Good morning, ladies and gentlemen, and welcome to the Chorus Q3 of Financial Results Conference Call. [Operator's Instructions]. This call is being recorded on Thursday, November 7, 2024. I would now like to turn the conference over to Mr. Tyrone Cotie. Please go ahead.
Thank you, El. Hello, and thank you for joining us today for our third 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 some forward-looking discussion 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 and operations of Chorus Aviation Inc. for the three months ended September 30, 2024, as well as the Outlook section and other sections of the MD&A where such statements appear.
As a result of the agreement to sell Chorus Regional Aviation Leasing RAL Segment, the RAL Segment has been reclassified to discontinued operations, and our Regional Aviation Services Segment, together with corporate, is now referred to as continuing operations. Assuming the closing of the RAL sale, Chorus will have one reportable operating segment and will no longer disclose its results on a segmented basis. 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. This quarter, we have also provided certain of these measures on a pro forma basis to illustrate the financial impact of the disposition of the RAL Segment. Please refer to our MD&A for further information relating to the use of such non-GAAP measures in pro forma figures. I'll now turn the call over to Colin Copp.
Thank you, Tyrone, and good morning, everyone. Our third quarter results are reflective of Chorus's strengthening balance sheet and financial metrics, as well as they highlight the reliable earnings power of the aviation services business. Over the third quarter, we continued to execute on the plan, making significant progress towards the previously announced sale of our leasing segment. Last month, we were pleased to announce the fulfillment of all regulatory conditions for the completion of the transaction. The transaction remains on track, and we expect it to close by the end of 2024. As a leasing transaction comes to a close, we're turning our focus to our share price, shareholder returns, and to strengthening our existing businesses. Just yesterday, we announced a renewal of our Normal Course Issuer Bid and NCIB for our shares.
This reflects the fact that Chorus's shares remain undervalued, offering a strong return for shareholders and a good use of available funds. On the financial side, let me touch on a couple of key points before I pass it over to Gary to provide you the details. At the end of the third quarter, we continue to improve our leverage ratio to 3.0, which has come down from 3.3 at the beginning of the year, and we will see our leverage ratio continue to improve following the close of the transaction, positioning us well for the future with low debt levels and debt servicing costs. Additionally, we continue to execute well on the free cash flow side, generating over CAD 32 million this quarter. Our adjusted EBITDA came in at almost CAD 54 million for the quarter and CAD 159 million year-to-date.
Randolph from the Jazz team continues to execute very well, delivering consistent, strong contracted earnings from the CPA with Air Canada and notable year-over-year improvements in almost all Q3 operational performance metrics. The strong performance is attributable to a combination of factors, which include the team's deep industry expertise and knowledge, capability and resource planning, and a strong focus on hub and network-related performance. Our relationship with our key customer, Air Canada, has never been stronger, and I'm pleased to report that this quarter we've extended six of our Q400 CPA aircraft leases with Air Canada out to 2026, which were set to expire next year. On the pilot recruitment side, things are progressing very nicely, with Jazz welcoming its first class of new-hire pilots from our airline pilot training academy, Cygnet Aviation, in October. Adding capacity using Cygnet pilot training capabilities is yet another key milestone for us.
Having the capabilities to train airline-ready pilots from the ground up with the latest technologies, training simulators, and aircraft ensures a solid flow of airline-ready first officers going forward. Finally, Jazz has recently been recognized as an award of excellence winner. Its eighth consecutive year accepting an award as part of Canada's Safest Employers . Cory and the team at Voyager continue to execute very well, with revenues increasing quarter over quarter, generating record part sales during the quarter and demonstrating their success in pursuing and realizing emerging opportunities. Voyager continued the expansion of their air ambulance operations at Grand Manan Island over the quarter as part of the Ambulance New Brunswick's provincial air ambulance program.
