Achieves first quarter targets, increases guidance
Q1 2024 Highlights:
- Free Cash Flow of
$102.1 million , compared to$73.1 million for Q1 2023, primarily derived from operating cash flows and net proceeds of$38.0 million related to the sale of two A220-300s, one ATR72-500 and two engines. - Leverage Ratio improved to 3.4 at
March 31, 2024 from 3.6 atDecember 31, 2023 , primarily through long-term debt repayments of$134.6 million sinceDecember 31, 2023 . - Net income of
$12.3 million , compared to$32.0 million for Q1 2023. - Adjusted Earnings available to Common Shareholders of
$11.8 million , compared to$21.5 million for Q1 2023. - Adjusted Earnings available to Common Shareholders of
$0.06 per Common Share, basic, compared to$0.11 for Q1 2023. - Adjusted EBITDA of
$109.1 million , compared to$118.1 million for Q1 2023. - Purchased and cancelled 938,216 Common Shares under the current NCIB during the quarter.
- Purchased one
King Air 350 in the first quarter of 2024 and leased it to theCanadian Department of National Defence as an addition to Voyageur's existing contract for in-service-support of the manned airborne intelligence surveillance and reconnaissance (MAISR) program. - Falko executed a sale and purchase agreement with
Nordic Aviation Capital to acquire a portfolio of 24 Embraer aircraft on behalf of Fund II.
"Throughout the first quarter, Chorus continued to perform well and delivered results in line with our guidance. We made solid progress on debt reduction and generation of cash flows from operations and asset sales," said
"We expect continued strong cash generation and are increasing our 2024 guidance for consolidated Adjusted EBITDA and Free Cash Flow, as well as the majority of guidance for RAL, including net proceeds from asset sales," commented
"Improving value for our shareholders is our top priority. We acknowledge the pace of transitioning our leasing business to an asset light model has been slow. As such, we have been working hard for several months to explore options to accelerate the monetization of the asset value in our leasing business," said
"Between
In the first quarter of 2024, Chorus reported Adjusted EBITDA of
The RAL segment's Adjusted EBITDA was
- a decrease in lease revenue of
$9.9 million primarily due to lower market lease rates on re-leased aircraft, lower maintenance reserve releases and the sale of aircraft in 2024; and - increased general administrative expense; partially offset by
- a decrease in expected credit loss ("ECL") provisions of
$3.1 million due to improved credit ratings on certain lessees; and - an increase in the net gain on sale of assets of
$3.0 million .
The RAS segment's Adjusted EBITDA was
- a decrease in aircraft leasing revenue under the CPA of
$4.5 million primarily due to a change in lease rates on certain aircraft; and - a decrease in other revenue of
$1.6 million primarily due to Voyageur's decreased revenue in parts sales, contract flying and MRO activity; partially offset by - an improvement in the Controllable Cost Guardrail of
$2.0 million ; and - an increase in capitalization of major maintenance overhauls on owned aircraft of
$1.9 million .
Corporate Adjusted EBITDA was
Adjusted Net Income was
- a
$9.0 million decrease in Adjusted EBITDA as previously described; - an increase in depreciation expense of
$4.7 million primarily attributable to a change in depreciation estimates on certain aircraft and capital expenditures; and - a negative change in foreign exchange of
$2.0 million ; partially offset by - a decrease of
$5.1 million in income tax expense; - a decrease in net interest costs of
$3.0 million ; and - a positive change in the fair value on investments and derivatives of
$0.9 million .
Net income decreased
- the previously noted decrease in Adjusted Net Income of
$6.7 million ; and - a negative change in net unrealized foreign exchange of
$14.6 million ; partially offset by - a decrease in lease repossession costs of
$1.6 million .
