Diversified Holding Company Air T, Inc. Q1 2019 Revenue Rose 28% to $60.9M And Q1 2019 Operating Income Rose 18% to $2.6M; Announces Consideration of Trust Preferred Offering

DENVER, N.C.Aug. 14, 2018 — Air T, Inc. (NASDAQ: AIRT) is organized as a powerful portfolio of businesses and financial assets, each of which is independent yet interrelated. These include overnight air cargo operations, ground support equipment manufacturing and local maintenance services, and commercial aircraft asset management and logistics.  Today the Company is reporting continued improved financial performance for its fiscal quarter ended June 30, 2018.

Q1 2019 Overview

  • Revenues rose to $60.9 million for the fiscal quarter ended June 30, 2018, a 28% increase over the prior year comparable quarter
  • Operating income increased to $2.6 million, as compared to the prior quarter’s operating income of $2.2 million
  • Non-cash bargain purchase gain of $2.0 million in the first quarter of fiscal 2019 versus non-cash bargain purchase gain of $0.5 million in the same quarter of the prior year
  • Net income attributable to Air T stockholders increased to $2.8 million, as compared to net income of $1 million in Q1 2018, with the increase primarily due to the $2.0 million non-cash bargain purchase gain recognized as part of the acquisition of the assets of Worthington Aviation
  • Diluted earnings per share increased to $1.38 compared to prior comparable quarter’s $0.47

Business Segment Results

Commercial Jet Engines and Parts

  • This segment provides surplus and aftermarket commercial jet engine parts, airframes, avionics, other aircraft parts and logistics to the aviation industry.
  • Recent acquisitions in this segment include the acquisition of the assets of AirCo in May 2017 and the acquisition of the assets of Worthington Aviation Parts in May 2018.
  • Revenues for this segment totaled $27.3 million in Q1 2019, an increase of 115% over the same period of fiscal 2018. This increase is due to higher volume sales as this segment sold 4 whole jet engines in the current quarter as compared to none in the prior year comparable quarter, as well as the incremental revenue associated with our recent acquisitions.

Overnight Air Cargo

  • The segment provides air express delivery services, substantially all for FedEx.
  • Revenues for this segment rose 5% to $17.6 million in Q1 2019 compared to $16.7 million in Q1 2018.
  • The revenue increase was due to a variety of factors including increases in pass-through expenses and the administrative fee effective with the contract renewal on June 1, 2018, as well as additional billable maintenance hours.

Aviation Ground Support Maintenance Services

  • This segment provides ground support equipment maintenance and facilities maintenance services to domestic airlines and aviation service providers across the United States.
  • Revenue from this segment totaled $9.0 million in Q1 2019, a slight decline of 1% over Q1 2018.
  • The revenue decrease was due to the closing of two unprofitable locations in the second half of fiscal 2018.

Aviation Ground Support Equipment

  • This segment manufactures and provides mobile deicers and other specialized equipment products to passenger and cargo airlines, airports, the military and industrial customers
  • Revenues for this segment, which is the world’s largest manufacturer of aircraft de-icing equipment, totaled $6.4 million for the fiscal quarter ended June 30, 2018. This represents an increase of 7% over the revenue of $5.9 millionin the prior comparable quarter.
  • The segment has a sales backlog of $17.5 million as of June 30, 2018 compared to $16.4 million a year-ago.

Other Investments and Financial Liquidity

  • Air T owned approximately 3.5 million shares of common stock of Insignia Systems, Inc. (NASDAQ: ISIG) with a market value of $5.7 million as of June 30, 2018
  • As of June 30, 2018, Air T had $9.6 million of securities (including Insignia at market value of $5.7 million)
  • Working capital as of June 30, 2018 totaled $25.2 million compared to $30.5 million as of March 31, 2018

Consideration of Trust Preferred Offering 
Air T is considering issuing and distributing $3 million in face value of a new 8% fixed income security, Alpha Income Preferred (AIP), pro rata to existing holders of Air T common stock. At this time, it is contemplated that Air T stockholders would also receive warrants to purchase up to an additional $17 million in 8% AIP at a discount to face value, exercisable for up to one year. If the warrants are all exercised, there will be $20 million in face amount of 8% AIP outstanding. The 8% AIP will be preferred securities of a subsidiary trust to be formed by Air T. Air T currently expects that both the AIP and the warrants would be listed for trading upon issuance on The Nasdaq Stock Market or another exchange or quotation service.  Air T anticipates completing the distribution in the third or fourth quarter of calendar 2018. However, Air T’s Board has not yet approved this distribution nor has Air T yet engaged a trustee or finalized the plans for the distribution, which are subject to delay or cancellation.

Air T believes the distribution and issuance of the 8% AIP, if successfully implemented, will benefit Air T and its stockholders by increasing Air T’s financial flexibility. Exercises of warrants will provide additional cash resources for Air T’s investments and operations. In addition, the distribution will provide holders of Air T’s securities with the ability to adjust their portfolios of securities according to their investment priorities.

