Aecon Group Inc. (ARE) Earnings Call Transcript & Summary

Good morning. Thank you for attending today's Q2 2022 Aecon Group Incorporated Earnings Call. My name is Porum, and I will be your moderator for today's call. [Operator Instructions]. It is now my pleasure to pass the conference over to our host, Adam Borgatti, Senior Vice President of Corporate Development and Investor Relations. Mr. Borgatti, please proceed.

Thank you, Porum. Good morning, everyone, and thanks for participating in our second quarter 2022 results conference call. Presenting to you this morning are Jean-Louis Servranckx, President and CEO; and David Smales, Executive Vice President and CFO. Our earnings announcement was released yesterday evening, and we posted a slide presentation on the Investing section of our website, which we will refer to during this call. Following our comments, we will be glad to take questions from analysts. We ask that analysts keep to one question before getting back into the queue to allow others a chance to contribute. As noted on Slide 2 of the presentation, listeners are reminded that the information we're sharing with you today includes forward-looking statements. These statements are based on assumptions that are subject to significant risks and uncertainties. Although Aecon believes the expectations reflected in these statements are reasonable, we can give no assurance that these expectations will prove to be correct. With that, I'll now turn the call over to Dave.

Thank you, Adam, and Good morning, everyone. I'll touch briefly on Aecon's consolidated results, review results by segment and then address Aecon's financial position before turning the call over to Jean-Louis. Turning to Slide 3. Revenue for the second quarter of $1.1 billion was $152 million or 16% higher compared to last year and at $4.4 billion for the last 12 months was 14% higher than the previous 12-month period. Adjusted EBITDA of $39 million in the second quarter decreased by $22 million compared to Q2 last year. However, after adjusting for the impact of the amounts related to the Canada Emergency Wage Subsidy or CEWS in the second quarter of last year, adjusted EBITDA decreased by $10 million for the quarter. On a trailing 12-month basis, adjusted EBITDA of $205 million is $2 million higher versus the comparative period. Diluted loss per share of $0.10 in the quarter compared to diluted earnings per share in the same period last year of $0.27 or $0.13 after adjusting for the impact of CEWS. Reported backlog of $6.6 billion increased by $81 million compared to $6.5 billion a year ago, and new awards continue to be strong at $1.3 billion in the quarter and $4.4 billion over the last 12 months. Now looking at results by segment. Turning to Slide 4. Construction revenue of $1.1 billion in the quarter was $150 million or 16% higher than the same period last year. Revenue was higher in each operating sector within the Construction segment, including in civil operations from an increase in major projects work, in industrial operations driven by work related to chemical, mining and pipeline projects, in utilities, driven by electrical transmission and telecommunications work, in nuclear from increased volume of refurbishment work at nuclear-generating stations primarily in the U.S. and in urban transportation solutions from an increase in LRT work in Quebec. Adjusted EBITDA in the Construction segment of $34 million, a margin of 3.1% compared to $51 million, a margin of 5.3% in Q2 last year. After adjusting for the net impact of CEWS in the second quarter of last year, adjusted EBITDA decreased by $4 million, primarily due to lower gross profit margin in Urban Transportation Solutions, driven by an unfavorable margin adjustment on an LRT project in the quarter as well as some lower gross profit margin in civil and nuclear operations. These decreases were in large part offset by higher volume in each operating sectors discussed earlier and higher gross profit margin in industrial and utilities operations. New contract awards of $1.3 billion in the second quarter compared to $1.6 billion in the same period in 2021. The new awards for the last 12 months of $4.4 billion compared to $3.1 billion in the prior period. Backlog at the end of the quarter of $6.5 billion was in line with backlog at the same time last year. Turning to Slide 5. Concessions revenue for the second quarter was $19 million, an increase of $2 million compared to the same period last year, primarily due to an increase in operations at the Bermuda International Airport. Commercial flight operations in Bermuda continue to operate at reduced volume due to COVID-19, but recovering from the more severe impacts experienced in 2020 and 2021 and average close to 60% in Q2 compared to pre-pandemic levels. Adjusted EBITDA in the Concessions segment of $17 million increased by $1 million versus Q2 last year, primarily due to results from Bermuda Airport. Turning to Slide 6. At the end of the second quarter, Aecon had a committed revolving credit facility of $600 million, of which $220 million was drawn and $3 million utilized for exit credit as well as the $900 million facility provided by EDC to support letters of credit. Aecon's committed facilities for both working capital and actual credit requirements totaled $1.5 billion. Aecon has no debt or credit facility maturities until the end of 2023, except equipment and property loans and leases in the normal course. As of June 30, Aecon was in compliance with all debt covenants related to its credit facility. At this point, I'll turn the call over to Jean-Louis.

