- Generates record profits of $7.3 million -
WINNIPEG, Nov. 9, 2011 /CNW/ - Exchange Income Corporation (TSX: EIF)
(the "Corporation"), a diversified, acquisition-oriented company
focused on the transportation and industrial manufacturing sectors,
reported its financial results for the three- and nine-month periods
ended September 30, 2011. All amounts are in Canadian currency. In
accordance with new reporting requirements for Canadian public
companies, Exchange's third quarter results comply with International
Financial Reporting Standards (IFRS).
"We are extremely pleased with our third quarter performance," said Mike
Pyle, President and CEO of Exchange Income Corporation. "Against a
backdrop of global economic uncertainty and capital markets volatility,
we established new record highs for each of our key financial metrics.
In particular, we more than doubled our revenue to $146 million, and
generated record quarterly profits of $7.3 million. Our success is
largely due to our disciplined acquisition strategy and the robustness
of our diversified business model."
Q3 2011 Highlights
Consolidated revenue increased 126% to $146.0 million.
The Manufacturing segment generated its highest revenue total ever at
Consolidated EBITDA was up 79% to $22.2 million.
Net earnings increased 65% to $7.3 million, marking a new company
Excluding IFRS-mandated acquisition costs and intangible asset
amortization, adjusted net earnings were up 64% to $7.6 million.
Free Cash Flow was $19.2 million, up 80%.
Selected Third Quarter Financial Highlights
All amounts in thousands except % and share data
Adjusted Net Earnings2
Earnings per Share (fully diluted)3
Adjusted Earnings per Share (fully diluted)
Adam Terwin, Chief Financial Officer of Exchange Income Corporation,
added: "While our recent Bearskin and WesTower acquisitions helped to
drive our remarkable growth, we experienced significant organic growth
from our pre-existing companies. Excluding the combined $5.9 million
EBITDA contributions of WesTower and Bearskin, our pre-existing
companies grew EBITDA by 32% on a year-over-year basis. The growth was
due to the strong performance of all our Aviation segment companies,
and the general recovery of the manufacturing sector, especially in
Selected Year-to-Date Financial Results
All amounts in thousands except % and share data
Adjusted Net Earnings4
Earnings per Share (fully diluted)
Adjusted Net Earnings per Share (fully diluted)
Review of Financial Results
Consolidated revenue for Q3 2011 was $146.0 million, up 126% from $64.5
million for the corresponding period of 2010. The revenue growth was
primarily due to the addition of WesTower Communications and Bearskin
Airlines to the Corporation's list of operating subsidiaries. Bearskin
and WesTower were acquired on January 1, 2011 and April 1, 2011,
respectively. Revenue also increased as a result of the ongoing
recovery of the Manufacturing segment as well as from the strong
performance of Exchange's pre-existing Aviation segment companies. On a
year-to-date basis, revenue for FY2011 was $362.5 million, up 102% from
$179.2 million for FY2010.
Exchange generates revenue from its Aviation and Manufacturing segments,
each of which is comprised of subsidiaries operating in niche markets
and generating defensible cash flows. In Q3 2011, Exchange adjusted the
way that its Aviation support entities, a subgroup of the Aviation
segment, measured revenues that were generated when it was acting as an
agent for a fuel supplier. In compliance with IFRS, these sales are now
calculated on a net basis instead of a gross basis. The change in
accounting treatment had no impact on the Corporation's EBITDA, net
earnings or free cash flow on a year to date basis. Therefore in the
third quarter the Corporation has $7.4 million in additional fuel sales
that has been reported as $0.1 million net revenue. The prior period
results have also been restated so that the results are comparable.
