Chorus Aviation announces strong third quarter earnings
Nov 13, 2015
Record EBITDA and operating income since 2010
HALIFAX, Nov. 13, 2015 /CNW/ - Chorus Aviation Inc. ('Chorus') (TSX: CHR.B CHR.A) today announced strong third quarter 2015 earnings that included the achievement of its highest third quarter EBITDA1 and operating income since 2010, excluding the Voyageur operation.
Q3 2015 HIGHLIGHTS
- Adjusted EBITDA1 of $65.1 million.
- Adjusted net income1 of $31.4 million.
- Adjusted net income1 per basic share of $0.26.
- Net income of $6.3 million.
- Net income per basic share of $0.05.
- Announced senior executive appointments in support of growth plans.
- Reached new long-term collective agreement with Jazz Flight Attendants.
- Announced the addition of 10 incremental aircraft to the Jazz Capacity Purchase Agreement ('CPA') fleet.
"We continue to strengthen the Chorus group of companies, and achieved our highest third quarter EBITDA and operating income since 2010, excluding Voyageur's contribution," said Joe Randell, President and Chief Executive Officer, Chorus. "Our recent executive appointments provide Chorus with the talent, expertise and focus to further grow and prosper. The addition of ten incremental aircraft to the planned Jazz CPA fleet less than nine months after establishing an amended and extended commercial agreement with Air Canada demonstrates confidence in Jazz's operational performance and ever-improving cost competitiveness, and further validates the strengthened relationship with Air Canada. The Voyageur operation continues to deliver solid performance and contributed $4.8 million in adjusted EBITDA in the quarter. Further, I commend the Jazz flight attendants for sharing our vision of being a more formidable competitor in the regional sector by achieving a long-term, market competitive agreement."
"I am pleased with the strong performance the Chorus team delivered in the third quarter that resulted in adjusted net earnings per basic share of $0.26," continued Mr. Randell. "Cash flow remains strong and our cost reduction initiatives are taking hold as evidenced by increased operating income and adjusted EBITDA of approximately 25.0% and 16.0% respectively over the third quarter of 2014."
In the third quarter of 2015, Chorus generated adjusted EBITDA of $65.1 million excluding a foreign exchange loss of $27.5 million on US denominated debt. The strong performance represented by an $8.9 million increase in adjusted EBITDA over the third quarter of 2014 takes into account a $9.7 million increase in operating income; offset by a quarter-over-quarter net $0.8 million decrease in depreciation and amortization expense. This decrease in depreciation and amortization was mainly attributable to a change in the estimated economic useful lives and residual values of certain owned aircraft and flight equipment in the first quarter of 2015 of $4.1 million, and major maintenance overhauls of $0.3 million; offset by the purchase of additional aircraft during 2015 for $0.2 million and a $3.4 million increase in depreciation and amortization expense attributed to Voyageur which contributed $4.8 million in adjusted EBITDA in the quarter.
For reporting purposes, at each quarter, Chorus converts its US dollar denominated aircraft debt into equivalent Canadian dollars based on the prevailing exchange rate. Chorus manages its exposure to currency risk on such long-term debt by billing related lease payments under the CPA with Air Canada in the underlying currency (US dollars) related to the aircraft debt. As a result of this conversion, in the third quarter of 2015, Chorus had an unrealized foreign exchange loss of $25.1 million versus an unrealized foreign exchange loss of $17.8 million in the same period of 2014.
Financial Performance – Third Quarter 2015 Compared to Third Quarter 2014
Operating revenue decreased from $432.6 million to $412.2 million, representing a decrease of $20.4 million, or 4.7%.
