CA - Bird Construction Inc. (BIRDF) Q1 2023 Earnings Call Transcript
2023-05-14 21:31:07 ET
Bird Construction Inc. (BIRDF)
Q1 2023 Earnings Conference Call
May 10, 2023 10:00 ET
Company Participants
Teri McKibbon - President and Chief Executive Officer
Wayne Gingrich - Chief Financial Officer
Conference Call Participants
Jacob Bout - CIBC
Chris Murray - ATB Capital Markets
Ian Gillies - Stifel
Michael Tupholme - TD Securities
Maxim Sytchev - National Bank Financial
Gabriel Moreau - iA Capital Markets
Frederic Bastien - Raymond James
Presentation
Operator
Welcome, ladies and gentlemen, to the Bird Construction First Quarter 2023 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]
Before commencing with the conference call, the company reminds those present that certain statements which are made express management’s expectations or estimates of the 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 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 intentions or obligations 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 meaning under IFRS and maybe comparable with similar measures presented by other companies and are therefore considered non-GAAP measures.
I would now like to turn the call over to Teri McKibbon, President and CEO of Bird Construction. Please go ahead.
Teri McKibbon
Thank you, operator. Good morning everyone and welcome to our first quarter 2023 conference call. Joining me on today’s call is Wayne Gingrich, Chief Financial Officer. We are pleased with our first quarter results, building off a strong 2022 and driven by our diversified and risk-balanced business model. Bird delivered solid revenue growth with healthy seasonal margins reflecting strong execution across our work programs. As expected, the seasonality of earnings returned to more normalized patterns on a year-over-year basis due to the completion of a large year-round work program that was active in the first quarter of 2022.
We continue to capitalize on the numerous demand drivers for Bird services, including a substantial infrastructure pipeline across all provinces with significant awards in the energy and mining sectors. This demand resulted in a record combined backlog and pending backlog of $5.7 billion, including recurring revenue MSAs exceeding $1.1 billion at quarter end. The company’s significant and highly collaborative backlog continues to grow through the selective pursuit of projects with minimal exposure to lump sum turnkey projects or to the more economically sensitive residential construction market, our diverse backlog reinforces Bird’s resilient foundation. Coupled with expected further leverage on our cost structure, we are confident in our 2023 outlook for revenue and earnings growth. The diligent focus of our One Bird team ensured we maintained our strong financial position while leveraging our significant liquidity to fund growth, pursue opportunistic M&A, and maintain returns to shareholders through the monthly dividend.
Turning to our first quarter financial highlights. Our team delivered revenue growth of almost 13% with revenues of $536.5 million. Net income for the period was $5.1 million. And on an adjusted basis, we reported EBITDA of $16.1 million, representing a 3% margin. Adjusted earnings and adjusted EPS were $5.3 million and $0.10 per share, respectively. Bird achieved a record combined backlog at March 31, consisting of $2.7 billion in backlog and $3 billion in pending backlog. With our pending backlog, our recurring revenue MSAs grew to over $1.1 billion. The company added almost $595 million in securements to backlog during the quarter compared to $507 million in 2022 or a 17% year-over-year growth, with $536.5 million in revenues recorded in the quarter, the company had a favorable book-to-bill ratio of 111%. Pending backlog also grew quarter-over-quarter and year-over-year.
Bird added over $500 million of new awards to pending backlog since year-end, including substantial recurring revenue awards representing 20% growth from year-end and a 75% improvement over Q1 of 2022. Overall, our bidding pipeline remains robust and opportunities continue to present themselves supporting our continued confidence in our near to medium-term outlook.
The company’s continued efforts to drive forward our business supported our key fundamentals as outlined on Slide 7. We remain confident in our full-year outlook for improved earnings and with our strong first quarter revenue growth, we now expect full-year revenue growth in the high single digits, driven by improving margins, earnings per share and adjusted EBITDA growth are expected to outpace revenue growth.
Our outlook is underpinned by our diverse active work programs operating in high-demand and high-growth sectors and our record combined backlog. We have the financial flexibility, low leverage, and low net debt to invest in operations as well as enable acquisitions and maintain our balanced approach to capital allocation. The strong financial position facilitated by the acquisition of Trinity Communications Services during the quarter and Ontario-based diversified telecommunication and utility infrastructure contract with specialized service self-perform capabilities that we plan to deleverage across the company’s sizable national client base.
The acquisition exemplifies Bird’s approach to accretive tuck-ins as well as the benefits of the company’s strong financial position with the acquisition fund at 90% through cash and 10% in common shares. On Slide 8, we see Bird’s consistent revenue growth and healthy adjusted EBITDA margin, which on trailing 12-month basis was 4.1% at the end of the quarter, improving our margin profile remains a key focus of management. We have an appropriate balance of contracts in place, diversified across sectors and clients, both public and private. Our balance of work between institutional, commercial and industrial remains relatively consistent and in line to drive growth.
