-Revenue up 46% to $201.6 million; EBITDA up 24% to $24.5 million-
-Record results driven by strong Manufacturing segment performance and Custom Helicopter acquisition-
WINNIPEG, Aug. 13, 2012 /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 six-month periods ended June 30, 2012. All amounts are in Canadian currency.
"The strength of our diversification model was made evident by the record results we achieved in each of our key financial metrics," said Mr. Mike Pyle, President and CEO of Exchange Income Corporation. "Despite modest declines by our Aviation segment, the strong performance of our Manufacturing segment spurred the growth of consolidated revenue to almost $202 million, EBITDA to more than $24 million, and Free Cash Flow to approximately $21 million. We expect to sustain this growth momentum through 2012 and beyond given the three-year turf contract signed with AT&T Mobility and the efforts we're making to better respond to customer demand in the markets that our Aviation segment services."
Q2 2012 Highlights
- Consolidated revenue was $201.6 million, representing an increase of 46%
- EBITDA was $24.5 million, up 24%
- Adjusted net income was $8.1 million, representing growth of 38%
- Free Cash Flow was $20.8 million, up 23%.
- Exchange's Manufacturing segment generated consolidated revenue of $129.2 million, marking a new record high
- Free Cash Flow less Maintenance Capex per share was $0.61, up 27%.
- WesTower Communications, a company that designs, builds, maintains and services wireless phone and other communications towers throughout North America, continued the ramp up of its three-year turf contract with AT&T Mobility.
Selected Second Quarter Financial Highlights
|All amounts in thousands except % and share data||Q2 2012||Q2 2011||Change|
|Adjusted Net Earnings2||$8,062||$5,839||+38%|
|Earnings per Share3||$0.38||$0.27||+41%|
|Adjusted Earnings per Share||$0.39||$0.34||+15%|
"In addition to record financial results, Q2 was also marked by an investment of $14.9 million in growth capital expenditures," said Adam Terwin, Chief Financial Officer of Exchange Income Corp. "A significant portion of these costs, which are designed to position the Company for long-term growth opportunities, were allocated towards aircraft additions and upgrades within our Aviation segment. Equally important, the expansion by WesTower's US operations required significant working capital in Q2, which was funded mainly through funds drawn from the Company's credit facility. As a result, the strength of our balance sheets now puts us in a position to finance acquisitions valued at approximately $150 million without the need for additional equity financing."
Selected Year-to-date Financial Results
|All amounts in thousands except % and share data||FY2012||FY2011||Change|
|Adjusted Net Earnings4||$9,629||$8,925||+8%|
|Earnings per Share (fully diluted)||$0.44||$0.40||+10%|
|Adjusted Net Earnings per Share (fully diluted)||$0.49||$0.54||-9%|
Review of Financial Results
Consolidated revenue for Q2 2012 was $201.6 million, up 46% from $138.0 million for the corresponding period of 2011. The revenue increase was primarily due to the organic growth of the Manufacturing segment, and driven largely by the contributions of WesTower Communications. Consolidated revenue also grew as a result of the addition of Custom Helicopters, which was acquired in February 2012, to the Company's list of operating subsidiaries. On a year-to-date basis, revenue for FY2012 was $348.3 million, up 61% from $216.5 million for FY2011.
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.
On a segmented basis, the Aviation segment generated revenue in Q2 2012 of $72.4 million, up 2% from $71.2 million for the corresponding period of last year. The growth was due to the acquisition of Custom Helicopters, which was completed in February 2012 and contributed $4.4 million in revenue in Q2. The Aviation segment's revenue growth was partially off-set by a number of contributing factors, including poor weather conditions in certain northern regions that resulted in flight cancellations over a sustained period, increased competitive pressure faced by Bearskin Airlines and the cancellation of Keewatin Air's passenger service in September 2011. In Q2 2012, the Aviation segment generated 35.9% of Exchange's consolidated total. This compares to 51.6% of the consolidated total for Q2 2011
Exchange's Manufacturing segment generated revenue in Q2 2011 of $129.2 million, up 93% from $66.8 million for Q2 2011. The growth was primarily attributable to the contributions of WesTower Communications, which increased its revenue by 111% to $105.5 million, largely due to its three-year turf contract win with AT&T Mobility. Excluding the contributions of WesTower, Exchange's Manufacturing segment grew its revenue by 42% to $23.7 million as a result of strong performance of Stainless and high customer demand in the markets that it services, particularly in Alberta. In Q2 2012, the Manufacturing segment generated 64.1% of Exchange's consolidated total. This compares to 48.4% of the consolidated total for Q2 2011.
Consolidated EBITDA for Q2 2012 was $24.5 million, up 24% from $19.7 million for Q2 2011. The year-over-year gain was due to the organic growth of Exchange's pre-existing Manufacturing segment companies, particularly WesTower and Stainless, and to the addition of Custom Helicopters. On a year-to-date basis, EBITDA for FY2012 was $38.5 million, up 21% from $32.0 million for FY2011.
