Q2 2025 Cargojet Inc Earnings Call

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Speaker #3: All participants, please stand by. Your conference is now 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 Martin Herman, please go head.

Speaker #4: Good morning, everyone, and thank you for joining us on this call. With us on the call today are AJ Vermani, our Executive Chairman, Pauline Dhillon, and Jamie Porteous, our Co-Chief Executive Officers.

Speaker #4: Aaron McKay, our Chief Financial Officer, and Sanjeev Meini, our Vice President of Finance. After opening remarks about the quarter, we will open the call for questions.

Speaker #4: I would like to point out that certain statements made on this call, such as those relating to our forecasted revenues, costs, and strategic plans, are forward-looking within the meaning of applicable securities laws.

Speaker #4: 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 income.

Speaker #4: I will now turn the call over to Jamie.

Speaker #5: Thank you, Marty. Good morning, everyone, and thank you for joining us on the call today. As we've done in prior quarters, Pauline and I will share our prepared remarks, and then we will open up the call for questions.

Speaker #5: What started in the United States as a liberation day on April 2nd has clearly set the stage for a new trade world order. While countries and economic blocs such as Japan and the European Union are buying peace and entering into trade deals with the United States, the longer-term impact of this seismic change will only emerge in the coming years.

Speaker #5: There's definitely a greater level of uncertainty that is translating to slower decision-making. We believe the key to surviving this unprecedented period is resilience. And resilience is one of foundational values that CargoJet was built upon.

Speaker #5: Trade is as old as civilization itself. The spice route is about 5,000 years old, and the Silk Road is over 2,000 years old. Accordingly, we do not expect world trade to come to an end anytime soon.

Speaker #5: There will be new export countries, new trade routes, and new opportunities. Our mission is to stay one step ahead, and we have demonstrated just that by identifying growing ACMI opportunities with DHL, by entering into long-term contracts for China's eduled charters, and we will continue to find new and emerging trade routes around the globe.

Speaker #5: Closer to home, our domestic network is unparalleled. Despite global uncertainties, our domestic business posted 14% year-over-year growth in Q2. As I've noted before, during tough economic times, consumers often substitute a t with a lower-cost item.

Speaker #5: But we expect the volumes to remain resilient. Our Q2 results clearly demonstrate that such behavior is playing out and that e-commerce is still strong and has a long runway of growth ahead of it in Canada.

Speaker #5: That said, we did see some weakness in our European ACMI routes after the liberation day, but we remain optimistic that after the EU-USA trade deal and our new DHL agreement, Air Cargo flows will reemerge in the coming quarters.

Speaker #5: Our charter business posted a 22% growth, demonstrating the stickiness of this trade lane that is relatively new for Canada. We did, ever, identify an attractive opportunity to streamline our fleet by acquiring a total of four aircraft: three converted Boeing aircraft and the outright purchase of a used factory-built freighter.

Speaker #5: The growing size of CargoJet's overall fleet now warrants an enhanced maintenance spare fleet to backstop heavy maintenance schedules and to sustain operational reliability for both CargoJet-owned as well as CMI aircraft.

Speaker #5: Management will be selling two older 767-300 aircraft in Q3 2025 and one lease 767-200 will now be returned to the lessor in Q1 2026.

Speaker #5: This will lead to a net addition of one 767-300 aircraft. These investments partially funded in prior periods reflect timing differences between cash inflows and outflows thereby resulting in a net year-to-date free cash flow outflow $118.4 million.

Speaker #5: We expect to fully offset this cash flow shortfall by Q3 2025 through operational cash generation and the sale of the two aircraft returning to our previously stated adjusted EBITDA leverage ratio range of 1.5 to 2.5 times.

Speaker #5: During the six-month period ended June 30th, the company purchased for cancellation an aggregate of $74,533 voting shares under the NCIB for a total cost of $73 million, including 1.4 million share buyback tax.

Speaker #5: Our dividend policy remains consistent with previous years. We remain confident that our resilient approach to turning threats into opportunities will continue to serve us well into the future.

Speaker #5: Our fleet of 43 freighter aircraft and our unique mix of domestic network, ACMI, and all-in charter revenue segments creates a very strong competitive advantage and provides further growth opportunities and continues to generate value for all stakeholders.

Speaker #5: Thank you, and let me now pass the microphone over to my colleague Pauline.

