Aecon Group Inc

TSX:ARE

Q4-2025 Earnings Call

[Operator]

Good day, and thank you for standing by. Welcome to the Q4 2025 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 speaker today, Adam Borgatti, Senior Vice President of Corporate Development and Investor Relations. Please go ahead.

[Adam Borgatti, executive]

Thank you, Deani. Good morning, everyone, and thanks for participating in our year-end 2025 results conference call. Joining me today 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 this call. Following our call, we'll be glad to take questions from the analysts.

[Operator Instructions].

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 the expectations will prove to be correct.

Before moving to our financial results, I'll first turn the call over to Jean-Louis to highlight a few of Aecon's important accomplishments in 2025.

[Jean-Louis Servranckx, executive]

Thanks, Adam. As noted on Slide 3, 2025 was a transformative year of growth and significant milestones for Aecon with record revenue of $5.4 billion and backlog additions of $9.5 billion, supported by a balanced and derisked backlog profile. Revenue grew 28% over 2024 with 84% of the $1.2 billion increase in revenue through organic growth. Revenue from U.S. and international markets also increased by $386 million or 87% in 2025 over 2024.

We delivered our strongest safety performance in over 5 years while maintaining disciplined risk management across major projects and programs. We further advanced our nuclear leadership in North America with our partnership selection to deliver the G7 first grid-scale Small Modular Reactor or SMR at the Darlington Nuclear Generating Station. We also commenced the definition phase of the Pickering Refurbishment Program and an Aecon partnership was awarded a development phase contract at Energy Northwest's Cascade SMR project in the U.S.

Backlog growth was also highlighted by Aecon's largest contract award to date, the Scarborough Subway Extension progressive design-build project, adding approximately $2.8 billion under a collaborative target price model. We expanded strategically through the acquisitions of Bodell Construction, Trinity Industrial Services, and KPC Power and Electrical Services. We strengthened our leadership team with the appointment of Thomas Clochard as Chief Operating Officer and received industrial recognition with gold stages on Renew Canada's Top 100 Infrastructure Projects list, reflecting our involvement in 17 ranked projects, including four of the top five.

And as noted on slide four, we achieved significant operational milestones, including completing the world's largest nuclear refurbishment program at the Darlington Nuclear Site ahead of schedule and below budget in early 2026, providing a model for major nuclear projects on a global scale. Substantial completion was achieved on the Finch West and Eglinton Crosstown LRTs, which were two of the three remaining legacy projects. And we delivered Canada's largest battery energy storage facility, the Oneida Energy Storage Project.

I will now turn the call over to Jerome for our financial results, and we'll return to address our outlook at the end of the call.

[Jerome Julier, executive]

Thanks, Jean-Louis, and good morning, everyone. I'll speak to Aecon's consolidated results, review results by segment, and address Aecon's financial position. Additional information has been provided to help clarify the underlying results, excluding impacts from the legacy projects and divestitures. Detailed reconciliation tables are included on slides 15 through 17 in the conference call presentation.

Turning now to slide 5. On a reported basis, record revenue for the year of $5.4 billion was $1.2 billion, or 28% higher compared to 2024. Adjusted EBITDA of $235 million compared to $83 million last year. An operating profit of $87 million compared to an operating loss of $60 million in 2024.

Adjusted EBITDA and operating profit in 2025 were negatively impacted by $94 million in legacy project losses, compared to legacy project losses of $273 million in 2024. Adjusted diluted earnings per share for the year was $0.40, compared to adjusted diluted loss per share of $0.99 in 2024. As only noted, reported backlog of $10.7 billion at the end of 2025 was a record year-end level and compared to backlog of $6.7 billion a year ago. New contract awards of $9.5 billion were booked in the year compared to $4.7 billion in the previous year.

Now looking at results by segment. Turning to slide 6. Construction revenue of $5.4 billion in 2025 was $1.2 billion or 28% higher than the previous year. Revenue was higher in all sectors, with the largest increase in nuclear operations, driven by a higher volume of refurbishment, new build and engineering services work in Ontario and the United States. Higher revenue in industrial was driven by an increase in field construction work on critical mineral facilities in Western Canada and incremental revenue in the U.S. from the Bodell and Trinity acquisitions completed in the third quarter of 2025.

