Air T, Inc. Reports Second Quarter Fiscal 2019 Results

DENVER, N.C., Nov. 13, 2018 — Air T, Inc. (NASDAQ: AIRT) is organized as a portfolio of powerful businesses and financial assets, each of which is independent yet interrelated. Today the Company announced results for its fiscal quarter ended September 30, 2018.

Fiscal Q2 2019 Overview

  • Revenues totaled $49.3 million for the fiscal quarter ended September 30, 2018, a 1% increase over the prior year comparable quarter
  • Operating loss was $1.6 million, a decline of $2.1 million from the prior quarter’s operating income of $0.5 million
  • Net loss attributable to Air T stockholders was $1.3 million as compared to net income of $0.4 million in Q2 2018
  • Diluted loss per share was $0.65 compared to prior comparable quarter’s diluted income per share of $0.21

“Air T’s results for the quarter were primarily driven by independent, yet negative, results at several of our operating businesses. We believe that the negative results at three of our operating businesses are due to timing and isolated to the quarter, one was the result of planned expenditure/investment, and one is more disruptive in nature and currently subject to focused management,” stated Nick Swenson, President & CEO of Air T.

A brief summary of the quarter by segment is as follows:

  • Aviation ground support equipment manufacturing – lower operating results in this segment were driven by product mix during the quarter, as well as production delays caused by slower-than-anticipated deliveries from critical parts suppliers. Order backlog in this segment was over $30 million as of September 30, 2018 compared to $20 million a year ago.
  • Commercial aircraft asset management and logistics – results for this segment in the second quarter reflect the significant fluctuations that are expected quarter-to-quarter in the business of leasing and trading commercial jet engines and parts. We firmly believe that “a single quarter does not a year make” within this segment, and we assess this segment on an annualized basis.
  • Overnight air cargo – this segment, like most other airlines, is currently facing an increasing pilot shortage. To maintain its scheduled flights, this segment is having to pay incentives and other ancillary fees to attract and retain its pilots. These types of fees are having a negative impact on operational costs and margins as the majority of these costs have not been passed through to the sole customer of this segment.
  • Corporate – our corporate-level spending rose as we continue to invest in people, processes and technology to position the Company for growth and investment opportunities in the future.
  • Aviation ground support maintenance services – most significantly from a financial perspective, operating margins at this segment were negative in the second quarter. Four airport locations within this segment drove the quarterly operating loss, and we are implementing improvement plans at these locations which will ultimately determine their viability. Higher employee costs – including higher wages as well as higher health insurance costs – also impacted second quarter results. Our many customers value the specialized skills that our mechanics bring to their day-to-day operational challenges, and we believe that our customers value our specialized mechanics even more in a tight labor market that threatens to disrupt their operations. We have paid a premium for skilled labor, thus temporarily depressing margins, in order to keep our customers from being disappointed.
  • The operating dynamic at Air T is not easy to discern on a 90-day horizon and we make no excuses for a decidedly disappointing quarter on the face of the income statement. Shareholders can rest assured that management thinks unsentimentally about generating shareholder value and consequently seeks to invest shareholder capital in businesses that grow, and which build defensible operational edges in time. The Company has many excellent managers and teams, going after compelling opportunities, in their respective domains.

ABOUT AIR T, INC.
Established in 1980, Air T Inc. is a powerful portfolio of businesses and financial assets, each of which is independent yet interrelated. Its four core segments are: overnight air cargo, aviation ground support equipment manufacturing, aviation ground support maintenance services, and commercial aircraft asset management and logistics. Our ownership interests are designed to expand, strengthen and diversify Air T’s cash earnings power. Our goal is to build on Air T’s core businesses, and when appropriate, to expand into adjacent and other industries that we believe fit into the Air T portfolio. For more information, visit www.airt.net.

FORWARD-LOOKING STATEMENTS
Statements in this press release, which contain more than historical information, may be considered forward-looking statements (as such term is defined in the Private Securities Litigation Reform Act of 1995), which are subject to risks and uncertainties. Actual results may differ materially from those expressed in the forward-looking statements because of important potential risks and uncertainties, including, but not limited to, 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 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, information technology disruptions, and the impact of future terrorist activities in the United States and abroad. A forward-looking statement is neither a prediction nor a guarantee of future events or circumstances, and those future events or circumstances may not occur. The Company is under no obligation, and it expressly disclaims any obligation, to update or alter any forward-looking statements, whether as a result of new information, future events or otherwise.

