Q1 2018 Bird Construction Inc Earnings Call
May 09, 2018 PM UTC
查看原文
BDT.TO - Bird Construction Inc
Q1 2018 Bird Construction Inc Earnings Call
May 09, 2018 / 02:00PM GMT
==============================
Corporate Participants
==============================
* Ian Jeffrey Boyd
Bird Construction Inc. - President, CEO & Director
* Wayne R. Gingrich
Bird Construction Inc. - CFO & Assistant Secretary
==============================
Conference Call Participants
==============================
* Frederic Bastien
Raymond James Ltd., Research Division - SVP
* Maxim Sytchev
National Bank Financial, Inc., Research Division - MD and AEC-Sector Analyst
* Michael Tupholme
TD Securities Equity Research - Research Analyst
* Yuri Lynk
Canaccord Genuity Limited, Research Division - Director and Senior Engineering & Construction Equity Analyst
==============================
Presentation
------------------------------
Operator [1]
------------------------------
Welcome, ladies and gentlemen, to the Bird Construction First Quarter 2018 Financial Results Conference Call. We'll begin with Mr. Ian Boyd's presentation, which will be followed by a question-and-answer session. (Operator Instructions) The conference is being recorded. (Operator Instructions)
Before commencing with the conference call, the company would like to remind those participating that certain statements which are made express management's expectations or estimates of future performance and therefore constitute forward-looking statements. Forward-looking statements are necessarily based on a number of estimates and assumptions that while considered reasonable by management, are inherently subject to significant business, economic and competitive uncertainties and contingencies. In particular, management's formal comments and responses to any questions may include forward-looking statements. Therefore, the company cautions today's participants that such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual financial results, performance or achievements of the company to be materially different than the company's estimated future results, performance or achievements expressed or implied by these forward-looking statements. Forward-looking statements are not guarantees of future performance. The company expressly disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, events or otherwise.
At this time, I would like to turn the conference over to Mr. Ian Boyd, President and CEO of Bird Construction. Please go ahead, Mr. Boyd.
------------------------------
Ian Jeffrey Boyd, Bird Construction Inc. - President, CEO & Director [2]
------------------------------
Thank you. Good morning, everyone. Thank you for taking the time to participate in our first quarter 2018 conference call. With me today is Wayne Gingrich, our CFO.
Effective January 1, 2018, the company adopted several new accounting standards. One of the new standards adopted is the IFRS 15, Revenue from Contracts with Customers, which is the new revenue recognition standard that replaces IAS 11, Construction Contracts. Some of the adopted IFRS from a full retrospective approach and as a result, is presenting restated 2017 financial results assuming IFRS 15 was applied since January 1, 2017. To be comparable with reporting under the new standard in 2018, management's discussion will be relative to the restated 2017 results.
During the first quarter of 2018, the company recorded net loss of $6.4 million on construction revenue of $294.4 million compared with a net loss of $2.2 million on $313.9 million of construction revenue, respectively, in 2017. In the current quarter, construction revenue of $294.4 million was $19.5 million or 6.2% lower than the $313.9 million recorded in the first quarter of 2017. The first quarter of the year is generally the lowest volume quarter of the year, particularly for our higher margin self-perform civil operations in Western Canada and our mining operations in Eastern Canada. This coupled with an industrial work program that had lower backlog entering the year from a historical perspective contributes to a softer first quarter.
The company was significantly impacted by the adoption of IFRS 15, and the change in treatment of variable consideration, specifically as it relates to the recognition of revenue from change orders and claims related to a P3 project that achieved substantial completion during the first quarter of 2018. A material amount of variable consideration has been constrained to 0. While management expects to see a future recovery against this variable consideration, it is unable to reliably estimate the timing and amount of the future recovery. The company is pursuing commercial negotiations in accordance with the contract so that this constrained variable consideration can be recognized as revenue for the P3 project.
In the first quarter of 2018, the company secured $405.2 million of new contract awards and change orders and executed $294.4 million of construction revenues. The net new contract awards through the first quarter contributed to a backlog of $1.3 billion for the company at March 31, 2018, an increase of $110.8 million or 9.3% from the $1.19 billion of backlog recorded at December 31, 2017.
The company announced that it has a 50% interest in a construction joint venture that is part of the Hartland Resource Management Group consortium that will design and build the residual treatment facility for the Capital Regional District in Victoria, BC. The company has also taken a minority equity interest in the concession responsible for the design, construction, financing, operations and maintenance of the project through Bird Capital, a wholly owned subsidiary.
The company achieved substantial completion on the East Rail Maintenance Facility, a P3 project in the first quarter of 2018. The new facility will provide maintenance, repair and additional storage for the GO Transit system's planned service expansion.
At yesterday's Board of Directors meeting, the board approved monthly eligible dividends of $0.0325 per common share for May, June and July of 2018. 3 months ended March 31, 2018, compared with 3 months ended March 31, 2017.
