Aecon Group Q2 2026 Earnings Call Transcript

Quartr
Provided by Quartr
July 31, 2026

Key Takeaways

  • Positive Sentiment: Record Q2 revenue rose 25% year over year to CAD 1.6 billion, while adjusted EBITDA doubled to CAD 82 million as construction margins improved to 5.5% from 3.1%.
  • Positive Sentiment: Aecon reinforced its outlook for double-digit revenue growth in 2026 and further growth in 2027, supported by CAD 10.5 billion of backlog, approximately CAD 4 billion of secured backlog executable over the next 12 months, and a large project pipeline.
  • Positive Sentiment: Aecon agreed to acquire Oaktree’s preferred equity in Aecon Utilities for CAD 320 million, giving it full economic and strategic control of a utility platform generating more than CAD 1.2 billion in pro forma annual revenue, with over 70% from recurring long-term agreements.
  • Negative Sentiment: The company reported a diluted loss per share of CAD 1.58 because of a CAD 128 million fair-value adjustment related to the utilities preferred shares; legacy projects also reduced Q2 gross profit by CAD 4.5 million and trailing-12-month results by CAD 36 million.
  • Neutral Sentiment: Management said construction margins have stabilized at roughly 6% excluding legacy projects and expects gradual improvement, but noted that early-stage nuclear and transportation programs, higher corporate investment, and ongoing labor and commodity-price risks may temper the pace of expansion.
AI Generated. May Contain Errors.
Earnings Conference Call
Aecon Group Q2 2026
00:00 / 00:00

There are 9 speakers on the call.

Operator

Good day, and thank you for standing by. Welcome to the Q2 2026 Aecon Group Inc. earnings call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Adam Borgatti, Senior Vice President of Corporate Development and Investor Relations. Please go ahead.

Speaker 1

Thank you, Deedee. Good morning, everyone, and thanks for participating in our Q2 2026 results conference call. Joining me are Jean-Louis Servranckx, President and CEO, Jerome Julier, Executive Vice President and CFO, and Alistair MacCallum, Senior Vice President, Finance. Our earnings announcement was released yesterday evening, we posted a slide presentation on our website, which we will refer to during the call. Following our comments, we'll be happy to take questions from analysts, we ask that you keep to one question and a follow-up, if necessary, before getting back into the queue. As noted on slide two of the presentation, listeners are reminded that the information we're sharing with you today includes forward-looking statements based on assumptions that are subject to significant risks and uncertainties.

Speaker 1

Although Aecon believes these expectations reflected in these statements are reasonable, we can give no assurance that these expectations will prove to be correct. Turning to slide three. I'm pleased to share key highlights from the quarter. Aecon delivered an all-time record for revenue in any quarter, with second quarter revenue of CAD 1.6 billion, increasing 25% over the same period last year. Adjusted EBITDA improved significantly in the quarter to CAD 82 million compared to CAD 41 million last year, driven by year-over-year margin improvements in the construction segment. Aecon entered into an agreement to purchase the convertible preferred equity investment held by Oaktree Capital in Aecon Utilities. The CAD 320 million purchase price implies a CAD 1.2 billion equity value and a CAD 1.5 billion enterprise value for Aecon Utilities.

Speaker 1

Backlog at June 30th was CAD 10.5 billion, underpinned by a diversified mix of long-term projects with appropriate risk balance, does not yet include Aecon's share of significant awards, including those under collaborative and progressive models within or post-quarter that will be added to future backlog. The Gordie Howe International Bridge reached substantial completion in the second quarter, opened to traffic earlier this week on July 27th. A remarkable achievement by Aecon and its partners. An amicable and mutually agreeable settlement was reached in the second quarter on one of the remaining legacy projects to resolve disputes fully and finally. Aecon reinforces its positive outlook, supported by the expectation for double-digit revenue growth for the full year 2026, based on our strategic positioning in sectors with attractive demand profiles, growing recurring revenue programs, and a healthy pipeline of project opportunities.

Speaker 1

With that, I'll hand the call over to Jerome.

Speaker 2

Thanks, Adam. Good morning, everyone. I'll speak to Aecon's consolidated results, review results by segment, and address Aecon's financial position, then close with a summary of the utilities preferred share purchase transaction. Turning to slide four. Revenue for the three months ended June 30th, 2026, of CAD 1.6 billion was up CAD 329 million or 25% compared to the same period in 2025. This represents the highest recorded revenue by Aecon in any quarter in its history. Approximately 80% of the revenue growth in the quarter was organically generated. Adjusted EBITDA of CAD 82 million doubles compared to CAD 41 million last year. Operating profit of CAD 36 million compared to an operating profit of CAD 2 million in the same period last year. The improvement in the period was driven by higher gross profit of CAD 78 million compared to the same period in 2025.

