Alexandria Real Estate Equities, Inc. Price & Performance (ARE)

Good morning, everyone, and thanks for participating in our first quarter results conference call. This is Adam Borghiari speaking. Joining me are Jean Louis Servranckx, President and CEO Jerome Jullier, 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 the call. Following our comments, we'll be glad to take questions from analysts, and we ask that 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 the information we're sharing with you today includes forward looking statements, and these statements are subject and based on assumptions and subject to significant risks and uncertainties. Although Aecon believes the expectations reflected in these statements are reasonable, we can give no assurance that these expectations will prove to be correct. And with that, I'll hand the call over to Jerrel. Thanks, Adam, and good morning, everyone. I'm now gonna speak to Aecon's consolidated results, review the results by our segments, and address Aecon's financial position before turning the call over to Jean Louis. Consistent with prior quarters, we've provided additional information to help clarify the underlying results excluding the impacts from the fixed price legacy projects and divestitures.

Detailed direct tables are included in Slides 15 through 17 in the conference call presentation. Let's turn now to slide three. On a reported basis, revenue for the three months ended 03/31/2025, was $1100000000.0.02 $15,000,000 or 25% higher compared to the same period in 2024. Higher revenue was driven by increases in nuclear, industrial, utilities and civil operations just partially offset by lower revenue in urban transportation solutions. Adjusted EBITDA of $4,000,000 compared to $33,000,000 last year, and operating loss of $41,000,000 in the quarter compared to an operating loss of $4,000,000 last Adjusted EBITDA and operating profit in the first quarter were largely impacted by negative gross profit of $29,000,000 on a fixed price legacy project. Additionally, results were further impacted by weaker gross profit in civil operations in Western Canada and a decline in gross profit earned due to lower margins on LRT projects and urban transportation solutions as these projects progress towards substantial completion. Excluding the impacts from the legacy project, as adjusted revenue for the first three months ended 03/31/2025, of $1,000,000,000 compares to $72,000,000 in the same period last year. And adjusted EBITDA of $32,000,000 compared to $33,000,000 last year. Essentially flat. Adjusted diluted loss per share in the quarter of five four dollars compared to a loss of $0.44 last year.

Aecon reported backlog of $9,700,000,000 at the end of the first quarter. This is a significant accomplishment from the operating teams as Aecon now stands at the highest reported backlog in its history. New contract awards of $4,100,000,000 were booked in the quarter, largely from the target price contract Scarborough Subway extension project and additional refurbishment work at the Pickering Nuclear Generating Station. Now looking at results by segment, turning to slide four, Construction revenue of $1,100,000,000 in the first quarter was $214,000,000 or 25% higher than the same period last year. Revenue is higher in nuclear operations, driven by an increased volume of refurbishment work and nuclear generating stations in Ontario and The United States, and industrial operations primarily from a higher volume field construction work and industrial facilities in Western Canada. Revenues also higher in utility operations from an increased volume of electrical transmission work in The U. S, benefited from our acquisition of Extreme in the second half of twenty twenty four and from an increase in battery energy storage system work and in civil operations primarily from the higher volume of foundations work. Partially offsetting these increases was lower revenue in urban transportation solutions, largely from a lower volume of LRT work in Ontario and Quebec as three projects near completion.

On an as adjusted basis, construction revenue was $1,000,000,000 compared to $770,000,000 in the same period last year, representing a 34% increase. As noted, the new contract awards of $4,100,000,000 in the first quarter of twenty twenty five were exceptionally high. And compared to $960,000,000 in the same period last Turning now to slide five, adjusted EBITDA. Negative $1,000,000 compared to $28,000,000 last year an operating loss of $30,000,000 compared to an operating profit of $7,000,000 last As previously mentioned, adjusted EBITDA in the first quarter was largely impacted by negative gross profit of $29,000,000 on fixed price legacy project. On an adjusted basis, adjusted EBITDA for the three months ended 03/31/2025 of 27,000,000 compared to $28,000,000 in the same period in 2024. Operating profit in the quarter was similarly impacted by the negative gross profit 29,000,000 by a fixed price legacy project, as well as roughly $8,000,000 of M and A related amortization costs. Absent these effects, operating profit in the quarter was effectively flat. Turning to Slide six, concessions revenue for the first quarter was $2,000,000 compared to $3,000,000 in the same period last year. Adjusted EBITDA in the Concessions segment of $13,000,000 in the quarter compared to $18,000,000 last year an operating loss of $2,000,000 compared to an operating profit of $1,000,000 last On slide seven, we brought this all together with the as adjusted information to exclude the impact of legacy projects and divestitures to provide insight into the underlying performance of the overall business.

