ATSG - Earnings call transcript Q4 2017 | Air Transport Services Group, Inc.

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Operator

Welcome to the Q4 2017 Air Transport Services Group, Incorporated Earnings Conference Call. My name is Ana [ph] and I will be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. [Operator Instructions] Please note, that this conference is being recorded. the to turn now will call Mr. over I Hete, President CEO. and Joe Mr. begin. may you Hete,

Joe Hete

Quint Financial morning Thank Chief yesterday call. the earnings are XXXX you, Operating atsginc.com. With our website, market our and today to our operator. after Good Officer. welcome We our earnings Corrado, and Officer Rich fourth issued quarter me closed, Turner, our on Chief release conference it's

with that quarter. substantial a week. file in I later am we our ended to pleased solid will earnings XXXX We and this report increases of revenues on Form very strength XX-K the fourth

Our quarter year the XX% revenues excluding increased for and XX% the reimbursables. for

airlines. Our up the XX% earnings XX% were to for adjusted year, and on basis for largely the our improved an quarter due from results

the add operations some few I'll summarize by Quint year. year. the words leases. quarter our growth on the our our Rich was that this projecting and additional meet XXXX's which year, prior for $XX We're which with of to our announcing year excellent million we almost rated the be for we of results acquire will EBITDA To late standing three all demand a the increase is customers record for expect freighters XXXX. and solid start, XX available this across million XX% financial close XX% under our two for on adjusted spend Quint? target deliver Board service feedstock, to XXXX for freighters results quarter to $XXX and place great million, outlook. a is exceeded season were year. in increase each multi-year XXX over Our the of $XXX to fourth of a million will was mainly are customers. a peak XXXX in perspective dry EBITDA $XXX our CapEx converted million and off our for more from at for which will in $XXX planning we adjusted businesses a to XXX-XXXs, we're converted continue mid-sized by is

Quint Turner

Thanks, the you on Joe for this and thanks to joining all morning. us of call

by involve forward-looking As uncertainties. this make and of always, will that other statements projections saying the I'll course risks or call that during start we

to not actual future materially or to These statements assumptions, date market the our this describe on forward-looking demand events other and results changes. forward-looking in operating in Group reflect limited of XX-K Form to, Our to airline's instruments, we price information which those services, as result new information, call and and These in factors, we able any on-time update but the contained for the differ financial to certain are assets and aircraft from service timing Services the include, will purchase charges with and with of respect a to week. on costs scheduled time deployments and which as fluctuations later customers timing, and factors other may file this filings configuration, ATSG's SEC in and we the our to to may no Air statements other to from our in number, obligation underlying changes are modify estimates here. cargo aircraft are control, changes undertakes factors routes cost and time Transport maintain including plans traded share based ability mark-to-market of our

included GAAP ATSG's the our earnings measures earnings EBITDA. which website. to financial results. to financial measures are adjusted not on We and These from earnings non-GAAP measures adjusted are in you a for to reconciliations we our and operations, metrics are share, substitute including believes investors continuing Management be in GAAP and adjusted per release earnings, advise meant our financials to and refer useful assessing will position to pretax also refer to non-GAAP adjusted these

fourth very our from strong said, our were quarter Joe improved led airlines. As by results earnings

military the peak Revenues $XXX the a year. more quarter Our thanks XX% nearly On are approximately for profitable contributed each our $XXX Revenues and fourth GAAP year as year DHL totals our million ACMI $XXX basis, million, revenues we a a to of ago. a and to XXXX. for business of billion; model increased increased million year had same a revenues million the total On loss small to since quarter by year. whole, Amazon by earnings for versus consolidated a those compared the season. than quarter were for basis, and segment from services ATSG's $XX.X continuing the were reportable to segments us in strong of was XX% last fourth quarter from changed the from $X.X operations X%. record

both $X.XX excludes settlement For are Amazon incentive XXXX. pension XXXX basis, we is other the $X.XX our $XX.X XXXX. which our $X.XX was from in diluted per share The earned better with On was quarterly per subtracting was $X.XX Two quarter joint in tax from up benefit major the the a portion on items revaluation last based from non-cash. changes share to was $X.XX the total and items of the affected warrants, [indiscernible] the non-cash from Amazon that the GAAP the XXX year diluted our share annual two year price. gain, in for those in those amortization for in from an to per The than Airbus quarter, million fourth of related venture, launch the of costs at our change lease the a $XXX,XXX tied loss and million our end year, Adjusted versus largest earnings $XX.X results, $X.XX valuation Amazon fourth stock a of also gain of for charges net also our warrant the adjusted operations EPS was law the continuing quarter. warrants development ago.

