ATSG Continues Revenue and Earnings Growth in Third Quarter

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Air Transport Services Group, Inc. (Nasdaq: ATSG), the leading provider of medium wide-body aircraft leasing, air cargo transportation and related services, today reported consolidated financial results for the quarter ended September 30, 2018.

  • 3Q 2018 customer revenues were $204.9 million based on revenue recognition standards adopted in 2018. 3Q 2017 revenues were $182.0 million excluding $72.1 million in revenues from reimbursed expenses.
  • GAAP Earnings from Continuing Operations were $32.9 million, $0.56 per share basic in 3Q 2018 vs. a loss of $28.2 million, $0.48 per share basic in 3Q 2017.
  • Provision for income tax was $5.6 million for 3Q18. Due to deferred tax assets, including loss carryforwards, ATSG does not expect to pay significant federal income taxes until 2023 or later.
  • Adjusted Earnings from Continuing Operations (non-GAAP) were $21.5 million and Adjusted Earnings per Share (non-GAAP) was $0.31 per share diluted, up 40 percent from $15.3 million, $0.22 per share in 3Q 2017.
  • Adjusted Earnings from Continuing Operations exclude the net effects of warrants issued to Amazon.com, Inc., including a $33.2 million loss from mark-to-market warrant revaluation in 3Q 2017, and a $2.0 million 3Q 2018 share of development costs for ATSG’s Airbus A321 freighter conversion joint venture.
  • Adjusted EBITDA from Continuing Operations (non-GAAP) was $74.3 million, up 13 percent.
  • Adjusted Earnings per Share, Adjusted Earnings and Adjusted EBITDA from continuing operations are non-GAAP financial measures and are defined in the non-GAAP reconciliation tables at the end of this release. (See also the paragraphs below entitled “Revenue Recognition” and “Non-GAAP Financial Measures”)
  • YTD 2018 capital spending was $214.0 million vs. $218.8 million YTD 2017.
  • Capital expenditures through September 2018 included $149.2 million for the acquisition of Boeing aircraft and freighter modification costs, versus $159.4 million for the same period of 2017.

Joe Hete, President and Chief Executive Officer of ATSG, said that In the third quarter, we continued to grow revenues and deliver increases in Adjusted EBITDA. Our airline businesses performed well and are expecting a good peak season. We intend to add five more 767-300 freighters, including three more external dry leases, to our in-service fleet by the end of the year, or all ten of the 767s we planned to deliver in 2018. Additionally, we expect to dry lease two 767-200 freighter aircraft, currently on lease to our airline affiliate, to external customers by year-end. That does not include the thirteen Boeing 767 and 777 passenger aircraft we expect to add in November when we complete our all-cash purchase of Omni Air International.

Segment Results

Cargo Aircraft Management (CAM)

   
CAM Third Quarter Nine Months
($ in thousands) 2018   2017 2018   2017
Aircraft leasing and related revenues $ 63,012 $ 62,351 $ 178,217 $ 165,733
Lease incentive amortization (4,226 ) (3,886 ) (12,678 ) (9,760 )
Total CAM revenues 58,786   58,465   165,539   155,973  
Pre-Tax Earnings 19,034     19,445     49,892     45,570  
 

Significant Developments:

  • CAM’s third-quarter revenues, net of warrant-related lease incentives, were $58.8 million, flat versus a year ago. Higher revenues from additional aircraft in service were offset by revenue loss from transitioning aircraft, fewer aircraft engine leases, and lower revenues for maintenance services for lease customers.
  • CAMs in-service fleet at September 30, 2018 comprised seventy-three cargo aircraft, including Boeing 767s, 757s, and 737s. That is seven more cargo aircraft than on the same date in 2017, including five 767s and two 737s. At Sept. 30, six 767s were undergoing passenger-to-cargo conversion. Two 767-200s returned from customers were being staged for redeployment.
  • CAMs pre-tax earnings for the third quarter were $19.0 million, down from $19.4 million in the second quarter a year ago. Improved lease revenues from the growing fleet were offset in part by increased depreciation and lower revenues from aircraft engine leasing and lease-customer maintenance support.
  • CAM acquired one 767 aircraft during the third quarter for freighter conversion and redeployment in 2019. CAM currently expects to acquire four additional 767s in the fourth quarter for conversion and lease to third-party customers in 2019. This is in addition to aircraft operated by Omni Air International, which ATSG expects to acquire later this year.

