Atlas Air Worldwide Holdings Inc (AAWW) 2005 Q1 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Atlas Air Worldwide Holdings, Inc. First Quarter 2005 Earnings Call. (Operator Instructions). As a reminder, this conference is being recorded today, Wednesday, July 27 of 2005. I would now like to turn the conference over to Mr. Bill Bradley, Vice President and Treasurer of Atlas Air Worldwide Holdings. Please go ahead, sir.

Thank you, and good morning everyone. I am Bill Bradley, Vice President and Treasurer of Atlas Air Worldwide Holdings. Welcome to our First Quarter 2005 results conference call. Today's conference will be hosted by Jeff Erickson, our President and Chief Executive Officer. Mike Barna, our Chief Financial Officer is in Asia this week, meeting with our sales force, and is unable to join us on the call today.

Before I turn it over to Jeff, I would like to remind you that, in discussing the Company's performance today, we've included some forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements relate to future events and expectations and involve unknown risks and uncertainties. Atlas Air Worldwide Holdings' actual results or actions may differ materially from those projected in the forward-looking statements. For a summary of specific risk factors that could cause results to differ materially from those expressed in the forward-looking statements, please refer to the Safe Harbor language in our recent press releases and to the risk factors set forth in our annual report on Form 10-K filed with the SEC on June 30, 2005.

In our discussion today, we also include some non-GAAP financial measures. You can find our presentation on the most directly comparable GAAP financial measures calculated in accordance with Generally Accepted Accounting Principles, and our related reconciliation in our recent press releases, which are posted on our Website, at www.atlasair.com. You may access these releases by clicking on the link to financial news in the Investor Relations section of the Website. At this point, I would like to turn the call over to Jeff.

Thanks, Bill, and good morning everyone. As always, I greatly appreciate your investment interest in our company, and I appreciate this opportunity to get together with you again. Our remarks today will be brief, unlike the last Web call when we had a lot of catching up to do. I would like to reserve as much time as possible for the Q&A segment.

But first though, we continue to believe that we have a very exciting story to tell. We're looking to build upon our market leadership role in the global air transportation services and we have a flexible operating strategy that's helping us to both optimize our assets and to maximize our profitability. We'll also be building upon our first quarter earnings results, and Bill Bradley will discuss some of the details with you in a moment.

But since the first quarter is traditionally the slowest part of our business year, we are really looking forward to building on this positive base over the balance of the year. And in line with previous guidance, we do expect to record pretax income in the range of $20 million to $25 million for the quarter ending June 30, 2005, our second quarter, and we continue to expect that our full-year 2005 pretax income will exceed the $68 million of pretax income that was projected for 2005 in our predator plan. And I have previously described that. It is my expectation that we will nicely exceed that number.

In addition, our assets are fully deployed and will be for the foreseeable future. But for now, let me turn it back to Bill to tell you about our specific first quarter results and to bring you up to date regarding some other related developments. Bill.

Thanks, Jeff, and good morning again, everyone. As you have seen in our press release today, we have reported net earnings of $0.7 million or $0.03 per diluted share for the first quarter of 2005. We also reported a pretax profit of $1.5 million, which represented an improvement of about $59 million versus the first quarter loss of $57.5 million in 2004, but was slightly below our low-end guidance of $3 million for the quarter.

However, EBITDAR of $72 million was slightly above our lower end guidance of $71 million. The reason that pretax fell slightly below the low end of our guidance while EBITDAR exceeded the low end was due to increased depreciation expense caused by a reserve taken against inventory and a modest adjustment to the estimated useful lives of some of our aircraft, as well as higher post-Chapter 11 emergence costs.

Our first quarter pretax profit also reflected sharply higher revenues totaling nearly $347 million, which was about $49 million or 17% greater than first quarter '04, a 6% increase in total block-out activity, better aircraft utilization and improved unit revenues in all four of our service types, a reallocation of capacity from scheduled service into ACMI leasing and AMC charter operations, which began in the fourth quarter of '04, and that has had a positive impact on direct operating expenses, including landing and overfly fees.

Operating expenses of $326.5 million were up about 2% versus the same period last year. Higher fuel prices, increased maintenance activity and an increase in salaries, wages and benefits were partially offset by reductions in ground-handling charges and landing fees, somewhat lower depreciation expense and the absence of any significant post-petition costs and related professional fees.

And we generated operating income of $20.5 million, about $42.4 million better than first quarter '04's operating loss of $21.9 million. Excluding the impact of the above-the-line pre-petition and post-emergence costs and related professional fees from both quarters, operating income in the first quarter increased about $34.5 million. In addition, EBITDAR of $72 million increased $32.5 million over last year's first quarter.

