Q4 2023 Cargojet Inc Earnings Call

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[music].

Operator: This conference is being recorded. All participants, please stand by; your conference is ready to begin. Good morning, ladies and gentlemen.

This conference is being recorded so it's closer to home as it always is.

Okay.

All participants please standby your conference is ready to begin.

Good morning, ladies and gentlemen, welcome to the cargo Jet conference call I would now like to turn to meeting over to marching Hermann. Please go ahead Mr. Herman.

Operator: Welcome to the Cargojet conference call. I would now like to turn the meeting over to Martin Herman. Please go ahead, Mr. Herman.

Martin Herman: Thank you. Good morning, everyone. My name is Martin Herman.

Thank you. Good morning, everyone. My name is Martin Herman I am cargo Jets General Counsel and corporate Secretary and thank you for joining US today on this call with me on the call. This morning are AJ, Vermont, Our executive Chairman Pauline Dhillon Co Chief Executive Officer, Jamie Porteous Co Chief Executive Officer, Scott <unk>.

Martin Herman: I am Cargojet's General Counsel and Corporate Secretary, and thank you for joining us today on this call. With me on the call this morning are AJ Vermani, our Executive Chairman; Pauline Dillon, Co-Chief Executive Officer; Jamie Porteus, Co-Chief Executive Officer; Scott Calvert, our Chief Financial Officer; and Sanjeev Maini, our Vice President of Finance. After opening remarks about the quarter, we will open the call for questions.

Alber, our Chief Financial Officer, and sang Jeez, maybe our vice President Finance.

After opening remarks about the quarter, we will open the call for questions.

Martin Herman: 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 information within the meaning of applicable securities law. This call also includes references to non-GAAP measures like Adjusted EBITDA, Adjusted Earning Per Share, and Return on Invested Capital. Please refer to our most recent press release and MD&A for important assumptions and cautionary statements relating to forward-looking information and for reconciliation of non-GAAP measures to GAAP measures. I will now turn the call over to Aja.

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 information within the meaning of applicable securities laws.

This call also includes references to non-GAAP measures like adjusted EBITDA adjusted earnings per share and return on invested capital.

Please refer to our most recent press release and MD&A for important assumptions and cautionary statements relating to forward looking information and for a reconciliation of non-GAAP measures to GAAP measures I will now turn the call over to AJ.

Aja: Thank you, Martin, and good morning, everyone. As you know, I stepped into the role of Executive Chairman effective January 1st, 2021. I'm extremely pleased to end the year with strong Q4 and full year results. This is extremely gratifying, given the economic backdrops we faced in 2023 and the industry-faced downward trend. In my 22 years as a CEO, I have lived through three major economic cycles, and each time, Please see the complete disclaimer at https://sites.google.com or at https://sites.google.com, But running a business is a team sport. There is a tremendous Cargojet team behind our long and successful track record. Every single employee at Cargojet is passionate about customer success. While I continue to work on strategic initiatives at, as Executive Chairman. And I'm truly lucky to have two incredibly talented leaders, Pauline and Jamie, stepping up to take on the role of co-CEO. Both these leaders have worked hand-in-hand with me and have been

Thank you Martin and good morning, everyone.

As you know I stepped into the role of executive Chairman effective January 2024.

I'm extremely pleased to end the year with strong Q4 and full year.

This is extremely gratifying given the economic backdrop backdrop, we faced in 2023 and the end.

Industry faced downward trend.

In my 22 years as a CEO I have lived through three major economic cycles and each time the company has to come out stronger.

But running a business is a team sport.

There is a tremendous team hardwood yet behind it was long and successful track record.

Surfing.

Every single employee at cognizant as passionate about that.

Yes.

While I continue to work on strategic initiatives.

As executive Chairman.

Who really lucky to have two incredibly talented leaders Pauline and Jamie step.

Stepping up to take on the role of co Ceos.

These lead you guys have worked hand in hand, and with me and have been.

Aja: Battle-tested over the past 22 years, together we have seen plenty of highs and lows and have always found solutions to challenges, no matter how difficult the task. Their high energy combined with deep industry experience makes them ideal co-CEO partners and takes Cargojet to the next level. Therefore, it is only appropriate that Pauline and Jamie provide you with more details about the business, various initiatives, and our preparedness for the future. I will pass on the call to Pauline.

Battle tested over the past 22 years.

Together, we have seen plenty of highs and lows and have always found solutions to challenges.

No matter how difficult the task.

Yes, Hi, energy combined with deep industry experience makes them ideal co CEO of partners and.

And take cargo jet to the next level.

Therefore, it is only appropriate that fall in and gave me the way you with more color about.

Both the business.

Various initiatives.

And our preparedness for the future.

I will pass on the call to Paul.

Pauline Dillon: Thanks, AJ. Good morning, ladies and gentlemen. Thank you very much for joining us on our fourth quarter results call. I am very pleased to be here today with Jamie Porteus as the new co-CEO of Cargojet. As many of you know, I have been with the company from day one, and I have been very fortunate to be able to play a key role in our remarkable growth journey over the past year. Just last week, we celebrated our 22nd year anniversary as an organization. I recall the days AJ, Jamie, and I sat in our offices wondering what we would name this organization. We had 20 staff and no jet. Jamie and I have never forgotten our humble beginnings.

Thanks, a J good morning, ladies and gentlemen, thank you very much for joining us on our fourth quarter results call.

I am very pleased to be here today with Jamie Porteous as the new co Ceos of cargo jet.

As many of you know I have been with the company from day one.

And I have been very fortunate to be able to play a key role in our remarkable growth journey over the past years.

Just last week, we celebrated our 22nd year anniversary as an organization.

Yes.

I recall the dates a J, Jamie and I sat in our offices wondering what we would named this organization, we had 20 staff and no jets.

Jamie and I have never forgotten, our humble beginnings, we often reflect on those moments and memories.

Pauline Dillon: We often reflect on those moments and memories. I am honored to share this role with my longtime colleague, and together we are excited about continuing to carry on the strong culture, the strong values, and the vision set by our founder and Chief Executive Chairman, AJ Vermonti. We continue to be committed to delivering value to our customers, our teams, our shareholders, and society as we fulfill our mission. I will take a few minutes now to set the context and environment we have lived through over the past few years.

I'm honored to share this role with my longtime colleague and together we are excited and continuing to carry on this strong culture.

<unk> values and vision set by our founder and Chief Exec.

Executive Chairman eight Jade Rahmani.

We continue to be committed to delivering value to our customers. Our teams are shareholders and society as we fulfill our mission.

I will take a few minutes now to set the context and environment. We have lived through over the past few years.

Pauline Dillon: To say that 2023 was a challenging year for Cargojet would probably be an understatement. After the strong COVID-driven tailwinds in 2020 and 2021, the competitive landscape in Canada was starting to change. Every passenger airline in Canada announced their entry into the dedicated air cargo business, including the introduction of their dedicated freighter fleet. Despite this highly competitive environment, we worked extremely hard and were successful in renewing every long-term contract with all of our strategic customers, reinforcing the very deep and wide competitive advantage that we have built around our business, especially in ensuring our ability to provide over 99.5% on-time performance to our customers consistently. Global air demand and growth will be very strong well into 2022.

To say that 2023 was a challenging year for cargo jet would probably be an understatement.

After the strong COVID-19 driven tailwind in 2020, and 2021 the competitive landscape in Canada, we're starting to change every passenger airline in Canada announced their entry into the dedicated air cargo business, including the.

Introduction of their dedicated freighter fleets.

Despite this highly competitive environment, we worked extremely hard and were successful in renewing every long term contract with all of our strategic customers reinforcing the very deep and wide competitive advantage that we have built around our business.

Especially in ensuring our ability to provide over 99.5% on time performance to our customers consistently.

Global Air demand and growth was very strong well into 2022.

Pauline Dillon: And with this new changing reality, we embarked on an ambitious fleet expansion plan to maintain our leadership position and shared our longer-term growth plans at our Investor Day conference in September 2022. However, as we entered 2023, it became increasingly clear that the impact of rising interest rates, Uncontrolled inflation, a slowing economy, and pullback by consumers was starting to negatively impact the entire air cargo industry globally.

And with this new changing reality, we embarked on an ambitious fleet expansion plan to maintain our leadership position and shared our longer term growth plans at our Investor Day Conference in September 2022.

However, as we entered 2023 it became increasingly clear that the impact of rising interest rates.

Uncontrolled inflation.

A slowing economy and pullback by consumers with starting to negatively impact the entire air cargo industry globally.

Pauline Dillon: Cargojet was not immune to these macroeconomic challenges. Even though we are fortunate to have long-term minimum committed volumes from our key customers, we spent 2023 focusing and repositioning the entire cost structure of our business to match the new reality of slowing revenues and protect margins. In addition, we prioritized exiting our fleet expansion commitments to preserve cash. This was not an easy task, but we are pleased with the outcome and the final step that we announced on January 15th to exit the last remaining 777 freighter.

Of course cargo jet was not immune to these macroeconomic challenges.

Even though we were fortunate to have a long term minimum committed volumes from our key customers. We spent twenty-twenty treat focusing and repositioning the entire cost structure of our business to match, the new reality of slowing revenues and to protect margins.

In addition, we prioritize exiting our fleet expansion commitments to preserve cash.

This was not an easy task, but we are pleased with the outcome and the final step that we announced on January 15th to exit the last remaining triple seven freighters Theres still a lot more work needed in this area and we will continue to further optimize our fleet in 2024 well reach.

Jamie Porteus: There is still a lot more work needed in this area, and we will continue to further optimize our fleet in 2024 while retaining the flexibility for future conversion slots and growth. We believe we have substantially unwound much of the cost hangover and successfully rationalized the bulk of our CapEx. Both of these actions have positioned us well to ride the uncertain economic climate. I feel just as excited about Cargojet's future today as I did on day one of this journey. I'm going to pass the call over to my colleague, Jamie Porteus. Thanks, Pauline, and thank you everyone for joining us this morning.

Training the flexibility for future conversion slots and growth.

We believe we have substantially unwound much of the cost hangover and successfully rationalized the bulk of our Capex. Both of these actions have positioned us well to ride the uncertain economic climate.

I feel just as excited about cargo jets future today as I felt on day, one of this journey I'm going to pass the call over to my colleague Jamie Porteous.

Thanks, Paul.

And thank you everyone for joining us this morning.

Jamie Porteus: I'm also very excited to be sharing the co-CEO role with my longtime colleague, Pauline. Despite the recent economic and industry challenges, we were still able to post adjusted EBITDA of $301 million for the full year 2023. Although a slight decline versus 2022, it has almost doubled the pre-COVID run rate achieved in 2019. Furthermore, our portfolio is far more diversified today than it was before COVID. Today, ACMI and the charter segments contribute as much revenue as our flagship domestic business. The resiliency of our business model was tested during the hyper-growth days of COVID and again in the challenging market conditions of 2023. We managed to keep our debt levels under control with a year-end leverage of 2.6 times, just slightly outside our 2.5 times target. We also successfully implemented a share buyback program.

