Aecon Group (TSX:ARE) held its first-quarter earnings conference call on Wednesday. Below is the complete transcript from the call.
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Summary
Aecon Group reported a record backlog of $10.9 billion and record first-quarter revenue of $1.3 billion, an 18% increase year-over-year, driven by growth across all operating sectors.
Adjusted EBITDA significantly improved to $32 million from $4 million last year, with notable margin performance in the construction segment.
Strategic acquisitions in Canada and the U.S. enhanced utility services capabilities, supported by investments in power and infrastructure.
The company raised $172.5 million through a common share offering, ending the quarter with strong liquidity and capacity for further growth.
Aecon Group maintains a positive outlook for 2026, expecting revenue to exceed 2025 levels, supported by a robust backlog and strong demand across sectors like power, utilities, and defense.
Full Transcript
OPERATOR
Good day and thank you for standing by. Welcome to the Q1 2026 Aecon Group Inc. Earnings call. At this time all participants are in a listen only mode. After the speaker's presentation there will be a question and answer session. To ask a question during the session you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised to withdraw your question. Please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Mr. Adam Borgatti, Senior Vice President of Corporate Development and IR. Please go ahead.
Adam Borgatti (Senior Vice President of Corporate Development and IR)
Thank you Shannon Good morning everyone and thanks for participating in our Q1 2026 results conference call. Joining me are Jean Louis Cervantes, President and CEO Jerome Julier, Executive Vice President and CFO and Alistair McCallum, Senior Vice President, Finance. Our earnings announcement was released yesterday evening and we have posted a slide presentation on our website which we will refer to during this call. Following our comments, we'll be glad to take questions from analysts and we ask that you keep to one question and a follow up if necessary before getting back into the queue. As noted on slide 2 of the presentation, listeners are reminded that the information we are sharing with you today includes forward looking statements based on assumptions that are subject to significant risks and uncertainties. Although ACON believes the expectations reflected in these statements are reasonable, we can give no assurance that these expectations will prove to be correct. Turning to Slide 3, ACON continued to advance its growth initiatives in the first quarter of 2026 and achieved significant milestones across our operations. Record backlog of 10.9 billion was recorded at March 31, 2026 and is underpinned by a diversified mix of long term projects with appropriate risk balance. The quarter featured the addition of the Howard Hansen Dam Facility project to backlog following an 18 month integrated design phase. Record first quarter revenue of $1.3 billion increased 18% over the same period last year with revenue increasing across all of Aecon's operating sectors. Adjusted EBITDA improved significantly in the quarter to $32 million on a reported basis versus $4 million last year driven by improved year over year margin performance in the construction segment. We expanded strategically through the acquisitions of KPC Power Electrical and Energy Metering Solutions in Ontario and ARC American and CA advance under Duna Services in Indiana. These acquisitions strengthen our utility services capabilities in Canada and the US in markets supported by required investments in power and critical infrastructure delivery. We ended the quarter with a strong liquidity position and capacity to invest in additional growth following the successful offering of common shares for gross proceeds to Aecon of $172.5 million. Aecon maintains a positive outlook supported by expectation for further growth based on our strategic positioning in sectors with attractive demand profile consistent with our prior disclosure. And with that, I'll hand the call over to Jerome.
