AIR T INC 10-Q

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. FORWARD-LOOKING STATEMENTS This section entitled "Management’s Discussion and Analysis of Financial Condition and Results of Operations" (“MD&A”) is intended to provide a reader of our financial statements with a narrative from the perspective of management on our financial condition, results of operations, liquidity, and certain other factors that may affect our future results. The MD&A provides a narrative analysis explaining the reasons for material changes in the Company’s (i) financial condition during the period from the most recent fiscal year-end, March 31, 2021, to and including December 31, 2021 and (ii) results of operations during the current fiscal period(s) as compared to the corresponding period(s) of the preceding fiscal year. This Quarterly Report on Form 10-Q, including the MD&A, contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These statements reflect our current views with respect to future events and financial performance. The words “believe,” “expect,” “anticipate,” “intend,” “estimate,” “forecast,” “project,” “should,” "will," "continue" and similar expressions are intended to identify “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Any and all forecasts and projections in this document are “forward looking statements” and are based on management’s current expectations or beliefs. From time to time, we may also provide oral and written forward-looking statements in other materials we release to the public, such as press releases, presentations to securities analysts or investors, or other communications by us. Any or all of our forward-looking statements in this report and in any public statements we make could be materially different from actual results. Accordingly, we wish to caution investors that any forward-looking statements made by or on behalf of us are subject to uncertainties and other factors that could cause actual results to differ materially from such statements. We also wish to caution investors that other factors might in the future prove to be important in affecting our results of operations. New factors emerge from time to time; it is not possible for management to predict all of such factors, nor can it assess the impact of each such factor on the business or the extent to which any factor, or a combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. We undertake no obligation to update publicly or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Our MD&A should be read in conjunction with the Consolidated Financial Statements and related Notes included in Item 1 of Part 1 of this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the fiscal year ended March 31, 2021 (including the information presented therein under Risk Factors), as well other publicly available information. Overview Air T, Inc. (the “Company,” “Air T,” “we” or “us”) is a holding company with a portfolio of operating businesses and financial assets. Our goal is to prudently and strategically diversify Air T’s earnings power and compound the growth in its free cash flow per share over time. We currently operate in four industry segments: • Overnight air cargo, which operates in the air express delivery services industry; • Ground equipment sales, which manufactures and provides mobile deicers and other specialized equipment products to passenger and cargo airlines, airports, the military and industrial customers; • Commercial aircraft, engines and parts, which manages and leases aviation assets; supplies surplus and aftermarket commercial jet engine components; provides commercial aircraft disassembly/part-out services; commercial aircraft parts sales; procurement services and overhaul and repair services to airlines and, • Corporate and other, which acts as the capital allocator and resource for other consolidated businesses. Further, Corporate and other also comprises of insignificant businesses that do not pertain to other reportable segments. Each business segment has separate management teams and infrastructures that offer different products and services. We evaluate the performance of our business segments based on operating income and Adjusted EBITDA. Results of Operations Outlook COVID-19 and its impact on the current financial, economic and capital markets environment, and future developments in these and other areas present uncertainty and risk with respect to our financial condition and results of operations. Each of our businesses implemented measures to attempt to limit the impact of COVID-19 but we still experienced a substantial number of disruptions, and 24 we experienced and continue to experience a reduction in demand for commercial aircraft, jet engines and parts compared to historical periods. Many of our businesses may continue to generate reduced operating cash flow and may continue to operate at a loss from time to time during the remainder of fiscal 2022 and beyond. We expect that the impact of COVID-19 will continue to some extent. The fluidity of this situation precludes any prediction as to the ultimate adverse impact of COVID-19 on economic and market conditions and our businesses in particular, and, as a result, present material uncertainty and risk with respect to us and our results of operations. Third Quarter Fiscal 2022 Compared to Third Quarter Fiscal 2021 Consolidated revenue for the three-month period ended December 