Q2 2024 Air Transport Services Group Inc Earnings Call

August 9, 2024

Operator: Good day, and thank you for standing by. Welcome to the Air Transport Services Group Inc. Earnings Conference Call. At this time, all participants are in a listen-only mode. Please be advised that today's conference is being recorded. After the speaker's presentation, there will be a question and answer session. To ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. I would now like to hand the conference over to your speaker today, Joe Payne, Chief Legal Officer.

Good day and thank you for standing by welcome to the Q2 2024 Air Transport Services Group, Inc. Earnings Conference call. At this time all participants are in a listen only mode. Please be advised that today's conference is being recorded after the speaker's presentation there'll be a question and answer.

To ask a question. Please press star one one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one one again I would not like to hand, the conference over to your speaker today, Joe Payne Chief Legal officer.

Joe Payne: Good morning, and welcome to our second quarter 2024 earnings conference call. We issued our earnings release yesterday after the market closed.

Speaker Change: Good morning, and welcome to our second quarter 2024 earnings Conference call, We issued our earnings release yesterday. After the market closed its on our website at ATSG I N C Dot com.

Joe Payne: It's on our website at ATSGINC.com. Let me begin by advising you that during the course of this call, we will make projections and other forward-looking statements that involve risks and uncertainty. Our actual results and other future events may differ materially from those we describe here. These forward-looking statements are based on information, plans, and estimates as of the date of this call. Air Transport Services Group undertakes no obligation to update any forward-looking statement to reflect changes in underlying assumptions, factors, new information, or other changes.

Joe Payne: These factors include, but are not limited to, changes in the market demand for our assets and services, including the loss of customers or a reduction in the level of services we perform for customers; our operating airline's ability to maintain on-time service and control costs. The cost and timing with respect to which we are able to purchase and modify aircraft to a cargo configuration, fluctuations in ATSG traded share price, and an interest rate which may result in mark-to-market charges on certain financial instruments.

Speaker Change: Let me begin by advising you that during the course of this call we will make projections and other forward looking statements that involve risks and uncertainties.

Speaker Change: Our actual results and other future events may differ materially from those we described here.

Joe Payne: The number, timing, and scheduled routes of our aircraft deployments to customers. Our ability to remain in compliance with key agreements with customers, lenders, and government agencies. The impact of current supply chain constraints. The impact of the current competitive labor market. Changes in general economic and or industry-specific conditions, including inflation and regulatory change.

Speaker Change: These forward looking statements are based on information plans and estimates as of the date of this call Air Transport Services Group undertakes no obligation to update any forward looking statements.

Speaker Change: Reflect changes in underlying assumptions factors, new information or other changes.

Speaker Change: These factors include but are not limited to changes in the market demand for our assets and services, including the loss of customers a reduction in the level of services, we performed for customers.

Speaker Change: Our operating airline's ability to maintain on time service and control costs.

Speaker Change: The cost and timing with respect to which we are able to purchase and modify aircraft to a cargo configuration.

Speaker Change: Fluctuations in Atsg's traded share price and in interest rates, which may result in mark to market charges on certain financial instruments. The.

Speaker Change: The number timing and scheduled routes of our aircraft deployments to customers.

Speaker Change: Our ability to remain in compliance with key agreements with customers lenders and government agencies.

Speaker Change: The impact of current supply chain constraints.

Speaker Change: The impact of the current competitive labor market.

Speaker Change: Changes in general economic <unk> industry specific conditions, including inflation and regulatory changes.

Joe Payne: The Impact of Geopolitical Tensions or Conflicts and Human Health Crises, and other factors as contained from time to time in our filings with the SEC, including the Form 10-Q to be filed today. We will also refer to non-GAAP financial measures from continuing operations, including adjusted earnings, adjusted earnings per share, adjusted pre-tax earnings, adjusted EBITDA, free cash flow, and adjusted free cash flow. Management believes these metrics are useful to investors in assessing ATSG's financial position and results. These non-GAAP measures are not meant to be a substitute for our GAAP financial measures. We advise you to refer to the Reconciliations to GAAP measures, which are included in our earnings release and on our website.

Speaker Change: The impact of geopolitical tensions or conflicts in human health crises and.

Speaker Change: And other factors as contained from time to time in our filings with the SEC, including the Form 10-Q to be filed today.

Speaker Change: We will also refer to non-GAAP financial measures from continuing operations, including adjusted earnings adjusted earnings per share adjusted pretax earnings adjusted EBITDA free cash flow and adjusted free cash flow.

Speaker Change: Management believes these metrics are useful to investors in assessing atsg's financial position and results.

Speaker Change: These non-GAAP measures are not meant to be a substitute for our GAAP financials. We advise you to refer to the reconciliations to GAAP measures, which are included in our earnings release and on our website.

Joe Payne: And now I'll turn the call over to Joe Hete, our Executive Chairman, for his opening comments. Thank you, Joe. Good morning, everyone.

Joe <unk>: And now I'll turn the call over to Joe <unk>, our executive chairman for his opening comments.

Joe <unk>: Thank you Joe good morning, everyone.

Joe Hete: I want to spend just a moment on the leadership transitions we announced back in June. Mike Berger, previously our president, was appointed as CEO. Jeff Dominick, previously a board member, took over Mike's role as president while I became the executive chairman.

Joe: I want to spend just a moment on the leadership transition we announced back in June.

Speaker Change: Mike Berger previously our president was appointed as CEO.

Jeff Dominick previously a board member took over Mike's role as President well I became the executive chairman.

Joe Hete: Many of you already know Mike well from prior earnings calls and investor meetings. He's been with ATSG since 2018 and brings a wealth of knowledge and experience, having worked for major air express companies throughout his career. With a background in private equity investing in commercial aerospace markets, Jeff expands ATSG's financial acumen in the aircraft leasing space, and we look forward to you meeting Jeff. As for me and my new role, I will still be heavily involved in strategy development and the formulation of long-term business objectives for ATSG. I'll turn the call over now to Mike to update you on the quarter, and both Jeff and I will be available during the Q&A session.

Speaker Change: Many of you already know Mike well from prior earnings calls and Investor meetings.

Speaker Change: He's been with ATSG since 2018 and brings a wealth of knowledge and experience having worked for major Express Eric Express companies throughout his career.

Speaker Change: With a background in private equity investing in commercial aerospace markets, Jeff expands Atsg's financial acumen, and the aircraft leasing space and we look forward to you meeting Jeff.

Speaker Change: As for me in my new role I'll still be heavily involved in the strategy development and formulation of long term business objectives for ATSG.

Speaker Change: I will turn the call over now to Mike to update you on the quarter and both Jeff and I will be available during the Q&A session.

Speaker Change: Mike.

Mike Berger: Thank you, Joe. And thank you to everyone joining the call today as well. I'm excited to be speaking to you on my first earnings conference call as CEO. I want to thank Joe Hete for his leadership and guidance as CEO after assuming the role last November and for continuing to lend us his skills and experience in his new role.

Mike Berger: Thank you Joe and thank you to everyone joining the call today as well I'm excited to be speaking to you on my first earnings conference call as CEO.

Mike Berger: I want to thank Joe for his leadership and guidance as CEO. After assuming the role of last November Africa continued to lend us his skills and experience in his new role I'm excited about the opportunity ahead of US here at ATSG, we have an unparalleled suite of in demand midsize freighters go into market with a least cost.

