Q4 2020 Exchange Income Corp Earnings Call

Good morning, everyone. Welcome to exchange income Corporation's conference call to discuss the financial results for the three and 12 month periods ended December 31, 'twenty 'twenty book.

Corporation's results, including the M. D M D and financial statements were issued on February 17th 2021, and are currently available via the company's website or SEDAR before turning the call over to management listeners are cautioned that today's presentation and the responses to questions may contain forward looking statements within the meaning of the safe Harbor provisions of Canadians.

Securities laws forward looking statements involve risks and uncertainties from undue reliance should not be placed on such statements certain material factors or assumptions are applied in making forward looking statements and actual results may differ materially from those expressed or implied in such statements.

For additional information about factors that may cause actual results to differ materially from expectations on about material factors or assumptions applied in making forward looking statements. Please consult the MD&A for this quarter the risk factors section of the annual information form and exchange's other filings with Canadian Securities regulators.

Except as required by Canadian Securities Law exchange does not undertake to uptake any forward looking statements such statements speak only as of the day made listeners are also reminded that today's call is being recorded and broadcast live via the internet for the benefit of individual shareholders analysts and other interested parties I would now like to turn the call.

All over to the CEO of Exchange income Corporation, Mike Paul. Please go ahead Mr. Pyle.

Thank you operator, good morning, everyone and thank you once again for joining us on the call today.

I am joined this morning by Carmel, Peter Eic's, President Darryl Bergman, our CFO.

And the updates we've provided over the course of the last year. We've consistently described implications of the COVID-19 pandemic to our operations and outlined our plans to manage through the complicated and ever changing environment, which we find ourselves.

While we will again today address some of the challenges we've experienced during a particularly complex fourth quarter characterized by a significant second wave of the pandemic. We have also substantially positive news to share about Eic's continued operational and physical resiliency in the quarter and throughout 2020.

From a financial perspective, Eic's performance remained strong both in the quarter and for the full year. The company was able to generate revenues of $1 1 billion for the year with $302 million in the fourth quarter, we generated a consolidated EBITDA of $285 million for the year.

And 82 million from the court.

We were able to generate free cash flow less maintenance capital expenditures, producing $113 million or $3 23 per share for the year and $41 million or $1 17 per share in the quarter.

We've also remained profitable through the year and through the quarter, respectively recording adjusted net earnings of $47 million or $1 35 per share for the year and 19 million or <unk> 53 per share for the quarter.

The pandemic has tested our board model on providing a meaningful reliable dividend to our shareholders through a diverse portfolio of aviation and manufacturing subsidiaries.

We met this challenge head on and I'm pleased to tell you that our payout ratio in spite of the economic upheaval remained a strong 71% when calculated on our free cash flow less maintenance capital expenditures basis.

I believe however that while these operating results are very encouraging purging they did not fully show the resilience of EIC.

I believe the.

Perhaps the best Testament to the strength of our model is the fact that since the end of the first quarter when the panic and endemic to call. We have not only been able to maintain our dividend.

Fund on maintenance capital requirements invested growth capital and closed the material on acquisition of W. I S. We were also able to reduce our debt net of cash reserves. We believe that this exceptional performance for our company, where 60% of revenues come from aviation.

And aerospace.

We believe that improving our balance sheet over the last 12 months is a remarkable accomplishment made possible by a series of strategic and principles operational decisions and directives not made just in the moment, but built into the very foundation of the IC.

At the inception of our company and carried forward diligently to today.

In that respect I would like to share some operate observations on what exactly makes EIC different describe on those differences from helped us navigate the past year and discuss why our unique characteristics position us well for a post pandemic future.

It's building the EIC family of companies, we've consciously made the strategic investment and acquisition choices.

Build diversity by design into the Corporation.

We continue to feel strongly that this proven approach drives value for shareholders and we've seen the benefits of those choices directly reflected in our results through the year.

The composition of our aviation and Aerospace segment is an excellent example of the power of this approach in practice.

The challenges of passenger aviation during the pandemic are broadly known our commercial airline operations and regional one's business is lessor and seller of aircraft and aircraft parts and engines are not on mute to the realities of reduced passenger volumes and the progressive imposition of travel.

Frictions in quarantine obligations.

She's airline operations, we've experienced a year over year decline in passenger traffic at times exceeding 90%. Although we are encouraged that the traffic Richard quickly joined network when patterns with debit conditions ease and travel becomes more feasible.

Full year revenues in this segment reflects the realities of the pandemic with the segment generating slightly over 687 million in 2020, a decline of 29% from the previous year.

That said through the call.

Wyman rabbit, Hugh and volatility in the industry our performance in this segment remains exceptional.

This reflects the deep underlying strength of the corporation and validates our conscious choice to cultivate a family of rare operators in a central aviation services net about freight flight training maritime surveillance part sales on leasing.

That support and are complementary to one another.

Paolo Aerospace's continued stability in the face of the pandemic is an excellent example on that regard operating in an industry defined by long term contracts for strategic and essential services delivered on behalf of governments around the world. The company's operations remain consistent through the course of the year.

As a result Powell aerospace was able to continue executing on existing programs, including the Canadian Department of Fisheries and oceans surveillance program and the acceleration of on preparations to support Canada's new fixed wing search and rescue aircraft. The Cc 295 King Fisher.

In both instances the continued delivery of these programs meant finding new ways to meet operational milestones within the bounds of the pandemic operating environment.

Beyond the continued execution of these programs Powell Aerospace was also able to extended Sterling international reputation and global leadership position in maritime surveillance and ISR solutions by securing a strategic and exciting new contract with the government of endeavour.

While the contract itself is significant perhaps equally significant is the strategic foothold. This week now it gives us is the European surveillance market.

A similar story of consistent performance underpinning strong results strategic investments for future growth and delivery for the communities. We serve can be found at Eic's Air ambulance business.

Again, we have delivered strong results by trusting and our management team's experience and ability to responsibly continue delivering essential services for customers and the community is counting on US. We've also fortified our position in this segment by investing in for epics shuttle units specialized medical isolation <unk>.

For the transportation of sick infectious patients from remote communities to larger facilities better to provide acute care.

The immediate benefit of adding this capacity in the pandemic environment is both self on the self evident and indicative of our willingness to go the extra mile and ensuring we are fully prepared to meet the needs of the people. We know are counting on us well.

Well negatively impacted through the year and particularly challenged in the fourth quarter, but continued operation of our family of regional Airlines has been on one of the persistent examples of accomplishment in adverse circumstances for EIC in 2020.

Our regional operators have charted our course through the pandemic based first and foremost is the understanding that our services are essential.

Knowing that in many instances the presence of the EIC Airlines is the only reliable way to move people and goods in and out of the communities, we serve terminating or suspending service has never been an often from management puts.

Put simply we need to keep flying regardless of the financial implications to EIC.

I cannot overstate the significance of the scope of this effort we have made to provide our passengers employees and communities, we serve with the safest possible conditions throughout our operation.

We are collectively focused the strength and operational experience on the new Airlines family.

When viewed collectively as one of the largest air service suppliers in Canada. We know our efforts in this respect are appreciated by the communities we serve by the customers who fly with US this confidence in the safety of our operation combined with the essential nature of the services, we provide led directly to them.

Return on passenger traffic during periods of relative stability of the pandemic. The work we've done and the investments we've made of both preserved our operations and position EIC carriers as market leaders as the Canadian economy, restarts and travel resumes in the months at <unk>.

We remain cautious, but we are excited about our future the.

The essential nature of the services EIC provides also implies the need to be diligent in our approach to government accurately communicated the challenges, we face and maintaining services well identified programs that can be engaged to help us sustain our operations.

Our ability to continue delivering essential services and our willingness to partner in finding solutions to the challenges facing our communities. During the pandemic has made us a logical partner for governments in addressing their own unique logistical challenges.

All of our air operators are actively involved in vaccine distribution efforts across a number of Canadian jurisdictions, and we continue to deploy the collective capacity of our airlines in partnership with digital services, Canada to manage logistics and transport for a central medical personnel on chart.

Fights with strict safety first health protocols, serving fly in indigenous communities and protecting against COVID-19.