Controllable revenue decreased by $18.3 million or 8.2%. Under the amended CPA, certain items provided to Chorus by Air Canada, such as ground handling at the major hubs, have been removed from controllable revenue. Other items, such as third party ground handling, have been re-classified as pass-through costs; and therefore pass-through revenue, and removed from controllable revenue. The controllable revenue reduction related to these changes was $26.3 million, and rate decreases pursuant to the CPA accounted for a decrease of approximately $7.1 million. These decreases were offset by increased CPA billable block hours of 1,433 hours which accounted for a $1.0 million rise in controllable revenue and a favourable US dollar exchange rate that resulted in a $14.1 million increase in the quarter.
Aircraft leasing revenue under the CPA increased by $2.9 million to $16.9 million. The increase was related to a favourable US dollar exchange rate. Aircraft leasing revenue under the CPA is generated from the 21 Q400 aircraft and four Q400 engines owned by Chorus.
Under the amended CPA, Chorus' compensation is based on fixed fees for the term of the agreement. The annual fixed fee compensation for 2015 is contractually set at $109.7 million or $27.4 million quarterly.
In the third quarter, Chorus earned $4.8 million in performance incentives, or 81.8% of the maximum incentive payment available under the CPA, compared to $5.2 million or 82.9% in the third quarter of 2014.
CPA pass-through revenue decreased by $17.9 million or 11.7% from $152.2 million to $134.4 million, which included a decrease of $30.2 million primarily related to decreased fuel costs. Under the amended CPA, compensation for deicing and certain other costs provided to Chorus by Air Canada are no longer billed. Other costs, such as third party ground handling services, have been reclassified as pass-through costs and therefore increased pass-through revenue in the quarter by $10.8 million. A favourable US dollar exchange rate resulted in a $2.7 million increase.
Charter and other contract flying revenue increased by $11.3 million or 456.4%. New flight revenue from the Voyageur operation accounted for $12.0 million; offset by decreased Jazz charter revenue of $0.7 million.
Other revenue increased by $6.3 million primarily related to new revenue from the Voyageur operation, which includes leasing, and maintenance repair and overhaul; offset by decreased sale of consignment inventory.
Operating expenses decreased from $393.2 million to $363.0 million, a decrease of $30.1 million.
Salaries, wages and benefits were consistent with third quarter 2014 at $103.7 million. Adjusted salaries, wages and benefits increased $3.6 million primarily as a result of $4.7 million of such costs attributable to the Voyageur operation, and $1.7 million mainly related to wage and scale increases; offset by a pension curtailment gain of $2.8 million. Chorus incurred a one-time $3.5 million signing bonus with Jazz's flight attendants per their new collective agreement. Stock-based compensation decreased primarily as a result of fluctuations in Chorus' share price. Employee separation program costs incurred during the third quarter were $0.3 million compared to $3.3 million in the same period of 2014. More labour costs were capitalized on owned aircraft for major maintenance overhauls decreased salaries and wages by $1.0 million quarter-over-quarter.
Aircraft maintenance expense increased by $10.0 million from $42.8 million to $52.8 million. An unfavourable US dollar exchange rate on certain maintenance material purchases accounted for a $7.5 million increase, increased block hours accounted $0.5 million, and the Voyageur operation accounted for $3.5 million. These increases were offset by more maintenance costs being capitalized as a result of increased major maintenance overhauls that accounted for a $1.5 million decrease.
Other expenses decreased by $1.9 million from $31.8 million to $29.9 million. Costs for certain services to Chorus provided by Air Canada are no longer billed. These Air Canada costs were $nil in the third quarter compared to $2.7 million in the same period last year. The decrease was offset by increased costs related to the Voyageur operation of $3.7 million, and general overhead increases of $0.9 million.
Non-operating expenses increased by $12.3 million from $19.0 million to $31.3 million. Net interest expense increased by $0.7 million. Interest expense related to long-term debt increased by $0.3 million as a result of an unfavourable US dollar exchange rate and $0.3 million related to interest on consideration payable. The weakening of the Canadian dollar in the quarter contributed to a foreign exchange loss of $27.5 million, compared to a foreign exchange loss of $16.0 million in the previous year.
