Global Crossing Airlines Group Inc. (PNK:JETMF) Q3 2024 Earnings Call Transcript

Global Crossing Airlines Group Inc. (PNK:JETMF) Q3 2024 Earnings Call Transcript November 9, 2024

Operator: Good morning, ladies and gentlemen. Thank you for standing by. Welcome to today’s conference call to discuss Global Crossing Airlines Financial Results for the Third Quarter of 2024. [Operator Instructions] As a reminder, this conference is being recorded. Joining us today are Chris Jamroz, Executive Chairman of Global Crossing Airlines; and the company’s President and CFO, Ryan Goepel. Please be advised that this conference will contain statements that are considered forward-looking statements under the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to certain known and unknown risks and uncertainties as well as assumptions that could cause actual results to differ materially from those reflected in these forward-looking statements.

These forward-looking statements are also subject to other risks and uncertainties that are described from time to time in the company’s filings with the SEC. Do not place undue reliance on any forward-looking statements, which are being made only as of the date of this call. Except as required by law, the company undertakes no obligation to publicly update or revise any forward-looking statements. The company’s presentation also includes certain non-GAAP financial measures, which including EBITDAR, as supplemental measures of performance of the business. All non-GAAP measures have been reconciled to the most direct comparable GAAP measures in accordance with SEC rules. You will find reconciliation tables and other important information in the earnings press release and Form 8-K furnished to the SEC yesterday, which are currently available in the company’s EDGAR page on the SEC’s website and will be available on the company’s Investor Relations section of its website within approximately 24 hours after this call has ended.

And now I’ll turn the call over to company’s Executive Chairman, Chris Jamroz. Chris, please go ahead.

Chris Jamroz: Good morning, everyone, and thank you, operator. Thank you for everyone joining us. Our third quarter results highlight the resilience and adaptability of our operating model with another period of year-over-year growth and improved profitability on a per aircraft per hour basis, which is a key metric we track in our business. Our operational model proved its strength and adaptability in September, handling unforeseen maintenance challenges caused by severe weather, multiple bird strikes and damage from a third-party vendor. It is absolutely unprecedented that an airline would have effectively lost more than one-third of its fleet in a single month. But thanks to the efficiency and resilience of our processes, the competence of our management team, 4 of the 5 effective passenger aircraft were back in service by early October.

I should mention that all those events impacted our cash cow, which is our passenger side of the business. The robust framework allowed us to minimize disruptions for our customers and maintain momentum despite these unprecedented and unexpected hurdles. Over the past year, we’ve remained focused on our vision of becoming the largest charter airline in the U.S. with a commitment to leading the industry in on-time performance and reliability. And this objective is core to our strategy and central to earning the trust and loyalty from our customers and partners. And despite these challenges, we have not lost momentum on that front, and Ryan will tell you more about that. We’ve concentrated on strengthening our core operations, improving processes and fostering strong lasting relationships while expanding our fleet to meet rising demand, which is absolutely key to our strategic growth strategy.

By enhancing operational efficiency and building capacity, we are well positioned to capture growth opportunities and provide consistent dependable service on a go-forward basis. Before I turn over to Ryan, I want to reiterate our commitment to maximizing shareholder value through scalable growth and improved profitability, by sharpening our focus on cooperations, we are building a robust business model geared towards a long-term success. And with that, I’ll now hand it over to Ryan, our President and CFO, to elaborate on GlobalX’s third quarter operational and financial highlights. Ryan?

Ryan Goepel: Thank you, Chris, and good morning, everyone. As Chris mentioned, we experienced several unforeseen events in September that took approximately 35% of our fleet offline for almost 2 weeks. The reduced fleet availability impacted our revenue, required a spike in non-revenue flying and additional subservice to cover obligations driving the majority of the loss reported. Despite the challenges we faced in the quarter, we still delivered double-digit revenue growth with record block hours flown. Our strong top line growth was driven by our ACMI business, which almost doubled to $37 million in revenue compared to the year-ago quarter. The growth in ACMI was preliminarily driven by the increase in our fleet, continued strong customer demand and further growth in a key government agency relationship.

