Aecon Group Inc
TSX:ARE
Earnings Call Analysis
Q4-2023 Analysis
Aecon Group Inc
In 2023, Aecon underwent a transformation with crucial strategic transactions that unlocked significant shareholder value. The company achieved over $0.5 billion in proceeds from key sales and investment, boosting the capital position and enabling the repayment of $184 million in convertible debentures. This strategic shift, coupled with a $258 million improvement in free cash flow, fortified Aecon's financial flexibility for future growth. Progress was made on legacy projects, which now represent only 7% of the backlog—down from 17% last year—though risks remain due to factors such as changes in estimates or circumstances.
Aecon reported annual revenue of $4.6 billion, slightly lower by 1% from the previous year, primarily due to the strategic divestiture of its Transportation East business. Excluding this change, like-for-like revenue actually grew by 5%. However, adjusted EBITDA experienced a dip to $143 million, from $219 million the previous year. On the bright side, a substantial part of the income was generated from the sale of a 49.9% interest in the Bermuda International Airport concessionaire, which contributed to a significant jump in operating profit and diluted earnings per share to $2.10 from $0.47 in 2022. The backlog remains robust at $6.2 billion, with new contracts amounting to $4.5 billion for the year, and shareholders saw a dividend increase to $0.19 per share.
The company observed varied revenue shifts across its operational sectors, with civil operations enduring the most significant drop due to divestitures and decreased roadbuilding work. Utility operations also saw a decrease, mainly from a reduction in gas distribution activities. On the other hand, urban transportation solutions enjoyed a growth spurt from rail expansion and electrification work in Ontario. In alignment with Aecon's strategic plan, there's been a shift from fixed-price to non-fixed price work, increasing the company's ability to manage risks and focus on margin predictability.
Concessions revenue marginally decreased to $74 million compared to $76 million in the previous year, affected by the sale of Skyport interest. Adjusted EBITDA however in this segment rose to $90 million, driven by improved results from the Bermuda Airport. As part of its capital management, Aecon repaid $184 million in convertible debentures and has no significant debt maturities until 2027, barring standard equipment loans and leases. This places Aecon in a strong financial position with substantial resources for disciplined capital allocation and long-term growth.
Aecon's service demand remains vigorous, with a promising backlog and recurrent revenue programs. This robust demand translated to a 27% increase in revenue from such programs compared to the previous year, showing a growth trend with aims to boost not just revenue but also profitability and margin stability. The company is increasingly pivoting towards sustainability projects, which now account for 64% of revenue. This is part of a broader effort to build resilience in a balanced and diversified portfolio that aligns with strategic priorities aimed at growth and margin predictability.
2024's revenue outlook is shaped by the completion of strategic transactions from 2023 and the progression of large lump sum turnkey projects expected to finish soon. Aecon is more circumspect with such projects, aiming to improve revenue quality over quantity. This correlates with a shift towards progressive design-build contracts, setting the company up for lower-risk and more predictable margins. As these new projects ramp up in the latter half of the year, Aecon appears poised for a strategic leap into 2025, with an emphasis on execution over expansion.
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Good day and thank you for standing by. Welcome to the Aecon Group Fourth Quarter 2023 Earnings Conference Call. [Operator Instructions] After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions]Please be advised that today's conference is being recorded.I would now like to hand the conference over to Mr. Adam Borgatti. Please go ahead.
