And to the Bird Construction Second Quarter twenty nineteen Financial Results Conference Call. We will begin with Mr. Terry McKibbin's presentation, which will be followed by a question and answer session. Session. As a reminder, all participants are in listen only mode and the conference is being recorded.
Before commencing with the conference call, the company reminds those present that certain statements which are made express management's expectations or estimates of 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 intention or obligation to update or revise any forward looking information, whether as a result of new information, events or otherwise. At this time, I would like to turn the conference over to Mr. Terry McKibbon, President and CEO of Bird Construction. Please go ahead, Mr. Terry McKibbon.
Good morning, everyone. Thank you for participating in the Bird Construction second quarter twenty nineteen conference call. Co presenting with me today is Wayne Gingrich, our CFO. Before we begin the discussion on the quarterly results, since this is my first earnings call for Bird Construction, I would like to mention that I'm honored to assume the role of Chief Executive Officer of a trusted, respected and well respected company that in 2020 will celebrate its 100 year anniversary. I'd also like to thank and acknowledge the support and assistance I have had over the past two years for me and Boyd, who has made the transition into the company and into my new role to be seamless.
The 2019 year began with a continuation of the performance challenges that we faced in 2018. However, as the third quarter begins, we are pleased with the progress completing our challenging legacy projects and in the impacts of our efforts to diversify our revenue stream across a portfolio of both geographic and balanced risk profiles. We are very encouraged by the growth of the amount of awarded but not yet contracted projects, many of which are in preconstruction and in a delivery model that supports a more traditional portfolio risk balance for Bird in our overall work program, and we are beginning to see our earnings base reflect this. Although the 2019 will continue to be a transition year, we are pleased to see the directional trend of our performance and thank the many employees of Bird for their hard work and dedication to the company. In the second quarter of twenty nineteen, East West Connectors consortium achieved financial close and entered into a project agreement to design, build and finance the Confederation Line Extension project in Ottawa.
The company, as a preferred subcontractor to the consortium, will lead the construction of several light rail transit stations and a maintenance and storage facility. Subsequent to the quarter end, the company announced that it has signed multiple contracts for services for an undisclosed amount at an LNG facility in Northwestern British Columbia. The contracts include a site civil works program in the engineering procurement and construction of 16 administration and service buildings. The EPC buildings program will consist of a combination of pre engineered and modular buildings. The contracts will start immediately and continue into 2022, Both the Confederation Line Extension and the recently announced LNG facility work programs contributed to an increasing the amount of our awarded or in which the company was named primary negotiation proponent that were yet to be contracted to over $750,000,000 at July 3039.
At yesterday's Board of Directors meeting, the Board declared monthly eligible dividends of $0.03 $25 per common share for August, September and October. Wayne will now take us through the financial performance for the quarter and year to date compared with the prior year.
Thank you, Carey. For the three months ended June 3039, compared with three months ended June 3038, during the second quarter of twenty nineteen, the company recorded a net income of $1,000,000 on construction revenue of 315,400,000.0 compared with a net loss of $5,300,000 on $321,100,000 of construction revenue, respectively, in 2018. Revenue growth has been impacted by higher volume of preconstruction activities on construction management projects and the LNG project was ramping up to the second quarter of twenty nineteen. The extended preconstruction phase, which is longer than originally anticipated on several pending construction management contracts, has served to amplify the impact on shorter term results due to the allocation of key resources to projects that are not yet generating gross profits. The company's second quarter gross profit of $14,400,000 was $6,100,000 or 72.6% higher than the $8,400,000 recorded a year ago.
The increase in second quarter twenty nineteen gross profit is primarily due to a higher margin work program as a result of the mix of revenue beginning to shift from predominantly institutional and commercial projects to more self perform industrial projects in 2019. The company's second quarter twenty nineteen gross profit percentage of 4.6% was 2% higher than the gross profit percentage of 2.6% recorded a year ago. In terms of active projects, the company is realizing lower margins in certain components of its institutional work program that are scheduled to achieve substantial completion in 2019. In the second quarter of twenty nineteen, the company experienced some further erosion on the PPP project and remains subject to ongoing commercial negotiations. On a comparative basis, year over year, second quarter gross profit and gross profit percentage in 2018 were negatively impacted by lower volumes recognized in the company's higher margin self perform operations in both the industrial operations in Western Canada and mining operations in Eastern Canada as a result of project delays and a labor strike at one of the company's primary mining clients.
