Aecon Group Inc. Q1 2023 Earnings Call
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Good morning. Thank you for attending today's Q1 2023, Acorn group incorporated earnings call.
MS Bailey and I'll be your moderator for today's call all lines will be muted during the presentation portion of the cool with an opportunity for questions and answers at the end.
Would like to ask a question. Please press star followed by one on your telephone keypad.
It is now my pleasure to pass the conference Abattoir host, Adam <unk> Senior Vice President of corporate development and Investor Relations. Mr. Bugatti. Please proceed.
Thank you Billy and good morning, everyone and thanks for participating in our first quarter results Conference call. This is not to forget he speaking presenting to you. This morning, our strong Lisa Bronx, President and CEO , and David <unk> Executive Vice President and CFO .
Our earnings announcement was released yesterday evening, and we posted a slide presentation on the investing section of our website, which we will refer to during this call.
Blowing our comments, we'll be glad to take questions from analysts.
At the analyst keep to one question before getting back into queue to ensure others have 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 assumptions that are subject to significant risks and uncertainties.
Although econ believes the expectations reflected in these statements are reasonable we can give no assurance that these expectations will prove to be correct.
With that I'll now turn the call over to Dave.
Okay.
Thanks, Adam and good morning, everyone.
Touching briefly on <unk> consolidated results.
Results by segment.
Then address any financial position before turning the call over to John Murray.
Turning to slide three revenue for the first quarter at $1 $1 billion.
$121 million or 12%.
The same period last year.
Adjusted EBITDA was 25 million a margin of two 2%.
That's a $21 million a margin of two 1% last year and operating profit of $6 million compared to an operating loss of $7 million.
Diluted loss per share in the quarter compared to a diluted loss per share of 29 in the same period last year.
Okay.
Reported backlog at $6 billion at the end of the quarter compared to backlog of $6 4 billion at the end of the first quarter of 2022.
New contract awards of $812 million of boats in the quarter compared to $1 2 billion in the prior period.
Now looking at results by segment, turning to slide four construction revenue $1 $1 billion in the first quarter was $119 million or 12%.
Same period last year.
Revenue was higher in each sector.
Largest increase being civil operations.
Generally from an increase in major projects in both eastern and Western Canada.
And industrial operations.
Our revenue was due to increased activity on mainline pipeline work and highest field construction work at mining wastewater facilities in Western Canada.
Partially offset by a lower volume of civil construction work at chemical facilities in Eastern Canada.
Higher revenue in nuclear operations was driven by an increased volume of refurbishment work in Ontario, and the U S.
And utilities from an increased volume of telecommunications and electrical transmission work, partially offset by a lower volume of oil and gas distribution work.
And in urban transportation solutions.
Only by a higher volume of work related to rail electrification in Ontario.
New contract awards of $795 million in the first quarter.
898 million lower than the prior period.
Backlog at the end of the quarter at $5 9 billion compared to $6 3 billion at the same time last year.
Adjusted EBITDAR in the constriction segment $22 million a margin of 2%.
Compared to 19 billion also a margin of 2% in Q1 last year.
Adjusted EBITDA increased by $3 million, primarily from higher volume and gross profit margin in industrial and.
Transportation solutions.
Higher volume in nuclear operations.
Turning to slide six concessions revenue for the first quarter.
$17 million.
That's a $14 million in the same period last year, primarily due to an increase in that full operations at the mill.
International Airport.
Commuter continues to operate at a reduced volume.
Compared to pre pandemic levels.
They need to recover in 2022.
First quarter of 2023.
The most severe impacts experienced in 2020 in 2021.
This recovery was evidenced in the first quarter of 2023 by the type of traffic averaged 72% in the pre pandemic level in the first quarter of 2019 compared to average traffic in the first quarter of 2022, being just 43% of the pre pandemic level.
Adjusted EBITDA in the concessions segment of $15 million compared to 14 billion in Q1 2022, primarily due to results from that to be the radicals.
Turning to slide seven.
At the end of the first quarter and you called out a committed revolving credit facility of $600 million of which 242 billion was drawn 10 million utilized for letters of credit.
