Chorus Aviation Announces First Quarter 2022 Financial Results

Q1 2022 Key Metrics

• Net income of $22.9 million, or $0.13 per basic share; a quarter-over-quarter increase of $61.0 million primarily due to a decrease in one-time restructuring costs of $81.8 million related to the 2021 Capacity Purchase Agreement ('CPA') Amendments and lower expected credit loss provisions of $2.5 million partially offset by an increase in income tax expense.
• Adjusted net income¹ of $17.7 million, or $0.10 per basic share; an increase of $2.0 million quarter-over-quarter primarily due to lower interest expense from repayment of long-term debt in 2021 and lower depreciation expense partially offset by increased adjusted income tax expense.
• Adjusted EBITDA¹ of $83.3 million; a decrease of $0.8 million over first quarter 2021.
• Collected approximately 92% (67% in Q2'21, 77% in Q3'21, 83% in Q4'21) of the Regional Aircraft Leasing ('RAL') segment's lease revenue recognized in the first quarter.
• Liquidity of $199.7 million.

Recent Accomplishments

• Completed the acquisition of Falko Regional Aircraft Limited, together with its affiliates and equity interests in certain entities and aircraft managed by them ('Falko'), elevating Chorus to the world's largest aircraft lessor focused solely on serving the regional aviation segment and a premier full-service provider of regional aviation services.
• Received multiple employer awards at Jazz, demonstrating our commitment to providing employees a safe and inclusive workplace:
• One of the top employers in Nova Scotia and Atlantic Canada for the 11^th consecutive year (by Mediacorp Canada Inc).
• One of Canada's best diversity employers for the 11^th consecutive year (by Mediacorp Canada Inc).
• One of Canada's top employers for young people in 2022 (by the Canada's Top 100 Employers project).
• One of the best places to work in 2022 (by Glassdoor).

HALIFAX, NS, May 5, 2022 /CNW/ - Chorus Aviation Inc. ('Chorus') (TSX: CHR) today announced first quarter 2022 financial results.

"I'm extremely pleased with our first quarter which delivered significant accomplishments and positive financial returns," stated Joe Randell, President and Chief Executive Officer, Chorus Aviation Inc. "With the completion of the Falko acquisition, Chorus is now the world's largest aircraft lessor focused solely on investing in the regional aircraft leasing space. This acquisition is truly transformative for Chorus as it significantly advances our growth and diversification strategy. With the addition of Falko, in 2022, we expect to derive 50% of our earnings from non-CPA related operations. The asset management platform and equity interests in 123 owned and managed aircraft creates scale and a differentiated business model that benefits all stakeholders. This transaction increases Chorus' customer base from 19 to 32 airlines, expands our geographical reach from 16 to 23 countries and increases the value of assets under management to approximately US$4.5 billion, with a fleet of 348 regional aircraft. Our immediate priority is to seamlessly integrate operations and execute on the opportunities this transaction brings, including the launch of a new fund this year. We believe the timing of this endeavor is opportune as global air travel grows and demand for regional aircraft leasing increases."

"I sincerely thank the Chorus group of employees for all their hard work and dedication over the last two difficult years. Collectively, we remain energized and excited about our prospects. We are witnessing positive indications that demand for air travel is significantly increasing in many parts of the world. Our Jazz operation continues to ramp up for the summer peak period, and we are hiring new employees across the organization. Chorus Aviation Capital collected approximately 92% of lease revenue recognized in the first quarter, up from 83% in the previous quarter, and Voyageur's parts provisioning and sales hit its strongest quarter since being launched in 2016. We remain optimistic that these trends will continue to build momentum and we are very well positioned to execute on new growth opportunities that will deliver positive returns to our shareholders, fund investors, customers and employees," concluded Mr. Randell.