Thank you, Dave. I would like to take a moment to comment on the 4 large fixed-price legacy projects laid out in our Q2 disclosure documents. These 4 projects entered into in 2018 or earlier by joint venture, of which Aecon is a participant are being negatively impacted due to additional costs for which the joint venture effort that the owners are contractually responsible, including among other things and foreseeable site conditions, third-party delay, COVID-19, supply chain disruptions and inflation related to labor and materials. During the second quarter, this impact became more pronounced and has resulted or are now expected to result in increased costs above the originally forecast in some cases, materially. Each relevant joint venture has submitted or is in the process of developing for submission, detailed claims for compensation for these additional costs. Other than the Coastal GasLink Pipeline project known are currently in litigation or arbitration. I've addressed the challenges we are faced on the Coastal GasLink Pipeline project previously. And you will have noted, our financial results were negatively impacted by enhanced variable margin adjustment on an LRT project in the quarter. In the case of lease and the other 2 projects, we are facing significant changes and modifications to the conviction of execution of our work, impacting our ability to efficiently progress the work, creating delays and cost of around -- beyond our control and in certain cases, executing projects fundamentally different to the one we did. As you will know, the price for lump sum project is only fixed to the extent of the scope and conditions that a contractor signs up for. When factors outside of this agreed scope and related conditions impact the cost and progress of the work, Aecon and our partners work vigorously towards resolution of compensation for the impact with the respective owners of this project. We are fully focused on pursuing all avenues for adequate and timely compensation, including through constant direct negotiations with our clients, engaging in mediation through independent certifiers and/or entering into arbitration as necessary, all with the objective to reach a fair and reasonable settlement agreement and to move forward towards project completion in each case. Aecon believes each relevant joint venture has a strong plan to recover at least a substantial portion of these costs. However, the ultimate outcome of this matter cannot be predicted at this time. It is clear that traditional procurement under a fixed price lump sum contract structure for such large complex and multiyear projects, including the 4 legacy projects discussed here needed to evolve. As an industry, we have been working hard to develop a model that addresses the challenges and needs of all stakeholders. And while it's early days, those efforts are starting to gain traction, including the multibillion dollar GO expansion and electrification project in Ontario awarded to an Aecon joint venture under a progressive design, build, operate and maintain contract model. This collaborative target price approach with a 2-year joint development phase upfront is a welcome evolution designed to benefit all stakeholders, and we continue to push towards more collaborative models as we move forward. Turning now to Slide 8. Demand for Aecon services across Canada continues to be strong, particularly in smaller and medium-sized projects as evidenced by year-to-date revenue growth of 22% and higher new project awards of 50%. While volatile global and Canadian economic conditions are impacting inflation, interest rates and overall supply chain efficiency, these factors have largely been and will continue to be reflected in the pricing and commercial terms of Aecon's recent and prospective project awards and bids. Turning to Slide 9. With a backlog of $6.6 billion and recurring revenue programs continuing to see robust demand, driven by the utility sector and ongoing recovery in airport traffic in Bermuda, Aecon is confident in strong revenue growth over the next 2 years. Aecon is also prequalified on a number of project bids due to be awarded during the next 12 months and has a strong pipeline of opportunities to further add to backlog over time. Trailing 12 months recurring revenue was up 22% versus the prior period and over 50% versus 2 years ago, primarily from growth in utilities operations. Recurring revenue is expected to continue to grow, driven by demand in the utility sector and the concession segment is expected to see airport traffic in Bermuda continue its recovery in the balance of 2022 and in 2023. Turning to Slide 10. Aecon was named one of the Corporate Knights 2022 Best 50 Corporate Citizens in Canada, recognizing our significant progress in embracing and operationalizing net zero construction practices. Turning to Slide 11. To support our ESG strategy, Aecon continues to explore and trial new technologies and alternative building materials and we recently became the first construction company in Ontario to pilot a new low-carbon concrete from carbon upcycling technologies at our innovation and training center. And we continue to integrate and trial zero emission equipment, the most recent example being an electric wheel loader at our Finch West LRT project. To engage our employees in our sustainability journey, we also introduced a green benefit program, which provides incentives for green vehicles and Green Home Energy Solutions, further demonstrating our sustainability is part of our DNA at Aecon. Turning to Slide 12 with strong demand, growing recurring revenue program and diverse backlog in hand, Aecon is focused on ensuring solid execution on its projects and selectively adding to backlog through a disciplined bidding approach that supports long-term margin improvement in the Construction segment. In the Concessions segment, in addition to expecting a gradual recovery in travel through the Bermuda International Airport during 2022 and 2023, there are a number of opportunities to add to the existing portfolio of Canadian and international concession in the next 12 to 24 months, including an innovative projects with private sector clients that support a collective focus on sustainability and the transition to a net zero economy. Thank you. We will now turn the call over to analysts for questions.

