Chorus Aviation Inc. Announces Third Quarter 2024 Financial Results

Highlights:

• Generated strong Free Cash Flow1,2 of $32.4 million for the period ended September 30, 2024 primarily derived from operating cash flows.
• Leverage Ratio1,2 improved to 3.0 at September 30, 2024 due primarily to long-term debt repayments of $93.6 million since December 31, 2023.
• Net income of $18.4 million.
• Net income from continuing operations2 of $19.8 million.
• Adjusted Earnings available to Common Shareholders1,2 of $11.9 million.
• Adjusted Earnings available to Common Shareholders of $0.06 per Common Share, basic.1,2
• Adjusted EBITDA1,2 of $53.9 million.
• Previously-announced sale of Chorus' Regional Aircraft Leasing (RAL) segment is expected to significantly improve all of Chorus' key adjusted metrics on a pro forma basis1,2,3 as follows:
  • Pro Forma Adjusted Earnings available to Common Shareholders per Common Share, basic, from continuing operations $0.08 and 0.25 for the three and nine months ended September 30, 2024, respectively;
  • Pro Forma Leverage Ratio of 1.5x at September 30, 2024; and
  • Pro Forma Free Cash Flow of $36.7 million and $104.0 million for the three and nine months ended September 30, 2024, respectively.
• Post-quarter end, announced fulfilment of all regulatory conditions to the completion of the RAL sale.
• Today, announced renewal of Chorus' Normal Course Issuer Bid (NCIB) for Common Shares.

HALIFAX, NS, Nov. 6, 2024 /CNW/ - Chorus Aviation Inc. ('Chorus') (TSX: CHR) today announced its third quarter 2024 financial results.

"Throughout the quarter, Chorus' businesses generated healthy cashflows, and achieved ongoing improvements in our key financial metrics and delivered in line with expectations," said Colin Copp, President and Chief Executive Officer, Chorus. "Our aviation services businesses delivered strong earnings, including those from Jazz's Capacity Purchase Agreement (CPA) with Air Canada. Voyageur reported an increase in its revenue over the prior quarter, demonstrating continued growth in its parts sales and specialty business lines."

"At the end of the third quarter, Chorus improved its Leverage Ratio to 3.0 from 3.3 at December 31, 2023, while generating Free Cash Flow of $32.4 million," said Mr. Copp. "Further, after announcing the agreement to sell Chorus' RAL business, we took several steps during the third quarter towards the completion of the transaction, including the satisfaction of all regulatory conditions. The transaction is expected to close by the end of this year."

"Post-closing, the transaction positions us well to accelerate value for our shareholders and provide the financial flexibility to deliver on our core strengths in aviation services," commented Mr. Copp. "On a pro forma basis, we expect to see significant improvements in our financial measures, including Leverage and Free Cash Flow after debt repayments."

"These improvements will enable us to implement a return of capital program for our shareholders and fund steady growth, post-completion of the sale," said Mr. Copp. "Ahead of that, and in line with our ongoing focus on shareholders, today, we also announced the renewal of our Normal Course Issuer Bid (NCIB) for our Common Shares, reflecting our belief that Chorus' shares remain under-valued, offering an attractive investment and use of available funds."

Third Quarter Summary

In the third quarter of 2024, Chorus reported Adjusted EBITDA from continuing operations of $53.9 million, a decrease of $3.1 million compared to the third quarter of 2023 primarily due to:

• a decrease in aircraft leasing revenue under the CPA of $4.3 million primarily due to a change in lease rates on certain aircraft; and
• an increase in general administrative expenses attributable to increased operations; partially offset by
• an increase in other revenue of $10.3 million primarily due to Voyageur's increased revenue in parts sales, contract flying and MRO activity; and
• an increase in capitalization of major maintenance overhauls on owned aircraft of $2.0 million.