Speaker #6: Thank you, Jamie, and good morning, everyone. I would like to stay in this theme of resilience. On July 2nd, we announced that Amazon had renewed its air transportation services agreement for four years with us, with an option to renew for two additional years.

Speaker #6: Potentially extending the relationship till March 31st, 2031. Last night, we announced that DHL has also extended its strategic partnership with CargoJet until March 31st, 2033, with additional options till March 31st, 2037.

Speaker #6: Let me first recognize the CargoJet team, who makes it happen every single day and night. Consistently, delivering on-time performance of over 99% month after month, year after year.

Speaker #6: Requires a highly engaged and synchronized team. That is pulling in the same direction. This is resilience. This is our cargo pedigree. This is our DNA.

Speaker #6: Our heartfelt thanks to each and every one of them. We would not have earned these long-term renewals without our team. Their hard work, their passion, and their continued education to CargoJet.

Speaker #6: Amazon and DHL are two of the planet's largest logistics brands and have reaffirmed their vote of confidence in CargoJet. These global leaders have vast resources, to build engines, that will drive their business.

Speaker #6: Our job is to support them. In the most cost-effective way. And to capture those growth opportunities. That is what excites us the most. Turning towards operational effectiveness, it is worth noting that despite a 10% drop in block hours flown this quarter versus quarter two of the previous year, we have managed to post a strong adjusted EBITDA margin of 33.7%.

Speaker #6: Sequentially speaking, we improved our margins by 140 basis points versus first quarter of this year. We are starting to see sustainable cost efficiencies as a result of a new work smarter culture, we are building in every part of our business.

Speaker #6: I touched on the need to build strong talent in all key functional areas in my prior remarks. Today, I am pleased to introduce Aaron McKay, who started on August 1st as our new Chief Financial Officer.

Speaker #6: Aaron comes with strong industry experience and he oks forward to quarterly updates in the upcoming quarters. We are thrilled to have Gore Johnston, a veteran CargoJet executive, stepping into the expanded role of Chief Commercial Officer.

Speaker #6: This new role will streamline our sales processes and generate new revenues by improving capacity utilization, and key lanes including backhaul lane, by leveraging spot and interline relationships.

Speaker #6: It is one of the key initiatives to improve margins. We also continue to make progress on our technology transformation project. This project will not only streamline our day-to-day operations; it will improve financial reporting while reducing working capital.

Speaker #6: On the operational front, our team delivered a successful prime week for Amazon. And is gearing up for the back-to-school shopping season. We call it a warm-up for the upcoming holiday season.

Speaker #6: We are also extremely proud of the health and safety team that are working on innovative ideas to train our employees using bite-sized video technology.

Speaker #6: Despite global uncertainty and a slowing economic outlook, we remain very optimistic about our ability to continue to deliver shareholder and employee value. We truly believe that every challenge is an opportunity.

Speaker #6: Maintaining strong engagement and supporting our team members to deliver the customer promise is a personal priority. And we are thrilled with the progress we are making.

Speaker #6: Thank you again for joining us this morning. Paul, if you'd like to open the lines for questions.

Speaker #3: Thank you. We will now take questions from the telephone line. If you have a question, please press star one on the device's keypad. Your you may cancel your question at any time by pressing star two.

Speaker #3: So please press star one. At this time, if ou have a question, there will be a brief pause while the participants register. We thank you for your patience.

Speaker #3: The first question is from Walter Spraklin from RBC Capital Markets. Please go ahead. Your line is open.

Speaker #7: Yeah. Thank ou very much. Good morning, everyone. now you've, brought down your block hours, you know, they were the, the looking at there, they were stable in in Q1.

Speaker #7: but dropped 10% in Q2. year over year. Are we going to run at kind of the lower level of block hours now in the back half, or is it something that's seasonally we might see the year over year go back, to prior year levels, or stay at the down 10% year over year for the back half?

Speaker #8: Good morning, Walter. It's Jamie. I can, I can take that. The, no, we would expect it to go back to more seasonally, a little bit higher than what we saw.

Speaker #8: The reduction that we saw in Q2 was a little less than what we saw in Q1. If I look at our ACMI overall block hours in the quarter, I think we were down 9% versus 16%.

Speaker #8: So it's slight improvement from Q1. And our indications are in the back, and equally with the domestic network, our hours were up a little bit, but that was a reflection of the 14% increase in revenue.

