-Returns to profitability in Q4-
-Generates $1.03 billion in revenue and EBITDA of $80.5 million for FY
WINNIPEG , Feb. 26, 2014 /CNW/ – Exchange Income Corporation (TSX: EIF)
(the “Corporation” or “Exchange”), a diversified, acquisition-oriented
company focused on niche aviation and specialty manufacturing sectors,
reported its financial results for the three- and twelve-month periods
ended December 31, 2013 . All amounts are in Canadian currency.
“Our performance in 2013 was characterized by massive growth and the
record $1.03 billion in revenue we generated,” said Mike Pyle ,
President and Chief Executive Officer of Exchange Income Corporation.
“However, the magnitude of the growth at WesTower put considerable
strain on our management processes and systems leading to a decline in
margins and profitability. We have implemented a number of measures
over the last few months to improve efficiencies, and are confident
that WesTower will achieve profitable growth moving forward.”
Mr. Pyle added, “2013 was also marked by the addition of Regional One, a
seller of after-market aircraft engines and parts. The acquisition,
which is our largest to date, allowed us to further diversify our
revenue streams, enter new markets and offset a major expense category
for our Aviation segment. Regional One’s contribution to EIC was above
expectations in 2013, and this is a business platform that we are
focused upon to grow through further capital investments.”
2013 Financial and Operational Highlights
- Consolidated revenue was $1.03 billion , up 29%.
As previously disclosed in the Corporation’s third quarter results,
WesTower’s U.S. operations incurred an $11 million expense at that time
as a result of the net effect of changes to revenue and estimates
associated with specific completed projects. WesTower also incurred
$5.5 million of expenses related to the use of external advisors
associated with improving process efficiencies and internal controls as
a result of the pressure from its rapid growth.
- EBITDA was $80.5 million , down 15%.
- Net earnings were $9.0 million , down 65%.
Acquired Regional One, a seller and lessor of aircraft, aircraft engines
and parts, for $89.9 million .
Hired Steven Pickett as the new Chief Executive Officer of WesTower. Mr.
Pickett has almost 30 years of experience in the telecommunications
industry in senior roles.
Invested $44.1 million in growth capital expenditures aimed at
positioning the Corporation for future growth opportunities.
Results for the year ended December 31, 2013
Selected Financial Highlights
Consolidated revenue for 2013 was $1.03 billion , up 29% from $800.6
million for FY 2012. The revenue increase was driven largely by the
contributions of WesTower Communications, a manufacturer, installer,
and maintenance provider of communication towers and sites in both
Canada and the United States . Consolidated revenue also grew as a
result of the addition of Regional One, which was acquired April 2013 .
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 $313.2
million , up 12% from $280.4 million for FY 2012. The year-over-year
revenue growth was largely due to the acquisition of Regional One,
which generated $38.5 million in revenue over the course of eight and a
half months of contributions. Revenue growth also increased due to
higher demand for the Corporation’s medevac and cargo services in
select markets in northern Manitoba and Nunavut . The Aviation segment’s
revenue growth was partially off-set by a number of contributing
factors, including increased competitive pressure faced by Bearskin
Airlines in eastern Canada markets and the decline in demand for
certain charter services due to unfavorable market conditions in the
mining sector. In 2013, the Aviation segment generated 30% of the
Corporation’s consolidated total as compared to 35% of the
Corporation’s consolidated total for FY 2012.
The Manufacturing segment generated revenue of $716.9 million in 2013,
up 38% from $520.2 million for FY 2012. The growth was attributable to
the contributions of WesTower, which generated revenue of $627.9
million in 2013, up 47% from FY 2012. WesTower’s growth was largely due
to the continued rollout of its turfing contract with ATT and to high
demand from wireless carriers across North America as they continue the
deployment of LTE network build-outs. Excluding the contributions of
WesTower, the Manufacturing segment’s companies decreased revenue by 4%
to $89.0 million . The year-over-year decline was largely due to lower
revenue from Stainless, which won multiple large contracts in 2012
generating a short-term revenue spike for the Manufacturing segment. In
2013, the Manufacturing segment generated 70% of the Corporation’s
consolidated total revenue as compared to 65% of the Corporation’s
consolidated total revenue for FY 2012.