I'm also very excited to be sharing the co CEO role with my longtime colleague Pauline.

Yeah.

Despite the recent economic and industry challenges, we were still able to post adjusted EBITDA of $301 million for the full year 2023.

Although a slight decline versus 2022 it has almost doubled the pre COVID-19 run rate achieved in 2019.

Our portfolio is far more diversified today than pre COVID-19.

Today, a CMI and the charter segments contribute as much revenue as our flagship domestic business.

The resiliency of our business model was tested during the hyper growth days of Covid and again in the challenging market conditions of 2023.

We managed to keep our debt levels under control with the year end leverage of two six times just slightly outside our two five times target.

We also successfully implemented a share buyback program, we maintained our dividend growth and we currently maintain over $675 million of available liquidity and generated almost $38 million of free cash flow during the past quarter alone.

Jamie Porteus: We maintained our dividend growth, and we currently maintain over $675 million of available liquidity and generated almost $38 million of free cash flow during the past quarter alone. A very strong balance sheet by all measures, and these will be the pillars of our business going forward, to generate free cash flow, improve leverage, reward shareholders while continuing to grow our business and our revenues. While it is almost impossible to forecast the economic turnaround, central bankers have indicated that there is progress in their fight against inflation, and they do not expect any more rate increases. Low inflation is necessary for low interest rates, and both of these ingredients will help the economy slowly gain its footing.

A very strong balance sheet by all measures and these will be the pillars of our business going forward.

To generate free cash flow improved leverage reward shareholders, while continuing to grow our business and our revenues.

While it is almost impossible to forecast the economic turnaround central bankers have indicated that there is progress in their fight against inflation and they do not expect any more rate increases.

Low inflation as necessary for low interest rates in both of these ingredients will help the economy economy slowly gain its footing.

Jamie Porteus: We have already seen sequential improvement in volumes and revenues in each of our revenue segments over the last half of 2023, which has continued into 2024. As Pauline pointed out earlier, we are well positioned to face any economic scenario. We have continually demonstrated that we can move very fast to adapt to the changing environment.

We have already seen sequential improvement in volumes and revenues in each of our revenue segments over the last half of 2023, which has continued into 2024.

As Paul pointed out earlier, we are well positioned to face any economic scenario.

We have continually demonstrated that we can move very fast to adapt to the changing environment, whether it's ramping up for growth as we did during COVID-19 or unwinding almost $1 billion in capex in less than 12 months, we're far more proactive and responsive than most.

Jamie Porteus: Whether it's ramping up for growth, as we did during COVID, or unwinding almost a billion dollars in CapEx in less than 12 months, we are far more proactive and responsive than most. Our focus on cost management, both at the direct cost level as well as at SG&A, has yielded strong progress as we drive down total block hours and overall costs. Our spare 757 fleet does add some temporary pressure on the depreciation line, but we remain optimistic and, in fact, are currently finding creative solutions to this challenge. With all of these actions to further strengthen our business model, we are even more confident in our ability to come out stronger on the other end of this economic cycle. Behind this amazing company is an even more amazing team of over 1,800 employees who are committed to delivering industry-leading, more than 99% on-time performance every single day.

Our focus on cost management, both at the direct cost level as well as that SG&A has yielded strong progress as we drive down total block hours and overall costs.

Our spare 757 fleet does add some temporary pressure on the depreciation line, but we remain off to mystic and in fact currently are finding creative solutions to this challenge.

With all of these actions to further strengthen our business model, we are even more confident in our ability to come out stronger on the other end of this economic cycle.

Behind this amazing company isn't even more amazing team of over 1800 employees, who are committed to delivering industry, leading over 99% on time performance every single day.

Jamie Porteus: The most recent peak season was one of our best in terms of on-time performance, although I'd like to thank Mother Nature as we faced far fewer snow days during this Christmas and winter season than in previous years. Cargojet is a customer-centric company, singularly focused on putting our customers first and enabling them to keep their promises to both shippers and consumers around the world.

The most recent peak season peak season was one of our best in terms of on time performance, although I'd like to thank mother nature as we face far less snow days during this Christmas and winter season than past.

Cargo jet is a customer centric company singularly focused on putting our customers first and enabling them to keep their promises to both shippers and consumers around the world.

Scott Calvert: This is what makes us successful and builds long-term relationships. It is at the core of what we do. Pauline and I are very proud to be leading this amazing team into the next chapter of Cargojet's journey. That concludes my prepared comments, and I will now turn it over to Scott Calver for an update on the business. Thank you, Jamie, and good morning, everyone.

This is what makes us successful and builds long term relationships.

It is at the core of what we do.

Pauline and I are very proud to be leading this amazing team into the next chapter of cargo Jets journey.

That concludes my prepared comments and I'll now turn it over to Scott Calvert for an update on the business.

Thank you, Jamie and good morning, everyone.

Scott Calvert: As disclosed in our January 15th, 2024 press release, Cargojet is not expecting to incur any meaningful growth capital expenditures in 2024 and 2025. With the return to free cash flow, the focus in 2024 will be on capital allocation and capital disbursement. Our four key principles will be to maintain our dividend growth.

As disclosed on our January 15th 2024 press release cargo jet is not expecting to incur any meaningful growth capital expenditures in 2024 and 2025 with.

With the return to free cash flow the focus in 2024 will be on capital allocation and capital discipline are four key principles will be to maintain our dividend growth <unk>.

Scott Calvert: Identify accretive growth opportunities that meet our margin requirements. Maintain the current share buyback program, and target our net debt to adjusted EBITDA to be between 1.5 and 2.5. For the year ending December 31st, 2023, return on invested capital closed the year at 5.8% when excluding the one-time adjustment for warrant amortization.

Identify accretive growth opportunities that meet our margin requirements.

<unk> the current share buyback program.

And target our net debt to adjusted EBITDA to be between one five and two five times.

For the year ending December 31 2023.

Return on invested capital closed the year at five 8% when excluding the one time adjustment for warrant amortization.

Scott Calvert: There are several actions in place that could improve both the returns and the level of invested capital. Let me start with invested capital, and I will again refer to the January 15th, 2024 press release. For 2024, net capital expenditures are planned to be in the range of $60 million to $80 million.

There are several actions in place that could improve both the returns and the level of invested capital.

Let me start with invested capital and I will again refer to the January 15th 2024 press release.

For 2024 net capital expenditures are planned to be in the range of 60 million to $80 million.

Scott Calvert: This range includes the final proceeds from the sale of the four remaining Boeing Triples. This range does not include any opportunities as it relates to the surplus of two Boeing 757s. Management previously indicated that there was a surplus of four Boeing 757s. Starting in the fourth quarter and continuing into the first quarter, two of these Boeing 757 aircraft have been put into service to support organic revenue growth. Management continues to explore options such as dry lease or the ultimate sale of the remaining two Boeing 757s. The available free cash flow will support the shared buyback program and the repayment of debt, and this will provide a material reduction in Cargojet's invested capital. For the return on invested capital or the net operating profit after tax.

This range includes the final proceeds from the sale of the four remaining Boeing Triple Sevens.

This range does not include any opportunities as it relates to the surplus of two Boeing 750 Sevens.

Management previously indicated that there was a surplus of four Boeing 780 Sevens.

Starting in the fourth quarter and continuing into the first quarter. Two of these Boeing 757 aircrafts have been put in to service to support our organic revenue growth.

Management continues to explore.

Options, such as dry lease or the ultimate sale of the remaining two Boeing 757 aircraft.

The available free cash flow will support the share buyback program and the repayment of debt and this will provide a material reduction in cargo jets invested capital.

For the return on invested capital or the net operating profit after tax cargo jet will focus on the asset utility to optimize the fleet size and the corresponding level of depreciation.

Scott Calvert: Cargojet will focus on asset utility to optimize the fleet size and the corresponding level of depreciation. The depreciation for the two surplus Boeing 757s has a material impact on our bottom line. This depreciation can be stopped once management designates the aircraft to be an asset held by the government. It should also be noted that Cargojet has the capacity to grow revenue in its domestic network. In most circumstances, as their revenue volumes return, this incremental revenue can fall off the bottom line, with a combination of added contribution from any increase in traditional domestic revenue. The potential lower depreciation relating to the surplus of Boeing 757s, lower interest expense, and the return of invested capital to lenders and shareholders, the return on invested capital will improve closer to levels experienced before this current freight recession. At this time, management views the impact on return on invested capital as temporary, switching to the income statement.

Depreciation the depreciation for the two surplus Boeing 750 Sevens has a material impact on our bottom line.

This depreciation can be stopped once management designates the aircraft to be an asset held for disposal.

It should also be noted that cargo jet has capacity to grow revenue in the domestic network.

In most circumstances as their revenue volumes return this incremental revenue can fall off the bottom line.

With the combination of added contribution from any increase in traditional domestic revenue.

The potential lower depreciation relating to the surplus of Boeing 780 Sevens lower interest expense.

And the return of invested capital to lenders and shareholders. The return on invested capital ROIC will improve closer to levels experienced before this current freight recession.

At this time management views the impact on return on invested capital is a temporary issue.

Switching to the income statement.

Scott Calvert: You will note that there is a one-time non-cash adjustment for amortization for the contract asset as it relates to the warrants. Cargojet booked a one-time entry to increase the amount of total amortization since the warrants were put in place back in 2019. This entry was required to be more reflective of the current revenue volume that qualifies for the Warrant Program. The flip side of this one-time amortization is a reduction in expected warrants that may vest within the term of the warranty. We estimate that 1.2 million warrants may not vest, therefore reducing the amount of dilution associated with this original warrant issue. A quick comment about fuel expense and the two-month fuel surcharge leg. The adverse impact of the leg that was experienced in the third quarter last year was held mostly flat in the fourth quarter.

You will note that there was a onetime noncash adjustment for amortization for the contract asset as it relates to the warrants.

Cargo jet booked a onetime entry to increase the amount of total amortization since the warrants were put in place back in 2019.

The century was required to be more reflective to the current revenue volume.

<unk> for the work warrant program.

The flip side of this one time amortization as a reduction in expected warrants that made best within the term of the warrants.

We estimate that 1.2 million warrants may not vest and thereby reducing the amount of dilution associated to this original warrant issuance.

A quick comment about fuel expense in the two month fuel surcharge lag.

The adverse impact of the leg that was experienced in the third quarter last year was helped mostly flat in the fourth quarter.

Scott Calvert: The cost of jet fuel did not start to decrease until late December. We believe that Cargojet could have a tailwind in the first quarter if this downward trend continues to be experienced throughout the year. In the fourth quarter, direct expenses, excluding depreciation and amortization, improved by $7 million compared to the prior year. The most significant driver of cost to Cargojet is block hours. In the fourth quarter, Cargojet reduced block hours by 7.4% compared to the prior year.

