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Operator
Good morning, everyone. Welcome to Exchange Income Corporation's conference call to discuss the financial results for the three-month and six-month periods ended June 30, 2022. The corporation's results, including the MD&A and financial statements, were issued on August 11, 2022 and are currently available via the company's website or CDAR. Before turning the call over to management, listeners are cautioned that today's presentation and the responses to questions may contain forward-looking statements within the meaning of the safe harbor provisions of Canadian provincial securities laws. Forward-looking statements involve risks and uncertainties, and undue 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. For additional information about factors that may cause actual results to differ materially from expectations and about material factors or assumptions applied in making forward-looking statements, Please consult the MD&A for this quarter, the Risk Factors section of the Annual Information Form, and exchanges other filings with Canadian securities regulators. Except as required by Canadian securities law, exchange does not undertake to update any forward-looking statements. Such statements speak only as of the date made. Listeners are also reminded that today's call is being recorded and broadcast live via the Internet for the benefit of individual shareholders, analysts, and other interested parties. I would now like to turn the call over to the CEO of Exchange Income Corporation, Mike Pyle. Please go ahead, Mr. Pyle.
Mike Pyle
Thank you, Operator. Good morning, everyone, and thank you for joining us on today's call. We have a lot to talk about this morning, so I will try to be as brief as possible and leave plenty of time for your questions. With me today are Richard Waurick, our CFO, and Carmel Peter, our president. When we reported our Q1 results in May, we announced a number of exciting things that occurred subsequent to the end of the first quarter, including the acquisition of Advanced Paramedic Limited, Northern Matten Bridge, an enhanced $1.75 billion credit facility, strong results, 2022 and 2023 financial guidance, and a dividend increase for the first time since the onset of the pandemic. I am very pleased to announce that these initiatives are very evident in our second quarter results. The second quarter included only seven weeks contributions from our new subsidiaries, but still recorded new record highs in virtually all financial metrics In spite of the ongoing challenges of the pandemic, supply chain issues, inflation and labor shortages in some subsidiaries, our performance was so strong that we were not only able to hit record highs in absolute and per share metrics, but also enabled us to increase the 2022 guidance we provided last quarter and for the second consecutive quarter, increase our dividends. The second quarter is typically an average quarter seasonally for EIC, as it does not have the winter road issues that impact Q1, but is not yet at peak summertime volumes evident in our aviation and some manufacturing companies. Northern Matt was a large acquisition, but it does not change the seasonality profile of EIC, as it is also slowest in the first quarter and busiest in the third quarter. Richard will detail our financial results in a moment, but I would like to hit on some of the highlights. The 2022 results do not include any subsidies from the government. The comparative period includes $17 million in support, making the size of the improvement over last year that much more impressive. Revenue increased 64% to an all-time quarterly high of $529 million. Adjusted EBITDA increased 42% to $115 million, also an all-time quarterly high. Net earnings grew 82% to $30 million, an all-time quarterly high, and on a per-share basis grew 73% to $0.76 per share. Adjusted net earnings increased by 95% to an all-time quarterly record of $39 million, or $0.98 on a per-share basis. Free cash flow, less maintenance capital expenditures was $1.20, up 22% from last year. The trailing 12-month payout ratio and a free cash flow, less maintenance capital expenditures basis strengthened to a rock-solid 56% from 58%, while it improved to 87% from 118% when calculated on an adjusted net earnings basis. Our second quarter shows the impact. of a long-term focus in investing and decision-making. On a micro level, the numbers were the result of solid performance across the board in our two segments, including our recent acquisitions. But on a more macro level, the performance was driven by the long-term focus of management during the pandemic on investments to facilitate growth when markets improved. We have purchased aircraft to facilitate freight, medevac, and charter demand. We've pursued and won surveillance contracts in new markets around the globe and completed accretive acquisitions. Our aviation business entered the quarter dealing with declines in passenger loads from the Omicron variant of the COVID virus. This variant hit northern communities much harder than earlier versions of the virus. Fortunately, this was relatively short-lived and volumes bounced back during the quarter. The degree of the recovery varies geographically. Powell's business in the Maritimes is fully recovering and is at or ahead of 2019 levels. Central Canada and Nunavut will be between 75% and 95% of 2019 levels. In most markets, the rate determining step to return to or to exceed 2019 levels
Richard Waurick
is access to medical resources.
Mike Pyle
While the pandemic has clearly receded and the medical system is still overwhelmed, as access to appointments and diagnostics improves, passenger levels will follow. Our medevac and maritime surveillance businesses continue to form as expected, with strong demand and corresponding margins. The exception to this being the force multiplier, where the usage was less than normal because of government focus around the world on the situation in Ukraine. Medium and longer-term demand remains strong. The Netherlands surveillance contract begins in the third quarter, and we completed preparation of the aircraft subsequent to the end of the second quarter. Regional 1 continues to perform well. Parts, components, and full aircraft sales remain very strong above 2019 levels. The leasing of engines continues to accelerate, but the leasing of full aircraft is only improving slowly. The leasing of aircraft is hampered by a shortage of pilots. Airlines do not have sufficient labor to add flights, and as such, do not require the additional lift as quickly as passenger demand would suggest they would. We expect this to continue to improve over ensuing quarters, albeit more slowly than we would like. In aggregate, however, Regional 1 is performing well. A quick comment on fuel prices before we move on to the manufacturing segment. Fuel prices moved rapidly higher during the quarter before moderating as we moved into the third quarter. Many of our contracts have fuel surcharge provisions, and our market position ensures we are able to pass on our increased fuel costs to our customers, where a specific contractual arrangement does not exist. The price adjustments typically lag the change in fuel costs, so there is a marginal hit during times of rapid escalation, but a reverse effect in times of fuel price decline. As such, in the long run, the price of fuel does not really impact our adjusted EBITDA, but it can have short-term impacts as pricing takes time to adjust. Manufacturing had a strong quarter, driven by continued resilient performance by our legacy companies, and our most recent acquisition, Northern Math. Demand has remained strong throughout the segment. Alberta Operations has benefited from the stronger oil and gas sector. West Tower continues to benefit from the rollout of 5G systems across the country. Backlogs remain strong in our precision metal businesses and stainless tank businesses. All have dealt with challenges arising from supply chain delays and inflationary pressure to a varying degree, but have been able to mitigate these challenges effectively. As discussed in the last few quarters, Quest dealt with the supply chain and inflationary pressures, but is also dealing with a disrupted production schedule from jobs which have been delayed or cancelled through the pandemic. This production challenge will continue through the balance of the year, Notwithstanding this challenge, Quest materially exceeded our internal expectations for this quarter and was within 1.8 million of the high water EBITDA generated in Q2 of last year, when the impact of government support received in 2021 was eliminated. Quest has continued to see strong demand for its products throughout 2022 and has been able to convert opportunities to orders. Our order book grew significantly during the first quarter, And the pace of our order book growth doubled in the second quarter to $100 million. The order book has continued to grow early in the third quarter as well. In short, while Quest will deal with challenges through the balance of the year, the outlook for 2023 and beyond is strong and continues to improve. This was the first quarter in which results from Northern Madden Bridge were included in the EIC results. Northern RAT is doing exceptionally well, at the highest end of our expectations and well beyond the historical results upon which the deal was negotiated. There are a number of industry macros which are all contributing to their success. First, there are a number of longer-term linear projects which require a substantial number of mats, including pipelines and transmission lines. The recovery of the oil market, driven by the need for domestic production, strengthened the oil services segment, also increasing demand. Third, many other companies in the temporary row business did not invest in new mats at the same