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Item 2. Management’s Discussion and Analysis

2025-02-12 compared with 2024-11-12 · 113 added, 100 removed, 200 unchanged (52% of the section changed)

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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, 2024, to and including September 30, 2024 and (ii) results of operations during the current fiscal period(s) as compared to the corresponding period(s) of the preceding fiscal year.

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, 2024, to and including December 31, 2024 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.

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Results of Operations

Second Quarter Fiscal 2025 Compared to Second Quarter Fiscal 2024

Consolidated revenue for the three-month period ended September 30, 2024 increased by $2.3 million (2.9%) 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 September 30, 2024 compared to the same quarter in the prior fiscal year (in thousands):

Third Quarter Fiscal 2025 Compared to Third Quarter Fiscal 2024

Consolidated revenue for the three-month period ended December 31, 2024 increased by $14.1 million (22.2%) 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, 2024 compared to the same quarter in the prior fiscal year (in thousands):

Three Months Ended

September 30, Change

December 31, Change

Overnight Air Cargo $ 30,592 $ 29,018 $ 1,574 5.4 %

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$ 77,880 $ 63,756 $ 14,124 22.2 %

Revenues from the overnight air cargo segment for the three-month period ended September 30, 2024 increased by $3.0 million (10.6%) compared to the second quarter of the prior fiscal year.

The increase was principally attributable to higher administrative fees due to increased fleet of 105 aircraft in the current year quarter compared to 85 aircraft in the prior year quarter and additional routes granted by FedEx.

The ground equipment sales segment contributed approximately $14.5 million and $12.2 million to the Company’s revenues for the three-month period ended September 30, 2024 and 2023 respectively, representing a $2.2 million (18.0%) increase in the current quarter.

The increase was primarily driven by the higher number of deicing trucks sold in the current year quarter compared to prior year's comparable quarter.

At September 30, 2024, the ground equipment sales segment’s order backlog was $9.1 million compared to $7.0 million at September 30, 2023.

The commercial jet engines and parts segment contributed $32.9 million of revenues in the quarter ended September 30, 2024 compared to $36.5 million in the comparable prior year quarter, which is a decrease of $3.6 million (9.7%).

The decrease was

primarily driven by four whole engine sales at Contrail in the prior year’s quarter compared to none in the current year’s quarter.

This was partially offset by the increase in component part sales in the current year’s quarter compared to prior year’s quarter.

We believe Contrail's increased component part sales is driven by airlines’ focusing on maintaining existing fleets of 737NG and A320CEO aircraft, because new orders from the OEMs have been cancelled or delayed.

The company is in a position to satisfy customer demand through available inventory and expertise in serviceable aftermarket material.

Revenues from the corporate and other segment for the three-month period ended September 30, 2024 increased by $0.6 million (30.8%) compared to the second quarter of the prior fiscal year.

The increase was primarily attributable to increased software subscriptions at Shanwick.

Following is a table detailing operating income (loss) by segment during the three months ended September 30, 2024 compared to the same quarter in the prior fiscal year (in thousands):

Revenues from the overnight air cargo segment for the three-month period ended December 31, 2024 increased by $1.6 million (5.4%) compared to the third quarter of the prior fiscal year.

The increase was principally attributable to higher administrative fees and pass through revenue due to a larger fleet consisting of 105 aircraft as of December 31, 2024 compared to 85 aircraft as of December 31, 2023.

The ground equipment sales segment contributed approximately $11.8 million and $8.4 million to the Company’s revenues for the three-month period ended December 31, 2024 and 2023 respectively, representing a $3.4 million (40.3%) increase in the current quarter.

The increase was primarily driven by the higher number of deicing trucks sold and higher parts and service revenue in the current year's quarter compared to the prior year's comparable quarter.

We believe the increase in parts and service revenue was driven by heightened demand for maintenance and overhaul services, as customers prioritized ensuring the reliability of their equipment ahead of the winter season.

At December 31, 2024, the ground equipment sales segment’s order backlog was $12.9 million compared to $6.2 million at December 31, 2023.

The commercial jet engines and parts segment contributed $32.7 million of revenues in the quarter ended December 31, 2024 compared to $24.1 million in the comparable prior year quarter, which is an increase of $8.5 million (35.4%).

