Good morning, everyone. Welcome to Exchange Income Corporation's Conference Call to discuss the financial results for the three-month and six-month periods ended June 30th, 2022. The corporation's results, including the MD&A and financial statements, were issued on August 11th, 2022, and are currently available via the company's website or SEDAR. Before turning the call over to management, listeners are cautioned that today's presentation and the responses to questions may contain forward-looking statements within the meaning of the safe harbor provisions of Canadian provincial securities laws. Forward-looking statements involve risks and uncertainties, and undue reliance should not be placed on such statements. Certain material factors or assumptions are applied in making forward-looking statements, and actual results may differ materially from those expressed or implied in such statements.
For additional information about factors that may cause actual results to differ materially from expectations and about material factors or assumptions applied in making forward-looking statements, please consult the MD&A for this quarter, the Risk Factors section of the Annual Information Form, and Exchange's other filings with Canadian securities regulators. Except as required by Canadian securities law, Exchange does not undertake to update any forward-looking statements. Such statements speak only as of the date made. Listeners are also reminded that today's call is being recorded and broadcast live via the Internet for the benefit of individual shareholders, analysts, and other interested parties. I would now like to turn the call over to the CEO of Exchange Income Corporation, Mike Pyle. Please go ahead, Mr. Pyle.
Thank you, operator. Good morning, everyone, and thank you for joining us on today's call. We have a lot to talk about this morning, so I will try to be as brief as possible and leave plenty of time for your questions. With me today are Richard Wowryk, our CFO, and Carmele Peter, our President. When we reported our Q1 results in May, we announced a number of exciting things that occurred subsequent to the end of the first quarter, including the acquisition of Advanced Paramedic Limited, Northern Mat & Bridge, an enhanced $ 1.75 billion credit facility, strong results, 2022 and 2023 financial guidance, and a dividend increase for the first time since the onset of the pandemic. I am very pleased to announce that these initiatives are very evident in our second quarter results.
The second quarter included only seven weeks contributions from our new subsidiaries, but still recorded new record highs in virtually all financial metrics. In spite of the ongoing challenges from the pandemic, supply chain issues, inflation, and labor shortages in some subsidiaries, our performance was so strong that we were not only able to hit record highs in absolute and per-share metrics, but also enabled us to increase the 2022 guidance we provided last quarter, and for the second consecutive quarter, increase our dividends. The second quarter is typically an average quarter seasonally for EIC, as it does not have the winter road issues that impact Q1, but is not yet at peak summertime volumes evident in our aviation and some manufacturing companies.
Northern Mat & Bridge was a large acquisition, but it does not change the seasonality profile of EIC, as it is also slowest in the first quarter and busiest in the third quarter. Richard will detail our financial results in a moment, but I would like to hit on some of the highlights. The 2022 results do not include any subsidies from the government. The comparative period includes $17 million in support, making the size of the improvement over last year that much more impressive. Revenue increased 64% to an all-time quarterly high of $ 529 million. Adjusted EBITDA increased 42% to $ 115 million, also an all-time quarterly high. Net earnings grew 82% to $30 million, an all-time quarterly high, and on a per-share basis grew 73% to $ 0.76 per share.
Adjusted net earnings increased by 95% to an all-time quarterly record of $ 39 million or $ 0.98 on a per-share basis. Free cash flow, less maintenance capital expenditures was $ 1.20, up 22% from last year. The trailing 12-month payout ratio on a free cash flow, less maintenance capital expenditures basis strengthened to a rock-solid 56% from 58%, while it improved to 87% from 118% when calculated on an adjusted net earnings basis. Our second quarter shows the impact of a long-term focus in investing and decision-making. On a micro level, the numbers were the result of solid performance across the board in our two segments, including our recent acquisitions.
On a more macro level, the performance was driven by the long-term focus of management during the pandemic on investments to facilitate growth when markets improved. We have purchased aircraft to facilitate freight, Medevac, and charter demand. We've pursued and won surveillance contract in new markets around the globe and completed accretive acquisitions. Our aviation business entered the quarter dealing with declines in passenger loads from the Omicron variant of the COVID virus. This variant hit northern communities much harder than earlier versions of the virus. Fortunately, this was relatively short-lived, and volumes bounced back during the quarter. The degree of the recovery varies geographically. PAL's business in the Maritimes has fully recovered and is at or ahead of 2019 levels. Central Canada and Nunavut will be between 75%-95% of 2019 levels.
In most markets, the rate determining step to return to or to exceed 2019 levels is access to medical resources. While the pandemic has clearly receded and the medical system is still overwhelmed, as access to appointments and diagnostics improves, passenger levels will follow. Our Medevac and maritime surveillance businesses continued to perform as expected, with strong demand and corresponding margins. The exception to this being the force multiplier, where the usage was less than normal because of government focus around the world on the situation in Ukraine. Medium and longer-term demand remains strong. The Netherlands surveillance contract begins in the third quarter, and we completed preparation of the aircraft subsequent to the end of the second quarter. Regional One continues to perform well. Parts, components, and full aircraft sales remain very strong above 2019 levels.
The leasing of engines continues to accelerate, but the leasing of full aircraft is only improving slowly. The leasing of aircraft is hampered by a shortage of pilots. Airlines do not have sufficient labor to add flights and, as such, do not require the additional lift as quickly as passenger demand would suggest they would. We expect this to continue to improve over ensuing quarters, albeit more slowly than we would like. In aggregate, however, Regional One is performing well. A quick comment on fuel prices before we move on to the manufacturing segment. Fuel prices moved rapidly higher during the quarter before moderating as we moved into the third quarter. Many of our contracts have fuel surcharge provisions, and our market position ensures we are able to pass on our increased fuel costs to our customers, where a specific contractual arrangement does not exist.
The price adjustments typically lag the change in fuel costs, so there is a marginal hit during times of rapid escalation, but a reverse effect in times of prior fuel price decline. As such, in the long run, the price of fuel does not really impact our adjusted EBITDA, but it can have short-term impacts as pricing takes time to adjust. Manufacturing had a strong quarter, driven by continued resilient performance by our legacy companies and our most recent acquisition, Northern Mat. Demand has remained strong throughout the segment. Alberta operations has benefited from the stronger oil and gas sector. WesTower continues to benefit from the rollout of 5G systems across the country. Backlogs remain strong in our precision metal businesses and stainless tank businesses.
All have dealt with challenges arising from supply chain delays and inflationary pressure to a varying degree, but have been able to mitigate these challenges effectively. As discussed in the last few quarters, Quest dealt with the supply chain and inflationary pressures, but is also dealing with a disrupted production schedule from jobs which have been delayed or canceled through the pandemic. This production challenge will continue through the balance of the year. Notwithstanding this challenge, Quest materially exceeded our internal expectations for this quarter and was within $ 1.8 million of the high water EBITDA generated in Q2 of last year when the impact of government support received in 2021 was eliminated. Quest has continued to see strong demand for its products throughout 2022 and has been able to convert opportunities to orders.
Our order book grew significantly during the first quarter and the pace of our order book growth doubled in the second quarter to m$ 100 million. The order book has continued to grow early in the third quarter as well. In short, while Quest will deal with challenges through the balance of the year, the outlook for 2023 and beyond is strong and continues to improve. This was the first quarter in which results from Northern Mat & Bridge were included in the EIC results. Northern Mat & Bridge is doing exceptionally well, at the highest end of our expectations and well beyond the historical results upon which the deal was negotiated. There are a number of industry mat flows which are all contributing to their success. First, there are a number of longer-term linear projects which require a substantial number of mats, including pipelines and transmission lines.
