Welcome to the Q4 2021 Air Transport Services Group, Inc. earnings conference call. My name is Vanessa, and I will be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. During the question-and-answer session, if you have a question, please press star then one on your touchtone phone. I will now turn the call over to Mr. Joe Payne, Chief Legal Officer of ATSG. Mr. Payne, you may begin. Good morning, and welcome to our fourth quarter 2021 earnings conference call. We issued our earnings release yesterday after the market closed. It's on our website, atsginc.com. Let me begin by advising you that during the course of this call, we will make projections and other forward-looking statements that involve risks and uncertainties. Our actual results and other future events may differ materially from those we describe here. These forward-looking statements are based on information, plans, and estimates as of the date of this call. Air Transport Services Group undertakes no obligation to update any forward-looking statements to reflect changes in underlying assumptions, factors, new information, or other changes. These factors include, but are not limited to, the following, which relate to the current COVID-19 pandemic. The pandemic may continue for a longer period or its effect on commercial and military passenger flying may be more substantial than we currently expect. It may also disrupt our workforce and staffing capability, our ability to access airports and maintenance facilities, our customers' creditworthiness, and the continuing ability of our vendors and third-party service providers to maintain customary service levels. Other factors could also cause our actual results to differ materially from those we describe here, including unplanned changes in the market demand for our assets and services, our operating airlines' ability to maintain on-time service and control costs, the cost and timing with respect to which we are able to purchase and modify aircraft to a cargo configuration. Fluctuations in ATSG's traded share price and in interest rates, which may result in mark-to-market charges on certain financial instruments, the number, timing, and scheduled routes of our aircraft deployments to customers, our ability to remain in compliance with key agreements with customers, lenders, and government agencies, the impact of current supply chain constraints both within and outside the U.S., which may be more severe or persist longer than we currently expect, the impact of the current competitive labor market, changes in general economic and/or industry-specific conditions, and other factors as contained from time to time in our filings with the SEC, including the Form 10-K we will file next week. We will also refer to non-GAAP financial measures from continuing operations, including adjusted earnings, adjusted earnings per share, adjusted pretax earnings, adjusted EBITDA, and adjusted cash flow. Management believes these metrics are useful to investors in assessing ATSG's financial position and results. These non-GAAP measures are not meant to be a substitute for our GAAP financials. We advise you to refer to the reconciliations to GAAP measures, which are included in our earnings release and on our website. Now I'll turn the call over to Rich Corrado, our President and CEO, for his opening comments. Thanks, Joe. Good morning, everyone. 2021 was a great year for ATSG, and not only for the exceptional financial results we delivered. We also laid the groundwork to grow our fleet substantially faster over the next five years than the last five. We committed to add two new converted freighter types to our leasing portfolio, the Airbus A330 and A321, to support e-commerce customers around the world. We generated $541 million in adjusted EBITDA last year, $6 million more than the target we shared with you last November. Capital spending of $505 million last year was well below our target and funded deliveries of a record 15 leased 767-300 freighters. Our airlines again achieved double-digit growth in revenue block hours and improved their on-time performance over 2020. This is a testament to the resilience and skill of our workforce during another year of pandemic challenges. There are many other great elements to our story and our outlook for almost $100 million more in adjusted EBITDA for 2022. I'll be back to share more color after Quint reviews our financial results. Quint? Thanks, Rich, and welcome to everyone on the call this morning. The next slide in our deck summarizes the strong 2021 results that Rich was referring to. Our consolidated revenues for 2021 grew $164 million- $1.7 billion. That's an all-time high for ATSG. Our adjusted EPS increased to $1.66 per share, up from $1.60 in 2020. Adjusted pretax earnings increased 11%, and adjusted EBITDA rose 9%. Our aircraft leasing company, CAM, and the three airlines that comprise our ACMI Services segment each delivered great results. CAM's pretax earnings increased 37% for the year, and pretax earnings for our ACMI Services segment grew by 39%. On the next slide, you can see that on a rolling twelve-month basis, our adjusted EBITDA continues to accelerate, aided by a 27% gain in the fourth quarter. That improvement reflects both a faster pace of 767 lease deployments during the year, along with steady improvement in our passenger flying for both the military and commercial customers. Again, our adjusted EBITDA excludes, among other items, the changes in values of our financial instruments and the benefits of federal pandemic relief assistance for our passenger operations under the payroll support program for all periods shown. Our airlines realized $112 million in federal grant proceeds during 2021 versus $47 million in 2020. On the next slide, you'll see that our capital spending for the fourth quarter slowed somewhat to finish the year at $505 million. As you can see, we're continuing to separate what we call sustaining CapEx, mainly for airframe and engine maintenance, technology, and other equipment from the spending we allocate to fleet expansion. Sustaining CapEx was $183 million for the year, and growth CapEx was $322 million. Both were lower than our prior projections. Our growth spending was down due in large part to supply chain disruptions and pandemic challenges at our conversion vendor. We deployed four 767 freighters in the fourth quarter for a total of 15 for the year. Freighter conversion businesses are running at peak capacity now as the pandemic has both accelerated e-commerce-driven volumes and reduced cargo space on commercial passenger flights. To meet this