We were a bensley proud to be part of these efforts keenly aware that R&D capacities are delivering vital health services and giving our communities. The first hole of a glimpse of a post pandemic future in Canada.

The manufacturing segment the story of EIC success through 2020 share as many of the same characteristics as our accomplishments in aviation exceptional teams, making the critical decisions required to maintain production and meet customer needs supported by our willingness to continue making the strategic investments.

We believe we will continue to position <unk> for future growth.

Overall performance in the segment was strong for the year with revenue, increasing by $96 million or 26% to $462 million and EBITDA, increasing by $32 million or 58% over the prior period to $88 million.

Numbers alone cannot however, capture the exceptional efforts of the design drafting engineering and management teams have worked diligently to maintain production and meet the needs of our clients by explicitly making operational and investment decisions that submit their health and safety of our employees above all others.

Iterations.

We accomplished this goal we have ensured the implementation of best practices made sound investments in production, where appropriate of distributed resources quickly and efficiently between our operations. We have developed forums for the continual sharing of lessons learned to protect employees and overcome operational.

The obstacles and build efficiencies. We've also instituted heightened employee screening on all EIC facilities enhanced cleaning and sanitation practices work diligently to meet or exceed all public health guidance from the jurisdictions in which we maintain operations.

Notably this segment, we were able to build on the established success of quest Windows systems through the continued ramp up of our new Texas plant and the successful completion of the W. I S acquisition in the third quarter of 2020 accomplished during the pandemic. This transaction extends our.

Strategic positioning of quest as a full service manufacturer and installer of our own products. We continue to believe that the synergies gained by solidified west as a single point of accountability for our customer builds on our already significant competitive expense advantages in this space.

We know firsthand the benefits of this type of strategic investment through the acquisition of AWS in 2019 and believe firmly. This is another investment that will return substantial value to EIC and go long term.

It has been extremely gratifying to watch companies from EIC management shift our operations are critical times throughout the year to meet calls for support in the battle against COVID-19.

Several instances, we've been able to scale up production capacity and make our expertise available to provide it demand services and medical supplies to pandemic response efforts leveraging our expertise to deliver critical goods for frontline applications collectively we have more than 100 talents.

The design drafting and engineering professionals on the EIC family of companies, who turned their focus to developing products and services to meet community demand.

And we have produced exceptional results.

To provide two quick examples in Ontario, Ben machine products led the design and manufacture of face shields for the eventual use by a local health region Wellington Thoma.

Water blocks manufacturing design and manufactured IV pools to be distributed across the provincial health network. These efforts and does its more like them across our organization I liked the character we are always going to exist at the core of EIC, our people care deeply about the communities we serve.

Given the realities of COVID-19, certain initiatives are companies and previously lives like the first nation's youth aviation camp, usually offered by was saying Airways and the EIC program hosting children from new to the northern Manitoba, Northern Ontario to Winnipeg Blue bombers Jets games over the course of the year.

Air have unfortunately been suspended we know how valuable these opportunities are to engage with our communities and we're looking forward to bringing these events back just as soon as it's safe to do so that said just as they have for our business. Our people have found unique ways to continue to contribute to.

Our communities by developing new initiatives that'd be positive change palace found ways to work with the government and the community partners to make positive contributions from the people and noodles in Newfoundland and Labrador facing food insecurity during the pandemic.

Perimeter has maintained their scholarship program for first nation's students.

Pursuing careers in aviation and calm errors made a series of donations to fight Covid it spreads seasonal share through the Christmas period, while continuing its program are moving recyclable materials from Nunavut communities.

There are dozens more examples like this across EIC of our employees and business true leaders working together to make the kind of positive community contribution that has always been a central component of our corporate character.

This year, perhaps slightly more than this year's previous visa being uniformly exceptional efforts.

With that firmly in mind, it would be impossible to reflect on eic's accomplishments for the year with in which our people have played so exceptional a director role without pausing to acknowledge that these efforts all come during a particularly challenging time for so many in their personal lives.

The collective total of living through the pandemic, there's been significant our employees on that to confront the reality of repeated lockdowns prolonged isolation from friends and family the challenges of balancing work and responsibilities at home and in some cases, the pain of losing a loved one to this terrible disease with.

That in mind, the diligence and determination of our people has consistently demonstrated this year is that much more remarkable their hard work and unwavering commitment to meeting the needs of our customers and making positive contributions and our communities have allowed EIC to excel jewelry.

One of the most difficult times in our history for that I simply could not be more grateful.

Thank you very much and I'll now hand off the call to Darryl who will take you through our financial results.

Thank you, Mike and good morning, everyone before I present, the financial results for 2020 in Q4, 2020, I would like to take a moment to highlight what I considered to be Eic's notable financial achievement in 2020.

For our global cash during a global pandemic characterized by significant economic uncertainty extend some travel restrictions and passenger volumes declining at times by over 90% on a year over year basis since the onset of the pandemic EIC still retain the ability to fund its maintenance capital expenditures paying its dividend.

And four grow the company through acquisition and have cash flow leftover to pay down debt.

This is a remarkable accomplishment in our industry and a testament to the resilience of Eic's business model.

Our adherence to maintaining design diversity in our portfolio supported by a rigorous attention to balance sheet management and the stewardship of our remarkable team across the organization has been beneficial this year, perhaps more than ever.

Given the success in that respect it is my pleasure to now review for you in greater detail our full year 2020 in Q4 2020 financial results.

The Corporation took proactive steps to ensure it maintain the liquidity required during the on certain economic times created by COVID-19 pandemic.

In a period of worldwide uncertainty like many other large corporations EIC made a draw on its credit facilities insured.

Access to capital should it be required.

This was done as a precautionary measure in the first quarter and did not reflect an imminent need for liquidity.

Throughout the remainder of the year the corporation repaid most of this precautionary drop.

The Corporation has taken several additional steps to manage its liquidity during the COVID-19 pandemic. These include workforce rationalization compensation reductions delays and nonessential capital expenditure chairs route adjustments and the corporation accessing the Canadian emergency wage subsidy.

<unk> of the Corporation's credit facility as at December 31st 2020 remained unchanged at approximately $1 3 billion.

The corporation retains the ability to access an additional $300 million in an accordion feature should we choose to exercise it giving the corporation combined access of up to $1 6 billion.

Utilization of the corporate credit facility was $794 million at the end of the period, reducing this by the $70 million in cash on hand. The result is a net debt of 724 million.

As a result, the corporation is in an enviable enviable position of maintaining access to liquidity in excess of $560 million, excluding the aquarium.

The Corporation net debt of approximately 724 million is an increase of approximately 27 million from the prior period. It should be noted that the increase for the period is inclusive of the west acquisition for which the cash consideration was $38 4 million U S.

Even more notable is the decline in net got through the onset of the period of the pandemic starting in March 2020.

Over that time, you actually use long term debt net of cash has decreased by over $50 million.

Including the aforementioned $38 4 million U S net cash used to purchase Wes.

Excluding the west acquisition, the combined impact of management's actions and the impact of foreign exchange reduced our long term debt net of cash by more than 100 million a remarkable achievement given the circumstances of the pandemic.

Outside of its existing credit facilities. The corporation has acquired no additional debt in 2020 and has no long term debt coming due before December 2022.

At the end of 2020, our leverage ratio remains well within the five times covenant extended by lenders through September 30th 21.

Coming in at 2.69 times contributing to this strong covenant result, or the corporation successful efforts in managing capital expenditures along with working capital.

Going forward inclusive of the impact of all the announcements to date management expects to remain well within the original four times covenant extended by lenders.

The Corporation ended the period with working capital of $324 million and a current ratio of 2.1.

Management and staff across the organization remain laser focused on working capital management with the goal to continue with the precedent set to day to remain cash flow positive through the impacts from the pandemic.

The corporation generated revenue of $1 1 billion, a decline of 190 million or 14% over last year Aerospace and aviation segment revenue decreased by $287 million, while manufacturing segment revenues rose by $96 million Spa.

Specific to the aerospace and aviation segment revenue was down 29% to 687 million.

Revenues from the legacy Airlines and provincial declined by 122 million per the year and direct reflection of the immediate severe declines in passenger traffic across all airlines experienced at the onset of the pandemic and in the latter half of March and reflected significantly lower than normal volume through the remainder of 2020.

