Q1 2021 Cargojet Inc Earnings Call
Yes.
Good day and welcome to the cargo Jet 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 Dhillon, 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 eight Jade Rahmani, our president and Chief Executive Officer, Jamie Porteous, Our commercial officer, our Chief commercial officer apologies Sanjeev money, our VP of finance and John Kim our previous financial Chief Financial Officer encourage.
Lee of consultants of cargo jet.
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 the applicable securities laws. This call also includes references to non-GAAP measures like adjusted EBITDA and adjusted EBITDA. 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 Hav Manny.
Thank you Pauline and thank you everyone for joining us this morning.
Although there is much progress being made on the Vaccinating the Canadians many countries, including Canada, India, and Brazil, and Europe are battling the third wave of Corona wireless cases.
And there isn't the race to vaccinate their citizens.
One thing we have learned for sure is the COVID-19 is a formidable enemy.
And until we get the majority of the global population vaccinated, the economic progress will be somewhat uncertain.
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 of cargo jet for the dedication.
Supporting our customers who themselves are going through a massive change.
Like many other companies cargo that is also adopting 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.
Yes.
Many experts are calling for the future to be of 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 of necessities online they liked it the routine bad habit.
Yet they might want to go out for of shopping the items that gives enjoying and retail therapy.
So there is room for both.
Now, let's turn over to quarter one results for cargo.
We delivered solid revenue growth of 30% adjusted EBITDA growth of 44 per cent and.
And we generated $35 2 million and adjusted free cash flow of 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.
Why large retailers already had strong e-commerce platform and capabilities. Some businesses were not fully prepared for the digital economy and the digital change.
Now it turns up.
Thousands of small businesses have discovered the opportunity that the digital economy.
Presents great opportunities.
So for the E Commerce of evolution was driven by the consumers who were pushing retailers the move online, but the pandemic has for.
Fundamentally change the.
This equation.
The next phase of e-commerce, the evolution will be merchant led.
Thousands of new businesses have started doing.
During the past year and that.
Never even considered.
Okay.
The brick and mortar store.
This changes the shopping equation fundamentally.
In Canada e-commerce as per cent of the of sales has doubled from 7% of 14% and even more.
Within less than a year.
But still it is far behind the U S Europe and Asia.
Canada is still a lot of catching up to do.
With much of Canada retail or services business, there's still close the B to B segment continues to lag behind the B to C. SYGMA segment.
The growth of the 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've 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 kony 'twenty results to become the new baseline, we do expect the significant shift up.
Upwards from the pre pandemic volumes due from the new baseline.
Recognizing this new reality congregate has spent the last few quarters laying the foundation of the capture the next phase of E Commerce growth.
Number one airline in line with our previously stated goal we have significantly strengthened our balance sheet.
Down the majority of for debt, thereby significantly reducing our leverage.
Number two as you move past the pandemic, we will be refocusing of our efforts on cost efficiency and productivity.
This area of definitely took a backseat and a big hit as we focused on scaling up our.
Every part of our operation.
To meet the customer demand 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.
As for the right reasons.
And we certainly cannot hide behind the COVID-19 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.
Of course, there's toward the 25 aircraft at the end of Q1 last year.
The recently acquired of 757 200.
The meat 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 of 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 cost of the foods have gone up substantially.
Some of it because of recoverable and some of it is not.
And we are doing a thorough analysis to ensure that.
Are the numbers that we have added can continue to serve the demand we have on hand, and also we continue to work with over a pilot leadership and transport Canada to find.
<unk>.
Synergies and solutions that balance between safety and commercial viability.
We broadened our portfolio of services and announce the.
And the expanded relationship with Amazon Amazon.
And we are investing.
Wrapping and retaining top talent by key functions across the organization.
But shifting supply chains triggered by a significant reset of international passenger route.
We also see opportunities in the market share.
And select international late on select the International Inc. Transportation logistics space remains highly volatile and we are constantly adapting to maintain our leadership position.
We're also making progress on developing.
Our robust international growth strategy, we got him Touchette enthusiastically.
Awaiting delivery of additional aircraft.
Which are five of 760 sevens.
And within the next 18 months.
These will be deployed selectively on the 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 aircrafts to be sitting idle even for a day.
The reliable belly capacity on international routes. The main tight and we are confident about the opportunities presented by the scenario we have no idea of when.
The normal cargo business and belly of aircraft is going to be normal, but with the reduction of wide body fleet by many airlines.
Certainly envision a shift.
All of this product that was traveling on passenger aircraft before towards the cargo aircrafts.
We had also.
We also continue to see.
Peak and investment and presence and number of use.
S market.
