Chorus Aviation announces strong fourth quarter and year-end earnings
Adjusted year-end EBITDA of $209.2 million
HALIFAX, Feb. 19, 2016 /CNW Telbec/ – Chorus Aviation Inc. (‘Chorus’) (TSX: CHR.B CHR.A) today announced strong fourth quarter and year-end 2015 earnings.
"I am extremely pleased with our accomplishments and financial performance in 2015; it was truly a transformational year," said Joe Randell, President and Chief Executive Officer, Chorus. "Our amended agreement with Air Canada and our acquisition of Voyageur delivered strong returns, and significantly strengthened our organization and competitive position. For the year ended December 31, 2015 we experienced increases in operating income, adjusted EBITDA1 and adjusted earnings per share1 of 8.4%, 2.6% and 1.3% respectively. The Chorus team remains focused on ensuring safe and profitable growth as we continue to increase value for our shareholders."
YEAR-END 2015 HIGHLIGHTS
- Adjusted EBITDA1 of $209.2 million.
- Adjusted net income1 of $96.3 million.
- Adjusted net income1 per basic share of $0.79.
- Net income of $25.5 million.
- Net income per basic share of $0.21.
Q4 2015 HIGHLIGHTS
- Adjusted EBITDA1 of $64.1 million.
- Adjusted net income1 of $32.1 million.
- Adjusted net income1 per basic share of $0.26.
- Net income of $12.5 million.
- Net income per basic share of $0.10.
In the fourth quarter of 2015, Chorus generated adjusted EBITDA of $64.1 million, a $14.3 million increase over the fourth quarter of 2014. This increase was primarily driven by a $13.5 million increase in operating income, and a net $0.8 million increase in depreciation and amortization expense compared to the fourth quarter of 2014. The increase in operating income was from the $6.3 million contribution generated by the Voyageur operation which included the return of previously expensed maintenance reserve deposits associated with the purchase of five CRJ200s that had been under operating leases prior to their purchase by Voyageur. Leasing operations under the CPA generated $5.2 million due to the addition of new Q400s in the fourth quarter, and a change in the US dollar exchange rate also contributed to the increase in operating income. The remaining net increase of $2.0 million in operating income was attributable to more labour and maintenance costs being capitalized on owned aircraft for major maintenance overhauls, and other reductions. These increases were offset by higher stock-based compensation and the absence in the quarter of the compensating mark-up.
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 2015, Chorus had an unrealized foreign exchange loss of $19.6 million versus an unrealized foreign exchange loss of $12.4 million in the same period of 2014.
Financial Performance – Fourth Quarter 2015 Compared to Fourth Quarter 2014
Operating revenue decreased from $401.3 million to $357.4 million, representing a decrease of $43.9 million, or 10.9%.
Controllable revenue decreased by $13.2 million or 6.1%. 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 removed from controllable revenue. The controllable revenue reduction related to these changes was $24.3 million. Rate decreases under the CPA resulted in a $1.3 million decrease in the quarter, and decreased CPA billable block hours accounted for a further decrease of approximately $0.1 million. These decreases were offset by a change in the US dollar exchange rate that resulted in a $12.5 million increase in the quarter.
Aircraft leasing revenue under the CPA increased by $5.2 million to $19.9 million. The increase was related to a change in the US dollar exchange rate of $2.6 million and $2.6 million generated from the addition of five new Q400 aircraft to the CPA covered fleet. As of December 31, 2015, aircraft leasing revenue under the CPA was generated from 26 Q400 aircraft and four Q400 engines owned by Chorus, compared to 21 Q400 aircraft and four Q400s engines owned by Chorus as of December 31, 2014. Annually these aircraft and engines generate a cash margin of approximately 20% after consideration of debt servicing charges.
Under the amended CPA, Chorus’ compensation is based on fixed fees for the term of the agreement. The annual fixed fee compensation for 2015 was contractually set at $109.7 million or $27.4 million quarterly.
In the fourth quarter, Chorus earned $5.6 million in performance incentives, or 96.7% of the maximum incentive payment available under the CPA, compared to $5.7 million or 96.5% in the fourth quarter of 2014.