Adjusted Net Income from continuing operations was $11.9 million for the quarter, a decrease of $2.3 million compared to the third quarter of 2023 primarily due to:

• a $3.1 million decrease in Adjusted EBITDA as previously described; and
• an increase in depreciation expense of $3.5 million primarily attributable to a change in depreciation estimates on certain aircraft and capital expenditures; partially offset by
• a decrease of $2.5 million in income tax expense;
• a decrease in net interest costs of $1.6 million; and
• a positive change in foreign exchange of $0.2 million.
• Net income from continuing operations decreased $19.1 million compared to the third quarter of 2023 primarily due to:
• the previously noted decrease in Adjusted Net Income of $2.3 million;
• the Defined Benefit Pension Revenue recognized in 2023 of $29.9 million (Air Canada agreed to compensate Jazz for the one-time impact of the wage increase on the Jazz defined benefit pension plan); and
• an increase in employee separation program costs of $1.1 million; partially offset by
• a positive change in net unrealized foreign exchange of $5.9 million; and
• a decrease in income tax expense on adjusted items of $8.4 million.

Year-to-Date Summary

Chorus reported Adjusted EBITDA from continuing operations of $158.9 million for the nine months ended September 30, 2024, a decrease of $8.0 million compared to the same prior year period primarily due to:

• a decrease in aircraft leasing revenue under the CPA of $13.3 million primarily due to a change in lease rates on certain aircraft;
• an increase in stock-based compensation of $2.2 million due to an increase in the Common Share price offset by the change in fair value of the Total Return Swap; and
• an increase in general administrative expenses attributable to increased operations; partially offset by
• an increase in other revenue of $13.6 million primarily due to Voyageur's increased revenue in parts sales, contract flying and MRO activity;
• an increase in capitalization of major maintenance overhauls on owned aircraft of $4.1 million; and
• an improvement in the Controllable Cost Guardrail of $2.0 million.
• Adjusted Net Income from continuing operations of $35.7 million, a decrease of $5.6 million compared to the same prior year period primarily due to:
• a $8.0 million decrease in Adjusted EBITDA as previously described;
• an increase in depreciation expense of $10.4 million primarily attributable to a change in depreciation estimates on certain aircraft and capital expenditures; and
• a negative change in net foreign exchange of $0.3 million; partially offset by
• a decrease of $10.2 million in income tax expense; and
• a decrease in net interest costs of $2.9 million.
• Net income from continuing operations of $33.7 million, a decrease of $39.7 million compared to the same prior year period primarily due to:
• the previously noted decrease in Adjusted Net Income of $5.6 million;
• the Defined Benefit Pension Revenue recognized in 2023 of $29.9 million (Air Canada agreed to compensate Jazz for the one-time impact of the wage increase on the Jazz defined benefit pension plan); and
• a negative change in net foreign exchange of $12.2 million; partially offset by
• a decrease in income tax expense on adjusted items of $8.1 million.

Consolidated Financial Analysis

This section provides detailed information and analysis about Chorus' performance from continuing operations for the three and nine months ended September 30, 2024 compared to the three and nine months ended September 30, 2023.

Post Sale Pro forma Non-GAAP Financial Measures September 30, 2024

The pro forma financial information in this section is based on the unaudited interim condensed consolidated financial statements of Chorus for the three and nine months ended September 30, 2024 (the "Q3 2024 Statements") and has been prepared to retroactively illustrate the financial impact of the Transaction on Chorus had the Transaction closed on October 1, 2023 for the purposes of metrics which are based on the trailing 12 months ended September 30, 2024 and December 31, 2023 for all other metrics. The pro forma adjustments to the Q3 2024 Statements are tentative, are not audited and are based on current management estimates and assumptions. Furthermore, since the pro forma information is based on historical financial results, it is not indicative of future financial results and should not be regarded as a forecast or projection of Chorus' future earnings, financial position or cash flows. Therefore, undue reliance should not be placed on the pro forma information. (See cautionary statement regarding forward-looking information below.)

