Canadian Quarterly Earnings Pulse - Q4 2022

Michael Huynh Mar 16, 2023
Headline image for Canadian Quarterly Earnings Pulse - Q4 2022

This week, we continue to summarize the broader pulse of public Canadian companies by looking into another set of quarterly earnings (previous post). 

Below, we highlight the Macro, Industry and Corporate trends that we have observed along with quotations from 5i coverage company executives. In this weeks Earnings Pulse, we note underlying themes of hiking interest rates, its effect across industries, and how management teams are hedging these headwinds, as well as executives’ views on how to improve business fundamentals in tough times and integrate acquisitions to create synergies.


Supply chain-related issues subsiding did not solve industry-wide cost pressures

“On Slide 6, I'll provide an update on our 3 North Carolina solar projects. Our expectations have been that once the supply chain-related issues caused by COVID had subsided, costs would return to more normal levels. Unfortunately, that has not materialized as these projects continue to be uneconomic with their existing 2020 PPAs and significantly higher construction estimates due to industry-wide cost pressures.” – Capital Power Corporation (CPX) CEO, Brian Vaasjo


Hedging amid an uncertain macro environment provides stability in cash flows, optimizing prices and volume against market fluctuations

“In addition to the remaining open baseload position, gas peaking and renewable assets are available to capture the higher power prices. The hedge strategy provides stability by reducing fluctuations in cash flows and optimizing price and volume positions that mitigate against price changes and market liquidity. The hedge position includes longer duration origination contracts as another mechanism to manage price risk. The graph on the left shows the relative magnitude of hedges that were long duration and extended out to years where we will see lower power prices.” – Capital Power Corporation (CPX) CFO, Sandra Haskins


High interest rates made managing variable rate exposure crucial in controlling interest expenses

“As for our mortgages, we had a total of $1.7 billion outstanding at the end of December with an average term to maturity of 5.2 years. This represents an increase from the previous year-end where the average term to maturity was 3.6 years. Our weighted average interest rate also increased to 3.22%, which is within the expected range that we had previously mentioned during our Q3 earnings call. Our CMHC insured mortgages increased to 82% of our mortgage portfolio, providing added protection against liquidity risk in the market. The variable rate exposure was reduced to 5% at the end of the year, and we expect to continue to maintain it in this 4% to 6% range.” – InterRent Real Estate Investment Trust (IIP.UN) CFO, Curt Millar


Appropriate risk management helps banks avoid credit losses as a result of monetary policy tightening

“Each and every year during that period, we've grown EPS, including in 2022, with an ROE average over that period of 16.4%. EQB's value creation method, which we have again outlined in our MD&A, applied with discipline and executed with excellence, provided these differentiated and industry-leading results. Speaking to the here and now, what EQB demonstrated in Q4 is solid margin expansion year-over-year and very low realized loan losses. Based on a consistent and effective risk management processes and practices, we should emerge from this period of Central Bank tightening without unusual credit losses.” – EQB Inc. (EQB) CEO, Andrew Moor


Deterioration in the macro economic picture could potentially trigger a rise in delinquencies

“This is higher than Q3 as expected because of a couple of key factors. While delinquencies are stable, there was broad deterioration in macroeconomic variable forecast compared to forecast at the end of Q3, including unemployment, GDP, HPI and the commercial price index. These forecasts triggered model-driven changes with Stage 1 to Stage 2 migration, which represented nearly 3/4 of the Q4 PCL excluding the onetime items. With Concentra, we added some new assets with a different risk profile, but also higher yield, including nearly $900 million in diverse consumer lending assets, which you now see as part of the personal banking portfolio. Plus, we added more than $0.25 billion in additional prime quality equipment financing assets to the commercial banking portfolio.” – EQB Inc. (EQB) CFO, Chadwick Westlake


Companies have reduced their advertising budgets due to recessionary pressures

“We expect to achieve positive total company revenue growth driven by illumin in 2023 as it continues to become an even larger percentage of our overall revenue.While not immune to the continuing recessionary pressures on ad spend into 2023, we believe our unique platform offering will be the differentiating driving force behind our continued growth.” – AcuityAds Holdings Inc. (AT) CFO, Elliot Muchnik




Acquisitions support growth, create relative scale compared to competitors and expand the customer base

“Accretive acquisitions remain an integral part of Stella-Jones' growth. In 2022, we continued on this path with the purchase of the wood utility pole manufacturing business of Texas Electric Cooperatives or TEC in Jasper, Texas. TEC joining our fall added a 43rd wood treating facility to our network and further expanded our capacity to supply the growing needs of North American utilities. This mark our second wood treating facility in the state of Texas, the second largest economic region of the United States, and we expect TEC to enable us to leverage the economic scale -- the economies of scale while expanding our customer base.” – Stella-Jones Inc. (SJ) CEO, Eric Vachon


