Good morning, and thank you for attending today's Aecon Group Q1 2022 earnings call. My name is Nate, and I will be your moderator for today's call. All lines are muted during the presentation portion of the call with an opportunity for questions- and- answers at the end. If you would like to ask a question, please press star one on your telephone keypad. I'd like to now pass the conference over to our host, Adam Borgatti with Aecon Group. Adam, please go ahead.
Thank you, Nate. Good morning, everyone, and thanks for participating in our Q1 2022 results conference call. This is Adam Borgatti speaking. Presenting to you this morning are Jean-Louis Servranckx, President and CEO, and David Smales, Executive Vice President and CFO. Our earnings announcement was released yesterday evening, and we posted a slide presentation on the investing section of our website, which we will refer to during this call. Following our comments, we will be glad to take questions from analysts, and we ask that analysts keep to one question before getting back into the queue to ensure others have a chance to contribute. As noted on slide 2 of the presentation, listeners are reminded that the information we are sharing with you today includes forward-looking statements. These statements are based on assumptions that are subject to significant risks and uncertainties.
Although Aecon believes that the expectations reflected in these statements are reasonable, we can give no assurance that these expectations will prove to be correct. With that, I will turn the call over to Dave.
Thank you, Adam, and good morning, everyone. I'll touch briefly on Aecon's consolidated results, review results by segment, and then address Aecon's financial position before turning the call over to Jean-Louis. Turning to slide 3, revenue for Q1 of CAD 986 million was CAD 232 million or 31% higher compared to last year. Adjusted EBITDA of CAD 21 million and an operating loss of CAD 10 million in Q1 were both in line with Q1 of 2021. However, after adjusting for the impact of amounts relating to the Canada Emergency Wage Subsidy, or CEWS, in Q1 of last year, adjusted EBITDA and operating loss each improved by CAD 8 million for the quarter compared to the same period in 2021.
Diluted loss per share of CAD 0.29 in the quarter, compared to a diluted loss per share in the same period last year of CAD 0.31 or CAD 0.40 after adjusting for the impact of CEWS in 2021. Reported backlog of CAD 6.4 billion increased by CAD 510 million compared to CAD 5.9 billion a year ago. Now looking at results by segment. Turning to slide 4. Construction revenue of CAD 972 million in the first quarter was CAD 228 million or 31% higher than the same period last year. Revenue was higher in industrial operations, driven by work related to pipeline, mining, and chemical projects. In civil, from an increase in major projects and road building work. In nuclear, from an increased volume of refurbishment work.
In utilities operations, driven by gas distribution, electrical transmission, and telecommunications work. Adjusted EBITDA in the construction segment of CAD 19 million, a margin of 2% compared to CAD 22 million, a margin of 3% in Q1 last year. After adjusting for the net impact of CEWS in the first quarter of 2021, adjusted EBITDA increased by CAD 5 million, primarily from higher volume and gross profit margin in civil operations and higher volume in the nuclear and utility sectors. These increases were partially offset by lower gross profit margin in urban transportation solutions and industrial operations. New contract awards of CAD 1.2 billion in the first quarter were CAD 992 million higher than the same period in 2021.
Backlog at the end of the quarter is CAD 6.4 billion compared to CAD 5.8 billion at the same time last year. Turning to slide five. Concessions revenue for Q1 was CAD 14 million, an increase of CAD 3 million compared to the same period last year, primarily due to operations at the Bermuda International Airport. Commercial flight operations in Bermuda continue to operate at a reduced volume due to COVID-19 compared to pre-pandemic levels, though recovering from the more severe impacts experienced in 2020 and 2021. Adjusted EBITDA in the concession segment of CAD 14 million increased by CAD 4 million versus Q1 2021, primarily due to results from Bermuda Airport. Turning to slide six.
At the end of Q1 , Aecon had a committed revolving credit facility of CAD 600 million, of which CAD 105 million was drawn and CAD 3 million utilized for letters of credit, as well as a CAD 900 million facility provided by EDC to support letters of credit. Aecon's committed facilities for both working capital and letter of credit requirements total CAD 1.5 billion. Aecon has no debt or credit facility maturities until the second half of 2023, except equipment and property loans and leases in the normal course. As of March thirty-first, Aecon was in compliance with all debt covenants related to its credit facility. At this point, I'll turn the call over to Jean-Louis.
