Mr. Jean-Lous Servranckx reports

AECON REPORTS FIRST QUARTER 2024 RESULTS

Aecon Group Inc. has released results for the first quarter of 2024.

"With backlog of $6.3-billion, a strong bid pipeline and recurring revenue programs continuing to see robust demand, Aecon is focused on achieving improved profitability and margin predictability, and believes it is positioned to achieve further revenue growth over the next few years," said Jean-Louis Servranckx, president and chief executive officer, Aecon Group. "Moving forward, Aecon will continue to pursue and deliver the majority of its work in established markets and under more collaborative project delivery models, while embracing new opportunities to grow in areas linked to the energy transition and in select U.S. and international markets."

Highlights

All quarterly financial information contained in this news release is unaudited.

• Revenue for the three months ended March 31, 2024, of $847-million was $261-million, or 24 per cent, lower compared with the same period in 2023.
• Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) of $32.9-million for the three months ended March 31, 2024 (adjusted EBITDA margin of 3.9 per cent), compared with adjusted EBITDA of $24.6-million (adjusted EBITDA margin of 2.2 per cent) in the same period in 2023.
• Net loss of $6.1-million (diluted loss per share of 10 cents) for the three months ended March 31, 2024, compared with net loss of $9.4-million (diluted loss per share of 15 cents) in the same period in 2023.
• Four large fixed-price legacy projects being performed by joint ventures in which Aecon is a participant 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. In the first three months of 2024, Aecon recognized an operating profit of nil from these four legacy projects. At March 31, 2024, the remaining backlog to be worked off on these projects was $330-million compared with $420-million at Dec. 31, 2023, and $801-million at March 31, 2023.
• Reported backlog at March 31, 2024, of $6,273-million compared with backlog of $6,002-million at March 31, 2023. New contract awards of $963-million were booked in the first quarter of 2024 compared with $812-million in the same period in 2023.
• Aecon announced the appointment of Jerome Julier to the position of executive vice-president and chief financial officer, effective April 8, 2024.
• Contrecoeur Terminal Constructors General Partnership, a consortium in which Aecon holds a 40-per-cent interest, executed a contract with the Montreal Port Authority for the Contrecoeur Terminal Expansion project in-water works under a progressive design-build approach in Quebec.
• Aecon EBC Ladore General Partnership, a consortium in which Aecon holds a 60-per-cent interest, was awarded the first stage of a two-stage contract with an expected value of $156-million by B.C. Hydro to deliver the Ladore spillway seismic upgrade project in British Columbia under a collaborative early contractor involvement (ECI) model. The ECI phase will commence in the second quarter of 2024, with construction planned to commence in 2025, subject to overall project approvals.
• Aecon's fifth annual sustainability report, entitled "Advancing the Energy Transition," was released on April 22, 2024, and is available on Aecon's website.
• Subsequent to quarter-end:
  • VIports Partners, an Aecon-led consortium, was selected by the U.S. Virgin Islands Port Authority to redevelop the Cyril E. King Airport in St. Thomas and the Henry E. Rohlsen Airport in St. Croix under a collaborative design, build, finance, operate and maintain public-private partnership model. Aecon Concessions is the development lead and will hold a 50-per-cent equity interest in the project's 40-year concession, and Aecon is the design-build lead. Financial close is expected in the first quarter of 2025 following a nine-month transition period.
  • Aecon was awarded a $48-million (U.S.) contract by the government of Anguilla for the Clayton J. Lloyd International Airport redevelopment program package 3 project.
  • South Fraser Station Partners, a consortium in which Aecon holds a 33.3-per-cent interest, was selected by the Province of British Columbia as the preferred proponent for the stations contract on the Surrey Langley SkyTrain project. Financial close is expected in the second quarter of 2024.

Revenue for the three months ended March 31, 2024, of $847-million was $261-million, or 24 per cent, lower compared with the same period in 2023. Revenue was lower in the construction segment ($247-million) driven by decreases in industrial ($181-million), urban transportation solutions ($41-million), civil ($36-million) and utilities ($13-million), partially offset by higher revenue in nuclear operations ($24-million). In the concessions segment, lower revenue of $14-million for the three months ended March 31, 2024, was primarily due to the use of the equity method of accounting in 2024 for Aecon's 50.1-per-cent retained interest in the Bermuda International Airport concessionaire (Skyport) following the sale of a 49.9-per-cent interest in Skyport in the third quarter of 2023.

Operating loss of $4.2-million for the three months ended March 31, 2024, declined by $9.8-million compared with an operating profit of $5.6-million in the same period in 2023. Contributing to the change in operating profit was a decrease in gross profit in the period of $4-million. In the concessions segment, gross profit decreased by $5.3-million primarily from the use of the equity method of accounting in 2024 for Aecon's 50.1-per-cent retained interest in the Bermuda International Airport following the sale of a 49.9-per-cent interest in Skyport in the third quarter of 2023. Partially offsetting this decrease was higher gross profit in the construction segment of $1.4-million primarily from higher gross profit margin in urban transportation solutions and utilities and from higher volume and gross profit margin in nuclear operations, partially offset by the impact of lower volume on gross profit in industrial and civil operations.