[Operator Instructions] Our first question comes from the line of Yuri Lynk with Canaccord.

David, it sounds like the cost reforecast in Q2 is almost entirely due to the Ontario LRT project, yet you did call out 3 other projects facing similar issues. Why weren't these projects subject to a reforecast in the quarter?

Yes. So every one of the projects obviously faces specific and unique impacts that need to be dealt with. And obviously, we've been on each of these projects for a period of time now. So we've been positioning them as we've been going along. And there was one project in Q2 that we felt we needed to reposition and we did that, and we're comfortable with the position we have right now across all our projects, which is the case at the end of every quarter. And so that was the one that we felt we needed to adjust based on the specific circumstances of that project, and that's what we did.

Okay. Maybe I'll go at it a different way for my follow-up. Your operating cash flow was over the last 12 months is almost $100 million negative. Is that largely the cash impact of these projects you've disclosed? Or do you anticipate further negative cash flow in the coming quarters?

Yes. It's largely linked to some of these larger projects. I mean, it's really a function of what we're talking about here in terms of the risk on these 4 projects, specifically in terms of dealing with the current macro environment and supply chain challenges. A lot of it is just linked to the time it's taking to resolve the impacts of change. The whole system right now is kind of maxed out in terms of capacity to deal with change, that's from our clients, our partners, suppliers, subcontractors, everyone is operating in a pretty unusual environment and everybody is trying to deal with things as expeditiously as possible, but capacity is a challenge for everyone, including our clients. And so that's delaying the whole process that we would normally go through to deal with change and the impact of change. And that's why we've seen some lagging working capital through the first half of this year.

Our next question comes from the line of Jacob Bout with CIBC.

Just going back to these 4 fixed-price legacy projects. When do you expect to get resolution on this? And then maybe you can comment of the $6.5 billion of backlog, what percentage of that would be considered lump-sum or fixed price?

