Q3 2019 Earnings Call
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That's principally standby your meeting that's about to begin.
Good morning, ladies and gentlemen, welcome to the Cargojet third quarter results Conference call I would now like turn the meeting over to Pauline Dylan. Please go ahead, Mike Stone.
Thank you good morning, everyone and thank you for joining us on the call today with me on the call today, our age every money or President and Chief Executive Officer, Jamie Party, It's our Chief commercial Officer, and John Kim Our Chief Financial Officer. After opening remarks about third quarter results, we will open the lines for any questions.
I would like to point out that certain statements made on the call such as those relating to our forecasted revenues cost 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 recent press release and M. DNA for important assumptions.
Cautionary statements relating to forward looking information and for reconciliations of non-GAAP measures to GAAP income I will now turn the call over the age of her money or CEO .
Good morning, Thank you falling and thank you everyone for joining.
The carpet <unk> conference calls this morning.
As you know we've had a very busy quarter.
On August 23rd we announced the strategic partnership with Amazon.
On September Thirtyth, we started the second issue might route for DHL between Mexico and Cincinnati.
Hi, adding to the solid foundation of where you see in my life business and continued growth.
And on a over 31st we announced or were in can redeem.
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21 convertible debentures Ah two years early.
These moves are in line with good long term strategy of building strong foundation for growth as well as it would desire to reduce overall leverage and strengthened our balance sheet.
Let me know talk about third quarter results, we posted another strong quarter with 4.7% revenue growth excluding fuel surcharges.
Margin expansion and a strong adjusted EBITDA growth of 24.1% over last year.
As I mentioned on over last quarterly call, but Vietnam positioning future were business segments, what growth with higher margins.
We're putting in place the strategic component.
So that over the long term, our domestic network each year might as well as charter to scan all position as growth businesses.
During quarter three we've made significant progress towards this goal [noise].
[noise], where domestic overnight revenues grew by 5.5% largely reflecting summer months of online shopping or where do you see my business grew 33.3%, reflecting additional drought we added for supporting.
Some of our major customers to service U S.
Mexico.
And a couple of other markets.
And asked for this softness in charter revenues as we noted that over last analyst call. We made a proactive decision to suspend certain unprofitable drought for South America due to lower global air cargo demand and redeployed aircraft to more profitable opportunities.
We expect margin improvements going forward at this is all this decision.
We will continue to monitor opportunities and we will only enter.
New charter out if we can meet our margin expectations and targets.
Our core emphasis remains on enabling faster deliveries for e-commerce , where all of our customers.
We were pleased with the growth we saw during the prime be sale and traffic during back to school.
Also demonstrated a new customer behavior.
We're now gearing up for a peaks season volumes.
It is worth reminding everybody that Canadian ecommerce market as a percentage of total retail tail is still behind U.S. and youre.
Canadian E Commerce remains at around six points, 67% range, while the U.S. is almost double that percentage and Europe being triple up that we believe we are still in the early stages of harnessing this secular trend and have a lot of catching up to do.
Majored online retailers I regularly, adding new sq use schools to the Canadian offering improving selection for Canadian can do.
[noise], you're continuing to see a shift in the shopping patterns with Amazon's announcement of one day prime and other retailers no trying to compete with faster delivery standards online shopping has now moved to a seven day a week shopping patterns.
Mediabrands and now accelerating the focus on building direct to consumer business models, creating more opportunity for air cargo volumes. This is leading to a stronger volumes on the weekends.
On our network and we expect to see more of this trend doing.
Peak holiday season.
Also pleased with the fleet utilization metrics and are committed to managing our capex prudently.
As we see additional growth opportunities, we'll invest in our network appropriately.
I'm extremely proud up my team up 1100 employees, because each one of them understands the importance of on <unk> on time delivery for our customers along with safety and security.
Our maintenance steam.
Works extremely hard to make sure that over fleet remains and pop form.
Once again I'm pleased to report that quarter three on time performance was 99.3%.
This is a key metric for customers because they have built their first and last mile networks that rely on our ability to meet over commitments.