Second, the recovery in the oil market, driven by the need for domestic production, strengthened the oil services segment, also increasing demand. Third, many other companies in the temporary road business did not invest in new mats at the same rate as normal during the pandemic as such, the industry-wide availability of mats was limited. Finally, lumber to construct new mats was exceptionally expensive and availability of supply was weak. These factors added up to very strong demand for matting and limited product availability. As a result, utilization rates were very high and rental rates increased. Northern Mat manufactures its own mats through facilities in Prince George and Creston, B.C. The vertical integration enables them to produce mats at a lower cost than other rental companies who purchase the mats from manufacturers. More importantly, however, it allows them to ensure their own supply in tight markets.
Northern Mat management showed tremendous foresight in continuing to purchase fiber during the pandemic when demand for mats was lower. As demand has increased, they've been able to quickly ramp up production in the manufacturing facilities and thereby increase the size of the rental fleet. Northern Mat is expected to continue to perform well through the balance of the year and in 2023. While these factors may not align as directly as they have in the current year, results are expected to meaningfully exceed what the business was purchased off of and the guidance we provided when the transaction was announced. We are very bullish on the whole matting segment and look to deploy capital to expand the Northern Mat business, whether through acquisition or organic geographic expansion. Its products are an environmental best practice, and the number of potential uses is expanding.
What was simply an oilfield services play 10 years ago is now involved in electrical distribution, forestry, and alternative green energy solutions. We expect a lot of Northern Mat team when they were purchased by the company, and they have not disappointed. In fact, they have exceeded our expectations, and we are excited about the growth opportunities under their leadership. Our acquisition pipeline is as robust as it has been at any time in our history. It is somewhat counterintuitive, but the recent increase in interest rates appears to have been good for our competitive position when looking at desirable companies, particularly those in the $100 million plus purchase price range. We are looking at a number of opportunities related to our existing manufacturing companies, together with organic growth opportunities through significant government contracts in our aviation segment.
While we do not have any transactions at the stage where we know they will proceed, we are cautiously optimistic about the opportunities we have identified. Before I hand the call to Richard to detail our financial results, I would like to conclude with a quick discussion of our decision to increase our dividend for the second quarter, second consecutive quarter. Those of you who have followed the company for a long time have seen that since inception, we've been focused on growing our company in a sustainable manner that will enable us to consistently and reliably increase our dividend to shareholders. During the pandemic, we were able to maintain our dividend during a very difficult period, particularly for companies with aviation exposure.
This was a result of excellent focus of our management teams to make sure we looked after our customers, our employees, and our cash flows. Equally important was the investments made in these preceding periods, creating a diverse portfolio of companies with different economic drivers. We continually spoke during COVID about the investments we were making with an eye on growth post-pandemic. After the first quarter, we provided guidance and increased our dividend. The results of the second quarter were so strong, as is the outlook for the future, that we have revisited our guidance and have chosen to increase the dividend for the second consecutive quarter. The work done during the pandemic is beginning to pay off. The decision to increase our dividend has always been based on our operations that can sustain the payment both currently and in the future, and this increase is no different.
While it marks only the second time in our 18 year history that we have chosen to increase the dividend in consecutive quarters, the results clearly warrant it. Our payout ratio is declining from what was already a strong position, and our outlook is excellent. During COVID, we preserved the dividend, and now we have returned to profitable growth and increased cash flow, and we are sharing it with our shareholders. As I mentioned in my CEO message in our financial statements, the best is yet to come. I will now hand the call off to Richard, who will detail the second quarter results.
Thank you, Mike, and good morning, everyone. During the second quarter, to ensure that the corporation had the capital available to support its robust acquisition and organic growth opportunities, the corporation increased the size of its senior credit facility to $ 1.75 billion, up from $ 1.3 billion, while still maintaining the $ 300 million accordion and extended the term of the facility to May 2026. This extension, along with other convertible debenture transactions completed recently, leave the corporation with no debt maturities until June 2025. The structured timing of debt maturities and the regular extension of our senior credit facility with exceptional support from our syndicate of lenders provides financial flexibility. During the quarter, the corporation utilized its senior credit facility to fund the acquisitions of Northern Mat & Bridge and APL and invest in other initiatives that will drive growth in the future.
The corporation's leverage ratio is slightly higher than its historical range with this deployment of capital but is well within the corporation's covenant maximum of 4.1x or a 4x senior debt to EBITDA. The corporation made several investments in working capital during the period that are either temporary in nature or will drive future growth. The corporation made a $26 million refundable deposit in its rotary wing operations for helicopters. That would be required if the corporation is successful in its bid on a 10 year rotary wing medical contract in Canada. In addition, the corporation has made several deposits on aircraft and engine assets that will either result in capital expenditures over the remainder of the year or will be returned if the transaction is not completed.
Other investments, such as increased investments made in Regional One's inventory of assets for resale, will drive higher sales in the future. Finally, the corporation's manufacturing subsidiaries have invested significantly in their inventory levels to mitigate the impacts of supply chain disruptions. These inventory balances will be right-sized over time as supply chain improve. Corporation has completed seven acquisitions in the last 12 months, and those acquisitions, in addition to improvements in our other operating subsidiaries, drove materially improved financial performance over the prior periods. The corporation's results were arguably the best in its history during the second quarter, with several records set. Revenue was $ 529 million, a quarterly record and 32% higher than our previous quarterly record. Adjusted EBITDA was $ 115 million, a quarterly record and 21% higher than our previous quarterly record.
The corporation's free cash less maintenance capital expenditures, both on an absolute basis and per share basis, were both second quarter records for EIC. Net earnings was an all-time quarterly high. Adjusted net earnings was an all-time quarterly high, exceeding the previous high by 16%. Per share results were also a second quarter record. On a consolidated basis, adjusted EBITDA increased $34 million or 42% over the prior period, despite a $17 million dollar reduction in government support received compared to the prior period. Improvements across both of our segments drove the increases over the prior period. In the Aerospace and Aviation segment, strong demand from reductions, and in some cases, complete removal of travel restrictions and quarantine requirements have benefited our subsidiaries.
In the airlines, passenger traffic was impacted the most by these changes, and to a lesser extent, lease revenue at Regional One benefited during the quarter. Regional One also took advantage of market dynamics and continues to set quarterly records in sales of aircraft and engines, in addition to seeing record levels of part sales. Charter, Medevac, and aerospace operations continued to contribute positively to the segment's results. Lessening COVID-19 impacts helped our manufacturing subsidiaries as well. Although the challenges of required COVID-19-related employee absenteeism shifted to supply chain and labor challenges, our manufacturing subsidiaries worked together to collectively solve their supply chain issues and fared very well considering the challenges they faced. Our adjusted EBITDA margins were impacted by three notable factors compared to the prior year.
First, CTI, acquired in December of 2021, generates lower margins as capital requirements are minimal beyond working capital. Second, rapid escalations in fuel prices initially impact adjusted EBITDA until fuel price escalators in our contracts become effective or until fuel price surcharges are implemented. Thereafter, adjusted EBITDA margins are still impacted as these surcharges are flow-throughs to the customer. Finally, lower government subsidies decreased margins as there were no costs associated with those subsidies. The acquisitions completed in the last 12 months, most notably Northern Mat & Bridge, Carson Air, and CTI, contributed to the increase in revenue and adjusted EBITDA. The increases in adjusted EBITDA were partially offset by increases in other expenses. Depreciation increased over the prior period due to investments made in growth capital expenditures, the addition of capital assets through the corporation's 7 acquisitions, and increased flying completed by the corporation's airlines.
