Exchange Income Corporation Reports Financial Results for First Quarter 2012

- Revenue grows 87% to $147 million; EBITDA increases 15% to $14.1 million -

WINNIPEG, May 8, 2012 /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, 2012. All amounts are in Canadian currency.

"Our first quarter results, which saw revenue growth of 87% to $147 million, EBITDA gains of 15% and record performance by our Manufacturing segment, are clear signs of the strength of our diversified business model, commitment to acquisitions and readiness to invest in future growth opportunities," said Mr. Mike Pyle, President and CEO of Exchange Income Corporation.

"Consistent with expectations, our first quarter, which traditionally is our weakest due to seasonality factors, was impacted by a number of growth investment expenses earmarked chiefly for our Calm Air and WesTower subsidiaries, and higher interest charges for previous financing activities. This short-term drag on performance was partially offset by the contributions of Custom Helicopters, which was acquired in Q1, and the strong performance of our Manufacturing segment, which is benefitting from strong demand for all of its business lines," Mr. Pyle also said.

Q1 2012 Highlights

• Consolidated revenue increased 87% to $146.7 million.
• EBITDA grew 15% to $14.1 million
• Adjusted net income was $1.6 million or $0.09 per share.
• Free cash flow increased 6% to $11.2 million
• The Manufacturing segment generated record revenue of $80.9 million.
• Closed a bought deal financing for gross proceeds of $57.5 million. The proceeds have been used to pay down the Company's long-term debt.
• Completed the acquisition of Custom Helicopters, a provider of helicopter-based aviation services in Manitoba and Nunavut, for $28.3 million.

"We invested $8.3 million in growth capital expenditures in Q1 to position the company for long-term growth opportunities," said Adam Terwin, Chief Financial Officer of Exchange. "A majority of these investments, or nearly $7.7 million, were allocated towards new aircraft and infrastructure at the James Richardson International Airport in Winnipeg. Additional investment costs of nearly $0.4 million were earmarked towards WesTower to support its requirements to service the AT&T Mobility contract. Over time, we expect these investments will result in higher revenue, EBITDA and cash flow performance as well as improved operating efficiencies."

Q1 2012 Results
Selected Financial Highlights

All amounts in thousands except % and share data	Q1 2012	Q1 2011	% Change
Revenue	$146,879	$78,522	+87%
EBITDA^1	$14,061	$12,214	+15%
Net Earnings	$910	$2,040	-55%
Adjusted Net Earnings^2	$1,567	$3,161	-50%
Earnings per Share^3	$0.05	$0.13	-62%
Adjusted Earnings per Share	$0.09	$0.20	-55%
Dividends declared	$7,553	$6,119	+23%

Consolidated revenue for Q1 2012 was $146.7 million, up 87% from $78.5 million for the corresponding period of 2011. The revenue growth was primarily attributable to the addition of WesTower to the Company's operating subsidiaries, which was completed in April of 2011.  Revenue growth was also due to the strong performance of Exchange's pre-existing Manufacturing segment companies, particularly Stainless Fabrication.

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 2012 of $66.0 million, or 44.9% of the consolidated total.  This compares to $62.0 million, or 78.9% of the consolidated total, for Q1 2011.  The Aviation segment's year-over-year revenue growth of 6% was largely due to the acquisition of Custom Helicopters, which contributed $2.5 million of revenue in the two months since it was acquired on February 1, 2012, and the steady performance of pre-existing Aviation segment companies.

The Manufacturing segment generated record revenue in Q1 2012 of $80.9 million, up 389% from $16.6 million for Q1 2011.  The growth was largely due to the acquisition of WesTower and the recovery of the manufacturing sector, particularly in Alberta.  In Q1 2012, the Manufacturing segment contributed 55.1% of the Company's consolidated revenue total.  This compares to 21.1% for Q1 2011.  The percentage change is consistent with the Company's strategy to have a more balanced and diversified revenue stream.

Consolidated EBITDA for Q1 2012 was $14.1 million, up 15% from $12.2 million for Q1 2011. The growth was due to the acquisition of WesTower and the significant growth of the Company's pre-existing Manufacturing segment companies, which generated their highest ever EBITDA contributions.

On a segmented basis, Exchange's Aviation segment generated EBITDA of $8.6 million for Q1 2012, down from $10.9 million for the same period of 2011. EBITDA margins for the Aviation segment in Q1, which traditionally is the Company's weakest due to seasonality factors, were impacted by a number of factors. Among these included aircraft wet lease expenses for Calm Air needed to serve new contracts, training costs due to the introduction of new equipment, higher landing fees at select airports, rising fuel costs that were not offset by customer surcharges and increased competition within eastern Canadian markets served by Bearskin. The EBITDA decline was partially offset by the addition of Custom Helicopters, which contributed EBITDA of $0.9 million. Exchange anticipates that EBITDA margins will improve throughout the balance of the year as demand for its aviation services grows and the positive impact of Calm Air operating its own jet service take effect.

