Q3 2023 Exchange Income Corp Earnings Call
Good morning, everyone. Welcome to exchange income Corporation's conference call to discuss the financial results for the three month and nine month periods ended September 30th 2023.
The corporation's results, including the MD&A and financial statements.
Cute.
Nine of 2023.
Currently.
<unk> via the company's website or SEDAR.
B for attending the call over to management listeners are cautioned that today's presentation and the responses to questions may contain forward looking statements within the meaning of the safe Harbor provisions of Canadian Provincial prevention Securities laws.
Forward looking statements involve risks and uncertainties and undue reliance should not be placed on such statements.
Certain material factors or assumptions applied in making forward looking statements and actual results may differ materially from those expressed or implied in such statements.
For additional information about factors that may cause actual results to differ materially from expectations and about material factors awesome shot.
And making forward looking statements. Please consult the MD&A for this quarter the risk factors section of the annual impressions.
Information form.
Six other filings with Canadian Securities regulators.
Except as required by Canadian Securities laws.
<unk> does not undertake.
Any forward looking statements such statements speak only as of the date made.
Listeners are also reminded that today's call is being recorded and broadcast live via the internet for the benefit of individual shareholders analysts and other interested parties.
I'd now like to turn the conference over to the CEO of Exchange income Corporation, Mike Powell. Please go ahead.
Thank you operator.
Morning, everyone and thank you for joining us today on today's call with me is carvel, Peter our President and Richard <unk> Our CFO.
There's been a lot of interest in our recent aviation contract wins I have asked Kevin failure, the CEO of Carson here, Dave White, our head of aviation CEO, and Kuwait as well as Jake Trainor CEO and now to join US to answer any questions. You may have about the contracts.
Yesterday, we released our third quarter financial results for 2023, and I am pleased to have this opportunity to share with you some of the highlights from the quarter.
We set a number of record quarter waterworks, including record revenue adjusted EBITDA free cash flow less maintenance Capex net earnings and adjusted earnings.
This was achieved despite the challenging economy, much higher interest rates and whispers of a technical recession beginning to emerge.
Even more importantly, this performance was achieved while we are beginning to deploy the capital from our bought deal common share offering in the second court for.
For several of our growth initiatives previously discussed, including our contract with Air Canada.
That contracts that the provinces British Columbia.
We anticipate adjusted.
Adjusted EBITDA bottom line for the Air Canada investments in the latter part of the fourth quarter of 2023.
Better that contracts as we progress through 2024 and 2025.
Taking a step back.
Our portfolio of companies remains resilient announcements of acquisitions strengthening of our balance sheet at new contracts, where the theme of our second quarter.
Strong operating performance and the execution on those investment opportunities for the new contracts to find our third quarter.
Terms of absolute financial metrics, we recorded a record quarter results in almost all key metrics revenue increased 17% to $688 million up from 587 million in the previous year.
Adjusted EBITDA grew to 168 million from $1 50 last year, an increase of 12%.
Free cash flow less maintenance capital expenditures increased 8% to $74 million, while on a per share basis. It declined marginally by 6% to $1 60 net earnings were $50 million. Despite the decrease.
Interest expense of $8 billion over the previous period net earnings per share was $1 six which is a decrease of approximately 12% and adjusted net earnings was $55 million up approximately $1 billion our.
Our results across the board were record results for any quarter. However, on a per share basis certain of the metrics were lower than the prior year.
The primary reason for this reduction was the increase in the number of shares outstanding due to the bought deal offering in the second quarter. The proceeds from such an offering are being used to fund our significant growth capital expenditures related to the air Canada contract too.
Two medevac contract with British Columbia, Manitoba.
The financial effects of such contracts.
We will have significant positive effects in subsequent quarters as we have previously discussed.
Trailing 12 months free cash flow less maintenance capex payout ratio was 58% as compared to a watermark level of 52% expressed in last year's third quarter. This payout ratio includes the impact of two dividend increases in fiscal 'twenty, two and the increase in the absolute number of shares in fact.
The 12 months dividends increased by 18.
$18 million for 2023.
<unk> to the prior year.
The payout ratio also includes a large increase in interest costs for the trailing 12 months a $43 billion.
With the results posted for the quarter, coupled with our confidence in 2024 due to the significant investments in Canada Medevac contracts, we've announced a 12% increase in our annual dividend or approximately 5%.
Increased from $2 52 to $2 64 teams, our 'twenty two 'twenty year record of a 5% CAGR. It Bears Testament, not only to the strength of our current results, but our confidence in the future.
The third quarter continued to provide evidence of the power of our diversified Bob considering our strong aggregates results, which were achieved with subsidiary subsidiary is delivering solid performance to off those who experienced a more challenging period.
Central Air Service Aerospace.
To deliver exceptional results virtually all revenue streams improved over the prior period.
Strikes I think passenger demand realized and the most notable improvement and resulted expansion of adjusted EBITDA margins.
Our northern Air operators have continued to experience higher demand driven.
Driven by the increasing population of the north the <unk>.
<unk> USD for medical travel at the ongoing need to provide central passenger or freighter.
Our capital investments made in previous periods in our fleet are fixed wake at rotary aircraft drove higher revenues diligent cost management in concert with the greater load factors drove improved margins.
It is also important to note that we have completed long term arrangements with a number of our unions and the majority of our aviation subsidiaries and are working on over the last couple of remaining contracts. This will provide us with contracted cost certainty.
Our aerospace business also benefited from barfly compared to the previous period with both maritime surveillance aircraft.
Aircraft built for the contracted the Netherlands and full operations. Furthermore, the false forced multiplier also continued to fly significant towers for the UK government.
We are very excited about the future contract opportunities and are currently awaiting the RFP from the UK home office for its new contract.
Multi storey window solutions continued to improve because of two key reasons. Firstly the acquisition of BV glazing in May of 2023 with no comparative in the prior year and secondly, a more a more normal production schedule. Your order book remained strong at approximately $1 billion with.
With active inquiries continue to be realized inquiries for new projects are continuing at all time highs. Although the time to convert these to give FERC garter has longer because of the higher interest rate environment for developers. The long term fundamentals of this industry remains strong these longer term tailwind.
Just further by carve out in our outlook.
Precision manufacturing and engineering continued to deliver strong performance of the increases in revenue and profitability driven by the acquisition of half to the second quarter.
With the strong execution by the majority of the other business lines subsidiary <unk> drove the growth of the business.
Environmental access solutions business continues to exceed the metrics we've purchased it apart.
At quarter end, assuming our trailing 12 months runway.
Comparative return of capital would have been well in excess of 20% when we compare this year's quarter and results to the prior year. The operating margins have declined as we've previously commented that the prior year was due to it.
Alignment of price supply demand at weather, along with your practical capacity for the utilization of rental that that.
That combination of factors was unsustainable in the longer term as a result of moderating. Furthermore, this year was characterized by an unfavorable dry and hot summer.
Historic wildfire season that reduced demand for Max.
That said totality Northern pass has been a positive contributor to our results based on the acquisition matrix and its return on capital.
