Q4 2022 Exchange Income Corp Earnings Call

We are 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 M D any for this quarter the.

The risk factors section of the annual information form.

And he I sees other filings with Canadian Securities regulators.

Except as required by Canadian Securities laws, EIC does not undertake to update any forward looking statements such statements speak only as of the date they were made.

Listeners are also reminded that today's call is being recorded and broadcast broadcast live via the internet for the benefit of individual shareholders analysts and other interested parties.

I would now like to turn the call over to the CEO of Exchange income Corporation, Mike Pyle. Please go ahead Mr. Pyle.

Thank you operator, good morning, everyone and thank you for joining us on today's call yesterday, we released our fourth quarter and annual results for 2022, bringing to an Android <unk>. Most successful years of our 18 year history.

I am extremely pleased to announce that we have set records in virtually all financial metrics.

Our strategy is our most important asset and we executed on it in 2022, we have a laser like focus across the entire organization, which is evidenced by the strong results. We issued yesterday, it's a simple strategy by proven companies with excellent management teams investing in those companies and nurture.

Their growth.

The strategy is underpinned by four key principles.

First is the most fundamental strategy provide a stable and growing dividend.

To do that the second and third principles are that we must be disciplined in our approach to finding and investing in accretive opportunities.

Richard diversified industries to enable payment of that stable and growing dividend.

The fourth principle is to stay committed to the communities. Our operations are privileged to serve and where our children employees live work and play.

Well the strategy is the strategy is simple it is the key to our success and has been driven by consistent execution of the strategy coupled with our execution has generated outstanding returns through multiple economic crises in cycles from the financial crisis beginning in two.

<unk> thousand eight through the recent pandemic are exemplary results give us confidence in our ability to deliver against any backdrop.

We have a lot to be proud of as an organization. However in line with our other calls this year, we will attempt to keep our prepared province as brief as possible to allow time for your questions with me today is Richard <unk>, our CFO , who will speak to financial results and carve out Peter our president who will expand further on her out.

Look for 2023.

I will limit my discussion to the full 12 month 2022 results well Richard will focus his remarks on the fourth quarter.

For 2022 revenue increased by 46% to $2 1 billion.

Adjusted EBITDA increased by 38% to 456 million.

Free cash flow less maintenance capital expenditures grew by 20% to $176 million on a per share basis. It grew by 10% to $4 36.

Net earnings grew to $110 million and net earnings per share grew 48% to $2 72.

Adjusted net earnings reached $130 3 million up 55% and adjusted net earnings per share were $3 29.

42% payout ratio on a free cash flow less maintenance capital expenditure basis improved to 55% from 58% and.

Adjusted net earnings basis improved to 73% from 99%. These improvements were notwithstanding two separate dividend increases totaling 11%, which increased our annual dividend rate to $2 52 per share.

These remarkable results are driven by both organic and new investments made in each of our aerospace and aviation and manufacturing segments, which I'll briefly highlight.

After more than two years of operating in the pandemic environment, we were thrilled to be in a position to announce a 5% increase in our dividend in may of 2022, and a further 5% increase in our dividend was announced in August of 2022.

These consistent increases to our dividend payment were made possible by the consistent execution of our strategy and exceptional performance of our operating subsidiaries.

<unk> central a diversified service throughout the pandemic.

System performance has been the driver of EIC since our inception and has led to our 20% compounded annual return to shareholders.

Key to our reliable growth is our investment philosophy of being disciplined in ensuring our return on capital threshold is met.

We're agnostic with respect to growth from investments in existing operations, including tuck in acquisitions or investment in new large platforms.

This means by which the means by which we deploy our capital varies year to year and ensures growth is accretive to our bottom line and not just an increase in topline revenue.

We worked hard in the first quarter of 2022 of the due diligence for two such accretive but very different acquisitions.

We're excited.

Fully complete the diligence and announced the acquisitions in our second quarter. The first of those acquisitions advanced paramedics.

Located in Grand Prairie, Alberta was a tuck in opportunity to complement our already successful world class matter of activities at <unk>.

Vance parametric as the leader in providing medical support to air and ground out bugs in northern Alberta.

<unk> emphasized how resilient, our medevac operations, where and with strong presence in the Maritimes, Manitoba do to have it in British Columbia, the purchase of advanced aromatics expanded our footprint into Alberta, and will facilitate future growth in the balance of Alberta, Yukon and the northwest Tara.

It varies.

The second acquisition announced in 'twenty, two and the largest in our history was northern Matan Bridge.

Northern Matt is the Canadian leader in providing temporary access solutions through the use of timber mounting to remote at urban projects across Canada.

When the projects are complete the access roads are removed, leaving very little if any residual impact on the lack of travel Tim.

Tim providing allows for the elimination of temporary gravel roads, and Cobra culverts, which are not easily removed and create long lasting environmental damage.

Matt is the only mining company in Canada, which is vertically integrated at manufacturers. It's automatic product. This vertical integration positions the company down its best year in its history in 2022 strong demand and long live year projects, particularly in the pipeline industry, which require.

A significant number of box drove results for northern back in addition to the short supply of masks in general post pandemic.

The outlook for 2023 remains strong as well, but I will leave that to carve outs will elaborate on later in the call.

In addition to the investments made in 2022, we also benefited from the investments that were made in previous quarters, including power delivery of two fully missionize dash eight aircraft to the Netherlands Coast Guard.

That 10 year contract was announced in 2020 and the aircraft successfully went into service near the end of 2022, and we'll provide their first full year of revenue in 2023.

The tuck in acquisitions of Righto telethon that were made in 2021 to expand West House operations ramped up over the year as the investment in <unk> in Canada is accelerating.

This expansion of an integrated service offering to the large telcos in Canada resulted in significant growth for west tower year over year in 2022.

Similarly, the tuck in acquisition of <unk> Fab in 2021 to Ben machine facilitated additional production capacity and diversity to their customer base. In 2022 membership continued its growth as a realized synergies and capitalize on increased capacity from the acquisition.

The acquisitions of course are there in CCI.

Both contributed for a full year of 2022 after being acquired in 2021.

In our legacy operations, we continued to manage post spend in a post pandemic environment and focused on growth opportunities. We launched trauma flight, which is a partnership between key weight, our northern bad about provider and custom a rotary wing helicopter company the launch of providing rotary wing out of that.

Services to northern Manitoba addresses a significant gap and providing emergency medical services for remote hard to reach areas, giving residents in those areas upgradable access to treatment.

Our passenger operations have proven to be very resilient throughout the pandemic because of the essential nature and rebounded quickly when travel restrictions were removed earlier in the year, well passenger volumes and certain central China and derivative markets have not quite yet returned to pre pandemic levels owing to the backlog.

For medical and diagnostic diagnostic I'm, sorry appointment to the south the overall charter passenger volumes in eastern Canada. However, they have been strong and exceed pre pandemic levels. This demand has enabled us to expand our route network.

Charter operations have been bolstered by new contracts, we won in 2021 with increased demand from the natural resource sector in general.

Regional one's business is multifaceted and has continued its post pandemic recovery part sales are above pre pandemic levels themselves large assets have also been well above pre pandemic levels as airlines around the world look to effectively manage their fleets and cash flow, while they navigate the recovery in the <unk>.

History has been plagued by travel restrictions at Gao pilot shortages.

While recovery original once it's been slower than anticipated specifically with respect to the leasing of aircrafts, we have seen activity with its edge of lease portfolio improve and carve out will speak to that in her remarks.

Well <unk> continued to manage through production gaps in 2022 caused by pandemic disruptions, we saw their growth and their order book and each quarter that led to a new record level of projects in their pipeline. We're excited about the long term prospects of the business and are exploring ways to deploy additional capital in.

Quest to further drive growth in the future.

If these type of accretive investments in our subsidiaries entrepreneurial spirit of our management teams and disciplined manage that allow us to deliver consistent value to our shareholders.

The mental to ensuring we have the capital on hand to capitalize on investment opportunities when they arise as managing our balance sheet with the same discipline as we do considering investment returns and attributes of management teams.

