- Revenue: $884 million for Q2 2024, down 27% from the same period in 2023.
- Adjusted Revenue: $985 million for Q2 2024, compared to $978 million in Q2 2023.
- Adjusted EBITDA: Negative $153 million for Q2 2024, compared to $70 million in Q2 2023.
- Operating Loss: $166 million for Q2 2024, compared to an operating profit of $56 million in Q2 2023.
- Diluted Loss Per Share: $1.99 for Q2 2024, compared to diluted earnings per share of $0.38 in Q2 2023.
- Backlog: $6.2 billion at the end of Q2 2024, unchanged from December 31, 2023, but down from $6.9 billion at the end of Q2 2023.
- New Contract Awards: $766 million in Q2 2024, compared to $2 billion in Q2 2023.
- Construction Revenue: $851 million in Q2 2024, down 25% from Q2 2023.
- Adjusted Construction Revenue: $973 million in Q2 2024, flat compared to Q2 2023.
- Adjusted EBITDA (Construction Segment): Negative $173 million in Q2 2024, compared to negative $4 million in Q2 2023.
- Adjusted EBITDA (Concessions Segment): $30 million in Q2 2024, compared to $20 million in Q2 2023.
- Cash and Cash Equivalents: $131 million at the end of Q2 2024.
- Net Cash Position: $33 million at the end of Q2 2024.
- Trailing 12-Month Adjusted Revenue: $3.8 billion as of June 30, 2024, compared to $3.7 billion for the same period last year.
- Trailing 12-Month Adjusted EBITDA: $344 million as of June 30, 2024, compared to $383 million for the same period last year.
- Trailing 12-Month Recurring Revenue: $1.1 billion, up 38% versus two years ago.
- Acquisition: Majority interest in Xtreme Power Line Construction for approximately $73 million.
Release Date: July 25, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Aecon Group Inc (AEGXF, Financial) reported a substantial backlog of $6.2 billion at the end of Q2 2024, indicating strong future revenue potential.
- The company achieved a global settlement for the Coastal GasLink pipeline project, resolving a significant dispute and allowing Aecon to close a challenging chapter.
- Aecon's nuclear operations saw higher revenue driven by increased refurbishment work, showcasing growth in this segment.
- The acquisition of Xtreme Powerline Construction is expected to bolster Aecon's capabilities in the U.S. utility market, aligning with their strategic goals.
- Aecon's diversified work portfolio and focus on energy transition projects position the company well for future growth and resilience.
Negative Points
- Revenue for Q2 2024 was $884 million, a 27% decrease compared to the same period in 2023, indicating a significant drop in business activity.
- Adjusted EBITDA for the quarter was negative $153 million, a stark contrast to $70 million in the previous year, reflecting operational challenges.
- The company incurred a $127 million nonrecurring charge related to the Coastal GasLink pipeline project settlement, impacting financial performance.
- New contract awards in Q2 2024 were $766 million, significantly lower than the $2 billion in the same period last year, suggesting a slowdown in new business.
- Aecon recognized an aggregate charge of $110 million related to three remaining legacy projects, indicating ongoing financial burdens from past projects.
Q & A Highlights
Q: The first question is on margins seemed a bit soft in the core construction group. Can you just talk through what happened in the quarter and I know last quarter I think to on a TTM basis, they were around 9.5%. Is that what you would consider normal course on an annualized basis?
A: From a margin perspective, in the quarter on the construction side of the business on an as adjusted basis, we delivered 6.6%, compared to 8% last year. Q2 is not a high production quarter for us, and we generally tend to back-end weight production through Q3 and Q4. The 8% delivery on an LTM basis is a strong performance, and while there is room for improvement, it reflects consistent execution.
Q: As you move to a more collaborative project model, maybe just talk through some of the embedded margins in on those six projects you've got coming up?
A: The progressive design-build model offers better predictability of results as we develop the project with our client during the first 18-24 months. This model is more favorable to contractors and will increase our margin predictability. We are optimistic about achieving improved profitability and margin predictability.
Q: Q1 was a clean quarter, eight weeks later you take the $110 million charge on the three LSTK. How are you now comfortable putting out the $125 million looking out over 18 months?
A: The $110 million impact reflects management's best estimate to completion of the projects as of today. The $125 million figure was developed through a detailed analysis of multiple variables and outcomes. The settlement of the CGL arbitration dispute and the completion insight of the projects provide additional confidence.
Q: In terms of potential timing of realizing some of that $125 million, how do we think about the timing and the likelihood?
A: The potential financial risks, if any, would likely manifest themselves in association with any potential schedule slippage on the delivery of the projects. The timing would be around '24, early '25, and Q3 '25. The weighting you noted is not a terrible way to think about it.
Q: Just maybe turning back a little bit on looking at the Concessions business, how should we be thinking about the Concessions business as a contribution on a go-forward basis?
A: The operating profit of the Concessions business in the quarter was $5 million versus roughly $9 million last year. The main difference is related to production and development fees and increased pursuit costs. Bermuda Airport is operating well financially despite lower passenger volumes.
Q: On the nuclear side, could you provide more color about the bidding opportunities right now and the opportunity to scale up for work outside Canada?
A: Aecon is ideally positioned for the future of nuclear. We are finalizing large reactor projects in Darlington and Bruce, and there is an obligation with OPG for next units. SMR development in Darlington is on track, and we have signed a cooperation agreement in Poland. We are also ramping up in the United States with projects like Dominion and Savannah River.
Q: Could you provide more detail about how we should expect working capital and free cash flow to play out in the back half of the year?
A: Typically, our business ramps up in terms of revenue in Q3 and Q4. We expect to build working capital in Q3 and have a strong release in Q4. We expect to have positive working capital at the end of the year, despite some lumpiness depending on payments.
Q: With respect to the acquisition of IQstream powerline, how should we be thinking about the integration and your willingness to do more acquisitions?
A: We are happy with the acquisition of IQstream, which fits within our core competency. We had a solid due diligence and know that the teams can work together. We are optimistic about integrating the company and progressing forward, with ambitions for further growth in the U.S. and international markets.
Q: You've quantified the risk for the remaining three projects through the end of '25. Could you address what sort of risks or opportunities you may see on those projects for recovery in 2026?
A: The projects are extremely complex with many interfaces and stakeholders. We will focus on recovering fair compensation for the issues faced. Substantial completion is critical, and we will pursue fair and honorable compensation for the challenges encountered.
Q: Are there any notable pockets of weakness that you're seeing on the private capital side in Canada?
A: One area we noted is a less robust dynamic in telecommunications and natural gas distribution, likely temporal. The work will need to get done, but it may move to the right. The U.S. is more advanced in energy transition, but Canada is also progressing, and we are optimistic.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