As described in my opening remarks, revenue and net income were lower year-over-year. The gross profit of $7.1 million in the first quarter of 2018 was $3.5 million or 32.6% lower than the $10.6 million reported in the first quarter of 2017. In the first quarter of 2018, the gross profit percentage of 2.4% was 1% lower than the gross profit percentage of 3.4% recorded in the first quarter of 2017. The reduction in both gross profit and gross profit percentage in 2018 reflects the impact of a P3 project that achieved substantial completion late in the first quarter of 2018. While the company incurred additional escalation costs and financing costs from lenders in the first quarter of 2018, the company was more significantly impacted by the adoption of IFRS 15, revenue from contracts with customers and the change in treatment of variable consideration specifically as described earlier. In addition, the decrease in the amount of gross profit in 2018 is also reflective of continued low volume of industrial project backlog carried into 2018. Income from equity accounted investments in the first quarter of 2018 was $0.2 million and comparable with $0.3 million in the first quarter of [2017]. In the first quarter of 2018, general and administrative expenses of $15.8 million or 5.4% of revenue was $2 million higher than the $13.8 million or 4.4% of revenue recorded in the first quarter of 2017. The company spent $1.7 million in third-party pursuit costs, which is $1.1 million higher than the amount recorded in 2017, and compensation expense was $1.3 million higher than the amount recorded a year ago. Compensation expense was higher primarily due to the loss recorded in the total return swap program resulting from the decline in the company's share price in the first quarter of 2018. Increase was partially offset by foreign exchange gain of $0.6 million in the first quarter of 2018 compared to foreign exchange loss of $0.1 million from the same [point] a year ago. Finance income in the first quarter of 2018 of $0.3 million comparable to the $0.3 million recorded in the first quarter of 2017. Finance and other costs of $0.7 million in the first quarter of 2018 was $0.3 million higher than the $0.4 million reported in the first quarter of 2017. The increase is due to higher interest costs associated with the borrowings. In the first quarter of 2018, income tax recovery of $2.4 million was $1.6 million higher than the $0.8 million in the recovery rate. In the first quarter of 2018, income tax recovery of $2.4 million was $1.6 million higher than the $0.8 million recovery recorded in the first quarter of 2017, consistent with the higher loss in 2018.
Outlook. I'll now provide some brief remarks about our outlook for fiscal 2018. March 31, 2018, the company was carrying a backlog of $1.3 billion, representing an increase of just under $111 million. Increase in backlog in the first 3 months of 2018 relates to the securement of multiple contracts with clients across a broad range of market specters, including a P3 project for residual treatment for the CRD in Victoria, in which the company has taken a minority equity interest in the concession which represents Bird Capital's 7th P3 project in which we will invest equity. The current backlog is predominantly characterized by institutional work, a result of securing a significant number of new awards in the sector. While backlog attributable to our industrial and heavy civil work programs increased through the course of 2017, in 2018, it continues to remain low from a historical perspective. The company expects to see a steady increase in its industrial work program as the year progresses, which the company attributes to improving market conditions and its diversification efforts in new industrial market sectors. The company is optimistic in its outlook for the industrial and resource sectors for the remainder of 2018 and expects activity to progressively increase through the course of the year.
Bidding activity in the midstream oil and gas market in Western Canada and for mining opportunities in Eastern Canada increased in 2017, a trend anticipated to continue in 2018. While the environment remains challenging and highly competitive, there are an increasing number of opportunities to support an overall progressive increase in the level of activity in 2018. The company will be negatively impacted in the second quarter of 2018 by a labor strike at one of the company's long-standing clients that has put active projects on hold until the strike ends. The company has implemented measures to manage its cost structure through the strike, which as of the date of this report is ongoing. There is more positive sentiment with respect to the LNG Canada proposed natural gas liquefaction and export terminal in Kitimat, BC. The company does not foresee a significant financial contribution to revenue and earnings in 2018 from this settlement, but is actively preparing in the event of a positive final investment decision, FID, is reached in the fourth quarter of this year. The company would benefit in 2019 and beyond from its 2016 award of the Cedar Valley Lodge, a 4,500 Workforce Accommodation Centre. This project was put on hold shortly after it was awarded
(technical difficulty)
included in the company's backlog and will not be until a positive FID is reached.
With respect to the commercial and institutional market sector, there is a healthy pipeline of opportunities anticipated through 2018, characterized by numerous P3 projects. As of March 31, 2018, the company estimated 1 proposal for a P3 project for which no results have been disclosed and is actively responding to 5 requests for proposals in which the company is shortlisted. In several of these pursuits, the procurement time line and submission dates have been extended to later in the year. The company has also been shortlisted on 2 P3 projects and is awaiting the issuance of a request for proposals and is in the request for qualification stage for 2 other projects. In addition to the expected increase in volume of work from these opportunities, the company anticipates that margin in the P3 market will also improve. With the delay in procurement time line, the impacts from the volume may emerge and may not be realized until 2019.
As previously noted, the first quarter of 2018 was negatively impacted by the adoption of IFRS 15, revenue from contracts with customers and the change in treatment of variable considerations specifically as it relates to the financial recovery of revenue from change orders and claims related to the P3 project that achieved substantial completion in the first quarter of 2018. While management expects to see a future recovery against this constrained variable consideration, it is unable to reliably estimate the timing and impact. Management expects earnings in the second quarter of 2018 to lag those achieved in the prior year. The reduction in earnings year-over-year in the second quarter is not the result of the adoption of the new revenue recognition standard, is driven by several factors including the client-initiated delay in the start of the projects reported backlog, the delay in procurement time line of several P3 projects and corresponding pursuit costs at historical highs, and the impact of a strike from a mining site. The company expects to see a steady increase in the revenue and earnings attributable to its industrial work program in the second half of 2018, expects overall earnings in the second half to exceed those as compared to IFRS 15 adjusted figures in the same quarters for 2017. Company believes it has adequate amounts of both working capital and equity and expects to be able to maintain its current monthly dividend per share until earnings are rebuilt to pre-2017 levels, which is expected to result from progress executing the company's diversification strategy.
