Good morning. Thank you for attending today's Q2 2022 Aecon Group Incorporated earnings call. My name is Porum, and I will be your moderator for today's call. All lines will remain 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. It is now my pleasure to pass the conference over to our host, Adam Borgatti, Senior Vice President of Corporate Development and Investor Relations. Mr. Borgatti, please proceed.
Thank you, Porum. Good morning, everyone, and thanks for participating in our second quarter 2022 results conference call. 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'll refer to during this call. Following our comments, we'll be glad to take questions from analysts. We ask that analysts keep to one question before getting back into the queue to allow others a chance to contribute. As noted on slide two of the presentation, listeners are reminded that the information we're 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 the expectations reflected in these statements are reasonable, we can give no assurance that these expectations will prove to be correct. With that, I'll now 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 three, revenue for the second quarter of CAD 1.1 billion was CAD 152 million or 16% higher compared to last year, and at CAD 4.4 billion for the last 12 months was 14% higher than the previous 12-month period. Adjusted EBITDA of CAD 39 million in the second quarter decreased by CAD 22 million compared to Q2 last year. However, after adjusting for the impact of amounts related to the Canada Emergency Wage Subsidy, or CEWS, in the second quarter of last year, Adjusted EBITDA decreased by CAD 10 million for the quarter.
On a trailing twelve-month basis, Adjusted EBITDA of CAD 205 million is CAD 2 million higher versus the comparative period. Diluted loss per share of CAD 0.10 in the quarter compared to diluted earnings per share in the same period last year of CAD 0.27 or CAD 0.13 after adjusting for the impact of CEWS. Reported backlog of CAD 6.6 billion increased by CAD 81 million compared to CAD 6.5 billion a year ago. The new awards continue to be strong at CAD 1.3 billion in the quarter and CAD 4.4 billion over the last twelve months. Now looking at results by segment. Turning to slide four, construction revenue of CAD 1.1 billion in the quarter was CAD 150 million or 16% higher than the same period last year.
Revenue was higher in each operating sector within the construction segment, including in civil operations from an increase in major projects work, in industrial operations driven by work related to chemical, mining, and pipeline projects, in utilities driven by electrical transmission and telecommunications work, in nuclear from increased volume of refurbishment work at nuclear generating stations primarily in the U.S. and in urban transportation solutions from an increase in LRT work in Quebec. Adjusted EBITDA in the construction segment of CAD 34 million, a margin of 3.1% compared to CAD 51 million, a margin of 5.3% in Q2 last year.
After adjusting for the net impact of CEWS in the second quarter of last year, Adjusted EBITDA decreased by CAD 4 million, primarily due to lower gross profit margin in urban transportation solutions, driven by an unfavorable margin adjustment on an LRT project in the quarter, as well as from lower gross profit margin in civil and nuclear operations. These decreases were in large part offset by higher volume in each operating sector, as discussed earlier, and higher gross profit margin in industrial and utilities operations. New contract awards of CAD 1.3 billion in the second quarter compared to CAD 1.6 billion in the same period in 2021. The new awards for the last twelve months of CAD 4.4 billion compared to CAD 3.1 billion in the prior period.
Backlog at the end of the quarter of CAD 6.5 billion was in line with backlog at the same time last year. Turning to slide five. Concessions revenue for the second quarter was CAD 19 million, an increase of CAD 2 million compared to the same period last year, primarily due to an increase in operations at the Bermuda International Airport. Commercial flight operations in Bermuda continue to operate at a reduced volume due to COVID-19, though recovering from the more severe impacts experienced in 2020 and 2021 and averaged close to 60% in Q2 compared to pre-pandemic levels. Adjusted EBITDA in the concession segment of CAD 17 million increased by CAD 1 million versus Q2 last year, primarily due to results from Bermuda Airport. Turning to slide six.
At the end of the second quarter, Aecon had a committed revolving credit facility of CAD 600 million, of which CAD 220 million was drawn and CAD 3 million utilized for letters of credit, as well as the 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 end of 2023, except equipment and property loans and leases in the normal course. As of June 30, 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, Dave. I would like to take a moment to comment on the four large fixed-price legacy projects laid out in our Q2 disclosure document. These four projects entered into in 2018 or earlier by joint ventures, of which Aecon is a participant, are being negatively impacted due to additional costs, for which the joint ventures assert that the owners are contractually responsible, including, among other things, unforeseeable site conditions, third-party delays, COVID-19, supply chain disruptions, and inflation related to labor and materials. During the second quarter, this impact became more pronounced and have resulted or are now expected to result in increased costs above those originally forecast, in some cases materially. Each relevant joint venture has submitted or is in the process of developing for submission detailed claims for compensation for these additional costs.
