Q1 2023 Financial Highlights
- Net income of $32.0 million, a
quarter-over-quarter increase of $9.1
million.
- Adjusted earnings available to Common Shareholders of
$21.5 million, an increase of
$3.7 million
quarter-over-quarter.
- Adjusted earnings available to Common Shareholders of
$0.11 per Common Share, basic, an
increase of $0.01
quarter-over-quarter.
- Adjusted EBITDA of $118.1
million, an increase of $34.8
million quarter-over-quarter.
- Free Cash Flow of $73.1 million,
an increase of $24.6 million or
approximately 51%.
- Leverage Ratio improved to 4.0 at March
31, 2023 from 4.4 at December 31,
2022.
HALIFAX,
NS, May 8, 2023 /CNW/ - Chorus Aviation Inc.
('Chorus') (TSX: CHR) today announced first quarter 2023 financial
results.
"I am pleased to report strong first quarter results in-line
with expectations, with Free Cash Flow of $73.1 million and Adjusted earnings available to
Common Shareholders of $0.11 per
Common Share representing increases of 51% and 10%,
respectively. During the quarter, we continued the
deleveraging of our balance sheet improving our Leverage Ratio to
4.0x, a 9% decrease since year end, bringing us closer to our
targeted range of 2.5x to 3.5x." said Colin
Copp, President and Chief Executive Officer, Chorus.
Mr. Copp continued "We are laser-focused on transitioning our
aircraft leasing business to an asset-light model and launching
Falko's new investment fund. With our strong core services cash
flow and the anticipated proceeds from asset sales, we are
progressing towards our targeted leverage level, which will offer
considerable flexibility to execute on accretive capital allocation
opportunities."
"Last month, we officially launched Cygnet Aviation Academy
introducing a first of its kind pilot academy to the Canadian
market, with leading edge flight training that provides students
direct access to career opportunities. We are proud of this
initiative which will provide flight ready pilots to our operating
companies and the wider industry." concluded Mr. Copp.
First Quarter Summary
In the first quarter of 2023, Chorus reported Adjusted EBITDA of
$118.1 million, an increase of
$34.8 million over the first quarter
of 2022.
The RAL segment's Adjusted EBITDA was $61.6 million, a quarter-over-quarter increase of
$29.9 million primarily due to
Falko's earnings inclusive of $6.7
million due to the recognition of non-reimbursable
end-of-lease maintenance reserves.
The RAS segment's Adjusted EBITDA was $63.9 million, an increase of $6.5 million over the first quarter of 2022.
First quarter results were impacted by:
- an increase in other revenue of $6.7
million due to an increase in parts sales, third-party MRO
activity and contract flying; and
- an increase in aircraft leasing revenue under the CPA of
$2.4 million primarily due to a
higher US dollar exchange rate; offset by
- an increase in general administrative expenses attributable to
increased operations;
- a decrease in capitalization of major maintenance overhauls on
owned aircraft of $0.9 million;
and
- a decrease in contracted Fixed Margin of $0.8 million.
Corporate Adjusted EBITDA or net expenses of $7.4 million were higher than the first quarter
of 2022 by $1.6 million due to:
- an increase in general administrative expenses related to
higher professional fees, salaries, wages and benefits and travel
expenses.
Adjusted net income was $30.8
million for the quarter, an increase of $13.1 million over the first quarter of 2022 due
to:
- a $34.8 million increase in
Adjusted EBITDA as previously described; and
- a change in net foreign exchange of $2.1
million; partially offset by
- an increase in depreciation expense of $13.0 million primarily attributable to Falko and
capital expenditures in 2022;
- an increase of $5.4 million in
income tax expense; and
- an increase in net interest costs of $5.4 million primarily related to interest on
long-term debt assumed as part of the Falko Acquisition and the
draw on the Operating Credit Facility, partially offset by the
redemption of the 6.00% Debentures in December 2022.
Net income increased $9.1 million
over the first quarter of 2022 primarily due to:
- the previously noted increase in Adjusted net income of
$13.1 million; and
- a decrease in strategic advisory fees of $2.7 million; partially offset by
- an increase in lease repossession costs of $3.7 million;
- a decrease in net unrealized foreign exchange gains of
$2.5 million; and
- a decrease in income tax recoveries on adjusted items of
$0.2 million.
Consolidated Financial Analysis
This section provides detailed information and analysis about
Chorus' performance for the three months ended March 31, 2023
compared to the three months ended March 31, 2022. It focuses
on Chorus' consolidated operating results and provides financial
information for Chorus' operating segments.
