Aecon Group Inc.

Good day and thank you for standing by. Welcome to the Q1 2024 ACON Group Incorporated earnings call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 1 on your telephone. You will then hear an automated message advising that your hand has been raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand this over to our first speaker today, Adam Borgatti. Adam, please go ahead.

Thank you, Mark. Good morning, everyone, and thanks for participating in our first quarter results conference call. With me today are Jean-Louis Servanques, President and CEO, Jerome Julliet, Executive Vice President and CFO, and Alistair McCallum, Senior Vice President, Finance. Our earnings announcement was released yesterday evening, and we've posted a slide presentation on the investing section of our website, which we'll refer to during the call. Following our comments, we'll be glad to take questions from analysts, and we ask that analysts keep to one question and a follow-up before getting back into the queue to ensure others have a chance to contribute. As noted on slide two of the presentation, listeners are reminded that the information we're sharing with you today includes forward-looking statements. These statements are based on assumptions that are subject to significant risks and uncertainties. Although ACON believes the expectations reflected in these statements are reasonable, we can give no assurance that these expectations will prove to be correct. Now, before I turn over the call, I'm pleased to welcome Jerome Julliet as ACON's Executive Vice President and Chief Financial Officer, effective April 8, 2024. With nearly 20 years of finance, strategy, and capital markets experience, particularly in construction, engineering, and utility services, Jerome has been a trusted advisor to us and many of our clients and partners. Notably, he played key advisory roles in some of ACON's most transformative transactions, including the divestiture of ACON Transportation East and the strategic investment by Oak Tree Capital Management in ACON Utilities last year. With that, I'll hand the call over to Jerome.

Thanks, Adam, and good morning, everyone. I'm excited to have joined ACON. This is day 14 for me, and I've already found the passion, dedication, and innovative spirit that defines this business. A huge thank you to the team for their warm welcome and strong support during my onboarding. It's been critical for me. I'm eager to collaborate with the leadership team and the balance of the business to develop and execute our strategies that are going to optimize our financial performance and create value for shareholders. With that, I'll now touch briefly on ACON's consolidated results, review results by segments, and then address ACON's financial position before turning the call over to Jean-Louis. Turning to slide four, revenue for the three months ended March 31st, 2024 of $847 million was $261 million or 24% lower compared to the same period in 2023. A table has been included on slide 16 of the conference call presentation to help contextualize our Q1 revenue performance. Adjusted EBITDA of $33 million, a margin of 3.9%, compared to $25 million, a margin of 2.2% last year, An operating loss of $4 million in the quarter compared to an operating profit of $6 million last year. Lower operating profit was attributed primarily to gain-on-sale property plan equipment of $11 million recognized in the same period, 2023. Duluth loss per share in the quarter of $0.10 compared to Duluth loss per share of $0.15 in the same period last year. Reported backlog of $6.3 billion at the end of our quarter compared to backlog of $6 billion at the end of the first quarter in 2023. New contract awards of $963 million were booked in the quarter compared to $812 million in the prior period. When I look at the results by segment, turning to slide five, construction revenue of $844 million in the first quarter was $247 million or 23% lower than the same period last year. Revenue was lower in industrial operations, primarily due to decreased activity on mainline pipeline work following the achievement of substantial completion on a project in the third quarter of 2023. And urban transportation solutions from a lower volume of white rail transit work civil operations from a lower volume of road building construction work as a result of the sale of ACON Transportation East in the second quarter of 2023, and in utilities operations from a decreased volume of telecommunications and oil gas distribution work, partially offset by an increased volume of high voltage electrical transmission and battery storage system work. Partially offsetting these decreases was higher revenue in our nuclear operations, driven by more volume of refurbishment work at nuclear generating stations in Ontario and the United States. New contract awards of $960 million in the first quarter of 2024 compared to $795 million in the same period last year. Backlog at the end of the first quarter was $6.2 billion compared to $5.9 billion at the end of the first quarter of 2023. Turning out slide six, adjusted EBITDA of $28 million, a margin of 3.3% compared to $22 million, a margin of 2% last year. Adjusted EBITDA increased by $6 million due to higher volume and gross profit margin in nuclear operations and higher gross profit margin in urban transportation solutions and utilities. These increases were offset by a decrease in gross profit in industrial operations. Higher operating profit in civil operations was primarily due to a lower seasonal operating loss contribution from a road building construction work following the sale of a contra-exportation east in the second quarter of last year, and partially offset by a lower gross profit margin from major projects in western Canada. Now over to slide seven. Concessions revenue for the first quarter was $3 million compared to $17 million in the same period last year. Decrease in revenue was largely driven by the sale of 49.9% interest in Skyport, the Bermuda International Airport concessionaire, and use of equity method of accounting on a prospective basis for ACONs retained 50.1% interest in Skyport. Adjusted EBITDA in the concession segment of $18 million compared to $15 million last year, primarily due to improved results from the Bermuda Airport and an increase in management and development fees. Passenger traffic in Bermuda continues to improve, with an average of 81% in the first quarter of 2024, pandemic level. Turning now to slide eight, at the end of the first quarter, ACON held cash and cash equivalents of $123 million, excluding cash and joint operations. In addition, at March 31st, 2024, ACON had committed revolving credit facilities of $850 million, of which $76 million was drawn and $7 million was utilized for letters of credit. ACON has no debt or working capital credit facility maturities until 2027, except equipment loans and leases in the normal. At this point, I'll turn the call over to Jean-Louis.

Thank you, Jerome.

I'll speak first to the four legacy projects before addressing our business performance and outlook. ACON and its joint venture partners remain focused on driving those legacy projects to completion while pursuing fair and honorable settlement agreements in each case. The most recent interim settlements reached between the relevant joint ventures and the respective clients on each of the four projects, and the cumulative adjustments made to forecast to date reflect the progress we are making toward completion. Every day, we are getting closer to the end. However, we acknowledge that despite the progress made to date, risk remains if assumptions, estimates or circumstances change. At March 31, 2024, the remaining backlog to be worked off on this project was $330 million compared to backlog of $420 million at December 31, 2023, and $801 million at March 31, 2023. The four legacy projects comprise 9% of consolidated revenue in the first quarter of 2024, and 5% of backlog at March 31st, 2024 compared to 16% of consolidated revenue in the full year 2023 and 7% of backlog at December 31st, 2023. Turning to slide 10, ACRON's goal is to build a resilient company through a balanced and diversified work portfolio while enhancing critical execution capabilities and project selection to play to our strengths. We continue to leverage our self-performed capabilities and one-acorn approach to maximize value for clients through improved cost certainty and schedule, while offering a broad range of services from development, engineering, investment, and construction to longer-term operations and maintenance to cover the full infrastructure value chain. While we pursue and deliver the majority of our work in established markets, we are embracing new opportunities to grow in areas linked to decarbonization and the energy transition, and in U.S. and international markets. These opportunities are intended over the long term to diversify ACON's geographic presence provide further growth opportunities and deliver more consistent earnings through economic cycles. Turning now to slide 11, demand for agron services across Canada continues to be strong. With backlog of 6.3 billion at March 31st, 2024, recurring revenue programs continuing to see robust demand and a strong bid pipeline, ACON believes it's positioned to achieve further revenue growth over the next few years and is focused on achieving improved profitability and margin predictability. We are pursuing a balanced portfolio of work delivered through both fixed and non-fixed price contracting models with the goal of reducing fixed price work to balance risk with acceptable returns. Trailing 12-month recurring revenue of $1.1 billion was up 30% versus the prior period and 54% versus two years ago. Contributions from the GO expansion on corridor works and Scarborough subway extension projects during the respective development phases were the primary drivers of this growth. Turning to slide 12, development phase work is underway in five consortiums in which ACON is a participant to deliver the GO expansion on Corridor Works project, the Scarborough Subway Extension Station's rail and system projects, the Darlington New Nuclear Project, the Contraker Terminal Expansion in Water Works project, and most recently, the U.S. Virgin Islands Airport Redevelopment Project which is under a collaborative design-build-finance-operate-and-maintain model. These projects are being delivered using progressive design-build models, and each project is expected to move into the construction phase in 2025. The GO expansion project also includes an operations and maintenance component over a 23-year term commencing January 1, 2025.

known of the anticipated work from those five progressive design-build project is yet reflected in backlog.