Interest expense increased over the prior period due to funding of our recent growth initiatives and acquisitions with senior debt and increases in the benchmark borrowing rates since the beginning of 2022. Other costs associated with our acquisition activity, notably acquisition costs and intangible asset amortization, also increased over the prior period. With a significant increase in adjusted EBITDA more than outpacing the increase in these costs, net earnings increased to $30 million, an increase of 82% over the prior period. At the same time, adjusted net earnings increased 95% to $39 million over the prior period. Free cash less maintenance capital expenditures increased by $11 million over the prior period to $47 million. The increase is mainly attributable to increased adjusted EBITDA partially offset by increased maintenance capital expenditures.
The corporation's trailing 12 month payout ratios improved over the prior period to 56% on a free cash flow less maintenance capital expenditures basis from 58% in the prior period, and to 87% on an adjusted net earnings basis from 118% in the prior period. As discussed earlier, these improvements reflect prudent and accretive investment throughout the pandemic and the beginning of realizing on those investments in a material way. In early 2019, the corporation laid out its intention of lowering its payout ratio to 50% on a free cash flow less maintenance capital expenditures basis and to 60% on an adjusted net earnings basis over a three year period.
While we temporarily put this target on hold due to the impacts the pandemic had on our operations, we have never been in a better position to achieve these targets set back in 2019. The trailing 12-month payout ratio on a free cash flow less maintenance capital expenditures basis is now better than it was at December 31st, 2019, with a clear path for continued improvement in the short to medium term. The adjusted net earnings payout ratio is improving at a more rapid pace in recent quarters as our leased aircraft and engine portfolio, despite its underutilization, continued to be depreciated during the pandemic.
As we exit the pandemic, margins on asset sales are at or above pre-pandemic levels, showing that our depreciation of our leasing assets during the pandemic was appropriate despite this underutilization and proving out that the value of our leasing assets are not impaired in any way. In addition to continuing to depreciate the assets on our portfolio, we did not record lease revenue for deferred lease payments during the pandemic, meaning lease receivables did not grow materially as lessees were unable to fly due to COVID-19 travel restrictions. We expect continued accelerated improvement in the adjusted net earnings payout ratio over the next 18 months and beyond. As we indicated at the time in 2019, moving our payout ratios towards these targets would not come at the expense of dividend increases when results warranted.
Here we are in the first six months where restrictions have lessened in a meaningful way, delivering our second dividend increase to our shareholders. That concludes my review of our financial results. I will now turn the call over to Carmele.
Thank you, Rich. This morning, I have the pleasure of discussing our outlook, which we are very excited about and is a testament to staying true to our business model of managing for today and investing in tomorrow, even during the pandemic. We'll first discuss the Aerospace & Aviation segment. Our airline operations are anticipating further improvement for the balance of 2022. This will be driven by continued progress in passenger traffic, capitalizing on further pullback in the Maritimes market from mainline airlines, increased capacity to take advantage of growing demand for charters from existing and new customers, and continued strong performance in cargo and Medevac operations. The segment will also benefit from the deployment in Q3 of our rotary wing Trauma Flight operations in Thompson to serve Northern Manitoba. Regional One will continue to see improvements in the back half of the year.
Although leasing has lagged recovery, first due to the impacts of COVID on the airline industry as a whole, and now due to the overall impact of flight crew shortages causing airlines to park regional aircraft and focus on larger gauge aircraft, it is a short-term issue. While we anticipate leasing to slowly improve in Q3 and Q4, we do expect significant improvement, in particular for engine leases in 2023. In the interim, Regional One has been and will continue to be opportunistic on acquiring and selling aircraft and engines, and will continue to experience strong parts sales. Aerospace will also see growth for the balance of 2022 with the start of the Netherlands surveillance contract in Q3, strong operational tempo in the UAE and under our DFO contract, as well as robust sales for the CartNav mission system.
The manufacturing segment will see the largest growth with the full contribution of Northern Mat for the balance of the year. Northern Mat is performing at the highest end of our expectations. This performance level is expected to continue for the balance of the year, driven by several macroeconomic events described earlier by Mike. While it is not expected that all of those macroeconomic events will continue to align as well as they have in 2022, we do expect results to continue to be notably better than the financial metrics on which we acquired Northern Mat. Quest results for the balance of 2022 will continue to be impacted by COVID-related project delays that occurred in 2020 and 2021, which given the long order cycle, 12-24 months, impacts 2022 production, in addition to inflationary and supply chain issues.
However, these are short-term issues with the medium and long term looking strong, evidenced by a quarter-over-quarter net increase in Quest order book of approximately $ 100 million. These new projects are for 2023 and 2024. The balance of the manufacturing segment is expected to perform well in the back half of the year, driven by telecommunications industry active rollout of 5G, increased activity in capital projects in the oil and gas industry in Alberta, increased demand in the defense sector, and the benefit of the tuck-in acquisitions we made in 2021. Now, that's not to say that there will not be challenges ahead as there will be. Supply chain impacts, labor shortages, inflationary cost increases will continue to put pressure on margins. But we are and will continue to manage through these issues with our collective capability and initiatives we have put in place.
For instance, our license flight program is transitioning pilots into our flight lines. Our apprenticeship programs are developing skilled workers such as aircraft mechanics and welders for our businesses. Our labor recruitment efforts have brought in 22 Ukrainian immigrants into our workforce, and our fuel surcharges are now substantially offsetting the increases experienced. We are also starting to see stabilization of import costs, and in some instances, a decrease. While challenges remain, we are confident in our management teams and the steps we have taken to mitigate them. With the expected increase in operations for the balance of 2022, we anticipate maintenance CapEx to remain close to current levels for the next two quarters, perhaps slightly more weighted to Q3.
Although our maintenance capital expenditures are typically weighted to the front end of the year, the onset of Omicron late in 2021 and into 2022 delayed some of the maintenance activity to later in 2022. Also, the acquisition of eight businesses since the pandemic began, the capacity added in our aviation business, and the maintenance investment in our leasing portfolio to take advantage of expected increases in aircraft and engine leasing contribute to the overall future maintenance investments required. Growth investments to achieve this expected performance or commitments we have disclosed previously, being the final portion of the investments for the Netherlands surveillance aircraft and investments in connection with the upgrade of the surveillance aircraft for the renewed Curaçao contract.
The completion of the new hangar required to meet obligations under our fixed-wing search and rescue contract, and opportunistic acquisitions by Regional One as it continues to take advantage of aircraft market dynamics. Additionally, as we have done in the past, we will look to seize both organic growth opportunities and accretive acquisitions that meet our criteria. In that regard, our pipeline of potential acquisitions is robust. As you can see, our future is bright. With the strength of our performance for the balance of the year, we have revisited the 2022 EBITDA guidance we provided in Q1, which was between $ 410 million- $ 430 million, and are increasing it to between $ 435 million-$ 445 million.
