Chorus Aviation Inc

TSX:CHR

Earnings Call Transcript

[Operator]

Good morning, ladies and gentlemen. Welcome to the Chorus Fourth Quarter and Year-End 2024 Financial Results. [Operator Instructions] This call is being recorded on Thursday, February 20, 2025.

I would now like to turn the call over to your speaker today, Tyrone Cotie. Please go ahead, sir.

[Tyrone Cotie, executive]

Thank you, John, and good morning, everyone. I'm pleased to report on the fourth quarter [Audio Gap]. Hello, and thank you for joining us today for our fourth 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.

As there may be forward-looking information during the call, I ask that you refer to the caution regarding forward-looking statements and information found in our MD&A. This pertains specifically to the results of operations of Chorus Aviation Inc. for the 3 months and the year ended December 31, 2024, as well as the outlook and other sections of our MD&A where such statements appear. As a result of the share consolidation implemented on February 5, 2025, all per share figures in our disclosures have been disclosed 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 relating to the use of such non-GAAP measures and pro forma figures.

I'll now turn the call over to Colin Copp.

[Colin Copp, executive]

Thank you, Tyrone, and good morning, everyone. I'm pleased to report on the fourth quarter and our 2024 results. It's been a period in which we have taken significant steps to unlock value for our shareholders and reposition the business for success going forward.

On December 6, we closed the sale of our Regional Aircraft Leasing segment and quickly took steps using the proceeds to produce -- to reduce our debt and corporate financings. This included redeeming all our preferred shares, repaying our Series A debentures and launching redemption offers for our Series B and C debentures. These actions have resulted in a substantial reduction in our debt servicing costs and further reduced our leverage ratio from 3.3 to 1.4.

As per our plan, we have meaningfully strengthened Chorus' balance sheet, improved our financial metrics and reduced our corporate costs, providing us greater flexibility and a solid foundation from which to return capital to our shareholders and fund targeted investments and steady growth. At this time, our fourth quarter results were delivered in line with expectations with strong and steady cash flows, reflecting consistent execution in each of our businesses.

Turning to the operating side. All of our subsidiaries have performed well in 2024 and are on plan to deliver as we move into 2025. The Jazz team has executed very well, delivering consistent strong contracted earnings from the CPA and notable year-over-year improvements in almost all operational metrics.

Jazz was recently recognized as an Award of Excellence winner with Canada's safest employers. This was the eighth consecutive year Jazz accepted an award as one of Canada's safest employers. It's a testament to Jazz's commitment to safety.

Voyageur had another record year, demonstrating their strong position within the special mission, parts sales and specialty MRO space, and they remain solidly on target to hit the 2025 growth plans as previously outlined. Further, we see significant potential and are positioning Voyageur for sustained growth well beyond 2025, while achieving our goal of $150 million in revenue over the next year.

Notably, in 2024, Voyageur meaningfully grew their parts business and successfully built up their special mission support business with the Department of National Defence for the manned airborne intelligence, surveillance and reconnaissance program. And they also expanded their air ambulance operations at Grand Manan Island as part of the Ambulance New Brunswick Provincial Air Ambulance program.

On the pilot recruitment side, Jazz welcomed its first class of new hire pilots from our airline pilot training academy, Cygnet Aviation, in October of 2024. The Cygnet team continues to grow the business as planned, having commenced their seventh cohort at the beginning of Q1 2025.

Cygnet's pilot training capabilities to train airline-ready pilots from the ground up and recent additions of top-notch talents to its team is helping to generate a solid flow of airline-ready first officers. At the same time, Cygnet is now moving forward and expanding its industry partnerships with other Canadian airlines and focusing on growing its Free Agent enrollment.

Turning to our shares for a moment. On February 5, 2025, with strong shareholder support, Chorus consolidated its shares on the basis of 1 post-consolidation share for every 7 pre-consolidation shares. The shares began trading on the TSX on a post-consolidation basis on February 10.

We expect the higher price per share resulting from the consolidation will make our shares more attractive for investment for a wider range of potential investors. Since the launch of our NCIB in November of 2022, we've invested $46 million under that program, and we continue to monitor the market conditions and evaluate other opportunities to enhance return for our shareholders.

