- Bearskin acquisition and ongoing recovery of manufacturing segment
drive record quarterly results -
WINNIPEG, May 13 /CNW/ - Exchange Income Corporation (TSX: EIF)
("Corporation" or "Exchange"), a diversified, acquisition-oriented
company focused on the transportation and industrial manufacturing
sectors, reported its financial results for the three-month period
ended March 31, 2011. All amounts are in Canadian currency. In
accordance with new reporting requirements for Canadian public issuers,
Exchange's first quarter results comply with International Financial
Reporting Standards (IFRS).
"Our first quarter results reflect the effectiveness of our business
model and the investments we made through much of 2010 to prepare us
for the substantive growth we are now experiencing," said Mike Pyle,
President and CEO of the Corporation. "Driven by the acquisition of
Bearskin Airlines, the addition of our fixed based operations, and the
ongoing recovery of our Manufacturing segment, which generated its
highest quarterly revenue in more than two years, we increased our
revenue by 73% to a record quarterly high of $92.9 million.
"This momentum, combined with the progress we made on the contracts won
at the end of 2010 to provide medevac and fuel transportation services
to remote communities in Nunavut and northern Manitoba, and the recent
close of the WesTower acquisition, effectively position us for a
breakout year in 2011."
Q1 2011 Highlights
Closed the $32.5 million acquisition of Bearskin Airlines, which
facilitated Exchange's expansion into Ontario.
Free Cash Flow increased 46% to $10.4 million.
Consolidated revenue increased 73% to $92.9 million.
Consolidated EBITDA increased 41% to $12.2 million.
Net earnings were $2.0 million, down from $2.3 million due to
IFRS-related treatment of acquisition costs of $0.8 million after tax.
Completed on a bought deal basis a $35 million offering of Series I
convertible senior secured debentures with a five-year maturity and a
5.75% per annum interest rate.
Increased bank facility to $235 million from $106 million.
Reduced senior bank debt from $53.1 million to $24.8 million.
Subsequent to Quarter-end Highlights
Closed the acquisition of WesTower, a $79 million transaction which is
Exchange's largest acquisition to date. WesTower designs, builds and
services wireless communications towers throughout North America.
Increased the monthly dividend payout rate by 4% to $0.135 from $0.13.
Completed on a bought deal basis a $57.5 million offering of Series J
convertible senior secured debentures with a seven-year maturity and
6.25% per annum interest rate.
"We made significant gains to each of our key financial metrics in Q1,
including EBITDA growth of 41% and increased Free Cash Flow of more
than 46%," said Adam Terwin, Chief Financial Officer of the
Corporation. "While our balance sheet and the two performance
indicators that we use to measure the health of our business were
extremely strong, our net earnings were impacted by the adoption of
IFRS, which resulted in the recording a $0.8 million decrease to
earnings as a result of acquisition costs now being expensed under
IFRS. Moreover, on a per share basis, our earnings were impacted by the
increase in shares outstanding by 34% due to the conversion of
debentures and exercise of warrants as the Corporation's share price
Q1 2011 Results
Selected Financial Highlights
All amounts in thousands except % and share data
Earnings per Share (fully diluted)2
Consolidated revenue for Q1 2011 was $92.9 million, up 72.5% from $53.9
million for the corresponding period of 2010. The revenue growth was
attributable to the addition of Bearskin on January 1, 2011, the
addition of the aviation support companies at the end of March 2010,
and the strong performance of the manufacturing segment, which
generated its highest revenue in more than two years.
Exchange generates revenue from its Aviation and Manufacturing segments,
each of which is comprised of subsidiaries operating in niche markets
and generating defensible cash flow. On a segmented basis, the Aviation
segment generated revenue in Q1 2011 of $76.4 million, up 83.5% from
$41.6 million for the corresponding period of last year. The growth
was due to the acquisition of Bearskin Airlines and the launch of the
Aviation segment's support group. The aviation support companies, which
were primarily established as a fuel supplier to our Aviation segment,
added $16.4 million in revenue through sales to third parties. It is
important to note that the aviation support companies were established
primarily to support the Aviation segment and ensure proper service
levels to our subsidiaries. Sales to third parties are done at very low
margins and as such generate only limited EBITDA and EBITDA margin. In
Q1 2011, the Aviation segment generated 82% of Exchange's consolidated
total. The Manufacturing segment generated revenue of $16.5 million for
Q1 2011. This represents an increase of 35.1% from $12.3 million for
Q1 2010. While the percentage of revenue contributed by the
Manufacturing segment declined on a year-over-year basis to 21.6% from
22.8%, it is expected that the ratio will be more balanced beginning
with Q2 2011 as a result of the WesTower acquisition announced on April
Consolidated EBITDA for Q1 2011 was $12.2 million, up 41% from $8.6
million for Q1 2010. The year-over-year gain was due to the acquisition
of Bearskin Airlines and the significant improvement of the
Corporation's Manufacturing segment.
