Transat A.T. Inc. - Results for third quarter of 2023

Transat Achieves Record Q3 Profitability
Solid operating performance driven by sustained demand and higher yields
Transat raises once again its adjusted EBITDA margin target from 5.5-7% to 7.5-8% for the fiscal year

For the third quarter:

• Revenues of $746.3 million
• Adjusted EBITDA¹ of $114.8 million
• Operating income of $64.4 million
• Net income of $57.3 million

Financial position:

• Unrestricted liquidity¹ of $670.6 million as at July 31, 2023, up from $511.3 million at the same time last year due to a solid cash flow generation in the last 12 months
• Customer deposits for future travel of $819.9 million, an all-time high for a third-quarter, up 40% from July 31, 2022
• Land sale in Mexico completed on August 31 and net proceeds of C$50 million to be applied to debt reduction

MONTREAL, Sept. 14, 2023 /CNW/ - Transat A.T. Inc., a leisure travel reference worldwide, operating as an air carrier under the Air Transat brand, announced today its results for the third quarter ended July 31, 2023.

"Transat generated record adjusted EBITDA and net income for a third quarter, and its first net profit since the end of 2019. These results demonstrate strong overall execution and our ability to meet sustained customer demand in a cost-efficient way. Third-quarter revenues of $746.3 million were 6.8% above 2019 levels despite capacity being 14% less, while our record adjusted EBITDA of $114.8 million was nearly 85% higher. Robust demand for leisure travel produced yields 29% above those of 2019," said Annick Guérard, President and Chief Executive Officer of Transat.

"Transat will conclude fiscal 2023 with solid momentum and, as a result, we are raising our adjusted EBITDA margin target from 5.5-7% to 7.5-8% for the year. Looking ahead to the winter season, the addition of three new A321LR and one A321ceo will contribute to increasing available capacity by 23% to be deployed on our best performing routes and promising new destinations. Early bookings are ahead of last year which, combined with firm pricing, bode well for the start of the new fiscal year," concluded Ms. Guérard.

"From a financial perspective, our focus remains on debt reduction. In this regard, net proceeds from our recent land sale in Mexico of approximately C$50 million will be used to reduce our secured facilities. Although the second half usually produces negative free cash flows, our third-quarter performance improved by $45 million compared to last year, bringing our free cash flows generated by operations for the last twelve months to $153 million. This solid momentum raised unrestricted liquidity 31% above last year's level, while record customer deposits for a third quarter are a strong indicator of resilient demand, which should allow Transat to further improve its financial position," added Patrick Bui, Chief Financial Officer of Transat.

Third-quarter highlights

• For the third quarter, the Corporation generated $746.3 million in revenues, up $238.0 million from $508.3 million for the corresponding period of 2022. In 2022, the Corporation's revenues were recovering from earlier sharp declines in demand and massive booking cancellations following the emergence of the Omicron variant.
• Transat recorded operating income of $64.4 million, an improvement of $157.6 million from a $93.2 million loss in 2022.
• Adjusted EBITDA¹ amounted to $114.8 million, up $172.6 million from a loss of $57.8 million in 2022.
• Net income amounted to $57.3 million ($1.49 per share), compared with a net loss of $106.5 million ($2.82 per share) for the corresponding quarter of last year.
• Excluding non-operating items, Transat reported an adjusted net income¹ of $42.3 million ($1.10 per share) for the third quarter of 2023, compared with an adjusted net loss¹ of $120.9 million ($3.20 per share) in 2022.

Financial position

As at July 31, 2023, cash and cash equivalents amounted to $570.6 million, an increase of $159.2 million from $411.3 million at the same date in 2022. Cash and cash equivalents in trust or otherwise reserved resulting from travel package sales also improved year-over-year reaching $263.6 million as at July 31, 2023, compared with $213.5 million at the same date in 2022.

Reflecting the rebound in demand and higher average selling prices, customer deposits for future travel stood at $819.9 million, up 34% from pre-pandemic levels as at July 31, 2019, and up 40% from July 31, 2022.