This section provides detailed information about Chorus' performance for the three months ended
(unaudited) (expressed in thousands of Canadian dollars) | Three months ended | |||
2024 | 2023 | Change | Change | |
$ | $ | $ | % | |
Operating revenue | 426,184 | 415,252 | 10,932 | 2.6 |
Operating expenses | 376,348 | 353,349 | 22,999 | 6.5 |
Operating income | 49,836 | 61,903 | (12,067) | (19.5) |
Net interest expense | (22,454) | (25,458) | 3,004 | (11.8) |
Foreign exchange (loss) gain | (12,652) | 4,031 | (16,683) | (413.9) |
Gain on fair value of investments and derivatives(1) | 3,065 | 1,892 | 1,173 | 62.0 |
Income before income tax | 17,795 | 42,368 | (24,573) | (58.0) |
Income tax expense | (5,485) | (10,349) | 4,864 | (47.0) |
Net income | 12,310 | 32,019 | (19,709) | (61.6) |
Net income attributable to non-controlling interest | 3,491 | 490 | 3,001 | 612.4 |
Net income attributable to Shareholders | 8,819 | 31,529 | (22,710) | (72.0) |
Preferred Share dividends declared | (8,848) | (8,871) | 23 | (0.3) |
(Loss) earnings attributable to Common Shareholders | (29) | 22,658 | (22,687) | (100.1) |
Adjusted EBITDA(2) | 109,061 | 118,056 | (8,995) | (7.6) |
Adjusted EBT(2) | 29,927 | 41,789 | (11,862) | (28.4) |
Adjusted Net Income(2) | 24,107 | 30,824 | (6,717) | (21.8) |
(1) | Includes fair value of the New Notes received pursuant to the Azul Restructuring. |
(2) | 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. |
(See cautionary statement regarding forward-looking information below.)
The discussion that follows includes forward-looking information. This outlook is provided for the purpose of providing information about current expectations for 2024. Forecast information has also been provided for 2025 and 2026 for Jazz. This information may not be appropriate for other purposes.
Chorus' forecast for the year ending
2024 Annual Forecast(1) $ | |||
(unaudited) (in thousands of Canadian dollars) | |||
Adjusted EBITDA(2)(3) | 360,000 | to | 410,000 |
Free Cash Flow(2)(3) | 300,000 | to | 350,000 |
Leverage Ratio(2)(3)(4) | 3.1 | to | 3.5 |
(1) | The forecast uses a foreign exchange rate of 1.3400 for 2024 to translate USD to CAD. |
(2) | 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. |
(3) | The forecast is based on projected earnings under existing contracts, expected asset sales in 2024 and future market lease rates for lease renewals and extensions. |
(4) | The forecast is based on the contractual nature of Chorus' earnings, amortizing debt repayments and expected asset sales. Deleveraging amounts will vary from quarter-to-quarter depending on the timing and quantum of asset sales. |
The CPA provides a Fixed Margin to Jazz regardless of flying levels; therefore, any variations in flying are not expected to have any impact on Jazz's earnings. In addition, Jazz receives compensation for aircraft leased under the CPA that generates predictable Free Cash Flows. Jazz aircraft have amortizing debt that will be fully paid-off at the end of the original lease term under the CPA. At the end of each lease, Jazz will either extend the lease, sell or part-out each aircraft. Subsequent aircraft leases will continue to produce predictable Free Cash Flow at lower rates as the aircraft will be unencumbered.
Annual Forecast(1) | |||
(unaudited) (in thousands of Canadian dollars) | 2024 $ | 2025 $ | 2026(2) $ |
Fixed Margin | 60,900 | 59,600 | 43,900 |
Aircraft leasing under the CPA | |||
Revenue | 130,000 | 113,000 | 93,000 |
Payment on long-term debt and interest | 95,000 | 74,000 | 66,000 |
Total Fixed Margin and Aircraft leasing under the CPA | 95,900 | 98,600 | 70,900 |
Wholly-owned aircraft leased under the CPA (end of | 48 | 39 | 39 |
Wholly-owned aircraft leased under the CPA available for | nil | 9 | 9 |
(1) | The forecast uses a foreign exchange rate of 1.3400 for 2024 and 1.2700 for 2025 and 2026 to translate USD to CAD. |
(2) | Includes estimates for future market lease rates for 12 Q400's for 2026. |
RAL continues to execute on its asset light leasing strategy which consists of monetizing select on-balance sheet aircraft while growing its contractual fund management business. Maximizing cash flow generation from existing aircraft through lease term extensions is also a key element of RAL's business model.