While the markets in 2022 or two turbulent we were able to raise $150 million and common share equity at the highest price in our history demand for the issue was strong and position us to quickly take advantage of investment opportunities in 2023.

Sustainability, although we've not always but that has always been at the top of mind for EIC since our inception, and one of our guiding principles to our strategy.

We manage our sustainable ability efforts the same way we do other areas of our business. We are disciplined in our approach.

Manage the short term and focus on the long term.

In 2022, we continue to advance our ESG related programs initiatives and other efforts, including our reporting.

The focus on climate change is global and there is a demand for climate related disclosure those consistent comparable and useful for our shareholders. We're advancing our long term and ongoing commitment to climate action in the short term we are aligning our disclosure to the Tcf the framework.

Future climate recording.

<unk> with our climate strategy and actions, however, setting targets, we're making promises that cannot be met.

Because of a lack of suitable technology available at this time, we will not be considered.

Our aviation companies operated ones is known as a hard to abate and sector.

Real progress in to reduce our carbon footprint will require D. Carbonation of the aviation operations and not simply carbon offset initiatives.

Carbonation requires partnership and innovation, especially considering the doors harsh northern environments are offered aircraft operated and provide services.

As we have in the past with things like the development and innovation of multiplayer propellers. The implementation of weight reduction programs upgrading aviation's toboggan glass cockpits and up gauging aircrafts to increase operational efficiency and thereby reduce fuel burn we have in 2022.

Advanced discussions with a number of our suppliers and industry innovators in 'twenty two to consider cleaner alternative power and sustainable fuel search sources for our aircraft.

We look forward to sharing the results of these discussions as we move as we are committed to playing a role and being leaders in pursuit of Decarbonize. Our fleet of aircraft that provide essential services to our northern customers.

These new technology solutions take time to reach commercial availability. So in the short term we have worked to make investments that could have an immediate impact on protecting our environment and improving game see efficiency such as the temporary access solutions provided by northern about that facilitate the.

<unk> of clean energy sources and the inefficiency.

Energy efficient windows that are manufactured by quest.

Giving back to our communities in the form of mutual economic benefits and special experiences for community members has been a core value of the IC engine companies.

We have acquired.

In 2022, we continued with an expanded several existing programs and introduced new initiatives.

Distinct programs included celebrating the National day for truth, and reconciliation by collaborating with our digital partners and the Winnipeg Blue bomber football club to bring and host 1000 indigenous gas so the CFO again.

With the reduced travel restrictions.

To restart at our Winnipeg Jets, VIP experience, where it used from our communities are hosted in HL game to recognize academic accomplishments and promote staying in school mental health and wellness.

We engaged the first nations University in Canada to provide reconciliation training that addresses the history and cultures of indigenous communities in Canada, and the history of residential schools and train these around the country, 100% of our board executive and senior management completed.

Bernie and it will be rolled out to a larger group of employees in 2023 and beyond.

We were excited to introduce the <unk> base and pilot pathway.

As a fully funded program that provides opportunity for advanced digital community members to build a career within the aviation industry.

The program was designed in consultation with N K L and removes significant barriers for individual indigenous individuals wanting to pursue aviation careers, including cost location and cultural differences. We were thrilled to celebrate 11 individuals completing the first step of their pilot.

Training.

This year I look forward to well keep them back to Thomson in the spring of 2023 to continue their training.

This program will also be an expanded in 2023 to bring in additional engaging with students.

Lastly, we're excited to announce the expansion of our perimeter terminal in Winnipeg construction will commence in 2020 'twenty three we consulted with indigenous communities, we serve to design a terminal with specific their specific needs in mind.

Based on those consultations a new terminal include elements, such as culturally sensitive areas for elders and for children to await their flights. This is especially important when you consider much of their travel is often for medical related appointments those consolidations with indigenous leaders also resulted in a decision plus by that.

Leaders to name the terminal after the honorable Gary Philbin, our outgoing board chair, who is committed to serving Darwin. These communities throughout his entire career.

Accident and the pandemic in 2022 gave us a new sense of energy our strategy is simple and it's proven.

We know it works and we can keep doing what we've always thought as.

As the saying goes if it's not broken don't fix it.

While economists continue to forecast some type of recession in North America and discussion centered on interest rising interest rates are fluid. We are not currently seeing any impacts of a slowdown in the economy on our lines of business, while our Simpson subsidiaries will no doubt face challenges as they always have.

<unk> business model Insulates, our results somewhat as each of our operations will be impacted in different ways at different times, we have mitigated much of our interest rate risk by fixing approximately 60% of our debt.

And man and diligently managing our balance sheet to staggered maturity of convertible debentures, none of which mature until 2025 agnostic not subject to the interest rate risk in the near term.

On the flip side, the increasing interest rates have been a positive development for our acquisition pipeline.

Quality of deals we are pursuing.

Often compete for target companies with financial Acquirers, who are a far higher appetite for leverage than we do at EIC.

Higher cost of debt reduces with these companies can afford to pay for an acquisition and financing is more difficult to access.

This has resulted in EIC being more competitive on a larger acquisitions and enhances our opportunities in the M&A market.

Coupled with our strong balance sheet this position GIC extremely well for accretive growth in 2023, we are excited about our future and intend to keep doing what we're doing because it works.

I'll hand off the call to Richard who will detail our fourth quarter results.

Thank you, Mike and good morning, everyone. Mike mentioned I will keep my comments to the fourth quarter and the interest.

During the fourth quarter of some subsidiaries delivered results that were higher than our expectations, meaning our Q4 and year to date 2020 results excuse me the guidance that we provided throughout the year and most recently updated in November .

Revenue and adjusted EBITDA in the fourth quarter were both fourth quarter Records and both increased by 39% over the prior period. This.

Performance was primarily driven by the acquisitions of northern Matt CCI and continued growth in our legacy Airlines and provincial due to the realization on investments made in previous periods and lessening impact from the pandemic and demand some conventionals ISR assets, including a modest contribution from the Netherlands Coast Guard assets in 2022.

<unk> was very strong and contributed to period over period growth.

Net earnings and adjusted net earnings increased by 17% and 14% respectively. In the prior period of $6 million gain was realized on the revaluation of contingent consideration that did not recur in 2022, therefore, making operational results less comparable without removing the schemes and the analysis and adjustment for the gain in the prior period.

Net earnings per share increased by 42% and adjusted net earnings per share increased by 31%.

Increases in adjusted EBITDA were partially offset by increases in other expenses.

<unk> increased by $7 million over the prior period due to investments made in growth capital expenditures and additional capital assets be corporations acquisitions and increased flying we do by the Corp version thereof.

Interest expense increased $11 million over the prior period due to increases in benchmark borrowing rates throughout 2022, and the funding of our recent growth initiatives and acquisitions the senior debts.

Costs associated with our acquisition activity, notably it has lost that amortization also increased over the prior period amortization of intangible assets is a noncash expense and these assets are not will place on an ongoing basis. When they are set up as part of the purchase price allocation for accounting purposes.

Capital expenditures decreased by $3 million from the prior period to $40 million.

<unk> was primarily due to the timing of maintenance events. During the 2020 period, where in 'twenty two the impact of the only program in the first quarter meant that maintenance would have that would have historically been performed in the first quarter or early in the second quarter moved into subsequent quarters, including the fourth quarter.

Unexpected in our maintenance capital expenditures in the fourth quarter is consistent consistent with the guidance provided for the fourth quarter. During the third quarter conference call. All of these results were achieved despite a $2 million reduction in government subsidies compared to the prior period as the corporation did not receive any subsidies in the fourth quarter of 2022.

The cooperations with the need to manage through a myriad of macroeconomic factors, including decades high inflation labor shortages and supply chain constraints for certain inputs to name a few these issues have in Medicaid as it makes that possible through the collective strength of EIC and each of the subsidiaries working together to solve these challenges as they arise one.

Particularly relevant example, miss in EIC life in flight program, which is starting to graduate new buyers in the EIC Airlines and the inaugural <unk> Nathan indigenous pilot pathway, which will in the future graduate indigenous posed by other airlines.