As I shared and my previous remarks, we remain focused on profitable growth, while continuing to strengthen our balance sheet. Our medium term goal is to bring over overall leverage down there's somewhere below three times adjusted EBIT talk but I must caution, but we're still in a hyper growth and.
Firemen and the ecommerce waste and if you have presented with strong both growth opportunities.
With attractive margins and economics that can drive long term shareholder value, we will not be shy to invest.
Let me conclude by commenting on the upcoming peak season based on our assessment of shopping behaviors and increasing number of categories.
For which consumers and always shopping online based on the estimates.
And forecast received.
I'm more customers, we believed that this holiday sheep shipping season shipping and shopping season is going to be yet another record setting season.
We are fully geared up to support this expected growth and look forward to ending the year on a positive at very strong note. Once again. Thank you for joining me this morning.
We'll now open the call up two questions with me Jamie 40 is Oh, two commercial officer John Kim.
Steve.
But actual officer, along with bobbing Dillon.
Larry if you can open up the Oh I think questions.
Thank you Mr., Alan we will now take questions from the telephone lines. If you have a question and you are using a speakerphone. Please lift your handset before making your selection. If you have a question. Please press star one on your telephone keypad. If at any time you wish to cancel your question. Please press the pound fine. Please press star one at this time if you have a question there will be a brief pause while the participants.
Register for questions. Thank you for your patience.
And the first question is from David Ocampo from Cormark Securities. Please go ahead.
Good morning, everyone. My first question is on volumes as we've kind of the focus last quarter.
Still looks relatively weak versus last year can you talk about some of the dynamics at play here, specifically b to B interlink volumes NBC.
Well there.
[noise] wanted to David I can I can comment on that as as you're aware and as you've seen globally over all their cargo demand is down significantly I think in Q3 2019 I had it was forecasting about a 5% 6% global.
Air cargo demand deterioration in volumes I think you most people have seen the air Canada is.
Tended to cargos press release last week, where they recorded 18% reduction in cargo revenues in Q3 primary from international demand, we're seeing the impact of that our interline business is down about 40% a year over year.
Obviously as I did mentioned in his notes one of the actions that we took as we saw that demand deteriorating internationally was suspending the roots to Lehman Bogota and one of our weekly frequencies to Cologne. So that we could do two things one improved margins and redeploy those assets are more profitable routes, which will continue to do.
On the domestic side the beat the traditional b to B business is relatively flat overall, but that's certainly being offset by the by the significant growth in E Commerce.
From multiple retailers on our domestic network.
Perfect and on the pilot shortage easy as kind of early stated that they need to hire.
A significant amount of pilots from Max next year.
This coupled with.
Our service.
Do you see any difficulties with recruiting beyond what you provision for actually not me or had renegotiated or pilot agreement in light of their shortage, we were expecting and the market conditions of the new wireless de Groot, we extend over agreement with the pilots were another three or subdued 2027.
We also put in place retention and attraction.
Incentives to the pilots to stay on.
Right now or pilot Con is quite a up to what we expected it to be in what we needed to be Oh, I think cargojet has become a very attractive place. We are leading in terms of compensation that working conditions to wait now and I think a you know the steps. We took certainly we are in a place do.
Attracts more.
Pilots that are that wonderful.
Come back to Canada, who were ex Pat.
They're flying for various foreign carriers and getting direct entry.
Captain or direct country first officer jobs on wide body aircraft is something that.
Neither air Canada, Westjet can offer two new entrance.
In the marketplace. So we had quite well positioned for that.
Okay, I'm not kind of lost one for me in a quick one.
If you mentioned this in your prepared remarks, but did you add that regular service on the flight.
Yes, Bill happen, yes, we have a Sunday flight now.
Asperger schedule.
And in the peak, we are also adding a Saturday play it's been actually a permanent flight since may of last year. We recently added a second flavor.
He just said, we'll be adding a saturday frequency during peak.
Perfect color.
Thank you.
Next question is from Walter Spracklin from RBC capital markets. Please go ahead, yeah. Thanks, very much good morning, everyone.
So maybe you mentioned that the record fourth quarter coming up for for peak.
You had a pretty tough comp last year with double digit our is double digit something we should bring pull in for volume or.
