ATSG - Earnings call transcript Q2 2018 | Air Transport Services Group, Inc.

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Operator

Welcome to the Q2 2018 Air Transport Services Group, Inc. Earnings Conference Call. My name is Vanessa 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. that is note recorded. Please Instructions] this being conference [Operator over turn Hete, And now call to I will the Joe CEO. President and

Joe Hete

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

quarter this will goals half and our second XX-Q In We steady for our first later XXXX, toward week. made file year. we of the Form progress the

revenues X%, X%. share basis, per Our quarter the an adjusted and for were excluding reimbursables. adjusted on XX% up Earnings rose EBITDA increased

is XXXX. this some second will add toward Rich feedstock of will We’re our standing summarize year, for and us results XXXs close bring to an words operations, we’ve target the Quint modified outlook. secured our Quint? quarter. five on our our I’ll in aircraft XX few deployment more by XXXs in for that a financial halfway on additional perspective and to service with and placed

Quint Turner

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

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

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

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

a Topic which adoption said, of ACMI business, were by of consolidated quarter was at than again $XXX On basis, the for recognition Services, standards Joe the led track targets, is profitable leasing which because our quarter with As only our were CAM, second growth on and lower prior our new quarter. second revenues year our continued million, revenue under at earnings XXX.

to issued $X.XX loss year for diluted year a versus for we GAAP quarter liability million On Excluding $XX.X of our operations quarterly X%. have increased in versus the price $XX.X resulted increased a were revenue warrants, when $X.XX amortization ago. the tax. ago. price a our continuing a The a of for dipped. million liability warrant related as $XX.X the of stock quarter tied second quarter in negative also basis, incentive, million, The expenses lease the share year of On of the with $X.XX was adjustment stock this revenues our gain per from quarter. a for associated Amazon second our last in Amazon million or quarter earnings quarter XXXX, reimbursed quarter after second mark-to-market mark-to-market loss a earnings the after-tax the million a in warrants The a share $XX.X to was second comparable $X.X basis, GAAP revaluation

launched diluted continuing there second develop year was results. or AXXX-XXX higher Airbus the to our of Adjusted a those $X.XX adjusted cost was a after million second a comparable tax. of the a share version $X.XX for ago, quarter, quarter share XXXX $X.XX year no so operations $X.X precision from was item We for than Our our EPS in items, a the with venture item freighter ago.

EBITDA of adjusted last X% million from year. quarter $X.X $XX.X second or million Our increased

half We Joe $XXX.X full about million EBITDA cover a have the our target in $XXX million. will half, adjusted outlook generated few of shortly. second of first for year items in comments XX% our his a

earnings is notes before, adjusted year non-cash the September. convertible As $X.X charge last and we of with interest share per issued associated of this a quarter. mentioned have each include feature GAAP This we $X.XX to our about expense now million, the

EPS because not of excluded the do term the adjusted those notes. charge over Our ratably amortizes seven-year

Rich MRO recorded back to for maintenance amounts were now in quarter. You completed, modification the for but on factors, down release business this aircraft was heavy was in record cover MRO adoption in related the delivered the impact and are revenue Starting year, for Prior case work tasks rules aircraft like revenues the a of operating as Services results. may Services quarter, our have competitive bigger projects results we first noted completed. when will customer. significant also earnings our this had new year, was large the recognition the and as that were to and typically revenues

principal year $XXX.X recognition businesses. $XXX a ago results from at to reported first was $XX.X full ended four MRO debt, million, engines X%. spent passenger rate spending, for lessen We high our our leveraged fixed rules the and aircraft. largely right modification capital midpoint $XXX and buy considerably CapEx up We spent low and last million coupon expect fixed offering XXX-XXX $XXX About spend rate primarily of million debt to to with of maintenance of still effectively our at XXXX more new we the under fall. projected percentage a heavy in the half of dry-lease cost We other year expect acquire million note volatility mostly about fund a and parts. our average the rotable we slightly XXXX. XXX%, the and spend our with our revenue to we of We the those with modify program, million is Capitalized list growing aircraft for development of an $XX.X of of customers. million XXXs XX% to Even remain strong did with freighter $XXX million for thanks fleet and

X remains leverage trailing mark. debt the near Our times EBITDA adjusted

revolver overall June Rich? million Rich discuss million. results ready Our $XXX with financial of for our That’s up perspective. summary $XXX the at XX balance quarter. of and our results was the a capacity market to is segment to