The Corporation Aerospace operations were largely unaffected by the pandemic, which offset in part to decreases in revenue experienced by the airlines.

Cargo on charter volumes were up year over year again, helping to offset the decrease in passenger revenues.

Increased cargo volumes were directly impacted by needs that grew from the pandemic and were characterized by larger shipments of suppliers any central products to the communities that depend on the essential access provided by our airlines.

Notable as well was charter operations, where revenue increased in Q3 and Q4 as part of the result of work for the indigenous services, Canada to move health care worker health care providers and in part by an increase in cargo charters required to move essential supplies.

Both are in response to heightened needs driven by the effects of the pandemic.

At regional one revenue decreased by 20 in 2020 compared to the prior year by 165 million.

Regional one's two main streams of revenue include sales and service revenue and lease revenues sales.

Service revenue decreased by 52% year over year.

Impacted most significantly by the material decline in the sale of whole aircraft and engines during the period because of the pandemic.

Lease revenues decreased by 61 per cent year over year pandemic impacts drove a reduction of flight hours on leased aircrafts negatively affecting the lease portfolio leasing portfolio.

Revenue from regional one's part sales was not impacted to the same magnitude as other revenue streams.

Turning now to our manufacturing segment revenue grew by 96 million over the prior year for a total revenue of $462 million in 2020.

All of our Yankee manufacturing facilities were deemed essential services and have been operating throughout the pandemic. The segment has seen robust robust demand slightly offset by reduced efficiencies associated with the implementation of COVID-19 health and safety measures full year results in 2020, free Wi and Lv control and.

The acquisition of Western Q3 contributed to the year over year increase in revenues.

Moving to EBITDA.

Holidayed it even though it was 285 million down 13% or $44 million for the year compared to the prior year EBITDA in the aerospace and aviation Aviation segment in 2020 was $218 million a decrease of 81 million compared to the prior year EBITDA by legacy.

EBIT generated by the legacy Airlines and provincial decreased by $15 million decrease in EBITDA from the legacy Airlines was principally driven by the underlying conditions previously discussed as it related to revenue.

EBITDA for the legacy Airlines on Prudential is down year over year. It is offset impart by the commendable efforts of management and staff to mitigate the impact on the pandemic by controlling costs across all expense categories.

<unk> from regional one decreased by 66 million per pack from the prior year. In addition to the factors discussed for revenues a conservative increase in allowances for doubtful accounts was reported by regional one due to general uncertainty in the global airline industry.

On the manufacturing segment EBITDA was $88 million, an increase of 32 million compared to the prior year EBITDA at quest was higher than prior.

You're as it included a full year of results from AWS and the acquisition of West in Q3 2020.

Notably both installation businesses are being from.

Performing above our expectation since being acquired the balance in the manufacturing segment collectively experienced an increase in EBITDA year over year inclusive of a full year result, Europe results from Lv control.

Generally speaking despite significant pandemic effects on certain EIC subsidiaries. The corporation's diverse nature facilitated the achievement of positive cash flow and positive earnings during a period of significant global economic uncertainty.

Net earnings for the year totaled 28 million a decline of $56 million from the prior period net earnings per share declined to 80 cents a decrease of 69% from 2019, notably in the period. The weighted average number of shares increased by 8%, which also contributed to the reduction on a per share basis and net.

Net earnings adjusted net earnings and free cash flow.

EIC reported adjusted net earnings of $47 million for the 2020 year, representing a decrease of 55 million or 54 per cent compared to the prior period. The company also delivered adjusted net earnings per share of $1 35.

In 2020 free cash flow decreased by 19% over last year to $198 million or $5 66 per share.

Oh come on is driven by the decreased EBITDA increased tax current tax expenses and increased principal payments on right of use lease liabilities, while being partially offset by decreased interest costs free cash flow less maintenance capital expenditures per share decreased 17% to $3 23 per share from three.

89 per share in the prior period.

The corporation protected free cash flow less maintenance capital expenditures of $3 23 per share.

The free castle less maintenance capital expenditure payout ratio was 71% in 2020 compared to 57% in 2019, and it's worth worth highlighting that this payout ratio did weakened from 2019, there's not a material difference in comparative 60 per cent and 76% respectively. If examined against <unk>.

And 10 year averages.

Now, let's turn to a short summary from his.

Results specific to Q4 2020.

The primary explanation from financial results from changes in the quarter were largely consistent with drivers for the year to date.

Where there are notable differences I will provide additional detail.

The fourth quarter of 2020 outperformed expectations outlined in the release of our third quarter results for several reasons.

Do you have an instability in the period, particularly particularly affecting the aviation Aerospace segment. The corporation qualified for $10 million for $10 million in federal support through the Canadian emergency wage subsidy or suite program.

On amount higher than previously anticipated in every instance in which the corporation has received government funding through the pandemic, we have been diligent in using that support exactly how the program intended and this instance access to the Suez funding allowed the corporation to retain workers on the payroll who would've otherwise been laid off to rehiring.

Workers, who had who were previously laid off and to continue essential business activities.

So in the quarter demand for the Corporation ISR assets remained strong resulting in additional revenue that was not confirmed at the time and demand for the corporation as charter services during the quarter exceeded managements expectations.

Consolidated for Q4, EIC generated revenue of $302 million, which is down $62 million or 17% from the comparative period of the decreased 77 million was attributable to the aerospace and aviation segment offset by an increase of 15 million in our manufacturing segment.

Aerospace and aviation segment revenue declined by 30% to 176 million for the quarter revenue from the legacy Airlines and provincial decreased by $30 million over the comparative three month period decreases across the subsidiary airline operations were partially offset by increases within Pal Provincials Aerospace opera.

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For regional one revenue in the fourth quarter 2020 declined by 59 per cent compared to the prior period. Notable during the fourth quarter regional went benefited from the sale of some larger assets improving result relative to the second and third quarters of 2020.

Now turning to our manufacturing segment revenue grew by $15 million in the fourth quarter versus the comparative period. The revenue for this segment was 126 million.

EBITDA generated in Q4, 2020 was 82 million a decrease from 8% or <unk> 7 million from the comparative quarter in 2019, EBITDA contributed by the aerospace and aviation Aviation segment in the period in the fourth quarter was down by $19 million compared to the prior period.

EBITDA generated by the legacy Airlines and provincial increased by $1 million.

While the airline operations continued to be affected negatively the aerospace operations and receipt of the sous helped to offset the negative impact on airline operations are derived from the pandemic range.

Regional one contributed EBITDA of $9 million for the quarter, a decrease of 70% from the prior period the sales of larger assets during the fourth quarter did improve EBITDA when compared to the second and third quarters of 2020.

In the manufacturing segment EBITDA was $25 million on increase of $10 million in the fourth quarter of 2020 versus the prior period.

Net earnings in Q4, 2020 were 13 million net decline of $12 million compared to the prior period net earnings per share in the period were 38, a decline of 49% when compared against the prior period.

The Corporation reported adjusted net earnings of $19 million for the fourth quarter of 2020, a decrease of $11 million or 37 per cent compared to the prior period adjusted net earnings per share declined to 53 set compared to 88 in Q4 of last year. It should be noted that in the period weighted average number of shares increased by 4%.

This impacted per share amounts for net earnings adjusted net earnings and free cash flow.

During the fourth quarter of 2020 free cash flow generated by the Corporation was 59 million a decrease of $9 million or 13% from the comparable comparative period. The decrease is driven by the 8% reduction in EBITDA and an increase in current tax expense, although partially offset by a decline in interest cost during the period.

Free cash flow less maintenance capital expenditures increased by 12% on a per share basis. It was $1 17 up eight cents per share over Q4 2019.

Despite the challenges associated with the pandemic faced in the quarter. The corporation is free cash flow less maintenance capital expenditures payout ratio improved to 49% versus 52 per cent for the comparative period.

I will conclude the review of the Q4 results by reiterating that the strong performance within the quarter continued to enabled the corporation to fund maintenance capital expenditures pay dividends unfold and up cash leftover to pay down debt.

Looking ahead to Q1 2021 as a notable reminder, the first quarter of the year is historically, a softer quarter given the seasonal effects to the corporation that are typically present before.