Speaker 2

Q2 2026 diluted loss per share of CAD 1.58 is driven by a fair value adjustment on the preferred shares of Aecon Utilities of approximately CAD 128 million recorded upon reaching the agreement to purchase the shares. This adjusted the carrying value to the agreed purchase price of CAD 320 million. Adjusted diluted earnings per share in the quarter, excluding this fair value adjustment, was CAD 0.33, an improvement compared to the adjusted diluted loss per share of CAD 0.10 in the second quarter of last year. Financial results in the quarter were impacted by negative gross profit of CAD 4.5 million from the legacy projects. On an LTM or trailing 12-month basis, the negative impact from legacy projects was CAD 36 million. Backlog of CAD 10.5 billion at the end of the second quarter compares to backlog of CAD 10.7 billion at the same time last year.

Speaker 2

New contract awards of CAD 1.3 billion were booked in this quarter. CAD 2.7 billion were booked year to date. Now looking at the results by segment. Turning to slide five. Construction revenue of CAD 1.6 billion in the second quarter was CAD 335 million, or 26% higher than the same period last year. Revenue was higher in all sectors, with the largest increase of CAD 138 million in utility operations, driven by a higher volume of electrical, gas, and telecommunication work in Canada and the U.S., including contributions from the acquisitions of KPC and ARC, completed in the first quarter of 2026. Urban Transportation Solutions increased CAD 93 million, driven by a higher volume of subway and rail system work, as well as closeout activities on Ontario light rail transit projects that achieved substantial completion in 2025 and are now fully operational.

Speaker 2

Nuclear operations increased CAD 80 million due to a higher volume of refurbishment, decommissioning, new build, and engineering services work at nuclear generating stations across North America. In civil operations, higher revenue of CAD 22 million was mainly from an increase in the civil component of power and rail projects, foundations work, and international major project work. Turning now to slide six. Construction segment adjusted EBITDA of CAD 90 million compared to CAD 40 million last year, with an adjusted EBITDA margin of 5.5% compared to 3.1% in 2025. The increase was primarily driven by an improvement in gross profit margin in urban transportation solutions and civil, and the gross profit impact of higher volumes in utilities. These increases were partially offset by lower gross profit margin in industrial and nuclear operations and higher MG&A to support our ongoing growth in operations. Turning to slide seven.

Speaker 2

Concessions adjusted EBITDA for the quarter was CAD 11 million compared to CAD 16 million in the same period last year, driven by lower management and development fees on concession projects that achieved substantial completion in 2025, partially offset by improved operating results at Skyport in Bermuda. The book value of our concessions portfolio at quarter end was over a quarter billion CAD. Turning to slide eight. At June 30, 2026, Aecon held core cash and cash equivalents of CAD 129 million, which excludes CAD 500 million of cash representing Aecon's proportionate share of cash held in joint operations. In addition, at June 30, 2026, Aecon had committed revolving credit facilities of CAD 1 billion, of which CAD 302 million was drawn and CAD 4 million was utilized for letters of credit.

Speaker 2

Combined with our CAD 960 million EDC performance security guarantee facilities, our total committed credit facilities for working capital and letters of credit requirement total CAD 2 billion. Net debt at June 30, 2026, was CAD 672 million. Aecon has proactively opted to include the CAD 320 million repayment agreement for the preferred shares of Aecon Utilities in this figure. Net debt to trailing 12-month adjusted EBITDA was 2.2 or two times, excluding the negative earnings impact from legacy projects. Aecon has no debt or working capital credit facility maturities until 2029 except equipment loans and leases in the normal course. Aecon generated free cash flow of CAD 301 million in the trailing 12-month period ending June 2026, compared to negative CAD 10 million in free cash flow in the same period last year, a significant improvement in cash generation.

Speaker 2

In the second quarter, Aecon's board approved a quarterly dividend of CAD 0.1925 per share or an annualized dividend level of CAD 0.77 per share. The dividend will be paid on October 2, 2026, to shareholders of record on September 22, 2026. Before I turn the call over to Jean Louis, I'd like to briefly comment on the announced buyout of the pref shares in Aecon Utilities on slide nine. Partnering with Oaktree in the fall of 2023, Aecon Utilities has delivered significant growth through organic expansion and four strategic acquisitions, strengthening our capabilities across electrical transmission and distribution, substations, metering, telecommunications, and utilities infrastructure. During that time, electrical infrastructure has grown from approximately a quarter of the revenue to nearly half today. The business has expanded from almost exclusively operating in our core Canadian market to 25% of the revenues now being generated in the U.S.