Mike Berger: I'm excited about the opportunity ahead of us here at ATSG. We have an unparalleled fleet of in-demand mid-sized freighters going to market with a lease plus strategy that differentiates us from our competitors. Last quarter, we communicated a key milestone, our expanded and extended flying agreement with Amazon. We will fly 10 additional aircraft they provide this year, and we remain on track with prior expectations to be fully ramped up on those 10 aircraft by peak season.

Speaker Change: <unk>, which differentiates us from our competitors.

Speaker Change: Last quarter, we communicated a key milestone our expanded and extended supply agreement with Amazon.

Speaker Change: We will fly 10 additional aircraft they provide this year and we remain on track with prior expectations to be fully ramped up and those 10 aircraft by peak season.

Mike Berger: That'll bring us to 51 767 aircraft we operate for Amazon, including 30 we leased today. However, comparisons of our financial results for the second quarter to the prior year were principally affected by fewer leased 767-200 freighters, as expected.

Speaker Change: That will bring us to 51 767 aircraft, we operate for Amazon, including 30 release to that.

Speaker Change: Comparisons of our financial results for the second quarter to prior year are principally affected by fewer leased 767 200 freighters as expected our.

Mike Berger: Our results for the quarter did come in above our internal expectations. Also, we are encouraged to report the progress we've made on leasing available freighters. Since the end of June, we've leased four additional 767 freighters to external customers. CAM also has lease commitments for our first two converted Airbus 330 aircraft, which we expect it to deliver in the fourth quarter of the year, and is optimistic about future leases of other available aircraft.

Speaker Change: Our results for the quarter did come in above our internal expectations.

Speaker Change: Also we are encouraged to report the progress we've made on leasing available freighters. Since the end of June we are at least four additional 767 freighters to external customers.

Speaker Change: <unk> also have lease commitments for our first two converted Airbus 330, aircrafts expected to be delivered in the fourth quarter of the year is optimistic about future leases of other available aircraft.

Mike Berger: All these aircraft are headed for international markets, where they will facilitate global trade, further demonstrating ATSG as an enabler of e-commerce growth. Importantly, we continue to execute the plans we laid out for 2024 with a focus on safety, customer satisfaction, and cost control. I want to thank our ATSG team for their dedication and striving toward our goals. We're on track to exceed our stated goal of positive free cash flow for the year, with $107 million generated through June and an expectation of additional free cash flow for the rest of the year.

Speaker Change: All of these aircraft are heavier for international markets, where they will facilitate global trade further demonstrating ATSG as an enabler e-commerce growth.

Speaker Change: Importantly, we continue to execute the plans we laid out for 2024 with a focus on safety customer satisfaction and cost control.

Speaker Change: Want to thank our ags team for their dedication and striving towards our goals.

Speaker Change: We're on track to exceed our stated goal of positive free cash flow for the year with $107 million generated through June and the expectation of additional free cash flow for the rest of the year.

Mike Berger: We are again raising our adjusted EBITDA outlook and have lowered our capital expenditure outlook for 2024. We remain focused on realizing the benefits of our business model and have the right team, the right assets, and the right strategy in place. I will now turn the call over to Quint Turner to discuss our financial results for the second quarter.

Speaker Change: We're again, raising our adjusted EBITDA outlook and have lowered our capital expenditure outlook for 2024.

Speaker Change: We remain focused on realizing the benefits of our business model and have the right team the right assets and the right strategy in place I will now turn the call over to Quint Turner to discuss our financial results for the second quarter Quint.

Quint Turner: Thanks, Mike, and welcome to everyone joining us this morning. I'll start on slide four, which summarizes our financial results for the quarter. Revenues were down 41 million, or 8% versus a year ago, to 488 million. This was driven by reductions in both our CAM and the ACMI services segment. In the second quarter, we saw GAAP pre-tax earnings of $10.7 million, down from pre-tax earnings of $49.7 million in the prior year period.

Quint Turner: Thanks, Mike and welcome to everyone joining us this morning.

Quint Turner: I'll start on slide four which summarizes our financial results for the quarter.

Quint Turner: Revenues were down $41 million or 8% versus a year ago to $488 million.

Quint Turner: This was driven by reductions in both our Cam and the ACI services segments in the second quarter, we saw GAAP pretax earnings of $10 7 million down from pre tax earnings of $49 7 million in the prior year period.

Quint Turner: This resulted in diluted earnings per share of $0.11 versus diluted earnings per share of $0.49 in the second quarter of 2023. On an adjusted basis, pre-tax earnings fell $41 million to $17 million, and EPS was down by 38 cents to 19 cents. However, adjusted EPS did improve sequentially by three cents from the first quarter.

Quint Turner: This resulted in a diluted earnings per share of 11 <unk>.

Quint Turner: Diluted earnings per share of <unk> 49 in the second quarter of 2023.

Quint Turner: On an adjusted basis pretax earnings fell 41 million to $17 million and EPS was down by 38 to.

Quint Turner: The 19th.

Quint Turner: Adjusted EPS did improve sequentially by three SaaS from the first quarter.

Quint Turner: In our aircraft leasing segment, revenues decreased 7% as CAM's fleet of externally leased aircraft expanded by one since June 2023. That includes 14 incremental new leases, less than 13 aircraft that came off lease over the last 12 months, and their related engine PBC revenue. At the end of the second quarter, 87 CAM-owned aircraft were leased to external customers.

Quint Turner: And our aircraft leasing segment revenues decreased 7% as Cam's fleet of externally leased aircraft expanded by one since June 2023.

Speaker Change: That includes 14 incremental new leases less the 13 aircraft that came off lease over the last 12 months and their related engine PBC revenues.

Speaker Change: At the end of the second quarter 87, Cam owned aircraft were leased to external customers.

Quint Turner: CAM's pre-tax earnings were down $16 million for the quarter, reflecting $9 million more in depreciation, a $6 million revenue decline from fewer 767-200 engine cycles, and $4 million more interest expense versus the prior year. In our ACMI services segment, we reported a pre-tax loss of $7 million compared with a gain of $24 million in the second quarter of last year. However, total block hours flown by our three airlines were down 10% versus the prior year quarter. Our cargo airlines flew 11% fewer hours across our customers delivery network.

Speaker Change: Cam's pretax earnings were down $16 million for the quarter, reflecting $9 million more than depreciation.

Speaker Change: A 6 million revenue decline from fewer 767, 200 engine cycles and $4 million more interest expense versus the prior year.

Speaker Change: And our <unk> CMI services segment, we reported a pretax loss of $7 million compared with a gain of $24 million in the second quarter of last year.

Speaker Change: Total block hours flown by our three airlines were down 10% versus the prior year quarter.

Speaker Change: Our cargo airlines flew 11% fewer hours across our customers' delivery networks.

Quint Turner: ACMI Services results were also affected by a $3 million increase in non-cash amortization expense for the Amazon warrant. ACMI Services also experienced increased expenses for maintenance, travel, and ground service rates as the average flight segment was shorter than a year ago. As a reminder, we executed an expanded agreement with Amazon announced in May to begin flying 10 additional aircraft at ABX Air in the second half of the year. Three of these are flying now, and we expect to have all of them flying in time for peak season in the fourth quarter, when additional pilot training and transition costs will be largely behind us. The fourth quarter will also include the benefits of seasonal peak flying opportunities and separately scheduled pricing increases under certain flying contracts. Turning to the next slide.

Speaker Change: A CMI services results were also affected by a $3 million increase in noncash amortization expense for the Amazon warrants.

Speaker Change: <unk> services also experienced increased expenses for maintenance travel and ground service rates is the average flight segment was shorter than a year ago.

