Q1 2024 Cargojet Inc Earnings Call

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Operator: This conference is being recorded. All participants, please stand by; the conference is ready to begin. Good morning, ladies and gentlemen, and welcome to the Cargojet conference call. I would now like to turn the meeting over to Mr. Martin Herman. Please go ahead, Mr. Herman.

This conference is being recorded.

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Marching Army: All participants please standby your conference is ready to begin good morning, ladies and gentlemen, and welcome to the cargo Jet conference call I would now like to turn the meeting over to Mr. Marching Army. Please go ahead Mr. Herman.

Martin Herman: Good morning, everyone, and thank you for joining us today on this call. With me on the call today are Ajay Virmani, our Executive Chairman; Pauline Dhillon, Co-Chief Executive Officer; Jamie Porteous, Co-Chief Executive Officer; Scott Calver, our Chief Financial Officer; and Sanjeev Mani, our Vice President, Finance.

Marching Army: Good morning, everyone and thank you for joining us today on this call with me on the call today are a jade Rahmani, our executive Chairman Pauline Dhillon Co Chief Executive Officer, Jamie Porteous Co Chief Executive Officer, Scott caliber, our Chief Financial Officer, and Sanjiv, Many our vice President Finance.

Martin Herman: After opening remarks about the quarter, we will open the call for questions. I would like to point out that certain statements made on this call, such as those related to our forecasted revenues, costs, and strategic plans, are forward-looking within the meaning of applicable securities laws. This call also includes references to non-GAAP measures like adjusted EBITDA, 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 reconciliation of non-GAAP measures to GAAP. I will now turn it over to Jamie.

Marching Army: After opening remarks about the quarter, we will open the call for questions I would like to point out that certain statements made on this call such as those related to our forecasted revenues costs and strategic plans are forward looking within the meaning of applicable securities laws.

Marching Army: I will also include 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 reconciliations of non-GAAP measures to GAAP.

Speaker Change: I'll turn the call.

Jamie Bennett Porteous: Thank you, Marty. Good morning, everyone.

Speaker Change: Yeah.

Speaker Change: Yeah.

Speaker Change: Thank you Bobby and good morning, everyone. Thank you for joining us on the call today.

Jamie Bennett Porteous: Thank you for joining us on the call today. Pauline and I will share a few thoughts on the state of our business before we pass the call over to our Chief Financial Officer, Scott Calver, to give you a bit more color on the financial driver. This quarter saw healthy 6.5% growth in our core revenue segments of Domestic Overnight Network, ACMI Flying, and Ad Hoc and Scheduled Chart. While encouraged by the year-over-year growth, we remain somewhat cautious on our full-year expectations.

Speaker Change: And then I will share a few thoughts on the state of our business before we pass the call over to our Chief Financial Officer, Scott caliber to give you a bit more color on the financial drivers.

Scott D. Calver: This quarter saw a healthy six 5% growth in our core revenue segments of domestic overnight network a CMI flying.

Scott D. Calver: Matt Hawkins scheduled charters, while encouraged by the year over year growth, we remain somewhat cautious on our full year expectations.

Jamie Bennett Porteous: We continue to see margin improvements driven by our optimization of fleet and flight schedules and the rigorous management of block hours flown, especially on our domestic overnight network. Much of the heavy lifting on fleet optimization started early last year, and we are now starting to see its impact on our performance metrics. On the domestic side, volumes from our major customers have stabilized and improved sequentially each quarter since the middle of last year. However, given the macroeconomic environment of persistent inflation and high interest rates, a much greater portion of household income is still being spent on borrowing costs, leaving a smaller portion for discretionary spending.

We continue to see margin improvements driven by our optimization of fleet in flight schedules and the rigorous management of block hours flown, especially on our domestic overnight network.

Scott D. Calver: Much of the heavy lifting on fleet optimization started early last year and we are now starting to see its impact in our performance metrics.

On the domestic side the volumes from our major customers have stabilized and improved sequentially each quarter since the middle of last year.

Scott D. Calver: Given the macroeconomic environment, a persistent inflation and high interest rates a much greater portion of household income is still being spent on borrowing costs, leaving a smaller portion for discretionary spending.

Jamie Bennett Porteous: As a result, we do not see or expect significant growth to return until financial conditions ease significantly for consumers. On the international side, macro conditions also remain weak, and the current geopolitical situation is expected to further disrupt supply chains. This is leading to increased and somewhat temporary demand for global air cargo services as evidenced by several industry indicators, including IATA, which we hope to capitalize upon. Most of our growth in Q1 was a result of us winning extra routes purely due to our exceptional service levels and not necessarily due to any macro growth drivers in our cargo demand. This is an example of squeezing blood out of a stone, a longstanding trait of our entrepreneurial heritage.

As a result, we did not see or expect significant growth to return until financial conditions ease significantly for consumers.

Scott D. Calver: On the international side, the macro conditions also remained weak and the current geopolitical situation is expected to further disrupt supply chains.

Scott D. Calver: This is leading to increased somewhat temporary demand for global air cargo services as evidenced by several industry indicators, including <unk>.

Scott D. Calver: Which we hope to capitalize upon.

Scott D. Calver: Most of our growth in Q1, as a result of us winning extra routes purely due to our exceptional <unk>.

Scott D. Calver: Service levels are not necessarily due to any macro growth drivers in air cargo demand.

Scott D. Calver: This is an example of squeezing blood out of a stone a longstanding trade of our entrepreneurial heritage.

Jamie Bennett Porteous: Our ad hoc charter business remains steady at about $20 to $25 million per quarter, and we continue to support and win unique charter services around the globe. Additionally, new e-commerce market entrants such as Timu and Xian are also introducing new supply chain models, and we continue to pursue those opportunities. In mid-January, we laid out our strategic priorities to focus on optimizing CapEx and generating free cash flow, including a framework on how we will use our cash.

Scott D. Calver: Our AD hoc charter business remained steady at about $20 million to $25 million per quarter, and we continue to support and win unique charter services around the globe.

Scott D. Calver: Additionally, new ecommerce market entrants such as Tmall and Shannon are also introducing new supply chain models, and we continue to pursue those opportunities.

Scott D. Calver: Okay.

Scott D. Calver: In mid January we laid out our strategic priorities to focus on optimizing capex and generating free cash flow, including a framework on how we use our cash.

Jamie Bennett Porteous: We are particularly pleased to start the year with strong cash flow generation that will help us execute on these strategic priorities. We continue to return capital back to shareholders through our share buyback program and have also paid down debt, reducing our leverage from 2.6 times at the end of 2023 to 2.2 times at the end of the first quarter, well within our target range of one and a half to two and a half times leverage.

Scott D. Calver: We are particularly pleased to start the year with strong cash flow generation that will help us execute on these strategic priorities.

Scott D. Calver: We continued to return capital back to shareholders through our share buyback program and also paid down debt, reducing our leverage from two six times at the end of 2023 to two two times at the end of the first quarter well within our target range of one five to two five times leverage.

Scott D. Calver: Yeah.

Pauline Dhillon: As I have said before, 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. This is what makes us successful and builds long-term relationships. Our relationship with all of our key customers remains very strong. Pauline and I have met and continue to meet senior leadership at all of our key customers, and we continue to receive a very strong endorsement of our strategies and our commitment to industry-leading reliability and on-time performance. Let me now pass the microphone over to my colleague, Pauline.

Scott D. Calver: As I have said before our 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.

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

Scott D. Calver: Our relationship with all of our key customers remains very strong.

Scott D. Calver: All in and I have may have met and continue to meet senior leadership at all of our key customers and we continue to receive a very strong endorsement of our strategies and our commitment to industry, leading reliability and on time performance.

Speaker Change: Let me now pass the microphone over to my colleague colleague.

Speaker Change: Thanks, Jamie.

Pauline Dhillon: Jamie and I are extremely pleased to have the first quarter under our belts, and it's certainly been a fun few months. Let me add a few thoughts on the macro environment before I jump into the specific initiatives that are driving our performance. On the macro front, we are seeing a tale of two cities. On the one hand, inflation appears to be cooling off, and central bankers are hinting at cutting interest rates.

Speaker Change: Jamie and I are extremely pleased to have the first quarter under our belts and it's certainly been a fun for you Matt.

Speaker Change: Let me add a few thoughts on the macro environment before I jump into the specific initiatives that are driving our performance we.

Speaker Change: We are seeing a tale of two cities on the macro front on.

Speaker Change: On the one hand inflation appears to be cooling off and central bankers are hinting at cutting interest rates yet on the other hand, the geopolitical situation both in the middle East as well as on the Russia, Ukraine front has the potential to disrupt the global supply chain.

Pauline Dhillon: Yet, on the other hand, the geopolitical situation, both in the Middle East as well as on the Russia-Ukraine front, has the potential to disrupt global supply chains. All ocean carriers are avoiding the Red Sea, which is adding more complexity for importers to plan their supply chain.

Speaker Change: Ocean carriers are avoiding the red sea, which is adding more complexity for employers to plan their supply chain.

Pauline Dhillon: Closer to home, Cargojet remains focused on delivering shareholder value. Jamie spoke to the revenue side of our business, and I will touch on the cost side. We have been working extremely hard for the past 15 months and driving cost management. We are very pleased to see the new mindset is starting to get entrenched, and we are now seeing the real benefits. We continue to drive efficiencies in every aspect of our business.

Speaker Change: Closer to home cargo jet remains focused on delivering shareholder value.

Speaker Change: Jamie spoke to the revenue side of our business and I will touch on the cost side.

Speaker Change: We have been working extremely hard for the past 15 months and driving cost management. We are very pleased to see the new mindset, it's starting to get entrenched and we are now seeing the real benefits.

Speaker Change: We continue to drive efficiencies in every aspect of our business.

Pauline Dhillon: Streamlined maintenance processes are resulting in lower spare parts inventory and shorter turnaround times for aircraft. Decreased block hours, optimized schedules, and better shift management are all contributing to cost reduction. Discipline Purchasing is yielding expense savings in key large ticket categories.

Speaker Change: Streamline maintenance processes are resulting in lower spare parts inventory and shorter turnaround times for aircraft decreased block hours optimize schedules and better ship management are all contributing to cost cost reduction disciplined purchasing is yielding expense savings and <unk>.

Speaker Change: I just ticket categories.

Pauline Dhillon: The investment we have made in our in-house simulators is also paying off. We are getting better utilization of our pilot training, which in turn, is reducing pilot downtime, cutting travel and hotel costs, and helping reduce crew overtime. Another area of focus for us is information technology. We are putting a greater focus on how IT can enable further productivity gains and provide deeper insights for faster decision-making. We are also monitoring emerging AI-assisted tools that can provide faster answers by extracting relevant information from thousands of pages of manuals and, in turn, can enhance technician productivity in aircraft maintenance processes.

Speaker Change: The investment we have made in our in house simulators is also paying off we're getting better utilization of our pilot training that's.

Speaker Change: In turn is reducing pilot downtime cutting travel and hotel costs and helping reduce crew overtime.

Speaker Change: Another area of focus for US is information technology, we are putting a greater focus on how information technology can enable further productivity gains and provide deeper insights for faster decision, making.

Speaker Change: We are also monitoring the emerging AI assisted tools that can provide faster answers I extracting relevant information from thousands of pages of manuals and in turn can enhance technician productivity and aircraft maintenance costs taxes.