The growth in the U S market is tremendous there is many routes and many areas that we cannot cover with our current license arrangement and we continue to seek of U S partner for all of our growth strategy across the border as many of them for our customers in Canada are also customers.
The us.
Thank you very much for being here today and now we'll open the call for questions.
Thank you Sir if you would like to ask a question. Please signal by pressing star one on your telephone keypad, if you're using a speaker phone. Please make sure. Your mute function is turned off until the law.
Now your signal to reach our equipment.
Again, Please press star one to ask a question, we'll pause for just a moment to allow everyone the opportunity the signal for questions.
Thank you our first question will come from Walter Spracklen of with RBC.
Yeah. Thanks, very much good morning, everyone. Good morning.
So I'd like to ask a bit about the cadence of your of your your volumes by each of your each of your major segments, a J, obviously, you're having outsize growth compared to outsized growth compared to prior periods of prior periods, a little harder to use as a gauge, but you you let's start with domestic.
You know typically you do better in the second quarter of around the same maybe a bit better than the second in the second quarter than the first and then kind of ramp up from there as we go through the year is that a fair trajectory here was there anything in the first quarter that was abnormally lower or higher.
That you would call out or or is the cadence on your domestic essentially going to be kind of around that that's similar path.
The Walter it's a it's a very good question and it's kind of a tricky because to be honest with you. We do get estimates for of mobile customers are we used to get them well in advance and now it's like a week of five days in advance of what they were anticipating it depends it depends a lot of b to B business is open for a while then.
The traffic mix changes the forecast changes and if its strictly a b to C type of stuff with the very different mix.
Do we honest the juice for being the most unpredictable times we're in.
I wish I could answer your question and say what do I see in quarter, two and I would say that at least I think without sort of making any advanced gases or any guidance are we anticipate from what we have seen in the market to at least be.
The equal to or close to you know quota.
For the one so.
Jamie you want to comment on that.
Yeah. Thanks C. J. Thanks for Walter just to add to <unk> comments and the only thing that would impact I would say the trajectory of similar as they did suggested for Q2 from Q1 on the domestic side with one condition, the lockdowns in Ontario, and Quebec, certainly, particularly in Ontario, and you may have read through some of the Amazon facilities were closed down because of the.
So those are definitely had an impact on the Oh, we'll have an impact on Q2 volumes and then the other.
I assume the Q2, and then Q3 kind of is a little slower and we drove up for Q4 and the traditional year of the other thing that's a little different the will have an impact. So I don't think you'll see it in Q2, but certainly in Q3, when we start the operated two dedicated aircrafts on the CMI basis for Amazon.
We also have an impact on the domestic volumes.
That was where I was going with the next next slide there Jamie show.
You've got the base volume, but I know AJ last quarter. So the price will be different of the first half versus the last half of them.
So you do have the new business coming on but presumably you have of price ramp as well so cadence for revenue on the H M I.
You know likely to again go higher on the basis of both of those.
Yeah.
None of them well on this on the domestic business you know there'll be as well.
We expect the there could be some minor dilution on the domestic network as a result of us starting to fly to dedicated aircraft for Amazon within Canada on the CMI basis.
The could impact Q3 volumes, but we fully expect with growth and our year to date growth on the domestic business would reflect the fact of what usually you know still that any space. It's the caused by the dilution of D. A.
Yeah My business remains very strong for us as we noted in Q1 compared to last year of closer to 100 per cent increase is.
And as JJ was touching on in his opening remarks, we have significant opportunities to continue to grow our ACO business and really we're just waiting for the additional delivery of aircraft to be able to take advantage of that opportunity.
So far what we know.
Don't anticipate the current need domestic capacity because of those two planes that from the what forecast we've been given and toll but just as a backup if we were to get one aircrafts lose out of domestic network. We will have it within seven hours flying for a sea of money. So.
We do have a backup plan on that but we.
We are not anticipating any part as of now.
That's all the beat what we had been told.
Okay, all right well, thanks very much for the time appreciate it.
Thank you. Our next question comes from Kunal <unk> with the Scotia Bank.
Thanks, operator, and the good money everyone. The morning show.
The money agents. So you you mentioned and obviously I understand you don't guide.
But you mentioned that the ecommerce has taken a further acceleration of of the merchant based activities here.
And then now you've got this new Amazon CMI contract, which sounds like you are suggesting it's incremental it's not the kind of cannibalizing any of existing volumes here for you sort of if I look at the for the full year and end of considering again, you don't guide, but for the full year. If you think about the where you're heading out of with respect to unit of revenue and margins.
If you can share with us any color or how do you see things progress overall on the can you you.
