Aecon Group Inc
TSX:ARE
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Aecon Group Inc
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Good morning. Thank you for attending today's Q2 2022 Aecon Group Incorporated Earnings Call. My name is Polem and I will be your moderator for today's call. [Operator Instructions].
It is now my pleasure to pass the conference over to our host, Adam Borgatti, Senior Vice President of Corporate Development and Investor Relation. Mr. Borgatti, please proceed.
Thank you, Polem. Good morning, everyone, and thanks for participating in our second quarter 2022 results conference call. Presenting to you this morning are Jean-Louis Servranckx, President and CEO; and David Smales, Executive Vice President and CFO. Our earnings announcement was released yesterday evening, and we posted a slide presentation on the Investing section of our website, which we will refer to during this call. Following our comments, we will be glad to take questions from analysts. And we ask that analysts keep to one question before getting back into the queue to allow others a chance to contribute.
As noted on Slide 2 of the presentation, listeners are reminded that the information we 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 the expectations reflected in these statements are reasonable, we can give no assurance that these expectations will prove to be correct.
With that, I will turn the call over to Dave.
Thank you, Adam, and good morning, everyone. I'll touch briefly on Aecon's consolidated results, review results by segment and then address Aecon's financial position before turning the call over to Jean-Louis.
Turning to Slide 3. Revenue for the second quarter of $1.1 billion was $152 million or 16% higher compared to last year and a $4.4 billion for the last 12-months is 14% higher than the previous 12-month period. Adjusted EBITDA of $39 million in the second quarter, decreased by $22 million compared to Q2 last year. However, after adjusting for the impact of amounts related to the Canada Emergency Wage Subsidy, or CEWS, in the second quarter of last year, adjusted EBITDA decreased by $10 million for the quarter. On a trailing 12-month basis, adjusted EBITDA of $205 million is $2 million higher versus the comparative period. Diluted loss per share of $0.10 in the quarter compared to diluted earnings per share in the same period last year of $0.27 or $0.13 after adjusting for the impact of CEWS.
Reported backlog of $6.6 billion increased by $81 million compared to $6.5 billion a year ago and new awards continue to be strong at $1.3 billion in the quarter and $4.4 billion over the last 12-months. Now looking at results by segment. Turning to Slide 4. Construction revenue of $1.1 billion in the quarter was a $150 million or 16% higher than the same period last year. Revenue was higher in each operating sector within the Construction segment including in civil operations from an increase in major projects work; in Industrial operations driven by work related to chemical mining and pipeline projects; in Utilities driven by electrical transmission and telecommunications work; in Nuclear from increased volume of refurbishment work at nuclear generating stations primarily in the U.S.; and in Urban Transportation Solutions from an increase in LRT work in Quebec.
Adjusted EBITDA in the Construction segment of $34 million a margin of 3.1% compared to $51 million a margin of 5.3% in Q2 last year. After adjusting for the net impact with CEWS in the second quarter of last year, adjusted EBITDA decreased by $4 million primarily due to low gross profit margin in Urban Transportation Solutions driven by an unfavorable margin adjustment on an LRT project in the quarter, as well as from lower gross profit margin in Civil and Nuclear operations. These decreases were in large part offset by higher volume in each operating sectors discussed earlier and higher gross profit margin in Industrial and Utilities operations. New contracts awards at $1.3 billion in the second quarter compared to $1.6 billion in the same period in 2021 and new awards for the last 12-months of $4.4 billion compared to $3.1 billion in the prior period.
Backlog at the end of the quarter of $6.5 billion within line with backlog at the same time last year. Turning to Slide 5. Construction revenue for the second quarter was $19 million, an increase of $2 million compared to the same period last year primarily due to an increase in operations at the Bermuda International Airport. Commercial fly operations in Bermuda continued to operate a reduced volume since COVID-19, we're recovering from the more severe impacts experienced in 2020 and 2021, an average close to 60% in Q2 compared to pre-pandemic levels. Adjusted EBITDA in the Concession segment at $17 million, increased by $1 million versus Q2 last year primarily due to results from Bermuda Airport. Turning to Slide 6. At the end of the second quarter, Aecon had a committed revolving credit facility of $600 million of which $220 million was drawn and $3 million utilized for letters of credit as well as a $900 million facility provided by EDC to support letters of credit.
