Q2 2022 Aecon Group Inc Earnings Call
I.
You
Attending today's Q2. 2020 two accon group incorporated earnings call.
for today's call. All lines will remain muted during the presentation portion of the call with an opportunity for questions and answers at the end. If you would like to ask a question.
Please press star 1 on your telephone keypad. It is now my pleasure to pass the conference over to our host, Adam Borgatti, Senior Vice President of Corporate Development and Investor Relations. Mr. Borgatti, please proceed.
Thank you for them. Good morning, everyone, and thanks for participating in our second quarter of 2022 results conference call. I think you're the strongest. I think you're the strongest. I think you're the strongest.
Good morning. Our earnings announcement was released yesterday evening and we posted a slide presentation on the investing section of the website which we'll refer to during this call. Following our comments, we'll be glad to take questions from analysts. We ask that analysts keep to one question before getting back into the queue to allow others a chance to contribute.
As noted on slide two of the presentation, listeners are reminded that the information we're sharing with you today includes forward looking statements. These statements are based on assumption. Although Acon believes the expectations or fleckling statements are reasonable, we can give no assurance that these expectations will prove to be correct. But with that, I'll not turn the call over today.
Good morning, everyone.
review results by segment and then address AECOM's financial position before turning the call over to Jean-Louis.
Turning to slide three, revenue for the second quarter of 1.1 billion was 152 million or 16% higher compared to last year and at 4.4 billion for the last 12 months.
Island the previous 12th period.
We just did EBITDAR of $39 million in the second quarter, decreased by 22 million compared to Q2 last year.
However, after adjusting for the impact of a manful lead to the Canada emergency wage subsidy,
last year, adjusted even decreased by 10 million for the quarter.
Just to keep it down to 205.
This is the comparative period.
I would say loss per share of 10 cents.
Today I would like to do earnings to share in the same period last year of 27 cents or 13 cents after adjusting for the impact of stews.
The ported backlog of $6.6 billion increased by 81 million compared to $6.5 billion a year ago. The new awards continue to be strong at $1.3 billion. The new awards continue to be strong at $1.3 billion.
4.4 billion over last 12 months.
Turning to slide four.
or constriction revenue of 1%
It was $150 million.
The same period last year.
operating sector within the construction segment, including in civil operations from an increase in major
Your projects work.
in industrial operations driven by work related to chemical
and telecommunications work.
In nuclear from increased volume of refurbishment work at nuclear generating stations primarily in the US.
and in urban transportation solutions from an increase in LRT work in Quebec.
Adjusted either down in the construction segment of $34 million, margin of 3.1%, compared to 51 million, margin of 5.3% in Q2 washed here. The margin of 5.3% in Q2 washed here.
After adjusting for the net impact of soos in the second quarter of last year, the net increased by 4 million, primarily due to low
low gross profit margin in urban transportation solutions to them by an unfavorable margin adjustment on an LRT project in the quarter, as well as from low gross profit margin in civil and nuclear operations.
These decreases were in large part offset by higher volume in each operating sector and higher gross profit margin in industrial and utilities operations.
You contract awards of $1.3 billion in the second quarter compared to $1.6 billion in the same period in 2021. The new awards for the last 12 months of $4.4 billion compared to $3.1 billion in the prior period. Compared to $3.1 billion in the prior period.
Backlog at the end of the quarter of $6.5 billion was in line with Backlog at the same time last year.
turning to slide five, concessions revenue for the second quarter was $19 million, an increase of two million compared to the same period last year, primarily due to an increasing operations with the Bermuda International Airport.
Commercial flight operations in Bermuda continue to operate at a rate of about a third of the population. But recovering from the more severe impacts experienced in 2020 and 2021, an average close to 60% in Q2 compared to pre-pandemic levels seen, increased by $1 million versus Q2 last year, primarily due to results from Bermuda Airport.
Turning to flight six. At the end of the second quarter, ACON had a committed revolving credit facility of $600 million at which 220 million was drawn and 3 million utilized for less of credit, as well as the $900 million facility provided by EDC. As well as the $900 million facility provided by EDC.
ACONs committed facilities for both working capital and electric credit requirements to a $1.5 billion.
Econ has no debt or credit facility maturities until the end of 2023 except equipment and property.
Proctylones and leases in the normal course.
As a June 30th, ACOM was in compliance with all debt coverings related to its credit for salty. The ACOM was in compliance with all debt coverings. The ACOM was in compliance with all debt coverings related to salty.