demand, 12 of our feedstock 767s and one A321 were awaiting or undergoing conversion at the end of last year. The next slide is an update on our new financial metric, adjusted free cash flow. Represented by the bottom portion of each bar, it's our operating cash flow net of the sustaining CapEx shown on the top portion. Our GAAP operating cash flow also includes cash our passenger airlines received in federal pandemic relief grants. Our strong adjusted free cash flow of $400 million last year illustrates a key point about the power of our business model. It can generate more than enough cash flow to cover our growth. As we acquire, convert, and lease more freighter aircraft, we are well positioned to fund that rapid growth internally. That will further reduce our debt leverage and make capital available for other uses. The next slide illustrates our continuing progress toward growing our fleet from internally generated funds. Our overall debt to adjusted EBITDA leverage ratio, as measured under our bank credit agreements, is now below two times. As short-term rates increase in 2022, the debt restructuring we completed early last year to replace variable rate with fixed rate debt will help to mitigate some of the effect of higher rates. We continue to project double-digit earnings growth from CAM's aircraft portfolio, most of which are under seven to 10-year leases. You may have noted the comments in our earnings release about the expiration last fall of CAM's power-by-cycle arrangement with Delta for maintenance of engines on the 767-200 aircraft we offer to lessees. We decided to offer those lessees a new service that provides them access to a pool of engines that we are responsible for maintaining under new pay-by-cycle arrangements. CAM will play a more active role in making sure engines are available to its customers under a structure that is more efficient for lessees and improves CAM's margin opportunity. Maintenance costs for engines provided to the pool will be classified as sustaining capital expenditures and depreciated as the engines are operated. As a result, our sustaining capital outlays for engine maintenance will increase along with our adjusted EBITDA. For 2022, we expect the contribution to our year-over-year growth in adjusted EBITDA will be between $40 million and $45 million from this service offering and contribute positively to our adjusted EPS. Most of the nearly $100 million increase in adjusted EBITDA we are forecasting for 2022 will impact our bottom line. Strong growth in earnings from our airline businesses in particular, along with the momentum of our leasing returns from CAM, will yield approximately $2 in adjusted EPS for 2022, a 20% increase over last year. This projection includes the adoption of new accounting rules pertaining to our convertible debt. The change, effective this year, raises our 2022 adjusted diluted share count by eight million shares and will reduce our pretax interest expense by approximately $8 million. With that summary of our financial and operating results, I'll turn it back to Rich for some comments on our operations and outlook. Rich? Thanks, Quint. Our earnings release lists a number of key 2021 operating accomplishments in what was a very good year for ATSG overall. Let me highlight and provide some additional color on a few of them now. Our record 15 external leases and deployments of Boeing 767-300 freighters plus three releases of 767-200s was a true success story. You may recall that 11 of them were leased to Amazon along with CMI assignments for our airlines to fly them. Those 11 deliveries completed an order of 12 767s that Amazon placed with CAM in June of 2020. We now fly 46 767s for Amazon. That includes four they own or lease from others and prefer to place with our ATI airline to fly. Later this year, Amazon may assign us to fly more of its freighters. We continue to be very proud to be the largest provider of leased cargo aircraft and flight services to Amazon. Earlier last year, the FAA certified our joint venture's design for passenger freighter conversions of Airbus A321-200 aircraft. We followed that with the conversion and delivery of the first A321 freighter based on our design. CAM will convert and add two A321-200s to its leased freighter fleet later this year, and at least one more in 2023. In August, we announced the commitment to acquire 20 conversion slots for Airbus A330-300s, a new aircraft type slightly larger than our Boeing 767-300s. Next year, our A330 conversion vendor will induct our first feedstock aircraft for conversion for delivery in 2024. Already, we have deposits from customers for 14 of the 20 A330s that we have previously committed to convert. I'm confident by the end of this year, our order book will include customer commitments for all of the first 20 A330s we plan to deploy. In light of that strong customer interest for an aircraft still two years away from delivery, we have boosted our conversion slot commitment by nine to 29 A330s for delivery over the next five years. Those additional A330 conversion slots means that CAM now has slot commitments for more than 70 passenger-to-freighter conversions, including 35 767-300s, which remain the preferred aircraft for e-commerce driven air networks. Our order pipeline includes customer commitments for all of the freighters we will deploy this year and more than half of those in our leasing plan for 2023. We already own and have scheduled for conversion all of the nine 767s and two A321s we expect to convert and lease this year. During the second half of 2021, and especially in the fourth quarter, our passenger air operations for the military and commercial customers rebounded significantly from 2020 levels. That included more scheduled air operations for the military, but also Omni Air's significant role in America's rescue of Afghanistan evacuees last summer, and a stronger than anticipated recovery in commercial charter flying in the fourth quarter. For 2022, we expect Omni's performance to roughly match its 2019 pre-pandemic levels. Finally, our 2021 negotiations with DHL led to a set of agreements this month to extend and expand our eighteen-year commercial relationship. That included a six-year extension of our CMI operating agreement through April of 2028 and another six years added to leases for five of the 767s we fly for them. DHL was our principal customer when we became a public company in 2003, and our relationship with them continues to grow in line with their commitment to freighter leasing and the ability of ABX Air employees to provide great service within DHL's