Pauline Dhillon: We continue to drive efficiencies in our ground operations to bring our unit costs down. But in this fast-changing aviation environment, the biggest differentiator is going to be our people. Attracting and retaining the best talent and building strong training programs that keep our teams current on emerging best practices is vital to our long-term success. We are extremely proud of our dedicated and committed team of professionals who are the true driving force behind Cargojet. We would like to thank each of them for embracing the new priorities of profitable growth, focusing on cost reductions, and always ensuring we deliver the best customer experience. The largest factor driving customer experience is our on-time performance. I'm very pleased to share that our Q1 on-time performance remained strong at 98.7%. This concludes my comments. I will now turn the call over to Scott for an update on the financial drivers.

Speaker Change: We continue to drive efficiency in our ground operations to bring our unit costs down.

Speaker Change: In this fast changing aviation environment, the biggest differentiator is going to be our people.

Speaker Change: Attracting and retaining the best talent.

Speaker Change: Building strong training programs that keep our team's current unimagined best practices is vital to our long term success.

Speaker Change: We are extremely proud of our dedicated and committed team of professionals, who are the true driving force behind cargo check.

Speaker Change: We would like to thank each of them are embracing the new priorities of profitable growth focusing on cost reductions and always ensuring we deliver the best customer experience.

Speaker Change: Single.

Speaker Change: The largest factor.

Speaker Change: Driving customer experience is our on time performance.

Speaker Change: I'm very pleased to share that our Q1 on time performance remained strong at 98, 7%.

Speaker Change: This concludes my comments I will now turn the call over to Scott for an update on the financial drivers.

Scott D. Calver: Thank you, Pauline, and good morning, everyone. I would like to start with an update on our capital allocation priorities that we laid out in our January 15, 2024 press release. The first quarter delivered free cash flow of $168.7 million compared to $15.2 million for the same quarter of the previous year. Cargojet successfully executed on the initiatives that we had previously communicated. We estimated the proceeds from disposition for 2024 to be in the range of $100 million to $110 million.

Scott D. Calver: Thank you Pauline and good morning, everyone.

Scott D. Calver: I would like to start with an update on our capital allocation priorities that we laid out in our January 15th 2024 press release.

Scott D. Calver: The first quarter delivered free cash flow up $168 $7 million compared to $15 2 million for the same quarter in the previous year.

Scott D. Calver: Cargo jet successfully executed on the initiatives that we had previously communicated.

Scott D. Calver: We had estimated the proceeds from dispositions for 2020 for it to be in the range of 100 million to $110 million.

Scott D. Calver: Other than one small passenger aircraft, everything has been completed, and we closed the corridor with proceeds of $101 million. We have an acceptable offer for the small passenger aircraft, and we anticipate that this sale could be finalized in the second quarter, which would bring us to the midpoint of our revenue target. I started this call with an update on the proceeds from dispositions because of how critical this is to support our four key principles for capital allocation and capital structure for 2024. An update on our four principles is as follows.

Other than one small passenger aircraft everything has been completed and we closed the quarter with proceeds of $101 million with.

Scott D. Calver: We have an acceptable offer for the small passenger aircraft and we anticipate that this sale could be finalized in the second quarter, which would bring us to the midpoint of our proceeds target.

Scott D. Calver: I started this call with an update on the proceeds from dispositions because of how critical this is to support our key our four key principles for capital allocation and capital structure for 2024.

Scott D. Calver: An update on our four principles is as follows.

Scott D. Calver: The first key principle being to maintain dividend growth. This is an important part of our capital allocation long-term strategy. We are proud of Cargojet's longstanding history of delivering an annual increase in dividends to our shareholders. This year will be no different.

Scott D. Calver: For the first key principle being to maintain dividend growth.

Scott D. Calver: This is an important part of our capital allocation long term strategy. We are proud of cargo jets long standing history of delivering an annual increase in dividends to our shareholders.

Scott D. Calver: This year will be no different.

Scott D. Calver: More to come on this as the year progresses. The second key principle is to identify accretive growth opportunities that will meet margin requirements. And just a reminder that Cargojet has feedstock and the conversion slots secured for the next two Boeing 767 freighters. This should be considered a long-term investment and an option as we navigate the weak environment that Jamie and Pauline have already discussed in their prepared remarks. The key principle is to maintain the current share buyback program.

Scott D. Calver: More to come on this as the year progresses.

Scott D. Calver: The second key principle is to identify accretive growth opportunities that will meet margin requirements.

Scott D. Calver: And just a reminder, that cargo jet has feedstock and the conversion slots secured for the next two Boeing 767 freighters.

Scott D. Calver: This should be considered a long term investment and optionality as we navigate in the weak environment that Jamie and probably already discussed in the prepared remarks.

Scott D. Calver: The key principle is to maintain the current share buyback program.

Scott D. Calver: Our shared buyback program started in November 2023, and it has and will continue into the second quarter of 2024. As of this call, and since we started the program back in the fall, Cargojet has spent approximately $90 million to support this key principle. We will continue to assess the program throughout the remainder of the year, which leads me to the fourth key principle.

Scott D. Calver: Our share buyback program started in November 2023, and it has and will continue into the second quarter of 2024.

Scott D. Calver: As of this call and since we started the program back in the fall.

Scott D. Calver: Cargo jet has spent approximately $90 million to support this key principle.

Scott D. Calver: We will continue to assess the program throughout the remainder of the year, which leads me to the fourth key principle.

Scott D. Calver: Our targeted net debt to adjusted if it is between 1.5 and 2.5 times. In the first quarter, Cargojet repaid approximately $130 million worth of debt. This lowered our financial leverage. As Jamie noted, Cargojet's net debt adjusted if it closed the quarter at 2.2 times compared to 2.6 times that was reported as at December 31st, 2023. I will provide some additional commentary in regards to our operating expenses. Maintenance costs increased by $2.3 million compared to the prior year.

Scott D. Calver: Our targeted net debt to adjusted EBITDA being between one five and two five times.

Scott D. Calver: In the first quarter cargo jet repaid approximately $130 million worth of debt.

Scott D. Calver: This lowered our financial leverage.

Scott D. Calver: As Jamie noted the cargo jets net debt to adjusted EBITDA closed the quarter at two two times compared to two six times that was reported as at December 31 2023.

Scott D. Calver: I will provide some additional commentary in regards to our operating expenses.

Scott D. Calver: Maintenance cost increased by $2 3 million compared to the prior year.

Scott D. Calver: There was a one-time expense with an offset and other pass-through revenue that explains approximately 50% of this variance. Cargojet provided support to one of our strategic partners by assisting them with a required seat check.

There was a one time expense with an offset in other pass through revenue that explains approximately 50% of this variance.

Scott D. Calver: Cargo jet provided support to one of our strategic partners by assisting them on our required C check.

Scott D. Calver: The remainder of the increase is inflation in both parts and labor costs. Heavy maintenance has increased compared to the prior year as a result of the increased size of our fleet. However, sequentially, heavy maintenance is flat to the fourth quarter of last year. Aircraft costs are down compared to the prior year as a result of less reliance on subcontract charters. Crew costs have increased approximately 5% compared to the prior year for two factors.

Scott D. Calver: The remainder of the increase is inflation in both parts and labor costs.

Scott D. Calver: Have been maintenance has increased compared to the prior year as a result in the crease increased size of our fleet.

Scott D. Calver: Sequentially heavy maintenance is flat to the fourth quarter of last year.

Scott D. Calver: Aircraft costs are down compared to prior year as a result of less reliance on subcontractors charters.

Scott D. Calver: Crew costs have increased approximately 5% compared to the prior year for two factors.

Scott D. Calver: There has been normal wage inflation for salaries. We also experienced above average aircraft repositioning-related crew costs in the first quarter. We are starting to see rationalization in the passenger airline space with one airline exiting the market recently.

Scott D. Calver: There has been normal wage inflation for salaries.

Scott D. Calver: We also experienced an above average aircraft repositioning related crew costs in the first quarter.

Scott D. Calver: We are starting to see rationalization in the passenger airlines space with one airline exiting the market recently this is easing the pressure on pilot recruitment and we expect crude costs to normalize in the latter half of this year.

Scott D. Calver: This is easing the pressure on pilot recruitment, and we expect crew costs to normalize in the latter half of this year. Depreciation has increased compared to the prior year as a result of the increased size of our fleet. You will note a $3.7 million reduction compared to the fourth quarter of 2023. The reduction is sustainable going forward.

Scott D. Calver: Depreciation has increased compared to prior year as a result in the increased size of our fleet.

Scott D. Calver: You will note that $3 7 million dollar reduction compared to the fourth quarter of 2023.

Scott D. Calver: The reduction is sustainable going forward.

Scott D. Calver: The reduction in maintenance CAPEX over the last four quarters was a key cost control initiative as Cargojet reduced the number of spare engines to a level that is appropriate for our current revenue and fleet profile. It is important to understand that the lower levels of maintenance CAPEX are not a cost deferral exercise. It should be viewed as an adjustment of invested capital to support our revised strategic plan. You will see a slight reduction in ground services, airport services, navigation, and insurance, both the prior year and sequentially to the fourth quarter.

Scott D. Calver: The reduction in maintenance Capex that capex over the last four quarters was a key cost control initiatives as cargo jet reduced the number of spare engines to a level that is appropriate for our current revenue and fleet profile.

Scott D. Calver: It is important to understand that the lower levels of maintenance Capex is not a cost deferral exercise.

Scott D. Calver: It should be viewed as an adjustment of invested capital to support our revised strategic plan.

Scott D. Calver: You will see a slight reduction to ground services Airport services navigation and insurance book.

Scott D. Calver: Both the prior year and sequentially to the fourth quarter. This is primarily the result of changes in mix of revenue.

Scott D. Calver: This is primarily the result of changes in and mix of revenue. There is an offset or a reduction in other pass-through revenue, and therefore, there is no impact on EBITDA profitability. SG&A is flat to the prior year. The timing of incentive costs is offset by a foreign exchange gain. Salary and benefits increased by $1 million compared to the first quarter last year. This reflects inflation in certain parts of our business to remain competitive with our current wage structure.

Scott D. Calver: There is an offset or a reduction in other pass through revenue and therefore, there is no impact to EBITDA profitability.

Scott D. Calver: S. SG&A is flat to prior year, the timing of incentive cost is offset with a foreign exchange gain.

Scott D. Calver: Salary and benefits has increased to $1 million compared to the first quarter last year. This reflects inflation.

Scott D. Calver: In certain parts of our business to remain competitive with our current wage structure.

Scott D. Calver: A few comments about cash flow and how this impacted our March 31st, 2024 balance sheet. Cash flow from operating activities closed the quarter at $55.7 million, down approximately $10 million compared to the prior year. After including changes in non-cash working capital, net cash flow from operating activities improved by $17.2 million. The improvement in non-cash working capital is driven by the amount of fuel that we had both in our accounts receivable and in our accounts payable due to the high fuel prices in the previous year.

Scott D. Calver: A few comments about cash flow and how this impacted our March 31, 2024 balance sheet.

Scott D. Calver: Cash flow from operating activities closed the quarter at $55 $7 million down approximately $10 million compared to the prior year.

Scott D. Calver: After including changes in noncash working capital net cash flow from operating activities improved by $17 $2 million.

Scott D. Calver: The improvement in the noncash working capital is driven from the amount of fuel that we had both in our accounts receivable and our accounts payable with the high fuel prices and the previous year.