operations. by our year. businesses, our EBITDA improved for including increased EBITDA quarter performances thanks and million busy customers operations highlights peak a there customers. our for own but expanded exceeded airline all DHL the flying our other to included for goal results $XXX.X well and flying of principal XX% We adjusted cover substantially will XX% million year Rich Our during as $XX.X the from as Amazon, for for to strong principal factor to which the season was the some the peak some airlines for

our together, with margins improved a our associated XX%. to reduction the business Taken in good airframe airlines by fourth was block year-over-year quarter inspections. hours prior despite exceeded our a had year than year quarter Also expense contributing a ago. CAM, lower leasing scheduled performance

in associated increased calculation in hits higher fourth were feature million we from that The the leased is notes it about to issued the adjusted of excluding EPS. would of our pre-tax on November a expense CAM's nearly from amortization $X September. told fleet of term by lease depreciation, charge increases our the CAM's portfolio the expanded million of interest all our of the as strong We bulk a XXXs. the larger each include and offset the predictable convertible of we of demand CAM are not that the Because so notes, earnings quarter we interest the in leased meet aircraft Additional in quarter non-cash late bears to amortization incentives Amazon, results. expense $X you with interest expense, of starting for over

The Services fourth conversion our we other from new of Starting stronger included controlled losses during requirement aviation-related again reporting our operations. primarily customer by management reported contributions share for new results from the related in filing, affiliate, a to primarily Ground rules our quarter directly basis in release certain equipment support. for growth the activities which and by our our we press with our businesses adopt the disclosure. XXXX West fuel were of quarter segment XX-Q our European be the and are fourth investment in from reimbursed structure. that saw and material triggered will pre-tax to our first XXXX operations, of our maintenance Results postal expense expenses. The new Amazon revenues will services revise and Atlantic. quarter revenue recognition lower were maintenance segment despite FASB's aircraft forming our fourth corporate our gateway a the segment aircraft for segment airline and standard, revised ATSG minority the the quarter services on corresponding center reporting our included cost and gateway which that Under You expenses of handling net other

than had revenue rules $XXX As our Services, the changes and rules flows. we conversion noted will been billion and million to been $X.X new aircraft cash our we segment approximately those to Also ground quarter reporting called in a operations We We this first eight or beginning the MRO maintenance expenditures our we revenue operations earnings million the in press in no in reported modification $XXX.X that XXXX, release, million began lower year, the other would for return heavy for effect other equipment. have with GAAP of $XX.X aircraft, will in XXX largely capital million included spent activities. spent freighter on to been netted under costs. related and two purchase had that required services maintenance $XXX.X and and $XX.X for capitalized XXXX; of part pay million new XXX

plus intended of last XXX-XXXs; XXXs Joe of As we to XXXX currently the which that anticipate we just $XXX two will already most includes million, we CapEx spend convert announced. acquire mentioned, a three purchase and of be year the to

growth have capacity a under and in These our XX to convertible annuity our of our September; one steps cost pension add XXXX. end portion an to liability were process low In one release, percent secured access at key capital. the the eight still sheet offering our on revolving derisk of in an we modifications freighter be complete to will preserving the highlighted long-term completed our or attractive facility, last offloading of balance and We the amendment credit to press notes underwriter.

meeting XXXX cash the share is to want facility, expanding XX% our of in That's still X, under arise opportunities cash debt our a primarily EBITDA. be them summary million fixed profile $XXX nearly commitments. X%. under for principal some rely new with average cash substantial of flows of our our conservative while to As an We coupon they major and from respond trailing of highlights a X.Xx entered to and ready credit operations, rate million ready Rich? other our available January adjusted at market results perspective. on of flow XXXX, but our Rich We with to growing quarter. operating a to financial leverage was business fund revolving $XXX debt when our still

Rich Corrado

Thanks, good excellent had quarter perspective From everybody. morning, in an XXXX. Quint and fourth we an and operating year

during Cargojet. Air and service most excellent critical our CAM, commitment growth for stuff leasing of and customers. reliability. for of our company improved from the ABX to conversions majority new the the and family our XX to the both three supports four our I delivered from cannot and ATI the delivered XXX's of CAM and in at critical is fourth customers. of parcels delivered the of how XXX. service showed ATSG the enough quarter, one August the most fourth emphasize to and we period and e-commerce fourth so Cargo deliver line critical business, utilization other to resulting That earnings transitioned our maintenance quarter; Amazon As companies higher in challenging AMES supported excellent three airlines and with in our stepped which service completing The up first included Air conversions quarter. express XXXs all freighter more best of one delivering business Amerijet to our XXXs Northern to that MRO customers. each fly we airlines

Lastly, challenge growth and season. adapted logistics of the expanded the meet significant peak operation our facing to

to management all from flight our execute proud We employees; with aircraft plan and peak of season. work successful crews, and the our teams of mechanics, sorters, customers package to to are extremely a that to employees

the best saw Express the Carrier of performance service XXXXs; Awards XXXXs we survived. As and The the in with companies

a tentative our pilot with we to intend our experienced and the service new key. as express earlier differentiation. business, that review to we are both our compete the being presented leadership and collective agreement the many for to will Company expand to for a group development of fair pilots four-year the expected vote this point We ATI month new with employees at the to amendment bargaining by it agreement. end as the concern agreement to company. of the As our service this is reached We position be ATI The year pilots One addresses issues of and terms build quality e-commerce are our regard March. who on

continuing well. are amendment toward We new with work pilot CBA to to our a the group ABX as

airlines, with a airlines place allows best have with to both customers. that principal we for a While the it at it would the to ABX both group. of turn to XXXX I'll look With over new pilot Joe. forward end our deal choice at CBA great We teams in made be to remain ABX less to for back progress represent our that,

