Atkinsrealis Group Inc.

Thank you for standing by. This is the conference operator. Good morning and welcome to Atkins-Realis second quarter 2024 results conference call. As a reminder, all participants are in a listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. 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 star, then zero. I would now like to turn the conference over to Denis Jasmine, Vice President, Investor Relations. Please go ahead.

Thank you, Betsy. Bonjour tout le monde. Good morning, everyone, and thank you for joining us today. For those dialing in, we invite you to view the slide presentation that we have posted on the Investors section of our website, which we will refer to during this call. Today's call is also webcast. With me today are Ian Edwards, Chief Executive Officer, and Jeff Bell, Chief Financial Officer. Before we begin, I would like to ask everyone to limit themselves to one or two questions to ensure that all analysts have an opportunity to participate. You're welcome to return to the queue for any follow-up questions. I would like to draw your attention to slide two. Comments made on today's call may contain forward-looking information. This information, by its nature, is subject to assumptions, risks, and uncertainties, and as such, actual results may differ materially from the views expressed today. For further information on these assumptions, risks, and uncertainties, please consult the company's relevant filings on CDAR+. These documents are also available on our website. Also during the call, we may refer to certain non-RFRS financial measures. Reconciliation of these amounts, the corresponding IFRS financial measures, are reflected in our earnings release and in DNA, which can be found on CDAR Plus and our website. And now I'll pass the call over to Ian Edwards. Ian?

