Chorus Aviation Inc.

Good morning, ladies and gentlemen, and welcome to the Corus Second Quarter 2025 Financial Results Conference Call. At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question-and-answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on Wednesday, August 6, 2025. I would now like to turn the conference over to Matt LaPierre. Please go ahead.

Thank you, Operator. Hello, and thank you for joining us today for our second quarter conference call and audio webcast. With me today from Chorus are Colin Kopp, President and Chief Executive Officer, and Gary Osborne, Chief Financial Officer. We will begin today's call with a brief summary of the results, followed by questions from the analyst community. As there may be some forward-looking discussion during this call, I ask that you refer to the caution regarding forward-looking statements and information found in our MD&A. This pertains specifically to the results and operations of Chorus Aviation Inc. for the six months ended June 30th, 2025, as well as the outlook section and other sections of our MD&A where such statements appear. Finally, some of the following discussion involves non-GAAP financial measures, including references to adjusted net income, adjusted EBT, adjusted EBITDA, leverage ratio, and free cash flow. Please refer to our MD&A for further information relating to the use of such non-GAAP measures. I'll now turn the call over to Colin Koch.

Thank you, Matt, and good morning, everyone. I'm happy to report on a strong quarter. per course with solid performance across all key financial metrics. On June 25th, we announced the declaration of our cash dividend of $0.08 per share payable on August 15th with future dividends to be declared at quarterly report outs. And that as we grow earnings and cash flows, we aim to distribute approximately 25% of our free cash flow after debt repayments as dividends to our shareholders. Through our NCIB program and SIB that we completed in May, we continue to buy back shares and year-to-date have repurchased a total of $27.2 million in core shares. And on September 30th, we will redeem our Series B debentures in the principal amount of $28.7 million, which will further strengthen our balance sheet and position cores for growth. Additionally, on July 21st, we were very pleased to announce the strategic acquisition of Ellison and Associates Inc., a leading provider of aerospace engineering and certification services based in Montreal. This is a business who we have worked with in the past and we see great potential in. Founded in 1997, Ellison has built a reputation for excellence and innovation and today sits at the core of Montreal's aerospace community, renowned for its ability to deliver complex engineering, defense and sustainable aviation projects. Ellison will be key to growing and enhancing our specialized MRO capabilities while adding valuable expertise and industry relationships. We are very pleased that founders and co-presidents Stephane Durand and Taif Rahman will continue to lead Ellison, and we look forward to welcoming their entire team. The transaction is expected to close prior to the end of the year and is a key strategic move to support growth. On the asset sales side, as we discussed last quarter, we've had significant interest from buyers for the three dash eight four hundreds coming out of the CPA this year and the six next year and we anticipate moving a sales agreement on the first three soon. Just turning to the operating side, our businesses have all delivered very well this quarter, providing consistent and strong earnings and securing new contracts. Let me touch on some of those highlights. Doug and the team at Jazz have again generated strong earnings under the CPA with Air Canada while demonstrating a dedicated focus to operational excellence. A recent proud moment for us was seeing our partner Air Canada rank first among North American carriers in on-time performance for the months of May and June, and we applaud Jazz for its role as an important operational partner in contributing to that achievement. Corey and the team at Voyager continue to perform very well and are on track for yet another record year of revenue, EBITDA, and income, driven by growth in their parts sales, specialty MRO, and defense business. And we continue to expect Voyager's 2025 total revenue to come in at approximately $150 million for the year. In this quarter, we saw an accelerated shift in business mix from the lower margin overseas flying to higher margin flying contracts, such as the Mazer contract with D&D, which will continue to drive improved profitability as we move forward. This shift has been consistent with our long-term plan. and has been accelerated with the geopolitical pressures and funding constraints resulting from the World Food Program and United Nations reducing contracted flying operations. On the specialty MRO side of the business, Voyager has partnered with Matreya, a global U.S.-based defense and national security company, to develop their Dash 8300 Fireswift aerial firefighter. The first of two aircraft is currently undergoing flight certification and is expected to be completed by the end of the year. Matreya is paying for the program costs and Voyager could potentially operate the aircraft on their behalf. Depending on the success of the program, there could be future opportunities for Voyager that may include aircraft modifications and operations. At Cignet, Lynn and the team are making excellent progress towards our pilot training academy and are preparing to welcome their ninth cohort in the coming weeks. Additionally, Cignet has recently been awarded the Department of National Defense standing offer, which is valid for up to three years to provide continuation training for pilots. And we're very pleased to have six pilots from eight wing Trenton already in the training program. This quarter, we have seen strong execution against our plan, which is driving improvements in our free cash flow, net income, and adjusted EBITDA. We're very focused on improving shareholder returns and are now well positioned to grow our business going forward. I'd like to thank our shareholders for their ongoing support and our board of directors for their strong guidance and recognize our employees across all of our first companies for the focus and dedication to our X6. I'll now pass it over to Gary for him to take you through the financials. Thank you, Colin, and good morning.