U.S. network. Those are a few of the operating and commercial successes that helped us generate record financial results this year and will continue to contribute to our results for several years to come. They are also a major reason we were able to set a new adjusted EBITDA target for 2022 of $640 million, or about 18% more than we generated in 2021. The target assumes the 767 and two A321 lease deployments I mentioned earlier, strong growth in both our cargo and passenger airline earnings, a gradual easing of pandemic restrictions on our workforce, and access to certain airports as the year progresses. We also expect capital spending of about $590 million, including $200 million in sustaining and $390 million in growth CapEx. Much of that 2022 CapEx growth budget will be for feedstock purchases and conversion costs for freighters we will deploy next year. In summary, I'm confident that 2022 will launch ATSG on a path to deliver strong continuing cash flows from our superior business model and constellation of the aircraft our growing customers need. That will allow us to self-fund most of the fleet expansion targets and still adopt a more diversified capital allocation strategy when cash return restrictions expire in September. That concludes our prepared remarks. Quint and I, along with Mike Berger, our Chief Commercial Officer, are ready to answer questions. May we have the first question, operator? Thank you. We will now begin the question and answer session. If you have a question, please press star then one on your touch tone phone. If you wish to be removed from the queue, please press the pound sign or the hash key. If you're using a speakerphone, please pick up the handset first before pressing the numbers. Once again, with your question, please press star then one. We have our first question from Jack Atkins with Stephens. Hey, great. Good morning. Congrats on the great quarter, guys. This is Cameron Hoagland on for Jack, and thanks for taking my question. First one to Quint. Would you mind walking us through the accounting changes here on maintenance expense? I read that as recurring, but just wanted to confirm that. Also for the share count from convertible debt, what share count is that guidance assuming? Thank you. Sure, Cameron. I guess in terms of the, I'll do the last one first, I guess. The share count, you know, has to do with the, you know, accounting changes required for convertible debt. The impact on our share count, of course that took effect right out of the gate in 2022, will be to add about eight million shares to the denominator. You know, it's essentially the if-converted method. You know, you're assuming that you satisfy the debt with shares and so forth. It will remove approximately $8 million annual non-cash expense that was going through interest expense also. So you've got those two effects. The net effect, you know, is a headwind for EPS because of the increase, the eight million share increase in the denominator. As far as the first part of your question was pertaining to the new engine service that you know that we're putting forward for the 767-200 engines. Is that correct? Yes, for capitalizing those expenses. Right. You know, for many years, we had those engines under a power-by-the-cycle arrangement with Delta TechOps, and that contract terminated kind of at the end of the third quarter, beginning of the fourth quarter of last year. Under that accounting treatment for power-by-the-cycle, you know, the way we were, we were essentially passing through to the lessees who wanted to take advantage of that, sort of piggybacking on that agreement and leveraging the scale of engines that we had in that contract. We had recognized some margin on that sort of a markup on that pass-through power-by-the-cycle. That contract came to an end, and we made a decision when we looked at the options, you know, we could have renewed it and extended it. based upon what we saw an opportunity for, if we actively manage those engines and move them to a pool that we can make accessible to lessees, it provides us an ability to better manage that, you know, more efficiently for them, and also provides margin opportunity for us. Of course, the 767-200 over time, you know, we may take some of those aircraft out of service and cannibalize the engine. It also allows us the ability to make, you know, rational decisions about how we manage the engine modules to get the best life out of the engine. It'll also extend the fleet life for the 767-200. We made that strategic decision, so we're no longer in a power-by-the-cycle arrangement. Going forward, you know, we will be responsible to maintain that engine pool, and the cost that we incur, you know, as engines go through the shop, will be capitalized and depreciated. And what we've disclosed, you know, in the earnings release is, given that now we'll be depreciating those costs and no longer paying a power-by-the-cycle fee, you know, it'll have an impact on depreciation and our EBITDA because we'll add that back. It also is accretive, you know, to our earnings, and as I say, provides more margin opportunity, although, you know, there's a little bit more risk. We'll have more CapEx, you know, to maintain those engines. Some of those engines were also installed on our, you know, 767-200s flown by our affiliates. The positive part of that is we're no longer paying that cycle charge to Delta as those engines fly. We believe certainly that over the long haul, that's a cash flow accretive and a margin opportunity for us that we didn't have under the prior arrangement. In the short run, and this year, we will have CapEx, though, because we'll, you know, like any new venture, sometimes there's an upfront investment. We'll have a number of shop visits that will occur this year. Our CapEx will go up. We've shown that as sustaining CapEx in our guidance here. It will be reflected, you know, in that adjusted free cash flow stat. It will be taken out of operating cash flows. You know, you could probably argue that that's somewhat of a growth investment too because it is a new business line, but we looked at it more conservatively as sustaining CapEx. You know, we wanted to tell you because you know, it is a change from it happened late in the year. Year-over-year, it's a number of engines. It had a pretty big impact on EBITDA, given that it happened so late last year. You know, you've got about 60 or so engines that suddenly moved to this you know, this other treatment in terms of how we're approaching making them accessible to lessees. Of our growth in EBITDA, it's about $40 million-$45 