Air T, Inc. (AIRT) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. I'm Nick Swenson, Chairman of the Board, President and Chief Executive Officer of Air T. This meeting is now called to order, and it is my pleasure to welcome you to our '22 Annual Meeting of Stockholders. Under our company's bylaws, as Chairman of the Board, I will preside as Chairman of today's meeting. Mark Jundt, who is our Corporate General Counsel, will act as Secretary of this meeting. In addition, Brian Beglin and Scott Loveless of Deloitte & Touche LLP are with us on this line today. Deloitte serves as the company's independent registered public accounting firm and Mr. Beglin and Loveless will be available during the Q&A portion of the meeting to respond to any questions you may have. I'd also like to introduce Craig Colosso on the phone today from American Stock Transfer & Trust Company, which is the company's stock transfer agent. Mr. Colosso has been appointed to serve as the voting inspector for this meeting. As voting inspector, he will determine the number of shares of common stock represented at the meeting, determine if a quorum is present, assist in the tabulation of votes and perform such other duties as provided by the general corporate laws of the state of Delaware and any such matters should they arise. There are three items of business on the agenda for today's meeting as listed in the notice of annual meeting. As no other matters have been subject -- submitted to the company for vote in accordance with the terms of the company's bylaws, only the items of business set forth in the notice of annual meeting should be considered at today's meeting. After all items of business have been introduced, there will be a period during which you may express your views on any of these items before the polls are closed. After the vote has been taken on the matters for which the annual meeting has been called, we will have an opportunity for stockholders to ask general questions or to make comments about your company. Consistent with the rules of this meeting and in order to provide for the orderly conduct of this meeting, questions will only be addressed during the appropriate discussion period. The record date for determining the stockholders entitled to notice of and to vote at this meeting is the close of business day on June 28, 2022. Will Mr. Jundt, please present the notice of annual meeting, the proxy statement and formal proxy card and the list of stockholders entitled to vote at this meeting today.

Mr. Chairman, I present the notice of Annual Meeting of Stockholders to be held August 17, 2022, and the proxy statement of Air T, Inc. and former proxy card, which were sent by United States mail or electronically on or about July 8, 2022 to each stockholder of record of Air T, Inc. at the close of business on June 28, 2022, addressed to each stockholder at the address of such stockholder appearing upon the books of the company at such time. I also present a list of the holders of the shares of company stock of the company of record at the close of business on June 28, 2022. This list is available upon stockholder by request. This list shows the address and number of shares of record owned by each stockholder on the record date and has been available at the principal office of the company for more than 10 days prior to the meeting.

At this time, any proxies that have not been submitted should be delivered to Mr. Jundt here at the front of the room. If you have already submitted a proxy, it will not be necessary to vote today on any of the matters to be decided in today's meeting. I now recognize Mr. Colosso for a report on the shares represented at this meeting.

Mr. Chairman, on the record date, the company had outstanding 2,866,418 shares of common stock, of which 2,621,465 shares, or 91.45% are represented at this meeting.

