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Air Transport Services Group, Inc. (ATSG)·Q3 2024 Earnings Summary

Executive Summary

  • Q3 2024 fundamentals were mixed and overshadowed by the announced all-cash acquisition by Stonepeak at $22.50 per share (enterprise value ~$3.1B). ATSG canceled its Q3 call and withdrew guidance going forward, removing a near-term fundamental catalyst while elevating deal-related drivers .
  • Revenue declined 9.9% YoY to $471.3M, GAAP diluted EPS fell to ($0.05), and GAAP pretax swung to a $5.2M loss; however, Adjusted EPS was $0.13, Adjusted EBITDA was $129.5M (near-flat sequentially), and free cash flow was strong at $86.4M .
  • Segment mix weakened: ACMI Services posted a $14.4M pretax loss (vs. $12.4M profit YoY) on lower block hours and higher costs, while CAM pretax fell to $18.3M amid depreciation/interest headwinds and 767-200 program runoff .
  • Operationally, leasing momentum continued (four 767s leased, four sold), Amazon flying ramped (7 aircraft started in Q3; 10th entered service the week of the release), and Q4 contractual pricing increases were cited as a tailwind for ACMI .

What Went Well and What Went Wrong

  • What Went Well

    • Robust cash generation: Free cash flow was $86.4M in Q3 (vs. $(51.6)M YoY), taking YTD FCF to $193.4M .
    • Leasing momentum and fleet actions: CAM leased four 767s and sold four aircraft; 89 CAM-owned aircraft were leased externally at quarter end, and 19 aircraft were in/awaiting conversion including 8 B767, 6 A321, and 5 A330 (one A330 expected to lease in Q4) .
    • Amazon ramp and Q4 pricing tailwinds: “Start-up costs to fly ten more aircraft provided by Amazon” largely behind them, 10th aircraft entered operations this week; “contractual price increases effective in the fourth quarter position us for strong improvement in our ACMI Services segment” (CEO) .

  • What Went Wrong

    • ACMI segment reversal: ACMI pretax swung to a $14.4M loss vs. $12.4M profit YoY on 13% lower airline revenue block hours (cargo −7%; passenger −34%) and higher maintenance, travel, and ground services, plus $4.9M additional customer incentive (Amazon warrants) .
    • Headline earnings pressure: Revenue fell to $471.3M (from $523.1M), GAAP diluted EPS to ($0.05) (from $0.24), and GAAP pretax to ($5.2)M (from $23.5M) YoY .
    • CAM profitability headwinds: CAM pretax decreased to $18.3M (from $23.3M) on higher depreciation (+$11M) and interest (+$2M), and lower 767-200 lease/engine power program revenue (−$5M YoY) .

Financial Results

MetricQ3 2023Q1 2024Q2 2024Q3 2024
Revenue ($M)$523.1 $485.5 $488.4 $471.3
Operating Income ($M)$46.0 $33.0 $31.3 $21.7
GAAP Pretax ($M)$23.5 $12.4 $10.7 ($5.2)
GAAP Diluted EPS (Cont. Ops)$0.24 $0.13 $0.11 ($0.05)
Adjusted Pretax ($M)$31.1 $15.2 $17.3 $10.7
Adjusted EPS ($)$0.32 $0.16 $0.19 $0.13
Adjusted EBITDA ($M)$136.6 $127.3 $130.4 $129.5
Free Cash Flow ($M, non-GAAP)$(51.6) $15.2 $91.8 $86.4

Segment breakdown (Revenue and Segment Pretax)

SegmentQ3 2023Q2 2024Q3 2024
CAM Revenue ($M)$109.7 $104.5 $112.5
ACMI Services Revenue ($M)$365.2 $338.2 $322.0
Other Activities Revenue ($M)$112.8 $97.6 $93.0
CAM Pretax incl. interest ($M)$23.3 $15.2 $18.3
ACMI Pretax incl. interest ($M)$12.4 ($7.1) ($14.4)
Other Activities Pretax ($M)($8.0) $3.0 ($1.6)

Key KPIs

KPIQ1 2024Q2 2024Q3 2024
Airline Revenue Block Hours YoY−3% −10% (cargo −11%; passenger −4%) −13% (cargo −7%; passenger −34%)
CAM-owned aircraft leased externally (units)90 87 89
Aircraft in/awaiting conversion (units)24 (13 B767, 6 A321, 5 A330) 23 (12 B767, 6 A321, 5 A330) 19 (8 B767, 6 A321, 5 A330)
Amazon-provided 767-300 aircraft ramp (in operation)–“3 on” during Q2, 10 by peak season planned 7 in Q3; 10th entered operations the week of release