Before I pass the call over to Carmel I would like to Echo Mike's comments about the quality and commitment of Eic's people I've personally seen over the course of this particularly challenging year.

Since joining the EIC family of companies I've been continually impressed by the remarkable commitment to responsible management and diligent adherence to the corporation's principles and values across the organization.

Hard work and continual willingness to share expertise identify opportunity developed sound asset management strategies and responsibly explore opportunities for new strategic investments, we have seen uniformly across the EIC family has made her job on both managing through the pandemic and charming Charlie.

A strong future for the corporation possible.

With that in mind I can only extend my sincere thanks to all those who whose work has made it a genuine pleasure to be part of this team, especially over the course of this year I will now pass the call over to Carmel things here on my comments today will focus primarily on the near term outlook for the corporation across our various lines of business before.

Transitioning to some more general commentary about Eic's performance as a whole.

But first a word about 'twenty 'twenty why well because there's no better predictor of the features in the past 'twenty 'twenty was plagued with significant challenges due to the pending.

Yeah, Yeah. He found a way to produce results and which we have maintained profitability.

Our dividend improved our balance sheet and net our capital commitments. So while the COVID-19 pandemic continues to generate considerable uncertainty in the market, making an accurate future forecast impossible. We are confident in our ability to continue to deliver solid results and value to our.

Shareholders.

And we can also provide some general comments as to what we expect for the first part of 2021, which varies between the business lines.

Scheduled passenger volumes on a regional air operators will remain tied to the level of restrictions quarantines and active COVID-19 cases in and around the communities we share.

As such continued enhanced provincial and first nations government Lockdowns due to the case counts and concerns you don't need variances of virus.

This caused lower passenger volumes similar to what we experienced in the fourth quarter and those will persist in Q1 'twenty 'twenty one.

However, as we saw on the summer and early fall of 2020, when case counts subside and restrictions ease passenger volumes rebound quickly given the essential nature of the services we provide true.

Further although the timing of when vaccines will be distributed varied greatly by region indigenous communities are in the priority growth and some members of our communities have already received their first dose all reasons for optimism.

Many of that volumes in the first part of 'twenty and 'twenty. One continue on to hold remain relatively stable and consistent with pre pandemic levels.

We also continue to see persistent increase demand for cargo services and direct response to pandemic conditions.

We expect this trend to continue as travel restrictions persist ensure their COVID-19 outbreaks remain a significant threat in isolated community.

Ice's charter offering continues to perform well nearing or exceeding normal pre pandemic levels in some instances our customer mix has somewhat changed with a reduction of traditional charter business being offset by specialty charters deploying to transport essential medical personnel to remote first nations.

Communities across Canada, Covid, 19 relief charters and most recently vaccine distribution charges.

Pals Aerospace Division, we will continue with strong performance in 'twenty 'twenty, one given that many of its services are tied to long term government contracts.

Also with increased geopolitical tensions environmental awareness and budget tightening throughout the world. The ISR space will be active in parallel we'll be looking to seize opportunities as it did with the recent win their Netherlands Coast guard contract to supply to Dash eight maritime patrol aircraft.

Well, there's no one continues to be materially affected by the pandemic and will rebound more slowly than our passenger business given its dependency on global commercial aviation industry.

However, he or she remains firm in our belief that the regional jet market will rebound ahead of larger gauge aircraft and we continue to be optimistic about the future of the sector. In fact regional one is starting to see some other customers looking to prepare for increased flying later this year with increased pilot training and inquiries on the ends.

And parts packages.

In our manufacturing segment on.

Operations continue to experience strong demand, we're working to progressively address reduced margins and some project deferrals due to the impacts of COVID-19, particularly at quest. This leads to lower revenues at quest in the short term as it is not possible to backfill. These production GAAP given the long lead times on these.

Yes.

Long term demand remains strong also the recent acquisition of west together with AWS.

Now vertically integrated quest in all of its markets and provides a strong foundation for future growth and enhances our competitive advantage.

As for EIC as a whole Q1 will be a challenging quarter as we continue to deal with the heightened COVID-19 cases, any resulting restrictions the arrival of the variance of the virus and the first quarter is our seasonally slowest also Q1 2020 was impacted by the pandemic for less than one month.

Making year over year comparable more challenging.

However, as we have shown throughout the pandemic, we are well equipped to deal with these challenges and we are optimistic on our future.

Turning now to Capex outlook on.

Net capex is primarily driven by our aerospace and aviation segment and moves in line with our scope of operations. This was very evident in the last nine months of 2020, when the pandemic significantly reduced our flight hours, we saw a correspondingly decrease in our maintenance capex this lower level of maintenance.

Capex is expected to continue into 'twenty and 'twenty, one, but Q1 will be higher than the fourth quarter of 'twenty 'twenty as we still are performing greater portion of our maintenance in the seasonally slower first quarter also maintenance Capex will gradually increase in 2021 as our flight hours increase.

Material growth capital expenditures for 2021 relate to two projects. The first is the two dash eight maritime patrol aircraft required for the Netherlands Coast Guard contract, where modification started in Q4 of 'twenty 'twenty and will continue into Q2 'twenty 'twenty two the second project is just started.

Construction on the new hangar in Winnipeg for the fixed wing search and rescue contract.

No other material growth Capex is expected. However, regional one is very opportunistic and the current environment is creating very interesting opportunities, which we will look to take advantage of if they materialize.

In closing like Mike and Darrell My Pride in this organization, particularly true 2020 is also rooted in the phenomenal efforts of our people at every level in the organization.

Your efforts and commitment have been exceptional this year it feels like a profound understatement.

Please know that your work is sincerely appreciate it I'm extremely proud of what we've achieved together in 2020 and energize, but what I believe is yet to come.

Finally, moving before moving on to questions I want to thank our customers shareholders and all stakeholders for their ongoing support.

I also like to extend Eic's collective gratitude to all of the frontline workers, who continue to put themselves at risk through this pandemic to look after the rest of us.

Now I'd like to open the call for questions operator.

Thank you.

On an answer session.

Do you have a question please press star one.

One on you touched on phones, you'll hear a tone of acknowledging you're on.

To your question.

Please lift your handset.

Speaker from before pressing any Keith.

My first question is from on it.

No.

Your line is open.

Good morning, Congratulations on the results and thank you for taking my questions.

Northern border. Good morning, I appreciate your commentary and color Firstly, just in regard to Carmel kind of outlook I understand with Covid cases still elevated in locked down.

Geographies that visibility is limited, but just touching on the growth Capex and I understand you went through what's on the pipeline I've been Netherlands on the fixed wing side, but would it be fair to say that well capex over the last few years, it's been heavily weighted towards regional one that decline that we found growth cut back by 60 per se. It is.

Very strongly correlated to the our one weakness and based on your outlook commentary a base case scenario would be for capex to kind of growth capex to remain at kind of lower level similar to 2020.

Yeah, that's a fair statement.

The only part that makes it difficult to predictable regional one is they're opportunistic I'd point out that when this first started the pandemic we suggested it as early as our our.

Our Q1 reporting that we thought that we might see a C.

Difficult buying opportunities in that business as airlines were stressed in our government support really delayed that process around the world and we're starting to see an increase in opportunities there Mora. So.

Well at this point, we haven't stepped off the curb if regional one find something that's going to enhance our long term opportunities, we'll certainly take advantage of it.

I would point out that the.

The segment. We're in is not one where we're seeing retirement of a lot of aircraft. There is it true replacement for the narrow body regional jazz and as such as it ramps up we expect the market for the planes more and become a stronger and much more quickly so to the extent we have a shot to jump in if there is.

<unk> PA market turmoil, we will but at this point that has not occurred.

Okay, and just in regard to the opportunities that you're citing is it.

Certain verticals that you're targeting new product categories or kind of existing within your portfolio at that point.

It would be largely focused on the things we're already doing just doing more on that.

Okay Perfect and then just secondly, there was a recent article showcasing pal strength throughout the pandemic and financial results are quite indicative of such.

Wondering if you could talk about some opportunities that you're seeing on the power side and with our one in passenger demand from meaning low have you thought about capitalizing at all on power defense expertise and pivoting the business and that interaction at all it's kind of an off that mechanism.