Aecon's committed facilities for both working capital and letter of credit requirements totaled $1.5 billion. Aecon has no debt or credit facility maturities until the end of 2023, except equipment and property loans and leases in the normal course. As of June 30, Aecon was in compliance with all debt covenants related to its credit facility.
At this point, I'll turn the call over Jean-Louis.
Thank you, Dave. I would like to take a moment to comment on the four large fixed-price legacy project laid out in our Q2 disclosure documents. These four projects entered into in 2018 or earlier by joint ventures of which Aecon is a participant, are being negatively impacted due to additional costs for which the joint ventures assert that the owners are contractually responsible, including among other things, unforeseeable site conditions, third party delays, COVID-19, supply chain disruptions, and inflation related to labor and materials. During the second quarter, this impact became more pronounced and have resulted, or are now expected to result, in increased costs above we originally forecast, in some cases materially.
Each relevant joint venture has submitted, or is in the process of developing for submission, detailed claims for compensation for these additional costs. Other than the Coastal GasLink Pipeline project, none are currently in litigation or arbitration. As addressed the challenges we have faced on the Coastal GasLink Pipeline project previously, and you would have noted our financial results were negatively impacted by an unfavorable margin adjustment on an LRT project in the quarter. In the case of these and the other two projects, we're also seeing significant changes and modification to the conditions of execution of our work, impacting our ability to efficiently progress the work, creating delays and cost overrun beyond our control and in certain cases executing projects fundamentally different to the one we did.
As you will know the price for lump sum project is only fixed to the extent of the scope and condition that a contractor signs up for. When factors outside of this agreed scope and related condition, the impact to the cost and progress of the work, Aecon and our partners worked vigorously to work with allusion of compensation for those impacts with the respected owners of this project. We are fully focused on pursuing all avenue for adequate and timely compensation including through constant direct negotiations with our clients engaging in negation through independent certifiers and or entering into arbitration as necessary, all with the objective to which fair and reasonable settlement agreement and to move forward toward project completion in each case.
Aecon believes that each relevant joint venture as of June claim to recover at least a substantial portion of this cost, however, the ultimate outcome of this matter cannot be predicted at this time. It is clear that traditional procurements and our fixed price lump sum contract structure for such large complex and multiyear projects including the four legacy project discussed here needing to evolve. As an industry, we have been working hard to develop up a model that addresses the challenges and needs of all stakeholders. And while its early days, these assets are starting to gain traction including the multibillion dollar GO Expansion and Electrification project in Ontario awarded to an Aecon joint venture and their progressive design build operator maintained contract model.
These collaborated target price approach is a two year joint development phase upfront is a welcome evolution designed to benefit all stakeholders and we continue to push towards more collaborative models having to move forward. Turning now to Slide 8. Demand for Aecon servicers across Canada continues to be strong particularly in smaller and medium sized projects as evident by year-to-date revenue growth of 22% and higher new project award of 50%. While volatile global and Canadian economic conditions are impacting inflation interest rates and overall supply chain efficiency, these factors have largely been and will continue to be reflected in the pricing and commercial turn of Aecon's recent and prospective project awards and bids.
Turning to Slide 9. With a backlog of $6.6 billion and recurring revenue programs continuing to see robust demand driven by the Utility sectors and ongoing recovery in airport traffic in Bermuda, Aecon is confident in strong revenue growth over the next two years. Aecon is also prequalified on a number of project bids due to the awarded during the next 12-months and has a strong pipeline of opportunities to further add to backlog of the kind. Trailing 12-months recurring revenue was up 22% versus the prior period, and over 50% versus two years ago primarily from growth in utilities operation. Recurring revenue is expected to continue to grow driven by demand in the Utility sectors and the Concession segment is expected to see airport traffic in Bermuda continue its recovery in the balance of 2022 and in 2023.
Turning to Slide 10. Aecon was named one of the Corporate Knights 2022 Best 50 Corporate Citizens in Canada, recognizing our significant progress in embracing and operationalizing net-zero construction practices. Turning to Slide 11. To support our GSG strategy, Aecon continues to explore and trial new technologies and alternative building material and we'd recently became the first construction company in Ontario to pilot a new low-carbon concrete from carbon upcycling technologies at our Innovation and Training Center. And we continue to integrate and trial new emission equipment, the most recent example being an electrically loader at our Finch West LRT project. To engage our employees in our sustainability journey, we also introduced a Green Benefits Program which provides incentives for Green vehicle and Green Home Energy Solution further demonstrating our sustainability is part of our DNA at Aecon.