Jerome Julier (Executive Vice President and CFO)
Thanks Adam, and good morning everyone. I'll speak to Aecon's consolidated results, review results by segment and address Aecon's financial position turning to Slide 4 Revenue for the three months ended March 31, 2026 of 1.3 billion was up 195 million or 18% compared to the same period in 2025. Adjusted EBITDA of 32 million compared to 4 million last year and operating loss of 8 million compared to an operating loss of 41 million in the same period last year. The improvement in the period was driven by higher gross profit of 59 million. Adjusted diluted loss per share in the quarter was $0.21 compared to an adjusted diluted loss per share of $0.55 in the first quarter of last year. Financial results in this quarter were impacted by negative gross profit of 4 million from the legacy projects. Reported backlog of 10.9 billion at the end of the first quarter was the highest reported backlog in Aecon's history, surpassing the previous record of 10.8 billion set in the third quarter of 2025. New contract awards of $1.4 billion were booked in the quarter compared to $4.1 billion than the prior period. Now, looking at results by segment, turning to slide 5 Construction revenue of 1.3 billion in the first quarter was 197 million, or 19% higher than the same period last year. Revenue was higher in all sectors. The largest increase in nuclear operations, driven by higher volume of refurbishment, new build and engineering services work in Ontario and the United States. Higher revenue in the utilities sector was primarily driven by an increase in electrical transmission and distribution work in Canada and the United States. Contributions from acquisitions in the first quarter of 2026 and from higher telecom and gas distribution work in civil operations. Higher revenue was mainly from an increase in the civil component of power and rail projects and from work performed internationally, partially offset by a lower volume of foundations work and highway, road and bridge building activity. Higher revenue in industrial was driven by an increase in field construction work at industrial, manufacturing and wastewater treatment facilities driven by operations in the United States, with most of the revenue growth from the Bodell Construction and Trinity Industrial Services businesses acquired in the third quarter of 2025 and from an increase in power generation projects. Revenue was also higher in urban transportation solutions, largely from an increase in subway and commuter rail system projects, partially offset by a lower volume of work from LRT projects in Ontario and Quebec that achieved substantial completion in 2025 or are approaching substantial completion. Turning to Slide 6, adjusted EBITDA of 42 million was compared to a loss of 1 million last year. The increase was primarily driven by a volume driven increase in gross profit in nuclear operations and from an improvement in gross profit margin in civil operations and urban transportation solutions. Turning to Slide 7, concessions, adjusted EBITDA for the quarter was 6 million compared to 13 million in the same period last year, driven by lower management and development fees on LRT projects that achieved substantial completion in 2025, partially offset by improved operating results at Skyport in Bermuda. The book value of our equity the book value of equity of our concessions portfolio at quarter end was over a quarter billion dollars. Turning to Slide 8 on March 31, 2026, Aecon held core cash and cash equivalents of 81 million, which excludes an additional 425 million of cash representing Akon's proportionate share of cash held in joint operations. In addition, at March 31, 2026, Aecon had committed revolving credit facilities of $1 billion, of which $294 million was drawn and 4 million was utilized for letters of credit. Aecon has no debt or working capital credit facility maturities until 2029 except equipment loans and leases. Aecon generated free cash flow of $212 million in the trailing twelve month period ended March 31, 2026, compared to $2 million in free cash flow in the same period in the prior year. At this point, I'll turn the call over to Jean Louis to address our business performance and outlook.
Jean Louis Cervantes (President and CEO)
Thank you Jerome. Turning to Slide 9 Aecon continues to build resiliency and drive growth through a balanced and diversified work portfolio. Over the trailing twelve month period, approximately 55% of construction revenue was related to power and utility services across the nuclear, civil utilities and industrial sectors, with nuclear representing the largest share. During the first quarter of 2026, the Eglinton Crosstown LRT project in Toronto, open to the public, bringing an additional project into the maintenance and concession phase within Aecon's diverse and growing portfolio of concession assets. Acon holds a 25% interest in the project's equity, development, construction and 30 year maintenance term. Turning to Slide 10 demand for Aecon's services remains strong with record backlog of 10.9 billion growth in recurring revenue programs in utility services and a strong bid pipeline. Aecon is focused on achieving improved profitability and margin predictability while continuing to improve the risk profile of our business. Trailing 12 months, recurring revenue was 944 million at March 31, 2026. Recurring revenue from utility services increased to 763 million from 620 million, an increase of 23% over last year. 