Turning to slide 13, this week ACON released its fifth sustainability report, Advancing the Energy Transition, showcasing our unwavering commitment to sustainability in our projects and the innovative methods we use. This report highlights ACON's initiatives to embed sustainable innovations and work towards net-zero construction throughout its operations. ACON is pleased to report continued progress towards its target to achieve a 30% reduction in direct CO2 emissions by 2030, with a reduction of 20% to date in scope 1 and 2 emissions,

since 2020 based on revenue intensity.

Sustainability is part of our DNA at ACON and a key consideration in every decision we make as we continue to focus on building what matters to enable future generations to thrive and transition to a net zero economy. Turning now to slide 14, with strong demand, growing recurring revenue programs, and diverse backlog in hand, ACON is focused on achieving solid execution on its projects and selectively adding to backlog through a disciplined bidding approach that supports long-term margin improvement in the construction segment. In the concession segment, there are a number of opportunities to add to the existing portfolio of Canadian and international concessions in the next 12 to 24 months, including projects with private sector clients that support a collective focus on sustainability and the transition to a net-zero economy, as well as private sector development expertise and investment to support aging infrastructure, mobility,

connectivity, and population growth.

Our revenue in 2024 will be impacted by the three strategic transactions completed in 2023, the substantial completion of several large projects in 2023, and the five major projects currently in the development phase by consortiums in which ACON is a participant, being delivered using the progressive design-build models which are expected to move into the construction phase in 2025. Completion and satisfactory resolution of claims on the full legacy project with the respective clients remains a critical focus for the company and its partners. While the remainder of the business continues to perform as expected, supported by the strong level of backlog and the strong demand environment for ACOM services, including recurring revenue programs.

Thank you. We will now turn the call over to Annelies for questions. Thank you.

At this time, we will conduct the question-and-answer session. As a reminder, to ask a question, you will need to press star-1-1 on your telephone and wait for your name to be announced. To withdraw, press star one one again. Please stand by while we compile our Q&A roster. And now our first question will come from Yuri Link of Conocore Ingenuity. Please go ahead, Yuri. Good morning, gentlemen.

Nice clean quarter, and I'd love to not lead off on an LSTK question, but I have to. When I look at your DSOs and your WIP days, materially higher year on year, despite the lower revenue. In fact, I don't think I've seen your WIP this high. So, you're not billing, and I'm just wondering what's behind the rise in WIP and DSOs in the quarter.

So, Uri, it's Alistair. So, as you see, we had a negative working capital in Q1. It's very similar to what we had in Q1 2023. I think part of that was we had a very strong Q4 in terms of bringing in our AR and collections. And so I think that had a negative impact on where we're sitting at the end of Q1. But I mean, overall, our liquidity is at $890 million. This time last year, we were at $372 million, so we're in a much stronger place than we were last year. And certainly, you know, unbuild is always a critical focus for us, and it's something that we continue to work on every day.

Okay.

Second one for me, just on the backlog, like you've got a bunch of these progressive design builds. I personally haven't been through a cycle with these type of contracts. So just what should we expect? backlog how does it evolve over the next couple of years here as these projects move into the construction phase specifically the on corridor works project I think that the two year development phase ends in Q3 so does that go into backlog and does the whole thing go in at once or is backlog kind of phased in over time

Yes, I'm going to take this one, Yuri. So we have now five projects under progressive design-build mode. We are very happy about it. I mean, we have been working on it for the last three years to modify the contractual mode that was prevalent, I mean, in the industry. Encore. Carborough. Darlington SMR. and now U.S. Virgin Islands. So they are different. I mean, the two first ones are with Metrolink. The third one, I mean, we are in charge of all construction services. It's an alliance between OPG, G.I. Thatchy, Atkin Realix for the engineering, and ourselves. The fourth one is a joint venture with Pomelo, I mean, in Contraker for the in-water works. And the fifth one, I mean, you heard about it a few weeks ago, is the refurbishment, rehabilitation, under design, build, progressive, finance, operate, and maintenance, which is a very innovative model, and we are quite happy. I mean, we have been working on it during the last one year with a client to set this model. What can we expect in terms of backlog? So some of all these projects is something, let's say, I mean, around six days. It may be even more. I mean, it will depend on the development phase. If we come back to the first one, which is the encore, our development phase will go up to the end of the year 2024. At this moment, we will most probably have set up with the client the target price and the condition of execution of the two first bundles of the works. So we could expect, in terms of backlog for those two first bundles, around $2 billion. Those works will happen during a period of three to four years, more or less. You probably remember and you have noticed that in parallel, we have entered into a preparation phase for the operation during 23 years from the 1st of January 2025. We are very well advanced. So at the moment, we are quite happy with the development and the quality of the collaboration with Metrolinx on this very big and very important project.

That's helpful, Jean-Louis. It sounds like you book these in stages. And am I right in assuming that you're taking some fixed price risk on these smaller phases and then you renegotiate on each phase as it progresses and thereby reducing the risk so you're not on the hook for the entire scope of the project at once?

questions here. The first one about the phasing. So GO Train and Encore is a huge program of electrification. It just means that we have decided to go for bundles rather than for the totality and to fix everything now for the totality of a program that may last more than eight years in terms of construction. Scarborough, for example, will not have any bundle. It will be the full project. The SMR will not have any bundle. I mean, from the moment before the end of the year, we will get in the contraction phase, no bundle, totality of the job. Contractor, same thing. U.S. Virgin Islands, there may be a phasing because those are two airports. There may be a phasing, but we most probably will not do any bundling. So the bundling effect is for the moment only on Encore because of the complexity and because of the time. Second question, how do you unlock a development phase? We have a few, I mean, there are a few ways of being allocated at the end. On Encore, in addition to the fact that we bundle and we both decided, I mean, with Metrolinx and our consortium, to bundle it. I mean, it's not going to be a lump sum. It's going to be a target price with a gain share, pain share. And we will finalize the negotiation on this target price and the gain share, pain share before the end of the year. Some of them, for example, at the moment, ContraCare is on a scheme where at the end of the development phase, you're going to a lump sum price. But you probably know that The in-water works of Contracur in terms of scope and magnitude have nothing to do with Onco. So it depends on the project, and we stay firm on our strategy to be extremely cautious on any lumps and price superior to $1 million.

Okay, that's very helpful. I'll turn it over, guys. Thanks.

Thank you for the question. Please proceed. stand by one moment while we bring up our next question. And our next question will come from Jason Bout with CIBC. Go ahead, Jacob.

Good morning.

I had a question just on revenue growth. And I know you're saying recurring revenue is up year-on-year for the quarter, but when we take a look on a consolidated basis, it's down 24%. And I know the divestment of ATE and CGL was a big contributor last year. But, you know, when do you expect to see that consolidated revenue returning to top line growth? You know, also looking at your backlog here and the potential, you know, additions with these five development projects. I mean, that's, I'm assuming primarily kind of a 2025 thing, but. Yeah.