Speaker 2

Aecon Utilities now generates over CAD 1.2 billion of pro forma annual revenue, with over 70% derived from recurring long-term master service agreements, and has established a platform position to benefit from long-term investments in grid modernization, electrification, digital infrastructure, and data center work. The transaction allows Aecon to fully participate in the future growth of Aecon Utilities while significantly simplifying our ownership structure, enhancing financial flexibility, and strengthening integration across our business. Upon closing, Aecon will have full economic and strategic control of a large and diverse utility infrastructure platform supporting our comprehensive power and utility services offering across Canada and the United States. Finally, on a personal note, I'd like to thank the Oaktree Capital team for their partnership and support over the last several years. It's been an absolute pleasure working with you, and together we've built a stronger, larger, and more diversified utility services platform.

Speaker 2

We're excited to continue that momentum forward. At this point, I'll turn the call over to Jean Louis to address our business performance and outlook.

Speaker 3

Thank you, Jerome. Turning now to slide 10. Aecon continues to drive growth through a balanced and diversified work portfolio across the nuclear, civil, utilities, industrial, and urban transportation sectors. In the second quarter, the construction segment saw a broad-based increase in revenue across all sectors. Power and utility services collectively represent over 55% of Aecon's nearly CAD 6 billion in trailing 12 months construction revenue. Our concessions portfolio also continues to grow and diversify. The Gordie Howe International Bridge now is operational. Aecon holds a 20% interest in its equity and 30-year operations, maintenance, and rehabilitation activities. Earlier this week, an Aecon partnership announced it has executed an agreement for the 150 MW Simcoe battery energy storage system project in Ontario, in which Aecon Concessions is an equity partner. Aecon will also serve as the exclusive EPC provider for the balance of plant works.

Speaker 3

The project complements our ownership position in the Oneida energy storage project and demonstrates Aecon's credentials in grid scale battery delivery, with completed and ongoing work represented approximately 1 gigawatt of Ontario's delivered or planned battery energy storage capacity. Turning to slide 11. Demand for Aecon services remains strong. With a strong secured backlog, growth in recurring revenue programs in utility services, and a healthy bid pipeline, Aecon maintains its focus on improved profitability and margin predictability while continuing to improve the risk profile of our business. Trailing 12 months recurring revenue was over CAD 1 billion at June 30th, 2026, with recurring revenue from utility services increasing to CAD 868 million from CAD 668 million last year, an increase of 30%. Turning to slide 12. I would like to take a moment to recognize a truly historic achievement for Aecon.

Speaker 3

The Gordie Howe International Bridge Project achieved substantial completion on June 9th, marking the successful delivery of one of the most significant infrastructure projects in North America. Just last week, Aecon had the opportunity to participate in the official opening celebrations, culminating with the opening of the bridge to traffic earlier this week. Together, the entire project team successfully navigated complexity and overcame challenges, including a global pandemic, always remaining focused on safety, perseverance, and world-class execution excellence. It is the first new Canada-U.S. border crossing in more than 60 years. Spans 2.5 kilometers, required over 20 million work hours by close to 16,000 workers, and showcases Aecon's ability to deliver complex infrastructure projects. On behalf of our leadership team, I want to thank the thousands of Aecon employees, partners, suppliers and stakeholders who contributed to making this project a success.

Speaker 3

It is an incredible accomplishment and a significant milestone in Aecon's history. Turning to slide 13. We've recently announced several significant project awards and strategic developments that strengthen our multi-year growth profile and reinforce Aecon's position in some of North America's most attractive infrastructure markets, spanning nation-building, defense, power generation, transportation, and water infrastructure. These include the 932-megawatt Greenlight Electricity Centre in Alberta, which will support a major data center for Meta. The Roberts Bank Terminal 2 in British Columbia, a priority nation-building project that will increase container capacity at the Port of Vancouver, the Winnipeg Biosolids Facilities Project, and the Mactaquac Life Achievement Project in New Brunswick. These projects align directly with our strategy of pursuing complex infrastructure programs with appropriate risk allocation, long-term visibility, and strong partnership structures.

Speaker 3

We continue to advance a broad portfolio of major projects, including the Arctic Over-the-Horizon Radar program, the Pickering Nuclear refurbishment, the Darlington New Nuclear Project, the Cascade Energy Facility in Washington State, the GO Expansion Civil Works program, the Hamilton LRT and Urban Redevelopment, and the U.S. Virgin Island airports. These are progressing under collaborative and progressive delivery models that support improved risk allocation and execution certainty. This project represent billions of CAD of potential work, and when layered with Aecon's CAD 10.5 billion of backlog and recurring revenue programs, provide long-term growth visibility and match in Aecon's over 150-year history. Turning to slide 14, Aecon expects double-digit revenue growth in 2026. Our expectation for a broad-based revenue increase in 2026 and further revenue growth in 2027 is underpinned by the major projects in development that I just spoke to.

