Q1 2022 Exchange Income Corp Earnings Call

Speaker 1: Ebitda of between 410 and 43 million for fiscal 2, 20 to two thousand and 20 2, and for fiscal two thousand and 20, three adjusted EBITDA between five hundred and five hundred and thirty million.

Speaker 1: Finally based on the strength of the results, the acquisitions and our balance sheet, we are able to announce an increase in our dividend to 2, 20 cent a month, or two hundred and forty perad. This is a 15 dividend increase in our history and the first since the onset of cooda.

Speaker 1: darrell will detail our financial results in a moment, but I'd like to hear them some of the highlights.

Speaker 1: The first quarter is always the weakest seasonally free IC as winter roads compete with our norly aviation business and cold weather limits outside work for West tower and SFI in certain markets.

Speaker 1: With this backdrop in mind, our revenue, our record revenue of $4 million- is particularly impressive, as it marks the highest quarterly level we have ever achieved, as improvement of 33% over last year. Adjusted EBITDA increased 4% to 67 million and all-time best for the seasonally slower first quarter. The decline in government assistance year-over-year MKS the magnitude of the improvement in adjusted EBITDA. If all government assistance is eliminated from the current and the preceding year, the improvement increases to 28%.

Speaker 1: Free cash flow, less maintenance. Capital expenditures is essentially unchanged at nineteen million.

Speaker 1: Adjusted down, earnings were 20 cents of share and that earnings were 10 cents of share, down from 30 and 20 cents were respectively.

Speaker 1: Finally the trailing 12 month free cash flow as maintenance capital expenditures. pyout ratio improved slightly from twoto cent 59% from 62%.

Speaker 1: Operations in the first quarter were very much a microcausesm of the pandemic as a whole: rapid changes, deceleration and acceleration of business activity. We entered the quarter in the grips of the overcrrot variant, which had a very significant impact on our passenger and aircraft leasing business.

Speaker 1: Improvements in volume that we had experienced in the fall of last year rapidly reversed themselves and we experienced reductions not seen since from the start of a pandemic.

Speaker 1: Our omcross was particularly challenging for our passenger operations as, unlike previous waves, which did not reach most Northern communities in a significant way, in some very heart, with infection in some communities, reach 50% of community members.

Speaker 1: The ramp-up of business in 2021 foreshadowed a significant shortage of experienced pilots and AMES as the business returned to normal. With this in mind, we chose not to reduce personnel through this wave, as we were concerned about our ability to find qualified people when the pandemic w end.

Speaker 1: While this ear margins in the short term, it allowed us to ramp up quickly later in the quarter when an overcrme declined as quickly as it started. By the end of the quarter our volumes were approaching three quarters of normal and have now reached approximately 90% of normal and most markets.

Speaker 1: Except for Northwestern Ontario, where citizens are still very concerned about the risk of trial.

Speaker 1: Fuel prices and skyrocket in the last six months, and while we have the market position to be able to pass these on, either through fuel price surcharges or through fuel escalation clauses in our contracts, there is a lag between when we experience cost increases and when we realize the price increase.

Speaker 1: This is particularly true with most contracts where fuel adjustments are based on the average price of fuel in the previous quarter. As suchic can take a couple of quarates or prices to fully refat the new fuel pricing.

Speaker 1: While this temporary temporarily hurts margins in times of rapid increases, it works the opposite way in times of price declines, where we benefit from the higher price for a short period of time. In short, while fuel costs are borne by our customers, there is a lag in our realizing price increase.

Speaker 1: Even with these challenges, our aerospace and aviation business was able to prove its results. Over 2021 adjusted EBITDA grese by 19% to the first quarter, from the first quarter a year ago and when government subsidies removed from both period EBIT, adjusted EBITDA increased by 4% to 6%.

Speaker 1: Our manufacturing entthese all experienced the impact of supply shortages and inflationary pressures.

Speaker 1: With the exception of our window businessour manufacturer, has been able to manage these challenges and still de deliver all results that exceed the previous year.

Speaker 1: The questest however, was sented multiple ways.

Speaker 2: Its contracts are signed 12 to 24 months in advance of production and historically have not included price escalator costs. As such, the rapid inflation has a particularly strong impact on our margins.

Speaker 2: This was exacerbated by projects which are been delayed or, in some cases, cancelled because of COVID-19. The order cycle is such that gaps and production created by projects which are materily delayed are virtually impossible to fill. This has created significant inefficiencies in both of our plants and is expected to continue for most of this year.

Speaker 2: On the bright side however, questhas continuing to see strong demand for its product and has begun to convert opportunities into orders. Our order book grew significantly during the first quarter and our efforts to expand to do geographies bear began to bear fruit with our first orders in Nashville and Philadelphia.

Speaker 2: We are very excited aboutququest's futureour acquisition team has been proven to be very adappt at adopting our acquisition process to deal with changes in the Ma landscape during the pandemic.

Speaker 2: During the lockdown, when travel was difficult, we focused on smaller tuck-ade deals which are well known to our existing subsidiaries. As the world is reopened, So as the dal universe.

Speaker 2: This is very evident with the announcement of the Northern BT acquisition, the largest in our 20 -year history.

Speaker 2: Northern not provides temporary access solutions through the use of tempper addting and bridges to revote projects across Canada. Where the projects are complete, the accesses are removed, Lea very little, if any, environmental footprint.

Speaker 2: These solutions are becoming best practiced, eliminating grl roads and colers, which are not easily removed, and creating environmental hangoverers.

Speaker 2: The long term for this product. Demand for this product is expected to grow as Canada catches up to other parts of the world where they are already recognizeding the appropriate means to provide short-term access.

Speaker 2: Management is always a big part of our due diligence and Northern Matt as a team that is in aligned with the very best way I've ever seen. The team is deep, with decades of industry experience and an average tenure with the company of approximately 12 years. Led by Garret Francis, they have grown the business to an industry leader in Canada, with operations from coast to Coast.

Speaker 2: They are very well equipped to lead the company on the next stage of its growth under EIC ownership. The entire senior team are currently shareholders of Northern Ma and we'will be taking significant EIC ownership as part of the transaction.

Speaker 2: The transaction has been priced off of Northern M's historical performance and is very accretive. dicgiven that EIC has been dealing with the pandemmic over the last two years, it is somewhat misleading to describe the accretive nature of the ideals by comparing it to fiscal 2020 or fiscal 2021 , which were not normal run rate for our business.

Speaker 2: Accordingly, we have made our comparison to the 2019 share results as it was, in quotation marks, the last year of normal operations.

Speaker 2: We also completed the calculation utilizing a standard EIC balance sheet. In terms of leverage on a deal of this size, the accretive nature is highly dependent on the assumed after the financing and we have leverageed. We have leverage levels that we have maintained for 20 years of operation, So we have used that calculation of this balance sheet. In short, our calculation is considered to be conservative and is based on Northern historic performance and not its current higher trajectory.

Speaker 2: And we have utilized the IC standard level of leverage, not the actual funding of this transaction, and we have compar the EIC's strongest historical period.

Speaker 1: With this in mind, this methodology results in double dgeent percent in accretion on a per sha basis, for both adjusted net earnings and free cash flow. Less maintenance capital expenditures.

Speaker 1: Northern Mas business is similar to our aviation business: is larger profile and capital intensity. The maths that are rented to the customers of a finite life and, as such, require regular replacement.

Speaker 1: Given our focus on our ability to sustain and grow our dividend, we spent a significant amount of our diligence looking at the free cash flow the company has generated in the past and what we expect it to generated in the future after this reinvestment is funded, and we are confident that it will meet or exceed our 15% return requirement.

