ATCO Ltd. Q1 2023 Earnings Call
Thank you for standing by this is the conference operator.
Welcome to the Aimco limited first quarter 2023 results conference call and webcast.
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I would now like to turn the conference over to Mr. Colin Jackson, Senior Vice President Finance Treasury and sustainability.
Please go ahead Mr. Jackson.
Thank you good morning, everyone.
Ladies you could join us for Arco's first quarter 2023 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 would like to take a moment to acknowledge the numerous additional territories and all that and so much of our global facilities are located.
Today, we're speaking to you from our Alco Park head office in Calgary, which is located in the Treaty seven region.
This is the ancestral territory at the Blackfoot Confederacy comprised of the Zika.
Hi, Ghani Nations Senior Nation, and Estonian Dakota Nations that include the Nicky Erez Paul.
Good Stony first nations.
The city of Calgary is also home to the <unk> nation of Alberta region three.
We honor and respect the diverse history languages ceremonies and culture of the indigenous people call. These areas home.
Kt 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 under the heading you bet and presentations.
I'd like to remind you that all of our remarks today will be willing.
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.
Finally, I'd like to point out that during this presentation, we may refer to certain non-GAAP and other financial measures.
Such as total segment measures 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 to similar measures presented in other entities.
And now I'll turn the call over to Katie for her opening remarks.
Thanks, Colin and good morning, everyone. Thank you all very much for joining us today for our first quarter 2023 conference call.
I have two achieved adjusted earnings of $137 million or $1 21 per share in the first quarter. This year. This is $3 million or four cents per share higher than the first quarter last year.
This $3 million of growth came primarily from the strong performance of our structures business combined with great performance across our broader portfolio of investments.
Collectively this more than offset the expected downward earnings pressure associated with the Rebating of Alberta distribution utilities within the Canadian utilities investment.
Having gone through P. B, our Rebased <unk> five years ago, we've been really focused on driving growth through other areas of our portfolio to help mitigate this pressure.
You can see the results of this with the strong results in the quarter.
Jumping conduct those structures, we delivered adjusted earnings of $19 million in the quarter $3 million higher than same quarter last year.
As you've heard Adam and I talk about many times now a key strategic priority within our structures business is the expansion of our base business earnings.
The successful execution of this strategy was a key driver of our earnings growth in the first quarter.
Both our core space rentals business and our newly acquired Triple in housing Division delivered exceptional results in the period.
Compared to the first quarter of 2022.
We watched base rental fleet size by 14% and our average rental rate by 19% all while achieving an average utilization rate of 75%.
Moving on to Triple in this business performed exceptionally well in the quarter, which helped offset the contribution last year from our LNG, Canada project, which is now complete.
It's triple M is a newer business line for us I thought it may be helpful to touch briefly on the seasonality of this business and how this interacts with the profile of our overall structures business.
Generally speaking triple M sees its strongest earnings in the first and fourth quarters of the year as it works with dealers to lock in orders and construct the units necessary to support dealer inventories.
This quarter's results likely represent half or more of the full year expectations for this business.
In contrast, our broad structures business, she's a stronger earnings correlations to periods of high construction and economic activity.
In Canada this tends to be in the warmer second and third quarters.
This counter cyclicality is important to note when looking at the performance of our overall structures business and further reinforces the strategic alignment of this acquisition.
As I've mentioned.
And in the past our base business typically accounts for two thirds to three quarters of our segment earnings.
In addition to this we saw strong project activity further supporting our earnings growth.
And Echo project first quarter earnings declined nominally from 'twenty to 2022 levels as the Trans Mountain Clearwater camp contract was completed.
And start up costs on the recently signed Pogo mine project created earnings pressure.
Frontier has however been very active in signing new contracts that will support earnings moving forward.
One. Notable example of these efforts was the signing of the camp services contract with BHP Janssen.
The three and a half year contract with Seattle Frontex alongside our indigenous partner George Gordon developments provide camp support services for the BHP Janssen Discovery Lodge in Saskatchewan.
The transition of Camp services was completed on April 1st of this year.
