Chorus Aviation announces solid third quarter 2017 earnings and grows regional aircraft leasing - Nov 8, 2017

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

Nov 8, 2017

Delivering regional aviation to the world  

  • Q3 adjusted EBITDA1 of $83.4 million.
  • Q3 adjusted net income1 of $48.6 million, or $0.39 per basic share.
  • Q3 net income of $79.1 million, or $0.64 per basic share, including an unrealized foreign exchange gain of $31.1 million.
  • Chorus' leased fleet diversifies and grows to 60 upon completion of announced leasing transactions for 19 regional aircraft to date by Chorus Aviation Capital.
  • Jazz Technical Services completed the second Extended Service Program on Dash 8-300 aircraft.

HALIFAX, Nov 8, 2017 /CNW/ - Chorus Aviation Inc. ('Chorus') (TSX: CHR) today announced solid financial results for the third quarter of 2017.  

"I'm pleased with our financial performance in the third quarter, delivering increases in all key financial metrics including growth in adjusted EBITDA and adjusted net earnings of 19.2% and 68.9% respectively over the same period in 2016," said Joe Randell, President and Chief Executive Officer, Chorus.  "In a short period of time, we have consummated significant transactions around the world, establishing a strong market position in the regional aircraft leasing sector.  Aside from the 41 regional aircraft under lease in the CPA we have announced an additional 19 aircraft.  Upon closing previously announced transactions, we will have 60 regional aircraft on lease, valued at over one billion dollars.  We are making progress towards our goal of becoming one of the largest global players focused on regional aircraft." 

"We are transitioning our business with contracted leases and margins on attractive regional aircraft," continued Mr. Randell.  "We are differentiated from our competitors as we can deliver customers a complete suite of regional aviation services including contracted flying, aircraft engineering, maintenance, repair and overhaul, parts provisioning and aircraft leasing solutions by leveraging the strengths in Jazz and Voyageur."

Q3 2017 Overview

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

Chorus Aviation Capital ('CAC') is executing on the regional aircraft leasing strategy through the acquisition of aircraft and leases with new, well-established customers located in seven countries across five continents, and a diversified fleet comprising five of the best regional jet and turbo-prop offerings from Bombardier, ATR and Embraer.

To date CAC has completed the acquisition of:

  • four CRJ1000s on lease to Air Nostrum;
  • six ATR 72-600 aircraft on lease to Flybe and Virgin Australia;
  • three Bombardier Q400s leased to Falcon Aviation Services;
  • two Embraer 190s on lease to KLM Cityhopper and to Aeromexico Connect; and
  • two Embraer 195s leased to Azul Brazilian Airlines.

CAC also expects to complete the acquisition of two additional E190s on lease to Aeromexico Connect in the fourth quarter. Upon completion of pending aircraft acquisitions, CAC will have grown Chorus' fleet of regional aircraft, outside of the Capacity Purchase Agreement ('CPA'), with Air Canada, to 19 aircraft with the average age of this fleet being under three years old.

During the quarter, Jazz Technical Services completed the Extended Service Program on one additional Dash 8-300 aircraft, bringing the total to two that are now being leased into the CPA operation.  In October, Voyageur delivered a fourth Dash 8-100 on lease to Wasaya Airways. 

Financial Performance - third quarter 2017 compared to third quarter 2016

In the third quarter of 2017, Chorus reported adjusted EBITDA of $83.4 million versus $70.0 million in 2016; an increase of $13.4 million or 19.2%. 

The $13.4 million increase in adjusted EBITDA was primarily driven by:

  • a $10.9 million increase related to incremental margin mainly attributed to non-CPA aircraft leasing;
  • increased aircraft leasing under the CPA with Air Canada of $3.5 million;
  • additional income from international ACMI flying in the Voyageur operation contributed $0.7 million; and
  • a reduction in other expense of $1.9 million, including $1.5 million related to a reduction in contingent consideration payable.

These increases were partially offset by:

  • a decline of $2.2 million in CPA performance incentive revenue; and
  • an increase of $1.4 million in stock-based compensation expense.

Adjusted net income was $48.6 million for the quarter, an increase from the third quarter of 2016 of $19.8 million, or 68.9%.  The change was a result of the $13.4 million increase in adjusted EBITDA previously described, plus a $15.2 million decrease in income taxes; partially offset by:

  • $5.9 million of additional depreciation primarily related to new aircraft;
  • $5.9 million of interest costs related to increased aircraft debt and the convertible units; and
  • $3.0 million of foreign exchange gains related to working capital.

Net income was $79.1 million for the quarter, an increase of $59.0 million from the third quarter of 2016. The increase was primarily due to the previously noted $19.8 million increase in adjusted net income plus an increase of $39.6 million in unrealized foreign exchange gains on long-term debt.

Year to date 2017 compared to year to date 2016

For the nine months ended September 30, 2017, Chorus reported adjusted EBITDA of $203.0 million versus $178.7 million in 2016; an increase of $24.3 million or 13.6%. 

The $24.3 million increase in adjusted EBITDA was primarily driven by:

  • a $20.1 million increase related to incremental margin attributed to non-CPA aircraft leasing and maintenance, repair and overhaul;
  • increased aircraft leasing under the CPA with Air Canada of $14.2 million; and additional income from international ACMI flying in the Voyageur operation of $2.0 million.