We also shifted aircraft from our charter segment to ACMI as it tends to be long-term predictable work driving higher margins. As a result of this shift, charter revenue decreased 31% year-over-year to $15 million. During the quarter, we booked a record 8,064 block hours, including subservice between ACMI and charter, which is a 17% increase compared to the year ago period. On a sequential basis, we generated a 15% increase in block hours flown, reflecting our ability to win new business and effectively deploy our fleet. For ACMI in Q3, we booked 6,571 block hours, an increase of 42% compared to Q3 of 2023. For charter, we booked 1,254 block hours compared to 2,256 in the year ago quarter. Due to the maintenance events discussed earlier, we saw a decrease in the average utilization per aircraft compared to the year-ago period.

More specifically, passenger aircraft utilization was down 7% from 735 hours in Q3 ‘23 to 594 hours per aircraft in Q3 2024, which is also a byproduct of our 2 aircraft operating in Europe at 400 hours each per month being a smaller percentage of the fleet in 2024 versus 2023. Cargo utilization was down 77% from 450 hours to 101 hours due to the loss of the U.S. Postal Service contract that was canceled as part of the move from FedEx to UPS. However, on a sequential basis, total aircraft utilization grew 7% to 491 block hours per available aircraft. As I mentioned earlier, we have purposely shifted our revenue mix to prioritize ACMI as it carries higher utilization per aircraft in a month with minimum hour guarantees and hence, a higher margin profile compared to one-off charters.

As a reminder, while ACMI typically generates lower revenue per flight hour than our charter services, it also comes with reduced costs as the customer covers expenses like fuel, demand and price risks and handles landing, airport and other operational fees. We are seeing accelerating momentum in the passenger market, resulting in higher utilization rates across our passenger fleet. This growth is driven – fueled by several key factors, an ongoing supply shortage, reduced direct competition and a rising demand for air charter services amongst colleges, corporate groups and other organizations seeking flexible travel solutions. Together, these dynamics are driving sustained robust growth in the passenger segment, underscoring its critical role in our broader strategy.

To generate sustainable growth, it’s critical that we consistently examine our business to optimize our cost structure and unlock operating efficiencies. This is reflected by our average growth – this is reflected by our growth in average revenue per block hour. For ACMI, we generated an average of $5,607 per block hour, which is an increase of 37% over the prior year quarter. For charter, average revenue per block hour grew 24% to $11,951 compared to $9,672 in Q3 of 2023. These gains are primarily achieved through successful renegotiation of key contracts for higher rates, a strategy that reflects our commitment to maximizing revenue per block hour. By securing more favorable terms, we’re able to capitalize on the increasing demand and beneficial market conditions while we continue to leverage this approach as a cornerstone of our growth strategy to drive sustained improvements in revenue and profitability across our fleet.

In the third quarter, we took delivery of two additional aircraft, one 320 and one 321 passenger aircraft, bringing our total fleet to a total of 18. We expect to take delivery of our 19th aircraft in December. And as of today, we have signed letters of intent for four additional aircraft, which we expect to bring online in the second half of next year. Commenting on the leasing market, it is impacted, in my view, by higher-than-normal engine values due to the strong demand for engines. My personal view is the demand for older aircraft that we will target will start to soften in 2025, and we are looking at opportunities to not only lease but purchase aircraft or airframes to strengthen our balance sheet going forward. In September, we announced a new partnership with Airblox, a digital platform for airfreight capacity and financing.

Through this partnership, we operated round-trip cargo flights between Chicago and San Juan 3 times a week. This service, which is exclusively available through the Airblox platform, utilizes state-of-the-art Airbus A321 freighter, offering 25 tons of capacity in each directions on Tuesdays, Thursdays and Saturdays. During the quarter, we did have a couple of additional flights, and we’re looking to add to that schedule throughout the fourth quarter. The A321 freighters deliver 14% more containerized capacity than the 757-200 along with a 19% reduction in fuel consumption. This combination allows us to offer industry-leading pricing and operational efficiency. We are thrilled to partner with Airblox and look forward to building a mutually beneficial partnership.

To achieve our long-term vision at GlobalX, it’s essential to bring executives in line with our goals and high-performance culture. With that in mind, October, welcomed Laurie Villa as our Chief People Officer to lead our human capital management functions. Laurie’s role will focus on recruiting, developing and retaining top talent, supporting crew and team member relations, driving performance management and fostering a culture rooted in our core values to support our rapid growth. With over 30 years of global leadership experience, including roles as the Chief People Officer at JetBlue and a Human Resource Officer – Chief Human Resource Officer at Spirit Airlines, Laurie brings a wealth of experience to GlobalX. We’re excited to have her join us and look forward to her invaluable contributions.

