Chorus Aviation announces solid second quarter 2017 earnings and grows regional aircraft leasing - Aug 10, 2017

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Chorus Aviation announces solid second quarter 2017 earnings and grows regional aircraft leasing

Aug 10, 2017

Delivering regional aviation to the world  

  • Q2 adjusted EBITDA1 of $65.5 million.
  • Q2 adjusted net income1 of $26.7 million, or $0.22. per basic share.
  • Q2 net income of $40.8 million, or $0.33 per basic share, including an unrealized foreign exchange gain of $21.7 million.
  • Chorus' leased fleet diversifies and grows to 56 upon completion of announced leasing transactions for 17 regional aircraft to date by Chorus Aviation Capital.
  • Jazz signed five-year agreement with Bombardier Commercial Aircraft becoming an Authorized Service Facility.
  • Jazz Technical Services completed world's first Extended Service Program on Dash 8-300 aircraft.
  • Five new CRJ900 aircraft entered Jazz's Air Canada Express operation.

HALIFAX, Aug. 10, 2017 /CNW/ - Chorus Aviation Inc. ('Chorus') (TSX: CHR) today announced solid financial results for the second quarter of 2017.  

"I'm pleased with our financial performance in the second quarter, delivering increases in adjusted EBITDA and adjusted net earnings of 13.3% and 22.3% respectively over the same period in 2016," said Joe Randell, President and Chief Executive Officer, Chorus.  "We're making significant progress in growth and diversification as we build Chorus Aviation Capital into a leading regional aircraft lessor. Our objective is to become one of the top regional aircraft lessors in the world.   Aside from the 39 regional aircraft under lease in the CPA, we have announced an additional 17 aircraft, bringing the total to 56. Diversification is made more robust through now securing products manufactured by the three, world leading regional aircraft manufacturers; Bombardier, ATR and Embraer, while adding new, well-established customers geographically dispersed across five continents.  Along with the solid performance of our core businesses in Jazz and Voyageur, we're transforming our organization into a global leader in regional aviation. We are now delivering customers a complete suite of regional aviation services including contracted flying, aircraft engineering, maintenance, repair and overhaul, parts provisioning and aircraft leasing solutions."

Q2 2017 Overview

Chorus remains focused on its vision of delivering regional aviation to the world. Chorus once again delivered solid financial results, in line with management's expectations, and made significant progress in its growth and diversification initiatives. 

Chorus Aviation Capital ('CAC') is quickly becoming a globally significant regional aircraft lessor through the acquisition of leases with new, high quality customers located across five continents, and a diversified fleet comprising among the best regional jet and turbo-prop offerings from Bombardier, ATR and Embraer. To date CAC has completed the acquisition of six ATR 72-600 aircraft on lease to Flybe and Virgin Australia, and three Bombardier Q400s to Falcon Aviation Services of Abu Dhabi. It also delivered the third of four CRJ1000 regional jets to Air Nostrum, and announced its intention to acquire one Embraer 190 aircraft on lease to KLM Cityhopper, and three Embraer 190 aircraft on lease to Aeromexico Connect. Within the first seven months of its existence, CAC has grown Chorus' fleet of regional aircraft outside of the capacity purchase agreement ('CPA') with Air Canada to 17 aircraft with the average age of this fleet being approximately three years.

While Jazz did experience operational challenges at the hub airports and pilot transitioning activity resulting in a reduction in performance incentive revenues over second quarter 2016, the CPA continues to deliver stable financial results.

Jazz Technical Services completed the world's first Extended Service Program on a Dash 8-300 aircraft, and has been designated as a Bombardier authorized provider of maintenance, repair and overhaul. Voyageur secured a second new flying contract in Europe, and expects to deliver a second converted Dash 8-100 package freighter to Wasaya Airways later this month. 

Financial Performance - second quarter 2017 compared to second quarter 2016

In the second quarter of 2017, Chorus reported adjusted EBITDA of $65.5 million versus $57.8 million in 2016; an increase of $7.7 million or 13.3%. 

The increase in adjusted EBITDA was primarily driven by:

  • increased aircraft leasing under the CPA with Air Canada of $6.4 million;
  • a $4.6 million increase related to incremental margin attributed to non-CPA aircraft leasing and maintenance, repair and overhaul; and
  • new contracts for international ACMI flying in the Voyageur operation contributed $0.7 million.