In the second quarter of twenty eighteen, the company incurred a significant amount of repair and maintenance costs on its heavy civil mining fleet to take advantage of the equipment downtime due to that labor strike. In addition, in the second quarter of twenty eighteen, one of the company's offices was experiencing difficulty in the execution of several projects, primarily due to design related issues. The company had recorded provisions to account for the expected increase in construction costs on these projects, which have also negatively impacted the 2019 gross profit percentage realized. The company had taken steps to mitigate further impacts on results and is actively seeking recovery. Income from equity accounted investments in the 2019 was $1,000,000 $600,000 higher than the $400,000 in the same period of 2018.
The income in 2019 was primarily driven by earnings from non PPP equity accounted entities. In the second quarter of twenty nineteen, general and administration expenses of $13,200,000 or 4.2% of revenue were $2,300,000 lower than the $15,500,000 or 4.8% of revenue in the comparable period a year ago. And during the quarter, the company had minimal third party pursuit costs due to an honorarium recognized for a PPP pursuit where the team was notified it was not the preferred proponent. As a result, pursuit costs were $900,000 lower than the amount recorded in 2018. Also in the second quarter, a foreign exchange gain was $600,000 higher, partially offsetting higher consulting fees of $300,000 compared to the prior comparable period.
Finance income of $500,000 in the 2019 was $200,000 higher than the 300,000.0 recorded in the same period of 2018. Finance and other costs of $1,300,000 were $300,000 higher than the $1,000,000 reported in the second quarter of twenty eighteen. The increase is due to higher interest costs associated with loans and borrowings, non recourse project financing and right of use liabilities. In the second quarter of twenty nineteen, income tax expense was $500,000 compared to an income tax recovery of $2,100,000 recorded in the second quarter of twenty eighteen. Six months ended June 3039, compared with the six months ended June 3038.
During the first half of twenty nineteen, the company recorded a net loss of $5,500,000 on construction revenue of $577,200,000 compared with a net loss of $11,800,000 on $614,500,000 of construction revenue in 2018. Although volume declined 6.1% year over year, the mix of revenue has changed as the company's higher margin industrial work program has increased. The 2019 results were impacted by a PPV project that incurred additional costs due to design related scope growth and acceleration expense to meet the scheduled substantial completion date. There were substantial changes to the scope of the project requested by the client that are currently under commercial negotiation. The reduction in revenue in the 2019 was primarily driven by lower volumes due to harsher than expected winter conditions experienced in Central Canada in the first quarter and a higher amount of preconstruction activities on construction management projects throughout the first half of twenty nineteen.
This extended preconstruction phase, which is longer than originally anticipated on several pending construction management contracts, has served to amplify the impact on shorter term results due to the allocation of key resources to projects that are not yet generating gross profits. However, the company's industrial work programs have begun to increase year over year and the more diversified mix helped reduce the net loss experienced in the first half. The company's twenty nineteen first half gross profit of $20,800,000 was $5,300,000 or 34.1% better than the $15,500,000 recorded a year ago. The increase in the amount of gross profit in the 2019 was driven by higher margin projects as a result of a shift in the mix of revenue from institutional and commercial projects to more industrial projects in 2019. The company's gross profit percentage in the 2019 was 3.6%, was 1.1% higher than the gross profit percentage of 2.5% recorded a year ago.