Scott D. Calver: As mentioned earlier, the cash provided from investing activities benefited from the $101 million in proceeds as it relates to exiting our commitments to the Boeing 777 program. The $18.5 million gain on disposal of property, plant, and equipment is consistent with what the company had indicated going as far back as early 2022. The risk mitigation for growth capital expenditures is now visible in our Q1 results. The maintenance capex reported in the first capital, first quarter, sorry, is still benefiting from the cost reduction program in 2023.

Scott D. Calver: As mentioned earlier, the cash provided from investing activities benefited.

Scott D. Calver: From the $101 million in proceeds as it relates to exiting our commitments to the Boeing Triple seven program.

Scott D. Calver: The $18 $5 million gain on disposal of property plant and equipment.

Scott D. Calver: Consistent with what the company had indicated going as far back as early 2022.

Scott D. Calver: The risk mitigation for growth capital expenditures is now visible in our Q1 results.

Scott D. Calver: The maintenance Capex reported in the first capital first quarter story is still benefiting from the cost reduction program from 2023.

Scott D. Calver: Maintenance CapEx will be back unloaded in 2024, and at this time, we anticipate the range for committed maintenance CapEx for 2024 to finish the year at $140 to $150 million. With the $80 million cash from operations and the $88 million generated from investing activities, as mentioned, Cargojet repaid $130 million worth of debt while supporting the share buyback program with share purchases of $46 million in the first quarter. While we are pleased with what the team accomplished in the first quarter, the management team continues to manage in a stubbornly weak freight market that has no shortages of risks and uncertainties for the foreseeable future. I will now pass the call back to Jamie and Pauline for any questions.

Scott D. Calver: Maintenance Capex will be backend loaded in 2024 and at this time, we anticipate the range for committed maintenance Capex for 'twenty 'twenty four to finish the year at $140 million to $150 million.

Scott D. Calver: With the $80 million cash from operations and the $88 million generated from investing activities as mentioned cargo jet repaid $130 million worth of debt.

Scott D. Calver: Supporting the share back buyback program with share purchase of $46 million in the first quarter.

Scott D. Calver: While we are pleased with what the team has accomplished in the first quarter. The management team continues to manage a stubbornly weak freight market that has no shortages of risks and uncertainties for the foreseeable future.

Scott D. Calver: I will now pass the call back to Jamie and Pauline for any questions.

Jamie Bennett Porteous: Operator, we'll start taking questions, please.

Scott D. Calver: Yes.

Jamie Bennett Porteous: Operator, we'll start taking questions. Please.

Operator: Thank you. We will now take questions from the telephone lines. If you have a question, please press Star 1 on your device's keypad. You may cancel your question at any time by pressing Star 2. Please press star 1 at this time if you have a question. There will be a brief pause while participants register their questions. Thank you for your patience. Our first question is from Kevin Chiang from CIBC. Please go ahead.

Speaker Change: Thank you, we'll now take questions from the telephone lines you can't have a question. Please press star one on your devices keypad.

Phil Your question at any time by pressing star two.

Speaker Change: Please press star one at this time, if you have any question there will be a brief pause for all participants register for questions.

Speaker Change: We thank you for your patience.

Speaker Change: Our first question is from Kevin Chiang from CIBC. Please go ahead.

Kevin Chiang: Okay, good morning. Thanks for taking my question.

Kevin Chiang: Okay. Good morning.

Kevin Chiang: For taking my question.

Kevin Chiang: Maybe just going.

Kevin Chiang: Maybe just Going back to your outlook for this year, I understand the cautiousness. I guess if I look at historically, I'll say pre-pandemic, the typical seasonality, you know, Q1 versus the rest of the year, you know, Q1 was roughly 20% of EBITDA; we call it the low 20%. In the past couple of years, it's been, you know, closer to 24, 25%. Just, I guess, what do you think the new norm is for seasonality for your business? And do you think normal seasonality is what we should expect in 2024 after this Q1? Or is it even tough to forecast that just given the percentage in the freight market?

Kevin Chiang: Going back to your outlook for this year I I understand.

The cautiousness.

But that's about as I looked at historically I also prepay that debt.

Kevin Chiang: With typical seasonality in Q1 versus.

Kevin Chiang: Q1 'twenty.

Kevin Chiang: 20% of EBITDA call it low 20%.

Kevin Chiang: You know the past couple of years, it's been closer to 24, 25%.

Kevin Chiang: I guess what is the new norm is for seasonality.

Kevin Chiang: For your business and do you think normal seasonality.

Kevin Chiang: What we should expect in 2024. After this Q1 or is it even popped up.

Speaker Change: So the forecast that just given given the puts and takes in the market.

Jamie Bennett Porteous: Good morning, Kevin. It's Jamie. Thanks for your question. I think we're just being a little cautious this year. You're right.

Speaker Change: Hey, good morning, Kevin and Jamie the thanks for your question.

Speaker Change: I think we're just being a little cautious this year, you're right. I mean typical you know typically seasonality the second half of the years is typically stronger than the first half of the year.

Jamie Bennett Porteous: Typically, seasonality, the second half of the year is typically stronger than the first half of the year. As we expressed, while we were very pleased with the results in the first quarter, we started the first quarter, I think, at the start of the year, talking about mid to high single-digit growth for the business. We saw some good momentum in the first couple of months, particularly when the sentiment was around inflation coming down, interest rates coming down, but as everybody has seen in the last part of the quarter and certainly in April, it doesn't seem that that's anywhere close on the horizon.

Speaker Change: Well you know as we express while we're very pleased with the results in the first quarter.

Speaker Change: We started the first quarter I think.

Speaker Change: <unk> started the year talking about sort.

Speaker Change: Sort of mid to.

Speaker Change: Mid to high single digit growth for the business.

Speaker Change: Awesome good.

Speaker Change: Momentum in the first couple of months.

Speaker Change: Generally when.

Speaker Change: So the sentiment was around inflation coming down interest rates coming down, but you know as everybody has seen in the last the last part of the quarter and certainly in April it doesn't seem that that's anywhere close on the horizon. So are.

Jamie Bennett Porteous: So our sort of enthusiasm about the growth for the balance of the year is somewhat tempered by that. So I think you would still expect, all things being equal, that the second half of the year, our historical experience, will be stronger than the first half of the year. I guess the question is just how much stronger, and we're just being a little conservative in our expectations this year.

Speaker Change: Sort of an enthusiasm about the growth for the balance of the year somewhat tempered by that so I think yeah.

Speaker Change: You would still expect that the second half of it you know all things being equal that the second half of the year.

Speaker Change: Typical or historical experience will be stronger than the first half of the year. I guess the question is just how much stronger and we're just being a little conservative in our expectations. This year.

Kevin Chiang: Okay, that's helpful.

Speaker Change: Okay.

Kevin Chiang: A lot of good momentum on the cost containment front. I guess as a way to think about how we should be looking at

Speaker Change: That's helpful.

Speaker Change: Then just obviously a lot of a lot of good momentum on the on.

Speaker Change: On the cost containment.

Speaker Change: I guess is the way to think about how we should be looking at let's say <unk>.

Kevin Chiang: Looking at, let's say, total cost or total offsets, excluding depreciation fuel, you know, on a per block hour basis, you know, we saw, you know, we saw good momentum last year, and it looks like on a year-to-year basis, you know, things continue to look good in Q1 of this year, you know, should we can, should we expect that, that, that trend, that relative trend to continue in Q2 onwards, in terms of, you know, the cost per block hour, on a per block hour basis, or is there anything you'd highlight that might make, that we should be, that we should be mindful of?

Speaker Change: Total cost or total opex, excluding depreciation fuel.

Speaker Change: On a per block hour basis than we thought.

Speaker Change: We saw good momentum.

Speaker Change: Last year and it looks like when they give you a basis well continue to look good in Q1.

Speaker Change: Should we think should we expect that.

That trend relative trend to continue in Q2, one was in terms of.

Speaker Change: Cost per block hour basis, there's anything.

Speaker Change: I like that might be.

But we should that we should be mindful.

Speaker Change: Yeah no.

Speaker Change: Maybe Scott can add their comments to it but no I think you should fully expect that we'll continue to see.

Speaker Change: You know as we both mentioned in our in our opening remarks, I mean, we've been you know.

Speaker Change: Singularly focused on managing our cost to understanding the current revenue environment, and we've really seen particularly this quarter year over year in the first quarter of last year.

Speaker Change: As in most of our in terms of managing the block hours is more focused on the domestic network because thats, where we have the control of the semi business. Obviously is controlled by our customers as the charter and scheduled but.

Speaker Change: We've seen significant.

Unknown Executive: Scott Calver, Unknown Executive, Kevin Chiang, David Ocampo, Pauline Dhillon, Cameron Doerksen, Unknown Executive, Kevin Chiang, David Ocampo, Pauline Dhillon, Cameron Doerksen, Scott Calver, Unknown Executive, Kevin Chiang, David Ocampo, Pauline Dhillon, Cameron Doerksen

Speaker Change: In the quarter alone I think we were down 16% in total block hours.

Speaker Change: On a year over year basis, and our revenue per block hour was up 18%. So that's a good indicator that we're <unk>.

Speaker Change: Generating.

Speaker Change: Stronger volumes were putting more revenue unless block hours and that you know that.

Speaker Change: That focus will continue in terms of managing the block hours and equally as Pauline said, maybe she can add some comments, we're continuing to focus on the cost side, yes.

Pauline Dhillon: Thanks, Jamie. Hi Kevin.

Pauline Dhillon: Yeah. Thanks, Jamie.

Pauline Dhillon: I echo Jamie's comments. We have worked, as I said earlier, on costs for the last 15-16 months. We have really taken the team. We've introduced a new culture of cost savings; it's been a primary focus, and going into Q1, we could really see the benefits of the new processes that we put in, reduced inventories, looking at block hours, driving efficiencies right through not only the domestic network but through the organization as a whole.

Hi, Kevin Yeah, I Echo Jamie's comment you know we have work yeah as I said earlier the last 15 16 months on cost we have you know.

Really taken the team leave.

Pauline Dhillon: <unk> introduced a new culture of cost savings, it's been a primary focus and you know going into Q1, we could really see the benefits of the new processes that we've put in a reduced inventories looking at block hours.

Pauline Dhillon: Driving efficiencies right through not only the domestic network, but through the organization as a whole it's been a focus it'll continue to be a focus and you know the biggest win here is the team is now embracing the cost efficiency programs that we've put in place for example, even getting the simulator supposed to see me.

Pauline Dhillon: The simulators are both fully operational and being utilized, and when they're not being utilized by us, we are going out to the market and selling the hours. So we're looking at cost, revenue, everything on a daily basis.

Pauline Dhillon: Later is operational and running that saves that fly increase to Miami or Dallas. It phased hotel nights at save crew overtime. They seem a leaders are both fully operational and being utilized and when they're not being utilized by as you know, we arent going out to the market and selling the hours. So we're looking at cost revenue.

Kevin Chiang: That is super helpful. And then just last one for me, maybe more of a modeling question. Just, I guess, Scott.

Kevin Chiang: How should we think about the, I guess, the spread between fuel costs and I guess the

Pauline Dhillon: Everything on a daily basis.

Kevin Chiang: Between fuel costs and I guess the fuel surcharge and other costs passed through the line, you know, there's almost $20 million this quarter. Maybe we should be thinking about some of the moving parts and maybe the impact of the volatile fuel price environment in Q1, maybe how that impacted it. Thanks, Kevin.

