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Good morning, everyone. Welcome to Exchange Income Corporation Conference Call to discuss financial results for the 3 and 12 months period ended December 31, 2018. The corporation's results including MD&A and financial statements were issued on February 20 and are currently available via the company's website or SEDAR. Before turning the call over to management, listeners are cautioned that today's presentation and the responses to questions may contain forward-looking statements within the meaning of the safe harbor provisions of Canadian Provincial Securities law. Forward-looking statements involve risks and uncertainties and undue reliance should not be placed on such statements. Certain material factors or assumptions are applied in making forward-looking statements and actual results may differ materially from those expressed or implied in such statements. For additional information about factors that may cause actual results to differ materially from expectations and about material factors or assumptions applied in making forward-looking statements, please consult the MD&A for this quarter, the Risk Factors section of the Annual Information Form and Exchange's other filings with Canadian Securities regulators. Except as required by Canadian Securities Law, Exchange does not undertake to update any forward-looking statements. Such statements speak only as of the date made. Listeners are also reminded that today's call is being recorded and broadcast live via the Internet for the benefit of individual shareholders, analysts and other interested parties. I would now like to turn the call over to your CEO of Exchange Income Corporation, Mike Pyle. Please go ahead, Mr. Pyle.
Thank you, operator. Good morning, everyone. Joining me this morning are Carmele Peter, EIC's President; Tammy Schock, our CFO; and David White, our EVP of Aviation. On our call this time last year, we told you how in 2017 we had achieved the best operating results in our history. Today, we are here to tell you that 2018 was even better. We achieved new records across the board in most of our financial metrics and we demonstrated once again that our proven, prudent strategy was effective at growing and diversifying our revenues and earnings, strengthening our cash flow, all the while paying larger dividends to our shareholders. 2018 was the first year which we provided the markets with guidance for our expected financial performance. I am happy to report that our results met the guidance we provided, as we achieved a 12% gain in EBITDA and a 14% increase in our adjusted net earnings per share over the prior year. Not only did we meet the guidance we provided to the market, we hit all-time records for revenue, EBITDA, adjusted earnings per share and dividends per share and payout ratio. Tammy will go into these financial results in greater detail later in the call, but I would like to emphasize that this performance is just in line with what we achieved since our inception. Our dividend was increased for the 13th time to an annual rate of $2.19 while, at the same time, we reduced our payout ratio to an all-time low of 60% when calculated on a free cash flow less maintenance CapEx basis, and to 74% when calculated on an adjusted net earnings basis. EIC has always prided itself on a model which is focused on long-term decision making. Decisions are not made based on what they will do in the near term, but rather what they will accomplish in the long term. 2018 was no different, as we benefitted from investments made and acquisitions made in previous periods. Quest and Moncton Flight College made significant contributions to our growth in 2018, but what is more significant is that they will also be the big drivers of our growth in 2019. The return on investments in not always as immediate or as obvious as these 2 acquisitions or as the investments we have made in growing Regional One's assets. Some take longer to show in our profits, but they are no less significant. Two projects at Provincial Aerospace are good examples. In late 2016, we announced that Provincial would be providing the in-service support to Canada's new fleet of search-and-rescue aircraft, commonly known as fixed-wing SARs. For the last 2 years, the company has quietly worked on meeting the requirements to begin servicing this contract in 2019 and we will begin to see its impact as the first plane is delivered later in the year. The revenue from this contract will grow over the next 3 years as the planes are delivered to Canada. We expect to build a new overhaul facility in Winnipeg in early 2020 to complete the overhauls on this fleet as they come due. When one considers the period of work that went in even before we were awarded the contract, it will be close to a decade until the full benefit of this effort will be seen from when we began our efforts, but it will generate profits for decades to come. The Dash 8 demonstrator surveillance aircraft, which we have named Force Multiplier, is very similar. The design, build and certification of this project took several years, but the vision came to fruition late in 2018 when Transport Canada certified the aircraft. Discussions about projects are ongoing with governments around the globe and flying will begin in earnest this year. I will come back to our guidance for 2019 later in the call, but I wanted to let you know that the engines for our continued growth are already in place. Quest had an exceptional year in 2018. When we purchased the company, it was generating approximately $65 million in annual revenue and $15 million in EBITDA and it had an order book of over $200 million. Today, EBITDA has grown by over 50% to $25 million and the order book now exceeds $350 million. The strength of the order book enabled us to build a second facility to increase the production capacity and continue the company's growth trajectory. Our new 330,000 square foot facility in Dallas is approaching completion and, most importantly, it is on time and on budget. We will begin test runs of product late in the first quarter and the facility is expected to contribute to our results in the second half of this year. Moncton Flight College has been a very unique opportunity for EIC. A worldwide shortage of pilots has impacted the industry for the last few years and is expected to continue to for the foreseeable future. Moncton has a proven profitable business training commercial pilots for both domestic and international customers. It was an attractive acquisition candidate on its own, but it also provided a strategic component, allowing EIC to create and maintain its own source of pilots for all of our airlines. I am pleased to inform that in addition to the solid financial results Moncton has delivered, the first pilot trained under the Bill Wehrle Scholarship Program was completed this year. Bill was the founder of Perimeter Airlines and a lifelong advocate for providing opportunities for our First Nations partners to have careers in the aviation business. The scholarship was set up to train First Nations candidates in aviation. Timothy Mason was the first to be awarded this scholarship and he not only graduated, but he did so at the top of his class. Mr. Mason is from St. Theresa Point First Nation, who join us in congratulating him on this impressive accomplishment. The strength of our 2018 results was achieved in spite of very challenging conditions for the aviation business in parts of the year, which saw other airlines experience declines in profitability. The strength of our market position, proactive management and the resiliency of our aviation operations allowed the Aviation and Aerospace segment to match last year's strong performance. Our Manufacturing segment more than doubled their EBITDA contribution in 2018. Of course, Quest was a big driver of this performance, but the balance of the portfolio also experienced significant growth as their EBITDA grew by 33%. Back to our overall results for the year. While I'll leave much of the detail to Tammy, I did want to hit on some key points. First, I want to stress that the past year wasn't all about Quest and MFC. We have a diverse group of operating subsidiaries spanning multiple sectors and geographies offering diverse products and services, providing dependable and resilient cash flow. Second, the growth we achieved in 2018, while substantial, was not surprising. Rather, it was in line with what we have been delivering year after year. If you look at our financials dating back to 2010, the first year when results are directly comparable as we converted from an income trust structure back to a corporate structure, we've been growing our revenue, EBITDA and adjusted net earnings per share at compounded annual rates of 22%, 26% and 12% respectively over this 8-year period. We've also consistently grown our dividend over that time as well, including an increase in 2018, which was the 13th raise in 15 years. And even with our higher dividend, the growth in free cash flow less maintenance CapEx was greater, resulting in improved payout ratio of 60% for the year, the lowest in our history. I would now like to turn the call over to Tammy. I will update you on our outlook later in the call.
