Good morning. Thank you for attending today's Q3 2022 Aecon Group Incorporated earnings call. My name is Elliot, and I'll be your moderator for today's call. If you would like to register a question during the presentation, you may do so by pressing star followed by 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, Elliot. Good morning, everyone, and thanks for participating in our third quarter 2022 results conference call. This is Adam Borgatti speaking, and 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, and we ask that analysts keep to one question before getting back into the queue to ensure others have the 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 David.
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 third quarter of CAD 1.3 billion was CAD 157 million or 14% higher compared to last year. Adjusted EBITDA of CAD 93 million, a margin of 7% was CAD 3 million lower compared to reported adjusted EBITDA in Q3 last year. However, adjusting for the impact of the Canada Emergency Wage Subsidy, or CEWS program of CAD 7 million included in the third quarter of 2021, adjusted EBITDA this quarter increased by CAD 5 million or 5% compared to last year.
Diluted earnings per share of CAD 0.45 in the quarter compared to diluted earnings per share in the same period last year of CAD 0.56 or CAD 0.48 after adjusting for the impact of CEWS. Reported backlog of CAD 6.3 billion increased by CAD 232 million compared to CAD 6 billion a year ago. The new awards continue to be strong at CAD 991 million in the quarter and CAD 4.8 billion over the last twelve months. Now looking at results by segment. Turning to slide four. Construction revenue of CAD 1.3 billion in the quarter was CAD 156 million or 14% higher than the same period last year.
Revenue was higher in civil operations, driven by an increase in both major projects and road building work, in utilities operations due to an increase in telecommunications and electrical transmission work, and in nuclear operations, driven by a higher volume of refurbishment work in Ontario. Partially offsetting these increases with lower revenue in industrial operations, driven primarily by decreased activity on mainline pipeline work in Western Canada and in urban transportation solutions from a decrease in LRT work in Ontario. Adjusted EBITDA in the construction segment of CAD 82 million, a margin of 6.3%, compared to CAD 82 million, a margin of 7.2% in Q3 last year.
After adjusting for the net impact of CEWS in the third quarter of last year, adjusted EBITDA increased by CAD 7 million, driven by an increase in gross profit due to increased revenue, as well as lower MG&A costs, partially offset by lower gross profit margin, primarily from pipeline activity in industrial operations. New contract awards of CAD 966 million in the third quarter, compared to CAD 657 million in the same period in 2021, and new awards of CAD 4.7 billion over the last twelve months, compared to CAD 3.3 billion in the prior twelve-month period. Backlog at the end of the quarter of CAD 6.2 billion was CAD 214 million higher than backlog at the same time last year.
Turning to slide five. Concessions revenue for the third quarter was CAD 22 million, unchanged compared to the same period last year. Commercial flight operations in Bermuda continue to operate at a reduced volume due to COVID-19. They are recovering from the more severe impacts experienced in 2020 and 2021, and averaged 63% in Q3 compared to pre-pandemic levels. Adjusted EBITDA in the concession segment of CAD 21 million was broadly in line with the same period last year. 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 210 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 end of 2023, except equipment and property loans and leases in the normal course. As of September 30th, 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 address the four largest fixed-price legacy projects laid out in our Q3 disclosure documents. As a reminder, those 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 which the joint venture 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. Aecon and our partners continue to work vigorously toward resolution of compensation for those impacts with the respective owners of those projects. We are fully focused on pursuing all avenues for adequate and timely compensation with the objective to reach fair and reasonable settlement agreements and to move forward towards project completion in each case.
As I noted on our last quarterly call, our industry has been working hard to develop a model that properly addresses the challenges and needs of all stakeholders. 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, is a welcome evolution designed to benefit all stakeholders, and the first phase of the two-year joint development phase is advancing quite well. Turning 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 19% and higher new project awards of 42%.
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 backlog of CAD 6.3 billion and recurring revenue programs continuing to see robust demand driven by the utility sector and ongoing recovery in airport traffic in Bermuda, Aecon is confident in strong revenue growth over the next few years. The fixed price share of backlog at September 30th, 2022 was 58% versus 68% fixed price share at the same time last year. As a reminder, the GO Rail Expansion On-Corridor Works project is not yet reflected in backlog.