Rich Corrado

airline was mode experienced decline again into peak airlines versus largest earnings. perspective, to Northern the more anticipated of as up Amerijet, and five From shifted out Thanks, aircraft deployment quarter additional delivered the the ATI. with the XXX four by leases showed and Significantly second our second an in one Air We one, operating were our Air sister CAM’s quarter, West first customers quarter. customers first in in company, Atlantic season its flying versus both quarter more customers: stepped XXX different of leasing Incheon, another pace quarter. revenues second leasing as strong CAM, Quint. improved one five we and the XXXs the Cargo, our and

around prospects as base in even demand from customer as diversify several geographies key Air Incheon. aircraft further well world as the that could our current in such more We the the future have customer

commitments eager As to lease CAM become ready. from Joe our customers as they XXX-XXX has said,

We in XXXX market for will XXX passenger demand. more remain to feedstock the meet

is a have with months. of good that XXXs to rights XX% five million, ago. earnings increase quarter year secured deployment, in pretax for to than thus but XXXX coming a far had CAM better We the number $XX.X likely

agreement ago. $X.X those in for were the ACMI quarter, computed The labor basis earnings its by $X.X the in Amazon. in been our second pilots the million amendment increases from increase leased by increases March. late quarter. apart to greater ATI incentives from larger million lease earnings increased from would on have $X expense of million for earned pay improvement pretax Additional with fleet an a the Services again a offset yielded pilots, year It which

two continues was operated they for more the X%. operations into last increased our did ACMI CMI performance and than and hours and quarter strong year, third airlines the during quarter. Service Our block XXXs

we in year quarter. recognition an customers very season. conversion large our airline services, against margins from ago, earnings AIMs performance aircraft service ago. ramp hour expect quarter the from businesses. year customer up the one utilization up with modifications from positive prior businesses, for the marks all high block our AEMS $X.X conversion the quarter, businesses versus a get and contract revenue MRO a half, three a PEMCO, year includes business, to second and from mentioned, decline second of last conversion lined factors our of year. continue this especially we were our our results up, XXX maintenance million We had of during aircraft year completed Quint from results peak PEMCO maintenance strong the aircraft in across for and a to good the which In Apart

volumes the this on services ground sorting were from support, year handling Gateway handling those from operations mail investment higher include second which expect than year-over-year other a equipment pretax earnings We Results year nearly Results center in stronger better from and minority operations, from in businesses were West to and activities, $X.X our material postal performance Atlantic ago. package our half. doubled basis. and million management

peak confident and logistics said we has Amazon’s the it begun earnings express opportunity accelerate in half operators. our back our needs especially like during even will looks in our release, can over to Tampa, Joe. be busy With what and Gateway the I’m serving other season could to our for if turn add arises. locations earnings I in that, we second As a air

Joe Hete

to rest we to spent amount about modifying nine own the XXXX, quarter XXX, one for plus deployed four. at went including five strong XXX year. five the deliver expect to have continue in to in the more we the now in converted year, other We deliver that customers deployment offset the and Rich. this including We than customers Amazon. mentioned first same the Thanks, that XXX-XXX mod two are one interest in acquire, convert I all four and remaining this In and later XXXs half freighters the XXX. XXX the we this the

service for second finalizing commitments customer three to the are XXXs going more. frequency e-commerce as the incapacity. other as freighters the overseas two. data tight and in the market XXXX narrow-body additional they deliver. point a more you industry a spot three quarter, offer. with More We express industry of want have have that to you the sweet and reliability during about are e-commerce that them keys are with and network the Most we of seen concerns them We time see air Boeing told to driven pursuing market and midsize forward, provide feedstock and efficiency and Their balanced supply wide-body, May to secured supply are as demand, the we the agreements actively interested meet midsize freighters when from here the at that in airlines of levels we ACMG as

we world’s primary the by of operators the source for conversion them are more us XXX lessors in and largest today now, way. And dedicated freighters. and source with five on of the XX far For ACMI like service

in are our a will the of passenger for to freighter for relationships today, approval help one our number JV the FAA variant time, same partner us we precision operating come. Our knowledge the AXXX. remain toward pressing of long ahead with the At market some XXXs time converted airlines and the with

customers focusing networks tomorrow. XXX-XXX Boeing to of need with service We with We to will a a customers intend stick the to to the narrow-body XXX. today express complement practice we cost capacity similar for for prepare that closer to provide invest great our AXXXs operating as to to XXX our

adjusted $XXX half adjusted same year, that EBITDA first the our about target EBITDA of the million period in year. We remains same year. we for we in delivered last did In of the have the this are as percentage reaffirming

when we With the our will to we update on pointing cargo robust November. we and and busy again economy progress air concludes remarks, very toward our you market meet peak stronger look challenge, a That the forward prepared Venessa. in season,

for the question. ready first are We

Operator

question first have Instructions] we And [Operator from with Atkins Stephens. Jack our

Jack Atkins

questions thanks taking morning here. my guys, good for Hey,

Joe Hete

Good morning, Jack.

