Q3/24 FIRST LOOK; RECORD RESULTS & STRONG 2025 GUIDE
THE TD COWEN INSIGHT
Yesterday after market close, EIF reported Q3 adj. EBITDA of $193mm (TD/cons: $183mm/ $186mm). Adj. diluted EPS was $1.18 (TD/cons: $1.07/$1.21). We believe shares will react positively due to stronger-than-forecast Q3 EBITDA, 2025 guide which is 2% higher at mid- point than TD/cons, Nunavut medevac contract extension, and Spartan acquisition.
Impact: SLIGHTLY POSITIVE
Commentary regarding Window Solutions order activity and production efficiency is encouraging, but should be taken in stride given -27% Q3 EBITDA and fact that past optimism has not yielded desired results yet. There has been a steady stream of A&A awards (ISR Extension, NL rotary wing contract, Gov't of Nunavut medevac) and still more potential opportunities (NWT medevac, Australia medevac, other ISR) most with little economic sensitivity and many contributing to solidifying Exchange's role as the preeminent medevac provider in Canada.
Q3 revenue relatively in-line, although Window Solutions continues working through project delays. +3.2% y/y to $710mm (TD/cons: $720/747mm). Difference vs. forecast due to Manufacturing ($276mm vs. TD: $283mm; +1% y/y). Aerospace & Aviation (A&A) in-line ($433mm vs. TD: $437mm; +5% y/y). Window Solutions revenue -4% y/y with report noting interest rate cuts have been positive for order book, and BVGlazing and Quest have begun to integrate processes.
Adj. EBITDA in both segments drove beat. +15% y/y to $193mm (27.2% margin; +280 bps y/y) vs. TD: $183mm (25.4% margin; +100 bps y/y). A&A EBITDA ($155mm; 35.8% margin; +590 bps y/y) was greater-than-forecast (TD: $145 million). Manufacturing EBITDA ($51.0mm; 18.5% margin; -130 bps y/y) was slightly ahead of forecast (TD: $48.3mm). We believe beats in both segments relate to business mix within each.
FCF (EIC def'n less maintenance capex) slightly below consensus, but still strong at $81.2mm (TD/cons: $70.8/84.0mm), +9% y/y. Difference due to cash earnings.
Introduced 2025 EBITDA guidance 2% above TD/consensus. 2025 adj. EBITDA guide of $690-730mm (TD/cons: $696/693mm).
Acquired Spartan (one of three industrial composite mat manufacturers in U.S.) for US $120mm. Expected close within a week. Funded with US$102mm from credit facility and US$18mm of EIF shares. No financial metrics provided, but "satisfies investment requirements" and is accretive/share based on historical performance suggesting valuation within historical acquisition range of 4-6x EBITDA. Will require capex next year and a temporary shutdown to increase output.