Bird Construction Inc

TSX:BDT

Earnings Call Transcript 2018-Q3

[Operator]

Welcome, ladies and gentlemen to the Bird Construction Third Quarter 2018 Financial Results Conference Call. We will begin with Mr. Ian Boyd's presentation, which will be followed by a question-and-answer session. [Operator Instructions]. Before commencing with the conference call, the company would like to remind those participating that certain statements, which are made express management's expectations or estimates of future performance and thereby constitute forward-looking statements.Forward-Looking statements are necessarily based on a number of estimates and assumptions that while considered reasonable by management are inherently subject to significant business, economic and competitive uncertainties and contingencies. In particular, management's formal comments and responses to any questions may include forward-looking statements. Therefore the company cautions today's participants that such forward-looking statements involve 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 company's estimated future results, performance or achievements expressed or implied by these forward-looking statements.Forward-looking statements are not guarantees of future performance. The company expressly disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, events or otherwise.At this time, I would like to turn the conference over to Mr. Ian Boyd, President and CEO of Bird Construction. Please go ahead, Mr. Boyd.

[Ian Jeffrey Boyd, President, CEO & Director]

Thank you. Good morning, everyone. Thank you for participating in our third quarter 2018 conference call. With me today is Wayne Gingrich, our CFO. Financial results in the third quarter of 2018 were generally as expected. The company delivered a net income of $4.4 million on construction revenue of $381.4 million compared with a net income of $5.9 million on $388.8 million of construction revenue, respectively in 2017. Delays in mining projects in Eastern Canada largely impacting self-perform operations, combined with the extension of the procurement timelines of several P3 projects primarily in Ontario has resulted in lower volumes executed in the current quarter. These delays were partially offset by a year-over-year increase in revenue associated with our industrial projects in Western Canada. The company had a challenging first nine months of 2018 due to a combination of headwinds both external and internal that have negatively impacted results. Despite the disappointing results year-to-date, the company remains committed to its Build Bird strategic plan, which includes the diversification of our work program.We've made significant progress in diversification as evidenced by the awards and announcements made this year. In the environmental sector, the company secured a P3 residual treatment facility for the Capital Regional District in British Columbia announced in the first quarter. Success with our industrial process capabilities have recently included several work packages at 7 pump stations for Enbridge Line 3 located across Alberta, Saskatchewan and Manitoba. Leveraging our investment in Stack Modular, the company was awarded a hotel and conference center in Iqaluit, Nunavut, utilizing steel frame modular construction technology for the hotel rooms. In the third quarter of 2018, the company executed a contract for another social infrastructure P3 project, OPP Modernization Phase 2 located in 9 communities throughout Ontario. In the third quarter of 2018, the company as part of a joint venture was named first negotiations proponent for the Canadian Nuclear Laboratories' Advanced Nuclear Materials Research Center in Chalk River, Ontario. Subsequent to the end of the third quarter, LNG Canada announced a positive final investment decision for the LNG export facility in Kitimat, which is expected to be the largest capital investment project in Canadian history. Design and engineering of the Cedar Valley Lodge along with plans for construction execution are ongoing. Bird is working with the client on next steps.In the nine months of 2018, the company secured just over $1 billion of new contract awards and change orders and executed $995.9 million of construction revenues. The net new contract awards through the first half of the year, contributed to a backlog of $1.24 billion for the company at September 30, 2018, an increase of $49 million or 4.1% from the $1.19 billion of backlog recorded at December 31, 2017. At yesterday's Board of Directors meeting, the Board declared monthly eligible dividends of $0.0325 per common share for November and December of 2018, as well as January and February of 2019. Nine months ended September 30, 2018, compared with nine months ended September 30, 2017. During the first nine months of 2018, the company recorded a net loss of $7.4 million in construction revenue of $995.9 million compared with a net income of $6.8 million on $1.05 billion of construction revenue in 2017. Construction revenue of $995.9 million was $57.1 million or 5.4% lower than the $1.05 billion recorded in the first nine months of 2017.Volume in the third quarter was relatively flat year-over-year with a decline in revenues generated from mining offset by increases in industrial operations in Western Canada. Volume in the second quarter was negatively impacted by several factors in the markets, which the company serves, including a labor strike at one of the company's primary mining clients in Eastern Canada that put active projects on hold until the strike ended late in the second quarter. In addition, delays in mining and industrial projects in both Eastern Canada and Western Canada largely impacting self-perform operations, combined with