Good morning, everyone. Welcome to Exchange Income Corporation's Conference Call to discuss the financial results for the three-month and nine-month periods ended September 30, 2023. The corporation's results, including the MD&A and financial statements, were issued on November 9, 2023, and are currently available via the company's website, 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, EIC's other filings with Canadian securities regulators. Except as required by Canadian securities law, EIC 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 conference over to the CEO of Exchange Income Corporation, Mike Pyle. Please go ahead.
Thank you, operator. Good morning, everyone, and thank you for joining us today on today's call. With me is Carmele Peter, our President, and Richard Wowryk , our CFO. There's been a lot of interest in our recent aviation contract wins. I have asked Kevin Hillier, the CEO at Carson Air, Dave White, our Head of Aviation and CEO at Keewatin Air, as well as Jake Trainor, the CEO at PAL, to join us to answer any questions you may have about the contracts. Yesterday, we released our Q3 financial results for 2023, and I am pleased to have this opportunity to share with you some of the highlights from the quarter. We set a number of record quarter watermarks, including record revenue, Adjusted EBITDA, Free Cash Flow Less Maintenance CapEx, net earnings and adjusted net earnings.
This was achieved despite a challenging economy, much higher interest rates, and whispers of a technical recession beginning to emerge. Even more importantly, this performance was achieved while we are beginning to deploy the capital from our bought deal common share offering in the Q2 for several of our growth initiatives previously discussed, including our contracts with Air Canada and the medevac contracts with the provinces of British Columbia and Manitoba. We anticipate seeing the Adjusted EBITDA and bottom line for the Air Canada investment in the latter part of the Q4 of 2023, and on the medevac contracts as we progress through 2024 and 2025. Taking a step back, our portfolio of companies remains resilient. Announcements of acquisitions, strengthening of our balance sheet, and new contracts were the theme of our Q2.
Strong operating performance and the execution on those investment opportunities for the new contracts defined our Q3. In terms of absolute financial metrics, we recorded a record quarter results in almost all key metrics. Revenue increased 17% to CAD 688 million, up from CAD 587 million the previous year. Adjusted EBITDA grew to CAD 168 million from CAD 150 million last year, an increase of 12%. Free cash flow, less maintenance capital expenditures, increased 8% to CAD 74 million, while on a per share basis, it declined marginally by 6% to CAD 1.60. Net earnings were CAD 50 million, despite an increase in interest expense of CAD 8 million over the previous period.
Net earnings per share was CAD 1.06, which is a decrease of approximately 12%, and adjusted net earnings was CAD 55 million, up approximately CAD 1 million. Our results across the board were record results for any quarter. However, on a per share basis, certain of the metrics were lower than the prior year. The primary reason for this reduction was the increase in the number of shares outstanding due to the bought deal offering in the Q2. The proceeds from such an offering are being used to fund our significant growth capital expenditures related to the Air Canada contract and our 2 medevac contracts in British Columbia and Manitoba. The financial effects of such contracts will have significant positive effects in subsequent quarters, as we have previously discussed.
Our trailing twelve-month free cash flow, less maintenance CapEx payout ratio was 58%, as compared to our watermark low of 52% experienced in last year's Q3. This payout ratio includes the impact of two dividend increases in fiscal 2022 and the increase in the absolute number of shares. In fact, the 12 months dividends increased by CAD 18 million for 2023 compared to the prior year.... The payout ratio also includes a large increase in interest costs for the trailing 12 months of CAD 43 million. With the results posted for the quarter, coupled with our confidence in 2024, and due to the significant investments in the Air Canada and these medevac contracts, we have announced a CAD 0.12 increase in our annual dividend, or approximately 5%. Increase from CAD 2.52 to CAD 2.64.
This maintains our 20-year record of a 5% CAGR, and bears testament not only to the strength of our current results, but our confidence in the future. The Q3 continued to provide evidence of the power of our diversified model, considering our strong aggregate results, which were achieved with some subsidiaries delivering solid performance to offset those who experienced a more challenging period. Essential air services, aerospace continued to deliver exceptional results. Virtually all revenue streams improved over the prior period. Strengthening passenger demand realized the most notable improvement and resulted in expansion of Adjusted EBITDA margins. Our northern air operators have continued to experience higher demand, driven by the increasing population in the north, the continuous need for medical travel, and the ongoing need to provide essential passenger and freight movements.
The capital investments made in previous periods in our fleet of fixed wing and rotary aircraft drove higher revenues. Diligent cost management in concert with the greater load factors drove improved margins. It is also important to note that we have completed long-term arrangements with a number of our unions and the majority of our aviation subsidiaries, and are working on the last couple of remaining contracts. This will provide us with contract and cost certainty. Our aerospace business also benefited from more flying compared to the previous period, with both maritime surveillance aircraft built for the contract in the Netherlands in full operations.
Furthermore, the Force Multiplier also continued to fly significant hours for the UK government. We are very excited about the future contract opportunities and are currently awaiting the RFP from the UK Home Office for its new contract. Multi-story window solutions continued to improve because of two key reasons. Firstly, the acquisition of BVGlazing in May 2023, with no comparative in the prior year. Secondly, a more normal production schedule. The order book remains strong at approximately CAD 1 billion, with active inquiries continuing to be realized. Inquiries for new projects are continuing at all-time highs, although the time to convert these to confirmed orders is longer because of the higher interest rate environment for developers.
The long-term fundamentals of this industry remain strong. These longer-term tailwinds will be discussed further by Carmele in her outlook. Precision manufacturing and engineering continued to deliver strong performance. The increases in revenue and profitability driven by the acquisition of Hansen in the Q2, with strong execution by the majority of the other business line subsidiaries, drove the growth of the business. Our Environmental Access Solutions business continues to exceed the metrics we have purchased it upon. At quarter end, assuming our trailing twelve months runway, our comparative return of capital would have been well in excess of 20%.
When we compare this year's quarter end results to the prior year, the operating margins have declined. As we previously commented, that the prior year was due to a unique alignment of price, supply, demand, and weather, along with near practical capacity for the utilization of rental mats. That combination of factors was unsustainable in the longer term, and the results have moderated. Furthermore, this year was characterized by an unfavorable dry and hot summer and historic wildfire season that reduced demand for mats. That said, in totality, Northern Mat has been a positive contributor to our results based on the acquisition metrics and its return on capital.
Our aircraft sales and leasing business continues to recover from the pandemic. The assets within the leasing pool continue to be placed on lease on a consistent cadence throughout the quarter and into further quarters. The cadence was impacted by the worldwide pilot shortage. Furthermore, revenues in the business line were also impacted by the fewer large asset and engine sales, excuse me, compared to the prior period. It's important to note that the asset and engine sales in the prior period, and even in the current period, are high on a relative basis compared to pre-pandemic periods. As a reminder, such asset and engine sales are generally at lower margin, higher dollar sale transactions.
