Q2 2024 Aecon Group Inc Earnings Call
Well at this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question during the session really depressed star one on your telephone you will then hear an automated message advising your hand is raised to withdraw your question. Please press star. One again. Please be advised today's conference is being recorded I would now like to hand, the conference over to your speaker today, Adam Borgata. He please go ahead.
Yeah.
Adam Borgatti: Thank you Kevin Good morning, everyone and thanks for participating in our second quarter results Conference call.
Adam Borgatti: That I'm forgetting speaking senior Vice President of corporate development and Investor Relations. Joining me are as you all know we serve wrongs.
Jerome Julier: CEO Jerome Julien.
Speaker Change: And CFO and Alistair Mccallum senior Vice President Finance.
Speaker Change: 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 <unk> believes the expectations reflected in these statements are reasonable we can give no assurance that these expectations will prove to be correct and with that I'll hand, the call over to Jerome.
Jerome Julier: Thanks, Adam and good morning, everyone.
Briefly on <unk>.
Speaker Change: Results reviewing segment addressed Acorn financial position and then discuss our legacy projects before turning the call over to John of the week.
Speaker Change: Youll see that Theres been quite a few developments. So we've added additional information to help clarify the underlying results detailed.
Speaker Change: These tables are available on slide 16 and 17.
Speaker Change: Turning to slide three on.
John: On a reported basis revenue for the three months ended June 2024 of $854 million with $313 million or 27% lower compared to the same period in 2023 <unk>.
John: Adjusted EBITDA of negative $153 million compared to $17 million last year and operating loss of $166 million in the quarter compared to an operating profit of $56 million last year.
Speaker Change: Adjusted EBITDA and operating profit in the second quarter were negatively impacted by the previously disclosed 127 million nonrecurring charge related to the achievement of a global settlement for the coastal gasoline pipeline project and the additional aggregate charge of $110 million related to the three remaining legacy projects.
Speaker Change: Excluding the impacts from the legacy projects and the divestitures, which we will describe us as adjusted revenue.
Speaker Change: Diluted loss per share in the quarter of $1 99, compared to diluted earnings per share of <unk> 38 cents in the same period last year.
Speaker Change: Our reported backlog of $6 2 billion at the end of the quarter compared to backlog of $6 2 billion at the end of December 31, 2023, and $6 9 billion at the end of the second quarter of 2023.
Speaker Change: New contract awards of $766 million were booked in the quarter compared to $2 billion in the prior period.
Speaker Change: Now looking at results by segment turning to slide four.
Speaker Change: Yes.
Speaker Change: Construction revenue of $851 million in the second quarter was $288 million or 25% lower than the same period last year revenue was lower in industrial operations, primarily due to decreased activity on mainline pipeline work. Following the achievement of substantial completion on the coastal gasoline pipeline project in the third quarter 2023.
Speaker Change: <unk> also had a higher volume of wastewater treatment facilities work.
Speaker Change: Revenue was lower in the urban transportation solutions from a lower volume of LRT work in Ontario.
Speaker Change: And as a result of the sale of a contract expiration east in the second quarter of 2023 and from a lower volume of major project work following completion of a large hydroelectric project in 2023.
Speaker Change: Partially offsetting these decreases was higher revenue and nuclear operations driven by an increased volume of refurbishment work and utility operations from a higher volume of electrical transmission and battery energy storage system work, partially offset by lower volumes in telecommunications and gas distribution.
Speaker Change: On an as adjusted basis construction revenue was $973 million flat to last year.
Speaker Change: New contract awards of 600 or $763 million in the second quarter of 'twenty 'twenty four compared to 2 billion in the same period last year.
Speaker Change: New awards in the second quarter of 2023 were bolstered by significantly just in the nuclear operations.
Speaker Change: Backlog at the end of the second quarter of <unk>.
Speaker Change: $6 1 billion compared to $6 8 billion at the end of the second quarter of 2023.
Speaker Change: Which included roughly 200 million of pipeline related backlog at the time.
Speaker Change: Turning now to slide five.
Speaker Change: Adjusted EBITDA of negative $173 million compared to negative $4 million last year. As previously noted the decrease was largely driven by negative gross profit in the four legacy projects of $237 million in the second quarter of 2024 compared to negative gross profit of 81 million on these projects in the same period last year adjusted.
Speaker Change: Adjusted EBITDA in the second quarter on an as adjusted basis was $64 million compared to $78 million last year with the variance being driven by lower gross profit in urban transportation solutions from rail electrification work increases in corporate costs, partially offset by improved performance in our nuclear operations.
Speaker Change: Turning now to slide six.
Speaker Change: Revenue for the second quarter was $2 million compared to 27 million in the same period last year.
Speaker Change: The decrease in revenue was largely driven by the sale of a 49, 9% interest in Skype for the Bermuda Airport concessionaire and commencement of the equity method of accounting for <unk>, 51% interest in Sky Park.
Speaker Change: Adjusted EBITDA in the concession segment of $30 million compared to 20 million last year operating profit related to the Skype for.
Speaker Change: Asset was higher in the second quarter, driven by one time recoveries of $5 9 million in 2024 or an incremental gain on sale of $5 9 million reported in 'twenty 'twenty four related to additional proceeds earned in the 2023 partial sale skyboard.