Pauline Dhillon: That's.

Speaker Change: That's super helpful. And then just last.

Pauline Dhillon: One for me maybe more of a.

Speaker Change: A modeling question.

Speaker Change: Just I guess, it's Scott.

Scott D. Calver: Should we think about the Oh.

Speaker Change: I guess.

Speaker Change: Between fuel costs.

Speaker Change: And I guess the.

Speaker Change: Surcharge or another.

Speaker Change: Cost pass through line.

Speaker Change: It's almost 20 million this quarter, maybe just.

Speaker Change: How we should be thinking about some of the moving parts and maybe the impact though.

Speaker Change: If it was a volatile steel price environment in Q1, maybe how that impacted that but.

Speaker Change: Yes, thanks, Kevin.

Scott D. Calver: Q1 was a good year as it relates to the leg because we really didn't have much of an impact. And really, what's best for your modeling, what I would do is go sequentially off of Q4 into Q1. You really can't compare year over year because the fuel prices were so high last year, and the movement and the fuel price changes last year were quite variable. So, you get more of a normalized view when you look sequentially from Q4 into Q1.

Speaker Change: Q1 was a good year as it relates to the leg.

Speaker Change: Because we really didn't have much of an impact and really what's best for your modeling what I would do is go sequentially off of Q4 into Q1, you really can't compare year over year because of the fuel prices were so high and the movement in the fuel price changes last year's where we're quite variable, but so you get more of a normalized view when you do sequentially from Q4 into Q.

Scott D. Calver: And then, really, it was somewhat fortunate because it's very hard to tell because there's a bunch of other revenue and that fuel passed through and other revenue. So, it's really hard to make that direct connection.

Speaker Change: One and then really where.

Speaker Change: Where it was somewhat fortunate because it's very hard to tell because there's a bunch of other revenue and net fuel pass through and other revenue. So it's really hard to make that direct connection but at least from Q4 to Q1. That's most normalized if you will and when you look at the reduction in fuel prices that we experienced in the last couple years.

Kevin Chiang: But at least from Q4 to Q1, it's most normalized, if you will. And when you look at the reduction in fuel prices that we experienced in the last couple of two or three weeks of December, those came back a little bit. We had price increases, moderate ones throughout Q1, but they were pretty much offsetting. So, there was a little bit of a tailwind from fuel in Q1, but inventory, on the grand scheme of things. So, this was our best quarter to understand it in a sequential way of looking. Perfect. That's it for me. Thank you for taking my question.

Speaker Change: And three weeks of December those came back a little bit we had price increases moderate ones throughout Q1, but they are pretty much offsetting so there was a little bit of a tailwind from fuel in Q1, but immaterial in the Grand scheme of things. So this is our best quarter to understand at any sequential way of looking at it.

Speaker Change: Perfect. That's it for me. Thank you for taking my question.

Speaker Change: Thank you Kevin.

Operator: Our following question is from Konark Gupta from Scotiabank.

Speaker Change: Following question is from Coronach Gupta from Scotiabank. Please go ahead.

Konark Gupta: Thanks, Aubrey. Good morning, everyone. Good morning, everyone.

Konark Gupta: Thanks, operator, and good morning, everyone.

Konark Gupta: Thanks Bonnie.

Konark Gupta: Good morning, everyone. So wanted to ask on the AD hoc charter business. The segment was pretty strong I think $20 million revenue, but just not a bad number compared to historical and scaling.

Konark Gupta: So, I want to ask you about the ad hoc charter business. The segment was pretty strong, I think, $20 million in revenue, which is not a bad number compared to historical, clearly. However, I'm wondering if, you know, the Red Sea, the geopolitical effects and all that might have pushed that number a little bit higher. So, was there anything in the quarter where you were kind of re-up?

Speaker Change: However, I'm wondering if.

Konark Gupta: Let's see the geopolitical effects and all of that they might have pushed that number a little bit higher. So is there anything in the quarter, where you were kind of reallocating capacity to some other parts of the business, but just why you could not capitalizing some opportunities are you seeing some.

Konark Gupta: [inaudible]

Jamie Bennett Porteous: Good morning, Konark. It's Jamie.

Speaker Change: Something else that we should be mindful, though no good morning corner, because Jamie the only thing that impacted the quarter was there was some one time revenue that we were then.

Jamie Bennett Porteous: The only thing that impacted the quarter was some one-time revenue that we had generated in Q1 of 2023 with a flight that we were doing from JFK to Hamilton that didn't repeat in 2024, but the pure ad hoc charter portion of it was actually up 24% in the quarter, and we expect that to continue to be strong. And I can tell you that in the month of April, it's continuing to be very strong for all of the reasons that you outlined.

Speaker Change: That we had.

Speaker Change: Generated in Q1 of 2023 with a flight that we were doing from JFK to Hamilton that didn't repeat in 2024, but the pure AD hoc charter portion of it was actually up 24% in the quarter and we expect that to continue to be strong.

Speaker Change: I can tell you in the month of April it's continuing to be very strong for all of the reasons that you outlined.

Konark Gupta: Thanks so much. Thanks so much. Thanks so much.

Speaker Change: That makes sense. Thanks, so much.

Speaker Change: You mentioned, Jamie about immunotherapy.

Jamie Bennett Porteous: You mentioned, Jamie, about some of these Asian suppliers or resellers, you know, shipping stuff into North America like you and Shane. What kind of opportunities do these guys present to you guys? I mean, in terms of what you have done with them recently, if at all, and then what kind of discussions are you having with them?

Speaker Change: These are some suppliers are all our sellers.

Speaker Change: Shipping stuff into North America two in June.

Speaker Change: What kind of opportunities do these guys. Good luck to you guys.

Speaker Change: What have you done with bad recently, if at all and then what kind of discussions.

The discussions are you having the bounds.

Jamie Bennett Porteous: We haven't done anything directly with them, but indirectly through some freight forwarders that represent them. My point was we've just seen a lot more activity in terms of requests for charters. We've done a few at Christmas and just after out of China into North America, and it just seems the activity and the conversation about additional capacity being required to meet the needs, particularly of Chinese-based e-commerce suppliers like Chen and Timu that I talked about in AliExpress, seem to be increasing. So, nothing significant right now, but I just think they're opportunities that we're going to continue to pursue that could be realized later this year.

Speaker Change: Haven't done anything directly with them indirectly through some freight forwarders that represent them, but my point was we've just seen a lot more activity in terms of requests for charters. We've done a few Christmas interest after out of China into North America, and it just seems the activity in the conversation about additional capacity being required.

Speaker Change: To meet the needs, particularly a Chinese based ecommerce suppliers like.

Speaker Change: Chad and team moved that I talked about in aliexpress seems to be increasing so nothing nothing nothing significant right now, but I just think its opportunities that we're going to continue to pursue that could be realized later this year.

Konark Gupta: And the last one for me, I think perhaps for Scott, the free cash flow was very, very strong in Q1, and even if you strip out the asset sales, it just seemed like

Speaker Change: That's great. Thanks, and the last one from me perhaps for Scott.

Speaker Change: Free cash flow was very very strong in Q1, and even if you strip out the asset sales it seemed like a pretty good number.

Scott D. Calver: In terms of the remainder of the year, how should we expect the feedback flow of cash flow conversion from EBITDA levels? Morning, Konark.

Speaker Change: In terms of the remainder of the year, how should we expect the free cash flow of cash with evolution song from EBITDA levels.

Scott D. Calver: Good morning, Kodak, Yes, you know what I guess, what I would say is consistent to what we've said in the past what we said on that January 15th press release, what we've demonstrated in Q1, we have the proceeds done capex hasn't changed we still plan on doing the growth Capex of one triples, I'm sorry, one Boeing 767 year this year maintenance capex it will be it.

Scott D. Calver: Yeah, it's, you know what? I guess what I would say is consistent with what we've said in the past, what we said in that January 15th press release, what we demonstrated in Q1, we have the proceeds done. CapEx has been changed. We still plan on doing the growth CapEx of one Boeing 767 here this year. Maintenance CapEx, it'll be committed to during the year. There could be some cash flow timing issues in Q4, depending on how quickly some of this work is completed.

Scott D. Calver: It'll be committed to in the year, there could be some cash flow timing in Q4, depending on how quickly. Some of this work is completed but really what I would say, it's just consistent with what we've said in the past.

Scott D. Calver: Really the decision is what we do about debt repayment versus buying back shares.

Scott D. Calver: And we're going to monitor that we're gonna theres different scenarios that we have in mind that if things.

Scott D. Calver: There are different scenarios that we have in mind that if things worsen and this economy goes the wrong direction, then we'll be more defensive with our capital allocation. But right now, we're going to still target the free cash flow to go to the share buyback program and de-lever within that range that we previously communicated for debt to have been done.

Scott D. Calver: Things worsen and in this economy goes the wrong direction, then we'll be more defensive with our capital allocation, but right now we're going to still target that.

Scott D. Calver: The free cash flow to go to the share buyback program and Delever within that range that we previously communicated for debt to EBITDA.

Konark Gupta: Great. I appreciate it, fellow. Thank you.

Scott D. Calver: Great.

Speaker Change: Thank you.

Speaker Change: Thank you.

Operator: The following question is from Matthew Lee from Karnakor. Please go ahead.

Following question is from Matthew Li from Canaccord. Please go ahead.

Matthew James Lee: Good morning, guys. Thanks for your questions.

Matthew James Lee: Hey, good morning, guys basically my question.

Matthew James Lee: You mentioned an improving outlook on cargo; can you maybe just talk about what other customers are bouncing back the quickest that I know maybe who isn't, just in terms of the e-commerce players, perhaps a recovery on the B2B side or maybe some other things that are affecting that outlook?

Matthew James Lee: In your prepared remarks, you mentioned, an improving outlook on cargo.

Matthew James Lee: Can you maybe just talk about what type of customers are bouncing back real quick yes, I don't know, maybe who isn't just go to the e-commerce players.

I'll cover on the <unk> side or maybe some other things that are affecting that.

Jamie Bennett Porteous: Yeah, I think most of the, you know, as you would expect, most of the bounce back or most of the growth we've seen on the domestic and the ACMI is related to stronger e-commerce growth, somewhat tempered, as I said in my comment, in my prepared comments, by, you know, somewhat lower expectations because of potential lower discretionary spending by consumers because of continued high inflation and high interest rates. But that's where the biggest growth factor is coming from.

Matthew James Lee: Yeah.

Speaker Change: Yeah, I think most of the you know as you would expect most of the bounce back where most of the growth we've seen on the domestic and the HDMI as related to stronger ecommerce growth you know somewhat tempered.

Speaker Change: So I did my comment in my prepared comments by somewhat lower expectations because of potential lower you know lower discretionary spending by consumers because of continued high inflation and high interest rates, but that's where the biggest growth factors cause me my comments about the you know the if you look at some global indicators like all of you guys do I know.

Jamie Bennett Porteous: My comments about the, you know, if you look at some global indicators, like I, all of you guys do, I know like IATA or WorldACD or Zanata's report, they'll all show strong double-digit global air cargo demand, at least in January and February. I think a lot of that is driven by some of the geopolitical situations around the world. From a charter standpoint, a lot of the charter activity that we're seeing now is related to supporting both relief, missions, and military supplies either into the Middle East or into Poland and other places to support the Ukraine.

