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| 8-K - 8-K - Air Transport Services Group, Inc. | a2017form8kcovermar22inves.htm |
The global leader in midsize wide-body
leasing and operating solutions
Joe Hete
President & CEO
Quint Turner
Chief Financial Officer
Rich Corrado
Chief Commercial Officer
Seaport Global Securities
Transports & Industrials Conference
March 22, 2017
Coral Gables, Fla.
Safe Harbor Statement
Except for historical information contained herein, the matters discussed in this presentation contain
forward-looking statements that involve risks and uncertainties. There are a number of important
factors that could cause Air Transport Services Group's ("ATSG's") actual results to differ materially
from those indicated by such forward-looking statements. These factors include, but are not limited to,
changes in market demand for our assets and services; our operating airlines' ability to maintain on-
time service and control costs; the cost and timing with respect to which we are able to purchase and
modify aircraft to a cargo configuration; the number and timing of deployments and redeployments of
our aircraft to customers; the ability and timeliness with which the China-based joint venture is able to
secure the necessary approvals from the People’s Republic of China and execute its business plan;
the completion of anticipated commercial arrangements with new and existing customers, and other
factors that are contained from time to time in ATSG's filings with the U.S. Securities and Exchange
Commission, including its Annual Report on Form 10-K and Quarterly Reports on Form 10-Q. Readers
should carefully review this presentation and should not place undue reliance on ATSG's forward-
looking statements. These forward-looking statements were based on information, plans and estimates
as of the date of this presentation. ATSG undertakes no obligation to update any forward-looking
statements to reflect changes in underlying assumptions or factors, new information, future events or
other changes.
2
World’s Only Comprehensive Turn-key Solution Provider
For customers seeking midsize freighter services, ATSG offers all elements of the
solution set, ranging from an entry-point ACMI lease to a dedicated dry-leased fleet with
flight crews, maintenance and logistical support from five strong operating companies.
Dry Leasing of 767-300s,
767-200s, 757-200s, and
737-400s
Engine Leasing
Conversion Management
Engine PBH Services
Certification Support
Leasing ACMI-CMI Support Services
ACMI
CMI
Wet Leasing
Ad-Hoc Charter
Heavy & Line Maintenance
Component Services
Engineering Services
Boeing & Airbus Experience
P-to-F Conversions, 737-300 &
737-400
3
Sort Operations
GSE Leasing, Service
MHE Service
2016 Accomplishments
Freighter fleet expands as five Boeing 767s entered service in 2016; eleven more due in 2017, six
in 2018. 80% of 767s in service YE2016 were dry-leased. Typical lease durations are 5 to 8 years.
Agreements with Amazon completed in March call for long-term placements of 20 leased and
operated 767 freighters, plus warrants for Amazon to acquire up to 19.9% of ATSG shares.
Diversified, growing revenue streams 2016 revenues up 18% excluding reimbursements. DHL
represented 34% of revenues; Amazon 29%, U.S. Military 12%.
Record Adjusted EBITDA for 2016 of $212MM, up 7%.
Logistics business grows through expanded ground support roles for major customers.
PEMCO acquired at year-end, expanding AMES’s MRO capabilities and capacity, and adding
conversion and MRO facilities in China, S. America and U.S. serving Boeing and Airbus airframes.
Improved shareholder value as stock price grew more than 2x major market indexes and most
peers in 2016, backed by $64MM in share repurchases. Credit facility amendment added $100MM
in capacity and more buyback flexibility.
4
11
52
6
10
41
7
17
30
2
In-Service 767F Fleet to be 83% Dry Leased YE2017
5
YE 2015
CAM-Owned 767Fs
YE 2016
Focus on regional air networks driving demand for more of our midsize 767 freighters,
longer-term dry leases, and more CMI, maintenance and logistics support.
