Aecon Group Inc. ($ARE)

Good day, and thank you for standing by. Welcome to the Q1 2026 Aecon Group, Inc. Earnings Call. [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, Mr. Adam Borgatti, Senior Vice President of Corporate Development and IR. Please go ahead.

Thank you, Shannon. Good morning, everyone, and thanks for participating in our Q1 2026 results conference call. Joining me are Jean-Louis Servranckx, President and CEO, Jerome Julier, Executive Vice President and CFO, and Alistair MacCallum, Senior Vice President, Finance. Our earnings announcement was released yesterday evening, and we have posted a slide presentation on our website, which we will refer to during this call. Following our comments, we'll be glad to take questions from analysts, and we ask that you keep to one question and a follow-up if necessary before getting back into the queue. As noted on Slide 2 of the presentation, listeners are reminded that the information we are sharing with you today includes forward-looking statements 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. Turning to Slide 3. Aecon continued to advance its growth initiatives in the first quarter of 2026 and achieved significant milestones across our operations. Record backlog of $10.9 billion was recorded at March 31, 2026, and is underpinned by a diversified mix of long-term projects with appropriate risk balance. The quarter featured the addition of the Howard Hanson Dam facility project to backlog following an 18-month integrated design phase. Record first quarter revenue of $1.3 billion increased 18% over the same period last year, with revenue increasing across all of Aecon's operating sectors. Adjusted EBITDA improved significantly in the quarter to $32 million on a reported basis versus $4 million last year, driven by improved year-over-year margin performance in the Construction segment. We expanded strategically through the acquisitions of KPC Power Electrical and Energy Metering Solutions in Ontario and Arc American and CA Advanced [indiscernible] Services in Indiana. These acquisitions strengthen our Utility Services capabilities in Canada and the U.S. in markets supported by required investments in power and critical infrastructure delivery. We ended the quarter with a strong liquidity position and capacity to invest in additional growth following the successful offering of common shares for gross proceeds to Aecon of $172.5 million. Aecon maintains a positive outlook supported by expectation for further growth based on our strategic positioning in sectors with attractive demand profile, consistent with our prior disclosure. And with that, I'll hand the call over to Jerome.

Thanks, Adam, and good morning, everyone. I'll speak to Aecon's consolidated results, review results by segment and address Aecon's financial position. Turning to Slide 4. Revenue for the 3 months ended March 31, 2026, of $1.3 billion was up $195 million or 18% compared to the same period in 2025. Adjusted EBITDA of $32 million compared to $4 million last year and operating loss of $8 million compared to an operating loss of $41 million in the same period last year. The improvement in the period was driven by higher gross profit of $59 million. Adjusted diluted loss per share in the quarter was $0.21 compared to an adjusted diluted loss per share of $0.55 in the first quarter of last year. Financial results in this quarter were impacted by negative gross profit of $4 million from the legacy projects. Reported backlog of $10.9 billion at the end of the first quarter was the highest reported backlog in Aecon's history, surpassing the previous record of $10.8 billion set in the third quarter of 2025. New contract awards of $1.4 billion were booked in the quarter compared to $4.1 billion in the prior period. Now looking at results by segment. Turning to Slide 5. Construction revenue of $1.3 billion in the first quarter was $197 million or 19% higher than the same period last year. Revenue was higher in all sectors, the largest increase in nuclear operations, driven by higher volume of refurbishment, new build and engineering services work in Ontario and the United States. Higher revenue in the utilities sector was primarily driven by an increase in electrical transmission and distribution work in Canada and the United States, contributions from acquisitions in the first quarter of 2026 and from higher telecom and gas distribution work. In Civil operations, higher revenue was mainly from an increase in the civil component of power and rail projects and from work performed internationally, partially offset by a lower volume of foundations work and highway, road and bridge building activity. Higher revenue in Industrial was driven by an increase in field construction work at industrial manufacturing and wastewater treatment facilities, driven by operations in the United States, with most of the revenue growth from the [ Bodell ] Construction and Trinity Industrial Services businesses acquired in the third quarter of 2025 and from an increase in power generation projects. Revenue was also higher in Urban Transportation Solutions, largely from an increase in subway and commuter rail system projects, partially offset by a lower volume of work from LRT projects in Ontario and Quebec that achieved substantial completion in 2025 or are approaching substantial completion. Turning to Slide 6. Adjusted EBITDA of $42 million was compared to a loss of $1 million last year. The increase was primarily driven by a volume-driven increase in gross profit in [indiscernible] operations and from an improvement in gross profit margin in civil operations and Urban Transportation Solutions. Turning to Slide 7. Concessions adjusted EBITDA for the quarter was $6 million compared to $13 million in the same period last year, driven by lower management and development fees on LRT projects that achieved substantial completion in 2025, partially offset by improved operating results at Skyport and Bermuda. The book value of our equity -- the book value of equity of our Concessions portfolio at quarter end was over $0.25 billion. Turning to Slide 8. At March 31, 2026, Aecon held core cash and cash equivalents of $81 million, which excludes additional $425 million of cash representing Aecon's proportionate share of cash held in joint operations. In addition, at March 31, 2026, Aecon had committed revolving credit facilities of $1 billion, of which $294 million was drawn and $4 million was utilized for letters of credit. Aecon has no debt or working capital credit facility maturities until 2029, except equipment loans and leases [indiscernible]. Aecon generated free cash flow of $212 million in the trailing 12-month period ended March 31, 2026, compared to $2 million in free cash flow in the same period in the prior year. At this point, I'll turn the call over to Jean-Louis to address our business performance and outlook.