Thank you. Since more than a majority of the outstanding shares of the common stock of the company are represented either in person or by proxy, we have a quorum for this meeting, and I declare this meeting properly organized for the transaction of business. I now declare the polls open. Before we proceed, does anyone need a ballot, annual report or proxy statement? If so, please raise your hand so we can supply your needs. As a reminder, stockholders have already sent in proxies and who do not wish to change their vote, do not need to vote by ballot today. The first item of business of this meeting is the election of the members of the Board of Directors. The number of Directors constituting the Board of Directors has been set at six by resolution adopted by the Board of Directors pursuant to the company's bylaws. The Board of Directors has nominated six individuals for election at this annual meeting. The list of the Board of Directors' nominees along with biographical summaries, is included in the company's proxy statement for this meeting. Each of these nominees has agreed to serve as Director if elected. The nominees are myself, Nick Swenson; Raymond Cabillot; William Foudray; Gary Kohler; Peter McClung; and Travis Swenson. On behalf of the Board, each of them is hereby nominated for election as a Director. Directors elected by plurality, in other words, the six nominees receiving the most votes will be elected as Directors. The Board of Directors recommend that you vote for the election of each of these nominees. The second item of business listed in the proxy statement is approval of the following resolution, which is now presented to the stockholders "Resolved". The stockholders hereby approve on an advisory basis, the compensation paid by the company's named executive -- to the company's named Executive Officers disclosed pursuant to Item 402 of Regulation XK of the Securities and Exchange Commission and the company's proxy statement for the 2022 Annual Meeting of Stockholders. The stockholders vote on this resolution, which is referred to as a Say-on-Pay vote is advisory and nonbinding in the company. The Board of Directors and the Compensation Committee expect to take the outcome of the Say-on-Pay vote into account when considering future executive compensation decisions. The Board of Directors recommend that you vote for adoption of this resolution. The third and final item of business is the proposed ratification of the appointment of Deloitte & Touche LLP as the independent registered funding public accounting firm for the company for the fiscal year ending March 31, 2023. Deloitte was first appointed by the Audit Committee to serve as the company's independent registered public accounting -- public accountants on September 27, 2018, and Deloitte has rendered its opinion with respect to the company's annual financial statements for the fiscal year ended March 31, 2022. As I mentioned earlier, representatives of Deloitte are on the line with us today and are available to respond to any questions you may have. The Audit Committee has appointed Deloitte as the company's independent registered public accountants for the fiscal year ended March 31, 2023, and the Board of Directors requests the ratification of that appointment by the stockholders. Accordingly, ratification appointment of Deloitte as the company's independent registered public accountants for the fiscal year ended March 31, 2023, is now presented for a vote at this meeting. This matter will be approved if more shares are voted in favor of the ratification of the appointment of Deloitte and are cast against ratification. As set forth in the proxy statement, the Board of Directors recommends that you vote for the ratification of the appointment of Deloitte. Now that all items of business have been presented, is there any discussion of these items or questions for Deloitte? If you have a question or comment on these matters, please first identify yourself and indicate whether you are a stockholder and are otherwise affiliated with the stockholder or on behalf of -- or notice us on behalf of who you speak. So everyone will have an opportunity for their comments to be heard, I will also ask that you limit your comments to 3 minutes. Again, we will have a more general discussion and Q&A period after the voting of these matters has been concluded. Any questions or comments? Would anyone who needs to cast the ballot today, please do so now by delivering it to Mr. Jundt in the front of the room. [Voting]

Thank you. I now declare the polls closed. I will now ask the voting inspector to report the outcome of each of the votes at today's meeting.

Mr. Chairman, the ballots have been counted, and the six nominees for Director have received the plurality of the votes cast at the meeting in person or by proxy. The number of votes that have been cast at the meeting in person or by proxy in favor of the advisory resolution approving the compensation paid to the company's named Executive Officers represents a majority of the shares present or represented at the meeting and entitled to vote. And the number of votes that have been cast at the meeting in person or by proxy in favor of the ratification of the appointment of Deloitte as the company's independent registered public accounting firm for the fiscal year ending March 31, 2023, represents a majority of the shares present or represented at the meeting and entitled to vote.

Thank you. All six Directors named in the proxy statement have been elected. The advisory resolution approving the compensation paid to the company's named Executive Officers has been approved. And the appointment of Deloitte as the company's independent registered public accounting firm for the fiscal year 2023 has been ratified. To complete the tally of vote -- a complete tally of votes will be reported in the company's Form 8-K to be filed with the SEC within the next 4 business days. If the business portion -- with the business portion of this meeting concluded. I adjourn the business portion of the meeting. Before we turn to Q&A from shareholders, we have a short presentation to share about Air T and our fiscal 2022 results ended March 31, 2022. [Operator Instructions] Okay. Well, we're showing Page 3 on our executive summary regarding Air T. I think -- I hope most of the shareholders have reviewed this deck in the past, but it gives you a general overview of our -- of the company and the overall statistics of revenue and operating income for Air T. Let's go to the next slide. On Slide #6, please. Thanks. Slide 6, this describes the purpose of the company at a very high level. We're very much interested in generating free cash flow to shareholders on generating value. Those things might be aligned completely. Those things might take time to develop and be obscured for a while. We definitely believe in an operating model that empowers business leaders to generate business value and a good culture and growth at their business units over time. We have committed -- management team has committed to the business and aligned itself with common shareholders by open market purchases of the company's stock as you can all tell. And I think over -- well over 50% of the shares are represented on the Board. And Page 7, this describes some of our operating approaches. You can ask us questions about those. We've had this in our material for a while. But again, it places emphasis on a bit of a servant-leadership approach to the people who are running our businesses from the center, from the research group, from the corporate holding company out to the people who are, we call them, dynamos running their businesses. And the flywheel, Page 8, I think I might give our Board a quiz on the flywheel five positions of the flywheel. We began putting this into our materials of the last year, or the year before, and it's an evolving approach, but we think it makes a lot of sense as we work through our growth model. Brian?