Okay. I will take this one. As David just said a few minutes ago, there is always a time between the impact from this modification is the condition of execution of our contracts and the compensation by the client. I mean, we -- the environment is tough, impacting everybody. And there is a time to work out to be able to justify, to be able to present the claims to be able to discuss, to be able to negotiate. Those projects still have between 1 and 2 years of active life. Regarding the backlog. So you have noticed that this backlog at the end of Q2 was $6.6 billion. New awards for the quarter, I mean, we're at $1.3 billion, which is an extremely interesting figure. It's not as I used to say it's not only about quality, it's about quality and I'm very happy with the quality of the new projects. We are just loading in our backlog. You will also remember what I've been saying, I mean a number of times, I mean, from September 2018, we have not taken one single lumpsum job superior to $1 billion. And this is very important. So coming back to the percentage, I mean within 1 year, the percentage of fixed price job within our backlog went down from 64% to 56%. And we are very happy. We have said it a few years ago, and we are doing it, and it's happening. So the growth of our utilities sector is one of the reasons. It's a discipline with major project is also, I mean, a very important reason. You also have noticed that recurring revenue once again have grown, I mean, $753 million against $617 million for Q2 2021. So all this is very interesting, I think. And this is without counting anything for the Encore project that we have been awarded. I remind you that this project, which is a multibillion job where we have 50% of the infrastructure construction. It's 10 years job and 28% of the operation and maintenance, which is 25 years. It's all on a cost-plus basis. So we have not yet loaded this project. We will do it progressively and so far as the development period goes, it will also add to the decrease in the fixed price proportion within the backlog.

Okay. And maybe just a follow-on here. When I look at the duration of your backlog and you compare this year versus last couple of years, skewed much more to the kind of 12 -- next 12 months versus 13, 24 and beyond 24 months. Should we be reading much into that?

No. I mean it's not a topic of concern for me and for the team. The fact that we have reduced the size of the project, what I told you, not one single project superior to $1 billion as a fixed price is one of the explanation of this. We are not worried, I mean, about the reload of our backlog after 24 months from now. I know there's been a few questions about our project being canceled, our projects being pushed to the right. I'm just going to give you an example. I mean, you all know that the Deerfoot Trail project was canceled a few days ago under a P3 scheme in Calgary. This project was canceled on a Wednesday. The day after on Thursday we received a communication from the owner telling that, that they will conduct a market founding with the 3 bidders. This market founding happened the day after on Friday, and we have been discussing about alternatives, about splitting scope, about changing the contract model about keeping maintenance or not in the same package and construction. It means that not at all. I mean, the owner has in mind to suppress or cancel the project. They have just canceled the process, and they will go on with the adequate way of contracting.

The other thing I would quickly add, Jacob, when you look at that longer backlog, which starts 2 years from now, a, it's not unusual to see that number fluctuate given that it's 2 years in, we have a 24-month period to replenish that backlog. But the other factor is, Jean-Louis already talked about the GO expansion and electrification project, which will be coming into backlog over the next 2 years and will significantly increase that number. So we're not concerned at all about that 2-year plus backlog. The focus is do we have a strong backlog to execute over the next 2 years. And as you can see, that's very much the case.

Our next question comes from the line of Chris Murray with ATB Capital Markets.

So a couple of questions. First, I guess, you saw the announcement yesterday between TC Energy and LNG Canada on Coastal GasLink, and I guess they've come to a resolution. Does that help you folks in your arbitration discussions and maybe move that project forward and help you address some of your cost issues, at least on that one element?

Okay. I will tell you the answer. Yes, it helps us. I mean, TC Energy is just recognizing that this project has been going through quite a number of modifications in the condition of its execution. They are describing this modification. They acknowledge properties, we are in arbitration with TC Energy regarding Spread 3 and 4 and the fact that TC Energy announced that they have reached an agreement with LNG Canada is for us evidently a good point.

Okay. That's helpful. And then just maybe following up on an earlier question just in terms of the fact that you didn't take a write-down on a couple of the other LRT projects. How should we be thinking about margin profile on a go-forward basis? Should we be thinking that the -- I appreciate that there's some uncertainty about this, but should we just be thinking that those should have a lower normal construction margin for the next few quarters?

Yes. I mean, I think given the environment we're in, Chris, where we're still in an inflationary period. We're still dealing with supply chain disruptions. All of that takes some of the edge off what we would have normally expected given the profile of our backlog to be expanding margins. So I think as we kind of look out over the balance of this year and into next year, we see margins being relatively consistent with where they've been in the equivalent quarters over the last couple of years. There's obviously that normal seasonality in the profile. But we don't expect to see margins declining, but we also think some of that expansion opportunities probably dulled by the current environment.

Our next question comes from the line of Frederic Bastien with Raymond James.

