Aircastle Announces First Quarter 2018 Results

_______________

(1)

See Appendix for an explanation of the reclassification of the Gain on Sale of Flight Equipment.

(2)

Refer to the selected financial information accompanying this press release for a reconciliation of GAAP to Non-GAAP numbers.

(In thousands, except share data)

Three Months Ended March 31,

2018

2017

Lease rental and finance and sales-type lease revenues

$

186,925

$

194,659

Total revenues⁽¹⁾

$

202,680

$

205,032

Adjusted EBITDA⁽²⁾

$

191,145

$

193,391

Net income

$

57,547

$

42,439

   Per common share - Diluted

$

0.73

$

0.54

Adjusted net income⁽²⁾

$

56,751

$

45,691

   Per common share - Diluted

$

0.72

$

0.58

_______________

(1)

As part of the Company's adoption of Financial Accounting Standards Board ("FASB") Accounting Standards Update ("ASU") No. 2014-09, Revenue from Contracts with Customers (Topic 606), we have reclassified Gain on sale of flight equipment from Other income (expense) to Revenues on our Consolidated Statement of Income as of March 31, 2018.  We believe this better reflects the sale of flight equipment as part of our ordinary activities and conforms our presentation to those of our publicly traded peers.  The presentation for the three months ended March 31, 2017 has also been reclassified to conform to the current period presentation.  The standard did not have a material impact on our consolidated financial statements and related disclosures.

(2)

Refer to the selected financial information accompanying this press release for a reconciliation of GAAP to Non-GAAP numbers.

Owned Aircraft

As of
March 31,

2018⁽¹⁾

As of

March 31,

2017⁽¹⁾

Net Book Value of Flight Equipment ($ mils.)

$

6,677

$

6,596

Net Book Value of Unencumbered Flight Equipment ($ mils.)

$

5,304

$

4,725

Number of Aircraft

222

200

Number of Unencumbered Aircraft

193

163

Weighted Average Fleet Age (years)⁽²⁾

9.3

8.2

Weighted Average Remaining Lease Term (years)⁽²⁾

4.8

4.8

Weighted Average Fleet Utilization for the quarter ended⁽³⁾

99.4

%

98.3

%

Portfolio Yield for the quarter ended⁽²⁾⁽⁴⁾

11.5

%

12.3

%

Net Cash Interest Margin⁽⁵⁾

8.3

%

8.7

%

Managed Aircraft on behalf of  Joint Ventures

Net Book Value of Flight Equipment ($ mils.)

$

634

$

682

Number of Aircraft

12

13

_______________

(1)

Calculated using net book value of flight equipment held for lease and net investment in finance leases at period end.

(2)

Weighted by net book value.

(3)

Aircraft on-lease days as a percent of total days in period weighted by net book value.

(4)

Lease rental revenue, interest income and cash collections on our net investment in finance and sales-type leases for the period as a percent of the average net book value for the period; quarterly information is annualized.  Based on the growing level of finance and sales-type lease revenue management revised the calculation of portfolio yield to include our net investment in finance and sales-type leases in the average net book value and to include the interest income and cash collections on our net investment in finance and sales-type leases in lease rentals.

(5)

Net Cash Interest Margin = Lease rental yield plus finance lease revenue and collections minus interest on borrowings, net of settlements on interest rate derivatives, and other liabilities  / average NBV of flight equipment for the period calculated on a quarterly basis, annualized.

Aircastle Limited and Subsidiaries

Consolidated Balance Sheets

(Dollars in thousands, except share data)

March 31,
 2018

December 31,
 2017

(Unaudited)

ASSETS

Cash and cash equivalents

$

210,815

$

211,922

Restricted cash and cash equivalents

21,524

21,935

Accounts receivable

7,818

12,815

Flight equipment held for lease, net of accumulated depreciation of $1,109,182 and $1,125,594, respectively

