Aecon Group Inc
TSX:ARE
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Aecon Group Inc
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Ladies and gentlemen, thank you for standing by, and welcome to the Aecon Q2 2020 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your speaker today, Adam Borgatti. Thank you. Please go ahead, sir.
Thank you, Tekane. Good morning, everyone, and thanks for participating in our second quarter 2020 results conference call. This is Adam Borgatti, SVP of Corporate Development and Investor Relations speaking. 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 have 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. [Operator Instructions]As noted on Slide 2 of the presentation, listeners are reminded that the information we are 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 that 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 turn the call over to Dave.
Thanks, Adam, and good morning, everyone. I'll touch briefly on Aecon's consolidated results and then review results by segment and then address Aecon's financial position before turning the call over to Jean-Louis. Turning to Slide 3. Disruption to Aecon's business as a result of COVID-19 impacted a number of sectors and operations in the second quarter. Revenue for the 3 months ended June 30, 2020, of $779 million was $88 million or 10% lower compared to the same period last year. Adjusted EBITDA for the second quarter of $24 million, a margin of 3.1%, decreased by $33 million or 57% compared to adjusted EBITDA of $57 million, a margin of 6.6% in Q2 last year. Second quarter operating loss of $1 million was $29 million lower compared to an operating profit of $28 million in the same period in 2019. Diluted loss per share of $0.10 in the quarter compared to diluted earnings per share of $0.31 in the same period last year. Overall, we estimate that COVID-19 impacts in the quarter reduced revenue by approximately $160 million, adjusted EBITDA by approximately $40 million and operating profit by approximately $30 million. Reported backlog of $7.3 billion represents the highest backlog position in Aecon's history and compares to backlog of $6.8 billion a year earlier, representing an increase of 7%. Now turning to results by segment. As noted on Slide 4, Construction revenue of $778 million in the second quarter was $69 million or 8% lower than the same period last year. Revenue is lower in civil operations and urban transportation systems, driven by decreases in major projects in both Eastern and Western Canada due to the impact of slowdowns and suspensions related to COVID-19, partially offset by an increase in road building projects in both regions. Revenue was also lower in nuclear operations, driven by work on the next unit of the main reactor refurbishment of the Darlington Nuclear facility in Ontario being delayed from the second quarter to later in the year, again related to COVID-19. Partially offsetting these decreases was higher revenue from utilities operations due in large part to the acquisition of Voltage Power announced in February, and higher revenue in industrial operations, primarily due to increased activity on mainline pipeline projects in Western Canada. Adjusted EBITDA in the Construction segment of $28 million, a margin of 3.6%, decreased by $16 million compared to $44 million, a margin of 5.2% in Q2 2019. This was primarily due to lower revenue as discussed. New contract awards of $1.1 billion in the second quarter of 2020 were $226 million higher than the same period last year, driven primarily by new awards in industrial and utilities operations. Construction backlog at the end of the quarter was $7.2 billion, which is $483 million higher than at the same time in 2019. Turning to Slide 5. Concessions revenue for the second quarter was $9 million, a decrease of $52 million or 86% compared to the same period last year. This was a result of the slowdown and then suspension of commercial flight operations on March 20, and throughout the second quarter at the Bermuda International Airport due to the COVID-19 pandemic as well as a related decrease in construction activity related to the project. Adjusted EBITDA in the Concessions segment of $5 million was $18 million lower compared to $23 million in the same period last year, primarily related to the COVID-19 impact on airport operations. Turning to Slide 6. Aecon's financial position, liquidity and capital resources remain strong, and are expected to be sufficient to finance operations and working capital requirements for the foreseeable future. At June 30, Aecon had $20 million of cash on hand, excluding cash in joint operations and restricted cash and a committed revolving credit facility of $600 million of which $30 million was drawn and $5 million utilized for letters of credit. When combined with an additional $700 million performance security guarantee facility to support letters of credit provided by EDC, Aecon's committed credit facilities for working capital and letter of credit requirements totaled $1.3 billion. Aecon has no debt or working capital credit facility maturities until the second half of 2023, except equipment loans and leases in the normal course. Finally, as referenced in our outlook, as a Canadian employer whose business has been affected by COVID-19, Aecon expects to submit formal applications for the Canada Emergency Wage Subsidy in the third quarter of 2020 for eligible entities. At this time, the company isn't able to reasonably estimate the entitlement amount for this subsidy due to certain clarifications required as well as proposed further changes to the legislation governing this program. As such, no amount has been included in the consolidated results of operations for the 3- and 6-month periods ended June 30, 2020. At this point, I'll turn the call over to Jean-Louis.