This concludes the prepared remarks section of the conference call. I'll now turn the call to the conference call operator who will take your questions in turn.
==============================
Questions and Answers
------------------------------
Operator [1]
------------------------------
(Operator Instructions) The first one from Michael Tupholme of TD Securities.
------------------------------
Michael Tupholme, TD Securities Equity Research - Research Analyst [2]
------------------------------
Ian, the P3 project that was for -- by the adoption of IFRS 15, just to be clear, that project is now completed. And so there shouldn't be any further follow-on issues of a negative nature from it. Is that fair to say?
------------------------------
Ian Jeffrey Boyd, Bird Construction Inc. - President, CEO & Director [3]
------------------------------
That's fair to say. It is completed. Substantially complete. We're just working now on just normal course, deficiency correction to get final completion, which is expected to happen somewhere in the second quarter.
------------------------------
Michael Tupholme, TD Securities Equity Research - Research Analyst [4]
------------------------------
Ian, and I understand that -- I think I understand the issue with trying to predict the timing on a possible recovery. But is the reason you're unable to reliably estimate the amount of a future recovery because you're still in negotiations with the client?
------------------------------
Ian Jeffrey Boyd, Bird Construction Inc. - President, CEO & Director [5]
------------------------------
Yes. The nature of the commercial issues are such that the preparational costs of change order claim associated with commercial issues is really just being prepared as we speak. Like we've encountered the issue late in 2017 and now the impact
(technical difficulty)
realized until you actually are at substantial completion in which case you can put the full claim together and then begin the commercial negotiation. So part of the issue is, at this juncture, is the fact that we have to finalize that claim, submit it to the client, and then ultimately begin the commercial negotiation. So that's kind of the process that will unfold as we move on here.
------------------------------
Michael Tupholme, TD Securities Equity Research - Research Analyst [6]
------------------------------
So had this occurred under the old accounting standards, you would've been able to recognize an amount related to your estimates recovery even though you had not yet completed your negotiations in -- it's simply sort of a timing difference?
------------------------------
Ian Jeffrey Boyd, Bird Construction Inc. - President, CEO & Director [7]
------------------------------
Yes. I view it as a timing difference. I mean, to the extent that we believe that the recovery or certain amount of recovery was probable in the old standard, then we would make an assumption in terms of that recovery and then offset some of the costs incurred associated with it. But typically, we're pretty conservative with respect to the recovery that we will put in, in these situations and commercial issues. Having said that, there's -- in the instance of this particular project, everything unfolding as it was at the very time that you're adopting this new standard, and then ultimately when you get to the point of the new standard requiring a more stringent, call it, highly probable versus probable, we're in a position now where we made the conservative judgment that we will not take costs recovery associated with the claim aspect of things. And ultimately, we'll have to see a future recovery associated with it. So there will be a -- I view it as a timing issue more so than anything else.
------------------------------
Michael Tupholme, TD Securities Equity Research - Research Analyst [8]
------------------------------
So just the last piece of this. I mean, the negotiations that either are occurring or will be occurring sort of what's the nature of the relationship with them right now? Is it relatively positive or favorable?
------------------------------
Ian Jeffrey Boyd, Bird Construction Inc. - President, CEO & Director [9]
------------------------------
No. I would say like most of these issues that are arising and you have a contract to deal with some of these that are commercial disagreements. So it's not as though that we're in a position where the relationship has deteriorated or anything of that matter. It's a -- we have a project, we have a commercial issue, have a disagreement potentially on this commercial issue, and you don't really know to the level of that disagreement until you begin those commercial negotiations. But certainly, from a standpoint of the client, I would say it's a good relationship and it's a matter of dealing with commercial issues. And ultimately, a relationship that is -- I'll call it reasonable in the circumstances.
------------------------------
Michael Tupholme, TD Securities Equity Research - Research Analyst [10]
------------------------------
Okay. On the guidance both for Q2 and for the back half of the year, is it possible to be -- to provide a bit of granularity? So you're talking about Q2 earnings lagging the prior year. And then secondly, in the second half of the year exceeding the prior year. Just trying to get a sense for -- I mean, that gives us some sense or direction, but it's not overly specific. Is there anything further you can add on either of those to give us some more perspective?
------------------------------
Ian Jeffrey Boyd, Bird Construction Inc. - President, CEO & Director [11]
------------------------------
Yes. You're -- always asking us to give too much guidance. I think the guidance that we provided gives you at least some expectation in terms of the trending that we're expecting. So I do think that in the more immediate term, meaning what's happening in the second quarter is a product of some timing associated with what current projects we have in backlog and when they will actually, I'll call it, begin to progress to the extent that you will have some meaningful contribution from those as well as this timing in the P3 projects that several of these have been extended in terms of procurement time line. So what we anticipate was going to be the timing for
(technical difficulty)
be able to start if you're successful has now moved out. So combine all of those things, it creates a lot of uncertainty in terms of what you expect to have on the immediate quarter. And certainly, as we see the opportunities that are building, I would say, in our industrial and our resource side of things, it's part of our business. We see that as, again, still building through the course of the first quarter, second quarter. And then ultimately being able to realize more contribution from those sectors. So -- and I think all of this is all predicated, too, in how much can you advance some of these commercial negotiations on the current P3 project. Now our view right now would be that -- ultimately that may be 2019 just by the time that you actually have the claim fully submitted, and then you get an opportunity to then advance negotiations and knowing the contract and the terms of the contract in which you need to resolve this may lead to an extension into 2019 before you see any real contribution. So from that standpoint, it's hard to give, I'll call it, better guidance than we've given right now.
