Air T, Inc. Reports Third Quarter Fiscal 2019 Results

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Feb 14, 2019, 16:35 ET

DENVER, N.C., Feb. 14, 2019 /PRNewswire/ -- Air T, Inc. (NASDAQ: AIRT) is organized as a portfolio of powerful businesses, each of which is independent yet interrelated. These include overnight air cargo operations; ground support equipment manufacturing; ground support equipment maintenance services; and commercial aircraft management, leasing and logistics. Today the Company announced results for its fiscal quarter ended December 31, 2018.

Q3 2019 Overview

Revenues totaled $63.6 million for the fiscal quarter ended December 31, 2018, a 43% increase over the prior year comparable quarter
Operating income of $1.5 million, an increase of $0.9 million from the prior year comparable quarter's operating income of $0.6 million
Non-operating expense of $3.6 million, an increase of $2.3 million over the prior year comparable quarter
Net loss attributable to Air T stockholders was $2.7 million as compared to net loss of $0.7 million in Q3 2018
Loss per share was $1.34, compared to the prior comparable quarter's loss per share of $0.33

"While segment operating performance varied significantly, our consolidated third quarter operating results grew nicely from the prior year third quarter, as well as quarter over quarter," stated Nick Swenson, CEO and President of Air T. "Growth was driven by our Commercial Jet Engines and Parts segment. Congratulations to Joe Kuhn and his team! Their business posted a solid third quarter, with high levels of both revenues and operating income. Clearly, we have the start of a meaningful platform, and we are looking for innovative ways to enhance and accelerate the growth of this segment. In contrast, Air Cargo Services reported significantly lower operating results in the period. Higher direct and indirect flight crew expenses have significantly eroded our margins. We are pursuing appropriate accommodation and remain hopeful that Air Cargo will deliver acceptable profit levels --- on time. Similarly, the third quarter operating performance at Ground Support Maintenance Services sank from the prior year comparable quarter, although results improved sequentially from the second quarter of this year. Our new operating plan got traction in fiscal Q3, as we implemented various micro-actions to sustain a better operating dynamic. These actions included station by station assessments, with a special focus on markets for skilled labor. Management initiated certain rate increases and efficiency improvement plans in the early part of our fourth quarter. Finally, our Ground Support Equipment segment grew revenue at a rapid 26% in the quarter, which then reflected a more modest improvement in operating income. This segment is growing steadily and profitably under Mike Moore's leadership. As new product launches take hold, and our customers save money by upgrading to the technology solutions integrated into our latest equipment, we expect to continue to deliver real value for customers with jobs to do."

Business Segment Results

Commercial Jet Engines and Parts

This segment leases commercial jet engines and aircraft; buys, sells and trades in surplus and aftermarket commercial jet engines, engine parts, airframes, and airframe parts, avionics, and other; then delivers the related documents and logistics.
Recent acquisitions in this segment include AirCo in October 2017 and the acquisition of the assets of Worthington Aviation in May 2018.
Revenues for this segment totaled $21.0 million in Q3 2019, an increase of $17.1 million over the same period of fiscal 2018. Contrail experienced record levels of sales and income for the quarter.
Operating income for this segment totaled $2.4 million in Q3 2019 compared to an operating loss of $0.3 million in the prior-year quarter.

Overnight Air Cargo

The segment provides air express delivery services, substantially all for FedEx.
Revenues for this segment declined 1% to $17.9 million in Q3 2019 compared to $18.0 million in Q3 2018.
Operating income for this segment totaled $0.1 million, a decrease of $0.9 million when compared to the operating income of Q3 2018. This decrease is due primarily to our absorption of higher operating costs (mainly increased flight crew costs to meet operational requirements); and higher general and administrative staff needed to meet higher-frequency requirements.

Aviation Ground Support Maintenance Services

This segment provides ground support equipment maintenance and facilities maintenance services to domestic airlines and aviation service providers across the United States.
Revenue from this segment totaled $8.1 million in Q3 2019, a decline of 6% over Q3 2018. The decrease in the current quarter is principally due to the closure of two airport locations during fiscal 2018.
Operating loss for this segment was $0.4 million in the current quarter, compared to a loss of $0.1 million in the same quarter of the prior year.

Aviation Ground Support Equipment

This segment manufactures and provides mobile deicers and other specialized equipment products to passenger and cargo airlines, airports, the military and industrial customers.
Revenues for this segment, which is the world's largest manufacturer of aircraft de-icing equipment, totaled $16.3 million for the fiscal quarter ended December 31, 2018. This represents an increase of 26% over the revenue of $12.9 million in the prior comparable quarter. The increase was primarily due to an increase in the unit sales of deicers and catering trucks sold during the quarter.
Operating income for this segment was $1.2 million in the third quarter, an increase of $0.1 million for Q3 of last year principally due to the higher level of revenues.