Speaker Change: Or the World AC D or is it that is reported they'll all showed strong double digit global air cargo demand at least in January and February I think a lot of that is driven by some of the geopolitical situations around the world I can tell you from a charter standpoint, a lot of the charter activity that we're seeing now is related to supporting.

Speaker Change: Both relief.

Speaker Change: Missions in the military.

Speaker Change: Military suppliers, either into the middle east or into into Poland, and other places to support the Ukraine.

Matthew James Lee: Okay, that's helpful. And then maybe in terms of your block hours, it feels like you've done a pretty good job cutting down block hours in the last 12 months, but if you continue to see ACMI growth and DHL and e-commerce bounce back, how easy would it be for you to build up that capacity again? Is it just a matter of buying a couple of aircraft, or is there more involved?

Speaker Change: Okay. That's helpful. And then maybe in terms of your block hours. It feels like you've done a pretty good job cutting down block hours in the last 12 months, but if you can.

Speaker Change: Continue to see a CMI grow with DHL and ecommerce bounces back kind of like we just talked about.

Speaker Change: Would it be afraid to pull up that capacity again in just a matter of buying a couple of aircraft or are there more involved.

Jamie Bennett Porteous: No, I think we said before, Matthew, we're very confident. I think the quarter kind of illustrates that in two of those revenue segments where we could, you know, I think I've been conservative in saying that we could grow revenues in our domestic and our ACMI business by, you know, sort of 15 to 20% per year, year over year on the existing fleet. And that would be by, you know, on the ACMI. We're really doing that right now with the extra aircraft that we have operating for DHL.

Speaker Change: No I think we've said before Matthew we're very confident and I think the quarter kind of illustrates added in two of those revenue segments, where we could you know I think I've been conservative in saying that we could we could grow revenues in our domestic and our Asia business by sort of 15% to 20% per year year over year on the existing fleet that would be.

Speaker Change: Hi.

On the on the ECM I, we're really doing that right now with the extra aircraft that we have operating for DHL, where operating 17 aircrafts.

Jamie Bennett Porteous: We're operating 17 aircraft this quarter, this past quarter versus a contract of 15. Similarly, you know, the 16 or 17% increase, sorry, the 18% increase in net revenue per block hour on our domestic business, we actually did that on lower block hours. So we have a lot of runway left to add additional incremental revenue without before we add aircraft. Just with our existing fleet.

Speaker Change: This quarter this past quarter versus a contract of <unk>.

Speaker Change: Equally the.

Speaker Change: 16, or 17% increase sorry, the 18% increase in net revenue per block hour on our domestic business, we actually did that on lower block hours. So we have a lot of a.

Speaker Change: A lot of runway left to add additional incremental revenue without before we add aircraft.

Speaker Change: Yes.

Operator: Coordinator Operator Thank you. Our next question is from Chris Murray from ATB Capital Markets. Please go ahead.

Speaker Change: Thanks Matthew.

Speaker Change: Thank you.

Speaker Change: Following question is from Chris Murray from ATV Capstone market. Please go ahead.

Christopher Allan Murray: Thank you. Good morning, folks.

Christopher Allan Murray: Thank you good morning folks.

Christopher Allan Murray: Christine.

Christopher Allan Murray: So maybe turning back a little bit to the comments around HMI and the availability of aircraft, so I guess I have a couple of questions on that. I mean, first, what do you think the sustainability is of keeping those 17 aircraft? As you mentioned, Jamie, your contractor is 15, but you're running 17. How long do you think that that just becomes kind of the new normal, if you will? And then, along those lines, you've also, I guess, said you've got two 757s that you're at least investigating what you're doing with that. Could those other aircraft get turned into either...

Christopher Allan Murray: So maybe turning back a little bit to the sedan.

The comments around ATM I, Andy that would be of aircraft. So I guess a couple of questions on this I mean first.

Christopher Allan Murray: What do you think the sustainability of keeping those 17 aircraft I as he mentioned Jamie.

Christopher Allan Murray: <unk> 15, but you're running 17.

Christopher Allan Murray: Like how long do you think that that just becomes kind of.

Christopher Allan Murray: The new normal if you will and then along those lines you've also I guess.

Christopher Allan Murray: You've got to 750 Sevens that are that you are at least investigating what youre doing with that.

Christopher Allan Murray: Could those other aircrafts get turned into either AD hoc charter or.

Christopher Allan Murray: to either Ad Hoc Charter or other ATMI aircraft. So any color on that would be helpful.

Christopher Allan Murray: Other ATM I aircrafts. So is there any color on that would be helpful.

Jamie Bennett Porteous: Yeah, thanks, Chris. On the ACMI flying, I mean, the two additional aircraft that we're operating and have been since the fourth quarter of last year, they were initially extended into the first quarter and then subsequently have been extended into at least the end of the second quarter of this year. So we're confident we'll be operating those for half the year. It's a little premature to speculate, though. Other than from a historical demand standpoint, as I mentioned in response to one of the earlier questions, as you know, typically the second year, sorry, the second half of the year is typically stronger than the first half.

Speaker Change: Yeah, Thanks, Chris on the CMI flying I mean, the two additional aircraft that we're operating in have been since since the fourth quarter of last year. They were initially extended into the first quarter and then subsequently been extended into two at least the end of the second quarter of this year. So we're you know we're confident we'll be operating those for half of the year a little <unk>.

Sure two two.

Speaker Change: To speculate other than you know from from a historical demand standpoint, as I've mentioned.

In response to one of the earlier questions. As you know typically the second year I'm sorry, the second half of the year is typically stronger than the first half and if we have the customer needs that capacity today.

Jamie Bennett Porteous: And if we have customers who need that capacity today, going into the summer may be questionable, but certainly going into the fourth quarter, you would expect that if the demand stays strong, they would need that capacity and would therefore be reluctant to give it up for a short time. That's just my opinion.

Speaker Change: Going into the summer, maybe questionable, but certainly going into the fourth quarter, you would expect that if demand stays strong they would need that capacity and would therefore be reluctant to give it up for a short time I. That's just my opinion. So I think were moderately confident that that will continue for the balance of the year.

Jamie Bennett Porteous: So I think we're moderately confident that that will continue for the balance of the year. And your question about the block on the aircraft? You're right. I mean, we do, you know; we have one of the seven.

Speaker Change: And your question on the block on the aircraft you're right I mean, we do you know what.

Speaker Change: We have one of the southern if you recall at the beginning of the year. We said we had four surplus 750 sevens that we had put up for sale, we reduced that in the quarter to two.

Jamie Bennett Porteous: If you recall, at the beginning of the year, we said we had four surplus 757s that we had put up for sale. We reduced that in the quarter to two, primarily because we were using those aircraft for specifically the purposes that you mentioned, either allowing us to adjust other flying in our network to free up necessary aircraft to provide to our ACMI customer or for additional ad hoc charters. And we, while we have one of our 757s that is up for sale, we did the seat check on it. So rather than waste any hours, we've sort of frozen that and parked it. But the other aircraft we regularly will use is available, and we regularly utilize it as part of our service. The Mass Demand Dictate.

Speaker Change: Primarily because we were using those aircraft for specifically the purposes that you mentioned for either allowing us to adjust other flying in our network to free up necessary aircraft to provide to our ACO my customer.

For additional AD hoc charters and we while we have one of our 750 sevens that is up for sale. We did the C check on it so rather than wasting the hours are sort of frozen and parked it but the other aircraft. We regularly will is available that we regularly utilize this as part of our day.

Speaker Change: As demand dictates.

Speaker Change: Okay. That's helpful. Thanks.

Speaker Change: I don't know who wants to take this one but when I kind of take a half a step back.

Christopher Allan Murray: on EBITDA margins. But, you know, when we start putting this together, you know, what's your expectation?

Talk about increased utilization on an existing aircraft pool some of the stuff you've done around.

Speaker Change: Cost control and that sounds really good you started putting those things together, even if it's a relatively modest growth environment, you would think that you'd be starting to <unk>.

Speaker Change: Generate some operating leverage thought I know we've.

Speaker Change: Talked about fuel surcharges and the impact that they'll have on an EBITA margins, but when we start putting this together whats your expectation or what are your thoughts on.

Scott D. Calver: Or what are your thoughts on how margins should be able to grow through the year if all the things sort of play out the way we've seen them set up in Q1 at this? Yeah, good morning, Chris. Yeah, there's really two factors there. And really, just start with the ACMI, that really depends on the network with our customer there in terms of the number of block hours per aircraft. And we saw that go in the wrong direction last year.

Speaker Change: How margins should be able to grow through the year, if all the things sort of play out the way we've seen it set up in Q1 at this point.

Speaker Change: Yes, good morning, Chris.

Christopher Allan Murray: Yeah, there's really two factors there and really.

Speaker Change: So just start with the ACM mind that really depends on the network with with our customer there in terms of.

Speaker Change: The number of block hours per aircraft and we saw that go in the wrong direction last year. So there's always that uncertainty as it relates to network changes with that particular customer, but on the domestic side Youre right Theres operating leverage.

Scott D. Calver: So there's always that uncertainty as it relates to network changes with that particular customer. But on the domestic side, you're right; there is operating leverage. And to Matt's point, I think it was Matt that asked it earlier, our cost per block hour is it was. When I do the cost per block hour, I exclude fuel because we get that risk covered in our fuel surcharge. And I exclude depreciation because that's a long-term, more strategic situation than managing current costs. But when you exclude fuel and depreciation, it's about $5,500 per block hour.

Speaker Change: And to Matt's point I think it was not that asked it earlier our cost per block hour as it was.

Speaker Change: And I do cost per block hour I exclude fuel because we get that risk covered in our fuel surcharge and I exclude depreciation because that's a long term more strategic situation then managing current costs, but when you exclude the feel on depreciation it's about $5500 per block hour. It was that in Q1 last year. It's Todd again Q1, this year very similar to.

Scott D. Calver: It was that in Q1 last year, and it's that again in Q1 this year, very similar to Q4 as well. So, but then there's the operating leverage, you're right. And it's mostly in that domestic revenue, where a lot of that revenue will fall to the bottom line because the costs are already there. It's to your point, it's the utility and the concentration of cargo going into that aircraft.

Speaker Change: Q4, as well so but then there is the operating leverage you are right it's mostly.

In that domestic revenue and that a lot of that revenue will fall to the bottom line because the costs are already there is to your point, it's the agility and the.

Speaker Change: The concentration of cargo going into that aircraft, but that's again, that's where we're most exposed in a soft economy as well as with that revenue.

Scott D. Calver: But that, Again, that's where we're most exposed in a soft economy as well, with that revenue. And that's where we're most cautious, and that's where we've seen reductions compared to last year. So, it can go both ways. Obviously, we're going to be ready when it goes positive, but we still have to be cautious in case it goes in the wrong direction on our domestic network. To Jamie's point earlier, to take out block hours on our domestic network, we did it on two different occasions last year.

Speaker Change: And that's why we're most cautious and that's where we've seen reductions compared to last year. So it can go both ways. Obviously, we're gonna be ready when it goes positive, but we still have to be cautious in case. It goes in the wrong direction, there and our domestic network.

Speaker Change: To Jamie's point earlier to take care of block hours in our domestic network. We've done it on two different occasions last year.

Scott D. Calver: It's really going to be hard to find more opportunities like that, to that extent. So really, that cost structure is what it is, and we are exposed, either good or bad, in terms of the revenue that we can lay into our domestic revenue.

Speaker Change: It sounds a lot easier than it actually is because you're working with customers to change pickup and delivery times and.