Well the first answer to your second part first is no because our job is to make sure there's available capital for whatever positive opportunities our subsidiaries on cover and so the fact that regional one had used more capital in the past and no way inhibited Pal.

From examining the opportunities that it that it faced and you see that with the.

The win a couple of years ago on the northern search and rescue contract followed by the renewal of the fisheries contract roughly double the size. It was before and then most recently the the government.

Contract with the government in Netherlands, we are very interested in growing that business and.

Paul has been provided with all the necessary resources to take advantage of that.

There are opportunities around the world in the maritime surveillance business.

Theres an opportunity to provide our aircraft in Malaysia that we bid on that we expect an answer on sometime in the current year, there's opportunities coming in the southern Pacific in this year and next year, where we're very active bidders. So we're excited about that business.

On the purchase cycles are longer so we have to invest a lot of time and effort on those but the sheer fact that we've been able to expand our base into Europe bodes very well for our ability to perhaps expand into the south Pacific.

Over the next year or two.

We also have further growth on our on demand.

Surveillance aircraft, we have the medium range aircraft doing work for the U S Department of Defense. We also have the force multiplier, which is right now just down from some maintenance, but it's going to enter into a some work from the Canadian government towards the end of March. So these are all further at opportunities that Pal.

And in space.

Okay, and Malaysia work and the RFP and some specifics that would be new geographic areas for our power is that correct.

Yeah, Yes, okay, perfect and just lastly from me and this is more of a confirmation question were there any anomalies or thing to know that were outside of the normal course of activity that impacted quite early result, like does the $82 million in EBITDA.

Does it include any aviation related government subsidy or just the chaos Carl.

Yeah, we are.

Subsequent to year end, the government of Manitoba, and the government of Ontario announced programs partnered with the federal government to ensure that there would be a service into a remote northern communities are at the time of the year and this was uncertain and as such we recorded nothing in.

The 2020 results for this program.

So the revenue from this will be recorded in the first quarter to the extent it related to 2020.

But the short answer your question is Theres no anomalies other than things like shoes, which we fully disclosed perfect. Thank you congratulations.

Thank you.

Your next question is from Steve Hansen with Raymond James Your line is open.

Yeah, Good morning, guys it Mike.

Keep the case day, the last night from Manitoba.

No, it's still a dire situation, but on a relative basis, the key accounts actually well well down from where what you're seeing in November December.

As you look forward here have you given it is the government, giving you any indication on the movement of priority patients in priority moving tenants out of the first nations communities here over the next couple of months I'm, just trying to understand how the case count should decline and keeps count should translate into passenger volumes over time and whether that's in your control you've gotten any color from that.

Government is yet.

The government doesn't really guide us on that it's to be honest with you is in this part of the pandemic, it's more driven by the individual first nation government and what's happening in that community and we have seen an improvement in our load factor since their loans in late December late November early December.

We're still got a ways to go but I think the thing that gives us the most.

Our sense of optimism as it relates to the first nations the case count as one but I think more importantly is that they're on the leading edge of our vaccines and so we have already delivered some up there and we expect to begin delivering I've got day wait here with me as well.

I'll begin to expect to bringing people in for inoculation, maybe you could give a real quick update on that day, yeah. I can so the for example on the but earn a vaccine were actually taken some of our second cases or a second doses out this week and for bringing people in for vaccination of Pfizer's, we hope to start that in the <unk>.

Next couple of weeks, we actually put some preliminary numbers together with the government to allow for that transportation of people from the community to the vaccine States and then back to the community. So we will see that traffic by the end of this smoothed early March.

And that ultimately that's the best are.

The best news about returning to normal because once those communities that are largely vaccinated the concerns about and you've seen in some of the communities shut out of La as an example on Red Sucker Lake.

And others, where when it gets into the communities because of the close quarters, our customers limit it spreads very rapidly so.

Those are subsided, which is great news and as the people get vaccinated.

There is a pent up demand of travel that Hasnt happened for other doctors is it's all of the other things we need to see our doctor for other than the pandemic arent happening at normal rates. So there is a pent up about a demand that will that we will see as soon as the.

Rice's mitigate somewhat.

Okay. No that's helpful and just as a related question then.

Sounds like the specialty charter business has actually been quite strong.

Through the period is that something you still have visibility on and if so for how long just trying to get a gauge the relative cadence of returning passengers relative to some of the especially support you've had.

It's actually been unique uniquely from somebody would've we knew the predicted quite frankly, it's part of the reason our Q4 was better than we expected it to be what it is because as people couldn't travel on the scared because of the pandemic. There was still a need to move whether it was people who actually have COVID-19.

Or people, who were exposed to COVID-19 and so that was done on a dedicated charter basis. So I would suggest to you that those charters are inversely proportional.

Our passenger business as our passenger business strengthens those charters will decline the charters that relate to moving the medical people on for IFC Digital services, Canada on those will continue for the foreseeable future because they have to make sure that we get the medical professionals into the.

Community. So I would be shocked if that stops before the snow is gone do you think that contract was extended for six months on so you know that will continue and then the vaccination distributional charters well see those continuing as well into the summer months.

Okay, Great. That's helpful and just last one if I may is on on quest and sort of like the GAAP and the production system.

From project deferrals, just trying to understand what that means to utilization rate for quest.

Growth in particular, but I guess also in Ontario, just maybe give us a bit more context in terms of how you sort of see the operational side of quest booking for the next three to six months. Yeah. What's happened is a number of projects have been postponed because of the cost of building during a pandemic. So they haven't gone away, but if they arent in the <unk>.

Round, they're delaying the start and the problem is if we use reserve space for our projects aim to run from June to September and on a given plant. If that project has moved to the businesses is such that you can just go get a different project. So the the difficult part is we are going to have bumps and weaker sales.

In different parts during 'twenty 'twenty, one because of the holes created the positive part is is what we're seeing in terms of opportunities for 2022 is strengthening and we're starting to see.

A sense of normalcy in the bidding part of the business, which is encouraging and so we expect this to snap back quickly in terms of op.

On.

Our return to embark on sort of normal car quest levels next year on the other thing I'd point out is I think there's a bit of a misconception that we have quest you asset Quest, Canada. We have two production plants that can both make plant things for antibody everybody. So we will smoothed the production levels at both by sharing.

The projects that are left are in 'twenty and 'twenty one at both facilities, we see the importance of that during the pandemic, where we've had to shut the plant and a Toronto on a couple of occasions because of outbreaks.

Of the virus and right now our Dallas plant isn't operating because of a snow storm and who would've thought you'd say that but.

The ability to move things back and forth will be helpful through 'twenty and 'twenty, one, but it'll take us most of the year for that protection scheduling to return to a quotation marks normal.

Okay very helpful guys. Thanks.

Your next question comes from Chris Murray with pay TV.

Your line is open.

Yes, hi, good.

Morning.

You know turning back you know when we when you guys reported Q3, certainly the commentary was look you know theres there be prepared for the fact that it's going to be a little bit weaker than than in previous years and certainly the numbers.

On what it turned out a lot better than expected.

<unk> laid out some of the reasons for that but it is it fair to think that you know a lot of the drivers that you saw on Q4 look to be continuing in Q1, and I guess a couple of the pieces on this question first of all and fair to assume that Youll recognize I think it's $11 million in Q1.

Kind of I guess it is a one time item that comes from the government contract. It can also lay out any additional contribution we should be thinking about for call. It. The January February March period, and as well your thoughts around cute.

Sure.

The Qs will continue to decline it was slightly better in Q4 than we expected it to be just because of a greater decline in passenger operations and we had anticipated.

As it relates to Q1.

We will record the the provincial support from the government of Ontario, and the government of Manitoba partnered with the federal government.

Sure about the exact number because the formulas are still not quite sat on exactly what that number will be what was reported was the basketball.

And we expect to draw on most of that but the exact number I can't I can't comment on.

V in terms of other surprises I think we'll continue to see some of the COVID-19 charters that we've been doing but albeit at a lower level, but the caution I would give the main difference between Q4 and Q1.