The cost of jet fuel did not start to decrease until late December.

We believe that cargo jet could have a tailwind in the first quarter. If this downward trend continues to be experienced throughout the quarter.

In the fourth quarter direct expenses, excluding depreciation and amortization improved by $7 million compared to the prior year.

The most significant driver of cost of cargo jet is block hours.

In the fourth quarter cargo jet reduced block hours by seven 4% compared to the prior year.

Scott Calvert: This reduction in block hours on flat revenue was critical to Cargojet maintaining Ipidema. Selling general and administrative expenses decreased by $7.3 million, which was primarily a reduction in salary, benefits, and insurance. Before I pass it back to our co-CEOs to answer any questions, I would like to provide you some additional information on capital expenditures. The reduction in maintenance capex in 2023 to $98.4 million was primarily the result of Winnicargojet's cost management initiative and an initiative to reduce inventory. Cargojet was successful in reducing the inventory of spare engines, which reduced the requirement for replacement maintenance capital expenditure.

This reduction in block hours on flat revenue was critical to cargo jet maintaining EBITDA margins.

Selling general and administrative expenses decreased by $7 $3 million, which was primarily a reduction in salary benefits and incentive.

Before I pass it back to our co Ceos to answer any questions I would like to provide you some additional information on capital expenditures.

The reduction in maintenance Capex in 2023 to $98 $4 million was primarily the result of when a cargo jets cost management initiatives.

And an initiative to reduce inventory.

Cargo jet was successful in reducing the inventory of spare engines that reduced the requirement of replacement and maintenance capex.

Scott Calvert: This initiative should not be viewed as delaying CapEx. It should be viewed as a one-time opportunity to reduce inventory. As indicated in the January 15th press release, Cargojet intends to settle back into its old run rate of $140 to $150 million in maintenance capex per year. For growth CapEx, typically, the company is required to purchase used passenger aircraft, or what we refer to as feedstock, and then invest in the conversion costs as a second step. Cargojet owns the feedstock for two Boeing 767s, and therefore only the conversion costs are required should we proceed with the conversion, which will only be driven by revenue.

This initiative should not be viewed as deferring capex it should be viewed as a one time opportunity to reduce inventory levels.

As indicated in the January 15th press release cargo jet intends to settle back into our old run rate of $140 million to $150 million in maintenance capex per year.

For growth Capex typically the company is required to purchase used passenger aircraft.

Or what we refer to as feedstock and then invest in the conversion costs as a second step.

Cargo jet bones that feedstock for two Boeing 760 Sevens and therefore only the conversion costs are required should we proceed with the conversion.

It will only be driven by revenue growth.

Scott Calvert: Cargojet also has a leased Boeing 767 that expires in February 2025. This lease could be terminated, or it could be extended if additional 767 capacity is required. For the $110 million in proceeds that were identified in the January 15th press release, you will see a substantial deposit was received in the fourth quarter.

Cargo jet also has the least Boeing 767 that expires in February 2025.

This lease could be terminated or it could be extended if additional 767 capacity is required.

For the $110 million of proceeds that were identified in the January 15th press release.

You will see a substantial deposit was received in the fourth quarter.

Operator: Management anticipates that this transaction will be closed in the first quarter and the cash received will be directed to support the key principles that were identified earlier. Maria, I'll now pass it back to you for Q&A. Thank you. We will now take questions from the telephone line. If you have a question, please press star 1 on your device. You may cancel your question at any time by pressing star 2.

Management anticipates that this transaction will be closed in the first quarter and the cash received will be directed to support the key principles that identified earlier.

Maria I'll now pass it back to you for Q&A.

Thank you we will now take questions from the telephone lines.

Have a question. Please press star one on your devices keypad.

You may cancel your question at any time by pressing star two.

Operator: Please press star 1 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. The first question is from Cameron Dirksen from National Bank Financial. Please go ahead.

Press Star one at this time, if you have a question.

There will be a brief pause about the participants register for questions. Thank you for your patience.

The first question is from Kamran Dirkson from National Bank Financial. Please go ahead. Your line is now open.

Cameron Dirksen: Your line is now open. Yeah, thanks very much. Good morning.

Yeah, Thanks, very much good morning.

Scott Calvert: Scott, I wanted to ask you a question about the, I guess, warrant revaluation. If I understand correctly, you've sort of done a reassessment here, and you're not expecting, I guess, the same amount of revenue as you previously thought was going to be the case when you first entered into these agreements. First, I just want to clarify that that's the correct assessment. And two, is it both of the, I guess, the deals with Amazon and DHL, or is this one of them that you've had a reassessment on? Good morning, Cameron.

Scott I wanted to ask you a question about the I guess, the the warrant revaluation.

If I understand correctly, I guess, you sort of done a reassessment here in and you're not expecting I guess the same amount of revenue as previously thought was going to be the case. When you first entered into these agreements first I just wanted to clarify that that's the correct assessment and to.

Is it is it both of them would be I guess, the deals with Amazon and DHL or is this one one of them that are that you've had a reassessment on.

Good morning Cameron.

Scott Calvert: Yeah, it's the 2019 warrant, which relates to the Amazon contract. And the only point I don't want to clarify in your question is valuation. Valuation is a different exercise where the liability is revalued every quarter, and that adjustment for valuation goes up and down every quarter.

Yeah. It's it's it's the 2019 warrant which relates to the Amazon contract and the only point I don't want to clarify on your question you said that valuation the valuation is a different exercise where the liability is revalued every quarter and that adjustment for valuation goes up and down every quarter I always break what I'm talking about is really catch up amortization.

Scott Calvert: Right, right. What I'm talking about is really catch-up amortization as it relates to revenue. And the one nuance here that – I'm glad you raised the question because it is something that we need to get into a bit of detail here – is we have four different lines of business with Amazon, and not all those four lines qualify as what they call qualified spend for vesting for warrants.

As it relates to the revenue and the one nuance here that I'm glad you raised the question because it is something that we need to get into a bit of detail. Here is we have four different lines of business with Amazon and.

And not all of those four lines qualify as what they call qualified spend for vesting for warrants. So that that program was put together in such a way and really what I'm, referring to is one of the largest revenue streams as our ground operations that we do for Amazon that has grown significantly and we've talked about it in the past that it only started a couple of years ago, but it's been.

Scott Calvert: So that program was put together in such a way, and really, what I'm referring to is one of the largest revenue streams is our ground operations that we do for Amazon. That has grown significantly. We've talked about it in the past.

Scott Calvert: It only started a couple years ago, but it's been a driver of growth in domestic revenue. It's been the main reason why the headcount has increased to support that growth in business, a run rate of about $40 million a year now. So the good news story there is that revenue that was identified in 2019 to support that warrant program is still coming in to a large extent. It's just that not all four business lines qualify.

A driver of growth in domestic revenue.

The main reason why the head counts increased to support that growth in business a run rate of about $40 million a year now. So so the good news story. There is that revenue that was identified in 2019 to support that Werent program. The revenue is still coming into a large extent, it's just not all four business lines qualify so when you exclude the <unk>.

Scott Calvert: So when you exclude the ground operations, it just means that you have less warrants. Okay, so your overall assessment of revenue hasn't necessarily changed, it's just that there's, I guess, lower revenue in a business line that did qualify but higher revenue in a business line that didn't qualify. Yeah, that's fair.

Round operations.

It just means that you have less warrants divest.

Okay. So your overall assessment of revenue hasn't necessarily changed it's just that there's I guess lower revenue in a business line that did qualify but higher revenue and a business on that didn't qualify yeah. That's fair, it's not much and not a material change and it should also be noted too that this one line of business that we're talking about that doesn't qualify as.

Scott Calvert: It's not a material change, and it should also be noted, too, that this one line of business that we're talking about that doesn't qualify is also very asset light. Right, and that's one of the things I think we need to, because obviously return on invested capital, a primary focus for this year, as that revenue grows with no capital, it helps support that as well. Okay, no, that's very helpful.

Also very asset light.

Right and that that's one of the things I think we need to because it's obviously return on invested capital our primary focus for this year as that revenue grows with no capital it helps support that as well.

Okay. That's very helpful. And then maybe just secondly for me just around I guess the cost I mean, you've done a good job of you'll maintaining meaning maintaining margins here I assume you incurred some costs related to the triple seven preparation over the course of 2023.

Scott Calvert: And maybe just secondly, for me, just around the cost. I mean, you've done a good job of maintaining margins here. I assume you incurred some costs here related to the 777 preparation over the course of 2023. I'm just wondering what kind of headwind that might have been for your, I guess, overall costs in 2023 that, I guess, potentially goes away here in 2023? If you're talking about capital expenditures as a cost, or are you talking about... No, it's more about the preparation, you know, I guess, for all the manuals and, you know, costs you might have incurred related to, you know, starting to build inventor Yeah, it's not all that material.

Just wondering what kind of headwind that might've been for your I guess overall overall costs in 2023 that potentially goes away here in 2024.

Oh, you're talking about capital expenditures as a cost or are you talking about just more but the preparation of the I guess apparel the manuals and the Dol costs, you might have incurred related to starting to build inventories and things like that yeah. It's not all that material, we absorb that with our current infrastructure of people and very experienced people in the company to take.

Scott Calvert: We absorb that with our current infrastructure of people and very experienced people in the company to get through all those regulatory procedures. But no, it's not material in terms of the cost that we've incurred. Okay, that's helpful. I'll pass the line.

Through all of those regulatory.

Procedures, but no it's not material in terms of the costs that we've incurred.

Okay. That's helpful. I'll pass along thanks very much okay. Thank you.

Cameron Dirksen: Thanks very much. Thank you. The next question is from Chris Murray from ATB Capital Markets. Please go ahead; your line is now open.

Thank you.

The next question is from Chris Murray from <unk> Capital markets. Please go ahead. Your line is now open.

Chris Murray: Thanks, folks. Um, you know, I don't know who wants to take this one, but just kind of looking forward, you did talk a little bit about the fact that you brought block hours down in the quarter but that you were starting to, you know, see some signs of growth or, or, or kind of a more of a recovery into 2024. I was just wondering if you could maybe walk us through the different lines of business because it feels like some of the mainline business looks like it's doing okay, as is the ACMI and the charter. So just trying to get a feel for where we are in Q1 and what you guys are seeing for the next. Good morning, Chris. It's Jamie.

Thanks folks.

I don't know who wants to take this one but just kind of looking forward you did talk a little bit about the fact that.

You had brought block hours down in the quarter, but that you were starting to see some see some signs grew.

Gross or or kind of a more of a recovery into 2024.

Wondering if you could maybe walk us through the different lines of business because it feels like we are now some of the.

Some of the mainline business looks like it's doing okay. As is <unk> and the charter. So just trying to get a feel for where we are in Q1 and what you guys are seeing in the last few quarters.

Okay.

Sorry, Good morning Christmas, Jamie I can take that one.

