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Air Transport Services Group, Inc. (ATSG)·Q2 2024 Earnings Summary

Executive Summary

  • Q2 2024 revenue was $488.4M with diluted EPS of $0.11; adjusted EPS was $0.19. Performance was impacted by fewer block hours and scheduled returns of 767-200s, though free cash flow was strong at $91.8M .
  • Management raised full-year 2024 adjusted EBITDA outlook to ~$526M (from $516M in May) and reduced capex to $390M (from $410M), citing additional leases and lower spending; Q3 adjusted EBITDA is expected to be similar to Q2 and higher in Q4 as Amazon aircraft enter service .
  • ACMI Services posted a pretax loss of $7M on a 10% decline in revenue block hours; profitability is expected for the full year, weighted to Q4 as ramp costs subside and pricing increases take effect .
  • Liquidity improved: revolver availability rose to $489M and total debt declined $131M year-to-date; leverage targeted to ~2.9x by year-end (vs. 3.2x at FY23) .
  • Stock-relevant catalysts: raised EBITDA guidance, visible Q4 profitability inflection in ACMI, strong YTD free cash flow, and momentum in leasing (four 767 freighters leased since June 30) .

What Went Well and What Went Wrong

  • What Went Well
    • Raised FY24 adjusted EBITDA outlook to ~$526M and lowered capex to $390M, improving cash generation trajectory .
    • Strong free cash flow of $91.8M in Q2 and $107M in H1, supported by reduced growth spending and asset sale proceeds; management says “we are ahead of our target for positive free cash flow for the year” .
    • Leasing momentum: four Boeing 767 freighters leased since June 30; commitments for first two converted A330s for Q4 delivery; CEO: “We remain proud... met commitments to our customer Amazon during this year's Prime Week” .
  • What Went Wrong
    • ACMI Services posted a $7M pretax loss on 10% lower revenue block hours; cargo hours down 11% and passenger down 4%; increased expenses (crew training, maintenance, travel, ground services) and ~$3M non-cash amortization from Amazon warrants weighed on results .
    • CAM pretax earnings fell 51% YoY to $15M, driven by decreased 767-200 lease and engine power program revenues, higher depreciation (+$9M) and interest (+$4M) .
    • Consolidated revenue down 8% YoY to $488.4M and adjusted EBITDA down to $130.4M (from $157.1M); diluted EPS fell to $0.11 (from $0.49) .

Financial Results

MetricQ4 2023Q1 2024Q2 2024
Revenue ($USD Millions)$517.0 $485.5 $488.4
Diluted EPS (GAAP) ($)-$0.24 $0.13 $0.11
Operating Income ($USD Millions)$36.6 $33.0 $31.3
EBITDA from Continuing Ops ($USD Millions)$94.5 $124.6 $123.8
Adjusted EBITDA ($USD Millions)$129.9 $127.3 $130.4
Net Income (Continuing Ops) ($USD Millions)-$15.6 $8.6 $7.4
EBITDA Margin (%)24.8% (129.9/517.0) 26.2% (127.3/485.5) 26.7% (130.4/488.4)
Net Income Margin (%)-3.0% (-15.6/517.0) 1.8% (8.6/485.5) 1.5% (7.4/488.4)
EBIT Margin (%)7.1% (36.6/517.0) 6.8% (33.0/485.5) 6.4% (31.3/488.4)
YoY ComparisonQ2 2023Q2 2024
Revenue ($USD Millions)$529.3 $488.4
Diluted EPS (GAAP) ($)$0.49 $0.11
Adjusted EPS ($)$0.57 $0.19
Adjusted EBITDA ($USD Millions)$157.1 $130.4
SegmentQ2 2023Q2 2024
CAM Revenues ($USD Millions)$111.4 $104.5
ACMI Services Revenues ($USD Millions)$366.2 $338.2
Other Activities Revenues ($USD Millions)$110.8 $97.6
Internal Revenues Elimination ($USD Millions)-$59.0 -$51.9
Customer Revenues ($USD Millions)$529.3 $488.4
CAM Pretax ($USD Millions)$31.0 $15.2
ACMI Pretax ($USD Millions)$24.1 -$7.1
Other Pretax ($USD Millions)-$1.3 $3.0
KPIsQ4 2023Q1 2024Q2 2024
Operating Cash Flow ($USD Millions)$128.0 $126.4 $137.1
Free Cash Flow ($USD Millions)$66.98 (Adjusted FCF) $15.19 $91.82
Capex ($USD Millions)$212.1 total; $151.1 growth; $61.0 sustaining $102.3 total; $71.9 growth; $30.4 sustaining ~$70.5 total; $43.2 growth; $27.3 sustaining
Revolver Availability ($USD Millions)$358 $404 $489
Debt/LeverageNet leverage 3.2x —Target ~2.9x YE
External Leased Aircraft (CAM)90 —87
Block Hours Change (YoY)Military -24% (Q4) Total -3% Revenue -10%; Cargo -11%; Passenger -4%