Liquidity

As of March 31, 2022, Chorus' liquidity was $199.7 million, including cash of $110.0 million and $89.7 million of available room on its operating credit facility. Liquidity increased from the fourth quarter of 2021 by $11.2 million primarily due to increased cash flow from operations of $41.5 million and an increase in its committed operating credit facility of $25.0 million offset by scheduled payments on long-term debt of $44.6 million and capital expenditures of $11.6 million.

In connection with the closing of the Falko acquisition, Chorus entered into a new US $30.0 million unsecured revolving operating credit facility with a nine-month term, maturing February 2023. 

First Quarter Summary

In the first quarter of 2022, Chorus reported adjusted EBITDA of $83.3 million, a decrease of $0.8 million over the first quarter of 2021.

The RAL segment's adjusted EBITDA increased by $2.8 million due to the recognition of the expected recovery of Chorus' claim in the Aeromexico bankruptcy, a $2.5 million decrease in the expected credit loss provision and increased lease revenue from re-leased aircraft partially offset by lower lease revenue attributable to negotiated lease amendments (including extensions).

The Regional Aviation Services ('RAS') segment's adjusted EBITDA decreased by $3.6 million. First quarter results were impacted by:

• an increase in stock-based compensation expense of $3.7 million due to the change in the share price inclusive of the change in fair value of the Total Return Swap; and
• an increase in general administrative expenses attributable to increased operations; partially offset by
• an increase in other revenue due to an increase in part sales partially offset by a decrease in third-party maintenance repair and overhaul activity and contract flying; and
• an increase in capitalization of major maintenance overhauls on owned aircraft of $1.4 million.

Chorus' adjusted net income was $17.7 million for the quarter, an increase of $2.0 million over the first quarter of 2021 due to:

• a decrease in net interest costs of $4.8 million primarily related to the repayment of certain aircraft financing and the partial redemption of the 6.00% Debentures offset by interest on the Series B Debentures and Series C Debentures; and
• a decrease in depreciation expense of $1.1 million; partially offset by
• a $0.8 million decrease in adjusted EBITDA as previously described;
• an increase of $2.2 million income tax expense on adjusted items; and
• an increase of $1.0 million primarily due to unrealized foreign exchange losses on working capital.

Chorus' net income increased $61.0 million over the first quarter of 2021 due to:

• the previously noted increase in adjusted net income of $2.0 million;
• a decrease in one-time restructuring costs of $81.8 million related to the 2021 CPA amendments;
• an increase in net unrealized foreign exchange gains primarily on long-term debt of $0.7 million; and
• a decrease in employee separation program costs and lease repossession costs of $0.7 million; partially offset by
• a decrease in income tax recoveries on adjusted items of $21.5 million; and
• strategic advisory fees related to the Falko acquisition of $2.7 million.

Consolidated Financial Analysis

This section provides detailed information and analysis about Chorus' performance for the three months ended March 31, 2022, compared to the three months ended March 31, 2021. It focuses on Chorus' consolidated operating results and provides financial information for Chorus' operating segments.

(unaudited) (expressed in thousands of Canadian dollars)	Three months ended March 31,
	2022	2021	Change	Change
	$	$	$	%
Operating revenue	342,380	202,487	139,893	69.1
Operating expenses	299,068	239,383	59,685	24.9
Operating income (loss)	43,312	(36,896)	80,208	(217.4)
Net interest expense	(20,054)	(24,856)	4,802	(19.3)
Foreign exchange gain	4,449	4,754	(305)	(6.4)
Income (loss) before income tax	27,707	(56,998)	84,705	(148.6)
Income tax (expense) recovery	(4,800)	18,919	(23,719)	(125.4)
Net income (loss)	22,907	(38,079)	60,986	(160.2)
Adjusted EBITDA^(1)	83,280	84,041	(761)	(0.9)
Adjusted EBT^(1)	23,346	19,130	4,216	22.0
Adjusted net income^(1)	17,743	15,744	1,999	12.7

(1)	These are non-GAAP financial measures.