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Adjusted EBITDA ($M)FY 2024~$516M (May) ~$526M (Aug; increase concentrated in Q4) Raised
Capital Spending ($M)FY 2024~$410M (May) ~$390M (Aug) Lowered
Adjusted EPS (diluted)FY 2024$0.55–$0.80 (May) Not updated in Aug release Maintained/Not restated
ACMI Services profitabilityFY 2024N/AExpected profitable for FY (Q2 call) Positive update
Q3/Q4 phasing2H 2024N/AQ3 Adjusted EBITDA similar to Q2; higher in Q4 (Q2 call) Phasing detail
Forward guidancePost Q3N/AGuidance withdrawn due to pending acquisition; Q3 call canceled Withdrawn

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2 and Q1)Current Period (Q3)Trend
Amazon expansion & warrants10 Amazon-provided 767-300s to ramp by peak; warrants amortization; ABX pilot deal aids staffing 7 Amazon 767-300 operating in Q3; 10th entered operations this week; start-up costs noted Execution underway; ramp largely complete entering Q4
Leasing demand (767/A330)4 leases since June; first two A330 conversions targeted for Q4; steady 767 lease rates 4 767s leased, 4 aircraft sold; one A330 expected to lease in Q4 Continued momentum; A330 first lease imminent
ACMI profitability & block hoursACMI pretax loss on lower hours and cost inflation; expected FY profitability with Q4 seasonal pricing ACMI pretax −$14.4M; airline block hours −13% YoY; Q4 contractual price increases cited Weak in Q3; recovery expected in Q4 on pricing/seasonality
Capex and FCFCapex cut to ~$390M; strong FCF YTD ($107M through Q2) Q3 FCF $86.4M; YTD FCF $193.4M Strengthening cash generation
LaborABX CBA extended to 2030; ATI/Omni talks continue into 2025 No update (call canceled) Neutral/unchanged (per Q2 trajectory)
Strategic/M&ANoneStonepeak all-cash acquisition announced; guidance withdrawn New overriding catalyst

Management Commentary

  • “Our leasing business continued to benefit from strong demand for our freighter aircraft, as we added four Boeing 767-300 freighter leases during the third quarter… For the quarter, we once again generated strong free cash flow… certain contractual price increases effective in the fourth quarter position us for strong improvement in our ACMI Services segment…” — Mike Berger, CEO .
  • “CAM’s third quarter pretax earnings decreased… Segment depreciation… and interest expense… 2024 results were impacted by the reduction in 767-200 freighter leases and related engine power program revenues…” .
  • “ACMI Services… revenue block hours… decreased 13%… cargo… decreased 7%… passenger block hours decreased 34%… increased expenses for maintenance, travel and ground services.” .

Q&A Highlights

Note: Q3 call was canceled. Key themes from Q2 Q&A (context for trajectory):

  • ACMI loss drivers and outlook: Lower block hours, Amazon warrant amortization, higher maintenance/travel/ground services; ACMI expected to be profitable for FY with Q4 seasonal/pricing support .
  • Amazon ramp economics: Start-up/training costs in Q3; 10 767-300s ramped by peak; minimum 200 block hours per tail per month; ABX chosen to enable faster pilot onboarding .
  • Lease rates and demand: 767 lease rates “very, very stable” over several years; strong midsize freighter demand; first A330 leases targeted in Q4 .
  • Asset sales and liquidity: Opportunistic sale of five airframes in Q2 drove proceeds; healthy liquidity and plan to reduce leverage .

Estimates Context

  • S&P Global/Capital IQ consensus for Q3 2024 was unavailable via our SPGI connection due to a missing CIQ mapping for ATSG; as a result, we cannot determine beat/miss versus Street for revenue, EPS or EBITDA this quarter. Values would be retrieved from S&P Global if available.

Key Takeaways for Investors

  • The Stonepeak $22.50/share all-cash deal is the primary near-term stock driver; fundamentals are secondary until closing conditions clear and the go-shop period ends .
  • Core Q3 showed weaker topline and GAAP profitability, but steady Adjusted EBITDA and strong free cash flow highlight resilient cash generation into peak season .
  • ACMI softness (lower hours, higher costs) pressured results; management cites Q4 contractual price increases and seasonality as catalysts for sequential improvement .
  • Leasing remains a bright spot: additional 767 leases, aircraft sales, and an A330 lease expected in Q4 support CAM utilization despite 767-200 runoff .
  • Guidance is withdrawn due to the pending acquisition; near-term estimate dispersion likely narrows as investors focus on deal timeline/regulatory milestones rather than FY targets .
  • Operational execution on the Amazon ramp appears on track (10 aircraft), reducing start-up cost drag as they enter Q4 peak .
  • For positioning: deal spread dynamics and regulatory timing dominate; if the deal were to fail, the setup includes improving ACMI pricing in Q4, strong FCF, and CAM leasing momentum as the fundamental backstop .