Aecon reports first quarter 2023 results
Press Release
Toronto, Ontario – April 25, 2023: Aecon Group Inc. (TSX: ARE) (“Aecon” or the “Company”) today reported results for the first quarter of 2023 with year-over-year increases in revenue, operating profit, and Adjusted EBITDA, and backlog of $6 billion at March 31, 2023.
“With backlog of $6 billion and recurring revenue programs continuing to see robust demand, driven primarily by the utilities sector, Aecon believes the North American construction market continues to be resilient in the sectors Aecon serves,” said Jean-Louis Servranckx, President and Chief Executive Officer, Aecon Group Inc. “Aecon is committed to maintaining a disciplined capital allocation approach and positioning the business for long-term success, underpinned by a strategic focus on projects and concession opportunities linked to decarbonization, sustainability and the energy transition as well as projects procured and delivered under more collaborative models.”
HIGHLIGHTS
All quarterly financial information contained in this news release is unaudited.
- Revenue for the three months ended March 31, 2023 of $1,107 million was $121 million, or 12%, higher compared to the same period in 2022.
- Adjusted EBITDA(1)(2) of $24.6 million for the three months ended March 31, 2023 (Adjusted EBITDA margin(3) of 2.2%) compared to Adjusted EBITDA of $20.6 million (Adjusted EBITDA margin of 2.1%) in the same period in 2022 and operating profit of $5.6 million (operating margin(4) of 0.5%) compared to an operating loss of $9.6 million in the same period in 2022.
- Net loss of $9.4 million (diluted loss per share of $0.15) for the three months ended March 31, 2023 compared to a net loss of $17.4 million (diluted loss per share of $0.29) during the same period in 2022.
- Four large fixed price legacy projects being performed by joint ventures in which Aecon is a participant (see Section 5 “Recent Developments”, Section 10.2 “Contingencies” of the Company’s March 31, 2023 Management’s Discussion and Analysis (“MD&A”) and Section 13 “Risk Factors” in the 2022 Annual MD&A which are available on the Company’s profile on SEDAR (www.sedar.com), are being negatively impacted due to additional costs for which the joint ventures assert that the owners are contractually responsible, including for, among other things, unforeseeable site conditions, third party delays, COVID-19, supply chain disruptions, and inflation related to labour and materials. Aecon recognized an operating loss of $2.8 million in both the first quarter of 2023 and 2022 from these four legacy projects. At March 31, 2023, the remaining backlog to be worked off on these projects was $801 million with three of the four projects currently expected to be substantially complete by dates between late 2023 and early 2024, and the fourth is currently expected to be substantially complete during 2025.
- Reported backlog at March 31, 2023 of $6,002 million compared to backlog of $6,423 million at March 31, 2022. New contract awards of $812 million were booked in the first quarter of 2023 compared to $1,211 million in the same period in 2022.
- On March 1, 2023, Aecon announced that it has entered into a definitive purchase agreement with Green Infrastructure Partners Inc. under which Aecon has agreed to sell its Aecon Transportation East roadbuilding, aggregates and materials businesses in Ontario for $235 million in cash. The transaction is expected to close in the second quarter of 2023.
- On March 15, 2023, Aecon announced that it has entered into an agreement with Connor, Clark & Lunn Infrastructure to sell a 49.9% interest in the Bermuda International Airport concessionaire, Bermuda Skyport Corporation Limited (“Skyport”), for US$128.5 million ($173.9 million equivalent at March 31, 2023) in cash. Aecon Concessions will retain the management contract for the airport and joint control of Skyport with a 50.1% retained interest. The transaction is expected to close in the second quarter of 2023.
- In the first quarter of 2023 Aecon was awarded a $215 million contract by Parsons Inc. for the Giant Mine Remediation Water Treatment Plant Project in Yellowknife, Northwest Territories. Construction is expected to commence in the second quarter of 2023, with anticipated completion in the second quarter of 2026.
- Aecon’s fourth annual Sustainability Report, entitled Building a Sustainable Future, was released on April 21, 2023, outlining its progress and goals in its Environmental, Social and Governance (ESG) practices. The complete report is available on Aecon’s website at www.aecon.com/sustainability.