At this point, I'll turn the call over to Jean-Louis.
Thank you, Dave.
Thank you Dave. I would like to take a moment.
to comment on the four large fixed price legacy projects.
laid out in our Q2 disclosure documents.
four projects entered in 2018 or earlier by John Venture of which Econ is a participant.
are being negatively impacted due to additional costs.
For us, our contractualism is responsible.
including among other things and foreseeable side conditions.
Doesn't seem to be able to actually be late. Maybe he can make a copy of this. you
COVID-19.
19, supply chain disruptions, and inflation related to labor and materials.
During the second quarter, the impact became more pronounced and has resulted while now expected to result in increased cost above the original forecast in some cases in the youth. purity.
Each relevant joint venture has submitted or is in the process developing for submission. The joint venture has submitted the full submission.
detailed claims for compensation for this additional cost.
Other than the course to gasoline pipeline project, known, are currently in litigation or arbitration. known, are currently in litigation or arbitration.
Other drafts are the challenges we have faced on the course to gasoline byline project previously.
And you will have noted our financial results were negatively impacted by an unfavorable margin adjustment on an LRT project in the quarter.
In the case of these and the other two projects.
We are facing significant changes and modifications to the conditions of the execution of our work, impacting our ability to efficiently progress the work. We are facing many changes and modifications. We want to prevent them from breaking out. It will probably be seen that the potentially impacts our ability to efficiently next.
creating delays and cost overruns beyond our control, and in certain cases executing projects fundamentally different to the one we did.
As you will know, the price for Lumpson project is only fixed to the extent of the scope and conditions that are contracted signs at four.
When factors outside of these agreed school when related conditions impact the cost and progress of the work.
ACOM and our partners worked vigorously toward reservoirs compensation for those impacts with a respective owners of this project.
We are fully focused on pursuing all avenues to adequate and timely compensation. We are fully focused on pursuing all avenues We are fully focused on??? patient.
including through constant direct negotiations with our clients.
engaging in mediation through independent certifiers.
and or entering into arbitration unnecessary.
all with the objectives to which fair and reasonable settlement agreement.
and to move forward towards project completion in each case.
AECOM believes each relevant joint venture has a strong claim to recover, at least.
a substantial portion of Scots.
However, the earthy-make outcome of the matter cannot be predicted at this time.
It is clear that traditional procurement and the fixed price of the LEMSEN contract structure for such large, complex and multi-er-projects.
including the four legacy projects discussed here needed to evolve.
As an industry, we have been working hard to develop a model that addresses the challenge here and needs of all stakeholders.
And why is it early days?
These efforts are starting to gain traction.
including the multi-billion dollar Go expansion and electrification project in Ontario awarded to an econ joint venture and their progressive design, build, operate and maintain contract model.
We've collaborated target price approach with a two-year joint development phase upfront.
is a welcome evolution designed to benefit all stakeholders.
and we continue to push towards more collaborative models and remove forward.
Turning now to slide 8. The demand for A-con services across Canada continues to be strong, particularly in smaller and medium sized projects.
have evident by year today's revenue rules of 22%.
and hire new projects to work of 50%.
While volatile global and Canadian economy conditions are impacting inflation, interest rates and overall supply chain efficiency.
This factor, our largely been and will continue to be reflected in the pricing and commercial channels of ACON, the Research and Perspective Project Award.
and bid.
Turning to slide nine.
With a backlog of $6.6 billion and record-gring revenue programs continuing to few robber demand driven by the utility sector and ongoing recovery in airport trafficking per duty
AC arm is confident in strong revenue growth over the next two years.
A colony is also preoccupied on a number of project beads, due to be awarded during the next 12 months. A colony is also preoccupied on a number of project beads, due to be awarded during the next 12 months. A colony is also preoccupied on a number of project beads, due to be awarded during the next 12 months.
and has a strong pipeline of opportunities to further add to backlog over time.
Trading 12 months recurring revenue was at 22% versus the prior period.
and over 50 defend versus two years ago.
primarily from growth in utilities operations.
Recurring revenue is expected to continue to grow.
driven by demand in the utility sector and the concession segment, is expected to see airport traffic in Bermuda continue its recovery in the balance of 2022 and in 2023.
Turning to slide 10.
ACON was named one of the corporate night's 2022 best 50 corporate citizens in Canada.
recognizing our significant progress in embracing.
Turning to slide 11.