Speaker Change: As a reminder, we executed an expanded agreement with Amazon announced in May to begin flying 10 additional aircraft at AVX Air in the second half of the year.

Speaker Change: Three of these are flying now and we expect to have all of them flying in time for peak season in the fourth quarter with additional pilot training and transition costs will be largely behind us.

Speaker Change: Fourth quarter will also include benefits of seasonal peak flying opportunities and separately scheduled pricing increases under certain flying contracts.

Speaker Change: Turning to the next slide.

Quint Turner: Our second quarter adjusted EBITDA was $130 million, down $27 million from the prior year period. CAMS adjusted EBITDA decreased by $4 million, and ACMI services and others decreased by $23 million. Cam's decline was again driven by 767-200 lease returns and fewer engine cycles operated by the 200s remaining in service, resulting in lower power by cycle engine revenue. The decrease in ACMI services and other services was driven by fewer block hours as well as increased expenses for maintenance, travel, and ground services.

Speaker Change: Our second quarter, adjusted EBITDA was $130 million down $27 million from the prior year period Cam.

Cam: <unk> adjusted EBITDA decreased by $4 million at CMI services, and other decreased by $23 million.

Cam: Cam's decline was again driven by 767 200 lease returns and fewer engine cycles operated by the two hundreds remaining in service, resulting in lower powered by cycle engine revenues.

Cam: The decrease in Acm's services, and other was driven by fewer block hours as well as increased expenses for maintenance travel and ground services.

Quint Turner: Slide 6 details our capital spending on a trailing 12-month basis. Total CapEx for the quarter was $70 million. Consisting of $43 million in growth and $27 million in sustaining capex, our capex spending is down 64% year over year for the second quarter. And for the full year 2024, we projected a decline of more than $400 million in capital expenditure compared to 2023. The next slide updates Adjusted Free Cash Flow as measured by our Operating Cash Flow, Net of Sustaining Cap Ex.

Cam: Slide six details our capital spending on a trailing 12 month basis total capex for the quarter was $70 million consisting of $43 million in growth and $27 million in sustaining capex or.

Cam: Our capex spending is down 64% year over year for the second quarter and for the full year 2024, we projected a decline of more than $400 million in capital expenditures compared to 2023.

Cam: The next slide updates adjusted free cash flow as measured by our operating cash flow net of sustaining capex operating cash flow was $137 million in the second quarter of this year, while that was down $55 million versus the prior year period, we still generated $110 million of adjust.

Quint Turner: Operating cash flow was $137 million in the second quarter of this year. While that was down $55 million versus the prior year period, we still generated $110 million of adjusted free cash flow. Furthermore, as a result of the reduced growth spending, as well as $25 million in asset sale proceeds, we generated $92 million of free cash flow in the quarter. This brings the year-to-date total to $107 million. On slide 8, you can see that available credit under our bank revolver in the U.S. and abroad was $489 million at the end of the second quarter, as we reduced total debt by $131 million since the beginning of the year.

Cam: Free cash flow.

Cam: Furthermore, as a result of the reduced growth spending as well as $25 million in asset sale proceeds.

Cam: We generated $92 million of free cash flow in the quarter.

Cam: This brings the year to date total to $107 million.

Cam: On slide eight you can see that available credit under our bank revolver and the U S and abroad was $489 million at the end of the second quarter as we reduced total debt by $131 million since the beginning of the year.

Quint Turner: Our plan now calls for us to reduce our adjusted EBITDA leverage ratio to around 2.9 times by the end of this year, compared with 3.2 times at the end of last. We continue to maintain healthy liquidity with unencumbered aircraft assets of $1.4 billion. Now, I'll turn the call back over to Mike to discuss our updated outlook. Mike? Thanks, Quinn.

Cam: Our plan now calls for us to reduce our adjusted EBITDA leverage ratio to around two nine times by the end of this year compared with three two times at the end of last year.

Cam: We continue to maintain healthy liquidity with unencumbered aircraft assets of $1 4 billion.

Cam: Now I'll turn the call back over to Mike to discuss our updated outlook Mike.

Mike Berger: Quinn. Turning to the next slide, I'd like to spend some time discussing our outlook and assumptions for 2024. Including the additional leases we signed since June, ATSG now expects adjusted EBITDA of approximately $526 million in 2024, an increase of $10 million from the outlook we provided in May, with the increase concentrated in the fourth quarter. The contribution from these leases was included in our original $30 million of potential but uncommitted additional adjusted EBITDA we laid out in February.

Mike Berger: Thanks Gwen.

Mike Berger: Turning to the next slide I'd like to spend some time discussing our outlook and assumptions for 2024.

Mike Berger: Including the additional leases we signed since June <unk>.

Mike Berger: <unk> now expects adjusted EBITDA for approximately $526 million in 2024.

Speaker Change: An increase of $10 million from the outlook, we provided in may with the anchor with the increased concentrated in the fourth quarter.

Speaker Change: Contribution from these leases was included in our original $30 million of potential, but I committed additional adjusted EBITDA, we laid out in February.

Mike Berger: We expect the third quarter adjusted EBITDA to be similar to the second quarter, with a marked improvement in the fourth quarter. As a reminder, this forecast also excludes any contribution from additional leases not currently under contract, which could generate additional adjusted evidence.

Speaker Change: We expect third quarter adjusted EBITDA to be similar to the second quarter with a marked improvement in the fourth quarter.

Mike Berger: As a reminder, this forecast also excludes any contribution from additional leases not currently under contract which could generate additional adjusted EBITDA.

Mike Berger: We continue to see more interest in our newly converted freighters while maximizing value from the 767-200 aircraft that have finished their lease terms. This includes utilizing three SPARES to support additional Amazon flying. As mentioned, we are reducing our total capital spending target to $390 million versus $410 million we projected in May. This includes $165 million for sustaining CAPEX and $225 million for growth. The gross spending outlook includes the completion of 17 aircraft that were in the process of conversion at the start of the year and seven feedstock purchases, including one additional Airbus A330 later this year.

Speaker Change: We continue to see more interest in our newly converted freighters, while maximizing value from the 767 200 aircrafts and finished our lease terms. This includes utilizing three spares to support additional Amazon flying.

Speaker Change: As mentioned, we are reducing our total capital spending target to $390 million versus $410 million, we projected it may.

This includes a $165 million for sustaining capex and $225 million for growth.

Speaker Change: The growth spending outlook includes the completion of 17 aircrafts that we are in the process of conversion at the start of the year and seven feedstock purchases, including one additional Airbus <unk> hundred 30 later this year.

Mike Berger: As I mentioned earlier, we generated $107 million in free cash flow through June, and we expect continued improvement during the rest of the year. This improvement stems largely from a $400 million reduction in our CapEx spending versus a year ago.

Speaker Change: As I mentioned earlier, we generated $107 million in free cash flow through June and we expect continued improvement during the rest of the year.

Speaker Change: This improvement stems largely from the $400 million reduction in our capex spending versus a year ago. We.

Mike Berger: We continue to believe our midsize freighter assets will remain in high demand, and our unique lease plus strategy positions us for more freighter leases and superior customer satisfaction. We are focused on safe, efficient operations as we deliver our 2024 goals and look forward to an even better 2025. That concludes our prepared remarks. Joe, Quint, and I, along with Jeff Dominick, our president, are ready to answer questions. Then we have the first question.

Speaker Change: We can continue to believe our midsized freighter assets will remain in high demand and our unique lease plus strategy positions us for more freighter leases and superior customer satisfaction we.