6,143,695

6,188,469

Net investment in finance and sales-type leases

533,373

545,750

Unconsolidated equity method investments

78,220

76,982

Other assets

173,654

141,210

Total assets

$

7,169,099

$

7,199,083

LIABILITIES AND SHAREHOLDERS' EQUITY

LIABILITIES

Borrowings from secured financings, net of debt issuance costs

$

824,189

$

849,874

Borrowings from unsecured financings, net of debt issuance costs

3,391,224

3,463,732

Accounts payable, accrued expenses and other liabilities

139,961

140,221

Lease rentals received in advance

66,350

57,630

Security deposits

130,350

130,628

Maintenance payments

679,571

649,434

Total liabilities

5,231,645

5,291,519

Commitments and Contingencies

SHAREHOLDERS' EQUITY

Preference shares, $0.01 par value, 50,000,000 shares authorized, no shares issued and outstanding

—

—

Common shares, $0.01 par value, 250,000,000 shares authorized, 78,539,191 shares issued and outstanding at March 31, 2018; and 78,707,963 shares issued and outstanding at December 31, 2017

785

787

Additional paid-in capital

1,522,113

1,527,796

Retained earnings

415,605

380,331

Accumulated other comprehensive loss

(1,049)

(1,350)

Total shareholders' equity

1,937,454

1,907,564

Total liabilities and shareholders' equity

$

7,169,099

$

7,199,083

Aircastle Limited and Subsidiaries

Consolidated Statements of Income

(Dollars in thousands, except per share amounts)

(Unaudited)

Three Months Ended March 31,

2018

2017

Revenues:

Lease rental revenue

$

177,483

$

190,586

Finance and sales-type lease revenue

9,442

4,073

Amortization of lease premiums, discounts and incentives

(3,128)

(3,112)

Maintenance revenue

11,991

12,287

Total lease revenue

195,788

203,834

Gain on sale of flight equipment⁽¹⁾

5,768

759

Other revenue

1,124

439

Total revenues⁽¹⁾

202,680

205,032

Operating expenses:

Depreciation

75,002

79,174

Interest, net

57,108

63,068

Selling, general and administrative (including non-cash share-based payment expense of $2,378 and $2,102 for the three months ended March 31, 2018 and 2017, respectively)

17,835

16,167

Impairment of flight equipment

—

500

Maintenance and other costs

988

2,931

Total expenses

150,933

161,840

Total other income (expense)

3,174

(1,149)

Income from continuing operations before income taxes and earnings of unconsolidated equity method investments

54,921

42,043

Income tax (benefit) provision

(844)

1,846

Earnings of unconsolidated equity method investments, net of tax

1,782

2,242

Net income

$

57,547

$

42,439

Earnings per common share — Basic:

Net income per share

$

0.73

$

0.54

Earnings per common share — Diluted:

Net income per share

$

0.73

$

0.54

Dividends declared per share

$

0.28

$

0.26

_______________

(1)

As part of the Company's adoption of FASB ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), we have reclassified Gain on sale of flight equipment from Other income (expense) to Revenues on our Consolidated Statement of Income as of March 31, 2018.  We believe this better reflects the sale of flight equipment as part of our ordinary activities and conforms our presentation to those of our publicly traded peers.  The presentation for the three months ended March 31, 2017 has also been reclassified to conform to the current period presentation.  The standard did not have a material impact on our consolidated financial statements and related disclosures.

Aircastle Limited and Subsidiaries

Consolidated Statements of Cash Flows

(Dollars in thousands)

(Unaudited)

Three Months Ended
March 31,

2018

2017

Cash flows from operating activities:

Net income

$

57,547

$

42,439

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation

75,002

79,174

Amortization of deferred financing costs

3,533

4,155

Amortization of lease premiums, discounts and incentives

3,128

3,112

Deferred income taxes

1,306

1,309

Non-cash share-based payment expense

2,378

2,102

Cash flow hedges reclassified into earnings

301

581

Security deposits and maintenance payments included in earnings

(665)

(10,524)

Gain on sale of flight equipment

(5,768)

(759)

Impairment of flight equipment

—

500

Other

(4,501)

112

Changes in certain assets and liabilities:

Accounts receivable

4,320

(1,407)

Other assets

(2,666)

(1,000)

Accounts payable, accrued expenses and other liabilities

(57)

14,334

Lease rentals received in advance

8,554

(2,552)

Net cash and restricted cash provided by operating activities

142,412

131,576

Cash flows from investing activities:

Acquisition and improvement of flight equipment

(82,493)

(142,053)

Proceeds from sale of flight equipment

43,917

16,819

Net investment in finance and sales-type leases

(16,256)

(35,785)

Collections on finance and sales-type leases

6,493

5,614

Aircraft purchase deposits and progress payments, net of returned deposits and aircraft sales deposits

2,900

(1,935)

Other

1,320

88

Net cash and restricted cash used in investing activities

(44,119)

(157,252)

Cash flows from financing activities:

Repurchase of shares

(9,413)

(2,513)

Proceeds from secured and unsecured debt financings

—

500,000

Repayments of secured and unsecured debt financings

(101,725)

(31,178)

Deferred financing costs

—

(8,038)

Security deposits and maintenance payments received

53,674

41,049

Security deposits and maintenance payments returned

(20,262)

(39,383)

Dividends paid

(22,085)

(20,466)

Net cash and restricted cash (used in) provided by financing activities

439,471

Net increase in cash and restricted cash

(1,518)

413,795

Cash and restricted cash at beginning of period

233,857

508,817

Cash and restricted cash at end of period

$

232,339

$

922,612

Aircastle Limited and Subsidiaries

Selected Financial Guidance Elements for the Second Quarter of 2018

($ in millions, except for percentages)

(Unaudited)

Guidance Item

Q2:18

Lease rental revenue

$174 - $178

Finance lease revenue

$8 - $9

Amortization of net lease discounts and lease incentives

$(3) - $(4)

Maintenance revenue

$0 - $1

Gain on sale

$9 - $15

Depreciation

$74 - $76

Interest, net

$57 - $59

SG&A⁽¹⁾

$17 - $18

3% - 5%

(1)

Includes ~$2.7M of non-cash share-based payment expense.

Aircastle Limited and Subsidiaries

Supplemental Financial Information

(Amount in thousands, except per share amounts)

(Unaudited)

Three Months Ended
March 31,

2018

2017

Revenues⁽¹⁾

$

202,680

$

205,032

EBITDA⁽²⁾

$

191,941

$

189,639

Adjusted EBITDA⁽²⁾

$

191,145

$

193,391

Net income

$

57,547

$

42,439

Net income allocable to common shares

$

57,232

$

42,167

Per common share - Basic

$

0.73

$

0.54

Per common share - Diluted

$

0.73

$

0.54

Adjusted net income⁽²⁾

$

56,751

$

45,691

Adjusted net income allocable to common shares

$

56,440

$

45,398

Per common share - Basic

$

0.72

$

0.58

Per common share - Diluted

$

0.72

$

0.58

Basic common shares outstanding

78,367

78,177

Diluted common shares outstanding⁽³⁾

78,595

78,372

_______________

(1)

As part of the Company's adoption of FASB ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), we have reclassified Gain on sale of flight equipment from Other income (expense) to Revenues on our Consolidated Statement of Income as of March 31, 2018.  We believe this better reflects the sale of flight equipment as part of our ordinary activities and conforms our presentation to those of our publicly traded peers.  The presentation for the three months ended March 31, 2017 has also been reclassified to conform to the current period presentation.  The standard did not have a material impact on our consolidated financial statements and related disclosures.

(2)

Refer to the selected information accompanying this press release for a reconciliation of GAAP to Non-GAAP information.

(3)

For the three months ended March 31, 2018 and March 31, 2017 dilutive shares represented contingently issuable shares related to the Company's PSUs.

