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Chorus Aviation announces strong fourth quarter and year-end 2016 earnings

T.CHR | February 16, 2017

Canada NewsWire

HALIFAX, Feb. 16, 2017

Delivering regional aviation to the world

Selected Q4 2016 information:

Adjusted EBITDA¹, excluding other items of $69.3 million, up 5.6%.
Adjusted net income¹, excluding other items of $31.2 million, down 7.5%.
Adjusted net income¹, excluding other items per basic share of $0.26 down 7.1%.
Net income of $12.7 million, up 1.2%.
Net income per basic share of $0.10, consistent with Q4 2015.

Selected annual information:

Adjusted EBITDA¹, excluding other items of $248.1 million, up 8.7%.
Adjusted net income¹, excluding other items of $102.0 million, down 11.6%.
Adjusted net income¹, excluding other items per basic share of $0.83, down 12.6%
Net income of $111.8 million, up 338.4%.
Net income per basic share of $0.91, up 333.3%.

HALIFAX, Feb. 16, 2017 /CNW/ - Chorus Aviation Inc. ('Chorus') (TSX: CHR) today announced strong financial results for the fourth quarter and fiscal year ended December 31, 2016.

"Our achievements in 2016 significantly advanced Chorus' vision of delivering a diversified suite of regional aviation solutions to the world," said Joe Randell, President and Chief Executive Officer, Chorus. "Our overall fiscal results were in line with our expectations. The Capacity Purchase Agreement ('CPA') with Air Canada continues to successfully deliver strong and stable financial results, as we modernize our fleet and improve our cost competitiveness."

"We achieved a 44.0% increase year-over-year in our aircraft leasing revenue under the CPA, to $99.0 million. The creation of Jazz Technical Services and its improving efficiency and success in growing third-party business, provides a platform for future growth. Voyageur's new structure, with renewed focus on its core businesses, including the establishment of Voyageur Avparts, generated positive returns in support of our corporate objectives."

"We finished 2016 with a significant milestone, the establishment of Chorus Aviation Capital Corp. ('CAC') as a regional aircraft leasing company. CAC has the potential to become one of the leading players in this growing industry sector on a global level. The private placement of convertible debt units with Fairfax Financial will provide us with cost effective and flexible capital, that will enable us to accelerate the execution of our regional aircraft leasing plan," continued Mr. Randell.

"For fiscal year 2016, we achieved increases in operating income and adjusted EBITDA, excluding other items of 1.3% and 8.7%, respectively. I'm very proud of our team's accomplishments. The momentum achieved in 2016 positions us well for ongoing, long-term profitability and success," Mr. Randell concluded.

2016 STRATEGIC ACCOMPLISHMENTS

In 2016, Chorus strengthened its core businesses and executed on its diversification and growth objective by:

Announcing the establishment of Chorus Aviation Capital Corp., with a view to building a global regional aircraft leasing business.
Securing $200.0 million in capital through a private placement of convertible debt units with Fairfax Financial; closing expected by March 31, 2017.
Executing on its first significant non-CPA aircraft leasing agreement with Air Nostrum for four new CRJ1000s with two already delivered in 2016.
Growing aircraft leasing revenue under the CPA to $99.0 million or by 44.0%; bringing the total Q400s under lease to 34 aircraft by year end.
Strengthening Voyageur through a new corporate structure and re-branding, including the establishment of Voyageur Avparts and Voyageur Aerotech.
Redeploying former CPA Dash 8-100s via third-party leases and new Voyageur contract flying activity.
Building inventory for the Voyageur Avparts business with three Dash 8-100s for disassembly / part out thereby maximizing the end of life value of the fleet.
Doubling the hangar floor capacity at the Voyageur facility in North Bay to enable growth in the specialty MRO market.
Establishing Jazz Technical Services and securing two third-party maintenance contracts.
Executing on the fleet modernization strategy by adding 12 larger, more efficient Q400s, and retiring 16 older smaller gauge Dash 8-100s and CRJ200s.
Improving market competitiveness under the CPA through fleet modernization, flowing more than 300 pilots (since January 2015) to Air Canada through the pilot mobility program, and achieving a new, long-term collective agreement with maintenance and engineering employees until 2025.
Investing $6.0 million in employee separation programs to change workforce demographic and reduce ongoing costs.

