www.ATSGinc.com
AUGUST 2020
Investor Presentation
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I N C L U D I N G F I R S T H A L F 2 0 2 0 R E S U LT S
Investor Presentation I N C L U D I N G F I R S T H A L F 2 0 2 0 - - PowerPoint PPT Presentation
AUGUST 2020 Investor Presentation I N C L U D I N G F I R S T H A L F 2 0 2 0 R E S U LT S www. ATSGinc .com QUINT TURNER CFO CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS Except for historical information contained herein,
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I N C L U D I N G F I R S T H A L F 2 0 2 0 R E S U LT S
@ATSGinc www.atsginc.com INVESTOR PRESENTATION
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Except for historical information contained herein, the matters discussed in this release contain forward-looking statements that involve risks and uncertainties. These forward-looking statements are based on expectations, estimates and projections as of the date of this presentation and address activities, events or developments that we expect, believe or anticipate will or may occur in the future. Although we believe our estimates and assumptions to be reasonable, they are inherently uncertain and involve a number of risks and uncertainties that are beyond our control. In addition, management’s assumptions about future events may prove to be inaccurate. We caution all readers that the forward-looking statements contained in this presentation are not guarantees of future performance, and we cannot assure any reader that those statements will be realized, or the forward-looking events and circumstances will occur. A number of important factors could cause Air Transport Services Group's (ATSG's) actual results to differ materially from those indicated by such forward-looking
pandemic may continue for a longer period, or its impact on commercial and military passenger flying, may be more substantial than what we currently expect; disruptions to our workforce and staffing capability or in our ability to access airports and maintenance facilities; the impact on our customers' creditworthiness; and the continuing ability of our vendors and third party service providers to maintain customary service levels; and (ii) other factors that could impact the market demand for our assets and services, including our operating airlines' ability to maintain on-time service and control costs; the cost and timing with respect to which we are able to purchase and modify aircraft to a cargo configuration; fluctuations in ATSG's traded share price and in interest rates, which may result in mark-to- market charges on certain financial instruments; the number, timing and scheduled routes of our aircraft deployments to customers; our ability to remain in compliance with key agreements with customers, lenders and government agencies; changes in general economic and/or industry specific conditions; and other factors that are contained from time to time in ATSG's filings with the U.S. Securities and Exchange Commission, including its annual report on Form 10-K and quarterly reports on Form 10-Q. Readers should carefully review this release and should not place undue reliance on ATSG's forward-looking statements. These forward-looking statements were based on information, plans and estimates as of the date of this release. Except as may be required by applicable law, ATSG undertakes no obligation to update any forward-looking statements to reflect changes in underlying assumptions or factors, new information, future events or other changes. Readers should carefully review this presentation and should not place undue reliance on ATSG's forward-looking statements. These forward-looking statements were based on information, plans and estimates as of the date of this presentation. ATSG undertakes no obligation to update any forward-looking statements to reflect changes in underlying assumptions or factors, new information, future events or other changes.
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STEP STEP STEP STEP
R i c h C o r r a d o C E O & P r e s i d e n t J o e P a y n e C L O & S e c r e t a r y Q u i n t T u r n e r C F O M i k e B e r g e r C C O
Rich held executive roles at Airborne Express and DHL prior to joining ATSG in 2010. He was named Chief Operating Officer in 2017, President in 2019, and Chief Executive Officer in 2020. Joe has been with the company since April 1995. He was named General Counsel in 2004 and Chief Legal Officer in 2016. Quint has been with the company since 1988. He has held the role of Chief Financial Officer since 2004. Mike held top sales leadership roles with TNT in Europe and DHL in the US before joining ATSG in his current role in 2018.
STEP
E d K o h a r i k C O O
Ed is a graduate of the USAF Academy and served 23 years in the US Military prior to joining ATSG in his current role in 2019.
periods of growth and change
companies
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M A R K E T
✓ World’s largest lessor of freighter aircraft ✓ Largest provider of passenger charter service to the DoD and other governmental agencies ✓ Differentiated package of value-added aviation services, building long-term customer partnerships ✓ Decades of experience with express network airline operations providing best-in-class reliable service to customers such as Amazon, DHL, and UPS
✓ Solid balance sheet and conservative financial policy ✓ Long-term leases and operating contracts with blue-chip customer base ✓ Strong sustainable cash flows through varying economic cycles ✓ Business model not subject to trade disruptions or cyclical GDP ✓ No payload or fuel risk
F I N A N C I A L A S S E T
✓ Owned aircraft portfolio focused on mid-size freighters - the asset of choice for express and eCommerce-driven regional air networks ✓ Boeing 767 freighter is ideally suited to regional network flying due to high reliability, cubic capacity and durable performance ✓ 767 is the fastest growing freighter in regional air networks around the world ✓ Investment in next generation Airbus A321 conversion positions ATSG to capitalize on mid-range freighter demand
Through its subsidiaries ATSG offers mid-size aircraft leasing solutions with unmatched set of complementary services for cargo and passenger services
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Boeing 767-300 Deployments
Nine more were deployed including six leases to Amazon, two leased to UPS and
provided by Amazon.