31, 2021 decreased by $10.4 million (19%) compared to the same quarter in the prior fiscal year. Following is a table detailing revenue by segment, net of intercompany during the three months ended December 31, 2021 compared to the same quarter in the prior fiscal year (in thousands): Three Months Ended December 31, Change 2021 2020 Overnight Air Cargo $ 18,248 $ 16,322 $ 1,926 12 % Ground Equipment Sales 15,232 20,769 (5,537) (27) % Commercial Jet Engines and Parts 11,392 18,078 (6,686) (37) % Corporate and Other 561 650 (89) (14) % $ 45,433 $ 55,819 $ (10,386) (19) % Revenues from the air cargo segment for the three-month period ended December 31, 2021 increased by $1.9 million (12%) compared to the third quarter of the prior fiscal year. The increase was principally attributable to higher administrative fees and maintenance labor revenue from FedEx. The ground equipment sales segment contributed approximately $15.2 million and $20.8 million to the Company’s revenues for the three-month periods ended December 31, 2021 and 2020 respectively, representing a $5.5 million (27%) decrease in the current quarter. The decrease was primarily driven by lower sales volume of deicing trucks this quarter due to the ongoing effects of COVID-19 compared to prior year comparable quarter. At December 31, 2021, the ground equipment sales segment’s order backlog was $3.7 million compared to $17.3 million at December 31, 2020. Finished Goods inventory increased to $8.7 million as of December 31, 2021 from $1.8 million as of December 31, 2020, as we added additional trucks ready for sale to capitalize on opportunistic sales that may arise as customers continue to recover from the impacts of the pandemic. The commercial jet engines and parts segment contributed $11.4 million of revenues in the quarter ended December 31, 2021 compared to $18.1 million in the comparable prior year quarter, which is a decrease of $6.7 million (37%). The decrease was primarily driven by the fact that Contrail had 3 asset sales with no profit margin in the prior-year quarter that did not recur in the current-year quarter. Following is a table detailing operating income (loss) by segment during the three months ended December 31, 2021 compared to the same quarter in the prior fiscal year (in thousands): Three Months Ended December 31, Change 2021 2020 Overnight Air Cargo $ 475 $ 490 $ (15) Ground Equipment Sales 1,463 4,229 (2,766) Commercial Jet Engines and Parts 336 (1,598) 1,934 Corporate and Other (2,249) (2,053) (196) $ 25 $ 1,068 $ (1,043) Consolidated operating income for the quarter ended December 31, 2021 was $25.0 thousand, compared to operating income of $1.1 million in the comparable quarter of the prior year. The air cargo segment's operating income for the three-month period ended December 31, 2021 was relatively flat compared to the third quarter of the prior fiscal year. 25 The ground equipment sales segment's operating income for the quarter ended December 31, 2021 decreased by $2.8 million from the prior year comparable quarter to $1.5 million. This decrease was primarily attributable to the decreased sales noted in the segment revenue discussion above. The commercial jet engines and parts segment generated operating income of $0.3 million in the current-year quarter compared to an operating loss of $1.6 million in the prior-year quarter. The change was primarily attributable to the increased component sales at the companies within this segment. The corporate and other segment's operating loss was relatively flat this quarter compared to prior year's comparable quarter. Following is a table detailing non-operating income (expense) during the three months ended December 31, 2021 compared to the same quarter in the prior fiscal year (in thousands): Three Months Ended December 31, Change 2021 2020 Interest expense (1,236) (1,172) (64) Income (Loss) from equity method investments 99 510 (411) Other-than-temporary impairment loss on investments (348) — (348) Other (11) 1,039 (1,050) (1,496) 377 (1,873) The Company had a net non-operating loss of $1.5 million during the quarter ended December 31, 2021, compared to net non-operating income of $0.4 million in the prior-year quarter. In the third quarter 2020, the Company recorded $0.5 million of net income from our equity investments whereas in the current quarter, we recorded $0.1 million of net income pick-up. In addition, during the current-year quarter, the Company also recorded an impairment loss of $0.3 million on the equity investment of CCI. Also in the current-year quarter, the Company recorded $1.0 million of investment loss driven by decreases in the fair value of our investments, which was reflected in the change in the Other non-operating income (expense). During the three-month period ended December 31, 2021, the Company recorded $0.3 million in income tax benefit at an effective tax rate ("ETR") of 19.2%. The Company records income taxes using an estimated annual effective tax rate for interim reporting. The primary factors contributing to the difference between the federal statutory rate of 21.0% and the Company's effective tax rate for the three-month period ended December 31, 2021 were the change in valuation allowance related to the Company's subsidiaries in the corporate and other segment, Delphax Solutions, Inc. and Delphax Technologies, Inc. (collectively known as "Delphax"), the estimated benefit for the exclusion