Thanks, Mike, and good morning, everyone. First I'll focus my results -- or my remarks on the fourth quarter results and then I'll turn to our 2018 annual results. In the fourth quarter, we had revenue of $315.7 million, which is up 20% compared to Q4 of 2017. Aerospace and Aviation revenue was up 17% to $234.2 million driven by a 10% increase at Legacy airlines and Provincial and a 32% increase at Regional One. The Kitikmeot contract and higher passenger volumes in Ontario drove growth in our Legacy airlines while the addition of Moncton Flight College was the largest contributor to the higher revenue at Provincial. Regional One sales and service revenue was up 64% with the higher sales of whole aircraft and engines. Part sales, which are the most consistent portion of the sales and services revenue stream, was on par with the fourth quarter of 2017. Lease revenues were down 17% in the quarter as lease redelivery settlements that occurred in the fourth quarter of 2017 did not recur in 2018. In the fourth quarter, our Manufacturing segment had revenue of $81.6 million, which is up 29% over the fourth quarter of 2017. Quest Window Systems was the largest contributor to the increase; however, the other entities in the segment also contributed significantly. We are pleased with our revenue growth for the fourth quarter, but I'd like to highlight several circumstances that resulted in revenue being pushed from the fourth quarter in 2018 into 2019. The first is the result of extreme weather in Atlantic Canada in December. The extreme weather, as well as damaged infrastructure at the Fredericton Airport, caused a disruption to pilot training. The pilot training revenue is not lost as those hours will be made up. It has just been delayed into 2019. In December, we also had a flood at Quest's Toronto manufacturing facility as a result of a water main break under the building. The facility was back up and running within a week; however, there was ongoing disruption to our manufacturing processes. The disruption did not result in lost revenue, but it did cause the timing of revenue associated with certain contracts to shift from the fourth quarter into 2019, and even after insurance claims a corresponding reduction in profitability occurred. Lastly, Regional One had 2 aircraft sales that we anticipated would close in December, but will now close in 2019. Again, the revenue from those sources are not lost; rather, it is just shifted into 2019. Consolidated EBITDA for the quarter was $69.5 million, up $6.2 million or 10%. $3 million of the increase was from Manufacturing and $0.5 million was from Aerospace and Aviation. Our head office costs were down $2.7 million, making up the rest of the difference in our EBITDA for the quarter. The lower head office costs were largely the result of reduced personnel costs. The Aerospace and Aviation segment had EBITDA of $63 million. EBITDA from Legacy airlines and Provincial was up $3.8 million or 12%, but was mostly offset by lower EBITDA from Regional One. Higher revenue and operational efficiencies resulted in the higher EBITDA at Legacy airlines. We witnessed fuel prices stabilize in the fourth quarter. While fuel prices were higher than in the fourth quarter of 2017, the higher prices were mitigated by the fuel surcharges that we implemented earlier in 2018. Provincial's EBITDA for the quarter benefitted from the acquisition of Moncton Flight College, although its contributions were muted for the reasons I discussed earlier. The decrease in high-margin lease redelivery settlements impacted Regional One's EBITDA for the quarter, which was down 11% to $28 million. Regional One also had a higher level of transactional sales in the quarter, including the sale of whole aircraft and engines. These sales generally have a lower margin than other revenue streams within the sales and services revenue. The items that I highlighted in relation to certain sources of revenue being deferred also impacted our EBITDA for the quarter. Depreciation increased by $3.2 million as a result of the purchases of capital assets during 2017 and throughout 2018 and the depreciation of the capital assets that we acquired with the purchases of Quest and MFC. We had adjusted net earnings of $24.7 million or $0.79 a share compared with $22.3 million or $0.72 a share in the fourth quarter of 2017. Despite higher interest costs and acquisition costs, our net earnings increased 9% to $18.4 million. Net earnings per share was $0.59 compared to $0.55 in the fourth quarter of 2017. Free cash flow totaled $59.8 million, up 20% from Q4 2017. Our adjusted net earnings payout ratio and our free cash flow less maintenance capital expenditures payout ratio both improved despite dividends declared increasing 5% to $17.2 million from $16.3 million in the fourth quarter of 2017. On a free cash flow less maintenance capital expenditure basis, our payout ratio improved from 71% to 60%, and on an adjusted net earnings basis the payout ratio improved from 81% to 74%. Now, I'll turn to our financial results for the 2018 year. Consolidated revenue was $1.2 billion, an increase of $190 million over 2017. The revenue breakdown for the year was $884 million, or 73.5%, from Aerospace and Aviation; and $319.4 million, or 26.5%, from Manufacturing. Our EBITDA for the year increased 12% to $278 million. EBITDA in our Aerospace and Aviation segment was flat at $247.9 million. EBITDA from our Legacy airlines and Provincial was up 6% while Regional One's EBITDA decreased by $8.3 million. The primary driver of the decrease, as I mentioned, was the lease redelivery revenue which did not recur in 2018. Our effective income tax rate for the year decreased to 20.3% from 24.3% and that is due to lower tax rates applicable to our U.S. earnings and a higher proportion of taxable earnings being earned in lower tax rate jurisdictions than in the prior year. We also had a gain recorded as the result of a revaluation of contingent consideration that is not subject to tax. We had adjusted net earnings per share of $2.94, which is up 14% from the year before. This resulted in our improvement in adjusted net earnings payout ratio from 81% to 74%. And our free cash flow less maintenance CapEx expenditures payout ratio, as mentioned, has improved to an all-time best of 60%. Before I turn to the balance sheet, I just want to comment on our adoption of IFRS 16, which is the new lease -- the new standard that governs the accounting for leases. The new standard will be adopted as of January 1, 2019 and will be reflected in our Q1 report. We have included information about the expected impact of adopting that standard. The balance sheet will be impacted by the inclusion of a new right-to-use asset and a new lease liability. As a result of this, we expect that assets will increase by approximately $115 million and liabilities will increase by approximately $119 million with the difference being charged to retained earnings. Additionally, lease payments that are currently recorded as expenses in EBITDA will no longer be recorded there; rather, interest expense on the new lease liability and amortization on the new right-to-use asset will be recorded outside of EBITDA. Our best estimate right now is that EBITDA will increase by approximately $20 million and earnings per share will decrease by roughly $0.05 as a result of the adoption of this standard. The majority of our leases are for real property, as we own substantially all the aircraft that are used in our operations. For this reason, the impact of the new standard on our financial position and earnings is much less than it is for many other airlines. Further, the adoption of this standard will have absolutely no impact on cash flow. So now I'll turn to our balance sheet. We ended the year with cash and equivalents of $43 million and working capital of $301 million with a current ratio of 2.26 to 1. This compares to cash of $72.3 million and working capital of $237 million and a current ratio of 1.9 to 1 at the end of 2017. Our cash balance in 2017 included $56.8 million to fund the redemption of our 7-year 5.5% convertible debentures, which were redeemed in January of 2018. Our working capital increased year-over-year primarily due to the investments made in Regional One's inventory during the year and increased business volumes in our Manufacturing segment and the impact of a weaker Canadian dollar. In our Q3 2018 conference call, we indicated that we expected a significant decrease in working capital during the fourth quarter. I can confirm that during the fourth quarter we had cash inflows from working capital of $42.1 million. The company continues to have a strong -- to have strong capital resources. In May, our credit facility was amended, increasing the amount available to approximately $1 billion and extending its maturity. Subsequent to year-end, the credit facility was amended again, further extending the maturity to 2023 and improving pricing. Two series of convertible debentures were redeemed during the year and replaced with new series favorably impacting interest expense and extending maturity dates. As a result, we have no convertible debentures maturing until 2021. That concludes my review of our financial results and I'll turn the call back to Mike for some closing remarks.