I would also like to highlight the continuing improvement in our cash position. At the end of our first quarter '05, our cash and cash equivalents totaled approximately $164 million. That was up about $30 million from our year-end 2004 balance, and up about $25 to $26 million from March 31, 2004.

Even better, cash continued to increase following the close of the first quarter, rising to approximately $194 million at June 30, 2005. Now the cash balances on June 30th total, reflect the impact of a $12.25 million payment that we made to one of our secured lender groups at the end of May in this year. That payment was in exchange for the release of a lien on one of our 747/200 aircraft, which many of you may recall was damaged beyond economic repair when it landed in poor weather conditions at Dusseldorf Airport in late January. As a result of the runway accident, we negotiated a $12.6 million cash in lieu repair settlement with our insurance carriers, which we received last week.

In other words, if the insurance proceeds had been received in May, simultaneous with the associated debt paydown, our June 30 cash balance, on a pro forma basis, would have been $206 million. Since the settlement amount exceeds the net book value of the aircraft, we expect to report a gain on its disposition in our results for the third quarter of 2005. With the settlement, the size of our fleet is now 42 Boeing 747 freighter aircraft.

Also enhancing our cash position since June 30 is the return to us, last week, of $15 million left over after meeting allowed claims against the Polar Creditor Trust. The Trust, which originally totaled $40 million in size, is maintaining a small residual balance to handle the remaining outstanding claims against Polar. Pursuant to the joint plan of reorganization, any balance remaining in the trust after these outstanding claims are resolved, will revert to the company.

On the share distribution front, on July 12 we announced the first distribution on a total of 17,202,660 shares of our new common stock to holders of allowed general unsecured claims pursuant to our joint plan of reorganization. The initial pro rata distribution totaled nearly 16.1 million shares. We had maintained a reserve a little over 1.1 million new shares for pending claims, which totaled approximately 42 million on June 30, 2005. Distributions of shares remaining after the initial distribution will take place on a quarterly basis beginning on or about October 11, 2005.

Combined with the shares that were outstanding just prior to the distribution, we now have a total of 19,745,925 shares outstanding. In addition, our shares are now trading regular way under the ticker symbol aaww. Please note that for the purposes of calculating earnings per share for our quarterly results, we include the 1.1 million new shares reserved for pending claims in our total share count.

Thus, our first quarter '05 EPS calculations were based on a total of 20.2 million basic shares and 20.5 million diluted shares. Finally, we anticipate that we will report results for the second quarter of 2005 around or about the middle of September. With that, I'd like to turn it back to Jeff.

Thanks, Bill. Before we begin the questions shortly, I'd just like to reiterate why I think our outlook is right. We are anticipating healthy earnings in 2005. Our assets are fully deployed, and that will be the case for the foreseeable future. And in addition, we continue to work to increase the value of our company by optimizing capacity allocations among our service types by focusing on cost control and productivity enhancements and in initiating a strategic fleet renewal program.

During the course of this year, we'll also continue our efforts to maximize our financial flexibility as well. We're continuing to evaluate our balance sheet structure, which is still leveraged. And we may look to finance portions of our outstanding indebtedness.

Business-wise, though, we are positioned to capitalize on first, both the favorable near-term and intermediate-term supply demand characteristics that we see in our sector of the air cargo market and in prudent growth opportunities that come our way. So, with that, I'd like to begin the questions. Thank you all. Operator, why don't we begin with the first question.

Thank you, sir. (Operator Instructions). John Bider (ph), with Resolution Partners.

Can you comment - we have several questions, and first of all we'd like to say, you guys have done a great, great job reorganizing the Company and really positioning yourselves as one heck of a leading worldwide freight company.

Thank you, John.

What do you think about China and the growth prospects there?

Well, I think China will lead the way. As you may know, we, on our scheduled service, saw it achieve fourth carrier status in the fourth quarter of last year. That permitted us to restructure our entire schedule focused around that. So, we are very heavy into Shanghai with 12 frequencies a week. As you may know, the three other carriers are Fed Ex and UPS, which are not direct competitors, and indeed, we do a lot of work for both of those companies. And then the third carrier is Northwest, who we do compete against. However, typically they fly 747/200s, where we use both 200s and 400s.

But, as you look forward, really, any of the growth projections from a variety of sources are projecting a double-digit growth for China leading the way. And we intend to participate with that. We want to be very cautious about how we access that because, as with anything else, there will be peaks and valleys. And one of the things that I want to make sure we do is that we manage our way successfully through any valleys. But for the next two decades, China is going to be very significant and we will participate. We've seen good things so far and I expect them to continue.