Speaker Change: On an as adjusted basis operating profit in the concessions segment in the second quarter was $5 million compared to 9 million last year, reflecting lower development fees and higher costs associated with pursuits on LNG transition devers.
Speaker Change: On slide seven we brought together the information to exclude the impact of the legacy projects and divestitures to provide insight into the underlying performance of the business.
Speaker Change: Adjusted revenue for the trailing 12 months period.
Speaker Change: Ended June 32024 was $3 8 billion.
Speaker Change: Baird to $3 7 billion for the same period last year.
Speaker Change: Adjusted EBITDA, including the previously noted adjustments.
Speaker Change: $344 million on a trailing 12 month period compared to $343 million in the same period last year.
Speaker Change: Instruction segment on that adjusted basis, EBITDA was $305 million for the trailing 12 month period, representing an 8% margin.
Speaker Change: Turning to slide eight.
Speaker Change: At the end of the second quarter, Aegon held cash and cash equivalents of $131 million.
Speaker Change: Excluding cash in joint operations. In addition at June 32020 for Acorn had committed revolving credit facilities of $850 million of which $98 million was drawn and 4 million was utilized for letters of credit netting.
Speaker Change: <unk> cash position against our drawn revolver results in a net cash position of 33 million at the end of the quarter prior to the inclusion of other debt items noted below.
Speaker Change: <unk> has no debt our working capital credits maturities.
Speaker Change: Until 2037, except equipment loans and leases in the normal course.
Speaker Change: In addition, <unk> board of directors had authorized a normal course issuer bid or NCI to purchase for cancellation up to 5% of the issued and outstanding common shares or approximately $3 1 million common shares of <unk> subject to the approval of the TSS.
Speaker Change: <unk> intends to file a notice of intention of the TSS in this regard and if accepted.
Speaker Change: In CIB shortly thereafter.
Speaker Change: Turning to slide nine.
Speaker Change: I will now provide an update on our legacy projects.
Speaker Change: On June 28, SA energy group in which <unk> is a 50% general partner and coastal gasoline pipeline LP reached an amicable and mutually agreeable global settlement to resolve their dispute fully and finally over the construction of section three and four of the coastal gas pipeline project in BC.
Speaker Change: The settlement agreement is not an admission of liability by either party and the parties have mutually leased their respective claims in the arbitration, thereby avoiding the expense burden and unnecessary uncertainty associated with the arbitration. The terms of the settlement agreement are expected to result in no cash impacts to Aegon.
Speaker Change: As noted previously from an accounting perspective, the econ recognized a nonrecurring charge of $127 million in the second quarter of 2024 related to the settlement.
Speaker Change: Coastal gasoline settlement allows a con to close the chapter one of the most technically and financially challenging projects in its history.
Speaker Change: And we want to thank our team for delivering the project safely and with incredible resiliency through to completion.
Speaker Change: Progress continues on the two <unk> projects in Ontario, including signaling and train control systems testing and advances in driver training for the operator.
Speaker Change: Physical work is nearly complete with most station and structured occupancy permits received full vehicle testing is also ongoing across the projects.
Speaker Change: However, forecasted substantial completion dates have been delayed due to setbacks in the necessary testing commissioning and additional training and coordination requirements with the operator.
Speaker Change: As you know on the cover of the presentation deck on the Gordie Howe International Bridge between Windsor in Detroit is now connected this is a significant accomplishment, creating the longest cable stayed bridge span in North America workers.
Speaker Change: Work is progressing on the main bridge and on the Michigan interchange as well as on the two international Port of entry facilities and their core systems. However.
Speaker Change: However, additional costs have been incurred related to the bridge in Michigan interchange structures and finishes as well as other areas such as the finishes in the mechanical and electrical systems at the port of entry facilities.
Speaker Change: As a result of these impacts econ recognized an aggregate charge of $110 million in the quarter for the remaining three legacy projects, reflecting our current estimates on the cost of completion for these remaining projects.
Speaker Change: <unk> believes our estimates to be accurate as of today and the majority of the risks for the remaining three legacy projects are largely behind US. However, additional risks exists if assumptions estimates and circumstances change until the projects are substantially complete.
Speaker Change: To that end, we are providing a risk analysis that reflects negative changes to our assumptions, which could potentially impact our cost to complete on these projects.
Aegon: Based on the information currently available Aegon believes the potential for future additional financial risks to Aegon, if any through to completion of the remaining three legacy projects should not exceed $125 million through the end of 2025.
Aegon: We remain focused on driving the remaining legacy projects to completion, while pursuing a fair and reasonable settlement agreements with their respective clients in each case.
Aegon: The remaining three projects. One is currently expected to be substantially complete by the end of 'twenty 'twenty four another in early 2025 and the final project by the end of the third quarter of 2025.
Speaker Change: At June 30, 'twenty 'twenty four the remaining backlog to be worked off in the legacy projects was $269 million compared to backlog of $420 million at December 31, 23, and 699 million at June 32023.
Speaker Change: At this point I'll turn the call over to John the way to adjust our business performance and outlook.
John: Thank you Joe.
John: Turning to slide 10.
John: <unk> goal is to build a resilient company through a balanced and diversified portfolio.
John: And answering critical execution capabilities.
John: Project selection to play to our strengths.