Thank you, Jerome. Turning to Slide 9. Aecon continues to build resiliency and drive growth through a balanced and diversified work portfolio. Over the trailing 12-month period, approximately 55% of construction revenue was related to Power and Utility Services across the nuclear, civil, utilities and industrial sectors with nuclear representing the largest share. During the first quarter of 2026, the Eglinton Crosstown LRT project in Toronto opened to the public, bringing an additional project into the maintenance and concession phase within Aecon's diverse and growing portfolio of Concession assets. Aecon holds a 25% interest in the project's equity, development, construction and 30-year maintenance term. Turning to Slide 10. Demand for Aecon Services remains strong. With record backlog of $10.9 billion, growth in recurring revenue programs in Utility Services and a strong bid pipeline, Aecon is focused on achieving improved profitability and margin predictability while continuing to improve the risk profile of our business. Trailing 12-month recurring revenue was $944 million at March 31, 2026. Recurring revenue from Utility Services increased to $763 million from $620 million, an increase of 23% over last year. 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. Aecon expects 2026 revenue to exceed 2025 levels on the strength of its record backlog, strategic positioning in sectors with attractive demand profiles, robust recurring revenue programs and a healthy pipeline of project opportunities tied to power generation, critical resource development, mass transit infrastructure, water and defense. In the quarter, an Aecon partnership executed an agreement with Defense Construction Canada to deliver the Arctic Over the Horizon Radar Program Stage 1 project in Ontario under a collaborative integrated project delivery model. Aecon holds a 50% interest and is a lead partner in the JV responsible for project delivery. The validation phase commenced in the first quarter of 2026, with construction expected to begin upon completion of this validation phase. An Aecon joint venture also finalized a USD 691 million contract with the U.S. Army Corps of Engineers for the [indiscernible] and [indiscernible] Dam facility project in Washington State. Commencement of construction is expected shortly. Demand for Aecon services in the Construction segment across Canada and in select U.S. and international markets continues to be strong with opportunities across all sectors. We have a clear line of sight on some very significant and well-balanced work programs ahead. In the Concessions segment, there are several opportunities to add to the existing portfolio of Canadian and International Concessions in the next 6 to 12 months to support trends in aging infrastructure, mobility, connectivity, energy and population growth. Beyond the legacy projects, Aecon's ongoing shift towards a greater weighting of improved risk-adjusted programs in combination with a strong focus on operational excellence is anticipated to support a stabilization and gradual improvement of adjusted EBITDA margin in the Construction segment in 2026. Aecon maintains a disciplined capital allocation approach focused on long-term shareholder value through acquisitions and divestitures, organic growth, dividends, capital and operational investments and share repurchases on an opportunistic basis. We are focused on making strategic investments in our operations and systems to provide greater access to attractive markets, increase operational effectiveness and support the growth of our Concession portfolio. Our overall outlook for 2026 continues to be very positive. We are extremely excited about the momentum we have built and remain focused on executing our strategy to drive long-term shareholder value. Finally, turning to Slide 12. I would like to welcome our new team members from the 2 acquisitions completed by Aecon in the first quarter of 2026. On January 6, Aecon Utilities completed the acquisition of KPC Power Electrical and KPC Energy Metering Solutions, enhancing our presence in Ontario across high-voltage testing and commissioning services, including substation technical services and energy metering solutions capabilities. And on March 9, Aecon Utilities acquired ARC American and CA Advanced and the [indiscernible] Services and a 49% interest in KNX Utility Services, strengthening our underground and overhead electrical distribution, transmission, substation maintenance and emergency restoration construction services across the Midwest and Eastern United States. In closing, I want to thank our growing team across all our operating sectors for their safety always mindset. Next week, teams across Aecon's platform will proudly reinforce our safety culture through our 22nd Annual Safety Week. Thank you. We will now turn the call over to analysts for questions.

