Air T, Inc. Form 10-Q Summary
Reporting period: The supplied filing is for the quarter ended June 30, 2020, not 2019 Q1 as indicated in the request metadata. Results are compared with the quarter ended June 30, 2019. The filing is unaudited and covers Air T, Inc.’s five operating segments: overnight air cargo, ground equipment sales, commercial jet engines and parts, printing equipment and maintenance, and corporate and other.
Financial Performance and Position
- Revenue: $37.0 million, down $10.2 million, or 22%, from $47.2 million. Overnight air cargo revenue declined 12% to $16.2 million; ground equipment sales increased 29% to $15.8 million; commercial jet engines and parts declined 71% to $4.7 million.
- Operating result: Operating loss was $0.3 million versus operating income of $1.0 million. Operating margin was approximately negative 0.7%, compared with positive 2.1% in the prior-year quarter.
- Net result: Net loss attributable to Air T stockholders was $0.8 million, or $0.29 per diluted share, compared with income of $1.8 million, or $0.79 per diluted share. Net income in the prior period included $0.2 million from discontinued operations and significant non-operating gains.
- Adjusted EBITDA: $0.1 million, compared with $1.5 million in the prior-year quarter. Adjusted EBITDA is a non-GAAP measure.
- Cash flow: Operating activities used $3.3 million, compared with $4.8 million provided in the prior-year quarter. Investing activities used $0.5 million, compared with $3.7 million. Financing activities provided $5.0 million, including PPP proceeds and borrowings.
- Liquidity: Cash, cash equivalents and restricted cash totaled $16.7 million at June 30, 2020, including $9.6 million of restricted cash. Marketable securities totaled approximately $2.8 million, and working capital was $43.5 million.
- Debt: Total debt was $91.2 million, or $91.0 million net of issuance costs, versus $86.2 million at March 31, 2020. Current portion of long-term debt was $37.2 million and long-term debt was $53.7 million.
- Balance sheet: Total assets were $153.2 million and total equity was $24.5 million at June 30, 2020. Inventories increased to $63.9 million from $60.6 million at March 31, 2020.
Material Changes Versus the Prior Comparable Period
- COVID-19 reduced demand for air cargo maintenance and commercial aviation assets, producing substantial declines in overnight air cargo and commercial jet engine and parts revenue.
- Ground equipment sales benefited from strong catering truck sales and improved operating leverage. Backlog increased to $48.7 million from $31.8 million a year earlier.
- Commercial jet engines and parts shifted from $1.9 million of operating income to a $0.9 million operating loss.
- Overnight air cargo operating income improved to $0.6 million from $0.02 million, primarily due to more efficient labor utilization and operational improvements.
- The prior-year period benefited from a $4.5 million gain related to the dissolution of Delphax entities and included an $0.8 million other-than-temporary investment impairment. These items did not recur in 2020.
- Global Aviation Services was sold on September 30, 2019; its prior-period results are presented as discontinued operations.
- The Company received an $8.2 million PPP loan in April 2020 and converted $9.5 million of revolving borrowings into a term loan in June 2020.
Outlook, Risks, Contingencies, and Unusual Items
- Management stated that all businesses remained open, but COVID-19 caused reduced demand, operational disruptions, and lower expected operating cash flow. Revenue declines continued into July 2020.
- Management believes available cash, operating cash flow, revolving credit and PPP proceeds should be sufficient to meet obligations for at least 12 months, but cautioned that future pandemic developments could adversely affect liquidity.
- Contrail management forecast probable non-compliance with its 1.25-to-1 debt service coverage covenant for the quarter ending September 30, 2020 and probable inability to satisfy its annual revolving-credit paydown requirement. Contrail was reported to be in compliance as of June 30, 2020.
- Contrail was seeking a waiver, revised financing terms, alternative financing, or funding under the Main Street Lending Program. No assurance was provided that financing or a waiver would be obtained.
- Air T guarantees up to $1.6 million of Contrail obligations, plus collection costs. The filing states there are no cross-default provisions between Contrail debt and the Company’s other debt agreements.
- The $8.2 million PPP loan bears interest at 1% and may be forgiven for eligible expenditures, but forgiveness was not assured as of the filing date.
- On August 11, 2020, AirCo 1’s revolving credit availability was reduced from $10.0 million to $7.5 million.
- The Company had $4.8 million of outstanding warrants to purchase trust preferred securities, with an expiration date extended to September 8, 2020, or earlier upon redemption or liquidation.
- The filing identifies continuing risks from aviation-market weakness, inventory valuation, variable-rate debt, covenant compliance, equity-method investment losses, and the uncertain duration and severity of COVID-19.
Important Facts for Investors to Verify
- Confirm the intended reporting period, because the supplied filing covers June 30, 2020 rather than 2019 Q1.
- Monitor Contrail’s September 30, 2020 debt-service covenant and annual revolver paydown requirement, including any waiver or refinancing.
- Assess whether PPP loan forgiveness was ultimately approved and the resulting debt and liquidity effects.
- Evaluate the sustainability of the $48.7 million ground-equipment backlog and its conversion into revenue and cash flow.
- Track commercial aviation demand, commercial jet engine and parts inventory, leasing activity, and potential impairment risk.
- Reconcile reported liquidity with restricted cash, debt maturities, credit-line reductions, and required principal repayments.
- Review the final settlement and any adjustment to the gain from the Global Aviation Services sale.