Turning to Slide 12. With strong demand, growing recurring revenue program and diverse backlog in hand, Aecon is focused on entering solid execution on its projects and selectively adding to backlog through a disciplined bidding approach that supports long-term margin improvement in the Construction segment. In the Concessions segment, in addition to expecting a gradual recovery in travel through the Bermuda International Airport during 2022 and 2023, there are a number of opportunities to add to the existing portfolio of Canadian and International concession in the next 12 to 24 months, including in innovative projects with private sector flying that support a collective focus on sustainability and the transition to a net-zero economy.
Thank you. We'll now turn the call over to analysts for questions.
Absolutely. [Operator Instructions]. Our first question comes from the line of Yuri Lynk with Canaccord. Yuri, your line is no open.
Thanks for taking my question. And good morning, guys.
Good morning, Yuri.
David, at some point, the cost. -- Good morning. It sounds like the cost reforecast in Q2 is almost entirely due to the Ontario LRT project. Yes, you did color three other projects facing similar issues. Why weren’t these projects subject to a reforecast in the quarter?
Yes. So, every one of the projects obviously faces specific and unique impacts that need to be go with and obviously we've been on each of these projects for a period of time now. So, we've been positioning them as we've been going along and there was one project in Q2 that we felt we needed to reposition when we did that and we're comfortable with the position we have right now across all our projects which is the case at the end of every quarter. And so, that was the one that we felt we needed to adjust based on the specifics consensus of that project and that's what we did.
Okay. And maybe I'll go out at a different way from my follow-up. Your operating cash flow is over the last 12-months is almost a $100 million negative. Is that largely the cash impact of these projects you've disclosed or do you anticipate further negative cash flow in the coming quarters?
Yes. It's largely linked to some of these larger projects. I mean, it's really assumption of what we're talking right here in terms of the risk on these four projects specifically in terms of dealing with the current macro environment and supply chain challenges. Along way, just linked to the time it's taking to resolve the impacts of change the whole system right now is kind of maxed out in terms of capacity to deal with change, that's from our clients, our partners, suppliers, sub-contractors, everyone's operating in a pretty unusual environment and everybody is trying to deal with things as expeditious way as possible but the capacity is a challenge for everyone including our clients. So, that's delaying the whole process that we would normally go through to deal with change and the impacts of change. And that's why we're seeing some lagging working capital through the first half of this year.
Okay. That's my two. I'll turn it over.
Thanks, Yuri.
Thank you, for your question. Our next question comes from the line of Jacob Bout with CIBC. Jacob, your line is now open.
Good morning. Just going back to these four fixed-price legacy projects. When do you expect to get resolution on this? And then, maybe you can comment on of the $6.5 billion of backlog, what percent of that would be considered lump sum or fixed-price?
Okay. I'll take this one. As David just said a two minutes ago, there is always a time between the impact from this modification in the formation of execution of our work on track and the compensation by the client. I mean, we -- the environment is tough impacting everybody and there is a time to wood out to be able to justify to be able to present the claims, to be able to discuss, to be able to negotiate. Those projects will have between one and two years of active life. Regarding the backlog. So, you have noticed that the backlog at the end of Q2 was $6.6 billion. And new award for the quarter, I mean, we're up to $1.3 billion which is an extremely interesting figure. It's not as I used to say it's not only about quantity, it's about quality and I'm very happy with the quality of the new project we are just loading in our backlog.
You will also remember what I've been saying I mean a number of time I mean from September 2018 we have not taken one single lump sum jobs superior to $1 billion. And this is very important. So, coming back to the percentage, I mean within one year the percentage of fixed-price job within our backlog went down from 64% to 56%. And we are very happy we have said it a two years ago and we're doing it and its happening. So, is the growth of our Utilities sector is one of the reason. It's a discipline with major project is also I mean a very important reason. You also have noticed that recurring revenue once again have grown, I mean $753 million again $617 million for Q2 2021. So, all these is very interesting I think, and this is without counting anything for the ONcore projects that we have been awarded.
I remind you that this project which is a multibillion job where we are 50% of the infrastructure construction. It's 10 years job. And 28% of the operation and maintenance which is 25 years, it's all on a cost split basis. So, we have not yet loaded this progress, we'll do it progressively as so far as the development period goes which will also add to the decrease in the fixed-price proportion within the backlog.
