Air T, Inc. Form 10-Q Summary
Reporting period: The filing covers the quarter and six months ended September 30, 2021, Air T’s fiscal second quarter and first six months of fiscal 2022. The request metadata identifies “2020 Q2,” but the filing itself reports 2021 comparative results. Air T operates overnight air cargo, ground equipment sales, commercial jet engines and parts, and corporate/other businesses.
Financial Performance and Position
| Metric | Three months ended Sept. 30, 2021 | Three months ended Sept. 30, 2020 | Six months ended Sept. 30, 2021 | Six months ended Sept. 30, 2020 |
|---|---|---|---|---|
| Revenue | $43.2 million | $35.6 million | $80.2 million | $72.6 million |
| Operating income (loss) | $0.7 million | $(3.7) million | $0.7 million | $(3.9) million |
| Net income (loss) attributable to Air T stockholders | $7.6 million | $(2.9) million | $7.8 million | $(3.8) million |
| Diluted earnings (loss) per share | $2.60 | $(1.01) | $2.71 | $(1.31) |
| Adjusted EBITDA | $1.1 million | $(2.7) million | $1.4 million | $(2.6) million |
- Quarterly revenue increased 21%, while six-month revenue increased 11%.
- Approximate operating margins improved to 1.6% for the quarter and 0.9% for the six-month period, versus negative margins in the comparable periods.
- The $8.3 million PPP loan-forgiveness gain was the primary contributor to reported net income. Excluding that unusual item, profitability was substantially lower than the reported GAAP result.
- Quarterly segment revenue was $18.8 million for overnight air cargo, $9.2 million for ground equipment, $14.9 million for commercial jet engines and parts, and $0.3 million for corporate and other.
- At September 30, 2021, cash and cash equivalents were $2.5 million, restricted cash was $3.8 million, marketable securities were $2.7 million, and working capital was $96.8 million.
- Total debt was $95.7 million gross, or $94.7 million net of issuance costs, compared with $88.6 million gross at March 31, 2021. Long-term debt was $93.4 million.
- Cash and restricted cash declined by $9.7 million during the first six months to $6.3 million. Operating activities used $22.8 million, investing activities used $2.4 million, and financing activities provided $15.4 million.
Material Changes Versus the Prior Comparable Period
- Overnight air cargo: Quarterly revenue rose 9% and operating income increased to $0.9 million from $0.6 million, primarily due to higher maintenance revenue from non-FedEx customers.
- Ground equipment: Quarterly revenue declined 24% and operating income fell to $43 thousand from $0.9 million because of lower ultimate-deicer sales. The order backlog declined to $10.9 million from $36.8 million year over year.
- Commercial jet engines and parts: Quarterly revenue increased 144% to $14.9 million, and operating income improved to $1.9 million from a $2.3 million loss as aviation activity and component sales improved.
- Corporate and other: The quarterly operating loss narrowed to $2.1 million from $2.9 million, primarily due to lower health insurance claims.
- Air T completed financing amendments in August and September 2021. The Air T revolver remains capped at $17 million and was extended to August 2023; term loans were extended primarily to 2031. Contrail’s revolving facility was reduced from $40 million to $25 million and extended to September 2023.
- The company issued approximately $5.0 million of net proceeds from Trust Preferred Securities under its at-the-market offering during the six-month period.
- Air T formed Contrail Asset Management and Contrail JV II to pursue aircraft and engine acquisitions, leasing, trading, and disassembly. Air T’s initial commitment is approximately $8.0 million, with approximately $6.9 million unfunded at September 30, 2021. No capital had yet been deployed to CJVII.
Outlook, Risks, Contingencies, and Unusual Items
- Management stated that COVID-19 continues to create material uncertainty, including reduced demand for commercial aircraft, engines, and parts, business disruptions, lower operating cash flow, and possible operating losses during the remainder of fiscal 2022.
- Management believes available cash, operating cash flow, and borrowing capacity will be sufficient to meet ordinary-course obligations for at least 12 months after issuance of the financial statements.
- The company had approximately $37.2 million of available funds under revolving credit facilities at September 30, 2021, including $12.3 million under Air T’s revolver and $24.9 million under Contrail’s facility.
- Contrail’s 21% non-controlling interest became subject to put/call rights beginning July 18, 2021. The redeemable non-controlling interest was valued at $7.3 million; neither party had indicated an intent to exercise the options as of the filing date.
- CAM and CJVII had aggregate initial commitments of approximately $53 million, including $8 million from Air T and approximately $45 million from Mill Road Capital. The broader CJVII structure contemplates up to $408 million of equity commitments, subject to underwriting and transaction appeal.
- Interest-rate risk remains relevant because portions of the debt carry variable LIBOR-based rates. Air T uses interest-rate swaps to mitigate some exposure.
- The ground equipment business is seasonal, with historically lower revenue and operating income in the first and fourth fiscal quarters.
- The filing reports effective tax rates of 0.5% for the quarter and 0.4% for the six-month period, substantially affected by valuation allowances, tax exclusions, minority interests, and the tax treatment of PPP loan forgiveness.
Facts Investors Should Verify
- Reconcile reported net income with the $8.3 million nonrecurring PPP forgiveness gain and assess underlying earnings quality.
- Review the sustainability of operating cash flow, particularly the $10.6 million increase in accounts receivable and $10.1 million increase in inventories during the six-month period.
- Monitor debt levels, variable-rate exposure, covenant compliance, maturity obligations, and the reduction of Contrail’s revolving facility from $40 million to $25 million.
- Assess whether commercial aviation recovery can offset the sharp decline in ground equipment backlog and sales.
- Evaluate funding requirements and returns associated with the unfunded CAM/CJVII commitment and any future aircraft acquisitions.
- Track potential exercise of the Contrail put/call rights and the company’s ability to fund any resulting purchase.
- Confirm the effect of continuing COVID-19 disruptions on demand, margins, liquidity, and segment-level operating performance.