Q2 2021 Exchange Income Corp Earnings Call
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[music].
Good morning, welcome to the exchange income Corporation's conference call to discuss the final results for the three and six months periods ended June 30th 2021.
The corporation's results, including the MD&A and financial statements were issued on August 12, 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 Canadian Provincial Securities laws forward looking statements involve risks and uncertainties and undue reliance should not be placed on such statements certain material factors or assumptions are applied in the.
I'm, 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 and 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 regulation regulators.
Except as required by Canadian Securities Law exchange does not undertake.
To update any forward looking statements such statements speak only as the date 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 and I would like to turn the call over.
CEO of Exchange income Corporation, Mike Palmer. Please go ahead Sir.
Thank you operator, good morning, everyone and thank you for joining us today on the EIC second quarter results call with me today already Icf's, President Carmel, either who will provide some operational insights from the quarter and review in additional too.
Have you in additional details and the outlook for EIC and our CFO Darryl Bergman, who will provide a more detailed breakdown of EIC second quarter financial results I am pleased to be here today, not only to report on another strong quarter for EIC, but also to confirm that we are seeing optimistic signs across our business.
So the transition to a positive post pandemic economy, and a return to relative normalcy in our operations. We acknowledge that we are likely not heard the last of the COVID-19 pandemic and there may be new challenges in the future.
Yeah, He's exceptional performance during the pen down and it has been defined.
By the remarkable efforts of our internal management teams, who have consistently found ways to safely deliver essential services for our customers while positioning us for the post pandemic recovery.
Our ability to draw on the diversity of our enterprise to maintain steady cash flow honoring our dividend obligation to our investors, while strengthening our balance sheet.
And our unwavering focus on building a long term future of our company through accretive acquisition and organic growth.
You'll hear these three themes reflected throughout my remarks this morning.
The second quarter.
As this was the first time the comparative quarter was also fully impacted by the pandemic offers an opportunity to reflect on how EIC has navigated COVID-19 challenges without compromising our foundations are results of that cod stacks are outstanding.
In the quarter. The company grew by 32% grew revenue by 32% to $322 million and increased EBITDA by 31% to $81 million.
We increased net earnings per share by 450% to 44 cents.
Improved our adjusted earnings per share by 231% to 53 per share.
We drove free cash flow less maintenance capital expenditures up 44% to $37 million and on a per share basis. This was up 34% to 98 six.
And perhaps most important and most tellingly.
We improved the trailing 12 free cash flow less maintenance capital expenditure payout ratio probes.
258% from 76%.
These are impressive financial results were achieved even while EIC received considerably less pandemic related financial assistance from governments and decline of more than $14 million for the comparative period.
Absolutely all government support in both periods the company's EBIT increased by an impressive 110% in the second quarter year over year.
Even though our operations.
Mainly impacted by the pandemic our financial performance tracks closely against our Q2.2019 results our loss pre pandemic second quarter.
Both revenue and EBITDA close within 10% of 2019 levels, while our free cash flow less maintenance capital expenditure is actually higher than 2019.
And our payout ratio of 58% is the best we've achieved since the full year of 2019, clearly demonstrated the ongoing sustainability of our dividend.
I'd like to point out the 2021 versus 'twenty 19 isn't necessarily a clear apples to apples comparison free I'd see the company has completed three modest acquisitions, Yatra reading time and integrated those operations into our corporate family. Despite COVID-19 challenges.
That said the similarities of our current financial performance and our pre Covid financial performance indicates that he or she has to an extent already recovered towards pre pandemic levels by successfully adapting our operations to Covid it's reality.
Our strong footprint.
Our strong footing, sorry has the company well positioned to exceed pre pandemic financial performance in the near future. Although we clearly realized that additional pandemic challenges are possible, perhaps even likely.
Our scheduled airline services are a great example of that positioning.
Yeah, I see carriers were able to preserve our networks and continue serving our destinations over the course of the bed Devon, a testament to the exceptional efforts of our operators.
We believe our demonstrated reliability has given us a head start on recovery, which we have seen in part through Q2.
Despite pandemic challenges our operations will be characterized by slow steady improvement did passenger numbers throughout the quarter, albeit heavily influenced by regional Covid case counts and associated travel restrictions.
We're encouraged by significantly improved passenger volumes at the Arctic region, which are trending towards pre pandemic levels in the third quarter.
Similar improvements in Central Canada, New Zealand has been restrained as it overwhelmed medical system has limited access to diagnostic appointments and elective treatments, thereby suppressing travel for medical procedures.
That said vaccination rates of the communities that the carrier serve our heart and we are confident travel will quickly rebound as the bedroom.
System pivots to accommodate traditional care there is a significant backlog of patients awaiting treatment and we expect pent up demand to support robust demand for a protracted period as access normalizes.
These patterns drive investments, we're making into expanding our airline operations.
<unk> passenger traffic patterns and significant demand increases from a remote binding in free customers are allowing the net additions of four larger gauge aircraft ATR 70, twos and dash eight four hundreds by the end of this year.
Yeah I see the model has always supported offer excuse me to stick organic growth. These investments in our fleet are another example of the company following stringent criteria, we always used to assess opportunities and deploying our balance sheet as appropriate to accretively expand our existing business.
Regional one continues to experience increased demand for parts and larger aircraft components as major airlines have ramped up flying operations to meet consumer demand generated by a rapid recovery in the United States.
By contrast, our aircraft leasing business has historically focused on international markets, where recovery has lagged behind the trends in North America.
Our expectation remains a return to pre pandemic levels in future quarters as the global economy accelerates, our taste of the vaccine rollout and progressive economic recovery.
Yes. It is.
I am sorry, medevac operations continue to provide valuable stability for the company operating consistently at or near referred debit classrooms for the balance of the previous 18 months.
This demonstrated resilience supports our decision to increase our overall position in the segment, making accretive investments of over $100 million in the delivery of our Netherlands surveillance contract am.
And in the acquisition of Carson Air transaction I'll return to later in my remarks.
The Companys manufacturing segment continues to experience strong demand, while navigating pandemic challenges related to deferred projects at corresponding dislocation production schedules.
These challenges.
Particularly acute at our quest window operations, although robust demand for future products.
<unk> I'm, sorry, it will allow us to fully deploy in future quarters.
Investments, we've made in new production and installation capacity.
The operational ups and downs of the pandemic through the operational ups and downs of the pandemic. We have maintained an unwavering focus on our balance sheet.
One of the EIC is core principles since inception has been the basis of strong liquidity empowering the company will move quickly to capture growth and investment opportunities without cod provides us with financial flexibility, we've retained to successfully navigate the economic uncertainty.
We have always followed the practice of actively identifying investments and acquisition opportunities to support those activities. The company has undertaken a series of transactions to ensure we maintain access to the financial resources required to execute on our business model without limiting our ability to weather economic.
Uncertainty or would stand or ups disruptions to our operations.
It's the first of these transactions was the completion of a share offering in the quarter generated gross proceeds of $88 million at a price of $39.40 per share.
Following the offering EIC announced a new issue of convertible debentures on July 12, 2021 that generated gross proceeds of approximately $144 million to be used to retire existing convertible debenture series that come due over the next two years.
This offering closed on July 32021.
And then on July 32021, we announced the redemption of the June 2023 debentures.