rate as normal during the pandemic, and as such, the industry-wide availability of mats was limited. Finally, lumber to construct new mats was exceptionally expensive and availability of supply was weak. These factors added up very strong demand for matting and limited product availability. As a result, utilization rates were very high and rental rates increased. Northern Mat manufactures its own mats through facilities in Prince George and Creston, B.C. The vertical integration enables them to produce mats at a lower cost than other rental companies who purchase the mats from manufacturers. More importantly, however, it allows them to ensure their own supply in tight markets. Northern Matt management showed tremendous foresight in continuing to purchase fiber during the pandemic when demand for mats was lower. As demand has increased, they've been able to quickly ramp up production in the manufacturing facilities and thereby increase the size of the rental fleet. Northern Matt is expected to continue to perform well through the balance of the year and in 2023. While these factors may not align as directly as they have in the current year, response are expected to meaningfully exceed what the business was purchased off of and the guidance we provided when the transaction was announced. We're very bullish on the whole matting segment and look to deploy capital to expand the Northern Mat business, whether through acquisition or organic geographic expansion. Its products are an environmental best practice and the number of potential uses is expanding. What was simply an oil field services play 10 years ago is now involved in electrical distribution, forestry, and alternative green energy solutions. We expect a lot of Northern MAT team when they were purchased by the company, and they have not disappointed. In fact, they have exceeded our expectations, and we are excited about the growth opportunities under their leadership. Our acquisition pipeline is as robust as it has been at any time in our history. It is somewhat counterintuitive, but the recent increase in interest rates appears to have been good for our competitive position when looking at desirable companies, particularly those in the $100 million plus purchase price range. We are looking at a number of opportunities related to our existing manufacturing companies, together with organic growth opportunities through significant government contracts in our aviation sector. While we do not have any transactions at the stage where we know they will proceed, we are cautiously optimistic about the opportunities we have identified. Before I hand the call to Richard to detail our financial results, I would like to conclude with a quick discussion of our decision to increase our dividend for the second quarter, second consecutive quarter. Those of you who have followed the company for a long time have seen that since inception, we've been focused on growing our company in a sustainable manner that will enable us to consistently and reliably increase our dividend to shareholders. During the pandemic, we were able to maintain our dividend during a very difficult period, particularly for companies with aviation exposure. This was a result of excellent focus of our management teams to make sure we looked after our customers, our employees, and our cash flows. But equally important was the investments made in these preceding periods, creating a diverse portfolio of companies with different economic drivers. We continually spoke during COVID about the investments we were making with an eye on growth post-pandemic. After the first quarter, we provided guidance and increased our dividend. The results of the second quarter were so strong, as is the outlook for the future, that we have revisited our guidance and have chosen to increase the dividend for the second consecutive quarter. The work done during the pandemic is beginning to pay off. The decision to increase our dividend has always been based on our operations that can sustain the payment, both currently and in the future. And this increase is no different. While it marks only the second time in our 18-year history that we have chosen to increase the dividend in consecutive quarters, the result is clearly warranted. Our payer ratio is declining from what was already a strong position, and our outlook is excellent. During COVID, we preserved the dividend, and now we have returned to profitable growth and increased cash flow, and we are sharing it with our shareholders. As I mentioned in my CEO message in our financial statements, the best is yet to come. I will now hand the call off to Richard, who will detail the second quarter results.
Quest
Thank you, Mike, and good morning, everyone. During the second quarter, to ensure that the corporation had the capital available to support its robust acquisition and organic growth opportunities, the corporation increased the size of its senior credit facility to $1.75 billion, up from $1.3 billion, while still maintaining the $300 million accordion and extended the term of the facility to May 2026. This extension, along with other convertible venture transactions completed recently, leave the corporation with no debt maturities until June 2025. The structured timing of debt maturities and the regular extension of our senior credit facility with exceptional support from our syndicate of lenders provides financial flexibility. During the quarter, the corporation utilized its senior credit facility to fund the acquisitions of Northern Met and APL and invest in other initiatives that will drive growth in the future. The corporation's leverage ratio is slightly higher than its historical range with this deployment of capital but as well within the corporation's covenant maximum of four times senior debt to EBITDA. The corporation made several investments in working capital during the period that are either temporary in nature or will drive future growth. The corporation made a $26 million refundable deposit in its rotary wing operations for helicopters that would be required if the corporation is successful in its bid on a 10-year rotary wing medical contract in Canada. In addition, the corporation has made several deposits on aircraft and engine assets That will either result in capital expenditures over the remainder of the year or will be returned if the transaction is not completed. Other investments, such as increased investments made in Regional 1's inventory of assets for resale, will drive higher sales in the future. Finally, the corporation's manufacturing subsidiaries have invested significantly in their inventory levels to mitigate the impacts of supply chain disruptions. These inventory balances will be right-sized over time as supply chains improve. Corporation has completed seven acquisitions in the last 12 months and those acquisitions, in addition to improvements in our other operating subsidiaries, drove materially improved financial performance over the prior period. The corporation's results were arguably the best in its history during the second quarter, with several records set. Revenue was $529 million, a quarterly record and 32% higher than our previous quarterly record. Adjusted EBITDA was $115 million, a quarterly record and 21% higher than our previous quarterly record. The corporation's free cashless maintenance capital expenditures, both on an absolute basis and per share basis, were both second quarter records for EIC. Net earnings was an all-time quarterly high. Adjusted net earnings was an all-time quarterly high, exceeding the previous high by 16%. Per share results were also a second quarter record. On a consolidated basis, adjusted EBITDA increased 34 million or 42% over the prior period, despite a $17 million reduction in government support received compared to the prior period. Improvements across both of our segments drove the increases over the prior period. In the aerospace and aviation segment, strong demand from reductions, and in some cases, complete removal of travel restrictions and quarantine requirements have benefited our subsidiaries. In the airlines, passenger traffic was impacted the most by these changes, and to a lesser extent, lease revenue at Regional 1 benefited during the quarter. Regional 1 also took advantage of marketing dynamics and continues to set quarterly records in sales of aircraft and engines, in addition to seeing record levels of part sales. Starter, medevac, and aerospace operations continue to contribute positively to the segment's results. Lessening COVID-19 impacts helped our manufacturing subsidiaries as well, and although the challenges of required COVID-19 related employee absenteeism shifted to supply chain and labor challenges, Our manufacturing subsidiaries worked together to collectively solve their supply chain issues and fared very well considering the challenges they faced. Our adjusted EBITDA margins were impacted by three notable factors compared to the prior year. First, CTI acquired in December of 2021 generates lower margins as capital requirements are minimal beyond working capital. Second, rapid escalations in fuel prices initially impact adjusted EBITDA until fuel price escalators in our contracts become effective or until fuel price surcharges are implemented. Thereafter, adjusted EBITDA margins are still impacted as these surcharges are flow-throughs to the customer. Finally, lower government subsidies decreased margins as there were no costs associated with those subsidies. The acquisitions completed in the last 12 months, most notably Northern Mat, Carson Air, and CTI, contributed to the increase in revenue and adjusted EBITDA. The increases in adjusted EBITDA were partially offset by increases in other expenses. Depreciation increased over the prior period due to investments made in growth capital expenditures addition of capital assets through the corporation's