Management within the aircraft sales and leasing business continues to diligently look for opportunities for investment in this opportunistic market. In the Q3, we saw a record set in key metrics on an absolute basis. However, many will note that certain per share amounts are below Q3 2022, which were quarterly high water marks. Previously, I mentioned the fact that the Q3 per share amounts were impacted by the capital that is to be deployed on those longer-term contracts announced in the Q2. At EIC, we have always taken the longer-term view of our investment thesis. We believe that those contracts will provide meaningful increases in revenue, Adjusted EBITDA and profitability as we move through 2024 and into 2025. We like these investments for a number of reasons.
Firstly, they are a core competency of our business. Our businesses have been involved in medevac and scheduled flying services for over four decades. Secondly, the customers are either large corporations like Air Canada or governments. There are consistent, stable cash flows associated with these contracts. And finally, and most importantly, those contracts met our internal return on invested capital metrics. They are accretive to our shareholders, and over the long term, on a per share basis. We want to provide an update on these goals, and this is communicated in the Q2.
In our Q2, we announced that we've won two important long-term medevac contracts with the provinces of British Columbia and Manitoba. We have grown to be Canada's largest medevac provider. These two new contracts strengthen our critical mass even further. Both of the contracts are for 10-year terms, including options to, and include options to extend beyond that. These significant contracts will require aggregate capital deployment of approximately CAD 275 million, which has already begun and will continue over the next two years, with full-scale flying not expected until 2025.
During the Q3, we acquired 3 of the 5 aircraft related to the Government of Manitoba contract. Those aircraft will be retrofitted with medevac interiors over the next couple of quarters, after which they will be put into service in the early part to mid-2024. We anticipate the receipt of our first brand new King Air in the Q4, after which it will be retrofitted with the interior for the medevac purpose. These aircraft will be received in a regular cadence over the next six quarters.
Our returns on capital, this investment, will be most evident in 2025 and thereafter, when all the aircraft are acquired and the existing aircraft that we use for the government of BC are redeployed. During the Q2, we also announced and finalized an agreement with Air Canada to provide regional service in eastern Canada for up to 5 years. The agreement will require up to 6 additional Dash 8-400 aircraft and substantially expand our maritime operation. We completed our first flight on July 1, using existing capacity and acquired the initial 4 aircraft during the third and Q4. The returns on this quarter contract will begin to be evident in the back half of the Q4, with the full impact available in fiscal 2024.
We are also seeing growth opportunities within these new contract opportunities, as discussions with the government of BC have led to additional aircraft being added to the contract and further discussions are ongoing. In the Q2, we also started our contract with the UK Home Office. We anticipate the release of an RFP for the competitive bid process for a new contract with the UK office to occur in the Q4 of this year or early 2024. As the incumbent, we are well positioned as we continue to demonstrate mission success on the existing short-term contract. In our manufacturing segment, we are continuing the integration of Hansen and BVGlazing. Our COO, Darwin Sparrow, has been spending significant amount of time with the Quest and BVGlazing management teams.
The focus is to find innovative and creative ways to create efficiencies, leverage our collective purchasing power, and rationalize our production space footprint. These activities will facilitate further growth and increase margins in the longer term. Subsequent to the end of the quarter, we announced the acquisition DryAir is the leader in portable hydronic heating equipment in North DryAir is characterized by their innovative, customer-centric approach, and we believe that it will be a great fit within our EIC family of companies. They ticked all of the boxes that we look for in our acquisitions. They are profitable, well-established, and have a strong management team. Both Claude and Marlin, who are the majority owners, will continue in their previous roles.
The company operates in niche markets, generates strong, steady cash flows, and are primed for continued organic growth within the rental market in North America. Lastly, our work completed in the Q2, being the upsize and extension of the credit facility, coupled with the bought deal offering, has put us in a strong leverage position on our balance sheet, which will allow us to execute on our investment strategy as well as opportunistically to acquire businesses and assets in this market. Our pipeline for acquisitions continues to be strong, and our diligent management of our balance sheet provides us with significant capital to deploy when the right opportunities are presented. Our model continues to resonate with owners.
In our recent acquisition DryAir, the majority shareholder, Claude, wrote to me in a note: "In our boardroom in July, EIC explained the philosophy and values and the culture of EIC. We felt that we'd found the people we wanted to work with." I am very proud of the culture and values that we have developed over the years. Our subsidiaries have become our greatest champion of our business model. While we are actively considering deals, discipline will remain one of the key principles in our decision-making to ensure we acquire companies with the requisite strong management teams and strategic business missions, with future growth opportunities that enable accretive growth to our shareholders.
Our management teams will be busy over the next number of quarters, continuing to integrate the business we acquired in 2023, readying our Essential Air Services businesses for the operation of the new medevac aircraft to fulfill our contract wins, including the hiring and integration of crews. Our other teams will be continuing to execute on our strategy to ensure that we retain our strong, sustainable, diversified cash flows that our shareholders expect. Our results continue to demonstrate the resilience and sustainability of our business model. Taking a step back, in 2019, our revenues in the Q3 were CAD 355 million, and Adjusted EBITDA was CAD 89 million. Fast forward four years, which included the pandemic, our revenues have grown to CAD 688 million, and our Adjusted EBITDA to CAD 168 million.
A cumulative average growth rate of 15% for both revenue and Adjusted EBITDA. That growth was accomplished through both acquisition and organic growth. Furthermore, our industry diversification had shown its value throughout the pandemic and has continued to demonstrate its importance today and into the future. It allows us to deliver consistent, meaningful financial performance, irrespective of the economic and geopolitical conditions of the day. On that basis, as a result of our strong results on the year-to-date, our confidence in 2024 and beyond, we made the decision to increase our dividend by CAD 0.12 to CAD 2.64 per annum. We are focused on succession planning in our company as we grow, and we realize the need for strong management teams.
Carmele Peter, our President, has announced that she will be retiring sometime during fiscal 2024, but I'm pleased to say she will not be leaving EIC. She will be joining the board sometime during that period. We have developed people within the company, and we will be announcing the management changes to fill Carmele's shoes when she sets a final date. We're excited to have her stay with the company. Our future is bright. Our business is built on a solid foundation, and our diversification and resilience are shown in our results. We are looking forward to the contributions made from our 2023 acquisitions and our growth capital expenditures as we move into 2024. I'll now hand the call off to Richard.
Thank you, Mike, and good morning, everyone. The Q3 was another example of the benefits of our diversification and focus on the long term instead of focusing on one quarter at a time. Consistent with our expectations and past disclosures, the prior period was the perfect quarter for our Environmental Access Solutions business, and sustaining cash flows at that level in 2023 was not feasible. That meant that our other existing operations, plus contributions from our 2023 acquisitions, not only covered this shortfall, but delivered strong period-over-period results. Adjusted EBITDA was CAD 168 million, an increase of 12% over the prior period.
The Aerospace and Aviation segment adjusted EBITDA increased by CAD 24 million and was partially offset by a decrease of CAD 6 million in the Manufacturing segment. The increase in our Aerospace and Aviation segment can be summarized into two buckets. The first is a steady recovery from the impact of the pandemic on our airline operations. The second is investments we have made into our operations over several quarters, and in some cases, years, as we had our sights set on the future. Those investments are now producing the returns we expected, increasing Adjusted EBITDA over the prior period.