Operating income of $49.1 million increased by $9.7 million from $39.4 million.
Adjusted EBITDA was $65.1 million compared to $56.2 million in 2014, an increase of $8.9 million.
Adjusted net income for the third quarter 2015 was $31.4 million or $0.26 per basic share compared to $29.0 million or $0.24 per basic share for the same period 2014. Net income in the quarter was $6.3 million or $0.05 per basic share compared to 2014 net income of $11.3 million or $0.09 per basic share.
A reconciliation of these non-GAAP measures to their nearest GAAP measure is provided in Chorus' Management's Discussion and Analysis dated November 12, 2015.
Investor Conference Call / Audio Webcast
Chorus will hold an analyst call at 09:30 a.m. ET on Friday, November 13, 2015 to discuss the third quarter 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=1062009&s=1&k=E4BFCD4E1EF3AB9364EAA39B5EA27751 . 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 21, 2015 by dialing toll-free 1-855-859-2056, and passcode 53755762#.
1 Non-GAAP Financial Measures
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 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. 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 statement of cash flows, forming part of the financial statements. The one-time signing bonuses, CPA advisory fees and employee separation program costs have been included within our definition of adjusted EBITDA.
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. 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. The one-time signing bonuses, CPA advisory fees and employee separation program costs have been included within our definition of adjusted net income.
Forward Looking Statements
This news release should be read in conjunction with Chorus' unaudited interim condensed consolidated financial statements for the three months ended September 30, 2015 and MD&A dated November 12, 2015 filed with Canadian Securities Administrators (available at www.sedar.com).
Certain statements in this news release may contain statements which are forward-looking. These forward-looking statements are 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 statements may involve but are not limited to comments with respect to strategies, expectations, planned operations or future actions.
Forward-looking statements relate 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 statements, by their nature, are based on assumptions, including those described below, and are subject to important risks and uncertainties. Any forecasts or forward-looking predictions or statements cannot be relied upon due to, amongst other things, changing external events and general uncertainties of the business. Such statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements to differ materially from those expressed in the forward-looking statements. Results indicated in forward-looking statements may differ materially from actual results for a number of reasons, including without limitation, risks relating to Chorus' relationship with Air Canada, the airline industry and in particular the international operation of airlines in developing countries and areas of unrest, airline leasing, energy prices, general industry, market, credit, and economic conditions, (including a severe and prolonged economic downturn which could result in reduced payments under the amended CPA), competition, insurance issues and costs, supply issues, war, terrorist attacks, aircraft incidents, epidemic diseases, environmental factors, acts of God, changes in demand due to the seasonal nature of the business, the ability of Chorus to reduce operating costs and employee counts, the ability of Chorus to secure financing, the ability of Chorus to renew and or replace existing contracts, employee relations, labour negotiations or disputes, pension issues, currency exchange and interest rates, leverage and restructure covenants in future indebtedness, 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 discussion of certain risks, please refer to Section 21 – Risk Factors in the third quarter 2015 MD&A. The forward-looking statements contained in this discussion represent Chorus' expectations as of November 13, 2015, and are subject to change after such date. However, Chorus disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise, except as required under applicable securities regulations.
Chorus is traded on the Toronto Stock Exchange under the trading symbols of CHR.A and CHR.B.
Headquartered in Halifax, Nova Scotia, Chorus was incorporated on September 27, 2010 and is a dividend-paying holding company with various interests including Jazz Aviation Holdings Inc. and Chorus Aviation Holdings II Inc.
SOURCE Chorus Aviation Inc.
For further information: Chorus Media Contacts: Teri Udle, Halifax, Nova Scotia, (902) 873-5047, firstname.lastname@example.org; Debra Williams, Toronto, Ontario, (905) 671-7769, email@example.com; Analyst Contact: Nathalie Megann, Halifax, Nova Scotia, (902) 873-5094, firstname.lastname@example.org