Thank you, David. Turning now to Slide 7. Despite the impact of COVID-19 on Aecon's second quarter results, our ability to respond with agility to these challenging times to deliver our services effectively while ensuring the health and safety of our dedicated employees demonstrates the resilience of our business. We remain confident that Aecon's diversified portfolio, strong financial position and safety-first culture will be of great benefit as we continue to navigate these evolving market conditions. The Construction segment is aligned to the significant infrastructure investment commitments by all levels of government across Canada as well as by the private sector. The Concessions segment is pursuing a number of large-scale infrastructure projects that require private finance solutions, and participating as a concessionaire on the 5 P3 projects identified on this slide. The majority of governments across the jurisdictions in which Aecon operates, have deemed the types of construction projects that constitute the majority of Aecon's contract to be essential services. And therefore, operations are broadly continuing, although in many cases, on a modified basis. As this situation may continue to evolve for some time, shifting directives and policies from clients and governments are expected to continue. Turning now to Slide 8. The current backlog and level of new awards year-to-date have remained robust, as evidenced by the record backlog of $7.3 billion at the end of the second quarter. The timing of work to be performed for projects in backlog as at June 30, 2020, is based on current project schedules, taking into account the current impacts of COVID-19 and related slowdowns, rescheduling, and in some cases, suspension of work and a great future restart base. It is possible that these schedules could change in the future as the COVID-19 pandemic evolve. In addition, certain projects that were expected to be available to Aecon to bid on to secure new revenue have been delayed. Any such delays are currently expected to be temporary. Today, there are no projects that were previously recorded in Aecon's backlog that have been canceled due to COVID-19. Trailing 12-month recurring revenue was down 11% compared to last year, primarily as a result of the slowdown and then suspension of commercial flight operation on March 20, 2020, and throughout the remainder of the second quarter at the Bermuda International Airport. Turning to our outlook on Slide 9. While the impact of COVID-19 on Aecon's operating environment has stabilized during the second quarter, operations continue to be impacted, either by client decisions related to schedules or operating policies, all due to broader government directives to modify work practices to meet health and safety standards related to the COVID-19 pandemic. During this second quarter, the Montreal REM LRT and Site C projects, where construction had been suspended, we started gradually, particularly with respect to Site C and with modified work practices. In the second half of the year, the main impacts are expected to be from the slow ramp-up starting in early July of commercial operations at the Bermuda International Airport as well as in nuclear operations, where ramp-up on the next phase of work on a number of projects has been delayed until late in the third quarter and into the fourth quarter. While the impact to these projects as well as others will be to reduce revenue and the normal operations resume, there is no guarantee that all related costs will be recovered. And therefore, it is possible that future project margin would be impacted. Aecon expects that demand for its services will remain strong following the COVID-19 pandemic as the federal government and provision governments across Canada have identified investment in infrastructure as a key source of economic stimulus once the country reaches the recovery phase. In closing, I want to personally thank all of Aecon's employees, in particular, our frontline workers for their dedication, commitment and professionalism during this challenging time. Thank you. Be safe, and we will now turn on the call over to analysts for questions.
[Operator Instructions] Your first question comes from the line of Yuri Lynk of Canaccord Genuity.
Given the -- obviously, a lot of uncertainty out there in terms of your ability to recover some of these excess costs that you're incurring on projects that are delayed one way or another due to COVID. Should we -- in light of that, should we still expect core margins in Construction to be able to grind higher? Or do you think a more measured forecast would be appropriate? And anyway you can kind of quantify what we might be looking at in terms of excess costs that you might have to absorb?
Okay. Maybe I will make the first part of the answer, Yuri, and then David will complement it. We have 2 kinds of operations. I mean the one where the clients have been suspending our work. On those ones, we have no real issues about negotiating compensation in time or in cost. The second one is when our clients are not officially suspended, but the pace of our works has been altered. The productivity of our works has been modified. So for those ones, first of all, what we have been assessing from March 15 is that we have put in place a lot of stringent health and safety measures. When those measures are followed with discipline, it works. It means that we had very few positive cases during the last month since -- from the beginning of this pandemic. It gives confidence to our workers. And of course, the way of working have changed in terms of not sharing tools, not gathering on the front of works, preparing probably better, the job. But all those works, as essential services, are progressing. Now all this being said, it's not evident and quick to assess exactly the impact on productivity. It means that the negotiation about time and cost compensation with our client just takes a little longer. This is where we are at the moment. Maybe, David, you want to add something?