FOURTH QUARTER 2016

In the fourth quarter of 2016, Chorus reported revenue and Adjusted EBITDA, excluding other items, of $315.1 million, and $69.3 million, respectively, versus 2015 comparative figures of $357.4 million and $65.7 million, respectively. This represents an 11.8% decline in revenue and a 5.6% increase in Adjusted EBITDA, excluding other items.

Approximately $29.0 million of the reduction in revenue was due to the fact that, under the CPA, Jazz ceased purchasing and billing Air Canada for fuel and certain other costs. Operating expenses were also lower by the same amount.
An additional $20.8 million reduction in revenue was largely due to lower Controllable Revenue which was generally driven by lower CPA Billable Block Hours and cost efficiencies.

Excluding the revenue reductions related to the two items above, operating revenue increased by $7.6 million, due mainly to an increase in aircraft leasing under the CPA of $7.2 million, and higher charter and other contract flying revenue of $1.6 million, partially offset by lower other revenue of $1.3 million.

Adjusted EBITDA, excluding other items, of $69.3 million, increased by $3.7 million, or 5.6%, compared to the same period of 2015, at $65.7 million. The increase was primarily driven by the $7.6 million increase in revenue, explained above, partially offset by:

increased operating costs related to a $2.0 million reduction in capitalized labour and maintenance costs on owned aircraft for major maintenance overhauls;
increased stock-based compensation of $1.8 million, resulting from fluctuations in Chorus' stock price; and
an increase in other expenses of $0.1 million.

Adjusted net income, excluding other items, of $31.2 million, declined quarter over quarter by $2.5 million, or 7.5%. The $3.7 million increase in Adjusted EBITDA, excluding other items, explained above, was primarily offset by:

$3.9 million in additional depreciation expense primarily related to new aircraft; and
$1.7 million of additional net interest expense on long-term debt.

Net income of $12.7 million was consistent with 2015.

For reporting purposes, at each quarter end, 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 fourth quarter of 2016, Chorus had an unrealized foreign exchange loss of $12.5 million versus an unrealized foreign exchange loss of $19.6 million in the same period of 2015.

2016 ANNUAL RESULTS

For the year ended December 31, 2016, Chorus reported revenue and Adjusted EBITDA, excluding other items, of $1,276.9 million and $248.1 million, respectively, versus 2015 comparative figures of $1,544.7 million and $228.3 million, respectively. This represents a 17.3% decline in revenue and an 8.7% increase in adjusted EBITDA, excluding other items.

Approximately $251.8 million of the reduction in revenue was due to the fact that, under the CPA, Jazz ceased purchasing and billing Air Canada for fuel and certain other costs. Operating expenses were also lower by the same amount.
An additional $56.5 million reduction in revenue was largely due to lower Controllable Revenue which was generally driven by lower CPA Billable Block Hours and cost efficiencies.

Excluding the revenue reductions related to the two items above, operating revenue increased by $40.4 million due primarily to increases in aircraft leasing under the CPA of $30.3 million, and increased charter, contract flying and other revenue of $9.5 million. Chorus acquired Voyageur on May 1, 2015, and therefore, the 2016 results include an additional four months of activity for the Voyageur operation.

Adjusted EBITDA, excluding other items, was $248.1 million and increased $19.8 million or 8.7%, compared to the same period of 2015 at $228.3 million. The increase was primarily driven by the $40.4 million increase in revenue, explained above, partially offset by:

increased operating costs related to a $6.7 million reduction in capitalized labour and maintenance costs on owned aircraft for major maintenance overhauls;
the absence of the $2.8 million curtailment gain under the pilot pension plan recorded in 2015 as a result of the flow of Jazz pilots to Air Canada;
increased expenses related to business development and financing activities outside the CPA of $6.0 million;
costs associated with fleet transition of $1.7 million; and
an increase in other expenses of $3.4 million, including those related to the Voyageur operation.