Speaker 1: whe that build the vast majority of its mad inventory, whether they are held for resale or added into the rental inventory at its two manufacturing facilities located in Prince George and creste.d BC. These choice up.

Speaker 2: These places were chosen because of their proximity to the longer supply.

Speaker 1: The vertical integration of having their own manufacturing capability results in a lower cost of product and the ability to quickly adopt production with demand warrants.

Speaker 2: Customer diversification is a key part of the Northern bad store. A decade ago, the company's operations were almost entirely Western base, with raply used, focused on oil and gas development.

Speaker 1: Before the ensuing deathcade. They expanded Coast to-coast and greatly expanded the reach of the product into multiple industries.

Speaker 2: That mounting was initially simply a cost effect of being of providing temporary access in wet areas.

Speaker 1: Over this period has become seen as the environmental best practice to allow access and preventing cost contamination of ecosystems and quick, cost effective removal of the access rose completion of the project. This has been very evident as the electrical, the transmission of distribution customers have grown dramatically over recent years and some utilities have made baddting their only approved, approved temporary access solution. I want to take a moment to emphasize the acquisition of Northern map marks a unique moment for IC's ESG strategy. We have always been focused on environmental matters but have been frustrated by the lack of options to meaningfully reduce our carbon footprint in our aviation business.

Speaker 1: While there are small steps we can take to make incremental improvement, which is such as the development Al more efficient propeller systems and examining sustainable fuel opportunities, the simple thought is that there's currently no alternative to the propulation systems. Use the power aircrrop.

Speaker 1: We are very excited about electric or hydrogen alternatives, but these are years, if not a decade, from being commercially vi.ablewe provide an essential servic to remote communities and, as such, we need to continue with the current technology until a more environmentally sensitive one is available.

Speaker 1: There is however, much more to the environmental part of eigesg than carbon footprint, and we have decided to focus on improving environmental sustainability.

Speaker 1: By in addition to our two existing segments, investing in companies whose business model is based on helping others reduce their environmental footprint.

Speaker 1: To be very, very clear, this is no way signals any change for our existing investment criteria of having a proven market niche with established management and the sustainable, accretive free cash flow. Northern bad is a perfect example of the company that is very attractive target from a financial point of view while also providing strong environmental credentialswe also announced the acquisition of advanced paramedic limited, located in peace River Alberta, for $15 million. Apl provides medical personnel to ground air Ambulance services for the federal provincial, first Nations governments, together with other industrial customers. Ap is a leader in Northern Alberta and is part of our plan to expand the geographic coverage our matroac services that we announced with the acquisition of carsonair last summer.

Speaker 1: I will believe the outlook to carmel later in the call, but I do want to briefly touch on the rationale providing guidance and increasing our dividend at this point in time. As we have gone through the pandemic, we have seen our business as deal with shut downs and reopenings.

Speaker 2: traveable bands and comprehensive testing requirements and, of course, these external factors have affected our financial performance.

Speaker 1: We are however, very proud of the response of our management teams, which is not as enabled us not only to maintain our dividend but, most importantly, to invest in the future.

Speaker 2: It is precisely those investments which are driving our outlook from the future.

Speaker 2: We have seen our aviation business take big strides in returning to normal volumes.

Speaker 1: Due charter, long-term charter and ISR contracts have are are going into effect this summer. In our regional one business has seen very strong sales and modest improvements to its lease revenue.

Speaker 2: Request is seen its order books expand and increase the markets and services while the balance of our manufacturing segment continues to reform well in short our existing businesses while not quite there yet our approach in the $4 million post. Pandemic adjusted. evenbitda run rate that we have spoken of up previous calls.

Speaker 2: While this is combined with the, when this is combined- I'm sorry- with the new acquisitions and the strength of their operations. We are now per comfortable probining 2022 in 2023 guidance.

Speaker 1: With the full year of postcoit operations and a full year of contributions from our recent acquisition. We expect adjusted EBITDA growth of over 50% from our prepandemic levels to a range of 500 to 500 thirty million dollars in 2020. -three.

Speaker 1: This will drive both lower PA ratios and increased dividendswe committed to non increasing our dividend while we were receiving government support to maintain service into Northern locations. We believe that this support is no longer required and, given the strong growth we expect in the future, we can share this success with our shareholders through the first increase of our dividends of over two years.

Speaker 1: Thank you very much, and I'll now have the call off to darrell, who will take you through the financial resultsthank you Mike, and good morning everyone.

Speaker 3: As Mike's comment. As Mike's comment highlighted, it's been quite a busy, exciting and successful start to 2020 -two.

Speaker 3: Within a quarter that is historically one of the corporation's slower quarters due to seasonal impacts within the aviation and aerospace segment. It's exciting to acknowledge that we had all-time highs in revenue and a first quarter high and adjusted EBITDA, along with favorable improvements on our trailing 12 -month payoue ratios.

Speaker 3: That said, with all the strong activity related to growth, it's important to note that management remains diligently focused on maintaining a strong balance sheet and good access to liquidity to set up firm foundation to support growth and payments of dividends.

Speaker 3: I'll begin by commenting on our balance sheet and liquidity before moving on to specific results for the quarter.

Speaker 3: Q1 2022 ended with the corporation's credit facility at approximately one point three billion with the ability to access, and another three million in an acordum feutature should be choose to exercise it, giving the corporation combined access of up to one point six billion. However, subsant to the quarter has announced a may tenth.

Speaker 3: With strong and continued support from our entire lending syndicates, the corporation favorably enhanced the credit facility by increasing it to approximately one point seven five billion, while maintaining the $3 million accordordium.

Speaker 3: This improved access to capital into the credit facility to just over two billionthe increase in size of the facility provides the corporation the support needs continue to continue to execute on our business model of opportunistic, accretive acquisitions and investments.

Speaker 3: Pricing and financial covenants that govern the credit facility remain unchanged.

Speaker 3: Along with the increase, the credit facility term was extended to make 2026, from August 2025. notably, the corporation has no debt maturities that come due before June of 2025.

Speaker 3: Eic's long-term debt in the quarter net of cash, increased by 134 million since December thirty-first 2021. it is important to note that the increase is largely attributable to the convertible debenture transactions that crossed over periods.

Speaker 3: The December 30 first 2021, long-term debt net of cash was temporarily lower as funds raised from the convertible debenture offering in December 2021 re used to repay the credit facility until being deployed in the first quarter of 2022 to redeem these debentures. Adjusting for the convertible debenture transaction, the increase in long-term debt was lower than trailing 12 -year historical average increase in a Q1 period of 40 millionour current leverage ratio for the quarter and is two point 4: one X, which is well below our current credit facility covenant requirement of four X and within the corporation' senior debt ttech quity range of one and a half to two and half xfurther on our balance sheet, we ended the period with networking capital of 300 or 40 eight million, which represents a current ratio of one point eight nine. This compares to working capital of two hundred twent five million in acurrent ratio of one point 4, seven at the end of 2020 . As they turn to revenue and adjusted EBITDA, I will focus on highlighting key AR over repquarter changes.

Speaker 3: A detailed analysis of both can be found in the quarter's mbdna released on May tenthin. Q1 2022 EIC's revenue hhad an all-time four million, which is an increase of 99 million or 33% from Q1 last year. The aerospace segment revenue increased by 98 million, while the manufacturing segment revenues increased by one

Speaker 3: Aerospace and Aviation segment revenue revenue was up 54% to 282 million with no prior year comparative. The acquisitions of curenairor and ctti acquired on July fifth, two twent- one to December sixteenth, 2021 respectively, positively contributed to the revenue in the current period.

Speaker 3: In addition, the increase was further supported by improved demand for passenger services as a result of reduced travel restrictions, increased charter activity and continued strong demand for the corporation's cargo operations.