Thanks, Tammy. We are excited about 2019 not because our growth pattern is about to change, but quite the opposite. We expect our double-digit growth rates that we have consistently generated to continue. However, unlike certain other years where the growth was driven by transactions entered into during the current year, this year's growth will be driven by the investments we have already made. I will quantify our growth expectations in a minute, but I want to speak about the drivers of our growth first. We have spoken about Quest's performance regularly in our conference calls with shareholders. The new plant in Dallas, Texas that was announced in the second quarter is approaching completion and I am very excited to announce that we have begun to run test products through it. It will take most of the first half of the year to get us through the learning curve and get our new facility up and running and contributing to our results. In fact, it will likely be a drag on our results in the first half of the year while we incur startup costs and will not generate any meaningful margins. The impact of the new plant, which will double our capacity once fully operational, is expected to be evidenced in the second half of the year when volumes accelerate and we take advantage of our growing $350 million order book. This will keep Quest on its impressive growth trajectory and fuel further growth into 2020 when the Texas facility has a full year of operation. Moncton Flight College will also drive growth in 2019. The ongoing and, in fact, worsening worldwide shortage of pilots continues to drive demand for MFC's high-quality training. The company has entered into extended contracts with a number of its existing customers, which will keep the company running at capacity and at improved margins. Our internal pilot training program is underway and a major public launch is coming later in the first half of this year. While the first internal pilots have already completed their training at MFC, the program is in its infancy and will not deliver a significant number of pilots to our own operations until 2020. As discussed earlier, Provincial Aerospace has 2 initiatives, which will drive growth into 2019 and beyond. In 2016, the Canadian government awarded the contract to supply replacement aircraft for its fixed-wing Northern Search and Rescue operations to a consortium led by Airbus. Provincial will provide the in-service support for 20 years. Provincial has been working hard at laying the groundwork for this new work. The first aircraft is expected in late 2019 with others following over the ensuing 24 months. Revenue for this contract will ramp over this period and then plateau once all the planes are in service. Our Force Multiplier has received final certification. We'll begin flying missions this year. It is the first aircraft with state-of-the-art technology and surveillance equipment available for missions on a fully-staffed basis. We anticipate that the long build and certification process is completed. The interest we have received from potential government customers will turn into firm bookings. Government procurement cycles are often prolonged. As such, we expect the order book to grow over time as customers were reticent to make firm commitments until the aircraft was certified and timelines could be guaranteed PAL. Regional One has been a big driver of the EIC growth as we have made significant investments in its assets when accretive investment opportunities were uncovered. The ability to move quickly has been a key tenet to their success. Results in 2018 were down slightly from the preceding year, but in no way does this suggest the growth phase for the company is over. While revenues continued to climb in 2018 driven by increased sales of parts and engines -- parts, engines and aircraft, I'm sorry -- EBITDA fell slightly because of fewer lease return settlements, which are highly profitable, but do not occur in every fiscal period. I would like to take the opportunity to discuss a press release we issued on Tuesday announcing the joint venture between Regional One and SkyWest to acquire, lease and sell CF34 engines, the power that drives the CRJ700 and 900 aircraft, amongst others. SkyWest is the largest operator of CRJ aircraft in the world and has a deep knowledge of these assets. SkyWest recently announced their entrance into the leasing business. We believe that this partnership has the opportunity to be mutually beneficial to both parties as Regional One's domestic and international relationships and distribution network will facilitate placement of assets around the globe. It is important to note that while the joint venture is in its early stages and investments required -- and the investments that are required are included in our annual growth capital expenditure estimates for EIC, we believe this partnership brings together 2 of the leading players of the CRJ marketplace and the combined assets and capabilities are an exciting vehicle for growth. I spent significant part of this conference call discussing how we take a long-term view of investing and pointing out how investments made in previous years will drive growth in 2019, 2020 and beyond. We believe that the joint venture is no different, laying the groundwork for future expansion. We are pleased to have been awarded the RFP for court and sheriff transport services by the Manitoba government. This serves to further strengthen our relationship with the provincial government in Manitoba. This brings me to our guidance for 2019 and beyond. 2018 was the first period which we provided forward-looking guidance as to what to expect from EIC. We are expanding this guidance this year as we will not only provide guidance for the current year, but also on our longer-term plan to increase dividends while further reducing payout ratios. Tammy explained in some detail the impact that the implementation of IFRS 16 will have no our financial results. We have always owned our fleet of aircraft and, as such, the impact of IFRS 16 on our results is limited compared to most air carriers. For the sake of comparability and simplicity, I will provide you guidance based on historical accounting standards. Adjusting to the new standard will simply be a matter of adding the changes Tammy has described. Following this year's increase of EBITDA of 12%, we expect EBITDA in 2019 to grow by a further 10% to 15%. Adjusted net earnings per share, which grew 14% in 2018, are expected to grow by an additional 8% to 12% next year. I would like to point out that we expect EPS growth will significantly exceed adjusted EPS growth in 2019. Two of the significant factors that differ between regular and adjusted EPS are the amortization of intangible assets created by an acquisition and the non-cash interest accretion on debentures, which were prepaid in 2018. Both of these expenses are non-cash and do not require a reinvestment in the asset. The expected reductions in these items, which do not impact adjusted EPS but are a part of regular EPS, will result in EPS increasing by a much higher rate of 20% to 25% in 2019. We continue to believe that adjusted net earnings per share is a more informative representation of the profitability of the company, but we are providing this separate guidance because of the anticipated dichotomy between the 2 means of presentation. I should also caution that acquisition expenses are highly variable depending on opportunities uncovered. These acquisition expenses do not impact adjusted EPS, but are included in EPS. As such, EPS could change if a significant acquisition were incurred. I would like to point out that the growth we are anticipating for 2019 will not occur evenly throughout the year. The main drivers of the growth, Quest's new facility, Force Multiplier, fixed-wing search and rescue and the growth at MFC will all ramp throughout the year and have a greater impact in the second half of the year. We are proud of our dividend track record and, more importantly, our profitability that will enable us to continue to increase our dividend in the future. 