Speaker #8: and we would expect that in all three segments, the domestic, the ACMI, and our, our scheduled and ad hoc charter business will be stronger in the back half of the year.

Speaker #7: Got it. Okay. And then on the charter, kind of the same similar question, it was 46 million in Q1. It dropped to 40 in Q2.

Speaker #7: Is that a seasonal? You know, or like should we, should we expect it to come back up, in Q3 on seasonal, or is that drop, that sequential drop due to some other reason, again, as we look into the modeling for Q3, Q4?

Speaker #7: Mm-hmm.

Speaker #6: Yeah. Good morning, Walter. It's Pauline. no, we don't, we don't anticipate to see any further decline in that. We just saw a softening in the economy, as a matter of fact, we're ing to see things pick up again when it comes to the charter business.

Speaker #7: And then, on the CapEx side, is it, can you give us the new, your, your latest on maintenance CapEx that you're expecting in year, and then the growth, growth CapEx net of your disposals?

Speaker #8: hi, Walter. Sanjeev here?

Speaker #7: Yeah.

Speaker #8: we expect our CapEx to be, we will spend about 50 to 60 million this quarter, and after basically settling up, cash, what we receive from sale of assets, it will drop down to, basically 80 to 90 million dollars at the, at the year-end.

Speaker #8: We are selling two, P767 aircraft and then we have a sale and lease back arrangement for two 767s. So it will virtually give us 170 million dollars in cash inflow.

Speaker #7: And what, what, what, what are just to make it clear, the two 767s, we are selling our Pratt & Whitney aircraft, majority of our fleet except these two aircraft are Pratt & Whitney, which we bought during COVID time because every aircraft was valuable.

Speaker #7: And strategically, two of a kind, doesn't give us the synergies operationally. So we are selling those, and replacing it with one GE engine, which most of our fleet.

Speaker #7: So it's a fleet fleet rationalization that'll help with, cost and, maintenance and, synergies. So that

Speaker #8: Yeah.

Speaker #7: a strategic move that we. That we're doing.

Speaker #8: Yeah. Oh, that's fantastic, AJ. And that, harmonizes that and, and improves your efficiency there for sure. But.

Speaker #7: My last question is just on the, the, the DHL and the logic around issuing warrants with your customer. I mean, ou are the only game in town, you ow, why, why issue warrants and, and not more traditional kind of contract like you seem to have kind now developed with Amazon?

Speaker #7: Your, your Amazon didn't include, did include warrants before, didn't with the, with, with the, the new renewal, but for DHL, they did before and you're, and you're doing it under you're canceling the other ones and, but you're, you're, issuing new ones here.

Speaker #7: What, talk to us about a little bit the, the logic around issuing warrants with this particular customer.

Speaker #8: Yeah. So, I'll take that. we are we do have a fairly big market share in Canada, but keep in mind all the DHL business we do, can be done by other carriers.

Speaker #8: When I say other carriers, mostly American. So that part is not, you know, when you say we are the only game in town pretty well, no, we're not the only game in town.

Speaker #8: There's many American carriers who can do that. We fly from here to, Cincinnati, five, six flights a day, then we do Cincinnati, Mexico, South America, some Caribbean.

Speaker #8: you know, Europe, we were doing till a while back, till Europe dropped off a little bit. so any business we do with DHL does have, they do have options.

Speaker #8: And secondly, I think that we're a little relationship with DHL is today, nobody's getting 8 or 10 years or 12-year deals. with any carrier.

Speaker #8: And, first of all, we cancel the old warrants. which was 1.6, million warrants at over $150 strike price. And we had to make it more interesting to continue with the unique partnership that DHL does not have with any other carrier other than us, which means when the business is down, you ow, we're the last ones told to, okay, you're going to take a break for, for this route.

Speaker #8: And when the business is up, 're the first one who gets called. So develop that uniqueness in relationship. We also have to show uniqueness in our flexibility of bringing a partnership approach.

Speaker #8: that we both are aligned. We are on the same page. and we are, we stand out compared to other carriers. So, I think by reducing the number of warrants, by, you ow, making the price current, we win by less dilution.

Speaker #8: they also win by less warrant. They get the motivation to give us more routes. And the partnership continues.

Speaker #7: Great. Appreciate the time.

Speaker #8: Thank ou, Walter.

Speaker #3: Thank you. The next question is from Cameron Dirksen from National Bank Financial. Please go ahead. Your line is open.