million. It'll depend upon, of course, how many cycles the lessees fly because they will pay CAM on a per cycle basis and so forth. It gives them a lot of flexibility. You know, they can draw on the pool. We're excited about, you know, being able to offer that new service. Okay. Thank you. Yeah, maybe I'll just add that we own the lion's share of these engines that exist out there. As Quint mentioned, I'll just emphasize it's a huge advantage for our customers to have this pool of resources as we continue to fly the 767-200, which just remains to be a great airplane for us. Thanks for the color there, guys. Really appreciate that. If I may ask a quick follow-up. In the guidance you gave, you said the passenger flights would return to a pre-pandemic 2019-like level in the coming year. Where are things today versus that run rate, and what is driving that outlook? Thank you. This is Rich. The DOD portion of Omni's business is pretty much back up to pre-pandemic levels now. There's a few places that they're flying a little bit differently to, but in terms of the volume of business, that's come back. As it relates to the commercial, we saw a really good comeback in the fourth quarter related to, you know, charters for cruises related to, you know, the commercial passenger opportunities, a lot of bowl charters for football games, those types of things. It was very encouraging to see that. They're also getting inquiries and for bids for additional ACMI lanes for standard commercial airlines that may have, you know, fleet needs that don't line up with what their fleet currently looks like, you know, maybe because of the way that they're managing their assets because of the pandemic. Given the commercial activity that we're seeing with Omni, we think we're comfortable that they'll have a good year and then certainly a growth year over 2021. We're projecting, you know, that they'll have a year that's really similar to 2019. All right. Thank you. Appreciate the color there. I'll turn it over. Thanks again for the time, and congrats on the great quarter. Thanks, Cameron. Thank you. Thanks, Cameron. We have our next question from Frank Galanti with Stifel. Yeah. Great. Thank you for taking my questions. I wanted to start on the conversion slots. In the press release, it indicated that all of the 22 deliveries were, I guess, set for customers and most into 2023. I just wanted to get an update on how that's changed in the last couple of months. Have you been seeing progress on extending those deliveries past mid-2023? I guess a second part of that is, of those customers who are interested in leasing aircraft from you guys, can you give a sense for, from a high level, what type of customers those are, from a geographic or end-use perspective? Any color there would be helpful. Yeah, sure. The geographic concentration of our deliveries continues to be, you know, very, you know, broad-based. We will see new customers as well as existing customers from a geographic perspective. You know, some will be in the U.S. and North America. Other parts will sprawl out to Europe as well as into the Nordics for the first time for us. We continue to see that expansion from a geographic standpoint, which is one of our initiatives to expand further globally. We've guided to the fact that, you know, all of our deliveries for 2022, nine 767s and two A321s, our book is complete. We have the lion's share of our 2023 order book completed as well. We do anticipate to still deliver, you know, more air converted freighters in 2023. The A330 will start delivering in 2024. We see, as Rich mentioned in his comments, very, very strong demand for that. We've mentioned we've got 14 of those initial 20, not only under LOI, but with deposits. We firmly believe, as Rich says, that all 20 of our initial slots will be completed by the end of 2023, excuse me, by the end of 2022. That's the reason why we went out and secured the additional slots. We're very bullish on that airplane, and that'll take us all the way out through 2026. Okay. That's really helpful. Then taking a look at the CapEx, you guys guided about $590 million in 2022. It sounds like feedstock has already been purchased for most of those conversions in 2022, 2023 that we just talked about. I guess just wanted to get a sense for timing and composition of that CapEx and really with a view towards 2023 and beyond, how much CapEx of that $390 million growth and $200 million sustaining is accounted for with those airplane purchases? I guess another way of asking it, have those planes been paid for yet, or will they be paid for in 2022, 2023? I guess, with that, how do you think about growth for sustaining CapEx, going out into the future, past 2022? Sure, Frank. This is Quint. You know, in terms of 2022's guidance, you know, for the growth CapEx, that $390 million includes, you know, actually buying seven 767-300 feedstock aircraft. Remember, at the end of 2021, we had a dozen that were in conversion. You know, we're putting, what, nine 767s online this year. So you can see that we've already got more than enough, you know, already in our possession to fulfill 2022's delivery commitments. We'll be buying airplanes, though, for 2023, so we plan to buy seven more feedstock airplanes. We also have secured access to our first feedstock for the A330. We have a deposit on the first five of the 20 aircraft. Now, those aircraft won't be delivered, and we won't finish paying for them until 2023. So they'll be part of 2023's CapEx budget. As Mike mentioned, the first conversion inductions on that line are midyear next year. July of 2023. July next year, yeah. Those are some of the pieces, along with, of course, the ongoing conversion costs of aircraft that are going through the lines to complete their passenger to freighter freighter work, make up the lion's share of that growth CapEx this year. As far as sustaining CapEx and what that might look like going forward, you can see it's up a little this year, and of course, we mentioned a minute ago we talked about the investment we'll be making and the maintenance of some of the engines that we'll put in a pool for certain of the lessee access. That took it up a little. We've been in the sort of 180 range the last for a while, and that's, you know, we're saying 200 in 2022. I think that there still may be some engine shop visits related to that type that impact the first half of 2023, but then, you know, it should fall off and abate. In our business model, you know, the sustaining CapEx really does not grow, you know, absent, you know, this engine change was something, you