On December 31, 2023 convertible debentures with a face value of 184 million will mature and the company expects to repay these debentures that matured you're hoping for.
At this point I'll turn the call over to Hillary.
Thank you Dave.
I would like to take a brief moment to address the full launch fixed price legacy projects laid out you know the latest disclosure documents.
As a reminder.
These full project entered into in 2018 or earlier by joint ventures in which speak only as a participant.
All being they've got people impacted due to additional costs.
For which the joint venture that suits them.
All of us are contractually responsible.
Including for among other things.
For shippers hot conditions.
Poverty delays COVID-19 supply chain disruptions.
And inflation related to labor and materials.
In the first quarter call and recognized an operating loss, so $2 8 billion.
Related to these full projects, which comprised 25% of consolidated revenue in the quarter and.
And we presented at 800, and the $1 billion or 13% on back to market.
So he supposed to solve in 'twenty three.
Yes.
Hey, Colin and our partners continue to work towards resolution of compensation for the back with the respective project owners.
And we are focused on pursuing all avenues for adequate and timely compensation with the objective to reach.
None of us have to admit agreements.
Move towards contract completion in each case.
As I've said before this will.
It takes some time, but we are all eat at constant.
Turning to slide nine.
Demand for at home services across Canada continues to be stronger, particularly smaller and medium sized projects.
Why volatile global the Canadian economy conditions are impacting inflation interest rates and overall supply chain efficiency.
These factors have stabilized to some extent.
And I have largely been and will continue to be reflected.
The pricing in commercial terms of our recent and prospective project awards and pizza.
Yeah.
Turning to slide 10.
We use backlog of 6.0 billion dollar at March 31, 2023, and the recurring revenue.
Revenue programs, continuing to see robust demand driven.
Driven by the U T sectors and ongoing recovery Apple traffic in Bermuda.
<unk> believes it is positioned to achieve further revenue growth over the next few years.
Okay.
As a reminder, the major scope of the goal rail expansion on corridor works project.
The Scarborough will subway extension project and.
The Darlington nuclear project will only be reflected in backlog at the successful conclusion of the land development phases.
They called including joint venture, which we are participating so prequalified on a number of projects to be awarded during the next 12 months.
I know the comps you didn't rule pipelines of opportunities to further add to backlog it all the time.
Okay.
Trailing 12 months' recurring revenue of $895 million was up 24% versus the prior period.
And 69% versus two years ago.
But really from royalties utilities operations.
Recurring revenue is expected to continue to grow driven by demand in the utility sector.
Concession segment is expected to see airport traffic in Bermuda continue its recovery to solve in 'twenty, three and 'twenty cool.
Turning to slide 11.
<unk> Com continues to support the energy transition to build and operate sustainable infrastructure.
In February 2023, a common knowledge that you'll need Oh geez toleration.
N P executed an agreement for you'll need a energy storage project.
To deliver the 250 megawatts 1000 megawatts hour energy storage capacity keen on value.
Acorn concession will be an equity partner, you'll need added Pete.
Upon financial close at Acorn was also awarded an EPC contract by Anita I didn't need to construct necessities.
Objects have all made out energy storage go expansion on corridor works copper all subway extension the Darlington T. O project demonstrate the path Acorn is on to embrace the opportunities of increasing focus on energy transition.
Sure.
Decarbonization and sustainability present.
This is a very much the future direction for a corner.
And we are excited by the progress made to date in establishing ourselves.
In this space.
Turning to slide 12.
Aegon released its full sustainability report.
Building a sustainable future.
Last week.
With lighting and our progress on key accomplishments responsible ESG practices.
This report highlights equal initiative to embed sustainability innovation and work towards net zero construction throughout its operation.
Acorn is pleased to report continued progress towards these targets.
To achieve a 30% reduction in direct <unk> emissions by 2030.
With a 40% direct reduction already achieved to date.
End of 2020 to Albany, Techy T base.
Sustainability is part of our D&S equal at a key consideration in Africa.
We make as we.
We continue to focus on building what matches.
To enable future generations to thrive and transition to it and then you would call them.