Yes. I mean in terms of specific numbers, we obviously don't give margin guidance. But on a consolidated basis, obviously, the continued impact in Bermuda will be a drag on margins at a consolidated level. But as you were saying, kind of the key comparison will be Construction segment like-for-like. I think, clearly, we're back to something -- approaching more normal operations in Q3 relative to where we were in Q2. I think the impacts Jean-Louis referred to aren't particularly material. And in most cases, we are getting cooperation from clients who obviously understand the issues. So I don't think there's a major impact in Q3, certainly nowhere near the extent that we saw in Q2. There will be a mix impact. Obviously, nuclear continues to be at a very low run rate through the third quarter before we ramp-up on the next reactor refurbishment. And there's a few other mix impacts. But generally, Q3 will be stronger than Q2, and will start to look a bit more like a normal quarter in the Construction segment with a couple of exceptions, nuclear being the main one.
Okay. Can you give us any update on how traffic is trending at the Bermuda Airport quarter-to-date?
I mean it's very slow at this point in time. There's a few airlines that have started their flights again. So Delta, British Airways and Air Canada. But as of July 1, July 2, when we reopened, I mean, effectively, the airport opened roughly 5% to 10% of normal capacity. So that's kind of the standpoint, and it will slowly ramp up from there. We're anticipating new flights being added in August and kind of ongoing from there. So at this point, it's at a very low level, and it will ramp gradually over the next few months. And beyond that, I guess it really depends how things play out more broadly in terms of the development of the virus and people's comfort level with traveling and things like that. But it's -- it will certainly be an ongoing impact through Q3. We're not expecting things to bounce back quickly during Q3.
Your next question comes from the line of Frederic Bastien of Raymond James.
With respect to the $1 billion of contract awards you announced being added to backlog, to my knowledge, I haven't seen any big press releases apart from the Coastal GasLink one with respect to some compressor and metering work. Can you discuss, a bit more in detail, these contracts? And what they mean in the grand scheme of things?
Yes, Frederic. It's a very interesting question because, although, impacted by COVID during this Q2, what you have noticed is that the work program continues to grow. And this $1.1 billion in the quarter of contract award is extremely interesting. Effectively, you have not seen big announcement because most of these jobs are medium jobs, industrial jobs, utilities jobs, pipeline jobs. And this is what makes it interesting. As you know -- I mean, I'm always saying that what creates the strength and the resilience of Aecon is balanced activity. I mean balance between Concession and Construction. Within Construction, balance between the different sectors, balance between East and West, and we have seen more jobs coming out and being awarded in the West part of Canada. And balance between small, medium, big jobs, unit price, target cost or lump sum and this is what is interesting. Medium job, industrial utilities, this is what makes the $1.1 billion.
Okay. Just a follow-up. This Coastal GasLink contract is in 2 locations. But obviously, the -- one of them is in Kitimat, which positions you in a very tight territory, and there's not a lot of contractors there. And with obviously, a lot of dollars going to be spent through the LNG Canada project, how are you positioning yourselves for follow-on work in Kitimat?
So we are working on Coastal gas line. We have been acquiring and being awarded a certain number of compressor station and additional pumping station near Kitimat, but also in Wide Lake for -- and this is what we do at the moment, and it's our core competency. For the rest of the program of LNG Canada, we shall see on the way when some new works or building works will be released, what will be our position. And if we think we have a competitive advantage to position ourselves there.
Your next question comes from the line of Chris Murray of ATB Capital Markets.
My first question really is maybe for David. And just going back and maybe some of the mechanics around the changes you guys made around the airport in the financials. So can you just walk us through a little bit your changes? It looks like you may have rejigged depreciation. And I'm also trying to understand exactly what's left in backlog for the construction of the new terminal?