Joe Hete

Thanks, aircraft purchases the announced way tell very Rich. this we directly, they express the you are The that and three the about can positive economy additional sources of serve we that will air and we best XXX as in of XXX general, yesterday we portion incremental business join one the network cargo growth XXXs year. are other the

finalized. for dry this all delivered leases. agreement An we one XXXs of is six a including We be have straight in year, customer will January, seventh for being commitments which

of interest aspect our dry our single We multi-aircraft and three. that capabilities. will have utilize some for do We remaining most maintenance customers lease of XXXX the both, anticipate

customers with additional with on always principal lease aircraft option a services. Our focus long-term for is the

few XXX for years, to year more. prospective tell a cannot today order we've that last or lease the a be place had customers For delivered

to Our an able is when customer a aim be calls. to aircraft sooner deliver

course are supporting can the as shift networks We by well, than of industry aggregate are but is e-commerce the in is driven some world parts that and we increasing is that the patterns aware part fulfillment consumers' significant today to emerging demand clear. are slowly cyclical of more willingness freighters demand These but cargo air express of of spend a by and type our for demand. our more

freighters one body models type our to ear efficiently determined an to smaller offerings a develop mid-size efficiency have to narrow to expanding service market the our That customers customers. with to we to mid-size source dedicated freighter. With investments converted number XXX AXXXs of we're that Precision approved, combines the are like offer type a make of and Airbus that's their the variant remain customer meet help the larger a a why of own freighter growth cubic own body can objectives. our operating We to intend the serve AXXX. niche XXX with narrow we markets; within teamed of of to but the smaller Once provide capacity aircraft

million release that increase authorized our our remain Board to limit in mentioned steady repurchase. also We million. $XX in share $XXX share our We has approved a repurchase opportunistic

where find return. we to the flow and maximize cash remains invest Our strategy it highest can

assets prepared far, last in very and years. For the now, the that's primarily concludes return made to have us operator, all for invest we substantial thus delivered so shareholder few aircraft same the question. successful attractive are we our have remarks ready that that the first enjoyed That

Operator

[Operator from Atkins Jack our Stephens. Instructions] question from first comes And

Jack Atkins

Congratulations strong on XXXX. real to end a

where to purchases. comment there? in the historically? are what for And loosening night that that's of starting Let that curious three of off terms types first love Rich get cost start me versus you trending also to Are the XXXs discussed price a on terms release has press you're that just with just assets. sort perspective last of feedstock you customers the feedstock of how seeing see enquiries I'd number in up of some from sending conversion in all-in point in your and been I'm

Joe Hete

can time. a get feedstock the going From market that we from return price on point our service what on always hurdles obviously, think at Jack, focused making we meets we've at that that standpoint we to based have the sure the in aircraft

to there our still that point. came that and you not this can is of eyeballs these three see there assets find, couple a on more it's hunting just call you and a looking So at we would and but we've across and got -- out keep what market plenty available has I what pecking

continue the the to speak marketplace. willing pipeline of get not you but to feedstock no Pricing, of the there. is day like again, any we'll airplane I'd say out we view feed So if way could -- that's price to an so object the you're week

the the of kind and rest to So I'll that's Rich. feedstock over throw update,

Rich Corrado

think to it pop once couple fly airplane, of looking I see or and as enquiries while, either up three we're in small solutions, trend that of market had build We've that. it we've this event are that put or continue a that supporting I'd that the to to been over seen different aircraft to every we for distance integrators logistics seeing the -- an customers the for companies call two they of wouldn't couple unusual the to part has Jack, the a express integrators. quarters. last solve happen a may business timing, distribution. of And fly way have speed from XXX Those lines issue demand it integrators from network; I is related most historically but a and production so

Jack Atkins

agreement sort in tentative Okay, that that's curious block terms then guidance all the guidance of XXXX gears ACMI expense in of hour assumptions helpful. are And -- Quint, there, in these your ATI the have you some of there? for you growth moment, just in to for what a Shifting the baked assuming new incremental for in the XXXX? terms of are Services do

Quint Turner

In about the the as the mentioned tentative late agreement, release, terms think of in expectation we March. is in ATI I

that the of quarter it, we've call view impact you that baked know, that provided. -- the of forward sort second impact into from our of is we the So guidance

Jack Atkins

hour block the charter, know at you're flying in, good. or of in year like That's year be terms growth? of we it curious block aircraft of have year hour count that looks ACMI with versus how in -- out And sort then end, expectation, thinking to at just year-end going looking plane I -- about 'XX fewer should

Quint Turner

steady we XXXX are forward the you're aircraft, part; state be at Yes, as going operating most only move through kind so we're in so utilization. not the the for placements of to hour the this terms dry of going year