Hey, Jacob. It's Jerome here. So, you're right. Current quarter, if you look on a like-like basis, effectively flat to last year, but a little bit down. Positive buck to bill in the quarter. 2024, we've been consistent saying there's no expectation for a big growth here. It's really a repositioning year. And so, I think the way to think about it would be relatively flattish or low growth in

on the growth front.

Kind of box into my follow-up question here, but so how are you planning for this growth in 2025? You know, are there going to be any labor availability issues or, you know, how should we be thinking about that?

Well, I think, Jacob, the way we look at it is you have a lot of these projects that we've been working on in this progressive phase. So take the two transit projects like the GO program in Ontario and the Scarborough and You've got a lot of availability of people coming off the former projects, for example, Eglinton and Finch. So we're able to kind of effectively transition lots of the labor and project management resources among them. Similar with our international work coming off of Bermuda and elsewhere, we've been able to build a presence in the Caribbean to adequately staff these projects. So we think we've got the right amount of people kind of moving to the next phase of the projects. And as I said, or as Rome said, it's a little bit of a transition timing between 23 and 24. Another big contributor to revenue last year would have been the Site C project where we've got lots of those people coming off moving to John Hart Hydro in BC. So I think we're adequately staffed. It's always top of mind for sure on the labor side, but we don't feel any real main pressure points that are giving us more concern than normal.

Yeah, maybe I jump in here at this moment. I mean, we have finalized our strategic plan 2024-2027. the focus is on profitability and margin predictability. Over hyper-growth, I mean, of revenue, as I've been saying during the last quarter, we are extremely disciplined in terms of pursuits and in terms of bidding, and we are very happy to see that those efforts are just beginning to bear fruit. So we want The revenue stabilization in 2024 is pure math, and there's nothing special about it. And we have a lot in our backpack, as you have noticed, that will drive growth, profitable growth in the year to come.

Thank you. Thank you. One moment for our next question. And our next question will come from Frederick Bestain with Raymond James.

Go ahead, Frederick.

Good morning and welcome, Julien. There are a couple of items below the EBITDA line that I'd like you guys to shed some light on, if possible. The first one relates to construction amortization, which rose year over year, despite the sale of ATE and the lower volumes. So that's the first one. I'm wondering if you could provide a bit more color there. Second one relates to the interest expense. Overall, it was lower. You did include the accrued interest from Oak Tree's preferred shares, but there was also a fair value gain reported. So, if you could provide a bit of color there, that would also be appreciated. Thank you.

Hey, Frederick. Ed Salster. So, the first one – I'll answer the second one first on the preferred share. Every quarter we fair value the preferred share, and basically there's about four or five different factors such as volatility, credit risk, risk-free rates. And so when we do that, this quarter there was a $4.9 million gain. um on the on the preferred share um so that's that's really the the answer to the the first question um part of that went to uh 4.3 went to the pl and the the remainder went to oci uh on your first question around depreciation so i think um when you looked at uh you'll see depreciation went down because of the equity accounting through the sale of 49.9% of Bermuda. And then on the construction side, yes, we had the positive impact from the sale of ATE, and then we had additional, you know,

offset that so those are that's the reason and Friday's side Jerome here maybe I'll just put an extra layer of context on the preferred shares we really accounting aside we really do just think about them on the basis of their terms right so 27.5% of the equity value of utilities business or effectively the 12% pick accrual the rest of it I just view as accounting

Okay, I'm still not clear on the construction or amortization, because I would have expected it would have gone lower, would come in lower, but it actually crept up year over year despite the sale of ATE, and also you had recorded lots, you know, lower volumes. I don't know if it's impacted. Amortization should be impacted by volumes, but anyway, something that I found was interesting. But we can take that offline. I appreciate that. I recognize I asked you a question, so I'll just pass it over. Thank you.

Thank you. Thank you for your question. Please stand by for our next question. And our next question comes from Jonathan Lamars with LaRiche and Bank. Please go ahead, Jonathan.

Good morning. Thank you. Just another question on revenue. So slide 16 in the package showing that pro forma revenue was down 1% year over year. That's very helpful. Yet demand is clearly very strong with new awards up 21% year over year. So my question is, as more of the overall business shifts to progressive design build contracting models that have longer development phases, Would you say it's taking longer for new project awards to translate into revenue?

One of the key elements of our strategy is balancing our activity. We are balanced within sectors.

We could, for example, between sectors, we could push nuclear and utilities.

But we have decided that our five sectors have to be Same thing for contractual mode. I mean, we can do MSA, we can do unit price, we can do target price, we can do lump sum. I mean, there's not such a world where we can say every lump sum is bad and we will only go for progressive or time and material. I mean, I gave an example, for example, kicking horse. It was a job under a lump sum. a very complex job that we won in front of the two best companies in North America and in Europe. It was a lonesome job. We were perfectly on time, perfectly on budget, and our client is extremely happy. I mean, tomorrow morning, 10 o'clock, our TBM machine on Eglinton West is getting out of the first tunnel perfectly on time, perfectly on budget. It means that it was a lonesome job. So we don't say we don't want to do any more lump sum jobs, but we are extremely cautious and found some kind of work in terms of size and in terms of complexity. For example, when there is system integration, we don't go anymore for lump sum and we go for progressive design. Of those ones, there is a development phase, but you don't have to forget either that A progressive design-build scheme is just a five-month preparation pre-bid period, when before it was between one year and maybe 15 months. So all in all, yes, there may be a little push down the line, but it's a real difference in terms of margin predictability.

Yes. Okay.

Thank you. And on the legacy project backlog that's remaining, the $330 million, can you provide a sense of how much of that relates to Gordie Howe Bridge and maybe the cadence of how you see that being worked off over the next two years?

So on the $330, the majority now is on Gordie Howe.

It means around two-thirds of the backlog is on Gordie Howe. Gordie Howe is forecasting to be substantially completed in September 2025. In terms of execution, it goes quite well. Just to give you an example, this bridge, which is the longest span in North America, 851 meters, across the river from north to south, 53 segments. of 15 meters each, remaining three segments. Then we have the port of entry, I mean, Canadian side and American side, and the interchange I-75, I mean, on the Michigan side. Everything is on time. So I would say I'm rather happy with the execution of this project. What else? I mean, CGL, from our perspective, the project is now essentially complete. Our team is focused on preparing for the upcoming arbitration, which you have noted. It starts immediately, I mean, Q3 2024. Given the proximity to the start of the arbitration, we just prefer to let the arbitration process play out rather than commenting, I mean, any further. The two other ones are Eglinton and Finch. I mean, LRT job in Toronto. Construction is complete. We are now testing and commissioning. And most, I would say, of the issue remaining are the interfaces with Metrolink and TTC with the operator. I just remind you that we are the maintainer, but we are not the operator. And we are just under testing and commissioning with those two jobs, pushing toward what we call revenue service demonstration.

that should happen before the end of the year 2024.

Thank you. That's very helpful. I have one other question on sustainability, if I can. I noticed that you'd highlighted in the slides the benefits to carbon reduction from the sustainability projects you're undertaking. With 75% of the backlog now tied to sustainability projects, Will the benefits from those show up in the reduction to emissions that you report, including the 20% reduction year-to-date at some point?

Yeah, for sure. We're on a pretty good path to achieve our targets and feel very confident in our ability to do so. A lot of that is being done through renewable and more sustainable fuels, electrifying our fleet, adding more electrification and alternative generation-type assets on our project sites. So certainly on the path, we're very proud of the fact that we're working with some of the largest providers of equipment and fleet in the world on testing their newest equipment in Canada, being among the first to procure them and trying to get as much as we can. And that includes even our staff and fleet vehicles here trying to electrify those.