Revenue was also higher in urban transportation solutions, primarily from an increase in subway and commuter rail system projects. In civil operations, higher revenue was mainly due to an increase in power and rail projects and from major project work performed internationally, partially offset by a lower volume of highway, road, and bridge building activity.

In utility operations, higher revenue was due to a higher volume of gas distribution work in Canada and electrical work in the U.S., partially offset by a lower volume of telecommunications work and battery energy storage systems work as our team successfully delivered 3 grid-scale projects in the year. On an as adjusted basis, construction revenue was $5.3 billion in 2025 compared to $4.1 billion last year.

Turning to slide 7. Adjusted EBITDA of $220 million compared to $34 million last year. The primary driver of the increase was lower losses from fixed-price legacy projects in the year. On an as adjusted basis, the Adjusted EBITDA was $315 million in 2025.

Turning to slide 8. Concessions Adjusted EBITDA for the year was $57 million compared to $87 million last year, driven by lower income from O&M activities and a decrease in management and development fees related to concession projects nearing or achieving substantial completion of construction activity in 2025. The book value of equity of our concessions portfolio at year-end was $251 million, up 7% versus the end of 2024.

On slide 9, we brought together the as-adjusted information to exclude impacts of the legacy projects and divestitures to provide insight into the underlying performance of the business. For the construction segment, on an as-adjusted basis, Adjusted EBITDA was $315 million in 2025, representing a 6% margin and $8 million increase over 2024.

On slide 10, at the end of 2025, Aecon held core cash and cash equivalents of $94 million, which excludes $393 million of cash, representing Aecon's proportionate share held in joint operations. In addition, at December 31, 2025, Aecon had committed revolving credit facilities of $1 billion, of which $257 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 in the normal course.

Aecon's board of directors approved an annualized increase to the dividend of $0.01 per share, resulting in a quarterly dividend of $0.1925 per share. The dividend will be paid on April 2, 2026 to shareholders of record on March 23, 2026.

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

[Jean-Louis Servranckx, executive]

Thank you, Jerome. Turning now to slide 11, Aecon continues to build resiliency through a balanced and diversified work portfolio. In 2025, roughly 55% of Aecon's construction revenue was related to power and utility services across the nuclear, civil, utilities, and industrial sectors, with nuclear representing the largest share. This represents a purposeful transition in our business, with the percentage of power activity increasing significantly over the past five years. Approximately 30% of Aecon's construction revenue was derived from power and utility services in 2020. Through our growth and diversification, Aecon is a profoundly different company now than we were several years ago.

Turning to slide 12. Demand for Aecon services continues to be strong. With backlog of $10.7 billion at the end of 2025, recurring revenue programs seeing robust demand and a strong bid pipeline, Aecon believes it's positioned to achieve further revenue growth in 2026 and is focused on achieving improved profitability and margin predictability, all while improving the risk profile of our business. Recurring revenue was $926 million in 2025. The proportion of recurring revenue from utility services increased from $610 million to $728 million, an increase of 19% over 2024. 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 13, Aecon expects 2026 revenue to exceed 2025 levels based on Aecon strategic positioning in sectors with attractive demand profiles and a healthy pipeline of project opportunities tied to power generation, critical resource development, mass transit infrastructure, water, and defense. In the concessions segment, Aecon continues to focus on opportunities to add to the existing portfolio of Canadian and international concessions to support trends in aging infrastructure, mobility, connectivity, energy, and population growth.

Beyond the fixed price legacy projects, we believe that the deliberate 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 margins in the construction segment in 2026.

Aecon plans to maintain a disciplined capital allocation approach focused on long-term shareholder value through acquisitions and divestitures, organic growth, dividends, capital investments, and share repurchases on an opportunistic basis. We are focused on making strategic investments to support our strong growth, whether through the concessions portfolio to provide access and entry into new markets or to increase operational effectiveness. Our overall look for 2026 is 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.

I want to express my sincere thanks to our growing team for their resilience, high professionalism, and safety always mindset that has positioned Aecon for what comes next.

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

[Operator]

[Operator Instructions]. And our first question comes from Sabahat Khan of RBC Capital Markets.