Speaker 3

Contributions from strategic acquisition in the industrial and utility sectors, ongoing strength from an extensive portfolio of small and mid-sized work programs, and the ramp-up of projects under multi-year lower risk contract models in new nuclear construction and mass transit and mobility. In the concession segment, there are several opportunities to add to the existing portfolio of Canadian and international concessions in the next six to 12 months to support trends in aging infrastructure, mobility, connectivity, energy, and population growth. Aecon's deliberate shift toward a greater weighting of improved risk-adjusted work programs, in combination with a strong focus on operational excellence, is anticipated to support a stabilization and gradual improvement of adjusted EBITDA margins in the construction segment in 2026. Our overall outlook for 2026 continue to be very positive.

Speaker 3

We are excited about the momentum we have built in the first half of the year and remain focused on executing our strategy to drive long-term shareholder value. In closing, I want to thank our teams across all our operating sectors for their unwavering safety always mindset as we deliver critical infrastructure projects across Canada, the U.S., and internationally. Thank you. We now turn the call over to analyst for questions.

Operator

Thank you. As a reminder, to ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. Please stand by while we compile the Q&A roster. Our first question comes from Sabahat Khan of RBC Capital Markets. Your line is open.

Speaker 4

Great. Thanks and good morning. Maybe starting with a high level one. You noted a lot of larger projects. There have been a lot of headlines around the Canada nation-building stuff. Can you just talk about maybe as you're having discussions with these customers, are you able to get a bit of a cadence on timeline, just in terms of how those projects will come along? Will you be able to staff for them, get the right people in right places? Are you starting to get some level of visibility on how that work might start to flow? Then maybe just talk about how, from a preparation side, getting the right staff in the right regions, et cetera. Maybe just an update on how those bigger projects are building up for Aecon. Thanks.

Speaker 3

Yeah, I will take this one. Yes, we can. Most of these projects are progressive design-build, collaborative projects. They just begin with the development phase. That can be from 12 months to 24 months. When we advance those development phase, more and visibility about the real execution of the work, the timeframe, the scope, the budget. Yes, we are just getting more and more secure with those projects, what we call the sovereignty projects. We are extremely careful and focused on our capacity to deliver those projects. You probably have noticed that we are very careful on not having all those projects on the same geography, on the same sectors, on the same timeframe. It's a balancing tactic, and we think we are quite well about being able to execute those projects perfectly.

Speaker 4

Just for my follow-up, I guess maybe it might be a bit one more for Jérôme, just in terms of the margin profile as these larger projects are building up, your outlook commentary shared a bit more specifics this time. Talk about your confidence in sort of the margin progression through H2, what you're seeing, and what you guys are seeing in the backlog that you've built around the margin profile. I know it's early, but any sort of directional commentary you can share on that for 2027. I think your commentary notes growth into 2027 on the top line, but curious on the margin side as well. Thanks. I'll pass the line.

Speaker 2

Tons to unpack there, Saba. Before I start talking about the margin profile, I think it's always critical to reground around the risk associated with the work that's being executed, because the two go hand in hand. Starting on that point, we are working on much better quality programs from a risk perspective than we've ever had. The fixed price work that we're executing is increasingly under more collaborative models. I'd say the overall risk in the enterprise is dropping. What we committed to with regards to margin in our outlook, which started in Q4 of 2025, was a stabilization.

Speaker 2

As an adjusted construction margin, excluding the legacy projects, was roughly 6% at the end of Q4, 6% on a trailing 12-month basis in Q1, and again 6% on a trailing 12-month basis in Q2, all while significantly growing revenue, and all while shedding risk against the programs that we're working on. That is just a clear net positive with regard to risk-adjusted returns for Aecon. As far as the guidance on gradual improvement, we really mean that trying to improve things in a very slow and measured way, given the bulk of work that we have in front of us, and where we stand on the programs that we're executing. We're very early on in programs in nuclear and urban transportation solutions, and the traditional construction S-curve means that you will generally see the benefits accrue later on in program life.

Speaker 2

I'd also note that growth margins and backlog margins are improving. One of the areas that's an offset today is MG&A, which we're doing as far as investments to improve our delivery capacity, which Jean-Louis mentioned. I'll just say margins have been stabilized. We've done a great job with that. Revenue growth is improving. The risk is improving. It's just a net positive. With regards to 2027, we're not providing an outlook on that one. We're not going to front-run it. I think the general direction of travel is probably consistent with what we've seen in 2026's outlook, which is stabilization followed by improvement. Given the bulk and the size of work, we're really focused on maintaining the appropriate risk cadence across the entire portfolio.