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Adjusted EBITDA ($USD Millions)FY 2024~$516M (May) ~$526M Raised
Capital Spending ($USD Millions)FY 2024$410M $390M Lowered
Growth Capital ($USD Millions)FY 2024$245M $225M Lowered
Sustaining Capex ($USD Millions)FY 2024$165M $165M Maintained
Adjusted EPSFY 2024$0.55–$0.80 Not updated in Q2 release —
Adjusted EBITDA cadenceQ3/Q4 2024—Q3 ~similar to Q2; Q4 higher Directional update

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4’23 and Q1’24)Current Period (Q2’24)Trend
Amazon expansion & rampAnnounced 10 additional 767-300s; extended flying agreement to 2029 with option to 2034 Three aircraft flying; all 10 expected by peak season; ACMI profitability weighted to Q4 Strengthening partnership; visible Q4 inflection
Capex disciplineProjected $410M; aggressive reductions to drive positive FCF Further reduced to $390M; H1 FCF $107M Improving cash generation
ACMI utilization & marginMilitary hours lowest since 2017; ACMI loss in Q4 Revenue block hours -10%; ACMI pretax -$7M; expected profitable FY with Q4 tailwinds Improving into Q4
Fleet transition (767-200 sunset; A330/A321)767-200 returns drove ~$33M EBITDA decline in 2023 9 767-200 and 4 767-300 returns YoY; four 767s leased since June; two A330s to deliver in Q4 Transition to 767-300/A330 accelerates
Labor & staffingNo 2024 agreements expected; ABX pilot extension to 2030 Pilot deals likely in 2025; attrition down ~50% Stabilizing workforce
Liquidity & leverageRevolver $358M; net leverage 3.2x Revolver $489M; target ~2.9x YE; $131M debt reduction YTD Better liquidity; deleveraging

Management Commentary

  • CEO Mike Berger: “We beat our internal expectations for the quarter... and are positioned for further improvement in the second half... We’re encouraged by the free cash flow we’re generating and have again raised our full year guidance for Adjusted EBITDA” .
  • CFO Quint Turner: “Operating cash flow was $137 million... we generated $92 million of free cash flow in the quarter. This brings the year-to-date total to $107 million” .
  • CEO Mike Berger: “Including the additional leases we signed since June, ATSG now expects adjusted EBITDA of approximately $526 million in 2024... We expect the third quarter adjusted EBITDA to be similar to the second quarter, with a marked improvement in the fourth quarter” .
  • Executive Chairman Joe Hete: “We are targeting positive free cash flow for the year... I am confident in the demand for our midsize freighter assets over the long term and the strength of our Lease Plus market strategy” .

Q&A Highlights

  • ACMI profitability path: Management expects ACMI Services to be profitable for FY24, weighted to Q4 as ramp costs and pilot training roll off; contractual price increases and seasonal charter opportunities add tailwinds .
  • Leasing demand and rates: Demand for mid wide-body freighters remains solid; lease rates for 767s have been “very, very stable” over several years; A330 availability elevated; double-digit aircraft deliveries expected in 2024 .
  • Labor negotiations: Pilot negotiations for ATI and Omni expected in 2025; attrition down ~50% YoY; ABX pilot contract extended to 2030, improving staffing flexibility .
  • Asset sales and conversions: Q2 proceeds of ~$25M from sale of five airframes (mix of 767-300 and 767-200); continued 767 conversions with II in Tel Aviv; two A330 freighters expected to deliver in Q4 .
  • Liquidity and leverage: Revolver availability improved to $489M; plan to reduce adjusted EBITDA leverage ratio to ~2.9x by YE; $131M debt reduction YTD .

Estimates Context

  • S&P Global/Capital IQ consensus estimates for ATSG were unavailable in our system due to a mapping issue (CIQ company ID not found); as such, estimate comparisons are not presented. We attempted to retrieve EPS and revenue consensus for Q2 2024, Q1 2024, and Q4 2023 but the data was unavailable via S&P Global in this session.

Key Takeaways for Investors

  • FY24 outlook improved: Adjusted EBITDA raised to ~$526M and capex cut to $390M, supporting continued free cash flow generation and deleveraging into YE (~2.9x targeted) .
  • Q4 sets up as a positive inflection: ACMI profitability expected in Q4 as Amazon fleet ramp completes and pricing increases kick in; seasonal charter opportunities add upside .
  • Leasing momentum and fleet transition: Four 767s leased since June; first two converted A330s to deliver in Q4; CAM revenue mix shifting away from 767-200s to 767-300/A330 .
  • Execution focus on cost and cash: Strong H1 free cash flow ($107M) and reduced growth capex underpin balance sheet flexibility; revolver availability increased to $489M .
  • Labor risk manageable: ABX pilot extension to 2030 bolsters Amazon ramp; ATI/Omni deals likely in 2025; attrition rates improving, easing cost pressure .
  • Near-term trading lens: Watch Q3 update for Amazon ramp cadence and ACMI margin progression; Q4 seasonal dynamics and lease placements could catalyze sentiment.
  • Medium-term thesis: ATSG’s “Lease Plus” strategy, stable 767 lease rates, and growing international e-commerce lift support leasing economics; continued capex discipline enhances free cash flow compounding .