Aecon Group Inc.

Good day, and thank you for standing by. Welcome to the second quarter 2025 ACON Group, Inc. earnings call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-answer session. To ask a question during the session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Adam Breghetti, Senior Vice President of Corporate Development and Investor Relations. Please go ahead.

Thank you, Gigi. Good morning, everyone, and thanks for participating in our second quarter results conference call. This is Adam Breghetti speaking. Joining me today are Jean-Louis Servronx, 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 slide presentation on our website, which we'll refer to during this call. Following our comments, we'll be glad to take questions from analysts, and we ask that the 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. and that these statements are based on assumptions subject to significant risks and uncertainties. Although ACON believes the expectations reflected in these statements are reasonable, we can give no assurance that the expectations will prove to be correct. And with that, I'll hand the call over to Jerome.

And good morning, everyone. I'll now speak to ACON's consolidated results, review results by segment, and address ACON's financial position before turning the call over to Jean-Louis. Additional information has been provided to help clarify Detailed reconciliation tables are included on slides 13 through 15 in the conference call presentation. Turning to slide three, on a reported basis, revenue for the three months into June 30, 2025 of $1.3 billion was $448 million or 52% higher compared to the same period in 2024. Revenue grew across all operating sectors with strong performances in industrial, nuclear, and civil operations. Revenue growth also benefited from the impact of the acquisitions of Extreme Power Line Construction, Gainsworth Power Construction, and United Engineers and Constructors that occurred in the second half of 2024. Adjusted EBITDA of $41 million compared to a negative $154 million last year, an operating profit of $2 million in the quarter compared to an operating loss of $166 million last year. Adjusted EBITDA and operating profit in the second quarter of 2024 were negatively impacted by $237 million in legacy project losses versus $39 million in losses on legacy projects in the second quarter of 2025. Excluding the impacts from legacy projects and divestitures, as adjusted revenue for the three months ended June 30, 2025 of $1.3 billion compared to $975 million in the same period in 2024. Adjusted EBITDA is adjusted of $80 million compared to $78 million last year, driven by stronger contribution from core construction activities, which more than offset the anticipated normalization in concessions EBITDA, which benefited from incremental proceeds from the partial sale of Skyport and additional management and development fees in the prior period. Adjusted diluted loss per share in the order of $0.09 compared to a loss of $2.03 last year. ACON's reported backlog of $10.7 billion at the end of the second quarter was the highest reported backlog in its history, surpassing the previous record of $9.7 billion set in the last quarter. The increase in backlog is a result of significant efforts through collaborative models with our clients, and ACON anticipates a moderation in backlog growth given current levels. New contract rewards of $2.4 billion were booked in the quarter, primarily from the alliance contract awarded Ontario, where ACON is leading the construction of North America's first commercial grid-scale small modular reactor, or SMR, for Ontario power generation. Now looking at results by segment. Turning to slide 4, construction revenue of $1.3 billion in the second quarter was $447 million or 52% higher than in the same period last year. Revenue was higher in industrial operations driven primarily by an increased volume of field construction work in Western Canada and the impact on revenue of the Coastal Gas and Pipeline Project Settlement Agreement in 2024, and in nuclear operations from an increased volume of refurbishment and engineering services work at nuclear generating stations in Ontario and the United States. Revenue is also higher in civil operations from a higher volume of major projects, road building construction, and foundation work, and urban transportation solutions primarily from an increase in mass transit project work in Ontario and utility operations from a higher volume of gas distribution work in Canada and electrical transmission work in the U.S. following the acquisition of Xtreme in the second half of 2024, partially offset by a lower volume of telecommunication work. On an as-adjusted basis, construction revenue was $1.3 billion compared to $973 million in the same period last year, representing a 31% increase. Due contract rewards of $2.3 billion in the second quarter of 2025 more than doubled $64 million in new awards booked in the same period last year. Turning now to slide 5, adjusted EBITDA of $40 million compared to a negative $173 million last year, an operating profit of $15 million compared to an operating loss of $185 million last year. On an as-adjusted basis, adjusted EBITDA for the three months into June 30, 2025, of $79 million compared to $64 million in the same period in 2024, with improved performance driven by higher volume and gross profit margin in nuclear and utility operations, and higher volume in industrial operations, offset in part by lower operating profit in civil from Western operations, and urban transportation solutions from lower gross profit on mass transit projects that are now nearing completion. Turning to slide 6, concessions revenue for the second quarter was $2 million compared to $2 million in the same period last year. Adjusted EBITDA in the concession segment of $16 million in the quarter compared to $30 million last year and operating profit of $3 million compared to $17 million last year. Lower adjusted EBITDA and operating profit in the quarter were primarily driven by last year's gain on sale related to incremental proceeds from the partial sale of Skyport and last year's one-time recovery in Skyport. Otherwise, the adjusted EBITDA of the concession segment was aligned with expectations. On slide seven, we brought together the as-adjusted information to exclude impacts of the legacy projects