John: We continue to leverage our self perform capabilities in one <unk> approach to maximize value for clients through improved cost certainty as scheduled.
John: While offering a broad range of services from development.
John: Engineering is.
John: Investment and construction to longer term operations and maintenance to cover the full infrastructure value chain.
John: While we pursue and delivers a majority of our work in established markets. We are embracing new opportunities to grow in areas linked to decarbonization and the energy transition.
John: And in the U S and international markets.
John: Our acquisition of extreme power line, which we will discuss further aligns with this approach.
John: These opportunities are intended over the long term to diversify acons geographic presence.
John: Provide further growth opportunities and deliver more consistent earnings through economic cycles.
John: Turning to slide 11 demand for <unk> services across Canada continues to be strong.
John: With backlog of $6 2 billion.
John: At June 32024.
John: Recurring revenue programs continuing to see robust demand.
John: And a strong bid pipeline.
John: <unk> believes it is positioned to achieve further revenue growth over the next few years.
Speaker Change: And he's focused on achieving improved profitability and margin predictability.
Speaker Change: We are pursuing a balanced portfolio of work delivered through both fixed and non fixed price contracting models.
John: With the goal of reducing fixed price work to balance risk with acceptable returns.
John: Trailing 12 months' recurring revenue of $1 1 billion was comparable to the prior period and up 38%.
John: Versus two years ago.
John: Contribution from the <unk> expansion on corridor works and Scarborough subway extension projects during the respective development phases increased in the quarter, which offset the lower volume of gas distribution and telecommunications works in utilities operations and impacts from the sale of.
John: 80 last year.
John: Adjusting for the impacts of the sale of Atms, a 49, 9% interest in Sky Board, our recurring revenue increased 9% on a like for like basis over the trailing period last year.
John: Turning now to slide 12 development phase work is underway site consortiums.
Speaker Change: <unk> economy is a participant.
John: To deliver the GOR expansion on corridor works project.
John: The Scarborough subway extension project.
John: Darlington nuclear project.
John: <unk> terminal expansion project.
John: And the U S Virgin Islands Airport redevelopment project.
John: These projects are being delivered using collaborative progressive design build models.
John: Each project is expected to move into the construction phase in 2025.
John: We go expansion project also includes an operations and maintenance component over a 23 year term.
John: Commencing January one 2025.
John: Okay.
John: As a reminder, none of the anticipated work from these five progressive design build projects is yet reflected in backlog, but could in aggregate increased our backlog in 2025 to approximately double the.
John: The level of our current backlog.
John: Turning to slide 13.
John: With strong demand growing recurring revenue programs and diverse backlog in hand.
John: <unk> is focused on achieving solid execution on these projects and selectively adding to backlog through a disciplined bidding approach that supports long term margin improvement in the construction segment.
John: In the concession segment, there are number of opportunities to add to the existing portfolio of Canadian and international concessions.
John: The next 12 to 24 months season.
John: Including projects with private sector clients that support our collective focus on sustainability and the transition to a net zero economy as well as private sector development expertise and investment to support the aging infrastructure mobility connectivity.
John: And population growth.
John: Revenue in 2024 will be impacted by the three strategy transactions completed in 2023.
John: Substantial completion of several large projects in 2023.
John: For legacy projects and the five major projects currently in the development phase by Consortiums in which Aegon is a participant being delivered using is a progressive design build or alliance models.
John: Which are expected to move into the construction phase in 2025.
John: The completion.
John: Satisfactory resolution of claims on the remaining three legacy projects remains a critical focus.
John: While the remainder of the business continues to perform as expected.
Speaker Change: <unk> advisor, a strong level of backlog and a strong demand environment for <unk> services.
John: Including recurring revenue programs.
John: Finally.
John: Turning to slide whole team there.
John: On July <unk> Econ utilities group acquired a majority interest in extreme power line construction.
John: And electrical distribution utility contractor.
John: Headquartered in Michigan.
John: For a base purchase price of approximately 73 million U S dollar.
John: With the potential for additional contingent proceeds.
John: Extreme ease of foodservice powerline constructor with approximately 300 employees.
John: Specializing in overhead distribution line repair maintenance expansion.
John: Emergency restoration services.
John: Throughout the eastern United States for over 20 utility clients.
Speaker Change: The acquisition of extreme creates opportunities to harness our collective utility infrastructure expertise.
Speaker Change: And drive continued growth in priority markets.
Speaker Change: Extremely experienced team and strong client relationships.
John: Aligned with our business.
John: And we along with our strategic partner Oaktree.
Speaker Change: Pleased to welcome the extreme team to help advance our continued growth.
Speaker Change: Ross North America.
Speaker Change: With a focus on the energy transition.
Speaker Change: As a final comment I would like to thank our team members for their enduring efforts.
Speaker Change: And ongoing focus on safety and consistent execution.
Speaker Change: I would like to call specific attention to our Kingstown Pall team in St Vincent and.
John: And the Grenadines, while leading a fundraising effort to support the recovery from Hurricane Barry.
John: Thank you.
Speaker Change: We will now I will turn the call over to analysts.
John: Questions.
Speaker Change: Thank you ladies and gentlemen, if you have a question or a comment at this time. Please press star one on your telephone. If your question has been answered and we're sticking with yourself from the queue. Please press star one again, we will pause for a moment, while we compile our Q&A roster.