Investments allowed us to win contracts in the Netherlands and the United Kingdom. We also entered into a contract with Air Canada, which started to contribute in Q3, and two medevac contracts, which will not be fully operational until early 2025. We continue to make these types of investments to support our future growth. The decrease in our Manufacturing segment was driven by the Environmental Access Solutions business, as discussed above. This decline was partially offset by increases in our existing businesses due to the resilient demand for their products and our 2023 acquisitions. Most notably, our pre-existing businesses in the window multistory window solutions business line contributed strong period-over-period increases as a more normal production schedule benefited their operations.
As Mike previously discussed, during the Q2, the corporation completed an equity offering of common shares. The offering was the largest in our history by a wide margin, and was materially oversubscribed. Knowing the significant and accretive growth opportunities we had in front of us, we took the opportunity to raise more than we initially went to market for, knowing that these funds would be deployed over a period of time. While this temporarily increased our shares without a corresponding contribution to Adjusted EBITDA, and therefore negatively impacted our per-share metrics, we planned for the long term.
This is consistent with our past practice of always ensuring we have the capital available for it is required to ensure that when the opportunities materialize, we put... We have capital put to work. Both net earnings and adjusted net earnings increased by 1% over the prior period. The per-share results declined due to a 14% increase in shares outstanding, driven primarily by our common share offering in the Q2 of 2023. Adjusted EBITDA, which drove the increase in net earnings and adjusted net earnings, was mostly offset primarily by two items: increased interest costs and depreciation on capital assets. Interest costs increased over the prior period in lockstep with increased benchmark borrowing rates over the prior period. In addition, increased long-term debt outstanding due to investments made increased interest costs.
The increased interest, this increased interest costs by CAD 8 million in the quarter and CAD 43 million on a trailing 12-month basis. The impact from increased benchmark borrowing rates would have been larger had we not entered into 2 rate swap transactions in 2023. These 2 transactions fixed costs on approximately CAD 540 million of our credit facility debt. Depreciation on capital assets increased for 2 reasons. First, the acquisition activity of the corporation contributed to the increase in 2023. Second, investments made to increase the size of our fleet and increase flying of that fleet also contributed to the increase. Free cash plus maintenance capital expenditures increased 8% over the prior period due to increased free cash flow and lower maintenance capital expenditures. Our free cash flow increased due to higher Adjusted EBITDA compared to 2022.
Increased interest costs partially offset the increase in Adjusted EBITDA. Our payout ratios, both on a free cash flow less maintenance capital expenditures basis of 58% and on an adjusted net earnings basis at 78%, remained near all-time lows on a trailing 12-month basis. We expect that the realization of returns on investments already made, including our 2 most recent acquisitions and returns to be realized on contracts we have already won and announced, will continue to drive these ratios lower over time and permit continued dividend increases consistent with our historical dividend growth. Growth capital expenditures of CAD 81 million were made during the quarter.
These investments were focused within essential air services, aerospace, aircraft sales and leasing, and environmental access solutions. In essential air services, investments were made in additional aircraft for our Kuwait medevac contract and for our terminal expansion in Winnipeg. We have also purchased aircraft for our CPA with Air Canada as we ramp up our service under the agreement. Significant deposits have been made on aircraft for our recently awarded medevac contract with Carson Air. Aerospace made investments for its renewed and expanded contract in Curaçao.
Aircraft sales and leasing made investments into additional engines for lease as the lease market continues its recovery from the pandemic—first from the pandemic and now from a worldwide shortage of experienced pilots. Environmental Access Solutions made investments in its rental mat portfolio during the quarter. This was strictly based on the timing of when mats are produced and is expected to reverse in the Q4. During the Q1, as we messaged in the Q4 of 2022, we had a material outflow from working capital, which was primarily driven by a receivable that was collected in the Q4 of 2022, but the corresponding payable was not due until 2023.
Working capital investment outside of this outflow was focused on investment in inventory and aircraft for resale in aircraft sales and leasing, and a modest increase in working capital to support increased revenues. Note that investments in the quarter for working capital, during the Q3, our seasonally busiest quarter, was well below historical norms at CAD 7 million. Our senior leverage ratio at the end of the quarter remains consistent with our historical targets at 2.4 times. Our total leverage ratio, when including our convertible debentures, continues to decline as the debentures have not increased at the same rate as our adjusted EBITDA over the last 18 months.
Historically, our convertible debentures have represented 1x of adjusted EBITDA within our capital structure, whereas now the debentures represent approximately 3/4 of a turn of adjusted EBITDA off of 2023 guidance using the midpoint. That concludes my review of our financial results. I will now turn the call over to Carmele.
Thank you, Rich. The Q4 is expected to provide a solid finish to the 2023 year. We are anticipating Adjusted EBITDA for Q4 of 2023 to be higher than for 2022, driven by growth in the AME segment. As the name suggests, our essential air service business is not in any material way impacted by the economic factors that affect mainline carriers and will experience year-over-year growth in Q4. The passengers and freight we move are driven by need, medical necessity, medical appointments, food, essential goods, not by choice or disposable income. This has driven demand to pre-COVID or higher levels and has caused us to add aircraft capacity, both passenger and freighter, that will be operational in Q4.
Also adding to the year-over-year growth and the stability of this revenue stream is our service agreement with Air Canada. Although we started in July providing some flight capacity with their existing fleet, by the end of the year, this will be replaced with the initial 4 full-time Q4 aircraft. Similarly, our medevac businesses continue to grow with the additional medevac aircraft we were contracted to provide in Nova Scotia in August and increased capacity requests from BC and Nunavut. Offsetting some of these gains are the increased expenses from rising labor costs experienced by our air operators, driven by the flight and duty regulations and the industry-wide shortages for pilots, aircraft mechanics, and medical personnel.
Although some of our air operators have already been able to pass these on, others will have to wait until contract renewals. However, even absorbing these costs, our margins remain strong. As we look forward into 2024, our essential services business is situated to perform strongly given the nature of its demand, the capacity we added in 2023, the Air Canada contract, and will be further bolstered by the medevac contracts we won in 2023. Our 10-year BC medevac contract will be contributing to financial results throughout 2024, but will not see the full financial impact until all new medevac aircraft are delivered and operational, and our existing aircraft are deployed into other opportunities, which will take us into 2026.
The medevac contract won in Manitoba will slowly start contributing to financial results in March of 2024, when the first aircraft goes online and will increase to its expected run rate in Q4 of 2024, when we anticipate all aircraft being operational. The aerospace business line is also expected to have growth in Q4, primarily driven by the full engagement of Force Multiplier, doing maritime surveillance work for the U.K. Home Office. Aerospace is also bolstered by the Netherlands operations, which did not commence until late Q4 2022, and the high tempo flying in the UAE and Curaçao.
