Management calls are a great way to gain insight into not only a company but also the broader economy and industry trends. So we thought it would be of added value to our readers to highlight the key trends we see in the words of Canadian executive teams. Going forward, we will be presenting these highlights weekly during earnings seasons so that investors can keep up with their favourite companies and get a broad pulse of the stock market.

In the previous earnings week, we noticed a mix of trends including a strong consumer, continued effects of a re-opening economy despite rising COVID cases, and an easing in commodity prices. Below, we highlight the Macro, Industry and Corporate trends we observed along with quotations from 5i coverage company executives. 

Macro

Labor challenges remain with many workers leaving their jobs

“So our assumptions for the back half, Keith, are not entirely dissimilar from what we sort of set out at the beginning of the year. There's obviously a number of puts and takes as we read about, as I referenced earlier in my response, I think it was a contingent question about recessionary effects. Attrition continues to obviously be a challenge for we and for all of our peers. And whilst we are by no means immune from the implications of this continued tight labor market in terms of accessing at scale, the requisite talented folks to help us on these technology-enabled transformational work and services we provide.” TELUS International (Cda) Inc. (TIXT) CEO, Jeff Puritt

Breaks are beginning to arise in commodity prices

"The good news is we have seen a break in this commodity and that break seems to be continuing and could be positive upside in our outlook for 2022 if that trend continues" - Premium Brands Holdings (PBH) CFO, Will Kalutycz

Consumer demand strong, despite inflationary pressures

“The record level of applications led to a record level of loan originations and organic growth. Originations in the quarter were $628 million, up nearly 66% over the second quarter of 2021 and more than a 30% lift over last quarter. Elevated originations led to organic growth of $216 million, an increase of 191% over the same period last year and above our expectations for the quarter.” Jason Mullins, GSY President and CEO

"We modestly increased our outlook for 2022 sales despite the recent strengthening of the U.S." - Magna (MG) CEO, Seetarama Kotagiri

And strong mortgage-driven volumes despite a cooling real estate market

“home equity lending volumes were at record levels, up nearly 170% year-over-year. This second mortgage product is secured by residential real estate is primarily used for debt consolidation and major home repairs and is one of our best-performing products with the lowest credit risk.’ - Jason Mullins, GSY President and CEO

Industry

Canadian office spaces are filling up…

"we had a higher occupancy rate in the Canadian office portfolio in the current quarter, and we generated also a healthy level of organic growth in our Janitorial U.S. business, Ainsworth and our IFS businesses.....Our Janitorial Canada business continued to perform well in the quarter with occupancy rates beginning to rise in the office sector as employers roll out a variety of hybrid return-to-work policies" - GDI Integrated Facility Services Inc. (GDI) CEO, Claude Bigras

…but new ‘normal’ for back to office is still not clear:

I would say that many of our clients, they don't even know how they will manage and -- midterm to long term. We were expecting a return to normal by the second quarter last year. We were expecting it early this year. At this time, the only thing I can predict is I think it will be a slow return to normal over the next 4, 5, 6 quarters, and there would be market adjustment. - GDI Integrated Facility Services Inc. (GDI) CEO, Claude Bigras

Health care should hold up well as a defensive sector

“The company continues to witness healthy growth across all its business segments, including both online and in-person care channels with minimal impacts due to recession, inflation, supply chain or other macroeconomic effects currently felt by other companies in this industry and around the globe”. - Well Health Technologies (WELL) CEO, Hamed Shahbazi

Supply-chain issues are easing

The business was still negatively affected by supply chain challenges with cost delays, including out some projects. However, we have been seeing improvements in the supply chain at the end of the second quarter and entering into the third quarter, and we expect project execution to improve as the year progresses. The business continues to have a record backlog, and the outlook remains quite positive for the remainder of the year. - GDI Integrated Facility Services Inc. (GDI) CEO, Claude Bigras

"We continue to experience supply constraints, including semiconductors. The China COVID lockdowns in the quarter created further supply chain bottlenecks that are still being felt in the industry. We do expect constraints to continue at least throughout '22 but expect improvement in the second half of the year relative to the first." - Magna (MG) CEO, Seetarama Kotagiri

“Our labor challenges are abating, supply chains are catching up and are becoming a little more reliable and inflation appears to be peaking" - Premium Brands Holdings (PBH) CEO, George Paleologou

"Explosion in consumer discretionary spending, which clogged up supply chains around the world is slowing down" - Premium Brands Holdings (PBH) CEO, George Paleologou

Consumer discretionary spending not downsizing…

“It was also a very strong seasonal period for the Powersports category, which produced a 59% increase in origination volume over last year, driven in part by continued demand for key products such as ATVs, RVs and motorcycles.” - Jason Mullins, GSY President and CEO

…On the back of strong labor fundamentals

“a record level of secured originations at 34%, saw home equity loan to value ratios fell to below 60%, experienced a 20% increase in the average income of our automotive financing customers year-over-year and experienced diversified growth across all 7 unique product categories. As our sources of originations continue to diversify, the weighted average interest rate paid by our customers continues to decline, reducing to 31.7% at quarter end, down from 33.7% last year” - Jason Mullins, GSY President and CEO

People are spending fewer hours watching online videos and this puts pressure on digital ad spending 

“These increases in media and content revenue were offset by a decrease in video views, which were 6 billion as compared to 7.9 billion in Q2 last year. This was caused by the departure of certain large partner channels from the video network which the company elected for in order to reduce associated operating expenses over the coming year. This was decided due to these channels producing almost no gross profit despite them producing revenue. seasonal trends in video views and the reduction of COVID-19 restrictions also contributed to this decrease”. - Enthusiast Gaming (EGLX) CFO, Alex Macdonald,

