Q3 2024 Exchange Income Corp Earnings Call
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Okay.
[music].
Good morning, everyone.
Welcome to exchange income Corporation's conference call to discuss the financial results for the three and nine months ended September 2020.
The corporation's results, including the MD&A and freight.
Actual statements.
On November seven 2000.
Speaker Change: And there could be available via the company's website or SEDAR blast before turning the call over to management Easterners are cautioned that today's presentation.
Speaker Change: Just a question may contain forward looking statements within the meaning of the safe Harbor provisions of great New Gen from.
Speaker Change: <unk> will be shell securities laws forward looking statements involve risks and uncertainties and Andrew reliance should not be placed on such statements certain material factors or assumptions are applied in making forward looking statements and actual results may differ materially from those expressed or implied in such statements.
Speaker Change: For additional information about factors that may cause actual.
Speaker Change: So thank you very much Andy from expectations and about material factors or assumptions applied in making forward looking statements. Please consult the quarterly and annual MD&A and the risk factors section of the annual information form and Eic's audit filings with Canadian Securities regulators.
Speaker Change: As required by Canadian Securities Law, EIC does not undertake to update any forward looking statements such statements speak only as of the date made. These notes are also reminded that today's call is being recorded and broadcast live via the internet for the benefit of individual shareholders.
Speaker Change: And other interested parties.
Speaker Change: I would now like to turn the call over to the CEO of Exchange income Corporation, Mike <unk>. Please go ahead Mr. Pyle.
Mike Pyle: Thank you operator good morning.
Mike Pyle: Everyone. Thank you for joining us on todays call yes.
Yesterday, we released our third quarter results for 2020 for our third quarter performance was extremely strong highlighted by our highest free cash flow and free cash flow less maintenance capital.
Mike Pyle: Expenditures per share metrics, and our second highest earnings per share in our 20 year history.
Mike Pyle: We also recorded all time high watermarks for revenue adjusted EBITDA net earnings and adjusted data.
Mike Pyle: These incredible results were during a period, where there was significant geopolitical and macroeconomic uncertainty in the world.
Mike Pyle: Speaking of our 20 year history, I want to point out that by the end of this year, we will reach $1 billion and dividends paid to our shareholders, which we view as an incredible accomplishment.
Mike Pyle: Our results were driven by our aerospace and aviation segment. However, we continue to see some positive signs in our manufacturing base.
Mike Pyle: Based on our near record levels of inquiries and are starting to see those inquiries being converted into firm fixed orders within our various businesses over the last several months.
Mike Pyle: With me today are our normal participants for this call, including Richard <unk>, Our CFO, who will speak to the financial results along with Jake Trainor travelers, who will expand on our outlook.
Mike Pyle: Also joining us is Adam <unk>, our head of acquisitions to answer your questions at the Spark acquisition, we announced last night.
Mike Pyle: Is going to be a busy call and we will attempt to be as brief as possible in our opening remarks to leave as much time as possible for your questions.
Mike Pyle: Before passing the call over to rich I wanted to highlight some of the key performance metrics achieved during the quarter.
Mike Pyle: We set records for revenue adjusted EBITDA free cash flow and free cash flow less maintenance capex.
Mike Pyle: <unk>.
Mike Pyle: All per share amounts were either record or the second best in our 20 year history. This demonstrates the execution of our strategic deployment of capital whether it be for organic growth where by the way of acquisitions, but I don't think is key.
Mike Pyle: Not to be lost in the record results as though we also announced a highly strategic acquisition of spark.
Mike Pyle: I have previously spoken about our desire to grow the business in the eastern part of Canada, and we are successful successfully executed on that strategy with the <unk>.
Mike Pyle: Including the acquisition of doable.
Mike Pyle: Do you have a strategic part of our priority was the expansion of our environmental access solutions business line into the U S and finding a couple the entry composite mat product line.
Mike Pyle: With yesterday's announcement, we have achieved both strategies.
We have looked at a number of the players in the U S market, but not met our rigorous and disciplined acquisition requirements that we approach spark.
Mike Pyle: <unk> is one of the three composite manufacturers in the United States market.
Mike Pyle: You have a strong management team that will continue on with the EIC family.
Mike Pyle: And the acquisition is accretive for our shareholders on a standalone basis.
Mike Pyle: The timing of the acquisition was perfect as the current owners and management have embarked on a new growth phase with the development of the system Seven X T map. They recently added.
Mike Pyle: They recently added significant manufacturing capacity to their placid Rockledge, Florida.
When we met with management they immediately liked our EIC philosophy, and they will be a great cultural fit within our environmental access solutions business we.
Mike Pyle: We expect to add additional growth capacity as the company has to its manufacturing capacity in 2025, which will allow the company to grow and reach its lofty goals later 'twenty five 'twenty six and beyond.
Mike Pyle: The company also holds patents and manufacturers are quite structured interest map solution called <unk> thoughts.
Mike Pyle: Both the fast track out as a composite mat will allow for greater product diversification and our Canadian operations, especially the transmission and distribution industry segment, where the composition that are primarily used in the United States.
Speaker Change: I will leave it to Adam to answer any questions. You may have later in the call.
Speaker Change: What are the more important trends with the continued positive momentum experienced by our manufacturing subsidiaries we've talked about.
Speaker Change: We talked for the last number of quarters about how we are quoting at record or near record levels and there is a lot.
Speaker Change: Conference call I spoke of whatever we had booked in excess of $100 million of FERC projects at our multi story windows solutions business life.
Speaker Change: That booking momentum has continued through the court and we believe that as the macroeconomic and geopolitical.
Speaker Change: Uncertainties continue to abate that the number of bookings will also increase.
Speaker Change: The largest competitor to our results was our previous investment to the businesses and we are starting to see the fruits of those investments.
Speaker Change: Fiscal 'twenty three 'twenty four three years characterized by several announcements, including our BC, Manitoba, and Newfoundland medevac wins and extension of our.
Speaker Change: Due to that Matt is that contract with increased pricing and our new maritime surveillance contract with a European Allied nation and of course, our air test the commercial agreement.
Speaker Change: Speaking of the Air Canada contract, our fifth six aircrafts started flying in the second quarter and more recently, we spud started flying our first trans border reps from the East coast in Boston at Newark in the U S.
Speaker Change: We continue to execute under the BC at Manitoba contracts.
Speaker Change: Aircrafts that were previously purchased for the Manitoba Medevac were successfully deployed in September.
Speaker Change: BC, we recently received a retrofitted our second King Air 360.
Speaker Change: The deliveries for the remainder of the King Air Fleet will extend through 2005 and into 26 because of delays the manufacturer has experienced because of the strike at that plant.
Speaker Change: As a reminder, the full impact of the new contract will only receive we can redeploy the existing king aircrafts into other operations, such as the new Newfoundland and Labrador contract.
Speaker Change: On this contract we remain in negotiations with the government or the final terms of the contract. However, we were very happy to note that the contract excludes rotary rig assets, which is a strategic addition from our perspective.
Speaker Change: These existing King Air aircraft could also be used in the northwest territories contract, which we have bid on as well.
We had submitted our proposals for the northwest territories and are waiting to hear back however.
Which proposal they will choose.
Speaker Change: Yes.
Speaker Change: That contract will require us to unseat the long serving and come back to the region. We also received confirmation of the extension of our met of that contract with the government a new debate into 2026 with enhanced pricing.
Speaker Change: Our relationships with the government of Nunavut remains incredibly strong.