Following the closing of the Transaction, which is expected prior to the end of 2024, Chorus plans to use the net proceeds of the Transaction to pay down or redeem its corporate financings including the Preferred Shares, all of the Debentures and early redemption amounts (including the MOIC payable upon the redemption of the Preferred Shares) and the Operating Credit Facility. Following the closing of the Transaction, Chorus will redeem or make an offer to redeem (as applicable) the Debentures in accordance with the terms of the relevant indentures. Chorus' pro forma debt assumes that all of the holders of Series B Debentures and Series C Debentures tender in response to Chorus' redemption offer.

As a result of the redemption of the Preferred Shares, the significant debt reduction and reduction in interest and preferred dividend costs, the Transaction is expected to significantly strengthen Chorus' balance sheet and improve key financial metrics.

Substantially all of Chorus' remaining debt is expected to consist of amortizing term debt relating to aircraft operated by Jazz under the CPA with Air Canada, which is fully supported by the CPA out to 2035, and the Operating Credit Facility that can be drawn from time to time.

The following table provides a summary of the expected use of the net proceeds from the Transaction and repayment of corporate financings:

(1) The net proceeds, net of transaction costs and the Preferred Shares have been converted to CAD at 1.3499 which was the exchange rate in effect at closing on September 30, 2024 from USD.

(2) Principal amount of the Debentures.

(3) Balance under the Operating Credit Facility at September 30, 2024.

(4) Chorus will be required to pay a MOIC (net of cash dividends paid) of $85.4 million (US $63.3 million) on the redemption of the $405.0 million (US $300.0 million) Preferred Shares.

The following Pro forma non-GAAP adjusted metrics reflect continuing operations and the effect of the anticipated repayment of corporate financings on the September 30, 2024 results.

Pro Forma Adjusted Earnings available to Common Shareholders per Common Share

Pro Forma Leverage Ratio

Pro Forma Free Cash Flow and Pro Forma Free Cash Flow after Repayment on Long-term Borrowings(3)

Pro Forma Adjusted Return on Equity

Outlook

(See cautionary statement regarding forward-looking information below.)

The discussion that follows includes forward-looking information. This outlook is provided for the purpose of providing information about current expectations for 2024. Forecast information has also been provided for 2025 and 2026 for Jazz Aviation LP ('Jazz'). This information may not be appropriate for other purposes. Due to the planned sale of its RAL segment, Chorus has removed consolidated guidance for 2024. Refer to Section 4 of the MD&A for Post Sale Pro forma non-GAAP Financial Measures September 30, 2024). The forecast has changed as a result of updated foreign exchange rates. The forecast has changed as a result of updated foreign exchange rates, changes in assumptions on certain lease rates and lease extensions.

The CPA provides a Fixed Margin to Jazz regardless of flying levels; therefore, any variations in flying are not expected to have any impact on Jazz's earnings. In addition, Jazz receives compensation for aircraft leased under the CPA that generates predictable Free Cash Flows. Jazz aircraft have amortizing debt that will be fully paid-off at the end of the original lease term under the CPA. At the end of each lease, Jazz will either extend the lease, sell or part-out each aircraft. Subsequent aircraft leases will continue to produce predictable Free Cash Flow at lower rates as the aircraft will be unencumbered.

Covered Aircraft

The forecasted Covered Aircraft under the CPA for the years 2024 to 2026 is as follows:

Capital Expenditures

Capital expenditures in 2024 are expected to be as follows:

Use of Defined Terms

Capitalized terms used but not defined in this news release have the meanings given to them in management's discussion and analysis of results of operations and financial condition ("MD&A") dated the date hereof, which is available on Chorus' website (www.chorusaviation.com) and under Chorus' profile on SEDAR+ (www.sedarplus.ca). In this news release, the term "shareholders" refers only to holders of Common Shares.

Investor Conference Call / Audio Webcast

Chorus will hold an analyst call at 9:00 AM ET on Thursday, November 7, 2024, to discuss the third quarter 2024 financial results. The call may be accessed by dialing 1-888-510-2154. The call will be simultaneously audio webcast via: https://app.webinar.net/D8kXBR91bQ6.