Corporate

This segment includes expenses attributable to core Corporate functions, investment research, and specialized resources that are available to business units.
This segment's operating loss totaled $1.5 million in the current quarter. In the comparable quarter of the prior year, operating loss totaled $1.3 million when excluding the $1.2 million foreclosed inventory recognized in this segment related to the bankruptcy of Delphax Canada in the third quarter of last year. The $1.2 million related to the foreclosed inventory was eliminated in consolidation.
The increase in Corporate segment costs in the current quarter is primarily attributable to increased headcount and significant professional fees billed by our former auditor.

Other Investments and Financial Liquidity

Air T owned approximately 3.5 million shares of common stock of Insignia Systems, Inc. (NASDAQ: ISIG) with a market value of $5.2 million as of December 31, 2018.
As of December 31, 2018, Air T held $8.2 million of marketable securities (including Insignia at market value of $5.2 million).
Working capital (defined as current assets less current liabilities) as of December 31, 2018 totaled $15.0 million compared to $30.5 million as of March 31, 2018.

ABOUT AIR T, INC.
Established in 1980, Air T Inc. is a portfolio of powerful businesses and financial assets, each of which is independent yet interrelated. Its core segments are: overnight air cargo, aviation ground support equipment manufacturing, aviation ground support maintenance services, and commercial aircraft asset management and logistics. We seek to expand, strengthen and diversify Air T's after-tax cash flow per share. Our goal is to build Air T's core businesses, and when appropriate, to expand into adjacent and other industries. We seek to activate growth and overcome challenges while delivering meaningful value for all stakeholders. For more information, visit www.airt.net.

FORWARD-LOOKING STATEMENTS
Certain matters discussed in this press release may be considered forward-looking statements (as such term is defined in the Private Securities Litigation Reform Act of 1995). These forward-looking statements are subject to risks, uncertainties and assumptions about our operations and the investments we make, including, among other things, factors discussed under the heading "Risk Factors" in our 10-K, as well as the following:

The risk that contracts with major customers will be terminated or not extended;
Future economic conditions and their impact on the Company's customers;
The Company's ability to recover on its investments, including its investments in Delphax and other recently acquired companies,
The timing and amounts of future orders under the Company's Global Ground Support subsidiary's contract with the United States Air Force; and
The risks and uncertainties related to business acquisitions (including the ability to successfully achieve the anticipated benefits of the acquisitions) inflation rates, competition, changes in technology or government regulation, debt covenants, information technology disruptions, and the impact of future terrorist activities in the United States and abroad.

Forward-looking statements can be identified by the use of words like "believes," "could," "possibly," "probably," "anticipates," "estimates," "projects," "expects," "may," "will," "should," "seek," "intend," "plan," "expect," or "consider" or the negative of these expressions or other variations, or by discussions of strategy that involves risks and uncertainties. All forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual transactions, results, performance or achievements to be materially different from any future transactions, results, performance or achievements expressed or implied by such forward-looking statements. We base these forward-looking statements on current expectations and projections about future events and the information currently available to us. Although we believe that the assumptions for these forward-looking statements are reasonable, any of the assumptions could prove to be inaccurate. Consequently, no representation or warranty can be given that the estimates, opinions, or assumptions made in or referenced by this prospectus will prove to be accurate. We undertake no obligation to update our forward-looking statements. We caution you that the forward-looking statements in this press release are only estimates and predictions, or statements or current intent. Actual results or outcomes, or actions that we ultimately undertake, could differ materially from those anticipated in the forward-looking statements due to risks, uncertainties or actual events differing from the assumptions underlying these statements. These risks, uncertainties and assumptions include, but are not limited to, those discussed in this press release.

AIR T, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(UNAUDITED)

			Three Months Ended December 31,		Nine Months Ended December 31,
			2018	2017	2018	2017
Operating Revenues:
	Overnight air cargo		$ 17,868,191	$ 18,028,688	$ 52,573,449	$ 52,851,936
	Ground equipment sales		16,278,359	12,911,101	35,501,936	34,376,866
	Ground support services		8,136,466	8,643,267	25,658,143	26,557,666
	Printing equipment and maintenance		104,980	905,860	543,748	5,340,163
	Commercial jet engines and parts		20,990,088	3,930,510	58,953,054	21,781,095
	Corporate and other		244,587	81,820	600,587	152,383
			63,622,671	44,501,246	173,830,917	141,060,109