know, that's a little unusual 'cause it, you know, it had been in place for years. You know, just leasing additional airplanes and growing CAM's leasing portfolio does not, in and of itself, have much impact in growing our sustaining CapEx because the lessee is responsible to maintain the aircraft during the life of the lease. I don't expect sustaining CapEx to really, you know, change much once you look out past 2023. We'll of course add aircraft, you know, lease three thirties, three twenty-ones, and more seven six sevens, but under those contracts, we won't be responsible for the maintenance. You know, the lessee returns it at the end of the lease in a like-for-like maintenance condition. Okay. That was really helpful. Thanks for the answer. Yeah. Congrats on a great year. Thanks, Frank. Thanks, Frank. We have our next question from Helane Becker with Cowen. Thanks very much, operator. Hi, everybody, and thank you for the time. Just a couple of questions. On the 14 of the new aircraft that are committed, are any of those new customers that you could talk about? Half of them, Helene, this is Mike, are new customers. We will shortly put out some press releases about who those customers are. I mentioned in the Cargo Facts late yesterday that where the geographic areas were across Asia, Southeast Asia, and into Europe. The makeup is about 50/50 right now in regards to new customers and existing customers. Okay. That's helpful. Thank you. Then the other question I have on since you are not responsible for fuel, is there a lag time on your contracts between when fuel goes up and when you bill? No. It's really small, Helene. This is Quint. Yeah, the way our contracts are structured, there's not a lot of float that we're at risk for, and as you know, we don't take the actual fuel risk. Right Under our arrangements, the customer pays for the fuel. our- Okay Our customers pay us the fuel bill very quickly. Okay. All right. That's helpful. The other question I have is on Omni and the level of business that you mentioned they're doing for the DOD. Do you have any thoughts about the article that appeared recently in Intercept and the accusations that people are mistreated? Yeah. The article that was in there was some gross exaggerations as it related to the treatment of passengers, and these are flights that we do for a government agency for ICE. Right. It's important to note that Omni's, I think, they did three flights for ICE in 2021. It's less than 1% of their business, and it's a tiny amount. Those flights, of course, we control the safety on the flight, so we do have flight attendants on the flight, and we obviously have flight crews on the flight. The passengers have oversight of government employees. They're there for the safety of the flight and of the passengers as well. That article was a gross exaggeration of the treatment of the passengers. Okay. All right. Fair enough. Thank you. Thanks, Helane. Thanks, Helane. We have our next question from Stephanie Moore with Truist. Hi, good morning. Hey, Stephanie. Good morning, Stephanie. I wanted to touch on maybe more of a high-level discussion or conversation. You know, it looks like obviously the demand for your leasing services remains quite strong. You clearly have locked up the conversion capacity for the next several years. Kind of just layering all those factors together, what's the optionality or ability to see even a higher return or higher EBITDA contribution from maybe some of these new leases versus, you know, historical ranges? Maybe just if you could walk through some of those puts and takes, that'd be helpful. Thanks. Yeah. It's a good question, because, you know, when we're stepping into new aircraft types, we wanna get the same return that we've gotten from the 767. We've done a lot of financial modeling around that and a lot of market, you know, discussions and analysis to see that, you know, we're able to get the same return for the, which is 10% unlevered, a minimum, for those new assets. And what can we get for the 767s that are either extended leases or new leases coming out. We have been trying to test the market and move pricing up, and to some extent, you know, it really just depends on who the customer is and how they evaluate the aircraft. Most airlines, when they're evaluating the performance or the economic performance of an aircraft, they look at all the costs associated to running it, you know, what their flight segments are gonna be, and then they look at the tonnage they're gonna handle and break it down to what's the cost per kilo to run their network using these aircraft. So you kind of run up against the competitive nature of a cost per kilo versus, you know, what market dynamics you can get for improving the lease rates you get in the airplane. All that said, the way the market's flowing today is our releases and extensions are going at the same rate, which is unusual or higher in some cases. Under normal circumstances, when the market is less hot, I guess you'd say, you usually take a, you know, a small discount when you extend a lease 'cause it's in the best interest of both parties to extend. We save a lot of downtime of the airplane and potentially some maintenance cost. We're looking to, you know, get a good rate of return that it meets or exceeds our historic on the 767, and we feel pretty good about it right now. Yeah. This is Quint. Stephanie, I'd just say that, you know, the demand environment that is helping us sell aircraft so far in advance, you know, with the pipeline visibility we have, is naturally a plus for what you can get in terms of return in our lease rates. I mean, as Rich says, and, you know, we've been. We've seen airplanes that have come off lease renew at or better than what we had been, you know, what the prior lease had been. Certainly, there continues to be really strong demand for the midsize freighter, and that's a good thing for our lease rates. We don't, that said, we don't get into specifics, you know, because, you know, as you know, that's our discipline is 10% or better. I think we all understand that the current e-commerce growth is driving conditions that make it possible to get upward movement in terms of lease rates. Got it. No, that's really helpful. Then I wanted to follow up to the first question about the impact from the accounting changes that you highlighted. Thanks. Thank you for giving the, I guess, the impact to the share count from an EPS standpoint, but maybe you could help us think about how we should think about it from maybe just a valuation standpoint, and if we are including those incremental eight