You had a pretty big Q2 last year of them. They can you still do something similar to last year for our revenue perspective, and then the from margin perspective, I think last time. The last few times you have been suggesting you know like you were kind of in the low 30% margin range and then you know the last two what load or eat them. So so where can you be for margin perspective.
They have a bit the all kind of kind of changes you are seeing this year as well.
So let me say this to you. The Q Q2 last year was a total of total driven by every day of flight to China and PPE stopped so.
The answer is short answer is no. We cannot match Q2, unless the government runs out of PPE supplies to the Mic Tomorrow and we are asked to do 30 or 40 or 50 flights in this quarter.
So we don't anticipate I think that particular quarter for every cargo airlines around the world with the very different story.
Certainly don't anticipate.
That it will go because of lot of stockpiles of being accumulated and I don't think that people are you know going to be using ear for that product are in the near future.
No shortage of masks and PPE at this time.
However.
There's all of those new things happening whether it is.
You know the could we could have the flight flights to India for relief relief now mind you. They they don't pay their wallet, but at least it's incremental to us right. So.
That is all the dynamics in the.
Of the environment is totally changing on a weekly the weekly basis, it's hard to kind of give you what are the margins would be in what are we looking at if in the next four to eight four weeks the margins I mean, the business comes back more b to B to C type of business.
I'll be the B type of business Oh, we can anticipate.
Some higher margins in some some extra volumes.
But also we do have a you know what the number of pilots of we brought on we do have chartered capabilities a lot more than we had in the quarter. One and we are hoping that there will be some increase in that business as well. So overall you know if I had a crystal ball of guessing guessing at.
You know.
And I would imagine that the quarter two would be.
Pretty similar to quarter one.
Close to it within fly where 10% of either way, but we're not anticipating the quarter two would be what it was in 2022, unless the world of change on us and none of us want that to happen. So.
We'll be happy with the if he can.
Many of the sleep maintain what we're doing today.
The that's great but of the page you. Thank you and then the coming to the fleet side. So you're getting I think the first of all of the 5767 months in Q4. This year and then I think supposedly you also added one or at least an LOI for a Boeing 757. This year. So curious how the.
To your thoughts and do you know how do you see utilizing those two aircraft the Boeing 767 of them going sounds like some of them. This year of initially and then ultimately.
Yeah, So ultimately I mean the.
We are looking at the 757, because there was the demand.
By one of our ACI ACI my customers like as of yesterday.
This was not even out of our plan. We were asked if you can operate an additional flight on a certain route and we.
It didn't have any aircraft the do it but we found.
Luckily in aircraft that was just being converted and we were able to purchase out of aircraft that at a reasonable price.
So that would be deployed and the nature of my environment as soon as we get up of hands on it will be probably end of the end of the may.
And the future aircraft. The 767 that comes in on a end of Q4.
Primarily it will act as a peak aircraft because of November and December of capacity Crunch.
Going to be Oh, there's going to be a lot of demand at that time for at last year. We had to do a lot of double returns and we got to really create magic to keep up with the peak our primary purpose would be the server existing domestic customers to make sure that they have the peak capacity.
That's being of a bread and butter and we want of don't the lateral of customers down and right. After a peak Q1, Germany Q1 in January.
We plan to deploy that on select international routes like South America, Europe and and.
And Latin America, Mexico, but keep in mind that corner. We also have availability of aircraft on the weekend like we at any point from Friday to Monday rehab for additional aircrafts. So all of our international strategy will not just depend on the one spare plane that we have.
Getting.
We would also start using our equipment on weekend as we have done in the past couple of years successfully to have some dedicated international growth starting September October.
So.
Plan for the next five aircrafts over the next four aircrafts that we are signed up over the next 12 to 18 months is that our first.
See if there is of demand in domestic that we need to increase which we are not anticipating because we also have some spare capability.
The second part of it is.
If there is enough for yields and the market rate stay high as they are today, they will definitely go into retail.
Some of it will definitely go into retail international depending on the market. If it was if I was for making that decision today definitely with no belly capacity at the rates almost double than what they were supposed to be a we would have no problem filling those on in the national dedicated route but we also.
You have a backup plan if that is not the case, we are already in discussions with a couple of customers on a CMI basis, who have already committed to taking majority of the five 767 the minute they come out so.
That is a nice problem to have when there is.
More demand in the less aircraft in today's market. He probably had five extra aircraft the konak there'll be sold today. So we.
We do we do all of his plan.
Number one where can we get the highest yield and continued serve over existing customers and number two is go after the new markets a number of tweak.
You know expand some of the issue of my stuff, we have so in all three areas.
