Earnings call transcript: Norse Atlantic ASA shows strong Q4 2024 growth

Norse Atlantic ASA, with a market capitalization of $48.8 million, reported a significant improvement in its financial performance for the fourth quarter of 2024, with revenues reaching $123 million, a 30% increase year-over-year. The company also managed to reduce its net loss to $35 million, a $30 million improvement from the same period last year. Despite these positive results, the stock price saw a decline of 2.5% in early trading. According to InvestingPro analysis, the company appears undervalued based on its Fair Value assessment, though it operates with significant debt challenges. [Discover 12 more exclusive InvestingPro Tips for Norse Atlantic ASA and access comprehensive analysis with a Pro subscription.]

Key Takeaways

• Revenues increased by 30% year-over-year in Q4 2024.
• Net loss reduced significantly to $35 million.
• Strong operational metrics with a 92% load factor and a 99.7% flight completion rate.
• Positive operating cash flow of $20 million.
• Stock price fell by 2.5% following the earnings release.

Company Performance

Norse Atlantic ASA demonstrated robust performance in Q4 2024, continuing its strong revenue growth trajectory, with trailing twelve-month revenue growth of 43.13%. The airline’s operational efficiency was highlighted by a 92% load factor and a 99.7% flight completion rate. Additionally, the company achieved a positive operating cash flow of $20 million, a significant turnaround from the negative cash flow reported last year. These improvements are indicative of the company’s strategic focus on cost reduction and network optimization, though InvestingPro data shows the company maintains a concerning current ratio of 0.53, indicating potential liquidity challenges.

Financial Highlights

• Revenue: $123 million (+30% YoY)
• Net Loss: $35 million (improvement of $30 million YoY)
• Full Year Loss: $135 million
• Operating Cash Flow: $20 million (up from -$21 million)
• Cash Position: $22.9 million

Outlook & Guidance

Looking ahead, Norse Atlantic ASA is optimistic about achieving profitability in 2025. The company expects to maintain load factors above 90% and has set a target to reduce costs per available seat kilometer by 10%. The revenue per available seat kilometer is projected to increase by 23%. InvestingPro’s Financial Health Score of 2.03 (FAIR) suggests moderate stability, with analysts forecasting improved profitability this year. [Access the complete Norse Atlantic ASA Pro Research Report, part of our comprehensive analysis of 1,400+ US equities, for detailed insights into the company’s financial health and growth prospects.]

Executive Commentary

CEO Bjorn Thorlassen expressed confidence in the company’s turnaround, stating, "We have definitely turned the tide in many ways." He highlighted the significance of achieving profitability in December, a first for the company during a winter month. Thorlassen is optimistic about 2025, stating, "We are bound for a good 2025, and we expect it to be profitable."

Risks and Challenges

• Market Saturation: Increasing competition in key markets may impact pricing strategies.
• Economic Uncertainty: Global economic conditions could affect travel demand.
• Operational Costs: Rising fuel prices and maintenance costs could pressure margins.
• Regulatory Changes: Potential changes in aviation regulations could impact operations.
• Contract Dependence: Reliance on specific contracts, such as with Indigo Airlines, could pose risks if terms change.

Q&A

During the earnings call, analysts inquired about the details of the Indigo Airlines contract, which includes a minimum of 350 flight hours per month and a transition from a full wet lease to a damp lease. The company confirmed that the contract is profitable at minimum block hours, with the first route launching on March 1st, connecting Delhi and Bangkok.

Full transcript - Norse Atlantic ASA (NORSE) Q4 2024:

Bjorn Thorlassen, CEO, North Atlantic: Very good morning, everyone, and welcome to North Atlantic’s Q4 twenty twenty four presentation. My name is Bjorn Thorlassen. I’m the CEO of the company and will present our Q4 results together with our CFO, Anders Johan Mas. So a few highlights from the last quarter. We have definitely turned the tide in many ways, and we were able to achieve a load factor over the quarter of 92%, which is an increase of 22%.

So it’s a considerable improvement in terms of filling the cabins. We also increased activity somewhat about 15% compared to last year. And the number of passengers went up by almost 5046%. Revenues also went up considerably, 30% to $123,000,000 And the revenue per available seat kilometer went up by 23%. We had a net loss of $35,000,000 in the quarter, which is a $30,000,000 improvement year on year compared to Q4 twenty twenty three.

And December isolated also turned out a profit, which was the first winter month in our history where we were profitable. The quarter was somewhat impacted by heavy maintenance on some of our aircraft. We typically do maintenance in the low season, particularly October, November this year. We took four of our aircraft into heavy maintenance, which, number one, increased cost but also reduced activity in the quarter. But part of that, it was a normal quarter.

Also, we had two aircraft that was allocated for a charter that started a bit late. So we had less utilization of our equipment than we typically would do in Q4. But overall, still, it is a significant improvement of what we had last year. End of quarter, we had a cash ROE of $23,000,000 which was not including the committed shareholder loan of $6,300,000 that was not drawn at the time and it is still not drawn. Few topics about our strategic update as well.