[Sabahat Khan, analyst]

Great. Just you provided a bit of color on the sort of the opportunities ahead. I was hoping you could dig a little bit into some of the announcements we've been seeing from the Canadian government on the infrastructure side. Just hoping you could provide a bit of color on behind all these headlines, where are we in maybe some of these projects hitting the bidding process? Are you bidding on some of these already? Maybe if you could just tie in the announcement from the other day related to NORAD as well. Just curious to get some more color on that project.

[Jean-Louis Servranckx, executive]

Yes. I will take this one. First of all, as an introduction, where we are today is a result of being extremely serious and focused about our strategy. We are extremely disciplined with this. We are now following our plan 2024 to 2027. We had an update mid-2025. Basically, where we are today belongs to 4 vectors. The first one was Aecon has to become a powerhouse. As I've noted during my speech, we are now a little more than 55% related with power. It's an incredibly important shift for our company that was before much more road and bridges.

Point number 2, Aecon has to become what we call a sovereignty champion. We are coming to your questions. You probably have noticed that we were among the first five project of nationally important that were defined with the Contrecoeur port in Montreal and the SMR construction, I mean, in Darlington. We also announced a few days ago that we had been awarded this Arctic Over-the-Horizon project. This project was a target for Aecon. I mean, we wanted to come back to Defence Construction Canada. We have not been there for quite a number of years because the jobs were much more refurbishments of buildings, hangars, and not that much infrastructure. We decided that we had to be back. We have been awarded the first two pieces of this job. Ultimately, there will be several others for what has been announced as a total size that could be $3 billion to $5 billion. It's a complex project. We are leader.

We want it with an outstanding scoring result. It's a purely collaborative job. It means that we first have a validation phase, then we have a development or a detailed definition phase, then we have construction that should begin in 2027. It was very important for us, and we got it. Third point of our strategy, we'll come back to this. Aecon has to be a national and a local strong player in the US. We'll come back to it. Number four, Aecon has to become more international, what we also have been doing. I hope I've answered your question.

[Sabahat Khan, analyst]

Yes. Just, maybe a bit more, if I could follow up there on just behind some of these initial projects, have you seen an uptick in bidding activity, or are these projects still initial phases? Just wondering sort of when some of the other larger projects or some of this investment might hit the ground?

[Jean-Louis Servranckx, executive]

When you discuss with Defence Construction Canada, or you also can go to their website, I mean, obviously, the number of project that are now on the list and that will be put on the market, I mean, during the few years to come has been multiplied by quite an interesting factor. We are tracking this. Of course, you have also, for example, learned about Alto, I mean, the high speed train with the first phase between Montreal and Ottawa. I mean, this is a pure kind of project for which Aecon is excellently positioned now.

[Sabahat Khan, analyst]

Great. And then just my last question. Obviously, you're talking a bit about the power opportunity and the business here. Can you maybe just rehash sort of the utility strategy? Is that something that is it more growing it via some of these power project opportunities? How big of a role would M&A play in that? Maybe just a little bit of color there, and I'll pass along.

[Jean-Louis Servranckx, executive]

I mean, obviously, the power part of utilities is growing and is growing well. Our utility sector is also about gas. It's also about telecom. It's also about fiber to the home and those kind of activities. Power is what is growing. At the same time, in United States and in Canada, I mean, basically, the main topic of today is about electricity addition.

This is the wave, and we were not wrong 3 years ago when we just called this and decided to focus our efforts on this part of the link. This being said, as I've always told you, Aecon has to stay balanced. It has to stay balanced between the different core competencies that we have.

It's about urban transportation, it's about industrial, it's about nuclear, it's about utilities, and it's about civil. We have to keep balanced, but we know that the wave is about power.

Jerome, you want to add something?

[Jerome Julier, executive]

Sure. Just to close the loop on it, on the utility services side of the business, the capability that we have both in Canada and the United States centers around grid-scale, battery storage, substations, distribution, transmission. Now increasingly, electrical testing, verification, meter replacement with the new team that's joined us. Our perspective is we want to continue to build capacity to serve these end markets. There's an undeniable growth trend, even in the more bearish case for power demand. We just see an enormous opportunity for us to continue to build out that area. We'll do it organically. We'll do that through M&A to the extent the opportunities fit our buy box, our culture, and our safety record. We continue to view it as an area of opportunity for capital deployment for sure.

