Aecon Group Inc

TSX:ARE

Good day, and thank you for standing by. Welcome to the Q1 2025 Earnings Call for Aecon Group. At this time, all participants are in a listen-only mode. [Operator Instructions]. 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, SVP, Corporate Development and Investor Relations. Please go ahead.

Thank you, Cathy. Good morning, everyone, and thanks for participating in our first quarter results conference call. This is Adam Borgatti speaking. 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, and we posted a slide presentation on our website, which we'll refer to during the call. Following our comments, we'll be glad to take questions from analysts, and we ask that analysts keep to one question and a follow-up before getting back into the queue.

As noted on Slide 2 of the presentation, listeners are reminded the information we're sharing with you today includes forward-looking statements and these statements are subject based on assumptions and 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.

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

Thanks, Adam, and good morning, everyone. I'm now going to speak to Aecon's consolidated results, review the results by our segments and address Aecon's financial position before turning the call over to Jean-Louis. Consistent with prior quarters, we provided additional information to help clarify the underlying results, excluding the impacts from the fixed price legacy projects and divestitures. Detailed direct tables are included in Slides 15 through 17 in the conference call presentation.

Let's turn now to Slide 3. On a reported basis, revenue for the 3 months ended March 31, 2025, was $1.1 billion, $215 million or 25% higher compared to the same period in 2024. Higher revenue was driven by increases in nuclear, industrial, utilities and civil operations, just partially offset by lower revenue in urban transportation Solutions.

Adjusted EBITDA of $4 million compared to $33 million last year, and operating loss of $41 million in the quarter compared to an operating loss of $4 million last year. Adjusted EBITDA and operating profit in the first quarter were largely impacted by negative gross profit of $29 million on a fixed price legacy project.

Additionally, results were further impacted by weaker gross profit in civil operations in Western Canada and a decline in gross profit earned due to lower margins on LRT projects and urban transportation Solutions as these projects progress towards substantial completion.

Excluding the impacts from the legacy project, additional -- as adjusted revenue for the first 3 months ended March 31, 2025, of $1 billion compares to $772 million in the same period last year, and adjusted EBITDA of $32 million compared to $33 million last year, essentially flat. Adjusted diluted loss per share in the quarter of $0.54 compared to a loss of $0.14 last year.

Aecon reported backlog of $9.7 billion at the end of the first quarter. This is a significant accomplishment from the operating teams as Aecon now stands at the highest reported backlog in its history. New contract awards of $4.1 billion were booked in the quarter, largely from the target price contracts, Scarborough Subway Extension project and additional refurbishment work at the nuclear -- the Pickering Nuclear Generating Station.

Now looking at results by segment and turning to Slide 4. Construction revenue of $1.1 billion in the first quarter was $214 million or 25% higher than the same period last year. Revenue is higher in nuclear operations, driven by an increased volume of refurbishment work in nuclear generating stations in Ontario and the United States and industrial operations primarily from the higher volume of field instruction work and industrial facilities in Western Canada. Revenues is also higher in utility operations from an increased volume of electrical transmission work in the U.S., which benefited from our acquisition of Xtreme in the second half of 2024 and from an increase in battery energy storage system work, and in civil operations primarily from the higher volume of foundations work.

Partially offsetting these increases was lower revenue in urban transportation solutions, largely from a lower volume of LRT work in Ontario and

Québec as 3 projects near completion. On an as adjusted basis, construction revenue was $1 billion compared to $770 million in the same period last year, representing a 34% increase. As noted, the new contract awards of $4.1 billion in the first quarter of 2025 were exceptionally high and compared to $960 million in the same period last year.