Speaker Change: We are focused on safe efficient operations as we deliver our 2024 goals and look forward to an even better 2025.

Speaker Change: That concludes our prepared remarks, Joe Quintin I, along with Jeff Dominick, our president are ready to answer questions. When we have the first question.

Operator: Thank you. As a reminder, to ask a question, please press star one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. One moment for questions. Our first question comes from Frank Galanti on behalf of Stifel. You may proceed.

Speaker Change: Thank you.

Speaker Change: As a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again, one moment for questions.

Speaker Change: Okay.

Speaker Change: Yes.

Speaker Change: Our first question comes from Frank Galanti with Stifel. You May proceed.

Frank Galanti: Yeah, great. Appreciate you taking my question. I wanted to ask sort of about demand for the midsize freighters, what you're seeing, right? Obviously, you had more lease than you anticipated at the beginning of the year and last quarter. But sort of given how many of the older planes are coming out of service, how do you see the supply-demand balance for that Prager class?

Frank Galanti: Yes, great well I appreciate you taking my question.

Frank Galanti: I wanted to ask sort of about demand for the midsized freighter.

Frank Galanti: Freighters.

You're seeing obviously you had more leads than you anticipated beginning of the year and last quarter.

Speaker Change: But sort of given how many of the older planes are coming out of service how do you see the supply demand balance for that.

Frank Galanti: Thank you Glenn.

Mike Berger: Yeah, Frank, it's Mike. You know, we still see solid demand for the mid-sized wide body aircraft. We've delivered 14, you know, aircraft in the last 12 month period. As we've announced, we've delivered eight so far this year. And as I said, we know we're going to deliver the two A330s we talked about. So we fully expect to deliver, you know, double digit aircraft by the end of this year. And we hope to carry that continuous momentum into 2025.

Frank Galanti: Yeah, Frank it's Mike, we still see solid demand for the further the mid wide body aircraft.

Speaker Change: We delivered 14 aircraft in the last 12 month period.

As we've announced we've delivered so far this year.

Frank Galanti: And as I said, we know we're going to deliver the 200 <unk> hundred 30, <unk> as we talked about so we fully expect to deliver double digit aircraft by the end of this year and hope to carry that continuous momentum into 2025.

Quint Turner: Okay, that's helpful. And then sort of switching gears a little bit to the ACMI business. It looked like there were negative pre-tax earnings on the segment, which is worse than I thought. Can you sort of talk about the puts and takes in the quarter between lower block hours or more Amazon CapEx to get the pilots trained up? And then relative to, what do you expect on the go-forward basis?

Frank Galanti: Okay.

Frank Galanti: And then switching gears a little bit to the ATM.

Frank Galanti: <unk> business.

Speaker Change: It looked like there.

Speaker Change: Our negative pretax earnings in the segment, which is worse than I had thought can you sort of.

Speaker Change: Talking about the puts and takes in the quarter on.

Speaker Change: Between lower block hours or more implant line.

Speaker Change: And then alright, sorry, more Amazon Capex.

Speaker Change: And our Opex to get the pilots trained up.

Speaker Change: And then relative to what do you expect that on a go forward basis.

Quint Turner: Yeah, Frank, it's Quint. Thanks for the question. Yeah, and the biggest impact in terms of the, you know, the second quarter ACMI was just block hours, and block hours were down. You know, as you know, we had the final, the smaller 762s that we talked about last year that were coming back from Amazon. We got all those back, you know, right at the beginning of the quarter, the second quarter.

Speaker Change: Yes, Frank it's Quinn thanks for the question yes.

Speaker Change: Yes.

Speaker Change: The biggest impact in terms of.

Speaker Change: Yes.

Second quarter <unk> was just block hours and block hours were down.

Speaker Change: As you know we had the final <unk>.

Speaker Change: <unk> 760 <unk>.

Speaker Change: Talked about last year that were coming back from Amazon, We've got all those back right at the beginning of the quarter.

Quint Turner: And so, you know, we had fewer block hours flown on their network. Of course, as Mike said, we're going to begin adding aircraft, the larger 300s, you know, with three on and another seven expected to come in the second half of this year. And then on these block hours, you know, our passenger block hours were also down, you know, of course, versus the prior year. And so those are, you know, those are the biggest impact.

Speaker Change: The second quarter and so.

Speaker Change: We had a reduced block hours flown and their network of course, as Mike said, we're going to begin adding aircraft.

Speaker Change: The larger three hundreds three on an another cell and expect it to come on the second half of this year.

Mike Berger: Then on the block hours are passenger block hours were also down.

Mike Berger: Of course versus the prior year.

Speaker Change: And so those are those are the biggest <unk>.

Joe Hete: And we also had, in terms of that, you know, we had some warrant amortization with respect to the new Amazon arrangement. We had extended some of the warrants that had been previously granted to Amazon, and the amortization of those is driving about a $3 million impact for that. Now that said, in terms of what our expectations are for the balance of the year, we do expect ACMI Services as a segment to be profitable for the year.

Speaker Change: The impact and we also had in terms of that we had some warrant amortization with respect to the new Amazon arrangement.

Speaker Change: We have extended some of the warrants that had been previously granted to Amazon and the amortization of those is driving about $3 million.

Speaker Change: Impact.

Speaker Change: For that now that said in terms of what.

Speaker Change: What were your expectations for the balance of the year.

Speaker Change: Do expect.

Speaker Change: <unk> services as a segment to be profitable for the year.

Joe Hete: And again, you saw some commentary in the release, it's weighted to the fourth quarter, and you know there's a few reasons for that you know of course there's there's always peak there's the timing of some scheduled contractual price increases that are coming there there's some seasonal charter opportunities you know peak season opportunities and and so you know we do expect that for the full year ACMI services which is down for the first half in the loss position by about 10.6 million to end up profitable for the full year, And I think they'll carry some momentum into 25 with a larger fleet and, you know, some improved margins. This is Joe Frank.

Speaker Change: And again you saw some commentary in the release, it's weighted to the fourth quarter.

Speaker Change: And there's a few reasons for that of course, there's always peak times.

Speaker Change: Timing of some scheduled contractual price increases that are coming there there is some seasonal charter opportunities peak season opportunities.

Speaker Change: And so we do expect that for the full year, a CMI services, which is down for the first half in the loss position by about $10 6 million to end up profitable for the full year and I think they'll carry some momentum into 2005.

Speaker Change: With a larger fleet and.

Joe Hete: On top of that, you know, elimination by the time we get to 4Q of all the gearing up costs for the Amazon business, as you mentioned, in terms of pilot training, getting maintenance technicians trained up, etc. So, that will be behind us by the time we get to the, call it, November timeframe. Perfect. We appreciate it.

Speaker Change: Some improved margins on top of this is Joe Frank on top of that you've got the elimination by the time, we get to <unk> of all the gear up cost for the Amazon business. As you mentioned in terms of pilot training and maintenance technicians trained up et cetera, so that will be behind us by the time, we get to the.

Speaker Change: Call It November timeframe.

Joe Hete: Perfect. I really appreciate it. Thank you.

Speaker Change: Perfect well.

Speaker Change: I appreciate it thank you.

Speaker Change: Thanks, Brian.

Speaker Change: Yes.

Speaker Change: Thank you.

Operator: Our next question comes from Christopher Stathoulopoulos with SIG. Please proceed.

Speaker Change: Our next question comes from Christopher <unk> with <unk> you May proceed.

