IBI Group Inc. (OTCPK:IBIBF) Second Quarter 2022 Earnings Conference Call August 5, 2022 8:30 a. m. m. ET
Participating companies
Scott Stewart – President and Chief Executive Officer
Stephen Taylor, Senior Vice President and Chief Financial Officer
Conference Call Participants
Michael Kypreos – Desjardins
Frédéric Bastien-Raymond James
Operator
Ladies and gentlemen, thank you for being here. Welcome to IBI Group’s 2022 quarter earnings convention call. Please note that the full IBI monetary statements and management discussion and analysis for the three- and six-month periods ending June 30, 2022 have been archived in SEDAR and published in IBI at www. ibigroup. com. During formal comments, all participants will be in listen-only mode. Then, we will organize a question and answer session. [Operator Instructions] As a reminder, this convention call is being recorded lately.
Some of the statements on today’s call may involve forward-looking data. Auditors are cautioned not to place undue reliance on such forward-looking statements, as a number of items may also cause actual long-term effects to differ materially from expressed goals and expectations. The Company assumes no legal responsibility to update or revise any forward-looking statements, whether as a result of new data, long-term occasions or in a different manner, except as expressly required by applicable securities law. For more information on point threats, please refer to the Company’s Annual Information Form filed with the Canadian Securities Administrators and available on the Company’s website, SEDAR or by contacting IBI directly. All amounts discussed today are in Canadian dollars, unless otherwise noted.
I would now like to speak with Mr. Scott Stewart, CEO of IBI Group. Continue.
Scott Stewart
Thank you all and thank you for participating in what aims to be the last call for IBI results. As far as you know, on July 18, we announced an agreement to allow Arcadis, the Netherlands-based company, to acquire IBI Group for $19. 50 consistent with the constant percentage in cash, representing a 30% premium over the previous day’s close and a 40% premium over the 30-day volume-weighted average price. in accordance with a high-level review of our new five-year strategic plan, we added goals through 2026, such as expanding the IBI to a valuation of $1 billion, spending our net income of $940 million, doubling our annual recurring revenue to over $40 million, and achieving those goals while maintaining a healthy leverage ratio of approximately 1x EBITDA.
As evidenced by IBI’s performance in the current quarter and the first part of 2022, i. e. our strong online order book, we were already on track to achieve those goals. IBI wasn’t looking for a transaction until it approached us. In fact, we are all very enthusiastic about our strategic plan and we were sure that we would do so in achieving the marked results; however, the Arcadis transaction came to us, which led our board to form a special committee to compare the opportunity.
The Special Committee engaged strategic, monetary and legal advisers and initiated a competitive process, which resulted in more than one expression of interest; however, based on the scope of due diligence performed, the Special Committee concluded that Arcadis’ offer would be among shareholders and that the Board would present the vote in favor of the acquisition.
IBI and Arcadis have already set a collaborative execution date and aligned with existing and long-term planned LRP projects. We believe that the combination of our respective responses will position Arcadis with world-class software and formula design, formula integration, virtual answers, cutting-edge features that will result in a much greater impact for our consumers and others in any of the operations.
IBI’s good fortune is achieved today thanks to an organization of highly talented and effective professionals who must locate paintings and perform the task. Our practice of integrating the right technology equipment to facilitate collaboration between our global offices and support encourages the highest use as an example of what can be done with generation and a benchmark in the industry.
Finally, we have established, expanded and expanded our biological and acquired growth capacity. Together, they provide the exceptional opportunity that IBI brings to Arcadis.
To date, in 2022, I am incredibly proud of our outstanding effects through stronger net revenue, biological expansion, adjusted EBITDA and higher recurring turnover. insured. This remains physically powerful without any signs of a quarter-to-quarter slowdown in the IBI has achieved significant expansion in this work undertaken in the sector.
In the intelligence domain, IBI earned $35. 2 million in new paints in the quarter, a 69% increase over security from $20. 8 million in the first quarter. Previous program in the year and supported the continued strength of the order book as well as annual recurring revenue. and CurbIQ. [Indistinguishable] the acquisition of Intelligence as an access point has contributed further to the growth of jobs and the accumulation of our intelligence sector committee.
Our infrastructure sector remained a normal and robust contributor to IBI’s order book. We are proceeding with our long-term transportation allocations in the public sector, adding the expansion of the LRP and metro, as well as infrastructure allocations similar to climate change. Water and drinking water control infrastructure was also added to the order book, as IBI effectively secured a primary water allocation in the current quarter, following our experience in coal engineering.