ACMI Services

   
ACMI Services Third Quarter Nine Months
($ in thousands) 2018   2017 2018   2017
Revenues $ 116,224 $ 112,203 $ 355,204 $ 332,120
Pre-Tax Earnings (Loss)   61     300     4,993     (2,976 )
 

Significant Developments:

  • ACMI Services revenues, excluding revenues from reimbursed expenses in 2017, increased 4 percent to $116.2 million in the third quarter. Pre-tax earnings were flat versus a year ago at break-even levels.
  • Billable block hours increased 2 percent from last year’s quarter, while operating the same number of CAM-leased aircraft on a CMI basis as the previous year.
  • In March, ATI pilots represented by the Air Line Pilots Association ratified an amendment to the collective bargaining agreement with Air Transport International. The amendment set new pilot compensation levels that increased costs by $2.2 million per quarter.

MRO Services

On January 1, 2018, ATSG segregated MRO Services as a new reporting segment that includes the results of its aircraft maintenance services and modification services businesses.

   
MRO Services Third Quarter Nine Months
($ in thousands) 2018   2017 2018   2017
Revenues $ 46,879 $ 39,928 $ 145,125 $ 146,602
Pre-Tax Earnings (Loss)   2,332     2,514     8,115     16,805
 

Significant Developments:

  • Total revenues from MRO Services were $46.9 million, up from $39.9 million in the third quarter of 2017.
  • 2018 revenues also reflect a change in accounting standards that affects the timing of revenue recognition. Revenues for aircraft modification and heavy maintenance are now recorded as work tasks are completed. In prior years, revenues were recorded upon redelivery of an aircraft.
  • Pre-tax earnings from MRO Services decreased $0.2 million to $2.3 million from the same period a year ago. The decline reflects a mix of more lower margin maintenance services revenues during 2018 and longer completion times. During the third quarter of 2018, the time needed for several complex maintenance projects took longer than expected, impacting earnings.

Other Activities

Other Activities include arranging logistics services, postal center sorting services, equipment maintenance and other services.

   
Other Third Quarter Nine Months
($ in thousands) 2018   2017 2018   2017
Revenues $ 22,598 $ 17,141 $ 61,611 $ 70,245
Pre-Tax Earnings   3,139     1,432     8,469     5,295
 

Significant Developments:

  • Total revenues from other activities increased by 32 percent, excluding revenues from reimbursed expenses from 2017. Third-quarter revenues from external customers, which do not include 2017 revenues for the reimbursement of certain ground services, increased $5.2 million.
  • The increase in external revenue excluding reimbursables was driven by additional mail volumes, higher contractual rates and additional gateway services provided to Amazon, including cargo handling and related ground support services provided directly at Amazon’s gateway location in Tampa.
  • Pre-tax earnings of $3.1 million increased from a year ago. The gain is attributable to better results from our minority interest in West Atlantic, and improvement in our postal and gateway operations. Contracts to manage five USPS facilities expired in September. Those contracts generated $28.9 million in revenues for ATSG through the first nine months of 2018.

Outlook

ATSG expects to complete required regulatory reviews and close its proposed acquisition of Omni Air by mid-November. Omni Airs fleet of thirteen extended-range passenger aircraft, including seven 767-300s, three 767-200s and three 777-200s, will complement ATSGs projected operating fleet of seventy-eight aircraft, for a total of ninety-one aircraft at year-end.

Hete said, Our outlook for the fourth quarter remains very positive, with five newly converted 767-300 freighters set to enter service, including three that will be deployed under long-term external leases and two that will support peak season ACMI demand. We are focused on providing our customers with excellent service during what we anticipate to be a very busy fourth quarter.