Turning now to Slide 5. Adjusted EBITDA of negative $1 million compared to $28 million last year, and operating loss of $30 million compared to an operating profit of $7 million last year. As previously mentioned, adjusted EBITDA in the first quarter was largely impacted by a negative gross profit of $29 million on fixed price by legacy project. On an as adjusted basis, adjusted EBITDA for the 3 months ended March 31, 2025, of $27 million compared to $28 million in the same period in 2024. Operating profit in the quarter was similarly impacted by the negative gross profit of $29 million by the fixed legacy project as well as roughly $8 million of M&A-related amortization in costs. Absent these effects, operating profit in the quarter was effectively flat.

Turning to Slide 6. Concessions revenue for the first quarter was $2 million compared to $3 million in same period last year. Adjusted EBITDA in the Concessions segment of $13 million in the quarter compared to $18 million last year and operating loss of $2 million compared to an operating profit of $1 million last year.

On Slide 7, we brought this all together with the as adjusted information to excludes the impact of legacy projects and divestitures to provide insights into the underlying performance of the overall business. On an as-adjusted basis, revenue for the trailing 12 months period ending March 31 was $4.4 billion compared to $3.8 billion same period last year, adjusted EBITDA was $349 million in the drilling 12-month period compared to $353 million in the period prior.

For the Construction segment, on an as-adjusted basis, adjusted EBITDA was $307 million for the trailing 12-month period, representing a 7% margin. As adjusted EBITDA margin was impacted by lower fees earned from the earlier stages of collaborative projects as these approach the respective construction phases. The margin dilutive impact of performance in civil operations in Western Canada and the ramping up of products with more appropriate contract execution structures.

Turning to Slide 8. At the end of the first quarter, Aecon held cash and cash equivalents of $38 million excluding $348 million of cash held in joint operations. In addition, at March 31, 2025, Aecon had committed revolving credit facilities of $850 million, of which $306 million was drawn, and $8 million was utilized for letters of credit. Draws on the credit facilities reflect increased working capital needs as Aecon ramps up it's seasonal construction volumes. Aecon has no debt or working capital credit facility maturities until 2027, except equipment loans and leases in the normal course.

At this point, I'll turn the call over to Jean-Louis to address business performance and outlook.

Thank you, Jerome. Turning to Slide 9. Aecon continues to build resiliencies through a strong, balanced and diversified work portfolio. Over the trailing 12-month period, 46% of Aecon's construction revenue were generated from the utilities and nuclear sectors compared to 36% for the comparative period in 2024.

Balancing growth and opportunity with proper risk management is key to Aecon's future success. We continue to maintain balance between our construction and concession segments, among our operating sectors throughout our diverse client base, utilizing appropriate contract models and across selected geographies. We are also embracing new opportunities to grow in areas linked to the energy and power sectors and in U.S. and international markets. These opportunities are intended to diversify Aecon's capabilities, provide new growth sectors and deliver more consistent earnings through economic cycles.

Turning to Slide 10. Demand for Aecon's services across our markets continues to be strong with a record backlog of $9.7 billion at March 31, 2025, recurring revenue continuing to see robust demand and a strong bid pipeline, Aecon believes it's positioned to achieve further revenue growth in 2025 and over the next few years, and is focused on achieving improved profitability and margin predictability. The remaining backlog to be worked off on the 3 remaining legacy project was $94 million or 1% of total backlog at March 31, 2025. We're getting close, and we are remaining focused on driving these projects to substantial completion with all 3 projects currently expected to be substantially complete by the end of the third quarter of 2025.

Trailing 12 months recurring revenue was $1 billion comparable to the previous period and up over 20% versus 2 years ago, taking into account the divestitures of APE and the 49.9% interest in Skyport in prior periods on a like-for-like basis. Recurring revenues are typically executed on a non-fixed price basis with the majority being over and above our reported backlog figures.

Turning to Slide 11 now. Development phase work is underway on a number of major projects in which Aecon is a participant, including the Darlington Nuclear Project, the U.S. Virgin Island Airport redevelopment project, the Contrecoeur Terminal Expansion, the GO Expansion On-Corridor Works Project, the Winnipeg North End Treatment Plant project and the Howard A. Hanson Dam project. These projects are being delivered using collative progressive design build model with the majority expected to move into construction phase in 2025.