In the first half of twenty nineteen, there is one PPP project that incurred additional costs due to design related scope growth and acceleration expense to meet the scheduled substantial completion date. And as described previously, there were substantial changes to the scope of the project requested by the client that are currently under commercial negotiation. And further impacting gross profit and gross profit percentage in 2019 was harsher than expected winter conditions experienced in Central Canada. By comparison, the 2018 was impacted by a PPB project that achieved substantial completion late in the first quarter of twenty eighteen. And while the company incurred additional escalation costs and financing costs from lenders, the company was more significantly impacted by the change in treatment of variable consideration.
Commercial negotiations are ongoing related to this project. Also contributing to the loss in the 2018 was a lower volume due to a labor strike at a client in the mining sector. And at the time, the company incurred a significant amount of repair and maintenance costs on its heavy civil mining fleet to take advantage of the equipment downtime realized due to the labor strike. In addition, in the second quarter of twenty eighteen, it became apparent one of the company's offices was experiencing difficulty in the execution of several projects, primarily due to design related issues. The company had recorded provisions to account for the expected increase construction costs on these projects, which also served to lower the future margins earned on these projects, some of which are ongoing in 2019.
Income from equity accounted investments in the 2019 was $1,700,000 compared to $700,000 in the same period of 2018. The income in the 2019 was primarily driven by the earnings from non PPP equity accounted entities. In the first half of twenty nineteen, general and administration expenses of $28,200,000 or 4.9% of revenue were $2,900,000 lower than the $31,100,000 or 5.1 percent of revenue in the comparable period a year ago. And during the first half, the company had minimal third party pursuit costs due to an honorarium recognized for a PPP pursuit where the team was notified it was not the preferred proponent. As a result, pursuit costs were $2,300,000 lower than the amount recorded in 2018.
Also, foreign exchange gains were $200,000 higher and consulting fees were $300,000 higher compared to the first half of twenty eighteen. Compensation expense was comparable to the amount recorded a year ago. However, in 2019, the company recorded $1,900,000 of severance costs and compensation expense that is partially attributable to the restructuring of an underperforming office. Finance income of $1,100,000 in the 2019 was 500,000 higher than the $600,000 recorded in the same period of 2018 due to higher average cash balances year over year. Finance and other costs of $2,800,000 were $800,000 higher than the $2,000,000 reported in the first half of twenty eighteen.
The increase is due to a $300,000 higher loss on the mark to market of interest rate swaps, which were reversed back to income through the life of the derivative tied to project completion. In addition, interest costs increased due to higher loans and borrowings and interest rates and interest costs recognized upon adoption of IFRS 16. In the first half of twenty nineteen, income tax recovery was $1,900,000 compared to a recovery of $4,500,000 in the first half of twenty eighteen. I will now turn the call back over to Terry to comment on the outlook for the company in fiscal twenty nineteen.
Thanks, Winnie. At June 3039, the company was carrying a backlog of $1,380,000,000 which is 6.5 percent higher than that recorded at December 3138. The embedded margin in the backlog continues to improve, driven by the positive impact of new contract awards with higher going in fees, combined with the diminishing influence of several lower margin institutional projects that are nearing completion. The $661,000,000 of new contract awards secured at the June to the June are across a broad range of markets that will help the company achieve a more diversified work program as well as a more traditional balanced risk profile. The company has greater than $750,000,000 in projects that have been awarded, of which the company was named as the primary negotiation proponent that were yet to be contracted as of the end of the second quarter of twenty nineteen.
Included in this figure are projects that subsequent to quarter end, the company has signed multiple contracts for services for an undisclosed amount at an LNG facility in Northwest British Columbia. These contracts include a site civil works program and 16 administration and service buildings. This program will consist of a combination of pre engineered and modular buildings. The contracts will start immediately and continue into 2022. The majority of the remaining balance of awarded projects not included in backlog are in Ontario.
They include the Advanced Nuclear Materials Research Center for the Canadian Nuclear Laboratories, CNL, located in Chalk River and the Confederation Line Extension project in Ottawa, where the company will lead the construction of several light rail transit stations and a maintenance and storage facility. In addition, the company is in the preconstruction phase for over $200,000,000 in institutional projects in British Columbia, although only a relatively small fraction of this amount will be included in backlog due to the agency nature of the construction management contract delivery model. In general, the company has a higher than normal level of preconstruction activities broadly ongoing that have yet to convert into contracts. This extended preconstruction phase, which is longer than originally anticipated on several pending construction management contracts, has served to negatively impact short term results due to the allocation of key resources to projects that are not yet generating gross profits. However, these projects are expected to contribute positively to the future earnings of the company once contracted.