million shares or those being hedged. Just if you could just walk us through that'd be great. Thank you. Yeah. I mean, as you know, back when we did it, we did a bond hedge to make you know, the impact of any share dilution even less likely. I think we bought up the thing to, like, a 75% or so premium over what we were trading at the time, which if memory serves me right, we were at $21. So it's like before you could even possibly see any share dilution, it would have to be in the, I believe, the low 40s. Then it's our choice, right? How we settle that, and it's a relatively small slice of our overall debt capital, $259 million out of about $1.3 billion or $1.4 billion. It matures in October of 2024. Actually, I think Truist was involved with that, so you guys probably are across the hall there. They know all about it. You know, likely next year we'll take a look at that. We could put that in our revolver without any trouble at all. Of course, our revolver, we're paying just a little over 1% for our variable debt, which is about the same as our coupon is on that convertible debt. The likelihood we'll actually issue shares to satisfy it is very tiny. It's all. I would almost say nonexistent. The accounting rules, nonetheless, that take effect require you to reflect the underlying shares in the denominator, sort of the most conservative way, I guess, to show its impact on EPS. That's the eight million shares, which was the underlying share amount, you know, that you know backed up to $259 million in debt. We put that in the denominator. There's somewhat of an offset, and we no longer have to show an interest charge of about $8 million. The net effect on the EPS, adjusted EPS, is about $0.05 a quarter or so. $0.20, call it, for the year. Got it. Well, thank you so much. Thanks, Stephanie. Thanks. Our next question comes from Christopher Stathoulopoulos with Susquehanna. Hey, good morning. Thanks for taking my questions. Quint or Rich, you know, in the $640 guide for this year, what's contemplated in terms of fleet utilization? You don't report your absolute block hours, so we can't get to kind of like a weighted average utilization rate there. Just curious if you could help frame us how you're thinking about your overall fleet utilization and then how much ad hoc flying is also contemplated or included in in that $640 guide. Thanks. Sure. Chris, I'll take a shot at. First of all, the reason we don't highlight block hours is because, you know, we do a lot of network flying, right? The CMI flying, they're sort of medium range. What drives our revenue and our results and in fact, you know, in our contracts, typically, we're being paid more for the resources, you know, the supplying the aircraft and the crew and the maintenance and so forth, and spreading it over a while. While we do it, we do look at it that way some. Sometimes spreading it over a block hour total is not as meaningful as it would be if these were long-haul freighters, you know, transpacific- type schedules. These are flying short hops. We take the schedules that we, you know, that our customers are asking us to fly, and, we, of course, bake those into the drivers in our revenue contracts when we do, the budget. What's behind the $640 million is basically, you know, our CMI fleet, which as you know grew substantially in 2021. You know, we put, I think, what was it Rich, 13 airplanes on for Amazon, and we put on, three or four for DHL as well. We're reflecting that. We're reflecting, you know, what we typically would expect to see maybe in peak, but the customer is, you know, has the flexibility to change schedules during the year. You know, it's not like, those can't change based on customer wishes. You know, we're basing our projections on what we're currently flying. We anticipate getting some additional aircraft into the Amazon CMI this year, I think as many as three. Those are aircraft they would supply, you know, it's not ones we'll be leasing to them. We bake that in as well. You know, to the extent hours drive our revenues, that's what we put in our plan. Okay. So if we back out this 40-45 from this new maintenance agreement, that gets you to an implied EBIT of around 10%, which I'm guessing your fleet is probably, you know, not perhaps close to but not at pre-pandemic utilization. That 10% actually within that light is pretty good. Is that, you know, with where your order book is here and the move and the introduction of the A320s, is 10% the right way to think about this now through the next stages of the recovery or through a cycle versus what you've done in the past has been sort of mid- to high-single-digit? You mean as you think about 2023 versus 2022? Yeah. Yeah, I mean, the 10%-15%, I realize, well, you know, there's a lot of different things at play here. But you do have a very full order book, and you have the A321s coming in. Is kinda 10%-15% a fair sort of rate that you believe that you can sustain here through the cycle? Yeah. You know, remember, you're on a bigger and bigger base every year, right? When you think about the impact on EBITDA, if you're talking about growth on the EBITDA stat, remember, because of the timing of the termination of the prior engine contract, there's year-over-year sort of an outsized jump, right, related to that. You'd be talking of, you know. It's a, I think 10% is maybe how you would think of it sort of as a more normal, but it will depend on the opportunities, right? If the market stays hot like it is, we're adding new platforms, you know, the Airbus platforms. The number of aircraft we could lease, instead of being, you know, more like 10, it can be more like 20 in some of those years. It's the timing of delivery of some of those aircraft. You know, you talk about the 321s this year, the two, they're coming late in the year, right? It always depends upon timing of delivery when you're comparing one year over another. There's a whole host of factors. I will tell you that one of the drivers that I think maybe the, you know, folks may not have expected, I mean, and as we've been saying it, is the momentum in leasing that we've had and also improvement in our ACMI services segment year-over-year is driving a lot of our EBITDA growth. I don't know if the market had appreciated that. Certainly, the pandemic has sort of been harmful to the ACMI services segment, particularly Omni. You know, we are getting, as Rich said, we're coming out of that, and we hope for further moderation in those effects for 2022. That's been a big plus. The Combi flying, you know, we think, there's some further improvement that we're projecting in the second half related to some of the destinations the 757 Combis fly into. That will be helpful for us. That'll help us in 2023. If that happens, you'll get a year-over-year, you know, and, you know, that'll be helpful for that. There's a whole host of factors. I mean, if you wanna make some assumption, I would point you more towards the 10% than 15%. 