Turning to Slide 12, this week. Aecon was recognized at one of Canada's greenest employers by MediaCorp Canada recognizing our commitment to creating a culture of environmental awareness. Aecon also released its 6th sustainability report, showcasing our commitment to sustainability in both what we build and how we build it. The Oneida Energy Storage Project is a great example of this, and we have made a great progress as the project now near completion. Aecon is also currently passed our goal of it's 30% reduction by 2030 in Scope 1 and Scope 2 direct emissions based on intensity related to revenue, achieving a 34% cumulative reduction since 2020.

Turning to Slide 13. Aecon is focused on achieving solid execution of its projects and selectively adding to backlog through a disciplined bidding approach that supports long-term margin improvement in the Construction segment. As previously mentioned, revenue in 2025 is expected to be stronger than 2024 due to record backlog of $9.7 billion, the impact of business acquisitions completed in the second half of 2024, solid recurring revenue and a strong bid pipeline. Revenue growth is expected in most of the Construction sectors.

In the Concessions segment, there are a number of opportunities to add to the existing portfolio of Canadian and international Concessions in the next 12 to 24 months. The 3 remaining legacy projects are expected to reach substantial completion by the end of the third quarter of 2025. And this is anticipated to lead to improved profitability and margin predictability. I want to be very clear in front of you we are dedicating all necessary resources to drive the remaining legacy projects to completion, while vigorously pursuing fair and reasonable settlement agreements with our respective clients in each case. Until the 3 remaining projects are complete and the related claims have been resolved, there is a risk that profitability could also be negatively impacted in future periods. As such, the completion and satisfactory resolution of claims of this project with our respective clients remains a critical focus for Aecon and its partners.

To close, we are excited about the momentum we have built and remain focused on executing our strategy to drive long-term shareholder value. And we thank our dedicated team members for their contributions and for reflecting our safety always culture.

Thank you. We will now turn the call over to analysts for questions.

Thank you. At this time, we'll conduct a question-and-answer session. [Operator Instructions] Our first question comes from the line of Yuri Lynk with Canaccord Genuity.

Maybe for Jean-Louis. Your underlying EBITDA margins continue to come down on a -- when you look at the trailing 12 months down from 8.4% to 7% as you outlined on Slide 7. Just trying to understand the -- is that higher margin of 8.4%, does that reflect some of the higher risk that's in those contracts and the 7% is more indicative of safer contracts, so you're taking less risk, but you would think you'd earn a lower margin. I'm just trying to understand the what's structural and what's kind of operational in the margin? And if you could help us with what kind of range that might shake out to as you book more of these collaborative contracts into your backlog?

Okay. Yuri, mainly speaking, you're right. It means that with our backlog of $9.7 billion, we have built in terms of quality and quantity an exceptionally positioned for Aecon in the years to come. This backlog is built on discipline, and that's good. Now what we are looking more than anything is the predictability of our margin, no more bumps on the road. And this is quite important, no more deviation. So when you look at the underlying profitability of the business, yes, I mean, the fact that we have derisked most of our backlog, you remember that we went from 70% fixed lump sum to less than 30% of variable or collaborative project just means that there will be a slight decrease in globe margin.

But there will be a strong growth in revenue, and we are working extremely hard, and we are very confident so that we'll be able to deliver normal bumps on the road. So in all, we think it's quite good. Do you want to add anything Jerome to this?

Yes. Yuri, I mean it's well said. The only thing I'll maybe add is in the current period, as noted, we've got a dilutive margin impact from some execution in Western Canadian Civil. So we say within the global size of our enterprise, as a margin headwind probably through to the balance of the year. And so that adds like a little bit of additional softness. But your core thesis is right, is in the prior periods, stronger margins, but probably tied to a little bit higher risk appetite versus where we sit today is much more appropriate margin profile and consideration of the risk appetite that we're undertaking. We're just trying to create a little bit more of a boring company.