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, Aecon expects 2026 revenue to exceed 2025 levels on the strength of its record backlog, Strategic positioning in sectors with attractive demand profiles, robust recurring revenue programs and a healthy pipeline of project opportunities tied to power generation, critical resource development, mass transit infrastructure, water and defence in the quarter, an AECON partnership executed an agreement with Defence Construction Canada to deliver the Arctic over the Horizon radar program Stage 1 project in Ontario under a collaborative integrated project delivery model. Acorn holds a 50% interest and is a lead partner in the JV responsible for project delivery. A validation phase commenced in the first quarter of 2026 with construction expected to begin upon completion of this validation phase. An Aecon joint venture also finalized a US $691 million contract with the US Army Corps of Engineers for the Howard Hanson Dam Facility project in Washington State. State, commencement of construction is expected shortly. Demand for Aecon services in the construction segment across Canada and in select US and international markets continues to be strong with opportunities across all sectors. We have a clear line of sight on some very significant and well balanced work programs ahead. In the concessions segment, there are several opportunities to add to the existing portfolio of Canadian and international concessions in the next six to 12 months to support trends in aging, infrastructure mobility, connectivity, energy and population growth. Beyond the Legacy Project, Aecon's ongoing shift towards a greater weighting of improved risk adjusted programs in combination with a strong focus on operational excellence is anticipated to support a stabilization and gradual improvement of adjusted EBITDA margins in the construction segment in 2026. Acorn maintains a disciplined capital allocation approach focused on long term shareholder value through acquisitions and divestitures, organic growth, dividends, capital and operational investments and share repurchases on an opportunistic basis. We are focused on making strategic investments in our operations and systems to provide greater access to attractive markets, increase operational effectiveness and support the growth of our concession portfolio. Our Overall outlook for 2026 continues to be very positive. We are extremely excited about the momentum we have built and remain focused on executing our strategy to drive long term shareholder value. Finally, turning to slide 12, I would like to welcome our new team members from the two acquisitions completed by Aecon in the first quarter of 2026. On January 6, Aecon Utilities completed the acquisition of KPC Power Electrical and KTC Energy Metering Solutions, enhancing our presence in Ontario across high voltage testing and commissioning services, including substation technical services and energy metering solutions capabilities. And on March 9th, Aecon Utilities acquired Arc American and CA Advanced and Adjuna Services and a 49% interest in KNX Utility Services, strengthening our underground and overhead electrical distribution, transmission, substation maintenance and emergency restoration construction services across the Midwest and Eastern United States. In closing, I want to thank our growing team across all our operating sectors for their safety always mindset. Next week, teams across ACON's platform will proudly reinforce our safety culture through our 22nd annual safety week. Thank you. We will now turn the call over to analysts for questions.
OPERATOR
Thank you. At this time we will conduct the question and answer session. As a reminder to ask a question, you will need to press Star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by. Our first question comes from Michael Tupholme from TD Cohen. Please go ahead.
Adam Borgatti (Senior Vice President of Corporate Development and IR)
Yes, thank you. Good morning. Hi Mike,
Michael Tupholme (Equity Analyst)
first question. Just wanted to ask you a couple questions about the defense sector. So last month Aecon announced an agreement to deliver Stage one of the Government of Canada Arctic Over-The-Horizon Radar Project. I know that's in the validation phase right now. I guess I'm just looking for a little bit of detail on how long you expect that validation phase to run and any indication as to when we could see that added to backlog and if possible, any sense for what the value of that opportunity looks like.
Jean Louis Cervantes (President and CEO)
Yes, I will take this one. We are extremely happy having been awarded this job. I mean for Aecon, it's very important we come back to the defense business in terms of infrastructure. And this job is extremely interesting. We have a first validation period which will last up to the end of 2026. Today in our secured offices for this project, we have more than 60 persons working around the table collaboratively between our client, our engineer and our construction teams. Once this validation phase is over, in parallel, there will be further development phase for further part of the works and most probably early works commencement on some of the places of construction. So I would tend to say that we will see the first element of construction in our activity and revenue around mid-2027.
Michael Tupholme (Equity Analyst)
That's helpful, thank you. And then Maybe to build on that obviously with this award. And then there's a lot of other discussion occurring about opportunities in the defence sector in Canada, which has not historically in recent years been certainly as prolific as it is now. The question is, can you just comment on what sort of other opportunities you're seeing, the landscape, the opportunity set and should we be expecting news on other opportunities in the near term or is this more of a medium to longer term opportunity in the defence sector in Canada?
