Air Transport Services Group, Inc. (ATSG) Q1 2021 Earnings Call Transcript

Transcript

Speaker 0

Welcome to the Quarter 1 2021 Air Transport Services Group Inc. Earnings Conference Call. My name is Jenny. I'll 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. Please note that this conference is being recorded. I will now turn the call over to Joe Payne, Chief Legal Officer. Mr. Payne, you may begin.

Speaker 1

Good morning and welcome to our Q1 2021 earnings conference call. We issued our earnings release yesterday after the market closed. It's on our website, atsginc.com. Let me begin by advising you that during the course of this call, we will make projections and other forward looking statements that involve risks and uncertainties. Our actual results and other future events may differ materially from those we describe here.

These forward Looking statements are based upon information, plans and estimates as of the date of this call. Air Transport Services Group undertakes no obligation to update any forward looking statements to reflect changes in underlying assumptions, factors, These factors include, but are not limited to the following, which relate to the current COVID-nineteen pandemic And related economic downturn. The pandemic may continue for a longer period or its effects on commercial and military passenger flying Maybe more substantial than we currently expect. It may also disrupt our workforce and staffing capability, Our ability to access airports and maintenance facilities, our customers' creditworthiness, the continuing ability of our vendors and third party service providers To maintain customary service levels and the expected timing and benefits from government grants. Other factors could also impact the market demand for our assets and services.

These include our operating airlines' ability to And mark to market charges on certain financial instruments the number, timing and scheduled routes of our aircraft deployments to customers I'll now turn the call over to Bob for questions. Thank you, including the Form 10 Q we will file next week. We will also refer to non GAAP financial measures from continuing operations, Including adjusted earnings, adjusted earnings per share, adjusted pre tax earnings and adjusted EBITDA. Management believes these metrics are useful to investors in assessing ATSG's financial position and results. These non GAAP measures are not meant to be a substitute for our GAAP financials, and we advise you to refer to the reconciliations to GAAP measures, which are included in our earnings release and on our website.

And now I'll turn the call over to Rich Corrado, President and CEO, for his opening comments.

Speaker 2

Thanks, Joe, and welcome, everyone. I want to begin by commending our employees We continue to provide our customers with reliable, efficient service in any conditions, even under the added safety procedures that remain in place Arising from the COVID-nineteen pandemic. I also want to celebrate with you and our employees Several pieces of good news we have received over the last few weeks. The first, in March, was Amazon's decision To exercise for cash the warrants it holds to purchase approximately 13,600,000 ATSG shares. Amazon will pay ATSG $132,000,000 to purchase those shares in addition to the 866,000 ATSG shares that are recently acquired in a cashless exercise.

We expect to complete those transactions tomorrow. At that point, Amazon will become our largest shareholder, holding shares representing about 19.5% of those outstanding, As well as being a principal customer of ATSG. More good news came early last month when we completed new debt financing arrangements That included the amendment of our senior credit facility and the issuance of another $200,000,000 in unsecured notes. That financing, together with Amazon's investment and other new funds, will significantly strengthen ATSG's balance sheet. And finally, last week, we received word that the FAA has awarded a supplemental type certificate To our joint venture for its Airbus A321 passenger to freighter conversion program.

This step completes our 3 year development program For this new narrow body freighter, which we expect will become a key aircraft type for many of the same Air Express networks We serve with our large 767 freighters. All in all, we are off to a good start in 2021 With 6 Boeing 767-three 100 freighters leased to customers so far this year. That includes 5 of the 11 Amazon deliveries planned for this year and more in billable block hours for the freighters that we also fly. But we also saw more net impact from the COVID-nineteen pandemic on our Q1 revenues and adjusted earnings for passenger and combi operations compared to a year ago. In 2020, we lost some ongoing passenger flying opportunities due to the pandemic, but also picked up Other pandemic related charter assignments, especially in the first half last year.

In 2021, while our freighter leasing business Continues to grow at a record pace. Our airlines, as a group, did not achieve the revenues or margins they had in the early part of last year. Our 2021 guidance for adjusted EBITDA of $525,000,000 was also assumed a more robust second half than the first, And that is still our plan, but achieving it will require easing of the pandemic effects on our passenger operations. I'll have more to say about our outlook shortly. Quinn Turner, our CFO, is ready to review our Q1 numbers.