Management believes that this accounting policy better reflects the
substance of the transaction and more accurately reflects the Aviation
On a segmented basis, the Aviation segment generated revenue in Q3 2011
of $72.4 million, up 44% from $50.2 million for the corresponding
period of last year. The growth was due primarily to the acquisition of
Bearskin, and included positive contributions from Exchange's
pre-existing Aviation segment companies. EIC's pre-existing Aviation
segment companies increased revenues by $9.4 million, or 19% from Q3
2010. This increase was driven by higher volumes and fuel surcharges.
In Q3 2011, the Aviation segment generated 49.6% of Exchange's
consolidated total. This compares to 77.9% of the consolidated total
for Q3 2010. The percentage change is consistent with the Corporation's
strategy to have a more balanced and diversified revenue stream.
Exchange's Manufacturing segment generated revenue in Q3 2011 of $73.6
million, up 417% from $14.2 million for Q3 2010. The growth was
primarily attributable to the acquisition of WesTower, which
contributed $57.2 million of revenue in Q3 2011. The Manufacturing
segment also experienced growth as a result of the ongoing recovery of
markets serviced by its subsidiaries, particularly in Alberta and
through its Stainless operations. EIC's pre-existing Manufacturing
segment companies increased revenues by $2.2 million, or 15% from Q3
2010. In Q3 2011, the Manufacturing segment generated 50.4% of
Exchange's consolidated total, representing its highest percentage to
date. This compares to 22.1% of the consolidated total for Q3 2010.
Consolidated EBITDA for Q3 2011 was $22.2 million, up 79% from $12.4
million for Q3 2010. The year-over-year gain was due to the Bearskin
and WesTower acquisitions, as well as to the strong performance and
organic growth in EIC's pre-existing operations. EBITDA generated by
Exchange's pre-existing companies was $16.3 million, representing
growth of 32%. On a year-to-date basis, consolidated EBITDA for FY2011
was $54.1 million, up 64% from $32.9 million for FY2010.
On a segmented basis, Exchange's Aviation segment generated EBITDA of
$17.0 million for Q3 2011, up from $12.2 million for the same period of
last year. EBITDA margin for Q3 2011 was 23.5%, down from 24.3% for Q3
2010, as a result of the seasonality of Bearskin's operations, which is
slower in the summer months. The EBITDA margins for the pre-existing
Aviation segment was 26.3% in the third quarter of 2011, a significant
increase from the 24.3% generated in the comparable period in 2010. The
Manufacturing segment generated EBITDA of $7.2 million for Q3 2011, up
from $2.0 million for Q3 2010. The growth was due to the acquisition of
WesTower, which added EBITDA of $4.6 million, and the general recovery
of manufacturing markets. EBITDA margin for the Manufacturing segment
in Q3 2011 was 9.7%, down from 14.1% for Q3 2010. The percentage
decline is the result of the addition of WesTower, which is a high
revenue business with low profit margins.
Exchange reported net earnings for Q3 2011 of $7.3 million, or $0.42 per
share ($0.41 per share fully diluted). In the corresponding period of
2010, Exchange reported net earnings of $4.4 million or $0.33 per share
($0.31 per share fully diluted). Excluding intangible asset
amortization costs of $0.4 million ($0.3 million tax effected) expensed
as a result of IFRS, Exchange had adjusted net income of $7.6 million
or $0.44 per share fully diluted ($0.42 per share fully diluted).
On a year-to-date basis, net earnings for FY2011 were $13.8 million, up
27% from $10.9 million for FY2010. Excluding acquisition costs of $1.8
million ($1.7 million tax effected) and intangible asset amortization
expenses of $1.4 million ($1.0 million tax effected) expensed as a
result of IFRS, Exchange had adjusted net earnings for the nine-month
period of FY2011 of $16.5 million, up 46% from $11.3 million for the
corresponding period of FY2010.
At September 30, 2011, Exchange had working capital of $61.1 million,
including cash and cash equivalents of $7.4 million, which represents a
ratio of 1.69 to 1. This compares to $39.7 million and $1.5 million,
respectively, at December 31, 2010. The net working capital at year-end
2010 included $27.6 million of restricted cash.