Thank you, Denis. Good morning, everyone, and thanks for joining us today. I'm going to begin today's call by providing an overview of our performance in the second quarter, our continually growing backlog, and our current success and opportunities that we're seeing in the four engineering services regions and our nuclear businesses. I'll then pass to Jeff to provide more detail on our financial results and our updated four-year guidance before we open it up for Q&A. So let's get started on slide three. We concluded the first half of 2024 with another quarter of strong results across our businesses, driven by our ability to capture the growing demand for our services to address the energy transition and an aging global infrastructure. We continue to see robust revenues in our services business across the geographies and in markets in which we operate. This was proven again this quarter by our top-line and bottom-line improvement over the second quarter of last year. Atkins Realist Services' revenue increased 17%, with segment-adjusted EBIT increasing 22% to approximately $204 million. Engineering services regions revenue increased 12% to $1.7 billion, while nuclear revenue grew 42% to $358 million. Backlog at the end of the second quarter of 24 was approximately $15.6 billion, and this represents another record high for the company as it grew 26% year over year. We also continue to successfully welcome high-quality talent in the quarter, increasing our headcount by approximately 740 employees. And I want to thank those who were able to join us in Toronto or view the webcast of our June Investor Day. This is truly an exciting time for Atkins Realis. At the event, we introduced our new delivering excellence and driving growth strategy, underpinned by three pillars. In alignment with these pillars, we highlighted the ways in which we will optimize the business, accelerate value creation, and explore untapped potential. We also unveiled our long-term financial targets, emphasizing our confidence in driving growth, improving margins, and delivering excellence for our customers. A lot of people inside and outside of the company were involved in the process and I appreciate all their support in making it an exceptional day. The results year to date highlight our strengthening position in the marketplace. We are helping public and private entities achieve their net zero goals and address the energy trilemma providing clean, affordable and secure energy solutions. Our historical track record makes us the partner of choice in these endeavors, and we are proud to play a role in providing a better future for the planet and its people. On slide four, you can see our backlog growth across Atkins Realis services. Our 26% growth in the second quarter versus last year was driven by key wins across our core engineering services and nuclear businesses. We continue to capture projects across many of the end markets in which we operate. In Canada, we've been chosen to support the Surrey Langley SkyTrain extension in British Columbia. In the US, we won a multi-year master service agreement with a leading sustainable energy provider, which strengthens our foothold in the growing Northeast region, and secured a contract with the Texas Department of Transportation. Separately, We've won a project with the Highways Department of Hong Kong for design and engineering services. And finally, our capabilities in the UK continue to be recognized as we signed a strategic design partnership on the Lower Thames Crossing project. We are winning more business purposely doing so through our higher margin services that we expect will generate sustained profitable growth into the future. So turning to slide five, our engineering services business continues to generate robust organic top line growth as we witnessed a 12% increase year over year in the second quarter. Our revenue generation was driven by the continuation of our ability to secure new wins across our geographic scope. Segment adjusted EBITDA over net revenue margin was 15.2% during the quarter and represents an increase of 110 basis points over the same period last year. We continued to increase our backlog, which now stands at $12.2 billion, representing a 19% growth versus our backlog as at June 30, 2023. Beginning on slide six, we'll provide an overview of each of our four regions and their performance in Q2. In Canada, We saw a slight year-over-year revenue growth, while segment-adjusted EBITDA was $24 million, representing approximately an 11% margin. Our backlog increased 26% year-over-year, mainly due to the awarded Surrey Langley SkyTrain Extension project, where we deliver the systems and track work. We also won, over the recent months, several notable design contracts. such as the Île-de-Lorraine Bridge Project, the Belleville Ferry Terminal redevelopment, and the expansion and modernization of the Maisonneuve-Rosemount Hospital. While revenue increased slightly this quarter and margins were down, we continue to see a pipeline of full opportunities in Canada, and we are investing more into winning the type of work that will drive sustained profitable growth. We outlined at our investor day that our Canada business is on an improvement journey, and we are focused on optimizing our position across the country. We have a strong foothold and a history of experience delivering services in the Quebec region, but we see a vast opportunity for our offerings in Ontario and British Columbia. As we look at our pipeline, the end markets of architecture and water present significant upside, and we believe our capabilities are well-suited to help our customers address these aging infrastructure needs. In the UK and Ireland, we continue to capture key wins utilizing our end-to-end capabilities, particularly in our power and renewables, industrial, and building and places customer end markets. Organic revenue grew 6% versus the second quarter of 2023, while segment-adjusted EBITDA as a percentage of segment net revenue grew 13% to $80 million. We saw continued backlog growth during the second quarter to more than $1.7 billion, primarily from new work orders in the transportation, water, and rail signaling businesses. We continue to demonstrate that we are partners of choice with Heathrow Airport and Network Rail, as we bolstered our contracts with each of those entities to support growth expansion plans. Additionally, as we mentioned at our investor day, we see significant upside in the water end market. This past quarter, I'm proud of another key win in this growing market as we are contracted with United Utilities for our design and engineering capabilities. Our long-standing position in the UK market leaves us well-positioned to take advantage of key commitments by the public sector towards a cleaner future. The AMPATE investment cycle sees significant new capital investments out to 2030 in the water industry, while other government-backed strategic investments in defense enable the demand for our consulting and digital capabilities in this end market. Turning to slide eight, In the US and Latin America, we saw continued growth trajectory led by our work in transportation. Organic revenue grew 12% year over year, while segment-adjusted EBITDA increased slightly to $44 million. The backlog increased 3% year over year as we continue to make progress with our land and expand strategy. And as you heard during the investor day, we have deep relationships with several departments of transportation across the U.S., and we are methodically increasing our presence in the U.S. Northeast and Mid-Atlantic. And I want to highlight one of our wins with the Florida Department of Transportation last quarter. Under a five-year contract, Atkins Realis will provide project and construction management services, including all project administration, design phase review, day-to-day management and construction inspecting, materials testing and project documentation. This is a great win for our business and highlights the opportunities we see in the growing U.S. market for our services. As major cities continue to address their aging infrastructure, we continue to provide support to them. No matter the result of the upcoming elections, The opportunities are expected to remain fast through the public sector's infusion of capital. We have a line of sight of opportunities that fuel our targeted growth metrics. In EMEA, revenue grew organically by 45% versus the second quarter of 2023, as we saw volume pick up for the gigaprojects that we are contracted for in the Middle East, such as Neon, The Line, and The Macabre. and continued delivery on many other mandates. This work also led to segment-adjusted EBITDA of $42 million, representing a 20% EBITDA margin over net revenue. Total backlog in EMEA grew 19% as we continued to capture opportunities in our pipeline, particularly in the Middle East and Asia, in the buildings and places and transportation and markets. Increased focus by the Hong Kong government on uplifting their transport system is leading to growth opportunities for Atkins Realitas in consultancy work, and we're seeing strong win rates in the region, which also are aiding our continued backlog growth. I'd like to now move to slide 10 and the results of our nuclear business. We continue to demonstrate significant growth. with an organic revenue increase of 41% in the quarter compared to the quarter of 2023. Our nuclear backlog is at $1.7 billion, which represents a 57% growth versus our backlog as at June 30, 2023, driven by higher bookings primarily related to the can-do refurbishment work. segment-adjusted EBITDA grew 32% to $43 million. As a percentage of segment revenue, segment-adjusted EBIT was 12% in the quarter. On slide 11, we highlight the achievements across our nuclear can-do and services portfolios. The demand for our expertise in nuclear was emphasized again this quarter as we signed key wins and made continued progress on projects across each of the regions we serve. In Canada, we continue to garner support from the public and private sector as we onboarded additional key stakeholders for our Canadians for CANDU campaign. Additionally, in June, an independent report conducted by the Conference Board of Canada showed that the construction of a four-unit CANDU Monarch nuclear power station would boost the Canadian GDP over the life of these four units by $90 billion and create thousands of jobs. In Asia, we recently secured a refurbishment contract in Quinshat, which highlights the opportunities for can-do support and life extension in the region. As a reminder, we highlighted at our investor day the pipeline of opportunities for Atkins Realis and refurbishment and life extension. This contract win, while sizable in its own right, is just a small portion of the potential opportunity we have for these projects as we have a line of sight into more than $15 billion of awards over the next decade. In Europe, we continue to make good progress on new-build contract negotiations for the C3 and C4 Cernoboda plants in Romania. We also signed a joint agreement with Orlean Synthesis, Green Energy, ACOM, and GE Itachi to support the potential deployment of small modular reactors in Poland. In the UK, the UK Atomic Energy Authority appointed Atkins Realis to deliver and design one of the world's first isotope separation systems, which will strengthen research into sustainable fusion delivery. Our results this second quarter A 41% revenue organic growth and the continued winds across the world highlight the demand and potential of our nuclear expertise. General market conditions for new build and new nuclear look increasingly positive every day as we are incredibly well positioned to support public and private entities in achieving their evolving power needs and net zero goals. So now moving to slide 12 and our links on LSDK and capital businesses. Our links on segment saw 29% year-over-year organic revenue growth in the second quarter, continuing its momentum from the first quarter and realized an operating margin in line with last year and Q1. Backlog of $1.7 billion at the end of the second quarter was 73% higher than the second quarter of last year. Commissioning and testing on our Ontario LSTK projects is continuing as planned. Our backlog decreased by 40% to $251 million at the end of the second quarter, and this primarily representing the REM project, which continues to progress well. As we finalize the LSTK projects for our clients, we continue to pursue claim recoveries that we believe we are owed, and these discussions remain ongoing with our clients. On capital, we received $10 million in dividends from High Road 407 in Q2, as traffic patterns continue to improve year over year. They also recently announced a dividend for the third quarter, which will be $15 million for Atkins or Ellis. With that, I'll now turn it over to Jeff to discuss the financial results.