Outlook
(See cautionary statement regarding forward-looking information below)

On May 3, 2022, Chorus completed the Falko acquisition. This transformative transaction creates new opportunities for growth through increased access to growth capital and a differentiated business model to maximize returns on aircraft assets.

Taking into account the draws under Chorus' credit facilities and the payment of consideration for the Falko acquisition, Chorus anticipates having total liquidity in excess of $100.0 million for the remainder of 2022 with approximately half of such liquidity consisting of cash and the remainder consisting of available credit under its operating credit facility and the new US $30.0 million unsecured revolving operating credit facility.

Chorus anticipates having sufficient liquidity to fund ongoing operations, planned capital expenditures and principal and interest payments related to long-term borrowings.

Chorus' forecast⁽¹⁾ for the year ended December 31, 2022 is as follows:

	RAL		RAS				Consolidated
(unaudited) (expressed in thousands of Canadian dollars)			Excluding Pass- Through and  Controllable Costs (included in revenue and expenses)		Pass-Through and Controllable Costs (included in revenue and expenses)
	From	To	From	To	From	To	From	To
	$	$	$	$	$	$	$	$
Revenue	260,000	275,000	310,000	330,000	1,000,000	1,200,000	1,570,000	1,805,000
Adjusted EBITDA	215,000	235,000	205,000	220,000	—	—	420,000	455,000
Adjusted EBT	75,000	90,000	74,000	84,000	—	—	149,000	174,000
Adjusted Net Income available to Shareholders^(2)							93,000	108,000
Adjusted EPS available to Shareholders^(3)							0.48	0.56
Net debt to Adjusted EBITDA							4.7x	5.0x
Return on Invested Capital (%)							7.0%	7.9%
Cash from operations^(4)							270,000	320,000

(1)	The forecast excludes the impact of the purchase price allocation ("PPA Adjustments") for the Falko acquisition as required under IFRS 3 Business Combinations ("IFRS 3"). If the initial accounting can be determined only provisionally by the end of the first reporting period, the PPA Adjustments must be completed within 12 months from the acquisition close date. Under IFRS 3, when an acquirer takes control of a business through an acquisition the consideration paid is allocated to the fair value of the assets and liabilities, at the acquisition date, inclusive of the fair value assessment of intangibles. Intangibles include the fair value assessment of: asset management contracts and performance entitlements for existing or future funds, investor/customer relationships and goodwill for the assembled workforce.
(2)	Preferred share dividends and minority interest income are deducted from adjusted net income to determine net income available to shareholders and for adjusted EPS available to shareholders.
(3)	Weighted average shares of 194,561,125 was used in the calculation of adjusted EPS.
(4)	Cash from operations exclude dividends paid to minority interest shareholders and net changes in non-cash balances related to operations.

Key Economic Assumptions:

• The forecast assumes the launch in the second quarter of 2022 of a new investment fund managed by Falko with (i) a minimum of US $500.0 million in capital commitments and (ii) management fees and economic terms commensurate with those in Falko's prior funds.
• The forecast revenue is based on current contracted lease revenue and forecasted revenues for leased aircraft and asset management fees. Aircraft leasing revenue under the CPA and Fixed Margin revenue is expected to be US $114.7 million and $66.3 million, respectively in 2022.
• The forecast uses weighted average statutory tax rates for each of the individual entities based on the jurisdiction in which the entity is taxable. The forecast uses a weighted average income tax rate of 22.0% based on average statutory tax rates of 27.0%, 12.5% and 19.0% in Canada, Ireland, and United Kingdom, respectively. The actual weighted average income tax rates may vary due to the actual income in each country and foreign exchange rates.
• The forecast assumes no disposals in 2022 of aircraft leased under the CPA or in the RAL segment.
• The forecast uses a foreign exchange rate of 1.25 to translate USD to CAD revenue and expenses.