------------------------------
Michael Tupholme, TD Securities Equity Research - Research Analyst [12]
------------------------------
So -- I mean, just sort of to follow on there. In terms of the guidance you have given, is it -- are you assuming any recovery in that -- in the guidance? Or in getting that guidance that you provided?
------------------------------
Ian Jeffrey Boyd, Bird Construction Inc. - President, CEO & Director [13]
------------------------------
No. No.
------------------------------
Michael Tupholme, TD Securities Equity Research - Research Analyst [14]
------------------------------
No. Okay. And maybe if we just look at the second half guidance. Prior to this quarter, you had been talking about 2018's results showing a marked improvement relative to '17. So I guess if we look at this -- the second half of 2018, has your guidance or your expectations for the second half of this year changed much relative to what they would have been prior to this quarter?
------------------------------
Ian Jeffrey Boyd, Bird Construction Inc. - President, CEO & Director [15]
------------------------------
No. I don't think so. I think the bigger impact is I think that one, the IFRS in terms of how we had to report on this particular P3 project than I would say more in the delay and backlog associated maybe with the commercial institution, including the P3 side of things. So I think our guidance is actually very similar to what we feel. It's just -- what I feel has happened to a certain degree is, other than the IFRS, if you just looked at it, it means that our commercial and institutional primarily, not even our industrial and resource. It's just moved from what we anticipated was going to happen. So more to the back half of the year than we anticipated when we were providing guidance for the Q4.
------------------------------
Operator [16]
------------------------------
The next question is from Yuri Lynk of Canaccord Genuity.
------------------------------
Yuri Lynk, Canaccord Genuity Limited, Research Division - Director and Senior Engineering & Construction Equity Analyst [17]
------------------------------
Ian, can you just give a little more color on the -- is there an overriding reason why the institutional jobs are slipping?
------------------------------
Ian Jeffrey Boyd, Bird Construction Inc. - President, CEO & Director [18]
------------------------------
No. I would say that there's probably nothing unique, I'll call it, in anything non-P3. So it's just a regular coursework. It's just some of those projects for various reasons and nothing systemic have just -- ultimately, the clients have determined the timing for them to be actually a start, the actual construction has just been delayed in certain instances. I would say for the P3s, hard to assess what's happening. Some of those are transportation and there's a very heated element of transportation P3s that are out there. And I think all of them have moved to some degree or another and the projects that we're involved with in terms of pursuit are no different. But you could even take one of the projects that we submitted on in the first quarter was OPP Phase 2. And that project was originally scheduled to be submitted approximately 2 months prior to that. So it even got extended, which our social infrastructure P3s have generally not been extended. If you look at the sort of our historical experience, social infrastructure has been much more predictable in terms of the time line. But even in the instance of OPP, that one, for instance, had moved 2 months. That's probably unique. It's more the transportation ones that have really moved more significantly in terms of the procurement time lines, and I believe and my own opinion is that's based on just the heated level of activity on transportation is just ultimately more difficult
(technical difficulty)
more complex projects when you look at them. So the complexity of the procurement -- complexity of the projects are more than -- are typical social infrastructure projects. And so maybe the complexity is also adding to some of the extensions associated with procurement time lines.
------------------------------
Yuri Lynk, Canaccord Genuity Limited, Research Division - Director and Senior Engineering & Construction Equity Analyst [19]
------------------------------
Okay. Just looking at your cash balance. I think this is the lowest I've seen it in a long time. Can you just talk about CapEx expectations for the year? I guess
(technical difficulty)
because you do dispose of some equipment throughout the year. And then your expectations in terms of this large working capital build reversing throughout the course of the year.
------------------------------
Wayne R. Gingrich, Bird Construction Inc. - CFO & Assistant Secretary [20]
------------------------------
I can take that if you want, Yuri. So I think -- start with the working capital side, we certainly saw our working capital declined in the first quarter to about $67 million. And obviously, that's impacted by the loss we reported in the payment of our dividends to a large degree. And then the other thing I'd say is just in terms of cash and the change in noncash working capital, we had a pretty strong fourth quarter in terms of cash generation. And I think when we came into Q1, similar to first quarter 2017, we saw a decrease in our accounts payable of about $30 million. And that generally, it just seems to be a bit more seasonality. And if you think about it from our industrial work program being a little bit more seasonal, we're seeing that also impact the flow of our working capital accounts in Q1 in particular. But we do expect that trend to reverse, and we expect to convert some of that noncash working capital into cash in the remainder of the year starting in Q2. And the other thing I'd say is when you have a project like a P3 project and this is substantial and you're talking with the client about the commercial issues, we're still funding all of that construction out of our own pocket. And we're not receiving any payments from the client on those issues until they get resolved. So you also get a bit of a cash impact through that.