Speaker Change: I want to give you an update on the other contracts that I spoke about in our first and second quarter calls the first contract relates to the future aircrew training projects.
Speaker Change: Skyline was named as the preferred bidder last year were part of the Skyline team.
Speaker Change: Contract is formally awarded to the Prime and we continue to be in negotiations to finalize our subcontract with surprise, which we anticipate will be completed by Q1 of 2025. We further anticipate that work under this contract will start sometime in the second or third quarter of next year.
Speaker Change: That's the extension of a contract for an Allied nation for ISR services.
Speaker Change: 15 month contract includes a second ISR asset due to the required flight hours and augmented tactical capabilities, we are well underway at modifying the second aircraft and readiness for our ready for its intended purpose.
Speaker Change: Lastly, we are continuing to see significant interest around the world for our aerospace services, we see significant opportunities in Australia, and Europe have expanded opportunities in Canada. We are very bullish about the future opportunities at these type of contracts are right in line with our core capabilities.
Speaker Change: <unk> in our business model as they can.
It is to generate consistent cash flows throughout the term of the agreement.
Speaker Change: Stepping back and looking at EIC from a global perspective, our subsidiaries' performance have allowed us to pay a consistent and dependable dividend to our shareholders. In fact, the fourth quarter will enable us to surpass over $1 billion of dividends paid which is an incredible achievement that I would never have thought possible 20 years ago.
Speaker Change: That figure is a credit to our business model our subsidiaries our management teams and most importantly, our employees.
Speaker Change: Jacob Travis will focus on the outlook for our segments for the remainder of 2024. However.
Speaker Change: Prior to passing over the call I wanted to speak about our 2025 guidance.
Just on all the contract wins and organic growth initiatives.
Acquisition of spark I am confident that our adjusted EBITDA will be between 690 $730 billion.
Speaker Change: For the next fiscal year.
Speaker Change: Our strategy has proven itself over the past 20 years and our future is bright and I will now pass the call over to rich.
Rich: Thank you, Mike and good morning, everyone.
Rich: Revenue of $710 million adjusted EBITDA was 193 million and free cash flow was $136 million and free cash flow less capex was $81 million all of our quarterly high watermarks.
Rich: or 25 percent to $35 million. The revenue increases are primarily related to the essential air service business line while the increase in adjusted EBITDA results were driven by essential services and aircraft sales and leasing business lines.
Rich: Just to keep it open, our aerospace business line was slightly down when compared to the prior year, primarily due to changes in business mix.
Rich: Looking at the Essential Air Services business line, the improvements were driven by four key factors.
Rich: First, previous organic growth capital expenditures in the aviation businesses over the past number of years, including our rotary wing business. Second, our average load factors improved, which has a direct improvement on adjusted EBITDA. Third, the impact of the routes flown on behalf of Air Canada. And finally, the impact of the BC and Manitoba Medevac contracts.
Rich: Our aerospace business line revenues were lower when compared to the prior period, however adjusted EVA did not decline to the same extent. This was due to two offsetting regions, a greater tempo of flying within our higher margin ISR business,
Rich: which was balanced by a reduction in our lower margin training business due to the timing of contract starts and stops. The product mix shifted which resulted in profitability margin expansion even with net revenue declines.
Rich: The revenue reductions are expected to be moderate as the company transitions to new contracts from legacy contracts in the trading business.
Rich: Lastly, our aircraft sales and leasing business line revenue declined from the prior period due to a few large asset sales that occurred last year, lifting the comparable period.
Rich: Those large asset sales are lumpy and generally lower margin transactions. The reduced large asset sales are more than offset.
Improvement in our leasing portfolio
Rich: The net result was a significant increase in adjusted EBITDA for the business plan.
Rich: Revenue in our manufacturing segment increased by $3 million, or 1% to $276 million. Adjusted EBITDA decreased by $3 million, or 5% to $51 million.
Rich: As previously communicated, the Comparative Vote periods for our Environmental Access Solutions business line normalized during our third quarter, and our revenues were 13% higher than the Comparative Period while adjusting to an increase by 3%.
Rich: This is primarily due to a change in product mix, as this quarter had a higher amount of asset sales as opposed to mat rentals, which have a higher EBITDA contribution percentage. Our multi-story window solutions business line revenues decreased.
Rich: Slightly compared to the prior period, however, adjusted EBITDA decreased by 27% due to changes in product mix as the business line completed more third-party installations than in the prior period, which generated lower adjusted EBITDA margins. This, coupled with operational inefficiencies as certain projects pushed out of the quarter as requested by our customers, reduced adjusted EBITDA.
Rich: Lastly, we also made the strategic decision to retain experienced staff to meet future demand. Finally, revenue in our precision manufacturing and engineering business line was slightly ahead of the prior period, while adjusted EBITDA declined by 4%.
Rich: The decreases in investors were primarily due to the changes in sales mix and customers deferring capital spending due to the US election and macroeconomic uncertainty.
Rich: Other items of note during the quarter were that interest costs were approximately $5 million higher.
Rich: As interest rates continue to decline, this will be beneficial to our payout ratios and earnings per share number.
Rich: Based on where interest rates are now compared to average rates throughout the year.
Rich: Year-to-date impact is about $6 million, and as the rates continue to decline and are forecasted to decline over the next 12 to 18 months, our earnings will continue to benefit from the reduction in benchmark borrowing rates.
Rich: Depreciation on capital assets increased by 10 million due to the growth capital expenditures and acquisition activity we've undertaken. Our effective tax rate increased slightly when compared to the prior period. However, it is within our expected range of 27 to 29 percent on an annualized basis.
Rich: Free cash flow increased by $19 million to $136 million, while free cash flow to maintenance capital expenditures increased by $7 million to $81 million. Maintenance capital expenditures increased by approximately $12 million, primarily.
Rich: Due to the timing of certain overhaul events, coupled with the increased activity within our aerospace and aviation segment.
Rich: From a working capital perspective, we had an investment in working capital for a couple of reasons. The most significant reason is the seasonality of the business, with the third quarter being the strongest quarter, and therefore necessitates increases in working capital.
Ultimately Reversed
Rich: in the fourth quarter. Secondly, our aircraft sales and leasing business paid several inventory purchases during the quarter to part out and sell in the future. Lastly, there was an investment in AR due from customers on construction contracts throughout various subsidiaries. We actually manage our working capital and working with each subsidiary to convert the increase in working capital in the cash prior to year end consistent with prior years.
Rich: Our total leverage, our senior leverage ratio decreased slightly to 2.87 times. We managed our leverage ratio during the quarter despite it being our seasonally busiest quarter and significant opportunistic investments within aircraft sales and leasing.
Rich: The increase compared to the historical period is primarily due to investments in growth capital expenditures. As we previously noted, organic growth results in a lag between the time investments are made and when returns become evident in our financial results.
We anticipate this ratio will decline.
Rich: as growth capital investments impact the bottom line with an improvement in our manufacturing segment EBITDA, sorry, along with an improvement in our manufacturing segment EBITDA relative to our comparative results. The acquisition of Spartan will not have a significant impact on our leverage ratio and after completing the acquisition, we continue to maintain strong liquidity and are not contemplating an equity offering for the foreseeable future.
Rich: During the third quarter, EITU made growth capital expenditures of $93 million. These growth capital expenditures primarily relate to the aerospace and aviation segment and were driven primarily by investment in additional aircraft in our aircraft sales and leasing business line. The second King Air purchase, along with its related interior modifications for the BT Medevac contract,
Rich: Additions for the full motion King Air simulator and additions in the airspace for the second mission ISR asset to be deployed in the Allied European Nation ISR contract, along with other growth capital.