Given given the difficult comp is it more it kind of mid to high single digit ranges in terms of directional.
Oh, you know, we certainly expect a better peak a then last year's simply because if you remember a lot of Oh, shippers, who and shipping and a lot of consumers weren't buying because of the Canada post right going on and there was a big impact about that and I feel that this year the market is quite.
Normal.
Conferences in full swing and I expect.
Speak to be certainly better than last peak and that's what we hear from our customers and their forecast.
Okay, and Oh, Jamie or does it doesn't work for this what about your core your margin has always been better the fourth quarter because of that.
The economies of scale effect on the fourth quarter, you had a very strong third quarter EBITDA margin.
Any reason or is there anything to the third quarter merging that that that will replicate should we see a.
Again, a better seasonally fourth quarter margin.
Compared to Q3, I'll take that Walter Ah I can assure you that over focus with the lost this year has been on margins a lot and I do not see anything in fourth quarter that we would have different trend.
Or margin that we did in quarter three but keep in mind. We also are suspended certain.
Low margin routes like South America, and few other flights that we used to doing here and there and some charters that we're not giving us that acquired margins and we were able to fine.
Those routes.
But we were placed would high margin.
Daily flights like for example, Cincinnati, Ohio.
That kind of stop so.
Margin improvement is on the copper or less Dan and I see no reason in order for that they will.
It would be any change in that at all I think it'll get better.
Testicle get very encouraging and then.
John .
Capex.
Any adjustment that you'd make given your view on fleet requirement I believe if memory serves you were $200 million for the year and total capex.
Guidance that came down a little bit because you sugar ship what aircraft free.
Any update on the on all the 22019 Capex and any indication can you provide based on your fleet plans for next year combined with maintenance Capex, what we should what we should be putting into our model for the four for Capex for 2020 sure Walter we.
We don't have any change really in our fleet plan from the last quarter. So what's in the Mdna Thats still.
We don't expect out anymore aircraft other than the 1767 200.
First quarter next year.
In terms of 2019 Capex.
We probably will be slightly higher than 200, we've been looking in the market for engines in feedstock I think we found to.
Another aircraft with a couple engines and spare engines. So it might be closer to 210 by the time to finish up here.
For next year.
In terms of.
Maintenance Capex I, our long term average is somewhere between 60 65 million Canadian per year, we should be close to that we did buy a bunch of engines. This year, which will help us reduce our engine capex for next year, but we haven't baked in our Capex plans is viewed as of yet, but the long term it should be close to our long term maintenance capex.
Yeah, and we Wallcover Ah aim is to.
Not sort of increase capex from wherever you are last year, although we are expecting a slight increase but we will have to manage it.
Strict guidelines.
To ensure that or capex doesn't see but there are fewer last year.
So.
So this year was a fairly heavy.
Growth Capex year, with if we call 75 million in maintenance about 125 and growth are you say that where it will probably get about 65 and maintenance this year, but would we have another hundred.
No no I think with the one delivery, which we've already cap was a lot of the cost that conversion on their last 767 200.
Growth Capex will not be.
Anywhere near what it is right.
Okay, perfect and we already have bought some engines that we will be using for future years, because we've got a better deal so that will bring down that cost as well going forward.
Once we get through our planning cycle and and you again, we're always in the market for used fuse and just primarily.
We should be able to give you a better picture in 2020 in the next conference call. Okay. Fantastic last question here is an area by area and charter.
Adding another route there.
September Thirtyth.
It is the what could we look for in terms of quarterly run rate now.
Where we add it all the roots and I don't know Jamie if you've got any color on any additional roots that you're working on that might pop up in 2020.
I think the route I think you could factor in the new routes that we added on September Thirtyth I think we indicated in the M. <unk> generating about $11 million and an additional annualized revenues you could add that to our run rate.
We've experienced through the first three quarters and planned out for 2020.
Certainly we're always in discussions with our customers, both DHL than others, but other opportunities but.
Nothing on the short term right now.
Okay.
As a looking looking for opportunities that were customers know it done.
You know, we'll continue to do that alright appreciate the insight thanks, everyone.