Christopher Stathoulopoulos: So just to follow up on this last point here on the pre-tax contribution for ACMI. So Quint is profitable in 4Q. You know, just to kind of better understand if you contextualize that, is that slightly above breakeven? And as we think about, I know there's a lot of these one-time costs going off, but just looking at 23, you did around $32 million in 2019 pre-pandemic, around 32. How should we think about pre-tax earnings and, you know, ACMI as a percentage of your EBITDA mix for 25, given the expanded TSA with Amazon and all these other additional aircraft that are being placed? Thanks.

Speaker Change: Okay.

Speaker Change: Just to follow up on this last point here on the.

Speaker Change: Pre tax contribution for <unk>.

Speaker Change: So quinn profitable.

Speaker Change: Profitable in <unk>.

Speaker Change: Just trying to kind of better understand if you contextualize that as that slightly above breakeven and as we think about.

Speaker Change: I know Theres a lot of these one time costs rolling off but just.

Speaker Change: Just looking at 'twenty three did around $32 million 2019.

Speaker Change: Pre pandemic around 32.

Speaker Change: Should we think about pre tax earnings and add up.

Speaker Change: <unk> as a percentage of your EBIT it makes for 25.

Speaker Change: Given the expanded TSA with Amazon and all these other additional aircraft that are being placed.

Quint Turner: Well, it might be a tad early for specific guidance for the full year, but, you know, in terms of the remainder of this year, Chris, it's really, again, the fourth quarter where you're going to see, I think, ACMI service improve its profitability and get positive for the full year. I think the third quarter is going to be a factor because we're still onboarding aircraft from Amazon, and we've got those transitional costs that Joe mentioned in the third quarter, and that's going to be a factor.

Speaker Change: It might be a tad early for specific 25 guidance, but.

Speaker Change: In terms of the.

Speaker Change: The remainder of this year Chris.

Speaker Change: Again in the fourth quarter, where youre going to see I think Acm's service.

Speaker Change: Yes.

Speaker Change: Improving its profitability and getting positive for the full year.

I think the third quarter.

Speaker Change: Because we're still on boarding.

Joe: Aircraft from Amazon and we've got those transitional costs that Joe mentioned.

Joe: In the third quarter, and that's that's going to be a factor in the fourth quarter is when we expect to have them all on board.

Quint Turner: And the fourth quarter, you know, is when we expect to have them all onboard, and that, combined with just the timing of sort of some annual adjustments that, you know, will take place on some of these contracts, I think will really provide a nice tailwind for ACMI Services in the fourth quarter. I mean, you know, as far as next year, you know, of course, we'll be speaking to that guidance more on the next quarterly call for the full year, but, you know, I think ACMI Services is going to make headway next year, assuming contracts and business volumes remain in place as they are today.

Joe: And that combined with just the timing of sort of some annual adjustments that.

Joe: We will take place on some of these contracts I think will really provide a nice tailwind for ACI services in the fourth quarter.

Joe: As far as.

Joe: Next year of course, we will be speaking to that guidance more.

Joe: On the next quarterly call for the full year.

Joe: But.

Speaker Change: I think <unk> services is going to make headway next year, assuming contracts and business volumes are remain in place as they are today, we would expect it to to improve as you know they've had to absorb some aircraft coming back.

Quint Turner: We would expect it to improve. As you know, they've had to absorb some aircraft coming back, with the 767-200. And those are all back now on those CMI contracts. So I think, you know, they're set to make progress on a go-forward basis.

With the 787 two hundreds.

Speaker Change: And those are all back now on the CMI contracts. So I think they're set to make progress on a go forward basis.

Quint Turner: We think about and come up with our own bottoms-up analysis using all the fleet stats that you've given here for our 25 enterprise EBITDA. Is it fair to say that ACMI as a percentage of enterprise could fall somewhere between, call it, 25 and 30 percent of Adjusted Total Dividend for next year?

Speaker Change: As we think about and come up with our own bottoms up analysis using all of the fleet status that you've given here for our 25 enterprise EBITDA is it fair to say that <unk> as a percentage of enterprise could fall somewhere between call it 25% to 30%.

Speaker Change: Adjusted total EBITDA for next year.

Quint Turner: Um... Um... Yeah, I think so. Yeah, absolutely.

Speaker Change: Yes, I think so yes, absolutely.

Christopher Stathoulopoulos: Okay. As a follow-up here with the outlook here for lower interest rates, you know, how should we think about, I guess, lease rates or, if you want to speak to, lease factors into 2025? Thank you.

Speaker Change: And as a follow up here.

Speaker Change: The outlook here for lower interest rates.

Speaker Change: Should we think about I guess lease rates or if you want to speak to I guess lease factors.

Speaker Change: Two 2025.

Speaker Change: Our lease rate factors. Thank you.

Mike Berger: In regards to the rates, as I've mentioned on a number of calls, we've seen for the 767 specifically, lease rates be very, very stable over the last several years. We haven't seen much fluctuation at all through the different cycles that we've undertaken over the last few years. In terms of the lease rate factors, that can vary a little bit based on the feedstock costs, depending on different aircraft types as we go.

Speaker Change: In regards to the rates as I've mentioned, a number on a number of calls.

Speaker Change: We have seen for the 767, specifically lease rates be very very stable over the last several years, we havent seen much fluctuation at all.

Speaker Change: Through the different cycles that we've undertaken over the last few years.

Speaker Change: In terms of the lease rate factors.

Speaker Change: That can vary a little bit based on the feedstock costs.

Speaker Change: Depending on different aircraft types as we go aircraft availability, specifically around the $3 30.

Mike Berger: Aircraft availability, specifically around the 330, has been generally higher based on some of the issues that Airbus has had getting their new product on the 350 into service. But overall, in general, rates have stayed very, very constant.

Speaker Change: Have been generally higher based on some of the issues that Airbus has had getting their new product in a $3 50 into service.

Speaker Change: But overall in general.

Speaker Change: Rates have stayed very very constant.

Christopher Stathoulopoulos: Okay, if I could just slip in one more here. I think you have four open labor deals, two on the pilots, two on the FAs, between ATI and Omni. Just where are we in negotiations and sort of any sort of timelines we should look for? Thanks.

Speaker Change: Okay, and if I could just slip in one more here I think you have or open labor deals too on the pilots to EMEA base between ATI and omni just where are we on negotiations.

Speaker Change: Negotiations and sort of any sort of timelines, we should look for.

Joe Hete: I think, as I've said on previous calls right now, we don't expect to have, the pilots are the primary drivers from a cost standpoint to get any agreements until sometime in 2025. However, negotiations continue to progress under the auspices of the mediation, the National Mediation Board. So it's, you know, that's baked into our numbers looking to the fourth quarter, where we don't anticipate having any additional costs as a result of settling up any of those labor agreements. Okay, thanks, Joe.

Speaker Change: I think I've said on previous calls right now we don't expect to have at least the pilots are the primary drivers from a cost standpoint to get any agreements until sometime in 2025.

Speaker Change: Negotiations continue to progress under the auspices of mediation National Mediation Board. So that's baked into our numbers, who are looking to the fourth quarter, where we don't anticipate having any additional costs as a result of settling up any of those labor agreements.

Joe Hete: Okay, thanks, Joe.

Speaker Change: Okay. Thanks, Jeff.

Thank you.

Operator: Our next question comes from Michael Ciarmoli with True Securities. He may proceed.

Speaker Change: Our next question comes from Michael <unk> with <unk> Securities You May proceed.

Michael Ciarmoli: Hey, good morning, guys. Thanks for taking the question. Good morning.

Hey, good morning, guys. Thanks for taking the question.