Speaker 3: Revenue that regional one were stronger and up considerably- one hundred and ten percent- over the prior period. The increase was driven by a significant increase in sales and service revenue, which increased by one hundred and thirty-four percent, and higher lease revenue, which increased by 20% compared to the prior period.

Speaker 3: The return of air travel in certain jurisdictions, most notably in the United States, has being positive and continues to pick up, driving the increased sales and service revenues.

Speaker 3: The manufacturing segment, revenue increased by one million of our 1% over the prior period to one hundred and nineteen million.

Speaker 3: Now on adjusted EBITDA. Consolidated: adjusted EBITDA came in the quarter at an all time first quarter high of 67 millionin up 4% or three million compared to the prior period. The increase was entirely attributable to the aerospace and Aviation segment, partially offset by a decrease in the manufacturing segment. Consolidated: the consolidated increase was achieved despite overall government funding in the first quarter of 2022 decreasing by two million compared to the prior perioddecrease in my 10 ins- sorry, minusing.

Speaker 3: When the government subsidies are excluded from both periods, adjusted EBITDA increased by 28%. Adjusted EBITDA in the aerospace and Aviation segment and Q1 2022 was 63 million, an increase at one million compared to the prior period.

Speaker 3: The corporation benefited from the addition of both carcenair and ctti in the current quarter results.

Speaker 3: Regional One' strong increase in aircraft and engine sales and part sales over the prior period also positively benefited the current period.

Speaker 3: Offsetting results in the quarter were higher operating costs due to several factors, including fuel pricasing which, for EIT's contracted services, where price escalation clauses exist, laying at time to implement.

Speaker 3: In addition, the impact of the omacrome wave, which persisted coming into Q1 2022 and declined near the end of the quarter, also impacted costs within the quarter.

Speaker 3: Lastly, six million less in government support was received by the aerospace and Aviation segment in the first quarter of 2022 compared to the prior period, which negatively impacted adjusted EBITDA.

Speaker 3: In the manufacturing segment adjusted EBITDA was 11 million, a decrease of seven million compared to the prior period. Excluding the impact of decreased sues received, the manufacturing segment adjusted EBITDA decreased by only four million.

Speaker 3: Specifically at our request operations. What can be categorized is that pandemic hangover is working its way through the production scheduling.

Speaker 3: Normal course is for Quest projects to be booked more than a year in advance.

Speaker 3: In prior period, markets reacted to uncertainties from the pandemic by placing projects on hold or shifting them out, which created gaps in production scheduling and, in the shorter term, could not be filled. These, these gaps are working their way out and demand is good, as evidenced by the increase in the order book of 12% since the end of 2021 and the receipts of contracts into new new U's markets, as Mike mentioned.

Speaker 3: The balance of the segment collectively experienced and increased in adjusted EBITDA. Demand in the manufacturing segment continues to be strong and the corporation is actively looking at managing supply chains, labor challenges and added capacity to the segment to meet the demands of our customers, as illustrated with our tuck-in acquisitions of micab, telgon and Rico in the prior yearon this quarter's call, I would like to speak to adjusted EBITDA margins, which were reflected in the quarter's result as lower in Q1 2022 versus Q1 2021 on a consolidated basis by approximately 4%.

Speaker 3: Driving the change were a few notable difference.s: one being the inclusion of ctti in the quarter, as it generates lower margin than experienced that our other aerospace and Aviation segment subsidiaries, as the capital requirements for the business are minimable. Second would be the reduction in government subsidies in the current period.

Speaker 3: Adjusting for these subseies in boat period, consolidated adjusted EBITDA would have been essentially flat.

Speaker 3: Net earnings for the quarter were four million and adjusted net earnings were eight million, representing decreases of $3 million each over the period prior period.

Speaker 3: The decreases are results. I'm sorry. These decreases are the result of increases in two items: first be the depreciation of capital assets and the second being interest cost.

Speaker 3: Depreciation increase with investment in several new assets within the corporation's airlines, an increase in the number of assets available for release at regional one and depreciation on capital assets that were acquired as part of the acquisitions completed in the back half of 2021.

Speaker 3: The second would be interest costs, which increased by two million as a result of noncash accelerated interest accretion from the redemption of the December 2022 convertible debentures.

Speaker 3: Net earnings per share was 10 cents in the quarter, down from 20 cents in Q1 2021. adjusted net earnings per share was 20 cents in the quarter, down from three cents in Q1 2021.

Speaker 3: It should be noted that in the period-weighted average number, shares increased by 9%, which will partially offset, results on a per share basis in net earnings, adjusted net earnings and free cash flow.

Speaker 3: In Q1. twent thousand and 22. free cash flow increased by 14% over the comparative period of 47 million or a dollar 22 per share. These results are driven by the increase in adjusted EBITDA and a decrease in current taxes.

Speaker 3: Free cash flow, less maintenance capital expenditures and adjusted net earnings payout ratios on a 12 month trailing basis are strong indicators that the corporation utilizes to asess its ability to actively manage cash flows and its ability to pay and increased dividends. Trailing 12 month free cash flow, less maintenance capital expenditures. Payout ratio would improved to 59% at March three first 2022 from 62% in the comparative period. The 12 -month adjusted net earnings payout ratio improved to 105% at March 30 first 2022 from 145% in the comparative period.

Speaker 3: That concludes my review of our financial results. I'll now turn the call over to carminl.

Speaker 4: Thank you, darl. For the last several quarters, my comments have been focused on discussing the outlook for each of our lines of business. They Mar chang to that approach as we are resuming providing guidance for EIC. First, the comment on why we are resuming guidance. The last two years have been filled with incredible uncertainty, starting with a complete unknown of what COVID-19 would bring to the development vaccines, to vaccine shortages, to new variance, community shutdowns to overburden medical system and supply chain issues.

Speaker 4: This created a volatility of demand, in particular for our aviation businesses and regional 1, which made it impossible to provide guidance with any confidence. But times are changing.

Speaker 4: Although we do continue to expect supply chain issues, commodity price increases, rising fuield, constant labor challenges to balonds of 2022 and into 2023. our businesses are managing through these issues and returning to a new norm. For instance, our passenger businesses is returning to historical levels and we expect by the end of Q2 our airlines will be fully recovered, other than in Northwest Ontario, which is experienced a ag recovery drillout, the pandemic.

Speaker 4: Given the recovery at our airlines, we do not expect any further government subsidiesrecentable. one is experienced material year-over-year growth, although lease revenues will likely not resume to prepandemic levels till later in the yearnew aviation and aerospace contracts- one in recent periods, like the Netherland contract, have begun or about to begin. Over the balance of the year, demand at Quest has accelerated and we have seen a 12% increase in our order book since the end of 2021 and have one contracts in new and two completely new markets. The acquisitions we made last year have performed as expected and the recent purchases of advanced paramedics and norurther Matt have grown our portfolio and will make solid contributions in future periods.

Speaker 4: A vast paramedics, is our largest Ambulance provider in Alberta and further extend the IC's leading medavac presence across Canada. As you have heard this morning, Northern Ma is our largest acquisition today and will result in double-digit accretion to our adjusted net earnings, calculated on historic historical results.

Speaker 4: Not only does this provide us with confidence for our adjusted EBITDA estimates for 2022, but its future performance is priimed for further growth and proves a solid foundation for adjusted EBITDA estimates for 2000 and twenty-threeas. There is a global momentum towards corporate environmental stewardship. Northern matap's access solutions are poised to take advantage of increasing demand for its products.

Speaker 4: The use of access map is already best practiced and the West energy evolving in that same direction. In the East, environmental regulatory requirements in permitting conditions are increasing.

