Bird Construction Inc

TSX:BDT

Earnings Call Transcript 2024-Q3

[Operator]

Welcome, ladies and gentlemen, to the Bird Construction Third Quarter 2024 Results Conference Call and Webcast. We will begin with Teri McKibbon, President and Chief Executive Officer's presentation, which will be followed by a question-and-answer session. [Operator Instructions] As a reminder, the webcast is being recorded. [Operator Instructions] Before commencing with the conference call, the company reminds those present that certain statements which are made express management's expectations or estimates of future performance and thereby constitute forward-looking information.

Forward-looking information is necessarily based on a number of estimates and assumptions that while considered reasonable by management, are inherently subject to significant business, economic and competitive uncertainties and contingencies. Management's formal comments and responses to any questions that you might ask may include forward-looking information. Therefore, the company cautions today's participants that such forward-looking information 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 the forward-looking information.

Forward-looking information does not guarantee future performance. The company expressly disclaims any intention or obligation to update or revise any forward-looking information, whether as a result of new information, events or otherwise. In addition, our presentation today includes references to a number of financial measures, which do not have standardized meanings under IFRS and may not be comparable with similar measures presented by other companies and are therefore, considered non-GAAP measures.

I would like to turn the call over to Teri McKibbon, President and CEO of Bird Construction. Please go ahead.

[Terrance McKibbon, executive]

Thank you, operator, and good morning, everyone. Thank you for joining our third quarter 2024 conference call. With me today is Wayne Gingrich, Bird's Chief Financial Officer.

Turning to today's presentation. Bird continues to build off its track record of sustainable growth, margin accretion and delivering strong shareholder returns. In the third quarter, Bird was honored as a 2024 TSX30 winner by the Toronto Stock Exchange ranking seventh of the 30 top performing companies on the TSX. This recognition, along with the announcement that Bird's common shares were added to the TSX Composite Index in September highlights the success of our strategic focus on being a leading collaborative construction company and the strength of our balance sheet, which positions us to invest in profitable organic growth and pursue attractive acquisitions in today's active market.

Turning to our third quarter financial highlights. Bird had another great quarter of strong revenue growth and margin accretion. Revenue grew 15% compared to last year, supported by 2 months of Jacob Bros revenues included in the quarter. For its adjusted EBITDA margin of 7.8% was 1.5% higher than a year ago and drove 42% growth in adjusted EBITDA and 27% growth in adjusted EPS for the quarter, fueled by higher embedded margins in the company's combined backlog and disciplined execution.

Operational cash flow generation remains strong and the company's diverse and well-balanced combined backlog of work continue to grow, reflecting the robust demand environment and healthy pipeline of opportunities with accretive margins. With significant traction from our strategic focus on key sectors, as outlined in the company's 2025 to 2027 strategic plan that was presented at our Investor Day in October, Bird is poised for continued revenue and profitability growth in 2025 and beyond.

Bird's combined backlog continued to grow in the third quarter, reaching a record $7.9 billion at September 30. The company's backlog of contracted work remains highly collaborative in nature and continues to reflect higher embedded margins and grew to $3.8 billion at quarter end.

The acquisition of Jacob Bros added approximately $360 million to backlog in the quarter, bringing total securements in addition to almost $1.3 billion. Pending backlog awarded but not yet contracted work grew to $4.1 billion, a 36% increase year-to-date and continues to include over $900 million of MSA and other recurring revenue contracts to be earned over the next 6 years.

Profitability, discipline, diversification and growth, these foundation of Bird's strategy have delivered substantial growth and margin accretion throughout the company's 2022 to 2024 strategic plan cycle and created considerable momentum as we head into our next 3-year strategic plan.

Bird has built a reputation for operational excellence as a partner of choice on complex projects, are expanding capabilities to participate in greater scopes of work and large capital investment projects have driven profitable and sustainable growth, and we expect this trend to accelerate in the future as the number of these types of projects grow in our portfolio.

We are clear in our strategic direction, focusing on growth in key markets and sectors that present robust opportunities over the long term, including nuclear, mechanical and electrical, civil infrastructure and utilities with an emphasis on energy transition and data-related infrastructure.

During the third quarter of 2024, Bird announced the award of 5 projects with a combined total value exceeding $575 million. These projects include civil site works and foundations at 2 industrial projects in Alberta and Saskatchewan, a multiyear MSA in a strategic growth structure, expansion and scope of an existing multiyear task order in the nuclear sector in Ontario and a long-term care project in British Columbia.