Rich: Maintenance capital expenditures for the third quarter were $55 million compared to $43 million in the prior year. In our past conference calls, we've indicated that we anticipate maintenance capital expenditures to increase in line with our adjusted EBITDA. However, there were some maintenance events that fell outside of the quarter that will be funded in later periods. Maintenance capital expenditures for the manufacturing segment were slightly higher than the comparable periods.
Speaker Change: That being said, remain confident and reconfirm our 2024 guidance provided in our Q2 2024 conference call. With that, I will now turn the call over to Jake.
Speaker Change: Great. Thank you, Rich. Travis and I will split up the Outlook section. I'll provide some focus on the aerospace and aviation segment, and Travis will provide some context for the manufacturing segment.
Jake Trainor: Overall, we're expecting another strong quarter from our aerospace and aviation business as the trends highlighted in Mike and Rich's section are expected to continue into the fourth quarter.
Jake Trainor: Our essential service business or air service business will see growth driven by a multitude of factors when compared to the prior period.
Jake Trainor: These include the full deployment of the Q-400 aircraft for the quarter to provide services under our agreement with Air Canada. As mentioned previously, we have now expanded destinations into the Northeast United States.
Jake Trainor: We also expect to continue to see improving load factors and growth across our network when compared to 2023.
Jake Trainor: And lastly, we expect continued growth in our Medevac businesses, both with the long-term BC and Manitoba Medevac contracts contributing, or continuing to contribute to financial results in the quarter, and the enhanced pricing under the government of Nunavut contracts.
Jake Trainor: As a reminder, the BC Medevac contract returns are expected to be muted until we redeploy the existing aircraft currently being used to service that contract.
Jake Trainor: The redeployment opportunities could include the recently announced Medevac contract with the government of Newfoundland and Labrador, perhaps with the Northwest Territories or other routes or ISR opportunities throughout our network.
Jake Trainor: Offsetting some of these gains is the impact of continued labor shortages and supply chain challenges. Although we're not seeing a worsening of these dynamics, the challenges still remain.
Jake Trainor: The aerospace business is also expected to see growth due to the tempo of flying for our surveillance aircraft. However, the revenue increases are expected to be offset by revenue declines in our training business as we transition between contracts.
Jake Trainor: We anticipate the adjusted EBITDA to be slightly better than prior Q4 as the ISR contributions will offset the temporary training reductions.
Jake Trainor: Our aircraft sales and leasing business is also expected to experience growth. This anticipated growth is driven primarily by increases in leasing revenue.
Jake Trainor: We continue to see step-based improvements in the aircraft on lease and anticipate that that will continue into the fourth quarter.
Jake Trainor: With respect to maintenance CapEx expenditures, for Q4 we anticipate seeing levels higher than last Q4 as certain maintenance events have shifted into this Q4, plus we've continued to add to our fleet.
Jake Trainor: On a longer term basis, we expect maintenance capex to increase roughly consistent with increases in our adjusted EBITDA in our aerospace and aviation segment, which is the biggest driver of our consolidated maintenance capex.
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Jake Trainor: Growth investments in Q4 are primarily for the aerospace and aviation segment and include capital expenditures for the expanded scope of ISR assets
Jake Trainor: Continued construction of the Gary Fillman Indigenous Terminal and continued construction for the King Air Simulator. Also, Regional 1 is always working on opportunistic aircraft and engine acquisitions which may result in growth investments being made in the aircraft sales and leasing business.
Jake Trainor: I'll now pass it off to Travis for commentary on the manufacturing segment. Thanks Jake
Travis: We're anticipating a consistent revenue for our manufacturing segment during the fourth quarter compared to the prior year. All of the businesses within the manufacturing segment are experiencing a strong level of customer inquiries. However, the closing ratio of inquiries continues to be below historical trends.
Travis: We have noted significant increases in our backlog in our multi-story Windows Solutions business. However, as a reminder, those contracts entered into today will be manufactured in 18 to 24 months, so they'll really impact 2026.
Travis: The bookings during the quarter and subsequent quarter end were across several geographies and customer segments.
Travis: We're seeing these positive leading indicators for the vast majority of our businesses within the manufacturing segment.
Travis: Our multi-story Windows Solution business line adjusted EBITDA is expected to be lower than the prior year due to customer requested delays in project starts and from additional costs incurred as we integrate the businesses.
Travis: When integrating the physical footprints of the locations, there will likely be some disruption in production, but we're proactively managing the production schedule.
Travis: We are seeing lots of opportunities for efficiencies from our integration efforts, led by Darwin Sparrow, as we continue to rationalize the production, but we do anticipate some incremental costs from integration, which may offset some of those profitability gains in the shorter term.
Travis: Quoting in Canada and the U.S. continues to be extremely active.
Travis: We remain very bullish on this business as the longer-term fundamentals which drive demand remain incredibly strong.
Travis: Our Environmental Access Solutions business line is expected to generate returns slightly higher than the prior year, assuming no unusual weather impacts.
As we previously talked about,
Travis: We anticipate the normalization of the business when comparing to the historical comparative periods starting in the second and third quarter.
Travis: The team is working on incorporating DoML into the Environmental Access Solutions business line, and we are already seeing the benefits of the business with potential customers in Eastern Canada. We'll be working on the integration of Spartan over the next number of months.
Travis: There have been some very positive strategic discussions held between Spartan and Northern Manitoba and Adam can talk about the acquisition specifically in the Q&A.
Travis: The precision metal and engineering business is expected to improve over the prior period. Similar to our multi-story Windows Solutions business line, we are experiencing a significant number of inquiries and the interest rate reductions in Canada and the U.S. bode well for increased optimism for our customers.
Travis: As an example, we're seeing the recent release of Capital from our telecommunications tower customers as they deploy Capital for towers and network improvements across the country.
Travis: We noted some deferrals of purchases in the third quarter from customers due to the economic uncertainty, but remain poised to meet the deferred demand in the fourth quarter and into 2025. The anticipated maintenance capital expenditures are expected to be slightly higher than the prior year due to the timing of replacement throughout the year.
Travis: We're also anticipating growth capital expenditures to be encouraged in each of the business lines.
Travis: within the manufacturing segment, but they should be relatively consistent with the prior year. The Growth Catholics Ventures, specifically in the Environmental Access Solutions business line, depend on market dynamics as they continually reassess their fleet based on expected future market conditions.
Speaker Change: I'll now pass the call back to Mike who will talk about our acquisition pipeline and wrap up our prepared remarks.
Mike Pyle: Thanks Travis. I'm sure Adam is happy to announce the Spartan acquisition. I have spoken numerous times about our strategy to expand the business into the U.S. and add a composite matting solution to our product line. Adam looked at a number of potential acquisitions and was likely tired of me constantly asking him whether each one was a perfect strategic fit.
Mike Pyle: Fortunately for Adam, he finally found the perfect EIC company, and our team at Northern Madison agreed.
Mike Pyle: Although Adam and his team have been working some late evenings to conclude the signing of the purchase agreement for Spartan, they continue to be busy working on a number of other active pursuits.
Mike Pyle: We are continuing to see more high-quality opportunities, and that has continued through the quarter. We are seeing these opportunities in both manufacturing and aerospace and aviation segments.
Mike Pyle: But consistent with our 20-year history, we will only execute on transactions that are accretive and meet all of our acquisition criteria.
We are very encouraged by the state of our business.