Thank you, Abigail.Good morning, everyone, and thanks for participating in our year-end 2023 results conference call. This is Adam Borgatti speaking, Senior Vice President, Corporate Development and Investor Relations.Joining me today are Jean-Louis Servranckx, President and CEO; and Alistair MacCallum, Senior Vice President, Finance.Our earnings announcement was released yesterday evening, and we have posted a slide presentation on the investing section of our website, which we will refer to during this call.As noted on Slide 2 of the presentation, listeners are reminded that the information we are sharing with you today includes forward-looking statements. These statements are based on assumptions that are subject to significant risks and uncertainties. Although Aecon believes the expectations reflected in these statements are reasonable, we can give no assurance that these expectations will prove to be correct.I'll touch first on highlights from Aecon's year-end review and Alistair will then review our consolidated and segment results for the year, and address Aecon's financial position. We would normally then turn the call over to Jean-Louis for our operational review and outlook, but unfortunately, he's lost most of his voice at this time, so I'll read his prepared remarks, and we'll save what voice he has left for your questions following the presentation.On that note, following our comments, we'll be glad to take questions from analysts and ask that analysts keep one question before getting back into the queue to ensure others have a chance to contribute.Now turning to Slide 3. 2023 was a transformational year for Aecon, driven by 3 strategic transactions, which allowed us to capture unlocked value for shareholders, partner with respected institutions with significant experience to help Aecon grow in alignment with our strategy, and strengthen Aecon's balance sheet and capital position. Through the tremendous efforts of our teams, we were able to realize over $0.5 billion in proceeds through the sale of Aecon Transportation East, a 49.9% sale in Skyport, and Oaktree's investment in Aecon Utilities, all at attractive and accretive valuations.The transactions strengthened Aecon's capital position, including through the repayment of $184 million in convertible debentures at the end of the year, and will provide financial flexibility to capitalize on attractive growth opportunities ahead. Aecon's free cash flow in 2023 of $123 million improved by $258 million compared to a negative $135 million in 2022. And we continue to focus on derisking our business with 58% of 2023 revenue on a non-fixed price basis compared to 49% non-fixed price work in 2022.Finally, interim agreements were reached on the 4 legacy projects with one reaching substantial completion in 2023, 2 expected to be substantially complete by the end of 2024, and the final one expected to be substantially complete during 2025.The 4 legacy projects represent 7% of backlog at December 31, 2023, compared to 17% at the end of 2022. We would be the first to acknowledge that despite the progress made to date, risk remains if assumptions, estimates, and/or circumstances change, but we and our joint venture partners are focused on project completions, pursuing further recoveries, and putting these legacy projects behind us. Every day, we are getting closer to the end.And with that, I'll turn the call over to Alistair.
Thanks, Adam, and good morning, everyone.Turning to Slide 4. Revenue for the year of $4.6 billion was $52 million or 1% lower compared to 2022. The lower revenue is largely attributable to the sale of Aecon's Transportation East business in the second quarter of 2023, which generated $51 million of revenue in 2023 compared with $326 million of revenue in 2022. Adjusting for the sale of Aecon's Transportation East business, revenue increased on a like-for-like basis by $223 million or 5% in the year. Adjusted EBITDA of $143 million, a margin of 3.1% compared to $219 million, a margin of 4.7% last year, and operating profit of $241 million compared to an operating profit of $97 million in 2022.Excluding the impact of the 4 legacy projects on results in 2023, adjusted EBITDA on the balance of the business was $359 million, a margin of 9.1%. Diluted earnings per share for the year was $2.10 compared to diluted earnings per share of $0.47 in 2022. The improvement in operating profit and diluted earnings per share was largely due to a gain related to the sale of 49.9% interest in the Bermuda International Airport concessionaire of $139 million, including a fair value remeasurement gain of $80 million on Aecon's 50.1% retained interest in the concessionaire, a gain of $37 million from the sale of ATE and higher gains on the sale of property, buildings, and equipment of $39 million.Reported backlog was $6.2 billion at the end of 2023 compared to backlog of $6.3 billion at the end of 2022. Backlog at the end of 2022 included $391 million from Aecon's Transportation East business. New contract awards of $4.5 billion were booked in the year compared to $4.8 billion a year ago. As announced yesterday, Aecon's Board of Directors approved an increase to the quarterly dividend to $0.19 per share from $0.185 per share previously with the next payment to occur on April 3, 2024.Now looking at results by segment. Turning to page -- turning to Slide 5. Construction revenue of $4.6 billion in 2023 was $48 million or 1% lower than the previous year. The largest decrease in revenue occurred in civil operations driven by lower volume of roadbuilding construction work as a result of the sale of ATE discussed earlier, and partially offset by a higher volume of major projects work. Revenue was also lower in nuclear operations, driven by a lower volume of refurbishment work, and in industrial operations, driven by a lower volume of work, primarily at chemical facilities in Eastern Canada and partially offset by increased activity on mainline pipeline work.In the utilities operations, lower revenue resulted primarily from a decrease in gas distribution work. Partially offsetting these decreases were higher revenue in urban transportation solutions, primarily from an increase in rail expansion and electrification work in Ontario. New contract awards were $4.4 billion in 2023 compared to $4.7 billion in the previous year. Construction backlog at the end of 2023 was $6.1 billion compared to $6.2 billion at the end of 2022.Turning to Slide 6. Adjusted EBITDA of $99 million, a margin of 2.2% compared to $193 million, a margin of 4.2% in 2022. The largest driver of the