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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
10-Q
(Mark one)
Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the quarterly period ended
June 30, 2023
Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from _____to _____
Commission File Number
001-35476
Air T, Inc.
(Exact name of registrant as specified in its charter)
Delaware 52-1206400
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
11020 David Taylor Drive, Suite 305
,
Charlotte
,
North Carolina
28262
(Address of principal executive offices, including zip code)
(
980
)
595 - 2840
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Trading Symbol(s) Name of each exchange on which registered
Common Stock AIRT NASDAQ Global Market
Alpha Income Preferred Securities (also referred AIRTP NASDAQ Global Market
to as 8% Cumulative Capital Securities) ("TruPs")*
*Issued by Air T Funding
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes
x
No
Indicate by check mark whether the registrant has submitted electronically,
every Interactive Data File required to be submitted pursuant to Rule 405 of
Regulation S-T ((s)232.405 of this chapter) during the preceding 12 months (or
for such shorter period that the registrant was required to submit such files).
Yes
x
No
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, a smaller reporting company or an
emerging growth company. See the definitions of "large accelerated filer",
"accelerated filer", "smaller reporting company", and "emerging growth
company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer Accelerated filer
Non-accelerated filer Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has
elected not to use the extended transition period for complying with any new
or revised financial accounting standards provided pursuant to Section 13(a)
of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Exchange Act).
Yes No
x
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock Common Shares, par value of $.25 per share
Outstanding Shares at July 31, 2023 2,817,754
-------------------------------------------------------------------------------
AIR T, INC. AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
Page
PART I
Item 1. Financial Statements
Condensed Consolidated Statements of Income (Loss) (Unaudited) For The 3
Three
Months Ended
June 30, 2023
and
2022
Condensed Consolidated Statements of Comprehensive Income 4
(Loss)
(Unaudited)
For The
Three
Months Ended
June 30, 2023
and
2022
Condensed Consolidated Balance Sheets 5
as of June 30, 2023
and
March 31, 2023 (Unaudited)
Condensed Consolidated Statements of Cash Flows (Unaudited) 6
For The
Three Months Ended
June 30, 2023
and
2022
Condensed Consolidated Statements of Equity (Unaudited) 7
For The
Three Months Ended
June 30, 2023
and
2022
Notes to Condensed Consolidated Financial Statements (Unaudited) 8
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 26
Item 3. Quantitative and Qualitative Disclosures About Market 31
Risk
Item 4. Controls and Procedures 31
PART II
Item 2. Unregistered Sales of Equity Securities 32
,
Use of Proceeds
, and Issuer Purchases of Equity Securities
Item 5. Other Information 32
Item 6. Exhibits 33
Signatures 34
Exhibit Index
Certifications
Interactive Data Files
2
-------------------------------------------------------------------------------
Item 1.
Financial Statements
AIR T, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS
OF INCOME (LOSS)
(UNAUDITED)
(in thousands, except per share data) Three Months Ended
June 30,
2023 2022
Operating Revenues:
Overnight air cargo $ 27,728 $ 20,564
Ground equipment sales 11,787 5,815
Commercial jet engines and parts 29,846 22,855
Corporate and other 2,070 1,628
71,431 50,862
Operating Expenses:
Overnight air cargo 23,712 18,071
Ground equipment sales 10,338 4,432
Commercial jet engines and parts 23,279 14,885
General and administrative 12,754 11,779
Depreciation and amortization 690 861
70,773 50,028
Operating Income 658 834
Non-operating (Expense) Income:
Interest expense ( (
1,808 1,822
) )
Income from equity method investments 691 532
Other 643 (
154
)
( (
474 1,444
) )
Income (Loss) before income taxes 184 (
610
)
Income Tax Expense 211 192
Net Loss ( (
27 802
) )
Net Income Attributable to Non-controlling Interests ( (
504 631
) )
Net Loss Attributable to Air T, Inc. Stockholders $ ( $ (
531 1,433
) )
Loss per share (Note 6)
Basic $ ( $ (
0.19 0.50
) )
Diluted $ ( $ (
0.19 0.50
) )
Weighted Average Shares Outstanding:
Basic 2,818 2,866
Diluted 2,818 2,866
See notes to condensed consolidated financial statements.
3
-------------------------------------------------------------------------------
AIR T, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF
COMPREHENSIVE
INCOME
(LOSS)
(UNAUDITED)
Three Months Ended
June 30,
(In Thousands) 2023 2022
Net Loss $ ( $ (
27 802
) )
Foreign currency translation loss ( (
65 529
) )
Unrealized gain on interest rate swaps 24 475
Reclassification of interest rate swaps into earnings ( 17
192
)
Total Other Comprehensive Loss ( (
233 37
) )
Total Comprehensive Loss ( (
260 839
) )
Comprehensive Income Attributable to Non-controlling Interests ( (
504 631
) )
Comprehensive Loss Attributable to Air T, Inc. Stockholders $ ( $ (
764 1,470
) )
See notes to condensed consolidated financial statements.
4
-------------------------------------------------------------------------------
AIR T, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(In thousands, except per share data) June 30, 2023 March 31, 2023
ASSETS
Current Assets:
Cash and cash equivalents $ 5,659 $ 5,806
Marketable securities 365 -
Restricted cash 762 1,284
Restricted investments 1,634 2,161
Accounts receivable, net of allowance for doubtful accounts of $ 32,004 27,218
1,295
and $
1,160
Income tax receivable 223 536
Inventories, net 64,406 71,125
Employee retention credit receivable - 940
Other current assets 7,793 7,487
Total Current Assets 112,846 116,557
Assets on lease or held for lease, net of accumulated depreciation of $ 16 83
38
and $
223
Property and equipment, net of accumulated depreciation of $ 21,488 21,439
6,946
and $
6,624
Intangible assets, net of accumulated amortization of $ 11,834 12,103
4,493
and $
4,191
Right-of-use ("ROU") assets 12,133 11,666
Equity method investments 13,954 13,230
Goodwill 10,560 10,563
Other assets 4,365 3,921
Total Assets 187,196 189,562
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable 10,580 10,449
Income tax payable - 304
Accrued expenses and other (Note 4) 14,643 13,133
Current portion of long-term debt 22,721 38,736
Short-term lease liability 1,832 1,664
Total Current Liabilities 49,776 64,286
Long-term debt 98,537 86,349
Deferred income tax liabilities, net 2,581 2,417
Long-term lease liability 11,011 10,771
Other non-current liabilities 47 47
Total Liabilities 161,952 163,870
Redeemable non-controlling interest 12,837 12,710
Commitments and contingencies (Note 16)
Equity:
Air T, Inc. Stockholders' Equity:
Preferred stock, $ - -
1.00
par value,
2,000,000
shares authorized
Common stock, $ 757 757
.25
par value;
4,000,000
shares authorized,
3,026,495
and
3,026,495
shares issued,
2,817,754
and
2,818,374
shares outstanding
Treasury stock, ( (
208,741 4,098 4,083
shares at $ ) )
19.63
and
208,121
shares at $
19.62
Additional paid-in capital 807 728
Retained earnings 13,289 13,686
Accumulated other comprehensive income 583 816
Total Air T, Inc. Stockholders' Equity 11,338 11,904
Non-controlling Interests 1,069 1,078
Total Equity 12,407 12,982
Total Liabilities and Equity $ 187,196 $ 189,562
See notes to condensed consolidated financial statements.
5
-------------------------------------------------------------------------------
AIR T, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In Thousands) Three Months Ended
June 30,
2023 2022
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ ( $ (
27 802
) )
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization 690 861
Income from equity method of investments ( (
691 532
) )
Other 479 272
Change in operating assets and liabilities:
Accounts receivable ( 3,718
4,921
)
Inventories 6,751 (
7,844
)
Accounts payable 131 1,640
Accrued expenses 1,424 700
Employee retention credit receivable 940 1,449
Other ( (
1,292 1,993
) )
Net cash provided by (used in) operating activities 3,484 (
2,531
)
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in unconsolidated entities ( (
417 880
) )
Capital expenditures related to property & equipment ( (
404 351
) )
Capital expenditures related to assets on lease or held for lease - (
20
)
Other 800 191
Net cash used in investing activities ( (
21 1,060
) )
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from lines of credit 34,186 29,839
Payments on lines of credit ( (
36,820 30,583
) )
Proceeds from term loan - 6,177
Payments on term loan ( (
1,261 836
) )
Other ( (
181 24
) )
Net cash (used in) provided by financing activities ( 4,573
4,076
)
Effect of foreign currency exchange rates on cash and cash equivalents ( 173
56
)
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH ( 1,155
669
)
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH AT BEGINNING OF PERIOD 7,090 8,368
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH AT END OF PERIOD $ 6,421 $ 9,523
See notes to condensed consolidated financial statements.
6
-------------------------------------------------------------------------------
AIR T, INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(UNAUDITED)
(In Common Treasury Additional Retained Accumulated Non-controlling
Thousands) Stock Stock Paid-In Earnings Other Interests
Capital Comprehensive
Income
(Loss)
Shares Amount Shares Amount
Balance, 3,023 $ 756 156 $ ( $ 393 $ 26,729 $ ( $ 1,104
March 3,002 263
31, ) )
2022
Net - - - - - ( - (
loss* 1,433 6
) )
Stock - - - - 79 - - -
compensation
expense
Foreign - - - - - - ( -
currency 529
translation )
loss
Adjustment - - - - - 926 - -
to
fair
value
of
redeemable
non-controlling
interests
Unrealized - - - - - - 475 -
gain
on
interest
rate
swaps,
net
of
tax
Reclassification - - - - - - 17 -
of
interest
rate
swaps
into
earnings
Balance, 3,023 $ 756 156 $ ( $ 472 $ 26,222 $ ( $ 1,098
June 3,002 300
30, ) )
2022
Total
Equity
$ 25,717
(
1,439
)
79
(
529
)
926
475
17
$ 25,246
(In Common Treasury Additional Retained Accumulated Non-controlling
Thousands) Stock Stock Paid-In Earnings Other Interests
Capital Comprehensive
Income
(Loss)
Shares Amount Shares Amount
Balance, 3,027 $ 757 208 $ ( $ 728 $ 13,686 $ 816 $ 1,078
March 4,083
31, )
2023
Net - - - - - ( - (
loss* 531 9
) )
Repurchase - - 1 ( - - -
of 15
common )
stock
Stock - - - - 79 - - -
compensation
expense
Foreign - - - - - - ( -
currency 65
translation )
loss
Adjustment - - - - - 134 - -
to
fair
value
of
redeemable
non-controlling
interest
Unrealized - - - - - - 24 -
gain
on
interest
rate
swaps,
net
of
tax
Reclassification - - - - - - ( -
of 192
interest )
rate
swaps
into
earnings
Balance, 3,027 $ 757 209 $ ( $ 807 $ 13,289 $ 583 $ 1,069
June 4,098
30, )
2023
Total
Equity
$ 12,982
(
540
)
(
15
)
79
(
65
)
134
24
(
192
)
$ 12,407
*
Excludes amount attributable to redeemable non-controlling interests in
Contrail Aviation Support, LLC ("Contrail") and Shanwick B.V. ("Shanwick")
See notes to condensed consolidated financial statements.