CPA pass-through revenue decreased by $48.7 million or 36.5%, from $133.4 million to $84.7 million. Compensation for aircraft fuel (effective November 1, 2015), deicing and certain other costs provided to Chorus by Air Canada are no longer billed. Other costs, such as third party ground handling, have been removed from controllable costs and re-classified as pass-through costs. As such, these changes decreased pass-through revenue by $42.6 million. In addition, a decline in jet fuel prices prior to the transition on November 1, 2015 decreased pass-through revenue by $7.9 million. These decreases were offset by a change in the US dollar exchange rate resulted in a $1.5 million increase in the quarter.
Charter and other contract flying revenue increased by $8.7 million. Contract flight revenue from the Voyageur operation accounted for $9.4 million; offset by decreased Jazz charter revenue of $0.7 million.
Other revenue increased by $5.1 million primarily related to the addition of the Voyageur operation, which includes leasing, and maintenance repair and overhaul.
Operating expenses decreased from $368.3 million to $310.9 million, a decrease of $57.4 million or 15.6%.
Salaries, wages and benefits increased to $107.2 million from $99.2 million. Adjusted salaries, wages and benefits increased by $9.1 million primarily as a result of the addition of the Voyageur operation, and increased pension costs. Stock-based compensation increased primarily as a result of fluctuations in Chorus’ share price. Employee separation program costs incurred during the fourth quarter were $1.6 million compared to $1.3 million in the same period of 2014. Salaries and wages were also affected by more labour costs being capitalized on owned aircraft for major maintenance overhauls of $1.6 million quarter-over-quarter.
Aircraft maintenance expense decreased by $1.6 million, from $45.0 million to $43.4 million. The Voyageur operation accounted for a $3.3 million decrease (includes $6.1 million related to the return of previously expensed maintenance reserve deposits associated with the purchase of five CJR200s which had been under operating lease by Voyageur). In addition, other maintenance costs decreased by $4.3 million, and since more maintenance costs were capitalized as a result of increased major maintenance overhauls, this accounted for a further decrease of $1.1 million. These decreases were offset by $5.5 million due to a change in the US dollar exchange rate on certain maintenance material purchases, and increased engine overhauls of $1.6 million.
Other expenses increased by $5.2 million from $28.7 million to $33.9 million. This increase was generated by $3.5 million from the addition of the Voyageur operation, $2.4 million in increased crew costs related to training and travel, and $2.0 million in general overhead. Costs for certain services to Chorus provided by Air Canada are no longer billed. These Air Canada costs were $nil in the fourth quarter compared to $2.7 million in the same period last year.
Non-operating expenses increased by $9.2 million from $13.6 million to $22.8 million. Net interest expense increased by $1.4 million. Interest expense related to long-term debt increased by $0.9 million as a result of a change in the 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 $18.6 million, compared to a foreign exchange loss of $10.6 million in the previous year.
Operating income of $46.5 million increased by $13.5 million from $33.0 million.
Adjusted EBITDA was $64.1 million compared to $49.8 million in 2014, an increase of $14.3 million.
Adjusted net income for the fourth quarter 2015 was $32.1 million or $0.26 per basic share compared to $23.7 million or $0.20 per basic share for the same period 2014. Net income in the quarter was $12.5 million or $0.10 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 February 18, 2016.
Investor Conference Call / Audio Webcast
Chorus will hold an analyst call at 09:30 a.m. ET on Friday, February 19, 2016 to discuss the fourth quarter and year end results of 2015. The call may be accessed by dialing 1-888-231-8191. The call will be simultaneously audio webcast via:
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 26, 2016 by dialing toll-free 1-855-859-2056, and passcode 24900949#.
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’ audited consolidated financial statements for the years ended December 31, 2015 and December 31, 2014 and MD&A dated February 18, 2016 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 including 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 fourth quarter and year ended 2015 MD&A. The forward-looking statements contained in this discussion represent Chorus’ expectations as of February 18, 2016, 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.