Regional Aircraft Leasing:

Following the onset of the COVID-19 pandemic, CAC received requests from substantially all its customers for some form of temporary rent relief, as they coped with an unprecedented reduction in demand for passenger air travel. Under rent relief arrangements, certain of which include lease term extensions, the repayment of the deferred amounts typically coincides with the lease term extensions. As of March 31, 2022, CAC's gross lease receivable was $84.5 million (US $67.6 million) (December 31, 2021 - $84.0 million (US $66.3 million)). The gross lease receivable may increase to approximately $88.0 million (US $70.0 million) by the end of 2022 due to rent relief arrangements and potential delays in payments.

As of March 31, 2022, the net lease receivable, after an expected credit loss provision, was $77.3 million (US $61.9 million) (December 31, 2021 - $76.8 million (US $60.6 million)). CAC's lease deferral receivable exposure is also partially mitigated by security packages held of approximately $28.0 million (US $22.4 million) (December 31, 2021 - $26.8 million (US $21.1 million)).

Capital expenditures in 2022, including capitalized major maintenance overhauls but excluding expenditures for the acquisition of aircraft, are expected to be between $21.0 million and $33.0 million. Aircraft acquisitions and improvements in 2022 are expected to be between $10.0 million and $17.0 million.⁽¹⁾

(unaudited) (expressed in thousands of Canadian dollars)		Actual
		Three months ended	Year ended
	Planned 2022^(1)	March 31, 2022	December 31, 2021^(2)
	$	$	$
Capital expenditures, excluding aircraft acquisitions	15,000 to 21,000	1,409	7,019
Capitalized major maintenance overhauls^(3)	6,000 to 12,000	5,939	20,296
Aircraft acquisitions and improvements	10,000 to 17,000	4,287	47,392
	31,000 to 50,000	11,635	74,707

(1)	The 2022 plan includes reconfiguration costs on re-leased aircraft in the RAL segment which have been converted to Canadian from US dollars using a foreign exchange rate of 1.2496, the March 31, 2022 closing day rate from the Bank of Canada.
(2)	The 2021 actual includes the acquisition of one CRJ900 and reconfiguration costs on certain off-lease and re-leased aircraft.
(3)	The 2022 plan includes between $2.0 million to $5.0 million of costs that are expected to be included in controllable costs. Actual 2022 and 2021 costs include $2.7 million and $8.1 million, respectively which were included in controllable costs.

The following table provides the number of aircraft that earn leasing revenue for completed transactions:

(unaudited)		Completed Transactions
Customer	Aircraft type	Q4 2021	Q1 2022	Total
Aeromexico^(1)	E190	3		3
Air Nostrum	CRJ1000	4		4
airBaltic	A220-300	5		5
Azul Airlines^(2)	ATR72-600/E195	5		5
CityJet	CRJ900	—	2	2
Cobham	Dash 8-400	1		1
Croatia Airlines	Dash 8-400	2		2
Emerald Airlines^(3)	ATR72-600	2	1	3
Ethiopian Airlines	Dash 8-400	5		5
Indigo	ATR72-600	8		8
Jambojet	Dash 8-400	3		3
KLM Cityhopper	E190	1		1
Malindo Air	ATR72-600	4		4
Philippine Airlines^(4)	Dash 8-400	3	(1)	2
Sky Alps	Dash 8-400	2		2
SpiceJet	Dash 8-400	5		5
Waltzing Matilda	Dash 8-400	2		2
Wings Air	ATR72-600	1		1
Total Regional Aircraft Leasing		56	2	58
Total Regional Aviation Services^(5)	Dash 8-400/CRJ900	48	—	48
Chorus Total Aircraft		104	2	106