That's fantastic. And in terms of sponsorship - in terms of - now that you're almost through all the IRS issues and the bankruptcy, in terms of sponsorship, is there any particular investment bank that you guys are looking to or attracted to, in terms of if there may ever be a secondary offering or road shows and that kind of thing?

I don't know. I think it's tough to describe any attractiveness to investment bankers, but I'm just kidding. Obviously, we have, and I particularly have, being in the industry so long, have been involved with a number of investment banking firms. But we'll certainly be in a dialogue with a host of firms to see what sort of opportunity we have and what sort of vehicle, and is it appropriate and what is the timing of it and what is the ability of the firm to deliver what they promise.

But we've made no specific decisions on which firm to wrap our arms around at this point.

Okay. Well, thank you very much. Appreciate the opportunity to ask the questions and keep up the - we're big believers in you guys. Keep up the great work.

Thank you, John.

Thank you. (Operator Instructions). Helane Becker, Benchmark.

Thank you very much, operator. Hi, gentlemen. Can I just ask you, is there any way for you, beyond the $20 to $25 million you're talking about in the second quarter, to kind of give us an idea of what block-hours are like, or if you can't do that, can you just kind of talk generally, maybe, just about what kind of growth we should expect going forward and how that might work out financially. I think there might be a lot of people that might not understand the total seasonal pattern that your earnings would take and I was just wondering if you could, maybe, address that.

Helane just on the block-hour item we did relatively recently issue our June, month June block-hour statistics along with YTD.

Oh, right, I did see this actually, I think what I was saying, I mean I was totally saying 2nd quarter but thinking 3rd quarter.

OK. Yeah. The 2nd quarter is out there, I don't think we are in a position to really forecast forward on a block-hour basis.

OK. Can you just address, maybe, how the seasonality of the earnings are going to look?

Yeah, well typically Helane, our 4th quarter is our strongest quarter followed by 3rd then 2nd then 1st. Being in the 3rd quarter right now, we are starting to see some shoulder effects, good shoulder effects as we head into peak season. We have implemented, possibly, some shoulder pricing and we have no reason not to anticipate a strong season, which as you know, stretches from, typically, mid-September into right before the December holidays. So, I think, as I've said already, in terms of the financial results we are expecting a strong second half.

Right. Right. Ok. And then, just in terms of the pattern, do you break out anywhere the operations from Asia, Europe, U.S., Latin America?

We do not at this point in time.

OK. And then my last question is with respect to your pilots, are there any outstanding issues with respect to them that we should be aware of?

I don't think there's really nothing new to report if you have seen our 10-K, which went out recently. We updated the status there with our Polar Pilots negotiations, which is in mediation. So, nothing further to report from that 10-K update.

Great. Great. OK. Thank you.

Thanks Elaine.

Thank your. Our next question is from Jim Harvey with Royce & Associates. Please go ahead.

Hi guys. Can you give any color on any additional balance sheet metrics? I know you mentioned cash, but maybe total debt as it compares to what you outlined in your original plan?

Yes. Well, I think on the call that we had in May, I had indicated that March ending debt was approximately $750 million. And, again, I'm looking at this sort of from a treasury standpoint. If you go through and look at our K, you can see that we've done a mark to market on our debt so, what is on the balance sheet for debt there is an unamortized discount, so, the balance sheet amount is less than what I would view as a treasury debt. But, if you look at the unamortized face net, it was about 750 at the end of March, and June we ended up at about 725 million.

OK.

And, again, just to be clear, those are sort of the full amount from sort of a treasury standpoint and does not reflect the mark to market of the debt, which you will see in balance sheets and have seen in balance sheets.

OK. And, you mentioned that pretax income will be nicely over $68 million. Would you be able to comment on EBIT, EBITDA, EBITDAR as it relates to what was initially outlined in your plan?

Other than in saying that pretax will be nicely ahead of the plan, I think that translates into everything above that.

Right. Did you say that you did $72 million in EBITDAR this quarter? In the quarter just reported?

Yes, in the 1st quarter, that is correct.

OK. But that was annualized, I think, that would exactly match was outlined in your plan of re-org . But, you are saying that things might get a little better the 2nd half.

I believe the plan of re-org EBITDAR for 2005 was around $287 million.

That's right. That's Right.

We will exceed that.

OK. Got it. OK. Thank you.

Thanks Jim.

Thank You. Our next question is from Jeff Feinberg with JLF Asset Management. Please go ahead.

Thanks very much. Good job guys. A couple of questions please. The first, what should CapEx be for this year?

Generally, you know, it is approximately in the 20 to 25, 22 to 27 range is sort of our normalized run rate. It includes elements for inventory, rotables (ph), occasionally there is some IT stuff flowing through there.

That's perfect. OK.