So as we have explained to our investors earlier, we signed an LOI with, at that time, an unnamed carrier for up to six aircraft in a long term charter contract. We, earlier this month, announced that we had signed the first aircraft. And today, we announced that we now, yesterday, last night, signed additional three aircraft that will commence operation, the first one in March, first of March, in other words, this coming Saturday, and the remaining three will be in the second half of this year. So these are contracts to a very large airline in India called Indigo. They are the largest airline in India.

They have a 62% market share, flying regionally mostly, domestic and regionally, and will now go into long haul. And they will use our aircraft as forerunners for their own long haul fleet. So it’s a great contract with a great company that I think is both gonna generate a secure revenue for about a third of our fleet for the next foreseeable future and at good levels and also a good service for our customer here. Sales for ’25 is also going very well. We have almost 60% more revenue sold so far this year, almost 40% more tickets so far this year compared to the same time last year.

So it means that we are both selling more tickets, but we are also selling those tickets at higher prices. The cost efficiencies that we announced last quarter is in motion and we expect to see the results from both the SG and A reduction but also the different base structure that we’re going to have from Q2 this year. And all told, we are looking at about $40,000,000 reduction in annual cost. We announced last quarter that we have agreed with the Headlessor to redeliver three seven eighty seven dash eights. Two of them was delivered this month, and we expect the third one to be delivered in March next month.

So that is also going according to plan. And then finally, there is, as you know, a possible repair offering, which, if it will take place, will happen in March. Whether it will be done or not, it will depend on the market circumstances at that time. I think I already mentioned the highlights of the Indigo contract. As I said, this is a very significant contract, and it secures our revenue for three of our aircraft for a longer period of time.

It is the length of the contract will be subject to regulatory approvals, mainly on the Indian side. And we are quite optimistic and have good reason to believe that it’s going to be well beyond the six months period. We think it’s going to be in the times that we have previously announced when it comes to the length of the contract. That, of course, does impact our scheduled network. We have taken this into account and we have made our network.

And we are going to keep the two thirds, in other words, eight aircraft will be flying the scheduled network and we’re going to keep the eight best lines of flying and take away the four least good lines of flying going forward. So in a way, it’s a commercial win win for us. And this contract with Indigo gives us a minimum utilization of the aircraft of three fifty hours per month, but it can also exceed that with a quite good margin. This slide shows you a bit about how our booking is going so far this year compared to last year. So we are well off both in terms of load factors and in terms of revenue per seat kilometre, both in Q1, Q2, and Q3.

So we are bound for a good 2025, and we expect it to be profitable. Cost initiatives. We are reducing our overhead costs, our SG and A, quite significantly, and we are well on our way of achieving our target. The target is quite ambitious. It’s 50% reduction compared to the run rate we had in October.

And we think that we will hit that point sometime in Q3. The main things we are doing to reduce cost, a part of SG and A, is that we are relocating bases. We have changed the network over the last twelve months, and now the crew bases are being aligned with where we are flying. So, for example, if you have we are flying a lot to and from Rome, for example, and going forward, we will have crew bases in Rome rather than certain other places where we have been in the past. That will save us about $40,000,000 a year, and we are going to continue to work hard to reduce our costs because we have the lowest cost in the industry, and we want to make sure that we take good care of that cost advantage.

Q4, we had a fairly good operational performance. We completed almost every flight. 99.7% of the scheduled flights were completed according to plan. Although the on time performance was less than we like to see, particularly in December, and that was mainly driven by congestions at the big European airports and the big airports in The US that we have been flying to. Air traffic control and and airport delays.

Also, the the load factors are have have continued to grow. The trend is positive. Also into ’twenty five, we have strong load factors. We announced our load factor for January of 94%, and I think we’re going to hit above 90% every month this year. Revenues have hold up.

When you are growing your load factor, sometimes it will come at the expense of average ticket price. But despite growing the load factor by 22%, we have been able to maintain the same pricing almost to the dollar. A little bit higher fares than last year, a little bit lower ancillary. But in in total, it’s almost the same ticket price, combined ticket and ancillary as we had last year, about 2% lower. So we are improving our cost.

We have improved our cost base about 10%. Our CASK or cost per available seed kilometer has gone down by about 10% compared to the previous quarter. And our revenue per available seed kilometer has gone up by 23%. So we are on the right track basically both on the cost and the revenue side, which is comforting. And in ancillary, although it went down by 1% compared to last year, we are still best in class when it comes to having the highest ancillary revenues in the world among all the airlines we compare with.

Anders? Thank you, Gautober.

Anders Johan Mas, CFO, North Atlantic: Hello, everybody. In quarter four of twenty twenty four, we report revenues of $123,000,000 which is up 30% compared to the same quarter last year. That’s mainly driven by, one, passenger revenue, which was up $12,000,000 but also, we increased revenues from ACMI and Charter from $2,000,000 to $21,000,000 So there’s a significant increase also in that part of the business. On the cost side, total operating expenses, they add up to $126,000,000 which is up 3%, relatively small increase compared to the last year. Although it’s helped by reduced fuel expenses, even though we flew more, we had lower fuel expenses impacted positively for us by reduced fuel prices in the quarter.