For the life in flight program. Several years ago is helping address the current pilot shortage and provides a competitive advantage for ESPN. It's airlines. This is.

Wanted to just one example of the benefits of a.

Benefits are companies realize as being part of EIC, even with these programs. However, the competition for skilled pilots of events.

Our adjusted EBITDA margins were impacted by two notable factors compared to the prior period first acquired.

Acquired in December of 2021, so it's lower margin capital requirements beyond working capital or minimal second rapid escalation that fuel prices initially impacted adjusted EBITDA in early 2022 until fuel price escalators in our contracts became effective or until fuel price surcharges were implemented now while adjusted EBITDA in absolute dollars is unaffected.

<unk> are still impacted as these surcharges are flow throughs to the customer.

This is the first quarter, where the impact of both of our 2022 dividend increases is fully apparent which Mike pointed out increased the per share payout by 11% the dividend increase and appointed or SaaS per annum per share with the largest annual increase in the <unk> history at the end of 2022, our trailing 12 month dividend payout ratio on our free cash.

Less maintenance capital expenditure basis was lower than it has ever been at the end of the year at 55% in the payout ratio improved over the prior year and where we're at when I finished at 58%.

Further enforces previous statements. We have made that yes, you will not have to sacrifice dividend growth to reduce the payout ratio over time.

Our trailing 12 month adjusted net earnings payout ratio was 73%.

Significant improvement over the prior period, which was 99% and was within 2% of our pre pandemic best on an adjusted net earnings.

Net earnings basis.

One of the hallmarks of EIC balance sheet management throughout its history, there's always having our sights on the next investment opportunity, even if where that opportunity will arise is not yet evident.

As Mike indicated earlier, our M&A pipeline is very strong and we want to ensure that when we are ready to execute on a transaction, we can and we are able to find it responsibly.

Confident that our balance sheet is in a position that allows us to execute on future transactions and will seek additional capital is required if several acquisitions or large projects approach. The finish line at the same time to ensure that we find acquisitions and growth projects as we always have accretively with consistent and modest but modest levels of leverage.

During the fourth quarter, you guys seem made gross capital expenditures of $49 million.

This was primarily driven by investments in additional capacity to meet demand within our airlines.

The completion of the new terminal building for the fixed wing search and rescue contract and investments made in our leasing portfolio.

Fleet of engines for lease in 2023.

Our leverage ratio at December 31, 2022.

Within our historical range accelerated downwards as a result of the common share offering earlier in the year and improving operating results.

Our operating results were already driving down our leverage ratio earlier in the year as improved results from previous investments are being realized throughout the year. This was tempered slightly by the strengthening of the U S. Dollar in the latter half of the year, which increases the translated value of our U S dollar denominated debt, while having less and less of a full year impact on our U S dollar adjusted EBITDA.

Our adjusted EBITDA is now being translated at a rate that is much closer to the spot rate. So with respect to this impact will moderate as long as exchange rates remain stable into 2023.

As we head into <unk>, we expected that our results will continue to drive down our leverage ratio.

Subsequent to the end of the year, the corporations that $350 million Canadian credit facility debt at a rate below floating rate for a period of approximately three years.

First in the yield curve in mid January it was more pronounced than it is today and provide an opportunity to fixed debt that was invested through acquisition and growth investments throughout the 2022 year.

This has resulted in approximately 60% of the corporation's debt considering both the senior credit facility and our gorilla bachelors in totality bearing a fixed interest rate.

During the fourth quarter. The corporation had an inflow from working capital of $79 million. This the reason for this info was primarily related to the timing of receipt of a large receivable where our corresponding payroll was not due until 2023. Therefore, the corporation expects a large outflow of working capital in the first quarter of 2023 and working to mitigate the impact of this large outflow.

As we manage other areas of our working capital. In addition to this timing difference management of working capital in the fourth quarter was strong as investments overall, we're nominal despite strong operating performance.

That concludes my review of our financial results I will now turn the call over to carve out. Thank you rich I'm very proud of the results we achieved in 2022.

Outlook for 2023 is for continued growth driven by the stability of our business model and investments we've made in prior periods can build our future, but more on those later.

I want to first discuss our outlook for Q1 of 2023.

As a reminder, for those less familiar with EIC to operation. The first quarter is always our most seasonally challenging as winter roads lessen demand for air services.

The winter season also slows down output at our Canadian infrastructure companies, such as northern map and West tower.

Overall, we are anticipating adjusted EBITDA for Q1 of 2023 to be material higher materially higher than in Q1 of 2022, driven by significant growth in the manufacturing segment with the aerospace and airline segment experiencing more modest growth.

And reschedule passenger business. Unlike last year, where airlines were impacted by the quick onset of Omnicom, we expect our operations to be at or above pre pandemic volumes other than in central Canada, where passenger levels correlate to available medical diagnostic capacity in southern centers, which continues to be.

Strained.

One 2022, however benefited from $10 7 million of subsidies. The additional revenue from increased operations will definitely fill the gap. However, unlike subsidies there are costs associated with generating this increased revenue.

Cargo revenue, which was very strong in Q1 of 2022, well likely see a bit of a decrease as with increased passenger traffic there tends to be a corresponding reduction in demand on freight movements.

We anticipate charter demand to continue to remain strong and we are increasing our capacity to capture more of this business. Similarly, we expect medevac revenues to remain strong in Q1 boosted by time of flight program, which was not fully operational until the second half of last year.

All of our air operators are experiencing experiencing increased costs from rising labor rates driven by industry wide shortages for pilots aircraft mechanics and medical personnel.

These increases will impact margins until such time as we were able to pass these costs onto our customers.

Aerospace will continue the strong performance it experienced last year in Q1 and in addition, we'll have the benefit of its Netherlands operations, which did not go into service until Q4 of 2022.

With respect to regional one we will continue to see below pandemic leasing revenue, reaching one is seeing increased activity in leasing opportunity in particular in Europe as carriers look to ramp up to take advantage of the anticipated high passenger levels for summer travel.

As such leasing revenue is expected to start to improve in Q2 and continue to ramp up through the balance of 2023.

In Q1 last year regional one experience materially higher than average aircraft and engine sales and a low aircraft and engine sales will continue to be elevated in Q1 of 2023, they will not be at the same levels experienced in Q1 2022.

Parts sales will be higher than last year, which will partly offset the difference.

Our manufacturing segment will see the largest growth in Q1, driven primarily by northern Max which has no comparative in Q1 as it was acquired in May of 2022.

Well enhanced supply from other industry players may soften pricing in 2023 utilization of mass is expected to remain strong throughout 2023 as such we expect northern Matthew continue to materially exceed the performance metrics on which it was acquired kimpton.

Since northern mass business is seasonal with Q1 tending to be its slowest period as cold temperatures slows construction projects and frozen terrain lessens the need for access not solutions, we do anticipate Q1 results to be lower than Q4.

<unk> Q1 performance will continue to be impacted by pandemic induced production production gaps and job pricing that predates the significant spike in cost experienced after these contracts have been concluded.

We expect quest will start to see margins increasing later in Q2, what's the benefit of higher pricing it took to the market over a year ago to address the substantially higher.

Input costs.

The second half of 2023, we'll also start to see the benefit of steadier production schedule.

With increased jobs for 2023 quest backlog grew each quarter in 2022, and we exited the year at new record level.

To date demand has not been impacted by raising interest rates or a potential slowdown of the economy.

The segment, we are expecting more moderate year over year growth for Q1, with increasing customer demand being largely offset by the impact of inflation and supply chain and labor shortages.

With respect to maintenance capital expenditures for Q1, we anticipate materially higher levels than in Q1 of 2022 for several reasons.

Q1 'twenty two.

2022 was plagued with the omnicom variant, which significantly slowed activity and pushed maintenance capital expenditures from the traditional Q1 timeframe into subsequent quarters.

Our air operators are experiencing increased flying hours as activity picks up to pre pandemic levels, leading to increased maintenance capex.