On a segmented basis, Exchange's Aviation segment generated EBITDA of $14.2 million for Q2 2012, down from $15.6 million for the same period of last year. The decline was due to a number of factors, including higher operating costs due to a wet lease program for Calm Air that ended in April 2012, softer customer demand in some markets due to competitive pressures and higher fuel costs. The decline was partially offset by Custom Helicopter's $2.0 million EBITDA contributions. The Aviation segment's EBITDA margin for Q2 2012 was 19.6%, down from 21.9% for Q2 2011.
The Manufacturing segment generated EBITDA of $13.0 million for Q2 2012, up from $6.1 million for Q2 2011. The increase in EBITDA was due to the growth in WesTower which increased by 142% or $4.6 million and an increase of 77% or $2.2 million of EBITDA from the other pre-existing manufacturing companies. EBITDA margin for the Manufacturing segment in Q2 2011 was 10.1%, up from 9.2% for Q2 2011. Excluding WesTower, which is a higher sales but lower margin business, EBITDA margins for the Manufacturing segment were 21.5%, up from 17.2% for Q2 2011.
Exchange reported net earnings for Q2 2012 of $7.8 million, or $0.38 per basic share. In the corresponding period of 2011, Exchange reported net earnings of $4.5 million or $0.27 per basic share. Excluding acquisition costs of less than $0.1 million and intangible asset amortization of $0.4 million expensed as a result of IFRS, Exchange had adjusted net earnings of $8.1 million or $0.39 per basic share.
On a year-to-date basis, net earnings for FY2012 were $8.7 million, up 32% from $6.5 million for FY2011. Excluding acquisition costs of $0.4 million and intangible asset amortization of $0.8 million expensed as a result of IFRS, Exchange had adjusted net earnings for FY2012 of $9.6 million, up 8% from $8.9 million for FY2011.
At June 30, 2012, the Corporation had working capital of $116.3 million, including cash and cash equivalents of $5.1 million. This compares to $67.3 million and $11.5 million, respectively, at December 31, 2011.
Selected Second Quarter Key Performance Indicators
|All amounts in thousands except % and share data||Q2 2012||Q2 2011||Change|
|Free Cash Flow5||$20,821||$16,890||+23%|
|Free Cash Flow per basic share||$1.02||$1.00||+2%|
|Total Maintenance Capex6||$8,313||$8,831||-6%|
|Free Cash Flow less Total Maintenance Capex7||$12,508||$8,059||+55%|
|Free Cash Flow less Maintenance Capex per share||$0.61||$0.48||+27%|
|Free Cash Flow less Maintenance Capex Payout Ratio||66%||84%|
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 statements.
Free Cash Flow for Q2 2012 totaled $20.8 million, up 23% from $16.9 million for Q2 2011. Free Cash Flow on a basic per share basis in Q2 2012 was $1.02 per share basic, up from $1.00 from Q2 2011. The growth in Free Cash Flow was chiefly due to the increased contributions of WesTower and other Manufacturing segment companies as well as the addition of Custom Helicopters. Free Cash Flow gains were partially offset by a decrease by pre-existing Aviation segment companies.
Free Cash Flow less Maintenance Capex was $12.5 million, or $0.61 per basic share, in Q2 2012. This compares to $8.1 million, or $0.48 per basic share, for Q2 2011.
"Our prospects for continued growth in the near term are very encouraging," added Mr. Pyle. "Demand for our Manufacturing segment products is high, especially for WesTower, which is taking advantage of technological upgrades being introduced in the telecommunications industry in both Canada and the US. Similarly, we expect recovery in our Aviation segment since demand for our transportation services is generally stronger in the second half of the year given the seasonality of our operations."
Mr. Pyle also said, "We are equally well positioned over the longer term. With access to more than $150 million in available capital, a strong balance sheet and a deep management team, we will capitalize on acquisition opportunities using our disciplined strategy to drive our performance to even better results."
The Corporation's complete financial statements and management's discussion and analysis for the three and six months ended June 30, 2012 can be found at www.exchangeincomecorp.ca or at 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 Q2 2012 adjusted net earnings excludes pre-tax acquisition costs of $14,000 (Q2 2011 - $951,000) and pre-tax intangible amortization of $396,000 (Q2 2011 - $630,000).
3 Exchange had 20.3 million common shares outstanding at June 30, 2012, up from 17.0 million at June 30, 2011. 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.
4 Year to date adjusted net earnings excludes pre-tax acquisition costs of $390,000 ($1.8 million - FY2011) and pre-tax intangible amortization of $781,000 ($964,000 - FY2011).
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 Company 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.
Conference Call Notice
The Corporation will hold a conference call to discuss its 2012 second quarter financial results on August 14, 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 Wednesday, August 22, 2012 at midnight. To access the archived conference call, please dial 1-855-859-2056 or 416-849-0833 and enter the reservation code 12607275.
A live audio webcast of the Q2 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).
SOURCE: Exchange Income Corporation
For further information:
President and CEO
Exchange Income Corporation
(416) 815-0700 Ext. 243