Jamie Porteus: I can take that one. As I noted in my comments, we're continuing the trend that we saw in 2023, and I'll talk about each of the revenue segments. In terms of the domestic market, as you know, we saw some double-digit reductions in volume in the first quarter of 2023, which improved sequentially in Q2. Q3 was actually flat year-over-year, which was very significant for us because it's typically the slower summer months that we're comparing.

As I noted in my comments, we're we're continuing the sort of the.

A trend that we saw in 2023.

Talk about I'll talk about each of the revenue.

Segments in terms of the domestic as you know we saw some.

Double digit reductions in volume in the first quarter of 2023, which improved sequentially. In Q2, Q3 was actually flat year over year, which was very significant for us because it's typically slower summer months that we're comparing and then in Q4 were up slightly.

Jamie Porteus: And then in Q4, you know, we're up slightly, but the significance of that is you have to appreciate it. If you remember back in Q4 of 2022, we still had very strong double-digit revenue growth in October and November of that quarter, and really, volumes fell off a cliff in December. So a comparison year-over-year of being relatively flat on the domestic business is a positive in our light, and we're seeing that trend continue into January. Equally, on the ACMI segment, we flew additional – we have 15 aircraft under contract with DHL. We were flying 17 or 18 aircraft during Q4, which helped the year-over-year comparison versus 2023, and those additional aircraft have continued into 2024. So we're seeing strong demand, and our customers are seeing strong demand on the ACMI side in the first quarter, and we expect that to continue at least for the first half of the year.

The significance of that is you have to appreciate it if you look if you remember back in Q4 of 2022.

We still had very strong double digit revenue growth in October November of that quarter and really the volumes fell off the cliff in December so a comparison year over year of being relatively flat on the domestic business is a positive in our light and we're seeing that continue that trend continue into January equally.

Equally on the semi segment, we flew additional we were flying it just we have 15 aircraft under contract with DHL.

We were flying 17, or 18 aircraft during Q4, which helped.

Helped the year over year comparison versus 2023, and those additional aircrafts have continued into 2024. So we're seeing strong demand and our customers are seeing strong demand on the semi side in the first quarter and we expect that to continue at least for the first half of the year equally the charter business again.

Jamie Porteus: Equally, the charter business, again, you know, in the fourth quarter of 2024 – or 2023, we're about $27 million in revenue, which is up about, you know, $5 million to $10 million from our normal run rate, which was consistent with what we achieved during all of 2023, and we plan with the additional and available aircraft. And it's one of the – as I mentioned in my prepared comments on one of the, you know, creative solutions, we're seeing to utilize some of the spare capacity that we have, particularly with the 757s. A couple of those are deployed either directly or indirectly to help us add additional flying on the ACMI business, either by freeing up 767s from the domestic network by putting in 757s, but it also is contributing and will continue to contribute to the achievement of the revenue levels that we've historically done for 2023 on the charter segment. Okay, that's helpful. Thank you. Um, and then Scott, maybe my second question, just going back to the. The amortization of the warrant.

And in the fourth quarter of 2024, or 2023 or about $27 million in revenue, which is up about $5 million to $10 million from our normal run rate, which was consistent with what we achieved during all of 2023, and we plan with the additional air and available aircraft and it's one of the as I mentioned in my prepared.

Comments on one of the creative solutions, we are seeing to utilize some of the spare capacity that we have particularly with the 750 Sevens. A couple of those are deployed either directly or indirectly to help us add additional flying on the CMI business either by freeing up 767 from the domestic network by putting in 750 Sevens, but it also is contributing and we will continue to contribute.

To the achievement of the revenue levels that we've historically done for 2023 on the charter segment.

Okay. That's helpful. Thank you.

And then Scott maybe my second question, just going back to the.

The amortization of the war.

Scott Calvert: So there was, you know, the $25.9 million, I think, adjustment for the catch-up, but there's also, I guess, an $8 or $9 million kind of normal piece of the business. But the presentation changed a little bit, which is that we're trying to get a handle on, you know, kind of normalizing margins. Can you just walk us through, you know, what to expect as we go into 2024, in terms of where you're going to have that in terms of gross and net revenue versus margins and things like that, just if there's a kind of a different way that you guys are going to report that we need to adjust for? No, I think you've got it there, that we did separate it specifically so you have full visibility to this warrant It's $29.5 is one time, so really you're dealing with a delta, what's that, approximately $5 million? And that compares to the prior year. So that would be the normal run rate of amortization, excluding the one-time catch-up.

So there was the 20.

$25 9 million I think adjustment so to catch up but there's also I guess.

Yes.

And $8 million to $9 million.

On a normal piece of the business.

But the presentation changed a little bit which is what we're trying to get a handle on.

Normalizing margins can you just walk us through what you expect as we go into 2024 in terms of where you're going to have that in terms of gross and net revenue versus margins and things like that just if there's a kind of a different way that you guys are going to report that we can.

To adjust for.

No I think you've got it there that we did separate it specifically so you have full visibility.

To this warrant amortization of $32 8 million in the quarter, it's $29 five as one time, so really youre dealing with the delta what's that approximately $5 5 million.

And that compares to the prior year, so that would be the normal run rate of amortization, excluding the onetime catch up.

Scott Calvert: So, you know, it's fair that that could grow as revenues grow; it's really the nature of the revenues that happened by quarter that drives the amount of amortization, and things will settle now that we're caught up with this one-time adjustment. All right, and was that amortization previously running through you just reporting kind of a net revenue number? Is that the right way to think about it? You're just breaking it up separately?

So it's fair that that could as revenues grow it will grow its really a nature of the revenues that happened by quarter that drives the amount of amortization and things will settle now that we're caught up with this one time adjustment alright.

Alright, and what's that amortization previously running through your just reporting kind of a net revenue number is that the right way to think about it and you just breaking out separately. So we can see that yes. That's right. It was in domestic revenue in the past.

Scott Calvert: So we can see that. Yeah, that's right. It was in domestic revenue in the past. Great, that's helpful. Thank you. Thank you. The next question is from Kornart Gupta from Scotiabank. Please go ahead; your line is now open. Thanks, operator. Good morning, everyone.

Great. That's helpful. Thank you.

Thank you.

The next question is from Matt Korn Art Goop <unk> from Scotiabank. Please go ahead. Your line is now open.

Thanks, operator, good morning, everyone.

Kornart Gupta: My first question is on the fleet side. Your fleet plan suggests the fleet is holding flat through 2026. I'm wondering how are you planning to tweak the domestic network in order to find incremental lift for DHL to satisfy the original contract, which was for $2.3 billion in revenue? Good morning, Conarch. It's Jamie.

First question is on the.

Syed.

Fleet plan suggests that fleet, it's holding flat through 2026 and.

I'm wondering how are you planning to tweak the domestic network in order to find incremental left for DHL to satisfy the original contract, which was a $2 $3 billion revenue.

Hey, good morning, culinary because Jamie I can take that.

Jamie Porteus: I can take that. As you know, our current fleet sits at 41 aircraft, 17 757s and 24 767s. As Scott mentioned in his prepared remarks, we own the feedstock for two 767-200s, plus have a slot for an additional 767-300, which we plan on converting one per year over the next three years. In addition, as he also mentioned, we have a lease of a 767 aircraft that comes up for the end of its term in February of 2025, and we have the option to either return the aircraft to the lessor, or So we have a lot.

As you know our fleet our current fleet sits at 41 aircraft 17, 757% and 24 760 Sevens as Scott mentioned in his prepared remarks, we have a we own.

The feedstock for two 767, two hundreds plus out of a slot for an additional 767 300, which we plan on converting one per year over the next three years. In addition, as he also mentioned we have a lease up 767 aircrafts that comes up for the end of its term in February of 2025 that we have the option to either give the rich.

The aircraft to the lessor or if there's a growth opportunity that we can utilize that aircraft either in our domestic already CMI business. We can extend the liza that aircraft. So we have a lot. That's in addition to the current fleet, where we have flexibility as we've been as we indicated we've reduced block hours overall in our domestic network by seven five or 7.7%.

Jamie Porteus: That's in addition to the current fleet, where we have flexibility. As we indicated, we have reduced block hours overall in our domestic network by 7.5% or 7.7% in 2023. And even though we've seen revenue growth, we haven't had to put all of those aircraft back into the fleet equally to operate 17. We're actually currently operating 18 aircraft for DHL, which is three more than our contractual commitment. We have those additional aircraft available in the fleet today. Okay, that's great. Jamie, thanks.

In 2023, and even though we've seen revenue growth, we havent had to put all of those aircraft back into the fleet equally to operate 17, we're actually currently operating 18 aircraft for DHL, which is three more than our.

Contractual commitment.

We have those additional aircraft available in the fleet today.

Okay. That's that's great color Jimmy Thanks.

If I can follow up on the selling side seven. So you previously you were contemplating for maturing surplus and I think it seems like you've put in place.

Deployment and the domestic network the two that are surplus now.

Kornart Gupta: And if you can follow up on the 757. Previously, you were contemplating four, which were in surplus, and I think it seems like you put two in place, or deployment on the domestic network, the two that are surplus now. What's your visibility on that? Or, like, what kind of discussions are you having?

What's your visibility on that what kind of discussions are you having.

If those don't go out do you have room to kind of redeploy them within the network somewhere.

Yeah, we have.

You're right, we have reduced the surplus to two because we utilize it in the other two you know our intent would be will the aircraft that they would come up for C. Checks, we would freeze the C check and park the aircraft until its needed they're actively for sale not a very strong market in terms of used aircraft Theres a significant number of 750 sevens available in.

Jamie Porteus: And if those don't go out, do you have room to kind of, you know, redeploy them within the network somewhere? Yeah, you're right, we've reduced the surplus to two because we're utilizing the other two. Our intent would be, the aircraft that come up for sea checks, we would freeze the sea check and park the aircraft until it's needed.

In the market today, but we would have those aircraft available to bring back into service.

Very short term.

Notice if they're required.

Jamie Porteus: They're actively for sale; not a very strong market in terms of used aircraft. There's a significant number of 757s available in the market today, but we would have those aircraft available to bring back into service on very short notice if they're required. Thanks for taking my questions. Thanks, Connor.

Okay. That's great. Thanks for taking my questions. Thanks.

Thanks Connor.

Thank you.

The next question is from Matthew Li from Canaccord. Please go ahead. Your line is now open.

Hey morning, guys. Thanks for taking my question.

Just in terms of the 770 sevens it sounds like Youre going as far as I saw the stimulator to train.

Jamie Porteus: Thank you. The next question is from Matthew Lee from Kenicord. Please go ahead.

Did you happen to keep the conversion slots are down the road DHL decides they want to reconsider cargo jet or is that no longer the medium term part of the story.

Matthew Lee: The line is now open. Good morning, guys. Thanks for taking my question. Just in terms of the 777s, it sounds like you're going as far as a self-stimulator to train. Did you happen to keep the conversion slots if, down the road, DHL decides they want to reconsider a 777 program with Cargojet, or is that no longer a medium use program? Good morning, Matt.