Bird also announced the completion of the Jacob Bros acquisition in August, which added approximately $360 million of contracted work with accretive margins to Bird's extensive backlog. We continue to be intentional in our project selection as we increase our self-performed capabilities and cross-selling opportunities throughout our organization and remain focused on long-term value creation.

Several key trends continue to fuel significant growth within the energy transition market. This market is expansive, presenting substantial growth opportunities for Bird. There are a limited number of large, sophisticated companies that can successfully take on these complex projects, and we believe Bird is uniquely suited to participate in these large projects with significant capital investment.

The company has already established a successful track record within key markets such as wind, hydroelectric, nuclear, critical mining -- critical mineral mining, battery manufacturing and EV supply chain support infrastructure. These sectors all contribute to Canada's Clean Energy System and 2050 net 0 goals. As we continue to support Tier 1 clients in their energy transition projects for its outlook for future opportunities across, all divisions remains bright as we expand our work programs, attain additional nuclear certifications and continue to develop our deep electrical expertise.

We continue to prioritize sectors that have longer cycle demand trends and substantial capital investment commitments for both public and private sectors across infrastructure buildings and industrial markets supporting future growth for years to come. The infrastructure market in Canada is attractive to Bird for several reasons. Current market research indicates that Canada's infrastructure demand will remain strong due to government commitments to address significant infrastructure adjustments estimated to be between $110 billion and $270 billion.

Demand in our building markets is substantial with macro pressures driving extensive demand for healthcare facilities due to population growth in aging population and a growing demand for data centers to respond to the growth of digital services and generative AI. All of these present major growth opportunities for Bird. Bird's proven expertise and collaborative innovative solutions make us uniquely positioned to respond not only to this level of demand but to the complexity and sophistication of these types of projects. In our Industrial business, the total addressable market is significant and being driven by the growth of electrification, emissions reductions and decarbonization efforts.

Bird is already a highly sought after partner of choice in all scopes of work throughout the entire project life cycle, and it is positioned to win within our strategic markets due to our consistent execution and operational excellence.

Wayne will now cover the financial highlights for the quarter.

[Wayne Gingrich, executive]

Thank you, Teri. Bird's third quarter continued to deliver revenue growth and margin accretion, building upon the strong performance of the first half of the year. Construction revenue for the third quarter of $898.9 million represented a 15% increase compared to the same period in 2023. On a year-to-date basis, revenues of $2.46 billion for the first 9 months of 2024 were $454 million or 23% higher than 2023. The growth for the quarter was approximately 60% organic and year-to-date, the growth was over 80% organic.

The company's gross profit margin improved to 11.4% in the quarter compared to 9.3% in 2023. The improvement continues to be driven by the company's highly collaborative work program with higher embedded margins in backlog and pending backlog, resulting from Bird's strategic focus on higher-margin sectors, disciplined project selection and the benefits of leveraging Bird's self-perform capabilities and cross-selling opportunities across our business units.

On a year-to-date basis, gross profit margin was 9.4%, up 110 basis points from 8.3% margin in 2023. General and administrative expenses were $51.6 million or 5.7% of revenue for the quarter compared to $34.5 million or 4.4% of revenue in the third quarter of 2023. G&A for the quarter includes an additional $1.9 million of acquisition costs related to Jacob Bros as well as 2 months of Jacob Bros G&A costs.

Adjusted EBITDA in the third quarter was $70.1 million compared to $49.3 million reported a year ago, representing a 42% increase. Adjusted EBITDA margins continued to increase on a year-over-year basis, increasing 1.5% to 7.8% in the third quarter compared to 6.3% in the same period last year.

Turning to earnings. Net income and earnings per share were $36.2 million and $0.66 compared to $28.8 million and $0.54 in 2023. Adjusted earnings and adjusted earnings per share were $37.7 million and $0.69 compared to the $29 million and $0.54 in 2023. The weighted average shares outstanding for the third quarter of 2024 was 1.1 million shares higher than 2023 due to the acquisitions of Jacob Bros and NorCan in the current year.

Bird's healthy balance sheet and strong operating cash flow generation remain a differentiator for the company, supporting our strategic growth initiatives and balanced capital allocation approach. The company's liquidity position remains strong at the end of the third quarter with $117 million in cash and cash equivalents and an additional $232 million available under our revolving credit facility.

Bird's operating cash flow generation is expected to remain strong for the remainder of the year, commensurate with the significant revenue and profitability growth being delivered. Excluding seasonal and growth-related investments in noncash working capital, operating cash flow generation for the quarter was up 44% compared to last year and up 56% year-to-date.