seven acquisitions and increased flying completed by the corporation's airlines interest expense increased over the prior period due to funding of our recent growth initiatives and acquisitions with senior debt and increases in the benchmark foreign rates since december of 20 or since the beginning of 2022 other costs associated with our acquisition activity notably acquisition cost and intangible asset amortization also increased over the prior period With a significant increase in adjusted EBITDA more than outpacing the increase in these costs, net earnings increased to $30 million, an increase of 82% over the prior period. At the same time, adjusted net earnings increased 95% to $39 million over the prior period. Pre-cashless maintenance capital expenditures increased by $11 million over the prior period to $47 million. The increase is mainly attributable to increased adjusted EBITDA partially offset by increased maintenance capital expenditures. The corporation's trailing 12-month payout ratios improved over the prior period to 56% on a free cash flow with maintenance capital expenditures basis from 58% in the prior period and to 87% on an adjusted net earnings basis from 118% in the prior period. As discussed earlier, these improvements reflect prudent and accretive investment throughout the pandemic and the beginning of realizing on those investments in a material way. In early 2019, the corporation laid out its intention of lowering its payout ratio to 50% on a free cash flow as maintenance capital expenditures basis and to 60% on an adjusted net earnings basis over a three-year period. While we temporarily put this target on hold due to the impact the pandemic had on our operations, we have never been in a better position to achieve these targets set back in 2019. The trailing 12-month payout ratio on a free cash flow that's maintenance capital expenditures basis is now better than it was at December 31st, 2019, with a clear path for continued improvement in the short to medium term. The adjusted net earnings payout ratio is improving at a more rapid pace in recent quarters as our lease aircraft and engine portfolio, despite its underutilization, continue to be depreciated during the pandemic. As we exit the pandemic, margins on asset sales are at or above pre-pandemic levels. showing that our depreciation of our leasing assets during the pandemic was appropriate despite this underutilization and proving out that the value of our leasing assets are not impaired in any way. In addition to continuing to depreciate the assets on our portfolio, we did not record lease revenue for deferred lease payments during the pandemic, meaning lease receivables did not grow materially as lessees were unable to fly due to COVID-19 travel restrictions. We expect continued accelerated improvement in the adjusted net earnings payout ratio over the next 18 months and beyond. And as we indicated at the time in 2019, moving our payout ratios towards these targets would not come at the expense of dividend increases when results warranted. And here we are in the first six months where restrictions have lessened in a meaningful way, delivering our second dividend increase to our shareholders. That concludes my review of our financial results. I will now turn the call over to Carmel.
Mike
Thank you, Rich. This morning, I have the pleasure of discussing our outlook, which we are very excited about and is a testament to staying true to our business model of managing for today and investing in tomorrow, even during the pandemic. We'll first discuss the aerospace and aviation segment. Our airline operations are anticipating further improvement for the balance of 2022. This will be driven by continued progress in passenger traffic, capitalizing on further pullback in the maritime market from mainline airlines, increased capacity to take advantage of growing demand for charters from existing and new customers, and continued strong performance in cargo and medevac operations. The segment will also benefit from the deployment into three of our rotary wing trauma flight operations in Thompson to serve Northern Manitoba. Regional one will continue to see improvements in the back half of the year, although leasing has lagged recovery, first due to the impacts of COVID on the airline industry as a whole, And now due to the overall impact of flight crew shortages, causing airlines to park regional aircraft and focus on larger gauge aircraft, it is a short-term issue. So while we anticipate leasing to slowly improve in Q3 and Q4, we do expect significant improvement in particular for engine leases in 2023. In the interim, Regional 1 has been and will continue to be opportunistic on acquiring and selling aircraft and engines and will continue to experience strong parts sales. Aerospace will also see growth for the balance of 2022 with the start of the Netherlands surveillance contract in Q3, strong operational tempo in the UAE and under our DFO contract, as well as robust sales for the CartNav mission system. The manufacturing segment will see the largest growth with the full contribution of Northern Mat for the balance of the year. Northern Mat is performing at the highest end of our expectations. This performance level is expected to continue for the balance of the year, driven by several macroeconomic events described earlier by Mike. While it is not expected that all of those macroeconomic events will continue to align as well as they have in 2022, we do expect results to continue to be notably better than the financial metrics on which we acquired Northern Mass. Quest results for the balance of 2022 will continue to be impacted by COVID-related project delays that occurred in 2020 and 2021, which, given the long order cycle, 12 to 24 months, impact 2022 production, in addition to inflationary and supply chain issues. However, these are short-term issues, with the medium and long-term looking strong, evidenced by a quarter-over-quarter net increase in Quest order book of approximately $100 million. These new projects are for 2023 and 2024. The balance of the manufacturing segment is expected to perform well in the back half of the year, driven by telecommunications industry active rollout of G5, increased activity in capital projects in the oil and gas industry in Alberta, increased demand in the defense sector, and the benefit of the tuck-in acquisitions we made in 2021. Now, that's not to say that there will not be challenges ahead, as there will be. Supply chain impacts, labor shortages, inflationary cost increases will continue to put pressure on margins. But we are and we will continue to manage through these issues with our collective capability and initiatives we have put in place. So for instance, our life and flight program is transitioning pilots into our flight lines. Our apprenticeship programs are developing skilled workers, such as aircraft mechanics and welders for our businesses. Our labor recruitment efforts have brought in 22 Ukrainian immigrants into our workforce, and our fuel surcharges are now substantially offsetting the increases experienced. We are also starting to see stabilization of import costs, and in some instances, a decrease. So while challenges remain, we are confident in our management teams and the steps we have taken to mitigate them. With the expected increase in operations for the balance of 2022, we anticipate maintenance capex to remain close to current levels for the next two quarters, perhaps slightly more weighted to Q3. Although our maintenance capital expenditures are typically weighted to the front end of the year, the onset of Omicron late in 2021 and into 2022 delayed some of the maintenance activity to later in 2022. Also, the acquisition of eight businesses since the pandemic began the capacity added in our aviation business, and the maintenance investment in our leasing portfolio to take advantage of expected increases in aircraft and engine leasing contribute to the overall future maintenance investments required. Growth investments to achieve this expected performance are commitments we have disclosed previously, being the final portion of the investments for the Netherlands surveillance aircraft, and investments in connection with the upgrade of the surveillance aircraft for the renewed Curacao contract, the completion of the new hangar required to meet obligations under a fixed-wing search and rescue contract, and opportunistic acquisitions by Regional 1 as it continues to take advantage of aircraft market dynamics. Additionally, as we have done in the past, we will look to see both organic growth opportunities and accretive acquisitions that meet our criteria. In that regard, our pipeline of potential acquisitions is robust. So as you can see, our future is bright, and with the strength of our performance for the balance of the year, we have revisited the 2022 EBITDA guidance we provided in Q1, which was between $410 and $430 million, and are increasing it to between $435 to $445 million. At this time, we are not changing the EBITDA guidance we provided for 2023, being between $500 and $530 million. but we will review this guidance as we complete our 2023 budget process and we'll provide further commentary when we report our Q3 results. But not only does our outlook give us the confidence to increase our guidance for 2022, it has enabled us to reward our shareholders with a second consecutive quarter annualized dividend increase of $0.12, freeing our annual dividend to $2.52 per share. Although a dividend increase in two consecutive quarters is unusual and is not a new norm, it does evidence our belief in EIC's future and our commitment to reward shareholders. They say actions speak louder than words, and we believe our actions say a lot about our future. Thank you for your time this morning, and we would now like to open the call for questions. Operator?