Speaker Change: It's really going to be hard to find more opportunities like that to that extent. So really that cost structure is what it is and we are exposed either good or bad in terms of the revenue that we can leverage our domestic revenue.

Christopher Allan Murray: Okay, I'll leave it there. Thanks.

Speaker Change: Okay I'll leave it there thanks.

Operator: Thank you. Our next question is from Cameron Doerksen from National Bank Financial. Please go ahead.

Speaker Change: Thank you our following question is from Kamran.

From National Bank financial Please go ahead.

Cameron Doerksen: Thanks, good morning. I just wanted to dig a little bit deeper into the domestic operation because you had pretty solid growth in the quarter year-over-year, and yet we've heard from most of the packaging courier players out there that their volumes were down year-over-year. So I'm just wondering if you can talk a little bit about where you're seeing the outperformance. Obviously, there's volume versus price at play as well. So any thoughts around that because it does seem like your domestic revenue growth is performing a lot better than what you might see given what some of the other packaging courier guys are saying as far as volumes go?

Speaker Change: Okay.

Kamran: Good morning.

Kamran: Wanted to dig a little bit deeper into the domestic.

Kamran: Operation because you had a pretty solid growth in the quarter year over year and yet we've heard from most of the package and courier players out there that their volumes were biggest actual package volumes were down year over year and so I'm. Just wondering if you can talk a little bit about where you're seeing the outperformance.

Kamran: Is there are you know honestly, there's a volume versus price.

Kamran:

Kamran: That play as well so just any any thoughts around that because it does seem like your domestic revenue growth is.

Kamran: You're performing a lot better than what you might see given some of the other packaging career guys are saying as far as volumes go.

Jamie Bennett Porteous: Yeah, excuse me. Good morning, Cameron. It's Jamie.

Speaker Change: Excuse me good morning, Jamie.

Jamie Bennett Porteous: The, I think one reason you see that compared to some of the others that you've noted is a reflection of the mix of customers that we have on our domestic network. We're not entirely dependent on one source or one type of customer. By that, I mean obviously we have a good mix of e-commerce customers, which, as I indicated before, continues to be a big driver of growth, but we're not solely dependent on e-commerce.

Speaker Change:

Speaker Change: I think one reason you see that compared to some of the other.

Speaker Change: That you've noted is a reflection of the mix of customers that we have on our domestic network, we're not entirely dependent on on one.

Speaker Change: Source or one one type of customer and by that I mean, you know obviously, we have a good mix of e-commerce customers, which are which as I indicated before is it continues to be a big driver of growth, but we're not solely dependent on E. Commerce, we have the.

Jamie Bennett Porteous: We have the B2B section of our business, which is relatively flat year over year. We have a good mix of interline business where we have some high-yielding traffic, but we have 50-something commercial agreements with other airlines around the world that fly into Canada, mostly into major gateways like Vancouver, Toronto, Montreal that have to get cargo across the country, as well as 400 or 500 non-contract customers that are made up of everything from any type of transportation company, freight forwarder, or courier that we deal with on a regular basis.

Speaker Change: <unk> section of our business, which is relatively flat year over year, we have a good mix of interline business, where we have high.

Speaker Change: <unk> traffic, but we have 50, something 50, something commercial agreements with other airlines around the world to fly into into Canada, mostly into the major gateways like Vancouver, Toronto, and Montreal, they'll have to get cargo across the country.

Speaker Change: Well as you know 4500 non contract customers that are made up of everything from any type of transportation company freight forwarder career that we deal with on a regular basis and I think I think that mix.

Jamie Bennett Porteous: I think that mix, and we specifically keep that mix because it allows us to, when it's soft in one segment like B2B, we get an uptick in another segment like e-commerce. I think that's really the fundamental difference.

Speaker Change: And we specifically.

Keep that mix because it allows us to you know when it's soft in one segment.

Speaker Change: B, we get the uptick in another segment like E Commerce.

Speaker Change: I think that's really the fundamental difference okay, no that makes sense.

Jamie Bennett Porteous: Okay, no, that makes sense. And just, you know, very sort of short-term, just wondering if you can comment on how volumes are trending, I guess, so far early in Q2 and, you know, what are your conversations with your customers, you know, any thoughts there on what they're sort of telling you, what their expectation is for volumes through Q2 and maybe into the early part of Q3.

Speaker Change: It was a very sort of short term just wondering if you can comment on how volumes are trending I guess, so far earlier into early in Q2, and what are your conversations with the with your customers.

Speaker Change: Any thoughts there on what their sort of telling you what their expectation is for volumes through Q2, and maybe into the early part of Q3.

Jamie Bennett Porteous: I think everybody has been pretty consistent with what our experience has been, where we saw fairly healthy growth, sort of above what we were expecting in terms of demand in January and February, and that was kind of trending in the right direction. March was a little softer than we had experienced in January and February, and I think that was a reflection of, as I said earlier in my comments, the expectation that interest rates and inflation were going to be tempered. Interest rates are potentially coming down, and there will be more consumer spending. [inaudible] That's helpful. All the rest of my questions have been asked, so thanks very much.

Speaker Change: I think everybody has been pretty consistent with what our experience has been where we saw.

Fairly healthy.

Speaker Change: Above what we were expecting in terms of demand in January and February and that was kind of trending in the right direction March.

A little softer than we than we had experienced in January and February and I think that was a reflection of the exercise.

Speaker Change: As I said earlier in my comments, the expectation that interest rates and inflation was going to be temporary the interest rates were potentially coming down and there'll be more and.

Speaker Change: More consumer spending.

Speaker Change: Then we had seen that would indicate stronger demand going forward. Although we saw good demand in March was a bit of a funny month with with Easter falling in the last part of the month versus.

Speaker Change: Versus April typically so we had one less operating day in the quarter than the previous year, which should be noted, but I think I think most of our customers that we've spoken to have sort of the same.

Speaker Change: Guarded optimism I'd call it for the balance of the year.

Cameron Doerksen: Okay, that's helpful. All of the rest of my questions have been asked, so thanks very much.

Okay. That's.

Speaker Change: That's helpful. I'll do the rest of my questions have been asked so thanks very much thanks Karen.

Speaker Change: Okay.

Speaker Change: Okay.

Yeah.

Speaker Change: Okay.

Operator: Any more questions, operator? Yes, I'm so sorry. Our next question is from David Ocampo from Konark Securities. Please go ahead.

Speaker Change: Any more questions operator, yes, I'm. So sorry. Our next question is from David Ocampo from <unk> Securities. Please go ahead.

David Ocampo: Thanks. Good morning, everyone.

David Ocampo: Thanks, and good morning, everyone I just had a quick one and it's just a follow up to Kevin's line of questioning on <unk>.

David Ocampo: I just had a quick one and it's just a follow-up to Kevin's line of questioning on fuel revenue and fuel expenses. I mean, over the last few quarters, I know there's some notation in there with all the revenues in that number, but it's negative fuel revenue versus fuel expenses. I'm just curious how we should be thinking about that in the long term.

David Ocampo: Fuel revenue and fuel expenses.

David Ocampo: I mean over the last few quarters I know, there's some limitation there.

David Ocampo: Other revenues in that number but it's negative.

David Ocampo: Feel ready versus deal expenses, just curious how we should be thinking about that in the long term.

Scott D. Calver: Is there an expectation that revenues will fall short of expenses? I'm curious if anything's changed in how you guys are lumping in revenues and expenses for those long-term. Yeah, so it again, I definitely understand where you're coming from here, because it is really hard to assess the impact of fuel on this business. And primarily, because when you look at the revenues on the fuel and other pass through revenues, There is a lot more going on in that line than fuel surcharge and it kind of ties to my comments earlier that direct expenses, there's an offset to that so it doesn't impact you but if it does when there's pass-throughs for navigation or landing or parking, some of these things that we do but so there's a lot of noise going on in there but what I would say is again sequentially from Q4 to Q1 it's normalized.

David Ocampo: The expectation that the revenues will fall short of expensive and curious if anything's changed in how you guys are lumping in revenues and expenses for those line items.

Speaker Change: Yeah. So.

Speaker Change: Yes.

Speaker Change: Definitely understand where you're coming from here because it is really hard to assess the impact of fuel on this business and primarily because when you look at the revenue line in the field and other pass through revenues.

There is a lot more going on in that line and then fuel surcharge and it kind of ties to my comments earlier that direct expenses.

Speaker Change: There is an offset to that so it doesn't impact EBIT EBITDA, when theres pass throughs for navigation or landing or parking.

Speaker Change: Some of these things that we do but so theres a lot of noise going on in there, but what I would say is again sequentially from Q4 to Q1, it's normalized so if nothing else changed in our network.

Scott D. Calver: So if nothing else changes in our network that would draw more other pass-throughs, then that would be the steady state going forward. That would be if fuel didn't change, because again, fuel came down in the last two or three weeks of December, but then it started to steadily increase through the year, just moderately, but it was enough to offset some of that, what I thought was gonna be a more significant tailwind in late Q4 compared to the Q1 experience.

That would draw more other pass throughs, then that would be the steady state going forward that that would be a field doesn't change because again to fuel came down in the last two or three weeks of December but then it started to steadily increase throughout the year just moderately but it was enough to offset some of that what I thought it was going to be a more significant tailwind in.

Speaker Change: In late late Q4, compared to Q1 experience. So really I think that relationship it's pretty consistent when you look at the relationship between fuel expense compared to the fuel and other pass through revenue that relationship is pretty consistent from Q4 to Q1.

Scott D. Calver: So really, I think that relationship is pretty consistent when you look at the relationship between fuel expense compared to fuel and other pass-through revenue. That relationship's pretty consistent from Q4 to Q1, with a little bit of tailwind from fuel, and that's it, but it's normalized. I got the commentary on Q4 to Q1. Has something changed? Historically, if I go back to 2019, 2020, 2021, it's always been positive fuel revenue versus fuel expenses.

Speaker Change: With a little bit of a tailwind from fuel and that's it but it's normalized.

Speaker Change: Okay I got it.

Speaker Change: The commentary on Q4 to Q1, just given the delta there, but has something changed because historically if I go back 2019, 2020, 2021 it's always been a positive.

Speaker Change: Field revenue versus fuel expenses, the only I'd just say, David it's Jamie I'll just add some comment on one thing you have to keep in mind and you know really when youre comparing our direct fuel cost to the fuel surcharge revenue. It really only gives you an indication of a lag in the recovery of the feet of the higher cost.

Jamie Bennett Porteous: David, it's Jamie. I just had some comments. One thing you have to keep in mind, and really when you're comparing our direct fuel cost to the fuel surcharge revenue, it really only gives you an indication of a lag in the recovery of the higher cost of fuel or lower cost of fuel, whichever way it may go. It doesn't give you a sense of whether we are recovering 100% of our fuel because you have to remember that part of the cost of fuel, in fact, a big part You don't see that. It's baked into the revenue number. The only thing you see in the fuel surcharge is the excess price of fuel over and above the rate for fuel that's baked into their price.

Jamie Bennett Porteous: Fuel or lower cost of fuel whichever way. It may go it doesn't give you a sense of whats are we are we are recovering 100% of our fuels because you have to remember that part of the cost of fuel in fact, a big part of the cost of fuel is baked into the customer's base rates you don't see that it's baked into the revenue number the only thing you see.

Jamie Bennett Porteous: In the fuel surcharge is the excess price of fuel over and above the rate for fuel that's baked into their price.

