8-K: ATSG Reports Strong Q4 2024 Results Amidst Pending Acquisition by Stonepeak

Air Transport Services Group (ATSG) announced its fourth quarter and full-year 2024 financial results, showcasing strong cash flow and improved profitability in ACMI services, while progressing towards its acquisition by Stonepeak in the first half of 2025.

Summary

• Air Transport Services Group, Inc. (ATSG) reported its financial results for the fourth quarter and full year ended December 31, 2024.
• Fourth quarter revenues remained consistent at $517 million compared to the same period in 2023.
• GAAP Earnings per Share (diluted) from Continuing Operations improved to $0.21, compared to a Loss per Share of ($0.24) in the prior year.
• Adjusted EBITDA for the fourth quarter increased to $162.2 million, versus $129.9 million.
• Free Cash Flow for the fourth quarter was $34.7 million, a significant improvement from negative ($65.5) million in the prior year.
• Full year revenues were $2.0 billion, compared to $2.1 billion in the previous year.
• Adjusted EBITDA for the full year reached $549.4 million, slightly lower than the $561.6 million reported in 2023.
• Free Cash Flow for the full year was $228.1 million, a substantial increase from negative ($111.8) million in the prior year.
• ATSG is in the process of being acquired by Stonepeak, with the transaction expected to close in the first half of 2025.
• Stockholder approval for the acquisition was received on February 10, 2025, and the company is now seeking approval from the U.S. Department of Transportation.
• CAM added and placed nine Boeing 767-300 freighter aircraft with external customers under long-term leases during 2024.
• Eleven more customer-provided 767-300 freighters were subleased to and operated by an ATSG cargo airline during 2024, for a total of 27 such aircraft in the fleet at the end of the year.

Sentiment

Score: 7

Explanation: The sentiment is moderately positive due to improved Q4 results, strong cash flow, and progress towards the acquisition. However, the decrease in full-year revenue and EBITDA tempers the overall outlook.

Positives

• Improved GAAP Earnings per Share (diluted) from Continuing Operations in Q4 2024.
• Increased Adjusted EBITDA in Q4 2024.
• Significantly improved Free Cash Flow in both Q4 and full year 2024.
• Successful placement of nine additional 767-300 freighter aircraft under long-term leases.
• Progress towards completing the acquisition by Stonepeak.
• Improved profitability in ACMI Services in Q4 2024.
• Sequential quarter improvements in both passenger and freighter hours flown in ACMI Services.

Negatives

• Full year revenues decreased to $2.0 billion from $2.1 billion in the previous year.
• Full year Adjusted EBITDA decreased to $549.4 million from $561.6 million in the previous year.
• CAM's fourth quarter pretax earnings decreased $9 million, or 44%, to $12 million versus $21 million for the prior-year quarter, and decreased by $51 million, or 46% to $59 million for the full year.
• Revenue block hours for ATSG's airlines declined 6% for 2024 over 2023.

Risks

• Changes in market demand for ATSG's assets and services.
• Operating airlines' ability to maintain on-time service and control costs.
• Cost and timing of purchasing and modifying aircraft to a cargo configuration.
• Fluctuations in ATSG's traded share price and in interest rates.
• ATSG's ability to remain in compliance with key agreements.
• Impact of current supply chain constraints.
• Impact of the current competitive labor market.
• Changes in general economic and/or industry-specific conditions, including inflation and regulatory changes.
• Impact of geopolitical tensions or conflicts and human health crises.
• Risk that the anticipated tax treatment of the transactions contemplated by the Agreement and Plan of Merger (the Transaction) is not obtained.
• The risk that the parties may not be able to satisfy the conditions to the Merger in a timely manner or at all.

Future Outlook

ATSG is not providing forward-looking guidance due to the pending acquisition by Stonepeak. The company expects to complete the transaction in the first half of 2025 and is enthusiastic about opportunities in 2025, including the delivery of its first four converted A330 freighters.

Management Comments

• Mike Berger, chief executive officer of ATSG, said, 'Im proud of the entire ATSG team for their focus and dedication as we delivered strong fourth quarter results, as well as safe and reliable service.'
• Mike Berger noted continued momentum in the CAM leasing business and improved profitability in ACMI Services.
• Mike Berger stated that the company generated significant free cash flow and is on track for closing the acquisition in the first half of the year.
• Mike Berger expressed enthusiasm about the opportunities in 2025, including the delivery of the first four converted A330 freighters.

Industry Context

ATSG's focus on freighter aircraft leasing and ACMI services positions it well in the growing e-commerce and air cargo market. The acquisition by Stonepeak, an infrastructure and real assets firm, suggests a long-term investment perspective in the air cargo sector. The addition of A330 freighters to its fleet aligns with the industry trend of utilizing more fuel-efficient and versatile aircraft.

Comparison to Industry Standards

• ATSG's adjusted EBITDA margin of approximately 28% for the full year 2024 is competitive within the air cargo industry.
• Companies like Atlas Air Worldwide Holdings (now acquired by Apollo Global Management) and Cargojet also focus on ACMI and cargo leasing, and their financial performance can be used as a benchmark.
• ATSG's strategy of converting passenger aircraft to freighters is a common practice in the industry, with companies like Israel Aerospace Industries (IAI) and Precision Aircraft Solutions being key players in the conversion market.
• The expansion into A330 freighters puts ATSG in competition with companies like DHL and FedEx, which also operate this type of aircraft.

Stakeholder Impact

• Shareholders: The pending acquisition by Stonepeak will result in a change of ownership.
• Employees: The company anticipates no significant impact on employees.
• Customers: The company anticipates no significant impact on customers.
• Suppliers: The company anticipates no significant impact on suppliers.
• Creditors: The company anticipates no significant impact on creditors.

Next Steps

• Obtain approval from the U.S. Department of Transportation for the acquisition by Stonepeak.
• Complete the acquisition by Stonepeak in the first half of 2025.
• Deliver the first four converted A330 freighters in 2025.

Key Dates