John: Yeah.
Speaker Change: Our first question comes from Jacob bout with CIBC. Your line is open.
Jacob Jonathan Bout: Good morning.
Jacob Jonathan Bout: Our first question is on.
John: Is on margins.
Speaker Change: It seemed a bit soft in the core construction group.
Speaker Change: Maybe just talk through what happened in the quarter and I know.
Speaker Change: I know last quarter.
Speaker Change: I think on a TTM basis, they were around nine 5%.
Speaker Change: Is that what you would consider normal course on an annualized basis.
Drum: Hey, Jacob its drum here.
Speaker Change: Good good question, so from a margin perspective.
Jacob Jonathan Bout: The quarter on the on the construction side of the business on an as adjusted basis, we delivered six 6%.
Speaker Change: To remind ourselves versus last year, where we delivered 8% we had some benefits last year with regards to certain projects on the Etfs.
Jacob Jonathan Bout: <unk> Division and just general strong renewal revenue and productivity.
Jacob Jonathan Bout: Q2 is not like.
Jacob Jonathan Bout: A high a high production quarter for US right, we generally intend to tabak and wait the production through the Q3 Q4 period, So I'd say the.
Jacob Jonathan Bout: Overall quarter.
Speaker Change: Nothing nothing exceptional.
Speaker Change: The room for our ongoing focus on improvement on the margin profile and execution with regards to the overall business.
Speaker Change: What I've just noted again, just focusing on the construction side.
Speaker Change: Margin profile on an LTM basis was 8%.
Speaker Change: We view that as a strong performance, reflecting overall.
Speaker Change: Consistent execution from the team.
Jacob Jonathan Bout: Those are really.
Jacob Jonathan Bout: Given.
Jacob Jonathan Bout: The programs that we're engaged with more than one quarter in isolation doesn't really fully tell the story I think the right way to look at it is over time and I think that the.
Jacob Jonathan Bout: 8% delivery is a room for improvement on that potentially for sure. It's a focus for the team.
Jacob Jonathan Bout: Still a pretty productive level for our construction business, if we take it out the aggregate.
Jacob Jonathan Bout: On consolidated basis.
Jacob Jonathan Bout: 9% margin there is a there is a benefit that we accrue there on the accounting protocols for the concessions business, where revenues effectively been de recognized on the Bermuda asset and so we're effectively just picking up you know an EBITDA contribution and so from that perspective.
Jacob Jonathan Bout: Nine 5%.
Jacob Jonathan Bout: Border last year on an as adjusted basis would be a very strong result.
Jacob Jonathan Bout: But if you again look at it on an LTM basis, I think what we produced was a pretty good indicator.
Speaker Change: Okay, maybe just a follow up there.
Speaker Change: As you move to a more cooperative project model, maybe just talk through some of the embedded margins in.
Speaker Change: Those six projects that you've got coming up.
Jacob Jonathan Bout: Yes.
Jacob Jonathan Bout: Texas one Jacob.
Jacob Jonathan Bout: What is important and very interesting for us is a progressive design build model.
Jacob Jonathan Bout: Is the predictability of the results.
Jacob Jonathan Bout: And the fact that we co develop a project with our clients during the first 18 or 24 months.
Jacob Jonathan Bout: This is extremely important so we don't give special guidance on special project, but this model is.
Jacob Jonathan Bout: I would say much more favorable.
Speaker Change: Two contractors and evidently we increased our our margin.
Jacob Jonathan Bout: Predictability.
Speaker Change: And he's being set to come back to the first part of your question. I mean, we are of course tracking the performance of our peers.
Jacob Jonathan Bout: And competitors I mean, 8% EBITDA on construction activity for the last.
Jacob Jonathan Bout: The 12 trailing months, if we get out the legacy project impact it's quite a good performance. So we are rather optimistic for the future of course.
Speaker Change: Thank you.
Speaker Change: One of them before our next question.
Speaker Change: Our next question comes from Yuri Lynk with Canaccord Genuity. Your line is open.
Yuri Lynk: Hey, good morning, Thanks for taking my question.
Yuri Lynk: One of your good morning.
Yuri Lynk: So.
Speaker Change: Q1 was a clean quarter.
Speaker Change: Eight weeks later, you take the $110 million charge on the on the three hours Teekay, So something changed quickly there with really with relation to cost so.
Speaker Change: How are you now comfortable putting out the 125 million looking.
Speaker Change: Looking out over over 18 months just.
Speaker Change:
Speaker Change: Whats the difference between that number and in the 110 that was booked in whats changed now to allow you to feel confident putting a number like that out there.
Speaker Change: Yes, you're right.
Speaker Change: It's Jerome speaking thanks for the question so with regards to our current estimates on the cost of completion, which is the $110 million impact that we booked in the quarter.
Speaker Change: That reflects management's best estimate to completion of the projects as of today.
Speaker Change: So when we when we talk about these projects and re forecast in general.
Speaker Change: There tends to be in some instances step function changes when scheduled stoppages are identified.
Speaker Change: <unk> cemented.
Speaker Change: And that was certainly the case that resulted in the 110.
Speaker Change: I would note that the 110 is based on the cost to complete estimates that we have we're confident in those estimates and those reflect the scheduling that we hadn't noted which was the end of 'twenty for early 'twenty five in Q3 dollars 25.
