 Q4,” but the filing reports fiscal 2023 and fiscal 2022 comparative results.
Air T is a holding company operating four segments: overnight air cargo, ground equipment sales, commercial jet engines and parts, and corporate and other. On January 31, 2023, the Company acquired Worldwide Aircraft Services, Inc. (WASI), an aircraft repair station, for approximately $3.0 million of consideration, including cash and seller financing.
Financial performance and position
| Metric | Fiscal 2023 | Fiscal 2022 | Change |
|---|---|---|---|
| Revenue | $247.3 million | $177.1 million | Up 40% |
| Operating income (loss) | $(4.4) million | $8.8 million | Down $13.2 million |
| Net income (loss) | $(11.8) million | $12.2 million | Declined $24.0 million |
| Net loss attributable to Air T stockholders | $(12.3) million | $10.9 million | Declined $23.2 million |
| Adjusted EBITDA | $6.0 million | $11.4 million | Down $5.4 million |
| Cash flow from operating activities | $16.9 million | $(33.1) million | Improved $50.0 million |
| Interest expense, net | $7.9 million | $4.9 million | Up $3.0 million |
Revenue growth was led by commercial jet engines and parts, which increased 76% to $101.7 million, overnight air cargo, which increased 22% to $90.5 million, and ground equipment sales, which increased 15% to $48.5 million. Corporate and other revenue increased 139% to $6.6 million.
Segment operating income was $4.0 million for overnight air cargo, $3.1 million for ground equipment sales, $(1.0) million for commercial jet engines and parts, and $(10.6) million for corporate and other. The consolidated operating margin was approximately negative 1.8%, compared with approximately 4.9% in fiscal 2022. The filing does not provide a consolidated net margin separately; net loss as a percentage of revenue was approximately negative 4.8%.
At March 31, 2023, cash, cash equivalents and restricted cash totaled $7.1 million, including $0.8 million of cash collateral. Restricted investments held as statutory reserves totaled $2.2 million. Working capital was $52.3 million, down $45.1 million, primarily because the current portion of long-term debt increased by $32.3 million and the employee retention credit receivable declined by $8.2 million.
Total debt was $125.9 million, or $125.1 million net of debt issuance costs, compared with $136.9 million and $135.8 million, respectively, at March 31, 2022. Current debt was $38.7 million and long-term debt was $86.3 million. The Company reported total equity of $13.0 million, down from $25.7 million.
Material changes versus the prior comparable period
- Revenue increased $70.2 million, but operating results deteriorated because of higher corporate costs, increased interest expense and a $7.3 million inventory write-down in the commercial jet engines and parts segment.
- The commercial jet engines and parts segment moved from $3.6 million of operating income to a $1.0 million operating loss. The segment’s Adjusted EBITDA nevertheless increased to $7.1 million from $5.2 million.
- Corporate and other operating loss increased to $10.6 million from $0.9 million. Fiscal 2022 benefited from a $9.1 million Employee Retention Credit offset to general and administrative expense; that benefit did not recur in fiscal 2023.
- Fiscal 2022 included an $8.3 million gain from forgiveness of a Paycheck Protection Program loan; there was no comparable gain in fiscal 2023.
- Operating cash flow improved substantially, primarily because the Company received $8.2 million of employee retention credit refunds and reduced inventory balances.
- FedEx-related aircraft in the overnight air cargo segment increased from 72 to 85, contributing to higher labor revenue, administrative fees and reimbursed pass-through costs.
- GGS backlog was $13.6 million at March 31, 2023, compared with $14.0 million a year earlier; the Company expected the backlog to be filled during fiscal 2024.
Outlook, risks, contingencies and unusual items
Management stated that inflation, higher interest rates, supply-chain disruptions, labor shortages and lingering effects of COVID-19 create material uncertainty. The Company expects some businesses may continue to generate reduced operating cash flow or operate at a loss beyond fiscal 2023. No formal earnings or revenue guidance was provided.
- FedEx accounted for approximately 36% of consolidated revenue and 98% of overnight air cargo revenue. The agreements can generally be terminated on 90 days’ notice, and individual aircraft leases can be terminated on 10 days’ notice. As of the filing date, FedEx was permitted to terminate under certain customer-concentration provisions.
- Contrail’s debt included a $12.4 million revolver and $38.2 million Term Loan G at March 31, 2023. Contrail amended its loan arrangements after a projected covenant issue and agreed to make voluntary payments totaling $20.0 million by September 30, 2023; $6.7 million had been paid by March 31, 2023. Management believed the remaining $13.3 million payment was highly probable to be funded, but the filing states that the Company would not have sufficient liquidity to repay all Contrail debt if accelerated.
- The Company was in compliance with applicable financial covenants at March 31, 2023. Management believed available cash, financing capacity and operating cash flow would be sufficient for obligations for at least 12 months after issuance of the financial statements. The Company was seeking to refinance the Contrail revolver, with no assurance of favorable or successful refinancing.
- Subsequent to year-end, the MBT revolving facility maturity was extended to August 31, 2024, with a seasonal commitment range of $17.0 million to $19.0 million and SOFR-based pricing. Contrail and AirCo 1 also transitioned certain LIBOR-based borrowings to SOFR-based rates.
- The Company recorded a $7.3 million commercial jet engine and parts inventory write-down, including $5.4 million related to a decision to monetize three engines at proceeds below carrying value.
- The Company disclosed a ransomware attack in May 2022 that disrupted certain systems. Operations were restored, and management did not believe the incident would have a material adverse effect, but cybersecurity remains a material risk.
- Contrail and Shanwick had redeemable non-controlling interests totaling $12.7 million at March 31, 2023. The Contrail interest was valued at $8.0 million and the Shanwick interest at $4.7 million; exercise of related put or call options could require future cash payments.
- The Company repurchased 51,794 common shares for approximately $1.1 million during fiscal 2023 and has not paid cash dividends since 2014.
Most important facts for investors to verify
- Reconcile the $247.3 million of revenue growth with the $4.4 million operating loss and $12.3 million loss attributable to Air T stockholders.
- Review the sustainability of liquidity, the $38.7 million current debt balance, upcoming maturities and required Contrail payments.
- Assess dependence on FedEx, including termination rights, aircraft-count flexibility and customer concentration.
- Evaluate the recoverability of commercial jet engine and parts inventory after the $7.3 million write-down and the assumptions supporting future demand and asset values.
- Monitor covenant compliance, refinancing of the Contrail revolver, SOFR transition effects and floating-rate interest expense.
- Review the valuation and potential exercise of Contrail and Shanwick redeemable non-controlling interests.
- Consider the impact of inflation, labor availability, supply-chain constraints, aviation-cycle risks, weather-related deicing demand and cybersecurity incidents.