Revenues of $1.45 Billion
Highest in ATSG’s history excluding fuel revenue reimbursables. Includes more than $500 million in revenues and greater than expected contribution from Omni Air International acquired in 2018
Improved Already Strong Balance Sheet
Executed in January 2020 eight-year, $500 million unsecured bond offering, pricing at 4.75% coupon. Only the fifth first time issuer to achieve a coupon below 5%
Record Level for Adjusted EBITDA
Continued strong growth in earnings and cash flow
Record Levels for Adjusted Earnings Per Share
Continued strong growth in earnings and cash flow
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▪ In-service fleet of 94 at 6/30/20: 777s, 767s, and 757s ▪ Key Business Segments: ▪ CAM Leasing: (Cargo Aircraft Management) Dry-leasing cargo aircraft, engine leasing and leasing
▪ ACMI Services: (Aircraft, Crew, Maintenance & Insurance) CMI and ACMI agreements ▪ Other: Businesses include MRO services, passenger- to-freighter conversion services, ground operations and material handling equipment services ▪ Acquired Omni Air International on November 9, 2018 ▪ Delivers integrated operational solutions to customers ▪ Markets include air cargo and air express (package) transport, and ACMI and charter passenger transport for commercial and government entities ▪ Founded in 1980 as a wholly owned subsidiary of Airborne Express; first public offering in August 2003 ▪ Headquarters located at the Wilmington Air Park, which also serves as a regional air hub for Amazon ▪ 4,800+ employees worldwide 1H2020 Revenue By Segment(1) 1H2020 Revenue By Customer(1) Historical Financial Performance
DHL 11% AMAZON 29% DOD 32% OTHER 28% ACMI SERVICES 65% CAM LEASING 17% OTHER 18% $197 $212 $268 $312 $452 $250
2015 2016 2017 2018 2019 1H2020
Adjusted EBITDA (3)
($ in millions)
$38 $127 $289
2015 2016 2017 2018 2019 1H2020
$767 $892 $619 $769 $1,068
Revenues (2)
Reported revenue from reimbursed expenses ($ in millions)
(1) Segment revenue before elimination of internal revenues and revenue by customer percentages are calculated based on YTD 06/30/20 results (2) Pro-forma adjustment to 2015-2017 revenues illustrate the effect of changes in revenue recognition rules effective 1/1/18 as if they were in effect on 1/1/15. (3) Adjusted EBITDA is a non-GAAP metric. See table at end of this presentation for reconciliation to nearest GAAP results. Ratios of Debt Obligations to Adjusted EBITDA and fleet totals are as of end of period shown and are calculated under formulas included in bank covenants.
$1,452
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IN-SERVICE
JUNE 30, 2020
Boeing 767-300 Freighter
Thirty-seven dry-leased to UPS, DHL, Amazon, NAC, Amerijet, Cargojet, up to 10-year terms Two supplied by Amazon operated under CMI
Boeing 757-200 Combi
Four 757-200 combis under ACMI agreements with U.S. Military
Boeing 777-200 Passenger
Commercial, DoD, and U.S. and allied Governments
Boeing 767-200 Freighter
Twenty-six dry-leased to Amazon, DHL, Amerijet, Cargojet, SkyTaxi, Raya, West Atlantic, up to 7-year terms
Boeing 767-300 Passenger
Commercial, DoD, and U.S. and allied Governments
Boeing 767-200 Passenger
Commercial ACMI/Charter, DoD
Boeing 757-200 Freighter
Under ACMI agreements with DHL through YE2020
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Customer CAM ABX Air ATI Omni Airborne LGSTX Amazon DHL Amerijet Cargojet UPS Northern Aviation Services DoD
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Boeing 767 Aircraft Leased by Amazon
14 20 20 26 31 42 2016 2017 2018 2019 2020E 2021E
CURRENT SERVICES
additional leases to begin by YE2020
with four additional to begin operation by YE2020
CURRENT AGREEMENT
acceptable terms
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passenger airlift services to the U.S. DoD
including Dept. of Homeland Security, Immigration & Customs Enforcement
for 20+ years, contracted through December 2021
ACMI agreement covering five Boeing 767 aircraft by year end
aircraft at YE2019 adding five more 767s by YE2020 and eleven additional by YE2021
under the cash purchase option, would give Amazon rights to purchase ~38% of ATSG Common shares for $607 million; a cashless net share settle election would result in fewer shares and a lower equity stake.