Speaker 2

Not a perfectly direct answer on the last part of the question, but hopefully a little bit of color on where we're thinking things could go.

Speaker 3

Thanks very much.

Operator

Thank you. Our next question comes from Frederic Bastien of Raymond James. Your line is open.

Speaker 5

Hi. Good morning, everybody.

Speaker 3

Morning.

Speaker 5

I have a couple questions. First one regarding the Evergreen project that you secured. It's a fairly sizable project. Congratulations on winning it. Was wondering if you could discuss the risk profile associated with that project. I did notice that it was an EPC project, so a fixed price project, and would love to get some comments on your comfort level around that particular project. Thank you.

Speaker 3

Okay, Frederic, I'm gonna take this one. I imagine you are speaking about the Greenlight project with Pembina. I mean, the combined cycle gas turbine.

Speaker 5

Yes, my apologies.

Speaker 3

No problem. Power is a strategic focus at Aecon. You have noticed, we are now a little more than 55% of our revenue. It's about distribution, it's about transmission, it's about substation, it's about battery storage. You have noticed the Simcoe 150 megawatts that we have just disclosed a few days ago. Power generation now. The power generation market, on one side you have the nuclear. We are extremely present and strong in nuclear. I may come back to this after. On the other side, you have the renewable projects, where we have attacked this through battery storage and some transmission. We are not in solar panels, and we are not in wind machine. We think that this has been commoditized, and it was not the right time to enter it. In between nuclear and renewable, you have a spot, which is gas turbine generation.

Speaker 3

This is going to be the strong spot during the 10 years to come. Aecon had to be within this spot. On another hand, we are not speaking about first of a kind when we speak about gas turbine. There is something like 500 gas turbine projects under construction every year. The contract model is EPC. What we decided to do a few years ago when we realized that we needed to be there, was to strengthen our capacity to be able to catch this kind of project. Different way of doing it. We have acquired United in the U.S., specialist in power generation and in EPC delivery. If you go to their track record, it's impressive. We have secured partnership with one of the best engineering company with combined cycle, which is Técnicas Reunidas. They have built more than 60 of those kind of projects.

Speaker 3

In addition, this project is in Edmonton, quite close from our industrial base. The client, Pembina, is quite well-known from us. We have been working with them. We know them perfectly. The output of this power plant is secured by a power purchase agreement with Meta. Last point, long development phase. We have been working in perfect collaboration with our clients and our engineering partner during more than 12 months. Before we close this job, we had a very good knowledge of the scope, the price, and the risk. In addition, most of the long lead equipment have been ordered and are going to be supplied with the corresponding warranty and liability by the owner. This was the target and the product to catch.

Speaker 3

We have been patiently building capacity and core competency to be able to execute it securely, and we just consider that it's a very good catch for Aecon. Have I answered your question?

Speaker 5

Yes. Thanks for the very detailed answers, Jean-Louis. I appreciate it. Next question's on labor availability. Obviously, you were quite successful winning several contracts in recent months that provide good visibility into future growth. How are you thinking about scaling your workforce to meet this expected demand, and what risk do you see around labor availability going forward?

Speaker 3

I would say there are two different issues. I mean, the staff and the management teams and the trades. So far, we have not seen shortages of trades. We have a mid- and long-term agreement with major trade unions when we are open shop. We also have a very strong geographical presence. We do not see, at this stage, issues so far. As I've said a few minutes ago, we are always extremely focused on the balance of our activity geographically, sector, time for execution, so that we don't unduly overload one aspect. Regarding staff and management, it's a constant fight. You probably remember we have created Aecon University a few years ago. We have a project management academy. We are training, we are recruiting, we are trying to reward as good as we can all our management.

Speaker 3

It's a constant fight. It's one of my most important file on my desk to ensure that we always have the capacity to execute this backlog that is growing.

Speaker 5

Thank you. Thanks, Jean-Louis. That's all I have. I'll pass it over.

Operator

Our next question comes from Benoit Poirier of Desjardins. Your line is open.

Speaker 6

Good morning, everyone. On the concession side, obviously, you've been successful to secure the agreement with Simcoe. Currently in a pre-development, but I was just curious to know maybe a little bit more about the pipeline of opportunities for concession these days. Obviously you've been quite successful to grow construction, but I'm just curious, what are the kind of the opportunities you see on the concession side to grow this segment? Thank you.