Bird’s risk-balanced portfolio of projects in the very active bidding environment allows the company to be selective in pursuing new work focusing on pursuing the right opportunities and projects that reflect an appropriate risk balance and align with Bird’s combined capabilities across the country. Economic factors such as labor and material cost escalation driven by inflation are largely reflected in Bird’s contract terms, and with a significant portion of collaborative contracts in backlog, the company can work closely with clients to manage risk effectively. For is increasing levels of self-perform work and significant cross-selling opportunities were further expanded through the acquisition of Trinity during the first quarter and together contribute to expectations for an improved margin profile for the full year.
At March 31, 2023, the company carried a record combined backlog of risk-balanced contracts and awards consisting of $2.7 billion in backlog and $3 billion of pending backlog. The profile of our backlog and pending backlog provides a strong visibility into future revenue and earnings growth. And as noted, we continue to see significant demand for our services. Over 70% of the contracts in our backlog and pending backlog have a collaborative delivery model, and Bird has developed a strong reputation for delivering sophisticated projects in these types of frameworks. At quarter end, Birds recurring revenue MSAs and pending backlog exceeded $1.1 billion, providing additional visibility to future revenues.
Included in the $1.1 billion is a recently announced $300 million in new recurring revenue agreements and scope for clients in the energy and mining sectors. It’s important to note that this announcement represents a key priority to focus on growth with strategic clients, and this is not an extension or renewal to existing M&As is additional scope and new agreements. We continue to execute well on our strategy and see key focus areas such as growing self-perform work, expanding cross-selling opportunities through M&A and internal partnerships, and disciplined project selection contributing to enhanced fundamentals and our positive outlook.
Another significant announcement in the first quarter was the contracts awarded to two Nationsberg, partnership with two local indigenous communities. Partnership was awarded development works and multiyear site services at BHP’s Jansen Potash project, marking the company as a long-term partner on this major project site. Bird’s reputation is a key partner for multiyear mega projects positions us well in the current active commodities market, where there is a range of large industrial projects planned for the near future. This morning, we also announced a smaller but strategically important award for heavy civil work at the Bloom Lake iron ore mine in Quebec.
This award positions us with a new client and opens the door for potential multiyear opportunities in the coming year. Bird continues to be ideally positioned to provide our full project lifestyle offering and self-perform capabilities to resource sector clients. subsequent quarter end, we also announced the award of Canada’s tallest modular construction building. Our SAC modular business, together with our BC Bird team played a significant role in the design of this 14-story permanent modular tower, and I’m pleased we are selected for the construction.
Being the first high-rise modular tower in Canada, this project is a key catalyst for growth in modular. It will provide a visible example of how we can deliver comparable quality and similar look and feel to traditional bills. Modular allows for significant cost savings and cost predictability in the shortened construction schedule allows for a quicker occupancy. The off-site nature also provides advantages with a tight labor market. There are major opportunities for modular, especially when it comes to buildings with a repeatable design style such as purpose-built apartments and long-term care with the market becoming more and more aware of the benefits of modular Bird is one of the few Canadian firms with the experience and capacity to deliver this efficient solution to Canada’s housing crisis and long-term care capacity challenges.
The transition to a lower carbon future remains a key focus area where Burt’s robust self-perform capabilities have positioned us to deliver energy transition projects as well as sustainable new builds and retrofits. We have a significant portfolio of projects, including utility-scale renewables, waste-to-heat recovery, wastewater, and organic waste processing facilities. Bert’s team has worked programs on all of Ontario’s nuclear sites where there is significant spending planned well into the future. The growing civil infrastructure team catalyzed by Dagmar is delivering rail projects and supporting the development of public transportation networks, also a notable area for government funding, especially in the entire market.
For our buildings team, the transition to a lower carbon future presents many opportunities to apply our well-developed sustainable building solutions, including mass timber and modular, deep energy retrofits, NetZero buildings, innovative special projects, and smart building technology. Overall, Bernis competitively positioned to help clients reduce their carbon footprint, which is expected to continue to gain momentum in the future. Along with our financial results released yesterday, Brit released its third annual sustainability overview. It provides an overview of Bird’s CSG into across the country and information on how we are striving to maximize our positive social and environmental impact, utilizing strong corporate governance framework. The report can be found on our website.
With that, I’ll turn it over to Wayne to go over our financial results.
Wayne Gingrich
Thank you, Teri. For the first quarter of 2023, Bird reported construction revenue of $36.5 million compared to $475.5 million in 2022, representing a 12.8% increase year-over-year. The year-over-year growth was primarily organic with Trinity joining the team in February 2023. Gross profit was $39.8 million or 7.4% of revenues compared to $41.6 million in the same period in 2022. The project mix in 2023 had lower proportions of self-perform work, which typically generate higher margins. This was driven by the completion of a large mostly self-performed year-round industrial work program that was completed in 2022. And while the work volume and earnings of this program have been fully replaced for 2023, the new work is expected to follow more seasonal trends ramping up in Q2 and further in the second half of 2023.
