Air T (AIRT) 8-KRegulation FD Disclosure

NASDAQ: AIRT FY24 Q4 Update A PORTFOLIO OF POWERFUL COMPANIES March 31, 2024

 

Statements in this document, 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, economic and industry conditions in the Company’s markets, the risk that contracts with FedEx could be terminated or adversely modified, the risk that the number of aircraft operated for FedEx will be reduced, the risk that GGS customers will defer or reduce significant orders for deicing equipment, the impact of any terrorist activities on United States soil or abroad; the Company’s ability to manage its cost structure for operating expenses, or unanticipated capital requirements, and match them to shifting customer service requirements and production volume levels the Company's ability to meet debt service covenants and to refinance existing debt obligations, the risk of injury or other damage arising from accidents involving the Company’s overnight air cargo operations, equipment or parts sold and/or services provided, market acceptance of the Company’s commercial and military equipment and services, competition from other providers of similar equipment and services, changes in government regulation and technology, changes in the value of marketable securities held as investments, mild winter weather conditions reducing the demand for deicing equipment, and market acceptance and operational success of the Company’s relatively new aircraft asset management business and related aircraft capital joint venture. 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. Potential investors should review the Company’s risk factors contained in its reports filed with the Securities and Exchange Commission, as well as the summary Risk Factors contained herein, prior to investing. 2 SAFE HARBOR

 

3 ■ AIR T, INC. (NASDAQ: AIRT) is an industrious American company focusing on growing intrinsic value per share at a high rate. ■ Founded in 1980, our businesses have a history of growth and cash flow generation. ■ Current management has been in place since 2013. The two largest shareholders have seats on the Board of Directors. WHO WE ARE OPERATING HIGHLIGHTS EXECUTIVE SUMMARY ■ AIR T, INC. operates 14 companies with 600+ employees. ■ For the fiscal year ended 3/31/2024, Revenues were $286.8 million, and Adjusted EBITDA was $5.6 million. ■ Since 9/30/13, shares outstanding have declined from 3.7m* to 2.8m or 23.2%. *Adjusted for 3/2 stock split

 

1. About AIR T, INC. 2. Performance 3. Our Growth Strategies 4. Appendix - Risk Factors 4 CONTENTS

 

5 ABOUT AIR T, INC.

 

We are an industrious American company established 40+ years and growing. 6 ■ Our businesses have a history of growth and cash flow generation. ■ We seek to identify and empower individuals and teams who will operate businesses well, increasing value over time. ■ We work to activate growth and overcome challenges, ultimately building businesses that flourish over the long term. ■ Management has purchased a significant % of AIRT common stock in the open market, demonstrating real alignment with all common shareholders. ■ AIRT’s management team has a track record of successfully allocating capital.

 

“Investor-Operator Partnership” is designed to drive short and long-term value creation. 7 “We want our businesses to be managed by dynamic individuals within high-performance teams. We are set up to make space for dynamos and support their enterprises. The holding company team seeks to focus resources, activate growth and deliver long-term value for everyone associated with AIR T, INC.” - Nick Swenson

 

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$287M 9 FY24 Revenue $5.6M FY24 Adj. EBITDA* 3 CORE SEGMENTS 14 COMPANIES 624 EMPLOYEES OVERNIGHT AIR CARGO COMMERCIAL JET ENGINES AND PARTS GROUND EQUIPMENT SALES *See Adjusted EBITDA reconciliation on slide 33

 

AIR T, INC. FY24 Financial Highlights (For the Twelve-Month Period Ended 3/31) 10 FY Results ■ FY24 saw a 16% revenue increase compared to FY23 across all segments. This includes a $23.8M increase in Commercial Jet Engines and Parts, driven by higher component sales due to more activity in the aviation industry. Overnight Air Cargo increased by $25.0M, mainly due to higher pass-through revenues, admin fees, and the addition of WASI to the segment. A lower volume of deicers to commercial customers decreased Ground Equipment Sales by $11.3M. ■ FY24 Adjusted EBITDA decreased by $0.4M. Overnight Air Cargo increased $2.6M year-over-year due to higher revenues offset by higher pilot salaries and aircraft lease costs. Commercial Jet Engines and Parts decreased by $1.0M due to a lower profit margin on component sales and Ground Equipment Sales decreased by $4.7M due to lower sales. FY24 FY23 FY22 FY21 FY20 Revenue $286.8M $247.3M $177.1M $175.1M $236.8M Operating Income $1.3M ($4.4M) $8.8M ($9.2M) $7.3M Adjusted EBITDA* $5.6M $6.0M $11.4M ($1.3M) $9.0M *See Adjusted EBITDA reconciliation on slide 33