Feel pretty confident that I know there were some questions about have you got these contracts for seven and $5 seven well I can tell you today I don't have a contract, but it's up to me if I want to sign one because I want to wait it out and see what's the best option for me to sign but deploy these aircrafts. So that does not give me any sleepless nights whatsoever.
As a matter of fact, you of a nice problem to have.
Now that that's of great color.
Just to clarify is that 757, a CMI customer can kind of be at your best DHL or it could be something else. Yeah. So you know it could be DHL. We also have another.
In other customer in the mix, which.
I was just can't talk.
Talk about it right now.
We also keep in mind that.
757 might not be the aircraft that goes to the child, we might be able to depending on or are there any of the customer we might have to switching for the 200 or the 300 and redid the network and if this one fits in domestically better we put it there so that is on the planning table right now.
And depending on you know what we can free up by adding that can we.
Have more efficiency on our domestic network with adding the 757 and freeing up of 767, 200, ER, which gives us more revenue outside of those are some of the things are the modeling is being done right. Now. So we haven't decided the type of aircraft that will go the way CMI, but certainly within the next 30 days, we will have that decision.
That's great the perfect I appreciate the time.
Yeah.
Thank you. Our next question comes from David Ocampo with <unk> Securities.
Okay.
Good morning, everyone.
Good morning.
Hey, Jay can you remind us if you of any other contracts that are up for renewal over and over the next few years other than probably most importantly, you know based on your experience with the RFP process with Amazon.
Can we can we expect a lot of competition, particularly from the passenger airlines.
Well, we just concluded the deal with Amazon, which is a four year deal with the.
Three two year options.
So we the Inc is not even dry on it so don't expect that to be agreed discussed or non out for RFP or a renegotiation of any anytime soon.
We also have a strategic relationship of warrants with them.
So you know.
Looking at both the factors, we don't expect that you.
Unless we cannot service, Amazon, which which I find that it'll be.
No absolute disaster.
And it's not going to happen I don't see any reason why of that Amazon.
The service, they're getting the value for the money. They are getting the past six years of relationship our proven track record of the one ground handling of.
Our trace and track and and I tease totally embedded in them are we giving them the value for the money and I think after a year off looking at the Canadian marketplace. The selective congregate to fly those two aircraft for their the additional growth and to be honest with you.
It was kind of great for us because it gives us $80 million a opportunity to free up the cash in and develop other businesses with it while maintaining Amazon So I don't anticipate.
That would be the case in the case of Amazon, We don't have any contract renewals for 2025 for now at least for years from now.
And then just.
Building on the Amazon contract have you I know, it's not diluted to your.
Network, but have you gotten any pushback from Canada to postpone that.
Well when I say, it's not dilutive.
You know we have Jamie had mentioned earlier there could be initially as we learn where the business is coming from where it is going it will take at least three to six months for forecast and things to settle down. So we could face some minor dilution, but the thing is it'll be made up for the additional volume growth that they have told us they are anticipating.
So just want to clarify that on it.
The second question is that would that have an impact on Canada on kind of pose a rehab.
We have been told that this is for the the additional growth and we've been told by Amazon.
But this is not cannibalization from you or others.
But I do I have a solid guarantee that it's not going to have an impact on their volumes.
I can't guarantee that but from what we have been told the principal of the deal is growth.
Simple off deal is not taking from left pocket to right pocket.
That's great and then finally for me here, you know acquisition opportunities for flagged and the I think.
It has been for the last few quarters.
What are you seeing out there in the marketplace and is there any specific area or geography that they're looking at I know you mentioned.
In the U S partner.
What are your interest lines now.
Yes. We are you know we have that's how we're sort of growth area because the number of our customers. As you know they are American they also have need for cross border and international which we've been doing with the Canadian license, but then there could be of flight that goes out of Cincinnati Miami.
In Panama that we can do because we cannot do the Cincinnati Miami sector.
Because that has to be done by the U S carrier and so you know there are many examples of those kind of routes that we cannot go after and since we do have a.
Great customers.
Who rely on us on a 10 of 11 planes for CMI flying internationally out of the U S.
But we've kind of handicap with not having an investment of licensing.
In the U S carrier.
You know we are.
Looking at that opportunity very seriously because we feel there is a lot more opportunity to place aircraft and to have an ownership position, which meets the D. O T and FAA requirements of 25 per cent of investment are the.
Company will seriously.
Pursue that over the next quarter or two.
Do have an investment that gives us another outlet to sell of a products and services and expand.
And what leverage are you comfortable going up to I know you've gotten it down to the very very reasonable level, but just trying to get a sense on the order of magnitude on how much capital that you guys have to deploy.