We continue to expect operating cash flows inclusive of growth-related investments and noncash working capital to be positive for the full year. At the end of the third quarter, the company had working capital of $269.8 million compared with $234 million at December 31, 2023. The company's acquisition of Jacob Bros reduced working capital by approximately $7.1 million in the quarter as Bird used cash on hand to partially fund the transaction.

That being said, the company's overall working capital, along with liquidity available under a syndicated credit facility, remain more than sufficient to allow the company to execute its backlog and support the expected growth in diversified work program. The company's current ratio is 1.25x and our adjusted net debt to trailing 12-month adjusted EBITDA ratio stands at 1.12x. Bird's long-term debt-to-equity ratio was 34%.

As we noted in prior presentations, Bird's revenue, adjusted EBITDA and adjusted EBITDA margins have experienced and created a sustained growth over the past several years. The third quarter of 2024 continued the trend bringing our trailing 12-month adjusted EBITDA margin to 5.7% on TTM revenue of almost $3.3 billion, reflecting management's ongoing strategic focus on margin accretion with further opportunity to expand through 2024 and beyond.

The company's margins continue to improve in our backlog and pending backlog, driven by efforts over the past several years to diversify into higher-margin sectors. Our disciplined project selection and our appropriately risk balanced work program and greater use of collaborative contracting, which Bird believes, delivers better outcomes for all stakeholders.

Bird's expanding self-perform capabilities and increased cross-selling opportunities between our business units also contributed to the company's margin accretion. Bird's capital allocation strategy remains balanced supporting the company's business growth, profitability and enhanced long-term shareholder value through a combination of M&A, smart capital investments and returning capital to shareholders through dividends.

In the current year, this balance is evident in the company's investment in equipment to support our growing work programs, our acquisitions of NorCan and Jacob Bros so far this year and our expectation to return approximately $30 million to shareholders through our monthly dividends in 2024, including a 50% dividend increase announced in October and effective for the November and December dividends.

I will now turn the call back to Teri to comment on the outlook for the company.

[Terrance McKibbon, executive]

Bird has a proven foundation of operational excellence and safe execution, which has resulted in considerable growth and the expected achievement of the company's 2022 to 2024 strategic plan targets. We are pleased with our third quarter results with significant improvements in gross profit and adjusted EBITDA margins despite revenues being lower than anticipated due to minor delays to the start of a small number of new projects in the quarter, pushing some of the work into early 2025.

With the considerable visibility provided by Bird's combined backlog, which continues to reflect higher embedded margins, the company expects full year revenues of approximately $3.4 billion, with an adjusted EBITDA margin exceeding 6%. At Bird's recent Investor Day on October 9, we laid out our progress against our current 2022 to 2024 strategic plan targets, which we are happy to say are on target to be met or exceeded and introduce our 2025 to 2027 strategic plan.

We go deeper into each of our industrial, buildings and infrastructure divisions and review the key sectors we are focused on that support our expectations for future growth. We also provided financial targets for the upcoming 3 years, which include 10% annual organic growth plus or minus 2%, with 2025 receiving an additional 5% growth from the inclusion of Jacob Bros for a full year compared to 2024.

This would see the company's revenue reaching $4.8 billion for full year 2027. 8% adjusted EBITDA margin for full year 2027 with organic improvements each year and an additional bump from Jacob Bros in 2025. 33% dividend payout ratio of net income, which would mean that by 2027, we would expect to have 5 successive years of dividend increases, including our recently announced 50% dividend increase.

Over the past several years, Bird has transformed itself and built a resilient business model with unique and specialized services that will be in demand by our clients in any economic environment. Much of our work program is not subject to the same ups and downs of normal economic cycles and the business has considerable momentum. We expect Bird to benefit from the significant tailwinds stemming from our strategic focus on margin accretion, disciplined project selection and safe, collaborative operational excellence and resilient sectors.

I'll now turn the call over to the operator for questions.

[Operator]

[Operator Instructions] Our first question today is from Yuri Lynk with Canaccord Genuity.

[Yuri Lynk, analyst]

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

[Terrance McKibbon, executive]

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

[Yuri Lynk, analyst]

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

[Terrance McKibbon, executive]

Yes, just catching up, right? So you're not able to catch up on the delay, and it's really what it is.

[Yuri Lynk, analyst]

Okay. Second one from me. Just obviously, really nice gross margin step-up even above and beyond what I was expecting. Anything to call out on gross margin in the quarter? And also tied with that, the G&A expense was a bit higher than I expected. Are those kind of even taking into account only 2 months of Jacob Bros, but all else equal, is this kind of the rate we're at pro forma?

