Q3 2021 Aecon Group Inc Earnings Call
[music].
If you would like to ask a question or two during today's cool that would be stopped but they buy one on your telephone keypad stoffel. They bite you if you change your mind.
Now have the pleasure of handing over to our host today I didn't lagace to begin I Jim over to you.
Thank you Melissa good morning, everyone. Thanks for participating in our third quarter.
One result conference call.
Speaking.
Thank you this morning.
President and CEO.
Thank you to vice President and CFO.
That was released yesterday evening, we posted a slide presentation on the investing section of our website, which we will refer to during this call.
Following our comments, we will be glad to take questions from analysts and we ask that analyst keep to one question and a follow up before getting back into the queue.
As noted on slide two of the presentation listeners are reminded that the information we are sharing with you. Today includes forward looking statements. These statements are based on assumptions that are subject to significant risks and uncertainties.
Although aegon believes that these expectations reflected in these statements are reasonable we can give.
No assurance that these expectations will prove to be correct.
I'll now turn the call over to Dave.
Thanks, Adam and good morning, everyone.
How much summarizing a consolidated results review results by segment and then the <unk> financial position before turning the call over to John Lee.
Turning to slide three revenue for the third quarter of $1 $2 billion.
124 million or 12% higher compared to Q3 last year.
Adjusted EBITDA for the third quarter 96 million a margin of eight 2%.
$42 million lower compared to reported adjusted EBITDA in Q3 last year.
$37 million.
However, adjusting for the impact to the Canada emergency wage subsidy <unk> program with $69 million included in the third quarter of 2020.
Yes.
Diluted earnings per share of 56 cents in the quarter was 40 <unk>.
Compared to diluted EPS of 99 cents in the same period last year.
After adjusting for the impact to soon as last year.
We want you to EPS this quarter increased by 23.
Compared to Q3 2020.
New awards in the quarter of $682 million compared to $448 million in Q3 2020.
Backlog at 6 billion compares to backlog of $6 7 billion a year earlier.
Now turning to results by segment.
As noted on slide four construction revenue of $1 $1 billion in the third quarter was 108 million or 10% higher than the same period last year, driven by nuclear refurbishment work in Ontario oil and gas distribution and telecommunications work in the utility sector.
And a higher volume of work and gas and chemical facilities.
We offset by less activity on mainline pipeline work.
Industrial operations.
Yes.
Adjusted EBITDA from construction and $82 million and margin of seven 2%.
Increased by $20 million.
<unk> recorded in Q3 last year due to higher volume and gross profit margin in nuclear and utilities cost.
We offset by lower volume from civil operations and urban transportation systems.
New contract awards of $657 million in the third quarter compared to $459 million in the same period last year.
Primarily driven by strong demand across Canada, and smaller and medium sized projects.
Turning to slide five concession revenues for the third quarter $22 million with 50 million higher compared to the same period last year, primarily due to an increase in operations and the Bermuda International Airport.
Commercial flight operations in Bermuda continued to operate at a reduced.
Volume due to COVID-19, compared to pre pandemic levels.
Gradually recovering since most of the impacts of students in 2020.
Adjusted EBITDA in the concession segment $22 million was $14 million higher than last year, driven by improving revenue.
Turning to slide six at the end of Q3.
I had a committed revolving credit facility of $600 million.
Of which 50 million was drawn and 8 million utilized for letters of credit as.
As well as the $900 million facility provided by EDC to support letters of credit.
Ingalls committed facilities for both working capital and luxury credit requirements totaled $1 5 billion.
<unk> has no debt or credit facility maturities until the second half in 2023, except equipment and property loans and leases in the normal course.
As of September <unk> was in compliance with all debt covenants related to its credit facility.
At this point I'll turn the call over to Joe Louis.
Thank you Eddie.
I'd like to take a moment to address the update on the coastal <unk> pipeline project laid out in our disclosure documents.
These projects are being delayed and impacted by evens clearly beyond AC Energy's controller.
And for which goes to gasoline is contractually responsible.
We are frustrated by not appropriately administering it.
Change management process I need a decision to stop paying them ounces at depth.
It used to be agreed to pay on an interim basis pending agreement on the quantification of those changes.
I wanted to stress, let's say end of GFS trunk contractual entitlement to additional compensation. That's GM is not addressing on a timely basis.
We were left with little choice, but to Commons and arbitration pursuant to the terms of the <unk>.
On track to resolve the matter.
But we are also continuing to engage in an ongoing dialogue with <unk> to reach an amicable resolution that's aggressive AC energy's cash flow requirements.