Michael Ciarmoli: Hey, just to stay on that, on the labor front with the pilots, is there any increased disruption there? Are you seeing any turnover from pilots? I mean, I think you called out crew training costs, but is that a factor or any kind of headwind on expenses there from that?

Speaker Change: Morning.

Michael: Just to stay on that on the labor front with the pilot is there is there any increased disruption there or are you seeing any turnover from pilots I mean, I think you called out.

Michael: Crew training costs, but.

Michael: A factor or or any kind of headwind on expenses there from Matt O'brien.

Joe Hete: Now, in fact, attrition has dropped markedly since last year, probably down about 50% from where it was a year ago, which reduces our turnover costs. But we do have the gear-up costs associated with the additional Amazon tables baked in there.

Speaker Change: In fact, the attrition has dropped off markedly since last year.

Speaker Change: Almost down probably about 50%.

Speaker Change: From where it was a year ago, which reduces our.

Speaker Change: Turnover cost, but we do have the gear up costs associated with the additional Amazon tails baked in there as far as disruptions no disruptions relative to crews from Andrew but everybody is doing the job they're supposed to do on a day in day out basis, and moving the airplanes on a timely basis for our customers.

Joe Hete: As far as disruptions go, there were no disruptions relative to crews. I mean, everybody's doing the job they're supposed to do on a day-in, day-out basis of moving the airplanes on a timely basis for our customers. I think it's worthwhile just to reiterate the amended deal that we got with ABX Air through 2030. We're really proud of that deal, as well as establishing what we're and our expectations are going forward.

Speaker Change: Okay.

Speaker Change: I think it's worthwhile just to reiterate.

Speaker Change: The amended deal that we got with with AVX Air.

Speaker Change: Through 2030.

Speaker Change: Really proud of that deal as well as establishing.

Speaker Change: What our expectations are going forward.

Joe Hete: Got it. Got it. Okay. And then.

Michael Ciarmoli: And then just generally on the cargo market, I mean, you talked about ACMI and the block hours. Are you seeing any pressure just with the continued increase in passenger planes and that underbelly storage?

Speaker Change: Got it got it Okay and then.

Speaker Change: Just generally on the on the cargo market I mean, you talked about HDMI and the block hours are you seeing any.

Speaker Change: <unk> just with the continued increase of passenger planes and that underbelly storage.

Mike Berger: Not from a belly standpoint; we don't see any pressure. Keep in mind, the majority of our customers, and specifically our main customers, fly within the major integrator networks. So when they're flying networks, they don't have a tendency to get the variability piece of it from a seasonality standpoint and available capacity standpoint. So we've seen very much stability in that side of the picture.

Speaker Change: No not from a belly standpoint, we don't see we don't see any pressure keep in mind. The majority of our our customers in specific I remain our main customers fly within the major integrator networks.

Unknown Executive: Good day, and thank you for standing by. Welcome to the Q2 2024 Air Transport Services Group Inc, earnings conference call. At this time, all participants are in a listen only mode.

Speaker Change: So when they're flying networks, they don't have a tendency to to get the variability piece of it.

Speaker Change: From a seasonality standpoint and available capacity standpoint so.

Unknown Executive: Please be advised that today's conference is being recorded. After the speaker's presentation, there will be a question and answer session. To ask a question, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again.

Speaker Change: We've seen very much stability in that side of the business.

Michael Ciarmoli: Okay, last one for me. I don't know if I missed it. The $25 million in property equipment proceeds, what did that stem from? And should we expect any more of those in the second half of the year?

Speaker Change: Okay last.

Speaker Change: Last one for me I don't know if I missed it the $25 million of <unk>.

Speaker Change: Property and equipment proceeds what did that stem from and should we expect any more of those in the second half of the year.

Quint Turner: Yeah, Michael, it's Quint. There were five airframes that, you know, we sold aircraft. A couple of 300s and then three 767-200s that made that up. And keep in mind, you know, like the 300s, those are unmodified.

Joe Payne: I would now like to hand a conference over to your speaker today, Joe Payne, Chief Legal Officer. Good morning, and welcome to our second quarter 2024 Earnings Conference Call. We issued our earnings release yesterday after the market closed. It's on our website at atsginc.com. Let me begin by advising you that during the course of this call, we will make projections and other forward-looking statements that involve risks and uncertainties. Our actual results and other future events may differ materially from those we described here.

Speaker Change: Yes.

Quint Turner: Michael It's quint.

Speaker Change: Five airframes that we sold aircraft.

Speaker Change: Couple of three hundreds and then three 767, two hundreds that made that up and keep in mind.

Quint Turner: You know, we were monetizing. As you know, we had some assets that were not in conversion that were sort of awaiting conversion. So we were opportunistic and took that opportunity to move some of those. And as we've been saying, you know, we've had customers interested in buying some of these 762-200s that came back. You know, and some of those customers, of course, will continue to procure engine power from us, which is good.

Speaker Change: The 300 those are unmodified.

Speaker Change: We were monetizing as you know we had some assets that debt.

Speaker Change: We're not and conversion that were sort of awaiting conversion. So we took we were opportunistic and took that opportunity to move some of those and as we've been saying we've had customers interested in buying 77, two hundreds that came back.

Speaker Change: And some of those customers of course, we will continue to.

Joe Payne: These forward-looking statements are based on information, plans, and estimates as of the date of this call. It transports services group, undertakes no obligation to update any forward-looking statements, to reflect changes in underlying assumptions, factors, new information, or other changes. These factors include but are not limited to, changes in the market demand for our assets and services, including the loss of customers or reduction in the level of services we perform for customers.

Speaker Change: Procure engine power from us.

Quint Turner: So we, you know, we monetize some assets. And as far as the future, you know, we'll be opportunistic. But, you know, as you know, it's something we don't typically do that often. OK, perfect. Thanks, guys. I'll jump back to my presentation.

Speaker Change: Which is good.

Speaker Change: We monetize some assets and as far as in the future we will be opportunistic.

Speaker Change: As you know, it's something we don't typically.

Michael Ciarmoli: Okay, perfect. Thanks, guys. I'll jump back in the queue.

Speaker Change: Often do.

Speaker Change: Okay perfect. Thanks, guys I'll jump back in the queue.

Speaker Change: Thank you.

Operator: Our next question comes from Ian Zaffino with Oppenheimer. You may proceed.

Speaker Change: Our next question comes from Ian Zaffino with Oppenheimer You May proceed.

Ian Zaffino: Hey, good morning. This is Isaac Sellhausen on behalf of Ian.

Speaker Change: Hey, good morning. This is <unk> on for Ed.

Joe Payne: Our operating airline's ability to maintain on-time service and control costs. The cost and timing with respect to which we are able to purchase and modify aircraft to a cargo configuration. Fluctuations in atsg's traded share price and in interest rates, which may result in marked-to-market charges on certain financial instruments. The number, timing, and scheduled routes of our aircraft deployments to customers. Our ability to remain in compliance with key agreements with customers, lenders, and government agencies.

Speaker Change: Thanks for taking all the questions.

Isaac Sellhausen: Thanks for taking all the questions. Can you just provide a brief overview of the status and timeline of conversions as we move to the rest of the year? I know you mentioned the two A330s are expected to be converted in the fourth quarter. But can you also just touch on those 767s and maybe how you think about the timing of those with respect to the demand outlook and, you know, potential for additional leases? Thanks.

Speaker Change: Could you just provide a brief overview on status and timeline of conversion as we move through the rest of the year I know you mentioned the <unk> hundred <unk> are expected to.