25-ish

And the DNA, which I saw end of quarter, was 13 million for an annual basis, should we just roughly annualize that and think that is in the mid 50's this year?

I think that's a good

It's reasonable.

OK. So the way to think about the delta, from a free cash flow perspective, if you had D&A of 55 and CapEx at 25, there is roughly 30 million or call it a buck and a half a share of free cash flow, just in that delta from understanding those two metrics this year.

I think that sounds right.

The other part of the equation, just to make sure I'm thinking about it correctly, based on the comments today, if you take what you did in Q1 in pretax and the guidance you have given here on T-2, it looks like you are sort of trailing 12 months, just based on the guidance we have already got, that's 68 million. So that through the end of June, just to make sure I am not missing anything, just to be clear, we are defiantly looking for a nice improvement-we are looking for the second half of the year, this year, to be up from the second half of the year, last year, correct?

I'm not sure we can comment on that, Jeff. Your analysis is your analysis, I think we are going to have a good second half but other than projecting the full year guidance, I'll leave it at that.

OK. OK. Fair enough. Thank you very much.

Thank you.

Thank you. [Operator instructions]

Our next question is from Evan Ratner with Credit Suisse. Please go ahead.

Good morning guys.

Hi Evan.

Hi. A couple of quick questions. A bunch have been answered. On the military outlook, how far, you talked about the outlet being a strong for the remainder of '05. Generally how long into the future do you know, or have a good feel for how good that is going to be?

Well, Evan, it doesn't really go out very far, as you may know, with the military there is a kind of an annual and quarterly buy, which is a very small percentage of what we actually do. There is a close in ad hoc piece that is the largest piece. So, I can fairly accurately predict to you what we think we are going to do for August, but then, in September gets more difficult and October becomes a guess. Suffice it to say that, while we plan for what I'll call a peacetime level of military flying, that has not been the situation and we have been strong on military side for some time. I have no reason not to expect that to continue, but it is difficult for us to predict. I wish we had a better handle on it, but we cannot.

I've got it. Okay. In June the monthly percentage year-over-year on the military was a little lower than the previous couple of months. Do we read into that or is it just sort of a monthly fluctuation?

No. Precisely. It's a monthly fluctuation. I don't think anything should be read into that at all. In large part, we deploy as many assets as are available to the military side but we turn some of it down simply because we can't do it either from a capacity standpoint or from a logistical standpoint. But, obviously, because we have very nice margins in that business, we try to do as much as possible. So, no, I would not read anything into the year-over-year.

OK. I just have a question for Bill. I didn't hear what you talked about regarding the Polar trust, if you gave, actually, a cash number that you would expect to receive.

Bill Bradley No. What I said was, we received in the month of July, we received back $15 million from the Polar Creditor Trust.

It's one five?

1 5

Fifteen, OK.

There is a small amount remaining for the remaining assenting items and then once that is resolved, to the extent that further money is left over, further monies could come back but the lion share of it is back.

Got it. Then, as I look at my projections, which I have a certain cash flow build, and you guys are well north of 200 million, is there a certain amount of money you want to keep on hand or do you want to be paying down more debt? Obviously, it's reasonably cheap debt, but is there-- kind of, how do you look at doing that cash and your debt levels, and whether it's from buybacks or whatever?

I think it's a combination of the steps we want to take with respect with the capital structure. And, it's going to be part and parcel with sort of our ongoing review with what we want to do with either refinancing and/or any new kind of financing raising instrument. So, I think, we are just for the moment, we are generating cash but we are looking at it in the context of how we want to make investments to the capital structure. And, until such time, we are just going to keep it status quo.

OK. And, timing for filing the Q?

I would say it would be in the middle of August.

OK. And, then you said the second quarter was going to be released in mid-September with obviously a Q filing thereafter?

Right.

OK. Thank you very much. Good Stuff.

Thanks Evan.

Thank you. [Operator instructions]

Gentlemen we have no additional questions. Please continue.

All right, thank you operator. First, I just wanted to correct one thing I said when I talked about the China frequencies being at 12, that is, per week -- that is actually our planned level with the last three frequencies that we get in March of '06. We currently operate at nine frequencies a week so if I confused anyone with that, I apologize, but that is actually our level.

I want to thank everybody for participating. I appreciate your investment interest. We are feeling very good about this year, so I hope when you think about air cargo; you think of us, you think of market leadership and Atlas Air Worldwide holdings. I am very bullish on our company and I hope that you will be as well. I will talk to you again soon. Thanks for participating and have a great day.

Thank you. Ladies and Gentlemen this concludes the Atlas Air Worldwide Holdings, Inc. 1st Quarter 2005 Earnings Call.