To support our GFG strategy, ACON continues to explore and try our new technologies and alternative building the materials and we recently became the first construction company in Ontario to buy lots of new low carbon concrete from carbon-appcycling technologies at our innovation and training center.
And we continue to integrate and trial view emission equipment, the most recent example being an electric with loader and our Finch with LRT project.
To engage our employees in our sustainability journey, we also introduced a green benefits program which provides incentives for green vehicles and green home energy solutions.
further demonstrating our sustainability spot of our DNA at HECOM.
Turning to slide 12 with torn demand, growing, recurring revenue program and divers backlogging hand. airing
ACON is focused on ensuring solid execution on its projects and selectively adding to backline bidding approach.
That supports long-term margin improvement in the construction site.
In the concession segment, in addition to expecting a gradual recovery in travel through the Bermuda International Airport during 2022 and 2023, the
There are a number of opportunities to add to the existing portfolio of Canadian and international partners.
Well, to 24 months.
including innovative projects with private sector clients.
that support a collective focus on sustainability and the transition to an end-year economy.
Thank you. We will now turn the call over to analysts for questions.
Absolutely. If you would like to ask a question, please press star followed by one on your telephone keypad. If for any reason you would like to remove that question, please press star followed by two. Again, to ask a question, press star one. As a reminder, if you are using a speaker phone, please remember to pick up your handset before asking your question. Our first question comes from the line of Yuri Link with Cana Chorus. Yuri, your line is now open.
Thanks for taking my question.
And good morning guys. David, it's really the cost, good morning. It sounds like the cost before cast in Q2 is almost entirely due to the Ontario LRT project, yet you did call out three other projects facing similar issues. Why weren't these projects subject to... Why weren't these projects subject to...
a reforecast in the quarter.
So every one of the projects obviously faces...
specific and unique impacts that need to be dealt with. And obviously, we've been on each of these projects for a period of time now. So we've been positioning them as we've been going along. And there was one project in Q2 that we felt we needed to reposition. And we did that, and we come to go with a position we have right now. And we've been on each of these projects. And we've been on each of these projects.
They 12 months is over.
Is that largely the...
these projects you've disclosed or do you anticipate further negative
Cash low in the coming quarters.
Yeah, it's largely
Yeah, largely linked to some of the logic projects. I mean, it's really a function of what we're talking about here in terms of the risk on these four projects specifically.
In terms of dealing with the current macro environment and supply chain challenges, a lot of it is just linked to the time it's taking to resolve the impacts of chain deals from our clients, our partners, suppliers, subcontractors, everyone's operating system.
He is
trying to deal with things as expeditiously as possible but capacity is a challenge.
for everyone including our clients. And so that's been laying the whole process that we would normally go through to deal with change and the impact of change. And that's why we've seen some laggy work and capital through the first half of this year. And capital through the first half of this year.
Okay, that's my two, I'll turn it over.
Make sure
Thank you for your question. Our next question comes from the line as Jacob Bout with CIBC. Jacob, your line is now open. Jacob, your line is now open.
Good morning.
I'm just going back to these four checks. When do you expect to get resolution on this? And then maybe you can comment on
Of the $6.5 billion backlog, what percentage of that would be considered lumped somewhere or fixed place?
Okay.
Are we checking these one out?
David just said a few minutes ago.
There is always a time between that, or if you gain fact.
from this policycation in the condition of our contract. as far as our contract is concerned in this economic decision,
the compensation by the client. I mean we the environment is tough impacting everybody and there is a time to work out to be able to justify to be able to present the claims to be able to discuss to be able to to negotiate.
I mean, the environment is tough impacting everybody. And there is a time to work out, to be able to justify, to be able to present the flames, to be able to discuss, to be able to negotiate.
Zeus projects still have between one and two years of active life.
regarding the backlog. So you have noticed that with backlog at the end of Q2 or 6.6. So you have noticed that with backlog at the end of Q2 or 6.6.
billion uh... you were worth for the quarter and we were at one point three billion which is an extremely interesting uh... figure uh... it's not as i used to say it's not only about quality so about quality and and i'm very happy with the quality of the new project
We are just loading in our backlog. You will also remember what I've been saying.
a number of time, I mean from September 2018, we have not taken one single...
Landsat drops superior to $1 billion.
And this is very important. So coming back, and we are very happy. We have failed it a few years ago, and we are doing it.
and it's happening.
So the growth of value of utilities is second.
Important reason you.
