Air T, Inc. (AIR T) - Q1 2011 10-Q Summary
Business Context and Reporting Period
This is a Quarterly Report on Form 10-Q for Air T, Inc. for the three-month period ended June 30, 2010 (First Quarter of Fiscal Year 2011). The Company operates 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 smaller reporting company incorporated in Delaware.
Key Financial Metrics
| Metric | Q1 2011 (Ended June 30, 2010) | Q1 2010 (Ended June 30, 2009) |
|---|---|---|
| Total Operating Revenues | $15,023,275 | $18,948,307 |
| Operating Income | $410,362 | $1,735,137 |
| Net Earnings | $298,551 | $1,117,967 |
| Earnings Per Share (Basic/Diluted) | $0.12 | $0.46 |
| Cash and Cash Equivalents | $7,924,849 | $2,525,772 |
| Working Capital | $21,096,191 | N/A (Balance Sheet not provided for 2009) |
| Long-Term Debt | $4,047 | N/A |
| Available Credit Line | $7,000,000 (Unused) | N/A |
Material Changes vs. Prior Period
- Revenue Decline: Consolidated revenues decreased by $3.9 million (21%) to $15.0 million. This was driven primarily by a 52% drop in the Ground Equipment Sales segment ($4.2 million decrease), attributed to no deliveries of deicing units to the U.S. Air Force in the current quarter.
- Profitability Drop: Operating income fell 76% to $410,000. The Ground Equipment Sales segment swung from an operating income of $1.36 million in the prior year to a loss of $163,000.
- Segment Performance:
- Overnight Air Cargo: Revenues increased slightly by 1% ($132,000), but operating income decreased 8% due to minor cost increases.
- Ground Support Services: Revenues increased 6% ($120,000) and operating income increased 17%.
- Cash Flow: Net cash used in operating activities was $1.0 million, a significant improvement compared to $3.0 million used in the prior year period, largely due to better accounts receivable management.
Outlook, Risks, and Management Commentary
- Contract Risks:
- FedEx: The Air Cargo segment relies almost entirely on FedEx (59% of total revenue). Contracts are renewable every 2-5 years but can be terminated by FedEx with 30 days' notice. Loss of this contract would have a material adverse effect.
- Delta Airlines: The Ground Support Services segment (GAS) received notice in July 2010 of a significant reduction in the scope of work with Delta Airlines, effective September 2010. This reduction affects almost half of GAS's historical revenues and a larger proportion of its operating income.
- Order Backlog: The Ground Equipment Sales segment (GGS) reported an order backlog of $8.8 million at June 30, 2010, down from $14.8 million a year ago but up from $1.3 million at the end of the previous quarter. A new U.S. Air Force contract was extended in June 2010.
- Liquidity: The Company maintains a $7 million revolving credit line with no outstanding balance. Management is focused on conserving cash and monitoring costs due to difficult economic conditions.
- Dividends: A cash dividend of $0.33 per share was declared and paid in June 2010.
Investor Verification Checklist
- FedEx Contract Status: Verify the current status and renewal terms of the primary air cargo contract with FedEx, given the 30-day termination clause.
- Delta Contract Impact: Assess the financial impact of the reduced scope of work with Delta Airlines on the Ground Support Services segment starting September 2010.
- Military Sales Pipeline: Confirm the timing and volume of future deliveries under the renewed U.S. Air Force deicing contract to validate the $8.8 million backlog.
- Inventory Levels: Review the increase in inventory ($2.2 million cash outflow) to ensure it aligns with the current order backlog and does not indicate obsolescence risks.