With our order book near record levels, we continue to benefit from collaboration between our global work teams. IBI’s structures sector is having a wonderful year. In the current quarter of 2022, we saw continued strong demand for public sector and personal projects, led largely across eastern Canada. However, our segment of Western Canada and the U. S. The U. S. department of commerce also saw strong effects with strong functionality in the subsectors, adding transit, industrial and urban buildings and our largest structure segment, Living Plus.
In the current quarter, the protection of new offices in the structure of the structures sector increased to $107. 9 million from $73. 4 million in the first quarter, a structure that increased by 47% quarter-over-quarter. The demand in our structures sector is due to integration, which drives continued demand for our mixed-use high-rise development, adding the upcoming multi-family rental and Living Plus use apartment structures, either with infill rental apartment structures or with an intermediate layer on existing sites or greenfield on existing sites or greenfield on commissioned greenfield.
We’re also seeing malls and giant advertising sites being rebuilt into full mixed-use communities and IBI is being asked to take into consideration master plans for those multi-year, multi-tower sites that we will lead to many years of mixed use. -use the design work. Recent examples come with the Marcum Bridge, the Long Metro Center Master Plan, and advertising districts, all of which have multi-tower approvals for IBI and the promise to build more structure projects in the future.
Now I’ll turn to Stephen to explain some quick monetary effects and economic factors. Stéphane?
Stéphane Taylor
As you heard this morning, we are incredibly pleased with the strong functionality and resilience of IBI in the current quarter, achieved in an environment of concerns about inflation, recessionary pressures and emerging interest rates. managing those ongoing pressures well. As a testament to our business model, IBI’s order book has continued to grow in the existing environment at a faster rate than we can complete the work.
In the first part of 2022, our order book recorded a record catch, as Scott already mentioned, and was 17. 5 months in total at the end of the current quarter, representing $685 million of contracted paintings over the next five years. We got more than $177 million in new paints in the quarter, up 34% from just over $132 million in the first quarter.
In addition to our massive buildup of orders, our strong monetary effects are highlighted through IBI functionality in key signals in the first six months of 2022 through the same era in 2021.
In the first part of this year we generated biological expansion of 10%, profit expansion of 11%, accumulating adjusted EBITDA of 12%, adjusted EBITDA margin maintained at 15. 6%, recurring turnover expansion of 15% and diluted profits consistent with unit up to 33%.
Our structured business is strong, generating net income expansion of 15% in the current quarter and the half year ended June 30, with adjusted EBITDA margins of 21. 9% in the current quarter and 22. 4% in the first half.
Despite increases in interest rates, the expansion in the number of new citizens in our key construction markets continued. The trend of expanding the number of rental unit designs also follows previous quarters. in our construction sector.
In Ontario, new construction and progression fees will be imposed in 2023, resulting in ongoing project development to offload allocation permits in 2022 so developers can further raise costs starting next year.
Intelligence recorded earnings growth of 11% and 8% in the current quarter and the first part of 2022, respectively, with growth in recurring turnover, new works performed and backlog, as Scott has already pointed out.
Intelligence’s adjusted EBITDA margins were 18% of sales in the second quarter and 19. 2% of sales in the six months ended June 30, down from the same periods in 2021 due to delays in earnings popularity for certain projects. These are expected to be reversed until the rest of 2022.
Continued investments in public transportation infrastructure contributed to a 6% expansion in net infrastructure revenue in the current quarter of 2021 and the first six months of 2022, representing a portfolio of long-term projects across the country, in addition to other large-scale transportation expansion projects.
Adjusted EBITDA margins for infrastructure were 14. 4% of net sales in the second quarter of 2022 and 14. 1% of net sales in the first half. 0. 8x. This reflects withdrawals of credit amenities to fund the payment of money from M transactions.
Based on our popular functionality so far in 2022, IBI has established a favorable position to contribute to a significant expansion on which Arcadis can build. Shareholders will be asked to vote on the transaction at an upcoming shareholders’ meeting scheduled for September 16, 2022, at which IBI’s Board of Directors and the largest single shareholder, IBI Group Management Partnership, will present and vote shareholders in favor of the acquisition of IBI through Arcadis.
From now until the final touch of the proposed acquisition, the IBI team remains committed to ensuring that the client’s objectives are met and that we continue with our many unique strengths and functions to further drive monetary performance.