Jack Atkins

yesterday Chief you makes to forward? Officer; of talk of going organization kind that sense. you new that I could all Okay, the the I'll question, Last Marketing hope over. it maybe what hand hiring you noticed new a brings position that announced about

Rich Corrado

is to other Jack, of Officer position person. what the manages that's Chief one a that actually had the one Commercial had does before bundling set goal Operating and solutions function with the sales ATSG at portfolio and marketing to for the to But companies role in held the solution full the actually the Chief of essentially time a one -- I ATSG bit time. portfolio it coming airlines to as opposed Officer, to of of a for present moving we that across is, replace prior, main service customers

Operator

your Helane Becker And from next comes Cowen. from question

Conor Cunningham

It's actually Helane. Conor Cunningham for

on you leased follow-up you those guidance? the I expense aircraft overall. assigned in And the much just cost care the ATI are or Jack's not mean, quick do questions out XXXX currently then on contract yet; the a Just guidance; not like will share how on to the that contemplated in XXXX? four are

Quint Turner

terms expect sorry, to of into the -- in really of I'm offsets impact, we in baked the that those specifics as any baked question it would terms I revenue have but on is receive regarding? our that, In we've view ATI side we cost the say well as to on other we increases, that the as don't -- of give revenue for guidance. want

Conor Cunningham

The to is other that not the under… question aircraft remaining are related

Quint Turner

are -- we're and some have customers opportunity. we'll aircrafts, deployed they parties the and existing some parties become are so We've to to available multiple interested some very got in those interested multiple confident, are aircraft, in new as

Joe Hete

baked have we guidance. the But said three our into we of two as

in service of We to three late have two expect XXXX. in those

Conor Cunningham

the XXX on in And with a going projects. the lot there and clearly AXXX expansion is in XXX company

next just how the that of to years? taking aircraft company trying the and with slots year over currently about sense grow the are Can might several you Just comfortable talk many you guys how conversion each get a feedstock are available? assuming

Joe Hete

$XXX the flexibility expanding X said aircraft EBITDA taking you've in fit this X million funding; we've But -- marketplace we've still lot long is, within the we anywhere to-date - what I even borrow of point some there made types, characteristics market when the easy airplanes in XXX got it's headroom much of that as in if into that's mean going think the XXXs a a with space cargo look getting every to will some cubic been the our the great cost you are we've from narrow replacements is plus, are additional got the cargo at Well, we've our need aircraft how of you to need bodies but budget in and other of XXX XXX. out a And XXX from just because and structure a at got year, investment they operating an to see come to but in time. XXX, the I that is said, our matter the there without capital if we demand for tooth, are need got cap get traditionally the lot business spot the reason have the time. into it's capacity into of

So targeting of platform company we utilize for mod, years. the XXX XXXX to expect grow aircraft in outgoing and to certification the that the we're

Conor Cunningham

the aircraft? adding hurt the And all Amazon, agreement any does the customers Rich, we Does XX you past new lack if you our just at from pilot growing at of update of doesn't business from it there kind the Amazon level? appreciate ABX pilots. hinder hurt on

Rich Corrado

grow terms Amazon are Amazon. grow In to to Amazon is and our don't the may next think grow our it's wanting forward hinder going opportunity have I with we're continuous looking to Obviously, would a collective and Amazon they of other Atlas so very be are going ability the to in piece, that with that ability have for to to airplanes, agreements on that perspective. a and our gets not there or the positive ATI goal and do agreements be positive, as airline; two airlines, ATI Obviously agreement with ABX having tentative if that over bargaining tentative line set. ATSG

just from a positive for forward, us that's perspective. that So going

and of the -- all at by are labor standing is where customers needs get we're to filled service growing our relates service. to and that same full had something we're have in. they fourth whether time have We an want that or excellent So those provide as agreements environment the quarter it we in they labor providing not, but stability to

in crews talk and excellent flight our to and rest job company an Our did the the job an continue customers. said the I do of as excellent for

Operator

And the next comes Stifel. from with David Ross

David Ross

the you Was First just can through and opportunity of of that's and one; some about increase lease because show those the dry that with XXXX. and in more there is parts XX CMI? aircraft by is is CMI question driving you service there XX include for them down walking take to aircraft CMI moving an just dry in XXXX? then talk about changes whether to CMIs convert an those lease And

Joe Hete

the is will on aircraft CMI Cargo. Air transition come in Honolulu to We've that's all with are got mean out of bridge one newly Northern course, I the there operating dry that a converted now will Yes, this that that year. right is XX that for aircraft leased

for West the then into affiliate the And see gets after the March our XX, bumping ACMI in of and for we've space category. got end couple DHL, I of in you So a that the for the airplanes that of for the for increase couple swapping dry-only but XXXs Mid-East a flying are and goes XXXs. XXX Rich the of then of charter are out Atlantic service end the one that in we aircraft -- through coming that in there wave dry ranks essentially incrementally course to sort along up in think -- of XXXs the up leases you that XX some DHL with Europe, that's and there Mid-East right is network

David Ross

of be ones leased just XX most going newly within those placed, no that CMI? assuming are then, converted, -- with the dry them placed they are haven't to And been of that you're

