Hello, and a warm welcome to today's Aecon Group Q1 2021 Earnings Conference Call. My name is Melissa, and I'll be your operator. If you would like to ask a question at all during today's call, that will be star followed by one on your telephone keypads, star followed by two if you change your mind. I now have the pleasure of handing over to our host today, Adam Borgatti, to begin. Adam, over to you.
Thank you, Melissa. Good morning, everyone, and thanks for participating in our Q1 2021 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 and a follow-up before getting back into the queue. As noted on slide 2 of the presentation, listeners are reminded that the information we are sharing with you today includes forward-looking statements. These statements are based on assumptions that are subject to significant risks and uncertainties.
While Aecon believes that these expectations reflected in these statements are reasonable, we can give no assurance that these expectations will prove to be correct. I will now turn the call over to Dave.
Thanks, Adam, and good morning, everyone. I'll start by summarizing 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 the Q1 of CAD 1.2 billion was CAD 124 million or 12% higher compared to Q3 last year. Adjusted EBITDA for the Q1 of CAD 96 million, a margin of 8.2%, was CAD 42 million lower compared to reported adjusted EBITDA in Q3 last year of CAD 137 million. However, adjusting for the impact of the Canada Emergency Wage Subsidy or CEWS program of CAD 69 million included in the Q1 of 2020, adjusted EBITDA this quarter increased by CAD 27 million or 40% compared to last year.
Diluted earnings per share of CAD 0.56 in the quarter was CAD 0.43 lower compared to diluted EPS of CAD 0.99 in the same period last year. After adjusting for the impact of CEWS last year, diluted EPS this quarter increased by CAD 0.23 compared to Q3 2020. New awards in the quarter of CAD 682 million compares to CAD 448 million in Q3 2020, and backlog of CAD 6 billion compares to backlog of CAD 6.7 billion a year earlier. Now turning to results by segment.
As noted on slide four, construction revenue of CAD 1.1 billion in the Q1 was CAD 108 million or 10% higher than the same period last year, driven by nuclear refurbishment work in Ontario, oil and gas distribution and telecommunications work in the utility sector, and a higher volume of work at gas and chemical facilities, partially offset by less activity on mainline pipeline work in industrial operations. Adjusted EBITDA from construction of CAD 82 million, a margin of 7.2%, increased by CAD 20 million when adjusting for CEWS recorded in Q3 last year due to higher volume and gross profit margin in nuclear and utilities, partially offset by lower volume from civil operations and urban transportation systems.
New contract awards of CAD 657 million in the Q1 compared to CAD 439 million in the same period last year, primarily driven by strong demand across Canada in smaller and medium-sized projects. Turning to slide five. Concession revenue for the Q1 of CAD 22 million was CAD 13 million higher 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 compared to pre-pandemic levels, but are gradually recovering from the more severe impacts experienced in 2020. Adjusted EBITDA in the concession segment of CAD 22 million is CAD 14 million higher than last year, driven by improving revenue in Bermuda. Turning to slide six.
At the end of Q3, Aecon had a committed revolving credit facility of CAD 600 million, of which CAD 50 million was drawn and CAD 8 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 at 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 update on the Coastal GasLink pipeline project laid out in our disclosure document. This project has been delayed and impacted by events clearly beyond SA Energy's control and for which Coastal GasLink is contractually responsible.
We are frustrated by CGL not appropriately administering its change management process and its decision to stop paying amounts it had previously agreed to pay on an interim basis, pending agreement on the quantification of those changes. I want to stress SA Energy has strong contractual entitlement to additional compensation that CGL is not addressing on a timely basis. We were left with little choice but to commence an arbitration pursuant to the terms of the contract to resolve the matter. We are also continuing to engage in an ongoing dialogue with CGL to reach an amicable resolution that addresses SA Energy's cash flow requirements. As you will appreciate, given we are still in negotiation and an active arbitration process, we are somewhat limited as to the amount of detail we can go into.
