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Q32011BirdConstructionIncEarningsConferenceCallFinal
7363words
11November2011
CQFDDisclosure
FNDW
English
2011byCQTranscriptions,LLC.Allrightsreserved.

Presentation
OPERATOR:Welcome,ladiesandgentlementotheconferencecall.WewillbeginwithMr.TimTalbott'spresentation,whichwillbefollowedbyaquestionandanswer
session.(OperatorInstructions)Whenwearereadyforquestions,youwillbeintroducedintotheconferenceintheorderthatyouarereceived.Mr.Talbott,please
proceed.
TIMTALBOTT,CHIEFEXECUTIVEOFFICER,BIRDCONSTRUCTIONINC:Okay.Thankyou.Goodmorning,everyone.Iwanttotakethisopportunitytothankyoufor
takingyourtimeandshowinganinterestinBirdConstruction.Asmentioned,wewillencourageyoutoaskquestion,butIwouldaskthatyouholdoffuntilIhavefinished
deliveringmyformalcommentsconcerningour2011thirdquarterandninemonthperformance.
WithmetodayisStephenEntwistle,ourCFO.Beforecommencingwithmymoreformalcomments,IwanttoremindthosepresentthatcertainestimateswhichImay
express,Management'sexpectationsorestimatesoffutureperformanceandtherebyconstituteForwardlookingStatements.ForwardlookingStatementsare
necessarilybasedonanumberofestimatesandassumptionsthat,whileconsideredreasonablebyManagement,areinherentlysubjecttosignificantbusiness,
economic,andcompetitiveuncertaintiesandcontingencies.Inparticular,mymoreformalcommentsandanyresponsestoquestionsyoumayaskmayincludeforward
lookingStatementsandthereforetheCompanycautionstoday'sparticipantsthatsuchForwardlookingStatementsinvolveknownandunknownrisks,uncertainties,
andotherfactorsthatmaycausetheactualfinancialresults,performance,orachievementsoftheCompanytobemateriallydifferentfromtheCompany'sestimated
futureresults,performanceorachievementsexpressedorimpliedbytheseForwardlookingStatements.ForwardlookingStatementsarenotguaranteesonforward
performance.TheCompanyexpresslydisclaimsanyintentionorobligationtoupdateorreviseanyforwardlookingstatementswhetherasaresultofnewinformation,
events,orotherwise.
Beforeprovidingyouwithamoredetailedanalysisofour2011thirdquarterandninemonthfinancialperformance,relativetoourperformanceinthecomparable
periodsayearago,wewanttotakeamomenttoprefacethosecommentswithafewgeneralobservationsconcerningthefinancialconditionofBird.Inthepastquarter,
wecompletedtheacquisitionofO'Connell.ThisacquisitionisaverysignificantmilestoneinthegrowthofBird.ForBird,itisasignificantacquisition,notjustfroma
financialperspective,butjustasimportantisthefactthatwehaveacquiredahighlyrespectedfirminheavyconstruction,civilconstruction,andcontractsurfacemining
sectorsoftheconstructionindustry.O'ConnellhascurrentoperationsinNewfoundlandandLabrador,NorthernQuebecandManitoba.TheacquisitionwillenableBird
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topursueheavycivilopportunitiesinCanada'scommodity,miningandhydropowermarkets.TheoutlookfortheCanadianeconomy,whichisinpartbasedongrowth
inthesesectors,isverypromising,andweareconfidentthatwecancapitalizeontheseopportunities.
Withtheacquisition,weacquiredbacklogofCAD152millionandshortlyafterthecloseofthetransaction,O'ConnellwasawardedaCAD100millionunitpricecontract
withArcelorMittalfortheremovalofwasterockattheclient'sMountWrightminelocatedinQuebec.Thisisaveryimpressivestartandaswewilldiscussinmoredetail
shortly,O'Connell'sprofitableoperationsaremakinganimmediatecontributiontoBird'snetincome.Wethinkitisalsoimportanttomentionthatcertainkeymembersof
O'Connell'sManagementteamwillremainasemployeesandassistBirdinthemanagementofO'Connell'songoing,growingoperations.Therelationshipwiththese
employeesisexcellentandweareveryexcitedaboutworkingwiththisverytalentedgroupofconstructionprofessionalsinthefuture.
Inthenotestoourinterimfinancialstatements,youwillseethatwehaverecognizedCAD1.6millionofnetincomefromO'Connellinourthirdquarterresults.That
amountofincomeincludespretaxedamortizationexpensesofapproximatelyCAD0.5millionrelatingtotheamortizationofintangibleassetsrelatingtovaluesallocated
toO'Connell'sbacklogandcustomerrelationships.Managementbelievesthatreadersofourfinancialstatementsshouldbeabletoidentifythenoncashimpactofthis
amortizationchargetoincome.Therefore,wehaveintroducedatermcalladjustednetincometohighlighttheseamounts.Althoughtheaftertaxedimpactinthecurrent
quarterisapproximatelyCAD350,000,it'squitesmallduetotherecognitionofonlyonemonthofO'Connellincomeinourcurrentquarterlyresults.Theadjustmentswill
becomelargerincomingquarters.AlthoughIamnotsuggestingthatyoudisregardthenetincomedeterminedusingGAAP,Ibelieveyoushouldalsoconsiderour
disclosureofadjustednetincomeinyourassessmentofourperformance.