In total, available financing amounted to a maximum of $963.3 million, of which $863.2 million was drawn down ($863.2 million as at July 31, 2022), for unrestricted liquidity¹ of $670.6 million. The unused amount of $100.0 million is available until October 29, 2023.

Outlook

To date, load factors for the fourth quarter are 2.2 percentage points lower than in 2019, while airline unit revenues, expressed in yield, remain 26% higher. The combination of sustained demand and firm pricing will allow the Corporation to cope with a cost environment that remains generally higher and volatile.

Considering the solid results achieved in the first nine months of fiscal 2023, the Corporation is raising the target for adjusted EBITDA¹ margin from a range of 5.5% to 7% to a target of 7.5% to 8% for the year. In making these forward-looking statements, the Corporation adjusted its assumptions for the full year, including moderate growth in Canada's GDP, an exchange rate of C$1.35 to US$1 and an average price per gallon of jet fuel of C$4.25. 

For the upcoming winter season, the recent addition of four aircraft (three A321LRs and one A321ceo) and enhanced fleet utilization will contribute to increasing available capacity by 23%, as the Corporation continues to methodically expand its offering. Current market trends regarding demand and pricing continue to bode well for the early stages of the new fiscal year.

Additional Information

The results were affected by non-operating items, as summarized in the following table: 

Highlights and non-IFRS financial measures
(In thousands of Canadian dollars)	Third quarter		Nine-month period
	2023	2022	2023	2022
Revenues	746,317	508,304	2,283,885	1,068,899
Operating income (loss)	64,375	(93,218)	45,012	(254,572)
Restructuring costs	1,007	—	3,350	—
Depreciation and amortization	53,752	38,173	137,623	112,144
Premiums related to derivatives that matured during      the period	(4,352)	(2,779)	(11,728)	(2,779)
Adjusted operating income (loss)^1	114,782	(57,824)	174,257	(145,207)
Net income (loss)	57,303	(106,472)	(28,487)	(319,093)
Asset impairment	4,592	—	4,592	—
Restructuring costs	1,007	—	3,350	—
Change in fair value of derivatives	(12,168)	6,908	11,702	8,628
Revaluation of liability related to warrants	24,972	(14,506)	31,877	(13,697)
Foreign exchange (gain) loss	(29,052)	(1,706)	(36,014)	27,715
Loss (gain) on asset disposals	—	13	(2,511)	(4,005)
Gain on long-term debt modification	—	—	—	(22,191)
Premiums related to derivatives that matured during      the period	(4,352)	(2,779)	(11,728)	(2,779)
Tax recovery on ABCP losses	—	(2,359)	—	(2,359)
Adjusted net income (loss)^1	42,302	(120,901)	(27,219)	(327,781)
Diluted earnings (loss) per share	1.49	(2.82)	(0.75)	(8.44)
Asset impairment	0.12	—	0.12	—
Restructuring costs	0.03	—	0.09	—
Change in fair value of derivatives	(0.32)	0.18	0.31	0.23
Revaluation of liability related to warrants	0.65	(0.38)	0.83	(0.36)
Foreign exchange (gain) loss	(0.76)	(0.05)	(0.93)	0.73
Loss (gain) on asset disposals	—	—	(0.07)	(0.11)
Gain on long-term debt modification	—	—	—	(0.59)
Premiums related to derivatives that matured during      the period	(0.11)	(0.07)	(0.31)	(0.07)
Tax recovery on ABCP losses	—	(0.06)	—	(0.06)
Adjusted net earnings (loss) per share^1	1.10	(3.20)	(0.71)	(8.67)

			As at July 31, 2023	As at October 31, 2022
Cash and cash equivalents			570,592	322,535
Undrawn funds from credit facilities			100,000	100,000
Unrestricted liquidity^1			670,592	422,535

	Third quarter			Nine-month period
(In thousands of Canadian dollars)	2023	2022	Difference	2023	2022	Difference
	$	$	$	$	$	$
Cash flows related to operating activities	(7,534)	(62,724)	55,190	378,113	(117,793)	495,906
Cash flows related to investing activities	(4,136)	(9,992)	5,856	(21,896)	(25,001)	3,105
Repayment of lease liabilities	(40,407)	(24,191)	(16,216)	(109,947)	(83,600)	(26,347)
Free cash flow^1	(52,077)	(96,907)	44,830	246,270	(226,394)	472,664

