CIBCCurrently have a $196.00 target. GLTA
EQUITY RESEARCH
March 6, 2023 Flash Research
CARGOJET INC.
Q4 First Pass: EBITDA Miss But YTD Flight Activity And Fleet
Deferral Are Promising Developments
Key Takeaways: CJT reported Q4 with adj. EBITDA below expectations and
up modestly Q/Q. Revenue was generally in line with our expectations, with
the main variance versus our estimates coming from higher crew costs and
higher navigation costs. We knew Q4 would be softer and at first blush the
miss is a negative. That said, we believe the focus today on the earnings call
will be on how volumes trends have been to start 2023 and what, if any,
outlook CJT can provide on its expectations for the remainder of the year.
The flight activity we track for CJT does suggest this has picked up in 2023
versus December trends but we will need more granularity on how this
translates into earnings this year. We believe the bogey will be whether CJT
can put up Y/Y EBITDA growth in 2023 despite the challenging freight
environment. In addition, we note the company is deferring its 777-300
introduction, highlighting the fleet flexibility it has to adjust to changes in the
demand environment. The company is hosting a call at 8:30am ET.
Q4 Recap: CJT reported Q4 results that were below expectations. We
highlight:
• Revenue came in at $267MM, up from $236MM the year prior and versus
our estimate of $265MM (cons. $261MM). Revenue excluding surcharges
was $195MM versus our estimate of $192MM and $185MM the prior year.
• Adjusted EBITDA was $83MM, up from $91MM the year prior and versus
our estimate of $87MM (cons. $91MM). The company’s EBITDA margin
came in at 31% versus Q4/21’s 38.4% and our estimate of 32.6% (cons.
34.8%).
• Reported EBITDA was $65MM with the main adjustment related to the
$12MM in fair value adjustment and amortization on stock warrants.
• FCF in the quarter (CFO less net capex less cash lease payments) was
$(107)MM versus our estimate of $(54)MM. The main variance came from
a net working capital drag (we had modeled a tailwind) and higher capex.
The company’s adjusted FCF, which adjusts for maintenance capex
($28MM) and changes in NWC ($3MM), was $34MM.
Underlying Trends: CJT saw the following underlying trends:
• Domestic network revenue was down slightly Y/Y and came in at $101MM
versus our estimate of $100MM. This was primarily due to a decrease in
e-commerce and B2B volumes during the period, partially offset by
contractual customers’ consumer price index increases.
• ACMI revenue was up 11% Y/Y to $61MM versus our estimate of $71MM.
The Y/Y increase was due to new routes to the USA, South America,
Europe, and Asia, and an increase in adhoc ACMI charter flights.
All-in charter revenues were $27MM versus $24MM the year prior and versus our estimate of $17MM. The increase in revenue was primarily due to an increase in adhoc scheduled charters, partially offset by a decrease in all-in charter flights to Europe.
• Overall average cargo revenue per operating day was up 1% Y/Y to $2.10MM/day. Block hours were up 8.1% Y/Y to 19,819 hours.
Flight Activity To Start The Year Looks Promising: We also take a look at freighter flight activity. For CJT, In January and February, flight activity was up 10% Y/Y according to RadarBox. For FedEx and UPS though, both companies saw flight activity down 10% Y/Y and 3% Y/Y, respectively. While air cargo trends are normalizing, it does appear CJT is outperforming the bellwethers in the space.
Sale Of Two Boeing 777s Highlights Fleet And Growth Capex Flexibility: In February
CJT signed an LOI for the sale of two Boeing 777-300 aircraft for a total of US$53.5MM, which equals the carrying value. CJT expects to complete the transaction by early Q2. With the recent slowdown in the global economy, CJT plans to defer the introduction of the B777- 300s and maintain its financial strength. The B777-300 disposal has no impact on the current operations as the fleet expansion was to expand international reach.
Conference Call Details: CJT is hosting a conference call at 8:30am ET. Dial-in numbers are: 416 340 2217 and 1 800 806 5484