ATSG expects to purchase four 767-300s in the fourth quarter for freighter modifications during 2019, and now projects that 2018 capital expenditures will total about $280 million.

ATSG projects Adjusted EBITDA for the fourth quarter of 2018 to be in a range of $80 to $85 million, reflecting the expiration of package sorting operations for the U.S. Postal Service under contracts that terminated in September, and excluding Adjusted EBITDA from Omni Air. ATSGs 2018 Adjusted EBITDA was impacted by later than planned start dates for leased aircraft, as leases for three 767s planned to begin in the third quarter instead will start during the fourth quarter. ATSG’s run-rate for Adjusted EBITDA as it enters 2019 is not affected by these delays.

Excluding contributions from eight to ten 767-300 freighter aircraft expected to be added next year, ATSGs preliminary view is that the year-end 2018 operating fleets of ATSG and Omni Air, combined with ATSGs other businesses, will generate Adjusted EBITDA of more than $440 million in 2019. ATSG plans to provide complete full-year 2019 guidance for Adjusted EBITDA when it issues its fourth-quarter 2018 results in late February.

As the year progresses, we will further expand CAM’s leasing portfolio, capitalize on strong demand from the e-commerce-driven market for our midsize freighters and complementary services, and work to enhance the expected solid returns from our Omni Air acquisition,” said Hete.

Revenue Recognition

In accordance with new GAAP requirements, ATSG’s 2018 revenues related to costs that are directly reimbursed to ATSG and controlled by the customer are reported net of the corresponding expenses. 2017 GAAP consolidated revenues include such reimbursements. These are principally costs for aircraft fuel, certain contracted aviation services and airport related expenses. After application of the new GAAP revenue rules, Amazon, DHL, and the U.S. Military accounted for 29 percent, 27 percent, and 10 percent, respectively, of ATSG’s customer revenues for the first nine months of 2018.

Non-GAAP financial measures

This release, including the attached tables, contains non-GAAP financial measures that management uses to evaluate historical results. Management believes that these non-GAAP measures assist in highlighting operational trends, facilitate period-over-period comparisons, and provide additional clarity about events and trends impacting core operating performance. Disclosing these non-GAAP measures provides insight to investors about additional metrics that management uses to evaluate past performance and prospects for future performance. Non-GAAP measures are not a substitute for GAAP. The non-GAAP financial measures are reconciled to GAAP results in tables later in this release.

Conference Call

ATSG will host a conference call on November 2, 2018, at 10 a.m. Eastern time to review its financial results for the third quarter of 2018. Participants should dial (866) 420-4067 and international participants should dial (409) 217-8238 ten minutes before the scheduled start of the call and ask for conference pass code 1458296. The call will also be webcast live (listen-only mode) via www.atsginc.com. A replay of the conference call will be available by phone on November 2, 2018, beginning at 2 p.m. and continuing through November 9, 2018, at (855) 859-2056 (international callers (404) 537-3406); use pass code 1458296. The webcast replay will remain available via www.atsginc.com for 30 days.

About ATSG

ATSG is a leading provider of aircraft leasing and air cargo transportation and related services to domestic and foreign air carriers and other companies that outsource their air cargo lift requirements. ATSG, through its leasing and airline subsidiaries, is the world’s largest owner and operator of converted Boeing 767 freighter aircraft. Through its principal subsidiaries, including two airlines with separate and distinct U.S. FAA Part 121 Air Carrier certificates, ATSG provides aircraft leasing, air cargo lift, aircraft maintenance and conversion services, and airport ground services. ATSG’s subsidiaries include ABX Air, Inc.; Airborne Global Solutions, Inc.; Air Transport International, Inc.; Cargo Aircraft Management, Inc.; and Airborne Maintenance and Engineering Services, Inc. including its subsidiary, Pemco World Air Services, Inc. For more information, please see www.atsginc.com.