7
-------------------------------------------------------------------------------
AIR T, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1.
Financial Statement Presentation
The condensed consolidated financial statements of Air T, Inc. ("Air T", the
"Company", "we", "us" or "our") have been prepared, without audit, pursuant to
the rules and regulations of the Securities and Exchange Commission. Certain
information and disclosures normally included in financial statements prepared
in accordance with accounting principles generally accepted in the United
States of America have been condensed or omitted pursuant to such rules and
regulations, although the Company believes that the following disclosures are
adequate to make the information presented not misleading. In the opinion of
management, all adjustments (consisting only of normal recurring adjustments)
considered necessary for a fair presentation of the results for the periods
presented have been made.
These condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes thereto
included in the Company's Annual Report on Form 10-K for the year ended March
31, 2023. The results of operations for the period ended June 30, 2023 are not
necessarily indicative of the operating results for the full year.
The accompanying financial statements have been prepared in accordance with
generally accepted accounting principles applicable to a going concern, which
contemplates the realization of assets and the satisfaction of liabilities in
the normal course of business.
Recently Issued Accounting Pronouncements
In March 2020, the FASB issued ASU 2020-04- Reference Rate Reform (Topic 848):
Facilitation of the Effects of Reference Rate Reform on Financial Reporting.
The amendments in this Update provide optional expedients and exceptions for
applying generally accepted accounting principles (GAAP) to contracts, hedging
relationships, and other transactions affected by reference rate reform if
certain criteria are met. The amendments in this Update apply only to
contracts, hedging relationships, and other transactions that reference LIBOR
or another reference rate expected to be discontinued because of reference
rate reform. The expedients and exceptions provided by the amendments do not
apply to contract modifications made and hedging relationships entered into or
evaluated after December 31, 2022, except for hedging relationships existing
as of December 31, 2022, that an entity has elected certain optional
expedients for and that are retained through the end of the hedging
relationship. In December 2022, the FASB issued ASU 2022-06- Reference Rate
Reform (Topic 848): Deferral of the Sunset Date of Topic 848. The amendments
in this Update defer the implementation deadline of Topic 848 from December
31, 2022, to December 31, 2024. The Company is currently in the process of
converting its LIBOR-based contracts, hedging relationships, and other
transactions to other reference rates and anticipates that this process will
be complete by September 30, 2023.
8
-------------------------------------------------------------------------------
2.
Acquisitions
Worldwide Aviation Services, Inc.
On January 31, 2023, the Company acquired Worldwide Aircraft Services, Inc.
("WASI"), a Kansas corporation that services the aircraft industry across the
United States and internationally through the operation of a repair station
which is located in Springfield, Missouri at the Branson National Airport. The
acquisition was funded with cash and the loans described in
Note 12
of this report. WASI is included within the Overnight air cargo segment.
The acquisition date's fair value of the consideration is summarized in the
table below (in thousands):
January 31, 2023
Cash consideration $ 1,628
Seller's Note 1,370
Total consideration $ 2,998
The transaction was accounted for as a business combination in accordance with
ASC Topic 805 "Business Combinations." Assets acquired and liabilities assumed
were recorded in the accompanying consolidated balance sheet at their fair
values as of January 31, 2023, with the excess of total consideration above
fair value of net assets acquired recorded as goodwill.
The following table outlines the consideration transferred and purchase price
allocation at the respective fair values as of January 31, 2023 (in thousands):
January 31, 2023
ASSETS
Accounts receivable $ 1,037
Inventory 517
Other current assets 97
Property, plant and equipment, net 403
Intangible -Trade Name 342
Intangible - Non-competition Agreement 19
Intangible - Customer Relationships 683
Other assets 20
Total assets $ 3,118
LIABILITIES
Accounts payable 61
Accrued expenses and deferred revenue 635
Total liabilities $ 696
Net assets acquired $ 2,422
Consideration paid 2,998
Less: Cash acquired (
500
)
Less: Net assets acquired (
2,422
)
Goodwill $ 76
As of March 31, 2023, the purchase price allocation was final.
The following table sets forth the revenue and expenses of WASI that are
included in the Company's condensed consolidated statement of income for the
fiscal year ended March 31, 2023 (in thousands):
Income Statement
Post-Acquisition
Revenue $ 929
Cost of Sales 676
Operating Expenses 425
Operating Loss (
172
)
Non-operating expense (
22
)
Net loss $ (
194
)
Pro forma financial information is not presented as the results are not
material to the Company's consolidated financial statements.
9
-------------------------------------------------------------------------------
GdW Beheer B.V.
On February 10, 2022, the Company acquired GdW, a Dutch holding company in the
business of providing global aviation data and information. The acquisition
was completed through a wholly-owned subsidiary of the Company, Air T
Acquisition 22.1, LLC ("Air T Acquisition 22.1"), a Minnesota limited
liability company, through its Dutch subsidiary, Shanwick, and was funded with
cash, investment by executive management of the underlying business, and the
loans described in
Note 12
. As part of the transaction, the executive management of the underlying
business purchased
30.0
% of Shanwick. Air T Acquisition 22.1 and its consolidated subsidiaries are
included within the Corporate and other segment. GdW was administratively
dissolved on June 24, 2022 with Shanwick as the surviving entity.
Subsequent to the acquisition date, the Company made certain measurement
period adjustments to the preliminary purchase price allocation, which
resulted in an increase to goodwill of $
0.3
million. The increase is attributable to a measurement period adjustment of $
0.3
million related to certain intangible assets acquired and related deferred tax
liabilities assumed due to clarification of information utilized to determine
fair value during the measurement period. As of June 30, 2022, the measurement
period was completed and all adjustments are reflected in the tables below.
Total consideration is summarized in the table below (in thousands):
February 10, 2022
Consideration paid $ 15,256
Less: Cash acquired (
2,452
)
Less: Net assets acquired (
6,520
)
Goodwill $ 6,284
The transaction was accounted for as a business combination in accordance with
ASC Topic 805 "Business Combinations." Assets acquired and liabilities assumed
were recorded in the accompanying consolidated balance sheet at their fair
values as of February 10, 2022, with the excess of total consideration over
fair value of net assets acquired recorded as goodwill.
The following table outlines the consideration transferred and purchase price
allocation at the respective fair values as of February 10, 2022 (in
thousands):
February 10, 2022
ASSETS
Accounts Receivable $ 715
Other current assets 67
Property, plant and equipment, net 40
Intangible - Proprietary Database 2,576
Intangible - Customer Relationships 7,267
Total assets 10,665
LIABILITIES
Accounts payable 15
Accrued expenses and deferred revenue 1,670
Deferred income tax liabilities, net 2,460
Total liabilities 4,145
Net assets acquired $ 6,520
The following table sets forth the revenue and expenses of GdW, prior to
intercompany eliminations, which are included in the Company's condensed
consolidated statement of income for the fiscal year ended March 31, 2022 (in
thousands):
Income Statement
Post-Acquisition
Revenue $ 887
Cost of Sales 145
Operating Expenses 701
Operating Income 41
Non-operating income 19
Net income $ 60
Pro forma financial information is not presented as the results are not
material to the Company's consolidated financial statements.
10
-------------------------------------------------------------------------------
3.
Revenue
Recognition
Substantially all of the Company's non-lease revenue is derived from contracts
with an initial expected duration of one year or less. As a result, the
Company has applied the practical expedient to exclude consideration of
significant financing components from the determination of transaction price,
to expense costs incurred to obtain a contract, and to not disclose the value
of unsatisfied performance obligations.
The following is a description of the Company's performance obligations:
Type of Revenue Nature, Timing of Satisfaction of Performance
Obligations, and Significant Payment Terms
Product Sales The Company generates revenue from sales of
various distinct products such as parts,
aircraft equipment, jet engines, airframes, and
scrap metal to its customers. A performance
obligation is created when the Company accepts
an order from a customer to provide a
specified product. Each product ordered by a
customer represents a performance obligation.
The Company recognizes revenue when obligations under the
terms of the contract are satisfied; generally, this occurs
at a point-in-time upon shipment or when control is
transferred to the customer. Transaction prices are based on
contracted terms, which are at fixed amounts based on
standalone selling prices. While the majority of the Company's
contracts do not have variable consideration, for the limited
number of contracts that do, the Company records revenue
based on the standalone selling price less an estimate of
variable consideration (such as rebates, discounts or prompt
payment discounts). The Company estimates these amounts
based on the expected incentive amount to be provided to
customers and reduces revenue accordingly. Performance
obligations are short-term in nature and customers are typically
billed upon transfer of control. The Company records all
shipping and handling fees billed to customers as revenue.
The terms and conditions of the customer purchase
orders or contracts are dictated by either the
Company's standard terms and conditions or by a
master service agreement or by the contract.
Support Services The Company provides a variety of support
services such as aircraft maintenance and
short-term repair services to its customers.
Additionally, the Company operates
certain aircraft routes on behalf of
FedEx. A performance obligation is created
when the Company agrees to provide a
particular service to a customer. For each
service, the Company recognizes revenues
over time as the customer simultaneously
receives the benefits provided by the
Company's performance. This revenue
recognition can vary from when the Company
has a right to invoice to the output or
input method depending on the structure of
the contract and management's analysis.
