Q3 2023 ATCO Ltd Earnings Call
Speaker 1: Hey man...
Speaker 1: As a reminder, all participants are in listen only mode and the conference is being recorded.
As a reminder, all participants are in listen only mode and the conference is being recorded.
Speaker 2: After the presentation, there will be an opportunity to ask questions.
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Speaker 2: I would now like to turn the conference over to Mr. Lawrence Granson, Director, Corporate Finance. Please go ahead Mr. Granson.
I would now let's turn conference over it keeps your long grandson director Corporate Finance. Please go ahead Mr. Bramson.
Speaker 3: Thank you and good morning everyone. We're pleased you could join us for ACCO's third quarter 2023 conference call. With me today is Executive Vice President and Chief Financial and Investment Officer, Katie Patron.
Thank you and good morning, everyone. We're pleased you could join US for <unk> third quarter 2023 Conference call with me today is executive Vice President and Chief Financial and investment Officer, It's Patrick.
Speaker 3: Before we move into our formal agenda, I would like to take a moment to acknowledge the numerous traditional territories and homelands on which our global facilities are lo...
Before we move into a formal agenda I would like to take a moment to acknowledge the numerous crystal territories and homeland on which our global facilities are located.
Speaker 3: Today, we're speaking to you from our ACOPARC Head Office in Calgary, which is located in the Treaty Seven Reasons.
Today, We're speaking do Branco Park head office in Calgary, which is located in the Treaty seven region.
Speaker 3: This is the ancestral territory of the Blackfoot Confederacy comprises Sixthika, Kainai, and Picani nations. The Soutina nation and the Stoney Niccoeuton nations that include the Chinniki, Barespa, and Good Stoney First Nations.
This is Yan central territory. The Blackfoot Confederacy comprises six pick a kind of I am forgetting nations they should do.
In a nation and Theyre starting to Coordinations that include the shaky bearish Spa and gets Tony first nations.
Speaker 3: The City of Calgary is also home to the Macy Nation of Alberta, region three.
The city of Calgary is also home to the making nation of Alberta region three.
Speaker 3: We honor and respect the diverse history, languages, ceremonies and culture of the Indigenous peoples who call these areas home.
We honor and respect the diverse history languages ceremonies and culture of the indigenous peoples, who called these areas home.
Speaker 3: Katie will begin today with some opening comments on recent company developments and our financial results. Following these prepared remarks, we will take questions.
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.
Speaker 3: Please note that a replay of the conference call, a short supplementary presentation, and a transcript will be available on our website at atko.com and can be found in the investor section under the heading, events and presentation.
Please note that a replay of the conference call.
Supplementary presentation, 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.
Speaker 3: I'd like to remind you all that our mark today will include forward-looking statements that are subjects to important risks and uncertain.
I'd like to remind you all that our remarks today will include forward looking statements that are subject to important risks and uncertainties.
Speaker 3: For more information on these recent uncertainties, please see the report filed by ATCO with the Canadian Securities Regulators.
For more information on these risks and uncertainties. Please see the reports filed by <unk> with the Canadian Securities regulators.
Speaker 3: And finally, I'd also like to point out that during this presentation, we may refer to certain non-GAP and other financial measures.
And finally I'd also 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.
Speaker 3: such as total of Segu measures, adjusted earnings, adjusted earnings per share and capital investment.
Speaker 3: These measures do not have any standardized meaning under IFRS, and as a result, they may not be comparable to similar measures presented in other entities. And now I'll turn the class.
These measures do not have any standardized meaning under high for us 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.
Okay.
Speaker 4: Thanks, Lawrence, and good morning, everyone. Thank you all very much for joining us today for a third quarter, 2023 call.
Thanks, Lawrence and good morning, everyone.
Thank you all very much for joining us today for our third quarter 2023 conference call.
Speaker 4: Attu achieved suggested earnings of $81 million or 71 cents per share in the third quarter of this year.
And to achieve adjusted earnings of $81 million or 71 cents per share in the third quarter of this year.
Speaker 4: Our non-utility investments delivered exceptional performance, helping offset the earnings pressure associated with the rebasing of our Alberta distribution utilities and the normalizing inflation profile in Australia.
Non utility investments delivered exceptional performance, helping to offset the earnings pressure associated with the re basing of Alberta distribution utilities, and then normalizing inflation profile in Australia.
Speaker 4: Act close structures and logistics delivered adjuster earnings of $28 million. $10 million higher than the same period last.
At first touches on logistics delivered adjusted earnings of $28 million $10 million higher than the same period last year.
Speaker 4: Billy only trained me to speak to you about for a number of quarters now. The key drivers of this earnings growth was the strong performance of our base businesses.
Building on the trend you've been speaking about for a number of quarters now the key drivers of this earnings growth.
Was the strong performance of our base business as well.
Speaker 4: both are space rentals and workforce housing businesses delivered exceptional results in the period.
The base metals and workforce housing businesses delivered exceptional results in the period.
Speaker 4: Compared to the third quarter of 2022, we grew our space rental fleet size by 9%, and our average rent rate by 15%.
Compared to the third quarter of 2022, we grew our space rental fleet size by 9% and our average wage rate by 15%.
Speaker 4: A workforce housing division has been successful in refining our fleet and palering it to the specific needs of our customers.
Our workforce housing division has been successful in finding us lease and tailoring it to the specific needs of our customers allowed.
Speaker 4: Allowing us to grow our average rental rate by 28% compared to the third quarter of 2022.
Allowing us to grow our average rental rate by 28% compared to the third quarter of 2022.
Speaker 4: Supporting the communities in which we operate is core to our values.
Supporting the communities in which we operate is core to our values.
Speaker 4: During the value, during the quarter, we provided support to some of the communities impacted by this summer's well.
During the value during the quarter, we provided support to the communities impacted by this summer as well.
Speaker 4: One of the projects saws remobilize an existing workforce housing camp in VailMont DC to help support evacuees displaced by the fire.
One of the projects South we mobilized an existing workforce housing cap and Delmont D. C to help support the evacuees displaced by this virus.
Speaker 4: As we look ahead to the fourth quarter of this year, we continue to expect our structures business to deliver year-over-year earnings growth, but with a moderation compared to what we have delivered in recent quarters this year.
