- Record revenue of $510.3 million and net earnings of $20.7 million driven by acquisitions and on-going operations -
WINNIPEG, March 13, 2012 /CNW/ - Exchange Income Corporation (TSX: EIF) (the "Corporation"), a diversified, acquisition-oriented company focused on niche aviation and specialty manufacturing sectors, reported its financial results for the three- and 12-month periods ended December 31, 2011. All amounts are in Canadian currency.
"2011 was a breakout year for Exchange," said Michael Pyle, President and CEO of Exchange Income Corporation. "By closely following our disciplined acquisition strategy and diversified business model, we set new benchmarks for each of our key financial metrics. Most notably, we grew our revenue by more than 100% to $510.3 million, and we generated net earnings of $20.7 million. Our strong results, driven by the acquisitions of WesTower Communications and Bearskin Airlines and the improved results for the Company's pre-existing businesses enabled us to increase our dividend distributions to shareholders for the sixth time in the seven years since we were founded."
2011 Financial and Operational Highlights
- Consolidated revenue increased 109% to $510.3 million.
- EBITDA was $74.8 million, up 69% from $44.3 million for FY2010.
- Net earnings were $20.7 million, up 51% from $13.8 million for FY2010.
- Closed the Bearskin Airlines acquisition, which was valued at $33.0 million.
- Closed the WesTower Communications acquisition, which was valued at $73.9 million and represents Exchange's largest acquisition to date.
- WesTower signed a three-year infrastructure service agreement with AT&T Mobility. The agreement has a potential value of $500 million over the life of the contract.
- Raised an aggregate of $92.5 million through the issuance of a series of senior secured convertible debentures.
Highlights Subsequent to Year-End
- Completed the acquisition of Custom Helicopters, a provider of helicopter-based aviation services in Manitoba and Nunavut, for $29 million.
- Closed a bought deal financing for gross proceeds of $57.5 million. The proceeds will be used to pay down the Company's long-term debt.
Results for the year ended December 31, 2011
Selected Financial Highlights
|All amounts in thousands except % and share data||FY 2011||FY 2010||% Change|
|Adjusted Net Earnings2||$23,770||$15,235||+56%|
|Earnings per Share3||$1.24||$1.07||+16%|
|Adjusted Earnings per Share||$1.42||$1.18||+20%|
1 EBITDA is defined as earnings before interest, income taxes, depreciation and amortization. EBITDA is not a defined performance measure under Canadian generally accepted accounting principles (GAAP). It is used by Management to assess the performance of the Corporation and its Operating Segments.
2 Adjusted net earnings exclude intangible amortization charges and acquisition costs less applicable taxes.
3 Exchange had 17,399,182 shares outstanding at December 31, 2011, up from 14,518,842 at December 31, 2010. The growth is due to an increase in the conversion of debentures, the exercise of warrants by investors, and the issuance of shares in support of acquisition activities.
Consolidated revenue for 2011 was $510.3 million, up 109% from $244.4 million for FY 2010. The revenue growth was principally due to the addition of WesTower Communications and Bearskin Airlines to the Company's list of operating subsidiaries. Bearskin and WesTower were acquired on January 1, 2011 and April 1, 2011, respectively. Revenue growth was also attributable to the ongoing recovery of Exchange's Manufacturing segment, particularly in Alberta, and the strong performance of the Company's pre-existing Aviation Segment companies.
Exchange Income Corporation generates revenue from its Aviation and Manufacturing segments, each of which is comprised of subsidiaries operating in niche markets and generating defensible cash flows. On a segmented basis, the Aviation segment generated revenue of $274.3 million, or 53.8% of the consolidated total, for 2011. This compares to $189.0 million, or 77.3% of the consolidated total for 2010. The growth was largely due to the acquisition of Bearskin Airlines and included positive contributions of Exchange's pre-existing Aviation segment companies, which grew by 16%. Growth within pre-existing Aviation segment companies was due to higher demand for charter and medevac services as well to fuel surcharges levied to offset rising fuel costs.
