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

Greetings, and welcome to Air T, Inc.'s 2023 Annual Meeting of Stockholders Call. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to your host, Nick Swenson, Chairman of the Board, President and Chief Executive Officer. Nick, please go ahead.

Thank you. Good morning, ladies and gentlemen. I'm Nick Swenson, Chairman of the Board, President and CEO of your company. This meeting is now called to order, and it is my pleasure to welcome you to the 2023 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 the meeting. In addition, Brian Beglin and Scott Loveless of Deloitte & Touche are with us on the line today. Deloitte serves as the company's independent registered public accounting firm, and Messrs. 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 [ equiny ] (sic) [ American Stock Transfer & Trust Company ], which is the company's stock transfer agent. Mr. Colosso has been appointed to serve as voting inspector of 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 other such duties as provided by the general corporate law of the State of Delaware, if any such matters should arise. There are 4 items of business on the agenda for today's meeting, as listed in the notice of the annual meeting. As no other matters have been submitted to the company for a vote in accordance with the terms to the company's bylaws, only the items of business set forth in the notice of the annual meeting will be considered at today's meeting. After the votes have 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 make comments about our company. Consistent with the rules to 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 on June 27, 2023. Will Mr. Jundt please present the notice of annual meeting, the proxy statement and the formal proxy card and the list of stockholders entitled to vote at this meeting.

Mr. Chairman, I present the notice of the Annual Meeting of Stockholders to be held August 16, 2023, the proxy statement of Air T, Inc. and formal proxy card, which were sent by United States Mail on or about July 24, 2023, to each stockholder of record of Air T at the close of business on June 27, 2023. I also present a list of the holders of the shared common stock of the company of record at the close of business on June 27, 2023. This list is available upon stockholder request. This list showed 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 that meeting.

I now recognize Mr. Colosso for a report on the shares presented at this meeting.

Mr. Chairman, on the record date, the company held outstanding 2,817,754 shares of common stock, of which 2,619,417 shares or 92.96% are represented at this meeting.

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 at 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. Stockholders who have already sent in proxies and you do not wish to change their vote do not need to vote by ballot today. First item of business of this meeting is the election of members of the Board of Directors. The number of directors constituting the Board of Directors have been set at 7 by the resolution adopted by the Board of Directors pursuant to the company's bylaws. The Board of Directors has nominated 7 individuals for election at the annual meeting. This list 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 a director, if elected. The nominees are; myself, Nick Swenson, Raymond Cabillot, William Foudray, Gary Kohler; Peter McClung, Travis Swenson, and Jamie Thingelstad. On behalf of the Board, each of them is hereby nominated for election as a director. Directors are elected by a plurality. In other words, the 7 nominees receiving the most votes will be elected as directors. The Board of Directors recommends that you vote for the election of each of these nominees. Second item of business is the approval of the following resolution, which is now presented to stockholders. Resolved, that the stockholders hereby approve, on an advisory basis, the compensation paid to the company's named executive officers as disclosed pursuant to Item 402 of Regulation S-K of the Securities and Exchange Commission in the company's proxy statement for the 2023 Annual Meeting of Stockholders. The stockholders' vote on this resolution, which is referred to as the Say-on-Pay vote, is advisory and nonbinding on 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 recommends that you vote for adoption of this resolution. The third item of business is to approve an amendment of the company's Certificate of Incorporation to allow the exculpation of officers. For the reasons laid out in the proxy statement, the Board of Directors recommends that you vote to approve this proposed amendment. The fourth and final item of business is the proposed ratification of the appointment of Deloitte & Touche as the independent registered public accounting firm for the company for the fiscal year ending March 31, 2024. Deloitte was first appointed by the Audit Committee to serve as the company's independent registered public accounting firm on September 27, 2018, and Deloitte has rendered its report with respect to the company's annual financial statements for the fiscal year ended March 31, 2023. 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, 2024, and the Board of Directors requests the ratification of that appointment by the stockholders. Accordingly, the ratification and appointment of Deloitte as the company's independent registered public accountants for the fiscal year ended March 31, 2024, is now presented for a vote at this meeting. This matter will be approved if more shares are voted in favor of ratification of the appointment of Deloitte, then 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. Would anyone who needs to cast a ballot, please do so by delivering it to Mr. Jundt in the front of the room. [Voting]