Turning to slide 13, with a strong demand growing recurring revenue program.
<unk> backlog you had.
<unk> is focused on achieving solid execution on these projects and selectively adding to backlog.
Disciplined bidding approach.
That supports long term margin improvement in the construction segment.
The concession segment in addition to expecting an ongoing recovery of the Bermuda Airport through 2023.
There are a number of opportunities to add to the existing portfolio.
Canadian and international concessions in the next 12 to.
24 months at <unk>.
Including project with private sector clients that support our collective focus on sustainability is the transition to a net zero economy.
The go expansion on corridor works project.
Energy storage project.
Our example of the role of E. Commerce concession segment is playing in developing.
Operating and maintaining assets related to this position.
Okay.
As previously announced on March 1st.
<unk> announced that he would have entered into a definitive purchase agreement with green infrastructure partners.
And a week, a calling up agreed to sell its eight year old building aggregates and materials business you don't value for.
$235 million in cash.
In addition on March 15th AA Com announced that he doesn't enter into an agreement with <unk> crop treacher too.
To sell a 49, 9% interest in the Bermuda International Airport concessionaire.
For $128 5 million U S dollar cash.
So with Eagle these sales transactions.
TD is the second quarter of 2023.
Upon closing Aegon expects to use the net proceeds from the transactions to pay down debt on its revolving credit facilities.
Thank you.
I would now turn the call over to analysts for questions.
Thank you.
If you would like to ask a question. Please press star followed by one on your telephone keypad.
Any reason you would like to repeat that question. Please press star followed by two.
Again to ask a question. Please press star followed by one.
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Okay.
Our first question today comes from the line of Michael <unk> from TD Securities. Michael. Please go ahead. Your line is now open.
Thank you very much.
For the.
The go expansion on quarter works project in the Scarborough subway extension projects I know neither of those is included in backlog.
Two questions I guess first off can you talk about how we should think about the expected revenue contribution from those two projects this year.
And was there anything from those projects that contributed in Q1 and if so can you can you quantify that for us.
Okay.
Yes, I did give some element itself.
I mean to this question.
We are in the middle of the development phases.
These two projects had been there for go transit electrification and harmonization and Paul Scoff rule.
Just to give you some.
Some color about it I mean, all of the gold transit, they're all at the moment more than 1000.
Full time employee working during the development phase Scott, what I would say around 300.
Good working.
Each time, our economy and between 25% and 50%.
All of those people.
In terms of revenues.
I mean do you see what we all study during the development phase.
As it.
What was the full cost you to.
By the contracting goes so he teases.
Two of our construction work around $8 billion.
During the period of eight years more or less.
And you'll remember that we have a 28% participation the operation during 25 years.
Which would make something like between 300 influence that opinion.
Of operations of the network.
All this will be confirmed at the end of the development phase that will probably take place with these big project at the end of 2024.
Well, Scott I would say, it's too early to announce other capex between two and three.
$3 5 billion bonds, you own it and we have well.
I'll just ramping up into the development phase. So we will know a little more later.
Later.
Okay. Thanks for that that's helpful.
Second question.
Yeah.
Sorry, just a follow up.
My second question here regarding.
Hello.
Yes, we can hear you now go ahead.
Okay. Thanks, Yeah, just a question about the recurring revenue.
Recurring revenues within the company so you've seen strong growth in recurring revenues on a TTM basis for some time now.
I'm just wondering how we should think about the growth potential in recurring revenues over the next couple of years I guess this year as we move through the year and then also into next year if possible.
We basically are optimistic inducing maximum revenue loss driven first by our utility sector.
We constantly are weak.
Okay.
Right Amazing to see I mean, there's not one single months without brainstorming about new business lines, new activities, new initiatives or do innovation I mean, these strategic sector. So this sector is growing.
For the rest by our output operation as you got Multistem in the during the first quarter of 2023.
Reached 72%.
Oh, Yeah, TVT pre pandemic I need to keep growing and we expect by the end of <unk> 'twenty cool to have cut back cause these pre penalty.
So yes, we are expecting some rules naveed and eat and eat.
