Air T, Inc. Form 10-Q Summary
Reporting period: Three and nine months ended December 31, 2022, compared with the corresponding 2021 periods. The filing represents fiscal third quarter 2023; the request metadata identifies “2021 Q3,” which is inconsistent with the filing. Air T is a holding company operating in overnight air cargo, ground equipment sales, commercial jet engines and parts, and corporate and other activities.
Financial Performance
| Metric | Three Months Ended Dec. 31, 2022 | Three Months Ended Dec. 31, 2021 | Nine Months Ended Dec. 31, 2022 | Nine Months Ended Dec. 31, 2021 |
|---|---|---|---|---|
| Revenue | $61.4 million | $45.4 million | $172.9 million | $125.6 million |
| Operating income | $0.1 million | $0.03 million | $1.1 million | $0.7 million |
| Net income attributable to Air T stockholders | $(0.6) million | $(1.3) million | $(3.3) million | $6.6 million |
| diluted earnings per share | $(0.21) | $(0.44) | $(1.14) | $2.28 |
| Adjusted EBITDA | $1.3 million | $0.5 million | $5.2 million | $1.9 million |
| Net cash used in operating activities | Not separately presented | Not separately presented | $(3.8) million | $(19.7) million |
- Nine-month revenue increased 37.7%, led by commercial jet engines and parts, up 77.1% to $63.6 million; corporate and other revenue increased 314.1% to $4.9 million.
- Third-quarter revenue increased 35.1%. Commercial jet engines and parts revenue increased 90.8%, while overnight air cargo revenue increased 19.6%.
- Operating income improved modestly despite higher corporate costs. Corporate and other generated an operating loss of $8.5 million for the nine-month period, compared with a $6.3 million loss in the prior year.
- The nine-month net loss reflects the absence of the prior-year $8.3 million PPP loan-forgiveness gain. Higher interest expense also offset operating gains, while equity-method investment income increased by $2.7 million.
- The third-quarter effective tax rate was unusually high at 325.0% because of valuation allowance changes, foreign tax-rate differences, captive-insurance tax treatment, and minority-interest effects. The nine-month effective rate was 20.9%.
Liquidity, Debt and Cash Flow
- Cash, cash equivalents and restricted cash totaled $6.5 million at December 31, 2022, including approximately $1.3 million of restricted cash. Marketable securities totaled approximately $0.6 million, and restricted investments totaled $1.5 million.
- Working capital was $63.2 million, down $34.2 million from March 31, 2022, primarily because additional borrowings became current within the next year.
- Total debt was $142.8 million gross, or $141.9 million net of debt issuance costs, compared with $136.9 million gross at March 31, 2022. Current debt was $42.3 million and long-term debt was $99.6 million.
- Approximately $22.0 million was available under revolving credit facilities at December 31, 2022. The MBT facility was increased from $17.0 million to $22.0 million; unused capacity included $8.2 million on the MBT revolver and $5.0 million under the Overline Note.
- Operating cash use improved to $3.8 million from $19.7 million. Investing cash use was $3.1 million versus $19.5 million, while financing activities provided $4.9 million versus $29.1 million in the prior year.
- Inventory increased to $86.2 million from $75.2 million, primarily reflecting higher commercial jet engine and parts inventory.
Material Changes and Unusual Items
- Equity-method investment income was $2.9 million for the nine-month period, primarily due to Air T’s share of Insignia Systems’ litigation-settlement-related earnings.
- The company recorded $1.7 million of inventory write-downs and $0.5 million of asset impairment during the nine months. Third-quarter inventory write-down expense was $0.6 million.
- Adjusted EBITDA increased to $5.2 million from $1.9 million, although it includes add-backs for depreciation, impairment and other specified items and is not a GAAP measure.
- Air T repurchased 28,752 common shares during the quarter for approximately $0.6 million.
- On January 31, 2023, after quarter-end, the company acquired 100% of Worldwide Aviation LLC, an aircraft servicing business, using a $1.0 million MBT loan, a $1.5 million seller note and $0.6 million of additional cash.
Guidance, Outlook and Risks
- No quantitative revenue or earnings guidance is provided.
- Management expects continuing effects from COVID-19, supply-chain disruption, labor shortages, inflation, higher interest rates, foreign-currency movements, and the war in Eastern Europe. Management states that demand for commercial aircraft, jet engines and parts remains below historical levels and that some businesses may continue to generate reduced operating cash flow or operate at a loss during fiscal 2023.
- Contrail was in compliance with its debt covenants at December 31, 2022, but management forecasts a possible debt-service-coverage-ratio violation during the following twelve months, principally when principal payments on its Main Street loan begin in November 2023.
- A covenant breach could permit Old National Bank to accelerate Contrail’s debt and enforce collateral remedies. The company states it would not have sufficient cash or available liquidity to repay the debt if accelerated.
- Contrail is seeking a waiver, revised financing terms, or alternative financing, but these actions are not finalized and are not assured. Air T is also seeking to refinance revolving facilities maturing or expiring within twelve months.
- Management concludes that available cash, financing, operating cash flow and revolving-credit capacity are probably sufficient for at least twelve months and that its plans alleviate substantial doubt about going-concern status.
- The company’s guarantee of Contrail obligations is capped at $1.6 million plus collection costs, and the filing states there are no cross-default provisions between Contrail debt and the company’s other debt agreements.
Investor Verification Items
- Verify the status and terms of any Old National Bank covenant waiver, refinancing, or alternative financing before the projected covenant pressure arises.
- Assess the maturity and refinancing risk on the $42.3 million of current debt and the MBT and Contrail revolving facilities.
- Evaluate whether increased inventory, particularly commercial jet engine and parts inventory, converts to cash without additional write-downs.
- Separate recurring operating performance from nonrecurring effects, including Insignia investment income, inventory impairments, prior-year PPP forgiveness, and tax-rate fluctuations.
- Monitor the effect of interest-rate increases, supply-chain and labor costs, aviation demand, geopolitical conditions, and COVID-19-related disruption.
- Review the financial and integration implications of the post-quarter-end Worldwide Aviation acquisition and remaining capital commitments to the aircraft joint venture.