The Manufacturing segment generated revenue of $236.0 million in 2011, up 326% from $55.4 million for 2010. The growth was primarily attributable to the acquisition of WesTower Communications, which contributed revenue of $166.5 million in 2011. The Company's pre-existing Manufacturing segment companies increased revenue by $14.1 million or 25.4%. Growth within pre-existing Manufacturing companies was largely due to the ongoing recovery of the sector, particularly in Alberta. In 2011, the Manufacturing Segment generated 46.2% of the Company's consolidated total. This compares to 22.7% of the consolidated total for 2010. The percentage change is consistent with the Company's strategy to have a more balanced and diversified revenue stream.
Consolidated EBITDA for 2011 was $74.8 million, an increase of 69% when compared to $44.3 million for 2010. The year-over-year gain was due to the Bearskin and WesTower acquisitions, as well as to the strong performance and organic growth of the Exchange's pre-existing operations. EBITDA generated by the Company's pre-existing operations was $9.0 million, which represents a growth of 18% over 2010.
On a segmented basis, the Aviation segment generated EBITDA of $57.2 million for 2011, up 31% from $43.7 million for 2010. The growth was attributable to the acquisition of Bearskin. The Manufacturing segment generated EBITDA of $25.0 million, up 259% from $7.0 million for 2010, largely due to the WesTower acquisition.
Exchange reported net earnings for 2011 of $20.7 million or $1.24 per basic share ($1.21 per fully diluted share). In 2010, Exchange reported net earnings of $13.8 million or $1.07 per basic share ($1.03 per fully diluted share). Net earnings per share in 2011 were impacted by a growth in the number of shares outstanding of 19.8% to 17,399,182. The growth was due to an increase in the conversion of debentures by investors and issuance of shares to support acquisition activities.
Excluding net intangible amortization and acquisition costs of $3.1 million expensed as a result of IFRS, Exchange had adjusted net income of $23.8 million or $1.42 per basic share ($1.37 per share fully diluted). In 2011, Exchange incurred acquisition costs of approximately $1 million on a transaction it ultimately determined not to pursue to a final close.
As at December 31, 2011, Exchange had a net cash position of $11.5 million and net working capital of $67.3 million, which represents a current ratio of 1.80 to 1. These compare to a net cash position of $1.5 million, net working capital of $39.7 million and a ratio of 1.87 to 1 for 2010. In 2010, the Company's net working capital included $27.6 million of restricted cash and a ratio of 1.26 to 1 when excluding the restricted cash.
Selected Key Performance Indicators
|All amounts in thousands except % and share data||YE 2011||YE 2010||% Change|
|Free Cash Flow4||$64,109||$38,636||+66%|
|Free Cash Flow per share||$3.82||$2.99||+28%|
|Total Maintenance Capex||$29,640||$14,413||+106%|
|Free Cash Flow less Maintenance Capex||$34,469||$24,233||+42%|
|Free Cash Flow less Maintenance Capex per share||$2.05||$1.88||+9%|
|Free Cash Flow less Maintenance Capex Payout Ratio||78%||83%|
Given its operations and commitment to stable dividend payments to shareholders, Exchange currently uses a number of key performance indicators, most notably Free Cash Flow, to evaluate its progress and assess its ability to sustain its dividend policy. With the adoption of IFRS, Exchange is no longer utilizing Distributable Cash, a metric used as a performance indicator from the time when the Corporation operated as an income trust. Exchange will use Free Cash Flow and Free Cash Flow less Maintenance Capex as performance indicators. Under IFRS, the calculation of Distributable Cash and Free Cash Flow less Maintenance Capex are very similar and presenting both would be a duplication of the same metric. Free Cash Flow less Maintenance Capex has been chosen over the Distributable Cash because this metric can tie directly into Exchange's consolidated financial statements.
Free Cash Flow for 2011 totaled $64.1 million, up 66% from $38.6 million for 2010. Free Cash Flow on a per share basis in 2011 was $3.82 ($3.18 per share fully diluted). This compares to $2.99 per basic share for 2010 ($2.44 per share fully diluted). The growth in Free Cash Flow was due to the acquisitions of Bearskin and WesTower, as well as to the organic EBITDA growth of the Company's existing operations.
Free Cash Flow less Maintenance Capex was $34.5 million for 2011, up from $24.2 million for 2010. On a per basic share basis, this represents $2.05 ($1.82 fully diluted) and compares to $1.88 ($1.60 fully diluted) for 2010. Maintenance Capex grew primarily as a result of the addition of Bearskin and WesTower.