Quinn?

Speaker 3

Thanks, Rich, and welcome to everyone on the call this morning. On a consolidated basis, our revenues were down 3% $376,000,000 in the Q1. The principal factor was less passenger flying, mainly at Omni, But also from ATI's comps operation. Our 4th quarter GAAP earnings of $42,000,000 or $0.71 per share basic We're also down, but primarily due to a $101,000,000 swing in our non cash gain from revaluing our liability for warrants, which was $108,000,000 in the Q1 a year ago versus $7,000,000 this year. We also recorded $22,000,000 in 1st quarter after tax benefits from federal pandemic relief assistance under the payroll support program There was no such benefits in the Q1 last year.

Our first quarter earnings on an adjusted basis were $14,000,000 Lower than a year ago at $15,000,000 or $0.19 per share diluted. That excludes among other items, The effects of quarterly mark to market changes in the value of warrants and other financial instruments as well as pandemic related government grants to our airlines. The primary factor was decreased passenger revenues from our airlines due to the pandemic. Adjusted EPS For the Q1 of 2021 year ago period, both reflect Amazon's warrant conversion decision. Interest expense was down $2,000,000 for the quarter.

Rates on our credit facility balances and lower debt levels overall were principal factors. Depreciation and amortization expense increased $2,000,000 for the quarter for more aircraft in service. Our adjusted EBITDA was $106,000,000 for the Q1, down from $124,000,000 a year ago. On a segment basis, our aircraft leasing business, CAM, performed very well. CAM's pretax earnings increased 36% for the quarter to $21,000,000 CAM owned 53 Boeing 767-three aircraft in service as of March 31, up from 40 a year earlier.

CAM completed the modification of 4 Feedstock 767s to freighters during the quarter. 3 767-two 100 freighters We returned to CAM in the quarter and are being prepped for a release externally this year. Leasing demand remains robust For both our newly converted 767-300 freighters as well as for any 767-300s or 200s that may roll off of existing leases. During the quarter, CAM bought 4 767-300 Feedstock Aircraft for conversion. Because of continued strong leasing demand, CAM plans to acquire at least 13 767 feedstock aircraft this year And may acquire others given the opportunity.

Omni returned one of its 767-three 100 passenger aircraft to CAM, Which will convert and lease it externally as a freighter later this year. Revenues for our ACMI Services segment, Which includes our 2 cargo airlines and 1 passenger airline, decreased $37,000,000 during the Q1 to $247,000,000 This year's ACMI Services revenues continued the trend of the last half of twenty twenty with significant COVID-nineteen pandemic impact, But without offsetting ad hoc passenger flying opportunities. Billable block hours fell 5% overall, But combined block hours flown for passenger operations, including the 757 military commie flights We're down 42% for the quarter. On a GAAP basis, pretax earnings for ACMI Services We're $21,000,000 during the Q1, which included CARES Act grants of $28,000,000 that we exclude from our consolidated adjusted results. That compares with $18,000,000 pretax for 2020 with no pandemic relief benefits.

ACMI Services benefited from reduced travel costs for the quarter this year, offset by higher wage and benefit costs, Including the effect of pay increases for teams to represent pilots at ABX Air, stemming from last December's amendment to its collective bargaining agreement. We also incurred an additional $2,000,000 in training and recruitment costs during the Q1 compared to last year. During the Q1 of 2021, we began to lease 4 more 767-300s for Amazon and have added one more since then. One other CAM owned 767 freighter was leased to Northern Air Cargo during the quarter. Soaring e commerce shipping since the pandemic continues to boost our freighter aircraft flying, primarily for Amazon and DHL.

We expect to be flying at least 13 more 767s for Amazon by the end of 2021 than at the end of 2020, Including 2 Amazon owns and will assign to us to fly under our CMI agreement. We mentioned in our earnings release that Vexter received $83,000,000 in federal payroll support payments this year, the majority of which we have already received. These funds require Omni to refrain from involuntary furloughs of its flight crews and other personnel at least through September. Please keep in mind that our practice is to exclude those grant funds from our adjusted results. To the extent Omni maintains staffing levels in 21 that are above what we would otherwise require for current flight operations in order to comply with grant programs, Our adjusted EBITDA and adjusted earnings will be lower.