2018 was a testament to our strategy as we not only increased our dividend by 4% to an annual rate of $2.19, but also materially reduced our payout ratio. When calculated as a percentage of adjusted EPS, it fell to 74% from 81%, and when calculated on a free cash flow less maintenance capital expenditures basis, it has fallen to 60%, our all-time best. The stability and reliability of our dividend is paramount to our shareholders. I am very pleased to announce a new 3-year initiative to further reduce our payout ratio from the 2018 record low. Over the next 3 years, we expect to reduce our payout ratio to approximately 50% when calculated as a percentage of free cash flow less maintenance capital expenditures, or 60% when calculated as a percentage of adjusted net earnings. We have just demonstrated that we can increase our dividend and strengthen our payout ratio at the same time and that's exactly what we plan to do. While we've been pleased with our operating performance over the last 2 years, the same cannot be said for our stock price performance. It is not a secret that we have been the target of a short attack, which has depressed our share price. Our Chairman discussed this challenge in his year-end report to shareholders and I will not repeat his words, but I would like to reiterate one thought. Stocks are ultimately valued on performance. We provided guidance that we would deliver double-digit increases in profitability in 2018 and we delivered on that promise. We are again forecasting significant growth and even stronger payout ratios. We know that if we continue to deliver profitable growth that exceeds the market and a growing safe dividend that our stock will reflect those results -- and that our stock will ultimately reflect those results. Before I conclude my prepared remarks, I'd like to take a moment to thank Tammy for her years at EIC. She has been a very important part of our team and I appreciate the way she has handled the changeover to her new job in New York. By staying with us through year-end, she ensured a smooth transition. MetLife is getting a star employee. Thank you, Tammy. I'm also pleased to announce that our search for a replacement for Tammy as CFO is coming to a conclusion. We have been fortunate to have a strong pool of applicants. We are finalizing our selection and expect to announce a successful candidate very shortly. I want to thank all of our stakeholders for their ongoing support. 2018 was a great year for EIC and I simply could not be more excited about 2019. I look forward to speaking with you again following the results -- the release of our first quarter results in May. We would now like to open the call to questions. Operator?
[Operator instructions]. The first question comes from Steve Hansen from Raymond James.
Just on the fixed-wing SARs, Mike, to begin with. This is a large contract that's been a long lead time in the making. But the revenue ramp that you're describing, back-half weighted, I don't think you've ever really quantified it. And so just trying to give us a sense for what this could mean over the 2- to 3-year ramp -- I think you had identified 24 months -- would be helpful as we sort of cast our guidance or forecast out a bit.
We have never given really precise guidance on this. In the current year, the EBITDA is likely to ramp in sort of the $2.5 million range from this contract. It's been fairly small in the past as it's mostly just been recoup of setup costs. And that should more than double by the time the planes are all in service in 2022.
Okay, very helpful. And then just quickly on this new SkyWest arrangement, just trying to get a broader sense for what, again, you think this opportunity set is like. I think you've described what both parties bring to the table, but maybe just a sense for the cadence as how this will evolve. It sounds like it's more of a 2020 story, 2021 as the engine opportunity ramps up. But maybe just some context around that engine opportunity relative to the airframe parting opportunity.
Well the initial deal, we've directly purchased a number of airframes. Carmele, can you help me with…
Yes, it's 12 airframes in total, a few of which we'll part out. The rest we look to lease together with the engines that will be in the JV. So we certainly do expect to see the impact starting this year and then look to potentially ramp it up in subsequent years.
I think the key takeaway, Steve, here -- and this is one of those things that it's really the thin edge of the wedge. The regional aircraft have stayed in service far longer than people anticipated a number of years ago and, as such, the engines that some people thought would be coming to the end of their life are now going for shop visits to stay in service for prolonged periods. So the demand for the CF34 engine is very high. And so as product becomes available, whether it's from SkyWest itself or from third parties, we will buy that, whether directly or in the joint venture, and then using the combined resources of SkyWest and ourselves, place that around the world.It's important to understand SkyWest is, by far and away, the biggest player in the regional jet market. Carmele will probably correct me here. But they have 300 or 400 aircraft in this segment. And they're so big, second place really doesn't exist. And so for us, the opportunity to partner with a company like that in a product that we know as well as this business -- it's well known the deal we had struck with Lufthansa where we bought a dozen aircraft a few years ago and did exceptionally well with that -- it's really just the entry point with SkyWest and we're excited about working with them.
Your next question comes from Mona Nazir from Laurentian Bank.
Tammy, all the best to you as you take on your new role. Firstly, I just wanted to touch on the Quest and well, really, the 2 kind of non-recurring items in the quarter. So the flood impact, I think it was mentioned that there was a revenue and also some EBITDA flow-through, and the weather on the Moncton flight school. So for Q4, just wondering if we could quantify, if possible, what kind of impact that would have had either on the top line or EBITDA.