Good morning, Matt.

There might be a little confusion there. We originally did have a triple seven simulator on order as part of our growth plans, but that's also been cancelled a result, similar to the the triple Sevens. So really what we're left with its two simulators there. Both the 760 Sevens 757 simulators both of those are actively working and.

Scott Calvert: There might be a little confusion there. We originally did have a 777 simulator on order as part of our growth plans, but that's also been cancelled and resold, similar to the 777s. So really, what we're left with is two simulators. They're both 767-757 simulators.

Probably I don't know if you want to add any of that because it is one of our more significant cost initiatives going into the current year. Yeah. It further just thought Scott statement. There we have the two stimulators that went for the seven 6% to seven five you can use them for both we are actively engaging with both of those aircraft are on our cost controls also allow us to keep our.

Crews in Hamilton, we're no longer sending anyone to Miami. So we saved on that expense and we save them time, but theyre, both actively working and you know any any excess hours, we're selling them in the market for when we're not using our our own crews.

Scott Calvert: Both of those are actively working, and Pauline, I don't know if you want to add anything to that, but it is one of our more significant cost initiatives going into the current year. Yeah, further to Scott's statement there, we have the two simulators, the one for the 7-6 and the 7-5. You can use them for both.

I hope that answers your question.

Right, but just in terms of doing the 777 program in the future that at all possible for cargo jet are you thinking.

Scott Calvert: We are actively engaging with both of those aircraft. Our cost controls also allow us to keep our crews in Hamilton. We're no longer sending anyone to Miami, so we save on that expense, and we save on crew time.

Possibility with DHL.

This is jay by the way.

On the Triple Sevens.

Scott Calvert: But they're both actively working, and, you know, any excess hours, we're selling them on the market for when we're not using our own crews. I hope that answers your question. Right, but just in terms of doing a 777 program in the future, is that at all possible for Cargojet, or are you thinking that's no longer the case? You know, this is A.J.

I think that for <unk>.

Time being we have put in the program.

In a pause situation, we have done a lot of work.

Technically manuals.

Feasibility routes. So that work is all sitting there is probably more like an asset for us and we wanted to go away, but we still have four.

A.J.: By the way, on the 777s, I think that, for the time being, we have put the program in a pause situation. We have done a lot of work, technically, manuals, you know, feasibility, routes. So that work is all sitting there as probably more like an asset for us when we want to revive it. We still have four slots with IEI. Israel that we are in discussions to defer that for longer. It could be two years, three years, or four years.

Lots with III in.

Israel.

We are under discussions to get part of that for longer term, which could be.

Three years or four years.

I should say that look it's part of a cargo gets dream to have triple seven right.

Bright conditions and great market opportunities, we don't want to put it in today's market, where the yields are down and.

Competition from the wide bodies.

A.J.: I should say that, look, it's part of Cargojet's dream to have a 777, but under the right conditions and with the right market opportunities. We don't want to put it in today's market, where the yields are down, and the competition from the white bodies.

Passenger aircraft is.

Very very substantial so it would not be prudent to put them in but since we haven't done a lot of work we have.

We developed a lot of infrastructure around it and also.

A.J.: Subs by www.zeoranger.co.uk, Passenger aircraft is, so it would not be prudent to put them in. But since we have done a lot of work, we have developed a lot of infrastructure around it. And also, we are maintaining the slots to be three or four years down the road, or earlier if needed. That keeps us at least motivated or looking at them when the timing is right. And if we felt the timing was not right, we'd scrap that slot. Okay, that's very helpful.

We are maintaining the slots to be three or four years down the road or earlier, if needed that keeps us at least motivated or looking at those when the timing is right and if we felt the timing was not right.

Scrap that plant as well.

Okay. That's very helpful guys. Thanks.

Thank you.

Next question is from Kevin Chiang from CIBC. Please go ahead. Your line is now open.

Oh, hi, thanks, Thanks for taking my question here.

Not to belabor the warrants.

Matthew Lee: Thank you. The next question is from Kevin Chang from CIBC. Please go ahead.

Memphis memory says me correct.

Kevin Chang: The line is now open. All right, thanks. Not to belabor the point, but if memory serves me correctly,

I think it had two tranches to where it was a cumulative foreign Jim.

Our revenue business.

Kevin Chang: It had two tranches to it; it was a cumulative $400 million of revenue or business to increase the number of warrants. I just want to clarify, if I think of this adjustment, I suspect it has to do with that first $400 million. It sounds like you're, in aggregate, on track to hit that, or you're hitting that target of that chemo.

First tranche, which might've been six or seven years, and then you have the option, but there was an option.

To increase the number of warrants.

For an incremental $200 million of a business so.

Aggregate that'd be 600 million. So just wanted to clarify if I think of this adjustment that I suspect. It has to do with that first 400 mode. It sounds like you're in aggregate all on track to hit that or are you hitting those targets, but just the composition of it.

All of that cumulative number.

Ranged here.

Yes, youre, mostly right there I'd say, we're a lot closer to the full 600. When you include that one line of business that doesn't qualify as revenue for this program, but you could look at it it's that growth piece that we're writing down but in aggregate. When you look at the whole story. It's a it's closer to the 600 I would say then reducing and eliminating that growth piece.

Scott Calvert: Yeah, you're mostly right there. I'd say we're a lot closer to the full 600 when you include that one line of business that doesn't qualify as revenue for this program, but you could look at it that way. It's that growth piece that we're writing down, but in aggregate, when you look at the whole story, it's closer to the 600, I would say, than reducing and eliminating that growth. And then just in terms of, I guess, you know, in terms of revenue trends, we look forward to next year, if memory serves me correctly. I think one of the areas you saw some pressure was in, I guess, non-contracted business within the domestic segment, which I think is a little bit more price sensitive. Just wondering how they're faring now.

Okay got that.

It is helpful.

And then just in terms of Ah I guess.

In terms of revenue trend.

As we look out into next year.

If memory serves me correct I think one of the areas you saw some pressure was in Europe.

Or Oh, I guess non contracted business within the domestic segment.

Those customers typically end up being a little bit more price sensitive just wondering how they're how they're fair and now are you seeing those volumes pick up as well and would you view that as a bit of a leading indicator in terms of what where you see the cycle versus maybe looking at.

Kevin Chang: Are you seeing those volumes pick up as well? And would you view that as a bit of a leading indicator in terms of where you see the cycle? Volume trends from your, you know, your longer-term investors, where you have a much larger percentage of their business, and there's obviously more. Yeah, good morning, Kevin. It's Jamie.

At the volume trends from Europe.

Longer term investors, where when you have a much larger percentage of their business and there's obviously more symbiotic relationship between you and those longer term customers.

Yes, good morning, Kevin It's Jamie.

Jamie Porteus: I'd say yes, generally. I mean, the non-contract portion of our domestic business is, you know, certainly not a significant percentage of the overall business. So, I think we look at, you know, a combination of indicators, you know, that non-contract sort of ad hoc priced business that we generate to fill empty space on the aircraft, on the scheduled routes that we fly on the domestic network, but certainly the trends we see from our contract customers, as you know, all of them have minimum volume guarantees.

I'd say, yes, generally I mean, the non contract portion of our domestic business as you know, it's certainly not a significant percentage of the overall business. So I think we look at you know combination.

<unk> of indicators.

That non contract sort of ad hoc.

Good.

The business that we generate to fill empty space on the on the aircraft on the scheduled routes that we fly on the domestic network.

But certainly the trends we see from our contract customers as you know all of them have minimum volume guarantees they are well above those minimum volume guarantees, but we you know it probably a better indicator is the growth that we see quarter over quarter year over year from both but particularly from the contract customers.

Jamie Porteus: They're well above those minimum volume guarantees, but we, you know, probably a better indicator is the growth that we see quarter over quarter, year over year from both, but particularly from the contract customers. That's, that's helpful. And maybe just the last one for me, Scott, you've been deploying capital towards your buyback, have cash coming in the door with some of these asset sales, you know, you did, you voted. I think you have about a million shares. I guess. How do you think about running through the release?

Okay. That's.

That's helpful. And then maybe just last one for me Scott.

Deploying capital towards buyback.

I wouldn't have a cash coming in the door with some of these asset sales and then you did you did.

I think of about 1 million shares left so give or take the buyback yes.

How do you think about running through the Romania.

Sure.

Is that something we should be modeling is essentially.

Uh huh.

Scott Calvert: Some of you will complete by November of this year, or... Yeah, it's something we're committed to. We, like you said, we've done over 600,000 shares just in the first three months alone. So for what we're going to do for the remainder of 2024, this is one of our targets. We're going to have to take a balanced approach here between share buyback and debt reduction. And it really depends on the share price. And it really depends on the reaction to our share price with the share buyback program. It's highly acquisitive.

By November of this year or.

Or.

I guess, how do you think about that.

Okay.

Sure.

Yes, it's something we're committed to we like you said we've done over 600000 shares just in the first three months alone.

So for what we're going to do for the remainder of 2024 and this is one of our targets, we're going to have to take a balanced approach between share buyback and de levering and.

And it really depends on share price and it really depends on the reaction to our share price with the share buyback program. It's highly accretive obviously it was very <unk>.

Scott Calvert: Obviously, it was very significantly highly accretive when it started in mid-November, and it's accretive up to a decent share price. But again, it depends on how the market responds. And we'll just assess this month to month. And our board of directors obviously approves this at the end of the day.

Significantly highly accretive when it started mid November and it's accretive.

Up to a decent share price, but again it depends on how the market responds and.

We'll just assess this month to month and our board of directors obviously.

Our premises at the end of the day and we'll kind of continue doing what we're doing and we'll probably have more information we will release Q1.

Scott Calvert: And we'll kind of continue doing what we're doing. And we'll probably have more information when we release Q1. That's very helpful.

Yeah.

Excellent.

Kevin Chang: I'll leave it there. Thank you. Thank you. The next question is from Jonathan Limers of Laurentian Bank. Good morning, thanks for taking my question. In Pauline's opening remarks, she mentioned that at the beginning of last year, there were some concerns in the market about competition and the effect that it could have on Cargojet going forward. I guess, what have you learned from the past year and, you know, following the renewal of the long-term take-or-pay agreements? Are you concerned at all about competition for next year in any of your business divisions? Good morning, Jonathan. It's Jamie.

Very helpful. I'll leave it there thank you very much.

Thank you.

Question is from Jonathan Lamers from Laurentian Bank. Please go ahead. Your line is now open.

Good morning, Thanks for taking my questions.

During our call in his opening remarks, she mentioned that at the beginning of last year.

There were some concerns in the market competition and the effect that could have on cargo jet going forward.

Yeah.

What have you learned from the past year and.

You know following the renewal of some of the long term take or pay agreements are you concerned at all about competition for next year in any of your business divisions.

