Bird Construction Inc.

Welcome, ladies and gentlemen, to the BIRD Construction Third Quarter 2024 Results Conference Call and Webcast. We will begin with Terry McKibbin, President and Chief Executive Officer's Presentation, which will be followed by a question and answer session. Analysts who wish to ask a question should have their webcast muted when dialing into the conference number provided. At any time during the presentation today, you may press the star, then 1 on your telephone keypad to be placed in the question queue. You will hear a tone acknowledging your request. When we are ready for questions, you will be introduced into the conference in the order that you were received. If you wish to remove yourself in the question queue, you may press star, then 2. As a reminder, all participants are in listen-only mode and the webcast is being recorded. Should anyone need assistance during the conference call, they may signal an operator by pressing star, then 0. Before commencing with the conference call, the company reminds those present that certain statements which are made express management's expectations or estimates of future performance and thereby constitute forward-looking information. Forward-looking information is necessarily based on a number of estimates and assumptions that, while considered reasonable by management, are inherently subject to significant business, and competitive uncertainties and contingencies. Management's formal comments and responses to any questions that you might ask may include forward-looking information. Therefore, the company cautions today's participants that such forward-looking information involves known and unknown risks, uncertainties, and other factors that may cause the actual financial results, performance, or achievements of the company to be materially different from the future results, performance, or achievements expressed or implied by the forward-looking information. Forward-looking information does not guarantee future performance. The company expressly disclaims any intention or obligation to update or revise any forward-looking information, whether as a result of new information, events, or otherwise. In addition, our presentation today includes references to a number of financial measures which do not have standardized meanings under IFRS and may not be comparable with similar measures presented by other companies and are therefore considered non-GAAP measures. I would like to turn the call over to Terry McKibbin, President and CEO of Byrd Construction. Please go ahead.