The Manufacturing segment generated EBITDA of $7.1 million for Q1 2012, up 137% from $3 million for Q1 2011. The growth is due to the addition of WesTower, including the initial results of its service contract with AT&T Mobility, and the 46% growth in EBITDA from EIC's pre-existing manufacturing entities.  The Manufacturing segment's EBITDA margins were also positively impacted by the strong performance of pre-existing companies and an increased order backlog, particularly with Stainless Fabrication.

Exchange reported net earnings for Q1 2012 of $0.9 million or $0.05 per share basic and diluted.  In Q1 2011, Exchange reported net earnings of $2 million or $0.13 per share basic and diluted. The decline in net earnings was attributable to a number of factors, including equipment leasing charges expensed by Calm Air for aircraft needed to service customer contracts, higher fuel charges that were not offset by corresponding customer surcharges, increased competition within the eastern Canada markets served by Bearskin, and higher interest charges stemming from previous financing activities.

Net earnings per share in Q1 2012 were impacted by an increase of 27% in the number of shares outstanding to 20,216,367 on a year over year basis. The growth was due to an increase in the conversion of debentures by investors and issuance of shares to support acquisition and financing activities.

Excluding net intangible amortization and acquisition costs of $0.7 million expensed as a result of IFRS, the Company had adjusted net income of $1.6 million or $0.09 per share.  These compare to $3.2 million and $0.20 per share for the corresponding period of 2011.

As at March 31, 2012, the Company had a net cash position of $5.9 million and net working capital of $66.6 million, which represents a current ratio of 1.7 to 1.  These compare to a net cash position of $11.5 million and net working capital of $67.3 million, or a ratio of 1.8 to 1, at December 31, 2011.

Selected Key Performance Indicators

All amounts in thousands except % and share data	Q1 2012	Q1 2011	% Change
Free Cash Flow^4	$11,167	$10,515	+6%
Free Cash Flow per share	$0.61	$0.68	-10%
Total Maintenance Capex	$7,301	$6,671	+9%
Free Cash Flow less Maintenance Capex	$3,866	$3,844	+1%
Free Cash Flow less Maintenance Capex per share	$0.21	$0.25	-16%
Dividends/Distributions Declared	$7,553	$6,119	+23%
Free Cash Flow less Maintenance Capex Payout Ratio	193%	156%

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 Q1 2012 totaled $11.2 million, up 6% from $10.5 million for Q1 2011. Free Cash Flow on a per share basis in Q1 2012 was $0.61. This compares to $0.68 per basic share for Q1 2011. The growth in Free Cash Flow was due to the acquisitions of WesTower and Custom Helicopters, as well as to the organic EBITDA growth of the Company's existing Manufacturing segment companies. Free Cash Flow gains were offset by a decrease within pre-existing Aviation segment companies. The decline in Free Cash Flow on a per share basis was due to an increase in the number of shares outstanding stemming from financing and acquisition-related activities.

Free Cash Flow less Maintenance Capex was $3.9 million, or $0.21 per share, for Q1 2012.  This compares to $3.8 million, or $0.25 per share, for Q1 2011. Maintenance Capex grew primarily as a result of the additions of WesTower and Custom Helicopters.

Outlook
"We are very bullish on our long-term prospects given the significant efforts we have made to strengthen our balance sheet and prepare our pre-existing companies for organic growth opportunities," added Mr. Pyle. "Most notably, WesTower and Calm Air continue to ramp up efforts related to their recent customer wins, the addition of Custom Helicopters provides us an opportunity to enter new markets while leveraging our medical transportation experience, and the recovery of the manufacturing sector is resulting in new customer demand. Combined with the $210 million of available capital to deploy for acquisition targets and organic expansion opportunities, we believe that Exchange is in a strong position to continue its growth."

The Company's complete financial statements and management's discussion and analysis for the three months ended March 31, 2012 will be made available at www.exchangeincomecorp.ca or at www.sedar.com after the Company's Annual General Meeting.

Conference Call Notice
Exchange will hold a conference call to discuss its 2012 first quarter financial results on Wednesday, May 9 at 10:00 am ET. Mike Pyle, President and Chief Executive Officer, and Adam Terwin, Chief Financial Officer, will co-chair the call.

All interested parties can join the first quarter conference call by dialing 1-888-231-8191 or [phone]. Please dial in 15 minutes prior to the call to secure a line. The conference call will be archived for replay until Wednesday, May 17, 2012 at midnight. To access the archived conference call, please dial 1-855-859-2056 or 416-849-0833 and enter the reservation code 73140650.

A live audio webcast of the first quarter 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
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 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 Overlanders Manufacturing, Water Blast Manufacturing, Stainless Fabrication and WesTower Communications.  For more information on the Corporation, please visit www.exchangeincomecorp.ca.

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.

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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 20,216,367 shares outstanding at March 31, 2012, up 27% from March 31, 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 and financing acquisition activities.
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.  

 

 

 

Mike Pyle
President and CEO
Exchange Income Corporation
[phone]
[e-mail]

Joe Racanelli
Investor Relations
The Equicom Group Inc.
[phone] or 1-800-385-5451 ext. 243
[email protected]m