Chorus Aviation announces fourth quarter and year-end earnings

Delivering regional aviation to the world  

Selected Q4 2018 information:

• Net income of $2.0 million, or $0.01 per basic share, inclusive of an unrealized foreign exchange loss of $32.9 million.
• Adjusted net income¹ of $35.1 million, or $0.25 per basic share, in increase of $11.5 million.
• Adjusted EBITDA¹ of $92.6 million, an increase of $9.7 million or 11.7% primarily due to increased earnings from the regional aircraft leasing segment.
• Signed agreements to place seven aircraft with three lessees.
• Completed the eighth Extended Service Program ('ESP') on a Dash 8-300 aircraft.

Selected annual 2018 information:

• Net income of $67.0 million, or $0.49 per basic share, inclusive of an unrealized foreign exchange loss of $49.5 million.
• Adjusted net income¹ of $121.8 million, or $0.89 per basic share, an increase of $6.4 million.
• Adjusted EBITDA¹ of $342.7 million, an increase of $55.8 million or 19.4% primarily due to increased earnings from the regional aircraft leasing segment.
• Diversified and grew leased fleet to 40 regional aircraft valued at approximately $1.1 billion¹, inclusive of nine transactions pending completion. All pending transactions are subject to customary conditions precedent to closing.

2019 Year-to-Date Accomplishments:

• Amended and extended the capacity purchase agreement ('CPA') with Air Canada, securing Jazz's position in Air Canada's regional network for the next 17 years.
• Completed a $97.26 million equity investment by Air Canada to fund new, larger gauge aircraft at Jazz and further growth in regional aircraft leasing.
• Entered into a firm purchase agreement with Bombardier for nine CRJ900s as part of Jazz's fleet modernization plan.
• Achieved an unprecedented 17-year collective agreement with Jazz pilots and enhanced the pilot mobility program to access pilot careers at Air Canada.
• Secured US $300 million credit facility to support growth of regional aircraft leasing business.
• Reached an agreement to acquire a portfolio of six aircraft with leases attached: two ATR72-600s on lease to Azul of Brazil, and four Q400s on lease with two other existing customers.
• Jazz named one of Canada's Top Employers for Young People for the seventh year and one of Atlantic Canada's Top Employers for the eighth consecutive year.

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¹ Includes aircraft for which an agreement to lease has been signed but the aircraft have yet to be delivered.

HALIFAX, Feb. 22, 2019 /CNW/ - Chorus Aviation Inc. ('Chorus') (TSX: CHR) today announced fourth quarter and year-end financial results for fiscal year ended December 31, 2018.  

"I'm very pleased with our start to 2019 as we build upon the positive momentum of 2018. Our growth and diversification strategy took further hold in 2018 generating $342.7 million in adjusted EBITDA and adjusted net earnings per basic share of $0.25, increases over 2017 of 11.7%. and 19.4% respectively.

Our group of companies performed well and reached important milestones that strengthened our company. These successes helped advance our vision to transform into a worldwide provider of regional aviation services. To date, we've grown our fleet to 40 aircraft, inclusive of nine transactions pending completion, valued at approximately $1.1 billion. The pipeline of opportunities for additional transactions is strong. With the establishment of our new US $300 million credit facility and the capital we have on hand, we're maturing and building scale as a worldwide lessor.

Our strategic partnership with Air Canada and the value we've created through the amended and extended CPA will benefit our shareholders, employees and other stakeholders for the long term. We are well positioned to take advantage of new opportunities for growth and to effectively compete in an ever-changing industry. I extend my sincere thanks and gratitude to the Chorus team for these significant accomplishments," said Joe Randell, President and Chief Executive Officer, Chorus. 

FOURTH QUARTER 2018 SUMMARY

Financial Performance ? fourth quarter 2018 compared to fourth quarter 2017

In the fourth quarter of 2018, Chorus reported adjusted EBITDA of $92.6 million versus $82.9 million in 2017, an increase of $9.7 million or 11.7% due primarily to:

• a $10.4 million increase due to growth in the regional aircraft leasing segment; offset by:
• a net decrease in the regional aviation services segment of $0.7 million resulting from declines in incentive and other revenue and an increase in certain operating costs; offset by increased aircraft leasing under the CPA of $2.4 million.