Thirdly, labor shortages and supply chain issues.

I have driven maintenance expenditures higher.

The anticipated increase in leasing activity in Q2 for regional one will be increasing its maintenance investments in Q1, two ready its leasing portfolio and lastly, theres no comparative maintenance capex for northern Matt in Q1 of 2022.

Gross investments for the aerospace and aviation segment in Q1 are focused on increasing regional wanted to exposure to the E. R J platform.

Up grader that surrounds aircrafts are there in your curacao contract.

Additional aircraft capacity to increase charter demand and increased opportunities for maritime regional connectivity and they started the construction I think Gary Philbin and get you just try to terminal, which will align our terminal capacity to the girls and the communities we serve.

Investment for the manufacturing segment will be concentrated on the expansion of northern Mat rental fleet and rolling stock in order to capitalize on the strong continuing demand and to position the fleet for future growth.

That machine will also be procuring new equipment in order to meet the significant growth requirements of one of its major defense industry customers.

Additionally, as we've done in the past, we will look to see us both organic growth opportunities and accretive acquisitions that meet our criteria.

The increase in interest rates has been a positive development for acquisition opportunities and the quality of the acquisitions, we are pursuing as such our pipeline of potential acquisitions is robust in both size and quality, particularly in businesses in which we are already in and see further growth potential.

As a final comment I wanted to address the overall expected performance on the EAC for 2023 in light of increased interest rates potential inflation geopolitical uncertainty and labor shortages and more specifically why despite this uncertainty we are undeterred in our views of EIC continued success for 2023.

Short answer is our business model and long term investment philosophy of always investing in the future by approaching purchasing mature companies with dependable cash flows and diversified niche industries, he or she is able to weather economic cycles.

But not only do we expect the weather the potential uncertainty in 2023, we expect to grow and that's because of prior periods.

That's because of the investments we have made in prior periods, which will reap the benefits in 2023.

For example, our purchase of northern Mt will provide our full year results. The investments we made in Q surveillance aircraft for the Netherlands will provide revenue throughout the year investment in additional aircraft capacity is increasing aviation revenues and our acquisition of aircraft during the pandemic for regional one's leasing portfolio will start generating.

Revenue as leasing demand rebounds in 2023. In addition, we will be able to take a more fully advantage of the investments in the Dallas plant as we ramp up production to meet demand with an increasing order book as such at this time, we are comfortable reconfirming. The 'twenty two 'twenty three adjusted EBITDA guidance.

We provided with our Q3 results of between 510 and 540 million. Thank you for your time. This morning, and we would now like to open the call for questions operator.

Thank you.

Ladies and gentlemen, we will now begin the question and answer session.

I would like to ask a question. Please press star followed by the number one on your telephone keypad.

My question has been answered and you would like to withdraw from the queue. Please press star followed by the number too.

If you are using a speaker phone please ensure to lift the handset before pressing any keys.

Please standby, while we compile the Q&A roster.

Your first question will come from Steve Hansen at Raymond James. Please go ahead.

Good morning.

Good morning.

Mike I was hoping you could speak to the M&A pipeline and a little more detail. Your MD&A commentary in Incrementals remarks, both suggest that the pipeline is relatively full and you might even be advanced on a few processes. So maybe just provide us with a bit of color around what you're seeing there and whether you know what what specific verticals you are looking at and how they were couple of it.

Your existing business.

Sure I think there's sort.

Three parts to the question, you're asking first of all veterinary speaking, we continue to see a high quality opportunities and.

In talking about that we're I'm, not saying that the absolute number of transactions being contemplated in the economy is particularly high.

Describe it as average, but what I would say the companies that are coming to market are of higher quality and the competition for those is much more rational.

Exuberant kind of highly levered private equity model is much more difficult to execute on that.

It's harder to get and the depth. That's available is more expensive so that inherently well, we haven't changed our pricing thresholds. It makes our pricing threshold more competitive.

Secondly.

Where we're seeing most of our opportunities.

Opportunities tends to be on the manufacturing side of the business.

I don't want that to be taken as we're less interested in aviation, but we're a significant player in the dish aviation marketplace and we're we're we're.

We're effectively fishing in a shrinking pond as we acquire more and more companies, there's less and less available to us. So we continue to look for great opportunities like the Carson areas of the world and we will continue to grow there, but more of the things we're seeing would be on the manufacturing side.

And at the same time within that well, we opened a brand new.

Area with northern not this year, but last year I guess now.

Most of the things, we're looking at now would be related or whether they be vertically integration opportunities geographic expansion opportunities.

Yeah.

Reducing competition, there's a lot of different opportunities that we're facing we're seeing but there are almost all at this point in businesses that are related to our manufacturing businesses.

Finally, I wouldn't say that stage wise, while we completed a bunch of stuff midyear last year. Our acquisition team has been working on transactions and digging deep into some stuff and so.

We would be farther down the acquisition road than we would have been a quarter ago and while that doesn't mean anything is going to necessarily come to fruition. We do have opportunities that are closer to the end of the process.

Where we know we're one of a reduced number of potential purchasers. So.

I would describe myself as cautiously optimistic we'll be able to accomplish something on the acquisition front sooner rather than later, obviously, if we had something to say now we would say is we don't.

But out of it and his team have done a lot of diligence and have done a lot of negotiating so I would say, we're probably closer to the end some of those negotiations that we have been since the summer.

That's very helpful and just maybe on the organic side for growth capital are there opportunities that you continue to pursue around new contract wins, either domestically or abroad that we should be thinking about a 423.

Yeah.

It's exciting now, whereas I said before most of the growth was on the manufacturing side the contract opportunities would tend to be on the aviation side of the business. There's a couple of very substantive matter that contracts in British Columbia.

The other big lots and we expect the government to announce the winner during this quarter at some time.

Both would involve a major investments in the 200 million dollar range for each investment.

We don't know if we're going to wait to wander. None so time will tell we're excited about getting to hearing from the government on that.

How it is looking at opportunities is in countries, where we already are where we already operate with the UAE, we're expanding our curacao contract.

We've got the first full year of the Netherlands contract were.

Still working on an opportunity in Malaysia.

And so if your airlines, we're also looking to expand our connectivity capability out in the Maritimes as you've seen kind of the major players focus in on kind of discrete regions. We think we can play a bigger role on providing the connectivity that they both would be looking for and more of the regional sector. Its not changing what we do but just doing more of what we do.

Well and then on the resource sector, obviously, mark can be happening there. So we're seeing additional opportunities for contracts to provide that support whether it's moving people or goods into you know various camps, where they're having exploration done.

Appreciate the color thanks, guys.

Your next question comes from Cameron Dirksen of National Bank. Please go ahead.

Yeah. Thanks, good morning.

Just a follow up on that question from Steve.

Yeah, just to follow up on that question from Steve on on some of the contract opportunities you mentioned the B C met it back I'm just wondering what the status is on the on the Manitoba, but.

Until contract, there, where where that decision I guess timeframe.

Oh, the the Manitoba, one it's important to define which contracted is because a couple of years ago.

<unk> talked about living in our overall contract for all the license carriers in Manitoba.

People need based on that the government decided not to proceed with that so it's still done on a more fragmented basis with a number of carriers.

Excuse me, but on the enhanced medical par, where we're talking about very emergent care are the government has let the contract they've gone towards the final stages of negotiation with a limited number of.

Potential providers and.

We anticipate that probably by mid year.

Now announce the winner of that Ah I can say that we remain actively engaged in those negotiations.

Okay, No that's great.

On the northern that I mean, it certainly sounds like your expectation, you'll notwithstanding some of the seasonality your expectation for the first half years to us for are still very very strong activity levels. There can you talk about maybe a little bit what you're seeing I guess the knee overall I guess.

Just from a demand perspective in the second half a beard as we look ahead to 2024 I mean, what's your expectation for activity levels. There for northern that you'll later in the year and into next year.

Uh huh.

The industry demand profile is strong the big projects in the marketplace like <unk> pipeline and things like that.