On an as adjusted basis, revenue for the trailing twelve months period ending March 31 was $4,400,000,000 compared to 3,800,000,000.0 same period last year. Adjusted EBITDA was $349,000,000 in the trailing twelve month period, compared to $353,000,000 in the period prior.

For the construction segment, on an as adjusted basis, adjusted EBITDA was $3.00 $7,000,000 for the trailing twelve month period, representing a 7% margin. As adjusted EBITDA margin was impacted by lower fees earned the earlier stages of collaborative projects as these projects approached their respective construction phases, the margin diluted impact of performance in civil operations in Western Canada, and the ramping up of projects with more appropriate contract execution structures. Turning to slide eight. At the end of the first quarter, Aecon held cash and cash equivalents of 38,000,000 excluding $348,000,000 of cash held in joint operations.

In addition, at 03/31/2025, Aecon had committed revolving credit facilities of $850,000,000 of which $3.00 $6,000,000 was drawn and $8,000,000 was utilized for letters of credit. Draws on the credit facilities reflect increased working capital needs as Aecon ramps up its seasonal construction volumes. Aecon has no debt or working capital credit facility maturities until 2027, except equipment loans and leases in the normal course. At this point, turn the call over to Jean Louis to address business performance and outlook.

Thank you, Ro.

Turning to slide nine. Aecon continues to build resiliency through a strong balance and diversified work portfolio. Over the trailing twelve month period, 46% of Aecon's construction revenue was generated from the utilities and nuclear sectors. Compared to 36% for the comparative period in 2024. Balancing growth and opportunity with proper risk management is key to Aecon's future success. We continue to maintain balance between our Construction and Concessions segments, Among our operating sectors, throughout our diverse client base utilizing appropriate contract models and across selected geographies. We are also embracing new opportunities to grow in areas linked to the energy and power sectors and in U. S. And international markets. These opportunities are intended to diversify Aecon's capabilities provide new growth vectors, and deliver more consistent earnings through economic cycles. Turning to slide 10, Demand for Aecon's services. Across our markets continues to be strong. With a record backlog of 9,700,000,000.0 at 03/31/2025, Recurring revenue continuing to see robust demand and a strong bid pipeline Aecon 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. The remaining backlog to be worked off on the three remaining legacy project was 94,000,000 or 1% of total backlog at 03/31/2025.

We're getting close and we are remaining focused on driving these projects to substantial completion with all three projects currently expected to be substantially complete by the end of the third quarter of twenty twenty five. Trailing twelve months recurring revenue was 1,000,000,000 comparable to the previous period and up over 20% versus two years ago, taking into account the divestitures of APE, and the 49.9% interest in Skyport in prior periods, on a like for like basis. Recurring revenues are typically executed on a non fixed price basis, with the majority being over and above our reported backlog figures. Turning to slide 11 now, development phase work is underway on a number of major projects in which Aecon is a participant. Including the Darlington Nuclear Project, The US Virgin Islands Airport Redevelopment Project, [indiscernible] the GO expansion on Corridor Works project, the Winnipeg North Health Treatment Plant project, and the Orwood Anson Dam project. This project are being delivered using collaborative progressive design build model with the majority expected to move into construction phase, in 2025. Turning to slide 12, this week, Aecon was recognized as one of Canada's greenest employers by MediaCorp Canada recognizing our commitment to creating a culture of environmental awareness.