To be repaid on September the second in 2021 deploying approximately $69 billion of the proceeds of the recent offering with the balance being temporarily deployed to reduce our senior debt facility until it has access to retire additional series of the future.
Simultaneously, we have extended our $1.3 billion syndicated debt facility to August of 2025.
These transactions will allow EIC the financial freedom to be active in identifying opportunities for a accretive growth and completing strategic acquisitions of fortify our business in the long term.
The first of these is the acquisition of Carson Air announced on July 5th aggregate consumer aggregate purchase price of $61 million the.
The company in addition to our established business lines and air cargo and pilot training is British Columbia, a leading provider of battery Vac services.
I mentioned earlier, the resilient and CIC and seeded our own better back services throughout the pandemic, Alright analysis and experience tell us Carson is the ideal acquisition to grow our presence and expand our geographic coverage in that segment.
<unk> proven management team led by Kevin Hillier has built a sterling reputation in the industry and we are thrilled to welcome them to the EIC family companies.
When added to our existing medevac providers karsner acquisitions, fortify <unk> position as the premier provider of medical evacuation services in Canada. We believe strongly in this business line and we'll continue to pursue strategic opportunities for growth organically or through additional acquisitions.
<unk> in this space.
Beyond the Carson Air acquisition, EIC has announced the excellent Q should have three non binding letters of intent to acquire additional companies for an aggregate consideration totaling approximately $53 million.
These are smaller tuck with tuck in acquisitions capitalizing on synergies with existing operations, which we believe to be immediately accretive to.
The first of these additional acquisitions closed on August 11, 2021, with the acquisition of back Fab manufacturing for $11 million. The company is very closely aligned with I've been machine operations. It will immediately add capacity and efficiency for both businesses.
We're excited about adding back fabs or fab light.
The remaining two transactions are undergoing final due diligence that barring unforeseen circumstances are expected to close within the next 60 days cumulatively the Carson Air acquisition background.
Manufacturing acquisition of the two remaining transactions of progress represent a deployment of approximately $140 billion to complete accretive acquisitions in 2021.
Despite the uncertainty and operational challenges EIC as phase through the pandemic. These are exciting times for the company.
<unk> demonstrated operational excellence time, and again preserving our operations without accepting compromise for the safety of our employees or for our customers. We preserved our cash flow safeguarding our dividend preserving the commitment we've maintained with our shareholders in that respect for over two decades.
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But perhaps most importantly, we have never allowed ourselves the luxury of short term thinking they can easy choices to manage for immediate challenges at the expense of future growth is gone and approach we've ever tolerated the EIC changing that.
Philosophy during the pandemic would have undermined the growth trajectory, we have now demonstrated an ability to routine.
Despite these historically difficult times.
Ross The company, Yes. He has recorded significant operational accomplishments through Covid and Louisville also added major contracts completed accretive acquisitions and strengthened our balance sheet to support yet more growth going forward, giving us lots to be excited about the company's future.
I want to thank our board.
Our management team.
Employees.
Shareholders and in fact, all stakeholders for believing in our vision.
And I'm looking forward to seeing what the company coming months will bring.
I will now turn to Darryl to outline EIC financial performance in greater detail.
Thank you, Mike and good morning, everyone.
As Mike noted in his remarks EIC has continued to deliver solid financial performance through the second quarter of 2021, while progressively managing the ongoing challenges and unpredictability associated with the COVID-19 pandemic.
Q2 marked the first full quarter that results from comparative period, we're fully affected by the pandemic as such offers an opportunity to reflect on the improvements EIC has achieved an insulating our operations against pandemic fluctuations and delivering financial results comparable to pre pandemic periods.
But before turning to operational results I would like to review the series of transactions, Mike outlined earlier that EIC undertook in the quarter to fortify our balance sheet and support the deployment of capital to fund accretive acquisitions and investments.
Yeah, she had been as active over the last several months using favorable markets to benefit to our benefit and setting financial cornerstones that will support our long term success.
To begin within the quarter as mentioned EIC completed an $88 million equity offering at a per share price of $39.40.
Subsequent to quarter end EIC closed its convertible its largest convertible debenture offering in company's history of $144 million at seven years, 5.25% and lastly on August 6th wrapped up an extension of the corporate credit agreement out to August 2025.
I would add that both of these subsequent transactions were completed with applicable financing costs remaining constant.
We are also called the debentures due in 2023 and when the debentures. Due in 2022 are redeemed we will have no debt due until 2025.
EIC is extremely appreciative of the continued strong support from both our banking syndicate and capital markets, which is evidenced with over allotment on both the equity and debenture transactions being exercised along with a very seamless turnaround are complete and the extension of our credit facility.
With the nurse near term planned insight to have no maturing debt until 2025 increase in liquidity and a 12 month trailing free cash flow less maintenance capex payout ratio of 58%.
Yes. He has established a foundation that provides us the necessary flexibility persevere through potential challenges, whether it be a pandemic reassert resurgence recession conditions hyperinflation or other adverse conditions.
Simultaneously, we have created additional financial flexibility capable of supporting growth through additional acquisitions and reinvestment in our subsidiaries.
Turning now specifically to Eic's results for Q2.2021.
Yeah actually has continued to emphasize and continually emphasized our strong focus on our balance sheet with modest leverage and good liquidity.
Our efforts in Q2.2021 support our commitment to this principle.
<unk> of the Corporation's credit facility as at June 30 remained unchanged at approximately $1.3 billion with the ability to access another $300 million in an accordion feature.
Should we choose to exercise that giving you the company Corporation combined access up to $1.6 billion.
As previously noted subsequent to quarter end, we completed the extension of the current credit facility out for years to August 2025 credit card agreement agreement remains materially the same with pricing and covenants unchanged.
At the end of the quarter. The corporation had readily available access to liquidity in cash and under its credit facility of 900 million, including the accordion.
With no material cash burn expected the corporation's liquidity position continues to be very strong and stands to set set to support the growth needs of the corporation.
<unk> long term debt net of cash of roughly $686 million a decrease of approximately $40.5 million since December 31.2020.
The corporation use the net proceeds from its bought deal equity offering to repay its credit facility, partially offset by using cash on hand to fund growth capital expenditures.
Strengthening of the Canadian dollar since December 31, 2020 also contributed to the decrease in long term debt.
The corporation target leverage to be within our one five to two five times senior debt to EBITDA range due.
Q2, 2021 leverage is near the top end of this target range caused by the reduction in EBITDA runoff from the impact of COVID-19.
Our current leverage ratio for the quarter for quarter end is 241 times, which is well below both.
The current credit facility covenant requirement of five times, and notably the four time requirement, which will come back into effect for year end.
Further on our balance sheet, we ended the period with working capital of 293 million, which represents a current ratio of 186. This compares to working capital of $324 million and a current ratio of two <unk> at the end of 2020.
And I turned to revenue and EBITDA I will focus on highlighting key quarter over quarter changes a detailed analysis of both can be found in the quarter's MD&A release on August 12.
In Q2, 2021, EIC generated revenue of $322 million, which is an increase of $78 million or 32% from Q2 last year Aerospace and aviation segment revenue increased by $58 million, while manufacturing segment revenue increased by $20 million.
Aerospace and aviation segment revenue was up 41% to $198 million. The comparative increase was driven largely by a comparison to a prior year that experienced significant decrease in passenger volumes and current periods strength in passenger and charter revenues and continued strength in our metal VAT and cargo off.