Annual 2024 Forecast(1) $ | |||
(unaudited) (in thousands of Canadian dollars) | |||
Operating revenue(2) | 220,000 | to | 240,000 |
Depreciation and amortization excluding impairment(3) | 102,000 | to | 112,000 |
Net interest expense(3) | 49,000 | to | 53,000 |
Gain on the fair value of Fund II investment(4) | 5,000 | to | 10,000 |
Gross proceeds on asset sales(2) | 150,000 | to | 200,000 |
Net proceeds on asset sales(2) | 60,000 | to | 80,000 |
(1) | The forecast uses a foreign exchange rate of 1.3400 for 2024 to translate USD to CAD. |
(2) | The forecast reflects: a) the expected sale of nine CRJ900 engines; b) the sale of two A220-300's; c) additional anticipated aircraft sales; and d) certain assumptions and estimates for future market lease rates related to new and extended leases. The forecast does not include end-of-lease compensation or maintenance reserve releases beyond first quarter actual 2024. |
(3) | The depreciation excluding impairment and net interest expense forecast is based on the normal amortization of aircraft and long-term debt and the expected sale of assets in 2024. |
(4) | The forecasted gain on fair value of the Fund II investment is based on expectations related to the trading and general financial condition of the investment to compute the value of the discounted cash flows. |
Fund III is anticipated to close by the end of the 2024 year and is expected to have (i) a minimum of US
Chorus intends to opportunistically trade RAL's wholly-owned or majority-owned aircraft including in connection with the windup of its 67.45% ownership in
Chorus participated in the Azul S.A. ("Azul") restructuring which was finalized on
In exchange for the Existing AR, RAL received new notes on
RAL's gross receivable, excluding long-term New Notes, primarily related to rent relief arrangements, may decrease from the
RAL's gross receivable exposure is partially mitigated by security packages held of approximately US
(unaudited) (in thousands of US dollars) | As at | |
$ | $ | |
RAL gross receivable, excluding New Notes | 68,992 | 108,226 |
Short-term New Notes(1) | 12,943 | — |
81,935 | 108,226 | |
Long-term New Notes(1) | 43,931 | — |
125,866 | 108,226 | |
Deferred revenue - Azul restructuring | (32,470) | — |
93,396 | 108,226 |
(1) | New Notes include US |
Capital expenditures in 2024 are expected to be as follows:
(unaudited) (in thousands of Canadian dollars) | Annual Forecast 2024 $ | |||
Capital expenditures, excluding aircraft acquisitions | 11,000 | to | 16,000 | |
Capitalized major maintenance overhauls(1) | 11,000 | to | 16,000 | |
Aircraft acquisitions and improvements | 17,500 | to | 22,500 | |
39,500 | to | 54,500 |
(1) | The 2024 plan includes between |
Capitalized terms used but not defined in this news release have the meanings given to them in management's discussion and analysis of results of operations and financial condition ("MD&A") dated the date hereof, which is available on Chorus' website (www.chorusaviation.com) and under Chorus' profile on SEDAR+ (www.sedarplus.ca).
Chorus will hold an analyst call at
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. A playback of the call can also be accessed until
NON-GAAP FINANCIAL MEASURES
This news release references several non-GAAP financial measures and ratios to supplement the analysis of Chorus' results. Chorus uses these non-GAAP measures to evaluate and assess performance. These non-GAAP measures are generally numerical measures of Chorus' 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 standardized meanings, may not be comparable to similar measures presented by other entities, and should not be considered a substitute for or superior to GAAP results. For further information on non-GAAP measures used in this news release, please refer to Section 18 (Non-GAAP Financial Measures) of the MD&A dated the date hereof, which is available on Chorus' website (www.chorusaviation.com) and under Chorus' profile on SEDAR+ (www.sedarplus.ca). Reconciliations of non-GAAP measures to their nearest GAAP measures are provided below.