Our earnings on the other activities line We're somewhat better than a year ago at $389,000 proceeds from more fuel sales and gateway services for Amazon exceeded losses From 2 regional centers we operate for the postal service. Amazon's announcement in March of exercise of the original allotment of $14,900,000 warrants was certainly good news to us. With all regulatory clearances completed, Amazon intends to wire us $132,000,000 tomorrow. Once completed, they will hold approximately 14 point 4,000,000 shares equating to a 19.5 percent equity stake. In April, We completed a $200,000,000 add on to the $500,000,000 of 4.75% unsecured notes we first issued in January 2020, Following another amendment to our bank credit facility.

This year's $200,000,000 offering was attractively priced to yield an effective rate of 3.96 percent and like the $500,000,000 offering a year ago was again significantly oversubscribed. The add on was preceded by a ratings upgrade from S and P and a positive outlook from Moody's. The bank credit facility amendments provided for an increase in ATSG's revolver size and accommodated the prepayment of ATSG's term loan balance of $609,000,000 These changes to our debt structure, along with the proceeds from Amazon's warrant exercise, With that summary of our financial and operating results for the quarter, I'll turn it back to Rich for some comments on our outlook. Rich?

Speaker 2

Thanks, Quint. Entering the Q1 this year, we knew we faced a tough comparison with the same period last year. In early 2020, as the pandemic was just beginning to affect the U. S, Omni flew several special missions To move military and civilian groups away from COVID hotspots and completed other rapid response missions for the federal government. ATI's Combi and 757 freighter fleets were still generating good returns, And our aircraft maintenance facilities were humming with passenger aircraft work for scheduled airlines.

When we issued guidance of $525,000,000 for adjusted EBITDA in 2021, we noted that our plan called for us to generate Only 43% or $225,000,000 of the total in the first half. If you assume that we would generate more of the 2 20 $5,000,000 in the second quarter than the first, we were actually not far from the pace that we projected. In the meantime, our freighter leasing and flight operations for Air Express Networks are growing at double digit rates. We are on track with our aggressive schedule to lease at least 16 767-three 100 freighters this year And at least 10 already targeted for 2022. 11 are going to Amazon this year and at least 5 others are expected to be leased to other airlines, including Northern Air Cargo, Amerijet, Air Canada and DHL.

We're also scheduled to deploy 3 returned 767-two hundred freighters under 5 year leases to Raya Airways, Star Air and Sky Taxi. I mentioned last time that in addition to the $7,000,000 to $8,000,000 In higher wage and benefit costs this year from the amendment to the CBA with our AVX pilots, we are also incurring higher software costs Under the continuous improvement processes that we launched last year, these investments are already beginning to yield benefits And will result in improved flight performance and more predictable maintenance requirements. We expect our ACMI to improve, particularly in the second half. That will depend on the restoration of revenue streams the pandemic has reduced, But also efficiencies that help us mitigate the incremental payroll costs at our airlines. We believe that we can source, acquire, convert And deploy enough 767-three 100 freighters to meet our current lease commitments.

By the end of the year, We will be flying 4 767s we don't own in the Amazon Air network, including 2 that Amazon owns And 2 others at least from another source. By the end of this year, we expect to fly at least 46 aircraft in Amazon's network Under our CMI agreement compared with 33 at the end of 2020. With our devotion to service quality And breadth of service offerings, we anticipate CAM and our cargo airlines to remain principal source for any freighter capacity And flight support Amazon may require. I mentioned at the outset last week's welcome news that the FAA has awarded a supplemental type certificate For our joint venture Airbus A321 passenger to freighter conversion design. Our PEMCO conversion facility And Tampa is already gearing up to begin work on converting A321s, and we and our joint partner Precision are expecting to begin that work in June.

We have noted that reservations of passenger airlines are increasing as vaccinated business and leisure travelers return to the air. We are hopeful that that trend continues and pandemic effects on our passenger operations abate in the second half. Either way, however, I expect 2021 to be another good year for the shareholders of ATSG. That concludes our prepared remarks. Quint and I, along with Mike Berger, our Chief Commercial Officer, are ready to answer your questions.

May we have the first question, operator?

Speaker 0

And our first question comes from Jack Atkins from Stephens. Please go ahead.

