Aecon Group Inc.

Good day and thank you for standing by. Welcome to the Q2 2024 ACON Group Inc. earnings call. At this time, all participants are on a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised today's conference is being recorded. I would like to end the conference over to your speaker today. Adam Borgatti, please go ahead.

Thank you, Kevin. Good morning, everyone, and thanks for participating in our second quarter results conference call. This is Adam Borgatti speaking, Senior Vice President of Corporate Development and Investor Relations. Joining me are Jean-Louis Servronx, CEO, Jerome Julliet, Executive President and CFO, and Alistair McCallum, Senior Vice President of Finance. Our earnings announcement was released yesterday evening, and we've provided a 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. 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. And with that, I'll hand the call over to Jerome.

Thanks, Adam, and good morning, everyone. I'll touch briefly on the results, review the first segment, address ACON's financial position, and then discuss our legacy projects before turning the call over to Jean-Louis. You will see that there have been quite a few developments, so we've added additional information to help clarify the underlying results. Details are available on slide 16 and 17. Turning to slide three, on a reported basis, revenue for the three months ended June 2024 of $854 million, with $313 million or 27% lower compared to the same period in 2023. Adjusted EBITDA of negative $153 million compared to $17 million last year, an operating loss of $166 million in the quarter compared to an operating profit of $56 million last year. Adjusted EBITDA and operating profit in the second quarter were negatively impacted by the previously disclosed $127 million non-recurring charge related to the achievement of a global settlement for the coastal gasoline pipeline project. and the additional aggregate charge of $110 million related to the three remaining legacy projects. Excluding the impacts from the legacy projects and the divestitures, which we will describe as adjusted, revenue for the three months ended June 30th, 2024 of $975 million compared to $978 million in the same period in 2023. Adjusted EBITDA was $78 million compared to $93 million last year, and operating profit was $46 million compared to $64 million last year. Dilute loss per share in the quarter of $1.99 compared to dilute earnings per share of 38 cents in the same period last year. A reported backlog of $6.2 billion at the end of the quarter compared to backlog of $6.2 billion at the end of December 31, 2023, and $6.9 billion at the end of the second quarter of 2023. New contract awards of $766 million were booked in the quarter compared to $2 billion in the prior period. Now looking at results by segment, turning to slide four. Construction revenue of $851 million in the second quarter was $288 million or 25% 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 the coastal gasoline pipeline project in the third quarter of 2023, which offset a higher volume of wastewater treatment facilities work. Revenue was lower in the urban transportation solutions from a lower volume of LRT work in Ontario and Canada as a result of the sale of ACON Transportation East in the second quarter of 2023, and from a lower volume of major project work following completion of a large hydroelectric project in 2023. Partially offsetting these decreases was higher revenue in nuclear operations driven by an increased volume of refurbishment work and in utility operations from a higher volume of electrical transmission and battery energy storage system work, partially offset by lower volumes in telecommunications and gas distributions. On an as-adjusted basis, construction revenue was $973 million flat to last year. New contract awards of $763 million in the second quarter of 2024 compared to $2 billion in the same period last year. New awards in the second quarter of 2023 were bolstered by significant adjustments in nuclear operations. Backlog at the end of the second quarter of $6.1 billion compared to $6.8 billion at the end of the second quarter of 2023, which included roughly $200 million of pipeline-related backlog at the time. Turning now to slide five, adjusted EBITDA of negative 173 million compared to negative 4 million last year. As previously noted, the decrease was largely driven by negative gross profit on the four legacy projects of 237 million in the second quarter of 2024, compared to negative gross profit of 81 million on these projects in the same period last year. Adjusted EBITDA in the second quarter on an as-adjusted basis was $64 million compared to $78 million last year, with the variance being driven by lower gross profit in urban transportation solutions from rail electrification work, increases in corporate costs, and partially offset by improving performance in our nuclear operations. Turning now to slide six, revenue for the second quarter was $2 million compared to $27 million in the same period last year. The decrease in revenue was largely driven by the sale of a 49.9% interest in Skyport, the Bermuda Airport concessionaire. and commencement of the equity method of accounting for ACON's retained 50.1% interest in Skyport. Adjusted EBITDA in the concession segment of $30 million compared to $20 million last year, operating profit related to the Skyport asset was higher in the second quarter, driven by one-time recoveries of $5.9 million in 2020 before, and an incremental gain on sale of $5.9 million reported in 2024 related to additional proceeds earned in the 2023 partial sale of Skyport. On an