Global Crossing Airlines Group Inc. (JET) Earnings Call Transcript & Summary

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 second quarter of 2024. [Operator Instructions] As a reminder, this conference is being recorded. Joining us on the call today are Chris Jamroz, Executive Chairman of Global Crossing Airlines; and the company's President and CFO, Ryan Goepel. Please be advised, this conference call 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, including EBITDA, as supplemental measures of performance of the business. All non-GAAP measures have been reconciled to the most directly comparable GAAP measures in accordance with the SEC rules. You will find reconciliation tables and other important information in the earnings press release and Form 8-K furnished to the SEC earlier today, which are currently available on the company's EDGAR page on the SEC 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 will turn the call over to the company's Executive Chairman, Chris Jamroz. Chris, please go ahead.

[Technical Difficulty] We remain steadfast in our commitment to profitability, scaling our operations and achieving robust growth. We have also continued to demonstrate our ability to quickly monetize the aircraft acquisitions, showcasing the strength of our strategy and efficiency of the platform. Our renewed focus is not -- not only materialized in the strong second quarter results but also solidified our position as the nation's fastest-growing charter airline. [Technical Difficulty]

Ladies and gentlemen, we have lost the line of Chris. Please stay connected while we join him. Ladies and gentlemen, we have Christopher Jamroz connected with us. Chris, please go ahead.

Thank you, operator. Please forgive me that unexpected technical error here. In 2024, at the beginning, we set the goal of becoming the largest charter airline in the country. with setting the top mark and a high mark for customer service, on-time performance and profitability. This quarter designates and reflects the first fruit of our labor here. We distance ourselves from noncore initiatives. We streamlined our operations, expanded relationships with key customers and appropriately scaled our fleet to meet the increasing demand. We are also implementing our precise operations management playbook, which has resulted in driving outsized shareholder returns in prior platforms. With all our initiatives gaining momentum, we are poised to continue driving growth and increased profitability while setting the standard for on-time performance, reliability and profitability. Ryan soon will expand on the quarter in more detail, but I do want to reiterate our relentless commitment to driving shareholder value through stable growth, building up on our industry-leading customer service, our record-breaking customer new contract acquisition, and we're going to continue on core operations and execute our strategic objectives. With that, I want to hand it over to President and CFO, Ryan Goepel, to elaborate on GlobalX second quarter operation and financial highlights. Ryan?