Hey, good morning, Jonathon, it's Jamie I'll, just add some comments, maybe pulling can can can finish them off but in terms of competition on the domestic network. We certainly don't feel any direct threat as we've noted rates since the beginning with air Canada and Western both got into dedicated freighters Air Canada has continued to as they indicated when they first got into seven.

Jamie Porteus: I'll just add some comments, and maybe Pauline can finish them off. But in terms of competition on the domestic network, we certainly don't feel any direct threat, as we've noted right from the beginning when Air Canada and WestJet both got into dedicated freighters. Air Canada has continued to, as they indicated when they first got into 767 freighters, to deploy those aircraft primarily on international routes to support strong cargo markets where they don't have the belly cargo capacity that they may have had pre-COVID, and that's what we've continued to see. Certainly no threat domestically in terms of Air Canada. In terms of WestJet, even less so. The 737s, they were unfortunately delayed in implementing those aircraft for several years because of Transport Canada regulatory requirements that needed to be met. We launched those in the spring of 2023 with what I would call a fairly aggressive domestic schedule, but it really petered out fairly quickly, and they're just doing some ad hoc flying right now and don't pose any material threat to us.

67 freighters to deploy those aircraft on primarily on international routes to support a strong cargo markets, where they don't have the belly cargo capacity that they may have had pre COVID-19 and that's what we've continued to see.

Certainly no no threat domestically.

In terms of air Canada in terms of Westjet, even less so you know the 730 sevens. They were unfortunately delayed and then implementing those aircraft for several years.

Because of transport, Canada regulatory requirements that needed to be met launch those in the spring of 'twenty 'twenty four with what I would I'm sorry to spring of 2023, with what I would call out.

Fairly aggressive domestic schedule.

But it really petered out fairly quickly and they're just doing some AD hoc flying right now and don't pose any material threat to us yeah, I Echo Jamie's comments, you know, we always take competition very seriously, but we feel that we have a unique a unique brand.

Jamie Porteus: Yeah, I echo Jamie's comments. You know, we always take competition very seriously, but we feel that we have a unique brand and a track record. We are an organization that is customer-obsessed, and the one thing that we can provide... stronger than our competitors, that's our on-time performance. And we continually and consistently prove that to our customers and the market. AJ

And the track record we are an organization that is customer obsessed and one thing that we can provide.

Stronger than our competitors and that's our on time performance and we continuously and consistently prove that to our customers and the market.

And it's a J I'd like to add one thing about that factor.

A.J.: I'd like to add one thing about that factor. If you look at the renewals of our long-term customer contracts, there were four of them that we renewed in the past couple of years. Amazon was one of them.

If you look at the renewals of our long term customer contract. There was four of them that we didn't you.

Last couple of years.

Amazon.

One of them.

A.J.: UPS, DHL, we picked up additional contracts. All these contracts were negotiated right in the middle of COVID when both carriers had announced plans to expand into the cargo business. So the customers obviously listened to what the competition was out there, and I can assure you that after a lot of due diligence by customers, they decided to renew with Cargojet till 2029. The majority of the cars

P S.

DHL, we picked up additional.

C. P D C, which is Canada post and pure later all of these contracts were negotiated.

In the middle of Covid, when both carriers have announced plans to expand into the cargo business. So the customers, obviously listen to what the competition was out there and Ah I can assure you that after a lot of due diligence by customers they decided to renew with cargo debt.

2029.

The majority of the contract so we feel that.

A.J.: So we feel that the product we built, the cargo culture we have, the very fact we are not tied into a passenger business where the passenger business could have a million bags unsorted at any point in time. We saw in the past couple of years their on-time departures and on-time arrivals, as we all see in the papers and their statistics. We are pretty confident that when people need to get there, they use Cargojet. When they don't have time for 24, 48 hours or get there when they can, unfortunately, all these competing carriers are their first priority or their major product being passenger.

The product we built.

The culture cargo cultural rehab. The very fact, we are not tied into a passenger business where the passenger business.

It could have a million bags unsorted Ah at any point in time, we saw it in the past couple of years, there on time departures and.

On time arrivals as we all see the papers out there.

Their statistics.

We are pretty confident about when people need to get there they used cars again when.

When they don't have a car.

Time to.

24, 48 hours, so get there when you can unfortunately all.

All these competitive carriers are their first priority or the major product being passenger.

Jamie Porteus: They certainly have the desire and will to be in the cargo business, but the circumstances of serving the passenger best, which is 90% of your business, do not allow for a healthy cargo environment in our country. And we just tested this out with four or five. Okay, thank you. And just on the ACMI business, you know, there's been a number of changes recently with the 777s being taken out. You know, this one-time charge for the warrants this quarter.

You know they certainly have the desire and be able to be in the cargo business, but circumstances of serving the passenger best which is 90% of your business does not allow for a healthy cargo environment in our opinion.

And we just tested this out the four or five.

The past two years.

Okay. Thank you.

And just on the <unk> business, you know theres been a number of changes recently with the seven triple Sevens being taken out.

As a one time charge to the warrants this quarter I know that there's three additional aircraft flying.

Jamie Porteus: I know that there are three additional aircraft flying for DHL. Could you just provide us with an update on the type of volume growth that you're expecting now into 2024 and 2025? You know, I mean, a year ago or two years ago, we would have been looking for kind of 20 to 40% growth year over year for ACMI. Now, I'm kind of looking for mid to high single digits. Yeah, I think, good morning, Jonathan. It's Jamie.

You know for DHL could you just provide us with an update on the type of volume growth that you're expecting now into 2024 and 2025.

A year ago or two years ago, we would've been looking for kind of 20% to 40% growth year over year for H M I know them.

Looking for mid mid to high single digits now.

Yeah, I think John Good morning, Jonathon, It's Jamie I think it's probably a little stronger than not a reflection of the if you looked at the current Acm's flying contractually that we're doing for DHL, we have 15 aircraft under contract and as I mentioned we.

Jamie Porteus: I think, you know, probably a little stronger than that, a reflection of the, you know, if you looked at the current ACMI flying contractually that we're doing for DHL, we have 15 aircraft under contract. And as I mentioned, we added a few during peak season demand for their peak season demand, and that's continuing into 2024, where we presently have 18 aircraft. So that's a 20% increase in the fleet, which we've indicated, or they've indicated to us, will continue for at least the first half of this year. So that's certainly a strong indicator.

Added a few during peak for their peak season demand and that's continuing into 2024, where we presently have 18 aircrafts. So that's a 20% increase in the in the in the fleet, which we've indicated they've indicated to US we will continue for at least the first half of this year. So that's that's certainly a strong indicator that the demand is coming back internationally.

Jamie Porteus: That demand is coming back internationally. Okay, thank you. And would you be able to provide us with a little more color, Jamie, on what the customers might be telling you on the domestic side? I know you shared earlier during the Q&A your expectations for the continued trend into early Q1 of revenue close to the prior year level. Yeah, consistent with what we said in 2023 on the domestic side, you know, we saw lower overall volume at the beginning of the year in the first quarter after volume really deteriorated at the end of 2022, in the month of December particularly, but that improved sequentially in the second quarter of 2023. And then, as I noted in my comments earlier, it was flat in the third quarter in the summer months, which was what our customers collectively had indicated that they all thought that the second half of 2023 would be, all the indicators that they were seeing would be much stronger than the first half of 2023 that we experienced. And that's exactly what the reality turned out to be.

Okay. Thank you and would you be able to provide us with a little more color Jamie on what the customers might be telling you on the domestic side I know you shared the earlier doing that during the Q&A your expectations for.

You know it continued trend into early Q1 of our revenue you know close to a prior year level.

Yes, it's consistent with what we said in in 2023 on the domestic side. We saw we saw lower overall volume at the beginning of the year in the first quarter after volume really deteriorating at the end of 2022 in the month of December particularly.

But that that improves sequentially in the second quarter of 2023, and then as I noted in my comments earlier was flat in the in the in the third quarter in the summer months, which was which was what are our customers collectively had indicated that they all thought that the second half of 2023 would be the all the indicators that they were seeing would be much stronger than the first half.

A 2023 that we experienced and that's exactly what the reality turned out to be we saw flat growth in the in the summer months, and then we saw sort of flat or up a little bit in the fourth quarter, but as I mentioned in my earlier comments I think it's significant to note that quarter over quarter, we're comparing 2022s fourth quarter was very strong for two thirds of the <unk>.

Jamie Porteus: We saw flat growth in the summer months and then we saw, you know, sort of flat or up a little bit in the fourth quarter. But as I mentioned in my earlier comments, I think it's significant to note that, quarter over quarter, we're comparing 2022's fourth quarter, which was very strong for two-thirds of the quarter and really fell flat in December. So we're very pleased with the returns that we had in the fourth quarter of 2023. And all, you know, the consensus of our domestic customers is that 2023 sort of saw the trough in the summer in terms of demand, but demand came back up at the end of the year and is continuing with interest rates coming down with inflation in January being only at 2.9%. It seems that consumer spending is a little stronger than it was at the early part of 2023. And we're forecasting, you know, mid to high single-digit revenue growth for the domestic sector in 2024. And I can tell you January started off much stronger than that.

And really fell flat in December.

So we were very pleased with the the.

But the returns that we had in the fourth quarter of 2020.

2023, and and all you know consensus of our domestic customers as theirs.

2023 sort of saw the trough in the summer in terms of demand and demand came back up at the end of the year and is continuing with interest rates coming down with inflation and January being only at 2.9% it seems that that.

Consumer spending is a little stronger than it was at the early part of 2023, and we're forecasting you know mid single mid to high single digit.

Revenue growth on the domestic sector for 2024, and I can tell you January started off much stronger than that so we're we're sort of encouraged by the early returns in the first quarter.

Jamie Porteus: So we're sort of encouraged by the early returns in the first quarter. Okay, excellent. And if I could just ask one more question, just on the EBITDA margin and the cost. There was some discussion earlier about the initiatives you're working on with the 757 and 767 flight simulators. Are there any other...

Okay excellent and then if I could just ask one more question.

Just on the EBITDA margin in the costs.

So there was some discussion earlier about the initiatives you're working on with the 757 and 767 flight simulators.

Are there any other.

Scott Calvert: Things that you're focused on to find efficiencies for this year, or is it more just volumes and driving operating leverage? Maybe if you had an update as to sort of where you think margins could get to two years out. Hey Jonathan, it's Scott.

Things that you're focused on to find efficiencies for this year or is it more just a <unk>.

Volumes and driving operating leverage.

Maybe if you have an update as to sort of where you think margins can get to two years out.

Hey, Jonathan it's Scott.

Scott Calvert: Yeah, really, 2024 is sustaining what we did in 2023. We consider those to be highly sustainable. Then there is further opportunity, but like I said in the past, we're working a bit harder to capture smaller numbers. We still have some RFQs and RFPs to do. One of the priorities in 2024 is to improve some of our systems. They need to be a bit updated here to support this new diversified business, so that's longer-term savings, but it will definitely give us an opportunity to just support our customers and manage our costs and make quicker decisions and all that, just with a bit of a focus on our systems this year. But really, we do have operating leverage in this business, so there is an opportunity to improve where we're currently at.