At this time, we are not changing the EBITDA guidance we provided for 2023 being between $ 500 million- $ 530 million. We will review this guidance as we complete our 2023 budget process and will provide further commentary when we report our Q3 results. Not only does our outlook give us the confidence to increase our guidance for 2022, it has enabled us to reward our shareholders with a second consecutive quarter annualized dividend increase of $ 0.12, bringing our annual dividend to $ 2.52 per share. Although a dividend increase in two consecutive quarters is unusual, it and is not a new norm, it does evidence our belief in EIC's future and our commitment to reward shareholders. They say actions speak louder than words, and we believe our actions say a lot about our future.
Thank you for your time this morning, and we would now like to open the call for questions. Operator?
Thank you. We will now conduct the question-and-answer session. If you do have a question, please press the star followed by the number one on your telephone keypad. You will hear a three-tone prompt acknowledging your request. Your questions will be pulled in the order that they are received. Please ensure that you lift the handset if you are using a speakerphone before you press any keys. One moment for your first question. Your first question comes from Steve Hansen of Raymond James. Please go ahead.
Morning, Steve.
Yeah, good morning, guys. Thanks for the time. Mike, it sounds like Northern Mat has been an outstanding addition, particularly in light of its integrated manufacturing capabilities here. Is it fair to assume that Northern is taking incremental share through the cycle given these unique capabilities? Could you just perhaps speak to those in the context of the broader industry? Thanks.
Steve, help me with incremental shares. What are you asking me?
Oh, just how unique is the manufacturing capability of Northern Mat?
Yeah. I
Is that allowing it to take share?
Yeah. It's a huge advantage to be able to ramp up and ramp down your production under your own control. We've seen through all of the pandemic that lumber prices were at all-time highs. On top of that, supply of the wood required for matting was very hard to get because they're large timbers and they're not always available. With the fact that Northern took a longer-term view, they continued to buy fiber throughout the pandemic. As such, we're well stocked to be able to run our plants at one shift capacity. We have access to new product to take advantage of the opportunity. It makes us more efficient. It's cheaper than buying them from third parties.
Most importantly, it gives us access to the mats in periods like this, which lets us ramp the size of our rental pool to take advantage of demand in the marketplace.
Management has a really good relationship with lumber suppliers, so it's enabled us to get access to lumber when others perhaps were having a little bit more difficulty in that area.
Okay. Very helpful. Thanks. Just quickly on Regional One, also hitting stride. How difficult is it for Regional One to source parts, this type of environment where they do sound like they're becoming very tight?
Not really. I mean, we've always been opportunistic in that business, Steve. So we make our money, to be honest, in how we buy. A lot of the stuff is moving things from your lease fleet to your inventory. At the right time, we tear things down. If the demand for the parts exceeds the demand for the aircraft become parts. We've been doing that through this. The demand for components has been exceptional. To be honest with you, it's probably even exceeded our internal expectations. It looks strong in the future, particularly as the pilot situation gets better. There's a whole bunch of underserviced communities and underserviced passengers in North America and in Europe.
As those planes start to fly, I think the demand, particularly on the engine front, will continue to accelerate. There's only so many slots at the engine overhaul facilities, and those are booked. As they fly more, they're gonna need temporary engine solutions, and we're glad to help people with that.
It's a good question, Steve, because it really does highlight how Regional One effectively manages their assets. You take our leasing portfolio, we have the ability, if there's a high demand in parts, to be able to tear down those aircraft because the leasing is just burning off the green time or take components off, you know, keep the engines in the pool, but then take the parts which are needed and put it through our parts sale. It's that ability to ensure that we're maximizing the value with the aircraft based on demand in the marketplace.
Okay, guys. Thanks. Very helpful. Appreciate it.
Your next question comes from Cameron Doerksen of National Bank Financial. Please go ahead.
Morning, Cam.
Yeah, thanks very much. Good morning, everyone. So I just had a couple questions on, you know, the manufacturing segment and maybe a follow-up to Steve's question on Northern Mat. If I look at the margin in the manufacturing segment, obviously, you know, very, very strong. Is it safe to say that, you know, that would be largely driven by the inclusion of Northern Mat? Maybe you can just talk a bit about the margin profile there.
Sure. The legacy part of our manufacturing business did well. It kind of gets lost to a certain extent with the acquisition of Northern Mat. Even with the challenges they faced, they were able to maintain margins in a little more difficult environment, so we're very happy with that. The delta comes from Northern Mat. Northern Mat has a big rental business, and as such, that's gonna have high EBITDA margins. Now, it's somewhat offset by maintenance capital expenditures, as Carmel talked about in her comments. We're gonna invest $20 million a year plus in that business, in maintenance CapEx. The mats are made of wood, and they have a finite lifespan, four, five, six years, depending on how they're used. That pushes up the profile.
Even within that, the utilization rates are great and the pricing is strong. Those strengthen an already strong margin profile. I would almost look at Northern Mat in terms of its margin profile, Cam, almost like an airline. The airlines typically have higher margins than our manufacturers because they have higher reinvestment requirements. That would be the same with Northern Mat, although their reinvestment requirements wouldn't be as high as the airlines. Conceptually, the tracking is the same. A rental fleet generates higher return profiles. Even when we sell mats, those are at higher margin returns than we would get in a typical manufacturing environment.
Okay , that makes sense. Just secondly on manufacturing. You know, obviously, Quest had a very good quarter as far as bookings, big backlog growth there. I guess it's safe to assume you're not seeing any, you know, indications of a slowdown in, you know, multi-unit residential construction. Maybe you can just describe the backlog growth there. I mean, where are you seeing the strength? Is it existing customers? I mean, obviously, you've got some new markets as well, so just any color there.
Yeah. I asked this question as recently as two days ago when the guys were in town, and we've seen no decline in demand in opportunities to look at. Quite frankly, we've seen kind of a bit of a bump in closings. We think it's because people are locking in costs at the current rate. If there has been any change in the business in certain markets, particularly Canadian markets, there's perhaps a move or a thought of a more rental-based project than condo projects. I mean, from our point of view, they're exactly the same. You can't tell the difference between a condo apartment and a rental apartment. The U.S. has always been a rental market, continues to be.
We've probably seen the biggest improvement in demand in the U.S., and I would suggest that's largely because Canada never saw a decline. Canada was remarkably resilient through all of this. The U.S. had a slight decline during COVID, and we're seeing that normalize. We find it very encouraging, the level of growth with a $150 million pickup in that order book. That order book's now at all-time highs, better than it was pre-COVID and materially higher. Now, it's been a bigger business because we own our installers, but even with that, taking that into account, the order book's as strong as it's ever been.
The backlog is, you know, relatively consistent in all our traditional markets with a slight uptick on the west side of the U.S., California and Seattle, which was actually a little slower than on the east side. It's a little bit pick up there, but strong demand across our markets.
Okay. No, that's very helpful. Thanks very much.
Your next question comes from Chris Murray of ATB Capital Markets. Please go ahead.
Thanks, Chris.
Yeah, thanks, folks. Good morning. Good morning. Just maybe turning back to Northern Mat for a couple seconds and just trying to maybe understand how you guys are thinking about this. We certainly saw the higher margins working through, I think, as you guys described. Some of the CapEx, just so I understand, 'cause, I mean, one of the things about Northern Mat was the higher EBITDA margin, but it also had higher CapEx. Are you considering the ongoing building, call it normal inventory? Is that running through CapEx or like. Can you just kinda walk us through how that's gonna show up in the balance sheet and cash flow demands?