Operating Expenses:
	Overnight air cargo		16,292,144	15,538,554	46,816,294	46,020,254
	Ground equipment sales		13,760,055	10,578,846	29,677,280	28,606,906
	Ground support services		7,098,098	7,337,862	22,925,769	21,738,525
	Printing equipment and maintenance		94,733	265,054	289,164	2,848,861
	Commercial jet engines and parts		12,268,266	2,143,540	38,052,172	15,534,775
	Research and development		-	-	-	195,653
	General and administrative		10,373,194	7,253,472	28,028,050	21,114,626
	Depreciation and amortization		2,253,291	768,660	5,554,904	1,522,998
	Impairment		7,125	46,930	27,818	220,957
	Gain on sale of property and equipment		10,802	16,648	10,802	16,648
			62,157,708	43,949,566	171,382,253	137,820,203

Operating Income			1,464,963	551,680	2,448,664	3,239,906

Non-operating Income (Expense):
	Gain on sale of marketable securities		81,388	72,145	81,388	72,145
	Foreign currency loss, net		(15,352)	(11,797)	(17,484)	(260,903)
	Other-than-temporary impairment loss on investments		(2,000,000)	(788,799)	(2,000,000)	(1,559,972)
	Other investment income (loss), net		(586,039)	50,485	(623,623)	123,286
	Interest expense		(1,186,349)	(538,459)	(2,607,639)	(1,010,177)
	Gain on asset retirement obligation		-	-	-	562,500
	Unrealized gain (loss) on interest rate swap		-	(199,122)	145,222	(199,122)
	Bargain purchase acquisition gain		-	-	1,983,776	501,880
	Income from equity method investments		200,929	89,426	370,670	119,363
	Other expense, net		(102,406)	-	(74,720)	-
			(3,607,829)	(1,326,121)	(2,742,410)	(1,651,000)

Income (Loss) Before Income Taxes			(2,142,866)	(774,441)	(293,746)	1,588,906

Income Taxes (Benefit)			174,000	(60,000)	168,000	595,000

Net Income (Loss)			(2,316,866)	(714,441)	(461,746)	993,906

Net (Income) Loss Attributable to Non-controlling
	Interests		$ (398,085)	$ 42,502	$ (745,697)	$ (275,755)


Net Income (Loss) Attributable to Air T, Inc. Stockholders			$ (2,714,951)	$ (671,939)	$ (1,207,443)	$ 718,151


Income (Loss) Per Share:
		Basic	$ (1.34)	$ (0.33)	$ (0.59)	$ 0.35
		Diluted	$ (1.34)	$ (0.33)	$ (0.59)	$ 0.35

Weighted Average Shares Outstanding:
		Basic	2,028,194	2,042,789	2,038,523	2,042,789
		Diluted	2,028,194	2,042,789	2,038,523	2,047,547

AIR T, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)


		December 31, 2018	March 31, 2018
ASSETS
Current Assets:
	Cash and cash equivalents (Delphax $58,511 and $241,430)*	$ 2,729,249	$ 4,803,238
	Marketable securities	2,457,609	290,449
	Restricted cash	907,488	269,659
	Restricted investments	135,291	1,235,405
	Accounts receivable, less allowance for doubtful accounts
	of $739,607 and $801,000 (Delphax $293,044 and $317,000)*	17,881,122	15,157,855
	Costs and estimated earnings in excess of billings on uncompleted projects	-	2,012,121
	Income tax receivable	1,940,955	1,557,180
	Inventories, net	39,585,915	34,231,005
	Other current assets	4,298,164	658,630
	Prepaid expenses (Delphax $58,516 and $72,269)*	1,680,419	1,455,566
	Total Current Assets	71,616,212	61,671,108

Investments in securities		356,013	1,026,920
Assets on lease, net of accumulated depreciation of $4,932,576 and $1,625,237		26,920,552	15,664,606
Property and equipment, net of accumulated depreciation of $5,356,017 and $4,722,016		4,904,741	4,608,565
Cash surrender value of life insurance policies, net of policy loans		562,430	2,356,507
Other tax receivables-long-term (Delphax $311,000 and $311,000)*		311,000	311,000
Investments in funds		278,709	324,854
Equity method investments		5,666,430	5,032,268
Other assets		598,006	420,981
Intangible assets, net of accumulated amortization of $2,081,004 and $1,788,598		1,271,688	1,312,472
Goodwill		4,417,605	4,417,605
	Total Assets	$ 116,903,386	$ 97,146,886

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
	Accounts payable (Delphax $2,163,424 and $2,145,847)*	$ 10,960,852	$ 10,181,143
	Income tax payable (Delphax $0 and $11,312)*	23,000	23,000
	Accrued expenses (Delphax $3,127,229 and $3,244,514)*	12,151,574	11,743,973
	Deferred tax liabilities	-	-
	Current portion of long-term debt	33,437,246	9,229,690
	Total Current Liabilities	56,572,672	31,177,806

Long-term debt		33,361,871	38,855,260
Deferred tax liabilities		641,080	92,000
Other non-current liabilities		1,012,234	785,797
	Total Liabilities	91,587,857	70,910,863

Redeemable non-controlling interest		2,998,161	1,992,939

Commitments and contingencies (Note 17)