The only thing I'd add is obviously the sale of our interest in Bermuda will reduce.
The music piece, even though underlying traffic will continue to recover.
Otherwise you shall we said the growth will really be driven by our.
The utilities business, which continues to be very strong we see good opportunities.
Of all being built on the back of.
Some of the small tuck in acquisitions, we've done over the last five or six years. So are we starting to see some real traction in areas like electric electric.
Electricity transmission and distribution.
Well, it's it's time, they got telecommunication work into the region, so still lots of great positive tailwind.
Alright, that's perfect. Thanks very much.
Alright.
Yeah.
Right.
Yeah.
Thank you. The next question today comes from that.
Of course, sorry from ATB capital markets. Please go ahead, Chris Your line is now with it.
Yes, thanks folks so just following on maybe on Mike's question, a little bit just thinking about revenue contribution from these things these projects not in backlog.
Is it fair to think of the development phase that it's going to be fairly de minimis revenue over the next little while or is somehow. This does the work theyre getting some blended into into the recurring revenue.
It'll be things like utility moves and things like that in advance.
Yes, it's not part of the recurring revenues Chris.
On the basis.
This isn't a long term AR.
Master service agreement type of arrangement like we have and utilities, where these acquaintance to Alex but.
Many years and that we do the same type of work.
This will.
So I won't go through recurring revenue.
I mean, it is relatively small compared to women gains in execution phase of both of those projects.
People still.
At some.
Reasonable revenue.
23, and 2020 fall just based on.
Uh huh.
Recovery in terms of the people we have working on those projects.
Working through all the.
Scoping and pricing and engineering, that's all all being paid for and Cordis revenue bodies.
As you say relatively small compared to other games in the execution phase.
So more in the 10%.
So it's pretty low.
Okay. That's helpful.
And then just one quick kind of modeling follow up question on the divestitures that you guys have planned for Q2 I'm sure you've had a chance now to take a look at it.
How are you going to give you on the financial structure.
David just tax.
Assume the airport, that's always been a low or zero tax jurisdiction.
So am I right to think that there should be no tax impact on that one and are there any do you have any tax deferrals or other pools that maybe you could draw from that we should be thinking about with the sale of the ETE.
Yeah, So Paul for both the tax implications of relatively.
Minor compared to the overall proceeds.
You mentioned home.
You all have to meet.
No tax impact.
And then on the <unk>, yes in terms of how that stretch it.
There will be tax, but it won't be it.
It won't be a huge number.
Okay. That's helpful. Thanks folks.
Oh.
Thank you.
The next question today comes from the line.
<unk> from <unk> capital markets. Please go ahead Gabriel you line is the only thing.
Hi, good morning.
You state in your MD&A that you will be using the proceeds from the asset sales to reduce the leverage and repay the convertible debt.
Can you comment on your other capital allocation priorities.
Yeah. So.
In addition to that.
We continue to be.
We focused on.
The opportunity to.
Add to the business in terms of smaller type acquisitions.
We've been particularly active on the utility space and I think we're seeing benefit there.
Uh huh.
The numbers, we talked about recurring revenues.
I referenced the fact that we're starting to see some real synergies from those two acquisitions now.
We see more opportunities in that space. So that will continue to be a focus.
As well as.
You know maintaining the.
It also makes us.
Being feature for us over the last decade or so.
Remains in Poland.
So those plus reducing leverage would be.
Considerations.
Okay. So you could potentially use the proceeds for their short term priority.
Well I'm, not saying that short term priorities.
Gross.
Yes.
It is by utilities through.
It took an M&A is part of our long term strategy.
The dividend policy so.
You know I think at all.
<unk>.
Part of the theme of what.
Where we see the business growing in the huge opportunities we see in the market ahead of us.
Thank you.
Yeah.
Yeah.
Thank you.
As a reminder, if you would like to ask a question. Please press star followed by one on your telephone keypad.
Our next question today comes from the line.
<unk> from <unk>. Please go ahead, Jonathan your line is now open.
Okay.
Good morning, Thank you.
Following the sale of.