Rich Corrado

Good morning.

Jack Atkins

reading first listening release yesterday, question prepared the said press guess you on your picked I for the Joe of towards Rich, or comments, So to I’ve the prepared something comments. either up Joe, end

over You as at guess, service we into sort feedstock more you point. of conversion it you XXXX at of through the thinking help guys number you as think and to whether demand? appetite the next thinking about availability about deployment you feedstock how you stay potential customer Can planes of think the and next about point? are should this kind terms XXXX couple or want year, the us in of put availability purchases can for think months. tuned I for mean, of that I you this be see

Joe Hete

say is at think to Yes, are available so five slots speak. I Jack, Conversion XXXX already point in got the from more for I’d queue of we’ve them time. perspective, in this

other continue perspective feedstock aircraft We from to put conversion pursue through to available process. a the

type. So safe airplanes XX least between that with next XXX to it’s say into at X and service year somewhere

Jack Atkins

Okay.

Joe Hete

Rich customer pickup I’ll let From perspective, one. a that

Rich Corrado

got is they’re that that year. noted existing demand have strong. at increased aircraft looking very The adding We’ve customers next

Europe, in a operators to and airlines. – existing couple new talking North are so in America, We South customers, Africa, America,

strong for remainder year So demand into we’ve XXXX. very of got the the

Jack Atkins

it in is the Joe’s year. point to So Rich, up, place there XX least at I kind just aircraft to of next X to mean, to service sum demand

a that would reason problem? that any be that see don’t You

Rich Corrado

goes, good mean, look you No. some as feedstock at pacing the the we’ve probably got question, next for up market – far that’s as locked the if item, I feedstock early year.

now. different are We talking airlines couple of a to

currently And in As constantly we’ve the calls, were said a it. XXX in we with relationships airlines take we market different for passenger the these have and times fleets. run that very feedstock that approach many to

And so XXXX XXXX, and we’ve got good available in on XXXX. eye a aircraft coming

that XX stretch. think hitting a be so not And is – to going we number of that a that much number

Jack Atkins

some of shifting Can to Okay, opportunity with in logistic And opportunity to you’re their of guys a you gateway walk is expanding was potential if gears of the press kind or the another other doing which here that’s going release, more they that is different kind really how the airports whether support Tampa or forward us of encouraging walk across Amazon country? �� to dots to on are of you us services Kind for Tampa. take that through doing through of in what map than going the business what incremental for you Amazon Amazon kind in-house? just be guys to hear. Can that? this announcement in you’re for

Rich Corrado

Yes.

and ramp And So contracted sorting through we and of and contracted gateways managed aircraft. Jack, as network, when breakdown first starting ramped end all the we at in the of initial warehouse to work XX. we up the the the that of going today, we XXXX loading the handle the we way up the

hire et with airport we space. equipment, We the So ramp negotiate the et airports, cetera. we the service contracted cetera, loading ground would secure for would equipment, would

we contract So as functioning will, – that to in for and we’re of And some and due are. propose was Amazon as operations. under operating hub the general had to a history these gateway cost you Wilmington, that if quality of contractors over a the kind Amazon they one operation. Tampa was that the for an improvements wanted that we view ourselves, with we managing high gateways a take here our the That opportunity and we contractor, that plus like were came was that up. other gateway

gave very over been short they which so at and it’s implementing and we’ve Tampa us the facility, June And July, a going well.

So will, new a with provider. that is contract, logistics, contract if direct you our service

cost a longer no it’s so And plus.

have and hire produce do to and all things train the the We equipment, directly. operate all and

business. And a grow the it’s to so opportunity us for good

revenue times basis netted with of noted plus revenue those year, cost XXX the looked the as a on was from out was we’ve and reimbursable the transition As perspective. couple out gateways this and the accounting

a year. converting for in that also this employee Tampa revenue and the side, side is so now a to And full growth manage from this contracted direct us

Joe Hete

is side equipment, to speak, K of so of part the leasing things dollies, Jack portfolios ground-support other that our nature. The of is loaders, that

manage business in do these have there burgeoning to in to terms a providers it’s So lease whether today. we equipment, directly ground-support being we of or that of third-party able the one

Jack Atkins

over. question, turn Okay, that’s Last great. it color. I’ll That’s helpful

With be advance point to the should complete next that – of what to you expected of year. be event? expecting an – be certification we in isn’t is requirements until AXXX guys thinking looking some acquiring guys the feedstock for be you know Or should maybe to at if to But thinking about really I CapEx we program, feedstock is conversion? of the some should certification? sort we’re later about for that XXXX for that acquire maybe XXXX, more early looking

Joe Hete

couple latter may the now, a Jack. a part We aircraft it’s the of just XXXX, grab in of of higher priority. what matter Right

got for price XXX looking a and But we’ll good we’ll keep you do eyes potential for we customer our feedstock our certainly, capital, where any a to what for to need that’s purchase to that consider AXXX be a would we deploy If peeled immediately aircraft. point.