Our aircraft sales Elisa business continues to recover from the pandemic the assets within the leasing pool contingently replaced at least on a consistent cadence throughout the quarter any deferred the quarters.
<unk> was impacted by the worldwide pilot shortage. Furthermore, revenues in the business I were also impacted by the fewer large asset.
Engine sales excuse me compared to the prior period.
It is important to note that the asset sales in the prior period.
EBIT to the current period are high on a relative basis compared to pre pandemic periods. As a reminder, such asset in engine sales are generally lower margin higher dollar sale transactions.
Instrument, which is the aircraft sales of leasing business continues to diligently look for opportunities for investment in this opportunistic market.
Yes.
In the third quarter, we saw a record set key metrics on an absolute basis. However, Betty will go for.
Share amounts are below Q3, 2022, which were quarterly high watermarks previously I've mentioned, the fact that the Q3 per share about rip acted by the capital that needs to be deployed on those longer term contracts announced in the second quarter.
At <unk>, we have always taken a longer term view of our investment thesis. We believe that those contracts will provide meaningful increases in revenue adjusted EBITDA profitability as we move through 2024 due to 2025.
We like these investments for a number of reasons. Firstly there are a core competency of our business. Our business is a bit involved that have acted scheduled flying services for over four decades.
Secondly, the customers are either large corporations like air Canada for governments there.
There are consistent stable cash flows.
Associated with these contracts and finally and most importantly, those contracts met our hurdle return on invested capital metrics they are accretive to our shareholders.
Over the long term on a per share basis.
To provide an update on his gross initiatives communicated in the second quarter.
Yes.
And our second quarter, we announced that we have left to report broad curb medevac contracts with provinces British Columbia, Manitoba, we have grown to be Canada's largest medevac provider.
These two new contracts strengthen our critical mass even further both of the contracts for 10 year terms, including options.
And exclude options to extend beyond that.
The significant contracts will require aggregate capital deployment of approximately 275 billion, which has already begun and will continue over the next two years with full scale fly not expected until 2025.
During the third quarter, we acquired three of the five aircraft.
Related to the government about October contract.
Those aircraft will be retrofitted with <unk> turbo interiors over the next couple of quarters after which they will put into service in the early part of.
Early part to mid 2024.
We anticipate the receipt of our first brand new King Air in the fourth quarter after which it will be it.
Conducted at <unk>.
Yes.
It will be retrofitted with the interior for about of that purpose.
This aircraft will be received in a regular cadence over the next six quarters. Our returns on capital. This investment will be most evident to 2025 thereafter, but all of the aircraft are acquired at the existing aircrafts that we use for the government of BC or redeploy.
During the second quarter.
We also announced and finalized an agreement with air Canada to provide regional servicing eastern Canada for up to five years. The agreement will require up to six additional <unk>.
Dash eight 400 aircraft and substantially expand our maritime operations.
Completed our first flight on July the first use of existing capacity.
Wired.
Wired the additional four aircrafts.
A third and fourth quarter the returns this quarter.
Trac will begin to be evident in the back half of the fourth quarter with the full impact available in fiscal 2024.
We are also seeing growth opportunities within these new contract opportunities as discussions with the Havent been a bcf led to additional aircraft being added to the contract and further discussions are ongoing.
In the second quarter. We also started our contract with the UK home office, we anticipate the release of an RFP for the competitive bid process for a new contract with the UK office to occur in the fourth quarter of this year or early 2024 as the company we are well positioned as we continue to demonstrate.
This should success on the existing short term contract.
In our manufacturing segment were continuing the integration of Hudson and BV Glaser COO Darwin Sparrow has been spending significant amount of time with the classic BV Deicing management team's focus is to find innovative and creative ways to.
To create efficiencies leverage our collective purchasing power.
And rationalize our production space footprint. These activities will facilitate further growth and decreased merger margins in the longer term.
Subsequent to the end of the quarter, we announced the acquisition of dry here.
<unk> is the leader in portable hydronic heating equipment in North America dry air is characterized by their innovative customer centric approach and we believe that it will be a great fit within our EIC family of companies.
All of the boxes that we look for in our <unk>.
Acquisitions, Theyre profitable well established and a strong management team both closet Barlett, who are the majority owners will continue in their previous roles.
<unk> operates in each markets generate strong steady cash flows and our price for continued organic growth within the retro market in North America.
Lastly, our work completed in the second quarter.
The upsize and extension of the credit facility, coupled with the bought deal offering has put us in a strong leverage position on our balance sheet, which will allow us to execute on our investment strategy as well as opportunistically to acquire businesses and assets of this market.
Our pipeline for acquisitions continues to be strong and our diligent management of our balance sheet provides us with significant capital deploy when the right opportunities are presented.
Our bottle could use to resonate with owners.
Recent acquisition of dry hair, the majority shareholder quote wrote to me.
In our boardroom in July.
<unk> explained the philosophy at values and the culture of EIC.
We felt that we had found the people we wanted to work with.
I am very proud of the culture at values that we have developed over the years, our subsidiaries' subsidiaries have become our greatest champion of our business model. While we are actively considering deals discipline will remain one of the key principles of our decision making to ensure we acquire companies it's a requisite.
Strong management teams and strategic business initiatives with future growth opportunities that enable accretive growth to our shareholders. Our management teams will be busy over the next number of quarters continue to integrate the business we acquired in 2023.
Readying, our centralized services businesses for the operation of the new aircraft aircraft to fulfill our contract wins, including a hiring as integration of crews.
Our other teams will be continuing to execute on our strategy to ensure that we.
Our strong sustainable diversified cash flows that our shareholders expect.
Our results continue to demonstrate the resilience and sustainability of our business model.
Taking a step back in 2019, our revenues in the third quarter were $355 million.
And adjusted EBITDA was $89 million.
Fast forward four years, which included the pad debit revenues have grown to 688 million and our adjusted EBITDA grew $168 million.
<unk> average growth rate of 15% for both revenue and adjusted EBITDA that growth was accomplished through both acquisition and organic growth.
Furthermore, our industry diversification has shown its value throughout the pandemic and its continued to distress demonstrates its importance today and into the future. It allows us to deliver consistent meaningful financial performance irrespective of the economic geopolitical conditions of the day.
On that basis.
As a result of our strong results on a year to date, our confidence in 'twenty four.
2024, and beyond we made the decision to increase our dividend by 12 to.
To $2.64 per App.
We are focused on succession planning at our company as we grow and we realized the need for strong management teams.
Carmel Peter our President has announced that she will be retiring subtype during fiscal 2024.
But I'm pleased to say XI robot believes the EIC she will be joining the board.
Subtype during that period.
We have developed people within the company and we will be announcing the management changes to fill Carmel shoes, what she satisfy update Rick.
Excited to have her stay with the company.
Our future is bright our business is built on a solid foundation and the diversification of resilience. So short in our results. We are looking forward to the contributions made from our 2023 acquisitions and our growth capital expenditures as we move into 2024, I will now hand, the call off to rich.