For repair-type services, the Company records
revenue over-time based on an input method of costs
incurred to total estimated costs. The Company believes
this is appropriate as the Company is performing
labor hours and installing parts to enhance an asset
that the customer controls. The vast majority
of repair-services are short term in nature and are
typically billed upon completion of the service.
Some of the Company's contracts contain a
promise to stand ready as the Company is
obligated to perform certain maintenance or
administrative services. For most of these
contracts, the Company applies the 'as invoiced'
practical expedient as the Company has
a right to consideration from the customer
in an amount that corresponds directly with
the value of the entity's performance completed
to date. A small number of contracts
are accounted for as a series and recognized
equal to the amount of consideration the
Company is entitled to less an estimate of
variable consideration (typically rebates).
These services are typically ongoing and
are generally billed on a monthly basis.
In addition to the above type of revenues, the Company also has Leasing
Revenue, which is in scope under Topic 842 (Leases) and out of scope under
Topic 606 and Other Revenues (Freight, Management Fees, etc.) which are
immaterial for disclosure under Topic 606.
The following table summarizes disaggregated revenues by type (in thousands):
Three Months Ended June 30,
2023 2022
Product Sales
Air Cargo $ 9,171 $ 6,354
Ground equipment sales 11,575 5,577
Commercial jet engines and parts 26,759 20,310
Corporate and other 335 116
Support Services
Air Cargo 18,550 14,060
Ground equipment sales 93 140
Commercial jet engines and parts 2,946 1,975
Corporate and other 1,255 1,024
Leasing Revenue
Air Cargo - -
Ground equipment sales 25 43
Commercial jet engines and parts 12 541
Corporate and other 387 388
Other
Air Cargo 7 150
Ground equipment sales 94 55
Commercial jet engines and parts 129 29
Corporate and other 93 100
Total $ 71,431 $ 50,862
See
Note 14
for the Company's disaggregated revenues by geographic region and
Note 15
for the Company's disaggregated revenues by segment. These notes disaggregate
revenue recognized from contracts with customers into categories that depict
how the nature, amount, timing, and uncertainty of revenue and cash flows are
affected by economic factors.
Contract Balances and Costs
Contract liabilities relate to deferred revenue, our unconditional right to
receive consideration in advance of performance with respect to subscription
revenue and advanced customer deposits with respect to product sales.
The following table presents outstanding contract liabilities as of April 1,
2023 and June 30, 2023 and the amount of contract liabilities as of April 1,
2023 that were recognized as revenue during the three-month period ended June
30, 2023 (in thousands):
Outstanding contract liabilities Outstanding contract liabilities
as of April 1, 2023
Recognized as Revenue
As of June 30, 2023 $ 6,315
As of April 1, 2023 $ 5,000
For the three months $ 2,078
ended June 30, 2023
11
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4.
Accrued Expenses and Other
(in thousands) June 30, 2023 March 31, 2023
Salaries, wages and related items $ 6,351 $ 4,748
Profit sharing and bonus 768 1,672
Other deposits 2,871 2,560
Other 4,653 4,153
Total $ 14,643 $ 13,133
12
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5.
Income Taxes
During the three-month period ended June 30, 2023, the Company recorded $
0.2
million in income tax expense at an effective tax rate ("ETR") of
114.7
%. The Company records income taxes using an estimated annual effective tax
rate for interim reporting. The primary factors contributing to the difference
between the federal statutory rate of 21.0% and the Company's effective tax
rate for the three-month period ended June 30, 2023 were the change in
valuation allowance related to the Company's U.S. consolidated group, Delphax
Solutions, Inc. and Delphax Technologies, Inc. (collectively known as
"Delphax") and Landing Gear Support Services PTE LTD (known as "LGSS"), the
estimated benefit for the exclusion of income for the Company's captive
insurance company subsidiary ("SAIC") under Section 831(b), and the exclusion
from the tax provision of the minority owned portion of the pretax income of
Contrail, and the foreign rate differentials for Air T's operations located in
the Netherlands, Puerto Rico, and Singapore.
During the three-month period ended June 30, 2022, the Company recorded $
0.2
million in income tax expense at an ETR of (
31.5
)%. The primary factors contributing to the difference between the federal
statutory rate of 21.0% and the Company's effective tax rate for the
three-month period ended June 30, 2022 were the change in valuation allowance
related to the Company's subsidiaries in the corporate and other segment,
Delphax, other capital losses, the estimated benefit for the exclusion of
income for the SAIC under Section 831(b), and the exclusion from the tax
provision of the minority owned portion of the pretax income of Contrail.
13
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6.
Net Earnings (Loss) Per Share
Basic earnings (loss) per share has been calculated by dividing net income
(loss) attributable to Air T, Inc. stockholders by the weighted average number
of common shares outstanding during each period. For purposes of calculating
diluted earnings (loss) per share, shares issuable under stock options were
considered potential common shares and were included in the weighted average
common shares unless they were anti-dilutive.
The computation of basic and diluted earnings per common share is as follows
(in thousands, except for per share figures):
Three Months Ended June 30,
2023 2022
Net loss $ ( $ (
27 802
) )
Net income attributable to non-controlling interests ( (
504 631
) )
Net loss attributable to Air T, Inc. Stockholders $ ( $ (
531 1,433
) )
Loss per share:
Basic $ ( $ (
0.19 0.50
) )
Diluted $ ( $ (
0.19 0.50
) )
Antidilutive shares excluded from computation of loss per share 5 7
Weighted Average Shares Outstanding:
Basic 2,818 2,866
Diluted 2,818 2,866
14
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7.
Intangible Assets and Goodwill
Intangible assets as of June 30, 2023 and March 31, 2023 consisted of the
following (in thousands):
June 30, 2023
Gross Carrying Amount Accumulated Amortization Net Book Value
Purchased software $ 551 $ ( $ 104
447
)
Internally developed software 3,670 ( 3,122
548
)
In-place lease and other intangibles 1,094 ( 835
259
)
Customer relationships 8,044 ( 7,048
996
)
Patents 1,112 ( 6
1,106
)
Other 1,799 ( 662
1,137
)
16,270 ( 11,777
4,493
)
In-process software 57 - 57
Intangible assets, total $ 16,327 $ ( $ 11,834
4,493
)
March 31, 2023
Gross Carrying Amount Accumulated Amortization Net Book Value
Purchased software $ 544 $ ( $ 111
433
)
Internally developed software 3,672 ( 3,207
465
)
In-place lease and other intangibles 1,094 ( 865
229
)
Customer relationships 8,050 ( 7,199
851
)
Patents 1,112 ( 7
1,105
)
Other 1,782 ( 674
1,108
)
16,254 ( 12,063
4,191
)
In-process software 40 - 40
Intangible assets, total $ 16,294 $ ( $ 12,103
4,191
)
Based on the intangible assets recorded at June 30, 2023 and assuming no
subsequent additions to, or impairment of the underlying assets, the remaining
estimated annual amortization expense is expected to be as follows:
(In thousands)
Year ending March 31, Amortization
2024 (excluding the three months ended June 30, 2023) $ 920
2025 1,166
2026 1,083
2027 1,024
2028 976
2029 969
Thereafter 5,639
$ 11,777
The carrying amount of goodwill as of June 30, 2023 and March 31, 2023 was $
10.6
million. There was no impairment of goodwill during the three months ended
June 30, 2023.
15
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8.
Investments in Securities and Derivative Instruments
As part of the Company's interest rate risk management strategy, the Company,
from time to time, uses derivative instruments to minimize significant
unanticipated earnings fluctuations that may arise from rising variable
interest rate costs associated with existing borrowings (Air T Term Note A and
Term Note D). To meet these objectives, the Company entered into interest rate
swaps with notional amounts consistent with the outstanding debt to provide a
fixed rate of
4.56
% and
5.09
%, respectively, on Term Notes A and D. The swaps mature in January 2028.
On August 31, 2021, Air T and Minnesota Bank & Trust ("MBT") refinanced Term
Note A and fixed its interest rate at
3.42
%. As a result of this refinancing, the Company determined that the interest
rate swap on Term Note A was no longer an effective hedge. The Company will
amortize the fair value of the interest-rate swap contract included in
accumulated other comprehensive income (loss) associated with Term Note A at
the time of de-designation into earnings over the remainder of its term. In
addition, any changes in the fair value of Term Note A's swap after August 31,
2021 are recognized directly into earnings. The remaining swap contract
associated with Term Note D is designated as an effective cash flow hedging
instrument in accordance with ASC 815.
On January 7, 2022, Contrail completed an interest rate swap transaction with
Old National Bank ("ONB") with respect to the $
43.6
million loan made to Contrail in November 2020 pursuant to the Main Street
Priority Loan Facility as established by the U.S. Federal Reserve ("Contrail -
Term Note G"). The purpose of the floating-to-fixed interest rate swap
transaction was to effectively fix the loan interest rate at
4.68
%. As of February 24, 2022, this swap contract has been designated as a cash
flow hedging instrument and qualified as an effective hedge in accordance with
ASC 815. During the period between January 7, 2022 and February 24, 2022, the
Company recorded a loss of approximately $
0.1
million in the consolidated statement of income (loss) due to the changes in
the fair value of the instrument prior to the designation and qualification of
this instrument as an effective hedge. After it was deemed an effective hedge,
the Company recorded changes in the fair value of the instrument in the
consolidated statement of comprehensive income (loss). On March 30, 2023,
Contrail made a prepayment of $
6.7
million on Contrail - Term Note G. As a result of this prepayment, the Company
determined that the interest rate swap on Contrail - Term Note G was no longer
an effective hedge. The Company will amortize the fair value of the
interest-rate swap contract included in accumulated other comprehensive income
(loss) associated with Contrail - Term Note G at the time of de-designation
into earnings over the remainder of its term. In addition, any changes in the
fair value of Contrail - Term Note G's swap after March 30, 2023 are
recognized directly into earnings.