If we were to look at the U S carrier, it's not going to be a huge capital investment to be honest with you.
It would be more of a startup were not yes, we've looked at many of their.
It doesn't of V go by when the U S carrier doesn't want us L. A but our idea is to we do have the strength of the backroom operations of cargo.
So which can be with some modification of an FAA approval of we can use on an American carriers. So we don't anticipate the spend you know of.
Hundreds of millions of buying a company unless something very good came up I should never say never but of our initial thoughts are that we're going to invest in a small license more than a carrier and and for white of her backroom capability and utilize the overhead over there so that we get the synergies and we are not paying for some.
Thing.
That is already built because we are fully capable off within three to six months or of year to get it up for the standards of hardwood yet and enjoy of or growth in the U S. So I would say.
Anywhere our investment in this project to be between.
And that's strictly.
I guess for no more than.
Between five and $20 million type of number so we're not looking at any any huge numbers of this the dog.
That's great color. Thank you so much of I'll hand, the call over.
Yeah.
Thank you. Our next question comes from Kevin Chiang with CIBC.
Oh good morning, Thanks for taking the good morning camps here good morning, a J.
Maybe just the way back to a comment you made earlier about especially of kind of transition out of the pandemic no focus will turn to.
Maybe taking out some of the of course, even occurred as you as you manage through all of the past 12 months or so.
Do you have a sense of what structural costs, you can take out of out of the business today or they've been in other ways or is your margin. You think you can get to on your current revenue footprint just based on some of these cost efficiency initiatives.
Yeah. So you know just to give you. An example of Kevin I mean this is all scattered over of course like for example, you know when you are getting the additional volumes, we are not able to hire many people because of the pandemic people don't want to work because they're getting their government of allowances. So we have to rely a lot on overtime and every every direct.
And so that cost skyrocketing, so I think when things return towards normalcy Ah if.
If the volume businesses increase we can hire people at normal value Robyn.
You know Boeing over brains on overtime for example.
The cost of PPE that we are bearing the cost of testing that's going on but we have private testing that's costing us a lot of money.
For the employees.
We're also giving.
Giving out of various incentives for people to continue to stay healthy Ah. We also have a certain routing cannot be done on certain planes because of certain COVID-19 situations in certain countries, we cannot fly or get charter opportunities example.
The certain places in Asia because.
Of breakouts in certain countries. So the so our crews are being are staying in Cincinnati a lot of crews are staying in the Cincinnati the hotel cost we.
We don't have for example of direct commercial flights to transport out of crews to Cincinnati are on a daily basis because of the twin stops and by the time they get there.
They've lost their day, so you know.
As you know part of good yet has to two challengers and that was the intent of these are we are you using those challengers.
Six days of week to transport 12 pilots of Cincinnati every day and bring type of 12 pilots back. It is of course the affair, but it gives us the efficiency and ability to serve the customer at this time. So a lot of Pos have creeped up on us.
Because of the pandemic and how we had to work things around to continue to serve our customers who depend on us on a daily basis. So.
There's a lot of these costs that we need to really look at as things ease and the vaccination comes in and and brings back the business through normal.
No you know when the business comes through normal of the cost.
Every cost always disappears, but our aim is to identify those costs and work with all of them and.
Get the best out of the what we used to be before but with that also would that change there might be some kind of a balance between volume like so if it is.
Today.
You know lets give it. An example is the 10 million pound of week on certain lane it might only be nine and a half million. So there will be some volume adjustments and revenue adjustment and if we did not make.
The adjustments for cost and the revenue adjustments are being made by the marketplace are we will not be very prudent then obviously, so we want to make sure that we address the cost issue, yes, there will be some gains but it will also be some games wiped out by the lower volumes. So.
Just wanted to make sure that it's.
It's not just the cost out of going to come out we are also anticipating.
Some of this stuff.
Stuff, that's flying because of COVID-19.
You know Mike might get reduced as well.
Okay.
That's that's great color.
I'm wondering you know as you sit here today, I mean, it's pretty clear.
We're facing more demand than you have capacity and people are scrambling.
The dislocation of the airfreight market today.
Are you seeing or do you anticipate or maybe I'll just put the strike are you seeing any changes in the competitive.
Or customer behavior for example, our customers where they prefer to have a shorter contract now because they don't want to lock in elevated rates today versus maybe what you saw pre pandemic of you structurally seeing no more.
Passenger airlines or competitors look to ramp up capacity to take advantage of of maybe of structural decline in belly capacity over the next few years here.
And what you're seeing in the <unk>.
Broader market from a competitive perspective, as you talk to customers and as you kind of think about it.
