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.