These increases were partially offset by:

  • a decline of $2.4 million in CPA performance incentive revenue; and
  • an increase of $1.6 million in stock-based compensation expense.

Adjusted net income was $26.7 million for the quarter, an increase from the second quarter of 2016 of $4.9 million, or 22.3%.  The change was a result of the $7.7 million increase in adjusted EBITDA previously described, plus a $3.5 million decrease in income taxes; partially offset by:

  • $2.7 million of additional depreciation primarily related to new aircraft; and
  • $5.3 million of added interest costs related to increased aircraft debt and the convertible units.

Net income was $40.8 million for the quarter, an increase of $17.2 million from the second quarter of 2016. The increase was due to the previously noted $4.9 million increase in adjusted net income and:

  • an increase of $16.3 million in unrealized foreign exchange gains on long-term debt; offset by:
  • $3.1 million of foreign exchange losses on US dollar denominated cash held on deposit for investment in the aircraft leasing business; and
  • $4.5 million in employee separation program costs in the second quarter of 2017, versus $3.6 million in the second quarter of 2016.

Year to date 2017 compared to year to date 2016

For the six months ended June 30, 2017, Chorus reported adjusted EBITDA of $119.6 million versus $108.7 million in 2016; an increase of $10.8 million or 10.0%. 

The increase in adjusted EBITDA was primarily driven by:

  • increased aircraft leasing under the CPA with Air Canada of $10.7 million;
  • a $7.2 million increase related to incremental margin attributed to non-CPA aircraft leasing and maintenance, repair and overhaul; and
  • new contracts for international ACMI flying in the Voyageur operation contributed $1.2 million.

These increases were partially offset by:

  • a decline of $3.3 million in CPA performance incentive revenue;
  • an increase of $0.5 million in stock-based compensation expense; and
  • an increase of $4.5 million, mostly attributable to increased crew costs including travel and training related to incremental flying activity.

Adjusted net income was $42.5 million for the period, an increase from 2016 of $0.5 million, or 1.1%.  The change was a result of the $10.8 million increase in adjusted EBITDA previously described, plus a $2.4 million decrease in income taxes; partially offset by:

  • $6.1 million of additional depreciation primarily related to new aircraft; and
  • $8.2 million of added interest costs related to increased aircraft debt and the convertible units.

Net income was $67.5 million for the period, a reduction of $11.5 million, or 14.6% from the same period of 2016. The decrease was due to the previously noted $0.5 million increase in adjusted net income and:

  • a decrease of $13.9 million in unrealized foreign exchange gains on long-term debt;
  • $8.8 million in employee separation program costs in the first half of 2017, versus $3.6 million in the first half of 2016; offset by:
  • no signing bonuses in the first half of 2017, versus $5.5 million in signing bonuses in the first half of 2016; and
  • $1.6 million of foreign exchange gains on US dollar denominated cash held on deposit for investment in the aircraft leasing business.

2017 OUTLOOK

(See cautionary statement regarding forward-looking information below)

Chorus' subsidiaries continue to deliver results within management's expectations, supporting positive operating income and cash flows from operations. Chorus is determined to create additional long-term shareholder value by strengthening the foundational CPA business, growing and diversifying aircraft leasing revenues, and pursuing additional growth opportunities.

Chorus intends to grow its regional aircraft leasing business through CAC by leveraging the proceeds from the private placement of convertible debt units to acquire aircraft for lease to regional aircraft operators.  CAC intends to deploy the capital within the next six to 12 months leveraging that capital with further debt financing at a ratio ranging between three and four to one, to acquire new to mid-life regional aircraft for lease to high quality operators.

Given the breadth of its expertise and capabilities in regional aviation, Chorus believes it has the opportunity to become one of the world's largest regional aircraft lessors.  The progress made in advancing the diversification strategy through growth in aircraft leasing is expected to continue with the delivery of the fourth CRJ1000 to Air Nostrum by the end of September 2017, and the anticipated closing of the leasing transactions with KLM Cityhopper and Aeromexico Connect.