Speaker 4

Great. Good morning, everybody, and thanks for taking my questions.

Speaker 5

Good morning, Jack.

Speaker 4

So I guess just to start and Rich going back to your prepared comments there at the end, it sounds like the Q1 played out roughly in line With your budget, is the plan still Quint to have 43% Of the expected EBITDA this year and in the first half of the year? And then I guess more broadly, Rich, can you sort of talk about Whether you're gaining some incremental visibility around passenger flying with Omni in the second half of the year, just It seems like the reopening of the broader economy is going perhaps a bit better than expected.

Speaker 3

Yes. Jack, I will go first. I guess, in terms of the plan, you are right, we have not changed our full year guidance. And the Q1 came in very, very close to what we had projected in our budget. That weighting that you described with the back half loaded EBITDA is still the plan And it all is tied into the effects of the pandemic on the passenger side as we said in February.

So really nothing's changed in that regard.

Speaker 2

In regard, Jack, to your question regarding what we're seeing in the recovery The passenger operations, since the end of the quarter, we have seen an uptick. So we're Optimistic that it's going to remain on the plan that we focused on when we gave our guidance. And so, if I look at Omni as an example in April and through most of May was pretty close to its 2019 levels. Last year, we look at it as a very unusual year for Omni because of the recovery flights that they ended up getting on and they didn't have much of a And their business other than the commercial stuff that went away towards the end of the Q1. And they actually outperformed what they The year prior because of all the supplemental flights that we're getting to get folks out of COVID hotspots and things like that and some additional governmental flying.

So it was a very unusual year last year for Ami, and this year we may seem to be responding as we had planned.

Speaker 4

There's no doubt 2020 will go down as an unusual year. So that's great to hear that things are progressing along with your plan. I guess maybe shifting gears, Rich, kind of thinking about demand for that 767 freighter assets. You mentioned an additional Playing this year versus your plan 3 months ago and an additional contract for 2020 2. I guess when you think about what customers are coming to you and asking for now, as they sort of look out at their capacity needs over the next several years, Are you seeing any indication from customers that are maybe they're looking to create not to the same size as what Amazon has put together here, but Maybe create their own sort of captive express networks, just given how tight capacity is and how tight it's likely going to stay

Speaker 2

Yes. I think it's a little bit of both. I mean, a lot of the customers that we lease airplanes to, particularly in other parts of the Predominantly FLY for other express carriers. And so they're responding to the needs of the larger express carriers In some respects, I would say there's a few of them that are have long term plans for multiple aircraft over several years. And I think we talked about this on prior And that's something we haven't seen before.

And

Speaker 6

so, places like Mexico, Malaysia,

Speaker 2

We're seeing multiyear demand for freighters to support the growth that they're seeing. We haven't seen any kind of non transportation companies step up and want to put up a network like Amazon did. And we don't perceive that there was anyone with that type of scale, at least on the domestic side to be able to do that. So the demand profile is it has changed over the past year significantly as we've talked about before to where Airlines are more comfortable ordering aircraft over multiple years as opposed to just giving us an order for like 1 or 2 planes this year or next year. And that's and I guess that's an unusual phenomenon for us.

Speaker 6

Jack, it's Mike. I just would add to that, And you made reference to in your comments that the U. S. Economy seems to be coming back a little bit Better and faster than most thought. And certainly, passenger traffic in this country is coming back very nicely.

Not the case, Obviously, from an international perspective, and we think about the growth and where we're seeing growth outside from a global perspective, international Specifically from the larger hubs, those schedules remain very soft and all the analysts expect the international Passenger flights to continue to stay that way out to 2023, 2024. Why is that important? Well, Rich made who is after all this capacity, the major integrators out there. And they're moving time definite products, right? That's what they're selling.

So as those demands continue to drive the growth, they've got to make sure the connectivity Is in place and without the flying of the passenger planes, they've got to control that capacity and that's why we think the global strength is going to continue.

Speaker 4

Okay. Thank you for that, Mike. That makes sense. I guess for my last question before I turn it over. Rich, I would just be curious To know how you and the Board are thinking about priorities for your cash and your capital, you've got this Additional cash coming in the door, I guess, tomorrow from Amazon.