We General and administrative expenses were $31.6 million or 5.9% of revenues, up very slightly from the $31.3 million recorded in the first quarter of 2022. Notably, and notwithstanding cost escalations driven by inflation, our G&A as a percentage of revenue dropped from 6.6% in Q1 2022 to 5.9% in the current quarter. We continue to expect to gain leverage on our cost structure as our business grows, which supports expectations for overall improved earnings. Adjusted EBITDA for the quarter was $16.1 million or 3% of revenues compared to $17.8 million or 3.8% of revenues in Q1 2022. Net income and earnings per share were $5.1 million and $0.10, respectively, compared to $6.4 million and $0.12 in Q1 2022.
The adjusted earnings and adjusted earnings per share were $5.3 million and $0.10, respectively, compared to $6.5 million and $0.12 in the same period in the prior year. The year-over-year decrease in first-quarter adjusted EBITDA, net income, and adjusted earnings were consistent with the lower gross profit. Bird remains committed to maintaining a strong balance sheet with significant financial flexibility and liquidity. We closed off the first quarter of 2023 with a strong liquidity position, including $110.7 million of cash and cash equivalents and an additional $172 million available under the company’s syndicated credit facility. This supports ongoing investments in growth-related working capital, project-driven capital expenditures, and potential tuck-in acquisitions to further diversify service offerings and self-perform capabilities.
At the end of the first quarter, the company had significant working capital of $173.2 million compared to $144.9 million at the end of Q1 of 2022. Our financial metrics are well within our comfort levels and we maintain a resilient and flexible foundation. The company’s current ratio at March 31, 2023, was $1.22 compared to 1.23% at December 31, 2022. Our adjusted net debt to trailing 12-month EBITDA ratio was 0.24x, while our long-term debt-to-equity ratio was 23.8%. We continue to maintain our balanced approach to capital allocation, ensuring Bird is positioned to successfully capitalize on productivity advancements, organic growth, capital investments, debt repayments and tuck-in merger and acquisition opportunities, while maintaining a regular cash return to shareholders through our monthly dividend.
In the first quarter, Bird generated cash flow from operations before non-cash working capital of $17.6 million. We reinvested $7.7 million by way of CapEx in the quarter. We also distributed $5.2 million in dividends to shareholders. The company anticipates significant growth in earnings per share and adjusted EBITDA in 2023, sufficient to achieve an expected dividend payout ratio below 40% of net income for the year.
I will now turn the call back over to Teri to comment on the outlook for the company.
Teri McKibbon
We are pleased with the company’s performance this quarter, which was consistent with our expectations. We foresee broad-based sustained demand backed by significant government funding for infrastructure and institutional projects and active commodity markets and strong demand for sustainable and energy transition-related projects. Overall, Bird expects to continue to deliver strong financial results underpinned by the significant changes made to the business over the past several years, which have resulted in today’s resilient business model. Our growing revenue and record combined backlog has set the tone for the year, where we expect to deliver stronger margins and high single-digit revenue growth.
With that, I will turn the call back to the operator for questions.
Question-and-Answer Session
Operator
We will now begin the question-and-answer session. [Operator Instructions].The first question comes from Jacob Bout with CIBC. Please go ahead.
Jacob Bout
So combined backlog is up nicely, and you’re now guiding for high single-digit revenue growth for the year. But there are some concerns that tightening back lending conditions could slow small to midsized commercial building projects. Are you seeing any impact on that or caution from your customers yet in the market so far in Q2 or not so much in the Canadian market?
Teri McKibbon
Well, I guess, first of all, it’s not a market that we’re that focused on. It’s a smaller percentage that sort of smaller obviously, economically sensitive sort of area. So it’s a majority of the business that we’re focused on has a high support from government or high support from cycles of energy, obviously, high commodity run right now. So it’s – we’re not really in that market to any extent other than a few smaller projects for blue-chip clients and those blue chip clients are proceeding.
Jacob Bout
And maybe just a question on seasonality, I believe on the last call, you had highlighted that H2 of the year could generate about 70% of EPS for the full year. Based on what you’re seeing so far in the second quarter, is that still the expectation?
Teri McKibbon
I think you had mentioned in the prepared comments that the self-perform work program ramps up this quarter going into the back half of the year. In 2022, we had a large work program that was obviously not as seasonal in nature and then accelerated through the first half of the year. So that made certainly a difference. But this is more of a normalized first quarter for the profile of the business that we have.
Jacob Bout
And maybe just last one for me. So you’re now guiding for high single-digit revenue growth versus mid to high previously. Would you say this is just a factor for the strong revenue growth in Q1? Or would you say you’re a bit more optimistic today for the balance of it?