Aecon also released is six sustainability report showcasing our commitment to sustainability in both what we build and how we build it. The Omeida energy storage project is a great example of this, and we have made great progress as a project now Neil. Completion. Aecon is also currently passed our goal of a 30% reduction by 02/1930 in Scope one, and Scope two direct emissions based on intensity relative to revenue, achieving a 34% cumulative reduction since 2020. Turning to Slide 13, Aecon is focused on achieving solid execution of its projects, and selectively adding to backlog through a disciplined bidding approach that supports long term margin improvement in the construction segment. As previously mentioned, revenue in 2025 is expected to be stronger than 2024. Due to a record backlog of 9,700,000,000.0 the impact of business acquisitions completed in the second half of twenty twenty four solid recurring revenue and a strong bid pipeline. Revenue growth is expected in most of the construction sectors. In the Concessions segment, there are a number of opportunities to add to the existing portfolio of Canadian and international concessions in the next twelve to twenty four months. The three remaining legacy projects are expected to reach substantial completion by the end of the third quarter of twenty twenty five.

This is anticipated to lead to improved profitability and margin predictability. I want to be very clear in front of you. We are dedicating all necessary resources to drive those remaining legacy projects to completion while vigorously 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 of this project with the respective clients remains a critical focus for Aecon, and its partners. To close, we are excited about the momentum we have built and remain focused. On executing our strategy to drive long term shareholder value. And we thank our dedicated team members for their contributions and for reflecting our safety always culture. Thank you. We will now turn the call over to analysts. For questions.

Thank you. At this time, we'll conduct question and answer session. As a reminder, to ask a question, you'll need to press 11 on your telephone. Wait for your name to be announced. Our first question comes from the line of Yuri Lynk with Canaccord Genuity. Your line is now open.

Hey, good morning, guys.

Morning, Maybe for Jean Louis, your underlying EBITDA margins continue to to come down on a when you look at the the trailing twelve months down from 8.4 to to 7% as you outlined on Slide seven. Just trying to understand the, you know, is that higher margin of 8.4%, does that reflect some of the higher risk that's in those contracts and, you know, the seven is is more indicative of safer contracts. So you're taking less risk, but you would think you'd earn a lower margin. I'm just trying to understand the what's structural and what's kind of operational the margin and if you could help us with you know, what kind of range that might shake out to as you book more of these collaborative contracts into your backlog?

Okay.

Mainly speaking, you're right. It means that with our backlog of $9,700,000,000 We have built in terms of quality and quantity And exceptionally positioned for Aecon in the years to come. This backlog built on discipline, and that's good. Now, what we are looking more than anything is the predictability of our margin. No more bumps on the road. And this is quite important, no more deviation. So when you look at the underlying profitability of the business, Yes, I mean the fact that we have derisked most of our backlog, you remember that we went from 70% fixed lump sum to less than 30% on variable or collaborative project just means that there will be a slight decrease in global margin. But there will be a strong growth in revenue, and we are working extremely hard, and we are very confident so that we'll be able to deliver no more bumps on the road. So all in all, we think it's quite good. Do you want to add anything, Jerome, to this?

Yeah, Yuri. I mean, it's well said. The only thing I'll maybe add is in the current period, as noted, we've got a dilutive margin impact from some execution in Western Canadian civil.

So within the global size of our enterprise, it acts as a margin headwind probably through to the balance of year, and so that adds like a little bit of additional softness. But your core thesis is right, is in the prior periods, stronger margins probably tied to a little bit higher risk appetite versus where we sit today is much more appropriate margin profile in consideration of the risk appetite that we're undertaking. We're just trying to create a little bit more of a boring company.

And those civil margins in Western Canada, can you just confirm that they're lower but still positive or are they negative gross margins? Yeah, mean, don't really provide detail on kind of a specific sub sector basis, but let's just say, like, know, it's a variety of projects and we're kind of focused in on completing new engagements through to the end of execution.