This increase was largely attributed to higher component sales at Contrail during the current quarter.

We believe this growth is due to airlines prioritizing the maintenance of their existing 737NG and A320CEO fleets, due in part by cancellations or delays in new aircraft deliveries from original equipment manufacturers ("OEM").

Contrail has been able to meet this rising demand by leveraging its inventory and expertise in providing serviceable aftermarket materials.

Revenues from the corporate and other segment for the three-month period ended December 31, 2024 increased by $0.6 million (27.6%) compared to the third quarter of the prior fiscal year.

The increase was primarily attributable to increased software subscriptions at Shanwick driven by its growing customer base.

Following is a table detailing operating income (loss) by segment during the three months ended December 31, 2024 compared to the same quarter in the prior fiscal year (in thousands):

Three Months Ended

September 30, Change

December 31, Change

Overnight Air Cargo $ 1,864 $ 1,594 $ 270

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$ 1,816 $ (1,608) $ 3,424

Consolidated operating income for the quarter ended September 30, 2024 was $3.9 million, compared to operating income of $0.8 million in the comparable quarter of the prior year.

The overnight air cargo segment's operating income for the three-month period ended September 30, 2024 was $1.8 million compared to operating income of $2.0 million in the same quarter in the prior fiscal year.

This decrease was primarily attributable to higher salaries expense.

The ground equipment sales segment's operating income for the quarter ended September 30, 2024 was $0.4 million compared to the prior year comparable quarter's operating loss of $12.0 thousand.

Consolidated operating income for the quarter ended December 31, 2024 was $1.8 million, compared to operating loss of $1.6 million in the comparable quarter of the prior year.

The overnight air cargo segment's operating income for the three-month period ended December 31, 2024 was $1.9 million compared to operating income of $1.6 million in the same quarter in the prior fiscal year.

The increase was mainly driven by higher revenue, as outlined in the segment revenue discussion above, though partially offset by lower margins on maintenance revenue resulting from increased operating costs.

The ground equipment sales segment's operating income for the quarter ended December 31, 2024 was $0.2 million compared to the prior year comparable quarter's operating loss of $0.5 million.

This increase was primarily attributable to the higher sales and revenue noted in the segment revenue discussion above.

The commercial jet engines and parts segment generated operating income of $2.6 million in the current year quarter compared to an operating loss of $0.6 million in the prior year quarter.

This increase was primarily attributable to the higher sales noted in the segment revenue discussion above.

The commercial jet engines and parts segment generated operating income of $3.6 million in the current year quarter compared to an operating income of $1.2 million in the prior year quarter.

Even though the segment revenue was lower compared to the prior year quarter, the increase in operating income in the current quarter was primarily attributable to higher profit margins on Contrail's component sales compared to the prior year comparable quarter.

The corporate and other segment's operating loss for the three-month period ended September 30, 2024 was $2.0 million compared to the prior year comparable quarter's operating loss of $2.4 million.

The decrease in operating loss was attributable to increased sales noted in the segment revenue discussion above.

Following is a table detailing non-operating income (expense) during the three months ended September 30, 2024 compared to the same quarter in the prior fiscal year (in thousands):

The corporate and other segment's operating loss for the three-month period ended December 31, 2024 was $2.9 million compared to the prior year comparable quarter's operating loss of $2.1 million.

The higher operating loss was primarily driven by increased health insurance claims expenses.

Following is a table detailing non-operating income (expense) during the three months ended December 31, 2024 compared to the same quarter in the prior fiscal year (in thousands):

Three Months Ended

September 30, Change

December 31, Change

Interest expense $ (2,561) $ (1,528) $ (1,033)

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$ (2,712) $ (348) $ (2,364)

The Company had net non-operating loss of $0.6 million during the quarter ended September 30, 2024, compared to net non-operating loss of $1.9 million in the prior year quarter.

The decrease in non-operating loss was primarily driven by a $1.6 million increase in net income allocated to the Company from equity method investments as mentioned in Note 8 of Notes to Condensed Consolidated Financial Statements included under Part I, Item 1 of this Report on Form 10-Q.