Except for historical information contained herein, the matters discussed in this release 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; fluctuations in ATSG’s traded share price, which may result in mark-to-market charges on certain financial instruments; the number, timing and scheduled routes of our aircraft deployments to customers; that one or more closing conditions to the acquisition of Omni Air International, LLC, including certain regulatory approvals, may not be satisfied or waived, on a timely basis or otherwise, including that a governmental entity may prohibit, delay or refuse to grant approval for the consummation of the acquisition, or may require conditions, limitations or restrictions in connection with such approvals; the risk that the acquisition may not be completed on the terms or in the time frame expected by ATSG, or at all; uncertainty of the expected financial performance of the combined company following completion of the acquisition; failure to realize the anticipated benefits of the acquisition; difficulties and delays in achieving synergies of the combined company; inability to retain key personnel subsequent to the acquisition; the occurrence of any event that could give rise to termination of the acquisition; changes in general economic and/or industry specific conditions that could adversely impact the acquisition; actions by third parties, including government agencies’ that could adversely impact the acquisition; 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 release 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 release. 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.

   

AIR TRANSPORT SERVICES GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

(In thousands, except per share data)

 
Three Months Ended Nine Months Ended
September 30, September 30,
2018   2017 2018   2017
REVENUES $ 204,919 $ 254,101 $ 611,566 $ 745,229
 
OPERATING EXPENSES
Salaries, wages and benefits 71,341 61,177 216,173 199,496
Depreciation and amortization 43,201 37,605 124,825 111,828
Maintenance, materials and repairs 33,469 33,100 107,152 100,970
Fuel 5,981 34,035 17,682 101,134
Contracted ground and aviation services 2,636 40,445 7,464 93,283
Travel 6,903 6,357 20,823 20,543
Landing and ramp 1,211 4,682 3,670 14,338
Rent 3,274 3,052 10,264 10,091
Insurance 1,696 1,234 4,473 3,451
Other operating expenses 8,380   7,962   20,672   24,588  
178,092 229,649 533,198 679,722
       
OPERATING INCOME 26,827 24,452 78,368 65,507
OTHER INCOME (EXPENSE)
Net gain (loss) on financial instruments 17,895 (34,433 ) 28,707 (100,213 )
Interest expense (5,608 ) (4,351 ) (16,336 ) (11,658 )
Non-service component of retiree benefit costs 2,045 (5,529 ) 6,135 (5,883 )
Loss from non-consolidated affiliate (2,647 ) (945 ) (7,600 ) (945 )
Interest income 67   37   144   85  
11,752 (45,221 ) 11,050 (118,614 )
       
EARNINGS (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 38,579 (20,769 ) 89,418 (53,107 )
INCOME TAX EXPENSE (5,646 ) (7,460 ) (16,339 ) (19,244 )
       
EARNINGS (LOSS) FROM CONTINUING OPERATIONS 32,933 (28,229 ) 73,079 (72,351 )
 
EARNINGS (LOSS) FROM DISCONTINUED OPERATIONS, NET OF TAX 170   (4,655 ) 536   (4,271 )
NET EARNINGS (LOSS) $ 33,103   $ (32,884 ) $ 73,615   $ (76,622 )
 
EARNINGS (LOSS) PER SHARE – CONTINUING OPERATIONS
Basic $ 0.56 $ (0.48 ) $ 1.24 $ (1.23 )
Diluted $ 0.24 $ (0.48 ) $ 0.71 $ (1.23 )
 
WEIGHTED AVERAGE SHARES – CONTINUING OPERATIONS
Basic 58,739   58,733   58,773   58,965  
Diluted 68,323   58,733   68,629   58,965  

Certain historical expenses have been reclassified to conform to the presentation above.

