Mr. Mike Pyle reports
EXCHANGE INCOME CORPORATION ESTABLISHES NEW SECOND QUARTER HIGHS
Exchange Income Corp. has released its financial results for the three and six months ended June 30, 2019.
"Our strong results this quarter once again demonstrate the effectiveness of our time-tested strategy and diversified business model," said Mike Pyle, the chief executive officer of Exchange Income. "Prior investments in our operations, made with the intention of delivering future, sustainable results, combined with a focus on continued execution of our business plan, enabled EIC to establish new second quarter records for several key metrics, including revenue, EBITDA [earnings before interest, income taxes, depreciation, amortization, other non-cash items, such as gains or losses recognized on the fair value of contingent consideration items, asset impairment and restructuring costs, and any unusual non-operating one-time items, such as acquisition costs] and adjusted net earnings. Our trailing 12-month payout ratio, calculated on a free cash flow less maintenance capital expenditures basis, fell to 54 per cent -- an all-time best. As a result of the ongoing strength of our financial performance, we're pleased to announce our 14th dividend increase over the past 16 years, to an annualized rate of $2.28 -- a track record of growth that is among the best on the [Toronto Stock Exchange]."
Second quarter financial highlights:
Revenue grew 4 per cent to $326-million.
EBITDA increased by 16 per cent to $87-million.
Adjusted net earnings per share increased 4 per cent to 83 cents per share.
Adjusted net earnings trailing 12-month payout ratio improved to 74 per cent from 77 per cent.
Free cash flow less maintenance capital expenditures trailing 12-month payout ratio improved to 54 per cent from 64 per cent.
"During the first half of 2019, we continued to strengthen the foundation of our business by making additional investments in our operations and through winning new long-term contracts that will provide revenue streams and help fund our dividends for years to come. The Legacy Airlines began flying for the Manitoba provincial government under the new general transportation contract, and we anticipate having acquired and outfitted the last of six additional King Air aircraft early in the third quarter. After being awarded the aerial surveillance contract by the government of Canada late in the first quarter, we immediately initiated work on developing the enhanced fleet of Dash 8 and King Air aircraft required under the contract. This upfront investment will generate returns over the next decade for EIC. Quest's new manufacturing facility was completed, and production commenced during the second quarter, and just last week, we announced that our joint venture with SkyWest, which was completed in the first quarter of the year, had entered into an agreement to lease all 14 engines owned by the joint venture, together with nine airframes provided by Regional One, to a North American carrier for a 10-year period," added Mr. Pyle.
SELECTED FINANCIAL HIGHLIGHTS
(all amounts in thousands except per-cent and per-share data)
Q2 2019 Q2 2018 YTD 2019 YTD 2018
Revenue $325,907 $313,449 $622,923 $579,476
EBITDA (1) $87,237 $75,071 $151,063 $129,084
Net earnings $21,875 $19,547 $29,363 $28,161
Per share (basic) $0.68 $0.62 $0.93 $0.89
Adjusted net earnings (2) $26,573 $25,208 $39,297 $38,140
Per share (basic) $0.83 $0.80 $1.24 $1.21
adjusted net earnings payout
ratio (basic) 74% 77%
Free cash flow (3) $65,729 $58,785 $109,975 $99,381
Per share (basic) $2.05 $1.86 $3.47 $3.15
Free cash flow less
expenditures (4) $34,533 $29,679 $52,255 $39,521
Per share (basic) $1.08 $0.94 $1.65 $1.25
Trailing 12-month free
cash flow less maintenance
capital expenditures payout
ratio (basic) 54% 64%
Dividends declared $17,646 $17,357 $34,833 $34,090
(1) EBITDA is defined as earnings before interest, income taxes, depreciation,
amortization, other non-cash items, such as gains or losses recognized on the
fair value of contingent consideration items, asset impairment and
restructuring costs, and any unusual non-operating one-time items, such as
acquisition costs. EBITDA is not a defined performance measure under
international financial reporting standards, but it is used by management to
assess the performance of the corporation and its segments.
(2) Adjusted net earnings are defined as net earnings adjusted for acquisition
costs, amortization of intangible assets that are purchased at the time of
acquisition, interest accretion on acquisition contingent consideration and
non-recurring items. Adjusted net earnings are a performance measure, along
with free cash flow less maintenance capital expenditures, which the
corporation uses to assess cash flow available for distribution to
(3) Free cash flow is a performance measure used by management and investors
to analyze the cash generated from operations before the seasonal impact of
changes in working capital items or other unusual items. Free cash flow for
the period is equal to cash flow from operating activities as defined by
international financial reporting standards, adjusted for changes in non-cash
working capital, acquisition costs, principal payments on right-of-use assets
and any unusual non-operating one-time items.
(4) Maintenance capital expenditures is not an IFRS measure. Capital
expenditures are characterized as either maintenance or growth capital
expenditures. Maintenance capital expenditures are those required to
maintain the operations of the corporation at its current level and include
principal payments made on finance leases.