Operations.
The Corporation's Rotary wing operations also delivered strong results in the quarter driven by fire related services.
Demand for our ISR assets remained strong and continued as well to increase.
And revenues.
Revenue that original one were up quarter over quarter with an increase driven almost entirely by an increase in sales and service revenue and accelerated return of travel in the United States has been positive driving the increased sales and service revenue.
Now turning to our manufacturing segment revenue grew by $20 million over the prior period. The total revenue for the segment was $124 million.
The segment continues to experience robust demand slightly offset by reduced efficiencies in the operations continue to incorporate and central COVID-19 health and safety measures.
The acquisition of missed in Q3.2020 also contributed in the period over period increase in revenues with no compare it comparative in the second quarter of 2020.
Moving to EBITDA consolidated EBITDA was $81 million up 31% or $19 million compared to the prior period.
The increase was largely attributable to the aerospace and aviation segment, partly offset by a decrease in manufacturing that man.
Are you factoring segment and slightly higher head office costs.
The consolidated increase was achieved despite overall government funding in the second quarter of 2021, decreasing by $14 million compared to the prior period. When the government subsidies are excluded from the calculation for both periods EBITDA increased by 110%.
EBITDA in the aerospace and aviation segment in Q2, 2021 was $69 million, an increase of $22 million compared to the prior period.
The drivers within this segment lending to increase EBITDA are largely the same as what drove revenue.
The realization of cost reduction initiatives undertaken throughout the pandemic that took time to fully be fully realized including scheduled.
Frequency reduction workforce rationalization and various other strategies were more meaningful in the quarter and also contributed to the quarter over quarter increase.
The manufacturing segment EBITDA was $20 million, a decrease of 2 million compared to the prior period. The decrease in EBITDA compared with prior periods is attributable to the decrease in this soon as received by the segment in 2021.
EBITDA at quest was higher than the prior period, reflecting the acquisition up with in the third quarter of 2020 with no comparative in the prior period and it's an important to note that EIC as window installation businesses in the United States have continued to perform above our expectations since acquisition.
Turning to earnings and free cash flow Q2, 2021, once again demonstrated <unk> ability to achieve positive earnings and positive cash flow over a period defined by economic uncertainty net.
Net earnings for the quarter were $17 million and adjusted net earnings were 20 million, both representing an increase of $14 million over the prior period the increase in EBITDA in the quarter, along with reductions in interest costs attributed to the increase and increase in depreciation of capital assets. During the current period slightly offset improvements.
Mike had mentioned that might have previously noted our improvement in net earnings adjusted net earnings and free cash flow per share that said it should be recognized that the period in the period. The weighted average number of shares increased by 7%, which path, partially offset any increase on these per share results.
In Q2, 2021 free cash flow increased by 36% over the comparative period to $57 million or $1.54 per share. These results are driven by increased EBITDA and partially offset by the higher current tax expense.
Free cash flow less maintenance capital expenditures expenditures payout ratio on a 12 month trailing basis remains a strong indicator of the corporation's ability to actively manage cash flows despite unpredictability and economic conditions.
<unk> free cash flow less maintenance capital expenditures payout ratio improved to 58% at June 32021 from 76% in the comparative period.
This was achieved through the diligent management of cash flow in general and capital expenditures specifically during the pandemic.
The resulting 12 months trailing.
Free cash flow less maintenance capital expenditure payout ratio.
In the quarter is a significant achievement as it continues to trend back to pre pandemic range and it's only slightly higher than the comparative payout ratio at December 31, 2019, a 57%.
Eic's ability to return the payout ratio on our free cash flow less maintenance capital expenditures basis back to pre pandemic levels in the quarter is solid evidence. The success, we have achieved and managing the challenges of the pandemic.
We are diligently maintained our focus on cash flow and we are continuing to fortify an already strong foundation for EIC that support the future growth of the corporation through accretive at accretive acquisitions and internal investments.
That concludes my review of our financial results I will now turn the call over to Carmel to share some thoughts on eic's outlook for the coming months.
Thank you Darryl the bulk of my comments today will address the near term outlook for EIC across our various lines of businesses.
And then share some longer term observations about EIC.
Well, we are of course encouraged by increased vaccination rates easing restrictions and gradual return to normalized operations COVID-19 has not done with them, yet and we will continue to impact our businesses in the short term.
Passenger volumes as we move out of Q2 and into Q3 continued to demonstrate positive momentum although the speed of recovery is closely tied to geography, and the maritime either trending towards a return to pre pandemic travel levels necessary quarter, while traffic in Nunavut, and Central Canada interest Q3.
With passenger levels on average about 50% of 2019 levels and although increasing is anticipated to take another couple of quarters.
Let's turn to historical volumes. This lower trajectory is a result of significant reduced access to medical diagnostics and other treatments against COVID-19, However, as Mike indicated there is significant pent up demand and as such we are expecting to see significant sustained demand.
Access to treatment normalizes.
Yeah, She's charter aviation services continue to perform well in Q3 supported by significant demand in the resource sector and by the renewal of our contract with indigenous services, Canada to facilitate the national movement of their nursing workforce to flying the first nation communities.
<unk> cargo volumes have remained strong moving into Q3 and are trending to exceed historical levels for the period. However, we expect cargo demand rationalize over time as passenger volumes trend towards pre COVID-19 levels.
Yeah. He's medevac operations are continuing their solid performance moving into Q3, we expect the segment now bolstered by the acquisition of Carson Air to continue to generate strong returns through the balance of the year.
The Companys aerospace operations have also remained a source of tremendous stability for EIC needs for the year.
Current programs continue to perform well and demand for contracted ISR hours is picking up with increased optimism that we are moving towards the end of the pandemic for instance, how aerospace as a force multiplier on demand ISR aircrafts will be fully utilized in Q3.
Regional one continues to meet strong demand in Q3 for parts, particularly for U S carriers redeploying regional aircrafts and meet post pandemic demand for travel is now seeing increased interest in aircraft and engine sales.
As Mike indicated earlier original one aircraft leasing business has focused primarily in markets outside North America, where recovery has been slower we are not expecting to return to historical leasing levels for several quarters.
In EIC manufacturing segment, we continue to see experienced consistent robust demand, which will be further bolstered with the acquisition of Mac that.
Employee absenteeism and efficiencies in this segment have improved with increased vaccination rates the impact of COVID-19 on supply change is increasing as is the challenges with labor shortages. This segment is proactively managing these challenges.
As previously discussed production gaps and reduced revenue at our quest operations will persist for the balance of 2021 and into the first half of 2022 as a result of the pandemic related project deferral long term demand remains healthy and quest is seeing sales inquiries gradually returned to pre pandemic led.
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Turning now to maintenance maintenance capital expenditures.
As white errors increase as a result of returning demand for travel in the current increase in maintenance capital expenditures will follow in the second half of 2021.
This does not reflect a change in the structure of our maintenance capital investment strategy and we fully expect a long term expenditure trend to be consistent with 2019 levels and timing adjusted for fleet expansion, we've undertaken since that time.
That's for growth capital expenditures, our focus for the remainder of 2021 will be on the investment in the twos surveillance aircraft required under the Netherlands contract. The construction of a new hangar required to meet obligations under our fixed wing search and rescue contract.
Edition of the net for larger gauge aircraft referenced by Mike The service demand seen in our mining and freight customers and the conversion of additional opportunistic purchasing opportunities unencumbered by regional one.