Jean Louis Cervantes (President and CEO)
Yes. So what we have called Sovereignty projects, you probably remember sometime like one year ago, we refined our strategic plan for the year 2025 to 2027. Being a Sovereignty project champion was very important for Aecon. So this Arctic over the horizon is the first part of the implementation of this strategy. But there are a lot of other Sovereignty projects, more or less. We consider that the activity to come may be of the order of 125 billion during the next 10 years, among which more than half should be related with defence. What can come in the next defence project? I mean there's a lot coming with the air base rehabilitation in the north, four to eight projects on those ones. There's a lot also coming with a Submarine Program on the east of Canada at Halifax and on the west Vancouver island at Eskimat. We are also having a look at those projects. What is important is obviously the trend and the federal strategy of those projects. I imagine you have all got quickly to the spring budget that was delivered yesterday. I mean it's very interesting news for Aecon. I mean we now know where are the priorities. We now know the real will to fast track this project. I mean when we hear about one project, one review, I mean it's extremely good for us. We have been suffering during years of too much hurdles. I mean from the moment a project appears on the table and the moment the first cubic of concrete, I mean is just on site. You have also noticed yesterday that during the last few days that financing is getting organized now and everything is converging rather quickly. So it's about defense, but it's also about mining, it's about ports and larger other infrastructure project. In addition, you probably have noticed the investment in the trades not only to attract but to educate our young apprentice so that they should not be problem of execution on this project. All these go into the right direction and we have teams at ACORN extremely focused on those sovereignty projects.
Michael Tupholme (Equity Analyst)
Thank you for that, Jean Louis. I'll get back in the queue.
OPERATOR
Thank you. Our next question comes from Sabahat Khan from RBC Capital Markets. Please go ahead.
Sabahat Khan (Equity Analyst)
Great. Thanks and good morning. Just maybe starting with the nuclear side, I just wanted to get a little bit of perspective on the outlook in that business. Looking at the results here, good contributor to revenue, but understanding backlog bills can be lumpy there. So not much there. So just trying to understand as you look ahead over the next 12, 24 months or two to three years out, maybe just frame the nuclear opportunity and maybe some of the backlog dollars that could maybe get added to the projects you're keeping an eye on and maybe even just beyond that over the next sort of three to five years, what are some of the opportunities that AECON could participate in? Thanks.
Jean Louis Cervantes (President and CEO)
I will take the first part of the answer. I mean Aecon is exceptionally well positioned on the short term, midterm and long term. I mean for nuclear. I will remind you more or less where we are working and maybe Jerome can add a few figures on this. I mean we in Canada we are working on all major component replacement programs for nuclear power plant. I mean we have just finalized Darlington, and next week OPG will celebrate the success of Darlington,, a project that has finalized in advance in terms of time and within budget. In terms of money, it had been decades all over the world without a real success in those big nuclear projects. We are extremely happy to have been the leader on this Darlington, refurbishment, but we are also working at Bruce on the second and third reactor of a program of six. And we have begun to work at PICRIG at the same time on definition and early procurement. And we should begin execution in the course of the year 2026. In parallel we are progressing the construction of the first SMR in Darlington, in United States. We work on nuclear on different activities. I mean major component replacement. Of course that is a little late in front of Canada, but now it's coming and is going to be powerful. We work also with the Department of Energy on the National Laboratory and we also work on development phase, on budget setting for new build. I mean the Cascade with Energy Northwest is part of it. You have to note that our activity, I mean our nuclear activity in the US that was around 300 billion equivalent Canadian dollar last year is going to grow something like 600 million equivalent Canadian dollar during the year 2026. In addition, you probably remember that we acquired United in terms of engineering. We are also extremely active in and for example United is engineer of record for a few of the main utilities in United States with a nuclear fleet. So in addition to this for the new-build, we are technology-agnostic. I mean we Perfectly know the can do system. But we have also worked for Westinghouse on the AP1000, which we have produced a few models in our Cambridge facility. We are building the BWR 300 from GE, Itachi and the Cascade. It's an X energy new generation reactor. All this just makes that short term, mid term and long term is perfectly covered at acon. Maybe, Jerome, you want to add a few figures?
Jerome Julier (Executive Vice President and CFO)
Yeah, I mean, sometimes it's helpful to put a little bit of context around it. And if you look over the last two years, so from 23 to the end of 25, our nuclear segment added roughly 800 million of revenue and you call it 35% of that was within the United States. So it's a broad platform, it's diversified across customers. And you know, when we think about the, the overall backlog opportunity associated with the nuclear, it's one of the top one or two sectors within our $10.9 billion backlog. Bigger today, you know, that number moving up or down by a few million dollars causes exactly zero concern from an ACON perspective. The amount of work ahead of us is very meaningful. And as you mentioned, Zaba additions can be quite lumpy. But we feel very, very good about the positioning of that business within Akron's overall portfolio.