Aecon is also pre-qualified on a number of project bids due to be awarded during the next 12 months and have a strong pipeline of opportunities to further add to backlog over time. Trailing 12 months recurring revenue was up 18% versus the prior period, and up 65% 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. The fixed price share of trailing 12 months total revenue was 51% versus 59% fixed price share in the prior period, demonstrating ongoing progress in balancing our activities.
Turning to slide 10. Aecon released its inaugural reconciliation action plan, reaffirming its commitment to seek meaningful ways to engage in reconciliation by working in unison with Indigenous people. Support our ESG strategy. Aecon Sustainability Solutions was established as a collaborative business model to provide a single point of entry to Aecon's diverse capabilities as we advise and work with clients in reaching their sustainability and energy transition goals. To engage our employees in our sustainability journey, we continue to grow our green home energy business through a residential solar pilot program for Aecon employees in select markets, further demonstrating the importance of sustainability at Aecon.
Turning to slide 11. 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 Airport during the balance of 2022 and through 2023, there are a number of opportunities to add to the existing portfolio of Canadian and international concessions in the next 12 months-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 will now turn the call over to analysts for questions.
Thank you. If you would like to ask a question, please press star followed by one on your telephone keypad now. If you change your mind, please press star followed by two. When preparing to ask your question, please ensure your device is unmuted locally. Our first question comes from Yuri Lynk from Canaccord. Your line is open.
Good morning, gentlemen.
Morning.
Morning. Wondering how you would characterize how you feel in your position on the four contracts compared to a few months ago? Do you feel more comfortable in the position? It seems like a lot of inflation pressures have kind of looks like they've topped out, starting to perhaps come the other way. I think labor availability has been better. Just broadly, how do you feel and can you give us an update on when these are going to complete?
There's nothing is really changing on those four legacy projects from our Q2 disclosure. There is a clear entitlement on those four projects regarding the modification in the condition of execution of our contract. We have allocated to those projects extremely professional teams. I mean, internally and externally, we are vigorously pursuing it, fair and reasonable compensation. The works are proceeding forward and this is where we are at the moment. As you have seen, I mean, the rest of Aecon activity, which is more than 80% of the backlog, is very robust, balanced and resilient.
An update on the timing of each of the four projects and when they might complete.
It varies by project, but essentially, one of them should be complete kinda by the middle of next year, one by the end of next year, another one into early 2024 and another one into 2025.
Okay. That's helpful. I'll turn it over there. Thanks.
Our next question comes from Jacob Bout from CIBC. Your line is open.
Good morning. Given the increasing likelihood of a recession in 2023, maybe just comment on changes that you're seeing in customer behavior, you know, whether it's reworking of existing projects or, you know, kind of rescope or, and then maybe talk about any project cancellations?
Yeah, Jacob, as I told, I mean, during last quarter, I've not heard any of our clients pronouncing the word recession. In terms of infrastructure, I mean, the two drivers are demography and financial capacity. Canada has both of them. I mean, Canada is about more than half a million newcomers every year. Those newcomers need infrastructure. They need new roads, new bridges, new transportation modes, clear water, energy. This is all what is Aecon about. In addition to financial capacity is here, I mean, Canada is a rich country, in terms of energy, in terms of crops, I mean, in terms of potash, in terms of rare metals. There's no recession, and nobody's talking about recession in the infrastructure segment at the moment.
We have not seen really anything abnormal in the pipeline of project, and we have not seen any cancellation of project except the Deerfoot design, build, finance and maintain one that will be immediately retender under a different contracting mode.
How about any delays or potential delays in projects, as the project is re-scoped due to, you know, higher costs due to inflation?
It's not really the case. I mean, the inflation and even the hyperinflation, the disturbances on the supply chain are just stabilizing in front of what we could see, I mean, during the last 10 months. It means that we have been negotiating with our clients when it was necessary, eventual extension of time. For the rest, all our works are progressing well and in accordance with the contractual schedule.
Thank you. I'll leave it there.
Our next question comes from Frederic Bastien from Raymond James. Your line is open.
Good morning, gentlemen. I wanted to have better color on the contract that you announced in the U.S. for the Savannah nuclear plant and the decommissioning, how it came about, and whether there's opportunities for you to do more work in the U.S. on the nuclear side, because that's quite encouraging.