For the swap related to Air T Term Note D, the effective portion of changes in
the fair value on this instrument is recorded in other comprehensive income
(loss) and is reclassified into the consolidated statement of income (loss) as
interest expense in the same period in which the underlying hedged
transactions affect earnings. During the three months ended June 30, 2023 and
2022, the Company recorded a gain of approximately $
24.0
thousand and $
0.5
million, net of tax, respectively, with prior year's gain inclusive of
Contrail - Term Note G due to its effective hedge designation at the time.
These gains are included in the condensed consolidated statement of
comprehensive income (loss) for changes in the fair value of these
instruments. The interest rate swaps are considered Level 2 fair value
measurements. As of June 30, 2023 and March 31, 2023, the fair value of these
interest-rate swap contracts was an asset of $
2.8
million and $
2.4
million, respectively, which is included within other assets in the condensed
consolidated balance sheets.
16
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9.
Equity Method Investments
The Company's investment in Insignia Systems, Inc. - NASDAQ: ISIG ("Insignia")
is accounted for under the equity method of accounting. The Company has
elected a three-month lag upon adoption of the equity method. As of June 30,
2023, the Company owned
0.5
million Insignia shares, representing approximately
27.1
% of Insignia's outstanding shares. During the three months ended June 30,
2023, the Company's share of Insignia's net income for three months ended
March 31, 2023 was $
0.4
million. As of June 30, 2023, the Company's net investment basis in Insignia
is $
2.1
million.
The Company's
20.1
% investment in Cadillac Casting, Inc. ("CCI") is accounted for under the
equity method of accounting. Due to the differing fiscal year-ends, the
Company has elected a three-month lag to record the CCI investment at cost,
with a basis difference of $
0.3
million. The Company recorded income of $
0.7
million as its share of CCI's net income for the three months ended June 30,
2023 , along with a basis difference adjustment of $
12.0
thousand. The Company's net investment basis in CCI is $
3.5
million as of June 30, 2023.
Summarized unaudited financial information for the Company's equity method
investees for the three months ended March 31, 2023 and 2022 is as follows (in
thousands):
Three Months Ended
March 31, 2023 March 31, 2022
Revenue $ 51,157 $ 35,602
Gross Profit 7,803 4,375
Operating income 5,261 1,981
Net income 5,116 1,750
Net income attributable to Air T, Inc. stockholders $ 1,130 $ 308
17
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10.
Inventories
Inventories consisted of the following (in thousands):
June 30, March 31,
2023 2023
Overnight air cargo:
Finished goods $ 746 $ 546
Ground equipment manufacturing:
Raw materials 4,661 4,589
Work in process 1,283 153
Finished goods 5,032 6,976
Corporate and other:
Raw materials 809 794
Finished goods 725 726
Commercial jet engines and parts:
Whole engines available for sale or tear-down 9,459 10,141
Parts 45,330 50,813
Total inventories 68,045 74,738
Reserves ( (
3,639 3,613
) )
Total inventories, net of reserves $ 64,406 $ 71,125
18
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11.
Leases
The Company has operating leases for the use of real estate, machinery, and
office equipment. The majority of our leases have a term of
2
to
5
years; however, we have certain leases with longer terms of up to
30
years. Many of our leases include options to extend the lease for an
additional period.
The lease term for all of the Company's leases includes the non-cancellable
period of the lease, plus any additional periods covered by either a Company
option to extend the lease that the Company is reasonably certain to exercise,
or an option to extend the lease controlled by the lessor that is considered
likely to be exercised.
Payments due under the lease contracts include fixed payments plus, for some
of our leases, variable payments. Variable payments are typically operating
costs associated with the underlying asset and are recognized when the event,
activity, or circumstance in the lease agreement on which those payments are
assessed occurs. Our leases do not contain residual value guarantees.
The Company has elected to combine lease and non-lease components as a single
component and not to recognize leases on the balance sheet with an initial
term of one year or less.
The interest rate implicit in lease contracts is typically not readily
determinable, and as such the Company utilizes the incremental borrowing rate
to calculate lease liabilities, which is the rate incurred to borrow on a
collateralized basis over a similar term an amount equal to the lease payments
in a similar economic environment.
The components of lease cost for the three months ended June 30, 2023 and 2022
are as follows (in thousands):
Three Months Ended June 30,
2023 2022
Operating lease cost $ 683 $ 491
Short-term lease cost 85 185
Variable lease cost 185 136
Total lease cost $ 953 $ 812
Amounts reported in the consolidated balance sheets for leases where we are
the lessee as of June 30, 2023 and March 31, 2023 were as follows (in
thousands):
June 30, 2023 March 31, 2023
Operating leases
Operating lease ROU assets $ 12,133 $ 11,666
Operating lease liabilities $ 12,843 $ 12,435
Weighted-average remaining lease term
Operating leases 12 years, 5 months 12 years, 11 months
Weighted-average discount rate
Operating leases 5.03 % 4.99 %
Maturities of lease liabilities under non-cancellable leases where we are the
lessee as of June 30, 2023 are as follows (in thousands):
Operating Leases
2024 (excluding the three months ended June 30, 2023) $ 1,843
2025 2,297
2026 2,011
2027 1,859
2028 1,387
2029 750
Thereafter 8,227
Total undiscounted lease payments 18,374
Interest (
4,607
)
Discount (
924
)
Total lease liabilities $ 12,843
19
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12.
Financing Arrangements
Borrowings of the Company and its subsidiaries are summarized below at June
30, 2023 and March 31, 2023, respectively.
Effective May 26, 2023, Contrail entered into the Fourth Amendment to Master
Loan Agreement and the Amended and Restated Promissory Note Term Note G with
Old National Bank ("ONB"). The purpose of the amended documents was to replace
the one-month LIBOR based interest rate with a one-month SOFR-based rate. All
other material terms of the obligations remain the same. The principal amount
of the loan was $
38.2
million on the effective date of the amended documents and the applicable
interest rate is now the one-month SOFR based rate, as defined in the loan
agreement, plus
3.11
%.
Effective May 26, 2023, Contrail entered into the First Amendment to
Supplement #8 to Master Loan Agreement, the Fifth Amendment to Supplement #2
to the Master Loan Agreement and the Fourth Amended and Restated Promissory
Note Revolving Note with ONB. The purpose of the amended documents was to
replace the LIBOR based interest rate with a one-month SOFR based rate. All
other material terms of the obligation remain the same. The maximum principal
amount of the revolving note remains at $
25.0
million and the applicable interest rate is now the one-month SOFR-based rate,
as defined in the loan agreement, plus
3.56
%.
On May 26, 2023, AirCo 1 executed an Amendment to Main Street Priority Loan
Facility Term Loan Agreement with Park State Bank ("PSB"). The Amendment
replaces the three-month LIBOR benchmark applicable to the loan with a
three-month SOFR based rate, which is defined as the three-month SOFR rate plus
3.26
%. The principal amount of the loan was $
6.4
million on the effective date of the amended agreement. The interest rate is
to be determined on the 11th day of each month on the amounts that remain
outstanding, commencing June 11, 2023.
On June 23, 2023, the Company and MBT entered into amendments to the MBT
revolving credit agreement and related promissory note. The amendments
extended the maturity date of the credit facility to August 31, 2024 and
include the following changes:
1.
A $
2.0
million seasonal increase in the maximum amount available under the facility.
The maximum amount of the facility will now increase to $
19.0
million between May 1 and November 30 of each year and will decrease to $
17.0
million between December 1 and April 30 of each year;
2.
The reference rate for the interest rate payable on the revolving facility
will change from Prime to SOFR, plus a spread. The exact spread over SOFR will
change every September 30 and March 31 based on the Company calculated funded
debt leverage ratio (defined as total debt divided by EBITDA). Depending on
the result of the calculation, the interest rate spread applicable to the
facility will range between
2.25
% and
3.25
%;
3.
The unused commitment fee on the revolving credit facility will increase from
0.11
% to
0.15
%; and,
4.
The covenant restricting the Company's use of funds for "Other Investments"
was revised to limit the Company to $
5.0
million of "Other Investments" per year.
The following table provides certain information about the current financing
arrangements of the Company and its subsidiaries as of June 30, 2023:
(In June 30, March 31, Maturity Date Interest Rate Unused commitments
Thousands) 2023 2023 at June 30, 2023
Air T Debt
Revolver $ 13,366 $ 8,742 8/31/2024 SOFR + $ 5,634
- MBT range of
2.25
% -
3.25
%
Term Note 7,563 7,762 8/31/2031 3.42
A - MBT %
Term Note 2,670 2,740 8/31/2031 3.42
B - MBT %
Term Note 1,321 1,338 1/1/2028 1-month
D - MBT LIBOR +
2.00
%
Term Note 235 800 6/25/2025 Greater of
E - MBT LIBOR +
1.50
% or
2.50
%
Term Note 933 983 1/31/2028 Greater of
F - MBT 6.00
% or
Prime +
1.00
%
Debt - Trust 25,602 25,598 6/7/2049 8.00
Preferred Securities %
Total 51,690 47,963
AirCo 1 Debt
Term Loan 6,393 6,393 12/11/2025 3-month
- PSB SOFR +
3.26
%
Total 6,393 6,393
Jet Yard Debt
Term Loan 1,819 1,844 8/31/2031 4.14
- MBT %
Total 1,819 1,844
Contrail Debt
Revolver 5,183 12,441 9/5/2023 1-month $ 19,817
- ONB SOFR +
3.56
%
Term Loan 38,180 38,180 11/24/2025 1-month
G - ONB SOFR +
3.11
%
Total 43,363 50,621
Delphax
Solutions Debt
Canadian Emergency 30 30 12/31/2025 5.00
Business Account Loan %
Total 30 30
Wolfe
Lake Debt
Term Loan - 9,523 9,586 12/2/2031 3.65
Bridgewater %
Total 9,523 9,586
Air T Acquisition
22.1
Term Loan - 4,500 4,500 2/8/2027 4.00
Bridgewater %
Term Loan 2,445 2,610 2/1/2027 3.50
A - ING %
Term Loan 1,087 1,088 5/1/2027 4.00
B - ING %
Total 8,032 8,198
WASI Debt
Promissory Note 1,171 1,279 1/1/2026 6.00
- Seller's Note %
Total 1,171 1,279
Total Debt 122,021 125,914
Unamortized Debt ( (
Issuance Costs 763 829
) )
Total $ 121,258 $ 125,085
Debt, net
At June 30, 2023, our contractual financing obligations, including payments
due by period, are as follows (in thousands):
Due by Amount
June 30, 2024 $ 22,721
June 30, 2025 24,499
June 30, 2026 26,160
June 30, 2027 6,476
June 30, 2028 2,877
Thereafter 39,288
122,021
Unamortized Debt Issuance Costs (
763
)
$ 121,258
20
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13.