Is in Q4, there are no winter roads in Q1, there are winter roads, so theres certain abnormal pandemic revenues that we benefited from particularly on the cargo side, where airlines from the only way to provide for the next six or eight weeks based on the fact, it's been minus 40.

A year for a while who knows how long, but the winter roads are a significant competitor on the freight business and notwithstanding the pandemic, we don't see the bump in freight than we did in Q4, because we have an alternative that goes away and that's a normal seasonality part of our business. So while we do have the.

The provincial fundings coming in in Q1, I still would expect Q1 to be a tougher challenge than Q4.

But I'm optimistic following that we're going to start to see the climb out of this as cases decline and that's.

Vaccinations are done later in the quarter, so that will start to see improvements at AR.

In the second quarter.

But in terms of Q1 I think this is gonna be kind of the slowest point to the pandemic for us simply because you have the combination of the second wave and we have the seasonal norms, we have which is the winter road.

Chris The other thing comes to mind between Q4, and Q1 is Q4, we had to on demand surveillance aircraft flying and during the first quarter for most of it we will only have one well that first multipliers down for heavy check so that would be another delta there.

Again, both of those short term issues like that too.

On the force multiplier be off back up and running by the end of the quarter.

Okay Fair.

Fair enough.

Then moving into my next question and that's thinking about you know or how you're thinking about you know once we kind of get to the far side of this and you know this is this is maybe longer term, but we've.

You may decide to make a lot of changes.

It certainly has a covenant adjustments you know a lot of different things you've had to do you know arguably maybe acquisitions had to slow a little bit or maybe change. What you were able to do you know how do we think about you know once we're sort of past maybe the worst day lessons. He said you know maybe Q1's going to be the worst of this but then we work our way out into the back half of 'twenty one.

How do we think about the unwind of your your Covenant package. How do we think about you know a return maybe at a more aggressive growth certainly you've got lots of capital to work with.

How do we how do we see you guys over the next call it two or three years in terms of growing the business.

You want me to comment on the covenants don't you take on the.

The covenant package, Chris just so you're aware it was a temporary.

Increased to five times.

And basically what happens is at the end of September 30th in 'twenty 'twenty, one it reverts back to what we originally had under our original agreement.

And we don't anticipate any challenges meeting that.

To be honest with you with the benefit of hindsight, we perhaps didn't need to get the covenant change we did but it's always better to approach your bank for an umbrella when it's not raining.

And so we thought we'd be proactive on that our performance has been such that we.

Barring something massively unforeseen, we don't anticipate getting anywhere near the four times well below the five times, but I love. The fact that we're getting closer to the point, where we can talk about the longer term and what it is we do.

Adam and his team have remained active on the acquisition front and we do have things in the pipeline.

Ability to travel will be massive so we can complete due diligence and so I think you will see an acceleration of that process in the back half of the year.

In terms of the business as a whole one of the things I'm looking forward to in 2022.

We're hopefully we're at a sort of normal stage and they'd be a more normal state at least as a flying part of our business it probably even at regional one.

<unk> is the ability to see the impact of the investments we've made in the last sort of 18 months jump off the page whether it's the fisheries contract the acceleration of our northern search and rescue contract at the beginning of the desert ones contract in the second quarter of 'twenty 'twenty two the fee.

Full impact of with an E. W y.

Impact of the Dallas plant I think youre going to start to be able to talk about growth off of 2019, which was kind of the old normal and that's what you'll see in 2022. The single biggest advantage GIC has and this is we don't have businesses that have been.

You're really damage in the medium or long term, we've had some short term headaches and our people have been phenomenal in guiding us through those but the northern airline business is unchanged through this.

No way damaged by what we've gone through as we come out the back end and in fact, there's likely to be pent up demand as we get out the back end of this as medical treatments and stuff that are deferred out to be made so I think I think when we look at is an accelerated return to normal as we get into perhaps reported Q2 report.

Q3 will be able to give you some.

Thoughts on 2022, and the growth we anticipate to see there, but we've made some significant investments.

That are readily apparent they've supported our results, but they've been covered up by the challenges when the challenges go away, you'll see some of that become more evident and then the one other thing keep myopic as well reported if we decide to do but yeah.

Regional one where to find a significant opportunity you've seen in the past that immediately jumps into the results in the earnings day generate so should.

Should we find something and at this point, we haven't committed to anything but if we find something exciting you'll see that contribute as airlines returned back to normal on more assets at.

Advantageous prices.

Want to emphasize one point that might make because it's important one and because of how we've handled and continue to carried on our businesses through this pandemic is not like when this starts to come to an end we're starting at zero because of how we've managed our we've invested we have a lot of those investment opportunities are ready nurture.

And so you will see that springboard effect. The other comment I'd make is we will of course keep looking at businesses around us around the segments in which we operate.

There are those that may not be an unfortunate enough to be able to make it through the pandemic, which may create some additional opportunities that we'll be looking for leather that's on an asset basis are obviously sales business basis.

Okay. That's helpful. Thank you folks.

Your next question is from Kamran.

With National Bank financial your line is open.

Thanks, Good morning.

Good morning camp.

First first question just on the on regional one.

Looking at the sort of the aircraft leasing or engine and engine leasing side of that that business I mean.

For obvious reasons lease revenue has.

Sequentially declined throughout 2020, I'm wondering if you think we're at the bottom and have you had any sort of.

You alluded to this but have you had any customers start to you'll bring back any aircraft of yours, you know back to operation and then started resuming lease payments.

No. It's really important to understand we did really defer lease payments per se, we move things from fixed lease payments to power by the hour and that's why our balance sheet is so good we haven't reported lease payments that were not sure when we're going to get paid or the actually the aging a regional ones.

<unk> has never been better than it is today, which is.

Actually very counterintuitive.

In terms of new inquiries.

It's a little bit early for the full aircraft leasing stuff the bounce back where we're starting to see real inquiries is on engines, whether it be purchasing or leasing engines.

As the airlines want to ramp back up they have deferred some of these investments and then rather than going for a shop visit that's multibillion dollars, they're looking for a less expensive alternatives as they ramp up and so we're starting to have those discussions I would suggest that they're not really.

In our results yet, but we can tell particularly with some of the bigger regional carriers in the U S.

That they're getting ready and are actually getting Senegal plans for how they're going to ramp their fleets. So that's the most bullish sign we've seen on that we expect the parts will move first that's the early warning system because theres. Unlike EIC, where we've had no planes that are grounded.

We maintained flying almost all of our battle a lot of the airlines haven't flown nurse and so as they put them back into Servicers, there's going to be investment required in parts and so we will see that first.

Followed by engines, whether it be leasing of engines or sales engines, and then finally, the leasing of the whole aircraft.

So great to see the signs in the industry right I mean it is.

Looked at some of the recent commentary, whether it's spirit airlines and their resuming pilot training and flight attendant or even a startup breathe Airways has just come on the scene and they expect to be kind of up and running by the end of the year Allegiant with kind of a whole bunch of new routes all good signs from our perspective of what the.

The optimism is in that space and bodes well, obviously for regional one going forward.

Okay, no that definitely makes sense, but just just secondly from me maybe I guess, maybe a little more detail on on a question from earlier about a couple of the opportunities that you have with Perl Aerospace I'm wondering if you could maybe scope I guess the size of the Malaysia Maritime patrol aircraft opportunity is and also if you could maybe describe.

The scope of your involvement in the future aircrew training bid.

I got to be careful because both of those are competitive situations.

You know opportunity in Malaysia is unique unlike a are the contract we won in the Netherlands, where we're supplying the aircraft and maintain ownership and charged for the use of the aircraft.

The opportunity in Malaysia is like the contract. We originally added the UAE to actually source the aircraft and sell it.

<unk> to the government of course, there will be follow on support, but that's a contract which.

It's significant then it's how.

Or how to put it.

<unk>.

It's true it's for two aircrafts that that's certainly a known at this current time.

And those contracts I mean there.

Yeah.

Take a look on what we spend so I got to be careful because what equipments on it is public but if you look at what we invested in the force multiplier.

There's two at least two of that it gives you an idea.

<unk> of at least the quantum of it so you're you're talking about close to $100 million. If you look at using our plane times two is up.

A starting place.

Sure.

