Exchange Income Corporation Reports Record Financial Results for Q3 2012

Increases dividend distributions by 4% to $0.14 per month

WINNIPEG, Nov. 12, 2012 /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 nine-month periods ended September 30, 2012. All amounts are in Canadian currency.

"We are extremely proud of our third quarter performance and the new benchmarks we set with each of our key financial metrics," said Mr. Mike Pyle, President and CEO of Exchange. "The growth we experienced was largely driven by the strength of our diversification model. Even as our Aviation segment was largely flat, our Manufacturing segment, which was spurred by the significant contributions made by WesTower Communications and its three-year turf contract with AT&T Mobility, enabled us to achieve consolidated record revenue of more than $220 million and record EBITDA of more than $30 million."

Mr. Pyle added, "Given our recent momentum and the confidence we have in sustaining our performance into 2013 and beyond, we are increasing our dividend distribution to $0.14 per month. This increase marks the eighth time since 2004 that we have increased dividend distributions, and reflects our commitment to providing dependable dividends to shareholders."

Q3 2012 Highlights

• Consolidated revenue was $220.8 million, up 51%
• EBITDA was $30.3 million, up 37%
• Adjusted net income was $11.6 million, up 53%
• Free Cash Flow was $24.1 million, up 25%.
• Free Cash Flow less Maintenance Capex was $16.2 million, up 27%.
• Exchange's Manufacturing segment generated consolidated revenue of $147.3 million, setting a new record high
• 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, and contributed revenue and EBITDA of $124.1 million and $11.3 million, respectively.
• Closed a bought-deal convertible debenture offering, raising gross proceeds of $57.5 million.

Selected Third Quarter Financial Highlights

"We invested nearly $11 million in growth capital expenditures in Q3 less $3.8 million in asset disposals," said Adam Terwin, Chief Financial Officer of Exchange. "The majority of these investments were earmarked for the Aviation segment to support our strategic decision to rationalize Calm Air's fleet and infrastructure. The balance, approximately $1.7 million, was allocated to WesTower in support of its ongoing expansion. We believe that the net total of $6.9 million in growth capital expenditures better positions us for opportunities to grow our operations in the future."

Selected Year-to-date Financial Results

Review of Financial Results
Consolidated revenue for Q3 2012 was $220.8 million, up 51% from $146.0 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 $569.1 million, up 57% from $362.5 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 Q3 2012 of $73.5 million, up 1.4% from $72.4 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 $5.5 million in revenue in Q3. The Aviation segment's revenue growth was partially off-set by a number of contributing factors, including increased competitive pressure faced by Bearskin Airlines and the cancellation of Keewatin Air's passenger service in September 2011. In Q3 2012, the Aviation segment generated 33% of Exchange's consolidated total. This compares to 49.6% of the consolidated total for Q3 2011.

Exchange's Manufacturing segment generated revenue in Q3 2012 of $147.3 million, up 100% from $73.6 million for Q3 2011. The growth was primarily attributable to the contributions of WesTower Communications, which increased its revenue by 117% to $124.1 million, largely due to its three-year turf contract with AT&T Mobility. Excluding the contributions of WesTower, Exchange's Manufacturing segment grew its revenue by 41.6% to $23.3 million as a result of strong performance of all the Company's pre-existing manufacturing operations. In Q3 2012, the Manufacturing segment generated 66.7% of Exchange's consolidated total. This compares to 50.4% of the consolidated total for Q3 2011.

Consolidated EBITDA for Q3 2012 was $30.3 million, up 37% from $22.2 million for Q3 2011. The year-over-year gain was due to the organic growth of Exchange's pre-existing Manufacturing segment companies, particularly WesTower, and to the addition of Custom Helicopters. On a year-to-date basis, EBITDA for FY2012 was $68.9 million, up 27% from $54.1 million for FY2011.

On a segmented basis, Exchange's Aviation segment generated EBITDA of $17.3 million for Q3 2012, up 1.6% from $17.0 million for the same period of last year. The modest increase was due to Custom Helicopter's $3.0 million EBITDA contributions, which were offset by a number of factors, including softer customer demand in some markets due to competitive pressures and higher fuel costs. The Aviation segment's EBITDA margin for Q3 2012 was stable at 23.5%.