Mike Pyle: There are a lot of positive underlying trends driving the business into the longer term.
Speaker Change: Thank you for your time this morning and we'd now like to open the call to questions. Operator?
Speaker Change: Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. Should you have a question, please press star 5 or the 1 on your telephone keypad.
Speaker Change: You will hear a three-tone prompt acknowledging a request. Questions will be taken in the order received. Should you wish to cancel your request, please press star followed by the two. If you are using a speakerphone, please lift the handset before pressing any keys. One moment, please for your first question.
Speaker Change: Your first question comes from the line of Steve Hansen from Raymond James. Please go ahead.
Good morning, Steve.
Steve, are you there? We can't hear you.
Good morning, guys.
Hope you can hear me.
Speaker Change: Thanks for the time. I'll start with Spartan first. It sounds like a great fit. I'm just curious about how you view the outlook here. We've had an important political event here recently in the US, and it sounds like it's going to be favorable from an oil and gas side, but maybe just give us some context for the current sort of mix of customers and where you see that growth pipeline that I think you described in your prepared remarks that'd be helpful.
Speaker Change: I it's really, really, really dangerous for me to extrapolate what we've seen in the last three days, but I'm going to do it anyway. We've talked about in the past, how, particularly in 2016 and 2020, immediately after the election,
Speaker Change: In those two instances, they were won by different parties. The outcome was still the same. A return to normal, people tired of the uncertainty, and it resulted in, particularly on the manufacturing side of the business, a bit of a pop.
Speaker Change: Again, realizing this is very early times, we landed a significant window project in California for the first time in several months.
Speaker Change: Immediately following the election with someone who had delayed Proceeding we've won work in the met precision metal business that had been deferred. So pretty bullish on where this goes Although I am cautious about extrapolating something on such a short amount of
In terms of the matting business,
Speaker Change: We've looked at that on a much longer term basis. There simply isn't enough electricity.
Thank you. Bye.
Speaker Change: available to be delivered and with a capability to deliver it so we know that there's going to be distribution lines built and it's that
Believe.
Speaker Change: that drove the business. Now there are other customers at oil and gas and other things, and I think one of the best kind of predictors of what they think of the opportunity post election is a couple of competitors.
Speaker Change: of Spartan, who are public, saw 7-8% increases in their stock price immediately following the election. So, we're bullish, but I would really say the word didn't really buy it on what's going to happen in the next year or two. More about...
what we expect to happen over the next prolonged period.
Speaker Change: And then this is Adam and Steven. The one thing I would add is that, you know, the composite mats and the wooden mats.
Speaker Change: are a competing product. They can be used on the same jobs, right? So the composite mats, there's much more traction within the T&D space, and that is where we expect them to further grow. But even if you said, their expectation is there's going to be more drillings, potentially pipelines, things that maybe the composite mats aren't used for to the same degree, there's still take that demand away from and there'd be less supply of the overall wooden mats, right, creating more opportunities and a bigger space for the for the composite mats to
Unknown to further grow. So, and you guys obviously
Speaker Change: Do your research and as Mike said, there's really only three.
Speaker Change: Composite mat manufacturers and the other two are public and they're kind of pure play Composite so and you can see what the the market thought of that Just the one thing I think Jake's got don't want to jump in here as well. But the one other thing I would
I would point out about this, is that
We've seen...
a trend toward using
Speaker Change: Composite solutions on the transmission side and in particular with the
Speaker Change: and we're excited about having that product available to us in Canada. Sorry, Jake, I cut you off. Yeah, no, just one other thing, and Steve, great question, was to think about Northern Matt's kind of revenue profile and different categories of activities.
Speaker Change: If you think of pipeline revenues, oil and gas projects, and then transmission and distribution, it's almost a two to one to one ratio. So strong footprint in all so we're going to benefit from tailwinds in either oil and gas or the electrification side.
Speaker Change: Okay, that's great. That's helpful. And not to dig into the weeds too much, but just trying to understand the capital deployments.
Speaker Change: and then around this business, it sounds like there might be some manufacturing capabilities you're going to further augment. And just curious, because the mats are sounds like they're longer live being composite, not wood. Does that change the working capital profile of the business relative to Northern Matt? Thanks.
Speaker Change: The working capital business is different, but not necessarily because of the composite nature of the MATS, but because they're a pure production company. So they're building the MATS and selling them, whereas Northern MATS, well they do sell MATS, but they're predominantly a rental company. So they have thousands of MATS in inventory or in their fixed assets, which Spartan won't have.
Speaker Change: very different between the two companies and we anticipate that being that way for the foreseeable future as it relates to the
The shutdown, they began an expansion period last year.
We
Speaker Change: They've told us there's some more work they want to do. We anticipate doing that this year and
Speaker Change: We want to be clear that we expect we may shut the plant down for a month or two to accomplish that little short term pain for long term gain. But that's incorporated into the guidance we've given you. So there's no, there's no negative hanging out there that's included in what we've told you. Adam, anything else? Right. The one thing I would add is
Speaker Change: Before we did the acquisition as Mike said they've invested a considerable amount into the facility So, you know looking into 25 and into 26, there's a little bit of you know, fine-tuning which will take a
Speaker Change: Not significant dollars, but the plant will be down for a couple of months to increase the throughput and to increase the reliability of the plant to meet what we are seeing as the expected demand.
Speaker Change: The one thing is it relates so there's not going to be significant investment
Michael Pyle, Christopher Murray, Richard Wowryk, Unknown Executive
Speaker Change: Okay, guys, appreciate the time. I'll jump back in the queue. Thanks.
Thanks Dave. Thank you.
Speaker Change: Thank you. And your next question comes from the line of James McGarrago from RBC Capital Markets. Please go ahead.
Good morning, James.
James McGarrago: Good morning and congrats on the quarter. Yeah, I just wanted to get some color on the 2025 guide.
James McGarrago: And, you know, some of the macro assumptions that are included in the manufacturing outlook. You know, a lot of the transports we cover kind of flag in a really tough industrial backdrop.
James McGarrago: They expect that to persist into 2025, so I guess kind of a bad for longer type of outlook. With that context, what are some of the underlying assumptions in your manufacturing outlook and when are you kind of modeling for the things to start to turn there?
It's a really good question.
James McGarrago: When we look at our 2025, we are starting to see orders open up. And I strongly believe that the order book where we talk again,
James McGarrago: In February, it is going to be higher than where it is today.
James McGarrago: But with manufacturing, particularly in the windows, but even in some of the other areas, there's lags between when you get the order and when you deliver it. So our expectations for 2025 are modest. We'll see some growth in our map business.
James McGarrago: We'll see strengthening in some of our older precision metal businesses, but we don't see a real turnaround in that probably till the beginning of 2026.
James McGarrago: And that's reflected in the guidance we've given. So it's kind of the good news and the bad news, we still expect to grow and grow significantly.
James McGarrago: And we've still got on the horizon that coming. I talked about during on our last call that we had booked $100 million in in window business. In the six weeks between the end of the quarter and when we reported, I can tell you we did the same thing in the last six weeks.
James McGarrago: measurable, it's regular, there's lots of room to go. But in line with us in the past, we're not going to over promise. So the business, our guidance reflects a more modest view of manufacturing. And quite frankly, aviation is is crushing it. And there's no reason it's not going to crush it, maybe crush it a little more than we are now into 2026 or 2025 driving.
that guidance.
James McGarrago: I would also like to reiterate that we've built in a closure of the plant into that guidance at Spartan.