as-adjusted basis, operating profit in the concession segment in the second quarter was $5 million compared to $9 million last year, reflecting lower development fees and higher costs associated with pursuits on energy transition endeavors. On slide 7, we've brought together the information to exclude the impact of the legacy projects and divestitures to provide insight into the underlying performance of the business. Adjusted revenue for the 12-month period ended June 30, 2024, with $3.8 billion compared to $3.7 billion for the same period last year. Adjusted EBITDA, including the previously noted adjustments, was $344 million in the trillion 12-month period compared to $343 million in the same period last year. For the construction segment, on an adjusted basis, the EBITDA was $305 million for the trillion 12-month period, representing an 8% margin. Turning to slide 8, at the end of the second quarter, ACON held cash and cash equivalents of $131 million, excluding cash and joint operations. In addition, at June 30, 2024, ACON had committed revolving credit facilities of $850 million, of which $98 million was drawn and $4 million was utilized for letters of credit. Netting the cash position against our drawn revolver results in a net cash position of $33 million at the end of the quarter, prior to the inclusion of other debt items noted below. ACON has no debt or working capital credit maturities until 2027, except equipment loans and leases in the normal course. In addition, ACON's Board of Directors has authorized a normal course issuer bid, or NCIB, to purchase for cancellation up to 5% of the issued and outstanding common shares, or approximately 3.1 million common shares of ACON, subject to the approval of the TSX. ACON intends to file a notice of intention with the TSX in this regard, and if accepted, NCIB shortly thereafter. Turning to slide nine, I'll now provide an update on our legacy projects. On June 28th, SAE Energy Group, in which ACON is a 50% general partner and Coastal GasLink Pipeline LP reach dynamical and mutually agreeable global settlement to resolve their dispute fully and finally over the construction of Sections 3 and 4 of the Coastal GasLink Pipeline Project in D.C. The settlement agreement is not an admission of liability by either party, and the parties have mutually released their respective claims in the arbitration, thereby avoiding the expense, burden, and uncertainty associated with the arbitration. The terms of the settlement agreement are expected to result in no cash impacts to ACON. As noted previously, from an accounting perspective, ACON recognized a non-recurring charge of $127 million in the second quarter of 2024 related to the settlements. The coastal gasoline settlement allows ACON to close the chapter on one of the most technically and financially challenging projects in its history. And we want to thank our team for delivering the project safely and with incredible resiliency through to completion. Progress continues on the two LRT projects in Ontario. including signaling and train control systems testing and advances in driver training for the operator. Physical work is nearly complete, with most station and structure occupancy permits received. Full vehicle testing is also ongoing across the projects. However, forecasted substantial completion dates have been delayed due to setbacks in meeting necessary testing, commissioning, and additional training and coordination requirements with the operator. As seen on the cover of the presentation, the deck on the Gordie Howe International Bridge between Windsor and Detroit is now connected. This is a significant accomplishment, creating the longest cable state bridge span in North America. Work is progressing on the main bridge and on the Michigan interchange, as well as on the two international port of entry facilities and their core systems. However, additional costs have been incurred related to the bridge and Michigan interchange structures and finishes, as well as other areas such as the finishes and the mechanical and electrical systems of the port of entry facilities. As a result of these impacts, ACON recognized an aggregate charge of $110 million in the quarter from the remaining three legacy projects reflecting our current estimates on the cost of completion for these remaining projects. ACON believes our estimates to be accurate as of today, and the majority of the risks for the remaining three legacy projects are largely behind us. However, additional risks exist if assumptions, estimates, and circumstances change until the project is substantially complete. To that end, we are providing a risk analysis that reflects negative changes to our assumptions, which could potentially impact our cost to complete on these projects. Based on the information currently available, ACON believes the potential for future additional financial risks to ACON, if any, through to completion of the remaining three legacy projects, should not exceed $125 million to the end of 2025. We remain focused on driving the remaining legacy projects to completion while pursuing fair and reasonable settlement agreements with the respective clients in each case. Of the remaining three projects, one is currently expected to be substantially complete by the end of 2024, another in early 2025, and the final project by the end of the third quarter of 2025. At June 30, 2024, the remaining backlog to be worked off on the legacy projects was $269 million compared to backlogs of 420 million at December 31, 2023, and 699 million at June 30, 2023. At this point, I'll turn the call over to Jean-Louis to address our business performance and outlook.