And as we look forward, Chorus is well positioned, especially during this time of economic uncertainty with a strong balance sheet, low leverage and strong contracted cash flows. Our Jazz business is anchored by its contract with Air Canada that runs to 2035.

Voyageur has diversified sales avenues, including its recent growth in parts sales and defense. And we believe the business profile positions us very well and provides flexibility as we work through any future market volatility. And I'd like to reiterate that creating shareholder value remains the key priority for our Board and for the management team as we move forward.

2024 was a year of heavy lifting with significant change for Chorus. And I'd like to close by thanking our employees across all our businesses for their unwavering focus, thank our shareholders and our Board of Directors for their support.

I'm going to now pass it over to Gary, and he'll take you through the financials.

[Gary Osborne, executive]

Thank you, Colin, and good morning. As Colin mentioned, we completed a significant milestone in closing the sale of our Leasing segment on December 6.

The aggregate consideration from the RAL sale was $2 billion with net proceeds of USD 607.7 million, which we used to repay all the outstanding Series A debentures for $86.3 million, redeem all of the outstanding preferred shares for USD 363 million, including a MOIC of $63.3 million. We also repaid the amount outstanding under our operating credit facility.

And on February 3, 2025, Chorus purchased for cancellation $81.6 million of the Series B and C debentures. As we close out 2024, our leverage now sits at 1.4, down from the 3.3 at the end of 2023. As we look forward at the year, we've made significant payments on amortizing aircraft loans, paid off our Series A debentures and reduced the balance outstanding on our operating credit facility to nil.

Our free cash flow generation remains strong with $27.5 million generated in the fourth quarter of 2024, in line with the same period last year. We saw our 2024 annual free cash flow come in at $118.8 million. Moving forward, post the RAL sale, we will see improved cash flows related to reduced principal and interest payments on debt and removal of the preferred share dividends.

We have been active under our NCIB program, purchasing $10 million in shares since the close of the RAL sale and continue -- and plan to continue with share buybacks. We are also focused on growing our business, reducing our corporate costs and improving our earnings.

As we look at the fourth quarter, overall, the results for our continuing operations were in line with our expectations. We saw adjusted EBITDA come in at $52.7 million for the quarter and $211.6 million for the year. Our adjusted earnings available to common shareholders came in at $0.39 for the quarter and $1.04 for the year.

This, of course, does not reflect the full impact of the sale of RAL and the repayment of corporate financings, which is outlined in our post-sale pro forma non-GAAP financial measures section of the MD&A. It was a busy quarter with the sale of the RAL segment, the redemption of the preferred shares, the repayment of the Series A debentures and the repayment of the balance on our operating credit facility.

In addition, we recorded an impairment provisions of $10.5 million on Dash 8-300s that were nonoperational in conjunction with our plan to now part these aircraft out. As reported in our MD&A, the actual and forecasted covered aircraft under the CPA for the years 2024 to 2026 goes from 114 to the 80 minimum covered aircraft. Included in this planned fleet reduction is the removal of 9 owned Dash 8-400s, which we are now in the process of remarketing the 9 Q400s.

In conclusion, I would like to reiterate that what Colin said earlier, a strengthened balance sheet and improved cash flows provide our business with much greater flexibility now, and we are pleased with the progress we made this past quarter and year. We're now ready to answer questions.

[Operator]

[Operator Instructions] Our first question comes from the line of James McGarragle from RBC Capital Markets.

[James McGarragle, analyst]

I'll ask a question on the medium and longer-term strategy here. So any opportunities outside of the CPA? Any potential M&A you might be looking at or any organic opportunities right now that you're looking at as being attractive? Any color you can provide there?

[Colin Copp, executive]

Yes. James, it's Colin. Look, it's a good question, and those are -- that's one of the key questions we've been getting really on the growth side, I think is one of the key ones and the other is on the capital side as far as returning capital and what are we doing with our cash. So great question.

Look, we've just gotten through the sale transaction really getting the balance sheet cleaned up. So we've been very focused on making sure we execute well on that. And I think we've done a great job of it as we said we would. We were pretty clear on where we were headed. So we've got that done. We're focused on the cash side here and making sure we've got a plan on the capital side, which we said all along, we will get to, and that's coming.