(15 with CMI)
(28 with CMI)
Dry leased ACMI/Charter Staging/Unassigned Undergoing cargo modification
2016-17 767F Leases
2016
Q1: DHL 1 – 767-300
Raya 1 – 767-200
Q2: Amazon 8 – 767-200
Amerijet 1 – 767-300
Q3: Amazon 3 – 767-200
Q4: Amazon 1 – 767-200
Amazon 2 – 767-300
DHL 1 – 767-300
2017 (all 300s)
Q1: Amazon 1 (January)
Projected
Q2: Amazon 4
Q3-4: Amazon 1, Others 5
YE 2017E
(32 with CMI)
1
Targeting Growing Global Network Demand
E-commerce, distributed manufacturing trends creating demand for new express networks
Abundant ACMI and Dry Lease Opportunities
MIDDLE EAST
• 6.9% market growth in 2016: IATA
• Aging network fleets due for replacement
• CAM has leased two 767s to DHL in Mideast network
ASIA
• Rapid regional e-commerce, distributed manufacturing
growth
• PEMCO’s strong position in 737 freighter conversions in
China creates new opportunities
• Preparing for joint-venture launch in China with leases of
CAM-owned 737s to partner Okay Airways
AMERICAS
• Steady growth; DHL’s Americas region revenues grew
7.1% in 2016 to lead all DHL regions.
• Amazon’s air-network growth will continue via 50-yr. lease
for hub at CVG with ramp space for 100 aircraft
• PEMCO’s MRO facilities in Tampa support Latin America
trade lanes
• 767 range/payload an ideal fit for north-south routes
EUROPE
• 2016’s fastest-growing airfreight market at 7.1%: IATA
• Investment in Sweden’s West Atlantic AB yields additional
767 dry leases 6
767-300 Investments & Deployments
7
CAM-Owned 767-300Fs 2015 2016 2017E
In Service at Start 8 11 16
Complete Modification & Deploy 3 5 11
Deploying To DHL, CargoJet Amazon, DHL, Amerijet
Amazon, other
external, ATI
In Service at End 11 16 27
In/Awaiting Modification 2 7 6
Customer demand for additional 767-300 freighters in 2017 beyond the eight we will
lease to and operate for Amazon
• Five-year operating agreement signed
March 8, 2016, effective April 1, 2016
• Seven-year lease terms for eight 767-300s;
five-year terms for twelve 767-200s
• Aircraft are CAM-leased, ABX Air/ ATI
operated, AMES maintained, LGSTX
supported
• Network currently based in Wilmington Air
Park, hub operated by LGSTX. Moving to
Cincinnati airport during 2017.
Trial network launched in September 2015 with support from five ATSG businesses leads to
contracts for 20 CAM-leased 767 freighters, crews and support services
ATSG to lease, operate & support 20 767s by mid-2017
March 2017 July 2017
767-300 767-200
Amazon Support
LEASING CMI SERVICES HUB & GATEWAY MAINTENANCE
8
9
Amazon to receive ATSG warrants for purchase of up to 19.9% of ATSG
common shares at $9.73 per share through March 2021
Warrant A Warrant B-1
7.7MM potential
shares; warrant
issued, vested
1.6MM potential shares;
warrant to be issued and
vest March 2018
Warrant B-2
~0.5MM potential shares;
(adjusts to 19.9%)
warrant to be issued and vest
September 2020
5.1MM potential shares;
pro-rata warrant vesting
as eight 767Fs leased
through mid-2017
• Investment Agreement for warrants signed March 8, 2016
• ATSG shareholders overwhelmingly approved increase in authorized shares and other enabling measure at annual
meeting on May 12, 2016
• Amazon may appoint a Board observer, and, alternatively, upon acquiring 10% of ATSG shares, nominate one candidate
for election to ATSG’s Board
• Approximately 9.0MM ATSG warrants issued and vested through 12/31/2016
• Share repurchases will reduce final number of warrants required to true-up Amazon holdings to 19.9% in 2020
Amazon Pact Sealed With Investment Agreement
Dry leasing and airline fleet utilization, along with support services backing, drove
revenue and cash flow growth in 2016 and will accelerate in 2017
10
• $150MM revenue gain driven by 11
more external 767 dry leases, Amazon
CMI support, maintenance and logistics
gains
• Adjusted Pre-tax Earnings exclude non-
cash warrant-related effects, pension
expense, affiliate’s debt issuance
charge
• Include $20MM total impact of
revenue reductions stemming from
work stoppage, extra expense for pilot
premium pay and other ramp-up costs
• Adjusted EPS for 2016 exclude non-
cash dollar effects of warrants issued to
Amazon
• 2017 Adjusted EBITDA projection
assumes, among other items,
deployment of eleven additional
767s and two 737s, full-year benefit
from five 767s added in 2016, ACMI
Services profitability
$619
$769
$61
$65
$0.60 $0.58
$197
$212
$260
2016 Results & 2017 Adjusted EBITDA Outlook
Revenues Adj. Pre-Tax
Earnings*
(Cont. Oper.)