As discussed previously, it is important to note that the accounting for capital expenditures has changed significantly under IFRS as compared to CGAAP. The most significant change is that engine overhauls and aircraft heavy checks were previously accrued as an expense and then relieved from the accrued liability when the event occurred. Under IFRS these events are treated as maintenance capital expenditures when the event occurs and there is no expense accrued in advance of the event. The result is that maintenance capital expenditures may be very lumpy from period to period.
4 Free cash flows is a financial metric used by Management to assess the Corporation's performance and assess its ability to sustain its dividend policy.
Results for the three months ended December 31, 2011
"Our fourth quarter results, which produced new record quarterly revenue totals, were a fitting end to our most successful year to date," said Adam Terwin, Chief Financial Officer of Exchange Income Corporation. "The strength of our acquisition strategy was reflected not only in the significant growth we experienced in the quarter, but also by the contract that WesTower signed in November with one of North America's largest wireless providers as a result of our financial backing. The infrastructure service contract, which has a potential value of $500 million over three years, requires that we make significant upfront investments and resource allocations, however."
Selected Financial Highlights
|All amounts in thousands except % and share data||Q4 2011||Q4 2010||% Change|
|Adjusted Net Earnings||$7,253||$3,680||+97%|
|Earnings per Share||$0.40||$0.20||+100%|
|Adjusted Earnings per Share||$0.42||$0.26||+62%|
Consolidated revenue for the fourth quarter of 2011 was $147.8 million, up 127% from $65.2 million for Q4 2010. The growth was primarily due to the acquisitions of Bearskin and WesTower, but also from the growth of pre-existing subsidiaries, which grew by 15% year over year. Growth within pre-existing operations was primarily due to the addition of the Baffin Island medevac contract and the strong performance of Alberta operations and Stainless.
On a segmented basis, the Aviation segment increased revenue by 40% or $19.7 million and the Manufacturing segment grew by 392% or $63.0 million. The Manufacturing segment's total revenue of $79.0 million in Q4 2011 marked the first time in the Company's history that its contributions exceeded those of the Aviation segment whose revenues were $68.8 million.
Consolidated EBITDA for the fourth quarter of 2011 was $20.7 million, up 83% from $11.4 million for the corresponding period of 2010. The growth was attributable to a number of factors including the acquisitions of Bearskin and WesTower, but also from increased contributions from the pre-existing companies in both segments, which grew by a combined 15%. EBITDA for pre-existing operations, including head-office costs, was $13.6 million, up 20% from the corresponding period of 2010. Growth was off-set by $1.1 million in costs incurred by Calm Air for a jet wet lease required to service its contract with the Government of Nunavut, and by set up costs for the WesTower contract with AT&T.
Consolidated net earnings for Q4 2011 were $6.9 million or $0.38 per share fully diluted. This compares to $2.9 million or $0.20 per share fully diluted for Q4 2010, when the Company incurred a number of one-time costs to support Aviation segment customer contracts. Excluding net intangible amortization costs of $0.3 million expensed as a result of IFRS, Exchange had adjusted net income of $7.3 million or $0.42 per basic share ($0.40 per share fully diluted).
Selected Key Performance Indicators
|All amounts in thousands except % and share data||Q4 2011||Q4 2010||% Change|
|Free Cash Flow||$17,470||$10,251||+70%|
|Free Cash Flow per share||$1.00||$0.71||+41%|
|Total Maintenance Capex||$7,625||$3,984||+91%|
|Free Cash Flow less Maintenance Capex||$9,845||$6,267||+57%|
|Free Cash Flow less Maintenance Capex per share||$0.57||$0.44||+30%|
|Free Cash Flow less Maintenance Capex Payout Ratio||71%||89%|
Free Cash Flow for Q4 2011 totaled $17.5 million, up 70% from $10.3 million for Q4 2010. Free Cash Flow on a per share basis in Q4 2011 was $1.00 ($0.83 per share fully diluted). This compares to $0.71 ($0.61 fully diluted) for the corresponding period of 2010. The growth in Free Cash Flow was due to the acquisitions of Bearskin and WesTower, and the strong organic EBITDA growth in the Corporation's pre-existing operations.