Consolidated EBITDA for 2013 was $80.5 million , down 15% from $94.5
million for FY 2012. The year-over-year decline was due to higher
operating costs and inefficiencies experienced by WesTower’s U.S.
operations. Most notably was the $11 million expense incurred by
WesTower’s U.S. operations as a result of the net effect of changes
made to initial estimates for revenue and costs for specific projects,
which the Corporation previously disclosed in its third quarter
results. The net adjustments were made once projects were completed.
WesTower also incurred external advisor costs of $5.5 million related
to improving internal processes and systems.
On a segmented basis, the Aviation segment generated EBITDA of $64.7
million for 2013, up 24% from $52.1 million for FY 2012. The growth was
due to the addition of Regional One, which contributed EBITDA of $14.9
million . The Aviation segment’s EBITDA also improved as a result of the
ongoing implementation of a fleet renewal program announced previously.
This growth was offset, however, by a number of factors, including
adverse weather conditions in the first quarter, higher competitive
pressures in certain markets in Ontario , and unfavorable economic
conditions in the mining sector, all of which combined together
resulted in lower customer demand for other Aviation segment companies.
The Aviation segment’s EBITDA margin for 2013 was 20.7%, up from 18.6%
for FY 2012. The margin improvement was the result of the addition of
Regional One that generates a higher EBITDA margin plus the ongoing
efforts by the Corporation to improve the Aviation segment’s costs and
The Manufacturing segment generated EBITDA of $24.5 million in 2013,
down 52% from $51.0 million for FY 2012. The decline was due largely to
the performance of WesTower’s U.S. operations, which, as already noted,
experienced margin pressures due to inefficiencies and higher costs,
and as previously disclosed in the third quarter results included an
$11 million expense for adjustments to revenue and cost estimates for
specific projects completed in 2013. WesTower’s earnings are determined
using the percentage of completion method, which is applied on a
cumulative basis in each accounting period to the current estimates of
contract revenue and contract costs. Consistent with IFRS, the effect
of a net change in the preliminary estimate of a contract’s revenue or
contract’s costs, or the effect of a net change in the estimate of the
outcome of a contract, is accounted for as a change in accounting
estimate during the reporting period.
Exchange reported net earnings for 2013 of $9.0 million , or $0.42 per
basic share. This compares to net earnings of $25.4 million or $1.26
per basic share for FY 2012. The decline in net earnings were due to
factors already described for changes in EBITDA and also as a result of
increased depreciation and amortization with higher levels of capital
assets, and increased interest costs from higher levels of debt
outstanding. Net earnings per share in 2013 were also impacted by a
growth in the number of shares outstanding of 5% mainly as a result of
shares issued for purchase consideration in the acquisition of Regional
One and the conversion of debentures.
Excluding net expenses of $2.6 million incurred as a result of IFRS
related intangible amortization, acquisition costs and a fair value
gain on the Regional One acquisition liabilities, Exchange had adjusted
net income of $11.6 million or $0.54 per basic share for 2013.
As at December 31, 2013 , Exchange had a net cash position of $23.2
million and net working capital of $256.6 million , which represents a
current ratio of 2.23 to 1. These compare to a net cash position of
$4.2 million , net working capital of $156.6 million and a current ratio
of 1.90 to 1 for 2012.
Selected Key Performance Indicators
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 and Free Cash Flow less
maintenance capital expenditures, to evaluate its progress and assess
its ability to sustain its dividend policy. It is important to
understand that as a result of reporting under IFRS, maintenance
capital expenditures fluctuate from period to period. As a result of
the variability in the maintenance capital expenditures under IFRS,
Free Cash Flow is a better metric than Free Cash Flow less maintenance
capital expenditures as a measure to compare quarterly changes of
ongoing operating performance. This metric will not have the
variability of the lumpy capital expenditures and therefore will give a
better indication of the performance of the underlying operations and
the trend in performance. Maintenance capital expenditures are variable
under IFRS because overhaul maintenance for aircraft engines and
airframe heavy checks that were previously accrued in advance are
treated as capital expenditures when the event takes place under IFRS.
