Chorus Aviation Inc

TSX:CHR

Good morning, ladies and gentlemen, and welcome to the Chorus Aviation Inc. First Quarter 2025 Financial Results. [Operator Instructions]

This call is being recorded on Wednesday, May 7, 2025. I would now like to turn the conference call over to Mr. Tyrone Cotie, VP of Treasury Relations. Please go ahead.

Thank you, Chelsea. Hello, and thank you for joining us today for our first quarter conference call and audio webcast. With me today from Chorus are Colin Copp, President and Chief Executive Officer; and Gary Osborne, Chief Financial Officer. We will begin today's call with a brief summary of the results, followed by questions from the analyst community. there may be some forward-looking discussion during the call, I ask that you refer to the caution regarding forward-looking statements and information found in the MD&A. This pertains specifically to the results and operations of Chorus Aviation Inc. for the 3 months ended March 31, 2025, as well as the outlook section and other sections of the MD&A where such statements appear. As a result of share consolidation implemented on February 5, 2025, all per share figures in our disclosures have been adjusted to reflect the impact of the consolidation.

Finally, some of the following discussion involves non-GAAP financial measures, including references to adjusted net income, adjusted EBT, adjusted EBITDA, leverage ratio and free cash flow. Please refer to our MD&A for further information related to the use of such non-GAAP measures and pro forma figures. I'll now turn the call over to Colin Copp.

Thank you, Tyrone, and good morning, everyone. Thanks for joining us as we discuss our 2025 first quarter. This is our first full quarter after the sale of Falko and the RAL business. I'm pleased to report on our strong financial results, which are consistent with our plan and in line with expectations. And at the same time, we've made tangible progress in a number of aspects of our business.

As per our plan, following the completion of the RAL sale last year, we quickly took steps using the proceeds of the transaction to significantly reduce our debt and corporate financings. This provided us with a substantial reduction in our leverage ratio, improved liquidity position and ultimately has given us a much stronger balance sheet to build with going forward. Additionally, we've completed our cost realignment at Chorus and are seeing the corporate cost reductions positively reflects in our results. These fundamental changes in combination with our focus on strengthening our existing businesses has provided for strong performance in earnings. And as per our plan, this has led to improvements in our free cash flow as well as growth in our net income and adjusted EBITDA during the quarter.

As you're going to hear from Gary, we have seen meaningful improvements in practically every financial metric. And at the same time, Chorus now has a solid foundation from which to steadily grow our business and enhance returns for our shareholders.

Now turning to the operating side. Our businesses performed very well this quarter, contributing both to improved earnings as well as seeing Voyageur reaching new milestones in the growth trajectory. I'll touch on some of the highlights now. Doug and the team at Jazz have once again delivered strong earnings under the CPA with Air Canada and have performed very well on all operational measures. I'm happy to report that the work has now commenced on the initial phase of an extensive cabin refurbishment program for the Jazz fleet of aircraft operated under the Air Canada Express brand. This program includes a range of improvements as agreed upon with Air Canada and covered by the CPA, including upgraded WiFi connectivity, enhanced overhead storage and a variety of improvements to cabin interiors. These upgrades will enhance the overall flying experience for our customers.

On the pilot recruitment side, Jazz continues to successfully fill all new hire pilot vacancies and is seeing experience levels of new hire candidates increasing, which is a positive indicator of an improved pilot supply in the industry. Corey and the team at Voyageur continue to hit record growth with increases in part sales, contract flying and specialty MRO work, strengthening their financial results and keeping Voyageur on track to achieve its revenue target of $150 million for 2025.

Voyageur continues to strengthen and grow its position in parts sales business, specialty operations and defense contract streams and has now fully operationalized its major contract with the Department of National Defense as of February. Lynn and the team at Cygnet are making great progress on growing the pilot training academy on all fronts, establishing new industry partners to enhance free agent enrollment, welcoming its eighth cohort of pilot trainees this week and developing additional in-house capabilities and program offerings.

While we executed on our financial, operational and strategic goals this quarter, we also took a meaningful step to follow through on our commitment to return value to shareholders. With the announcement of a substantial issuer bid, which is currently active for investors to consider, the offer to buy back up to 25 million shares in value is in addition to the $53 million in shares already purchased since we commenced our NCIB program in 2022. Altogether, these 2 streams represent a meaningful effort to address the undervaluation of our shares. I want to reiterate that we are very focused on shareholder value and the fact that we prioritized the SIB offer during this time is a reflection of that focus. I'd also like to note that as the markets deal with ongoing volatility, our results highlight the predictable and defensive nature of our business overall.

