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, Chief Corporate Officer. Please go ahead.

Good morning, everyone, and thank you for joining us today on our results call. With me on the call are A.J. Vermani, our President and Chief Executive Officer, Jamie Porteus, our Chief Commercial Officer, John Kim, our Chief Financial Officer, Sanjeev Mani, our VP Finance, After opening remarks to meet about the quarter, we will open the lines for questions. I would like to point out that certain statements made on this call, such as those relating to our forecasted revenues, costs, and strategic plans, are 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 for reconciliations of non-GAAP measures to GAAP income. I'll turn the call over to AJ for his remarks.

Thank you, Pauline, and thank you, everyone, for joining us this morning. Exactly one year ago, when I hosted the earnings calls, I had no idea that we will be facing a once-in-a-century pandemic. With the vaccine rollout Picking up, I'm optimistic that we will soon be able to enjoy activities that we miss so dearly. From the March of last year to March of this year, CargoJet has gone through a transformation like none other. While thousands of businesses faced closures, shutdowns, and loss of business, CargoJet was fortunate enough to play an essential role in keeping our nation's supply chain moving. There's no question that we benefited from the elevated demand in e-commerce and the need to fly PPE from China and other countries, but it required a very disciplined approach to execution. On the one hand, we had to bear additional costs for health, safety, protocols, and onsite private testing, zero pay for frontline employees, additional bonuses, and rapid adjustment to how we operate it. But on the other hand, we successfully supported rapidly changing needs of our customers. We also stayed disciplined in continuing to execute our long-term strategy of diversifying our revenues and further strengthening our balance sheet. Airline business, particularly cargo airline business, has always been volatile. Therefore, I'm particularly pleased with the achievement of 2020. We are coming off one of the most successful peak performance under the most difficult circumstances. We operated record number of flights for an unprecedented demand in all sectors, domestic, international, charters, our U.S. operations, ACMI. In spite of the COVID and weather challenges, additional business challenges, and additional business challenges. We finished the year with 98.5% on-type performance. We never left even one parcel behind for our customers during this unusually busy peak period. I want to thank all of our customers for placing their parcels and trust in the hands of CargoJet. There are some key achievements for 2020. Total revenues for the year were $668.5 million compared to $486.6 million in 2019. But more importantly, the share of domestic network dropped from 58% of total revenues in 2019 to 45% of total revenues in 2020. ACMI business now accounts for 20% of our revenues, and all in charters accounts for 18% of our revenues. We also generated $196.8 million in adjusted free cash flow for the year, which is certainly a record. Subsequently to successful equity raise of $365 million in February of this year, we have now $600 million in undrawn revolver and expect to completely pay off six aircrafts by the end of 2021 as the leases come due. This will make us one of the best positioned cargo airlines in the world. We will have 90% of our fleet paid off by 2021. We have come a long way from an overall leverage of almost five times to this year and overall leverage of just two times EBITDA with these changes. Our fleet size stands at 28, but as we previously disclosed, we'll be adding five 767 freighters and two Boeing 777 freighters in 2023 with an option of two Boeing 777 freighters in 2024. Now let me turn to quarter four results. We believed another record holiday season for our customers that led to an adjusted EBITDA of 81.9 million compared to 47.2 million in 2019. E-commerce as a percentage of overall retail sales has gone up from around 7% to 12% in Canada. According to the most recent estimate, this is likely to become the new baseline, and we do not expect this to slip back to pre-pandemic levels. although there might be some short-term adjustments. Consumers have now discovered the functionality of being able to do certain types of purchases in an online but largely seamless manner. Yet, they will go out for certain other items for an in-person shopping experience. We expect e-commerce and bricks and mortar stores to coexist for the foreseeable future. More importantly, there are generational trends and these will likely continue. While we move on to operations, our teams across the country have now adapted to the new reality. Many of our early initiatives and health and safety protocols have now become the standard operating procedures. The team members continue to rise to the new challenge and I want to acknowledge their hard work, particularly as the cold weather continues to throw more challenges. This would not have happened without our motivated and one of the best teams in any organization. Our increased fleet and asset utilization continue to demonstrate additional operating leverage as demonstrated in improved margins. I want to also make some comments about our international strategy in addition to what we have already shared in our recent press release. I have mentioned this before, but given the size of Canadian domestic market, cargo airlines have historically struggled to survive in Canada. Dozens of airlines have started their operations, started again, shut their operations, come and gone. But Cargill took a bold strategy of bringing major logos under one network. We successfully executed this strategy over the past one year. We believe there is now a compelled opportunity to build an international business while the belly capacity of the passenger airlines, greatly reduced global supply chains, are struggling to readjust. Uncovering may continue for some time. There is significant advantage for early movers. We believe if we are careful in designing our domestic and international network in a synergistic way, we can create a competitive offering that simply does not exist in the market today. We are also pursuing an aggressive growth strategy to expand our ACMI, CMI, US growth opportunities, and continue to strengthen every segment of our business. Diversification is the key going forward for us. We are an entrepreneurial company, and one of the things we all do is to spot opportunities and go after them successfully. With a strong customer base, a solid balance sheet, and one of the best motivated teams in the industry, we are now ready for the next phase of a growth strategy. We'll keep you posted as it unfolds in the coming quarters and years. I want to thank everybody for joining us today, and once again, I appreciate you guys taking the call, and now we'll leave the lines open for questions.