Mitchell one is executed on several asset acquisitions for the first half of 'twenty 'twenty. One we expect the pace of acquisitions to accelerate as the pipeline continues to provide sourcing opportunities at attractive prices.
With the full understanding of the pandemic is not yet over evidenced by the emergence of variance that concern reintroduction of precautionary protections in certain jurisdictions and the uneven pace of global vaccine distributions, we are seeing in our business and through the behavior of our customers a sense that we are nearing the end of the pandemic.
With that she has to post pandemic operations in mind I want to talk more globally about EIC vision and its implications for the future of the company. We've never believed that EIC success should be measured by what is achieved in any one quarter, but rather by what we have consistently demonstrated to be our ability to accomplish over.
Time.
Positive results overtime are the hallmark of EIC corporate legacy for the pre pandemic 510, and 15 years since our inception, he or she has generated annualized total return of 20%.
While the pandemic has certainly impacted our returns we haven't wavered and practicing the corporate values that have driven our success to this point, we don't focus on immediate results to the detriment of our future. We managed today and we invest in tomorrow, we're agnostic to how do we invest in tomorrow it could be through acquisitions.
On a gross or a combination we are driven by the opportunities and don't choose between whether to invest in this asset or this company as we deploy capital not allocating.
Evaluation is what are the opportunity meets our rigorous investment criteria once you've identified an investment that meets our criteria our strong balance sheet affords us the ability to quickly move and convert for the benefit of EIC and our shareholders.
Knowing that our approach works has given us confidence to complete three accretive acquisitions during the pandemic West Carson and makes up proactively increased our liquidity and fortify our balance sheet to capitalize on additional opportunities for acquisition.
Meaningful organic investments like the investment to support the Netherlands contract or a move into larger gauge aircraft to meet passenger and charter demand and then over $30 million on a net basis and building regional one's capital asset and forge new relationships with the house in Canada to develop and support a dash H P for special mission aircraft.
And with waiting to support the twin Otter fire attack system by effectively managing our operations through the pandemic for the long term.
Knowing our principles for the for strategic investment and executing on opportunities that meet our criteria. We believe our collective efforts have positioned EIC to continue accomplishing great things for the future. We're excited to see what the next several quarters bring thank you for your time. This morning, and we would now like to open the call for questions off.
Greater.
Thank you ladies and gentlemen, if you do have any questions. At this time. Please press star followed by one on your Touchtone phone you will then hear a threefold prompt acknowledging your request and should you wish to withdraw your question. Please press star followed by two.
Your first question will be by Stephen Steve Hansen at Raymond James. Please go ahead.
Okay.
I believe he may have his line on hold.
The next question will be from Chris Murray Alta Corp. Please go ahead.
Yeah, Thanks folks good morning.
Just maybe turning back to your your thoughts around the aviation business.
And maybe trying to.
Understand how carson fits into this.
The financial performance, so I think going into the second half, there's a few things going on here.
I'm wondering if you can kind of talk about some of the new contract wins and how that might be impacting how we should think about the aviation performance in the second half also kind of curious about.
How Carson.
Maybe it even like whats the contribution look like and seasonality there.
And as well any thoughts around the rental business at at regional one would be helpful as well.
Okay, starting with <unk>.
Your questions.
Carson.
Tyson.
Our company right at the start of the quarter. So we expect a full contribution from it beginning in the third quarter, we didn't give specifics.
Earnings guidance from that company, but we did say that it was accretive from the beginning and we readily talked about the fact, we have a 15% return thresholds on an unlevered basis, given that the company is expected.
To exceed that you can work back into.
The kind of contribution that will make there's no material seasonality to the company's business tall.
It provides two things, it's very well managed its an industry leader it gives us access to the West coast, which we don't have now and it helps bridge. The gap there is other opportunities whether it be in cabinet door as you progress through northwest territories are.
The priorities in Alberta, Saskatchewan, and so I think there's opportunities to grow organically or by acquisition or was it a territory. So.
That sort of covers off cars to be.
In terms of.
Regional one.
The the lease portfolio portfolio as station, largely Europe, which has begun to recovery, but much slower than the U S and so we view that lease portfolio normalizing over the ensuing.
Don't know exactly three quarters something like that.
On a progressive basis over that period Diversely. The parts business I believe will be a basket sort of traditional levels by the end of the year, it's largely a long way towards that now and the big thing. We're seeing now that we didn't see in the second quarter is demand for.
For full aircraft and engines, so bigger transactions.
How many of those will choose to execute on will be discussed.
A discussion of margins and the best use of our assets, but I anticipate that you will see a normalization of that part of regional one's business very quickly.
And we're going to drill some I think strong demand for leasing on the engine side and airlines ramp backup MRO as you're getting full so having ready access to engines is going to be a demand that we think will just increase as as the quarters roll.
Okay fair enough.
And then just any thoughts around the new contracts like the fisheries business and that impact on the second half.
The fisheries will continue it keeps we've had it since early in the year, we're operating at that level and that will continue through the balance of the year, but the other ones contract we will deliver the planes early next year.
And so you'll see you'll.
You'll see that starting to contribute in the spring and summer of next year exact delivery dates are tough.
It really set yet, but so guidance will be continuing to invest in the Netherlands contract and we'll be continuing to harvest stuff through the <unk>.
The fisheries contract.
The.
Northern search and rescue contract.
Is delayed slightly the government passenger it hasnt accepted delivery is as many planes as we thought they would.
It doesn't really impact us dramatically, we're busy setting up the infrastructure required to service those contracts.
It's a 25 year commitment so.
The delay of a month or two here or there is not material and we are seeing in the back half some stronger demand for ISR flying so whether that'd be curacao, UAE or the D. F O and demand for a force multiplier aircraft as well I think one of the challenges Chris you haven't specifically asked it but it relates to what you're talking about which is.
Guidance going forward.
The challenge, we're having is just trying to understand when things normalize and receipt of dramatic improvement in the Maritimes and good improvement in Manitoba and a slower improvement is largely by different factors of each of those regions. So it's hard to say exactly what happens over the balance of the year.
But we're pretty comfortable that we're going to continue to meet or exceed the 2020 levels.
Approach those 2019 levels and that's exciting for us because that's kind of a rough definition of normal. We're also pretty confident looking forward that our business is ready to generate $400 million or so of EBITDA, when we get to the new normal the heart.
Part for US is doing exactly what the start date of the new normal is as of January 1st as of December 1st is it March of next year, but we know we're looking at kind of a $400 million run rate with the improvements. We've made is the expenses are going to be.
Additions, we've made I'm sorry since 2019.
It's our intention to give more formalized guidance in November with our Q3 results. We're hoping we'll have a concrete enough.
Our view of the future to give up or a more normal level of guidance for fiscal 2022.
Okay. That's helpful.
A couple of other kind of cleanup questions.
Thinking about tax for a second I know that you've got the regional one business domiciled in Ireland and that certainly helps you attack.
Are there any issues that we should be thinking about for next year in terms of.
This new kind of international treaty on on minimum tax rates that could impact it.
Okay.
Actually for next year I'm, not so much Chris I think it's actually comes into application in 2023, the global attack the minimum global tax issue is that what you're referring to again right now.