As you will appreciate even we are still in negotiation.
Not to keep arbitration process.
We are somewhat limited as to the amount of tail weekend going to but we are certainly open.
A resolution can be found quickly so.
So that we can complete our work on this important project.
For the benefit of all stakeholders.
Turning to slide seven.
Despite the ongoing impacts of COVID-19 on <unk> operations, we continued to deliver solid results in the quarter.
<unk> com's balanced and diversified portfolio at a time.
Gotcha.
To be significant stressed and always unique to the market opportunities across Canada to date.
The construction segment is aligned to the significant infrastructure investment commitments by all levels of government across Canada as well as by the private sector.
Across the market sectors in which we participate.
The concessions segment is purpose built for the large scale infrastructure projects being developed.
And brought to market by government was a piece of the model.
Also targeting innovative development in private finance opportunities.
That's true power clean tech and other related markets as well as participate he got the concession nap of the five <unk> projects identified all the time.
Turning now to slide eight.
Backlog recurring revenue programs as the pipeline of bidding opportunities for new work remain at strong levels across Canada.
Through the first nine months of consulted in 'twenty one.
New awards of $2 4 billion were similar to the same period last year and results from steady demand for <unk> services across Canada.
Lola and medium sized project.
And also incorporated a number of multiyear project and the nuclear.
Urban transportation and industrial sectors.
Hey, Tony also pre quantified on a number of large project bids are due to be awarded over the next two years.
Despite certain projects being delayed in the short term, we expect demand for our services to remain healthy for the foreseeable future as the federal government and provincial governments across Canada.
<unk> investment in infrastructure as a key tool so seamless.
Economic recovery plans.
Trailing 12 months recurring revenue was up 40% versus the prior period, primarily from growth in UTD keep operation.
Recurring revenue is expected to continue to grow based on the capital investment plan of a number of key clients.
To lead the telecommunications and power sector.
As well as from the recovery of aviation traffic at the Bermuda International Airport.
Turning to slide nine we are continuing our drive to be an industry leader in sustainability as we undertake initiatives to Amit innovation reduce emissions boost efficiency and improved business performance.
And I'm going focus of our sustainability program is to pilot new technologies to reduce and we shouldn't on our construction sites and in our facility.
We recently became the first construction company in Canada to try and an electric excavator.
This may seem small cells, it's in all the steps.
Being a leader in sustainable operation in the construction space.
Working with innovative partners to deliver on our environmental commitments.
We are also currently undergoing trials.
To utilize solar and in east to replace construction equipment like policies fueled generators light towers road signs as well as to power, our training and innovation et cetera.
Yeah.
Turning to slide 10.
Trends that I've spoken to already in terms of the strength of the construction market in Canada.
What is the public and private sector continued to be probably even well aligned to a common diversified construction segment.
The concession segment, and increasing vaccination rates and the easing of travel restrictions during the year provided signs of a rebound from very low levels in passenger traffic for the aviation industry.
You should expect it to lead it to a corresponding ongoing gradual improvement in traffic was the Bermuda airport during the remainder of the year and into.
2020.
Thank you, we'll now I'll turn the call over to analysts for questions.
I think he if he would like to ask questions. Please press star followed by one.
Thank you Pat.
So our first question today comes from Frederic Bastien, Raymond James Frederick S T.
Hi, good morning, guys.
I know you're limited in the comments you can make around the.
The coastal gas link.
[noise] arbitration process, but.
Is the.
Is the situation that is being experience replicated with other contractors that are working potentially on that are working on other sections of the pipeline.
Okay.
And you didn't see we can speak about our works not that much about as it works out for all of those.
In the total coastal gasoline pipeline.
There are.
Eight strengthened.
We have been awarded two spreads early 2018 or.
So what is interesting to understand is that.
Building the pipeline has to be a very organized machine I mean, yeah.
It's a phase <unk>.
Beginning with uranium and Deforesting it.
Then Matt.
Getting the right of way to enter heavy equipment.
Grady is right of way than teaching them.
Shrinking the pipes, along the way then the Wednesday elements of pipes.
Laying the pipe within the trench.
Then back sitting at.
Trench.
Then the hydro testing here.
Right.
And then as in preneed yet.
Everything has to be organized as a clock work if you want to reach productivity.
And what has happened on our on our presses.
Is that we haven't counted heavy modification is the condition of the execution of our works.
About <unk>.
Right of ways.
Delivery, it's about the geotechnical conditions.
It's about new and extremely stringent comp.
Concentrate in terms of erosion and sedimentation control, it's about adverse weather it's about coffee.