Based on the 2016-2017 winter schedule, the 2017 summer schedule and updated planning assumptions received from Air Canada, Billable Block Hours for 2017 are expected to be between 358,000 and 363,000 hours based on 117 Covered Aircraft as at December 31, 2017.  The actual number of Billable Block Hours for 2017 may vary from this anticipated range due to several factors, (see Section 9 - Risk Factors in the second quarter 2017 MD&A).  However, the CPA fleet transition to larger aircraft will generate approximately 10% more available seat miles in fiscal 2017 over the same period in 2016.

Capital expenditures for 2017, excluding those for the acquisition of aircraft and the extended service program, and including capitalized major maintenance overhauls, are expected to be between $45.0 million and $55.0 million.

Investor Conference Call / Audio Webcast

Chorus will hold an analyst call at 09:30 a.m. ET on Thursday, August 10, 2017 to discuss the second quarter financial results. The call may be accessed by dialing 1-888-231-8191. The call will be simultaneously audio webcast via: http://event.on24.com/r.htm?e=1462064&s=1&k=868852FF61D3BE090707F62EE13097F8.
This is a listen-in only audio webcast.  Media Player or Real Player is required to listen to the broadcast; please download well in advance of the call.

The conference call webcast will be archived on Chorus' website at www.chorusaviation.ca under Reports > Executive Management Presentations.  A playback of the call can also be accessed until midnight ET, August 18, 2017 by dialing toll-free 1-855-859-2056, and passcode 51024227#.

1NON-GAAP MEASURES

This news release references several non-GAAP measures to supplement the analysis of Chorus' results.  These measures are provided to enhance the reader's understanding of our current financial performance.  They are included to provide investors and management with an alternative method for assessing our operating results in a manner that is focused on the performance of our ongoing operations and to provide a consistent basis for comparison between periods.  These non-GAAP measures are not recognized measures under GAAP, and therefore they are unlikely to be comparable to similar measures presented by other companies. A reconciliation of these non-GAAP measures to their nearest GAAP measure is provided in Management's Discussion and Analysis ('MD&A') dated August 9, 2017.

EBITDA and Adjusted EBITDA

EBITDA is defined as earnings before net interest expense, income taxes, and depreciation and amortization and is a non-GAAP financial measure.  Adjusted EBITDA (net income before net interest expense, income taxes, depreciation and amortization, signing bonuses, employee separation program costs, strategic advisory fees and other items such as asset impairment and foreign exchange gains or losses) is a non-GAAP financial measure used by Chorus, and commonly by other regional airlines in the industry, as a supplemental financial measure of operational performance.  Management believes Adjusted EBITDA assists investors in comparing Chorus' performance on a consistent basis without regard to depreciation and amortization, which are non-cash in nature and can vary significantly depending on accounting methods and factors such as historical cost.  During the first quarter of 2017, Chorus revised its definition of Adjusted EBITDA to include signing bonuses, employee separation program costs and strategic advisory fees to facilitate transparency and comparability as these items can fluctuate from period to period.  Adjusted EBITDA should not be used as an exclusive measure of cash flow because it does not account for the impact of working capital growth, capital expenditures, debt repayments and other sources and uses of cash, which are disclosed in the statements of cash flows, forming part of Chorus' financial statements.

Adjusted Net Income

Adjusted net income and Adjusted net income per Share are used by Chorus to assess performance without the effects of unrealized foreign exchange gains or losses on long-term debt and finance leases related to aircraft, realized foreign exchange gains or losses on cash held for on deposit for investment in the leasing business, signing bonuses, employee separation program costs and strategic advisory fees.  Chorus manages its exposure to currency risk on such long-term debt by billing the lease payments within the CPA in the underlying currency (US dollars) related to the aircraft debt.  These items are excluded because they affect the comparability of our financial results, period-over-period, and could potentially distort the analysis of trends in business performance.  Excluding these items does not imply they are non-recurring due to ongoing currency fluctuations between the Canadian and US dollar. During the first quarter of 2017, Chorus revised its definition of Adjusted net income to exclude the signing bonuses, employee separation program costs, and strategic advisory fees to facilitate transparency and comparability as these items can fluctuate from period to period.  In addition, Chorus revised its definition of Adjusted Net Income to exclude foreign exchange gains or losses on US dollar denominated cash held on deposit for investment in the leasing business.  This item is excluded as it relates to a foreign exchange gain or loss on proceeds from the Convertible Units that were converted to US dollars and will be used to invest in long-term and primarily US dollar denominated assets, whose related income is expected to be earned over time.