and divestitures to provide insight into the underlying performance of the business. On an as-adjusted basis, revenue for the 12-month period ending June 30, 2025 was $4.7 billion, compared to $3.8 billion for the same period last year. Adjusted EBITDA was $351 million in the trillion-12-month period, compared to $337 million in the prior period. For the construction segment, on an as-adjusted basis, adjusted EBITDA was $321 million for the trillion-12-month period, representing a 6.8% margin. As-adjusted EBITDA margin was impacted by weaker gross profit in Western civil projects, transportation solutions from lower gross profit on mass transit projects that are nearing completion. Over three quarters of AECON's record backlog at June 30th is non-fixed price. This compares to 50% non-fixed price last year and just 30% non-fixed price in the second quarter back in 2021. ACON has continued to shift the nature of our backlog and our business over time, including to more collaborative and progressive procurement models, while seeking to reduce risk in our performance and target greater profitability and margin predictability. Turning to slide 8, at the end of the second quarter, ACON held core cash equivalents of $123 million, which excludes $339 million of cash representing ACON's proportionate share held in joint operations. In the second quarter of 2025, ACON renewed both its committed revolving credit and performance security guarantee facilities. At June 3, 2025, ACON had a committed revolving credit facility of $600 million, an increase of $150 million from its previous credit facility, and a separate committed credit facility for ACON utilities of $400 million. $336 million was drawn across both facilities, and $8 million was utilized for letters of credit. Both revolving facilities now mature in June of 2029. ACON has no debt or working capital credit facility maturities until 2029, except equipment loans and leases in the normal course. 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 9, ACON continues to build resiliency through a balanced and diversified work portfolio. Over the trailing 12-month period, 46% of ACOM's construction revenue was generated from the utilities and nuclear sectors, compared to 41% for the comparative period in 2024. In the second quarter, the Oneida Energy Storage Project officially commenced commercial operations, becoming the largest grid-scale battery energy storage facility in operation in Canada and one of the largest globally. Balancing growth and opportunity with proper risk management is key to ACOM's future success. We continue to maintain balance in our construction and concession segments as we embrace new opportunities to grow in areas linked to the energy and power sectors and in US and international markets. Turning to slide 10, demand for ACOM services across our markets continues to be stronger. With record backlog of 10.7 billion at June 30th, 2025, recurring revenue programs continuing to see robust demand and a strong big pipeline, Akon believes it's positioned to achieve further revenue growth in 2025 and over the next few years, and is focused on achieving improved profitability and margin predictability. 76% of our backlog was non-fixed price at June 30th, 2025 compared to 50% at the same time last year. Additionally, our trailing 12 months revenue at June 30th, 2025 was 65% non-fixed price from 58% in the same period last year. Trailing 12 months recurring revenue of 1 billion was comparable to the previous period. Recurring revenues are typically executed on a non-fixed price basis, with the majority being over and above our reported backlog figures. Turning to Outlook on slide 11, development phase work is ongoing in consortiums in which ACON is a participant to deliver several significant long-term progressive design-build projects of various sizes. These projects are being delivered using collaborative, progressive design-build models, with the majority expected to move into the construction phase in 2025 and 2026. ACON is focused on achieving solid execution on its projects and selectively adding to its record backlog through a disciplined bidding approach that supports long-term margin improvement in the construction segment. Revenue in 2025 is expected to be stronger than 2024 due to a record backlog of 10.7 billion, the impact of business acquisitions completed in the second half of 2024, solid recurring revenue, and a strong debt pipeline. Revenue growth is expected in most of the construction sectors. In the concessions segment, there are several opportunities to add to the existing portfolio of Canadian and international concessions in the next 12 to 24 months. The three remaining legacy projects are expected to reach substantial completion by the end of 2025. and this is anticipated to lead to improved profitability and margin predictability. The remaining backlog to be worked off on the three remaining legacy projects was 76 million, or less than 1% of total backlog at June 30, 2025. We are now very close and are dedicating all necessary resources to drive the remaining legacy projects to completion. while pursuing fair and reasonable settlement agreements with the respective clients in each case. Until the three remaining projects are complete and the related claims have been resolved, there is a risk that profitability could also be negatively impacted in future periods. As such, the completion and satisfactory resolution of claims on this project with the respective clients remains a critical focus for ACON and its partners. We are excited about the momentum we have built and remain focused on executing our strategy to drive long-term shareholder value. We thank our dedicated team members for their contributions and for reflecting our safety always culture. Thank you. We now turn the call over to Annalise for questions.

Thank you. As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Yuri Link from Canaccord Genuity, Inc.

Hey, good morning, guys. Hi, Yuri. Morning. Morning. When we think about next year with respect to the legacy projects, are there any lingering costs associated with these projects? Like I'm thinking associated overhead, not so much asking if there's going to be any cost reforecast in 26, because we don't know that, but any overhead costs that we should be including in our model, as we think about how these things finally roll off?