And those civil margins in Western Canada, can you just confirm that they're lower, but still positive? Or are they negative gross margins?

Yes. I mean, we don't really provide detail on kind of a specific subsector basis, but let's just say it's a variety of projects, and we're kind of focused on completing them and gain through the end of execution.

And is there a commonality on contract structure or anything like that, that you...

Mainly speaking the projects that were taken quite a while ago. And yes, the commonality is that there are fixed price jobs. It means, as I used to say, all fixed price jobs are not bad or all variable price are not always good, but when you say, is there a common route? Yes, it is. Those project -- none of those projects are of import size.

Yes. Maybe describe it a contributing factor, not the factor, right?

Yes. Okay. And last one. I mean, I think on the last call, you guys kind of put to a 7.5% margin for underlying margin is not a best place to be for 2025. Underlying, is that for the Construction business or was that overall? And now with the civil projects, where does that number stand?

So we previously referenced our as adjusted margin profile, right? So that's a number that I would point out went from 8.4% to 7%. It will operate within a range. We don't provide guidance from a margin perspective for a variety of reasons. But I think based on Jean-Louis's commentary, the better risk profile on the backlog and the work programs that we're executing today comes with an alignment of a margin profile that's appropriate for that, right? So I think you can probably assume better risk, more appropriate margin and then the dilutive impact of the margin on the Western Civil projects gets layered in on top of that. And so you have to kind of run from where we are today and draw a conclusion against that.

Our next question comes from the line of Krista Friesen with CIBC.

Just on the legacy contracts. Can you speak to kind of your comfort around the costs you've talked about before related to the contracts and how comfortable you are with the cost, given the time line seems to be pushed out a little bit more on 2 of them?

Yes. I will take this one, maybe give you some information on where we are on those 3 contracts. Begin with Gordie Howe because we have been speaking about Gordie Howe in those Q1 results. Our bridge is substantially completed. We are finalizing some lighting barriers, traffic control, but the bridge is done. The Canadian POE has been totally ended over to the Canadian Border Agency, they are all inside setting up their system in all rooms. The U.S. POE has begun to be transferred to the U.S. Border Agency and they are taking room after room to set up their equipment. So we are comfortable with the end date that we have been giving to you.

Eglinton and Finch, you remember that during last year, I was telling you construction is finished. We are now in testing and commissioning. What I can tell you is that testing and commissioning is finished on both of these projects. I mean, system and train control are very delicate system and system integration is not always easy. We are now in the final phase before revenue service demonstration that is done by the TTC that will operate line. So we are finalizing training the trainer and supervising the way the trainer from TTC are training the drivers, then we should begin something like June, our revenue service demonstration. So we are also comfortable physically on substantially completing this job midyear 2025.

In terms of economy, so you have noted what I said regarding the remaining backlog. It's obviously still decreasing. We are getting really close to the end. In terms of margin, yes, we are as of today within the parameters that we defined in July 2024, and this is good.

Okay. Great. And then just a last question here. You've had 1 full quarter now of the United Engineers acquisition. Can you just provide an update on that and how that's progressing?

Yes. I can say that the more we discover, the more we discuss and we go deep within this company, the happier we are with this acquisition for a few reasons. United is an engineering company, but I would say a very practical engineering company because part of its activity is related to steam generator, and we know them very well because we have been working with them at Bruce for the last 5 years. So this is part of their activity. It's an engineering company. And it's an engineering company dedicated to power. So it's nuclear, but it's also thermal. It's also renewable. At the same time, it's not only supply, but it's -- they are also quite good in transmission and distribution engineering. So the idea is to grow this platform as an engineering company at the service of our growth in the power activity for Aecon, but also at the service of other clients. And this is where it's quite interesting. It's a sort of gate of entry to a lot of utilities that we have not as clients before. So yes, we are happy with the acquisition, and we are looking for growth with this acquisition.