Other income of $1.7-million in the first quarter of 2024 was $10.9-million lower compared with the same period in 2023. The decrease is primarily related to a lower gain on the sale of property and equipment of $11.2-million in the construction segment.

Reported backlog at March 31, 2024, of $6,273-million compared with backlog of $6,002-million at March 31, 2023. New contract awards of $963-million were booked in the first quarter of 2024 compared with $812-million in the same period in 2023.

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, 2024, management's discussion and analysis (MD&A).

Construction segment

Revenue in the construction segment for the three months ended March 31, 2024, of $844-million was $247-million, or 23 per cent, lower compared with the same period in 2023. Construction segment revenue was lower in industrial operations ($181-million) primarily due to decreased activity on mainline pipeline work in Western Canada following the achievement of substantial completion on a project in the third quarter of 2023, in urban transportation solutions ($41-million) from a lower volume of light rail transit work in Ontario, in civil operations ($36-million) primarily from a lower volume of roadbuilding construction work in Eastern Canada of $31-million as a result of the sale of Aecon Transportation East (ATE) in the second quarter of 2023, and in utilities operations ($13-million) from a decreased volume of telecommunications and oil and gas distribution work, partially offset by an increased volume of high-voltage electrical transmission and battery energy storage system work. Partially offsetting these decreases was higher revenue in nuclear operations ($24-million) driven by an increased volume of refurbishment work at nuclear generating stations in Ontario and the United States.

Operating profit in the construction segment of $7.4-million in the first three months of 2024 decreased by $8.8-million compared with an operating profit of $16.2-million in the same period in 2023. The lower operating profit was driven by a decrease in gross profit in industrial operations and a decrease in gains on the sale of property and equipment of $11.2-million. Partially offsetting these decreases were higher gross profit margin in utilities, higher volume and gross profit margin in nuclear operations, and higher gross profit margin in urban transportation solutions. Higher operating profit in civil operations was primarily due to a lower seasonal operating loss from roadbuilding construction work following the sale of ATE in the second quarter of 2023 and partially offset by lower gross profit margin from major projects in Western Canada. Operating profit in civil was also impacted by a negative gross profit of $2.8-million in the first quarter of 2023 versus nil in the first quarter of 2024 from one of the four fixed-price legacy projects.

Construction backlog at March 31, 2024, was $6,169-million compared with $5,902-million at the same time in 2023. Backlog increased period-over-period in nuclear ($850-million) and industrial operations ($2-million), while backlog decreased in civil operations ($306-million), urban transportation solutions ($216-million) and utilities ($62-million). New contract awards of $960-million in the first quarter of 2024 were $165-million higher than the same period in 2023.

Concessions segment

Aecon currently holds a 50.1-per cent-interest in Skyport, the concessionaire responsible for the Bermuda airport's operations, maintenance and commercial functions, and the entity that will manage and co-ordinate 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 accounted for using the equity method. On Sept. 20, 2023, Aecon sold a 49.9-per-cent interest in Skyport to Connor, Clark & Lunn Infrastructure (CC&L Infrastructure) with Aecon retaining the management contract for the airport. Prior to this transaction, Aecon's participation in Skyport was 100 per cent consolidated and, as such, was accounted for in the consolidated financial statements by reflecting, line by line, the assets, liabilities, revenue and expenses of Skyport. 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 also accounted for using the equity method.

For the three months ended March 31, 2024, revenue in the Concessions segment of $3-million was $14-million lower than the same period in 2023 primarily due to lower reported revenue from the Bermuda International Airport due to the commencement of the equity method accounting for the project following the above noted sale of a 49.9-per-cent interest in Skyport in the third quarter of 2023.

Operating profit in the concessions segment of $1.1-million for the three months ended March 31, 2024, decreased by $1.3-million compared with an operating profit of $2.4-million in the first three months of 2023. This decrease was primarily due to lower operating profit from the Bermuda International Airport, partially offset by an increase in management and development fees from the balance of the concession operations. Under the equity method of accounting, operating results for Aecon's interest in Skyport in the first quarter of 2024 were reported net of financing costs and income taxes, which contributed to the lower quarter-over-quarter operating profit results. Passenger traffic levels, which are the primary driver of Aecon's results from operations at the Bermuda International Airport project, averaged 31 per cent in 2021, 59 per cent in 2022, 75 per cent in 2023 and 81 per cent in the first quarter of 2024 of 2019 prepandemic traffic levels. These averages reflect generally improving traffic over time as a percentage of prepandemic levels.