These increases were partially offset by:

  • a decline of $5.6 million in CPA performance incentive revenue;
  • an increase of $4.0 million, mostly attributable to increased crew costs including travel and training related to incremental flying activity; and
  • an increase of $2.4 million in stock-based compensation expense.

Adjusted net income was $91.1 million for the period, an increase from 2016 of $20.3 million, or 28.6%.  The change was a result of the $24.3 million increase in adjusted EBITDA previously described, plus a $17.6 million decrease in income taxes and a $4.7 million  foreign exchange gain related to working capital, partially offset by:

  • $14.2 million of interest costs related to increased aircraft debt and the convertible units.
  • $12.0 million of additional depreciation primarily related to new aircraft.

Net income was $146.6 million for the period, an increase of $47.5 million, or 47.9% from the same period of 2016. The increase was due primarily to the previously noted $20.3 million increase in adjusted net income plus:

  • an increase of $25.7 million in unrealized foreign exchange gains on long-term debt;
  • no signing bonuses in the first nine months of 2017, versus $5.5 million in signing bonuses in the same period of 2016; and
  • foreign exchange gains of $1.6 million on US dollar denominated cash held on deposit for investment in the aircraft leasing business.

This was offset by $9.4 million in employee separation program costs in the first nine months of 2017, versus $3.7 million in the same period of 2016.

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 by mid-2018 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.

Based on 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 third quarter 2017 MD&A).  However, the CPA fleet transition to larger aircraft will generate approximately 8% 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 $47.0 million and $56.0 million. We are projecting 2017 expenditures for aircraft related acquisitions and the extended service program to range between $490 and $510 million.  This includes the acquisition of two CRJ1000s, six ATR72-600s, four Embraer 190s, two Embraer 195s, three Q400s and the ESP, and excludes any additional capital for CAC beyond what has been announced.

Investor Conference Call / Audio Webcast

Chorus will hold an analyst call at 08:30 a.m. ET on Wednesday, November 8, 2017 to discuss the third 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=1523826&s=1&k=6158C8DC297967D303093FA8C8D134FA

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, November 16, 2017 by dialing toll-free 1-855-859-2056, and passcode 97262114#.

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 November 7, 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

 

Third Quarter Summary



(unaudited)
(expressed in thousands of Canadian dollars)

Three months ended September 30,

2017

$

2016

$

Change

$

Change

%







Operating revenue

344,632


331,097


13,535


4.1


Operating expenses

288,953


282,555


6,398


2.3


Operating income

55,679


48,542


7,137


14.7


Non-operating income (expenses)

20,208


(16,470)


36,678


(222.7)


Income before income taxes

75,887


32,072


43,815


136.6


Income tax recovery (expense)

3,178


(12,017)


15,195


(126.4)


Net income

79,065


20,055


59,010


294.2


Add (Deduct) items to get to Adjusted net income(1)






Unrealized foreign exchange(gain) loss

(31,088)


8,523


(39,611)


(464.8)



Employee separation program

583


170


413


242.9




(30,505)


8,693


(39,198)


(450.9)


Adjusted net income(2)

48,560


28,748


19,812


68.9


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






Net interest expense

11,632


5,696


5,936


104.2



Income tax (recovery) expense

(3,178)


12,017


(15,195)


(126.4)



Depreciation and amortization

27,149


21,253


5,896


27.7



Foreign exchange (gain) loss

(749)


2,259


(3,008)


(133.2)



Gain on disposal of property and equipment

(3)


(8)


5


(62.5)




34,851


41,217


(6,366)


(15.4)


Adjusted EBITDA(2)

83,411


69,965


13,446


19.2


 

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.

 

Year-to-Date Summary



(unaudited)
(expressed in thousands of Canadian dollars)

Nine months ended September 30,

2017

$

2016

$

Change

$

Change

%







Operating revenue

998,584


961,751


36,833


3.8


Operating expenses

876,693


852,013


24,680


2.9


Operating income

121,891


109,738


12,153


11.1


Non-operating income

32,177


14,481


17,696


122.2


Income before income taxes

154,068


124,219


29,849


24.0


Income tax expense

(7,465)


(25,109)


17,644


(70.3)


Net income

146,603


99,110


47,493


47.9


Add (Deduct) items to get to Adjusted net income(1)






 Unrealized foreign exchange gain

(63,226)


(37,525)


(25,701)


68.5



Foreign exchange gain on cash held for deposit

(1,646)



(1,646)


100.0



Employee separation program

9,365


3,727


5,638


151.3



 Signing bonuses


5,500


(5,500)


100.0




(55,507)


(28,298)


(27,209)


96.2


Adjusted net income(2)

91,096


70,812


20,284


28.6


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






Net interest expense

30,170


15,990


14,180


88.7



Income tax expense

7,465


25,109


(17,644)


(70.3)



Depreciation and amortization

71,747


59,747


12,000


20.1



Foreign exchange loss

3,028


7,745


(4,717)


(60.9)



Loss (gain) on disposal of property and equipment

184


(378)


562


(148.7)



Other

(687)


(313)


(374)


119.5




111,907


107,900


4,007


3.7


Adjusted EBITDA(2)

203,003


178,712


24,291


13.6


 

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. 

 

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 September 30, 2017 and MD&A dated November 7, 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.

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 November 8, 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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