[Operator Instructions]. Our next question comes from the line of Chris Murray with ATB Capital Markets.

I was wondering if we could talk a little bit about the U.S. utilities business to start. A lot of concern around business confidence in the U.S., and there's been some discussion in some of the early reporting that we've seen out of Q1 that folks are being a little hesitant on spending. Just wondering what you folks are seeing in terms of demand for utilities right now and if that changes the U.S. strategy at all at this point?

Basically, no change. It means that we see for our activity related with power with utilities, a high capacity of growth in the United States. I mean first because there's a lot to do, even if it's not always clear in terms of power supply from where it's going to come. I mean one day, you hear about coal coming back again, gas, but we know that there's a lot of purchase order on turbine and the market is a little stuck. Renewable may go up and down. And it's not extremely clear about the real consumption and necessity of power from the big data centers. But this being said, even taking out this power supply that at the moment is growing extremely strong, the state of the grid, and we now know it because we have been in the United States for more than 1.5 years studying everything, the state of the grid in terms of transmission and distribution is very poor. And there's a lot of work to do.

So we still think that there will be growth. And in addition, I mean, we just begin as a dwarf. I mean it's a niche market for us, and we can be extremely selective on where we want to work, what kind of job and with which client.

Maybe, Jerome, you give a little more.

For sure, Chris. And then look, as it relates specifically to our utility services operation in the United States, we're extraordinarily pleased with the teams that have joined us, particularly in Michigan. They're locked in. Remember the client base there is primarily funded at a rate base, right? So it's less sentiment-driven and more requirement driven. And then there's a minor component of the work that's also just tied to storm impacts. And when the power goes out, Aecon and Xtreme crews get rolled to help support basically people back online.

So from our perspective, yes, we continue to kind of watch things very closely with regards to the overall macro environment. But largely across all of our sectors and in the Concession space, our end markets are generally not tied too deeply to economic cycles, right? Like we're just -- we're looking to build the infrastructure required for future generations to thrive here. And it doesn't really swing that hard depending on a tariff impact or an economic impact because a lot of the stuff just needs to get done, and our teams are out there doing it.

Okay. That's helpful. The other question I had, and this is maybe more conceptual, but just we saw an application last week from Energy Alberta to build a new 4,800-megawatt nuclear power plant in Alberta, very similar to what Bruce was being proposed to look like. And I start thinking about a lot of the commentary that we've had over the past few years about, call it, the coordination and planning on some of the refurbishment projects to not overload the system and training. But all of a sudden, it feels like now we're starting to layer in new builds in future years. And I'm just wondering if you have an opinion or some thoughts around the feasibility or the reality of how you could actually get this stuff built because I still think you'll be doing refurbishments well into the next decade anyway. And we're starting to see schedules that are talking about having new nuclear starting up in that same sort of time frame.

So just thoughts about the level of demand coming at you and not really even theoretical projects, but maybe real projects and how you think that, that gets addressed?

I will take this one. Nuclear, first of all, we are technology agnostic for new construction. It means that we know extremely well CANDU, I will say, better than anybody else because we are refurbishing 100% of the reactors in Canada, the 6 at Bruce, the 4 at Darlington, the 4 at Pickering. So if on the new builds, it comes to CANDU, I mean, I don't see Aecon not being present on this one. We know those machines extremely well. We also have a cooperation agreement with Toshiba Westinghouse for the AP1000. And we are participating to the construction of the SMR, which is a GE Hitachi’ boiling water reactor. It means that we're ready for this. We're ready for the new construction.

Now it will go up and down. I mean there will be announcements. Some will go forward, some won't go forward. And we are preparing our team and our alliance to be perfectly fit for the purpose depending on what is getting out. We are not worried. We are not preoccupied and the change in the market regarding contract model is perfectly in line with what we are ready to do with nuclear.

Our next question is coming from the line of -- just a moment, please. Next question comes from the line of Ian Gillies with Stifel.