Also, I've not seen that record revenue once again uproar, I mean, 750,000,000, again, 617,000,000 for Q2 2000.
21 so all this is very interesting I think and this is without counting anything for the encore project that we have been running.
and of the internet.
construction, it's a 10-year job and 28% of the operation and maintenance, which is 25 years, it's all on a costless basis. So we have not yet loaded this project, we will do it progressively, so far as the development period.
Go ahead.
It will also add to the decrease in the fixed price proportion within the backlog.
Maybe just a follow on here. When I look at the duration of your backlog and you compare it this year versus the last couple of years, you know skewed much much more to the next 12 months versus you know.
1324 beyond 24 months. Should we be reading much into that?
No, I mean, it's not a topic of concern for me and for the team. The target's really used. The target's really used.
The size of the project, what I told you, not one single project appears to $1 billion of the price. He's one of the estimations on this. We are not worried about...
the reload of our backlog after 24 months is from now. I know there's been a few questions about our project being canceled, our project being pushed to the right. I'm just going to give you an example. I mean, you all know that the Geofood Trail project was canceled a few days ago. And there are a piece of key in the inquiry. This project was canceled on the Wednesday.
We will see the communication from the owner telling us that they will conduct a nap.
Hit sounding with the three bidders.
This market founding happened the day after on Friday. And we have been discussing about alternatives, about splitting schools.
About changing the contract model about keeping maintenance or not and the same package and construction, it means that not at all. I mean the owner had in mind to... I mean the owner had in mind to...
Press will come till the project they have just come failed a profit
And then we go on with the adequate way of contracting.
New thing I would quickly add, Jacob, when you look at that longer backlog which starts two years from now, hey, it's not usual to see that that number fluctuate given these two years, and we have a 20-form period to replenish that backlog. But the other factor is, and Julli already talked about the... Julli already talked about the...
Go Expansion and Electrification Project, which will be coming into backlog over the next two years and will. future.
significantly increase that number. So we're not concerned at all about that two-year plus backlog. The focus is, do we have strong backlog to execute over the next two years? And as you can see, that's very much the case.
Thank you very much.
Thank you for your question. Our next question comes from the line of Chris Murray with ATV Capital Market. Chris, your line is now open.
Yes, thanks folks. So a couple of questions. First, I guess you saw the announcement yesterday between TC Energy and Energy Canada on Coastal Gaslight and I guess we've come to the revolution.
Does that help you folks in your arbitration discussions and maybe move that project forward and help you address some of your cost issues, at least on that one element?
Okay, I will take the answer. Yes, it helps us. I mean, TT Energy is just recognizing that this project...
I've been going through quite a number of modifications in the condition of the execution. There are describing this modification. They acknowledge, for the fact that you know we are in our situation with TTC energy regarding spread three and four, and the fact that TTC energy announced that there's a rich agreement with LNG Canada squeezed chorus.
evidently a good point. Okay, that's helpful. And then just, you know, maybe following up on an earlier question just in terms of the fact that you didn't take a write down on a couple of the other LRT projects, how should we be thinking about margin profile on a go-forward basis? Should we be thinking that the...
I appreciate that there's some uncertainty about this, but should we just be thinking that we should have a lower normal construction margin for the next few quarters?
Yeah, I mean, I think given the environment we're in, Chris, we're still in an inflationary period. We're still dealing with supply chain disruptions. All of that takes some of the edge off what we would have normally expected, given the profile of our backlog, to be expanding margins. So I think as we kind of look out over the balance of this year into next year, we see margins being...
The current environment.
That's helpful. Thanks for watching. Thanks for watching.
Thank you for your question. Our next question comes from the line of Frathery Bastien with Raymond James. Your line is now open.
Good morning. Thanks everyone. I just wanted to know from now last question. That's just a quick follow up on my last question. How about revenue? Are you thinking about revenue in a second half to you? Believe there's room for...
continued growth like he's experienced in the first half.
Yeah, I think...
We do. I think in our comments, we try to call out, but I think the kind of thing to the really in the pins that is if you look at the backlog profile and certainly the backlog to be worked off over the next 12 months and the strength of that, versus where it was 12 months ago. We also expect the utility business to continue to...
have a strong second half of the year. So yes, we do expect to continue to see revenue growth in the second half of this year. So
And we expect that to be reasonably robust growth over the second half of last year.