Operator
Thank you. We will now conduct the question and answer sessions. If you do have a question, please press the star followed by the number one on your telephone keypad. You will hear a three-tone prompt acknowledging your request. Your questions will be pulled in the order that they are received. Please ensure that you lift the handset if you are using a speakerphone before you press any keys. One moment for your first question. Your first question comes from Steve Hansen of Raymond James. Please go ahead.
Steve Hansen
Good morning, Steve. Yeah, good morning, guys. Thanks for the time. Mike, it sounds like NorthernMAT has been an outstanding addition, particularly in light of its integrated manufacturing capabilities here. Is it fair to assume that Northern is taking incremental share through the cycle, given these unique capabilities? And could you just perhaps speak to those in the context of the broader industry?
Mike Pyle
Thanks. Steve, help me with incremental shares. What are you asking me?
Steve Hansen
Oh, just how unique is the manufacturing capability of Northern America? Is that allowing it to take share?
Mike Pyle
Yeah, it's a huge advantage to be able to ramp up and ramp down your production under your own control. We've seen through all of the pandemic that lumber prices were at all-time highs. And on top of that, supply of the wood required for matting was very hard to get because they're large timbers and they're not always available. So with the fact that Northern took a longer term view, they continued to buy fiber throughout the pandemic. And as such, we're well stocked to be able to run our plants at one shift capacity. And so we have access to new product to take advantage of the opportunity. So it makes us more efficient. It's cheaper than buying them from third parties, but most importantly, it gives us access to the mats in periods like this, which lets us ramp the size of our rental pool to take advantage of demand in the marketplace.
Mike
And management has a really good relationship with lumber suppliers, so it's enabled us to get access to lumber when others perhaps were having a little bit more difficulty in that area.
Steve Hansen
Okay, very helpful. Thanks. And just quickly on regional one.
Mike Pyle
uh also hitting stride how difficult is it for regional one to source parts this type of environment where they do sound like they're becoming very tight um not really i mean we've always been opportunistic in that business steven it's so we make our money to be honest in how we buy and so A lot of the stuff is moving things from your lease fleet to your inventory. And so at the right time, we tear things down. If the demand for the parts exceeds the demand for the aircraft, aircraft become parts. And we've been doing that through this. The demand for components has been exceptional. To be honest with you, it's probably even exceeded our internal expectations. And it looks strong in the future, particularly as the pilot situation gets better. there's a whole bunch of underserviced communities and underserviced passengers in North America and in Europe. And as those planes start to fly, I think the demand, particularly on the engine front, will continue to accelerate. There's only so many slots at the engine overhaul facilities, and those are booked. So as they fly more, they're going to need temporary engine solutions, and we're glad to help people with that.
Mike
And it's a good question, Steve, because it really does highlight how Regional 1 effectively manages their assets. So you take our leasing portfolio, we have the ability, if there's a high demand in parts, to be able to tear down those aircraft because the leasing is just burning off the green time or take components off, keep the engines in the pool, but then take the parts which are needed and put it through our parts sales. So it's that ability to ensure that we're maximizing the value with the aircraft based on demand in the marketplace.
Richard Waurick
Okay, guys. Thanks. Very helpful. Appreciate it.
Operator
Your next question comes from Cameron Dirksen of National Bank Financial. Please go ahead.
Cam
Morning, Cap. Yeah, thanks very much. Good morning, everyone. So I just had a couple questions on the manufacturing segment and maybe a follow-up to Steve's question on Northern, Matt. If I look at the margin in the manufacturing segment, obviously very, very strong. Is it safe to say that that would be largely driven by the inclusion of Northern, Matt? Maybe you can just talk a bit about the margin profile there.
Richard Waurick
Sure. The legacy part of our manufacturing business did well.
Mike Pyle
It kind of gets lost to a certain extent with the acquisition of Northern Mat. So even with the challenges they faced, they were able to maintain margins in a little more difficult environment. So we're very happy with that. But the delta comes from Northern Mat. Northern Mat has a big rental business. And as such, that's going to have high EBITDA margins. Now, it's somewhat offset by maintenance capital expenditures, as Carmel talked about in her comments. We're going to invest $20 million a year plus in that business. In maintenance capex, the mats are made of wood and they have a finite lifespan, four, five, six years, depending on how they're used. And so that pushes up the profile. But even within that, the utilization rates are great and And the pricing is strong. So those strengthen an already strong margin profile. I would almost look at NorthernMAT in terms of its margin profile, Cam, almost like an airline. The airlines typically have higher margins than our manufacturers because they have higher reinvestment requirements. And that would be the same with NorthernMAT, although their reinvestment requirements wouldn't be as high as the airline's. But conceptually, the tracking is the same. A rental fleet generates higher return profiles. And even when we sell that, those are at higher margin returns than we would get in a typical manufacturing environment.
Cam
Okay, no, that makes sense. And just secondly, on manufacturing, obviously, Quest had a very good quarter as far as bookings, big backlog growth there. I guess it's safe to assume you're not seeing any indications of a slowdown in multi-unit residential construction. Maybe you can just describe the backlog growth there. I mean, where are you seeing the strength? Is it existing customers? I mean, obviously, you've got some new markets as well. So just any color there.
Mike Pyle
Yeah, I asked this question as recently as two days ago when the guys were in town. And we've seen no decline in demand and opportunities to look at. And quite frankly, we've seen kind of a bit of a bump in closings. And we think it's because people are locking in costs at the current rate. If there has been any change in the business in certain markets, particularly Canadian markets, there's perhaps a move or a thought of a more rental based project than condo projects. I mean, from our point of view, they're exactly the same. You can't tell the difference between a condo apartment and a rental apartment. And the U.S. has always been a rental market. continues to be. We've probably seen the biggest improvement in demand in the U.S., and I would suggest that's largely because Canada never saw a decline. Canada was remarkably resilient through all of this, and the U.S. had a slight decline during COVID, and we're seeing that normalize. So we find it very encouraging, the level of growth of the $150 million pickup in that order book. that order book's now at all-time highs, better than it was pre-COVID and materially higher. Now, it's a bigger business because we own our installers, but even with that, taking that into account, the order book's as strong as it's ever been.
Mike
And the backlog is, you know, relatively consistent in all our traditional markets with a slight uptick on the west side of the U.S., California and Seattle, which was actually a little slower than on the east side. So it's a little bit of pickup there, but strong demand across our markets.
Richard Waurick
Okay, that's very helpful. Thanks very much.
Operator
Your next question comes from Chris Murray of ATB Capital Markets. Please go ahead.
Chris Murray
Good morning, Chris. Good morning. Good morning. So just maybe turning back to Northern Mac for a couple seconds and just trying to maybe understand how you guys are thinking about this. So we certainly saw the higher margins working through, I think, as you guys described. Some of the capex, just so I understand, because I mean one of the things about Northern Mat was a higher EPCOT margin, but it also had higher capex. Are you considering the ongoing building, call it normal inventory? Is that running through capex? Can you just kind of walk us through how that's going to show up in the balance sheet and cash flow demands?
Richard Waurick
Yeah, Chris will take this one.