So well on the path to achieve our goals and hopefully sooner than anticipated. Okay, thanks for your comments. Thank you for the question. Please stand by for our next question.

Our next question will come from Michael at TD Securities. Go ahead, Michael.

Thank you. Good morning. My question is related to the Akon Utilities business. I know earlier in the call you talked about this being a transition year and the focus is really around margin improvement and earnings predictability. But just as it relates to the revenues, it looks like the utilities business, which I think has been described as a fairly important growth area, it looks like you were sort of flattish year over year on a revenue basis. I was wondering if you can just kind of talk a little bit about that. what you're seeing to start the year in that business and how we should also think about the year unfolding as a related stake on utilities and the revenues.

Hey Mike, it's Jerome. Good question. So Q1 is the seasonally least significant quarter for the utilities business, given the amount of outdoor work that they tend to perform in the Canadian market. And the story there is just simply a little bit slower work programs on the telecom and oil and gas distribution side of the business, partially offset by more high-voltage transmission distribution work and as well doing some work on large battery storage projects. So we're not concerned with the year-over-year performance report or kind of quarter-to-quarter performance on this one. We're still... and we're still expecting growth coming through the back end of the year. This is a business where Q2, Q3, Q4 are where they really demonstrate their mettle, and so I think our expectations continue to be aligned with that.

Okay, that's helpful. Thanks for that. Maybe just to follow on, related but different part of the growth strategy, can you talk a little bit about what's happening with respect to the inorganic opportunities to grow that business?

Yep, so Mike, it's Adam here. We've got quite a good pipeline ahead of us, working through that with our partner in Oak Tree, focused on U.S., Canada areas, establish initial presence with certain you know small mid-sized businesses we've talked before in that 50 to 150 million range we're not trying to get this thing too outsized right out of the gate but really use these as platforms to grow and what we describe as land and expand our our strategy that's often in companies that have one or two verticals among the four that we participate in and then we try and really apply you know acons opportunities across our business into those uh into those businesses and really help them grow so i think um We've got a good, as I said, pipeline ahead. We expect this to be a year of lots of activity and to stay tuned.

Okay, perfect. And then maybe just one more quick one here to follow up on, I think it was the earlier question you had about working capital investment in the first quarter. Can you talk about how you'd expect that to evolve over coming quarters and maybe where you think you'll land on a full year basis in terms of changes in on-cash working capital?

Yeah, so it's Alistair, Mike. As we talked about, working capital is weakest in Q1 and Q2 and then improves in Q3, and Q4 is really our strong quarter for working capital. So I think overall, as I said, Q4 was very strong, Q4 of 2023, so that's had an impact on on Q1, but expect to be flat kind of on the year, and then obviously it's subject to some of the settlements and arbitration discussions and results that come from the legacy projects as well.

All right. Thanks for the detail.

Thanks, Mike. Thank you for that question. Please stand by for our next question. Our next question will come from Ian with Stifel. Go ahead, Ian.

Good morning, everyone. This one's directed at Jerome. I mean, the messaging from ACON as a whole has been pretty consistent around de-risking the backlog, EBITDA margin improvement over the last, call it, year to two years. I know it's early days for you, but is there anything else at the margin or anything else you'd like to see rounded out for targets you'd like to hit or metrics you intend to focus on that may be a bit different?

Yeah, it's a good question. As I mentioned, it's 14th business day here. Look, maybe I'll take a step back and just comment on my initial observations coming into it. I think what I'll say is the strength and performance and sophistication of the team I witnessed it over working as an advisor with them in 2023, and then coming in and seeing behind the curtain, it's actually exceeded my expectations even more. This is a business where both, I'd say, the corporate group, but also certainly the operating groups and the men and women who are executing the work do extraordinary jobs to make sure that they're very focused on executing the projects, managing cash flow. At the moment, I'd love to say that there'd be a magical item out there that was kind of really weakly done that I could just kind of swoop in and claim as my own. But I think this is largely going to be blocking and tackling and then just moving forward thoughtfully, managing capital, managing returns, and then allocating that capital. own balance sheet to kind of pursue, you know, a slightly differentiated growth approach for that area of the business. So I'd say, like, to early days, no concerns or issues, and it's really kind of probably pleasantly surprised across the board.

Okay. Well, I'm going to save that question and re-ask it in a year's time. But maybe... Switching to my second question, there's been a significant amount of announcements regarding EV plants and related activity in that area, specifically in Ontario. Can you maybe talk about your competitive position in that market or how you're thinking about pursuing it, just given it's likely going to be a high-growth area for the next, call it, decade?

Yes, I can. Evidently, energy transition is a game changer for Econ and we are focused on it. We are at the moment in the bidding phase of the Umicore plant near Toronto and we are discussing with the client. There is competition, but we are keen with this job. the rest will come. I mean, there are other plans coming. We just want to put a foot on it. I mean, it has been the same strategy for battery storage with Omeida, which is quite an important one, the first one of this kind, and we are extremely happy with the way this job is being executed. We are perfectly on time, and we learn a lot, and that's That's going to be key for the next stages with ISO or in the United States or in other provinces of Canada.

Okay. Thanks very much. I'll turn it back over.

Thank you for that question.

I believe that is our last question for today. We will go ahead and turn this back over to Adam Borgatti for closing remarks. Oh, sorry, we just had one more question come up. Please hang on one moment.

The lightning round.

That's right. So our final question will come from . Please go ahead.

Hey, good morning, gentlemen, and congrats for the solid start. Could you maybe provide more colors? You've been able to book two airport winds in the quarter. What should we expect in terms of potential contribution going forward in terms of revenue and maybe timing also probably more of a 2025 story, I would believe.

Yeah, thanks, Benoit. You quoted the two airports booked in the corridor. One is a smaller construction-focused project, so there's no concessions related to the Anguilla Airport. But again, it does sort of solidify our presence and demonstrate the commitment to that area and that geography and the type of work that we do starting to bear more fruit in different types of projects and hopefully more to come there. As it relates to the bigger one that we've discussed, which is U.S. Virgin Islands development and rehabilitation of two airports there, it's still in the progressive phase, so tricky to talk about revenue contributions and or cadence at this point, but safer to say that it will be booked into probably the first half of 2025. And again, it'll follow a similar pattern that we've used in the past, which is taking over the operations of the existing airports while we use that to partially fund construction, take on But again, the benefit of the progressive sort of approach to these is you've got some time now to really work with the clients to determine best scheduling, what the optimal construction program looks like, any additions or areas that they'd like to tweak in the initial areas. So I think more to come on those, but we do expect more revenue contribution from those, as you said, in 25 versus 24 as they start to scale up a bit.

Okay. And with respect to the recent REM delay that we've seen, are there any implications for you, or is it something that you've seen coming?

So, Benoit, good morning. No special implications. I mean, for us, the works are going perfectly, I mean, as per the program. So, yes, we have heard that there are some discussions about the phasing between REM and GPMM, which is a group on which we are not in charge of operation and maintenance and rolling stock. But as far as our contract is concerned, there is no change.

Okay, perfect. Thanks for the time, and congrats again. Thanks, everyone.

Thank you for your question. At this time, we have no further questions, and I'd like to turn it back over to Adam Borgatti for closing remarks.

Great. Thanks, Mark, and thank you all for joining us today. As always, feel free to follow up with the team here with any further questions that you have. Appreciate your interest and consideration, and have a great rest of the day. We'll speak with you on the next quarter.

