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 on the call today. With me on the call today are A.J. Vermani, our President and Chief Executive Officer, Jamie Cordius, our Chief Strategy Officer, and Sanjeev Mani, our Interim Financial Officer. 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 EBITDA. Please refer to our most recent press release and MD&A for more important assumptions and cautionary statements relating to forward-looking information and for reconciliations of non-GAAP measures to GAAP income. I'll now turn the call over to AJ.

Thank you, Pauline, and thank you, everyone, for joining us this morning. When I spoke to you in November 2021, there was a lot of optimism in the air about the reopening of the economy. But in December, we reversed course, and Omnicom forced yet another wave of lockdowns and the challenges that came with that. Once again, we are seeing some signs of hope. and this time I truly hope that the reopening can be sustainable. Before I jump into the quarterly results, I wanted to share a few observations about the macro trends affecting our business. Number one, digitization. Be it educational, work, or shopping, the digital adoption has gone through a dramatic shift in virtually every industry. We believe that it is no longer an emerging trend, rather it is becoming the new normal. The trend has profound implications for every business, but for CargoDebt, we see this trend to be a net positive. Number two, hybrid. I talked about hybrid everything on our last investor call. This may be the lasting legacy of COVID and workplaces may have to adopt a new culture. Among many other benefits, we see hybrid work allowing for a better work-life balance, potentially reduced number of vehicles on the road, create more leisure travel and activities, which would require online shopping for more categories of goods. E-commerce. While this trend was already showing strong growth Pre-COVID, the last two years have brought forward at least five years of growth. Even the hardest opponents of online shopping have now accepted the reality of e-commerce. Many companies who did not ramp up their e-commerce and did not believe in it have now started to do so. In this new world order, instead of opening a new store in a shopping mall, entrepreneurs now open their new stores on online portals. This is a secular shift, and we expect this trend to continue to be a tailwind in the medium term. Number four, passenger airlines and cargo. A prolonged pandemic has triggered structural changes in the aviation industry. With a dramatic reduction in cross-border passenger air travel, a significant belly cargo capacity has been taken out of the global supply chain. At the same time, the pandemic has accelerated e-commerce at an unprecedented rate, creating even more demand for air cargo services. While dedicated air cargo operators have tried to step up in the short term, there remains a significant gap in the worldwide airlift capacity versus the demand that is expected to persist in the medium term. As major passenger airlines shed their larger wide-body fleets, 747s and A380s, in favor of smaller, more fuel-efficient narrow-body aircraft, the reduction in resulting belly cargo capacity will likely become a longer-term structural shift. CargoJet is very closely watching these trends and positioning its business to continue to capture emerging growth opportunities. Now let me get into the fourth quarter results. Q4 revenue growth of 26.1% for the quarter compared to the prior year reflected the results of our previously announced diversification strategy that is helping deliver a balanced portfolio growth. Each line of business was a strong contributor during Q4. Domestic network posted a growth of 18.2%. ACMI posted 26.7% and the charter business both posted the largest of all, 54.6% growth compared to the same period last year. Overall, the full year growth averaged 13.4% despite extremely difficult comparison to prior years. The adjusted EBITDA for the full year stands at 293.1 million compared to 281.7 million for the same period in 2020 an increase of 4%. This result must be viewed in the context that the cargo jet flew an extraordinary number of charter flights to Asia during quarter two of 2020 to bring PPE supplies to Canada. It is worth mentioning that we remain a disciplined operator and have used our strong results to invest in growth, reduce debt, pay down aircraft leases, and build balance sheets to fund future growth. Given the structural shifts noted earlier in my remarks, we are planning to enter a higher capital expenditure phase over the next three to four years. This will be to take advantage of the long-term growth opportunities, and we believe we have sufficient liquidity to fund this growth. Our balance sheet remains strong, the leverage ratio at 1.36 times adjusted EBITDA. On the operational side, volume growth remains strong. Average daily volume is up 25.4% in quarter four versus prior year and is up 24.3% for full year compared to last year. We grew our fleet size to 31 aircraft. Our on-time performance remains 98% and this is a critical deliverable given the importance placed on the target by our customer. We did face some on-time performance challenges in the month of December and January, especially with the book-offs because of the COVID situation. We remain focused on cost, expense, and expense management, and full-year SG&A cost is down 9.6%. One area that remains challenged obviously from our numbers is the cost of cruise. The crew costs have been impacted by a combination of factors, including the recently implemented new cargo fatigue rules by Transport Canada that discriminate Canadian air cargo carriers against the US and other international cargo carriers. We are also investing in pilot training to prepare for growth in our fleet. This has added short-term costs in the quarter. We are focused on finding cost-effective solutions to address this handwritten and over the coming quarters. In order to take advantage of the new digital and global aviation realities, we are investing heavily in acquiring and retaining talent. We have now built a strong, experienced, and seasoned international cargo team that nicely complements our core talent that continues to successfully manage our growing domestic network business. Once again, thank you for joining us this morning. We'll now open the call to the questions.