Yes, Frederic, it's quite encouraging. It's Savannah River Plant. We acquired a contract of around $100 million about dismantling of a nuclear building and provisional ventilation of the same building. It's very important for a few reasons. I mean, the first one, you remember that we acquired Works at the end of 2018. At this moment, Works was a specialized welding company. We have been extremely happy with this acquisition because it allows us to ramp up our capabilities on the major component refurbishment program in Canada. We have gradually ramped up the capacity of Aecon Works, because it is the name now, to become a project company. The U.S. is very important in terms of nuclear. This is by far the most important fleet of reactors in the world.
The rehabilitation and refurbishment program had been quite slowed down during the COVID period to protect the operation of the same reactors, but now it's coming back on the market, and it's coming back with project, I would say, of very interesting size between $50 million and $300 million. We will ramp up with this project and we are very happy with this first, I would say, nuclear integrated job that we acquired in U.S.
On that note, can you discuss or talk about the risks that are associated with that particular job and the margin profile?
No undue risk on those jobs. Those are very long job with a very long preparation period. This is what we like. There is no special risk element that we cannot tackle on those jobs. In addition, I mean, this job is, I would say, a few kilometers from our Aecon Works head office, and all our labor capacity can be dedicated without any issue on this one.
Margin potential?
It's very similar to nuclear work, generally. Nothing particularly different to work we do typically in the nuclear sector.
Thank you both. I'll pass it over. Thanks.
We now turn to Chris Murray from ATB Capital Markets. Your line is open.
Thanks, folks. Can we just turn back, maybe talking a little bit about Coastal GasLink for a second? Certainly it looks like, you know, the two spreads you're on, their commentary anyway suggests that you're done with one spread, and into another. You also mentioned in your disclosure, that they had actually countersued in the quarter, around some issues. I guess what I'm trying to figure out is, you know, is there any way that, or what's the timing like for finishing up the remaining spread? Does this new lawsuit complicate the completion of that or change the timing in any way?
I'm gonna take this one. Effectively we have two contracts for Spread 3 and Spread 4 and a tying agreement between both. Spread 4 has been mechanically completed, and it's interesting to note that we were the first spread to be mechanically completed mid-2022. Regarding the comment on the counterclaim, I mean, there's nothing, absolutely nothing special like I would say in any formal dispute process. This arbitration has a procedural timetable that is setting out deadlines for both parties to take certain steps. I mean, CGL had a deadline to make a counterclaim. They met it. We have the same one and we meet our deadline. There's nothing- We are now exclusively working on Spread 3, expecting a mechanical completion before the end of the year 2023.
Okay. That's helpful. Thank you, folks.
Our next question comes from Michael Tupholme from TD Securities. Your line is open.
Thanks. Good morning.
Morning.
Good morning. Just wanna go back, maybe build off some of the questions that you received from Jacob. I guess what I'm really wondering is, as we approach the end of 2022, if you can provide any early thoughts around how you see overall company revenue evolving in 2023 versus this year. This is with your comments around customer behavior and thought process doesn't seem to have changed much.
No, exactly. I mean, Ara will talk about expecting good revenue growth over the next few years, and I think that's unchanged. You know, Jacob's question specifically about recession. You know, I'd remind you that in the last two downturns we've seen, or major downturns we've seen, kind of 2008, 2009, the financial crisis and then through COVID, governments have seen infrastructure investment as vital to the economy. Stimulus has been a big part of their approach. We're not seeing anything slow down in the pipeline.
If you look at our kind of next 12-month backlog, significantly higher than it was 12 months ago, some of the strength in our new awards over the last 12 months, and the strength of the pipeline, you know, I think we expect revenue progression to continue to be pretty healthy over the next few years. Certainly this year to date, we're up 19%. We don't expect to continue at that kind of rate. Still, something solidly in the kinda higher single digits range going forward.
Okay. That's very helpful, Dave. Thank you. Then just to follow on, you've talked for some time now about targeting margin improvement over time. There's not really been sort of a, what I would characterize as a typical year in the last few years. There's been a lot of noise with CEWS and some of the other things going on. I guess if we think about the margin potential, what's embedded in the backlog, what you see in terms of the opportunities and the projects that you're pursuing, can you talk a little bit about the ability to drive margin improvement over the shorter term? Again, recognizing that it is a longer term objective, but what are we thinking about here in the next 12 to 18 months?