(unaudited) (expressed in thousands of Canadian dollars) | Three months ended | ||
2024 $ | 2023 $ | Change $ | |
Net income | 12,310 | 32,019 | (19,709) |
Add (Deduct) items to get to Adjusted Net Income | |||
Employee separation program(1) | 7 | 290 | (283) |
Lease repossession costs(1) | 2,660 | 4,303 | (1,643) |
Unrealized foreign exchange loss (gain) | 9,465 | (5,172) | 14,637 |
Tax recovery on adjusted items | (335) | (616) | 281 |
11,797 | (1,195) | 12,992 | |
Adjusted Net Income | 24,107 | 30,824 | (6,717) |
Add (Deduct) items to get to Adjusted EBT | |||
Income tax expense | 5,485 | 10,349 | (4,864) |
Tax recovery on adjusted items | 335 | 616 | (281) |
Adjusted EBT | 29,927 | 41,789 | (11,862) |
Add (Deduct) items to get to Adjusted EBITDA | |||
Net interest expense | 22,454 | 25,458 | (3,004) |
Depreciation and amortization excluding impairment | 54,380 | 49,659 | 4,721 |
Foreign exchange loss | 3,187 | 1,141 | 2,046 |
(Gain) loss on fair value of investments and derivatives(2) | (887) | 9 | (896) |
79,134 | 76,267 | 2,867 | |
Adjusted EBITDA | 109,061 | 118,056 | (8,995) |
(1) | Included in operating expenses. |
(2) | Includes fair value of the New Notes received pursuant to the Azul Restructuring. |
Adjusted earnings available to Common Shareholders per Common Share is used by Chorus to assess performance and is calculated as Adjusted net income less non-controlling interest and Preferred Share dividends declared.
(unaudited) (expressed in thousands of Canadian dollars, except per Share amounts) | Three months ended | ||
2024 $ | 2023 $ | Change $ | |
Adjusted Net Income | 24,107 | 30,824 | (6,717) |
Add (Deduct) items to get to Adjusted Earnings available to | |||
Net income attributable to non-controlling interest | (3,491) | (490) | (3,001) |
Preferred Share dividends declared | (8,848) | (8,871) | 23 |
Adjusted Earnings available to Common Shareholders | 11,768 | 21,463 | (9,695) |
Adjusted Earnings available to Common Shareholders per | 0.06 | 0.11 | (0.05) |
Leverage Ratio is used by Chorus as a means to measure financial leverage. Leverage Ratio is calculated by dividing Net debt by trailing 12-month Adjusted EBITDA. Management believes Leverage Ratio to be a useful ratio when monitoring and managing debt levels. In addition, as leverage is a measure frequently analyzed for public companies, Chorus has calculated the amount to assist readers in this review. Leverage Ratio should not be construed as a measure of cash flows. Net debt is a key component of capital management for Chorus and provides management with a measure of its net indebtedness.
(unaudited) (expressed in thousands of Canadian dollars) | Change | ||
$ | $ | $ | |
Long-term debt and lease liabilities (including current portion) | 1,608,584 | 1,755,580 | (146,996) |
Less: | |||
Cash | (81,171) | (85,985) | 4,814 |
Net debt | 1,527,413 | 1,669,595 | (142,182) |
Adjusted EBITDA | 449,671 | 458,666 | (8,995) |
Leverage Ratio | 3.4 | 3.6 | (0.2) |
Free Cash Flow is a non-GAAP measure used as an indicator of financial strength and performance. Chorus believes that this measurement is useful as an indicator of its ability to service its debt, meet other ongoing obligations and reinvest in the Corporation and return capital to Common Shareholders. Readers are cautioned that Free Cash Flow does not represent residual cash flow available for discretionary expenditures.
