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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Ladies and gentlemen, thank you for standing by. Welcome to the IBI Group Second Quarter 202 Results Conference Call. Please note that IBI's complete financial statements and management's discussion and analysis for the 3 and 6 month periods ended June 30, 2022, were filed on SEDAR and have been posted on IBI's website at www.ibigroup.com. [Operator Instructions] As a reminder, this conference call is being recorded.
Some of the statements on today's call might contain forward-looking information. Listeners are cautioned not to place undue reliance on these forward-looking statements since a number of factors could cause the actual future results to differ materially from the targets and expectations expressed. The company undertakes no obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise, unless expressly required by applicable securities law.
For further information on risk factors, please view the company's annual information form filed with the Canadian securities regulatory authorities and available on the company's website, SEDAR, or by contacting IBI directly. All amounts discussed today are in Canadian dollars unless otherwise stated.
I'd now like to turn the call over to Mr. Scott Stewart, Chief Executive Officer for IBI Group.
Good morning, everyone, and thank you for joining what is supposed to be IBI's final earnings call. As most of you know, on July 18, we announced an agreement for Arcadis, the Netherlands-based company to acquire IBI Group for $19.50 per share in cash, representing a 30% premium to the previous day's close and a 40% premium to the 30-day volume-weighted average price. This development came shortly on the heels of our AGM in May, during which we shared a high-level overview of our new 5-year strategic plan, including targets to 2026, such as IBI growing to $1 billion valuation, expending our net revenue to $940 million, doubling our annual recurring revenue to over $40 million and achieving these goals while maintaining a healthy debt leverage ratio of approximately 1x EBITDA. As demonstrated by IBI's second quarter and first half 2022 performance, particularly our strong inline backlog, we were already well on our way to achieving these goals. IBI had not been seeking a transaction before we were approached. In fact, we're all very excited about our strategic plan, and we were confident we would achieve the set out results; however, the Arcadis transaction came to us, resulting in our Board forming a special committee to assess the opportunity. The special committee engaged strategic, financial and legal advisers and ran a competitive process, which resulted in more than one expression of interest; however, based on the extent of due diligence undertaken the special committee concluded the Arcadis offer would be in the best shareholders and for the Board to recommend voting in favor of the acquisition. IBI and Arcadis already have an established collaborative working relationship and having aligned on current and anticipated upcoming LRP projects. We believe the combining our respective solutions will position Arcadis with world-class software and system design, systems integration, digital solutions, innovative capabilities that will result in a far greater impact for our clients and the people for both operations. The success of IBI is realizing today stands from having a highly talent and effective group of professionals who are able to both get work as well as do the work. Our practice of integrating excellent technology tools to facilitate collaboration among our global offices and help foster high utilization levels as an example of what can be done with technology and such a reference in the industry. Finally, we have established, extended, and expanded our capacity as a result of both organic and acquisitive growth. Collectively, these showcase the outstanding opportunity that IBI presents for Arcadis. To date, in 2022, I am extremely proud of our results highlighted by stronger net revenue, organic growth, adjusted EBITDA and increased recurring billing.
One of the areas we're most proud of is our backlog and the pipeline of committed work that we have secured. This remains robust with no signs of slowing down quarter-over-quarter on IBI realized sizable growth in this committed work across each sector. In Intelligence IBI secured $35.2 million in new work during the quarter, an increase of 69% of the $20.8 million security in Q1.