Jack Atkins

this time Okay. Thanks guys. again morning, for the

Joe Hete

Thanks, Jack.

Rich Corrado

Jack. Thanks,

Operator

you. Thank

Our next question with Becker Cowen comes Helane from and Company.

Helane Becker

Thank gentlemen. Hi, for the operator. Thanks, time. you Hi.

questions. of couple a just So

that? release, seeing multi about of the market? customers, As many you talked multi-year customer? you multi-year is, it about that – press in talk point about should for placements Is one can just one for you’re the we clarification in years first think about when think you How what

Joe Hete

Yes.

that for multi-year several offered customers. looking are multiple customers aircraft. for it’s So we’ve And

doing under risk split. if versus generally got really that lease But customers. rates; operators, of existing it’s the just our lease And we’ve come rate, also you credit smaller looking additional largest will, higher for are aircraft. customers terms In those a

Helane Becker

your to that are line? be have the revenue expense in somewhere pay thinking for included Amazon. with Are a they net I as numbers just And should that? Okay. in then Or you number? How respect incentives to those about

Quint Turner

They’re recorded revenue, as to reduction Helane.

in So earnings attachments you release. can the of see one the in that

the see of to revenue coming net. You the to the that show reduction show then and can out incentive we we where related

Helane Becker

Right.

Okay.

contract forward? significantly renew? contracts to want I is those incentives, are to they pay So, would when something Or when that mean, think it you going would up than you you want for about more in renewal, comes

Quint Turner

are the to of that warrants in on we each Well, quarter based aircraft that. goes XX And to there’s are know, those related of issued those calculation it’s deal Those the they’re the same amount warrants to, $X.X that you’ve tied you there, did. Since number specifically that now Amazon. a valued the into and we noticed all as are million.

Helane Becker

Okay, thanks. Any progress last And the then just on pilot. on the contract? one open question

Joe Hete

week, last to prior met a we’ve session, teams made again as Helane, the at the had the this sessions with which well. part that And different federal was meet bit at last the There I progress some – We’ve think is than scheduled latter they’re September mediator. of year.

not So the a sense for things see you’ve the the up shareholders. pace, got also do like for We’d involved, is members for at crew but move company sense and but are good quicker moving to what themselves, the best bit. makes makes what to a everybody just reality it

Helane Becker

questions. Thank you. are all my Those Okay.

Joe Hete

Helane. thanks, right, All

Quint Turner

Helane. Thanks,

Operator

Thank you.

with David question Ross next from Our Stifel. is

David Ross

Yes. gentlemen. Good morning,

Joe Hete

David. Hi,

Rich Corrado

Hi, David.

David Ross

in? the it, the term, were much going Can it do you coming quarter? You get keep lease? turn a couple of end customers notice of if during got And Where returned about you renew, those bit lease how XXXs whether back. that the talk so, at to the off back they’re a little

Joe Hete

Yes.

in hangar another So quarter. actually we the the two prepped for release One now customer. is being had for returns

hangar we that have Generally condition we the whether customers So we’re through are that discussions take it when or on extended about But on It’s extend that XXX. it We Generally did sitting multiple and about year, had coming We’ve is And space speaking, We extending we we’ll C extended in XXX-XXX. aircraft operator after a C that generally, going for relying check as to right to MRO return around. in get X,XXX another flipping third can and a they interested it. that we had to whether prep the a that go well. the that into whether another do keep. some they’re check back, return depending get it. in they’re aircraft year left. our have a customer they’re or aircraft now, they it’s jets customer the the just the next ramp cycle a quarter. just Within talking do customers another from on waiting return upon XXX-XXX return. That’s cargo that. that

with C in extending We and February, about XXX months. another customer cycle, that to looking are return they’re due another talking XX for extend another check today their for

So about generally, return. you right year to before, a – about they’re

into of because at level out cut months go the couple and six months kind back it hang get and a for not before of off the aircraft. let ready deadline discussion. can’t minimum we some we’re lease know it of You of have going until things customer get to to that to these figure we We like a point

David Ross

because in? back once so know I was to turned coming it that’s it it you able you’re was why before So quickly guess, redeploy is

Joe Hete

Right. are really and or strong a it’s are the the market the Most of the cost on XXX. now returns XXX. that that XXX-XXXs schedule for in lower seeing Obviously, than there’s we

for And seeing a at XXXs the it’s finding this And space. a we’re of market hangar strong point. the just pretty so matter

correct. And aircraft a those. bit on to Now time more sure – aviation into airframe, to when have a those tend do foreign we are a foreign you more the little bit little spend make airline to records we’re authority, the country releasing

it little you to it going redeploy bit return, going so would than States. we into the – if time need more otherwise, have a to when And we’re to generally, United a you’re