Thank you, Jérôme. Turning to slide 10, ACOM'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-acre 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. Our acquisition of Xtreme Power Line, which we will discuss further, aligns with this approach. 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 to slide 11, demand for ACON services across Canada continues to be strong. With backlog of 6.2 billion, at June 30th, 2024. Recurring revenue programs continuing to see robust demand and a strong big pipeline. Akon believes it is 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 months recurring revenue of 1.1 billion was comparable to the prior period and up 38% versus two years ago. Contribution from the GO expansion on Corridor Works and Scarborough Subway expansion projects during the respective development phases increased in the quarter. which offset a lower volume of gas distribution and telecommunications work in utilities operations and impact from the sale of ATE last year. Adjusting for the impact of the sale of ATE and the 49.9% interest in Skyport, the recurring revenue increased 9% on a life-for-life basis over the trading period last year. Turning now 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 Project, the Darlington New Nuclear Project, the Contraker Terminal Expansion Project, and the U.S. Virgin Islands Airport Redevelopment Project. These projects are being delivered using collaborative, 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 1st, 2025. As a reminder, None of the anticipated work from these five progressive design-build projects is yet reflected in backlog, but could in aggregate increase our backlog in 2025 to approximately double the level of our current backlog. Turning to slide 13, 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. Revenue in 2024. will be impacted by the three strategic transactions completed in 2023, the substantial completion of several large projects in 2023, the four legacy projects, 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 or Alliance models, which are expected to move into the construction phase in 2025. The completion and satisfactory resolution of claims on the remaining three legacy projects remains a critical focus, while the remainder of the business continues to perform as expected, supported by the strong level of backlog and the strong demand environment for AECON services, including recurring revenue programs.

Finally,

Turning to slide 14, on July 2nd, Akon Utilities Group acquired a majority interest in extreme power line construction. An electrical distribution utility contractor headquartered in Michigan for a base purchase price of approximately $73 million, with the potential for additional contingent profits. Xtreme is a full-service power line constructor with approximately 300 employees, specializing in overhead distribution line repair, maintenance, expansion, and emergency restoration services throughout the eastern United States for over 20 utility clients. The acquisition of Xtreme creates opportunities to harness our collective utility infrastructure expertise and drive continued growth in priority markets. Xtreme's experienced team and strong client relationships are aligned with our business, and we, along with our strategic partner, Oak Tree, are pleased to welcome the Xtreme team to help advance our continued growth across North America with a focus on the energy transition. As a final comment, I would like to thank our team members for their enduring efforts and ongoing focus on safety and consistent execution. I would like to call specific attention to our Kingstown Port team in St. Vincent and the Grenadines, who are leading a fundraising effort to support the recovery from Hurricane Barry. Thank you. We will now turn the call over to analysts for questions.

Thank you, ladies and gentlemen. If you have a question or a comment at this time, please press star 1-1 on your telephone. If your question has been answered and you wish to move yourself from the queue, please press star 1-1 again. We'll pause for a moment while we compile our Q&A roster.

Our first question comes from Jacob Bowett with CIBC.

Your line is open.

Good morning. Good morning. Our first question is on... is on margins seemed a bit soft in the core construction group. Maybe just talk through, you know, what happened in the quarter. And I know last quarter, you know, I think on a TTM basis, they were around nine and a half percent. Is that what you would consider normal course on an annualized basis?

Hey, Jacob, it's Jerome here. Good, good question. So From a margin perspective, in the quarter on the construction side of the business, on that as adjusted basis, we delivered 6.6%. I think we need to remind ourselves versus last year where we delivered 8%. We had some benefits last year with regards to certain projects on the UTF division and just general strong revenue and productivity. Q2 is not like a a high production quarter for us, right? We generally tend to back end weight the production through the Q3 and Q4 period. So I'd say the, you know, overall quarter, nothing exceptional. There's certainly room for ongoing, you know, focus and improvement on the margin profile and execution. You know, with regards to the overall business, you know, what I just noted, again, just focusing on the construction side, you know, margin profile on an LTM basis, was 8%. You know, we view that as a strong performance, you know, reflecting overall, you know, consistent execution from the team. It's also really of the work programs that we're engaged with. One quarter in isolation doesn't really fully tell the story. I think the right way to look at it is over time, and I think that the 8% delivery, is there room for improvement on that? Potentially, for sure, it's a focus for the team, but that's still a pretty productive level for a construction business. If we take it at the aggregate consolidated basis, You know, 9% margin. There is a benefit that we accrue there on the accounting protocols for the concessions business where revenues effectively have been de-recognized on the Bermuda asset. And so we're effectively just picking up, you know, an EBITDA contribution. And so from that perspective, you know, the 9.5% that was reported last year on an adjusted basis would be a very strong result. But if you're going to look on an LTN basis, I think what we produced was a pretty good indicator.

