AIR T INC

Air T, Inc. is a holding company with a portfolio of operating businesses and financial assets operating in four core industry segments: overnight air cargo, which operates in the air express delivery services industry; ground support equipment, 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 digital solutions, which develops and provides digital aviation and other business services to customers within the aviation industry to generate recurring subscription revenues. The Company additionally has a central corporate function that acts as the capital allocator and resource for other consolidated businesses, referred to as Corporate and other, which also comprises insignificant businesses and business interests.

The Company's Overnight Air Cargo segment, through its subsidiaries MAC and CSA, has a relationship with FedEx spanning over 40 years and represents two of eight companies in the U.S. that have North American feeder airlines under contract with FedEx. MAC and CSA are benchmarked against the other six FedEx feeders based on safety, reliability, compliance with federal, state and applicable foreign regulations, price and other service-related measurements. Management believes that MAC and CSA, combined, constitute the largest contract carrier of the type described. The Company's Ground Support Equipment segment competes primarily on the basis of the quality and reliability of its products, prompt delivery, service and price, and certain of its competitors may have substantially greater financial resources. The Company's commercial aircraft, engines and parts segment holds an ASA-100 accreditation from the Aviation Suppliers Association and operates FAA and EASA certificated repair stations.

The Company generates revenue through four reportable segments: overnight air cargo, ground support equipment, commercial aircraft, engines and parts, and digital solutions. Revenues from the overnight air cargo segment are derived principally pursuant to dry-lease service contracts with FedEx, where FedEx provides the aircraft while MAC and CSA provide their own crew and exercise operational control of their flights, and the dry-lease agreements provide for the reimbursement of MAC and CSA's costs by FedEx, without mark up, incurred in connection with the operation of the leased aircraft for fuel, landing fees, third-party maintenance, parts and certain other direct operating costs. The ground support equipment segment manufactures, sells and services aircraft deicers and other specialized equipment. The commercial aircraft, engines and parts segment 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. The digital solutions segment develops and provides digital aviation and other business services to customers within the aviation industry to generate recurring subscription revenues.

The Overnight Air Cargo segment comprises the operations of MAC, CSA and WASI. MAC and CSA operate and maintain Cessna Caravan, SkyCourier, ATR-42 and ATR-72 aircraft that fly daily small-package cargo routes throughout the eastern United States and upper Midwest, and in the Caribbean. As of March 31, 2025, MAC and CSA had an aggregate of 103 aircraft under its dry-lease agreements with FedEx, of which 6 Cessna Caravan, 4 Sky Courier, and 2 ATR aircraft are considered soft-parked, and 2 Cessna Caravan and 1 Sky Courier aircraft were considered hard-parked. Revenues from MAC and CSA's contracts with FedEx accounted for approximately 39% and 36% of the Company's consolidated revenue for the fiscal years ended March 31, 2025 and 2024, respectively. The Ground Support Equipment segment, through GGS, manufactures five basic models of mobile deicing equipment with capacities ranging from 1,200 to 2,800 gallons, and in the fiscal year ended March 31, 2025, sales of deicing equipment accounted for approximately 72% of GGS's revenues, compared to 74% in the fiscal year ended March 31, 2024. GGS sold a total of 15 and 9 deicers under the current contract with the USAF during fiscal years ended March 31, 2025 and March 31, 2024, respectively, and has already received confirmed orders of 16 deicers for fiscal 2026's delivery order. The Commercial Aircraft, Engines and Parts segment comprises Contrail, Jet Yard, AirCo, Worthington, Jet Yard Solutions, Air'Zona, and LGSS, with Contrail's primary focus revolving around the CFM International CFM56-3/-5/-7 engines and the International Aero Engines V2500A5 engine. The Digital Solutions segment comprises WACD, a data aggregator that collects global air cargo shipping data, and AHT, a software company that specializes in cloud-based software solutions targeting aviation aftermarket businesses with offerings through its Vista-Suite and Vista-Quote products.

The Company has ownership interests in unconsolidated investments including Crestone Asset Management, LLC (CAM), an aircraft capital joint venture called Crestone JV II LLC (CJVII), Lendway Inc., and Cadillac Casting, Inc. (CCI). As of March 31, 2025, the Company's net investment basis in Lendway is $0.7 million ¹, the Company's 20.1% investment in CCI has a net investment basis of $3.9 million ², and the Company's investment in CAM, accounted for using the HLBV method, had CAM's HLBV net assets of $37.8 million ³ as of March 31, 2025. The Company also has ownership interests in other smaller entities that are not consolidated.