Adjusted net income was $35.1 million for the period, an increase from 2017 of $11.5 million, or 48.6% due to:

• the $9.7 million increase in adjusted EBITDA previously described;
• lower foreign exchange losses on working capital which amounted to $4.7 million; and
• a decrease of $0.4 million in depreciation; offset by:
• an increase in interest costs of $1.2 million related to additional aircraft debt; and
• an increase in income tax expense of $2.1 million.

Net income was $2.0 million for the period, a decrease of $18.0 million or 89.9% from the same period of 2017. The decrease was primarily due to a quarter-over-quarter change in unrealized foreign exchange losses on long-term debt of $30.5 million; offset by the previously noted $11.5 million increase in the adjusted net income and decreased employee separation program costs of $1.0 million.

YEAR-END 2018 SUMMARY

Financial Performance ? Year end 2018 compared to year end 2017

For the year ended December 31, 2018, Chorus reported adjusted EBITDA of $342.7 million versus $286.9 million in 2017, an increase of $55.8 million or 19.4% due to:

• a $47.3 million increase in the regional aircraft leasing segment; and
• increased earnings in the regional aviation services segment of $8.5 million due primarily to increased aircraft leasing income under the CPA.

Adjusted net income was $121.8 million for the year, an increase from 2017 of $6.4 million, or 5.5% due to:

• the $55.8 million increase in adjusted EBITDA previously described;
• lower foreign exchange losses on working capital which amounted to $1.6 million; offset by:
• increased income taxes of $20.5 million. In 2017 adjusted net income was impacted by changes in tax rates which were recorded in the third quarter of 2017. This change had the impact of lowering income taxes, and therefore increased adjusted net income for the twelve months ended December 31, 2017;
• an additional $17.4 million in depreciation primarily related to new aircraft;
• an increase in interest costs of $12.8 million related to additional aircraft debt and convertible units; and
• an increase in other expenses of $0.3 million.

Net income was $67.0 million for the year, a decrease of $100.3 million from the same period of 2017. The decrease was primarily due to a year-over-year change in unrealized foreign exchange losses on long-term debt of $110.4 million and foreign exchange gain on cash held for deposit of $1.6 million; offset by decreased employee separation program costs of $5.3 million and the previously noted $6.4 million increase in the adjusted net income.

2019 OUTLOOK

(See cautionary statement regarding forward-looking information below)

On February 4, 2019, the amendments to the CPA first announced on January 14, 2019 (the '2019 CPA Amendments') became effective on a retroactive basis to January 1, 2019.

The 2019 CPA Amendments result in a near-term reduction in fixed fees starting in 2019, as Chorus accelerates its transition to market-based rates. The reduction was implemented by eliminating the Infrastructure Fee per Covered Aircraft and the Fixed Margin per Covered Aircraft (each as defined in the CPA) and replacing them with a single 'Fixed Margin'. As a result, Fixed Fee revenue in each of 2019 and 2020 is anticipated to be $75.5 million per year as compared to $111.3 million in 2018. In addition, the maximum future available performance incentives reduce from $23.4 million in 2019 and 2020, to an annual average maximum available amount of $3.4 million for the full term of the CPA. The near-term reductions are more than offset over the term of the CPA by incremental contracted revenue secured with the extension of the agreement including fixed fees and aircraft leasing.

In 2017, Chorus launched Chorus Aviation Capital, with the support of a $200.0 million investment in the Corporation from Fairfax. In 2018, Chorus raised further gross proceeds of $112.0 million, primarily for investment in its leasing business, through a public offering of Shares^*. On February 4, 2019, the Air Canada investment was completed, providing further gross proceeds of $97.26 million, approximately 40% of which is to be invested in the leasing business carried on by Chorus Aviation Capital.