I just wanted to follow up on that last question. Just a quick follow-up on that last question. How about revenue? Are you thinking about revenue in the second half? Do you believe there's room for continued growth like you've experienced in the first half?

Yes. I think we do. I think in our comments, we tried to call out, but I think the kind of thing to -- that really underpins that is if you look at the backlog profile and certainly the backlog to be worked off over the next 12 months and the strength of that versus where it was 12 months ago. We also expect the utility business to continue to have a strong second half of the year. So yes, we do expect to continue to see revenue growth in the second half of this year, and we expect that to be a reasonably robust growth over the second half of last year.

Okay. And can you discuss the impact of these unfavorable margin adjustment you recorded, the risk you just highlighted and also the -- your ongoing working capital requirements, what's that -- what's the impact that it's having on the balance sheet? And how you're thinking about the dividend and your ability to sustain the dividend?

Yes. So as I touched on earlier, the impact is certainly in terms of creating a time lag in working capital. So as you know, we normally have a seasonal working capital profile, which is working capital builds through the busier quarters of the year, which are typically Q2, Q3 and into Q4 and then unwinds kind of at the end of the year and through Q1. We see a slightly different pattern in the first half of this year, where Q1 didn't see the normal level of unwinding. Q2 wasn't too inconsistent, but there is some lag in the system in terms of collecting on some of these areas that have been impacted by change. I think as we go through the second half of this year, we certainly don't expect that to worsen. And it will be a question of the timeliness of resolving the impacts of these changes with the respective clients as to when it unwinds, but we certainly don't expect it to worsen at all over the second part of -- it's about a lot over the last few years in terms of the strength of the balance sheet, the importance of that to our business. And certainly...

What we explained to our clients is that under difficult circumstances and tough environment that everybody is facing, not only the company. And the fixed price way of looking at procurement mode is not the optimized one at this moment.

And David, maybe a question on capital allocation. In light of these 4 large fixed price projects, the pullback in share price we saw this morning, and if you could provide some color about whether change your capital allocation strategy, talking about M&A, share buyback potential divestitures or maybe the dividend strategy going forward?

Yes. So I think our strategy has been fairly consistent in that we position and are open to M&A opportunities. I think in the current environment, it's really a trade-off between where values are, which can look attractive versus the inherent uncertainty in the current market, so finding the right opportunity for -- balance sheet more broadly. I talked to the dividend already, I think outside of that, the focus continues to be on maintaining a prudent solid balance sheet, which supports the working capital fluctuations that we see and supports the ongoing growth that growth has been pretty significant so far this year. We expect to see good continued organic growth going forward. And that all requires a strong stable balance sheet to performance security requirements and everything else that goes along with supporting growth. So that continues to be the focus and no change in that approach.

Our next question comes from the line of Ian Gillies with Stifel GMP.

With respect to the convertible debenture due at the end of '23, is there anything that precludes you within your credit facility from refinancing and using that in the event that the capital markets may not be open or the terms might not be advantageous?

No, there is -- as with any credit facility, there are certain parameters that have to be met to do that. But I don't expect that any of those parameters would be relevant in this case. So no, essentially, we do have the capacity to do that if that's what we choose to do. Obviously, that's 18 months away in markets, equity market's pretty volatile right now. And so we'll wait until we get the right window to look at a potential refinancing or take out of those converts. That credit facility is available if needed. And yes, we also have the option of doing partial credit facility and partially something else. So we have flexibility on how we deal with those.

Okay. That's helpful. And with respect to some of the large joint ventures and as you move towards the O&M portion and the long-term contracts there, maybe starting with Eglinton, will there be an equity contribution commitment once that contract starts? And if so, how much would that -- do you know how much that commitment would be? Or is that like to figure out at a later date?

Yes. So there are some equity commitments for these concessions. They're very small. If you look between now and 2025, for example, in terms of the net equity investments on our Canadian concessions, it's in the ballpark of $25 million between now and 2025.