Yes. Chris, so I'll talk to the amortization piece first. The amortization in Bermuda is related to the concession right that we have on the balance sheet that really reflects the fact that we have a concession to operate the existing terminal before we then transfer over to the new terminal, when we'll start to amortize the construction cost of the new terminal over the remaining life of the concession. So obviously, because there's been no operations at the airport, the amortization related to that, the way the accounting works there is the amortization goes hand-in-hand with the operations. And so while operations are suspended, there's no amortization of the concession right because that effectively gets pushed out into the future. So that's about an $8 million or $9 million reduction in amortization costs as a result of that. In terms of -- sorry, I forget the second part of the question. Can you just remind me, Chris?
The remaining construction backlog.
Yes. The remaining construction backlog is pretty small. I mean we're really down to the final fit-out of the terminal and commissioning of the systems and really getting the whole thing ready to open. So it's a very small amount, I mean, immaterial in the grand scheme of things through the balance of the year.
Okay. So it's still fair to think that construction should be completed by year-end. Is that still the thought?
That's the goal. Obviously, that will be driven by the availability of being able to bring people back to the island. But obviously, now the airport is open again, we're able to do that. So barring any future waves or changes in the current landscape, then yes, that's the intention.
And then just along those lines, if I look at Q2 in the Concessions business, is it fair to think that what we actually saw reported in both revenue and earnings, that would be -- would that be reflective of kind of the pace that you're actually moving in terms of Concessions outside of Bermuda? Is that the right way to maybe to think about it?
To some extent, although don't forget we have some SG&A in that group as well. So it's not just a contribution from Canadian Concessions, it's -- that contributed less the normal SG&A we have, which is the Concessions team that are bidding new concessions, including the P3s in Canada as well as managing all our current Concession portfolio. So it's not just pure contribution. It's also less the ongoing SG&A that we have in that group.
Okay, great. Then my final question, just -- I don't know who wants to take this one. But the comment about some delays in project bidding. We talked about this actually on the last call, and part of that was some uncertainty around funding. Some of that was just folks trying to kind of determine where things are going. Very healthy book-to-bill number in the quarter, which was surprising. And it sounds like good quality of contract. Just any thoughts around how we should be thinking about bookings through the second half of the year? And any other thoughts around if there are potential delays.
Okay. I will take this one. So what I can say is that the bidding pipeline is extremely robust. There have been, at the beginning of the pandemic, some pushback. But everything is coming back to normal. This is primarily driven by the 0.5 million newcomers arriving in Canada every year. These people need transport, they need energy. They need clean water, they need the highways and this will not stop. So we are not that much worried about this. We are very happy about this $1.1 billion during the second quarter, and we are also very happy about the quality of what we have been acquiring and the diversity of what is being acquired. So we don't have that much of worries about what is coming about the funding. You all understand that infrastructure is favored by our government, and we will go on bidding with a lot of discipline. As you have seen, I mean, we have a record backlog of $7.3 billion as of today. We are not starving at all. We can choose exactly where do we want to fight, where do we have competitive advantage, and how do we organize our estimation and then our operation, where are we going to post our best teams and life is going on.
Okay. So fair to think that you're not seeing any major delays or push-outs on any project bidding?
No, we are not seeing this at the moment.
Your next question comes from the line of Maxim Sytchev of National Bank Financial.
I just wanted to follow back on Bermuda. I mean, obviously, Q2, there's no traffic at all. So I can appreciate that you have the ability to sort of match the costs to the revenue opportunity. But as things are slowly opening up, just trying to think about sort of the embedded margin profile. Or is there anything incremental you can do from a cost management perspective for Q3, Q4? I guess my point is that, can the profitability actually get worse as you don't have enough traffic that goes through the airport? Just trying to better understand kind of the curvature of the native recovery from a traffic perspective.
Yes. Good question, Max. No, any incremental traffic is -- effectively drops straight to the bottom line. I mean the way the fee structure works there, it's really fees for traffic coming in and out and passengers. So there's not really a change to the cost structure. Obviously, the management of the airport -- because there's still -- even when the commercial flight operations were shut down, we still need to keep the workforce there because there are still freight planes coming in and out. There's still regulations that you have to meet and things like that. So there's very little change in the cost structure going forward. And any incremental volume will drop straight to the bottom line. So no, we shouldn't see any further dip, we should see things slowly start to recover from a profitability perspective.
Okay. That's very helpful. And do you mind just reminding us in terms of how the debt attached to the concession sort of works? Are there any automatic repayments kind of over the next 6 or 9 months? Or is it 12 months out? Just if you can provide a bit more color there.