Okay. And maybe just a follow-on here. When I look at the duration of your backlog and you compare that shared us last couple of years, we have skewed much more to the kind of 12 next 12-months versus put you to 24 and beyond 24-months. Should we be reading much into that?
No. I mean, it's not a topic of concern for me and for the team. We say that we have reduced the size of the project when I told you not one single project superior to $1 billion as a fixed-price is one only explanation of this. We are not worried I mean about the reload of our backlog after 24-months is from now. I know there's been a few question about our project being cancelled, our project being pushed to the right height. I'm just going to give you an example. I mean you all know that the Deerfoot Trail Project was cancelled a few days ago and their P3 scheme in Calgary. This project was cancelled on Wednesday. The day after on Thursday we received a communication from the owner telling that they will conduct a market sounding with the three bidders. This market sounding happened was a day after on Friday and we have been discussing about alternatives about splitting scope about changing the contract model about keeping maintenance or not and this impacted when construction.
It means that not at all -- the owner has in mind to suppress or cancel the project. They have just cancelled the process. And when we go on with the adequate way of contracting.
The other thing I would quickly I'd take it. When you look at that longer backlog which starts two years from now, it's not unusual to see that that number fluctuate given that is two years and we have a 24-month period to replace that backlog. But the other factor is Jean-Louis already talked about the GO Expansion and Electrification Project which will be coming into backlog over the next few years and will significantly increase that number. So, we've not considered all about that two year course backlog. The focus is do we have strong backlog choice queue over the next two years and as you can see that's very much the case.
Thank you, very much.
Thank you, for your question. Our next question comes from the line of Chris Murray with ATB Capital Markets. Chris, your line is now open.
Yes. Thanks, folks. So, a couple of questions. First, I guess we say the announcement yesterday between TC Energy and LNG Canada on Coastal GasLink. And I guess they've come to a resolution. And does that help you folks in your arbitration discussions and maybe move that forward that project forward. And it help you or drastically a cost issue at least on that one element?
Okay. I will technically answer. Yes, it helps us. I mean, TC Energy, just recognizing that this project has been going through quite a number of modification in the connection of execution. They are describing this modification. They acknowledge perfectly the fact. You know we are in arbitration with TC Energy regarding spread three and four. And the fact that TC Energy announced that they've reached an agreement with LNG Canada, it was evidently a good point.
Okay. That's helpful. And then just maybe following up on the earlier question. Just in terms on the fact that you didn’t take a write down on a couple of the other LRT projects. How should we be thinking about margin profile on a go-forward basis, should we be thinking that -- I appreciate that there are some uncertainty about this but should we just be thinking that you both should have lowered normal construction margin for the next few quarters?
Yes. I mean, I think given the environment where in, Chris, where -- we still in an inflationary period. We're still dealing with supply chain disruptions. All of that takes some of the edge off what we wouldn’t would have normally expected given the profile of that backlog to the expanding margin. So, I think as we kind of look out over the balance of this year and into next year, we see margins being relatively consistent with where they've been in equivalent quarters and over the last couple of years. It's obviously that normal seasonality in the profile but we don’t think we don’t expect to see margins declining. But we also think some of that expansion opportunities probably go by the current environment.
Right, that's helpful. Thanks folks, I'll turn it over.
Thank you, for your question. Our next question comes from the line of Frederic Bastien with Raymond James. Your line is now open.
Hi, good morning. Thanks, everyone.
Good morning, Frederic.
I just wanted to follow-up on that last question. Just a quick follow-up on that last question. How about revenue, are you thinking about revenue in the second half. Do you believe there is room for continued growth like you've experienced in the first half?
Yes, I think we do. I think in our comments we tried to call that out. But I think the kind of thing to that really underpins that is if you look at the backlog profile and certainly the backlog to be worked off over the next 12-months and the strength of that versus where it was 12-months ago. We also expect the Utility business to continue to have a strong second half of the year. So yes, we do expect to continue to see revenue growth in second half of this year. And we expect that to be reasonably robust growth over the second half of last year.
Okay, thanks. And can you discuss the impact at these unfavorable margin adjustment, you could report it the risk you just highlighted and also your ongoing working capital requirements. What's that what's the impact of this having on the balance sheet and how you're thinking about the dividend and your ability next to shifting the demand?