Teri McKibbon
I think it’s just the demand. The demand that we have got in the pace of activities that we’re focused on first quarter to give you sort of order metrics on projects that I review on a quarterly basis are up over 100% year-over-year. And those are projects that meet a threshold that needs my final sign-off. Obviously, you can see the growth in backlog and pending backlog which is it’s quite significant year-over-year. So we’re really excited about the model of businesses that we’ve built and the framework and a strategy that we released in the fall of ‘21 for the 2022 to 2024 strategic plan. We’re hitting our marks, and we’re pleased with the overall performance in the areas that we focused on are really bearing fruit. So yes, the business is hitting a really nice stride right now.
Operator
The next question comes from Chris Murray with ATB Capital Markets. Please go ahead.
Chris Murray
So just coming back to the bookings in the quarter and Teri, you were talking about the plan as you go into ‘23, ‘24 and what you’re seeing? Kind of interesting to see like your workloads almost doubled in terms of review that’s probably a nice problem to have. When we look at the book-to-bill, though at about 1.1, and certainly, I think that may be skewed by the type of projects that we’re doing and maybe doing more kind of development work in advance of booking stuff. How do we think of the growth considering you’re starting to see some acceleration of ‘23 into 2024?
Teri McKibbon
Well, I think we’re going to see a fairly consistent growth just because the – a couple of things are happening, Chris. Certainly, the evolution of collaborative models, clients are realizing that the collateral model is a more effective model. It derisks the project for all parties, all stakeholders. It creates a more predictable outcome because you’re spending so much time on the front end with design and getting design correct. So I think in that regard, we’re seeing a real acceleration of these models into many new markets. And the other thing that’s happening is the scale of the projects is increasing. So when you start to think about larger projects now using the types of models that we’ve developed a tremendous resume for. You’re starting to see the impact of a much bigger bridge of revenue over multi-years, which is exciting, obviously, because it creates more resiliency in terms of year-over-year revenues and revenue growth and – so yes, the pace of business is as high as we’ve ever seen in terms of demand for our services. And it’s pretty exciting for our team right now, okay.
Chris Murray
Yes. I mean, I guess what I’m thinking about is if your backlog duration stays about the same at a 1.1x bill, you got to be thinking that you’re probably at least growing at high single to low double digits as we go past this year. Is that maybe the right way to think about it or is there something else in?
Teri McKibbon
No, that’s a good way to think about it. And you’re seeing an increase in recurring revenues as well, Chris, with the $300 million of MRO work. It was all scope expansion at existing clients. I mean that’s going to add nice growth for us, too, that comes online and you get a full year worth of that in 2024 as well.
Chris Murray
Okay. No, that’s helpful. And all that stuff, as I said, kind of goes into that whole self-performed type of bucket where you have a little more control than over the scope and the scale of the projects.
Teri McKibbon
Correct. Yes, cool.
Chris Murray
One of the interesting announcements you made was on the new award around the modular buildings. And there’s been a lot of discussion around modular in commercial buildings and the height that they can do and the scale they can do. So a couple of questions on this. One, obviously, you guys are doing modular but you’re doing it at a steel, which facilitates larger buildings, taller buildings. So, thoughts around other projects in the pipeline for modular because it seems to have been a little lumpy, it would be a nice way to characterize it. And then any concerns around supply out of China or anything like that where the boxes are built and how that maybe fits into your plans as you do this project and others?
Teri McKibbon
So maybe just high level on the modular side, yes, certainly, this is a real key award as a catalyst for us to be able to demonstrate our capabilities and the quality of our products. So we’re really excited about this. There’s more of these to come is our expectation. Right now, like modular as – in a general sense, is a very disruptive business, and disruptive businesses, as we’ve seen in many of the start-ups that exist in the world, certainly take time to evolve and because of the disruption. And in the construction industry, which has been bricks-and-mortar for 100 years. This is very disruptive, very disruptive to architects and engineers and the financial model is different. So it does take some patience. And I think we’ve been working on sort of selected projects in Canada and have developed a really good learning curve of how we improve and how we can create reductions in cost and speed and efficiency and quality and things like that. And we’ve done a nice job. And with 3 projects under our belt, 4 projects under our belt now in the last few years, but it has been spotty, like you said. One of the areas that I think is most impressive from my lens is there are 17 modular buildings right now underway in Los Angeles at various stages. And that is a really good leading indicator of what’s coming and what’s happening. And I think for us, it certainly gives us a lot of confidence there was in 17 buildings underway a year ago.