Arent going to be completed until sometime next year and when that's finished state then immediately move into a maintenance cycle.

Where are they testing so are.

We envision that that part of the business remains strong.

With oil at anything remotely close to the prices today the exploration.

Berta.

Development of new of new wells creates demand so that remains strong.

And with your big move to electrification, particularly in transportation.

Enhanced distribution is required everywhere and so well I really don't have a feel yet for exactly when some of these up.

Transmission lines will be built there is the medium term for that looks excellent. So as far out as we can accurately predict we see the demand part of the business being strong we suspect our competitors will be better prepared.

This year than last where there was a significant shortage of bats. This year, we should we expect.

But there'll be more products available I don't think that's going to change our utilization very much. It may suppress our pricing somewhat but the simple fact is this business is going to perform at levels well in excess of what we hypothesized totally bought the company.

Okay, that's great to hear I'll leave it there thanks very much.

One other thing just before we go on not just on northern about because its new people I understand the seasonality of our aviation business because of winter roads.

More than match when the ground is frozen.

Less Ah now I think is required because it's easier to travel over the ground, but also because it's just less work being done.

Part, where the business can vary year to year is when it starts to get soft.

Our need for bats is accelerated so we have a great start to the year in terms of the number of masks, we have on rent already and if depending on how the spring weather does that could be accelerated further but.

It's the one part of the year, where weather does impact.

How many are needed in the short term.

Next question operator.

Your next question comes from Matthew Lee at Canaccord. Please go ahead.

Good morning, Matt.

Hey, congrats on the good quarter and great year.

Just wanted to start off with a focus on maintenance capital, but I know, there's a bit of maintenance that pushed into Q4 on the aircraft side.

As well as the Madison Northern that but can you just let me help us understand the cadence and levels of maintenance expense of between two or three.

Yeah, I would suggest that like.

The timing of things gets moved through the year.

Year to year, but generally speaking in our business, we tend to try and do as much maintenance at the beginning of the year on the aviation front as we can simply because we're slightly less busy in that period.

The other big.

Big piece of that falls, when we can build that northern that and so that can vary year to year, but I think what you'll see like the.

Off the top I think we gave her a little over $40 million of maintenance Capex in Q4 of this year I would think on an annualized basis that might be slightly lower than our run rate.

Uh huh.

Simply because we'll have a full year of northern not in a full year of replacing maps. They have a five year lifespan. So we're constantly rebuilding knots to make sure we maintain the ability to generate revenue and will be added.

Additional operating iron in that business.

To make sure we can deliver as about what the opportunities are there so I would suggest that and.

On an annual run rate would be slightly above the 40.

$40 million per quarter.

Again, it won't be equally broken down there'll be a certain random nature quarter to quarter, but on an annualized basis, the bigger we get the easier to predict.

So somewhere between 40 and 50 on an average is probably a both a number of years.

Okay. That's helpful. And then maybe on the surveillance contract I know you delivered two aircrafts late in the year.

Relatively little impact on our financials in the quarter, but can you maybe help us quantify kind of the financial impact of that in 2023 of the new contract.

Yeah, I mean, it's a.

If there are some competitive issues with being too specific here, but we are very consistent in how we describe the returns we're looking for.

And what we're looking for this contract is no different so free cash flow returns in the 15% plus range and if you add back in the reasonable level of depreciation because we are a maintenance capex because we are operating those aircraft I think you can work back into an EBITDA contribution.

Pretty easily but it gets material given the size of the investment in the two aircraft Carmel or anything.

Good description I mean from a comparable size it would be you know more.

More than what you'd see from a contribution from fixed wing search and rescue so it's more than that and probably slightly above I could give another comparison or a contract and in carousel as to what we make there they're the same aircraft there at both dash eight one hundreds writing maritime surveillance. So that gives you kind of a proxy for that level of nature of the service.

Alright, that's perfect I'll pass the line. Thanks.

Thanks, Matt.

Your next question comes from James Mcgarrigle at RBC Capital markets. Please go ahead.

Hi, everyone, everyone is keeping well and congrats on another strong quarter.

Thank you I had a question on regional one and some of the investments you're making the business.

Despite some of the current headwinds.

Yes, the MBNA reference E, one or 40 aircrafts.

Wired and recovery beginning in Q2, so what kind of a line of sight you have into the recovery and the pilot shortage and kind of given some of the current headwinds are you thinking about allocating any.

Many of these assets out of Europe to potentially some.

Some more attractive operating environments.

Uh huh.

On the on the Embraer question first.

We are clearly the leader in the world on the <unk> platform and so investing in that clearly is a declining some game. There's we have a big piece of that market and the amount of market available for us to grow is London, we've been working hard to increase the secret sauce as it relates to the Embraer.

By learning the value of the parts the engines and the leasing rates and so we're excited to see that as a growth part of our business and so.

We've expanded our investments there I think we'll continue to do that.

As for a line of sight on that yes, we do a reasonable line of sight in the near term we have some equipment that will go on engines in particular, which grow long lease early late in the first quarter early in the second quarter and we see that accelerating through the year in Europe , we're actually seeing quite a bit of opportune.

<unk> as they get curious focus in on what's anticipated to be a pretty significant demand in particular in the summer and the one thing about Europe , although obviously pilot shortage, it's around the world.

A little less so in Europe , because there is more pilots turned out in their military than we've seen in North America. So there are I guess less about where state and then as I said North America. So active there and there are significant here Jay users and Europe , so lots of opportunity there as well as Africa.

Lots of dialogue occurring there and some opportunities to lease aircraft in that region as well.

Okay I appreciate the color and I've got another question on quest with the new facility opened up and the record order book.

The order book in place to meet our revenue kind of going to increase.

25, it seems like there's some good line of sight to that and with production gaps improving that margin is going to increase meaningfully as well.

So what type of recovery do you have in production gas built into the 2023 guidance.

And should you see ramping up our capacity into 2024 and as a quick follow up to that it seems like quest to drive mid single digit type of growth on the consolidated EBITDA.

Into 2024, just on the the record order book and improving margins as that kind of the right way to think about it into 2024.

Oh, yeah, except I wouldn't limit it to 2024.

Quest is the most.

Underappreciated growth engine, we have the demand for the products is very strong and I think there is.

I can step back to the industry, a little bit a little bit of misunderstanding about what interest rates is doing there well it does create uncertainty for a given developer in a given place do I pressed the button hour in six weeks from now.

The simple fact is theres massive immigration into Canada about one out of every three immigrants to Canada and up in the greater Toronto area.

Single family housing isn't an option, it's too expensive and the higher interest rates or the board its not an option that forces people into rental housing, which drives high rise buildings. So that the medium term and long short medium and long term all look very strong.

We've seen that through our order book growing and we see that as we've grown geographically in the United States. We're doing deals in Nashville, we're doing deals in Dallas at different places we've never been before so I think he is going to see continued growth in this business incrementally it's not a light switch so.

Due to projects in Q1 that making up the number and three in Q2 and maybe four in Q4 and that work and you didn't get a period, we see that growing dramatically because we have tons of excess capacity with a beautiful facility. We built in Dallas and with the addition of a vertical integration things we did with <unk>.

W. La west in the U S, enabling us to grow our installation capability quite frankly, we really like this business and there are certain parts of it that we don't do yet that we want to add to our product offering as an example, they would be.

The railings for the balconies.

On virtually every department has a balcony and right now we have to outsource the supply of those railings. So we lose the margin on it but probably more importantly, we lose control of the supply of the product and we're reliant on someone else to meet our customers' requirements. So over time I think.

You're going to see us whether it'd be through a pure green expansion in and starting to build those products ourselves or acquiring another group that can do it. We're excited about this space and I think youll see additional capital go in it and over the next couple of years, you're going to see why.

As it flows through our income statement.

I appreciate that and I'll turn it over and over.

Thanks.

Your next question comes from <unk> Gupta at Scotiabank. Please go ahead.

Okay.

Morning, Mike and the team.