During the quarter, we made considerable progress in strengthening our partnerships with both new and existing customers, fostering deep relationships and aligning our services more closely with our needs. To start, our top flight charters team has secured contracts with more than 10 college basketball teams for the ‘23-’24 season beginning this month. This is a notable increase compared to last season and reflects our strength and reputation in the collegiate sports sector and our team’s ability to meet the unique demands of high-profile athletic programs. In our cargo business, we have already secured full bookings for 3 of our 4 cargo aircraft in the fourth quarter, positioning us well to capitalize on the traditionally high demand driven by the holiday season.

This advanced booking reflects both the reliability of our cargo operations and the trust our clients place in us to support the critical seasonal needs. For our international business, we operated in the quarter 1,600 block hours in Europe using 2 aircraft in Q3. We are planning to expand our European operations with a third aircraft in 2025, enabling us to meet the rising demand and better serve our clients across the region. This expansion underscores our commitment to strategic growth and solidifies our presence in key international markets. For the U.S. government, we operated over 4,500 block hours in the third quarter, which includes almost 250 hours for the Department of Defense, a relatively new customer to ours. Now turning to the financial results.

Please note that all financial results discussed today are over a 3-month period ended at September 30, 2024, while variance commentary is on a year-over-year basis unless stated otherwise. Revenue in the third quarter increased 23% to $52.4 million compared to $42.6 million in the year-ago period, driven primarily by higher block hours flown and aircraft fleet expansion as well as the increased revenue per block hour for both passenger ACMI and charter. Charter revenue in Q3 was $15 million compared to $21.8 million. ACMI revenue increased 93% to $36.8 million compared to $19.1 million. Total operating expense were $54.9 million compared to $44.9 million, driven primarily by higher aircraft rent and personnel costs associated with the expansion of our fleet as well as higher travel costs related to the expansion of the government contract.

Net loss was flat at $4.9 million compared to the year-ago quarter. Net loss per share remained unchanged as well, negative $0.08 per share and diluted share. EBITDAR increased approximately 2x to $15.4 million compared to $7.6 million, driven primarily by the increase in revenue, improved operating margins and higher average rate per block hour flown for both passenger ACMI and charter. Turning to our liquidity. We ended the third quarter with cash and restricted cash of $7.8 million compared to $10.4 million at June 30, 2024, and $17.7 million at December 31, 2023. We are targeting to get that number over $10 million by year-end. With that, we remain comfortable with our liquidity position, which gives us the runway we need to execute on our growth, profitability objectives and turn into cash flow positive.

Looking ahead to Q4 and full year 2024, we are forecasting a revenue range of $55 million to $61 million and annual revenues driving – annual revenues of $218 million to $224 million. Annually, this would represent a 34% to 40% increase compared to full year 2023. On an EBITDAR basis, in Q4, we’re forecasting a range of $16 million to $19 million and for the year, $60 million to $63 million. This annual growth represents 195% to 215% increase over full year 2023. These results will be impacted by the level of flying, which is difficult to predict and could be improved if we’re able to bring online our 19th aircraft, repair our damaged aircraft sooner than estimated. That being said, all of our passenger aircraft through August of next year are effectively spoken for.

It is a matter of us determining what is the best market for us to expand into and what can be done to increase the utilization per month per aircraft. Our focus is all on about how we get that last 20 hours to 30 hours per aircraft per month sold in places where we have gaps in our schedule as those last 20 hours to 30 hours are highly accretive. Over the last year, we have built a solid foundation to drive sustained growth and profitability. With our expanding fleet, growing customer base and continued strong demand for ACMI operations, we are well positioned to close out 2024 on a strong note and deliver another record year in 2025. This concludes our prepared remarks. I will now open the call for Q&A. Operator, back to you.

Operator: [Operator Instructions] I will hand the call back to Sean Mansouri. Please go ahead, sir.