Yeah. Chris, I'll take this one. It's no different than how we deal with our Regional One lease portfolio and our Regional One lease assets versus inventory. Sorry. Just to start, raw materials will always be in inventory. They buy the timber from the providers. They put it in inventory. Once they build the mat, management will take a look at the asset and say, "Am I gonna lease it or sell it to a third party?" If they're gonna lease it will go immediately into their capital assets and then show up either as maintenance or growth CapEx, depending on if it's at or below, if it's below the depreciation level, it'll show up as maintenance CapEx.
The extent that it exceeds depreciation for the quarter, it will show up as growth CapEx. If they plan to sell it to a third party, it will show up in the inventory and will be sold out of inventory.
Okay. Maybe to dumb it down. The expectation would be that we will see CapEx going into Northern Mat and it's showing up in either the maintenance or the growth lines, as you said, as you suggest. Because that's just the way you guys are gonna be treating the construction of mats as capital assets is the way to think about it, and then making a decision after the fact.
Yeah. When we bu-.
Okay.
When we build the mats, unless we intend to flip it immediately, it'll end up in our long-term assets. Then the breakdown between maintenance and growth sounds complicated, but it's really not. We need to maintain the ability to earn income. Mats get used up and chewed up when heavy trucks drive on wood, things happen to it. We invest an amount equal to that decline in the existing thing to maintain it. Those are maintenance CapEx. Then we build extra mats beyond what we need to maintain it. That's a growth CapEx because that'll drive future lease revenues higher. It's actually.
Okay.
Pretty straightforward.
Okay. No, that's helpful. My other question is maybe turning around to new growth opportunities. There, I guess there's two parts to this. One is you did allude to the fact that the M&A pipeline is pretty healthy, but the multiples are coming in with, I guess with interest rates moving higher and maybe making it more difficult for other buyers. That's the first part of the question is just, you know, how are you thinking about things in terms of just magnitude of acquisitions. How should we be thinking about timing or is there anything we should be aware of? The other part of my question is just sort of new contracts for particularly aviation.
I know there's some specific contracts that might be coming up. Just any update you can provide on new contract opportunities for PAL would be great.
Your first question about the acquisition market is a good one. What we've seen is the change in interest rates, while it does affect our cost of capital modestly, it doesn't have a big impact. We've always been very disciplined in what we're prepared to pay, and we want that 15% unlevered return after maintenance reinvestment. Historically, for the last five, six years, with the hyper liquidity in capital markets, we were up against a lot of private equity people that were prepared to put a lot more debt on than we were, and as a result, were prepared to pay more, which limited our competitiveness on larger transactions. For the sake of EIC, we'll call larger transactions transactions with a purchase price in excess of $ 100 million.
Now, in the higher interest rate environment, while the cost of secured debt has gone up, the cost of subordinated or second-tier debt has gone up even more, and so these highly levered models don't work as well. To the extent that we compete against them, they can't pay as much as they did in the past. While we did most of our deals under the $100 million threshold over the last few years, we did the Northern Mat & Bridge deal at $ 300+ million, which is the biggest deal we've ever done. The number of the transactions we're looking at now would be in excess of $ 100 million.
Perhaps the easiest way to look at it is I wouldn't suggest that the number of transactions that we're very interested in is higher than historically, but I would say the average size of those transactions are higher because of what's going on. The other thing I'd add to this is that I personally find a bit surprising because I don't think the interest rates have moved that far is one of the things that's becoming a huge issue with vendors is certainty of closing. The proven ability to close a transaction, have the money to close the transaction, and that they have certainty that you're gonna proceed has helped a lot. There's been a number of transactions, I believe, on the private equity side that have been postponed, renegotiated or canceled, and it's made vendors concerned.
Our proven track record of closing when we say we're gonna close also helps us in this environment. The second question-
I can take this one.
You wanna take it?
Sure. Chris, let me give you an update and maybe to put everything in perspective. We have our kind of core contracts for provincial fixed-wing search and rescue, DFO, UAE. Curaçao was one we've had for a number of years. It got renewed for 10 years in December of 2021. We're busy updating those aircraft. The new aircraft, given the lead times for sensory equipment, probably not gonna see those actually go into the new contract till about first part of 2024. We're working away on that. In the meantime, we continue to obviously hold that contract. Netherlands, we are putting the first aircraft in operation this month. Second one is scheduled to go end of September. As far as outstanding bids, Malaysia.
As we've, I think, commented before, we're down to two bidders, PAL being one of them. We completed technical visits beginning Q3, and we expect a decision sometime this year. Hard to exactly say when given these procurement processes, but that's the timeframe that we're expecting to hear. There's also the future aircrew training bid, which we are bidding as part of a consortium with SkyAlyne. The PAL portion of that would be the rear crew training aspect of that. Those bids are probably required either end of this year or the beginning of Q1 2023, and it'll take the federal government about a year to assess that. Contract award, you know, think of it probably beginning 2024.
Okay. That's helpful. Thanks, folks.
Your next question comes from Matthew Lee of Canaccord Genuity. Please go ahead.
Morning, Matt.
Hey, good morning, guys. Just maybe a housekeeping question to start on the convertible shares. I noticed that in this quarter you kind of include them into your fully diluted despite none of them really reaching the conversion price. Is there just an assumption change there or is that something that you know has changed about business?
No. When we assess whether something is dilutive or not, we have to assess when you add back the after-tax cost of the interest and, you know, look at the debentures on an if converted basis. You add back the number of shares that would result from that conversion. If by adding the interest back and adding the shares in your earnings goes down or whatever metric you're talking about, then it's dilutive. In instances where you add back the interest and add back the shares, and your earnings go up, it's not dilutive. Here it's just a function of the earnings in that specific quarter. You know, when earnings or again any metric is low, the dilution impact will generally. There generally won't be a dilution impact.
It just speaks to how good the quarter was when you see the debentures being dilutive because as we add back the interest costs, there's a greater impact from adding the shares back in. So generally when you look at history, we wouldn't have had dilutive impacts in Q1. Depending on, you know, as we move throughout the year, you'd see the dilutive impacts as you move further into the year as earnings increase.
Great. Maybe on the Regional One side, you know, were there any large one-time lower margin sales, maybe, you know, full aircraft sales, in the quarter? Just 'cause the revenue number was certainly, you know, kind of much larger than expected, but it didn't really flow down to EBITDA. If you'd talk about that quickly.
The mix of revenue at Regional One changes quarter to quarter, Matt. The pure part sales is reasonably consistent quarter to quarter, and the margins on those are fairly consistent. The number of larger piece sales varies, and the margins on those are lower. You're correct that there were a few larger transactions during the quarter, which deliver absolute dollars in margin but at lower percentage terms. Your analysis is correct.
All right. Thanks, guys.
Thank you.
Your next question comes from Krista Friesen of CIBC. Please go ahead.
Good morning, Krista.
Hi. Thanks for taking my question. Congrats on a great quarter. I was just wondering if you can speak to what you're seeing in the labor market. I know there are certainly labor issues on the aviation side, but on the manufacturing side of the business, what's it like there and how's the turnover, and are you needing to pay up for labor at this point?
That's a good question. I'm cautiously optimistic on this or maybe just optimistic. Period. We have seen in the last 30, 60 days a stabilization of the labor force. I'm not speaking of any specific company, I'm speaking generally. Perhaps the discussion of a recession and the increase in interest rates has led employees to where they're happy to stop chasing around for relatively small increments. Is there wage pressure? Yes, that's still there. I would describe it as modest. It's real, but it's not massive, and the churn of our employees has declined. While it's still hard to grow your labor force, the ability to maintain our labor force has actually improved somewhat. I would say that it's a relatively short period.