Okay, I'm going to take this one, Uri, and describe where we are with our three legacy projects. As you know, Eglinton Finch and Goldie Howe are P3 projects, and the way they are structured is that construction has its life that finishes with substantial completion. From this moment, we go to another phase which is maintenance of the assets that we have been building. So the issue for us at the moment is getting to substantial completion. As you have noticed, I mean, 76 million of backlog on those three jobs, which is less than 0.7% of our cumulative backlog, is of the essence. If I want to be a little more specific, On Eglinton and Finch, we are now working hand in hand with Metrolink, TTC and all our partners to begin what we call revenue service demonstration, which is the last phase before substantial completion. It's a period contractually fixed at 30 days with a high number of trains running 21 hours per day, seven days a week. We have been training, testing, and commissioning all our systems for the last two to three years to go there. This should begin between August and September and last for one month. Once this is achieved, which is a final exam, the owner has a few weeks to declare substantial competition. For Gordie Howe, the Canadian point of entry is over. The main bridge is over. I-75, I mean, is practically over. They're just a pedestrian bridge that remains to be finished. The U.S. point of entry is a little more complex. We are putting all our efforts on it, and we are also expecting to have substantial completion before the end of the year. What does it mean? It means that from the moment we are at substantial completion, the construction part of those things is over. And the consequence for us is that an eventual variance on cost at completion is now extremely limited on this project. This being said, as you have noticed from what I've been saying a few minutes ago, the way we are going to settle our disputes, our claims, the way we are going to negotiate with our client is our critical focus for the five to six months to come. This is a problem of revenue. What I can also add is that those three projects really represent an astonishing technical performance for ACON and our clients know it perfectly. I hope I've answered your question, Uri.

Yeah, maybe just a quick follow-up. I mean, in terms of pursuing the claims and stuff like that, is that going to be a noticeable overhead cost next year?

Not that much, not that much. I mean, most of our claims are on the table now. There is just a few adjustments because of the few weeks remaining. The idea is to find a fair and reasonable resolution and not to go to lengthy procedures. So there's no real overhead affected by this resolution. And then after substantial completion, we'll go to maintenance. You probably remember that none of those P3 has a risk of traffic. I mean, it's just a pure maintenance and availability issue on which we have been working now for the last two to three years on all projects.

Okay. So that's my last one. Not to belabor the point, but the underlying margins that you've been reporting the last couple of quarters, excluding the legacy charges, would you say that's a good proxy for what your margins might look like in construction in 2026? Hey, Yuri.

It's Jerome speaking. Yeah, look. There's a couple of things that are informing the evolution of the margin profile. So I'll touch on those briefly because I'm sure it's a question that others probably are in the queue that are going to ask as well. So number one, I'm on page seven of the conference call presentation. We note there the trailing 12-month June 30 EBITDA margin, and I'm focused on the construction business. was 8% last year, and this year it's 6.8%. And so informing that shift is a number of items. One was last year the teams were furiously at work on progressive elements of some of our PDD projects, working on design implementations, and we had several other relatively strong margin projects that were being executed and closed out at that point, which were positive. So the absence of those has an impact on the margins today. Number two is we've called out that the performance in some of the western areas of our civil practice are just not up to standards today. That's being addressed. Our expectation is that will close out roughly by the end of the year. This isn't kind of like a massive piece, but it's just an explanatory factor that ties into it. And then the final piece is a lot of the work that we're executing today has a much more appropriate risk balance in terms of conditions that are more aligned with ACON's risk appetite. And I remind everyone that the counterparties that procure from us are very sophisticated, very capable, and very intelligent. So there's no free lunch in the world where we operate in kind of massive project delivery landscape, right? Like we're talking about OPG, Metrolinx, major global mining corporations. They're smart partners. They know how this works, and they also understand that there needs to be an appropriate balance between profitability and risk, and that's also informing an element of the decline in that margin profile. So we always want to see more, but for instance, the 6.2% that we posted in this quarter specifically is you know, acceptable, but nothing to kind of be excited about. But that being said, just helps inform where the margin profile is going. We're very happy at ACON to trade a little bit of margin, right? Like I think in the quarter, we're down 46 basis points in order to take off the table some of the risks that we've historically seen with regards to legacy projects. Hopefully that gives a little bit of context.

Yeah, very helpful. I'll turn it over. Thanks.

Thank you. One moment for our next question. Our next question comes from the line of Chris Murray from ATB Capital Markets.

Thanks, folks. Along those lines, I was wondering if you could talk a little bit about the concessions business and maybe some of the expectations that we should think of. over the next little while. You know, Jean-Louis, I know you alluded to the fact that there's some interesting project pursuits, but also just trying to, you know, maybe, you know, have an idea on how some of those pursuits might flow through, either in pursuit costs or anything like that, as we go through the next year.