David Ross

come back this to other expected Any year? is

Joe Hete

this None February No. year. till not next year,

David Ross

$X end to breakeven think going quarter contract. good year again second back that headwind of the We know the having of from ACMI million this ATI on And should a there was through Okay. after the next about How in year? margins the closer side, into a and we quarters. the couple fell then margin

Joe Hete

Well, flown. is hours of of by driven it a amount lot

and customer rejiggers saw quarter, our off schedules, second coming a it’s we largest season transitioning – block peak For as a had no year, in of schedule, longer example, a or reduction first the just so we last quarter not so see the hours. into called

at you on second if to little of for to bit quarter strong. come example, there hours. quarter, quarter quarter third is in block the about peak overall and course, So is look a That first season X% tick decline up going the in pretty probably then, the will during fourth

results see improvement slightly if about fourth third than quarter the So then the going the market into quarter. the the the second better and in you

David Ross

the maintenance Okay. lower margin from are cost the then and side. on the peak XQ XQ XQ issues. sounds This like XQ and should any due aside strongest be followed by to

Joe Hete

Yes.

David Ross

with CAM? Precision, the And is JV looking then right. the in you the for at any $X.X in million or segments that ACMI the that the quarter; cited All cost margins of

Rich Corrado

below non-operating Dave, no. line, a and as Yes. It’s shown so, the entity;

David Ross

Okay. you. Excellent. Thank

Joe Hete

Dave. Thanks,

Rich Corrado

Dave. Thanks,

Operator

And Securities. Sterling our from Seaport Global next comes with Kevin question

Kevin Sterling

morning, Good you. gentlemen. Thank

Joe Hete

Kevin. Hi,

Rich Corrado

Hi, Kevin.

Kevin Sterling

bought purchases? at you kind those guys or the one-off in Rich, once the all five they were quarter, XXXs separate bought of

Rich Corrado

or operators purchases, separate so three two. a different were in two They two

Kevin Sterling

you just guess, twos, kind seeing Are planes ones, that? bundled feedstock XXXX. together and Or – bit more, opportunity about if a of I will? Are is you little this seeing more Okay. like you talked you for

Rich Corrado

The Well, we try existing or we other aircrafts And acquired. is that majority find of opportunistically is got example handful an always XXX-XXX to line of of ex-American. fleet ex-Qantas aircraft. have we’ve either our a a

going forward. And so we are

over We the the It’s That’s to secured most way. multiple it. hoping significant you are productive get quality way do if also will. to years, lines highest

going to feedstock If of produced do conversion that one-off quality you get some we that get you the produce from to and work and When can things, up, to differences. conversion. we and you airlines you’re are the look consistent aircraft when inconsistencies quality the consistent aircraft a the some very upgrading try level terms that and different get we than put at get some avionics going in you’re – aircrafts those you when other the aircraft we a to

So is that core in approach we from a we the but best it’s produce. cost product the not the perspective, we given way from business, quality a perspective market, only that feel the our way, also

Kevin Sterling

you. you. Got Got

we Okay. what or guys did And approached are touched you other Amazon you come side? did went for how potential and employee you Did want side logistics – you an Just doing the they that side. competitors? put did on for just to to contracted on Or out to also from convert a then them? RFP to How guys guys curious say, that down. they

Rich Corrado

some are. we’ve I RFP their type policies bid. But generally, opportunity through Well, generally, them, comment can’t every what go that gotten from we’ve of to had

we best just are you the for it, feel when we solution approach a competitive in we’re – they they way still the even and the we that positioned are the market. put it’s So best position,

Kevin Sterling

question. last And okay. Yes,

capabilities, services more kind other your of customers logistics capabilities some perform maybe do there will As could you with potentially that those with logistics of service develop thinking gateway and Amazon, opportunities other your to customers… outside

Rich Corrado

question, I mean, a mean, get operations Yes, Kevin. I them. had mean, look at over Three the for our we’ve a we’ve look it’s if I experience you centers – large postal five good Postal just with with Service, decade.

were the DHL We’ve initial we that we running hub days days, when And and we XX airborne maintained – at regional when sort the this. running centers. are of level large here old so and from expertise experts

company, logistics also terms logistic for to large able it’s our that, flow-through a whether if sewer folks On a to from standpoint, management sort or in operation designing So expertise that. we be logistics still has of talented got of in to core process. very understanding do design a top of you how a terms will, airport, building, facility it’s equipment, handling in whether of large centers, an on tight and material

facilities, but installation, market has They’re really opportunities. are logistics But also of always types MHE both terms those in in good a in prevalent. for logistics looking support doing we segment. business for of and maintenance the terms in or not company management running So that those the of

Kevin Sterling

time. had that’s I the Well, free morning. for Okay. so much all Gentlemen, this thanks

Joe Hete

Yes. Thanks, Kevin.