With respect to the PPP and design build market, the company will continue to be selective on prospective projects matching our skill set and available resources. The longer term opportunity pipeline of major projects remains healthy, although the bidding activity is expected to trend lower in the second half of the year due to the procurement stages of the opportunities the company is pursuing and due to the selective nature of our approach. The near term opportunities will primarily consist of smaller environmental projects and mid sized social infrastructure projects. As of June 3039, the company was in active pursuit of an ambulatory care project in Atlantic Canada and is shortlisted and awaiting the request for proposals on two smaller environmental projects and an administration building for the federal government. The company is also actively preparing a response to a request for qualifications on one other project.
The award of any of these projects opportunities will benefit 2020 and beyond. In terms of active projects, the company is realizing lower margins in certain components of its institutional work program that are scheduled to achieve substantial completion in 2019. In the second quarter of twenty nineteen, the company experienced some further erosion on a PPP project that remains subject to ongoing commercial negotiations. There is risk that this project could experience additional margin erosion in the year if a series of owner directed changes are not resolved satisfactorily, which could negatively impact overall results. Project is scheduled to achieve substantial completion this year.
Despite the financial headwinds realized year to date, the company expects to have a work program in the 2019 that is more balanced and diversified than it has been over the past several years, supporting progress towards higher levels of profitability and growth. Management expects the work on the Cedar Valley Lodge to be at full production through the 2019 and anticipates an improvement in earnings attributable to its higher margin self perform industrial program through the remainder of the year, including contributions from the two recently awarded projects at LNG Canada's export terminal facility. Due to the combination of timing of bid submissions and generally the smaller scale of project anticipated to be an active pursuit in 2019, the company expects third party pursuit costs to remain at modest levels. Taking into consideration the company's current backlog and the pending conversions of awarded projects into contracts, company expects to achieve a backlog near record levels in the second half of twenty nineteen. This concludes the prepared remarks section of the conference call.
I will now turn the call over to the conference call operator, who will take your questions in turn. Thank you.
Certainly, sir. We will now begin the question and answer session. May press star and one on their touch tone telephone to join the question queue. You will hear a tone acknowledging your request. If you're using a speakerphone, please ensure you lift the handset before pressing any keys.
The first question comes from Michael Tsapel of TD Securities. Please go ahead.
Thanks. Good morning.
Good morning. Good morning, Michael.
Terry, can you talk about how we should think about the ramp up of work at Cedar Valley Lodge in the second half as well as the new LNG awards that you recently announced?
So LNG has got off to a very good start. We hit the ground in April. And I would say, we're nearing a steady state of production. Obviously, this is a large scale project with 4,500 units. I'm really pleased with the performance at the site.
We've had good weather. We've had our partners throughout the project are performing very well. And I think that, that performance is giving our clients confidence for more awards. And so very pleased with that. I would say we're as we sort of open August, we're at a pretty steady run right now.
It will take us right through the completion of the project, and we're very pleased with the progress to date.
Great. And then you did touch on it just briefly there, but I was going to ask about the potential for additional awards on this project. I mean, I realize you won a fair bit already relative to many others that may be seeking work on this project. But are there additional opportunities and what would be the timing associated with those?
So there remains new opportunities that are in the early planning stages. And we're like I said, you get access to these opportunities based on your performance, and our performance has been stellar on all fronts in safety and execution and progress to date. And very the team is working incredibly hard to get us to where we are today. And so we're very confident that there'll be a steady pipeline of opportunities in the sector. And as that sector evolves, and generally in LNG, we're optimistic to see new opportunities in LNG beyond credit sites that we're working on today.