Selected Third Quarter Key Performance Indicators
All amounts in thousands except % and share data
Free Cash Flow5
Free Cash Flow per share (fully diluted)
Total Maintenance Capex6
Free Cash Flow less Maintenance Capex7
Free Cash Flow less Maintenance Capex per share (fully diluted)
Payout Ratio (fully diluted)
Given its operations and commitment to stable dividend payments to
shareholders, the Corporation 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
Free Cash Flow for Q3 2011 totaled $19.2 million, up 80% from $10.7
million for Q3 2010. Free Cash Flow on a per share basis in Q3 2011 was
$1.11 ($0.92 per share fully diluted) an increase of 39% from the $0.80
($0.65 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 existing
Free Cash Flow less Maintenance Capex was $12.7 million in Q3 2011, up
from $6.8 million in Q3 2010. On a per share basis, this results in
$0.74 ($0.63 fully diluted) compared to $0.51 ($0.43 fully diluted) in
the Q3 2010, representing a 45% increase per share Free Cash Flow less
Maintenance Capex. The Maintenance Capex for the third quarter was more
reflective of an average maintenance capex quarter. As discussed in
previous quarters, 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.
"We are optimistic that our diversified business model will help us to
sustain our recent progress through the balance of 2011 despite
uncertain economic conditions," said Mr. Pyle. "While a dramatic shock
to the world economy from the sovereign debt crisis in Europe or some
other factor would certainly have some impact on our business, we
believe our diversity and order backlogs will serve to cushion any
effects should they occur."
Mr. Pyle added, "Over the longer-term, we are very well capitalized with
more than $200 million in available funding. This extremely strong
reserve will allow us to act on acquisition opportunities as they
materialize, and further our growth to even newer heights in 2012 and
The Corporation's complete financial statements and management's
discussion and analysis for the three- and nine-month periods ended
September 30, 2011 can be found at www.exchangeincomecorp.ca or at www.sedar.com.
Conference Call Notice
The Corporation will hold a conference call to discuss its 2011 third
quarter financial results on November 10 at 10:00 a.m. 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 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 Thursday, November 24, 2011 at midnight. To access the archived
conference call, please dial 1-855-859-2056 or 416-849-0833 and enter
the reservation code 21434308.
A live audio webcast of the Q3 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
Perimeter Aviation LP, Keewatin Air LP, Calm Air International LP, and
Bearskin Lake Air Service LP and the specialty manufacturing segment
consists of Jasper Tank Ltd., Overlanders Manufacturing LP, Water Blast
Manufacturing LP, Stainless Fabrication, Inc, and WesTower
Communications Ltd. 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).
1 EBITDA is defined as earnings before interest, income taxes,
depreciation, amortization, other non-cash expenses, such as unrealized
foreign exchange gains or losses and asset impairment, and any unusual
non-operating one-time items, such as acquisition costs. 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 Q3 2011 adjusted net earnings exclude intangible amortization charges
of $408,000 (Q3 2010 - $293,000).
3 Exchange had 17.2 million common shares outstanding at September 30,
2011, up 24% from 13.9 million at September 30, 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
4 Year to date adjusted net earnings excludes acquisition costs of $1.8
million (less than $0.1 million - Q3 2010) and intangible amortization
of $1.4 million ($0.6 million - Q3 2010).
5 Free Cash Flow is a financial metric used by Management to assess the
Corporation's performance and assess its ability to sustain its
dividend policy. Free cash Flow for the period is equal to the cash
flow from operating activities as defined by Canadian GAAP, adjusted
for changes in non-cash working capital and any unusual non-operating
one-time items. It is not a recognized measure under Canadian GAAP.
6 Maintenance Capex is not a GAAP 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.
7 Free Cash Flow less Maintenance Capex is not a GAAP measure. It
approximates the metric Distributable Cash that the Corporation
reported prior to the adoption of IFRS.
SOURCE Exchange Income Corporation
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