Cargojet Inc.

Good day and welcome to the CargoJet conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Pauline Dillon. Please go ahead.

Good morning, everyone, and thank you for joining us today on this call. With me at the office are Jamie Porteus, our Chief Commercial Officer, and John Kim, our Chief Financial Officer. A.J. Vermani, our President and Chief Executive Officer, is joining us remotely. After opening remarks about the corridor, we will open the call for questions. I would like to point out that certain statements made on this call, such as those relating to our forecasted revenues, costs, strategic plans, and forward-looking within the meaning of applicable securities laws. This call also includes references to non-GAAP measures like adjusted EBITDA and adjusted EBITAR. Please refer to our most recent press release and MD&A for important assumptions and cautionary statements relating to forward-looking information and recommendations of non-GAAP measures to GAAP income. I'll now turn over the call to Ajay.

Thank you, Pauline, and thank you everyone for joining us this morning. 2020 has been a year for the history books in many ways. When I first talked about the pandemic at our Q1 earnings calls, there was a very high degree of anxiety, shortage of PPEs, COVID cases were rapidly rising, and the world was literally on the edge. Eight months later, as the winter approaches, the case count is on the rise again. but we have learned a great deal. We are better prepared on PPEs. Medical professionals and scientists have developed better treatments for these serious outcomes, and as human beings, we have developed personal safety protocols and survival skills. We have changed many of our day-to-day habits, including our shopping habits. There has been many acts of kindness, and we have come together as a community to help each other. I continue to be amazed by the human spirit, and I want to thank everyone who is making a difference and is serving in the front lines to keep our economy going. Now, turning to our third quarter results, we continue to benefit from the strong tailwinds of e-commerce fueled by the work-from-home culture. While the initial surge in volumes was driven by temporary change in consumer behavior, We are now seeing structural changes in the retail industry that is shifting investment and resources from bricks and mortar stores to digital e-commerce at a much larger scale. E-commerce as a percentage of overall retails has gone up from around 7% to well over 11% in Canada. The trend in U.S. and U.K. markets is even steeper, touching nearly 30%. The prolonged pandemic has forced virtually all retailers to deploy resources towards digital commerce, and we expect Canada to follow U.S. and U.K. trajectory. The implications for the shipping and logistic industry means two to three times increase in volumes over the next three to five years as we see a strong comeback of B2C business and B2C remaining strong. This trend was clearly visible in our revenue growth of 38% in third quarter and strong growth in our domestic overnight network and continued strength in our ACI segment. While quarter-on-quarter growth of our charter business was somewhat slower compared to last quarter, this was expected due to fewer PPE shipments from China and other parts of the world, and the governments have been shipping enough inventories on hand for the time being. Having enough inventories on hand for the time being, we posted a strong growth over prior year in our charter business. All of our key metrics on revenue, gross margin, and EBITDA continue to show strong growth and demonstrate the operating leverage of our business model. Adjusted EPS for the third quarter was 1.72 compared to 0.09 for the prior year. With back-to-back strong quarters, CargoJet generated $59.3 million in adjusted free cash flow during Q3 and $144.8 million year-to-date, allowing us to further reduce our overall leveraged to approximately 2.1 times 12 months trailing EVITAR. We are also continuing to invest in growth opportunities while prudently strengthening our balance sheet with an overall reduction of $92 million in net debt on a year-to-year basis. Moving on to operations, the number one priority for us remains the health and safety of our employees. We have been operating at our nearest peak volumes for the past previous months. This means our teams are working extremely hard to keep the supply chains moving safely and securely, especially as the weather gets colder. But with the holiday season on the horizon, we are deploying additional resources to make sure that we deliver the peak season safely and on time for all of our customers. We continue to provide the best in PPE medical advice along with enhanced sanitization measures to our team. Our increased fleet and asset utilization continue to demonstrate additional operating leverage as demonstrated in improved margins. We took delivery of a Boeing 737-300 last month and are in the process of deploying an additional aircraft in the fourth quarter to support peak volumes. One thing that has clearly differentiated is our people. We are so incredibly proud of each one of our team members on a daily basis. We see stories of heroic effort every night from ramp maintenance or pilots who are going well beyond the call of duty and operating safely to serve our customers during these challenging times. We are closely monitoring the changing shipping habits shipping and shopping habits, trends in the domestic and international market, and spending the necessary time to understand and adapt to these dynamics. As we have noticed, the wide-body passenger business is still ways and years away from becoming normal. This also opens up opportunities in the international shipping arena as well. While we face some uncertain climate in the near future, we believe the key to success will be resilience and adaptability. We have now diversified into not only charters that are a big part of our business, but also ACMI that has helped us reduce our dependence on domestic overnight business. Let me say this, that we are all positioned to handle the changing transportation and logistics landscape. We have a great team, strong set of assets, a highly flexible fleet, and we are well capitalized to continue to capture growth opportunities in this changing environment. We have positioned ourselves with over $600 million of liquidity in case the economy runs soft on us. Once again, thank you for joining us this morning, and we will open the call to questions now.