CONSOLIDATED FINANCIAL HIGHLIGHTS(1)
| Three months ended | ||||||||
|---|---|---|---|---|---|---|---|---|
| $ millions (except per share amounts) | March 31 | |||||||
| 2023 | 2022 | |||||||
| Revenue | $ | 1,107.2 | $ | 985.9 | ||||
| Gross profit | 66.8 | 61.1 | ||||||
| Marketing, general and administrative expense | (54.2) | (53.1) | ||||||
| Income from projects accounted for using the equity method | 3.3 | 3.0 | ||||||
| Other income | 12.6 | 2.2 | ||||||
| Depreciation and amortization | (22.9) | (22.9) | ||||||
| Operating profit (loss) | 5.6 | (9.6) | ||||||
| Finance income | 1.4 | 0.1 | ||||||
| Finance cost | (16.9) | (11.8) | ||||||
| Loss before income taxes | (9.9) | (21.3) | ||||||
| Income tax recovery | 0.5 | 3.9 | ||||||
| Loss | $ | (9.4) | $ | (17.4) | ||||
| Gross profit margin(4) | 6.0% | 6.2% | ||||||
| MG&A as a percent of revenue(4) | 4.9% | 5.4% | ||||||
| Adjusted EBITDA(2) | 24.6 | 20.6 | ||||||
| Adjusted EBITDA Margin(3) | 2.2% | 2.1% | ||||||
| Operating margin(4) | 0.5% | (1.0)% | ||||||
| Loss per share – basic | $ | (0.15) | $ | (0.29) | ||||
| Loss per share – diluted | $ | (0.15) | $ | (0.29) | ||||
| Backlog (at end of period) | $ | 6,002 | $ | 6,423 | ||||
- This press release presents certain non-GAAP and supplementary financial measures, as well as non-GAAP ratios to assist readers in understanding the Company’s performance (GAAP refers to Canadian Generally Accepted Accounting Principles under IFRS). Further details on these measures and ratios are included in the “Non-GAAP and Supplementary Financial Measures” and “Reconciliations and Calculations” sections of this press release.
- This is a non-GAAP financial measure. Refer to the “Non-GAAP and Supplementary Financial Measures” and “Reconciliations and Calculations” sections of this press release for more information on each non-GAAP financial measure.
- This is a non-GAAP ratio. Refer to the “Non-GAAP and Supplementary Financial Measures” section of this press release for more information on each non-GAAP ratio.
- This is a supplementary financial measure. Refer to the “Non-GAAP and Supplementary Financial Measures” section of this press release for more information on each supplementary financial measure.
Revenue for the three months ended March 31, 2023 of $1,107 million was $121 million, or 12%, higher compared to the same period in 2022. Revenue was higher in the Construction segment ($119 million) driven by increases in civil ($65 million), industrial ($27 million), nuclear ($11 million), utilities ($9 million), and urban transportation solutions ($7 million). In the Concessions segment, higher revenue of $3 million for the three months ended March 31, 2023 was primarily due to the improvement of commercial flight operations at the Bermuda International Airport.
Operating profit of $5.6 million for the three months ended March 31, 2023 improved by $15.2 million compared to an operating loss of $9.6 million in the same period in 2022. The period-over-period improvement in operating profit was driven in part by higher gross profit of $5.7 million largely due to an increase in the Construction segment primarily from higher volume and gross profit margin in industrial and urban transportation solutions, and from higher volume in nuclear operations, partially offset by lower gross profit margin in civil and utilities operations. In the Concessions segment, gross profit increased by $0.2 million primarily from an improvement in results from airport operations at the Bermuda International Airport.
Marketing, general and administrative expense (“MG&A”) increased in the first quarter of 2023 by $1.1 million compared to the same period in 2022, driven primarily by higher personnel costs. However, MG&A as a percentage of revenue decreased from 5.4% in the first quarter of 2022 to 4.9% in the first quarter of 2023.
Reported backlog at March 31, 2023 of $6,002 million compared to backlog of $6,423 million at March 31, 2022. New contract awards of $812 million were booked in the first quarter of 2023 compared to $1,211 million in the same period in 2022
REPORTING SEGMENTS
Aecon reports its financial performance on the basis of two segments: Construction and Concessions, which are described in the Company’s March 31, 2023 MD&A.