Other than the Coastal GasLink pipeline project, none are currently in litigation or arbitration. I've addressed the challenges we have faced on the Coastal GasLink pipeline project previously, and you will have noted our financial results were negatively impacted by an unfavorable margin adjustment on an LRT project in the quarter. In the case of these and the other two projects, we are facing significant changes and modifications to the conditions of execution of our work, impacting our ability to efficiently progress the work, creating delays and cost overruns beyond our control, and in certain cases, executing projects fundamentally different to the ones we bid. As you will know, the price for lump sum projects is only fixed to the extent of the scope and conditions that a contractor signs up for.
When factors outside of this agreed scope and related conditions impact the cost and progress of the work, Aecon and our partners work vigorously toward resolution of compensation for those impacts with the respective owners of this project. We are fully focused on pursuing all avenues for adequate and timely compensation, including through constant direct negotiations with our clients, engaging in mediation through independent verifiers, and/or entering into arbitration as necessary, all with the objective to reach fair and reasonable settlement agreements and to move forward towards project completion in each case. Aecon believe each relevant joint venture has a strong claim to recover at least a substantial portion of those costs. However, the ultimate outcome of these matters cannot be predicted at this time.
It is clear that traditional procurements under a fixed price lump sum contract structure for such large, complex, and multi-year projects, including the four legacy projects discussed here, needed to evolve. As an industry, we have been working hard to develop a model that addresses the challenges and needs of all stakeholders. While it's early days, these efforts are starting to gain traction, including the multi-billion-dollar GO Expansion and electrification project in Ontario, awarded to an Aecon joint venture under a progressive design, build, operate, and maintain contract model. This collaborative target price approach with a two-year joint development phase upfront is a welcome evolution designed to benefit all stakeholders, and we continue to push towards more collaborative models as we move forward. Turning now to slide eight .
Demand for Aecon services across Canada continues to be strong, particularly in smaller and medium-sized projects, as evidenced by year-to-date revenue growth of 22% and higher new project award of 50%. While volatile global and Canadian economic conditions are impacting inflation, interest rates, and overall supply chain efficiency, these factors have largely been and will continue to be reflected in the pricing and commercial terms of Aecon's recent and prospective project awards and bids. Turning to slide nine. With a backlog of CAD 6.6 billion and recurring revenue programs continuing to see robust demand, driven by the utility sectors and ongoing recovery in airport traffic in Bermuda, Aecon is confident in strong revenue growth over the next two years.
Aecon is also pre-qualified on a number of project bids due to be awarded during the next 12 months, and has a strong pipeline of opportunities to further add to backlog over time. Trailing 12- months recurring revenue was at 22% versus the prior period and over 50% versus two years ago, primarily from growth in utilities operations. Recurring revenue is expected to continue to grow, driven by demand in the utility sectors, and the concession segment is expected to see airport traffic in Bermuda continue its recovery in the balance of 2022 and in 2023. Turning to slide 10. Aecon was named one of the Corporate Knights 2022 best 50 corporate citizens in Canada, recognizing our significant progress in embracing and operationalizing net zero construction practices. Turning to slide 11.
To support our ESG strategy, Aecon continues to explore and trial new technologies and alternative building materials, and we recently became the first construction company in Ontario to pilot a new low carbon concrete from Carbon Upcycling Technologies at our innovation and training center. We continue to integrate and trial zero emission equipment, the most recent example being an electric wheel loader at our Finch West LRT project. To engage our employees in our sustainability journey, we also introduced a green benefits program which provides incentives for green vehicles and green home energy solutions, further demonstrating our sustainability is part of our D&A at Aecon. Turning to slide 12.
With strong demand, growing recurring revenue program and diverse backlog in hand, Aecon is focused on ensuring solid execution on its projects and selectively adding to backlog through a disciplined bidding approach that supports long-term margin improvement in the construction segment. In the concession segment, in addition to expecting a gradual recovery in travel through the Bermuda International Airport during 2022 and 2023, there are a number of opportunities to add to the existing portfolio of Canadian and international concessions in the next 12 to 24 months, including in innovative projects with private sector clients that support a collective focus on sustainability and the transition to a net zero economy. Thank you. We 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. Our first question comes from the line of Yuri Lynk with Canaccord. Yuri, your line is now open.