With the Force Multiplier being on contract substantially all of 2024, and other key operations being under long-term contracts, such as our DFO contract, Netherlands, Curaçao, fixed-wing search and rescue, the Aerospace, Aerospace business line will provide another strong, reliable source of earnings in 2024. Although our aircraft sales and leasing business continues to be challenged by the impact of industry-wide pilot shortage and MRO availability, we do expect continued year-over-year growth in Q4. This anticipated growth is driven primarily by material increases in leasing revenue, which is very encouraging.
We expect the leasing portfolio to continue its recovery into the first part of 2024. Parts sales and whole aircraft and engine sales are also expected to be solid in Q4, consistent with historical levels, which will continue into 2024. Now turning to our manufacturing segment. Our Environmental Access Solutions business is not expected to outperform Q4 of 2022, which was a Q4 record for Northern Mat, with a perfect alignment of price, demand, and timing. Q4 2023 does not have the same perfect alignment and is being further impacted by less favorable weather, increased mat supply, and the demobilization of a large pipeline project. As such, we expect Q4 of this year to be approximately 40% of the prior year, or sorry, prior quarter.
But to put this in perspective, the expected results in Q4 will be greater than the metrics on which we purchased Northern Mat. In the 2024 year, we anticipate pricing and demand to be in line with what has been experienced in the second half of 2023. The variance in Environmental Access Solutions will be materially offset by the growth in the multi-story window solutions, which will see material growth in Q4 over prior years. The drivers are the acquisition of BVGlazing, which does not have a comparative in Q4 2022, and the increased volumes at Quest. Quoting in Canada and the U.S. continues to be extremely active, but the conversion of those quotes into backlog is being delayed with uncertain economic conditions and higher interest rates.
Those same market variables are also causing some jobs to push out, which could impact demand in 2024. However, we remain bullish on this business line as the fundamentals which drive demand, being immigration, urbanization, and a lack of affordable housing, remain incredibly strong. If there will be a slowdown, we believe it will be short term, followed by a surge in demand. With the recent acquisition of BVGlazing, we will be well positioned to capture this increased demand. Also, in 2024, we expect to start to see the financial benefit of synergies being captured between Quest and BVGlazing.
The Precision Manufacturing Engineering business will also see comparative growth, fueled by this year's acquisition of Hansen and DryAir. performance in 2024 is expected to be similar to 2023, normalized to a full year operations for Hansen and DryAir that were acquired during 2023. With respect to maintenance capital expenditures for Q4, we anticipate levels being slightly higher than last Q4. Higher flight hours to support increased passenger and charter volumes, together with inflation, labor shortages, supply chain issues, growing fleet size and acquisitions are the factors contributing to the increase.
Growth investments for the aerospace and aviation segment in Q4 are focused on the upgrade of the surveillance aircraft for the renewed Curaçao contract, the construction of the Gary Filmon Indigenous Terminal, Q400 aircraft acquisitions to fulfill our agreement with Air Canada, investments in aircraft and infrastructure for the newly awarded BC and medical and medevac contract, and payment towards the construction of our King Air simulator. With three completed acquisitions already this year, our acquisition pipeline continues to be as strong as it ever has been. The higher interest environment has created a leveling off of acquisition prices, which in turn allows EIC to be more competitive on more transactions, particularly larger transactions.
With capital on hand from the equity raise in the Q2, EIC will continue to be active in the acquisition market. We are on track with our 2023 Adjusted EBITDA guidance of between CAD 540 million and CAD 570 million, trending towards the middle of that range. As we look into 2024 and take into account the contracts we have won and the timing that they will have a material financial impact, our prior investments, our acquisitions, organic growth, as well as increasing costs, inflation, and the impact of current economic conditions on the manufacturing businesses, we anticipate our 2024 Adjusted EBITDA to be in the range of CAD 600 to CAD 635 million, with further growth anticipated in 2025 as our new contracts mature.
This strong outlook, together with the confidence we have in our operating fundamentals, ... underpins our decision to increase our annual dividend by approximately 5%, taking our dividend from CAD 2.52 to CAD 2.64 per year. 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 key followed by one on your touchtone phone. You will hear a tone acknowledging your request. Your questions will be pulled in the order that they are received. Please ensure you lift the handset if you're using a speakerphone before pressing any keys. One moment please, for your first question. Your first question comes from James McGarrigle from RBC. Please go ahead.
Hey, good morning, and thanks for taking my question.
Good morning, James.
Yeah, I just have a question on the 2024 guidance and, you know, some of the new contracts that you have coming on. You know, the press release, it seemed to allude to some of those recent wins being pushed out to 2025. So I guess, you know, can you just speak to the timing of how you expect those contracts to ramp up? And, you know, you also mentioned the BC government government is increasing the amount of planes they're going to require. Can you just kind of frame that opportunity? And when we're thinking about, you know, the magnitude of these contracts, is 20% EBIT returns still a good frame of reference to use?
I'll take the big picture stuff, and then I'm going to let Kevin talk specifically about the contract. But we said that the returns on those contracts are above our 15% threshold. I don't think I gave a specific number, so I don't want to comment on 20% per se, but it's above 15. In terms of the rollout of the contract, we haven't even received our first airplane yet. We're starting to fly some of the areas with other aircraft we have, but the real contract doesn't really begin until we get those contracts and those aircraft in service, and that's really not going to begin till later next year, and with not a full effect until sometime in 2025. Kevin, maybe I'll hand it to you to talk about, like, the overall contract and the size of the contract.
Yeah. Thanks, Mike. Kevin Hillier with Carson Air. We, we'll be receiving our first new aircraft, as Mike said, in the Q1 of 2024. That aircraft will go into service at the end of that quarter. We are operating the contract right now with the existing aircraft that we had, and those aircraft will continue in a transition phase throughout 2024 and into Q1 of 2025. We have discussed some growth opportunities and added one aircraft to the contract already at this time, and there are future opportunities as well with BCEHS.
No, I appreciate the call. Yeah, thanks. I appreciate the color there. And just another question on the window solutions business. There was a recent article in the Globe and Mail talking about some payment issues with the developer in Toronto, and the article mentioned a CAD 10 million payment to BVGlazing specifically, that was past due. You know, are you able to comment on this? Just trying to understand, you know, if this might be part of a broader issue.
I think I would say it's a challenging time for some developers. Interest rates are higher and financings are squeezed. We don't really like speaking about individual developers. We have great relationships with these people, and we intend to keep building with them. The project that was mentioned in that article, their payments are current with us.
Appreciate it, and I'll turn it over. Thanks for having me on.
Thank you.
Your next question comes from Steve Hansen, from Raymond James. Please go ahead.
Morning, Steve.
Yeah, thanks. Good morning, guys. Thanks for the time. Mike, just the first broader overarching question for you. The business continues to advance and grow in size and scale and complexity, of course. There's a lot of moving parts, as I think the call has already described, but you've also described the pipeline as being robust. How do you feel about, the current macro picture and continuing to push ahead with additional acquisitions here in the current landscape? Sounds like capital availability is high. You know, how eager are you to continue moving forward?
