Aecon Group Inc.

Thank you for standing by, and welcome to Acon Group's third quarter 2024 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker 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. To remove yourself from the queue, you may press star 1-1 again. I would now like to hand the call over to Adam Borgatti. Please go ahead.

Thank you, Lateef.

Good morning, everyone, and thanks for participating in our results conference call. This is Adam Borgatti speaking, Senior Vice President of Corporate Development and Investor Relations. Joining me are Jean-Louis Servronks, 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 posted a 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. With that, I'll hand the call over to Jerome.

Thanks, Adam, and good morning, everyone. I'm going to touch briefly on ACON's consolidated results view the results by segment, and address a confidential position before turning the call over to Jean-Louis. Consistent to last quarter, we've added additional information to help clarify the underlying results, excluding the fixed price legacy projects and divestitures. We provide detailed reconciliation tables on slide 15, 16, and 17 of the conference call presentation. Turning now to slide three. On a reported basis, revenue for the three months ended September 30, 2024 of $1.3 billion, compared to the same period in 2023. Adjusted EBITDA of $127 million, a margin of 10%, compared to $32 million, a margin of 2.6% last year. The increase was largely due to an improvement from the legacy projects, which recognized negative gross profit of $91 million in the third quarter of 2023 compared to nil in the third quarter of 2024. Operating profit was $81 million in the quarter compared to an operating profit of $140 million last year. The decline in operating profit was primarily driven by the net impact from the legacy losses in Q3 of last year and the gain from the sale of a 49.9% interest in Skyport of $139 million in the third quarter of 2023. As a reminder, gains on domestic shares or normal course equipment sales are not included in NACON's adjusted EBITDA measures. Excluding the impacts from the legacy projects, acquisition-related costs, adjusted EBITDA of $127 million compared to $117 million last year. Adjusted diluted earnings per share in the quarter of $0.86 compared to $1.63 last year. Reported backlog of $6 billion at the end of the quarter compared to backlog of $6.2 billion at December 31, 2023 and $6.2 billion at the end of the third quarter of 2023. New contract awards of $1.1 billion were booked in the quarter compared to $591 million in the period prior. Now to look at results by segment, turning to slide four. Construction revenue of $1.3 billion in the third quarter was $57 million or 5% higher than the same period last year. Revenue was higher in nuclear operations from an increased volume of refurbishment work at nuclear generating stations in Ontario and the United States. In civil operations from a higher volume of major projects and road building construction work in Western Canada, and utilities operations from a higher volume of electrical transmission work the acquisition of Extreme Power Line in the third quarter of 2024, and from an increase in utility-scale battery energy storage system work. Partially offsetting the increases was lower revenue in industrial operations from increased activity on the mainline pipeline work and in urban transportation solutions, primarily from the decrease in LRT work in Ontario and Quebec at three LRT projects near completion. On an adjusted basis, construction revenue is $1.2 billion compared to $1 billion in the same period last year. New contract awards of $1.1 billion in the third quarter of 2024 compared to $563 million in the same period last year. Backlog at the end of the third quarter of $5.9 billion compared to $6.2 billion at the end of the third quarter of 2023. Turning now to slide five, adjusted EBITDA of $114 million compared to $17 million last year. As previously noted, the increase was primarily due to an improvement in the legacy projects with recognized negative gross profit of $91 billion in the third quarter of 2023. compared to nil in the third quarter of 2024. On an as-adjusted basis, adjusted EBITDA was $114 million this quarter compared to $108 million in the same period last year. We would note that adjusted EBITDA last year benefited from reduced MG&A levels, whereas the current period reflects a more typical pattern of personnel costs within MG&A. Turning to slide six, of $139 million. Now, in slide 7, we brought together the as-adjusted information to exclude impacts of legacy projects, acquisition-related costs, and divestitures to provide insight into the underlying performance of our business. On an as-adjusted basis, revenue for the trailing 12-month period ended September 30, 2024, was $4 billion, compared to $3.8 billion for the same period last year. Adjusted EBITDA was $348 million in the trailing 12-month period, compared to $351 million in the same period last year. For the construction segment, on an as-adjusted basis, adjusted EBITDA was $311 million for the trillion 12-month period, representing a 7.9% margin. Turning to slide 8, at the end of the third quarter, APON held cash and cash equivalents of $197 million, excluding cash in joint operations. Cash balances lower due to project and working capital funding requirements. In addition, as of September 3, 2024, AECON had committed revolving credit facilities of $850 million, of which $166 million was drawn and $4 million was utilized for letters of credit. Drawn credit is entirely at the AECON utilities level. AECON has no debt or working capital credit facility maturities until 2027, except equipment loans and leases in the normal course. At this point, I'll turn the call over to Jean-Louis to address your business performance and outlook.