Thanks for taking my question. Good morning, guys. David, it sounds like the cost-
Good morning.
Good morning. It sounds like the cost we forecast in Q2 is almost entirely due to the Ontario LRT project, yet you did call out three other projects facing similar issues. Why weren't these projects subject to a reforecast in the quarter?
Every one of the projects obviously faces specific and unique impacts that need to be dealt with. Obviously, we've been on each of these projects for a period of time now, so we've been positioning them as we've been going along. There was one project in Q2 that we felt we needed to reposition, and we did that. We're comfortable with the position we have right now across all our projects, which is the case at the end of every quarter. That was the one that we felt we needed to adjust based on the specific circumstances of that project and that's what we did.
Okay. Maybe I'll go at it a different way for my follow-up. Your operating cash flow is over the last, say, 12 months almost - CAD 100 million. Is that largely the cash impact of these projects you've disclosed? Or do you anticipate further negative cash flow in the coming quarters?
Yeah. It's largely linked to some of these larger projects. I mean, it's really a function of what we're talking about here in terms of the risk on these four projects specifically, in terms of dealing with the current macro environment and supply chain challenges. A lot of it is just linked to the time it's taking to resolve the impacts of change. The whole system right now is kind of maxed out in terms of capacity to deal with change. That's, you know, from our clients, our partners, suppliers, subcontractors. Everyone's operating in a pretty unusual environment. And everybody is trying to deal with things as expeditiously as possible. Capacity is a challenge for everyone, including our clients.
That's delaying the whole process that we would normally go through to deal with change and the impacts of change, and that's why we've seen some lag in working capital through the first half of this year.
Okay. That's my two. I'll turn it over.
Thanks, Yuri.
Thank you for your question. Our next question comes from the line of Jacob Bout with CIBC. Jacob, your line is now open.
Good morning. Just going back to these four fixed price legacy projects. When do you expect to get resolution on this? Maybe you can comment on the CAD 6.5 billion of backlog, what percentage of that would be considered lump sum or fixed price?
Okay. I will take this one. As David just said a few minutes ago, there is always a time between the impact from this modification in the condition of execution of our contracts and the compensation by the client. I mean, we. The environment is tough, impacting everybody, and there is a time to work out to be able to justify, to be able to present the claims, to be able to negotiate. Those projects still have between one and two years of active life. Regarding the backlog. You have noticed that the backlog at the end of Q2 was CAD 6.6 billion. New awards for the quarter, I mean, we're at CAD 1.3 billion, which is an extremely interesting figure.
It's not, as I used to say, it's not only about quality, it's about quality. And I'm very happy with the quality of the new project, we are just loading in our, in our backlog. You will also remember what I've been saying, I mean, a number of time. I mean, from September 2018, we have not taken one single lump sum job superior to CAD 1 billion. This is very important. Coming back to the percentage, I mean, within one year, the percentage of fixed price job within our backlog went down from 64%- 56%. We are very happy. We have said it a few years ago, and we are doing it, and it's happening. The growth of our utilities sector is one of the reasons.
The discipline with major project is also, I mean, a very important reason. You also have noticed that recurrent revenue, once again have grown. I mean, CAD 753 million against CAD 617 million for Q2 2021. All this is very interesting, I think. This is without counting anything for the OnCorr project that we have been awarded. I remind you that this project, which is a multi-billion job, where we have 50% of the infrastructure construction, it's a 10-year job. 28% of the operation and maintenance, which is 25 years. It's all on a cost-plus basis. We have not yet loaded this project. We will do it progressively as far as the development period goes.
It will also add to the decrease in the fixed price proportion within the backlog.
Maybe just a follow on here. When I look at the duration of your backlog, and you compare it this year versus last couple of years, you know, skewed much more to the, you know, kind of next 12 months versus, you know, 13 to 24 and beyond 24 months. Should we be reading much into that?