Thank you. The next question is from Cormark Gupta from Scotia Bank. Please go ahead.
Thank you and good morning, everyone. Good morning.
So just on the domestic first just wanted to touch on the previous comment you made.
So the growth and obviously revenue per operating day has slowed down from 3% from 8% to 9% and other thing you alluded to the international weakness, which I think plays into that as well because someone to lines right.
But I'm just looking for the specifics if again for wide or on your contract horses to spot business. Because I know you, obviously keep 70, 580% of 40 or contracts and then the remaining goes to the spot business have you seen any change in that dynamic like spot falling off a little bit here, because that's kind of the more.
You know the business, that's more dependent probably on the on the global trade.
No I don't think we've seen anything significant drop on the spot, but also keep in mind corner, but.
The business in July August are traditionally very slow because of the summer months and the only to be able to grant. We had was a back to school and a prime day.
Sales, which kind of helped the whole process, but are generally.
I would not gain July and August months, or any kind of real growth.
You know 70% of.
Productions.
Facilities in warehouses are all shutdown.
Some are location. So it is very traditionally so slow.
The interline business, yes. It is it's not a high margin business, but it's certainly.
For the gas and some.
So and that business.
We expect it to bounced back it's not that Ah you know that business is continuing onto some of the other countries and like South America is all about not not to Canada, obviously and.
I think that's not something.
Resolution happens on the China trade.
You asked I think that business will bounce back as well.
That's good color then on the peak season. So it seems like you are you expecting a decent increase here just just trying to understand like what are you hearing from your customers in terms of the growth.
For the speak season, I know you P.S. and just came out saying that a on the flip side to send to the expected 26% increase in shipping returns on January 2nd that that's pretty high and obviously the explained a lot of written so on the root inside their spending a lot of volumes, but on the shipping side to customers BDC.
Commerce, what are you hearing from your customers in terms of what kind of growth can you see this year and b.
I can answer that for you called out because as you mentioned before I mean, there's a couple of things that are that are impacting our peak season. This year I can tell you that from all the ecommerce retailers that we received forecast, where we're expecting extremely double digit strong double digit growth year over year.
Versus peak season, Q4 of last year in his age you mentioned a couple of other significant factors. This year, there's no Canada post labor disruption that's affecting volumes or.
I think shipping patterns. We also have a short condense peak season, this year as compared to normal traditionally the last few years, especially from an E. Commerce perspective peak season, really started sun cyber Monday, and with U.S. Thanksgiving being a week later.
The normal this week on the Twentyth in November the peak season really gets into year, starting December 20 seconds. So we're really looking at five weeks versus volumes condensed into into four weeks, but we're expecting a very strong double digit growth.
On the E Commerce site.
Okay, that's great thanks, and on the on the convertible debentures, John if I may.
Can you tell us what is the amount outstanding today, and then have you already seen some conversion oddity by the owners.
I think.
Yes on the balance sheet because of the way you do the accounting it looks like about 113, and a half, but I think in terms of gross debentures out there is more like 119 million.
Oh their worst and the original amount was higher we did have some redemptions typically retail redemptions during the last couple of years.
Colin.
Given that you haven't seen any any material redemptions, yet to abide by the holders I'm going with Oh, No you get a few and.
Ideally everyone needs to a tender those debentures, otherwise they get taken out at 95% of market right.
Okay. Thank you so much.
Thank you. The next question is from Cameron Doerksen from National Bank Financial. Please go ahead.
Thanks, Good morning.
Just a question on the on DHL day, just announced a fairly large expansion Hamilton I mean I assume that's.
A positive for you can maybe just describe what that potentially means for you with their or their expansion there.
Well what it means is that obviously, we do.
Number functions for DHL and Hamilton.
We do the maintenance on bad aircraft, we do the ground handling for that aircraft and we also do.
You know, obviously fly that aircraft for them as well and I think are being in Hamilton, which is a great.
Story for all of us that they do not intend to change.
The plants coming into Canada reduce capacity.
Hamilton is the hub, where AOS Hamilton the hub for them that now they would always did.