 

Commercial Jet Engines and Parts 11 SEGMENT 1 ■ We buy aircraft and engines, then either lease, trade, or send them to part out. ■ We supply parts to maintenance, repair, and overhaul facilities (MRO). ■ Companies in this segment include Contrail, AirCo, AirCo Services, Worthington, Jet Yard, Air’Zona, and LGSS. ■ Sales continue to rebound with additional activity in the aviation industry. A niche between aircraft owners and MRO shops, this segment will seek to grow by coordinating activities and raising investment capital. Twelve-Month Period Ended 3/31 FY24 FY23 Revenue $125.5M $101.7M Operating Income $4.2M ($1.0M)

 

Overnight Air Cargo 12 SEGMENT 2 ■ We operate two of the seven FedEx feeder airlines. ■ Business units Mountain Air Cargo and CSA Air have a 41-year history with FedEx. ■ Air T Companies since 1982, 1983 ■ Air T added Worldwide Aircraft Services (WASI) to this segment in Q4 FY23. ■ Revenues and operating income increased due to an increased fleet and the addition of WASI (see page 19) partially offset by higher pilot salaries and aircraft lease costs. An asset-light, predictable business. Twelve-Month Period Ended 3/31 FY24 FY23 Revenue $115.2M $90.5M Operating Income $6.8M $4.0M

 

Ground Equipment Sales 13 SEGMENT 3 ■ We manufacture deicing equipment, scissor lift trucks, and other ground support equipment. ■ Sole-source deicer supplier to the US Air Force for 20 years. ■ Highly efficient light manufacturing facility. ■ The segment is comprised of Global Ground Support LLC. ■ Air T Company since 1998. Segment’s order backlog was $12.6 million as of 3/31/24 compared to $13.6 million as of 3/31/23 Twelve-Month Period Ended 3/31 FY24 FY23 Revenue $37.2M $48.5M Operating Income ($1.6M) $3.1M

 

14 SEGMENT 4 FY24 FY23 FY22 FY21 FY20 Corporate ($3.1M)2 ($6.0M) ($5.6M)1 ($5.4M) ($5.3M) Other3 ($5.0M) ($4.6M) ($4.4M) ($4.0M) ($3.8M) Total Corporate and Other ($8.1M) ($10.6M) ($10.0M)1 ($9.4M) ($9.1M) Corporate and Other Subcomponent of Operating Income 1 Excludes one-time Employee Retention Credit of $9.1M. Reported FY22 Operating Income for the Corporate and Other segment was ($0.9M). 2 In F24, Air T refined its corporate allocation calculation, which increased business unit allocations by $2.7M 3 Consists of operations that do not fit cleanly into the Commercial Jet Engines and Parts, Overnight Air Cargo, or Ground Equipment Sales segments

 

15 Investment manager focused on unearthing fundamentally attractive small and mid-cap opportunities. Allows us to further expand upon our idea generation capabilities to identify, analyze, develop and execute innovative investment strategies that are aimed at building better financial futures for all our stakeholders. Air T company since 2017. Digital inkjet press designer and manufacturer, delivering color presses that produce high-quality output without compromising efficiency or budgets. Air T company since 2017. Software developer and solution provider focused on the Aviation MRO and aftermarket community. Developed a suite of cloud-based and mobile applications to provide affordable, common-sense solutions. Air T company since 2018. Investing For Growth

 

Air T Digital 16 ■ We invest in companies that provide digital aviation and other business services that generate recurring subscription revenues. As of 3/31/24 3/31/23 3/31/22 ARR1 $5.9M $4.7M $3.9M 1ARR, or Annual Recurring Revenue, is defined as the monthly recurring revenue as of March 31, 2024, March 31, 2023, and March 31, 2022, multiplied by 12

 