Yes. So, as I touched on earlier the impact is certainly in terms of occurring a time lag in working capital. So, as you know we normally have a seasonal working capital profile which is working capital builds through the busier quarters of the year which are typically Q2, Q3, and into Q4 and then winds kind of at the end of the year and through Q1. And we're seeing a slightly different pattern in the first half of this year where Q1 didn’t see the normal level of them winding. Q2 wasn’t too inconsistent but there is some lag in the system in terms of collecting on some of these areas have been impacted by change. I think as we go through the second half of this year, we certainly don’t expect that to worsen and it will be a question of that timeliness of resolving the impacts of these changes with the respected client is to when it unwinds. But we certainly don’t expect it to worsen all over the second part of the year.
And when it comes to the balance sheet, obviously that's something that we talked about a lot over the last few years in terms of the strength of the balance sheet importance of that to our business. And certainly when it comes to the dividend, that's been a consistent theme for a long period of time for us. As you know we approved the costly dividend yesterday and that continues to be a long-term focus for us and no concerns on that front at this point.
Thanks. I'll pass it over.
Thank you, for your question. Our next question comes from the line of Benoit Poirier with Desjardins Capital Markets.
Yes. Good morning, everyone.
Good morning, Benoit.
So, just come back on the bidding process obviously with this very unusual environment, you've been talking early about the inflation, COVID, supply chain issues. I'm just wondering how does it change your bidding process and is there any lesson learn on the upcoming bidding opportunity and to make sure that we've have to read too much on the other projects here?
Yes. I mean, as you can see this is important now. The hyperinflation we are facing or the rising interest rates. Just make the estimation on the project more I mean it's made higher and the client have discovered this which is what has happened for example in India Food Trade. But it's not coming from the last six months. I mean, as I said into my message at the beginning, from the last three years we have been working a lot with clients to go through much more collaborating model and this has been quite fruitful, you because we have not seen that we got a job in Buffalo Pound, I mean the Water Treatment Plant under this scheme. ONcore is has also be won entirely scheme. What we explained to our clients is that under difficult circumstances and tough environment that everybody is facing not only the contractors, is better to be flexible. And the fixed-price way of looking at procurement mode is not the optimized one at this moment.
Okay. That's great color. And David, maybe a question on capital allocation in light of these four large fixed-price project, the pullback in share price we saw this morning and your leverage ratio, just wondering if you could provide some color about whether it changed your capital allocation strategy talking about M&A share buyback and potential divestitures or maybe the dividend strategy going forward.
Yes. So, I think our trustee is being fairly consistent and we are open to and have excused them, we're taking acquisitions and are open to M&A opportunities. I think in the current environment, it's really a trade-off between where values are which can look attractive. This is the inherent uncertainty in the current marking, so finding the right opportunity. I think in terms of balance sheet more broadly, I've told the dividend already outside of that, the focus continues to be on maintaining a prudent solid balance sheet which supports the working capital fluctuations we see and supports the ongoing growth of the business is we talked about growth has been pretty significant so far this year.
We expect to see a good continued organic growth going forward and that all requires a strong stable balance sheet to support perform and security requirements and everything else that goes a long along with supporting growth. So, that continues to be the focus and no change in that approach.
That's great color. Thank you, very much.
Thanks, Benoit.
Thank you, for your question. Our next question comes from the line of Ian Gillies with Stifel GMP. Ian, your line is now open.
Good morning, everyone.
Good morning, Ian.
With respect to the convertible debenture do have be into '23. Is there anything that precludes you within your credit facility from refinancing as using that in the event of debt capital markets may not be open or the terms might not be advantageous?
No, I mean --. And there is some as we've any credit facility there is and parameters that have to be met to do that. But I don’t expect that any of those parameters would be relevant in this case. So, no. essentially we do have the capacity to do that if that's what we choose to do. And obviously that's 18-months away and markets' active markets pretty volatile right now. And so, we'll wait till we get there the right window to look at potential refinancing or take care of those converts and the credit facility is available if needed.
Okay. That's helpful.
And we also have the option of doing partial credit facility and partially something else. So, we have flexibility on that and we're doing with those.
Okay. That's helpful. And with respect to some of the large joint ventures with and as you move towards the OEM portion and the long-term contracts there. And maybe starting with Eglinton, you know we in equity contribution commitment once that contract starts and so how much would that, you know how much that commitment would be or is that like a figure out that at a later date?