Yeah really 'twenty 'twenty four is sustaining what we did in 2023, we consider those to be highly sustainable then there is further opportunity.

But like I said in the past it we're working a bit harder to call.

Capture smaller numbers, we still have some RF queues and rfps to do.

We're going to one of the priorities in 2024, we're going to improve some of our systems they need to be a bit updated here to support this new diversified business and so that's going to be Oh, that's longer term savings, but it will definitely gives us an opportunity to to to support our customers and manage our costs and make quicker decisions all of that just with a bit of a focus.

Our systems this year.

But really it said that there will be we do have operating leverage in this business. So there's an opportunity to improve where we're currently at but right now it really going to depend on the revenue volumes coming back in.

Scott Calvert: But right now, it's really going to depend on the revenue volumes coming back. And, you know, we'll just have to be patient here in this soft economy. One thing I can certainly add is that efficiencies, cost management, and cost control, and gaining some extra dollars through these exercises, this is a continuous journey. We haven't reached the destination, and there is no destination.

And we'll just have to be patient here through this soft economy.

You know one thing I can certainly add to the efficiencies cost management and cost control and gaining some extra dollars by these exercise. This is a continuous journey, we haven't reached the destination.

And there is no doubt this is going to go on and we will find things.

A.J.: This is going to go on, and we will find out. Thanks for your comments. Thank you. The next question is from Tim James from TD Cohen. Please go ahead.

Thanks for your comments.

Thank you. The next question is from Tim James from TD Cowen. Please go ahead. Your line is now open.

Tim James: Your line is now open. Thank you. Good morning.

Good morning.

Tim James: Um, just a quick question. Returning to the 757s, Jamie, the two that were surplus but have now been deployed, were you indicating that those are being used for both some ACMI flying and some charter flying? Sorry, I just kind of missed that commentary or couldn't quite pick up on where exactly their home is currently.

Just a quick question.

Turning to the 75 sevens.

Jamie the two that were surplus but now have been deployed were you indicating that those are being used for both from a CMI flying and some charter flying so I just kind of missed that commentary or couldn't quite pick up on whether there were exactly there. Their home is currently at its a combination Tim and good morning by the way of.

Jamie Porteus: It's a combination, Tim, and good morning, by the way, of putting those aircraft either directly or indirectly. Directly would be directly on an ACMI route for DHL. Indirectly would be into our domestic network to free up a 767 to deploy as an additional aircraft for DHL. Okay, perfect. Thank you. Then just looking at the Amazon agreement, the warrant agreement.

Putting those aircraft into our either directly or indirectly or directly would be directly into an AC might route for DHL indirectly would be into our domestic network to free up to 767 to deploy as an additional aircraft for DHL.

Okay perfect. Thank you.

And then just looking at the Amazon agreement the warrant agreement.

Jamie Porteus: You've talked about how the revenue mix, um, or you, you've got more, you've generated more revenue that doesn't necessarily qualify towards the warrants the revenue that, um, that does qualify but maybe has been a little bit lower and hence the need for this non-recurring item this quarter. Can you talk about maybe why that revenue hasn't reached the sort of original framework? Is that just a function of the economy we're in today? What's the cause of that, if you were able to point it out?

And you've talked about how the revenue mix.

You've got more you've generated more revenue that doesn't necessarily qualified towards the warrants the revenue that.

It does qualify but maybe has been a little bit lower and hence the need for this this nonrecurring item. This quarter could you talk about maybe why that revenue hasnt.

The sort of original framework is that just a function of the economy. We're in today.

What's your what's the cause of that if you if you were able to point to something.

I can answer part of that Tim I think it's important to understand I think if you were.

Jamie Porteus: I can answer part of that, Tim. I think it's important to understand. I think if you were sitting in Amazon's shoes today negotiating this warrant agreement, you'd probably include more revenue in the qualified spend, or they would want to, than when we first entered into the warrant agreement several years ago. We really have four sources of revenue, of which only a portion of two of them qualify. The BSA, or Block Space Arrangement, which is the capacity that Amazon would purchase on our domestic network; only the net revenue portion of that revenue is considered qualified spend.

If you were sitting at Amazon shoes today negotiating this warrant agreement you'd probably include more revenue in the qualified spend or they would want to then we entered into when we first entered into the warrant agreement. Several years ago. We really have four sources of revenue of which really only a portion of two of them qualified the BSA or block space.

Arrangement, which is good.

The capacity that Amazon would purchase on our domestic network only the net revenue portion of that revenue is considered qualified spend the fuel surcharge of course, we don't that's not considered part of the qualified spend equally under CMI. It's really just the management fees for the CMI the fuel burn and the pass through expenses like NAV.

Jamie Porteus: The fuel surcharge, of course, isn't considered part of the qualified spend. Equally, on the CMI, it's really just the management fees for the CMI. The fuel burn and the pass-through expenses, like navigation and landing fees, aren't part of that.

Vacation and landing fees arent arent part of that those have stayed you'll see them is relatively consistent the MLP, which is the third party logistics business that Scott was referring to which is growing substantially none of that revenue.

Jamie Porteus: Those have stayed. The CMI is relatively consistent. The MOP, which is the third-party logistics business that Scott was referring to, which is growing substantially, none of that revenue is considered part of the qualified spend. Equally, with charters, which happen usually during peak season, but only the non-revenue portion of the charter revenue is considered qualified spend. In their aggregate, in total, Amazon is still continuing to grow at a significant pace.

Is considered part of the qualified spend and equally with charters, which which happened.

Fairly.

Usually during peak season, but only the the non revenue portion of the charter revenue is considered qualified spend so in the aggregate in total you know Amazon still continuing to grow at a significant pace. It's just the portion that that's considered part of the qualified spend for the warrant calculation has changed.

Jamie Porteus: It's just the portion that's considered part of the qualified spend for the warrant calculation that has changed. Okay, that's really helpful. Thank you. And then I have just one more question, if I can squeeze it in. Any thoughts on sort of pilot availability and staffing? Obviously, having sort of pulled back on the growth plans, I think that that probably helps you out. But are you, is the company in good shape in terms of labor availability? I guess I'm thinking flight crews in particular. Any sort of issues or challenges there as you look at 2024 and 2025? I mean, there are always challenges.

Okay. That's really helpful. Thank you and then just one more question if I could squeeze it in.

Any any thoughts on sort of pilot availability and staffing is.

Obviously, having sort of pulled back on the on the growth plans I think that that probably helps you out but are you is the company in good shape in terms of labor availability and I guess I'm thinking flight crews in particular any sort of issues or challenges. There as you look at 2024 and 2025.

There's always challenges, it's somewhat cyclical in terms of pilot demand. We went through some periods earlier this year late last year, where as other scheduled passenger airlines, particularly our candidate ramps up their hiring.

Jamie Porteus: It's somewhat cyclical in terms of pilot demand. We went through some periods earlier this year, late last year, where other scheduled passenger airlines, particularly Air Canada, ramped up their hiring. Our attrition rate is a little higher than we would like it to be.

Our attrition rate is a little higher than we would like it to be but we manage we tried to get ahead of that curve with our flight ops folks hiring and training.

Jamie Porteus: But we manage; we try to get ahead of that curve with our flight ops folks hiring and training pilots in advance in anticipation of that. One of the more recent developments with the bankruptcy protection of Lynx Airlines has freed up a couple hundred pilots in the industry, so our flight operations actually will be hosting a call today advertising availability at Cargojet for those pilots. So we're in good shape. Yeah, and just to add to Jamie's comment, having the 767s available to us, the simulators in Hamilton, will allow us to train the pilots and get them online quicker than we have in the past. Super. Okay. Thank you very much.

Pilots in advance in anticipation of that you know one of the more recent developments with the with the.

Bankruptcy protection of links Airlines has freed up a couple of hundred pilots in the industry that our flight operations actually will be hosting the call today advertising availability at cargo jet for those pilots. So we're in good shape.

And just I think jamie's comment having the 767th available to assist him in Hamilton will allow us to train the pilots and get them online quicker than what we've had in the path.

Super Okay. Thank you very much.

Jamie Porteus: Thank you. The next question comes from Walter Spracklin from RBC Capital Markets. Please go ahead.

Thank you. The next question is from Walter <unk> from RBC Capital markets. Please go ahead. Your line is now open thanks very much operator, good morning, everyone.

Walter Spracklin: Your line is now open. Thanks very much, Operator. Good morning, everyone. So you've had a nice lift in revenue per block hour in the fourth quarter. You had a nice one in the third quarter as well. Presumably, that's your CPI. I know there's a lot of mix in that all the time.

Good morning, Alastair so so you've had a nice lift in the revenue per block hour in fourth quarter, you had a nice one in the third quarter as well, presumably that's your CPI.

I know theres a lot of mixing that all the time, so maybe if you could break out for us.

Jamie Porteus: So maybe if you could break it down for us, is that CPI now kicking in? And the reason I'm asking is that as if and when cost inflation that's ubiquitous kind of starts to simmer down, and you're still getting some of the lag effect of higher CPI, does that emerge as an opportunity as we go into 2024 as your pricing kind of holds in, but perhaps costs start to moderate a little bit? I think the, morning Walter, it's Jamie. I think the biggest, um, uh, improvement in revenue per block hour has been our management of the actual block hours themselves. And the 7.7% reduction in block hours in the quarter year-over-year, that caused the increase in revenue per block hour.

Is that CPI now kicking in and the reason I'm asking is that as if and when cost inflation that's ubiquitous.

Kind of starts to to simmer down and Youre still getting some of the lag effect of higher CPI is that emerging opportunity as we go into 2024 as those as your as your pricing kind of whole, Jim, but perhaps cost start to to moderate a little.

<unk>.

I think the morning, Walter It's Jamie I think the you know the biggest.

<unk>.

Improvement in the revenue to block our revenue per block hour has been the reduction of our management of the actual block hours themselves.

Seven 7% reduction in block hours in the quarter year over year.

Was that.

Jamie Porteus: It contributes, obviously, to us being able to maintain the EBITDA margins that we're at. We'll continue to... We certainly won't add back block hours, particularly to our domestic network, certainly not as quickly as we drove block hours down. And a good indicator is what we saw in January with the demand increase on the domestic network. We haven't increased block hours at all. So you'll...

That caused the increase in revenue block hours contributes obviously to us being able to maintain the EBITDA margins that we're at and we will continue to fall, we certainly won't add back block hours to our particularly to our domestic network.

Certainly not as quickly as we as we drove block hours down and are good indicators as you know what we've seen in January with.

The demand increase on the domestic network, we have an increased block hours at all so you'll you know I would fully expect you'll continue to see revenue per block hour in the first quarter of 2024.

Jamie Porteus: I would fully expect you'll continue to see revenue per block hour in the first quarter of 2024 to be stronger than it certainly was in Q1 of 2023, consistent with what you just described in Q3 and Q4. That's fantastic. And that leads to my next question. Can you talk a bit about how you mechanically pull out block hours?