Speaker #9: Yeah. Thanks very much. good, od morning. if I could just follow up on, I guess, the, the question around the, the DHL deal, you know, you still had a, I guess, a couple more years to run on the existing deal.

Speaker #9: So I'm just, maybe my question is, you know, why, why, why now? Like, you ow, why would it, why the extension now, and is there anything, I guess, contractually that's, I mean, other than the, the warrants which you just addressed, but is there anything se contractually, different, within, within the, the new contract?

Speaker #8: Well, Cameron, the contractually different is obviously the term of the agreement.

Speaker #9: Right.

Speaker #8: secondly, the contractually different, is that the warrants that we have now, we issued, which are a lot less, the strike price is different. And the most importantly, the revenue associated with warrants, that they have to deliver is more geared towards growth than maintaining the business.

Speaker #8: So the interest aligned from that, that they're interested in growing with us based on our performance, our flexibility, our willingness to do more, than anybody else.

Speaker #8: And we wanted to make sure that we refreshed the agreement two years early. Now you're saying, "Why two years early?" My question to, to, you know, the question is why not, why not early?

Speaker #8: Why, why late? you know, when, two years yes, we could have lived the two years, but we could have lived with an outdated agreement, that, that did not motivate the customer or us to do anything different.

Speaker #8: So two-year renewal, two-year earlier renewal refreshes the whole agreement, commercial terms, adds the minimum block hours, add minimum number of planes. And, and certainly, you ow, rejuvenates the whole partnership.

Speaker #9: Okay. So, so more potential upside, I guess, for growth with DHL. With that new agreement.

Speaker #8: Yeah.

Speaker #9: Okay. That, that, that makes

Speaker #8: Yeah.

Speaker #9: sense. just on the, I guess, the Chinese e-commerce, contract, I mean, it did look like it maybe it slowed, somewhat, I guess, quentially in Q2 and I, I think maybe it sort of happened owards the end of the quarter.

Speaker #9: can you just talk about how that, volume is trending, like weekly flights, as we sit here today and what your expectation is for the second half?

Speaker #8: Jamie can take that.

Speaker #10: Yeah. Good morning, Cameron. Yeah, you're right. We saw some softness on the weekly frequencies from what we saw in Q1. We're down to three frequencies per week.

Speaker #10: throughout the summer, we expect that to increase as we go into the third and fourth quarter.

Speaker #9: Okay. Okay. And it's maybe just final, h, just clarification for me for, for Sanjeev, just, just on the, cash inflow from the two, aircraft sales, and I guess the sale lease back.

Speaker #9: I just want to confirm that you said, 170 million dollars in cash inflow. if that's correct, which, which quarter do you expect to receive that?

Speaker #8: yes, 170 is correct. we are already in the process of completing sale and lease back. We expect it to be over this quarter. For 100 million.

Speaker #8: And 70 million is also in process. It may be a split between this quarter and next quarter. But we are pushing it hard for, say, to complete the sale this quarter as well.

Speaker #8: So 70 million might come this quarter or it will be 35, 35.

Speaker #9: Okay. Perfect. Appreciate the time. Thanks very much.

Speaker #10: Thanks, Cameron.

Speaker #3: Thank you. The next question is from Tim James from TD Collin. Please go ahead. Your line is open.

Speaker #11: thanks very much. Good morning. just wondering if you, you could, speak to, training costs and, and overtime costs, you know, I ow, just due to growth and other factors, those were had kind of ramped last year.

Speaker #11: I think training costs were called out this quarter as, as I don't know whether unusually high is the right term, but, but called out as an impact.

Speaker #11: Could you just sort of address, have, have those normalized as we sit here in, in early August? and, and just any color on sort of your, your forward-looking, expectations through the balance of the year?

Speaker #6: Yeah. Good morning. Tim, I'll take that. yeah, they've normalized. We, we had hired a, a number of pilots last year. We've got them all through training.

Speaker #6: we're going to see normalization there. We don't expect those costs to, increase for the remainder of this year.

Speaker #11: Okay. Great. Thank you, Pauline. my second question, returning to the, the DHL agreement. Is, is there any opportunity do you think to expand, the number of aircraft or routes as part of this, agreement?

Speaker #11: Or, you know, should this look over time, like just more volume potentially, or hopefully more flying on the routes that, you know, you're ready familiar with and already have, have done for DHL, since, 2022?