Joe Hete

make or a assumption that CMI of easiest We those but as is who the will of sort customer there a dry-only are a Service, at two one this to also goes to that's chance time. need

David Ross

contract Should in the on segment, had in And to or the nice new of XQ a then it to profitable XXXX ATI moving earnings mute year? to in ACMI the some finally. boost this upside earnings all-year be is it going

Joe Hete

first you at maintenance think our heavy quarter to with customers shut look the we foremost available I and to fourth because down lines capacity. make additional always aircraft peak

a the on at $X look million in previous a million maintenance drop to you you're to generally see the expense if maintenance that compared related during three. quarter, $X fourth to aircraft to heavy So the going quarter

that in a benefit obviously every the we flying plus purposes. additional So is season peak year that fourth quarter see for the

to expect move three we obviously as we quarter So XXXX, of saw fourth but in profitable the more through you segment the ACMI for year. first levels at the be muted quarters than what the

David Ross

adjusted on EPS call from XXXX development development costs question those are excluded the the then last the about earlier in that the And they were also past guidance? you costs; numbers; AXXX from talked excluded those in the but you mentioned

Joe Hete

EBITDA, they as cargo of It's until course terms modification. they are. yes In that of receive certifications entity for non-operating

our a non-GAAP we as have And entity non-operating so them from excluded guidance.

David Ross

other? Okay. would the or it impact the the If or ACMI segment CAM most it included, were

Joe Hete

said, from segments potential XXX the across the I point. to benefit span ATSG could some the we've guess As -- at

fall expense costs development expect We the would where we what or into. -- segment they

David Ross

CAM?

Joe Hete

Yes, because be it's sort of an CAM. it will the into potential portfolio, so asset CAM

David Ross

quarter? about that's $X So million a

Joe Hete

Yes, right.

Operator

next with question Seaport the Sterling comes Kevin And Global. from

Kevin Sterling

on to say congrats $XX Joe President you got yet been pilots is I for kind maybe guess I you It union, about thing similar quite an now the is union get possibly one -- tell and agreement; it? working with done you one guys union there past ratify quarter, guys another agreement one to in the when to ratified is Teamsters; other ratify agreement of just that. impressive, an almost do long a to set so to us So let quarter EBITDA we deal ATI that a assuming me but the the precedent -- the and million the me I've you're one the see help the that so? time see on help tell following Congrats going are deal know, helps ATI a ratifies -- done? has past, a can forward getting happened when in what's something a you will

Joe Hete

current venture was the And done through the mean can't when XXXX-XX, time it's it, I is same know, from driven got the availability in resumes at no as this a pilots ballpark you -- seems by about Kevin, guess basically, we pilot it the problems than were it new we've were growing this head point although the their the be time. because had business, more I of what's when to the what in. we've in a to on agreement ATI into we that dynamics those a think I you look far at end the realistically is fold, is had need in downturn, of business attracting fact rearing lot as went last climate it a ABX different; in think overall, business

So those it everything that from guess dynamics logical to so based I'd think are else, going in timing on hate would. you a venture, regard, perspective, I to and change would

Kevin Sterling

-- believe how along? to us, related your potentially to you of -- you pass years? up you in along of new -- us way sticking as of that, Does pass a catch you of some to any walk Are Kind help increases? your wages them? going escalators contracts to wages that majority the on we and know think about about Is contract; I higher up able your just said after as pass have of the us can kind help pilot there guidance couple those of you through -- inflation it just there, to remind ability those cost able most we includes think remind you're can

Joe Hete

you impacted had escalators of of how our really I we're we this of time. going fixed don't our in way pilots were but contracts in with get into at in the certainly what the customers terms the talking with think Kevin, to in amount specific that we contracts the exceed be there about but is they escalators about terms know to ATI talking want would

Kevin Sterling

those in have generally do us? just speaking, to Okay. obviously But contracts cover escalators I generally, mean you inflation --

Joe Hete

Yes.

Kevin Sterling

expenses. now kind lastly, And delta engine then believe your that contract; of amortizing you hitting business, moved maintenance from it's that I operating

So I good it's a operating quantify a given Can expenses. EBITDA I business in quantify in that just XXXX is change, opportunity impact to guess it impact that full accounting but we'll good the XXXX might XXXX? annual of year to you and get EBITDA? that know in in have possible the

Quint Turner

when the the of $X that what annualized to that put into quarter entered in agreement was had said we And engine we talking is, million a depreciate Kevin, Yes, that, the July it. commentary overhauls -- and we million XXX-XXXs GE previously course we think -- impact. you're about when we expected capitalized X, powered $X I for

entering back expensed is was cost side, operating an from that ends that depreciation. after agreement the standpoint, on then EBITDA and no longer Delta, added So in with the into up

less or per -- CAM of maintenance valuable offer to provides I very So flow it's it's from course is earnings perspective, lower to terms an certainly cycle for EBITDA headwind a thing, in basis. on a a small [ph] something and although access and cost Cs engine of cash actually think which positive