Okay. Regarding the $750,000,000 of awarded but not yet contracted work that you talked about in the MD and A in the prepared remarks. Can you just talk about the risk associated with the conversion of that work into a contracted format? So I mean, I realize you've talked about an expectation for backlog hitting near record levels in the second half. So I think that must sort of speak to your level of confidence.
But is there any risk associated with any of that $750,000,000 that for one reason or another, it is either delayed or for whatever reason doesn't actually contract?
There's always risk that these things take a little longer. I don't feel that the majority of the $750,000,000 I would say 75% of it is very solid in terms of even in terms of timing. The balance remaining maybe 25 might get extended into the first quarter. But these are projects we've worked on for some time, and they're not bearing some catastrophe. They're not no one's going hit the brakes on this stuff, in my opinion.
Okay. And just a clarification, the $150,000,000 of LNG work that is understated is in that $750,000,000 number, has now been contracted?
We didn't disclose the dollar value of the LNG work. But yes, those two contracts that we press released, those have been contracted in the third quarter. And in third quarter, will be part of our backlog. And obviously, we'll come out of that $750,000,000 number
as we press released.
Got it. Okay. And then just lastly, so Terry, realize although you're new to the role as President and CEO, I mean, you've certainly been with Bird for a little bit of time already before assuming that position. But just wondering, now that you've assumed that role, is there anything that you've sort of looked to do differently from a project oversight execution perspective? Anything that's changed on that front, I guess, since you've assumed the role of CEO?
Well, certainly, with any change, with any leadership, leaders styles and have a different somewhat a different approach. And so for me, I'd say that I've been in this business over thirty five years, and I've seen a lot of different things. And you build off that portfolio And I'd say that I think my reputation has been a very calculated, careful approach to risk. And I'm very focused on having a very balanced portfolio and not I think not getting ourselves over our skis in areas where sometimes can be put a real strain on your company.
We have a great team here at Bird. I can't I didn't know a lot about Bird when I first joined the company and had a couple of years to get to know the 900 employees across the organization coast to coast. It's really is an outstanding team with tremendous loyalty and history and 100 year old company, obviously. So yes, nothing but impressed. I think we are very calculated in how we're taking the business forward.
We've got a very robust program of backlog. We're moving our business into new fronts and new areas of technology. We just completed our first modular build in Canada this week last Friday, actually, in Callaway a couple of weeks ahead of schedule. 70 modules come in with our stack initiative. So we've got some really exciting things we're working on that are longer term.
But yes, couldn't be more pleased with this opportunity and the team. And we've had some challenges that we're working through. We understand what how we got there, and we're very determined not to see that happen as we move forward.
Okay. Thanks very much.
The next question comes from Felicia Frederick of Raymond James. Please go ahead.
Hi. So last quarter, it was mentioned that the expectation for earnings in the range of $25,000,000 had shifted into 2020 with no mention of it this quarter. Is there any reason this guidance was removed? And is this still a feasible target for next year?
So I'll maybe answer that. Coming in new as the CEO, I've worked in public companies my entire life and I've never provided guidance. And as this is my first quarter as a CEO, I've taken the position that we won't be providing guidance going forward.
Okay. Thank you.
The next question comes from Maxim Sytchev of National Bank Financial. Please go ahead.
Hi. It's Adam filling in for Max this morning. With the increase in industrial backlog into the current backlog, how does that affect the working capital seasonality for the back half of this year?
Yes. I think historically, the trend would see our cash flow increase primarily in our cash balances increase in fourth quarter. I think this year, what we're going to see is more an investment in our non cash working capital in the back half of the year as the self perform industrial work starts to ramp up. So I think that will be a little bit different trend than we've seen in the last three or four years.
Okay. All right. That's it for me. Thanks.
There are no further questions at this time. I will now hand the call back over to Mr. McKibbin for closing remarks.
Thank you for participating in Bird Construction's twenty nineteen second quarter conference call. Wayne and I are available if additional information is required, so please do not hesitate to get in touch with us. Have a good day. Thank you. Thank you.
This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.