We are certainly hopeful a resolution can be found quickly so that we can complete our work on this important project for the benefit of all stakeholders. Turning to slide seven. Despite the ongoing impacts of COVID-19 on Aecon's operations, we continue to deliver solid results in the quarter. Aecon's balanced and diversified portfolio and agile culture continue to be significant strengths and are well-suited to the market opportunities across Canada today. The construction segment is aligned to the significant infrastructure investment commitments by all levels of government across Canada, 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 the P3 model, and is also targeting innovative development and private finance opportunities in industrial, power, clean tech and other related markets, as well as participating as a concessionaire on the five P3 projects identified on the slide. Turning now to slide 8. Backlog, recurring revenue programs and the pipeline of bidding opportunities for new work remain at strong levels across Canada. Through the first nine months of 2021, new awards of CAD 2.4 billion were similar to the same period last year, and resulted from steady demand for Aecon services across Canada in smaller and medium-sized projects, and also incorporated a number of multi-year projects in the nuclear, civil, urban transportation and industrial sectors.
Aecon is also pre-qualified on a number of large project pieces due to be awarded over the next 2 years. Despite certain projects being delayed in the short term, we expect demand for our services to remain healthy for the foreseeable future as the federal government and provincial governments across Canada are identifying investment in infrastructure as a key source of stimulus as part of economic recovery plans. Trailing 12 months recurring revenue was up 40% versus the prior period, primarily from growth in utilities operation. Recurring revenue is expected to continue to grow based on the capital investment plans of a number of key clients, particularly the telecommunications and power sectors, as well as from the recovery of aviation traffic at the Bermuda International Airport. Turning to slide 9.
We are continuing our drive to be an industry leader in sustainability as we undertake initiatives to harness innovation, reduce emissions, boost efficiency and improve business performance. An ongoing focus of our sustainability program is to pilot new technologies to reduce emissions on our construction sites and in our facilities. We recently became the first construction company in Canada to trial an electric excavator. While this may seem small in itself, it's another step in being a leader in sustainable operations in the construction space and working with innovative partners to deliver on our environmental commitments. We are also currently undergoing trials to utilize solar energy to replace construction equipment like fossil fuel generators, light towers, road signs, as well as to power our training and innovation center in Ontario. Turning to Slide 10.
The trends that I've spoken to already in terms of the strength of the construction market in Canada, both in the public and private sector, continue to be positive and well-aligned to Aecon's diversified construction segment. In the concession segment, an increase in vaccination rates and the easing of travel restrictions during the year have provided signs of a rebound from very low levels in passenger traffic for the aviation industry. This is expected to lead to a corresponding ongoing gradual improvement in travelers to the Bermuda Airport during the remainder of the year and into 2022. Thank you. We 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.
Our first question today comes from Frederic Bastien of Raymond James. Frederic, over to you.
Good morning, guys. I know you're limited in the comments you can make around the Coastal GasLink arbitration process. Is the situation that is being experienced replicated with other contractors that are working like on other sections of the pipeline?
Okay. I mean, indeed we can speak about our works, not that much about the works of others. In the total Coastal GasLink pipeline, there are 8 spreads. We have been awarded 2 spreads early 2018. What is interesting to understand is that building a pipeline has to be a very organized machine. I mean, it's a phased activity beginning with clearing and deforesting, then getting the right of way to enter heavy equipment, then grading its right of way, then ditching, then treating the pipe along the way, then welding elements of pipes, then laying the pipe within the trench, then backfilling the trench, then hydrotesting the pipe, and then at the end, cleaning up. Everything has to be organized like clockwork, I mean, if you want to reach productivity.
What happened on our two spreads is that we have encountered heavy modification in the condition of execution of our works. It's about right-of-way delivery. It's about geotechnical condition. It's about new and extremely stringent constraint in terms of erosion and sedimentation control. It's about adverse weather. It's about COVID. At the end of the day, what happened is that when we have studied and given our offer to execute 2 times 100 km, we are now executing 100 times 2 km. In front of those modifications, Coastal GasLink issued a change directive, in fact acknowledging the change. The problem now is to go from the modification in the condition of execution to the modification in the condition of payment.
First, in terms of quantum, about the compensation for the modification, and then time of payment. What you have probably noted is that the real issue is a cash flow stress regarding SA Energy. I just mean that if RVS, with our partner, puts out, as they are saying, they will do, within the Q1 of 2022, we might not be able to complete the project within the parameters of our current capital structure. We have entered in an arbitration process with CGL. We are also actively discussing, and we are also negotiating with, CGL. All this is a work in progress. This is what we can say at this stage.