Kevin Sterling

guys the get you good you is you then about comes that Last there would like would three like guys hey, If to let pilots, and you picture acquire it arrangement, think aircraft and sounds -- you are it you offers, big planes a question guys feedstock, and if but be because want them able clearly onboard as a like I don't to a able you obviously CMI I sounds for them. big here; to -- operate demand very think scenario get picture; overpay. to were additional and customer train with

be a clearly too? to you'd that bring about arrangement; CMI customer to thinking were the under am I right the asset, think willing if way down operate about so growth road a And as to

Joe Hete

one their somebody Kevin along look I to or were stop from think we'd customers came was that to to standpoint own larger to I something want wanted the that meeting the outstanding use mean, in somebody -- have that hard think or us with it's of airplane and a us, as have if consider if like get customers stickier and able are airplane airplane about in to that one want want it's they fly I terms a came we deal that; they with needs, needs fly, their their being your and more and they take but lease if certainly Amazon to our that us would of the for had, there at DHL, to do of that. they well.

Operator

question Company. comes next from our And & from O'Hara Sidoti Steve

Stephen O'Hara

a of being the but the capitalized they and were are they're adjusted? AXXX being they are quarter; being said million from costs moved you or expensed $X Just kind on

Joe Hete

adjusted Being basis. on expensed the and then removed

Stephen O'Hara

aren't they Okay. capitalized? why And being

Joe Hete

under to on those put used a of that's be pretty have to certification be it little the balance Well, the more -- by sheet. where guess you changed the much ability years, of before led rules the is rules, approval point accounting capitalize. the liberal over in a your since And [indiscernible] you're in course to to I -- allowed to time at

Stephen O'Hara

Okay.

at to at capitalized So because just to development they any done? going there, expect be by already get I mean the some point, you point cost the are don't time so be you

Joe Hete

mean, I the -- to and you conclude expect the end I sort Yes. XXXX process we've said timeframe. early think know, we of near

capitalizing think cost some at of has will the and costs that -- near the through expended most but say, I P&L. end, development been we flushed as be the So you point it's

Stephen O'Hara

the JV reported mistaken. was that Europe that thought you that on on in I loss the JV? be that thought the maybe but was was Okay. And I -- the I'm quarter;

Joe Hete

this there a in affiliate have results for for our West account the -- and opposed that, math it's or their share of because which an we are from which in line the quarter we expense stake operating the to European that other JV results. minority is it's non-GAAP is Atlantic we The our operating line, below entity non-operating as exclude and equity on operating

Stephen O'Hara

from of certificate XXXs? what then the the XXXs; expectation AXXXs, what's have generally because get from give more And breakdown I AXXX, get the you ownership but us the I for maybe in the the you there? mean with you on just XXXs idea an can versus in-line mean, returns Okay. I guess, you

Joe Hete

to we -- from to achieve -- expect basis get long the XXXs. we CAM terms over certainly the on think standpoint I as pole, just we unlevered in of what on be we expect and the returns good, as asset, certainly the from

there potentially add XXX in conversions, our XXs With CAMs actually be and role we going and realize bright expect because -- course very to I on that portfolio. CAM is is said to the and And of the operate the CMI potentially, assets one margin aircraft guess MROs the opportunities play to certificate we feature could we've more behalf airlines to of we're doing itself, also invested in think a our it our as of could customers. type

a so to amount long to returns there out change will lot little same that of opportunity think be these X,XXX would is going expensive more that's airplane the age be of get the getting Often overtime; there candidates sort on of are existing expect down overtime, our unlevered there -- with ROIC initially course could where think and now a they that we is So about we've pole of for there, we fleet. a conversion. the over that feedstock lot just is the in comes however, over we I I achieve talked operating, believe the of feedstock attractive range and

Stephen O'Hara

elsewhere you of do just -- boost mean, to do with a hoping XXXs grow you would and you see U.S. be that closer think that long possibly? But benefit guess, for some more maybe haul would maybe maybe DHL as lastly, the then well? opportunity from in there was then comments or improve And I utilization were that that they a I as that guys business. Amazon on

Joe Hete

sorting work already logistics I the doing home. there think are DHL, at is already in Cincinnati the -- DHL

we they operate both and -- as networks the different at today, and fly separate well. of customers so times And for day

So of opportunity opportunity from are obviously keep kind flying work for and depending will at in create the on that of for both global, airplanes would -- Europe we in that to. -- together that's they way and know well. evolve an increased in that we would terms there that whether look we there this, they network over us as think mind the would the involve example, Also both, the one be more as because or is great they'd

and So service a a customers their we're opportunity future. both since If both in means are significant such they growth to going us. growing, they needing good are means more we're both aircraft they work them, -- be they ours provider such since for that of are the that together, good to of

Operator

with Susquehanna. And Stathoulopoulos comes the next from question Chris

Christopher Stathoulopoulos

million, I you're the just margins changing thinking I out EBITDA at for how expense was because XX%. adjusted lease could I in aircraft to changes XXXX? additions margins should for about EBITDA about accounting $XXX of like walk help expense wondering if looking adjusted you adjust through around changes; and think us And XXXX, of amortization if given so back for on get that's the a then the XXXX. an we have XXX little the all you basis the under and margin How