Shares Repurchased
On May 14, 2014, the Company announced that its Board of Directors had
authorized a program to repurchase up to
750,000
(retrospectively adjusted to
1,125,000
after the stock split on June 10, 2019) shares of the Company's common stock
from time to time on the open market or in privately negotiated transactions,
in compliance with SEC Rule 10b-18, over an indefinite period. During the
three months ended June 30, 2023, the Company repurchased
620
shares at an aggregate cost of $
15.0
thousand. All of these repurchased shares were recorded as treasury shares as
of June 30, 2023.
On August 16, 2022, President Biden signed the Inflation Reduction Act ("IRA")
into law. The IRA enacted a 15% corporate minimum tax rate (subject to certain
thresholds being met), a 1% excise tax on share repurchases made after
December 31, 2022, and created and extended certain tax-related energy
incentives.
As a result of the IRA's enactment into law, the Company is now subject to a
1% excise tax on share repurchases, effective for share repurchases made after
December 31, 2022. This excise tax may be reduced for the value of certain
share issuances. The excise tax incurred in connection with the Company's
stock repurchases during the three months ended June 30, 2023 was not material.
21
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14.
Geographical Information
Total tangible long-lived assets, net of accumulated depreciation, located in
the United States, the Company's country of domicile, and held outside the
United States are summarized in the following table as of June 30, 2023 and
March 31, 2023 (in thousands):
June 30, 2023 March 31, 2023
United States $ 21,454 $ 21,433
Foreign 50 89
Total tangible long-lived assets, net $ 21,504 $ 21,522
The net book value located within each individual country at June 30, 2023 and
March 31, 2023 is listed below (in thousands):
June 30, 2023 March 31, 2023
The Netherlands $ 42 $ 42
Other 8 47
Total tangible long-lived assets, net $ 50 $ 89
Total revenue, in and outside the United States, is summarized in the
following table for the three months ended June 30, 2023 and June 30, 2022 (in
thousands):
June 30, 2023 June 30, 2022
United States $ 61,722 $ 41,952
Foreign 9,709 8,910
Total revenue $ 71,431 $ 50,862
22
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15.
Segment Information
The Company has
four
business segments: overnight air cargo, ground equipment sales, commercial jet
engine and parts segment and corporate and other.
Segment data is summarized as follows (in thousands):
(In Thousands) Three Months Ended
June 30,
2023 2022
Operating Revenues by Segment:
Overnight Air Cargo:
Domestic $ 27,137 $ 20,564
International 591 -
Total Overnight Air Cargo 27,728 20,564
Ground Equipment Sales:
Domestic 11,698 3,907
International 89 1,908
Total Ground Equipment Sales 11,787 5,815
Commercial Jet Engines and Parts:
Domestic 21,968 16,732
International 7,878 6,123
Total Commercial Jet Engines and Parts 29,846 22,855
Corporate and Other:
Domestic 919 749
International 1,151 879
Total Corporate and Other 2,070 1,628
Total 71,431 50,862
Operating Income (Loss):
Overnight Air Cargo 1,935 1,077
Ground Equipment Sales ( 142
85
)
Commercial Jet Engines and Parts 1,478 3,074
Corporate and Other ( (
2,670 3,459
) )
Total 658 834
Capital Expenditures:
Overnight Air Cargo 158 99
Ground Equipment Sales 33 9
Commercial Jet Engines and Parts 120 74
Corporate and Other 93 189
Total 404 371
Depreciation and Amortization:
Overnight Air Cargo 85 20
Ground Equipment Sales 34 49
Commercial Jet Engines and Parts 190 434
Corporate and Other 381 358
Total $ 690 $ 861
The table below provides a reconciliation of operating income (loss) to
Adjusted EBITDA by reportable segment for the three months ended June 30, 2023
and 2022 (in thousands):
Three Months Ended June 30, 2023
Overnight Ground Equipment Commercial Jet Corporate Total
Air Cargo Sales Engines and Parts and Other
Operating $ 1,935 $ ( $ 1,478 $ ( $ 658
income (loss) 85 2,670
) )
Depreciation and amortization 85 34 190 381 690
(excluding leased engines depreciation)
Gain on sale of ( - - - (
property and equipment 6 6
) )
Securities - - - 45 45
expenses
Adjusted $ 2,014 $ ( $ 1,668 $ ( $ 1,387
EBITDA 51 2,244
) )
Three Months Ended June 30, 2022
Overnight Ground Equipment Commercial Jet Corporate Total
Air Cargo Sales Engines and Parts and Other
Operating $ 1,077 $ 142 $ 3,074 $ ( $ 834
income (loss) 3,459
)
Depreciation and amortization 19 49 179 358 605
(excluding leased engines depreciation)
Gain on sale of - - ( - (
property and equipment 2 2
) )
Securities - - - 15 15
expenses
Adjusted $ 1,096 $ 191 $ 3,251 $ ( $ 1,452
EBITDA 3,086
)
23
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16.
Commitments and Contingencies
Contrail Put/Call Option
Contrail entered into an Operating Agreement (the "Contrail Operating
Agreement") in connection with the acquisition of Contrail providing for the
governance of and the terms of membership interests in Contrail and including
put and call options with the Seller to require Contrail to purchase all of
the Seller's equity membership interests in Contrail commencing on the fifth
anniversary of the acquisition, which occurred on July 18, 2021. The Company
has presented this redeemable non-controlling interest in Contrail ("Contrail
RNCI") between the liabilities and equity sections of the accompanying
condensed consolidated balance sheets. In addition, the Company has elected to
recognize changes in the redemption value immediately as they occur and adjust
the carrying amount of the instrument to equal the redemption value at the end
of each reporting period. The Contrail RNCI is a Level 3 fair value
measurement that is valued at $
8.0
million as of June 30, 2023. The change in the redemption value compared to
March 31, 2023 is an increase of $
7.0
thousand, which was driven by the decrease in fair value of $
0.1
million and net income attributable to non-controlling interest of $
0.2
million, partially offset by distributions to non-controlling interest of $
0.1
million. As of the date of this filing, neither the Seller nor the Company has
indicated an intent to exercise the put and call options. If either side were
to exercise the option, the Company anticipates that the price would
approximate the fair value of the Contrail RNCI, as determined on the
transaction date. The Company currently expects that it would fund any
required payment from cash provided by operations.
Contrail Asset Management, LLC and CJVII, LLC
On May 5, 2021, the Company formed an aircraft asset management business
called Contrail Asset Management, LLC ("CAM"), and an aircraft capital joint
venture called Contrail JV II LLC ("CJVII"). The new ventures focus on
acquiring commercial aircraft and jet engines for leasing, trading and
disassembly. The joint venture, CJVII, was formed as a series LLC ("CJVII
Series"). It consists of several individual series that target investments in
current generation narrow-body aircraft and engines, building on Contrail's
origination and asset management expertise. CAM was formed to serve two
separate and distinct functions: 1) to direct the sourcing, acquisition and
management of aircraft assets owned by CJVII Series as governed by the
Management Agreement between CJVII and CAM ("Asset Management Function"), and
2) to directly invest into CJVII Series alongside other institutional
investment partners ("Investment Function").
CAM has
two
classes of equity interests: 1) common interests and 2) investor interests.
Neither interest votes as the entity is operated by a Board of Directors. The
common interests of CAM relate to its Asset Management Function. The investor
interests of CAM relate to the Company's and Mill Road Capital's ("MRC")
investments
through
CAM into CJVII (the Investment Function) and ultimately into the individual
CJVII Series. With regard to CAM's common interests, the Company currently owns
90
% of the economic common interests in CAM, and MRC owns the remaining
10
%. MRC invested $
1.0
million directly into CAM in exchange for
10
% of the common interests. For the Asset Management Function, CAM receives
origination fees, management fees, consignment fees (where applicable) and a
carried interest from the direct investors into each CJVII Series. Such fee
income and carried interest will be distributed to the Company and MRC in
proportion to their respective common interests.
For its Investment Function, CAM's initial commitment to CJVII was
approximately $
51.0
million. The Company and MRC have commitments to CAM in the respective amounts
of $
7.0
million and $
44.0
million. These represent the investor interests of CAM, separate and distinct
from the common interests. Any investment returns on CAM's investor interests
are shared pro-rata between the Company and MRC for each individual investment
at the CJVII Series. As of March 31, 2023, Air T has fulfilled its Investment
Function initial commitment to CAM.
Per its Operating Agreement, CAM is comprised of only two Series: the Onshore
and the Offshore Series. Participation in each is determined solely based on
whether a potential investment at the CJVII Series is a domestic (Onshore) or
international (Offshore) investment. As of June 30, 2023, for its Investment
Function, the Company has contributed $
1.0
million to CAM's Offshore Series and $
6.9
million to CAM's Onshore Series.
The Company determined that CAM is a variable interest entity and that the
Company is not the primary beneficiary. This is primarily the result of the
Company's conclusion that it does not control CAM's Board of Directors, which
has the power to direct the activities that most significantly impact the
economic performance of CAM. Accordingly, the Company does not consolidate CAM
and has determined to account for this investment using equity method
accounting. As of June 30, 2023, the Company's net investment basis in CAM is $
5.3
million.