And is there a commonality on contract structure or anything like that, that you I Go ahead. I mean, mainly speaking, those are projects that were taken on quite a while ago. And here's the commonality is that there are [indiscernible] It means, as I used to say, all fixed price jobs are not bad, or all variable price are not always good, but when you say is there a common route, yes, it is. Those projects none of those projects are of important size.

Yeah, maybe describe the contributing factor, not the factor, right?

Yeah, okay. And last one, I mean, think on the last call, you you guys kinda pointed to a a 7.5% margin for underlying margin is is not a bad place to be for 2025 underlying. Is that for the construction business or was that overall? And now with these civil projects, where does that number stand? Thanks.

So, you know, we previously used referenced our as adjusted margin profile, right? So that's the number that I would point out went from 8.4% to 7%. It will operate within a range. We don't provide guidance from a margin perspective for a variety of reasons.

But I think based on John O'Lee's commentary, the better risk profile on the backlog and the work programs that rescue today comes with an alignment of margin profile that's appropriate for that, right. So I think you'd probably assume better risk more appropriate margin, and then the diluted impact of the margin on the Western Civil projects gets layered in on top of that. And so you have to kind of run from where we are today and draw conclusion against that.

Thanks. Thank you.

Our next question comes from the line of Krista Friesen with CIBC. Your line is now open. Hi, thanks for taking my question. Just on the legacy contracts, can you speak to kind of your comfort around the costs you've talked about before related to the contracts and how comfortable you are with the costs given the timeline seems to be pushed out a little bit more on two of them.

I will take this one, maybe give you some information on where we are on those three contracts. [indiscernible] have been speaking about Gauri Hao. I mean, this Q1 results. Our bridge is substantially complete and we are finalizing some lighting barriers, traffic control, but the bridge is done. The Canadian PoE has been totally handed over to Canadian Border Agency They are all inside setting up their system in all rooms. The US PoE has begun to be transferred to The U. S. Border Agency and they are taking room after room set up their equipment. So we are comfortable with the end date that we have been giving to you. Eglinton And Finch, you remember that during last year I was telling you construction is finished. Are now in testing and commissioning. I can tell you is that testing and commissioning is finished on both these projects. I mean, system and training control are very delicate system, and system integration is not always easy. We are now in the the final phase before revenue service demonstration that is done by the TTC that will operate the line. So we are finalizing training the trainer, and supervising the way the trainer from TTC are training the drivers.

Then we should begin something like June, our revenue service demonstration. So we are also comfortable physically on substantially completing those job midyear 2025. In terms of economy, so you have noted what I said regarding the remaining backlog. It's obviously still decreasing. We are getting really close to the end. In terms of margin, yes, we are, as of today, within the parameters that we define in July 2024. And this is good.

Okay, great. Thank you. And then just a last question here. You've had one full quarter now of the United engineers acquisition. Can you just provide an update on that and how that that's progressing? Thank you.

Yeah, I can say that the more we discover, the more we discuss and we go deep within this company, the happier we are with this acquisition for a few reasons. United is an engineering company, but I would say a very practical engineering company because part of its activity is related to steam generator And we know them very well because we have been working with them at Bruce for the last five years. So this is part of their activity an engineering company. And it's an engineering company dedicated to power. So it's it's nuclear, but it's also thermal. It's also renewable. At the same time, it's not only supply, but it's they are also quite good in [indiscernible] And distribution engineering. So the idea is to grow this platform. As an engineering company, as a service of our growth in the power activity for Aecon, but also as a service of other clients. And this is where it's quite interesting It's a sort of gate of entry to a lot of utilities that we have not as clients before. So yes, we are happy with the acquisition. And we are looking for growth. With this acquisition.

Great. Thank you. I'll jump back in the queue.

Thank you.

As a reminder, to ask a question, you'll need to press 11 on your telephone and wait for your name to be announced. Our next question comes from the line of Chris Murray with ATB Capital Markets. Your line is now open.