It's less than a quarter we've seen that for. We're hoping that perhaps the impact of the Fed changes and stuff has led people to go, "Okay, I'm good where I am. We're happy. We're gonna stay." We still are focused on growing it in some of our places. In Quest, as we wrap up, we'll want more employees both in Toronto and in Dallas, and other places. The hiring will continue. It's not easy, but it's on the right side. It's getting better.
That's great. Thanks. All my other questions have been asked. Thanks very much.
Thank you.
Your next question comes from Jeff Fenwick of Cormark. Please go ahead.
Hi. Good morning, everyone.
Hey, Jeff. Good morning.
Mike, just wanted to look at the Aerospace & Aviation segment there and the margins. Always a little tricky because there's so many moving parts. I know you called out the fuel surcharge, you know, the pass-through there, taking a bit of time to help you out here. As we go forward, are we expecting, you know, the combination of utilization, you know, passenger traffic picking up and that fuel cost pass-through catch up? Is that something that should help you out on the margin front going forward? I know you've got some other things coming on stream in that revenue mix, so I'm just trying to get some thoughts around how we should think about that.
This might be the shortest answer I give today. Yes. Those things, passenger volumes in particular, are the biggest driver of margins in aviation. When we're doing freight, flying or charter flying, those come with a fixed margin, but two extra bodies on an airplane makes a big difference to the bottom line of that flight. Yes, as we get that last 10 or 15% of passengers back, fuel being reasonably consistent, whether it goes up slightly or down slightly, really doesn't change much. As long as it's not dramatic in either direction, I would expect margins over time to get better.
Okay. That's helpful. Thanks. Maybe just one more on the M&A outlook there. You know, Northern Mat & Bridge was a little bit outside of, you know, what you've typically looked at in terms of airlines and manufacturing. You know, how are you thinking about where you're targeting opportunities on the M&A front, now if you're seeing the market open up a bit?
That's a really good question, and this answer's a little bit all over. First of all, the stuff we're looking at right now is almost all tied to businesses we're already in. Whether they're geographic expansions, vertical integration plays, or taking or acquiring a competitor, almost everything we're looking at now would be very related to something. I would say there's a predominantly manufacturing focus at this point, not because we don't want to do aviation. Aviation seems to be a lot more on the organic side right now, where contracts we're bidding on, we'll make investments, but they're investments in ourselves. I don't want people to think that we're not maintaining that opportunistic bent to our acquisitions.
If someone would have told me we could find a temporary wood road company that I'd like as much as I like Northern Mat, I'd have said, "There's no way." The ability to find unique gems that Adam and his team uncover are a big part of the secret sauce. If you look at our big acquisitions in the past, whether it's Quest Windows or Northern Mat or Regional One, an aftermarket parts company, they're all things that don't immediately jump to your brain as I really need to own that. When you meet the right management teams with the right market niche, we're all over it. Those are, by their very nature, harder to predict. The stuff we're looking at now, though, would be very related and synergistic to things we already own.
Okay. That's helpful color. Thanks. That's all I had.
Thank you.
Your next question comes from James McGarragle of RBC Capital Markets. Please go ahead.
Morning, James.
Hey, everyone. Congrats on the great results here.
Thank you.
My question is on Quest. With the new facility opened up and you know how strong the demand's been, especially you know in Q2 with that pretty large increase to your backlog. I'm just trying to understand you know was that increase to the backlog included in the 2023 guide? And you know if we have both facilities running up at full capacity, no production gaps, you know what kind of upside could we see going into 2023? Or is this more of an upside into 2024? Just given some of the positive demand trends that we're seeing in that business.
Yeah, that's a great question, James. The improvement in the production schedule is incremental. It starts getting better at the start of the year, and by sort of three-quarters of the way through next year, we're running with a very nice production schedule. It's been a bit, but when we opened Dallas, that plant has way more capacity than our Toronto plant does. When we talk about running these plants efficiently, we still have tons of room to increase production in those facilities, adding people and adding equipment. We're not at that. What we're talking about right now and what's a big part of our budgeting process at Quest right now is what's the best practice now that we've got demand back.
Currently, we're sharing the work to make sure we maintain our workforce, to make sure we keep our employees. We aren't necessarily choosing the most efficient plant to do a given project in. We're more doing it to make sure we share workload. As we go forward, we're working on are we gonna specialize certain products in certain facilities, or are we gonna do geographic-based production? We know that we have sufficient aggregate production to meet the order books as they are and to absorb further growth. The exact way we're gonna flow it through those plants is still an open-ended discussion. If I were a betting man, I would think you'll see a certain amount of specialization where we have difficult patio doors to build or we have specialized window segments.
I suspect you'll see those all come out of one of the plants and another plant focus on something else, so that we get the best learning curves in the businesses as they ramp to higher percentages of utilization.
Got it.
Darryl, we can also increase capacity by just running an additional shift, an evening shift or a night shift, so we have that capability at hand as well.
Okay. Appreciate that. I just have another one on Regional One. You know, you made some deposits on, some capital assets. And, you know, it seems like you're investing heavily in that business despite, kind of that pilot shortage that's going on in Europe. I guess the first part of my question is, you know, do you have any line of sight, as to when that starts to improve? And then when we're thinking about building out our models for Regional One, you know, the size of the portfolio, if we're comparing it to, pre-pandemic has, you know, increased pretty, you know, by a pretty large amount here.
As that pilot shortage starts to potentially alleviate, do we see kind of revenue on this side of the business kind of increase in line with that?
I guess the increase in size of the portfolio and, you know, was that kind of included in your 2023 guidance? Just trying to understand the potential upside there. Thank you.
Okay. The 2023 guidance is, bear in mind, we didn't bump that yet. We decided that we don't want to be changing guidance every quarter. That's not the point of it. We want to give you guys a really good number, and we're doing that as part of our budgeting. We'll give you a number that we're pretty confident in when we complete our Q3 results. When you look at what's in the existing number, it definitely includes an improvement in the overall industry. I would caution against just using one proxy for the value of what's invested in Regional One. We have more items, but an aircraft isn't necessarily exactly the same.
We could have an ERJ that we've got $2 million in or a CRJ nine hundred that we have $10 million in. The absolute number is one indicator, but it's not a perfect indicator. If I was looking at this and I was you, we give you guys changes in growth CapEx and investments in inventory. Add those together, that gives you an idea of what the aggregate is that we're putting into those businesses. Do we see this improving? Yes. I think one of the things that makes Regional One the company it is Hank and Tyrone are fully prepared to buy what everyone else is selling. This is no different.
Although I think if you look at the tenor of some of the calls of some of the bigger airlines, while they're not using the regional aircraft to the extent they could be now because of pilot shortages, they are still investing in those aircraft. The CRJ550 is a good example where nine CRJ700s are being turned into 50-seat aircraft. That's still a very active marketplace. They're not flying yet, but the airlines know there are certain communities that are always gonna be served on regional jets. The government's not, particularly in the U.S., and to a lesser extent in Europe, not gonna let these companies be, or cities be underserviced in a longer term sense. They are training more pilots. They will get more pilots.