Speaker Change: So whats candidly changed between.
Speaker Change: Now and where this potential risk bigger.
Speaker Change: That we've provided if any through the completion is effectively centered around a couple of things and what gives us the confidence is number one the the mutual agreeable mutually agreed and kind of.
Speaker Change: Final and full settlement of the <unk>.
Speaker Change: Arbitration in dispute.
Speaker Change: It provides us with additional confidence by taking out one of the larger risk elements from the overall legacy project cohort.
Speaker Change: And then number two the completion on the projects is now much more insight than its been at any period prior.
Speaker Change: And what we've done is we've analyzed a variety of factors and what what could lead to the 125 would be additional cost creep on the construction and development and then.
Speaker Change: Reschedule that being said given the the status that we have on these projects today and we remain confident that <unk> is appropriate.
Speaker Change: Being said, we just want to provide stakeholders with a bit of a perspective around what financial risks could look like if south schedule cost et cetera, I started creeping into the right and where we see appropriate risk bounds.
Speaker Change: In association with that.
Speaker Change: Okay.
Speaker Change: And just as a follow up.
Speaker Change: In terms of potential timing of realizing some of that 125, I mean I.
Speaker Change: I would assume Q3 is going to be a clean quarter.
Speaker Change:
Speaker Change: But fair to say it would be appropriate to kind of think about.
Speaker Change: Maybe.
Speaker Change: Or a third of that getting recognized in the fourth quarter, how do we think.
Speaker Change: Think about the timing and the likelihood.
Speaker Change: Yeah. Good question here so.
Speaker Change: Without confirming or denying any of your assumptions.
Speaker Change: The way the way that we would see the potential financial additional financial risks materialize if any.
Speaker Change: Would likely manifest themselves in association with any potential schedule slippage.
Speaker Change: On the delivery of the projects and you know attainment of substantial completion.
Speaker Change: And to that end as we've noted.
Speaker Change: And 24 early 'twenty five is likely the area, where we will have better information in association with this and so if we're thinking about.
Rick: Where these costs could Rick materialize.
Rick: And these are just estimates at this point so we're not we're not going to.
Speaker Change: Give ourselves any.
Speaker Change: Finality on it is because these are potential impacts if any.
Speaker Change: This idea of you know that.
Speaker Change: Portion manifesting itself in the current fiscal year as possible and that the weighting that you noted is not a terrible way to think about it because it associates pretty much with the 'twenty four 'twenty five 'twenty, five and probably not a bad way to think about it.
Speaker Change: Okay.
Speaker Change: Thanks for taking my questions.
Speaker Change: Yes, I think you're right one of them before our next question.
Speaker Change: Our next question comes from Chris Murray with ATB capital markets. Your line is open.
Christopher Allan Murray: Yes, Thanks, guys, just maybe turning back a little bit looking at the concessions business for a second.
Speaker Change: If we can sort of back at the $5 9 million of one time recoveries.
Speaker Change: You're kind of running call it.
Speaker Change: Maybe plus or minus $20 million in EBITDA.
Speaker Change: Just trying to think about how we should be thinking about the concessions business as a contribution on a go forward basis.
Speaker Change: Are you and I guess part of this is you know how you're seeing the stability of the airport right now.
Speaker Change: Is there anything else to be thinking about in terms of some of the other contracts that are underway changing that earnings profile over the next call. It 18 to 24 months.
Speaker Change: Good questions I'll I'll I'll break it down in a couple of ways. So with regards to the operating profit of the concessions business in the quarter, we delivered $5 million versus roughly nine in the same quarter last year.
Speaker Change: I've switched from.
Speaker Change: EBITDA to operating profit on an as adjusted basis Chris.
Speaker Change: The main difference there is largely related to production and development fees.
Speaker Change: <unk> increased pursuit costs.
Speaker Change: Then when projects are in active.
Speaker Change: Instructions.
Speaker Change: There is a development fee or a P. That's collected by the concessions group.
Speaker Change: That can be additive to their earnings profile.
Adam: And then with regards to the Bermuda Airport, maybe I'll I'll turn it over to Adam just to provide a little bit of context on the operating factors there.
Adam: Sure. Thanks Jerome.
Adam: So Bermuda continues to recover from its pre pandemic traffic levels slowly we're up to about the low 80% in terms of passenger volume that was experienced prior to COVID-19 impacts, but the key factor. There is obviously the ability to have your revenues and associated cost for airlines and passengers.
Adam: Et cetera.
Adam: Increase at a level that exceeds your passenger volumes so from a financial perspective, the airport is operating well and in line with where we were before this despite lower passenger.
Adam: The volume to kind of stay around this level or a small increase over time as hotel and other accommodation capacity increases in the market.
Speaker Change: To <unk> point, we've got where concessions now as these major projects come off.
Adam:
Adam: And the.
Adam: The concessionaire moves into its O&M phases for the various lrt's et cetera, you will.
Adam: See some of that concessions EBITDA reduced as the no longer carrying the.
Adam: But then there are opportunities moving forward as well as things do come on from construction into operations, such as the United Battery storage project and a successful moving forward on the USPI opportunity. So a few puts and takes there in terms of timing, but that's basically the dynamics that's driving concessions now.
Adam: Okay.
Adam: With that.
Speaker Change: And then turning back to the 125, so I guess under the accounting rules you book, a 110, because thats your your kind of agreed to.
Adam: Booked up number but thinking about the 125.
Adam: I mean outside of some schedule slippage in.
Adam: And probably some recognition of that federal circuit, because you have to get closer to those target completion dates.
Adam: Is there anything else.
Speaker Change: I guess, what I'm trying to figure out is how to risk that 125, materializing and how youre thinking about.
Speaker Change: Neither either certain events material costs labor or anything like that that could be driving kind of that 125 number.
Speaker Change: Yeah, I mean, Chris that's.
Christopher Allan Murray: That's a good question, we're going to be limited in the amount of insight and perspective that we can really drilled into.
Speaker Change: For a variety of reasons, what I'll say is the $1 25 was developed through.
Speaker Change: A very detailed.
Speaker Change: Analysis of multiple variables outcomes.
Ross: Ross the full spectrum of activities involved with these projects whether its schedule cost claims.
Ross: Systems integration training et cetera, right, So I'd say the.
Speaker Change: The complexity that underlies that bigger is.
Speaker Change: Is quite deep and so it's we're not going be able to point to any specific particular factor.
Speaker Change: And we're gonna be pretty much sticking to the fact that you know that there's the potential for additional financial risks if any.
Speaker Change: You know being up to the 125 so that's.
Speaker Change: Hmm.
Speaker Change: Oh, you know what it's here's here's the kind of.
Speaker Change: Standard deviation associated with that.
Speaker Change: We're just going to give the one up two point estimate.
Speaker Change: Okay, So maybe a different way to frame. It so like the 125 really represents the worst case scenario in your best estimation.
Speaker Change: It represents the potential for future additional risks to Aegon.
Speaker Change: Through the completion of the remaining construction right as of as of today based on what we know and the information we have available to US right again, just to reinforce the point.
Speaker Change: Where we stand today is 110 and that's it.
Speaker Change: And then if those assumptions change based on what we see today.
Speaker Change: The additional future additional risk that could come in to us.
Speaker Change: Alright, thanks ill leave at that.
Speaker Change: One moment for our next question.
Speaker Change: Our next question comes from Vivek Arya with Desjardin capital markets. Your line is open.
Vivek Arya: Yes. Thank you very much and good morning, everyone. Just on the nuclear side could you maybe provide more color about the bidding a fortunate for US right now and kind of deal Fortunately to scale up the work outside of Canada.
Speaker Change: Yes.
Speaker Change: Thank you for the question.
Speaker Change: Economies.
Speaker Change: Really position for the future of nuclear.
Speaker Change: On the one side, we have all of the refurbishment programs I mean in in Ontario.
Speaker Change:
Speaker Change: Execution goes quite well.
Speaker Change: We are finalizing the two lost reactor in Darlington, we have now acquired most of the units and Bruce only add three lost steam generator are still under discussion.
Speaker Change: You have a preferred arrangements on this one.
Speaker Change: Pickering now in terms of major rehabilitation.
Speaker Change: Yes.
Speaker Change: He's in the negotiation with with LPG for the fall.
Speaker Change: Next units.
Speaker Change: It fits perfectly with the end of Darlington in terms of lot of work for our people and our means of protection.
Speaker Change: So this rehabilitation is quite strong.
Speaker Change: <unk>.
Speaker Change: In Darlington development phase is perfectly on track.
Speaker Change: We are all working on in our alliance with Gi Tetchy and asking reality.
Speaker Change: I'll remind you that there.
Speaker Change: There is a room here not only for one but 433 edition.
Speaker Change: Hi.
Speaker Change: Told you a few months ago, a semi is very interesting for us because it is a door to a lot of potential activities.
Speaker Change: Within Canada in other provinces or outside Canada, I mean, you have probably noticed that we signed a cooperation agreement in Poland, a few weeks ago and it does that is that.
Speaker Change: Just the beginning and we are very happy about it.
Speaker Change: In addition to this we are.
Speaker Change: Our ramping up in United States Youll remember that in 2018.
Speaker Change: We made the acquisition of a small specialized.
Speaker Change: Nuclear welding company equaled works.
Speaker Change: Is that is ramping up quite well I mean, we we are now working on some refurbishment program for example for Dominion drill both around twin grid.
Speaker Change: U S dollar.
Speaker Change: But also on the seven a river or the.
Speaker Change: Well the federal authorities.
Speaker Change: So it all goes into the right direction, we have opened an office in Charlotte.
Speaker Change: A few months ago. So we are ideally positioned.
Speaker Change: Truly happy on the way.
Speaker Change: Learning and we are capitalizing on our experience and the position that we have in this nuclear field.
Speaker Change: Yeah.
Speaker Change: Great color and when we look at home at the free cash flow generation in working cap. There has been a great reversal in Q2 could you provide maybe some granularity or greater detail about how we should expect the working cap and free cash flow to play out in the back half and for the full year.
Speaker Change: Year.
Speaker Change: Yeah.
Alastair: They've been why it's Alastair.
Speaker Change: So.
Speaker Change: As you know typically our business ramps up in terms of revenue in Q3 and Q4 so.
Speaker Change: From a working cap perspective, we'd expect to build in Q3 as we typically have and then.
Speaker Change: Q4 tends to have a strong release of working capital so.
Speaker Change #116: So we'd expect that trend to continue and I think as you said, where we're a we've had a good release so far of working capital we expect to have positive capital at the end of the year.
Speaker Change: As you know our working capital can be lumpy depending on payments in.
Speaker Change: So.
Speaker Change: You know I think.
Speaker Change: But strong expectation there will be.
Speaker Change: Positive from a working capital perspective at the end of the year.
Speaker Change #102: And maybe what it is.
Speaker Change #104: Learn on it also just from a cash flow perspective.
Speaker Change #100: Uh huh.
Speaker Change #100: We made the acquisition of a power line, so that that needs to be factored in.
Speaker Change: And then as well.
Speaker Change: The NCI D.
Speaker Change: It needs to be factored in as well.
Speaker Change: Okay, that's great and with respect to the acquisition of Big screen power line.
Speaker Change #101: How should we be thinking about the integration and whether your willingness to do more or are you going to take a pause and digest or still looking to beef up your presence in the utility segment.
Speaker Change: Okay I will take this one but a law like.
Speaker Change #103: We're extremely happy with the acquisition of extreme.
Speaker Change #109: It's perfectly within within the targets, it's perfectly within our core competency is in Michigan, which mean quite close from us. It's a very professional company with more than 300 employees in United States in fact to.
Speaker Change #103: To have your own employees.
Speaker Change: Professionally trained and loyal to the company is extremely important.
Speaker Change #122: Remember what I said last time I mean, our strategy is to is to try to make acquisition and in the mid single digit in terms of a multiplier for the EBITDA and integrate them within our Econ utilities group, which had been values between nine and 10 times of multipliers.
Speaker Change: This is what what we have been doing it's a very strong company. So of course, we have to integrate this company within AECOM. We are rather optimistic I mean, we had a very sold due diligence we knew that the DNA is the same we know that the teams can work together what is important.
Speaker Change: It was a very strong relation with DTE.
Speaker Change: But also the agility of this company.
Speaker Change: To work.
Speaker Change: In addition to the core to the core business on all of the emergency response.
Speaker Change: Opening within the United States and this is because this is quite important.
Speaker Change: It's it's it's part of the business that is more and more important I mean are you probably not 15.
Speaker Change: Yeah.
Speaker Change #106: In our introduction that we spoke about convince some empty hurricane Barry in Caribbean. So.
Speaker Change #125: It's not unusual to have a category hive irritated in June even Caribbean.
Speaker Change #108: But we were ready for this impacts have been minor.
Speaker Change #110: Just a few weeks.
Speaker Change #108: Less than $2 million of losses.
Speaker Change #108: No fatalities that no one did people within within our team.
Speaker Change #108: It's as they will be.
Speaker Change #108: Quite a large triangle of investment.
Speaker Change #108: In all of the emergency response to climate change.
Speaker Change #111: Extreme is very well positioned to face. So we are happy about it we're going to integrate it.
Speaker Change #111: And we will progress forward, we are rather ambitious older little prudent on our growth in United States and in international.
Speaker Change #118: That's great color. Thank you I was on mute.
Speaker Change #120: One of them before our next question.
Speaker Change #115: Our next question comes from Ian Gillies with Stifel. Your line is open.
Ian Brooks Gillies: Good morning, everyone.
Ian Brooks Gillies: Good morning.
Ian Brooks Gillies: You've quantified the risk for the remaining three projects obviously through the end of 'twenty five could you maybe qualitatively address what sort of risks or opportunities you may see on those projects for recovery maybe in 2026, just as you get post project completion are you there.
Ian Brooks Gillies: True ups et cetera.
Ian Brooks Gillies: Yes, I can speak a little about recent maybe Joe if you want to add something I mean, this is an extremely complex project.
Joe: With a lot of interfacing with a lot of stakeholders.
Joe: And we consider I mean at least towards the two L. T that there hasn't been.
Joe: Major modification in the condition of exactly sure of our contract due to listen to a currency. So.
Speaker Change #112: We will have a strong focus on recovering.
Joe: What we think is fair.
Ian Brooks Gillies: Due to these consequences.
Ian Brooks Gillies: Interfaces.
Ian Brooks Gillies: And.
Ian Brooks Gillies: I would say that we do which was a.
Ian Brooks Gillies: With a lot of trends.
Ian Brooks Gillies: Because we just consider that this is.
Speaker Change #113: What has to be done in line with the project agreement, which we have been signing quite a number of years ago.
Ian Brooks Gillies: It means that a.
Ian Brooks Gillies: We will find the PZ and towards that our rights are recognized.
Ian Brooks Gillies: And then we did we would just receive fair and honorable compensation was the issue that we have been facing.
Ian Brooks Gillies: And this is very important so.
Ian Brooks Gillies: First of all.
Ian Brooks Gillies: Potential completion sorry.
Ian Brooks Gillies: Very important.
Speaker Change #132: As soon as possible getting substantially completed unproved drawbaugh.
Ian Brooks Gillies: And going to the next phase which is maintenance.
Ian Brooks Gillies: And our contract, but also recovering it with a lot of energy any amounts of money.
Speaker Change #121: Convince all of you to our companies.
Ian Brooks Gillies: Jerome do you want to add something.
Jerome Julier: I think it was well articulated.
Ian Brooks Gillies: The.
Jerome Julier: To your point.
Speaker Change #114: These are the circumstances that could take.
Speaker Change #114: A notable amount of time to resolve and move through the various resolution.
Speaker Change #114: Methods and so I think from from our perspective qualitatively, we said it well and just from a timing standpoint.
Speaker Change #114: It's probably we're not forecasting any any pluses or minuses.
Speaker Change #114: Just to the extent that it's so far out at this point, but it's it's obviously a key focus for the team.
Speaker Change #114: Understood.
Speaker Change #119: As you look across your customers today and ongoing bid activity.
Speaker Change #124: Are there any notable pockets of weakness that youre seeing on the private capital side. There is some stuff that seems to be.
Speaker Change #138: Coming up in the U S. But in Canada is there any cause for concern at this point.
Speaker Change #119: Yeah.
Speaker Change #123: Oh look.
Speaker Change #117: One of the benefits of the diversified business profile as it allows us when there's a little bit of chop in the water, we can still navigated pretty readily.
Speaker Change #117: One area that we did call out was just with regards to the utilities business.
Speaker Change #117: We have noticed maybe a little bit less robust dynamic in association with telecommunications and natural gas distribution.
Speaker Change #117: I think thats likely temporal like it's something that will will pass, but it's something that we do the work will need to get done, but we just view it as probably just moving a little bit to the right.
Speaker Change #137: I don't know if there's any other areas that you see strength or weaknesses on the on the Canadian side.
Speaker Change #128: No what we can see that probably United States is the east.
Speaker Change #133: Is more of an advance in Canada on everything related with energy transition all the subsidizing program and.
Speaker Change #117: A everything to.
Speaker Change #117: To make it happen quickly.
Speaker Change #130: Especially I mean this is why it's seamless.
Speaker Change #130: Unimportant acquisition I mean through the B Partisan Act and the inflation reduction Act I mean, there is more than 65 billion already dedicated and ready to go.
Speaker Change #130: Just to modernize the nation and electrical infrastructure. So we just see that United States is an advance, but but Canada I mean, he is not even a stand still so we are we also rather optimistic on this.
Speaker Change #142: Perfect I'll leave it there thank you very much.
Speaker Change #146: Again, ladies and gentlemen, if you have a question or comment at this time. Please press star one on your telephone.
Speaker Change #126: One moment for our next question.
Sean Jack: Our next question comes from Sean <unk> with Raymond James Your line is open your line is open.
Sean Jack: Hey, good morning, guys. Thanks for taking my question.
Sean Jack: Just a quick question on extreme wondering if you could comment on how competitive that auction process was and also wondering if you're seeing the.
Speaker Change #129: The dynamics for auction processes getting easier or harder since you began looking.
Speaker Change #135: Thanks, Ronnie I know great question.
Speaker Change #134: This was a unique one for us we actually really like the firm as did oaktree in its review of opportunities prior to our transaction in the fall of last year. So it was actually a nice one for us when we came together to more.
Speaker Change #134: We're really trying to avoid big auctions, a big headline numbers of those that would compete with lots of financial capital for platform investments.
Speaker Change #134: What we need is not what we and our partner feel is the right approach for this business and so we're gonna be very prudent and judicious with our capital seek out as John described a fair valuation.
Speaker Change #127: Companies the ones that will integrate well culturally with our safety focused culture and what we described as our land and expand strategy, which is find great businesses that too you know a few things very well for our great clients and then apply what we can also bring which is additional capabilities more work into icon and the ability to take on.
Speaker Change #127: Larger and more complex projects to our balance sheet and credit capacity. So.
Speaker Change #127: So a very successful outcome, we had lots of time and the right approach on due diligence for this one and intend to do the same going forward on a very measured approach and lots more in the funnel right. Now that we think are is a it is in our wheelhouse.
Speaker Change #139: Okay perfect and.
Speaker Change #143: And last one just for exchange specifically wondering if there's any puts and takes on seasonality that you guys would want to call out or does it pretty well match acons construction business.
Speaker Change #141: Yeah, it's kind of similar levels too.
Speaker Change #147: <unk> seasonality again lots of its workers in the north of the U S.
Speaker Change #144: Yes, adjacent to our border and so you'd have the same weather impacts on outdoor work that we would have in our utilities.
Speaker Change #140: So aside from China, we described.
Speaker Change #139: Storm response, and emergency services that would move elsewhere throughout the U S potentially.
Speaker Change #139: Expanding our off peak times at most it follows our seasonal pattern.
Speaker Change #136: Okay perfect I appreciate it thanks guys.
Joe: Thanks, Joe.
Speaker Change #136: And I'm not showing any further question at this time I'd like to turn the call back over to Adam for any closing remarks.
Adam: Great. Thanks, Kevin and thanks, everyone for your participation today as always feel free to reach out to us with further questions and comments. We welcome your feedback and wish you a good rest of the day and we'll speak with you on the next call.
Speaker Change #145: Ladies and gentlemen, this does conclude today's presentation. You may now disconnect and have a wonderful day.
Speaker Change #136: Okay.
Speaker Change #127: [music].
Speaker Change #127: Yes.
Speaker Change #127: [music].