Speaker #8: Yeah. Tim, I'll, I'll e that. I, I don't think we'll see tomorrow that there's going to be new routes. But the intention is to have instruments and agreements in place because obviously there are forecasting that the customer has done.

Speaker #8: And they, they expect that once tariff things and, geo-economic, political, stuff settles down, there is opportunities to go, on certain lanes, certain segments. at certain times, so obviously we want to be in a position to be the first ones to get in.

Speaker #8: the other, thing that I point out to you, which I pointed out earlier, is that the warrants that have been given, are more on, on the growth side.

Speaker #8: So obviously, DHL would not entertain a growth side warrant if they didn't intend to grow. So the intention of both parties is to grow together.

Speaker #8: And that's why that deal was done. So you know, obviously, it'll depend on, how the market behaves and how, where the demand leans open up, where the trade settles down, what countries it is going to be.

Speaker #8: But by putting this in place, we've become the first in line. So that's was the intention. And, on both parties. And the intention was genuine.

Speaker #8: Otherwise, no company as I mentioned, with DHL or any organization in our business, has agreements that can stretch to 20, 30, 7 today.

Speaker #9: Right. Okay. That's great. Thank you very much.

Speaker #3: Thank you. The next question is from Daryl Young from Stifel. Please go ahead. Your line is open.

Speaker #12: Hey. Good morning, everyone. just wanted to follow up ickly on, on Tim's question about new routes with DHL. there's some language in the, in the, press release that makes it sound like you might have a row for on, on future opportunities.

Speaker #12: Is that accurate or, or is that just more of a blanket statement that was included in there on, on future work?

Speaker #8: Well, look, I mean, you can have any agreement and they're good as good as the goodwill behind them. there is no, you ow, guarantees of anything in this world.

Speaker #8: But the very fact that a carrier and, suppliers I mean, a customer step up and do a, potentially 8 to 12-year deal with growth warrants, certainly show the goodwill and the intention that we have had.

Speaker #8: keep in mind, we've had this relationship with DHL since 2005. We are the carrier that stepped up for them. And we're ing 17, 18 planes during COVID.

Speaker #8: you know, so we have always been there for them. They have always treated us family as partners. they've gone beyond in ensuring that the contracts and the terms they gave us are fair.

Speaker #8: they're the ones who ensure that all the costs of living, increases, any, anything that, impacts our operation, whether it's operations, whether it's financial, you ow, for example, DHL has aviation insurance, major, master policies around the world.

Speaker #8: They let us participate in it. Participate in those. So we can keep our costs lower. So it's more than a customer relationship. It's a partnership.

Speaker #8: And yes, the new routes will come at eventually. But as I said, they're not coming tomorrow. But we are positioned to take advantage of the new routes and the new openings that they might have.

Speaker #12: Got it. That's helpful. And then second question, you provided some constructive commentary around the, the EU, US corridor. is there a specific work that is coming back and, presumably 's DHL-related volumes or, or maybe there's some surge, ad hoc charter that could be coming from there as well?

Speaker #12: just as, as tariffs and, and trade, realign. Is, is, is that something you speak to in terms of what you're eing in the magnitude of potential upside there?

Speaker #8: Yeah. So we see some, next month or so, we do see some, ad hoc charter opportunities as the demand is, you ow, is eliminated in next month or so.

Speaker #8: So there might be some rush to get the product over to beat that. but that's a one-time or sort of opportunity that might come to all the cargo carriers.

Speaker #8: I think that on the Europe, corridor, yes, there has been a Europe, America deal. But would that deal be just a deal or would that have an impact on shipping?

Speaker #8: we don't know at this stage. And as a matter of fact, nobody knows, whether the 15%, tariff on European goods is going to be translating into similar level of shipping or more level of shipping or less level of shipping that will have to depend on the American consumers.

Speaker #8: But interestingly, there is a lot of products, for example, wine, that has not been part of that 15%. That's still under negotiation. So yes, the 15% is a number, but then there's so many exceptions within the 15% that nobody has been able to absorb or able to put numbers or predictions around it.

Speaker #8: So we feel that at the end of the day, this will all shake down to, a common sense. stuff that's not working is going to be thrown out and stuff that's working, will be kept.

Speaker #8: And I ink we, we have to have, we have to have an optimistic approach because the world has survived on the trade and all of a sudden, yes, there is some new order.