15% is pretty hard when you're on a, you know, a significant base. Now, if the market's really hot and we you know increase the leasing, that can help push us closer to that. Okay. The 130, the active fleet at the end of this year, I think back in November, you had suggested that you could do a kind of teens growth on that, which would imply around 145 to 2023. Is that still the right way to think about the active fleet for next year? Yeah, Chris, it's Mike. Yes, spot on. We think that's still very accurate. Okay. Thank you. You're welcome. As a reminder, if you have a question, please press star then one to enter the queue. Our next question is from John Khym with Driehaus. Hey, good morning. Thanks for your time. Appreciate- Morning, John. All the granularity around on guidance. As you alluded to in the last question, obviously, you're layering in 11, you know, new leases this year. Can you talk about, you know, you provided the guidance for 2022. Can you talk about the exit run rate of 2022 from an EBITDA perspective? That's a good question, John. It will be above what we've guided to for the full year. How's that for guidance? I don't know that I've given a whole lot of thought to it, you know, as I say, some of those good guys that we are looking for are in the second half. Although, by and large, the EBITDA that we expect this year is more evenly spread between first half and second half than we saw in 2021. You know, we do expect improvements sequentially, you know, in the second half. And what's driving that is, of course, the timing of the leases, lease deployments, and also that combi flying that I mentioned a minute ago. So it's gonna... That will push the exit run rate higher than 640. I don't know that I can, you know, or would want to, at this point, you know, give you a, you know, some specific. That will depend on some other factors. It may be a little premature. Maybe we talk about that at a, you know, later in the year at one of these calls when we've got, you know, even better visibility on everything. Fair enough and understood. You made some comments early in the call and highlighted you know your leverage position's pretty strong right now. Obviously you know you've got a high degree of visibility into your growth for 2022, 2023 and beyond and the ability to repurchase shares beginning in Q3. Have you guys begun to think about you know quantifying what a share repurchase might look like? I know you have to play a little poker here with the market but would be interested in your general thoughts on that. Yeah, we've been looking at a number of ways as far as capital allocation goes. Certainly, as I put in the remarks that we're looking forward to, you know, having the restrictions removed from us so that we'll have the opportunity to return capital to shareholders. We haven't made any decisions yet, but we're looking to, you know, continue evaluating towards a balanced capital allocation strategy that would certainly include returning capital to shareholders in the future. Great. Thank you. We have our next question from Howard Rosencrans with Value Advisory. Hi, guys. Thank you very much. I just joined the call a little bit late. I just wanna get a quick clarity on the $45 million, then I have a or the $40 million-$45 million, then I have a quick follow-up. So the $40 million-$45 million is sort of flowing in. It was previously, now it's gonna be hitting our EBITDA, whereas previously, it was sort of swapped in prior? Yeah, Howard, this is Quint. You know, of course, we went through that in some detail in an earlier question. I'm not sure I can be as eloquent again. I'll take a whack at it. Yeah, the previous contract that we had that covered the vast majority of our 767-200 engines was with Delta, and you know, it was a power-by-the-cycle arrangement. We extended that to lessees if they wanted it. Not all of them used it. Some of them wanted to be responsible, you know, to take care of the engines during the lease themselves. We extended that to our lessees, and there was some markup on that that CAM recognized. That qualified as PBC. That came to an end right around the start of the fourth quarter, terminated. You know, it had been in place for years, and we could have extended and renewed, but, you know, we looked at our options and we said, "Hey, there's an opportunity here to more efficiently manage this engine maintenance at the CAM level." We've transitioned it to providing lessees access to a pool of engines that we are responsible to keep, you know, maintained and available. As we do that, we'll capitalize those visits. You know, we don't have an arrangement, a power-by-cycle arrangement with any vendor to do the maintenance. We're doing it on a time and material basis. When those go through the shop, they'll be capitalized, and they will depreciate over the engine's life. Right. And so that's- I appreciate the elucidation. Just from a more simplistic standpoint, though, in essence, on a sort of free cash flow from what you would generate standpoint, it seems to me, and if I'm wrong, I'll just take it with you offline. It seems to me that we've sort of just moved it from one bucket to the other. I mean, you would still be guiding to a great year of $600 million, but the free cash flow effect of it seems unchanged. It seems like with the old accounting, or not with the old accounting, but if you were doing it the same way, you'd really be at about $600 million. Again, if I'm wrong, I'll just take it offline. Well, if you wanna look at it, if nothing had changed, that's probably correct. I would say that we believe that there's cash flow positive opportunity and certainly margin opportunity from this change. It's also beneficial to our lessees, and it extends the life of that aircraft type. Understood You know, to be more actively managed. I get it. I wanna jump back to what you said about the CMI, which I think is great because I'll, you know, I certainly beat you up enough about it offline. The CMI over the years has been, as I don't hesitate to tell you, horribly inconsistent. It seems to me you're really making. Please tell me if I'm misconstruing your sentiments here. It seems to me you're really making a very positive statement with a