Filling in the capacity you you you you're investing in today.
Yeah. So it depends on the segments of the business our domestic no I don't think we've seen much change in the customer contract type of discussions.
Cross border and international flights are always.
You know different story.
They are kind of not as iron clad as the domestic customers for a longer longer term, but for example, some of the contracts we have an HDMI you know for.
The flying a route from Cincinnati to Mexico.
And it takes $200 a month you know they have the option to deploy the $200 somewhere else. So when you are on the preferred carrier list Oh, we have flexibility it doesn't matter, where they make us fly the airplane they pay for it they can fly anywhere. So I mean, the contract durations are certainly not five for seven years.
But they are certainly longer term than that any they're not like 30 day contracts either.
So there's somewhere in the middle and also.
They have the right and we have the flexibility that those routes can be shifted to other routes out of the customer demand. So international and those kind of services are always a I would say medium term contracts not short term contract.
And that has been the trend even prior to the pandemic and you know that's the market. We have not a we are actually we started with one plane with DHL for 15 years ago and now we're up to 10 or 11, so over the track record of of growth we have been the number one performing carrier.
And you know.
We are hopeful that.
The these are not short term AR, that's what we've agreed on and we continue to grow on that but yes on the international and transport of markets in Asia. My the contracts tend to be not as long as the domestic contract.
Okay. That's very helpful. That's it for me, thanks, and congrats on a solid start for the year here.
Yeah.
Thank you. Our next question comes from Chris Murray with ATB capital markets.
Thank you.
My first question is really maybe thinking a little bit about some of the BBB traffic that you guys are seeing I'm, just wondering I guess of couple of things one.
When we saw the shutdown of the Suez and there was some discussion around folks kind of rushing around but there's also a lot of discussion around supply chain and I'm. Just wondering as we go into the back half of the year and we get economies reopening.
Your thoughts around how much of that volume mainly.
So for a CMI or how much you might be interested in picking up through charter to try to to try to.
Do maybe both of you can't.
Yeah. So so we have seen some increase of charter activity because of that I mean, the obviously the problem has been solved now and things are moving freely.
We have seen an uptick in the international charter activity at least from the quote standpoint.
I mean, I wish we had more capacity to do those of you know where aircraft per fully deployed at this time.
And.
Certainly have taken advantage of some of those are one off opportunities as the other crew and aircraft are pretty busy doing what they do.
But anytime we have been able to sneak in those charters, we have but I really don't think that would be of permanent.
The permanent situation.
Okay Fair enough and then just one quick housekeeping question just stock comp in the quarter.
Moved up materially and I know your you know culinary noted as part of your adjusted EBITDA was just sort of kind of a one time thing or is that something we should be expecting as I kind of normalized run rate for the rest of the year.
Ah well you know, we we looked at that the definition of the EBIDTA for the stock comp and what the what it is is the basic distraction because they have no operational significance.
And if we were to look at 2019, we would have been 4 million Bucks of had if we look at.
2020 of that would've we would've been 20 million 10 million of 9 million down.
And it has no operational significance and we then we are consulting over auditors, we looked at some of what some of the other companies are doing.
And from now on we have adopted a policy that since it does not operate the effect or have any impact on the day to day operations and the numbers of mixed in with those.
Kind of a distraction when you have three or four of $5 million of gain or loss, it's really immaterial at the end of the day, but it takes away the focus from what is the operational income what are the operational statistics, and we decided to adopt in line with most of the companies are doing not to include those.
On the EBITDA.
Okay, sorry, so just to clarify this wasn't the new issue. This is more of a mark to market.
Of the of the obligation yes.
Okay. Thanks, that's helpful. Thank you.
Thank you. Our next question comes from Matthew Li with Canaccord.
Hi morning, Gents Martin of mine.
Understanding is of the growing <unk> market and international opportunity.
End of gives you an opportunity to extend the number of hours that each plane can operate per day.
Do you have the target as to how many block hours of your planes you want your planes of offering.
Well I mean, the target what what is the what ideal wish I mean, the ideal wishes that we could fly the planes for $80 a day, but that's certainly not you know possible because you need the downtime for maintenance otherwise you could fly these end.
Then you would not have the performance end and everything will Oh Hell of a break lose so.
You know if we are if any of our planes can do anything between 202 hundred 50 hours a month, that's a pretty good average for us to attain.
Alright, Thanks, and then maybe on pricing you know it appears that cargo revenue per pound was moving kind of in the right direction in terms of growth.
Despite the declining AC of my pricing.
Can you maybe talk about how improving domestic pricing can offset some of the declines across the other segments for 2021.