No. Nothing that kicks in, in the short term. The debt repayment schedule is over many years and starts to kick in a few years into the future. So there's really no change in that schedule. Nothing -- there's no mechanism to kind of change that. It's not accelerated, it's not delayed, but it is a few years out, yes.
Right. And I guess, a couple of quarters ago, you were discussing potentially attracting an outside party to provide a bit of a mark-to-market on Bermuda. Is it fair to assume that all these things are on hold right now? Or maybe do you mind commenting on some potential additional business development opportunities on the concession side, specifically?
Yes. So with respect to Bermuda, I mean, that was a theoretical answer to a question of what might we do with that concession in the future. We certainly weren't indicating that we are in the process or were in the process of doing any kind of marketing of that or looking for an investor, it was a theoretical answer to that -- exploring what the future options could be. And all those options are still on the table. The 3 options that were kind of raised, would you sell it? Would you keep it? Or -- and we raised a third option, which was potentially sell a minority stake in it. We're not active on any of those fronts right now. We're just focused on completing the airport, ramping operations back up, and we'll look at what our options are down the road. So I wouldn't expect to see any developments on that front anytime soon. In terms of other business development opportunities, obviously, we're still active bidding P3s in Canada. The P3 pipeline remains strong. That model remains something that governments are committed to at this stage. And internationally, yes, obviously, governments are kind of pausing to figure out what the longer-term impacts might be of the current situation. But generally, we're still interested in international concessions and moving those dialogues forward as we can. But again, there's nothing imminent on that front at this stage.
Your next question comes from Jacob Bout of CIBC.
How prepared do you think the construction industry or Aecon is for a second potential wave of COVID-19?
So evidently, much better prepared than for the first wave. What I've been saying is that we have just realized that once all our workforce follow the rules on our job site, it works. It's about hand washing, it's about social distancing, it's about wearing masks, it's about not sharing common areas. And not only it works, but we are just discovering now that it may improve our way of executing the work. We prefabricate more. We prepare more. We don't lose time discussing. And I mean, everybody is very much focused on its tasks, and this is good. We also know that we have been able to work remotely for all our support functions very quickly. And this also has been efficient. So we are much more ready. I mean now there will not be any learning curve or ramping up if there is a second phase. And I would say, although, we are not wishing the second phase, I mean, we are ready for it.
And then I wanted to go back to the project bidding activity. So you talked about certain projects that have been delayed as far as the ability to bid. Order of magnitude, how much work are we talking about? And then maybe if you can also talk a bit about, is there any evidence of fast-tracking of government projects?
Okay. And frankly speaking, what has been delayed, most of the time is about negotiating with our future eventual clients [ willing ] to cover us in front of a second wave or in front of any pandemia. You probably remember that the way we were covered in the former contracts were diverse, it may be changing low. It may be a force majeure, it may be compensation even with partial time relief or partial cost relief. We are now extremely careful, and our clients also are extremely careful. So on each of the projects, it has taken a few weeks to recalibrate our contractual closes in order to cover us better. No big deal. No project has been canceled. So we are still with, in front of us, a pipeline of something like $40 billion of major projects and infrastructure, plus all the medium and small projects. You have noticed that within the $1.1 billion, most of them are medium projects and small ones. So this is where we are at the moment.
In terms of -- Jacob, in terms of the second piece of the question, in terms of any potential acceleration that we've seen, certainly, in -- within that $1.1 billion that you saw in Q2 of new awards, is a decent amount of road building work in both Eastern and Western Canada. And as we said a quarter ago, that is the area where governments can most quickly get dollars flowing. And we've certainly seen in 2 major markets, Alberta and Ontario, the transportation authorities in those areas, increase their budgets and get dollars flowing. So yes, we're seeing it in the sectors we expected to see it. In terms of major projects, they obviously take a little longer. But there is certainly a willingness by governments to ensure that the pipeline is active and the thoughts coming behind it.
Your next question comes from the line of Michael Tupholme of TD Securities.
I appreciate the detail you provided in terms of your assessment around what impact COVID-19 had on your revenues and EBITDA. I'm just wondering if it's possible to break that -- those 2 numbers down between the 2 segments.