ABOUT AIR T, INC. 
Established in 1980, Air T Inc. is a powerful portfolio of businesses and financial assets, each of which is independent yet interrelated. Its four core segments are: overnight air cargo, aviation ground support equipment manufacturing, aviation ground support maintenance services, and commercial aircraft asset management and logistics. Our ownership interests are designed to expand, strengthen and diversify Air T’s cash earnings power.  Our goal is to build on Air T’s core businesses, and when appropriate, to expand into adjacent and other industries that we believe fit into the Air T portfolio.  For more information, visit www.airt.net.

FORWARD-LOOKING STATEMENTS 
Statements in this press release, which contain more than historical information, may be considered forward-looking statements (as such term is defined in the Private Securities Litigation Reform Act of 1995), which are subject to risks and uncertainties. Actual results may differ materially from those expressed in the forward-looking statements because of important potential risks and uncertainties, including, but not limited to, the risk that contracts with major customers will be terminated or not extended, future economic conditions and their impact on the Company’s customers, the Company’s ability to recover on its investments, including its investments in Delphax and other recently acquired companies, the timing and amounts of future orders under the Company’s Global Ground Support subsidiary’s contract with the United States Air Force, and risks and uncertainties related to business acquisitions, including the ability to successfully achieve the anticipated benefits of the acquisitions, inflation rates, competition, changes in technology or government regulation, information technology disruptions, and the impact of future terrorist activities in the United States and abroad. A forward-looking statement is neither a prediction nor a guarantee of future events or circumstances, and those future events or circumstances may not occur. The Company is under no obligation, and it expressly disclaims any obligation, to update or alter any forward-looking statements, whether as a result of new information, future events or otherwise.

AIR T, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

Three Months Ended June 30,

2018

2017

Operating Revenues:

     Overnight air cargo

$

17,640,658

$

16,742,175

     Ground equipment sales

6,384,781

5,949,656

     Ground support services

9,047,640

9,113,073

     Printing equipment and maintenance

298,823

3,131,381

     Commercial jet engines and parts

27,320,175

12,725,341

     Corporate

175,392

35,747

60,867,469

47,697,373

Operating Expenses:

     Overnight air cargo

15,174,396

14,562,143

     Ground equipment sales

4,937,312

4,754,215

     Ground support services

7,805,209

7,418,393

     Printing equipment and maintenance

145,528

1,501,056

     Commercial jet engines and parts

20,121,118

10,069,850

     Research and development

195,653

     General and administrative

8,584,803

6,584,668

     Depreciation, amortization and impairment

1,495,401

398,827

58,263,767

45,484,805

Operating Income

2,603,702

2,212,568

Non-operating Income (Expense):

     Foreign currency gain (loss), net

(2,182)

(188,624)

     Other-than-temporary impairment loss on investments

(771,173)

     Other investment income (loss), net

(315,507)

30,651

     Interest expense and other

(707,199)

(149,519)

     Unrealized gain on interest rate swap

97,337

     Bargain purchase acquisition gain, net of tax

1,983,777

501,880

     Equity in income (loss) of associated company

9,183

(31,903)

1,065,409

(608,688)

Income Before Income Taxes

3,669,111

1,603,880

Income Taxes

387,000

374,000

Net Income 

3,282,111

1,229,880

Net (Income) Attributable to Non-controlling

     Interests

$

(453,417)

$

(261,491)

Net Income Attributable to Air T, Inc. Stockholders

$

2,828,694

$

968,389

Income Per Share:

          Basic

$

1.38

$

0.47

          Diluted

$

1.38

$

0.47

Weighted Average Shares Outstanding:

          Basic

2,043,607

2,042,789

          Diluted

2,049,698

2,047,623

AIR T, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET (UNAUDITED)

June 30, 2018

March 31, 2018*

ASSETS

(Unaudited)

Current Assets:

     Cash and cash equivalents (Delphax $371,831 and $241,430)**

$

5,746,521

$

4,803,238

     Marketable securities

1,055,075

290,449

     Restricted cash 

18,832

269,659

     Restricted investments

1,119,490

1,235,405

     Accounts receivable, less allowance for doubtful accounts

       of $755,865 and $801,000 (Delphax $41,150 and $317,000)**

19,120,159

15,157,855

     Costs and estimated earnings in excess of billings on uncompleted projects

2,012,121

     Notes and other receivables-current

2,880,560

658,630

     Income tax receivable

1,351,597

1,557,180

     Inventories, net (Delphax $0 and $0)**

27,619,851

34,231,005

     Prepaid expenses and other (Delphax $58,898 and $72,269)**

1,147,368

1,455,566

            Total Current Assets

60,059,453

61,671,108

Investments in securities

2,840,175

1,026,920

Property and equipment, net 

19,417,752

20,273,171

Cash surrender value of life insurance policies

2,372,289

2,356,507

Other tax receivables-long-term (Delphax $311,000 and $311,000)**

311,000

311,000

Investments in funds

314,026

324,854

Equity method investments

5,238,982

5,032,268

Other assets 

772,109

420,981

Intangible assets, net 

1,371,561

1,312,472

Goodwill 

4,417,605

4,417,605

            Total Assets

$

97,114,952

$

97,146,886

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current Liabilities:

     Accounts payable (Delphax $2,160,817 and $2,145,847)**

$

14,887,263

$

10,181,143

     Income tax payable (Delphax $11,312 and $11,312)**

23,000

23,000

     Accrued expenses (Delphax $3,180,724 and $3,244,514)**

10,418,865

11,743,973

     Short-term debt 

9,544,732

9,229,690

           Total Current Liabilities   

34,873,860

31,177,806

Long-term debt (Delphax $0 and $0)*

31,322,098

38,855,260

Deferred income taxes

681,000

92,000

Other non-current liabilities 

719,252

785,797

           Total Liabilities   

67,596,210

70,910,863

Redeemable non-controlling interest

2,445,563

1,992,939

Commitments and contingencies (Note 15)

Equity:

  Air T, Inc. Stockholders’ Equity:

     Preferred stock, $1.00 par value, 50,000 shares authorized

     Common stock, $.25 par value; 4,000,000 shares authorized,

       2,043,607 shares issued and outstanding 

510,901

510,901

     Additional paid-in capital

4,171,869

4,171,869

     Retained earnings

23,418,334

20,695,981

     Accumulated other comprehensive loss

(124,051)

(260,900)

               Total Air T, Inc. Stockholders’ Equity

27,977,053

25,117,851

  Non-controlling Interests

(903,874)

(874,767)

       Total Equity

27,073,179

24,243,084

       Total Liabilities and Equity  

$

97,114,952

$

97,146,886

* Derived from audited consolidated financial statements

** Amounts related to Delphax as of June 30, 2018 and March 31, 2018, respectively.

AIR T, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

Three Months Ended June 30,

2018

2017

CASH FLOWS FROM OPERATING ACTIVITIES:

     Net income

$

3,282,111

$

1,229,880

          Adjustments to reconcile net income to net

               cash provided by (used in) operating activities:

                    Gain on sale of marketable securities

10,828

                    Gain on sale of property and equipment

1,661

(1,091)

                    Change in inventory reserves

91,547

(405,302)

                    Change in accounts receivable reserves

(45,628)

(20,950)

                    Depreciation, amortization and impairment

1,495,401

398,827

                    Change in cash surrender value of life insurance

(15,782)

(14,335)

                    Bargain purchase acquisition gain, net of tax

(1,983,777)

(501,880)

                    Warranty reserve

(980)

27,706

                    Other-than-temporary impairment loss on investments

771,173

                    Unrealized loss on marketable securities

322,477

                    Unrealized gain on interest rate swap

(97,337)

                    Change in operating assets and liabilities:

                      Accounts receivable

29,564

(1,071,687)

                      Notes receivable and other non-trade receivables

(2,221,930)

811,207

                      Inventories

11,319,597

(1,896,441)

                      Prepaid expense and other assets

288,286

380,030

                      Accounts payable

3,942,185

(1,047,556)

                      Accrued expenses

(1,982,397)

(1,206,518)

                      Income taxes payable/receivable

205,583

355,186

                      Non-current liabilities

75,525

47,240

                    Total adjustments

11,434,823

(3,374,391)

               Net cash provided by (used in) operating activities

14,716,934

(2,144,511)

CASH FLOWS FROM INVESTING ACTIVITIES:

          Purchases of marketable securities

(784,443)

(30,476)

          Acquisition of businesses, net of cash acquired

(3,325,700)

(2,900,000)

          Net cash used for equity method investments

(197,532)

          Purchase of debt security

(2,000,000)

          Capital expenditures

(459,575)

(489,995)

          Proceeds from sale of property and equipment

50,602

1,861

          Increase (decrease) in restricted cash

          Net cash used in investing activities

(6,716,648)

(3,418,610)

CASH FLOWS FROM FINANCING ACTIVITIES:

          Proceeds from lines of credit

28,933,742

17,002,765

          Payments on lines of credit

(38,156,091)

(14,520,242)

          Proceeds from term loan

3,400,000

2,400,000

          Payments on term loan

(1,404,800)

(200,000)

          Debt issuance costs

(35,702)

          Distribution to non-controlling member

(47,051)

          Net cash provided by (used in) financing activities

(7,309,902)

4,682,523

        Effect of foreign currency exchange rates on cash and cash equivalents

2,072

6,057

NET INCREASE/ (DECREASE) IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH

692,456

(874,541)

CASH AND CASH EQUIVALENTS AND RESTRICTED CASH AT BEGINNING OF PERIOD

5,072,897

2,763,365

CASH AND CASH EQUIVALENTS AND RESTRICTED CASH AT END OF PERIOD

$

5,765,353

$

1,888,824

SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING ACTIVITIES:

          Equipment leased to customers transferred to inventory

$

234,151

$

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

     Cash paid during the year for:

          Interest

$

629,264

$

160,191

          Income taxes

181,417

18,814