Innovation Beverage Group Limited Price & Performance (IBG)

I would now like to turn the call over to Mr. Scott Stewart, Chief Executive Officer for IBI Group. Please go ahead.

Thank you. Good morning, everyone, and thank you for joining what is supposed to be IBI's Final earnings call. As most of you know, on July 18, we announced the agreement for Arcadis, The Netherlands based company to acquire IBI Group for $19.50 per share in cash, representing a 30% premium to the previous day's close and a 40% premium to the 30 day volume weighted average price. This development came shortly on the heels of our AGM in May, during which we shared a high level overview of our new 5 year strategic plan, including targets for 2026 such as IBI growing to $1,000,000,000 valuation, expanding our net revenue to $940,000,000 doubling our annual recurring revenue to over 40,000,000 and achieving these goals while maintaining a healthy debt leverage ratio of approximately 1x EBITDA. As demonstrated by IBI's 2nd quarter and first half twenty twenty two performance, particularly our strong ongoing backlog, We were already well on our way to achieving these goals. IBI had not been seeking a transaction before we were approached. In fact, we are all very excited about our strategic plan and we were confident we would achieve the set out results. However, the Arcadis transaction came to us resulting in a Board forming a special committee to assess the opportunity.

The Special Committee engaged strategic, financial and legal advisors and ran a competitive process, which resulted in more than one expression of interest. However, based on the extensive due diligence undertaken, The special committee concluded the Arcadis offer would be in the best interest of the shareholders and for the Board to recommend voting in favor of the acquisition. IBI and Arcadis already have an established collaborative working relationship and having aligned on current and anticipated upcoming LRT projects. We believe combining our respective solutions will position Arcadis with world class software and systems design, Systems integration, digital solutions, innovative capabilities that will result in a far greater impact for our clients and the people for both operations. The success IBI is realizing today stems from having a highly talented and effective group of Professionals were able to both get work as well as do the work. Our practice of integrating excellent technology tools It facilitates its collaboration among our global offices and help foster high utilization levels is an example of what can be done with technology and sets a reference in the industry. Finally, we have established and expanded our capacity as a result of both organic and acquisitive growth.

Collectively, we showcase the outstanding opportunity that IBI presents for Arcadis. Today, in 2022, I'm extremely proud of our results highlighted by stronger net revenue, organic growth, adjusted EBITDA and increased recurring billings. One of the areas we are most proud of is our backlog and Pipeline of better work that we have secured. This remains robust with no signs of slowing down. Quarter over quarter on the IBI sizable growth and implemented work across each sector. In Intelligence IBI secured $35,200,000 in new work during the quarter, an increase of 69% of the $20,800,000 secondurity in Q1. This meaningful increase reflects clients signing certain contracts in Q2, which had been delayed earlier in the year and will support continued backlog strength as well as annual recurring revenue. We continue to be awarded contracts with various toll and traffic management systems globally as well as our innovative transportation software solutions and products such as TravelIQ and CurveIQ. The second and acquisition of intelligence such as Hotspot further contributed to our growing intelligence sector committed work and backlog. Our infrastructure sector has remained a steady and stable contributor to IBI's backlog. We continue our long term public sector transportation projects including LRT and subway expansion, along with climate change related infrastructure projects.

Water and water wastewater management infrastructure also added to the backlog with IBI successfully securing a sizable water project during the Q2, owing to the expertise we acquired with Cole Engineering. As our backlog and staffing is at near record levels, We continue to benefit from the collaboration between teams across our global offices. IBI's building sector is having a tremendous year. In Q2 2022, we experienced ongoing strong demand across both public and private sector projects, largely led by Canada. However, our Canada West and U. S. Segments also posted robust results with strong performance from Subsectors including transit buildings, industrial, civic and our largest building sector, Living Plus. During the Q2, new committed work secured in our building sector expanded to 107,900,000 was $73,000,000 from $73,400,000 in Q1, a 47% increase quarter over quarter. Demand in our building sector is fueled by immigration, which drives ongoing demand for our mixed use high rise development, including mixed use living class and multifamily rental apartment buildings, either as infills on existing sites or greenfield sites along faster quarters. We are also seeing large commercial big box and shopping center sites being redeveloped as complete next use communities And IBI is being called upon to envisage master plans for these multiyear sites that have and multi tower sites that we believe will lead to many years of mixed use design work.