Okay, maybe just to follow up there, as you move to a more collaborative project model, maybe just talk through some of the embedded margins in those six projects that you've got coming up.

Yes, I will take this one, Jacob. What is important and very interesting for us in the Progressive Design-Build model is the predictability of the results and the fact that we co-develop the project with our client during the first 18 or 24 months. This is extremely important, so we don't give special guidance on special projects, but this model is, I would say, much more favorable to contractors and evidently will increase our margin And this being said, to come back to the first part of your question, I mean, we are, of course, tracking the performance of our peers and competitors. I mean, 8% EBITDA on construction activity for the last 12 trailing months. If we get out the legacy project impact, it's quite a good performance. So we are rather optimistic for the future, of course. Thank you.

One moment for our next question. Our next question comes from Yuri Link with Ken Accord Genuity. Your line is open.

Hey, good morning. Thanks for taking my question. Morning. So Q1 was a clean quarter. Eight weeks later, you take the $110 million charge on the three LSTKs. So something changed. quickly there with relation to cost. So how are you now comfortable putting out the 125 million looking out over 18 months? Just what's the difference between that number and the 110 that was booked and what's changed now to allow you to feel confident putting a number like that out there?

Yeah. Hey Yuri, it's Jerome speaking. Thanks for the question. So with regards to our current estimates on the cost of completion, which is the $110 million impact that we booked in the quarter, that reflects management's past estimate to completion of the projects as of today. So, when we talk about, you know, these projects and re-forecasts in general, there tends to be, in some instances, step function changes when schedule slippages are identified and cemented. And that was certainly the case that resulted in the 110. I would note that, you know, the 110 is based on the cost to complete estimates that we have. We're confident in those estimates. And those reflect the scheduling that we noted, which is end of 24, early 25, and Q3 25. So what's candidly changed between now and where this potential risk figure that we've provided, if any, through the completion, is effectively centered around a couple things. And what gives us the confidence is, number one, the mutually agreed and kind of final and full settlement of the CTL arbitration and dispute provides us with additional confidence by taking out one of the larger risk elements from the overall legacy project cohort. And then number two, the completion on the projects is now much more in sight than it's been at any period prior. And what we've done is we've analyzed a variety of factors, and what could lead to the 125 would be additional cost creep on the construction and development, and then the schedule. That being said, given the status that we have on these projects today, we remain confident the 110 is appropriate. That being said, we just wanted to provide stakeholders with a bit of a perspective around what financial risks could look like if schedule, cost, et cetera, started creeping to the right and where we see appropriate risk bounds in association with that.

Okay. And just as a follow-up, in terms of potential timing of realizing some of that 125. I mean, I would assume Q3 is going to be a clean quarter. But fair to say it would be appropriate to kind of think about maybe a quarter or a third of that getting recognized in the fourth quarter. Like, how do we think about the timing and the likelihood?

Yeah, good question, Yuri. So, without confirming or denying any of your assumptions, the way that we would see the potential financial, additional financial risks materialize, if any, would likely manifest themselves in association with any potential schedule slippage on the delivery of the projects and, you know, payment of substantial completion. And to that end, as we've noted, end of 24, early 25, is likely the area where we'll have better information in association with this. And so if we're thinking about, you know, where these costs could materialize, and these are just estimates at these points, so we're not going to give ourselves any, you know, finality on this, because these are potential impacts, if any. But, you know, this idea of, you know, that, you know, a portion manifesting itself in the current fiscal year is possible and the weighting that you noted is not a terrible way to think about it because it associates pretty much with 24, 25, 25, and probably not a bad way to think about it. Okay.

Thanks for taking my questions.

Thanks, Eric.

One moment for our next question. Our next question comes from Chris Murray with ATB Capital Markets. Your line is open.