Yes. So, there are some active commitments for these concessions. They're very small like you look between now and 2025 for example in terms of the net active investments on our Canadian concessions, it's in the ballpark of $25 million between now and 2025.
Okay. That's very helpful. And I'll turn it back over.
Thank you, for your question. Our next question comes from the line of Michael Tupholme with TD Securities. Michael, your line is now open.
Thank you. My question relates to the four large fixed-price legacy projects, you call that as carrying heightened cost escalation risks. I'm wondering if you can tell me on an aggregate basis what dollar amount of backlog were you carrying for those four projects at the end of the second quarter.
Across the four projects it's roughly in the ballpark of around $500 million to $600 million.
Okay, perfect. And then, as a follow-on. You noted that Aecon and its JV partners continued to work toward resolution of claim for that additional cost some of those project. Can you share a bit of line on how that process is going, how collaborate both the process is on the three parties that aren't in litigation or arbitration and I know there's a lot of uncertainty but any thoughts on timing around resolution?
Okay. What can I tell you, we are contracted to spread on this Coastal GasLink job. And the first one spread four, we have reached before the summer mechanical completion, it just means that the job are substantially job is substantially complete. We are the first contractor to have reached mechanical completion on the spread of CGL. We just show that in terms of operational capacity of execution and we're good at. We are now at the half of the first three. You know that in this part of Canada, in the month of I would say part of May, June, and July, I'll dedicate month which is what we call spring pressure to have a lot of windows and do not authorize you to work because of movement of animals and because of movement of water.
So, we are coming back to the job at the moment to finish the spread three. We are discussing collaboratively with the CGL, I would say the most every day. It may be at the team level, it maybe from time-to-time at my level. We do not agree on it. We're seeing we do not disagree on it we're seeing. I mean, it's way too difficult project, it's a challenging environment. And the disclosure of TC Energy yesterday have been like simply clear. So, this is where we are. On another hand, we are preparing extremely solely the arbitration that will take place at the end of the construction of our spreads and we are allocating our best people to work for it.
Okay, perfect. I guess, in addition to that, which is very helpful. Jean-Louis, I'm wondering about the other three which is the three projects that are part of this four you called out that are not in arbitration or in litigation, which would seem to suggest there is perhaps an opportunity for greater collaboration on those three. I'm wondering if you can just shed some light on how the discussions around resolving these cost issues are going on those other three.
Okay. I should tell you, daily discussion of the around the other CEO level regarding trying to find solution by discussing, by negotiating, by finding all the support document, by being able to explain why superior modification in the scope, why is it clear modification in the condition of as a consumer. We have ad hoc committees and team that within those projects that also work every day to present documentation to align schedules, schedule expectations. So, it's extremely active on those projects. And we are working with our client to try to find a solution on a win/win basis for this project.
Great, that's very helpful. Thank you.
Mike, can I just come back to your first question. When you asked about the backlog remaining, were you asking about the three other projects excluding CGL or all four projects, that wasn't clear on whether you're asking about the three non-CGL projects or four?
Yes, in the case of the first question, I was simply asking about all four. I mean, however you want to3 if you want to break out CGL separately, that's fine. But just trying to get a sense of all --.
No, [Indiscernible.]
Yes. I just want --. So, if you're looking all four, it's in the range of about $1.1 billion to $1.2 billion a backlog of the $6.6 billion. It would relate to those four.
Okay, perfect. And then that was the original question, that's helpful, thank you.
Okay.
And what, maybe just to clarify and then the number you provided earlier related to what then, the 500 to 600?
The three non-CGL projects. The three new projects that we've effectively added to the disclosure this quarter.
Got it, okay. Thank you, very much.
Thank you, for your question. Our next question comes from the line of Naji Baydoun with IA Capital Markets. Naji your line is now open.
Thank you. And good morning, everyone. Just around the uncertainties and what's happening in the share price? Like and at what point do buybacks just become a lot more interesting?
Yes. Well, for sure yes we think where the share price is and where it's been for a while now, is undervalued. At the same time as I when I talked about the capital priorities earlier, we're in a period of strong growth, we have a focus on kind of looking at M&A opportunities. And so, we will always kind of look at that as an option but right now the bigger focus is on growth and maintaining the strength of the balance sheet as we go through a period of what we think is strong potential on both the organic and M&A front as well as obviously the focus on the dividend.