Aircastle Limited and Subsidiaries

Reconciliation of GAAP to Non-GAAP Measures

EBITDA and Adjusted EBITDA Reconciliation

(Dollars in thousands)

(Unaudited)

Three Months Ended
March 31,

2018

2017

Net income

$

57,547

$

42,439

Depreciation

75,002

79,174

Amortization of lease premiums, discounts and incentives

3,128

3,112

Interest, net

57,108

63,068

Income tax (benefit) provision

(844)

1,846

   EBITDA

191,941

189,639

Adjustments:

Impairment of flight equipment

—

500

Non-cash share-based payment expense

2,378

2,102

(Gain) loss on mark-to-market of interest rate derivative contracts

(3,174)

1,150

   Adjusted EBITDA

$

191,145

$

193,391

We define EBITDA as income (loss) from continuing operations before income taxes, interest expense, and depreciation and amortization. We use EBITDA to assess our consolidated financial and operating performance, and we believe this non-U.S. GAAP measure is helpful in identifying trends in our performance.

This measure provides an assessment of controllable expenses and affords management the ability to make decisions which are expected to facilitate meeting current financial goals as well as achieving optimal financial performance. It provides an indicator for management to determine if adjustments to current spending decisions are needed.

EBITDA provides us with a measure of operating performance because it assists us in comparing our operating performance on a consistent basis as it removes the impact of our capital structure (primarily interest charges on our outstanding debt) and asset base (primarily depreciation and amortization) from our operating results. Accordingly, this metric measures our financial performance based on operational factors that management can impact in the short-term, namely the cost structure, or expenses, of the organization. EBITDA is one of the metrics used by senior management and the Board of Directors to review the consolidated financial performance of our business.

We define Adjusted EBITDA as EBITDA (as defined above) further adjusted to give effect to adjustments required in calculating covenant ratios and compliance as that term is defined in the indenture governing our senior unsecured notes.  Adjusted EBITDA is a material component of these covenants.

Aircastle Limited and Subsidiaries

Reconciliation of GAAP to Non-GAAP Measures

Adjusted Net Income Reconciliation

(Dollars in thousands)

(Unaudited)

Three Months Ended
March 31,

2018

2017

Net income

$

57,547

$

42,439

(Gain) loss on mark-to-market of interest rate derivative contracts⁽¹⁾

(3,174)

1,150

Non-cash share-based payment expense⁽²⁾

2,378

2,102

Adjusted net income

$

56,751

$

45,691

_______________

(1)   Included in Other income (expense).

(2)   Included in Selling, general and administrative expenses.

Management believes that ANI, when viewed in conjunction with the Company's results under U.S. GAAP and the above reconciliation, provides useful information about operating and period-over-period performance and additional information that is useful for evaluating the underlying operating performance of our business without regard to periodic reporting elements related to interest rate derivative accounting, changes related to refinancing activity and non-cash share-based payment expense.

Aircastle Limited and Subsidiaries

Reconciliation of GAAP to Non-GAAP Measures

Cash Return on Equity Calculation

(Dollars in thousands)

(Unaudited)

Period

CFFO

Finance

Lease

Collections

Gain on Sale of Flt. Eqt.

Deprec.

Distributions

in excess

(less than)

Equity Earnings

Cash
Earnings

Average

Shareholders

Equity

Trailing 12 Month Cash ROE

2012

$

427,277

$

3,852

$

5,747

$

269,920

$

—

$

166,956

$

1,425,658

11.7

%

2013

$

424,037

$

9,508

$

37,220

$

284,924

$

—

$

185,841

$

1,513,156

12.3

%

2014

$

458,786

$

10,312

$

23,146

$

299,365

$

667

$

193,546

$

1,661,228

11.7

%

2015

$

526,285

$

9,559

$

58,017

$

318,783

$

(530)

$

274,548

$

1,759,871

15.6

%

2016

$

468,092

$

19,413

$

39,126

$

305,216

$

(1,782)

$

219,633

$

1,789,256

12.3

%

2017

$

490,872

$

32,184

$

55,167

$

298,664

$

(1,011)

$

278,548

$

1,861,005

15.0

%

LTM Q1:18

$

501,707

$

33,063

$

60,176

$

294,492

$

(851)

$

299,603

$

1,881,633

15.9

%

Note: LTM Average Shareholders' Equity is the average of the most recent five quarters period end Shareholders' Equity.  Management believes that the cash return on equity metric ("Cash ROE") when viewed in conjunction  with the Company's results under U.S. GAAP and the above reconciliation, provide useful information about operating and period-over-period performance, and provide additional information that is useful for evaluating the underlying operating performance of our business without regard to periodic reporting impacts related to non-cash revenue and expense items and interest rate derivative accounting, while recognizing the depreciating nature of our assets.