Yeah, I think that's a really good question. We, we've been consistent through our history about being disciplined in what we pay for businesses, and that hasn't changed any in this environment. I will say, though, with interest rates where they are today, we're probably a little bit more, aggressive in the returns we require, because instead of paying 2 or 3%, we're paying 5 or 6% for interest rates. And so, while it hasn't changed my hurdle per se, of 15%, we're, we're very dogmatic at only picking the best stuff within that, and there are a lot of good DryAir is a great example, Steve. I mean, it's, it's, run by a family that cares about their employees. They've built it from nothing.
They're an industry leader in a very unique little market niche that has continuing upside. So it's kind of the kind of company that we've cut our teeth on with EIC, and we expect to continue to do those deals in the near term. We're cautious because of the economic environment, but quite frankly, the best deals are done in challenging times. That's why we raised our capital in advance, and we put ourselves in a position where we can take advantage of it.
That's helpful. Thanks. And just one follow-up, just quickly on the Force Multiplier and surveillance business. ... It sounds like the short-term deal with the UK Home Office has been incredibly busy. There's a new opportunity on deck, it sounds like. Is there a way to frame what the new opportunity might look like in terms of size, scale, tenure, or term, as we think about that opportunity set and maybe just broadly in Europe in general?
Sure. The contract, the RFP hasn't come out. We have some rough ideas of parameters. I think, I'll let Jake take that. He's, that's his direct bailiwick, so.
Perfect. Thanks, Mike and Steve. I appreciate the question. As Mike pointed out, the RFP, we're anticipating it to come out this month, or certainly in this quarter. What we do know is that they are going to look for more capacity. What shape or form that comes in, we're not sure until we see the RFP release. So that will guide us in terms of additional assets. And to your question about Europe in general, we certainly see that as a strong market that will continue to develop. We have a great footprint with the Netherlands contract, further expanded by the UK, and that's a great base of operations to expand from.
Appreciate that, guys. Thanks.
Your next question comes from Matthew Lee from Canaccord. Please go ahead.
Morning.
Good morning, guys. This is Betty on for Matt Lee. So for the first question, I wanna ask more about the Manitoba contract in the context of how fixed the size of them are. Aside for extending the land, is there an opportunity to upsize the contract in terms of aircraft?
Yes. Kev mentioned that a minute ago, the government has already added additional capacity in some of the bases, and we're in... I think it's fair, Kevin, to say that we're in discussions with the government to add additional aircraft and additional capacity in other markets. And so while we started with approximately 12 aircraft in this, with that, that could grow significantly over the next quarter or two. Now, I would make sure I caution everyone that if we add these extra planes, we're gonna have to go buy them, and so those aren't gonna get here till 2025 as we add them. And the contract will be, will start when they get here. So, I mean, we're still gonna have a long term on those on those new aircraft.
We're in discussions with the government. I'm very happy with the, the state of the relationship, both in, in British Columbia and in Manitoba. As we implement these and work with the government to provide the service they're looking for, there could well be opportunities to expand the Manitoba contract as well. Although I think I would say that those are more preliminary than perhaps the ones are in BC, where we've already added contracts. Kevin or Dave, anything you'd like to add to that?
No, I, Kevin Hillier here, and yes, I agree with everything Mike said, and we've had a great relationship with BCHS for 30 years, and they chose us to be the primary provider because of that track record, and we certainly hope to continue growing this contract as we move forward over the next year.
Yep, Dave White here from the Keewatin. Same, same message here for the Manitoba contract. Great relationship with the government, as Mike mentioned. Kevin's a little further ahead, decided a little earlier and getting ready to bring in the airplanes. We've accessed our airplanes, but we still have to modify them, import them, and put them online. And there is a language right in the initial four potential, but that'll be up to the government as the relationship develops and what services they want. But, they're looking forward to it. We're looking forward to it. It's a great new service for the people in Manitoba, and it's what we do and what we've done for decades.
Thanks. And just in terms of growth CapEx, could you provide more color on this? How much are you expecting for 2024, and how much of that is related to the aircraft required for the new contract?
We haven't finalized our growth CapEx for 2024, but I can give you some color on that. Most of the stuff for Dave is already purchased, so the Keewatin project will show up in Q4 of this year. Same with the work for Jake. The initial four planes for Air Canada are also already purchased. Some were in Q3, some are in Q4, same with Dave. And then finally, in BC, we have deposits on aircraft already. We've made payments to the manufacturer, but we haven't taken delivery of anything yet.
We'll have paid for one this year, as we get that in the next week or two, and then the balance will be paid off over the next sort of six quarters as they come in as they come into service. To the extent the contract is extended, that would continue for the new aircraft we would add on the back end of that order.
Yeah, the other kind of major, if you think 2024, what the growth CapEx would include, that we've already talked about, is our, of course, our King Air simulator, which we'll be getting in 2024, as well as the completion of the terminal expansion that we're doing for Perimeter.
All right, thanks. I'll pass the line.
Your next question comes from Krista Friesen from CIBC. Please go ahead.
Morning, Krista.
Hi, thanks for taking my question. Good morning. I was just wondering, looking out at your 2024 guidance, can you, can you walk us through how you're thinking about Northern Mat for 2024? And, and I guess what a more normalized year looks like? Would that be similar to what we've seen this year?
Yeah. Northern Mat has the perfect. We called it a unicorn year last year, where everything lined up. This year has been also a strong year, but it's the irony when you're public that the second best year in the history of the company, if it follows the best, people think, it's not great. If we could, if we could photocopy this year, I would do it. Next year, the challenge with the business is the TMX contract. The rental mats have been returned to all the rental companies.
We're still doing work on pipeline, but with their mats, and so the revenues on that have declined, and you'll notice that in the Q1 of the year. There is a sight line to stronger oil and gas business next year. The fires and the hot weather deferred things this year. So the outlook for that on a go-forward basis is strong, together with, particularly in the back half of the year, an enhanced demand on the transmission and distribution for electricity part of the business.
And so you'll see that ramp in the back half. If we want to talk about... We don't give company-specific guidance per se, but what I would say is that the company was bought off of a return that met our 15% guideline, and if next year were to be in that range, which I would expect that it will, it gets you an EBITDA, depending on how you do the calculations, of 70-something million dollars. That's not a specific forecast, but more a general comment about that's where it needs to be to generate our 15% return.
Yeah, we'd also look to see some greater activity in Eastern Canada than what we saw this year. So we look at that as, you know, potential growth as well, and we look forward to, you know, fill some of the gaps that we've seen in the larger projects reducing in scope.
The one other thing I would point out is we've taken advantage of the slightly slower year this year to renew our fleet and upgrade our mat inventory by putting more newer mats into the fleet, as opposed to selling those to third parties, which just puts us in a position as we ramp again later next year, to have a fleet that's ready to go and generate higher revenue. So the average age of a mat in our fleet will have improved significantly by mid-next year.
Okay, great. Thank you. Just on your M&A pipeline, as you look at it right now, would you say that it splits more towards the manufacturing segment versus aviation? And are you looking more at these smaller acquisitions versus larger ones like Northern Mat?
