Chorus Aviation Inc. announces first quarter earnings
- Intention to change from quarterly to monthly dividend in third quarter 2014
- Intention to complete the early redemption of outstanding convertible debentures
Best on-time arrival performance in Canada for the tenth consecutive quarter
Consistent quarterly profitability since 2006
HALIFAX, May 15, 2014 /CNW/ – Chorus Aviation Inc. ('Chorus') (TSX: CHR.B CHR.A CHR.DB) today announced its first quarter 2014 earnings.
Q1 2014 HIGHLIGHTS
- EBITDA1 of $47.3 million, up 38.3%.
- EBITDA margin of 11.4%.
- Operating income of $31.2 million, up 50.0%.
- Adjusted net income1 of $20.3 million, up 38.0%.
- Adjusted net income per share1 of $0.17 per basic share.
- $60.0 million early, partial repayment of 9.5% maturing convertible debentures.
For the first quarter 2014, Chorus reported EBITDA of $47.3 million compared to $34.2 million in the same quarter 2013, an increase of $13.1 million. Operating income was $31.2 million, $10.4 million higher than the same period 2013. Adjusted net income of $20.3 million or $0.17 per basic share, was up by $5.6 million or $0.05 per basic share over first quarter 2013. Chorus incurred $2.8 million in voluntary employee severance in the first quarter versus $5.7 million in the same period in 2013. Chorus has invested $12.7 million since the inception of this cost savings program in the first quarter of 2013.
"Our solid operational performance and our cost reduction initiatives generated strong operating income and cash flows from operations," said Joseph Randell, President and Chief Executive Officer, Chorus. "Returns from our cost reduction efforts, including our continuing investment in voluntary employee severance programs, are to the benefit of all our stakeholders. In addition to achieving a 38 percent increase in EBITDA and a 50 percent improvement in operating income over the same period last year, we also topped Canada's other major airlines for the best on-time arrival performance for the tenth consecutive quarter which contributed to a $1.6 million increase in performance incentives quarter-over-quarter as reported by Flight Stats Inc. Our operational expertise has allowed us to build an airline with superior scope and scale, and has earned us a reputation for safe, reliable and efficient service. I commend our employees for their continued focus on safety and operational excellence.
"Strong cash flow from operating activities of $45.7 million, an increase of $12.8 million quarter over quarter, has allowed us to announce the early redemption of the remaining $20.2 million in 9.50% convertible debentures. By strengthening our capital structure and increasing our financial flexibility we believe we will deliver additional value to our shareholders as we progress through current and future challenges and opportunities," concluded Mr. Randell.
For reporting purposes, at each quarter end, Chorus converts its US 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 within the Capacity Purchase Agreement ('CPA') with Air Canada in the underlying currency related (US dollars) to the aircraft debt. In the first quarter of 2014, Chorus had an unrealized foreign exchange loss of $14.7 million versus an unrealized foreign exchange loss of $5.6 million in the same period of 2013.
Financial Performance -First Quarter 2014 Compared to First Quarter 2013
Operating revenue decreased from $416.3 million to $414.6 million, representing a decrease of $1.7 million or 0.4%. Passenger revenue, excluding pass-through costs, increased by $9.5 million or 3.8% primarily as a result of rate increases made pursuant to the CPA with Air Canada, a higher US dollar exchange rate and a $1.6 million increase in incentives earned under the CPA with Air Canada; offset by decreased CPA Billable Block Hours. Pass-through costs reimbursed by Air Canada decreased from $162.0 million to $149.9 million, a decrease of $12.1 million or 7.5%, which included a decrease of $1.3 million related to fuel costs, and $9.2 million related to airport and navigation fees and terminal handling services. (Effective January 1, 2014, Air Canada entered into a commercial agreement with the Greater Toronto Airport Authority ('GTAA') that encompasses Chorus' Air Canada Express operations. GTAA costs related to landing, terminal and other airport user fees which are treated as pass-through costs under the CPA are now paid directly by Air Canada pursuant to this agreement.) Other revenue increased by $0.9 million.
Operating expenses decreased from $395.5 million to $383.3 million, a decrease of $12.1 million or 3.1%. Controllable Costs of $233.5 million were consistent with the same period last year. Voluntary employee severance costs of approximately $2.8 million were incurred for the three months ended March 31, 2014.