Thank you, Ian, and good morning, everyone. Turning to slide 14, total revenues for the quarter increased 11% year-over-year, totaling $2.3 billion. Atkins-Realis services revenue increased by 17%, while the LSTK projects decreased by 69% compared to the same quarter in 2023. Total segment adjusted EBIT for the quarter was $208 million, 17% higher than last year, and was comprised of $204 million for Atkins-Realis services, $22 million for capital, and negative $18 million for LSTK projects. Corporate SG&A expenses from PS and PM totaled $39 million in the quarter, compared to $29 million last year, mainly driven by higher long-term compensation costs year over year, primarily as a result of the significant share price rise. Despite this increase, we continue to anticipate that the corporate SG&A expenses from PSMPM will be approximately $130 million for the full year 2024. Net financial expenses for the quarter were $43 million, in line with Q2 2023. We expect this level of quarterly expense to continue for the rest of the year. The effective income tax rate from PSMPM was 17% in the quarter, lower than the Canadian statutory tax rate, mainly due to the geographic mix of earnings and other non-recurring items. We expect that our income tax rate on our adjusted PSNPM net income for the second half of the year to be higher than the first half and the full year outcome to continue to be around the Canadian statutory income tax rate of 26%. The IFRS net income this quarter was 28% higher than Q2 2023 and totaled $82 million. This was composed of a net income from PSNPM of $68 million, an increase of 37%, and a net income from capital of $14 million in line with last year. Adjusted EPS from PSMPM for the quarter was 49 cents per diluted share, a 20% increase compared to 41 cents in the second quarter last year. Backlog into the quarter at $15.9 billion, 12% higher than at the end of last year, and 24% higher than at the end of June 2023, with a strong increase in engineering services, nuclear, and links on businesses. If we now move on to slide 15 and free cash flow, net cash generated from operating activities was negative $89 million in the second quarter, better than Q2 2023. We continue to predict that the net cash generated from operating activities for the company will be significantly higher in the second half of the year, and we continue to anticipate that it should be in excess of $400 million for full year 2024. The increase in the second half should be mainly due to the expectation of continued revenue and EBITDA growth from the services businesses and significantly lower cash outflows from the LSTK projects compared to the full year 2023. Atkins Rialis Services generated operating cash flows of $111 million in Q2. After cash taxes, interest, corporate items, and capital, we used $29 million of operating cash flow for the quarter and including LSTK projects, we used $89 million. After CapEx and the payment of lease liabilities, our free cash flow stood at negative $134 million for the quarter. As expected, capital expenditure was $38 million in the quarter, higher than Q2 last year, as we are investing in the Kandu Monarch nuclear reactor development. We continue to forecast full-year capital expenditure in the range of $140 to $160 million, as this development ramps up over the year. I'd like now to turn to my final slide, slide 16. As you have heard Ian say on nuclear, demand for our services continues to grow and our visibility into the conversion of our backlog into revenue this year has improved. Therefore, we are increasing for the second time this year, our nuclear organic revenue growth for full year 2024 from between 15 and 20% to between 30 and 35%. We are also updating our nuclear segment adjusted EBIT margin to reflect the 2024 business mix and in line with the company's long-term target introduced at the investor day from between 13% and 15% to between 12% and 14%. With that, I'll now hand the presentation back to Ian.

Thank you, Jeff. We continue to build on our momentum with key wins across our four engineering services regions and our nuclear business. Our record backlog highlights our long runway for growth and the significant demand for our services. And we, we're steadfast in our approach to deploying our talent in the most efficient and cost-effective manner to win new business and meet the needs of our customers. We are capturing growth that is happening now from the energy transition super cycle and from aging infrastructure replacement, but even more excited by the scale of our long-term opportunities emerging from these true megatrends. We are harnessing operational efficiencies across the company through the work of our COO office. Our June Investor Day highlighted the accomplishments we have made under our pivoting to growth strategy and the opportunities that exist through our new strategy, delivering excellence and driving growth. We are optimizing the business to drive profitable growth, We are accelerating our footprint in growing end markets and regions, and we're exploring untapped opportunities across the organization. We are truly building something special here at Atkins Realis. With that, let's open it up for questions.