Thank you, Operator. Good morning, everyone. Thank you for joining our third quarter 2024 conference call. With me today is Wayne Gingrich, Byrd's Chief Financial Officer. Turning to today's presentation, Byrd continues to build off its track record of sustainable growth, margin accretion, and delivering strong shareholder returns. In the third quarter, Byrd was honored as a 2024 TSX 30 winner by the Toronto Stock Exchange, ranking seventh of the 30 top-performing companies on the TSX. This recognition, along with the announcement that Byrd's common shares were added to the TSX the index in September, highlights the success of our strategic focus on being a leading collaborative construction company and the strength of our balance sheet which positions us to invest in profitable organic growth and pursue attractive acquisitions in today's active market. Turning to our third quarter financial highlights, Byrd had another great quarter of strong revenue growth and margin accretion. Revenue grew 15% compared to last year, supported by two months of Jacob Brothers revenues included in the quarter. Byrd's adjusted EBITDA margin of .8% was .5% higher than a year ago and drove 42% growth in adjusted EBITDA and 27% growth in adjusted EPS for the quarter, fueled by higher embedded margins in the company's combined backlog and discipline execution. Operational cash flow generation remained strong and the company's diverse and well-balanced combined backlog of work continued to grow reflecting the robust demand environment and healthy pipeline of opportunities with accretive margins. With significant traction from our strategic focus on key sectors as outlined in the company's 2025 to 2027 strategic plan that was presented at our investor date in October, Byrd is poised for continued revenue and profitability growth in 2025 and beyond. Byrd's combined backlog continued to grow in the third quarter reaching a record 7.9 billion at September 30th. The company's backlog of contracted work remains highly collaborative in nature and continues to reflect higher embedded margins and grew to 3.8 billion at quarter end. The acquisition of Jacob Brothers added approximately 360 million to backlog in the quarter bringing total securements in addition to almost 1.3 billion. Pending backlog of awarded but not yet contracted work grew to 4.1 billion, a 36% increase year to date and continues to include over 900 million of MSA and other recurring revenue contracts to be earned over the next six years. Profitability, discipline, diversification and growth. These foundations of Byrd's strategy have delivered substantial growth and margin accretion throughout the company's 2022 to 2024 strategic plan cycle and created considerable momentum as we head into our next three-year strategic plan. Byrd has built a reputation for operational excellence as a partner of choice on complex projects, our expanding capabilities to participate in greater scopes of work on large capital investment projects have driven profitable and sustainable growth and we expect this trend to accelerate in the future as the number of these types of projects grow in our portfolio. We are clear in our strategic direction focusing on growth, key markets and sectors that present robust opportunities over the long term including nuclear, mechanical and electrical, civil infrastructure and utilities with an emphasis on energy transition and data related infrastructure. During the third quarter of 2024, Byrd announced the award of five projects with a combined total exceeding 575 million. These projects include civil site works and foundations at two industrial projects in Alberta and Saskatchewan, a multi-year MSA in a strategic growth structure, expansion and scope of an existing multi-year task order in the nuclear sector in Ontario and a long-term care project in British Columbia. Byrd also announced the completion of the Jacob Brothers acquisition in August which added approximately 360 million of contracted work with a creative margins to Byrd's extensive backlog. We continue to be intentional in our project selection as we increase our self-reform capabilities and cross-signing opportunities throughout our organization and remain focused on long-term value creation. Several key trends continue to fuel significant growth within the energy transition market. This market is expansive presenting substantial growth opportunities for Byrd. There are a limited number of large dedicated companies that can successfully take on these complex projects and we believe Byrd is uniquely suited to participate in these large projects with significant capital investment. The company has already established a successful track record within key markets such as wind, hydroelectric, nuclear, critical mining, critical mineral mining, battery manufacturing and EV supply chain support infrastructure. These sectors all contribute to Canada's clean energy system and 2050 net zero goals. As we continue to support Tier 1 clients in their energy transition projects, Byrd's outlook for future opportunities across all divisions remains bright as we expand our work programs, attain additional nuclear certifications and continue to develop our deep electrical expertise. We continue to prioritize sectors that have longer cycle demand trends and substantial capital investment commitments for both public and private sectors across infrastructure buildings and industrial markets supporting future growth for years to come. The infrastructure market in Canada is attractive to Byrd for several reasons. Current market research indicates that Canada's infrastructure demand will remain strong due to government commitments to address significant infrastructure deficits estimated to be between 110 and 270 billion. Demand in our building markets is substantial with macro pressures driving extensive demand for healthcare facilities due to population growth and aging population and a growing demand for data centers to respond to the growth of digital services and generative AI. All of these present major growth opportunities for Byrd. Byrd's proven expertise and collaborative innovative solutions make us uniquely positioned to respond not only to this level of demand but to the complexity and sophistication of these projects. In our industrial business, the total addressable market is significant and being driven by the growth of electrification, emissions reductions and decarbonization efforts. Byrd is already a highly sought after partner of choice in all scopes of work throughout the entire project life cycle and it is positioned to win within our strategic markets due to our consistent execution and operational excellence. Wayne will now cover the financial highlights for the quarter.