Yeah. I think all else being equal, you know, Jean-Louis said things have stabilized to some extent in terms of supply chain and inflation. Barring any further evolution negatively in those kind of trends, we do think the backlog profile supports the ability to expand margins. Clearly, as we close out the four legacy projects, we're obviously booking those projects very conservatively, which is a drag on margins, as we've seen over the course of the last few quarters, and I talked about a timeline to complete those. That will continue to be something we work on over the course of completing those projects.
Outside of that, the rest of the backlog, which is, you know, 80%+ of the backlog, is very healthy. The bidding environment has been one where we feel margins have been improving and the ability to put good teams on the right projects and execute well. We should see margins certainly improving as we execute on that backlog.
Okay. Great. Thank you.
Our next question comes from Benoit Poirier, from Desjardins Securities. Your line is open.
Yeah. Good morning, everyone. Just with respect to Bermuda concession, you identified, you highlighted in the report that you've been dealing with higher operating costs in the quarter. I was just wondering if you could provide more color, what is the main driver, whether it's temporary or should it change the kind of margin profile at longer term?
Yeah. What you've seen versus the same quarter a year ago is obviously much higher volume than we were seeing through the airport back in Q3 2021. Obviously, that means we have to ramp back up in terms of staffing at the airport and the ability to deal with a greater passenger and flight volume, so that increases the cost. You don't see the same step up in the revenue because as you recall, we have a minimum revenue guarantee that kicks in once we go below a certain level of traffic. 2021, the revenue was supported by the revenue guarantee, but we didn't have the same kind of operating costs we have now.
As we move past the kind of mid-60% range, which is where we were operating through Q3, then we'll start to see that incremental revenue, and that will obviously more than offset the the normal cost base for for the airport. We're kind of right in that transition period now where we're crossing that minimum revenue guarantee threshold. As revenue increases then, we should see profitability from Bermuda improving commensurately.
Okay. That's great. For concession, you mentioned that there's opportunity in Canada International to add some projects over the next 12-24 months. Could you maybe provide more color about the size of those opportunities, but also the capital required to size those opportunities?
Yes, Benoit. I will take on this one. We would be delighted to be able to duplicate those G2G operation like Bermuda, and we are working on a few ones. This is what we have in mind about international opportunities. We had quite an interesting knowledge on those kind of contracts. On the other hand, in Canada, aside from the I would say the infrastructure P3 type, which is rather going down, energy transition, I mean, is a topic at the moment. More private clients, it's about battery storage, it's about pump storage, it's about all those kind of jobs. We are pursuing a few prospects that seem to us quite interesting. Regarding capital needs, maybe David, you can add a few words.
Yeah. I think nothing particularly out of the ordinary. Obviously, as we've seen historically, anything on the concession side has been fairly capital friendly in terms of the size of equity investments are relatively small in terms of the overall funding of the projects. They go in at the end of construction, typically. You're able to make your construction profit to fund any equity requirements. Nothing particularly out of the ordinary expected on that front.
Okay. That's great color. Related to the four legacy projects that you provide color on, you mentioned color about the timing. I was just curious whether you would disclose whether there was any negative impact on the EBITDA coming from those four projects in the quarter?
Yeah. I think, you know, we called out obviously that we had a lower gross profit margin in our industrial group, primarily from pipeline activity. You know, I think that's an indicator. Obviously, you know, we talked about the CGL project. Outside of that, nothing material to call out.
Okay. That's great. Last one for me. In light of the current market environment, higher interest rate environment, valuation right now, how does it impact your capital deployment strategy, and more specifically on the M&A and with respect to your dividend policy?
Yeah. I think from an M&A perspective, obviously, we've been active over a number of years with small tuck-in acquisitions. I think we talked a lot about the diversity and balance in our business. I think we're very happy with how we're positioned today around all the growth segments of the market. I think organically, we've talked about our ability to slowly but surely expand into the U.S. and certain select international opportunities. There's really nothing driving us on the M&A front right now that we feel we really need. Our focus is on continuing to be able to grow the business, which requires obviously performance security and a healthy balance sheet.
That's the focus.
Okay. Thank you very much for the time.
We now turn to Naji Baydoun from iA Capital Markets. Your line is open.