Our strong balance sheet and low leverage contracted cash flows of the Jazz business, combined with the diversified sales avenues of Voyageur positions us very well during this time of economic uncertainty.

In summary, our strong results reflect our commitment to remaining focused and executing on our plan. We're well positioned to continue to strengthen and grow the business while delivering on our commitment to prioritize shareholder value. I'd like to close by thanking our employees across all our businesses for their unwavering focus during a time of change and realignment for our company and for their daily contributions to customers and communities we serve.

I'll now pass it over to Gary to take you through the financials.

Thank you, Colin, and good morning. As Colin mentioned, Chorus has completed its first full quarter following the sale of the RAL business. Our Q1 2025 financial results are significantly improved from last year and in line with our plan. This is owing to Jazz's strong CPA agreement with Air Canada, continued growth at Voyager driven by part sales and a reduction in corporate debt servicing and administration costs from the sale of the RAL business. When we look at the quarter, adjusted EBITDA came in at $56.9 million for the quarter, an increase of $2.8 million over Q1 '24. Adjusted earnings available to common shareholders per share was $0.57, an increase of $0.44 per share over Q1 2024 and free cash flow of $40.6 million, an increase of $9.9 million over Q1 '24. A key highlight in the quarter was our Voyageur revenues, which were $37.7 million, an increase of 39% from Q1 2024, driven by part sales. We see Voyageur well on its way to achieving its goal of $150 million in sales by the end of this year. Chorus' balance sheet is also well positioned, exiting Q1 2025 with continued low leverage of 1.6 and liquidity of $265 million. Our leverage ratio was up slightly from our year-end position of 1.4 related to the early prepayment of the January 2025 CPA revenue.

As we previously disclosed, the planned CPA fleet reductions through 2026 includes the removal of 9 owned Dash 8-400s. We are currently in sale discussions on the first 3 aircraft that have leases maturing in December 2025, and we have also initiated a process for selling the remaining 6 aircraft. We are also focused on continued debt reduction, repaying an aggregate of $81.6 million on our Series B and C debentures in the first quarter.

Our balance sheet positions Chorus well for growth and provides flexibility to further execute on return of capital to our shareholders. As Colin noted, we recently launched a substantial issuer bid in April for $25 million, building on the $53 million of share repurchases made under our NCI program -- NCIB programs since 2022. We continue to view our shares as undervalued and believe these programs are a prudent use of capital. Overall, this has been a successful quarter with many actions we have taken to reinforce Chorus' financial position and set it on a path for future growth. We are pleased with our latest financial results, and we are looking forward to building on these in the quarters to come.

Now I'd like to turn the call back to Colin for just a moment.

Thanks, Gary. Before we take questions, I'd just like to take a moment to recognize Tyrone as he's retiring from Chorus after 8 years with us. Over these years, Tyrone has made many contributions in different roles he's held, including Treasury and Investor Relations and most recently in supporting the transaction to sell the RAL business. Tyrone, you'll be missed without a question.

Thank you on behalf of the Chorus team, and I wish you all the very best in the next chapter.

Thanks, everyone, for your attention. And now let's open it up for questions. [Operator Instructions] Your first question comes from Kevin Chiang from CIBC.

I do, right? So we wrote a note on connections, but this is really applicable to all the companies. So they're basically trading, let's say, through the midpoint of the ranges that they traded over the past 5 years. And so...

Kevin, it's Gary.

Kevin, sorry, we're not understanding the question there.

I do apologize. So Kevin Chiang, actually, the question just dropped. So I'll move on to our next question here. When he comes in, you'll be able to ask.

So our next question comes from David Ocampo from Cormark Securities.

Congrats, Tyrone, on the retirement. Just wanted to chat a little bit about in your MD&A, you guys called out lower administration costs or administrative costs as a reason for the year-over-year improvement. And I think when you guys sold RAL, corporate SG&A was running closer to $28 million and you thought it would stay at that level at least in 2025. Curious if you've made any headways on that $28 million line and how that should now trend in '25 and 2026?

So I'll let Gary respond on kind of any of the numbers, but I'll just give you a sense. Look, we've made a lot of changes. And we -- obviously, some of the big ones that come out of the corporate side are going to be related to financings, but also all other areas we've looked at and we've gone through to rightsize things, make adjustments. We've done several things with that bucket of costs. So it is lower for sure, and we've seen it come down, and it's reflected in the results to some degree. We still needed to keep intact what we need to grow with going forward. So it's a very fine balance, but we've adjusted this corporate size and corporate costs significantly.

