Exchange Income Corporation Reports Financial Results for Second Quarter 2010
- Generates record $60.2 million of revenue in quarter & awarded Nunavut medevac contract -
WINNIPEG, Aug. 12 /CNW/ - Exchange Income Corporation (TSX: EIF) (the "Corporation" or "Exchange"), a diversified, acquisition-oriented company focused on the transportation and industrial manufacturing sectors, reported its financial results for the three- and six-months periods ended June 30, 2010. All amounts are in Canadian currency.
"We are very encouraged by our consolidated results for the second quarter and the record revenue we generated, despite the impact on our Manufacturing segment of a weak economy," said Mike Pyle, President and CEO of Exchange. "Also of note, we grew our EBITDA, generated higher free cash flows and increased our working capital. These year-over-year gains are the result of continuing growth opportunities for each of our Aviation segment subsidiaries and improved efficiencies stemming from the integration of Calm Air into our operations. Our recent progress positions us extremely well as we enter the peak period for our Aviation segment and we expect to experience improving market conditions for some of our Manufacturing segment subsidiaries. We are very pleased that Keewatin was successful in its proposal to the Nunavut Government to provide medevac services in the Baffin Island region. This expansion of our geographic coverage solidifies the company's position as Canada's leader in providing medical evacuation services in the far north."
Q2 2010 Highlights
- Consolidated revenue increased 7.8% to $60.2 million.
- EBITDA increased 1% to $8.6 million.
- Net earnings were $3.7 million, down from $4.0 million.
- Distributable cash totaled $6.2 million, down from $6.7 million.
- Free cash flow was flat at $7.0 million.
- Completed on a bought deal basis a $30 million offering of Series H
convertible senior secured debentures with a seven year maturity and a
6.5% per annum interest rate.
- Total senior debt to equity ratio is 0.06 versus 0.50 at June 30,
2009, an 88% year over year decline.
- Invested $14.6 million in growth capital expenditures, relating
primarily to the acquisition of Aviation segment equipment.
Subsequent to Quarter-end Highlights
- Appointed Michael Rodyniuk as Vice President and Chief Operating
Officer of Aviation segment.
- Keewatin Air, a subsidiary of the Corporation's Aviation segment, was
awarded a five-year contract by the Nunavut Government to perform
exclusive medevac services into the Baffin Island region. The area of
Nunavut serviced under this contract is geographically contiguous to
Keewatin's existing operations and more than doubles its area of
operations. The contract also leverages Keewatin's core competency in
the medical evacuation field. The contract value is anticipated to be
$50 million over five years. It is expected that Keewatin will need to
invest significant capital in aircraft and ground infrastructure in
Iqualuit to service the contract. Keewatin is in the midst of final
documentation and anticipates that service will begin in Q4 of this
year.
Selected Second Quarter Financial Highlights
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All amounts in thousands except %
and share data Q2 2010 Q2 2009 Change
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Revenue $60,219 $55,852 +7.8%
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EBITDA(1) $8,556 $8,478 +1%
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Net Earnings $3,654 $4,032 -9.4%
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Earnings per Share (fully diluted)(2) $0.27 $0.44 -$0.17
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Dividends/Distributions declared per share $0.39 $0.39 $0
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(1) EBITDA is defined as earnings before interest, income taxes,
depreciation, amortization, other non-cash expenses and any unusual
non-operating one-time items. 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) The Corporation had 13,085,696 shares outstanding at June 30, 2010
compared to 9,877,877 at June 30, 2009.
"The strength of our diversified business model was made evident yet again by our second quarter results," said Adam Terwin, Chief Financial Officer of Exchange. "Although unfavorable economic conditions continued to cause a drag on the performance of our Manufacturing segment, the organic growth experienced by our Aviation segment enabled us to generate surplus distributable cash and positive free cash flows. Our per share results suffered as a result of our de-leveraged balance sheet. The two most recent convertible debenture offerings completed for a total of $60 million, combined with the shares issued for the acquisition relating to the conversion back to a corporation and the warrants issued have combined to put significant pressure on both our basic and fully diluted per share results. These financings haven't added cash generating operations to the business to increase EBITDA and distributable cash, but instead have given the Corporation the ability to perform up to a $100 million acquisition without the need for additional equity. Once these funds are deployed the per share results will increase dramatically."