This is partially offset by a $0.3 million increase in interest expense.

During the three-month period ended September 30, 2024, the Company recorded $0.3 million in income tax expense at an ETR of 10.2%.

The Company had net non-operating loss of $2.7 million during the quarter ended December 31, 2024, compared to net non-operating loss of $0.3 million in the prior year quarter.

The increase in non-operating loss was driven by a $1.0 million increase in interest expense and a $0.7 million loss in foreign currency exchange fluctuations.

Additionally, a $0.4 million reduction in net income allocated to the Company from equity method investments, as detailed in Note 8 of the Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this Report on Form 10-Q, also contributed to the increase in non-operating loss.

During the three-month period ended December 31, 2024, the Company recorded $0.3 million in income tax expense at an ETR of (38.7)%.

The Company has computed the provision for income taxes based on the estimated annual effective tax rate excluding loss jurisdictions with no tax benefit and the application of discrete items, if any, 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 September 30, 2024 were the valuation allowance related to the Company's U.S.

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, 2024 were the valuation allowance related to the Company's U.S.

consolidated group, DTI, LGSS, DSI, and BCCM Kenya, and the foreign rate differentials for Air T's operations located in the Netherlands and Puerto Rico.

During the three-month period ended September 30, 2023, the Company recorded income tax expense of $0.5 million at an ETR of (43.4)%.

The Company records income taxes using an estimated 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 September 30, 2023 were the change in valuation allowance related to the Company's U.S.

consolidated group, DSI, DTI, and LGSS, and the foreign rate differentials for Air T's operations located in the Netherlands and Puerto Rico.

First Six Months of Fiscal 2025 Compared to First Six Months of Fiscal 2024

Following is a table detailing revenue by segment, net of intercompany during the six months ended September 30, 2024 compared to the same period in the prior fiscal year (in thousands):

Six Months Ended

September 30, Change

During the three-month period ended December 31, 2023, the Company recorded income tax expense of $0.2 million at an ETR of (7.8)%.

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, 2023 were the change in valuation allowance related to the Company's U.S.

consolidated group, DTI, LGSS, DSI, BCCM Kenya, and the foreign rate differentials for Air T's operations located in the Netherlands and Puerto Rico.

First Nine Months of Fiscal 2025 Compared to First Nine Months of Fiscal 2024

Following is a table detailing revenue by segment, net of intercompany during the nine months ended December 31, 2024 compared to the same period in the prior fiscal year (in thousands):

Nine Months Ended

December 31, Change

Overnight Air Cargo $ 92,162 $ 84,944 $ 7,218 8.5 %

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$ 225,535 $ 214,154 $ 11,381 5.3 %

Revenues from the overnight air cargo segment for the six months ended September 30, 2024 increased by $5.6 million (10.1%) compared to the six months ended September 30, 2023.

The increase was principally attributable to higher administrative fees due increased fleet of 105 aircraft in the current year compared to 85 aircraft in the prior year and additional routes granted by FedEx.

The ground equipment sales segment's revenue for the six-month period ended September 30, 2024 was $21.8 million compared to $24.0 million in the same period in the prior fiscal year.

The decrease was primarily driven by the lower number of deicing trucks sold during the first three months of the current year compared to the prior year.

We believe that the decline in sales for this segment is directly attributable to a decreased demand for deicing trucks across the entire industry, driven by the recent milder winters.

The commercial jet engines and parts segment contributed $59.2 million of revenues in the six months ended September 30, 2024 compared to $66.3 million in the comparable prior year six months period.

The decrease was primarily driven by a total of five whole engine sales at Contrail and Worthington combined in the prior year compared to none in the current year.

This is partially offset by Contrail's higher component part sales in the current year compared to prior year.

Revenues from the overnight air cargo segment for the nine months ended December 31, 2024 increased by $7.2 million (8.5%) compared to the nine months ended December 31, 2023.

The increase was principally attributable to higher administrative fees and pass-through revenues due to a larger fleet consisting of 105 aircraft as of December 31, 2024 compared to 85 aircraft as of December 31, 2023.

The ground equipment sales segment's revenue for the nine-month period ended December 31, 2024 was $33.7 million compared to $32.5 million in the same period in the prior fiscal year.