[Operator Instructions] Our first question comes from Michael Tupholme from TD Cowen.

First question, just wanted to ask you a couple of questions about the defense sector. So last month, Aecon announced an agreement to deliver Stage 1 of the Government of Canada Arctic Over The Horizon Radar project. I know that's in the validation phase right now. I guess I'm just looking for a little bit of detail on how long you expect that validation phase to run? And any indication as to when we could see that added to backlog? And if possible, any sense for what the value of that opportunity looks like?

Yes, I will take this one. We are extremely happy having been awarded this job. I mean for Aecon, it's very important. We come back to the defense business in terms of infrastructure. And this job is extremely interested. We have a first validation period, which will last up to the end of 2026. Today, in our secured offices for this project, we have more than 60 person working around the table collaboratively between our client, our engineer and our construction teams. Once this validation phase is over, in parallel, there will be further development phase for further part of the works and most probably early works commencement on some of the places of construction. So I would tend to say that we will see the first element of construction in our activity and revenue around mid-2027.

That's helpful. And then maybe to build on that, obviously, with this award and then there's a lot of other discussion occurring about opportunities in the defense sector in Canada, which has not historically in recent years, been as certainly as prolific as it is now. The question is, can you just comment on what sort of other opportunities you're seeing, the landscape, the opportunity set? And should we be expecting news on other opportunities in the near term? Or is this more of a medium- to longer-term opportunity in the defense sector in Canada?

Yes. So what we have called sovereignty projects, you probably remember sometime like 1 year ago, we refined our strategic plan for the year 2025 to 2027. Being a sovereignty project champion was very important for Aecon. So this Arctic Over The Horizon is the first part of the implementation of this strategy. But there are a lot of other sovereignty projects. [indiscernible], we we consider that the activity to come may be of the order of $125 billion during the next 10 years, among which more than half should be related with defense. What can come in the next defense project? I mean, there's a lot coming with the [indiscernible] rehabilitation in the north, 4 to 8 projects on those ones. There's a lot also coming with the submarine program on the East of Canada at Halifax and on the West Vancouver Island we are also having a look at those projects. I mean what is important is obviously the trend and the federal strategy on those projects. I imagine you have all gone quickly to the spring budget that was delivered yesterday. I mean it's very interesting news for Aecon. I mean we now know where are the priorities. We now know the real will to fast track this project. I mean, when we hear about one project, one review, I mean, it's extremely good for us. We have been suffering during years of too much hurdles. I mean, from the moment a project appears on the table and the moment the first cubic of concrete, I mean, is just on site. You have also noticed yesterday that -- and during the last few days that financing is getting organized now and everything is converging rather quickly. So it's about defense, but it's also about mining, it's about ports and other infrastructure projects. In addition, you probably have noticed the investment in the trade, not only to attract but to educate our young apprentice so that there should not be a problem of execution on those projects. All this goes into the right direction, and we have team at Aecon truly focused on those sovereignty projects.

Our next question comes from Sabahat Khan from RBC Capital Markets.

Just maybe starting with the nuclear side. I just wanted to get a little bit of perspective on the outlook in that business. Looking at the results here, a good contributor to revenue, but understanding backlog builds can be lumpy there. So not much there. So just trying to understand, as you look ahead over the next 12, 24 months or 2 to 3 years out, maybe just frame the nuclear opportunity and maybe some of the backlog dollars that could maybe get added to the projects you're keeping an eye on? And maybe even just beyond that, over the next sort of 3 to 5 years, what are some of the opportunities that Aecon could participate in?