AIR T, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS) (UNAUDITED)

Three Months Ended September 30,

Six Months Ended September 30,

2018

2017

2018

2017

Operating Revenues:

Overnight air cargo

$       17,064,600

$       18,081,073

$     34,705,258

$     34,823,248

Ground equipment sales

12,838,796

15,516,109

19,223,577

21,465,765

Ground support services

8,474,037

8,801,326

17,521,677

17,914,399

Printing equipment and maintenance

139,945

1,302,922

438,768

4,434,303

Commercial jet engines and parts

10,642,791

5,125,244

37,962,966

17,850,585

Corporate

180,608

34,816

356,000

70,563

49,340,777

48,861,490

110,208,246

96,558,863

Operating Expenses:

Overnight air cargo

15,349,754

15,919,557

30,524,150

30,481,700

Ground equipment sales

10,979,913

13,273,845

15,917,225

18,028,060

Ground support services

8,022,462

6,982,270

15,827,671

14,400,663

Printing equipment and maintenance

48,903

1,082,751

194,431

2,583,807

Commercial jet engines and parts

5,662,788

3,321,385

25,783,906

13,391,235

Research and development

195,653

General and administrative

9,070,053

7,276,486

17,654,856

13,861,154

Depreciation, amortization and impairment

1,826,905

529,538

3,322,306

928,365

50,960,778

48,385,832

109,224,545

93,870,637

Operating Income (Loss)

(1,620,001)

475,658

983,701

2,688,226

Non-operating Income (Expense):

Foreign currency gain (loss), net

50

(60,482)

(2,132)

(249,106)

Other-than-temporary impairment loss on investments

(771,173)

Other investment income (loss), net

277,923

42,150

(37,584)

72,801

Interest expense

(714,091)

(322,199)

(1,421,290)

(471,718)

Gain on asset retirement obligation

562,500

562,500

Unrealized gain on interest rate swap

47,885

145,222

Bargain purchase acquisition gain

1,983,777

501,880

Income from equity method investments

160,558

61,840

169,741

29,937

Other income, net

27,686

27,686

(199,989)

283,809

865,420

(324,879)

Income (Loss) Before Income Taxes

(1,819,990)

759,467

1,849,121

2,363,347

Income Taxes (Benefit)

(393,000)

281,000

(6,000)

655,000

Net Income (Loss)

(1,426,990)

478,467

1,855,121

1,708,347

Net (Income) Loss Attributable to Non-controlling

Interests

$            105,805

$            (56,766)

$        (347,612)

$        (318,257)

Net Income (Loss) Attributable to Air T, Inc. Stockholders

$       (1,321,185)

$            421,701

$       1,507,509

$       1,390,090

Income (Loss) Per Share:

Basic

$                (0.65)

$                  0.21

$                0.74

$                0.68

Diluted

$                (0.65)

$                  0.21

$                0.74

$                0.68

Weighted Average Shares Outstanding:

Basic

2,043,823

2,042,789

2,043,716

2,042,789

Diluted

2,043,823

2,046,945

2,049,393

2,047,305

AIR T, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

September 30, 2018

March 31, 2018

ASSETS

Current Assets:

Cash and cash equivalents (Delphax $314,481 and $241,430)**

$                           5,612,472

$                       4,803,238

Marketable securities

2,341,786

290,449

Restricted cash 

18,865

269,659

Restricted investments

1,062,239

1,235,405

Accounts receivable, less allowance for doubtful accounts

  of $727,169 and $801,000 (Delphax $298,199 and $317,000)**

18,634,629

15,157,855

Costs and estimated earnings in excess of billings on uncompleted projects

2,012,121

Income tax receivable

2,109,543

1,557,180

Inventories, net 

29,450,138

34,231,005

Other current assets

3,393,812

658,630

Prepaid expenses (Delphax $58,754 and $72,269)**

1,919,611

1,455,566

  Total Current Assets

64,543,095

61,671,108

Investments in securities

3,045,435

1,026,920

Property and equipment, net of accumulated depreciation of $8,749,057 and $6,347,253

37,071,213

20,273,171

Cash surrender value of life insurance policies, net of policy loans

481,764

2,356,507

Other tax receivables-long-term (Delphax $311,000 and $311,000)**

311,000

311,000

Investments in funds

342,619

324,854

Equity method investments

5,465,501

5,032,268

Other assets 

687,973

420,981

Intangible assets, net of accumulated amortization of $1,960,734 and $1,788,598

1,347,606

1,312,472

Goodwill 

4,417,605

4,417,605

  Total Assets

$                       117,713,811

$                     97,146,886

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current Liabilities:

Accounts payable (Delphax $2,146,938 and $2,145,847)**

$                         14,730,946

$                     10,181,143

Income tax payable (Delphax $11,312 and $11,312)**

34,312

23,000

Accrued expenses (Delphax $3,234,808 and $3,244,514)**

13,769,010

11,743,973

Deferred tax liabilities

Current portion of long-term debt

15,242,526

9,229,690

 Total Current Liabilities   

43,776,794

31,177,806

Long-term debt (Delphax $0 and $0)*

44,123,009

38,855,260

Deferred tax liabilities

689,655

92,000

Other non-current liabilities 

775,046

785,797

 Total Liabilities   

89,364,504

70,910,863

Redeemable non-controlling interest

2,583,162

1,992,939

Commitments and contingencies (Note 15)

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,

  2,044,614 and 2,043,607 shares issued and outstanding 

511,152

510,901

Additional paid-in capital

4,187,833

4,171,869

Retained earnings

22,075,937

20,695,981

Accumulated other comprehensive loss

(70,677)

(260,900)

     Total Air T, Inc. Stockholders’ Equity

26,704,245

25,117,851

  Non-controlling Interests

(938,100)

(874,767)

  Total Equity

25,766,145

24,243,084

  Total Liabilities and Equity  

$                       117,713,811

$                     97,146,886

** Amounts related to Delphax as of September 30, 2018 and March 31, 2018, respectively.

AIR T, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

Six Months Ended September 30,

2018

2017

CASH FLOWS FROM OPERATING ACTIVITIES:

Net income

$                   1,855,121

$                    1,708,347

Adjustments to reconcile net income to net

  cash provided by operating activities:

Gain (Loss) on sale of property and equipment

1,661

(1,091)

Change in inventory reserves

(276,494)

24,946

Change in accounts receivable reserves

(74,261)

(23,849)

Depreciation, amortization and impairment

3,322,306

928,365

Change in cash surrender value of life insurance

(22,045)

(20,599)

Gain on asset retirement obligation

(562,500)

Bargain purchase acquisition gain

(1,983,777)

(501,880)

Change in warranty reserve

(980)

906

Other-than-temporary impairment loss on investments

771,173

Unrealized loss on marketable securities

99,471

Unrealized gain on interest rate swap

(145,222)

Change in operating assets and liabilities:

  Accounts receivable

(1,462,724)

(236,911)

  Costs and estimated earnings in excess of billings and uncompleted projects

2,012,121

  Notes receivable and other non-trade receivables 

(2,735,178)

155,049

  Inventories

9,969,314

4,899,652

  Prepaid expense and other assets

(559,682)

488,537

  Accounts payable

3,262,959

129,166

  Accrued expenses

1,908,945

(196,594)

  Income taxes payable/receivable

(541,051)

(651,923)

  Non-current liabilities

240,745

125,278

Total adjustments  

13,016,108

5,327,725

 Net cash provided by operating activities

14,871,229

7,036,072

CASH FLOWS FROM INVESTING ACTIVITIES:

Purchases of marketable securities

(2,013,921)

(734,600)

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

(19,973,209)

(8,259,215)

Proceeds from sale of property and equipment

50,602

1,861

 Net cash used in investing activities

(27,575,720)

(11,891,954)

CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds from lines of credit

51,151,570

48,450,994

Payments on lines of credit

(58,355,499)

(46,617,448)

Proceeds from term loan

21,714,000

2,400,000

Payments on term loan

(3,190,136)

(800,000)

Debt issuance costs

(107,844)

Proceeds from loan against cash surrender value of life insurance policies

1,896,788

Distribution to non-controlling member

(55,837)

Contribution from non-controlling member

210,000

Payments for repurchase of stock

(22,759)

Proceeds from exercise of stock options

17,762

 Net cash provided by financing activities

13,258,045

3,433,546

Effect of foreign currency exchange rates on cash and cash equivalents

4,886

17,890

NET INCREASE/ (DECREASE) IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH

558,440

(1,404,446)

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

$                   5,631,337

$                    2,249,288

SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING ACTIVITIES:

Equipment leased to customers transferred to inventory

$                      234,151

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

Cash paid during the year for:

Interest

$                   1,149,603

$                       382,535

Income taxes

358,051

1,312,980