Mr. Jean-Louis Servranckx reports

AECON REPORTS THIRD QUARTER 2022 RESULTS

Aecon Group Inc. has released results for the third quarter of 2022 with 19-per-cent year-to-date revenue growth and backlog of $6.3-billion as at Sept. 30, 2022.

"Aecon continues to see strong demand for its services across Canada, particularly in smaller and medium-sized projects," said Jean-Louis Servranckx, president and chief executive officer, Aecon Group. "With strong and diversified backlog in hand, as well as the GO Rail Expansion On-Corridor Works project, which is not yet in backlog, robust demand for recurring revenue programs driven by the utilities sector, and ongoing recovery in airport traffic in Bermuda, Aecon is well positioned for ongoing growth."

Highlights:

• Revenue for the three months ended Sept. 30, 2022, of $1,321-million was $157-million, or 14 per cent, higher compared with the same period in 2021.
• Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) of $92.6-million for the three months ended Sept. 30, 2022 (margin of 7 per cent) compared with adjusted EBITDA of $95.5-million (margin of 8.2 per cent) in the same period in 2021, and operating profit of $61-million compared with operating profit of $63.7-million in the same period in 2021.
• After adjusting for the impact of amounts related to the Canada Emergency Wage Subsidy (CEWS) program in the third quarter of 2021, adjusted EBITDA of $92.6-million increased by $4.4-million and operating profit of $61-million increased by $4.6-million for the three months ended Sept. 30, 2022, compared with the same period in 2021.
• Net profit of $34.5-million (diluted earnings per share of 45 cents) for the three months ended Sept. 30, 2022, compared with a net profit of $38.4-million (diluted earnings per share of 56 cents) during the same period in 2021, before adjusting for the impact of CEWS in 2021.
• Reported backlog as at Sept. 30, 2022, of $6,275-million compares with backlog of $6,043-million as at Sept. 30, 2021.
• New contract awards of $991-million were booked in the third quarter of 2022 compared with $682-million in the same period in 2021. Year-to-date new awards of $3,507-million increased by $1,030-million, or 42 per cent, compared with $2,477-million in the 2021 year-to-date period.
• Aecon was awarded two contracts with an aggregate value of $127-million for the Savannah River Nuclear Solutions (SRNS) demolition and removal and SRNS temporary HVAC (heating, ventilation, air conditioning) projects in Aiken, S.C.
• Aecon released its inaugural reconciliation action plan, reaffirming its commitment to collaboratively seek meaningful ways to engage in reconciliation by continuously working in unison with indigenous peoples.
• Aecon Sustainability Solutions was established as a collaborative business model to provide a single point of entry to Aecon's diverse capabilities as it advises and works with clients in reaching their sustainability and energy transition goals.

Revenue for the three months ended Sept. 30, 2022, of $1,321-million was $157-million, or 14 per cent, higher compared with the third quarter of 2021. In the construction segment, higher revenue of $156-million was driven by increases in civil ($167-million), utilities ($22-million) and nuclear operations ($9-million), partially offset by lower revenue in industrial ($29-million) and urban transportation solutions ($13-million). In the concessions segment, revenue was unchanged quarter-over-quarter. Intersegment revenue eliminations decreased by $1-million due to lower revenue between the construction segment and corporate.

Operating profit of $61-million for the three months ended Sept. 30, 2022, decreased by $2.7-million compared with an operating profit of $63.7-million in the same period in 2021. The largest driver of the period-over-period change was lower gross profit of $4.6-million. Included in gross profit in the third quarter of 2021 was a net positive impact from subsidy related to the CEWS program ($7.3-million in the three-month period ended Sept. 30, 2021), recorded as cost recovery within gross profit in the construction segment. After adjusting for the impact of CEWS amounts reported in the third quarter of 2021, gross profit in the third quarter of 2022 increased by $2.7-million compared with the same period in 2021. In the construction segment, gross profit increased by $4.1-million from higher volume partially offset by lower gross profit margin primarily from pipeline activity in industrial operations. In the concessions segment, gross profit decreased by $1.4-million, primarily from a reduction in results from airport operations at the Bermuda International Airport.

MG&A (marketing, general and administrative expense) for the three months ended Sept. 30, 2022, increased by $100,000 compared with the same period in 2021, and MG&A as a percentage of revenue for the third quarter decreased from 3.6 per cent in 2021 to 3.2 per cent in 2022.

Reported backlog as at Sept. 30, 2022, of $6,275-million compares with backlog of $6,043-million as at Sept. 30, 2021. New contract awards of $991-million and $3,507-million were booked in the third quarter and year-to-date, respectively, in 2022 compared with $682-million and $2,477-million in the same periods in 2021.

Reporting segments

Aecon reports its financial performance on the basis of two segments: construction and concessions.

Revenue in the construction segment for the three months ended Sept. 30, 2022, of $1,299-million was $156-million, or 14 per cent, higher compared with the same period in 2021. Revenue was higher in civil operations ($167-million) driven by an increase in both major projects and road building construction work; in utilities operations ($22-million) primarily due to an increase in telecommunications and high-voltage electrical transmission work; and in nuclear operations ($9-million), driven by a higher volume of refurbishment work at nuclear-generating stations located in Ontario. Partially offsetting these increases was lower revenue in industrial operations ($29-million), driven primarily by decreased activity on mainline pipeline work in Western Canada, and in urban transportation solutions ($13-million) primarily from a decrease in light rail transit (LRT) work in Ontario.