They continue to build out their special mission support contract with the Department of National Defence and Manned Airborne Intelligence, Surveillance, and Reconnaissance Project, MAISR, and have now completed staffing and recruitment for the support of the fleet in Trenton. Lynn and the team at Cygnet are growing the business well with the launch of their sixth cohort of future airline pilots who started in August. They've also recently started an inaugural free agent program where graduating students will be referred to key partner airlines, providing them a broad set of options. They're also working on an academy partnership with other Canadian airlines to continue to grow enrollment. In conclusion, as Chorus continues to execute on our plan and we move towards closing the sale transaction, we're focused on a return of capital program for shareholders, strengthening our businesses, and prudently managing down our corporate costs.
I'm very confident in the strong future for Chorus, one that will allow us to continue to build on our history as an industry leader. I'd like to close by thanking our employees across all our businesses for their dedication, focus, and commitment to hard work, and to thank our shareholders and board of directors for their support. I'll now pass it over to Gary to take you through the numbers.
Thank you, Colin, and good morning. Our third quarter results for our continuing operations were in line with our expectations, and the guidance provided for the JAZZ CPA and capital expenditures in the Outlook section of the MD&A. As we look at the results for our continuing operations for Q3 2024, our adjusted EBITDA came in at CAD 54 million, in line with our expectations. Our free cash flow was CAD 32 million for the quarter, primarily derived from operating cash flows. Our leverage ratio was 3.0 at the end of the quarter, down from 3.3 at December 31, 2023. This has been accomplished primarily through long-term debt repayments of CAD 94 million since December 31, 2023. Our adjusted earnings available to common shareholders per common share from continuing operations was CAD 0.06.
As previously mentioned, after closing, which is expected before the end of the year, the sale of the RAL segment will allow us to eliminate CAD 1.7 billion in financings, including all RAL aircraft-related debt, substantially all of Chorus's corporate debt, and the $300 million U.S. [inaudible], along with the MOIC of $63.3 million U.S. If we look at this quarter and overlay the effect of those on a pro forma basis, we see pro forma adjusted earnings available to common shareholders per common share from continuing operations of CAD 0.08 and CAD 0.25 for the three and nine months ended September 30, 2024. This is a significant increase when compared to the current figures of CAD 0.06 and CAD 0.09 for the quarter and year-to-date, respectively.
Our pro forma leverage ratio is 1.5 at September 30, 2024, which is half of the current actual leverage of 3.0 and demonstrates the significant financial flexibility we will have moving forward. In pro forma, free cash flow of CAD 37 million and CAD 104 million for the three and nine months ended September 30, 2024, up approximately 16% and 14% from the CAD 32 and CAD 91 million reported. This demonstrates our strong cash flows that will support future return of capital, shareholders, and measured growth. The sale of the RAL segment will allow us to make changes to our capital structure that will result in a substantially strengthened and simplified balance sheet. Changes in capital structure will drive improved profitability, primarily driven from the reduced debt servicing costs and by eliminating preferred share dividends, which more than offset the earnings foregone from the RAL sale.
We have also provided information in our expected fleet of 80 aircraft in the Jazz CPA to 2026, which shows that excluding the nine Q400s of our planned exit, the current aircraft leased under the CPA are needed to fulfill the 80 aircraft minimum at this point. We continue to see growth at Voyager with its revenue year-to-date of CAD 90 million, up 16% from the CAD 77 million last year, with EBITDA margins remaining in the 23%-25% range. We are encouraged by this increase in Voyager's revenue, primarily attributed this quarter to growth in its parts sales business. We expect this trend line to continue through Q4 and end in 2025, as we had discussed at our prior Investor Day conference.
We recognize it will take some time for the true value of our business to be fully reflected in our share price, and we take the recent movement in the share price as a positive indication. With that in mind, we have renewed our Normal Course Issuer Bid, which will give us the ability to purchase or cancel up to 14.8 million shares. We are now ready to take your questions.
Thank you. [Operator's Instructions]. Your first question comes from Hillary Cacanando of Deutsche Bank. Please go ahead.