We are pleased to report our Q2 financial results that are in line with our expectations and demonstrate the steady performance across our subsidiaries and continued reduction in corporate operating costs. Looking at the results, adjusted earnings available to common shareholders per share was 66 cents an increase of 59 cents per share over Q2 2024. This increase is due to the sale of the RAL business and improved financial results attributable to growth at Voyager and lower corporate costs. Adjusted EBITDA came in at $51.3 million for the quarter, an increase of $0.8 million over Q2 2024. And finally, free cash flow was $34.6 million, an increase of $6.4 million over Q2 2024. Our leverage ratio was 1.5 at June 30th, which is in the middle of our targeted operating range of one to two times. This, along with existing liquidity of $246.5 million, provides strength and flexibility to support future investments and growth in the business. We continue to work through the sales agreement on our first three Dash 8 400 aircraft due to exit the CPA with Air Canada later this year. During the process, we have seen an improvement in current market prices of the Dash 8-400 aircraft. We now expect to achieve average aircraft net proceeds of between $6 and $7.5 million US each. We would also expect this range to apply to the remaining six Dash 8-400 aircraft exiting the CPA in 2026. Corus continues to generate predictable free cash flow from its businesses which allows us to return capital to shareholders and focus on the growth of our company. As Colin noted, we recently announced the initiation of a quarterly dividend of $0.08 per common share, beginning with the first payment in the coming weeks. We intend to pay out approximately 25% of our long-term free cash flow after debt repayments. This will provide an opportunity to grow the dividend over time while maintaining capital for investment opportunities. We continue to see Voyager achieving the goal we set out in our 2023 investor day of approximately $150 million in total revenue by the end of the year. We have also updated our US to Canadian dollar rate in the outlook section of the MD&A for the remainder of 2025 and 2026 to reflect a forecast at US to Canadian foreign exchange rate of 1.35 from the previous 1.40 related to aircraft leasing under the CPA revenue and U.S. denominated debt. The underlying lease amounts denominated in U.S. dollars remain unchanged from our last forecast.

We are now ready to take your questions.

Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star key followed by the number one on your touchtone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press the star key followed by the number two. If you are using a speakerphone, please lift the handset before pressing any keys. One moment, please, for your first question. Your first question comes from Kevin Chiang of CIBC. Your line is now open.

Hi. Good morning, everybody. Thanks for all the details in your prepared remarks. Gary, just maybe on some of the comments you made related to the expected aircraft sale, I guess of the nine units, call it about $10 million Canadian per unit. Can you remind us what's the book value for that or what's the potential gain you'll earn if you achieve that sales price?

Yeah, we're not getting into any gain on it, Kevin, but it would be right around our book value.

It's right around book value, okay. I'm sure I can quickly do the math here, but I guess if you were to apply what you see as a market rate versus the rest of your covered fleet, is there upside relative to the current net book value you disclose of 761 at the end of Q2 here, or is there upside to that number?