Thank you. This does end our conference for today. It concludes our program and you may now disconnect. you Thank you. Thank you. you Good day and thank you for standing by. Welcome to the Q1 2024 ACON Group Incorporated earnings call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 1 on your telephone. You will then hear an automated message advising that your hand has been raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand this over to our first speaker today, Adam Borgatti. Adam, please go ahead.

Thank you, Mark. Good morning, everyone, and thanks for participating in our first quarter results conference call. With me today are Jean-Louis Servanques, President and CEO, Jerome Julliet, Executive Vice President and CFO, and Alistair McCallum, Senior Vice President, Finance. Our earnings announcement was released yesterday evening, and we've posted a slide presentation on the investing section of our website, which we'll refer to during the call. Following our comments, we'll be glad to take questions from analysts, and we ask that analysts keep to one question and a follow-up before getting back into the queue to ensure others have a chance to contribute. As noted on slide two of the presentation, listeners are reminded that the information we're sharing with you today includes forward-looking statements. These statements are based on assumptions that are subject to significant risks and uncertainties. Although ACON believes the expectations reflected in these statements are reasonable, we can give no assurance that these expectations will prove to be correct. Now, before I turn over the call, I'm pleased to welcome Jerome Julliet as ACON's Executive Vice President and Chief Financial Officer, effective April 8, 2024. With nearly 20 years of finance, strategy, and capital markets experience, particularly in construction, engineering, and utility services, Jerome has been a trusted advisor to us and many of our clients and partners. Notably, he played key advisory roles in some of ACON's most transformative transactions, including the divestiture of ACON Transportation East and the strategic investment by Oak Tree Capital Management in ACON Utilities last year. With that, I'll hand the call over to Jerome.

Thanks, Adam, and good morning, everyone. I'm excited to have joined ACON. This is day 14 for me, and I've already found the passion, dedication, and innovative spirit that defines this business. A huge thank you to the team for their warm welcome and strong support during my onboarding. It's been critical for me. I'm eager to collaborate with the leadership team and the balance of the business to develop and execute our strategies that are going to optimize our financial performance and create value for shareholders. With that, I'll now touch briefly on ACON's consolidated results, review results by segments, and then address ACON's financial position. before turning the call over to Jean-Louis. Turning to slide four, revenue for the three months ended March 31st, 2024 of $847 million was $261 million or 24% lower compared to the same period in 2023. A table has been included on slide 16 of the conference call presentation to help contextualize our Q1 revenue performance. Adjusted EBITDA of $33 million, a margin of 3.9%, compared to $25 million, a margin of 2.2% last year, An operating loss of $4 million in the quarter compared to an operating profit of $6 million last year. Lower operating profit was attributed primarily to gain-on-sale property plan equipment of $11 million recognized in the same period, 2023. Duluth loss per share in the quarter of $0.10 compared to Duluth loss per share of $0.15 in the same period last year. Reported backlog of $6.3 billion at the end of our quarter compared to backlog of $6 billion at the end of the first quarter in 2023. New contract awards of $963 million were booked in the quarter compared to $812 million in the prior period. We'll now look at the results by segment. Turning to slide five, construction revenue of $844 million in the first quarter was $247 million or 23% lower than the same period last year. Revenue was lower in industrial operations, primarily due to decreased activity on mainline pipeline work following the achievement of substantial completion on a project in the third quarter of 2023. And urban transportation solutions from a lower volume of light rail transit work civil operations from a lower volume of road building construction work as a result of the sale of ACON Transportation East in the second quarter of 2023, and utilities operations from a decreased volume of telecommunications and oil gas distribution work, partially offset by an increased volume of high-voltage electrical transmission and battery storage system work. Partially offsetting these decreases was higher revenue in our nuclear operations, driven by more volume of refurbishment work at nuclear generating stations in Ontario and the United States. New contract awards of $960 million in the first quarter of 2024 compared to $795 million in the same period last year. Backlog at the end of the first quarter was $6.2 billion compared to $5.9 billion at the end of the first quarter of 2023. Turning out slide six, adjusted EBITDA of $28 million, a margin of 3.3% compared to $22 million, a margin of 2% last year. Adjusted EBITDA increased by $6 million due to higher volume and gross profit margin in nuclear operations and higher gross profit margin in urban transportation solutions and utilities. These increases were offset by a decrease in gross profit in industrial operations. Higher operating profit in civil operations was primarily due to a lower seasonal operating loss contribution from a road building construction work following the sale of AECON Transportation East in the second quarter of last year, and partially offset by lower gross profit margin from major projects in Western Canada. Now over to slide seven. Concessions revenue for the first quarter was $3 million compared to $17 million in the same period last year. Decrease in revenue was largely driven by the sale of 49.9% interest in Skyport, the Bermuda International Airport concessionaire, and use of equity method of accounting on a prospective basis for APON to retain 50.1% interest in Skyport. Adjusted EBITDA on the concession segment of $18 million compared to $15 million last year, primarily due to improved results from the Bermuda Airport and an increase in management and development fees. Passenger traffic in Bermuda continues to improve, with an average of 81% in the first quarter of 2024 versus the pre-pandemic pandemic level. Turning now to slide eight, at the end of the first quarter, ACON held cash and cash equivalents of $123 million, excluding cash and joint operations. In addition, at March 31st, 2024, ACON had committed revolving credit facilities of $850 million, of which $76 million was drawn and $7 million was utilized for letters of credit. ACON has no debt or working capital credit facility maturities until 2027, except equipment loans and leases in the normal. At this point, I'll turn the call over to Jean-Louis.

Thank you, Jerome.

I'll speak first to the four legacy projects before addressing our business performance and outlook. ACON and its joint venture partners remain focused on driving those legacy projects to completion while pursuing fair and honorable settlement agreements in each case. The most recent interim settlements reached between the relevant joint ventures and the respective clients on each of the four projects, and the cumulative adjustments made to forecast to date reflect the progress we are making toward completion. Every day, we are getting closer to the end. However, we acknowledge that despite the progress made to date, risk remains if assumptions, estimates, or circumstances change. At March 31, 2024, the remaining backlog to be worked off on this project was $330 million compared to backlog of $420 million at December 31, 2023, and $801 million at March 31, 2023. The four legacy projects comprised 9% of consolidated revenue in the first quarter of 2024, and 5% of backlog at March 31, 2024, compared to 16% of consolidated revenue in the full year 2023, and 7% of backlog at December 31, 2023. Turning to slide 10, ACRON's goal is to build a resilient company through a balanced and diversified work portfolio while enhancing critical execution capabilities and project selection to play to our strengths. We continue to leverage our self-performed capabilities and one-acorn approach to maximize value for clients through improved cost certainty and schedule while offering a broad range of services from development, engineering, investment, and construction to longer-term operations and maintenance to cover the full infrastructure value chain. While we pursue and deliver the majority of our work in established markets, we are embracing new opportunities to grow in areas linked to decarbonization and energy transition and in U.S. and international markets. These opportunities are intended over the long term to diversify ACON's geographic presence, provide further growth opportunities, and deliver more consistent earnings

through economic cycles.

Turning now to slide 11, demand for agron services across Canada continues to be strong. With backlog of 6.3 billion at March 31, 2024, recurring revenue programs continuing to see robust demand and a strong debt pipeline. ACON believes it's positioned to achieve further revenue growth over the next few years and is focused on achieving improved profitability and margin predictability. We are pursuing a balanced portfolio of work delivered through both fixed and non-fixed price contracting models with the goal of reducing fixed price work to balance risk with acceptable returns. Trailing 12-month recurring revenue of $1.1 billion was up 30% versus the prior year period and 54% versus two years ago. Contributions from the GO expansion on corridor works and Scarborough subway extension projects during the respective development phases were the primary drivers of this growth.

Turning to slide 12.