Speaker 2

Morning, Benoit. Jerome here. The concession business continues to perform really quite well. As noted, Simcoe was successfully secured. That builds on our expertise with regards to battery ownership, but also execution of battery projects. As Jean mentioned in his prepared notes, under delivery or delivered, Aecon's had roughly a full gigawatt of battery storage systems in Ontario, which I think is probably something akin to a market leading position. We have a lot of confidence in that aspect of the execution. The team's continuing to work on the airports in the U.S. Virgin Islands with regards to progressive development. That's going according to expectations. Additionally, you would have seen in the notes, Aecon Concessions is developing a network asset for a third party client. On that front, the construction side of the house will be building the asset for concessions ownership.

Speaker 2

There'll be an intracompany elimination, there'll be a negative drag on Concessions EBITDA. Concessions will be able to then onward use that asset to generate long-term income against a strong credit counterparty. From our perspective, we're really pleased with the work that Concessions is doing. Very much aligned with the long-term vision of that platform, which is to grow, diversify, generate long-term cash generating assets, be able to get development style returns, all while generating also construction revenue and profitability from Aecon, and provide an additional source of capital unlock for our clients. I think overall, the quarter billion dollars of book value of equity, it's obviously worth more than that. We'll continue to look to invest in this platform because it generates a normal and unique returns for Aecon and shareholders.

Speaker 6

That's great color, Jérôme. Maybe on the CapEx side, you mentioned that we should see a slight uptick in terms of CapEx as you grow revenue. What about the kind of CapEx we might see going forward as you further grow the construction revenue?

Speaker 2

We're very focused with regards to capital deployment. There's two ways to think about it. One is the raw CAD CapEx, and then the other one is the finance leases, right. Those are both different forms of capital. Our longer-term objective is to try to maintain good capital intensity and operating leverage with regards to the capital equipment deployed. We're very selective when we deploy CapEx and whether it's equipment, machinery, properties, fabrication facilities, that it needs to generate certain minimum return thresholds for shareholders. Yes, capital is going up, but when you're growing the business at north of 20% rate, that shouldn't be unexpected. We're also really careful about not falling into the trap of just buying equipment to try to generate higher EBITDA because that equipment needs to be maintained and needs to be depreciated.

Speaker 2

We do think about things from a return standpoint. Capital is going up in line with revenue. It's actually a little bit less than revenue. From that standpoint, I think it shows good operational discipline from our teams.

Speaker 6

Maybe just a quick follow-up. You call out in the MD&A, tariff and fuel also in terms of potential risk. I was curious to see if it's material these days or I suspect not, but any color on the tariff and fuel maybe, whether it's an impact or not.

Speaker 2

It certainly creates operating volatility. Generally speaking, we work pretty closely with our clients to understand where pricing risk exists on commodities like diesel, unleaded fuels, various input costs. We try to manage those risks contractually through purchasing approach or through potentially hedging programs. Or pricing. This type of volatility, I think is the new normal in our world. It's increasingly been in existence since the COVID pandemic. It's just something that needs to be thought of carefully and managed. We call it out because there's these kind of special risks associated with momentary spikes, and then the pricing mechanisms may not catch up immediately. Right now, the one thing we'll note is a significant portion of our business is tied to construction in place. It's a very local business.

Speaker 2

When we're operating in our Canadian markets, it is very much focused on Canadian supply chain, Canadian labor, right? Utilizing Canadian equipment and resources. In our U.S., it's the same approach. Our international operations probably have a little bit more exposure to that because things need to move around in order to access the slightly more remote locations and Caribbean areas. That's all kind of contemplated in the bid structure. It's a lot to think about. Candidly, the local nature of what we do makes it a little bit easier for us than some of the other companies out there. We're grateful for that piece, but doesn't mean we can take our eye off the ball.

Speaker 6

Okay. Thank you very much for the time.

Operator

Thank you. Our next question comes from Michael Tupholme of TD Cowen. Your line is open.

Speaker 7

Thank you. Good morning. My question is regarding the nuclear business and opportunity. I'm wondering if you can provide a bit of an update on not only the opportunities that you've already highlighted, that you've become involved with, such as X-energy in the U.S., but also some of the new opportunities that you're looking at, and specifically focused here on the new build side. Be that SMRs or large scale reactors.

Speaker 3

I will do it. Our nuclear revenue is around CAD 1.7 billion. That is between 70% and 75% in Canada, and between 25% and 30% in the U.S. In Canada, you know where we are strong, and this is all those programs of major component replacement. We are now full steam ahead on the third reactor of Bruce after having delivered on time, on budget the first two. Pickering is also ramping up. We are finalizing the development phase, and we should come to execution phase quite soon. We are advanced on the small modular reactor globally, something like 16% of progress on this job. This is something that everyone knows on this call. The U.S. is a little newer. What are we doing and what are we going to do in the future?