Meanwhile, live events resume

“Q2 esports and entertainment revenue was $2.2 million, up 41% from $1.5 million in Q2 last year. This increase was mostly driven by the return of live events.” -  Enthusiast Gaming (EGLX) CFO, Alex Macdonald,

Improving non-residential construction activity on the back of improved macroeconomic conditions

“We anticipate that improving market conditions and customer demand trends will continue for the remainder of the year. These trends are supported by improved macroeconomic conditions across the broader non-residential construction activity in the U.S. and in previously weak sectors such as oil and gas. Even though Badger has managed well in the recent inflationary environment through better realized pricing, cost management efforts and its fuel recovery plan program, we are still very focused on improving our operational performance…

Market indications suggest that non-destructive excavation equipment will be in high demand and more difficult to source over the next several years, which makes Badger's market position and vertical integration that much more valuable.” Badger Infrastructure Solutions Ltd. (BDGI) COO, Bob Blackadar

Strong demand for agriculture commodities despite higher prices

Increasing population, rising food and feed consumption and expanding crop volumes underpinned the fundamental demand for AGI products through geopolitical and weather events as well as economic cycles….

A quick note on inflation, as this continues to be a key headline across the global economy. Steel prices have eased but are still elevated. Supply chain constraints are slowly reducing but in an uneven pace across all regions. While the situation is not ideal, it is less disruptive than the extreme volatility witnessed through much of 2021…

With the backlog towards the high end of our typical 4- to 6-month range and a very strong pipeline with climbing win rates, we have excellent visibility into the second half of 2022. Our confidence in the full-year outlook continues to increase; and, as a result, we've raised our full year adjusted EBITDA guidance from at least $200 million to at least $215 million. This will carry AGI to another record year in 2022, and we expect the momentum to continue into 2023” - Ag Growth International Inc. (AFN) CEO, Tim Close

Corporate

Canadian companies with international operations have been facing FX headwinds

"when we look at currency movements, starting the year at $1.13 on the euro and now at $1.02, that's an almost 10% swing within the same year. And frankly, had it not been for this currency movements, TELUS International would have been raising guidance" TELUS International (TIXT) CFO, Vanessa Kanu

"The stronger U.S. dollar relative to other currencies, in which we operate, particularly the euro, is negatively impacting our reported results, and there is some risk going forward that high inflation and rising rates will impact auto consumers." - Magna (MG) CEO, Seetarama Kotagiri

Higher interest rates boosting investment yields but also causing interest expenses to rise

"As a growing company, supported by our recent capital raise, we are in a unique position to deploy investment funds at yields not seen since 2018" - Trisura (TSU) CEO, David Clare

"The continued increase in interest rates drove unrealized losses in our fixed income portfolios, though the impact was mitigated through our short-duration posture." - Trisura (TSU) CEO, David Clare

Backlogs are as high as ever

“But now the good news is what we assume towards the second quarter and re-entering in the third quarter is this situation seems to be getting back to its normal. So our latest analytics shows that we're getting back to a more -- to a normal level of activity. So for us, it's very encouraging for the second -- the remaining part of the year, understanding also that we have a very, very, very significant -- actually a record backlog.” GDI Integrated Facility Services Inc. (GDI) CEO, Claude Bigras

"Our Surety partners have been an 18-month backlog of work. So what that means is as you're entering some economic slowdown or some change in economic environment, you'd start to find some change in your partners' health in the event that economic slowdown lasted for longer than their backlog of work." - Trisura (TSU) CEO, David Clare

SaaS companies have been able to repaper contracts maintaining or improving margins

“The new contracts have a built-in annual auto price escalator up to 5%, should we choose to exercise it. This, together with the opportunity to evaluate our billing rates relative to the project services on a deal-by-deal basis, served to largely insulate our ARR and margins from inflationary pressures” - Sylogist Ltd. (SYZ) CEO, Bill Wood

Companies mentioned:

Premium Brands Holdings Corporation (PBH)

Q2 Revenue Growth: 23% |  Q2 EPS Growth: 120%

Trisura Group Ltd. (TSU)

Q2 Revenue Growth: 47%  |  Q2 EPS Growth: 20%

Magna International Inc. (MG)

Q2 Revenue Growth: 3.6% |  Q2 EPS Growth: -138%

TELUS International (Cda) Inc. (TIXT) 

Q2 Revenue Growth: 17%  |  Q2 EPS Growth: 250%

GDI Integrated Facility Services Inc. (GDI) 

Q2 Revenue Growth: 41% |  Q2 EPS Growth: -32%

Enthusiast Gaming Holdings (EGLX)

Q2 Revenue Growth: 38% |  Q2 EPS Growth: N/A

Well Health Technologies (WELL)

Q2 Revenue Growth: 127% |  Q2 EPS Growth: N/A

Goeasy Ltd. (GSY)

Q2 Revenue Growth: 18.5% |  Q2 EPS Growth: 100%

Ag Growth International Inc. (AFN)

Q2 Revenue Growth: 29% |  Q2 EPS Growth: -135%

Sylogist Ltd. (SYZ)

Q2 Revenue Growth: 44% |  Q2 EPS Growth: from breakeven to $0.04

Badger Infrastructure Solutions Ltd. (BDGI)

Q2 Revenue Growth: 30.5% |  Q2 EPS Growth: from -$0.06 to $0.14

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,

Disclosure: The analyst(s) responsible for this report do not have a financial or other interest in the securities mentioned.