Thank you, Errol. Turning to slide 9, ACON'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. Over the trailing 12-month period, roughly 45% of ACON's construction revenue was generated from the utilities and nuclear sectors, compared to 42% for the comparative period in 2023. 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. We are embracing new opportunities to grow in areas linked to decarbonization and the energy transition, and in U.S. and international markets. And these opportunities are intended to diversify AECON's geographic presence, provide further growth opportunities, and deliver more consistent earnings through economic cycles. Turning to slide 10. Demand for ACON services across Canada continues to be strong. With backlog of $6 billion at September 30, 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. Remaining backlog to be worked off on the three remaining legacy project was 182 million or 3% of total backlog at September 30th, 2024. We remain focused on driving this project to substantial completion. We still currently expect it to be substantially complete in early 2025 and the final project by the end of the third quarter of 2025. Trailing 12-month recurring revenue was $1 billion in the quarter, comparable to the prior trailing 12-month period, and up over 50% versus two years ago, taking into account the divestitures of ATE and the 49.9% interest in Skyport in prior periods on a like-for-like basis. Recurring revenues are typically executed on a non-fixed-price basis, with the majority being over and above to our reported backlog figures. Turning to slide 11, development phase work is underway on a number of major projects in which ACON is a participant, including the Go Expansion on Corridor Works project, the Scarborough Subway Extension, the Darlington New Nuclear Project, the Contraker Terminal Expansion, the U.S. Virgin Islands Airport Redevelopment Project and new additions, the Winnipeg North End Sewage Treatment Plant Biosolids Facilities Upgrade Project, the Howard Anson Dam Additional Water Storage Facility, and Highway 8 Project.

These projects are being delivered using collaborative, progressive design-build models.

with the majority expected to move into the construction phase in 2025 or 2026. The GO expansion project also includes an operations and maintenance component over a 23-year term commencing January 1, 2025. As a reminder, none of the anticipated work from this progressive design-build project is yet reflected in backlog. but could in aggregate increase our backlog in 2025 and into 2026 to approximately double the level of our current backlog. Turning to slide 12, 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 sales of ATE and 49.9% interest in Skyport completed in 2023. The substantial completion of several large projects in 2023 the legacy project and the major projects I described currently in the development phase being delivered using the progressive design-build or alliance models, which are expected to move into the construction phase in 2025 or 2026. AECON believes its position to achieve further revenue growth commencing in 2025 and over the next few years. 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 our services as we continue to make strategic investments in our operations to support access to new markets and increase operational effectiveness. Turning to slide 13, on October 28, ACON entered into a definitive purchase agreement to acquire United Engineers and Constructors Inc., or United, a nuclear and conventional power contractor, headquartered in New Jersey, for a purchase price of $33 U.S. million, payable in cash at closing. United's strong technical expertise in the nuclear sector will advance our continued diversification and growth with a strategic focus on the energy transition. ACON and United are currently engaged as joint venture partners in executing steam generator replacement work and fuel channel and feeder replacement on all six units at the Bruce Nuclear Generating Station in Ontario. United's management and operational teams will join ACON on closing of the transaction, which is subject to customary adjustments and closing conditions, including obtaining all necessary regulatory approvals. Finally, each year during Safety Week, we highlight and strengthen our commitment to safety by focusing on the importance of safe work practices. This year marked the 20th anniversary of ACON's annual safety event, and we emphasized our shared responsibility to manage unexpected hazards and last-minute changes that emerge while we work. Safety always is deeply embedded into our corporate culture, and we thank our employees for their active participation and contribution to this very important initiative.

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

As a reminder, to ask a question, you will need to press star 11 on your telephone. To remove yourself from the queue, you may press star 11 again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Yuri Link of Canaccord Genuity. Please go ahead. Yuri.

Thank you, and good morning, everyone. Good morning, Yuri.