Thank you, David. Turning to slide seven, despite the ongoing impact of COVID-19 on Aecon's operations, including having to manage productivity and supply chain disruptions driven by the latest Omicron variant and other external economic factors, we continue to deliver solid results in the quarter. Aecon's balanced and diversified portfolio and continuous improvement culture are significant strengths that position us well for the market opportunities across Canada today. The construction segment is well aligned to the significant infrastructure investment commitments by all levels of government across Canada, the U.S., and on a select basis internationally, as well as by the private sector across the market sectors in which we participate.
The concessions segment is purpose-built for the large-scale infrastructure projects being developed and brought to market by governments through P3 and other collaborative models, and is also targeting development and private finance opportunities in transit, power, clean tech, and other related markets, as well as participating as a concessionaire on the five P3 projects identified on this slide. Turning to slide 8, backlog recurring revenue programs and the pipeline of bidding opportunities for new work remain at strong levels across Canada. New awards of CAD 1.2 billion in Q1 were close to CAD 1 billion more than Q1 last year. We anticipate a number of new projects to be added to backlog in the coming months, including the Montreal Trudeau Airport REM station in Quebec and the Kingstown Port Modernization Project in Saint Vincent and the Grenadines.
Aecon is also pre-qualified on a number of large project bids due to be awarded over the next 2 years, including several procurements for the Ontario Line and the Scarborough subway extension stations, rails, and system. We expect demand for our services to remain healthy for the foreseeable future, as federal and local governments across Canada and the U.S. have identified investment in infrastructure as a key economic driver and an essential part of the transition to a net zero carbon economy through more sustainable and resilient infrastructure. Trailing 12-month recurring revenue was up 36% versus the prior period, primarily from growth in utilities operations. Recurring revenue is expected to continue to grow, driven by demand in the utility sector, and the concession segment is expected to see airport traffic in Bermuda continue its recovery in 2022 from the impact of the COVID-19 pandemic.
Turning to slide 9. We were very pleased to announce in April that an Aecon consortium was officially selected for the transformative multi-billion-dollar GO Expansion and electrification project in Ontario under a progressive design-build, operate and maintain contract model. Aecon's 50% share in the civil joint venture undertaking construction and 28% share in the 25-year operations and maintenance partnership are anticipated to be the two largest projects undertaken by Aecon in its history. The contract begins with a 2-year collaborative development phase to finalize the scope, commercial structure, and pricing of various elements of the project. Certain construction and early works activities will commence during this phase, with operations and maintenance anticipated to commence in the second quarter of 2024. Further information on the contract value and schedule will be disclosed once the development phase is completed.
It is worth noting that this complex project, extending across several regions and with multiple external interfaces, stakeholders, utility and operational elements, is being delivered under a progressive and collaborative model. This is a welcome evolution from what was traditionally procured under a fixed price lump sum contract structure for such large, complex, and multi-year projects. This collaborative target price approach between ONxpress and Metrolinx is designed to benefit all stakeholders. I want to express my sincere thanks for the tremendous efforts and incredible work by our team to secure this landmark project for Aecon, and we look forward to transforming transit together with our partners and clients. Turning to slide 10. The GO Expansion project is also a significant step in our continuing journey to be an industry leader in sustainability.
Aecon proudly released its third sustainability report, Building Innovation, on Earth Day last week, outlining our progress and key accomplishments in responsible ESG practices. The report highlights Aecon's initiative to embed sustainable innovations and work towards net zero construction throughout its operation. Aecon is pleased to report significant progress toward its target to achieve a 30% reduction in direct CO2 emission by 2030, with a 15% year-over-year emissions reduction already achieved in 2021 on an intensity basis. Sustainability is part of our DNA at Aecon and a key consideration in every decision we make as we continue to focus on building what matters to enable future generations to thrive. Turning to slide 11.
The trends that I have spoken to already in terms of the strength of the construction market in Canada, both in the public and private sectors, continue to be positive and well aligned to Aecon's diversified construction segments. In the concession segment, in addition to expecting continued recovery in travel through the Bermuda Airport during 2022, there are a number of opportunities to add to the existing portfolio of Canadian and international concessions in the next 12-24 months, including in the U.S., and in innovative projects with private sector clients that support a collective focus on sustainability and the transition to a net zero economy.