Sabahat Khan (Equity Analyst)
Great, thanks. And then maybe just back to the construction business and sort of the US side, hearing more and more about the opportunities you're pursuing there, can you maybe just frame sort of the US opportunity one just on the, you know, how big can that business get over the coming years? And secondly, how do you go about developing a workforce to be able to deliver on the project in the United States? You have the infrastructure and so what are the ambitions there on the construction side in terms of mix over the next years, especially given sort of an $11 billion overall backlog that you already have to deliver on. Thanks and I'll pass. Lauren.
Jean Louis Cervantes (President and CEO)
Okay. We are working in United States with defamation, but prudence, it means that I've not set up in terms of revenue or activity an absolute figure for Aecon. But what is sure is that we are going to activities that can be reliable in terms of profitability and safe. I mean, for Aecon, we can select our client, we can select the part of the business where we have the best teams, we can select our partners. Our issue in the United States is not a market share, first of all, because every state is a different story, but it's much more to be positioned at the best places at the best moment. And this is what we have been Doing. I mean for the last two to three years, you have to imagine our Agile has been ACORN in terms of its US activity. Three to four years ago we only had this works small welding, specialized welding activities. Last year we were doing 12% of our activity in United States. And obviously we are, we are growing. I mean in nuclear today we have something like 1,500 people working. And when you add those nuclear teams, I mean all the team working for utilities either alone on some fiber or telecommunication work, all through the subsidiaries that we have been acquiring during the last three years, we are summing up something like 2,000 people in United States. We use transmission, distribution, storm activities and engineering activity. In addition, because the budget coming from the federal government is important and fits perfectly well with our core competency, we have created a dedicated structure for our federal works in the United States. So we have been extremely agile and more broadly, I mean. But I just want to say, you know, sometimes when I'm walking in the streets of Toronto, other city where there is a lot of work, I mean with utility rehabilitation and stuff like this, you can see some signs on the wall in front of some shops that say during the works we are still open. So what I just wanted to tell you, and you have noticed it, is that we had our issue during the last years with our legacy project, but never, ever we have stopped thinking every day about where are we going to be within five years from now, where are we going to be within 10 years from now, how are we going to beat our competition, how are we going to win, where are we going to play? And the result today is the ACORN that you have in front of you.
OPERATOR
Thank you. Our next question comes from Chris Murray from ATB Cormar Capital Markets. Please go ahead.
Chris Murray (Equity Analyst)
Yeah, thanks folks. Good morning. Maybe turning back just to some of the guidance on 26. You know, you made the comment that, you know, you expect revenue to be higher in 26 and 25. But if we look at Q1 revenue growth, certainly pretty impressive just at the magnitude of it. But I just wanted to kind of frame or try to think about how that cadence is going to, going to play out through the year. You would think from the guide it's like above, you wouldn't think it would be 20% above for the rest of the year. So just any color, if you can help us kind of shape the opinions on how we should think about the balance of the year in terms of the revenue stack.
Jerome Julier (Executive Vice President and CFO)
Yeah, Q1 is a little bit of an exceptional quarter because candidly we're lapping pretty easy comps. So last year Q1 was roughly a billion dollars of revenue. The year before that, in 24 it was 844. So I mean, look, obviously the stacked growth here is pretty meaningful. One of the big contributors is in 2025 in Q1 we secured the Scarborough Subway expansion project as well as the Darlington New Nuclear Small Modular Reactor project. So those weren't in the comparative period last year. They're now in full swing and full production. So I would say if you're thinking about the overall shape of revenue growth, our expectation is not to be able to put that type of high team number on the board because the comps, so to speak, get a little bit more challenging as we progress through the year. That being said, the way we set up the outlook is remind our investor base is roughly $11 billion of backlog. We provide detail on how much of that's executable within the next 12 months. Our recurring revenue program, particularly in the utilities business, is roughly three quarters of a billion dollars. That effectively doesn't touch anything in our backlog at all. So that's an over and above. And then we have additional work that we usually kind of book and build within the year. So we feel pretty confident that our outlook of revenue growth is valid and we put it in the overall context of a relatively difficult environment with regards to construction overall, when, when you think about where construction put in place is across North America. The figures that we're putting up as far as growth is really a function of the strategic perspective and lens that AECON has taken and the sectors that we address. So we feel happy about the position. As Jolie mentioned, the team wasn't asleep at the switch while they were dealing with the legacy projects. We feel like we're really driving forward.