Jean-Louis Servranckx, given that it's a tight labor market out there and you're seeing. I mean, we're all seeing natural gas prices spike, it would be in everyone's best interest to get that thing sorted out as quickly as possible. That's. I'm not trying to put stuff in your mouth, but that's kind of what my takeaway would be here.
You're totally right, Frédéric. Time is of the essence for Coastal GasLink. I mean, maybe-
Okay. Just quickly switching gear on the nuclear side. We saw a nice lift in the revenue and then obviously that's probably driven a lot of the profitability improvement we saw year-over-year. Can you give us a sense of where in terms of level of activity the Darlington and the Bruce Power projects are at? Are you guys going full steam ahead on those in the quarter? Or were you kind of ramping up to a certain level of activity?
Yes. I mean, during the year 2019 and 2020, we were working on only one reactor at Darlington and preparing the Bruce Power reactor number 6. Now we are working at the same time on reactor number six at Bruce and number three at Darlington. It means that we have two reactors at the same moment in full, I would say, full steam ahead in terms of refurbishment. In addition, we are working on the steam generator of the first unit of Bruce. A little later, I mean, in 2022, we may also work on a third unit at the same time. We are still growing. And we are extremely happy with the pace of the work.
We are extremely happy with the learning curve we have been able to develop. I would say cross-fertilizing our experiences with OPG and Bruce Power. This is what expect.
Can we think about these two businesses or these two particular projects as, you know, ongoing or will we see some seasonality like we normally see with Aecon's construction business?
Not that much. When you work on the refurbishment of a reactor, you are within a nuclear power plant. I mean, you are not subject to inclement weather or temperature. This being said, all those work are phased with preparation phase and our refurbishment phase. Then you remember that the utilities have a phase to bring back those reactors to the grid. It just means all these follow a very specific and a very strict organized schedule that we do not control.
Okay, thanks. There's no real seasonality in the business. It's just depending on timing of these.
No.
These projects being approved and going ahead. Okay. I have 10 minutes over.
Okay, thank you, Frédéric. We'll now move on to our next question, which will be from Michael Tupholme of TD Securities. Michael, over to you.
Thank you. Good morning. Supply chain issues have been an area of focus for many companies recently. Have you had any difficulty procuring building materials or other components for use on your job sites thus far? Or do you see any risks on that front going forward? And if this is an area of concern, how do you see such issues affecting scheduling and productivity on your job sites?
We didn't see disturbances of the supply chain due to COVID, which is a challenge, and we're working on it. As you know, one of the beauty and the strengths of Aecon is being able to work on a very diversified portfolios of projects in terms of size, in terms of timing and I mean, when we have a short lead time to procure, when on major projects, we have quite a long lead time to procure. This being said, it's evident that the fact that Aecon kept a real capacity to self-perform is just giving us a much better control of labor, of schedule and our budget, and we are quite happy about it.
Okay. That's helpful, Jean-Louis. I guess maybe more specifically, though, on I appreciate your comments about self-perform and labor availability. More specifically on the availability of materials and components you need to complete and move forward your projects. Are there any issues on that front that you're concerned about?
The market is moving. For example, I mean, last month it was more difficult than in normal times to be able to get hydraulic valves or to be able to get tubes. It could be polyethylene or it could be only coated metallic tubes. It comes back to normal, and then it may go to other kind of supplies. You probably remember that the end of 2020 have been extremely difficult in terms of being able to get the quality of concrete we needed because of a shortage of cement. These have disappeared. I mean, it's an ongoing, I would say, a phenomenon. It's rather cyclical.
So far we are navigating, I mean, through those difficulties.
Okay. That's helpful. Thank you. Perhaps somewhat related to that, if we just think about materials, material costs, obviously a lot of concern at present about inflationary pressures across the board. I think you were asked about this subject last quarter, but material cost inflation and your ability to protect Aecon's margins in the face of those pressures. Can you speak to that and provide an update on what you're seeing there?