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 speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star and two. We will pause for a moment as callers join the queue. The first question today comes from Yuri Link with Canaccord Genuity. Please go ahead.

Good morning, everyone. Ian, impressive numbers in nuclear. That's a market where nothing seems to move very quickly, but you've pretty well doubled your growth outlook in the last two quarters. So what's kind of shifted there to allow you to do that?

Yeah, yeah. If you bear with me, that's probably a bit of a long answer, but there's quite a lot happening. So Let me go through that. And as you say, our nuclear business really is going strength to strength. I mean, governments around the world, clients, utilities, that they're all beginning to realize that a real component of net zero energy grid, electrical energy grid, it has to have a component of nuclear for that base load power. So the interest is global. what's really driving our short-term is the CanDo life extension. And we think about our business now in these two components, right? The CanDo technology where we own the IP, we're operating there as the original equipment manufacturer, and our services business, which is really applying services to customers and other technologies across the world. And the can-do technology, if you think about, we had those life extension projects at Darlington and Bruce, which is still ongoing, but we've been into now a new life extension at C1 in Romania. We've just been awarded the Quinshan refurbishment, which will kick in immediately with engineering work. We are negotiating life extension works. a pickering also for OPG, which we would hope to secure. And we're in negotiation for other life extensions across the world because it's a really cheap form of electricity. You just replace the reactor components and give it an extra 30 years of life. So economically, it's almost a no-brainer. But we're also in negotiations, really heavy negotiations now for the C3 and C4 And you'll have seen some announcements globally from the U.S. and from the Canadian government in the past about the support that they're giving financially towards C3, C4. So this is going to be a game changer, actually, for the CanDo technology, the first new build that we will have undertaken for many, many years and puts the CanDo technology back on the world stage, which is a great platform for our new product, the Monarch. And we are in discussion across Canada and across various parts of the world for the Monarch. Now, we see the Monarch as a longer-term play. I mean, really, before we start securing orders and getting real revenues into the backlog, it's probably a few years away. But the big increase in revenues from Canada you're seeing now is in these life extensions. And that's only half the story. The other half of the story is in services, where We're seeing an increased demand for our services work, both at the GE Itachi SMR, where we won the contract in Poland, and we continue to support that SMR in Canada. We're working with Rolls-Royce in the UK on their SMR program. We've still got the cleanup remediation work that we're doing in the US and the UK. We are a heavy supporter of EDF, the French technology. We're one of their preferred... engineering partners on Hinkley and Sizewell, and now even in France in their expansion there. And we're into fusion. We've just bid for the AEA contract in the UK for the STEP program fusion. We're involved in fusion in the south of France at Ida. So, you know, there's a lot going on, and it's an exciting time. And we're able to build capacity to meet these demands. We are We're an employer of choice. We've got people coming in to meet these demands, so we needed to really move that guidance. So, sorry, that's a long answer, but there's a lot happening, right?

No, understood. Just my follow-up on Romania in particular, I saw that there are they're moving ahead with their own SMR plant, and I'm just wondering if that has any impact on the C3, C4 talks.

No, not at all. I mean, they have a very, very clear nuclear policy, and it is a combination of bringing life extensions to the two existing reactors, C1, C2. C2 will be quite a bit further down the line. It's a newer reactor. They're absolutely committed to rebuild C3, C4. But they also are in discussions with the U.S. around SMR technologies that we're actually not involved with. But it's not a question of either or. It's a question of both.

Thanks. I'll get back in the queue. Thank you.

The next question comes from Chris Murray with ATB Capital Market. Please go ahead.

Yeah, thanks, folks. Maybe a couple more questions around nuclear and maybe turning back to some of the discussion around Investor Day. I think when you first laid out the goals for nuclear and what you thought in the strat plan, I think the commentary was that it was going to be very back half loaded, like more into 27 or later. And now that we've seen this revised guidance, I guess what I'm trying to understand is, you know, should we be thinking that the entire revenue stack for nuclear now is, call it, that much larger than it was? Or is this more reshuffling of the timing of certain events? So any sort of color in terms of maybe even the longer-term goals that you had released at Investor Day would probably be helpful.

Yeah, okay. I think that's a fair question. I mean, I do see it. in kind of short-term, long-term. I mean, the short-term part of the business, which is bringing these revenues in right now, are these life extensions. And literally, the life extension part of the business has generated a lot of these revenues that you're seeing. And I think we've got this line of sight to you know, $15 billion worth of work in life extensions because our teams have actually been over in Korea where the can-do is there. They've actually been in Argentina where we've got can-do there. So I think we're going to see good revenue growth out of the can-do life extension work in the short term. to medium. So before that time horizon that you set to 27. And you've seen that. That's why we put the guidance up to 30 to 35 because we've got that line of sight and we know where this is going. So that's really positive. The services business just continues to go from strength to strength as well. And that's a lot more incremental because there are smaller services contracts, but that's got great growth too, which we'll see short to medium as well. I just want to be realistic about the Monarch. I mean, you know, the Monarch is going to be a long-term play for utilities and governments and customers. And, you know, it would have to go through a regulatory process in the respective region that it was deployed even in Canada. So we're probably talking something, you know, around about the timescale that you said. before revenues start coming in from the monohawk around 27. But that's not, I mean, don't misunderstand me. The revenue growth in the short term is really strong from this other world.