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

My question relates to the 4 large fixed-price legacy projects you called out as carrying heightened cost escalation risks. I'm wondering if you can tell me on an aggregate basis, what dollar amount of backlog were you carrying for those 4 projects at the end of the second quarter?

Across the 4 projects, it's roughly in the ballpark of around $500 million to $600 million.

Okay. Perfect. And then as a follow-on, you noted that Aecon and its JV partners continue to work towards resolution of claims for those additional costs on those projects. Can you shed a bit of light on how that process is going, how collaborative the process is on the 3 projects that aren't in litigation or arbitration? And I know there's a lot of uncertainty, but any thoughts on timing around resolution?

Okay. What can I tell you? We have contracted 2 spread on this Coastal GasLink job. The first one, Spread 4. We have reached before the summer mechanical completion, it just means that the job are substantially -- job is substantially complete. We are the first contractor to have reached mechanical completion on the spread of CGL. We just show that in terms of operational capacity of our execution were good. We are now at the half of Spread 3. You know that in this part of Canada, the months of, I would say, part of May, June and July are dedicated on -- this is what we call spring fresh sets. You have a lot of window that do not authorize you to work because of movement of animals, because of movement of water. So we are coming back to the job at the moment to finish the Spread 3. We are discussing collaboratively with CGL, I would say, almost every day. It may be at the team level. It may be from time to time at my level. We do not agree on everything. We do not disagree on everything. I mean, it's a difficult project. It's a challenging environment and the disclosure of TC Energy yesterday have been extremely clear. So this is where we are. On another hand, we are preparing extremely thoroughly the arbitrations that will take place at the end of the construction of our spreads, and we are allocating our best detail to work through it.

Okay. Perfect. I guess in addition to that, which is very helpful, Jean-Louis, I'm wondering about the other 3, which -- the 3 projects that are part of this 4 you've called out that are not in arbitration or were in litigation, which would seem to suggest there's perhaps an opportunity for greater collaboration on those 3. I'm wondering if you can just shed some light on how the discussions around resolving these cost issues are going on those other 3?

Okay. I could tell you daily discussion at the CEO level regarding trying to find solution by discussing, by negotiating, by finding all the support documents by being able to explain why it's a clear modification in the scope. Why is it a clear modification in the condition of execution. We have ad hoc committees and teams within those projects that also work every day to present documentation, to align, schedule, schedule expectations. So it's extremely active on those projects, and we are working with our clients to try to find a solution on a win-win basis for those projects.

Mike, can I just come back to your first question? When you asked about the backlog remaining, were you asking about the 3 other projects, excluding CGL or all 4 projects? I wasn't clear on -- were you asking about the 3 non-CGL projects or 4?

Yes. In the case of the first question, I was simply asking about all 4. I mean, however, you want to -- if you want to break out CGL separately, that's fine. But just trying to get a sense of...

Yes. Yes, just -- so if we look at all 4, it's in the range of about $1.1 billion to $1.2 billion of backlog of the $6.6 billion that would relate to those 4.

Okay. Perfect. And then that was the original question, so that's helpful. And what -- maybe just to clarify the number you provided earlier related to what then, the $500 million to $600 million?

The 3 non-CGL projects, the 3 new projects that we've effectively added to the disclosure this quarter.

Our next question comes from the line of Naji Baydoun with iA Capital Markets.

Just about the sort of uncertainties and what's happening in the share price? At what point the buybacks just become a lot more interesting?

Yes. Well, for sure, we think where the share price is and where it's been for a while now is undervalued. At the same time, when I talked about the capital priorities earlier, we're in a period of strong growth, we have a focus on kind of looking at M&A opportunities. And so we'll always kind of look at that as an option. But right now, the bigger focus is on growth and maintaining the strength of the balance sheet as we go through a period of what we think is a strong potential on both the organic and M&A front as well as obviously the focus on the dividend.

Of course. Is there maybe a specific range of stock price or free cash flow yield at which that allocation focus will shift?

Well, for sure, I mean if we are able to successfully resolve the impact discussions on these projects. And if the share price didn't react over the coming period to positive news, then that would be something that we would certainly look very hard at for sure.