Speaker Change: Be converted in the fourth quarter, but could you also just touch on those <unk> and.

Maybe how you think about the timing of that.

Speaker Change: Outlook.

Speaker Change: Potential for additional leases.

Mike Berger: Yeah, thanks for the question. You know, we expect to, you know, deliver, as I said earlier, a few more aircraft. From a 767 conversion standpoint, you know, we're still actively converting aircraft, you know, with II in Tel Aviv. And we see that we see the continuous demand for more 767s on a go forward basis into 2025. We've often said, and we still firmly believe that the 767 is the heartbeat of our company. And we will continue to produce 767s as they're in demand.

Speaker Change: Yes, thanks for the question.

Speaker Change: We expect to.

Speaker Change: Deliver as I said earlier, a few more aircrafts from our 767 conversion standpoint.

Joe Payne: The impact of current supply chain constraints, the impact of the current competitive labor market. Changes in general, economic, and-or industry-specific conditions, including inflation and regulatory changes. The impact of geopolitical tensions or conflicts and human health crises and other factors as contained from time to time in our filings with the SEC, including the Form 10Q to be filed today. We will also refer to non-gap financial measures from continuing operations, including adjusted earnings per share, adjusted pre-tax earnings, adjusted EBITDA, free cash flow, and adjusted free cash flow. Management believes these metrics are useful to investors in assessing atsg's financial position and results. These non-gap measures are not meant to be a substitute for our gap financials.

We're still actively converting aircraft.

Speaker Change: With with II in Tel Aviv and.

And we see it we see the continuous demand for for more 760 Sevens on a go forward basis in the 2025.

Speaker Change: We've often said and we still firmly believe that the 767 is the heartbeat of our company.

And we will continue to.

Speaker Change: Two converted 760 sevens.

Speaker Change: They are in demand.

Isaac Sellhausen: Okay, understood. And then as a quick follow-up on the passenger block hours or just flying at ACMI, could you, I think you mentioned a little bit about repair marks on Omni. Maybe you could just help us understand where things are there as far as military flying and activity for them. Thanks.

Speaker Change: Okay understood.

Speaker Change: Quick follow up on.

Speaker Change: The passenger block hours or just flying at ACR by could.

Speaker Change: Could you I think you mentioned a little bit of prepared remarks on harmony.

Speaker Change: Maybe you could just help us understand.

Speaker Change: Where things are there as far as military flying in activity for that thanks.

Quint Turner: Yeah, in terms of the omni hours, you know, as we said, the I think the passenger block hours were offered a year ago by about 4% or so. You know, however, on a sequential basis, you know, they're, they're, you know, not anything like that. They're, they're, they're doing a bit better than that on a sequential basis, you know, actually being up Transcription by Transcription Outsourcing, LLC. 2013 Transcription Outsourcing, versus the first quarter.

Speaker Change: Yes in terms of the.

Joe Payne: We advise you to refer to the reconciliations to gap measures, which are included in our earnings release and on our website.

Speaker Change: On the hours.

Speaker Change: We've said that I.

Speaker Change: I think the passenger block hours were up versus a year ago by about 4% or so.

Joe Hete: and now I'll turn the call over to Joe Hete, our Executive Chairman for his opening comments. Thank you, Joe. Good morning, everyone.

Speaker Change: However.

Speaker Change: On a sequential basis.

Speaker Change: They are.

Speaker Change: Not anything like that there.

Joe Hete: I want to spend just a moment on the leadership transitions we announced back in June. Mike Berger, previously our President, was appointed as CEO. Jeff Dominick, previously a board member, took over Mike's role as President, while I became the Executive Chairman. Many of you already know Mike Well from the prior earnings calls and investor meetings. He's been with ATSG since 2018 and brings a wealth of knowledge and experience having worked for major express, express companies throughout his career.

Speaker Change: Theyre doing a bit better than that on a sequential basis.

Speaker Change: Actually being up.

Speaker Change: Sequential basis.

Quint Turner: I think that, you know, the exercises, as you know, visibility is always a little bit tougher on the omni-flying. However, you know, it isn't the third quarter is usually not a bad quarter for them. Their busiest month is typically in October, typically, for the timing of exercises. But then they tend to fall off after that.

Speaker Change: Versus the first quarter.

Speaker Change: I think that.

Speaker Change: The exercises as you know the visibility is always a little bit tougher on the omni flying however.

Speaker Change: It is.

Speaker Change: Third quarter is usually.

Speaker Change: Not a bad quarter for them their busiest month is in October.

Speaker Change: Typically for the timing of exercises, but then they tend to fall off after that and so.

Joe Hete: With a background in private equity investing in commercial aerospace markets, Jeff expands ATSG's financial acumen in the aircraft leasing space, and we look forward to you meeting Jeff. As for me and my new role, I will still be heavily involved in the strategy development and the formulation of long-term business objectives for ATSG.

Quint Turner: And so, you know, it's a more normal pattern. We're getting to that point of the year where there's a contractual increase, you know, with the government's fiscal year beginning in October. And that's going to be helpful. So, you know, I think, you know, we're expecting it to be relatively stable in the second half of the year, similar to the first half.

Speaker Change: <unk>.

Speaker Change: It's a more normal pattern we're getting.

Speaker Change: To that point of the year, where theres, a contractual increase with the government's fiscal year beginning in October and that's going to be helpful.

Speaker Change: So.

Speaker Change: I think.

Mike Berger: I'll turn the call over now to Mike to update you on the quarter and both Jeff and I will be available during the Q&A session. Mike? Thank you, Joe, and thank you to everyone joining the call today as well.

Speaker Change: We're expecting it to be relatively stable the second half of the year similar to the first half.

Isaac Sellhausen: Okay, great. Thank you very much.

Speaker Change: Okay, great. Thank you very much.

Operator: Thank you. And as a reminder, to ask a question, please press star 1 1 on your telephone. Our next question comes from Ben Rubenstein with Robotian Company. You may proceed. Good morning. Thanks for taking my question.

Mike Berger: I'm excited to be speaking to you on my first earning conference call at CEO. I want to thank Joe E for his leadership and guidance at CEO after assuming the role last November and for continuing to lend us the skills and experience in his new role. I'm excited about the opportunity ahead of us here at ATSG. We have an unparalleled fleet of independent mid-sized freighters going to market with a least plus strategy which differentiates us from our competitors.

Speaker Change: Thank you.

Speaker Change: A reminder to ask a question. Please press star one on your telephone. Our next question comes from Ben Rubenstein with robots <unk> Company you May proceed.

Morning, Thanks for taking my question.

Ben Rubenstein: So, at Investor Day last year, you talked about you had a slide that showed the estimated carrying value of your planes being $350 million less than the market value. I'm just curious where that stands today.

Speaker Change: So at the Investor Day last year, you talked about you had a slide that showed the.

Speaker Change: The estimated carrying value of your claims being $350 million less than the market value I'm, just curious where that stands today.

Mike Berger: Last quarter, we communicated a key milestone, our expanded and extended flying agreement with Amazon. We will flight 10 additional aircraft they provide this year and we remain on track with prior expectations to be fully ramped up on those 10 aircraft by peak season. That will bring us to 51-767 aircraft we operate for Amazon including 30 we lease to them. Comparisons of our financial results to the second quarter to prior year were principally affected by fewer lease 767-200 freighters as expected.