[Operator]

And our next question comes from Yuri Lynk of Canaccord Genuity.

[Yuri Lynk, analyst]

Just want to dig in a little bit on the outlook for construction segment Adjusted EBITDA margin. Calling for some stabilization here, after a number of quarters of decline, and then maybe some improvement in the back half of the year. Maybe just what are the puts and takes that get us stable here, and then what could possibly drive some upside in the back half of the year on the margin?

[Jerome Julier, executive]

For sure. The message is simply that the direction of travel for like the construction margin, whether you look at it on a reported or Adjusted basis, that the message is very much consistent, is stabilization on the direction of travel with the potential for improvement. That's largely a function of through 2025, the business has moved the type of execution that's flowing through and being recognized into revenue away from some of the progressive elements and fixed price contracts, which generally carry higher margins. You know, in some ways on fixed price, certainly higher risk to a much more stable risk-adjusted return that we view as very attractive from an Aecon perspective. We've now reached that point where we've stabilized that transition.

You know, the vast majority of our work is done under more appropriate contract structures. The risk-adjusted margin profile that we're recognizing is strong, given the contract structures that we're in front of. The improvement is going to stem largely from operational efficiency gains, improved cost and schedule performance on our jobs. As well as the drop off of legacy and then the Western Civil area that's added a dilutive impact to the overall margin profile in '25 and late '24. I think from that perspective, it's a mix of factors, but I think all of this is in the context of a business that's continues to grow quite well. We think there's good torque in that message.

[Yuri Lynk, analyst]

Are those Western Civil contracts still dragging or they're finished or stable?

[Jerome Julier, executive]

Our view is we have a handle on their completion and finalization, we're going to continue to just to close them out, right? They're effectively I think backlog wise, we're probably talking kind of sub $100 million here. Same thing on the legacy side, sub $100 million in the context of $5.4 billion of overall rev. We're feeling better about it.

[Yuri Lynk, analyst]

Last one for me, just on the bookings, I mean, a huge bookings year, 2025. Safe assumption that we're not going to get to that level of bookings in '26. Can you just remind us of any progressive contracts that might be suitable to be booked in '26? Like I'm thinking Pickering is probably one, but any help on just how we think about the new awards outlook this year.

[Jean-Louis Servranckx, executive]

I will take this one. Yes, you're right. I mean, the increase in our backlog, I mean, in 2025 is mainly due to big chunk, I mean, of job. I mean, we told you about Scarborough. What is coming now, I mean, obviously Pickering is an important one. We are also on Winnipeg on a very interesting wastewater treatment plant where we are finishing the development phase. We are also working, you probably remember on a fish passage and a civil job in the United States, I mean, over Hanson Dam, that should most probably come to our construction backlog. We are waiting, I mean, for a few results, or eventual awards on some UDS projects on which we have been bidding during the last months.

[Operator]

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

[Chris Murray, analyst]

Maybe kind of following on, kind of what to expect in 2026, especially on the revenue line. Certainly really strong revenue growth through this year. You know, there's a few projects that we've been in. Actually, I was thinking of the Ontario GO Electrification project as well. You gave the indication that you expect revenues to be higher in '26 and '25, which given where the backlog is, that's I guess probably what we should have been expecting. But I'm just trying to gauge how you think the magnitude's going to show up.

I can't believe that this 20% clip on year-over-year growth is going to continue, but maybe if you can characterize it a little bit better, that would help us kind of shape our view.

[Jerome Julier, executive]

Sure thing, Chris. The growth in '25, I mean, we'd likely describe as exceptional, rather than just very good. 8-plus percent of that was organic, which is roughly $1 billion. You know, just the growth that Aecon produced in 2025, if that was its own business, would've been a top 20 construction company in Canada, that was formed out of Aecon. We are not anticipating that level next year. Our commentary in the outlook is formed on the basis of, number one, the backlog, number two, really strong recurring revenue programs across the business, but you know, in particular the Utilities group.

