Air T, Inc. Form 10-Q Summary
Reporting period: The provided filing is for the quarter and nine months ended December 31, 2023, Air T’s fiscal third quarter and first nine months of fiscal 2024. The request metadata identifies “2022 Q3,” but the filing compares fiscal 2024 with fiscal 2023. The financial statements are unaudited.
Business Context
Air T is a holding company operating four segments: overnight air cargo, ground equipment sales, commercial jet engines and parts, and corporate and other. Its air cargo operations include routes operated for FedEx; its other businesses include deicing equipment, aircraft and engine asset management, parts sales, repair services, and software subscriptions.
Financial Performance and Position
| Metric | Three months ended Dec. 31, 2023 | Three months ended Dec. 31, 2022 | Nine months ended Dec. 31, 2023 | Nine months ended Dec. 31, 2022 |
|---|---|---|---|---|
| Revenue | $63.8 million | $61.4 million | $214.2 million | $172.9 million |
| Operating income (loss) | $(1.6) million | $0.1 million | $(0.2) million | $1.1 million |
| Net income (loss) | $(2.1) million | $0.1 million | $(3.7) million | $(2.0) million |
| Net loss attributable to Air T stockholders | $(3.0) million | $(0.6) million | $(5.1) million | $(3.3) million |
| Loss per diluted share | $(1.06) | $(0.21) | $(1.82) | $(1.14) |
| Adjusted EBITDA | $(0.4) million | $1.3 million | $2.5 million | $5.2 million |
Quarterly revenue increased 3.8%, while nine-month revenue increased 23.8%. Revenue growth did not translate into improved profitability: quarterly operating results declined from $0.1 million of income to a $1.6 million loss, and nine-month operating results declined from $1.1 million of income to a $0.2 million loss.
- Overnight air cargo: Revenue increased 32.9% in the quarter and 31.8% year to date; operating income rose to $1.6 million and $5.6 million, respectively. The WASI acquisition contributed approximately $2.0 million of quarterly revenue and $9.0 million of nine-month revenue.
- Ground equipment sales: Revenue decreased 47.7% in the quarter and 18.8% year to date. The segment recorded operating losses of $0.5 million for the quarter and $0.6 million year to date, primarily because fewer deicing trucks were sold. Backlog was $6.2 million at December 31, 2023, versus $12.5 million a year earlier.
- Commercial jet engines and parts: Revenue increased 11.1% in the quarter and 42.3% year to date, but operating income declined to a $0.6 million loss for the quarter and $2.0 million of income year to date. Results reflected lower component margins and engine sales at zero profit margin following prior inventory write-downs.
- Corporate and other: Revenue increased 28.3% in the quarter and 27.4% year to date, while operating losses narrowed to $2.1 million and $7.1 million, respectively, due primarily to higher software subscription revenue and lower general and administrative expense.
Cash Flow, Liquidity and Debt
- Operating cash flow was $23.1 million for the nine months ended December 31, 2023, compared with $(3.8) million in the prior-year period. The improvement was driven primarily by a $17.0 million inventory reduction, compared with a $12.5 million inventory increase in the prior year.
- Investing activities provided $0.2 million, compared with $(3.1) million in the prior-year period. Capital expenditures were $0.7 million.
- Financing activities used $25.2 million, primarily reflecting debt repayments, partially offset by $7.3 million of proceeds from trust preferred securities.
- Cash, cash equivalents and restricted cash totaled $5.2 million at December 31, 2023, compared with $7.1 million at March 31, 2023. The company also held $1.5 million of restricted investments.
- Management reported approximately $35.5 million of available borrowing capacity and working capital of $44.5 million, down $7.7 million from March 31, 2023.
- Total debt was $101.2 million gross, or $100.8 million net of premiums and issuance costs, versus $125.9 million gross at March 31, 2023. Current debt maturities were $17.4 million.
- The $6.5 million MBT revolving facility was outstanding at December 31, 2023 and matures August 31, 2024. Management is seeking refinancing, but states that refinancing is not assured and could occur on less favorable terms.
- Trust preferred securities outstanding totaled $32.7 million and bear an 8% annual distribution. They are subject to mandatory redemption at any time on or after June 7, 2024, subject to the governing documents.
Material Changes and Unusual Items
- The company raised $7.3 million through trust preferred securities issued under an at-the-market offering and private placements during the nine months.
- Management stated that a previously reported condition raising substantial doubt about going-concern status was alleviated through financing, cost reductions, investment liquidations and lower capital expenditures. Management believes available liquidity is sufficient for at least 12 months after issuance of the financial statements.
- The company recognized a $0.3 million inventory write-down in the commercial jet engines and parts segment during the quarter. No goodwill impairment was recorded during the nine months.
- Interest expense declined to $5.2 million from $6.0 million for the nine-month period, while equity-method investment income declined to $2.5 million from $2.9 million.
- The company completed the conversion of material LIBOR-based contracts to alternative reference rates by September 30, 2023. Variable-rate debt remains exposed to SOFR and other interest-rate changes.
Outlook, Risks and Contingencies
The filing does not provide formal revenue, earnings or Adjusted EBITDA guidance. Management expects economic and business issues, including supply-chain disruption, inflation and higher interest rates, to continue beyond fiscal 2024. Ground equipment results remain seasonal, with lower revenue and operating income typically occurring in the first and fourth fiscal quarters.
- Refinancing risk exists for the MBT revolving facility maturing in August 2024, as well as broader debt-service and covenant compliance risk.
- Results depend materially on FedEx contracts, aircraft volumes and pass-through revenue; contracts could be terminated or modified adversely.
- Ground equipment demand is exposed to deicing-truck order timing and mild winter weather. Backlog has declined substantially year over year.
- The company remains exposed to customer demand, aircraft and engine market acceptance, competition, supply-chain costs, inflation, interest rates, foreign exchange, cybersecurity events and potential accidents or liability claims.
- Financial guarantees related to CJVII aircraft investments had maximum potential payments of $12.4 million; nonfinancial guarantees had maximum potential payments of $4.5 million. No liability was recorded for these guarantees at December 31, 2023.
- Redeemable non-controlling interests totaled $13.1 million. The company may be required to fund future put-option obligations, including an estimated $7.6 million Contrail redemption value and $5.5 million Shanwick redemption value at December 31, 2023.
Investor Verification Items
- Verify the requested period, because the supplied filing is for December 31, 2023 rather than 2022 Q3.
- Review the refinancing plan and maturity schedule for the $6.5 million MBT revolver and the redemption terms for the $32.7 million of trust preferred securities.
- Assess whether the strong operating cash flow is sustainable after the inventory release and whether inventory reductions affect future sales capacity.
- Monitor ground equipment backlog, deicing-truck deliveries and segment margins.
- Reconcile Adjusted EBITDA to GAAP results and evaluate the recurring nature of inventory write-downs, TruPs issuance costs and other adjustments.
- Review FedEx contract concentration, CJVII guarantees, redeemable non-controlling interests and potential put/call obligations.