As we look ahead to the fourth quarter of this year, we continue to expect our structures business.
Liberty year over year earnings growth, but with a moderation compared to what we have delivered in recent quarters. This year.
Speaker 4: This softening is due to the typical seedinality that businesses experiencing Canada in the later months of the year. And the completion of key projects, including the Bechtel Pluto Train 2 Commodations and our Trans Mountain Camp.
This softening is due to the typical seasonality of the business is experienced in Canada and the later months of the year and the completion of key projects, including the best absolute train two combinations and our Trans mountain camps.
Speaker 4: On a full year basis, the strong performance the business has locked in so far this year will allow structures and logistics to deliver significant year-over-year earnings.
On a full year basis.
Strong performance of the business is locked in so far this year when the law structures have logistics to deliver significant year over year earnings growth.
Speaker 4: And now to make ports, the business delivered strong results, including adjusted earnings of $7 million in the quarter. $3 million higher than the same period last year.
And now to make what's the business delivered strong results, including adjusted earnings of $7 million in the quarter.
$3 million higher than the same period last year.
Speaker 4: Favorable foreign exchange, an increased ownership at Porto Angamos and Terminal Granela Stoom Northe, pushed third quarter adjusted earnings higher when compared to 2022.
Favorable foreign exchange and increased ownership of Portland, almost Oh go ahead Alistair market.
Third quarter adjusted earnings higher when compared to 2022.
Speaker 4: Subsequent to court end, our joint venture was not a list referred to as the Vancouver bulk terminal, announced an agreement with Solve.
Subsequent to quarter end, our joint venture with Novelis referred to as the Vancouver bulk terminal announced an agreement with Solvay.
Speaker 4: This opportunity will see us work with Salve, a global leader in the soda ash market, an innu-ly design terminal that will have the capability to annually export more than 2.5 million tons of soda.
There's still opportunity will see us work with Solvay, a global leader in the soda ash market and a newly designed terminal will have the capability to annually export more than two 5 million tons of soda ash.
Speaker 4: Construction list terminals expected began in 2024, with completion in 2026.
Construction of this terminal is expected to begin in 2024 with completion in 2026.
Speaker 4: This is an exciting opportunity and reiterates our focus on growth and the deployment of capital in Nell Tumay.
This is an exciting opportunity and reiterate our focus on growth and the deployment of capital in now to me.
Speaker 4: As expected, our Canadian Utilities Investment suggested earnings decline by approximately $19 million when compared to the third quarter of last year.
As expected.
Megan utilities investment so adjusted earnings declined by approximately $19 million when compared to the third quarter of last year.
Speaker 4: This decline was primarily due to the impact of rebasing at over-the-base distribution utilities as previously mentioned.
This decline was primarily due to the impact of re basing Alberta based distribution utilities as previously mentioned.
Speaker 4: This rebasing pressure was compounded by year over year-end pressure in the Australian Natural Gas Distribution Business as inflation levels have moderated in 2023 compared to the highs experienced in 2022.
This re basing pressure was compounded by year over year earnings pressure in the Australian natural gas distribution business.
The inflation levels have moderated in 2023 compared to the highs experienced in 2022.
Looking ahead to the fourth quarter.
Speaker 4: For our Canadian Utilities Investment, we expect many of the same themes experienced to the first time months of the year to continue.
For our Canadian utilities investment, we expect many of the same themes experience through the first nine months of the year to continue.
Speaker 4: Well, I won't go into too much detail on this point as Brian spoke about it earlier in the CUES call.
Well I won't go into too much detail on this point as Brian spoke about it earlier and to use call.
Speaker 4: October , SAUCU received two key regulatory decisions that helped provide regulatory certainty moving forward.
October saw see you received two key regulatory decisions and help provide regulatory certainty moving forward.
Speaker 4: DAUC's decisions on both the generic cost of capital, GCOC, and the third performance-based regulation, PBR framework.
Do you see his decisions on both the generic cost of capital just Yossi and then third is performance based regulation PBR framework.
Okay.
Speaker 4: Our Canadian utilities investment provides that go a stream of stable and reliable earnings in cash flow. And these announcements reinforce the prospective and constructive nature of the regulatory system in Alberta as they entered 2024.
Our Canadian utilities investment provides <unk> assume a stable and reliable earnings and cash flow and these announcements reinforce perspective and constructive nature of the regulatory system in Alberta as they enter 2024.
Speaker 4: Overall, AAPTO delivered a third quarter that was in line with our expectations and highlighted the strength of our diversified portfolio.
Overall after delivered a third quarter that was in line with our expectations and highlighted the strength of our diversified portfolio.
Speaker 4: are non-CU investments delivered very strong results that help soften the impact of rebasing and downward trending of Australian inflation.
Our non see your investments delivered very strong results that helped soften the impact of Rebating and downward trend against Australian installation.
Speaker 4: With this being a key transition year at our largest investment, see you. We continue to look for opportunities to outperform across our portfolio of investments.
With this being a key transition year at our largest investment seal, we continue to look for opportunities to outperform across our portfolio of investments.
Speaker 4: I look forward to sharing a fully year 2022 performance on our next call in early 20s, 24.
I look forward to sharing our full year 2023 performance on our next call in early 'twenty 'twenty four.
Speaker 4: That concludes my prepared remarks and I will now turn the call back to Lauren.
That concludes my prepared remarks, and I will now turn the call back to Lawrence.
Speaker 3: Thank you, Katie. In instant time, we ask you to let me yourself to two questions. If you have additional questions, you're welcome to rejoin the queue. I will now turn it over to the class.
Thank you Katy in interest of time, we ask you to limit yourself to two questions. If you have additional questions you're welcome to rejoin the queue I will now turn it over to the conference coordinator for questions.
Speaker 2: Thank you. We will now begin the question answer session. To join the question queue, you may press star then one on your telephone keypad. You will hear a tone acknowledging your request.
Thank you and we will now begin the question answer session kitchen weighing the question queue. You May Press Star then one on your telephone keypad.
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Speaker 2: To withdraw from the question queue, please press star, then two. The first question comes from Rob Hope.
She withdraw from the question queue. Please press Star then two.
Our first question comes from Rob Hope with Scotiabank.