extension of the procurement timelines of several P3 projects primarily in the Ontario region has resulted in lower volumes executed in the third quarter. These factors coupled with an industrial work program that had lower backlog entering the year from a historical perspective contributed to lower volume in the first nine months.The company's gross profit of $34.8 million in the first nine months of 2018 was $15.6 million, a 30.9% lower than the $50.4 million recorded in the first nine months of 2017. In the first nine months of 2018, the gross profit percentage of 3.5% was 1.3% lower than the gross profit percentage of 4.8% recorded in the first nine months of 2017. As gross profit in the third quarter was above 5%, the year-over-year reduction in both gross profit and gross profit percentage in 2018 has primarily been a result of several factors that have transpired through the first half of 2018. In the first quarter of 2018, the company incurred additional costs including financing cost from lenders on a P3 project that was late in achieving substantial completion. The company has submitted a claim against the client for the delay and the resulting impacts although no revenue recovery has been reported to date in accordance with the adoption of the new IFRS 15 accounting standard as it relates to constrained variable consideration. Further impacting gross profit and gross profit percentage in 2018 was lower volumes recognized in the company's higher margin self-perform operations in both the industrial operations in Western Canada and the mining operations in Eastern Canada, a result of project delays and the labor strike at one of the primary mining clients. In the second quarter of 2018, the company incurred a significant amount of repair and maintenance costs in its heavy civil mining fleet to take advantage of the equipment downtime realized due to the labor strike. The company expects to recoup this expense with higher equipment utilization in the balance of 2018 as the work program comes back online. In addition, late in the second quarter, it became apparent that one of the company's offices was experiencing difficulty in execution of several projects primarily due to design-related issues and the company is seeking recovery accordingly. The company has recorded provisions to account for these expected increase in construction cost on these projects and has taken steps to mitigate further impacts on results.Income from equity accounted investments in the first nine months of 2018 was $0.4 million compared with $1.6 million in the first nine months of 2017. Early in project life cycles equity investments generally operate at a loss and then reverse later in the project life cycle when closer to completion of construction and generate a positive equity return. In the third quarter of 2017, the company realized equity income from completion of certain projects which was not replicated in 2018. In the first nine months of 2018, general and administrative expenses of $44.1 million or 4.4% of revenue was $1.5 million higher than the $42.6 million or 4% of revenue recorded in the first nine months of 2017. During the first nine months, the company spent $2.3 million in third-party pursuit costs which is $1.1 million lower than the amount recorded in 2017. Compensation expense was $3 million higher year-over-year, primarily due to a loss recorded in the total return swap program resulting from the decline in the company's share price in the first nine months of 2018. Finance income in the first nine months of 2018 of $0.9 million is comparable to the $0.9 million recorded in the first nine months of 2017. Finance and other costs of $2.2 million to the end of September 2018 was $1.4 million higher than the $0.8 million reported in the same period last year. The increase is due to higher interest costs associated with increased loans and borrowings, as well as non-recourse project financing. In the first nine months of 2018, income tax recovery was $2.9 million compared to income tax expense of $2.6 million recorded in the first nine months of 2017.Three months ended September 30, 2018, compared with 3 months ended September 30, 2017. During the third quarter of 2018, the company recorded net income of $4.4 million on construction revenue of $381.4 million compared with a net income of $5.9 million on $388.8 million of construction revenue, respectively in 2017. Delays in mining projects in Eastern Canada largely impacting self-perform operations, combined with the extension of procurement timelines of several P3 projects, primarily in Ontario has resulted in lower volumes executed in the current quarter were partially offset by year-over-year increase in revenues associated with industrial projects in Western Canada. The company's third quarter gross profit of $19.4 million was $2.8 million or 12.8% lower than the $22.2 million recorded a year ago. The decrease in the amount of third quarter 2018 gross profit is partially due to the lower total gross profit realized on lower quarterly construction revenues.The company's third quarter 2018 gross profit percentage of 5.1% was 0.6% lower than the gross profit percentage of 5.7% recorded a year ago. On a year-over-year comparative basis, gross profit and gross profit percentage in 2018 was negatively impacted by lower volumes recognized in the company's higher margin self-perform mining operations in Eastern Canada, a result of project delays.Income from equity accounted investments in the third quarter of 2018 was a loss of $0.3 million compared with income of $0.9 million in the same period of 2017. The income in 2017 was driven by earnings in entities that achieved substantial completion whereas in 2018, there are entities