Air T, Inc. Delivers Solid Financial Performance in Second Quarter Fiscal 2025

Air T, Inc., a diversified holding company with operations in various industries, has reported its financial results for the second quarter of fiscal year 2025. The company’s overall performance showcases its ability to navigate the evolving business landscape and deliver consistent value to its shareholders.

Overview of Financial Performance

During the three-month period ended September 30, 2024, Air T’s consolidated revenue increased by $2.3 million (2.9%) compared to the same quarter in the prior fiscal year. This growth was driven by strong performances across several of the company’s business segments.

The overnight air cargo segment, which operates in the air express delivery services industry, saw a 10.6% increase in revenue, primarily due to higher administrative fees from an expanded fleet of aircraft and additional routes granted by FedEx. The ground equipment sales segment, which manufactures and provides specialized equipment to the aviation industry, also contributed to the revenue growth, with an 18.0% increase in sales, largely attributed to higher demand for deicing trucks.

However, the commercial jet engines and parts segment experienced a 9.7% decrease in revenue, primarily due to a lack of whole engine sales at Contrail, one of the company’s subsidiaries, compared to the prior year quarter. This was partially offset by an increase in component part sales, as airlines focused on maintaining their existing fleets rather than purchasing new aircraft from original equipment manufacturers (OEMs).

The corporate and other segment, which acts as the capital allocator and resource for the company’s other businesses, saw a 30.8% increase in revenue, driven by higher software subscriptions at Shanwick, one of Air T’s subsidiaries.

Profitability and Operational Efficiency

Consolidated operating income for the quarter ended September 30, 2024 was $3.9 million, a significant increase from the $0.8 million reported in the comparable quarter of the prior year. This improvement was primarily attributable to the strong performance of the commercial jet engines and parts segment, which generated $3.6 million in operating income, compared to $1.2 million in the prior year quarter.

The overnight air cargo segment’s operating income decreased slightly to $1.8 million, due to higher salaries expense. The ground equipment sales segment, on the other hand, turned an operating loss of $12,000 in the prior year quarter into a $0.4 million operating profit in the current quarter, driven by the higher sales.

The corporate and other segment’s operating loss decreased to $2.0 million, down from $2.4 million in the prior year quarter, reflecting the increased revenue from Shanwick.

Non-Operating Income and Expenses

Air T’s net non-operating loss decreased to $0.6 million in the current quarter, compared to $1.9 million in the prior year quarter. This improvement was primarily driven by a $1.6 million increase in net income allocated to the company from its equity method investments, partially offset by a $0.3 million increase in interest expense.

Taxation and Effective Tax Rate

During the three-month period ended September 30, 2024, the company recorded $0.3 million in income tax expense, representing an effective tax rate of 10.2%. This rate was lower than the federal statutory rate of 21.0%, primarily due to the valuation allowance related to certain subsidiaries and the foreign rate differentials for the company’s operations in the Netherlands and Puerto Rico.

Year-to-Date Performance

For the first six months of fiscal year 2025, Air T’s consolidated revenue decreased by 1.8% compared to the same period in the prior fiscal year. This was largely due to a 9.3% decline in revenue from the ground equipment sales segment and a 10.8% decrease in the commercial jet engines and parts segment, partially offset by a 10.1% increase in the overnight air cargo segment and a 23.9% increase in the corporate and other segment.

Consolidated operating income for the six-month period ended September 30, 2024 was $3.3 million, up from $1.4 million in the prior year period. The commercial jet engines and parts segment was the primary driver of this improvement, generating $4.7 million in operating income, compared to $2.6 million in the prior year.

The company’s net non-operating income for the six-month period was $0.1 million, compared to a net non-operating loss of $2.4 million in the prior year period. This positive change was primarily due to a $2.8 million increase in net income allocated from equity method investments.

Critical Accounting Policies and Estimates

Air T’s significant accounting policies and critical estimates remain consistent with the previous fiscal year, with no significant changes during the three-month period ended September 30, 2024. The company continues to rely on estimates and assumptions in determining certain assets, liabilities, revenues, and expenses, and it acknowledges that actual results could differ materially from these estimates.

Seasonality and Industry Trends

The ground equipment sales segment has historically been seasonal, with lower revenues and operating income typically seen in the first and fourth fiscal quarters, as commercial deicers are typically delivered prior to the winter season. Other segments have not experienced material seasonal trends.

The company also notes that the commercial jet engines and parts segment has been impacted by the cancellation or delay of new aircraft orders from OEMs, as airlines have focused on maintaining their existing fleets. This has allowed Contrail, the company’s subsidiary in this segment, to leverage its expertise and serviceable engine portfolio to meet the increased demand for component part sales.

Cybersecurity and Inflation Risks

Air T acknowledges the growing threat of cybersecurity breaches, which could result in unauthorized access, data misappropriation, or system interruptions. The company has employed significant resources to develop its security measures, but it recognizes the need to continuously adapt to evolving cyber threats.

Additionally, the company faces uncertainty and risk related to future economic developments, such as inflation and increased interest rates, which could adversely impact its financial condition and results of operations. The company believes its estimates and assumptions are reasonable, but it acknowledges the material uncertainty and risk posed by these economic and business issues.

Liquidity and Capital Resources

As of September 30, 2024, Air T held approximately $9.2 million in cash and cash equivalents, as well as $1.0 million in restricted investments. The company also had an aggregate of $25.3 million in available funds under its lines of credit.

During the reporting period, the company entered into a new credit agreement with Alerus Financial, National Association, which provided a $14.0 million revolving credit facility, a $10.7 million term loan, and a $2.3 million term loan. The company used the proceeds from this new financing to satisfy and discharge all obligations under its previous secured credit facility.

Additionally, the company’s majority-owned subsidiary, Contrail, entered into an agreement to purchase and redeem a portion of its ownership interest from a seller, with the cash purchase price to be paid through a new loan.

The company believes it has sufficient cash on hand and available liquidity to meet its obligations for at least the next 12 months.

Cash Flows and Non-GAAP Measures

Air T’s net cash provided by operating activities was $3.0 million for the six-month period ended September 30, 2024, compared to $15.9 million in the prior year period. The decrease was primarily driven by changes in inventory and accounts receivable.

Net cash used in investing activities was $14.2 million, primarily due to capital expenditures related to assets on lease in the commercial jet engines and parts segment. Net cash provided by financing activities was $12.5 million, reflecting the proceeds from the new credit agreement.

The company also uses a non-GAAP financial measure, Adjusted EBITDA, to evaluate its performance. Adjusted EBITDA is defined as earnings before taxes, interest, and depreciation and amortization, adjusted for specified items. For the three and six months ended September 30, 2024, Air T reported Adjusted EBITDA of $5.0 million and $5.9 million, respectively.

Outlook and Conclusion

Air T’s diversified business model and strategic focus on prudent growth and cash flow generation have enabled the company to navigate the evolving business landscape and deliver solid financial performance in the second quarter of fiscal year 2025. While the company faces ongoing risks, such as cybersecurity threats and economic uncertainties, it remains committed to leveraging its operational expertise and financial resources to drive long-term value for its shareholders.