Selected Year-to-date Financial Results
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All amounts in thousands except %
and share data FY2010 FY2009 Change
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Revenue $113,475 $93,048 +22.0%
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EBITDA $15,518 $12,564 +23.5%
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Net Earnings $6,016 $5,417 +11.1%
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Earnings per Share (fully diluted) $0.48 $0.72 -$0.24
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Dividends/Distributions declared per share $0.78 $0.78 $0
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Review of Financial Results
Consolidated revenue for Q2 2010 was $60.2 million, up 7.8% from $55.8 million for the corresponding period of 2009. The revenue growth was primarily attributable to a strong performance by the Corporation's Aviation segment. The revenue gain was offset by a decline in revenue by the Corporation's Manufacturing segment. On a year-to-date basis, revenue for FY2010 was $113.5 million, up 22% from $93.0 million for FY2009.
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 of $47.4 million, up 14% or $5.9 million on a comparative basis. The Aviation segment also generated 79% of the consolidated revenue total for Q2 2010. This compares to $41.5 million, or 74% of the consolidated total, for the corresponding period of 2009.
The Manufacturing segment generated revenue of $12.9 million for Q2 2010, down 10% or $1.5 million from $14.3 million for Q2 2009. The weakness in the Manufacturing segment was lessened by the strong performance of Overlanders Manufacturing, the Corporation's manufacturer of precision sheet metal and tubular products, which generated more than a 30% increase in Q2 revenue over the 2009 period. In Q2 2010, the Manufacturing segment generated 21% of the consolidated revenue total. This compares to 26% for Q2 2009.
The year-over-year change in the percentage of revenue generated by each segment is due to higher revenue contributions from each of the Aviation segment's subsidiaries as well as to a softening of demand for tanks and other equipment produced by the Manufacturing segment due to weak economic conditions, most notably within the agriculture and oil and gas sectors. The decline is also due to the appreciation of the Canadian currency, which impacts the results of the Manufacturing segment's US-based operations when presented in Canadian dollars in the consolidated financial statements.
Consolidated EBITDA for Q2 2010 was $8.6 million, up 1% from $8.5 million for Q2 2009. The year-over-year gain was due to higher revenue generated by the Aviation segment and offset by lower revenue contributions by the Manufacturing segment. On a year-to-date basis, consolidated EBITDA for FY2010 was $15.5 million, up 23.5% from $12.6 million for FY2009. The growth was principally due to the acquisition of Calm Air, which was completed in April, 2009.
Net earnings for Q2 2010 were $3.7 million, or $0.27 per share fully diluted. In the corresponding period of 2009, the Corporation reported net earnings of $4.0 million, or $0.44 per share fully diluted. The decline in net earnings is entirely attributable to non-operating items, specifically interest and foreign exchange gains. The decision to issue $60 million of convertible debentures increased the Q2 2010 interest expense by $0.5 million compared to the comparable rates on senior debt. In Q2 of 2009 a $0.5 million non-cash foreign exchange gain was recognized, which didn't occur in 2010. If the combined $1.0 million effect of these two non-operating items is excluded, net earnings for Q2 2010 would be $0.7 million higher than the comparative 2009 period. On a six-month basis, net earnings for FY2010 were $6.0 million, up 11.1% from $5.4 million for FY2009. The six-month earnings are affected by the same two items as discussed above.
In Q2 2010, the Corporation generated surplus distributable cash, and free cash flows over dividends declared, however net earnings and cash flows from operations fell short of dividends declared by $1.3 million and $2.3 million, respectively. The shortfall is attributable to the higher number of shares outstanding and corresponding increase in dividends paid compared to the prior year. As the Corporation moves forward and available funds are deployed, the balance sheet will return to normal leverage levels and additional distributable cash and free cash flows will be generated. Until then Corporation plans on maintaining the current level of dividends.