About Transat

Founded in Montreal 35 years ago, Transat has achieved worldwide recognition as a provider of leisure travel, operating as an air carrier under the Air Transat brand. Voted World's Best Leisure Airline by passengers at the 2023 Skytrax World Airline Awards, it flies to international destinations. By renewing its fleet with the most energy-efficient aircraft in their category, it is committed to a healthier environment, knowing that this is essential to its operations and the destinations it serves. Transat has been Travelife-certified since 2018. (TSX: TRZ) www.transat.com

(1) Non-IFRS financial measures

Transat prepares its financial statements in accordance with International Financial Reporting Standards ["IFRS"]. We will occasionally refer to non-IFRS financial measures in the news release. These non-IFRS financial measures do not have any meaning prescribed by IFRS and are therefore unlikely to be comparable to similar measures presented by other issuers. They are intended to provide additional information and should not be considered as a substitute for measures of performance prepared in accordance with IFRS. All dollar figures are in Canadian dollars unless otherwise indicated.

The following are non-IFRS financial measures used by management as indicators to evaluate ongoing and recurring operational performance.

Adjusted operating income (loss) or adjusted EBITDA: Operating income (loss) before depreciation, amortization and asset impairment expense, restructuring costs and other significant unusual items, and including premiums related to derivatives that matured during the period. The Corporation uses this measure to assess the operational performance of its activities before the aforementioned items to ensure better comparability of financial results.

Adjusted pre-tax income (loss) or adjusted EBT: Income (loss) before income tax expense before change in fair value of derivatives, revaluation of liability related to warrants, gain (loss) on long-term debt modification, gain (loss) on business disposals, gain (loss) on asset disposals, restructuring charge, asset impairment, foreign exchange gain (loss) and other significant unusual items, and including premiums related to derivatives that matured during the period. The Corporation uses this measure to assess the financial performance of its activities before the aforementioned items to ensure better comparability of financial results.

Adjusted net income (loss): Net income (loss) before net income (loss) from discontinued operations, change in fair value of derivatives, revaluation of liability related to warrants, gain (loss) on long-term debt modification, gain (loss) on business disposals, gain (loss) on asset disposals, restructuring costs, asset impairment, foreign exchange gain (loss), reduction in the carrying amount of deferred tax assets and other significant unusual items, and including premiums related to derivatives that matured during the period, net of related taxes. The Corporation uses this measure to assess the financial performance of its activities before the aforementioned items to ensure better comparability of financial results. Adjusted net income (loss) is also used in calculating the variable compensation of employees and senior executives.

Adjusted net earnings (loss) per share: Adjusted net income (loss) divided by the adjusted weighted average number of outstanding shares used in computing diluted earnings (loss) per share.

Unrestricted liquidity: The sum of cash and cash equivalents and available undrawn funds from credit facilities. The Corporation uses this measure to assess the total potential cash available in the short term.

Free cash flow: Cash flows related to operating activities less cash flows related to investing activities and repayment of lease liabilities. The Corporation uses this measures to assess the cash that's available to be distributed in a discretionary way such as repayment of long-term debt or deferred government grant or distribution of dividend to shareholders.

Conference call

Third-quarter 2023 conference call: Thursday, September 14, 10:00 a.m. To join the conference call without operator assistance, you may register and enter your phone number here to receive an instant automated call back.

You can also dial direct to be entered into the call by an operator:
Montreal: 514 225-7344
North America (toll-free): 1 888 390-0620
Name of conference: Transat
The conference will also be accessible live via webcast: click here to register. 

An audio replay will be available until September 20, 2023, by dialling 1 888 390-0541 (toll-free in North America), access code 569905 followed by the pound key (#). The webcast will remain available for three months following the call.

The fourth-quarter results will be announced on December 14, 2023.