Yeah, thanks, guys. Just maybe turning back a little bit, looking at the concessions business for a second. If we sort of back at the $5.9 million of one-time recoveries, you're kind of running, call it, you know, maybe plus or minus, you know, $20 million in EBITDA, right? You know, just trying to think about how we should be thinking about the concessions business as a contribution on a go forward basis. Are you and I guess part of this is, you know, how are you seeing the stability of the airport right now? And is there anything else to be thinking about in terms of some of the other contracts that are underway, changing that earnings profile over the next call it 18 to 24 months?

Good question. I'll break it down in a couple of ways. So with regards to the operating profit of the concessions business, in the quarter we delivered $5 million versus roughly $9 in the same quarter last year. Again, I've switched you from EBITDA to operating profit on an adjusted basis, Chris. The main difference there is largely related to reduction in development fees and increased pursuit costs. When projects are in active construction, there's a development fee or, you know, a fee that's collected by the concessions group, and that can be, you know, additive to their earnings profile. And then with regards to the Bermuda Airport, maybe I'll turn it over to Adam just to provide a little bit of context on, you know, the operating factors there.

Sure. Thanks, Jerome. So Bermuda continues to recover from its pre-pandemic traffic levels. Slowly we're up to about the low 80% in terms of passenger volume that was experienced prior to COVID-19 impacts. But the key factor there is obviously the ability to have your revenues and associated costs for airlines and passengers, et cetera, increase at a level that exceeds your passenger volume. So From a financial perspective, the airport is operating well and in line with where we were before this, despite lower passenger volume to kind of stay around this level or have small increases over time as hotel and other accommodation capacity increases in the market. To Jerome's point, you know, we've got where concessions is now as these major projects come off. you know, the concessionaire moves into its O&M phases for the various LRTs, et cetera, you'll see, you know, some of that concession divata reduced as the no longer carrying the But then there are opportunities moving forward as well as things do come on from construction into operations such as the United Battery Storage Project and is successful moving forward on the USVI opportunity. So a few puts and takes there in terms of timing, but that's basically the dynamics that's driving concessions now.

Okay. I'll leave it there. Maybe turning back to the 125. So I guess under the accounting rules, you book the 110 because that's your kind of agreed to booked up number. But thinking about the 125, I mean, outside of some schedule slippage and probably some recognition of that schedule slippage is you have to get closer to those target completion dates. Is there anything else? I guess what I'm trying to figure out is how to risk that 125 materializing and how you're thinking about either certain events, material costs, labor, anything like that that could be driving kind of that 125 number.

Yeah, I mean, Chris, that's a good question. We're going to be limited in the amount of insight and perspective that we can really drill into for a variety of reasons. What I'll say is the 125 was developed through, you know, a very detailed, you know, analysis of multiple variables, outcomes across, you know, the full spectrum of activities involved with these projects, whether it's schedule, cost, claims, you know, systems integration, training, et cetera, right? The complexity that underlies that figure is quite deep, and so we're not going to be able to point to any specific particular factor, and we're going to be pretty much sticking to the fact that there's the pendulum for additional financial risks, if any, being up to the 125. So that's, you know, here's the kind of – standard deviation associated with that. We're just going to give the one-up two-point estimate.

Okay. So maybe a different way to frame it. So like the 125 really represents the worst-case scenario in your best estimation?

It represents the potential for future additional risks to ACON through the completion of the remaining, you know, construction, right? As of today, based on what we know and the information we have available to us, right? Again, just to reinforce the point, where we stand today is 110, and that's it. And then if those assumptions change based on what we see today, that's the additional future, additional risk that could come into us.

All right. Thanks.

I'll leave it there.

One moment for our next question. Our next question comes from Benoit Poirier with Desjardins Capital Markets. Your line is open.

Yes, thank you very much, and good morning, everyone. Just on the nuclear side, could you maybe provide more color about the bidding opportunities right now and kind of the opportunity to scale up the work outside Canada?