Scott D. Calver: And really, a lot has changed. If you go back that far historically, so much has changed, like Jamie was saying, the resetting of the base on the rates, the type of flying we do that either attracts more or less other pass-throughs for outsourced ground handling, etc. And we sell fuel now as well because of our presence at Hamilton Airport. So there's a lot going on in that line. A lot has changed over the years. Okay, so it sounds like some of the fuel revenue got moved into your base rates, so that makes a lot of sense. I'll pass the line. Thanks so much for taking my questions.

Speaker Change: Yeah, Yeah, and really a lot has changed if you go back that far historically, so much has changed like Jamie saying the resetting of based on the rates.

Speaker Change: The type of flying we do that.

Speaker Change: Either attracts more or less other pass throughs for outsource ground handling et cetera.

And we saw fuel now as well because of our presence in the Hamilton Airport.

Speaker Change: So there's a lot going on in that line a lot has changed over the years.

Speaker Change: Okay. So it sounds like some of the deal revenue got moved into your base rates. So that that makes a lot of sense I'll pass the line.

David Ocampo: Thank you. Our next question is from Walter Spracklin from RBC Capital Markets. Please go ahead. Yes.

Speaker Change: But you are taking my questions.

Speaker Change: Okay.

Speaker Change: Thank you. Our following question is from Walter <unk> from RBC capital markets. Please go ahead, yeah. Thanks, very much good morning, everyone. Good.

Operator: Thanks very much. Good morning, everyone. Good morning, Walter.

Walter: Uh huh.

So you have a lot of kind of longer term contracts in place that that in some ways predate. This big inflationary environment. Then I know you do have a way to capture those back that inflation, but it's more tied to CPI rather than the need to wait for the contract to renew so that you can.

Walter Noel Spracklin: So you have a lot of longer-term contracts in place that, in some ways, predate this big inflationary environment. And I know you do have a way to capture that inflation, but it's more tied to CPI rather than the need to wait for the contract to renew so that you can raise the rate. So first, perhaps confirm that that's the case, but more importantly, given CPI is a bit of a lag and we are starting to see inflation wane, is it possible that even by doing nothing here, that the lag in CPI will allow you to get a better price cost spread in the current environment as inflation wanes and perhaps allows you to increase your margin really without doing anything here this year.

Walter: Can raise the rates. So first you know first perhaps confirm that that's the case, but more importantly has given C. P is a bit of a lag and we are starting to see inflation Wayne is it possible that even by doing nothing here your contracts.

Walter: That reflects the lagging CPI.

Allow you to get a better price cost spread in the current environment as inflation wanes.

Walter: Perhaps allows you to increase your emerging really without doing anything here this year.

Ajay Kumar Virmani: Hi Walter, it's Ajay. You know, we do have longer-term contracts with CPI. Some contracts are CPI, some would be CPI plus one, some would be CPI minus one, depending on the volumes, depending on who the customer is. But these are longer-term contracts.

Walter: I want to take a.

Walter: You know, we do have longer term contracts with CPI some contracts of CPI, some would be CPI plus one.

Walter: Minus one depending on sales volume, depending on who the customer is.

Walter: But these are longer term contracts. If there is a we obviously have a built in fuel factor. So a lot of CPI is reflective of the energy costs out there. So if the few.

Ajay Kumar Virmani: If there is, you know, we obviously have a built-in fuel factor, so a lot of CPI is reflective of the energy cost out there. So, if the fuel goes up, we have the fuel adjustment factor, so the majority of that increase is covered through the fuel surcharge. The second part of it is that once you have a contract with a customer, and if, let's say, you know, we do have CPI, or sometimes we also have, you know, a certain percentage.

Walter: It goes up we have the fuel adjustment factor as the majority of that increase is covered through a fuel surcharge.

Walter: Second part of it is that once you have a contract with the customer and if let's say you know we do have a CPI.

Walter: CPI or sometimes we also have.

Walter: You know 7% eight for example, we might have a CPI.

Ajay Kumar Virmani: For example, we might have a CPI but a maximum of three or a minimum of two. So, if, for example, the CPI goes down by only one and a half percent, which we saw last year or a year before, and we have a minimum two or a minimum of three, we have been getting over sometimes as well. So, it's very hard to change the contracts in the middle of the, but that's a chance we all take.

But a maximum of three minimum up to so if for example, the CPI goes.

Walter: Only one 5%, which we saw.

Walter: Last year or a year before.

Walter: We have a minimum do like minimum three so we have been getting over sometimes as well. So it's very hard to go change the contract.

Walter: The middle of the that's the chance of you all.

Ajay Kumar Virmani: But also keep in mind, if there are any extraordinary circumstances, like where there are government cost increases for landings or navigation or some of the security surcharges, those sometimes we can recoup other than CPI as well. But just generic CPI is very hard to recoup because it's up. Now, if it went up to seven, eight, nine, ten percent, trust me, we'll try and we'll try to get those things. But if it's a couple points, we've got to take it and move on. Thank you very much.

Speaker Change: Okay, but also keep in mind, if there are any extraordinary circumstances like where there is a government cost increases with Atlantic doesn't navigation or some of the security surcharges. Those sometimes we can recoup other than CPI as well, but just generic CPI is very hard to.

Speaker Change: Because it's up now if it got up to 789, 10% Trust me, we'll try and we will try to get the thing, but it took a couple of points.

Speaker Change: We got to take it and move on with it.

Speaker Change: Okay. Thank you very much.

Speaker Change: Next as you mentioned that there was obviously with <unk>.

Ajay Kumar Virmani: Thank you very much, Ajay. Next, you mentioned that obviously with the shutdown of one of the passenger airlines, it's reduced some of the pressure on pilots and sourcing pilots, which is great. But I'm just curious what else in the competitive environment you're seeing with other air cargo service providers. I know WestJet and Air Canada have fairly recently brought on cargo operations, but they're tinkering with them as well, and perhaps you can update us as to whether you see any opportunity. Is the competitive environment improving? Just some color there would be great.

Speaker Change: With.

Speaker Change: The shutdown of one of the passenger airlines, it's reduce some of your the pressure on on.

Speaker Change: Pilots are in it.

Speaker Change: Sourcing pilots, which is great, but I'm just curious what else in the competitive environment, you're seeing with other air cargo service providers I know Western Canada have.

Speaker Change: Have fairly recently brought on cargo operations, but they're they're they're tinkering with them as well and perhaps you can update us update us as to whether you see any opportunity is that in the competitive environment improving.

Speaker Change: Just some color there would be great.

Ajay Kumar Virmani: You know, first of all, yeah, we, you know, one passenger carrier was certainly helpful in our pilot recruitment because there were at least a couple hundred pilots that were available. The market for pilots is still very strong, although, you know, passenger demand is somewhat less than what people expected, or it is a bit less; you probably know that better. So we expect that the pilot shortage and the pilot issues will not be a big factor this year. You know, we lose a few pilots here, we gain a few pilots there, so that's probably going to continue.

Speaker Change: I you know.

First of all.

Speaker Change: We are you know one passenger carrier what certainly.

Helpful. In our pilot recruitment because there's at least a couple of hundred pilots that were.

Speaker Change: Available.

The market for pilots is still very strong.

Speaker Change: Although you know passenger demand has found what is somewhat less than what people expected or it is a bit less you probably know that better.

Speaker Change: So we expect that.

Speaker Change: While it surely that the pilot issues would not be.

Speaker Change: A big factor. This year you know the we lose a few pilot pair regain a few pilots there. So that's probably going to continue on so we don't expect any huge shortages.

Ajay Kumar Virmani: So we don't expect any huge shortages. As far as Canada and West Seattle are concerned, they do have some freighter or cargo operations that are still in operation. But they're not, in any way or shape, irritants or competing with us in any big way. They have their own markets; they have their own niches. It hasn't impacted us in any big way at all. As a matter of fact, we have longer-term customer contracts, and you know, so they're there, but you know, they're there more to provide connectivity the way we see it to their international programs on their white bodies.

Speaker Change: As far as the Air Canada, let's get our concern.

Speaker Change: They do have some.

Speaker Change: What I've framed or cargo operations that are still.

Speaker Change: Still in operation.

Speaker Change: But they're not the sort of any way or shape.

Speaker Change: Eric can sort of competing with us in any big way they have their own market they have their own issues.

Speaker Change: It Hasnt impacted us in any big way at all as a matter of fact, we have longer term contracts.

Speaker Change: So they are there but.

Speaker Change: You know there are there more of a white connecting maybe.

Speaker Change: The way, we see the international programs on their wide bodies. So if they're wide bodies are coming in from South America.

Ajay Kumar Virmani: So if their white bodies are coming in from South America, or sorry, if they're, you know, trader operations are going into South America, they'll connect with the European and Far East white bodies. Auto Toronto and Montreal.

Speaker Change: Our authorities there are.

Speaker Change: You know trainer operations are going into South America, they'll connect with a European man.

Speaker Change: Far east wide bodies.

Speaker Change: Auto Toronto, Montreal, so they have their own sort of issues going on.

Ajay Kumar Virmani: So they have their own sort of issues going on in terms of, you know, the market conditions and excess capacity on the passenger wide-body planes. And so it doesn't really impact us. You know, we have a very different sort of customer mix with e-commerce, domestic, scheduled network, and ACMI. So our markets are entirely different from what they are continuing to do.

Speaker Change: You know the market conditions.

Speaker Change: Excess capacity on the.

Speaker Change: Passenger wide body planes and so.

Speaker Change: It doesn't really impact US you know we have a very different.

Speaker Change: Customer mix with E Commerce domestic scheduled network, a CMI, so our mark and markets.

Really different from what they I think they are going to do.

Speaker Change: Last one here this is for Scott.

Ajay Kumar Virmani: You mentioned the cost initiatives that you've done, and they were very successful, so is it fair to say now that, as Jamie talked about, perhaps a weaker environment, can you hold on to that cost per block hour? In other words, can you maintain margins in a flat environment and then, as you pointed out, if volume starts to scale up, how much volume growth do you see as being able to bring to that block hour cost level without any need for increased costs that come with it?

Scott D. Calver: You mentioned that the cost initiatives that you've done it very successfully so is it fair to say now that you know.

Scott D. Calver: As Jamie talked about perhaps.

A weaker environment.

Scott D. Calver: Can you hold on to that cost per block hour in other words can you maintain margins in a flat environment and then you know as you pointed out is there or my question is if volume starts to scale up how much volume growth you do see us being able to bring on to that.

Scott D. Calver: That block hour cost level without without any need for increased.

Scott D. Calver: Good morning, Walter. I'll get the first part of that question started, and then I'll get Jamie to weigh in on the capacity on the revenue side with this current cost structure. Absolutely, the EBITDA margin is sustainable, that's for sure. Depending on if you went into a softer, weaker economy, it would be challenging to be able to hold it depending on how extreme any reductions would be, but we definitely would manage those costs as best we could to maintain that margin.

Scott D. Calver: Increased costs that come with it.

Speaker Change: Yes, good morning, Walter I'll get the first part of that question started and then they'll get Jamie to come in in terms of the capacity on the revenue side with the current cost structure, but yes, no absolutely. The EBITDA margin is sustainable that's for sure.

Speaker Change: Depending on if you went to.

Speaker Change: The softer weaker economy, it would be challenging.

Jamie Bennett Porteous: To be able to hold it depending on how extreme any reductions would be but we definitely would manage those costs as best we could to maintain that margin on the upside yes, there could be some opportunity there for what the operating leverage that we've previously talked about.