Aircraft JVs 17 ■ We manage assets for ourselves and our investor partners. The asset types include leased aircraft, consignments, and teardowns. ■ Our Aircraft JVs receive standard aviation industry management fees that include an incentive fee of approximately 20% above a hurdle rate of 0% to 8%, depending on the JV. ■ Our Aircraft JV investors seek to generate 10%+ returns after fees. ■ From inception through FY2024, Air T’s aircraft asset management activities have not generated cumulative positive Adjusted EBITDA. Yet this business was Adjusted EBITDA positive in the quarter ended 3/31/2024. As of 3/31/24 3/31/23 3/31/22 Aircraft JV Assets Under Management $429M $150M $84M

 

BCCM Advisors 18 ■ Air T‘s wholly-owned management company, BCCM Advisors, is the manager of a fund focused on growth “at-a- reasonable-price” US Equities, as well as a fund dedicated to equity compounders in Africa. BCCM also conducts ongoing research into new fund approaches. ■ Through 3/31/24, BCCM has not generated cumulative positive Adjusted EBITDA. As of 3/31/24 3/31/23 3/31/22 BCCM Assets Under Management $37M $33M $43M

 

■ On February 22, 2024, a newly created Air T wholly-owned subsidiary AAM 24-1, LLC, issued a note with a principal amount of $15.0M and an annual interest rate of 8.5%, collateralized by our equity investments into the Aircraft JVs. 19 AAM 24-1, LLC NEWS

 

FY14 FY24 Commercial Aircraft & Engines Overnight Air Cargo Ground Support Equipment FINANCIAL HIGHLIGHTS Over the last ten years, revenue has increased 232% and is more diversified. 20 +232% $278M* $84M SEGMENTS REVENUE 62% 38% 42% 13% 45% *Excludes revenue in FY24 earned outside of our core segments.

 

Non-Operating Assets 21 AIR T, Inc. owns the following public and private securities: OTHER AIR T, INC. Non-Operating Assets (In Millions) 3/31/24 3/31/23 3/31/22 3/31/21 3/31/20 Lendway, Inc. (LDWY) Stock – 0.5M Shares1,2 $2.2 $3.8 $4.6 $4.3 $2.6 CCI Investment (20.1% as of 3/31/24)3 $3.7 $3.1 $2.6 $3.8 $3.4 Oxbridge RE (OXBR) Stock – 0.5M Shares1 $0.4 Investments in BCCM Funds $0.6 $0.5 $0.7 $0.9 $0.3 Aircraft Asset Management Investments $10.5 $8.2 $7.0 TFS Partners LLC Investment2 $0.2 $0.3 $0.3 $0.6 $0.5 Other Investments $1.4 $2.2 $2.6 $2.9 $2.8 Total $18.6 $18.1 $17.8 $12.5 $10.0 1 Based on the closing price at the time of investor presentation publish. 3/31/24 is as of 6/14/24 at $4.59. 2 Formerly Insignia Systems, Inc. (ISIG) 3 3/31 Carrying value reflects the equity method of accounting.

 

22 CAPITALIZATION TABLE AIR T, INC.’s capital structure is designed to appropriately shape our bet sizes; in part by utilizing non-recourse leverage For example, AIR T guarantees Contrail’s bank loans to a maximum limit of $1.6 million. 1We entered interest rate swaps to provide a fixed rate of 5.09% and 4.68%, respectively, for Term Notes D and G.

 

Calibrated Bets & Capitalization Structure 23 Risk Management: Downside Protection • Anti-fragile company • Islands of segregated assets and businesses • Market-driven and savvy risk management program that oversees all of the company STRUCTURE Tailored, Limited, Convex Exposures • Convexity-promoting organizational design • Kelly-calibrated bets: sized to edge & bankroll • Limit downside: tailored exposures

 

FINANCIAL HIGHLIGHTS 24 Since 12/31/2013, the share price of AIRT has increased by 11.7% per annum*+. *Reporting period 9/30/13 to 6/14/24, includes $4M Trust *Preferred dividend to common shareholders + Compares to 11.6% return of the S&P 500 over the same period $22.85

 

FINANCIAL HIGHLIGHTS 25

 

26 GROWTH STRATEGIES

 

GROWTH STRATEGIES Our four growth strategies are... 27 ■ Invest to build our current high-performing businesses. ■ Seek to acquire new cash-flow generating businesses. ■ Identify great marketable securities or alternative assets. ■ Create unique investment products and fund alongside third- party capital partnerships.