This is a listen-in only audio webcast.

The conference call webcast will be archived on Chorus' website at www.chorusaviation.com under Investors > Reports. A playback of the call can also be accessed until midnight ET, November 14, 2024, by dialing toll-free 1-888-390-0541 and using passcode 76863 # (pound key).

NON-GAAP FINANCIAL MEASURES

This news release references several non-GAAP financial measures and ratios to supplement the analysis of Chorus' results. Chorus uses these non-GAAP measures to evaluate and assess performance. These non-GAAP measures are generally numerical measures of Chorus' financial performance, financial position, or cash flows, that include or exclude amounts from the most comparable GAAP measure. As such, these measures are not recognized for financial statement presentation under GAAP, do not have standardized meanings, may not be comparable to similar measures presented by other entities, and should not be considered a substitute for or superior to GAAP results. For further information on non-GAAP measures used in this news release, please refer to Section 18 (Non-GAAP Financial Measures) of the MD&A dated the date hereof, which is available on Chorus' website (www.chorusaviation.com) and under Chorus' profile on SEDAR+ (www.sedarplus.ca). Reconciliations of non-GAAP measures to their nearest GAAP measures are provided below.

Adjusted Net Income, Adjusted EBT, Adjusted EBITDA

Adjusted Earnings available to Common Shareholders per Common Share

Adjusted Earnings available to Common Shareholders per Common Share is used by Chorus to assess performance and is calculated as Adjusted net income less non-controlling interest and Preferred Share dividends declared.

Pro Forma Adjusted Earnings available to Common Shareholders per Common Share is calculated as Adjusted Earnings available to Common Shareholders plus anticipated interest savings on repayment of corporate financings and Preferred Share dividends declared.

Leverage Ratio

Leverage Ratio is used by Chorus as a means to measure financial leverage. Leverage Ratio is calculated by dividing Net debt by trailing 12-month Adjusted EBITDA. Management believes Leverage Ratio to be a useful ratio when monitoring and managing debt levels. In addition, as leverage is a measure frequently analyzed for public companies, Chorus has calculated the amount to assist readers in this review. Leverage Ratio should not be construed as a measure of cash flows. Net debt is a key component of capital management for Chorus and provides management with a measure of its net indebtedness.

Pro Forma Leverage Ratio is calculated by dividing Net debt, adjusted to remove the anticipated repayment of corporate financings and net cash remaining from the Transaction, by trailing 12-month Adjusted EBITDA.

Free Cash Flow

Free Cash Flow is a non-GAAP measure used as an indicator of financial strength and performance. Chorus believes that this measurement is useful as an indicator of its ability to service its debt, meet other ongoing obligations and reinvest in the Corporation and return capital to Common Shareholders. Readers are cautioned that Free Cash Flow does not represent residual cash flow available for discretionary expenditures.

Free Cash Flow is defined as cash provided by operating activities less net changes in non-cash balances related to operations, capital expenditures excluding aircraft acquisitions and improvements plus net proceeds on asset sales (proceeds on disposal of property and equipment less the related debt repayments for the assets sold).

Pro Forma Free Cash Flow is defined as Free Cash Flow plus anticipated interest savings on repayment of corporate financings.

Pro Forma Free Cash Flow after repayment on long-term borrowings is defined as Free Cash Flow plus anticipated interest savings on repayment of corporate financings less repayment on long-term borrowings.

The following table provides a reconciliation of Free Cash Flow to cash flows from operating activities, which is the most comparable financial measure calculated and presented in accordance with GAAP:

Adjusted Return on Equity

Adjusted Return on Equity is a non-GAAP financial measure used to gauge a corporation's profitability and how efficient it is in generating profits. Adjusted Return on Equity is calculated based on Chorus' Adjusted Net Income less non-controlling interest and Preferred Share dividends declared divided by Average Shareholders' equity excluding non-controlling interest, Preferred Shares and cash.