Thanks, Nick. So fiscal '22 revenue was $177 million, $11.4 million of adjusted EBITDA. We've got three core segments that we disclosed and discussed in our SEC filings, Commercial Aircraft and Engines, Aviation Ground Support Equipment and Overnight Air Cargo. I'll discuss each of those in a little more detail in the following slides. Within those segments, we have 11 major main companies. And we, as of March 31, we had 500 employees. Financial highlights for the 12 months ended 3/31/22, you can see that revenue remained flat within the segments, Air Cargo and Commercial Jet Engine Parts segments. Started their COVID recovery. They were up $8 million and $11 million, respectively, offset by global Ground Support down, $18 billion. We'll discuss those segments in more detail in the next three slides. But the theme here is that the COVID recovery -- fiscal '21 was exactly when COVID started. Fiscal '22 is the start of COVID recovery. On the operating income side, fiscal '22 operating income significantly as well as adjusted EBITDA versus fiscal '21. That was driven in part by improved profitability operating groups as COVID recovery started, but it was also heavily influenced by $9 million of employee retention credits that we applied for under the CARES Act. Those have been a very valuable source of funding for the company as the COVID recovery starts and continues. Commercial Aircraft Engines, this is the segment -- we have several companies in the segment, Contrail, Jet Yard, AirCo and Worthington. This segment trades five aircraft engines, and we then lease trade or park them out. This segment was by far the most heavily impacted by COVID. Just for reference, fiscal year '20, the last year completed before COVID, revenue in the segment was about $101 million. So we're encouraged to see in fiscal '22 that, that recovery has started. It's not complete yet. But as commercial air traffic continues, we're recovering along with that. And we're hopeful to see that air traffic -- air travel continue to recover as airlines spool up and increase their activity. Next segment is Overnight Air Cargo. This has been -- this is our oldest segment. We've been Air T companies for 40 years. We have 2 of the 7 FedEx feeders, Mountain Air Cargo and CSA. They saw -- they were not as heavily impacted by COVID, but they have had a remarkable turnaround from fiscal '20 as well with significantly improved operations and the team in North Carolina and Michigan are doing a phenomenal job flying for FedEx. This is an asset-light business. We leased the aircraft from FedEx. And as you know, are in contract fees for flying their schedule, very predictable as well. Last segment is Aviation Ground Support Equipment. This is solely global ground support located in Olathe, Kansas. This has been an Air T company since 1998. What you see here on this drop is going into COVID, this business unit had a significantly -- a very historically large order book that they were able to work through during the early months of COVID. And so fiscal '22, you're seeing a delayed COVID impact. But you can see that the order backlog is healthy, $14 million at 3/31. That's continuing through the summer. We disclosed in our 6 -- June 30, '22 10-Q, which we filed on Friday, August 12, [indiscernible] $17 million at the end of June. This company, as you can see, has had historically high profit -- profitability. And we're optimistic that this is going to start their COVID recovery as well. I'll turn it back over to Nick on the next slide to talk about some of our investments that we've made in the past years.

Thanks. Slide entitled, Segment 4, Page 14, Investment Businesses. We have three wholly owned investment businesses. One of them is our investment manager, BCCM Advisors and the other is the printing equipment manufactured, Delphax Solutions and the final is AHD, our software development BRT for MRO shops in the aftermarket community. Each of these businesses is in a start-up mode. Each of these businesses is cash flow negative at this point in time. And we have very competent management teams in each of these businesses. We believe that each of them has an addressable market that's very significant and is bringing to market great products for our customers, and we're very much looking forward to continue to develop those businesses over time. Their income statement is reflected in the other corporate expense line in our income statement. Is that right, Brian?

Correct.

And the following -- Page 15, the following page, we wanted to highlight three events. One of them is the acquisition of a Dutch holding company that owns 70% of a data company that's focused on cargo data -- global cargo data, and that acquisition closed in February of this year. The second is the spin out from Contrail of Crestone Air Partners, now a completely independent company that's focusing on managing the JV assets that we have with our investment partners. That team, [ their ] strengths in total aircraft leasing, which is the focus of the JV. And finally, last year, December of 2021, we made a purchase of the corporate headquarters here on a leverage basis, on a non-recourse leverage basis. I think interest rate in our loan is 3.5%, is that right [indiscernible]? Typical corporate real estate transaction. And then Page 15, Brian, do you want to take down...