Of course, our concession group will be a key player in the development and long-term operations and maintenance contracts for the GO Expansion project, ramping up over the next several years and ultimately driving a generational change that will significantly improve transit in Canada's larger metropolitan area. The overall outlook for 2022 is positive, with construction continuing on a number of projects that ramped up in 2020 and 2021, a strong level of backlog and a robust demand environment for Aecon services, including recurring revenue programs. Thank you. We will now turn the call over to analysts for questions.
Absolutely. If you would like to ask a question, please press star followed by one on your telephone keypad. If for any reason you would like to remove that question, please press star followed by two. Again, to ask a question, press star one. As a reminder, if you are using a speakerphone, please remember to pick up your handset before asking your question. We will pause you briefly as questions are registered. Our first question goes to Frederic Bastien with Raymond James. Frederic, your line is open. You can go ahead.
Good morning, everybody.
Morning, Frederic.
Can you comment on the competitive environment you're seeing today? It seems like you're going against fewer global and domestic contractors. Many have exited Canada, so wondering if that does allow you to be more selective when bidding for work and is that being reflected in the contract awards that you're being able to earn?
Yes, Frederic, I will take this one. Yes, you see the pipeline of construction opportunities for the future. As you know, Aecon is able to develop, finance, engineer, build, and also operate assets, and it's quite good perspective. I would tend to say that there is more and more to build. Yes, you're right, it seems less and less contractors. At the end of the day, shortlists are made of three players, so there is still competition. What we have to try to achieve is discipline and innovation within our bid. As I tend to say, and I'm used to say, backlog definitely is not an issue for Aecon. We are quietly but surely going on our journey to de-risk our backlog.
As you've been able to see, I mean, we are at CAD 6.4 billion at the end of Q1 2022. We have not taken one major single job on lump sum superior to CAD 1 billion during the last few years, and our backlog is very comfortable. Everything is about selectivity. It's about quality of what we can acquire. You have also seen that new award during the quarter, we're at CAD 1.2 billion, which is quite good. What's important, rather than, I think, trying to assess if there will be less or more competitors, I mean, it's about going on our objective of balancing our activity. This is what make Aecon, at the same time, unique in the Canadian market when you see the diversity of our activity.
Our organization that allows us to be focused with the best team, and we think the best strategy on each of these sectors. It gives us resilience, and this is what we are looking at for the years to come.
Jean-Louis, did I hear you right when you said you hadn't taken a single lump sum contract of over a billion in the last three years?
Yes, you heard me right, Frederic. Our backlog is CAD 3.4
That's great. Okay, great. The question or the topic du jour is inflation. I think you've historically shown that you've done well when inflation is rampant and when commodity prices are elevated. I was just wondering what you know, can you share your thoughts here? A lot of investors are actually wondering about that.
Execution is key. I mean, this is always my key point. We deal with this through our continuous improvement. I'm extremely happy with the results and the enthusiasm around the company. We deal with it about education. Our Aecon University have never been that strong about the way we procure. Here we arrive to the disruptions that we may face. On Q1 , I mean, Omicron was important. Thanks to the vaccine, that was a game changer. I mean, it's not as dangerous as the first COVID-19 virus and the following variants were, but we still have to isolate entire teams when we have a positive case. This has been a disruption.
On the supply chain, yes, we have some issue with inflation or what we call from time to time, hyper-inflation, and volatility, because sometimes it goes up and it goes down very quickly. We have now a very strong centralized procurement team that can deal better with this. We also have to deal, I mean, in terms of disruption of the supply chain with scarcity or even absence of some materials, key materials. For example, you will not find today in Canada one single kg of stainless rebar steel. We have a lot of issues to get polyethylene pipes or some valves for our industrial jobs. This creates some issue.
All our clients are well aware about the inflation issues, and we are discussing with them either to find alternative or to find solution or through our procurement department, be able to cope with it as much as we can.
Good morning. I want to continue on with the supply chain issue discussion there. Maybe you can comment on, you know, how you should be thinking about project delays. Are you seeing any, and where, due to these supply chain issues? You know, specifically on the inflationary pressures, is your expectation that you will see some margin pressure through 2022?
