Atlas Air Worldwide Holdings

Today, and thank you for standing by, welcome to the Atlas Air World Wide Holdings Incorporated Third Quarter 2021 Results Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 1 on your telephone. As a reminder, this conference is being recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to Atlas Airwide World Holdings. Please begin.

Thank you, Norma, and good morning, everyone. I'm Ed McGarvey, treasurer for Atlas Air Worldwide. Welcome to our third quarter 2021 results conference call. Today's call will be hosted by John Dietrich, our chief executive officer, and Spencer Schwartz, our chief financial officer. Today's call is complemented by a slide presentation that can be viewed at atlasairworldwide.com under Presentations in the Investor Information section. As indicated on slide two, we'd like to remind you that our discussion about the company's performance today includes some forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements relate to future events and expectations, and they involve risks and uncertainties. Our actual results or actions may differ materially from those projected in any forward-looking statements. For information about risk factors related to our business, please refer to our 2020 Form 10-K as amended or supplemented by our subsequently filed SEC reports. Any references to non-GAAP measures are meant to provide meaningful insights and are reconciled with GAAP in today's press release and in the appendix that is attached to today's slides. During our question and answer period today, we'd like to ask participants to limit themselves to one principal question and one follow-up question so that we can accommodate as many participants as possible. After we've gone through the queue, we'll be happy to answer any additional questions as time permits. At this point, I'd like to draw your attention to slide three and turn the call over to John Dietrich.