Please go ahead.
Speaker 3: Hello everyone. First questions on the structures business. So can you maybe speak a little bit more in depth on kind of what the key factors are that are driving the average rental rate upwards and whether you could see some additional upward pressure there. And then secondly, you know, we have also seen kind of utilization tick down a little bit. So is it a price over volume in that situation?
Hello, everyone.
First question's on the structures business. So can you maybe speak a little bit more in depth on kind of what the key factors are that are driving the average rental rate upwards and whether you could see some additional upward pressure there and then secondly, you know.
We are also seeing kind of utilization ticked down a little bit so lets say a price over volume situation.
Speaker 4: Yeah, thanks Rob. I'll start just first with the pricing. I mean, we are seeing strong demand throughout many of our geographies for our units. So I think that is definitely contributing. Another factor that we're seeing is we have, as you see in the numbers, been increasing our overall fleet size. So we can have a number of new products that we've had.
Yeah. Thanks, Rob.
I'll start first with the pricing I mean, we are seeing strong demand throughout many of our geographies for for all our units. So I think that is definitely contributing and then another factor that we're seeing as we have and as you see in the numbers that increasing our overall fleet size. So we do have a number of new products that we sell.
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Speaker 4: that allows us to basically, you know, escalate some of the overall rent rates that we're seeing. And the benefit of that is that does apply across the sleep. So the average rate would come up. So that is a strong, you know, I think we'll continue to see as we continue to grow that business and provide new products into the market that we'll be able to continue with that. Provided that we do continue to see the strong demand spread by the economic tailwinds that we have.
That allows us to basically escalate some of the the overall.
Rent rates that we're seeing and the benefit of that is that does apply across the fleet. So the average rate would come up so that is a strong and you know I think we'll continue to see as we continue to grow that business and provide new new products into the market that we'll be able to continue with that.
Provided that we do continue to see the strong demand spurred by the economic tailwind that we have.
Speaker 4: on the utilization, you know, the corollary of that build of the fleet is that you do see a bit of a dip.
On the utilization you know the corollary of that build out of the fleet is that you do see a bit of a debt as you're expanding your overall fleet size and utilization is it takes first of all some time to get those units on rent.
Speaker 4: As you're expanding your overall fleet size and utilization as it takes, first of all, some time to get those units on rent. There is transit in there. There's a few things that, but we're really happy with that number that we have for utilization. And we think it allows us to adequately serve all of our customers needs as well by having a little bit of a.
There is transit in there there's a few things that but we're really happy with that number.
That we have for utilization and we think it allows us to adequately serve all of our customers' needs as well by having a little bit of.
Speaker 4: excess capacity in there to provide our customers units when they need them.
Excess capacity in there to to provide our customers a units when they need them.
Speaker 5: I appreciate that. And then secondly, you know, the environment seeing, you know, some infrastructure assets valuations come down and it does seem like there's a number of assets out there for sale. Can you maybe speak, you know, kind of what the appetite is there on the corporate side to, you know, maybe look at M&A and if so, are there any kind of geographies or asset protocols that make, are most attractive to you right now?
Alright, I appreciate that and then secondly.
The environment seeing some infrastructure assets valuations come down and it doesn't seem like there's a number of assets out there for sale.
Can you just maybe speak about kind of what the appetite is there on the corporate side too.
Maybe to look at M&A and if so are there any kind of geographies or asset critical that make Uh huh.
Are most attractive to you right now.
Speaker 4: Yeah, I know, as we talked about on the CECO, we do have a strong balance sheet. And we want to use that opportunistically to advance our growth.
Yeah.
We talked about on this call we do have a strong balance sheet and we even went up.
<unk> used that opportunistically to advance our growth.
Speaker 4: You know, in previous quarters I have said that we hadn't yet seen the private market valuations fall in line with what we're seeing in the public markets, but we are starting to see, as you've mentioned, a bit of a bit of a reversal of that trend, which was expected. So I think we remain open and looking at potential opportunities to acquire some assets.
You know I've been in previous quarters, I have said that we hadn't yet seen the private market valuations.
Fall in line with what we're seeing in the public markets.
But we are starting to see is as you've mentioned a bit of.
A bit of a reversal of that trend, which was expected. So I think we remain open and looking at potential opportunities.
To acquire some assets in.
Speaker 4: I think the biggest areas of our focus across the whole company right now remain our core markets in Australia and Canada, as well as potentially the US in terms of opportunities that may arise there within the infrastructure categories.
I think the biggest areas of our focus.
Across the whole company right now remain our core markets in Australia, and Canada as.
As well as potentially the U S in terms of opportunities that may arise there absent.
And the infrastructure categories.
Thank you.
Speaker 2: The next question comes from Maurice Choi with RBC Capital Markets. Please go ahead.
And the next question comes from Maurice Choy with RBC capital markets.
Please go ahead.
Thank you and good morning.
Speaker 6: Maybe I'll stick with the capital allocation discussion since you mentioned.
Yeah.
Maybe I'll stick with capital.
Capital allocation discussions since you mentioned.
Speaker 6: a few geographies. Now on a CU level, the utility obviously has a massive
A few geographies.
No on a SKU level utility all of us have a matched.
Speaker 6: quite a bit of clean energy opportunities over the last two, three years.
A bit of clean energy opportunities over the last two or three years and even though the direction of travel towards clean energy Hasnt change. It does feel like the pace is being impacted by higher cost of capital and high.
Speaker 6: And even though the direction of travel towards clean energy hasn't changed, it does feel like the pace is being impacted by higher.
Speaker 6: I would cost overall. Any thoughts on that and more broadly, what does that mean for ATCO, a CULK capital?
Hi cost overall.
Thoughts on that and more broadly what does that mean for atco.
Allocate capital across the six essential service categories.
Speaker 4: Yeah, thanks, Bruce. You know, at the CU level, we, you know, we've kind of stated publicly both, you know, for our CU and for AQUA investments.
Yeah. Thanks, Bruce you know what.
C level, we are.
You know, we kind of stated publicly both for our C U N for co investments.
Speaker 4: A percentage of non-regulated assets that is a bit higher than we currently have in our portfolio.
Eight percentage of nonregulated assets that that is a bit higher than we currently have in our portfolio.