   
AIR TRANSPORT SERVICES GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

 
September 30, December 31,
2018 2017
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 43,462 $ 32,699
Accounts receivable, net of allowance of $1,014 in 2018 and $2,445 in 2017 93,662 109,114
Inventory 24,412 22,169
Prepaid supplies and other 15,698   20,521  
TOTAL CURRENT ASSETS 177,234 184,503
 
Property and equipment, net 1,226,500 1,159,962
Lease incentive 68,006 80,684
Goodwill and acquired intangibles 43,710 44,577
Convertible note hedges 53,683
Other assets 37,618   25,435  
TOTAL ASSETS $ 1,553,068   $ 1,548,844  
 
LIABILITIES AND STOCKHOLDERS EQUITY
CURRENT LIABILITIES:
Accounts payable $ 101,205 $ 99,728
Accrued salaries, wages and benefits 31,416 40,127
Accrued expenses 11,387 10,455
Current portion of debt obligations 14,860 18,512
Unearned revenue 15,204   15,850  
TOTAL CURRENT LIABILITIES 174,072 184,672
 
Long term debt 527,226 497,246
Convertible note obligations 54,359
Stock warrant obligations 186,093 211,136
Post-retirement obligations 29,355 61,355
Other liabilities 46,334 45,353
Deferred income taxes 119,289 99,444
 
STOCKHOLDERS EQUITY:
Preferred stock, 20,000,000 shares authorized, including 75,000 Series A Junior Participating Preferred Stock
Common stock, par value $0.01 per share; 110,000,000 shares authorized; 59,080,387 and 59,057,195 shares issued and outstanding in 2018 and 2017, respectively 591 591
Additional paid-in capital 470,676 471,456
Retained earnings (accumulated deficit) 60,381 (13,748 )
Accumulated other comprehensive loss (60,949 ) (63,020 )
TOTAL STOCKHOLDERS EQUITY 470,699   395,279  
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY $ 1,553,068   $ 1,548,844  
 
   
AIR TRANSPORT SERVICES GROUP, INC. AND SUBSIDIARIES

PRE-TAX EARNINGS AND ADJUSTED PRE-TAX EARNINGS SUMMARY

FROM CONTINUING OPERATIONS

NON-GAAP RECONCILIATION

(In thousands)

 
Three Months Ended Nine Months Ended
September 30, September 30,
2018   2017 2018   2017
Revenues
CAM
Aircraft leasing and related revenues $ 63,012 $ 62,351 $ 178,217 $ 165,733
Lease incentive amortization (4,226 ) (3,886 ) (12,678 ) (9,760 )
Total CAM 58,786 58,465 165,539 155,973
ACMI Services 116,224 112,203 355,204 332,120
MRO Services 46,879 39,928 145,125 146,602
Other Activities 22,598   17,141   61,611   70,245  
Total Revenues 244,487 227,737 727,479 704,940
Eliminate internal revenues (39,568 ) (45,777 ) (115,913 ) (147,319 )
Customer Revenues – non reimbursed 204,919 181,960 611,566 557,621
Revenues recorded for reimbursed expenses   72,141     187,608  
Customer Revenues (GAAP) $ 204,919   $ 254,101   $ 611,566   $ 745,229  
 
Pre-tax Earnings (Loss) from Continuing Operations
CAM, inclusive of interest expense 19,034 19,445 49,892 45,570
ACMI Services 61 300 4,993 (2,976 )
MRO Services 2,332 2,514 8,115 16,805
Other Activities 3,139 1,432 8,469 5,295
Inter-segment earnings eliminated (2,420 ) (3,285 ) (6,776 ) (10,105 )
Net, unallocated interest expense (860 ) (268 ) (2,517 ) (655 )
Net gain (loss) on financial instruments 17,895 (34,433 ) 28,707 (100,213 )
Other non-service components of retiree benefit costs, net 2,045 (5,529 ) 6,135 (5,883 )
Non-consolidated affiliate (2,647 ) (945 ) (7,600 ) (945 )
Earnings (loss) from Continuing Operations before Income Taxes (GAAP) $ 38,579 $ (20,769 ) $ 89,418 $ (53,107 )
 
Adjustments to Pre-tax Earnings
Add non-service components of retiree benefit costs, net (gain) loss (2,045 ) 5,529 (6,135 ) 5,883
Add loss from non-consolidated affiliates 2,647 945 7,600 945
Add lease incentive amortization 4,226 3,886 12,678 9,760
Add net (gain) loss on financial instruments (17,895 ) 34,433   (28,707 ) 100,213  
Adjusted Pre-tax Earnings (non-GAAP) $ 25,512   $ 24,024   $ 74,854   $ 63,694  
 

Revenues recorded for reimbursed expenses reflect certain revenues that were reported during 2017, prior to the adoption in 2018 of Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606). The adoption of Topic 606 resulted in the netting of these revenues with the directly reimbursed expenses for 2018 financial reporting. This application of Topic 606 did not affect the Company’s earnings.

