Richard Wowryk
Chief Financial Officer at Intercontinental Exchange
Thank you, Mike, and good morning, everyone. Revenue, adjusted EBITDA and free cash flow were all second quarter high watermarks. I will delve into the segmented results and the remainder of the financial statements. Revenue in our Aerospace and Aviation segment increased by CAD54 million or 15% to CAD427 million. Adjusted EBITDA increased by CAD27 million or 25% to CAD134 million. The results and margin expansion were across all business lines. Looking at the essential air service business line, the improvements were driven by four key factors. First, previous organic growth, capital expenditures in the Aviation businesses over the past number of years. Second, our average load factors improved, which has a direct improvement on adjusted EBITDA. Third, the impact of the routes flown on behalf of Air Canada and finally, the impact of the BC and Manitoba medevac contracts.
These improvements were offset by softness in our rotary wing business. However, it is anticipated to reverse in the third quarter due to wildfire activity in Canada. Our Aerospace business line revenues were relatively flat compared to the prior period. However, adjusted EBITDA expanded in an accelerated fashion. This is due to two reasons. First, the revenues and adjusted EBITDA increased due to the expansion of the ISR business, including the impact of the UK Home-Office contract. This increase in revenue was offset by a decline in revenues within our training business. However, the product mix shifted which resulted in profitability expansion within the training business, even with the revenue decline. This margin expansion in our training business is anticipated to be temporary and is expected to normalize in the third quarter and beyond.
Last, our Aircraft Sales and Leasing business continued to grow as the leasing component of that business continued to improve. We are still anticipating that the leasing side will continue its step improvement until it reaches and ultimately passes pre-pandemic run rates by the end of the year. The growth within this business line and specifically the leasing business resulted in an improvement in the profitability as leasing margins are much higher than other revenue streams. Revenue in our manufacturing segment decreased by CAD21 million or 8% to CAD234 million. Adjusted EBITDA decreased by CAD14 million or 29% to CAD35 million. As expected revenue and adjusted EBITDA within the environmental access solutions business line decreased by 28% and 35%, respectively. As previously communicated in our year-end and first quarter calls, the first half of the year of the comparative period had a number of seasonal anomalies.
The first quarter and second quarter of 2023 experienced an unusual number of rental mats deployed on long, linear projects. This was outside the norm. Milder weather in 2023 also required greater mat utilization of projects. However, this winter experienced very low snowfall and drought conditions, which generally lessens demand. Further, as the prior year comparative contained an unusual number of mats on rent, the impact on adjusted EBITDA was outsized relative to revenue. Our Multi-Storey Window Solution business revenues were consistent with the prior period and adjusted EBITDA decreased by 35%. Changes in product mix as the business line completed more third party installations than in the prior period which generates lower margins. This coupled with operational inefficiencies as certain projects pushed out of the second quarter into later in the year reduced adjusted EBITDA. As we previously communicated, we also continued on the strategic decision to retain experienced staff to meet future increased demand as we are starting to see projects being awarded in the later part of the quarter and post quarter end.
Lastly, revenue in our Precision Manufacturing and Engineering business line decreased by 8% compared to the prior period. Adjusted EBITDA decreased by 17%. The decreases were primarily due to customers delaying projects into subsequent quarters coupled with changes in product mix. Other items of note during the quarter were that interest costs were higher by approximately CAD4 million due to increased benchmark borrowing rates compared to the prior period with increased -- coupled with the increased debt outstanding due to various growth capital expenditures. Our free cash flows maintenance capital expenditures payout ratio was 61% compared to our year end and comparative ratio of 57%, while dividends increased by 12% when compared to the prior period. Depreciation on capital expenditures was also up due to growth capital expenditures and acquisition activity in 2023. Our effective tax rate was consistent with the prior period and our year-to-date effective tax rate is moderating within our expected range of 27% to 29% on an annualized basis.
Free cash flow increased by 3%, while free cash flow less maintenance capital expenditures decreased by 11%. Maintenance capital expenditures increased by approximately CAD9 million primarily due to the timing of certain overall events and the second quarter of 2023 being unseasonably low. From a working capital perspective, our working capital declined compared to the prior year end. This was due to the reclassification of convertible debentures of CAD79 million being classified as current as a contractual maturity as June 2025. From a cash flow perspective, the non-cash investment in working capital was CAD68 million. The investment was to support the growth initiatives and increased revenues discussed above. Coupled with the impact of slower collections and certain government receivables, we're actively managing our working capital and anticipate a majority of these investments will be converted to cash prior to the year end. Our total leverage ratio or our senior leverage ratio increased to 2.88 times from 2.47 times at year end. The increase is primarily due to investments in growth capital expenditures, as previously noted.
Our organic growth results in a lag between the time investments are made and when returns become evident through our financial results. We anticipate this ratio would decline as our growth capital investments impact the bottom line with an along with an improvement in our manufacturing segment adjusted EBITDA relative to our comparative results. During the second quarter, EIC made growth capital expenditures of CAD45 million. These growth capital expenditures primarily relate to the Aerospace and Aviation segment and were primarily driven by investment in additional aircraft and infrastructure, including the King Air simulator. Our Environmental Access Solutions business also invested CAD5 million in growth capital expenditures as it invested in its mass fleet to meet forecasted demand in the future.
Maintenance capital expenditures for the quarter were CAD48 million compared to CAD39 million in the prior period. In our year end conference call, we indicated that we anticipate maintenance capital expenditures to increase in line with our adjusted EBITDA. However, there are some maintenance events that fell outside of the quarter and will be funded in later periods. Maintenance capital expenditures for the manufacturing segment were slightly higher than the comparative period by CAD1 million.
With that being said, I will now turn the call over to Jake and Travis.