Yeah. Thanks, folks. I was wondering if we could talk a little bit about the utilities business to start. A lot of concern around business confidence in The US, and there's been some discussion in some of the early reporting that we've seen out of Q1 that folks are being a little hesitant on spending. Just wondering what you folks are seeing in terms of demand for utilities right now and if that changes The U. S. Strategy at all at this point? Basically, no change. It means that we see for our activity related with power, with utilities, the high capacity of growth in United States, I mean, [indiscernible] there's a lot to do, even if it's not always clear in terms of power supplies from where it's going to come, One day you hear about coal coming back again, gas, but we know that there's a lot of purchase order on turbine and the market is a little stuck. Renewable may go up and down. And it's not extremely clear about the real conception and necessity of power from the big data centers. But easily in saying, even taking out this power supply that at the moment is growing extremely strong, The state of the grid and we now know it because we have been in The United States for more than one year and a half studying everything, the state of the grid in terms of transmission and distribution is very poor.

And there's a lot of work to do. So we're still seeing that there will be growth And in addition, I mean, just begin as a dwarf. I mean, it's a niche market for us. And we can be extremely selective on where we want to work what kind of job, and with which client. Maybe Jerome, you give a little more detail on the For sure, Chris. And then look, as it relates specifically to our services operations in The United States, We're extraordinarily pleased with the teams that have joined us particularly in Michigan. They're locked in Remember the client base there is primarily funded at a rate base, right? So it's less sentiment driven and more requirement driven. And then there's a minor part of the work that's also just tied to storm impacts and when the wind power goes out, Aecon and Extreme crews get rolled to help support basically people back online. So, from our perspective, yeah, we continue to kind of watch things very closely with regards to the overall macro environment. But largely across all of our sectors and in the concession space, our end markets are generally not tied too deeply to economic cycles, right?

Like we're just looking to build the infrastructure required for future generations to thrive here. It doesn't really swing that hard depending on a tariff impact or an economic impact because a lot of this stuff just needs to get done. And our teams are out there doing it.

Okay, that's helpful. Other question I had, and this is more maybe more conceptual, but just we saw an application last week from energy Alberta to build a new four, 4,800 megawatt nuclear power plant in Alberta. Very similar to what Bruce C was being proposed to look like. And I started thinking about a lot of the commentary that we've had over the past few years about call it the coordination and planning on some of the refurbishment projects to not overload the system and training, but all of a sudden, it feels like now we're starting to layer in new builds in future years. I'm just wondering, if you have an opinion or some thoughts around the feasibility or the reality of how you could actually get this stuff built Because I still think you'll be doing refurbishments well into the next decade anyway. And we're starting to see schedules that are talking about having new nuclear starting up in that same sort of timeframe. So, just thoughts about, you know, the level of demand coming at you and not really even theoretical projects, but but maybe real projects and how you think that that gets addressed?

I will take this one. [indiscernible] First of all, we are technology agnostic for new construction. It means that we know extremely well can do, I will say better than anybody else, because we are refurbishing 100% of the reactors in Canada. The six at Bruce, the four at Darlington, the four at Pickering. So if on the new builds, it comes to can do, mean, don't see Aecon not being present on this one. We know those machines extremely well.

Also have a cooperation agreement with Topshiba Westinghouse for the AP-one and we are participating to the contraction of the SMR, which is the GITACI boiling water reactor. It means that we're ready for this. We're ready for the new construction. Now it will go up and down. Mean, there will be announcements, some will go forward, some won't go forward. And we are preparing our team and our alliance to be perfectly fit for the purpose depending on what it's what is getting out. We are not worried. We are not preoccupied, and the change in the market regarding contract model is perfectly in line with what we are ready to do with Nuclear.

Okay, we'll leave it there. Thank you.

Okay, thank you. Our next question is coming from the line of just one moment, please. Stand by. One moment.

Our next question comes from the line of Ian Gillies with Stifel. Your line is now open.