------------------------------
Yuri Lynk, Canaccord Genuity Limited, Research Division - Director and Senior Engineering & Construction Equity Analyst [21]
------------------------------
Okay. And any help with what net CapEx might look like for the year?
------------------------------
Wayne R. Gingrich, Bird Construction Inc. - CFO & Assistant Secretary [22]
------------------------------
I think in total, it will be probably as high or slightly higher than 2017.
------------------------------
Yuri Lynk, Canaccord Genuity Limited, Research Division - Director and Senior Engineering & Construction Equity Analyst [23]
------------------------------
And in the interim year, the working capital can swing around quite a bit. Are you able to eat through that $53 million of cash and go into a small net debt position and still be able to get the bonding and be comfortable with the dividend as it stands?
------------------------------
Ian Jeffrey Boyd, Bird Construction Inc. - President, CEO & Director [24]
------------------------------
Yes. We did give stronger guidance on our dividend in the MD&A. And management is comfortable that we can maintain the level of dividend that we currently have. And then from a bonding perspective, we feel we have adequate levels of working capital and equity in order to maintain that going forward. And we also have adequate credit facilities that address kind of those ups and downs through the cycle of the quarter as well.
------------------------------
Yuri Lynk, Canaccord Genuity Limited, Research Division - Director and Senior Engineering & Construction Equity Analyst [25]
------------------------------
Okay. Last one from me, and it's more curiosity as it relates to the restating of last year's numbers to conform with IFRS 15. If I understand correctly, it's a judgment call at a period in time whether the claims and change orders are probable to be recovered or highly probable. So how do you go back to a year ago and look at what was probable versus highly probable and make that retroactive decision? If that makes any sense in terms of how you would've treated that a year ago.
------------------------------
Wayne R. Gingrich, Bird Construction Inc. - CFO & Assistant Secretary [26]
------------------------------
Yes. I mean, we have a policy that we've written for revenue recognition for IFRS 15. And one of the tricky parts, and I think you're right, is you can't use the benefit of hindsight when making those determinations. So you can't use what actually played out in making those judgments. So effectively, what you're doing is you're reviewing every contract you have, you're reviewing all the situations where you've seen recoveries on change orders and/or claims. And you're applying the criteria of your revenue recognition policy against what you do at those periods in time to see if there's any differences. Our 2017 and 2016 endings are opening January 3, 2017, adjustment. We did have our auditors involved in reviewing our work for that and just had our board meeting yesterday. They presented the report to the Board of Directors and approved what we have done in that regard.
------------------------------
Operator [27]
------------------------------
The next question from Sytchev of National Bank Financial.
------------------------------
Maxim Sytchev, National Bank Financial, Inc., Research Division - MD and AEC-Sector Analyst [28]
------------------------------
Just to follow-up on the noncash working capital. Wayne, is it conceivable for us to be in a positive position for the totality of 2018 or that's unlikely?
------------------------------
Wayne R. Gingrich, Bird Construction Inc. - CFO & Assistant Secretary [29]
------------------------------
Yes. I think that would be a possibility.
------------------------------
Maxim Sytchev, National Bank Financial, Inc., Research Division - MD and AEC-Sector Analyst [30]
------------------------------
Okay. And then in terms of the P3 project. I mean, is there anything incremental that you guys can do from risk mitigation strategies and so forth, so that you're not catching the change orders at the very tail end of the project? Just maybe any lessons from this? Or this is just something that transpires at the tail end of the contract and that was sort of the only way to deal with the clients at that juncture?
------------------------------
Wayne R. Gingrich, Bird Construction Inc. - CFO & Assistant Secretary [31]
------------------------------
Yes. I would say that there's always things you learn from projects that go well or in projects that don't go well. And in this instance, I don't know that there was a significant amount that could have been done leading up to the actual issues arising. It was very much late in the game and it was -- there was some precursor issues that arose that were being dealt with. But ultimately, the commercial sort of resolution to those and the impacts couldn't be assessed until you get to the point where you're either going to achieve substantial completion or you are not. And ultimately, when we did not, then you're in a position where your commercial negotiations were taking a different and more material, I guess, adjustment to what you're going to deal with your client on. So it -- this one is specifically very difficult from the timing standpoint, the way that it built up and the issues that arose were very much back ended. And ultimately was whether you're going to get substantial completion or not at the end and then recognizing that there were certain impacts that happened prior that you ultimately made the client aware of and were also aware that you believe impacted your ability to finish on that stated substantial completion date. So until you actually arrived on that date and didn't actually achieve it, you are in a position where yes, you've notified them that there was delays that impacted you. But ultimately, how you are going to deal with it with the client in the commercial negotiation really couldn't be avoided in the time frame that it happened unfortunately.
------------------------------
Maxim Sytchev, National Bank Financial, Inc., Research Division - MD and AEC-Sector Analyst [32]
------------------------------
Okay. Now that's helpful. And on the P3s, Ian, that you already have as part of your portfolio. Are there any ones that could be coming close to you're looking to monetize? Or we're not there yet?
------------------------------
Ian Jeffrey Boyd, Bird Construction Inc. - President, CEO & Director [33]
------------------------------
Not sure I understand your question.
------------------------------
Maxim Sytchev, National Bank Financial, Inc., Research Division - MD and AEC-Sector Analyst [34]
------------------------------
Well, just the equity investments that you've done in...