What we're looking at is ascertaining, how it's going to affect our business overall, not just in Ireland, but yeah. There's a lot yet to do I think there's some hiccups in Ireland still yet that Ireland's pushing back on so we're actively watching it and certainly we'll be able to ascertain the impact here probably over the next.
A quarter or two okay fair enough.
And then I guess my last question, Mike as you know what you I'll, let you figure out how you want to answer this one.
In Q4, you've got the opportunity to start thinking about dividends certainly you've got that line of sight as you've talked about a pretty healthy EBITDA number.
Do we think about dividend growth.
In the near and medium term at this point.
Oh, it's a good question, Chris and it's actually one that's relatively easy to answer because our view of dividends has always been the same since we started it is where we generate the cash flow to increase our dividends, we're going to increase our dividend.
<unk> seen a strengthening our payout ratio over the last couple of quarters, and we as we ramp up to a more normal.
The level of operations that should further improve.
And that will spur the discussion internally.
<unk>.
About when is the right time to increase our dividend I think the one thing I can tell you, though is we're not going to be receiving.
Government support and increase the dividends at the same time, so as the government support programs wean off will increase our ability to look at those things, but we're not going to be doing both of those things at the same time.
Alright fair enough alright, guys I'll pass the line. Thank you.
Okay.
Thank you next question will be from Matthew Lee of Canaccord. Please go ahead.
Hi morning, all good.
Good morning.
You know on the Carson Air acquisition, it looks like that really gives you a pretty stellar western Canadian market share of medevac.
But are there opportunities to expand beyond the current footprint either organically or through acquisition.
Yeah, absolutely there are significant medevac programs in anywhere where there's isolated communities. So the Yukon northwest territories are northern Alberta, Northern Saskatchewan, and then Theres some opportunities as well as the maritime so although we have a little bit more exposure there.
And the programs aren't as big so.
Whether it be bidding on contracts I think a good way to look at this is if you look at the history of key waiting a few waiting when we bought the company is to Ah in 2005 had half of one of the three major contracts. So we didn't have to work at kimberlite.
Over the ensuing sort of 10 years, we got the whole contract in Cod.
Kimberly.
The contracted boss and then most recently added the contracted I'm going to butcher, the saying if this it can take me up.
In the west.
So that now we have all three contracts from the government of theater that we're experts in lawn.
Hi fly matter box.
The stuff, we do in Manitoba is a different product a much shorter flights.
And the government still maintains a bigger presence in emerging kind of very high risk patients. Although we're capable of having those where we're flying out of places like doing events. Those people are unstable and they're in the air for hours and so the medical programs that go with that are really important.
Part of the service, we provide and our ability to grow our service for the government to do it I think bears Testament to our expertise in that area parts of it is a leading provider on the west coast, Kevin and his team are held an exceptionally I regard across the industry. So for us the other group.
That and then opened new beachheads across Western Canada for organic or acquisitive growth is super.
We are exciting for US you see during the pandemic that the.
The medevac business has been highly resilient.
And reliable cash flows and so it's a business, we like and we want to expand our exposure to.
That's great color is there any regulatory reason why you couldn't own you know that entire market in Canada.
No there isn't I mean, the customers are very different by region, how the government student housing contracted out Manitoba as an example today is a licensing system, where anybody who as a matter of Vac license can provide service to the government theyre talking about going to a contracted provider it hasn't happened yet.
None of it is 100% of contracted provider and so if you go jurisdiction by jurisdiction is slightly different but theres. No reason, we couldnt consolidate that market and quite frankly, if we don't I'm gonna be disappointed and we have experiences in all models, so nothing would be more into it.
That's great.
All of these places that we have excess capacity, so often outbreak of some and.
Rick is a bad word to use these days.
You have different respiratory things in other outbreaks at various places where additional capacity is required. The fact that we've got tens of matter back planes around the around the country. We can redirect capacity to help out and it provides a sense of security to the government snowing.
We're going to be able to solve their problems regardless of what happens.
Alright, Thanks, guys. Congrats again on the good quarter.
Thank you.
Thank you and your next question will be from camera indexes at National Bank. Please go ahead.
Good morning, John.
Yeah good morning.
Just wanted to go back to Chris's earlier question on regional one.
On the leasing part of the business I see that you've you've added some more aircraft in Q2 I Wonder if you could just maybe expand on where you've invested there what type of aircraft and I'm just trying to get a sense of what the upside is on the business I understand obviously, you've got different potential uses for all those aircraft, but presumably.
Most of the aircraft that are in that portfolio right now are not generating any revenue or cash flow and so I'm wondering I guess, what I'm wondering is if you can kind of.
Sort of scale, what the upside would be for that business once things recover and more of those aircraft get back to flying it and generating revenue.
I'll, let Tom I'll answer the hard part of the question.
I'll take the easy part, which is when you look at the acquisitions in regional one it's important to look at that Holistically.
As part of our horrible whole portfolio, we're constantly buying and selling so it ebbs and flows. So I would look at this is that specific 30 million dollar investment this quarter because next quarter, we may sell more than we buy it bounces around.
In terms of the leasing portfolio, they're not not generating any revenue removed most of them to power by the hour kind of leases as opposed to monthly fixed prices and by doing that.
Operators are paying us when they need the equipment, but got stuck with a payment date.
The challenge with so that will ramp over the next ensuing quarters it won't be like a light switch coming on but rather a gradually improving and then the leases switched back to a more traditional format terms of aircrafts. How you put that maybe I'll, let carmel handled out here. So it's probably best described as more of the same.
So acquisitions, where there was a 900 some ear G 125, Q4 hundred and engines I think in Q1. We also had some ear Jay one nineties that gives you a flavor of the nature of the assets I mean, obviously focus on the regional jet, that's where we see continued opportunity.
With respect to leasing and what we see just a maybe a little bit more color there it might cause right. We had many of our aircraft on power by the hour, but we're actually seeing that now transition into I'll call them more fulsome leases.
And we're starting to see you're getting in some deposits for for other reasons as activity picks up and kind of non north American jurisdictions, all tied to quite frankly vaccination rates, where we're really seeing a close tie there and we're gonna can argue continue to see that demand and it's a matter of deploying the assets and the best use whether that's a combination.
Asia III sales leasing you know that's why we use the one does as well as it does do because of their ability to generate revenues in all different revenue streams, whether that is leasing or whether that's parting out or whether that is selling aircraft and it's that combination. That's made it very successful so when leasing down there tends to be a there.
Our revenue streams that make up for it but that's what youll probably see on a go forward basis.
Okay, that's very helpful.
Just second question quickly I'm, just wondering if you could update us on the expected decisions on the carousel.
<unk> contract renewal.
Also the Malaysia contract just wondering if there's any update on when you expect to hear on those.
Sure. So carousel best and final offers are going in in Q3, we would hope to hear.
By the end of the year so Q4.
Malaysia, we are believe that we'll have site visits from Malaysia later, this year and hope to get a final decision from them end of this year it could slip into the beginning of 2022 Covid has obviously had an impact on.
The length of time, that's taking to make some decisions, but it's general timeframe you can expect.
Excellent that's very helpful. Thanks very much.
Thank you next question will be from Kevin Chiang CIBC. Please go ahead.
Hey, Joe.
Good morning, Thanks for taking my question everybody.
Maybe I could ask them.
But how do you look at I guess.
Deals moving forward.
<unk>.
Obviously, I mean, there's been a big part of your growth profile, but what when I looked at.