The Manufacturing segment generated EBITDA of $15.3 million for Q3 2012, up from $7.2 million for Q3 2011. The increase in EBITDA was due to the growth in contributions by WesTower, which increased by 148% or $6.8 million to $11.3 million. Excluding WesTower contributions, EBITDA from the other pre-existing Manufacturing segment companies grew 50.6% to $3.9 million. EBITDA margin for the Manufacturing segment in Q3 2012 was 10.4%, up from 9.7% for Q3 2011. Excluding WesTower, which is a higher sales but lower margin business, EBITDA margins for the Manufacturing segment were 16.9%, up from 15.9% for Q3 2011.

Exchange reported net earnings for Q3 2012 of $10.0 million, or $0.49 per basic share. In the corresponding period of 2011, Exchange reported net earnings of $7.3 million or $0.42 per basic share. Excluding intangible asset amortization of $0.4 million expensed as a result of IFRS and aircraft impairment write-down of $1.9 million, Exchange had adjusted net earnings of $11.6 million or $0.57 per basic share, up 30% from $0.44 in Q3 2011.

On a year-to-date basis, net earnings for FY2012 were $18.6 million, up 35% from $13.8 million for FY2011. Excluding acquisition costs of $0.4 million, intangible asset amortization of $1.2 million expensed as a result of IFRS and an aircraft impairment write-down of $1.9 million, Exchange had adjusted net earnings for FY2012 of $21.2 million, up 29% from $16.5 million for FY2011.

At September 30, 2012, the Corporation had net working capital of $145.1 million, including net cash and cash equivalents of $10.9 million. This compares to $67.3 million and $11.5 million, respectively, at December 31, 2011. This significant increase is the result of the working capital required to support the growth at WesTower.

Selected Third Quarter Key Performance Indicators

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 Q3 2012 totaled $24.1 million, up 25% from $19.2 million for Q3 2011. Free Cash Flow on a basic per share basis in Q3 2012 was $1.17 per share basic, up 5% from $1.11 from Q3 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 primarily due to competitive pressures and softer market conditions.

Free Cash Flow less Maintenance Capex was $16.2 million, or $0.79 per basic share, in Q3 2012. This compares to $12.7 million, or $0.74 per basic share, for Q3 2011. The growth in Maintenance Capex was chiefly due to the timing of Aviation segment engine over-hauls and heavy checks, activities that fluctuate from period to period.

Outlook
"As historically has been the case, we expect seasonality factors to impact our performance in the coming months," said Mr. Pyle.  "The start of winter conditions will have a drag on the performance of our Aviation segment as the build-out of winter roads in the northern communities we service will reduce demand for transportation services. WesTower may also be impacted by the onset of winter conditions, which may limit the installation of cell towers in some markets, especially across Canada."

Mr. Pyle added, "Over the long term, we are very bullish on the sustainability of our business model and our prospects. Having a diversified portfolio of operating companies enables us to better absorb the fluctuations of various economic cycles and still take advantage of organic growth opportunities. And with access to more than $185 million in available capital as well as a strong balance sheet, we are poised to apply our disciplined strategy take advantage of acquisition opportunities as they emerge."

The Corporation's complete financial statements and management's discussion and analysis for the three and nine months ended September 30, 2012 can be found at www.exchangeincomecorp.ca or at www.sedar.com.

Increase to monthly dividend distributions
Exchange also announced that its Board of Directors has voted to increase the Corporation's monthly dividend payout rate by four percent from $0.135 per share per month to $0.14.  The increase will take effect with the dividend distribution for the month ended November 30, 2012, and payable December 14, 2012 to shareholders of record at the close of business on November 30, 2012.

Conference Call Notice
The Corporation will hold a conference call to discuss its 2012 third quarter financial results on November 13, at 9:30 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 Tuesday, November 20, 2012 at midnight. To access the archived conference call, please dial 1-855-859-2056 or 416-849-0833 and enter the reservation code 47797492.

A live audio webcast of the Q3 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 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 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).

Forward-Looking Information:
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 on SEDAR.

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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 Q3 2012 adjusted net earnings excludes pre-tax intangible amortization of $391,000 (Q3 2011 - $408,000) and an aircraft impairment write-down of $1.9 million (Q3 2011 - nil).
³  Exchange had 20.4 million common shares outstanding at September 30, 2012, up from 17.2 million at September 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 $392,000 ($1.8 million - FY2011), pre-tax intangible amortization of $1.2 million ($1.4 million - FY2011) and an asset impairment write-down of $1.9 million (nil - FY2011).
⁵Free 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. 

SOURCE: Exchange Income Corporation