Air T, Inc. Form 10-Q Summary
Reporting period: The filing covers the three and nine months ended December 31, 2021, representing fiscal 2022 third-quarter and year-to-date results. The request metadata identifies “2020 Q3,” but the filing itself is for 2021 fiscal third-quarter results. Financial statements are unaudited.
Business Context
Air T is a holding company operating in overnight air cargo, ground equipment sales, commercial aircraft engines and parts, and corporate and other activities. The company also formed Contrail Asset Management and Contrail JV II during the period to pursue aircraft and engine leasing, trading, and disassembly investments.
Financial Performance and Position
| Metric | Three Months Ended December 31 | Nine Months Ended December 31 |
|---|---|---|
| Revenue | $45.4 million, down 19% | $125.6 million, down 2% |
| Operating income | $0.025 million, versus $1.1 million | $0.7 million, versus $(2.9) million |
| Net income attributable to Air T stockholders | $(1.3) million, versus $2.1 million | $6.6 million, versus $(1.7) million |
| EPS attributable to Air T stockholders | $(0.44), versus $0.73 | $2.28, versus $(0.58) |
| Adjusted EBITDA | $0.5 million, versus $1.3 million | $1.9 million, versus $(1.3) million |
Approximate operating margins were 0.1% for the quarter and 0.6% year to date, compared with approximately 1.9% and negative 2.2%, respectively, in the prior comparable periods. The nine-month earnings improvement was substantially affected by an $8.3 million gain from forgiveness of the PPP loan.
- Quarterly segment revenue: Overnight air cargo increased 12% to $18.2 million; ground equipment sales decreased 27% to $15.2 million; commercial jet engines and parts decreased 37% to $11.4 million.
- Year-to-date segment revenue: Overnight air cargo increased 12% to $55.9 million; ground equipment sales decreased 33% to $32.6 million; commercial jet engines and parts increased 24% to $35.9 million.
- Segment profitability: Quarterly operating income declined primarily because of lower ground equipment sales. Commercial jet engines and parts improved to $0.3 million of operating income from a $1.6 million loss. Year-to-date commercial jet engines and parts improved to $2.0 million of operating income from a $4.8 million loss.
- Cash and liquidity: Cash, cash equivalents, and restricted cash totaled $5.8 million at December 31, 2021, including approximately $2.9 million of restricted cash. Marketable securities totaled $2.6 million, and management reported approximately $36.8 million of available borrowing capacity. Working capital was $85.6 million.
- Cash flow: Operating activities used $19.7 million during the first nine months, compared with $6.7 million used in the prior year. Investing activities used $19.5 million, primarily for the St. Louis Park real estate acquisition and investment in CAM. Financing activities provided $29.1 million.
- Debt: Total debt was $109.4 million gross, or $108.4 million net of issuance costs, versus $88.6 million gross at March 31, 2021. The increase reflects new borrowings, including a $9.9 million secured real estate loan. Debt includes $25.0 million of 8% Trust Preferred Securities.
- Balance sheet: Total assets were $163.8 million and total liabilities were $134.6 million at December 31, 2021. Inventories increased to $76.4 million from $72.0 million at March 31, 2021, principally reflecting aviation-related inventory.
Material Changes Versus Prior Comparable Period
- Quarterly revenue fell $10.4 million, driven by lower deicing truck sales and the absence of three prior-year Contrail asset sales that had no profit margin.
- Ground equipment backlog declined to $3.7 million from $17.3 million at December 31, 2020, while finished goods inventory increased to $8.7 million from approximately $1.8 million.
- Year-to-date operating results improved by $3.6 million, but reported net income benefited from the nonrecurring $8.3 million PPP forgiveness gain.
- The company recorded a $0.3 million other-than-temporary impairment on its investment in Cadillac Casting.
- Air T purchased its executive office real estate for $13.4 million, funded with approximately $3.3 million of cash and $9.9 million of new secured debt.
- The company issued approximately $7.9 million of Trust Preferred Securities during the first three quarters of fiscal 2022.
Outlook, Risks, and Unusual Items
Management provided no formal numerical revenue or earnings guidance. Management expects COVID-19 effects to continue to some extent and warned that aviation demand, operating cash flow, and profitability may remain reduced or negative in some businesses during the remainder of fiscal 2022 and beyond.
- COVID-19 disruptions continue to affect demand for commercial aircraft, engines, and parts.
- Supply-chain disruption, inflation, workforce shortages, wage pressure, product availability, and the ability to fulfill orders could materially affect results.
- The ground equipment business is seasonal, with revenue and operating income typically lower in the first and fourth fiscal quarters.
- Contrail has a redeemable non-controlling interest valued at $7.9 million. The seller may exercise a put option, although neither party had indicated an intent to do so as of the filing date.
- CAM and CJVII had remaining company and partner capital commitments of approximately $4.2 million and $28.9 million, respectively, at December 31, 2021. The timing of remaining commitments was not known.
- The company stated that available cash, operating cash flow, and revolving credit capacity should be sufficient for obligations over at least the next 12 months, but operating cash flow was significantly negative year to date.
- Subsequent to quarter-end, Air T applied for an approximately $9.1 million Employee Retention Credit; eligibility, approval timing, and proceeds were uncertain.
- In February 2022, the company borrowed $5.0 million and used the proceeds plus $2.7 million of cash to acquire a 70% interest in GdW Beheer B.V., an aviation data and information business.
Important Facts for Investors to Verify
- Whether the $8.3 million PPP forgiveness gain and any potential Employee Retention Credit should be excluded when assessing recurring earnings and cash generation.
- The sustainability of liquidity given $19.7 million of year-to-date operating cash use, $108.4 million of net debt, and substantial aviation inventory.
- Whether ground equipment backlog recovers from $3.7 million and whether elevated finished goods inventory converts into cash without impairments or margin pressure.
- The potential timing and funding requirements of the Contrail non-controlling interest put option and CAM/CJVII capital commitments.
- The effect of COVID-19, supply-chain constraints, inflation, labor shortages, and aviation-market recovery on segment demand and margins.
- The terms, integration, and financial contribution of the February 2022 GdW Beheer acquisition.
- The valuation and performance of equity-method investments, including Cadillac Casting and Insignia Systems.