Conceptually, what happened with us at Quest was the water main for our sprinkler system broke under the building and the water came up through our floor and shut down our plant. We are still without water there so we've been running the plant on kind of an ad hoc basis with temporary water systems. So it's been a challenge right up to today. We're about to go back to full production in terms of city water and those kinds of things. Marty and his team did a phenomenal job of managing what could have been a far bigger problem. We were able to meet all of our production requirements and keep our customers happy. But it did reduce our profitability in the quarter.MFC had some really hard luck in terms of windy weather and then a problem at the Fredericton Airport, which limited our ability to fly. Again, those students are in housing. They're not going to not do the flying. It just pushes things into a subsequent period. The greater -- and it reduces profitability in the current period. The challenge is, is it creates a lot of work that we've got to do in the first half of this year because we have to finish what we were going to do last year plus take on our full 100% capacity this year. And then finally, the one other piece, Mona -- because I'm going to give you an aggregate answer to your question. I'm not going to answer them on a per-company basis. We also expected to sell a couple of other aircraft at Regional One and the customer wasn't ready to take delivery so it pushed that out into a subsequent period. When you look at the aggregate of those, it would have pushed EBITDA for the quarter into the mid-70s. So a little over a $5 million impact between those 3 items. But I'm not comfortable breaking those down on a by-company basis.
That's very helpful. And then just secondly, I wanted to touch on the SkyWest deal a little bit more. It seems like it could just be significant. And I understand that the SkyWest fleet has over 470 aircraft. So I'm just wondering if you could talk about how many engines this could, this JV could encompass going forward. I don't know if you can comment on the ownership structure. And would it be fair to say, given that the CF34 engines are utilized on both Embraer and Bombardier aircraft, it fits into your existing ER1 portfolio and there could be synergies with your Bombardier agreement as well?
That was a long question.
Sorry.
In terms of the makeup of the JV, I'm not going to disclose specific percentages, but I will say that the majority position is held by SkyWest in the project. The initial engine purchase is not dramatic. It's significant. It's included in our capital expectations for the year. But it's really just dipping our toe in the water. With the number of engines they have in their fleet plus the stuff around the world in other places, that joint venture has the ability to grow dramatically in the future.Quite frankly, one of the things that I find exciting about it is SkyWest is an industry player and they could have picked whoever they wanted to deal with on this. It's our experience with precisely what you said, the CRJ platform, the ERJ platform, our demonstrated capabilities, that had them choose us to work with them. And I think that says a lot for Regional One's stature in the regional aircraft market.
Your next question comes from Scott Fromson from CIBC.
Can you just give an update on the leasing outlook for Regional One, please? And maybe in context of the delays of -- sorry, sales and leasing forecast in context of the delays with Q4.
Well the delays we had in Q4 really didn't impact leasing. They were a driver of sales of full aircraft, which we will recoup in the current year, in 2019. Leasing revenue is expected to be in the same realm as where it was last year. We have moved some of our 2019 -- some of our, I'm sorry, 900 aircraft that are on lease from power-by-the-hour leases to regular industry-standard leases, which will increase revenue in the final 9 months of 2019. And in terms of the aggregate results, we expect modest growth in Regional One in 2019.
Just to follow up on that, can you give a little bit of a comment on the margin outlook at Regional One?
Scott, it's really difficult to do that simply because it's a matter of product mix. If you look at the individual components within the revenue at Regional One, they're all relatively stable. The margins on aircraft sales are much smaller. They're in the low double digits, typically when you're selling an aircraft. Parts margins are much higher. And so that's where you see, when we talk about the sales and service margins bouncing around the way they do, when you have a sale of a big aircraft.As an example, we sold an ERJ170 in December, which is an aircraft worth close to $10 million, the margin on that in absolute dollars is significant, but in percentage terms is much lower than it would be on our parts sales. So it's really the margin doesn't change much. The product mix changes period to period. And the leasing margins are very high because really the only costs in there are deprecation. So they're very high from a margin point of view.
So in sum, the mix can vary; the margins are stable across the revenue portfolio.
I think I'm going to get you to answer my questions. That was a way better answer than I gave.
Your next question comes from Cameron Doerksen from National Bank.
I guess just a couple from me. I mean first, just on the Department of Fisheries contract, I know there was an expectation that that might be awarded at the end of 2018 and it sounds like it's more of a something that's coming later this year. I'm just wondering if you can comment on the delay there, why that happened.
It would be very dangerous for me to try and explain why governments take how long they take. It's a complicated process. We believe that the contract is going to be awarded sometime in the next -- whether it's not in the first quarter, it would certainly be in the second quarter. Our current contract has been extended through the current year so it would, even if awarded, it would have no impact on revenues in 2019.We remain cautiously optimistic. And one of the things I'd like to point out is the guidance I've given doesn't include any revenue from any of the RFPs we're bidding on, largely the big ones being the DFO contract and the Manitoba RFP for medevac services, which has also been delayed.
Right, okay. No, that's good. And maybe just a broader commentary on kind of the Manufacturing portfolio. We know that Quest is doing extremely well, big backlog growth there over the last 12 months. Maybe you can just comment on some of the other portfolio companies in the Manufacturing, so I mean how those things are trending.
The Manufacturing sector is the most fun when I get to quarter end because everybody sends in their results; they're better than last year and they're better than their budgets. We've grown significantly across the board. Ben Machine in Ontario has benefitted from the increase in military spending and they're running at near capacity. We added extra production equipment there this year to take advantage of opportunities. Our Stainless Tank business in Springfield hit all-time highs for production capacity and -- or production in our plant. It continues to do very well. Alberta has strengthened somewhat from what it was before, but with energy prices in the $50s, it's still building slowly. It is nowhere near the peak it would have been 3 or 4 years ago. We've seen an improvement in our cell phone tower business. Again, it is nowhere near where it was at its peak. It's very driven by changes in cell phone technology and until we begin to see the 5G rollout, I don't think you'll see it back in the $9 million or $10 million EBITDA range. It's currently in the $3 million or $4 million EBITDA range. And then our business in B.C., Overlanders, has been solid. It's consistently grown and their order book is strengthening as well.So I think in aggregate, if you look at every one except Quest, it was up about 33% last year, and we expect further growth in that business this year. But they would all be running at the high end of their capabilities.
Your next question comes from Tim James from TD Securities.
My first question, the report indicates there was $1.16 million in net transfers to inventory from capital assets in 2018. Tammy, I'm just wondering if you could provide the value for Q4 specifically.
When I look at -- let me just -- I'm just having a look here. Net transfers between inventory and capital assets were pretty trivial in the fourth quarter.
Okay. Okay, that's fine. Then just looking at working capital, it's used like $55 million, $65 million in cash over the past 2 years. Is that a pretty good proxy for 2019? Or should it move lower? And what are the components of those cash requirements?
So that isn't -- it would not be a good proxy for 2019 going forward.