decrease was negative gross profit of $215 million in 2023 from 3 of the 4 fixed-price legacy projects versus a negative gross profit of $120 million last year or a negative year-over-year impact on operating profit of $95 million. Other than the impact of fixed-price legacy projects in 2023, higher operating profit in the balance of Construction segment was driven by higher volume and gross profit margin in urban transportation solutions, higher gross profit margin in industrial operations, and higher gains on sales of property, plant and equipment and utilities operations.However, these gains were partially offset by lower operating profit from roadbuilding construction work due to the sale of Aecon's Transportation East business and lower volume and gross profit margin in nuclear operations. At the end of 2023, the remaining backlog to be worked off on the 4 legacy projects was $420 million compared to $1.1 billion at the end of 2022. These projects comprise 16% of consolidated revenue in both 2023 and 2022 while comprising 7% of backlog at the end of 2023 compared to 17% at the end of 2022.Turning to Slide 7. Concessions revenue for the year was $74 million compared to $76 million in 2022. The decrease in revenue was largely driven by the sale of a 49.9% interest in the Bermuda International Airport concessionaire and the use of equity method of accounting on a prospective basis for Aecon's retained 50.1% interest in Skyport. In 2023, passenger traffic levels in Bermuda averaged 75% of 2019 pre-pandemic traffic compared to 58% in 2022. Adjusted EBITDA in the Concessions segment of $90 million compared to $71 million in 2022, primarily driven due to improved results from the Bermuda Airport and an increase in management and development fees.As noted previously, operating profit in Concessions reflects a gain in the sale in the year of $139 million.Turning to Slide 8. At the end of 2023, Aecon held cash and cash equivalents of $259 million, excluding cash in joint operations. In addition, at December 31, 2023, Aecon had committed revolving credit facilities of $850 million, of which $112 million was drawn and $6 million was utilized for letters of credit. On December 29, 2023, convertible debentures with a face value of $184 million were repaid in cash. Aecon has no debt or working capital credit facility maturities until 2027 except equipment loans and leases in the normal course.Aecon plans to maintain a disciplined capital allocation approach focused on long-term shareholder value through acquisitions and divestitures, organic growth, dividends, and capital investments. Capital expenditures in 2024 are expected to be similar to previous years.At this point, I'll turn the call back over to Adam.
Thanks, Alistair.Turning to Slide 9. Aecon continues to build resilience through a balanced and diversified portfolio of work while enhancing critical execution capabilities and project selection to play to our strengths. Moving forward, we remain focused on leveraging our self-perform capabilities and One Aecon approach to maximize value for clients to improve cost certainty and schedule while offering a broad range of infrastructure services from development, engineering, investment, and construction to longer-term operations and maintenance.We will continue to pursue and deliver the majority of our work in our established markets while embracing new opportunities to grow in areas linked to decarbonization and the energy transition as well as in the U.S. and international markets. These opportunities are intended over the long term to diversify Aecon's geographic presence, provide further growth opportunities, and deliver more consistent earnings through economic cycles.Turning to Slide 10. Demand for Aecon services across Canada continues to be strong. With backlog of $6.2 billion at the end of 2023, recurring revenue programs, seeing robust demand, and a strong bid pipeline, Aecon believes it is positioned to achieve further revenue growth over the next few years and is focused on achieving improved profitability and margin predictability. Revenue from recurring revenue programs increased to $1.1 billion in 2023 from $896 million in 2022, representing growth of over 27% over last year and 67% versus 2 years ago.In addition, development work is ongoing in consortiums in which Aecon is a participant to deliver the GO Expansion On-Corridor Works project, the Scarborough Subway Extension, Stations, Rail and Systems project, and the Darlington New Nuclear project, all in Ontario. These projects are being delivered using progressive design-build models, and each project is expected to move into the construction phase in 2025.The GO Expansion project also includes an operations and maintenance component over a 23-year term commencing January 1, 2025. As a reminder, none of the anticipated work from these 3 progressive design-build projects is yet reflected in backlog.Turning to Slide 11. Aecon continues to support the energy transition to build and operate sustainable infrastructure. Projects such as the Oneida Energy Storage project, GO Expansion, the Scarborough Subway Extension, and the Darlington SMR demonstrate the path Aecon is on to embrace the opportunities linked to decarbonization, sustainability, and the energy transition.Revenue tied to sustainability projects represented 64% of 2023 revenue versus 60% in 2022.Turning to Slide 12 and in conclusion, 2023 was a transformational year for Aecon, driven by significant transactions aligned with our strategy and the strengthening of our capital position, all paving the way for growth. We want to thank our employees for their contributions to the achievements this year, and we look forward to the years ahead as we continue to build resilience through a balanced and diversified portfolio of work.2024 revenue will be impacted by the 3 strategic transactions completed in 2023, the substantial completion of several large projects in the year, and the 3 major projects currently in the development phase being delivered under progressive design-build models, which are expected to move into the construction phase in 2025.The completion and satisfactory resolution of claims on the 4 legacy projects with their respective clients remains a critical focus for Aecon and our partners, while the remainder of the business continues to perform as expected, supported by the strong level of backlog and new awards during 2023 and the strong demand environment for Aecon services, including recurring revenue programs.Thank you. And we'll now turn the call over to analysts for questions.