Number 3, all sectors are really well positioned for where demand trends exist today. If we look, 2025 was effectively a flat or down year in construction in North America, except for a select few sectors, and those sectors were the 5 sectors in which we're involved. 2026, we continue to see good outlook. You know, overall general industry trends, people are calling for something in the order of low mid-single digit growth. Again, we think we can, we can handily beat that, but we're not going to get to the level we got in 2025. I don't anticipate that absent some significant M&A. We're expecting another good year after an excellent year, but not we have to temper expectations, right?

We can't expand our human capacity and deliver the amount of skill trades, that we use as the basis for business, at that clip on a continual basis, right? We need to be smart about it.

[Chris Murray, analyst]

Okay. Maybe if I ask the question a different way. If I think if I look at your backlog kind of characteristics today, you've got about $3.6 billion that looks like delivered or planned for the next 12 months. $1 billion of probably recurring revenue that's in the pipeline. How should we think about at least even with the project demand in here, is it fair to think, like what would be about the right number to think about stuff that you can actually book and execute in the same year, kind of on a normal run rate? Maybe that's a different way to think about this.

[Jerome Julier, executive]

Yes. If I gave you that, we'd be plugging to the revenue number that we have in our business plan, which we're not going to disclose. The opportunity set is strong at both procurement, go get change orders, ability to expand in existing projects and secure additional work packages. If you go back historically, it's a relatively broad range that we've been able to pull together across the years. You know, 2025, if you look at where we were in 2024, obviously that kind of go get element was quite strong. I don't think it'll be as strong in '26, if you want to try to track back against that.

[Chris Murray, analyst]

Okay. Next question really quick. You know, just we're starting to see another one of these, kind of legacy issues, getting solved, I guess, in the quarter. Can you just give us any color around the solution and if it had any material impact on the numbers in the quarter?

[Jean-Louis Servranckx, executive]

Maybe I just begin with where are we physically on those job, and then Jerome will add a few figures that are all in our report. As you have noticed, we are now substantially completed on Finch and Eglinton LRT, following what we call the revenue service demonstration, which is an extremely complex demonstration of the capabilities of all the systems we have been building. This is done on those two LRT.

Our maintenance and TTC operation is going quite well. We are very happy about it. Gordie Howe, we are nearing substantial completion. It's about finalizing operational readiness of all our systems and finalizing the onboarding of all border agencies and installation in their office. I've read a few comments.

Just to be clear, substantial completion is totally separated from opening of the bridge. It means that we are now in the last centimeters to go to substantial completion. The opening of the bridge is a different topic. We are on those three job finalizing our commercial discussion with all our clients. I mean, we have no disputes. We are under discussion, and we think that within the next few months we will be over with that.

A few figures?

[Jerome Julier, executive]

Financially, the legacy projects had a negative impact of $6 million in the quarter, Chris. Total for the year was $94 million. It's obviously substantially less than what we had last year. The big focus in 2026, as Jean mentioned, is the successful delivery of the final project and then the closeout of the commercial terms associated with all three. Given where we stand today, I'm not sure it's actually additive or constructive for the overall Aecon discussion to zoom in too much on these items. Like, we're getting basically narrowing down the level of outcomes, so not immaterial, but like less material levels. What we might likely do in '26 is just report everything all together and then close out this chapter.

Like, we're in the twilight phase of the legacy. We're focused on what comes next, around some pretty stellar opportunities that we're in execution and procurement on. I think we're going to want to talk a lot about that in '26 and a lot less about this very difficult phase that I think the team's done an extraordinary job managing through.

[Chris Murray, analyst]

Okay. Great. I probably asked the question a little bit wrong. I was actually more curious about the Rio Tinto agreement and just if that had any material impact on the quarter.

[Jerome Julier, executive]

If it was material, we would have disclosed it. No. That's just another successful completion by our operational legal team to settle a dispute or claim situation with a client and it's closed off. I think from a macro level, if you kind of take it out a little bit, the real message here is that Aecon does a really good job at managing risk exposures and reducing the overall enterprise level risk that we're putting forward.

In '24 to '25, the business has been in a better position in '25 to '26. Again, we think we're in a better risk-adjusted position. The idea is creating a more boring, more stable, more predictable Aecon from a financial perspective, and then a more exciting, more thrilling Aecon from a perspective of the people who work and you know, a very dependable Aecon from the perspective of our clients. I think we're advancing along all three of those.

[Operator]

And our next question comes from Michael Tupholme of TD Cowen.