Adj. EPS*
(Cont. Oper.)
Adj. EBITDA*
(Cont. Oper.)
2015 2016 2015 2016 2015 2016 2015 2016
* Non-GAAP metrics. See table at end of this presentation for reconciliation to nearest GAAP results for
Adjusted Pretax Earnings and Adjusted EBITDA. See the following slide for Adjusted EPS reconciliation.
$MM $MM $MM
2017E
E
EPS Adjustments Reflect Warrant Valuation
11
ATSG’s GAAP Earnings from Continuing Operations for 2016 and future periods reflect:
• incremental non-cash gain or loss in financial instruments each quarter, net of tax, based on effect of mark-to-market
changes in ATSG stock price on value of warrant liability
• non-cash lease revenue reduction associated with the amortization of value for warrants
Items above are excluded from Adjusted EPS from Continuing Operations. Adjusted EPS includes additional shares related
to warrant dilution.
Year Ended
December 31,
2016 2015
Earnings (loss) from Continuing Operations (GAAP) $ 21,060 $ 39,155
Loss from warrant revaluation, net of tax 13,049 —
Lease incentive amortization, net of tax 3,424 —
Adjusted Earnings from Continuing Operations (non-GAAP) $ 37,533 $ 39,155
Weighted Average Shares - diluted (GAAP) 62,994 65,127
Additional weighted average shares 1,940 —
Adjusted Shares (non-GAAP) 64,934 65,127
Earnings (loss) per Share from Continuing Operations - diluted (GAAP) $ 0.33 $ 0.60
Effect of warrant revaluation, net of tax 0.20 —
Effect of lease incentive amortization, net of tax 0.05 —
Adjusted Earnings per Share from Continuing Operations (non-GAAP) $ 0.58 $ 0.60
49
53
55
60
73
2.5x
2.0x
1.6x
2.2x
2.5-3x
2013 2014 2015 2016 2017E
Debt Obligations / Adjusted EBITDA*
Strong Capital Base to Support Fleet Growth
• Adjusted EBITDA is a non-GAAP metric. Debt Obligations, fleet totals are as of end of period.
See table at end of this presentation for reconciliation to nearest GAAP results.
12
Strong Adjusted EBITDA generation, access to capital through rolling five-year credit
facility allows us to maintain conservative balance sheet
767, 757 & 737 Owned Freighters
Share Repurchases May 2015 – YE 2016
13
Repurchases, investments and debt repayment key components of capital allocation strategy
1.1
4.8
5.9
(MMs)
$10.3
$63.6
$73.9
($MMs)
2016
2015
9.1% repurchased of 65.2MM shares outstanding
prior to first Board authorization in May 2015
Includes 3.8MM shares repurchased from affiliate
of Red Mountain for $50MM in July 2016
Average share repurchase price of $12.52 including
fees, vs. current ATSG market price in $16-17 range
Repurchases now executed mainly under Rule 10b5
authorization. Rule 10b18 plan in place for
repurchase of share blocks when available under
attractive terms
$26.1MM remaining under Board’s $100MM
authorization as of YE2016
Dollars Shares
Highlights and Outlook
Strong growth trajectory Double-digit revenue growth from business with new express networks, global
network integrators and regional operators attracted to midsize freighter assets, and unique model that offers
short-term ACMI flexibility and long-term dry-leasing cost advantages backed by support services.