At this time, we'll conduct the question-and-answer session. [Operator Instructions]Our first question comes from Jacob Bout with CIBC.
A question on how you're thinking about revenue growth in 2024. I know there's a number of moving parts with the strategic divestments and completion of projects. But can we expect revenue growth to be similar to the year-on-year performance you saw in the fourth quarter? And then what are your thoughts on the U.S. utilities contribution in 2024? And are you still targeting kind of longer-term $100 million to $200 million revenue?
I will take this one as much as I can. Sorry for my voice.The revenue in 2024 is about pure math, taking into account the 3 transaction of last year, the fact that most of our major lump sum turnkey projects are getting completed, the fact that we have decided not to take any more big lump sum job, I had spoken with you about a limit around $1 billion. And the fact that we have embarked in a few progressive design-build contract. I mean this is our strategy, which is totally focused on margin predictability, not on ballooning revenue.It means that we are extremely comfortable with our backlog. You remember that in our $6.2 billion backlog, we don't have the progressive design-build. We are always speaking about 3, which is a small modular reactor, Scarborough system and station, and the GO train expansion. You have seen a few days ago that we have added a fourth one, which is a Harbor of Contrecoeur in Montreal. So this is our strategy. It's exactly what we wanted.You probably also have noticed that we have gone the way we wanted to go in terms of transiting from fixed-price contracts to non-fixed price contract. Then we're representing the non-fixed price contract, 49% 2 years ago, 58% this year. We are targeting for the years to come 65%. We are derisking our activity. We are focused on margin predictability, not on improving the revenue per se. This is without taking into account the $1.1 billion of recurring revenue that you have seen in our presentation.So this is what is going to happen in 2024. This being said, most of our progressive design-build big job will ramp up during the 2 last quarter of the year to be ready for work on a much bigger scale from early 2025.
And I think, Jacob, the second part of your question was about U.S. utilities expansion. Yes, still very much on track and very keen to get our strategy in place with our partners at Oaktree. So far, it's gone very well, very like-minded group and great access and experience in exactly what we're looking for. So we expect 2024 to be a growth year in that business and leveraging all of the efforts that we've put in to date into success moving forward.I think you had mentioned a number of about $200 million, though, was that in reference to the sizes we're looking at?
Yes. I think you had given out some guidance in the past as far as what you were targeting. And just curious what you're thinking today as far as the U.S. utilities group.
So about consistent with that, if we were to take on kind of new investments, let's say, kind of low hundreds of millions, if you will, plus or minus, depending on what we're finding.
Our next question comes from Yuri Lynk with Canaccord Genuity.
Maybe -- I mean obviously, the balance sheet is as strong as we've ever seen it, almost no net debt there. And the underlying EBITDA of the business appears very strong. So how do we think about capital allocation here? And does the arbitration process that is coming up in the third quarter on CGL? Does not knowing how that's going to go play a big role in maybe preventing you from going out and doing a buyback or something like that, that might benefit shareholders?
Yes. Yuri, it's Alistair here. So exactly, I think you saw a small dividend increase reflective of our improved balance sheet, improved cash position, and with the general business, improved outlook. We still have to complete the legacy projects, and we also have the arbitration with CGL later in the year, and which Jean-Louis will talk about in a minute. But yes, we want to really get through the 2 UTS-LRT projects and then also get through the CGL arbitration before we make any decisions on really what to do with the cash on the balance sheet as with regards to an NCIB or something like that.So we're kind of in a wait-and-see mode, and 2024 will be a bit of a transition year. But as you know, in Construction, we need a strong balance sheet. And so we're going to maintain that and make sure we'll get through this year.
To add some color, I mean we are extremely happy with our almost $1 billion of liquidity at the end of the year 2023. This is what is needed, and this will allow us, I mean, a lot of different alternatives in front of the opportunity we can see.
