ExpressJet Holdings, Inc. Q2 2009 Earnings Call Transcript

ExpressJet Holdings, Inc. (XJT)

Q2 2009 Earnings Call

July 22, 2009 10:00 am ET

Executives

Kristy Nicholas - Investor Relations

James B. Ream - President, Chief Executive Officer, Director

Phung Ngo-Burns - Chief Financial Officer, Vice President

Analysts

Christian Sadlier - Lambert Edwards & Associates

Presentation

Operator

Good morning ladies and gentlemen. At this time I would like to welcome everyone to the ExpressJet Second Quarter 2009 Earnings Call. (Operator Instructions) I will now turn the call over Miss Kristy Nicholas. Miss Nicholas, you may begin.

Kristy Nicholas

Thank you Hilda, good morning everyone and thank you for joining the ExpressJet Holdings Second Quarter Conference Call. On the call we have Jim Ream, President and Chief Executive Officer and Phung Burns, Chief Financial Officer.

Portions of this call may contain forward-looking statements not limited to historical facts, but reflecting our current beliefs, expectations, or intentions regarding future events. A number of factors could cause actual results to differ materially from those in the forward-looking statements. Additional information concerning risk factors that could affect our actual results as described in our filings with the SEC including our 2008 10-K.

During this call certain non-GAAP financial disclosures may be made relating to our performance measures. In accordance with SEC rules we will provide a reconciliation to our most directly comparable GAAP financial measures on our web site at www.expressjet.com.

Jim will cover the operating and financial results for the quarter, then he will take questions.

Now I would like to introduce Jim Ream.

Jim Ream

Thanks, Kristy. Good morning everybody.

For the second quarter we had a net loss of $13 million which is $21 million better than last year’s results. On a pretax basis we are $40 million than where we were a year ago. It is still difficult to compare year-over-year results when you look at the P&L given the significant change to the business model in most of our operations, but here are some key facts to focus in on.

Our plan with Continental is down 10.7% on a block hour basis. This is reflective of the pressure all carriers are facing right now with fewer higher yielding passengers flying than last year. We are still flying the same number of aircraft that we had in the first quarter, 214, but utilization is only at 8.4 hours currently and last year it was close to 10.

On the charter side while the second quarter is seasonally weaker than the first quarter, in the charter business, and so our second quarter revenues are a little bit lower than first quarter, we continue to grow this business pretty well despite the general conditions in the economy. Gross revenues were up 26% year-over-year. If you net out fuel, which is a pass through in this particular business, and with fuel coming down our net revenues are up over 40%. So, it is pretty solid growth there and we continue to add to that customer base.

This P&L is going to show our ground handling revenue being down year-over-year, but again, that is kind of a structural issue where we’re now in sort of more of market based contractual agreements on our ground handling business, associated with this business, that we are being reimbursed for. Actually when you look at the activity there we are up about 7.5% year-over-year and we continue to grow that business as well.

On the expenses, again it is difficult to measure year-over-year given how structurally different the business is, but bearing in mind that block hours are down 27.5% year-over-year, if you look at wages, maintenance, and other operating expenses, those probably give you the best indication of how we’re doing in sort of getting the business resized. As you can see, we have got those lower than that drop in block hours. We are a little bit less than that on the wage line and most of that is being driven by the fact that we have more ground handling business and that is just driving more agents to cover that increase in activity.

On the cash side we ended the second quarter with $116 million, that versus $117 million at the end of the first quarter. We spent $1.6 million in this quarter paying down debt and we did buy back 400,000 in shares. The quarter end share count right now is at 15.6 million shares.

We also spent $1.5 million in CapEx. We sold some miscellaneous equipment for around $400,000, so the net investment in the business was about $1.1 million.

Cash flow from operations is positive by $1.5 million. Cash from the P&L was a use of about $3 million, but we did have some working capital changes just from the timing of payments that was positive about $4.5 million, kind of netting those two numbers.

While the second quarter performance is disappointing, it is just very reflective of what is going on generally in the airline business. If you look at our cash margin off the P&L, negative about 1.5%, that is going to be consistent with where the majors are coming in. As we have said all along, we feel we have got the CPA agreement in place that it really puts our aircraft on a consistent metric and an economic basis with all of the other aircraft that the majors need to use to try to be successful. So, as we gain greater demand back in air travel, we will start being able to increase our utilization and we will see these results turn pretty quickly.

That kind of covers the high points of the second quarter. We will take a few questions, Hilda, at this point.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Christian Sadlier from Lambert Edwards.

Christian Sadlier - Lambert Edwards & Associates

Can you describe your strategy for the next six to nine months if the economy does remain at these lower demand levels?

Jim Ream

Well I think on the charter and the ground handling business we have still got numerous projects in front of us that allow us to believe that we can still grow those lines of business and generate more cash should the business – by continuing to push forward with those objectives. A little bit tougher sledding, obviously, with the economy being in the shape it’s in, but we have had pretty good success in the first half of this year. You know, we have got the same level of volume of projects to work on in the second half. So, I don’t think there is any reason to believe that we’re not going to continue to make progress there.

On the network line, that is going to be kind of a read and react to what is going on. I think everybody is kind of waiting to see what the October, November demand levels look like and the mix of those passengers. From there, there is going to be reactions to how the markets are covered and we are going to have to sort of wait and see what that demand is.

I think, sort of listening to the calls of all of the carriers, and obviously we are pretty close to Continental and understand the difficulty they are having in forecasting exactly what the next six months is going to be. But, clearly as you start to see that, they are going to react. That network is going to shift. We think we have an airplane that is very useful and we do a good job for them, and we are going to help them in whatever way we can to assist them in being successful.

In that regard, it is going to be a little bit more of a reaction off of what we see in October and November. I would say right now people are unsure exactly what that is going to look like.

Christian Sadlier - Lambert Edwards & Associates

As a follow up, what indicators should we be looking at that will kind of tell us if demand is picking up and that you are seeing the benefit of the increase?

Jim Ream

Well, block hours is the best indicator for right now. In the quarter, especially on the Continental Express side. It being in that kind of low 160,000 block hours a quarter, it is going to put us in sort of results that are comparable. If we can get those numbers up in kind of the 170, there is a lot of leverage to this business and it will move pretty quickly. We would have a much different looking P&L if we had last year’s utilization levels. This industry is exceptionally cyclical. We are just in sort of the worst of it at this moment. It will come back.

What we are trying to do on the balance sheet is obviously continue to look for items that we think we could get fair value on when we can either dispose of them or buy things in. We are going to continue to do that. I think the balance sheet has strengthened up greatly and we will continue to look for opportunities there to add a little value.

Christian Sadlier - Lambert Edwards & Associates

Okay and then cash strategy for the second half of ‘09. What is that looking like?

Jim Ream

We are going to conserve. There is no big project coming at us that we need to actually spend money to implement any of the plans that we have in front of us. So, I think the CapEx plan is fairly modest and mostly maintenance based. So, we don’t have a need there other than to conserve cash. Until I get a better sense of what the demand levels are going to be in the scheduled business I think we are going to be pretty cautious.

Christian Sadlier - Lambert Edwards & Associates

Okay thanks Jim.

Operator

(Operator Instructions) At this moment I am not showing any further questions in queue. Do you have any closing remarks?

Jim Ream

I appreciate everybody joining us. Obviously it is a difficult environment, but I think a couple lines of business we are pretty positive about. I look forward to chatting about the third quarter and seeing how much progress we’ve been able to make, so good morning to everybody.

Operator

Thank you. Ladies and gentlemen this concludes today’s conference. We thank you for participating. (Operator Instructions)

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