Recent examples include the Langstaff Gateway, the Langham Metro Center Master Plan and the Innisfil Orbit, all of which have multi tower commissions for IBI and the promise of more building projects in the future. I'll now hand it over to Stephen to elaborate on some specific financial results and economic drivers. Stephen? Thank you, Scott.

As you've heard this morning, we are extremely pleased with IBI's strong performance and the resilience displayed during the 2nd quarter, realized in an environment of inflation related concerns, recessionary pressures and rising interest rates. Despite this, We have remained competitive and have been successful finding and hiring new talent while effectively managing these ongoing pressures. As a testament to our business model, IBI's backlog has continued to grow in the current environment at a pace greater than we can complete the work. During the first half of twenty twenty two, our backlog saw record intake, as Scott has already mentioned, and was 17.5 months in Total at the end of Q2, representing $685,000,000 of work committed under contract for the next 5 years. We secured over $177,000,000 of new work in the quarter, up 34% from just over $132,000,000 secured in Q1. In addition to our tremendous backlog, our strong financial results are highlighted by IBI's performance across Key metrics through the 1st 6 months of 2022 relative to the same period in 2021. During the first half of this year, we generated organic growth of 10%, a net revenue increase of 11%, Adjusted EBITDA expansion of 12%, adjusted EBITDA margin maintained at 15.6%, Recurring billings growth of 15% and diluted earnings per share rising by 33%.

Our building sector has been particularly strong, generating net revenue growth of 15% in each of the 2nd quarter 6 months ended June 30, with adjusted EBITDA margins of 21.9 percent in Q2 and 22.4% in the first half of the year. In spite of increases in interest rates, growth in new residents of our key building markets continue. The trend of an increasing number of rental unit designs is also following previous quarters. Further, in addition to the macro Scott mentioned that are driving demand within our building sector. In Ontario, new building and development fees are being imposed in 2023, which has caused an increase in ongoing work to secure project permits during 2022, so that developers can avoid higher incremental costs starting next year. Intelligence posted net revenue growth of 11% and 8% in Q2 and in the first half of twenty twenty two, respectively, with growth in recurring billings, new committed work and backlog, as Scott has already outlined. Adjusted EBITDA margins from Intelligence were 18% of net revenue in Q2 and 19.1% of net revenue in the 6 months ended June 30, lower than the same periods in 2021 due to timing delays on revenue recognition for certain projects.

These are expected to be reversed through the balance of 2022. Ongoing public transit infrastructure contributed to infrastructure net revenue growth of 6% over both Q2 2021 and the 1st 6 months of 2022, representing a pipeline of future projects across the country, including further large scale transit expansion projects. Adjusted EBITDA margins for Infrastructure were 14.4 percent of net revenue in Q2 2022 and 14.1 percent of net revenue in the first half. At the end of quarter 2, net debt totaled $47,300,000 representing a net debt to trailing 12 months adjusted EBITDA ratio of 0.8 times. This reflects draws on the credit facilities to fund the cash payment for M and A transactions, including our acquisition of Hotspot during Q2, a platform which bolsters IBI's traffic and transportation practice. Based on our standout performance thus far in 2022, IBI has established a favorable position to contribute meaningful growth for Arcadis to build upon. Shareholders will be asked to vote on the transaction at an upcoming shareholders meeting scheduled for September 16, 2022, at which IBI's Board of Directors and single largest shareholder, the IBI Group Management Partnership, We'll recommend and support the shareholders vote in favor of IBI's acquisition by Arcadis.