Yeah, I would say in terms of number of opportunities, I would agree exactly with what you said. There's more on the manufacturing side than there are on the aviation side. There are bigger opportunities, there's fewer of them, and the bigger opportunities would fall into both categories. But I think it's important when we look at M&A, as a general thing for us, is it's just a natural progression of us to move towards a slightly more of a balance between manufacturing and aviation. Not because we're driving it there by choice, but by the sum total of the opportunities. We are already the dominant carrier in niche airlines in Canada. And so by definition, the number of things left to acquire is shrinking. And if we can find more PAL Aerospaces or...
We're gonna jump all over them, and there are opportunities, but we're fishing in a declining barrel in that. There are international opportunities that we look at, but the number of things that are related to our manufacturing enterprises are virtually limitless. So, I mean, if we're something like 70/30 today, if we look at this 5 years from now, I think that will be closer to 50/50. Not because we like aviation any less, just because there's less items left in the store for us to buy.
Great, that makes sense. I'll jump back in the queue. Thank you.
Your next question comes from Konark Gupta from Scotiabank. Please go ahead.
Morning, Konark.
Thanks, operator. Morning, Mike and team. Thanks for taking my question. Appreciate the color Carmele provided on 2024 EBITDA drivers. I'm wondering if your guidance for 2024 includes any unannounced acquisitions or contracts?
No, those... Anything that's announced subsequent to this would result in an increase of our guidance.
Thanks for the clarification, Mike. Moving on, on the Regional One side, you know, like, we're seeing sort of an uptick here, a little bit in terms of their leasing business. Clearly, it's not back to the pre-pandemic levels yet. Obviously, those sales and services are kind of, you know, pretty lumpy. The industry has kind of, you know, like, faced a lot of challenges recently. There's incremental challenges on MRO capacity side and engines, you know, like the Pratt issues and all that. Anyway, like, on the Regional One side, how do you see the demand for leasing versus outright sales for aircraft or engines?
There's quite honestly, Konark, there's greater visibility on the leasing side. It's grown month-over-month, continues to grow, and I mean, it's one of those things that's never fast enough. You always wish it was quicker, but by the time we get into next year, our lease utilization rates start to match what they were pre-COVID. And we got a pretty good view into that with leases that have already been signed or letters of intent, or we got a pretty good idea where a lot of those assets are going. On the big asset side, it really truly is an opportunistic kind of thing. If someone wants one and we can generate the right margin, we'll sell them. To be honest, our core business is our parts business.
Everything else is there to support the parts business. And you mentioned it earlier, the thing that makes me probably the, other than the leasing portfolio, the most bullish, is we're actually starting to be able to get MRO opportunities to strip down some of the aircraft to get them into our parts inventory. It's frustrating when you got a plane, you got a landing gear, and you got a customer, and you can't get the landing gear off the plane to sell it to the customer. And so, we've seen some improvement in that. To be clear, the MRO capacity is still tight, but it's getting better. That will help our parts business.
The leasing business will strengthen because of demand, and I wish I could give you a better answer on the, on the big sales other than to say it's spotty, and it will continue to be that. Having said that, it remains reasonably strong. The numbers we had this quarter were good. Q4 also looks good, but beyond that, in terms of big asset sales, we wouldn't know about what that's gonna happen in February already, or we would do it this quarter.
Just a couple of additional comments on the leasing side. Where we're seeing the opportunities is more focused in Europe and in Africa and on the engine side. In fact, a lot of our actual whole aircraft are already on lease, so we see greater opportunity on the engine side.
I appreciate that. Last one for me, it's a big picture question, perhaps. You know, as you grow the number of subsidiaries under the umbrella, do you see an opportunity to consolidate some of them to create synergies? We have seen some roll-up trucking companies in Canada finding a lot of success with this consolidation strategy.
I think we're doing that. I think, I think you're right. You see with Darwin championing our project on our window businesses, where we've got BVGlazing and Quest, and we had recently bought Wis and help me with my other glazer, Carmele.
AWI.
AWI. That's really under one group of people now. Our airlines, while we've got multiple brand names, we have interchangeable assets, like, we share planes to a greater extent than we ever have. We bid our overhaul work together. We buy parts together. There are advantages, particularly in aviation, to having separate entities for operating certificate reasons and for union reasons, and so those businesses will continue to be autonomous. But we're trying to scoop the cream off in terms of the synergies we're taking.
And you can see that as our margins have increased and quite frankly, our ability to purchase. Regional One has been a boon. I'm not sure we could have got up and running on Jake's Air Canada business. I'll give it to him to talk about that, maybe. But with absent R1, it would have been tough to find those aircraft.
Well, not only the aircraft, but again, the parts, you know, because every aircraft require inventory to make the aircraft, you know, the operations continue on, and Regional One plays a very big role, giving us access immediately to bring these aircraft and stand up the operations quickly.
I think one of the things from our perspective, it may be us doing a better job telling the story. Because we're not buying acquisitions and relying on the synergies to hit our returns, kind of using Mike's analogy, they're kind of the sprinkles on the sundae. We, we don't, you know, maybe, maybe don't do a good enough job letting the market know of these types of opportunities as we're executing on them.
Yeah, I appreciate the time. Thanks so much.
Thanks.
Your next question comes from Cameron Clarkson from National Bank Financial. Please go ahead. Morning, Cam.
Yeah, good morning. Yeah, thanks, thanks for taking the questions here, and, good morning to everybody there. Maybe just sort of two questions for me. Maybe the first sort of on the, on the 2024, outlook here for your, for your guidance. I mean, we all know the, you know, the tailwinds here from some of the new contract opportunities. I wonder if you could just maybe talk about what you've kind of assumed as potential headwinds in, in some of the other businesses. I mean, you talked a bit about Northern Mat, but what about some of the other businesses? Like, what's your kind of underlying assumption as far as end market demand, I guess, broader economic conditions?
I think the only on the aviation side of the business, there's virtually no impact of the economy. And I shouldn't even say virtually, there's no impact. The demand for our core passenger freight businesses are very high, and you can tell by the fact we're adding airplanes. We wouldn't be buying iron if we didn't have demand. So I'm quite confident on that side of the business. Same with our medevac business. Outside of the contracts, like our existing stuff, the utilization of the aircraft remain high. So really not a lot. We've talked about Regional One's assumptions, how we expect to see it continue to return and then ultimately surpass pre-COVID levels. So I think that covers off... And our maritime surveillance business is, I mean, quite frankly, is almost as good as it can be.
All our planes are flying. We're bidding on new work. It's in a great shape. I'm confident in our ability to renew our contract in the UAE. I'm hopeful that we'll have something to speak on that in the near term. So, all good there. The manufacturing, there's a little bumpiness in order books in some of the smaller companies, but nothing dramatic as it relates to EIC as a whole. I would say the one economic piece that's variable that I think has significant upside for us, maybe not till the back end of the year or 2025, is quite frankly, in the window business. I've talked about this a lot. The number of things we're bidding on is unprecedented. We actually have hired people to keep up with the bidding.