The minority interest in the Bermuda Airport.
Could you comment on the types of new infrastructure opportunities do you plan to pursue.
In terms of which end markets are of interest or geographies.
Yes.
Speaking of <unk>, we have announced them.
All extremely interested with the energy condition.
Okay.
Each week, we said I mean, the different segments.
But the opportunities are huge I mean, I just take an example.
For a long time ago.
I suppose a lot of I guess, what we bought.
It's becoming clear that Decarbonising as agreed by let's say 2015 rigs.
It requires the system capacity of eight eight megawatts I, just remind you that at the moment.
Cargo up something like 40000 megawatts.
The capex associated disease, it's about 4 billion between take time.
But he comes away.
Just to clear where kony is extremely strong.
18000 megawatts at least shouldn't it.
Does that have to be a beat during the next 25 years. So we are speaking about we.
We furbishing I mean have you didn't.
Probably up a piece of that.
The refurbishment program, where a continent.
It is working out quite well the second unit called designed to be connected to the grid during the summer.
And for coffee perfectly the budget and they want to be called hidden off of the year.
The reason now.
Knowledge about what could be done.
We cleaned up the decision will be taken.
2023, but it's also about you did read you know about the Mark on track to meet and on which we are on schedule.
Volumes are mothers with Oh P. G G iPad E and S E T, but also new loft reactors.
There's a lot to do there is a lot to do to go back to what we call the new law.
Also an ideal project.
There's a lot to do with the storage may be pumped storage, maybe battery storage I mean economies really activities.
Our construction and concession equal full golf.
I dropped and so.
This seems to ease the relief where acorn.
Wants to be and.
One of the main reason for our Divesture of <unk>, we just see that we can develop much better. Thank you keep it.
Advantage I mean is this energy transition and we are working on it.
Okay. Thanks for your comments.
Yeah.
Thank you.
The next question today is a follow up question from Michael <unk> from TD Securities. Please go ahead, Michael Your line is now open.
Thank you.
Wanted to ask you about the margin profile of the backlog I'm wondering if we exclude the four legacy fixed price projects that had been negatively impacted by additional costs. When we look at the remainder of the backlog.
You talk about what the margin profile of that.
That remainder of the backlog looks like versus.
What it looked like about a year ago.
Yeah.
Yes.
<unk>.
We obviously don't give detailed margin guidance, but in terms of the overall profile.
It's a positive versus a year ago.
If you kind of look at it.
Areas, where.
Yeah.
We're growing.
It kind of projects you would be adding to backlog over the last year or so they tend to be the areas.
<unk>.
Has it been more predictability, so we've seen that kind of fixed price level of backlog come down.
Fairly significantly over the last 12 months.
So that gives us.
A good view as to.
When do we expect margins to be over the next little while we certainly expect them to.
To be stronger over the next 12 months to 24 months and they were over the previous 12 months.
Okay, perfect and then one.
One additional question when we look at the backlog expected to be executed over the next 12 months.
Currently sits around $3 1 billion, which I think is up.
Slightly on a sequential basis.
Is it possible to break that figure down between how much of that work is coming from before.
The fixed price of legacy projects versus all of the other work that would fall outside of those in terms of the composition of that $3 $1 billion of next 12 months backlog.
Yeah.
Okay.
Yeah.
Some of them.
Let them until they come.
Come back to your previous question.
You'd have to be clear that E com.
The top line is not an issue I mean, we have a strong backlog.
60, and I've always said that we are comfortable with that and so backlog press.
Our suite of Progressive drop we saw in city block would say is that we add something similar to six 6 billion. So we all focus.
Question was about margins in the backlog.
Oh, absolutely peaceful crystal the quality of our backlog.
The bottom line.
To increase the <unk>.
Two P. T O. These bottom line. So D C D C that will work every day.
Where do we come back to the school legacy.
Project as of now.
We still have something like eight time couldn't be you'd need basketball, but schools. This project.
Yeah.
Of the total aimed to take heed of.
6000 meters at something like 13%.
The most probable backlog it. After addition.
All of the progressive.
I mean, it's it's around 6%.