 

GROWTH STRATEGY 1 We plan to reinvest in projects at our high-performing businesses by... 28 ■ Purchasing commercial aircraft for trading, leasing and part-out. ■ Purchasing engine parts inventory. ■ Funding deicer builds for Global Ground Support.

 

GROWTH STRATEGY 2 We seek to acquire new cash-flow generating businesses by... 29 ■ Identifying and acquiring high- performing businesses with edge in the marketplace, which either complement our current portfolio or diversify into industries beyond aviation.

 

GROWTH STRATEGY 3 We plan to identify great marketable securities or alternative assets by... 30 ■ Searching for another committed activist opportunity. ■ Investing in distressed and high yield securities. ■ Investing in small cap securities. ■ Further investing in our current securities portfolio.

 

GROWTH STRATEGY 4 We plan to create unique investment products with outside capital partners by... 31 ■ Offering thoughtful and sustainable products with attractive return profiles ■ Attracting and retaining sophisticated investment professionals and creating space for talented asset managers.

 

Theoretical Toy Model Public Company versus Private Equity Fund 32 TOY MODEL ASSUMPTIONS Annual Return on Investment 5% Taxes Paid by PE Fund @ 7-year Intervals 30% Year Public Company $1 Private Equity Fund $1 Taxes Paid 0 $1.00 $1.00 $0.00 7 $1.34 $1.24 $0.10 14 $1.89 $1.59 $0.15 21 $2.65 $2.04 $0.19 28 $3.73 $2.63 $0.25 35 $5.25 $3.38 $0.32 42 $7.39 $4.34 $0.41 49 $10.40 $5.57 $0.53 Total $1.96 Question: Does a permanent capital vehicle like a public company have a structural advantage compared to a 7-year PE fund vehicle? Hypothesis: For the straightforward reason that PE funds trade assets every 7 years, the public companies tend to have a significant structural advantage at every timescale. Complicating Factors: • Do annual corporate tax burdens of a public C- corporation differ from a company owned by a public company? • Does the inherent churn of buying and selling businesses within a public company overstate the advantage vs PE Fund? • Theoretically, the public company can buy and sell assets without regards to the calendar, therefore at better prices. • Cost and burden of being a public company. Note: In this model we assume that assets are sold by the private equity fund every seven years and reinvested after paying capital gains taxes on the gain on the sale. It is also assumed that the Public Company does not sell the assets and therefore does not pay capital gains tax. The model does not consider taxes paid on operational results. This projection, forecast or estimate is a forward-looking statement and is based upon certain assumptions which are speculative in nature and may vary materially from actual results.

 

Adjusted EBITDA Reconciliation 33 FY Results FY24 FY23 FY22 FY21 FY20 Operating Income (GAAP) $1.3M ($4.4M) $8.8M* ($9.2M) 7.3M Depreciation (excluding leased engine depreciation) $2.8M $2.5M $1.6M $1.2M $1.3M Asset Impairment, write- downs, restructuring $1.2M $7.8M $0.8M $6.6M $0.0M Gain on sale of PP&E $0.0M $0.0M $0.0M ($0.0M) ($0.0M) TruPs Issuance Expenses $0.3M $0.1M $0.3M $0.0M $0.4M Adjusted EBITDA $5.6M $6.0M $11.4M* ($1.3M) $9.0M *Includes one-time ERC credit of $9.1M (For the Twelve-Month Period Ended 3/31)

 

34 Q&A WITH MANAGEMENT

 

Our interactive Q&A capability, through Slido.com, allows shareholders to ask questions of our management. Recently submitted questions have been answered below. To submit your own question, go to (https://app.sli.do/event/j8drfixw).1 35 As EBIT has been volatile, it’s been difficult to discern what to expect regarding interest coverage. What do you expect your typical interest coverage ratio to be? Company policy dictates that we do not make forward looking statements. However, you can see in the table below historical information that may help you understand Air T and our interest coverage better. Our corporate policy is to endeavor to reinvest our cash flows in positive expected return investments whenever possible. Management believes that, at the margin, it can reduce cash expenditures by reducing optional cash capital expenditures and cash-consuming initiatives. We, at any time, believe we have the option to reduce our investment level, in addition, we can cut corporate expenses that are related to growth. Note that our bank covenants are calculated before considering funding for certain business units that Air T funds at its discretion. Notes: 1. We plan to present and answer all questions received in the quarter through a section in the quarterly Investor Presentation. 2. Submitted questions may be edited for spelling and/or clarity. In millions, except % data 2024 2023 2022 2021 2020 Adjusted EBITDA 5.6$ 6.0$ 11.4$ (1.3)$ 9.0$ Interest Expense, net 6.9$ 7.9$ 4.9$ 4.6$ 4.7$ Interest Coverage 81% 76% 233% -28% 191%