Duringthethirdquarterof2011,theCompanygeneratedimprovedearningsrelativetothoserecordedinthefirsthalfof2011.Morespecifically,wereportednetincome
ofCAD9.5millioninthethirdquartercomparedwithCAD7.1millioninthefirsttwoquartersofthisyear.Theimprovementnotonlyreflectstheincomecontributionof
O'Connell,butalsotakesintoaccounthigherrevenuesandgrossprofitsderivedfromourpreacquisitionoperations.Wearenowbeginningtoseetheimpactof
improvedmarketconditionsinourearnings,andweremaincautiouslyoptimisticthatwearereturningtoaperiodofmorefavorableresults.
OurbacklogofCAD1.3billionatSeptember30,2011,representsarecordhigh.Itdoesnotincludetherecentawardofadesignbuildcontractsubsequenttothe
quarterendwithCanadaPosttobuildanewmail,processingfacilityattheVancouverInternationalAirport.Inaddition,duringthequarter,Birdandapartnerwere
awardedanotherTriplePdesignbuildcontractfortheRestigoucheHospitalCenterlocatedinCampbellton,NewBrunswick.ThisisBird'seighthTriplePawardsince
2008.Wewillcontinuetobeactiveinthismarketasevidencedbythefactwearepartofanotherconsortiumshortlistedtodesign,buildandfinancethreeToronto2015
PanandParapanAmericanGamesvenuesandarealsoengagingpartnersforotherTriplePprojectsubmissionsintothefuture.Inconjunctionwiththeacquisitionof
O'Connell,weincreasedtheamountofouroperatinglinesofcreditavailabletotheCompanytoprovideuswithaccesstomorefinancialcapacityandprovidinguswith
morefinancialflexibilitytosupportourongoingoperations.
Wewillnowsummarizeourthirdquarter,yeartodatenetincomeresultsrelativetoour2010resultsinthecomparableperiod.IntheninemonthsendedSeptember30,
2011,theCompanyreportednetincomeofCAD16.7milliononconstructionrevenuesofCAD642.5millioncomparedtoCAD36.9millionandCAD616.7million
respectivelyin2010.Despitehigher2011constructionrevenues,thereductionintheamountofnetincomecomparedwith2010isprimarilyattributabletothecombined
effectoflowergrossprofitandarelativelyhigherincidenceofincometaxexpensein2011,resultingfromBird'sincomebeingsubjecttofulltaxationin2011.The
previousincometaxadvantagesavailabletoincometrustspriortoJanuary1of2011,werereflectedinthe2010incomestatement,whilein2011incomebeforeincome
taxwassubjecttofullcorporatetaxation.ConstructionrevenueofCAD642.5millioninthecurrentyearwasCAD25.8millionorapproximately4.2%higherthan
revenuesrecordedinthesameperiodin2010.Theincreasein2011revenuesisprimarilyasaresultofO'ConnellrevenuesofCAD28.5millioninthecurrentyear.
Constructionrevenue,excludingrevenuesderivedfromO'ConnellofCAD614million,wereprettymuchinlinewiththeCAD616millionthatwereportedayearearlier.
GrossprofitofCAD48.5millioncompareswithCAD69.9millionayearago.
In2011,thegrossprofitmarginwas7.6%comparedwith11.3%in2010.ThelowergrossprofitfromBird'spreacquisitionoperationswaspartiallyoffsetbythe
contributionofO'Connellforonemonth.Thereductionin2011grossprofitforthepreacquisitionBirdoperationsisindicativeoftheimpactofaverycompetitivemarket
resultingfromcurrenteconomicconditions,whichwasnottotallyapparentinthegrossprofitsrealizedin2010.Asubstantialportionofthegrossprofitrealizedin2010
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includedprofitearnedonprojectswhichwereawardedinmorerobusteconomictimes.Thiswasparticularlyevidentinthefirsthalfof2010.Consequently,2010had
highergrossprofitmarginsthanthoseassociatedwithmorerecentlysecuredprojectswhicharenowbeingreflectedinthecurrentperiodearnings.Thisoutcomeis
supportedbythefactthatourthirdquarter,2010grossprofitmarginpercentagewas7.4%comparedwith11.3%intheninemonthresultsof2010.
GeneralandadministrativeexpensesofCAD26.8millionthisyearcomparedwithCAD27.8millionin2010.ThisCAD1millionreductionisprimarilyaresultoflower
variablecompensationcostsconsistentwithlower2011earningsoffsettosomeextentbyO'ConnelltransactionexpensesofCAD0.8million.Theamountoffinance
incomeofCAD2.8millionin2011remainscomparablewith2010,whiletheamountofinterestexpenseofCAD0.8millionisapproximatelyCAD250,000higherprimarily
duetointerestcostsrelatedtolongtermdebtusedtofinancetheacquisitionofO'Connell.Insummary,fortheninemonths,thereductionofnetincomeintheyearto
datecomparedwith2010isduetotwoprimaryfactors.Thefirstisthelowergrossprofitsfromthecompetitivemarketwearecurrentlyoperatingin,andthesecondis
theeffectofourentire,currentyearearningsbeingsubjecttocorporatetaxation.