Good morning, everyone. Hey. Morning. Encore was is obviously going to be a very large project. That could help move the needle for Aecon. Can you maybe talk a little bit, I. Anticipate that project's going to enter backlog at this juncture? And maybe how how it scales up over the next number of years?

Yes.

The main difference between the original idea and what is going to happen is that it's gonna be phased. Remember that we were speaking a little down of $10,000,000,000 of investment. So I think the total amount of investment has not changed. I mean, to modernize the GTA transport, this is what is needed. Now it's a brownfield. It means that all those works are going to be executed under traffic. We cannot close the railway during ten years. So it's just going to be fade between Lakeshore West Lakeshore East, maybe Barrie, Union Station. But it will happen. It will just happen probably in the double of time that was envisaged. That was something like four and five years. It will be steady. We have a very strong team there. And we have begun preparatory works. We have begun track remediation and we are working on a certain number of early works. So this is happening, but probably slower, which is not bad when you see our backlog and what's happening in other part of our activity. So we are happy about this project.

That's helpful. And as it pertains to call it what's transpired over the last few months in Canada, There seems to be a shifting sentiment that Canada needs to do a bit more of everything. Are you starting yet to see any leading edge activity in the bids you're doing, or is it it's still too early?

Can you repeat your question, please? I'm not sure how to answer the first one. Yeah. I guess the simple way to frame the question is is everyone seems to wanna build more stuff in Canada now. Are you seeing any leading edge activity for bidding on that, or is it still too early?

I think it's still too early. First of all, we have to go through the federal election. That we understand a little more about the programs to come. Whatever happened, I mean, with the backlog we have and the quality of what now we have been acquiring, I'm not worried But of course, I mean, have a special team that is working in terms of preparation on everything linked with sovereignty, [indiscernible] rare metals, because this will come. It may not come at a super speed, but it will come and we are getting ready for this.

Understood. Maybe I'll just leave it there now and turn it back over for questions. Thanks, Ken.

Thank you. Our next question comes from the line of Max with BCF. Your line is now open. [indiscernible] Is it is it better now?

Yeah. We got you.

Okay, perfect. Thanks. I was wondering if possible to get a comment on how we should be thinking about the working capital free up once the fixed price projects are fully behind it as you said in Q3, So, yeah, maybe any comment there. Thanks. For sure. So, we don't want to tie to too preciously to any particular projects, Matt, but the question on working capital is an important one. So, I'll answer it kind of like a broader level at the Aecon level. So Q1, you would have seen a pretty meaningful investment in working capital Part of that has to do with the starting point, but part of it also just has to do with the amount of work programs that we're ramping into right now, right. So you'll see obviously this quarter was the highest Q1 from a revenue perspective that Aecon has ever delivered The outlook is quite robust. And so we expect ongoing investments in working capital So through the year, we're probably looking at investment in working capital through to the end. That being said, there is a big focus on working capital release on a number of projects and know that there's a number of folks whose full time jobs are associated with that, right?

So I'd say don't wanna tie anything to any one or two projects, but just at a global level, given the amount of growth we're seeing, I think it's very logical, expected appropriate to see investment working capital this year, just given where we're taking the business?

Yes, that makes sense. And then do you mind maybe just commenting around the comfort level of the kind of the envelope of loss as you telegraph previously in terms of you know how that's going to pace throughout the year. Thanks.

Yeah, tell me, look, within the previously disclosed potential risks and impacts, like we're still within that envelope, right? So and up through the completion of projects. So, no real change from that perspective. We analyzed a number of scenarios and possibilities and outcomes and options when it comes to this. And we're still comfortable with what we disclosed previously. So, I think from that perspective it's kind of steady as she goes, right? Like, no real new news there. [indiscernible] yeah. Adam was just reminding me, you asked about phasing. We take it when it comes. Right? We're now at the end game of this particular chess match and the pieces are moving quite quickly. So, the impacts come when when the impacts come. So I wouldn't be able to I don't think we can provide like, okay, we expect this, we expect that, we expect that, because if we expected it, we'd be taking it, which is what we saw in the quarter here with the project that we noted.