In closing, I must thank our investors and the investor community in general, who have supported IBI on our journey, especially our bankers, adding the analysts from studios who have covered us, corporate finance professionals, institutional sales offices, investment advisors and corporate access teams. who have generally contributed to our success.
We have been fortunate to work with some of the most productive and brilliant in the industry over the years and in fact wish them the best. Thank you. Scott and I will answer questions.
Q&A session
Operator
Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] The first comes from Michael Kypreos, Desjardins. Michael, go ahead.
michel kypreos
Congratulations on the smart results. I just asked a quick question: what is the contribution of acquisitions to earnings in the quarter?
Stéphane Taylor
It was quite nominal during the quarter. ROC added just over $1 million in earnings during the quarter. Hotspot was quite a bit : the acquisition was quite overdue and had no real effect on the quarter.
michel kypreos
Thank you and just a follow-up of the mandatory steps after September 16 and the shareholder vote until the acquisition is completed, just a review of the next steps after that date?Thank you.
Stéphane Taylor
Well, I think it’s the lawyers who will respond most productively and the circular will come out in just under 3 weeks. I would ask all investors and stakeholders to consult this circular for next steps. They shall be specified in the circular
michel kypreos
It is ok. Perfect. Thanks for the time.
Stéphane Taylor
Hey, thank you.
Operator
The next one comes from Frederic Bastien, Raymond James. Frederick, pass forward.
Frederic Bastien
Hello, hello everyone.
Scott Stewart
Hello Federico.
Frederic Bastien
Good verbal exchange with you. A consultation on biological expansion clients. It achieved exceptional expansion in the current quarter. It has controlled the rental of people. I wonder where you think it can happen in the next, maybe in the middle of the moment, especially as economic headwinds start to emerge. I just wonder what his clients are for biological expansion and where he thinks things can move forward.
Scott Stewart
We take a look at each of the sectors and also at the geography. I anticipate that intelligence will continue to grow at single-digit rates just because systems and software are in inflation. And, in fact, it can even reach an accelerated rate of expansion. In fact, we don’t see any relief in the call and with projects that we see now with U. S. approvals. In the U. S. department, there would possibly even be some accelerated opportunities in infrastructure and intelligence, especially in energy-related spaces that are ideal spaces. for us in the electrification of public transport, etc.
The structure sector still benefits us tremendously in Canada from an immigration perspective. There’s no slowdown in that, and it creates a massive buildup of demand. What we anticipate, however, is that there will be a slowdown on the condo side, however, it is more than a resumption of paintings in the rental area. And rental projects are driven in large part through much more patient cash in pension funds. And so, we don’t see any slowdown in that area.
And as Stephen alluded to the sum in Ontario, there is now an accelerated effort through the end of this year to get the approvals due to the additional overhead. Now, with all this expansion, there is also a need for all the relevant services, adding gym, schools, network facilities, all of which are very similar to this expansion. And we’re not seeing any slowdown in infrastructure finishing, the finishing of public transportation infrastructure in Canada. We’re aiming for strategic expansion in the United States, where there’s some immigration, but there’s also significant migration and that’s more in the more sensible state. So we’re pretty sure of that. And we also see, as we had highlighted in the strategic plan, that relocation and logistics.
The amount of activity we’re seeing in this domain has increased particularly over the last two years, and especially due to COVID and the supply chain issues we’ve noticed coming from Asia, for example. And, therefore, there is much more of this type. of paintings that we are seeing that will take us in the coming years. In fact, maybe even spaces like commercial plants in automotive facilities.
Frederic Bastien
Thanks for that, Scott. That’s it. I just need to congratulate you and the team. We’ve come a long way together over the past 15 years, but it turns out it’s all coming to an end. So congratulations. .
Scott Stewart
Thank you Frederic.
Operator
Merci. No questions at the moment. Continue.
Scott Stewart
As a final comment, I would like to reiterate Stephen’s utmost expression and appreciation. In fact, we thank you all like Frédéric, as you mentioned, it’s been quite an adventure for the last 15 years and, in fact, for me, Stephen and the other control team. for the past nine years. There have been ordinary challenges. But with patience, we have introduced ourselves and you stay with us. We were lucky. I work with you as part of our smart fortune. We wish you all the best. Thank you.
Operator
Ladies and gentlemen, this concludes your convention for today. We thank you for your participation and kindly ask you to disconnect your lines.