Not sure whether they're going to continue to fly half within or they would go into two onto airport or I mean, we would obviously gear up if they were going there, but I think what it does is it kind of sold if wise.
Our alliance with DHL in Hamilton, where we can do a lot of things together.
Now that they have permanently selected that as a as it as a backup.
Okay. That's great I just the second question for me for John just on the the stock warrant valuation gain in the quarter I'm. Just wondering if you can maybe just walk through what drives that and should we expect in the future.
Gain or loss each quarter I mean, I know, it's just an accounting thing, but I'm, just wondering what what's going to drive that quarter to quarter that gain.
Kim.
We have to be really careful.
In terms of sensitivity to our our customers.
So the information that we disclosed and were.
Pretty fulsome in terms of the disclosure that we make them the explanation of the accounting in our Mdna.
Financial statements, we really.
Are not going to comment any further in terms of if there's some disclosure that.
You might find useful.
Yeah, we might think about it but right now we it's really we're really unable to comment any further on the accounting of those words because of the sensitive nature of the business and we we are at Newcastle networks for all customers and we like to keep customer information.
You know.
Not sort of make it public how much they're shipping what the revenues are all that and that's a sensitive information for all of what customer that we'd like to keep that.
Portion of it.
Potential.
Okay, but we should expect there to be a gain orbital theres potential for a loss just from an accounting point of view each quarter is is that correct. There's some revaluation each quarter and that again, that's all under I have for us.
Requirement because its a.
That's the nature of that that.
Derivatives, yes, so there will be quarterly adjustments.
As depending on them, but they'll they'll typically be nonoperating right of course, okay. Okay. No. That's that's fair enough. That's all for me thanks very much.
Yes.
Thank you. The next question is from Doug Taylor from Canaccord Genuity. Please go ahead.
Yes. Thank you. Good morning. Another question on a on the margin profile here was very strong in the quarter and you had some constructive things to say, but the margins.
Q4, one thing I observed was that you did seem to benefit from the your ability to pass through fuel costs versus your your realized fuel costs. This quarter is there something as you shift some.
Of your volumes are your capacity around that's changed structurally and how you're you're charging through for fuel cost that you expect to see a sustained benefit in terms of the revenue versus the cost a line item there.
I think Doug you or if you have seen any of that during the fuel or just keep in mind. When we were flying the south American drought.
The fuel was not a pass through you had the commercial risk on it.
Moving away from that model.
Early because of the lower demand.
The global trade and all that we.
Have onto the easy am I would agree to place that aircraft going that route with.
We have no exposure for people. So I think that's where you might see some improvements, but our general fuel policy remains the same that.
Customers have a built in fuel price and anything over and above that.
We follow the index.
All customers have the different formulas that they we have negotiated with them on fuel and basically where policies that oh on over normal or overnight network or domestic network.
We do not have an exposure of fuel increases so that's passed but I think the margins out the fuel improvements are strictly as a result, though.
You know.
Canceling.
Flights to South America.
So there is the potential for you to recognize more margin there through the cycle as opposed to just in periods, where fuel crazy prices of yes, yes, there is because even on the charters now we have a you know we have tried to hvidovre.
You know charters I needed by different customers.
You asked whether you know where we competing against whatever options and we certainly a try to.
Increase or margins on those.
AD hoc charters that renewal.
Okay second and final question for me I again building on on the previous callers line of questioning with respect to Amazon I understand your sensitivity there, but I mean is there anything qualitatively you can you can say about whether they've changed their behavior or with respect to your network at all.
All in you know following the new commercial agreement.
So there was no new commercial agreement. This was a strategic agreement. So that's number one there was never we never changed the commercial agreement.
You had a commercial agreement for a couple of years with done.
There's absolutely no change in behavior they.
You know there is no discussion on any of the any of the issues businesses as normal as a customer Dennis absolutely like nothing I can even tell you that I view this cost anything with them on the on the revenue side, so our strategic thought or commercial mixed up.
They continue to do business as usual.
They are very Canada is.
Certainly a big growth Vicki.
Environment for them. They certainly believe that Canada is way behind on e-commerce than the rest of the world and whereas other Amazon operates in and they have some very very.