Speaker 4: And so for some time we had significant investment in our utilities, which was served us very well. And we played a bit of catch up, particularly with the acquisition of the energy with the renewables portfolio. That said, we still continue to be across our portfolio very focused on investment in utilities, what it makes sense, and growing that what we already have in the energy transition.
And so for some time, we have significant investment in our utilities, which was served us very well and we played.
Played a bit of catch up, particularly with the acquisition of the energy with the renewables portfolio.
That said, we still continue to be.
Across our portfolio very focused on our investment in utilities, when it makes sense and growing that we already have in the energy transition.
Speaker 4: um, portfolio, um, going forward. So, you know, I think particularly this year, when you saw that significant acquisitions, probably a little outsized in terms of the capital allocation towards energy transition activities.
Portfolio going forward so.
I think particularly this year when you saw that significant acquisitions I was a little outsized in terms of the capital allocation towards energy transition activities.
Speaker 4: But you should see that more balance returns between the two as you go forward back to the utility.
But you should see a bit more balanced returns between the two as you go forward after the utilities.
Speaker 4: Overall, I think, you know, we, as I said, we're, with structures doing so well, though, we are starting to see that percentage of earnings contribution from the non-regular side start to inch up, which you can see in the ACTO results is very positive. So we will continue to focus on a balance between that reinvestment into the utilities as well as some of our non-regular.
Overall, I think you know we.
As I said, we're with structure is doing so well, though we are starting to see that percentage of earnings contribution from the nonrecurring side start to inch up.
Which you can see in the auto results as is very positive. So we will continue to focus on.
Our balance between that.
The reinvestments utilities as well as some of our nonregulated assets.
Okay.
Speaker 6: Thanks, and maybe you're finishing off on SNL. And thanks for the color on the rental business earlier. However, I didn't notice any material and new contracts being signed at SNL as part of your announcement today. Can you speak to your pipeline of potential projects, types of customers that are?
Thanks, and maybe just finishing off on SNL and thanks for the color on the rental business earlier, however, I didn't notice any material new contracts being signed.
Part of your announcement today.
Can you speak to your pipeline of potential projects types of customers that are.
Speaker 6: advancing towards signing, and maybe it's more broadly, what tends to be the top reason why some of these counterparties may be holding back.
Advancing towards signing and maybe its more broadly what tends to be the top reason why some of these counterparties screen, maybe holding back.
Yeah sure. Thanks, Brian Great question.
Speaker 4: You know, I'll start just by reiterating, which I mentioned in my opening remarks, but.
Chuck just by reiterating on which I mentioned in my opening remarks, but our focus on really building that base business. So we do have some stability.
Speaker 4: our focus on really building that base business so we do have some stability.
Speaker 4: in our earnings profile, which has advanced a lot. You know, I think a strong proportion of our now ever increasing earnings are coming from that basic business. We're very happy with that. Instead, we of course like the large projects. They provide meaningful earnings up list when we can get them. And the pipeline is very strong. I know that we have not announced.
In our earnings profile, which has advanced a lot you know I think a strong portion of our now ever increasing earnings are coming from that business is we're very happy with that being said we of course like the large projects they provide meaningful earnings uplift when when we can get them.
And the pipeline is very strong.
Notably we have not announced.
Speaker 4: I think the reality is, it's just as the, you know, the.
I think the reality is is just on the you know the.
Speaker 4: Our customers are taking a little longer to make some of these decisions on these large asset bills, and I think that is a function, of course, of the current economic times.
Our customers are taking a little longer to make some of these decisions on these large asset built and I see that as a function of course of the current economic times.
Speaker 4: in terms of the volatility we're seeing in the capital markets and a lot of the other markets in general. But I think the economic support many of these projects moving forward and so we're hopeful that we'll get some of those in the near term here in terms of where they are and who they are. I think it is the geographies that we see the most activity probably are Australia and in the some regions of Latin America that there are.
In terms of the the volatility we're seeing in the capital markets and a lot of the other markets in general.
But I think the economic support many of these projects moving forward and so we're hopeful that we'll get some of those are in the near term here in terms of where they are and who they are you know I think it is the geographies that we see the most activity probably are Australia.
And in.
Some regions of Latin America that there are some.
Speaker 4: expansion of some of the mining projects in particular that I think could see opportunities for some of those larger camps.
The expansion of some of the mining projects in particular.
You could see opportunities for some of those larger.
Camps.
Yeah.
Great. Thank you very much.
Speaker 2: The next question comes from Mark Jarvey, the CIBC Capital Market.
The next question comes from Mark Jarvi CIBC capital markets.
Please go ahead.
Speaker 7: Yeah, good morning. So just coming back to the trends on structures and logistics, top line revenues are down year over year, but margins are very strong. You talked about rental rates being good, customer activity good. So just with revenues being down, is that just, I guess, mix of types of contracts? Is there something that conscious decision on terms of what you're looking for in terms of margins in terms of anything you're bidding on now? Just sort of updated views in terms of how those two dynamics play out in terms of revenue and margins now.
Yeah. Good morning, so just coming back to the trends on structures and logistics.
Top line revenues are down year over year, but margins are very strong and you talked about rental rates being good customer activity. Good so just.
With revenues being down is that just.
I guess mix of types of contracts is there something a conscious decision in terms of what youre looking for in terms of.
Margins are in terms of anything or bidding on now just sort of updated views in terms of how those two dynamics play out in terms of revenue and margins now.
Speaker 4: Yeah, no, I think part of the revenue drop is probably largely can be attributed to the back-to-project, which is obviously an larger project. Overall, I think we are seeing, as you say, a bit of an improvement in our margins, which you can see comes a bit from the average rental rates increasing.
Yeah, No I think you know part I think part of the revenue drop it's probably largely can.
Can be attributed to the Bechtel project, which is in obviously a larger project.
The overall.
We are seeing as you said that an improvement in our margins, which you can see what you can see.
It comes a bit from the average rental rates increasing.
Speaker 4: So I mean, I think the conscious allocation between the businesses towards our base business continues to be the way that we're heading, which should help in the long term, if we're able to maintain the directorates that we're seeing that that margin profile.