As it relates to what was the other having said that yeah. So just I mean, I don't I don't necessarily Dod dollar numbers I'm just wondering like what exactly is your involvement in the I guess the skyline bid for future aircrew training like what what would you if they if they were to win.

Of that what would actually would you be doing in that long term contract.

So our role as part of that kind of partnership would be to provide me and him back and aircraft training to the sensor training combat equipment training and that's currently done actually internally by the federal government themselves. So it's the first go in which they're outsourcing that.

So we're a good fit to be able to provide those services. So that's what you'll see any timelines is I think there's a draft RFP out now with the final bids occurring I think it's early 'twenty 'twenty two with the contract award sometime in 'twenty 'twenty three just to give you some perspective on <unk>.

Many.

Okay. So I'd say, obviously on a longer term opportunity. Okay. No. That's that's very that's very helpful. I. Appreciate I appreciate the extra color there thanks very much.

Your next question is from Doug Taylor with Canaccord Genuity. Your line is open.

Yeah.

Northern Doug Yeah.

Thank you good morning, and and I'll Echo the congratulations on a on a good quarter.

One item and I'm, sorry, if I missed it there's a lot of discussion about you know broad government support for the airline industry right now and I just wanted to be clear in that you don't expect exchange to participate in any of that specific federal government.

Our support for for passenger airlines or I mean is there still room for you to participate in that that'd be helpful.

I've learned a while ago I'm not good at predicting things and when it comes to predicting governments on the exceptionally bad.

But.

Generally speaking most of our airlines are covered by the northern support that's out there there are some things that comm iridize or the provincial aerospace does that our provincial airlines I'm, sorry, do that don't specifically tied to that so I wouldn't say that we.

We won't benefit, but we are not going to be a material beneficiary of those programs, having said that I don't know what's going to Vietnam. So.

Perhaps we won't benefit at all but we do have the support we need the kids did you doing what we do and we did it without the support and so having the support lets us do it even better but in terms of new government programs I don't envision from having a material impact on us.

Okay, that's what I thought.

And just a question.

Being opportunistic I mean, you've talked a lot about regional one and being on our opportunistic there but in terms of just general M&A I mean, the last couple of transactions have been aimed more at or have had the impact of diversifying your end market exposure towards manufacturing I just want to gauge your temperature on you know prospects regarding further M&A in.

The aerospace given you know your relative strength, there with some of the challenges facing other parts of that industry.

I think the first thing from part for me to answer that question is we don't really have.

A sectoral preference over time balance in our portfolio is good but that doesn't mean, we're looking for manufacturing at the expense of aviation and aerospace what we have seen materially during the.

Pandemic is that the kind of deals we can do our companies that we already know because we have relationships with management teams and diligence is actually possible. So you saw that with the W. I S acquisition Theres a couple of things one Adam is working now on the aviation front, we were very familiar.

The company is the people.

That may make it possible to do those transactions so I think if.

The extent I can give you a prediction on on M&A in the near term you're much more likely to see us complete transactions that are more closely related to things we're already doing a new deal like what we did quest as an example, I think those are going to be more likely tied to when Adam and his team can do.

More enhanced diligence in the field and so those are probably not until the back half of the year, but we remain active looking and talking and so it's not like we're going to be.

Going from a standing start where we'd go back at this and we remain very active in businesses related to what we're doing now on.

Both parts of the business in connection with the aerospace, particularly I mean multiples tend to be on.

Higher than certainly we have traditionally looked at but that doesn't mean that growth is in any way impede it and we've shown that true organic growth things like for a small decline in the various programs that we've invested in and true partnership I mean, we recognize that as we looked at various foreign jurisdictions and the ability to grow the partnership is off.

And a key element of that and we get it in the Netherlands, we have a partner already with respect to Australia and as we look to potentially bid things in that region. So we're very innovative in how we grow and very disciplined as well and that we're making sure that we do it in the most effective financially.

On a heck of means possible.

Just to clarify you eat multiples being higher on aerospace, but higher relative to what might be considered trough results or are they just higher based on even normalized results I'm just like to understand that surprises me David Yeah. They trade they trade it at all at higher on higher multiples and all economics are.

From status, so theyre more challenging Dubai.

Yeah actually in some ways in certain opportunities the pandemic and our understanding of the businesses may actually make it easier to buy because we know how to normalize better than perhaps some pure financial players what and so it may provide a bidding advantage in certain circumstances.

Okay, alright, well that helps thank you very much.

Okay.

Your next question is from Scott from CIBC World Markets. Your line is open.

Thank you good morning folks just a few questions on the quest.

First do you have any visibility into new project construction and the bid activity.

It is.

Very early since things are starting to get better but in the fourth quarter things got more active in our American markets and in our Toronto market and so as the.

Developers have been able to see a normalcy and construction capability.

We have seen.

Increases in bid requests and discussions.

So on new projects.

We've also seen perhaps a greater diversity in this precise communities, where things are being built where there's more towers being built and slightly more suburban settings, and perhaps from the past. Although I think it's a very you really see that as a trend I think that may be your option to some of the.

On movement away from some urban centers.

But we have definitely seen a return to normal more normal bidding levels in the last couple of months.

Got it so it's good to hear just turning to margins are you able to quantify the impact from acquiring the two window installation businesses.

And I'm not going to quantify it I will give you qualitative direction that in the.

Pandemic.

The margins, we generated in manufacturing windows decline materially we are absentee rates of 15% to 20% and when you have people put into pods.

Within the plant if you have a whole parts, it's not there.

You've got to imagine a challenge it is when you're moving fixed through the factory. So that was offset by the fact that our our operators on AWP I wish were remarkably good at dealing with those challenges so the higher margins in the installation offset the challenges in manufacturing on and on.

Ongoing basis as we return to normal the installation business is probably slightly from percentage point of view slightly more profitable than the manufacturing processes, but you need we can't have one without the other so we kind of look at it as an aggregate margin.

Okay. That's a good good day.

See any additional acquisition or capital investment opportunities of quest to too.

The current system.

We're fairly vertically integrated.

So in terms of acquisitions like AWS or.

We don't really.

In terms of production ultimately, we're going to need to deal with our Toronto facility. It's in two plants. Some of you have had the opportunity to see it the leases come due in a few years and so whether we.

Expanding our current place or move to a new leased facility more like the Dallas facility I think you'll see that it.

In ensuing periods, it's really not a 'twenty 'twenty one issue, but in the future I think you'll see US go to more of a design build factory just like we have it.

In Dallas because of the inherent efficiencies on that.

That makes sense, thanks, very much true comments Mike.

Thanks.

Your next question is from Conor.

Your line is open.

Thanks, and good morning, everyone. So the first one perhaps just on the regional one.

So early on in the pandemic I think it was a general belief across the globe that regional aviation market will be more resilient than the larger aircraft, especially wide body.

Curious are the regional one EBITDA is down 70, 75% over the last three quarters, what's driving that decline in your view is that the broader market and regional aviation is at this specific situation with respect to certain customers are declining but valuations are overly something different.

Yeah, It's just the general decline in aviation as a whole if you look at there's lots of public a comparative is you can look to whether it would be a skywest or whatever at the load factors their experience and they are one of the strongest companies in this business regional.

Carriers has not been.

Lastly on affected through this but they will likely be the first ones back out and you can see that by some of your discussions in other places. So I would suggest to you that.

Regional one's performance is actually quite remarkable through the state remain cash flow positive and we've made money through the whole thing selling and leasing aircraft.

Which would be the exception not the rule and I believe that the ramp up of that will be much more quick in.

In terms of depressed parts prices and stuff on any given transaction there may be someone who is prepared to sell something to get rid of it to generate cash flow, but in terms of the material ongoing price and the cost of an overhaul is the cost on an overall the cost of an overall drives the price of engine.

Are you, saying that drives the price.

Price of engine parts. So no we don't see any material medium or long term change in the price of parts on any given transaction in the near term if there's a supplier needs cash they may well discount but.

That's not a material impact.

Impactor of the business at this point.

That's great to hear Mike. Thanks.

Then perhaps on the quest side. So W. I S. A the disclosures are suggest W. I S contributed $40 million revenue and five months you had it.

So if I annualize that it's 100 and on a dollar.