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Speaker Change: I appreciate the call there and then just turn into the aviation side and on the regional one business. You know, the things are looking like they're going pretty well there, but just two questions on that. You kind of pilot in the past recovery to 2019 levels by the end of the year, you know, that's kind of on a lot bigger portfolio.
Speaker Change: Unknown Speaker You know, pointed to some potential room to grow into 2025. You know, is that the right way to think about it? And then just to follow up on that, too, is, you know, EBITDA is probably not the best way to evaluate this business. Can you just remind us, you know, some high level commentary on how EBITDA translates into free cash flow there? Unknown Speaker Yeah, sure. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah.
Well,
Speaker Change: I've got to think about how to answer the second question, but while I'm thinking, on the first part, we've continued to invest in Regional 1 through the challenging periods in aviation, so our lease fleet is materially higher than it would have been in 2019.
Speaker Change: I'm excited that we hit our all-time best leasing revenue quarter in Q3.
But that's nowhere near.
Speaker Change: We expect with the assets we have that that will continue to grow into next year as we continue to increase both our lease rates, but also the deployment of the assets.
Speaker Change: It's really a free cash flow business is what you look at, James. And so EBITDA is one part of it, but then you have to take out the maintenance reinvestment. Because bear in mind, we aren't a leasing company in the air quotes traditional sense. We aren't we aren't out there saying, Hey, look, we can borrow money cheaper than you can. And so we'll add some leverage on a little bit of equity and earn borrow with three or
Speaker Change: Return for it, make a spread. That's not the business we're in. What we're doing is taking aircraft at halve.
Speaker Change: a limited amount of time, two, three, four or five years to a major overhaul event. And we're burning that green time off. So we're buying that green time at a lower price. And you almost have to think of our leasing business as part of the liquidation business.
One of the things we sell
is great time.
Speaker Change: And then when we get to the end of the green time, we'll decide, do we want to reinvest in this particular aircraft, put money back into it, or do we want to tear it apart and sell it off as pieces?
Speaker Change: And so it's really a mental set that this is a whole part of the aftermarket supply of those types of aircraft. And I'd reiterate, we're good at certain aircraft, and we don't play in the aircraft we're not good at.
Speaker Change: If we don't have enough knowledge to be able to game the system, we're not going to play.
Unknown Speaker .
James, the other thing that I'd like to...
Speaker Change: The other thing I'd say just as a dynamic is we're starting to see pricing on engines as well start to vary where in some airframes the prices of engines are outstripping the price of the whole airframe and it allows us another angle to trade on these assets.
Speaker Change: I appreciate the call and I'm going to turn the line over. Thank you. Thanks James.
Speaker Change: Thank you. And your next question comes from the line of Cameron Dorksen from National Bank. Please go ahead.
Good morning, Cam. Yeah, thanks. Good morning, everyone.
Speaker Change: I guess a question I wanted to ask I guess sort of a big, big picture.
Speaker Change: and sort of a topical one the last few days post the US election result. It's really around, I guess, how your business might be impacted broadly, if in fact, we do get a bunch of tariffs put on, you know, imports and exports. So maybe you can, you know, just discuss how your how your position there and you know, what what the impact could be if that happens.
Sure.
Speaker Change: I think I would be less than honest if I didn't say I was a little unnerved when the election came in and one party won by so much, particularly one that's talking about tariffs on everything around the world. From an EIC point of view.
It's really not a big deal.
Speaker Change: You'll recall that during the last Trump administration there were discussions about tariffs and we built a plant in Dallas
Speaker Change: So we are now fully capable of manufacturing our American windows in an American plant and our Canadian windows in a Canadian plant. Quite frankly, right now it's the opposite. We manufacture in Dallas for Canada.
Speaker Change: So, as Darwin puts the two plants together and we build our new plant.
Speaker Change: In Canada, that will fully enable us to be if there's a tariff wall at the border to to not be impacted by that in a material way. The balance of my companies don't export a lot.
Speaker Change: There's some and some of it's indirect where we may sell product to a Canadian company who in turn sells it to the U.S. So I don't want to give the idea that we would be immune.
Speaker Change: from tariffs, but I would say for a company that's in manufacturing, we're relatively well positioned to deal with it and we'll take the steps we need to, including maybe moving if a particular product is going to be a challenge, we'll move it into a US facility, we have them so
Speaker Change: But with the Dallas plant, we're in a pretty good state.
Speaker Change: Okay, no, that's, that's great. And maybe the second question that you came up in the prepared remarks a couple of times just around the, you know, the aviation side, the impact of some loss of business in the training business, can you just go into a little more detail what's going on there? And what gives you confidence that that's going to reverse in the next couple quarters?
Speaker Change: Sure, it's not so much the loss of activities, what it is is some of the dynamics around the renewal of the training contracts, and particularly with some of the ones we see with some of the governments.
Speaker Change: that we gain margin growth as the contract matures due to really gaining efficiencies.
Speaker Change: through the contract. As the contracts reset, these are typically bid in a competitive environment, and we lose those efficiencies until the contract gets underway again and starts to mature to gain that back. And so just with a sense of time, we've had several of these contracts come up in the second half of 2024 with the reset. Unknown Speaker
Speaker Change: Okay, so as those contracts kind of mature, you can, I guess, claw back that that margin as they mature.
Speaker Change: It's really about us getting good at each contract as it gets back into service. It's the normal ebbs and flows of the contract training business in the U.S. That's right. Okay, got it. Perfect. I'll pass it along. Thanks very much.
Thanks Carol.
Speaker Change: Thank you. And your next question comes from the line of Amir Izzat from Ventim Capital Markets. Please go ahead.
Good morning, Mayor.
Good morning, congrats on the results.
Speaker Change: I was wondering if, you know, like you could give us a bit of color on how you envision integrating Spartan Matt's business with Northern Matt. I wonder if it will be as involved, I guess, as integrating your window businesses. Maybe some thoughts there.
Speaker Change: Yes, good question and you know Mike talked that we've been looking at the U.S. market
for a long time, and he's been
Speaker Change: You know, my job overall is to make sure Mike looks good and
Speaker Change: didn't necessarily know that he could look this good, so we're pretty excited about the acquisition.
Speaker Change: And the Northern Map team has been involved since day one, but it is a different market. And so that's why we've always looked at it that we wanted to acquire, and Composites is a much different business than what the Northern Map team does.
Speaker Change: And so, they are separate businesses and they will remain separate. You know, we really see that there is a good opportunity to bring some of the Spartan products into the Canadian market. They're, you know, primarily right now the overall Canadian market is wood. There's very little composites.
Speaker Change: But in the right geographies and for the right work, there's a good opportunity to bring these products up. So that's what's going to see more is the Northern Act team bringing those Spartan products into the Canadian marketplace. So that's going to be the key piece of overall integration. And their work on strategy, but you won't see something similar to what's happening in our window business.
It's fantastic. So cross-sell.
Speaker Change: With Adam, you know, like, as we approach 2025, you know, like, how does it change anticipate the pace of M&A activity compared to 2024? I know these things are always very hard to predict.
Speaker Change: But, but I just wonder, given the pipeline you have relative to the same time last year, should we anticipate a more aggressive sort of capital allocation strategy into M&A in 2025?
Speaker Change: Yes, and it's a good question, but you're right, it is a hard question to answer.
Speaker Change: I'd say it really depends on the day that you ask me, you know, sometimes we're out there and we're, you know, working on deals and I'm like, if we close all these deals, it's going to be, you know, and they're all
You know good and they're.