And and at the end of.
The day, what happens is that when we studied and given our offer.
Two times 100 kilometer.
Appendix Q1 hundred Diamond two kilometer.
So in promo whose modification close to gasoline.
Issued a change direct effect.
Acknowledging the change.
The problem now is that to go from a modification in the condition of execution to the modification of the completion of payments.
First in terms of quantum about the compensation for the modification and then time a statement.
Probably noticed is that the real issue is either cash flow stress.
Regarding energy.
Just means that albeit we and our partner put out have that say they will do it in the first quarter of 2022.
We might not be able to complete the project within the parameters of our current temperature spectrum.
So.
We are in.
In an arbitration process with.
With <unk>, we are also actively.
Cutting it and we are also negotiating with a C. G L or this is a work in progress and this is what we can say at least at this stage.
Okay.
And given that it's a tight labor market out there and Youre seeing you.
I mean, we're all seeing.
Natural gas prices spike.
It would be in everyone's best interest to get that thing sorted out as quickly as possible.
I'm not trying to put stuff in your mouth, but that that's kind of what my takeaway with the year.
Youre right.
Right right right.
Time is of the essence.
For coastal <unk>.
Okay.
Quickly switching gear on the nuclear side.
We saw a nice lift in the revenue and then obviously, that's that's probably driven a lot of the profitability improvement we saw year over year.
Can you give us a sense of where in terms of.
Level of activity, the Darlington and Bruce power.
<unk> are at or we are you guys are going full steam ahead on those in the quarter or where you're kind of ramping up into a certain.
Up to a certain level of activity.
Activity.
Yeah, I mean during.
The year 2000.
19 in 2020, we were working on only one reactor at Darlington and preparing the Bruce power reactor number six.
Now we all working at the same time on reactor number six.
Rus and number three our Darlington. So it means that we have to react to that at the same moment in foods I would say from the team.
In terms of refurbishment that he shouldn't we all working with his team generated till the first unit.
A little later in 2000.
2022, we May also work on a third unit at the same time. So we are we also keep growing it.
And we are extremely happy with the pace of the work we are extremely happy with the learning curve.
Eight or to develop.
I would say cross fertilizing our experiences.
All P G at Bruce power and <unk>.
What explains the steady.
So all of these sectors.
Can we can we think about this.
These two businesses are these two these two particular project as.
Ongoing or will we see some seasonality like we normally see with <unk> construction business.
Not that much.
When when you work on the refurbishment or react to you are you off with Xena.
Nuclear power plant I mean do you are you are not.
Subject to inclement weather the.
Temperature.
He's being say to all of his work off phase the lease preparation phase then our refurbishment fade.
And then you remember that the utilities are out.
As to bring back.
Those reactors agreed it just means all these.
Very specific on that.
Yeah.
And.
The very strict organizations can you that we.
Not sure.
Okay. Thanks, but.
There's no real seasonality in the business is just.
Just depending on timing of these these projects being being approved in.
Okay.
It's all I have.
Or.
Thank you Frederic will now move on to our next question what could be from micro type home of TD Securities Michael.
Thank you good morning.
Okay.
Supply chain issues have been an area of focus for many companies recently.
Have you had any difficulty procuring building materials or other components for use in your job sites thus far.
Or do you see any risks on that front going forward.
And if this is an area of concern how do you see.
Such issues affecting scheduling and productivity on your job sites.
Maybe you didn't see a disturbances of the supply chain due to COVID-19.
He's a challenge.
And we're working on it as as you as you know one of the beauty and the strength of a kona needs being able to work on a very diversified book.
For your projects in terms of size in terms of time.
Timing in any different I mean.
When we have a short lead time to procure went on a major project, we have quite a lead time to put together.
He is being saved it.
It's evident that the fact that E com.
The real capacity to self perform.
Just giving us a much better control of labor scheduling.
But just in and we are quite happy about it.
Okay. That's that's helpful. I guess, maybe more specifically, though on on I. Appreciate your comments about self perform and labor availability.
More specifically on the availability of materials and components you need to complete.
And move forward your projects are there any issues on that front that you're concerned about.
The market is moving for example, I mean last month week tools more difficult is that there's an enormous time too.
Be able to get the drilling pause will be able to get to choose.
<unk>.
It could be but do you actually know it could be oney cooking maintaining tubes, and then it comes back to normal.
You May go to.
All the kind of supply appropriate remember that at the end of 2020 would be extremely difficult in terms of.
Being able to.
Get the capacity I mean to quality of concrete we needed because of a shortage of cement.