Yeah, I'll tackle that one. On the concessions business, I mean, look, we're very much focused on the value that that portfolio represents, right? So in broad numbers, there's a quarter billion dollars of equity invested in that portfolio today. These are high-value, long-term cash-flowing assets that are generally untied to certain economic profiles, and we see a lot of benefit from that perspective. In the comparative periods and in the historical periods, one of the things that's benefited the accounting EBITDA associated with our concessions business is really just management fees and some of the kind of success fees tied to certain projects. that have strengthened those results. As we close out the legacy projects, those management fees will fall off. And I promise you, economically for ACON, this is a good thing. But when that falls away, I think we'll see a more normalized, levelized level of performance from an accounting EBITDA standpoint. Our perspective is economic value is certainly maintained and preserved and probably augmented, as Jean-Louis mentioned. These legacy projects will move from the construction phase where they're paying a management fee into the concessions business to effectively a maintenance phase where it's a little bit more solidly performing. The next part is we have mentioned in the past a number of pursuits that are quite interesting and uniquely aligned to our capability set, one of them being the USVI airports, the two airports that we're currently in negotiations with to finalize that output. The thing that's interesting on that one, and we're trying to caution people not to kind of assume that the accounting EBITDA will have an uplift when those deals close. The economic values preserved, like the DCF, is unchanged, but the way that the airport concessions practice works in different markets, whether it's a Caribbean state or a U.S. territory or a different region, the way that the concession fees kick in vary depending on when the project's delivered. So in some instances, it might be a project signing. Some instances would be during construction. Some instances would be when the airports are actually delivered. And so on that basis, we're just taking a little bit more of a cautious stance on the accounting EBITDA. The economic output of the business remains consistent and strong.

Okay, that's helpful. My other question was just sort of thinking about kind of the revenue stack all in as we go into next year. I mean, certainly the bookings have been remarkable on whether or not they can maintain at this pace. I mean, we're now at backlog levels. And even when I think, you know, when I start looking at the next 12 months of revenue, you think about recurring revenue and everything, you're there. Any thoughts on, and I want to be careful about making sure that we get the backlog duration kind of in the right place, but is there anything to believe that you wouldn't see some pretty substantial revenue growth as we go into next year, or is there something that maybe is longer duration in the mix? So any color you can give us on how to think about next year's revenue stack would be probably appreciated.

Yes, Chris, so evidently there is a a mass calculation on all this. Our backlog is around 11 billion. Our recurring revenues are stable. Our big pipeline, and we may come back to this after, we think that the turbulences that we can see between U.S. and Canada will create quite a number of opportunities, quite interesting for ACON, just means that we are on a growing path, evidently, which is more important for us. And what is totally in line with our strategy, and this is why we are very happy about it, is that 76% of this backlog is under collaborative planning. Contracting mode, it's variable pricing. You probably remember that five to six years ago, we were a little below 30%. We have totally inversed the situation. So these give us, obviously, a much better margin predictability. and I know some questions that have been asked for the last few months is, yes, those jobs give probably less capacity of write-ups, but evidently, there's much less capacity of write-downs, and this is what was our strategy about. In this 11 billion, we still do not have until a few other progressive design build, quite nice, like the port of contracture, or all the elements of the GO Transit RER project that is going to be saved, but that will happen. I mean, you probably have seen that one month and a half ago was inaugurated by the government of Ontario, the Woodbine first bundle of work under Encore. So, yes, it's a path for growth, and it's perfectly aligned with our strategy, and for us, it's a path toward much better margin predictability.

Okay. I'll leave it there. Thanks, folks.

Thank you. One moment for our next question. Our next question comes from the line of Ashul Agarwal from CIBC Capital Markets. Hi.

Good morning. Thanks for taking my question. So my first question is around your margins. So you have talked about that your Western Canada operations has weighed on your margins. And you have also talked about some of your urban transport solutions from mass transit projects that has also impacted the margins. Can you please talk about this, what these mass transit projects are?

Sure, yeah.

Hey, Cheryl, it's Jerome. Western civil projects, I mean, there's civil projects. We don't call out at ACON specific projects for a variety of commercial reasons, but what I'll say is the projects in question have similar themes to them. They're ones that were entered into several years ago. They're fixed price in nature. And then the execution associated with them just isn't up to the standards to which we want to hold ourselves to. So it has a negative impact on the overall margin pool associated with our civil practice, which is a strong practice. And so we just think it's prudent to call it out. The projects in question, we anticipate to be finalized by the end of the year. don't think it's particularly constructive to put too much of a spotlight on it. It's just one of a couple of factors that inform the overall profitability of the business. For everything that we want to talk about Western Civil, we need to talk about strong performance of nuclear across markets, not just in Ontario. We can talk about utilities practice continuing to grow. So we try to be balanced with that. And then finally, on the UTS side, look, we're executing projects in a couple of jurisdictions. Today, the big ones on the roadmap are the two LRTs in Ontario. We're working on the REM project in Montreal. Scarborough is the other one, which was signed in February, and we've already begun operations on it. That's a pretty significant one. And so just the nature of those projects just have a more attenuated margin profile. And then also it's probably worth noting, we actually have one in Western Canada as well that we were out visiting not long ago, which was the Surrey Langley Stations project, which is an extension of the SkyTrain in Vancouver. So long way of saying we're really proud of our urban transportation solutions practice area. I think the teams are doing a really good job. The projects that are closer to the very end or very start tend to have slightly different margin profile than those who are in kind of the middle of the belly.

Thank you.