At June 30, 2010, the Corporation had working capital of $21.1 million, including cash and cash equivalents of $2.1 million. This compares to $5.5 million and $4.9 million, respectively, at December 31, 2009. The working capital position at December 31, 2009 was artificially low as $9.7 million of debentures that the Company had called were classified as a current liability. As well working capital is higher at the end of the second quarter due to the seasonality of the Aviation segment.
Selected Second Quarter Key Performance Indicators
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All amounts in thousands except %
and share data Q2 2010 Q2 2009 Change
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Free Cash Flows(3) $7,036 $7,039 Nil
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Distributable Cash(4) $6,120 $6,673 -8.3%
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Distributable Cash per Share (basic) $0.49 $0.76 -$0.27
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Dividends/Distributions Declared $5,006 $3.642 +37.5%
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Total Dividends/Distributions Declared
(basic) as a Percentage of
Distributable Cash 81.8% 54.6%
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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 flows, distributable cash, distributable cash per share and dividends / distributions declared to shareholders, to evaluate its progress and assess its ability to sustain its dividend policy. Although some of these metrics are not commonly utilized to measure the performance of public companies, they were historically used by the Corporation when it operated as an income trust, and are being used consistently to provide a basis for comparison.
Free cash flows for Q2 2010 totaled $7.0 million, consistent with Q2 2009. Distributable cash for Q2 2010 was $6.1 million, down 8.3% from $6.7 million generated in Q2 2009, as a result of higher interest and maintenance capital expenses. Distributable cash on a per share basis for Q2 2010 was $0.49 basic and $0.39 fully diluted. For the corresponding period of 2009, distributable cash on per share basis was $0.76 basic and $0.69 fully diluted, respectively. As previously discussed, the per share results will be negatively affected until the Corporation deploys the funds that have been raised through the exercised warrants and the two $30 million convertible debenture offerings.
The Corporation expects that some of the performance indicators used when it operated as an income trust, such as distributable cash or distributable cash per share, may change as it continues its evolution as a publicly-traded corporation.
Outlook
"Our strategy continues to center on growing each of our segments while identifying acquisition opportunities that are immediately accretive to our EBITDA and cash flows," added Mr. Pyle. "The recent addition of Michael Rodyniuk as Chief Operating Officer of our Aviation segment is designed to drive growth while the recent revenue improvement of Overlanders Manufacturing points to anecdotal signs that recovery for our Manufacturing segment is on the horizon. Over the longer term, we remain focused on adding a third segment to our operations, which we believe will result in further diversification of our revenue streams and cash flows, and sustain our commitment to increasing dividend distributions."
Exchange complete financial statements and management's discussion and analysis for the three months ended June 30, 2010 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 2010 second quarter financial results on August 13, 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 Friday, August 20, 2010 at midnight. To access the archived conference call, please dial 1-800-642-1687 or 416-849-0833 and enter the reservation code 89558638.
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
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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
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 and Calm Air International LP, and the specialty manufacturing segment consists of Jasper Tank Ltd., Overlanders Manufacturing LP, Water Blast Manufacturing LP, and Stainless Fabrication, Inc. For more information on Exchange Income Corporation, please visit www.exchangeincomecorp.ca.
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(3) 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. Free cash flows 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) Distributable cash is a performance measure used by Management to
summarize the funds available for the payment of dividends to
shareholders. Distributable cash is defined as EBITDA less cash
interest, cash taxes and capital expenditures required to maintain
the operations at their current level. It is not a recognized measure
under Canadian GAAP.
For further information: Mike Pyle, President and CEO, Exchange Income Corporation, (204) 982-1850, [email protected]; Joe Racanelli, Investor Relations, The Equicom Group Inc., (416) 815-0700 or 1-800-385-5451 ext. 243, [email protected]
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