Sean Mansouri: Thank you. And thank you to Chris and Ryan. And thank you everyone for participating in the conference call. As we gather the queue for live questions, we would first like to address a few of the questions that have come in via e-mail over the past couple of weeks and even within the past hour. So, to kick things off, can you provide more color on what led to the sequential increase in block hours flown? Is this rate of growth sustainable?

Ryan Goepel: Yes, I will take that one. As we mentioned on the call, block hours, including subservice in Q3 increased 15% to Q2 – compared to Q2. This is primarily driven by new contract wins and our ability to effectively deploy our fleet. Q3 also benefited from overseas seasonal demand, leading to robust block hour growth. During this season, we operated flights to Europe to accommodate their peak summer travel, resulting in higher block hours, although at a more competitive rate as we have discussed before. As you may have noticed, our Q4 guidance of block hours ranges between 6,600 and 7,400, which is lower than the 8,000 we reported in Q3. As I just mentioned, this is due to the strong seasonal demand from Europe, whereas we put two aircraft in there that operate well above our average utilization per hour at 400 per hour, which don’t operate on that level of utilization in Q4.

However, while the block hours are expected to increase slightly, our rate per block hour will improve sequentially.

Sean Mansouri: Thank you. And can you expand on the growing demand in the passenger market? And do you expect this to continue into 2025?

Ryan Goepel: Yes, I will take that as well. We continue to see accelerating demand in the passenger market, which is driving our increased aircraft utilization and improved profitability per aircraft on an hourly basis. The market demand is fueled by limited aircraft supply, reduced direct competition and an increase in air charter use amongst colleges, corporate groups, governments and other organizations looking for flexible travel solutions. We do expect this trend to continue in Q4 and into 2025. To meet the needs of the market, we are prioritizing passenger aircraft deliveries over cargo. In fact, we deferred a cargo delivery in Q4 to late 2025 for that very reason, focusing our sales and operational efforts on building long-term relationships with major clients.

Long-term minimum guaranteed contracts drive higher margins, and that’s been a key focus of ours and expanding into new markets as opportunity arise. As we have mentioned before, pass-through charter services will be the primary driver of GlobalX’ growth, especially in 2025.

Sean Mansouri: Perfect. And can you expand on how you plan to achieve your goal of becoming the nation’s largest charter airline?

Chris Jamroz: Yes. Let me take that one. So, our vision to become the largest charter airline in the U.S. is grounded really on the strong foundation of operational reliability and deep customer relationships. We continue to expand growth in our very strategic market position when we focus on the most attractive niches of our customer cohorts. We believe that our competitive strength really lie in our commitment to on-time performance, operational efficiency and the flexibility of our fleet, enabling us to respond swiftly to changing demand. And obviously, September was a good test case for that. By prioritizing high-margin ACMI contracts, like Ryan said, we are able to secure a steady predictable revenue streams while also maintaining a balanced portfolio that includes seasonal and high-demand charter services, which are very attractive and absolutely core to our business model.

On the other hand, we also – we are further enhancing our competitive position by expanding our fleet to increase capacity for high-value clients. That obviously includes a government sign and a large institutional partnership. And recent partnership in both cargo, which we are obviously delighted to welcome, and passenger segments extend our market reach and align us more closely with our customer needs, which is just phenomenal. And lastly, again, like Ryan mentioned, we continue to invest in strengthening not just our infrastructure and fleet, but our management executive bench. And Laurie’s arrival is huge for us, and that’s meant to foster the high-performance culture that supports our profitable growth. And her pedigree as an executive is exactly what we wanted, and we have worked hard with Ryan to securing a high-caliber executive to join our ranks.

In parallel, our focus on maximizing profitability per aircraft and negotiating favorable contract terms strengthens our agility and resilience in a competitive market. Obviously, we always say that we – you need to earn your right to grow and deserve your right to grow and by being a very reliable, high-touch, high customer service provider, we effectively help ourselves in that demand. And together, all these initiatives create a scalable model that drives growth and delivers long-term value for our shareholders.

Sean Mansouri: Thanks Chris. And can one of you provide an update on the cargo charter market?