So, as things start to develop and evolve and we are active in the California market on some of these projects in terms of being considered, but our major focus is Canada, as we’ve built some projects pretty successfully here in Ontario and obviously, in BC with our work up at Kitimat on the workforce accommodation facility. So this is our first tower, but there’ve been other towers that have been built, and we keep a close eye on those as they evolve. And in that regard, we’re expecting to see more. As I said, there is five more BC housing projects alone that are evolving, and we expect to see more activity here in Ontario, where we have built the tension centers, obviously, with long-term care is a great solution. We also expect had enough been for COVID we would have built at least 2 hotels in Canada with our modules, but COVID certainly put the hotel industry on their heels a little bit. But as that industry recovers, our solutions are very effective for hotels as well. And we expect to see that return as the hotel industry returns to a more predictable future. As far as the flow out of China, most of the buildings we build, the very high percentage of the raw materials and products come from China. So the difference here is we are just assembling in the plethora of facilities that exist, millions and millions of square feet of facilities over there that allow us to have more of an accordion-like expansion and contraction versus trying to do it with large fixed facilities in North America. It’s tougher to do that than the way we’ve structured our sells. So we really think we’ve got the right model. Now we don’t anticipate that any market in the world could cut off that massive supply channel that comes out of China without major ramifications. But if we had to do something different, we have the flexibility to do that and have that in place. But it doesn’t seem practical from an economic perspective for any government to try and disrupt the flow of materials because it’s such a high percentage of a lot of the buildings we build.
Chris Murray
Okay. And there is no issues with like having to do domestic sourcing or anything like that, but some of the government or social contracts?
Teri McKibbon
No. The governments have been pretty clear about that, and we’ve been upfront and said, anything we are doing in Canada, it’s very clear. So there is no issues. Governments, I think, are well-educated relative to the impacts of what that would mean if there was any sort of restrictions. So – but yes, pretty clear. So but we have options in the case of something developed, but we don’t anticipate anything we will.
Chris Murray
Alright. That’s helpful. Thanks, Teri. I will turn the line over.
Teri McKibbon
Thank you.
Operator
The next question comes from Ian Gillies with Stifel. Please go ahead.
Ian Gillies
Good morning, everyone.
Teri McKibbon
Good morning.
Ian Gillies
Teri, over the last call, 6 months, there is been a few additional mining contract wins, including this morning. I was just hoping to get an updated view from you on, I mean, what the competitive strategy is to continue to pursue that business, i.e., do you want it to mirror something like your MRO business in Alberta or do you want to tie yourself to a little bit more to the growth CapEx side of it because there is obviously a lot going on there between all the various different commodities. So, just curious on that front?
Teri McKibbon
Well, really excited about overall the mining cycle, and we’ve stayed patient with our focus on mining and kept ourselves with a fleet and a team that can service that specialized area through the past 10 years where there is been times in the cycle where it’s been tougher conditions, but we’ve stayed in it and kept our fleet refurbished, and we’re really paying that’s really paying off with the demand right now. So if you think of go across some of the major areas, obviously, potash, with our various announcements at BHP. We’re seeing a lot of demand, and we’re active on sites early days in considering proposals in gold. The iron ore announcement this morning with Champion at Bloom Lake it’s pretty exciting for us because that’s another major front. So if you think of where we’re situated with some of our large facilities in Western Labrador, we’ve got Champion, obviously, to the north. We’ve got Rio Tinto or IOC to the east and ArcelorMittal to the West and Northern Quebec, all in a very close proximity. So it makes our whole organization more efficient to see that kind of demand. And then you start to look at it. Obviously, we just finished the large assignment with Detour Gold here in Ontario and more to come in that sense and more demand.
We’re excited about some of the opportunities, obviously, with Canada’s critical mineral strategy. That’s important. And you see the support from government to develop battery production in St. Thomas. You obviously have to conclude that Canada is going to accelerate lithium and get the lithium production to support that facility. So those are all exciting areas. And we’re also seeing demand on the aluminum side in terms of additional expanding production of aluminum. Copper is out there, obviously, is a critical mineral. So there is just a number of areas. So it’s a rising tide of demand in mining, and we’re well positioned with our various teams, the acquisition ofStuart Olson Brotas mining capabilities in the Sudbury area. So we’re expanding with some additional services that the Sudbury folks didn’t have, but we had in Quebec and Newfoundland. So that’s expanding in the Sudbury area with new assignments. And so we’re well positioned and we’re excited about what that profile looks like. It’s like I said, a rising tide of demand across the country.
Ian Gillies
That’s helpful. Wayne, you get asked this every quarter, I guess it’s my turn this quarter. How are you thinking about working capital demands or releases for the full year?
Wayne Gingrich
In Q1, I think we put about $48 million into working capital in Q1 last year, we had $34 million go into Q1. So to me, the increase really just represents the growth that we had. So in Q2, we expect our work program to be ramping up as well. We had a bit of an easy comp in Q2 last year and that we still had some trailing impacts from the pandemic, and there is a strike last year. So we do expect to have strong growth in Q2, which will require investment in working capital. And then same seasonality is normal, probably Q3 will be relatively flat as we get some releases and new investments with a strong work program. And in Q4, we expect to see pretty large releases from working capital. So we expect to be free cash flow positive for the year.
Ian Gillies
Okay. Thank you. I will turn the call back over. Thanks very much.