Quest
It's no different than how we deal with our regional one lease portfolio and our regional one lease assets versus inventory. So at the time management builds the, sorry, just to start, raw materials will always be in inventory. So they buy the timber from the providers, they put it in inventory. Once they build the mat, management will take a look at the asset and say, am I going to lease it or sell it to a third party? they're going to lease it it will go immediately into their capital assets and then show up either as maintenance or growth capex depending on if it's at or below if it's below the depreciation level it'll show up as maintenance capex the extent that it exceeds depreciation for the quarter it will show up as growth capex if they plan to record it or sorry plan to sell it to a third party it will show up in the inventory and will be sold out of inventory okay so
Chris Murray
Maybe to dumb it down, so the expectation would be that we will see CapEx going into Northern MAT and showing up in either the maintenance or the growth lines, as you suggest. And that's just the way you're going to, you guys are going to be, you'll be treating the construction of MATs as capital assets is the way to think about it, and then making a decision after the fact.
Mike Pyle
Yeah, so when we build the mats, unless we intend to flip it immediately, it'll end up in our long-term assets. And then the breakdown between maintenance and growth sounds complicated, but it's really not. We need to maintain the ability to earn income. Mats get used up and chewed up when heavy trucks drive on wood, things happen to it. So we invest an amount equal to that decline in the existing thing to maintain it. Those are maintenance capex. And then we build extra mats beyond what we need to maintain it. That's a growth capex because that'll drive future lease revenues higher. So it's actually pretty straightforward.
Chris Murray
Okay. No, that's helpful. Um, and then my other question is maybe turning around to a new growth opportunity. So there, I guess there's two, uh, two parts of this. Um, one is you did allude to the fact that, uh, the M&A pipeline is pretty healthy, but that multiples are coming in with, I guess, with interest rates moving higher and maybe making it more difficult for other buyers. So that's the first part of the question is just, you know, how are you thinking about things in terms of just magnitude of acquisitions and how should we be thinking about timing or is there anything we should be aware of? And then the other part of my question is just sort of new contracts for particularly aviation. I know there's some specific that might be coming up, just any update you can provide on new contract opportunities for Powell would be great.
Richard Waurick
Okay.
Mike Pyle
Your first question about the acquisition market is a good one. What we've seen is the change in interest rates, while it does affect our cost of capital modestly, it doesn't have a big impact, But we've always been very disciplined in what we're prepared to pay. And we want that 15% unlevered return after maintenance reinvestment. Historically, for the last five, six years, with the hyper liquidity in capital markets, we were up against a lot of private equity people that were prepared to put a lot more debt on than we were. And as a result, we're prepared to pay more, which limited our competitiveness on larger transactions. For the sake of EIC, we'll call larger transactions, transactions with a purchase price in excess of $100 million. Now, in the higher interest rate environment, while the cost of secured debt has gone up, the cost of subordinated or second tier debt has gone up even more.
Richard Waurick
And so these highly levered models don't work as well. And so to the extent that we compete against them, they can't pay as much as they did in the past.
Mike Pyle
While we did most of our deals under the $100 million threshold over the last few years, we did the Northern Mat deal at 300 plus, which is the biggest deal we've ever done. And the number of the transactions we're looking at now would be in excess of $100 million. Perhaps the easiest way to look at it is I wouldn't suggest that the number of transactions that we're very interested in is higher. than historically, but I would say the average size of those transactions are higher because of what's going on. And the other thing I'd add to this, this I personally find a bit surprising because I don't think interest rates have moved that far, is one of the things that's becoming a huge issue with vendors is certainty of closing. The proven ability to close a transaction, have the money to close the transaction and that they have certainty that you're going to proceed has helped a lot. There's been a number of transactions, I believe, on the private equity side that have been postponed, renegotiated, or canceled, and it's made vendors concerned. And so our proven track record of closing when we say we're going to close also helps us in this environment. The second question, do you want to take it?
Mike
Sure. So, Chris, let me give you an update, maybe to put everything in perspective. So we have our kind of core contracts for provincial Frick Swing Search and Rescue, DFO, UAE. Curacao was one we've had for a number of years. It got renewed for 10 years in December of 2021. So we're busy updating those aircrafts. And the new aircraft, given the lead times for sensory equipment, Probably not going to see those actually go into the new contract until about first part of 2024. But we're working away on that. In the meantime, we continue to obviously hold that contract. Netherlands, we are putting the first aircraft in operation this month. Second one is scheduled to go end of September. Then as far as outstanding bids, Malaysia. So as we've, I think, commented before, We're down to two bidders, Powell being one of them. We completed technical visits beginning Q3, and we expect a decision sometime this year. Hard to exactly say when, given these procurement processes, but that's the timeframe that we're expecting to hear. There's also the future air crew training bid, which We are bidding for a consortium with Skyline. The PAL portion of that would be the rear crew training aspect of that. Those bids are probably required either the end of this year or the beginning of Q1 2023. And it'll take the federal government about a year to assess that. So contract award, you know, think of it probably beginning 2024. Okay.
Richard Waurick
That's helpful. Thanks, folks.
Operator
Your next question comes from Matthew Lee of Canaccord. Please go ahead.
Matthew Lee
Morning, Matt. Hey, good morning, guys. So just maybe a housekeeping question to start on the convertible shares. I noticed that in this quarter you kind of included them into your fully diluted, despite none of them really reaching the conversion price. Is there just an assumption change there, or is that something that has changed about business?
Quest
No, so when we assess whether something is diluted or not, we have to assess when you add back the after-tax cost of the interest and look at the dimensions on an if-converted basis, so then you add back the number of shares that would result from that conversion. If by adding the interest back and adding the shares in, your earnings goes down or whatever metric you're talking about, then it's dilutive. In instances where you add back the interest and add back the shares and the earnings go up, it's not dilutive. So here, it's just a function of the earnings in that specific quarter and when earnings or any metric is low, the dilution impact will generally, there generally won't be a dilution impact. So it just speaks to how good the quarter was when you see the debentures being dilutive because as we add back the interest costs, there's a greater impact from adding the shares back in. And so generally, when you look at industry, we wouldn't have had dilutive impacts in Q1. And depending on, you know, as we move throughout the year, you see the dilutive impacts as you move further into the year as earnings increase.
Matthew Lee
Great. And then maybe on the regional one side, you know, were there any large one-time lower margin sales, maybe, you know, full aircraft sales? in the quarter, just because the revenue number was certainly much larger than expected, but it didn't really flow down to EBITDA, if you talk about that quickly.
Mike Pyle
The mix of revenue at Regional 1 changes quarter to quarter. The pure parts sales is reasonably consistent quarter to quarter, and the margins on those are fairly consistent. The number of larger piece sales varies, and the margins on those are lower, and you're correct that there were a few larger transactions during the quarter, which deliver absolute dollars in margin, but at lower percentage terms.
Richard Waurick
So your analysis is correct. All right. Thanks, Seth.
Operator
Your next question comes from Krista Friesen of CIBC. Please go ahead. Good morning, Krista.
Krista Friesen
Hi, thanks for taking my question. Congrats on a great quarter. I was just wondering if you can speak to what you're seeing in the labor market. I know there's certainly labor issues on the aviation side, but on the manufacturing side of the business, what's it like there and how's the turnover and are you needing to pay up for labor at this point?
Mike Pyle
Yeah, it's a good question. I'm cautiously optimistic on this or maybe just optimistic period. But we have seen in the last 30, 60 days a stabilization of the labor force. And I'm not speaking of any company in specific. I'm speaking generally. Perhaps the discussion of a recession and the increase in interest rates has led employees to where they're happy to stop chasing around for relatively small increments. So is there wage pressure? Yes, that's still there. I would describe it as modest. It's real, but it's not massive. And the churn of our employees has declined. And so while it's still hard to grow your labor force, the ability to maintain our labor force has actually improved somewhat. I would say that it's a relatively short period. It's less than a quarter. We've seen that for, but we're hoping that perhaps the impact of the Fed changes and stuff has led people to go, okay, I'm good where I am. We're happy. We're going to stay. And we still are focused on growing it in some of our places. In Quest, as we wrap up, we'll want more employees, both in Toronto and in Dallas. and other places. So the hiring will continue.
