North West (TSX:NWC) Q2 2026 Earnings Call

0:00 All right, thank you, operator. One moment. Please be advised that this conference call is being recorded. Welcome to the Northwest Company Inc. Second Quarter Results Conference Call. I would now like to turn the meeting over to Mr. Dan McConnell, President and Chief Executive Officer. Mr. McConnell, please go ahead.

0:18 Okay, thank you, operating. Good morning, everyone. Welcome to the Northwest Company Second Quarter Conference Call. I'm joined here by John King, our Chief Financial Officer. Alexis Cloutier, our VP of Legal and Corporate Secretary. I'm going to start by asking Alexis to read our disclosure statement.

0:35 Thank you, Dan. Before we begin today, I remind you that certain information presented may constitute forward-looking statements. Such statements reflect Northwest's current expectations, estimates, projections and assumptions. These forward-looking statements are not guaranteed of Future Performance and are subject to certain risks which could cause actual performance and financial results in the future to vary materially from those contemplated in the forward-looking statements. Any forward-looking statements are current only as of the date they're made, and the company disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future results, or otherwise, other than what's required by law. For additional information on these risks, please see Northwest's Annual Information Form and its MD&A under the heading Risk Factors.

1:29 Thank you, Alexis. I'm going to begin with our consolidated results for the quarter, followed by some Thank you all for joining us. International Operations.

3:58 and a guy named Guam which opened on August 28th. With that overview of the key factors that contribute These improvements were largely offset by the impact of higher fuel-related Looking ahead there are

7:30 The Child Inc. This will be a big benefit for us for sure.

10:40 With that, I'm going to open the call up for some questions. Thank you. To ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we hold the Q&A roster. Our first question comes from the line of Stephen McCloud with BMO Capital Markets. Your line is now open.

11:07 Thank you. Good morning, guys. Good morning. I just wanted to ask about just the trend you're seeing in higher child and carer settlement payments coming through late in the quarter. You know, I know you gave a little bit of color on the call, and I'm just curious if you can give some color around sort of how you're expecting that to ramp into Q3 and Q4. And then what sort of spending patterns are you seeing from claim recipients?

11:35 Can you repeat the end of your question, sorry? Which kind of what?

11:39 What kind of spending patterns are you seeing from your claims recipients and I guess capture rate as well?

11:45 Yeah, so like I said, we are pleased with the capture rate for sure. It's in line with our expectations. As I mentioned, some of the ideal items that we typically see moving when people came and we anticipate when people came into the money are definitely moving. We're getting our fair share for sure, Steve. and yeah it was like late July on into August it started to uptick a little bit and so definitely pleased anticipating and hoping that it sustains at this rate or hopefully even better over the next number of quarters but it's as you know we've been kind of trying to predict the trajectory and cadence of these payments over a lot of years and without The good news is that it definitely increased, particularly in August onwards as it was prior.

12:49 Okay, that's great. I noticed you called out increased motorized sales, but I was just curious, did I understand, is that isolated to international or do you see that in Canada as well?

13:00 No, Canada as well, for sure. Yeah, okay. Okay, that's great.

13:05 And then maybe just finally, just on the increased capex, you know, sounds like it's mostly related to North Star Air. And you made an interesting comment about it being, you know, positive to the margin profile. It reduces your utilization of leased aircraft. I'm just curious if you can quantify sort of what that margin profile looks like, just trying to get a sense of the returns on that incremental capex.

13:31 Why don't we do this? We'll tell you when they're in action and when they get into the flight plan. Yeah. As far as kind of giving you any kind of quantification at this point, we would stay away from that.

13:45 Yeah.

13:46 We'll let you know when they're in action.

13:50 Okay. Thanks, Dan. Appreciate it. All right. Thank you. Thank you. Our next question comes from the line of Cheryl Zeng with TD Cowan. Your line is now open.

14:01 Hey, good morning, Dan and John. Thanks for taking our questions. So, the first one is on the SG&A. I think SG&A excluding share-based comps is up, and you pointed to labor cost and fuel cost inflation. I'm wondering if you could help us get a sense of the magnitude of those cost inflation, and which one do you think was a bigger contributor?

14:27 Appreciation was up there. Labor is definitely something that we want to get a handle on. Utilities, I mean, we look around, but I'd say some of the factors that we're going to be paying close attention to, the ones we can control, are certainly labor as an opportunity for us to get back in line. As there's a lot of events that occurred, we had some major renovations that we needed to make sure we were ready for, and so we had to increase our labor there. So there's, yeah, I would say labor is the one that we want to make sure we get our arms around in the future quarters. Like I indicated, it was something we've been focused on prior quarters. It's better than the previous quarter, but we still know that there's opportunities for improvement there.

15:18 Okay, understood. How much pricing did you pass through in Q2 and how much more do you expect to do in Q3? Was the fuel cost entirely passed on or was the consumer reaction thus far?

15:34 That's a great question. The consumer reaction is negative. The people are certainly not pleased as any of the Canadians are not pleased with the inflation that we've experienced recently. I would say we passed on a lot of the inflation excluding some of the key categories essential items that our customers obviously need and want but particularly in Canada I would say a lot is a lot of it has been passed on except for some of those key categories I guess I wouldn't quantify it I mean in the international division I would say yeah Pretty much, I'd probably say, at the same rate, with the same philosophy, same strategy in place.