Yeah. You're right. We talked about it last quarter. I would say not a lot has changed on that front. It's as we talked about, materials make up around 25% of our cost base at the project level. The lion's share is labor. That 25%, you know, breaks down further into projects where the client might be procuring the materials, or we have a locked in price with suppliers or subcontractors, or indexed to inflation adjustments built into the contract. It ends up being some specific projects where it's more of a challenge to us. I would say where that's been the case, most of it has been shifting timelines caused by COVID.
It's all wrapped up in kind of the COVID compensation discussions that have either been concluded or are ongoing with a handful of projects. Overall, you know, the impact is
Isn't pervasive across the business.
Okay. All right. That's all for me. Thank you.
Thank you, Michael. We'll now move on to our next question from Benoit Poirier from Desjardins Securities. Benoit, over to you.
Yeah. Good morning, everyone. First question, could you maybe provide more color about the level of visibility you have entering into 2020 in the backlog? And also, what are the key large project awards? It seems that the pipeline is getting very busy in terms of 2022. If you could provide any color about the large project awards we should monitor next year.
Okay. As I usually say, I'm quite comfortable with the backlog between CAD 6 billion-CAD 7 billion. It's just something around 18 months of activity. I mean, that's good. On this, you add the recurring revenue that is not in the backlog. I mean, you have noted that we are around CAD 700 million. This is not an issue for me. What is important for us is the quality of the backlog, the balancing of the backlog within our different activities, and the balancing of the backlog among different kind of projects and the discipline we have been working with during the last two years. It's just helping for all this.
Canada, I mean, the main driver of Canada is almost half a million newcomers every year. For infrastructure, I mean, there are half a million people. I mean, they just need everything we build. What we can say is that there is a very large amount of urban transportation systems on the market under study at the moment. I mean, we speak about Ontario Line, we speak about Yonge extension, we speak about Scarborough extension, we speak about Eglinton West extension.
We speak about major refurbishment like the Bloor and the Yonge, but we also speak about Line Two West, which is a Line Two with a very important tunnel with elevated sideways stations and a system and where we have noticed I think the West, I mean Edmonton or Vancouver or Calgary have their own projects. This is quite interesting. There's quite a number of very nice bridges also are coming to the market on which for each of them, I mean, most often we are pre-qualified. This is also interesting. In the backlog we have the normal utility business. I mean, you have probably noticed our utility business is very strong.
Our clients are very strong in, I mean, telecommunications, I mean energy, I mean in power distribution or power transmission. All this sector is quite strong. So I don't know if this is sufficient to give you more color, but I'm not worried about pipeline coming and our capacity to pick the project that represent the best fit for Aecon.
That's great color. Yeah. With respect to the Bermuda Airport, could you maybe provide more color about the level of utilization right now and what we might expect by the end of this year and next year, Jean-Louis?
Yeah. Benoit, I'll speak to traffic in Bermuda. I think if you recall earlier in the year, through the first half, we were kind of closer to the 20% level in terms of traffic compared to a normal year, 2019, for example, as a base year. In Q3, we saw that increase to closer to 40% on average over the quarter. Obviously, there's still some uncertainty around how that will progress going forward given that, you know, COVID continues to come in in different waves in different jurisdictions at different times. You know, we're still seeing good overall dynamics.
It will depend very much on the COVID situation on the island of Bermuda, as well as in the main traffic areas, such as the US, the UK and Canada. You know, we see probably 2022 progressing to a point where we're getting to kind of 60% to 70% of normal traffic. 2023, 2024 getting back towards more normal levels. That's you know, fairly consistent with I think what the International Air Transport Association and other forecasters are looking at. We don't think Bermuda will be massively different from what those folks are seeing.
Thanks. Thanks, David, for the update. Last one for me. Could you talk about the initiatives to grow organically or to expand in the US and what about the pipeline opportunity and the timing around those potential milestones?
Yes, I will take this one. I mean, due to the infrastructure bill that most probably will be resolved, I mean, within the weeks or the months to come, we have created a working group at Aecon. I've given three months to this team to help us define what is going to be our strategy in US and how can we take advantage of the spend, I mean, in terms of infrastructure. This can be in heavy civil. This may be in other transportation or in industrial. We are working on it. We should be a little more precise within three months from now.