<unk>.
It's an ongoing I would say a phenomenon, it's rather cyclical and so far we are navigating.
Navigating I mean smoothly.
Do you think.
Okay.
Helpful. Thank you and then.
Perhaps somewhat related to that if we if we just think about materials material costs are obviously a lot of concern at.
Present about inflationary pressures across the board I think you were asked about this subject last quarter, but.
Material cost inflation and your ability to to protect Acons margins in the face of those pressures can you speak to that and provide an update on what you're seeing there.
Yes.
You're right we've talked about it last quarter I would say no a lot changed on that.
It's a as we've talked about materials makeup around.
25% of our cost base. The project level are the lion's share is it labor.
That 25% price down further into projects.
It might be procure procuring materials.
We have.
Locked in price with suppliers and subcontractors.
Indexed to inflation.
Let's go into the contract so it ends up being.
Some specific projects, where it's more of a challenge.
I would say.
Well that's been the case most of it has been shifting timelines.
Those by Coby and so it's all reps have been kind of a COVID-19 compensation discussions.
That's either been concluded or ongoing.
The handful of projects that <unk>.
Overall.
The impact to us.
It.
Is pervasive across the business.
Okay, Alright, that's all for me thank you.
Thank you Michael will now move on to our next question from Bruno Poirier from Desjardins Bank.
Meanwhile, ADT.
Yes, good morning, everyone.
First question could you maybe provide.
More color about the level of visibility you have entering into 2020.
In the backlog and also whats what are the key large project awards. It seems that the pipeline is getting very busy in terms of 2022. So if you could provide any color about the large project awards, we should monitor next year.
Yeah.
Okay.
I, usually say I'm quite comfortable with.
Look between $6 7 billion.
Hey.
Just something around.
18 months of activity I mean, that's good.
<unk> at the recurring revenue that is not in the backlog I mean, you have Nokia we are around 700 million.
This is not an issue I mean, what is important for US is ease of 40 kills a back loaded.
The balancing of the backlog within our different activities.
The balancing of the backlog.
Different kind of projects and the TC blind, we we have been.
Working with you and yet the last two years.
Okay.
So just being full for all these so.
Canada.
The main driver of Tennant.
Most often be a new Congress.
Every year to appoint infrastructure I mean.
Too.
Often being put on mute.
Just need everything with it.
What we can say is that there is a very large amount of urban transportation system.
Of the market.
Under study.
A moment.
We speak about the entire line, we speak about young foundation, we speak about copper old location, we speak about exiting two with Asian speak about major refurbishment lines are blurring between also speak about.
The left which is the latest tools.
Lisa.
Very important tendered with innovative sideways stations than that.
And where we have not seen that in the west Edmonton or Vancouver, Calgary out of their own project. So.
It is quite a quite interesting there's quite a number of very nice breached who saw what coming to coming to the market.
For each of them and most often we are prequalified.
This is also is.
Checking and and I think the backlog will be up to the normal business.
I mean, you probably don't see solar utility business is very strong.
Our clients are very strongly maybe telecommunications.
Energy I mean, the main power distributional power transmission.
All of this sector.
He is quite strong.
So I don't really see.
Sufficient to give you more color, but I'm not.
Worried.
About pipeline copying and our capacity to.
To pick a project that we presented the best seat for Aegon.
That's great color.
Okay.
Yeah, and with respect to the Bermuda Airport could you maybe provide more color about the level of utilization right now and what we might expect.
By the end of this year and next year or so.
Yeah.
Yeah, I'll speak to our traffic in Bermuda.
I think if you recall earlier in the year.
Through the first half we were kind of closer to.
The 20% level in terms of traffic compared to a normal year. So 2019 for example, as a base year in.
In Q3, we saw that increase to closer to 40% on average over the quarter.
Obviously.
There's still some.
Uncertainty around how that will progress going forward given the.
Covid continues to come in in different ways.
Different jurisdictions have different telling so.
We still.
Seeing good good overall dynamics.
But it will depend very much on the COVID-19 situation on the island of Bermuda as well as in the main traffic areas.
Such as the U S. The UK and Canada.
We see probably 2021, sorry 2022.
Progressing to a point, where we came to kind of 60% to 70% of mobile traffic.
And then 2023 2020 pool came back to back towards more normal levels.
Fairly consistent with.
I think what the international.
Travel Association and other forecasters.
King at.
We don't think Bermuda.
We'll be massively different from.
All of those forecasts show.
Thanks, Thanks, David.
The update and the last one for me.