As discussed previously our fronting business continues to see great opportunities in the defense and government spaces, where a deep indigenous relationships can be leveraged alongside our core remote services expertise.
Now touching on not too many ports the business continued to deliver stable and dependable earnings with favorable foreign exchange impacts pushing first quarter adjusted earnings higher when compared to 2022.
As you will seen in our news release now two major signed a significant contract two days ago at the Port of Vancouver in Washington State.
This will seem now to me with a partner Novelis operate terminal two in this port for a 30 year period with 210 year extension options.
We are really excited about this opportunity as it is another milestone in now to me focus unexpected and into North America.
As expected our Canadian utilities investments saw adjusted earnings declined nominally in the first quarter of 2023.
When compared to the first quarter last year.
This decline was due to the sharing of efficiencies generated in the second P. B our cycle with customers as the Alberta distribution utilities interest single year cost of service period in 2023.
As Brian spoke about Canadian utilities Q1 results on this morning's C. You earnings call I won't go into these details again here.
I would however, like to reiterate that while the earnings pressure related to BP are replacing re basing was somewhat muted in the first quarter. We continue to expect more downward pressure throughout the year.
More specifically first quarter see results benefited from a few specific items.
The favorable timing of costs within the distribution utilities.
The proactive advancement of work into 2022 that would've otherwise been completed in the first quarter of this year.
Strong performance of seniors nonregulated businesses.
And continued outsized outsized earnings from the Australian gas utility.
Collectively these factors muted the earnings decline related to Rebase, Inc. For the first quarter of 2023.
Overall, I feel had a great first quarter.
Is it acquisitions that we've made consumer due to short term earnings these new investments along with the proactive decisions. We've made across our diverse portfolio will help to partially offset the cyclical earnings pressures that we expect in 2023 related to where PBR utilities.
That concludes my prepared remarks, I will now turn the call back to Colin.
Thank you Katie.
In the interest of time, we ask that you limit yourself to two questions if.
If you have additional questions you're welcome to rejoin the queue.
I'll turn it over to the Condom conference coordinator now for questions.
Thank you we will now begin the question answer session join.
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The first question comes from Linda Azure Keyless when TD Securities. Please go ahead.
Thank you. My first question is related to the nel to meet opportunities in front of you am I see that you acquired an additional 5% ownership in Cyprus.
No if I pronounced that correctly raising your ownership in that facility to 95%.
Are there more opportunities in the near term to incrementally add to your ownership and facilities are for now to me to incrementally add ownership into facilities. They already have a presence and and how significant might that be and can you also comment on them whether those are incremental.
Ownership, our acquisitions are expected to be potentially more accretive versus an outright new facility ownership.
Sure Linda Thanks for the question Yeah. We did we did it incremented that was part of the and acquisition. We made a quite some time ago, where the owner is still involved in the operations and so we just took out other than additional percentage of that and cyclists.
But you know we do operate in 17 different ports, where we have varying ownership interests in and partners in almost all of them. So I think we're constantly.
Evaluating whether there are opportunities for us to take a greater stake or even sell down a stake in some of those ports.
So there's nothing specific I can point to them in terms of whether they would be more.
More accretive than other opportunities I think it really all depends on you know its obviously it depends on the purchase price that we could negotiate them.
But I think the benefit of us making moves like that of course is that we'd be pretty familiar with the operations.
So.
That does happen actually relatively frequently that were able to change them change their ownership, but really didn't know to make them as this develops.
Element efforts are focused on growing our portfolio of sports into new areas.
You know we've talked in the past, where we're exploring opportunities in Brazil and of course, the recently announced one in the U S. Just shows our our progress in trying to get a better footprint in North America.
Thank you and just as a follow up when you sign a contract such as in Washington State do you see any opportunity to potentially parlay that into ownership or is that just and outright operating contract.
And when you look to grow in other regions do the opportunities relate more to outright ownership or more operating contracts.
Thanks, Linda I think it's a bit of a mix of both in the port of Vancouver, We.
We're really excited about that because we have secured the operating contract for terminal two.