The increase was primarily driven by an increase in parts and service revenue bolstered by overhaul work in the third quarter of the current fiscal year.

This trend was likely influenced by a growing emphasis on maintaining existing fleets to address operational needs in key markets.

The commercial jet engines and parts segment contributed $91.9 million of revenues in the nine months ended December 31, 2024 compared to $90.5 million in the comparable prior year nine months period.

The increase was primarily driven by higher component part sales at Contrail in the current year compared to the prior year.

This is partially offset by a total of five whole engine sales at Contrail and Worthington combined in the prior year compared to none in the current year.

We believe Contrail's increased component part sales is driven by airlines focusing on their existing fleets of 14,000 aircraft due to the cancellation or delay of new orders from the OEMs, allowing the company to leverage its expertise and serviceable engine portfolio to meet immediate demands.

Revenues from the corporate and other segment in the six months ended September 30, 2024 increased by $1.0 million (23.9%) compared to the six months ended September 30, 2023.

The increase was primarily attributable to increased software subscriptions at Shanwick.

Following is a table detailing operating income (loss) by segment during the six months ended September 30, 2024 compared to the same six months in the prior fiscal year (in thousands):

Six Months Ended

September 30, Change

Revenues from the corporate and other segment in the nine months ended December 31, 2024 increased by $1.6 million (25.2%) compared to the nine months ended December 31, 2023.

The increase was primarily attributable to increased software subscriptions at Shanwick due to growing customer base.

Following is a table detailing operating income (loss) by segment during the nine months ended December 31, 2024 compared to the same nine months in the prior fiscal year (in thousands):

Nine Months Ended

December 31, Change

Overnight Air Cargo $ 5,510 $ 5,568 $ (58)

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$ 5,137 $ (189) $ 5,326

Consolidated operating income for the six months ended September 30, 2024 was $3.3 million compared to an operating income of $1.4 million for the comparable six months of the prior year.

The overnight air cargo segment's operating income for the six months ended September 30, 2024 was $3.6 million compared to operating income of $4.0 million in the prior year comparable period.

This decrease was primarily attributable to higher salaries expense.

The ground equipment sales segment's operating loss for the six months ended September 30, 2024 was $0.4 million compared to operating loss of $0.1 million in the prior year comparable period.

The increased loss was primarily attributable to lower sales during the first three months noted above.

The commercial jet engines and parts segment generated operating income of $4.7 million in the current year six-month period compared to operating income of $2.6 million in the prior year six-month period.

Consolidated operating income for the nine months ended December 31, 2024 was $5.1 million compared to an operating loss of $0.2 million for the comparable nine months of the prior year.

The overnight air cargo segment's operating income for the nine months ended December 31, 2024 remained relatively flat compared to the same period in the prior year, despite a $7.2 million increase in revenue.

This was primarily due to higher margins in flight operations being offset by lower margins in maintenance revenue, driven by increased operating expenses.

The ground equipment sales segment's operating loss for the nine months ended December 31, 2024 was $0.2 million compared to operating loss of $0.6 million in the prior year comparable period.

The modest improvement in operating loss despite the $1.2 million revenue increase was primarily due to changes in volume and customer mix.

The higher revenue was driven by sales to lower-margin customers or higher-volume orders with reduced profitability, which impacted the overall improvement in operating loss.

The commercial jet engines and parts segment generated operating income of $7.4 million in the current year nine-month period compared to operating income of $2.0 million in the prior year nine-month period.

The increase was primarily attributable to Contrail's higher profit margin on component part sales in the current year compared to the prior year.

The corporate and other segment's operating loss for the six-month period ended September 30, 2024 was $4.7 million compared to an operating loss of $5.1 million in the prior year comparable period.

The decrease in operating loss was primarily driven by the revenue increase noted above.

Following is a table detailing non-operating income (expense) during the six months ended September 30, 2024 compared to the same six months in the prior fiscal year (in thousands):

Six Months Ended

September 30, Change

The corporate and other segment's operating loss for the nine-month period ended December 31, 2024 was $7.6 million compared to an operating loss of $7.1 million in the prior year comparable period.