Speaker Change: And we close these all it's going to be the biggest acquisition year ever and then as you go through and you work on them And you do diligence
You know.
Speaker Change: that can often change. So again, the pipeline has really over the last couple of years, it's been
Speaker Change: It's been strong and we're seeing good quality deals and we're seeing, you know, as EIC grows too, you see us playing with some, you know, potential bigger deals.
Speaker Change: So, but you know, what's going to happen for the next year in the actual deployment? I think that's always a difficult question to answer.
Speaker Change: Great. Well, we'll stay tuned. Thanks for taking my questions and congrats again.
Thank you.
Speaker Change: Thank you. And your next question comes from the line of Chris Murray from ATB Copical Markets. Please go ahead.
Morning, Chris. Good morning. Good morning
Speaker Change: Just a couple of questions on the aerospace or the aviation business.
Speaker Change: Turning back to regional one and just the lease portfolio, so, you know, big step up there. But you've also made the comment that you think it's sustainable and can grow. Can you give us some color on the type of leases that you've got out there?
Speaker Change: And, you know, there are I know a number of regional aircraft that are that are might be available in storage. Any thoughts on growing that and, you know, kind of what the terminal value looks like in terms of the portfolio right now.
Speaker Change: Yeah, um, two really distinct questions there. One is on the leasing portfolio, what we see is that the aviation business has returned to normal. We talked a lot over a couple years after COVID about pilot shortages and
Speaker Change: That's really not driving behavior anymore. And so we've seen in the regional JETS...
Speaker Change: And in the bigger planes that we don't play in as well, that there's delays in deliveries of things. And so airlines are looking at different strategies.
Speaker Change: to deal with the fact that Boeing and Airbus is struggling to get new aircraft out.
Speaker Change: And we've seen that just as an example with the recent announcement in the U.S. about the CRJ 550, which for those of you who
Speaker Change: Don't deal with this every day. That's the old CRJ 700 which was a 70 seat aircraft that to make it compliant with the Rules they have for their unions. They're going to take it down to a 55 seat aircraft
Speaker Change: And we've seen in the U.S. where, help me here with who's doing it.
Speaker Change: Sky West has signed contracts. There's essentially no CRJ 700s left in the world. They've all become 550.
Speaker Change: Well, that's great for us because we own engines we own parts all of those things that extends the life of that airframe That's awesome for us and it's bullish we see that happening to the 900s as well
Speaker Change: They have run out of 700, so they will take the 90 seaters and do the same thing. Again, strong for us. What's a little different in this lease improvement is about, it's not just about aircraft.
where
Speaker Change: COVID threw the whole schedules of engine overhauls off so bad there isn't enough surplus capacity in the world to catch up as quickly as you would think.
Speaker Change: And so engine leasing is a big part of what we've got. Hank and his team saw this coming. Our portfolio of engines has grown and, quite frankly, we've bought a number of aircraft
Speaker Change: Knowing that all we really need out of them is the engines because we can make a profit just on the two engines and then we'll part the rest out and that's where the gravy comes from.
Speaker Change: So, long answer to get to the thing that's saying it's growing, it's strengthening in the stuff, the areas we're in, it's easier to lease than to buy right now, it's easier for us to monetize what we own and get more.
Speaker Change: But that's the typical pendulum of this business, either it's a buyer's market or a seller's market. It's leaning towards a seller's market at this point.
And then on your second question about terminal value.
Speaker Change: It's really important to understand that's where we're different than everybody else. I lease assets to get them when they're used up.
Speaker Change: That's how I get parts. That's how I make sure I have the landing gear and engine parts and everything sitting in storage.
Speaker Change: So while a typical leasing company that's effectively a finance business, at the end of it, they go, I don't want this thing. What am I going to do with a 25 year old aircraft? We're going to give it to us. Well, that's the game we play it. And so as as the market has strengthened, the value of those parts strengthened. And so all of regional ones business looks good. Certain aircraft are better than others. But to speak in generalities, the demand and the terminal values are both good.
Okay.
Speaker Change: And then my other question is just around the the medevac renewal. I guess there's some other contracts that are also
Speaker Change: out there for BID and Medivac, you just won Newfoundland as well. Can you talk a little bit about kind of the landscape, both on that renewal and what else is out there? And actually kind of how pricing, you know, we've seen a lot of wage increases.
Speaker Change: from a number of pilots groups, including your own, you know, there's some other inflation pressures. I'm just kind of curious about if the Medevac contracts that you've both signed and are looking to sign, take all that into account.
Speaker Change: inflation to the general economy, we were covered off. In the last post COVID period, that's clearly not the case. Our wages in some businesses are up 40 or 50%.
Speaker Change: Unknown Speaker ...what they were when these contracts were signed and so our margins in our old Medevac contracts, Nunavut in particular, had really skidded out and in some cases we were close to breaking even on those.
Speaker Change: Quite regularly, governments want to just extend existing contracts, they're happy, they don't want to go through an RFP. And for 90% of our history, the answer was sure, just to extend it on the same terms and conditions.
Speaker Change: This time, when we talked to Noonan, we said we're glad to look after, we're glad to extend it, but we simply can't extend in 2025 and 2026 on 2018 with pilot wage prices.
The government knew of it, did a bunch of work.
Speaker Change: Unknown Speaker We're telling them the truth and they were the great partner they always are. They said we want you to look after this. If you extend it, we'll give you a price increase commensurate to the inflation you've incurred.
Speaker Change: and I think you'll see that as other things come up for bid.
Speaker Change: Everybody's got the same wage issue. And so when RFP is calm, it gives you a chance to reset the pricing. We made change in new contracts, the wording of how cost of living
Speaker Change: is defined to avoid a situation like this in the future, but because of our long-standing relationships with the governments, we've been able to negotiate reasonable terms and conditions. Dave White and his team did a great job on that.
Speaker Change: Okay, that's helpful. All right, I'll leave it there. Thank you.
Thanks Chris.
Speaker Change: Your next question comes from the line of Tim James from TD Cowens. Please go ahead.
Good morning, Jim.
Tim James: Good morning, Mike. Thanks very much for the time, everyone. I just have one question and it's kind of broad and it actually ties into Chris's question.
Tim James: and renewing contracts and your ability to, you know, get get higher pricing because that's the the environment we're in and everybody's dealing with it.
Tim James: As you look across your business lines, do you see any where you have any concern, maybe that's a strong word, but where there's a need to improve the cost structure because of the competitive environment?
Tim James: You know, for whatever reason it might be, are there any initiatives in the more material business operations to get costs lower in order to remain competitive?
Yeah, I mean...
Across our business, we've been dealing with that.
Tim James: The medevac business, quite frankly, is simpler. There's not a lot you can do to run it more efficiently. You can't fix your schedule. You can't fly with less people. You can't schedule it better. You're looking after really sick people. You gotta be there, you gotta be ready, and you gotta have the equipment. So that business is, relatively speaking, straightforward. Where this is a bigger issue would be in our scheduled business.
Tim James: We've had the same kind of if you look back to pre-COVID and to now in say our northern business in Univit, our scheduled business, our costs would be up 30 something percent.
maybe even 40 and our, our
Tim James: Inflationary increases will be less than 20. So we've had to find ways to be better to maintain profitability. And you can see it in our statement we've been able to do. It is a zero-sum game, there's only so much you can do before you hurt your service. And that's why when the contracts come up, we'll negotiate and we'll get where we are.
Tim James: I think that in some ways it actually strengthens our hand, and the reason I say that is because we've built a whole bunch of northern infrastructure.