[Michael Tupholme, analyst]

My first question is just about the nuclear, the nuclear business. Obviously a key growth area for Aecon in 2025, and it was your most important growth area in the year. I guess as we look to 2026, the question is, beyond executing on the substantial volume of nuclear work that you already have in hand, what should we be watching for and expecting as far as nuclear developments and progression in terms of new nuclear opportunities, in 2026?

[Jean-Louis Servranckx, executive]

Okay. As an introduction, I just want to come back to this incredible news about Darlington refurbishment. I mean, in February of 2026, we just finalized the refurbishment of the 4 reactor under budget and 4 months ahead of schedule. I mean, it's extraordinary. You cannot imagine the number of calls and questions that we are receiving. I mean, something like this is the first time we have good news on a big nuclear project for the last 20 years. How did you do it? We are extremely proud because Aecon, during the last 8 years on this project, was on the critical path of its execution. It's a very good news for the nuclear industry to have been able to demonstrate that when it is well organized, it works.

Obviously, I mean, on refurbishment, we are still on two major programs. I mean, Bruce, with 4 reactors to complete up to 2032, and Pickering, I mean, 4 reactors, we have just begun the development phase and turbine up to 2035. Regarding new construction in Canada, we are working on the first unit of the small modular reactor, the 300 megawatts from GE Hitachi. A completion forecasted around 2030. It's going well. We have, at this stage, something like 1,100 people, I mean, between staff and workers on site. Nothing has yet been decided regarding new big nuclear in Canada in terms of technology from OPG or from Bruce.

We are working with those two utilities on the development phase with various options. In United States, I mean, we are working on three different topics. Major component replacement, mainly with Dominion, but also now with Energy Northwest. Second vector is the Department of Energy on their national lab in Savannah River. The third one you have noticed we have been awarded for Energy Northwest. I mean, the collaborative de-development to complete the planning, the design, and the construction of a 12x 80-megawatt X-energy reactor with Kiewit and Black & Veatch. It's just beginning. We are at planning and then pure definition phase, but it's a new build. What's important with this is to say that Aecon is technology agnostic.

I mean, we work for CANDU and we're extremely strong, I mean, with CANDU. We work with GE Hitachi. We are beginning with X-energy. We have been working in the past, and we are working today with Westinghouse. It just means that we are ideally positioned for what is coming.

[Michael Tupholme, analyst]

That's helpful. Maybe just one quick follow-up on that response. As far as the Energy Northwest Cascade Advanced Energy Facility opportunity, is that something that as you move through this next phase, you could get to the point you're at where you are booking more meaningful amounts into backlog in 2026, or is that a beyond 2026 opportunity?

[Jean-Louis Servranckx, executive]

So it's going to be beyond. I mean, at the moment, we are at pure definition phase. I mean, it's a new kind of reactor. This will require, I mean, some time just to get it well in the box between the next phases will be launched.

[Michael Tupholme, analyst]

Got it. Thank you. Then maybe for Jerome, you have a few questions about 2026 revenue outlook. I think you provided us some good information. The question is really about as we look beyond 2026, obviously, all of the transformation that's occurred at the company and the focus on different vectors has been done with a longer-term view. Can you talk about what sort of visibility you have into revenue growth and beyond 2026 as you look to 2027 and future years? You talked a moment ago about sort of 2026 being able to hopefully do better than industry-level growth. How do we think about sort of that period beyond '26?

[Jerome Julier, executive]

There's a few things. One, we've done a good job building out the stable recurring revenue side of the business on the utilities front. We see opportunities to build out there. The next component is if you look at our backlog, something in the order of $5 billion of the backlog is executable effectively kind of beyond the two-year period. The way we define backlog, Mike, as you know, is it needs to be a project that has been awarded with costs and scope and schedule. It's really kind of a air quotes hard backlog definition. We have visibility for financials that extend beyond based on the projects that we're in procurement on, right?

For instance, Arctic Over-the-Horizon, that will not enter backlog until we exit the validation phase. But we have a pretty good handle given the work that's been done by the big construction teams as to what that could look like. Where we sit today, we one, items that have been we've effectively secured but not entered into backlog, recurring revenue, pipeline of work, just overall trends in the sectors where we're present, the inbounds that we're receiving from a demand perspective gives us a strong degree of confidence that the business is positioned where it ought to be positioned.

