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| 8-K - 8-K - Air Transport Services Group, Inc. | a2017form8kcoverannualmeet.htm |
The global leader in midsize wide-body
leasing and operating solutions
Annual Meeting
of Shareholders
May 5, 2017
Joe Hete
President & CEO
Quint Turner
Chief Financial Officer
Rich Corrado
Chief Commercial Officer
Safe Harbor Statement
2
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 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.
2016 Accomplishments
3
• Freighter fleet expands as five Boeing 767s entered service in 2016; eleven more due in 2017, six
in 2018. Of 767s in service at YE2016, 80% were dry-leased; typical lease durations 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. 2016 credit facility amendment added
$100MM in capacity and more buyback flexibility.
Rich Corrado
Chief Commercial Officer
11
52
6
10
41
7
17
30
2
In-Service 767F Fleet to be 83% Dry Leased YE2017
5
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.
YE 2015
CAM-Owned 767Fs
YE 2016
(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 2
Projected
Q2: Amazon 3
Q3-4: Amazon 1, Others 5
YE 2017E
(32 with CMI)
1
767-300 Investments & Deployments
6
CAM-Owned 767-300Fs 2016 2017E 2018E
In Service at Start 11 16 27
Complete Modification & Deploy 5 11 6
Deploying To
Amazon,
DHL,
Amerijet
Amazon, other
external, ATI
TBA
In Service at End 16 27 33
In/Awaiting Modification 7 6 -
Customer demand for additional 767-300 freighters in 2017 and 2018 beyond the
eight we will lease to and operate for Amazon
PEMCO Boosts MRO Capacity, Adds 737 Conversions
• 2 Large Hangars, 300,000+ sq ft
• Heavy Maintenance
• Narrowbody / Widebody support
• Complex structural modifications
• Component and Backshop services
• Line Maintenance and AOG Teams
Expands ATSG MRO Capacity New to ATSG Portfolio
REGIONAL
CRJ, Embraer, MRJ (LOI)
AIRBUS
A320 Family
BOEING
B737 CLASSIC / NG, B757, B767
• Southern USA location
• Extensive Airbus experience
• Robust passenger customer portfolio
• Pax to Freighter 737 Conversions
• 70% China market share in B737 cargo
conversions
• China satellite locations
• Established relationships with airlines
Enhanced China Strategy
Amazon Support
8
• 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
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
May 2017 July 2017
767-300 767-200
LEASING CMI SERVICES HUB & GATEWAY MAINTENANCE
Quint Turner
Chief Financial Officer
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 2016 annual
meeting.
• Amazon may appoint a Board observer, and, alternatively, upon acquiring 10% of ATSG shares, nominate one candidate
for election to ATSG’s Board
• Approximately 11.5MM ATSG warrants issued and vested as of May 5, 2017.
• 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
2016 Results & 2017 Adjusted EBITDA Outlook
11
• $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 in 2017, full-year
benefit from five 767s added in 2016,
ACMI Services profitability
Dry leasing and airline fleet utilization, along with support services backing, drove
revenue and cash flow growth in 2016 and will accelerate in 2017
$619
$769
$61
$65
$0.60
$0.58
$197
$212
$260
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
2017 First Quarter Results
12
• Revenue gain driven by Amazon CMI support,
incremental maintenance and logistics gains
• Adjusted Pre-tax Earnings exclude non-cash
warrant-related effects, lower 2017 pension
expense, affiliate’s debt issuance charge in
2016
• Adjusted EPS excludes non-cash dollar effects
of warrants issued to Amazon
More efficient airline fleet utilization, along with support services, drove revenue and
cash flow growth in the first quarter of 2017
$177
$238
$16
$17
$0.13
$0.17
$51
$57
Revenues Adj. Pre-Tax
Earnings*
(Cont. Oper.)
Adj. EPS*
(Cont. Oper.)
Adj. EBITDA*
(Cont. Oper.)
1Q16 1Q17 1Q16 1Q17 1Q16 1Q17 1Q16 1Q17
* 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
2.5x
2.0x
1.6x
2.2x
2.5-3x
2013 2014 2015 2016 2017E
Debt Obligations / Adjusted EBITDA*
49
53
55
60
73
Strong Capital Base to Support Fleet Growth
13
Strong Adjusted EBITDA generation, access to capital through rolling
five-year credit facility allow us to maintain conservative balance sheet
• 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.