In connection with the formation of CAM, MRC has a fixed price put option of $
1.0
million to sell its common equity in CAM to the Company at each of the first
three (
3
) anniversary dates. At the later of (a) five (
5
) years after execution of the agreement and (b) distributions to MRC per the
waterfall equal to their capital contributions, Air T has a call option and
MRC has a put option on the MRC common interests in CAM. If either party
exercises the option, the exercise price will be fair market value if Air T
pays in cash at closing or
112.5
% of fair market value if Air T opts to pay in three (
3
) equal annual installments after exercise. With respect to the secondary put
and call option, as it is priced at fair value, the Company also determined
that there is no potential loss or gain upon exercise that would need to be
recognized
Shanwick Put/Call Option
In February 2022, in connection with the Company's acquisition of GdW, a
consolidated subsidiary of Shanwick, the Company entered into a shareholder
agreement with the
30.0
% non-controlling interest owners of Shanwick, providing for the governance of
and the terms of membership interests in Shanwick. The shareholder agreement
includes the Shanwick Put/Call Option with regard to the
30.0
% non-controlling interest. The non-controlling interest holders are the
executive management of the underlying business. The Shanwick Put/Call Option
grants the Company an option to purchase the
30.0
% interest at the call option price that equals to the average EBIT over the 3
Financial Years prior to the exercise of the Call Option multiplied by 8. In
addition, the Shanwick Put/Call Option also grants the non-controlling
interest owners an option to require the Company to purchase from them their
respective ownership interests at the Put Option price, that is equal to the
average EBIT over the 3 Financial Years prior to the exercise of the Put
Option multiplied by
7.5
. The Call Option and the Put Option may be exercised at any time from the
fifth anniversary of the shareholder agreement and then only at the end of
each fiscal year of Air T ("Shanwick RNCI").
The Company has presented this redeemable non-controlling interest in Shanwick
between the liabilities and equity sections of the accompanying condensed
consolidated balance sheets. In addition, the Company has elected to recognize
changes in the redemption value immediately as they occur and adjust the
carrying amount of the instrument to equal the estimated redemption value at
the end of each reporting period. As the Shanwick RNCI will be redeemed at
established multiples of EBIT, it is considered redeemable at other than fair
value. Changes in its estimated redemption value are recorded on our
consolidated statements of operations within non-controlling interests.
The Shanwick RNCI's estimated redemption value is $
4.9
million as of June 30, 2023, which was comprised of the following (in
thousands):
Shanwick RNCI
Beginning Balance as of April 1, 2023 $ 4,738
Contribution from non-controlling members -
Distribution to non-controlling members (
166
)
Net income attributable to non-controlling interests 86
Redemption value adjustments 199
Ending Balance as of June 30, 2023 $ 4,857
2020 Omnibus Stock and Incentive Plan
On December 29, 2020, the Company's Board of Directors unanimously approved
the Omnibus Stock and Incentive Plan (the "Plan"), which was subsequently
approved by the Company's stockholders at the August 18, 2021 Annual Meeting
of Stockholders. The total number of shares authorized under the Plan is
420,000
. Among other instruments, the Plan permits the Company to grant stock option
awards. As of June 30, 2023, options to purchase up to
260,670
shares are outstanding under the Plan. Vesting of options is based on the
grantee meeting specified service conditions. Furthermore, the number of
vested options that a grantee is able to exercise, if any, is based on the
Company's stock price as of the vesting dates specified in the respective
option grant agreements. For the three months ended June 30, 2023, total
compensation cost recognized under the Plan was $
79.0
thousand.
24
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17.
Subsequent Events
Management performs an evaluation of events that occur after the balance sheet
date but before condensed consolidated financial statements are issued for
potential recognition or disclosure of such events in its condensed
consolidated financial statements.
25
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Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
FORWARD-LOOKING STATEMENTS
This section entitled "Management's Discussion and Analysis of Financial
Condition and Results of Operations" ("MD&A") is intended to provide a reader
of our financial statements with a narrative from the perspective of
management on our financial condition, results of operations, liquidity, and
certain other factors that may affect our future results. The MD&A provides a
narrative analysis explaining the reasons for material changes in the
Company's (i) financial condition during the period from the most recent
fiscal year-end, March 31, 2023, to and including June 30, 2023 and (ii)
results of operations during the current fiscal period(s) as compared to the
corresponding period(s) of the preceding fiscal year.
This Quarterly Report on Form 10-Q, including the MD&A, contains "forward-lookin
g statements" within the meaning of the Private Securities Litigation Reform
Act of 1995. These statements reflect our current views with respect to future
events and financial performance. The words "believe," "expect," "anticipate,"
"intend," "estimate," "forecast," "project," "should," "will," "continue" and
similar expressions are intended to identify "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995.
Any and all forecasts and projections in this document are "forward looking
statements" and are based on management's current expectations or beliefs.
From time to time, we may also provide oral and written forward-looking
statements in other materials we release to the public, such as press
releases, presentations to securities analysts or investors, or other
communications by us. Any or all of our forward-looking statements in this
report and in any public statements we make could be materially different from
actual results. Accordingly, we wish to caution investors that any
forward-looking statements made by or on behalf of us are subject to
uncertainties and other factors that could cause actual results to differ
materially from such statements.
We also wish to caution investors that other factors might in the future prove
to be important in affecting our results of operations. New factors emerge
from time to time; it is not possible for management to predict all of such
factors, nor can it assess the impact of each such factor on the business or
the extent to which any factor, or a combination of factors, may cause actual
results to differ materially from those contained in any forward-looking
statements.
We undertake no obligation to update publicly or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
Our MD&A should be read in conjunction with the Consolidated Financial
Statements and related Notes included in Item 1 of Part 1 of this Quarterly
Report on Form 10-Q and our Annual Report on Form 10-K for the fiscal year
ended March 31, 2023 (including the information presented therein under Risk
Factors), as well other publicly available information.
Overview
Air T, Inc. (the "Company," "Air T," "we" or "us") is a holding company with a
portfolio of operating businesses and financial assets. Our goal is to
prudently and strategically diversify Air T's earnings power and compound the
growth in its free cash flow per share over time.
We currently operate in four industry segments:
.
Overnight air cargo, which operates in the air express delivery services
industry;
.
Ground equipment sales, which manufactures and provides mobile deicers and
other specialized equipment products to passenger and cargo airlines,
airports, the military and industrial customers;
.
Commercial aircraft, engines and parts, which manages and leases aviation
assets; supplies surplus and aftermarket commercial jet engine components;
provides commercial aircraft disassembly/part-out services; commercial
aircraft parts sales; procurement services and overhaul and repair services to
airlines and,
.
Corporate and other, which acts as the capital allocator and resource for
other consolidated businesses. Further, Corporate and other also comprises
insignificant businesses and business interests.
Each business segment has separate management teams and infrastructures that
offer different products and services. We evaluate the performance of our
business segments based on operating income and Adjusted EBITDA.
Results of Operations
First Quarter Fiscal 2024 Compared to First Quarter Fiscal 2023
Consolidated revenue for the three-month period ended June 30, 2023 increased
by $20.6 million (40.4%) compared to the same quarter in the prior fiscal year.
26
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Following is a table detailing revenue by segment, net of intercompany during
the three months ended June 30, 2023 compared to the same quarter in the prior
fiscal year (in thousands):
Three Months Ended Change
June 30,
2023 2022
Overnight Air Cargo $ 27,728 $ 20,564 $ 7,164 34.8 %
Ground Equipment Sales 11,787 5,815 5,972 102.7 %
Commercial Jet Engines and Parts 29,846 22,855 6,991 30.6 %
Corporate and Other 2,070 1,628 442 27.1 %
$ 71,431 $ 50,862 $ 20,569 40.4 %
Revenues from the air cargo segment for the three-month period ended June 30,
2023 increased by $7.2 million (34.8%) compared to the first quarter of the
prior fiscal year. The increase was principally attributable to higher
administrative fees due to increased fleet, higher pass-through revenues from
FedEx, and the WASI acquisition mentioned in
Note 2
of the Notes to Condensed Consolidated Financial Statements of this report,
which contributed revenues for a full quarter but was not part of the segment
in the 2022 comparable quarter.
The ground equipment sales segment contributed approximately $11.8 million and
$5.8 million to the Company's revenues for the three-month periods ended June
30, 2023 and 2022 respectively, representing a $6.0 million (102.7%) increase
in the current quarter. The increase was primarily driven by the higher number
of deicing trucks sold in the current year quarter compared to prior year's
comparable quarter. At June 30, 2023, the ground equipment sales segment's
order backlog was $13.7 million compared to $17.2 million at June 30, 2022.
The commercial jet engines and parts segment contributed $29.8 million of
revenues in the quarter ended June 30, 2023 compared to $22.9 million in the
comparable prior year quarter, which is an increase of $7.0 million (30.6%).
The increase was primarily driven by higher component part sales at Contrail
in the current quarter compared to prior year comparable quarter.
Revenues from the corporate and other segment for the three-month period ended
June 30, 2023 increased by $0.4 million (27.1%) compared to the first quarter
of the prior fiscal year. The increase was primarily attributable to more
subscriptions sales at Shanwick.
Following is a table detailing operating income (loss) by segment during the
three months ended June 30, 2023 compared to the same quarter in the prior
fiscal year (in thousands):
Three Months Ended Change
June 30,
2023 2022
Overnight Air Cargo $ 1,935 $ 1,077 $ 858
Ground Equipment Sales (85) 142 (227)
Commercial Jet Engines and Parts 1,478 3,074 (1,596)
Corporate and Other (2,670) (3,459) 789
$ 658 $ 834 $ (176)
Consolidated operating income for the quarter ended June 30, 2023 was $0.7
million, compared to an operating income of $0.8 million in the comparable
quarter of the prior year.
The air cargo segment's operating income for the three-month period ended June
30, 2023 was $1.9 million compared to operating income of $1.1 million in the
same quarter in the prior fiscal year primarily due to the revenue increase
noted above.
The ground equipment sales segment's operating loss for the quarter ended June
30, 2023 was $0.1 million compared the prior year comparable quarter's
operating income of $0.1 million. This change was primarily attributable to
the increased costs for material, labor, and overhead required to get truck
units scheduled and built.
The commercial jet engines and parts segment generated operating income of
$1.5 million in the current-year quarter compared to operating income of $3.1
million in the prior-year quarter. The decrease was primarily attributable to
lower gross profit margins on components sales mentioned above due to parts
coming from the tear down of higher priced aircraft.