Teri McKibbon
Thank you.
Operator
The next question comes from Michael Tupholme with TD Securities. Please go ahead.
Michael Tupholme
Thank you. Good morning.
Teri McKibbon
Good morning.
Michael Tupholme
In your outlook, you’re calling for an improved margin profile for full year 2023, which I think is understandable. Given the return to more normal seasonal patterns in the first quarter, the margins were down year-over-year, which again, the reason for that is clear. But wondering as we look out over the balance of the year, how we should think about the cadence of the margin improvement you expect as you move through the next three quarters?
Teri McKibbon
Yes. I think you’re going to certainly see our margin profile improve in Q2 and probably see an increase again in Q3 and remained strong in Q4. So I think Q3, Q4 will be your highest point of the year and you have a nice increase in Q2. And year-over-year, I think we’re 4.3% for all of 2022 on our EBITDA – adjusted EBITDA margins. We expect to see a nice increase year-over-year.
Michael Tupholme
Starting in the second quarter, just to be clear.
Teri McKibbon
Yes, yes. Like we did have a bit of a reduction there, I think, from 3.8% to 3% in Q1 this year, but we talked about that with the industrial work program we had last year. But we’re also confident we’ve replaced the contributions from that industrial work program. It’s just they are going to kick in more in Q2 and through the rest of the year. So for the year, we will certainly have margin expansion in our EBITDA year-over-year.
Michael Tupholme
Yes. Okay, perfect. And then, yes, just to be clear on the – on that large industrial work program that was benefiting you in Q1 2022. And I know that work wrapped up last year, but when did that actually finish up at what point in the year last year? And so when does it actually drop out of the prior year comp period as we move through this year?
Teri McKibbon
Yes. Probably by the end of Q3. Most of the work program was finished up on that. But again, when you think about it from a comparison perspective, we have replaced that work, and it’s going to kick in, in Q2 and 3. So we don’t think we’re going to see that kind of trend you saw in Q1 where we hadn’t replaced the contribution from it.
Michael Tupholme
Okay. Got it, that makes sense. And then again, just sort of back on this subject of kind of cadence as you move through the year. So again, you’re calling for strong earnings growth on a full year basis, up a little bit year-over-year – or pardon me, about sort of flattish in the first quarter, but again, should we expect to see that earnings growth show up starting in the second quarter when we look year-over-year? Is that how to think about this? And then it kind of builds from there further as you move into the back half?
Teri McKibbon
Yes. I think that’s right.
Michael Tupholme
Okay. Perfect. And then when we look at the combined record backlog and pending backlog, obviously, the pending backlog has been increasing at a very, very strong pace. How should we think about the work from pending backlog feeding into hard backlog and being converted into revenue in 2023?
Teri McKibbon
Yes. So I think in our pending backlog, we really have the two kind of categories of work, right? We have the $1.1 billion of MSA work. And those contracts kind of average 3 to 5 years would be the time frame, right? So you can kind of do the math on what would come into revenue on an annual basis. But with that $300 million we just added, we talked about that being additions to the scope that we have with those existing clients, and that will be additive to our growth, particularly in ‘24. The other $1.9 billion that’s in there.
A lot of that is kind of the collaborative contracting model that we have. And what we’re finding is with those, they do take a little bit longer to bring into we did see a bunch of convert in Q1, and that’s probably we had the nice book-to-bill ratio that we did. But you are getting some limited notices to proceed to do early site works in some cases, but locking in that design upfront is kind of a key piece. And depending on the client can take 9 months to a year in some cases. So we do expect the majority of that $1.9 million to flow into backlog over the next 12 months, but it’s sometimes client driven there.
Michael Tupholme
That’s helpful. Thank you. And then I guess just lastly, over the last number of years, there is been a lot of talk about some of the challenges, inflationary pressures, supply chain, and labor availability. I realize there is been an easing, certainly, that relates to inflationary pressures and supply chain issues. But on the labor availability front, can you provide a bit of an update? I mean you have obviously a very strong work program here, and you’re expecting growth. I guess what are your staffing levels like now in terms of being prepared to address that growth? And secondly, how tight are labor markets now compared to what they had been previously, just to get a sense for what the picture looks like right now?
Teri McKibbon
So I think, first of all, we won’t secure work or pursue a project that we don’t have the capacity for sort of a step one of our evaluation of how we look at projects. the bases we have across country and the growth that we have in the country in devious areas gives us certainly a large base and to draw from. So we’re drawing from different markets on a regular basis to support the various demands. I’d say that the labor availability, it hasn’t changed a lot in the last year. It’s tight. And I think you have to – I think we have a benefit of more of a continuous flow of demand. So our employees like that consistency and you tend to have a much more stable workforce, loyal workforce, where you have a continuous block of opportunities continuously flowing.