Development phase work is underway in five consortiums in which ACON is a participant to deliver the GO expansion on Corridor Works project, the Scarborough Subway Extension Station's rail and system projects, the Darlington New Nuclear Project, the Contraker Terminal Expansion in Water Works project, and most recently, the U.S. Virgin Islands Airport Redevelopment Project. which is under a collaborative design-build-finance-operate-and-maintain model. These projects are being delivered using progressive design-build models, and each project is expected to move into the construction phase in 2025. The GO expansion project also includes an operations and maintenance component over a 23-year term commencing January 1, 2025.

known of the anticipated work from those five progressive design-build projects is yet reflected in backlog.

Turning to slide 13, this week ACON released its fifth sustainability report, Advancing the Energy Transition, showcasing our unwavering commitment to sustainability in our projects and the innovative methods we use. This report highlights ACON's initiatives to embed sustainable innovations and work towards net-zero construction throughout its operations. ACON is pleased to report continued progress towards its target to achieve a 30% reduction in direct CO2 emissions by 2030, with a reduction of 20% to date in Scope 1 and 2 emissions

in 2020 based on revenue intensity.

Sustainability is part of our DNA at ACON and a key consideration in every decision we make as we continue to focus on building what matters to enable future generations to thrive and transition to a net-zero economy. Turning now to slide 14, with strong demand, growing recurring revenue programs, and diverse backlog in hand, ACON is focused on achieving solid execution on its projects and selectively adding to backlog through a disciplined bidding approach that supports long-term margin improvement in the construction segment. In the concession segment, there are a number of opportunities to add to the existing portfolio of Canadian and international concessions in the next 12 to 24 months, including projects with private sector clients that support a collective focus on sustainability and the transition to a net-zero economy, as well as private sector development expertise and investment to support aging infrastructure, mobility,

connectivity, and population growth.

Our revenue in 2024 will be impacted by the three strategic transactions completed in 2023, the substantial completion of several large projects in 2023, and the five major projects currently in the development phase by consortiums in which ACON is a participant, being delivered using the progressive design-build models

which are expected to move into the construction phase in 2025.

Completion and satisfactory resolution of claims on the full legacy project with the respective clients remains a critical focus for the company and its partners. While the remainder of the business continues to perform as expected, supported by the strong level of backlog, and the strong demand environment for ACON services, including recurring revenue programs.

Thank you. We will now turn the call over to Annelies for questions. Thank you.

At this time, we will conduct the question-and-answer session. As a reminder, to ask a question, you will need to press star-1-1 on your telephone and wait for your name to be announced. To withdraw, press star one one again. Please stand by while we compile our Q&A roster. And now our first question will come from Yuri Link of Conocore Ingenuity. Please go ahead, Yuri. Good morning, gentlemen.

Nice clean quarter, and I'd love to not lead off on an LSTK question, but I have to. When I look at your DSOs and your WIP days, materially higher year on year, despite the lower revenue. In fact, I don't think I've seen your WIP this high. So, you're not billing, and I'm just wondering what's behind the rise in WIP and DSOs in the quarter.

So, Uri, it's Alistair. So, as you see, we had a negative working capital in Q1. It's very similar to what we had in Q1 2023. I think part of that was we had a very strong Q4 in terms of, you know, bringing in our AR and collections. And so I think that had a negative impact on where we're sitting at the end of Q1. But I mean, overall, like our liquidity is at $890 million. This time last year, we were at $372 million, so we're in a much stronger place than we were last year. And certainly, you know, fun build is always a critical focus for us, and it's something that we continue to work on every day.

Okay.

Second one for me, just on the backlog, like you've got a bunch of these progressive design builds. I personally haven't been through a cycle with these type of contracts. So just what should we expect? backlog how does it evolve over the next couple of years here as these projects move into the construction phase specifically the on corridor works project I think that the two year development phase ends in Q3 so does that go into backlog and does the whole thing go in at once or is backlog kind of phased in over time

Yes, I'm going to take this one, Yuri. So we have now five projects under progressive design-build mode. We are very happy about it. I mean, we have been working on it for the last three years to modify the contractual mode that was prevalent, I mean, in the industry. Encore, Carborough, Darlington SMR, and now U.S. Virgin Islands. So there are differences. I mean, the two first ones are with Metrolinx. The third one, I mean, we are in charge of all construction services. It's an alliance between OPG, G.I. Dachi, Atkin Realics for the engineering, and ourselves. The fourth one is a joint venture with Pomelo, I mean, in Contraker, for the in-water works. And the fifth one, I mean, you heard about it a few weeks ago, is the refurbishment, rehabilitation, and a design-build progressive finance operator maintenance, which is a very innovative model, and we are quite happy. I mean, we have been working on it during the last one year with a client to set this model. What can we expect in terms of backlog? So some of all these projects is something, let's say, I mean, around six days. It may be even more. I mean, it will depend on the development phase. If we come back to the first one, which is the encore, our development phase will go up to the end of the year 2024. At this moment, we will most probably have set up with the client the target price and the condition of execution of the two first bundles of the works. So we could expect, in terms of backlog for those two first bundles, around $2 billion. Those works will happen during a period of three to four years, more or less. You probably remember, you have noticed that in parallel, we have entered into a preparation phase for the operation during 23 years from the 1st of January 2025. We are very well advanced. So at the moment, we are quite happy with the development and the quality of the collaboration with Metrolink on this very big and very important project.

That's helpful, Jean-Louis. It sounds like you book these in stages. And am I right in assuming that you're taking some fixed price risk on these smaller phases and then you renegotiate on each phase as it progresses and thereby reducing the risk so you're not on the hook for the entire scope of the project at once?

questions here. The first one about the phasing. So GO Train and Encore is a huge program of electrification. It just means that we have decided to go for bundles rather than for the totality and to fix everything now for the totality of a program that may last more than eight years in terms of construction. Scarborough, for example, will not have any bundle. It will be the full project. The SMR will not have any bundle. I mean, from the moment before the end of the year, we will get in the contraction phase and no bundle, totality of the job. Contractor, same thing. U.S. Virgin Islands, there may be a phasing because those are two airports. There may be a phasing, but we most probably will not do any bundling. So the bundling effect is for the moment only on Encore because of the complexity and because of the time. Second question, how do you unlock a development phase? We have a few, I mean, there are a few ways of being allocated at the end. On Encore, in addition to the fact that we bundle and we both decided, I mean, with Metrolinx and our consortium, to bundle it. I mean, it's not going to be a lump sum. It's going to be a target price with a gain share, pain share. And we will finalize the negotiation on this target price and the gain share, pain share before the end of the year. Some of them, for example, at the moment, ContraCare is on a scheme where at the end of the development phase, you go into a lump sum price. But you probably know that The in-water works of CONTRACUR in terms of scope and magnitude have nothing to do with ONCO. So it depends on the project, and we stay firm on our strategy to be extremely cautious on any lump sum price superior to $1 million.

Okay. That's very helpful. I'll turn it over, guys. Thanks.

Thank you for the question. stand by one moment while we bring up our next question. And our next question will come from Jason Bout with CIBC. Go ahead, Jacob.

Good morning.

I had a question just on revenue growth. And I know you're saying recurring revenue is up year-on-year for the quarter, but when we take a look on a consolidated basis, it's down 24%. And I know the divestment of ATE and CGL was a big contributor last year. But, you know, when do you expect to see that consolidated revenue returning to top line growth? You know, also looking at your backlog here and the potential, you know, additions with these five development projects. I mean, that's, I'm assuming primarily kind of a 2025 thing, but. Yeah.