On May 30, 2024, Contrail entered into a Membership Interest Redemption and Earnout Agreement with OCAS, Inc., purchasing and redeeming 16% of its 21% interest in Contrail for a purchase price of $4.6 million ⁴ plus an earnout amount, with the cash purchase price payable pursuant to a secured, subordinated promissory note. On August 29, 2024, the Original Alerus Loan Parties entered into a New Credit Agreement with Alerus providing for a secured revolving credit facility in an initial maximum principal amount of up to $14.0 million ⁵, a Term Note A - Alerus in the principal amount of $10.7 million ⁶, and a Term Note B - Alerus in the principal amount of $2.3 million ⁷. On September 12, 2024, Contrail entered into Term Note J with ONB, a term loan in the principal amount of $10.0 million ⁸. On October 16, 2024, the Company and AAM 24-1 entered into a Second Note Purchase Agreement with two institutional investors, amending and restating the amount issued and sold to $30.0 million ⁹ of 8.5% senior secured notes. On February 21, 2025, MAC entered into a $2.3 million ¹⁰ term loan with Bank of America. On March 31, 2025, the Alerus Loan Parties entered into Amendment No. 3 to Credit Agreement with Alerus as well as a $3.0 million ¹¹ secured Overline Note. The Company purchased 70,756 shares ¹² pursuant to its share repurchase authorization during the fiscal year ended March 31, 2025.

Consolidated revenue increased by $5.0 million (2%) to $291.9 million ¹³ for the fiscal year ended March 31, 2025 compared to $286.8 million ¹⁴ in the prior fiscal year. Consolidated operating income for the fiscal year ended March 31, 2025 was $1.9 million ¹⁵ compared to consolidated operating income of $1.3 million ¹⁶ in the prior fiscal year. Consolidated Adjusted EBITDA for the fiscal year ended March 31, 2025 was $7.4 million ¹⁷, an increase of $1.2 million ¹⁸ compared to the prior fiscal year. Net loss attributable to Air T, Inc. stockholders was $6.1 million ¹⁹ for fiscal 2025 compared to $6.8 million ²⁰ in fiscal 2024. Net cash provided by operating activities in fiscal year 2025 was $23.5 million ²¹ compared to $17.2 million ²² in the prior fiscal year.

The Company expects that issues caused by economic and business issues will continue to some extent, and the fluidity of this situation precludes any prediction as to the ultimate adverse impact of these issues on economic and market conditions and the Company's businesses in particular. The Company experienced improved demand for commercial aircraft, jet engines and parts in the fiscal year ended March 31, 2025. The Company has elected to separately disclose the digital solutions segment to better align its financial statement presentation with a key long-term growth area for the Company. The Company's digital solutions segment contributed $7.3 million ²³ of revenues in the fiscal year ended March 31, 2025 compared to $5.8 million ²⁴ in the prior fiscal year, an increase of $1.5 million (26%) ²⁵ primarily due to increased software subscriptions driven by continued acquisition of new and recurring customers. The Company's ground support equipment segment's order backlog was $14.3 million ²⁶ as of March 31, 2025, all of which GGS expects to be filled in the fiscal year ending March 31, 2026, compared to $12.6 million ²⁷ as of March 31, 2024.

The Company's commercial aircraft, engines and parts segment experienced a decrease in revenue of $7.3 million (6%) ²⁸ in fiscal 2025 compared to the prior year, primarily driven by a lower supply of whole assets available to purchase for tear-down or resale in an increasingly competitive market, further exacerbated by aircraft operators keeping older aircraft in operation for longer than they have in the past. The Company's ground support equipment segment's operating loss was $1.2 million ²⁹ compared to an operating loss of $1.6 million ³⁰ in the prior fiscal year, with the decrease in operating loss primarily attributable to reduced headcount, partially offset by increased warranty expense in the current year. The Company's digital solutions segment's operating loss increased by $0.4 million ³¹ year over year, attributable to increased personnel needed to continue to scale operations.