No, I mean, it's not a topic of concern for me and for the team. The fact that we have reduced the size of the project, what I told you, not one single project superior to CAD 1 billion price is one of the explanation of this. We are not worried, I mean, about the reload of our backlog after 24 months. From now, I know there's been a few questions about our project being canceled, our project being pushed to the right. I'm just gonna give you an example. I mean, you all know that the Deerfoot Trail project was canceled a few days ago under a P3 scheme in Calgary. This project was canceled on Wednesday.
The day after on Thursday, we received a communication from the owner telling us that they will conduct a market sounding with the three bidders. This market sounding happened the day after on Friday. We have been discussing about alternatives, about splitting scopes, about changing the contract model, about keeping maintenance or not in the same package than construction. It means that not at all. I mean, the owner has in mind to suppress or cancel the project. They have just canceled a process, and they will go on with the adequate way of contracting.
The other thing I would quickly add, Jacob, when you look at that longer backlog, which starts two years from now, it's not unusual to see that number fluctuate given that it's two years out. We have, you know, a 24-month period to replace that backlog. The other factor is, as Jean-Louis already talked about, the GO Expansion and electrification project, which will be coming into backlog over the next two years and will significantly increase that number. We're not concerned at all about that two-year plus backlog. The focus is, do we have strong backlog to execute over the next two years? As you can see, that's very much the case.
Thank you very much.
Thank you for your question. Our next question comes from the line of Chris Murray with ATB Capital Markets. Chris, your line is now open.
Yeah, thanks, folks. A couple questions. First, I guess, we saw the announcement yesterday between TC Energy and LNG Canada on Coastal GasLink, and I guess they've come to a resolution. Does that help you folks in your arbitration discussions and maybe move that project forward, and help you address some of your cost issues, at least on that one element?
Okay. I will take the answer. Yes, it helps us. I mean, TC Energy is just recognizing that this project has been going through quite a number of modifications in the conditions of its execution. They are describing this modification. They acknowledge perfectly the fact that, you know, we are in arbitration with TC Energy regarding Spread three and four, and the fact that TC Energy announced that they have reached an agreement with LNG Canada is for us evidently a good point.
Okay. No, that's helpful. And then just, you know, maybe following up on an earlier question, just in terms of the fact that you didn't take a write-down on a couple of the other LRT projects. How should we be thinking about margin profile on a go-forward basis? Should we be thinking that the, I appreciate that there's some uncertainty about this, but should we just be thinking that those should have a lower normal construction margin for the next few quarters?
Yeah. I mean, I think given the environment we're in, Chris, where, you know, we're still in an inflationary period, we're still dealing with supply chain disruptions. All of that takes some of the edge off what we would have normally expected, given the profile of our backlog, to be expanding margins. I think as we kinda look out over the balance of this year and into next year, we see margins being relatively consistent with where they've been in the equivalent quarters over the last couple of years. There's obviously that normal seasonality in the profile, but we don't think we don't expect to see margins declining, but we also think some of that expansion opportunity is probably dulled by the current environment.
Right. That's helpful. Thanks, folks. I'll turn it over.
Thank you for your question. Our next question comes from the line of Frederic Bastien with Raymond James. Your line is now open.
Good morning. Thanks, everyone. I just wanted to follow up on that last question. Just a quick follow-up on that last question. How about revenue? Are you thinking about revenue in the second half? Do you believe there's room for continued growth like you've experienced in the first half?
Yeah, I think we do. I think you know, in our comments, we try to call it out. I think the kind of thing that really underpins that is if you look at the backlog profile and certainly the backlog to be worked off over the next 12 months and the strength of that versus where it was 12 months ago. We also expect the utility business to continue to have a strong second half of the year. Yes, we do expect to continue to see revenue growth in the second half of this year. We expect that to be you know, reasonably robust growth over the second half of last year.
Okay, thanks. Can you discuss the impact that the these unfavorable margin adjustment you recorded, the risk you just highlighted and also the your ongoing working capital requirements? What's the impact that it's having on your balance sheet, and how are you thinking about the dividend and your ability to sustain the dividend?
Yeah. As I touched on earlier, the impact is certainly in terms of creating a time lag in working capital. As you know, we normally have a seasonal working capital profile, which is working capital builds through the busier quarters of the year, which are typically Q2, Q3, and into Q4, and then unwinds kind of at the end of the year and through Q1. We've seen a slightly different pattern in the first half of this year, where Q1 didn't see the normal level of unwinding. Q2 wasn't too inconsistent, but there is some lag in the system in terms of collecting on some of these areas that have been impacted by change.