[Wayne Gingrich, executive]

Yes, I can take that one, Yuri. I think for the summer months, like we generally have our highest margins in kind of third quarter and in fourth quarter, particularly if you get good weather all through the fourth quarter. And certainly, Jacob Bros had a contribution there. But even if you take Jacob Bros out, the strength in the industrial business and the strong work program we have there certainly was a factor as well.

Teri mentioned some of the building projects that we're pushing to the right a bit. Well, of the 3 business units we have in terms of industrial, infrastructure and buildings, buildings has the lower gross profit percentage, generally speaking. So when those projects shift to the right -- had they not shifted to the right, certainly, we would have had additional gross profit dollars, but maybe the percentage might have been a little bit lower on a combined basis. Sorry to say, but those are some of the factors.

So yes, I think for this time of the year, we should think about those are the types of margins we can deliver. There really wasn't anything unusual flowing through the quarter that drove it up just again kind of diversification being on multiple large capital investment projects, that type of thing.

And then on the G&A side, year-over-year, we were $17 million higher than a year ago. More than half of that would relate to compensation costs. And some of that is -- certainly, we've had NorCan, we've had Jacob Bros, so those business combinations and added -- have added some overhead to the business. So we've also been making some investment hires in the business as well on business development and estimating and so forth to be able to help support the growth in the business going forward. Certainly, depreciation, integration and acquisition costs were almost $2 million higher than a year ago. So it's kind of a combination of a few things, adding into it.

[Yuri Lynk, analyst]

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

[Wayne Gingrich, executive]

Yes. No, no. We run that through our G&A I'd say, the run up that we had after Investor Day is after September 30, certainly is from the fourth quarter, the company certainly benefited from a higher share price following Investor Day. So at year-end, we'll do another quarterly analysis that we do, looking at the total shareholder return and part of the drivers of the long-term incentive plan that we have in place for performance share units is how Bird's total shareholder return compares against that of the peer group.

And if Bird's total shareholder return is stronger than that peer group, then there's a multiplier that happens on those PSUs. So I would say, on a $30 share price or something like that, there could be an impact in Q4. It's kind of a onetime adjustment. But we won't run those calculations until probably January until we know where share price is at the end of the year, and that's what we'll base that on.

[Operator]

Next question is from Chris Murray with ATB Capital Markets.

[Chris Murray, analyst]

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

[Wayne Gingrich, executive]

Yes. I think for Jacob Bros, their G&A of revenue is higher than Bird's. So you might pick up a bit more on gross profits, but then you get a little bit back on G&A. But when you look at the impact on EBITDA, those 2 are net of debt, so going to have the 40 basis point difference.

[Chris Murray, analyst]

Okay. That's helpful. And then, Wayne, just kind of a quick question, I guess, on cash and capital. There's been certainly a lot of moving parts, I guess, in the credit facility, the acquisition of Jacobs, a lot of stuff moving around, but -- looking at kind of the cash -- kind of the mix between kind of what's your cash and what's in restricted cash and joint operations? It really seemed to be dropped out over the last few quarters.

Just wondering -- because I don't think you're in a lot of joint venture operations right now, but maybe I'm misunderstanding that. Just can you kind of walk us through how you think cash is going to kind of move around period to period with the joint ventures in the mix? And if Jacob kind of changes how those work through your balance sheet?

[Wayne Gingrich, executive]

Maybe I'll just talk a little bit about the mix of the cash. So we kind of bifurcate our cash into 3 categories. We call it accessible cash, trust cash and then joint venture cash. Trust cash, plus or minus $5 million kind of stays in a fairly tight range quarter-to-quarter driven on volumes, of course, in parts of the countries that have that type of legislation in place, but not much movement there.

I'd say, in one of our large capital investment project, we are in a joint venture and certainly, on that project, we have cash balances that are held in those joint venture accounts, and that's why year-over-year, you see the spike in cash held in JVs. At some point, that cash comes back to become accessible cash, if you will, because things like profits and overheads will get distributed from the joint venture accounts back to the joint venture partners over time.

And then obviously, some of that cash is used to deliver the project certainly as well. It's accessible cash, we invested $15 million in our bank account to acquire the Jacob Bros acquisition in Q3. So we had negative $6 million in accessible cash now. But if you look at some of the cash we put on Jacob Bros, it'd be plus 10 type thing.

And then with the growth in the business, it's a pretty significant year-over-year growth. So even though in Q3, we delivered positive $6 million in cash from changes in noncash working capital accounts, on a year-to-date basis, we still have $148 million invested in that. So Q4 is always our strongest cash-generating quarter, and we expect that trend to continue.