Great. Thank you, Chris, and good morning, everyone. As Chris mentioned, we generated another period of double-digit revenue growth in the second quarter while further improving operational efficiencies, enabling us to achieve GAAP profitability while significantly reducing cash used in operating activities. These achievements underscore the strength of our new management team and the revitalized culture at GlobalX, in addition to our narrowed focus on core operations and the successful implementation of our strategic plan. Our strong revenue growth was driven by our ACMI business, which increased more than 5x compared to a year ago quarter. For those new to our business, in our ACMI operations, we offer outsourced cargo and passenger aircraft services, including crew, maintenance and insurance. Our customers are responsible for fuel cost, demand and price risk, and are typically responsible for landing airport and other operational fees. The growth in ACMI was primarily driven by an increase in our aircraft fleet, as well as continued strong customer demand and ongoing supply shortages and further growth in key government agency relationships. Meanwhile, our charter business was roughly flat compared to a year ago at approximately $25 million in revenue for Q2, which is the result of our purposeful decision to prioritize our aircraft fleet for ACMI operations. More to come on that shortly. Again, for those who are unfamiliar in our charter business, we provide passenger and cargo aircraft while the customer pays a fixed fee that covers fuel, insurance, landing and other operational expenses. During the quarter, we booked a record 6,591 block hours between ACMI and charter, representing an 84% increase compared to Q2 of 2023. It's worth noting that while we also generated an additional 27% sequential increase in block hours flown, with only one additional aircraft compared to the first quarter of 2024, reflecting our ability to consistently secure new aircraft wins and effectively deploy our fleet. To dive deeper in Q2, we booked 4,824 block hours for ACMI, an increase of more than 3x compared to the year ago period. For charter, we booked 1,575 block hours compared to 2,209 block hours in Q2 of '23. On average, utilization per aircraft remained flat year-over-year. However, it grew sequentially 10% to 458 block hours per available aircraft. An important distinction requiring aircraft utilization needs to be made, though. While the entire fleet aircraft fleet utilization was flat year-over-year, there was a stark difference between passenger and cargo aircraft. Passenger aircraft utilization increased 29% from 405 hours to 525 hours per aircraft. Cargo utilization was down 73% from 613 hours to 161 hours. This can be directly attributed to the U.S. Postal Service moving a key route from air to truck, and the slow update of the uptake of the 3 additional cargo aircraft since Q2 of 2023. As I mentioned earlier, we have purposely shifted our mix to prioritize our ACMI business as it carries a higher margin profile compared to charter. Although ACMI technically brings in lower revenue when compared to charter on a per-flight basis, it carries lower risk as the customer assumes the expenses for fuel, demand and price risk, in addition to landing, airport and other operational fees. We also see accelerating demand in passenger market, resulting in improved aircraft utilization and operating income. Several factors are driving this surge, including the ongoing supply shortage, less direct competition and greater reliance on air charter by colleges and other organizations. With our new strategic direction, it's critical that we optimize our cost structure and uncover operating efficiencies to set a solid foundation for profitable growth moving forward. This is showcased on our growth in an average revenue per block hour. For ACMI, we generated an average of $6,615 per block hour, which is an increase of 56% from the prior year quarter. For charter, average revenue per block hour grew 37% to $15,629 compared to $11,374 in Q2 of 2023. These material increases were driven by our ability to renegotiate certain contracts for higher rates, which will continue to be our focus to drive further growth in revenue per block hours flown. In the first half of 2024, we have taken delivery of 3 additional aircraft, two A320 passenger aircraft and one A321F cargo aircraft. To aid our expansion efforts and our reputation as the nation's fastest-growing charter airline, we have signed letters of intent to lease 5 additional aircraft, which we expect to bring into the market over the next 15 months. I'm proud to say we've accomplished our goal of turning profitable during the second quarter, demonstrating the strength of our new management team, streamlined operation, and consistent focus on our core operation as a narrowbody charter airline. We continue to deepen relationships with our new and long-term strategic customers. We reached a significant milestone for GlobalX by operating our first flight for the Department of Defense, a key customer, having booked over $1.5 million worth of flights in July and August. We are proud to be selected as a partner for the DOT and look forward to building a strong, mutually beneficial relationship. During the quarter, we operated over 4,200 hours, which is 60% of all flights for the U.S. government. We expect that level of activity to grow through the remainder of 2024 and in 2025. In the quarter, we were awarded a 5-year contract inclusive of option periods to provide air charter services on behalf of U.S. Immigration and Customs Enforcement as a subcontractor to CSI Aviation, which has been selected as the prime contractor. We first began providing services to CSI under an emergency contract in September of 2023. We expect this new 5-year contract to generate approximately $65 million in annualized revenue. As many of you are aware, on July 19, American cybersecurity CrowdStrike -- company CrowdStrike distributed a faulty update to its Falcon sensor security software that caused widespread problems with Microsoft Windows computers running the software. While many airlines operators faced challenges during that period, the GlobalX fleet remained completely unaffected. Now I'll turn to our financial results. Please note that all financial results today are as of June 30, 2024, while various commentary is on a year-over-year basis unless stated otherwise. Revenue in the second quarter increased 83% to $57.5 million compared to $31.5 million in the year ago period, driven primarily by higher block hours flown and passenger fleet expansion, as well as an increased revenue per block hour flown for both passenger ACMI and charter. Charter revenue in Q2 was $24.6 million compared to $25.1 million. ACMI revenue increased more than 5x to $31.9 million compared to $5.8 million. Total operating expenses were $55 million compared to $38.3 million, driven primarily by higher aircraft rent, maintenance and personnel costs associated with the expansion of our fleet, as well as higher travel costs related to the expansion of the government contract. This also includes approximately $1.2 million of nonoperational expenses and charges related to the lease return of an aircraft, unwinding of core businesses and other onetime expenses during the quarter, including severance costs incurred as part of an internal reorganization. Net income increased to $0.3 million compared to a loss of $7.5 million in the year ago quarter. Net income per share increased to $0.01 compared to a loss of $0.13 per basic and diluted share. EBITDAR increased materially to $18.7 million compared to $500,000, driven primarily by the benefits of increased scale and efficient execution of our core business plan. Turning to our liquidity. We ended the second quarter with cash and restricted cash of $10.4 million compared to $12.2 million at March 31, 2024, and $17.7 million at December 31, 2023. As I mentioned before, we remain very comfortable with our liquidity position and have ample runway to execute on our growth and profitability objectives as well as turn to cash flow positive. While we're extremely pleased with our Q2 results, we believe it's still early days to unlock the true earnings power of this business. Between our expanding fleet, new contract wins and sharpened focused on profitable growth, we are well positioned to execute on our goals going half forward. We look forward to providing you with our next update later this year when we report Q3 results. This concludes our prepared remarks. I'd like now to open up the call for Q&A. Operator, back to you.

Thank you, Chris and Ryan, and thank you, everyone, for participating in the conference call. As we gather the queue for live questions, we'd first like to address questions that have come in via e-mail over the past couple of weeks, as well as even over the past day or so since we issued results. So to kick things off, Chris, Ryan, can you provide a general update on the cargo charter market? Has it improved from prior challenging trends?