Yeah. So you mean, the domestic can offset basically of my pricing.
Yes, correct.
Well keep in mind the easier my pricing is never going to be high because that's you know that's the full load we handle for the customer.
We also.
You should also look at that the AC my pricing, it's pretty easy ice cream of wheat, or we don't take the commercial graph.
We make a certain margin, we're happy with it and we fly for a particular customer.
The domestic market is a very different market, where the pricing is for Paul.
The the contractual commitments, where people buy certain space because they want to make sure. They have the space in the peak they have the space.
And in certain spikes and go going back to school sales and and you know.
The peak time, there was a lot of events that happened during the year, where people buy of government gear and so there's a lot of space that is protected and that's why you were able to get a lot of higher.
Revenues out of domestic we also have a one way market in the country as you probably know everything is export it from here to basketball was kind of the east coast hardly anything comes back so that has to be priced in into as well. So are the country being so large country being one way of Traffics.
If you go to U S. You will have L. A Seattle and Seattle of late like both sectors of full of New York, Seattle, and Seattle, New York, both sectors of full of we don't have an industrial bases in our country that can fill out those and the hence the domestic.
The numbers are always higher than.
Any other part of the world So.
You know to say that we can get higher domestic revenue is to offset the AUC of my charter business are AC of my and charter business, it's not the right way to look at it because he CMI and charter business, we compete with international and U S carriers, whereas the domestic we got only.
Competing right now with domestic.
Wide body aircraft wealth last day at array of Canada. So.
It's a very different landscape.
So I would not a mix of the two up in terms of trying to balance of the yields out of part of the reason hardwood yet diversified its business is what.
For us to take advantage of our infrastructure of of people of or facilities and other aircraft. Our know how of our I T to say now are we gonna go into each of my nor are we going to go into international and as I had mentioned you know in my last couple of calls that adding a CMI and international.
It was a no brainer because for US it was just like when Mcdonald's, we're serving lunch and dinner day added breakfast to it so for.
For us it was no real increase in cost.
In terms of infrastructure and people.
But we were able to capture those revenues, so that was ever philosophy and and.
You know it wasn't certainly done too compensates for the yields are with each other it was strictly done to increase the overall yields and.
And diversification silver business is not dependent on one of the lineup.
Segment.
Alright, thanks, so much.
Okay.
Thank you. Our next question comes from the current Cameron <unk> with National Bank financial.
Hi, good morning. Thanks.
Good morning.
Just maybe a few quick cash flow.
Questions for me one is just on the I guess the buyout of the finance leases.
There's probably some detail.
In the MD&A and I'm just can you just.
The indicated how much of that is left.
For for this year or the magnitude of that.
Yeah. So do you have that number of John.
Okay.
Yeah.
Yeah, John sort of go ahead sorry.
For this year, we will be buying one the aircraft and that would be around 15 million and then one we will be then the second one is in 2023 and the third one is in 2027.
So.
For this year it will be Oh.
The 10 to 15 million of all of them.
Okay. So that's what's remaining in the.
And can you just maybe update us on I guess the ease the the the capex expectations for the for the full year 2021, and any I guess further commentary around the timing of the I guess capex requirements for the for the Triple Sevens that are coming down the road.
That's the John you're one of them Yeah, I'm sure you know, where we're estimating about $90 million of maintenance Capex and then probably about another 100 to 115 of of.
The growth Capex.
And really the.
It could be higher if we if we end up buying some feedstock for the triple Sevens.
The total Capex this year of $2 25 to $2 15.
Without buying the feedstock for the triple seven with the Triple Sevens, where where are potentially looking at you know not having two of the buy the feedstock.
You know until much later, so the majority of the spend of call. It 150 million of Canadian for the tune of Triple Sevens will be in probably late 2022, and then throughout 2023.
And John that will also include the five new 760 sevens out of it being converted right. Yeah. The five 767 of the start conversion. The first one is inducted the snake and then it's basically nose to tail every day.
Five to six months, we'll get another one.
So that spend.
Roughly yeah.
I think $30 million U S per aircraft for being sort of fairly even starting in the mid part of this year and then extending.
Extending out to the to the end of 2022 beginning of 2023.
Okay. So if I think about 'twenty 'twenty two capex.
Excluding the triple Sevens, because that the timing is uncertain, there, but I would I would guess it would be lower than that 225 to $2 50 number in 2020 one is that fair to say.
Yeah, I think so it might it might be similar depending on the timing of our maintenance capex because as you know the maintenance Capex is driven largely by engine.
I think it will probably be a pretty light year next year, so yeah, but we won't have the.