We would expect that working capital would be much closer to flat in the current year. We had a ramp-up to fill working capital deficiencies at acquisitions, particularly in MFC where we funded some deferred payables that they had as part of the acquisition. And then we had ramped up inventory at Regional One during those years.I would expect that, absent a material acquisition, there shouldn't be any material build in working capital in the current year. Now, when I say that, I have to put the asterisk beside it; depending on what Regional One buys in a given period. They don't buy inventory the way Foot Locker does where they phone Nike and get it equally as their sales. When opportunities come, we'll take them. But generally speaking, the absolute level of inventory and, as a result, the investment in working capital there should be flat through the year.
And it is possible that an aircraft could -- they could make a decision to part it out, in which case it could come out of capital assets into inventory. That doesn't affect cash, but it affects our working capital position.
Right, okay. And then just actually on that same topic, of the $34 million in disposals in 2018, asset disposals, how much of that was from the Regional One lease portfolio? Or is virtually all of that?
Virtually all of it.
Yes.
The one thing, just before we take the next question, I just wanted one thing with Tim there, and that was the $34 million in disposals. When we record our growth CapEx and describe CapEx in Regional One, it's on a net basis. So we're always going to have significant disposals and new aircraft purchases which exceed that to the extent there's maintenance capital investment. And then if it's beyond that, it would then be a growth capital. So I don't want people to think that because there were disposals of over $30 million that somehow the lease fleet has declined. We sold $34 million and we actually purchased more than that.
Your next question comes from Raveel Afzaal from Canaccord.
I'm thinking about the market share for Regional One. I don't have a good handle on that. I mean you guys signed a contract with Bombardier, a partnership with Bombardier, and now with SkyWest. I'm trying to figure out what your market share is or what your market positioning is in this regional market. Who are the guys who are bigger than you? Where do you guys sit?
The hard part about market share, Ravi, is that we have different competitors in different aircraft in different ways. So there's companies, for example, like Chorus Aviation, who have made long-term leases of CRJs to Air Canada. Or there's other less companies like that who -- AAR and people like that. That's not really our business.In terms of the actual sale of parts for these aircraft, after-market parts, we would probably be the largest player in the CRJ market. The turboprop market is probably a little bit more crowded with people like Avmax in Canada and other people in the U.S. What makes us unique is the short-term to medium-term leasing and parting-out businesses that go together. We have competition in both of those segments from very good companies, but very little competition of people who do both. And that gives us a unique view of the market and, quite frankly, that's what drives the profitability levels that Regional One achieves. It's the fact that we can straddle the fence between those two marketplaces.
And then congratulations on the charter contract win. Can you, to the extent possible, is it possible to quantify what the upside, downside risk is with some of these other contracts that are coming up for renewal soon?
Well the DFO contract we have. So if we were to lose that -- the new contract is much bigger than the contract we have. It's about double the size depending on exactly how the government awards it. So that would be a material contract were we to lose it. I don't think in the middle of the competitive process I want to disclose and EBITDA number.In terms of the Manitoba contract, we have said that we do between $10 million and $15 million in medevacs in Manitoba. That's a number I've said before. And while we don't know our exact market share, my guess is that's about 1/5 of the market. So the upside is material were we to win that contract.
Perfect. And just finally any commentary regarding your acquisition pipeline?
Acquisition pipeline is -- there's lots of stuff to look at. Pricing is high, particularly in the U.S. There is nothing imminent, but Adam is very busy coming into my office and saying, “What about this? What about that.” So we're excited about it, but I don't think you're going to see a press release in the next 2 weeks.
Your next question comes from Mark Neville from Scotiabank.
Just a first question on Quest. The $350 million backlog, I'm just sort of curious how firm that is, typically how quickly we get revenue. I'm just trying to think if there's sort of, potentially near term, if there's sort of capacity issues there just given the ramp -- and yes.
We've been cautious on how much we've taken for the first half of next year. We aren't -- the last thing we want to do with a business growing like that business is, is disappoint customers. So we're confident that we'll be able to meet the orders we've taken.In terms of the firmness of that order book, things do often move from period to period. So a building that we expect to go up in the first quarter of 2020 goes up in the second quarter of 2020 depending on other things. But there's very few projects that once they reach the order book, they don't ultimately come to fruition. We do not include in that our leads list of stuff that we expect to get in that $350 million. That's simply -- those are confirmed orders. And that would run out, the bulk of it, through '19, '20 and '21, and we're booking into 2022.
Okay. On the Force Multiplier, has there been any revenue associated with that yet?
Not with that aircraft. But because we were a little bit late in delivering -- or getting the certification, or at least longer than we thought it would be, we did do a project with other aircraft that we have in Canada late in 2018. And the first contracts are coming very close to fruition in the current year. But in terms of the Force Multiplier aircraft itself, its virgin voyage is yet to come.
Okay. And maybe if I can just sneak one last one. Just for Tammy, just on the IFRS 16, just on the asset, the 115, I'm just curious the amortization period, just for modeling.
Okay. So there's actually a pretty significant mixture in there that if I focus on our largest leases which drive that asset, there's a couple of them that are property. So for example, Quest's new facility in Dallas would be one of those so it would run off over the lease term. And then -- so that one has actually got a, I think it's 10 years approximately of an amortization period there. Some of our other airport leases, which collectively add to a big number, are quite long. So they go off for a long period of time.
You can kind of work back into it, Mark, in that we've given guidance. It's dilutive to the extent of about $0.05 a share. And we've given the debt amount. Take the interest -- take a reasonable interest rate and then the force is the amortization.
And that will roll as well. It will -- as leases come off, they'll be renewed and come back on so you'll see, I think, some steadiness there.
Your next question comes from Konark Gupta from Macquarie.
So the first question on the fuel. So oil price has been very volatile since October. It was down dramatically and then it's kind of rebounding again. How are you managing your margins in the airline business through fuel surcharges and airfares given this volatility? I mean like how are your discussions with the customers in this up-and-down cycle?
Good question, Konark. Because of our market position in most of the places we fly, not everywhere, but most of our stuff is an essential service into First Nations communities. And so they don't see the day-to-day changes in fuel prices. So for us to change our prices is a big communications exercise to explain why we're doing it. And as a result, we typically get an earnings hit during ramp-up periods of fuel prices because we have to take the time to before we can actually put the fuel price surcharge on.Having said that, because of our position in the marketplace, we're able to pass it on. And so during Q2, but especially Q3 of last year, we were able to put the necessary fuel surcharges in place. We are fully covered for the recent run-up in fuel prices and probably a little bit more. If fuel prices were to stabilize where they are now, I think you'd see us reduce our pricing later on in the year. But as you say, it's super volatile so, at this point, we're comfortable with the surcharges we have in place.