Richard Waurick
It's not easy, but it's on the right side. It's getting better. That's great. Thanks. All my other questions have been asked. Thanks very much. Thank you.
Operator
Your next question comes from Jeff Fenwick of Cormark. Please go ahead.
Jeff Fenwick
Hi. Good morning, everyone. Hey, Jeff. Good morning. So Mike, just wanted to look at the legacy and PAL segment there in the margins. Always a little tricky because there's so many moving parts. I know you called out the fuel surcharge, the pass-through there, taking a bit of time to help you out here. But as we go forward, are we expecting the combination of utilization, passenger traffic picking up and that fuel cost pass-through catch-up? Is that something that should help you out on the margin front going forward and I know you've got some other things coming on stream in that revenue mix, so I'm just trying to get some thoughts around how we should think about that.
Mike Pyle
This might be the shortest answer I give today. Yes, those things, passenger volumes in particular, are the biggest driver of margins in aviation. When we're doing freight flying or charter flying, those come with a fixed margin, but two extra bodies on an airplane makes a big difference to the bottom line of that flight. So yes, as we get that last 10 or 15% of passengers back, our fuel being reasonably consistent, whether it goes up slightly or down slightly really doesn't change much, as long as it's not dramatic in either direction, I would expect margins over time to get better.
Jeff Fenwick
Okay, that's helpful, thanks. And then maybe just one more on the M&A outlook there. Northern Matt was a little bit outside of what you've typically looked at in terms of airlines and manufacturing. How are you thinking about where you're targeting opportunities on the M&A front now if you're seeing the market open up a bit?
Mike Pyle
That's a really good question. And this answers a little bit all over. But first of all, the stuff we're looking at right now is almost all tied to businesses we're already in. So whether they're geographic expansions, vertical integration plays or taking or acquiring a competitor, almost everything we're looking at now would be very related to something. And I would say there's a predominantly manufacturing focus at this point, not because we don't want to do aviation. Aviation seems to be a lot more on the organic side right now. where contracts we're bidding on. We'll make investments, but they're investments in ourselves. But I don't want people to think that we're not maintaining that opportunistic bent to our acquisitions. If someone would have told me we could find a temporary wood road company that I'd like as much as I like Northern Matt, I'd have said, there's no way. But the ability to find unique gems that Adam and his team have, uncover are a big part of the secret sauce. If you look at our big acquisitions in the past, whether it's Quest Windows or Northern Matt or Regional One and Aftermarket Parts Company, they're all things that don't immediately jump to your brain as I really need to own that. But when you meet the right management teams with the right market, we're all over it. So those are by their very nature harder to predict.
Richard Waurick
The stuff we're looking at now, though, would be very related and synergistic to things we already own. Okay. That's helpful, Culler. Thanks. That's all I had. Thank you.
Operator
Your next question comes from James McGarrigle of RBC Capital Markets. Please go ahead.
James McGarrigle
Morning, James. Hey, everyone. Hey, congrats on the great results here. Thank you. My question is on Quest. With the new facility opened up and, you know, how strong the demand has been, especially, you know, in Q2 with that pretty large increase to your backlog. I'm just trying to understand, you know, was that increase to the backlog included in the 2023 guide? And, you know, we have both facilities running up at full capacity, no production gaps. You know, what kind of upside can we see going into 2023? Or is this more of an upside into 2024? Just give me some of the positive demand trends that we're seeing in that business.
Mike Pyle
Yeah, that's a great question, James. The improvement in the production schedule is incremental. It starts getting better at the start of the year. And by sort of three quarters of the way through the next year, we're running with a very nice production schedule. It's been a bit, but when we opened Dallas, that plant has way more capacity than our Toronto plant does. And so when we talk about running these plants efficiently, we still have tons of room to increase production in those facilities, adding people and adding equipment. And so we're not at that. What we're talking about right now and what's a big part of our budgeting process at Quest right now is what's the best practice now that we've got demand back? Currently, We're sharing the work to make sure we maintain our workforce, to make sure we keep our employees. So we aren't necessarily choosing the most efficient plan to do a given project in. We're more doing it to make sure we share workloads. As we go forward, we're working on, are we going to specialize certain products in certain facilities? Or are we going to do geographic-based production? We know that we have sufficient aggregate production meet the order books as they are and to absorb further growth but the exact way we're going to flow it through those plants is still an open-ended discussion if i were a betting man i would think you'll see a certain amount of specialization where we have difficult patio doors to build or we have specialized window segments i suspect you'll see those all come out of one of the plants and another plant focus on something else so that we get the best learning curves in the businesses as they ramped higher percentages of utilization.
Mike
There was also increased capacity by just running an additional shift, an evening shift or a night shift. So we have that capability at hand as well.
James McGarrigle
Well, I appreciate that. And I just have another one on regional one. You know, you made some deposits on some capital assets. And, you know, it seems like you're investing heavily in that business despite the kind of that pilot shortage that's going on in Europe. So I guess the first part of my question is, you know, do you have any line of sight as to when that starts to improve? And then when we're thinking about building out our models for regional one, you know, the size of the portfolio if we're comparing it to pre-pandemic has, you know, increased pretty, you know, by a pretty large amount here. And, you know, as that pilot shortage starts to potentially alleviate, do we see kind of revenue on this side of the business kind of increase in line with that, I guess, the increase in size of the portfolio? And was that kind of included in your 2023 guidance? Just trying to understand the potential upside there. Thank you.
Mike Pyle
Okay, the 2023 guidance is, bear in mind, we didn't bump that yet. We decided that we don't want to be changing guidance every quarter. That's not the point of it. And so we want to give you guys a really good number and we're doing that as part of our budgeting. So we'll give you a number that we're pretty confident in when we complete our Q3 results. When you look at what's in the existing number, it definitely includes an improvement in the overall industry. I would caution against just using one proxy for the value of what's invested in regional one. We have more items, but an aircraft isn't necessarily exactly the same. We could have an ERJ that we've got $2 million in or a CRJ 900 that we have $10 million in. So the absolute number is one indicator, but it's not a perfect indicator. So if I was looking at this and I was you, we give you guys changes, in growth capex and investments in inventory. Add those together, that gives you an idea of what the aggregate is that we're putting into those businesses. And do we see this improving? Yes. I think one of the things that makes Regional One the company it is, is Hank and Daron are fully prepared to buy when everyone else is selling. This is no different, although I think if you look at the tenor of some of the calls of some of the bigger airlines, while they're not using the regional aircraft to the extent they could be now because of pilot shortages, they are still investing in those aircraft. The CRJ-550 is a good example where CRJ-700s are being turned into 50-seat aircraft. And that's still a very active marketplace. They're not flying yet, but the airlines know there are certain communities that are always going to be served on regional jets. And the government's not, particularly in the U.S., and to a lesser extent in Europe, not going to let these companies or cities be underserviced in a longer-term sense. They are training more pilots. They will get more pilots as the pilots come. These planes are going to fly because there isn't an alternative in those markets. It's not like if you could go get some more 737s, a market that carries a 60 or 70 seat plane doesn't want a 200 seat plane because you can't make money on it. And so these planes are going to come back. It's going to phase back over ensuing quarters and Quite frankly, the advantage of regional one being part of EIC is it doesn't need to be in the next quarter. We've got lots of things going in the right direction. You've seen the long-term improvements in this with the addition of Northern Matt with the improvement in Quest and the stronger performance of the airlines. Whether it takes us one quarter or three quarters to get that lease fleet where we want it to, we know it's going there. I think it would be false bravado for me to tell you exactly when it is because we don't know, but we're really comfortable that's where it's going and we're really comfortable you'll see some of that in 2023.