Can you talk about the initiatives to grow organically.
To expand in the U S.
What about the pipeline of fortunate in the timing around those potential milestone.
Yes, I will take this one.
Due to these two pillars that are most probably will.
It would be resolved and I mean are we didn't include it into the weeks over the months to come we have created a working group at Acorn.
I've given three months to this team.
To help us define what is going to be our strategy.
Yes.
And how can we take advantage.
Of the.
The spend in terms of the cost structure.
These can be even heavy severe ah maybe.
Maybe another transportation.
In industrial.
So we are working on it we should be.
I need to learn more precise.
We did three months from now.
If you didn't read I mean.
There is still a lot of work to do in Canada. So we have to be careful not to be distracted.
But we also need to.
Look I mean toward our neighbour intertwined.
Imagine for each of our sector, if we feel it.
It's got to be good to go there.
You mean in terms of alliance.
Association partnering.
Operating Oh, and I'm truly acquisition, we can go with it.
That's great. Okay. Thank you very much for the time.
Yeah.
Thank you Ben well, we'll now move to Ian Gillies of Stifel GMP.
Ian line is yours.
Good morning, everyone.
I wanted to follow on <unk> questions with respect to backlog.
When you look out to the second half of 2022 right now.
Do you have enough in the backlog to show year over year organic growth right now or do you think you have to go win more projects between now and then to be able to do so.
Yeah.
We.
Have decent visibility into next year, we always.
When a certain amount of work within the year.
Just a normal part of our business somewhat.
Market factors have kind of a short turnaround in terms of project award in wood cost. So transportation sector. For example would be a great example of that.
As we look at.
Our next 12 month backlog as it sits today.
The recurring revenue profile and what we're expecting next year.
And that normal kind of book and burn type business within a year.
We.
That's fairly comfortable saying that from an organic growth perspective.
Are we looking at something in the mid single digits in terms of percentage growth next year, which is probably not as strong as it would've been.
Without the disruption in the bidding.
Process caused by Covid, pushing some of the larger projects to the right.
But it is obviously continued progress from a growth perspective, some of those larger project awards work their way through the process and get awarded over the next.
12 months or so.
Yeah.
That's great detail. So thank you for that and maybe diving in a little bit there.
Can you maybe highlight a little bit what youre seeing on the mining side in Canada. I mean, we're certainly seen an uptick in expansions and spending in that particular end market. It's been quite some time since that happened. So can you maybe highlight some of the positive trends youre seeing there and how economy participate.
Yeah, I mean, we are very happy about.
Mining prospects.
Chemical prospects.
There's a lot of new projects coming within the within the pipeline.
You've heard about.
<unk>.
Also gold and.
And in chemical that means there's a sort of brush al Pontius lend them, then I don't want this kind of products without quite choose it.
With this with this industry so our billing team is busy.
At the moment and our industrial sector.
She is stronger.
The expectation to be even stronger in the future.
No. That's helpful. Thank you very much I'll turn it back over.
Yeah.
Thank you and we'll now take our next question from Chris Murray of ATB capital market.
Chris <unk>.
Yeah. Thanks, Ross I guess my first question is maybe going back to the coastal gas link.
Issue and I guess, a couple of pieces of this one.
Can you give us any idea of how long you believe this might take to resolve particularly as it seems like theres. Some some kind of urgent timelines to move this forward.
And then my second question and this is maybe a broader question is looking at over the last couple of years, we seem to have Yuri.
I guess you are.
Your contingencies note growing.
A lot of different issues be it <unk> or the.
The tunnel.
B C. Just wondering if there's been something in the environment.
It's led you folks into more of these problems.
<unk> certainly is a complicating factor, but I just wonder if there's something else going on and I think more importantly, what are you guys doing maybe to protect yourselves on future contracts as you're as you're bidding stuff now.
Okay I will take the first part of your question and David will go with a seven one.
Closer to getting at.
Fredrik noticed timings of the essence.
The essence for coastal guessing that this is linked with LNG, Canada project and it's also the essence.
For us though.
Do we know the timeframe for resolution of our problems no, but what is sure that we work intensively with our client.
Resolve it as soon as we can we have any.
AK teams are the best teams, we have within our company to deal with issues.
And we have a certain optimism that at.
These process.
<unk> is going to go through a reasonable speed and to find a solution.
I think that was the second part of the question Chris.
You know I don't know that.
Shifted.
Significantly I mean, obviously.
We've seen.
A number of.
Contracts, where we've.
Overcome.
Hurdles and challenges in golf.