Speaker 3

The real market at the moment where we are focused on, it is not the new build. It is still early. The only new nuclear under construction in North America is Darlington SMR number 1. There is not at the moment in the U.S. The market is about life extension and what they call in the U.S., EPU, which is extended power uprate of the 80-90 reactors that exist in the U.S. It is about refurbishing a steam generator and major components of all those reactors to uprate the power output. We are getting stronger and stronger in this market. On another end, we are working more with the U.S. Department of Energy. This is federal work, and we like it. We have a look at the new build. You know about this Cascade project, which is the first tranche of four X-energy Xe-100 reactors.

Speaker 3

It is just ramping up, I would say, very slowly. The last point about the future I would like to highlight is about fabrication. We are extremely strong about fabrication in Canada. It may be about those steel composite elements for the new build to come, for example, the SMR number 1. It is also about module assembly. I just remind you that we have been building some modules for Westinghouse Electric Company a few years ago, and we are in discussion to optimize all our processes to modernize our workshops, our tools, our robotics. This is probably one of the points of the future.

Speaker 7

Perfect. Thank you for that. Second question is regarding the updated outlook commentary, specifically for revenues. Now calling for double-digit revenue growth in 2026 and then additional growth in 2027. Obviously, very strong top-line growth in the second quarter and acceleration in terms of the rate of growth relative to what you saw in the first quarter. How should we think about the revenue growth opportunity in terms of rate of growth in the second half of the year? Then, in addition to that, as we look a little further out, as we think about 2027, what is the right way to think about that growth opportunity?

Speaker 2

The change in the outlook, which is rightly noted, went from we said 2026 was going to exceed 2025. 2025 was an exceptional performance, by the way. We thought it prudent to adjust it to note the double-digit level of growth, in particular, just with what we are seeing, the backlog program that we have in place of CAD 10.5 billion, the recurring revenue, what I describe as the book and burn cadence of the business, is all quite positive, in addition to the recent awards that we have seen. With regards to specific guidance, we always shy away from that. We will note, as it stands today, in the next 12 months, there's roughly CAD 4 billion of what we describe as secured backlog that's executable.

Speaker 2

In addition, we know there's been two additional projects that will be added to backlog in Q3 that have been announced, which is the Greenlight Electricity Centre and then the Winnipeg Wastewater Phase 2 Biosolids Program. Do not want to give a specific number. I think one of the items was just we want to note that where we saw street views on revenue was likely a little bit light, we just wanted to encourage people to really get a better understanding of our conservative nature to backlog reporting and the fact that we have been very successful in organic revenue growth, all tied again around being able to secure projects with really appropriate risk-adjusted returns. The one item that's just worth noting is we remain very focused on securing work that has good risk balance to it, work that is executable.

Speaker 2

Any given level of margin, we are going to drop risk. At any given level of risk, we're going to take more margin. Overall, we're pretty happy with the work that we've been securing and how that work looks to be burning off over the next call it 12 to 18 months.

Speaker 7

Thank you for that, Jerome.

Speaker 2

Thanks, Mike.

Operator

Thank you. Our next question comes from Chris Murray of ATB Capital Markets. Your line is open.

Speaker 8

Yeah, thanks, folks. Just maybe following on that revenue question. I guess what I am trying to understand is just to your point about the risk-adjusted return on some of these projects. I am just trying to also understand, a lot of these are earlier stage. I am trying to understand if this is kind of a function as we think about this revenue growth, but also relative to the margin. Is there something going on with call it larger procurement, or are you just being cautious on early-stage reserves? I am just trying to understand, as these things evolve, if it is just phase of project that plays into what we are seeing with the dynamic or if there is something else to be aware of in terms of what is in the backlog, that quality of revenue, and how it plays out over the next couple of years.

Speaker 3

I will begin and maybe, Jerome, if you want to add something. Backlog is about quality and quality. If we have this backlog today, it is not by chance. We do not wake up at Aecon on a Friday morning to say, "Hey, we went from CAD 5 billion to CAD 10 billion, and most probably we are going to grow it again." We have a strategy, and we are extremely focused on delivering our strategy. This backlog is highly diversified. Again, it is not by chance. It is because we had targets for new businesses. We had targets for U.S. and international. We had targets about our proportion between fixed price and variable price, which makes this probably the best risk balance backlog that we ever had in the life of Aecon. There is more to come in 2027.