Ryan Goepel: Yes, I will take that one. The cargo charter market continues to see softness because of several macro factors, including the rebid of the U.S. Postal Service contract move the key route from air to truck, broader economic conditions and excess capacity in the North American freight market for narrow-body aircraft. As we mentioned before, to minimize the impact on the business, we have elected to take two A321s as passenger rather than freight, deferred two other cargo deliveries to late 2025. And while it’s hard to predict exactly when the cargo market will fully rebound, we have taken prudent steps to reduce our financial exposure, sign contracts such as we won with Airblox to look at different ways to utilize our aircraft.

However, as we stated on the call, we have secured bookings for three out of the four cargo aircraft in Q4, which is a considerable improvement over Q2 to take advantage of the seasonally high demand from the holiday season. Q2 – sorry, in Q3, the cargo was a drain on our earnings. The goal is to get that to breakeven or profitable on an operating income basis. We are hopeful we can do that, which will be a boost to our results.

Sean Mansouri: Thank you. And operator, that wraps up our Q&A received via e-mail. If you want to take it over for live Q&A, please.

Q&A Session

Operator: Yes, sir. Thank you. And we have our first question over the phone lines, and this comes from the line of Brian Foote from Broadway Capital. Your line is now open. Please go ahead.

Brian Foote: Hi. Good morning gentlemen. Just a couple of questions for clarification, if I may, the shape of the delivery schedule for 2025, what does that look like on a quarterly basis? And how does it split? You mentioned a couple of deferrals on the cargo side. So, how would that look for the year?

Ryan Goepel: Yes. So, on the deliveries, we know the four leased aircraft, the four LOIs we have that are committed is really late – mid-Q3 to Q4 is when they are slated to come onboard. The cargo deliveries is still kind of – nothing firm in the sense – it’s effectively when they are. I think there is ability if the market rebounds strongly to accelerate them in. But I think we have got a really good relationship with our lessors as to what makes the most sense for the business to bring those onboard. All that being said, I think one of our key focuses is, as you know I am tracking over 200 aircraft right now. I think I am in over – I am in 12 separate conversations regarding over 20 aircraft for deliveries in the first half of next year and 2026 because we are really thinking about ‘26 as well.

Nothing signed, nothing is confirmed. But I think from our perspective, we also are maintaining our discipline. We don’t want to overpay for any aircraft in what I consider kind of a hot market. But we are looking at, like I said, airframes and leasing engines. We are looking at acquiring aircraft and we are looking at leasing aircraft. And so nothing has been – I don’t want to promise something being delivered. So, from a business model perspective, we are trying to bring in one or two aircraft in the first half of the year, but nothing is confirmed yet. That would, in my mind, be upside to our outlook for next year. But we do know we have the four for the second half of next year committed.

Brian Foote: Got it. And just one more, if I may, Europe is a nice business. How big could it get, how could – if we look out 2 years, 3 years, 4 years?

Ryan Goepel: I think for this summer, we had two aircraft, we could have done five. For next summer, we could do six or seven. Currently, we are targeting three. And really, that comes down to our ability to get more aircraft in the first half of next year delivered and on the certificate to go deploy, and that’s – when you think about the market in Europe on the ACMI basis, that’s I think 200 to 300 aircraft business right now. So, us putting – going from three to six is not a huge market share. But I think with our performance, we operated for TUI. I think we had the best on-time performance of all their third-party contractors, which is why they are looking to expand the relationship. And we really haven’t put much effort into expanding the relationship because we just don’t have the aircraft to deploy.

But as we get confirmation and we get deliveries of aircraft, that’s a massive market where we can go deploy and not just the two-month contracts we are seeing, but there is opportunities for four-month, six-month, seven-month contracts over there as well that absolutely we are looking to do. But the practical matter is with our commitments domestically, there is not a lot of aircraft to send over there. So, definitely, we are trying to get more aircraft so we can feed that market. There is nothing – what we don’t want to do is send 10 aircraft over there in the summer and have nothing for them to do in the winter when they are here, that’s not a good model either. So, I think it’s our domestic volume, especially our sports business sort of drives what we have available to send over to Europe and when we have it to send.

Brian Foote: Okay. Great. Good stuff. I will jump back in the queue if I have more, but thanks and great stuff all things considered.

Ryan Goepel: Thanks.

Operator: [Operator Instructions]

Ryan Goepel: I think we are done.

Operator: Okay, sirs. Yes, so this concludes our conference call for today. Thank you all for participating. You may now disconnect.