Various Financial Measures

 

Second Quarter Summary



(unaudited)

(expressed in thousands of Canadian dollars)

Three months ended June 30,

2017

$

2016

$

Change

$

Change

%






Operating revenue

333,362

310,104

23,258

7.5

Operating expenses

294,924

275,693

19,231

7.0

Operating income

38,438

34,411

4,027

11.7

Non-operating income (expenses)

6,793

(2,809)

9,602

(341.8)

Income before income taxes

45,231

31,602

13,629

43.1

Income tax expense

(4,424)

(7,945)

3,521

(44.3)

Net income

40,807

23,657

17,150

72.5






Add (Deduct) items to get to Adjusted Net Income(1)






Unrealized foreign exchange gain

(21,723)

(5,410)

(16,313)

301.5


Foreign exchange loss on cash held for deposit

3,066

3,066

100.0


Employee separation program

4,519

3,557

962

27.0


(14,138)

(1,853)

(12,285)

663.0

Adjusted net income(2)

26,669

21,804

4,865

22.3






Add (Deduct) items to get to Adjusted EBITDA(1)






Net interest expense

10,524

5,263

5,261

100.0


Income tax expense

4,424

7,945

(3,521)

(44.3)


Depreciation and amortization

22,549

19,847

2,702

13.6


Foreign exchange loss

2,027

3,602

(1,575)

(43.7)


Loss (gain) on disposal of property and equipment

(333)

333

(100.0)


Other

(687)

(313)

(374)

119.5


38,837

36,011

2,826

7.8

Adjusted EBITDA(2)

65,506

57,815

7,691

13.3

(1)

These items are excluded because they affect the comparability of our financial results, period-over-period, and could potentially distort the analysis of trends in business performance.

(2)

This is a non-GAAP measurement.  Refer to Section 17 – Non-GAAP Financial Measures.

 

Year-to-Date Summary



(unaudited)

(expressed in thousands of Canadian dollars)

Six months ended June 30,

2017

$

2016

$

Change

$

Change

%






Operating revenue

653,952

630,654

23,298

3.7

Operating expenses

587,740

569,458

18,282

3.2

Operating income

66,212

61,196

5,016

8.2

Non-operating income (expenses)

11,969

30,951

(18,982)

(61.3)

Income before income taxes

78,181

92,147

(13,966)

(15.2)

Income tax expense

(10,643)

(13,092)

2,449

(18.7)

Net income

67,538

79,055

(11,517)

(14.6)






Add (Deduct) items to get to Adjusted Net Income(1)






Unrealized foreign exchange gain

(32,138)

(46,048)

13,910

(30.2)


Foreign exchange gain on cash held for deposit

(1,646)

(1,646)

100.0


Employee separation program

8,782

3,557

5,225

146.9


Signing bonuses

5,500

(5,500)

100.0


(25,002)

(36,991)

11,989

(32.4)

Adjusted net income(2)

42,536

42,064

472

1.1






Add (Deduct) items to get to Adjusted EBITDA(1)






Net interest expense

18,538

10,294

8,244

80.1


Income tax expense

10,643

13,092

(2,449)

(18.7)


Depreciation and amortization

44,598

38,494

6,104

15.9


Foreign exchange loss

3,777

5,486

(1,709)

(31.2)


Loss (gain) on disposal of property and equipment

187

(370)

557

(150.5)


Other

(687)

(313)

(374)

119.5


77,056

66,683

10,373

15.6

Adjusted EBITDA(2)

119,592

108,747

10,845

10.0

(1)

These items are excluded because they affect the comparability of our financial results, period-over-period, and could potentially distort the analysis of trends in business performance.

(2)

This is a non-GAAP measurement.  Refer to Section 17 – Non-GAAP Financial Measures.

 

Forward-Looking Information

This news release should be read in conjunction with Chorus' unaudited interim condensed and consolidated financial statements for the three months ended June 30, 2017 and MD&A dated August 9, 2017 filed with Canadian Securities Administrators (available at www.sedar.com).