Chris Murray (Equity Analyst)
Okay, that's great. The other kind of question for you is, you know, you've raised some capital, some additional capital through the equity raise. You also seem to be pretty active in acquisitions, you know, appreciating the fact that, you know, when you did the raise, it was for, you know, kind of labeled as general corporate purposes and some debt reduction. But you know, kind of moving forward and thinking about that, does this, does that raise and sort of your posture towards acquisitions? Do we be thinking about a change in kind of capital strategy in terms of being more growth focused? And if so, you know, is it still going to be tuck ins or do we start looking at kind of larger, larger organizations that will give you some additional capacity to kind of work through some of this growing backlog that you've got.
Jerome Julier (Executive Vice President and CFO)
Yeah, so very consistent approach to capital allocation operations. First mindset at AECON very focused on supporting our operation teams for the growth that they have in front of them. So that means investments in systems and resiliency and people. So that kind of general support for the organic side of the business. And again in the quarter, roughly 85% of the growth that we had was organic. So really important to note that we need to support that with investment. Our capex program has actually been quite measured. If you look at the comparative period like trailing 12 months from March 31 to trailing 12 months, March 31, 2025, our CapEx numbers effectively been the same. And then you know, whether or not you include the finance lease, which is obviously another form of capex. So we've been pretty measured. So we think we need to make more investments from that standpoint. And then to your specific question. Around M and A, over the last two years, aecon's executed seven acquisitions. Those teams have been welcomed into the fold, They've been integrated. They're all performing at or above expectation. Five of those acquisitions were in the United States. To expand our platform, total dollars represent something in the order of 300 million. And so when you say what do we use the money for? It was to pay down debt, which is why we ended up in the strong position we had at quarter end. But that does afford us capacity to support further growth. So we're not going to kind of tilt whether we're going to go after something bigger or smaller. We've got a very specified buy box with regards to capability accretion. It's a very disciplined approach. And one thing we'll say is there are certain areas that we really like and businesses that we understand and that we think have undeniable growth trends. And where we see opportunities to increase Akon's exposure to those end markets, we won't be shy about taking it because we think we've got a pretty good growth algorithm associated with that.
Chris Murray (Equity Analyst)
Okay, thanks. That's a great answer. Leave it there.
OPERATOR
Thank you. Our next question comes from Maxim Sitchev from nbcm. Please go ahead.
Maxim Sitchev (Equity Analyst)
Hi. Good one. Gentlemen. The first question is around M and A multiples. When we look at the disclosure on kind of the purchase price and backlog contribution, etc. I'm just wondering if we're seeing a bit of an uplift there or how should we think about sort of the sellers expectations in this market, especially like in the utility space? Thank you.
Adam Borgatti (Senior Vice President of Corporate Development and IR)
Adam and I were Just looking at each other to see who wants to take it. Do you want to start, Adam? Yeah, happy to. Yeah. Max. You know, we've been fortunate enough over the last number of years to be able to really select the deals that we've been pursuing, which helps to keep a little more rational approach and valuation in the mix for the companies that we've been buying. That's been helpful. We've also been able to try and align the entrepreneurs that we are acquiring and bringing into AECON through mechanisms that have earnouts and everything to try and continue their opportunity to maximize value through their growth plan. Well, we have seen a little bit of multiples coming up over the last number of years, similar to what you're seeing in the sector overall. It's been pretty much measured for within what we can manage and within our cost of capital. So we've been, you know, pretty diligent on trying to make sure we're being reasonable evaluation and I think that's been successful. So yes, they've come up, but still quite within our parameters.
