Q3 2022 Atco Ltd Earnings Call

Thank you for standing by this is the conference operator.

Welcome to the <unk> Co Ltd third quarter, 2022 result conference call and webcast.

As a reminder, all participants are in listen only mode and the conference is being recorded.

After the presentation, there will be an opportunity to ask questions.

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I would now like to turn the conference over to Mr. Colin Jackson, Senior Vice President Finance Treasury risk and sustainability.

Please go ahead Mr. Jackson.

Thank you. Good morning, everyone. We're pleased you could join US for <unk> third quarter 2022 Conference call with me today is executive Vice President and Chief Financial and investment Officer Katie Patrick.

Before we move into our formal agenda I'd like to take a moment to acknowledge the numerous traditional territories and homeland on which our global facilities are located today.

Today, we're speaking to you from our Alco Park head office in Calgary, which is located in Treaty seven region.

This is the ancestral territory the Blackfoot Confederacy comprise six circa.

Hi, condemnations and see new nation, and the Estonian Dakota Nations that include the Chick Nicky.

Barrish Pas and good Stony first nations the.

City of Calgary is also home to the <unk> nation of Alberta region three.

We honor and respect to the diverse history languages ceremonies and culture of indigenous peoples call. These areas home.

Okay.

Eddie will begin today with some opening comments on recent company developments and our financial results. Following these prepared remarks, we will take questions from the investment community.

Please note that a replay of the conference call and a transcript will be available on our website at <unk> dot com and can be found in the investors section under the heading events and presentations.

I'd like to remind you all that our remarks today will include forward looking statements that are subject to important risks and uncertainties.

For more information on these risks and uncertainties. Please see the reports filed by <unk> with the Canadian Securities regulators.

And finally I'd like to point out that during this presentation, we may refer to certain non-GAAP or segment measures such as adjusted earnings adjusted earnings per share and capital investment. These measures do not have any standardized meaning under ifr S and as a result, they may not be comparable with similar measures presented.

In other entities.

And now I'd like to turn the call over to Katie for her opening remarks.

Yeah.

Thanks, Colin and good morning, everyone. Thank you all very much for joining us today for our third quarter 2022 conference call.

I have to achieve adjusted earnings of $87 million or <unk> 76 cents per share in the third quarter of this year.

This is $18 million or 16 cents per share higher than the third quarter last year.

This $18 million of year over year growth came primarily from the strong performance of our utilities combined with great performance across our broader portfolio of investments.

Our Canadian utilities investment saw its adjusted earnings growth of $32 million and.

$88 million in the third quarter of last year to $120 million this year.

Yeah, Berta base distribution utilities.

Can you do to deliver exceptional results in the final year of their second P. B S cycle also the international natural gas distribution business continued to benefit from CPI indexing.

Which pushed their earnings higher in the period.

I want to briefly touch on a couple of points that Brian covered during this morning's call, which have important impacts to <unk> as well.

First I want to congratulate the entire team and see you on the transformational acquisition of Suncor is renewable generation portfolio.

These assets provide immediate scale with renewable generation, along with our strong development pipeline.

This is exactly aligned with the strategy, we've outlined to be a leader in the energy transition.

The pathway to both achieving our 2030 ESG targets and is expected to be accretive to earnings and cash flow in its first year of operations.

As you heard from Brian .

Utilities continue to perform very well.

Meaningful portion of their earnings in the period came from the international natural gas distribution business, which has benefited from CPI indexing in the face of a rapidly rising Australian CPI.

Australian CPI remains elevated so some forecast suggests that this figure will trend downward to more normal levels in 2023.

This move and has the potential to materially impact the earnings for this business.

Similarly, Alberta distribution utilities have delivered exceptional earnings in 2022. The final your other current performance based regulation or PBR cycle.

Consistent with the cyclical nature of the PBR framework, we expect to see earnings for the distribution utilities, we said downwards as we rebase in 2023 and the efficiencies developed a shared was ratepayers.

Despite the expectations that earnings from Alberta distribution utilities will reset downward in 2023.

Still believe our utilities will deliver outperformance above the approved ROE in 2023 based on the drivers Brian outlined earlier today.

I also wanted to take a moment to commend the limit team for the exceptional work they've done in Puerto Rico as the territory.

What's to recover from the damage done by Hurricanes Humana.

The alumina teams have worked tirelessly to restore service to customers impacted by the hurricane and ensure the safety of all citizens during the aftermath of this strategy.

While significant work remains power has been restored for more than 99% of the customers.

And the importance of Luna in Puerto Rico's journey towards a stable resilient and monitored modern energy system has again been highlighted.

I truly can't thank the loopnet team enough for their exceptional work.

Turning to Atco structures, we delivered adjusted earnings of $15 million in the quarter approximately $2 million higher than the same quarter last year.

In line with our strategy of expanding the base business growth in the period was driven by strong performance from the space rentals segment globally.

The structures business continues to focus on diversifying its customer base across both market segments and geographies.

This quarter in particular saw expansion in the U S market with significant growth in this space rental fleet.

The U S is an important market for us and we expect its contribution to earnings to increase going forward.

John the base business of space rentals and workforce housing.