------------------------------
Ian Jeffrey Boyd, Bird Construction Inc. - President, CEO & Director [35]
------------------------------
Oh, sorry, sorry. Within 2018, I do believe that there is -- if you want to consider, I guess, the project is -- we kind of consider 1 project, there's actually 2 projects. So that is the Saskatchewan Schools in which we're in a position at the -- in 2018 to be able to monetize that and it will depend somewhat. It's relatively late in the year, so whether it shifts from a Q4 to Q1 '19, it's -- we're in that time zone, that's the first one though.
------------------------------
Maxim Sytchev, National Bank Financial, Inc., Research Division - MD and AEC-Sector Analyst [36]
------------------------------
Okay. And can you remind us what was your equity investment in this particular project? Or you haven't disclosed it?
------------------------------
Ian Jeffrey Boyd, Bird Construction Inc. - President, CEO & Director [37]
------------------------------
Haven't disclosed it.
------------------------------
Maxim Sytchev, National Bank Financial, Inc., Research Division - MD and AEC-Sector Analyst [38]
------------------------------
Would it be material, I guess, if you were to exit it? Or when you will be exiting it?
------------------------------
Wayne R. Gingrich, Bird Construction Inc. - CFO & Assistant Secretary [39]
------------------------------
We have $12 million in equity investments right now. It'd certainly be less than half of what that is. We have several active investments going on, but -- yes, we just haven't disclosed what the investment is in there.
------------------------------
Maxim Sytchev, National Bank Financial, Inc., Research Division - MD and AEC-Sector Analyst [40]
------------------------------
Okay. In terms of -- I just want to be clear on LNG Canada. I understand that obviously you have the contract from 2016. But have you spoken recently to the client that there is no pressure to potentially rebid this contract?
------------------------------
Ian Jeffrey Boyd, Bird Construction Inc. - President, CEO & Director [41]
------------------------------
Yes. We have spoken to the client. And in fact, before we -- the client -- sort of before it was put on hold, we've actually had negotiation with the client in order to extend that contract under an arrangement that essentially we would retain the contract for the construction element -- the construction portion of the contract. We would have an ability to -- if the project was to proceed that we would have an ability to be able to reconstitute our team and then reconfirm our pricing on certain elements of that project. So that's how we're proceeding right now.
------------------------------
Maxim Sytchev, National Bank Financial, Inc., Research Division - MD and AEC-Sector Analyst [42]
------------------------------
Okay. Is it fixed price, the contract structure?
------------------------------
Ian Jeffrey Boyd, Bird Construction Inc. - President, CEO & Director [43]
------------------------------
It is.
------------------------------
Maxim Sytchev, National Bank Financial, Inc., Research Division - MD and AEC-Sector Analyst [44]
------------------------------
Okay. And maybe the last point. I mean, talking about -- I mean, you can correct me if I'm wrong, but it feels that the industrial oil and gas mining sentiment is getting better. And as you also concurrently push the diversification strategy for Bird, can you maybe update us on any potential cross-selling opportunities? Maybe an update on stack as well. And how we should be thinking about this -- specially as 2019 unfolds because, I mean, it feels that '18 is more of a sort of, again, transition year with back half being stronger. But just trying to get some comfort that 2019 is unfolding relatively unchanged versus kind of what you guys might have expected a couple of months ago.
------------------------------
Ian Jeffrey Boyd, Bird Construction Inc. - President, CEO & Director [45]
------------------------------
Yes. I think if you look at our diversification efforts and ability to cross-sell, I mean, that's very clear in terms of our -- you look at our industrial operations in Western Canada right now, we're doing a lot of mechanical process work more so in, I'll call it, kind of a -- have organically grown that out of our acquisition of Nason that we did in 2013. And that's grown since 2015. We're able to cross-sell to our clients there. So not only are we doing mechanical process, we're doing some of the MRO work, we were able to get our first maintenance contract in late 2017. So leveraging what we -- the relationships. And so our legacy buildings and concrete work is now getting intertwined with more earthmoving and mechanical process with the same clients. So certainly, good cross-selling associated with that. And then when you look at our nuclear side of things for opportunities that you see primarily in Ontario, now you have the ability to be able to go and do an industrial building, which is what we're doing with Bruce Power with the administration and training facility here in Ontario, have other opportunities at Chalk River with CNL that we're prequalified to go and pursue and awaiting some of the tender opportunities for there. So that geographic expansion for a service expansion of the industrial primarily, I would say, is working very well. And I think that 2018 is certainly a year to build that backlog so that we see 2019 being much more closer to what we would anticipate sort of historically, what we would expect in contribution from our industrial versus what we've dealt with in 2017 and, to a certain degree, certainly in 2018.
------------------------------
Operator [46]
------------------------------
The next question is from Frederic Bastien of Raymond James.
------------------------------
Frederic Bastien, Raymond James Ltd., Research Division - SVP [47]
------------------------------
In February -- in the February conference call, you noted that the P3 project had achieved substantial performance in late December as defined in the provincial lien legislation. To me, that says you finished your job and the client found excuses to keep you on-site longer. Is this what gives you confidence that you'll be successful with your claims and change orders?
