Air T, Inc. Reports Mixed Financial Results for First Quarter of Fiscal 2025

Air T, Inc., a diversified holding company with operations in several industries, has reported its financial results for the first quarter of fiscal year 2025. The company’s performance was mixed, with some segments performing well while others struggled.

Overview of Financial Performance

For the three months ended June 30, 2024, Air T’s consolidated revenue decreased by $5.0 million (7.0%) compared to the same period in the prior fiscal year. The company reported a consolidated operating loss of $0.6 million, compared to an operating income of $0.7 million in the comparable quarter of the prior year.

The company’s four business segments - Overnight Air Cargo, Ground Equipment Sales, Commercial Jet Engines and Parts, and Corporate and Other - each contributed to the overall financial results, with some segments performing better than others.

Segment Performance

The Overnight Air Cargo segment, which operates in the air express delivery services industry, saw its revenues increase by $2.7 million (9.6%) compared to the first quarter of the prior fiscal year. This increase was primarily due to higher administrative fees from a larger fleet of aircraft. However, the segment’s operating income remained relatively flat compared to the prior year.

The Ground Equipment Sales segment, which manufactures and provides mobile deicers and other specialized equipment products, saw a significant decrease in revenue of $4.4 million (37.6%) compared to the same quarter in the prior fiscal year. This was primarily driven by a lower number of deicing trucks sold, partially offset by a slight increase in catering truck sales. The segment’s operating loss also increased from $0.1 million in the prior year to $0.8 million in the current quarter.

The Commercial Jet Engines and Parts segment, which manages and leases aviation assets, supplies surplus and aftermarket commercial jet engine components, and provides commercial aircraft disassembly/part-out services, saw its revenues decrease by $3.6 million (12.0%) compared to the prior year quarter. This was primarily due to lower component part sales at the Contrail subsidiary. The segment’s operating income also decreased from $1.5 million in the prior year to $1.1 million in the current quarter.

The Corporate and Other segment, which acts as the capital allocator and resource for other consolidated businesses, saw its revenues increase by $0.4 million (17.1%) compared to the first quarter of the prior fiscal year. This increase was primarily attributable to more subscription sales at the Shanwick subsidiary. The segment’s operating loss remained relatively flat compared to the prior year.

Non-Operating Income and Expenses

Air T’s net non-operating income was $0.7 million during the quarter ended June 30, 2024, compared to a net non-operating loss of $0.5 million in the prior comparable quarter. This increase was primarily driven by higher net income allocated to the company from equity method investments.

The company recorded $0.1 million in income tax expense at an effective tax rate of 68.9% for the quarter. The primary factors contributing to the difference between the federal statutory rate of 21.0% and the company’s effective tax rate were valuation allowances related to certain subsidiaries and foreign rate differentials.

Liquidity and Capital Resources

As of June 30, 2024, Air T held approximately $8.7 million in cash and cash equivalents, as well as $1.2 million in restricted investments. The company also had $39.0 million in available funds under its lines of credit.

The company’s working capital amounted to $53.8 million as of June 30, 2024, a decrease of $2.2 million compared to March 31, 2024. This decrease was primarily driven by a lower decrease in inventory and a decrease in payables and accrued expenses compared to the prior year quarter.

During the quarter, the company’s majority-owned subsidiary, Contrail, entered into a Redemption Agreement to purchase and redeem 16% of its 21% interest from the Seller for $4.6 million, plus an earnout amount. The cash purchase price is payable through a new OCAS Loan, with interest accruing at the 10-year Treasury bond yield plus 375 basis points.

The company believes it has sufficient liquidity and capital resources to meet its obligations for at least the next 12 months, based on its current cash, financing, and expected cash flow from operations.

Seasonality and Other Risks

The Ground Equipment Sales segment has historically been seasonal, with lower revenues and operating income in the first and fourth fiscal quarters. Other segments have typically not experienced material seasonal trends.

Air T also faces risks related to cybersecurity and potential breaches of its systems, which could result in unauthorized access, misappropriation of information, or other disruptions to its business operations. The company has employed significant resources to develop its security measures, but there is no guarantee that these measures will be effective against all types of cyber attacks.

Additionally, the company is exposed to risks related to inflation and increased interest rates, which have put pressure on its margins and supply chain. The company expects these issues to continue beyond fiscal 2025, and they present material uncertainty and risk with respect to its financial condition and results of operations.

Non-GAAP Financial Measures

Air T uses a non-GAAP financial measure called Adjusted EBITDA to evaluate its financial performance. Adjusted EBITDA is defined as earnings before taxes, interest, and depreciation and amortization, adjusted for specific items.

For the three months ended June 30, 2024, Air T reported Adjusted EBITDA of $0.7 million, compared to $1.4 million in the prior year comparable quarter. The decrease was primarily due to lower operating income across the company’s segments.

The company also provided Adjusted EBITDA by segment, with the Overnight Air Cargo segment contributing $1.9 million, the Ground Equipment Sales segment reporting a loss of $0.7 million, the Commercial Jet Engines and Parts segment contributing $1.7 million, and the Corporate and Other segment reporting a loss of $2.3 million.

Outlook and Conclusion

Air T’s mixed financial results for the first quarter of fiscal 2025 reflect the challenges and uncertainties facing the company’s diverse business segments. While the Overnight Air Cargo segment performed relatively well, the Ground Equipment Sales and Commercial Jet Engines and Parts segments struggled with lower revenues and profitability.

The company’s liquidity and capital resources appear adequate to meet its near-term obligations, but it faces ongoing risks related to cybersecurity, inflation, and supply chain disruptions that could impact its future performance. Investors will be closely watching how the company navigates these challenges and whether it can return to consistent profitability across its business segments.

Overall, Air T’s first quarter results highlight the need for the company to continue its efforts to diversify and strengthen its operations in order to deliver sustainable growth and value for shareholders.