that are in the early stages of construction and therefore not generating positive equity income. In the third quarter 2018, general and administrative expenses of $12.8 million or 3.4% of revenue, was $2.2 million lower than the $15 million or 3.9% of revenue in the comparable period a year ago. During the third quarter, the company had minimal third-party pursuit costs which were $2.4 million lower than the amount recorded in 2017. Compensation expense was $0.4 million higher than in the same quarter 2017, primarily due to a loss recorded in the total return swap program resulting from the decline in the company's share price. Finance income of $0.3 million in the third quarter of 2018 is comparable to the $0.3 million recorded in the same period of 2017. Finance and other costs of $0.5 million were $0.3 million higher than the $0.2 million reported in the third quarter of last year. The increase is due to higher interest costs associated with loans and borrowings and non-recourse project financing. In the third quarter of 2018, income tax expense was $1.7 million compared to income tax expense of $2.3 million recorded in the third quarter of 2017.Outlook. I'll now provide some brief remarks about our outlook for fiscal 2018 and 2019. The company will continue to make investments in both people and technology as it executes on the Build Bird strategic plan with diversification of our earnings base and margin improvement being key areas of focus. At September 30, 2018, the company was carrying backlog of $1.24 billion, representing an increase from the $1.19 billion carried at the end of 2017. The increase in backlog in the nine months of 2018 demonstrates the success and diversification efforts of the company with securements across a broad range of market sectors. Additions in 2018 year-to-date included P3 project for a residual treatment facility for the Capital Regional District in Victoria, in which the company has taken a minority equity interest in the concession, as well as the OPP Modernization Phase 2 project for Ontario Infrastructure and Lands Corporation in which the company will design, build and finance nine Ontario Provincial Police Detachments across Ontario. The current backlog predominantly characterized by institutional work, the result of securing a significant number of awards in the sector over the past several years. While backlog attributable to the industrial work program in Western Canada increased the first nine months of 2018, it remains modest from a historical perspective.For mining operations in Eastern Canada, backlog has remained low but stable to the end of September, although the company has been awarded 2 mining contracts that will commence in the fourth quarter that will provide an increase in revenue and income through to the second quarter of 2019. As a result, the company expects a stronger first half of 2019, which has historically had more limited activity levels for mining operation due to the seasonality in the annualized nature of the work programs.The company is also projecting significant growth in its backlog over the next several quarters as it has been awarded projects that have yet to be contracted totaling more than $500 million. Two of these awards include previously announced projects; the 4,500 person Cedar Valley Lodge Workforce Accommodation Centre for LNG Canada located in Kitimat, British Columbia, which is expected to be booked to backlog in the fourth quarter of 2018 and the Advanced Nuclear Materials Research Centre for Canadian Nuclear Laboratories located in Chalk River, Ontario, which is expected to be booked to backlog in the second quarter of 2019. In addition, there were several projects in the institutional sector that have been awarded, including a design-build project in Alberta expected to be booked to backlog in the fourth quarter of 2018 and a larger scale construction management project in British Columbia, that is currently in the pre-construction phase and is expected to proceed in the first quarter of 2019.With respect to the P3 market, the pipeline of project remains robust, although there continue to be delays in tendering time merely for transportation related projects in Ontario. As of September 30, 2018, the company has submitted on one project and is waiting results and is in the pursuit phase for 3 additional projects there are scheduled for submission in the next several quarters. The company has also been shortlisted on 2 more projects and is waiting the request for proposals, although timing is uncertain and also in the request for qualification stage for 2 other projects. The award of any of these project opportunities will primarily benefit 2019 and beyond. The company expects to see an improvement in earnings attributable to its higher margin self-perform industrial programs in the balance of 2018 and expects overall earnings in the fourth quarter of 2018 to exceed those recorded in the third quarter of 2018.Heading into 2019, the company expects to have a work program that is more balanced and diversified than it has been over the past several years, supporting progress towards returning to historical levels of profit growth. The company anticipates double-digit year-over-year revenue growth in 2019 and third-party pursuit costs that will return to more modest levels, which is a byproduct of both the company being selective on P3 opportunities and on timing. Taking into consideration the favorable trends noted above, the company expects earnings in 2019 to ramp up towards the $25 million of net income level recorded in 2016.This concludes the prepared remarks section of the conference call. I'll now turn the call over to the conference call operator who will take your questions in turn.