Yes. And then maybe just one quick one for Jean Louis, if I may. In terms of concessions opportunities, obviously, you have kind of two smaller months on the goal right now. Can you talk about maybe your appetite for doing more on a prospective basis? Do you need to do more Maybe any color on that would helpful Thanks. Yeah, mean, mainly speaking, out of our strategy, is to be able to develop [indiscernible] integrate engineering, build and operate our assets when our clients allow us to do So I mean, this is a real good vector to create value. I mean, have just proved it with Bermuda when we when we divested 49.9% of this airport. So yes, we are chasing opportunity. At the moment, we are very busy with U. S. Virgin Islands. Because we want to close during the year 2025. We are chasing other opportunities either in district energy power sectors, but we are extremely disciplined on this. And we are chasing also a few airports because this is really our core our core competency. On another hand, you probably have noted that that we are extremely close to commercial operation of the ADA, and you remember the we have a path at the top level with the ADA.

Which is a battery storage, I mean, two fifty megawatt near Toronto.

Okay. Excellent. That's it for me. Thank you so much. Bye. Thank you.

Our next question comes from the line of Sabahi Khan with RBC Capital Markets. Your line is now open.

Great. Thanks and good morning. Maybe just extending that working capital from earlier, Jerome, that you kind of highlighted that working capital is going to be an investment Should we generally just assume maybe it'll be a negative free cash flow year? Just trying to get your perspective on how you expect just overall cash and just leverage ratio to evolve kind of for the next three quarters? Thank you.

I mean, look, for sure, the investment in working capital, I mean, there's a seasonal cadence to this, right? So, as we land near the end of the year, obviously there's always a little bit of flex up and down depending on outflows and inflows, particularly with regards to our projects, right? Like one thing that I think people are keenly aware is when we look at our overall cash position, as it stands right now, we've got something like $350,000,000 invested into our projects. In cash. And that investment and the amount of money that comes out of that can flex up and down. So it's hard to kind of put a perfect pin into where it will be on the day we print the balance sheet. But overall, I think the themes you highlight are appropriate ones, which is one, the business is growing, we're taking on very good work with the right risk adjusted returns associated with them. So there's going be investment in working capital versus where we were last year. I think that's appropriate and expected. Be offsetting that to a certain extent will be releases from some of the things that we have ongoing today.

But also remember, we do have some capital expenditures that we're putting into the business to support ongoing growth. Some of those items can be a little bit chunkier, things like tunnel boring machines, and depending on when we take delivery of that, that can move the cash figure a little bit. But overall, the thesis we have that underpins all of it is when we look to deploy capital resources within the business, there's a very keen focus from an operating capital committee on what are the returns associated with that capital that's being deployed to make sure that we're kind of exceeding our thresholds.

Next logical question is what's that threshold and I'll say that like it's an appropriate one that exceeds our cost of capital.

Great, that's helpful. And apologies if I missed this next one, but just a bit more of philosophical one. Know it's expansion in The U. S. Has been a bit of a focus. Have you has there been any change in sort of bidding there anything like that given some of the headlines we've been seeing kind of geopolitical stuff just or is that U. S. Strategy still go as it was previously?

Thanks.

Okay, will answer that There are two vectors in our strategy. With a common umbrella, We will grow in The United States where we are extremely competent in our own country, Canada. I'm not going to open new business in a new country. So then this being said, the two vectors is, one is [indiscernible] And you know that we acquire this nuclear specialized company, now named Aecon Works, a few years ago. We have acquired Extreme in July 2024. United in the in December, and we the the first one is growing quite nicely. And second one, Extreme, as we have said, we are very happy about them. Their professionalism and their agility. United, we are still defining the detailed strategic plan with them, but the idea is to grow. The second way of growing is organically through project. And this we are here extremely careful. We are still analyzing partnership specialty contractors, availability of labor, and quality of clients, and budgets. And once we are good with this, then we will move prudently and always within our core competency. So the rest, I know there's a lot of noise about tariffs. As I've said, tariffs is Aecon is not a manufacturer Aecon is not an exporter.