So we tend to have a much more consistent evolution. It ebbs and flows when we’re doing we do a large turnaround for one of our clients usually in energy. That will create more slotty demands, but certain employees in Canada’s labor force focus on those kinds of opportunities and enjoy that kind of cycle. So obviously, we have major recruiting capability when we need to do a turnaround for a client. And again, we don’t we don’t sign up for those turnarounds so we don’t have certainly a strong level of confidence in terms of the availability of labor and whatnot. So we’re not feeling a lot differently about labor as we continue through 2023 than we did a year ago. It’s tight. But we seem to be navigating it extremely well.
Michael Tupholme
Alright. That’s all for me, thank you.
Teri McKibbon
Thanks.
Wayne Gingrich
Thank you.
Operator
The next question comes from Maxim Sytchev with National Bank Financial. Please go ahead.
Maxim Sytchev
Hi, good morning, gentlemen.
Teri McKibbon
Good morning, Max.
Maxim Sytchev
Teri, I wanted to ask you about the oil market specifically. I mean as the pricing has come down over boiler the last couple of months and then at the same time, you seem to be winning work. So I’m just curious what you’re hearing from the clients kind of on the ground in terms of their priorities. Thanks.
Teri McKibbon
Yes. It feels that the offering we have is continues to gain momentum. The types of things that we bring to the table. Our safety record is impeccable. As you know, that’s a major focus in some of the large oil players, oil and gas liters. So I think in Arigard, we seem to be – there is certainly more momentum today to streamline contractual interfaces than there ever was. So large organization is saying, I can’t manage multiple contracting interfaces. I’m more interested in moving to narrow that so that I have a higher degree of confidence in safety, and we’re benefiting tremendously from that. So in that regard, in terms of why we’re being awarded work, that’s the reason. As far as the investment they are making, it’s sustaining capital. So the majority of work we do in oil today evolves around their sustaining capital program and keeping their facilities running at high levels of efficiency. And so that’s the majority of what we do. There is not as much new capital flowing into growth, but there are some and similar clients are doing larger projects, which involves bringing in our construction teams for new expansionary growth, but the majority is sustaining capital.
Maxim Sytchev
Okay. Super helpful. And then just thinking a bit more sort of broader-based when it comes to the risk profile. So is your sense right now that whatever is coming out from the government on the institutional side of things, it’s really much more focused on collaborative contractual structure. Do you have like maybe sense like, I don’t know, it’s like 60% or 70%. Like what’s your sense there?
Teri McKibbon
Yes. Yes. It’d probably be a little north of that, too, because especially brownfield-like complex brownfield sites where you just can’t possibly predict the cost because of numerous stakeholder interfaces. Those projects, if they don’t deliver them, tons don’t deliver in a cloud or framework. They don’t get anyone interested to even participate. So the – it’s that kind of dynamic. And it’s largely because of the unpredictability of what you can be faced with. And so obviously, that’s changed quite dramatically. But I would say it’s probably as high as 80% on the brownfield side. There is still a few that evolve in a P3. But on the greenfield side, we’re more than happy to do a P3 in a greenfield site.
There is some new projects that have been announced in Canada that are greenfield, things like schools, there is opportunities evolving in new provinces as well that haven’t traditionally had P3. So – but we’re happy to look at some of that in the greenfield space with the brownfield, I think most contractors that are of the scale that can handle these larger assignments you just can’t predict the cost. That’s the issue. You just can’t – you can’t get your level of confidence very high on what the cost is going to be. It’s not about the margin profile or how we look at it, it’s just a lack of confidence in the ability to predict the cost.
Maxim Sytchev
Yes. That’s super helpful. And then maybe just lastly, in terms of kind of Dagmar and how that asset has been performing? And what are your thoughts in terms of potentially cross-selling or doing kind of bigger projects that kind of dovetails into my previous questions. Maybe just any update there. Thanks.
Teri McKibbon
So it’s really – Dagmar been a catalyst for us to expand our services like in traditional rail transportation, heavy rail and light rail, we would be limited to more stations and things like that. But Dagmar been a catalyst to allow us to be on projects that involve complex rail systems and they have a tremendous track record and has worked extensively here in Ontario for the transportation agencies. So that’s really been strategic for us. And what we’re doing in that business is leveraging in into much larger programs because of, obviously, our scale and our systems and our quality programs and our teams and the availability and moving teams.
So yes, it’s really exciting and the team that we’ve inherited in the acquisition of Dagmar, certainly are capable running a much larger business than they are, and we’re busy with that growth and adding some of our team from various parts of Canada to that group. And it’s been pretty exciting and seeing the opportunities evolve for them. It’s going to have a very exciting future, and it’s taking us a long way to building that sort of third stool, third leg of the stool with an infrastructure vertical combined with the industrial and the building verticals we currently have, and that’s a big part of our growth, as we outlined in our current strategic plan. So we’ve done a nice job with [indiscernible] worked hard to see that continue to evolve.
Maxim Sytchev
Okay. Excellent. That’s super helpful. That’s it for me.