Aircastle Limited and Subsidiaries

Reconciliation of GAAP to Non-GAAP Measures

Net Cash Interest Margin Calculation

(Dollars in thousands)

(Unaudited)

Period

Average NBV

Quarterly Rental
Revenue⁽¹⁾

Cash Interest⁽²⁾

Annualized Net
Cash Interest
Margin⁽¹⁾⁽²⁾

Q1:12

$

4,388,008

$

152,242

$

44,969

9.8

%

Q2:12

$

4,542,477

$

156,057

$

48,798

9.4

%

Q3:12

$

4,697,802

$

163,630

$

41,373

10.4

%

Q4:12

$

4,726,457

$

163,820

$

43,461

10.2

%

Q1:13

$

4,740,161

$

162,319

$

48,591

9.6

%

Q2:13

$

4,840,396

$

164,239

$

44,915

9.9

%

Q3:13

$

4,863,444

$

167,876

$

47,682

9.9

%

Q4:13

$

5,118,601

$

176,168

$

49,080

9.9

%

Q1:14

$

5,312,651

$

181,095

$

51,685

9.7

%

Q2:14

$

5,721,521

$

190,574

$

48,172

10.0

%

Q3:14

$

5,483,958

$

182,227

$

44,820

10.0

%

Q4:14

$

5,468,637

$

181,977

$

44,459

10.1

%

Q1:15

$

5,743,035

$

181,027

$

50,235

9.1

%

Q2:15

$

5,967,898

$

189,238

$

51,413

9.2

%

Q3:15

$

6,048,330

$

191,878

$

51,428

9.3

%

Q4:15

$

5,962,874

$

188,491

$

51,250

9.2

%

Q1:16

$

5,988,076

$

186,730

$

51,815

9.0

%

Q2:16

$

5,920,030

$

184,469

$

55,779

8.7

%

Q3:16

$

6,265,175

$

193,909

$

57,589

8.7

%

Q4:16

$

6,346,361

$

196,714

$

58,631

8.7

%

Q1:17

$

6,505,355

$

200,273

$

58,839

8.7

%

Q2:17

$

6,512,100

$

199,522

$

55,871

8.8

%

Q3:17

$

5,985,908

$

184,588

$

53,457

8.8

%

Q4:17

$

6,247,581

$

187,794

$

53,035

8.6

%

Q1:18

$

6,700,223

$

193,418

$

53,978

8.3

%

_______________

(1)

Management's Use of Net Cash Interest Margin:  Beginning with this earnings release for the three months ended September 30, 2016, based on the growing level of finance and sales-type lease revenue, management revised the calculation of net cash interest margin to include our net investment in finance and sales-type leases in the average net book value and to include the interest income and cash collections on our net investment in finance and sales-type lease in lease rentals.  The calculation of net cash interest margin for all prior periods presented is revised to be comparable with the current period presentation.

(2)

Excludes loan termination payments of $3.0 million in the second quarter of 2013, $1.5 million and $3.5 million in the first quarter and fourth quarter of 2016, respectively, and loan termination payments of $1.0 million in both the second and third quarters of 2017.

We define net cash interest margin as lease rentals from operating leases, interest income and cash collections from finance and sales-type leases minus interest on borrowings, net settlements on interest rate derivatives and other liabilities adjusted for loan termination payments divided by the average net book of flight equipment (which includes net investment on finance and sales-type leases) for the period calculated on a quarterly and annualized basis.