And so you're probably looking for something a little bit more than that other than to say that, like, we feel, we feel pretty good about the trajectory that Aecon's on today, and an ability certainly in the medium term to outpace the overall industry.

[Operator]

And our next question comes from Frederic Bastien of Raymond James.

[Frederic Bastien, analyst]

Guys, it's been almost 2.5 years since Oaktree made its strategic investment in Aecon Utilities. How would you grade yourself or Aecon on a report card with respect to that investment, and what can we be looking forward to in the future?

[Jerome Julier, executive]

So the utilities business has been performing well in the context of a very difficult regulatory environment in Canada. When Oaktree entered into the equity of Aecon Utilities, we were facing some pretty good demand tailwinds not shortly thereafter, telecom regulations, OEB regulations. A lot of the core markets where Aecon Utilities has historically been focused, were just faced with customer profile, reducing CapEx to redeploy to other jurisdictions based on regulatory challenges in those markets. The team did a very good job reimagining where they could put their resources.

In the context of a business that was very heavily focused on pipeline and telecom, what we saw in 2025 was the addition of the Xtreme group in Michigan provided very strong growth in the United States. Our execution on 3 major grid-scale battery projects, which is an internal partnership between industrial and utilities, all those got done with just extraordinary schedule and cost performance. Then we also had KPC and then Ainsworth added to the mix as well. Overall, though, the performance in a very tough environment where we operate wasn't bad. Wasn't bad at all. Like the team is. We're very proud of what they've been able to produce. Oaktree's a constructive partner.

They've got a very good read on aspects of the market in the United States, which when combined with our own intel and perspectives gives us a very good growth algorithm for that market. I mean, we're not going to give ourselves a letter grade, but we're happy with how it's worked out.

[Frederic Bastien, analyst]

Great. I think one of the options that you would be contemplating further down the pipe is potentially turning this Aecon Utilities into an IPO. What are your thoughts there?

[Jerome Julier, executive]

Our focus with the business is to continue to grow and build out the recurring revenue programs and expand its diversification from a market client and geographic perspective. First things first.

[Frederic Bastien, analyst]

Okay. We saw obviously the recurring revenues types of utilities go up nicely year over year. What's behind the? There was a drop if you look at the other side of the recurring revenue pie. There's been a drop from about 50%. What's in that? What's in there as well?

[Jerome Julier, executive]

So that would capture a variety of items ranging from aggregate sales, but most of the change that we've seen on that level relates primarily to some of the progressive design phases that were more active in 2024 that have effectively flipped into construction now. When we think about some of these collaborative projects that we're on and we're expanding kind of design and pre-construction resources where it's not tied to backlog, but it's kind of like an ongoing recognition of revenue, it falls into this bucket from a kind of disclosure perspective. Then as those projects have flipped into construction, it's now just moved into another part of the business. You know, it's less here, but more elsewhere.

[Operator]

And our next question comes from Krista Friesen of CIBC.

[Krista Friesen, analyst]

Congrats on the quarter. Obviously, a number of opportunities in front of you guys, whether it's utilities, nuclear, defense, build Canada. How are you feeling about your capacity? Maybe that's the labor force. To ask it a different way, what do you feel is your limiting factor when you're looking at all of these opportunities?

[Jean-Louis Servranckx, executive]

Obviously, construction, I mean, as I used to say, is about people and processes. Here, we have to be careful about people availability. At this stage, we have no issue. I remind you that we have extremely strong relation with the trades community and the trade unions. We have been able because it was part of our strategy and we had quite a good view about what was coming to discuss with them and to be ready. We do not have at this stage issue. For example, our workforce in the nuclear to finish Bruce and Pickering is extremely strong.

I mean, not only in Canada, I mean, in United States we have something like 1,500 workers in our nuclear sector, very much loyal to the company. I would tend to say, so far, so good. The battle on the staff and the executive, I mean, has always existed between company. It's an open market. The fact that Aecon, I mean, has a bright future, is helping us a lot to be able to attract, to train, to retain, a lot of new and former executives. At this stage, I will say I'm not that worried. We are extremely focused on the contract mode of our new project, of our backlog, and I think we have done quite a good exercise to de-risk.