Withrespecttoourthirdquarter2011resultscomparedwiththethirdquarterof2010,wearepleasedtoreportthatourcurrentquarter'snetincomeofCAD9.5million
wasCAD1.4millionhigherthantheCAD8.1millionrecordedayearearlier.The17%improvementinnetincomewasachieveddespitethefactthatour2011pretax
incomewasfullysubjecttocorporatetaxationwhereaslastyear,wewereabletoshelteraportionoftheincomeundertheincometrustscenario.Inthecurrentquarter,
ourCompanyachievedpretaxedincomeofCAD13.9million,approximatelyCAD5.3millionor62%higherthanthelevelsachievedin2010.Thesizableimprovementis
asaresultofhigherrevenuesderivedfromourtraditionalBirdoperationsandthehighergrossmarginsrealizedonthoserevenuescombinedwiththepositive
contributionofO'Connellinthequarter.ConstructionrevenueofCAD278.6millioninthecurrentquarterwasCAD47.4millionorapproximately20%higherthanthe
amountrecordedin2010.HigherconstructionrevenueinpartreflectsO'ConnellrevenuesofCAD28.5millionandhigherrevenuesderivedfromourtraditionalBird
operationsofCAD18.9millionor8%.TheincreaseinrevenuefromnonO'Connelloperationsisprimarilyafunctionoftimingdifferencesintheexecutionofanumberof
constructionprojectsonhand.
Inthecurrentquarter,theCompanywasabletoachieveconsiderableconstructionprogressonanumberofourlargeproductsthatcontributedtothisrevenueincrease.
InthequarterendedSeptember30,2011,grossprofitofCAD24.2millioncompareswithCAD17.1millionrecordedayearago.TheincreaseofCAD7.1millionisinpart
attributabletothecontributionofO'Connell,butisalsoasaresultofthecombinedeffectofhigherrevenuesandhighergrossmarginpercentagesrealizedinournon
O'Connelloperations.Theimprovementingrossmarginpercentagesisindicativeofimprovingmarketconditionsandtheimpactitishavingonourprojectmargins.
GeneralandadministrativeexpensesofCAD10.5millioninthecurrentquarterwereCAD0.9millionhigherthan2010,resultingfromthecombinedeffectofhigher
variablecompensationcosts,inclusionofO'ConnellG&Acosts,andtransactioncostsrelatingtoO'Connell'sacquisition.
Lookingforward,wehavepreviouslymentionedinourcallsthatallofusareawarethattheconstructionbusinessiscyclicalandthatwebelievedwehadreachedthe
lowpointinthecycleandwearebeginningtoseeevidenceofimprovingconditions.Ourthirdquarterresultssubstantiatethisviewpoint.However,weareunderno
illusionthatwewillseeanimmediatereturntothemarketconditionthatdroveBird'sincomeresultsin2008and2009.Althoughweremaincautiouslyoptimisticforan
economicrecovery,thestrengthofarecoverycanveryeasilybederailedbythereturnofaneconomicslowdownprecipitatedbyaweakUnitedStateseconomy,
sluggishgrowthinAsia,allcombinedwiththestateofthefinancialmarkets,includingthecurrenteconomicissuescurrentlybeingaddressedinEurope.
Onamorepositivenote,ManagementbelievesthattherewillbearesurgentofconstructionactivitiesintheAlbertaoilsands,andwearepositionedtobenefitfroman
increaseinactivityinthisarea.Furthermore,wearepositioningourselvestofurtheraddressthemaintenancerequirementsofouroilsandsclients.Wehavebeen
successfulinthepublic/privatepartnershipmarketbothintermsofsecuringprojectsandsuccessfullyexecutingtheprojectsonscheduleandwithinbudget,again
demonstratingtheCompany'sstrongabilitytoexecute.NewTriplePopportunitieswillcontinuetocometomarketandBirdwillcontinuetopursuethesedesignbuild
contracts,notonlyasaconstructioncontractor,butwewillalsoconsiderinvestingequityinthespecialpurposeentitiesthatcontractwiththeTriplePclients.
Todate,theoperationsatO'Connellhavematerializedessentiallyaswehadenvisionedwhenwewereexecutingtheacquisition.Aswehavementioned,O'Connell
wasawardedtheCAD100millionprojectforArcelorMittalandhasalsoseenadditionalprojectawardsofanormalnaturesincetheclosingofthetransaction.We
continuetoworkwithandsupportO'ConnellinthepursuitofadditionalopportunitiesthatmayhavebeenoutoftheirreachpriortoBirdbecominginvolved.Wearealso
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pursuingcrosssellingopportunitiesbetweenO'ConnellandBirdinordertocapitalizeontheindividualstrengthsonthetwofirms,butnowworkingtogetherasa
combinedentity.O'Connell,conductingbusinessaswasthenormbeforethetransaction,willproducefavorableandaccretiveresultsforBird.Anyofthebenefitsthat
arisefromthecooperationofBirdandO'ConnellwillprovidefurtherearningsgrowthtotheconsolidatedresultsoftheCompany.
TheCanadianeconomyisunderpinnedbytheresourcesector,andwebelievethatourtransactionwithO'ConnellwillbetterpositionBirdtotakeadvantageofthe
inevitableprojectsthatwilltakeplaceintheresourcesectoracrossthecountry.Witharecordlevelofbacklogandaprovenexecutionmethodology,weremainvery
confidentinBirdandsodoestheBoardofDirectorsofourCompanyasevidencedbytheirdecisionearlierthisyeartoincreasetheamountofourdividends.Iwillnow
turnthecallbacktoourconferenceoperatorwhowilltakeyourquestionsinorder.Thankyou.
QuestionsandAnswers
OPERATOR:(OperatorInstructions)OurfirstquestionwillbefromMarkNevillewithScotiaCapital.Goahead,please.