Teri McKibbon
Thanks, Max.
Wayne Gingrich
Thank you.
Operator
The next question comes from Gabriel Moreau with iA Capital Markets. Please go ahead.
Gabriel Moreau
Hi, good morning. First, can you give us an update on your M&A outlook for the rest of the year?
Teri McKibbon
So we’re strategic with our M&A focus. There is been a number of opportunities over the last 6 months. In particular, we noticed the pace pick up last fall and continues to be very high pace. I think our profile as it grows and we become more diversified, we’re getting approached on things that we might not have been approached on before because there probably was a thought we wouldn’t necessarily be interested. So we’ve constantly got a series of opportunities that we’re evaluating that are sort of at various stages. And some of them develop into real entities that we secure or acquire and some of them don’t anticipate.
So at any one given time, we have always got things that are evolving in various stages. And it’s not our primary focus. Obviously, it’s a balanced approach. We’re looking for strategic assets that can accelerate our growth in some of our core markets, along with the focus we have organically growing in those markets. So we keep a pretty good balance, but we’ve done an impactable job of integrating the businesses we’ve acquired and the recent team we acquired at Trinity has had great success in the first couple of months in terms of integration. And excited about the opportunities that are ahead for our Trinity team. And we’ve had Dagmar now for 20 or so months. And that’s been certainly a real jewel of an acquisition is growing and integrating nicely.
Gabriel Moreau
Thank you. As we continue to deliver sustainable growth. And if you keep delivering good results, what are your talk about dividend policy, either growth or payout related?
Teri McKibbon
Yes. We review the dividend every quarter with our Board. So it’s a constant topic of discussion. We provided guidance in December last year that we said for the year, we expect the payout ratio on net income to be below 40% or below, which certainly we have that language in this quarter as well. As we – I think the March dividend paid out in April 20 there was the first dividend at the higher rate. I don’t think you’re going to see anything in the next quarter or something like that. But certainly, it’s a topic of discussion. And as the company continues to do well and grow, who knows what happens down the road.
Gabriel Moreau
That’s all for me. Thank you.
Teri McKibbon
Thank you, Gabriel.
Operator
[Operator Instructions] The next question comes from Frederic Bastien with Raymond James. Please go ahead.
Frederic Bastien
Good morning.
Teri McKibbon
Good morning.
Frederic Bastien
I was wondering if you could talk a little bit more about the contract award that you announced this morning, a new relationship with Champion iron a big player. Specifically, just curious how this opportunity came about. And if you wouldn’t mind just discussing the potential for follow-on opportunities as a result of your new relationship?
Teri McKibbon
Thank you. Yes, it’s they are certainly a very impressive organization had an opportunity with our COO, Joe Royer, and our district leader Dominic Joezer to meet their CEO and COO in Montreal about 3 months ago to chat about what we were doing, and I was really impressed with their organization and the direction they are going and their footprint and the evolution of the asset that they have is certainly a very high-grade product. So they are very focused on developing their site in a very environmentally focused way. And so obviously, it fits nicely into things that we’re focused on. And they have a very bright future in my opinion. And mainly because the grade of their ore is higher than others. So it it’s got more sustainability in my opinion over the longer-term. So a really strategic award. I think it will grow over time to be similar to our other assignments in that region, and it just makes our overall business more efficient when you’ve got multiple key areas of focus.
Frederic Bastien
Thanks. And just a follow-on on this. You mentioned that this project was smaller in scale than a previous one. I can’t remember exactly which projects you were referring to perhaps the MSA assignments you’d secure, but can you give us a sense of not the magnitude of the project size, some qualitative gold policy you could provide?
Teri McKibbon
Yes. So it’s this Simon, is sort of a first assignment for us. It’s not of a scale that you’d normally a press release even other than it was a very strategic award, and it gave us a very longer-term opportunity to grow, and the potential to grow is huge. So I’m very confident with the team that we have that this business – this opportunity and this new client alignment will be very strategic for us. And again, as I said earlier on the call, we’re just seeing a bit of a tidal wave of demand on the mining side. There is a number of new assignments in just about every province evolving. So it’s exciting. And then you’ve got the real big ones with lithium and that whole dynamic ring of fire eventually will evolve. And so those are all certainly exciting to see.
Frederic Bastien
Thank you, Teri.
Teri McKibbon
Thanks, Fred.
Operator
This concludes the question-and-answer session. I will hand the call back over to Mr. McKibbon for any closing remarks. Please go ahead.
Teri McKibbon
Thank you, everyone, for taking the time to join our earnings call this morning, and thank you to the entire Bird team. We’re proud of the work executed every day, working safely, working together, and building value for our company, our clients, our communities and our shareholders.
Operator
This concludes today’s conference call and webcast. You may disconnect your lines. Thank you for participating, and have a pleasant day.
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Bird Construction Inc. (BIRDF) Q1 2023 Earnings Call Transcript