And on the growth side, we are really -- on the short term, we're focused on the existing businesses and really looking at shoring them up and doing what we can to ensure they are very strong. So that will be the very nearing focus. And on the longer term, we're starting to think about the growth side and where do we see acquisition opportunities.

We're in the market looking. We have nothing really to report or to give you, but that is our long-term growth is our long-term plan is to see some growth as we stabilize and get everything done that we've committed to here. So pretty much on track. Just we're maybe a little early to start talking about that as we just kind of got things cleaned up. And I think the timing of it has been good for us for sure.

[James McGarragle, analyst]

And then just on the Air Canada, at their Investor Day, they mentioned they were focusing on the A220s and the ERJs. Do you see any impact to you guys longer term there or any risk to the use of the Q400s? And after that, I could turn the line over.

[Colin Copp, executive]

Yes, another good question. Look, yes, the A220 is a pretty big airplane, right? And we have a history with Air Canada, of them moving us around, and we've been on different routes. It's always kind of -- we can't speak for Air Canada at all, but it's always been this [Technical Difficulty] execution about the right-sized airplane at the right time on the right route.

So it's a bigger -- significantly bigger airplane. Sure, there will be movement. There always has been movement and flexibility with us. That's one of the great advantages that we provide is the ability to move aircraft around the country and do different flying depending on where the need is.

So absolutely a few things could change, but we don't see any impact or reduction in any way as far as the fleet goes. Routes are going to be flexible, and there may be some advantages coming out of it for us as well as they grow markets. So look, we're excited that Air Canada continues to grow, and we don't see anything from an impact perspective there at all.

[Operator]

And the next question comes from the line of Konark Gupta from Scotiabank.

[Elie Salameh, analyst]

This is Elie filling in for Konark. My first question is on the CPA. What do you plan to do with any incremental unused aircraft if some or all CPA leases don't extend?

[Colin Copp, executive]

Yes. Look, we've had that question a few times. And look, we're going to optimize the value of those assets. There's a whole bunch of options that could happen. We could extend some airplanes with Air Canada. We could sell the aircraft. We could use them in other operations. So we're looking at really optimizing the value, doing what's best for the shareholder from a return perspective with those assets.

Obviously, if Air Canada, if they can stay in the fleet, we will do that. But if not, there's lots of opportunities to get value out of those assets. They're great assets. And so it's going to depend, and it's really speculation to say what might happen to those aircraft over time.

[Elie Salameh, analyst]

That makes sense. And maybe just one last one. As part of your growth aspirations, do you see an opportunity to expand Voyageur operations geographically on the West Coast or even in the U.S. through M&A or organically?

[Colin Copp, executive]

Yes, absolutely. There's growth opportunities there. we've set a target that we talked about, the $150 million. We're working through that to make sure we're on track for that this year. And we're continuing -- as I said in my script there, we're continuing to now look at the next phase, how do we continue the growth path here.

We see lots of opportunities. Exactly where they are and what they look like, I don't want to comment on because, again, it's kind of speculating on what might happen. But for sure, growth there, we see beyond where we're at today and what we've given guidance on, for sure. And there could be opportunities in the U.S., could be in the West, could be in Central Canada, it could be in a lot of different locations.

[Operator]

And the next question comes from the line of David Ocampo from Cormark Securities.

[David Ocampo, analyst]

Just wanted to follow up on the Voyageur line of questioning there, but maybe ask it a little bit differently. I think if you go back to your '23 Investor Day, you guys laid out that $150 million target, and I think pretty healthy margins on that. That was 2 years ago. So I'm just curious how much visibility you guys have going forward?

Is it a business where you could start to project out another 2 years? Maybe you're not comfortable laying out a number today, but just wanted to see how much visibility there is in that business as we move forward as it is kind of your main growth driver going forward.

[Colin Copp, executive]

Yes. Okay. Sure. Good question again. I think, look, we see the growth. We're working on that. I can't give you any numbers. I know Gary, at some point here will come up with a decision on guidance as to what we'll provide you guys. And I think that's an important element. I appreciate that, that's something that you need to see.