Operating profit in the construction segment of $63.4-million in the three months ended Sept. 30, 2022, was unchanged compared with the same period in 2021. Construction segment operating profit in the third quarter of 2021 included a net positive impact from amounts related to the CEWS program totalling $7.3-million recorded as cost recovery within gross profit. After adjusting for the impact of CEWS amounts reported in the third quarter of 2021, operating profit in the third quarter of 2022 increased by $7.3-million. This increase resulted in part from higher gross profit ($4.1-million after adjusting for the impact of CEWS in the third quarter of 2021), due to increased revenue partially offset by lower gross profit margin primarily from pipeline activity in industrial operations. Also positively impacting operating profit in the period was lower MG&A ($2.6-million), an increase in gains on the sale of equipment and other assets ($1.6-million), higher income from projects accounted for using the equity method ($200,000), partially offset by higher depreciation and amortization expense ($1.2-million) related to increased equipment utilization.

Construction backlog as at Sept. 30, 2022, was $6,179-million, which was $214-million higher than the same time last year. Backlog increased period-over-period in civil operations ($513-million), industrial ($72-million) and nuclear ($46-million), and decreased in urban transportation solutions ($399-million) and utilities ($18-million). New contract awards totalled $966-million in the third quarter of 2022 and $3,438-million year-to-date, compared with $657-million and $2,424-million, respectively, in the same periods last year. During the first nine months of 2022, Aecon was awarded a number of projects, including the Kingstown port modernization project works, lot 1: primary cargo port in Saint Vincent and the Grenadines, the Interstate-90/State Road-18 to Deep Creek Interchange improvements and widening project near Snoqualmie, Wash., and two contracts for the Savannah River Nuclear Solutions (SRNS) demolition and removal and SRNS temporary HVAC projects in Aiken, S.C. In addition, an Aecon joint venture was awarded the contract for the Buffalo Pound water treatment plant renewal project in Saskatchewan, an Aecon partnership was awarded a contract for the Montreal-Trudeau International Airport REM Station project in Quebec, and an Aecon partnership was awarded the Annacis water supply tunnel project in British Columbia.

Aecon holds a 100-per-cent interest in Bermuda Skyport Corp. Ltd., the concessionaire responsible for the Bermuda airport's operations, maintenance and commercial functions, and the entity managing and co-ordinating the overall delivery of the Bermuda International Airport redevelopment project over a 30-year concession term that commenced in 2017. 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. However, Aecon's concession participation in the Eglinton Crosstown LRT, Finch West LRT, Gordie Howe International Bridge and Waterloo LRT projects are joint ventures that are accounted for using the equity method.

For the three months ended Sept. 30, 2022, revenue in the concessions segment of $22-million was unchanged compared with the same period in 2021, while for the nine months ended Sept. 30, 2022, revenue of $55-million was $5-million higher when compared with the same period in 2021. Higher revenue for the nine months ended in 2022 was primarily due to an increase in commercial flight operations at the Bermuda International Airport. Commercial flight operations in Bermuda continue to operate at a reduced volume due to COVID-19 compared with prepandemic levels but have partially recovered from the more severe impacts experienced in 2020 and 2021.

Operating profit in the concessions segment for the three months ended Sept. 30, 2022, decreased by $600,000 compared with the same period in 2021, primarily due to higher operating costs in the current period at the Bermuda International Airport. Operating profit for the nine months ended Sept. 30, 2022, increased by $5.6-million, compared with the same period in 2021, primarily as a result of an improvement in airport operations at the Bermuda International Airport.

Except for operations and 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, as evidenced by year-to-date revenue growth of 19 per cent and higher new project awards of 42 per cent. In addition, during 2022, an Aecon consortium was selected to deliver the transformative, multibillion-dollar long-term GO Rail 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, none of which is yet reflected in backlog. Aecon is also prequalified on a number of project bids due to be awarded during the next 12 months and has a strong pipeline of opportunities to further add to backlog over time. With backlog of $6.3-billion and recurring revenue programs continuing to see robust demand, driven by the utilities sector and continuing recovery in airport traffic in Bermuda, Aecon is confident in strong 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 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 continuing 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 13, risk factors, in the third quarter 2022 management's discussion and analysis (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.

In the construction segment, with strong demand, growing recurring revenue programs and diverse backlog in hand, Aecon is focused on ensuring 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 the concessions segment, in addition to expecting a gradual recovery in travel through the Bermuda International Airport during the balance of 2022 and 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 in innovative projects with private-sector clients that support a collective focus on sustainability and the transition to a net-zero economy.

As of Sept. 30, 2022, Aecon had a committed revolving credit facility of $600-million, of which $210-million was drawn and $3-million was utilized for letters of credit. The company has no debt or working capital credit facility maturities until the second half of 2023, except equipment loans and leases in the normal course.

Conference call

A conference call and live webcast has been scheduled for 10 a.m. (Eastern Time) on Thursday, Oct. 27, 2022. Participants should dial 1-833-950-0062 or 1-226-828-7575 at least 10 minutes prior to the conference time. The conference ID is 929102. An accompanying presentation of the third quarter 2022 financial results will be available after market close on Oct. 26, 2022, on the company's website.

A live webcast of the conference call will also be available on the company's website.

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. on Oct. 27, 2022, at 1-866-813-9403 or 1-929-458-6194, or on-line until midnight on Nov. 24, 2022. The access code is 523531. A replay of the webcast will also be available within 24 hours following the call.

About Aecon Group Inc.

As a Canadian leader in construction and infrastructure development with global expertise, Aecon strives to be the No. 1 Canadian infrastructure company and is proud to be recognized as one of the Best Employers and Best 50 Corporate Citizens in Canada. Aecon safely, profitably and sustainably 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.

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