Speaker 3

You have understood that we are in the development phase on a few projects that will come to execution. We can speak about Mactaquac, we can speak about Roberts Bank, we can speak about Arctic Over the Horizon. All this will, at one moment of time, materialize in revenue. Most of those jobs, as I was explaining a few minutes ago, have a very thorough development phase before we go to execution. In terms of predictability of our future margin, we are in a much better spot today. Maybe, Jerome, you want to add something regarding profitability and margin level?

Speaker 2

Yeah. On that front, I think behind the question, Chris, is given the typical construction S-curve on project delivery and how early we are on several major programs, is that potentially influencing the margin cadence that we're seeing today? The answer is yes, but not in a very material way. Right? Our general approach is consistent with industry best practices. We are thoughtful about the level of margin recognition that goes through our accounting system, the amount of contingency that we have available on projects with regards to execution uncertainty when it's appropriate. Obviously that bulk of contingency is larger at the outset of a project than at the end of the project. In an ideal situation, you're releasing that into profitability. It is a small factor, but I wouldn't say it's one that's super material.

Speaker 2

On the asked question about whether procurement is influencing things or swinging the margin profile, the answer is not really, right? We are a counterparty and delivery partner of choice for very large major capital programs across North America. That's always going to involve procurement of material and subcontract resources. That's always been part of the mix for us, and that's always been part of the approach to our margins. I'd say there's nothing materially shifting on either of those two factors. It really is more around the approach to risk and then the better stability and long-term visibility we have on earnings and cash flow generation at Aecon.

Speaker 8

Okay. Thank you. My next question just, it was interesting in the notes and then the adjusted numbers. We saw some costs associated with a new ERP program, which is something I don't think we've seen in a while from you folks. Can you talk a little bit about what that program is all about, what it brings to you, and what you're trying to achieve? Is this some sort of new way to cost, or does it give you a different tool set? Any color would be appreciated.

Speaker 2

Yeah. I was wondering if it was going to come up. Maybe I'll launch off with saying that general perspective is that the systems, technology infrastructure that we have at Aecon is top-tier. It enables us to deliver the vast multitude of projects that we have on the books. It allows us to work in the secure environments required for defense and nuclear. This additional call-out is really around the deployment of additional best-in-suite systems within an Aecon ecosystem to allow us to continue to not only maintain that leading position, but effectively try to be actually at the top of systems with regards to project management, integration, data governance, AI, and all the various items that we view as candidly.

Speaker 2

It's going to be largely table stakes probably at some point, but it's definitely one where you have to be part of it when you think about digital twins, integrated design delivery, scheduling, the engineering work that we're doing with regards to United and how that all ties into eventual project delivery on the programs that we're on and the programs that are coming. Right? I think one of the things that we're very mindful at Aecon is this is a unique time in the construction market with regards to really strong demands. We understand resourcing is going to be constrained. We want to make sure that we are in front of that. One of the ways to make sure that you get best efficiency and productivity out of your teams is to have the best tools available for them. That's what this is tied to.

Speaker 2

I'd also note that this is something that we started last year, as far as the assessment and early implementation. The specific reason why it's being called out as an adjustment factor in our financials is we try to improve comparability with our results and our peers, which are largely U.S. traded. In the United States, GAAP accounting effectively allows all these costs to be capitalized. Here, if we were taking that approach, this would have all folded into the CapEx program, and no one would have seen it. However, it's important to give people good line of sight into where this money is being spent because it hits the MG&A line.

Speaker 2

Number two, probably also helps to give confidence to our investors and our teams that we are investing in the future to ensure long-term stability, execution capacity, so that we can deliver on what is a very meaningful amount of work that's ahead of us over and above the secure backlog.

Speaker 8

Okay, great. Just maybe just for modeling purposes. I guess Q2 was about just a hair over CAD 4.2 million. Should we just be expecting that's kind of the normalized run rate? What's the duration that we should be expecting these costs? I assume that just will be over and above on your MG&A spend.

Speaker 2

The number is included in the MG&A number. That's why it's added back to get to the adjusted EBITDA figure, right? From my standpoint, we're not going to provide guidance on the total program size. It's very reasonable, right? We're builders and we're constructors. We're always mindful from a cost standpoint. We're not looking to make a meal of this whole thing. We're not going to provide guidance on timing or quantum. That being said, the amount that we've spent in the quarter is not like capital M material to Aecon. I'd say it'd probably stay in that area code.

Speaker 8

Okay. I'll leave it there. Thanks, folks.

Operator

Thank you. I'm showing no further questions at this time. I'd like to turn it back to Adam Borgatti for closing remarks.

Speaker 1

Thanks, Didi. Thanks everyone for joining us today. As always, welcome any follow-up questions or comments. Feel free to reach out to the IR team. Have a wonderful rest of your summer.

Operator

This concludes today's conference call. Thank you for participating. You may now disconnect.

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