------------------------------
Ian Jeffrey Boyd, Bird Construction Inc. - President, CEO & Director [48]
------------------------------
Yes. I mean, I think you're -- I mean, broadly, you're right in the assessment in the sense
(technical difficulty)
did achieve substantial completion from lien legislation standpoint in December. So the project from that standpoint was complete. The -- I'm sure the client has their own reasons as to why they didn't grant substantial completion at that point in time. But when you look at it in consideration, I think -- our view is more consideration in terms of the impacts that we encountered prior to the actual substantial completion time line. And so notifying the client that we were delayed in certain elements that we believe that were under their responsibility and notified them ultimately again, you get to the point of substantial completion and you aren't granted substantial completion. At that point, you are late. So it comes to -- not to get too technical, who owns the float in the schedule. And in that instance, we get to the point where if we used up all of our float in our -- in the execution of that project in the schedule then ultimately, we're beyond the substantial completion target date. The impacts that we made them aware of earlier in the contract had come to fruition the way we anticipated they would. So ultimately, that's the commercial negotiation that will happen. And so -- that's why we're confident is that early on and when we encountered some of these issues, we notified the client and made them aware that there were going to be impacts. Ultimately, you don't recognize those until you either get or do not get substantial completion, and then you need to deal with the after impacts of that. And for us, that's cost incurred. But ultimately, we believe there's a recovery there.
------------------------------
Frederic Bastien, Raymond James Ltd., Research Division - SVP [49]
------------------------------
Okay. And I just want to get back on the industrial momentum. Can you provide concrete examples of the industrial jobs you've been able to secure in the past few months?
------------------------------
Ian Jeffrey Boyd, Bird Construction Inc. - President, CEO & Director [50]
------------------------------
Yes. I mean, I -- you're always a little bit -- our industrial clients more so than any other clients are more sensitive to announcements in terms of their projects. So I wouldn't want to disclose it because ultimately, I hadn't got approval to disclose it from the client. And that's the normal course for us. So P3s are relatively simple. And certainly, when we get over to a certain size threshold, a project -- as a public company, we will go and pursue our industrial clients to let them know that this is something we need to disclose. And ultimately, we usually get agreement in doing so. These projects while we build
(technical difficulty)
course of in Q1 and will, I think, in the point of negotiation on several of these contracts that will come into fruition in Q2, they're of a individual size that don't hit the sort of materiality threshold that we set for doing public releases. So all I can say is that we're confident in the buildup of the industrial work program from -- even from Q1 and what we're seeing in Q2 and in the advancement of some of our negotiations.
------------------------------
Frederic Bastien, Raymond James Ltd., Research Division - SVP [51]
------------------------------
Okay. But are you getting closer to sort of these -- I guess these disclosure points? Are the jobs that you're getting larger as the energy and resources market continue to improve?
------------------------------
Ian Jeffrey Boyd, Bird Construction Inc. - President, CEO & Director [52]
------------------------------
They are getting larger relative to 2017. But the -- none of them are huge capital projects in a sense of like a Fort Hills or even if you had an LNG Canada that came to fruition with a positive FID. Not that type of size. You're getting to a size there that is certainly bigger than 2017, and it will build in the sense that you'll get a -- if you look at your overall securements and what we expect from new contract awards, the buildup will be considerable is how I would say it in the course of 2018.
------------------------------
Frederic Bastien, Raymond James Ltd., Research Division - SVP [53]
------------------------------
Okay. And has the mindset of your clients changed? I recall a few quarters ago, you were saying that clients were only doing short-term projects because they didn't have that much visibility. But are there discussions now that they're thinking or determined, trying to
(technical difficulty)
sort of longer time frames?
------------------------------
Ian Jeffrey Boyd, Bird Construction Inc. - President, CEO & Director [54]
------------------------------
Yes. I would say that's very -- that's true in our industrial west operations. I would say, in our mining operations still -- we're still seeing clients where they will have a 2-year program, for instance. I haven't seen probably 1 longer than that necessarily that's been tendered recently. But ultimately, what they end up doing is issuing -- if you're successful, they issue a contract for the first year with an option for the second year. So I still feel as though our mining clients are still a little bit more measured in terms of what they're doing for, I'll call it, multiyear contracts and still ends up being an annual work program with an option to extend under a predetermined price for that second year in certain number of these larger -- I'll call them larger tenders. So I would say -- but industrial west, yes, a lot more confidence in terms
(technical difficulty)
commitments. And I would say the award cycle is shortening, like you're seeing opportunities now. And I would even say that you're seeing some degree of clients where they're actually recognizing that it maybe ramping up a little bit in industrial west, so that they're trying get their -- you can get the sense that they're trying to get tenders out there quicker so that they can avoid maybe escalation and cost or otherwise that may incur if they're not in the front of the line.
------------------------------
Operator [55]
------------------------------
(Operator Instructions) The next question is from Michael Tupholme of TD Securities.
------------------------------
Michael Tupholme, TD Securities Equity Research - Research Analyst [56]
------------------------------
Just two follow-ups here. The client-initiated delays in the startup of certain projects and backlog. What sector are those in? And I think you said earlier that there's not -- it's driven by client time lines and schedules and there's not sort of a common element. But I guess, what's sector in -- are you confident that they are proceeding just in a delayed fashion? Or is the start date still sort of up in the air and unknown?
