CHR:CC - Chorus Aviation Announces Second Quarter 2022 Financial Results

Canada NewsWire

Q2 2022 Financial Highlights

• Net loss of $40.4 million , a quarter-over-quarter decrease of $61.9 million primarily due to anticipated aircraft repossessions and lease restructurings resulting in provisions of $45.6 million on CACIL's aircraft portfolio, unrealized foreign exchange losses of $34.3 million and strategic advisory fees of $5.7 million , offset by an increase in Adjusted net income of $16.2 million .
• Net loss available to Common Shareholders of $46.3 million , or $0.24 loss per basic Common Share, inclusive of dividends declared on Preferred Shares and non-controlling interest.
• Adjusted net income available to Common Shareholders of $21.7 million , or $0.11 per Common Share an increase of $10.3 million quarter-over-quarter inclusive of dividends declared on Preferred Shares and non-controlling interest.
• Adjusted net income of $27.6 million , an increase of $16.2 million quarter-over-quarter primarily due to an increase in earnings in the RAL segment related to the Falko Business.
• Adjusted EBITDA of $104.9 million , an increase of $28.0 million quarter-over-quarter.

Accomplishments

• Completed the Falko acquisition for US $843.7 million , inclusive of assumed debt.
• Second quarter results included two months of earnings from the Falko Business, increasing net income by $5.7 million and Adjusted EBT by $9.5 million .
• Integration of the Falko Business progressing as anticipated.
• Expanded owned, managed and/or operated fleet to 381 aircraft (including 35 aircraft in a servicing capacity).

HALIFAX, NS , Aug. 4, 2022 /CNW/ - Chorus Aviation Inc. ('Chorus') (TSX: CHR) today announced second quarter 2022 financial results.

"With our first quarter since the Falko acquisition now complete, I am happy to see Falko delivering the expected results. In addition, the integration of Falko is progressing very well as both organizations share similar leadership styles and cultures.

We have already begun to see the Falko asset management platform demonstrate its contribution to the diversification and flexibility of our business.  In June we announced the addition of 35 turboprop aircraft in a servicing capacity on behalf of a syndicate of banks further expanding our asset management business and demonstrating Falko's ability to broaden its customer base," stated Joe Randell , President and Chief Executive Officer, Chorus.

Mr. Randell continued: "The Falko acquisition has made Chorus a market leading regional aircraft asset manager and the world's largest aircraft lessor focused solely on the regional aircraft leasing space thereby significantly advancing our growth and diversification strategy. We now expect to derive approximately 50% of our 2022 annual Adjusted EBITDA from the Regional Aviation Leasing (RAL) segment of our business. We have begun the process of launching Falko's next fund and are pleased with the early response. We will continue to transition our focus to an asset light model and will opportunistically explore asset sales, where appropriate, to create additional shareholder value through paying down debt and generating incremental cash flows."

"In the second quarter we recorded a $45.6 million provision related to anticipated aircraft repossessions and lease restructurings. All our other customers are operating in compliance with lease agreements. This provision does not impact our longer-term outlook for the business," added Mr. Randell.

"I sincerely thank the Chorus group of employees for all their hard work and dedication, and in particular our frontline employees, for their continued focus on the safety and well-being of passengers in what has been a challenging environment. Our Jazz operation continues to ramp up, and Voyageur's parts provisioning and sales continue to hit new milestones as larger contracts won in 2021 progress as planned. We remain optimistic that these trends will continue to build momentum and we are very well positioned to execute on new growth opportunities that will deliver positive returns to our shareholders, fund investors, customers, and employees," Mr. Randell concluded.

In the second quarter of 2022, Chorus reported Adjusted EBITDA of $104.9 million , an increase of $28.0 million over the second quarter of 2021.

The RAL segment's Adjusted EBITDA increased by $25.4 million due to the inclusion of two months of earnings from the Falko Business as well as increased lease revenue from re-leased aircraft in CACIL's aircraft portfolio.

The RAS segment's Adjusted EBITDA increased by $2.6 million . Second quarter results were impacted by:

• an increase in other revenue due to an increase in parts sales and contract flying partially offset by a decrease in third-party MRO activity;
• an increase in capitalization of major maintenance overhauls on owned aircraft of $3.2 million ; and
• an increase in aircraft leasing revenue under the CPA of $1.3 million primarily due to a higher US dollar exchange rate; offset by
• an increase in general administrative expenses attributable to increased operations.