[Operator]

[Operator Instructions]. The first question comes from Yuri Lynk of Canaccord Genuity.

[Yuri Lynk]

I've been covering you guys for a while now and I've never been able to get any -- too much guidance from you. So, curious why you felt comfortable now putting essentially an EPS number out there for 2019.

[Ian Jeffrey Boyd, President, CEO & Director]

I think part of it is just when you look at 2017 and 2018, it's just hard to compare because historically, those results have not been what we would expect from our organization. So it's been a difficult time period and so when you start to try to -- I think in the past, if you look at, we try to give some semblance of more recent years and how do we do to give some level of guidance and certainly when we -- when we looked at it, we're feeling as though we're kind of at a point in our work program that we're feeling much more positive. Obviously, we're seeing more balance and more contribution from our industrial program, which I think is obviously helpful to the company in terms of earnings. So we get to a point where I think we just felt that we were confident enough to be able to give that kind of guidance realizing that the past several years are kind of hard to compare to. So that's -- and I guess, in doing so, we it does show a level of confidence, I guess, is what I'd say. I don't know that I expect to that same degree of level of guidance in the future. So hopes up too much.

[Yuri Lynk]

That would be too good. Is that -- so is the guidance that assumes that you're, it sounds like the Cedar Valley Lodge and the Chalk River Nuclear Project are more or less in the bag. Are they driving part of the guidance for next year?

[Ian Jeffrey Boyd, President, CEO & Director]

Yes, I think more so the Cedar Valley Lodge not necessarily the CNL project and the only reason I say that CNL is an IPD project and therefore has to go through a validation process. So in that sense that, that process takes some period of time, which is started. That's why we said we expect that to be somewhere in the range of the second quarter of 2019. And then as that proceeds that I think will be a slower build up in terms of the actual work and therefore, revenue recognition and hopefully, earnings associated with that. But I would say we're confident in that, but certainly there is a validation period as part of the IPD process. With respect to Cedar Valley Lodge, we have been working on that project, obviously since 2016, had a period where it was suspended at least until earlier this year in which, at which time we were asked to reconfirm our pricing. We're still in that process right now, is trying to re-establish parts of that contract, which essentially when put on suspension, we with the clients agreed that we will go back out to tender for certain subcontracted pieces of that work. So we're still in the process of reconfirming that price and getting it to a point where we can get a notice to proceed. So obviously positive FID is the first step and that doesn't necessarily mean for us, notice to proceed in terms of that second phase, which is the design and you can see it actually on site. So we're in that phase right now. We are reconfirming to that client, but we would feel confident in the sense that we can expect that. I think our guidance was or at least remarks were to expect that to be booked to backlog in the fourth quarter. So pretty confident with respect to that project.