Yes, Benoit, thank you for the question. ACON is ideally positioned for the future of nuclear. On one side, we have all the refurbishment programs. I mean, in Ontario, the execution goes quite well. We are finalizing the two last reactors in Darlington. We have now acquired most of the units at Bruce. Only the three last steam generators are still in the discussion, but we have preferred arrangements on this one. Pickering now in terms of major rehabilitation is under negotiation with OPG for the four next units. It fits perfectly with the end of Darlington in terms of load of work for our people and our means of production. So this rehabilitation is quite strong. SMR, I mean, in Darlington, the development phase is perfectly on track. We are all working hard in our alliance with GITACI and Atkin Realis. I remind you that there is room here not only for one, but for three additional. As I told you a few months ago, smi is very interesting for us because it is a door to a lot of potential activities within canada in other province or outside canada i mean you have probably noticed that we signed a cooperation agreement in poland a few weeks ago and that's that's just the beginning and we are very happy about it in addition to this we are ramping up in the United States. You remember that in 2018, we made the acquisition of a small specialized nuclear welding company called Wox. That's ramping up quite well. I mean, we are now working on some refurbishment programs, for example, for Dominion, a job of around 200 US million dollars. But also on the Savannah River, I mean, for the or the federal authorities, all this goes into the right direction. We have opened an office in Charlotte a few months ago. So we are ideally positioned, extremely happy on the way. We are learning. We are capitalizing on our experience and the position that we have in this nuclear field.

That's a great caller. And when we look, Jerome, at the free cash flow generation and working cap, there's been a great reversal in Q2. Could you provide maybe some granularity or greater detail about how we should expect the working cap and free cash flow to play out in the back half and for the full year?

Hey, Benoit, it's Alistair. As you know, typically our business ramps up in terms of revenue in Q3 and Q4. So from a working cap perspective, we'd expect to build in Q3 as we typically have. And then Q4 tends to have a strong release of working capital. So we'd expect that trend to continue. And I think As you said, we've had a good release so far of working capital. We expect to have positive capital at the end of the year. As you know, our working capital can be lumpy depending on payments. And so, you know, I think a strong expectation that, you know, we'll be positive from a working capital perspective at the end of the year.

Okay.

Thank you.

Also, just from a cash flow perspective, we made the acquisition of a power line, so that needs to be factored in. Then as well, the NCID needs to be factored in as well.

Okay. That's great. With respect to the acquisition of extreme power line, how should we be thinking about the integration and whether your willingness to do more, are you going to take a pause and digest or still looking to beef up your presence in the utility segment?

Okay, I will check on this one, Benoit. We're extremely happy with the acquisition of Xtreme. It's perfectly within the targets. It's perfectly within our core competency. It's in Michigan, which means quite close from us. It's a very professional company with more than 300 employees. In the United States, the fact to have your own employees professionally trained and loyal to the company is extremely important. You remember what I said last time. I mean, our strategy is to try to make acquisition in the mid-single digit in terms of multiplier for the EBITDA and integrate them within the our ACON utilities group, which has been valued between 9 and 10 times multipliers. This is what we have been doing. It's a very strong company. So, of course, we have to integrate this company within ACON. We are rather optimistic. I mean, we are a very solid utility. We know that the DNA is the same. We know that the teams can work together. What is important are the very strong relation with DTE. but also the agility of this company to work in addition to their core business on all the emergency response happening within the United States. And this is quite important. I mean, it's part of the business that is more and more important. I mean, you probably noticed in – in our introduction that we spoke about St. Vincent and the hurricane I mean Beryl in in Caribbean so it's not usual to have a category 5 hurricane in June in Caribbean but we were ready for this impacts have been minor Just a few weeks, less than 2 million of losses, no fatalities, no wounded people within our team. I mean, there will be quite a large trend of investment in all those emergency response due to climate change. Xtreme is very well positioned for this. So, we are happy about it. We're going to integrate it, and we will progress forward. We are rather ambitious, although prudent, on our goals in United States and international.

That's great, Calder. Thank you, Jean-Louis.

One moment for our next question. Our next question comes from Ian Gillies of Stiefel. Your line is open.

Morning, everyone.

Morning.

You've quantified the risk for the remaining three projects, obviously, through the end of 25. Could you maybe qualitatively address what sort of risks or opportunities you may see on those projects for recovery, maybe in 2026, just as you get post-project completion, there's true-ups, etc.? ?