Okay, that's helpful. Okay, I'll leave it there. And just a couple quick questions on cash flow. Just maybe, Jeff, if you want to take this. You talked about the fact that second half cash flow should be good. You talked about earnings contributions and lower LSTK. Maybe just to clarify a little bit, historically, there's usually been also a working capital catch-up in the second half. I would assume that we'd also see something similar this year, but any color on that would be helpful as well.

Yeah, I think that's absolutely right, Chris. So as we talked about previously, definitely second half stronger than the first half and really driven, as you say, by two or three things. One is we do expect the cash flow usage from LSDK to lessen or ramp down in the second half of the year. We expect to continue to see growth in EBITDA and therefore cash flow from the growing services businesses. And there's no question. We do expect, as we have in previous years, expect to see a working capital improvement as we get to the end of the year as well. So the combination of all three of those is what continues to give us confidence in our guidance of greater than $400 million of operating cash flow for the full year.

Okay. Yeah, and just, you know, you basically said for US M&A, you really want to see that number turn positive before you start happening. You know, is there anything that you think that we should be looking for in terms of cash flows that kind of is a trigger point for starting M&A or is that going to be kind of, you know, kind of a different process altogether?

No, I think from a cash flow perspective, Chris, we view with our leverage within our target range now, so below two, that we think we have the balance sheet strength to undertake some tuck-in or bolt-on acquisitions from here on out. We've got active processes underway. Nothing to comment on or announce at this point, but we think we're in a position where we can absolutely execute on some of that.

All right. Thanks very much. I'll turn over the line.

Thanks.

The next question comes from Jacob Bout with CIBC. Please go ahead.

Good morning. Morning. Morning. Just going back to nuclear, the reduction in your margin guidance for the remainder of the year, Maybe just talk through that a bit. Is it a mix issue? And then maybe some thoughts around what you're thinking longer term as far as nuclear margins.

Yeah. Yeah, and it is that. I mean, you will remember in the Investor Day, we put a range of 12% to 14% out for the long-range margin target, and we feel that is the right margin level for the mix of business that's evolving. I mean, historically, nuclear business was very much on the services cleanup side was quite dominant. Now we've got this project work through life extensions and there's some flow through procurement to that. We think a good margin range for the long term of this business is 12% to 14%. And because we've brought on board so much growth this year, I mean, to move the outlook of revenue growth twice to now 30 to 35%. And remember, a very, very significant EBITDA growth, EBIT growth in the year over year from a dollar value perspective, we think the right range is 12 to 14%. And 12 to 14% is a high margin business. So it still reflects the high barriers to entry and the nature of the business and the fact that it's, you know, there's not that many competitors here in this field. But we do think that's the right range.

Okay. And then maybe just moving over to engineering service margins. You know, nice second quarter year-on-year margin improvement in UKI and in your regions. But Canada was down a touch. And I think, you know, you highlighted at the investor day that Canada was a focus for margin improvement. Maybe just talk through how you're seeing this progress for the rest of the year.

Yeah, yeah. And again, I mean, I'll refer to the investor day. We're totally committed to getting our margins up, that 200 to 300 basis points to 17, 18%. I mean, that is a key focus of our chief operating officer's office, a key focus of our chief operating officer, Phil Hawke, And we have a very, very specific plan in each region and very specific kind of measures that are across the company. I mean, just reflecting on Canada alone, I mean, one of the key issues with Canada is as we push forward in our new strategy, the work mix is changing and that work mix is giving us a better quality backlog. as we burn off some lower margin work and replace it with higher margin work. And that's key to bringing Canada to where we need it to be. But there's also kind of generic measures, such as generally the pricing levels in our business and the wind work rates that we're improving, reducing the overhead cost, getting our utilization of resource up by making sure that our people are shared across the globe so that the utilization of them is high. And then the GTC, of course, where we're currently at about 11% GTC content in our work, which is good, but we want to keep pushing that up even higher and beyond that. And the one thing I would kind of say as a little caution, I mean, you know, you will see incremental improvement year over year towards our goal of of 70-20%, but I think it's going to be pretty hard to draw a straight line region by region of margin improvement because just the nature of some of these plans that we've got in place don't necessarily give us a quarter over quarter straight line, but you will see it year over year. So I think I agree with you on Canada, but we're on it, so to speak.

Thank you.

The next question comes from Sabahat Khan with RBC Capital Markets. Please go ahead.

Great. Thanks and good morning. I just wanted to dig in a little bit into some of the specific opportunities you're seeing on the U.S. side, both on the kind of the base business and on the M&A side. On the base business, if you can maybe talk about some of the funding that's coming out of the IIJ and other bills and sort of how you're positioning for that kind of across which end markets and then Second part, I know M&A was highlighted as a big focus for the U.S. market. If you can just provide a bit more update on the kind of opportunities that are coming up at this point and what you're seeing there.