Thank you, Mike and good morning, everyone. The third quarter was another example of the benefits of our diversification and focus on our long term instead of focusing on one quarter at a time.
Consistent with our expectations and past exposures.
Higher period was the perfect quarter for environmental access solutions business and sustaining capsules at that level in 2023 was not feasible.
That meant that our other existing operations plus contributing contributions from our 2023 acquisitions not only covered the shortfall leveraged strong period over period results.
Adjusted EBITDA was $168 million, an increase of 12% over the prior period, the aerospace and aviation segment adjusted EBITDA increased by 24 million and was partially offset by a decrease of $6 million in the manufacturing segment.
Increasing our aerospace and aviation segment can be summarized into two buckets. The first is a steady recovery from the impact of the pandemic on our airline operations.
Second is investments we have made into our operations over several quarters and in some cases years as we had our sights set on the future. Those investments are now producing the returns we expected increasing adjusted EBITDA over the prior period.
Investments allowed us to win contracts in the Netherlands, and the United Kingdom.
Also entered into a contract there, Canada, which started to contribute in Q3, and two medevac contracts, which will not be fully operational until early 2025, we continue to make these types of investments to support our future growth.
The decrease in our manufacturing segment was driven by the environmental access solutions business as discussed above this decline was partially offset by increases in our existing businesses due to the resilient demand for their products and our 2023 acquisitions, most notably our preexisting businesses in a win multi storey windows solutions.
Business.
<unk> contributed strong period over period increases as a more normal production schedule and benefited their operations.
As Mike previously discussed during the second quarter. The Corporation, we did an equity offering of common shares you're offering with the largest in our history by a wide marketing margin and was materially oversubscribed.
The only significant and accretive growth opportunities we have in front of US we took the opportunity to raise more than we have initially went to market for knowing that these funds will be deployed over a period of time, while this temporarily increased our shares without a corresponding contribution to adjusted EBITDA and therefore negatively impacted our per share metrics, we plan for the long term.
This is consistent with our past practice practices always ensuring we have the capital available for it as required to ensure that when the opportunities materialize. We put we have capital put to work.
Both net earnings and adjusted net earnings increased by 1% over the prior period the per share results declined due to a 14% increase in shares outstanding driven primarily by our common share offering in the second quarter of 2023.
The increase in adjusted EBITDA, which drove the increase in net earnings and adjusted net earnings was mostly offset primarily by two items increased interest costs and depreciation on capital often.
Interest costs increased over the prior period in lockstep with increased benchmark coronary over the prior period. In addition increased long term debt outstanding due to investments made to increase interest costs.
The increased interest.
This increased interest cost by $8 million in the quarter and $43 million on a trailing 12 month basis. The impact from increased benchmark borrowing rates would have been larger had we not entered into.
Two rate swap transactions in 2023, these two transactions fixed costs and approximately $540 million of our credit facility debt.
Depreciation of capital assets increased for two reasons first the acquisition activity of the corporation contributed to the increase in 2023.
Second investments made to increase the size of our fleet and increased fly that fleet also contributed to the increase in free cash flow means capital expenditures increased 8% over the prior period due to increased free cash flow and lower capital expenditures, our free cash flow increased due to higher adjusted EBITDA compared to 2022.
Increased interest cost, partially offset the increase in adjusted EBITDA.
Our payout ratios, both on a free cash flow capital expenditures basis and 58%.
Adjusted net earnings basis, and 78% remained near all time lows on a trailing 12 month basis, we expect it to realization of returns on investments already made including our two most recent acquisitions and returns to be realized in contracts. We have already won and announced we will continue to drive these ratios lower overtime and <unk>.
Continued dividend.
The increase was consistent with our historical dividend growth.
Capital expenditures of $81 million were made during the quarter. These investments are focused and essentially our services aerospace aircraft sales and leasing and environmental access solutions and.
And essentially our services investments were made in additional aircraft for IQ eight medevac contract and for our terminal expansion in Winnipeg. We have also purchased aircraft for a CPA with air Canada as we ramp up our service under the agreement with significant deposits have been made on aircraft for our recently awarded medevac contract with <unk>.
Aerospace made investments for its renewed and expanded contract in curacao.
Aircraft sales and leasing made investments into additional engines for release as the lease market continues its recovery from the pandemic first from the pandemic and now from a worldwide shortage of experienced pilot environmental Axis solutions made investments in it as rental mat portfolio. During the quarter. This was strictly based on the timing of when mass produced and is not expected.
And is expected to reverse in the fourth quarter.
During the first quarter as we messaged in the fourth quarter of 2022, we had a material outflow from working capital, which was primarily driven by receivable that was collected in the fourth quarter of 2022, but the corresponding payable was not due until 2023 working capital investment outside of this outflow was focused on investment in inventory.
Aircrafts for resale aircrafts sale and leasing and a modest increase in working capital to support increased revenues.
Investments in the quarter for working capital during.
During the third quarter are seasonally busy this quarter was well below historical norms and $7 million.
Our senior leverage ratio at the end of the quarter remains consistent with our historical targets at two four times, our total leverage ratio when including our convertible debentures continues to decline as the debentures have not increased at the same rate as our adjusted EBITDA over the last 18 months historically our growth vectors have represented one times.
And adjusted EBITDA within our capital structure, whereas now the debentures, representing approximately three quarters of a turn of adjusted EBITDA off of 2023.
Using the midpoint.
That concludes my review of our financial results I will now turn the call over to Carl. Thank you rich the fourth quarter is expected to provide a solid finish to 2023 year. We are anticipating adjusted EBIT for Q4 of 2023 to be higher than in <unk>.
Q4 2012, driven.
Driven by growth in the A&D.
Right.
Yes.
<unk> Air service business is not in any material.
Tactically the economic factors that affect mainline carriers and will experience year over year growth in Q4.
Passengers and freight driven by need medical necessity.
Food and essential goods.
Not by choice or disposable income.
This is driven demand precludes a more higher level and has caused us to add aircraft capacity, both passenger and trade here that will be operational in Q4.
So adding to the year over year growth and the stability of this revenue stream is our services agreement with Air Canada. Although we started in July providing some slight capacity with your existing fleet.
For the year this will be replaced with the initial kind of Q4 aircrafts.
Similarly, our <unk> business has continued to grow additional medevac aircraft, we were contracted to provide in Nova Scotia in August and increased catastrophe question.
Okay.
Offsetting some of these gains are the interest expenses from raising rising labor costs experienced by our air operators driven by the flight and duty regulations and the industry wide shortages from pilot to aircraft mechanics, and medical personnel, although some of our air operators have already been able to pass. These on others will have to wait until contract renewal.
However, even absorbing these costs our margins remain strong.
As we look forward into 2020 form are essential.
This business is just really performed strongly given the nature of it the demand the capacity we added in 2023 Air Canada contract and will be further bolstered by the medevac contracts we won in 2023.
Ken you submitted that contract will be contributing to the financial results throughout 2024, but we will not see the financial impact until all new medevac aircraft are delivered and operational in our existing aircrafts are deployed into other opportunities, which will take us into 2026.