Typically accounts for two thirds to three quarters of our segment earnings.

Strong project activity further supplemented our earnings growth.

We continue to advance our Pluto two LNG expansion project with Bechtel, our longtime partner in the third quarter.

This project will see us provide accommodations for 2005 hundred workers and displays our ability to execute large scale multifaceted workforce housing projects.

Given the scale of this project it will continue to be a significant driver of earnings for us throughout the next year.

At actual contact we delivered stable earnings of $3 million, which was comparable to the prior year and supported by strong occupancy levels at our Trans mountain and other camps.

As discussed on our second quarter call Sanjak. So it's another tech partnership when a seven year contract from the government of Canada to operate and maintain the north warning system.

Transition period for this contract commenced April 1st 2022.

And was successfully completed on September 30 of this year on.

On October 1st our team assumed operations under the agreement.

Leveraging our strong presence in the north and experience gained through this contract. We expect the government of Canada has recently announced no red Modernisation project to create additional opportunities for us in the future.

Our teams will be actively marketing the expertise at both contact and our NASA Tech Park partnership to help me to meet the needs of this initiative as they become more clearly defined.

Moving on to be able to make parts. The business continued to deliver stability in the third quarter with earnings of $4 million, which was in line with the prior period last year.

Okay.

And the deployment of capital continues to be a key area of focus it now to me as global economic activity continues to improve our pipeline of opportunities.

In the adults, who may business globally, and we're confident that this will create meaningful opportunities for new investments.

Overall, I still had a great third quarter.

I'm excited to see the work that our businesses have been doing to secure new projects execute on their long term strategies and drive earnings stability.

You can see from our results today that.

We are well positioned to close out the remainder of 2022 with many exciting opportunities ahead in 2023 and beyond.

That concludes my prepared remarks, and I will now turn the call back to Colin.

Thank you Katie and.

In the interest of time, we ask that you limit yourself to two questions. If you have additional questions you are welcome to rejoin the queue.

I will turn it over to the conference coordinator now for questions.

Thank you to join the question queue. You May Press Star then one on your telephone keypad, you will hear a tone acknowledging your request. If you were using a speakerphone. Please pick up your handset before pressing any keys.

To withdraw from the question queue. Please press Star then two.

Once again I mean, one other conference call who wishes to ask a question you May press star one at this time.

The first question comes from Linda as Hercules with TD Securities.

Please go ahead.

Thank you I'm looking at the next decade, there's a lot of initiatives underway.

And I'm just wondering if you can help us understand how we might think of your business mix shifting as your company Decarbonize in cabinets to our and energy transition.

Yeah, and maybe I think.

It came with a comment maybe if you can talk about if you're considering any new discrete platforms as well in addition to the ones that you have.

Yeah, absolutely. Thanks, Linda I think Brian you know roughly talk to the transition and what we expect from a proportion of earnings for <unk> going forward and I think the one thing I would add some of the Alco perspective, and then in addition to that you know obviously the energy transition business will become a growing portion of see you in here.

It's slow up to being a more significant portion of that coast earnings as well.

The actual businesses on a standalone basis also generally have a higher growth.

Growth expectation going forward just based on the relative size then see you so over the next decade they should.

Makeup in a more meaningful size of the overall portion of that cause earnings.

In terms of discrete new businesses.

I would say that we do continue to look for platforms that are synergistic to the overall portfolio for ethical.

And we have in the past outlined the specific areas of essential services that we would look to make those investments.

In the near term we have a you know obviously, a very strong pipeline associated with the energy transition project. So most likely.

From a capital allocation perspective, we will be putting a lot of focus there, but in the back half of the decade, there may be other opportunities that present themselves.

Thank you and just as a follow up maybe on your existing atco level platforms.

What is your outlook in terms of opportunities and achieving a kind of a an elevated growth profile Ah at your Enel Toomey business instructors and logistics can you comment on you know what role if any acquisitions might all augment the organic growth and.

You know, which growth driver or do you expect to be a more significant over the next.

Four years, let's say.

Sure. Thanks Linda.

I think for both businesses. They have a very strong organic profile ahead of them now when I say organic for now to me, it's slightly different in that there is.

Some greenfield and some brownfield.

They've made some acquisitions, which I think they will continue to do that give them an entry into the new market. You will have seen we've made some acquisitions in the U S and Steve during which just.

This provides the foundation to look for the more concrete asset opportunities.

So I think there's a bit of a mix in the mail to my business.

With a more heavy leaning probably towards the organic.

Growth options there.

On the on structures.

I think we have done very well in the past with an organic strategy with them call. It bolt on acquisitions that help propel it forward a bit.

But I think for the most part will be looking for inorganic strategy there with the areas. We've identified that we don't have a strong presence as yet, particularly the U S to make new head ways.

That's great. Thank you I'll jump back in the queue.

The next question comes from Maurice Choy with RBC capital markets.

Please go ahead.

Thank you and good morning, My first question, it's about tying back to your relationship with <unk>, obviously, there's a lot of capital requirements on a SKU level related to the energy transition and I acknowledge that Brian's got various non equity funding options that you highlighted on his call.