of income for the Company's captive insurance company subsidiary ("SAIC") under Section 831(b) and the exclusion from the tax provision of the minority owned portion of the pretax income of the Company's 79%-owned subsidiary ("Contrail"). During the three-month period ended December 31, 2020, the Company recorded $0.3 million in income tax benefit at an ETR of (22.0)%. The primary factors contributing to the difference between the federal statutory rate of 21.0% and the Company's effective tax rate for the three-month period ended December 31, 2020 were the tax rate differential for carryback tax losses at a rate higher than the statutory tax rate, the change in valuation allowance related to Delphax, the estimated benefit for the exclusion of income for SAIC under Section 831(b) and the exclusion from the tax provision of the minority owned portion of the pretax income of Contrail. First Nine Months of Fiscal 2022 Compared to First Nine Months of Fiscal 2021 Following is a table detailing revenue by segment (in thousands): Nine Months Ended December 31, Change 2021 2020 Overnight Air Cargo $ 55,946 $ 49,789 $ 6,157 12 % Ground Equipment Sales 32,603 48,656 (16,053) (33) % Commercial Jet Engines and Parts 35,902 28,886 7,016 24 % Corporate and Other 1,189 1,063 126 12 % $ 125,640 $ 128,394 $ (2,754) (2) % Revenues from the air cargo segment for the nine months ended December 31, 2021 increased by $6.2 million (12%) compared to the nine months ended December 31, 2020. The increase was principally attributable to higher pass-through revenue and maintenance 26 labor revenue from FedEx as a result of increased business activity versus the prior year quarter as well as higher maintenance revenue from customers outside of FedEx. The ground equipment sales segment contributed approximately $32.6 million and $48.7 million to the Company’s revenues for the nine-month periods ended December 31, 2021 and 2020 respectively, representing a $16.1 million (33)% decrease in the current nine-month period. The decrease was primarily driven by a lower sales volume of deicing trucks due to the ongoing effects of COVID-19 in the current year compared to prior year as well as higher numbers of trucks sold to the U.S. Air Force in the prior nine-month period. The commercial jet engines and parts segment contributed $35.9 million of revenues in the nine months ended December 31, 2021 compared to $28.9 million in the comparable prior year nine months. The increase is primarily attributable to the fact that all the companies within this segment had higher component sales as the aviation industry started to see more activity in the current year as COVID-19 related restrictions continued to loosen. Following is a table detailing operating income (loss) by segment during the nine months ended December 31, 2021 compared to the same nine months in the prior fiscal year (in thousands): Nine Months Ended December 31, Change 2021 2020 Overnight Air Cargo $ 2,063 $ 1,617 $ 446 Ground Equipment Sales 2,929 7,369 (4,440) Commercial Jet Engines and Parts 2,000 (4,776) 6,776 Corporate and Other (6,268) (7,091) 823 $ 724 $ (2,881) $ 3,605 Consolidated operating income for the nine months ended December 31, 2021 was $0.7 million compared to an operating loss of $2.9 million for the comparable nine months of the prior year. Operating income for the air cargo segment for the nine months ended December 31, 2021 increased by $0.4 million versus the prior year comparable period primarily due to the revenue increase noted above. The ground equipment sales segment's operating income decreased by $4.4 million to $2.9 million in the nine-month period ended December 31, 2021 versus the prior year comparable period. This decrease was primarily attributable to the revenue decrease noted above, in addition to higher costs of materials required to build trucks. The commercial jet engines and parts segment generated an operating income of $2.0 million in the current-year nine month period compared to an operating loss of $4.8 million in the prior-year nine-month period. The change was primarily attributable to the increased component sales as the aviation industry started to see more activity as explained in the segment revenue discussion above. The corporate and other segment's operating loss was $6.3 million for the nine months ended December 31, 2021 versus the prior year comparable period's operating loss of $7.1 million. This is primarily attributable to the segment having lower health insurance claims during the nine months ended December 31, 2021 compared to December 31, 2020. Following is a table detailing non-operating income (expense) during the nine months ended December 31, 2021 compared to the same quarter in the prior fiscal year (in thousands): Nine Months Ended December 31, Change 2021 2020 Interest expense $ (3,341) $ (3,413) $ 72 Income (Loss) from equity method investments 197 (546) 743 Gain on forgiveness of Paycheck Protection Program (“PPP”) loan 8,331 — 8,331 Other-than-temporary impairment loss on investments (348) — (348) Other 1,329 2,125 (796) $ 6,168 $ (1,834) $ 8,002 The Company had a net non-operating income of $6.2 million for the nine months ended December 31, 2021 compared to a net non-operating loss of $1.8 million in the prior-year nine-month period. The increase was primarily attributable to the $8.3 million gain 27 recognized on the SBA's forgiveness of the Company's