[Yuri Lynk]

And are those 2 projects, the nuclear and Cedar Valley, those are the 2 that comprise the $500 million, you talk about or are there other things?

[Ian Jeffrey Boyd, President, CEO & Director]

They're component of it, yes. There are at least 2 other in terms of the institutional work program and some ancillary work that we're just in the process of putting in the backlog, right now, that may be less than the threshold we typically do our press releases on, so we generally have a general rule of thumb of $100 million in press release. And so there would be some projects certainly outside of just Cedar Valley and the CNL project, that would be, we expect to be booked at Q4 or in Q1 of 2019. So that's, but the majority of the work -- when you look at Cedar Valley Lodge, it would represent over $300 million of backlog to Bird. So that's a big component of that $500 million.

[Yuri Lynk]

Okay.

[Ian Jeffrey Boyd, President, CEO & Director]

And if all of the things happen, which we are confident that will, it's probably more than $500 million, that was perhaps a little bit of a conservative number with what we believe is happening in terms of the backlog.

[Operator]

Our next question comes from Michael Tupholme of TD Securities.

[Michael Tupholme, Research Analyst]

You mentioned that you expect the work program to be more diversified and balanced in 2019. I know, you don't sort of report on a segmented basis where you break this down throughout the year, we typically get it at the end of the year, the breakdown between your various business lines, but can you try to talk a little bit about, how much of a shift we should expect towards more industrial in '19 versus '18, if there is any way to sort of try to frame that for us.

[Ian Jeffrey Boyd, President, CEO & Director]

Yes, I don't know that we've done forward-looking sort of estimates in terms of how the contribution will be in '19, in terms of call it our industrial work program, which we normally report annually between industrial, commercial, institutional. In 2017, we are roughly around 20% in terms of contribution from our industrial. So certainly we expect that to ramp up considerably. When you look at it year-over-year basis, I would say, like, I don't want to get into specifics, but I would say into more traditional levels, and I think we've been as high as sort of 40% to 45%. I don't expect in '19 that will be there, but it will be better than certainly the 20% that was recorded in 2017. So that gives you some goalpost.

[Michael Tupholme, Research Analyst]

That's helpful. And then just following up, I guess on the earlier question about the guidance, given that we haven't historically had this kind of a guidance provided by yourself. I'm just trying to get a sense around, I suppose, how conservative or aggressive this is in terms of what you're actually including when you provide that number. So is this based strictly on the opportunities that go into that $500 million of additional work that you're going to book and what you already have or how much are you assuming sort of over and above that you don't necessarily have a strong line of sight today, but feel good about sort of in the back half of the year based on kind of the market.

[Ian Jeffrey Boyd, President, CEO & Director]

Yes, I would say that your question is kind of what's the risk profile in the guidance. I would say is it based on work we have in hand and therefore, it's an execution. Just a matter of execution, which isn't always easy, but yes, I get your question, I think, that's what you're asking. And I would say that for the most part, we're based on, we do an annual business planning, which includes work that we have currently in backlog and the expectation that we have for that work in terms of gross profit and then ultimately we have a plan in place for work that we believe we're going to secure in the near term that will have an impact on 2019 because obviously, as you get into 2019, being able to secure and execute work and have it -- has an impact on 2019 lessens as you go through the year. So I would say that we are relatively comfortable with respect to what we have in backlog, what we expect to put in backlog between Q4 and Q1 that we feel relatively confident. Again that will ramp up towards that 2016 levels in terms of earnings. So I would say that there is always risk profile to any guidance that you provided, but ultimately you feel relatively comfortable between work we have on hand and work we expect to book in the next several quarters. I think some of it will depend on just how it ramps up like that's not totally clear to us right now. We have an expectation of how work program ramps up that we don't currently have in backlog, but expect to see in the next several quarters. That's still remains to be seen, which can have an impact overall, if any of that work gets delayed for whatever reason -- for reasons out of our control, but I would say overall, I would say it's based on backlog and what we anticipate to put in backlog in the next several quarters of which obviously that $500 million of stated sort of awarded but not contracted work would be a big component.

