Atlas Air Worldwide Holdings, Inc. (Nasdaq: AAWW) today announced income from continuing operations, net of taxes, of $28.7 million, or $1.12 per diluted share, which included an unrealized loss on financial instruments of $27.9 million related to outstanding warrants, for the three months ended December 31, 2016. Results compared with a loss from continuing operations, net of taxes, of $37.6 million, or $1.53 per diluted share, for the three months ended December 31, 2015, which was primarily due to charges of $102.8 million associated with a litigation settlement.
On an adjusted basis, income from continuing operations, net of taxes, in the fourth quarter of 2016 totaled $59.0 million, or $2.24 per diluted share, compared with $39.4 million, or $1.59 per diluted share, in the year-ago quarter.
Adjusted earnings per share for the fourth quarter and full year of 2016 were affected by the increase in the market price of the company’s shares, which, as a consequence of warrant accounting, led to an increase in the number of diluted shares.
“2016 was a historic year for Atlas, and we finished it on a strong note,” said William J. Flynn, President and Chief Executive Officer.
“We acquired Southern Air, expanding the array of aircraft and services that we provide, especially to the fast-growing express market. We entered into strategic, long-term agreements with Amazon to serve its rapidly growing e-commerce business. And we generated strong sequential and year-over-year improvements in our block-hour volumes, revenue, profitability and margins in the fourth quarter. In addition to record revenues in the quarter, we delivered a significant increase in reported earnings and record adjusted earnings for the period.
“Our performance in the fourth quarter was driven by the additional seasonal flying we did for express operators, growing e-commerce demand, and a lower level of maintenance expense. It also reflected a solid peak season and a seasonal improvement in commercial airfreight yields.
“In ACMI, we benefited from Southern Air’s 777 and 737 express CMI services and better contributions and synergies than originally anticipated. We also continued ramping up for Amazon, which enabled us to place the second of twenty 767-300 aircraft into service for them this month. In Charter, our results reflected an increase in commercial cargo demand. And our Dry Leasing business maintained its steady, annuity-like performance.”
Mr. Flynn added: “With our expanding business base and the ongoing development of our strategic platform, we are well-positioned to grow earnings this year.
“In addition to the demand we are seeing for our aircraft and services, including our recently announced agreements with Asiana Cargo, Nippon Cargo Airlines and FedEx, we expect to see initial accretion from our operations for Amazon and a full year of contribution from Southern Air in 2017. We expect those positives to be partially offset by an increase in maintenance expense and lower cost-based rates paid by the military.
“As a result, we expect to increase adjusted income from continuing operations, net of taxes, by a mid-single-digit to low-double-digit percentage in 2017.”
Record ACMI segment revenues and contribution in the fourth quarter of 2016 were primarily driven by our acquisition of Southern Air and lower heavy maintenance expense, partially offset by the temporary redeployment of 747-8F aircraft to our Charter segment. Segment revenue growth benefited from an increase in block-hour volumes, partially offset by a lower average rate per block hour. Both our volumes and average rate reflected an increase in 777 and 737 CMI flying following the acquisition of Southern Air, an increase in 767 CMI flying, as well as the temporary redeployment of 747-8F aircraft to our Charter segment.
Higher Charter segment contribution during the period reflected an increase in commercial cargo demand, including the beneficial impact of additional 747-8F flying, and a decrease in heavy maintenance expense. Lower revenue per block hour during the period was primarily due to a reduction in fuel prices in 2016, which was partially offset by the beneficial impact of additional 747-8F aircraft.
Segment contribution in Dry Leasing was slightly better on a year-over-year basis.
Lower unallocated income and expenses in the fourth quarter of 2016 primarily reflected the absence of charges incurred in the fourth quarter of 2015 in connection with the settlement of a U.S. class action litigation and for related legal fees.
Reported earnings for the fourth quarter of 2016 included an effective income tax rate of 47.2%, principally due to a nondeductible customer incentive. On an adjusted basis, our results reflected an effective income tax rate of 31.3%.
For the twelve months ended December 31, 2016, our continuing operations generated income of $42.6 million, or $1.70 per diluted share. For the twelve months ended December 31, 2015, our income from continuing operations totaled $7.3 million, or $0.29 per diluted share.
On an adjusted basis, income from continuing operations in 2016 totaled $114.3 million, or $4.50 per diluted share, compared with $125.3 million, or $5.01 per diluted share, in 2015.