(unaudited)
(expressed in
thousands of Canadian dollars)
|
Three months ended
March 31,
|
2023
|
2022
|
Change
|
Change
|
$
|
$
|
$
|
%
|
|
|
|
|
|
Operating
revenue
|
415,252
|
342,380
|
72,872
|
21.3
|
Operating
expenses
|
353,349
|
299,068
|
54,281
|
18.2
|
|
|
|
|
|
Operating
income
|
61,903
|
43,312
|
18,591
|
42.9
|
Net interest
expense
|
(25,458)
|
(20,054)
|
(5,404)
|
26.9
|
Foreign exchange
gain
|
4,031
|
4,449
|
(418)
|
(9.4)
|
Gain on fair value of
investments
|
1,892
|
—
|
1,892
|
100.0
|
|
|
|
|
|
Income before income
tax
|
42,368
|
27,707
|
14,661
|
52.9
|
Income tax
expense
|
(10,349)
|
(4,800)
|
(5,549)
|
115.6
|
|
|
|
|
|
Net income
|
32,019
|
22,907
|
9,112
|
39.8
|
Net income attributable
to non-controlling interest
|
490
|
—
|
490
|
100.0
|
Net income attributable
to Shareholders
|
31,529
|
22,907
|
8,622
|
37.6
|
Preferred share
dividends declared
|
(8,871)
|
—
|
(8,871)
|
(100.0)
|
Earnings attributable
to Common Shareholders
|
22,658
|
22,907
|
(249)
|
(1.1)
|
|
|
|
|
|
Adjusted
EBITDA(1)
|
118,056
|
83,280
|
34,776
|
41.8
|
Adjusted
EBT(1)
|
41,789
|
23,346
|
18,443
|
79.0
|
Adjusted net
income(1)
|
30,824
|
17,743
|
13,081
|
73.7
|
(1) These are
non-GAAP financial measures.
|
Outlook
(See cautionary statement regarding forward-looking
information below)
Chorus has the key elements to successfully execute on its
strategy to transition to an asset light leasing model while
growing its contractual fund management business and its RAS
segment. The key elements include:
- Strong and predictable core earnings from the RAS segment, with
the potential to expand into adjacent and complementary business
lines;
- Significant wholly-owned or majority-owned aviation assets that
can be monetized to reduce debt and return capital to Common
Shareholders while also providing funding to improve the growth and
return profile of the business over time through accretive
investments; and
- Growth potential in the Falko series of funds from which Chorus
can generate attractive returns via asset management fees,
co-investment returns and incentive payments.
The asset light leasing model will enable Chorus to achieve
greater scale in its leasing business by co-investing alongside
third-party equity investors in Falko-managed funds, while
decreasing risk to Chorus by reducing the use of recourse debt
financing. As Chorus transitions to an asset light leasing model,
asset sales will generate Free Cash Flow that can be deployed to
pursue accretive investment opportunities and/or return capital to
Common Shareholders. As part of this asset light transformation,
Chorus is targeting:
- Aircraft asset sales: Chorus intends to
opportunistically trade RAL's wholly-owned or majority-owned
aircraft including in connection with the windup of its 67.45%
ownership in Ravelin Holdings LP by its tenth anniversary in 2025.
As of March 31, 2023, Ravelin
Holdings LP held an interest in 39 aircraft with a net book value
of US $402.5 million and secured debt
of US $212.9 million. As asset sales
occur, the related leasing revenues in RAL will decrease, which
will be partially offset by lower depreciation and debt servicing
costs and earnings from Falko managed funds.
- Reduced leverage: Chorus anticipates its Leverage Ratio
will be between 2.5 to 3.5 by December 31,
2024, given the contractual nature of Chorus' earnings,
amortizing debt repayments, and expected asset sales. Deleveraging
amounts will vary from quarter-to-quarter depending on the timing
and quantum of asset sales.
- Growth: Chorus intends to expand the number of Falko
managed funds and the RAS business into adjacent and complimentary
specialty aviation business lines.