Rich Corrado

Thanks, Kevin.

Operator

Thank you.

is question Company. next from Our Steve Sidoti O’Hara with &

Steve O’Hara

Hi, good morning.

Joe Hete

Steve. Hi,

Rich Corrado

Good morning, Steve.

Steve O’Hara

a terms kind Just Or something slipped? longer quarter. were happened? was than I dropped else on just quarter, for one some one slipped, XXX-XXX’s it still – is purchasing, of from in there thought operator the, using I Did it guess, the because looks its last like that And last bit – – of one projected slipped that expected. year-end, the the it the it another common little

Joe Hete

did we Steve. one, have No,

we’ve had last on lease option purchase Cargojet we them in an think up-selling and second I to the quarter years aircraft the after the three it through quarter. that ended the to commented terms

Steve O’Hara

Okay, gain Or was there is that… loss And on that? or okay.

Rich Corrado

were small, was – It Steve. don’t know was, There a… that I not

Joe Hete

Not a driver.

Rich Corrado

Not a anything. driver or

Steve O’Hara

for a the had you just And at fine. in than aircraft, bit you is winding then capacity that’s additional Okay, set to? that would used looks or it get XX March you your there? March to customer like sweet allow What’s And XX. aircraft? to charter ACMI did little bit, I down Or XX maybe spot guess, does little you that June wants more like that elsewhere? flex more mean, on how you’re a who I that more. down

Joe Hete

ACMI and what we have The CMI all at constant and and of two customers an to most We’ve our date. web a longer a get eye term piece with their do were our lease a aircraft, over customer own just look we like fleet. or in long-term been lease we important of in ACMI and Obviously, is large with went or ways. that’s charter discussions other for our contracts. dry to CMI put business a couple very plus customers, their model, own towards they we’ve program, of taking on it’s build up We environment, to that starting with WetXDry where Steve, about for we either a the customers then successful us. that to flying dry an initially lease initially ACMI we got So that the business customers key the ACMI

we certain we aircraft of of a look building the And an that business flexibility want put the and can have to on that leasing relationship. do so aircraft so towards back-end amount to that up maintain we

Quint Turner

ACMI in we lease number segment, Military four to tried you the But and in Keep look that and then for fly DHL. on we XXX Steve, focus for services to on whether combis to the CMI have capital, services doing freighters we add that, add the then or preference our just maintenance away four the the includes a essentially dry pure we we U.S. fly can stay then we is on that mind what have that the XXXs, at But continue can our and additional ACMI what as for to we what and it. to we is from focus invest strong lease flying that the it. biz more if

Steve O’Hara

be a now excluding customers, Okay. than used it’s favorable ACMI. the of lease larger because – I and a lease flexible that kind the those maybe I then, that’s of DHL if And are firm of had dry the more ago, just but more, dry customer? little dry mean, business few recall of more versus lease? or aircraft more years Amazon then A-plus more dry contracts old ACMI in a had it guess, mean, you to your then mix much maybe And I is CMI past, were for under kind I was and you

Joe Hete

we’re of projecting then going assets to to We are those the are have XX% fly of dry by also over believe year of And two-thirds end we flying. our the I lease.

revenue users getting as the customers and many that, Joe also for of uses checks getting then and their we’re of mentioned, on heavy some additional the dry of we’re and services services CMI lease so those for the for aircraft also types top And maintenance. other

of And the supplemental in dry top incremental the lease aircraft. investment our so airframe. CMI model, look flying, drives at, everything is on top a I including a that if returns of mean, you And then lease the else on will, we business it’s service that

Steve O’Hara

Okay. right. All you Thank much. very

Joe Hete

Steve. you, Thank

Operator

Instructions] [Operator comes question from next with Chris Our Susquehanna. Stathoulopoulos

Chris Stathoulopoulos

make plan the to fleet I sure morning just here. everyone. I Good want understand

you by you XXXs on working you plan the color and carriers of then in Qantas And some XXXs know quarter that perhaps the kind of some potentially some the new seven United two and American. press give closed being availability of still an that was then you eight base And XXXs? you’re marketed. is for color part I retiring, for could about us XX XXXX, then with? article for vintage? there on quarter of And also last think mentioned But feedstock XXXX, committed, said on recently So XX I the referenced actively the were this had was were last new six?