MARKNEVILLE,ANALYST,SCOTIACAPITAL:Hi,goodmorning.Justlookingatthegrossprofitmargin,Iwaswonderingifyoucouldgiveusanindicationofprofit
marginsforthelegacyBirdinthequarter?WesawabigbumpandI'mjusttryingtofigureouthowmuchfromBirdorO'Connell.
TIMTALBOTT:Well,Ibelieveit'snote5ofthefinancialstatement,you'dseewhatO'Connellcontributed.So,it'sCAD1.6million,Ibelieve,netincome.So,Bird'slegacy
projects,ortraditionaloperatingareas,alsosawabumpingrossprofitmargins.So,weonlyhadO'Connellforonemonth,sothere'snotahugecontributioninthe
overallschemeofthings.AgoodchunkofitdidcomefromBird'straditionaloperations,Mark.
MARKNEVILLE:Okay.Again,it'sjustmovingforward,howcomfortableareyouwiththosemarginsatBirdnow?Sustainability,Isuppose?
TIMTALBOTT:Yes,Icautionyou,guys.Iknewthiswouldbethefirstquestionoutofyou.Donottakearulerandgofromthelowofaquarterortwoagoandputiton
thepointthatwe'reatthistimeandjustdrawthatstraightlineup.Youhavetotakeaweightedmovingaverageovertime.AsIsaidinmyremarks,wearecautiously
optimisticthatthingswereturningaround.
Wealwayssaidthat2011wouldbeourtoughestyear.Webelievewe'restartingtoworkoutofit.Couldnextquarterbeasgoodasthisquarter?Sure.Coulditbe
worse?Sure.
Thisbusinessisverylumpy,andonequarterortwoquartersdonotmakeaCompany.Ithinkyouhavetolookatthisoverthelongterm.Ithinkifnextyearatthistime
whenwe'retalkingandlookingback,Ithinkwewillseeagradual,continualimprovementinourresults,assumingtheeconomycontinuestoturnaroundaswe'reall
anticipating,withoutanysignificantimpactfromtheworldeconomicissuesthatarebeingdealtwith.
MARKNEVILLE:Maybejustonelastquestion.FortheO'Connellwhowasthereforonemonth,wehadCAD28.5millioninrevenues.Ifweextrapolatethatforthe
quarter,thatwouldhavebeencloseto40%of,Iguess,trailing12monthrevenueswhenyouboughtit.Wehadn'tassumedtoomuchseasonality.Atthispoint,isthere
alotofseasonalityatplaythereorit'sjustthebusinessescontinuetogrowatthepacewhenyouboughtit?
TIMTALBOTT:No,there'smoreseasonalityinO'Connell'sworkthanours.September,theonemonththatenteredinthatquarter,wasprobablyoneoftheirhigher
months,andwillbe,ImeantheyreallyputthepedaltothemetalinJune,July,August,September,OctoberandthenitstartstotailoffthroughNovember,December,
Januarythenstartstorampupslowly.So,thereismoreseasonalityintheirwork.
So,youcannottakewhatwedidinonemonthandmultiplyitbythreeforthefourthquarter.NorwouldIsay,justlookingback,Steve,whenwelookatwhatcamein
thatquarter,wouldwesaythatisindicativeoftheprevioustwomonths,too,hadwehadtheminthequarter?Orwasthereanythingintherethatwasslightlyhigher
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STEPHENENTWISTLE,CFO,BIRDCONSTRUCTIONINC:No,Iwouldn'tsuggesttherewasanythingabnormalintheCAD28.5millionthatwasrecognizedinthe
monthofSeptember.AndifitisprobablyanindicatorofwhatyouhaveseeninJulyandAugust.Thosearetypically,asTimhasmentioned,highrevenuegenerating
monthsforthisbusiness.
MARKNEVILLE:Good.Thankyouverymuch.I'llturnitover.
TIMTALBOTT:Okay,Mark.
OPERATOR:OurnextquestionwillbefromGregMcLeishwithGMPSecurities.Goahead,please.
GREGMCLEISH,ANALYST,GMPSECURITIES:Hi,guys.NottodwellontheHJO'Connell,butIguesswhenItookalookatit,itdidgeneraterevenueofabout
CAD186.7millionintheirlastfiscalyear.Whattypeofgrowthareyoulookingforoutofthatoperation?YoujustwonthatbigCAD100millioncontract.Isthatgoingto
augmentgrowth,ormakeitafastergrowingpartofyourbusinessgoingforward?
TIMTALBOTT:Theirworkisprobablyevenmorelumpierthanourwork,sotheygetlargeawardsandthentheymightgoforaperiodwithnotgetanything,sothey
burnitoff.Andthentheygetanotherlargeawardandburnitoff.Ifyourecallthatlittlechartthatweputtogetherinthetransactionpresentationwhenweannouncedthe
acquisition,yousawthegrowthwasquitedramaticthere.
Ouropinionisthatweneedtostabilizethingsandkeepitinthatrange,theCAD180milliontoCAD200millionrange.Thedifficultissuehereispeople,asyou've
probablyheardfromanumberofourcompetitors.ThisbusinessisshortofpeopleandO'Connellhasthesamething.So,wecangoandgetthework,butifyoudon't
havethepeopletooperateit,you'llbedoingvolumewithpoorbottomlineresults.That'snotwherewewanttogo.