I have a question for Gary. In the third quarter, the aircraft maintenance materials supplies and services line is down sequentially, and it's been down compared to a couple of quarters. It's been trending down. I was wondering if there's seasonality involved or if there's any read-through for that number?
Sorry, Hillary, can you repeat that question? We had a hard time hearing it.
S ure. I was just saying in the third quarter, in the financials, the aircraft maintenance materials supplies and services number is down this quarter compared to last quarter and has been trending down. I was wondering if there's any kind of read-through for that number or if there's seasonality, anything to read into that?
I t's Gary here. T here's really, I mean, generally speaking, it's been trending down just in general, but there's really nothing to report there. Those are the aircraft maintenance expenses we have under the CPA. They're driven by engines, heavy checks, and whatnot. So I wouldn't say there's any seasonality into it, but generally speaking, those are the costs of the fleet covered under the CPA.
G ot it, and then you mentioned the free agent program and the academy partnership program at the Cygnet unit. Could you just a little more detail, I guess? How is that different from the current path that the pilot have?
Hi, Hillary, it's Colin. T he current path is really the cadet program style, which you really have a partner airline that signs up, and the students are locked into that hiring program from day one. So they come into the program, they get screened selected going into the program with already a plan and a commitment to go to an airline of choice. That's really the one design of the program, which is kind of like a cadet program.
T his other one, which is more of a free agent program, is where individuals come in and they have a breadth of selection as to where they go with various airlines that have committed to have a look at the students and basically will place an individual based on the needs of those airlines. So it's kind of, it's a bit more flexible, but it also allows airlines to kind of manage the volumes that they need when they're looking at new-hire students or new-hire pilots coming in.
Got it. Great. Thank you very much.
Your next question comes from David Ocampo of Cormark Securities. Please go ahead.
Thanks. Good morning, everyone. You guys touched a little bit on Voyager in your prepared remarks, but if we take a look at the growth, it is quite impressive, and I think the target that you guys laid out at your investor day was CAD 150 million on a 25% EBITDA margin. I was hoping you could spend a little bit more time there to talk about where the growth is coming from and if you see growth kind of continuing at the same run rate into 2026?
H i, David. A bsolutely. Our plan, obviously, we haven't given any guidance or anything on it, but our plan does show growth well beyond 2026 and going forward. We've had a lot of success in repositioning Voyager in kind of two verticals that they're very good at, and they have the internal strength and capability and knowledge and experience for. And that's really the USM side of the business, the parts side. And the other kind of this, there's a large grouping of it, but it's kind of an in-service support/maintenance specialty engineering for defense and specialty-type contracts.
A lot of the work that's being done up there is related to agencies in some way, whether it's the MAISR program where we're in Trenton and we're supporting a fleet of special mission aircraft, or it's designing, building, kind of modifying, doing STCs for aircraft, whether it's a transport canada airplane or it's an aerial surveillance aircraft, putting OEMs on big camera systems on board aircraft. Integrating technologies is another big piece that they're doing up there. A lot of the workflow has shifted in those areas. That was our planned design a few years back as we came out of COVID there to really focus in those areas of defense in particular.
That makes a lot of sense, Colin, but maybe you could touch on the capital intensity of that growth. Is it going to require much CapEx outside of what we've seen over the last few years?
D avid, it's Gary here. We're not seeing a lot of CapEx required at this stage. If you look at the part sales and you go through the working capital, it's been fairly steady. There might be a little bit in there, but there's nothing of a big intensity that you should expect.
S ounds like a pretty good return initiative. And then my last one's just on the leasing business with Air Canada. I mean, you guys did lay out when things are expiring in greater detail, and it was good to see the renewal of the Q400s out to 2026. I look at the aircraft that you guys own that are under the CPA, and it does still feel fairly young. So I'm just curious how your discussions are with Air Canada right now in terms of other lease renewals. And in the event that AC does go in a different direction, would you guys still be willing to do third-party leases since you just got rid of that business?