To be stronger than it certainly was in Q1 of 2023 consistent with what you. What you just described and in Q3 and Q4.

Yeah, that's fantastic and that leads to my next question can you talk about how you mechanically pull out block hours I mean, it's just route optimization on the same <unk>.

Jamie Porteus: I mean, it's just route optimization on the same revenue. And is there an avenue to do that further, or do you feel like you've kind of managed that to its optimal level now, and that now when volume comes in, are you forced to bring block hours on, or can capacity utilization move up a little bit as that operating leverage kicks in? I think we're very confident that we can bring in an additional easily 10 to 15% more revenue on the domestic network without increasing block hours. And to answer the first part of your question, the major reductions that we did on our domestic network, we did, I think, in April and July of last year, which were significant. I think we've exhausted any of those significant reductions in domestic block hours, although we manage it literally on a daily basis. I can tell you, for example, as early as last week on a Thursday night, we're consolidating our routes out of Hamilton because of lower demand, particularly on a Thursday; we'll consolidate and save the block hours between Hamilton and Winnipeg back to Hamilton, which doesn't sound like a lot.

Revenue.

And is there Avenue to do that further or do you feel like you've you've kind of mad.

Manage that to its optimal level now and that now win.

Volume comes on are you forced to bring block hours on or.

Cash utilization move up a little bit is that operating leverage kicked out.

We're very confident that we can bring on an additional easily 10% to 15% more revenue on the domestic network without increasing block hours.

The first part of your question you know the major reductions that we did in our domestic network. We did I think in April and July of last year, which were which were significant.

I think we've exhausted any of those significant reductions in domestic block hours, although we manage it on a literally on a daily basis I can tell you as early as last week on Thursday night, we're consolidating.

Routes out of Hamilton because of lower demand on particularly on the Thursday, where we will consolidate and save the block hours between Hamilton in Winnipeg that back to Hamilton, which doesn't sound like a lot, but when you say five block hours and an operating day for the same amount of revenue. It's significant so we will continue to do that throughout 2024.

Jamie Porteus: But when you save five block hours in an operating day for the same amount of revenue, it's significant. So we will continue to do that throughout 2024. So you just said, Jamie, 10 to 15% higher revenue on the same block hour. I mean, that would be very accretive to margins. Is that not right?

Could you just said, Jamie 10% to 15% higher revenue on the same block hour I mean that would be very accretive to margins is that now I mean your margins we would agree.

Jamie Porteus: I mean, your margins. We would agree. Okay, good answer. Moving on to ACMI and a charter, that can move around as you dedicate more aircraft to ACMI and as charter demand can fluctuate a little bit. But I think you have a little bit of visibility here and I think you alluded to that, that the demand is continuing here into 2024. So is it fair to kind of model your Q4 run rate on revenue for each ACMI and charter, at least for the first half of the year and then see how the back half goes from there? Is that the right way to do that?

Alright.

Okay. Good answer.

Moving on to.

Moving on to Asia, and a charter you know.

That can move around as you dedicate more aircraft on ECM I and his charter demand can fluctuate a little bit, but I think you have a little bit of visibility here and I think you alluded to that that the demand is continuing here into 2024. So is it fair to kind of model. Your Q4 run rate on revenue for each show.

A CMI and charter at least for the first half of the year and then see how the back half goes from there is that the.

So the right way to do that I think it's fair on the CMI basis, because we are operating similar number of aircraft in Q1 and as I mentioned before we expect that to continue until at least the end of Q.

Jamie Porteus: I think it's fair on the ACMI basis because we are operating a similar number of aircraft in Q1 and, as I mentioned before, we expect that to continue until at least the end of Q2. So in that sense, yes, I think that's fair, Walter. In terms of charter, a little bit more cautious on that because obviously that's a reflection of our capability to increase the run rate from sort of 15 to 20 million per quarter to the mid to high 20s was a result of the additional aircraft we had available because of the softness in the domestic and the softness in the ACMI flying. So it's a bit of a balance as we bring back aircraft either We haven't added any more block So not that I still think we're gonna be in that mid-20 run rate, but it's just we're a little more cautious on that.

Q2 so.

In that sense, Yes, I think Thats fair Walter in terms of charter.

A little bit more cautious on that because obviously, that's a reflection of our capability too.

Increase the run rate from sort of $15 million to $20 million per quarter to the mid to high Twenty's was a result of the additional aircraft we had available because of the softness in the domestic and the softness in the semi flying so it's a bit of a balance as we bring back aircraft either we haven't added any more block hours for the domestic and don't intend to this year, but with a couple of more aircraft flying for <unk>.

H L. It lessens the of total availability, so not that I'm I still think we're going to be in that mid 'twenty run rate, but it's just we're a little more cautious on that but you're right for at least for the first half of the year, That's fair and we will take a look at it as the year goes along.

Walter Spracklin: But you're right, at least for the first half of the year, that's fair, and we'll take a look at it as the year goes along. All right, that's all my questions. Thanks very much.

Okay, Alright, that's all my questions. Thanks very much.

Thanks Walter.

Walter Spracklin: Thanks, Walter. Thank you. Once again, if you have a question, please press star 1 on your device's keypad. We have a question from Ahmad Shah from Beacon Securities. Please go ahead.

Thank you once again, if you have a question. Please press star one on your <unk>.

Keep that we have a question from Ahmad Shah from that Beacon Securities. Please go ahead. Your line is now open.

Ahmad Shah: Your line is now open. Good morning, guys, and thanks for taking my question. I guess the first one is just maybe a little bit of color on the charter environment. I'm just wondering if returns or margins are not attractive for you guys to deploy the other 2B757s? Uh, you don't want to, right? Drag margins for 2024, or how should we think about that? Yeah, good morning Ahmad.

Hi, Good morning, guys and thanks for taking my question I guess.

The first one is just maybe a little bit color on the chartering environment.

I'm just wondering.

As returns or margins that are not attractive for you guys to deploy the other to be 75 sevens.

You don't want them.

Drag margins for 2024, or how should we think about that.

Good morning.

Jamie Porteus: You know, we've never deployed dedicated aircraft assets to the charter business. It's always been utilization of aircraft assets that are related to the domestic or the ACMI segments of our business, typically during downtimes when those aircraft aren't required to fly the missions for the domestic or the ACMI, which has traditionally been, you know, daytime or on weekends when they're not flying for their contractual commitments in those revenue segments. With some surplus aircraft, that's given us a lot more flexibility, not just, and it's not as simple as having, you know, an extra two 757s and saying those are available for charters. We actually, it's not always a 757 that you want, it's predominantly 767s that are the preferred aircraft for the market that makes up most of our charter market, but we'll, you know, take a spare 757 or two, deploy them into the domestic network to free up a 767, particularly if it's for a multiple-day charter, but it's not as, you know, we plan, as I It wouldn't, it wouldn't make sense from a margin standpoint for us to dedicate those to ad hoc charters. There wouldn't be enough work to dedicate those to ad hoc charters.

You know we've never deployed dedicated aircraft assets to the charter business, it's always been utilization of aircraft assets.

Related to the domestic or the ACMD segments of our business typically during.

Downtime when those aircrafts aren't required to fly the missions for the domestic or the Asia, which has traditionally been.

Daytime or on weekends, when they're not flying.

Or are there contractual commitments in those revenue segments with some surplus aircraft, that's given us a lot more flexibility.

And it's not as simple as having you know an extra two 750 sevens and saying those are available for charters, we actually it's not always at some five seven that you. It's predominantly 760 sevens that are the preferred aircraft for the market.

That makes up most of our charter market is in 760 sevens, but will.

Take a spare 757 or to deploy it into the domestic networks a free up of 767, secondly, if it's for a multiple day charter, but it's not as you know.

We plan as I said, we would expect that for 2024, we'll continue in that mid 'twenty run rate.

But it wouldn't be something that we would look at to answer you specifically answer your question that we would take the two spare aircraft that were.

We're completing C checks and they're going to park them. It wouldn't it wouldn't make sense from a margin assembly for us to dedicate those two there wouldn't be enough work to dedicate those to AD hoc charters.

I don't know if I appreciate the color Jamie.

The second one maybe last one for Scott and when we talk about consistent margins just wanted to clarify.

Ah we sent out the impact of the fuel, especially since becoming somewhat of a potential drag given the lag on the on the pass through or how should we think about the margin.

Scott Calvert: And the second one, maybe that one for Scott, when we talk about consistent margins, I just want to clarify, are we X-ing out the impact of the fuel, especially since it's becoming somewhat of a potential drag given the lag on the pass-through? Well, how should we think about the margin? number that you guys say it's going to be consistent for 2024. Yeah, that's fair.

Number that you guys say, it's gonna be consistent for 2024.

Yes, that's fair, it's consistent and it's really hard for you folks to really measure the impact of that is on that fuel surcharge revenue line as fuel surcharge and other pass throughs. The other pass through so it's a significant number and then when you look at fuel expenses things going on in there as well that makes it really tricky for you folks too.

Scott Calvert: It's consistent. It's really hard for you folks to really measure the impact of that because on that fuel surcharge revenue line, it says fuel surcharge and other pass-throughs. The other pass-throughs are a significant number. And then when you look at fuel expense, there's things going on there as well that make it really tricky for you folks to... But really, nothing's changed. It neutralizes over time. It's really just... You always hear about it with the rail and the trucking companies talking about it. And our problem is just twice as big because it's a two-month journey compared to a one-month journey. But it does even out over time.

But really nothing's changed it neutralizes overtime, it's really just a.

You always hear about it with our rail and trucking companies talking about it in our problem is just twice as big because it's a two month lag compared to a one month lag, but it does even out overtime.

It's sustainable over time.

Got it.

It's helpful. Thanks, I'll jump back in the queue.

Thank you there are no further questions registered at the time I would like to turn back the meeting over to Mr. Lynn.

Thank you Marie Thank you everyone for joining us on the call today.

A lot of heavy lifting in 2023 cargo jet, it's well positioned now we have an exceptional team a proven business model and the best on time performance in the industry.

Ahmad Shah: So, it's sustainable over time. Got it. That's helpful. Thanks, Todd. I'll jump back in. Thank you. There are no further questions registered at this time. I would like to turn the meeting back over to Ms. Dillon.

We do one thing and we do it well we fly cargo every package it's treated like at flight. The first half we do not offer economy class.

Pauline Dillon: Thank you, Marie. Thank you, everyone, for joining us on the call today. After a lot of heavy lifting in 2023, Cargojet is well positioned now. We have an exceptional team, a proven business model, and the best on-time performance in the industry. We do one thing, and we do it well. We fly cargo. Every package is treated like it flies first class.

Thanks again, everyone for joining us have a great day.

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Operator: We do not offer economy class. Thanks again, everyone, for joining us. Have a great day. Thank you.

Hello for me please.

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