Chorus Aviation announces solid second quarter earnings

• Net income of $16.2 million, or $0.12 per basic share, inclusive of an unrealized foreign exchange loss of $12.6 million.
• Adjusted net income¹ of $29.4 million, or $0.21 per basic share.
• Adjusted EBITDA¹ of $84.6 million increased $18.8 million or 28.6% primarily due to increased revenue from aircraft leasing.
• Completion of the sixth Extended Service Program (‘ESP’) on a Dash 8-300 aircraft.
• Awarded two new contract flying missions for an international customer utilizing four CRJ-200s.
• Acquired two Dash 8-300 to build part sales inventory.

HALIFAX, Aug. 9, 2018 /CNW/ – Chorus Aviation Inc. (‘Chorus’) (TSX: CHR) today announced solid second quarter financial results for the period ended June 30, 2018.

“Our business delivered solid performance in the second quarter of this year,” said Joe Randell, President and Chief Executive Officer, Chorus.  Our financial performance in the quarter generated over $84.0 million in adjusted EBITDA, an $18.8 million or 28.6 % increase over second quarter 2017 due primarily to growth in aircraft leasing.  Adjusted earnings per basic share was $0.21.

“We continue to build our regional aircraft leasing business and have executed new term sheets with various customers for the acquisition of several regional aircraft that are either currently on lease or will be placed on lease pursuant to sale and lease back transactions. These term sheets remain subject to the negotiation and execution of definitive agreements; further details will follow as transactions are finalized,” continued Mr. Randell. “The pipeline of opportunities is strong, and I’m confident in the growth potential of our leasing business.”

“In the quarter, we completed our sixth extended service program on a Dash 8-300 which is now generating leasing revenue under the CPA, and the seventh aircraft is currently in production.  We won new flying contracts utilizing CRJ 200 aircraft in Sudan and the Democratic Republic of Congo. Customer demand for our parts division, Avparts, is encouraging.  We recently acquired two Dash 8 – 300s to build our available parts inventory and have parted out 10 aircraft to date. We generate healthy margins on this business and see potential for growth.

“The Chorus team remains committed to building additional shareholder value and I thank them for embracing our vision to deliver regional aviation to the world,” concluded Mr. Randell.

SECOND QUARTER 2018

Financial Performance – second quarter 2018 compared to second quarter 2017

In the second quarter of 2018, Chorus reported Adjusted EBITDA of $84.6 million versus $65.8 million in 2017, an increase of $18.8 million or 28.6%.

The $18.8 million increase in Adjusted EBITDA was primarily driven by:

• a $14.9 million increase due to the growth in third party regional aircraft leasing;
• increased aircraft leasing revenue under the CPA of $1.4 million;
• decreased stock-based compensation of $1.8 million; and
• a decrease of $0.7 million in other expenses.

Adjusted net income was $29.4 million for the period, an increase from 2017 of $2.5 million, or 9.3%.  The change was a result of the $18.8 million increase in Adjusted EBITDA previously described and $0.3 million increase in other income; offset by:

• an additional $7.4 million in depreciation, primarily related to new aircraft;
• a $6.1 million increase in income taxes; and
• interest costs of $3.1 million related to additional aircraft debt and Convertible Units.

Net income was $16.2 million for the period, a decrease of $24.9 million or 60.6% from the same period of 2017. The decrease was primarily due to quarter-over-quarter change in foreign exchange of $31.3 million, offset by the previously noted $2.5 million increase in the adjusted net income and decreased employee separation program costs of $3.9 million.

Year to date 2018 compared to year to date 2017

For the six months ended June 30, 2018, Chorus reported Adjusted EBITDA of $162.6 million versus $120.3 million in 2017, an increase of $42.3 million or 35.2%.

The $42.3 million increase in Adjusted EBITDA was primarily driven by:

• a $28.7 million increase mainly due to the growth in third party regional aircraft leasing;
• increased aircraft leasing revenue under the CPA of $3.6 million;
• decreased stock- based compensation of $4.0 million; and
• a reduction of $6.0 million in other costs, which includes decreased crew cycle and training costs, and other general overhead.

Adjusted net income was $55.9 million for the period, an increase from 2017 of $12.9 million, or 29.9%.  The change was a result of the $42.3 million increase in Adjusted EBITDA previously described and a $0.3 million increase in other income offset by:

• an additional $15.0 million in depreciation primarily related to new aircraft;
• a $5.8 million increase in income taxes; and
• interest costs of $8.9 million related to additional aircraft debt and Convertible Units.