2003; three-year extensions signed through April 30, 2022
leases extended to 2022 with three others leased into 2023/24
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More than 90% of midsize freighters worldwide deployed in time-definite regional express networks
Source: Statista , eMarketer May 2020
U.S.RETAIL E-COMMERCE SALES WITH % OF TOTAL US RETAIL SALES GLOBAL RETAIL E-COMMERCE SALES WITH U.S. E-COMMERCE AS % OF TOTAL
$2,982 $3,535 $4,206 $4,927 $5,695
2018 2019 2020E 2021E 2022E
$524 $602 $710 $765 $859
2018 2019 2020E 2021E 2022E
17.6% 17.0% 16.9% 15.5% 15.1% 9.9% 11.0% 14.5% 14.4% 15.5%
(SALES IN BILLION US DOLLARS) (SALES IN BILLION US DOLLARS)
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Source: Cargo Facts, June 2019
ATSG’s market share of the Boeing 767 freighter leasing market is 64% TOTAL NUMBER OF FREIGHTER AIRCRAFT
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HNL SMF SCK ONT RIV PHX SKF IAH DFW TPA MIA CLT BWI ABE BDL RFD MSP CVG DEN PDX SEA
New routes added to AFW, ANC, ATL, DAL, LAL, STL in 2019
Amazon Prime Air Network (as of 11/30/18) While uncertainty has crept into the broader cargo freight market due to global trade concerns, ATSG customers’ time definite / express network routes are unaffected
Intra-country, time definite network
Sources: International Air Transport Association, Great Circle Mappers, Company press releases
20 40 60 80 100 17 19 21 23
ATSG In-Service Aircraft Industry Freight Ton Kilometers (billions per month, seasonally adjusted)
Seasonally-Adjusted FTKs ATSG In-Service Aircraft
Growth trajectory not interrupted by trade concerns, 2019 block hours up 40% pro forma YoY
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Solutions in 2017 to form a new joint venture, 321 Precision Conversions
converting 757 aircraft
lessor
the project in 2016
for September 2020
4Q2020
CAM-leased ATSG fleet 2022
fleet of Boeing 757’s with A321’s nearing ideal vintage window for conversion from passenger to freighter use
110 75 30 23 70
economics like the smaller Boeing 737-800
the 737 plus a 14.5% increase in payload weight
while still offering 95% of the cube space
BACKGROUND TIMELINE OPPORTUNITY
Other
Average Age: 27.3 years
Boeing 757-200 Freighters by Operator
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(Cont. Oper.)
(Cont. Oper.)
$MM $MM
Earnings(1)
(Cont. Oper.)
Revenues
$MM (1) Non-GAAP metrics. See reconciliations included in the earnings 8-K filed 3/24/20.
up 63% to $1.45 billion for the year
GAAP) increased 29%, or $28.1 million, to $124.3 million
million, to $452.1 million
as both Adjusted Earnings Per Share and Adjusted EBITDA reached record levels
$105 $128 2018 2019 $892 $1,452 2018 2019 $1.16 $1.51 2018 2019 $312 $452 2018 2019
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(Cont. Oper.)
(Cont. Oper.)
$MM $MM
Earnings(1)
(Cont. Oper.)
Revenues
$MM (1) Non-GAAP metrics. See reconciliations included in the earnings 8-K filed 8/05/20.
in 2Q20 to $767 for 1H20
(non-GAAP) increased 20% to $125.6 million 2Q20 totaling $250 million for 1H20
Operations (non-GAAP) rose 74% to $32.5 million in 2Q20 totaling $80 million for 1H20
and ACMI opportunities to mitigate substantial pandemic-related reductions in regular operations for the DoD and commercial passenger customers.