So I mean, I think the the conscious allocation between the businesses towards our base business.
You know continues to be the way that we're heading which should help in the long term.
We're able to maintain.
You mentioned rates that we're seeing that that margin profile.
Speaker 7: Okay, and then you updated the normal course issuer bid parameters, but it doesn't seem like you've acted on it. Share price is weaker. Like, what would tip you to kind of be more active on the buyback right now? Is it that you're holding back cash because you're seeing more opportunities around private market new investments? Or just sort of what's sort of informing the decision not to use the NCAB at this time?
Okay, and then you.
Up there the normal course issuer bid parameters, but it doesn't seem like you've acted on it share prices weak or like what would cause you to kind of be more active on the buyback are right. Now is is it that you are holding that cash because you're seeing more opportunities around private market, new investments or just sort of what sort of informing the decision not to use your N J b at this time.
Speaker 4: Yeah, I know we updated we increased, we did use up to our maximum that we had approved. You know, it's a small amount. We're not, we haven't, you know, we're not talking about a massive MCIB program. We increased it to 2%. So I think.
Yeah, No. We updated we increasingly we did use up to a maximum that we had approved.
You know, it's a small amount we're not we haven't you know we're not talking about massive.
N C. B program, we increased it to 2% so I think you know.
Speaker 4: You know, we, as we said in the past, and we continue to, to how we would utilize that is, at times we will see disconnect between what we think is the true value of our assets and the market pricing. And we'll look to opportunistically, buy back shares and those circumstances. So, you know, won't say the specific price to say when that happens or how, but we certainly monitor all the time.
We as we said in the past and we continue to to how we would utilize that is at times, we will see a disconnect between what we think is the true value of our assets in the market pricing and we will look to opportunistically buy back shares and in those circumstances. So.
Hum won't set a specific price to say when that when that happens or how but we certainly monitor all the time.
Okay. Thanks.
Speaker 2: Once again, anyone on the conference call who wishes to ask a question may press star 1 at this time.
Once again anyone on the conference call, who wishes to ask a question press star one at this time.
Speaker 2: The next question comes from Linda Azargayla with TD Security.
The next question comes from Linda Azure Gailey with TD Securities.
Please go ahead.
Speaker 8: Thank you. I'm wondering if you could just give us an update on what discretionary capital is left at the now to me level once you notionally allocate this latest expansion that you recently announced the thank you report.
Thank you I'm wondering if you could just give us an update on what discretionary capital is left at the now to me level. Once you Notionally allocates this latest expansion.
Our recently announced with Vancouver Port.
Speaker 8: and maybe comment on what further investment opportunities you see at Nell Toomey and if and when, into what extent that was warrant kind of a capital call or infusion from Atco.
And maybe a comment on what further investment opportunities you see it now to me and if and when and to what extent that would warrant them kind of a capital call or infusion from Atco.
Speaker 4: Yeah, thanks Linda. We still, as we've mentioned previous quarters, we still continue to have cash on the balance sheet and no too many. I think we can get a follow up on the exact number, but it's been around $100 million US at the moment that we have or a little bit more on the no too many balance sheet. The project in Vancouver.
Yeah. Thanks Linda.
You know, we we still are as we've mentioned in previous quarters. We still continue to have cash on the balance sheet and now to me and I think.
I think we can get a follow up on the exact number but it's been around the $100 million U S. At the moment that we have are a little bit more on the announcing the balance sheet.
The the project in Vancouver.
Speaker 4: You know, there's there's a couple things to note there. We're still working through exactly how we will be financing that but we will be looking for some obviously some debt financing considering we have
There's a couple of things to note there we're still working through exactly how we will be financing that but we will.
Been looking for some obviously some debt financing considering we have.
Speaker 4: off-take on that. And we are also, I might add, you know, 5060 Department with our, with Nautilus in that that venture. So even after the use of the capital there, we will still have a significant, you know, a strong amount of cash on the balance sheet on the F-Nel-Tume to pursue a new project.
Secured off take on that and we are also I might add you know.
50, 50 partner with her with Novelis in that that venture so.
Even after the use of the capital there.
He will still harvesting a strong amount of cash on the balance sheet on the ethanol to me to pursue new projects.
Operator: and a webcast.
Speaker 4: So the theme remains the same in terms of we're looking at the most purpose cargo smaller ports around the world and particularly in the Americas with a focus on the expansion outside of Latin America into the US.
Operator: 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. To join the questions you may press star, then one on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star and zero.
So the theme remains the same in terms of we're looking at you know kind of the the demos purpose cargo.
The smaller ports around the world.
And particularly in the Americas with a focus on an expansion outside of Latin America into the U S.
Speaker 4: So, they have a number of opportunities in that pipeline. In the near term, I would not say that we see a specific need for a capital injection into that business within the next probably 12 to 24 months. But of course, that can always be dependent on a good opportunity at the right moment.
So there are a number of opportunities in our pipeline.
In the near term.
I would not say that we see a specific need for a capital injection into that business in the next probably 12 to 24 months.
But of course that can always be dependent on a good opportunity at the right moment.
Speaker 8: That's helpful context. And maybe just following up on your space rental and work for housing. As you expand kind of into new markets and provide kind of new products.
That's helpful context, and maybe just start following up on your space rental and worked for housing.
Hum.
Well as you expand kind of into new markets and provide them kind of new products, how much would be gaining market share from existing demand versus the market itself growing and I'm kind of what's the runway for a gain.
Speaker 8: How much would be gaining market share from existing demand versus the market itself growing? And kind of what's the runway for continuing to gain market share versus when you start bumping into a competitive response from other incumbents or interns?
Continuing to gain market share versus when you start bumping into a competitive response from her mother incumbents or insurance.
Yeah. Thanks Linda.
Speaker 4: You know, no big surprise in Canada and Australia, in particular, that we have a very strong market share position. And, you know, we have seen both of those markets grow to an extent. So I think...
No big surprises in Canada, and Australia, and particularly we have a very strong.
Market share position.
And you know we have seen both of those markets grow to an extent so I think.
Speaker 4: There's a bit of a balance between a small incremental market share game and overall growth of those two markets in particular.
There's a bit of a balance between a small incremental market share gain.
And overall growth of those two markets in particular.