Okay. That's good color, thanks. And then secondly, on IFRS 16, Tammy, just wanted to clarify some of the comments you made. So EBITDA is going to benefit by $20 million and I guess that's due to maintenance cost and lease cost capitalization, I guess. But EPS is going to see a slight negative impact. Is it because the depreciation, amortization and interest expense all together will exceed the capitalization of those positive factors in EBITDA?
Yes. So there is like over -- if you had a stable portfolio of leased properties, over time the 2 are equal. So the amount that EBITDA -- that comes out of EBITDA and goes into earnings is approximately equal. And there's a slight hiccup in that because of what we put in retained earnings upon adoption. The cash flows are the same so it's going to run its way through on an equal basis. The timing of interest expense on the leases we have in place plus the amortization differs from the cash flows that we were seeing going through EBITDA. So that's where you get a slight drag on earnings in the early years, which would reverse itself over time.
Okay, understood. And just to clarifying, if you have given any thoughts to the impact on segments in terms of EBITDA as well as maintenance CapEx because some of the maintenance costs will be capitalized.
The maintenance issues are de minimis in our business. When you're looking at our over $100 million in maintenance CapEx, the vast majority of that is on airplanes and we own all of our airplanes. And so while this is a much more complicated process in most companies like that lease assets, particularly airlines, it doesn't really impact us in that way. Ours, it's almost all real estate leases.
Yes. We have one aircraft lease. That's it. Everything else is property.
Okay. And did you mention anything about the segments at all? Like manufacturing will have minimal impact compared to aviation?
Yes. Aviation, it has the bigger impact because it's a bigger segment. But Manufacturing, there's facilities that are on lease so definitely a portion of it is in Manufacturing.
Q1 we'll allocate that for you. We're just finalizing the accounting. But I would suggest to you it's going to largely proportional because there's no difference -- we need real estate for both parts of the business and that's where most of this is incurred. The single biggest lease, I think, is Quest's new building.
It is, yes.
And so there will be an impact there. And we also have significant real estate leases for the ground where, on the airports, where all our hangars are. We own the buildings, but the airport owns the land.
Your next question comes from Chris Murray from AltaCorp Capital.
Mike, just could we talk a little bit about your kind of guidance assertion on your payout ratio longer term? And I think, more importantly, what that is that you're sort of thinking about for Exchange? I mean if we look historically, it was always aiming to keep the payout ratio around 70%, increase the dividend when you got below that. And there seems to be maybe a bit of a thought around the balance between internal growth and acquisition growth going forward. So just kind of square how we think about dividend growth in the future and how you guys are thinking about it as the company matures.
That's a really good question, Chris. Our thought process on a go-forward basis is we're proud of our dividend growth rate that we've achieved over 15 years and we intend to continue to grow the dividend. But as we've gotten bigger, shareholders are more and more concerned about the stability of the dividend. And while at 70%, I have no doubt, we've done it for 15 years, that the dividend is secure. By moving that payout ratio down as we described towards 50% on the free cash flow methodology and towards 60% on an adjusted net earnings methodology, it makes the stability of that beyond reproach. It also, by lowering the payout ratio, does increase the amount of money we have for internal growth. And you've seen we have the ability to grow, invest in ourselves, outside of the acquisition program, but whether it's RFPs or additional equipment at Regional One or those kinds of things.So I think what you're seeing is a philosophy that we haven't changed that we're an income-paying company and that we're going to continue to grow it. But we're going to invest the growth in two ways; back into ourselves and in the dividend. And as a result, you'll see that reduction in the payout ratio. I mean the current year is a good example. The dividend went up by about 4% or 5%; payout ratio went down by 10%. I'm not sure that we'll get that kind of impact in every year, but we think we can drive that thing down to around 50% within 3 years, which will strengthen the dividend and provide extra cash to grow.
Could we think about the pace then and how we think about dividend policy going forward, that you'll be a lot -- maybe more conservative, kind of starting to aim at a lower growth number as you increase that? Is that maybe a better way to put it? And, I would say, outside any external major acquisitions or anything like that.
I don't -- no, I wouldn't really say that. I think the growth rate has been sort of in that 4% or 5% for 15 years. And we don't have a precise target of what the annual growth rate in the dividend will be. It depends on our results. But the reduction in the payout ratio that I'm talking about going forward isn't new. We have done more than that in the last 3 years where we've taken it down to the 60% range from the 70-something% range. So I think we can do both. It's our profitability that's going to drive our dividend growth. And like I say, the move to 50% wasn't me subtly telling you I'm not increasing dividends anymore. We intend to do both.
Okay, fair enough. And then maybe just a clarification on an earlier comment you made. And maybe if you can give us some maybe better color on how think about it. So talked a little bit about there was some items from Q4 that will get pushed into 2019, but then you've also talked about seasonality being more back half loaded. And then you've got, of course, the normal kind of winter impact with winter roads on the Aviation business. How should we be thinking about kind of the cadence of EBITDA through the year? There seems to be a lot of moving pieces, maybe more than normal, this year in how we should think about your earnings targets.
I would suggest to you that the projects we have that are going to drive growth don't contribute to the first quarter and, in fact, Quest will be negative in the first quarter as we ramp up the plant. We've hired a lot of people and they're learning how to run their machines. And then after that you'll see growth in each subsequent quarter. But like I say, more of it in Q3 and Q4 as each of those contracts I've talked about grow. The seasonality of the business shouldn't change. It's really just the rollout of those growth projects that grow in the second half of the year.
Your next question comes from Derek Spronck from RBC.
Just in terms of you have a lot of new growth initiatives and new contracts coming to fruition in 2019. How should we think about the EBITDA margin profile next year? Can you provide a little bit of color around that?
Just give me a second and I'll take peek at -- I'll take a look at our internal stuff for where margins are going here. Again, the one thing I just want to make sure I caution everybody on is that the make-up of Regional One bounces around. If I sell 2 ERJ170s for $25 million, it's going to depress that margin, but increase the sales. If I don't, it will reduce the sales, but increase the margin. When you look at overall EBITDA margin, in 2017 it was about 24.5%, if I remember correctly, and then it's down to below 24% in the current year. I would expect 2019 to be more in line with 2017 than 2018.