Does that math makes sense do you have $100 million revenue from base alone or was there anything unique in the first five months of having list that drove that strong revenue.

I'm not really going to give a commentary on a specific a specific number for part of one operation. We don't do that but I will tell you that where there was nothing extraordinary about wishes operation in the period.

Now we've added it performed exactly as we expected it to they've got a strong team of people there and.

We've worked from for a long time, that's one of the great advantages of the AWP lie on the W. I S acquisition is we were really a.

It was kind of like acquiring family, we knew the people well and.

It made it much more seamless than typical vertical integration deals.

They will have some of the same challenges as as quest guys as projects get moved around they are installing those windows. So we will see some of that over the next year.

Somewhat mitigated, particularly AWS case, with where we do other types of windows installation other than just quest, which may have a shorter.

Lead cycles, and we may be able to add some stuff into that and in an AWS, but generally speaking I would say that what was provided was what we expected it to.

That's great.

Just to follow up on that.

Quest when you acquired them and we know what's sort of the economics of the deal that you had and the AWP I W. I S and all of the disclosures you have seen so far like sounds like quest barring obviously, the near term issues you have manufacturing quest could be a sort of a double at least from weighted there were when you acquired them.

And maybe similar or better margin is that a fair way to look at quest long term, obviously barring again on the short term issues.

Yeah.

If we put the short term issues to decide it's easier for me to explain this yeah I would expect quest can be materially more than double what we bought it off on because of the investment is the production capacity and then the.

Investment in vertical integration.

I think in in 2022, you will see the power of both of those things because we've effectively doubled capacity and then added the ability to generate earnings on the installation. So as we returned to normal on particularly.

Jodi and Bharti and their teams have done it unbelievable job of juggling one problem to another as we went through.

The pandemic and the ability to actually get Windows produced on time to make sure we're not slowing our customers but.

It's had a massive impact on our margins in the near term as that returns to normal whether we get to take advantage of the beautiful new facility that a number of people will see down in Texas.

Stone belts, there, you'll see enhanced margins out of that as well so.

You're you're asked a bit of double what we got in office I would describe as significantly conservative.

Okay. That's good to hear and last one for me.

Apologies, if I missed it but I don't think of you discussed a lot about B L. B control acquisition, you've done recently as well as the remaining manufacturing subsidiaries HUD the performance in those subsidiaries.

It was in Q4, you mentioned I think some quality it'll be that those those businesses were up X quest just cute has true any anything do you want to add on the manufacturing businesses Lv controls has significant exposure to agriculture, a lot of their customers are in the grain business.

Which notwithstanding the pandemic is doing very well on.

Our order book there is is very good and they are.

Notwithstanding the pandemic had results that were essentially in line with what we were expecting even before the pandemic. So I would describe their results as very positive and the opportunity to grow the business post pandemic remains strong. So it's been everything we thought it would be.

The management team there is exceptionally strong.

Perfect that's great Mike Thank you.

Your next question is from Ryall, Stroud RBC capital markets.

Thanks.

Good morning, everyone and thanks for taking my questions today.

I'd be glad to talk to you.

I just wanted to touch quickly on the outlook for lower revenues expected that question in 2021 and I just wanted to clarify you know.

And inclusive of with.

Which I believe still had some rollover contribution in the first half of FY 'twenty one.

Yeah.

I'm not really in a position to give a precise number we're still working through some of that.

The certainly the act.

The fact that wishes into in the first half of the year will mitigate some of the things we're dealing with but bear in mind that some of the challenges that quest faces will also which will face them as well because some of their projects have moved again and it's also something that is a very.

Short term issue, we're talking about several quarters, not not years and like I say the bar.

The bidding processes bounce back to normal and we're very active looking at new projects or actually in a lot of cases, the restart of existing projects.

Okay. Okay. That's helpful. And then maybe just a bit of a longer term question on on.

Hum.

Curious if you could speak to the effect that that a structural shift towards work from home could have on demand.

Longer term.

That might be a positive or negative or neutral.

It's a hard question I think it's I think it's largely neutral and the reason I say that is because.

Uh huh.

The kind of buildings, we're building our.

Relatively low cost housing alternatives for people and so.

To the extent that.

Where are they work changes if they move to completely rural setting because it could have a negative impact we don't think that's particularly likely in most cases, but using Toronto as an example, we have seen some bidding in.

Outside the Toronto core, but major towers being built in.

This is sagas of the world and it sounded like communities and so I think it's largely a knock on effect.

For our business again, its not like office towers, where people staying at home means they need less space, if they're working from from home they still need a home.

Okay.

Got it got it thanks a lot.

And congrats on the quarter.

Thank you very much.

Our final question is from Tim James with TD Securities. Your line is open.

Northern attempting good morning, thanks for taking my questions.

I apologize for doing this but I want to just return to the quest revenue outlook for a brief moment just true just to make sure I'm interpreting it correctly. So the reference to quest revenue being lower in 'twenty, one I assume that's full year 'twenty one versus full year 'twenty two.

Does that include the with a revenue contribution in there in other words will be incremental full year contribution from with.

Be smaller than the <unk>.

The decline in the kind of legacy quest business, if I can call it that.

And I'm not looking for numbers I'm, just want to make sure I'm interpreting that language I would expect I would expect that the dislocation may even exceed somewhat with the margin of this the marginal impact from.

Out west for a full year and the reason I hesitate in answering it is because part of the dislocation as it was hit with itself too. They kicked him wherever you install that you factor a window, it's gotta be installed and now we install all are on windows and so it hits both sides of this.

So yeah, so I would expect that the decline in the aggregate would exceed the benefit of the with a contribution.

Okay. Okay. That's helpful. And then we went into that volume.

First in 2022.

Right Okay.

I'm, just thinking about the Qs and you know modeling it going forward and you know that.

The reported has been very clear on articulated and indicating that those benefits you know where they go on to have happened there would have been.

Labor our labor reductions in their place. So does that mean, we should when we're looking at 'twenty 'twenty, two sorry, 'twenty 'twenty, one and whenever we wanted with suite and choose us is no longer in place.

Should we be looking back at those periods, where it did occur as.

Being largely irrelevant to margins or the cost structure or will the absence of them will there be a bit of a headwind I guess is what I'm wondering to margin once we lap those quarters, where they started kicking in.

Yeah, I think on a very general basis, they flowed through our our financial results, but they will create somewhat of a headwind, particularly on the manufacturing side, where because we qualify for the Suez on a consolidated basis.

The manufacturing businesses remained reasonably strong through that period and so it helps us deal with inefficiency not so much.

Climate revenues on the aviation side, it's much more on the correct.

Flow through impact, we would have had less pilots would've unless people. If we didn't have the shoes. So there will be a portion of that that that forms a headwind, but I would certainly say.

It's up.

I'm in the already on the sous payments and a relatively small minority. So yes, there will be some headwinds out of that but most of it.

As a flow through.

Okay. Okay. That's helpful on that kind of a lines I think with the general thinking.

My last.

Question a quick one.

Just some.

Kind of housekeeping here, the amortization of intangibles kind of jumped up quite a bit.

From the third quarter to the fourth quarter.

Any sort of comment on that or any particular reason for that it means we're dealing with relatively small dollars, but just just curious from modeling purposes looking forward.

So I've got rich our head of our accounting stuff, maybe he'll jump in and answer that for you Yeah, Hey, Tim So during the fourth quarter, we finalized the purchase price allocation for the acquisition of West. So that meant that we recorded five months worth of intangible asset amortization, you know since the period of acquisition during the fourth quarter.

And when you acquire.

Business in the manufacturing segment, one of the biggest portions of those intangible asset allocation is.

Related to the value of the backlog on the intangible assets and that runs off relatively quickly, but it does make up the biggest portion of the intangible assets and the biggest portion of the intangible asset amortization. So.

That number that you're seeing is directly related to the Deutsche acquisition.

Okay. That's perfect. Thank you very much.

We have no further questions at this time.

Interest for questions.

Well I'd like to thank everyone for joining us today, it's been a challenging year, but we're very proud of what our team has been able to produce and how we've been able to look after not only our employees, but our customers. We look forward to speaking with you again in may with our first quarter results stay safe and have a.

Great day.

This concludes today's conference calls.

Right.

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