Joe Hete

That in these we revenue Amazon million coupled as leases drive of As talked past going the half as standpoint, come at sort that EBITDA the to revenue. EBITDA because those of this fuel almost assets at margin of margin about fleet these the they the dry-only. you big we've recognition new under that about alluded predominantly and which a the be is we to second since are logistical from essentially are do this much half dry-only a lion's gateways. which will of in changes additions Certainly, a related in the our year the in will year with not incremental share netted XXXX is the revenue functions ago, Chris, ground out, mentioned the -- of that very come but into high rules $XXX

revenue is that… EBITDA if I to so EBITDA like a you said. 'XX margin know realized the high at positive look are it's going certainly going see EBITDA, you're standpoint, fact going don't trend greater as to in in our much a And but from margin. we plus incrementals the That margin low our in than

Christopher Stathoulopoulos

fair? all we get growth that to if the to adjusted; say is under adjusting aircraft then for the top like XXXX, to XXXX Is for I top here it just of in line, the fair changes million. mid-to-high line the terms with in $XXX But get single-digit the

Joe Hete

going about. certainly just in line talked than to top the reasons saw growth Yes, we for be the is lower what we 'XX

tied mostly growth least dry slower only, to the factor accounting Our much so see going the you're changes. is at in growth you once out revenue

Rich Corrado

XX% line ACMI on business leases. digit with or the are the margins XX%, CMI shared, a but top margins; it on as the lot puts margins single

Christopher Stathoulopoulos

Okay, planned purchases got announced it. And part of previously the three XXXs, for seven? were those the

Joe Hete

come make we on two ended and first we'll we night wanted which a process a of eight No, with XXXs new quarter -- XXXX. of hang the buy three and up is customers the to happened, this into that first announcements. process will so having of slipped What year. the quarter anticipated couple service but of then little to so into had six at are in two last end there they these with on we XXXX; in announced were additional quarter, only Last will just incremental end those longer, those by -- that this it of

Christopher Stathoulopoulos

on just bit these average perhaps little the or of color just expense cycle trying look maintenance planes. And give age times? aircraft, the a to through I'm you for read routes here on could the -- for

Quint Turner

If don't we expenses. have those Chris, are leases, maintenance any dry

the are XXs. my of they're side, aircraft pretty cycle all the at So on [ph], but the it's higher I and cycle on are buys long disposal don't have nickel generally customers Hours they airplanes. since early that range [ph] low called hours, but

Christopher Stathoulopoulos

your the block related I CMI -- August, on full the -- fleet been XX hours in second of And question orders Amazon CMI have down. since it. come then Got back you've network; come quarter last think had at

points; how those should the we destination is utilization? online? think business how they're hours curious or terms as curious, margins it looks or block up also OD Thanks. in adding then costs new of I'm shaping new CMI Just come about the And pairs like

Rich Corrado

on utilization we Certainly, had as last in quarter mentioned, the airplane go route is we and the August. we've structure, improved this on had think and that XXth said you I seen Amazon

terms baked of So have route I today. stability think expecting of we're our structure terms we these -- it itself network the that guidance Amazon we've of of for continuation a kind XXXX sort in in of in

because than circular others a and they many the said, Amazon's of utilization rather through tend to route racetrack tail higher routes days hub. X operate we've of run than some As aircraft the per structure sort have moving

to that tend higher And utilization from so be a in little they standpoint.

In sort forth, I of again, move through impact revenues terms of we're think as at -- the looking CMI stability utilizations so and on 'XX. revenue a we situation

what go-forward So of the wouldn't you're in that a the of difference between on whole a lot quarters just expect last I seeing production. terms couple of

Christopher Stathoulopoulos

do points as fluctuate? like going seeing that's somewhere run new guessing But I'm on you're is come -- -- like airports that you in terms margin online feel profitability of or to a basis, a or rate now

Rich Corrado

ACMI don't about absorbing in segment, we new labor with customer. We Joe profitability talk to I segment some did costs XXXX after by agreements the about than for but customer; remain us profitable we don't we down want additional we talk that -- indicated even expected other by drill to Services think

Operator

Stephens. next the from Atkins question And from comes Jack

Jack Atkins

just P&L. the it changes recognition revenue the on Quint, to

the what basis? to a help the some on And be expense think coming meaningfully on buckets In there? cost of I us it we that that are basis maintenance well? of P&L will lower sort you do the is that year-over-year the -- get financials to some on expect as pretty flows the other terms year-over-year through revenue the costs out, recasting of cost and right other to your down plan impacts to obviously fuel fuel; a be then lines your And am assuming buckets --

Quint Turner

been we fuel think rules. your I net we've certainly that mentioned out in the had Jack, the come new as netted would would down revenues. with into have -- the XXXX million And is $XXX debt that line as in roughly

so, in there ground that On $XXX $XXX with primarily in million costs And -- there that the the million, I $XXX the release have contracted is where aviation think our show was million between or about and number netted two side, those the up revenues. would services -- would line our be it services P&L. in published is ground the we