PPP loan. In addition, during the nine months ended December 31, 2021, the Company recorded an impairment loss of $0.3 million on the equity investment of CCI. Further, in the prior year, the Company recorded $0.5 million of net loss from our equity investments whereas in the current year, we recorded $0.2 million of net income from these investments. During the nine-month period ended December 31, 2021, the Company recorded $0.2 million in income tax benefit at an effective rate of (3.6)%. The Company records income taxes using an estimated annual effective tax rate for interim reporting. The primary factors contributing to the difference between the federal statutory rate of 21.0% and the Company's effective tax rate for the nine-month period ended December 31, 2021 were the change in valuation allowance related to Delphax, the estimated benefit for the exclusion of income for SAIC under Section 831(b), the exclusion from the tax provision of the minority owned portion of the pretax income of Contrail, the exclusion from taxable income of the PPP loan forgiveness income, as directed by the CARES Act enacted in 2020, and any accrued interest forgiven as a part of that Act. During the nine-month period ended December 31, 2020, the Company recorded $2.2 million in income tax benefit which resulted in an effective tax rate of 45.9%. The primary factors contributing to the difference between the federal statutory rate and the Company's effective tax rate for the nine-month period ended December 31, 2020 were the tax rate differential for carryback tax losses at a rate higher than the statutory tax rate, the change in valuation allowance related to Delphax, the estimated benefit for the exclusion of income for SAIC under Section 831(b), and the exclusion from the tax provision of the minority owned portion of the pretax income of Contrail. Critical Accounting Policies and Estimates The Company’s significant accounting policies are fully described in Note 1 to the condensed consolidated financial statements and in the notes to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended March 31, 2021. The preparation of the Company’s condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States requires the use of estimates and assumptions to determine certain assets, liabilities, revenues and expenses. Management bases these estimates and assumptions upon the best information available at the time of the estimates or assumptions. The Company’s estimates and assumptions could change materially as conditions within and beyond our control change. Accordingly, actual results could differ materially from estimates. There were no significant changes to the Company’s critical accounting policies and estimates during the three-months ended December 31, 2021. Seasonality The ground equipment sales segment business has historically been seasonal, with the revenues and operating income typically being lower in the first and fourth fiscal quarters as commercial deicers are typically delivered prior to the winter season. Other segments have typically not experienced material seasonal trends. Supply Chain and Inflation The Company continues to monitor a wide range of health, safety, and regulatory matters related to the continuing COVID-19 pandemic including its impact on our business operations. In particular, ongoing supply chain disruptions have impacted product availability and costs across all markets including the aviation industry in which our company operates. Additionally, the United States is experiencing an acute workforce shortage and increasing inflation which has created a hyper-competitive wage environment. Thus far, the direct impact of these items on our businesses have been immaterial. However, ongoing or future disruptions to consumer demand, our supply chain, product pricing inflation, our ability to attract and retain employees, or our ability to procure products and fulfill orders, could negatively impact the Company’s operations and financial results in a material manner. We continue to look for proactive ways to mitigate potential impacts of supply chain disruptions at our businesses. Liquidity and Capital Resources As of December 31, 2021, the Company held approximately $5.8 million in cash and cash equivalents and restricted cash, $2.9 million of which related to restricted cash collateralized for Air T OZ 1, LLC, Air T OZ 2, LLC, and Air T OZ 3, LLC (the "Opportunity Zone Funds"), each a Minnesota limited liability company and a subsidiary of the Company. The Company also held $0.7 million in restricted investments held as statutory reserve of SAIC. The Company has approximately $2.6 million of marketable securities and an aggregate of $36.8 million in available funds under its lines of credit as of December 31, 2021. As of December 31, 2021, the Company’s working capital amounted to $85.6 million, an increase of $8.0 million compared to March 31, 2021. As mentioned in Note 2 and Note 11 of Notes to condensed Consolidated Financial Statements included under Part I, Item 1 of this report, on December 2, 2021, the Company, through its wholly-owned subsidiary Wolfe Lake HQ, LLC, completed the purchase of the real estate located at 5000 36th Street West, St. Louis Park, Minnesota pursuant to the real estate purchase agreement with WLPC 28 East, LLC, a Minnesota limited liability company dated October 11, 2021. The real estate purchased consists