Good morning everyone. Encore is obviously going to be a very large project that could help move the needle for Aecon. Could you maybe talk a little bit how you anticipate that project is going to enter backlog at this juncture and maybe how it scales up over the next number of years?

Yes. The main difference between the original idea and what is going to happen is that it's going to be phased. Remember that we were speaking a little down of $10 billion of investment. So I think the total amount of investment has not changed. I mean, to modernize the GTA transport, this is what is needed. Now it's a brownfield. It means that all those works are going to be executed under traffic. We cannot close the railway during 10 years. So it's just going to be fade between Lakeshore West, Lakeshore East, maybe [ Barry ], Union Station, but it will happen. It will just happen probably in the double of time that was envisaged that was something like 4, 5 years. It will be steady. We have a very strong team there. And we have begun preparatory works. We have begun a track remediation, and we are working on a certain number of early works. So this is happening, but probably slower, which is not bad when you see our backlog and what's happening in other part of our activity. So we are happy about this project.

That's helpful. And as it pertains to, call it, what's transpired over the last few months in Canada, there seems to be a shifting sentiment that Canada needs to do a bit more of everything. Are you starting yet to see any leading-edge activity in the bids you're doing? Or is it still too early?

Can you repeat your question, please? I'm not sure I heard the first part.

Yes. I guess the simple way to frame the question is, is everyone seems to want to build more stuff in Canada now. Are you seeing any leading-edge activity for bidding on that? Or is it still too early?

I think it's still too early. First of all, we have to go through the federal election so that we understand a little more about the programs to come. Whatever happened, I mean, with the backlog we have and the quality of what now we have been acquiring, I'm not worried. But of course, I mean, we have a special team that is working in terms of preparation on everything linked with sovereignty, defense, rare matters because this will come. It may not come at a super speed, but it will come, and we are getting ready for this.

Understood. Maybe I'll just leave it there now and turn it back over for questions.

Our next question comes from the line of Maxim Sytchev of NBF.

[indiscernible]

Sorry. Is it better now?

Yes, we got you.

Okay. Perfect. I was wondering if it's possible to get a comment on how we should be thinking about the working capital free up once the fixed price projects are fully behind it, as you said, in Q3. So yes, maybe any comment there?

For sure. So we don't want to tie too preciously to any particular projects, Max. But the question on working capital is an important one. So I'll answer it kind of like on a broader level at the Aecon level.

So Q1, you would have seen a pretty meaningful investment in working capital. Part of that has to do with the starting point, but part of it also just has to do with the amount of work programs that we're ramping into right now, right? So you'll see, obviously, this quarter was the highest Q1 from a revenue perspective that Aecon has ever delivered. The outlook is quite robust. And so we expect ongoing investments in working capital.

So through the year, we're probably looking at an investment in working capital through to the end. That being said, there is a big focus on working capital release on a number of projects and know that there's a number of folks whose full-time jobs are associated with that, right? So I'd say we don't want to tie anything to any 1 or 2 projects, but just at a global level, given the amount of growth we're seeing, I think it's very logical, expected and appropriate to see an investment in working capital this year, just given where we're taking the business.

Yes. That makes sense. And then do you mind maybe just commenting around the comfort level of the kind of the envelope of losses you telegraphed previously just in terms of how that's going to pace throughout the year?

Yes. So I mean, look, within the previously disclosed potential risks and impacts, like we're still within that envelope, right? So -- and up through the completion of the projects. So no real change from that perspective. We analyzed a number of scenarios and possibilities and outcomes and options when it comes to this, and we're still comfortable with what we disclosed previously. So I think from that perspective, it's kind of steady as she goes, right? Like no real new news there.

Phasing-wise, Adam just remind me, you asked about phasing. We take it when it comes, right? Like we're now at the end game of this particular test match and the pieces are moving quite quickly. So the impacts come when the impacts come. So I wouldn't be able to -- I don't think we can provide we expect this. We expect that we expect that because if we expected, we'd be taking it, which is what we saw in the quarter here with the project that we noted.