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 7 nominees for director have received a 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 entitled to vote. The number of votes that have been cast in favor of the amendment to the company's certificate of incorporation to add officer exculpation represents a majority of the shares entitled to vote. And the number of votes that have been cast in favor of the ratification, the appointment of Deloitte as the company's independent registered public accounting firm for the fiscal year ending March 31, 2024, represents a majority of the shares entitled to vote.

Thank you, Mr. Colosso. All items of business have been approved. A complete tally of the votes will be reported on the company's Form 8-K to be filed with the SEC within the next 4 business days. With all official business completed, 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, in the fiscal 2023 year results. If you have questions during the presentation, you can ask them at the end of the presentation. Or if you are attending remotely, you may submit questions in our webcast under the Submit Questions section. We will address those questions during the Q&A session. We are -- Brian Ochocki and I are here to walk you through the investor presentation for the 3/31/2023 period. And we are, at the present time, looking at Slide #3 of that slide deck. We have a background section here describing who we are. And on this slide, I would highlight that the second largest shareholder and I have committed significant stakes in the ownership of the company to align our interests with shareholders, and we are fully focused on generating value for shareholders over time. We also would like to highlight that the shares outstanding have declined from 3.7 million 10 years ago to 2.9 million today, which is about a 23% decrease in the number of shares outstanding. Slide #6, we like to highlight that we're in the business of investing the excess cash flow of the Air T businesses. And we believe that we have a good track record over time of allocating capital, and it's an important function of the corporate office. And corporate overhead that we spend is to invest in companies and to invest in projects and initiatives and to grow companies and incubate companies within the Air T system over time. I would note that we, at the time, 10 years ago, we had 3 companies within the Air T world. Since then, we've sold 1 of the 3 companies and acquired an additional 12 companies. We have an investor-operator partnership model. We are very clear in our own minds that we are not the best operators of the businesses that Air T owns from a perspective of vision and priority and day-to-day activity and so forth. We rely pretty much on the leadership teams, we call them the dynamos, the dynamic teams of each of our businesses. And we're very, very happy with a lot of the people who are running those businesses, if not all of them. And we're very grateful for the work and effort that they put into doing great things at their businesses and we work hard to stay out of their way and give them what they need. I read a -- yes, Slide #8 is the flywheel. There's a strategic book out that -- Brian's getting uncomfortable. There's a person who wrote a book about strategic management that said, whenever you see a flywheel, run away. We believe that our flywheel does a good job of encapsulating what we try to do at Air T. We try to generate ideas. They may come from our office, from the overall markets, from people we run into, from investors, from the businesses that we own and the leaders of those businesses. And then we try to match capital with those ideas. That capital might come from our own balance sheet or might come from capital partners. And then we work to secure and empower dynamic management teams. And that's a really important part of what we do, and when we do it well, it creates a [ great thing ]. And we work to then generate attractive returns on that capital that we invest. And as we do that, we're building an investor brand and network. This model is not a new model. It's an old model and it's one that requires careful work and execution. I think we're getting better at it all the time. Page 9, Brian?