Hey, Jacob, it's Jerome here. so you're you're right you know current uh current quarter if you look on a like-minded basis you know effectively flat to last year a little bit down uh positive buck to bill in the quarter the 2024 we've uh we've been consistent saying is there's no expectation for a big growth here it's really a repositioning year and so i think the way to think about it would be you know relatively relatively flattish or

kind of box into my follow-up question here but so how are you planning for this this growth in 2025 you know are there going to be any labor availability issues or you know how should we be thinking about that well I think Jacob the way we look at it is you have a lot of these projects that we've been working on in this progressive phase so take the two transit projects like the gold program in Ontario and the Scarborough and

You've got a lot of availability of people coming off the former projects, for example, Eglinton and Finch. So we're able to kind of effectively transition lots of the labor and project management resources among them. Similar with our international work coming off of Bermuda and elsewhere, we've been able to build a presence in the Caribbean to adequately staff these projects. So we think we've got the right amount of people kind of moving to the next phase of the projects. And as I said, or as Rome said, it's a little bit of a transition timing between 23 and 24. Another big contributor to revenue last year would have been the Site C project where we've got lots of those people coming off moving to John Hart, Hydro and BC. So I think we're adequately staffed. It's always top of mind for sure on the labor side, but we don't feel any real main pressure points that are giving us more concern than normal.

Yeah, maybe I jump in here at this moment. I mean, we have finalized our strategic plan 2024-2027. the focus is on profitability and margin predictability over hyper-growth, I mean, of revenue. As I've been saying during the last quarter, we are extremely disciplined in terms of pursuits and in terms of bidding, and we are very happy to see that those efforts are just beginning to bear fruit. So we want The revenue stabilization in 2024 is pure math, and there's nothing special about it. And we have a lot in our backpack, as you have noticed, that will drive growth, profitable growth in the year to come.

Thank you. Thank you. One moment for our next question. And our next question will come from Frederick Bestain with Raymond James.

Go ahead, Frederick.

Good morning and welcome, Julien. There are a couple of items below the EBITDA line that I'd like you guys to shed some light on, if possible. The first one relates to construction amortization, which rose year over year, despite the sale of ATE and the lower volumes. So that's the first one. I'm wondering if you could provide a bit more color there. Second one relates to the interest expense. Overall, it was lower. You did include the accrued interest from Oak Tree's preferred shares, but there was also a fair value gain reported. So, if you could provide a bit of color there, that would also be appreciated. Thank you.

Okay, Frederick and Salister. So, the first one – I'll answer the second one first on the preferred share. Every quarter we fair value the preferred share, and basically there's about four or five different factors such as volatility, credit risk, risk-free rates. And so when we do that, this quarter there was a $4.9 million gain. on the preferred share. So that's really the answer to the first question. Part of that went to – 4.3 went to the P&L and the remainder went to OCI. On your first question around depreciation, so I think when you looked at concessions, you'll see depreciation went down because of the equity accounting through the sale of 49.9% of Bermuda. And then on the construction side, yes, we had the positive impact from the sale of ATE, and then we had additional amortization and

So those are, that's the reason.

And Friday's side, Jerome, maybe I'll just put an extra layer of context on the preferred shares. We really, accounting aside, we really do just think about them on the basis of their terms, right? So 27.5% of the equity value of utilities business or effectively the 12% pick accrual.

The rest of it, I just view as accounting.

Okay, I'm still not clear on the construction or amortization because I would have expected it would have gone lower, would come in lower, but it actually crept up year over year despite the sale of ATE and also you had recorded lots, you know, lower volumes. I don't know if it's impacted. Amortization should be impacted by volumes, but anyway, something that I found was interesting. But we can take that offline. I appreciate that. I recognize I asked you a question, so I'll just pass it over. Thank you.

Thank you. Thank you for your question. Please stand by for our next question. And our next question comes from Jonathan Lamars with Lauritian Bank. Please go ahead, Jonathan.

Good morning. Thank you. Just another question on revenue. So slide 16 in the package showing that pro forma revenue was down 1% year over year. That's very helpful. Yet demand is clearly very strong with new awards up 21% year over year. So my question is, as more of the overall business shifts to progressive design build contracting models that have longer development phases, Would you say it's taking longer for new project awards to translate into revenue?

One of the key elements of our strategy is balancing our activity. We are balanced within sectors.

We could, for example, between sectors, we could push nuclear and utilities.

But we have decided that our five sectors have to be Same thing for contractual mode. I mean, we can do MSA, we can do unit price, we can do target price, we can do lump sum. I mean, there's not such a world where we can say every lump sum is bad and we will only go for progressive or time and material. I mean, I gave an example, for example, kicking off. It was a job under a lump sum. a very complex job that we won in front of the two best companies in North America and in Europe. It was a lonesome job. We were perfectly on time, perfectly on budget, and our client is extremely happy. I mean, tomorrow morning, 10 o'clock, our TBM machine on Eddington West is getting out of the first tunnel perfectly on time, perfectly on budget. It means that it was a lonesome job. So we don't say we don't want to do any more lump sum jobs, but we are extremely cautious and found some kind of work in terms of size and in terms of complexity. For example, when there is system integration, we don't go anymore for lump sum and we go for progressive design. Of those ones, there is a development phase, but you don't have to forget either that A progressive design-build scheme is just a five-month preparation pre-beat period, when before it was between one year and maybe 15 months. So all in all, yes, there may be a little push down the line, but it's a real difference in terms of margin predictability.

Yes. Okay. Thank you.

And on the legacy project backlog that's remaining, the $330 million, can you provide a sense of how much of that relates to Gordie Howe Bridge and maybe the cadence of how you see that being worked off over the next two years?

So on the $330, the majority now is on Gordie Howe.

It means around two-thirds of the backlog is on Gordie Howe. Goldie Howe is forecasting to be substantially completed in September 2025. In terms of execution, it goes quite well. Just to give you an example, this bridge, which is the longest span in North America, 851 meters, across the river from north to south, 53 segments. of 15 meters each, remaining three segments. Then we have the port of entry, I mean, Canadian side and American side, and the interchange I-75, I mean, on the Michigan side. Everything is on time. So I would say I'm rather happy with the execution of this project. What else? I mean, CGL, from our perspective, the project is now essentially complete. Our team is focused on preparing for the upcoming arbitration, which you have noted. It starts immediately, I mean, Q3 2024. Given the proximity to the start of the arbitration, we just prefer to let the arbitration process play out rather than commenting, I mean, any further. The two other ones are Eglinton and Finch. I mean, LRT job in Toronto. Construction is complete. We are now testing and commissioning. And most, I would say, of the issue remaining are the interfaces with Metrolink and TTC with the operator. I just remind you that we are the maintainer, but we are not the operator. And we are just under testing and commissioning with those two jobs, pushing toward what we call revenue service demonstration. that should happen before the end of the year 2024.

Thank you. That's very helpful. I have one other question on sustainability, if I can. I noticed that you'd highlighted in the slides the benefits to carbon reduction from the sustainability projects you're undertaking. With 75% of the backlog now tied to sustainability projects, Will the benefits from those show up in the reduction to emissions that you report, including the 20% reduction year-to-date at some point?

Yeah, for sure. We're on a pretty good path to achieve our targets and feel very confident in our ability to do so. A lot of that is being done through renewable and more sustainable fuels, electrifying our fleet, adding more electrification and alternative generation-type assets on our project sites. So certainly on the path, we're very proud of the fact that we're working with some of the largest providers of equipment and fleet in the world on testing their newest equipment in Canada, being among the first to procure them and trying to get as much as we can. And that includes even our staff and fleet vehicles here trying to electrify those.