Evidently, I mean, there is still a lot of work to do in Canada, so we have to be careful, I mean, not to be distracted, but we also need to look, I mean, toward our neighbor and to try to imagine for each of our sector, if we feel that it's gonna be good to go there, by which means in terms of alliance in some of association, partnering or eventually acquisition, we can go there.
That's great. Okay, thank you very much for the time.
Thank you, Benoit. We'll now move to Ian Gillies of Stifel GMP. Ian, the line is yours.
Morning, everyone. I wanted to follow on Benoit's questions with respect to backlog. When you look out to the second half of 2022 right now, do you have enough in the backlog to show year-over-year organic growth right now? Or do you think you have to go win more projects between now and then to be able to do so?
Yeah, we certainly have decent visibility into next year. We always win a certain amount of work within the year. You know, that's a normal part of our business. Some of our market sectors have kind of shorter turnaround in terms of project bid, award, and work off. Transportation sector, for example, would be a great example of that.
As we look at, you know, our next twelve-month backlog as it sits today, the recurring revenue profile and what we're expecting next year, and that normal kind of book and burn type business within a year, you know, I think we, you know, are fairly comfortable saying that from an organic growth perspective, we're probably looking at something in the mid-single digits in terms of percentage growth next year, which is probably not as strong as it would have been, without the disruption in the bidding process caused by COVID pushing some of the larger projects to the right. It is obviously continued progress, from a growth perspective, while some of those larger project awards work their way through the process and get awarded over the next twelve months or so.
That's great detail. So thank you for that. Maybe diving in a little bit there, can you maybe highlight a little bit what you're seeing on the mining side in Canada? I mean, we're certainly seeing an uptick in expansions and spending in that particular end market. It's been quite some time since that's happened. Can you maybe highlight some of the positive trends you're seeing there and how Aecon may participate?
Yeah. I mean, we are very happy about the mining, you know, prospects and the chemical prospects. There, there's a lot of new project coming within the pipeline. I mean, you heard about potash, but there's also gold. In chemical, I mean, there's a sort of rush on polyethylene and all those kind of products. We are quite used with this industry, so our bidding team is busy at the moment. Our industrial sector, I mean, is strong with expectation to be even stronger in the future.
No, that's helpful. Thank you very much. I'll turn it back over.
Thank you, Ian. We'll now take our next question from Chris Murray of ATB Capital Markets. Chris, over to you.
Yeah, thanks, folks. I guess my first question is maybe going back to, you know, the Coastal GasLink issue. I guess a couple of pieces of this. One, can you give us any idea of how long you believe this might take to resolve, particularly as it seems like there's some kind of urgent timelines to move this forward? My second question, and this is maybe a broader question, is looking at, you know, over the last couple of years, you seem to have your, I guess, your contingencies outgrowing with a lot of different issues, be it KNS or the tunnel in BC.
Just wondering if there's been something in the environment that's led you folks into more of these problems, appreciating that COVID certainly is a complicated factor, but I'm just wondering if there's something else going on. I think more importantly, you know, what are you guys doing maybe to protect yourselves on future contracts as you're bidding stuff now?
Okay. I will take the first part of your question, and David will go with the second one. Coastal GasLink, I mean, as Frédéric noted, timing of the essence. I mean, it's of the essence for Coastal GasLink, you know that this is linked with LNG Canada project, and it's also of the essence for us. Do we know the timeframe for resolution of our problems? No. What is sure is that we work intensively with our client, I mean, to resolve it as soon as we can. We have dedicated the best teams we have within our company to deal with those issues, and we have a certain optimism that this process is going to go at a reasonable speed to find a solution.
I think on the second part of the question, Chris, you know, I don't know that the environment has shifted significantly. I mean, obviously, we've seen a number of contracts where we've overcome hurdles and challenges and got very reasonable outcomes in terms of resolution. That's part and parcel of the industry. I mean, changes are constant on these projects. You're bidding a scope of work that, you know, evolves over a number of years, and there are changes along the way. The vast majority of those they're resolved between the various parties to everyone's satisfaction, and we drive on. We obviously have a couple of situations that we're still working on. As we talked about, we're hopeful CGL will be resolved sooner than later.