But there's no question that we see growth on a go-forward basis for Voyageur beyond that $150 million. We'll be able to figure out, hopefully, in the months ahead here what that looks like and how far that guidance goes out. I can't really comment on that. I don't know, Gary, you might want to add some color there?

[Gary Osborne, executive]

Yes. No, I think we're very comfortable with the $150 million this year for Voyageur, and we still see them growing. But as far as guidance goes, as Colin said, we'll make a decision on that in the future, but they're continuing to grow. That's the main thing.

[David Ocampo, analyst]

I guess, Gary, what gives you that confidence in the $150 million, a number 2 years ago? Is it all just based on contracted business and there's really no hiccups or places where it could go wrong?

[Gary Osborne, executive]

It's contracted business for sure. They have a lot of that within their business. They work for the United Nations and others. They also have a lot of aircraft parts sales, as you know. They've been building that business, and that continues to build. So we feel comfortable with that. And it's just the general momentum they've built over the last year or 2, and they continue. And based on our forecast, we're still expecting the $150 million. So we're feeling pretty good about it.

[David Ocampo, analyst]

Got you. And then on the aircraft that are coming off lease with Air Canada over the next few years, Gary, are you able to provide how much of the net book value that is? I think you guys provided an overall number. Just curious how that stands and...

[Gary Osborne, executive]

Yes. We're not providing a net book value number, but we do expect to achieve net book. In the past, we've given some guidance to the market that somewhere between -- an average Q400 is worth today somewhere between USD 5 million and USD 7 million. So that's still a good number to use, but we're not disclosing the book values.

[David Ocampo, analyst]

Okay. And there's no debt associated with that as the leases expire, right?

[Gary Osborne, executive]

That's right. Those 9 aircraft have no debt, yes.

[Operator]

And the next question comes from the line of Tim James from TD Cowen.

[Tim James, analyst]

Just returning to Voyageur, if I could. Revenue growth, obviously, very strong in the quarter. And I realize you don't want to get into specifics around margin. But could you just talk sort of generally about the moving parts within Voyageur that would have impacted sort of the margin and profitability in that business?

I know you've characterized it as around 25% EBITDA margins, if I'm not mistaken. I'm just wondering if with that kind of revenue growth, one would reach the obvious conclusion that maybe there's been some margin expansion. But just help me sort of realize if that's a good assumption or if -- what are the drivers there?

[Gary Osborne, executive]

Yes. Tim, it's Gary here. Yes, on the revenue side, they've been achieving those margins. I think they were around 24% this year, and that's consistent with what I think we had on the Investor Day. So they're continuing to see their margins as they expand the revenue base so they're holding. And they're seeing it in a lot of bases. Parts is one of them.

There's no question that the parts are doing very well, but they've also been improving their operations and expanding in their contracts. They've got the major contract, I think that Colin talked about earlier and others that had kicked in. So they're doing well on the contracts, part sales and executing on their business.

[Tim James, analyst]

Okay. That's helpful. Then maybe just a more general question. Is there anything you can provide in terms of opportunities, whether it's specifics or just general in terms of more parts sales or operating aircraft or medevac contracts? And just anything in terms of sort of as you look forward at future potential business development at Voyageur, what types of opportunities are out there for that business?

[Colin Copp, executive]

Yes, Tim, there is -- the one thing -- the one reason why we're so bullish on them is because there are such a wide variety of opportunities that exist in all of those areas that you just mentioned, including the parts side, we still see big potential in the parts side. And all of those things really align well with the strengths that Voyageur has as far as their capabilities.

So I wouldn't say that there's one specific area. I think all 3 of those areas, even on the defense side, we're seeing opportunities to bid on contracts that make a lot of sense for us and give us the capability to execute on. So I think all those areas are all growth areas, and they'll be part of the plan as we continue to push Voyageur to the next level for sure.

[Operator]

And there are no further questions at this time. I would now like to hand the call over back to Tyrone Cotie. Please go ahead, sir.

[Tyrone Cotie, executive]

Well, thank you, John, and thank you all for taking part in today's call. Thank you for the questions. Have a good day.

[Operator]

Thank you. This concludes our conference for today. Thank you all for participating. You may now disconnect.