Cargojet Inc.

Good day and welcome to the CargoJet conference call for quarter one earnings. Today's conference is being recorded. At this time, I would like to turn the conference over to Pauline Dillon, Chief Corporate Officer. Ma'am, please go ahead.

Thank you. Good morning, everyone, and thank you for joining us on this call today. With me on the call are A.J. Vermani, our President and Chief Executive Officer, Jamie Porteus, our Commercial Officer, or Chief Commercial Officer, apologies, Sanjeev Mani, our VP of Finance, and John Kim, our previous Chief Financial Officer and currently a consultant to CargoJet. After opening remarks 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 EBITDAR. Please refer to our most current 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 now turn over the call to AJ Vermani.

Thank you, Pauline, and thank you, everyone, for joining us this morning. Although there is much progress being made on the vaccinating Canadians, Many countries, including Canada, India, Brazil, and Europe, are battling the third wave of coronavirus cases and are in a race to vaccinate their citizens. One thing we have learned for sure is that COVID-19 is a formidable enemy, and until we get the majority of the global population vaccinated, the economic progress will be somewhat uncertain. The last 13 months have been demanding, challenging, and yet we feel a sense of pride I want to take this opportunity to acknowledge each and every employee at Cargadget for their dedication in supporting our customers who themselves are going through a massive change. Like many other companies, Cargadget is also adapting to the new reality. While we don't know what the new normal may look like, but we know that we are not going back to the old. Many experts are calling for the future to be a hybrid, combination of the old and the new. To us, this makes sense. For example, if people have discovered that they can improve their quality of life by ordering daily use necessities online, they're likely to retain that habit. Yet, they might want to go out for shopping of items that give them joy and retail therapy. So there is room for both. Now let's turn over to Quarter one results for CargoJet. We delivered solid revenue growth of 30%, adjusted EBITDA growth of 44%, and we generated $35.2 million in adjusted free cash flow, a growth of over 18%. In terms of business environment, we are seeing some structural changes. The biggest change in retail has been the adoption of e-commerce by small businesses. While large retailers already had strong e-commerce platforms and capabilities, some businesses were not fully prepared for the digital economy and the digital change. Now, tens of thousands of small businesses have discovered the opportunity that the digital economy presents great opportunities. So, for the e-commerce revolution was driven by the consumer's who were pushing retailers to move online, but the pandemic has fundamentally changed this equation. We feel that the next phase of e-commerce revolution will be merchant-led. Thousands of new businesses have started during the past year and that never even considered a brick and mortar store. This changes the shopping cohesion fundamentally. In Canada, e-commerce as a percentage of sales has doubled from 7% to 14% and even more within less than a year. But still, it is far behind the US, Europe, and Asia. Canada has still a lot of catching up to do. With much of Canada's retail or services businesses still closed, the B2B segment continues to lag behind the B2C segment. The growth of this segment is tied to the reopening of Main Street economy. On the operational side, we are continuing to see strong volume growth, and as I mentioned before, in this hybrid world, we expect the baseline for almost every aspect of our business to move up. While we do not expect the 2020 results to become the new baseline, we do expect a significant shift upwards from the pre-pandemic volumes to from the new baseline. Recognizing this new reality, Cargadget has spent the last few quarters laying the foundation to capture the next phase of e-commerce growth. Number one, in line with our previously stated goal, we have significantly strengthened our balance sheet, paid down majority of our debt, thereby significantly reducing our leverage. Number two, as we move past the pandemic, we will be refocusing our efforts on cost efficiency and productivity. This area definitely took a backseat and a big hit as we focused on scaling up every part of our operation to meet the customer demands. Our biggest focus on for the next six to eight months would be strictly managing our cost and the areas that we can fine tune in to make sure that the money we spent out there is for the right reasons. And we certainly cannot hide behind the COVID cost increases forever. So this would be on the top of our agenda. We invested in the fleet expansion which stood at 20 aircraft at the end of Q1 versus 25 aircraft at the end of Q1 last year. We recently acquired a 757-200 to continue to meet the demand of our existing customers. We will take delivery of this aircraft in the month of May this year. We have also added approximately 60-plus pilots in the past three to four months to keep up the demand and also to comply with the new pilot fatigue regulations. Certainly the costs of our crews have gone up substantially. Some of it is recoverable and some of it is not, and we are doing a thorough analysis to ensure that the numbers that we have added can continue to serve the demand we have on hand and also we continue to work with our pilot leadership and Transport Canada to find synergies and solutions that balance between safety and commercial viability. We broaden our portfolio of services and announce an expanded relationship with Amazon. And we are investing, attracting, and retaining top talent by key functions across the organization. With shifting supply chains triggered by a significant reset of international passenger routes, we also see opportunities in the market share on select international lanes. Transportation, logistics, space remains highly volatile, and we are constantly adapting to maintain our leadership position. We are also making progress on developing our robust international growth strategy. We are enthusiastically awaiting delivery of additional aircraft, which are 5767s within the next 18 months. These will be deployed selectively on international high yield lanes that we see the demand on. But we are also in discussions with a couple of customers who certainly have demand for these aircraft, so we do not anticipate these aircraft to be sitting idle even for a day. The available belly capacity on international routes remain tight, and we are confident about the opportunities presented by this scenario. We have no idea when the normal cargo business on belly aircraft is going to be normal, but With the reduction of white-body fleets by many airlines, we certainly envisioned a shift of this product that was traveling on passenger aircraft before towards the cargo aircraft. We also continue to seek an investment and presence in our US market. The growth in the U.S. market is tremendous. There's many routes and many areas that we cannot cover with our current license arrangements, and we continue to seek a U.S. partner for our growth strategy across the border, as many of our customers in Canada are also customers in U.S. Thank you very much for being here today, and now we'll open the call for questions.