Adjusted Pre-tax Earnings excludes certain items included in GAAP based pre-tax earnings (loss) from continuing operations because they are distinctly different in their predictability among periods or not closely related to our operations. Presenting this measure provides investors with a comparative metric of fundamental operations, while highlighting changes to certain items among periods. Adjusted Pre-tax Earnings should not be considered an alternative to Earnings from Continuing Operations Before Income Taxes or any other performance measure derived in accordance with GAAP.

   
AIR TRANSPORT SERVICES GROUP, INC. AND SUBSIDIARIES

ADJUSTED EARNINGS FROM CONTINUING OPERATIONS BEFORE INTEREST, TAXES, DEPRECIATION AND AMORTIZATION

NON-GAAP RECONCILIATION

(In thousands)

 
Three Months Ended Nine Months Ended
September 30, September 30,
2018   2017 2018   2017
 
Earnings (loss) from Continuing Operations Before Income Taxes $ 38,579 $ (20,769 ) $ 89,418 $ (53,107 )
Interest Income (67 ) (37 ) (144 ) (85 )
Interest Expense 5,608 4,351 16,336 11,658
Depreciation and Amortization 43,201   37,605   124,825   111,828  
EBITDA from Continuing Operations (non-GAAP) $ 87,321 $ 21,150 $ 230,435 $ 70,294
Add non-service components of retiree benefit costs, net (gain) loss (2,045 ) 5,529 (6,135 ) 5,883
Add losses for non-consolidated affiliates 2,647 945 7,600 945
Add lease incentive amortization 4,226 3,886 12,678 9,760
Add net (gain) loss on financial instruments (17,895 ) 34,433 (28,707 ) 100,213
       
Adjusted EBITDA (non-GAAP) $ 74,254   $ 65,943   $ 215,871   $ 187,095  
 

Management uses Adjusted EBITDA to assess the performance of its operating results among periods. It is a metric that facilitates the comparison of financial results of underlying operations. Additionally, these non-GAAP adjustments are similar to the adjustments used by lenders in the Companys Senior Credit Agreement to assess financial performance and determine the cost of borrowed funds. The adjustments also exclude the non-service cost components of retiree benefit plans because they are not closely related to ongoing operating activities. Management presents EBITDA from Continuing Operations, a commonly referenced metric, as a subtotal toward computing Adjusted EBITDA.

EBITDA from Continuing Operations is defined as Earnings (Loss) from Continuing Operations Before Income Taxes plus net interest expense, depreciation, and amortization expense. Adjusted EBITDA is defined as EBITDA from Continuing Operations less financial instrument revaluation gains or losses, non-service components of retiree benefit costs including pension plan settlements, amortization of lease incentive costs recorded in revenue, and costs from non-consolidated affiliates.

Adjusted EBITDA and EBITDA from Continuing Operations are non-GAAP financial measures and should not be considered as alternatives to Earnings from Continuing Operations Before Income Taxes or any other performance measure derived in accordance with GAAP. Adjusted EBITDA and EBITDA from Continuing Operations should not be considered in isolation or as substitutes for analysis of the Company’s results as reported under GAAP, or as alternative measures of liquidity.

AIR TRANSPORT SERVICES GROUP, INC. AND SUBSIDIARIES ADJUSTED EARNINGS PER SHARE FROM CONTINUING OPERATIONS NON-GAAP RECONCILIATION (In thousands)

Management presents Adjusted Earnings and Adjusted Earnings per Share from Continuing Operations, non-GAAP calculations, to provide additional information regarding earnings per share without the volatility otherwise caused by the items below. Management uses Adjusted Earnings and Adjusted Earnings per Share from Continuing Operations to compare the performance of its operating results among periods.