But we do have line of sight to invest capital as you know to expand the capacity in that port a in the near term and I think you know that would be the model that we would take in many different locations as well, which is first entering through either a stevedoring or our operating contract and looking to take invest cap.
But I'll take a bigger position mm Theres also you know meaningful it positions us well in.
In Vancouver for additional ability to enter into some of the other terminals. There. So we do like that model. We can go and also just directly into an ownership slash capital arrangement in any given port them.
It all depends on sort of the the circumstances of the of the port.
Thank you I'll jump back in the queue.
The next question comes from Rob Hope with Scotiabank.
Please go ahead.
Hello, everyone two questions on the ports as well sticking with Vancouver.
Maybe can you talk to how that opportunity came up I know titled desktop operations. There does that help a salt safety Oh they are.
The conversations there and then maybe just can you clarify kind of what quantum of earnings you're expecting or how much capital you think you could put to work there.
Yeah, Thanks, Rob I.
You know this.
We we have a very strong BD effort and presence both through our partner who operates agency business around the world and sometimes we see.
Opportunities coming through now that network as you noted a potentially through our partnership network.
And then obviously, we're constantly monitoring any public RFP or other.
Are there ways that we may get it. So you know we have.
A very strong ability to do come across those opportunities in and usually find unique opportunities that arent necessarily broad auction processes.
So that's not anything in regards to that Port now and I can't really you know, we're still working on signing some contracts.
For that Port and we're very close so I think and we have a very strong.
Oh, we believe strongly we will be able to sign those contracts. Shortly so we won't be able to give earnings guidance necessarily but I can give you an order of magnitude that right now there's about 400000 tons that moves through that terminal, but we can expect them through some capital investments that we could basically triple that capacity too.
For movement of product through that terminal and right now, it's mostly copper concentrate and clay that's moving so it is a bulk facility that could carry a number of different types of materials.
Alright, thanks for that another part question so.
Alco philosophy, you and Kansai have signed the.
Our our developing where potentially go on to develop a clean hydrogen hub and <unk>.
Albert ER with the expectation for export to Japan, There was talk about potential port facilities, there as well can you maybe speak to how.
That could work for agco, specifically, if there was going to be a part of initiative.
Would that be a third party or could nail to may be involved there as well.
Yeah, Great question, Rob Thanks.
And yes, absolutely I think that you know there obviously, we will need to be some type of port logistics and that were you know early days and that that comes a arrangement, but we're very committed to trying to.
Find the right export value chain to make this happen for our partners.
And as you know it could be any one of the above in terms of a third party port.
It could be an opportunity for now to my philosophy are we are working and talking with them about that.
And they have very strong operating expertise obviously in terms of ports. So we're still working that through but like any opportunity nacco, we're always going to try and look for ways that we can.
Use our relationships and our internal businesses choose them to bring it all to bear.
Thank you.
Okay.
The next question comes from Maurice Choy with RBC capital markets.
Please go ahead.
Thanks, and good morning.
Really just for that.
The discussion a little bit here. So no two reports once your loss of position and that was in 2018 and then there was the agco identifies.
Six essential services categories. So maybe a broader question to ask here is you know recognizing that the world has undergone quite a bit of change colder war.
Which of these six essential services categories do you see the biggest opportunities that could be a next edition to that at the opco level.
Sure. Thanks Bryce.
Yeah, and I I mean, I know now to me was our last acquisition of a new business, but you know we did we did make the the triple aim acquisition as well, so and I only and note that just because we're looking at both acquisitions that would be you know outside of our core, but we're always looking for opportunities to augment our existing business and grow those business.
Is it you obviously see you are the structures of Frontex, we didn't have too many opportunities to deploy more capital.
But in terms of new business areas.
We have six and we participate in many of them already the two notable exceptions would be water and egg.
But I think we see opportunities in both of those sectors and we continue to monitor to see if there's an appropriate and.
Every opportunity into either one.
Yeah.
Sorry, just to recap what was mentioned at one <unk>.
Which of the other ones do you see the biggest opportunity.
