Q1 2025 ATCO Ltd Earnings Call
Speaker Change: Thank you for standing by. This is the conference operator. Welcome to the first quarter 2025 results conference call and webcast for act co-livened. As a reminder, all participants are in a listen-only mode and the conference is being recorded.
Speaker Change: After the presentation, there will be an opportunity to ask questions.
Speaker Change: to join the question queue. 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 the star key.
Speaker Change: followed by zero. I would now like to turn the conference over to Mr. Colin Jackson, Senior Vice President, Financial Operations. Please go ahead, Mr. Jackson.
Thank you and good morning everyone.
Speaker Change: We're pleased you could join us for ACCO's first quarter, 2025 conference call. On the line today, we have Katie Patrick, Executive Vice President, Chief Financial and Investment Officer, and Adam Beattie, President of ACCO Structures.
Speaker Change: Before we move into today's remarks, I would like to take a moment to acknowledge that numerous traditional territories and home lands on which our global facilities are located.
Katie Patrick: Today, I am speaking to you from our Aquapark Head Office in Calgary, which is located in the Treaty 7 region.
Katie Patrick: This is the ancestral territory of the Blackfoot Confederacy comprised of the Sixth Cup, the Kainai and the Picani Nations.
Katie Patrick: The Satina Nation and the Stodina Coda Nations, which includes the Chinnicky, Bears Paw and Good Stony First Nations.
Katie Patrick: I also want to recognize the city of Calgary as home to the maintaination of Alberta Districts 5 and 6.
Katie Patrick: We honor and respect the diverse history, languages, ceremonies and culture of the indigenous peoples who call this area's home.
Katie Patrick: Today, we'll hear from Katie, who will deliver opening comments on our financial results and recent company developments.
followed by an update from Adam on ACCO structures.
Katie Patrick: Following today's remarks, the Aqua team will take questions from the investment community.
Katie Patrick: Please note a replay of the conference call, a copy of the presentation and today's transcript will be available on our website at atco.com following the call. The materials can be found in the investor section under events and presentations.
Katie Patrick: today's remarks will include forward-looking statements that are subject to important risks and uncertainties.
Katie Patrick: For more information on these risks and uncertainties, please refer to our filings with the Canadian Securities Regulators.
Katie Patrick: During today's presentation, we may refer to certain non-GAAP and other financial measures, including adjusted earnings, adjusted EBITDA, and capital investment.
Katie Patrick: These measures do not have any standardized meaning under IFRS, and as a result they may not be comparable to similar measures presented by other entities.
Katie Patrick: and now I'm pleased to turn the call over to Katie for her opening remarks.
Katie Patrick: This is $12 million and 8% higher than the previous year.
Speaker Change: Higher adjusted earnings in the first quarter of 2025 were mainly due to increased activity at aqua structures.
Speaker Change: Growth in right-based and cost-efficiencies at ATTO Energy Systems, stronger seasonal spreads in the natural gas storage services at ATTO End Power, and growth within our newly created ATTO Investments segment, largely driven by the inclusion of ATTO Energy after its purchase mid-last year.
Speaker Change: In our results this quarter, you would have seen a simplification of our operating segments.
with the Inclusion of Actual Investments
Speaker Change: Going forward, our 40% equity investment in the Altumian ports will also be reported in our active investment segment alongside our only own subsidiaries, Atto Lennon Development, Ash Gore, Atto Energy, and Fresh Pights, or BFK.
Speaker Change: Diving further into our results, Canadian Utilities saw earnings growth in Q1 2025, driven primarily by rate-based growth within our regulated utilities.
Speaker Change: As a reminder, our Alberta Utilities Allowable ROE was reset from 9.28% in 2024 to 8.97% for 2025.
Speaker Change: Additionally, the 50-basis points efficiency carry-over mechanism. We were awarded in 2023 and 2024 for achieving efficiencies during PBR-2 came to an end.
Speaker Change: Despite these headwinds, we saw an increase in rate-based growth and cost savings, which more than fully offset this.
Speaker Change: At Structures and Logistics, adjuster ratings for Q1 2025 were $2 million higher compared to the prior year.
Speaker Change: Actress structures delivered growth through the first quarter with the just earnings of $26 million which was strongly tied to an increase in workforce housing sale activity in Australia.
Adam will discuss our structures business further in his update.
Speaker Change: Higher earnings were mainly due to improved cargo mix and improved margin across the operations within our portfolio of ports.
Speaker Change: Now, two may remain focused on generating earnings grow and continues to be a stable contributor to earnings and dividends for Acto.
Speaker Change: Our active investment segment also benefited from additional earnings from Advto Energy, which was acquired in the third quarter of 2024.
Speaker Change: Looking at our cash flows are stand-alone actual businesses which exclude Canadian utilities reported cash flow from operating activities of $120 million in the first quarter, up from $52 million in the prior year.
Speaker Change: This growth was driven by timing and a strong focus on finding efficiencies within our business.
Speaker Change: This Growth Supporting Operations, Capital Program, and Normal Course Financial Commitments.
Speaker Change: Further, our organic capital investment plan over the medium term at the aqua level is expected to be funded by our internally generated cash flow.
Speaker Change: With that, I will now pass it over to Adam to further discuss our actual structures business.
Thank you, Katie, and good morning everyone.
Speaker Change: Two million dollars higher than the same period in 2024, representing our 11th quarter in a row of delivering year over year adjusted earnings growth.
Speaker Change: In quarter one structures delivered adjusted EBITDA of $62 million, an increase of $7 million compared to the previous year.
Speaker Change: This quarter we saw an increase in revenue from workforce housing activity and site installation work in Australia.
Speaker Change: Despite this shift with additional activity from Workforce Housing projects in quarter one this year, we have concurrently continued to focus on our space rentals business as a consistent and stable contributor to our base business performance.
Speaker Change: We continue to develop our ability to deliver and grow performance in our based business, execute major workforce housing projects and expand into new lines of modular building applications such as single and multifamily housing.
Speaker Change: Consistent with our strategy and in a continued commitment to execute our future growth plans to move our core business model into new markets, we were pleased to formally open our newest manufacturing and commercial operations located in Adelaide, South Australia.
Speaker Change: This new addition to our global footprint allows us to meet growing customer needs and connects our national footprint to provide modular solutions across all of Australia.
Speaker Change: Our co-structures continue to invest capital in Canada, the US, and Australia, to capture market share and execute its expansion strategy for our sustainable base business.
Speaker Change: Over the last five years, our global space rentals business has seen growth of nine branch locations, five of which were added over the last year, an increase in our total fleet size by 53% to over 25,000 units that are well diversified geographically across the five countries we operate.
Speaker Change: and Growth in our average rental rate of 46%, all while maintaining an average utilization rate of 74%.
This performance demonstrates the effectiveness of our strategy.
Speaker Change: which is to increase our customer base and market share by effectively moving new fleet onto contracts while maintaining sufficient available stock to quickly respond to the needs of existing and new customers.
Speaker Change: As I've discussed previously, 2024 was a year marked by an important acquisition, NRB Modular Solutions. This followed our acquisition of Triple M housing at the end of 2022.
Speaker Change: NRB and Triple M are market leaders in modular multi-family housing and single-family housing respectively within Canada.
Speaker Change: Recent government commitments to prefabricated housing solutions and investment in delivering housing solutions via offsite modular methods of construction provide encouraging future prospects to these strategic additions to our portfolio of products and capabilities.
Speaker Change: In 2024, our focus was on fully integrating NRB into our existing operations.
Speaker Change: as we move into 2025, we expect NRB to begin to positively contribute to revenue growth as we utilise our new capabilities to service demand for modular and prefabricated housing solutions across Canada.
Speaker Change: Beyond housing, the NRB acquisition also plays a key role in our base business growth strategy.
Speaker Change: by providing critical manufacturing and supply capabilities to self-perform the expansion of our fleet and by increasing our expertise and capacity to provide world-class, modular products and services to our non-residential customers across Canada.
Speaker Change: With the integration of this acquisition, our co-structures is now the only national modular company that offers multiple forms of advanced modular products, rental fleet, diverse manufacturing capabilities and locations and world class site construction and project management capabilities across all of Canada.
Speaker Change: Q1 was a positive start to the year for structures. As we look ahead, we remain focused on sustainable
Speaker Change: They continue to be a solid pipeline and project opportunities to secure, execute and capitalise on. And I look forward to sharing our performance as we continue to position ourselves as the leader in modular products and solutions globally.
I'll now pass the call back over to Katie
Thank you, Adam
Speaker Change: I want to briefly touch on a newly created at Co-investment's segment.
Speaker Change: As I mentioned earlier, we simplified our operating segment structure with the inclusion of the Actual Investments, which provides our stakeholders additional disclosure across our portfolio of investments.
Speaker Change: Our investments held within the segment include our 40% equity investment in Notre-May ports, a port operator and developer with a diversified portfolio of multipurpose bulk cargo and container terminals.
Speaker Change: Ashworth, who for over 25 years has supplied premium and reliable fly ash for concrete as cementing applications.
Speaker Change: Acto 9 in Development, which has a portfolio of commercial real estate properties and recently announced its new venture, Viva Homes by Acto.
Speaker Change: Thibba Holmes is focused on the attainable housing space with the strategy of bringing high quality cost competitive housing to the market to the utilization of advanced modular construction processes.
and Actual Energy.
Speaker Change: and acquired business in Q3 2024 which provides retail electricity and natural gas services along with the full range of home services and home protection plans.
Speaker Change: and finally, Fresh Bites, a food service company that also includes our retail food services brand Lou
Speaker Change: Our portfolio of investments at Acto continues to be tied to our strategy of investing in the businesses in the essential services space.
Speaker Change: Although smaller in scale compared to our core businesses, namely structures and Canadian utilities, these businesses with interactive investment segment have significant growth aspirations and we expect them to generate meaningful growth for our portfolio over time.
Speaker Change: Overall, our first quarter was a very strong start to the year.
Speaker Change: We will use this momentum to continue executing our strategy, expanding our earnings and finding efficiencies.
Speaker Change: Despite the very uncertain macroeconomic environment, we are confident in the resiliency of the ACO portfolio and potential opportunities ahead.
Speaker Change: As I've mentioned in past calls on a relative basis our companies have far less exposure to the ongoing trade war that most other public Canadian companies do.
Speaker Change: Further, we have robust optionality to benefit from a myriad of potential federal policy outcomes with our diverse exposure and experience in stable utilities, energy transition projects, traditional generation, natural gas infrastructure, affordable housing, and as a trusted services supplier to the North and the defense sector.
Speaker Change: We remain focused on capitalizing on this broad expertise to expand and support our growth objectives in the year ahead.
Colin Jackson: That concludes our prepared remarks. I will now turn the call back to Colin.
Thank you Katie.
Colin Jackson: In the Interceptime, we ask that you limit yourself to two questions.
Colin Jackson: If you have additional questions, you're welcome to rejoin the queue.
Speaker Change: I will now turn it over to the conference coordinator for questions.
Speaker Change: Thank you. We will now begin the question and 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. If you are using a speaker phone please pick up your handset before pressing any keys.
Speaker Change: The first question comes from Rob Hope from Scotiabank. Please go ahead.
Ah, morning, everyone.
Rob Hope: First questions on modular housing. So during the election here in Canada, you know there was you know a relatively ambitious platform, the creating build Canada homes platform, which could give $25 billion of debt financing and $1 billion of equity financing to pre-cab home builders. You know, do you have a strategy to engage with the government to help facilitate an expansion of this business?
Thanks, Robert Adam Beattie.
Rob Hope: Yes, certainly. Look, it's early days at the moment, all the government has released is their two-page report, so I think more will come to light over the next.
Rob Hope: probably two months in terms of how that funding is planned to be released.
but certainly I think engagement.
Rob Hope: with Government, Engagement with Developers and Customers. We're well positioned in multiple jurisdictions across Canada.
Rob Hope: Housing or Affordable Housing to High and Single Family Homes as well, so certainly...
Rob Hope: Vodys like CMHC to obviously have discussions around how to unlock that opportunity or potential to provide some greater housing solutions to Canada.
Speaker Change: All right, appreciate that. And then continuing on on structures for your North American operations, have you seen any impact on margins or cost of goods just given the Harrison, how are you, how are you dealing with those?
Certainly when you look at in our housing components.
Appliances, a large portion of our...
Speaker Change: House spit out appliances are coming from the US, that's quite common, so that's an impacted area, so there's a slight impact to margin relative.
Speaker Change: to items like that. But overall, not significant at this point, I would think it would be very slight margin impact.
All right, appreciate the call. Thank you.
Maurice Choi: The next question comes from Maurice Choy from RBC. Please go ahead.
Thanks, and good morning, everyone. Just...
Maurice Choi: keeping with that same theme about, you know, not just terrors, but trade and macro uncertainty. If you think about your customers in this business, I recognize that your customers have...
Maurice Choi: diversify in terms of types of customers that you don't have.
Maurice Choi: But you can speak to their willingness to sign new contracts, obviously in the backlog. And we're not you think the momentum carries on recognising that you're now 11th consecutive quarter of year of year growth.
Yes, certainly. Thanks, Maurice.
Maurice Choi: I would say that there was definitely a bit of a short pause.
in decision-making during election transition.
Maurice Choi: or Election Period. So it hasn't been majorly impactful at all. We've seen some good project decisions being made even during that phase as well. And we've also seen probably an increase in activity in terms of reinitiating some of the project discussions that we've been having post election decisions.
So
I'm actually quite confident now we have some stability.
Maurice Choi: within probably three of our major jurisdictions, the US, Australia and Canada in terms of political certainty with leadership.
Maurice Choi: that's a positive side and hopefully we'll see the good tail winds that we've had continue.
Maurice Choi: understood. If I could just finish off with the other side of SNL, more broadly when you look at the new federal government and
also given a push by certain NATO countries.
Maurice Choi: It feels like we will be having an elevated level of spending for defense in this country.
Yeah, thanks, Maurice, for that question. It's Katie. I think I'm...
Maurice Choi: We're definitely optimistic about, and we have long been advocating that there has been a lower defense spending that what we think is necessary for this country, and I think
Maurice Choi: That has been recognized by many of the leaders right now. We do expect there to be increased investment in the defense sector and I would just say that we are incredibly well positioned. We have a long history of great partnerships in the north.
Maurice Choi: with our Indigenous partners there and our operating experience, I think position positions us very well. You'll see that we did announce a smaller contract win and I think that's indicative of the recognition that we are getting for that.
Maurice Choi: Strength in operating in the Norse and in serving the defense sector. So we are hopeful that that that we'll see more coming from that as we move forward.
Perfect. Thank you very much.
Speaker Change: And next question comes from Mark Jarvi from CIBC Capital Markets. Please go ahead.
Yeah, thanks, everyone.
Speaker Change: You know, Katie made it common about echo investments and carve that out of the segment and believe it could be meaningful growth obviously off a low base. How do you see that growth kind of manifesting itself? Is it M&A driven? Is it more organic and any sort of timelines? Is it sort of a little bit of a time to ramp some of those businesses, incubate them before the growth starts to kind of come through the earnings results? Yes, it is.
Speaker Change: Yeah, thanks, Mark. No, I mean, I think, you know, one of the big drivers for the creation of that segment, as I've alluded to, was a simplification of the presentation of our results. I think it provides some.
Speaker Change: a clearer focus on our major business as well as showing that there is some growth within that co-investment. I think overall the growth within that segment could come from a combination of both, which is that would be where we would put
Speaker Change: depending on the size but potential new M&A investments in there as well as the individual growth of those companies.
Speaker Change: You are right that, overall, some of those businesses, namely Ashcore and potentially London development, may have a ramp-up period here while we get our feet underneath us and before we would see some growth.
Speaker Change: But we're focused on trying to scale those quickly and particularly the land and development where we have the Viva homes. We're obviously going to look to act in line with the current policy incentives to move quickly to build new affordable housing.
Speaker Change: I don't know if you guys have like internal targets or would you be in a position at some point to kind of define like the buckets of earnings growth between what happens that can you tell these structures and the basics and then echo investments is that something where you think you'd be in a position in the coming quarters to kind of frame where the earnings growth comes from.
Speaker Change: You know, I think that we will certainly look to do that over time, but I think right now, as I said, we want to part of the nature of having an investment portfolio is to give that some of those business some time to start to realize their ambitions.
Speaker Change: And then, just question on structural logistics. In prior call, you talked about, probably some a lot of white space in the US market. You have low market share customers seem to want.
Speaker Change: Some alternatives out there. How is that progressing? How does the team sort of sourcing deals working? Do you have to find sort of more aligned strategic partners to drive growth in the U.S.? Just when are in sort of the path forward for sales growth and growth structures in the U.S. market?
Hi Mark, it's Adam.
Speaker Change: To be honest, most of our strategic plan there is primarily organic like it's been based on an organic strategy and we've really been able to access both existing customers that we've had in other geographies that we've expanded.
Speaker Change: into that market via but also just direct competing like we have a new fleet asset competing with a new fleet assets that are coming into the market.
Speaker Change: that are designed to be competitive against existing fleet assets that have been around for a very long time.
So that's given us a really good strategic impulse.
Mixed
Speaker Change: sort of moves to a higher quality of fleet demands. So that's been a good strategic position for us to capitalize on our growth plans in that market and that's been very well received and we've been able to build our sets and get them contracted very quickly using some of those propositions.
Speaker Change: So no impediments in terms of brand awareness are opportunities to make sure clients are aware of your offering versus competitors.
Correct. I wouldn't see it, the scale we're at.
Speaker Change: is certainly not at the moment, so certainly the brand and a new brand in that market because there was a lot of previous consolidation in it has actually been extremely well received to have another competitor there and that's actually been the introduction of the brand has been very strongly received by the market.
Good here. Okay. Thank you
Speaker Change: Once again, if you have a question, please press star then one. The next question comes from Ben Pham from BMO. Please go ahead.
Ben Pham: Was the wrap up in earnings for the quarter? I know you mentioned the mix of cargo. Was that mostly due to the trade war escalation or something more specific in terms of projects or more specific to your reports?
Ben Pham: Yeah, thanks Ben. You know, specifically with Mel Tume, the increase in earnings in the quarter was not directly related to anything.
around the trade war tear situation.
Ben Pham: As you know, most of our ports are in South America, and a large portion of the cargo is related to trade between South America and the Asian markets, so relatively less impacted from some of the tariffs.
Ben Pham: You know, the majority of that uptick is related to specific changes in cargo within specific ports. So, for example, we can see some higher, higher margins associated with
Ben Pham: Special project card goes, such as wind turbines, which we do unload in northern Chile in some places, so that's one specific example, but it's sort of across the board. A number of different factors leading to that higher margins.
Speaker Change: Okay, got it. Thanks for that. And I know there was some commentary around the structure of the Albama Data Centers and your second contract.
Speaker Change: Can you comment me on the look there just in that pocket of the dentistry, is that? Do all data centers need work? We're structures and we're just specific to this state or the area that data centers being built out.
Yeah, they, they, so the construction of data centers.
Speaker Change: needs their large and long-term construction projects and what we're seeing in parts around the world.
Speaker Change: is that there's multiple like there's regions or there's areas where multiple there's a large development plan for multiple data centers. So the reality is that that's good long term contracts.
Speaker Change: for construction officers to support the build of these facilities for the future, and certainly as...
Speaker Change: Data Center construction is occurring in basically all of our geographies. We're seeing a demand for side offices and construction officers to support the workforce that are building
Okay.
Alright, thank you very much
Speaker Change: This concludes our question and answer session. I would like to turn the conference back over to Mr. Colin Jackson for any closing remarks.
Thank you Danielle.
Speaker Change: This brings to a close today's conference call. You may now disconnect your lines. Thank you for participating and have a pleasant day.