Release Date: August 09, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Atkinsrealis Group Inc (SNCAF, Financial) reported a strong second quarter with a 17% increase in Services revenue and a 22% rise in segment adjusted EBIT.
- The company's backlog reached a record high of $15.6 billion, growing 26% year-over-year, indicating strong future revenue potential.
- The Nuclear segment showed significant growth with a 42% increase in revenue and a 57% growth in backlog, driven by CANDU refurbishment work.
- Atkinsrealis Group Inc (SNCAF) successfully increased its headcount by approximately 740 employees, enhancing its capacity to meet growing demand.
- The company is strategically expanding its presence in key markets, securing major contracts in Canada, the US, UK, and Hong Kong, which are expected to drive sustained profitable growth.
Negative Points
- The LSTK projects segment experienced a 69% decrease in revenue compared to the same quarter in 2023, contributing to a negative EBIT of $18 million.
- Corporate SG&A expenses increased to $39 million from $29 million last year, driven by higher long-term compensation costs due to a significant share price rise.
- The effective income tax rate is expected to be higher in the second half of the year, potentially impacting net income.
- The US and Latin America regions saw a decline in EBITDA margin from 14.9% to 13.1%, partly due to lower income from emergency response activities.
- The company faces challenges in improving margins in its Canadian operations, with a slight decline in segment adjusted EBITDA margin noted in the quarter.
Q & A Highlights
Q: Ian, impressive numbers in Nuclear. What's kind of shifted to allow you to double your growth outlook in the last two quarters?
A: Ian Edwards, CEO: Our nuclear business is growing due to global recognition of nuclear's role in achieving net zero energy grids. The short-term growth is driven by CANDU life extension projects, including new life extensions in Romania and China. We're also negotiating new builds in Romania and exploring opportunities for our Monarch reactor. Additionally, our services business is expanding with increased demand for SMR and other nuclear technologies globally.
Q: On Romania's nuclear plans, does their move towards SMR impact the C3, C4 talks?
A: Ian Edwards, CEO: No, Romania's nuclear policy includes both life extensions for existing reactors and new builds like C3, C4. Their SMR plans are separate and do not affect our ongoing discussions for CANDU projects.
Q: Regarding nuclear revenue guidance, is the increase a reshuffling of timing or a larger revenue stack?
A: Ian Edwards, CEO: The increase is due to short-term growth from life extension projects, which have a clear line of sight for $15 billion in work. The Monarch reactor is a longer-term play, with revenues expected around 2027. The services business also continues to grow incrementally.
Q: Can you clarify the expected cash flow improvements in the second half of the year?
A: Jeff Bell, CFO: We anticipate stronger cash flow in the second half due to reduced cash usage from LSTK projects, continued EBITDA growth from services, and typical year-end working capital improvements. This supports our guidance of over $400 million in operating cash flow for the full year.
Q: What are the specific opportunities in the US market, and how does M&A fit into your strategy there?
A: Ian Edwards, CEO: We're focusing on transport and water opportunities driven by aging infrastructure and IIJA funding. We're also exploring power and renewable markets. For M&A, we're targeting quality acquisitions to support our land and expand strategy in the US, focusing on cultural fit and capabilities.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