Pro Forma Adjusted Return on Equity is calculated based on Adjusted Earnings available to Common Shareholders plus anticipated interest savings on repayment of corporate financings and Preferred Share dividends declared divided by Average Shareholders' equity excluding non-controlling interest, Preferred Shares, cash and anticipated net cash remaining from the Transaction.

Forward-Looking Information

This news release includes forward-looking information and statements within the meaning of applicable securities laws (collectively, "forward-looking information"). Forward-looking information is identified by the use of terms and phrases such as "anticipate", "believe", "could", "estimate", "expect", "intend", "may", "plan", "potential", "predict", "project", "will", "would", and similar terms and phrases, including negative versions thereof. All information and statements other than statements of historical fact are forward-looking and by their nature, are based on various underlying assumptions and expectations that and are subject to known and unknown risks, uncertainties and other factors that may cause actual future results, performance or achievements to differ materially from those indicated in the forward-looking information. As a result, there can be no assurance that the forward-looking information included in this news release will prove to be accurate or correct.

Examples of forward-looking information in this news release include the discussion in the Outlook section, as well as statements and expectations regarding the Transaction, including the anticipated benefits that would result from the Transaction, and statements and expectations regarding the future performance of Chorus. Actual results may differ materially from those anticipated in forward-looking information for a number of reasons, including: whether the remaining conditions precedent to completion of the Transaction are satisfied; whether completion of the Transaction is delayed or fails to complete; Chorus' ability to realize the anticipated benefits of the Transaction, including the implementation of any capital return program for shareholders; the anticipated net proceeds from the Transaction; the anticipated use of proceeds from the Transaction; the potential impact of the announcement or completion of the Transaction on relationships, including with employees, suppliers, customers, investors and other providers of capital; changes in the aviation industry and general economic conditions; the emergence of disputes under the CPA; a deterioration in Air Canada's financial condition; any default by Chorus under debt covenants; asset impairments; changes in law; and the risk factors in the MD&A dated the date hereof, in Chorus' most recent Annual Information Form and in Chorus' public disclosure record available under its profile on SEDAR+ at www.sedarplus.ca.

The forward-looking information contained in this news release represents Chorus' expectations as of the date of this news release (or as of the date they are otherwise stated to be made) and is subject to change after such date. Chorus disclaims any intention or obligation to update or revise any forward-looking information as a result of new information, subsequent events or otherwise, except as required by applicable securities laws. Readers are cautioned that the foregoing factors and risks are not exhaustive.

About Chorus Aviation Inc.

Chorus is a global aviation solutions provider and asset manager, focused on regional aviation. Our principal subsidiaries are: Falko Regional Aircraft, the leading pure play regional aircraft asset manager and lessor, managing investments on behalf of third-party fund investors; Jazz Aviation, the largest regional operator in Canada and provider of regional air services under the Air Canada Express brand; Voyageur Aviation, a leading provider of specialty charter, aircraft modifications, parts provisioning and in-service support services; and Cygnet Aviation Academy, an industry leading accredited training academy preparing pilots for direct entry into airlines. Together, Chorus' subsidiaries provide services that encompass every stage of a regional aircraft's lifecycle, including: aircraft acquisition and leasing; aircraft refurbishment, engineering, modification, repurposing and transition; contract flying; aircraft and component maintenance, disassembly, and parts provisioning; and pilot training.

Chorus Class A Variable Voting Shares and Class B Voting Shares trade on the Toronto Stock Exchange under the trading symbol 'CHR'. Chorus 5.75% Senior Unsecured Debentures due December 31, 2024, 6.00% Convertible Senior Unsecured Debentures due June 30, 2026, and 5.75% Senior Unsecured Debentures due June 30, 2027 trade on the Toronto Stock Exchange under the trading symbols 'CHR.DB.A', 'CHR.DB.B', and 'CHR.DB.C' respectively. www.chorusaviation.com.

SOURCE Chorus Aviation Inc.

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