Matter of fact contracts one in that total will slowly start contributing to financial results in March of 2024, when the first aircraft goes online and will increase to its expected run rate in Q4 of 2024 when anticipated when we anticipate all aircrafts game operation.
The aerospace business line is also expected to have growth in Q4, primarily driven by the full engagement of force multiplier doing maritime surveillance work for the U K home office.
Aerospace is also bolstered by the Netherlands operations, which did not commence until late Q4, 2022, and the high tempo flying in the UAE in Curacao.
The force multiplier being on contract substantially all of 2024 and other key operations being on your long term contracts such as our DSO contracts, Netherlands curious, so fixed wing search and rescue the areas.
<unk> Aerospace business line, we will provide another strong reliable source of earnings in 2024.
Although our aircraft sales and leasing business continues to be challenged by the impact of industry wide pilot shortage and MRO availability.
Expect continued year over year growth in Q4.
Anticipated growth is driven primarily by material increases in leasing revenue, which is very encouraging we expect the leasing portfolio to continue its recovery into the first part of 2024 parts sales.
Sales in whole aircraft and engine sales are also expected to be solid in Q4, consistent with historical levels, which will continue into 2024.
Now turning to our manufacturing segment.
MS access solutions business is not expected to outperform Q4 of 2022.
As a fourth quarter record for perfect map with a perfect alignment of price demand.
Q4, 2023 did not have the same perfect alignment is being further impacted by less favorable weather increased Matt decline and the demobilization of a large pipeline project.
As such we expect Q4 this year to be approximately 40% of the client.
Higher quarter.
But to put this in perspective, the expected results in Q4 will be greater than the metrics on which we purchased northern Matt in the 2024 year, we anticipate pricing and demand to be in line with what has been experienced in the second half of 2023.
Fair enough.
Our mental access functions will be materially offset by the growth in our multistory windows solutions.
Which will be material growth in Q4 over prior year.
Drivers are the acquisition of <unk>, which does not have comparative in Q4, 2022, and the increased volumes at west.
In Canada. The U S continues to be extremely active with the conversion of those closed in the backlog is being delayed with uncertain economic conditions and higher interest rates.
Those same market variables are also causing some jobs to push out which could impact demand. In 2024. However, we may we remain bullish on this business line and the fundamentals, which drive demand immigration urbanization and a lack of affordable housing remain incredibly strong if there will be a slowdown we believe it will be <unk>.
Turning followed by a shirt and demand.
Recent acquisition of BD glazing will be well positioned to capture this increased demand also in 2024, and we expect to start to see the financial benefit of synergies being captured between NPV glazing.
Precision manufacturing engineering business will also see comparative growth.
Okay.
This year's acquisition enhancing in dry air performance in 2024 is expected to be similar to 2023 normalized for the full year of operations for Hampton.
That were acquired during 2023 with respect to maintenance capital expenditures for Q4, we anticipate levels.
Slightly higher than last Q4, your flight hours to support increased passenger and charter volumes together with inflation labor shortages and supply chain issues growing fleet size and acquisitions are the factors contributing to the increased gross investments for the aerospace and aviation segment. In Q4 are focused on the upgraded surveillance aircraft.
The renewed curacao contract the construction of the Gary Philbin Indigenous terminal Q4 hundred aircraft acquisitions to fulfill our agreement with Air Canada Investor.
Investments in aircraft and infrastructure for the newly awarded.
That contract and payment towards the construction of our King Air simulator.
With three completed acquisitions already this year, our acquisition pipeline continues to be as strong as ever.
Never has been.
The higher interest environment has created.
With the acquisition prices.
Sure.
To be more competitive.
More transactions, particularly larger transactions.
With capital on hand from the equity raise in the second quarter.
Thank you.
The acquisition market.
We are on track with our 2023, adjusted EBIT guidance of between $540 million and $570 million turning towards the middle of that range. As you look into 2024 and take into account the contracts that you've won.
And the timing that they will have a material financial impact our prior investments or acquisitions organic growth as well as increasing cost inflation and the impact of current economic conditions on the manufacturing businesses. We anticipate our 2024 adjusted EBITDA to be in the range of 600 to 630 <unk>.
$5 million with further growth anticipated in 2025, as our new contracts mature discharge outlook together with confidence we have in our operating fundamentals.
Underpins our decision to increase our annual dividend by approximately 5%, taking our dividend from <unk> 52.
$2 64 per year. Thank you for your time this morning, and we would now like to open the call for questions operator.
Thank you.
We will now conduct a question and answer session. If you do have a question. Please press the star key followed by number one on your Touchtone phone you will hear Raton acknowledging your request.
Questions will be pooled and directory that they are received.
Sure you lift the handset if youre using a speakerphone can be furbishing any keys one moment. Please for your first question.
Your first question comes from James MC Gurgle from RBC. Please go ahead.
Hey, good morning, and thanks for taking my question.
Good morning, Jeff.
Yes, I just have a question on the 2020 for guidance and some of the new contracts that you have coming on.
Press releases seem to allude to some of those recent wins being pushed out to 2025. So I guess can you just speak to the.
Timing of how you expect those contracts to ramp up.
You also mentioned the BC government, calling for Gov.
<unk> is increasing.
Amount of planes are going to require can you just kind of frame that opportunity and when we're thinking about the magnitude of these contracted 20%.
You bet returns still look good.
References.
Yeah.
I'll take the big picture stuff.
Kevin talked specifically about the contract.
The.
We said that the.
The returns on those contracts are above our 15% threshold.
I don't think I gave a specific number so I don't want to comment on 20 per se, but it's about 15.
In terms of the rollout of the contract.
We havent even received our first airplane yet we're starting to fly some of the areas with other aircraft, we have but the real contract doesn't really begin until we get those contracted those aircraft in service and that's really not going to begin until later next year and with not a full effect until sometime in <unk>.
<unk> 2020.
Five.
Kevin maybe I'll hand, it to you to talk about like the overall contract of the size of the contract.
Thanks, Mike coming to the personnel.
We will be receiving our first new aircrafts as Mike said.
The first quarter of 2020 for better craft will go into service at the end of the quarter.
We are operating the contract right now with the existing aircraft that we had in those aircraft will continue in a transition phase throughout 2024 and into Q1 of 2025.
We have discussed some growth opportunities.
Added one aircraft you'd contract already at this time.
And there are future opportunities as well with BCG adjust.
No no I appreciate the color.
Yes, Thanks, I appreciate the color there and.
Just another question on the Windows solutions business.
There's a recent article in the global mail talking about some payment issues.
Did the developer.
Toronto in the Arctic mentioned.
$10 million payment at the BV glazing, specifically that was up Pops do you are you able to comment on this just trying to understand.
Be part of a broader issue.
I think I would say, it's a challenging time for some developers interest rates are higher and financings are squeezed.
We don't really like speaking about individuals' developers, we have great relationships with these people, we intend to keep building with them.
Project.