I will take the first part of the answer. I mean Aecon is exceptionally well positioned on the short term, midterm and long term, I mean, for nuclear. And I will remind you more or less where we are working and maybe Jerome can add a few figures on this. I mean, we in Canada, we are working on all major component replacement programs for nuclear power plant. I mean we have just finalized Darlington. And next week, OPG will celebrate, I mean, the success of Darlington, a project that has finalized in advance in terms of time and within budget in terms of money. It had been decades -- all over the world without a real success in those big nuclear projects. We are extremely happy to have been the leader on this Darlington refurbishment. But we are also working at [ Bruce ], I mean, on the second and third reactor of the program of 6. And we have begun to work at Pickering at the same time on definition and early procurement, and we should begin execution in the course of the year 2026. In parallel, we are progressing the construction of the first SMR in Darlington. In United States, we work on nuclear on different -- on different activities. I mean major component replacement, of course. There is a little [indiscernible] in front of Canada, but now it's coming and it's going to be powerful. We work also with the Department of Energy on the National Laboratory. And we also work on development phase, on budget setting for new build. I mean the cascade with Energy Northwest is part of it. You have to note that our activity, I mean, our nuclear activity in the U.S. that was around CAD 300 million last year is going to grow to something like CAD 600 million equivalent during the year 2026. In addition, you probably remember that we acquired United in terms of engineering. We are also extremely active in that nuclear. And for example, United is engineer of core for a few of the main utilities in United States with a nuclear fleet. So in addition to this, for the new build, we are technology agnostic. I mean we perfectly know the [indiscernible] system, but we have also worked for Westinghouse on the AP1000. We have produced a few models in our Cambridge facility. We are building the BWR 300 from GE Hitachi and the Cascade, it's an ex-energy new generation reactor. All this just make that short term, midterm and long term is perfectly covered at Aecon. Maybe, Jerome, do you want to add a few figures?

Yes. I mean so that's helpful to put a little bit of context around it. And if you look over the last 2 years, so from '23 to the end of '25, our Nuclear segment added roughly $800 million of revenue and call it, 35% of that was in the United States. So it's a broad platform. It's diversified across customers. And when we think about the overall backlog opportunity associated with the nuclear, it's one of the top one or two sectors within our $10.9 billion backlog bidder today. That number moving up or down by a few million dollars causes exactly zero concern from an Aecon perspective. The amount of work ahead of us is very meaningful. And as you mentioned, additions can be quite lumpy, but we feel very, very good about the positioning of that business within Aecon's overall portfolio.

Great. And then maybe just back to the construction business and sort of the U.S. side. We're hearing more and more about the opportunities you're pursuing there. Can you maybe just frame sort of the U.S. opportunity? One, just on the -- how big can that business get over the coming years? And secondly, how do you go about developing a workforce to be able to sort of deliver on the projects south of the border, you have the infrastructure? And sort of what are the ambitions there on the construction side in terms of mix over the next years, especially given sort of an $11 billion overall backlog that you already have to deliver on?

Okay. We are working in the United States with determination, but prudency. It means that [indiscernible] set up in terms of revenue or activity an absolute figure for Aecon. But what is sure is that we are going to activities that can be reliable in terms of profitability and safe, I mean, for Aecon. We are -- we can select our client. We can select the part of the business where we have the best team. We can select our partners. Our issue in the United States is not a market share, first of all, because every state is a different story. But it's much more to be positioned at the best places at the best moment. And this is what we have been doing, I mean, for the last 2 to 3 years. You have to imagine how agile has been Aecon in terms of its U.S. activity. I mean in 3 to 4 years ago, we only had this works small welding, specialized welding activities. Last year, we were doing 12% of our activity in the United States. And obviously, we are growing. I mean, in nuclear, today, we have something like 1,500 people working. And when you add to those nuclear teams, I mean, all the team working for activities, either alone on some fiber or telecommunication work or through the subsidiaries that we have been acquiring during the last 3 years, we are summing up something like 2,000 people in United States with those transmission, distribution, [indiscernible] activities and engineering activity. In addition, because the budget coming from the Federal Government is important and fits perfectly well with our core competency, we have created a dedicated structure for our federal works in United States. So we have been extremely agile. And more broadly, I mean, I just want to say sometimes when I'm walking in the streets of Toronto or other city where there is a lot of work, I mean, with utility, rehabilitation and stuff like this. You can see some signs on the wall in front of some shops, let's say, during the works, we are still open. So what I just wanted to tell you and you have noticed it is that we had our issue during the last years with our legacy project. But never ever, we have stopped thinking every day about where are we going to be within 5 years from now, where are we going to be within 10 years from now, how are we going to beat our competition? How are we going to win? Where are we going to play? And the result today is the Aecon that you have in front of you.