Tim James: That is the cost of replacing our northern infrastructure, even for us would be double or triple or quadruple what we paid to put it there. So when someone wants to bid on me on one of my existing pieces of work,
Tim James: So I'm pretty comfortable with that. And then one of the things I've told my team, and it hasn't happened yet, but I really emphasize for them.
Tim James: We don't need to have any contract. I mean, there's certain things that are really important, like our Nunavut passenger contract, that's something that's always going to be part of it. But we've got smaller contracts where we move judges around or we serve as a gold mine. And if any of those reach the stage where we can't get the the
Tim James: The return we want, we just won't do it. We've got tons of opportunities, we're really good at what we do, and so we've got to be confident enough to our customers to say hey this is what it's worth, and if you want to test the market, you should [inaudible]
Tim James: But if you test the market, RFP price might be higher than the negotiated increase.
We've had great success with that.
Tim James: I think the other thing that would be important to note, when we look at investments we make in technology, and we're still in the early days of what that may mean from an efficiency perspective, but we see consistently because of the investments we make, not only in cyber security, but in business intelligence, that when we go to these RFPs,
Tim James: We know that we have a leg up on a lot of our smaller competitors, and while it may not be an inherent cost advantage, it may at some point be a cost advantage, it's really a function of the service and the whole package that
Tim James: different customers get as being part of the EIT business. And we would stack up our IT team against anyone in the country. And from that perspective,
Tim James: Could there be benefits from a cost perspective later on as kind of the technology develops? It's possible, but I think right now it's really a benefit from our perspective when we go to these tenders and the types of things that we can do.
Speaker Change: Okay, that's helpful. And I think I think you've addressed the kind of the air service as part of the business. Can I expand that question? And again, maybe there's nothing really to discuss, but to
Speaker Change: you know, to the rest of the aerospace and aviation and on the manufacturing side, are there any sort of businesses where you know, there's a particular need to or push on to, to get the cost structure down for competitive reasons, or do you feel you're pretty well positioned across the board?
Speaker Change: Systematically, I'm pretty comfortable with where we are. What you're talking about, Tim, though, is very relevant. I've talked about it a few times. The holy grail of the ISR business is the Australian contract, which we're bidding on now. And we don't have an infrastructure there. So we're starting behind.
Speaker Change: And so we spent a lot of time with the benefit of a blank slate saying, what's the appropriate aircraft fleet to do this? What's the best way we can do it, and then be able to differentiate ourselves? I may be handed to Jake to talk about that. But it's where we're seeing those needs to talk about.
Speaker Change: Changing our cost structure is more about gaining new business than it is with our existing contracts.
Speaker Change: Yeah, I also think, especially on the aerospace business is, you know, the the contracts that we compete on prices, but only one factor outcome and capability delivered is really the key metric for some of these critical activities we undertake so
Speaker Change: Yes, we have an eye to cost obviously. We look to figure out how we not only optimize but factor in abilities to expand the relationship with the customer. We've got a great track record getting winning a contract and then expanding those contracts to add extra capacity or extra service.
and then move forward.
That's super. Thanks very much.
Speaker Change: Thank you. And your next question comes from the line of Conrad Gupta from Scotiabank. Please go ahead.
Speaker Change: Good morning, Mike and team. Thanks for taking my question. I want to kind of come back to Spartan for a sec here. So first I want to clarify the 2025 guidance, Mike, does it include the full 12 months of Spartan?
Mike Pyle: No, we've made an allowance in the guidance for the fact that we anticipate.
Speaker Change: closing the plant for a period. Now, I want to be clear that we may be able to build up enough inventory before we close so it doesn't impact the business. But giving guidance, I don't want to give the most optimistic possible way of looking at this. So we'll see how we time it, we'll see whether we have enough mats and inventory. Well, while we're closed, we actually don't have an income hit. But to be perfectly transparent, we have we have included in our guidance
Speaker Change: less than a full 12 months of the operations of SPARTA.
Speaker Change: Okay, that makes sense. That's fair. Um, you know, in terms of the business itself, you know, can you share some, you know, like historical information on this business in terms of what has been the growth profile since pre pandemic on this one? And you know, what's the growth looking like under your umbrella?
Konar: Thanks Konar, yes that's a good question and so Spartan Comp is of the three players.
Speaker Change: In the composite mat manufacturing industry, they're the newest now, while they're the newest, they're run by industry veterans that have a lot of experience. So they started their journey in a composite mat, you know, back in 2018. And really, you know, post COVID, they've experienced significant growth.
Speaker Change: If you go to their website, and you see the top video is the new System 7 XT Mat. And so that mat is really the version 2 of their original System 7 Mat.
Speaker Change: Pretty excited about the new technology and the new characteristics and the overall performance of the XT-MAT, and that was just released.
Speaker Change: So, overall, with what we're seeing of the trends in the industry, the growth that Spartan has had historically, and the new XTMAT, we're pretty bullish on the future.
Speaker Change: Give a little background information on composite versus wood, the cost profile, lifespan, and ease of use, because I think some of the, we talk about it because we're in this business, I think some of the people might find it interesting to understand
Speaker Change: the differences in how they're transported and those kinds of things. If you give a two minute on that, I think that would help.
Speaker Change: For sure. Yes, the biggest difference with the, you know, composites is the, you know, like two really is the
Speaker Change: the life expectancy of it if we look and it all depends on you know what the mat is being used for but traditionally if we look at wooden mats it's you know four to seven years and if we're looking at composite mats
Speaker Change: There's different numbers out within the industry, but generally it's going to be over 10 for sure. And most likely, if it's being used within T&D and that, we expect it to have significantly longer life. It's also about half the weight of what you...
Speaker Change: have for your wooden mats. And where the big difference there is that the ability to move those mats, so your transportation costs comes way down. And
Speaker Change: Especially if you look at that over the life of the mats and you have the significant cost savings. Now the mats are more expensive up front.
Speaker Change: and if we look at the US market in particular, there's a lot of customers who like to rent.
Speaker Change: There's some who prefer to buy. And when we look at where Spartan has played historically, even though some of their customers would like to be able to rent, they haven't really done that on any significant scale. So they're looking forward to the partnership with EIC. They have a strong, great team there, industry veterans.
Speaker Change: And, you know, having the IT's balance sheet and be able to, you know, potentially build out that rental fleet for their customers who want that is another good opportunity for them.
Speaker Change: That's really great, guys. Thanks so much. And then if I can follow up, you know, just like a two part question on Spartan. How does the market share look like versus the other comps, you know, New Park and Signature?
Speaker Change: and any opportunities for synergies outside of the cross-selling you mentioned.
Speaker Change: Yeah, in terms of market share, I think, you know, first, if we look at market share, we talk about within the MADD industry, what's the market share of composites? And we, you know,
Speaker Change: They've been growing. They've been gaining traction over the last, you know, decade. I know right now that's still the smaller piece of the market, you know, that there's no industry numbers out there, but you know based off our market research and we think it's roughly 15 percent.
Speaker Change: And so there's plenty of room for composites to grow. And as I mentioned, Spartan Composites is the newest player to the composite industry. And so they would have the lowest market share of the three, but we're definitely
Speaker Change: excited about, you know, the what development they've done over the last five years that the new XT Matt, just a great leadership team with plenty of experience. And so we think that that will be increasing.
