Atlas Air Worldwide Holdings

Good day and thank you for standing by. Welcome to Atlas Air Worldwide Holdings Incorporated Q1 2022 Results Conference Call. At this time, all participants' lines 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 will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I would now like to hand the call over to your speaker today, Atlas Air. Please go ahead.

Thank you, Operator, and good morning, everyone. I'm Ed McGarvey, Treasurer for Atlas Air Worldwide. Welcome to our first quarter 2022 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 2021 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 thank you all for joining our first quarter earnings call. I'd like to start by acknowledging the unfortunate and horrific humanitarian crisis in Ukraine. Our thoughts are with the people of Ukraine and with all those helping during these difficult times. At Atlas, we've been doing our part by providing critical airlift to many organizations moving relief supplies into the region. And as the leading provider of airlift to the U.S. military, we've been supporting the U.S. government's significant supply efforts. We're very grateful that Atlas is able to participate in these important relief missions. I'd also like to thank the entire Atlas team for their ongoing commitment to delivering these outstanding results. As we've been able to demonstrate, Atlas has a resilient and proven business that's consistently delivered very positive results, even through the most challenging of times. And we continue to show the value of air freight as a critical component of the global supply chain. Our aircraft and services provide the flexibility, reliability, and speed that enables our customers to succeed even through the ever-changing logistical landscape. And air freight will continue to be vital going forward, particularly as pandemic and related challenges remain, passenger capacity is slow to return, and manufacturing in Asia ramps back up. And as we've been discussing with you in recent quarters, we're seeing a sustaining shift in customer demand for long-term dedicated airlift, which is driving more need for Atlas' assets and services. We're expanding and diversifying our customer base and increasing the amount of flying that we perform under long-term contracts with attractive rates and guaranteed levels of flying. In fact, during the first quarter, our customers continued to enter or enhance long-term agreements with Atlas for dedicated freighter capacity. And it's important to reiterate that the overwhelming majority of our fleet is now committed under these long-term contracts, which puts us in a strong position for the years ahead. This all bodes well for Atlas and our future. On the financial front, we've significantly strengthened our balance sheet and have dramatically improved our net leverage ratio. We have a healthy cash balance and the financial flexibility to act quickly on attractive opportunities to deploy capital including investing in our business and returning capital to shareholders. As we've previously noted, we're investing in our world-class fleet by adding four new 747-8s and four new 777s to meet customer demand. All four of our new 8s have been placed under long-term agreements, and we expect the first will be delivered later this month. We also have very strong interest for the new 777s, And we look forward to sharing details on those placements in future calls. And as we've shared before, we're also purchasing five of our existing 747-400 freighters at the end of their leases throughout this year, the first of which we acquired in March. Now turning to our outstanding first quarter results on slide four, I'm pleased to report that we've achieved new first quarter records for both revenue and adjusted earnings. This is despite the ongoing operational challenges that were caused by the pandemic. Our strong results reflected higher yields, including the impact of numerous new and extended long-term contracts. This was partially offset by higher pilot costs driven by our new collective bargaining agreement. Spencer will provide more details on our Q1 results in a moment. Now moving on to our outlook on slide five. As I mentioned earlier, we expect market conditions and customer demand to remain favorable. Global air freight volumes are exceeding pre-pandemic levels. Capacity continues to be constrained as there are a limited number of new freighters entering the market, while older, less efficient aircraft will need to be retired. Passenger belly capacity, particularly out of Asia, remains slow to return, and as it does, We expect passenger networks will look different than prior to the pandemic and will favor more leisure and point-to-point flying. This will result in more need for dedicated freighters in major cargo trade lines. The continuation of congestion at ocean ports and other related supply chain disruptions are also continuing to favor air freight. And importantly, a new customer base, including more manufacturers and freight forwarders, are now turning to dedicated freighters due to the resiliency of air freight networks compared to the vulnerability of passenger networks. In addition to our excellent first quarter results, we expect strong performance in the second quarter and for the full year. In the second quarter, we anticipate revenue to exceed $1.1 billion from flying more than 85,000 block hours. In addition, we expect adjusted EBITDA of approximately $215 million and adjusted net income to grow by a high single-digit percentage compared with our adjusted net income of $88.8 million in the first quarter of this year. Our full-year earnings outlook reflects the significant portion of our business under high-yielding long-term contracts as well as strong yields in the ad hoc charter market. As a result, we expect to fly more than 350,000 block hours in 2022 with revenue of approximately $4.6 billion and adjusted EBITDA of about $1 billion. In addition, we anticipate adjusted net income in the second half of 2022 to improve approximately 60% compared with that of the first half of this year. This includes a projected full-year adjusted tax rate of approximately 23%. We expect aircraft maintenance expense in 2022 to be similar to that of 2021, and we anticipate depreciation and amortization to be around $300 million. Our core capital expenditures, which exclude aircraft and engine purchases, are projected to total approximately $135 to $145 million, mainly for parts and components for our fleet. This outlook also includes the higher pilot costs from our new collective bargaining agreement, including additional pay for pilots flying in locations still significantly impacted by COVID. Before I turn the call over to Spencer, I'd like to discuss the update we shared in our press release this morning regarding our share repurchase program. As announced in February, we established a $200 million share repurchase program. We began by entering into a $100 million accelerated share repurchase program, which was recently completed. In total, we've now repurchased approximately 1.2 million shares through this month. Returning the capital to shareholders continues to be a top priority. I'd like to now pass the call over to Spencer, and after his remarks, I'll have some additional comments, and then we'll be happy to take your questions. Spencer.