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

Aecon's goal is to build a resilient company through a balanced and diversified work portfolio across sectors, markets, geographies, project types, sizes and delivery models while enhancing critical execution capabilities and project selection to play to its strengths. Aecon will continue to leverage its self-perform capabilities and One Aecon approach with a goal to maximize value for clients through improved cost certainty and schedule, while offering a broad range of infrastructure services from development, engineering, investment and construction to longer-term operations and maintenance. Aecon will continue to pursue and deliver the majority of its work in established markets, while embracing new opportunities to grow in areas linked to decarbonization and the energy transition, and in U.S. and international markets. These opportunities are intended over the long term to diversify Aecon's geographic presence, provide further growth opportunities and deliver more consistent earnings through economic cycles. To complement its priority markets, Aecon is pursuing a balanced portfolio of work delivered through both fixed- and non-fixed-price contracting models with the goal of reducing fixed-price work to balance risk with acceptable returns. With backlog of $6.3-billion at the end of the first quarter of 2024, recurring revenue programs continuing to see robust demand and a strong bid pipeline, Aecon believes it is positioned to achieve further revenue growth over the next few years and is focused on achieving improved profitability and margin predictability.

In the construction segment, demand for Aecon's services across Canada continues to be strong. Development phase work is continuing in consortiums in which Aecon is a participant to deliver the long-term GO Expansion On-Corridor Works project, the Scarborough Subway Extension Stations, Rail and Systems project, and the Darlington New Nuclear Project, all in Ontario, and the Contrecoeur Terminal Expansion project in-water works in Quebec. These projects are being delivered using progressive design-build or alliance models and each project is expected to move into the construction phase in 2025. The GO Expansion On-Corridor Works project also includes an operations and maintenance component over a 23-year term commencing Jan. 1, 2025. None of the anticipated work from these four significant long-term progressive design-build projects is yet reflected in backlog. As well, a consortium in which Aecon is a participant was selected in April, 2024, by the Province of British Columbia as the preferred proponent to design and build the Surrey Langley SkyTrain Stations project in British Columbia.

In the concessions segment, there are a number of opportunities to add to the existing portfolio of Canadian and international concessions in the next 12 to 24 months, including projects with private sector clients that support a collective focus on sustainability and the transition to a net-zero economy as well as private sector development expertise and investment to support aging infrastructure, mobility, connectivity and population growth. The GO Expansion On-Corridor Works project noted above and the Oneida Energy Storage project, a consortium in which Aecon Concessions is an equity partner that will deliver a 250-megawatt/1,000-megawatt-hour energy storage facility near Nanticoke, Ont., are examples of the role Aecon's Concessions segment is playing in developing, operating and maintaining assets related to this transition. In addition, in the first quarter of 2024, an Aecon-led consortium was selected by the U.S. Virgin Islands Port Authority to redevelop the Cyril E. King Airport in St. Thomas and the Henry E. Rohlsen Airport in St. Croix under a collaborative design, build, finance, operate and maintain public-private partnership model.

Global and Canadian economic conditions impacting inflation, interest rates and overall supply chain efficiency have stabilized, and 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. Results have been negatively impacted by these four legacy projects in recent periods, undermining positive revenue and profitability trends in the balance of Aecon's business. Until these projects are complete and related claims have been resolved, there is a risk that this could also occur in future periods.

At March 31, 2024, Aecon held cash and cash equivalents, excluding balances held by joint operations, of $123-million. In addition, at March 31, 2024, Aecon had committed revolving credit facilities of $850-million, of which $76-million was drawn, and $7-million was utilized for letters of credit. The company has no debt or working capital credit facility maturities until 2027, except equipment loans and leases in the normal course.

Revenue in 2024 will be impacted by the three strategic transactions completed in 2023, the substantial completion of several large projects in 2023 and the five major projects currently in the development phase by consortiums in which Aecon is a participant being delivered using the progressive design-build models which are expected to move into the construction phase in 2025. The completion and satisfactory resolution of claims on the four legacy projects with the respective clients remains a critical focus for the company and its partners, while the remainder of the business continues to perform as expected, supported by the strong level of backlog, and the strong demand environment for Aecon's services, including recurring revenue programs.

Conference calL

A conference call and live webcast has been scheduled for 9 a.m. (Eastern Time) on Thursday, April 25, 2024. A live webcast of the conference call will be available on Aecon's website. Participants can also dial in to the conference call and preregister on-line. After registering, an e-mail will be sent, including dial-in details and a unique access code required to join the live call. Please ensure you have registered at least 15 minutes prior to the conference call time.

An accompanying presentation of the first quarter 2024 financial results will also be available after market close on April 24, 2024, on Aecon's website. For those unable to attend, a replay will be available within one hour following the live webcast and conference call.

Aecon 2024 annual meeting of shareholders

Aecon's annual meeting of shareholders will be held on Tuesday, June 4, 2024. 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 Group Inc.

Aecon Group is a North American construction and infrastructure development company with global experience. 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, management, and operations and maintenance services through its concessions segment.

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