No, I don't think so, Kevin. I think when you look at that, if you look, those are not all aircraft coming out of the These are at the 12 to 14 years old aircraft, so they're a little bit different. We have CRJ900s and some Q400s that are less than 10 years old within that. But what I would take from it is we've seen an improvement in the current values of the Q400s. And as we go through the sales process, we feel pretty good about where it's been going.

Okay. And maybe just turning to Voyager here, thanks for reaffirming the 150 of revenue this year. If I look at the first half, though, we've seen a little bit, I guess I'll call it quarterly volatility. And I get it, sales of parts can be a little bit transactional here. But as you look at, I guess, the mix of Voyager's business changing here, especially as you add in Ellison and some other opportunities, I think you've talked about 25% EBITDA margin as That's kind of the average rate. Does a mixed shift impact that margin over the long term? It feels like some of this stuff might be higher margin. So maybe not on a, you know, it might not shift that much, you know, as we go from quarter to quarter here. But as we look at the next few years, is there upside to that 25% margin as the mix of this business changes or does it all kind of level out at the same rate?

On the EBITDA margin, it's probably around the same, you know, that 24%, 25% has been consistent. I think what we find with the overseas flying, Kevin, is the profitability, say your net income, is a little more challenged because it has a bit more depreciation on it. So what we see is the overall profitability coming up as we shift away.

Okay, so kind of like maybe an EBIT margin might look a little bit better even if EBITDA margin is tanked. Relatively consistent. Okay. Okay. You know what? I'll leave it there. I'll pass along. Thank you very much for taking my questions.

Our next question comes from James McGargle of RBC Capital Markets. Your line is open.

Hey, good morning. Thanks for having me on. I just wanted to ask a question on the Ellison, some of the expansion opportunities there. You know, it seems to provide, you know, some exposure to verticals beyond, you know, some of your typical regional markets. So can you just kind of talk about your role in potentially getting a foothold in some of the adjacency tiers and any broader strategic expansion opportunities you're exploring in some of these categories?

Hi, James. It's Colin. Yeah, it's a good question. I mean, the acquisition, as you're alluding to, is very strategic for us. We're looking for opportunities for them to continue to grow out their business. There's a lot of different things they work on, but I would say probably a big chunk of what they do is very much aligned with Voyager on the defense side and special mission side as far as modifying aircraft. When you start looking at some of the other stuff they do, they touch on with other customers, like they do touch on some rotary stuff. They've done different things, different helicopter type projects. That gives us a lot of, you know, different kind of potential as we move forward with them to look at a broader spectrum of aviation side of things. But, you know, most of what they do is fairly aligned with what we're operating or what we do in our current businesses.

Thanks for the caller. And then just on the guidance, there's a slight change to the guide with the quarter. Can you just talk about what drove that? It seems like FX probably was a little bit of a headwind, but any additional factors at play there that you can call out?

Yeah, James, Gary, there's no other factors other than the US to Canadian dollar. I think, generally speaking, we've all seen a you know, drop in the U.S. to Canadian dollar rate. It's been forecasted by all the major banks that you're going to see a weaker U.S. dollar. And that's probably the policy going on down south. So what we've done is reflected at 135 versus the previous 140, more just a forecast around that. It makes a bit of a difference on the revenue line. But when you look at the net after debt payments, it doesn't really make a material difference. But we just wanted to get that updated because we are seeing the U.S. dollar below 140 consistently now. So moving ahead, we moved it to 135.

I appreciate the call, and I'll turn the line over. Thank you. Thank you. Thanks, James.

Your next question comes from Cameron Dwerkson from National Bank Financial. Your line is now open.

Yeah, thanks. Good morning. I just want to follow up, I guess, on the M&A question. I guess, you know, what else are you seeing out there as far as potential acquisition targets? I guess, has anything changed since the last quarter on, you know, potential opportunities that might be available to you?