This meaningful increase reflects clients finding certain contracts in Q2, which had been delayed earlier in the year and was supporting continued backlog strength as well as annual recurring revenue. We continue to be awarded contracts with various toll and trapping management systems globally as well as our innovative transportation software solutions and products such as TravelIQ and CurbIQ. [indiscernible] acquisition of Intelligence such as hotspot further contributed to our growing intelligence sector committee work and backlog. Our infrastructure sector has remained a steady and stable contributor to IBI's backlog. We continue our long-term public sector transportation projects, including LRP and subway expansion along with climate change-related infrastructure projects. Water and Water wastewater management infrastructure also added to the backlog with IBI successfully securing a sizable water project during the second quarter, following to the expertise we acquired with coal engineering. As our backlog is staffing at the near record levels, we continue to benefit from the collaboration between teams across our global offices. IBI's building sector having a tremendous year. In Q2 2022, we experienced ongoing strong demand across both public and private sector projects, largely led by [indiscernible]. However, our Canada West and U.S. segment also posted robust results with strong performance from subsectors, including transit buildings, industrial, city, and our largest building sector Living Plus. During the second quarter, new committed work security in the building sector expanded to $107.9 million from $73.4 million in Q1, a 47% increase quarter-over-quarter. Demand in our building sector is still by integration, which drives ongoing demand for our mixed-use high-rise development, including next use Living Plus and multi-family rental apartment buildings, either with infill on existing sites or in greenfield site on orders. We are also seeing large commercial big box and shopping center sites be re-developed as complete mixed-use communities and IBI is being called upon to envisage master plans for these multi-year sites and multi-tower sites that we believe will lead to many years of mixed-use design work. Recent examples include the Marcum Gateway, The Long Metro Center Masterplan and the industrial quarters, all of which have multi-tower permissions for IBI and a promise of build more building projects in the future.
I will now hand it over to Stephen to elaborate on some specific financial results and economic drivers. Stephen?
Thank you, Scott. As you heard this morning, we are extremely pleased with IBI's strong performance and the resilience displayed during the second quarter, realized in an environment of inflation-related concerns, recessionary pressures and rising interest rates. Despite this, we have remained competitive and have been successful finding and hiring new talent while effectively managing these ongoing pressures. As a testament to our business model, IBI's backlog has continued to grow in the current environment at a pace greater than we can complete the work. During the first half of 2022, our backlog saw a record intake as Scott has already mentioned, and was 17.5 months in total at the end of Q2, representing $685 million of work committed under contract for the next 5 years. We secured over $177 million of new work in the quarter, up 34% from just over $132 million secured in Q1. In addition to our tremendous backlog, our strong financial results are highlighted by IBI's performance across key metrics through the first 6 months of 2022 relative to the same period in 2021. During the first half of this year, we have generated organic growth of 10%, a net revenue increase of 11%, adjusted EBITDA expansion of 12%, adjusted EBITDA margin maintained at 15.6%, recurring billings growth of 15%, and diluted earnings per share rising by 33%. Our building sector has been particularly strong, generating net revenue growth of 15% in each of the second quarter and 6 months ended June 30, with adjusted EBITDA margins of 21.9% in Q2 and 22.4% in the first half of the year. In spite of increases in interest rates, growth in new residents of our key building markets continued. The trend of an increasing number of rental unit designs is also following previous quarters. Further, in addition to the macro factors as Scott mentioned that are driving demand within our building sector. In Ontario, new building and development fees are being imposed in 2023, which has caused an increase in ongoing work to secure project permits during 2022 so that developers can avoid higher incremental costs starting next year. Intelligence posted net revenue growth of 11% and 8% in Q2 and in the first half of 2022, respectively, with growth in recurring billings, new committed work and backlog, as Scott has already outlined. Adjusted EBITDA margins from Intelligence were 18% of net revenue in Q2 and 19.1% of net revenue in the 6 months ended June 30, lower than the same periods in 2021 due to timing delays on revenue recognition for certain projects. These are expected to be reversed through the balance of 2022. Ongoing public transit infrastructure investment contributed to infrastructure net revenue growth of 6% over both Q2 2021 and the first 6 months of 2022, representing a pipeline of future projects across the country, including further large-scale transit expansion projects. Adjusted EBITDA margins for infrastructure were 14.4% of net revenue in Q2 2022 and 14.1% of net revenue in the first half.
At the end of quarter 2, net debt totaled $47.3 million, representing a net debt to trailing 12-month adjusted EBITDA ratio of 0.8x. This reflects draws on the credit facilities to fund the cash payment for M&A transactions, including our acquisition of Hotspot during Q2, a platform, which bolsters IBI's traffic and transportation practice. Based on our standard performance thus far in 2022, IBI has established a favorable position to contribute meaningful growth for Arcadis to build upon.