Maxim Sitchev (Equity Analyst)
Okay, that's, that's great to hear. Thank you. And Jerome, maybe a follow up question for you in terms of how should we be thinking about the cadence for concessions EBITDA this year and maybe sort of the expected inflection point there Is that sort of, I guess a 2027 event? Just trying to get the timing right there. Thank you.
Jerome Julier (Executive Vice President and CFO)
Yep. The EBITDA contribution for the concessions business is going to be down year over year as we saw in the first quarter. The inflection point is going to be likely tied to advancing new projects. Whether that's some of the items we have in the hopper Today or the U.S. virgin Island Airport projects that we've been talking about for a while. Those are a pretty advanced development phase. So yeah, it's probably a Q4 event or a next year event. The teams are working pretty feverishly on it and we think about it internally more as an equity value business. So it's, you know, the book value of equity associated with the concessions portfolio. You've got the roughly quarter billion dollars on balance sheet and then additionally the United investment that we carry in long term investment. So the total is, call it 255, 260. And so clearly it's more valuable than that. And so, so EBITDA's. Yeah, it's an accounting term for that business. But for that business overall, the daily flow of up and down on EBITDA we're a little bit less concerned with, we're more focused on the value creation. And we think we've got a really good team, really good opportunities in front of us. And that's a. It's clearly a business that we want to allocate more capital to because we see. We see opportunity.
Maxim Sitchev (Equity Analyst)
Yeah. No, 100% agree. Thank you so much.
OPERATOR
Thank you. Our next question comes from Ian Gillies from Stifel. Please go ahead.
Ian Gillies (Equity Analyst)
Morning, everyone. Over the last five or six years, I mean, even through Covid, you've done a great job in and around staffing. It appears we're getting close to another demand inflection for construction in Canada in particular. Can you just talk about where you think you're at with staffing, some of the staffing strategies and whether it's a perceived risk at this point or not? Construction is about people. It's about people and processes. But the relative weight of people capacity is probably higher in construction than in other industries. So if we go bottom up. First of all, the trade and I spoke about at the beginning of this meeting, the whole country has understood that it's an important issue. This being said, we have excellent relation with all our partners and we have always been able to forecast the needs and the capacity for the next five years with our trade partners. When we go higher, we have the middle staff and the top staff. So this is important. And we have created at Acon what we call our Project Management Academy. We have a few other programs for coordinators, for technical manager, just to train and the quality of our staff. This being said, when you see the projects coming, the war is still going to be on the top executive of the company and on the top executive for construction. Project director, technical director, construction manager on our job, also project control. So we are extremely focused on attracting, training and keeping the best people in the market. I mean, it's not a real bottleneck or a red flag. It's just that it's our work and we have always done this to be able to look ahead and to define exactly what we are going to need and to create this capacity. Maybe I'll add just an additional perspective just because you and I, I joined the business roughly two years ago. Other things are, one is like the amount of care and attention put towards the safety culture is just critical to ensure we can maintain our skilled trade and skilled labor pools. Because everyone knows who's good at it and who's not good at it. And so we've got our safety week next week across all of our sites in North America. Our safety record in 2025 was one of the Best ones despite, you know, not despite reflecting also that we had some of the most hours worked in the company's history. Additionally, the team environment's really important. Like I can say it's a great place to work and we're excited about that. Obviously there's a big demand and we're, we're hiring. And one of the, one of the things that I kind of think about when what's a unique aspect of AECON is this ability to attract and deploy that level of skilled labor is relatively unique. There's not a lot of folks who can marshal these types of forces and give a little bit of context. In 2025, a con issued roughly 17,000 T4 and W2 forms. Right. So that obviously doesn't reflect a peak labor number that's kind of throughout the entire year, but just shows that that's the labor pool that we had access to in 2025 and we expect that number to go up in 2026. So it's a unique attribute. It's human capacity and it's something we're really proud of. Understood. That's helpful context. Through all month, the recurring revenue side, there was a little bit of a downdraft. Year over year. Utilities was really good, but the other bucket was probably what I would define as weak. Can you maybe just talk a little bit about what's happening there and kind of how you're thinking about how that trends through the remainder of the year?