Attractive assets World’s largest fleet of 100% owned midsize converted Boeing freighters available on a
dedicated basis, with wide range of freighter network applications. Converted freighters offer decades of reliable
service with lower investment, backed by best-in-class maintenance and conversion capabilities.
Lease-driven sustained cash flow Business model emphasizes long-term returns from dry-leasing
freighter assets to leading network operators, enhanced by unique combinations of airline, maintenance, logistics
and network management services. Not a federal cash taxpayer until 2019 or later.
Strong balance sheet Debt leverage 2.2X Adjusted EBITDA at YE2016. Will remain below 3x in 2017
even as borrowings increase for $355MM capex program that is 80% growth weighted. Credit facility amended in
2016 for more credit at attractive rates; anticipate another amendment in 2017 to fund fleet growth program.
Appetite for strategic growth through targeted, complementary acquisitions such as PEMCO to
extend footprint, add capabilities and support capacity for current and prospective customers worldwide.
Delivering shareholder value Fleet investments and share repurchases will continue to generate
attractive returns, generating even greater ATSG value. Adjusted EBITDA for 2017 projected at $260MM, up 23%
14
ATSG – a solid growth story with value appeal
Non-GAAP Reconciliation Statement
15
2013 2014 2015 2016
(359)$ 51,776$ 62,563$ 34,454$
Impairment Charges 52,585 - - -
Pension Settlement - 6,700 - -
Non-service components retiree benefit costs (2,716) (8,152) (1,040) 6,815
Debt issuance charge, non-consolidating affiliate - - - 1,229
Lease Incentive Amortization - - - 4,506
Financial Instruments Loss (Gain) (631) (1,096) (920) 18,107
48,879 49,228 60,603 65,111
Interest Income (74) (92) (85) (131)
Interest Expense 14,249 13,937 11,232 11,318
Depreciation and amortization 91,749 108,254 125,443 135,496
154,803$ 171,327$ 197,193$ 211,794$
384,515$ 344,094$ 317,658$ 458,721$
2.48 2.01 1.61 2.17
Reconciliation Stmt. ($ in 000s except Ratios)
Debt Obligations/Adjusted EBITDA Ratio*
GAAP Pre-Tax Earnings (Loss) from Cont. Oper.
Adjusted EBITDA from Cont. Oper.
Debt Obligations - end of period
Adjusted Pre-tax Earnings from Cont. Operations
Adjusted EBITDA from Continuing Operations, Debt Obligations/Adjusted EBITDA Ratio, and Adjusted Pre-Tax Earnings from Continuing Operations
are non-GAAP financial measures and should not be considered alternatives to net income or any other performance measure derived in accordance
with GAAP.
Adjusted EBITDA from Continuing Operations is defined as Earnings from Continuing Operations Before Income Taxes plus net interest expense,
depreciation and amortization expense, pension settlement costs, debt issuance charges from non-consolidating affiliates, and lease incentive
amortization. It excludes the net effect of financial instrument gains and losses, and of non-service components of retiree benefit costs.
Debt Obligations/Adjusted EBITDA Ratio is defined as Debt Obligations (Long-term Debt Obligations plus Current Portion of Debt Obligations at end
of period) divided by Adjusted EBITDA from Continuing Operations.
Adjusted Pre-Tax Earnings from Continuing Operations is defined as Earnings from Continuing Operations Before Income Taxes plus pension
settlement costs, debt issuance charges from non-consolidating affiliates, and lease incentive amortization. It excludes the net effect of financial
instrument gains and losses, and of non-service components of retiree benefit costs.
Management uses Adjusted EBITDA from Continuing Operations, Debt Obligations/Adjusted EBITDA Ratio, and Adjusted Pre-Tax Earnings from
Continuing Operations to assess the performance of its operating results among periods. These measures should not be considered in isolation or as
a substitute for analysis of the Company's results as reported under GAAP, or as an alternative measure of liquidity.