From now through completion of the proposed acquisition, the team at IBI remains committed to ensuring client deliverables are met and that we continue to focus on our many strengths and unique capabilities to further drive financial performance. In closing, I'd like to thank our investors and the broader investment community who stood by IBI throughout our journey, particularly our bankers, including research analysts who covered us, corporate finance professionals, institutional sales desks, investment advisors and corporate access teams who've contributed overall to our success. We've been fortunate enough to work alongside some of the best and brightest in the industry over the years, and we truly wish all of you the very best. Thank you, Scott. And I will now take questions.

Thank you. Ladies and gentlemen, we will now begin the question and answer Your first question comes from Michael Kitrios, Desjardins. Michael, please go ahead.

Yes. Hi. Congratulations on the good results. Just got a quick question about how much were the acquisitions contribution to revenue in the quarter?

It was fairly nominal in the quarter. ROC There added just over $1,000,000 worth of revenue in the quarter. Hotspot was Quite the acquisition was quite late and had no real impact on the quarter.

Perfect. Thank you. And maybe just a follow-up on what would be the necessary steps after September 16 and The shareholder vote until the acquisition is completed, maybe just a global overview of what are the next steps after that date? Thank you.

Well, I think those are best answered by the lawyers and the circular will be coming out in just under 3 weeks' time. So I would ask that all investors And interested parties make reference to this circular for the steps that have to be undertaken. They will be set out in the circular.

All right. Perfect. Thank you for the time.

Okay. Thanks.

Thank you. Your next question comes from Frederic Bastian, Raymond James. Frederic, please go ahead.

Hi, good morning everybody. Good talking to you guys. One question around sort of the outlook for organic growth. You delivered exceptional growth in the second quarter. You've had good success hiring people. Just wondering where you think this can go in the next maybe looking into the second half, especially as So the economic headwinds are starting to mount. Just wondering your outlook for organic growth and Where you think things can go on a go forward basis?

We look at each of the sectors and Look as well at the geography. I anticipate that intelligence will continue to grow at High single digit rates, simply because systems and software are at the inflationary And in fact, it may, I mean, realizing an accelerated growth rate. We're certainly seeing no Reduction in demand and with various initiatives that we're seeing now with the approvals in the U. S. That the Biden program that there may even be certain accelerated opportunities in infrastructure and in Intelligence, especially in the energy related areas that are some sweet spots for us in electrification of transit, etcetera. The building sector is we still benefit greatly in Canada from the standpoint of immigration. There's no slowdown in that and it's creating a tremendous backlog of demand. What we anticipate though is there is going to be a slowing down on the condominium side, There's more than a take up of that work in the area of rental. And the Rental initiatives are being led largely by much more patient money in the from pension funds. And so we're not seeing any slowdown in that. And as Stephen alluded to, certainly in Ontario, there's an accelerated effort now through the end of this year to get approvals in place because of the added overhead costs.

Now with all of this growth, there also is need for all of the associated amenities, including healthcare, schools, community facilities, all of which are very much related to that growth. And we're not seeing any slowdown of a material nature in the infrastructure spend, the public transport infrastructure spend, Again, in Canada, we are targeting a strategic growth in the United States where there is Some immigration, but there's also significant migration and that is more end of the settlement stage. So we're very confident about that. And we also see as it highlighted in our strategic plan that the onshore and logistics, The amount of activity that we're seeing in that area has grown tremendously over the last couple of years, especially because of COVID and supply chain issues that we've seen coming out of Asia as an example. And so there's a lot more of that kind of work that we see that's going to carry us through the next few years. In fact, maybe even enhancement areas such as industrial plants and automotive facilities.

Thanks for that, Scott. That's all I have. I just want to say kudos to you and the team. We went through quite a journey together over the past 15 years, but all seems to be ending well. So congrats.

Thanks, Roger.

Thank you. There are no further questions at this time. Please proceed.

As a final comment, I would like to reiterate Stephen's concluding expression of appreciation. We certainly thank all of you. Frederick, as you mentioned, it's been quite a journey over the past 15 years and certainly for me and Stephen and the other In the last 9 years, there have been some extraordinary challenges, but with patients we persevered and you stay with us. We've been fortunate and working with you as being part of our good fortune. We wish all of you the very best. Thank you.

Thank you. Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.