How are your clients adapting to your -- this push for progressive design and a more collaborative approach or how has business changed and kind of the discussions around contract structure? You've had some great success last year. You won the contract in Montreal. I mean it appears on the surface that it's being well accepted by the market, but any additional color there?
Yes. I mean I consider it as a win-win for clients and for contractors in terms of derisking. In a progressive design-build, you don't have lengthy and proactive negotiation dispute claim. I mean you -- I just can see the level of collaboration, for example, on the GO Expansion. It's astonishing the way we can optimize the project working together. So little by little, I would say, our clients that have been pushed, I mean, to this new mode of contracting because of lack of competition are just discovering that it's also derisking their way of investing.And they are -- I would say, they are embracing this new way of contracting. As you noticed, I mean, during the first 1.5 years, it's a development phase. And we don't have the revenue that we could have on other schemes of contracting. But all in all, that's better for us.To conclude, I don't think we have to go towards 100% progressive design-build. I mean the whole resilience of Aecon is about balance. It's about balance between recurring revenue, between unit price job between some lump sum job, provided they -- I mean the contractual condition is okay, provided the client is okay, provided the size is okay and some progressive design-build. And we will navigate balancing each of those contractual modes.
Our next question comes from Chris Murray with ATB Capital Markets.
I'm kind of looking at Slide 14, which was the normalized earnings profile for the company for the last year. And I guess what I'm trying to figure out is that you've taken write-downs and adjustments on all the projects so far through '23 and also '22, but we're getting pretty close to the end here. Can you maybe walk us through in terms of pacing, like realistically, should we just start -- keep assuming kind of the run rate that we saw in Q4 in terms of losses until we get past the LRT contracts? But any color you can give us on how to think about what to expect as we go into '24 would be helpful.
We still have our 4 legacy project on our shoulders, but the situation is getting better and better. I mean you have noticed we have something like $420 million of backlog, which represents 7%. So it's a steep decrease. On this $420 million of backlog, I mean 60% is about Gordie Howe, which is not the most difficult one. There's something like 90% to 95% on CGL, but most probably, we're not going to execute it because the client has other alternative to finalize the cleanup.So it's remaining rather weak on Eglinton and on Finch. So where are the issues? Basically on Eglinton and Finch, one of the main issues is not about finalizing the job. It's not about testing and commissioning. We are extremely advanced there. For example, next Friday in a few days, we will have 3 trains inaugurating up and down the whole Finch line which just means that all the signaling and train control systems are perfectly adequate. The issue we are facing is that we are not totally in control of the timing for the operator, which is TTC, to take over the operation.All this, I mean has contractual implications. So we are working with our client on that. So it just means that we are not totally finished. So mainly, it has not changed. First of all, we need to finish construction. Second, we need to protect our cash to the moment we are over. And third, we need to finalize all dispute claim and conciliation, eventually arbitration as quick as we can and as good as we can.
And so I guess my question is, in terms of the magnitude of anything that we should maybe allow for in 2024, I would assume under accounting rules, the last adjustment that we saw for Q4 takes you to your best estimates. Is that the right way to think about it or will there be other overhead costs or other things that we should allow for?
Yes. Fair point, Chris. I mean the projects are positioned as we expect them to be completed currently. In the fourth quarter, you would have seen some more impacts on the LRTs, which from Q3 to Q4 reflected some of the changes to scheduling and requirements to complete those. And so when those things come up in the future, we will adjust accordingly. But from what we know currently, the projects are all positioned properly. And based on all the interim settlements that we had last year from an operational perspective, we feel much better this year going through to completions.And as Jean-Louis noted, more of the potential impacts down the road could come from the ultimate arbitrations and settlements.
And then the other quick question I had for you is just any update on as much as I'm sure you guys are enjoying doing the call, any update on the CFO search and that process? And is that actually impacting or tying your hands a little bit on any sort of capital deployment?
So the CFO search is well on its way. We are exploring internal possibilities and external possibilities. What I can tell you is that I've just discovered during the 2 last months, how strong is the team that had been created by David. So we should be over with the search probably within the next few weeks. And this is what is important. I mean an extremely strong team, all focused on closing out our legacy project, all focused on growth for Aecon and being able to tackle the opportunities around us.
Our next question comes from Ian Gillies with Stifel.
With respect to the competitive environment, obviously, margins are getting much better. The outlook is much healthier. Are you seeing any increased competition from international firms that may have exited the market previously or are you seeing anyone trying to come back into Canada at this juncture?