Joe Hete

into of don’t type We linking specific generally some them unless Yes. on customers, announcement. we’re comment

really So that. on I comment can’t

we’re well. not to We the terms of feedstock will of happens GE. Fleet power, be question, end the I the up In United which needing like at said, day United of is our those the we’re But to them, know Fleet. predominant majority is market talking multiple to fleet end the about talking these fly still because aircraft as airlines.

know – if So I I questions. don’t but can your all answer

Chris Stathoulopoulos

the for said secured over first that you five Well, you the year, right. next

So are guess, Or the in are these with are marketed? I secured are slots they – rights? these And you being locked now customers? the

Joe Hete

They’re don’t got to we’re come we deployed marketed interest them – we conversion. – they lot they have in when believe said, And now. of And No. going as of I getting I any them. being right out problem a

Chris Stathoulopoulos

for with some last where came or lease rates Okay. from we the versus And the perhaps in new for where then FedEx, are the XXXs, I year? color perhaps recent think today builds they year on order, just

Joe Hete

Yes.

are it’s to looking that’s because with cost bit. the customers airplane conversion only lease about has buildup they’re of in rates is, and whether from basis, again, put of their up what the freight aircraft if But the more, a the comment in the to per the terms rates investing the made And etcetera, to that and airplanes of bad. in cost be upon feedstock the the aircraft and to So decisions it kilo a what firming the they’re about going price in. fly going can etcetera, make going lease total going your depends hold up cost. that to was competitive investment make spin-off younger rates than own the we lease type they And I look at when

at a charge scarcity want need are So you I has still say, for airplane I what they to can this – and and be just can’t look competitive with the. what

Chris Stathoulopoulos

I then customers Incheon, much European hearing But the are like question. dispute, with from Air trade you then, as and Amerijet, China what a operators, U.S., American-based. your Atlantic? your of West such you know North Okay. guys And DHL respect partner, last are to pretty course,

Rich Corrado

lot networks. You see customers that focused the express trade because business. volatile tariffs, business is around our express a majority flying they’re on are of less And and obviously, the

can’t aircraft when whether and going fly you’re you certain really would you’re network, to what markets flex So of the in a be. a to size the

volatile generally a have more to if tap from an decrease it’s than that another, may But move. your type little general one don’t you country frequency express of down-gauge So may where a goods you in airframe. stable impacting the or is environment, flow then cargo, your you

and business. forward. the being As you maintaining markets is still in by in going good bullied, that’s flow business The growing of well particularly market will, significantly, know, still emerging if a express e-commerce e-commerce traffic Asia, is the you

and the business tariffs on. you high. a we XXXX. confidence globe keeping are obviously, we’re around the pretty there’s is But think guess, going e-commerce mean, is an that airlines business. for good That I trade. the I with the we shape And do very I that lot what very – in that – eye have tell We and of speaks into have only may can we consumer about thing less express well still news

Joe Hete

going be is too X% leased. of in and Chris over mind So keep our to XXX fleet

going to as amount point There is the in in regardless are is on the particular networks. volumes we the network have of the what pretty to these of d of said, terms steady But that aircraft. flying based So have income you actual finite within do volatility some we’re Rich touch.

drop-off have I size. significant And anymore. to I my pretty need so in don’t am that a XXX aircraft to going say, down-gauge volume,

potential from the of Obviously, or kind – the would upside is immunized you if peak business else so during booming. the we’ve the flexibility on speak we So a you don’t and/or flying real seasons the you type your as when have can a Trans-Pacific really economy to spike the get you were downside.

us impact standpoint a tariff So from is the best. negligible at

Chris Stathoulopoulos

the for Thanks Okay. time.

Joe Hete

you. Thank

Operator

Wreschner Harrison from C.F. comes question with next Capital. Our

Harrison Wreschner

Hi, gentlemen.

Joe Hete

Harrison, Hi, good morning.

Harrison Wreschner

should – fair? that that be operations. planes Is to from for cash able X next you fully plan The be to XX that year should fund with

Joe Hete

Yes. I mean, pretty much.

Quint Turner

EDITDA in million $XXX target.

Harrison Wreschner

Okay.

one plans. etcetera? to in time with ROICs general kind Should for does handle down more holding leverage here, So And coming we on or of makes buybacks the to business? that of CapEx, it new with back sense keep obviously, sense. firepower with of one kind the or dividends, growth for firepower the the in of able that it And stock leverage, we get appropriate self-fund use feedstock some kind and little towards on great what’s this makes

Joe Hete

not expect to – I Harrison, just don’t mean, would we we long-term be likely levered.

in this whether we as long But we, necessarily continued And expect another deploy that, it’s investment the the reason. whether are opportunities I looking to any the that it’s or environment It’s buyback growth of holding side leverage for share this for growth on term. won’t be at option so that that not course, we capital. right a look we at do