Nice quarter, guys. Jean-Louis, just maybe an update on the cadence of bringing the progressive design, build, and alliance contracts into backlog. I heard you referencing 2026 a lot more in your prepared remarks, and I don't know if that's indicating a bit of a delay in bringing these contracts in, or the fact that you've added a few more to the original five that you had last quarter? So just any kind of help on the cadence of bringing these into backlog. Do we start to see that in Q1 2025, or is it more back-end loaded?

Yes, you're right, Uri. We have added a few new projects on progressive design build. The development phases of those projects is usually between 18 and 24 months. And that's good. You probably remember this is why we like and we have been advocating with our client for this model because we need this time to finalize the design and have much better certainty on the construction cost and schedule. So nothing special. I mean, there are still quite a few that are going to emerge as construction phase in 2025. For example, Scarborough, I mean, where we are at the end of the development phase. Encore, as I told you, I mean, is going to be phased, but we will begin construction in 2025. The SMR is finalizing at the moment its licensing activities. So early works have already begun, but the real construction will begin something like mid-2025. Obviously, I mean, Winnipeg, that we won a few weeks ago, requires its one year and a half of development phase. Over Ansem, I mean, which is a dam that we've just been awarded for development phase with the U.S. Corp of Engineers, will require, again, 18 months of development phase. So nothing special. This is exactly the phasing that you are mentioning in your question.

Okay. And just as a follow-on to that, I mean, how do we think about the, you know, so you're going to bring them into backlog starting in 2025, some of them in the back half. So, I mean, how do we think about the revenue contribution next year? You know, is it going to be more of a back half where we see the growth from these projects?

I will begin and maybe Jerome can add a little more detail. Those works are complex. This is why we didn't want to do them on a lump sum, turnkey basis. It means that there is a certain ramp up with early work preparation of the work. One issue is that 2024 has been a transition year because we have lost revenue. But we are very happy having lost revenue because that was revenue from legacy projects that are coming to an end. It was revenue from CGL, and it was revenue from AATE that we divested because it was not meeting our threshold about operational profit. So what – I mean, the revenue we will present in 2024 is nothing unexpected. We will ramp up with those progressive design build. That will be a nice timing up of our revenue in 2025.

Hey, Jerome here. Nothing really further to add on that one, Yuri. Progressive design build projects will generally follow a similar production cadence to most projects. The revenue gets recognized as the costs get buffed, which means that the initial opening phases will not be as heavy on the revenue. Then as we get into you know, full production, you know, revenue ramps up, and then at the back end of the project, it tails off again.

So a bit of a bell curve style, you know, cadence to it. That's helpful. Okay. I'll get back in the queue, guys. Thanks. Thanks, Eric.

Thank you. Our next question comes from the line of Jacob Bout of CIBC. Your question, please, Jacob. Good morning.

I had a question on the United acquisition. You know, it enhances your nuclear and some of your conventional power, but also gives you exposure to the U.S. So maybe just talk through what is your long-term vision for nuclear and what does this mean for expansion into the U.S.?

Okay. We are very happy about this acquisition for a few reasons. It's perfectly aligned with our strategic plan. It's about energy transition. It adds a lot of non-fixed price contracts. It's about U.S. expansion. I remind you that United is made of two blocks, I would say. I mean, of the activity of UNITED is about an activity where we are already engaged in and we know perfectly, which is STFR, I mean, fuel channel and feeder replacement at Bruce, and steam generator replacement. They are well, I mean, UNITED is well embedded with Chromatome in the SGT partnership steam generator. So we know very well this activity. and we are very comfortable. The second part of UNITED is about engineering, and mostly in the US, and we like it. You probably know that the US is a country with the largest number of reactors in operation, if I'm not wrong, something like 96 reactors at the moment. UNITED will be our entry door in a lot of big utilities, through their engineering works. It's why, I mean, we are very comfortable with this acquisition. There's a lot of work to do in the nuclear field in the United States. Refurbishment is a little late in front of what has happened in Canada, but it will come. All those reactors, I mean, we see their lifetime impact. There will be a lot of work in major component replacement, plus a new unit. I mean, the SMR is going to be, I mean, a growing activity in the United States. And United has also some engineering capacity in the conventional power, and we like it. This is energy transition. This is why I would say it was a perfect fit. and a very nice acquisition.

If you think about capital allocation over the next 12 to 18 months, how important is M&A and is US the focus for M&A?