CONSTRUCTION SEGMENT
Financial Highlights
| Three months ended | |||||||
|---|---|---|---|---|---|---|---|
| $ millions | March 31 | ||||||
| 2023 | 2022 | ||||||
| Revenue | $ | 1,090.5 | $ | 971.6 | |||
| Gross profit | $ | 62.2 | $ | 56.5 | |||
| Adjusted EBITDA(1) | $ | 22.3 | $ | 19.3 | |||
| Operating profit | $ | 16.2 | $ | 1.3 | |||
| Gross profit margin(3) | 5.7% | 5.8% | |||||
| Adjusted EBITDA margin(2) | 2.0% | 2.0% | |||||
| Operating margin(3) | 1.5% | 0.1% | |||||
| Backlog (at end of period) | $ | 5,902 | $ | 6,337 | |||
- This is a non-GAAP financial measure. Refer to the “Non-GAAP And Supplementary Financial Measures” and “Reconciliations and Calculations” sections of this press release for more information on each non-GAAP financial measure.
- This is a non-GAAP ratio. Refer to the “Non-GAAP And Supplementary Financial Measures” and “Reconciliations and Calculations” sections of this press release for more information on each non-GAAP ratio.
- This is a supplementary financial measure. Refer to the “Non-GAAP And Supplementary Financial Measures” section of this press release for more information on each supplementary financial measure.
Revenue in the Construction segment for the three months ended March 31, 2023 of $1,090 million was $119 million, or 12%, higher compared to the same period in 2022. Construction segment revenue was higher in each sector, with the largest increase being in civil operations ($65 million) primarily from an increase in major projects in both eastern and western Canada. In industrial operations, higher revenue ($27 million) was due to increased activity on mainline pipeline work and higher field construction work at mining and wastewater facilities all in western Canada, partially offset by a lower volume of field construction work at chemical facilities in eastern Canada. Higher revenue in nuclear operations ($11 million) was driven by an increased volume of refurbishment work at nuclear generating stations in Ontario and the U.S., in utilities operations ($9 million) from increased volume of telecommunications and high-voltage electrical transmission work, partially offset by a lower volume of oil and gas distribution work, and in urban transportation solutions ($7 million) driven primarily by a higher volume of rail electrification project work in Ontario.
Operating profit in the Construction segment of $16.2 million in the first three months of 2023 increased by $14.9 million compared to an operating profit of $1.3 million in the same period in 2022. This increase was driven by higher volume and gross profit margin in industrial and urban transportation solutions, and from higher volume in nuclear operations. Higher gross profit and gross profit margin in industrial was largely due to a negative gross profit of $7.1 million in the same period last year versus $nil in the first quarter of 2023 from one of the four fixed price legacy projects discussed in Section 5 “Recent Developments” and Section 10.2 “Contingencies” in the March 31, 2023 MD&A, and Section 13 “Risk Factors” in the 2022 Annual MD&A. In utilities operations, lower gross profit margin was offset by an increase in gains on the sale of property and equipment of $10.4 million. These increases were partially offset by lower gross profit margin in civil operations due to negative gross profit of $2.8 million in the first quarter of 2023 versus a gross profit of $3.9 million in the same period last year from one of the four fixed price legacy projects.
Construction backlog at March 31, 2023 was $5,902 million compared to $6,337 million at the same time in 2022. Backlog decreased period-over-period in urban transportation solutions ($315 million), nuclear ($268 million), and industrial operations ($16 million), while backlog increased in utilities ($112 million) and civil operations ($52 million). New contract awards of $795 million in the first quarter of 2023 were $398 million lower than the same period in 2022.
CONCESSIONS SEGMENT
Financial Highlights
| Three months ended | |||||||
|---|---|---|---|---|---|---|---|
| $ millions | March 31 | ||||||
| 2023 | 2022 | ||||||
| Revenue | $ | 17.0 | $ | 14.4 | |||
| Gross profit | $ | 4.7 | $ | 4.4 | |||
| Income from projects accounted for using the equity method | $ | 3.5 | $ | 3.4 | |||
| Adjusted EBITDA(1) | $ | 15.0 | $ | 13.6 | |||
| Operating profit | $ | 2.4 | $ | 1.5 | |||
| Backlog (at end of period) | $ | 100 | $ | 86 | |||
- This is a non-GAAP financial measure. Refer to the “Non-GAAP And Supplementary Financial Measures” section of this press release for more information on each non-GAAP financial measure.