Jack Atkins

particular operations; maybe in in we about Quint? is me through is just cash follow-up cash can question so from can for thinking XXXX, from how buckets. -- a way were from And cash what I line on offline on operations? that operations last you're to Okay. clear flow The of kind XXXX then, on there the exact be And that

Quint Turner

XXXX, in $XXX net here K $XXX million but up for operations. almost $XXX XXXX describing million from million cash Jack, from --

the year-over-year of producing year year flows to a are seen our that fact we growth cash cash And that big even a asset flow. XXXX that's course and the from in our up very of along -- that's Services of gotten driving we've expect with this strong, are ACMI improved our a in complimentary flows ops. be driver course been Of year we've logistical is profits; operating assets bigger operations those support, lot additions, and so certainly as for loss the all another of cash stacking

Jack Atkins

for is ops be like maybe right? you most cash the from So Quint, which the to million your in $XXX your that should you're if in sounds EBITDA, cash million with if I'm would ops; reading correctly from it mean you're going from at part looking something it high you're CapEx doing effectively that $XXX cover --

Quint Turner

that's a think -- mean fair assumption. Yes, I I

into moving as that but parts capital Jack. As pieces I you've you got forth play know, the directionally there right, so that well, can with some other and is think working come and

into in arbitrage it's on On payback levied that plans. and required at good premium; reduction contribution take side, guarantee an it's a we're to court our the contribution, plan, a looking benefit that's -- making the certainly not -- making contribution such order sort it's we're getting we're the additional pension of premiums, pension discretionary a on PBGC in

an I $XX going into put million that So to plan. extra we're think in

Operator

Baker And the next question Cowen. Helane from comes from

Unidentified Analyst

guys who basis? and question. again. it or them a may there sense when just prices; additional up that is aircraft dry is it the out could the an just lease you of a the lift give to Thanks I the on offbeat lease We're customer or on agreements? customers? on there curious come there for recent us in is And large ACMI color trying Kind was of dictating long-term if an you is do little that get customer need case -- the out a a structure

Quint Turner

on pricing longer. to X tend if And much. or get around is to hasn't obviously leases X seven-year an dry a Our -- you moved shorter -- years. term really rate XXX-XXXs higher the our or Either it's eight-year way, we than generally get term a

-- just more a thing getting term customers is time a the month about multiple multi-aircrafts, and which that are can those have other usually to where horizons set challenging and very plan do; they ones term are to aircraft up. us little knowledgeable the the plane customers release come a will next time to depends really from on wants that the as rate and In it they the what customer be. time So general, want --

forward forward of confidence myriad us of both from queue existing confirmed a from had customers -- in a currently we've for and customers So plan over to that the feedstock get looking we'll aircraft that we're lot looking give looking as requests and that have always past well. new XXXX's the year we

Operator

question next your [indiscernible]. And comes from

Unidentified Analyst

seems Good like out the that needs? where dynamics, you Where needs? ask on meeting medium for market the some I lot played could do a meeting demand your see there's services; of your parts of be your you other if over to of it you morning. share a just supply-and-demand term? see the thoughts company just do and wanted the And how

Quint Turner

significant standpoint. in another it fleets out probably we that from XXX the few a -- Obviously, very remains passenger available airlines it's years market of of still the the feedstock fleet. XXX XXX with there call price different with it are solid aircraft constantly a ages coming talking the there. is There out a And ago, aircraft in fuel have efficient down

you make where or alternative to available; of strategy become comes to is made the and when the in will from take those airplanes decision XXXs happen. there availability so the key do some predominantly a and go get looked to up current to always airlines our fleet of weights an XXX the airlines, of runs occurrences be X-American fleet is We've Airlines. X-quantized And

here we and what from that's so two to out as do opportunistically to opposed taking And areas like going or there. and one

to is closer want relationships and with again, tend a know the go because we've to -- lot So on have the larger fleets be you we with available. company have got which airlines why a assets to we've that we developed the XXX when the availability

Unidentified Analyst

[Technical Difficulty]

Quint Turner

so we an you I'm [Technical apologize could the garbled; question we ask Difficulty] but apologize. Chris? it again, the transmission I of answer sure but No, shoot Could not your was try question. pretty got to I

Operator

And back I'd turn this now call session. remarks. final to concludes over the question-and-answer Joe the for

Joe Hete

operator. you, Thank

if hear [ph] for hope us strategy and make have trends and e-commerce on networks keep those day. air time, to for ATSG freighters on a remember quality Regional what to their of year. e-commerce others you few, every possible expressed depend assets their looks the you have mid-sized to you we the As than the better to do. results, directly their committed networks long-term we share fulfillment of more enthusiasm that impact that any better supplying Thank your

Operator

participating, ladies may This today's Thank and you, and concludes gentlemen. for you Thank disconnect. conference. you

Air Transport Services (ATSG) 28 Feb 182017 Q4 Earnings call transcript