That was mentioned is that our calls their payments are current with us.
There has been recent into I'll turn it over thanks for having me on.
Thank you.
Your next question comes from Steve Hansen from Raymond James. Please go ahead.
Yes. Thanks, Good morning, guys. Thanks for the time, Mike just first broader overarching question for you the business continues to advance and grow in size and scale and complexity of course.
Good luck with reports.
The call has already described but.
You've also described the pipeline as being robust how do you feel.
Current macro picture and continuing to push ahead with additional acquisitions here in the current landscape it sounds like capital build to these high.
How you are you to continue moving forward.
Yeah, I think that's a really good question.
Yeah.
We've been consistent through our history above being disciplined in what we pay for businesses.
Hasn't changed any in this environment.
I will say that with interest rates, where they are today, we're probably a little bit more aggressive in the returns we require because instead of paying two or 3% were paying five or 6% for interest rates and so.
Well it hasn't changed my hurdle per Se, a 15% were were very dog adequate only picking the best stuff within that and there are a lot of good opportunities.
<unk> is a great example, Steve I mean.
Run by a family that cares about their employees. They built it for I think they are industry leader in a very unique little market niche that has continuing upside and so it's kind of the company kind of companies that we've cut our teeth on with with the IC and we expect to continue to do those deals in the near term.
So we're cautious because of the economic environment, but.
Quite frankly, the best deals are done in challenging times so.
That's why we raised our capital in advance it we put ourselves in a position where we could take advantage of it.
That's helpful. Thanks, and just one follow up just quickly on the force multiplier to balance business. It sounds like the short term deal with the UK home office has been incredibly busy there's a new opportunity on deck. It sounds like is there a way to frame what the new opportunity might look like in terms of size scale tenure.
Term as.
As we think about that opportunity and maybe just broadly in Europe in general.
Sure.
The contract.
He hasnt coming out we have some rough ideas of parameters I think I'll, let Jay take that.
She is direct bailiwick, so perfect. Thanks, Mike and Steve I appreciate the question.
As Mike pointed out the RFP, we're anticipating it to come out this month or certainly in this quarter, but we do know is that they are going to look for more capacity what shape shape that comes in we're not sure until we see the RFP release, So that will guide us in terms of additional assets.
And to your question about Europe in General, we certainly see that as a strong market that will continue to develop we have a great footprint with the Netherlands contract further expanded by the U K and that's a great base of operations to expand from.
I appreciate that guys. Thanks.
Your next question comes from Matt <unk> from Canaccord. Please go ahead.
Good morning. Good morning, guys. This is study all format Lee.
So for the first question I wanted to ask more about the amount of that contract in the context of how fixed the size of them are <unk>.
Right for extending the length is there opportunity to upsize the contract in terms of aircrafts, yes.
Yes, Kevin mentioned that I've been to go the government has already added additional capacity in some of the basis that we're in I think it's fair Kevin to to say that we're in discussions with the government to add.
Additional aircraft and additional capacity in other markets and so while we started with approximately a dozen aircraft in this.
That that could grow significantly over the next quarter or two now I would make sure I caution everyone that if we add these extra planes, we're going to have to go buy that and so those arent going to get here till 2025.
As we add them.
The contract will be will start when they get here. So I think it's we're still going to have a long term on those types of autos those new aircraft. We're in discussions with the government.
I'm very happy with the state of the relationship both in British Columbia and in Manitoba.
We implement these and work with the government to provide the service started looking for.
There could well be opportunities to expand the Manitoba contract as well, although I think I would say that those are more preliminary.
<unk> D C, where we've already added contracts, Kevin or Dave anything you'd like to add to that.
No.
Kevin <unk> and yes, I agree with everything Mike said.
I've got a great relationship with VCA adjust for 30 years.
They chose us to be the primary provider because of our track record and we certainly hope to.
Continued marinas contract as we move forward over the next year.
Yes.
<unk>.
Sweden there.
The same message here from the Manitoba contract great relationship with the government and as Mike mentioned.
Kevin is a little further ahead decided earlier and get ready to bring into your planes. We've accessed our airplanes, where we still have to modify that employers and put them online and there is language relating the initial four potential.
That'll be up to the government as the relationship develops what services they want.
We're looking forward to we're looking forward to do.
Great New services people, another tool and Thats, what we do what we've done for decades.
Thanks, and Jason in terms of growth Capex.
Could you provide more color on this.
How much we're expecting for 2024.
And how much of that is related to the aircraft required for the new contract.
We haven't finalized our growth Capex for 2024, but I can give you some color on that most of the stuff for Dave has already purchased so the Kuwait project will show up in Q4 of this year.
Same with the work for <unk> initial four planes for Air Canada are also already purchased.
Somewhere in Q3 somewhere in Q4 with Dave and then finally.
In D. C. We have deposits on aircraft already we've made payments to the manufacturer, but we haven't taken delivery of anything get well paid for one this year.
As we get that in the next week or two and then the balance will be paid off over the next sort of six quarters as they come in as they come into service and to the extent the contract is extended that would continue.
The new aircraft, we would add on the back end of that to work.
We're in kind of 'twenty.
Capex would include that we've already talked about it during our King Air Stimulators.
You will be getting.
For as well as the.
Completion of the terminal expansion that we're doing for perimeter.
Alright, Thanks, I'll pass the line.
Your next question comes from Christopher Friesen from CIBC. Please go ahead good morning.
Chris Thanks for taking my question good morning.
I was just wondering.
Looking out at your 2024 guidance can you.
Can you walk us through how you're thinking about northern that for 2024.
And I guess, what a more normalized year looks like would that be similar to what we've seen this year.
Yes.
Northern Matt.
Has the perfect.
We call it a unicorn year last year, where everything lined up this year has been also a strong year, but it's the Iraqi when you're a public debt. The second best year in the history of the company. If it follows the best people.
It's not great. If we could if we could photocopy this year I would do it.
Next year.
The challenge with the business as the <unk> contract.
The rental back so good returns all the rental companies were still doing work on pipeline, but with thereabouts. So the revenue side that has declined you'll notice that in the first quarter of the year.
There is a sight line to stronger oil and gas business next year.
The fires in the hot weather deferred things this year. So the outlook through that on a go forward basis as strong together with particularly the back half of the year and enhanced.
<unk> got that transmission and distribution for electricity part of the business and so you see you will see that ramp in the back half if it if we want to talk about we don't give specific.
Specific guidance per se, but what I would say is is that.
<unk>.
<unk>.
The company was bought off of a return that are 50% guideline and if next year were not to.
To be in that range, which I would expect that it well.
It gets you EBITDA, depending on how you do the calculations of 70 something million dollars, that's not a specific forecast, but more a general comment about that's where it needs to be to generate our 15% return and we'd also look to see some greater activity in eastern Canada.
Not this year, so we look at that as a.
Potential growth as well and we look forward.
Some of the gaps.
<unk>.
Jack.
<unk>.
The one other thing I would point out is we've taken advantage of the slightly slower year. This this year to review our fleet and upgrade our AD inventory by putting more.