I'll take that one. In recent months, we've continued to see softness in our narrowbody charter demand, the rebid of the U.S. Postal Service contract that moved a key route from air to truck, broader economic conditions and excess capacity in the North American freight market. To minimize the impact on our business, we canceled 2 aircraft deliveries and elected to take 2 A321s as passengers rather than freight and deferred 2 other cargo deliveries to 2025. We're actively working to secure long-term ACMI contracts for these aircraft as the market better understands the capabilities of the 321F aircraft. As the only North American operator flying the A321F, we continue to educate the market on the lower operating cost of this aircraft and its capabilities. The market today is Boeing dominant and slow to adopt new platforms within their systems. But each day, with each potential opportunity, we are educating more potential clients on the capacity and fuel efficiencies advantages of our aircraft. We still strongly believe that the 321 will be the replacement for the Boeing 757, and as fuel prices begin to rise, the economics of our aircraft will continue -- will begin to win contracts. In addition, we have noticed an uptick in inquiries, and that's usually the first sign to contracts being signed, and we're actively working on multiple longer-term contracts to put these planes to work. But I think if you think about our exposure as an airline, we have 4 operating aircraft. We expect to take another one by the end of the year. But that kind of caps our kind of exposure to the market. And as we put those planes to work, we'll look at growing that fleet in '25 or '26. But the first step is to kind of stem the losses which we have on that side of the business. And then as we put these planes to work, I think any -- almost every flight we fly goes straight to the bottom, which we think is a huge opportunity for us going forward.

Thanks, Ryan. And what are your thoughts on uplifting from the OTCQB to a larger exchange?

I will take this one, operator. Our job here is to maximize shareholder value through predominantly delivering superior returns on invested capital and continue to scale up our operations and become more profitable, and most importantly, sustainably profitable. There are different ways of driving shareholder value under this scenario, and uplifting to a senior exchange is certainly one of them. But it's just one option, and we will continue to monitor the best paths as we continue to execute on our precise management of operations labor.

Great. And what is the current revenue mix of government contracts? And do you expect this to increase further?

Yes, I'll take this one. In the second quarter, government revenue accounted for a little over half of our revenue. It's noting that these contracts are primarily ACMI, which as we discussed on the call, carries higher gross margin to charter, but lower revenue dollars. The environment for government business hasn't changed, and we're effectively securing more contracts as a result of the relationships built and our focus in this area, especially with the launch of DoD and our ability to start executing that area. That's an incredibly large market which was untapped for us in prior quarters, and we'll continue to expand in that area as we take on a larger mix of the aircraft. I think as we add aircraft, some of it will be government focused, but I think it will allow us to grow in other areas which we've established relationships over the last 3 to 4 years, which has been critical to our growth.

And can you expand on the accelerating demand in the passenger market?

Yes. As our results indicate, the passenger market continues to experience strong demand, which we continue to believe will continue through the remainder of '24 and '25. There are several factors driving the demand, including the lack of supply of aircraft, reduced direct competition and increased reliance on air charter by groups such as colleges. To capitalize on this momentum, we have prioritized passenger aircraft deliveries over cargo, and we've sort of seen that. We've devoted sales and operating resources, developed long-term relationships with key customers, and we've expanded our market reach to meet these new opportunities.

Great. And the last one here for questions via e-mail. Now that GlobalX has turned profitable, can we expect consistent profitability moving forward?

Well, I'll take that again. Well, we're not providing any formal or directional guidance at this time. What I can tell you is that Chris and I are extremely pleased with our Q2 results and believe it's still early days to unlock the true earnings power of this business. We have several initiatives in place to execute on our goals and look forward to providing an update on our next earnings call. And while, again, we have no plans to provide guidance, I think the same kind of metrics apply. I think if you look at our existing passenger fleet, what was in place, I think we executed as well as you can execute with those aircraft. We're looking to add 3 more this year. They're all in various stages of maintenance, but we expect to get them on the certificate before the end of the year. That would generate incremental profit because each aircraft at this point, given our fixed cost structure isn't growing, would drop to the bottom. And then the big wildcard for us really is on the cargo side. I think we're going to go in -- so the low season is Q2 and early Q3. The peak season for passenger -- for package carriers is really the late Q3, Q4. So while we don't have a long track record in cargo, and we don't -- I don't have a super great feel for how that peak season is going to go, I think the upside for us going forward is our ability to improve our cargo numbers, and we see a real opportunity for that in Q4.

Perfect. Operator, over to you for the live Q&A instructions, please.

[Operator Instructions] As there are no questions in the queue, this concludes our conference for today. Thank you for your participation. You may now disconnect your lines.