The increase in operating loss was primarily driven by higher health insurance claims the current year period.

Following is a table detailing non-operating income (expense) during the nine months ended December 31, 2024 compared to the same nine months in the prior fiscal year (in thousands):

Nine Months Ended

December 31, Change

Interest expense $ (6,670) $ (5,189) $ (1,481)

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$ (2,632) $ (2,704) $ 72

The Company had a net non-operating income of $0.1 million for the six months ended September 30, 2024 compared to a net non-operating loss of $2.4 million in the prior year six-month period.

The Company had a net non-operating loss of $2.6 million for the nine months ended December 31, 2024 compared to a net non-operating loss of $2.7 million in the prior year nine-month period.

The decrease in non-operating loss was primarily driven by a $2.5 million increase in net income allocated to the Company from equity method investments as mentioned in Note 8 of Notes to Condensed Consolidated Financial Statements included under Part I, Item 1 of this Report on Form 10-Q.

This is partially offset by a $0.4 million increase in interest expense.

During the six-month period ended September 30, 2024, the Company recorded income tax expense of $0.4 million at an ETR of 11.96%.

This is partially offset by a $1.5 million increase in interest expense and a $0.6 million loss in foreign currency exchange fluctuations.

During the nine-month period ended December 31, 2024, the Company recorded income tax expense of $0.8 million at an ETR of 30.10%.

The primary factors contributing to the difference between the federal statutory rate of 21% and the Company's effective tax rate for the six-month period ended September 30, 2024 were the valuation allowance related to the Company's U.S.

The primary factors contributing to the difference between the federal statutory rate of 21% and the Company's effective tax rate for the nine-month period ended December 31, 2024 were the valuation allowance related to the Company's U.S.

consolidated group, DTI, LGSS, DSI and BCCM Kenya, and the foreign rate differentials for Air T's operations located in the Netherlands and Puerto Rico.

During the six-month period ended September 30, 2023, the Company recorded income tax expense of $0.7 million at an ETR of (74.5)%.

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% and the Company's effective tax rate for the six-month period ended September 30, 2023 were the valuation allowance related to the Company's U.S.

consolidated group, DSI, DTI, LGSS, and the foreign rate differentials for Air T's operations located in the Netherlands and Puerto Rico.

During the nine-month period ended December 31, 2023, the Company recorded income tax expense of $0.9 million at an ETR of (29.4)%.

The primary factors contributing to the difference between the federal statutory rate of 21% and the Company's effective tax rate for the nine-month period ended December 31, 2023 were the valuation allowance related to the Company's U.S.

consolidated group, DTI, LGSS, DSI and BCCM Kenya, and the foreign rate differentials for Air T's operations located in the Netherlands and Puerto Rico.

Critical Accounting Policies and Estimates

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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 September 30, 2024.

There were no significant changes to the Company’s critical accounting policies and estimates during the three-months ended December 31, 2024.

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.

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The fluidity of this situation precludes any prediction as to the ultimate adverse impact these issues on economic and market conditions and our businesses in particular, and, as a result, presents material uncertainty and risk with respect to us and our results of operations.

The Company believes the estimates and assumptions underlying the Company’s consolidated financial statements are reasonable and supportable based on the information available as of September 30, 2024.

Liquidity and Capital Resources

As of September 30, 2024, the Company held approximately $9.2 million in cash and cash equivalents and restricted cash.

As of December 31, 2024, the Company held approximately $18.8 million in cash and cash equivalents and restricted cash.

The Company also held $1.2 million in restricted investments held as statutory reserve of SAIC.

The Company has an aggregate of approximately $25.3 million in available funds under its lines of credit as of September 30, 2024.

As of September 30, 2024, the Company’s working capital amounted to $57.5 million, an increase of $1.5 million compared to March 31, 2024.

The Company has an aggregate of approximately $22.8 million in available funds under its lines of credit as of December 31, 2024.

As of December 31, 2024, the Company’s working capital amounted to $42.8 million, a decrease of $13.3 million compared to March 31, 2024 primarily driven by a $22.2 million decrease in inventory along with a $3.2 million increase in short-term debt, partially offset by an increase in cash and cash equivalents of $11.4 million.