Yes, you're right. When I'm speaking about disruption of the supply chain, this has some consequences on our schedule. We have to find alternatives. We have to find new ways of being able to deliver on time. I mean, it's part of our effort on continuous improvement. What I call the religion of the critical path on each of our job. We may come back to this a little later. What is also to be noted is that Aecon has been keeping a strong capacity to build with at-home components. It means that we are not a company used to subcontract everything everywhere.
It means that, first, it makes us stronger, but much more reliable with our own workforce, what we call our boots on the ground, that we can control much better than having to go to the market. This has definitely helped us, I mean, during the last months, yes.
It includes your question on margin, Jacob. Obviously we've been in this environment for a while now. This isn't just a 2022 issue. It was happening through certainly the back half of last year as well. You know, it's not a step change in 2022. We managed through the challenges with that. I think it certainly reduces our potential to increase margins. But I think, compared to last year when you exclude CEWS, you know, we still expect to see good margin performance this year relative to last year. But certainly, you know, it takes the edge off some of the upside potential for sure.
Maybe just a follow-up here. You know, looking at your backlog for the next twelve months, I think you're at just over CAD 3.1 billion. How much of that backlog do you think is at risk due to, you know, future supply chain issues? i.e. pushed out.
We don't really see any risk to that backlog in terms of the current schedule. Obviously, building on my comments on the previous question, this isn't a new phenomenon that's just happened today. These are all projects we've bid in the last, or a lot of this is projects we've bid in the last little while, where we built this into with the client, into schedules, into procurement processes, and projects that were already underway. Most of the procurement is done early in the project, so it's not a case of projects moving wholesale to the right. It's just dealing with individual challenges on certain aspects of the projects as we go along. It's not a case of, you know, whole projects moving to the right.
Okay. Thank you for your answers.
Thank you, Jacob. Our next question goes to Benoit Poirier with Desjardins. Benoit, please go ahead.
Hey, good morning, Jean-Louis. Yeah, thank you very much. Good morning, Jean-Louis and David.
Good morning.
Yeah, it seems that we are seeing increased momentum from the U.S. with recent contract awards. Could you talk maybe about your bidding pipeline in the U.S. and how important do you see the U.S. down the road?
Yes, you're right. Our strategic plan that we have renewed during Q1 of 2022, for the three years to come, it is about growth. It's about profitable growth. I've talked some of the points, I mean, with the first question by Frederic this morning, but U.S. and international is gonna be an important point. We have acquired a new job in Washington State. I mean, it's $126 million job. It's perfectly within our core competency. You probably remember a few months ago, I was telling you, I mean, we cannot change country and change activity, so it goes quite well.
The idea is to strengthen our presence in this Washington state, and then slowly going south along the West Coast, but also trying to find the right opportunities. We also have been pre-qualified on a medium-sized P3 in the United States, a construction one. There is a very important pipeline, not only in civil. When we have a look at it, I mean, utilities is at least 50% of what is coming out in the near future in the United States. We are extremely attentive to this.
Okay. That's great. When we look at your overall booking activity, it's great so far. When we look at Q1 with the GO Expansion, you still have CAD 60 billion of bidding opportunities on the table. Could you talk a little bit, Jean-Louis, about how do you manage the risk with the labor these days?
Okay, just to finish on the last question, I've no time to tell you about water opportunities in the U.S. I mean, we have very strong partnerships. You probably know that, we have been pre-qualified on a job in California. Another one, where we are the preferred bidder on Oregon State, and we are finalizing under a Progressive Design-Build scheme. That's very important because I think it will be part of the future. Regarding the pipeline and the CAD 50 billion, as I've said, I mean, the issue is not to select everything. We will select only the project where our core competency gives us a real competitive advantage. So far, thanks to our boots on the ground, we have no issues about scarcity of labor.
We are, I mean, extremely prudent when we select the job that will become target to be able to execute them properly.
Obviously, REM is a key project for Aecon. There's discussion about the next leg, the project, the LRT. Given the recent news flow in Montreal, how confident are you that the timing of the contract award could still be made in 2023, Jean-Louis?
First of all, our point of focus today in Montreal is the present REM job. I mean, we still have 3 years. We are extremely focused on the risk to the delivery. You probably can see, I mean, in Montreal, some trains running up and down. We are well advanced in all our testing programs. I'm extremely happy with the pace of the work, I mean, on this job. This is, at the moment, our main point of focus. Yes, it seems to be that there will be some delay for the next phases. I would tend to say that we have activity, I mean, strong activity during the 2 years to come. You probably also know that we have been awarded the REM station at the Montréal-Trudeau Airport.