Hi Cameron, it's Colin. I think we've alluded to it a little bit in the last couple of calls. We had a lot of work to do to get the organization ready and posed for acquisitions. We've done that work. We've talked a lot about that as far as balance sheet and all those good things. As we've been doing that pipeline has been growing and we've been working quite hard on that in behind the scenes with a lot of focus on on various aviation opportunities so that list is growing and we're starting to go through that quite aggressively now. Ellison was one of the you know, the first ones that popped out, it was an obvious one it made a lot of sense very strategic. But there are several that are obviously bigger and larger that allow for more diversification that we're working on right now. Can't get into any of the specifics, but there's a good pipeline there and we're working through it and we're hopeful we'll have more to talk about as we get in towards the end of the year or next year for sure.

Okay, that's great. Maybe second question, I guess, just on the firefighting opportunity here. I mean, you announced this, I guess, the first of two aircraft that you've modified. I'm just wondering if you can maybe go into a little more detail on how operating those aircraft might work. Are there, I guess, other companies out there that this product could be useful for that might be a potential contract for you to operate the aircraft on their behalf? Just any details on how you see that opportunity evolving?

I can give you a little bit more clarity beyond what we provided there, but not a lot. I mean, you know, the modification of the aircraft and the product itself is a Matreya product. So we did the work under contract for them at Voyager. And there's an opportunity and what we're alluding to there that's quite good and we're excited about and we're hopeful we can deliver on as an opportunity for us to operate for them. So we would be flying the aircraft on their behalf. And we have that capability in-house at Voyager. They obviously needed some of that expertise to do flight testing and various things. So We're well set up to essentially engage in operating those aircraft on their behalf anywhere in the world that might make sense. So I can't give you any specifics on what that looks like because we're still working through all that with them. But we'll have more to say about it as time progresses here in the coming weeks.

Okay. No, that's great. I'll pass the line. Thanks very much.

Thank you.

Your next question comes from Tim James of TD Cowan. Please go ahead.

Thanks very much. Good morning. My first question, are you seeing any specific opportunities coming to light as a result of a push to ramp up Canadian defense spending?

Hi, Tim. It's Colin. Yeah. I mean, obviously, you know, you guys are reading what we're putting out where we've been careful on how much emphasis we put on things because, you know, our focus is to make sure that we deliver, not just talk about stuff, but there is a absolutely several opportunities that are starting to come together there. We're seeing more and more focus on this. Clearly, you know, we read everything you guys read in the papers on the, on the defense spending opportunities. Um, or Azure has been building their business in that area. As, as we know, we have a office in Trenton and we're, we're running the Mazer aircraft on the support side. So there's definitely a focus from our perspective to see growth there. Allison ties in very well with that as well, as far as, you know, needs and having that ability to not only, you know, be able to do the engineering, but also be able to do the execution of, you know, the modifications and operate the aircraft. So it's kind of a, having that capability from our perspective is very important. So we're excited about opportunities that definitely we're going to be involved in and looking at and trying to secure in that area going forward. Definitely a growth area for us to be looking at.

Great, thank you. My second question, there were, just in terms of fleet and the covered aircraft, there were five Dash 8-400s, I believe, that were scheduled to come out of the fleet or have been removed from the table in 2025, and those aircraft now appear to be staying in the table until 2026. I'm just wondering what sort of precipitated that change, and I assume it relates to sort of air Canada demands, but could you provide any colour on that front?

Yeah, Tim, it's Gary here. It's really just Air Canada moving around its fleet a little bit within the 80 aircraft, and I think that's really the key. They extended those aircraft a little bit, and they really don't change the 80.

And it has no impact, does it, on sort of revenue EBITDA that, you know, flying those aircraft more this year than previously anticipated?

Yeah, it wouldn't affect our EBITDA. Those are third-party leased aircraft. They're basically a flow-through with Air Canada. We earn our same fixed fee, so no change to any of our guidance numbers. We just have the aircraft around us a little longer.

