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.
_________________________
1 These are non-GAAP financial measures or non-GAAP ratios that are not recognized measures for financial statement presentation under GAAP. As such, they do not have standardized meanings, may not be comparable to similar measures presented by other issuers and should not be considered a substitute for or superior to GAAP results. Refer to "Non-GAAP Financial Measures" for further information.
2 The results of discontinued operations (RAL segment) have been excluded from both current and prior period figures to conform to current period presentation. All amounts presented and discussed in this press release are from continuing operations unless noted.
3 Refer to Pro Forma Financial Measures.
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.
(unaudited)
(expressed in thousands of Canadian dollars)
Three months ended September 30,
Nine months ended September 30,
2024
2023
Change
Change
2024
2023
Change
Change
$
$
$
%
$
$
$
%
(revised)(1)
(revised)(1)
Operating revenue(2)
341,987
377,898
(35,911)
(9.5)
1,051,799
1,044,983
6,816
0.7
Operating expenses
315,056
313,301
1,755
0.6
972,457
917,258
55,199
6.0
Operating income
26,931
64,597
(37,666)
(58.3)
79,342
127,725
(48,383)
(37.9)
Net interest expense
(8,810)
(10,456)
1,646
(15.7)
(26,906)
(29,842)
2,936
(9.8)
Foreign exchange gain (loss)
6,218
149
6,069
4,073.2
(7,842)
4,699
(12,541)
(266.9)
Gain on property and equipment
5
3
2
66.7
20
13
7
53.8
Income before income tax
24,344
54,293
(29,949)
(55.2)
44,614
102,595
(57,981)
(56.5)
Income tax expense
(4,542)
(15,387)
10,845
(70.5)
(10,952)
(29,253)
18,301
(62.6)
Net income from continuing operations
19,802
38,906
(19,104)
(49.1)
33,662
73,342
(39,680)
(54.1)
Net loss from discontinued operations, net of taxes
(1,392)
(21,758)
20,366
(93.6)
(183,515)
(3,857)
(179,658)
4,658.0
Net income (loss)
18,410
17,148
1,262
7.4
(149,853)
69,485
(219,338)
(315.7)
Net (loss) income attributable to non-controlling interest
(1,352)
553
(1,905)
(344.5)
1,039
2,310
(1,271)
(55.0)
Net income (loss) attributable to Shareholders
19,762
16,595
(3,167)
(19.1)
(150,892)
67,175
(218,067)
(324.6)
Preferred Share dividends declared
—
(8,799)
8,799
(100.0)
(17,827)
(26,486)
8,659
(32.7)
Earnings (loss) attributable to Common Shareholders
19,762
7,796
11,966
153.5
(168,719)
40,689
(209,408)
(514.7)
Adjusted EBITDA(3)
53,896
57,017
(3,121)
(5.5)
158,914
166,892
(7,978)
(4.8)
Adjusted EBT(3)
16,576
21,342
(4,766)
(22.3)
46,923
62,682
(15,759)
(25.1)
Adjusted Net Income(3)
11,943
14,249
(2,306)
(16.2)
35,737
41,289
(5,552)
(13.4)
(1)
The results of discontinued operations (RAL segment) have been excluded from both current and prior period figures in accordance with IFRS 5 to conform to current period presentation. All amounts presented and discussed in this release are from continuing operations unless noted.
(2)
Air Canada agreed to compensate Jazz for the one-time impact of the wage increase on the Jazz defined benefit pension plan of $29.9 million which will be repaid in 60 equal monthly payments beginning on December 1, 2023. In accordance with IFRS, the associated impact of the wage scale pension assumption change in the pension liability was charged directly to other comprehensive income.
(3)
These are non-GAAP financial measures that are not recognized measures for financial statement presentation under GAAP. As such, they do not have standardized meanings, may not be comparable to similar measures presented by other issuers and should not be considered a substitute for or superior to GAAP results.
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:
(unaudited)
(in thousands of Canadian dollars)
Summary of the Transaction
Net proceeds, net of transaction costs(1)
813,875
Redemption/Repayment:
Debentures(2)
243,750
Operating Credit Facility(3)
60,000
Preferred Shares(1)(4)
490,379
794,129
Net cash remaining
19,746
(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
(unaudited)
(in thousands of Canadian dollars, except per share amounts)
Three monthsended
September 30, 2024
$
Nine months
ended
September 30, 2024
$
Adjusted Earnings available to Common Shareholders as reported from continuing operations(1)(2)
11,943
17,910