(1)	On November 4, 2021, Aeromexico and CAC executed amended and restated lease agreements in respect of all three E190s currently leased by CAC to Aeromexico. These agreements (which became effective on January 31, 2022) reflect revised commercial terms negotiated by the parties following Aeromexico's voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code on June 30, 2020. On March 17, 2022, Aeromexico completed its reorganization and emerged from Chapter 11.
(2)	Consists of three ATR72-600s and two E195s.
(3)	CAC executed long-term leases for six ATR72-600s to Emerald Airlines. As at March 31, 2022, three of the aircraft had been delivered, one additional aircraft was delivered on April 25, 2022 and the remaining two deliveries are expected in the second quarter of 2022.
(4)	On December 31, 2021, Philippine Airlines successfully completed its restructuring under Chapter 11 of the United States Bankruptcy Code. Two aircraft have been retained under lease on revised terms and one was returned in the first quarter of 2022.
(5)	RAS segment breakdown includes the following aircraft earning lease revenue under the CPA: 34 Dash 8-400s and 14 CRJ900s.

Use of Defined Terms

Capitalized terms used but not defined in this news release have the meanings given to them in the MD&A which is available on Chorus' website (www.chorusaviation.com) and under Chorus' profile on SEDAR (www.sedar.com).

Investor Conference Call / Audio Webcast

Chorus will hold an analyst call at 9:00 a.m. ET on Friday, May 6, 2022, to discuss the first quarter 2022 financial results. The call may be accessed by dialing 1-888-664-6392. The call will be simultaneously audio webcast via:

https://produceredition.webcasts.com/starthere.jsp?ei=1540083&tp_key=cc041ef05a

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 > Executive Management Presentations.  A playback of the call can also be accessed until midnight ET, May 13, 2022, by dialing toll-free1-888-390-0541, and using passcode 706664#

¹NON-GAAP FINANCIAL MEASURES
This news release references several non-GAAP financial measures to supplement the analysis of Chorus' results. Chorus uses certain non-GAAP financial measures, described below, to evaluate and assess performance. These non-GAAP measures are generally numerical measures of a company's 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 a standardized meaning, and are therefore not likely to be comparable to similar measures presented by other public entities.

Adjusted Net Income, Adjusted EBT and Adjusted EBITDA
Adjusted net income and Adjusted net income per Share are used by Chorus to assess performance without the effects of unrealized foreign exchange gains or losses on long-term debt and lease liability related to aircraft, signing bonuses, employee separation program costs, impairment provisions, lease repossession costs net of security packages realized, Dash 8-300 inventory provision, defined benefit pension curtailment, integration costs, strategic advisory fees and the applicable tax expense (recovery). Chorus manages its exposure to currency risk on such long-term debt by billing the lease payments within the CPA in the underlying currency (US dollars) related to the aircraft debt. These items are excluded because they affect the comparability of Chorus' financial results, period-over-period, and could potentially distort the analysis of trends in business performance. Excluding these items does not imply they are non-recurring due to ongoing currency fluctuations between the Canadian and US dollar.

EBT is defined as earnings before income tax. Adjusted EBT (EBT before signing bonuses, employee separation program costs, impairment provisions, lease repossession costs net of security packages realized, Dash 8-300 inventory provision, defined benefit pension curtailment, integration costs, strategic advisory fees and other items such as foreign exchange gains and losses) is a non-GAAP financial measure used by Chorus as a supplemental financial measure of operational performance. Management believes Adjusted EBT assists investors in comparing Chorus' performance by excluding items, which it does not believe will re-occur over the longer-term (such as signing bonuses, employee separation program costs, impairment provisions, lease repossession costs net of security packages realized, Dash 8-300 inventory provision, defined benefit pension curtailment, integration costs and strategic advisory fees) as well as items that are non-cash in nature such as foreign exchange gains and losses.