Hi, good morning. Just had a couple of questions. Wanted to go back to the topic of margins. I think you've had sort of several quarters now back to back grappling with issues that the industry is dealing with. I'm just wondering, when you look at, I guess, the next few quarters or the next year, where you think margins should kind of normalize or bottom out, you know, barring no incremental major issues from the legacy projects.
Yeah. Obviously we don't give specific margin guidance, particularly on a quarter-to-quarter basis. You know, I think if you look at the trend through the first three quarters of this year, excluding the one write-down we called out in Q2, you've seen a trend where higher revenue than the previous year has been offset a little bit by lower margin. We expect that trend probably to not be dissimilar in the next few quarters. We do think as we go through 2023 and into 2024, relative margins should be improving. You know, I talked to that earlier in terms of the backlog and what we see in terms of bidding environment.
Maybe Jean-Louis, you have some additional comments.
Yes. I have a few, and I think they are important. It's about discipline and new contracting mode. You probably remember from, I've arrived at this job in mid-2018, and I immediately spoke with you about those fixed price job and the fact that we have to be extremely careful. The first decision from this time was not to take any job superior to CAD 1 billion under a fixed price job. You have seen that when we say something, we do it. I mean, in the backlog, I mean, the fixed price portion of the backlog has gone down from 68% to 58%, at the end of Q3 2022. The revenue, I mean, the trailing twelve months on fixed price has gone down from 59% to 51%.
It's very important because it gives a much better predictability of our margin in the future. Here we come to what we have been commenting about the new contracting mode, what we call this progressive system, Progressive Design-Build, where we are selected on the robustness of our capacity, our schedule, of our methodology of work, our group of company. We enter, once we have been awarded in a development phase, that may be 18 months, that may be 24 months. Only at the end of this development phase, we fix with our client the scope, we fix the schedule, we fix the price.
You have noticed that under this mode, we have been awarded the GO Transit, that means the multi-billion job in Toronto. We are under discussion and negotiation with OPG about the small modular reactor, same kind of contract. We would be extremely happy if at the end of the process, Metrolinx and IO could award us the Scarborough station and system jobs. What is sure is that the new Aecon, the new profile of Aecon is now firmly set up, and it's going to be much more predictable. At the top, we will only acquire or maintain size through major de-risk project, as much as we can under the One Aecon hat, to be able to use all the capacities of our company. This is the new model of collaborative, progressive, procurement mode.
At the other end of our activity, I would say, will be the recurrent non-fixed project, mainly through utilities. You probably notice that once again, we have increased in our activity, in our backlog, the recurring revenue. It's very important for us. In between, we have these mid-sized projects where we work a lot on professionalism, on risk management, and where we can, each time that we are well centered within our core competency, I mean, we can acquire this new job. This is the new Aecon. This is the Aecon of tomorrow, and this will give much more predictability to our activity and to the margin associated with our activity.
Thank you for that. That's really great detail. No doubt a lot of progress has been made and you're trending in the right direction, despite maybe the near-term challenges. I guess, you know, on the topic of the new Aecon, you know, then ask question about capital allocation dividends. Maybe just if you can give us a bit more of a detailed sort of update, just given where the valuation is of the stock, are dividends still a priority? How do you feel about your leverage profile? Do you think you need to be doing something differently to try to maybe get the stock price a bit more stabilized or higher?
I think in the current environment, actually the key is execution. That's obviously what we're totally focused on. You know, I think clearly equity markets more broadly are challenged by a wide variety of factors right now that are outside of our control. You know, what we can control is continuing to add good projects to backlog and executing on those projects as effectively as possible. That's the focus. You know, I said earlier our focus from a capital allocation is to support that ongoing organic growth potential that we see as being very strong in the current environment.
As far as dividends, you know, obviously that's been a long-term feature of our business and nothing new to report on that front.
Okay. The focus remains on organic growth first, maybe some tuck-in acquisitions, but, you know, you don't feel the need to change your sort of dividend policy or kind of pause to just given where the I guess the leverage is or what you expect going forward?
Yeah, as I said, nothing new to report on that front. When we do, then obviously we'll report that to everyone at the same time if we were ever to change policy. But there's no change in policy. Nothing really to say.
Okay. Thank you.
Our next question comes from Maxim Sytchev from National Bank Financial. Your line is open.
Hi. Good morning, gentlemen.
Morning, Max.
Morning.
