Here is what we are looking at concerning Q1 estimates:
As of this posting the Q1 estimate is earnings of .14 per share. With the new share count as dictated by the recent 9.99% Amazon warrant acquisition, this gives an estimated net income of 10 million.
Net income for Q4 2015 came in at 14.8 million. The Q1 estimate represents an almost 1/3 drop in net income which likely takes into account the increased capex as ATSG keeps ramping up operations ahead of accounts receivable.
Book value has increased approximately .40 per share due to the Amazon warrant purchase. It currently stands around 6.16 and will increase with Q1 earnings.
Cash flow due to the Amazon warrant purchase increased by just over 69 million.
One year target estimates have been upgraded to just over 15 dollars per share as of this posting.
The crucial part of the equation is how much do net earnings increase as dilution from the warrants takes place. How much will net earnings be affected by the increased capex? There will be valuation conflicts between those who honor P/E versus those who bank on P/B, both with appropriate multipliers.
If capex negatively affects near future earnings and Amazon fully and immediately exercises on the warrants as they become available, we are looking at a significant drop to reported EPS.
Short term I can easily see some stagnation, within 5 years I see the payoff. My advice is to buy/add on any market generated dips and hold on.... an acquisition is very likely coming down the road.
If you think you may be buying a company there is no better way to set it up. Acquire 20% at discount, raise the book value while doing it, and hold the share price down as much as possible until ready to make an offer. Classic Business Acquisition 101.
I've received several questions concerning the warrants being offered to Amazon. Clint didn't do a very good job in explaining their effects and offered a stuttering set of generalities. There have been some misunderstandings here concerning their effects also. They will be issuing an 8-K on Friday.
First, the positive effects:
In essence these warrants can be looked at as a slow motion secondary offering to a single entity (Amazon). Since the per share set price of 9.73 is higher (substantially) than the current book value of ~5.76, this will RAISE book value as it progresses. The shares these warrants cover will be mostly newly issued shares, not existing shares from the float.
Another positive effect of course will be the additional capital available to ATSG as Amazon exercises on the warrants. Since we are in a healthy expansion mode additional capital comes in extremely handy and can save quite a bit in financing costs or allow a significantly higher debt leverage.
Now the negative:
Dilution of earnings. Per quarter earnings per share will drop. Though there will be a modest increase of revenue going forward, I really cannot see it overcoming the dilution factor even with continued share buybacks from ATSG. There may be some P/E impairment due to this condition.
As of now ATSG has 75,000,000 authorized shares available to issue. Over 60,000,000 have been issued to this point. So there of course are not enough shares left to satisfy a 19.9% increase in the pool. This is why you see the early warrant tranch set up progressively the way it is. We as shareholders will be voting in May on letting them raise the total amount of authorized company shares to accommodate the total amount of shares the warrants will finally cover. I am guessing the proxy will be asking to authorize a total pool of 90 - 100 million shares.
I hope this helps explain things a little clearer.
This is all that has been said concerning DHL of any significance:
"2015 achievements include amendment settlement agreements with DHL that extended our relationship as their key provider of North American air support through March of 2019. Those agreements effectively doubled the number of contracted months for our dry-lease 767s in DHL's network and extended CMI services for the 767s we operate for them. We also began to dry-lease the DHL aircraft that they operate outside the U.S., with two 767-200's deployed with their affiliate airline in the Middle East."
Everyone was enthralled with the Amazon deal and capex...
Keep in mind that the terms and conditions of the warrants can be changed/amended. I believe if Amazon approached with a favorable offer, the BoD and shareholders would have no problem agreeing to amending those conditions. Whatever the case, Amazon has made a strong commitment.
It all amounts to bottom lines for Amazon. If this system bears fruit, then they will not want to wait too long to jump. Amazon could further cut operational expenses owning ATSG under their umbrella. You want to help ATSG, sign up for Amazon Prime, get friends and family to sign up for it and use the heck out of it...lol.
Success is the clock. ATSG did a great job to get here, now the real work begins.
It is a hedge against an eventual offer. Seen this several times in the past. It's a very smart move by all parties. The discount offered on the warrants can be negotiated into a buy out that would allow Amazon more room on the other 80.1%. Likely enough room to get it approved by shareholders.
Amazon will own this company before 5 years pass. The equity stake agreement is the first step in that direction. They want that conduit and to them it will be highly prized besides the other obvious assets.
Having a bye on income taxes into 2019 helps quite a bit. Settling the pension issue by itself may well add 1 to 2 cents to earnings per quarter. Book value should start increasing at a relatively substantial pace. Based on the written report and the CC I think 16 is very attainable.
Keep in mind with all the current activity and additional revenue there will be several upgrades coming. Several.
.21 net, beat of .02 on consensus estimate.
U.S. trial air operation launched in September 2015, now with five dedicated 767 freighters and logistical support, achieved its performance objectives through the holiday season. Under automatic extension provisions, it now runs at least to mid-May this year.
Powerful expansion on customer demand.
Record operating cash flow.
Repurchased 1mm shares.
GAAP net earnings for 2014 included a one-time settlement option offered to certain beneficiaries of qualified pension plans in December 2014, which led to pre-tax non-cash charges of $6.7 million to continuing operations and $5.0 million to discontinued operations in the fourth quarter of 2014. The pension settlements will reduce future pension obligations and expense volatility.
Still many other positive developments. The CC tomorrow should be very positive.
Amazon has made their decision and is now making moves to recruit more Prime membership. This means they feel they have all but eliminated bottlenecks and delays going forward.
You're not going to like what I say.... so I apologize as a prelude. The only way to stabilize the stock price, stop bleeding in the book value, and instill investor confidence is to cut the dividend to 90% of core earnings. Overpaying the dividend to earnings only produces return of capital which in turn directly deflates the stock's book value. At the same time your brokerage account cost basis drops the amount of ROC which produces higher capital gains (and taxation) if the shares are ever sold.
So continuing to pay a dividend you can't fully cover just creates a slowly sinking ship. Most bail, not board, when a ship is going down.
I mentioned this only because it is not a normal filing. I have seen other companies make this kind of filing before ---- prior to a merger, fund raising, or some type of consolidation. I'm not saying this will be the case here, but it did peak my curiosity as to why they would make special note as to the descriptions of their stock and its parameters at this particular time. I believe this filing indicates something is getting ready to happen.