We can probably give you better guidance for next year once we get into the latter half of this year, but you know typically where we're looking at $80 million to $90 million per year of maintenance Capex.
Next year with the trip with the 760 sevens, probably at least another hundreds of millions.
Okay got it okay. That's great color, thanks very much.
Yeah.
Thank you. Our next question comes from Michael <unk> with BMO capital markets.
Hi, guys.
Just a just a quick one for me can we.
Think of this all in charter as a rough run rate for coming quarters or is it still fluctuating quite a bit.
Yeah, I think it's still fluctuating we've done some flights to kind of China and a few other countries.
It's on and off with the kind of unpredictable.
You know we do have.
The good sort of bookings for the next month.
Wanted to.
And it's one of those things that you know if you had a normal year, we know of charters, we get and we get them here at the demand base, especially for if it's the medical supplies and COVID-19 supplies, they take priority over the normal charters.
You know, obviously, we don't let of our customers down and we find a way to get those done.
But I anticipate that the charterers would be.
No less than what we did in the first quarter.
Okay. Thank you.
Thank you. Our next question comes from Ramsey neither of them with State Street Global Advisors.
Yeah.
Yeah, Hi, good morning, I got a couple of for follow ups.
I was just saying just the cutting b to b volume compared to a pre pandemic level and the only choice possible can you give us the broader mix of b to B and B to C volumes in Q1.
Yes, Jamie.
We might not have the exact sort of statistics and numbers, but I think Jamie can give you the general color on it.
Yeah. Thanks James.
Correct I mean, when do you have to appreciate as we don't have the direct visibility with every customer most of what percentage of current businesses is strictly be the be in which is b to C. There's most of them participate in both spaces, but obviously there would be the see business is growing if you looked at pure later, that's one of our largest customers I think of you in a high part of it.
COVID-19 pandemic, they have publicly announced that they expected the.
Over 50 per cent of their business would be represented by the B to C. Within the next five years I think that's that they would say today that that's definitely been pulled forward by several years and they would expect to be.
Not at that level now certainly at that level within the next year or so the.
The downturn the impact on the beat of the volumes that we saw that started really in the March and April of 2021 of the pandemic started shutting down.
Parts of the economy across the country.
I had a profound effect.
On the if a customer was what's the.
And the beat of <unk> business.
Looked at somebody like brink's or or initially.
Initially one of the transfer of companies Icf's insurance producers that were at one point strictly in the PCB business. Their bodies are probably down by 60% and then they sort of came back in the summer of 2021, when the when the economy started opening up again, the cross Canada and again.
So strong peaked here I would say normalized peak period in terms of BBB volumes, but then we see not as dramatic of downturn as what we saw initially in the in the second quarter of 2020, but certainly see a negative impact of the most people would be volume because of the continued shutdowns, particularly across Canada.
See you know the vaccines rollout and the economies are coming out of Lockdowns, we fully expect with volume to come back like I would think by Q4 at this point.
Thank you the screen, maybe one more question quickly.
Any other structural shift oh, the contraction in the client sort of moving from.
Passenger aircraft to the cargo players given the uncertainty in the passing of the belly capacity I mean broadly speaking in the industry.
Hi, Jim.
Yeah, no we definitely see.
The significant structural shifts there has been.
The prior to COVID-19, and as we've said many times over 50 per cent of the world's air cargo traveled in the belly of the passenger aircraft, primarily widebody passenger aircraft check them.
Operating unit interest.
Continentally and internationally you've seen the significant decline obviously in the frequency of that subsequently you've seen most major airlines around the world of especially the large global ones like Lufthansa KLM British Airways and here at home with the with Air Canada already announcing significant early retirements of big part of the significant parts of their fleet primarily the.
The wide body aircraft that had no huge cargo carrying capabilities. In addition to the passengers and the carried on the main deck. Those aircrafts are not coming back into service anytime anytime in the future of if they're announced the the early retirement of those aircrafts. So that's created significant Boyd and the significant opportunity for for.
For companies like cargo Jets that are operating dedicated cargo aircraft to continue to grow both RAC of my business and two of <unk> to expand our international scheduled commercial business.
That kind of thing.
Thank you very much.
Thank you I'm currently showing no further questions in the queue I would now like to turn the call back over to management for closing remarks.
Yeah. Thank you everybody for joining a.
Sincerely appreciate the support we received from the financial community are too.
As we call it 45 of our balance sheet and.
Hopefully we continue to grow with this kind of support for more customers of our investors and our employees and I want to thank each one of you for participating and great. Thanks for my team for making.
The quarter one of great success. Thank you very much.
Thank you ladies and gentlemen. This concludes today's teleconference. You may now disconnect.
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