I think in Q4 last year, we released maybe $65 million in noncash working capital. And I think all things being equal, we'd expect that to occur again this year. And then all of that cash becomes accessible for the business as well. So I do think with the growth of the business, you're seeing more investment in that noncash working capital, but you're still going to see the same seasonality trends that we have over the past several years.

[Operator]

Next question is from Atharva Zaveri with TD Cowen.

[Atharva Zaveri, analyst]

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

[Technical Difficulty]

[Operator]

Pardon me, this is the conference operator. We have lost audio with the speaker's location. Please stand by as we try to regain them.

Pardon me, this is the conference operator. We've been rejoined by the Speaker connection. Please go ahead.

[Terrance McKibbon, executive]

Yes, I'm not sure it happened there. But I'll just get to restate my answer. I'm not sure at what point we got dropped off there. We're just talking about how can we think about EBITDA margins going into 2025. So what I was trying to say is that we said for the full year of 2027, we're going to be at 8% and each year, we are going to see an improvement organically through improvements in the business and diversification, those tapes of things.

But 2025, we'll get an additional lift on our EBITDA margins from having a full year, Jacob Bros included in there. So I think we said in our outlook section this year that we're going to finish 2024 greater than 6% in EBITDA margin. And I think you're going to see for 2025 Bird approaching 7% for the year and then '26, '27 you'll pick up another 50 basis point improvement in each of those years, just organic improvement?

[Operator]

The next question is from Frederic Bastien with Raymond James.

[Sean Jack, analyst]

This is Sean on for Fred. I just had a quick question to ask on LTIPs. So these are expected to have a growing impact over the next few years embedded in the new strategic plan outlook, I want to see if anything changes around the outlook and around investment as a result of last night's election results?

[Terrance McKibbon, executive]

So we certainly see continued strength in the large capital investments. We don't see any changes. We don't anticipate any changes as a result of the American election. Typically, the kinds of things that we're focused on are largely agnostic to election cycles.

So we -- like I said, we continue to see strength, the projects that we're focused on are long term with significant investment, with significant strength by the entities that are making those investments, and they're well along. So the landscape that we're in is quite exciting.

[Operator]

[Operator Instructions] The next question is from Ian Gillies with Stifel.

[Ian Gillies, analyst]

As it pertains to some of the permitting delays you alluded to, it doesn't seem to have impacted your view on 2025 whatsoever. Can you maybe just talk about how you worked in, call it, some of these, call it, slower processes as it relates to permitting into the guidance? And whether you're seeing any steps by governments to rectify some of these issues?

[Terrance McKibbon, executive]

Yes. Certainly, it's something that we're spending a tremendous amount of time on. I think it's a couple of things. I think in the percentage of projects that are larger scale are entering our business in a larger way. And those typically don't have the same challenges. They're well developed. They have a long period of -- and especially in the collaborative focus we have, we're working with our clients in the municipalities and provincial districts they're in. So the permits are further along and developed and there's more predictability in a lot of those.

So I think in that regard, because that higher percentage entering into '25, we don't feel it will be something that will impact us as it has. And I think there's also still an overhang post COVID with government agencies bill not fully recovered and able to deliver the permitting that we need in a timely manner, and it's something we talk on a regular basis with provincial governments about how do we get more predictability and more improvements in these areas.

[Ian Gillies, analyst]

That's helpful. And maybe a follow-on question from some of that. Is there any advantage for, call it, a large company such as yourselves versus some of the smaller private construction companies in going and obtaining any of these permits? Is there any moat there or competitive advantage you could point to?

[Terrance McKibbon, executive]

I'd say, the larger projects tend to have a better priority and better engagement. Smaller projects sometimes don't get the -- all parties kind of pulling in the same direction where the larger ones, especially when you're working on the lines with the government, you've got some major decision makers at the table and the smaller projects we do for various clients sometimes aren't the priority they need to be. So I think it's just a difference in the approach. And I think some of the larger ones have a much longer planning cycle. So it's just you can work through a lot of that.

[Ian Gillies, analyst]

And maybe just one last one, just to put one final point around this issue. Nothing has materially changed around the permitting front since the Investor Day, call it, one month ago?

[Terrance McKibbon, executive]

No.

[Operator]

This concludes our question-and-answer session. I will hand the call back over to Mr. McKibbon for any closing remarks.

[Terrance McKibbon, executive]

So I'd just like to thank everybody for joining our call today, and have a safe balance of your year. Thank you.

[Operator]

This brings to a close of today's conference call and webcast. You may disconnect your lines. Thank you for participating, and have a pleasant day.