EBITDA is defined as earnings before net interest expense, income taxes, depreciation and amortization, and impairment and is a non-GAAP financial measure that is used frequently by companies in the aviation industry as a measure of performance. Adjusted EBITDA (EBITDA before signing bonuses, employee separation program costs, strategic advisory fees, impairment provisions, lease repossession costs net of security packages realized, Dash 8-300 inventory provision, defined benefit pension curtailment and integration costs, and other items such as foreign exchange gains or losses) is a non-GAAP financial measure used by Chorus as a supplemental financial measure of operational performance. Management believes Adjusted EBITDA assists investors in comparing Chorus' performance by excluding items, which it does not believe will re-occur over the longer-term (such as signing bonuses, employee separation program costs, impairment provisions, lease repossession costs net of security packages realized, Dash 8-300 inventory provision, defined benefit pension curtailment, integration costs and strategic advisory fees) as well as items that are non-cash in nature such as foreign exchange gains and losses. Adjusted EBITDA should not be used as an exclusive measure of cash flow because it does not account for the impact of working capital growth, capital expenditures, debt repayments and other sources and uses of cash, which are disclosed in the statements of cash flows, forming part of Chorus' financial statements.

Forward-Looking Information
This news release includes '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 references to assumptions. Such information may involve but is not limited to comments with respect to 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 is subject to important risks and uncertainties. Any forecasts or forward-looking predictions or statements cannot be relied upon due to, among other things, external events, changing market conditions and general uncertainties of the business. Such statements involve 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.

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, the recovery of air traffic in Canada and around the world, Chorus' future growth and the completion of pending or planned transactions. Actual results may differ materially from results indicated in forward-looking information for a number of reasons, including Chorus' ability to successfully integrate Falko's operations and employees and realize the anticipated benefits of the acquisition transaction; the potential impact of the completion of the acquisition transaction on relationships, including with employees, suppliers, customers, investors and other providers of capital; Falko's ability to successfully launch a new fund in the second quarter of 2022 on the terms currently contemplated or at all; deviations from the key economic assumptions described in the Outlook section; a prolonged duration of the COVID-19 outbreak (including as a result of the emergence of new COVID-19 variants) and/or further restrictive measures to minimize its public health impacts, the evolving impact of COVID-19 on Chorus' contractual counterparties, changes in aviation industry and general economic conditions, the continued payment (in whole or in part) of amounts due under the CPA and/or aircraft lease agreements with CAC's customers, the risk of disputes under the CPA and/or aircraft lease agreements with CAC's customers, Chorus' ability to pay its indebtedness and otherwise remain in compliance with its debt covenants, the risk of cross defaults under debt agreements and other significant contracts, the risk of asset impairments and provisions for expected credit losses, a failure to conclude transactions (including potential financings) referenced in this news release and in Chorus' public disclosure record available at www.sedar.com. The forward-looking statements contained in this news release represent Chorus' expectations as of the date of this news release (or as of the date they are otherwise stated to be made) and are subject to change after such date. Chorus disclaims any intention or obligation to update or revise such statements to reflect 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 Aviation Inc.
Chorus is the world's largest aircraft lessor focused solely on investing in the regional aircraft leasing space and a global provider of integrated regional aviation solutions including asset management. Chorus' vision is to deliver regional aviation to the world. Headquartered in Halifax, Nova Scotia, Chorus is comprised of Falko Regional Aircraft Limited, a market-leading aircraft asset management company, Chorus Aviation Capital a leading, global lessor of regional aircraft, and Jazz Aviation and Voyageur Aviation - companies that have long histories of safe operations with excellent customer service. Chorus provides a full suite of regional aviation support services that encompasses every stage of an aircraft's lifecycle, including aircraft acquisitions and leasing; aircraft refurbishment, engineering, modification, repurposing and preparation; contract flying; aircraft and component maintenance, disassembly, and parts provisioning.

Chorus Class A Variable Voting Shares and Class B Voting Shares trade on the Toronto Stock Exchange under the trading symbol 'CHR'. Chorus 6.00% Senior Debentures, 5.75% Senior Unsecured Debentures, and 6.00% Convertible Senior Unsecured Debentures trade on the Toronto Stock Exchange under the trading symbols 'CHR.DB', 'CHR.DB.A', 'CHR.DB.B','CHR.DB.C' respectively.  www.chorusaviation.com

SOURCE Chorus Aviation Inc.

Chorus Media Contact: [email protected]; Chorus Analyst Contact: [email protected]