Sorry, just to follow on on that, are you somewhat encouraged by the fact, I assume, that Air Canada has said, hey, let's fly five additional aircraft more this year than previously expected? I mean, correct me if I'm wrong, is that not sort of an encouraging sign?

Hi, Tim, it's Colin. Yes, absolutely. Look, we're keen to operate and do as much as we can with Air Canada. As you know, we're a proud supporter of them in many ways, and we'd love to operate a few more aircraft. But, you know, we can't really speak for them as far as what it's going to look like and what we're doing. So we're here to support them and do as much as we can at JAWS. And that's kind of all I can give you, really.

Yeah. That's helpful. Okay. Thank you.

Thanks. As a reminder, if you wish to ask a question, please press star 1. Your next question comes from Konark Gupta of Scotiabank. Please go ahead.

Thanks, and good morning, everyone. Just to follow up quick on Alison, I don't think you guys disclose the financials there, the transaction value or the revenue, beta contributions. Any sense to that? I know it seems minor, but is it how meaningful would it be or could it be to the bottom line?

Yeah, I mean, I think it's... It's less than, you know, the purchase price was less than $5 million. It's pretty minor in the grand scheme of things from that side. But the capability side, as Colin alluded to, the engineering talent that we've acquired is very significant. And, you know, they've been involved with Voyager in the past. They were also involved with the Matreya project that we just talked about. So the capability on that and the defense side they have is quite immeasurable.

And they're profitable today. There's no question about that. They're definitely profitable, Konark. We're just not getting into any disclosure around those numbers, but we're more excited about the upside than anything and the potential of what we can do with them and work with them and having that in-house capability tied to Voyager and their defense business is pretty exciting. And I think the only other comment I'll make on this is there isn't many of these types of engineering firms left in Canada that have the type of capabilities that we're talking about. There's lots of engineering firms, but they have very limited scope and limited capabilities. Ellison is a broad scope capability engineering firm with everything from being able to build aircraft, you know, like right back to the manufacturing side of things, all the way to, you know, all kinds of special missions stuff. So there's not really anything in Ellison's scope that they can't do when it comes to aviation. So that's the exciting part for us.

Right. No, it makes sense. Makes sense. And To understand the philosophy, I guess, there a bit more. When you pitch your products and services to different verticals, the special mission or defense or whatever, I mean, would Ellison help you to go out as, I don't know, call it, more capacity proposition to customers along with Voyager, obviously, or would it be more like an expanded product offering or service offering to customers? I mean, are you horizontally expanding with this acquisition or are you vertically expanding?

Yeah, we are. You know, when we look at our team, when we look across our organization, the way I look at it anyways is, you know, we have expertise in all of these businesses. It's quite deep. We've been very focused on all of our businesses having long-term deep expertise. And whenever we go out to any kind of customer, we're always involving the team. So they would absolutely, if there's something that's involved engineering or project oriented that would involve modifications or changing aircraft, they would be definitely part of that from our perspective. And they're integrated with us from a call perspective. You know, we're always talking about new business opportunities. They will, once we close, they will become part of that team across Voyager and Jazz and Chorus.

Okay, thanks for that. And just a final one for me. On the asset sales side, the three Q400s are coming up this year, then the six next year, I think. Besides these nine dash eights, do you have any other assets you have identified either for sale or part out or something in terms of monetizing them?

Nothing at this time, Conor, but we continue to review our fleet at Voyager and whatnot to make sure that it's all, you know, needed for the activities we have, but nothing that would be insidious.

Okay. Thanks, Gary, for that. Appreciate the time. Thanks. Thanks, Conor.

There are no further questions at this time. I will now turn the call over to Matt Lapierre. Please continue.

Thank you, everyone, for joining today's call, and please have a good day.

Ladies and gentlemen, that concludes today's conference call. Thank you for your participation. You may now disconnect.