Our next question comes from Chris Murray from ATB Cormark Capital Markets.

Maybe turning back just to some of the guidance on '26. You made the comment that you expect revenue to be higher in '26 than '25. But if we look at Q1 revenue growth, certainly pretty impressive just at the magnitude of it. But I just wanted to kind of frame or try to think about how that cadence is going to play out through the year. You would think that from the guide, it's like above, you wouldn't think it would be 20% above for the rest of the year. So just any color if you can help us kind of shape the opinions on how we should think about the balance of the year in terms of the revenue stack?

Yes. Q1 is a little bit of an exceptional quarter because candidly, we're lapping pretty easy comps. So last year, Q1 was roughly $1 billion of revenue. The year before that in '24, it was $844 million. So I mean, look, obviously, the stack of growth here is pretty meaningful. One of the big contributors is in 2025 in Q1, we secured the Scarborough Subway Expansion project as well as the Darlington New Nuclear Small Modular Reactor project. So those weren't in the comparative period last year. They're now in full swing and full production. So I would say if you're thinking about the overall shape of revenue growth, our expectation is not to be able to put that type of high-teen number on the board because the comps, so to speak, get a little bit more challenging as we progress through the year. That being said, the way we set up the outlook is remind our investor base is, roughly $11 billion of backlog. We provide detail on how much of that is executable within the next 12 months. Our recurring revenue program, particularly in the Utilities business is roughly $0.75 billion. That effectively doesn't touch anything in our backlog at all. So that's over and above. And then we have additional work that we usually kind of book and bill within the year. So we feel pretty confident that our outlook of revenue growth is valid. And we put it in the overall context of a relatively difficult environment with regards to construction overall, right? When you think about where construction put in place is across North America, the figures that we're putting up as far as growth is really a function of the strategic perspective and lens that Aecon has taken and the sectors that we address. So we feel happy about the position as Jean-Louis mentioned, right? The team wasn't as sleep at the switch while they were dealing with the legacy projects, we feel like we're really driving forward.

Okay. That's great. The other kind of question for you is you've raised some capital, some additional capital through the equity raise. You also seem to be pretty active in acquisitions. Appreciating the fact that when you did the raise, it was for kind of labeled as general corporate purposes and debt reduction. But kind of moving forward and thinking about that, does this -- does that raise and sort of your posture towards acquisitions, should we be thinking about a change in kind of capital strategy in terms of being more growth focused? And if so, is it still going to be tuck-ins? Or do we start looking at kind of larger organizations that will give you some additional capacity to kind of work through some of this growing backlog that you've got?

Yes. So very consistent approach to capital allocation. operations-first mindset at Aecon, very focused on supporting our operation teams for the growth that they have in front of them. So that means investments in systems and resiliency in people, so that kind of general support for the organic side of the business. And again, in the quarter, roughly 85% of the growth that we had was organic. So really important to note that we need to support that with investment. Our CapEx program has actually been quite measured. If you look at the comparative period, like trailing 12-months from March 31 to trailing 12 months, March 31, 2025, our CapEx number has effectively been the same and whether or not you include the finance lease, which is obviously another form of CapEx. So we've been pretty measured. So we think we need to make more investments from that standpoint. And then to your specific question around M&A, over the last 2 years, Aecon has executed 7 acquisitions. Those teams have been welcomed into the fold. They've been integrated. They're all performing at or above expectation. 5 of those acquisitions were in the United States to expand our platform. Total dollars represent something in the order of $300 million. And so when you say what do we use the money for, it was to pay down debt, right, which is why we ended up in the strong position we had at quarter end. But that does afford us capacity to support further growth. So we're not going to kind of tilt whether we're going to go after something bigger or smaller. We've got a very specified buy box with regards to capability, accretion. It's a very disciplined approach. And one thing we'll say is there are certain areas that we really like and businesses that we understand and that we think have undeniable growth trends. And where we see opportunities to increase Aecon's exposure to those end markets, we won't be shy about taking it because we think we've got a pretty good growth algorithm associated with that.