Tight rental supply tends to improve occupancy levels

“Looking ahead, we anticipate a tight market throughout 2023 due to various factors, such as strong immigration targets and limited rental supply. We are confident that our team can continue to meet the opportunity of rising demand across all regions. We remain optimistic about the future and our ability to maintain our pre-pandemic occupancy levels. Thanks to the strong demand we've seen coupled with our tempered use of promotions throughout 2022, we are thrilled to report a $1.3 million reduction in vacancy and rebates compared to Q4 of last year. This translates to a 310 basis point reduction in vacancy and rebates as a percentage of gross rental income for Q4 year-over-year.” – InterRent Real Estate Investment Trust (IIP.UN) CEO, Brad Cutsey


Return to office, return of foreign students and new immigrants drive demand for rental properties

“It is important to note that fluctuating interest rates through 2022 and so far in 2023 have affected the expected yield ranges for these projects. While we continue to refine investments as we monitor the ongoing rate and economic situation, we want to be transparent and communicate our current expectations. Turning to Slide 21. Demand in late 2022 was abnormally strong for the time of the year, and we saw many trends continuing around return to office, return of foreign students and the percent of new immigrants that are net new country returning to historical norms.” – InterRent Real Estate Investment Trust (IIP.UN) CEO, Brad Cutsey


Backlog is a health indicator for future sales growth

“Heading into 2023, our backlog for food has softened as previously mentioned. We have taken aggressive measures to address, including several new dedicated sales resources to grow our backlog and diversify our customer base. We are seeing early signs of recovery and are highly optimistic on the prospects for this business in the mid to long term. And wrapping up on our review of fourth quarter results, I'll make a few quick comments on our digital business. We have successfully completed several major phases of our reorganization plan in recent months and continue to evaluate how to further optimize.” – Ag Growth International Inc. (AFN) CEO, Paul Householder


Efficient working capital management provides favourable operating cash flow

“We have structured initiatives across the organization to gradually reduce our days payable, receivable and inventory with the vision level targets and metrics. This type of focus will help us manage short-term capital needs while growing the business and being mindful of our balance sheet position. From a leverage perspective, our progress against our balance sheet discipline objective continues to make tremendous progress. Our net debt to last 12 months adjusted EBITDA ratio was 3.7x at the end of the fourth quarter, down from 4.1x quarter-over-quarter and 4.7x year-over-year. Importantly, the decrease in this ratio was from a combination of both growing adjusted EBITDA as well as debt repayment.” – Ag Growth International Inc. (AFN) CFO, James Rudyk


Acquisitions provide asset growth, greater distribution capabilities and synergies

“As for the addition of Concentra Bank, the acquisition added complementary asset growth, diversified our sources of revenue and funding and provided greater distribution capabilities across Canada. But for me, the takeaways this quarter are with the substantially increased scale and our integration plans taking flight, we're on track to realize the synergies we projected. Our engagement with credit union partners are getting off to a good start with progress across a number of initiatives, and we've succeeded in bringing great talent to Equitable Bank. It's been an absolute pleasure seeing teams come together and collaborations take shape. First of all, we know we have much more to accomplish, and we have the people to do it.” – EQB Inc. (EQB) CEO, Andrew Moor


Delivering growth while industry peers show negative growth increases the company’s market share

“We delivered $40 million in revenue in Q4 over $37 million at the same time last year. I'm excited to go back to growth. It's the second quarter in a row that we're showing growth, and we're seeing a lot of our competitors showing negative growth during the same period. So I'm very, very excited that we're showing growth. And I think the reason that we're showing growth is because we have this product that is totally unique and we're going out there to the market.And it was a really good question about the economical situation. And it's hard for me to exactly answer it because we're doing well, but maybe in normal times we would be doing even [ extendedly ] better. But we're still going into a market, programmatic market, which is over [ $150 million ], and we're going after the customers who are already using it. So it's not so much a function of how much is the market growing.” – AcuityAds Holdings Inc. (AT) CEO, Tal Hayek




A resilient business model generates growth despite a tough macro environment

“2022 represents the 22nd consecutive year that Stella-Jones has posted an annual sales increase, which speaks to our resilient business model and the strong fundamentals in which it is anchored. Our sales growth was largely attributed to the strong performance of our infrastructure-related product categories, namely utility poles, railway ties and industrial products, which all met or surpassed our targets.” – Stella-Jones Inc. (SJ) CEO, Eric Vachon