Yes, David, it's Gary here. I think if you look at the quarter, we made some good traction on that number, and I think that's what Colin highlighted. And I think when you just look at the adjusted EBITDA where it was up $2.8 million and then back out a few factors like leasing under the CPA where it's dipped a bid, fixed margin and the capitalized heavy checks, I think you'll come into a number that shows a pretty substantial reduction in the quarter.

Yes, that's what I was thinking as well. It's just harder to see it now without the segmentation, but good to see the progress there. And then just the planes that are coming off lease and the expectation that they'll be sold after that. It sounds like you're marketing them already. Just curious what the appetite is. Is it still within that USD 5 million to USD 7 million range that you alluded to before? And then just in terms of timing, are you guys able to sell that while you're still flying those aircraft for Air Canada?

Yes. Not to get into any of the details of the sales arrangements that we're looking at. But we're getting strong responses on the fleet. There's no question that we're very happy with what we're seeing with the bids. So we're pretty comfortable with that. There's definitely a good appetite out there right now for those assets. And so we'll see how things progress over the next little while. But I can't really give you any details on the structure of how the deal works or the timing.

Yes. It's Gary here, David. I think the range is still fine, $5 million to $7 million. You take the mid portion, that's a pretty decent range, and it's probably in that range. So yes, we've got good traction on those sales of those 9 aircraft. And hopefully, we'll have something to conclude here towards the end of the year.

Okay. And then just last one, Gary, real quickly. Just the working capital in the quarter. It looks like it was a pretty sizable drag, close to $70 million, most of it is from AP. Do you guys expect to have a big stock on working capital this year? Or those kind of balance out throughout the quarters?

Yes. We don't expect a big draw on working capital. Most of that draw was the deferred revenue from Air Canada of $59 million we picked up at the end of Q4 last year, where we had an early payment from Air Canada. So for the January 2025 revenues. So if you back that out, we wouldn't -- the draw would be consistent with year-over-year.

[Operator Instructions] your next question comes from Cameron Doerksen from National Bank Financial.

I guess a question on the refurb of the aircraft that are operating under the CPA. You indicate that the 39 aircraft you'll be operating for them post 2026 are all getting the refurbishment. Is it sort of safe to assume or maybe safe to conclude that those aircraft that may be coming up for lease renewal that are getting the refurbishment are highly likely to have their leases extended through the length of the remainder of the CPA?

Yes. I think that's a reasonable assumption. We can't guarantee anything as leases come up, we work through those in Canada. But certainly, there's an investment being made there on those aircraft to refurbish them. So that would be a common sense kind of approach to it for sure, Cameron.

Okay. No, that's good. And then second question for me, just on the Voyager results. Obviously, very strong growth year-over-year on the revenue line, and you've kind of highlighted the parts sales. Just wonder if you can talk a bit about the sustainability of that. I know you've been parting out some nonoperational planes. Is -- I guess, was there anything unusual in the quarter as far as part sales? Or is this something we can kind of expect as a kind of a steady part of the revenue picture for the rest of the year?

I mean our plan is to continue to see that grow. We're pretty bullish on Voyageur, as you know, we have been. It's taken us time. Parts sales can be a little lumpy quarter-to-quarter. So you can see some variations for sure. But I see -- I think you can safely say in the long term, year-over-year, you're going to see growth for sure. That is absolutely where we're moving to, and that's our focus. I can't guarantee you what's going to happen quarter-to-quarter exactly because it is a little lumpy from time to time. But we've seen no real meaningful reduction in parts sales. It's all been very positive year-over-year growth. Things continue to be -- we see big opportunities as we kind of move forward with them on that part of the business as well as others.

And our last question does come from Kevin Chiang from CIBC.

I apologize for some of the technical difficulties earlier. I had a question on Voyageur. If I run the math, just in your disclosure, it looks like EBITDA contribution outside of the CPA and leasing for the CPA might have been about $8 million. I think there's still some corporate costs in your business, if I take half of what you were doing last year on a quarterly basis, that suggests maybe $4 million a quarter. So maybe Voyageur is doing about $12 million of EBITDA in Q1 or, call it, $48 million annualized. Just wondering, is that the right ballpark to be thinking about Voyageur's run rate today? And it sounds like you had some part sales in the quarter that might have been above average. Is there a way to quantify how much that might have contributed in the quarter to get maybe a good sense of what the forward run rate of Voyageur might be moving forward for the rest of 2025, that is.