Adjusted net income was $27.6 million for the quarter, an increase of $16.2 million over the second quarter of 2021 due to:

• a $28.0 million increase in Adjusted EBITDA as previously described; and
• a decrease of $1.9 million primarily due to unrealized foreign exchange changes on working capital; partially offset by
• an increase in depreciation expense of $9.3 million primarily attributable to the Falko Business;
• an increase of $0.9 million in income tax expense on adjusted items;
• a decrease in gain on property and equipment of $1.6 million ;
• an increase in net interest costs of $1.1 million primarily related to interest on long-term debt assumed as part of the Falko Acquisition and interest on the Series B Debentures and Series C Debentures partially offset by the repayment of certain aircraft financings and the partial redemption of the 6.00% Debentures; and
• a loss on fair value of investments of $0.8 million .

Net loss increased $61.9 million over the second quarter of 2021 due to:

• an increase in impairment provision of $20.5 million ;
• an increase in net unrealized foreign exchange losses primarily on long-term debt of $34.3 million ;
• a restructuring expected credit loss provision of $10.4 million ;
• an increase in lease repossession costs of $12.0 million ;
• strategic advisory fees related to the Falko Acquisition of $5.7 million ; and
• an increase in employee separation program costs of $1.7 million ; partially offset by
• the previously noted increase in Adjusted net income of $16.2 million ; and
• an increase in income tax recoveries on adjusted items of $7.5 million .

Chorus reported Adjusted EBITDA of $188.2 million for 2022, an increase of $27.3 million over the same prior year period.

The RAL segment's Adjusted EBITDA increased by $28.3 million primarily due to the inclusion of two months of earnings related to the Falko Business, the recognition of the expected recovery of Chorus' claim in the Aeromexico bankruptcy and increased lease revenue from re-leased aircraft partially in CACIL's aircraft portfolio.

The RAS segment's Adjusted EBITDA decreased by $1.0 million due to:

• an increase in general administrative expenses attributable to increased operations; and
• an increase in stock-based compensation of $4.4 million due to a decrease in the Common Share price inclusive of the change in fair value of the Total Return Swap; partially offset by
• an increase in capitalization of major maintenance overhauls on owned aircraft of $4.6 million ;
• an increase in other revenue due to an increase in parts sales and contract flying partially offset by third-party MRO activity; and
• an increase in aircraft leasing revenue under the CPA of $1.6 million primarily due to a higher US dollar exchange rate.

Adjusted net income of $45.3 million an increase of $18.2 million over 2021 due to:

• a $27.3 million increase in Adjusted EBITDA as previously described;
• a decrease in net interest costs of $3.7 million primarily related to the repayment of certain aircraft financing and the partial redemption of the 6.00% Debentures partially offset by interest on long-term debt assumed as part of the Falko Acquisition and interest on the Series B Debentures and Series C Debentures; and
• a decrease of $0.9 million in realized foreign exchange losses and increased unrealized foreign exchange gains on working capital; partially offset by
• an increase in depreciation expense of $8.2 million primarily attributable to the Falko Business;
• a $3.2 million increase in income tax expense on adjusted items;
• a decrease in gain on property and equipment of $1.6 million ; and
• a loss on fair value of investments of $0.8 million .

Net loss of $17.5 million , an increase of $0.9 million over the prior period due to:

• an increase in impairment provisions of $20.5 million in the RAL segment;
• a change in net unrealized foreign exchange primarily on long-term debt of $33.7 million ;
• an increase in lease repossession costs of $11.6 million ;
• an increase in restructuring credit loss provision of $10.4 million ;
• a decrease in income tax recoveries on adjusted items of $14.0 million ;
• strategic advisory fees related to the Falko Acquisition of $8.4 million ; and
• an increase in employee separation program costs, exclusive of the cost attributable to the pilot early retirement program and signing bonuses of $1.2 million ; offset by
• the previously noted increase in Adjusted net income of $18.2 million ; and
• one-time restructuring costs of $80.7 million in 2021 related to the 2021 CPA Amendments.

This section provides detailed information and analysis about Chorus' performance for the three and six months ended June 30, 2022 compared to the three and six months ended June 30, 2021. It focuses on Chorus' consolidated operating results and provides financial information for Chorus' operating segments.

As of June 30, 2022, Chorus' liquidity was $148.6 million including cash of $70.7 million and $77.9 million of available room on its Operating Credit Facility and Unsecured Revolving Operating Credit Facility. Liquidity decreased from the first quarter of 2022 by $51.1 million primarily due to payment for the Falko Acquisition, offset partially by strong cash flows from operations.

In addition, in July 2022 Chorus securitized the beneficial interests in five aircraft trusts and as a result, was able to remove restrictions on US $27.6 million of cash that had been held as security for a loan.