Newer match into the fleet as opposed to selling those to third parties, which is puts us in a position as we ramp again later next year to have a fleet that's ready to go and generate higher revenue. So the average age of a back of our fleet was improved significantly by by mid next year.
Yeah.
Okay, great. Thank you and just on your M&A pipeline as you as you look at it right now.
Would you say that it's that splits more.
Towards the manufacturing segment versus aviation.
Are you looking more at the smaller acquisitions.
Versus larger ones like northern that.
I would say in terms of number of.
Number of opportunities I would agree exactly with what you said there is more on the manufacturing side there are on the aviation side.
There are bigger opportunities as fewer of them.
And the bigger opportunities would fall into both categories, but I think it's important when we look at M&A.
As a general thing for US is it's just a natural progression of us to.
Move towards a slightly more of a balance between manufacturing and aviation.
We're driving to get there by choice.
By the sum total of the opportunities we are already dominated carrier.
These share lines of Canada, and so by definition the number of things left to acquire is shrinking.
And if we could find more power.
<unk> aerospace's or we're going to jump all over and there are opportunities, but we are fishing in a declining barrel and that there are international opportunities that we look at but the number of states that are related to our manufacturing enterprises are virtually limitless. So.
If we're something like 70 30 today, if we look at this five years from now I think that will be closer to 50 50, not because we like aviation maybe last just because there's less items left at the store for us to buy.
Great that makes sense I'll jump back in the queue. Thank you.
Your next question comes from <unk> Gupta from Scotiabank. Please go ahead.
Good morning, Thanks, operator, good morning, Mike and team. Thanks for taking my question.
The color.
Carla provided on 2024 EBITDA drivers are wondering if your guidance for 24 includes any unannounced acquisitions with contracts.
No those are anything we enter.
Anything Thats announced subsequent to this would be more result in an increase of our guidance.
Thanks for clarification Mike.
Moving on the regional one side.
We're seeing sort of an uptick here a little bit.
They're losing business clearly.
It's not back to pre pandemic levels yet.
Obviously, those sales and services.
Pretty lumpy.
The industry has.
We used a lot of challenges with some of these incremental Jonathan.
Micro capacity side and engines.
Brad issues and all that.
On the regional insight, how do you see the demand for zinc versus outright sales for aircraft.
The E quite honestly character is greater.
Our visibility.
On the leasing side.
It's growing month over month continues to grow at I mean, it's one of those things it's never fast enough you always wish it was it was quicker but by the time, we get into next year.
Our lease utilization rates start to match, what they were pre COVID-19.
We got a pretty good view into that with with leases that have already been signed or letters of intent or we've got a pretty good idea where a lot of those assets are going on the big asset side. It really truly is an opportunistic kind of staying a somewhat watch what we can generate the right margin we'll sell them.
To be honest, our core business is our parts business everything else is there to support parts business and you mentioned it earlier the thing that makes me probably.
Alicia portfolio, most bullish as we are actually starting to be able to get the MRO opportunities to stripped down some of the aircraft to get them into our parts inventory. It's frustrating when you got a plane you got a landing gear and you've got a customer.
Get the landing gear off the plane to sell it to the customer and so.
We've seen some improvement did not to be clear the MRO capacity is still tight but it is getting better that will help our parts business the leasing business will strengthen because of demand.
I wish I could give you a better answer on the other.
The big sales other than to say, it's spotty and it will continue to be that having said that it remains reasonably strong. The doctors. We had this quarter were good Q4 also looks good but beyond that in terms of big asset sales. We would go about what thats going to happen in February already or.
We do it this quarter.
And just a couple of additional comments.
Where we're seeing the opportunities.
Our focus in Europe, and Africa and on the engine side.
A lot of her actual whole aircraft are already on Lee.
So we hate to interrupt.
Hi.
And I appreciate that.
For me.
Big picture question, perhaps.
As it grows the number of subsidiaries under the umbrella.
Did you see an opportunity to consolidate some of them to create synergies. So you have seen some rollout trucking companies in Canada, finding a lot of success with this consolidation strategy.
Oh, I think we're doing that I think I think youre right.
You see with Darwin championing our project on our window businesses, where we've got BV glazing of quest that we recently bought.
West has helped me with my.
The other glaser.
Wi that's really under one one group of people now are airlines, while we've got multiple brand names.
We are interchangeable assets.
Like we're sure we share planes to a greater extent than we ever have.
Bid our overhaul work together, we buy parts together there are advantages, particularly in aviation the housing separate entities for operating certificate reasons.
For Union reasons, and so those businesses will continue to be autonomous, but we're trying to scoop. The cream off in terms of the synergies were taken and you can see that as our margin has increased and quite frankly, our ability to purchase regional one has been a bit I'm not sure we could.
Got up and running on Jake's Air Canada business I'll give it to talk about that maybe but.
That's it or want it would've been tough to find those aircraft well not only in the aircraft, but again the parts because every aircraft per car inventory too.
Make the aircraft.
Operations continue on in regional one plays a very big role, giving us access immediately to bring these aircrafts that stand up the operations quickly.
And I think one of the things from our perspective, it may be hard to doing a better job.
Telling the story, because we're not buying acquisitions and rely on the synergies and hit our returns kind of using mics and Alexander kind of sprinkled on the Sunday, We don't maybe we don't do a good enough job letting the market know of these types of opportunities as we're executing on them.
I appreciate the time, thanks, so much.
Thanks.
Your next question comes from Kamran Dark.
Financial Please go ahead.
Cam.
Yes. Good morning. Thanks, Thanks for taking the question good morning to everybody there.
Okay.
Two questions from me, maybe first sort of on the on the 2024 outlook here for your guidance I mean, we all know that the.
The tailwind here from some of the new contract opportunities I Wonder if you could just maybe talk about what you've kind of assumed as potential headwinds in some of the other businesses talked a bit about northern Matt, but what about some of the other businesses like what's your kind of underlying assumption as far as end market demand I guess broader economic conditions.
Think the only.
On the aviation side of the business.
There's virtually no impact of the economy I shouldn't even say virtually theres no impact the demand for our core passenger freight business is very high and you can tell by the fact, we're adding airplanes, we wouldn't be buying higher.
If we didn't have to add so.
Confident on that side of the business.
Same with our <unk> business outside of the contracts like our existing staff the utilization of the aircraft remain high so really got we've talked about regional one's assumptions, how we expect to see it continue to return and then ultimately surpass pre.
Pre COVID-19 levels.
So I think that covers off and our maritime surveillance businesses I mean quite frankly is almost as good as it can be all our planes are flying we're bidding on new work. It's in a great shape I am confident in our ability to.
Redo, our our contract in the UAE hopeful we'll have something to speak on that in the near term.
So.
All good there the manufacturing there's a little bumpy just didn't order books and some of the smaller companies, but nothing dramatic as it relates to <unk> as a whole I would say the one economic piece that's variable that I think has significant upfront side for us maybe not until the back end of the year or two.
25 is quite frankly, the window business I've talked about this a lot.