Review of second quarter financial results
Consolidated revenue for the quarter was $325.9-million, which was an increase of $12.5-million or 4 per cent over the comparative period. The manufacturing segment generated $7.0-million of the increase, while growth in the aerospace and aviation segment generated the other $5.5-million.
Aerospace and aviation segment revenue grew 2 per cent for the quarter to $238.9-million. Legacy Airlines and Provincial were up 8 per cent on higher volumes in Newfoundland and Labrador and Quebec; increased passenger and medevac volumes in the Kivalliq region; and contributions from the rotary-wing operation due to growth in new services, including the addition of emergency medical services.
Regional One's revenue for the quarter was down 10 per cent compared with the second quarter of last year, which benefited from a higher-than-average volume of whole aircraft and engine sales.
Manufacturing segment revenue increased 9 per cent to $87.0-million for the quarter. Prior investments in growth capital expenditures enabled the corporation's manufacturing businesses to respond to increased demand from customers. The segment benefited from an increase in custom manufacturing, high levels of defence spending worldwide and increased spending from telecommunications companies across Canada.
Consolidated EBITDA for the quarter was $87.2-million, which was an increase of $12.2-million or 16 per cent compared with the second quarter of last year. Excluding the impact of the adoption of IFRS 16, EBITDA increased 9 per cent. The growth was mainly attributable to strong EBITDA growth of 32 per cent (or 23 per cent excluding the impact of IFRS 16) from the Legacy Airlines and Provincial, which benefited from higher revenue; cost savings associated with operational efficiencies; capacity sharing across airline subsidiaries; and investment in additional aircraft in prior periods, which reduced third party charter costs.
In the second quarter, Exchange Income recorded adjusted net earnings of $26.6-million, or 83 cents per share, compared with $25.2-million, or 80 cents per share, in the second quarter of last year.
The corporation had free cash flow of $65.7-million and maintenance capital expenditures of $31.2-million for the year, compared with $58.8-million and $29.1-million, respectively, for the same period a year ago. Dividends declared increased to $17.6-million from $17.4-million a year ago. The growth in free cash flow exceeded the increase in maintenance capital expenditures and dividends, resulting in an improved payout ratio of 51 per cent for the quarter compared with 58 per cent for the same quarter last year.
Exchange Income's complete interim financial statements and management's discussion and analysis for the three- and six-month period ended June 30, 2019, can be found at the company's website or at SEDAR.
"As a result of EIC's strong performance in the first half of the year, we are on track to deliver on our 2019 guidance," added Mr. Pyle. "That guidance includes our expectations for EBITDA to grow between 10 and 15 per cent and adjusted net earnings per share to increase between 8 and 12 per cent. We also remain on pace to lower our free cash flow less maintenance capital expenditures payout ratio to 50 per cent and our adjusted net earnings payout ratio to 60 per cent over the next three years, as previously guided.
"We continue to be very pleased with our investment in Quest. The Canadian facility is operating at record levels of output, and we continue to grow our order book, which has grown by more than 50 per cent since Quest was acquired in late 2017. Quest's new facility in Dallas is complete, [and]production began in the second quarter and will continue to ramp up throughout the balance of the year, ultimately more than doubling Quest's production capacity. We are excited to host an investor day at our new plant on Sept. 18.
"Subsequent to quarter-end, the Force Multiplier flew its first mission and began generating revenue in July. Demand for PAL's short-term rental surveillance aircraft remains strong, and additional missions are already booked over the second half of the year.
"Calm Air International was recently chosen as the successful candidate in the government of Nunavut Medical Transfer RFP, extending the business we have been doing for the past 30-plus years. We're currently in the process of finalizing the contract, which would take effect later this year.
"Finally, we continue to explore new acquisition opportunities. Our acquisition pipeline is very robust and contains a number of interesting prospects."
Conference call notice
Management will hold a conference call to discuss its second quarter 2019 financial results on Aug. 8, 2019, at 8:30 a.m. ET. To join the conference call, dial 1-888-231-8191 or 647-427-7450. Please dial in 15 minutes prior to the call to secure a line. The conference call will be archived for replay until Aug. 15, 2019, at 12 a.m. To access the archived conference call, please dial 1-855-859-2056, and enter the encore code 4789904.
A live audio webcast of the conference call will be available at the Exchange Income website. Please connect at least 15 minutes prior to the conference call to ensure adequate time for any software download that may be required to join the webcast. An archived replay of the webcast will be available for 90 days.
About Exchange Income Corp.
Exchange Income is a diversified acquisition-oriented company.
The corporation currently operates two segments: aerospace and aviation and manufacturing. The aerospace and aviation segment consists of the operations of Perimeter Aviation, Keewatin Air, Calm Air International, Bearskin Lake Air Service (operating as a division of Perimeter Aviation), Custom Helicopters, Regional One, Provincial Aerospace and Moncton Flight College, and an investment in Wasaya Group. The manufacturing segment consists of the operations of Overlanders Manufacturing, Water Blast, Stainless Fabrication, WesTower Communications, Ben Machine and Quest Window Systems.
We seek Safe Harbor.
© 2020 Canjex Publishing Ltd. All rights reserved.