Net income was $21.2 million for the period, a decrease of $46.8 million or 68.8% from the same period of 2017.  The decrease was primarily due to a year over year change in foreign exchange of $64.4 million; offset by the previously noted $12.9 million increase in the adjusted net income and decreased employee separation program costs of $4.7 million.

2018 OUTLOOK

(See cautionary statement regarding forward-looking information below)

Since the start of last year, Chorus has realized net proceeds of $303.0 million through the issuance of convertible debt units in March 2017 and the issuance of common shares¹ in March 2018.

When combined with anticipated debt financing at typical ratios of up to three times equity, this capital affords Chorus the ability to invest up to $1.2 billion in the acquisition of aircraft for its leasing business.

Approximately 50% of this capital has been invested to date and Chorus anticipates committing the balance by mid-2019 in new to mid-life aircraft with long-term leases to a diverse group of high quality customers located in geographies around the world.

Capital expenditures for 2018, excluding those for the acquisition of aircraft and the ESP, and including capitalized major maintenance overhauls, are expected to be between $44.0 million and $50.0 million.

Based on 2017-2018 winter schedule, the 2018 summer schedule and updated planning assumptions from Air Canada, Billable Block Hours under the CPA for 2018 are expected to be between 360,000 and 375,000 hours based on 116 Covered Aircraft as at December 31, 2018. The actual number of Billable Block Hours for 2018 may vary from this anticipated range due to many factors.

^{1 ‘Common shares’ refers to Chorus’ Class A Variable Voting Shares and Class B Voting Shares}

Investor Conference Call / Audio Webcast

Chorus will hold an analyst call at 08:00 a.m. ET on Thursday, August 9, 2018 to discuss the second quarter financial results. The call may be accessed by dialing 1-888-231-8191. The call will be simultaneously audio webcast via:
https://event.on24.com/wcc/r/1776355/1E7741A1311B29D71834B77DCBAC3B93

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, August 16, 2018 by dialing toll-free 1-855-859-2056, and passcode 7499366#.

¹NON-GAAP MEASURES

This news release references 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 the Management’s Discussion and Analysis (‘MD&A’) dated August 8, 2018.

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, foreign exchange gains or losses on cash held on deposit for investment in the regional aircraft leasing business, signing bonuses, employee separation program costs and strategic advisory fees.  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. During the first quarter of 2017, Chorus revised its definition of Adjusted net income to exclude the signing bonuses, employee separation program costs, and strategic advisory fees to facilitate transparency and comparability as these items can fluctuate from period to period.  In addition, Chorus revised its definition of Adjusted net income to exclude foreign exchange gains or losses on US dollar denominated cash held on deposit for investment in the regional aircraft leasing business.  This item is excluded as it relates to a foreign exchange gain or loss on proceeds from the Convertible Units that were converted to US dollars and will be used to invest in long-term and primarily US dollar denominated assets, whose related income is expected to be earned over time. (Refer to Section 20-Forward-looking information)

EBITDA is defined as earnings before net interest expense, income taxes, and depreciation and amortization 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 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 occur over the longer-term (such as signing bonuses, employee separation program costs and strategic advisory fees) as well, which 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

Various Financial Measures

Forward-Looking Information

This news release should be read in conjunction with Chorus’ unaudited interim condensed and consolidated financial statements for the period ended June 30, 2018, and MD&A dated August 8, 2018, which are available on SEDAR at www.sedar.com and Chorus’ website at www.chorusaviation.ca.

This news release contains ‘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. Examples of forward-looking information include the discussion of term sheets for transactions that remain subject to the execution of definitive agreements and can also be found in this news release under the heading “2018 Outlook”, as well as the discussion throughout this news release of Chorus’ expectations for Chorus Aviation Capital’s market potential.

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. Actual results may differ materially from anticipated results indicated in forward-looking information for a number of reasons, including, without limitation, the failure to successfully negotiate and execute definitive agreements for the transactions contemplated by the term sheets, the development of circumstances which differ from the assumptions under the heading “2018 Outlook”, or changes in the competitive landscape in which Chorus Aviation Capital operates. Other risks that could cause actual results to differ materially from those indicated in forward-looking information include: 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 conditions precedent to the closing of anticipated transactions; 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; debt 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 Chorus’ Annual Information Form dated February 14, 2018. The statements containing forward-looking information in this discussion represent Chorus’ expectations as of August 9, 2018, 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.