27
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The corporate and other segment's operating loss for the three-month period
ended June 30, 2023 was $2.7 million compared to an operating loss of $3.5
million in the same quarter in the prior fiscal year. The change was primarily
attributable to the revenue increase mentioned above.
Following is a table detailing non-operating income (expense) during the three
months ended June 30, 2023 compared to the same quarter in the prior fiscal
year (in thousands):
Three Months Ended Change
June 30,
2023 2022
Interest expense $ (1,808) $ (1,822) $ 14
Income from equity method investments 691 532 159
Other 643 (154) 797
$ (474) $ (1,444) $ 970
The Company had a net non-operating loss of $0.5 million during the quarter
ended June 30, 2023, compared to net non-operating loss of $1.4 million in the
prior-year quarter. The decrease in non-operating loss was primarily driven by
changes in the fair value of the Contrail swap on Term Note G of $0.3 million
and the reclassification of previously recorded gain in other comprehensive
income into earnings of $0.2 million as the swap was no longer an effective
hedge. See
Note 8
of the Notes to Condensed Consolidated Financial Statements of this report. In
addition, the non-operating loss was further decreased by fluctuations in
foreign currency exchange rates causing a gain of $0.1 million in the current
year quarter compared to a loss of $0.2 million in the prior year quarter.
During the three-month period ended June 30, 2023, the Company recorded $0.2
million in income tax expense at an effective tax rate of 114.7%. The Company
records income taxes using an estimated annual effective tax rate for interim
reporting. The primary factors contributing to the difference between the
federal statutory rate of 21.0% and the Company's effective tax rate for the
three-month period ended June 30, 2023 were the change in valuation allowance
related to the Company's U.S. consolidated group, Delphax and LGSS, the
estimated benefit for the exclusion of income for SAIC under Section 831(b),
the exclusion from the tax provision of the minority owned portion of the
pretax income of Contrail, and the foreign rate differentials for Air T's
operations located in the Netherlands, Puerto Rico, and Singapore.
During the three-month period ended June 30, 2022, the Company recorded $0.2
million in income tax expense at an effective tax rate of (31.5)%. The Company
records income taxes using an estimated annual effective tax rate for interim
reporting. The primary factors contributing to the difference between the
federal statutory rate of 21.0% and the Company's effective tax rate for the
three-month period ended June 30, 2022 were the change in valuation allowance
related to the Company's subsidiaries in the corporate and other segment,
Delphax, other capital losses, the estimated benefit for the exclusion of
income for SAIC under Section 831(b), and the exclusion from the tax provision
of the minority owned portion of the pretax income of Contrail.
Critical Accounting Policies and Estimates
The Company's significant accounting policies are fully described in Note 1 to
the condensed consolidated financial statements and in the notes to the
consolidated financial statements included in the Company's Annual Report on
Form 10-K for the year ended March 31, 2023. The preparation of the Company's
condensed consolidated financial statements in conformity with accounting
principles generally accepted in the United States requires the use of
estimates and assumptions to determine certain assets, liabilities, revenues
and expenses. Management bases these estimates and assumptions upon the best
information available at the time of the estimates or assumptions. The
Company's estimates and assumptions could change materially as conditions
within and beyond our control change. Accordingly, actual results could differ
materially from estimates. There were no significant changes to the Company's
critical accounting policies and estimates during the three-months ended June
30, 2023.
Seasonality
The ground equipment sales segment business has historically been seasonal,
with the revenues and operating income typically being lower in the first and
fourth fiscal quarters as commercial deicers are typically delivered prior to
the winter season. Other segments have typically not experienced material
seasonal trends.
Systems and Network Security
Although we have employed significant resources to develop our security
measures against breaches, our cybersecurity measures may not detect or
prevent all attempts to compromise our systems, including hacking, viruses,
malicious software, break-ins, phishing attacks, security breaches or other
attacks and similar disruptions that may jeopardize the security of
information stored in and transmitted by our systems. Breaches of our
cybersecurity measures could result in unauthorized access to our systems,
28
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misappropriation of information or data, deletion or modification of client
information or other interruption to our business operations. As techniques
used to obtain unauthorized access to sabotage systems change frequently and
may not be known until launched against us or our third-party service
providers, we may be unable to anticipate, or implement adequate measures to
protect against these attacks. If we are unable to avert these attacks and
security breaches in the future, we could be subject to significant legal and
financial liability, our reputation would be harmed and we could sustain
substantial revenue loss from lost sales and customer dissatisfaction. We may
not have the resources or technical sophistication to anticipate or prevent
rapidly evolving types of cyber-attacks. Cyber-attacks may target us or other
participants, or the communication infrastructure on which we depend. Actual
or anticipated attacks and risks may cause us to incur significantly higher
costs, including costs to deploy additional personnel and network protection
technologies, train employees, and engage third-party experts and consultants.
Cybersecurity breaches would not only harm our reputation and business, but
also could materially decrease our revenue and net income.
Supply Chain and Inflation
Future economic developments such as inflation and increased interest rates as
well as further business issues such as supply chain issues present
uncertainty and risk with respect to our financial condition and results of
operations. Each of our businesses implemented measures to attempt to limit
the impact of COVID-19 and economic and business issues but we still
experienced disruptions, and we experienced a reduction in demand for
commercial aircraft, jet engines and parts compared to historical periods.
Many of our businesses may continue to generate reduced operating cash flows
and could operate at a loss from time to time beyond fiscal 2023. We expect
that issues caused by the pandemic and other economic and business issue will
continue to some extent. The fluidity of this situation precludes any
prediction as to the ultimate adverse impact these issues on economic and
market conditions and our businesses in particular, and, as a result, presents
material uncertainty and risk with respect to us and our results of
operations. The Company believes the estimates and assumptions underlying the
Company's consolidated financial statements are reasonable and supportable
based on the information available as of June 30, 2023.
Liquidity and Capital Resources
As of June 30, 2023, the Company held approximately $6.4 million in cash and
cash equivalents and restricted cash, $0.2 million of which related to
restricted cash collateralized held for three opportunity zone investments
made by the Company - Air T OZ 1, LLC, Air T OZ 2, LLC, and Air T OZ 3, LLC
(the "Opportunity Zone Funds"), each a Minnesota limited liability company and
a subsidiary of the Company. The Company also held $1.6 million in restricted
investments held as statutory reserve of SAIC. The Company has approximately
$2.5 million of marketable securities and an aggregate of approximately $25.5
million in available funds under its lines of credit as of June 30, 2023.
As of June 30, 2023, the Company's working capital amounted to $63.1 million,
a decrease of $10.8 million compared to March 31, 2023 primarily driven by the
decrease in short-term debt due to the extension of the Air T revolver's
maturity date to August 31, 2024.
As mentioned in
Note 12
of Notes to Condensed Consolidated Financial Statements included under Part I,
Item 1 of this Report on Form 10-Q, on June 23, 2023, the Company and MBT
entered into amendments to the MBT revolving credit agreement and related
promissory note. The amendments extended the maturity date of the credit
facility to August 31, 2024 and include the following changes:
1.
A $2.0 million seasonal increase in the maximum amount available under the
facility. The maximum amount of the facility will now increase to $19.0
million between May 1 and November 30 of each year and will decrease to $17.0
million between December 1 and April 30 of each year;
2.
The reference rate for the interest rate payable on the revolving facility
will change from Prime to SOFR, plus a spread. The exact spread over SOFR will
change every September 30 and March 31 based on the Company calculated funded
debt leverage ratio (defined as total debt divided by EBITDA). Depending on
the result of the calculation, the interest rate spread applicable to the
facility will range between 2.25% and 3.25%;
3.
The unused commitment fee on the revolving credit facility will increase from
0.11% to 0.15%; and,
4.
The covenant restricting the Company's use of funds for "Other Investments"
was revised to limit the Company to $5.0 million of "Other Investments" per
year.
As mentioned in
Note 16
of Notes to Condensed Consolidated Financial Statements included under Part I,
Item 1 of this Report on Form 10-Q, in 2016, Contrail entered into an
Operating Agreement with the Seller providing for the put and call options
with regard to the 21.0% non-controlling interest retained by the Seller. The
Seller is the founder of Contrail and its current Chief Executive Officer. The
Put/Call Option permits the Seller or the Company to require Contrail Aviation
to purchase all of the Seller's equity membership interests in Contrail
Aviation commencing on July 18, 2021. As of the date of this filing, neither
the Seller nor the Company has indicated an intent to exercise the put and
call options. If either side were to exercise the option, the Company
anticipates that the price would approximate the fair value of the Contrail
RNCI, as determined on the transaction date. The Company currently expects
that it would fund any required payment from cash provided by operations.
As mentioned in
Note 16
of Notes to condensed Consolidated Financial Statements included under Part I,
Item 1 of this report, on May 5, 2021, the Company formed CAM and acquired its
ownership interest in CAM. The operations of CAM are not consolidated into the
operations of the Company. For its Investment Function (as defined in
Note 16
of Notes to Consolidated Financial Statements
29
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included under Part II, Item 8 of this report), CAM's initial commitment to
CJVII was approximately $51.0 million. The Company and MRC have commitments to
CAM in the respective amounts of $7.0 million and $44.0 million. As of June
30, 2023, the Company has fulfilled its capital commitments to CAM.
On March 22, 2023, Contrail entered into the First Amendment to Second
Amendment to Master Loan Agreement and Third Amendment to Master Loan
Agreement ("the Amendment") with ONB whereby, among other things, in exchange
for a $20 million principal prepayment of Term Note G, Contrail obtained a
waiver of the debt service coverage ratio covenant. $6.7 million of the $20.0
million prepayment was paid on March 30, 2023 and the remaining $13.3 million
payment is currently expected to be paid in September 2023. These payments
will eliminate the need for Contrail to make any future scheduled principal
payments on Term Note G until the final maturity of (on) November 24, 2025. At
this time, Contrail management believes it is highly probable that it will
have sufficient liquidity to make the $13.3 million prepayment in September
2023.
The revolving line of credit at Contrail with ONB has a due date or expires
within the next twelve months. We are currently seeking to refinance the
Contrail revolver prior to its maturity date; however, there is no assurance
that we will be able to execute this refinancing or, if we are able to
refinance this obligation, that the terms of such refinancing would be as
favorable as the terms of our existing credit facility.