Free Cash Flow less maintenance capital expenditures is still an
important operating metric; however, it will be subject to lumpy
quarterly and annual changes as a result of the maintenance capital
expenditures and therefore needs to be evaluated over longer operating
Free Cash Flow for 2013 totaled $65.1 million , down 15% from $76.8
million for FY 2012. Free Cash Flow on a basic per share basis in 2013
was $3.03 as compared to $3.83 for FY 2012. The declines were mainly
attributable to EBITDA margin pressures faced by WesTower’s U.S.
operations due to higher costs and inefficiencies and offset partially
by the positive contributions made through the addition of Regional
Free Cash Flow less Maintenance Capex in 2013 was $27.1 million or $1.26
per basic share. These compare to $46.0 million or $2.30 per basic
share in 2012. Maintenance Capex grew as a result of the addition of
Regional One and also the result of the timing of engine overhauls and
heavy checks at our pre-existing aviation subsidiaries, specifically
Perimeter and Calm Air.
Results for the three months ended December 31, 2013
“Our fourth quarter results marked a return to profitability,” said Adam
Terwin , Chief Financial Officer of Exchange Income Corporation. “The
quarter was highlighted by stabilizing WesTower US operations. The
changes implemented at WesTower late in 2013 resulted in modest margin
improvement in Q4 and sets the stage for margin improvement as 2014
progresses. The other highlights of Q4 were a very profitable quarter
by Regional One and the continued improvement at Calm Air as a result
of the significant investment in its fleet rationalization plan. These
improvements and our current outlook for our operating entities support
the Corporation’s dividend distributions at the current rate.”
Selected Financial Highlights
Consolidated revenue for the fourth quarter of 2013 was $267.5 million ,
up 16% from $231.4 million for Q4 2012. The revenue increase was
primarily due to the continued growth of WesTower and the addition of
Regional One to the Corporation’s list of operating subsidiaries.
On a segmented basis, the Aviation segment generated revenue in Q4 2013
of $86.6 million , up $17.8 million or 26% from Q4 2012. The growth was
due to the addition of Regional One which contributed $18.5 million
with no comparative in Q4 2012. This was offset by declines in Bearskin
and some of the Aviation segment’s supporting businesses. In Q4 2013,
the Aviation segment generated 32% of Exchange’s consolidated revenue
compared to 30% for Q4 2012.
In Q4 2013, the Manufacturing segment generated revenue totaling $180.9
million , up $18.2 million or 11% from Q4 2012. The revenue increase was
due to the continuing high demand for WesTower’s product and services
as well the Stainless operations having a strong finish to the year
with some higher field work and shop volumes than traditional
production levels. In Q4 2013, the Manufacturing segment generated 68%
of Exchange’s consolidated revenue total compared to 70% for Q4 2012.
Consolidated EBITDA for Q4 2013 was $22.3 million , down 13% from $25.6
million for the comparative period in 2012. The decline in 2013 was
largely due to margin pressures experienced by WesTower’s U.S.
operations already described. As a result of changes implemented
earlier in the year aimed at improving WesTower’s margins and the
addition of Regional One, consolidated EBITDA in Q4 2013 improved 43%
on a sequential basis over Q3 2013.
On a segmented basis, Exchange’s Aviation segment generated EBITDA of
$19.5 million for Q4 2013, up $7.4 million or 62% from Q4 2012. The
growth was primarily due to the addition of Regional One, which
contributed EBITDA of $7.9 million with no comparable in Q4 2012.