Chorus' forecast for the year ending December 31, 2023 is as follows:
(unaudited)
|
Consolidated
|
(expressed in
thousands of Canadian dollars)
|
|
To
|
|
$
|
$
|
|
|
|
Revenue(1)(2)
|
1,500,000
|
1,700,000
|
Adjusted
EBITDA(1)(3)
|
410,000
|
450,000
|
Adjusted
EBT(1)(3)
|
135,000
|
165,000
|
Net debt to Adjusted
EBITDA(1)(3)
|
3.6x
|
4.0x
|
Free Cash
Flow(3)
|
260,000
|
330,000
|
|
|
|
(1)
|
RAL's forecast for
the year ending December 31, 2023 is as follows: Revenue is
expected to be between $240.0 million and $260.0 million, Adjusted
EBITDA is expected to be between $210.0 million and $235.0 million
and Adjusted EBT is expected to be between $70.0 million and $85.0
million.
|
(2)
|
Controllable Costs and
Pass-Through Costs are expected to be between $0.95 billion and
$1.1 billion included in both revenue and expenses.
|
(3)
|
These are non-GAAP
financial measures.
|
2023 Key Economic Assumptions:
- The forecast assumes the launch in the first half of 2023 of a
new investment fund managed by Falko with (i) a minimum of US
$500.0 million in capital commitments
and (ii) management fees and economic terms commensurate with those
in Falko's prior funds.
- The forecast revenue is based on current contracted lease
revenue and forecasted revenues for leased aircraft and asset
management fees. Aircraft leasing revenue under the CPA and Fixed
Margin revenue is expected to be US $110.0
million and $63.0 million,
respectively, in 2023 (2022: US $114.5
million and $66.3 million,
respectively).
- Asset sales of approximately US $50.0
million to $100.0 million in
2023 with a loan-to-value of between 50% and 60% generating net
proceeds between US $25.0 million and
US $50.0 million. If material asset
sales are executed in 2023, this may reduce expected revenue in
RAL, depending on the timing of such sales.
- The forecast uses a foreign exchange rate of 1.30 for 2023 to
translate USD to CAD revenue.
RAL's gross lease receivable may decrease from the March 31, 2023 balance of US $109.9 million to between US $95.0 million and US $100.0 million by the end of 2023 due to rent
relief arrangements1 and repayment expectations.
RAL's lease deferral receivable exposure is partially mitigated
by security packages held of approximately US $18.2 million (December 31, 2022 - US $17.1 million).
1
|
Following the onset of
the COVID-19 pandemic, RAL received requests from many of its
customers for some form of temporary rent relief, as they coped
with an unprecedented reduction in demand for passenger air travel.
Under rent relief arrangements, certain of which include lease term
extensions, the repayment of the deferred amounts typically
coincides with the lease term extensions.
|
Capital Expenditures
Capital expenditures in 2023, are expected as follows:
(unaudited)
(expressed in
thousands of Canadian dollars)
|
|
|
|
Actual
|
|
|
|
Three months
ended
|
Year
ended
|
Planned
2023(1)
|
March 31,
2023
|
December 31,
2022
|
|
$
|
|
$
|
$
|
Capital expenditures,
excluding aircraft acquisitions
|
26,000
|
to
|
32,000
|
3,161
|
15,914
|
Capitalized major
maintenance overhauls(2)
|
5,000
|
to
|
10,000
|
3,599
|
15,974
|
Aircraft acquisitions
and improvements
|
5,000
|
to
|
8,000
|
2,142
|
30,392
|
|
36,000
|
to
|
50,000
|
8,902
|
62,280
|
(1)
|
The 2023 plan includes
reconfiguration costs on aircraft and certain aircraft improvements
which have been converted to Canadian from US dollars using a
foreign exchange rate of 1.3533, the March 31, 2023 closing day
rate from the Bank of Canada.
|
(2)
|
The 2023 plan includes
between $3.0 million to $5.0 million of costs that are expected to
be included in Controllable Costs. Actual 2023 and 2022 costs
include $1.9 million and $10.1 million, respectively, which were
included in Controllable Costs.
|
Use of Defined Terms
Capitalized terms used but not defined in this news release have
the meanings given to them in the MD&A which is available on
Chorus' website (www.chorusaviation.com) and under Chorus' profile
on SEDAR (www.sedar.com).
Investor Conference Call / Audio Webcast
Chorus will hold an analyst call at 9:00
ET on May 9, to discuss the
first quarter 2023 financial results. The call may be accessed by
dialing 1-888-664-6392. The call will be simultaneously audio
webcast via: https://app.webinar.net/X8lG36gLaVD.
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
> Executive Management Presentations. A playback of the
call can also be accessed until midnight
ET, May 16, by dialing
toll-free1-888-390-0541 and using passcode 050978#.
1NON-GAAP FINANCIAL MEASURES
This news
release references several non-GAAP financial measures to
supplement the analysis of Chorus' results. Chorus uses
certain non-GAAP financial measures, described below, to evaluate
and assess performance. These non-GAAP measures are generally
numerical measures of a company's 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 a standardized meaning, and are therefore not likely to be
comparable to similar measures presented by other public
entities.