For us things we're bidding on.
Is unprecedented we actually hired people to keep up with the bidding people are waiting to pull triggers on things and the government keeps pouring fuel on the fire, whether it's in Canada, where they take taxes off of the construction of these projects or our president by the United States announcing 30.
Billion dollars towards the conversion of office struck buildings.
Residential buildings.
The opportunity for that business.
To grow significantly.
In the medium term I think is significant.
Say, it's kind of like predicting when the interest rates have peaked.
We're starting to see things that make us think its coming and coming sooner rather than later, but it's it's too early for me to give you a hard thing on that so I think the window business is kind of bump along in 2024, but we could see on the horizon, we could see it coming and I honestly think it's all going to be very long before.
Where are complaining about the fact that we're struggling with capacity to.
To take advantage of the opportunities in that business, but in the near term that business I think.
Just kind of chugs, along we've got a flat order book some of the projects are delayed a little bit.
But not dramatic.
The upside there is significant.
One other thing I've got a couple of people talked to me offline about.
The forecast for 2008, our guidance for 2024, and why like maybe it should be higher.
Quite frankly, it's it's it's two things one is there's nothing in that forecast that isn't already announced and paid for or contracted for so we always grow we always add things I expected that stopped going to change in this period.
Good thing is is I think there was a perhaps a slight misconception that maybe we didn't do a good enough job of talking about all the work that had to be done to start flying that of that even if you have to play what's it going to take us Kevin per aircraft to it takes time to turn them from an airplane that at that point.
Two and a half.
Once per hour.
Yeah. So.
We've got over a dozen of them going there we've got David got another five there and so that I think they're there.
We may not have done a good enough job of delineated when that stuff is going to hit our income statement.
And then.
Quite frankly.
We've always provided guidance that we're confident we're going to make and I think our track record shows that when we give you a number.
It's usually that number or higher and so.
Sure.
We're not we're not going to.
Make frothy forecasts I'm comfortable with where we're at I'm confident that theres ways, we could beat that number and most importantly, I'm really confident that we've got growth going into the next year like if this is if we're here 635. This year, we're going to be well on our way to change it in that first digitally in the fall.
Nevada.
I just want deal in there that were probably.
On our way to breaking through the 700 barrier. So it's like I say, it's a matter of slow and steady and that's why I put that commentary into both the third quarters since 2019, where we've generated 15% growth year over year through a pandemic, which I think is.
If you could any of the comparative people use for us don't match that.
Yes, absolutely no definitely definitely solid visibility here running much past 2024, so that's that.
Helpful and maybe you can just very quickly just ask you about where things are on the pilot front.
Sort of asked because it <unk>.
Some hiring needs here with the matter of fact contracts I guess, what's your level of confidence of being able to staff. All of these aircrafts that are coming in over the next 18 months.
I'll, maybe let my guys talk about it but what their experience. So I think at a general level. There is still a shortage of pirate pilots in the industry.
Describe it as having gone from a crisis shortage.
Really annoying shortage.
We're proud of the fact that we saw this coming in 2017 or 2018, when we bought Moncton Flight College, we had the ability to train up our own pilots and I think some of our.
Bigger airlines comparative as they're now talking about their flight school as well.
Quite frankly, it's a little late to the dance, but I'm glad they're doing it because the more their own pilots they trained.
The board there are in the industry. So we're happy we're happy to see that.
I'll open it up to my three guys they've got commentary thanks.
Thanks, Mike.
Wait here.
The pilot situation before the Cold Lake.
Mike said, it's been an industry challenge across the board it wasn't a crisis level, probably last year now settled now, but this will settle down for us just because there's more violence, it's more of a creating pipelines.
<unk> mentioned MFC, our license like programs, we've been able to generate a Florida that is also our PE skills across or airlines for niche markets were in a very competitive.
We offer a good workplace solids across a multitude of operations with people actually get a choice and to pass me when they joined EIC group companies.
A lot of attraction features that help us deal with this on a daily basis, but we don't take our foot off the gas as they say in respect to this we know we got new contracts you know we'd have expansions.
While we have to do is sell that to the pilot community to get them interested in our retention rates have improved as well as our recruitment rates if anybody else wants to.
Yeah.
Yeah, Kevin earlier, and echoing what Dave said certainly lifestyle.
Tracking violence to our operation.
Like balance meaningfully.
Everyone services.
Long term consistent work and order renewal we've done it for 10 plus years, we've had good success attracting pilots internationally.
The opportunity to come to Canada, and do this work and have a great schedule and run new airplanes is really got a subtraction of acquiring so we're confident in our ability to salaries.
I think the one other thing I would just add to that as we kind of Bill mentioned the flight simulator for the King Air.
We've got our fleet size, where we're investing $20 million and our full motion flight simulator to help us track, but more importantly to make sure. Our new pilots are the best trained best a favorable pilots in the industry.
This is the first private health.
King Air football should stimulate or in Canada, It's a statement about our commitment to the long term investments at being the best at what we do.
Typically in the old days, we would've said people to Dallas or Kansas to go get this.
Now we can do it for ourselves quite frankly will have.
Some of our competitors are using the extra space. We have in that so we're really excited about seeing that get installed next year as well.
Because we're now in the marketplace where.
You can make the same amount.
Please.
Very comparable job it really comes down to choice.
Offer them.
He has a hole with a great culture, we have opportunity we have established training. So it is a great destination points.
And that's the drop that I think a lot of other carrier can offer we can if you want to apply.
We've got opportunities there. If you wanted you bet in fact, we've got opportunities there if you want to be at home at night, we can do.
That with us and their truck so you can move around.
That is certainly helpful.
With respect to other carriers.
Yes.
Okay. That's great. It's really helpful. Appreciate the time guys.
Thanks.
Your next question comes from Jonathan Lamers from Laurentian Bank. Please go ahead.
Good morning.
My question My questions were largely covered just would you happen to have the dollars of the growth Capex.
To date, there was related to the three new contracts and how much will fall into 2024.
I don't I.
I mean, we've talked about $275 million ish for the two made medevac contracts I don't have the precise breakdown of what's got the share of what's next year I mean, I can say is the stuff that relates to.
Manitoba is going to be largely funded this year, there may be some diversion costs and some ground costs, but not in terms of the aircrafts, we largely purchased the initial four four.
Canada are all purchased and there aren't.
That was a little simpler because we don't have to convert the aircraft. We just have to get them certified and whereas we've talked a lot about the majority of the expense.
D C is still to come.
Yes.
Play.
Arrived although from a cash point of view, we do have significant deposits.
The manufacturer.
Apologize I don't have specific numbers, we haven't really finished.
Our final Capex budgets for next year, so broad brush I would say the Kuwait project is largely funded.
Yeah.
Palace project is funded and.
<unk> is not funded.
Just the one piece I would add.
Dovetailing on Mike's comments, there is that split between Q3 and Q4 more than half of it that we expect to fall in this year was appointed.
Okay, that's great color. Thank you.
And one more for me Mike I appreciate the discussion about the.