[Michael Tupholme, Research Analyst]

And then just to be clear, the 500 million is this really over the next 2 quarters of Q4 and Q1?

[Ian Jeffrey Boyd, President, CEO & Director]

Yes, and I think that there's some, I would say particularly with the CNL project, I do want to emphasize that that project and we put a timeframe, it could be in the Q2 range of things. I think there is a very much a stated process for the IPD project delivery methodology and one of them is validation in terms of the overall project validation stage and while that's being started right now and we believe the timeline will be roughly around the Q2, it still requires the client to say yes ultimately to that project after post validation for it to proceed. So -- but we expect that to happen and the timeline could move maybe to late Q2 and it turns into the early Q3 depending on what's transpiring but overall, we see that being pretty confident in terms of adding it to backlog certainly in the first half of next year and then it remains to be seen just how that ramps up after that, because it gives the different project delivery method with IPD, but we expect project, I'll call work on site to certainly start in 2019.

[Michael Tupholme, Research Analyst]

It's helpful. Obviously, the Cedar Valley Lodge is a very sort of important project and indicates improvement for yourselves with respect to industrial activity, but it is one project, just more generally in terms of the outlook for additional industrial awards and sort of the opportunity in the industrial market. I mean, you had been speaking fairly positively about that the last couple of quarters, like -- does momentum continue to build or if things kind of leveled off or where does that sit now?

[Ian Jeffrey Boyd, President, CEO & Director]

No, I think there's still momentum, I think it's always I'll call it increasingly more positive, but it's not, there's maybe outside of LNG, which is a bit of a difference maker in terms of just the size and scale of that project. Most of the other projects that we're seeing, project opportunities is they are getting increasingly larger in size, which is good. So it sort of increases, but there's just more activity and I would say that's still our general sense is that there's good opportunities and part of it, it's just our ability to be able to diversify what we do. So our industrial process continues to build and that's more or less an organic growth opportunity for us and I would say that, you know when you take into account some of the other, the other work that we're seeing in terms of opportunities, it gets to incorporate a whole host of you know different elements of our service. So our concrete work, civil work, industrial process that's being packaged up more and more on the same project as opposed to previously we would on the concrete work and that's it. Now we're becoming a little bit more full service, which again drives 2 things; a little bit more revenue obviously, but if you're self-performing more, you should drive a little bit more margin, so the margin profile or mix should be -- we should be attractive.So overall, I would say we still see industrial even outside of LNG just continue to be positive. Now it's more measured incrementally positive. It's -- it's not something that's outside of LNG that is an inflection point suddenly happening in other parts of the industrial, what we're seeing in the energy side of things. It's also just a product of more diversification. So as we get more work and we've secured more work in different provinces. That's also an element of the geographic diversification as opposed to being strictly focused on oil sands.

[Operator]

Our next question comes from Maxim Sytchev of National Bank Financial.

[Maxim Sytchev, Managing Director and AEC]

I was wondering if it's possible to kind of you know visualize the pacing of you know the LNG work revenue recognition. I mean, like is it going to start very slow in kind of Q1, Q2? I mean, when should we actually expect the revenue contribution?

[Ian Jeffrey Boyd, President, CEO & Director]

Yes, I mean, I can talk generally speaking, I think we're still trying to work through those details with our clients and with the EPC contractor for that project. So ultimately it is -- this is relatively aggressive schedule in terms of having the workforce accommodations project complete. So as you work through the pricing finalization after the suspension, which is the process that we're doing right now, the actual work on site starts to get organized now, but I expect that it will be, you will start in early 2019 in terms of actual on-site, but it will take a little bit of time to ramp up, but I suspect by mid-year it's going you know relatively full force and when I say that there is always an element of how you build up a project over the course of the project life and so the early parts of a project always less revenue generation until you get to sort of the middle of the project as you increase that, and then obviously tails off the end. So there's still going to be an element of build up through the course of 2019. But there will be, I would argue, a significant amount of activity, just knowing the overall schedule.