Okay, thanks. Can you discuss the impact of these unfavorable margin adjustment you recorded, the risk you just highlighted and also your ongoing working capital requirements? What's the impact that it's having on your balance sheet and...
How are you thinking about the dividend and your ability to sustain the dividend?
Yes, so as I switched on earlier, the
In fact, it's certainly in terms of creating a time lag in working capital. So as you know, we normally have a seasonal working capital profile, which is working capital bills through the busier quarters of the year, which are typically Q2, Q3 and into Q4 and then on lines kind of at the end of the year and through Q1. And we see a slightly different pattern in the first half of this year where Q2.
the timeliness of resolving the impacts of these changes with the respective clients as to when it unwinds. But we certainly don't expect it to worsen it all over the second part of the year. And when it comes to the balance sheet, obviously that's something that we've talked about a lot over the last few years in terms of the strength of the balance sheet, the importance of that to our business, and certainly
you know when it comes to the dividend that's been a consistent theme for a long period of time for as you know we approved the costly dividend yesterday and that continues to be a long-term focus for us and no concerns on that front at this point.
Thanks, I'm passing over.
Thank you for your question. Our next question comes from the line of Benoit-Baurier with Bayes Arden Capital Market.
Good morning everyone. So just to come back on the the bidding process obviously with this very unusual environment you've been talking Jean-Louis about the inflation, COVID supply chain issues. I'm just wondering how does it change your bidding process and is there any lesson learned on the upcoming bidding opportunities and to make sure that we not read too much on the other projects here?
Yes, I mean, evidently, this is important now. The hybrid inflation we are facing or the rising interest rate just make the estimation of the project more...
I'm the client of this. This is what has happened, for example, in India for trade. But it's not coming from the last six months. I mean, as I say, in my message at the beginning, from the last three years, we have been working a lot with client to go through much more collaborative model.
and this has been quite fruitful. You probably have noticed that we got a job in the Sallow Pound, I mean, a water treatment plant under the scheme. Encore has also been one under the scheme. What we explained to our client is that under difficult...
so constancy and the top environment that everybody is facing not only the contractors is better to be flexible. so it is better to be flexible.
and the fixed price way of looking at a procurement mode is not.
The optimized one.
At this moment.
Okay, okay, but that's great caller. And there is maybe a question on capital allocation in line of the these four large fixed price projects that pull back in share price we saw this morning and your leverage ratio just wondering if you could provide some color about what are the change your capital allocation strategy talking about M&A share by back potential that the chairs or maybe the dividends.
where values are which can look attractive versus the inherent uncertainty in the current market so finding the right opportunity. I think in terms of...
balance sheet more broadly. I've talked to the dividend already. I think outside of that, the focus continues to be on maintaining a prudent solid balance sheet which supports the working capital fluctuations that we see and supports the ongoing growth of the business. As we talked about, the growth has been pretty significant so far this year.
We expect to see good continued organic growth going forward. And that all requires a strong stable balance sheet to support performing security requirements and everything else that goes along with supporting growth. So that continues to be the focus and no changes in that approach.
Our reds are a caller. Thank you very much.
Thank MO.
Thank you for your question. Our next question comes from the line of Ian Dilly with CECL GMP. Ian, your line is now open.
Morning everyone.
My name is James Bondis.
With respect to the convertible debenture due at the end of 23, is there anything that precludes you within your credit facility from refinancing it using that in the event that capital markets may not be open or the terms might not be advantageous?
No, there are certain, as with any great facility, there are certain parameters that have to be met to do that, but I don't expect that any of those parameters would be relevant in this case. So, no, essentially we do have the capacity to do that. If that's what we choose to do.
Obviously, that's 18 months away and markets.
equity markets pretty volatile right now. And so, you know, we'll wait till we get there.
the right window to look at a potential refinancing or take out of those converts. Credit facilities available if needed.
We also have the option of doing partial credit facility and partially something else. So we have flexibility on how we deal with those.
As of the net equity investments on our Canadian concessions, it's in the ballpark of $25 million between now and 2025.
Okay, that's very helpful. I'll turn it back over.
Thank you for your question. Our next question comes in the line of Michael Kappall with PD Securities.
Thank you.
For large fixed price legacy projects you call that is carrying heightened cost escalation risk.
Can you tell me on an aggregate basis what dollar amount of checks at the end of the second quarter?
across the
The fourth project is
good afternoon
Thanks very much.
five to six hundred million dollars
Okay, perfect.
And then as a follow-on, you noted that AECON and its JV partners continue to