Speaker 4: Northern Matt is the largest and the best-in-class provider of matting solutions in Canada, and assesuch is well positioned to meet growing customer demand. Demand for its product is also supported by long linear contracts such as electrical transmission lines or pipelinesso. As you can see, our future is bright and much more predictable. Is against this backdrop that we are now prepared to provide the following guidance: we expect adjusted EBITDA to be between 400 and can and 400 and thirty million for 2022 and between 50.53 billion for 2020. -three.

Speaker 4: This guidance includes the benefit of the growth CapEx commitments we have disclosed previously, being the final portion of the investment for the Netherland surveillance aircraft and investments in connection with the upgrade of the surveillance aircraft for the renewed curissol contract awarded in December of 2021 and the completion of the new hangar required to meet obligations under our fixed wing search and Rescue contract. All additional growth investments and any further acquisitions would serve to increasees guidance and, as we have done in the past, will look to seize opportunities to continue to provide our shareholders with accretive growth.

Speaker 4: Our shareholders have STO buy throughout the pandemic as we have maneuverred through its various and constant challenges. We are very proud that throughout this period, we were able to manage our businesses So as to sustain our dividend- perhaps the only company with significant exposure to aviation to do so today. We are equally as proud that our approach of managing for today and investing in tomorrow, even during the pandemic, and staying TR to our business model, has set us up for growth in 2022, 2023 and beyond. This provides us with the ability and confidence to increase our monthly dividends, for the fifteenth time in our history, by 5% to 2: 20 cents from unfor, an annualized rate of $2 in fourty percent.

Speaker 4: They say, actions speak louder than words, and we believe our actions say a lot about our futurethank you for your time this morning, and we would now like to open the call for questions operts.

Speaker 5: Thank you. We will now be conducting the question-and-answer session. If you do have a question, please press the Star key followed by the one on your touchone phone. You will then hear a three tone prompt acknowledging your request, and your questions will be pulled in the order that they are received.

Speaker 6: Please ensure you listft the handsset before you're pressing any keys. one moment Please, for your first question.

Speaker 6: Your first question comes from Steve Hanson, from Raymond James, Please go ahead.

Speaker 7: Yes I just want to get pdering congrat on this Northern mat deal. It looks exciting on the surface. mighti can you maybe give us a sense for the valuation paid and how you arrived at the purchase price here, just trying to get a sense for to different evaluation cycles that might exist and what the opportunity is like where the asset came from C.

Speaker 8: Yes it's. We had the opportunity to look at Northern not when the vendors considered selling it a couple of years ago. Transaction was completed that time. When the opportunity to look at it again very recently, we were excited of what the progress that had been made, particularly in diversifying the company's customer base and the industries it served, and so we took a look. Because it's a rental business, it has a very strong EBITDA margin that it generates, but it also has a significant capital acquirements to maintain those margins and buying thats. So we spent a lot of time looking at the free cash flow generated over the last number of years and we used that as our basis.

Speaker 1: wefor' coming up with a value and based on that we're comfortable with our 15% kind of free. Cash flow returns that we've talked about a numerous occasions. The exciting part about this is it meets our requirements historically but the company is growing and growing quite rapidly with opportunities with the long linear projects that Carl talked about. So we expect to do probably better than the historical numbers. But the accretion kind of discussions you've had during the call were all based on those historical numbers. So.

Speaker 1: Bring that all back. To answer your question, we value this off historical free cash flow. We're comfortable, at least in the medium short, medium term, that we're going to exceed that with the growth opportunities that we have on our plate. And it's a best in Class environmental sustainable business with the strong management team. So actually, one of my institutional shareholders call me last night and was trying go the business and he says Mike, if people Don like environmental, that are sorry. Nor they that they just don't like your business model and I'm going the. I had thought of it that way. But that's all really good explanation of the business. It's management, it's cash flow and it's in a segment we likethat's a good context. You know, when you acquire large platforms in the past.

Speaker 7: You've often seen pent-up growth opportunities, whether it's through additional emana or material capital investment. Like a Regal one I just caralls a littlebit text. You just may DR into the growth here a little bit more detail. Is this going to be an EOR driven thing, capital investment plan, and is it sector broadening, like in terms of further versification or how you get deper intothe businesses youre already in?

Speaker 1: Good question. I think what you'll see is, as utilility is, adoptmatting is the best environmental practice. Hydro one has done that. As an example, I suspect you'll see that in the hydroical bac in manitoi RO and the other.

Speaker 1: Electrical company. So when they're building or replacing transmission lines, that's going to create long term demand for us. I think you'll see investment in the business. Darren in this team are regularly looking at a pace we're building Mas out how fast we can need that, what we should do to take advantage of the opportunity in Canada and then maybe in the short to medium term we believe there's maybe opportunities to expand our business into the state. Northern maths always been build on provide in the best service offering there. There are other people who build MAS and and sell them a rent ent, but Northern Mas different and that we help you go build the access RO, we bring it in, we bring the bridges and then when you're done we'll P it up for you andwell an the maths and put them away. And so it's that integrated service model we think will' ultimately service us well in other geographies that we're not in todayin Canada. I would suspect that it's more of an organic growth kind of model if we're to enter the? U us.

Speaker 1: I think there's a reasonable chance we would do that with at least national based or acquisition right for now Marcus, least our, our initial focus. Thanks youthank you, and your next question comes from Cameron derekson. From national thing financial, Please go aheadmorning job morning everyone. So I want to follow up on on Steve's questions on on the Northern acquisition. Obviously you you mentioned that this is a more diversified business today than the. Maybe when you looked at it a few years ago could can may be just discuss how you kind of view the cyclicality that this business. Obviously there's there's some long term demand here from from the change and I guess the way company is looking to to build out temporary access. But just what's sort of the his, the cyclicality that you would sort think about in this business of one of the key drivers from an market perspective?

Speaker 1: It's a really good question in the business is quite different than it would have been cany five years ago. The business is history- were driven by oil and gas development and so new well drilling very much drove the demand for the product. With the pro prolong, difficult period that the oil business has been in up until recently, the company saw the need to diversify its offerings and moved into the pipeline business and then ultimately into forestry and into the electrical transmission business, and so the fact that there multiple segments greatly reduces the cyclicality in the business. There's certainly a chunkiness in the business when you get a, a big project like a pipeline- the Trans te pipeline as an example. That's a big customer. It's going to provide strong demand for the next couple of years. Those things help and those projects aren't all the time. So there is some lumpiness in the business.

Speaker 2: But it isn't so much cyclical that than with the economy is good, this is good, or vice versa. It's more when or grou projects on the government side, whether they be pipelines, transmission lines, those kinds of things help, and then when we bought the company, or so we'were doing, are thinking about the company.

Speaker 1: We hasn't put a lot of emphasis on a reseg in the oil market. But with the unfortunate occurrence as in Eastern Europe and the kind of realization that energy self sufficiency matters, we see a balounce back in that business, which isn't it all reflected in their operations yet. But, as as you gas business bances back, these guys do a great job of limiting the environmental footprint in that drilling and so we see that growing as well in the de term and, as we seen, very mental regulatory requirements increase. I think you're going to see previously would have been optional for kind of longer term projects to use matting or earn instead of daveble. It's going to become mandatory, So that's going to help, I think, what the engine flow as well.

Speaker 9: Okay and actually on that I mean I was MO. My other question was kind of on the sustainable angle. A sustainability angle here I mean I guess the industry, why I mean what percentage of these types of construction projects are using matth today versus say, building a grabl road? I just kind of want to get a sense of you know if there is an environmental push here. You know how much of run way is there for for the business to kind of continue to grow. Just do gu gaining market share for more traditional temporary access construction.