767, 757 & 737 Owned Freighters
Share Repurchases May 2015 – May 2017
14
Repurchases, investments and debt repayment key components of capital allocation strategy
1.1
4.8
0.1
6.0
(MMs)
$10.3
$63.6
$1.5
$75.4
($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 $12.57 including
fees, vs. current ATSG market price.
Repurchases now executed mainly under Rule 10b5
authorization. Rule 10b18 plan in place for
repurchase of share blocks when available under
attractive terms
$24.6MM remaining under Board’s $100MM
authorization as of 1Q 2017
Dollars Shares
2017
Joe Hete
President & CEO
2017-18 Outlook
16
• 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 2.3X Adjusted EBITDA at 1Q2017. Will remain below 3X in 2017
even as borrowings increase for $355MM capex program that is 80% growth weighted. Credit facility extended
and amended in 2017 for more credit at attractive rates.
• 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 to be at least
$260MM, up 23%.
ATSG – leasing growth driving strong cash returns
ATSG Returns Beating the Market
37%
59%
180%
303%
7%
16%
27%
75%
6%
19%
27%
61%
2%
25% 23%
75%
YTD 2017 One Year Three Years Five Years
ATSG S&P 500 Dow Russell 2000
Non-GAAP Reconciliation Statement
19
• Adjusted EBITDA from Continuing Operations, Debt Obligations/Adjusted EBITDA Ratio, and Adjusted Pre-Tax Earnings from Continuing
Operations are non-GAAP financial measures and should not be considered alternatives to net income or any other performance measure
derived in accordance with GAAP.
• Adjusted EBITDA from Continuing Operations is defined as Earnings from Continuing Operations Before Income Taxes plus net interest
expense, depreciation and amortization expense, pension settlement costs, debt issuance charges from non-consolidating affiliates, and lease
incentive amortization. It excludes the net effect of financial instrument gains and losses, and of non-service components of retiree benefit
costs.
• Adjusted Pre-Tax Earnings from Continuing Operations is defined as Earnings from Continuing Operations Before Income Taxes plus pension
settlement costs, debt issuance charges from non-consolidating affiliates, and lease incentive amortization. It excludes the net effect of
financial instrument gains and losses, and of non-service components of retiree benefit costs.
• Management uses Adjusted EBITDA from Continuing Operations, Debt Obligations/Adjusted EBITDA Ratio, and Adjusted Pre-Tax Earnings
from Continuing Operations to assess the performance of its operating results among periods. These measures should not be considered in
isolation or as a substitute for analysis of the Company's results as reported under GAAP, or as an alternative measure of liquidity.
2013 2014 2015 2016 1Q2016 1Q2017
(359)$ 51,776$ 62,563$ 34,454$ 12,148$ 16,106$
Impairment Charges 52,585 - - - - -
Pension Settlement - 6,700 - (1,997) - -
Non-service components retiree benefit costs (2,716) (8,152) (1,040) 8,812 2,203 177
Debt issuance charge, non-consolidating aff iliate - - - 1,229 1,229 -
Lease Incentive Amortization - - - 4,506 - 2,591
Financial Instruments Loss (Gain) (631) (1,096) (920) 18,107 528 (1,869)
48,879 49,228 60,603 65,111 16,108 17,005
Interest Income (74) (92) (85) (131) (24) (32)
Interest Expense 14,249 13,937 11,232 11,318 2,699 3,548
Depreciation and amortization 91,749 108,254 125,443 135,496 32,534 36,442
154,803$ 171,327$ 197,193$ 211,794$ 51,317$ 56,963$
384,515$ 344,094$ 317,658$ 458,721$ 508,417$
2.48 2.01 1.61 2.17 2.34
Reconciliation Stmt. ($ in 000s except Ratios)
Debt Obligations/Adjusted E BIT DA Ratio*
GAAP P re-T ax E arnings (Loss) f rom Cont. Oper.
Adjusted E BIT DA from Cont. Oper.
Debt Obligations - end of period
Adjusted Pre-tax Earnings from Cont. Operations
* 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, rolling four quarters.
EPS Adjustments Reflect Warrant Valuation
20
ATSG’s GAAP Earnings from Continuing Operations for 2016 and future periods reflect:
• incremental 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.