A reasonable outcomes in terms of resolution, that's part and parcel to the industry. I mean change is a constant on these on these projects you're bidding.
The scope of work.
Evolve over a number of years and there were changes along the way and.
Well the vast majority of those are.
The resolve.
Between the various ties to everyone's satisfaction and we drive all of them.
Obviously I have a couple of situations that we're still working on.
As we've talked about.
We're hopeful CGI will be resolved sooner than later.
Two more.
It's a legal process that will take a.
A while to play out so those two will stick around for all people are resolved, but overall.
We're happy with how we're executing.
And we just.
Through the couple of outstanding issues.
Yes.
Okay. That's helpful.
And then maybe just a follow up to the comment about backlog and what it translates into into revenue growth next year.
But thinking about what you have embedded in backlog today.
Are there any thoughts that there should be any sort of incremental improvement or change in margin profile as we move into next year.
Yeah, I think this is driven by.
By two factors I mean first of all the discipline.
We are at the moment of selecting projects and and bidding.
We are extremely focused on it.
About phasing for each of our specialty teams that.
The fact, we I mean, all we can ramp up in productivity from one job to another wants to be less so.
We are trying to build the most consistent.
Yeah.
Backlog and deep and he just me.
Drive.
Economic if you shouldn't see that towards the second one is about the major effort. We have implemented from the beginning of the U S. South of 21 about continuous improvement about lead management about.
Increasing.
Our productivity on the on site.
And this also.
It should lead our our economic efficiency of Port I mean, I'd just give you an example.
We think the last six months.
We have divided by four or is it time to execute a segment on each of the two P. M of the massive Gordie Howe bridge.
The day we.
We have more than 75 segments to build it.
Our theoretical learning curve was to divide it by two.
The results are.
And this is money as you know.
The day to keep the money for the one of the call will enable travelers from Calgary.
You can see our bow River bridge.
Well, we haven't been able to close the two span.
Full winter colleague. He's also with my thought in terms of improvement of our productivity, we like to be curious about it.
Extremely serious about it.
Improving the professionalism of our team.
Improving the quality of our project director.
If you did see.
We left some consequences.
Sure.
Okay.
And youre comfortable in putting our quantifiable at this point.
Sorry, Yeah, we have no further questions.
Sorry is there anything that you'd be willing to put out a target out there sort of a number that we should be thinking about for next year.
As you know Chris we never.
Coming to detail margin guidance for the following year.
Yeah.
We've done so.
No one attending to should provide any.
Particular specifics for next year in terms of EBITDA margin.
Okay. Thanks, Pat electronics.
Thank you.
Okay.
Thank you.
On to a question from Sal Vitale of RBC.
T.
Yeah.
Yeah.
Alright, great. Thanks, and good morning, just a question on kind of the cash flow side and some of the prior years Q3 has been a bit of a cash flow recovery on CFO.
Wondering if there was a bit of a negative.
For cash flow from operations. This quarter, just your thoughts on cash flow for the full year end.
What we might expect in Q4 of that Brian.
Yeah, So Q3.
Recently.
These for a working capital perspective.
Obviously, we see our highest revenue in the third quarter each year.
That's usually what's behind that obviously Q3 last year.
Although less impacted because of that.
Covid.
<unk>.
Had an impact on revenue, but also had an impact if you look at the change in.
Working capital ratio for the first nine months compared to last year.
These changes on the payables side.
And that's because some of the more labor intensive projects.
Last year with similar ones that were most impacted by Covid.
And those are the projects.
We don't have.
A significant amount of a single engine working capital so.
There's a few trade offs year over year, but we should see the normal seasonal.
In Q4.
That starts to unwind a little bit.
<unk> further in Q1, I would say Q4 those subjects taught me speak too.
Some of that turnaround is subject to a resolution on the CTO cash flow as we've talked about as well.
So thats still out there.
Yeah.
Potential impact in Q4, but absent that it should be the normal seasonal.
In Q4.
Okay, Great and then just I guess I think there's been a bit of a discussion on the backlog earlier, but I just kind of think over the next few quarters. You did indicate that you're pre qualifying for some projects, but you kind of have visibility on.
And then later this year in Q4 is it early next year when you maybe start to grow that on a.
On a year over year basis or is that just TBD, depending on how those projects shake out.
Mainly he depends on our plug ins.
And that was the way.
Projects arrival, the market terms the way they fit with our strategy at the moment.
But it but as I say, I mean with a with a with 18 months.
Backlog.
Each one of us and the pipeline we can see.
I'm not worried at the moment.
For the next year.
Yeah.