Speaker Change: And then coming back to the integration question, I think if you really, you know, I know what we're doing on the window business, and if you look at the history of EIC,
Speaker Change: It's not really what we do, right? We don't buy companies, we don't integrate them. We buy companies that are really good at what they do.
who have great leaders.
Speaker Change: And that's what this company is. And so, you know, they're going to continue to execute within the, you know, US market, obviously, Northern Matt, and, and, you know, they are going to have a perspective, and they are the industry leader within Canada. So working on strategy together, you know, they're definitely, you know, be talking about the overall market and talking about opportunities, but they will not be integrated. And it's, it's really, you know, helping
Helping Northern Matt, you know with
Speaker Change: with their portfolio of products, and also for Northern Matt, too, if we look long term and something happens with the overall fiber supply, having Spartan Composites with their expertise and being able to supply Northern Matt an alternative product will be essential.
Speaker Change: That's really great. Thanks so much. I appreciate the time and congrats for the acquisition.
Thank you, guys.
Speaker Change: Thank you. And your next question calls on the line of Jonathan Mosiakin from CABC. Please go ahead.
Speaker Change: Good morning. While a great business, the matting business has been a bit lumpy in the past. Do you expect the Spartan acquisition to smooth this out or is this typical for the industry?
Speaker Change: That's a good question. What I would suggest to you is that the downside of the industry is that it's...
A big part of what drives it are big projects.
Speaker Change: But having said that, the particular part of the market that Spartans in, it's the
Speaker Change: And in the United States has less weather exposure and the projects are very long-term in nature. When you're building a new...
Speaker Change: Special thanks to Frenk Jensen Attorney. We are in this together! facebook.com
Speaker Change: exposed to the oil and gas business in a material way at Spartan. It's not quite the same as our Canadian business, which does have an oil and gas slash pipeline exposure. Both of them will have more T&D every period we report, but it will definitely be less chunky than our Canadian businesses.
Speaker Change: I see. Add to that as well is the northern map business sometimes can be impacted by overall weather, right? And so this provides a great diversification for the overall geography. Thank you.
Thank you. Thank you. Thank you.
Speaker Change: In our portfolio is we're trying to find industry leaders. And we need to go back to the beginning of our first few acquisitions. I mean, perimeter is a leader in northern aviation.
Speaker Change: SFI is a leader in stainless tank production, water blast is.
Speaker Change: in Pressure Systems is the leader. And so we think we found our leader. But that doesn't mean we're not going to fill it up with some troops.
And so there's more to come in this business.
Speaker Change: We've done a lot of research and spent a lot of time on the segment in the future of matting as it relates.
to the Transmission and Distribution business.
Speaker Change: Regardless of who's in power, we need more electrical power. If we're going to drive Teslas, you've got to be able to get electricity to the house. California right now...
Speaker Change: They've got rules about how many electric cars need to be sold and put on the streets, but they've also told their people, please don't charge them.
Speaker Change: during large parts of the day. Well, those don't work. Ultimately, you got to build the distribution. And so we see a 10, 15, 20 year runway as far as you can see for this business. So expanding it makes sense.
Speaker Change: But the other thing I would say is I hope the fact that it took us two years to find Spartan and cut the deal Shows that we're not going to buy for the sake of buying. Adam looked at a lot of deals in his team and dealing with Northern MAPS team
Speaker Change: We're very disciplined in what we chose and that's why I think we got the cream of the crop All right, thank you, that's all for me
Thanks.
Speaker Change: Thank you. And your next question comes from the line of Jeff Fenwick from Cormark Securities. Please go ahead.
Good morning, Jeff.
Hi, good morning, everyone. Thanks for the time.
Speaker Change: I know we're getting long here, so I'll try to be quick. I wanted to talk about the ISR opportunity.
Speaker Change: It's obviously good to see the expanded contract and renewed contract over in Europe. Could you just maybe provide us a little bit of an update on the sort of bid activity you're seeing out there? I mean, this is obviously a growth industry, it did reference Australia, but any color there on what's out on the horizon?
Yeah, I mean, it's...
Speaker Change: You know, I think it's safe to say with instability in the world drives opportunity on the ISR segment.
Speaker Change: We're seeing larger contracts for longer-term opportunities being out there. We're also seeing, I'd say, a shortened sales cycle to some extent, where there's some opportunistic...
Speaker Change: Opportunities popping up that we're working with. So, you know, I'd say as a, you know, general answer to your, your question is, we've got some tailwinds in that market segment, typically being driven by the instability we're seeing.
Speaker Change: And is the Australian opportunity something that will be decided upon in 25 or is that further out?
Speaker Change: That's our expectation. But you've got to keep in mind, obviously, we're dealing with governments and
Speaker Change: You know, the procurement cycles and decisions can be stretched out. This is a very big and complex bid.
Speaker Change: So the evaluation period is going to, you know, be extended as well. So I would expect, you know, the latter part of 25.
Speaker Change: for a decision, but then, you know, I wouldn't be surprised if that slid into 26 for a host of factors.
Speaker Change: Yeah, that contract is the Super Bowl of the ISR business.
Speaker Change: It's a very unique, without getting into detail that you're not really that interested in hearing, it's a very unique contract opportunity because they, for the first time in our experience, they didn't tell us what they wanted.
Speaker Change: They didn't say give us six of those or three of those or run these bases.
Speaker Change: They said you need to cover this area of ocean, you need to be there this many times a day or this many times a week, tell us how you're going to do it. And so our team has been doing, going through a matrix of turboprops, jets, fast jets, long range jets, and so a big part of this is coming up with a solution.
We are one of three.
Speaker Change: people three or four that have qualified downstream from much more than that. I like, I like our position. It's not some more when you're going to go to win, we have to take it away from somebody, which is we know that's challenging. But we've got some really cool ideas on this.
Speaker Change: and we bid in December, right Jake? That's right. So we're about a month away from submitting and then the hard part, it's like a kid on Christmas is waiting to see what Santa brings you.
Thank you.
Speaker Change: Yeah, that's helpful. Thanks. And maybe one follow up here just
Speaker Change: Is this an area where you can benefit from some acquisitions that might bring in some expanded capability sets or technology or something like that? Or is this more about partnering with the right people and using your existing expertise?
Speaker Change: I would say absolutely there's opportunities. I mean we bought, Jake maybe let's talk about our software acquisition a few years ago and what that means in our current bidding. Yeah I mean we we bought CartNav systems years ago and that's really been a centerpiece of having the ability to integrate data coming off the aircraft.
Speaker Change: Deliver the data smoothly into the decision makers on the ground, but now more importantly, as we're seeing AI and we're seeing it's about delivering insights from that data.
Speaker Change: And that's been very powerful for us. And as I say, we see that seamlessly through a number of our contracts and having that in-house capability has been a real differentiator for us.
Speaker Change: And so if we find something else like that, we'd be all over adding it to our internal... Absolutely. And that said, as well as you mentioned, partnering is key, and I would say the aerospace and defense sector is somewhat unique in that you can be partners with
Speaker Change: firms across the world, big firms, and in other markets you could be, you know, deadly competitors against one another. So that's, it's an area of interest on how the dynamics work in that market.
Okay, great. Thanks for that, Collar.
Operator.
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Thank you. Thank you. Thank you.
Hello. Apologies.
Speaker Change: There are no further questions at this time. I will now hand the call back to Mr. Pyle for any closing remarks.
Mike Pyle: I just want to thank everybody for their patience on a long call today. We're really excited. We feel like we had a great quarter, and we've added more to the
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Mike Pyle: https://www.youtube.com or the link in the description to watch more videos.
Thank you.