Company that like you mentioned.
Is on pace to run rate $400 million of EBITDA like how do I square that maybe with deal materiality like for example, if you closed Max.
11 million deal price, maybe a couple of million of EBITDA like it.
It does seem like for a company of your size that.
Maybe you hunt for bigger fish, but maybe you could just something you know.
Understand the rationale for going after some of these smaller deals given the size of your company company today.
Yeah, that's a good question Kevin.
Having to bifurcate the answer because there's two parts to it one of the bigger deals our lack of ability to travel during COVID-19 essentially meant that we weren't going to be prepared to write $100 million track, where we didn't get to go and spend a bunch of time with management and know them inside notes. So we pivoted internally large.
Really talking with our subsidiaries and saying what would make you better and.
And so we took advantage of this opportunity.
Where we know we know people on deal like not fab, they're the best kinds of deals from our accretive nature point of view.
They are small or you buy them at appropriate multiples, but more importantly.
It's going to make Ben machine more profitable and we've seen that Ben has almost doubled in profitability audit. It continues to grow with capacity issues and so by having a company like that fab, we diversify our product offerings.
Offerings, and we have an instant additional capacity for our existing customers and so it's not a case of one word yogurts. Both we've added people to our acquisition Department Adams diversified our team and we continue to add executives in that area and as travels.
Allowed back into the U S that is more easily done in Canada, you will see us attacking bigger deals as we have in the past, but if we've got a smaller deal we would never buy a backstop as a stand alone. It's a great company. It is strong mansion, but you're right. It's just too small for us, but when you compete.
Combine that with bad it's not much different than buying $10 million worth of new equipment that came with great management people and so for US. It's just a way to continue to grow those businesses.
No.
I haven't given you a definitive answer other than to say, we're going to do both and.
We postponed the bigger transactions simply because we were there was no efficient way for us to do them during the pandemic as the pandemic waves I think you'll see us examining bigger deals almost look at the smaller acquisitions almost like growth Capex, we're trying to grow in existing business. So we're buying things that.
Talking to our existing stuff, yeah, you'll see that as quest normalizes the power of our two installation companies they've done so well during the pandemic and as we continue to grow the order book, there and you'll see the power of the vertical integration play now those were medium sized deals.
The back pad size deals, but also are.
Not huge.
The combination of all those opportunities as well.
But you've got a 50% threshold.
That's a high bar and we need to look at all the ways, we can get there and not focus on just one.
No. That's a that's a great answer and I appreciate the color there Mike.
Yeah.
Maybe again, just almost $400 million of run rate EBITDA that you see when things start to normalize.
If I look at the math I guess.
There's a blip I take kind of your Q2 results annualized that maybe throw in some of the acquisitions or otherwise you have.
I kind of get a ballpark of let's say roughly $350 million.
EBITDA at a high level.
If I look at how much of regional one is still underperforming versus what you did in 2019.
That seems to be the whole is that effectively the missing piece here that that that really to kind of.
You'll get that incremental $50 million. It just comes down to a regional one getting getting back closer to a $300 million revenue.
Run rate in and once you once you have visibility on that you'll have.
More competence in and providing a $400 million guide.
At the risk of getting dangerously close to providing any formal guidance theres two or three ways, we've come up with that number internally.
Hmm.
Most of what we've got to be honest is taking a look at 2019 and.
And we know what we generated there $323.25.
And then we add on the things we know we've added since then the new contract with <unk>, which we didn't have then.
This year's acquisitions.
And returned to normal with the other businesses that you get you get to that 400 ish range of number of different ways.
The risky.
Extrapolating Q2.
Is that while it's closer to normal it's not normal yet perimeter is flying in this quarter at about 50% capacity.
When you add that other 50% did it does good things to our margins now the remainder of the government support disappears and all of those things so there's ins and outs.
But to me the easiest way to come up with what you think the number is precisely as to start off that 325 added the things we've told you about.
A little organic growth and I think that that $400.400 million number.
Becomes pretty clear.
The challenge we have is it providing what we think we're going to do in a normal environment. The challenge. We have is when does normal start.
Like if someone could count normal was starting on February 1st I can't give you guidance now, we're just reticent to try and predict the pandemic because I've only been wrong 18 times, so far on when its going to wane and what it's gonna do so for US we're hoping by November we will see the impact of the fourth.
Wave will have a better prediction of all air traffic in general, which is the biggest driver our manufacturing businesses with the exception of.
The holes and quest schedule and some inefficiencies in our other business because of absenteeism I've been pretty reliable through this whole thing so they're pretty easy to forecast quite frankly, it's more when Dubai Airlines get back to a 100% and windows by lease rather do a return to normal regional wanted I.
Just don't have enough general economic.
Forecast ability to answer that yet were thinking in November we'll be able to give you that number.
No I.
I appreciate the color and comment there I'll leave it there I'll get back into queue. Thank thank you very much.
Thank you next question will be from Ryan from RBC. Please go ahead.
Good morning.
Morning, everyone. Thanks for taking my question. So my first question is on Quest I was wondering if you can expand a bit on some of the new inquiries and interest you're getting.
Any of these turn into bookings and if they have would be.
Back in 2022 backlog and revenue at the segment next year.
The answer is yes, we have booked new orders out of this.
<unk>.
Sort of post crisis level of the pandemic, we see you see those at the end of 'twenty, two and into 'twenty three.
Typically if there's an average is probably about 18 months is when you see a bogie.
The financial statements that could be as low as 12 or as much as 24, but the part that makes us feel confident this is not one market. That's recovering its multiple markets. There was this whole concept that no one's going to live in the city after Covid and it was the typical over reaction and extrapolate.
Asian of a short term event.
Rental prices in Toronto as an example are rising again the demand for units is going in.
We're quite frankly very confident in the medium term at quest, we're confident in the short term, it's just going to be bumpy, because there's no way for us to fill a hole in October as an example, there is no project, we could get to park. It in everything we do as a cost of project. So you can't build and put into inventory because you don't know who is good.
To use it so we're going to we're in a struggle with that we will get through it but coming out the back side one of the great, sometimes you're smart and sometimes you're lucky.
I won't say, which one this one is but it's probably as much like his brains is well, we built that Dallas facility Diversifies, our production capability and let us have different plants being affected in different ways at different times, despite the pandemic, which let us meet our customers' requirements, but the other thing.
We've learned is how effect of being able to build a plant from the ground up is and as our leases expire in our Toronto facility will be reconfigured that in a way shape or form so.
So to set up the next wave of growth.
As things normalize and we make that plant more efficient so.
There's been a rapid growth business for us and we really don't view that has changed by the pandemic.
Other kind of positive indicators, which gives us kind of the optimism is that some of the projects that we're trying to hold or delayed are actually starting to come back now that does mean they come back immediately there's a ramp up period and then by the time, we get to the part where we're doing what we know.
It's still a 12 months ish window, but obviously, that's a positive sign as well.
Okay. That's really helpful color and definitely good to hear and then just for my last question here.
Looking at your outlook comment.
Like growth Capex at regional one man relatively elevated in the back half of this year I just wanted to unpack, what's driving that is it.
Is it just being opportunistic on attractive opportunities in the market or in response to that.
I think.
Man.
Or perhaps a combination of both characters to get your thought there.
Yes, Gabe I'll take the easy part of this.
Regional one has always been an opportunistic kind of project, we look for opportunities and that's our ability to monetize things in multiple ways.
