Mr. Mike Pyle reports
EXCHANGE INCOME CORPORATION ANNOUNCES RECORD RESULTS
Exchange Income Corp. has released its financial results for the three and 12 months ended Dec. 31, 2019. All amounts are in Canadian currency.
2019 financial highlights:
- Revenue grew 11 per cent to $1.34-billion.
EBITDA (earnings before interest, taxes, depreciation and amortization) increased by 18 per cent to $329-million.
- Adjusted net earnings per share increased by 7 per cent to $3.15 per share, marking the first time this key measure has exceeded $3.
Monthly dividend increased by 4 per cent to 19
- Adjusted net earnings payout ratio improved to 71 per cent from 74 per cent.
- Free cash flow less maintenance capital expenditures payout ratio strengthened to 57 per cent from 60 per cent.
Q4 financial highlights:
- Revenue grew 15 per cent to $363-million.
- EBITDA increased by 28 per cent to $89-million.
Adjusted net earnings per share increased by 11 per cent to 88 cents per share.
- Adjusted net earnings payout ratio improved to 65 per cent from 69 per cent.
Higher maintenance capital expenditure in this quarter resulted in the free cash flow less maintenance capital expenditure ratio being essentially unchanged from last year at 52 per cent versus 51 per cent.
Chief executive officer commentary
"Two thousand nineteen was another great year for EIC as we extended our track record of double-digit EBITDA growth and record earnings per share," said Mike Pyle, the CEO of Exchange Income. "Beyond the financial results, however, we made significant investments in our future that will fuel our growth in 2020 and beyond. It is precisely that focus on the longer term that has enabled EIC to achieve the sustained success that has been generated since our IPO in 2004. In the 15-year period, we have maintained a strategy of accretive growth through both acquisition and organic investment. We are very proud that the consistent application of this strategy and the commitment to invest now for returns in the future has enabled EIC to earn a compounded annual return, including dividend reinvestment, of 21 per cent since our inception. Our return is approximately three times that of the TSX over the same period and puts EIC in a very small group of companies with that level of return to its shareholders. This strong financial performance enabled EIC to raise its dividend for the 14th time in 15 years, maintaining the 5-per-cent cumulative annual growth rate that we have generated since inception. Even with the increase in the dividend, the payout ratio strengthened again in 2019."
SELECTED FINANCIAL HIGHLIGHTS
(all amounts in thousands, except percentages and per-share data)
FY 2019 FY 2018 Q4 2019 Q4 2018
Revenue $1,341,374 $1,203,392 $363,287 $315,737
EBITDA (1) $328,813 $277,765 $88,748 $69,507
Net earnings $83,636 $70,769 $25,283 $18,446
Per share (basic) $2.58 $2.25 $0.74 $0.59
Adjusted net earnings (2) $102,127 $92,360 $29,757 $24,670
Per share (basic) $3.15 $2.94 $0.88 $0.79
Adjusted net earnings payout ratio 71% 74% 65% 69%
Free cash flow (3) $245,772 $223,363 $68,631 $59,763
Per share (basic) $7.58 $7.10 $2.02 $1.91
Free cash flow less maintenance capital expenditures (4)
payout ratio 57% 60% 52% 51%
Dividends declared $72,742 $68,460 $19,764 $17,155
(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 and acquisition costs. EBITDA is not a
defined performance measure under international financial reporting standards (IFRS), but it is used by
management to assess the performance of the corporation and its segments.
(2) Adjusted net earnings is defined as net earnings adjusted for acquisition costs expensed, amortization of
intangible assets that are purchased at the time of acquisition and non-recurring items. Adjusted net
earnings is a performance measure, along with free cash flow less maintenance capital expenditures, which
the corporation uses to assess cash flow available for distribution to shareholders.
(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 IFRS, adjusted for
changes in non-cash working capital and long-term deferred revenue, acquisition costs, 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 includes principal payments made on finance leases.
Review of 2019 financial results
Consolidated revenue for the year was $1.34-billion, representing an 11-per-cent increase over the previous record of $1.2-billion reported for 2018. The higher revenue in 2019 was primarily attributable to organic growth in both the aerospace and aviation and manufacturing segments as the company's acquisitions of LV Controls and AWI occurred later in the fourth quarter.
Aerospace and aviation segment revenue was up 10 per cent to $974.7-million, driven by a 10-per-cent increase at Legacy Airlines and Provincial, and an 11-per-cent increase at Regional One. Aerospace revenue increased with the deployment of the Force Multiplier aircraft and greater in-service support revenue as overseas maritime surveillance flying hours increased. Passenger and medevac revenue increased driven by higher volumes in Newfoundland and Labrador, and Quebec, and increased passenger revenue in the Manitoba market. The segment also benefited from revenue associated with a new long-term contract to provide general transportation services to the judicial system within Northern Manitoba.