You just did a successful refi of some of your debt. I mean, the stock is trading at a fairly low multiple here relative to the broader market. How are you thinking about just the priorities for that capital, either organic, inorganic growth? And then at what point can you maybe be more aggressive buying back stock, especially at this valuation?

Speaker 2

Yes, Jack. Well, part of our participation in the CARES program and the Receiving funds to support the faster airlines, there's some limitations on when we can do with Capital in terms of buybacks and in terms of other things. And so we're right now, for the Proceeds from the bond and the Amazon purchase of shares, we're looking to pay down our revolver and reduce Our debt our cost of debt short term. And we're always looking for alternative Things that we could invest in, but right now we've got a full plate of investment in aircraft going forward, for which we have customers waiting. And so when looking at that and the growth that we've produced over the years and the returns that we've produced over the years in terms of Acquiring, converting and leasing assets, we believe that's the strongest return that we could provide to our shareholders for the next year and a half, if you will, Until we're able to have a little bit more flexibility with our capital plan.

I don't know, Quinn, if you have a comment. Yes.

Speaker 3

Just kind of echo that, Jack. We as Rich said, the payroll support program Tied the company up a little bit there for a period of time on buybacks and so forth. But that certainly has always been part of the potential capital allocation that we've considered with the discretionary cash flow that the business model produces. The good news is we're signing up these long term multi We've talked about with the leases. And as you know, the leverage of the company With the cash inflows that we talked about, the Amazon warrants, we're likely to be levered not much over 2 times by the end of the year.

And so as we enter next year, the discretionary cash flow that we'll have available to allocate To create value is yield wise, it's something like a 15% discretionary cash flow yield. So it's We'll have attractive options next year. And certainly, the robust demand for freighter aircraft is going to remain one of those. But the good news is it's not a mutually exclusive choice, right? You can create value through allocating capital in a lot of ways.

And all those will be on the table for us next year as we clear those restrictions on the payroll support plan.

Speaker 4

Okay. That's great. Thanks so much for the time, guys. Really appreciate it.

Speaker 5

Thanks, Jeff. Thanks, Jeff.

Speaker 0

Our next question comes from Helane Becker from Cowen. Please go ahead.

Speaker 7

Thanks very much, operator. I just have two questions. So on the A321 conversions, How are you thinking about the shift away? I mean, I know, I guess, probably more than a year But how are you thinking about the shift away from A320 from 767s to A321s? And are there differences in the Process, timeline, cost to do it versus the 767.

Well, there's a couple of things that have impacted the way we've constructed our guidance. And one of them is, As it relates to the passenger flying and where the revenue sits, it's also one of the other impacts of that in that area is cost. And so as an example, Omni, in providing similar service to the government, Is having to fly through airports that they don't normally fly through because of pandemic related restrictions in other airports and that has raised the cost. So it's not that the revenue in the flying may not be there, it's that the cost profile is a little bit different. And so one of The things that an omni is doing and as the flying stabilizes, they're going back and trying to negotiate Cost reductions in areas that in airports that they know that they'll be flying through more consistently than they have in the past.

So that's one thing. So the cost profile is a little bit different. There's other things on the Express flying that aren't as visible. For example, when we had a major schedule change from one of our customers in the Q1 and that required us to open several stations, We already knew we were going to be training pilots, more pilots to put in put more aircraft online. But those are costs that are set up costs that are expenses, But that won't be recurring, as we move through the year.

And so there are things like that, that we understand Really well. That will allow us to improve quarter over quarter going through the year. We don't believe there's conservatism in our guidance right now. We're confident of the number. We put a lot of thought.

We understand the business both on the freight side, on the leasing side. The one thing that's a Less predictable, of course, is the passenger side. So we're keeping an eye on that closely. And as I indicated already, April looks to be on the plan that we had set at the beginning of the year.

Speaker 8

Okay. And then the active fleet. So based on the order Details in the press release, it looks like next year you're going to be at around 126 aircraft. It sounds like there's a lot of demand here for 767s. Could we get above 130 or Potentially 135 planes by the end of next year?

Speaker 6

The order book, we have talked about it. We are going to We anticipate to at least deliver 16 this year. We've and that's up 1 from the guidance we gave last quarter. In our 2022 communication was last quarter that we would do 9, we've upped that to 10. So we've increased it.