I mean, if we work in The United States, we're going to be local. And so a first basis, it's not a problem for us. So we try to keep our head cool, and one issue is that the extent of what is to be built in The United States in front of the number and the quality of the company existing in this market, is a very good parameter for us.

Great. Thanks very much for the color.

Thank you.

Our next question comes from the line of Michael Tupholme with TD Cowen. Your line is now open.

Thank you.

Good morning. [indiscernible] Obviously, a very significant increase in backlog and the first quarter helped in part by the addition of the Scarborough subway extension in the Pickering Nuclear refurbishment projects. With respect to the other collaborative projects that you have in development, are there any of those projects that are expected to convert and be added to backlog, either Q2 or Q3.

I would try to say [indiscernible] But we are always prudent. [indiscernible] SMR, is a collaborative contract, is not yet in our backlog. We are working with OPG on this. USVI, we are also working to try to get it closed in the year 2025. It's a very interesting progressive DBFOM, and we are very happy about it. We are working with the Port of Montreal about ContraCare. And with the city of Winnipeg. About the sewage, the phase two of the sewage treatment plant. So yes, there will most probably come to backlog in the months to come, but the development period are not over. And the beauty of the development period is that you can calibrate it the way you want, just to be sure that at the end of the day, you have the perfect project for the client, and perfectly priced for us.

That makes sense. Thank you. Second question is about capital In the outlook section of the the release, you talk about planning to maintain a disciplined approach to capital allocation Wondering though if you can provide a bit more detail around your capital allocation priorities including any commentary around potential for future acquisitions or additional acquisitions and also share buybacks And specifically on the subject of share buybacks, guess wondering if that takes on a greater priority in your mind at the moment, considering where the shares are trading. Look, it's a great question, one that's got robust discussion around the table here. [indiscernible] couple of things. So one is we're the most important thing for Aecon is to continue to grow and support the building of the business. And so, from that perspective, the first port of call for our capital is going to be investments in working capital and investments in the needed for growth, right? So on the equipment side, that's really centered around our Western Road business, which is a very high performing business with extraordinary leadership. And then on the utility side, that's a business that does carry a degree of capital and investment just associated with things like bucket directional drills and other items.

So, those businesses are performing very, very well. They're hurdling and so they get capital. Now, next phase is we've got some growth capital associated with other items a little bit chunkier items, so that goes there. Then it becomes what what comes next? If we're satisfied with the strength of the balance sheet, we then look to one is obviously we've got a pretty intense dividend program that distributes something in the order of $47,000,000 a year to shareholders. We've historically supported that program and grown it over time. And then the final piece that you know really well is M and A and NCI And so where we trade today, you know, we've got a tactical program that's been put in place. It's been put in place for a purpose and so I say that you know, we [indiscernible] be monitoring that very closely and be making the appropriate disclosures as we execute on programs like that. And then from an M and A standpoint, like the one challenge is it's not like a programmatic situation for us. We are very about how we deploy that capital, the opportunities that we pursue, how they map their existing capabilities from a safety culture, technical background standpoint, end markets like the sectors that they're in and then the geographies.

And so what I'll see from an M and A perspective is we have seen pretty robust bidding environment for assets that we've targeted, and it's actually gotten much more intense over the last six months. So I think from that perspective, we just need to keep extraordinary discipline and try not to get too excited in pursuing things. Because there's a lot of dollars who are chasing the types of assets that map to Aecon's ambitions. So, just need to keep ourselves calm and every there's no M and A availability, there is availability of the shares in the market which you know we continue to view as an opportunity.

Okay, I appreciate all the detail and I'll leave it there. Thank you.

Thank you. I'm showing no further questions at this time and would now like to turn it back to Adam Bergotti for closing remarks.

Thanks so much, Kathy, and thank you all for joining us today. Feel free to reach out with any follow-up questions to us, and we will tune into the next call. Have a great rest of the day.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.