The Manufacturing segment generated EBITDA of $5.6 million for Q4 2013,
down $10.0 million or 64% from Q4 2012. The decline was due to margin
pressures experienced by WesTower as noted previously. Excluding
WesTower contributions, EBITDA from the other companies in the
Manufacturing segment grew 29%. The growth was largely due to the
strong performance at the Corporation’s Alberta operations and
Exchange reported net earnings for Q4 2013 of $1.9 million or $0.09 per
basic share. Q4 2013 marked a return to profitability for the
Corporation and represented a sequential improvement over the $0.2
million loss incurred in Q3 2013. In Q4 2012, the Corporation generated
net earnings of $6.7 million or $0.32 per basic share. The decrease was
largely due to the performance of WesTower’s U.S. operations for
reasons already described. Per share results were also impacted by the
higher number of shares outstanding mainly as a result of shares issued
for purchase consideration in the acquisition of Regional One and the
conversion of debentures.
Excluding net expenses totaling $0.4 million incurred as a result of
IFRS intangible amortization and a fair value gain on the Regional One
acquisition liabilities, Exchange had adjusted net earnings of $2.3
million or $0.10 per basic share in Q4 2013. In the corresponding
period of 2012, Exchange had adjusted net earnings of $8.1 million or
$0.39 per basic share.
Selected Key Performance Indicators
Free Cash Flow for Q4 2013 totaled $16.7 million , down 20% from $20.7
million for Q4 2012. Free Cash Flow on a basic per share basis in Q4
2013 was $0.76 as compared to $1.00 for the Q4 2012. The decline in
Free Cash Flow was due to lower EBITDA levels generated and described
Free Cash Flow less Maintenance Capex was $5.2 million or $0.24 on a
basic per share basis for Q4 2013 as compared to $13.4 million or $0.65
on a per share basis for Q4 2012. The decrease is a result of the
decline in absolute Free Cash and an increase of Maintenance Capex in
the 2013 period.
“We are optimistic about our prospects for growth,” added Mr. Pyle. “In
the near term, we expect our performance will be impacted by
seasonality factors. Our first quarter results, which historically have
been our weakest, will be affected by the recent harsh winter
conditions that have taken a toll not only on flight schedules for our
Aviation segment companies but also on the installation of cell towers
in certain WesTower markets.”
“During 2014, we believe that the changes we introduced at WesTower will
begin to have the desired effect of improving margins. We are also
seeing positive signs of pent-up demand within the manufacturing sector
as well as for Regional One’s products and services. We also remain
very committed to our acquisition strategy. Our access to more than
$126 million in available credit from our facility based on debt levels
at year-end 2013, and the subsequent closing of a new series of
convertible debentures that will initially be used to pay down the
amount outstanding in our credit facility, will allow us to capitalize
on opportunities as they emerge, and enable us to further diversify our
operations and cash flow. The challenges we have faced in 2013, in
particular those at WesTower, provide opportunity to grow and
strengthen our company in the future.”
The Corporation’s complete financial statements and management’s
discussion and analysis for the three- and twelve-month periods ended
December 31, 2013 can be found at www.ExchangeIncomeCorp.ca or at www.sedar.com.
Conference Call notice
Exchange will hold a conference call to discuss its fourth quarter and
year-end financial results for fiscal year 2013 on Thursday February
27, 2014 at 10:00 am ET . Mike Pyle , President and Chief Executive
Officer, and Adam Terwin , Chief Financial Officer, will co-chair the
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 Thursday, March 6, 2014 at midnight. To access the archived
conference call, please dial 1-855-859-2056 and enter the encore code
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.
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 currently operates 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, Custom Helicopters and
Regional One, and the specialty manufacturing segment consists of the
operations by Jasper Tank , Overlanders Manufacturing, Water Blast
Manufacturing, Stainless Fabrication and WesTower Communications. For
more information on the Corporation, please visit www.ExchangeIncomeCorp.ca
Additional information relating to the Corporation, including all public
filings, is available on SEDAR (www.sedar.com).
The statements contained in today’s press 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 the 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, 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 the Corporation with the securities regulatory authorities,
available at www.sedar.com.
SOURCE Exchange Income Corporation
- Company Earnings
- Airline Industry
- Regional One
- capital expenditures
President and Chief Executive Officer
Exchange Income Corporation
Phone: (416) 815-0700 Ext. 243