Chorus anticipates having total liquidity in excess of $100.0 million for the remainder of 2022. This will provide it with sufficient liquidity to fund ongoing operations, planned capital expenditures and principal and interest payments related to long-term borrowings

(See cautionary statement regarding forward-looking information below)

Chorus completed the Falko Acquisition in the second quarter of 2022. This transformative transaction creates new opportunities for growth, through increased access to growth capital and a differentiated business model to maximize returns on aircraft assets.

Chorus' forecast ⁽¹⁾ for the year ended December 31, 2022 has been updated from the first quarter 2022 forecast due to i) the impact of anticipated aircraft repossessions in the CACIL portfolio, and ii) the initial closing of the new Falko managed fund anticipated to occur in the fourth quarter of 2022 (versus concurrent with the fund launch in the second quarter of 2022). The revised forecast is as follows:

Key Economic Assumptions:

• The forecast assumes the launch in the fourth quarter of 2022 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 $114.7 million and $66.3 million , respectively in 2022.
• The forecast uses weighted average statutory tax rates for each of the individual entities based on the jurisdiction in which the entity is taxable. The forecast uses a weighted average income tax rate of 20.0% based on average statutory tax rates of 26.5%, 12.5% and 19.0% in Canada , Ireland and United Kingdom , respectively. The actual weighted average income tax rates may vary due to the actual income in each country and foreign exchange rates.
• The forecast assumes no disposals in 2022 of aircraft leased under the CPA or in the RAL segment.
• The forecast uses a foreign exchange rate of 1.28 a change from the initial forecasted rate of 1.25 to translate USD to CAD revenue and expenses.

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. RAL collected approximately 88% of lease revenue billed in the second quarter of 2022. The gross lease receivable may decrease to approximately $119 .0 million (US $92 .3 million) ( June 30, 2022 $122.0 million (US $94.6 million )) by the end of 2022 due to rent relief arrangements and repayment expectations.

RAL's lease deferral receivable exposure is also partially mitigated by security packages held of approximately $23.4 million (US $18 .2 million) ( December 31, 2021 - $26.8 million (US $21.1 million )).

Capital expenditures in 2022, including capitalized major maintenance overhauls but excluding expenditures for the acquisition of aircraft are expected to be between $21.0 million and $33.0 million . Aircraft acquisitions and improvements in 2022 are expected to be between $22.0 million and $27.0 million . ⁽¹⁾

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 ).

Chorus will hold an analyst call at 9:00 ET on August 5, 2022 , to discuss the second quarter 2022 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/oD09eP4ekY8 .

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 , August 12, 2022 , by dialing toll-free1-888-390-0541, and using passcode 368433#.

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.

Chorus revised its definition of Adjusted net income in the second quarter of 2022 to include expected credit loss provision related to anticipated aircraft repossessions ("restructuring expected credit loss provision") to facilitate comparability of its results.

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 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.

Chorus revised its definition of Adjusted EBT and Adjusted EBITDA in the second quarter of 2022 to include the expected credit loss provision related to anticipated aircraft repossession ("restructuring expected credit loss provision") to facilitate comparability of its results. Adjusted EBT and 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.

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.

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 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, 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 acquisition transaction; the potential impact of the completion of the acquisition transaction on relationships, including with employees, suppliers, customers, investors and other providers of capital; Falko's ability to successfully launch a new fund in 2022 on the terms currently contemplated or at all; deviations from the key economic assumptions described in the Outlook section; a prolonged duration of the COVID-19 outbreak (including as a result of the emergence of new COVID-19 variants) and/or further restrictive measures to minimize its public health impacts, the evolving impact of COVID-19 on Chorus' contractual counterparties, changes in aviation industry and general economic conditions, including inflationary pressures, the continued payment (in whole or in part) of amounts due under the CPA and/or aircraft lease agreements with CAC's 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.

Chorus' vision is to deliver regional aviation to the world. Headquartered in Halifax, Nova Scotia , Chorus is an integrated provider of regional aviation solutions, including asset management services. Its principal subsidiaries are: Falko Regional Aircraft, the world's largest asset manager and aircraft lessor focused solely on the regional aircraft leasing segment; Jazz Aviation, the sole provider of regional air services to Air Canada; and Voyageur Aviation, a provider of specialty air charter, aircraft modification, and parts provisioning services to regional aviation customers around the world. Together, Chorus' subsidiaries provide support 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.

Chorus Class A Variable Voting Shares and Class B Voting Shares trade on the Toronto Stock Exchange under the trading symbol 'CHR'. Chorus 6.00% Senior Debentures due December 31, 2024 , 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', 'CHR.DB.A', 'CHR.DB.B', and 'CHR.DB.C' respectively. www.chorusaviation.com .

SOURCE Chorus Aviation Inc.

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