As mentioned in Note 1 2 of Notes to Condensed Consolidated Financial Statements included under Part I, Item 1 of this Report on Form 10-Q, on May 30, 2024, Contrail, a majority-owned subsidiary of the Company, entered in the Redemption Agreement with Seller.

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If Contrail is unable to make a payment for 12 months, then interest shall cease to accrue.

The note is expressly subordinated to the payment in full of all indebtedness of Contrail on or prior to the date of the note or thereafter created.

The note is expressly subordinated to the payment in full of all

indebtedness of Contrail on or prior to the date of the note or thereafter created.

See additional details on the OCAS Loan in Note 1 2 of Notes to Condensed Consolidated Financial Statements included under Part I, Item 1 of this Report.

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Revolver - Alerus matures on February 28, 2026 and balance outstanding will bear interest at a rate per annum equal to the greater of 5.00% or one-month SOFR plus 2.00%.

As mentioned in Note 18 of Notes to Condensed Consolidated Financial Statements included under Part I, Item 1 of this Report on Form 10-Q, on January 21, 2025, the Company and the Alerus Loan Parties entered into Amendment No.

1 to Credit Agreement and Other Loan Documents (“Amendment No.

1”) with Alerus.

Amendment No.

1 extends the term of the revolving credit agreement from February 28, 2026 to August 28, 2026.

All other terms of the Credit Agreement and other Loan Documents remain the same.

In addition to the Revolver - Alerus, the New Credit Agreement provides for two secured term loans – Term Note A - Alerus and Term Note B - Alerus.

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entered into a subordination agreement dated September 12, 2024 to address certain loan matters and to establish the priority of repayment of Contrail’s debt to ONB over the OCAS Loan in the original principal amount of $4.6 million.

As mentioned in Note 12 of Notes to Condensed Consolidated Financial Statements included under Part I, Item 1 of this Report on Form 10-Q, on October 16, 2024, the Company and AAM 24-1 entered into the Second NPA with Honeywell.

The Second NPA amended and restated the terms of the Company’s previously disclosed Original NPA, which was filed in a Current Report on Form 8-K on February 26, 2024.

Under the Original NPA, AAM 24-1 had issued and sold $15.0 million of 8.5% senior secured notes.

The Second NPA amended and restated the amount issued and sold to $30.0 million of 8.5% Notes to Honeywell, which includes the $15.0 million from the Original NPA bringing the total indebtedness to $30.0 million.

The Notes mature on March 1, 2031 and bear an annual interest at a rate of 8.5%.

In addition to the 160,000 previously pledged TruPs, 160,000 newly-issued shares of TruPs held by AAM 24-1 are now pledged to Honeywell, in connection with the closing of the Second NPA.

The Company believes that it has sufficient cash on hand and available liquidity, 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.

Following is a table of changes in cash flow for the six months ended September 30, 2024 and 2023 (in thousands):

Six Months Ended September 30,

Following is a table of changes in cash flow for the nine months ended December 31, 2024 and 2023 (in thousands):

Nine Months Ended December 31,

Net cash provided by operating activities $ 19,377 $ 23,145

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Net Increase (Decrease) in Cash and Cash Equivalents and Restricted Cash $ 10,924 $ (1,903)

Net cash provided by operating activities was $3.0 million for the six-month period ended September 30, 2024 compared to net cash provided in operating activities of $15.9 million in the prior year six-month period.

The decrease in operating cash flows was primarily driven by changes in inventory and accounts receivable, which had a net impact of $7.9 million and $8.8 million, respectively.

Inventory decreased by $8.8 million in the current year period, compared to a larger decrease of $16.7 million in the prior year period, reflecting higher engine sales in the commercial jet engines and parts segment in the prior year period.

Accounts receivable increased by $8.2 million in the current year due to the timing of component sales, whereas in the prior year, accounts receivable decreased by $0.6 million.

These changes were partially offset by a $3.0 million net change in net income after adjustments in the current year period compared to the prior year period.

Net cash used in investing activities for the six-month period ended September 30, 2024 was $14.2 million compared to net cash provided by investing activities of $0.2 million in the prior year period.