Speaker 4: And the other markets that we operate, I would say that, you know, the significant room for us to gain market share in particular, you know, we have seen.
And the other markets that we operate.
I would say that there's significant room for us to gain market share in particular, we have seen a good amount.
Speaker 4: A good amount of expansion in the US, where our market share is very small, and we do have the ability to make headways in that end, and plus you have the profile.
Lawrence Gramson: I would now like to turn the conference over to Mr. Lawrence Gramson, Director, Corporate Finance. Please go ahead, Mr. Gramson. Thank you and good morning, everyone. We're pleased you could join us for ATCO's third quarter 2023 conference call.
The expansion in the U S, where our market share is very small and we do have the ability to to make head winds in that and plus you have the growth obviously overall in the U S market.
Katie Patrick: With me today is Executive Vice President and Chief Financial and Investment Officer, Katie Patrick.
Speaker 9: overall in the US market. Similar situation in some of the other markets we operate in Mexico and in Chile, there is this plenty of room for us to gain share of our competitors without necessarily impacting too much a market response.
Similar situation in in some of the other markets, we operate in Mexico and Chile.
There is there's plenty of room for us to gain share versus our competitors without necessarily impacting too much a market response.
Speaker 9: So I think that the dynamics are different by geography, but as I mentioned, particularly in Canada and Australia, you know, we are reaching sort of the top end of what we think is
So I think that the dynamics are different by geography.
But as I mentioned, particularly in Canada, Australia, you know we.
We are reaching sort of that.
The top end of what we think is a good market share for those countries.
Alright, thank you for that context.
Speaker 2: This concludes the question and their session. I would like to turn the conference back over to Mr. Reborn, Grampson, for any clothing remarks.
Okay clear.
A question answer session I would like to turn the conference back over to Mr. Blaine grants them for any closing remarks.
Speaker 3: Thank you, operator, and thank you all for participating today. We appreciate your interest in Atco, and we look forward to speaking with you again.
Thank you operator, and thank you all for participating today. We appreciate your interest in Agco and we look forward to speaking with you again soon.
Speaker 2: This concludes today's conference call. You may disconnect your lines. Thank you for participating in how.
This concludes today's conference call you may disconnect your lines.
Thank you for participating and have a pleasant day.
Speaker 10: The.
Lawrence Gramson: Before we move into our formal agenda, I would like to take a moment to acknowledge the numerous traditional territories and homelands on which our global facilities are located. Today, we're speaking to you from our ACOPARC head office in Calgary, which is located in the Treaty 7 region. This is the ancestral territory of the Blackfoot Confederacy comprises Sixthika, Kainai, and Picani nations. The Soutina nation and the Stony Dakota nations that include the Chineke, Bearspa, and Good Stony First Nations. The city of Calgary is also home to the Meiki Nation of Alberta, Region 3. We honor and respect the diverse history, languages, ceremonies, and culture of the Indigenous peoples who call these areas home.
Okay.
Yeah.
Lawrence Gramson: Katie 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, a short supplementary presentation, and a transcript will be available on our website at ATCO.com and can be found in the Investors section under the heading, events, and presentations.
Uh huh.
[music].
Lawrence Gramson: I'd like to remind you all that our remarks today will include forward-looking statements that are subjects to important risks and uncertainties. For more information on these risks and uncertainties, please see the report filed by ATCO with the Canadian Securities Regulators.
Lawrence Gramson: And finally, I'd also like to point out that during this presentation, we may refer to certain non-GAP and other financial measures, such as total of segment measures, adjusted earnings, adjusted earnings per share, and capital investment. These measures do not have any standardized meaning under IFRS, and as a result, they may not be comparable to similar measures presented in other entities.
Yeah.
Oh.
[music].
Katie Patrick: And now I'll turn the call over to Katie for her opening remarks. Thanks, Lawrence, and good morning, everyone. Thank you all very much for joining us today for our third quarter 2023 conference call. ATCO achieved adjusted earnings of $81 million for 71 cents per share in the third quarter of this year. Our non-utility investments delivered exceptional performance, helping offset the earnings pressure associated with the rebasing of our Alberta distribution utilities, and the normalizing inflation profile in Australia.
Katie Patrick: ATCO structures and logistics delivered adjusted earnings of $28 million, $10 million higher than the same period last year. The only trend we've been speaking about for a number of quarters now. The key drivers of this earnings growth was the strong performance of our base businesses, both our space rentals and workforce housing businesses delivered exceptional results in the period. Compared to the third quarter of 2022, we grew our space rentals fleet size by 9% and our average rent rate by 15%.
Katie Patrick: Our workforce housing division has been successful in refining our fleet and palering it to the specific needs of our customers, allowing us to grow our average rent rate by 28% compared to the third quarter of 2022.
Katie Patrick: Supporting the communities in which we operate is core to our values. During the quarter, we provided support to some of the communities impacted by this summer's wildfires. One of the projects saws remobilize an existing workforce housing camp in Valmont, D.C., to help support evacuees displaced by the fires. As we look ahead to the fourth quarter of this year, we continue to expect our structures business to deliver year-over-year earnings growth, but with a moderation compared to what we have delivered in recent quarters this year.
Katie Patrick: This softening is due to the typical seedinality that businesses experience in Canada in the later months of the year, and the completion of key projects, including the Bectel Pluto Train 2 Commodations and our Trans Mountain camps. On a full year basis, the strong performance the business has locked in so far this year will allow structures of logistics to deliver significant year-over-year earnings growth.
Katie Patrick: And now to make ports, the business delivered strong results, including adjusted earnings of $7 million in the quarter, $3 million higher than the same period last year. Favorable foreign exchange, an increased ownership at Porto Angamos and Terminal Granadas from North-Eight, pushed third quarter adjusted earnings higher when compared to 2022.
Katie Patrick: Subsequent to quarter-end, our joint venture with Nautilus, referred to as the Vancouver bulk terminal, announced an agreement with Salve. This help opportunity will see us work with Salve, a global leader in the soda ash market, an in newly designed terminal that will have the capability to annually export more than 2.5 million tons of soda ash. Construction of this terminal is expected to begin in 2024, with completion in 2026. This is an exciting opportunity and reiterates our focus on growth and the deployment of capital in Nautilus.