of a 2-story office building, asphalt-paved driveways and parking areas, and landscaping. The building was constructed in circa 2004 with an estimated 54,742 total square feet of space. The real estate purchased is where the Air T's executive office is currently located. With this purchase, the Company assumed 11 leases from existing tenants occupying the building. The purchase price was $13.2 million, which was paid for with approximately $3.3 million in cash and a new secured loan from Bridgewater with an aggregate principal amount of $9.9 million and a fixed interest rate of 3.65% which matures on December 2, 2031. On April 13, 2020, the Company entered into a loan with MBT with a principal amount of $8.2 million pursuant to the Payroll Protection Program, backed by the SBA, under the CARES Act. As of December 31, 2021, the Company's PPP Loan was fully forgiven by the SBA. As such, the Company accounted for its then outstanding principal and accrued interest as a gain on extinguishment in accordance with ASC 470. As mentioned in Note 11 of Notes to condensed Consolidated Financial Statements included under Part I, Item 1 of this report, during the first three quarters of fiscal 2022, the Company received $7.9 million in gross proceeds from the sale of TruPs through a S-3 Registration Statement filed by the Company. The TruPs were sold and issued under the S-3 “shelf” Registration Statement base prospectus filed with the Securities and Exchange Commission on March 10, 2021 and declared effective by the SEC on March 19, 2021, and under an At the Market Offering Agreement and a First Amendment to the At the Market Offering Agreement filed with the SEC on May 14, 2021 and November 19, 2021, respectively, and prospectus supplements filed with the SEC on May 14, 2021 and November 19, 2021, respectively. The Shelf Registration Statement registers a number of securities that may be issued by the Company in a maximum aggregate amount of up to $15 million. The Registration Statement is subject to the offering limits set forth in General Instruction I.B.6 of Form S-3 because the Company’s public float is less than $75 million. For so long as the Company's public float is less than $75 million, the aggregate market value of securities sold by the Company under the Shelf Registration Statement pursuant to Instruction I.B.6 to Form S-3 during any 12 consecutive months may not exceed one-third of the Company’s public float. For purposes of this limitation, the aggregate market value of our outstanding common stock held by non-affiliates, or public float, was $26.8 million, based on 1.1 million shares of our outstanding common stock held by non-affiliates and a price of $25.15 per share, which was the price as of December 31, 2021, a date within 60 days of the date that our common stock was last sold on The Nasdaq Global Market on February 11, 2022, calculated in accordance with General Instruction I.B.6 of Form S-3. After giving effect to the $8.9 million offering limit imposed by General Instruction I.B.6 of Form S-3, we may offer and sell from time to time up to the full amount of the $1.0 million remaining under the current Prospectus Supplement. As mentioned in Note 1 4 of Notes to condensed Consolidated Financial Statements included under Part I, Item 1 of this report, in 2016, Contrail entered into an Operating Agreement with the Seller providing for the put and call options with regard to the 21% non-controlling interest retained by the Seller. The Seller is the founder of Contrail and its current Chief Executive Officer. The Put/Call Option permits the Seller to require Contrail Aviation to purchase all of the Seller’s equity membership interests in Contrail Aviation commencing on July 18, 2021. As of the date of this filing, neither the Seller nor Air T has indicated an intent to exercise the put and call options. If either side were to exercise the option, the Company anticipates that the price would approximate the fair value of the Contrail RNCI, as determined on the transaction date. The Company currently expects that it would fund any required payment from cash provided by operations. As mentioned in Note 1 4 of Notes to condensed Consolidated Financial Statements included under Part I, Item 1 of this report, on May 5, 2021, the Company formed a new aircraft asset management business called CAM and a new aircraft capital joint venture called CJVII. The new venture will focus on acquiring commercial aircraft and jet engines for leasing, trading and disassembly. CJVII will target investments in current generation narrow-body aircraft and engines, building on Contrail Aviation’s origination and asset management expertise. CAM will serve two separate and distinct functions: 1) to direct the sourcing, acquisition and management of aircraft assets owned by CJVII, and 2) to directly invest into CJVII alongside other institutional investment partners. CAM has an initial commitment to CJVII of approximately $53 million, which is comprised of an $8 million initial commitment from the Company and an approximately $45 million initial commitment from MRC. As of December 31, 2021, CAM's remaining capital commitments are approximately $4.2 million from the Company and $28.9 million from MRC. CJVII will initially be capitalized with up to $408.0 million of equity from the Company and three institutional investor partners, consisting of $108.0 million in initial