We anticipate minimally to do 10 next year. And as Rich mentioned earlier, we have several Orders beyond that into 2023 2024. Supply chain issues and other Potential things that might pop up. That's why we're at the numbers that we're at right now, at least 16 for this And 10 for next year. So we've got slots, as we've always talked about, conversion slots are at a premium this year And for the next several years, but we feel very good about the numbers that we have to ensure that we meet the

Speaker 8

And just a follow-up to that last point. Have conversion costs And could you just kind of remind us what the cost is normally to convert a, say, 20 year vintage 767? Thanks.

Speaker 2

Yes. We've been doing business with IAI for decades and we tend We negotiate long term contracts that we just tag amendments on. We don't generally adjust our pricing from year to year other than what's already in that agreement. So there's no change really to the Conversion cost. And generally, you're looking if there's seat checks and there's paint and there's moving the airplane around and not every conversion is the same Due to the condition of the airframe that you're buying.

Right. Okay. And then you talked about, I think April, May kind of looking more like 2019 levels. I mean, I guess, what I think VOD is your largest customer, was your largest customer. Maybe how do you think about that flying versus the passenger flying and maybe the profitability of that Going forward, I mean, it wouldn't seem like the DoD flying would be as affected as kind of the traditional Ad hoc stuff.

And I would assume the ad hoc is a little more profitable or maybe much more profitable. Does international have to come back to what it was? Or does business travel have to come back So what it was for Omni to kind of get back to where it was in 2019?

Speaker 2

Well, certainly on the commercial side, that would help. We know one of the larger commercial customers is coming back this year later in the year. They've already been selling tickets and it's just a matter of getting them started up. Keep in mind, as I said before, when we were talking about flying internationally for the DoD That we're having to work around airport restrictions and fly. So the military demand is still there to move troops and Things like that, but more so than the commercial passenger, I would say.

But it has impacted the cost on a short term basis as it relates to providing those services to the military and some of the other government passengers, government programs for which Omni flies. So, it's kind of a It's a tough question to answer in some respects because every type of charter or ad hoc Or governmental flying, they all operate differently on the way in which you have to plan them, The consistency of the flights, whether there's a 1 per quarter or whether it's a regular movement, I mean, there's a lot of different things in the question that you're asking. We don't generally give any margin guidance by customer and we're not I don't think we're going to be doing that here today. But certainly, As the airports across the world stabilize, that will be a good thing for the cost side of the business.

Speaker 3

And Steve, keep in mind, since we spoke to you guys in February, we did apply for And we're included in the Payroll Support Program 3, which I think is an additional $40,000,000 Award, which if you think about the pandemic effects to our passenger flying, we feel like certainly The military has never stopped flying. There have been reductions associated with the pandemic certainly At times and certain theaters were impacted that they operate in and out of. But if you look out Beyond this year at all, I think most folks would expect that to come right back to normal. And the good news is that the payroll support It's doing what it was designed to do, which is allow us to maintain readiness, keep personnel levels where they are, We're certainly hold from that When you include that program, we don't, of course, include it in our adjusted guidance as we've discussed. But In the meantime, the company is continuing to execute on long term contracts that will bring cash flows in for many, many years.

So We've certainly been more fortunate than most, and we expect our passenger business to come back Faster than sort of the ticket selling commercial business and leisure traveling side would To its pre pandemic level.

Speaker 9

Okay. That's helpful. And then maybe just one last one for me. If you think about 2019 and maybe we assume we get back to from an omniacmi services standpoint, If we assume we get back to 2019 levels for a full year in 2020 How do you think about the profitability of that business in terms of is there a way to compare it to 2019 from Maybe a pre tax standpoint or EBITDA standpoint, and then kind of bake in all of the additional flying that you're doing for All the customers that you've added from 2020 2021?

Speaker 3

Yes. We don't, Of course, speak to individual airlines because they tend to have a fairly concentrated revenue book of customers. So we don't speak to pre tax Of individual operations, but the ACMI Services segment, as you know, includes the operations for all of our airlines. And I think that I guess what I can say is that as is evident in our guidance with The weighting of EBITDA that we've forecasted, you can see that we're expecting in the second half of this year Significant improvements in the ACMI Services segment profitability. As you think about Q1 into Q2, We will see some improvement in the Q2, but we believe marked improvement throughout the second half in that segment.