Adjusted net income, excluding other items of $102.0 million declined year over year by $13.4 million, or 11.6%. The $19.8 million increase in Adjusted EBITDA, excluding other items, explained above, was offset by:

$21.6 million in additional depreciation expense primarily related to new aircraft and Voyageur;
$7.1 million of additional net interest expense on long-term debt;
lower net income tax of $2.9 million; and
higher net foreign exchange loss of $7.2 million, which excludes unrealized foreign exchange.

Net income was $111.8 million, an increase of $86.2 million over 2015. The increase was due primarily to a $95.9 million decline in unrealized foreign exchange loss on long-term debt, and an $8.0 million decline in collective agreement signing bonuses, partially offset by the previously noted $13.5 million decline in adjusted net income, excluding other items, and a decline in interest revenue and other of $3.2 million.

2017 OUTLOOK

Chorus' subsidiaries continue to deliver results within management's expectations, supporting positive operating income and cash flows from operations. This reporting period marks two years of strong operational and financial performance under the CPA with Air Canada, and demonstrates the continued long-term value of this strong, stable revenue source.

The actions taken in 2016 position Chorus for a future of stable, long-term growth and profitability. The progress made in advancing the diversification strategy through growth in aircraft leasing is expected to continue with the addition of five new CRJ900s under the CPA, and with the establishment of CAC. Further, Chorus expects to acquire and lease two new CRJ1000s to Air Nostrum by the end of October 2017, bringing the total number of CRJ1000 aircraft leased under this arrangement to four.

Chorus intends to grow its regional aircraft leasing business through CAC by leveraging the $200 million private placement of convertible debt units announced on December 19, 2016 to acquire aircraft for lease to regional aircraft operators. CAC intends to deploy the capital in a manner consistent with prevailing market returns on leases for new and mid-life aircraft.

Chorus believes CAC has the opportunity to become one of the world's largest regional aircraft lessors offering a full suite of services to operators around the globe.

Chorus is determined to create additional long-term shareholder value by strengthening the foundational business with Jazz, growing and diversifying aircraft leasing revenues, and pursuing growth opportunities in the Voyageur operation.

Based on scheduling information from Air Canada, Billable Block Hours for 2017 are expected to be between 360,000 and 374,000 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 a number of factors, see Section 9 - Risk Factors in the fourth quarter and year-ended December 31, 2016 MD&A. 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 million and $55 million.

Investor Conference Call / Audio Webcast

Chorus will hold an analyst call at 9:30 a.m. ET on Thursday, February 16, 2017 to discuss the fourth quarter and year-end 2016 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=1347957&s=1&k=23FBD5ABBF50E6DF1451A9A9DA526CAA
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 24, 2017 by dialing toll-free 1-855-859-2056, and passcode 52407812#.

¹NON-GAAP MEASURES

This news release makes reference to 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 February 15, 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 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 Chorus' financial statements. The signing bonuses, strategic advisory fees, CPA advisory fees and employee separation costs have been included within our definition of Adjusted EBITDA. Adjusted EBITDA, excluding other items, excludes signing bonuses, strategic advisory fees, CPA advisory fees and employee separation program costs.

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 signing bonuses, strategic advisory fees, CPA advisory fees, and employee separation program costs have been included within our definition of adjusted net income. Adjusted net income, excluding other items, excludes signing bonuses, strategic advisory fees, CPA advisory fees and employee separation program costs.

Forward-Looking Information

This news release should be read in conjunction with Chorus' audited consolidated financial statements for the years ended December 31, 2016 and December 31, 2015 and MD&A dated February 15, 2017 filed with Canadian Securities Administrators (available at www.sedar.com).

This news release may contain '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, 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 the conditions precedent to closing future aircraft deliveries to Air Nostrum and/or the private placement of convertible debt units; 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 and restrictive covenants 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 Section 9 – Risk Factors in the fourth quarter and year-end December 31, 2016 MD&A. The statements containing forward-looking information in this discussion represent Chorus' expectations as of February 16, 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.