commitments and $300.0 million in upsize capacity, contingent on underwriting and transaction appeal. As of the date of this filing, $34.3 million of capital has been deployed to CJVII. The timing of the remaining capital commitment is not yet known at this time. The Company believes it is probable that the cash on hand (including amounts forgiven under the PPP loan and other current financings), net cash provided by operations from its remaining operating segments, together with amounts available under our current revolving lines of credit, as amended, will be sufficient to meet its obligations as they become due in the ordinary course of business for at least 12 months following the date these financial statements are issued. Cash Flows 29 Following is a table of changes in cash flow from continuing operations for the nine months ended December 31, 2021 and 2020 (in thousands): Nine Months Ended December 31, 2021 2020 Net Cash Used in Operating Activities (19,690) (6,661) Net Cash Used in Investing Activities (19,546) (308) Net Cash Provided by Financing Activities 29,079 40,383 Effect of foreign currency exchange rates on cash and cash equivalents 69 (164) Net (Decrease) Increase in Cash and Cash Equivalents and Restricted Cash (10,088) 33,250 Net cash used in operating activities was $19.7 million for the nine-month period ended December 31, 2021 compared to net cash used in operating activities of $6.7 million in the prior year nine-month period. The change in net cash used in operating activities was primarily driven by a net increase in cash used to purchase inventories at Contrail. The Company had a net increase in inventories of $8.6 million in the current period and a net decrease of $6.1 million in the prior period. In addition to regular inventory movements resulting from component sales and purchases, Contrail purchased 1 engine in the current period and sold 2 engines in the prior period, which is driving the aforementioned change in inventories. Net cash used in investing activities for the nine-month period ended December 31, 2021 was $19.5 million compared to net cash used in investing activities of $0.3 million in the prior-year period. Cash was used in the current-year period primarily to acquire the real estate located at 5000 36th Street West, St. Louis Park, Minnesota, as referenced in Note 2 of Notes to condensed Consolidated Financial Statements included under Part I, Item 1 of this report and to invest in CAM, the Company's new aircraft asset management business. Net cash provided by financing activities for the nine-month period ended December 31, 2021 was $29.1 million compared to net cash provided by financing activities of $40.4 million in the prior-year period. The decrease was primarily driven by lower net cash proceeds from the Company's term loans, partially offset by higher issuance of TruPs in the current-year. Non-GAAP Financial Measures The Company uses adjusted earnings before taxes, interest, and depreciation and amortization ("Adjusted EBITDA"), a non-GAAP financial measure as defined by the SEC, to evaluate the Company's financial performance. This performance measure is not defined by accounting principles generally accepted in the United States and should be considered in addition to, and not in lieu of, GAAP financial measures. Adjusted EBITDA is defined as earnings before taxes, interest, and depreciation and amortization, adjusted for specified items. The Company calculates Adjusted EBITDA by removing the impact of specific items and adding back the amounts of interest expense and depreciation and amortization to earnings before income taxes. When calculating Adjusted EBITDA, the Company does not add back depreciation expense for aircraft engines that are on lease, as the Company believes this expense matches with the corresponding revenue earned on engine leases. Depreciation expense for leased engines totaled $70.4 thousand and $1.7 million for the three months ended December 31, 2021 and 2020, respectively. Management believes that Adjusted EBITDA is a useful measure of the Company's performance because it provides investors additional information about the Company's operations allowing better evaluation of underlying business performance and better period-to-period comparability. Adjusted EBITDA is not intended to replace or be an alternative to operating income (loss), the most directly comparable amounts reported under GAAP. The tables below provide a reconciliation of operating income (loss) from continuing operations to Adjusted EBITDA and Adjusted EBITDA by segment for the three and nine months ended December 31, 2021 and 2020 (in thousands): 30 Three months ended Nine months ended 12/31/2021 12/31/2020 12/31/2021 12/31/2020 Operating income (loss) from continuing operations $ 25 $ 1,068 $ 724 $ (2,881) Depreciation and amortization (excluding leased engines depreciation) 372 259 956 917 Asset impairment, restructuring or impairment charges — — — 664 Loss on disposition of assets — 5 3 1 Security issuance expenses 150 — 215 — Adjusted EBITDA $ 547 $ 1,332 $ 1,898 $ (1,299) Three months ended Nine months ended 12/31/2021 12/31/2020 12/31/2021 12/31/2020 Overnight Air Cargo $ 488 $ 506 $ 2,106 $ 1,672 Ground Equipment Sales 1,544 4,267 3,074 7,521 Commercial Jet Engines and Parts 500 (1,466) 2,524 (3,857) Corporate and Other (1,985) (1,975) (5,806) (6,635) Adjusted EBITDA $ 547 $ 1,332 $ 1,898 $ (1,299)