Q1/24 FIRST LOOK; RECORD RESULTS DESPITE NON-AVIATION WEAKNESS
THE TD COWEN INSIGHT
Yesterday after market close, Exchange reported Q1 Adjusted EBITDA of $111 million
vs. TD/cons of $117 million/$110 million. Adjusted diluted EPS was $0.20 vs. TD/cons of $0.21/$0.19. We do not expect a significant share price reaction given Q1 earnings relative to consensus, which we think could lead to a focus on longer-term considerations which support our view of the undervaluation.
Impact: NEUTRAL
We view the relatively in-line EPS, A&A EBITDA, unchanged guidance, stronger-than- forecast FCF as offsetting the lower-than-forecast manufacturing EBITDA and resulting lower-than-forecast consolidated EBITDA. The outlook for each segment remains relatively unchanged with management expecting y/y EBITDA growth in Q2/24 in A&A (in-line with TD) and decline in Manufacturing EBITDA (in-line with TD).
Aerospace & Aviation (A&A): Revenue increased 13% y/y to $369 million (TD: $378 million) primarily due to the new BC and Manitoba medevac contracts, U.K. ISR contract, higher lease revenue, expanded routes on the East Coast (a portion of which relates to the PAL contract with AC), and higher load factors at Essential Air Services, partially offset by a reduction in flight crew training revenue. Adjusted EBITDA of $94.0 million (25.5% margin) increased 27% y/y (TD: $92.4 million, 24.4% margin).
Manufacturing: Revenue increased 16% y/y to $233 million (TD: $260 million) primarily due to acquisitions (BVGlazing, Hansen, and DryAir) and increased throughput and installation activities at Multi-Storey Window Solutions, partially offset by rental demand for industrial access mats and bridges (Environmental Access Solutions), macroeconomic related large capital project delays and orders at Precision Manufacturing & Engineering. Multi-Storey Window Solutions revenue and adjusted EBITDA increased 71% and 338% y/y, respectively. Segment adjusted EBITDA of $27.1 million (11.6% margin) decreased 16% y/y (TD: $34.8 million, 13.4% margin). The decline was due to Environmental Access Solutions (lower volume and weaker product mix) and Precision Manufacturing & Engineering (sales mix, seasonally negative EBITDA at DryAir).
FCF (EIC def'n less maintenance capex): FCF increased 19% y/y to $22.6 million (TD: $20.2 million). The difference was due to maintenance capex partially offset by cash earnings and working capital usage.
Outlook: 2024 Adjusted EBITDA guidance of $600-635 million (11% y/y growth at mid- point) (TD: $624 million) remains unchanged. We believe that guidance could prove conservative given management's track record and potential upside from future M&A.