Yeah. Yeah. I mean, obviously, we're pleased with the growth in the quarter at 12% in the U.S. We've got a specific plan. I mean, that is... in relation to where we are in the U.S. and it goes back to our land and expand strategy. Just to recap where we're really strong in certain southern eastern states and we've got a clear plan to move into the northeast mid-Atlantic California. And we are seeing particularly transport and water opportunities playing towards us. I mean and it's really about decaying infrastructure that needs replacement and the whole kind of IIJA bill was really obviously firstly to stimulate economy but also to fund over and above the state funding the replacement of this infrastructure. So we're seeing that flow through and And we're seeing good opportunities come out of that. For example, you know, the Florida kind of business and a lot of framework agreements, which don't necessarily immediately add to backlog. So these framework agreements come into backlog order by order, but you end up with a five-year framework where you know you're going to get a significant amount of backlog through it, but it kind of comes in incrementally. So we're seeing good... Water and transport is great for us. Now... On top of that, which is probably something a bit newer for ourselves, is the power and renewable market with utilities upgrading grid and utilities looking at how they meet their net zero goals. So we're seeing a good opportunity from that. Maybe I can touch on the M&A as well. There was two parts to the business. it's all about, you know, M&A for us at the moment is about a land and expand strategy in the US. We've said that before, and we're in kind of the exploration phase with several targets. The great thing about the US market is that, you know, it's very fragmented. A lot of small players, a lot of medium-sized players in the US, so lots of targets. I mean, it's not, you know, it wouldn't be inconceivable that we might make an announcement even this year, but We're really focused on quality, you know, and we want to get this right. So we will take our time and just make sure we land the right targets with the right capabilities and a good cultural fit. You know, that's really priorities for us on M&A.

Great. And then just on the cost side, I guess, you know, obviously a big focus at the investor day, investors are also sort of honed in on that side of the opportunity, maybe a bit of an update on some of the initial areas of focus among the opportunities you outlined at the investor day, just kind of where you're making progress and, you know, when you should expect to see some of that operating leverage kind of start to flow through over the next few years. Thanks.

Yeah, Jeff, why don't I take that? And there's a few dimensions of that. Obviously, the the transformation and margin enhancement program, we have both looks at the revenue margin utilization productivity side, and we've definitely got initiatives underway around improving utilization and productivity across a number of the markets, which has a direct impact on our costs and our margin. The second thing is, and I think I've talked about this previously, We're in the midst of rolling out a common ERP platform with the next stages of that happening over the next 12 months or so. So we see that as a real opportunity to continue to drive costs out of the business and improve efficiency over the short to medium term. So I think I'd reference those two in particular.

Thanks very much. Thank you.

The next question comes from Benoit Ployer from Desjardins. Please go ahead.

Good morning, gentlemen.

Good morning.

Just in terms of organic growth, obviously, when we look at the first half, very solid at almost 15%. When we look at the guidance, you kind of maintain the 8-10% outlook for the full year. So I was wondering if you could provide any thoughts about there should be some softness expected in the second half or this is more conservatism at play here.

Thanks. Fair question. And I think it's about being prudent. Clearly we got the You know, in the engineering services, we've got 15% year-to-date. Really pleased with that. I mean, that's a good number. That's growth we're really proud of. And we are confident in the long-term growth potential of Atkins Realis, particularly where we positioned the company in terms of geography and end market, which we've thought this through, you know, deeply strategically. We're following the megatrends. in terms of the energy trilemma, the need for countries to meet net zero, and this replacement of aging infrastructure, which is not an option. If we want water quality to stay where it is, we want roads and bridges to stay open and railways to run, it's not an option. So these megatrends are essential that the infrastructure in the developed world is replaced. And we think we've got a differentiated product in the way that we approach the market. We're a very connected organization. When we pitch up to a customer, we could have people from the UK, the Middle East, Canada, to a US client because we pitch up as one. And that's what I think, in addition to our end-to-end services, where we offer capabilities through the whole life cycle that we talked about before. I think that's what is kind of differentiating it. So I just want to be clear, we're really confident in the long-term sustainability of our growth. However, there's a couple of things in the second half of this year which we just need to get bedded down, and I want to be prudent to see how these play out. I mean, one is obviously the new UK government, where we are very confident that they are committed to infrastructure and energy transition. In fact, very committed. And we want to see how that beds in. We want to see how the elections play out in the U.S. And we're also in a process ourselves of diversifying from just the Middle East into other parts of EMEA to diversify our reliance on Middle East growth. So we need to see all that play out. So that's why we kept the outlook the same for the rest of this year.

Okay. Okay. That's great, caller Ian. And when we look at the U.S. and Latin America, obviously, this was a strong print in terms of organic growth. But when we look at the EBITDA margin, it fell from 14.9 to 13.1. So I saw some comments about lower income from China. emergency response activities and also changes in the business mix so i would be curious uh to to have more granularity around kind of the uh the change in business mix and also what kind of uh what we should expect uh in the back half of the year more specifically for uh us and latin america yeah and that that that's a fair comment because you know

To build on the comments I talked through before about margin expansion, this margin expansion program is not going to give us a quarter by quarter linear straight line of improvement. And specifically in the US, we've year over year relied on this disaster relief, you know, federal government FEMA work. And frankly, it's not there this year. So we've ended up with a bit of a margin hole there. this quarter. So that's the kind of thing that we've got to fix in the business so that we've got sustainable approach to winning work, sustainable approach to delivering revenues that will always deliver margins at the higher rate of 17 to 18% by 2027. And we're on it. That's the kind of thing that is in our plan. Specifically as well, there's a couple of things a couple of projects, frankly, which are lower-margin projects, which we just don't want in the business going forward, and we've got to fix things like that. So you will see some margin improvement towards the end of the year, and you're going to see sustainable margin improvement over the longer-term period. But we recognize where that was this quarter, and that's the kind of thing we're planning out of the business. Okay, that's great.