The other two are more, you know, legal process that will take a while to play out. Those two will stick around for a while until they're resolved. Overall, you know, we're happy with our executing, and we just we'll work through the couple of outstanding issues.
Okay. That's helpful. Then maybe just a follow-up to the, you know, comment about, you know, backlog and what it translates into revenue growth next year. Thinking about, you know, what you have embedded in backlog today, are there any thoughts that there should be any sort of incremental improvement or change in margin profile as we move into next year?
Yeah. I think this is driven by two factors. I mean, first of all, the discipline. We are at the moment of selecting projects and bidding. We are extremely focused on savings for each of our specialty teams, how we can ramp up in productivity from one job to another one similar. So we are trying to build the most consistent backlog, and this is evidence of the drive to economic efficiency upwards. The second one is about the major effort we have implemented from the beginning of the year 2021 about continuous improvements, about lean management, about increasing our productivity on site. This also should lead our economic efficiency upward.
I mean, I just give you an example. Within the last six months, we have divided by four the time to execute a segment on each of the two piers of the massive Gordie Howe International Bridge. At the end of the day, we have more than 75 segments to build. Our theoretical learning curve was to divide it by two. The results are exceeding, and this is money. At the end of the day, this is money. For the one of the call who lives or travels to Calgary, you can see our Bow River Bridge, and where we have been able to close the two spans before winter coming. This also is money. In terms of improvement of our productivity, we are extremely serious about it.
We are extremely serious about improving the professionalism of our team, improving the quality of our project director, and this evidently will have some consequences and good ones.
Okay. Anything you're comfortable in putting out that's quantifiable at this point?
Sorry. Yeah, we've not heard the question.
Sorry. Is there anything that you'd be willing to put out, like a target out there or sort of a number that we should be thinking about for next year?
No. As you know, Chris, we've never gone into detailed margin guidance for the following year. Not saying we've done so, not intending to provide any particular specifics for next year in terms of EBITDA margin.
Okay. Thanks. Bye-bye, Troy.
Thank you, Chris. We'll now move on to our question from Sabahat Khan of RBC. Sabahat, over to you.
Okay, great. Thanks, and good morning. Just a question on kind of the cash flow side. In some of the prior years, Q3 has been a bit of a cash flow recovery on CFO. Just wondering, there was a bit of a negative amount for cash flow from operations this quarter. Just your thoughts on cash flow for the full year and, you know, what we might expect in Q4 on that front.
Yeah. Q3 is seasonally big for a working capital perspective. Obviously we see our highest revenue in the quarter each year, and that's usually what's behind that. Obviously, Q3 last year was a little less impacted because of COVID. That had an impact on revenue, but it also had an impact. If you look at the change in working capital this year for the first nine months compared to last year, the biggest change is on the payables side. That's because some of the more labor-intensive projects last year were some of the ones that were most impacted by COVID. Those are the projects where we don't have a significant amount sitting around in working capital. There's a few trade-offs year-over-year.
We should see the normal seasonal turnaround in Q4, where that starts to unwind a little bit, and then unwinds further in Q1. I would say, you know, Q4 is still subject obviously to some of that turnaround is subject to a resolution on the CGL cash flow impact that we talked about as well. That's still out there as a potential impact in Q4. Absent that, it should be the normal seasonal unwind in Q4.
Okay, great. Then just, I guess, you know, there's been a bit of a discussion on the backlogs earlier, but as you kind of think over the next few quarters, you did indicate that, you know, you're pre-qualifying for some projects. Do you kind of have visibility on, you know, is it later this year in Q4? Is it early next year when you maybe start to build out on a year-over-year basis? Is that just TBD depending on how those projects shake out?
Mainly it depends on our clients, and the way the projects arrive on the market and the way they fit with our strategy at the moment of bidding. As I say, I mean, with 18 months of backlog coming in front of us and the pipeline we can see, I'm not worried at the moment about activity for the next year.
Good. Thanks very much.
Thank you, Sabahat. Our next question comes from Naji Baydoun of iA Capital Markets. Naji, over to you.