Jerome Julier (Executive Vice President and CFO)
Yeah, yeah, I see where you're coming from. The background on the kind of light blue bar on that page is really a function of. In the comparative period we had what I just called progressive or development work and particularly associated with a project that was, that didn't move forward. And so that was largely in the UTS side of the business. And so the reality is, you know, that component has dropped off the recurring revenue side, but you know, a much bigger component has shown up in the true revenue side, so to speak, as those projects, you know, are in execution, particularly the Scarborough subway. So, you know, we're not particularly fussed about the shape of like that block coming down because the revenue really just flipped over into more normal backlog based revenue. And we don't double report and then look the utility side, like that's a positive development. Right. There's a big focus on securing additional MSA work across all the different areas where we execute. The electrical side of the business is performing relatively well. There's been a lot of headwind on the telecom and natural gas distribution side due to the Regulatory environment. And so we just think the teams on the utility side have just been performing just exceptionally well given a pretty tough dynamic there.
Ian Gillies (Equity Analyst)
Understood. That's really helpful. I'll turn the call back over.
OPERATOR
Thank you. Our next question comes from Sean. Jack from Raymond James, please go ahead.
Sean Jack
Morning guys. So just thinking about these new defense projects on the horizon. In Canada there was mention of submarines and Arctic bases, other forms of work earlier. Do you see any opportunities for strategic ads through MA that you'd be willing to make that could bring closer to this growing pipeline? Or do you feel like you're well positioned as it is
Jean Louis Cervantes (President and CEO)
on a first basis? We think we are well positioned and we can always partner. That most probably will be the way to see forward rather than. Than acquiring company for this. I mean all these are core competencies that we have within the company at this moment. It doesn't mean that we would not do something a little different when we have a better understanding of all those programs. But so far this is the way we are envisaging our strategy for this project.
OPERATOR
Appreciate it. That's all from me, guys. Thanks.
Krista Friesen (Equity Analyst)
Thank you. Our next question comes from Krista Friesen from cibc. Please go ahead. Hi. Thanks for taking my question. Maybe just to follow up on the defense topic. There it is. Seemed like from the outside a pretty seamless pivot to re entering this defense work. Were there any investments that you needed to do on your end in maybe putting up secure facilities or anything like that to be able to bid on the defence work or were you able to just use what you already have?
Jean Louis Cervantes (President and CEO)
I mean we, we had not been working with defence for the last 10 years because first of all there was very little work and it was a lot of rehabilitation of hangar or workshops of some administrative buildings. And so I mean that is the reason. But earlier, I mean we had been working with defens. So as I've answered, I mean the, the question just before you. We have those core competencies within the company. We have this capacity to develop and also to project our strengths rather far from our basis. So we consider we have within our company the capacities to deal perfectly with those projects.
Jerome Julier (Executive Vice President and CFO)
Yeah, maybe just put one small point on it, Krista. Yes, there were investments involved around, you know, facilities, cyber infrastructure, et cetera. That being said, the work programs that we carry on outside of that particular sector also have pretty stringent requirements. And so, you know, I'd say the transition, it requires a lift, but not a huge one because I think we were probably already at the 85% mark given the other work that we do within the business.
Krista Friesen (Equity Analyst)
Okay, perfect. Thank you. And then maybe just more of a housekeeping question on the MGA expense this quarter. A little bit higher as a percentage of revenue. How should we think about that moving forward?
Jerome Julier (Executive Vice President and CFO)
So a little bit higher in the quarter. You know, in the context of obviously big revenue growth, current levels are probably appropriate. Right. And so most of it is tied to compensation, staffing, costs, you know, supporting resiliency and supporting growth. And so, you know, given just the amount of, you know, the amount of additional dollars that we're putting to work as far as revision revenue recognition and how lean the organization has been through what described as the rearview mirror legacy era, it's just kind of an appropriate catch up and some level of normalization from here.
Krista Friesen (Equity Analyst)
Okay, perfect. Thank you. Congrats on the quarter.
Jerome Julier (Executive Vice President and CFO)
Thanks, Krista.
OPERATOR
Thank you. This concludes the question and answer session. I would now like to turn it back to Adam Borgatti for closing remarks.
Adam Borgatti (Senior Vice President of Corporate Development and IR)
Thank you very much, Shannon. And we appreciate everyone's interest and attention. Happy to take any follow up questions and have a great rest of your day.
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