On a segmented basis, the Corporation's Aviation segment generated
EBITDA of $10.9 million for Q1 2011, up from $8.5 million for the same
period of last year. EBITDA margin was impacted by the addition of the
aviation support companies which added $16.4 million in sales but only
$0.5 million in EBITDA. EBITDA margins for Q1 2011 were also impacted
by the rise in fuel costs and the delayed implementation of the ATR 72
platform due to regulatory approvals. Exchange has since implemented
fuel surcharges to offset the rise in fuel costs. The Manufacturing
segment generated EBITDA of $3.0 million for Q1 2011, up from $1.3
million for Q1 2010. The growth was due to an increased order backlog
and a resulting improved performance in Exchange's stainless steel tank
and Alberta operations.
Exchange reported net earnings for Q1 2011 of $2.0 million, or $0.13 per
share fully diluted. In the corresponding period of 2010, Exchange
reported net earnings of $2.3 million or $0.19 per share fully diluted.
The decrease in net earnings is attributable to a $0.8 million decrease
in earnings as a result of acquisition costs that are expensed under
IFRS, whereas previously they would have been accounted for as part of
the acquisition. Earnings were also impacted by a higher depreciation
expense as a result of the addition of Bearskin, as well as the
additional aircraft and hangar assets purchased by the Aviation segment
Under IFRS, acquisition costs are expensed, instead of accounted for as
part of the acquisition as was the case with Canadian GAAP ("CGAAP"),
which the Corporation followed until the start of Q1 2011. As a
consequence, Exchange expects that some of its future expenses may
fluctuate considerably in concert with strategic developments as they
occur, particularly with respect to acquisition activities.
At March 31, 2011, the Corporation had working capital of $19.2 million,
including cash and cash equivalents of $8.7 million. 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, as described further below, and the current ratio
excluding the restricted cash would be 1.26 to 1.
Selected Key Performance Indicators
All amounts in thousands except % and share data
Free Cash Flow3
Free Cash Flow per share (fully diluted)
Free Cash Flow less Maintenance Capex5
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 Q1 2011 totaled $10.4 million, up 46.1% from $7.1
million for Q1 of 2010. Free Cash Flow on a per share basis in Q1 2011
was $0.67 per share basic and $0.58 per share fully diluted. For the
corresponding period of 2010, Free Cash Flow on a per share basis was
$0.63 basic and $0.52 fully diluted. The growth in Free Cash Flow was
due to the acquisition of Bearskin Airlines and the recovery of the
Corporation's Manufacturing segment. Free Cash Flow less Maintenance
Capex decreased to $3.8 million in Q1 2011 from $5.1M in Q1 2010. The
decrease is a result of the increase in Maintenance Capex by over three
times in Q1 2011 compared to Q1 2010. 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 will now be very lumpy from period to period. The
quarterly maintenance capital expenditures for the remainder of 2011
are expected to be significantly lower than Q1 of 2011.
"Since the start of the year, we have completed more than $110 million
worth of acquisitions and still have close to $200 million of available
capital to deploy," added Mr. Pyle. "We believe that we can put this
capital to effective use in the coming periods by identifying targets
well suited for our operations and continue following our disciplined
approach to acquisitions to drive further growth."
The Corporation's complete financial statements and management's
discussion and analysis for the three months ended March 31, 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 first
quarter financial results on May 16, 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 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 May 23, 2011 at
midnight. To access the archived conference call, please dial
1-800-642-1687 or 416-849-0833 and enter the reservation code 62978404.
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.
Caution concerning forward-looking statements
The statements contained in this news 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 Exchange Income 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, the risk of shareholder
liability, 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 Exchange Income Corporation with the securities
regulatory authorities, available at www.sedar.com.
About Exchange Income Corporation
The 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 flow 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, and WesTower Communications
Inc. For more information on the Corporation, please visit www.exchangeincomecorp.ca.
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 conversion 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 Exchange had 15,877,081 common shares outstanding at March 31, 2011,
up 33.6% from 11,883,157 at March 31, 2010.
3Free 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.
4 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 Company at its current level.
5 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
For further information:
| Mike Pyle || || || || || Joe Racanelli |
| President and CEO || || || || || Investor Relations |
| Exchange Income Corporation || || || || || The Equicom Group Inc. |
| (204) 982-1850 || || || || || (416) 815-0700 or 1-800-385-5451 ext. 243 |
| firstname.lastname@example.org || || || || || email@example.com |