Equity:
Air T, Inc. Stockholders' Equity:
	Preferred stock, $1.00 par value, 50,000 shares authorized	-	-
	Common stock, $.25 par value; 4,000,000 shares authorized,
	2,024,331 and 2,043,607 shares issued and outstanding	506,084	510,901
	Additional paid-in capital	4,195,484	4,171,869
	Retained earnings	18,694,300	20,695,981
	Accumulated other comprehensive loss	(120,284)	(260,900)
	Total Air T, Inc. Stockholders' Equity	23,275,584	25,117,851
Non-controlling Interests		(958,216)	(874,767)
	Total Equity	22,317,368	24,243,084
	Total Liabilities and Equity	$ 116,903,386	$ 97,146,886

* Amounts related to Delphax as of December 31, 2018 and March 31, 2018, respectively.

AIR T, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

				Nine Months Ended December 31,
				2018	2017
CASH FLOWS FROM OPERATING ACTIVITIES:
	Net income (loss)			$ (461,746)	$ 993,906
		Adjustments to reconcile net income to net
		cash provided by operating activities:
			Gain on sale of marketable securities	(28,060)	(72,145)
			Loss on sale of property and equipment	15,671	16,648
			Profit from sale of assets on lease	(946,185)	-
			Change in inventory reserves	(367,022)	(69,222)
			Change in accounts receivable reserves	(61,823)	(2,731)
			Depreciation and amortization	5,554,904	1,522,998
			Impairment	27,818	220,957
			Change in cash surrender value of life insurance	(102,710)	(118,254)
			Gain on asset retirement obligation	-	(562,500)
			Gain on bargain purchase, net of tax	(1,983,777)	(501,880)
			Deferred income taxes	-	(102,566)
			Change in warranty reserve	156,253	53,092
			Other-than-temporary impairment loss on investments	2,000,000	1,559,972
			Unrealized loss on marketable securities	854,874	-
			Unrealized (gain) loss on interest rate swap	(145,222)	199,122
			Change in operating assets and liabilities:
			Accounts receivable	(718,690)	3,011,203
			Costs and estimated earnings in excess of billings and uncompleted projects	2,012,121	-
			Notes receivable and other non-trade receivables	(3,638,929)	1,053,846
			Inventories	(75,059)	4,223,445
			Prepaid expense and other assets	(742,050)	145,640
			Accounts payable	(506,587)	(2,294,265)
			Accrued expenses	147,160	(538,232)
			Income taxes payable/receivable	(72,775)	(603,843)
			Non-current liabilities	356,541	165,039
			Total adjustments	1,736,453	7,306,324
		Net cash provided by operating activities		1,274,707	8,300,230

CASH FLOWS FROM INVESTING ACTIVITIES:
		Purchases of marketable securities		(2,013,921)	(1,007,071)
		Proceeds from sale of marketable securities		836,510	537,826
		Acquisition of businesses, net of cash acquired		(3,375,700)	(2,900,000)
		Cash used for equity method investments		(263,492)	-
		Investment in reinsurance entity		(2,000,000)	-
		Capital expenditures related to property & equipment		(1,010,330)	(1,655,551)
		Capital expenditures related to assets on lease		(19,149,515)	(13,591,693)
		Proceeds from sale of property and equipment		50,602	1,861
		Proceeds from sale of assets on lease		4,180,208	-
		Net cash used in investing activities		(22,745,638)	(18,614,628)

CASH FLOWS FROM FINANCING ACTIVITIES:
		Proceeds from lines of credit		86,519,612	86,949,125
		Payments on lines of credit		(83,566,277)	(88,817,034)
		Proceeds from term loan		22,539,000	20,841,000
		Payments on term loan		(6,787,210)	(2,436,225)
		Debt issuance costs		(150,142)	(156,115)
		Proceeds from loan against cash surrender value of life insurance policies		1,896,788	-
		Distribution to non-controlling member		(65,672)	(1,100,000)
		Contribution from non-controlling member		210,000	252,000
		Payments for repurchase of stock		(693,136)	-
		Proceeds from exercise of stock options		17,762	-
		Net cash provided by financing activities		19,920,725	15,532,751

		Effect of foreign currency exchange rates on cash and cash equivalents		114,046	3,370

NET INCREASE/ (DECREASE) IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH				(1,436,160)	5,221,723
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH AT BEGINNING OF PERIOD				5,072,897	3,653,734
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH AT END OF PERIOD				$ 3,636,737	$ 8,875,457

SUPPLEMENTAL DISCLOSURE OF INVESTING ACTIVITIES:
	Non-cash capital expenditures related to property & equipment			$ 8,675	$ -

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
	Cash paid during the year for:
		Interest		$ 2,084,085	$ 690,859
		Income taxes		490,181	1,457,518

SOURCE Air T, Inc.

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