This news release contains 'forward-looking information' as defined under applicable Canadian securities legislation. Forward-looking information is identified by the use of terms and phrases such as "anticipate", "believe", "could", "estimate", "expect", "intend", "may", "plan", "predict", "project", "will", "would", and similar terms and phrases, including references to assumptions. Such information may involve but is not limited to comments with respect to strategies, expectations, planned operations or future actions. Examples of forward-looking information can be found in this news release under the heading "2017 Outlook", and the discussion throughout this news release of Chorus' expectations for CAC's market potential as well as pending aircraft leasing transactions which have been announced but not yet completed.

Forward-looking information relates to analyses and other information that are based on forecasts of future results, estimates of amounts not yet determinable and other uncertain events. Forward-looking information, by its nature, is based on assumptions, including those described below, and is subject to important risks and uncertainties. Any forecasts or forward-looking predictions or statements cannot be relied upon due to, amongst other things, external events, changing market conditions and general uncertainties of the business. Such statements involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements to differ materially from those expressed in the forward-looking information. Results indicated in forward-looking information may differ materially from actual results for a number of reasons, including, without limitation: risks relating to Chorus' economic dependence on and relationship with Air Canada; risks relating to the airline industry (including the international operation of aircraft in developing countries and areas of unrest); aircraft leasing (including the financial condition of lessees, availability of aircraft, access to capital, fluctuations in aircraft market values, competition and political risks); the failure of Chorus or any other party to satisfy conditions precedent to the closing of anticipated transactions referred to in the MD&A; energy prices, general industry, market, credit, and economic conditions (including a severe and prolonged economic downturn which could result in reduced payments under the CPA); increased competition affecting Chorus and/or Air Canada; insurance issues and costs; supply issues and costs; the risk of war, terrorist attacks, aircraft incidents and accidents; fraud, cybersecurity attacks or other criminal behaviour by internal or external parties; epidemic diseases, environmental factors or acts of God; changes in demand due to the seasonal nature of Chorus' business or general economic conditions; the ability to reduce operating costs and employee counts; the ability of Chorus to secure financing; the ability of Chorus to attract and retain the talent required for its existing operations and future growth; the ability of Chorus to remain in good standing under and to renew and/or replace the CPA and other important contracts; employee relations, labour negotiations or disputes; pension issues and costs; currency exchange and interest rates; leverage; restrictive covenants and cross defaults contained in debt facilities; uncertainty of dividend payments; managing growth; changes in laws; adverse regulatory developments or proceedings in countries in which Chorus and its subsidiaries operate or will operate; pending and future litigation and actions by third parties. For a further discussion of risks, please refer to 2016 Annual Information Form dated February 15, 2017. The statements containing forward-looking information in this discussion represent Chorus' expectations as of August 10, 2017, and are subject to change after such date. However, Chorus disclaims any intention or obligation to update or revise any forward-looking information whether as a result of new information, future events or otherwise, except as required under applicable securities laws.

About Chorus
Headquartered in Halifax, Nova Scotia, Chorus was incorporated on September 27, 2010. Chorus' vision is to deliver regional aviation to the world.  Chorus owns Jazz Aviation and Voyageur Aviation –  companies that have long histories of safe and solid operations that deliver excellent customer service in the areas of contract flying operations, engineering, fleet management, and maintenance, repair and overhaul.  Chorus has been leasing its owned regional aircraft into Jazz's Air Canada Express operation since 2009, and recently established Chorus Aviation Capital Corp. to become a leading, global provider of regional aircraft leases and support services. Chorus Class A Variable Voting Shares and Class B Voting Shares trade on the Toronto Stock Exchange under the trading symbol 'CHR'. www.chorusaviation.ca

 

SOURCE Chorus Aviation Inc.

For further information: Chorus Media Contacts: Manon Stuart, Halifax, Nova Scotia, (902) 873-5054, mstuart@chorusaviation.ca; Debra Williams, Toronto, Ontario, (905) 671-7769, dwilliams@chorusaviation.ca; Analyst Contact: Nathalie Megann, Halifax, Nova Scotia, (902) 873-5094, nmegann@chorusaviation.ca


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