Air T, Inc. (AIR T) - Q2 2009 10-Q Summary
Business Context and Reporting Period
This filing is a Quarterly Report on Form 10-Q for the period ended September 30, 2008 (Second Quarter of Fiscal Year 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 Delaware corporation with principal offices in Maiden, North Carolina.
Key Financial Metrics
| Metric | Three Months Ended Sep 30, 2008 | Six Months Ended Sep 30, 2008 |
|---|---|---|
| Total Operating Revenues | $24,012,321 | $46,428,898 |
| Operating Income | $2,018,445 | $4,098,964 |
| Net Earnings | $1,321,814 | $2,662,064 |
| Diluted EPS | $0.55 | $1.10 |
| Cash and Cash Equivalents | $975,722 | $975,722 (Balance Sheet) |
| Working Capital | $16,057,252 | N/A |
| Long-Term Debt | $56,597 | $56,597 |
| Operating Cash Flow (6mo) | N/A | $1,795,714 |
Material Changes vs. Prior Period
- Revenue Growth: Consolidated revenue increased 38% ($6.6M) for the quarter and 40% ($13.2M) for the six months compared to the prior year periods.
- Segment Performance:
- Overnight Air Cargo: Revenue up 22% (QoQ) and 17% (6mo) due to increased maintenance labor hours and rate increases passed through to the primary customer, FedEx.
- Ground Equipment Sales: Revenue up 39% (QoQ) and 47% (6mo) driven by increased military deicer deliveries and commercial catering truck orders.
- Ground Support Services: Revenue up significantly ($1.7M vs $223k in Q3 2007) as the segment expanded operations following its formation in late 2007.
- Profitability: Net earnings increased 146% for the quarter and 129% for the six months. Operating margins improved as revenue growth outpaced the increase in operating expenses.
- Liquidity: Cash and cash equivalents increased from $51,858 at March 31, 2008, to $975,722 at September 30, 2008. Working capital increased by $957,000.
Outlook, Risks, and Contingencies
- Management Commentary: Management expressed satisfaction with the first two quarters but remains cautious regarding general economic and industry conditions. The company is focused on conserving cash and tightening credit policies.
- Customer Concentration Risk: The Overnight Air Cargo segment relies almost exclusively on FedEx Corporation (48% of total revenue). Loss of this contract would have a material adverse effect.
- Legal Contingencies: The company faces ongoing litigation related to a de-icing boom collapse at Philadelphia International Airport in 2005.
- U.S. Airways: Seeking ~$2.9M for aircraft damage; trial scheduled for November 2008. GGS's insurance coverage is deemed sufficient.
- City of Philadelphia: Seeking replacement costs (~$600k); insurance carrier denied coverage. Management does not believe the ultimate liability will be material.
- Debt and Credit: The company has a $7,000,000 revolving credit line extended to August 2010. No amounts were outstanding as of September 30, 2008. The company is in compliance with all covenants.
- Dividends: A cash dividend of $0.30 per share was declared and paid in June 2008.
Investor Verification Checklist
- FedEx Contract Status: Verify the stability of the primary air cargo contract with FedEx, given the 48% revenue concentration.
- Legal Exposure: Monitor the outcome of the U.S. Airways and City of Philadelphia lawsuits regarding the 2005 de-icing boom collapse.
- Inventory Levels: Review the $11.25M inventory balance, which increased significantly due to production levels for the Ground Equipment segment.
- Accounts Receivable: Assess the collectability of receivables, particularly those generated by the new Ground Support Services segment, noting the increased allowance for doubtful accounts.
- Seasonality: Confirm if the strong Q2 results for Ground Equipment Sales are sustainable or driven by specific military/commercial delivery cycles.