Air T, Inc. (AIR T) - 10-Q Summary
Business Context and Reporting Period
This is a Quarterly Report on Form 10-Q for Air T, Inc. and subsidiaries for the period ended September 30, 2009. The Company operates as a smaller reporting company with three primary 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 heavily reliant on FedEx for its air cargo segment and the U.S. Air Force for a significant portion of its ground equipment sales.
Key Financial Metrics
| Metric | Three Months Ended Sep 30, 2009 | Six Months Ended Sep 30, 2009 |
|---|---|---|
| Total Operating Revenues | $20,141,788 | $39,090,095 |
| Operating Income | $1,330,592 | $3,065,729 |
| Net Earnings | $847,055 | $1,965,022 |
| Diluted EPS | $0.35 | $0.81 |
| Cash and Equivalents | $2,802,262 | $2,802,262 (Balance Sheet) |
| Working Capital | $19,436,234 | $19,436,234 |
| Long-Term Debt | $68,709 | $68,709 |
| Revolving Credit Line Balance | $63,000 | $63,000 |
Operating Margins: Operating margin for the six months ended September 30, 2009, was approximately 7.8% ($3.07M / $39.09M). Net margin was approximately 5.0%.
Material Changes vs. Prior Period
- Revenue Decline: Consolidated revenue decreased 16% ($3.87M) for the quarter and 16% ($7.34M) for the six-month period compared to the prior year.
- Air Cargo: Down 15% (quarter) and 11% (six months) due to a reduction in the number of aircraft operated (81 vs. 87) and lower pass-through costs.
- Ground Equipment Sales: Down 24% (quarter) and 27% (six months) due to decreased deliveries of military and domestic commercial deicers.
- Ground Support Services: Up 28% (quarter) and 28% (six months) due to expansion of the customer base and service locations.
- Profitability: Operating income decreased 34% for the quarter and 25% for the six-month period. Net earnings decreased 36% for the quarter and 26% for the six-month period.
- Cash Flow: Net cash used in operating activities was $2.75M for the six months ended September 30, 2009, a significant reversal from the $1.80M provided in the prior year period. This was driven by a significant increase in accounts receivable and the paydown of accrued compensation and expenses.
- Dividends: The Company declared and paid a cash dividend of $0.33 per share in June 2009 (totaling $800,080).
Outlook, Risks, and Contingencies
- Contract Renewals: On July 15, 2009, Global Ground Support (GGS) was awarded a new one-year contract with four one-year extension options to supply deicing trucks to the U.S. Air Force. Management expects margins on these trucks to be reduced compared to the expired contract. Deliveries are expected to begin in late fiscal 2010 or early fiscal 2011.
- Customer Concentration Risk: The Air Cargo segment relies almost exclusively on FedEx. Loss of this contract would have a material adverse effect. The Ground Support Services segment is monitoring the Northwest Airlines and Delta Airlines merger, as the combined entity represents a substantial portion of its business.
- Liquidity: The Company amended its $7.0M revolving credit line in September 2009, extending the expiration to August 31, 2011. As of September 30, 2009, $6.94M was available under the facility. The Company maintains a strong working capital position of $19.4M.
- Legal Contingencies: Litigation regarding a 2005 de-icing boom collapse in Philadelphia has been settled. The Company believes remaining pending personal injury and former employee matters will not have a material adverse effect.
- Seasonality: Ground equipment sales remain somewhat seasonal, though diversification into military and international markets has lessened the impact.
Investor Verification Checklist
- FedEx Contract Status: Verify the stability of the dry-lease agreements with FedEx, given the 100% reliance of the Air Cargo segment.
- U.S. Air Force Contract Margins: Confirm the impact of the new Air Force contract on future gross margins for the Ground Equipment Sales segment.
- Accounts Receivable Aging: Review the significant increase in accounts receivable ($3.56M increase in operating cash flow usage) to assess collection risks in the current economic environment.
- Order Backlog: Monitor the GGS order backlog, which stood at $13.6M at September 30, 2009, down from $18.6M a year prior.
- Dividend Sustainability: Assess the ability to maintain the annual dividend policy given the decline in operating cash flow and net earnings.