Aecon currently holds a 100% interest in Skyport, the concessionaire responsible for the Bermuda airport’s operations, maintenance and commercial functions, and the entity that will manage and coordinate the overall delivery of the Bermuda International Airport Redevelopment Project over a 30-year concession term that commenced in 2017. On December 9, 2020, Skyport opened the new passenger terminal building at the L.F. Wade International Airport. Aecon’s participation in Skyport is consolidated and, as such, is accounted for in the consolidated financial statements by reflecting, line by line, the assets, liabilities, revenue and expenses of Skyport. See Section 5 “Recent Developments” of the March 31, 2023 MD&A for details of an agreement to sell a 49.9% interest in Skyport. However, Aecon’s concession participation in the Eglinton Crosstown light rail transit (“LRT”), Finch West LRT, Gordie Howe International Bridge, Waterloo LRT, and the GO Expansion On-Corridor Works projects are joint ventures that are accounted for using the equity method.
For the three months ended March 31, 2023, revenue in the Concessions segment of $17 million was $3 million higher than the same period in 2022 primarily due to an increase in commercial flight operations at the Bermuda International Airport.
Operating profit in the Concessions segment of $2.4 million for the three months ended March 31, 2023 improved by $0.9 million compared to an operating profit of $1.5 million in the first three months of 2022, primarily from an increase in management and development fees as well as an improvement in operating results from the Bermuda International Airport.
Except for Operations & Maintenance (“O&M”) activities under contract for the next five years and that can be readily quantified, Aecon does not include in its reported backlog expected revenue from concession agreements. As such, while Aecon expects future revenue from its concession assets, no concession backlog, other than from such O&M activities for the next five years, is reported.
OUTLOOK
Demand for Aecon’s services across Canada continues to be strong, particularly in smaller and medium sized projects. In addition, during 2022, a consortium in which Aecon is a participant was selected to deliver the long-term GO Expansion On-Corridor Works project in Ontario under a progressive design, build, operate and maintain contract model which begins with a two-year development phase leading into the main construction scope and a 25-year operations and maintenance component, while another consortium in which Aecon is a participant was selected as the development partner for the Scarborough Subway Extension Stations, Rail and Systems project in Ontario to be delivered using a progressive design-build model. None of the anticipated work from these two significant long-term projects is yet reflected in backlog. Aecon (including joint ventures in which Aecon is a participant) is also prequalified on a number of project bids due to be awarded during the next twelve months and has a pipeline of opportunities to further add to backlog over time. With backlog of $6.0 billion at March 31, 2023 and recurring revenue programs continuing to see robust demand, driven by the utilities sector and ongoing recovery in airport traffic in Bermuda, Aecon believes it is positioned to achieve further revenue growth over the next few years.
While volatile global and Canadian economic conditions are impacting inflation, interest rates, and overall supply chain efficiency, these factors have stabilized to some extent and have largely been and will continue to be reflected in the pricing and commercial terms of the Company’s recent and prospective project awards and bids. However, certain ongoing joint venture projects that were bid some years ago have experienced impacts related, in part, to those factors, that will require satisfactory resolution of claims with the respective clients – see Section 5 “Recent Developments” and Section 10.2 “Contingencies” in the March 31, 2023 MD&A and Section 13 “Risk Factors” in the 2022 Annual MD&A regarding the risk on four large fixed price legacy projects entered into in 2018 or earlier by joint ventures in which Aecon is a participant.
On March 1, 2023, Aecon announced that it has entered into a definitive purchase agreement with Green Infrastructure Partners Inc. under which Aecon has agreed to sell its Aecon Transportation East roadbuilding, aggregates and materials businesses in Ontario for $235 million in cash. On March 15, 2023, Aecon announced that it has entered into an agreement with Connor, Clark & Lunn Infrastructure to sell a 49.9% interest in the Bermuda International Airport concessionaire for US$128.5 million ($173.9 million equivalent at March 31, 2023) in cash. Closing of these sales transactions is expected in the second quarter of 2023. Upon closing, Aecon expects to use the net proceeds from the transactions to pay down debt on its revolving credit facility. Aecon plans to maintain a disciplined capital allocation approach focused on long-term shareholder value.