Thanks, Ed, and hello, everyone. Thank you all for joining. Welcome to our third quarter earnings call. This is a very special moment for our company. We've just completed the best quarter in our company's history in terms of revenues and adjusted earnings. And we expect next quarter will be even better. I'd like to thank the entire Atlas team for their ongoing efforts in delivering these results in this very challenging pandemic operating environment. It's because of their efforts that we've been able to deliver these outstanding results. As you've seen from our results, we've optimized and leveraged our business to capitalize on the current favorable market conditions. We've also positioned the company very well for the future. We have the best assets to serve the air freight market, including an industry-leading fleet of 747s, 777s, 767s, and 737 aircraft. We have a top tier portfolio of customers. We also have unrivaled global operating capabilities and a team that's simply best in the business. Putting this all together, we're very well positioned to serve the growing needs of our customers and the air freight market today and in the future. At Atlas, safety is a core value and is always a top priority. With that as our focus, we continue to take extensive precautions to protect our employees and our operations to support our customers and safely transport essential goods around the world. Our people, no doubt, are our greatest asset and will continue to focus on their safety and well-being. In that regard, we were very pleased to have reached agreement with our largest employee group, our pilots, for a new five-year joint collective bargaining agreement, or what we often refer to as a JCBA. Under this long-term industry competitive agreement, all of our pilots will receive significantly higher pay, quality of life improvements, and enhanced benefits. The new pay rates became effective as of September 1st, and we're working together with the union's new leadership to implement other provisions of the agreement as soon as possible. This new JCBA provides even more reasons and opportunities for our pilots to grow their careers here at Atlas. We've been preparing for this important investment in our pilots for some time, and we've incorporated our expectations for these new terms when negotiating new customer contracts or when amending existing contracts. We look forward to continuing to work collaboratively with our pilots and their new union leadership to build an even stronger company in the future. Importantly, the new JCBA paves the way for us to complete our Atlas Airs merger with Southern Air, which we expect to occur during the fourth quarter. The Southern Air brand has served us well since we acquired it in 2016. Through Southern, we diversified our service offerings by gaining immediate entry into the 777 and 737 platforms, ultimately enabling us to perform 777 flying for DHL Express and Chinao, the logistics arm of Alibaba, as well as 737 operations for Amazon. We look forward to continuing to leverage these capabilities as growth engines for Atlas in the years ahead. As we serve the needs of our customers and their businesses in the third quarter, we are also extremely proud to have supported the U.S. government's historic evacuation of U.S. personnel and refugees from Afghanistan. As part of the call-up of the Civil Reserve Air Fleet, we deployed our formidable fleet of passenger aircraft to help the evacuation. As the large provider of airlift to the U.S. military, our flight and ground personnel volunteered and stepped up with great compassion to support this significant humanitarian mission. In total, we operated over 30 missions, transporting about 10,000 U.S. personnel as well as Afghan refugees and their families from various locations into the United States. In addition to this important military business, and as you saw in our earnings release this morning, our strategic focus continues to be on express, e-commerce, and fast-growing global markets particularly Asia and South America. These markets are driving robust demand for our services and producing excellent financial results. We've safely increased the utilization of our aircraft despite an extremely challenging pandemic operating environment. We've also extended or entered into important new long-term agreements. In that regard, we recently announced long-term contract extensions for 20 aircraft with DHL Express, We also entered into a new long-term ACMI agreement with FedEx, among other long-term agreements. Collectively, this demonstrates our ability to capitalize on current market opportunities while deepening long-standing relationships with our strategic customers for the future. With that in mind, we continually manage our fleet to balance capacity with demand. We're looking forward to taking delivery of four new 747-8 freighters in 2022. These are the last 747s that Boeing will ever produce, and we're delighted they'll be coming to Atlas. They provide unmatched payload capacity, nose-loading capability, as well as improved fuel efficiency and noise emissions. We expect to take delivery of these Dash 8s between May and October of next year. As reported in our press release today, in October, we acquired three more of our existing 747-400 traders that were previously on lease to us. This is in addition to the three 747-400s we recently acquired and discussed during our last earnings call. As a reminder, we previously announced that we will be purchasing five of our other existing 747-400 traders at the end of their lease terms in 2022. bringing the total number of acquired 747-400s to 11. Acquiring these four new dash 8s and the 11 of our existing 747-400s underscores our confidence in the ongoing demand for wide-body freighters and will provide strong returns for Atlas in the years ahead. Now turning to our outstanding third quarter results on slide four. As I mentioned, our revenue and adjusted earnings grew to new records. This included our quarterly revenue exceeding $1 billion for the first time in our company's history. Our third quarter results reflected higher yield and increased aircraft utilization. They also reflected the impact of numerous new and extended long-term customer contracts, the operation of one 747 freighter that we reactivated during the fourth quarter of 2020, the ongoing reduction of available cargo capacity in the market, and the continued disruption of global supply chains due to the pandemic. Our third quarter performance also benefited from passenger charter flying for the U.S. military related to the Afghanistan evacuation efforts and lower heavy maintenance expense. Partially offsetting these benefits were higher pilot costs driven by our new JCBA. Now, moving on to slide five, we're certainly operating in a very strong air freight market. We expect industry conditions and demand for our services to remain favorable for the foreseeable future. Global air freight volumes continue to exceed pre-pandemic levels, while industry capacity, particularly on long-haul international routes, has not kept pace with demand. This includes fewer new freighter aircraft coming into the market, as well as the substantial amount of international passenger belly capacity that has not yet returned. Supply chain bottlenecks, including the widely reported challenges at ocean ports worldwide, are driving increased modal ship to air, as manufacturers, retailers, and shippers strive to replenish very low inventory levels, especially ahead of the holiday shopping season. In addition, the current environment has led to a structural acceleration of express growth and e-commerce across the globe, which will drive both current and longer-term air freight demand. While the pandemic continues to make the operating environment a very challenging one, the market dynamics we're seeing in the fourth quarter remain very robust. As a result, we expect record revenue and record adjusted earnings in the fourth quarter including revenue of nearly $1.1 billion and adjusted EBITDA of approximately $325 million from flying more than 90,000 block hours. We also expect adjusted net income to grow in excess of 20% compared with our prior fourth quarter adjusted net income record of $143.2 million in the fourth quarter of last year. Our fourth quarter 2021 outlook includes the impact of our new JCBA, as well as the proactive initiatives to help mitigate the higher costs in the new agreement, including increased contribution from our long-term customer agreements. It also reflects continued high levels of aircraft utilization driven by strong demand and solid peak season volumes and yields. We also expect ongoing expenses driven by the pandemic, including additional pay for employees flying into certain locations that have been significantly impacted by COVID-19, as well as costs for continuing to provide a safe working environment for all employees, and maintenance expense of approximately $90 million. For the full year, we expect aircraft maintenance expense to be around $450 million, and depreciation and amortization to total about $280 million. Core capital expenditures, which exclude aircraft and engine purchases, are projected to total approximately $90 to $100 million, mainly for parts and components for our fleet. This is a good point for Spencer to provide more details on our third quarter results, and after Spencer's remarks, I'll have some additional comments, and then we'll be happy to take your questions. Spencer.