I think as we go through the second half of this year, we certainly don't expect that to worsen. It will be a question of the timeliness of resolving the impacts of these changes with the respective clients as to when it unwinds. We certainly don't expect it to worsen at all over the second part of the year. When it comes to the balance sheet, obviously that's something that we've talked about a lot over the last few years in terms of the strength of the balance sheet, the importance of that to our business. Certainly, you know, when it comes to the dividend, that's been a consistent theme for a long period of time for us.
As you know, we approved the quarterly dividend yesterday and that continues to be a long-term focus for us. No concerns on that front at this point.
Thanks. I'll pass it over.
Thank you for your question. Our next question comes from the line of Benoit Poirier with Desjardins Capital Markets.
Yeah. Good morning, everyone. Just to come back.
Good morning, Benoit.
On the bidding process, obviously with this very unusual environment, you've been talking, Jean-Louis, about the inflation, COVID, supply chain issues. I'm just wondering, how does it change your bidding process? Is there any lesson learned on the upcoming bidding opportunities, and to make sure that we not read too much on the other projects here?
Yes. I mean, evidently, this is important now. The hyperinflation we are facing or the rising interest rate just make the estimation of the project more, I mean, just make it higher. The client have discovered this. This is what has happened, for example, in the Deerfoot Trail . It's not coming from the last six months. I mean, as I said in my message at the beginning, from the last three years, we have been working a lot with clients to go through much more collaborative model. This has been quite fruitful. You probably have noticed that we got a job in Buffalo Pound. I mean, a water treatment plant under the scheme. OnCorr has also been won under the scheme.
What we explain to our client is that under difficult circumstances and tough environment that everybody is facing, not only the contractors, it's better to be flexible. The fixed price way of looking at procurement mode is not the optimized one at this moment.
Okay. That's great color. Dave, this may be a question on capital allocation. In light of these four large fixed price projects, the pullback in share price we saw this morning and your leverage ratio. Just wondering if you could provide some color about whether it changed your capital allocation strategy, talking about M&A, share buyback, potential divestitures, or maybe the dividend strategy, going forward.
Yeah. I think you know, our strategy has been fairly consistent in that we are open to and have executed a number of tuck-in acquisitions and are open to M&A opportunities. I think in the current environment you know, it's really a trade-off between where values are, which can look attractive versus the inherent uncertainty in the current market. Finding the right opportunity. I think in terms of our balance sheet more broadly, I talked to the dividend already. I think outside of that, you know, the focus continues to be on maintaining a prudent solid balance sheet, which supports the working capital fluctuations that we see and supports the ongoing growth of the business.
As we've talked about, the growth has been pretty significant so far this year. We expect to see good continued organic growth going forward. That all requires a strong stable balance sheet to support performance security requirements and everything else that goes along with supporting growth. That continues to be the focus and no change in that approach.
All right. That's great, Color. Thank you very much.
Thanks so much.
Thank you for your question. Our next question comes from the line of Ian Gillies with Stifel GMP. Ian, your line is now open.
Morning, everyone.
Morning, Ian.
With respect to the convertible debenture due at the end of 2023, is there anything that precludes you within your credit facility from refinancing it using that in the event that debt capital markets may not be open or the terms might not be advantageous?
No. As with any credit facility, there are certain parameters that have to be met to do that. But I don't expect that any of those parameters would be relevant in this case. No. Essentially, we do have the capacity to do that if that's what we choose to do. Obviously, that's 18 months away and the equity market's pretty volatile right now. You know, we'll wait till we get the right window to look at a potential refinancing or take out of those converts. But that credit facility is available if needed. And, yeah, we also have the option of doing partial credit facility and partially something else.
You know, we have flexibility on how we deal with those.
Okay. That's helpful. With respect to some of the large joint ventures, as you move towards the O&M portion and the long-term contracts there, maybe starting with Eglinton, will there be an equity contribution commitment once that contract starts? If so, do you know how much that commitment would be? Did that get figured out at a later date?
Yeah. There are some exit commitments for these concessions. They're very small. You know, if you look between now and 2025, for example, in terms of the net equity investments on our Canadian concessions, it's in the ballpark of CAD 25 million between now and 2025.
Okay. That, that's very helpful. I'll turn it back over.