Yes, for sure. And then maybe just one quick one for Jean-Louis, if I may. In terms of concessions opportunities, obviously, you have kind of 2 smaller ones on the go right now. Can you talk about maybe your appetite for doing more on a prospective basis? Do you need to do more? Maybe any color on that would be helpful.

Yes. I mean, mainly speaking, part of our strategy is to be able to develop, finance, integrate the engineering, build and operate our assets when our clients allow us to do. So I mean, we -- this is a real good vector to create value. I mean we have just proved it with the Bermuda when we divested 49.9% of this airport. So yes, we are chasing opportunity. At the moment, we are very busy with U.S. Virgin Island because we want to close during the year 2025. We are chasing other opportunities either in district energy, power sectors, but we are extremely disciplined on this. And we are chasing also a few airports because this is really our core competency. On another hand, you probably have noted that we are extremely close to commercial operation on Oneida. And you remember that we have a part at the top level with Oneida, which is a battery storage, I mean, the 250 megawatt near Toronto.

Thank you. Our next question comes from the line of Sabahat Khan with RBC Capital Markets.

Maybe just extending that working capital discussion from earlier, Jerome, you kind of highlighted that working capital is going to be an investment. Should we generally just assume maybe it will be a negative free cash flow? Just trying to get your perspective on how you expect just overall cash and leverage ratio to evolve kind of for the next 3 quarters.

Yes. I mean, look, for sure. The investment in working capital, I mean, there's a seasonal cadence to this, right? So as we land near the end of the year, obviously, there's always a little bit of flex up and down depending on outflows and inflows, particularly with regards to our projects, right? Like the one thing that I think people are keenly aware is when we look at our overall cash position, as it stands right now, we've got something like $350 million invested into our projects in cash. And that investment and the amount of money that comes out of that can flex up and down. So it's hard to kind of put a perfect pin into where we'll be on the day we print the balance sheet.

But overall, I think the themes you highlight are appropriate ones, which is, one, the business is growing. We're taking on very good work with the right risk-adjusted returns associated with them. So there's going to be investment in working capital versus where we were last year. I think that's appropriate and expected. There'll be offsetting that to a certain extent will be releases from some of the things that we have ongoing today. But also remember, we do have some capital expenditures that we're putting into the business to support ongoing growth. Some of those items can be a little bit chunkier, things like tunnel boring machines. And depending on when we take delivery of that, that can move the cash figure a little bit. But overall, the thesis we have that underpins all of it is when we look to deploy capital resources within the business, there's a very keen focus from an operating capital committee on what are the returns associated with that capital is being deployed to make sure that we're kind of exceeding our thresholds.

Your next logical question would be, what's that threshold and I'll say that like it's an appropriate one that exceeds our cost of capital.

Okay. Great. That's helpful. And apologies if I missed this next one, but just a bit more philosophical one. I know expansion in the U.S. has been a bit of a focus. Have you -- has there been any change in sort of bidding there or anything like that, given some of the headlines we've been seeing kind of geopolitical stuff? Just -- or is that U.S. strategy still go as it was previously?

Okay. I will answer that there are 2 vectors in our strategy. With a common umbrella, we will grow in the United States where we are extremely competent in our own country, Canada. I'm not going to open new business in a new country. So then this being said, the 2 vectors is one is acquisition. And you know that we acquired this nuclear specialized company, now named Aecon wachs a few years ago. We have acquired Xtreme in July 2024, United in December. And we -- the first one is growing quite nicely. And the second one, Xtreme, as we have said, we are very happy about them, their professionalism and their agility.