------------------------------
Ian Jeffrey Boyd, Bird Construction Inc. - President, CEO & Director [57]
------------------------------
No. I would say we're confident in the start date. So it's just later than we would have anticipated. So I would say most of them are in commercial P3s or part of that commercial institutional sector where we're seeing the extension of certain projects. Certainly, on the backlog side of things, it tends to be more of our institutional or commercial side of things. There is a little bit of that in industrial west and perhaps even a little bit of that in our Bird heavy civil operations where it is very seasonal there. So you're not really going to start work to -- in the mining side of things, meaning new project work typically until May. There is some -- and I think it will still happen. The strike obviously is impacting one of those sites that we're on.
------------------------------
Michael Tupholme, TD Securities Equity Research - Research Analyst [58]
------------------------------
Okay. That was my second follow-up. Just in terms of the strike, how material is this? And when did it begin? I mean, we're close to the midpoint of the quarter. Just trying to get a sense for has this been going on all quarter? Or did it just commence recently?
------------------------------
Ian Jeffrey Boyd, Bird Construction Inc. - President, CEO & Director [59]
------------------------------
Yes. No, no. It started, I think, at the end of March. It may even at the start of April, but right at the end of Q1 is essentially when the strike started and it is still ongoing. So it certainly would impact our second quarter results. In terms of the materiality, it's hard to assess. It's a core client, so we always have work going on there.
------------------------------
Michael Tupholme, TD Securities Equity Research - Research Analyst [60]
------------------------------
Okay. And then what is it you've done to mitigate costs on that side of that project?
------------------------------
Ian Jeffrey Boyd, Bird Construction Inc. - President, CEO & Director [61]
------------------------------
Well, some of it's just -- your work force. So whether that's a reallocation of the workforce to projects that are ongoing or whether that's decisions in terms of whether you need that much workforce and then making decisions. Now from a staffing and salary standpoint, you obviously don't want to make a too short-term decision as it relates to that. But certainly from the standpoint of whether it's some of our, I'll call it, hourly craft labor, you're going to make certain decisions on that where obviously you're going to have -- you're not going to have those individuals or you're going to have less of them for sure. The other ancillary parts and it's not that we don't -- when you have ongoing projects, you're going to have more safety, you're going to have more quality, those types of individuals. So again, we'll make some decisions associated with those individuals and you're trying to do it in such a fashion that you obviously aren't letting go of people that are -- long-term people that ultimately for, what, maybe a 2 or 3-month period, you're going to have to weather the storm a little bit. No different than kind of -- if you'll think to go back before Fort McMurray fire, it was kind of that kind of scenario. So if it's longer term, then you're going to have to make some more difficult decisions perhaps depending on whether you pick up work in other areas to replace what you would normally have done at that mine site.
------------------------------
Michael Tupholme, TD Securities Equity Research - Research Analyst [62]
------------------------------
Okay. Sorry. And then just one other one. The -- with respect to LNG Canada, and sort of a follow-on to the earlier question you had there, have you been asked to do anything differently recently in terms of starting to relook at certain things or to begin to do some work again?
------------------------------
Ian Jeffrey Boyd, Bird Construction Inc. - President, CEO & Director [63]
------------------------------
Yes. We've been asked to reconstitute our team there. So we've been asked to get back involved. And I guess is how I'd put it.
------------------------------
Operator [64]
------------------------------
There are no further questions at this time. I will now hand the call back over to Mr. Boyd for closing remarks.
------------------------------
Ian Jeffrey Boyd, Bird Construction Inc. - President, CEO & Director [65]
------------------------------
Thank you again, everyone, for your participation in Bird Construction's 2018 First Quarter Conference Call. As always, we are available if additional information is required, so please do not hesitate to get in touch with us. Enjoy the rest of your day.
------------------------------
Operator [66]
------------------------------
This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.
------------------------------
Definitions
------------------------------
PRELIMINARY TRANSCRIPT: "Preliminary Transcript" indicates that the
Transcript has been published in near real-time by an experienced
professional transcriber. While the Preliminary Transcript is highly
accurate, it has not been edited to ensure the entire transcription
represents a verbatim report of the call.
EDITED TRANSCRIPT: "Edited Transcript" indicates that a team of professional
editors have listened to the event a second time to confirm that the
content of the call has been transcribed accurately and in full.
------------------------------
Disclaimer
------------------------------
Thomson Reuters reserves the right to make changes to documents, content, or other
information on this web site without obligation to notify any person of
such changes.
In the conference calls upon which Event Transcripts are based, companies
may make projections or other forward-looking statements regarding a variety
of items. Such forward-looking statements are based upon current
expectations and involve risks and uncertainties. Actual results may differ
materially from those stated in any forward-looking statement based on a
number of important factors and risks, which are more specifically
identified in the companies' most recent SEC filings. Although the companies
may indicate and believe that the assumptions underlying the forward-looking
statements are reasonable, any of the assumptions could prove inaccurate or
incorrect and, therefore, there can be no assurance that the results
contemplated in the forward-looking statements will be realized.
THE INFORMATION CONTAINED IN EVENT TRANSCRIPTS IS A TEXTUAL REPRESENTATION
OF THE APPLICABLE COMPANY'S CONFERENCE CALL AND WHILE EFFORTS ARE MADE TO
PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS,
OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE CONFERENCE CALLS.
IN NO WAY DOES THOMSON REUTERS OR THE APPLICABLE COMPANY ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER
DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN
ANY EVENT TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S
CONFERENCE CALL ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE
MAKING ANY INVESTMENT OR OTHER DECISIONS.
------------------------------
Copyright 2018 Thomson Reuters. All Rights Reserved.
------------------------------