Air T, Inc. (AIR T) - 10-Q Summary
Business Context and Reporting Period
This is a Quarterly Report (Form 10-Q) for Air T, Inc., a Delaware corporation and smaller reporting company, for the quarterly period ended December 31, 2010. The Company 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). As of January 21, 2011, there were 2,431,286 shares of common stock outstanding.
Key Financial Metrics
| Metric | Three Months Ended Dec 31, 2010 | Nine Months Ended Dec 31, 2010 |
|---|---|---|
| Total Operating Revenues | $22,313,690 | $57,508,249 |
| Operating Income | $914,580 | $2,141,317 |
| Net Earnings | $598,519 | $1,443,249 |
| Earnings Per Share (Diluted) | $0.24 | $0.58 |
| Cash and Cash Equivalents | $6,136,011 | $6,136,011 (Ending Balance) |
| Working Capital | $22,101,947 | $22,101,947 |
| Long-Term Debt | $0 | $0 |
| Available Credit Line | $7,000,000 | $7,000,000 |
Material Changes vs. Prior Period
- Revenue: Consolidated revenue for the three months ended Dec 31, 2010, was flat ($22.3M) compared to the prior year. For the nine-month period, revenue decreased 6% to $57.5M.
- Profitability: Operating income for the quarter dropped 48% to $915K, and for the nine-month period, it fell 56% to $2.14M. Net earnings for the quarter declined 52% to $599K.
- Segment Performance:
- Air Cargo: Revenues increased 7% (quarter) and 5% (nine months) due to administrative fees and maintenance labor on four additional ATR-72 aircraft.
- Ground Equipment Sales: Revenues increased 3% for the quarter but fell 19% for the nine months. The decline was driven by a 94% drop in USAF deicer sales, partially offset by a 58% increase in international sales.
- Ground Support Services: Revenues fell 39% for the quarter and 4% for the nine months due to a significant reduction in the scope of work for Delta Airlines.
- Cash Flow: Net cash used in operating activities increased significantly to $4.86M for the nine-month period (compared to $1.33M used in the prior year), primarily due to a $5.88M increase in inventory levels to support a growing backlog.
Outlook, Risks, and Management Commentary
- Backlog: The Ground Equipment Sales (GGS) segment reported a total order backlog of $19.0 million at December 31, 2010, up from $5.7 million a year prior. This includes $4.9 million in USAF deicer orders and a $10.5 million contract with the City of Charlotte.
- Contract Risks: The Air Cargo segment relies heavily on FedEx, which accounts for nearly all revenue in that segment. Contracts are renewable on 2-5 year terms but can be terminated by FedEx with 30 days' notice. Loss of these contracts would have a material adverse effect.
- Delta Contract: The Ground Support Services segment faces reduced profitability following a competitive bidding process with Delta Airlines that reduced the scope of work at its largest location.
- Liquidity: The Company maintains a $7 million revolving credit line with no outstanding balance. Management believes current cash and short-term investments are sufficient for operations.
- Dividends: The Company declared a cash dividend of $0.33 per share for the nine-month period.
Investor Verification Checklist
- FedEx Dependency: Verify the stability of the contract with FedEx, which represents the majority of the Air Cargo segment's revenue.
- USAF Order Fulfillment: Monitor the execution of the $4.9 million USAF deicer backlog, as military sales were a significant driver of revenue in prior periods.
- Inventory Levels: Assess the $12.6 million inventory balance against the $19 million backlog to ensure inventory is not becoming obsolete or tied up in slow-moving orders.
- Delta Contract Impact: Evaluate the long-term revenue trajectory of the Ground Support Services segment following the reduction in Delta Airlines work.
- Cash Burn: Review the trend of negative operating cash flow ($4.86M used in nine months) and its sustainability given the current cash balance of $6.1M.