Hey, Jacob. Jerome here. It's a good question. M&A is a tool that we use to action our strategic plans. With regards to Canada versus the US, it's all going to depend on the availability of opportunities that fit our parameters with regards to returns, capabilities, and also pricing. As you know, in some sectors where we operate, the valuations are extraordinarily robust, and so we need to find clever ways to expand to those markets, whether it's organically or through M&A. Generally speaking, capital allocation, just to hit it on the head, We do have ongoing capital return programs for our shareholders. We've got the dividend, which is obviously a very important part of their shareholder return strategy within ACON. But also, as you've seen, we've started to be a little bit more active with regards to share repurchases just because we see that as an opportunity to use capital as well. M&A, we wouldn't discount additional activity there. We just don't think it's going to be And it could be across Canada or the United States. Like, we're not necessarily, you know, to be biased one to the other. You know, within utilities, obviously, M&A is an important program. So, you know, I'd say just that's an area that we continue to be active in.

Yeah, that's helpful. Thank you.

Thank you. Our next question comes from the line of Chris Murray of ATB Capital Markets. Your line is open, Chris.

Thanks, folks. Good morning. First question, you know, turning maybe to some of the legacy issues and legacy projects. You know, we're another quarter down the road. This was, you know, the first quarter and a few where we haven't seen a write-down. I know last quarter you took the $110 million reserve, but you also made the commentary around, you know, The downside scenario, maybe, you know, worst would be 125, 125 million to complete. Just wondering where you're sitting right now. Has anything really changed in the last little while that maybe gives you a better view on the outlook? Is there any way to think about, you know, the possibility of that 125 being necessary? And, you know, is it the number maybe a little bit less than sort of a downside scenario right now?

Hey, Chris. It's Jerome here. No change since our Q2 disclosures. So, you know, we're currently satisfied with our positions on the projects. So, that relates to, you know, the estimates that led to the $110 million write-down. And then, consistent with the prior disclosures, you know, we still believe there's potential for future additional risks to ACON, if any, to complete these three projects, not to exceed or should not exceed $125 million to the end of 2025. appreciate the hopefulness, but we're basically steady to where we were in Q2 on the topic.

Okay.

I may add some information about where we are because we are pushing all those jobs over the line. I was yesterday on Goldie Howe Bridge. All our targets are being met. I mean, we had to installed the first overlay which is a mix of concrete and latex on the top of the bridge before the winter and it's going to be done. Point of entry are going quite well. The Canadian one that was an important date that had to be ended over border authority at the end of November will be ended over on time. The rest of the program is going well, so I'm rather confident with this one. The two LRT, we are also making good progress. I mean, at Finch, we have finalized a stress test with 14 vehicles, full speed ahead. Last Friday, it's now over to TTC, I mean, to take over the line because they will be the operator. Q1 2025. Eglinton also, we are extremely close to finalize the stress test with TCC. And so we are also expecting Q1 2025.

Okay, that's helpful. My other question is just maybe a little bit thinking about 2025. You know, you did talk about in your outlook further revenue growth. commencing in 2025 and over the future years. And, you know, there's, to some of the earlier questions, there's lots of puts and takes about, you know, the timing of certain contracts starting. For 2025, I guess a couple of pieces of this. You know, when we think about the construction business, what should we be thinking about in terms of year-over-year growth? I know, you know, the commentary has been, you know, don't be thinking that it's going to be massive. But at the same point, I think there's a, you know, some sizable backlog growth coming as the new awards. And then the other piece of the question is around concessions. As a lot of these concessions now start to move from a build to a kind of an operate, how should we be thinking about the EBITDA contribution from the concessions business in 2025?

Yeah, I would take the first part of the question about the construction and infrastructure building is a delicate industry. I mean, we are not governed by market share. We are governed by good execution, extreme discipline in acquiring new projects, and the way we can manage some outliers when they arrive. This is why I'm always very cautious when we decide to put a bid, how do we enter in a market about, I would say, yes, we like growth, but we have to be careful. I don't know any construction company that has doubled in revenue in one or two years that has not finished into the wall. So there will be revenue growth. Those progressive design bills are very nicely phased, and we are very happy about the way we have been able to acquire them so that the growth is going to be, I would say, absolutely manageable by the company. Concession, Jerome, up to you. Yeah.