Alright, thanks very much.
Thank you. Our next question comes from <unk> of <unk> capital markets.
I T.
Hi, Good morning set a couple of questions on growth and profitability, but starting with growth.
I guess your earlier comment the pace of New awards has been relatively in line with our 2020 and even 2019.
I guess the question is is that still the same pace that you see going into next year or does it actually accelerates and then that translates into maybe higher growth into 2023 and beyond.
Yeah, I think overall, we do see that pace.
Accelerating some of these I mentioned earlier.
Uh huh.
Larger projects that were.
Pursuing right now are the ones that kind of moved to the right a little bit.
How big can we expect more of those to be awarded over the next 12 months.
And in the following year, so that will start to drive.
And acceleration.
Over and above kind of what we've seen right now which is lots of activity in both independent revenue space in the small and medium sized jobs space. So if so.
We will continue to grow.
Those areas and then the larger projects will start to accelerate as we move through 2022 in terms of awards.
And that will contribute revenue in 'twenty three and beyond.
And is that a lot.
Food.
Sorry go ahead.
We lost you there can you repeat the question.
Yeah, Yeah I'm just wondering if that includes any expectations on the U S. The U S projects.
No. It doesn't I mean, we are at the moment as I told you I mean, we have we have created a team to brainstorm into <unk>.
To elaborate our strategy for U S.
At the moment, except Jack TVT, we asked through our Econ walks company.
In the United States.
It doesn't include any any prospects.
Okay.
Just maybe two questions on profitability, how would you thinking about you know you talked about having a balance work program. How are you thinking about that balance today, when you're trying to bid on new projects and get.
The backlog higher while also maintaining the margin profile, especially I guess given the.
Some of the pricing pressures in the environment we're in today.
Although I'd say, I mean, I'm happy with where the balance between east and west.
Between small medium began Matt and bigger project.
I'm happy with the.
With the balance.
Kind of contract that we that we signed between a MSA or unit price targets and a.
I'm also happy about.
A real trend I mean in the in the industry.
On complex project to to go through what we call a progressive design build and are not pure lump sum turnkey Georgia.
I think it's good it's an evolution. So we are getting to the company.
He says this.
Hi.
It's all about.
Balance and this is what we tried to say here's what we trying to achieve at equal another point I mean about the backlog is that I'm amazed to see how we.
We are able to cross fertilize them in our different sectors that with more and more to get the timing.
Foundation work more with industrial N.
M. A C V NAND and our transportation in that role as a bridge.
Also with much better together.
I mean, we are aligning our strong team.
And that and to prepare the S N mall.
Topics you know the small modular reactor I mean, all these team.
I mean do you are you have heavy heavy deepwater you have utilities people have transportation people you have industrial would be pretty appealing to people.
All of this is good for the future in front of us.
Okay excellent and then just my last question I know you don't give specific guidance, but how.
How much more room is there for margins to improve from where you are today and what would be sort of the main drivers of that.
Well again, I'm not going to put a number to it not cheaper.
I mean definitely see.
Lots of opportunity.
Various areas I think we've talked to obviously execution continuous improvement.
And our own internal initiatives.
A big component of that.
Selecting the right projects the strength of the end markets.
I think all.
All three of those areas.
Combined two.
You'll get it.
Confident outlook in terms of margin progression as we are.
As we execute over the next couple years.
Okay. Thank you.
Okay.
Thank you, we'll now move to Tristan of Lewington Securities.
Your line is yours.
Good morning, gentlemen.
Maybe my first question for <unk> I'm, just wondering if you can comment on maybe a little bit of your business development activities. There I think the last time, we spoke you were saying the team it's not back on the road.
Really trying to get any update or progress there. Please.
Can you eat pizza first part of your question I mean, we we have some sound issues in our room.
Yeah, Yeah for sure for sure.
Mainly just asking for.
Your international business development activities. There number in Q2, you made a comment that the team is now back on the road traveling again sourcing potential prospects. So just trying to get an update there if possible. Please.
Yeah.
Yes, I mean, it's true that we have more business development team back on the road now when.
With some constraints, but much better to be able to meet.
With clients.
Try to select opportunities as we update I mean, if we can add Duffy Kate what we have been doing in Bermuda.
We would be very happy, but there are also some other opportunities.
Opportunity keep so we go prudently.
The idea is not to grow exponentially and international activity.
To take advantage of our strengths.
And each time, we can see.
Seat to target T tend to try to get it.
Okay, Great. That's very helpful and maybe just the second question I'm wondering if you can also provide a little bit of update on Eglinton, if I understood correctly that contract that's coming up into the completion phase in 2022. So just wondering on that project specifically.