Good morning. Just had a couple of questions on growth and profitability. Starting with growth, I guess to your earlier comment, the pace of new awards has been relatively in line with 2020 and even 2019. I guess the question is: Is that still the same pace that you see going into next year? Does it actually accelerate and then that translates into maybe higher growth into 2023 and beyond?
Yeah. I think overall, we do see the pace accelerating as some of these I mentioned earlier the larger projects that we're pursuing right now are the ones that have kind of moved to the right a little bit due to COVID, and we expect more of those to be awarded over the next 12 months, and the following year. So that will start to drive acceleration over and above kinda what we've seen right now, which is lots of activity in both the recurring revenue space and the small and medium sized job space. So it's all.
We'll continue to grow in those areas, and then the larger projects will start to accelerate that as we move through 2022 in terms of awards, and that'll come through the revenue in 2023 and beyond.
Does that
Does that?
Sorry, go ahead.
We lost you there. Can you repeat the question?
Yeah, I'm just wondering if that includes any expectations on US projects?
No, it doesn't. I mean, we are at the moment, as I told you, I mean, we have created a team to brainstorm and to try to elaborate our strategy for US At the moment, except the activity we have through our Aecon-Wachs company in United States, it doesn't include any prospects there.
Okay. Excellent. Just maybe two questions on profitability. How are you thinking about you talk about having a balanced work program. How are you thinking about that balance today when you're trying to bid on new projects and get the backlog higher while also maintaining the margin profile, especially, I guess, given some of the pricing pressures and the environment we're in today?
I mean, I'm happy with the balance between East and West, between small, medium, big and bigger project. I'm happy with the balance with the kind of contract that we may sign between the MSA, unit price targets and lump sum. I'm also happy about a real trend, I mean, in the industry, on complex project to go toward what we call progressive design-build and not pure lump sum turnkey job. I think it's good, it's an evolution, so we are getting the company ready for this. It's all about balance, and this is what we try to achieve at Aecon.
Another point, I mean, about the backlog is that I'm amazed to see how we are able to cross-fertilize, I mean, our different sectors that work more and more together. I mean, foundation works more with industrial, heavy civil and our transportation and roads and bridge build also work much better together. We, I mean, we are aligning a strong team to think and to prepare the SMR topics. You know, the small modular reactor, I mean, on this team. I mean, you have heavy civil people, you have utilities people, you have transportation people, you have industrial people, you have pure nuclear people. I mean, all this is good for the future in front of us.
Okay. Excellent. Just my last question, I know you don't give specific guidance, but how much more room is there for margins to improve from where you are today and what would be sort of the main drivers of that?
Well, again, I'm not gonna put a number to it, Naji, but, you know, we definitely see lots of opportunity through the various areas I think Jean-Louis talked to. Obviously execution, continuous improvement, and our own internal initiatives are a big component of that. Selecting the right projects, the strength of the end markets, I think, all three of those areas combine to, you know, give us a confident outlook in terms of margin progression as we execute over the next couple of years.
Okay. All right. Thank you.
Thank you, Naji. We'll now move to Troy Sun of Laurentian Bank Securities. Troy, the line's yours.
Good morning, gentlemen.
Morning.
Maybe my first question for Jean-Louis. I'm just wondering if you can comment on maybe a little bit of your business development activities there. I think the last time we spoke you were saying the team is now back on the road. So just really trying to get any update or progress there, please.
Can you repeat the first part of your question, please? I mean, we have some sound issues in our room.
Yeah, for sure. No, I was mainly just asking for, you know, your international business development activities there. Remember in Q2 you made a comment that the team is now back on the road traveling again, sourcing potential prospects. So just trying to get an update there, if possible, please.
Yeah. Yes. I mean, it is true that we have a small business development team back on the road now with some constraints, but much better to be able to meet with clients and to try to select opportunities. As we have said, I mean, if we can duplicate what we have been doing in Bermuda, I mean, we would be very happy. But there are also some other opportunities. We go prudently. The idea is not to grow exponentially in international activity, just to take advantage of our strengths and each time we can see a fit, I mean, to target it and to try to get it.
Okay, great. That's very helpful. Maybe just a second question. I'm wondering if you can also provide a little bit of update on Eglinton. If I understood correctly that contract is coming up into the completion phase in 2022. Just wondering on that project specifically if you could provide some color on the progress as you're closing out the contract. Are you expecting any potential changes in margins from that project specifically for the next year, please? Thank you.