Quint Turner: Um, that was based upon, um, the cost to convert aircraft is adjusted for the average age since conversion and taking into account the useful life post conversion, which is, you know, about 20, 20 years plus. And, you know, actually, the cost to convert has gone up since then. Like a lot of things, inflation has affected So, to produce that fleet of aircraft. Today, prices have only gone up, only gone up since the investor. And so, as Mike stated a minute ago, the midsize freighter is still in demand.

Speaker Change: That was based upon.

Speaker Change: What the cost to convert aircraft is adjusted for the average age since conversion.

Speaker Change: And taking into account the useful life post conversion, which is about 2020 years, plus and actually the cost to convert has gone up since then.

Speaker Change #100: Like a lot of things inflation has affected that so to produce that fleet of aircraft.

Today.

Mike Berger: Our results for the quarter get come in above our internal expectations. Also, we are in first report the progress we've made on leasing available freighters. Since the end of June, we've leased four additional 767 freighters to external customers. Cam also has leased commitments for our first two converted Airbus 330 aircraft, expected to deliver in the fourth quarter of the year and is optimistic about future leases of other available aircraft. All these aircraft are handed for international markets where they would facilitate global trading further demonstrating ATSG as an enabler of e-commerce growth.

Speaker Change #100: It has gone up only gone up since Investor day.

Speaker Change #100: And so as Mike stated a minute ago. The midsize freighter is still end demand.

Quint Turner: You know, as the big driver for that is e-commerce growth, and network flying is where those aircraft are deployed. So, I don't think that's really changed. Of course, the aircraft have aged a little since September, and that depreciation would also be impacted. But if we ran that calculation again today, I don't think that has changed.

Mike Berger: As the big driver for that as ecommerce growth.

Speaker Change #101: And that with that network flying is where those aircrafts are deployed so I don't think thats really changed of.

Speaker Change #102: Of course, the aircraft have aged a little since September and that that depreciation will also be impacted but if we ran that calculation again today I don't think that has changed.

Ben Rubenstein: Okay, thanks. And then just quick on the converts, the converts going from 2020 to 2029. Is there any willingness or ability to repurchase those?

Speaker Change #103: Okay. Thanks, and then just quick on the on the converts.

Speaker Change #104: The converts due in 2000 22029 is there any willingness or ability to repurchase those.

Mike Berger: Importantly, we continue to execute the plans we laid out for 2024 with a focus on safety, customer satisfaction and cost control. We want to thank our ATSG team for their dedication and striving towards our goals. We're on track to exceed our stated goal of positive free cash flow for the year, for the 107 million generated through June, and an expectation of additional free cash flow for the rest of the year. We are again raising our adjusted e-bidet outlook and have lowered our capital expenditure outlook for 2024. We remain focused on realizing the benefits of our business model and have the right team, the right assets, and the right strategy in place.

Ben Rubenstein: Um, you know that I guess in terms of buying, buying the converse back or buying stock after the conversion. I mean, what are you?

Speaker Change #104: Okay.

Speaker Change #104: Yes.

Speaker Change #105: I guess in terms of buying buying that converts back or buying stock after convert I mean, what are you.

Speaker Change #105: Okay.

Ben Rubenstein: I mean, if you could buy them back at a discount, you know, why not do that? I'm just curious if that's something that you guys have thought about. Um, yeah.

Speaker Change #106: I mean, if you could buy them back at a discount.

Speaker Change #107: Why not do that I'm, just curious if that's something that you guys thought about.

Quint Turner: Yeah, I mean, I guess anything is possible, but, you know, that wouldn't be something that both parties would want to do, and it would be a negotiation, obviously.

Speaker Change #108: Yes, I mean, I guess any anything is possible, but those arent.

Speaker Change #109: That would have to be something that both parties wanted to want to do and it would be a negotiation obviously.

Speaker Change #109: Thank you.

Mike Berger: Thank you. I would now like to turn the call back over to Mike Berger for any closing remarks.

Speaker Change #109: Thank you I would now like to turn the call back over to Mike Berger for any closing remarks.

Quint Turner: I will now turn the call over to Quint Turner to discuss our financial results for the second quarter. Quint? Thanks, Mike, and welcome to everyone joining us this morning. I'll start on slide 4, which summarizes our financial results for the quarter. Revenues were down 41 million or 8% versus a year ago to 488 million. This was driven by reductions in both our CAM and the ACMI services segments. In the second quarter, we saw gap pre-tax earnings of 10.7 million down from pre-tax earnings of 49.7 million in the prior year period.

Mike Berger: Thank you. I want to express my appreciation to all of our employees across the ATSG companies for all the work they do every day for our great company. I also want to give a shout out to all of our customers. Our teams are super focused on delivering customer satisfaction every day. Since the start of the year, we have emphasized that we must execute on our 2024 plan and regain the trust of our investors and shareholders. Very simply, we must do what we say we're going to do. No excuses.

Speaker Change #109: Thank you.

Speaker Change #110: I wanted to express my appreciation to all of our employees across the ATSG companies for all the work. They do every day for our Great company.

Speaker Change #110: I also want to give a shout out to all of our customers. Our teams are super focused on delivering customer satisfaction every day.

Speaker Change #110: Since the start of the year, we have emphasized we must execute on our 2024 plan and regain the trust of our investors and shareholders very simply we must do what we say we're going to do no excuses.

Mike Berger: We have raised full-year guidance to continue to look for growth opportunities and drive further incremental free cash flow. We are executing on this by still growing in our core leasing business. As you heard, we have delivered eight newly converted freighters so far this year and provided an optimistic view for more deliveries by the end of the year. Our LeasePlus strategy is unique and brings a powerful solution to the market. We will continue to grow our global presence, which is underpinned by connecting key economic and market indicators.

Speaker Change #110: We have raised full year guidance to continue to look look for growth opportunities and drive further incremental free cash flow we.

Quint Turner: This resulted in a diluted earnings per share of 11 cents versus diluted earnings per share of 49 cents in the second quarter of 2023. On an adjusted basis, pre-tax earnings fell 41 million to 17 million, and EPS was down by 38 cents to 19 cents.

Speaker Change #110: We are executing on this while still growing in our core leasing business.

Speaker Change #110: As you heard we have delivered eight newly converted freighters. So far this year and provided an optimistic view for more deliveries by the end of the year.

Quint Turner: Adjusted EPS did improve sequentially by 3 cents from the first quarter. In our aircraft leasing segment, Revenues decreased 7% as CAM's fleet of externally leased aircraft expanded by 1 since June 2023. That includes 14 incremental new leases, less than 13 aircraft that came off leased over the last 12 months, and their related engine PVC revenues. At the end of the second quarter, 87 CAM owned aircraft were leased to external customers. CAM's pre-tax earnings were down 16 million for the quarter, reflecting 9 million more in depreciation, a 6 million revenue declined from fewer 767-200 engine cycles, and $4 million more interest expense versus the prior year.

Speaker Change #111: Or at least first strategy is unique and brings a powerful solution to the market.

Speaker Change #111: We will continue to grow our global presence that is underpinned by connecting key economic and market indicators.

Mike Berger: In closing, I will say that we're pleased with the improvements we have made so far in 2024, and we have more to capitalize on. Let me be clear, we're not done by any means. Thank you.

Speaker Change #111: In closing I will say that we're pleased with the improvements we have made so far in 2024, and we have more to capitalize on.

Speaker Change #112: Well may be clear, we're not done by any means thank.

Thank you and have a great day.

Operator: Thank you. This concludes the conference. Thank you for your participation. You may now disconnect.

Thank you. This concludes the conference. Thank you for your participation you may now disconnect.

Speaker Change #112: Okay.