Shareholders will be asked to vote on the transaction at an upcoming shareholders meeting scheduled for September 16, 2022, at which IBI's Board of Directors and single largest shareholder, the IBI Group Management Partnership will recommend and support the shareholders vote in favor of IBI's acquisition by Arcadis. From now through completion of the proposed acquisition, the team at IBI remains committed to ensuring client deliverables are met and that we continue to focus on our many strengths and unique capabilities to further drive financial performance. In closing, I'd like to thank our investors and the broader investment community, who stood by IBI throughout our journey, particularly our bankers including research analysts who covered us, corporate finance professionals, institutional sales desks, investment advisers, and corporate access teams who contributed overall to our success. We have been fortunate enough to work alongside some of the best and brightest in the industry over the years, and we truly wish all of you the very best. Thank you.
Scott and I will now take questions. Thank you.
[Operator Instructions] Your first question comes from Michael Kypreos, Desjardins.
Congratulations on the good results. Just got a quick question about, how much were the acquisitions contribution to revenue in the quarter?
It was fairly nominal in the quarter. ROC added just over $1 million worth of revenue in the quarter. Hotspot the acquisition was quite late and had no real impact on the quarter.
Perfect. And maybe just a follow-up on what would be the necessary steps after September 16 and the shareholder vote until the acquisition is completed, maybe just a global overview of what are the next steps after that date.
Well, I think those are best answered by the lawyers and the circular will be coming out in just under 3 weeks' time. So I would ask that all investors and interested parties make reference to this circular for the steps that have to be undertaken. They will be set out in the circular.
Your next question comes from Frederic Bastien, Raymond James.
One question around sort of the outlook for organic growth. You delivered exceptional growth in the second quarter. You have had good success hiring people. Just wondering where you think this can go maybe looking into the second half, especially as sort of economic headwinds are starting to mount. Just wondering your outlook for organic growth and where you think things can go on a go-forward basis?
We look at each of the sectors and look as well at the geography. I anticipate that Intelligence will continue to grow at high single-digit rates simply because systems and software are in the inflation. And [indiscernible] realizing an accelerated growth rate. We are certainly seeing no reduction in demand and with various initiatives that we are seeing now with the approvals of the U.S. that the body program that there may even be certain accelerated opportunities in the infrastructure and in intelligence, especially in the energy-related areas that are some sweet spots for us in electrification of transit, etcetera. The building sector we still benefit greatly in Canada from the standpoint of the immigration. There is no slowdown in that, and it is creating a tremendous backlog of demand what we anticipate, though, is there is going to be a slowing down on the condominium side, but there is more than a take-up of that work in the area of rental. And the rental initiatives are being led largely by much more [indiscernible] money from pension funds. And so we are not seeing any slowdown in that. And as Stephen alluded to summing in Ontario, there is an accelerated effort now through the end of this year to get approvals in place because of the added overhead costs. Now with all of this growth, there also is need for all of the associated amenities, including health care, schools, community facilities, all of which are very much related to that growth. And we are not seeing any slowdown of a material nature in the infrastructure spend, the public transport infrastructure spend again in Canada. We are targeting a strategic growth in the United States, where there is some immigration, but there is also significant migration and that is more in of the summit state. So we are very confident of that. And we also see, as we had highlighted the strategic plan that the on-shoring and logistics. The amount of activity that we are seeing in that area has grown tremendously over the last couple of years, and especially because of COVID and supply chain issues that we have seen coming out [indiscernible] Asia as an example. And so there is a lot more of that kind of work that we see that is going to carry us through the next few years. In fact, maybe even enhance the areas such as industrial plants in automotive facility.
Thanks for that, Scott. It is all I just want to say kudos to you and the team. We went through quite a journey together over the past 15 years, but all seems to be ending well. So congrats.
Thanks, Frederic.
There are no further questions at this time. Please proceed.
As a final comment, I would like to reiterate Stephen's concluding expression and appreciation. We certainly thank all of you as Frederic, as you mentioned, it has been quite a journey over the past 15 years and certainly for me and Stephen and the other leadership team in the last 9 years. There have been some extraordinary challenges. But with patience, we presented and you stay with us. We have been fortunate. I am working with you as being part of our good fortune. We wish all of you the very best. Thank you.
Thank you. Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.