In fiscal 2025, the Company faced sourcing challenges that impacted its ability to procure raw materials and certain commodities, which resulted in delays and increased costs, driven by supply chain market constraints and macroeconomic conditions, including inflation and labor market shortages. High inflation increased material and component prices, labor rates and supplier costs, and put pressure on margins. Current geopolitical conditions, including conflicts and other causes of strained intercountry relations, as well as sanctions and other trade restrictive activities, are contributing to these supply chain issues.

The Company's capital expenditure plans included capital expenditures of $14.6 million ³² related to assets on lease in the current year at Contrail. The Company purchased 70,756 shares ³³ pursuant to its share repurchase authorization during the fiscal year ended March 31, 2025. The Company has not paid any cash dividends since 2014. On April 24, 2024, the Company entered into an At the Market Offering Agreement with Ascendiant Capital Markets, LLC, pursuant to which it may sell and issue its TruPs having an aggregate offering price of up to $8.0 million ³⁴ from time to time.

The Company's Overnight Air Cargo segment is significantly dependent on a contractual relationship with FedEx, the loss of which would have a material adverse effect on the Company's business, results of operations and financial position. In the fiscal year ended March 31, 2025, 39% ³⁵ of the Company's consolidated operating revenues, and 92% ³⁶ of the operating revenues for its overnight air cargo segment, arose from services provided to FedEx. The current dry-lease agreements with FedEx are set to expire on August 31, 2026 ³⁷ and may be terminated by FedEx or MAC and CSA, respectively, at any time upon 90 days' written notice, and FedEx may at any time terminate the lease of any particular aircraft thereunder upon 10 days' written notice. As of the date of the report, FedEx would be permitted to terminate each of the dry-lease agreements under a provision related to customer concentration.

The Company's ground support equipment segment's deicing equipment business has historically been seasonal, with revenues typically being lower in the fourth and first fiscal quarters as commercial deicers are typically delivered prior to the winter season. The extent of deicing activity depends on the severity of winter weather, and mild winter weather conditions permit airports to use fewer deicing units, reducing the demand for new units. The Company's commercial aircraft, engines and parts segment's operating results may fluctuate due to factors including the economic health of the economy and the aviation industry, the timing and number of purchases and sales of engines or aircraft, and the timing of necessary overhauls of engines and aircraft.

The Company's Overnight Air Cargo segment is critically dependent on FedEx, which accounted for 39% ³⁸ of consolidated revenues and 92% ³⁹ of the segment's revenues in fiscal 2025, and the dry-lease agreements may be terminated by FedEx upon 90 days' written notice, with FedEx permitted to terminate under a customer concentration provision as of the report date. The Company's commercial aircraft, engines and parts segment faces risks from fluctuations in engine values and lease rates dependent on the status of host aircraft types, and upon termination of a lease, the Company may be unable to enter into new leases or sell assets on acceptable terms. The Company's substantial indebtedness, with total debt net of $110.3 million ⁴⁰ as of March 31, 2025, requires compliance with financial covenants including debt service coverage ratios of 1.25 ⁴¹ for the Alerus and Contrail credit agreements and 1.10 ⁴² for Air T Acquisition 22.1's term loans, and a failure to comply could adversely affect operations. The Company's ground support equipment segment's deicing equipment sales are affected by weather conditions, as mild winters reduce demand for new units. The Company's digital solutions segment is in a growth phase with increasing operating losses, reporting an operating loss of $1.1 million ⁴³ in fiscal 2025 compared to $0.7 million ⁴⁴ in the prior year.

Management's message emphasizes the Company's goal to prudently and strategically grow Air T's earnings power, compounding its free-cash-flow per share over time. The Company experienced improved demand for commercial aircraft, jet engines and parts in the fiscal year ended March 31, 2025, but expects that issues caused by economic and business issues will continue to some extent. Management has elected to separately disclose the digital solutions segment to better align financial statement presentation with a key long-term growth area for the Company. The Company's strategic priorities include continuing to scale its digital solutions segment, managing its commercial aircraft, engines and parts segment through a competitive market, and maintaining its relationship with FedEx in its overnight air cargo segment. Management believes it is probable that cash on hand, current financings, net cash provided by operations, and amounts available under current revolving lines of credit will be sufficient to meet obligations for at least 12 months following the date the financial statements are issued.