16:27 Okay. Thanks so much. I'll recue.

16:31 Thank you. Thank you. As a reminder, to ask a question at this time, please press star 1-1 on your touch-tone telephone. Our next question comes from the line of Ty Collin with CIBC. Your line is now open.

16:44 Hey, good morning, guys. Thanks for taking my questions. Maybe just to circle back on your comments around the settlement payments and the acceleration that you've seen since August. I mean, we know that these payments have tended to be kind of lumpy in the past, so I just want maybe a little more clarification on what gives you confidence that there's actually been sort of an inflection in the rate of those payments rather than maybe just seeing a bit of lumpiness over the last month or so.

17:17 Are you talking about in the future or what gives us confidence that we have seen more payments over the last, like I indicated, last couple of months? Sorry, just to be clear. We are very comfortable that the cadence of payments have increased, as I indicated, kind of late July and into August. Is that your question? And do we think it's going to be at that rate onward into the future. Sorry, Ty, is that your question?

17:49 Yeah, that's the gist of the question. It seemed like based on your outlook commentary that you expect a higher rate of payments to persist, so I'm just wondering where that confidence comes from.

18:01 Optimism? Yeah, I mean, I don't know, I think, now just thinking about your question, I think it's because the large number of applications that have been in versus the few number of applications that we feel have been processed, as we've experienced, like, you know, I kind of gave you the numbers, as I indicated, there's been few that have been, a lot of the markets have been touched, not all of them, maybe, what is it, 75% if you did the math, but in a lot of the communities, we've only seen a small number of And we know there's been a lot of submissions.

18:48 So I'm just using logic and I would say, okay, so we've seen a few. We know that there's been a lot of them processed, but now maybe the program and the system is getting into an efficient state and we expect there to be hopefully, and again, it's not busting the doors, but it's been a reasonable increase from previous quarters. So I'm just saying that I would hope that there's going to be a, this is the new kind of baseline moving forward. But again, I mean, you ask a question, I don't know, I can't say for certain that there's not going to be some more troughs in there, but I would think that they're learning, the applications have been made, and I don't know what would hold them up. But that's probably as good an answer as I can give you.

19:43 Okay, great. No, that's very helpful color. Thanks for that, Dan. And then just looking at the same store sales growth numbers this quarter, obviously quite strong. I'm just wondering at a high level, how much of that would you attribute to the fuel surcharges that you pass through versus sort of tonnage or some of the other growth drivers that you talked about?

20:05 Not, I mean, not that. It's still a healthy sales increase.

20:13 Excluding the the pass-through of the of the fuel I would say yeah, and it's higher than Higher than normal Okay, great and then just my final question circling back to the capex piece I mean is any of this Increased any of this 40 million dollar increase in planned spend Would you sort of characterize any of that as a pull forward from future years or is this more of? More of a recent decision to sort of buy versus lease your airline fleet.

20:49 It's often driven. It's a finance discussion, really. It's better returns on some of it. We're very patient, just like we are with all of our capital investment, our acquisitions, you could say. So if the right deal is there and it hits our hurdles and it has a financial accretion to buy these particular aircrafts, in our, which it does because we get again more productivity, more reliability, less maintenance cost. The overall cost of ownership and the cost of operating these planes is accretive so this is where we have the capital obviously. So this is what leads to the decision to purchase the aircraft.

21:34 It's opportunistic and we have some expensive leases with some aircraft that it's Thank you. Our next question is a follow-up from Cheryl Zhang with TD Cowen. Your line is now open.

22:08 I just wanted to follow up on the cost side and your Next 100 initiatives. I'm curious on how much do you think the fuel price and labor inflation pressures could be offset by Next 100?

22:26 Yeah, no, there's definitely an offset factor there. So further ahead than we would have been if we weren't in the Next 100 program, but it also gives us the tools to be able to offset some of these fuel related pressures. There's definitely a connection there. As far as the net differential, it's not something we would disclose, but I can tell you we're very pleased that we're in the program, if you will.

23:03 And then just one more on CapEx. Should we be expecting additional fleet upgrades and purchases in the upcoming years, or is this year an exception?

23:19 This year, I think we would follow the same discipline that I mentioned. It's not going to be excessive. This is definitely a high watermark. and it's opportunity driven. But no, I would say this is definitely not the new norm level of CapEx moving forward.

23:40 Okay, understood. And maybe just one more from me. Sure. So your international segment, the tourism strength is still pretty strong this quarter. I'm curious if you're seeing any changes going to Q3 on the demand trajectory.

23:57 Not currently, but we're optimistic because we're coming into the holiday season. Maybe more for some of the western climate, Winnipeg and the like, but no, we're definitely coming into the holiday season, going into Q3, so no, we remain optimistic.

24:17 Okay, that's helpful, thank you.

24:19 Alright, thanks, sure. Thank you, and I'm currently shown no further questions at this time. I'd now like to hand the call back over to Mr. McConnell for closing remarks.

24:29 Thanks, operator, and appreciate the comments and questions, and we'll look forward to chatting with everybody in December. This concludes today's conference. Thank you for your participation. You may now disconnect.