Speaker 10: Well I'm not sureing the percentage that I be comfortable quoting, but I think I I can give you a qualitative discussion of that. If we went back five years ago, the company was essentially 100% driven by Western Canadian operations. The expansion of the Eastern Canada is now what half the business, and that's largely driven by a couple of projects with hydro one and a little bit of pipeline work. The opportunity to do what's being done for hydro 1, back or vent one are those kinds of places as these started. So we're kind at the infancy of expanding this. You know the B, C. as an example with forestrery the government now changes royaltity rates to subsidize the use of that temporary access roads because they're better to the environment. So instead of building the road that the forestrery people would historically have built there, now a government cent of to both the environmental best practice. So well, I don't have a percentage number.

Speaker 1: The way I've described is to use a baseball anallogy and we're in the early innings of the environmental game. Nor their math, not in the early innings of their business. They've been around a long time and they understand this well and one of the great advantages for us is it comes with such a deep, talented management team. But in terms of the ability to expand this INT non traditional matting areas, we think we're just at the beginningok. No that's, that's great. To the great color I'll pass a lot. Thank very much. Thanks go.

Speaker 5: Thank youand your net questionressing comes from it, Chris marury, from ATB capital markets. Please go ahead. Yes, thanks for mor morning. If wouldn't just go back to it, maybe the financial performance of of Northern Matt. So just into thinking about how this changes the numbers. So I guess you alluded to the fact. Fairly high EBITDA margin. You made the comment about a 15% free cash return. Can we just walk through how we think about these businesses, because historically they've been very, very capital intensive. If you can just kind of maybe give us an idea, are they purchasing all the materials is our factory or facility or is that an opportunity on the road where you guys could maybe working just to make versus BU decisions?

Speaker 10: Okay well let's start with that one first. Historically they view the combination of third-party Mas in their own. Currently we make virtually all of our own Mas I think that's the future of the business. There are certain specialty kind of Mas that make up rigging MAS and that make up a small portion of our business which we do get for our outsource. But the vast majority will come from me to crest and or Prince George and that ability to ramp up and grab down and.

Speaker 1: Frankly our relationships with the forestry companies in times of typ apply serve us well to be able to access to the underlying raw materials to be able to build a bus build the math for the financial point of view that you're bang on its capital intensive I mean you're taking a math that's going to have a lifetime of three to six years depending on how it's used or what it's used for so you're constantly reinvesting in your math pool and so when we did our analysis of this we're reallyanticipating that depreciation is fully utilized to maintain your math and as you grow real invest more in that product and so thecorresponding even to margins are quite high equivalent or even higher than our aviation business. And when you Sur surprack off that maintenance CapEx you've got the purchase price. So we've talked about free cash flow the less maintenance being above our 15% return So.

Speaker 11: You can work back to a free cash flow number and thenhistorically depreciation of the business is a $2 million range, So you can work back to where the business has generated historically. That will vary period to period however, depending on whether it's pure rental revenue or how many Mats we sell in that period will'll also build new Mas for large projects where the developer wants to own their own and so we do that as well. That would be obviously probably a lower margins at our rental business is at.

Speaker 2: Okay that's helpful just thinking about integration with these folks. So is there any sort of thoughts around integration? I don't really see a lot of synergies within any other groups, but maybe I'm missing something here. So is it just a sort of it's integration and standalone at this point?

Speaker 1: Largely yes. There is a couple of very interesting opportunities between Northern B and our West tower business. Go have huge fleets of pickup trucks and so integrating our purchase and management of those, much like we've done with Ed ent overhaalls in our aviation business, is something we're looking to and quite frankly, they both need geographic yards across candidaates So the ability to use them for both, I think, will enable easier expansion for both businesses. But generally speaking, this business has different drivers than the rest of our manufacturing businesses, So I think the synergies are relatively limited to the. The stuff they can do with West tower come kind of purchas relation. They're very, very strong with the first Nations's relationships. They have several joint ventures and a pretty much every province. one of the provms is where they, I think, only have one joint ventures, actually not a coback.

Speaker 12: You're Chris, we obviously have lotsof Relations with our first Nations's customers, So we see some synergy potentials there as well as perhaps to go back to- because we've developed of relationships thereright- could maybe just changing over to some of the parts of the aviation business. I guess a couple of things. 1, some of your government contracts, particular fixed food, search and Rescue. I know you mentioned that you're working on some facilities and stuff like that, but it does look that there's a pretty big delay in that contracts. That is wondering what, if any, impact that might have on folks. And then maybe you Ve just any me color around regional. one and how you're seeing that business coming back and know it's. You know it's been pre volatile, but just any color on how that's ticking up and how you see it moving through the year would be helpful.so Chris, let's talk first both trade swing, search and Rescue. Yes, as you've seen in the past, there're looking at delays, kind of force to, for to five years.

Speaker 12: Long story sure it's not going to impact us. We get. We have a fixed price contract. We get paid on a capability not kind of a unit cost. Now what you might see is our revenues go down a little bit. But our margins are going to absolutely be retained. Perhaps lately up. So we also see that is a potential opportunity at given there's a delay that perhaps in the future we may be able to provide additional capacity for the program to help them speed up their time frames reasonable one we've seen very strong parts sales. Part sales are back to prepandemic levels and very very strong kind of acxisition and sales of large aircraft and engines. So that's been kind of your R one typical kind of opportunistic buying and selling. So they've excelled at that in the the last several quarters. I think we've chatted about those large sales. We still see that probably likely for a couple more quarters lease income. That's slower you recover because what's gone on in.

Speaker 12: More of our lines when it comes to leing on Europe , and Europe has been kind of slower to restart with respect to kind of the aviation industry as a whole, but we expect that to open by the end of the year. Be back to where it is. On leasing, though focus previously was on kind of leasing a whole aircraft, I think you're going to see us in ineffact. We started more engine leasing as airlines struggle to get engines or get into overhaul shops to get their engines overhaul. Leasing or buying engines is certainly on alternat that they're looking for. It's economic. It's much of a short, shorter term fix. Ok well, just just to confirm, you guys, some rushing exposure or you creating exposure with your aircraft, fets at this. We do not. Ok thanks folks, I'll turn the line.

Speaker 5: Thank you, and your next question comes from a jate mcurical: some RBC Capital Markets, Please go aheadgoodmorningi might BR congressed to the himon acquisition of Northern mattthank you for're some more really excited about.

Speaker 13: Under the other. The growth pipeline- not looking ahead, I know- is just announced a very large deal But given the, the guidance you know your leverage is going to come down very quickly to go within your targeted range, a period of time that you need to wait in. Oversee the integration on Northern Matt agrees the other deal of size when the opportunity presentents itself and you know whether that through a large organic investment or potentially on another acquisition and you talk about in general what the pipeline for organic investment and E MAN a is looking like right upyeah. The advantage we have on a deal like norther Matt is it's coming with a fully integrated management team. There's very little we need to do it quite frankly. There's very little we could do to improve this business. A lot of access to capital work with the Mon, strategic planning and and with our other businesses. But quite frankly, darin and scod of the team there are.

Speaker 1: Are going to be the foks to drive the business like to have in the past. So the addition of this, while it's going to make richch and the guys in accounting have that up more beans it's I, going to change our business fundamentally in terms of our capabilities. So we are still very active looking. The pipeline is is remarkably strong. There's more- I'm not sure whether there's more deals that we're looking at, but there's more deals that we like then at any time I could really remember. And so, while clearly there's nothing at the finish line- because we've been going hard, for us to close two deals, especially one of these of this size, that takes a lot of our capabilities, but there's lots of opportunity in the pipeline. So I think it's reasonable to expect that we'll continue to transact what we find the right opportunities in. We're seeing a lot of interesting things in terms of organic investment.