<unk>.
<unk> project.
<unk> to be substantially completed.
Before the end of 2023 always the first quarter of 2024.
We may need to.
Meet it.
Two.
<unk> five so this gives you more or less.
Our ideals.
What is the share of.
Revenues actually come from these projects.
Okay. That's very helpful. Thank you.
Okay.
Thank you.
Thank you. The next question today comes from the line of Richard <unk> from Raymond James. Please go ahead. Your line is now open.
Yeah.
Good morning.
Yes.
There is growing momentum towards the development of the high speed rail network between Quebec City, and Toronto and that feels to me like the related work would be right in your wheelhouse.
Can you comment on how realistic. This idea is given that we don't really have the same population density.
Some European countries.
And secondly, whether this is indeed, something that you'd be interested in and bidding for in participating in.
Okay.
Interesting question I mean.
Uh huh.
So first of all you have noticed the announcement to sort of isolate Quincy Oh I see.
<unk>.
Okay.
Thank goodness, there's still a lot to do from a what.
What we understand that.
The request for quantification probably.
It's probably just in so we will know very quickly with being quite high.
On the RSP should be over we did why do you now so that without that we need in terms of development.
The blueprint.
I remind you that at these stages.
Organiser of exclude EBIT.
From the process.
Rolling stock equipment manufacturers.
Talk to me.
No I get that but we are of.
Of course, we are.
To gain trust with these projects so.
What do I see them coming from Europe ice between us.
Yes.
Our countries in Europe .
Thank you.
That for me.
The aim is to get.
Safe and reliable.
And two hours between Toronto and Montreal.
I mean, it's it's a it's probably.
It got worse.
Well I mean it depends on.
Yet dedicated line.
The freight piece.
That's not the priority for high speed high frequency rates.
And most of the issue to reduce tied at the entry and exit to CTV.
A lot of infrastructure colleague.
In those cases.
I think it's going to be a very.
Cresting project, there's no reason I mean, when you see this corridor between Quebec, Ontario, Ottawa.
The Toronto guests, new reasons that Ah I still high frequency choices.
It cannot be a perfectly efficient.
Thank you.
The next question today comes from the line of Maxim <unk> from National Bank Financial. Please go ahead. Your line is now open.
Hi, good morning, gentlemen.
Okay.
David maybe just a financial question for you.
When we're thinking about free cash flow generation.
But in the last couple of years.
What needs to happen for this metric to turn into a positive territory.
Specifically around the pacing of working capital in fact, maybe just any color.
For the next 12 to 18 months please.
Yeah.
Yes, certainly.
It's heavily tied to resolution.
On the pool of legacy projects as you know.
We have outstanding.
Negotiations going on.
And each of those projects.
The arbitration scheduled on C. G L.
So that working capital build.
It's tied to those projects.
Squeeze reached resolution on those that level secondly.
Generate.
Our cash and reduce some of that working capsules. So that's that's the primary focus.
If we look at working capital excluding those four projects.
Overall, it continues to be kind of commensurate with the growth in the patients obviously, we've seen pretty significant top line growth although watch.
A couple of years.
Obviously.
My question on working capital.
Along with that.
But it's the four legacy projects that really are.
That would put the cash flow profile over the last.
18 24 months.
But yes, I mean, if you settle.
Half of them. This year do you think positive free cash flow generation is possible in 2023, or just too difficult to forecast given all the moving parts.
Well.
If we were to sell to them this year.
I'm fairly confident that we would have positive.
Kept free cash flow this year.
<unk>.
So that's it.
Hello, Louis said earlier, that's that's the goal.
What we're working on but it is dependent on the timing.
That was great solutions.
Okay. Okay excellent thanks, a lot.
Okay.
Thank you.
There are no additional questions waiting at this time, so that to pass the conference back over to Adam Mccarthy for any closing remarks. Please go ahead.
Well, thanks, very much Burley and thanks to all for your participation today and as always if you have any more questions feel free to follow up with us and.
Have a great day rest of the day. Thank you.
This concludes today's conference call. Thank you for your participation you may now disconnect your lines.
Yeah.
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