Both reported and adjusted results in 2016 reflected the impact of startup expenses for our new service for Amazon, while reported and adjusted results in 2015 benefited from U.S. West Coast port-congestion-related earnings.
Reported earnings in 2016 included an effective income tax rate of 52.3%, principally due to a nondeductible customer incentive and to nondeductible compensation expenses. On an adjusted basis, our results reflected an effective income tax rate of 29.8%.
At December 31, 2016, our cash, cash equivalents, restricted cash and short-term investments totaled $142.6 million, compared with $444.0 million at December 31, 2015. The change in position resulted from cash used for investing and financing activities, partially offset by cash provided by operating activities.
Net cash used for investing activities during 2016 primarily related to payments for flight equipment and modifications, including the acquisition of 767-300 aircraft to be converted to freighter configuration for our service for Amazon; our acquisition of Southern Air; and capital expenditures. We expect to finance a substantial portion of the acquisition and conversion costs for these aircraft as they are placed into service with Amazon.
Net cash used for financing activities primarily reflected payments on debt obligations, partially offset by new debt financing.
Our guidance framework in 2017 and the foreseeable future will focus primarily on our adjusted income from continuing operations, net of taxes. We view this as the most useful information to provide securities analysts and investors.
Earnings per share remain very important, but, because of the unique characteristics of warrant accounting, our EPS can be substantially influenced by changes in the market price of our shares.
Those analysts and investors who wish to focus on EPS as an analytical metric should use the treasury stock method of accounting to calculate the weighted average shares outstanding.
We provide guidance on an adjusted basis because we are unable to predict, with reasonable certainty, significant items that could be material to our reported results, including the effects of outstanding warrants.
We are a stronger company today. We begin 2017 with solid demand from our customers for our aircraft and services. We are also capitalizing on the steps we have taken to align our business with the faster-growing express and e-commerce markets.
We believe the current demand, the initial accretion from our Amazon operations, and the first full-year of contribution from Southern Air provide a strong foundation for earnings growth this year.
As a result, we expect our adjusted income from continuing operations, net of taxes, to grow by a mid-single-digit to low-double-digit percentage compared with 2016. Given the inherent seasonality of airfreight demand, we anticipate that results in 2017 will reflect historical patterns, with approximately 70% of our adjusted income occurring in the second half.
In addition, we expect adjusted income in the first quarter of 2017, which is usually the lowest demand and highest maintenance-expense quarter of the year, to be consistent with or slightly better than the first quarter of 2016.
For the full year, we expect total block hours to increase approximately 20% compared with 2016, including Southern Air, our new services for Asiana Cargo and Nippon Cargo Airlines, and our ongoing ramp up for Amazon. More than 75% of our 2017 hours are expected to be in ACMI and the balance in Charter.
Aircraft maintenance expense in 2017 should total approximately $240 million, and depreciation and amortization is expected to total approximately $170 million. In addition, core capital expenditures, which exclude aircraft and engine purchases, are expected to total approximately $55 to $65 million, mainly for parts and components for our fleet.
Management will host a conference call to discuss Atlas Air Worldwide’s fourth-quarter and full-year 2016 financial and operating results at 11:00 a.m. Eastern Time on Thursday, February 23, 2016.
Interested parties are invited to listen to the call live over the Internet at www.atlasair.com (click on “Investor Information,” click on “Presentations” and on the link to the fourth-quarter call) or at the following Web address:
http://edge.media-server.com/m/p/iwp9hht2
For those unable to listen to the live call, a replay will be archived on the above websites following the call. A replay will also be available through March 1 by dialing (855) 859-2056 (U.S. Toll Free) or (404) 537-3406 (from outside the U.S.) and using Access Code 54207082#.
To supplement our financial statements presented in accordance with U.S. GAAP, we present certain non-GAAP financial measures to assist in the evaluation of our business performance. These non-GAAP measures include EBITDAR, as adjusted; EBITDA, as adjusted; Direct Contribution; Adjusted income from continuing operations, net of taxes; Adjusted Diluted EPS from continuing operations; Adjusted effective tax rate; and Free Cash Flow, which exclude certain noncash income and expenses, and items impacting year-over-year comparisons of our results. These non-GAAP measures may not be comparable to similarly titled measures used by other companies and should not be considered in isolation or as a substitute for Income from continuing operations, net of taxes, Diluted EPS from continuing operations, Effective tax rate and Net Cash Provided by Operating Activities, which are the most directly comparable measures of performance prepared in accordance with U.S. GAAP.