Thank you, Terry. Excuse me. Byrd's third quarter continued to deliver revenue growth and margin accretion building upon the strong performance of the first half of the year. Construction revenue for the third quarter of 898.9 million represented a 15% increase compared to the same period in 2023. On a year to date basis, revenues of 2.46 billion for the first nine months of 2024 were 454 million or 23% higher than 2023. The growth for the quarter was approximately 60% organic. In year to date, the growth was over 80% organic. The company's gross profit margin improved to .4% in the quarter compared to .3% in 2023. The improvement continues to be driven by the company's highly collaborative work program with higher embedded margins and backlog and pending backlog resulting from Byrd's strategic focus on higher margin sectors, disciplined project selection, and the benefits of leveraging Byrd's self-performed capabilities and cross-selling opportunities across our business units. On a year to date basis, gross profit margin was .4% of 110 basis points from the .3% margin in 2023. General and administrative expenses for 51.6 million were .7% of revenue for the quarter, compared to 34.5 million or .4% of revenue in the third quarter of 2023. G&A for the quarter includes an additional 1.9 million of acquisition costs related to Jacob Brothers as well as two months of Jacob Brothers G&A costs. Adjusted EVITA in the third quarter was 70.1 million compared to 49.3 million reported a year ago, representing a 42% increase. Adjusted EVITA margins continued to increase on a -over-year basis, increasing .5% to .8% of the third quarter compared to .3% in the same period last year. Turning to earnings, net income and earnings per share were 36.2 million and 66 cents compared to 28.8 million and 54 cents in 2023. Adjusted earnings and adjusted earnings per share were 37.7 million and 69 cents compared to the 29 million and 54 cents in 2023. The weighted average shares outstanding for the third quarter of 2024 was 1.1 million shares higher than 2023 due to the acquisitions of Jacob Brothers and NORCAM in the current year. Bird's Healthy Balance Sheet and Strong Operating Cash Flow Generation remain a differentiator for the company, supporting our strategic growth initiatives and balanced capital allocation approach. The company's liquidity position remains strong at the end of the third quarter with 117 million in cash and cash equivalents and an additional 232 million available under a revolving credit facility. Bird's Operating Cash Flow Generation is expected to remain strong for the remainder of the year, commensurate with the significant revenue and profitability growth being delivered, excluding seasonal and growth-related investments in non-cash working capital. Operating cash flow generation for the quarter was up 44% compared to last year and up 56% -to-date. We continue to expect operating cash flows inclusive of growth-related investments in non-cash working capital to be positive for the full year. At the end of the third quarter, the company had working capital of 269.8 million compared to 234 million at December 31, 2023. The company's acquisition of Jacob Brothers reduced working capital by approximately 7.1 million in the quarter as Bird used cash on hand to partially fund the transaction. That being said, the company's overall working capital, along with liquidity available under a syndicated credit facility, remain more than sufficient to allow the company to execute its backlog and support the expected growth in its diversified work program. The company's current ratio is 1.25 times, and our adjusted net debt to trailing 12-month adjusted EBITDA ratio stands at 1.12 times. Bird's long-term debt to equity ratio was 34%. As we noted in prior presentations, Bird's revenue, adjusted EBITDA, and adjusted EBITDA margins have experienced a period of sustained growth over the past several years. The third quarter of 2024 continued the trend, bringing our trailing 12-month adjusted EBITDA margin to .7% on TTM revenue of almost $3.3 billion, reflecting management's ongoing strategic focus on margin accretion with further opportunity to expand through 2024 and beyond. The company's margins continue to improve in our backlog and pending backlog. Driven by efforts over the past several years to diversify into higher margin sectors, our disciplined project selection and our appropriately risk-balanced work program and greater use of collaborative contracting, which Bird believes delivers better outcomes for all stakeholders. Bird's expanding self-performed capabilities and increased cross-selling opportunities between our business units also contribute to the company's margin accretion. Bird's capital allocation strategy remains balanced, supporting the company's business growth, profitability, and enhanced long-term shareholder value through a combination of M&A, smart capital investments, and returning capital to shareholders through dividends. In the current year, this balance is evident in the company's investment in equipment to support our growing work programs, our acquisitions of NORCAN and Jacob Brothers so far this year, and our expectation to return approximately $30 million to shareholders through our monthly dividends in 2024, including the 50% dividend increase announced in October and effective for the November and December dividends. I will now turn the call back to Terry to comment on the outlook for the company.