And when we look at margins in Canada, I've heard your comment about not being a straight line. But on the other side, when I look at your backlog, very impressive growth versus a year ago. I was curious what kind of margins are baked in in your backlog and whether the little decline we saw year over year was more driven by the ramp up of new contracts or more kind of a mix that changed.

Well, it's good backlog. I mean, the program in Canada, you know, we haven't just implemented that this year. This is going back, you know, a couple of years. So, because it takes a while, you know, we've got long-term customers and long-term kind of arrangements with them. It's not like flicking a switch. We've got to migrate gradually over time. But the backlog growth, 26% is great. You know, we're really pleased with that. Forward-looking indicator to growth. But it's good margin as well. I mean, this is... different kind of work, different customers in the main that will bring us a better result. So I'm actually really, really pleased with the work that we're doing in Canada and the way that we're approaching, you know, the expansion. And also we're looking at new kind of markets that we've not been in recently. I mean, you know, historically we've been in them in Ontario and Alberta and British Columbia. But more recently, we've not been as strong. And now we're coming back there and re-entering the markets with good work.

That's right. And maybe last one for me. When we look at AMIA, very impressive margin in the quarter. So could you maybe provide some color on what's driving? I think you mentioned some comments about the strong buildings in Middle East and also whether this margin performance is sustainable going forward.

Well, it is pretty exceptional. I mean, very, very strong margins. When we were entering the and looking at our strategy going back a couple of years in the Middle East, we targeted the big programs. And we targeted the big programs in client-related kind of partnerships and design work and project management work. And we were really fortunate in winning high-quality work because we brought, I mean, it's these two differentiators that I believe we have, because we brought this end-to-end capability where clients, you know, if they want you to design something, they also want you to know how that design moves into construction. And whilst we don't do construction, having the knowledge of how that plays out gives us this kind of differentiated offering to our customers that they like. So that put us into some big schemes like Neom, like the Macabre, like in Solomon Park in the middle of Riyadh. And these have been good jobs. They're high margin, they've worked out well. But EMEA now is about diversification for us. I mean, we're probably at the level we want to be in the Middle East in terms of percent revenue to the whole. And we want to now move into the other parts of EMEA and we see great growth potential in Australia, particularly from the energy transition there. and the defense spending that Australia is getting into, which will bring our UK expertise in defense, will bring our engineering net zero, hydro, transmission and distribution expertise to Australia. And then in Asia, Hong Kong's coming back. That's why we created the region of Mia and appointed a president with Christine Healy there to drive that through. Bit of a diversification story there. Sorry, that's a bit of a long answer.

No, that's great, caller Ian. Thank you very much for the time.

The next question comes from Sean Jack with Raymond James. Please go ahead.

Hey, guys. So just thinking about the candy refurbishment that was announced in China and all the other nuclear activity that's happening in that part of the world, Wondering if you could just talk a bit about some of the other opportunities that you're seeing for the nuclear segment in Asia.

Yeah. So let's start maybe with Quinchan. I mean, the CANDU, two reactors were built some time ago in Quinchan, and they're coming up for life extension at the 30-year mark. And we have been working with them all the way through supporting the operation of the CANDU. And they actually had the choice of maybe decommissioning this power plant or life-extending it. And they chose to life-extend it. And we will not obviously carry out physical work on the ground, but what we will do is provide engineering support from Canada. We'll provide procurement of procured items for the reactor rebuild. from Canada will provide oversight on the ground in China to help them re-tube and rebuild this reactor. And tooling, which is multi-million. I mean, these tools are like several tens of millions of dollars of supplied items. So it's a good job. Now, the reason China likes the CanDo technology is they can burn spent fuel from their other technologies. And it could be possible, it could be possible, that they may want more can-do technology. Now, we're in discussion with that, there's no guarantee, but it could well be possible. Now, across Asia, beyond that, I and a few of my colleagues was on a trade mission with the Canadian government, federal government, going back about two months, and we had some really good engagement, particularly in certain countries, where they're looking for nuclear. They clearly are not aligned to Russia or China, so they're looking to the west towards nuclear technology. And the great thing about the CANDU technology for a new country that wants nuclear power is we use natural uranium. So all the complexities around bringing processed uranium into the country doesn't exist with CANDU. So I think, you know, nothing like imminent, but I think, you know, with the Canadian government's support and with the great technology we've got, I think there's real opportunity around the Asia region, and we're active in marketing, really active in marketing around that.

Awesome. Okay. I'll leave it there. Thanks, guys. Okay. Thanks.

The next question comes from Maxim Sychev with National Bank Financial. Please go ahead.