You remember that we have inverted, I mean, our proportion of fixed lump sum costs and collaborative progressive variable costs. This is what I can say to you at this stage.

[Krista Friesen, analyst]

And maybe just thinking about defense specifically, do you feel that you have all the capabilities that you would like to have to execute on these defense projects? Or are there M&A opportunities to build out your expertise in that space?

[Jean-Louis Servranckx, executive]

I mean, for what we have at the moment, I mean, specifically Arctic Over-the-Horizon Radar Program, I mean, we are ready. We are ready. I mean, It was a target, and we have been preparing this extremely carefully. Obviously, you have heard that there is going to be 4 new bases, I mean, for aircraft in the northern territories. We're not going to take and win those 4 job. We don't want to. I mean, we are extremely careful. We are not looking at M&A to be able to execute those jobs.

[Operator]

And our next question comes from Maxim Sytchev of NBCM.

[Maxim Sytchev, analyst]

Jean-Louis, maybe, first question for you. I mean, nuclear right now is 30% of the business, and given the visibility of all the new build stuff that's coming up, and I mean, obviously the construction revenue sort of attached to it, is it conceivable we could be driving like maybe close to half of revenue in 5 to 7 years from nuclear for Aecon? Is that too aggressive of a potential assumption?

[Jean-Louis Servranckx, executive]

I think it's too aggressive, Maxim we just have to realize when we speak about new build and new technology, for example, or upgraded reactors, I mean, it takes quite a lot of time to take them from definition or planning phase toward construction where the bulk of the revenue is. This will take time, and that's good. That's good for us. I think that the 50% is too much aggressive. This being said, I come back to the fact that we want to be balanced. We want to be balanced because, I mean, we don't have in hand the control of all the parameters. We think we have a good mix at the moment. We worked a lot to modify it. It may grow, I mean, on the nuclear side, but not at up to the level you have been citing.

[Jerome Julier, executive]

And then just to layer on top of it, all other sectors are also growing, right? And so if we were in a dynamic where we only had one shining star in the constellation, it probably wouldn't be a crazy assumption. The fact that all five of our sectors in the construction segment are very well-positioned, I think reduces that impact quite materially.

[Maxim Sytchev, analyst]

Yes. Okay. That's fair. And then quickly just in terms of potential M&A in the U.S., I mean, I presume anything in the utilities power space still commands pretty lofty multiples. I'm just wondering what are your thoughts there and what are you seeing on the ground while obviously benefiting from your own multiple expansion? Any comments would be great.

[Jerome Julier, executive]

Sure. Multiples are strong and it's a reflection of the dynamic in that market. It's very clear the people who have the ability to service utilities are doing quite well now in the context of the CapEx budgets that the utilities need in order to keep pace with the demand profile. You know, part of that is clearly tied to compute consumption, whether it's for AI or kind of Bitcoin mining or whatever it is that is running through those server farms. Part of it's also reindustrialization, which I think we shouldn't lose track of. You know, the administration's policies are focused on onshoring a lot of that productive capacity, and that just consumes a ton of energy as well. Yes, the multiples are expanding.

Yes, it's creating a acquisition. We need to be very specific with what we want to target. We have very particular parameters and ways that we approach it. You know, we generally don't want to find ourselves in a situation where we're bidding for businesses that are mercenary or private equity rollovers. Like, it just. This is a challenging dynamic. We need to have businesses that will be additive to Aecon, from a not just revenue and EBITDA and earnings perspective, but they need to be additive from a capability standpoint, safety standpoint, and team standpoint. Like, our job is to find the way.

If you look at the average multiples that we've, we pay for M&A, over the last dozen acquisitions that the company's done, they tend to be appropriate for what we trade at the Aecon level. Our job is to thread the needle and finesse that. Like, that's why, if people want to go pay whatever the multiple that Quant is trading at, they can easily go do that. If they want to find a better way of doing it, that's our job.

[Operator]

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

[Adam Borgatti, executive]

Thanks very much, and I appreciate everyone's attention and interest. We're available for follow-up calls at any time. I wish you a great rest of you speak with you soon.

[Operator]

This concludes today's conference call. Thank you for participating, and you may now disconnect.