Bird is the proven foundation of operational excellence and safe execution, which has resulted in considerable growth and the expected achievement of the company's 2022 to 2024 strategic plan targets. We are pleased with our third quarter results with significant improvements in gross profit and adjusted EBITDA margins despite revenues being lower than anticipated due to minor delays to the start of a small number of new projects in the quarter, pushing some of the work into early 2025. With the considerable visibility provided by Bird's combined backlog, which continues to reflect higher embedded margins, the company expects whole year revenues of approximately $3.4 billion with an adjusted EBITDA margin exceeding 6%. At Bird's recent Investor Day on October 9, we laid out our progress against our current 2022 to 2024 strategic plan targets, which we are happy to say are on target to be met or exceeded, and introduced our 2025 to 2027 strategic plan. We go deeper into each of our industrial, buildings and infrastructure divisions and review the key sectors we are focused on that support our expectations for future growth. We also provided financial targets for the upcoming three years, which include 10% annual organic growth plus or minus 2%, with 2025 receiving an additional 5% growth from the inclusion of Jacob Brothers for a full year compared to 2024. This would see the company's revenue reaching $4.8 billion for a full year 2027. 8% adjusted EBITDA margin for a full year 2027 with organic improvements each year and an additional bump from Jacob Brothers in 2025. 33% dividend payout ratio of net income, which would mean that by 2027 we would expect to have five successive years of dividend increases, including our recently announced 50% dividend increase. Over the past several years, Bird has transformed itself and built a resilient business model with unique and specialized services that will be in demand by our clients in any economic environment. Much of our work program is not subject to the same ups and downs of normal economic cycles, and the business has considerable momentum. We expect Bird to benefit from the significant tailwind stemming from our strategic focus on margin accretion, discipline project selection, and safe collaborative operational excellence in resilient sectors. I'll now turn the call over to the operator for questions.

We will now begin the question and answer session. Analysts who wish to ask a question may press star then one on their telephone keypad to join the question queue. You will hear a tone acknowledging your request. If you are using a speakerphone, please ensure you lift the handset before pressing any keys. If you wish to remove yourself from the question queue, you may press star then two. Anyone who has a question may press star then one at this time. Our first question today is from Yuri Link with Canaccord Genuity. Please go ahead.

Good morning, gentlemen. Terry, can you tell us if there's any common commonality or common reason behind the delayed projects that you noted and maybe give us a flavor in terms of region and market?

I'd say the common flavor that we see in Canada is typically permit delays that ultimately are really difficult to push through the system. I'd say that that is probably at times the elephant in the room, difficult to predict. You try to put together obviously the expectations and oftentimes municipal permits are in a system that sometimes is overloaded and it makes it difficult to get through. I'd say that would be the... And it isn't specific necessarily to a region. We see it, I'd say, more frequently on the building side where we have delays. In this case, we've had some delays in the building side in the third quarter.

I would have thought a delay, it might get... If it's just a permit issue, it gets delayed into the next quarter, but you're kind of pointing to 2025. Is that just to be a bit conservative there?

Yeah, it's just catching up, right? You're not able to catch up on the delay. That's really what it is.

Second one for me, just obviously really nice gross margin step up even above and beyond what I was expecting. Anything to call out on gross margin in the quarter and also tied with that, the GNA expense was a bit higher than I expected. Are those kind of even taking into account it's only two months at Jacobs, but all else equal? Is this kind of the rate we're at pro forma?

Yeah, I can take that one, Gary. I think for the summer months, we generally have our highest margins in third quarter and fourth quarter, particularly if you get good weather all through fourth quarter. Certainly Jacob Brothers had a contribution there, but even if you take Jacob Brothers out, the strength in the industrial business and the strong work program we have there certainly was a factor as well. Terry mentioned some of the buildings projects that we're pushing to the right a bit. Well, of the three business units we have in terms of industrial infrastructure and buildings, buildings have the lower gross profit percentage generally speaking. When those projects shift to the right, had they not shifted to the right, certainly we would have had additional gross profit dollars, but maybe the percentage might have been a little bit lower on a combined basis. Those are some of the factors. I think for this time of year, we should think about those are the types of margins we can deliver. There really wasn't anything unusual flowing through the quarter that drove it up. Just again, kind of diversification being on multiple large capital investment projects, that type of thing. Then on the G&A side, year over year, we were $17 million higher than a year ago. More than half of that would relate to compensation costs. Some of that is certainly we've had Norcan, we've had Jacob Brothers, so those business combinations have added some overhead to the business. We've also been making some investment hires in the business as well, business development and estimating and so forth to be able to help support the growth in the business going forward. Certainly depreciation, integration and acquisition costs were almost $2 million higher than a year ago. It was kind of a combination of a few things adding into it.

Just on that line of questioning, big move up in your stock after the end of the quarter. Just remind me if we should expect LTIP or stock-based comp expense in G&A to be elevated because of that all else equal? Or do you strip it out?