<unk> 2020 for guidance.
And I appreciate that a lot of your organic growth opportunities would come during the year would you have any thoughts.
I think in terms of your budgeting process.
At this point in the year, how much of the growth wood.
I mean, how much of the organic growth would come from opportunities that you typically see.
During the course of the year in any typical year for the overall business.
My budgets reflect what I know about now there will be opportunities that come with those we don't.
With the exception of regional what where we don't know exactly where we're going to buy and exactly where we're going to sell everything during the year. The other businesses are all based on what I know is like I say that.
The thing that makes me.
<unk> bullish and quite frankly, the reason, we increased our dividend, whereas what we see in our core aviation business.
Our passenger loads are higher than they were in most of our markets pre COVID-19. If they continue to grow it we're adding capacity as we can add pilots to match the capacity because theres charter work that we've passed on because we want to make sure. We look after our passengers are the scheduled business.
First and so there is opportunity to grow that business and as we strengthen our pilot pools, you'll continue to see it but demand that it was a bit frustrating for me to be honest drawing the last kind of six weeks, where the aviation sector.
Aviation driven funds got kind of kicked in the teeth, we can't right along with it.
Because the things that go with similar companies are going through don't match, what we're doing through we don't have those challenges when you have a plane on contract with the UK home office, they're flying at X number of hours a day every day and we're getting paid whether it's maintaining the stuff.
Government of UAE, we're getting paid every day or whether it's flying food to Baker Lake.
We know that's coming it's reliable, yes, we had fewer issues with pilot costs, which largely dealt with that and pass it onto our customers. So.
We're very.
Confident in where we are going forward and that's what led us to be able to continue.
Our.
Our track record of paying are paying our shareholders.
Thanks, and apologies if I missed this but just on the dividend in past years, you've typically had one increase per year. I know there was two increases post COVID-19 to catch up how are you thinking about the path of dividend growth going forward.
At our board I can tell you we discuss our dividend level every board meeting every quarterly board meeting our budget meeting.
Typically barring an anomaly.
It's a once a year thing if something's exceptional we would do more than that we have a.
A 20 year CAGR of 5%, it's something we're intensely proud of.
We're going to continue to grow the business to maintain that CAGR.
While we continue to strengthen our balance sheet and reduce our payout ratios.
If you're asking me if I anticipate a dividend increase next year.
That's up to the board, but my job is to give that.
The economic results to enable them to do it at if I were a betting man.
I think the truck.
The past is the best predictor of the future.
Okay I'll leave it there thanks for your comments.
Ladies and gentlemen.
Should you have a question. Please press the star followed by the one.
Your next question comes from Tim James from TD Cowen. Please go ahead.
Good morning. Thank you. Thank you good morning.
I'm just wondering Mike if you could talk a bit.
Any businesses, if they're already I assume theyre, probably are where pricing is still.
Running.
Behind the cost saving fleet inflation that those businesses have experienced over the past couple of years I mean, I know some businesses you can pass it on very very quickly almost instantaneously, but are there any units where over the next couple of years, you should just be able to reprice a little higher.
Offset inflation that you've already experienced.
I would suggest you that the.
It's much better, but we still have some contracts in the window business.
The adult fully recover what we have experienced.
Although we have gone through most of the older contracts I would suggest to you. The one business that we have the least ability to move quickly on pricing is our better backlog term contract business.
Not so much in areas like Manitoba, where we do it under license, but more as an Apple places like nude event.
There are contracts include price escalators for fuel and for inflation pilot wages are clearly exceeded inflation and so there is a picture there those contracts.
Our are coming due over the next year or so and so we will be passing that on.
We renewed the contract.
We're obviously very respectful of not taking advantage of our position but.
If it costs us more we have to charge more so the one area where carve out if you are missing anything jump in but I think the main one would be on contract out of that business, which haven't been able to fully collect back.
The cost of that.
Pilot increases.
Yes.
One maybe a couple of longer term charter contracts that we had that.
Again are coming due over the next 12 to 18 months.
Reprice, otherwise can move that.
Okay.
At this point they recover already.
Yeah.
Okay.
Okay. Thank you.
My second question.
And it's more of a I just want to make sure Im maybe summarizing the windows systems business and the opportunity and challenges there. So it sounds like longer term that that business is really facing a secular growth trend.
All it related to societal shifts in government priorities when it comes to.
Building.
But shorter term you're talking about risk maybe some further delays in 24 in the shorter term.
Simply interest rate driven headwinds in terms of getting projects running at is that fair way of characterizing it because I know you seem very very optimistic on the long term growth, but then there's a bit of hold back in terms of the shorter term.
I think that's very fair I mean, we're starting to see and I'm always reticent, when we're starting to see something.
Say too much about it because it's just the beginning but we're starting to see cracks in the down.
Stuffed getting guidance, especially the conversion market in the U S is we're starting to see contracts lap, where theyre turning office buildings into residential buildings and the interesting thing is for US. It's essentially the same as building a new building because they are re skinning. These.
These buildings as part of that and we're starting to see that stuff getting lack theres very strong pressure from government.
To build housing.
The thing I keep coming back to about this is that.
Notwithstanding building high rise apartments or high rise condos as expensive. It's the cheapest form of housing there is to densify. It bring people and if you if we look at our big cities, whether it's Toronto, Washington in the U S.
Los Angeles.
Dallas, we're doing a project in Nashville.
Where there's a shortage of when they go up single family housing or small multifamily housing is cost prohibitive.
We all know federal government of Canada announced their immigration targets and said there there are light tick them off but they are still half a billion people a year that we got 5000 require and theres a shortage now so.
I think your description Tim is very fair, there's short term turmoil created by interest rates.
But I think it's important to say that from our point of view, we don't think its going to take interest rates coming way down through this to pick up we need stability and the <unk>.
<unk> trends so developers are confident they know what the bolstering of payers.
And I think the dams get a break because there's so much demand if you had the apartment block built today.
The major cities it will be fully rented in a matter of weeks.
It maybe days, Yeah, Theyre thing Youre seeing is government policy.
Right.
Yeah I guess.
Actual compelled by the tax rates are looking.
Thank you.
I'm curios come out you'll probably see more of those types of things, which again is another indicator.
Going to be a very robust business and just want to add one other comment on the conversions, we've actually already done completed three of them and we've got two more in our backlog and we're putting them on much more enriched the U S and Canada.
That's I mean everywhere, even doing before it let alone the original bill so lots of promising elements wherever youre looking at a business like.
Okay.
Okay. That's really helpful. Thank you.
And there are no further questions at this time I will turn the call back over to Mike Pyle for closing remarks.
I want to thank everybody for joining us today, it's an exciting period for us.
I think you heard it in my voice when we talked about the dividend and the fact that we're proud that we can continue that track record and deliver for our shareholders look forward to finishing off 2023 strong and talking to you in February with our year end results have a great day and we'll speak soon.
Ladies and gentlemen, this concludes your conference call for today, we thank you for joining and you may now disconnect your lines. Thank you.
[music].