And Rich spoke earlier about April's military and omni type operations being On plan. So that's a good sign as we move through Q2. But the Most significant change we anticipate to be in the second half in the ACMI Services segment. The CAM segment Also, we expect a very strong second half with the tailwinds from all the leased aircraft that we've spoken about. So, it's a little more back second half weighted than sometimes you've seen Our plans play out.

I know I'm thinking of last year. I think our 1st three quarters were all almost the same EBITDA, right? And so it's a little different, but we had, as we said to Jack and he agreed, 2020 was an unusual period. We had 1st quarter opportunities and even 2nd quarter opportunities that were pandemic related that mitigate a lot of that impact. And so that's why our guidance is unchanged since we spoke to you in February.

And where we ended up in the Q1 is On plan with what we had anticipated. So that's we're not really Making any significant change to that forecast.

Speaker 9

Okay. All right. Thank you very much for the time. Thanks, Steve.

Speaker 0

And our next question comes from Dan Sargent from Rice Hall James. Please go ahead.

Speaker 5

Hey, good morning, guys.

Speaker 10

Good morning. Just one question is, we've talked about this a little bit in the past, but at what point do you guys consider Curtailing growth below EBITDA and cash flows, so that you're generating free cash flow And which you can use to repurchase stock next year when the window becomes available again?

Speaker 3

Well, I mean, If the window were a bit I mean, there's nothing capital structure or access to liquidity wise, Dan, that would require us to curtail growth To think about buying back stock. I mean, again, the things aren't mutually exclusive. And we have a balance sheet that Would allow us to pursue more than one allocation. But in terms of when we curtail growth, I think as long as growth is at attractive returns, why It's generally not anything that we would look to curtail as long as those returns are as they have been in the leasing business. In terms of the operating results and the changes year over year and things that you're seeing now, as we said, those are more tied to the pandemic And its impact on our passenger operations then on the cargo side, which is where we're investing our capital.

Those returns have been consistent and strong and the demand there has probably never been too much better than we see it right now.

Speaker 10

But is it a good idea to expand I mean to significantly increase your fleet into a very hot market When there's no belly capacity. And then the other I mean, I appreciate, I want you guys to grow. I just wonder if you grow more methodically. It's amazing the level you're growing. It's currently self financed, which is incredible.

Speaker 2

I don't I would not venture to speak for Amazon and their growth planning, and how it relates to where they'll be What I can tell you is that if you look at how we've done With our growth platform with Amazon, both the leasing and the flying side, so we by the end of this year, we'll be leasing them 42 aircraft, then we'll be flying 46 For Amazon, and we believe in all the services that we provide to the Amazon, leasing, Flying, we do heavy maintenance for the aircraft that we fly for them. We do logistics work in different airports around the country. And everything we do for them, we've focused our employees since 2015, that the best way to put us in position for growth with Amazon To provide them with the very best service in everything we do, whether it's flying, whether it's leasing, etcetera, etcetera. And what I would say is that we feel that given the service that we've provided that we are still in the best position to continue to grow with Amazon and all their other providers. And that's been our goal since day 1.

And I take my hat off to all of our employees who Not only perform every day, but they understand Amazon's business and they understand that every airplane is full of thousands and thousands of promises that they've made to their customers. And that's the focus that we've taken and that will give us opportunity to continue to grow with Amazon as they whether it's 100 airplanes or 200 airplanes or whatever, hopefully, we're going to be in position to get our share of that.

Speaker 8

Thanks for your time today.

Speaker 5

Thank you.

Speaker 0

We have no further questions at this time. I will give the floor to Mr. Corrado for final thoughts.

Speaker 2

Thank you. Well, thank you for joining us on the call today. Our strong confidence about the value we Creating at ATSG stems mainly from substantial long term cash flows we get from leasing 767s, the most in demand cargo aircraft on the market today. Faster fulfillment of e commerce orders will require many more of those and other midsized freighters. That's why customers are coming to us To make 6 to 10 year commitments to at least 26 we can acquire and convert through 2022 and more beyond that.

Although our passenger operations are challenged by the pandemic over the short term, we very much like our market position and our long term prospects. Thank you again for your interest in ATSG, and please stay safe. Thank you.

Speaker 0

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

Air Transport Services Group - Q1 2021

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