Thanks for clarifying that. I have another question on your capital allocation priorities. So, you did three acquisitions last year, and we are yet to hear any acquisitions for this year, so do you have any plans to get active on the M&A market again? And also your NCIB is expiring at the end of this month, so do you have any plans to renew your NCIB?

Yeah, I'll take a step back and answer that question, maybe with kind of a first principles approach, which is, In the normal course, our business is quite cash generative. Where we stand today is when you're taking project losses, like what we're taking on the legacy projects, that actually involves us cash financing the projects to completion. So that's a drain on capital resource that stands today. Normalizing for that ie when when the projects close out we won't have that drain We probably think about it in this way. So number one is our business is growing. So if you think about LTM revenue last year On a you know as just a basis so excluding legacy and divestitures We did about 3.8 billion of revenue and we're currently sitting at around 4.7 so there's been significant growth roughly 25 percent growth in the business and That growth involves investment in working capital, people, processes, efficiency, systems, all tied towards increasing the resiliency of how we do our work. The next thing we look at is making sure that we have a really strong balance sheet. And in this case, I put the plural on it. So we have balance sheet for ACON and then we have the balance sheet for ACON utilities. Part of that focus was evidenced in the quarter where we increased the ACON side of the house from $450 million credit facility to $600 million credit facility just to reflect the overall increase in the size of the enterprise and work programs that we have in front of us. So feed the machine, keep the balance sheet strong, support the dividend program. Clearly, that's an important part of our capital allocation process. And then we actually have effectively a competition for capital between three growth streams. One of them are just general growth capital investments in equipment, opening up new regions. The next one will be growth capital with regards to M&A, which was your question. And then the third one's, you know, growth capital, which is really kind of like value per share growth from the NCIB program. So I'll say NCIB program expires, you know, back half of the month here in August. Our expectation is that we would look for a renewal through the TSX. And we'll look to kind of continue to tactically approach that program based on capital availability. And then from an M&A front, we remain active, but we're also very particular. We're classy purchasers. We really care about the teams that we're onboarding into the ACON ecosystem. There needs to be an appropriate value for the businesses that we're looking to. We need to have the right type of operating ethos for those teams. They need to have the same focus on safety. They need to take care for their clients. They need to be additive to our overall profile. And so it ends up being quite tactical. And so you've got to kiss a lot of frogs before you find a prince. And so that's a bit of the reason why we haven't seen a ton of activity from an M&A perspective. And then the other part of the rule is M&A can be, you know, there's integration that's required afterwards. You have to be thoughtful about how these teams are onboarded and brought on to kind of like the ACON systems and, you know, how their approach and processes are ACONized. And that just takes a little bit of time. You know, you don't want to kind of rush and swamp the entire environment and then find yourself not extracting the value and benefits from, you know, the onboarding of these teams that you thought you were going to get. Hopefully that gives you a little bit more context.

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

Thank you. One moment for our next question. Our next question comes from the line of Benoit Parier from Desjardins Securities.

Yeah, good morning, gents, and yes, First question, obviously, when we look on the nuclear side, strong expertise with a lot of excitement around the globe. Could you maybe provide an update on the discussion you're having and what you're seeing in terms of bidding pipeline for nuclear work?

Yes, but I'm going to do it on nuclear. We are very happy with our nuclear sector. As you have noticed, I mean, we are now refurbishing 100% of the Canadian fleet. It may be at Darlington with the last unit, at Bruce, and we have begun now at Dickring. In addition, at Pickering, we have entered into the turbine rehabilitation, which is very interesting for us. It's going to be an add in our competency, and we are here in partnership with Siemens. Regarding new build, you have noticed we have added a little more than 1 billion. It was 1.3 billion. for our share of the small modular reactor in Darlington. This is the first of a series of four. We just have to be good with the first one, and we are extremely focused with this job that fits perfectly with our capacity. But obviously, for OPG, for the province of Ontario, and for us, what we want to do is just four SMRs. There's also a lot of movement and preparation on the 1,000-size reactor in Ontario. It's going to be with Bruce Power and it's going to be with OPG. So at this stage, we are working with both our clients in pre-definition, pre-constructability, very close. As I tend to say, we are totally... technology agnostic, and we can work with any technology. SMR is a GI touchy technology. The actual reactors in Canada are can-do technology. It's not a problem. It's not a problem for us. In US, we are growing extremely nicely. You probably remember a few years ago, we had quite a very small specialized welding company, which name was Waltz. which is now ramping up in terms of activity, profitability, knowledge, quality of the team quite nicely. We work for the Federal Department of Energy. We work for Dominion on a major component. replacement. We have now opened and strengthened our offices in Charlotte. The future of nuclear in the United States, you have probably followed during the last two months everything that has happened on the other side of the border. The future of nuclear in the United States is extremely interesting, and we are ideally positioned with ACON at this stage.

That's a great caller, Jean-Louis. And maybe quickly, on the financial front, obviously with a strong backlog, upcoming growth, how should we be looking at 2026 in terms of working capital movement?