But what do you see a coast participation being and helping you with its fund raising in the years ahead, if anything at all.

Yeah.

I mean, we work very closely on trying to map out what the overall funding strategy would be for for C. You between that going for you obviously.

I think there is access to various forms of capital for C U.

Including potential asset recycling opportunities that Brian mentioned, great access to the debt capital markets.

To other forms of financing potentially the equity capital markets and the right in the right situation.

So I think you know she was on its own does have the capacity to fund its own growth without necessarily support for NAPCO.

And I think that's that's been our historical trajectory likely.

Would be the path forward.

If we lose humorous.

You have a follow up on that one.

Morris Your line is now open still.

Myself I'm sorry about that.

Just a follow up to that I suppose if he you mentioned that you know a key capital markets something that you can consider it environment.

Suitable for that.

I suppose take that one step further with that.

That could be interested in maintaining the share that you have if you take that route.

Yeah, I mean, the you know the it's C. He was a very important part of that core business, obviously and I think that's been a longstanding.

The longstanding important part of our portfolio. So I can't it foresee that we would significantly diminish our interest in C U.

You know if if there was.

In equity capital raise from fields that were to happen I think ACA would evaluate up based on the merits at the time, but.

But it is an important portion of our business and I can't as I said foresee a significant dilution.

Okay.

Perfect and my second and final question, just coming back to us in L. A.

Obviously the economic.

Economic outlook seems to be ever changing not just in North America, but just globally any change in your views.

About the pace and interest of your customers are wanting to continue.

Continued good growth.

Yeah.

Yeah, I mean, I think you know for structures. It is its a interesting tied to the economic activity globally and so we are all watching to see the effects of inflation and what the economic growth going forward is.

That being said, we've really as we've mentioned in the past tried to.

You mentioned many times tried to improve the earnings stability of our base space rentals on workforce housing business and be less reliant on the large projects.

We had you know we haven't seen the same you know.

Same number of large projects emerging and in more recent times.

But that being said the global infrastructure build out and construction activity is still very robust.

So therefore, the demand for our base our base business there in the space rentals and smaller workforce housing.

Is still very strong so I think.

We're obviously still looking for those large projects and there.

There are some that we continue to pursue that would really.

Hopefully there's continued growth in the economy generally supporting the space rentals and.

Basically workforce housing business.

Thank you very much.

Once again, if you have a question. Please press Star then one.

The next question comes from Mark Jarvi with CIBC capital markets.

Please go ahead.

Thanks, everyone.

Can you talked about maybe trying to grow your presence a little bit more than in the U S market. Maybe you can touch on this infrastructure and logistics I'm talking about if you can talk a little bit of a competitive dynamic both from an organic perspective, but also you did mentioned bolt on acquisitions. So what are you seeing in that market and sort of a competitive dynamic in terms of trying to grow your presence there.

Yeah, and you know our so far our growth to date has been from an organic basis and I think that served us well we grew our fleet.

Significantly in the U S over the last year.

So I think.

That will be the continued strategy going forward when I say bolt on acquisition I think there are some time essentially acquisitions of fleet or assets that become available.

At an attractive price that we could use to bolster that.

We have opened new branches and new locations in the U S over the last year and we've also importantly, I think significantly diversified our customer base and we were relatively reliant in the past.

Or we had a large portion of our earnings I should say come from a major customer and that has distributed to too many more customers over the course of here.

So I think there's definitely space in the market I would say first of all for us and a lot of opportunity to continue to grow organically.

Okay and then my second question just in terms of how you think about funding structure and logistics have been expanding the rental fleet investing a bit more capital there because the idea there that as cash flows grow with the business you can grow the fleet or if you ever saw an opportunity to grow the fleet beyond what could be I guess self financed by structuring logistics would you start to sort of contribute more.

Capital from I guess, the top of the house just to turn them on or about in terms of the sort of the outlook and sort of I guess will it be sort of internally sort of free cash flow neutral or positive structure in logistics.

Yeah, I mean, we obviously at Echo, we do look and hope for each one of our businesses too to self fund our growth, but that being said.

I think you know in certain instances if there is a good growth opportunity behind our businesses, we will fund equity from macro perspective in particular, the infrastructure and logistics.

Should the right opportunity to become available alcohol will also has good access to capital.

That could be used to help augment their own sources of capital that they have.

To grow that business faster.

So as you stand here today, and you can see the funnel and the opportunity the U S market.

Do you see that where I guess your internally generated cash flows of the structures doesn't quite fun. The the ambition is there to expand the fleet.

Honestly over the other medium term period here they do have the self funded outlook.

So I don't necessarily foresee that but should as I said should there you know we as we move forward and see that there is significantly more demand or as you mentioned, an inorganic opportunity that presents itself.

We would we would look to participate for the ankle level, okay understood. Thanks Kim.

This concludes the question answer session I would like to turn the conference back over to Mr. Colin Jackson for any closing remarks.

Thank you series and thank you all for participating today. We appreciate your interest in Agco and we look forward to speaking with you again soon thank.

Thank you everyone.

This concludes today's conference call you may disconnect your lines.

You for participating and have a pleasant day.

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