AIRT

Air T, Inc. (AIR T) - 10-Q Filing Summary

Business Context and Reporting Period

This is a Quarterly Report on Form 10-Q for Air T, Inc., a Delaware corporation, for the quarterly period ended December 31, 2009. The Company operates in three segments: Overnight Air Cargo (subsidiaries Mountain Air Cargo and CSA Air), Ground Equipment Sales (subsidiary Global Ground Support), and Ground Support Services (subsidiary Global Aviation Services). The Company is classified as a smaller reporting company.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue: Consolidated revenue decreased 5% ($1.2M) for the quarter and 12% ($8.6M) for the nine-month period compared to the prior year.
  • Air Cargo: Revenues declined due to a reduction in the number of revenue aircraft (81 vs. 87 in the prior year), resulting in lower pass-through costs and administrative fees from primary customer FedEx.
  • Ground Equipment Sales: Revenues decreased 8% for the quarter and 21% for the nine-month period, driven by a slowdown in domestic commercial deicer deliveries and a lower order backlog ($5.7M vs. $12.2M a year ago).
  • Ground Support Services: Revenues increased 25% for the quarter and 27% for the nine-month period due to business expansion and new customer acquisition.
• Operating Income: Increased 37% ($482k) for the quarter despite lower revenues, driven by improved gross margins in the Ground Equipment segment and significant growth in Ground Support Services. For the nine-month period, operating income decreased 10% ($551k).
• Cash Flow: Net cash used in operating activities was $1.33M for the nine months ended Dec 31, 2009, compared to $3.32M provided in the prior year. This shift was primarily due to a significant increase in accounts receivable and the payoff of an aircraft term loan.
• Non-Operating Items: Non-operating income decreased significantly compared to the prior year, which included a $550,000 lawsuit settlement and a $195,000 retirement plan settlement expense in 2008 that did not recur in 2009.

Outlook, Risks, and Management Commentary

• Customer Concentration Risk: The Air Cargo segment relies almost exclusively on FedEx. Loss of this contract would have a material adverse effect. FedEx determines aircraft types and routes.
• Contract Renewals: The Ground Support Services segment is in a competitive bidding process for a significant portion of its business with Delta Airlines. The outcome will significantly impact future operations.
• Order Backlog: The Ground Equipment Sales segment has a low backlog and has not yet received orders under a new one-year contract with the U.S. Air Force awarded in July 2009. Management cannot currently project future order levels from the military.
• Liquidity: The Company maintains a $7.0M revolving credit line with no outstanding balance. Management is focused on conserving cash and controlling costs.
• Seasonality: Ground Equipment Sales remains somewhat seasonal, particularly regarding commercial deicers, though military contracts have historically mitigated this.

Key Facts for Investor Verification

• FedEx Contract Status: Verify the stability of the dry-lease agreements with FedEx, which account for 45-47% of total revenue and are terminable with 30 days' notice.
• Delta Airlines Bid: Monitor the outcome of the competitive bid process for Ground Support Services work with Delta Airlines, a substantial portion of that segment's revenue.
• U.S. Air Force Orders: Track the receipt of orders under the new U.S. Air Force deicer contract to assess the recovery of the Ground Equipment Sales backlog.
• Accounts Receivable: Review the significant increase in accounts receivable ($11.6M vs. $6.3M a year ago) and the associated allowance for doubtful accounts ($139k) given the economic environment.
• Dividend Policy: Note the payment of a $0.33 per share dividend in June 2009 and the Board's policy to pay annual dividends based on profitability.