It's Mike maybe the first question and Pam as well if you want to answer. This one so Q1 I know like seasonally this weakness at all of that but.

I think this Q1, we are seeing more and more than normal this kind of a temperature. So just wondering if there's any kind of tailwind because of the temperatures we have seen so far.

I would describe it not so much as a tailwind but in aviation we've had less dislocation from bad weather.

Uh huh.

It's a better than typical year weatherwise.

But if that's not a dramatic impact.

The bigger one it'll be within how soon the melt is in the west and how soon that ramps up the demand for batting as the winter.

Conditions go away and we go into spring construction season, where our products are required and winter rules might be a little shorter than is typical which would be helpful.

In a hugely material way, but it's still helpful from a tailwind perspective.

Okay makes sense. Thanks.

Now with respect to northern Matt I think one of the comments.

And the fourth was the pricing is expected to moderate I'm. Just wondering if the pricing are expected to moderate from the year end 2022 levels or is that versus the average of 22.

It would be where the biggest impact on pricing lies is in a very busy peak summer season, where the schwinn.

The absolute maximum number not soon deployed that's where we would tend to see it at this point pricing remains for the off season pricing remains good.

Uh huh.

It's better than we would have anticipated when we bought the company and the number of lots we have out is better than we anticipated. So it's all good. It's just I always want to cautious with the cockfield when we have such an amazing quarter that we had in Q3 of last year.

Not everything is going to line up perfectly every year, but having said that it's.

So much higher than when we bought the company off of I feel kind of silly cautioning people.

Okay that helps thanks, and then on the M&A front I think one of the comments in the report as well.

In the past 18 months or so you are adding to the bench strength to complete acquisition is that like does that speak to the complexity and closing those deals is it just the sheer number of opportunities.

Oh I don't think it's changed the complexity one of the things. We do is we internalized virtually everything on our acquisitions, except for where we need industry analysis on something we don't do so as an example, we did get some help with northern Matt when we bought it to make sure what we thought the.

<unk> was was correct.

But when we're talking about.

Capacity, it's just we want to be able to close multiple transactions at the same time and we historically really weren't set up for that it really rattled kind of our capacity as we stalled people out of operating positions and things like that to help close we've added another professional last year into that.

Group and so out of his team can handle more transactions at the same time.

That we could historically and quite frankly with what we're working through now I'm glad we've done that.

Okay, that's great and last one for me.

That warrant further investment quite frankly.

Yeah, Okay people.

Last one for me on the payouts at the capital deployment. This year. So the payouts are pretty low obviously.

That sets up pretty well for the dividends prospect this year, how do you plan to balance.

The amount of growth Capex, you have this year versus the M&A and the dividend.

Okay. This is there's a I. Appreciate the question you are correct. This is something fundamentals under the understanding I assume that.

We don't start with assumed fixed pool of capital that we're going to allocate between those three things you talked about growth capex dividends and acquisitions, we start with a threshold, let's say, okay, let's look at our investments and opportunities and how many of these beat it and how are we going to pay for them.

And assuming we have three things that meet it would make sure we got capital for three plus backup capital for things They don't know about yet.

And if it's zero zero, if it's six six.

When we look at our dividend, we say what type of free cash flow are we generating on a sustainable basis after that maintenance reinvestment.

And so over time, we've averaged about just a little less than one dividend increase a year, we don't increase in a given quarter every year because that's how we increase dividends, we increased dividends, where we can afford to do it and you saw that this year with two dividend increases partially because we have done during the pandemic.

And partially because we had an exceptional year, but as we continue to grow.

We're really proud of our 5% CAGR.

On our dividend and assuming we continue to perform the way we have.

I really don't see us giving that away so.

Insisted reliable dividend growth is part of our model and at the same time, we think we could grow our ability to pay the dividend by more than that CAGR. So over time, we will further reduce our payout ratio I think where we are at year end. It was a great example of that biggest annual dividend increase.

History, and the lowest payout ratios in our history. So.

I think youll see.

Continued modest dividend growth driven by our results and we'll take advantage of whatever opportunities we can uncover.

On the other front, but opportunities to grow are not getting it.

No impact on our ability to pay the dividend unless capital markets were to change it we could access capital for growth then we would revisit that but in our 20 years with our modest leverage we've never been unable to access capital So knock wood.

We anticipate that continuing.

I appreciate the color Mike. Thank you so much and congrats on a good quarter.

Thank you.

Your next question comes from Chris Murray of APB Capital markets. Please go ahead.

Good morning folks good morning, good morning.

So Mike maybe following on a little bit of that question.

I'm kind of sitting here.

Thinking about what your run rate on maintenance capital is in thinking about the portfolio.

What I'll call, probably known growth ideas that youre going to do this year is I mean, this might be one of the largest year for capital spending.

For you folks and some time, so maybe back to kind of a question trying to understand it I mean, we're probably looking at.

Probably close to 400.

$400 million in it.

In maintenance and growth capital this year or something approaching that before we get to acquisitions.

First of all trying to understand.

Kind of Triangulating that correctly.

And then thinking about it.

Is this what we should be expecting from you guys for the next two years like I said is this simply barring that we're gonna be making these large scale investments because it's been a couple of years.

I'm seeing kind of this level of spending.

I'm not sure on the 400 number whether that's it's a little high Oh, if we land.

Any of the matter back opportunities Youre not wrong in fact, it could be more than that if we do that so are you you're not wrong in the general.

Travelers to the question of the exact numbers, depending on what form and what falls out of that.

In terms of what to expect yeah. If we have opportunities like we have now we're going to deploy the capital and you saw what happened when we were able to put some money over the last couple of years with the growth we walked into Covid in 2019, with a great year and $320 million of EBITDA, we're exiting.

2022 with.

Almost 50% more than that and another 15% growth predicted for next year or so.

Yes, I think you can anticipate we will continue to invest money, but only where the right opportunities are and that's driven by those returns and so I I think your general premise Chris is bang on.

Can be specific as to exact amounts because I don't know, which ones, which acquisitions, we're going to win I don't know, which contracts, we're going to win but.

But we very much view, if we're hitting that 15% threshold our shareholders want us to do as much of it is we can handle.

Okay. That's fair and then maybe a different way to a different question I'm thinking about the manufacturing business here for a couple of seconds.

And you know, there's a lot of others, probably more large moving parts in that business today than it happened in a while now and bridge in there.

You talked a little bit about margin performance in Q3 of last year was probably as good as it was going to get.

Or call it call it highly optimized many many charitable how do we think about the margin profile now with between the MIT Quest some of the other.

<unk> pieces of the business Northern my breath like Oh.

How does how do we think about kind of.

Kind of a revenue like Q4 kind of a stable number to build from or is there some more moving pieces in and you know historically, we've always thought about the margin profile in that business kind of call. It high teens, driven primarily by quest, but now look to be in the low twenties now.

How do we think that this all comes together over the next couple of years.

Oh, well, Okay first of all in terms of where we worked on an annualized basis.

It's definitely going to continue to rise a little bit because of a full year of northern nights operations. The fact that we lease out to Matt no not to have approximately a five year life that means maintenance capex is a real number and so that inherently drives up operating margin because you got to earn the money to reinvest.

And we are considering making considerably above our threshold of 15% in that business after reinvestment, but when you add back in.

Five years is 20% of the asset needs to get replaced every year. So you get very much higher EBITDA margin. So I think you'll see those.

Stabilize at a higher level I think if you look at our legacy businesses, So legacy I'm defining as everything except quest and and northern not and quest should grow.

Materially.

But slowly over a number of quarters as we ramp production take advantage of the better pricing and see all the benefits of the vertical integration quest is at the early stages.

It's recovering for lack of a better term and so you'll see that flow through the statements over time, the balance I would describe as fairly consistent whether it's over landers or arent been a pressure systems companies.

S F. I, we've had those for a while demand is strong order books are good I would describe the margins is consistent.

Okay.

We'll leave it there for that then and then this one last question and I'm not sure who wants to take US one just thinking about the theme of the way.

<unk> business.