As the pilots come, these planes are gonna fly because there isn't an alternative in those markets. It's not like if you could go get some more 737s, a market that carries a 60- or 70-seat plane doesn't want a 200-seat plane because you can't make money on it. These planes are gonna come back. It's gonna phase back over ensuing quarters. Quite frankly, the advantage of Regional One being part of EIC is it doesn't need to be in the next quarter. We've got lots of things going in the right direction. You've seen the long-term improvements in this with the additions of Northern Mat, with the improvement in Quest, in the stronger performance of the airlines.
Whether it takes us one quarter or three quarters to get that lease fleet where we want it to, we know it's going there. I think it would be false bravado for me to tell you exactly when it is because we don't know. We're really comfortable that's where it's going, and we're really comfortable you'll see some of that in 2023.
James, you will have seen the last several quarters, Regional One being actually fairly active, on the aircraft and engine transactions. Those have been up in the last several quarters, and so the deposits are reflective of them continuing to take advantage of those market dynamics, which has, you know, helped, quite frankly, with their results as leasing's been down, and we look for it to increase over time, as Mike said. In the interim, they've been very effective of being able to, get some profitability out of buying and selling.
That's great color. I really appreciate it. Congrats again on a great quarter. What's on the line over-
Thank you.
Your next question comes from Konark Gupta of Scotiabank. Please go ahead.
Morning, Konark.
Morning, Mike. Good quarter. Thanks for taking my question. First maybe I want to kind of dig into the guidance here. In comparing your 2023 and 2022 EBITDA guidance, there's like a $75 million increase at midpoint call it. I know you will revise maybe the guidance for the Q3. In terms of the factors driving the growth in 2023, I'm looking at, you know, maybe 4.5 months of incremental months of Northern Mat & Bridge. There's 2-3 incremental quarters of Netherlands contract, and I guess you guys are seeing some rebound in airline traffic, Regional One leasing, Quest, and some other manufacturing businesses. What am I missing here on a very high level for 2023?
You've nailed it. I mean, if you look at them in terms of quantum, the biggest contribution is a full year of Northern Mat. It's a big subsidiary for us, so that's a big contribution. A big contribution will be from Quest getting to a more normal production schedule, particularly as it accelerates throughout the year, is a big contributor. That last 10% of the airline passengers makes a big difference in that business. Together with the other investments. The thing that gets lost in this because we did a lot of smaller tuck-ins, those we get a full year contribution out of two. They're not big numbers, but they improve the relative performance of each of those subsidiaries. You're bang on adding the things together that drive that performance.
I think it's reasonable to assume, although I'm not prepared to provide any numeric background to where I think it goes. If this year's back end is higher, it's reasonable to assume that when we look at 2023, there's gonna be some opportunities to increase that as well, 'cause you're bouncing off a bigger number. The offset to that is that some of the things came sooner. It will give you a 2023 number in November when I can give you something I'm really confident in. You guys don't want me increasing the guidance every quarter. Although it looks nice, it means the guidance was too low to begin with. We'll take a look at that once we finish our Q3 results.
That's great. No, that's a good color. Then last one for me. You talked about the incremental opportunities you're seeing on the M&A side driven by the rising interest rate environment. The way I understand it is you are seeing an increase in the number of opportunities perhaps, and perhaps average size of opportunities. Are you also able to now access any new verticals that you could not have tapped earlier?
I think there's advantages on the opportunistic front where we couldn't get to a bigger deal. For us to do something that's a little bit different than what we do, we typically want it to be a bigger sized transaction. I think Northern Mat & Bridge's the best example of this, but that's a $ 300 million dollar plus deal. It's 50% bigger than anything we've done in the past. While I wouldn't attribute our success there solely to interest rates, that it is a contributing factor in the number of people competing for the transaction. And so, yes, I think it does help us in other verticals. In terms of the near-term vision, most of the things we're looking at would be very related to businesses we're already in, whether they're geographic competition purchases or vertical integration plays.
Most of the things we're looking at sound a lot like businesses we're already in.
Okay. That makes sense. Appreciate the color. Thank you.
Thank you.
Your next question comes from Tim James of TD. Please go ahead.
Morning, Tim.
Good morning. Thank you for your time. My first question is for someone who looks at Exchange and these results that you've put out and says, you know, how is it generating these strong results in this environment where there's a labor shortage and equipment supply problems and inflation? I mean, is it just that Exchange, the acquisitions are kind of hiding that challenge that we're seeing, you know, through so many other companies and industries? Or is there something unique about, you know, the portfolio of businesses that mean that those external factors just aren't as significant for Exchange? I realize, and you've touched on where there are pockets of an impact for sure. It's here and there.
You know, for somebody who looks at it overall, it just looks like it's coming out of this almost unscathed on a consolidated basis. I'm just trying to understand if that's just, you know, it's the challenge is hidden by the great M&A or if there's something else about the portfolio that's reduced your exposure to it.
No, Tim, that's a really good question. Strong M&A does make everything look good, but it's much more than that. I would say the reason we're able to withstand some of the things maybe a little easier than some other people is we tend to deal with niche businesses that have very strong market presence in what they do. They're not the biggest guys in the world, but they're really good at what they do, so they tend to get paid for what they do. Take one of our smaller subsidiaries as an example, Stainless Fabrication in Springfield, Missouri. There's lots of guys who make stainless steel tanks in the U.S., and all are dealing with higher stainless prices although that's kind of stabilized.
Our guys build the best tanks in what they do, and we get paid for what we do. We have challenges. The customers are prepared to pay for what it is. Not that it mean we can just dump things on them, but it means if we do a good job of providing the service they want, we deal a little more easily than, say, a commodity supplier whose call to action is they're the cheapest guy in the business. Aviation's another good example of that, Tim. Like, we're coming out of COVID and we're back to fully 100% in the matter of times and close to that, although not quite there in the central part of Canada. It speaks to who our customer is and what kind of business we're in. We're flying to Shamattawa. That's fundamentally different than flying to Orlando.
We don't deal with the economic part of the business. We deal with just minding our business and doing a job within. It enables us to be more resilient than perhaps some of the more bigger commodity like names. Finally, the third piece of it is diversity. I know that there's a lot of people in the capital markets who believe if I want diversification, I'll diversify myself. If I want manufacturing and I want aviation, I'll buy a bit of both. Our ability to buy these things at the prices we do, which is the M&A thing you talked about earlier, combined with the fact that they don't have precise cycles that line up.
The best example I can give you is at the beginning of the pandemic, Quest sailed because we had an order book projects that were three-quarters done. You wouldn't have known there was a pandemic by their results. As we've gotten to the back end, it's gotten more difficult because projects have been delayed. My other manufacturing guys, when you look at the results, don't see much impact of those macroeconomic environments. For us, it's a combination of diversity, it's a combination of niche markets, and it's a combination of maintaining entrepreneurial management in those companies. We're not trying to oversee them all from here. It's not a one-size-fits-all solution. How we're dealing with the problem in each business is very different.
Yeah. The other, I think strength that EIC has is its collective capability. You know, when you say, okay, you got a bunch of airlines, great. If one airline is either short capacity, they didn't have enough pilots to fly, we can rely on each other. We'll move in an aircraft from one of our other carriers to be able to ensure the customer's looked after. Give you an example on the manufacturing side, if there was steel shortage with one of our manufacturers, one of the others was able to access it through their supplier. We had a labor shortage up in BC, well, at Overlanders, to produce the product we needed to there. Well, WesTower had a manufacturing facility that we were able to move the product to.
Having that capability of relying on one another actually really helps out in an environment like this.