So, Benoit, it's Alistair. You see, through the first half of the year, we've We've increased our working capital because of higher revenue. The expectation for the back half of the year is that we'll continue with the back half of working capital being up slightly. And then 2026, it's hard to view it at this stage. I mean, you know in construction that working capital can be kind of lumpy. I would say, you know, it tends to follow our typical path where we build working capital in the first half of the year and then unwind working capital in Q4. I think the expectation now is kind of hard to predict because it'll also depend on how some of these settlements go. So at this stage, I think we'll hold off on giving any guidance on it, and we can talk about it later in the year as things unfold.

Thank you very much, Lister.

You're welcome.

Thank you. One moment for our next question. Our next question comes from the line of Maxim Sychev from National Bank Financial.

Hi, good morning, gentlemen. I was wondering if it's possible to get a bit of an update around the power of business in the U.S. and the transmission opportunity. So anything you can provide color on, that would be great. Thanks.

Yeah, I mean, what's happening in power is extremely interesting. In Canada, but also in the U.S., it's now obvious that the electricity demand is expected to double by 2050. I mean, there's a lot of parameters there, but it's about population growth. It's about electrification of systems. I mean, more electrical vehicles, more mass transit and transportation going to electricity, heat pumps. and also industry growth. I mean, this is one of the biggest parts in Ontario, energy intensive, I would say, industrial activity, IA and data centers, but also a lot of advanced manufacturing that requires more and more electricity. So new generation capacity, that is important, new transmission capacity, capacity, not only within a province in Canada, but also between provinces. It's evident that at the national level, we need more consistency in our grid. It's also about storage. We told you about a Maida, 250 megawatt, but we have also finalized during the quarter two other battery storage, each one around 100 megawatt. ACON is ideally positioned. When we speak more specifically about the United States, energy, I mean, we are growing nicely with our nuclear activity. You remember that utilities two years ago began to work in the United States. It's a mix of acquisition and of organic growth with partners. there's a lot a lot to do to finish with the united states you you can i mean hear some noises and about what what is going to happen but but at the end of the day the vocabulary can change i mean we we speak less about climate change and more about extreme weather and events we speak less about renewable energy but more about energy security and resiliency but at the end of the day the works remain, and it's a very high load. Once again, I mean, we have been preparing the ACON during the last three years about it. It's coming, and we are ideally positioned.

Okay, that's a color. And you're not seeing any slippage in terms of kind of contract allocations as there is some pushback around the ability to pass on rate base increases to the ultimate consumers? What is your sense around how quickly these projects actually do ramp up in the U.S.?

What we can see, obviously, the last decision of the presidential level in the U.S. have created some uncertainty, but there's not one single week where you don't have a deal or an agreement that is getting signed. It means that I think it's coming... uh i would say surely uh back to to a kind of new normal yes we had seen during last year some some of uh our projects that were under pursuit being pushed to the right my opinion is that it's going to quieten down and in front of i mean a question about our eventual vulnerability In front of all this, I just remind you that our backlog is 76% flexible price, so we are covered about tariffs and all this kind of stuff. ACON is more and more American. We are extremely prudent, but we have more boots on the ground, more capacity to produce, more capacity to execute. Our words are essential in nature. So I just think that it's going to settle down. and come back to the reality, which is that there is a huge need for power infrastructure in the U.S. and in Canada.

Yeah, that's a good call. And then one quick follow-up for Jerome, if I may. I realize, obviously, we cannot talk about the commercial terms, et cetera, but can you remind us the contract structure or the risk profile on the new kind of nuclear bills, et cetera, that you're underwriting right now? Thank you.

Yeah, generally speaking, variable target price style contracts with incentives associated with them, right? And we've been working with the clients on these for quite a while. And so we have a pretty good handle on schedule performance required. These things are huge, right, Max? It's not just a couple of men and women who are just kind of punching around in Darlington. It's a full mobilization effort. There's a lot of white-collar work that's happening, design, off-site fabrication happening at ACON facilities that are in southwestern Ontario. So overall, yeah, target price contract style, not fixed price.

Okay, wonderful. Thank you so much.

Thank you. One moment for our next question. Our next question comes from the line of Michael Topholm from TD Securities.

Thank you. Good morning. Good morning. Jean-Louis, you gave a lot of very good detail earlier on the call about the status of your three legacy projects in terms of the stage you're at with those three. I guess the question I have is, with your having pushed out the expected date for substantial completion for all three of these to year end from September 30th, can you just speak to your level of confidence that all of these projects will in fact be done by year end? I mean, it sounds the way you laid it out as though there's a very sort of organized fashion here in which this work will be completed and it frankly didn't sound like there is much risk of further slippage, but just trying to get a sense from you as to how we should think about that risk.