Look, with regards to concessions, it's always a bit of a tricky one because we really do think of the concessions portfolio as an equity value portfolio of quite valuable assets. But the way that we would think about it would be the Canadian concessions are availability-based and will generally be starting operations in the next 12 to 24 months. We'll have the LRTs, we'll have Gordie Howe, we'll have Oneida. So as these phase in, it'll be obviously relatively positive. That being said, while they're in construction, the concessions group does earn a fee against it. So that'll actually be a headwind going into 2025 on the current basis of that portfolio. The GoRail business will actually, with our partner, be taking over operations of the network on January 1st of 2025. So that'll be a positive. So on a net basis, we think there's probably a little bit more takes than gives with regards to EBITDA contribution on the Canadian portfolio. And then the question just becomes with regards to USVI and as that layers in, that obviously Okay.

So, I mean, maybe to frame it, if you're thinking about, you know, I think we're $90 million trailing in EBITDA to Q3, you know, would be down a little bit, down 20%. You know, how would you kind of frame it for us?

As you know, Chris, we don't provide guidance, so I think the generalized disclosure I've just given you is probably as much as we can get, which is on the Canadian side, probably a headwind, and then if we see USVI move into operations, that'd be a positive.

All right. I'll leave it there. Thank you.

Thank you. Our next question comes from the line. of Michael Tufone of TD Cohen. Please go ahead, Michael.

Thank you. Good morning. First question is about your margins in the construction segment. I've seen them in the 8% range for the last few quarters on a trailing basis. I'm wondering if you can comment on how you think about the sustainability of that level of margin And are there any opportunities to drive those higher over time? And if so, what does that look like?

I begin.

I mean, on the operational side, we have made a lot of efforts during the last three years on what we call continuous improvement, excellence in execution to be able to master much better performance schedule adherence, cost adherence, and I'm happy with the results, although it's always a battle on the table. In terms of discipline in getting projects, you have just seen that we have no issue with our backlog. As I always say, I mean, anything above $5 billion, I'm comfortable with because we have, in addition to have the recurring revenue, something like $1 billion, and we have the PDBs in our backpack, So we are not starving. We are extremely disciplined to go in the direction where we think that we can optimize or maximize the operating profit. So everything, I would say, is on the right direction. Now construction, as I used to say, is... a difficult business. We are all focused on making it better every day. So I'm happy with the level of EBITDA that we have in construction, and we are all working on margin predictability, not to come back to what has happened during the last years that have been very painful for us.

Yeah, just to layer on, There's a lot of indicators on the dashboard. EBITDA margins, certainly one of them. But as we think about EBITDA margin and kind of positive or negative variances to it, we have to layer on the risk associated with the project, the sector balance, intensity right so um you know high with high margins um if there's you know very high investment that could actually be a negative from from our perspective and we're very mindful of that and then finally as I mentioned the stability and recurring nature of some of the work streams and how that influences EBITDA margin so there's actually a lot of ingredients that that go into the stew on that one um but that being said maybe to go back to the initial part of the question is 8% overall EBITDA margin, given the level of capital intensity of the business as it stands today, is a strong outcome, and we're going to try to preserve that while reducing risk and increasing stability.

Okay. That's helpful. Thank you. And maybe just a quick follow-on. Does the ramp-up of some of these collaborative projects, does that have any shorter-term impact on margin performance as those projects begin to ramp, or... or is that not really something we need to think about and this idea that you hope to be able to sustain that level is the target regardless of the impact of those projects?

Yeah, I mean, it's mainly about predictability rather than increase. I mean, after 18 to 24 months of common development phase with our clients and our engineers, we reach, I would say, a knowledge gap of the project and the future execution, which is extremely interesting. So I'm working on predictability through those jobs.

Okay, now that makes sense. Second question, just regarding the changes in non-cash working capital, source of cash in the third quarter. I think you mentioned that strong cash position for Q3. I'm just wondering what that means as far as how to think about the fourth quarter for changes in non-cash working capital, and also if you can comment on how you see 2025 playing out from a working capital perspective, given the projects and the work program you see ahead of you.

Yeah, it's a good question. We were quite intentional in calling out the atypically strong cash position that we have at September 30. It's clearly not usual for Raycon to have $197 million of cash outside of joint operations. And as noted, it's really a matter of just timing-related cash inflows and cash outflows. You print your balance sheet as of the moment in time. The way we think about Q4 is obviously we've got an anticipated closing on our M&A program, which will be a draw on capital. We've got additional investments into working capital that's going to be coming through the quarter as well, both legacy projects, but also just other projects. So I just think a little bit of a non-standard working capital cadence this year, so obviously into the fourth quarter. For 2025, we're hopeful for a return to a more normal cadence outside of any legacy impacts, right? So the normal cadence in our sector would be, you know, kind of investments going into the third quarter and then, you know, cash coming out through the back half of the year. So I'd say hopefully, you know, our anticipation as it currently stands is a more typical cadence in 2025.