Speaker 1: We bought a fair number of aircraft over the last few quarters to grow our operating airlines, particularly on the charter side, whether it's in Labrador for pwell or with some gold mining opportunities both at nonavit and in Northwestern Ontario for other airlines.

Speaker 1: So we've made investments into those aircraft already. I think where you may see more investment, quite frankly, as an regional 1, there's a number of deposits on our balance sheet for things- front cracks we're working on and where we've got a chance to buy something at the right place and redeploy them, we were going to jump all over that. Again, it's basically based on opportunism. We've got.

Speaker 1: The credit facilities and I got to say there's a lot of people who complaint about banking. Have up we just don't get it, we our banks and to get let up kind of national C I B C, T V. I treated us's unbelievably well. We with in and asked for it increased to our facility, resulting for this deal with added all the possibility dollars to our access. We're in less than three weeks and so we're. We're well serviced, were're well capitalized and we're ready with the opportunity. Said we're going to take AI apprecisay that color. And turning to Quest, I know a contemplation had in a big headwind in recent quarters that, given the longer term nature of some, some of those, those contracts- but you talk about those through new agreements that you had announced that Quest, and whether any push back from customers on some of the higher pricing that you were passing through.

Speaker 14: Are your margin with the new cost inflation, where you're able to pass that all through to protect the margins versus what they were pretypandemic and you do potentially see those pricing increases affecting your ability to grow a Quest going forward and after that all PA turn over the line. thankyou, OK. As it relates to Quest, I think the industry went through a bit of a restaurantck where some of the changes and prices of a little bit of concrete and all the things that go into building high-rise apartments, but it hasn't changed demand at this point we're still seeing strong bidding for new projects and we're not the only one facing this inflation, So it's part of the whole construction process. We've been able to get appropriate pricing on the new projects. We don't see any sign this stage that the inflation is stopping the development process. I mean, at some point things get to expen them. But now have to understand that the housing that's being built, that Quest involved is typically high-rise housing, which is the lowest cost.

Speaker 1: If people are going to be an urban in the certain urban center. So it's not like there's a lower cost alternative for people the move to. So we remain pretty bullish on the environment for that business and, while you could have ups and downs in various markets, the fact that we're only participants in limited markets, we do a lot of stuff in Toronto, a little bit on the Eastern seaboard and then a little bit a fair bit down to Western Seaboard in the U's there's whole swaths of the company, whether it be Dallas or Houston or I used to say Nashville But I CAn't get anyor. We're there now and we're in into Philadelphia. There's campa, there's my end. There's a lot of places we're off and so beyond just the scope of the, the growth of the business, there's geographic growth where we're going to cover. So we see Quest is as one of ourstars in terms of future growth as we come out of COVID-19 and get rid of, as carvel put of that, think the darryll put at the COVID-19 hangle.

Speaker 15: Northern thatt deal. Not sure if Adam is the leved or more stressed because the acquisition after to delivered the gu now anyway, question: what's inclu? Ed are not included in the 2023 guidance like, particularly when I look at you know Northern Matt growth plans here, new acquisition you may have in the pipeline and your kind of assumptions for a Quest in 2- 23. So when we look at that, if we start with Northern that, it's based on kind of the core model we bought the company off of. It doesn't include big growth capital expenditure. There may be some in terms of bumping up the size of the maass, the that fleet, but not a material reinvestment there. So it's not about. It does not include any M a or rather additions to Northern thatad. It's nor thatad as it is today.

Speaker 1: In terms of what was your other with in terms of Quest, maybe we also car il sure. In terms of Quest, what we have included is we'll call a partial recovery. We don't expect Quest before recover untill 2024. So it's not, and fully to where we think it's capable of of going, and 2023. there'll be some further curls in 2020. fourthat kind doesn't it does? Forecasts includde no further Ma. So it's basically only this stuff we own or we've announced. So it includes things like our netherone's contract, it includes the ramp up of the curisalle contract, it includes what we expect to be doing under the fixed link search and Rescue contract. It includes our goal line contracts for the aircraft charter business, but nothing.

Speaker 10: In addition to what we already have.that makes sense se, and then let's follow up, you know would be the strong EBITDA growth you are expecting over the next couple of years. Do you see the cash flow payout creatio potentially going not just kind of the historical levels but given the lower, lower than the historical records you have seen, which you know kind of creates maybe an opportunity to accelerate dividend growth? Now, how do you think about the dividend here?

Speaker 10: It's a really good question. I mean when you flow through. Well, if we, when we achieve the 500 plus the kind of target, it's definitely to make a material increase in the cash flow available to pay dividends. You But with us for walall corn, you'll remember before COVID-19 we had talked about a goal of getting to 50% on a free cash flow, less maintenance CapEx basis and 60% on a just an adjusted net earnings basis. I'm not going to tell you exactly when we expect to meet that yet, but that target will be MO VIE, math and. But the beauty of the growth in and the stuff we have in the pipeline now is that we can continue to grow our dividend. We're really proud of the 5% K AR we've had in it. We had to take a pause during COVID-19 for good reasons.

Speaker 10: We're back out of that now, and so we not only see a reduction in our payout ratio but continue growth in our dividend over that period. That's our core business model. That's who we are, and with the transactions we've completed today, we anticipate being able to continue to raise the dividend of the futurethey think the less remain. To put it over, I think in the M D na you mentioned, you have or you are acquiring more than 50 M the n? J hundred and 40 jets over the next LE quarters, any color. With respect to you know the purchase cost for those assets, as well as the plans and what you need to do with: do leasing or strip them out.

Speaker 10: It's a good question. I think that the mention of that was one of someone else in the industry decided to tell my secrets. But yes, we are buying a significant number of those embrys. Lot of move ment on the ground for a while So they're going to be part of candidate. Some of them will be flyers and will probably combine multiple aircraft. Did the single aircraft for for leasing opportunities. But much like when we bought a series embrys a few years ago where we got a big fleet of them and then liidated them through a comulbination of parting out and leasing, I think you'll see the same thing here. They are, on a per item basis, relatively in expensive, So it is not a huge investment.

Speaker 11: Ok that's faicked on the question, not competitive reasons. I want to tell you exactly what we pay for aircraft. But it's a good pricing saywe expect to do well on, and there's demanded significant because there's no 140 five's left in the market. So we think there's strong need for these aircrafps and many of the least and sold in the rest that tor down is might indicated, and then obviously the ones we care down. We take the engines and put those on the leasing pool.

Speaker 11: Gone the Thank you and your next question comes from the Matthew from can. Cord Please go ahead guys learn about a great quarter and they said having me on the call you sort of mentioned that Northern Matt is a somewhat project based does that kind of mean that his revenue scheme is relied on the construction of new projects or well. Maintenance work be done by its current clients being not to dve sustainable revenue. Yeah when they're working on pipelines and example maintenance requires matting as they what run. New projects and people are familiar when we talk about pipelines and things like big new projects like Trans oun. There's a lot of links and smaller projects big are do which also use the bting stuff and same was. It relates to transmission lines maintenance of replacement Canada the American North. The tele amst the old EST transmission lines that.

Speaker 10: Today if we found other opportunities we make sure we strengthen our balance sheet. What appropriate we need to do that at this point but depending on the opportunities in the future we would look at that we've had a very consistent track record of using modest leverage effectively and.

Speaker 10: We see no change to that here. It's a higher level language of this deal. Per same, when you add it to the pent-up EBITDA we have coming in 500 times doing a half is more than the amount of debt we will have standing. soall right, that's necesssay for me.

Speaker 16: Thank you, and your next question comes from at Tim James, from TV Securities. Please go ahead.