Katie Patrick: As expected, our Canadian utilities investment saw adjusted earnings decline by approximately $19 million when compared to the third quarter of last year. This decline was primarily due to the impact of rebasing at over-the-base distribution utilities as previously mentioned. This rebasing pressure was compounded by year-over-year earnings pressure in the Australian Natural Gas Distribution Business, as inflation levels have moderated in 2023 compared to the highs experienced in 2022. Looking ahead to the fourth quarter, for our Canadian utilities investment, we expect many of the same themes experienced through the first and last of the year to continue.
Katie Patrick: While I won't go into too much detail on this point as Brian spoke about it earlier in CU's call. October saw CU receive two key regulatory decisions that help provide regulatory certainty moving forward. They use these decisions on both the generic cost of capital, GCOC, and the third performance-based regulation, PBR Framework. Our Canadian Utilities Investment provides that to a stream of stable and reliable earnings and cash flow, and these announcements reinforce the perfective and constructive nature of the regulatory system in Alberta as they entered 2024.
Katie Patrick: Overall, ATCO delivered a third quarter that was in line with our expectations and highlighted the strength of our diversified portfolio. Our non-CEU investments delivered very strong results that helped soften the impact of rebasing and downward trending of Australian inflation. With this being a key transition year at our largest investment, CU, we continue to look for opportunities to outperform across our portfolio of investments.
Katie Patrick: I look forward to sharing our fully year 2022 performance on our next call in early 2024.
Lawrence Gramson: That concludes my prepared remarks, and I will now turn the call back to Lawrence. Thank you, Gidey. Next up time, we ask you to limit yourself to two questions. If you have additional questions, you are welcome to rejoin the CU.
Operator: I will now turn it over to the conference coordinator for questions. Thank you. And we will now begin the question and answer session to join the question CU. You may press star, then one, on your telephone keypad. You will hear a tone acknowledging your request. If you are using a speaker phone, please pick up your handset before pressing any keys. If you withdraw from the question to you, please press star, then two.
Rob Hope: The first question comes from Rob Hope with Scotia Bank. Please go ahead.
Rob Hope: Hello, everyone. First questions on the structures business. Can you maybe speak a little bit more in depth on what the key factors are that are driving the average rental rate upwards, and whether you could see some additional upward pressure there. And then secondly, you know, we have also seen kind of utilization tick down a little bit. So is it a price over volume situation?
Katie Patrick: Yeah, thanks Rob. I'll start this first with the pricing. I mean, we are seeing strong demand throughout many of our geographies for our units. So I think that is definitely contributing. And another factor that we're seeing is we have, as you see in the numbers, been increasing our overall fleet size. So we can have a number of new products that we've had that allows us to basically, you know, escalate some of the overall rent rates that we're seeing.
Katie Patrick: And the benefit of that is that does apply across the fleet. So the average rate would come up. So that is a strong, you know, I think we'll continue to see as we continue to grow that business and provide new new products into the market that we'll be able to continue with that. Provided that we do continue to see the strong demand spread by the economic tailwinds that we have.
Katie Patrick: On the utilization, you know, the corollary of that building of the fleet is that you do see a bit of a dip. As you're expanding your overall fleet size in the utilization as it takes, first of all, some time to get those units on rent. There is transit in there. There's a few things that, but we're really happy with that number that we have for utilization and we think it allows us to adequately serve all of our customers needs as well by having a little bit of a excess capacity in there to provide our customers units when they need. I appreciate that.
Rob Hope: And then secondly, you know, the environment seeing, you know, some infrastructure assets, valuations come down, and it does seem like there's a number of assets out there for sale. Can you maybe speak, you know, kind of what the appetite is?
Katie Patrick: They're on the corporate side to, you know, maybe look at M&A, and if so, are there any kind of geographies or assets, the critical that make our most attractive to you again? Yeah, I know, as we talked about on the CECOL, we do have a strong balance sheet and we want to use that opportunistically to advance our growth. You know, in previous quarters, I have said that we hadn't yet seen the private market valuations fall in line with what we're seeing in the public markets, but we are starting to see, as you mentioned, a bit of a reversal of that trend, which was expected.
Katie Patrick: So I think we remain open and looking at potential opportunities to acquire some assets. And, you know, I think the biggest areas of our focus, you know, across the whole company right now remain our core markets in Australia and Canada, as well as potentially the U.S, in terms of opportunities that may arise there within the infrastructure categories.
Rob Hope: Thank you.
Maurice Choy: The next question comes from Maurice Choi with RBC Capital Markets. Thank you, and good morning. Maybe I'll stick with a capital allocation discussion, since you mentioned a few geographies.
Maurice Choy: Now, on a CU level, the TILTR is ever masked. Quite a bit of clean energy opportunities over the last two or three years. And you even know the direction and travel towards clean energy hasn't changed. It does feel like the pace is being impacted by a higher cost of capital and higher cost overall. Any thoughts on that and more broadly, you know, what does that mean for ATCO as you allocate capital across the six essential service categories?
Katie Patrick: Yeah, thanks, Maurice. You know, at the CU level, we kind of stated publicly both, you know, for our CU and for ATCO investments, a percentage of non-regulated assets that is a bit higher than we currently have in our portfolio. And so for some time, we had significant investment in our utilities, which was served us very well.
Katie Patrick: And we played a bit of ketchup, particularly with the acquisition of the energy with the renewables portfolio. That said, we still continue to be across our portfolio, very focused on investment in utilities, what it makes sense, and growing that what we already have in the energy transition portfolio going forward. So, you know, I think particularly this year, we didn't see how that significant acquisition was probably a little outsized in terms of the capital allocation to more energy transition activities.
Katie Patrick: But you should see a bit more balanced returns between the two as you go forward back to the utilities. Overall, I think, you know, we, as I said, we're with structures doing so well though, we are starting to see that percentage of earnings contribution from the non-regulated sides start to inch up, which you can see in the ATCO results is very positive. So, we will continue to focus on a balance between that, the reinvestments and the utilities as well as some of our non-regulations.
Maurice Choy: Thanks, and maybe you're finishing off on SNL. And thanks for the color on the rental business earlier.