Strategic and strong goals plans for Canada, and we are certainly part of that.
The other thing that you know it's come in conversations I've had with you in the passes that Amazon often plans pretty far out in terms of their planning for logistics can you talk a little bit about.
What they're talking about for 2020 or those conversations started with respect to planning a your fleet around you know what they'd like to do.
Yeah. So you know basically Amazon is a number of ways that we get their business you get it through a number up our customers and if you're looking for example in U.S., although they have.
60 planes committed they'll probably.
Well with more planes.
We're always looking for growth so.
Besides the grow their own network, which they want to do with us, but that also growing with many of the customers in U.S., but the double digit growth. So you know, we we get Amazon Directv also get Amazon from two or three up or large customers and everybody's seeing growth and the plan that they tell us is that everybody.
He's going to continue to grow with their growth and you know basically that.
That there is no change or shift that we will get a directly or the customers are going to everybody did affect that because their business is such that requirements are such that certain customers want.
You know certain pick up on a certain day that and we're not in a pickup and delivery business. So we'll continue to grow the middle mile.
Two of our customers and to Amazon Directi. So there's no change yes, they do.
Do some planning far out but.
It's not something they do flanked by flights or.
You know a route by route they they just have a general forecast that they give us every six months that we look at.
And plan over capacity accordingly, the good news is that all.
Over the next year, what we look at as we can accommodate all of that growth in our existing fleet and the existing infrastructure.
Though adding any aircraft or any significant capital expenses.
That's great. Thank you very much.
Thank you. The next question is from Kevin Chiang from Sea IVC. Please go ahead.
Hi, good morning, and thanks for taking my question here, maybe if I could ask them the margin question.
Little bit.
For lease so if I look at your year to date EBITDAR margin.
This neutralize impact of for a 16, you're up roughly 190 basis points.
Year to date, and you've noted you're facing pilot costs and you I guess you had some low margin charter business, though youve exited so when I think of.
2020, and it sounds like you will start recouping. Some of these pilot costs in the fourth quarter, you'll have cycled through.
Full year benefit of exiting some of these low margin routes.
Is the reason why your margin growth in 2020 can't be higher than what your experience is experiencing thus far in.
2019 or might not for my missing something there.
Oh, well you know, we always strive to get higher margin business and we are somewhat a function of market as well. So yes to answer your question on pilot.
Dig surcharge Ah, yes, we have implemented at that with various customers I will see some of it come through in fourth quarter, and so it'll come through in the first quarter and and some of it also will come through the.
Second quarter of a 20.
2020, but that's strictly covering about cost to make sure that have a margin doesn't debt further it's not something that I think that would be moneymaker or cost, it's strictly a cost recovery for us.
The second part about the margins in 2020.
As you know.
We this year put a special.
Or greater emphasis and focus on that and I expect that we will certainly maintained or improved margins.
Strictly by.
Managing number one hour over a fixed costs that we have yet we are on a drive to make sure that we're not exceeding what we budgeted for a.
A lot of little improvements like for example.
We have lot of overtime going to do we are better off to hire more pilots have more maintenance people.
So those kind of analysis continue to do and those impact or where margins a fair bit so.
Just keeping the pricing to a level, where we have a fair return on our.
Our investment.
Cost of invested capital.
Return on invested capital is that were key made here obviously as we go forward and I think that.
You will see a 2020, we will certainly maintain or better.
That's helpful and them if I can just ask one on the.
On the charter charter business.
You've talked about how are you noted that youve.
Suspended some some routes there.
Are there more adjustments I need to be made.
In that network or is the the run rate revenue. We saw in Q3 is that a good way too to kind of think about the quarterly run rate moving forward.
Maybe secondly, what's up with a more heightened focus on.
On on margins and profitable routes.
What does that mean for the long term opportunity there or you are you less patient to incubate new routes on the on on the charter.
On the chart, so on or not maybe Kevin if tomorrow.
If that trade deals signed between the U.S. and some of the or let's say primarily China.
The margins and the business starts flowing.
As it was in the prior years I think there is a strong improvement of the margins you can expect on those by two ways. One is that we will get some interline tropic that we can accommodate on the existing routes that will contribute to a fairly.