Scott D. Calver: On the upside, yes, there could be some opportunity there with the operating leverage that we previously talked about. Maybe, Jamie, just in terms of some of that operating leverage, some of the additional... I think our focus, our goal, and our expectation is that EBITDA margins in the mid-30% range are sustainable. We should improve those if we have a significant increase in demand and revenue, but even with some softness, we're confident that we're able to manage the block hours downward to maintain those margins in that mid-30% range.

Jamie Bennett Porteous: But yeah, and then maybe jamey just in terms of some of that operating leverage somebody yeah, No I think.

Jamey: Our focus and our goal and our expectation is that the EBITDA margins in the mid 30% range are sustainable whether we have you know we should improve those if we have a significant increase in demand and revenue, but even with some softness where we're confident that we're able to manage the block hours downward to maintain those margins in that mid 30% range. That's awesome I appreciate the time.

Walter Noel Spracklin: That's awesome. I appreciate the time. Thanks. Thanks, Walter.

Walter Noel Spracklin: It's Walter Lager.

Operator: Thank you. Our next question is from Tim James from TD Securities. Please go ahead.

Speaker Change: Thank you. Our following question is from Tim James from TD Securities. Please go ahead.

Tim James: Thank you. Good morning, everyone.

Tim James: Thank you good morning, everyone.

Tim James: First question, I guess for Scott, I'm just wondering if you could talk about the CapEx and kind of the cadence over the balance of the year and sort of what's back end weighting it. I think you mentioned most of it will come through in the latter part of the year. The first quarter was quite light.

Tim James: First question I guess for Scott I'm, just wonder if you could talk about the capex and kind of the cadence over the balance of the year and sort of what's backend weighting. It I think you mentioned most of it will come through the latter part of the year in the first quarter was quite like you can just provide some more.

Scott D. Calver: If you could just provide some more sort of color around the timing and impacts over the balance of 24. Yeah, absolutely. There is a little bit of, I would say, a carryover effect from last year that's obviously in these numbers for lower CapEx and Q1. But engines are away at rebuild shops, and we're getting ready to start this next conversion. And a lot of these payments, whether it's an engine rebuild or a conversion, that's primarily most of our CapEx, whether it's the maintenance CapEx on the rebuilt engines or the conversion for growth. But you make progress payments throughout that whole project with a smaller amount due at the very end of the project. So, a slow start to the year.

Tim James: Color around that.

Scott D. Calver: The timing and impacts over the balance of 'twenty four.

Scott D. Calver: Absolutely there is a little bit of I would say a carryover effect from last year.

Scott D. Calver: Obviously in these numbers for lower Capex in Q1, but engines are way up.

Scott D. Calver: He built shops, and we're getting ready to start this next conversion and a lot of these payments, whether it's an engine rebuild or conversion.

Scott D. Calver: Primarily most of our Capex, whether it's the maintenance capex on the rebuilt engines or the conversion for the growth Capex you make progress payments through that whole project with a smaller amount due at the very end of the project. So slow start to the year. It will be backend loaded like I said in my prepared remarks, we're still.

Scott D. Calver: It will be back-end loaded. Like I said in my prepared remarks, we're still standing behind those numbers that we issued on January 15th. It'll be committed to.

We're still standing behind those numbers that we issued on January 15th it'll be committed too there could be some carryover, it's going to take some time here over the next few months to understand any any impact, but it would just be cash flow timing of our quarter in terms of carryover effect it wouldn't be all that material.

Scott D. Calver: There could be some carryover. It's going to take some time here over the next few months to understand any impact, but it would just be cash flow timing of a quarter in terms of the carryover effect. It wouldn't be all that material.

Tim James: So really, yeah, everything's well underway. Everything's in place to execute on what we previously communicated. Okay, thank you. My second question is on what's a relatively small amount here, but the other revenue that came in at $9.2 million. I think you touched on this in the commentary.

Scott D. Calver: So really yeah, that's everything's well underway everything's in place too.

Scott D. Calver: To execute on what we previously communicated.

Speaker Change: Okay. Thank you.

Speaker Change: My second question just wanted to dig into what is a relatively small amount here, but the other revenue that came in at $92 million I think you've touched on this in the commentary could you just sort of provide a little bit of additional detail on the.

Tim James: Could you just provide a little bit of additional detail on the significant increase in that number? I realize it was relatively similar to Q4, but on a year-over-year basis, it was up quite a bit. What was driving that?

Speaker Change: The significant increase in that number I realize it was relatively similar to Q4, but on a year over year basis. It was up quite a bit what was driving that.

Scott D. Calver: Yeah, in that 9.2, it's what we call fixed-based operations, and this is providing things like de-icing services in a place like Hamilton where we do all the de-icing for all the aircraft. There's a lot of just more seasonal revenue, I would say, as it relates to things like de-icing and to some extent fuel, but again, it's more of a pass-through effect, if you will Okay, so was there anything that sort of non-recurring in there? Or is this a reasonable way to think about this revenue source going forward? Yeah, I'd say there's more of a seasonal effect. Okay, thank you very much. Those are the only questions I have. Thank you.

Yeah isn't that nine point too.

Speaker Change: It's what we call fixed based operations and this is providing and again things like the icing services in a place like Hamilton, where we do all the day I think for all the aircrafts there is a lot of <unk>.

Speaker Change: More seasonal revenue I would say as it relates to things like dicing and to some extent feel but again, it's it's more of a pass through effect if you will.

Speaker Change: Okay. So was there anything sort of nonrecurring in there or is this.

Speaker Change: Reasonable way to think about this revenue source going forward.

Speaker Change: Yeah, I'd say, there's more of a seasonal implication.

Speaker Change: Okay.

Speaker Change: Okay. Thank you very much those questions now.

Tim James: Once again, please press star 1 at this time for any questions or comments. Our next question is from Jonathan Lamers from Laurentian Bank Securities. Please go ahead. Jonathan Lamers, Laurentian Bank Securities. Hello. My name is Jonathan Lamers from Laurentian Bank Securities. I have a question for you.

Speaker Change: Thank you.

Speaker Change: Once again, please press star one at this time for any questions or comments.

Speaker Change: Our following question is from Jonathan Lamers from.

Laurentian Bank Securities. Please go ahead.

Jonathan Lamers: Good morning.

Jonathan Lamers: Good morning, John Mike most of my questions have been answered just two follow ups.

Operator: Most of my questions have been answered. Just two follow-ups. In your prepared remarks, you mentioned carriers avoiding the Red Sea globally. What impacts are you concerned that this could have on your operation specifically?

Jonathan Lamers: One in your prepared remarks, you mentioned carriers avoiding the Red Sea.

Jonathan Lamers: Globally.

Speaker Change: Impacts are you concerned that this could have on your operations specifically.

Jonathan Lamers: I think it was more in terms of opportunity than impact. No direct impact on our operations, certainly not on domestic nor the ACMI, but the fact that supply chains have been disrupted because of that could lead and have led to additional ad hoc charter opportunities. That's what I meant by that.

Speaker Change: I think it was more in terms of opportunity than then.

Speaker Change: No no direct impact on our operations certainly another domestic ignored the semi.

Speaker Change: But the fact that supply chains have been disrupted because of that could lead didn't have led to additional AD hoc charter opportunities, that's what I meant with that Jonathan.

Jamie Bennett Porteous: Also, during the Q&A, there was some discussion about Unknown Speaker...potential macro softness showing up in the domestic revenue trend later in the year. I know the vast majority of your air capacity, but what is with the ad hoc portion of your domestic business? And how are you thinking about potential impact? Yeah, no real impact on rates. As you mentioned, most of our rates

Jonathan Lamers: Okay excellent and.

Jonathan Lamers: Also during the Q&A there was some discussion about it.

Potential macro softness showing up in the.

Jonathan Lamers: Domestic revenue trend later in the year.

Jonathan Lamers: I know the vast majority of your air capacity, that's been sold out under long term contracts as we discussed.

Jonathan Lamers: My question is with the.

Jonathan Lamers: Transportation market, showing some signs of pressure.

Jonathan Lamers: Are you starting to see any pressure on rates in the AD hoc portion of your domestic business and how are you thinking about potential impacts.

Jamie Bennett Porteous: Yeah, no real impact on rates. As you mentioned, most of our rates are contractual and even our ad hoc non-contract on the domestic, we've been able to hold the rates, at the level that they were at the beginning of the year, it's just our cautiousness was really just reflected on my comments about, you know, we saw a stronger start to January and February than we were anticipating and then, you know, sort of back to what we were originally forecasting as growth for the year, I think somewhat impacted by, you know, as I mentioned, higher, you know, continued higher inflation and higher interest rates.

Jonathan Lamers: Impacts to.

Jonathan Lamers: So your revenue trends later in the year.

Speaker Change: Yeah, no real impact on rates as you mentioned most of our rates of contractual doesn't even our AD hoc non contract on the domestic we've been able to hold the rates.

Speaker Change: At the level that they were at the beginning of the year. It's just our cautious our consciousness was really just reflected on my comments about you know we saw a stronger start to January and February than we were anticipating and then sort of back to what we were originally forecasting as growth for the year I think somewhat impacted by as I mentioned higher.

Speaker Change: You know continued higher inflation and higher interest rates.

Speaker Change: Okay. Thanks for your comments.

Speaker Change: Thanks, Jonathan.

Speaker Change: Thank you.

Pauline Dhillon: We have no further questions registered at this time. I would now like to turn the meeting back over to Ms. Dillon. Thank you.

Speaker Change: We have no further questions registered at this time I would now like to turn the meeting back over to Mr. Adnan.

Pauline Dhillon: Let's close the call off today by reiterating that we are singularly focused on delivering shareholder value by finding every single revenue opportunity that Jamie's highlighted and Scott's spoken to as well. Jamie's also touched on some of the opportunities we're pursuing due to the dislocation in the ocean carrier supply chains in the Red Sea. We are particularly pleased with the net cost discipline that we've spoken about earlier that we're seeing across the organization. We're disciplined in executing our previously stated capital allocation strategy that Scott referred to. That said, we are operating in a highly uncertain macro environment, and we will continue to operate with a bias toward caution.

Adnan: Thank you.

Adnan: Let's close the call off today by reiterating that we are singularly focused on delivering shareholder value by finding every single of our revenue opportunity and Jamie highlighted in Scottsville can too as well Jamie also touched on some of the opportunities we are pursuing digital dislocation and the ocean carriers to.

Adnan: Pi change in the Red Sea.

Adnan: We are particularly pleased with the net cost discipline that we spoken to you earlier that we're seeing across the organization.

Adnan: We are disciplined in executing our previously stated capital allocation strategy that Scott referred to.

Adnan: That said, we are operating in a highly uncertain macro environment and we will continue to operate with a bias towards caution.

Operator: We appreciate everybody's time this morning for joining the call. Have a wonderful day. Thank you. The conference has now ended. Please disconnect your lines at this time, and we thank you for your participation.

Speaker Change: We appreciate everybody's time this morning for joining the call have a wonderful day.

Speaker Change: Thank you.

Speaker Change: The conference has now ended please disconnect your lines at this time and we thank you for your participation.

Operator: The conference has now ended. Please disconnect your lines at this time, and we thank you for your participation.

Speaker Change: The conference has now ended please.

Please disconnect your lines at this time.

Speaker Change: And we thank you for your participation.