So,onaverymeasuredapproach,wewillgrowtheCompanyslowly,butyou'renotgoingtoseeadramaticgrowth.So,Idon'tthinkyoucantakethatCAD100million
andjustputitontopandsay,nowthey'regoingtodoCAD287millionandwhatnot.
Wedowanttogrowthebusiness.There'snodoubtaboutit.Butaswe'vedonewithBird,wewanttotakethesameapproachwithO'Connell,slowandsteady,and
makesurewecanexecute.
Asyouknow,Birdisrecognizedasbeingabletoexecute.Wedon'ttypicallygetintoditchandhavetomakeannouncementsordiscussprojectsthathavegottenusinto
trouble.Andthat'stheapproachwe'regoingtocontinuetotakewithBirdandthatwewillbetakingwithO'Connell.
GREGMCLEISH:Great.HowmuchopportunityforyouisonLowerChurchillforO'Connell?
TIMTALBOTT:Idon'tknowwhoelseisgoingtobeoutchasingit.Wecertainlywillbegoingafterallaspectsoftheworkrightfromthepreconstructionworkthat
happensonthesite,andalsosettingupthesiteinfrastructure,throughtothebigearthworkcontracts,themassdirtmovingupcomponentsoftheproject,andright
throughtothecivilwork,theconcretework,andhowwe'llactuallyevenlookatthebuildings,becauseBirdcanbringthatexpertisetothetable.
Ofcourse,wewon'tdothewatertowirestuff,theelectricalandtheturbinesandalltherestofthatstuff.Thatwillbeoutside,buteverythingelsewillbeinplaythere.
GREGMCLEISH:Great.AndjustwhenIlookedatyourbacklogthere,youdidsaythatyouwoulddeliverorputinplaceinQ4,aboutCAD356million.That'saprettybig
number.Howconfidentareyouthatyou'llbeabletodothat?BecauseI'veseenthosenumbersbefore,buthistoricallyitalwaysisalittlebitlessthanthat.
TIMTALBOTT:Yes,whenyouaddthatup,itcomesuptoCAD1billionovertheyearwithwhatwe'vealreadydoneinthefirstthreequarters.Theworkisthere.It'sjust
amatterofwhatprogresswemakeonit.So,you'reright.Sometimeswehaven'tbeenabletoachievewhatweestimatedwhenweputtheQ3reporttogether,butwe're
goingfulltiltonanumberofprojects.
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AswementionedintheMD&Aandinmyremarkshere,anumberofourlargerprojectsarerightinthefullswingofconstruction.So,they'rerampedupandwillbe
continuingtorampup.So,we'reprettyconfident.ThebigjobsareRCMP,ASAPII,OPP,ThunderBay.Thesethingsarejustrightintheheartofconstruction.
Pleasantville,andwiththerestoftheworkcomingonstream,we'rethinkingwe'llhaveagoodshotatgettingthere.
GREGMCLEISH:Great,andjustonefinalquestion,whenyoutakealookatnextyearinthelegacybusiness,whereareyouseeinggrowth?Areyouseeinggrowth
backonthecommercialandindustrialsideoffsetbymaybealittlebitofaslowdownininstitutional?Orhowareyoulookingatnextyear?
TIMTALBOTT:That'sprettymuchit.Youhitthenailontheheadthere.That'sallpredicatedontheoneassumptionthatwhateverhappenswiththemacroeconomy.
Butweareseeingincreasedopportunitiesinthecommercialsector,bothinhotels,apartments,retailstuff.
We'reseeingmoreopportunitiesinthat.Industrial,aseverybody'sbeensaying.We'reseeingopportunitiesinnorthernAlberta,Saskatchewan,Manitoba,NorthernBC.
Soyes,weexpectgrowthinthosetwomarketsectors.Andyou'reright,theinstitutionalsectorwillprobablydeclinesomewhat.
GREGMCLEISH:Ifthat'sthecaseandyoudogetmoreindustrialwork,itcouldbebeneficialtoyourmarginoutlookthen?
TIMTALBOTT:Absolutely.
GREGMCLEISH:Good.I'llgetbackinthequeue.Thanks,guys.Greatquarter.
TIMTALBOTT:Thankyou.
OPERATOR:ThenextquestionwillbewithMichaelTupholmewithTDSecurities.Goahead,please.
MICHAELTUPHOLME,ANALYST,TDSECURITIES:Thanks.Goodmorning,TimandStephen.IhadaquestionabouttheP3markets.You,bothinyourMD&Aandin
yourremarks,soundedprettybullishaboutthecontinuedopportunitiesthere,especiallygivenyourtrackrecord.Butwe'vebeenhearingcommentsfromotherfirmsthat
areactually,seemtobe,pullingbackfromthatmarket,lookingatopportunitieselsewhere.
Again,itsoundslikeyou'regoingtocontinuetogofullonthere.I'mjustwondering,doyouchangeyourapproachatallgiventhecompetition,ordoyougetmore
selective,orhowdoyoudealwiththecompetitionthat'sexistinginthatmarket?
TIMTALBOTT:Ithinkyou'reright.Alloftheabove.Iguesswhatwe'resayingisthattherestillwillbeopportunitiesinTriplePmarket.We'reconfidentinourabilitiesto
securetheworkbecauseofourprettysuccessfultrackrecord.Andweareveryselective.Ithinksomeoftheotherguysouttheretakemoreofashotgunapproach,but
ourapproachistopickjobswherewethinkwecanaddvalueandidentifyaverydistinct,competitiveedgethatwillultimatelymakeussuccessful.