[Maxim Sytchev, Managing Director and AEC]

Right. But, so we should not may be expect that much revenue contribution Q1 and then kind of build from there, right?

[Ian Jeffrey Boyd, President, CEO & Director]

Yes, I would say that's fair statement.

[Maxim Sytchev, Managing Director and AEC]

Okay. In terms of the mining commentary that you made, the fact that H1 in 2019 is going to be stronger. So, is this a function of the market getting better or just the pacing of the client CapEx program which is impacting the schedules and it's more of a catch-up than anything else?

[Ian Jeffrey Boyd, President, CEO & Director]

I would say there's a little bit of component of both. There is -- I think, the mining, we're seeing more opportunities, still very competitive. We are seeing some success in diversification. So one of the projects that we've recently secured is in Quebec with a mining client there, so outside of the iron ore belt. And so, from that standpoint that project is a product of diversification of client and sort of geography and so that's a new opportunity for us to be able to execute for a new client. So from that standpoint, I can't comment on whether or not without knowing the sort of historical how that client has put out tender packages and kind of the operations that they have, I would say that that's timing just happens to be later this year that will carry through to 2019 and will provide us some more revenue through the course of what is normally a little bit more seasonal and less activity through the months of January, February, and March. And I would say in the other instance the project that we've also secured for -- in Q4 here is one with a core client in the iron ore belt. And from that perspective, I think that is a bit of a product of a delay, meaning, this is the same client that had a labor strike that ultimately the work program has really ramped up through the course of the later in 2018 being meaning probably midway through to Q3 and now ramping up more significantly in Q4. And I suspect that's a bit of a catch-up.

[Maxim Sytchev, Managing Director and AEC]

Okay. And the nature of work that you're gonna be doing for the Quebec client, is this still more sort of equipment heavy or it's more of a construction type activity?

[Ian Jeffrey Boyd, President, CEO & Director]

No, it's mining support work. So it's equipment heavy -- equipment intensive.

[Maxim Sytchev, Managing Director and AEC]

Okay, that's helpful. One thing in terms of the guide because you have this change order dispute with a client in Q1 '18. Is the guide implying the reversal of that in 2019 or that's potentially a free option from your perspective?

[Ian Jeffrey Boyd, President, CEO & Director]

No, I wouldn't say the guidance necessarily deals with that. We get -- like you always have certain amount of, I'll call commercial issues that you're working through with clients, that's not uncommon. So we have that one. I would say that we've typical with us, we'll put in modest recoveries to kind of cover up overall commercial issues, if you will, just based on historical run rate of how we deal with these things. So I wouldn't say there's anything specific in terms of something kind of from prior year's impacting 2019 like something unique outside of operation, so the commercial negotiation settlement that helps our 2019 earnings. So that's potential if you did better on that overall sentiment if you would, if you can get to that point, and ultimately there may be marginal upside to that depending on how things go.

[Maxim Sytchev, Managing Director and AEC]

Okay. And is there an update by the way in that negotiation.

[Ian Jeffrey Boyd, President, CEO & Director]

No. It's advancing, we've met with the client several different times. And so there is a dispute resolution process and we are following that process and it take some time, but I would say we're making progress in terms of being able to continually sort of advance negotiations with that client. Ultimately that just means that you're on the pathway for dispute resolution, it doesn't mean that there is necessarily a timeline that says, you're going to come to an agreement on that. There's several sort of steps to the dispute resolution process. So we're in I wouldn't call it early stages, we're probably in the mid-stages of the dispute resolution process but and ought to see how it turns out.