What is important to know is that we are not the only party in this story, especially on Eglinton and Finch. I mean, you probably remember we build then we maintain, but we don't operate. I mean, TTC is operating and the fleet, for example, has been bought directly by Metrolink, I mean, the train. So we are not alone, but there is and there has been for the last few months an absolute alignment between all parties to get it done now. and to have the parameters of substantial completion being much clearer, the way we are going to bet in all the operation periods, the way we are going to transition between construction, testing and commissioning and operation and maintenance is much, much clearer. So I would tend to say, yes, it may fluctuate. by a few weeks, and what you have seen on our write-down, I mean, on those two projects, Eglinton and Fitch, is just a consequence of this, I mean, of this situation. But I really think we are now at the end of the game, I mean, on this one. Gordiao is a little different. We are not yet... I would say, completed on the U.S. point of entry. The relation with the U.S. border agency, as you may imagine, is not extremely easy. It's also a wonderful tool for trade between the U.S. and Canada, but it's probably not the best moment for this bridge to be open. So there may be some I mean, during the weeks to come. This being said, I do not see any reason, I mean, for ACON and for the construction and capacity to maintain this infrastructure tool. I do not see any reason that this may be pushed after the end of the year.

That's very good, Colour. Thank you for all that. Second question is, is around some opportunities specifically in the defense area. I mean, you have an incredibly strong backlog, a lot of strength in a variety of end markets you're targeting, but we've heard a lot about increased defense spending. Just wanted to get your sense as to how you see ACON as potentially positioned for any work in that particular area.

Yeah, this is what we call sovereignty and defense future business. We think it's not going to come from Friday night to Monday morning, that what is going to come, I mean, probably very quickly is a lot of rehabilitation of existing bases and a lot of additional allocation for people. and education of people, preparation of people. This being said, we are getting ready for the step further. The step further are new bases in the north, a new way of interception. I mean, it may be the Golden Dome part for Canada or some different system, but they will be, we are convinced in terms of defense. And also in terms of sovereignty with special metals, special mineral capacity to trade better horizontally than vertically, we can see quite a number of interesting work to come. It will be in a few years, but that's not a problem. I mean, as I have said, we have prepared ourselves for the power wave that we are seeing at the moment three years ago. We are just preparing ACON for what is going to happen in defense in two, three, four years ago. And with the backlog that we have at the moment on the table, I'm not worried at all about the top line for ACON.

Thank you. I'll leave it there.

Thank you. One moment for our next question. Our next question comes from the line of Frederic Bastien from Raymond James Limited.

Good Friday, everyone.

Hey, Fred. Hey, Fred.

Hello. Would you mind sharing, maybe presenting somewhat of a report card on the Xtreme and United deals and just wondering whether these acquisitions are meeting your expectations?

Yeah, I'll take that one, Fred. I've been told I have really long answers, so I'll try to keep it short. So the answer is yes. We're really pleased with the operational performance of Xtreme. The team there, the level of integration that we've pursued is appropriate for the structure. We have mixed teams. We've kind of cross-deployed resources for things like storm response. They continue to have very strong position with their primary client, DTE, who has expanded capital budgets. And so we're really happy with what that team's done. We're really happy with what the utilities team has done on our side and any side of the border to support them as well. It's worked quite cohesively. United, we're kind of in month seven of kind of the partnership, and it's going well. Like the It's clear that that was a carve-out of a carve-out, so that team now being part of a focused enterprise, them being core to the execution that we undertake, and obviously the privileged position that we have within the nuclear space just affords the entire nuclear envelope that we have within ACON to leverage revenue and capability synergies. So overall, we're really happy. Again, all of these things were softly sought out. They were all part of non-competitive processes where we spend a lot of time really getting to understand their teams. And so far, it's worked really well. So overall, we're pleased with it. Like with anything, we hold ourselves to account to certain areas where we could probably refine some of the approaches that we have from an integration standpoint and continue to make sure that we're cross-selling and maximizing our revenue opportunities. But that's kind of like at the margin. I'd say overall, we grade ourselves relatively well from that standpoint. We also had the Ainsworth Power constructor acquisition that was folded in very quickly, and I think it seems very happy to be part of a business that's uniquely focused on that outdoor electrical. And so, yeah, I'll try to stop there. I could talk for hours about this stuff.

Okay, I appreciate it. And then just building on this, are you actively pursuing other deals right now or just pausing and just trying to really get to focus on the legacy projects and getting past completion? Just wondering what your mindset is on M&A.

Yeah, I mean, look, the focus on the legacy projects is a critical A1 priority for the entire ACOM team. But that doesn't excuse us from being able to operate the business in the normal course, right? So if the focus was uniquely on trying to close out the legacy projects, we wouldn't have expanded or backlogged by $5 billion on that basis, right? So I think we're – this is one where we're walking and chewing gum, no problem. Adam Borgatti, who's here and head of IR, also head of corporate development, remains very active. We've got pretty particular parameters when it comes to acquisitions. It needs to tie into our overall strategy. They need to be aligned from a whole bunch of operational safety cultural factors And then valuation is a huge focus for us. What we've seen is in some areas we've had to wave off just because the level of froth in the market and private equity involvement has just made it kind of uneconomic to pursue transactions in those spaces. And then in other spots, people see maybe a little bit of a longer-term partnership with ACON and our teams and the ability to really expand their business, usually private companies, and that's where we're currently focused. So when we think about that, we think about things that are aligned with our expertise, we think about businesses that allow us to expand services within existing markets, and we think about businesses that allow us to expand existing services in new markets, which is our land and expand approach. So from that front, we're spending time across North America on exactly those two vertices. And not big stuff, right? Like, again, we can get more kind of like appropriately sized acquisitions and then expand them afterwards, right? We don't need to pay big multiples to buy businesses that we're already quite good at.