Well in the other four we already are present, we do have a real estate portfolio be it small in Alberta shelter, obviously, most things that we do there would be through our structures business.
Transportation and logistics, we do have the ports.
And as well as protect participates in that space, but so any one of them could present opportunities.
You know I think the one probably that's the highest Ah that were not yet involved in is probably water.
Though we do have a we have a presence to see you but for in a meaningful way that could be an area of interest.
And maybe my second question here and just a quick question about your stock repurchases.
It's been about 23 million dogs in this quarter and it looks like the average cost is about 40% to $42 per share.
Thoughts on how you've gone about would that position how you size that up or is based purely on where the share price was.
Should we think about possibly you are allocating some of your capital to buybacks this year.
Yeah, No you know from time to time, we know that our share price may not reflect what we believe to be the true intrinsic value of our share. So we may engage in buybacks, but we also generally will look to offset the dilution the dilutive impact of of options issuance. The each year and we are opportunistic in terms of.
The timing of when we execute on those purchases. So we saw a window to you know advanced slash fast forward a bit of our share buybacks.
In the early part of our N C I B a timeframe.
And I think we are we obviously weigh the decision of buybacks versus other opportunities that we see in the portfolio on a constant basis. So I don't I think I can't say, whether it would be more or less but at the moment. You know were happy with it you know getting what we see as an attractive price in this early part of the year.
Yeah.
And recognizing that there is obviously some balance sheet capacity you have to know to me imports level are you anticipating having to.
Hum.
I want to get some money into that.
Adventure.
In nature.
I think in the near term they have pretty a decent.
Do you think capacity to fund some of the things you know, particularly with the opportunities we already talked about in Vancouver.
In the future you know we hope that they are successful we've been very happy with that investment and if they are and it requires more capital I think it's something that we would very seriously.
Consider an unlikely to continue to participate in that.
Partnership.
Great. Thank you.
The next question comes from Ben Pham with BMO.
Please go ahead.
Alright. Thanks, good morning on excuse me on alcohol structures, how would you characterize the the stages.
Your strategic efforts, they're moving more towards execution from the.
Derisking.
And then can you maybe.
Fair context on what what percent of earnings last year was you'd characterize as ratable or our base.
Yes sure mm mm.
We generally.
We we I said in my call. This morning to that about two thirds to three quarters of the earnings are structures would be considered that base reliable earnings.
So I think that holds true and that continues to be where we are in terms of whether we're in execution.
Execution mode I think we.
We are going to continue to try and grow.
And a consistent proportion and the size of that of our space rentals like which as you know comprises the majority of our base business we.
We have significant opportunities are probably to grow in the U S, where we have a relatively small small footprint, but we also see opportunities to continue to get market share in Canada and Australia. So I think we are were always in execution mode in that business to be honest.
And are always looking for new opportunities to expand.
Okay, great. Thank you and then.
Yes, this might have been more a question for you.
At the C level, but there's there's some applications for Ya Crackle is.
The marketable securities that's flowing through.
Can you remind us the rationale.
For that end.
What does that tell you about your balance sheet.
And then maybe clarify how is that being booked in earnings I'm, assuming that the interest income.
Yeah, No we did make a decision to allocate Ah Ah Ah Ah.
A portion of our of our cash balance both at Echo and see you into marketable securities, which are very low risk you know our portfolio of bonds and similar type high credit quality investments.
And really that was just based on you know having some excess cash at the moment that we wanted to try and earn a bit of an outsized return.
So yeah, you will see that as a new new line item.
But from my perspective, it's a it's a highly liquid investments that we could use for and if and when we need to deploy it for our growth activities within the business.
Okay got it thank you.
The next question comes from Mark Jarvi CIBC capital markets.
Please go ahead.
Yeah, just one follow up question is on the Triple M business are you going to quantify what the revenue and earnings impact and then maybe just expand on that business in terms of can you take to sort of IP or or that for that business model and apply it anywhere else across your sort of broader footprint him yesterday structures English business.
Thanks for kind of just Cliff did you say I T or IP.