Thank you for your question. Our next question comes from the line of Michael Tupholme with TD Securities. Michael, your line is now open.
Thank you. My question relates to the four large fixed price legacy projects you called out as carrying heightened cost escalation risks. I'm wondering if you can tell me on an aggregate basis, what dollar amount of backlog were you carrying for those four projects at the end of the second quarter?
Across the four projects, it's roughly in the ballpark of around CAD 500 million-CAD 600 million.
Okay, perfect. As a follow on, you noted that Aecon and its JV partners continue to work toward resolution of claims for those additional costs on those projects. Can you shed a bit of light on how that process is going? How collaborative the process is on the three projects that aren't in litigation or arbitration? I know there's a lot of uncertainty, but any thoughts on timing around resolution?
Okay. What can I tell you? We have contracted to spread on this Coastal GasLink job. The first one, Spread four, we have reached before the summer mechanical completion. It just means that the job is substantially complete. We are the first contractor to have reached mechanical completion on a spread of CGL, which just shows that in terms of operational capacity of our execution, we're good. We are now at the half of Spread three. You know that in this part of Canada, the months of, I would say part of May, June, and July are delicate months. This is what we call spring freshet. You have a lot of windows that do not authorize you to work because of movement of animals or because of movement of waters.
We are coming back to the job at the moment to finish the Spread three. We are discussing collaboratively with CGL, I would say almost every day. It may be at the team level, it may be from time to time at my level. We do not agree on everything. We do not disagree on everything. I mean, it's a difficult project. It's a challenging environment. The disclosure of TC Energy yesterday has been extremely clear. This is where we are. On the other hand, we are preparing extremely thoroughly the arbitration that will take place at the end of the construction of our spread, and we are allocating our best people to work through it.
Okay, perfect. I guess in addition to that, which is very helpful, Jean-Louis, I'm wondering about the other three which the three projects that are part of this four you've called out that are not in arbitration or in litigation, which would seem to suggest there's you know, perhaps an opportunity for greater collaboration on those three. I'm wondering if you can just shed some light on how the discussions around resolving these cost issues are going on those other three.
I could tell you daily discussion at the CEO level regarding trying to find solution by discussing, by negotiating, by finding all the support documents, by being able to explain why it's a clear modification in the scope. Why is it a clear modification in the condition of execution? We have ad hoc committees and teams within those projects that also work every day to present documentation to align schedules, schedule expectations. It's extremely active on those projects and we are working with our client to try to find a solution on a win-win basis for those projects.
Great. That's very helpful. Thank you.
Mike, can I just come back to your first question? When you asked about the backlog remaining, were you asking about the three other projects excluding CGL or all four projects? I wasn't clear on. Were you asking about the three non-CGL projects or all four?
Yeah. In the case of the first question, I was simply asking about all four. I mean, however you want to, if you wanna break out CGL separately, that's fine. But just trying to get a sense of.
No, no. Yeah. Yeah, I just want. If we look at all four, it's in the range of about CAD 1.1 billion-CAD 1.2 billion of backlog, of the CAD 6.6 billion that would relate to those four.
Okay, perfect. That was the original question, so that's helpful. Thank you. What
Okay.
Maybe just to clarify then, the number you provided earlier related to what then? The five-six
The three non-CGL projects. The three new projects that we've effectively added to the disclosure this quarter.
Got it. Okay. Thank you very much.
Thank you for your question. Our next question comes from the line of Naji Baydoun with iA Capital Markets. Naji, your line is now open.
Thank you. Good morning, everyone.
Good morning, Naji.
With all the sort of uncertainties and you know, what's happening in the share price, like at what point the buybacks just become a lot more interesting?
Yeah. Well, for sure, you know, we think where the share price is and where it's been for a while now is undervalued. At the same time, you know, when I talked about the capital priorities earlier, we're in a period of strong growth. We have a focus on kind of looking at M&A opportunities. You know, we'll always kinda look at that as an option. Right now the bigger focus is on growth and maintaining the strength of the balance sheet, as we go through a period of what we think is strong potential on both the organic and M&A front.
Yeah
The focus on the dividend.
Of course. Is there maybe a specific range of stock price or free cash flow yield that at which that allocation focus will shift?
Well, for sure. I mean, if we are able to successfully resolve the impact discussions on these projects and if the share price doesn't react over the coming period to positive news, then that would be something that we'd certainly look very hard at for sure.