US, perhaps see opportunities where others don't.
Well I'm going to go one layer deeper into into answering your question, we see certain types of assets, becoming already very much in demand the movement of the C. R. J 700 being reconfigured.
Two a 50 seater.
Aircraft has permeated the ban for those those aircrafts.
Engines that run those are very similar to the engines that fly on the CR J nine hundreds as well so the end demand for those both quite high so you're not only going to see us investing in in aircraft in the balance of the year I think you'll also see us divesting of certain assets, where there's opportunity.
<unk>, They just gave where someone wants to make a permitted to investment.
In an aircraft. So I think you'll see increased churn as well as investment and so in a given period that can be you sell more then you're buying you're buying more than yourself, depending on the timing, but over time, we can tend to continue investing in this business.
Yeah, what I would also add is where we're seeing opportunities is as airlines.
Why not to go back into full operation here. Some rationalization that's occurring subsidies are now either dwindling or have completely stopped and that is as a result, pausing some well call opportunistic buy for us they're not large fleets like they're not like the Lufthansa us here Jason.
We bought like 14 of them, but they're here and there and you know with a net worth at regional one has been able to seize on those there is thing that you'll probably see us do as well as invest in our own fleet. So we're you know I've mentioned that we see a demand for engines. We mean, they will spend some money overhaul engines.
So that we expand or extend the green time.
Therefore, the life on the leasing.
Side of what we do with those assets.
Got it got it that makes a lot of SEC.
Congrats on a great quarter.
Thanks.
Thank you next question will be from Cornell Gupta at Scotia Capital. Please go ahead.
Thanks, and good morning, everyone, where do we go dark.
Mike maybe I can.
Like get you to provide us actually some guidance here.
No I'm, just kidding I'm I'm looking to understand [laughter].
I'm trying to understand the seasonality here this year and I'm like I know you don't give you are kind.
Kind of you know we had a good summer I guess and then maybe get into the downtown area, you know whatever coming back both favorite sector.
Do you anticipate myself like live at all to kind of get a contract win and the recent acquisition. So do we see a little bit more pronounced seasonality in the second half of this year, what's the typical yourself pre COVID-19.
No I don't think so.
The what we've added is less seasonal business like the.
Carson has an example, medevac don't have a precise seasonality they do vary quarter to quarter based on outbreaks of diseases and things, but they are both Denver and the winter worst of the summer those kinds of things. So I think you'll see.
Our results sort of tracks historical.
Uh huh.
Okay.
Alrighty.
I think the bigger.
In fact will come from just how fast we can ramp and that's what I'm talking about.
We expect to be the kind of 'twenty 'twenty numbers and that means we're going to make a lot more money in the business because the back half of last year. If you look back had significant amounts of government support which will have waned away. This year. It may not be zero, but it will be close to that.
And replaced with traditional EBITDA and we'll grow through that to the point, where if if the fourth wave visit pronounced you may see us meet 2019 or.
Who knows but that's I would look at the seasonality of this where Q3 is always seasonally the best quarter Q2, and Q4 approximate a running average in Q1 is always the worst so one thing that will be different in the back half of this year is just maintenance capex.
Normally we front end load that into the first quarter were slower with the pandemic. We did do that this year and so as we ramp up our operations you'll see.
The maintenance Capex move directly with the revenue, we haven't deferred things like knocked on them when they would do but that hasn't become due in the same way because we haven't flown as many hours towards the hours go up we'll be overhauling engines will be overhauling landing gear it won't exceed historical norms, but.
As we reach normal maintenance Capex will also reach normal.
When and if you Wanna, how quotation marks around normal I'm using 2019 as normal.
That's good color Mike. Thank you and then maybe for the B. There wasn't there was a three I think $3.1 million gain on disposal of capital that that and the cashless statement.
I'm wondering if that relates to any significant bet that a and b in the aviation side or is it manufacturing.
Is aviation I mean.
This is the biggest profit grades to be in our financial statements, we buy and sell plains all the time.
So the gain on which assets would have a material. That's a normal part of our business will have gains and will have losses. When we move are playing in and out of operations as part of what we do.
Okay. Thanks.
And then just like high level kind of plot here.
And then it would be the major airlines in Canada are kind of in domestic Canada. They are adding capacity quite significantly like air, Canada, Russia, or a Sunday and crowds out there et cetera.
Like you recently expanded some capacity into the many times how.
How do you how do you see that as you know maybe impacting your legacy and I think the most thanks Patrick.
Apples and apples part of the reason you have air carriers are adding capacity because they took it out and permanently retired things during COVID-19.
Covid, we didn't retire or anything.
While our stops growing we have added capacity in the Maritimes, we will add more capacity there.
Particularly up gauging some of our fleet from Dash eight three hundreds to four hundreds.
We're gonna add more dash eight 300 capacity in central Canada to look after mining opportunities in freight opportunities and we'll be adding some ATR 72 capacity to look after a game right and and mining contracts in the far north so.
We I think I mentioned, we've got about a data to improve and increase it in big gauge aircraft of an additional four through the balance of the year and that's driven entirely by essentially contractual demand.
Specifically with respect to the Maritimes.
Question I view it as for the most part complementary you know our Pal Airlines and American job filling the need that exist to move customers to larger centers for the majors, which is for instance, why we have now interline agreements with both west jet and Air Canada.
So looking at more of just kind of a solutions provider rather than this being competitive.
Hello.
We can't hear anyone right now I'm not sure if you can.
Hear us operator, yes, Sir we can hear you.
Okay.
Maybe ask someone else for a question.
Sorry, I'm still.
So I can't hear from actually can I remember about we were about we were about to send medical assistance Garner.
No I was gonna still on the line I thought 10 dropped anyway that that's okay.
Maybe it's a class one bigger identical we're actually on the visa rates and reasonable one so one of one of the traditional regional aircraft leasing companies in Canada.
The recently.
That oh, there they have renegotiated contracts with all of their customers and the lease rates have kind of come down quite significantly I'm. Just wondering if like your business at regional one it's a little bit different view.
Do you also see any pressure on lease rates at this time or because it's being powered by the hour, it's not really material for you.
Yeah, I understand the comparison, you're making qunar cannot truly is apples with watermelons.
Uh huh.
In our world.
We're much shorter term leases and theyre not finance leases. So it's a very it's a very different marketplace quite frankly, we may expect the opposite of that to be true as particularly as it relates to engines.
There are as ramp up is going there is now a gain or Florida or MRO space to get overall has done and access to engines on a timely basis.
Meanwhile, yields through an increase in pricing in the short term rental and leasing market.
I'm not at this stage, where I would like to predict that yet.
I would say that we view the leasing prices and what we're doing is relatively stable as the market normalizes over the next two or three quarters.
Great. Thanks, again for all the questions and quarter thing.
Thanks.
Thank you next question will be from Matthew Weekes I E capital. Please go ahead.
Good morning.
Good morning, Thanks for taking my question I was just going to ask if you could maybe just provide a little bit more color on our inflation in terms of sort of where youre seeing the most impact in the business right now I know there was some commentary.
That it's occurring in several places across the business and maybe how you're managing that impact so far whether it's through you know cost pass throughs or forward purchasing or or things like that and maybe where youre not able to kind of pass through the impact as much.
I would suggest to you that we see it.
In the numbers.