It means that we are not starving. We will see how La Caisse is going to develop those new programs and we will be able to apply with the best possible group to be pre-qualified and then eventually to be awarded.
Okay. That's great. Maybe last one for me, Jean-Louis. You talk about the concession opportunities that you see these days. Where would you see the greatest opportunities over the next few years between concession and M&A?
There are still a few projects under urban transportation for our concession. I mean, for example, the Ontario Line, what we call the RSSOM, which is the rolling stock systems operation and maintenance. I mean, we have a very strong team pre-qualified. We have delivered our technical offer a few days ago, and we will deliver our financial offer at the end of Q2. Transportation still have some opportunities. In the energy sectors with private developers, we can see very interesting project coming on the table. Internationally, I mean, we are extremely happy with our operation in Bermuda, and we are trying to replicate this operation. We have a development team extremely active on this one. You had a second question within your last question, Benoit.
Oh, just about the M&A opportunities, whether there's any update or. Yeah.
Yeah. Nothing to update other than what we've said consistently, which is we're certainly open to M&A opportunities. Not just the tuck-in type opportunities that we've seen over the last few years, but something on a larger scale as well. We're active on that front, but nothing to update at this point in time. We certainly believe M&A plays a role in our ongoing growth.
That's great color. Thank you very much for the time.
Thank you, Benoit. Our next question is Chris Murray with ATB, excuse me, Capital Markets. Chris, your line is open. Please go ahead.
Yeah, thanks, folks. Maybe, Jean-Louis, just turning back to your commentary around maybe the GO Rail expansion and the Progressive Design-Build, and thank you for the comment about where you guys have been on fixed price contracts in the last little while. You know, thinking about that and thinking about the, you know, go forward in the portfolio. Right now you're running about, call it two-thirds fixed price versus variable price or I guess, cost plus unit price. You know, how do we think about that mix when we think about the stability in your backlog going forward? You know, are you starting to aim to try to bring that fixed price component down to maybe 50%?
Just how should we think about, you know, what the backlog maybe looks like in two or three years?
Yes, you're right. This is our strategy, and it has been our strategy, I mean, for a few years now, to de-risk our backlog. Mechanically, the proportion of fixed price within this backlog is going to go down. You have spoken about 50%, that can be a good target. This is going to happen. You probably see, I mean, the increase up to CAD 722 million trailing twelve months Q1 2022 of recurring revenue. This is also part of the equation, and this is what we are working on. It's... We have been advocating and discussing with our main client for the last 20 months about those new ways of procuring jobs.
It doesn't mean that all fixed price jobs are bad and all unit price or MSA or time and materials are good. I mean, it's a little more complex. What is sure is that certain projects, due to their complexity, I mean, we do not want any more to go through fixed price procurement method. The GO Rail Expansion, I mean, the new name now, we have to be all used with this, is ONCORR, like Ontario Corridor, and our group name is ONxpress. It is very interesting because, I mean, it's been. The heart of it is about operation. It is about economic benefit for the Greater Toronto Area and the commuter.
We are going to define commonly with Metrolinx, the exact strategy of operation we want, and we have been talking a lot about it, and part of the award is about this. With this, we are going to build together with Metrolinx, the scope of the CapEx, of the construction and the price of the CapEx. It's a very interesting model. It's a game changer in our industry, and I think we are on the right way to this.
Okay. You know, along the complexity around this, but is it fair to think that the better way to think about the margin profile, it's not necessarily that these types of contracts will carry a higher margin, it's maybe just there's a chance of having a more certain margin? Is that the better way to think about it?
Yes, I think you're right. I mean, it's exactly that. I'd say, it's not all bad on one side, all good on the other side. I mean, it's about selectivity and it's about not being trapped under an environment where you have very little capacity in case of problem to find the adequate solution.
Okay. My next question, just thinking about the Bermuda Airport, a number of the U.S. airlines have talked about moving back, certainly with capacity numbers, call it, you know, 70%-80% of 2019 levels as we move into the summer. I know you talked a little bit about, you know, you've had some issues early in the quarter, but I guess some improvement through the quarter. Could you just give us an idea of how you folks are seeing, you know, operations at the airport today relative to maybe 2019 levels, and what your expectations are as we move into the summer period on the recovery?