Fair enough. Kevin, it's Gary. So with Voyageur's revenue, if you go back to our Investor Day in 2022, we did say Voyageur's EBITDA margin was around 24%. That is pretty consistent today. So you can use that to kind of get an idea of where their EBITDA is when you look back against the revenue. And we haven't seen any meaningful change with that. They've been holding steady, which is good. considering the sales volume going up. So that's the best way to get at that piece.

And yes, back to my earlier comment, when you start to do a few -- when you take that into account and then some of the disclosed items on the leasing under the CPA and fixed margin, et cetera, we did make some meaningful reductions in our corporate costs this quarter.

Okay. Is there -- that's super helpful, Gary. I appreciate that. Is -- am I incorrect in assuming that you had outsized part sales in the quarter just because it was called out in the press release. Is there a way to quantify that? Or is it broadly maybe immaterial on an annualized basis as we think about maybe the full year contribution of Voyageur this year?

Yes. I think what I would do is go back to the $150 million we indicated for the year, use that as kind of the norm -- at normal quarterly rate. We're a bit above average for this quarter, but we're hoping that there'll be a bit of a trend here. But that would be a good run rate for the next quarters.

Okay. That's helpful. I guess maybe just last one on Voyageur. Just in terms of the organic growth pipeline, I mean, are there opportunities to kind of put organic capital to work to drive increased revenue growth? Or is this primarily growing through M&A and expanding the reach within Voyageur through, I guess, inorganic means?

Kevin, it's Colin. Yes, I think it's a little of both. I think there are opportunities, small, as you've heard us talk about in the past, Gary described them as bolt-on or tuck-in acquisitions there that make sense for expansion and growth through M&A. So that is definitely one area that is being looked at and we're pursuing. But there are several verticals there, and I'd classify them as kind of maybe simplify them down to parts and kind of specialty operations, defense. Those 2 verticals both have significant organic growth opportunities.

And a lot of that is what's driving the growth today, right, because we haven't really done any kind of acquisitions with them that are of any kind of material that are meaningful. So you're seeing -- what you're seeing is the growth trajectory is really built on organic today. And we still see lots of -- there's tons of opportunities there. It does take time to grow these things, though. As you've seen with the major contract, we talked about it for, I don't know, 24 months or so. We've been talking about that or more maybe, but it's finally in full operation, right, full deployment, fully engaged.

So these things do take time, especially on the defense side, but they're very sticky and they tend to be super long term with all kinds of additional revenue opportunities tied to them.

Your next question comes from Konark Gupta from Scotiabank.

I just wanted to start off with the tariffs. Obviously, there's been a lot of chat about the trade tariff, et cetera, and uncertainties we are seeing right now. Obviously, you guys are not in the trade flow business. But from Voyageur perspective, have you seen any impact on asset valuations? Maybe they go up given the scarcity of parts around the globe and supply chain disruption. Any early sense on how valuations have moved around because of tariffs?

It's Colin. Yes, we've seen no impact at all really in any meaningful way. And we don't see anything coming at us, but it's a dynamic situation, as you know, and things change every day. So you got to kind of have a bit of a balance. We're going to continue to monitor it. But at this point, there's really nothing that's been meaningful. We're still selling parts into the U.S. Yes, there's additional costs. But generally speaking, when an airline or an operator requires a part, they simply require that part because the aircraft is on the ground. So there tends to be a focus just to get the part. So at this time, we have for Voyageur's business in itself, we haven't seen any real impact at all.

Yes. And just to kind of reiterate, aircraft parts are CUSMA compliant. So they're not attracting tariffs right now. And a lot of -- we do have some business in the U.S. with part sales, but a lot of them are drop shipped internationally, which are exempt from the tariffs. So we're not seeing really a big impact at all at Voyageur.

That's great color. And on the CPA, the only question I have right now is the passenger compensation regulations are evolving in Canada. And because of that, is there any discussion or any consideration about how your incentive structure will work going forward with Air Canada?

No, there's been -- there's no real engagement on the -- I mean we have a long-term agreement in place with the structure there today, and there's really nothing to report on that as far as any kind of changes or anything like that.

And then on the M&A side, you touched on the question Kevin had recently. Is there anything constraining or prohibiting you to pursue any opportunities in the U.S.