If some big international firm wants to reenter Canada on huge lump sum job, good luck. I mean we're not going to compete with them on those ones. We know what it means. So I don't think that the competition is really increasing. I mean Aecon is a partner of choice of most of our clients on most of our projects. It's extremely rare, I would say that we are not pre-qualified on a job. And then after, I mean we have our priorities. We can decide, I mean, in front of our strategy, in front of our workload, where do we want to go, and where we are ready to pass.But Aecon in terms of infrastructure is extremely well-positioned. On another hand, I mean as you have noticed from our slide on Page 24, the underlying business without the legacy project is extremely strong. I mean I've been interested in looking at the results just published by a few of our competitors and peers. It seems to be very happy with an EBITDA at the mid-10s, I mean we are extremely stronger outside of our legacy project. Our strategy is right. We are focused on it, margin, predictability, margin, predictability, and we are going forward.
And then moving to the arbitration with respect to CGL and perhaps the other projects, as we think about some of the losses accrued over the last number of years related to those 4 projects, would that take into account any potential outcomes from arbitration or will that be incremental either to the positive or negative when eventually finalized?
I mean I will begin and Alistair may -- we have taken position on all our legacy projects, depending on the knowledge that we have of the schedule of our future revenue, of our execution costs. There is still work to do. There are still negotiation. I mean you mentioned the arbitration on CGL. I mean just remember that it has begun 1.5 years ago. It is ongoing. It's going to accelerate in Q3 2024. But meanwhile, every week, we are negotiating with our clients. It means that we are using the 2 vectors.We are not totally in control of the result of the arbitration. You remember that it's a panel of 3 arbitrators. One chosen by us, one by CGL, and the third one chosen by the 2 arbitrators. We are working I mean the best we can with the best team that we have on it, but there is still a note about it.Alistair, do you want to add something?
Yes. I mean when it comes to our positions on the legacy jobs, we essentially -- we take a position on our claims with our partners and based on legal entitlement and the values. And essentially, if there's an outcome that differs from that, we could either have a write-up or a write-down. But our positions are based on the best information that we have based on legal experts. And so any difference would arise from an outcome that's different from what the JV partners have on the 4 legacy projects.
Our next question comes from Sabahat Khan with RBC Capital Markets.
Thanks for providing the color on the CGL. I guess just thinking about the other 3 projects, can you maybe just talk through what the process or kind of the road ahead there might be on recoveries and how you go about those? Is there going to be eventual arbitrations there or will there be a different mechanism?
So at the moment, on Gordie Howe, there is no pending claim, no negotiation. I mean we are just trying to go perfectly within the schedule that has been agreed upon with the client, when we had the last deal at the end of 2023, which is the bridge to be closed around mid-2024 and the project to be substantially completed and handed over before the end of 2025.On the LRT, 2 LRT jobs, yes, we have claims. We have ongoing negotiation, I would say, every day on the substance of those claims. And it will go, I mean, probably a little further after substantial completion. As I have said, I mean, we have gathered the best team within our company and externally to be -- to put the outcome of those negotiations and/or dispute on the best side for us.
And then I guess the color you provided on sort of pro forma EBITDA margins, understanding it's illustrative. But I guess is that something we should look at as look, is that kind of long-term potential margins? Is there any sort of -- should we expect that over a medium term? Any time line you can share? Just trying to get an idea of how we should be thinking about those margins as we forecast over the next few years.
Yes, Sabahat. It's consistent with the last year or 2 as we've provided some of this color in the past. So excluding the 4 legacies in '22, '23, and as we look ahead, we've seen this kind of margin consistency. And as we remind everybody not to look at any one quarter in isolation but to look at it on kind of a rolling 12-month basis. We would not see any reason to believe that those wouldn't be at or above the next levels. And as a reminder, these progressive design-build ones have very good floor mechanisms that come into backlog next year.And so we feel comfortable with what the numbers you're seeing on pro forma on these projects.
What is also important to note is that from September 2018, I mean, we have not created any new legacy project, we have drastically reduced the size of the lump-sum turnkey. We have a gate zero process that allows us to evaluate the risk of the -- of our per suite. I think we are getting extremely professional and acute on this. And this is what is important. I mean there will always be project more difficult or project easier. But what is sure is that we'll never ever come back to the situation where we have been and we are still, I mean, for a real time with too many big too dangerous fixed-price job. This world is over.
Our next question comes from Michael Kypreos with Desjardins.