Mike
James, you will have seen the last several quarters Regional 1 being actually fairly active on the aircraft and engine transactions. Those have been up in the last several quarters. And so the deposits are reflective of them continuing to take advantage of those market dynamics, which has helped, quite frankly, with their results as leasing has been down. And we look for it to increase over time, as Mike said. But in the interim, they've been very effective of being able to get some profitability out of buying and selling.
James McGarrigle
That's great, Carla. I really appreciate it.
Richard Waurick
And congrats again on a great quarter. Thank you.
Operator
Your next question comes from Karnak Gupta of Scotiabank. Please go ahead. Morning, Karnak.
spk15
Morning, Mike. Good quarter. Thanks for taking my question. So first, maybe I want to kind of dig into the guidance here. So I'm comparing your 2023 and 2022 EBDA guidance. There's like a $75 million increase at Midpoint College. And I know you will revise maybe the guidance for the Q3, but So in terms of the factors driving the growth in 23, I'm looking at, you know, maybe four and a half months of incremental months of Northern Met. There is two to three incremental quarters of Netherlands contract.
Richard Waurick
And I guess you guys are seeing some rebound in airline traffic, regional one leasing quest and some of the manufacturing businesses.
spk15
What am I missing here on a very high level for 23?
Mike Pyle
You've nailed it. I mean, if you look at them in terms of quantum, the biggest contribution is a full year of Northern Mad. It's a big subsidiary for us. So that's a big contribution. A big contribution will be from Quest getting to a more normal production schedule, particularly as it accelerates throughout the year is a big contributor. And then uh, the, that last 10% of the airline passengers makes a big difference in that business, um, together with the other investments. And the thing that gets lost in this, because we did a lot of smaller tuck-ins, those we get a full year contribution out of two. They're not big numbers, but they improve the relative performance of each of those subsidiaries. So you're bang on, on adding the things together that drives that, uh, And I think it's reasonable to assume, although I'm not prepared to provide any numeric background to where I think it goes, if this year's back end is higher, it's reasonable to assume that when we look at 2023, there's going to be some opportunities to increase that as well because you're bouncing off a bigger number. The offset to that is that some of the things came sooner. So we'll give you a 2023 number in November when I can give you something I'm really confident in. You guys don't want me increasing the guidance every quarter. Although it looks nice, it means the guidance is too low to begin with. So we'll take a look at that once we finish our Q3 results.
spk15
That's great. That's a good color. And then last one for me, you talked about the incremental opportunities you're seeing on the M&A side driven by the rising interest rate environment. The way I understand it is you are seeing an increase in the number of opportunities, perhaps, and perhaps average size of opportunities. But are you also able to now access any new verticals that you could not have tapped earlier?
Mike Pyle
I think there's advantages on the opportunistic front where we couldn't get to a bigger deal for us to do something that's a little bit different than what we do. We typically want it to be a bigger size transaction. I think Northern Matt's the best example of this, but that's a $300 million plus deal. It's 50% bigger than anything we've done in the past. And so while I wouldn't attribute our success there solely to interest rates, it is a contributing factor in the number of people competing for the transaction. Yes, I think it does help us in other verticals, but in terms of the near-term vision, most of the things we're looking at would be very related to businesses we're already in, whether they're geographic competition purchases or vertical integration plays.
Richard Waurick
Most of the things we're looking at sound a lot like businesses we're already in. Okay, that makes sense. I appreciate the call. Thank you. Thank you.
Operator
Your next question comes from Tim James of TD. Please go ahead.
Tim James
Good morning, Tim. Good morning. Thank you for your time. My first question, for someone who looks at Exchange and these results that you put out and says, you know, how is it generating these strong results in this environment where there's a labor shortage and equipment supply problems and inflation? I mean, is it just that exchange, the acquisitions are kind of hiding that challenge that we're seeing, you know, through so many other companies and industries? Or is there something unique about you know the portfolio of businesses that mean that those external factors just aren't as significant for it for exchange and i realize and you've touched on where there are pockets of an impact for sure it's here and there but you know for somebody who looks at it overall it it just looks like it's coming out of this almost unscathed on a consolidated basis i'm just trying to understand if that's just it you know it's it's the challenge is hidden by the great m a or if there's something else about the portfolio that's reduced your exposure to it?
Mike Pyle
No, Tim, that's a really good question. And strong M&A does make everything look good, but it's much more than that. And I would say the reason we're able to withstand some of the things may be a little easier than some other people. is we tend to deal with niche businesses that have very strong market presence in what they do. They're not the biggest guys in the world, but they're really good at what they do, so they tend to get paid for what they do. So take us one of our smaller subsidiaries as an example, Stainless Tanks in Springfield, Missouri. There's lots of guys who make stainless steel tanks in the U.S., and all are dealing with higher stainless prices, although that's kind of stabilized. Our guys build the best tanks in what they do, and we get paid for what we do. So we have challenges. The customers are prepared to pay for what it is. Not that it means we can just dump things on them, but it means if we do a good job of providing the service they want, we deal a little more easily than, say, a commodity supplier whose call to action is they're the cheapest guy in the business. Aviation is another good example of that, Tim. We're coming out of COVID and we're back to fully 100% in the Maritimes and close to that, although not quite there in the central part of Canada. It speaks to who our customer is and what kind of business we're in. We're flying to Shamadawa. That's fundamentally different than flying to Orlando. We don't deal with the economic part of the business. We deal with just minding our business and doing a job within. And so it enables us to be more resilient than perhaps some of the more bigger commodity like names. And then finally, the third piece of it is diversity. And I know that there's a lot of people in the capital markets who believe if I want diversification, I'll diversify myself. If I want manufacturing and I want aviation, I'll buy a bit of both. But our ability to buy these things at the prices we do, which is the M&A thing you talked about earlier, combined with the fact that they don't have precise cycles that line up. And the best example I can give you is At the beginning of the pandemic, Quest sailed because we had an order book, projects that were three quarters done. You wouldn't have known there was a pandemic by their results. As we've gotten to the back end, it's gotten more difficult because projects have been delayed. But by other manufacturing guys, when you look at the results, you don't see much impact of those macroeconomic environments. So for us, it's a combination of diversity, It's a combination of niche markets, and it's a combination of maintaining entrepreneurial management in those companies. So we're not trying to oversee them all from here. It's not a one-size-fits-all solution. How we're dealing with the problem in each business is very different.
Mike
Yeah, the other, I think, strength that EIC has is its collective capability. And, you know, when you say, okay, you've got a bunch of airlines, great. But so if... One airline is either short capacity. They didn't have enough pilots to fly. We can rely on each other. We'll move in an aircraft from one of our other carriers to be able to ensure the customers looked after, or give you an example on the manufacturing side. If there was steel shortage with one of our manufacturers, one of the others was able to access it through their supplier. And we had a labor shortage up in BC. Well, at OMI to produce the product we needed to there. West Tower had a manufacturing facility that we were able to move the product to. So having that capability of relying on one another actually really helps out in an environment like this.