Speaker #8: There's some new spending on defense. There are some other pressures that are being used. For trade. And I think once, once this settles down, we're not going to have this continues for the next four years, for sure.

Speaker #8: So I think at some stage we'll find that stability.

Speaker #12: That's great. That's od color. Thanks. I'll, I'll hop back in the queue.

Speaker #8: Okay.

Speaker #3: Thank you. The next question is from Rezi Hassan from Paradigm Capital. Please go ahead. Your line is open.

Speaker #13: Thanks. Good morning. Thank you for taking my question. I just wanted to ask, is there anything specific you can point to in regards to the 140 basis points sequential increase in EBITDA margins?

Speaker #13: is there thing stick out to you and, and, in your opinion, is that sustainable, what you guys have currently?

Speaker #8: Yeah. Pauline, you want to take that?

Speaker #6: Yeah. thanks, AJ. good ning. Rezi. Yeah. You, so it's, it's basically, all the cost and initiatives that we've put into place. It's something that we've been doing, from the beginning of this year and we can see we will continue to monitor those and continue to see those improve.

Speaker #12: Okay. Thanks. And then maybe just lastly, just on the ACMI growth, or, or decrease, year over year, just any thoughts for the remainder of the year, how you're eing ACMI play out.

Speaker #12: obviously with the DHL contract. to your point, may, maybe more of a longer term, growth profile there. But just for the, for the back half of the year, any thoughts?

Speaker #8: Yeah. We, we're hoping that it continues grow. We've seen an increase from Q1 to Q2. we anticipate to see the seasonal increases that we do in Q3 and Q4.

Speaker #8: So we're timistic.

Speaker #12: Thanks. I'll leave it there. Sorry.

Speaker #3: Thank ou. Once again, please press star one on the device's keypad if you have a question. The next question is from Kevin Chang from CIBC.

Speaker #3: Please go ahead. Your line is open.

Speaker #14: h-hi. Thanks. thanks taking my question. M-maybe just two, two for me. it sounds like you're ecting, you ow, a, a, a, a seasonal pickup here in the back half as you, as you usually do.

Speaker #14: But just wondering more broadly speaking, did you, do you, do you expect a more normal seasonal, peak, or more typical peak season? It, it does seem like some transport companies, are assuming something a little bit more muted in the back half of the year, just given all the unusual trade flow we saw in the first half of 2025.

Speaker #14: j-just, just from a broader peak season comment, d-do you think it'll more normal for CargoJet or do ou, do you think it could be, maybe a little bit more muted just given some of the front running we've seen in the -first half of this year?

Speaker #8: Yeah. Kevin, I don't think we will see a very muted season. We will see some impact with the, the demands, the, the, disappearing. p you know, some of the gifts people are buying that are under $800 in the .

Speaker #8: Canada only had a very small demand anyway. So I think at the end the day, w I don't know what the definition of very muted and, and normal is.

Speaker #8: I think at the end of the day, the Canadian shipping, the domestic, we don't see, that it will be a very muted season. yes, there could be some softness in the, ACMI type of the North American or, or, global charters.

Speaker #8: Simply because people don't understand, what is the long-term impact of all these things. So peak season is peak season. People always buy stuff. So, I'm not expecting that this is going to be a huge, huge bumper season.

Speaker #8: I-it's a season of adjustments I call. you know, people trial and error. Is this product you ow expensive, more expensive? What are people going to do?

Speaker #8: you know, companies, e-commerce companies are still, you know, shipping the same what they were doing. tariffs and no tariffs and, we, we certainly feel that it's certainly going to be closer to a normal season, not a muted season, but not a super bumper season.

Speaker #8: So we are expecting an, an above average sort of peak season but not great, great, great peak season. But so we have had surprises before.

Speaker #14: That's, that, that, that's helpful. Sounds like, you're, you're setting up for, for, for heightened volumes here. relative to the first half. M-maybe, you know, p-p-Pauline, ou mentioned, you know, some of the, the, the executive, management changes and, and, and, you know, one caught my attention.

Speaker #14: You talked about the new CCO role and maybe opportunities for, backhaul and improving efficiency. I'm, I'm sure 's early days here. But, I guess if, if you were to look at that opportunity, just, just wondering, it, it sounds like there's some efficiency levers you, you, you foresee maybe even revenue levers.