After adjusting for voluntary employee severance and capitalized major maintenance overhaul labour, Chorus' salaries, wages and benefits (including pension, incentive compensation and other employee benefits) were down $2.5 million period over period. Cost savings initiatives introduced last year, including the voluntary separation program, consolidation of heavy maintenance activities, and management and administrative reductions have been successful in reducing senior full time equivalents by 4.5% and lowering average employee compensation. Voluntary severance costs paid during the three months ended March 31, 2014 were $2.8 million, a decrease of $2.9 million from the $5.7 million paid in the same period of 2013. Heavy maintenance labour capitalized as a result of major maintenance overhauls on owned aircraft was $1.7 million in the quarter or approximately $0.9 million lower than the same period in 2013.
Depreciation and amortization expense increased by $2.7 million, primarily related to the Q400 aircraft, a change in the estimated residual value of the Dash 8-100 and 300 aircraft in 2013, and increased capital expenditures on aircraft rotable parts and other equipment; offset by decreased major maintenance overhauls.
Aircraft maintenance expense increased by $2.4 million as a result of a higher US dollar exchange rate that resulted in an increase on certain maintenance material purchases of $2.6 million; offset by decreased Block Hours and other maintenance costs of $0.2 million.
Aircraft rent increased by $0.8 million primarily as a result of a higher US dollar exchange rate; offset by the return of CRJ100 aircraft.
Other expenses decreased by $1.1 million primarily due to decreased general overhead expenses.
Non-operating expenses increased by $10.4 million. This change was mainly attributable to an increase of $8.6 million in foreign exchange (of which $9.1 million was related to an increase in unrealized foreign exchange loss on long-term debt and finance leases) and increased interest expense related to Q400 aircraft financing of $0.8 million, increased interest accretion of $1.1 million related to the partial redemption of the Convertible Debentures and the absence in the first quarter, 2014 of $0.8 million in other income related to non-repayable government assistance; offset by decreased interest expense related to the partial redemption of the Convertible Debentures of $0.7 million.
EBITDA was $47.3 million compared to $34.2 million in 2013, an increase of $13.1 million or 38.3%, producing an EBITDA margin of 11.4 %. Standardized free cash flow1 was $25.3 million.
Operating income of $31.2 million was up $10.4 million or 50.0% over first quarter 2013 from $20.8 million.
Net income for the first quarter of 2014 was $5.6 million or $0.05 per basic share, a decrease of $3.6 million from $9.2 million. On an adjusted basis, net income was $20.3 million or $0.17 per basic share, an increase of $5.6 million from $14.7 million. A reconciliation of these non-GAAP measures to their nearest GAAP measure is provided in Chorus' Management's Discussion and Analysis dated May 14, 2014.
Commencing in the third quarter, Chorus intends to move to a monthly dividend in place of its current quarterly dividend policy. The monthly equivalent of the current $0.1125 per share quarterly dividend is $0.0375 per share. Chorus' Board of Directors evaluates the dividend on a regular basis and the dividend is declared at the discretion of the Board.
Chorus also announced that it has exercised its right to redeem its remaining outstanding 9.50% Convertible Unsecured Subordinated Debentures ('Debentures') maturing on December 31, 2014, in accordance with the terms of the trust indenture governing the Debentures ('Trust Indenture'). On June 20, 2014 (the 'Redemption Date'), Chorus will redeem the remaining $20.21 million of the outstanding balance of Debentures. On redemption, Chorus will pay to the holders of the redeemed Debentures the outstanding principal amount of the Debentures to be redeemed (the 'Redemption Price'), together with all accrued and unpaid interest thereon up to but excluding the Redemption Date, for a total of $1,045.00 per $1,000.00 principal amount of Debentures. The Debentures that are redeemed will cease to bear interest from and after the Redemption Date. Surplus cash from operations will fund this transaction.
Pursuant to the terms of the Trust Indenture, holders of the Debentures that are to be redeemed have the right until the last business day prior to the Redemption Date to convert their Debentures into Class A Variable Voting Shares ('Class A Shares') or Class B Voting Shares ('Class B Shares') of Chorus, as applicable, in accordance with the Trust Indenture and the provisions attaching to the Class A Shares and the Class B Shares , at a conversion price of $5.25 per share, being a rate of 190.4762 shares per $1,000.00 principal amount of Debentures.