The Company believes it is probable that the cash on hand and current
financings, net cash provided by operations from its remaining operating
segments, together with amounts available under our current revolving lines of
credit, as amended, will be sufficient to meet its obligations as they become
due in the ordinary course of business for at least 12 months following the
date these financial statements are issued.
Cash Flows
Following is a table of changes in cash flow for the three months ended June
30, 2023 and 2022 (in thousands):
Three Months Ended June 30,
2023 2022
Net Cash Provided by (Used in) Operating Activities $ 3,484 $ (2,531)
Net Cash Used in Investing Activities (21) (1,060)
Net Cash (Used in) Provided by Financing Activities (4,076) 4,573
Effect of foreign currency exchange rates on cash and cash equivalents (56) 173
Net (Decrease) Increase in Cash and Cash Equivalents and Restricted Cash $ (669) $ 1,155
Net cash provided by operating activities was $3.5 million for the three-month
period ended June 30, 2023 compared to net cash used in operating activities
of $2.5 million in the prior year three-month period. The change in net cash
provided by operating activities was primarily driven by a decrease in
inventory of $14.6 million offset by an increase in accounts receivable of
$8.6 million due to increased sales in the current quarter.
Net cash used in investing activities for the three-month period ended June
30, 2023 was $21.0 thousand compared to net cash used in investing activities
of $1.1 million in the prior-year period. The decrease in cash usage in
investing activities was primarily driven by less contributions to and more
distributions received from unconsolidated entities.
Net cash used in financing activities for the three-month period ended June
30, 2023 was $4.1 million compared to net cash provided by financing
activities of $4.6 million in the prior-year period. The change in cash usage
in financing activities was primarily driven by increased payments on the
lines of credit in the current quarter, as well as receipt of proceeds from a
term note in the prior quarter that did not recur in the current quarter.
Non-GAAP Financial Measures
The Company uses adjusted earnings before taxes, interest, and depreciation
and amortization ("Adjusted EBITDA"), a non-GAAP financial measure as defined
by the SEC, to evaluate the Company's financial performance. This performance
measure is not defined by accounting principles generally accepted in the
United States and should be considered in addition to, and not in lieu of,
GAAP financial measures.
Adjusted EBITDA is defined as earnings before taxes, interest, and
depreciation and amortization, adjusted for specified items. The Company
calculates Adjusted EBITDA by removing the impact of specific items and adding
back the amounts of interest expense and
30
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depreciation and amortization to earnings before income taxes. When
calculating Adjusted EBITDA, the Company does not add back depreciation
expense for aircraft engines that are on lease, as the Company believes this
expense matches with the corresponding revenue earned on engine leases. There
was no depreciation expense for leased engines for the three months ended June
30, 2023 and $0.3 million for the three months ended June 30, 2022.
Management believes that Adjusted EBITDA is a useful measure of the Company's
performance because it provides investors additional information about the
Company's operations allowing better evaluation of underlying business
performance and better period-to-period comparability. Adjusted EBITDA is not
intended to replace or be an alternative to operating income (loss), the most
directly comparable amounts reported under GAAP.
The tables below provide a reconciliation of operating income (loss) to
Adjusted EBITDA for the three months ended June 30, 2023 and 2022 (in
thousands):
Three months ended
6/30/2023 6/30/2022
Operating income $ 658 $ 834
Depreciation and amortization (excluding leased engines depreciation) 690 605
Gain on sale of property and equipment (6) (2)
Securities expenses 45 15
Adjusted EBITDA $ 1,387 $ 1,452
The table below provides Adjusted EBITDA by segment for the three months ended
June 30, 2023 and 2022 (in thousands):
Three months ended
6/30/2023 6/30/2022
Overnight Air Cargo $ 2,014 $ 1,096
Ground Equipment Sales (51) 191
Commercial Jet Engines and Parts 1,668 3,251
Corporate and Other (2,244) (3,086)
Adjusted EBITDA $ 1,387 $ 1,452
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company is exposed to various risks, including interest rate risk. As
interest rates have increased, are projected to increase and can be volatile,
the Company has designated a risk management policy which permits the use of
derivative instruments to provide protection against rising interest rates on
variable rate debt. See
Note 8
of Notes to Condensed Consolidated Financial Statements included under Part I,
Item 1 of this Report on Form 10-Q for further discussion on the Company's use
of such derivative instruments.
Item 4. Controls and Procedures
Our Chief Executive Officer and Chief Financial Officer, referred to
collectively herein as the Certifying Officers, are responsible for
establishing and maintaining our disclosure controls and procedures. The
Certifying Officers have reviewed and evaluated the effectiveness of the
Company's disclosure controls and procedures (as defined in Rules
240.13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of
1934) as of June 30, 2023. Based on that review and evaluation, which included
inquiries made to certain other employees of the Company, the Certifying
Officers have concluded that the Company's current disclosure controls and
procedures, as designed and implemented, are effective in ensuring that
information relating to the Company required to be disclosed in the reports
that the Company files or submits under the Securities Exchange Act of 1934 is
recorded, processed, summarized and reported within the time periods specified
in the Securities and Exchange Commission's rules and forms, including
ensuring that such information is accumulated and communicated to the
Company's management, including the Chief Executive Officer and the Chief
Financial Officer, as appropriate to allow timely decisions regarding required
disclosure. It should be noted that the design of any
31
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system of controls is based in part upon certain assumptions about the
likelihood of future events, and there can be no assurance that any design
will succeed in achieving the stated goals under all potential future
conditions, regardless of how remote.
There has not been any change in the Company's internal control over financial
reporting in connection with the evaluation required by Rule 13a-15(d) under
the Exchange Act that occurred during the quarter ended June 30, 2023 that has
materially affected, or is reasonably likely to materially affect, our
internal control over financial reporting.
PART II -- OTHER INFORMATION
Item 2.
Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases
of Equity Securities
(a)
On May 14, 2014, the Company announced that its Board of Directors had
authorized a program to repurchase up to 750,000 (retrospectively adjusted to
1,125,000 after the stock split in June 2019) shares of the Company's common
stock from time to time on the open market or in privately negotiated
transactions, in compliance with SEC Rule 10b-18, over an indefinite period.
Purchases during the quarter ended June 30, 2023 are described below:
Dates of Total Average Price Total Number of Shares Maximum Number of
Shares Number of Paid per Share Purchased as Part Shares that May Yet Be
Purchased Shares of Public Announced Purchased Under the
Purchased Plans or Programs Plans or Programs
April 1 620 $ 24.26 620 871,093
- April
30, 2023
May 1 - - - 871,093
- May
31, 2023
June 1 - - - 871,093
- June
30, 2023
620
Item 5.
Other information
(c) Insider Trading Arrangements
During the quarter ended June 30, 2023, none of our directors or officers (as
defined in Section 16 of the Exchange Act),
adopted
or
terminated
a "Rule 10b5-1 trading arrangement" or a "non-Rule 10b5-1 trading arrangement"
(each as defined in Item 408 of Regulation S-K).
32
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Item 6.
Exhibits
(a) Exhibits
No. Description
31.1 Section 302 Certification of Chief Executive Officer and President
31.2 Section 302 Certification of Chief Financial Officer
32.1 Section 1350 Certifications
101 The following financial information from the Quarterly Report on Form 10-Q for the quarter ended June 30, 2023,
formatted in XBRL (Extensible Business Reporting Language): (i) Condensed Consolidated Statements of Income, (ii) the
Condensed Consolidated Balance Sheets, (iii) the Condensed Consolidated Statements of Cash Flows, (iv) the Condensed
Consolidated Statements of Stockholders Equity, and (v) the Notes to the Condensed Consolidated Financial Statements.
* Portions of this exhibit have been omitted for confidential treatment.
33
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AIR T, INC.
Date: August 11, 2023
/s/ Nick Swenson
Nick Swenson, Chief Executive Officer and Director
/s/ Brian Ochocki
Brian Ochocki, Chief Financial Officer
34
Exhibit 31.1
SECTION 302 CERTIFICATION
I, Nick Swenson, certify that:
1.
I have reviewed this Form 10-Q of Air T, Inc.;
2.
Based on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects
the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report;
4.
The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))
for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
(a)
Designed such internal controls over financial reporting, or caused such
internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
(b)
Evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
(c)
Disclosed in this report any change in the registrant's internal control over
financial reporting that occurred during the registrant's most recent fiscal
quarter that has materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial reporting; and
5.
The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control
over financial reporting.
Date: August 11, 2023
/s/ Nick Swenson
Nick Swenson
Chief Executive Officer
Exhibit 31.2
SECTION 302 CERTIFICATION
I, Brian Ochocki, certify that:
1.
I have reviewed this Form 10-Q of Air T, Inc.;
2.
Based on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects
the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report;
4.
The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))
for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
(b)
Designed such internal controls over financial reporting, or caused such
internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
(d)
Disclosed in this report any change in the registrant's internal control over
financial reporting that occurred during the registrant's most recent fiscal
quarter that has materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial reporting; and
5.
The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control
over financial reporting.
Date: August 11, 2023
/s/ Brian Ochocki
Brian Ochocki
Chief Financial Officer
Exhibit 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Air T, Inc. (the "Company") Quarterly Report on Form
10-Q for the period ended June 30, 2023 as filed with the United States
Securities and Exchange Commission on the date hereof (the "Report"), I, Nick
Swenson, Chief Executive Officer, and Brian Ochocki, Chief Financial Officer
of the Company, each certify, pursuant to 18 U.S.C. 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1)
The Report fully complies with the requirements of Section 13(a) or 15(d) of
the Securities Exchange Act of 1934, as amended; and
(2)
The information contained in the Report fairly presents, in all material
respects, the financial condition and result of operations of the Company.
Date: August 11, 2023
/s/ Nick Swenson
Nick Swenson, Chief Executive Officer
(Principal Executive Officer)
/s/ Brian Ochocki
Brian Ochocki, Chief Financial Officer
(Principal Financial Officer and Principal Accounting Officer)
{graphic omitted}
{graphic omitted}