Yeah. As you said, this project is getting close to completion. I mean, within the year 2022. I mean, it's what we call a revenue service demonstration, because, you know, it's not only a civil project or a building project, it's also a system project. It's a fully integrated transport project. For anyone living in Toronto, when you go to the east part of this Eglinton line, I say one third on the east from Kennedy, you will see every day vehicles or sets of two vehicles, I mean, doing the demonstration proving that all the systems are working perfectly. Then we will do it at the west part of the line near Mount Dennis.
We will do it in the center, and we will finish with a.
We are getting closer to the end. You also know that there have been some issues, and we are getting closer to a resolution. I can say, I mean, without entering into much detail, that the parties are broadly aligned now on the major issue and we are working on it. Okay, great. Thanks for the call. It was super helpful. That's it for me. Thank you.
Thank you, Troy. We're now gonna move on to our next question, which will be from Maxim Sytchev of National Bank Financial. Maxim, over to you.
Hi, good morning.
Morning.
Dave, I just have one quick clarification question for you in relation to CGL. Are you booking revenue right now on that project? I guess if there is delays in terms of you know the payment terms, is there any possibility for reversal? I'm just trying to see you know if there's a divergence between revenue recognition and the cash flow. I guess that's the nature of the question I have.
Yeah. Yeah. As we've talked about, this is really a cash flow issue. You know, this is. As you know, we first disclosed that there was an issue on CGL in Q2, so this has been bubbling up for a while. We've been booking that accordingly in terms of being conservative in terms of how we recognize this project. We feel comfortable with that position, you know, how we talked about the contractual entitlement and the areas impacted and you know, the nature of the change, but also the nature of CGL recognizing that change by issuing a change directive.
On that side, you know, we're comfortable with how we're positioned and we really see this as a cash flow issue that needs to be resolved to keep both parties moving forward until such time as we get to the end of reconciliation and we're comfortable that we'll work out in line with where we're at today.
Because you mentioned that you were conservatively booking, so does it mean that if there was a positive resolution from a cash flow perspective, there's also a bit of a catch-up on the delta, or that's not how we should be thinking about this?
Yeah. I wouldn't be thinking about it like that right now. I would say, obviously, there's a range of outcomes ultimately in terms of compensation, but we think we're, you know, we're in the right range. There's clearly a value on either side in terms of the ultimate resolution. As I say, we're confident where we are. It's just a question of getting to that reconciliation process at the end. I wouldn't be assuming there's a big variation either way at the end of the project.
Okay. I see. Okay. That, that's what I mean. Thanks. Thanks so much for clarifying.
Thank you, Maxim. We'll now take our last question today from Michael Tupholme of TD Securities. Michael, over to you.
Thanks for taking the follow-up. This is a follow-up related to Coastal GasLink as well, and appreciate all the detail you've provided. I guess just two final clarifications. Number one, are you still currently actively working on that project and despite the sort of ongoing contractual issues still moving that forward? Secondly, can you clarify when exactly the arbitration process commenced?
I will take the first part of it. Yes, we are working. We have a little more than 1,000 people working on our two spreads, spread three and four. I remind you that spread four, I would say something like 85% complete. Spread three is something like 20% complete because we couldn't have the right of way before. Yes, we are working on those sections. For the second part, maybe David, you can take it. Yeah. Under the contract, Mike, there's ability to have interim processes through arbitration throughout the life of the contract that deal with discrete issues. We're taking those issues forward throughout. It's not just one process.
There's a number of issues that we're working through, so it's underway. I think, you know, as we disclosed in Q2, there was a process underway then as well. There's a number of processes that we're pursuing through arbitration as we move forward.
Okay. That's helpful. Thank you.
Okay. That's helpful. Thank you.
Thank you, Michael. That was our final question. I would like to take the opportunity to hand back to the management team for any closing remarks.
Yeah. Thanks very much all. Appreciate your questions and your time today. As always, feel free to follow up with any questions to us and have a great afternoon.
Thank you. This concludes today's call. Thank you all for joining, and have a great rest of your day.