Yeah. It's picking up nicely actually in the last couple of months. As you said, January and February, with Omicron, air traffic saw another dip. We were operating kind of in the high 30% range in January and February versus 2019. That was closer to 50% in March, and month to date in April, we're in the mid- to high 50% range versus 2019. It's building nicely. We do expect that trend to continue through the summer. You know, announcements from Air Canada and others in the last few days that they're quickly adding routes back to their network, which should benefit Bermuda, because that's one of the flights that hasn't been going in and out.
Some of the U.S. airlines that service Bermuda, same thing. It's building nicely over the last couple of months and the trends look positive through the summer.
Okay. Do you have an idea of where you think you're gonna be through the peak season? You know, will it be 70%-80% or maybe still a bit below that, at this point?
Yeah, I think it can get certainly back to that kind of level. I think we see the average for the year being around 60%. If you look at, you know, we're now close to the end of April, and we'd be tracking well below that. We need to be in that 70%-80% range to get to that 60% on average over the year, and we certainly think we're on track for that.
All right. That's helpful. Thanks, folks.
Thank you, Chris. Our next question goes to Michael Tupholme with TD Securities. Michael, your line is open. Please go ahead.
Thank you. Good morning.
Good morning.
First question is about the backlog. You had a nice sequential improvement quarter-over-quarter in overall backlog, but particularly the backlog, the portion expected to be executed over the next 12 months was up about CAD 400 million or 15%, which was very strong. I'm just wondering if you can comment on particularly that piece, the next 12-month portion and how we think about that improvement you saw in the quarter, because it was just quite strong.
Yes, you're right. I mean it went from CAD 2.7 billion- CAD 3.1 billion. It gives you an idea, I mean, of what can be the year 2022. The first element is the revenue increase that we had during Q1 . As David says, I mean, we don't see a lot of dangers of this backlog that is forecasted to be executed during the next 12 months to be pushed on the right so far. At the moment, I mean, I just consider we have this well in hand so far.
I think the other thing, Mike, if you go back a quarter, you know, the question was the other way around, which is why is your next 12-month backlog flat relative to 12 months ago? We said then, there's always an element in Q1 or two of the year where we're booking backlog that is gonna be worked off in the current year. Seasonal businesses like road building and transportation generally, you'll fit into that category. You know, we've seen good pick-ups in lots of areas and it's optically unusual that we would see some of that seasonal book and burn in the year type work coming in in Q1.
Okay. That's helpful. Thanks. You've had a number of questions about inflation and I think it's suggested a couple of times this is not a case of projects or risk of projects moving to the right, but you mentioned you're dealing with certain challenges. I guess sort of a two-part question. Number one, can you be a little bit more specific about you know the specific challenges or issues you are dealing with as it relates to inflation? I guess secondly, you know, Dave, you mentioned that maybe some of the upside is you know is no longer quite what it was given the inflationary pressures.
I guess I'm wondering how has your visibility around margin performance and what you think you can achieve this year changed or evolved over the last several quarters as a result of inflationary pressures? Is there much more risk around what you think you can accomplish this year in view of these pressures and challenges? If you could just kind of comment on that'd be helpful.
Yeah. I will begin more generally, and then David maybe a little more specific. First of all, you have to understand that it's not as we are making more money when price of supplies go down, and we are making less money when price of supplies go up. I mean, it's much more subtle than this. I mean, construction is about cyclicity, and we are used to deal with this sort of phenomenon. Although at the moment, I mean, volatility and some we can face very quick movement on the price of commodities.
The second part of my answer would be that we have built, during the last two years, a very strong procurement team centralized at Aecon, and we have changed a little our way of procuring our supplies. It means that once we get an award and we try to negotiate the best advanced payment or down payment with our client, we tend to, as quick as possible, fix the level of price by procuring much earlier than what we were doing in the years before. It's a change of mentality. There is much more proactivity on the procurement side, much more professionalism. David?