Personal expenses is up 18% and we also see an increase in SG and A. And those two are related to both to activity, but those two are also where we are really targeting the cost cutting program that Gertrude has talked about. All in all, this leads us to an EBITDA, which is negative of $3,300,000 in the quarter. And for the full year, it’s negative marginally by a little bit less than $1,000,000 Variable aircraft rentals is now down to as little as $300,000 This is because we’re now coming to the end of this Power by the Hour arrangement, which we have had with the lessors for the start of the contract. And the last aircraft went out of these arrangements of fifteen December, meaning that going forward, we will not have these variable, but they will be fixed for the remainder of the leasing contract.

And then we have depreciation and net finance, which leads us to a net loss in the quarter of $34,000,000 which is, as Bjorn Turb pointed out, a $30,000,000 improvement compared to same period last year. For the full year, we have losses of $135,000,000 Keep in mind, however, that these include the non a non cash portion of the lease accounting cost, which for the quarter was $5,000,000 and for the full year, $24,000,000 In terms of cash flow, we have, and that’s a positive thing to note here, a positive operating cash flow in the quarter of $20,000,000 which compares to a negative $21,000,000 in the same quarter last year. Main reason for the improvement is underlying performance of the business. We have done better this quarter than we did similar quarter in 2023. But also that there are the working capital movements are more positive this quarter than they were last quarter, Positive by SEK 20,000,000 compared to positive SEK 13,000,000 in the same quarter last year.

Investing cash flows is mainly maintenance, which Gertrude commented on. And financing cash flow is the net of equity raised. We raised 8,700,000 in Q4 and the payments of leases to the lessors. All in all, there’s a net change in cash of $2,500,000 and we end the quarter with $22,900,000 But again, important note, we have a revolving credit facility in place for $6,300,000 which was undrawn at the end of the quarter and until today’s date still remains undrawn. Looking at the balance sheet, again, those who follow us closely know that there are two especially two items to look out for here.

It is the Credit Card Receivables, and on the other side, it’s the Deferred Passenger Revenue. And we have had good bookings, good sales in this period, both now before and after Christmas and the holidays. Typically, at this point at this time of the year, you will see that both of these numbers increase. So now we have credit card receivables of a total $100,000,000 which more or less balance out the deferred passenger revenue, meaning the unflown sales we’ve had. Total (EPA:TTEF) equity is negative $210,000,000 Again, worth noting that as much as $164,000,000 of those are accumulated noncash lease accounting costs that we have booked since inception of the company.

Also off balance sheet, there are significant fair values in the leases, which are way below market levels in today’s tight market, which also leads the real value adjusted equity into a positive landscape. So that actually concludes what Bjorn Thore and I plan to say today. So we’re open to questions from the audience.

Bjorn Thorlassen, CEO, North Atlantic: Do you have one question here?

Analyst/Questioner: Yes. There has been some considerable interest, in the questions coming in online about the Indigo deal. So, specifically, the questions have been regarding, can you say anything about the outline of the commercial terms of the deal with Indigo? Can you say anything about the commercial routes they will be operating? And is this a wet or a damp agreement?

Bjorn Thorlassen, CEO, North Atlantic: Okay. Three good questions. We cannot give specifics on exactly what they are paying, but we have given you sort of the previously communicating the communicated the economic size of the contract and also which is still holding and the number of hours that we minimum will fly. The network we will be flying will be for the first few months with the first aircraft from Delhi to Bangkok, between Delhi and Bangkok, and we’re going to start that route this coming Saturday and fly it on a daily basis. And then, from January, we will start to fly between Europe and India.

We do not have the exact routes yet, but it will be between major cities in Europe and probably Delhi, Mumbai or other large cities in India. And the last portion of the question, Gisina, was?

Analyst/Questioner: Is it a wet or a damp agreement?

Bjorn Thorlassen, CEO, North Atlantic: It is both. So we’re starting out as a full wet lease where and that means that we will provide all the crew, the pilots and the cabin crew. And as we go into the contract, some of the cabin crew will be supplied by Indigo themselves, and that means that we will reduce a few hour crew on the cabin side. All our pilots will be flying their routes for the entirety of the contract. So it will then be going from a wet list to something between a wet and damp list.

Analyst/Questioner: A couple more questions about the Indigo deal, if that’s okay. Yep. Will the Indigo contract be profitable at the minimum number of block hours, which you mentioned?

Bjorn Thorlassen, CEO, North Atlantic: Yes, it will.

Analyst/Questioner: And also, the original letter of intent with Indigo was for six aircraft, and you have now announced four. What should the market think about the remaining two?

Bjorn Thorlassen, CEO, North Atlantic: I don’t think the market should count that they will come. We don’t know that yet because it’s all subject to various things, including regulatory approval. So I think today’s announcement is the last announcement that we will give any hint of. It doesn’t mean that nothing more will come, but we will only report when we have firm business to report. And that is the firm business we have.

Analyst/Questioner: Thank you very much.

Bjorn Thorlassen, CEO, North Atlantic: Okay. Then in that case, thank you very much to everybody and have a fantastic day. Thanks.

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