Tim James
That's helpful, thank you. My next question, I'm just wondering if you could talk about your approach, and this is against the backdrop where you've obviously added seven companies or eight companies since the beginning of the pandemic. It's a growing list of industries that you're involved in. Could you talk about how your approach, your systems, your resources, employees and otherwise for kind of tracking and staying on top of the growing list of companies, how that's changed over time? Or do you really feel that you know, the system you put in place, let's say going back five years or 10 years ago, is that scalable that it was ready for this? It didn't need to adapt or change or just if you can kind of provide a bit of an overview of how you make sure you're on top of everything that is going on in the portfolio.
Mike Pyle
That, Tim, is probably, to be honest with you, the most fundamental question of why our business model works. And what enables us to do it is we provide a working environment where people who've sold their business and or the second in command to those businesses get the entrepreneurial control of the businesses they're running. And so they're staying. And so we're betting on management teams that are fully engaged. Now, we're providing capital and we're overseeing and we've got controls on so we know what's going on. But the people running the day-to-day are the people who did before we bought it. And so our ability to expand that is really controlled by how good a job we do in M&A and identifying these management teams. Northern Matt's a great example. Darren and Scott, Scott, the team in that place is so strong. They're bringing us expansion ideas and how to do stuff. We're talking about capital and the best way to deploy these things, but it's not us, it's them. And that's the fundamental, we should maybe use that as a slogan. It's not us, it's them. It's the people we've got running these businesses that enable us to do this. And then With the number of deals we've done during COVID, one of the things that I think we're a materially better company at now than we were in 2019 is utilizing our subsidiaries to find smaller tuck-in transactions that make those companies better, but don't add a new reporting piece. So we bought two underground companies for West Tower, as an example, to increase our ability to do the underground wiring business. Well, that's blend right straight into West tower. That's run by my team there. And that company's better. It's two more acquisitions. That company's a little more diverse, but it's absolutely no more work for us at head office. It's still run by West tower. And so I would say there's, there is a practical limit to how many unrelated companies we do. So I don't think you're going to see us doing two or three Northern mats a year. Um, there will come a time when there's just too much. But if we grow in the way we have, where it's in bite-sized pieces, it's in an environment where we're acquiring great management teams, and our job is to maintain capital and control, it's inherently doable. It's really the motivation and retention of key management teams that enables us to do it.
Tim James
That's great. Thank you. Just one more quick question, if I might kind of squeeze it in. And forgive me if this is outlined in the report somewhere, but this second consecutive increase in the dividend is obviously great news and obviously is a reflection of your changing or improving view on the strength in the business. I'm just wondering if you can sort of nail down to what maybe more specifically, over a three-month period stepped up here and maybe why this wasn't a setup for a one-time bigger step up in the dividend and how it played out in two parts?
Mike Pyle
Sure. That's a good question. It boils back to One thing that's been locked in our DNA since 2004 is we only increase our dividend when we can afford to pay it on a long-term basis. And so when we increased it in Q1, it was based on the investments we knew we had made and the money we knew we were going to make. And you can see it in the Q1 results already. But we had forecasts and models for Northern Matt, but not just for Northern Matt. For some of our other stuff, the one of the greatest indicators of our confidence in the future, quite frankly, was Quest's order book growth. We had concerns, or concerns might be overstating it, but interest rates were going up rapidly. It wasn't something we'd seen in a long time. And so we wanted to see what that did to the business. Even in that environment, that business continues to look bullish. And so when we looked at our forward-looking payer ratios and We all recall back to me in 2018 when we talked about trying to get to a 50% payout ratio on a free cash flow basis and 60% on the net earnings basis. We had said that we're going to grow the dividend while we do that. Well, if you look at our trailing 12 payout ratio, it's almost at the all-time best now. We're within a percent or so of the all-time best. And with the forward-looking guidance, The increase in Q3 over Q3 of last year and Q4 over Q4 tells you that's going to continue to decline. So we wanted to say to our shareholders, look, you were loyal to us through COVID when the dividend needed to stay the same because we were uncertain about how fast things were going to bounce back, but we maintained that dividend. And that was a function of the fact we didn't overextend it before. Now we're coming out of this. We can see the benefit of these things. We know where these payout ratios are going and we know what we've invested in already. We're in a position where we're confident enough to do this twice and reward our shareholders. I don't want to give the idea that our shareholders should now expect quarterly increases in our dividend. That's not the case. But it's really a statement about our confidence coming out of COVID and The first one was because of what we had done in the past. And then the strength of our performance in Q2, I'm not speaking out of school, but it was better than we thought it would be. And our outlook for Q3 is better than we thought it would be. And our outlook for Q4 is better than we thought it would be. And we'll bring you back some forecasts for 2023 next quarter. But the bottom line is, if you take... low end of our guidance, the midpoint of our guidance, the high end of our guidance for this year, calculate a payout ratio, we can pay out more and still improve our payout ratio over time. So it's really confidence and ability to pay and incrementally better performance, not just in one subsidiary, but in a number of them.
Richard Waurick
Okay. Thank you very much, Mike. Appreciate it.
Operator
Your next question comes from Steve Hansen of Raymond James. Please go ahead.
Steve Hansen
Oh, thanks, Mike. Sorry, I apologize. I know Carmel had spoken to it briefly, I think, in your remarks, but could you just elaborate on the deposit on the long-term heli contract that you've referred to?
Quest
Sure. So the deposit was for a 10-year government project. contract in BC that we're currently bidding on. It's a $26 million deposit that would be refundable if we're not successful on that contract bid. The contract award, we're hoping sometime before the end of the year. So we'll know if we've converted that bid into a contract hopefully by next quarter, if not by the end of the year.
Mike
And Steve, just to put it in perspective, so we have cars in there. They do the fixed wing aspect of BC Medevac. This is the rotary piece, which they've now put out the tender, and that's the tender on which custom helicopters put in a bid. I think what I made reference to was trauma flight in my comments. So that is actually somewhat of a new offering. It's taking the expertise and our medical professionals at Kuwait and then coupling that with our rotary wing operations. and providing emergent transport services up north in Thompson, Manitoba. And that's a service that we started just in Q3. I see.
Steve Hansen
So this would be a BC-based, larger contract opportunity over time. Any sense for the scale or value of that, if that's available?
Mike Pyle
It's a big number. It's somewhere between $150 and $200 million in investments.
spk11
Okay, very helpful guys. Yeah, that's round about on the numbers as we got to get to the specifics, but it's all new helicopters, hence the deposit and refundable deposit once it's awarded. But it's a decade long and an extendable contract as well. So that's why the number becomes quite big.
Mike
Yeah, in today's environment, you're not able to get pricing or even get a slot without putting down significant deposits. So hence why you see that.
Steve Hansen
Understood. Sounds like a great opportunity. Thanks, guys.
Operator
There are no further questions from the phone lines. At this time, I would like to turn the call back to your hosts for closing remarks.
Mike Pyle
Given that there's no further questions, I want to thank everyone for participating in today's call. We got lots of questions about the dividend. And if I leave you with one thing, the dividend increases two things. It tells you how well we're doing. But the fact that we're able to give it to our shareholders two quarters in a row is as much a statement of our belief in what's happening and our confidence in the future as anything. So thanks for being with us today. We'll talk to you again in November when we release our Q3 numbers. Have a great day, everyone.
Operator
Ladies and gentlemen, this does conclude your conference call for this morning. We would like to thank everybody for your participation. Everybody have a wonderful weekend. and you may now disconnect your lines.
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