Speaker #14: Like, i-i-is that something we, we should, we should see, flow through like in, , you know, revenue per operating day? Are, are there opportunities there as you, as you think of backhaul?

Speaker #14: Is it, sounds like there's margin opportunities. -is there a way to quantify the potential upside as you, as you, as you leverage some of these, you ow, s-some of these, I guess, I'll call them inefficiencies that, that, that, that, that, that you noted earlier?

Speaker #6: Yeah. You call them inefficiencies. I'll call them opportunities. Kevin.

Speaker #14: Opportunities. Yeah. Yeah.

Speaker #6: yeah. You know what? We are, we are a domestic player and obviously we're always looking for opportunities whether they're growth opportunities or cost, constraint opportunities.

Speaker #6: But at this point, I think it's too early to share, or to quantify what you're asking for. We will, embark on it in Q3 and hopefully have something to report at the end of the quarter.

Speaker #14: Okay. Well, I'll look forward that. Thank you very much. Those are my questions.

Speaker #6: Thanks, Kevin.

Speaker #3: Thank you. The next question is from, Adish Aman from BMO. Please go ahead. Your line is open.

Speaker #15: Yes. Good morning. Thank you. Jamie, the domestic growth that we're seeing, I mean, it feels like it's, you know, much stronger than the market growth and the organic growth that we're seeing in the market.

Speaker #15: Like, what's driving that? Is this kind broad-based across your customers? Is it driven by kind of specific customer?

Speaker #3: No. Good morning. It's mostly driven, not mostly, it's, I would say it's all driven by stronger e-commerce demand in Canada and e-commerce growth that we've seen across all of our customer base, including Amazon.

Speaker #3: You know, as AJ was alluding to on answering the question on, you know, growth in the second half of the year, you ow, Amazon is an example.

Speaker #3: Prime Week was stronger than it was in previous years. We see that trend continuing and that's really what's driving the growth on the domestic side.

Speaker #15: Okay. So, so it's, it's kind a more broad-based threat across, across all e-commerce channels. Okay. the, so, so we should expect on that front kind of typical seasonality from a domestic growth perspective as we go into Q3 and Q4, like with, y-you know, strengthened to peak, in Q4?

Speaker #6: Yeah. That's correct.

Speaker #15: Yes. Okay. I want to go back to the DHL, agreement. Just, just make re I'm walking away with, with the right feedback here. So the margin profile of the current routes that you have with DHL, doesn't change.

Speaker #15: Your minimum block hours, profile, doesn't change? This is really an extension of the contract with a framework that is, potentially a supportive for growth, that, there's some, some, some growth, initiative potentially in the pipeline under the new framework and incentivized customer potentially, on that growth.

Speaker #15: Is, is that the right approach? to think about it?

Speaker #8: Jamie, you want to take that?

Speaker #12: Yeah. Sorry. Absolutely. I mean, that's, as AJ said earlier, you know, the, the new agreement and in answer to the question, you know, why renewing it early is to take advantage of the growth opportunities as the economy's improved around the, around the globe over the xt several years.

Speaker #12: And really the agreement, you know, it's the best alignment for us with the major customer that we've had a -term, relationship with back to 2005.

Speaker #12: And it certainly incentivizes DHL to direct more business to CargoJet as a result of the warrant agreement than any other global air cargo carrier that use is, as AJ noted, you know, w-we'll first in, last out for any new business.

Speaker #12: So there's significant expectation that we'll have opportunities for growth in coming years.

Speaker #15: Okay. So, so, so there's no change in to the economics of the current business that you do with DHL. It's about the growth.

Speaker #12: Correct. and, and kind of related question, I mean, these, this international expansion over the last few years, have, have, have been great for growth, but from an ROIC perspective, it's kind of been in that single-digit range.

Speaker #12: Does this change with the new contract? Is there kind , a financial framework that allows you to, improve your asset utilization or maybe get economics that are different that would support expansion in the ROIC as we as we go into the next few years and hopefully you expand that relationship with DHL?

Speaker #8: I've heard you, Sanjeev here. this contract has just been, agreed to. So we will see in future how it will turn into and how effective it will be on our ROIC ratio.

Speaker #8: It is too early for us to comment on that one.

Speaker #12: Appreciate .

Speaker #3: Thank you. There are no further questions registered at this time.

Speaker #6: All right. Thank ou.

Speaker #15: Thank you. Thank you for joining us. Have a good .

Speaker #8: Thank you, Louis.