[Maxim Sytchev, Managing Director and AEC]

Okay, that's helpful. And Wayne, maybe a question if you don't mind providing an update on how we should be thinking about non-cash working capital for Q4, i.e., what you think about sort of net cash balance at year-end and also given the fact that industrial work is ramping up, how we should be thinking about non-cash working capital in 2019, if you can just think about a ballpark if it's possible?

[Wayne R. Gingrich, CFO & Assistant Secretary]

Yes, I can do that, maybe I'll break it up in a couple different pieces. So take the working capital on first. So in Q4, I would expect our working capital to increase marginally and I say that because our guidance for Q4 for that earnings, we're going to exceed Q3 earnings. So there will be additional earnings above the dividend level in Q4, is effectively what our guidance implies. So I think our working capital will increase slightly. In terms of cash, traditionally fourth quarter has been our strongest cash collection period. We expect to continue to have strong collections through Q4. I think in Q4 of 2017 we delivered free cash flow of $32 million or thereabouts just for a comparison point. I think what's a little bit different this year is that our industrial work program is ramping up more than in 2017 by comparison. So I would expect our overall cash position to remain flat to slightly positive just because of the ramp up and I think we will see some increase in non-cash working capital.

[Maxim Sytchev, Managing Director and AEC]

Okay. And then on 2019 if you don't mind, just maybe provide some guidepost as industrial work ramps up.

[Wayne R. Gingrich, CFO & Assistant Secretary]

Yes, I mean, I think we'll certainly have our normal seasonality in that respect and again as that industrial self-perform work program increases that does absorb working capital. I think if you look at a couple the things we've talked about like LNG Canada, for example. That's a project that's going to require investment in working capital. So we think that project will have an investment probably in late Q1 through Q2, will really start to ramp up. So that will negatively impact cash, but no impact to working capital overall.

[Maxim Sytchev, Managing Director and AEC]

Okay. That's helpful. And last question. Just given the fact that you're going to be adding significant amount of backlog and obviously, work is going to ramping up as you set a double-digit revenue growth pace in 2019, ability to do the work in terms of are you happy right now in terms of your internal capacity to be able to handle this increase, maybe the level of comfort there if it's possible.

[Ian Jeffrey Boyd, President, CEO & Director]

In essentially, you mean by people, I assume you mean by that question.

[Maxim Sytchev, Managing Director and AEC]

Yes, simple processes, oversight, risk, like all these things, I guess.

[Ian Jeffrey Boyd, President, CEO & Director]

Yes, yes, is the short answer. When you look at the work program, I would say it's very much suited to where we have capacity in our overall overhead structure. We've been -- look at Cedar Valley Lodge alone, like we've been hiring through the course of 2018 in advance of positive FID if you will, in anticipation of positive FID. And so that's helped and we've been able to put on some talent that we've got with historical track record of delivering these types of projects. So, very happy with the industrial. So as you increase that backlog in the industrial, I think we certainly have capacity in talent for oversight and all those sorts of things. In the institutional side of things, I think that to a large degree, when you look at it, it's all about individual kind of geographic regions. And what we've done more and more is just where there's good opportunities, we've been able to move people in and out, like for instance CNL, will be a combination of about 3 different districts being able to contribute to execute the CNL project in Chalk River. So that's more and more what we've done so yes, is the short answer and we are happy with the level of talent that we can put on these projects. It's in some respect, some of this has been sort of waiting for it to happen and making sure that we're ready. Now that it's actually happening that ultimately we are ready and we can deploy the right people. So from that perspective, we're happy with where we're at.

[Operator]

There are no further questions at this time. I would now hand the call back over to Mr. Boyd for closing remarks.

[Ian Jeffrey Boyd, President, CEO & Director]

Thanks again to everyone for your participation in Bird Construction's 2018 third quarter conference call.As always, we are available if additional information is required. So please do not hesitate to get in touch with us. Thanks again. Enjoy the rest of your day.

[Operator]

This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.