Caution regarding forward-looking statements

This news release contains certain forward-looking statements with respect to the Corporation, including those regarding its results, its financial position and its outlook for the future. These forward-looking statements are identified by the use of terms and phrases such as "anticipate" "believe" "could" "estimate" "expect" "intend" "may" "plan" "potential" "predict" "project" "will" "would", the negative of these terms and similar terminology, including references to assumptions. All such statements are made pursuant to applicable Canadian securities legislation. Such statements may involve but are not limited to comments with respect to strategies, expectations, planned operations or future actions. Forward-looking statements, by their nature, involve risks and uncertainties that could cause actual results to differ materially from those contemplated by these forward-looking statements.

The forward-looking statements may differ materially from actual results for a number of reasons, including without limitation, economic conditions, changes in demand due to the seasonal nature of the business, extreme weather conditions, climatic or geological disasters, war, political instability, real or perceived terrorism, outbreaks of epidemics or disease and the lingering effects of the COVID-19 pandemic, consumer preferences and consumer habits, consumers' perceptions of the safety of destination services and aviation safety, demographic trends, disruptions to the air traffic control system, the cost of protective, safety and environmental measures, competition, the Corporation's ability to maintain and grow its reputation and brand, the availability of funding in the future, fluctuations in fuel prices and exchange rates and interest rates, the Corporation's dependence on key suppliers, the availability and fluctuation of costs related to our aircraft, information technology and telecommunications, cybersecurity risks, changes in legislation, unfavourable regulatory developments or procedures, pending litigation and third party lawsuits, the ability to reduce operating costs, the Corporation's ability to attract and retain skilled resources, labour relations, collective bargaining and labour disputes, pension issues, maintaining insurance coverage at favourable levels and conditions and at an acceptable cost, and other risks detailed in the Risks and Uncertainties section of the MD&A included in our 2022 Annual Report.

The reader is cautioned that the foregoing list of factors is not exhaustive of the factors that may affect any of the Corporation's forward-looking statements. The reader is also cautioned to consider these and other factors carefully and not to place undue reliance on forward-looking statements.

The forward-looking statements in this news release are based on a number of assumptions relating to economic and market conditions as well as the Corporation's operations, financial position and transactions. Examples of such forward-looking statements include, but are not limited to, statements concerning:

• The outlook whereby, the Corporation will be able to meet its obligations with cash on hand, cash flows from operations and drawdowns under existing credit facilities.
  
  
• The outlook whereby, the combination of sustained demand and firm pricing will allow the Corporation to cope with a cost environment that remains generally higher and volatile.
  
  
• The outlook whereby, the Corporation is raising the target for adjusted EBITDA¹ margin from a range of 5.5% to 7% to a target of 7.5% to 8% for the year.
  
  
• The outlook whereby, for the upcoming winter season, the recent addition of four aircraft (three A321LRs and one A321ceo) and enhanced fleet utilization will contribute to increasing available capacity by 23%.

In making these statements, the Corporation assumes, among other things, that the standards and measures for the health and safety of personnel and travellers imposed by government and airport authorities will be consistent with those currently in effect, that workers will continue to be available to the Corporation, its suppliers and the companies providing passenger services at the airports, that credit facilities and other terms of credit extended by its business partners will continue to be made available as in the past, that management will continue to manage changes in cash flows to fund working capital requirements for the full fiscal year and that fuel prices, exchange rates, selling prices, and hotel and other costs remain stable. If these assumptions prove incorrect, actual results and developments may differ materially from those contemplated by the forward-looking statements contained in this press release.

The Corporation considers that the assumptions on which these forward-looking statements are based are reasonable. 

These statements reflect current expectations regarding future events and operating performance, speak only as of the date this news release is issued, and represent the Corporation's expectations as of that date. For additional information with respect to these and other factors, see the MD&A for the quarter ended July 31, 2023 filed with the Canadian securities commissions and available on SEDAR at www.sedar.com. The Corporation disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, other than as required by applicable securities legislation.

Media Site: transat.com/en-CA/corporate/media

SOURCE Transat A.T. Inc.

Media: Andréan Gagné, Senior Director, Public Affairs and Communications, [email protected], 514-987-1616, ext. 104071; Financial analysts: Patrick Bui, Chief Financial Officer, [email protected], 514 987-1616 ext. 4567