Hi, good morning, gentlemen. Good morning. Most questions have been asked already, but I was just wondering, now that you have telegraphed that you're looking to exit the 47, if you have gotten any sort of inbound interest from, you know, whether, I guess, the logical buyers or, you know, some other related third parties and maybe any update on LinkedIn as well. Thanks.

Yeah, Jeff, why don't I take that? maybe just in reverse order, you know, nothing to report around links on. As you heard from me earlier, we continue to look to strengthen that business, improve its margin profile, and, you know, we'll continue to do that, you know, while at the same time, you know, continue to explore options to divest our interest. But, you know, we don't see anything, you know, currently in the short term on that. You know, and I think on the 407th, As we said at the investor day, we ultimately don't see ourselves as the long-term owner and therefore would expect to divest our stake. Not surprisingly, that has resulted in some interesting conversations, but nothing to report at this time, Max.

Okay, fair enough. Actually, do you mind if I ask you just a quick question on UK? I'm curious what's driving the performance there and any potential impact from the recent change in government?

Thank you. Yeah, good question. And actually, I was at a round table in Canada with the Chancellor of the Exchequer from the UK only this week with some of the businesses. So we've got some kind of direct information. We're pretty optimistic about the new government. I think optimistic in two ways. First, the commitment to infrastructure as a stimulus towards economic development. And the UK's intention, the new government's intention, is to draw a strategic list of infrastructure that will be executed over the long term. And this is really helpful because when governments chop and change It's hard to plan resource around that and plan capability. So I see that as a real positive and clearly a commitment to infrastructure. But even more than that, they have reduced the net zero electrical generation goal from 2035 to 2030. And that means the deployment of renewable energies, including nuclear, on a pretty urgent basis to do that. So that could play really well for us. And, you know, we intend to obviously support other technologies in nuclear, but we intend to take the can-do there and see if we can deploy that too. So I think it's going to be kind of a good period of opportunity, actually, as we see this new government going into action. And they're keen, you know, five weeks in office, and she came over here in New York looking for investment, looking for business partners. So they're getting going quickly.

Well, that's good to hear. Thanks so much, Ian.

The next question comes from Michael Tufong with TD Cowan. Please go ahead.

Thank you. Just a question about the Canada Engineering Services business and Q2, the organic growth. Saw that slow down fairly meaningfully from what we had seen in the first quarter. So I guess the question is, what drove that slowdown in organic growth versus Q1? And how should we think about Canadian organic growth in the second half of the year?

Yeah, yeah. Fair question. I mean, so I think the forward-looking metric that I would look to to kind of think about how it plays out in the long term is obviously the backlog growth. And 26% backlog growth, you know, that gives me comfort that we're on the right road and we're going to see growth coming out. And further to the sort of margin questions that were asked, it's good quality backlog as well that we've replaced it with. I mean, we didn't get a replacement contract on one of the battery batteries factories that we're working on um that that was a bit of a blow frankly uh that that's probably brought the the the kind of um growth down in q2 um but that is what it is i mean you know we're focused on other kind of markets as i said particularly in the the transport sector where we have that great win um on the surrey langley which is you know really good services around systems and around track, where we've got great expertise. We're seeing good opportunity in property, which would generally, you know, architecture and property is not something that we've really been strong at in Canada, outside of Quebec, but we've got, you know, a new approach there in Ontario. I've been to Alberta with Stephanie, our president, probably three times this year because we're seeing good industrial work in Alberta. No winds of significance yet, but a lot of investment in renewables, a lot of investment by the oil and gas sector to decarbonize their assets and potential carbon capture and hydrogen. So we're following that too. So we're optimistic about Canada. And I think we have a good plan.

Perfect. And then two quick modeling-related questions, so probably for Jeff here. But corporate PS and PM maintaining the full-year guidance of $130 million, that implies about $51 million for the second half. How do we allocate that between Q3 and Q4? And could stock-based comp continue to affect that and actually change that $130 million number?

Yeah, I mean, I think you've done the math about right. I'd expect that over the next couple of quarters to be roughly equal, nothing one way or the other. We think also at this point that we've accounted for the necessary share price rise in LTIP. Now, I guess you'd never say never. If the share price were to significantly rise again, then we might see some additional costs, but we think we've got a lot of that now accounted for.

Helpful. Thank you. And then just lastly, LSDK EBIT loss a bit higher this quarter at 18 million. Why was that? And how do we think about sort of half two and the eventual ramp down of that drag on results here as we look at a little further?

Yeah, so we did see a bit of additional costs as we're, you know, closing out or getting close to closing some of the projects. You know, Trillium, for instance, we expect, you know, to hand over, you know, in a reasonably short period of time. So we saw a few extra costs around that just finishing it off. So that's what kind of drove the few extra million you saw in the quarter. I think over the next couple of quarters, probably a similar level to what we've been, sort of 10 to 15 million, as we look to close some of these out. But then, obviously, as we move into next year, it'll continue to reduce. Perfect. Thank you. Thank you.

This concludes the question and answer session. I would like to turn the conference back over to Denis Jasmine for any closing remarks.

Thank you very much for having joining us today. Merci beaucoup. Have a good weekend, everybody. Have a good day. Thank you.

This brings to a close today's conference call. You may now disconnect your lines. Thank you for participating and have a pleasant day.