The two main ones, where we see material price changes is first of all in fuel in the aircraft business I'm not sure I would call. It inflation, how it's kind of more of a return to normal we've seen oil prices return to the high <unk> low seventy's, which is kind of where they were before we started this.
See the bounce back most of our contracts include direct fuel pricing so.
We're able to contractually change pricing, where appropriate and we have a dominant market position in most of the areas, where we operate so to the extent we need to flow those through we're able to do it and sometimes it takes us a while because of our position we make sure we talk to our clients and explained about what's coming and why its come.
And so that may delay us putting it through for weeks or months, but.
It doesn't create much of a issue I was just very short term turbulence and.
We're in good shape there the other place where we see it or is it some of the big commodities in our manufacturing so steel prices and aluminum.
On the steel side it tends to be included in contracts, where we have more room to move the contract moves automatically.
The aluminum prices are a little bit more of a problem because our window projects tend to be fixed price and so we're eating some of those increases in certain places.
We're being careful how we did the future projects in light of those changes. So the financial statement impact is really limited to the commodity side focused on India aluminum area. The steel staff were able to deal with is the jet fuel stop we're able to deal with.
Okay. Thank you that's helpful. That's it for me I'll turn the call back.
Thank you.
Thank you next question will be from Goldman Tsetse at Laurentian Bank. Please go ahead.
Good morning, Mike. So my first question is it's more so this was really.
Really tough year I think once in a generation event that happened, but you guys had just said pretty well I'm. Just wondering if if there were some lessons learned during this entire process and how some of the things you would do differently going forward within your business.
To be honest with you know what the single biggest takeaway for us.
Actually there's two of them that come out of the.
Come out of the pandemic, we've done with one is we've always believed it would be well capitalized with capitalized in advance of opportunities. So when things shut down really hard in March of last year and other people in our industry or related industries, what kind of dividend, we have the room and la Quinta.
To be able to manage our way through it and our shareholders rely on our dividend and so our balance sheet is to batch that commitment and so you've seen our actions in the last quarter, where we raised equity because we do out of was busy on the acquisition front and our subsidiaries, we're uncovering Ah Ah.
Creative opportunities to grow so we've invested money there we will continue to do that we're going to make sure. We always have the balance sheet to pay for Tomorrow's project ahead.
And then the other thing and this may be somewhat counterintuitive, but is the diversity of our management has been an absolute godsend as we've gone through this there we have strong teams in each of our companies they tend to be managed as separate silos, but as we went through.
As the pandemic the ability to put those leaders together.
And share best practices and help each other out.
Particularly if we look at supply chain as an example, we've had times, where we can get a certain type of steel in a certain market, but our company is the other market can access it through their supplier. So we're shipping steel around to meet customer demand, we're sharing aircraft assets to make sure we.
Can deal with challenges.
Good example of that is the indigenous services, Canada contract. So for me if I were to talk about two things. We've taken out of it is I am more committed than ever to our balance sheet strategy and I'm very proud of the fact that we have disbursed management team that we can weave together.
Where we need to to create corporate decisions. The stuff. We've accomplished through this hasnt been corporate its been driven by the C. E. O is that there are people in the field that have been able to break out the opportunities and bring us. The solutions. We've just made sure we got somebody to pay for it.
And we had that confidence in our people when we entered the pandemic, which is why we kept our dividend and our people showed that it was the right decision.
Okay. Thank you that's very helpful color. There appreciate it and just maybe a last one youre talking about you spoke about your balance sheet is wet.
Uh huh.
Recently done almost four.
For new acquisitions would do a letter of intention. So I'm. Just wondering are you still actively looking at new files as well or is is that a time, where you're sort of absorb these new acquisitions, and then wait a bit and then get it to the M&A landscape again or are you still active on that front.
Well I'll see if you can get out of them to give me an answer on that we're actively looking.
It looks weird crime out of it exactly that you looked at it.
No. We're we're still actively working the beauty of the stuff. We've done recently is.
That one it's mostly tuck ins, where it's becoming part of the operation. So the math is there going to be working with our people is bad Ben It really doesn't add any workload does it had office we added Wes.
Uh huh.
Worked as part of Quest and the management team of Quest works with the management folks at west to get on that business. So we have capacity to be able to continue transactions Ah.
They've waived his team and our aviation Oh.
How good do reporting company and Carson, but that's really the only in quotation marks new subsidiary that's being managed directly by my head office team. So we have capacity and it's a matter of finding things that we love that we can buy at a price that we are prepared to pay.
Okay. That's fair that's it from me, Thank you and congrats on the quarter.
Thank you very much.
Thank you next question will be from Tim James T. D Securities. Please go ahead.
Good morning, Tim.
Mike Thanks, very much for the time I have two quick questions well actually one probably one may not be exploring.
Just wonder if you can.
Remind us of the assets involved and the potential our Malaysian contract.
I'll, let Tom ill handle that one sure. So we did it with a Q4 hundreds.
The dash eight 400 models or their new aircraft. We're partnered with the have lend exclusively on that bid.
So there it's for two aircraft is what the current program its performance potential of more <unk>.
Many years down the road.
Okay, great. Thank you and then I just want to return to question and Glenn It a little bit differently. If I think about the revenue coming out of quest Toronto before the.
Before the Dallas expansion was contemplated and then you add in the Dallas and the capacity.
She was significantly greater than Toronto.
The capacity of the revenue potential from my facility and I'm, putting aside the additional sort of incremental acquisitions you've made since then.
When can we think about that.
Full revenue potential hitting its stride, but assuming lets assume for a minute in terms of the pandemic. The world kind of goes back to pretty much normal in starting in 2022 is your backlog and your kind of line of sight, you're eating the way those those facilities are operating now I mean, do you think you've kind of hit that return.
Turn to Toronto to to sort of pre pandemic levels and get Dallas more or less up to it.
Capacity by 2023 or is it potentially take more time tomorrow.
I think in 2023, you'll see growth I'm not sure that Youll see Dallas with capacity that has the ability to be more than double the size of Toronto by itself. So building that level of order book and will take time.
But that is the pandemic reduced the number of people that we've got in the Toronto facility. So we've effectively tapped the Toronto facility at a lower number for the time being to make it a safe workplace and until the government get a better analog a pandemic I don't see that changing.
What are the other things with Toronto as well that I mentioned is in the medium term. We've got two leases that come up there. It's highly likely we would combine that into a single geographic space.
Prove the efficiency of that so.
We haven't made those decisions yet, but the my point being that we've.
We've got tons of capacity to deploy there'll be a return to growth for sure in.
In the back half of next year and through 2023.
But we could effectively do triple the business that we did out of the Toronto applause.
By adding the <unk>.
The Dallas plant to it because it was affect more than double the capability in terms of size of of Toronto. So in terms of running into a ceiling. We've got a ways to go on that in terms of seeing the growth in our financial statements second half of next year, and then really evident in 2023.
Yeah.
Okay, that's great thanks very much.
Thank you.
At this time I would like to turn the call back over to Mr. Pyle.
Well it was a long call, but there's lots to talk about I want to thank you all for joining US today, we're really excited about where we are and what we've accomplished and I look forward to speaking to you again in November when hopefully we'll be able to provide you some concrete guidance for 2022 and a return to normal.
Thanks, and have a great day stay safe people.
Thank you, Sir ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending and at this time, we do ask that you. Please disconnect your lines.
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