Well, there would be the standard that all industry is constrained by, which is kind of the specialty operation and airline restrictions that ownership in that area. But generally speaking, no. A lot of the businesses that we've been looking at, there is -- there are solutions for, and we can always find ways to make any kind of acquisition work. I think the standard ones like an airline acquisition is there are regulatory restrictions around that type of stuff. But generally, no, not at all.

Right. I mean like basically more sort of focused on the specialty operations and defense kind of opportunities you mentioned, right? I mean those, I think, would not be considered, I guess, airlines or maybe they are.

It depends on the type of operation. But generally -- well, if you look across the country in Canada, there are several operators and owners today in Canada that own U.S. specialty businesses. And when you get into parts and manufacturing and things like that, there really are no restrictions of anything that would prevent us. So I would say 90% of what we look at or 95% of what we look at is -- there's no real limitation or restriction for us.

Makes sense. And then last one before I turn over. Cygnet, it seems like they're ramping up the training program here. Any sense on if at all, you're seeing any external revenue or income right now, how meaningful would that be?

Right now, Cygnet is pretty immaterial to our statement. So as they're ramping up here, we'll certainly give more as they get bigger. But right now, it's immaterial.

And your last question comes from Tim James from TD Cowen.

Just want to go back to the working capital or maybe it's accounts payable specific related. Is there anything we should think about as we look at the rest of the year as we kind of go quarter-by-quarter in terms of movement in working capital? Correct me if I'm wrong, there's sort of always a fairly significant swing related to Air Canada and that payable, although I'm not sure it always occurs in the same quarter. But how should we think about the balance of the year and swings from quarter-to-quarter?

It's Gary here. I would go back to historical norms. There's some ebbs and flows of working capital that are traditional. If you adjust out, Tim, the $59 million that Air Canada paid is basically a date early. They paid it on December 30 or 31 that normally would have came in on January 1 or 2, you don't get a big working capital variance necessarily in the quarter. So -- and then if you look at that variance, it's more historical. So what I'd say is go back to our statements, it will be more historically driven. You're not going to see big ebbs and flows, generally speaking, in our working capital. And over the course of time, it's more like it's plus or minus a small amount.

Yes. Okay. Okay. That's helpful. My second question is just going to Voyageur. It was mentioned earlier, the EBITDA margins kind of remained consistent around that 25% level as per the Investor Day indications. Does that mean -- like when you look at your product and service lines in Voyageur, is that a function of them all being relatively close in terms of 25% EBITDA? And I'm thinking about parts versus MRO versus some of the operations you do. Are they all right around that mark? Or is it -- are there more significant differences and they just tend to cancel one another out in any given quarter just based on sort of changes in mix?

I think it's more of the latter. They do have different EBITDA levels, but they have historically been in and around that 24%, 25% range. And that's kind of how it's worked. And then as the sales have gone up, what I'm happy with is the EBITDA margins have remained the same here. So we haven't seen any reduction in it, which is really part of what we're focused on moving ahead. And if we can grow it, we'll grow it, but at least maintaining.

Can I just sort of tack on to that question then because as you mentioned, as sales have gone up, the margins have stayed relatively similar. So, fair to say then a lot of these contracts, the revenue has a high component of variable costs in there by default. Is that a correct assumption?

Yes. I guess just looking at the math, yes, I'd probably say that.

Your final question comes from Kevin Chiang from CIBC.

Not to beat a dead horse on Voyageur. I guess if I look at your overall inventory levels, they took a sequential lift up in Q4 of last year, and you've kind of taken a sequential increase here. Just is that an indicator of future parts sales? Like would parts that you're planning on selling be reclassified as inventory? And so the levels I'm seeing now might suggest an elevated amount of future part sales, I mean, above whatever average is or the normal amount is over the next, I guess, 9 to 12 months? Or is the kind of sequential increase in inventory we've seen unrelated to future parts sales?

Yes. So some of it would be related to future part sales. We have been paring out aircraft in the past, putting the inventory in place. We've also had some good sales in the quarter. Some of it does relate to that. There's also some ebbs and flows of the Jazz CPA business that are included in there. So -- but they're not usually that substantial. But overall, yes, we've been gearing up on the part sales business, and that's what you're seeing.

And that's all the questions you have right now. I will turn the call back over to Mr. Cotie. Please continue.

Well, thank you very much, everyone, for attending today's call. Thanks for your interest in Chorus, and have a nice day.

Ladies and gentlemen, this concludes today's conference call. We thank you very much for your participation. You may now disconnect. Have a great day.