Congrats on the strong results. Maybe switching to cash. You received a pretty significant working capital release in the quarter with some strong contribution from deferred revenue. Can you provide some more details on the drivers of this inflow, its one-time nature and your expectations for working capital and free cash flow in 2024, please?
So you're right. We did have a big inflow of cash from working capital in Q4. Part of that came from one of our large settlements that we've previously talked about, bridge project. And then really, the other component that came through deferred revenue was 2 other large advances for projects that are starting up. So that certainly helped the quarter. And obviously, for the year, we were -- we had positive working capital and really positive cash so for the first time in a couple of years. So a great result on the cash flow side.Expectations for '24 are similar to '23 and that we expect to have a good year. I think it will follow the seasonal patterns that we've seen in previous years. So using cash in Q1 and Q2 and returning cash in Q3 and mostly Q4. That always seems to be our strong quarter from a cash perspective. And obviously, as per earlier conversations, it's subject to settlements on our legacy projects.And the other thing I'd note is our working capital tends to be a bit lumpy, so take that into account.
Our next question comes from Jonathan Lamers with Laurentian Bank.
Just taking a look at your slide with your updated mix of business, looking out, say, 3 years or 5 years, as the work in the backlog and the pending backlog converts income and you continue to grow utilities, like how do you see the mix evolving in a few years?
So first of all, you probably remember, we have 2 vectors, I mean in terms of development. The first one is that we want to be able to master the totality of the value chain in infrastructure. It means developing our project, financing them, engineering or coordinating the engineering, building, and operating our assets. This is our strategy because this is where is the value, this is where is the money.For example, Bermuda is a pure example of what I'm saying. The second point, the second vector is about balancing our activities. And it's balancing between our different sectors. This being said, I see Aecon becoming more and more electrical and probably less about civil works. We were overweighted, I think, in civil works. The huge opportunities on the ground are about energy transition. I mean it's about decarbonizing and upgrading the grid. It's about being able to produce electricity on a cleaner way.We are extremely strong in nuclear. You know that our utilities, I mean, is -- the sector is working extremely well. You know that we are extremely ambitious on the growth of this utility business, although we'll do it prudently, but we'll do it steadily I mean to grow in the United States with the utility sector. So probably, I mean, in a nutshell, more electric, less civil.
And just following up on that. I believe your earlier comments are that you would expect the underlying margin in the Construction business ex the legacy project losses to be sustained or potentially improved as you continue to shift that way?
Yes, we do. We think our strategy is the right one. We are extremely focused on it. And we are also focused every day on closing out our legacy project, as you probably have noticed. I mean they are still in our backpack, I mean less and less every day, but there's still work to do to be able to consider that that's over.
Our next question comes from Michael Tupholme with TD Securities.
Earlier in the call, there was a question about capital allocation, although I think it was fairly specifically focused on the potential for buybacks. And I think Alistair, you suggested that, in some regards, this is a bit of a transition year, a transformation year, and you want to see how the legacy projects unfold before contemplating buybacks. I'm wondering if you can maybe talk about capital allocation a little more broadly and specifically thinking about acquisition opportunities, one, would it be fair to say that sort of the comments you made about waiting to see how things play out has no bearing on your thoughts around the utilities business in the U.S. and possible acquisitions there.And then secondly, are you still looking at acquisitions in other parts of Aecon be it in Canada, or elsewhere outside of the utilities area? And if so, how should we think about the potential there?
Yes, Mike. So we are continuing to look at opportunities for utilities, both in Canada and in the U.S. Also across our businesses, we continue to look for tuck-in businesses that we can add to grow the company. So certainly, the growth side of our strategy is a huge focus for us in '24. And really, when I was talking about the strong balance sheet and preserving that, it was really in regards to the NCIB and just holding tight there until the outcome of the legacy projects is done.But certainly, our focus is on growth and the strong balance sheet. We want to put that to work and looking at things that will help strengthen our business in the future.
And then you -- in the question you just received a few minutes ago about working capital, I guess you talked about typical seasonality, but there have been a lot of changes in the business over the last 12 months to 18 months. I guess when we're thinking about seasonality and I can't imagine that things have changed dramatically and that Q1 has always been a weaker quarter seasonally. But I'm just wondering if you can comment on any changes that we should be thinking about from a seasonal perspective given all of the evolution that's occurred in the last 12 months to 18 months with the various divestitures and whatnot.