$59 $80 1H2019 1H2020 $683 $767 1H2019 1H2020 $219 $250 1H2019 1H2020 $0.64 $0.91 1H2019 1H2020
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to Omni assets acquired in Nov. 2018, plus CAM leasing gains
versus a year-earlier loss of $0.3 million
during the third quarter, including two newly converted aircraft and one previously leased to ATI. Six additional 767 freighters are scheduled for deployment during the fourth quarter
quarter and 37 percent through the first nine months of 2019, principally due to the contribution from Omni Air's ACMI and charter operations and growth in flight operations for Amazon 1.6x 2.2x 2.1x 3.4x 3.4x ~3.0x
2015 2016 2017 2018 2019 2020E
55 60 70 90 98 106
Aircraft in Service
* * Adjusted EBITDA is a non-GAAP metric. See table at end of this presentation for reconciliation to nearest GAAP results. Ratios of Debt Obligations to Adjusted EBITDA and fleet totals are as
$197 $212 $268 $312 $452 $470
2015 2016 2017 2018 2019 2020E
Adjusted EBITDA** Capital Expenditures*
($ in millions)
Debt Obligations/Adjusted EBITDA**
($ in millions)
$38 $127 $289
2015 2016 2018 2018 2019 2020E
$159 $265 $297 $293 $454 $465
2015 2016 2017 2018 2019 2020E
* Pro-forma adjustment to 2014-2017 revenues illustrate the effect of changes in revenue recognition rules effective 1/1/18 as if they were in effect on 1/1/14. Capital Expenditures projection reflects guidance as of the date of ATSG’s 2Q2020 earnings call.
$1,452 $892 $619 $769 $1,068
Revenues*
($ in millions) Reported revenue from reimbursed expenses
$1,551
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Maturity
Secured: ◼ Term Loan $ 635.00 $ 627.06 Nov 2024 ◼ Secured Revolver* 632.90 177.90 Nov 2024 Unsecured: ◼1.125% Convertible Notes 258.75 258.75 Oct 2024 ◼4.75% HY Bond
Total Debt* $ 1,526.65 $ 1,563.71
$millions Principal Balance @ 12/31/2019 Principal Balance @ 6/30/2020 * Revolver capacity $600 million max capacity with leverage-based accordion feature, subject to lender consent
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53% 14% 47% 86%
WEEK ENDING 1/19/2020 WEEK ENDING 4/12/2020
GLOBAL CARGO CAPACITY
Passenger Wide Body Belly Freighter
GLOBAL AFTKs
$1.24 B $.71 B
United States Europe Asia China
OUTBOUND PASSENGER DECLINE
(January 1, 2020 vs. April 1, 2020) % Decline
Source: Boeing, Cargo Facts April 2020
CARGO DEMAND REMAINS STRONG
impacted; trips considered essential continued
and Air Transport International, to receive CARES Act grant funding totaling $75.4 million
deck freighters
increases cargo on full freighters
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Unmatched Mix of Services for Cargo and Passenger Markets Strong sustainable cash flows through economic cycles as approximately 90%
trade disruption or cyclical GDP
Contracts in customer-owned express and e-Commerce-driven regional air networks Solid Balance Sheet and Cash Flows Back Value-Accretive Capital Allocation Options Increased Revenue Diversification with Blue- Chip Customers Established Feedstock Supply and Diversity of Aircraft to Support Operations
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F O R PA R T I C I PAT I N G I N T O D AY ’ S M E E T I N G
@atsginc @atsginc @air-transport-services-group-inc
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Adjusted Earnings from Continuing Operations and Adjusted Earnings Per Share from Continuing Operations are non-GAAP financial measures and should not be considered as alternatives to Earnings from Continuing Operations, Weighted Average Shares – diluted, Earnings Per Share from Continuing Operations or any other performance measure derived in accordance with GAAP. Adjusted Earnings and Adjusted Earnings Per Share from Continuing Operations should not be considered in isolation or as a substitute for analysis of the company's results as reported under GAAP.