Yes. So from an EBITDA perspective, it was roughly 50-50 between Construction and Concessions. But then at the operating profit level, it was more 2/3 Construction, 1/3 Concessions because of that amortization difference on the Concessions side. So that's kind of the split of the profitability level. At the revenue level, the lion's share of it is Construction. Kind of 80%, 90% of it was Construction-related revenue.
Okay. That's helpful. Second question, last quarter, you suggested that you had eliminated all nonessential spending, reduced discretionary CapEx and were evaluating various cost savings opportunities in light of the pandemic. With some stabilization in the operating environment now, have any of those expenses started to come back up? Or do you expect that they'll remain -- those savings and expense reduction initiatives will remain in place for the foreseeable future?
Yes. I mean, obviously, as you said, most of the operations are up and running. So there are limits to how deep we can go on those initiatives. But certainly, where we can continue to reduce discretionary or nonessential spend or defer things while we still have impacts from Bermuda, for example, and nuclear delays and things like that, that's an ongoing effort. I wouldn't expect further cuts over and above. But in terms of maintaining some of the reductions, that's certainly the goal as we go through the second half.
And just a follow-up on that. As far as CapEx, looks like it's sort of running flat with where it was last year. Is -- would you -- do you have a full year number in mind? Does that look lower by the time we get to the end of the year?
Yes. Overall, by the end of the year, in terms of our typical CapEx spend, which is mainly equipment driven, it will be lower. We did have higher CapEx in Q1 before the pandemic hit, which was in large part due to the purchase of a facility property that houses all our equipment and maintenance facilities in Ontario. So that for the full year, kind of has an impact on the overall comparison. But if you exclude Q1 through -- and just look at the balance of the year, we do expect CapEx overall to be a fair bit lower than 2019.
Okay. And then lastly, can you comment on the Voltage Power acquisition, how that's going? It looks like it generated $23 million of revenue in the second quarter, which on a run rate basis seems to be trending well above the $60 million of annual revenue that it generated over the last 3 years before you acquired it. Is that step-up reflective of revenue synergies? Or is there some seasonality we need to think about? Or just trying to understand if you can comment on what's driving seemingly very strong performance there.
So yes, you're right, Mike, in terms of the run rate relative to kind of historic. Having said that, the run rate would have been stronger still without COVID. There were some projects in the Voltage business that were pushed out to the right a little bit in terms of some delays through the second quarter. So we're still happy with that business and how it's developing. But there were some impacts on the revenue through Q2. And there is a fair bit of seasonality in that business as well. It looks like the pipeline business can be kind of up and down between quarters. It's not a business that is very smooth over time. But yes, so far so good in terms of how that business is developing. But still very early days, obviously.
Your next question comes from Mona Nazir.
I'm just looking at the quarter and just hearing your comments today, I mean, you made a tuck-in acquisition, although it was small on the telecom side. Revenue was ahead. Backlog was up 4% sequentially, and Bermuda has now reopened. I'm just wondering, as you have greater clarity on COVID's impact, do you think that you're going to be giving yourself some more breathing room or perhaps more optimistic -- you're more optimistic in your outlook, given perhaps the worst period is likely in the rearview mirror?
As constructors, I mean, we are always optimistic, and we try to cope with conditions. But it's sure that Q2 has been heavily impacted. You have seen it. As I have been saying, I mean, business is going on. Pipeline is strong. Aecon is getting stronger and stronger due to its balance activity, due to all the efforts we do about operational excellence, about training our people, about our Aecon University. So yes, we have optimism, and we will try to go on our path to complement our existing activities with other ones that make us more resilient and stronger.
Okay. And just secondly, I appreciate your comments surrounding the Bermuda Airport and possible long-term outcome scenarios. I'm just wondering, have you received any external interest in the airport over the last few years?
We have -- I mean we're active in the Concessions business. We're talking to people, talking about opportunities about different things. But no, there's been no serious inquiries. There's been no serious discussions around the future of the airport other than internal. So no, nothing of any -- no, no.
Your next question comes from Sabahat Khan of RBC Capital.
Just on the D&A side. I think in the past, you made some comments about kind of the flip between when the new terminal opens, the D&A is expected to moderate, but interest goes up. But in light of some of the pushout on the construction side, can you maybe help us think about when we expect to get that flip between sort of D&A and interest? And how you expect D&A to evolve maybe over the next few quarters?
