Air T, Inc. Form 10-Q Summary
Reporting period: Three months ended June 30, 2022, representing the first quarter of fiscal 2023. The request metadata identifies “2021 Q1,” but the filing itself clearly reports June 30, 2022 and compares it with June 30, 2021.
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. The filing was unaudited and stated that quarterly results are not necessarily indicative of full-year performance.
Financial Performance and Position
| Metric | Q1 FY2023 | Q1 FY2022 | Change |
|---|---|---|---|
| Revenue | $50.9 million | $37.0 million | +$13.9 million, 38% |
| Operating income (loss) | $0.8 million | $(0.004) million | +$0.8 million |
| Net income (loss) | $(0.8) million | $0.3 million | $(1.1) million |
| Net income (loss) attributable to Air T stockholders | $(1.4) million | $0.3 million | $(1.7) million |
| Adjusted EBITDA | $1.5 million | $0.3 million | +$1.2 million |
| Operating cash flow | $(2.5) million | $(8.8) million | +$6.3 million |
Reported diluted loss per share was $0.50, compared with diluted earnings per share of $0.10 in the prior-year quarter. Interest expense increased to $1.8 million from $0.9 million. Income from equity-method investments increased to $0.5 million from $0.1 million, while other income declined to a $0.2 million expense from $1.2 million of income.
At June 30, 2022, cash and cash equivalents were $7.2 million, restricted cash was $2.3 million, marketable securities were $0.9 million, and restricted investments were $1.7 million. Including restricted cash, cash totaled approximately $9.5 million. Working capital was $107.7 million. Total debt was $141.2 million gross, or $140.2 million net of issuance costs, compared with $136.9 million gross at March 31, 2022. Available funds under lines of credit were approximately $32.9 million.
Material Changes Versus Prior Comparable Period
- Commercial jet engines and parts revenue increased 138% to $22.9 million, primarily from higher component sales and engine sales that did not occur in the prior-year quarter. Segment operating income improved to $3.1 million from a $0.2 million loss.
- Overnight air cargo revenue increased 9% to $20.6 million, principally due to higher FedEx administrative fees and maintenance labor revenue. Operating income increased to $1.1 million from $0.7 million.
- Ground equipment sales revenue decreased 29% to $5.8 million because of lower military deicing truck sales. Operating income declined to $0.1 million from $1.4 million. The segment backlog nevertheless increased to $17.2 million from $7.1 million.
- Corporate and other revenue increased to $1.6 million, primarily due to acquisitions, while its operating loss widened to $3.5 million from $1.9 million, mainly because of higher benefits costs.
- Revenue growth and improved receivable collections reduced operating cash usage, but inventory investment increased cash usage by approximately $4.6 million. Net cash increased by $1.2 million, aided by $4.6 million of financing cash inflows.
Guidance, Outlook, Risks and Unusual Items
Management provided no quantitative earnings or revenue guidance. It stated that COVID-19 continued to reduce demand for commercial aircraft, jet engines and parts, and that certain businesses could generate reduced operating cash flow or operate at a loss during fiscal 2023. Supply-chain disruption, inflation, workforce shortages, pricing pressure, employee retention, and product availability were identified as potential material risks.
Management believed cash on hand, existing financing, operating cash flow, and revolving credit availability would be sufficient to meet ordinary-course obligations for at least 12 months after issuance of the financial statements. However, the company had significant leverage and interest-rate exposure. Interest-rate swaps partially mitigate variable-rate debt risk.
During the quarter, the MBT revolving credit facility was increased from $17.0 million to $22.0 million, with an additional $5.0 million overline commitment. The overline commitment matures on the earlier of March 31, 2023 or receipt of expected employee retention credits and tax refunds; the filing stated that the timing and receipt of these funds were uncertain.
Other notable items included the February 2022 acquisition of GdW Beheer B.V., continued capital commitments to the CJVII aircraft investment venture, redeemable non-controlling interests totaling $10.3 million, and a potential future put or call involving the Contrail non-controlling interest. No such option exercise had been indicated as of the filing date.
Investor Verification Points
- Verify the sustainability of the sharp increase in commercial jet engine and parts revenue and whether it reflects repeatable demand or discrete engine transactions.
- Monitor inventory growth, particularly commercial jet engines and parts inventory, and its effect on operating cash flow.
- Review debt maturities, variable-rate exposure, covenant compliance, and availability under revolving facilities.
- Track the timing and collectability of the approximately $9.1 million employee retention credit and approximately $2.6 million tax refund referenced in the overline facility terms.
- Assess the impact of COVID-19, aviation demand, supply-chain disruption, inflation, and labor constraints on future margins.
- Evaluate future funding requirements for CJVII and potential payments related to redeemable non-controlling interests.