Our next question comes from Maxim Sytchev from NBCM.

The first question is around M&A multiples. When we look at the disclosure on kind of the purchase price and backlog contribution, et cetera, I'm just wondering if we're seeing a bit of an uplift there? Or how should we think about sort of the seller's expectations in this market, especially like in the utility space?

[indiscernible] you want to start Alistair?

Yes, happy to. Yes, Max, we've been fortunate enough over the last number of years to be able to really select the deals that we've been pursuing, which helps to keep a little more rational approach and valuation in the mix for the companies that we've been buying. That's been helpful. We've also been able to try and align the entrepreneurs that we are acquiring and bringing into Aecon through mechanisms that have earnouts and everything to try and continue the opportunity to maximize value through their growth plan. So while we have seen a little bit of multiples coming up over the last number of years, similar to what you're seeing in the sector overall, it's been pretty much measured for within what we can manage and within our cost of capital. So we've been pretty diligent on trying to make sure we're being reasonable valuation, and I think that's been successful. So if they come up, but still quite within our parameters.

Okay. That's great to hear. And Jerome, maybe a follow-up question for you in terms of how should we be thinking about the cadence for Concessions EBITDA this year and maybe sort of the expected inflection point there? Is that sort of, I guess, a 2027 event? Just trying to get the timing right there.

Yes. Our -- the EBITDA contribution for the Concessions business is going to be down year-over-year as we saw in the first quarter. The inflection point is going to be likely tied to advancing new projects, whether some of the items we have in the hopper today or the U.S. Virgin Island, the airport projects that we've been talking about for a while, like those are pretty advanced development phase. So yes, here, it's probably a Q4 event or a next year event. The teams are working pretty feverishly on it. And we think about it internally more as an equity value business. So it's the book value of equity associated with the Concessions portfolio. You've got the roughly $0.25 billion on balance sheet. And then additionally, the [indiscernible] investment that we carry in long-term investments. So the total is, call it, $255 million, $260 million. And so clearly, it's more valuable than that. And so EBITDA is -- yes, it's an accounting term for that business. But for that business overall, the daily flow of up and down on EBITDA, we're a little bit less concerned with. We're more focused on the value creation. And we think we've got a really good team, really good opportunities in front of us. And it's clearly a business that we want to allocate more capital to because we see opportunity.

Our next question comes from Ian Gillies from Stifel.

Over the last 5 or 6 years, I mean, even through COVID, you've done a great job in and around staffing. It appears we're getting close to another demand inflection for construction in Canada in particular. Can you just talk about where you think you're at with staffing, some of the staffing strategies and whether it's a perceived risk at this point or not?

Construction is about people. It's about people and processes, but the relative weight of people capacity is probably higher in Construction than in other industries. So if we go bottom up, first of all, the trade, and I spoke about it at the beginning, I mean, of this meeting, the whole country has understood that it's an important issue. This being said, we have excellent relation with all our partners, and we have always been able to forecast the needs and the capacity for the next 5 years with our trade partners. When we go higher, we have the middle staff and the top staff. So this is important. And we have created at Aecon, what we call our Project Management Academy. We have a few other programs for coordinators, for technical manager just to train and on the quality of our staff. This being said, when you see the project [indiscernible], I mean, the war is still going to be on the top executive of the company and on the top executive for Construction, Project Director, Technical Director, Construction Manager on our job also project control. So we are extremely focused on attracting, training and keeping the best people in the market. I mean it's not a real bottleneck or a red flag. It's just that it's our work, and we have always done this, I mean, to be able to look ahead and to define exactly what we are going to need and to create this capacity.