Net cash provided by operating activities was $19.4 million for the nine-month period ended December 31, 2024 compared to net cash provided in operating activities of $23.1 million in the prior year nine-month period, representing a decrease of $3.8 million.

The decrease was primarily attributable to an increase in accounts receivable of $11.0 million due to increased component sales and a net decrease in accounts payable of $7.9 million due to timing of payments to our vendors.

These changes were partially offset by a $5.8 million increase in net income after adjustments in the current year period compared to the prior year period, a higher decrease in inventory of $4.2 million, and $5.2 million favorable change in other operating assets and liabilities.

Net cash used in investing activities for the nine-month period ended December 31, 2024 was $16.8 million compared to net cash provided by investing activities of $0.2 million in the prior year period.

The cash used in investing activities was primarily driven by capital expenditures related to assets on lease in the current year at Contrail.

Net cash provided by financing activities for the six-month period ended September 30, 2024 was $12.5 million compared to net cash used in financing activities of $17.2 million in the prior year period.

The cash provided by financing activities in the current year six- period was primarily driven by $13.5 million more proceeds and $16.4 million less payments on the Company's term loans and revolving lines of credit compared to the prior year six-month period.

Net cash provided by financing activities for the nine-month period ended December 31, 2024 was $8.0 million compared to net cash used in financing activities of $25.2 million in the prior year period.

The cash provided by financing activities in the current year nine-month period was primarily driven by $45.5 million more proceeds on the Company's term loans and revolving lines of credit.

These changes were partially offset by $5.3 million more payments made on the Company's term loans and revolving lines of credit and $6.7 million less proceeds received from the issuance of TruPs in the current year period compared to the prior year period.

Non-GAAP Financial Measures

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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.

There was no depreciation expense for leased engines during the three or six months ended September 30, 2024 and 2023.

When calculating Adjusted EBITDA, the Company does not add back depreciation expense for assets that are on lease, as the Company believes this expense matches with the corresponding revenue earned on leased assets.

There was $0.8 million of depreciation expense for leased assets during both the three and nine months ended December 31, 2024, respectively while there was no depreciation expense for leased assets during the three or nine months ended December 31, 2023.

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.

1 unchanged sentence

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 to Adjusted EBITDA for the three and six months ended September 30, 2024 and 2023 (in thousands):

Three months ended Six months ended

The tables below provide a reconciliation of operating income (loss) to Adjusted EBITDA for the three and nine months ended December 31, 2024 and 2023 (in thousands):

Three months ended Nine months ended

12/31/2024 12/31/2023 12/31/2024 12/31/2023

Operating income $ 3,899 $ 761 $ 3,321 $ 1,422

Depreciation and amortization (excluding leased engines depreciation) 949 700 1,709 1,389

Operating income (loss) $ 1,816 $ (1,608) $ 5,137 $ (189)

Depreciation and amortization (excluding leased assets depreciation) 552 699 2,262 2,088

Asset impairment, restructuring or impairment charges 274 321 776 326

4 unchanged sentences

Adjusted EBITDA $ 2,692 $ (111) $ 8,579 $ 2,945

The table below provides Adjusted EBITDA by segment for the three and six months ended September 30, 2024 and 2023 (in thousands):

Three months ended Six months ended

The table below provides Adjusted EBITDA by segment for the three and nine months ended December 31, 2024 and 2023 (in thousands):

Three months ended Nine months ended

12/31/2024 12/31/2023 12/31/2024 12/31/2023

30 unchanged sentences

The Trust Agreement was most recently amended on March 3, 2021 and on January 28, 2022 and currently allows for the issuance of up to $100.0 million of Trust Preferred Securities.

As of September 30, 2024, there are $43.3 million in Trust Preferred Securities outstanding ($9.0 million held by the wholly-owned subsidiaries of the Company).

As of December 31, 2024, there are $47.9 million in Trust Preferred Securities outstanding ($13.0 million held by the wholly-owned subsidiaries of the Company).

The Trust is a “finance subsidiary” of Air T within the meaning of Rule 3‑10 of Regulation S‑X under the Securities Act of 1933, as amended, and as a result the Air T Funding does not file periodic reports with the SEC under the Securities Exchange Act of 1934, as amended.

3 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis