Release Date: November 01, 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 3% increase in revenue for Q3 2024, reaching $1.3 billion compared to the same period in 2023.
- Adjusted EBITDA significantly improved to $127 million with a margin of 10%, up from $32 million and a margin of 2.6% in Q3 2023.
- The company secured new contract awards worth $1.1 billion in Q3 2024, nearly doubling from $591 million in the previous year.
- Aecon's strategic acquisition of United Engineers & Constructors Inc. enhances its capabilities in the nuclear sector and supports its US expansion.
- The company maintains a strong cash position with $197 million in cash and cash equivalents, excluding joint operations, as of September 30, 2024.
Negative Points
- Operating profit decreased to $81 million in Q3 2024 from $140 million in the same period last year, primarily due to the absence of gains from divestitures.
- Reported backlog decreased to $6 billion at the end of Q3 2024, down from $6.2 billion at the end of Q3 2023.
- Concessions revenue dropped significantly to $3 million in Q3 2024 from $26 million in the same period last year, impacted by the sale of a 49.9% interest in Skyport.
- Adjusted diluted earnings per share fell to $0.86 in Q3 2024 from $1.63 in the previous year.
- The completion and resolution of claims on remaining legacy projects remain critical, with potential additional risks not exceeding $125 million to complete these projects by the end of 2025.
Q & A Highlights
Q: Can you provide an update on the timing of bringing progressive design-build and alliance contracts into backlog? Is there a delay, or have more projects been added?
A: Jean Servranckx, President and CEO, explained that additional projects have been added, and the development phase typically lasts 18 to 24 months. This timeline allows for better certainty on construction costs and schedules. Some projects will enter the construction phase in 2025, such as the Scarborough Subway Extension and the SMR project.
Q: How should we think about revenue contribution from these projects in 2025? Will it be more back-end loaded?
A: Jean Servranckx noted that 2024 is a transition year with lost revenue from legacy projects. The ramp-up of progressive design-build projects will lead to increased revenue in 2025. Jerome Julier, CFO, added that revenue recognition will follow a bell curve, starting slow and ramping up as projects progress.
Q: What is the long-term vision for nuclear and expansion into the US following the United acquisition?
A: Jean Servranckx stated that the acquisition aligns with Aecon's strategic plan, focusing on energy transition and US expansion. United's expertise in nuclear and conventional power will help Aecon grow in the US, where there is significant potential for refurbishment and new unit construction.
Q: Regarding legacy projects, has anything changed in terms of potential risks or costs to complete them?
A: Jerome Julier confirmed that there has been no change since the Q2 disclosures. The potential additional risk to complete the three projects should not exceed $125 million by the end of 2025. Jean Servranckx added that progress is being made on projects like the Gordie Howe Bridge and LRT lines.
Q: How do you view the sustainability of margins in the Construction segment, and are there opportunities to drive them higher?
A: Jean Servranckx emphasized efforts in continuous improvement and disciplined project selection to optimize operating profit. Jerome Julier added that an 8% EBITDA margin is strong given the capital intensity of the business, and the focus is on preserving this while reducing risk and increasing stability.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