"The early, full repayment of the outstanding balance on this 9.5% maturing debt will strengthen our balance sheet as we work to build additional value for our shareholders and strengthen our bottom line," concluded Mr. Randell.
For more information, please contact Nyari Chifamba at CIBC Mellon Trust Company, the indenture trustee for the Debentures, at telephone 416.933.8524, or email Nyari.Chifamba@bnymellon.com.
Investor Conference Call / Audio Webcast
Chorus will hold an analyst call at 11:00 a.m. ET on Thursday, May 15, 2014 to discuss the first quarter 2014 results. The call may be accessed by dialing 1-888-231-8191. The call will be simultaneously audio webcast via: http://www.newswire.ca/en/webcast/detail/1325005/1463569 or in the Investor Relations section at www.chorusaviation.ca. 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' Investor Relations website at www.chorusaviation.ca. A playback of the call can also be accessed until midnight ET, May 22, 2014, by dialing (416) 849-0833 or toll-free 1- 855-859-2056, and passcode 17191697# (pound key).
1 Non-GAAP Financial Measures
EBITDA (net income before net interest expense, income taxes, depreciation, amortization and other items such as asset impairment and foreign exchange gains or losses) is a non-GAAP financial measure used by Chorus as a supplemental financial measure of operational performance. Management believes 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 non-operating factors such as historical cost. 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.
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 related (US dollars) 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. While voluntary employee severance has not been included within our definition of adjusted net income, it is shown separately to facilitate transparency and comparability.
Forward Looking Statements
This news release should be read in conjunction with Chorus' unaudited interim condensed consolidated financial statements for the period ended March 31, 2014, and MD&A dated May 14, 2014 filed with Canadian Securities regulatory authorities (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, risks relating to the airline industry, energy prices, general industry, market, credit, and economic conditions, competition, insurance issues and costs, supply issues, war, terrorist attacks, epidemic diseases, environmental factors, acts of God, changes in demand due to the seasonal nature of the business, the ability to reduce operating costs and employee counts, secure financing, employee relations, labour negotiations or disputes, restructuring, pension issues, currency exchange and interest rates, leverage and restructure covenants in future indebtedness, dilution of Chorus shareholders, uncertainty of dividend payments, managing growth, changes in laws, adverse regulatory developments or proceedings, pending and future litigation and actions by third parties. The forward-looking statements contained in this discussion represent Chorus' expectations as of May 15, 2014, 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.
Headquartered in Halifax, Nova Scotia, Chorus was incorporated on September 27, 2010 and is a dividend-paying holding company which owns Jazz Aviation LP and a number of other companies involved in aviation related businesses.
Chorus is traded on the Toronto Stock Exchange under the trading symbols of CHR.A, CHR.B and CHR.DB.
For more information, visit www.chorusaviation.ca
Jazz Aviation LP has a strong history in Canadian aviation with its roots going back to the 1930s. Jazz is wholly owned by Chorus Aviation Inc. and continues to generate some of the strongest operational and financial results in the North American aviation industry. As the largest regional airline in Canada, Jazz has a proven track record of industry leadership and exceptional customer service, and has leveraged that strength to deliver value to all its stakeholders. Jazz operates more flights and flies to more Canadian destinations than any other airline, and currently has a workforce of approximately 4,760 professionals highly experienced in the challenging and complex nature of regional operations. Jazz employees are an integral part of communities across our nation with 20% of our workforce based in Atlantic Canada, 46% based in Central Canada, 33% based in Western Canada, and 1% in Northern Canada.
Under a capacity purchase agreement with Air Canada, using the Air Canada Express brand, Jazz provides service to and from lower-density markets as well as higher-density markets at off-peak times throughout Canada and to and from certain destinations in the United States. In the first quarter of 2014 Jazz operated scheduled passenger service on behalf of Air Canada with approximately 753 departures per weekday to 54 destinations in Canada and to 26 destinations in the United States. With a fleet of 122 Canadian-made Bombardier aircraft, Jazz flies more daily flights to more Canadian destinations than any other airline.
Under the Jazz brand, the airline offers charters throughout North America with a dedicated fleet of three Bombardier aircraft for corporate clients, governments, special interest groups and individuals seeking more convenience. Jazz also has the ability to offer airline operators services such as ground handling, dispatching, flight load planning, training and consulting.
For more information, visit www.flyjazz.ca.
SOURCE Chorus Aviation Inc.