People are waiting to pull triggers on things, and the government keeps pouring fuel on this fire, whether it's in Canada, where they're taking taxes off of the construction of these projects, or President Biden in the United States announcing $30 billion towards the conversion of office buildings into residential buildings. The opportunity for that business to grow significantly in the medium term, I think is significant. I can't say it's kind of like predicting when the interest rates have peaked. We're starting to see things that make us think it's coming and coming sooner rather than later, but it's too early for me to give you a hard thing on that. So I think the window business is kinda bump along in 2024, but we can see on the horizon, we can see it coming.
I honestly think it's not gonna be very long before I'm complaining about the fact that we're struggling with capacity to take advantage of the opportunities in that business. But in the near term, that business, I think, just kind of chugs along. We've got a flat order book. Some of the projects have been delayed a little bit, but not dramatic. The upside there is significant. I think one other thing, I've had a couple of people talk to me offline about the forecast for twenty-- our guidance for 2024 and why, why maybe it shouldn't be higher. Quite frankly, it's two things. One is there's nothing in that forecast that isn't already announced and paid for or contracted for.
So we always grow, we always add things, and I expect that that's not going to change in this period. Second thing is, I think there was perhaps a slight misconception, and maybe we didn't do a good enough job of talking about all the work that had to be done to get started flying medevacs. Even if you have the plane, what's it gonna take us, Kevin, per aircraft, in terms of time, to turn them from an airplane into a medevac plane?
About 2.5 months per aircraft.
Yeah. So and then we've got over a dozen of them going there. We've got... Dave's got another five there. And so that I think there, there, we may not have done a good enough job of delineating when that stuff is gonna hit our income statement. And then, quite frankly, we've always provided guidance that we're confident we're gonna make. And I think our track record shows that when we give you a number, it's usually that number or higher. And so, we're not, we're not going to make frothy forecasts. I'm comfortable with where we're at. I'm confident that there's ways we can beat that number. And most importantly, I'm really confident that we've got growth going into the next year.
Like, if we hit our CAD 635 this year, we're gonna be well on our way to changing that first digit in the following year. If Adam finds us one deal in there, then we're probably on our way to breaking through the CAD 700 barrier. So it's like I say, it's a matter of slow and steady, and that's why I put that commentary in about the Q3s since 2019, where we've generated 15% growth year-over-year through a pandemic, which I think is... If you compare any of the comparatives people use for us don't match that.
Yeah, no, absolutely. No, definitely, definitely solid visibility here running much past 2024. So, that’s helpful. And maybe I can just, you know, very quickly just ask you about where things are on the pilot front. You know, I sort of ask because you obviously have, you know, some hiring needs here, with the medevac contracts. I guess, what’s your level of confidence in being able to staff all these aircraft that are coming in over the next, 18 months?
I'll maybe let my guys talk about it from what their experience. I think at a general level, there's still a shortage of pilots in the industry. I would describe it as having gone from a crisis shortage to a really annoying shortage. We're proud of the fact that we saw this coming in 2017 or 2018 when we bought Moncton Flight College. We had the ability to train up our own pilots, and I think some of our bigger airline comparatives are now talking about their flight schools, while, quite frankly, it's a little late to the dance, but I'm glad they're doing it, because the more of their own pilots they train, the more there are in the industry. So we're happy, we're happy to see that. I'll open it up to my three guys if they got commentaries.
Thanks, Mike. It's Dave White here. I've talked with the pilot situation before on the calls, and as Mike said, it's been an industry challenge across the board. It was at a crisis level, probably last year, and now it's settled down, but it doesn't settle down for us just because there's more pilots. It's more about creating the pipelines. As Mike mentioned, MFC, our Life in Flight program, we've been able to generate a flow out of that. It's also our pay scales across our airlines for the niche markets we're in are very competitive.
... We offer a good work-life balance across a multitude of operations, where people actually get a choice in their pathway when they join the EIC group of companies. So we have a lot of attraction features that help us deal with this on a daily basis, but we don't take our foot off the gas, as they say, in respect to this. We know we got new contracts, we know we have expansions, but it—what we have to do is sell that to the pilot community to get them interested, and our retention rates have improved, as well as our recruitment rates. If anybody else wants to add to that?
Yeah, Kevin Hillier here, and, echoing what Dave said, yeah, certainly the lifestyle is attracting pilots to our operation. Work-life balance, you know, doing meaningful work, doing air ambulance services, long-term, consistent work, you know, where we know we've got it for 10+ years. That gives success attracting pilots internationally and, the opportunity to come to Canada and, and do this work and have a great schedule and fly brand new airplanes has really got us some traction on the hiring. So we're, we're confident in our ability to staff these aircraft.
I think the one other thing I would just add to that is we kind of mentioned the flight simulator for the King Air. We've got our fleet to the size where we're investing CAD 20 million in a full motion flight simulator to help us attract, but more importantly, to make sure our new pilots are the best trained, best available pilots in the industry.
This is the first privately held King Air full motion simulator in Canada, and it's a statement about our commitment to the long-term investment in being the best at what we do. Typically, in the old days, we would have sent people to Dallas or Kansas to go get this done. Now we can do it for ourselves, and quite frankly, we'll have some of our competitors using the extra space we have in that. We're really excited about seeing that get installed next year as well.
And the one thing I'll just add, because we're now in a marketplace where basically pilots are gonna make the same amount at any place they go to for a comparable job. This really comes down to choice. What do you have to offer them? And EIC as a whole, we have a great culture, we have opportunity, we have fabulous training, so it is a great destination point to go to, and that's the draw that I, I think a lot of other carriers can't offer.
We can—if you want to go fly out in the Middle East, we've got opportunities there. If you want to do medevac, we've got opportunities there. If you want to be at home at night, you can do that with us. And there's growth, so you can move around. We think that is certainly something that gives us a leg up with respect to other carriers.
Okay, that's great. It's really helpful. Appreciate the time, guys.
Thanks.
Your next question comes from Jonathan Lamers from Laurentian Bank. Please go ahead.
Good morning.
Morning.
My questions were largely covered. Just, would you happen to have the dollars of the growth CapEx to date that was related to the three new contracts? And how much will fall into 2024?
I mean, we've talked about CAD 275 million-ish for the 2 main medevac contracts. I don't have the precise breakdown of what's done this year and what's next year. I mean, I can say the stuff that relates to Manitoba is gonna be largely funded this year. There may be some diversion costs and some ground costs, but not in terms of the aircraft we largely purchased. The initial 4 for Air Canada are all purchased, and that one's a little simpler because we don't have to convert the aircraft.
We just have to get them certified. Whereas we've talked a lot about the majority of the spend in BC is still to come because the planes haven't arrived. Although from a cash point of view, we do have significant deposits with the manufacturer. I apologize I don't have specific numbers. We haven't really finished our final CapEx budgets for next year. So broad brush, I would say the Q8 project is largely funded, PAL's project is funded, and Carson's is not funded.
Just the one piece I would add, dovetailing on Mike's comments there, is that the split between Q3 and Q4, more than half of it that we expect to fall in this year was funded in Q2 already.