Yeah. To your question, Mike, about how visibility improved from a quarter ago, I would say, you know, if we stay in the environment we're in today, then our visibility has improved in terms of we now have the backlogs or more of the backlogs we're gonna be working off this year in place. That allows us, obviously, to lock in pricing with suppliers, lock in index escalation with our clients on those contracts. From that point of view, a lot more of this now is fixed and in place. The key here is volatility, and we're in an environment where things can change quickly. We can certainly operate in the environment we're in today through the year, but it's an environment where things can change quickly.
As you will have seen in our outlook, we've said, you know, everything is subject to these external economic factors changing more radically. I think we have good visibility for 2022 based on backlog in place, everything we know today about the supply chain challenges that are out there. If things change again, then obviously, you know, we'll have to react to that as we go.
Okay. That's helpful. Thank you.
Thank you, Michael. Our next question goes to Naji Baydoun with iA Capital Markets. Naji, your line is open. Please go ahead.
Thank you. Good morning. Just wanted to go back to the topic of margins and the backlog. Maybe just starting with, you know, this year. Yes, you have more work that's gonna be sort of completed in the next 12 months or so, but the backlog is still mainly fixed price. Good top line growth, but any color on margins going forward as you transition more of the backlog towards different types of contracts?
Yeah. I mean, as you know, Najib, we don't give specific margin guidance for any particular year. I go back to my comments at the beginning, which is, you know, relative to last year, excluding CEW S, we still expect margins to be slightly ahead. You know, I think as we look further out, we do think with the quality of the backlogs and the ability to select the project profile that we're targeting from a margin perspective, you know, we do see opportunities for margins to improve over time. Yeah, I don't wanna give a specific margin target for this year.
I understand that. That's helpful. Even just thinking about it longer term, as you go through this transition that you're talking about, the types of contracts that you'll be pursuing and the types of projects that you can be working on, where do you see generally sort of the potential for the margins to grow over time?
Yeah. Same thing. I mean, we don't have a long-term margin target that we disclose either. As Jean-Louis said, it's not a case of all fixed price jobs are bad and all non-fixed price jobs are good, and the margin profile of one is significantly higher than the other. It's a mix in both spaces. We do think the progression into less fixed price work and more recurring revenue and MSA type work does lead to more margin stability and predictability over time. Going back to my previous comments, the type of backlog we're adding, even fixed-price backlog, we expect to see good margins.
It's really about the stability and predictability of margins that shift from fixed price to non-fixed price kind of addresses.
Okay. Got it. I just wanted to discuss a bit the recurring revenue profile. A nice increase quarter-over-quarter. Some of it, you know, from the Pacific Electrical Installations acquisition. I'm wondering if you can just talk about some of the other drivers of the increase in that business and how you could further accelerate the growth of that part of the portfolio.
Yeah, I think you're right. I mean, utilities has been a big part, but also, Bermuda increasing and some in our road business. It's a common effort, and it's also a strategy. It means that you can see from the last quarters, I mean, what is the trend? This is our strategy to increase our recurring revenue. It's mixed and balanced. It's exactly what we want to achieve. David, any?
Yeah, I think that's right. It's not just coming from utility work. Also, an increase in recurring revenue in the nuclear space as well, contributing to that. The biggest driver is utilities. It's the biggest portion of that. I would say it's a function of the capital programs that we see with a number of our utility clients, where typically the majority of that work, and this year won't be any different in terms of how busy we are in Q2, Q3, and the early parts of Q4. This year, I think those capital programs, there's so much going on that they've actually had us starting the year early.
We've done more winter work in the utility space, just because of the volume that exists in with both telecommunications, gas distribution and the transmission space. You know, I think we're in a very strong environment for utility type services right now. We expect to see that proportion grow over the next 12-24 months.
Just to finish on the topic, are there a lot of, you know, tuck-in M&A opportunities to try to really grow the business even faster?
Yeah. I mean, we've done 6 tuck-in acquisitions over the last few years. Most of those have been in the utility space. We still think there's opportunities for more. We also think there's opportunity for us with utilities projects in the U.S. as well. For sure there's further tuck-in opportunities as well as good organic growth opportunities.
Okay. Got it. Thank you.
Thank you, Naji.
There are currently no further questions registered at this time, so I'll turn the conference back over to the management team for any closing remarks.
Very well. Thanks, everyone, for joining us today. As always, welcome questions that you may have further to the call. Have a great rest of your day.
This concludes today's Aecon Group 2022 Q1 earnings call. Thank you for your participation. You can now disconnect your lines.