Management believes that net cash interest margin, when viewed in conjunction with the Company's results under U.S. GAAP and the above reconciliation, provides useful information about the effective deployment of our capital in the context of the yield on our aircraft assets, the utilization of those assets by our lessees, and our ability to borrow efficiently.

Aircastle Limited and Subsidiaries

Presentation of Reclassification of Gain on Sale of Flight Equipment

(Dollars in thousands)

(Unaudited)

As part of the Company's adoption of FASB ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), we have reclassified Gain on sale of flight equipment from Other income (expense) to Revenues on our Consolidated Statement of Income as of March 31, 2018.  We believe this better reflects the sale of flight equipment as part of our ordinary activities and conforms our presentation to those of our publicly traded peers.  The presentation for the three months ended March 31, 2017, has also been reclassified to conform to the current period presentation.  The standard did not have a material impact on our consolidated financial statements and related disclosures.

Three Months Ended
March 31, 2017

Total revenues as previously reported

$

204,273

Gain on sale of flight equipment

759

Total revenues

$

205,032

Aircastle Limited and Subsidiaries

Reconciliation of GAAP to Non-GAAP Measures

Reconciliation of Net Income Allocable to Common Shares

(In thousands)

(Unaudited)

Three Months Ended
March 31, 2018

Weighted-average shares:

Shares

Percent

Common shares outstanding – Basic

78,367

99.45

%

Unvested restricted common shares

431

0.55

%

Total weighted-average shares outstanding

78,798

100.00

%

Common shares outstanding – Basic

78,367

99.71

%

Effect of dilutive shares⁽¹⁾

228

0.29

%

Common shares outstanding – Diluted

78,595

100.00

%

Net income allocation

Net income

$

57,547

100.00

%

Distributed and undistributed earnings allocated to unvested restricted shares⁽²⁾

(315)

(0.55)

%

Earnings available to common shares

$

57,232

99.45

%

Adjusted net income allocation

Adjusted net income

$

56,751

100.00

%

Amounts allocated to unvested restricted shares

(311)

(0.55)

%

Amounts allocated to common shares – Basic and Diluted

$

56,440

99.45

%

_______________

(1)

For the three months ended March 31, 2018, distributed and undistributed earnings to restricted shares were 0.55% of net income and adjusted net income. The amount of restricted share forfeitures for the period presented is immaterial to the allocation of distributed and undistributed earnings.

(2)

For the period presented, dilutive shares represented contingently issuable shares.

Aircastle Limited and Subsidiaries

Reconciliation of GAAP to Non-GAAP Measures

Reconciliation of Net Income Allocable to Common Shares

(In thousands)

(Unaudited)

Three Months Ended
March 31, 2017

Weighted-average shares:

Shares

Percent

Common shares outstanding – Basic

78,177

99.36

%

Unvested restricted common shares

504

0.64

%

Total weighted-average shares outstanding

78,681

100.00

Common shares outstanding – Basic

78,177

99.75

%

Effect of dilutive shares⁽¹⁾

195

0.25

%

Common shares outstanding – Diluted

78,372

100.00

%

Net income allocation

Net income

$

42,439

100.00

%

Distributed and undistributed earnings allocated to unvested restricted shares⁽²⁾

(272)

(0.64)

%

Earnings available to common shares

$

42,167

99.36

%

Adjusted net income allocation

Adjusted net income

$

45,691

100.00

%

Amounts allocated to unvested restricted shares

(293)

(0.64)

%

Amounts allocated to common shares – Basic and Diluted

$

45,398

99.36

%

_______________

(1)

For the three months ended 2017, distributed and undistributed earnings to restricted shares were 0.64% of net income and adjusted net income.  The amount of restricted share forfeitures for the period presented is immaterial to the allocation of distributed and undistributed earnings.

(2)

For the period presented, dilutive shares represented contingently issuable shares.

Contact:

Aircastle Advisor LLC

The IGB Group

Frank Constantinople, SVP Investor Relations

Leon Berman

Tel: +1-203-504-1063

Tel: +1-212-477-8438

[email protected]

[email protected]