Okay, perfect. Sorry, and then just one clarification, Jerome. On 2025, I appreciate the comment about more normal cadence, but in terms of full year, with some of these larger projects ramping up, what is the implication as far as where you could land on a full year basis for changes to non-cash flow capital in 2025?

That's a tricky one to provide specificity on. You know, one of the areas we have a strong focus on is ensuring that our projects have, you know, stable funding through the contract structure. So, you know, the hope is that ACON does not pour cash into these projects, but rather that, you know, the project owners and us work collaboratively to ensure that the projects are appropriately funded so that, you know, we're not drawing on ACON resources to build through projects.

Okay. Makes sense. Thank you.

Thank you. Our next question comes from the line of Sabahat Khan of RBC Capital Markets. Your question, please, Sabahat.

Great. Thanks, and good morning. Just maybe if you can just walk us through maybe some of the shorter-term project bidding that's going on, just some of the visibility, any visibility you can provide on top-line momentum through 2025. I know the backlog obviously is still at a good level, but just trying to get a bit more visibility into the kind of the next 12 months and just kind of the amount of in-year work that you could win to sort of support the top line growth there.

Thanks.

Yeah.

As I've already said, I mean, 24 was a transition year after the divestiture of air-con transportation, plus the fact that our legacy projects are coming to an end. So it was expected we're going to grow I mean, in 2025, we have also very interesting prospects. For example, Pickering, the refurbishment of the four reactors, we think that the decision can be made at the province level very early in 2025. So a nice, I would say, growth in 2025 and margin predictability is more important.

Great. And then just sort of following up on the questions earlier around working capital and cash, and I know, Jerome, you noted that they've done some share buybacks recently as well. Can you maybe just sort of talk a little bit more about at what levels you'd start to maybe do that again? Obviously, M&A is on the table. Maybe I know you gave a little bit of capital allocation call earlier, but is there a leverage ratio target that you want to sort of hover around? Maybe we can provide some details on what we can expect on that front as you work towards higher slash sustained margins over the next couple of years. Thanks.

Yeah, it's a good question. Leverage ratios slash targets, we don't have an official posture on that, but what I'll say is what I describe almost as a very strong balance sheet, and so very limited leverage. Whereas at the AECON Utilities area, obviously that's smaller tickets, shorter cycle work, more amenable to taking on a certain degree of leverage, is where we'd likely be a little bit more aggressive. And so on balance, we'd view, whether it's dividends, NCIB, investments in growth, investments in people, processes, or investments in additional M&A, it's really all going to be returns focused from our perspective. And so, look, as the MCIV stands, we're not in a wealth of capital generation as we stand today given the closeout of these projects, but it's certainly something we'll be turning an eye towards as cash flow frees up in the business.

Great. Thanks very much for that.

Thank you. Our next question comes from the line of Frederick Bastien of Raymond James. Your line is open, Frederick.

Good morning and thanks. Guys, I'd like to go back on the margins you delivered in Q3. On a like-for-like basis and after adjusting for the losses last year, they came in a bit down on a year-over-year basis. Now, there could be a number of reasons for that, including mix, but I was hoping you could help us unpack sort of the variables that were at play here.

Yeah, good question, Frederick. The margin performance that we posted this quarter on, let's maybe just focus on the constructions business, a 9.5% margin, that reflects a relatively strong level of production and productivity with pretty normal levels of costs associated to MG&A. If you kind of dig through it, you'll see our MG&A figures did move up a little bit versus last year. Last year was clearly a very noisy quarter that we're lapping against $91 million of losses, $139 million of gains, relatively complicated overall costs baked into mgna at that point so i would just maybe look at the level that we produced this year as a more typical level um as as you know the business currently operates versus last year which had some you know certain exceptionalities baked into it given uh you know the the variety of factors influencing that that particular quarter okay this would not have been uh next would not have been a major contributor here i think it's more just the noise in the prior period

And next one, Michael touched on it a bit, but around the progressive design builds, like kind of moving into construction, is that beneficial to margins or is the margin you're kind of recording on the development side or development phase kind of, I mean, it's hard to predict, but just wondering what the dynamics will be once these projects go into construction. And, you know, extracting that, you've got a base business that's obviously going well. One would assume that the margins built into the backlog is also better than what you're delivering today. So I just wanted to get a bit more clarity here.