Manufacturing segment revenue grew 15 per cent to $366.6-million. The segment continued to benefit from an increase in custom manufacturing and high levels of defence spending worldwide. Revenue at Quest also increased as the new Dallas plant began production.
Consolidated EBITDA for the year increased 18 per cent to $328.8-million, compared with $277.8-million in 2018. EBITDA from the manufacturing segment increased 7 per cent and the aerospace and aviation segment increased 21 per cent. The growth in EBITDA was primarily from revenue increases together with a continuing focus on operational efficiencies and capacity sharing. This was offset somewhat as early production at the Quest Dallas facility was limited to ensure quality during the ramp-up process.
For the year, adjusted net earnings improved to $102.1-million or $3.15 per share, compared with $92.4-million or $2.94 per share in 2018. Net earnings for the year were $83.6-million or $2.58 per share, compared with $70.8-million or $2.25 per share in 2018.
The corporation had free cash flow of $245.8-million and maintenance capital expenditures of $119.7-million for the year, compared with $223.4-million and $109.0-million, respectively, in 2018. Dividends declared increased to $72.7-million from $68.5-million the year before. The growth in free cash flow exceeded the increase in maintenance capital expenditures and dividends, resulting in an improved payout ratio of 57 per cent for the year, which was the lowest in the corporation's history.
Review of Q4 financial results
Revenue generated by the corporation during the fourth quarter was $363.3-million, an increase of $47.6-million or 15 per cent over the comparative period. Of the increase, $18.5-million relates to the aerospace and aviation segment and $29.1-million relates to the manufacturing segment. Revenue drivers were largely consistent with the whole year, as the company experienced increases in aerospace revenue, more passenger and charter flying, and increases at Regional One and in its manufacturing segment.
EBITDA generated by the corporation during the fourth quarter was $88.7-million, an increase of $19.2-million or 28 per cent over the comparative three-month period. The aerospace and aviation segment generated $17.5-million of the increase and the manufacturing segment generated $3.3-million of the increase. The large increase in the fourth quarter EBITDA was driven by a strong performance by the Legacy Airlines and Provincial.
"In addition to a long-term focus on accretive growth, EIC has always maintained a strong balance sheet with modest leverage and plenty of liquidity to allow us to attack opportunities when they are uncovered," stated Exchange Income chief financial officer Darryl Bergman. "We executed on this strategy in 2019 as we twice tapped the capital markets, for convertible debentures in March and for common equity in October. A new syndicated debt facility increased access to capital by half a billion dollars while reducing borrowing costs and improving financial flexibility. A demonstrated commitment to consistent leverage levels while growing per-share returns is a reliable model for generating shareholder returns. We enter 2020 having access to almost $900-million in available capital and are in a great position to execute on our model."
"While 2019 was clearly a strong year financially, I believe the financial returns were eclipsed by the investments made in our future," said Carmele Peter, president of Exchange Income. "Our state-of-the-art window factory in Dallas went into production in the second half of 2019 and will grow revenue and profits from Quest. Quest will also benefit from the acquisition of AWI, a glazier in the U.S., which will vertically integrate installation capabilities for Quest's U.S. operations. The acquisition of LV Control will further strengthen the manufacturing segment through its position as an industry leader with exposure to the agricultural marketplace. The aerospace and aviation segment is also poised for a strong 2020 after its remarkable 2019. The renewal of significant contracts such as the Nunavut medical patient transfer contract means that the segment has no North American contracts maturing in 2020 or 2021. The ramp-up of previous contract wins, such as the government of Canada's fixed wing search and rescue work, and the implementation of the expanded Department of Fisheries contract, will drive continued growth."
"I am pleased to confirm our initial guidance for 2020 that we expect to extend our double-digit growth in EBITDA for an eighth year, with further growth of 10 [to] 15 per cent. We remain committed to a long-term focus as we move into 2020. Our balance sheet is stronger than ever and we have the ability to strike when the right opportunities are uncovered. Two thousand nineteen was a great year for EIC and we are excited about 2020," Mr. Pyle concluded.
Exchange Income's complete consolidated annual financial statements and management's discussion and analysis for the three- and 12-month periods ended Dec. 31, 2019, can be found on the company's website and on SEDAR.
Conference call notice
Management will hold a conference call to discuss the corporation's 2019 results on Feb. 21, 2020, 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 Feb. 28, 2019, at midnight. To access the archived conference call, please dial 1-855-859-2056 and enter the encore code 2786477.
A live audio webcast of the conference call will be available on the company's website. ca
. 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 focused in two sectors: aerospace and aviation services and equipment, and manufacturing. The corporation uses a disciplined acquisition strategy to identify already profitable, well-established companies that have strong management teams, generate steady cash flow, operate in niche markets and have opportunities for organic growth.
We seek Safe Harbor.
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