Our management uses these non-GAAP financial measures in assessing the performance of the Company’s ongoing operations and in planning and forecasting future periods. We believe that these adjusted measures, when considered together with the corresponding U.S. GAAP financial measures and the reconciliations to those measures, provide meaningful information to assist investors and analysts in understanding our financial results and assessing our prospects for future performance.
Atlas Air Worldwide is a leading global provider of outsourced aircraft and aviation operating services. It is the parent company of Atlas Air, Inc., Southern Air Holdings, Inc. and Titan Aviation Holdings, Inc., and is the majority shareholder of Polar Air Cargo Worldwide, Inc. Our companies operate the world’s largest fleet of 747 freighter aircraft and provide customers a broad array of Boeing 747, 777, 767, 757 and 737 aircraft for domestic, regional and international applications.
Atlas Air Worldwide’s press releases, SEC filings and other information may be accessed through the company’s home page, www.atlasair.com.
This release contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 that reflect Atlas Air Worldwide’s current views with respect to certain current and future events and financial performance. Those statements are based on management’s beliefs, plans, expectations and assumptions, and on information currently available to management. Generally, the words “will,” “may,” “should,” “expect,” “anticipate,” “intend,” “plan,” “continue,” “believe,” “seek,” “project,” “estimate,” and similar expressions used in this release that do not relate to historical facts are intended to identify forward-looking statements.
Such forward-looking statements are and will be, as the case may be, subject to many risks, uncertainties and factors relating to the operations and business environments of Atlas Air Worldwide and its subsidiaries (collectively, the “companies”) that may cause the actual results of the companies to be materially different from any future results, express or implied, in such forward-looking statements.
Factors that could cause actual results to differ materially from these forward-looking statements include, but are not limited to, the following: our ability to effectively operate the network service contemplated by our agreements with Amazon, including the cost and timing of securing any aircraft necessary to fulfill our agreements; the risk that the anticipated benefits of our agreements with Amazon will not be realized when expected, or at all; the possibility that Amazon may terminate its agreements with the companies; the effect of the announcement or pendency of the transactions contemplated by the agreements with Amazon; costs associated with the acquisition of Southern Air; failure to achieve expected synergies, accretion and other anticipated benefits of the transaction or to successfully integrate the Southern Air business; adverse reactions to the acquisition by employees, key customers, including DHL Express, suppliers or competitors of either Atlas Air Worldwide, Southern Air, or their subsidiaries; our ability to effectively operate the 777 platform or grow the business of Southern Air; the ability of the companies to operate pursuant to the terms of their financing facilities; the ability of the companies to obtain and maintain normal terms with vendors and service providers; the companies’ ability to maintain contracts that are critical to their operations; the ability of the companies to fund and execute their business plan; the ability of the companies to attract, motivate and/or retain key executives and associates; the ability of the companies to attract and retain customers; the continued availability of our wide-body aircraft; demand for cargo services in the markets in which the companies operate; economic conditions; the effects of any hostilities or act of war (in the Middle East or elsewhere) or any terrorist attack; labor costs and relations; financing costs; the cost and availability of war risk insurance; our ability to maintain adequate internal controls over financial reporting; aviation fuel costs; security-related costs; competitive pressures on pricing (especially from lower-cost competitors); volatility in the international currency markets; weather conditions; government legislation and regulation; consumer perceptions of the companies’ products and services; anticipated and future litigation; and other risks and uncertainties set forth from time to time in Atlas Air Worldwide’s reports to the United States Securities and Exchange Commission.
For additional information, we refer you to the risk factors set forth under the heading “Risk Factors” in the most recent Annual Report on Form 10-K and subsequent reports on Form 10-Q filed by Atlas Air Worldwide with the Securities and Exchange Commission. Other factors and assumptions not identified above may also affect the forward-looking statements, and these other factors and assumptions may also cause actual results to differ materially from those discussed.
Except as stated in this release, Atlas Air Worldwide is not providing guidance or estimates regarding its anticipated business and financial performance for 2017 or thereafter.
Atlas Air Worldwide assumes no obligation to update such statements contained in this release to reflect actual results, changes in assumptions or changes in other factors affecting such estimates other than as required by law.
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