Once again, it's more predictable.

You know that. Choose it.

of the margin in construction is for us at Acorn extremely important. And this is what we are looking for, is to have a very clear view about the margin and completion on those jobs, more than a step up in the level of margin itself.

Thank you. That's all I have. I have a good quarter, guys.

Thank you. Our next question comes from the line of Benoit Parfrier of Desjardins. Your line is open, Benoit. Go ahead.

Yeah. Thank you very much, and good morning, everyone. Just to come back on the margin question, as you move away from fixed price and you're going to be impacted positively by progressive design bills, I'm just wondering about from a margin standpoint, given those projects are less risky, does it put a cap on margin given the lower risk? How should we be thinking about the fact that there will be a bigger contribution from those big projects going forward, which is positive?

Just to come back a little to the theory about progressive design. You have a development phase of between 18 and 24 months, where more or less you finalize your design and you ensure that you design to build. It means that the design you are finalizing can be built efficiently. From this moment, you define how you're going to work during construction. So it may be most of those jobs are with a development phase that go to a target price. Very few, but they exist. It's a development phase that go to a lump sum. If we go to the target price, for example, Scarborough is a development phase that go to target. The nominal margin is fixed because it's a cost plus. And then you have a pain share and a gain share. What is interesting in the PDB is that even at the worst of the worst of the pain share, it means if the costs are growing much more than what was forecasting, you're not going to enter into negative margin universe. But you have gained share. I mean, if at the end of the day you manage to get your job earlier and with a lower cost, you have gained share. It means that you can have also your margin share. improving before the end of the project. This is a way to do it.

That's a really great caller, Jean-Louis. And given the important ramp up ahead of you, obviously, with those projects that will contribute to the backlog in 2025, should we expect AECON maybe to slow down a bit in terms of RFP work and be more selective? Just wondering in terms of booking activity, how do you see 2025 given the ramp up or the big contribution that will come?

What are you sure? As I was saying, we are not starting out. I mean so we can select very carefully with a lot of discipline our new project. As I told you before, And you have noticed that we have given you, I mean, this 45% figure of our trailing 12-month revenue, 45% in utilities and nuclear. I mean, obviously, from the moment, I mean, I arrived in 2018, ACON is going to become much more electrical and probably less civil and concrete. This being said, you can be number one, I mean, in infrastructure, without being able to master civil works. And we are working a lot on this. So there's not going to be a halt. I mean, we are still pursuing all activities that go toward margin predictability and obviously a good level of margin.

Okay, this is very helpful. And again, congrats for the very good quarter, guys.

Thank you. Once again, to ask a question, please press star 11 on your telephone at this time. Our next question comes from the line of Maxim Sachev of MBF. Please go ahead, Maxim.

Hi. Good morning, gentlemen.

Just had a couple of quick ones, if I may. In terms of, I realize you don't disclose, you know, multiples on the recent transactions, Can you maybe talk about sort of the broader contribution from these, you know, assets, whether it comes to accretion, whether on EPS or potentially, you know, EBITDA, I guess whether it's, you know, accretive dilutive, like anything you can tell us about the great things.

Sure. Hey, Max. I mean, in the case certainly of United, as Jerome talked about earlier, this It's a business that's got specialty nuclear. It's one we know quite well in Canada. It's an opportunity for us to grow along with our partner collaboratively in the US. We view that as good margin accretion on EBITDA and earnings, but also one that has lots of flexibility on capital. It's not a very capital-intensive business. since we've acquired the business. And so that capital is being deployed quite effectively and we're able to optimize between the two businesses on fleet. So in each case, I'd say good margin and earnings accretion and reasonable to good capital employed metrics.

Okay, okay, that's great. And then, because I think most of kind of discussion centered around, let's call it sort of horizontal infrastructure. I'm wondering if it's possible, Jean-Louis, to have like any updates on the industrial side of things, what opportunities you are seeing or not in the marketplace right now. Thanks.