David, I just wanted to circle back on the balance sheet. I guess, I mean, one of the reasons why, you know, leverage is 3 x is due to working capital. Can you provide maybe your views on, one, the working capital in the difficult project is gonna be freed up and I guess your confidence around, you know, that dynamic?
Yeah. You know, I think if you look at Q3 specifically, you know, I don't think Q3 was nothing particularly different about the profile of the working capital build in Q3 this year versus Q3 in any other year, given the seasonality and the increase in revenue, which was 14% up versus the same quarter a year ago. Nothing really unusual in this quarter. Obviously, in prior quarters we've had a buildup tied into the things we've talked about already on the legacy projects. We don't necessarily expect that to worsen in terms of when that starts to unwind. That's really kind of what we're focused on negotiating right now with across all four projects.
You know, I don't think it will necessarily be something that happens immediately. It's gonna be at different times on different projects. It could be something that leads to overall elevated working capital as we go through 2023, but not necessarily worsening the situation as we go through 2023.
Okay. I guess we should not expect sort of the seasonal free up that we typically see in Q4, right? Because of that dynamic.
Well, you will on everything else in our backlog, you know, 80% of our backlog is proceeding as normal, and so you'll see the seasonal impact from everything else that we undertake. Obviously on those four projects, it's subject to the outcome of all the negotiations that are ongoing.
All right. Then in terms of, I think in the past we discussed, your plans around the convertible debentures and so forth. In terms of kind of, you know, the ability to use your, you know, credit facility, and so forth, do you mind me just providing some goalposts in terms of like what needs to happen, in terms of, you know, how you think about 2023 maturity for this debt instrument?
Yeah. Obviously, as we head towards the end of this year, January first is when we can begin to redeem the convertible debentures at par. That window is open throughout 2023. We obviously expect market conditions to be conducive to a refinancing opportunity, as we go through the next 14 months or so. We'll take advantage of that. To the extent we want to do some of the redemption through drawing on the credit facility, we have the capacity to do that too. It could be a mix of approaches. It could be a partial refinancing and a partial use of the credit facility. We'll continue to assess that as we move forward.
Okay. That's it for me. Thank you so much.
Our next question comes from Ian Gillies from Stifel. Your line is open.
Morning, everyone.
Could you, is there any chance you could provide a bit of an update on the health of, like, the general health of the subcontractors you're using, the availability of that group, whether you're seeing any significant changes just given what's transpired with inflation and probably what's happening with that group of people, given the importance to your business?
Yes. In obviously I would say the last quarter of 2021 and the first quarter of 2022 has been very difficult for the supply chain. That has been caught by surprise thinking that at the end of the COVID life will become immediately as normal, and it did not. It means that we had very strong pressure, what we call the hyperinflation issues in China. Then at the beginning of 2022, we had a lot of strikes, I mean, especially in Ontario. This being said, we can see that most of them are now operating quite normally, and we are not that much worried about our supply chain.
You probably also remember that Aecon has a lot of boots on the ground. It means that we are self-performing quite an important part of our scope of work, and this has been extremely helpful during the crisis, because we had not this level of shortages that some other company could face.
Okay. That, that's helpful. Then the other thing I wanted to ask on was On-Corridor. You're obviously in the two-year development phase, and with the sharp changes in a variety of commodity prices and just input costs, has there been any change in timeframe of when that project may start to get added to the backlog? Or can you provide an updated timeframe of when we may start to see it?
No. Nothing special. I mean, the development phase is a two-year one, so we are full in it at the moment. We are working with Metrolinx intimately to decide not only the scope, the schedule, and the price, but the phasing. There's a lot to do. It is linked at the end of the day with the train program in between with the operation. So it's quite, I would say, a comprehensive development phase. We do not see any issue. We are still expecting that we could have some early works beginning to be executed during the year 2023, and we are working on those bundles of early work.
I mean, nothing, I would say, nothing special in front of the type of procurement under which we have been awarded.
Okay. That's very helpful. Thanks very much. I'll turn it back over.
This concludes our Q&A, and I'll hand over to Adam Borgatti for final remarks.
Very good. Thank you, Elliot, and appreciate everyone's time today. Feel free to follow up at any point for other questions to us and have a great rest of your day. We'll speak with you at the next quarterly call. Take care.
Today's call is now concluded. We'd like to thank you for your participation. You may now disconnect your lines.