United, we are still defining the detailed strategic plan with them, but the idea is to grow. The second way of growing is organically through project. And this we are here extremely careful. We are still analyzing partnership, specialty contractors, availability of labor and quality of clients and budgets. And once we are good with this, then we will move prudently and always within our core competency. So the rest -- I know there's a lot of noise about tariff. As I've said, I mean, tariff is -- Aecon is not a manufacturer. Aecon is not an exporter. I mean, if we work in the United States, we're going to be local. And so on a first basis, it's not a problem for us. So we try to keep our head cool. And what issue is that the extent of what is to be built in the United States in front of the number and the quality of the company existing in this market is a very good parameter for us.

Our next question comes from the line of Michael Tupholme with TD Cowen.

Obviously, a very significant increase in backlog in the first quarter, helped in part by the addition of the Scarborough Subway Extension and the Pickering nuclear refurbishment projects. With respect to the other collaborative projects that you have in development, are there any of those projects that are expected to convert and be added to backlog in either Q2 or Q3?

I would tend to say, yes, but we are always prudent. I mean, obviously, the SMR, which is a collaborative contract is not yet in our backlog. We are working, I mean, with OPG on this. USVI, we are also working to try to get it closed in the year 2025. It's a very interesting progressive DBFOM, and we are very happy about it. We are working with the Port of Montreal about [ contractor ] and with the city of Winnipeg about the sewage, the Phase 2 of the sewage treatment plant. So yes, they will most probably come to backlog in the months to come, but the development periods are not over. And the beauty of the development period is that you can calibrate it the way you want just to be sure that at the end of the day, you have the perfect project for the client and perfectly priced for us.

Okay. That makes sense. Second question is about capital allocation. In the outlook section of the release, you talked about planning to maintain a disciplined approach to capital allocation. Wondering though if you can provide a bit more detail around your capital allocation priorities, including any commentary around potential for future acquisitions or additional acquisitions and also share buybacks and specifically on the subject of share buybacks, I guess wondering if that takes on a greater priority in your mind at the moment considering where the shares are trading.

Yes. Look, it's a great question and one that's got robust discussion around the table here. So a couple of things. So one is we're -- the most important thing for Aecon is to continue to grow and support the building of the business. And so from that perspective, the first port of call for our capital is going to be investments in working capital and investments in the equipment needed for growth, right? So on the equipment side, that's really centered around our Western Road business, which is a very high-performing business with extraordinary leadership. And then on the utility side, that's a business that does carry a degree of capital and investment just associated with things like bucket trucks and directional drills and other items. So those businesses are performing very, very well, they're hurdling, and so they get capital.

Now the next phase is we've got some growth capital associated with other items, a little bit chunkier items. So that goes there. Then what comes next? If we're satisfied with the strength of the balance sheet, we then look to -- one is obviously, we've got a pretty intense dividend program that distributes something in the order of $47 million a year to shareholders. We've historically supported that program and grown it over time.

And then the final piece that you know really well is M&A and then CIB. And so where we trade today, we've got a tactical program that's been put in place. It's been put in place for a purpose. And so I'd say that we'll be monitoring that very closely and be making the appropriate disclosures as we execute on programs like that. And then from an M&A standpoint, like -- the one challenge is it's not like a programmatic situation for us. Like we are very precious about how we deploy that capital, the opportunities that we pursue, how they map our existing capabilities from a safety, culture, technical background standpoint, end markets like the sectors that they're in and the geographies.

And so what I'll say from an M&A perspective is we have seen a pretty robust bidding environment for assets that we've targeted. And it's actually -- it's gotten much more intense over the last 6 months. So I think from that perspective, we just need to keep extraordinary discipline and try not to get too excited in pursuing things because there's a lot of dollars who are chasing the types of assets that map to Aecon's ambitions. And so we just need to keep ourselves calm and every -- if there's no M&A availability, there is availability of the shares in the market, which we continue to view as an opportunity.

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

Thanks so much, Cathy, and thank you all for joining us today. Feel free to reach out with any follow-up questions to us, and we will tune into the next call, and have a great rest of the day.

Thank you for your participation in today's conference. This does conclude the program, and you may now disconnect.