Significant margin increase because we're not adding any cost at all.
And I assume that this is a temporary trend.
Two major Giants like U.S. and China knocked us.
Doing great it's a matter of.
Who blinks first and then the stuff happens as you know most of these things that now.
Settled on Twitter is rather than sitting across the table.
We expect if we do come through any d., it saying Oh, yes, we have done I think.
A lot of inventories being built up in far east from what I hear from our contacts and.
Lot of shipping will start asking as that happens so besides the inner line there could be also opportunities with our existing fleet to maybe do a Toronto, Mexico flight or Toronto woven tops drawn on Lima flight ARPU Miami, So those opportunities we will take the might not be as high.
Margin as we do on AC my and some of the other stop but we're also not just going to walk away.
Just thinking that we want to keep that a bargain not a certain level and forget the gross dollars an increase over even taller profitability. So.
We're not going to look at Fox in isolation about just the margin if and when the trade patterns improve as I said, we'll take the opportunity on the airline because that will come back that has been there for at least 20 years that I know and it certainly improve this is a first time, we've seen a debt and so as air Canada and so as ever.
Global carrier coming out from there. So this is why be kind of diversified. We we started looking at HCM I asked several of the other seven today flight and the six states light.
For our customers here. So we were able to replace all that and actually make it better and same thing we will do when the train comes back we will look at those routes again.
Suspended that we have not cancel them and.
Quite open to looking at that opportunity so definitely when when they open up and we will look at it.
Expanding those routes.
The movement of trade patterns.
It's helpful. Just.
I guess the current.
Quarterly revenue stream you saw the third quarter or volumes you saw us on kind of a good run rate to think about until some of these tensions.
Yeah, I think I think that's.
Probably a good assumption Kevin.
That's helpful. Thank you very much.
Thank you.
Next question, then I do apologize if I don't pronounced this correctly.
Okay.
Actual on wealth partners. Please go ahead.
John .
Hi, guys get it could hardening and congrats on a pretty good Q3.
A bunch of my questions have been answer here, but just Tom peak season. So do you expect to these clients seven days each week all season and if so like when is the expected first flight of that have that seven day. We've already started the second flight on Sundays and I believe we started flying the Saturday the for Saturday.
Sometime around mid November to the reason November .
Okay perfect technically we are doing seven days a week if you count the two cents a flight downward in flight, we will add on SAP a mid November .
Okay and on.
On the core business today, it's still dedicated six six days for each week that you're doing your core business flying.
Yeah, one on one of the things we Oh, we as you said last quarter and I, maybe remind everybody that you know.
Everything yeah. The core businesses you know if you get my quite core for us today and.
And so is the domestic business. So I mean, we used to call. It core overnight business, but lot of where domestic business is not overnight anymore. We do de flights and we are going to compete and T. neutered flights and who is going to continue to do weekend.
So I think more we've taken the word core out because obviously that confused a lot of people and taught that you see him I and charters and some of the other businesses secondary and as we have noticed both that business is also equally important to us so I brought to call it market segmentation more than a.
You know splitting it up rather than core business for us. So yes, domestic I was I would refer to that as the domestic business Ah that right. Now we are yes. We are six days a plus an additional flight on Sunday. So it it makes it seven days, but also mid November we.
I will hop starting some daylight turns as well so you know at the height of the peak some of those flights that we're looking at seven flights a week.
Well, obviously, there's more flights, but it would become probably a couple of additional flights during the peak as well.
Which is traditionally for us.
Awesome, Thanks for that color, there aging and Jamie you commented on I added data.
Is it fair to say that cargojet somewhat agnostic to that data because of how E. Commerce driven refocused. The company is yeah. The on the only reference that I made or the reason to be the reference where it is because it does have an impact on our international our underlying business and some of the international the reasons that we suspended some of the international routes was again because lower global.
Blair cargo demand and it certainly affected our interdyne volumes.
Okay.
Excellent and then just one final question here for John I signed the N. DNA that you amended your credit facility can you walk us through the highlights there I saw that I think on the Twentyth of October it was amended.