Yes, I can speak a little about this, and maybe, Jérôme, if you want to add something. I mean, these are extremely complex projects with a lot of interfaces, with a lot of stakeholders, and we consider, I mean, at least on the two LRTs, that there has been major modification in the condition of executions of our contract due to these interferences. So, we will have a strong focus on recovering what we think is fair due to the consequences of the interfaces. And I would say we'll do it with a lot of strength because we just consider that this is what has to be done in line with the project agreement that we have been signing quite a number of years ago. we will fight up to the end so that our rights are recognized and that we just receive fair and honorable compensation for the issue that we have been facing. And this is very important. So first of all, substantial completion, very important. I mean, as soon as possible getting substantially completed on good job and going to the next phase, which is maintenance under our contract, but also recovering with a lot of energy, any amounts of money that you are convinced are due to our companies. Jérôme, do you want to add something?

I think it was well articulated, Jean-Louis. Just to your point, these would be circumstances that could take – a notable amount of time to resolve and move through the various resolution methods. And so I think from our perspective, qualitatively, we set it well. And just from a timing standpoint, it's probably – we're not forecasting any pluses or minuses just to the extent that it's so far out at this point. But it's obviously a keen focus for the team.

Understood. As you look across your customers today and ongoing bid activity, are there any notable pockets of weakness that you're seeing on the private capital side? There's some stuff that seems to be coming up in the US, but in Canada, is there any cause for concern at this point?

One of the benefits of the diversified business profile is it allows us, you know, when there's a little bit of chop in the water, we can still navigate it pretty readily. One area that we did call out was just with regards to the utilities business. We have noticed maybe a little bit less robust dynamic in association with telecommunications and natural gas distribution. I think that's likely temporal, like it's something that will pass, but it's something that, you know, the work will need to get done, but we just view it as probably just moving a little bit to the right. I don't know, Jean-Louis, if there's any other areas that you see, you know, strengths or weaknesses on the Canadian side.

No. What we can see is that probably United States is more in advance than Canada on everything related with energy transition, all the subsidizing program, and everything to make it happen quickly, especially, I mean, this is why XP was such an important acquisition. I mean, through the B Partisan Act and the Inflation Reduction Act, I mean, there's more than $65 billion already dedicated and ready to go just to modernize the nation in electrical infrastructure. So we just see that United States is in advance, but Canada, I mean, is not in a standstill. So we are also rather optimistic on this.

Perfect. I'll leave it there. Thank you very much. Again, ladies and gentlemen, if you have a question or a comment at this time, please press star 11 on your telephone. One moment for our next question. Our next question comes from Sean Jack with Raymond James. Your line is open.

Hey, good morning, guys. Thanks for taking my question. Just a quick question on Xtreme. Wondering if you could comment on how competitive that auction process was and also wondering if you're seeing dynamics for auction processes getting a bit easier or harder since you began looking

Thanks, Sean. Yeah, no, great question. This was a unique one for us. We actually really liked the firm, as did Oaktree in its review of opportunities prior to our transaction in the fall of last year. So it was actually a nice one for us when we came together to more. We're really trying to avoid big auctions, big headline numbers, those that would compete with lots of financial capital for platform investments. It's not what we need. It's not what we and our partner feel is the right approach for this business. And so we're going to be very prudent and judicious with our capital, seek out, as you all may have described, fair value companies, ones that will integrate well culturally with a safety-focused culture, and what we describe as our land and expand strategy, which is find great businesses that do a few things very well for great clients, and then apply what we can also bring, which is additional capabilities, more work into ACON, and the ability to take on larger and more complex projects through our balance sheet and credit capacity. So a very successful outcome. We had lots of time and the right approach on due diligence for this one, and intend to do the same going forward on a very measured approach, and lots more in the funnel right now that we think is in our wheelhouse.

Okay, perfect. And last one, just for extreme specifically, wondering if there's any puts and takes on seasonality that you guys would want to call out, or does it pretty well match ACON's construction business?

Yeah, it's got similar levels to our seasonality. Again, lots of its work is in the north of the U.S. adjacent to our border, and so you'd have the same weather impacts and outdoor work that we would have in our utilities. So, aside from, as John will be described, storm response and emergency services that would move elsewhere throughout the U.S., potentially expanding off-peak times, it mostly follows our seasonal pattern.

Okay.

Perfect.

Appreciate it. Thanks, guys. Thanks, John. And I'm not showing any further questions. It's time to like turn the call back over to Adam for any closing remarks.

Great. Thanks, Kevin, and thanks, everyone, for your participation today. As always, feel free to reach out to us with further questions and comments. We welcome the feedback and wish you a good rest of the day, and we'll speak with you on the next call.

Ladies and gentlemen, this concludes today's presentation. You may now disconnect, and have a wonderful day.