Maybe I'll add just an additional perspective just because I joined this business roughly 2 years ago. Other things are, one is like the amount of care and attention put towards the safety culture is just critical to ensure we can maintain our skilled trade and skilled labor pools because everyone knows who's good at it and who's not good at it. And so we've got our safety week next week across all of our sites in North America. Our safety record in 2025 was one of the best ones despite -- not despite reflecting also that we had some of the most hours worked in the company's history. Additionally, the team environment is really important. Like I can say it's a great place to work, and we're excited about that. Obviously, there's a big demand and we're hiring. And one of the things that I kind of think about what's a unique aspect of Aecon is this ability to attract and deploy that level of skilled labor is relatively unique. There's not a lot of folks who can marshal these types of forces. And give a little bit of context, in 2025, Aecon issued roughly 17,000 T4 and W-2 forms, right? So that obviously doesn't reflect a peak labor number. That's kind of throughout the entire year, but just shows that that's the labor pool that we had access to, in 2025, and we expect that number to go up in 2026. So it's a unique attribute. It's human capacity and it's something we're really proud of.

Understood. That's helpful context. Jerome, on the recurring revenue side, there was a little bit of a downdraft year-over-year. Utilities was really good, but the other bucket was probably what I would define as weak. Can you maybe just talk a little bit about what's happening there and kind of how you're thinking about how that trends through the remainder of the year?

Yes. I see where you're coming from. The background on the kind of light blue bar on that page is really a function of -- in the comparative period, we had what I'd just call a progressive or development work, particularly associated with a project that was -- that didn't move forward. And so that was largely in the UTS side of the business. And so the reality is that component has dropped off the recurring revenue side, but a much bigger component has shown up in the true revenue side, so to speak, as those projects are in execution, particularly the Scarborough Subway. So we're not particularly fussed about the shape of like that block coming down because the revenue really just flipped over into more normal backlog-based revenue, and we don't double report. And then look, the utility side, like that's a positive development, right? There's a big focus on securing additional MSA work across all the different areas where we execute. The electrical side of the business is performing relatively well. There's been a lot of headwind on the telecom and the natural gas distribution side due to the regulatory environment. And so like we just think the teams on the utility side have just been performing just exceptionally well given a pretty tough dynamic there.

Our next question comes from Sean Jack from Raymond James.

So just thinking about these new defense projects on The Horizon in Canada, I think there was mention of submarines and Arctic bases, other forms of work earlier. Do you see any opportunities for strategic adds through M&A that you'd be willing to make that could bring it closer to this growing pipeline? Or do you feel like you're well positioned as it is?

On a first basis, we think we are well positioned, and we can always partner that most probably will be the way to see forward rather than acquiring company for this. I mean all these are core competencies that we have within the company at this moment. It doesn't mean that we would not do something a little different when we have a better understanding of all those programs. But so far, this is the way we are envisaging our strategy for those projects.

Our next question comes from Krista Friesen from CIBC.

Maybe just a follow-up on the defense topic there. It seems like from the outside, a pretty seamless pivot to reentering this defense work. Were there any investments that you needed to do on your end in maybe putting up secure facilities or anything like that to be able to bid on the defense work? Or were you able to just use what you already have?

I mean we have not been working with defense for the last 10 years because, first of all, there was very little work, and it was a lot of rehabilitation of hangar of workshops of some administrative buildings and -- so I mean, that is the reason. But earlier, I mean, we have been working with defense. So as I've answered, I mean, the question just before you, we have those core competencies within the company. We have this capacity to develop and also to project our strength rather far from our basis. So we consider we have within our company the capacities to deal perfectly with those projects.

And maybe just put one small point on it, Krita. Yes, there were investments involved around facility, cyber infrastructure, et cetera. That being said, the work programs that we carry on outside of that particular sector also have pretty stringent requirements. And so I'd say the transition, it requires a lift, but not a huge one because I think we were probably already at the 85% mark given the other work that we do within the business.

Okay. Perfect. And then maybe just more of a housekeeping question. On the MG&A expense this quarter, a little bit higher as a percentage of revenue. How should we think about that moving forward?

A little bit higher in the quarter in the context of obviously big revenue growth. Current levels are probably appropriate, right. And so most of it is tied to compensation, staffing costs, supporting resiliency and supporting growth. And so given just the amount of additional dollars that we're putting to work as far as revenue recognition and how lean the organization has been through what described as the rearview mirror legacy era, it's just kind of probably appropriate catch-up and some level of normalization from here.

This concludes the question-and-answer session. I would now like to turn it back to Adam Borgatti for closing remarks.

Thank you very much, Shannon, and we appreciate everyone's interest and attention. Happy to take any follow-up questions, and have a great rest of your day.

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