Thatsaid,there'snodoubtaboutitthatthecompetitionisincreasing,andthat'shavingtheeffectofdrivingmarginssomewhatlower.Butitstillisbetterworkthana
hardbidjobouttherewithsevenoreightcompetitorsonit.Andithasmargingrowth,assumingyoucanexecuteproperly.Onceagain,toreiteratewhatI'vesaid,we
areveryconfidentinourexecutionabilities.That'swhatthisfirmisknownabout,orknownfor,Ishouldsay.Andifwe'reabletogetthesejobs,webelievewe'llbeable
tobringthemarginshome.
MICHAELTUPHOLME:Okay.Thanks.QuestionforyouabouttheArcelorMittalcontract.How'sthatrampingupandareyounowatanowatornearingrunratetype
levels?Andafollowuptothat,isthereseasonalityinthatcontract,likeyousuggestedthereisinotherpartsofO'Connell?
TIMTALBOTT:Yes,it'sgettingstartedalittlebitslowerthanwe'dexpected,becausetheclientisn'treadytoturnovertheareastous.It'llslowdownthrough
December,January,andthenit'llreallypickupin,probably,latefirstquarter,earlysecondquarternextyear,andthengogangbustersthroughtheyear.
MICHAELTUPHOLME:So,oncethatgetsgoing,though,thereisn'treallyseasonalitytoworryaboutthere,onceitdoesrampup?
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TIMTALBOTT:No,no,therewillprobablybealittlebitit'llprobablyslowdownagainnextDecember/January.
MICHAELTUPHOLME:Okay.
TIMTALBOTT:Justwhenitgetsreallycoldupthere,it'sjustnoteconomicaltoruntheequipment.
MICHAELTUPHOLME:Right,okay.
TIMTALBOTT:Plus,onceweopenupenoughofthemineforthemtodotheirfollowupwork,theydon'twanttousgettoofaraheadofthem,soit'ssortofastage
thing.Thecontractwasslatedtotakeplaceoverthreeyearsandthat'sstillwhatweanticipateoccurring.
MICHAELTUPHOLME:RecognizingyourcommentsearlieraboutnotwantingtogrowO'Connelltoofast,andyou'regoingtogoatameasuredpace,canyoutalk
aboutopportunitiesthere,asitrelatestothePlanNordinQuebec?
TIMTALBOTT:Yes,PlanNordisrightdowntheiralley.IfyoulookatO'Connell'shistory,theyusedtohaveaverysignificantnumberofprojectsupinnorthernQuebec,
soit'shydro,it'sairports,it'shighways,it'sbridges.WhatelsedidImention?Imentionedhydropowerplants.
AllthosethingsthatareinPlanNordareareasofoperationalstrengthforO'Connell.Wewilltargetallofthosewhentheycomeout.Asyouknow,PlanNordisavery,
longrangeproject,soyouarenotgoingtoseeallofthisinthenexttwoorthreeorfiveyears,even.Ithink,ifIrecall,it'sa30or40yearplan.
It'sallareasofexpertisethatO'Connellhas.It'sallareasthatthey'veworkedin.It'sallthingsthatweareverycomfortablewithandit'sallthingsthatwewillgoafter,
onceagainassumingwehavethecapacitytodoso.Wewillnottakeonworkwithouttherequiredprofessionalcapacitytoexecuteit.
MICHAELTUPHOLME:Onelastthingforme.IntheMD&Aandagaininyourpreparedremarks,youtalkabouttheimpactthattiminghadonfavorablyinfluencingthe
revenuesthatyougeneratedthisquarter.I'mjustnotreallysurehowtoreadthosecomments,particularlygiventhesuggestionthatifyoucanputallofthatbacklogin
placethatyouexpectinthefourthquarter,youcouldbelookingatanothergoodquarterinQ4.
Sowhenyoutalkabouttiming,whatisityouweresaying?Therewassomestuffthatreallycamethrough,butdon'treadintothatasbeingarunratetypelevel?I'mnot
surehowtointerpretthat.
TIMTALBOTT:It'sjustwhatIsaidearlier.Iforgotifitwasyourquestionoroneoftheotherguys,it'sjusttheprojectsarejustrightintheheartofthem.Whenyoustart
offthejob,itstartsoffslowly,right.Thenyougetintotheheartofit.We'vejusthadanumberofprojectsthatinthethirdquarterandwebelieveitwillcontinueinthe
fourthquarter,thoseprojectsthatImentionedearlier,RCMP,OPP,ThunderBay,Pleasantville,ASAPIIallthosejobs,they'rejustintheheartoftheirconstruction
period.
So,they'rejustreallygoinggangbusters,sothatjustcomestogetherinthesecoupleofquartersandprobablywillcontinue,quitefrankly,inthefirstquarter,too,ofnext
year.Hopefully,wegetotherjobs.They'llstartoffslowly,forexample,ArcelorMittalstartedoffslowly.Butwhenwegetintothesecondquarterofnextyear,thatthing
startsrampingup.We'vejustgotalotofmomentumgoingforusrightnow.
MICHAELTUPHOLME:Anyofthejobsthatyoulistedthatarehelpingdrivethestrengthrightnow,whendotheystarttowinddownsomeofthosejobs?Isitquitea
waysout?Arewelookingkindofearlynextyearthatsomeofthatwillcomeoff?