We you know with the support of our banking Syndicate led by RBC, you know we were able to.
Achieve some better pricing.
About 25 basis points on our on a revolver and we took the opportunity to extend that revolver. So we have a full five year term now so a committed facility for yet another five years.
All right guys. Thanks, so much.
Thanks Anchorage Alaska.
Your next question is from Ben Cherniavsky from Raymond James. Please go ahead.
Good morning, guys.
Most my questions have been asked at this point, but just if I could follow up for a little more clarification.
John I appreciate the festivity of the the warrant but.
Can you at least give us an indication of what the after tax impact on EPS would have been from that game.
I think we don't disclose the gain.
In terms of you know that that a quarterly sort of revaluation that we have to do.
Using.
Some fairly sophisticated models.
But in terms of the gain for the you know that nonoperating gain and I think it was in the neighborhood of $10 million.
Oh, yes that is that after tax.
You know I I'd have to.
Get back to you on the on the tax effect because in terms of whether we tax affected that number I'm, sorry, just I'm not sure but I can.
I can.
Look that up and talk to you both of them.
Yeah, I'm, just trying to get like a and on an adjusted EPS number that you guys don't disclose it but it would be helpful to cut that information, they're both on the quarter in the nine months.
And.
Then on the debentures.
There's.
Potential dilution if I if I've done it raised about 2 million shares do you think thats, what the full dilution like should we assume it's.
Oh it sets up 58, 65 strike price. So that's a that's about right.
Yeah.
Okay. That's all I've got thank you.
Thank you once again, please press star one on your telephone keypad. If you. Another question. The next question is from Goldman Sachs.
Lauren.
Please go ahead.
Hi, good morning, everyone. Good morning.
Just going back to the volume spot.
Great.
Right.
But what would you be like if that's <unk>.
Great. Thanks continues because you've already seen.
It was.
So for 2020 .
We'll see more contraction or is it sort of flattened.
Oh I think.
Probably a scene the worst impact on the airline.
Business that it has for us and weak, we discontinued or South American Ah routes.
I don't anticipate any anything.
What we're seeing on it online is bare minimum that is coming into Canada up from other carriers.
And as you know, there's not a whole lot of a trade dispute with Canada anywhere. So what we're missing is the U.S. portion of that growth.
That we used to get on the interline I don't anticipate that that a global a tweet would have any significant impact on what we do today as you know the driver up over a business in the driver of growth is on the e-commerce side on the domestic.
Network, So I don't anticipate that sort of area to be impacted by the global trade issues.
Thank you that that's great color and just one more.
Pilot.
And the cost that you would pass on if you could provide some color if.
Discussions that you have with customers.
Sort of finished like you.
That process or is that something that's still going on I.
I think well beside the couple of customers that we are a they are doing their due diligence with us in terms of whatever cost increases, what's the impact and how we spread it out.
I think we're about 70% to 80% or have onto with all the customers and put in place.
And at different sort of.
As a cost is phased out that broke Joe well.
You know surcharges and phase as well.
But as he said that the exception of wanting to major customers that that are in the due diligence the rest have been all negotiated and.
The matter has been closed.
Thank you that's it from me and congrats on good.
Thank you.
Thank you there are no further questions registered at this time I would now like turn the meeting over him in Scotland.
Thank you Adam just can ask aim to.
Give us any last remark that he may have.
Thank you very much a again a lot of questions and hopefully Oh, you know as I said it were strategies to improve the margins and strengthen the balance sheet.
Management costs, and also manage it where capital expenditures.
Bring the leverage down to three that would be or goals and I look forward to a the next conference call, but all of you with even better results. Thank you very much of it.
Thank you. The conference has now ended please disconnect your lines at this time, we thank you for your participation.
This conference is no longer being recorded.
No. This is another said coffeehouse it does does.
55.
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Yes.
I mean.
She with funding.
I missed that 50, though.
At this conference call has ended.
Disconnect your lines at this time thank you.
Okay.
Okay.
She was pending.
[noise] assignment process before.
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Okay. That's good for that.
Yeah, she was pending.
[noise] I missed out on 50 for though.
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Okay.
The timing.
Okay.
Yes.