Sure. Yes. I mean Q1 continues to be our slowest quarter. And again, while we sold our Transportation East business, we still have our Transportation West business that's impacted by winter conditions. And obviously, our utilities business is heavily impacted by winter conditions. So the seasonality has maybe lessened a little bit, but it still exists in the Construction business in Canada and we'd probably never get away from that because even our civil business to a small degree impacts with winter.So I don't know. JL, if there's anything you want to add to that?
No. The only business we are doing that is not dependent on Q1 and weather is nuclear, basically. So it depends on the way we are piloting our activity between Bruce and Darlington.
[Operator Instructions] Our next question comes from Maxim Sytchev with National Bank Financial.
I was wondering if you don't mind maybe commenting about what's out there in terms of Concessions. When it comes to opportunities, how is the market? What are you guys tracking? Yes, maybe any color there.
Yes. I mean, basically, the former P3 big infrastructure market in Canada is decreasing a lot. They have not been -- I mean those kind of schemes have not come to the market for the last 2 years to 3 years. So we are chasing the energy transition. You probably remember our Oneida deal. There are a few other deals that we are looking at about Concession. We are also looking at airport, mainly international. We have been just pre-qualified for a concession, I mean, in Turks and Caicos, which is quite a similar job than the one we did in Bermuda.We have just put our preliminary offer for also kind of DBFOM in U.S. Virgin Island, 2 airports. So we are very active also on this front. The market is changing, but I think between the energy transition and the airport, which is a little our sweet spot, we are able to find, I mean, new ways of growing it with our Concession business.
And I guess, like in terms of the competition, some of the bigger guys would not be, I presume, as interested in some of these smaller assets. Is that the right way to think about it?
Yes, exactly. I mean we don't want to go when it's too small. We want to go when it's too big. I mean I'm not going to go to JFK or something like this. But I think we have our sweet spot where we can perfectly manage the competition because we have our own competitive advantage.
And then just one clarification because when I look at Fluor's results and their references to Gordie Howe, I think they had a true-up on their EBITDA in Q4. So did you guys have a reversal in working capital or also in EBITDA in your results?
No, it's interesting. We watched that as well, I guess, about a week or so ago. While we can't really comment on partners and competitors accounting principles and policies --
For sure.
We did have a pickup in the quarter based on the Gordie Howe settlement that we announced basically in Q2 and Q3. And recall, we had provisioned Gordie Howe downwards in Q2 and Q3 last year. And so our Q4 position reflected all of those adjustments already. So there were no impacts to us in the quarter from that on EBITDA or through the P&L.As Alistair referenced earlier, some of the working capital unwind was from that settlement along with the other projects. So while it was cash positive from the outcome, and we think we're now on the path to completion, there were no other impacts flowing through the P&L, such as what we saw with Fluor.
So I guess, yes, that's -- I guess my -- the negative impact from legacy contracts, it's all then LRT related, right?
Yes. For this quarter, correct. Yes, the 2 LRTs.
Our next question comes from Sean Jack with Raymond James.
Just a quick question. Looking at the slide from the newest investor deck on Aecon Utilities and just thinking about potential revenue growth for next year, I see that you guys did a 13% CAGR over the last 5 years. Is that attainable for 2024? And if you don't mind kind of talking about some of the puts and takes that might go into the outlook for next year?
Sure. We saw a little bit of compression in the last quarter or so of last year in 2023 just as some of the major utilities in telco and gas and others had capital that occurred a little bit to the right. So that work was all still there, and we expect that to pick back up in 2024. So I think from the 4 main areas that we focus on, we still have pretty good tailwinds in all the electricity, transmission distribution from all of the elements we've talked to so far, and the energy transition, the grid hardening, storm response, all those sorts of areas.Telecommunications is still quite steady. As I said, some pullback in the fourth quarter, but we expect that to increase again in next year. We've got renewables, in-home services and other driving good growth and gas as well. So I think across all areas, we still see some pretty reasonable outcomes organically, and that also includes expansion of our programs in the U.S. We started from a smaller scale last year, growing into a few telco and T&D opportunities.And then, of course, as we talked to, the real key of the strategy or the catalyst would be acquisitive growth along the way. So organically, I'd say what you've seen on a CAGR basis is quite achievable and maybe more. And from an M&A or inorganic perspective, that could catalyze the further.
That concludes the question-and-answer session. At this time, I would like to turn the call back to Adam for closing remarks.
Great. Thanks very much, and thank you all for your attendance and participation today. As always, feel free to reach out to us at any time with further follow-up questions. We wish you a great rest of the day, and we'll chat to you next quarter. Take care.
Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.