That's helpful. Thank you. My next question, I'm just wondering if you could talk about your approach. This is against a backdrop where you've obviously, you know, added seven companies or eight companies since the beginning of the pandemic. It's a growing list of industries that you're involved in. Could you talk about how your approach, your systems, your resources, employees and otherwise, for kind of tracking and staying on top of the growing list of companies, how that's changed over time? Or do you really feel that, you know, the system you put in place, let's say going back five years or ten years ago, is that scalable, that it was ready for this, it didn't need to adapt or change?
Just if you can kind of provide a bit of an overview of how you make sure you're on top of everything that is going on in the portfolio.
That, Tim, is probably, to be honest with you, the most fundamental question about why our business model works. What enables us to do it is we provide a working environment where people who've sold their business or and/or the second in commands of those businesses get the entrepreneurial control of the businesses they're running. They're staying. We're betting on management teams that are fully engaged. Now, we're providing capital and we're overseeing, and we've got controls, so we know what's going on. The people running the day-to-day are the people who did before we bought it. Our ability to expand that is really controlled by how good a job we do in M&A and in identifying these management teams. Northern Mat's a great example.
Darren and Scott, the team in that place is so strong. They're bringing us expansion ideas and how to do stuff. We're talking about capital and the best way to deploy these things, but it's not us, it's them. We should maybe use that as a slogan. It's not us, it's them. It's the people we've got running these businesses that enable us to do this. With the number of deals we've done during COVID, one of the things that I think we're a materially better company at now than we were in 2019 is utilizing our subsidiaries to find smaller tuck-in transactions that make those companies better, but don't add a new reporting piece.
We bought two underground companies for WesTower, as an example, to increase our ability to do the underground wiring business. Well, that blends right straight into WesTower. That's run by my team there. That company's better. It's two more acquisitions. That company's a little more diverse. It's absolutely no more work for us at head office. It's still run by WesTower. I would say there is a practical limit to how many unrelated companies we do. I don't think you're gonna see us doing two or three Northern Mat a year. There will come a time when there's just too much.
If we grow in the way we have, where it's in bite-sized pieces, it's in an environment where we're acquiring great management teams, and our job is to maintain capital and control. It's inherently doable. It's really the motivation and retention of key management teams that enables us to do it.
Okay. That's great. Thank you. Just one more quick question, if I might kind of squeeze it in, and forgive me if this is outlined in the report somewhere, but you know, this second consecutive increase in the dividend is obviously great news and obviously is a reflection of your changing or improving view on the strength in the business. I'm just wondering if you can sort of nail down to what maybe more specifically, you know, over a three-month period, kind of, you know, stepped up here, and maybe why this wasn't a setup for sort of a one-time bigger step up in the dividend and how it sort of played out in two parts.
Sure. That's a good question. It boils back to one thing that's been locked in our DNA since 2004 is we only increase our dividend when we can afford to pay it on a long-term basis. When we increased it in Q1, it was based on the investments we knew we had made and the money we knew we were gonna make, and you could see it in the Q1 results already. But we had forecasts and models and for Northern Mat, but not just for Northern Mat, for some of our other stuff. One of the greatest indicators of our confidence in the future, quite frankly, was Quest's order book growth. We had concerns or concerns might be overstating it, but interest rates were going up rapidly.
It wasn't something we had seen in a long time, and so we wanted to see what that did to the business. Even in that environment, that business continues to look bullish. When we looked at our forward-looking payout ratios, and you'll recall back, Tim, you've been with us a while, in 2018 when we talked about trying to get to a 50% payout ratio on a free cash flow basis and 60% on the net earnings basis, we had said that we were gonna grow the dividend while we do that. Well, if you look at our trailing 12 payout ratio, it's almost at the all-time best now. We're within a percent or so of the all-time best.
With the forward-looking guidance, the increase in Q3- over- Q3 of last year and Q4- over- Q4 tells you that's gonna continue to decline. We wanted to say to our shareholders, "Look, you were loyal to us through COVID when the dividend needed to stay the same because we were uncertain about how fast things were gonna bounce back. But we maintained that dividend, and that was a function of the fact we didn't overextend it before. Now we're coming out of this, we can see the benefit of these things. We know where these payout ratios are going, and we know what we've invested in already. We're in a position where we're confident enough to do this twice and reward our shareholders." I don't want to give the idea that our shareholders should now expect quarterly increases in our dividend. That's not the case.
It's really a statement about our confidence coming out of COVID. The first one was because of what we had done in the past and then the strength of our performance in Q2. I'm not speaking out of school, but it was better than we thought it would be. Our outlook for Q3 is better than we thought it would be. Our outlook for Q4 is better than we thought it would be. We'll bring you back some forecasts for 2023 next quarter. The bottom line is, if you take the low end of our guidance, the midpoint of our guidance, the high end of our guidance for this year, calculate a payout ratio, we can pay out more and still improve our payout ratio over time.
It's really confidence and ability to pay and incrementally better performance, not just in one subsidiary, but in a number of them.
Okay. Thank you very much, Mike. Appreciate it.
Your next question comes from Steve Hansen of Raymond James. Please go ahead.
Oh, thanks, Mike. Sorry, I apologize. I know Carmele had spoken to it briefly and I think in your remarks, but could you just elaborate on the deposit on the long-term heli contract that you've referred to?
Sure. The deposit was for a 10 year government contract in BC that we're currently bidding on. It's a $26 million deposit that would be refundable if we're not successful on that contract bid. The contract award, we're hoping sometime before the end of the year. We'll know, you know, if we've converted that bid into a contract at that. You know, hopefully by next quarter, if not, by the end of the year.
Steve, just to put it in perspective, so we have Carson Air. They do the fixed wing aspect of BC Medevac. This is the rotary piece, which they've now put out to tender, and that's the tender on which Custom Helicopters has put in a bid. I think what I made reference to was Trauma Flight in my comments. So that is actually, I'll call it sort of a new offering. It's taking the expertise and our medical professionals at Keewatin Air and then coupling that with our rotary wing operations, and providing kind of emergent transport services up north in Thompson, Manitoba. That's a service that we started just in Q3.
I see. This would be a BC-based larger contract opportunity over time. Any sense for the scale or value of that if that's available?
It's a big number. It's somewhere between $ 150 million- $ 200 million in investments.
Okay. Very helpful, guys. Thanks for that.
Yeah. No, that's roundabout on the numbers as we gotta get to the specifics, but it's all new helicopters, hence the deposit and refundable deposit once it's awarded. It's a decade long and an extendable contract as well, so that's why the number becomes quite big.
Yeah. In today's environment, you're not able to get pricing or even get a slot without putting down significant deposits, so hence why you see that.
Understood. Sounds a great opportunity. Thanks, guys.
There are no further questions from the phone lines. At this time, I would like to turn the call back to your hosts for closing remarks.
Given that there's no further questions, I wanna thank everyone for participating in today's call. We got lots of questions about the dividend, and if I leave you with one thing, the dividend increase is two things. It tells you how well we're doing, but the fact that we're able to give it to our shareholders two quarters in a row is as much a statement of our belief in what's happening and our confidence in the future as anything. Thanks for being with us today. We'll talk to you again in November when we release our Q3 numbers. Have a great day, everyone.
Ladies and gentlemen, this does conclude your conference call for this morning. We would like to thank everybody for your participation. Everybody, have a wonderful weekend, and you may now disconnect your lines.