Free Cash Flow is defined as cash provided by operating activities less net changes in non-cash balances related to operations, capital expenditures excluding aircraft acquisitions and improvements plus net proceeds on asset sales (proceeds on disposal of property and equipment less the related debt repayments for the assets sold).
The following table provides a reconciliation of Free Cash Flow to cash flows from operating activities, which is the most comparable financial measure calculated and presented in accordance with GAAP:
(unaudited) (expressed in thousands of Canadian dollars) | Three months ended | ||
2024 | 2023 | Change | |
$ | $ | $ | |
Cash provided by operating activities | 93,071 | 67,253 | 25,818 |
Add (Deduct) | |||
Net changes in non-cash balances related to operations | (21,148) | 12,569 | (33,717) |
Capital expenditures, excluding aircraft acquisitions | (3,037) | (3,161) | 124 |
Capitalized major maintenance overhauls | (4,768) | (3,599) | (1,169) |
64,118 | 73,062 | (8,944) | |
Net proceeds on asset sales | 38,001 | — | 38,001 |
Free Cash Flow | 102,119 | 73,062 | 29,057 |
Forward-Looking Information
This news release includes forward-looking information and statements within the meaning of applicable securities laws (collectively, "forward-looking information"). Forward-looking information is 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 negative versions thereof. Such information may involve but is not limited to comments with respect to assumptions, strategies, expectations, planned operations or future actions. 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 referenced below, and are subject to important risks and uncertainties. Any forecasts or forward-looking predictions cannot be relied upon due to, among other things, external events, changing market conditions and general uncertainties of the business. Such information involves 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, Chorus' future growth and competitive position, the growth of Falko's asset management business, the transition of Chorus' leasing business to an asset light leasing model and efforts to accelerate value realization in Chorus' leasing business, the generation of cash flows from asset sales and potential deployment of those proceeds to enhance returns to Shareholders and/or invest in accretive growth opportunities, the completion of pending or planned transactions (including the successful close of Falko's Fund III), Jazz's efforts to increase flying capacity under the CPA, and expectations with regard to Share purchases under the NCIB. Actual results may differ materially from results indicated in forward-looking information for a number of reasons, including if: any one or more of the key assumptions described in the Outlook section fails to materialize; Chorus is unable to realize the anticipated benefits of the Falko Acquisition, including the transition to an asset light leasing model; Falko is unable to successfully launch Fund III on the terms currently contemplated or at all; Chorus (including any of its subsidiaries) is unable to attract and retain the type and number of human resources it needs to operate its business; new COVID-19 variants and/or new pandemic or endemic diseases emerge and restrictive measures are implemented to minimize their public health impacts; the effects of the COVID-19 pandemic continue to adversely impact the financial health of Chorus' contractual counterparties; general economic conditions (including inflation and interest rates) worsen, or general conditions for the aviation industry deteriorate; payments cease (in whole or in part) under the CPA and/or aircraft lease agreements with Chorus' customers; disputes emerge under the CPA and/or aircraft lease agreements; Chorus defaults under any of its debt covenants; asset impairments and/or provisions for ECL are required; changes in law are made (including regulations relating to climate change) which adversely affect Chorus' business or assets; transactions (including financings) referenced in this news release or in Chorus' public disclosure record fail to conclude on the terms currently contemplated or at all; and/or one or more of the risk factors referenced in Chorus' most recent Annual Information Form, the risk factors in Section 8 Capital Structure and Section 10 Risk Factors of the MD&A and in the Corporation's public disclosure record available under its profile on SEDAR+ at www.sedarplus.ca materializes. The forward-looking information contained in this news release represents Chorus' expectations as of the date of this news release (or as of the date they are otherwise stated to be made) and is subject to change after such date. Chorus disclaims any intention or obligation to update or revise any forward-looking information as a result of 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.
About
Chorus is a global aviation solutions provider and asset manager, focused on regional aviation. Our principal subsidiaries are:
Chorus Class A Variable Voting Shares and Class B Voting Shares trade on the
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