TIMTALBOTT:Yes,ASAPIisduetocompleteinMayof2012.RCMPislate2012.OPP,theprojectsstartcomingonlineallthroughout2012,soit'llstarttorampdown
inthemiddleof2012.
WhichotheronesdidImentioned?Restigouchewillberampingupthrough2012.Pleasantvillewillbegoingallthrough2012.WhathaveImissed?ThunderBaywillbe
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goingallthrough2012.It'snotscheduledtobecompleteuntillate2013.Isthatgivingyou(multiplespeakers)
GREGMCLEISH:That'sagoodsense.Thanksverymuch.That'sallIhave.Thanks,guys.
OPERATOR:ThenextquestionwillbefromPaulLechemwithCIBC.Goahead,please.
PAULLECHEM,ANALYST,CIBC:Thanks.Justacouplehere,justonthebacklogyouhave.Canyougiveusanysenseofthemarginprofileoftheworkthat'sin
there?You'vebeensigningupnewstuff.Justinthegoinsense,whatareyouviewingthemarginsat,comparedtowhatyou'vedeliveredoverthelastyear?
TIMTALBOTT:Really,thenumberyou'relookingforisthecomingoutmargins,whichI'mnotgoingtotalkabout,becausewedon'tprovideforecastsonthanstuff,
otherthangiveyouthegeneralsensethatourindustrialworkisourtopperformer,followedbyTriplePstuff,followedbydesignbuild,movingdownthroughoutthe
marketsectors.ButIwillsaythis,ourgoinginmarginsareimproving,andtheyhaveimprovedconsistentlythroughouttheyear.
So,thefirstquarter,theywereX.Thesecondquarter,theywereXplus.Thethirdquarter,theywereXplus,plus.So,we'veseenthat,andwe'reonceagaincautiously
optimisticthatthattrendwillcontinue.
PAULLECHEM:Fromwherewe'reattoday,youmentionedearlierinthecall,youdon'tseeusgettingbacktothe'07through'09periodintermsofmargins,butwhere
cantheygofromhereifthiscurrenttrendcontinues?Isthereanother200basispointsupsidefromhere?
TIMTALBOTT:Idon'tknowwhatitisintermsofbasispoints,butwe'vesaidthatwehopetogetbacktothe20052006asasteadystate,marginperformingentity.
PAULLECHEM:Intermsofyourcapacitytodeliver,youmentionedthattheworkforceisarestraintonHJO'Connell'sgrowth.Doyouhavecapacitytotakeonmore
workthat'ssortofthelegacyBirdoperations,ifyouwill?Istherestillmoreroomtobringonmorework?
TIMTALBOTT:It'sanongoingthing.Yougetjobs,youfinishjobs,right?Youcontinuetocyclethrough.Imean,we'recontinuingtogrow.Lastyear,Ithinkweadded
over200peopletoBird.Thisyear,we'veprobablyaddedanother150alreadytothistimeintheyear.
So,we'recontinuingtoaddcapacity,andIthinkyouseethatinthebackloggrowth.Youseethatintherevenuegrowth.You'llseeitultimatelyinwhatweputinplace
fortheyear.Ifwegetclosetothatbilliondollars,that'sclosetotherecordthatwehadin2008,Ithinkitwas,wherewewerejustoverCAD1billion.
ButIdon'tknowthatthoseareequivalentbilliondollars,becausethe2008numberwassoinflatedintheheightoftheeconomicboom.So,Ithinkwe'reactuallyputting
moreworktothebottomlinefromarevenueperspectivethisyearifwegetclosetothatbilliondollarmark.Soyes,we'repullingoutallofthestopstoincreaseour
capacity,butonceagain,we'regoingtodoitinameasuredway.
We'renotgoingtogoandjustaddpeopleforthesakeofaddingpeople.Thepeoplethatwe'readdingaretypicallyatlower,attheincominglevel,withintheCompany.
Andthenwegroomthesepeopleandgrowthem,asopposedtohiringawholebunchofseasoned,seniorpeoplethatyouknownothingabout,becauseittakestimein
thisbusinesstohaveanunderstandingoftheircapabilities.
So,wearedoingthingstogrowtheCompany,andwithO'Connell,too.Andwe'realsolookingatmovingpeoplebetweenthetwooperations.We'vegotanumberof
peopleinBirdthattheirhomesareoutontheAtlanticcoastandnowthey'vegotanopportunitytogobackthere.So,we'lllookatwhateveropportunitieswecanto
supplementO'Connell'sstafftoconcentrateonthehighermarginprojectsthatthey'reabletogoafter.
PAULLECHEM:Okay.Allright.Lastquestion,ifImay.OntheHJO'Connellfleet,theequipmentfleet,canyougiveusyoumighthavementionedthisattimeof
acquisition,butcanyougiveusanupdateonwhattheCapExlookslike,whetherthere'saseasonalpatenttotheCapExspending,themaintenancespendingonthat
fleet?
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TIMTALBOTT:Yes,ontheCapExacquiringnewequipment,Idon'tthinkthere'sanyseasonality.Ithappenswhenithappens,whenyoueitherneedequipmentto
replacestuffthatisattheendoflifeoryouhaveademandforadditionalequipmenttosupportnewcontracts.WithrespecttothemaintenanceCapEx,it'srelatively
stablethroughtheyear.
You'llprobablyseealittlebitofincreaseintheslowtime,thewintermonths,becausethat'swhentheyactuallydotheirmaintenance,whenthisequipment'sdown.