Yes. So maybe one minute on Xtreme, I mean, on the acquisition and the activity. We are extremely happy with this acquisition. It's a wonderful platform, I mean, for U.S. growth. And there's nothing better than a war to test And our teams, I mean, our common teams are just coming back from Florida, Carolina, and Georgia. We had more than 140 combined crews from Xtreme and Acorn Utilities working there. They have learned to work together. And really, we are extremely happy with this acquisition. Regarding industrial, industrial is very strong in the West at the moment. We are finalizing the award of the medium-sized project in the East, but in the West it's very strong. We are strong at BHP, the potash mine in Saskatchewan, but also with other contracts in the West and final negotiations. We always go with the same manner. You remember, we arrive with the civil, with the foundation, then we do the slab. Then the client just begins to know us and realize that we are on time and that we are committed to our targets. Then after we go to the prefabrication of most of the modules in our yard. And then we go to electrical works. And then we go to instrumentation. and testing and commissioning, and our clients are usually delighted with the quality of the work that we are giving. So industrial is a real good sector in terms of activity and profitability at Acorn.

Okay, that's great, Carlo. Thank you so much, Jean-Luc. Thank you.

Our next question. comes from the line of Ian Gillies of Stifel. Please go ahead, Ian.

Ian Gillies Good morning, everyone. There's been a lot of conversation about revenue growth for next year. I was wondering if you could maybe come in at a bit of a different angle. Are the IPD contracts taking longer to get going or start up than you would have anticipated six months ago? And that's what's creating some of the term or interim uncertainty.

not really in development phase are long, and we'd like them to be long because it improves margin predictability. At the end, there is, of course, a few weeks of negotiation with our client about the right level of target and about the way we are going to ramp it up. For example, on core, this Go train expansion, I'm very happy that we have been able to divert it from a one-shot to a different bundle, each bundle around one billion, much easier to work. So there's nothing special in the ramping up of this project. This is the way they work, and it's probably better like this. So no real change. Okay.

And Ian, I just also just later in, in some of these situations, you know, we are also getting paid during the development phase as well, right? So I understand that there's, you know, extension in the development phase. You know, we don't view that as a major concern, right?

Understood. Thanks very much. That's all I had.

Thank you.

Thank you. We have a follow-up from Sabahat Khan of RBC Capital Markets. Please go ahead, Sabahat.

Great. Just one quick follow-up. So on the nuclear side, I think you detailed out some of the opportunities ahead over the next few years on the nuclear side. Obviously, a small acquisition here recently. When you look at your capability set relative to the opportunities out there over the next three, five, seven years, Do you have all the tools available to partake fully in those opportunities? Are there other capabilities you may need to add or develop? Just thinking about new builds, refurbishments, and potential decommissionings, just how do you feel about your ability to service those needs and the potential growth in demand? Thanks.

I will take this one. In terms of major refurbishment, I mean, we have everything in hand. We are working on all reactors at the moment at Darlington. All reactors open to refurbishment at Bruce. Of course, we are aiming to go and work at Pickering. It would be very nice because it goes perfectly with the end. We are working with the fourth reactor at the moment in Darlington. So here we have everything in hand. We have the most efficient and skilled teams in the country, and no worries about it. It was important. to get united. It was important to increase our capacity, not of design engineering, but of pre-construction engineering. I think it will help us to be better and better in the construction. We are well in SMR, and the alliance is perfectly defined. I mean, between OPG, G-Itachi, with the The technology provider, we are not the technology provider. We are the constructor. At Kinrealis, we are part of the design. I would say on the SMR, we also have everything in hand. You probably have noticed that we have begun to work for the Department of Energy, I mean the federal, in the United States. Our teams are growing, I would say, in quality and quantity. I'm not worried. Last part, new big build. Yes, we will have to find partnership. I mean, I'm talking about the kind of reactor, something like 1,000 megawatt, I mean, which are both the SMR. The SMR are usually between 100 and 300 megawatt. The one at Darlington is a 300 megawatt boiling water technology. For the big build, we are thinking about what kind of partnering and where would we go Those are difficult jobs. We will also be extremely careful about the contract mode. Obviously, I'm not ready by any way to put ACON in a lump sum job to build a new nuclear power plant. So I don't know if I answered your question about the landscape in nuclear and what we are needing and what we already master quite well.

I know that covers it. Thank you.

Thank you. I would now like to turn the conference back to Adam Borgatti for closing remarks. Sir?

Thanks very much, everybody, for joining. As always, feel free to reach out with any follow-up questions to me, and have yourself a wonderful rest of the day, good weekend, and we'll speak to you on the next quarter.

This concludes today's conference call. Thank you for participating. You may now disconnect.