 

36 Does anyone even review this process? Our interactive Q&A capability, through Slido.com, allows shareholders to ask questions of our management. We plan to present and answer all questions received in a given quarter through a section in the quarterly Investor Presentation. We plan to release an Investor Presentation each quarter with the filing of our financial statements. Our interactive Q&A capability, through Slido.com, allows shareholders to ask questions of our management. Recently submitted questions have been answered below. To submit your own question, go to (https://app.sli.do/event/j8drfixw).1 Notes: 1. We plan to present and answer all questions received in the quarter through a section in the quarterly Investor Presentation. 2. Submitted questions may be edited for spelling and/or clarity. What is the status of the AIRTP May dividend payment?2 The AIRTP dividend payment scheduled for May was paid as scheduled on May 13, 2024. The commercial jet engines and parts division has seen massive growth recently. I believe you have partners in this business. What is the comp structure? As indicated on slide 17 of our Investor Presentation, you can see that our Aircraft JVs have been growing. They receive standard aviation industry management fees that include an incentive fee of approximately 20% above a hurdle rate of 0% to 8%, depending on the JV. Our Aircraft JV investors seek to generate 10%+ returns.

 

37 Our interactive Q&A capability, through Slido.com, allows shareholders to ask questions of our management. Recently submitted questions have been answered below. To submit your own question, go to (https://app.sli.do/event/j8drfixw).1 Notes: 1. We plan to present and answer all questions received in the quarter through a section in the quarterly Investor Presentation. 2. Submitted questions may be edited for spelling and/or clarity. Most conglomerates have a business they rely on as their steady cash cow (think GEICO for Berkshire, etc.) what business of yours is the backbone of AIRT?2 Fortunately, we believe that we have a number of businesses that fall in this category. We would highlight that Mountain Air Cargo has been a consistent cash producer for us in the past with the exception of FY2020. The relatively low performance during that year was due to leadership changes that we have since remedied. After this change, MAC’s performance has stabilized. Global Ground Support is also a steady cash generator with the exception of FY2024 where, due to costs associated with management changes and reduced orders from customers in part due to the cyclicality and the unseasonable light winter, GGS had their first down year in recent history. Historical performance shows that GGS produces a consistent $2-$3 million in EBITDA but has reached levels of greater than $9 million in recent years.

 

APPENDIX Risk Factors 38

 

SUMMARY RISK FACTORS 39 For more detail and explanation, please see the Company’s public filings including its Form S-3 and prospectus supplements filed with the SEC. The purchase of securities of Air T, Inc., the “Company,” is highly speculative and involves a very high degree of risk. An investment in the Company is suitable only for persons who can afford the loss of their entire investment. Accordingly, in making an investment decision with respect to the Company’s securities, investors should carefully consider all material risk factors, including the risks, uncertainties and additional information set forth below as well as set forth in (i) our most recent Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Currents Reports on Form 8-K, and our definitive proxy statements, all which are filed with the SEC, and (ii) our prospectus, filed as a part of our Registration Statement on Form S-3, which is filed with the SEC, and any supplement to the prospectus, including information in any documents subsequently incorporated by reference into the prospectus. Additional risks not presently known or are currently deemed immaterial could also materially and adversely affect our financial condition, results of operations, business and prospects. General Business Risks ● Market fluctuations may affect the Company’s operations. ● Rising inflation may result in increased costs of operations and negatively impact the credit and securities markets generally, which could have a material adverse effect on our results of operations and the market price of our Securities. ● We could experience significant increases in operating costs and reduced profitability due to competition for skilled management and staff employees in our operating businesses. ● Legacy technology systems require a unique technical skillset which is becoming scarcer. ● Security threats and other sophisticated computer intrusions could harm our information systems, which in turn could harm our business and financial results. ● We may not be able to insure certain risks adequately or economically. ● Legal liability may harm our business. ● Our business might suffer if we were to lose the services of certain key employees.