Impact: NEUTRAL
We view the higher-than-forecast A&A EBITDA as offsetting the lower-than-forecast Manufacturing EBITDA, and we are encouraged by the strong FCF despite higher- than-forecast gross capital expenditures in the quarter. 2023 EBITDA guidance was unchanged, and implies 22% y/y growth. The magnitude of y/y growth in Q2 revenue/ share (7%) and EBITDA/share (15%) along with the strong FCF demonstrates the value in the diversification of the Exchange portfolio of companies and relative security of the dividend, in our view.
Aerospace & Aviation (A&A): Revenue increased 5.7% y/y to $372 million (TD: $364 million) primarily due to the Netherlands Coast Guard and U.K. Home-Office contract within Aerospace, higher lease revenue within Aircraft Sales & Leasing, and growth across Essential Air Services, partially offset by a decline in aircraft sales. Adjusted EBITDA of $108 million (28.9% margin) increased 26% y/y (TD: $101 million, 27.7% margin).
Manufacturing: Revenue increased 44% y/y to $255 million (TD: $248 million). Adjusted EBITDA of $49.0 million (19.2% margin) increased 26% y/y (TD: $55.2 million, 22.3% margin). The y/y increase in revenue and EBITDA was across several businesses, and benefited from the BVGlazing, Hansen, and Northern Mat acquisitions. Multi-Storey Window Solutions revenue increased 100% y/y and backlog remains at record levels of approximately $1 billion. Production gaps are normalizing, and prices are beginning to reflect rates negotiated after the start of the pandemic which in turn reflect the inflationary pressures. Management expects revenue and margins to improve as 2023 progresses.
FCF (EIC def'n less maintenance capex): FCF increased 24% y/y to $58.6 million (TD: $47.7 million). The difference was primarily due to lower-than-expected maintenance capex. Cash earnings were in-line with our forecast.
Outlook: Management maintained 2023 EBITDA guidance of $540-570 million (TD: $577 million). Against a backdrop of moderating valuation multiples, management continues to evaluate M&A transaction opportunities with diligence underway on a number of potential targets in both manufacturing and aviation sectors.