But just sort of like their business model.
Strategy all that comes okay. Okay. Thanks Mark.
Yeah, I mean, if you look back when we made the acquisition. We did have fulsome disclosure of the you know the retroactive one year impact. So you can get a sense of magnitude of the size of that opportunity. If you looked at it our at our.
At our notes from last year.
And I think that that's probably you know it was a very strong year. There is the housing market has been strong so that was probably reflective of the other Goodyear and where we're still in that same territory. This year.
In terms of leveraging their I P I.
I think you know right now we are focused on on that business and how we can expand it in the western Canadian and U know parts of the Northern U S market in terms of selling some other product into those areas.
We have we already were in keep you in the past had been many times in residential housing, but I think it does.
Give us a strong opportunity to continue to grow in that area of the economy.
Which we see has very favorable tailwind behind it.
And we'll continue to look for other opportunities to expand it in the the north American market isn't across our broader footprint.
First I guess just a quick follow up are you, implying then you'll see it for the foreseeable future. What are you acquired from Triple M. There's kind of a flattish business with some modest growth before you can really start to I guess kind of leverage the existing platform and make it more meaningful growth driver.
Yeah, I think I think that's probably.
Fair I think there is you know as we can all read in the in the press right. Now there is some some pressure in the housing market that could that could see some modest growth beyond that.
But yeah I don't think it's exponential growth that's going to be coming out of that business in the near term and there's just a very solid addition to our existing operations.
Got it okay. Thank you.
The next question comes from Andrew <unk> with Credit Suisse.
Go ahead.
Thanks, Good morning, you've managed to build a pretty interesting business in the structures world around LNG opportunities, whether it be Pluto LNG, Canada. The block amines facility, just how do you think about the LNG market opportunity on a go forward basis.
Yeah. Thanks, as you know I think we have positioned ourselves as one of the leaders for building the camps around those those big projects, but more broadly I think just our our history in that business. We have always been a leader in the workforce housing in remote areas.
So I think that extends not just LNG projects, which you know well.
As Canadians are western Canadians are are all hopeful will continue to be built out.
But also too to the mining sector and some of those those large projects we continue to see.
The demand for our key commodities in the mining sector would be strong and projects beginning to pop back up so I think.
We're well positioned for for that entire natural resource space are to be the the choice in developing those camps.
And maybe just building upon on that last point.
Or are you seeing a trend of maybe smaller projects.
Many more smaller projects as opposed to the Mega projects and in part just the App.
Effort towards near shore and friend Shoring, you know where were going to call. It in the sort of dismantling of long supply chains.
Does that change your origination efforts and really a bit of a sales function away from large rfps with supermajors to try to originate with smaller mining groups.
Yeah, No I mean, I think you know as we've talked about quite a few times really trying to them and we would put some of those smaller workforce in workforce housing camps into our what we call that that base business that is.
There's a lot more repeatable and diversified in terms of client base and where we're targeting them. So we have put a focus on that.
What you see in our results.
But I would say that that doesn't preclude us continuing to advance our relationships and our discussions with some of the larger them for some of the larger projects and we do continue to do those but we've just really tried to balance out our earnings so that those large projects are not disproportionately.
Hum.
Treating and then falling off shortly thereafter.
After.
Maybe just coming back to large projects.
When you think about LNG, Canada is there any color you can provide on your exploration of the contracts demobilization decision or an extension of a contract.
Yeah, I mean, we you know from a structures perspective, we completed that contract a in terms of you know additional the the future of that Theres not much color I can provide in terms of.
When you know, but so you won't see any more earnings coming from that particular project from the structure side, but in terms of the long term.
You know that facility, there's not much more I can provide there.
Okay appreciate that thank you.
This concludes the question answer session I would like to turn the conference back over to Mr. Colin Jackson for any closing remark.
Thank you sheree.
And thank you all for participating today, we appreciate your interest in Agco, we look forward to speaking with you again soon.
This concludes today's conference call you may disconnect your lines. Thank.
Thank you for participating and have a pleasant day.
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