If we're expecting to see that start to recover in the back half of the year. That's always had an unusual impact on your tax rates through 'twenty three should we expect that the effective tax rates that we've been seeing the last couple of quarters that'll start moving down in line with what that run rate.

I guess the simplest answer to that is yes, I mean, there's a whole bunch of other moving parts, depending on where we make money in our other businesses, but absolutely the lease portfolio lives in Ireland, and Ireland would have the lowest tax rates, we have so as that business accelerates becomes more taxable.

The average tax rate will decline that's correct yes.

The only difference Chris would be that as a proportion of our overall business as.

We've acquired northern Matt, It's a lower proportion of our business. So it won't have as large of an outsized impact as it may have had in the past.

Okay, that's fair to think about okay. Thanks folks.

Your next question comes from Tim James at TD Securities. Please go ahead.

Hey, Jim Thank you and.

Good morning, everyone. Good morning, Mike.

My first question.

Mike It's returned to the dividend topic and.

You presented a case, where the dividend could continue to grow at that 5% that historical rate and then given your view of the growth in the business long term that that that 5% will actually be lower and therefore your payout ratio will be declining.

<unk> I'm just wondering if you could kind of talk to us about why that is the appropriate it implies an accelerating if I'm not mistaken and accelerating investment set where like like growth that's greater than the growth in the business.

One would've thought again kind of oversimplifying, it but as you get larger it gets more difficult to find investments.

That are that much larger can you just kind of talk about why a declining payout ratio for the business is appropriate over overtime.

It's.

It's really just an extrapolation of how we've grown in the past you've you've been around with us for a long time back is closer to the income Trust days, where young incorporation when we're comfortable with payout ratios of 70 or 80% on a free cash flow basis and our Cheryl.

There's real clear with us that that was too much they wanted to be able to rely on it. So we've worked that down over time, you're right that the bigger we get the more things we have to do to maintain a growth rate.

<unk>.

But I think we've shown at least in the most recent periods that we can grow.

At more than 5%.

And that's really the bottom line to be able to be able to increase our do trades at 5% and have that would be a lower portion of our cash flow that means we've got to add.

More than 5% to our ability to generate cash and we use real broad brush numbers just for the sake of simplicity.

We're generating $4 50. This your $4 55 in EBITDA five something next year. If we just use 500 for a round number to continue to grow the dividend at 5% I Gotta grow my EBITDA by 25 million a year.

We are organic growth will exceed that.

On a typical year and so when you add in whether it's <unk>.

Investment is significant.

Growth opportunities or acquisitions and that enables us to exceed the 5% growth rate required to maintain the 5% dividend rate.

I don't think that we will if you take this to the medium or the long term.

Drive our payout ratio down to 20% I don't think there's any desire for that I think we want to see as we brought up a few years ago, our free cash flow kind of methodology below 50, and over time I would like to get that the adjusted net earnings below 60.

Let me take a couple of years to get that there with our continued growth.

But I think it's achievable.

A typical shareholder of us says.

We rely on your dividend, we want to be able to count on your dividend and we want to know that your dividend its going to more than cover changes in inflation.

I think our 20 year track record says, we can do it and I'm confident that we can keep doing that.

I'm not suggesting that we're going to be able to do 25% growth like we did this year whenever that is.

The number is every year, but to exceed 5% growth I think is is entirely achievable.

Okay. That's helpful I mean.

We've shown you in the aviation business and you've shown that during a pandemic you can you can hold your dividend, which is a which is pretty pretty amazing.

My second question I, just want to return actually and get just some clarification I think more than anything maybe hormel on your comments regarding the.

Sales and service revenue stream in our one.

It was a pretty significant drop off in the fourth quarter relative to the third quarter.

Does your commentary earlier, suggesting that that should sort of work its way sequentially higher over the balance of or through 2023 or I'm. Just wondering if you could kind of revisit that your expectations for the trajectory of that business line.

To the extent you've got visibility book.

Yeah, So sales and service I mean think of the aircraft and engine sales.

What I'll call high purchase price.

So really drives revenue line in 2022.

Most quarters, where like almost double what we had seen.

Pre pandemic fourth quarter was a little lower than that but my comments related to Q1 over Q1. So when I look at Q1, 2023, well still be higher than what we were experiencing in and kind of pre pandemic, but they will be it will be lower than what we saw in Q1 of 'twenty.

'twenty two because that was a one of the quarters, where we had a higher level anything actually Q2, and Q3 of 2022 were even higher but just wanted to give you. Some perspective of that no sales and leasing also includes our parts sales. So that's more consistent and we've seen that acts.

You know grow and we're beyond our pre pandemic levels.

And we continue to see that being.

Both are more marginal growth on the parts side of things throughout the year this year.

Okay, that's really helpful.

Then my last question switching over to quest again and.

Provided some some great.

Color, Mike on kind of.

The challenge is in and the opportunity it sounds like the <unk>.

West presents.

I step back and think to the original days when when the decision was made to invest in the Dallas facility.

Incremental capacity and revenue.

Potential than that and generated.

Is it possible to say when you see quest, reaching that original.

Planned and and you know I remember its its capacity is significantly in excess of what your existing Toronto facility was when do you see kind of getting to that that point.

I think you'll see run rates in 2024 that approximate that level of utilization.

We're going one of the things where is it that the pandemic has.

Caused us to do which in the long run is probably a good thing, but when we initially built the plant we built them to both do all things. So weird that analyst day, we walked through we did everything we're going to do everything in Dallas. So we did in Toronto, we have now.

We're now leaning towards specializing in certain products in certain plants and so we're still working on exactly what we're going to do in Toronto exactly what we're gonna do with Dallas and how much space that means we need a toronto because that's a leased facility.

And how much we want to do down through our Dallas facility.

The bottom line, though is that we have tons of excess capacity at 2023 rates even at 2024 manufacturing that's why I say when I talked with this this is got most of the money in it that it needs to have growth for three or four or five years.

And increased capacity.

And in terms of getting to that sort of.

Anticipated 2000, 22019 levels, probably by the end of next year.

Okay, and then again concern when you think about class don't think of it like a light switch think of it like a ramp as we add more and more we built more projects each part and that's you can see that in our order book with it now being correct me if I'm wrong here, a little over $600 million.

Carmel is tracking that I'm, not they kick things off but I'm pretty sure. That's the number that's the highest we've ever seen and so how much of that we burn off each quarter goes up every quarter and then the amount we add to it to replace and grow the order book goes up and that's why we're so bullish on this because.

We see both in our pipeline that our order book there at very high levels.

Okay. That's helpful and just want to confirm when you when you referred to quest to Danny you are including.

Wi and with tuck in acquisitions as part of that right, they're all inclusive okay.

We view that as a single entity, yeah, Theres, a kind of a perfect example of what a tuck in acquisition means to EIC. It's become part of the engine that is quest.

And I think you'll see us add other stuff to that engine again railings is a good example of something we really like to be able to do so we can't do right now.

Thank you.

Your next question comes from Jonathan learners of Laurentian Bank Securities. Please go ahead.

Good morning, John .

Good morning on the growth Capex plans that you've laid out for 2023.

Mike I know you don't like to give us numbers, because there's some contracts you're trying to win and it's uncertain, whether you'll windows, but.

If we just look at the identified projects laid out in your prepared remarks can you quantify the growth capex associated with those and give us a sense of which businesses are receiving the largest allocations just as we think about the returns driven to 'twenty four.

Yeah, I mean, if you look at our budget growth Capex about three quarters of it.

Is in aviation.

Lynn.

Less than 25% of it would be in line with Boston.

And we've talked about the major areas.

Look to spend that money in at aviation, It's the Gary Philbin terminal, it's a cure.

<unk> is the aircraft for the expanded contract there.

It's the investment is the Oh ambry hours at regional one.

It would be the main drivers there.

And then on manufacturing.

By far and away the biggest part of that would be northern not whether it'd be new yellow operating equipment to expand our capacity or additional bats to grow the size of our rental fleet.

And the stuff, we've kind of committed to would be.