Speaker 17: one of the town things morning morning, the morning, everyone. Just back to the sixxed wen search and Rescue contract for a minute. Is that going to ramp up? Both in 23 and 24 there will be incremental year over year revenues there and then it starts to know mature a little bit, I guess. But the time we get 2025, is that the right way to think about thattim? Because of the delay, I think what you'll see is probably reues, being pretty much content to what you see. Ted ny margins may be going up slightly more than what we have seen historically is effectively like the basis are that we were supposed to stand up or now kind of pushed off a couple of years. So well, maintain the margins on those, but the revenues- I mean because we're not having to actually stand them up right now- will, I'll see, not be part of our financials but, as a said, will maintain the cash flow as it relates to kind of am P. I think you the ramp up actually pushed out.

Speaker 12: For a couple of years until the government's ready to accept and start operating these aircraftwe still are made all we're paid for the investments we've made. So and our agg M today at comes building, you'll see a beautiful new building, three quarters in a way up. It's being built specifically for this search of Rescue contract. The delway in the government's implementation in no way impacts the return of our capital, as we've invested in that. sowe look forward to the government ramping up because, quite frankly, we think we're going to be able to help with more things that are in our contract today, but we we patiently awake the arrival of the aircraft. Thank you. My second question is when, and you sort touched on this in various ways throughout the call, but I wonder if you can help reconcile the or walk us through the relativeant contribution of the incremental million Unity bit that you have.

Speaker 7: In your guidance in 2023 and mean M surecan it in the specifics, but maybe even just the you know the order of significance from the new acquisition being you know 12 months, or the two acquisitions being know what full 12 months in 2023 versus you know growth in other key aspects of the business is. To give us a sense for what, maybe in in order of the significance, or if you can provide a rough proportion of what the contributors are to that hundred million .increment, little bit done.

Speaker 10: Yes I can give you some qualitative help with that. And then there's I can point you directions of how, based on a couple of assumptions you can make on how to get that quantitatively. We had previously put out that we thought our run rate coming out of coed was about 400 millionthat.

Speaker 10: And we thought we wouldn't get to that. We might be added by the end of the year and that implies most of the recovery in Quest is in there, perhaps not all of it. And so if you start working off of a $400 post 400 million dollars post COVID-19 number, you've got the impact coming out of that of the full year of the contracts in the aerospace business we talked about, like the, the Netherlands, you've got the new cur alle contract and you've got the goal mine contracts in the aviation business. You put those on top of that, but then the big driver is a full 12 months.

Speaker 10: In 2023 of Northern MAX and of advanced paramedics. We've talked about a 15% return So you can easily work backwards off of the purchase price to get to a free cash flow number out on and depreciation number as an estimates for maintenance CapEx. And then you're going to see that a significant portion of that next one million is coming from a full 12 months of the acquisitions.

Speaker 10: Together with an improvement at Quest as it comes out of the production holes we have that are in our cycle, and then the balance of our aviation business returning.

Speaker 10: We're back to 90%, we're not back to 100 and the last 10% is highly profitable, obviously because their extra people on the same airplane. But we're or leasing in our 1, which I have exactly the leasing at regional one almost close directly to bottom line. So those, those are the the main drivers. The single biggest driver between 22 and 23 are is the 12 months of the acquisitions and 12 months of the new contracts.

Speaker 18: Together with the approve at a Quest's one other thing to add that: the $4 million run rate. We first mentioned it in our Q3 conference call, So we did complete a couple of acquisitions after that as well which we would, contributing to the the toumm to five hundred million.

Speaker 17: Right right OK OK, that's then. I just want to reconcile the common theory and again, maybe I'm missing something or my map is off here. There's a reference to the Q1 being the best quarter in Quest history and yet when we look back it at the manufacturing segment, overall Q1, the EBITDA was still, I think, roughly 40% below or 40% of over of the number in front of me, but significantly below it's previous peak. I'm just trying to get reried in my head how Quest can have and be such- just obviously it's a strong contributor to that segment- how its quarter can be a record and yet there's such a decline still from the previous peak in the segment overallbut broa of most misbookke during the think questass has had a challenge in quarter there, nowhere here.

Speaker 1: Their their level of performance from a year ago as an example. They got their order book has begin to grow again, but that's future orders that, that's not something. That that's the current. The current quarder. Their their, their returns would be at the RO end of history, not got the high end. I think LL be said in our M D a with that Q1, 2000 and twenty 1, what is I is Q1 ever So. That's the comparative that were we're matched up against for Q1 2022, 2000 and twenty one was Quest. That' Q1, not 2000 and twentredit two Yeah, that's my mistake. Exactly that's what I was looking at, not not interpreting that as 2000 and twenty one OK, that that's that helps. Thanks very much. The problemokay. The next question comes from christop reasonon from C I B, C. Please go ahead. Morning my question. Good morning things.

Speaker 6: Congrats on the quarter and thank you for all the color on the acquisition I'm just wondering if you can help us with how we should think about margins through the rest of the year and maybe on a segment basis especially in aviation as you start to kind of recoup. Some of those fuel costsi think you'll see margins strengthening for a few reasons in aviation one is you'll see the leasing business improve at regional one which flows to the bottom line and you'll see.

Speaker 10: Better passenger load, which would drive better returns. I think the offset is that the government subsidies go away, which we had last year, which were 100% margin. So if you look at it sequentially you'll see improvements quarter-over-quarter when you compare in the last yeari.

Speaker 1: I hesitate for people to use COVID-19 quarters from an EBITDA margin percentage point of view. They're misleading because we have subsidies that in.

Speaker 1: invin us to keep flying in areas where we wouldn't otherwise a flow been enable. The flow because we're losing money in those markets. So the subsidies make it look like the margin of percentage basis is stronger than it is the absolute dollars of relevant and you'll see continued growth. And that is I think you'll see sequential improvement, not only because the seasonality in Q2 and Q3 but because of the strength of lease portfolio performance, higher yields on our passage or business and just the seasonal improvement quarter of court you also do the leg of the fuel cost implementation being implemented going Ward. The challenge- what the fuel think to see a huge improvement in Q2 is just that it's continuing to go up. So we're catching up some of the improvement. The expense cost in Q1, the Q2 is continued to cllimb. So you'll take us basically one quarter after the cost plateau and haveven' really PL to yet the rate of increases declined.

Speaker 1: But fuel prices are still very, very high. So we'll see improvement there and it'll take us essentially, whenever those plateau out, it'll take us a quarter or so to fully achieve the price increases. Most of contracts are based on an average of the pricing the quarter before, So you know's if you're trending upward you're not picking up all of the incremental costs in one quarter. I look adversely. We don't give it all back in the first quarter when they go down. So it's a that neutral to our bargins, but it times of increase. It hurts us for a quarter or to.

Speaker 6: Think that's great piller. And then I's just wondering if you can provide a little bit more detail on what you're seeing on the labor friendon And if, so far through Q2, you're starting to see some improvement there, or if it's there or if it's a challenging labor environmenti would say it's a challenging labor environment across the Board. It's it's it's industry specific and geography specific on where it's worse than others. The pilot shortage is real and it's going to be here for a long time: the aation business.

Speaker 1: Got wrapped by the, by the pandemic, and laid off a bunch of people, which they had to do, but the problem was: is people continue to retire through that period? But no new pilots were trained. So if you look back to 2019 kystal, we were talking about a shortage of pilots pre pandemic.

Speaker 1: Then we shut the business down for two years, that we had two years where the pilots retire and now we're ramping back up and we have a shortage and we created a bigger one as an industry by not training it up. So that's going to be a challenge. That's why we have monket flight college. That's why we continue to.