   
Three Months Ended Nine Months Ended
September 30,   September 30, September 30,   September 30,
2018 2017 2018 2017
  $ Per   $ Per   $ Per   $ Per
$ Share $ Share $ Share $ Share
 
Earnings (loss) from Continuing Operations – basic (GAAP) $ 32,933 $ (28,229 ) $ 73,079 $ (72,351 )
Gain from warrant revaluation, net tax (16,801 )   (24,274 )  
Earnings (loss) from Continuing Operations – diluted (GAAP) 16,132 $ 0.24 (28,229 ) $ (0.48 ) 48,805 $ 0.71 (72,351 ) $ (1.23 )
Adjustments, net of tax
Loss from warrant revaluation 1 33,158 0.52 95,015 1.53
Lease incentive amortization 2 3,272 0.04 6,368 0.11 9,816 0.14 13,708 0.23
Pension settlement charge 3 3,400 0.06 3,400 0.06
Loss from joint venture 4 2,049   0.03   602   0.01   5,883   0.09   602   0.01  
Adjusted Earnings from Continuing Operations (non-GAAP) $ 21,453   $ 0.31   $ 15,299   $ 0.22   $ 64,504   $ 0.94   $ 40,374   $ 0.60  
 
Shares Shares Shares Shares
Weighted Average Shares – diluted 68,323 58,733 68,629 58,965
Additional weighted average shares 1   9,861     8,066  
Adjusted Shares (non-GAAP) 68,323   68,594   68,629   67,031  

Adjusted Earnings from Continuing Operations and Adjusted Earnings per Share from Continuing Operations are non-GAAP financial measures and should not be considered as alternatives to Earnings from Continuing Operations, Weighted Average Shares – diluted or Earnings per Share from Continuing Operations or any other performance measure derived in accordance with GAAP. Adjusted Earnings and Adjusted Earnings per Share from Continuing Operations should not be considered in isolation or as a substitute for analysis of the company’s results as reported under GAAP.

1.   Adjustment removes the unrealized losses for a large grant of stock warrants granted to a customer as a lease incentive. Under U.S. GAAP, these warrants are reflected as a liability and unrealized warrant gains are typically removed from diluted earnings per share (EPS) calculations while unrealized warrant losses are not removed because they are dilutive to EPS. As a result, the Companys EPS, as calculated under U.S. GAAP, can vary significantly among periods due to unrealized mark-to-market losses created by an increased trading value for the Company’s shares.
2. Adjustment removes the amortization of the customer lease incentive which is recorded against revenue over the term of the related aircraft leases.
3. Removes the pension charge to settle certain retirement obligations of former employees through the purchase of a third party group annuity contract during the third quarter of 2017.
4. Adjustment removes losses for the Company’s share of development costs for a joint venture accounted for under the equity method.
 
AIR TRANSPORT SERVICES GROUP, INC. AND SUBSIDIARIES

CARGO AIRCRAFT FLEET

 
Owned Aircraft Types
  December 31,   September 30,   December 31,
2017 2018 2018 Projected
               
B767-200 36 34 34
B767-300 25 29 34
B757-200 4 4 4
B757 Combi 4 4 4
B737-400 1 2 2
Total Aircraft in Service 70 73 78
 
B767-300 in or awaiting cargo conversion 6 6 5
B737-400 in or awaiting cargo conversion 1
B767-200 staging for lease 2 2
Total Aircraft 77 81 85
 
Aircraft in Service Deployments
December 31, September 30, December 31,
2017 2018 2018 Projected
 
Dry leased without CMI 18 22 28
Dry leased with CMI 33 32 31
ACMI/Charter 19 19 19
 

Omni Airs Aircraft Fleet

Omni Air’s fleet is not included above. Omni Air’s fleet consists of seven Boeing 767-300ER, three 767-200ER and three 777-200ER passenger aircraft. Two of the 13 passenger aircraft are leased.

Air Transport Services Group, Inc.
Quint O. Turner, 937-366-2303
Chief
Financial Officer