To provide some color on the progress that you are closing all the contract.
Are you expecting any.
Actual changes in margins from come back projects, particularly for for the next year. Please. Thank you.
Yeah.
Safety.
Projects he is getting close to completion I mean.
It was in the U S with solid 'twenty two it's just I mean, he keeps phase what we call revenue.
He's demonstration because usually it's not only achieving the project towards building process heater system project.
We integrated transport projects or cause the one living in Toronto at when you go at the east volatile.
These deadlines.
I'd say one third on the east.
From from Kennedy.
You will see every day, the kudos to all of it to be I mean, do we get the demonstration.
Proving all the system not working perfectly and then we will we will do it at the west.
Part of the of the lining of mountain Dennis.
We will do it in the center and we finished with distinction.
Which was one of the most complex patient.
So we are getting pulled into the and you also know that days have been selling some issue that we are getting closer to a resolution and I can say I mean without entering into much detail.
Bob tease out broadly aligned now on all the major issue in and we all we are working on it.
Okay, great. Thanks for the color is super helpful. That's it for me. Thank you.
Thank you Troy, we're now going to move on to our next question, which will be from.
Maxine so Kenneth.
<unk> National Bank financial nice nice to see.
Hi, good morning.
Good morning.
Dave I just have one quick clarification question for you in relation to <unk>.
NGL so are you.
Booking revenue right now on on that project and I guess, if there is delays in terms of the payment terms is there any.
Possibility for reversal.
I'm just trying to see if.
If there is a.
Diversions between revenue recognition and the cash flow. So I guess, that's the nature of the question.
Yeah, Yeah, as we talked about this is a really a cash flow issue.
This is <unk>.
As you know we first disclosed it was.
An issue on CTO in Q2. So this has been building up for a while.
<unk>.
<unk> been booking that accordingly in terms of the.
Being conservative in terms of how we are.
While we recognize this project.
We feel comfortable.
Comfortable with that position. It was you already talked about.
Hum.
Contractually entitled in the areas impacted.
You know the name.
The change also the nature.
C G L recognizing that change probably shouldn't change directives.
So on that side.
You know, we're comfortable with how we're positioned and we really see this as a.
Cash flow issue that needs to be resolved.
To keep.
Keep both parties moving forward and so until such time as we get to the end reconciliation and were comfortable that will work out.
In line with where we're at today.
Right.
Because you mentioned that you were conservatively booking so does it mean that if there was a positive resolution from a cash flow perspective. There is also a bit of a catch up on the EBITDA or that's not how we should be thinking about this.
Yeah, I wouldn't be thinking about it like that right now I would say, obviously, there's a range of Ah.
Outcomes ultimately in terms of a comping.
Compensation, we think.
No.
We're in the right range.
There's clearly.
Our families deciding to do the ultimate resolution.
As I say, we're comfortable where we are it's just a question of getting to that reconciliation process.
I wouldn't be assuming this.
A big variation either way.
The project.
Okay I see okay. That's all for me. Thanks, Thanks, so much for clarifying.
Thank you Maxime we will now take our last question today from micro top pain of T D Securities microwave T.
Thanks for taking the follow up this is a this is a follow up related to coastal gas link is low and appreciate all the detail you provided I guess just two final clarifications.
Number one are you still currently actively working on that project in and despite the.
The ongoing contractual issues still moving that forward and secondly can you.
Clarify when exactly the arbitration process commenced.
Okay I will take the first part of it yes, we are working we have a little more than 1000 people.
Working on our spread.
<unk> four I remind you that spread for I would say something like 85% complete.
But three is something like 20% compete because we couldnt have the right of way before so yes. We are we are working on all of those sections.
For the second BOP, maybe David you can.
Yeah under.
Under the contract like this.
The ability to have extreme processes.
Through arbitration throughout.
Life of the contract deal with discrete issues. So we're.
We're taking.
Those issues forward to August.
It's.
No. It just won't process, there's a number of.
Issues that we're working through so it's underway I think you know as we disclosed in Q2 those process underway then as well so there's a number of.
Processes that were pursuing through arbitration.
As we move forward.
Okay. That's helpful. Thank you.
Yeah.
Thank you Michael that was our final question I would like to hand back to the management team for any closing remarks.
Yes, thanks, very much I appreciate your questions and your time today as always feel free to follow up with any questions to us and have a great afternoon.
Thank you. This concludes today's call. Thank you for joining and have a great rest of your day.
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Yeah.
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