$ $/Share $ $/Share $ $/Share $ $/Share
Earnings from Continuing Operations - basic (GAAP)
(105,162) $ (26,632) $ 28,571 $ (3,998) $
Gain from warrant revaluation, net tax
(19,312) $
Earnings from Continuing Operations - diluted (GAAP)
(105,162) $ (1.78) $ (26,632) $ (0.45) $ 9,259 $ 0.14 $ (3,998) $ (0.07) $
Adjustments, net of tax Loss from warrant revaluation
Customer incentive amortization
3,779 $ 0.06 $ 3,073 $ 0.05 $ 7,527 $ 0.11 $ 6,301 $ 0.11 $
Remove effects of government grants
(7,580) $ (0.13) $
(7,580) $ (0.11) $
Remove effects of aircraft impairments
30,157 $ 0.51 $
30,157 $ 0.44 $
Non-service component of retiree benefits
(2,237) $ (0.04) $ 1,795 $ 0.03 $ (4,474) $ (0.07) $ 3,590 $ 0.06 $
Loss from affiliates
5,878 $ 0.10 $ 6,837 $ 0.12 $ 8,011 $ 0.12 $ 9,751 $ 0.17 $
Omni acquisition fees
285 $
Derivative revaluation
107,630 $ 1.75 $ 33,588 $ 0.52 $ 18,884 $ 0.28 $ 28,683 $ 0.37 $
Adjusted Earnings from Continuing Operations (non-GAAP)
32,465 $ 0.47 $ 18,661 $ 0.27 $ 61,784 $ 0.91 $ 44,612 $ 0.64 $ SHARES SHARES SHARES SHARES
Weighted Average Shares - diluted
59,130 58,909 68,104 58,874
Additional weighted average shares
9,279 10,861 74 10,846
Adjusted Shares (non-GAAP)
68,409 69,770 68,178 69,720 THREE MONTHS ENDED June 30, 2020 June 30, 2019 June 30, 2020 June 30, 2019 SIX MONTHS ENDED $ $/Share $ $/Share 59,983 $ 67,883 $ (6,219) $ (7,118) $ 53,764 $ 0.78 $ 60,765 $ 0.89 $ 6,594 $ 0.10 $
13,258 $ 0.19 $ 12,910 $ 0.19 $
7,258 $ 0.10 $ (6,248) $ (0.09) $ 16,176 $ 0.23 $ 7,993 $ 0.11 $ 285 $
4,020 $ 0.06 $ 7,687 $ 0.11 $ 6 $
105,022 $ 1.51 $ 79,446 $ 1.16 $ SHARES SHARES 69,348 68,356
68,356 YEAR ENDED December 31, 2019 December 31, 2018
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Adjusted Pre-Tax Earnings from Continuing Operations is defined as Earnings from Continuing Operations Before Income Taxes plus certain charges from non-consolidating affiliates, and lease incentive amortization. It excludes the net effect of transaction fees, financial instrument gains and losses, and of non-service components of retiree benefit costs. Adjusted EBITDA from Continuing Operations is defined as Earnings from Continuing Operations Before Income Taxes plus net interest expense, depreciation and amortization expense, charges from non-consolidating affiliates, and lease incentive amortization. It excludes the net effect of transaction fees, financial instrument gains and losses, and of non-service components of retiree benefit costs. Adjusted EBITDA from Continuing Operations and Adjusted Pre-Tax Earnings from Continuing Operations are non-GAAP financial measures and should not be considered alternatives to net income or any other performance measure derived in accordance with GAAP. Management uses Adjusted EBITDA from Continuing Operations and Adjusted Pre-Tax Earnings from Continuing Operations to assess the performance of its operating results among periods. These measures should not be considered in isolation or as a substitute for analysis of the Company's results as reported under GAAP, or as an alternative measure of liquidity. The Company does not provide a reconciliation of projected Adjusted EBITDA because it is unable to predict with reasonable accuracy the value of certain adjustments. Certain adjustments can be significantly impacted by the period-end re-measurements of financial instruments including stock warrants issued to customers. The Company’s earnings on a GAAP basis and the non-GAAP adjustments for gain and losses resulting from the re-measurement of stock warrants, will depend on the future prices of ATSG stock, interest rates and other assumptions which are highly uncertain.
2015 2016 2017 2018 2019 2Q2020 2Q2019 1H2020 1H2019
62,563 $ 34,454 $ (6,536) $ 87,478 $ 71,572 $ (106,193) $ (23,476) $ 34,851 $ 4,091 $ Non-service components retiree benefit costs, net (1,040) 6,815 6,105 (8,180) 9,404 (2,898) 2,351 (5,796) 4,702 Non-consolidating affiliate losses
3,135 10,468 17,445 6,513 5,998 9,277 9,814 Customer Incentive Amortization
13,986 16,904 17,178 4,896 4,024 9,753 8,251 Less government grants
373
Financial Instruments Loss (Gain) (920) 18,107 79,789 (7,296) 12,302 109,723 35,886 2,679 31,386 60,603 65,111 96,479 104,638 128,274 41,295 24,783 80,018 58,617 Interest Income (85) (131) (116) (251) (370) (12) (81) (124) (177) Interest Expense 11,232 11,318 17,023 28,799 66,644 16,045 16,804 32,368 34,194 Depreciation and Amortization 125,443 135,496 154,556 178,895 257,532 68,291 63,266 137,633 125,903 197,193 $ 211,794 $ 267,942 $ 312,081 $ 452,080 $ 125,619 $ 104,772 $ 249,895 $ 218,537 $
Reconciliation Stmt. ($ in 000s)
GAAP Pre-Tax Earnings (Loss) from Cont. Oper. Adjusted EBITDA from Cont. Oper. Adjusted Pre-tax Earnings from Cont. Oper.