Free Cash Flow less Maintenance Capex was $9.8 million or $0.57 on a per share basis ($0.50 fully diluted) for Q4 2011. This compares to $6.3 million or $0.44 a per share basis ($0.39 fully diluted) for Q4 2010. The Maintenance Capex for the fourth quarter 2011 was more reflective of average costs per quarter. As discussed previously, it is important to note that the accounting for capital expenditures has changed significantly under IFRS as compared to CGAAP. The most significant change is that engine overhauls and aircraft heavy checks were previously accrued as an expense and then relieved from the accrued liability when the event occurred. Under IFRS these events are treated as maintenance capital expenditures when the event occurs and there is no expense accrued in advance of the event. The result is that maintenance capital expenditures can now be very lumpy from period to period.
"Since the start of 2012, we have been encouraged by a number of developments, including the close of the Custom Helicopters acquisition and the bought deal financing that generated gross proceeds of $50 million," added Mr. Pyle. "These activities, which will help to strengthen our balance sheet and deliver accretive growth opportunities, have been completed in tandem with efforts to prepare for the WesTower contract win with AT&T Mobility, and the introduction of a new wet lease aircraft for Calm Air necessary for customer service agreements. In the short-term, these efforts, and their related investments, will have a drag on our performance, particularly in the first quarter, which has traditionally been our weakest due to seasonality factors, which impact both our Aviation and Manufacturing segments alike.
Mr Pyle continued, "Over the longer term, we are very bullish on our prospects. We believe that we are well positioned to add to our recent growth, and take advantage of the more than $200 million in available capital for targeted acquisitions."
Exchange Income Corporation's complete financial statements and management's discussion and analysis for the three and twelve months ended December 31, 2011 can be found at www.exchangeincomecorp.ca or at www.sedar.com.
Conference Call notice
Exchange will hold a conference call to discuss its fourth quarter and year-end financial results for fiscal year 2011 on Wednesday March 14, 2012 at 10:00 am ET. Mike Pyle, President and CEO, and Adam Terwin, Chief Financial Officer, will co-chair the call.
All interested parties can join the conference call by dialing 1-888-231-8191. Please dial in 15 minutes prior to the call to secure a line. The conference call will be archived for replay until Wednesday March 28 2012 at midnight. To access the archived conference call, please dial 1-855-859-2056 or 416-849-0833 and enter the reservation code 56047048.
A live audio webcast of the conference call will be available at www.exchangeincomecorp.ca and www.newswire.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 365 days.
About Exchange Income Corporation
Exchange Income Corporation is a diversified acquisition-oriented company, focused on opportunities in the industrial products and transportation sectors which are ideally suited for public markets except for their size. The strategy of the Corporation is to invest in profitable, well-established companies with strong cash flows operating in niche markets in Canada and/or the United States.
The Corporation is currently operating in two niche business segments: aviation and specialty manufacturing. The aviation segment consists of the operations by Perimeter Aviation, Keewatin Air, Calm Air International, Bearskin Lake Air Service, and Custom Helicopters, and the specialty manufacturing segment consists of the operations by Jasper Tank, Overlanders Manufacturing, Water Blast Manufacturing, Stainless Fabrication and WesTower Communications. For more information on Exchange Income Corporation, please visit www.exchangeincomecorp.ca.
Additional information relating to the Corporation, including all public filings, is available on SEDAR (www.sedar.com).
The statements contained in today's press release that are forward-looking are based on current expectations and are subject to a number of uncertainties and risks, and actual results may differ materially. These uncertainties and risks include, but are not limited to, the dependence of the Corporation on the operations and assets currently owned by it, the degree to which its subsidiaries are leveraged, the fact that cash distributions are not guaranteed and will fluctuate with the Corporation's financial performance, dilution, restrictions on potential future growth, competitive pressures (including price competition), changes in market activity, the cyclicality of the industries, seasonality of the businesses, poor weather conditions, and foreign currency fluctuations, legal proceedings, commodity prices and raw material exposure, dependence on key personnel, and environmental, health and safety and other regulatory requirements. Further information about these and other risks and uncertainties can be found in the disclosure documents filed by the Corporation with the securities regulatory authorities, available at www.sedar.com.
President and CEO
Exchange Income Corporation
Phone: (416) 815-0700 Ext. 243