high degree of confidence that we're going to really see a sustained change in CMI, in the EBITDA contribution. I don't care about what the revenue contribution is. Well, certainly The EBITDA contribution from that line. Yeah. Well, certainly there's. You know, last year we added all these airplanes, so you had a lot of start-up costs, you know, as you often do when you're bringing on crews and so forth, opening maintenance stations and so. You know, for growth like that. This year, we said maybe up to three going into the Amazon agreement. Mm-hmm. There's more stability, which I think allows for more efficiencies and also the scale that these operations have grown to. We renewed our DHL contract. We expect to see some growth opportunities with that in place and a six-year crew agreement that one of our airlines, ABX, executed at the beginning of last year. There's a whole lot of good things going on in the CMI, and also the recovery from the pandemic in the PAX line for Omni, which is all stacking up to make conditions right for year-over-year improvement in that segment. Howard, we've talked on previous calls. We've also done, you know, outside of the scale that Quint has mentioned, we've done a lot of work with the airlines and with our MRO in terms of improving supply chain efficiency so that we're taking advantage of the full buying power of the enterprise versus suboptimizing. We've done a lot of other things with flight planning, with some other predictive maintenance technology programs and some other things to actually improve both our efficiency, and that'll lead to improved profitability. We're already seeing results of our prior investments in 2021, so we're looking forward to a more efficient aviation situation going on in the future. Okay. 'Cause I think if this is really the inflection point on CMI, this is a long overdue game changer for your multiple, as will the return of capital be. Thank you very much. Thanks, Howard. Thanks, Howard. We have a follow-up question from Christopher Stathoulopoulos with Susquehanna. Hey, thanks for taking my follow-up. Quint, I think on the last few calls, you've used the term self-funding model, and I feel that it's sort of underappreciated here. You know, if we look at all the sort of the puts and takes here, eventually the spread here between the market value, book value, or the residual value on these 767s is gonna go the other way. But you are attached to customers like DHL and Amazon, and you do have the A321s slowly working into the fleet. When you talk about the self-funding model, which again I think you've used now in the last two or three calls, as we look at your free cash flow back, you know, through 2010, depending on where you are in the order book cycle, it's gone positive, negative. Should we kind of interpret that as you believe that you can sustain positive free cash flow through an order cycle or an economic cycle? If so, outside of buybacks here, which it sounds like you have seven or so months to figure it out, how we should think about capital allocation beyond aircraft acquisitions? Thank you. Yeah. Thanks, Chris. When we published the stat a couple of quarters ago, adjusted free cash flow, and separated our CapEx into the sort of nondiscretionary or sustaining CapEx versus the growth or discretionary, you know, we did it to further highlight that aspect of our business model. It does fund tremendous growth. I mean, when you look at, you know, the trailing twelve-month basis, $400 million that is available to allocate. Of course, none of the allocations are mutually exclusive. You can allocate those towards growth, which we do have a bias when the market is there and the returns are good, and that's the environment we've been in. When it is self-sustaining like that and funding the growth and your debt isn't going up or in the case of last year, even declining, you can see, and then one of our slides shows the fleet growth, and yet the debt is going down. That's clear that this business funds growth. You know that means that your CapEx, your leverage ratio is gonna decline, and it allows you to use your balance sheet to create value in a number of ways. We've been constrained from doing that, certainly with the CARES restrictions on the grants that we participated in, and that changes later this year. I think Rich said we've... A minute ago, he was asked about, you know, have you been looking at different ways to create value that might include a return of capital? Certainly, we always have that as a part of a balanced strategy. It's just we haven't been able to. We think the valuation of the company doesn't reflect a lot of the improvements that we've had in terms of our leasing book and the cash flows that you can, you know, that we have visibility on, that go out for years. It's funny, we get the question sometimes about M&A. Do you look at M&A? I think we answered like, well, we do, we certainly wanna know about what's out there, but you... It's rare that you find something that is of either value or strategically fits into your model. If we were looking for something, it would look a lot like us because we don't believe we trade at a multiple that really reflects the value of the business. I think you can take that to mean we believe our shares are certainly a bargain at the price they're at. When we're able to, I think that'll. You know, hopefully the market recognizes that value, and we all hope for that, right? That we see share price more appropriately reflect the progress the business has made. We'll have to take a look at that, but we do believe returning cash to shareholders is smart as part of a, you know, a balanced strategy to create value. Okay. Thank you. Thank you. We have no further questions. I will now turn the call over to Rich Corrado for closing remarks. Thanks, operator. I'd like to close by again recognizing the employees of ATSG for their outstanding commitment to safety through the pandemic challenges while continuing to deliver excellent service to our customers. The most highly valued companies achieve the goals they set for themselves. Year after year, we hit or exceed our performance targets because the vast majority of our results come from expanding base of long-term leases and contracts. We belong among the highly valued companies whose value is not based on just what they say, but on the ability to deliver superior performance year after year. Thank you for your continued support of ATSG, and stay safe. Thank you. Ladies and gentlemen, this concludes today's conference. Thank you for participating. You may now disconnect.