Yeah. L et me take a shot at that. Look, third-party leasing is not in our portfolio. We're not in the business to do that. There's no question. We do a bit of it in Voyager, and it's more around the specialty side of things. But our focus really is on growing of that regional business. We're staying very focused in kind of the two business segments, I guess three, if you want to call flight training one, but it's a pretty small piece for sure. But the two big ones, which are the regional flying segment and looking at opportunities there, how we continue to grow that out with time. It may be different forms. It may come in different forms. It doesn't always have to be just at the CPA level.
T he regional flying book of business and then the Voyager book of business, and that's really been where we've been core. But I think Gary would say, I put words in his mouth, we're always looking to do the best absolute thing we can financially from the perspective of that fleet. When it comes out, if it does come out, we're going to make the best financial decision. I wouldn't say definitively we won't ever lease another airplane, but that's not in the plan.
David, it's Gary here. So our preference is to sell the aircraft, obviously, but back to Colin's point, I wouldn't rule out a lease or two here or there just to migrate them to sell them, but our plans are to sell them.
Okay. Do you guys have a sense on the book value of that aircraft? Because it is quite a bit that's expiring here under your leases with Air Canada.
What was that question, David? Sorry.
Just the book value and if you could expect to get booked if?
T hat's our expectation is book value for sure. And yeah, we've been, if you remember too, we've had these aircraft for essentially 12 plus years under the leases. So they've been with us for a while.
S ounds good. Thanks a lot, guys. We appreciate it.
Thank you.
Your next question comes from Tim James of TD Cowen. Please go ahead.
Thanks very much and good morning. I'm just wondering, Colin, if you could explore a little more and provide some detail on the nature of the contract durations in Voyager. What is the profile? And I realize we're talking about sort of different businesses, so I'm sure there's a variety, but can you just kind of give us a bit of a sense for how much are really almost like short-term purchase orders versus multi-year contracts and how we should think about that?
Sorry, is this Tim?
Yes.
Yeah. Sorry, just having a little hard to hear you. You're just asking about the MAISR contract and kind of more details around it is what I picked up.
It's to really have a sense for the duration of the contracts. I'm just trying to get at a sense for the visibility in that business over the longer term.
I'm not 100% sure. I got to go back and look and see what we put in the press release. I mean, the challenge with dealing with some of this is that typically we're not in a position to disclose a lot of information around it. It is a long-term contract. I can clearly say that to you with firm commitments. It would be what you would see in any kind of most typical government defense contract. So long-term, quite sticky, very much focused on execution and making sure that we as a provider are executing strong. And in those cases where you're doing that, you see growth in those contracts quite often. We did add an additional aircraft, as we said just a little while ago. We announced that and put that in there.
W e built out a training program for them as well with that airplane. So it's a program that we plan to have around for a very long time. And we've just recently, as I said in my speech there, my update, finished the full kind of recruitment for everybody in there. So we got a full complement of employees. It's really starting to spool up now and really start to move. The aircraft are there. So we're going to see some good growth there from that contract for sure. L ike I said, it's several years.
G reat. Thank you. My second question, I'm just wondering if you could expand, Colin, you mentioned exploring regional flying in, I believe you said, different forms. Could you give us a bit of a sense on what you mean by that? What are some examples of what might be different forms?
T hat's from my earlier comment, I guess, and look, the reality is, look, we're focused on that segment, the regional aviation flying segment in Canada, and we're going to continue to focus on that in every way we need to. We've just recently renewed these aircraft with Air Canada, pushed them out another year, which is great, and we're going to continue to do that, so right now, it's really about focusing on our existing businesses and strengthening them in every way we can, and I don't think there's any real limitations to that as far as scope goes. For us, it's very much about building out that business.
Great. Thanks very much, Colin.
Okay. Thank you.
There are no further questions at this time. Please continue, Mr. Tyrone Cotie.
Okay. Thank you all. And thank you everyone for taking part in this morning's call. Have a good day.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.