Speaker 1: Work a Carson with our flights's going to be D. maybe you want to provide some color? I'm not, I can. You're absolutely right, the pilot shortage. And to ramp up, we've seen post pandemics been little exaggerated. We have seen some of the startups in the industry, new airlines- how long the all stick around to be a question with the with a bigger manttal, but that's attract to, as Mike said, some of the pilots that were available and at the same time there wasn't as much flow because of the two years shut down and three experienced pilots. So we will see a blip. But I think we re all positioned with Southern interior flight school, with Carson, with monktain fate college. Our life and flightate program, for example, did not shut down. It was one of the pilot projects that was maintained in Canada, like the airline ones, So we got some flows through there. We also are seeing an uptick in some of the resumes coming into us.

Speaker 19: For people that are interested in joining the diversified organization that I C isand and having opportunities here. So, as M said, there will be a challengeand we'll have to explore outside the box what we're calledfulable that we can take it all. Let me give you an example of kind of 1, of the I think attractions that we have to employees. I mean it becomes a destination. There's opportunities, not just within the company that they join, but I'll see your own, our network of operations. And is that network of operations that gives us the ability to shift resources to wards needed. Give you a specific example: So with our and welders that we could spare to move into manufacturing operations out in B, C. So we actually have some of our West tower employees, welders that we've moved to our manufacturing operation in D, C and we shifted kind of the demand that those welders are doing westar to another production facility at West tower elsewhere. So it's that capability of maneuvering.

Speaker 12: And I' said, shifting when and as needed, but I I think in more of a macro and certain and I think the labor shortages are something business is going to have the deal with for the foreseeable future. I'm less concerned about the inflationary stuff because I think a large portion of this is going to be transitory, as the supply chain lessons and we're seeing in certain places maybe some anecdotal evidence of that starting to occur, too early to have a real strong opinion. But I think that the employment problems are our structural and particularly in certain skilled jobs. It's going to be something we're going to be working on for a while and that's why the whole vertical integration of developing your own people- whether it's weldthere's andb of highots, I think is going to be at to be a long term part of people's business models if they want to grow, because the idea of taking them from somebody else is going to get harder and hard.

Speaker 16: So I appreciate it. That's such great color. J'm back King, youthank youthank you, and your next question comes from you. Mean, set he from larence Bank? Please go aheadhi. Good morning everyone. Morning right. Yeah, the first question is more just to understand the Northern business a bit, can you share what's the revenue mix between the rental in the sales mkesx and you mentioned that the cycle is, or the years for for these matth, or six to seven in terms of it age? How does it work, like for rental? Can you like replace them to another project or you have to improve those matths again, put some capital investment in that and then do it? Just trying to to better understand how that works. If it's a long term rental contract, is that a better one or a shorten one is a better 1? Just the economics around.

Speaker 1: The grading we give them internally changes over that time and at certain points there would be money put into fixing. Them up think that a broken Board maintaining the math and then ultimately sometimes they're soldof off at the end of their life where they become part of a permanent structure if it's a really wet area and they want to bury them in the ground those kinds of things. So some of them do becomeeffectively permanently is and other ones are destroyed at the end of their life and quite frankly we have a a zero waste policy with them. We actually tear them apart in argum could George chip them up and they're actually used. There. They're put into an inciderator that drives the town's heat. So from sort of cradle a grave is's very much an environmental process. But each individual thatat has a different life. Some of the projects are short they weeks. Other ones are months or even years and things like a pipeline or.

Speaker 1: Hydroelectric line, the M would be put down. They would build past if they were picick it up a go, drop it down the line again, pic it up, they don't move it again. So if the thing that wearss the mat is actually the move, the picking them Bo and putting them on the truck, pic the truck and putting them in the new place. They're heavy and the actual process of actually creating the roads is hard up the bats themselves. So they become lower quality over time, they're used for different things and that ultimately they need to be replacedokay, I think that's. That's big other. And just second, one from my and in terms of M a, a and now you know you've given guidance of, you know, over five million in adjusted ebitd. I'm just wondering what's the M, M a opportunities that you're looking at in terms of size is law off large numbers, sort of catching up. What' the thought crossesus around you know if you're still going to do smaller acquisitions and then one off big ones or just focus on the big ones now.

Speaker 20: Because the smallother ones maybe would not move. The needer at the stage of 80 are nowagain the- and it's a great question in the answer is pretty emphatic. We was: smaller deals are profitable and they make our operating businesses better and more resilient. So we're doing tuck in like a right to AB. Those are making spend machine a better company. You're making West tower a better company because we're bring in new skill sets, a new capabilities. So the fact that we were able to land a big deal like this is no way lessons our interest in the smaller deals. The big deals aren't always available to pri.cing we're prepared to pay. If you look at our history now that we did a big deal back in 2009, we're a $6 million company and bought comm, which is a $6 million deals. A huge bite for us in 20: 13. we add in P, our- I'm sorry- regional one and it's a huge jump, and then weadd in PAL in two thousand and fifteen.

Speaker 1: Which was $25 million deal. So that size of deals and always available when we have 1, like like Northern nott, we're going to be all over them. But our core, our Dean and a meet potatoes are the smaller bid sized acquisitions where we can create value for our shareholders and even if they're moving the doll, smaller increments in terms of enhancing our profitability of free cash flow, they're still an important part of our motle. And then the other piece, I guess the kind of goes' said, is our investment in our existing businesses. We invest more money growing our businesses that we do buying them. A that's not's. How do you take power, our regional one from $16 million evenbitda in 2000 thir, 2000 and thirteen, where we bought it, to one hundred million dollars in 2000 and nineteen. It's the investing in our existing businesses. It not is a core value and never say always, but it's always going to be part of our core value.

Speaker 20: Fair enough. Thank you appreciate it. Thanks for taking my question and con ITES on the announcements today. Thank youthank youthank you any? Your last question comes from Matthew weeks from I, a capital markets. Please go aheadmor morning. Thanks for good morning. Thanks for taking my question, I think. Just just wonderfor me this point, I think some good commentary provided on on the guidance directionally most things sounds like through our tending posusitbly. I'm just wondering, as the effects of COVID-19 sort of dissipates, you see, any of the maybe tailwinds, such as higher amount of cargo volumes, sort of reversing a bit and providing a little bit of an offset to, to the, to the tailwind that that you see going forward.

Speaker 8: I think the answer that is probably. We haven't seen it yet, even with the bump in the in the traffic we've seen to todayate. But there's no question that, as in quotation marks, leisure problebm- and I don't mean leisure in the sense of heading off on a family vacation. But as people come out of the North to shop in the South, they're going to bring STU back that we've been probably shipping in, So it may be changes from a freight to extra luggage on the aircraft. But the one thing the see remarkable resilience in is the. The population growth in the North is higher than anywhere else and so over the two years there's more people there, there's more stuff flowing through, whether it's the Arctic cooperative store in the independent store or even people ordering through.

Speaker 8: And az on or any of those things. I think we're going to see this as maintained at a higher level, the preakobit. Whether it stays at the colded peak, I think is probably questionable, but there's definitely going to be some offset as passenger travel or places freight to a certain extent.

Speaker 21: Okay thanks, that's helpful. I'll leave it there. Everything for me. thanksthank youthank you, and there are no further questions at this time. Mr piley may proceded your cawferenright.

Speaker 18: Thank you for joining us today. It was long. We have a lot to to talk about, but it's fun when you get to talk about a lot of good things. After two years, and talking about pandemics, we're excited we've got our AGM later this morning. For those who to join us, it's great we're going to have our new Northern Mac team percent on the company at at our AGM. So I look forward to speaking with many of you, of many of you again in a couple of mils. Thanks for calling and have a great day.

Speaker 5: Ladies and gentlementhis conclct your conference call for today. We thank you very much for participating and ask please disconnect your lines.