I'm always hesitant to use the growth capex number because it typically ends up being more than what I say, because we find something new and exciting to do or we win a contract, but I would anticipate something in based on what I know now and excluding any new wins would be in the neighborhood of $100 million.

In aggregate.

Okay great.

And just as a way to think about the cadence of that.

Going through the results.

Can you help us understand when the aircraft are being acquired that are won and.

When the line rates are being taken up at or Theyre not in.

Yes, if you see this as potentially.

Short answer to that yet right.

<unk> that Jonathan is absolutely not.

We're looking for aircraft there may be nothing for six months or I may get a cold call from Hank saying I found the great deal we did it all now.

I can't I would the simple way to pro forma and this stuff is pretending there's no impact this year.

Right.

Our guy.

That sort of stuff similar guidance, but most of the impact of growth Capex. This year isn't due until 2024 right.

So for instance, I mean those modifications.

We'll take all of this year plus a bit of probably Q1 'twenty 'twenty four just to give you a flavor right. We're investing today for tomorrow's growth.

Well I was just.

I guess I was more excited about northern not just knowing how.

How quickly the math can be deployed.

The market there is pretty strong is it fair to say that.

You know theres been a like some incremental.

Planning to ramp up production sequentially since we last spoke to you in November .

To do that.

Flowing through later this year.

Well, yeah, I mean, it flows into our fleet over time bear in mind that.

We have two facilities that we've run at reasonably close to single ship capacity through all of last year, and we anticipate maintaining that capacity.

Where are you getting into the the vagary of it isn't so much how much we're going to produce its how many bats, we sell some of our customers, particularly in the pipeline business by their own nuts.

So we will produce and sell so it's hard for me to say exactly what portion of new mass production turns into rental mats versus a for sale mats and that's just opportunity driven.

Darren and his team at.

Northern border are very focused on meeting with the customer walks in a chunk of that growth is for yellow metal and that has longer lead times to be able to order and receive delivery of those types of equipment.

Thanks for your comments.

Your next question comes from Matthew Weekes at I E Capital markets. Please go ahead.

Good morning. Good morning. Good morning, Thanks for taking my question I'm, just thinking about the <unk>.

Both pipeline Youre seeing clearly.

No shortage of growth opportunities within the existing business talking about the strong.

M&A pipeline are you seeing I'm just wondering if you think about kind of the current market and higher interest rates.

And you know what youre seeing in capital market obviously.

Obviously decided to to kind of hedge some of your some.

Some of your variable rate debt I'm wondering how you're thinking about funding and in terms of you know allocations between debt equity maybe some hybrid.

Instruments, and kind of what you're viewing as sort of attractive ways to fund opportunities right now thanks.

That's a really good.

Good question.

In terms of the fixed decision to fixed rates.

Rich gets the credit for that he was watching the inversion.

That was in the.

Capital markets in terms of interest rates.

We thought it was and consistent with what most people thought short term rates were going to do and so we jumped on it and I think we hit very close to the maximum level of like version.

And the rates so that does that take some of the risk out of it for us in terms of funding growth are right now, we're very well capitalized so you've got about $1 billion in dry powder, but our appetite for debt.

<unk>.

As it relates to our cash flow is the same as it was in 2004 were in that two to five times secured debt. We know the banks will always lend us that.

No matter, how good or how bad the markets are and so we anticipate staying within that range, if our opportunities b, we need more capital or not we would probably tap the public markets are.

At the time, when we had to use for the money right now we clearly don't.

Our requirement for that but.

But that could change in terms of convertible debentures.

In today's environment I'm not sure that they would be my first choice simply because interest rates are much higher there relatively speaking more expensive.

So I think if we were to have a requirement for more than debt capital you'd see us do it on the equity side of the balance sheet.

We we were either remarkably consistent ore really stubborn, depending on which way you want to look at it but.

The aggregate levels of leverage hasn't changed much here.

I don't envision that changing so depending on if we have a massive level of growth we land all of those contracts and Adam brings me a couple of deals and all of a sudden they need $600 million. We would we would add some equity to the balance sheet. If we don't win like that we don't need two we've got tons of liquidity in our existing facility.

Okay that makes sense. Thanks for answering my question I'll now turn the call back. Thanks.

Thank you.

Your next question comes from Christopher Friesen at CIBC. Please go ahead.

Good morning, Chris I think there's good morning, Thanks for squeezing me in and.

Most of my questions have been asked at this point, but I was just wondering on the on the aviation side of the business you talked about it how it does take some time to pass through those higher costs.

What sort of.

Like would you say there is and and how would you expect margins to kind of trend through throughout 2023.

We've got uncomfortable of Union negotiations underway now.

And so.

Uh huh.

As those are completed we will get there.

The increase in pilot costs will hit us.

In a lot of our business whether it's.

Power and perimeter, we tend to have market presence it ought to be able to pass those along reasonably quickly to our customers.

And the pilots don't make up a huge proportion of our operating costs. So I don't anticipate it being.

A material impact in some of the met about contracts R. R.

Increases are determined by changes of the compute consumer price index.

That could have a slight impact of margins in those businesses is it'll take us a couple of years to get our wage increases back is typically to be wage increases exceed.

At this point to me.

Aircraft cycle simply because of the lack of qualified pilots.

By qualified I don't mean.

<unk> capable.

Lots of young pilots in the training is starting to affect a number of low our pilots we see its just theyre harvested so fast by the Big Airlines, there's there's a.

A constant churn and I don't think that's going to change much cresting in the near future I think that's why we've invested in the flight schools, we've invested in <unk> basin.

That is the pilot pathway, we're going to need to be creative.

Solve that problem over time, but we've put ourselves in the best situation, we can and will manage our way through it.

Great. Thank you and congrats on a good quarter and ill jump back in the queue.

Thank you.

We have a follow up question from Tim James that TD Securities. Please go ahead.

Thanks, just a quick one here.

The intangibles balance.

Correct me, if I'm wrong increased quite a bit of I guess that was related to maybe purchase price allocation changes I was wondering if you could provide some thoughts or insights on what we should expect the impact to be on the amortization of intangibles going forward with them.

Is there an add back to your adjusted earnings per share so not a big impact, but I'm just wondering if we could if you could address that briefly.

Sure so yeah the increase.

From previous quarters in the year related specifically to the Finalization of the purchase equations for CPI, Northern Matt and APL during the year.

So in terms of what we see going forward.

There's kind of two things that impact that number obviously.

Amortization falling off from previous acquisitions.

And amortization going forward for months, we've refreshed the board.

Kind of new purchase equations that we've set up so I think probably Q4 is probably one that I would look to in terms of what I would expect going forward because we had the amortization recorded in there for our most recent acquisitions <unk> and you'd start to see the impacts of amortization falling off.

From from older acquisitions, and one of the things that would've been impacting our ever physician in the last couple of years that runs off relatively quickly.

It would be the amortization on backlog so when we bought qwest or in any of your IRA with you or a significant portion of our advertising of course, but a large portion of the intangibles when we tied in the backlog.

That exist on the acquisition date that runs off relatively quickly if you have a high amortization value.

So when you look at our northern Matt you might think Oh care and tangible asset amortization on that would be high because it's our biggest acquisition ever but relatively speaking.

The amortization per year is that.

Jump as much as you might think because of some of the accelerated amortization has taken on backlog.

Run off.

Quest NW iron with the acquisitions in a material way.

Okay. That's cute, Florida as you think about Q4 is a good proxy going forward.

Okay. So it reflects that big step up in intangible assets.

That's all I needed that's helpful. Thank you.

Mr. <unk> there are no further questions on the phone lines. Please proceed with any closing remarks Sir.

I want to thank everybody for joining US here today 2022 is an exciting time for our company our shareholders our employees and all our stakeholders. Thank you for taking the time to chat with US here today and I look forward to speaking with you again in May and seeing some of you at our AGM I have an awesome day.

Ladies and gentlemen, this does conclude your conference call for this morning, we would like to thank everyone for participating and ask you to please disconnect your lines.

Okay.

Yeah.

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