Release Date: November 14, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Atkinsrealis Group Inc (SNCAF, Financial) reported a strong organic revenue growth of 14% in services and 35% in nuclear, highlighting robust demand across its business segments.
- The company's backlog reached a record high of $16.8 billion, a 35% increase year-over-year, indicating strong future revenue potential.
- Atkinsrealis Group Inc (SNCAF) generated over $200 million in operating cash flow this quarter, showcasing strong financial health.
- The company secured significant contracts, including a life extension contract at the Qinshan Nuclear Generating Station, emphasizing its competitive advantage in nuclear services.
- The company is strategically positioned in high-growth geographies and end markets, which is expected to drive future growth and profitability.
Negative Points
- In Canada, the company experienced an 8% year-over-year organic revenue decline due to the ending of a high flow-through revenue project.
- The engineering services segment in the US and Latin America saw a margin decline due to lower emergency work and changes in business mix.
- The company's LSTK projects segment reported a negative $18 million in adjusted EBIT, indicating ongoing challenges in this area.
- There is a potential risk of capacity constraints in the nuclear industry, which could impact future growth if not managed properly.
- The company anticipates relatively flat organic growth in Q4 due to the closeout of major projects and strong prior year comparisons.
Q & A Highlights
Q: Can you comment on the margins for engineering services and nuclear, and your confidence in the margin targets for 2025 to 2027?
A: Ian Edwards, President and CEO, explained that the company is focused on improving margins through a sustainable approach, aiming for 17% to 18% by 2027. This involves winning the right work, optimizing overhead costs, improving resource utilization, and leveraging their technology center in India. For nuclear, the target margin range is 12% to 14%, focusing on growth without sacrificing margins.
Q: How should we think about margins for the $2 billion contract with the US Department of Energy compared to rebuild work?
A: Jeffrey Bell, CFO, noted that such contracts are typically joint ventures, providing an equity pickup for their share of net profit, which is beneficial for margins. The contract offers stable, long-term financial contributions to the nuclear group.
Q: Can you provide an update on your strategy in the US market, particularly regarding organic growth and M&A?
A: Ian Edwards highlighted their "land-and-expand" strategy, aiming to become a top 10 player in the US. They are focusing on organic growth and are actively looking at M&A to complement their presence, particularly in the Northeast and West Coast. They are targeting quality companies that align with their strategy.
Q: What are the drivers behind the strong increase in nuclear backlog, and what is the timing for these projects?
A: Ian Edwards explained that the backlog growth is driven by CANDU life extension projects and other nuclear services. They are close to concluding negotiations for new builds, such as Cernavoda 3 and 4, which would be significant for the company and Canada. The timing for these projects is expected to ramp up towards the end of the decade.
Q: With strong cash flow performance, what are your capital allocation priorities, and how do buybacks fit into this?
A: Jeffrey Bell stated that the company is in a strong financial position to execute on their M&A strategy, particularly in the US. They are also returning some capital to shareholders through buybacks, but the primary focus is on strategic acquisitions to drive growth.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