Whenrevenuesarelower,theybringthatequipmentintotheshopandthat'swhenthey'redoingthemaintenance.Soyoumightseeitslightlytakeanuptickinthelate
fourthquarterandthefirstquarterofanygivenyear.
PAULLECHEM:So,couldyougiveusaforecastoftotalCapExfornextyear,assumingnootheracquisitions?Whatitwithlooklike?
TIMTALBOTT:Idon'thaveanythinginfrontofmerightnow.Ithinkwesaidatthepresentationtimearoundsix,orsomething,andIthinkthat'swe'veseennothingto
changethatforecast.
PAULLECHEM:Thanksverymuch.
OPERATOR:ThenextquestionwillbefromFrederickBastonwithRaymondJames.Goahead,please.
FREDERICKBASTON,ANALYST,RAYMONDJAMES:Goodmorning,guys.Tim,Iwaswanderingifyoucouldcommentonthestateofthecommercialconstruction
intentionsrightnowacrossyourmarkets?
TIMTALBOTT:I'lldomybest.AsImentioned,weareseeingincreasedopportunitiesinthecommercialmarket.We'reseeingmostofthoseopportunitiesin,probably,
centralCanadaandAtlanticCanada,andprobablyinManitoba,too,Ishouldsay.We'reseeinglessofthem,particularlyonthewestcoast,lowermainland,appearsto
berightdrywithcommercialopportunities.
SouthernAlberta,there'safewthere,butthey'refairlycompetitivethere.NorthernAlberta,we'renotreallylookingatit,becausethat'snotourmainstay.AndlikeIsay,
whenyoucomeManitobaeast,that'swherewe'reseeinganincreaseinopportunitiesinthecommercialmarketofferings.
FREDERICKBASTON:That'shelpful.WithrespecttotheamortizationyouexpensedforHJO'Connell,IunderstanditwasforamonthinQ3.Butcanweextrapolate
thatforthreemonthsonaquarterlybasis?
STEPHENENTWISTLE:I'dbealittlebitreluctanttodothatsimplybecausealargeportionofthatintangibleassetrelatestobacklog,andwe'llamortizethebacklog
againsttherevenuesasthey'rerealized.So,Idon'tknowthatitlendsitselftostraightlineextrapolation.
FREDERICKBASTON:So,therewillbesomeseasonalitytothatamortization?
TIMTALBOTT:It'snotreallyseasonality,Fred.It'sjustthatthebacklogisamortizedataquickerratethanthecustomerrelationships.Thecustomerrelationships,as
wesaid,isstraightlinedovereightyears,Ibelieveitwas.Eightyears,Stephen?
Andsowe'veidentifiedthatnumber.So,thatnumberyoucangoanddothemath.Thebacklogwillcomedownfairlysteeply,andit'sbasically,thefirstyearit'sabout,
fromthefirstyearofacquisitions,Stephen,it's70%ofit?
STEPHENENTWISTLE:Around70%.
TIMTALBOTT:70%ofit,andtheninthenextsixmonths,youwipeoutanother20%ofit.Andbytheendoftwoyears,it'sbasicallytoast.
FREDERICKBASTON:That'shelpful,thankyou.
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TIMTALBOTT:Okay.
OPERATOR:NextquestionwillbefromYuriLynkofCanaccordGenuity.Goahead,please.
YURILYNK,ANALYST,CANACCORDGENUITY:Hi,guys,I'mjustgoingtofollowuponFrederick'squestion,butIwasgoingtoaskifyoucouldactuallygiveussome
guidancefor2012intermsofyourrunrateofdepreciationofthePP&Eandthentheamortizationofintangibleassets?
TIMTALBOTT:Didn'tIjustgivethattoyou,Yuri,oristheresomethingmore?
YURILYNK:Ididn'tcatchit.
TIMTALBOTT:Okay,I'msorry.So,ifyougotoletmeseeifIcanpullsomethingupquicklyhere.Goahead,Steve.
STEPHENENTWISTLE:YoucanseethatthedepreciationisinthevicinityofCAD2.5millionforninemonths.Thatamountyoucouldprobablyextrapolatewithrespect
totheamortization.Ithinkwe'vesaidthatthebacklogisoveraperiodofeightyearsorthecustomerrelationship,overaperiodofeightyears.Andthebacklogwill
typicallybeburntoffsomewherebetween12and18months.
TIMTALBOTT:Ifyougotonote5inthefinancials,sothecustomerrelationshipsisCAD8.4million.
YURILYNK:Yes.
TIMTALBOTT:Sothatwillbestraightlinedovereightyears.Okay?
YURILYNK:Yes.
TIMTALBOTT:ThebacklogisjustunderCAD6million,andwesaidroughly70%ofthatwillbeinthefirst12monthssinceacquisition.
STEPHENENTWISTLE:That'sright.
TIMTALBOTT:Thentherestofitburnsoff,basically,inthesecondyear.
YURILYNK:Okay.That'shelpful,thanks,guys.
OPERATOR:Therearenofurtherquestions.Wewillnowbeginourclosingcomments.
TIMTALBOTT:Ididn'tknowIhadtodoclosingcomments.Stephen,youdidn'tprepareanyforme.(laughter)Okay,well,thankyou,everybody,forcallingintodayand
takinganinterestinourCompany.StephenandIarealwaysavailable.Ifyouhaveanyfurtherquestions,don'thesitatetogiveusacallattheofficeatyour
convenience.Haveagreatday,everyone.
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