Yeah, no, we run that through for G&A. I'd say the run-up that we had after investor day was after September 30th, certainly. In the share price following investor day. At year end, we'll do another quarterly analysis that we do looking at the total shareholder return. Part of the drivers of the long-term incentive plan that we have in place for performance share units is how BIRD's total shareholder return compares against that of the peer group. If BIRD's total shareholder return is stronger than that peer group, then there's a multiplier that happens on those PSUs. I would say out of $30 share price or something like that, there could be an impact in Q4. It's kind of a one-time adjustment. We won't run those calculations until probably January until we know where share price is at the end of the year. That's what we'll base that on.

Okay, thanks.

The next question is from Chris Murray with ATB Capital Markets. Please go ahead.

Yeah, guys, thanks. Maybe just to follow on a little bit on just margins and just expectations for margins. I think you talked about the fact that you were about 40 basis points, a creative with Jacobs. Is 40 basis points the right way to think about the impact on EBITDA? Or is it also 40 basis points on the gross profit margin as well?

Yeah, I think for Jacob Brothers, their G&A percent of revenue is higher than say BIRD's. So you might pick up a bit more on gross profit, but then you give a little bit back on G&A. But when you look at the impact on EBITDA, those two are netted out. So it has the 40 basis point difference. Okay, that's helpful.

And then Wayne, just kind of a quick question, I guess, on cash and capital. There's been certainly a lot of moving parts, I guess, in the credit facility, the acquisition of Jacobs, a lot of stuff moving around. But just looking at the cash, the mix between what's your cash and what's in restricted cash and joint operations, you know, it really seemed to have dropped out over the last few quarters. Just wondering, because I don't think you're in a lot of joint venture operations right now, but maybe I'm misunderstanding that. Just can you kind of walk us through how you think cash is going to kind of move around period to period, you know, with the joint ventures in the mix? And if Jacob kind of changes how those work through your balance sheet?

Yeah, maybe I'll just talk a little bit about the mix of the cash. So, you know, we kind of bifurcate our cash into three categories. We call it accessible cash, trust cash, and then joint venture cash. The trust cash, you know, plus or minus $5 million kind of, you know, stays in a fairly tight, you know, range quarter to quarter driven on volumes, of course, in parts of the country that have that type of legislation in place, but not much movement there. I'd say in one of our large capital investment projects, we are in a joint venture. And certainly, you know, on that project, we have cash balances that are held in those joint venture accounts. And that's why year over year, you see the spike in cash held in JVs. You know, at some point, that cash, you know, comes back to become accessible cash, if you will, because, you know, things like profits and overheads will get distributed from the joint venture accounts back to the joint venture partners over time. And then obviously, some of that cash is used to deliver the project, you know, certainly as well. It's accessible cash. Like we invested, you know, $15 million in our bank account to acquire the Jacob Brothers acquisition in Q3. So, you know, we had negative $6 million in accessible cash now. But, you know, if you look at some of the cash we put on Jacob Brothers, you'd be, you know, plus 10 type thing. And then, you know, with the growth in the business, it's pretty significant year over year growth. So, even though in Q3, we delivered positive $6 million in cash from changes in non-cash working capital accounts, on a year to date basis, you know, we still have $148 million invested in that. So Q4 is always our strongest cash generating quarter. And we expect that trend to continue. I think in Q4 last year, we released maybe $65 million in non-cash working capital. And I think all things being equal, we'd expect that to occur again, you know, this year. And then, you know, all of that cash becomes, you know, accessible for the business as well. So I do think with the growth of the business, you're seeing more investment in that non-cash working capital. But you're still going to see the same seasonality trends that we have over the past several years.

Okay. That's helpful. Thank you.

The next question is from Atharva Zaveri with TD Cowan. Please go ahead.

Good morning. Atharva Zaveri here on behalf of Michael Tupel. So impressive margin performance in Q3. And now, if you're expecting full year 24 EBITDA margin of at least 6%, which is good. So how much year over year margin improvement do you expect in 2025?