Great. Thanks, Jerome. That's all I have.

Thank you. One moment for our next question. Our next question comes from the line of Ian Gillies from Stiefel GMP.

Good morning, everyone. I just wanted to sneak in here quickly at the end and fully acknowledge revenue growth is going to be pretty robust given the backlog. But have you seen any signs of slippage with your private customers on the industrial side or in any other facets just given some of the tariff-related headaches they're probably having in and around project costing?

Yeah, I will take this one. As I've told you, we've seen that the tariffs It's not a distraction. I mean, the turbulence will just settle down in the weeks or months to come. And the reality of the strength of the power business and the need for new infrastructure is going to be a main driver. In terms of industrial projects, yes, you probably have heard, for example, that Dow Chemical is just pushing to the right part of its investment. So this may happen when there is uncertainty about the product. the market price and the quantity for those products that can be sold in the near future. On another hand, you have also heard that LNG Canada Phase 2 is now coming into a much more active phase. You have seen that the energy, I mean, Bruce Power is going full speed ahead to be able to generate more power. So, all in all, I'm not that much worried about the top line in terms of civil works. You probably have imagined that, and you can see the trend for the last year, we are decreasing our exposure to civil work and increasing the one to pure power, as I've explained. So all in all, I would say the balance of activity of ACON, the balance of our kind of clients, the balance of the type of contract we can take with our different business center just make that we are extremely resilient and the global trend is good.

Understood. Thanks very much. I'll take the call back over.

Thank you. One moment for our next question. Our next question comes from the line of Sibahat Khan from RBC Dominion Securities.

Great. Thanks, and good morning. Just, you know, I apologize if it was discussed earlier, but I just wanted to get a bit of perspective on with the backlog being materially higher than it's been over the last few years. Can you just walk us through, you know, the kind of the cadence of the burndown versus what we may have seen historically? Obviously, there's some very large projects in there. We just want to understand Should the burn rate call it, not just 26, but just call it 26, 27? Would that differ? And then do these larger projects change the quarterly cadence at all versus what we may have seen in the past years? Thanks.

I would tend to say not really. The reason at which you develop those progressive design build and collaborative model is slower at the beginning, but at the end of the day, those are big amounts and you just have to execute them. and to build them. So rather than having an ultra-sophisticated model, I think what has happened in the past is still valid. We have 11 billion of backlog, you know more or less the maturity, and with this you can have quite an interesting view of what our activity is going to be in the next few years.

And how are you thinking about, I guess, both on this side, just given the scale of this backlog, the nuclear commentary you shared earlier, how are you thinking about staffing on both fronts? Nuclear, I think it sounds like one of the refurbishments ends and the next one begins, but just walk us through how you're staffing to ensure that you're meeting some of this demand that's in the backlog. Thanks.

Obviously, there is a competition for talents at every level.

But I have to say that at the trade and team leader, supervisor, I mean, we have... I would tend to say we have an extremely loyal group of people, very happy to work with Akon. Akon is a Canadian company. It's strong. It has been living for the last 100 years, and we all think that it will be better and better and grow during the next 100 years. So, yes, there is competition. We are extremely careful. I also remind you that what I was telling a few minutes ago about our balance of activity. I mean, you don't use the same people to build a concrete wall. and to weld pipeline on a steam generator in nuclear, or to lay power overhead lines. I mean, these are not the same kind of people. We don't have 11 billion of backlog in the same activity. It's quite balanced, and this is the way we can go through this increase of backlog.

And then maybe it's just as you were talking, kind of just thinking through this out loud, you know, maybe there isn't a right answer to this, but with the macro backdrop being as uncertain as it is, you know, you've got the big backlog. Is it possible to get a bit of labor arbitrage, maybe get staff in at lower rates than you might have thought maybe six, 12 months ago? Or are the wages more structured among the workforce or there might be some element of unionization? I'm just curious if there is an ability to maybe get a bit of arbitrage on labor in this environment. Thanks.

First of all, remember that 76% of the backlog is flexible price. It means we are covered if there are high fluctuances. On the other hand, most of our agreement with the trade unions is our multiple years agreement. So we have a very interesting discussion and negotiation with our trade union partners, not only about the cost, but about the quality and about the quality depending on our backlog. And we don't go on every job, I would say, with the same appetite, taking care of this issue of labor availability. We are extremely careful with this. For the moment, I do not see any real complicated issue.

I say for the moment.

Thanks very much.

Thank you. At this time, I would now like to turn the conference back over to Adam Broghetti for closing remarks.

Thank you, Gigi, and thank you all for participating. Enjoy the rest of the summer, and as always, feel free to reach out with further questions to the investor relations team here. Thanks.

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