Okay. No, that's helpful. And then just quickly, expectations around maintenance CapEx for the year. And your senior debt to EBITDA is at around 2.5x so kind of at the upper end of your target, still well below the covenant level. How are you thinking of leverage right now? And because it sounds like capital intensity should be lower, by and large, which would indicate that potentially an improvement in the leverage level. So just a little color around maintenance CapEx expectations and leverage would be helpful as well.
Maintenance CapEx will be similar to the current year. And it's hard for me to give you precise granularity because of times when engines come up changes, but I don't see a material change. And the same with growth CapEx. I think the aggregate of that, our plans, inclusive of the new partnership with SkyWest, I'm including that in my estimates for growth CapEx, are in line with last year.In terms of the debt position, I think by the end of the year you should see the leverage level decline with the growth in EBITDA and free cash flow. The only asterisk I want to put beside that is, is we haven't put anything in the capital if we win the RFPs, but we also haven't put any of the upside to earnings in that. And it's hard to quantify it until we know how the governments award the work. There's a lot of optionality in these contracts about what they actually will purchase. So were we to be successful on either of those 2 big ones we're talking about, we'll give you a revised CapEx number and a revised earnings number in the forecast point of view. But absent those 2 things, which is the way that's all the numbers I've presented to you, we should see a decline over the year in leverage.
Your next question comes from David Ocampo from Cormark Securities.
Great color on the SkyWest JV, but just a clarification for me. When I look at the CF34 engines, I mean the useful life for these probably extend past your normal buy, lease and sell range of 2 to 4 years for Regional One. Is this kind of one-off then? Am I looking at this right? And you guys will stay within that range?
It depends on the age of the engine when you roll it into the joint venture and what you do with it when it comes to overhaul. The time between overhaul fits our general parameters. One of the decisions we'll be making that may be different within the joint venture than we would typically make is SkyWest has great relationships with the engine overhaul companies and good pricing on those kinds of things. So the JV may choose, when some of those engines come due, to overhaul them and keep them in the lease portfolio or they may choose to part them out. Those are decisions that will be made by the JV at the time it happens. But the management of CF34 engines is no different than what we do. We have some, and we will make decisions with the strength of the market today whether we're going to overhaul them and keep them in service and extend leases or sell them and purchase different ones. It's really the same business.
Right. That's great color. And the backlog at Quest, the $350 million, how much of that is from the U.S. greenfield facility? I just want to know like how aggressive you guys can get there or how much this can actually grow.
We are -- it's hard for me to tell you how much is for which facility other than I can tell you that we kind of know that breakdown for next year. But after that, both plants can do any job. And so we'll balance them depending on which work we take in a given year. But I can tell you that after you get past our ramp-up phase, we have capacity to grow well beyond the $350 million order backlog. We aren't, once the plant is running, production-constrained.
Your next question comes from Nav Malik from Industrial Alliance.
I just wanted to ask, I guess, on Quest, kind of a follow up to what you were just talking about. But when that new facility is up and running, what would you say would be sort of the annualized run rate from there, EBITDA levels?
That's -- Nav, that's how much can it run? How much, what's its production capacity and how much do we have orders for it? I'm really not going to answer either of that directly. But what I am going to say is the Canadian plant is 200,000 square feet. The U.S. plant is 330,000 square feet. And the U.S. plant, because it was designed, built, is more efficient in how it's put together. So the production capacity as we ramp up our order book in the U.S. is certainly proportional to the real estate.
Okay. And so I guess and then the 25 -- the Quest did $25 million in 2018. Was that kind of a -- that was a full sort of full capacity run, would you say?
That Toronto plant, that -- if you walked by, there was a little bit of smoke coming up out of the windows. That's as fast as we could run there.
Okay, fair enough. And then in terms of the condition of the Toronto plant, like is there any other concerns given aging of the infrastructure of that sort, like given with the water main break, is there any other sort of CapEx that needs to be taken care of on the Toronto plant that you foresee?
There's ongoing maintenance CapEx. The water main break was our landlord's issue. We don't own the real estate there. And the plant is in good shape. Like there is going to be equipment replaced in the normal course, but it's not big dollars relative to the EBITDA that business is kicking out. Once the U.S. plant is up and running in full production, the next step will be to decide whether we need more space in Canada at some point in the future. But we've got a lot of room to run first with Dallas before we need to worry about reconfiguring Canada.
Okay. And then just on CapEx. So your growth CapEx for 2019 consistent with '18 so I guess that's around the $50 million mark. I don't know, maybe could you just break that down? I mean is that for the -- is a lot of that for the Quest new facility, for the JV with SkyWest? Like what's kind of the capital requirements on some of those remaining for 2019?
I'm cautious to do this too specifically, business by business. But Quest was largely completed in Q4 in terms of the big numbers. There is a carry-forward into the first quarter. But the biggest driver of growth CapEx is at Regional One, not exclusively for the partnership. That's clearly part of it. In terms of other drivers for growth CapEx, they're pretty small everywhere else, like a $3 million project there, $2 million project there. But most of it is Regional One and Quest.
Your next question comes from Mona Nazir from Laurentian Bank.
I just had a very quick follow-up. It was more clarification on the guidance for 2019 and EBITDA, particularly as it relates to the IFRS 16 change. So if EBITDA is going to increase $20 million next year and you did $278 million in EBITDA this year then we add $20 million and get near to $300 million and then add 10% growth. Is that fair?
Go ahead, Tammy.
No. It's the other way around. Do your growth on the consistent accounting policy, the policy the way it existed in 2018 and then add the $20 million.
The simple, the CEO math is we were about $280 million last year, 10% on that is $28 million and 15% would be $42 million. So you add the $20 million. So you're somewhere between $48 million higher and $62 million higher than this year.
And the last question comes from Tim James from TD Securities.
I just wanted to clarify quickly again related to the guidance for 2019. I think you mentioned that it doesn't factor in winning either of the 2 big contracts and I'm thinking in particular of the Department of Fisheries win. It sounds as if the EBITDA from that either -- well, in all likelihood, goes up relative to the current contract, but obviously it could go down if that's lost. But it shouldn't remain at the current kind of revenue cadence, so --
In 2019, it's going to be the same because even if we win the contract, the new contract is not going to take effect in 2019. And if we were to lose the contract, we would continue to service it through 2019. The impact would be in 2020.
There are no more questions. I'll turn the call back over to the presenters for final remarks.
Given that there's no further questions, I'd like to thank everyone for participating in today's call. We're excited about 2019 and we look forward to updating you on our progress in the quarters ahead. Have a great day.
This concludes today's conference call. You may now disconnect.