Okay. Okay. That's helpful. And just one other project question. Just wondering if you can give us a bit more updates on some conversations that you given having with clients over the past few months. What is your -- you mentioned the Calgary project earlier. But just more broadly, what's your sense on how clients are reacting to -- under this -- the macro uncertainty in terms of delaying existing projects or perhaps even shelving new projects?

As I used to say, Canada is about 0.5 million newcomers every year. And you probably remember 1 month ago, the Deputy Prime Minister of Canada, Chrystia Freeland just indicated that at the end of May, they have already granted 500,000 permanent residents, which is much more in advance than what they do normally. I think that the trend is there. Those people need smart transportation, they need energy, they need smart grid, they need fiber-to-the-home, they need good road, they need water. And Canada needs infrastructure. So our clients are prudent. They have just realized that when we are under inflation trends or interest rate rise trends, it's probably not the best way to procure a job to fix everything at this stage and to go for very long time contracted with operation and maintenance immediately when you begin the construction. So our clients are becoming more flexible, but the need is there, and I do not see today any projects that have been bluntly canceled. It means that from time to time, the client takes more time to adjust the contracting mode to just the way they are going to organize the request for qualification or the request for price, but I do not see projects at the moment being canceled. I mean the way they will be contracted is most probably a concern or at least, I mean, an interesting point for our owners, but I do not see this as a real issue for Aecon at the moment, especially given the $6.6 billion we have in backlog. And as I say, I mean, the quality that we have within this backlog.

Our next question comes from the line of Sabahat Khan with RBC.

Okay. Great. Just a quick follow-up to the question earlier around how much these 4 projects are within the backlog and I think indicate - or I think it's about $1 billion. But I guess, just kind of a directional caution that you're calling out, is that related to kind of the work still to do that probably ends up happening at a higher cost than initially thought? Or should we think there's some potential risk on past recoveries as well related to those projects? Just trying to frame the exposure looking forward from here?

It's a combination of both, Sabahat obviously, whenever we look at the project and how it's positioned, we look at a full kind of cost to the end of the project and how much of that is covered by already agreed change and how much is still to be agreed. So it looks at kind of where we are today and the impacts we've seen plus anything we expect through the end of the project.

Okay. Great. And then just one quick one on the concession side. I guess, if we go back to sort of pre-pandemic earning, the spike roughly that we estimate kind of between Bermuda and the rest of the Concession segment was closer to kind of call it, 55%, 45%. But it seems like the JV equity accounted contribution has gotten bigger over the last couple of years. Just trying to understand, are your non Bermuda concessions just becoming kind of bigger contributors to that segment? And then when Bermuda come back, can we expect just that entire Concession segment to be a bigger contributor, like probably misreading that? Or has the kind of non-premier concessions kind of started to contribute more over the last couple of years?

So obviously, Bermuda continues to recover, and we do expect results from Bermuda to continue to strengthen as air traffic gets back to normal. As I said in Q2, we operated close to 60% pre-pandemic levels. So far through the month of July, we're operating at around 63%, so that the trend continues to move upwards, and we expect that trend to continue. So that will certainly increase Bermuda results over time. I think the non-Bermuda concessions, obviously primarily still in construction, but the concessionaire, which Aecon has mistaken, they generate management fees during construction because they're effectively on behalf of the client, managing the construction, the financing and ultimately, the transition into either operations and maintenance or just maintenance. And so those management fees have grown over the last couple of years as we've had more of these concessions in kind of the peak construction phase. And then when the concessions open, those management fees really transition into instead of management fees for construction oversight and management into management fees for managing the operations and maintenance. So that's why it's kind of grown over the last few years. We expect it to stabilize and be fairly consistent over the next few years as they transition into operations.

There are currently no more questions registered in the queue. So I will pass the call back to our management team for closing remarks. Thank you.

Thanks very much everyone for your participation today. As always, feel free to follow up with any questions to the IR team here, and we wish you a good weekend and good balance of the summer, we'll see you on the next call. Thanks.

This concludes today's conference call. Thank you for your participation. You may now disconnect your lines.