Okay, that's great color. Thank you. One more for me. Mike, appreciate the discussion about the 2024 guidance. I appreciate that a lot of your organic growth opportunities would come during the year. Would you have any thoughts, like in terms of your budgeting process, at this point in the year, how much of the growth would, I mean, how much of the organic growth would come from opportunities that you typically see during the course of the year in any typical year for the overall business?
My budgets reflect what I know about now. There will be opportunities that come, but those we don't, with the exception of Regional One, where we don't know exactly where we're gonna buy and exactly where we're gonna sell everything during the year, the other of my businesses are all based on what I know. And like I say, the thing that makes me the most bullish, and quite frankly, the reason we increased our dividend, was what we see in our core aviation business. Our passenger loads are higher than they were in most of our markets pre-COVID, and they continue to grow.
And we're adding capacity as we can add pilots to match the capacity, because there's charter work that we passed on because we want to make sure we look after our passengers on the scheduled business first.... So there is opportunity to grow that business, and as we strengthen our pilot pools, you'll continue to see it. But demand, and it was a bit frustrating for me, to be honest, during the last 10-6 weeks, where the aviation sector and the aviation-driven funds got kind of kicked in the teeth, and we can't went along with it.
Because the things that those similar companies are going through don't match what we're going through. We don't have those challenges. When you have a plane on contract with the UK Home Office, they're flying at X number of hours a day, every day, and we're getting paid. Whether it's maintaining the stuff for the government of UAE, we're getting paid every day, or whether it's flying food to Baker Lake, we know that's coming. It's reliable. Yes, we had fuel issues, we had pilot costs, but we've largely dealt with that and passed it on to our customers. So we're very confident in where we are going forward, and that's what led us to be able to continue our track record of paying our shareholders.
Thanks, and apologies if I missed this, but just on the dividend. In past years, you've typically had one increase per year. I know there was two increases post-COVID to catch up. How are you thinking about the path of dividend growth going forward?
We, at our board, I can tell you, we discuss our dividend level, every board meeting, every quarterly board meeting, our budget meeting. And typically, barring an anomaly, our, it's a once a year thing. If something's exceptional, we would do more than that. We have a 20-year CAGR of 5%. It's something we're intensely proud of, and we're going to continue to grow the business to maintain that CAGR, while we continue to strengthen our balance sheet and reduce our payout ratios. So if you're asking me if I anticipate a dividend increase next year, that's up to the board. But my job is to give them, the economic results to enable them to do it. And if I were a betting man, I think the trend... The past is the best predictor of the future.
Okay, I'll leave it there. Thanks for your comments.
Ladies and gentlemen, as a reminder, should you have a question, please press the star followed by the one. Your next question comes from Tim James from TD Cowen. Please go ahead.
Morning.
Thank you. Thank you. Good morning. I'm just wondering, Mike, if you could talk about any businesses, if there are any, I assume there probably are, where pricing is still running well behind the cost of the inflation that those businesses have experienced over the past couple of years. I mean, I know some businesses you can pass it on very, very quickly, almost instantaneously. But are there any units where, you know, over the next couple of years, you should just be able to reprice a little higher and offset inflation that you've already experienced?
I would suggest to you that it's much better, but we still have some contracts in the window business that don't fully recover what we've experienced, although we've gone through most of the older contracts. I would suggest to you the one business that we have the least ability to move quickly on pricing is our medevac long-term contract business. Not so much in areas like Manitoba, where we do it under license, but more as an example, places like Nunavut, where our contracts include price escalators for fuel and for inflation. Pilot wages have clearly exceeded inflation, and so there is some pinching there.
Those contracts are coming due over the next year or so, and so we will be passing that on when we renew the contracts. We're obviously very respectful and not taking advantage of our position, but if it costs us more, we have to charge more. So the one area where, Carmele, if you're, if I'm missing anything, jump in, but I think the, the main one would be on contract medevac businesses, which haven't been able to fully collect back the, the cost of, the pilot increases.
Yes, that's the main one. There's maybe a couple of longer-term charter contracts that we had that again are coming due in the next 12-18 months. So again, we'll be able to reprice, but otherwise we've been able to move that through to the ultimate price point to recover our increased costs.
Okay, thank you. And then my second question, and it's more of I just want to make sure I'm maybe summarizing the Window Systems business and the opportunity and challenges there. So it sounds like longer term, that business is really facing a secular growth trend, you know, call it related to societal shifts and government priorities when it comes to building. But shorter term, you know, you talk about risk and maybe some further delays in 2024. In the shorter term, there's just simply interest rate-driven headwinds in terms of getting projects running. Is that a fair way of kind of characterizing it? Because you... I know you seem very, very optimistic on the long-term growth, but then, you know, there's a bit of holdback in terms of the shorter term.
I think that's very fair. I mean, we're starting to see, and I'm always reticent when we're starting to see something to say too much about it because it's just the beginnings. But we're starting to see cracks in the dam of stuff getting done, especially the conversion market in the US is, we're starting to see contracts lap, where they're turning office buildings into residential buildings. And the interesting thing is, for us, it's essentially the same as building a new building because they're reskinning these, these buildings as part of that, and we're starting to see that stuff getting let.
There's very strong pressure from government to build housing. And the thing I keep coming back to about this is that notwithstanding building high-rise apartments or high-rise condos is expensive, it's the cheapest form of housing there is to densify and bring people in. If we look at our big cities, whether it's Toronto or Washington in the U.S., or Los Angeles, Dallas, we're doing a project in Nashville. Where there's a shortage of land, they go up. Single-family housing or small multifamily housing is cost prohibitive. And we all know, I mean, the federal government in Canada announced their immigration targets and said they're lightening them up, but they're still 500,000 people a year that we got to find housing for, and there's a shortage now.
So I think your description, Tim, is very fair. There's short-term turmoil created by interest rates. But I think it's important to say that from our point of view, we don't think it's going to take interest rates coming way down for this to pick up. We need stability and a downward trend, so developers are confident they know what the most they're going to pay is. I think the dam is going to break because there's so much demand. If you had an apartment block built today in the major cities, it would be fully rented in a matter of weeks. It may be days.
Yeah. The other thing you're seeing is government policy trying to nudge this, you know, I guess, into actual development by the tax relief. They're looking, you know, whether it's the government on the GST and then Ontario's come out and, you know, you'll probably see more of those types of things, which again, is another indicator that this is going to be a very robust business. And just want to add one other comment on the conversions. We've actually already done, completed 3 of them. We've got 2 more in our backlog, and we're quoting them on lots more, and it's US and Canada. So, you know, that's something that we weren't even doing before, let alone, you know, the original build. So lots of promising elements wherever you look in this business line.
Okay. That's really helpful. Thank you.
There are no further questions at this time. I will turn the call back over to Mike Pyle for closing remarks.
I want to thank everybody for joining us today. It's an exciting period for us. I think you heard it in my voice when we talked about the dividend and the fact that we're proud that we can continue that track record and deliver for our shareholders. Look forward to finishing off 2023 strong and talking to you in February with our year-end results. Have a great day, and we'll speak soon.
Ladies and gentlemen, this concludes your conference call for today. We thank you for joining, and you may now disconnect your lines.