Okay. Okay, that's helpful. Thank you. Just one other project or question. You know, just wondering if you can give us a bit more updates on some conversations that you've been having with clients over the past few months. What is your. You know, you mentioned the Calgary project earlier, but just more broadly, what's your sense on how clients are reacting to all of this, the macro uncertainty in terms of delaying existing projects or perhaps even shelving new projects?
As I used to say, Canada is about half a million newcomers every year. You probably remember one month ago, the Deputy Prime Minister of Canada, Chrystia Freeland, just indicated that, at the end of May, they had already granted 500,000 permanent residents, which is much more in advance than what they do normally. I think that the trend is there. Those people need smart transportation. They need energy. They need smart grid. They need fiber to the home. They need good roads. They need water. Canada needs infrastructure. Our clients are prudent.
They have just realized that, you know, when we are under an inflation trend or interest rate rise trend, it's probably not the best way to procure job, to fix everything at this stage and to go for very long time contracted with operation and maintenance immediately when you begin the construction. Our clients are becoming more flexible, but the need is there, and I do not see today any project that has been bluntly canceled. It means that some from time to time, the clients take more time to adjust the contracting mode, to adjust the way they are going to organize the request for a qualification or the request for price, but I do not see projects at the moment being canceled.
I mean, the way they will be contracted is most probably a concern, or at least, I mean, an interesting point for our owners. I do not see this as a real issue for Aecon at the moment, especially given the CAD 6.6 billion we have in backlog. As I say, I mean, the quality that we have within this backlog.
Thank you for that detail.
Thank you for your question. Our next question comes from the line of Sabahat Khan with RBC. Sabahat, your line is now open.
Yeah, great. Thanks, and good morning. Just a quick follow-up to the question earlier around how much these four projects are within the backlog, and I think you indicated, I think it's about CAD 1 billion. But I guess just kind of the directional caution that you're calling out, is that related to kind of the work still to do that probably ends up happening at a higher cost than initially thought? Or should we think there's some potential risk on past recoveries as well related to those projects? Just trying to frame the exposure looking forward from here.
It's a combination of both, Sabahat. Obviously, whenever we look at a project and how it's positioned, we look at the full kind of cost to the end of the project and how much of that is covered by already agreed change and how much is still to be agreed. It looks at kind of where we are today and the impacts we've seen, plus anything we expect through to the end of the project.
Okay, great. Just one quick one on the concession side. I guess if we go back to sort of pre-pandemic, and I think the split roughly that we estimate kind of between Bermuda and the rest of the concession segment, you know, was closer to kind of call it 55-45. It seems like the JV equity accounted contribution has gotten bigger over the last couple of years. Just trying to understand, you know, are your non-Bermuda concessions just becoming kind of bigger contributors to that segment? Then when Bermuda comes back, can we expect just that entire concession segment to be a bigger contributor? Like, are we misreading that, or has kind of non-Bermuda concessions kind of started to contribute more over the last couple of years?
Obviously, you know, Bermuda continues to recover, and we do expect results from Bermuda to continue to strengthen as air traffic gets back to normal. As I said, in Q2, we operated close to 60% of pre-pandemic levels. So far through the month of July, we're operating at around 63%, so the trend continues to move upwards, and we expect that trend to continue. That will certainly increase Bermuda results over time.
I think the non-Bermuda concessions obviously primarily still in construction, but the concessionaire, which Aecon has a stake in, they generate management fees during construction, you know, because they're effectively on behalf of the client managing the construction, the financing, and ultimately the transition into either operations and maintenance or just maintenance. Those management fees have grown over the last couple of years as we've had more of these concessions in kind of the peak construction phase. When the concessions open, those management fees really transition into instead of management fees for construction oversight and management into management fees for managing the operations and maintenance. That's why it's kind of grown over the last few years.
We expect it to stabilize and be fairly consistent over the next few years as they transition into operations.
Great. Thanks so much for that call.
Thank you for your question. There are currently no more questions registered in the queue, so I will pass the call back to our management team for closing remarks. Thank you.
Thanks very much, Porum, and everyone for your participation today. As always, feel free to follow up with any questions to the IR team here, and we wish you a good weekend and good balance of the summer. We will see you on the next call. Thanks.
This concludes today's conference call. Thank you for your participation. You may now disconnect your line.