Yes. This just highlights how we think about ourselves and present ourselves in our public filings. We are organized on 3 main business segments. Those are reportable segments in our 10-Q and 10-K filings: Commercial Jet Engines and Parts, Ground Equipment Sales and Overnight Air Cargo. In those segments, we have 14 companies and close to 600 employees. Flipping to Slide 10. If you look at the revenue and operating [ procession ] from fiscal '20 to '23, you can see that in fiscal '23 revenues of $247 million illustrate a recovery back to our pre-COVID levels, $236.8 million fiscal '20 the last full year prior to the pandemic. Looking closer, operating income declined about $13 million from fiscal '22 to '23. 2 major drivers of that change are: number one, fiscal '22 reflect -- that operating income reflects a $9 million employee retention credit that we received under the CARES Act. And fiscal '23 had approximately $7 million of inventory write-downs in excess of fiscal '22 levels as we are working through the last of our assets that were affected by COVID. Taking those 2 major changes away, the other drivers of the change from '22 to '23 in op income. First of all, Overnight Air Cargo, operating income increased $1.3 million as they continue to grow in revenue operation and profitability. And the Commercial Jet Engines and Parts, when we take away that inventory write-down I just mentioned, their core business operating income increased about $2 million. Moving to Slide 11 to look at segments in detail, a little more detail. Our largest segment is Commercial Jet Engines and Parts, and you can see a significant revenue increase from $57.7 million to $101.7 million in fiscal '23. Operating income, as I mentioned before, was heavily influenced by that inventory write-down, $6.6 million increase in that write-down. Absent that, operating income would have shown a sequential improvement.

I wanted to just mention here that, obviously, with the post-COVID reduction in the production of aircraft and parts, secondary markets for Commercial Jet Engines and Parts have been strong. I think that's a trend that we would expect to continue. In addition, some of the OEMs have been raising prices significantly in the past couple of years. This segment sits between aircraft owners and operators and MRO shops. We think it's part of the market that has lot of technical requirements, and we have a lot of folks with know-how that can grow these businesses over time.

Second segment is our oldest segment, Overnight Air Cargo. This contains the 2 businesses, Mountain Air Cargo and CSA Air that are 2 of the 7 FedEx feeder airlines. These businesses operate and maintain a fleet of aircraft flagged under the FedEx livery. You can see they've been -- we've -- they've been Air T companies for over 40 years now. And they continue to show improvement as they add flying routes and aircraft from FedEx, significant revenue increase and corresponding op income increase. In addition, as an extension of that maintenance arm for FedEx, we acquired Worldwide Aircraft Services in the fourth quarter of fiscal '23. That's an MRO shop in Missouri that we look at as an extension to that maintenance business that we've built maintaining FedEx aircraft. Third segment is our Ground Equipment Sales. This is comprised of our global ground support LLC business based in Kansas. Revenue up slightly year-over-year, operating income flat year-over-year. You can see on the lower right, the backlog, lower right of Slide 13, backlog is also holding steady, $13.6 million at the end of this fiscal year compared to $14 million a year before. This business has been a consistent profitable business for us for many years.

Slide 14 highlights 3 of the companies that are -- we're incubating and investing in. They range from Delphax Solutions, a printing equipment manufacturer; to Ambry Hill Technologies, a software developer for aviation MROs and aftermarket community; and BCCM Advisors, the investment manager that has domestic equities and African Equities fund. These are examples of commitments to initiatives that we believe will bear fruit over time. Slide #15 is a new slide for our investor deck, it breaks out what we call Air T Digital. And indicates the annual recurring revenues level of Air T Digital, which is comprised of 2 businesses: one, the acquisition that we footnote -- in footnote 5 of our 10-K, we describe as providing both the aviation and data information. And from those disclosures, you can discern the approximate revenue of that business. And the other revenue is coming from our AHT subsidiary, Ambry Hill Technologies, both of which are focused on subscription-based revenues within the aviation world. Slide #16 highlights what we call Air T Asset Management. It's also a new slide. We're breaking out [ for ] investors the outside capital that we're managing across different platforms, including our leased aircraft platforms, our consignment platforms and teardown platforms as well as domestic U.S. equities through BCCM and African Equities through BCCM. Slide 17 is a recent development, which we disclose in our -- as Brian mentioned, we acquired Worldwide Aircraft Services which is an MRO in Springfield, Missouri. It's a very good tack on acquisition to the MAC-CSA world. They have a lot of maintenance capability already, and this adds capacity at a time when the world is [ looking for more ] capacity in aircraft maintenance.