So well on the path to achieve our goals and hopefully sooner than anticipated. Okay, thanks for your comments. Thank you for the question. Please stand by for our next question.

Our next question will come from Michael at TD Securities. Go ahead, Michael.

Thank you. Good morning. My question is related to the Akon Utilities business. I know earlier in the call you talked about this being a transition year and the focus is really around margin improvement and earnings predictability. But just as it relates to the revenues, it looks like the utilities business, I think, has been described as a fairly important growth area. It looks like you were sort of flattish year over year on a revenue basis. I was wondering if you can just kind of talk a little bit about that. what you're seeing to start the year in that business and how we should also think about the year unfolding as a related stake on utilities and the revenues.

Hey Mike, it's Jerome. Good question. So Q1 is the seasonally least significant quarter for the utilities business, given the amount of outdoor work that they tend to perform in the Canadian market. And the story there is just simply a little bit slower work gas distribution side of the business, partially offset by more high-voltage transmission distribution work and as well doing some work on large battery storage projects. We're not concerned with the year-over-year performance or quarter-to-quarter performance on this one. We're still very pleased with the overall development of the business and we're still expecting growth coming through the back end of the year. This is a business where before are where they really demonstrate their mettle and so I think our expectations continue to be aligned with that.

Okay, that's helpful. Thanks for that. Maybe just to follow on related but different part of the growth strategy, can you talk a little bit about what's happening with respect to the inorganic opportunities to grow that business?

Yep, so Mike, it's Adam here. We've got quite a good pipeline ahead of us, working through that with our partner in Oak Tree, focused on U.S., Canada, areas that we think we can still plug in geographically, and also in new territories where we're trying to establish initial presence with certain small, mid-sized businesses. We've talked before in that $50 to $150 million range. We're not trying to get this thing too outsized right out of the gate. but really use these as platforms to grow and what we describe as land and expand our strategy. That's often in companies that have one or two verticals among the four that we participate in, and then we try and really apply ACON's opportunities across our business into those businesses and really help them grow. So I think we've got a good, as I said, pipeline ahead. We expect this to be a year of lots of activity and to stay tuned.

Okay, perfect. And then maybe just one more quick one here to follow up on, I think it was the earlier question you had about working capital investment in the first quarter. Can you talk about how you'd expect that to evolve over coming quarters and maybe where you think you'll land on a full year basis in terms of changes in on-cash working capital?

Yeah, so it's Alistair, Mike. As we talked about, working capital is weakest in Q1 and Q2 and then improves in Q3, and Q4 is really our strong quarter for working capital. So I think overall, as I said, Q4 was very strong, Q4 of 2023, so that's had an impact on on Q1, but expect to be flat kind of on the year, and then obviously it's subject to some of the settlements and arbitration discussions and results that come from the legacy projects as well.

All right. Thanks for the detail.

Thanks, Mike. Thank you for that question. Please stand by for our next question. Our next question will come from Ian with Stifle. Go ahead, Ian.

Good morning, everyone. This one's directed at Jerome. I mean, the messaging from ACON as a whole has been pretty consistent around de-risking the backlog, EBITDA margin improvement over the last, call it, year to two years. I know it's early days for you, but is there anything else at the margin or anything else you'd like to see rounded out for targets you'd like to hit or metrics you intend to focus on that may be a bit different?

It's a good question. As I mentioned, it's the 14th business day here. Maybe I'll take a step back and just comment on my initial observations coming into it. I think what I'll say is the strength and performance and sophistication of the team I witnessed it over working as an advisor with them in 2023. And then kind of coming in and kind of seeing behind the curtain, it's actually exceeded my expectations even more. So this is a business where both, I'd say, the corporate group, but also certainly the operating groups and the men and women who are executing the work do extraordinary jobs to kind of make sure that they're very focused on kind of executing the projects. managing cash flow. So at the moment, like, I'd love to say that there'd be a magical item out there that was kind of really weakly done that I could just kind of swoop in and claim as my own. But I think this is largely going to be blocking and tackling and then just moving forward thoughtfully, you know, managing capital, managing returns, and then allocating that capital in a kind of judicious manner. You know, we do have the benefit of, as we think of pursue, you know, a slightly differentiated growth approach to that area of the business. So, I'd say, like, to early days, no concerns or issues, and it's really kind of probably pleasantly surprised across the board.

Okay. Well, I'm going to save that question and re-ask it in a year's time. But maybe... Switching to my second question, there's been a significant amount of announcements regarding EV plants and related activity in that area, specifically in Ontario. Can you maybe talk about your competitive position in that market or how you're thinking about pursuing it, just given it's likely going to be a high-growth area for the next, call it, decade?

Yes, I can. I mean, evidently energy transition is a game changer for Econ and we are focused on it. We are at the moment in the bidding phase of the Umicore plant near Toronto and we are discussing with the client. I mean, there is competition, but we are keen with this job. the rest will come. I mean, there are other plants that are coming. We just want to put a foot on it. I mean, it has been the same strategy for battery storage with Omeida, which is quite an important one and the first one of this kind. And we are extremely happy with the way this job is being executed. We are perfectly on time and we learn a lot. And that's That's going to be key, I mean, for the next stages with ISO or in the United States or in other provinces of Canada.

Okay. Thanks very much. I'll turn it back over. Thank you for that question.

I believe that is our last question for today. We will go ahead and turn this back over to Adam Borgatti for closing remarks. Oh, sorry. We just had one more question come up. Please hang on one moment.

The lightning round.

That's right. So our final question will come from Benet Poirier. Please go ahead.

Hey, good morning, gentlemen, and congrats for the solid start. Could you maybe provide more colors? You've been able to book two airport winds in the quarter. What should we expect in terms of potential contribution going forward in terms of revenue and maybe timing also, probably more of a 2025 story, I would believe.

Yeah, thanks, Benoit. You quoted the two airports booked in the quarter. One is a smaller construction-focused project, so there's no concessions related to the Anguilla Airport, but again, it does sort of solidify our presence and demonstrate the commitment to that area and that geography and the type of work that we do starting to bear more fruit in different types of projects and hopefully more to come there. As it relates to the bigger one that we've discussed, which is U.S. Virgin Islands development and rehabilitation of two airports there, it's still in the progressive phase, so tricky to talk about revenue contributions and or cadence at this point, but safer to say that it will be booked into probably the first half of 2025. And again, it'll follow a similar pattern that we've used in the past, which is taking over the operations of the existing airports while we use that to partially fund construction, take on leverage and ring fence the capital structures associated with those from what we know now. But again, the benefit of the progressive sort of approach to these is you've got some time now to really work with the clients to determine best scheduling, what the optimal construction program looks like, any additions or areas that they'd like to tweak in the initial areas. I think more to come on those, but we do expect more revenue contribution from those, as you said, in 2025 versus 2024 as they start to scale up a bit.

Okay. And with respect to the recent REM delay that we've seen, are there any implications for you, or is it something that you've seen coming?

So, Benoit, good morning. I mean, for us, those works are going perfectly as per the program. So, yes, we have heard that there are some discussions about the phasing between REM and GPMM, which is the group on which we are not in charge of operation and maintenance and rolling stock, but as per our contract is concerned, there is no change.

Okay, perfect. Thanks for the time, and congrats again. Thanks, everyone.

Thank you for your question. At this time, we have no further questions, and I'd like to turn it back over to Adam Borgatti for closing remarks.

Great. Thanks, Mark, and thank you all for joining us today. As always, feel free to follow up with the team here with any further questions that you have. Appreciate your interest and consideration, and have a great rest of the day. We'll speak with you on the next quarter.

Thank you. This does end our conference for today. It concludes our program and you may now disconnect.