Air T, Inc. (AIR T) - 10-Q Summary
Business Context and Reporting Period
This filing is a Quarterly Report on Form 10-Q for the period ended June 30, 2009. Air T, Inc. operates in three segments: Overnight Air Cargo (subsidiaries Mountain Air Cargo and CSA Air), Ground Equipment Sales (Global Ground Support), and Ground Support Services (Global Aviation Services). The company is a smaller reporting company incorporated in Delaware.
Key Financial Metrics
| Metric | Q1 2009 (Three Months Ended June 30) | Q1 2008 (Three Months Ended June 30) |
|---|---|---|
| Total Operating Revenues | $18,948,307 | $22,416,577 |
| Operating Income | $1,735,137 | $2,080,519 |
| Net Earnings | $1,117,967 | $1,340,250 |
| Diluted EPS | $0.46 | $0.55 |
| Cash and Cash Equivalents | $2,525,772 | $43,599 (End of Period 2008) |
| Working Capital | $18,090,000 | N/A |
| Debt Obligations | $27,137 (Current portion + Capital Leases) | N/A |
Segment Performance:
- Overnight Air Cargo: Revenue $8.79M (down 7%); Operating Income $795K.
- Ground Equipment Sales: Revenue $8.10M (down 29%); Operating Income $1.36M.
- Ground Support Services: Revenue $2.06M (up 27%); Operating Income $255K (vs. loss of $65K prior year).
Material Changes vs. Prior Period
- Revenue Decline: Consolidated revenue decreased 15% ($3.47M) primarily due to a 29% drop in Ground Equipment Sales driven by fewer military deicing unit deliveries. Air Cargo revenue fell 7% due to a reduction in the number of aircraft operated (82 vs. 87).
- Expense Reduction: Operating expenses decreased 15% ($3.12M), largely tracking the revenue decline in the equipment segment and reduced pass-through costs in air cargo. General and administrative expenses dropped 16% due to a lower provision for doubtful accounts.
- Cash Flow: Net cash used in operating activities was $2.99M, an increase in usage compared to $1.18M in the prior year, driven by a significant increase in accounts receivable and a reduction in accrued expenses.
- Dividends: The company declared a dividend of $0.33 per share, an increase from $0.30 in the prior year.
Outlook, Risks, and Contingencies
- New Contract: On July 15, 2009, the Ground Equipment Sales subsidiary (GGS) was awarded a new one-year contract with the U.S. Air Force for deicing trucks, with four one-year extension options. Management expects margins on this new contract to be lower than the expired contract.
- Customer Concentration: The Air Cargo segment relies almost exclusively on FedEx (46% of total revenue). Loss of this contract would have a material adverse effect.
- Liquidity: The company maintains a $7.0M revolving credit line with no outstanding balance as of June 30, 2009. Working capital increased to $18.1M.
- Legal Contingencies: Litigation regarding a 2005 deicing boom collapse in Philadelphia is largely resolved. A final settlement involves GGS providing labor and materials for a replacement boom, which management does not expect to be material. A $942,000 deferred retirement obligation for an executive was paid in July 2009.
- Management Commentary: Management remains cautious regarding general economic conditions but is focused on conserving cash and monitoring costs.
Investor Verification Checklist
- FedEx Contract Status: Verify the stability of the dry-lease agreements with FedEx, which account for nearly half of total revenue.
- Military Backlog: Confirm the volume and margin expectations of the new U.S. Air Force contract awarded in July 2009.
- Accounts Receivable: Review the significant increase in accounts receivable ($2.9M increase in cash flow usage) to assess collection risks in the current economic environment.
- Dividend Sustainability: Assess the ability to maintain the increased dividend payout given the 15% revenue decline and cash outflows.
- Legal Settlements: Monitor the final costs associated with the Philadelphia deicing boom litigation settlement.