Adjusted Net Income, Adjusted EBT and Adjusted
EBITDA
Adjusted net income is used by Chorus to assess
performance without the effects of unrealized foreign exchange
gains or losses on long-term debt and lease liability related to
aircraft, signing bonuses, employee separation program costs,
impairment provisions, lease repossession costs net of security
packages realized, restructuring expected credit loss provision,
Dash 8-300 inventory provision, defined benefit pension
curtailment, integration costs, strategic advisory fees and the
applicable tax expense (recovery). 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 Chorus' 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.
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.
Adjusted EBT and EBITDA should not be used as exclusive measures
of cash flow because these measures do 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.
EBT is defined as earnings before income tax. Adjusted EBT (EBT
before signing bonuses, employee separation program costs,
impairment provisions, lease repossession costs net of security
packages realized, restructuring expected credit loss provision,
Dash 8-300 inventory provision, defined benefit pension
curtailment, integration costs, strategic advisory fees and other
items such as foreign exchange gains and losses) is a 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 re-occur over the longer-term
(such as signing bonuses, employee separation program costs,
impairment provisions, lease repossession costs net of security
packages realized, restructuring expected credit loss provision,
Dash 8-300 inventory provision, defined benefit pension
curtailment, integration costs and strategic advisory fees) as well
as 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, depreciation and amortization and impairment 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, impairment provisions, lease repossession
costs net of security packages realized, restructuring expected
credit loss provision, Dash 8-300 inventory provision, defined
benefit pension curtailment and integration costs, 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 re-occur over the longer-term
(such as signing bonuses, employee separation program costs,
impairment provisions, lease repossession costs net of security
packages realized, restructuring expected credit loss provision,
Dash 8-300 inventory provision, defined benefit pension
curtailment, integration costs and strategic advisory fees) as well
as 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.
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. Leverage Ratio is not a recognized measure under GAAP, and
therefore is unlikely to be comparable to similar measures
presented by other companies. Management believes leverage to be a
useful term 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 should not be construed as a measure of cash flows.
Free Cash Flow
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).
Forward-Looking Information
This news release includes
forward-looking information and statements. Forward-looking
information and statements are 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 references to assumptions. Such information and
statements may involve but are not limited to comments with respect
to strategies, expectations, planned operations or future actions.
Forward-looking information and 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 information and statements, by their
nature, are based on assumptions, including those referenced below,
and are 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
information and statements involve known and unknown risks,
uncertainties and other factors that may cause actual results,
performance or achievements to differ materially from those
indicated in the forward-looking information and statements.
Examples of forward-looking information and statements in this
news release include the discussion in the Outlook section, as well
as statements regarding expectations as to Chorus' future liquidity
and financial strength and contracted revenues, the recovery of air
traffic in Canada and around the
world, Chorus' future growth and competitive position, Chorus'
ability to grow Falko's asset management business and realize the
benefit of synergies among its subsidiaries, Chorus' intention to
transition its leasing business to an asset light leasing model,
the ability to generate cash flows from asset sales and deploy
those to enhance returns to Shareholders and/or invest in accretive
growth opportunities, and the completion of pending or planned
transactions (including the successful close of a new Falko-managed
fund). Actual results may differ materially from results indicated
in forward-looking information for a number of reasons, including
Chorus' ability to successfully integrate Falko's operations and
employees and realize the anticipated benefits of the Falko
acquisition including the transition to an asset light model; the
potential impact of the completion of the Falko acquisition on
relationships, including with employees, suppliers, customers,
investors and other providers of capital; Falko's ability to
successfully launch a new fund on the terms currently contemplated
or at all; deviations from the key economic assumptions described
in the Outlook section; the emergence of new COVID-19 variants
and/or new pandemic or endemic diseases and any restrictive
measures that may be implemented to minimize their public health
impacts; the continuing impact of COVID-19 on Chorus' contractual
counterparties; changes in aviation industry and general economic
conditions, including inflation; the continued payment (in whole or
in part) of amounts due under the CPA and/or under aircraft lease
agreements with Chorus' customers; the risk of disputes under the
CPA and/or under aircraft lease agreements; Chorus' ability to pay
its indebtedness and otherwise remain in compliance with its debt
covenants; the risk of cross defaults under debt agreements and
other significant contracts; the risk of asset impairments and
provisions for expected credit losses; a failure to conclude
transactions (including potential financings) referenced in this
news release and in Chorus' public disclosure record available at
www.sedar.com. The forward-looking statements contained in this
news release represent Chorus' expectations as of the date of this
news release (or as of the date they are otherwise stated to be
made) and are subject to change after such date. Chorus disclaims
any intention or obligation to update or revise such statements to
reflect 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 leading, 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 the sole 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.