In the Construction segment, with strong demand, growing recurring revenue programs, and diverse backlog in hand, Aecon 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 this segment. In addition to the selection of consortiums in which Aecon is a participant for two large transit related projects in 2022 noted above, in early 2023, a partnership in which Aecon is a participant announced that it had executed a six-year alliance agreement with Ontario Power Generation to deliver North America’s first grid-scale Small Modular Reactor through the Darlington New Nuclear Project in Clarington, Ontario. In addition, Oneida LP, a consortium in which Aecon Concessions will be an 8.35% equity partner upon financial close, executed an agreement with the Independent Electricity System Operator for the Oneida Energy Storage Project to deliver a 250 megawatt / 1,000 megawatt-hour energy storage facility near Nanticoke Ontario, with Aecon awarded a $141 million Engineering, Procurement and Construction contract by Oneida LP. All of these projects further demonstrate Aecon’s strategic focus in the industry with respect to projects linked to decarbonization, energy transition, and sustainability and represent more collaborative procurement models than have traditionally been used.
In the Concessions segment, in addition to expecting an ongoing recovery in travel through the Bermuda International Airport through 2023, 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. The GO Expansion On-Corridor Works project and the Oneida Energy Storage project noted above are examples of the role Aecon’s Concessions segment is playing in developing, operating and maintaining assets related to this transition.
At March 31, 2023, Aecon had a committed revolving credit facility of $600 million, of which $240 million was drawn and $10 million utilized for letters of credit. On December 31, 2023, convertible debentures with a face value of $184 million will mature and the Company expects to repay these debentures at maturity or before. The Company has no other debt or working capital credit facility maturities in 2023, except equipment loans and leases in the normal course.
CONSOLIDATED RESULTS
The consolidated results for the three months ended March 31, 2023 and 2022 are available at the end of this news release.
BALANCE SHEET
| March 31 | December 31 | |||
|---|---|---|---|---|
| $ thousands | 2023 | 2022 | ||
| Cash and cash equivalents and restricted cash | $ | 358,362 | $ | 484,245 |
| Assets of disposal groups classified as held for sale | 832,361 | – | ||
| Other current assets | 1,858,175 | 1,839,009 | ||
| Property, plant and equipment | 272,597 | 395,101 | ||
| Other long-term assets | 301,528 | 848,662 | ||
| Total Assets | $ | 3,623,023 | $ | 3,567,017 |
| Current portion of long-term debt – recourse | $ | 56,938 | $ | 56,564 |
| Current portion of long-term debt – non-recourse | – | 3,347 | ||
| Current portion of convertible debentures | 180,145 | 178,878 | ||
| Liabilities of disposal groups classified as held for sale | 547,983 | – | ||
| Other current liabilities | 1,606,917 | 1,595,674 | ||
| Long-term debt – recourse | 165,740 | 173,638 | ||
| Long-term project debt – non-recourse | – | 375,654 | ||
| Other long-term liabilities | 130,716 | 229,267 | ||
| Equity | 934,584 | 953,995 | ||
| Total Liabilities and Equity | $ | 3,623,023 | $ | 3,567,017 |
CONFERENCE CALL
A live webcast of the conference call will also be available at www.aecon.com/InvestorCalendar.
Participants should join the webcast at least 15 minutes prior to the conference time to register and install any necessary software. For those unable to attend the call, a replay will be available after 2 p.m. (Eastern Time) on April 26, 2023 at 1-866-813-9403 or 1-929-458-6194, or online until midnight on May 24, 2023. The access code is 214726. A replay of the webcast will also be available within 24 hours following the call.
AECON 2023 ANNUAL GENERAL MEETING
Aecon’s Annual Meeting of Shareholders will be held on Tuesday, June 6, 2023. Additional details will be set out in the Notice of Annual Meeting of Shareholders and Management Information Circular which will be filed on SEDAR prior to the meeting.
ABOUT AECON
Aecon Group Inc. (TSX: ARE) is a national Canadian construction and infrastructure development company with global experience and is proud to be recognized as one of the Best 50 Corporate Citizens in Canada. Aecon delivers integrated solutions to private and public-sector clients through its Construction segment in the Civil, Urban Transportation, Nuclear, Utility and Industrial sectors, and provides project development, financing, investment and management services through its Concessions segment. Join our online community on Twitter, LinkedIn, Facebook and Instagram @AeconGroupInc.
For further information:
Adam Borgatti
SVP, Corporate Development and Investor Relations
416-297-2600
[email protected]
Nicole Court
Vice President, Corporate Affairs
416-297-2600
[email protected]
IBF4
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