Maurice Choy: However, I didn't notice any material in new contracts being signed at SNL as part of your announcement today. Can you speak to your pipeline of potential projects, types of customers that are advancing towards signing? And maybe it's more broadly, what tends to be the top reason why some of these counterparty screen may be holding back?
Katie Patrick: Yeah, sure. Thanks, Mary.
Katie Patrick: It's a great question. I'll start by reiterating, which I mentioned in my opening remarks, but our focus on really building that base business, so we do have some stability in our earnings profile, which has advanced a lot. I think a strong proportion of our now ever-increasing earnings are coming from that base business. We're very happy with that being said, we of course like the large projects. They provide meaningful earnings uplift when we can get them.
Katie Patrick: And the pipeline is very strong. I know that we have not announced. I think the reality is, it's just as the, you know, our customers are getting a little longer to make some of these decisions on these large asset builds. And I think that is a function, of course, of the current economic times in terms of the volatility we're seeing in the capital markets and a lot of the other markets in general.
Katie Patrick: But I think, you know, the economic support, maybe, of these projects moving forward. And so we're hopeful that we'll get some of those in the near term here in terms of where they are and who they are. You know, I think it is, you know, the geographies that we see the most activity probably are Australia. And in the some regions of Latin America that there are some, you know, the expansion of some of the mining projects in particular that I think could see opportunities for some of those larger camps.
Maurice Choy: Great.
Operator: Thank you very much.
Mark Jarvi: The next question comes from Mark Jarby, the CIBC capital market. Please go ahead. Yeah, good morning. So just coming back to the trends on structures and logistics, top one, you know, revenues are, you know, down year over year, but margins are very strong. You talked about rental rates being good, customer activity rates. So just with revenues being down, is that just, I guess, a mix of types of contracts? Is there something that conscious decision on terms of what you're looking for in terms of margins in terms of anything you're bidding on now?
Mark Jarvi: Just sort of updated views in terms of how those two dynamics play out in terms of revenue and margins now? Yeah, no, I think, you know, part, I think part of the revenue drop is probably largely can be attributed to the Vectile project, which is, you know, obviously, larger project. Overall, you know, I think we are seeing, as you say, an improvement in our margins, which you can see comes a bit from the average rental rates increasing.
Mark Jarvi: So, I mean, I think the conscious allocation between the businesses towards our base business, you know, continues to be the way that we're heading, which should help in the long-term, if we're able to maintain, you know, the, you know, the rental rates that we're seeing that margin profile.
Katie Patrick: Okay, and then you updated the normal course issue or bid parameters, be done something like you've acted on it, share prices, we hear like what would tip you to kind of be more active on the buyback right now. Is it you're holding back cash because you're seeing more opportunities around private market and new investments or just sort of what sort of informing the decision not to use the NSA be at this time.
Katie Patrick: Yeah, I know we updated we increase and we did use up to our maximum that we had approved. You know, it's a small amount we're not we haven't you know, we're not talking about a massive NCIB program we increased it to 2%. So I think, you know, we as we said in the past and we continue to to how we would utilize that is at times we will see disconnect between what we think is the true value of our assets and the market pricing. And we'll look to opportunistically buy back shares in those circumstances. So won't say the specific price to say when that when that happens or how, but we certainly want to draw the time.
Operator: Okay, thanks. Once again, anyone on the conference call who wishes to ask a question may press star one at this time.
Linda Ezergailis: The next question comes from Linda as regales with TD security. You go ahead. Thank you. I'm wondering if you could just give us an update on what discretionary capital is left at the now to me level once you notionally allocate this latest expansion that you recently announced. The thing could report and maybe comment on what further investment opportunities you see at now to me. And if and when and to what extent that was warrant kind of a capital call or infusion from at co. Yeah, thanks Linda.
Linda Ezergailis: You know, we still, as we mentioned previous quarters, we still continue to have cash on the balance sheet and no too many. I think we can get a follow up on the exact number, but it's been around that $100 million US at the moment that we have are a little bit more on the no too many balance sheet. The project in Vancouver. You know, there's there's a couple things to know that we're still working through exactly how we will be financing that, but we will be looking for some obviously some debt financing considering we have secured off take on that.
Linda Ezergailis: And we are also I might add, you know, 50 60 partner with our with novelist in that that venture. So even after the use of the capital there, we will still have a strong amount of cash on the balance sheet on that now to me to pursue new projects. So the theme remains the same in terms of we're looking at, you know, kind of the the most purpose cargo smaller ports around the world.
Linda Ezergailis: And particularly in the Americas with a focus on on expansion outside of Latin America into the US. So you have a they have a number of opportunities in that pipeline in the near term. I would not say that we see a specific need for a capital injection into that business in the next probably 12 to 24 months. But of course, I can always be dependent on a good opportunity at the reg moment. That's helpful context.
Linda Ezergailis: And maybe just start following up on your space rental and work for housing. As you expand kind of into new markets and provide kind of new products, how much would be gaining market share from existing demand versus the market itself growing? And kind of what's the runway for continuing to gain market share versus when you start bumping into a competitive response from other incumbents or interns?
Katie Patrick: Yeah, thanks Linda. You know, no big surprise in Canada and Australia in particular that we have a very strong market share position. And you know, we have seen both of those markets grow to an extent. So I think, you know, there's a bit of a balance between a small incremental market share game and overall growth of those two markets in particular. And the other markets that we operate, I would say that, you know, the significant room for us to gain market share in particular, you know, you have seen a good amount of expansion in the US where our market share is very small.
Katie Patrick: And we do have the ability to make headways in that and plus you have the growth, obviously, overall in the US market, similar situation and some of the other markets we operate in Mexico and in Chile. There is plenty of room for us to gain share versus competitors without necessarily impacting too much market response. So I think that the dynamics are different by geography. But as I mentioned, particularly in Canada, Australia, you know, we are reaching sort of the top end of what we think is a good market share for those countries.
Linda Ezergailis: Thank you for that context.
Operator: This concludes the question and their session.
Lawrence Gramson: I would like to turn the conference back over to Mr. Lawrence-Gramson for any closing remarks. Thank you, operator. And thank you all for participating today. We appreciate your interest in that code and we look forward to speaking with you again soon.
Operator: This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day. Thank you.