Yes. So that will -- that transfer should happen early in the new year, if all goes according to schedule. So that's when you would see that change happen. Effectively, what you should see through the second half of this year is amortization starting to increase relative to where it was in Q2, not necessarily back to where it was in Q3 and Q4 last year. And then that transition happening early in Q1 should see amortization at a lower run rate than we've had historically going forward, offset to some extent by the fact that we will, at that point, start expensing interest that, through construction, is being capitalized. So that should all happen early in Q1.
Okay. And then I think there was a comment in the MD&A, if I caught it correctly, that some higher D&A was attributable to some new construction equipment being rolled out. I was just lining that up with kind of the directional impact on Construction revenue being lower year-over-year. Just trying to figure out was that additional equipment just new equipment being rolled out? Or should we read that as there's more equipment out on the site versus last year?
It's really driven by CapEx last year that is obviously depreciated going forward. We -- as the business is growing and as CapEx keeps pace with that, then obviously, depreciation would increase commensurately. So this wasn't new CapEx being purchased in Q2 that was depreciated in Q2. It's more the ongoing impact to revenue growth over time, and equipment we've been purchasing through the last 12 to 18 months. A lot of that growth coming in the civil sector where there's high equipment components and things like that. So it's really based on historic Capex.
Okay. That's helpful. And then just a follow-up on the earlier discussion about the Bermuda Airport. As you start to ramp up, are you able to share perhaps what percent utilization or number of flights you need to have at that airport for you to kind of breakeven at least on an EBITDA basis? I know you indicated you're maybe at about 5% to 10%. But what sort of the level you're looking to hit to get to breakeven maybe?
Yes. I mean to get to breakeven, it's -- you can operate at a reasonably low level versus kind of normal capacity to hit breakeven. The cost -- the overall fixed costs are not that significant relative to the size of the operations. So we expect even operating at a relatively low level, kind of 10% to 20%, we would be at least breakeven at that point.
And then just the last one. I guess based on current level or current trajectory, is there something you have maybe exiting Q3 at some point or too early to tell?
Yes. Well, I think I said earlier, we're currently operating at 5% to 10%, and we expect to see that slowly ramp up through Q3. But how quickly that ramps up, I mean, it really comes down to individual airlines and how quickly they add flights, and how quickly passengers come back onto those flights. So it's very hard for us to predict at this point in time. It is something that we see going past those numbers through Q3, but it's very uncertain at this point in time.
Your next question comes from Jean-Francois Lavoie.
So just coming back on the tuck-in acquisition you did in the telecommunications space. I was just wondering if you could provide an update on how the recurring portion of your business is performing so far in Q2. And maybe what are your expectations for the second half?
I mean the biggest piece -- the biggest impact on recurring revenue in the quarter was Bermuda operations, that revenue all goes through recurring revenue. So obviously, that had an outsized impact in the quarter. Outside of that, with our utilities business, which is the other major component, overall, kind of business as usual, generally in that space, and utilities business continues to perform well. Obviously, as Bermuda ramps up again, and we expect to see that come back into that recurring revenue. And utilities, we continue to see good growth opportunities there. So obviously, the Voltage business is part of our utilities group. This small acquisition in Manitoba is just another example. It's very small in and of itself, but it allows us to grow in another market, similar to a small acquisition we made in the same space in Québec and the Maritimes last year. We continue to build out that footprint, and we see good dynamics in that market.
And is there any other spaces or geographies where you would like to make some tuck-in acquisition to solidify your position?
What you have seen is that the telecommunication is important for us. Also expanding in territories where we are not that much present is important for us. And this is where we are at the moment.
Okay. And maybe one last for me on the NCIB side. Now that the impact of COVID-19 on operation has started to stabilize, do you then start to -- do you intend to restart your program in time soon? Or you prefer to wait maybe to see how COVID turns out in the next quarter?
Yes. I would say there's still, obviously, uncertainty around how this virus will develop through the balance of the year. We're obviously no experts on that. So we're kind of in a wait-and-see mode just like everybody else. And while we have the flexibility under the NCIB to be opportunistic, I would say, actually our approach right now is very much wait and see.
There are no further questions at this time. I will turn the call back over to the presenters.
Thanks very much. We appreciate everyone's interest and attention today. As always, feel free to follow-up with Investor Relations, if you have questions. We encourage everybody to be safe, enjoy the balance of your summer, and we will speak to you again in the third quarter. Take care.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.