Since the start of 2017 Chorus has raised net proceeds of CAD $401.0 million in capital from both the issuance of convertible debt units and share capital, which if levered at 3:1, provides approximately $1.6 billion of investment capital. As at February 21, 2019, approximately three quarters of this capital has been committed including deposits on future commitments. Chorus anticipates committing the remaining balance by early 2020 in new to mid-life aircraft with long-term leases to a diverse group of high-quality customers around the world.

Capital expenditures for 2019, excluding those for the acquisition of aircraft and the ESP, and including capitalized major maintenance overhauls, are expected to be between $36.0 million and $42.0 million. Aircraft related acquisitions and the extended service program capital expenditures in 2019 are expected to be between $299.0 million and $302.0 million.

Investor Conference Call / Audio Webcast

Chorus will hold an analyst call at 09:30 a.m. ET on Friday, February 22, 2019 to discuss the fourth quarter and year-end financial results. The call may be accessed by dialing 1-888-231-8191. The call will be simultaneously audio webcast via:
https://event.on24.com/wcc/r/1923003/1C1675BF55CDC811D8CD46BF1E407F1B

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, February 28, 2019 by dialing toll-free 1-855-859-2056, and passcode 1093749#.

¹NON-GAAP FINANCIAL MEASURES

This news release references several non-GAAP financial 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 the Management's Discussion and Analysis ('MD&A') dated February 21, 2019.

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, foreign exchange gains or losses on cash held on deposit for investment in the regional aircraft 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.

EBT is defined as earnings before income tax. Adjusted EBT (EBT before signing bonuses, employee separation program costs, strategic advisory fees and other items such as foreign exchange gains and losses) is non-GAAP financial measure used by Chorus as a supplemental financial measure of operational performance. Management believes Adjusted EBT assists investors in comparing Chorus' performance by excluding items, which it does not believe will occur over the longer-term (such as signing bonuses, employee separation program costs and strategic advisory fees) as well, which items that are non-cash in nature such as foreign exchange gains and losses.

EBITDA is defined as earnings before net interest expense, income taxes, and depreciation and amortization and is a non-GAAP financial measure that is used frequently by companies in the aviation industry as a measure of performance. Adjusted EBITDA (EBITDA before signing bonuses, employee separation program costs, strategic advisory fees and other items such as foreign exchange gains or losses) is a non-GAAP financial measure used by Chorus as a supplemental financial measure of operational performance. Management believes Adjusted EBITDA assists investors in comparing Chorus' performance by excluding items, which it does not believe will occur over the longer-term (such as signing bonuses, employee separation program costs and strategic advisory fees) as well, which items that are non-cash in nature such as foreign exchange gains and losses.

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.

Forward-Looking Information

This news release should be read in conjunction with Chorus' audited consolidated financial statements for the years ended December 31, 2018 and December 31, 2017, and MD&A dated February 21, 2019, which are available on SEDAR at www.sedar.com and www.chorusaviation.ca.

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. 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, among 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.  Actual results may differ materially from anticipated results indicated in forward-looking information for a number of reasons, including without limitation, the development of circumstances which differ from the assumptions under the heading "Outlook" or the failure to close pending aircraft acquisitions or lease commitments relating to future aircraft deliveries. Other risks that could cause actual results to differ materially from those indicated in forward-looking information include:  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); risks relating to 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 transactions that are announced prior to their completion; 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 or refinance existing indebtedness or assets; 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; debt leverage and restrictive covenants contained in debt facilities; future changes (if any) to Chorus' dividend policy; 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; the risks referred to in Section 10 - Risk Factors of the MD&A as well as the factors identified throughout the MD&A and in Chorus' Annual Information Form dated February 21, 2019. The statements containing forward-looking information in this news release represent Chorus' expectations as of the date of this news release 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 has been leasing its owned regional aircraft into Jazz's Air Canada Express operation since 2011 and has established Chorus Aviation Capital Corp. to become a leading, global provider of regional aircraft leases. Chorus also 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. Together, the Chorus group of companies can provide a full suite of regional aviation support services. Chorus Class A Variable Voting and Class B Voting Shares trade on the Toronto Stock Exchange under the trading symbol 'CHR'. www.chorusaviation.ca

SOURCE Chorus Aviation Inc.