Healthy cash flow supports capital return programs

“For the year, the company generated cash from operations of $255 million. Our solid cash flow generation is how Stella-Jones delivers value to shareholders. In 2022, we returned $230 million of capital through share buybacks and payment of dividends. During the year, the dividend paid to shareholders amounted to $0.80 per share, representing an 11% increase compared to 2021. And as part of our normal course issuer bid, we repurchased approximately 4.7 million shares for $181 million.” – Stella-Jones Inc. (SJ) CFO, Silvana Travaglini


Laser-focused on fundamental improvement creates tremendous shareholder value

“I'll touch on the financial highlights for 2022. It was a record year for adjusted EBITDA of approximately $1.4 billion, a 20% year-over-year increase while AFFO of $848 million was up 40%. We increased the dividend for the ninth consecutive year and have provided dividend guidance for a 6% annual increase to 2025. We established a green financing framework and completed the first ever green hybrid bond offering in Canada of $350 million to fund eligible projects. Overall, we delivered a total shareholder return of 23% in 2022, ahead of our 10% to 12% TSR target. And in the past 5 years, we have delivered an annual TSR of 26%. With our strong internally generated cash flow, we are well positioned to fund our committed growth CapEx.” – Capital Power Corporation (CPX) CFO, Sandra Haskins


Revenue grew faster than expenses leading to a favourable operating leverage

This demonstrates our ability to navigate the current economic climate effectively by delivering value to our stakeholders. In light of our robust same-property performance this quarter and fiscal year, we'd like to highlight our same-property NOI trends. Our revenue growth has consistently surpassed expense growth, except during the peak of COVID pandemic in 2020 when occupancy numbers were notably impacted. Nevertheless, it's worth noting and it is quite visible that the current inflationary environment has impacted our operating expenses. Despite these challenges, our 2022 financial figures continue to illustrate our ability to maintain positive NOI growth in spite of these headwinds.” – InterRent Real Estate Investment Trust (IIP.UN) CEO, Brad Cutsey


Organic growth, operational efficiency and balance sheet discipline drive performance

Our financial results were a record for the fourth quarter and capped another banner year for AGI with 2022 marking 3 consecutive years of record results. Sales and adjusted EBITDA were up 22% and 33% in 2022, as the momentum from a broad set of operational initiatives and robust customer demand combined to create a favorable environment for AGI to progress growth and profitability objectives. Importantly, our 2022 results were nearly all attributed to organic growth. With our adjusted EBITDA up 57% since 2020, it is an ideal backdrop for AGI to enter a new era with a clear focus on our 3 key corporate strategic initiatives: Profitable organic growth, operational excellence and balance sheet discipline.” – Ag Growth International Inc. (AFN) CEO, Paul Householder


Long-term committed contracts create more predictable revenue growth

We're testing long-term committed contracts. So our normal way of doing business in the adtech space on the managed side of things, even on self-serve is usually no commitments from guarantees or short-term commitments.We are testing long-term commitments between 1-year and 3-year contracts with minimum guarantees means the customers are guaranteeing that the contracts as well. And we're starting to see some early results. It's too early to really call it and to provide feedback on it, believe me, we will when we have proper and solid feedback. But there's only other 2 other companies that can do it in our space, and we're seeing that customers are willing to sign for those things” – AcuityAds Holdings Inc. (AT) CEO, Tal Hayek


Companies mentioned:


Stella-Jones Inc. (SJ)

Q4 Revenue Growth: 22.1% |  Q4 EPS Growth: 77.0%


InterRent Real Estate Investment Trust (IIP.UN)

Q4 Revenue Growth: 13.1%  |  Q3 EPS Growth: -200.3%


Capital Power Corporation (CPX)

Q4 Revenue Growth: 44.7%  |  Q3 EPS Growth: 35.6%


Ag Growth International Inc. (AFN)

Q4 Revenue Growth: 14.4%  |  Q4 EPS Growth: 312.5


EQB Inc. (EQB)

Q4 Revenue Growth: 20.0%  |  Q4 EPS Growth: -48.0%


AcuityAds Holdings Inc. (AT)

Q4 Revenue Growth: 8.7%  |  Q4 EPS Growth: N/A


These are quotes from just some of the more than 60 Canadian companies we cover at 5i Research. To view their recent reports you can search for their tickers in the Reports section. If you are not a member and would like to gain access to these reports as well as the Q&A service where you can ask and search questions on these companies, you can fill in your information below to sign up for a free trial.

Take Care,

5i Research Team Signature