Rich Corrado

mind, going say in for not as keep is mentioned the back any in XXX future. fall of our I You that’s XXX. terms the on earlier there’s to Harrison, the be call, mean, demand the that in to

back our for our for is XXX, we the into the be demand think business. I what going the think to success reinvesting on long-term based So have going capital to rates capital requirements increasing

Harrison Wreschner

to one another… program? growth, work Or that extra of more whatever mid the use opportunity number for XXX-plus call it million. acquisition were that put to the is leverage, of in called, And an think let’s you turn Do just Okay. could if it’s you you of

Rich Corrado

acquisition really a the don’t about we Well, lot side. talk

could. we speed As turn the to absolutely you we tried that on impact know, financial able it, being come up any to to our leverage we’ve stay performance, But done terms up. to opportunities and of digest in of without discernible another certainly may

Harrison Wreschner

very much. you Thank

Rich Corrado

Thank you.

Operator

our Capital. with next question from have We Hillary Roubaix Christopher

Christopher Hillary

Hi, morning. good

Joe Hete

morning. Good

Quint Turner

Good morning.

Christopher Hillary

in to beyond and to can to how it’s some comment I experiencing, accounting, color if wanted the if ask you the that the give in margins growth way? you’ve us on expect appropriate business, your XXXX it just logistics evolve change you on all been

Joe Hete

being margin lot with upon – the all to a how If we else leases. deploy we depends them deploy as opposed are our asset. straight you talking movement, equal Well, dry if of CMI, the

with revenues margin lease environment. CMI all is do associated dry quite the do and resources in you not high the you’re know, resources you those you as the As requiring that

So it the mix. on depends

full then themselves like look we As can that we do, customers have And who example. themselves dry-leased services operate for two the of to under we suite our customers provide largest Rich have others said, as avail aircraft a model.

year we’ll we mean, Amazon We had almost only. deployments airplane So the XXth aircraft mix. certainly finished this lease completely the depend I dry with on our last are August.

which And game so other that the was was CMI full the option, Service. at

go margin percentage changes, we the revenue of Hopefully, significantly. that line we And to are on we the something the changes accounting big standpoint, to dry-lease $XXX top between So as services getting accounting a were fronts fuel all deployments of ones with this up netted year’s the from the annualized gateway what a only. how Amazon margin and them being million where assisting hit. course, have managing, pretty have our to near much

expect factor to be look as don’t So forward. that I we significant a

Christopher Hillary

your way beyond? then mix that kind to anticipate And is evolving there move and you Okay. a we of as XXXX

Joe Hete

will on all be think I there opportunities fronts.

bit So dry almost it lease. a was that this completely year unusual was and

also to involve of So we operation that are aircraft. see not more the opportunities surprised the

Rich Corrado

and Keep businesses nature. in logistics that we in things like something do mind, maintain

there a leased we on aircraft. versus what and talking returns You’re high-single see low-teen

way equation, the it’s on the top if the a going by line margin as side to negative big percentage impact bottom driven revenue line. the So of the services a a have gets in – on

Christopher Hillary

much. very Thanks Okay.

Joe Hete

Thank you.

Operator

we follow-up that a seems have with Stathoulopoulos it question from And Susquehanna. Chris

Chris Stathoulopoulos

Hey follow-up. guys, taking for thanks my

to then add has Amazon, give hub-and-spoke us exercised August freighters? hybrid trending? point-to-point? been of are make also, out hub-and-spoke then perhaps running is Could or where levels visibility have warrants? this Amazon you sense So network fully color X to utilization Is there And the on think additional other year. some And any some point I a a respect it CVG last, with utilization where might we how you’ve deployed been now, configuration at

Joe Hete

the don’t network. that, comment all Amazon’s third business I it is and second down, we and It’s network. proprietary does their on their quarter. said we So up in ramp ramps mean, really periods, peak

Amazon exercised the in any from maintenance unless they perspective, So the an haven’t are it’s network and – warrants all they are aircraft flying other today.

Rich Corrado

which other what network our other days The the is different interesting thing experiences week, a about is than seven fly with they express operators.

Operator

turn further I at closing the time. over for have will no I see our this we questions call speakers remarks. to

Joe Hete

to Thanks, way Venessa. ATSG purest remains air in forces play a cargo the e-commerce driving industry. growth the

and to the dedicated services express them. midsize unique of air workforces of have freighters set We of networks support more

support will We market day. us to have niche knows quality a and the Thanks call, will joining on well and growth expands rewarded as for over be investing keep time.

Operator

thank ladies participating. concludes gentlemen. thank for We conference This you, for our And today. and you

You disconnect. may now

Air Transport Services (ATSG) 7 Aug 182018 Q2 Earnings call transcript