Of course. Is there maybe a specific range of stock price or free cash flow yield that and which that allocation focus will shift?
Well, for sure. I mean, if we are able to successfully resolve the impact discussions on these projects and if the share price doesn't react over the coming period to positive news, then that would be something that we would certainly look very hard at for sure.
Okay. That's helpful, thank you. And just one other project or question. Just wondering if you can give us a bit more updates on some conversations that you've been having with clients over the past two months. What is your -- you know you mentioned the GasLink project earlier but just more broadly what's your sense on how clients are reacting to all this the macro uncertainty in terms of delaying existing projects or perhaps even shelving new projects?
As I used to say, Canada is about half a million newcomers every year. And you probably remember one month ago the Deputy Prime Minister of Canada, Chrystia Freeland just indicated that at the end of May they are already granted 500,000 permanent residents which is much more in advance that what they do normally. Think that the trend is there. Those people need smart consultations; they need energy; they need smart grid; and they need fibre to the home; they need the good roads; they need water; and Canada needs infrastructure. So, our clients are prudent. They have just realized that when we are and there are inflation trends or interest rates rise trends. It's probably not the best way to procure job to fix everything at this stage and to go for very long time contracted with operation and maintenance immediately when you begin the construction.
So, our clients are becoming more flexible but the need is there. And I do not see today any project that has been bluntly canceled. That sounds from time-to-time the clients take more time to adjust the contracting mode, to adjust the ways they are going to organize the request for the qualification or the request for price but I do not see projects at the moment being canceled. I mean with the way they would be contracted is most probably a concern or at least I mean an interesting point for our owners. But I do not see this as a real issue for Aecon at the moment especially given the $6.6 billion we have in backlog and as I say I mean the quality that we have within this backlog.
Thank you, for the data.
Thank you, for your question. Our next question comes from the line of Sabahat Khan with RBC. Sabahat, your line is now open.
Hey, great. Thanks and good morning. Just a quick follow-up to the question earlier around how much these four projects are within the backlog. And I think you indicated I think it's about a billion dollars. But I guess and just kind of the directional caution that you're calling out, is that related to kind of the work still to do that probably end up happening at a higher cost than initially thought or should we think there's some potential risk on past recoveries as well aware to those projects. Just sort of explain the exposure and looking forward from here.
It's a combination of both, Sabahat, obviously. Whenever we look at a project and how it's positioned, we look at the full kind of cost to the end of the project and how much of that is covered by already agreed change and how much is still to be agreed. So, it looks at kind of where we are today and the impacts we've seen plus anything we expect through the end of the project.
Okay, great. And then just one quick one on the Concession side. I guess if we go back to sort of pre-pandemic earning, it's fair to roughly that we estimate kind of between Bermuda and the rest of the Concession segment, 3it was closer to kind of call it 55, 45. But it seems like the JV equity accounted contribution has gotten bigger over the last couple of years. Just trying to understand your non-Bermuda concessions just becoming kind of bigger contributors to that segment and then when Bermuda come back can we expect just that entire Concession segment to be a bigger contributor? Like are we misreading that or has kind of non-Bermuda concessions kind of started to contribute more over the last couple of years?
So, obviously Bermuda continues to recover and we do expect results from Bermuda to continue to strengthen as air traffic gets back to normal. As I said in Q2, we operate at close to 60% of pre-pandemic levels. So far, through the month of July we're operating at around 63% so that the trend continues to move upwards and we expect that trend to continue. So, that will certainly increase Bermuda results over time. I think the non-Bermuda concessions obviously primarily still in construction but the concessionaire which Aecon has a stake in, they generate management fees during construction because they are effectively on behalf of the client, managing a construction and financing and ultimately the transition into new operations and maintenance or just maintenance.
And so, those management fees have grown over the last couple of years as we've had more of these concessions in kind of the peak construction phase. And then when the concessions open, those management fees really transition into instead of management fees for construction oversight and management into management fees for managing the operations and maintenance. So, that's why it's kind of grown over the last few years. We expect it to stabilize and be fairly consistent over the next few years as they transition into operations.
Great. Thanks very much for the color.
Thank you, for your question. There are currently no more questions registered in the queue. So, I will pass the call back to our management team for closing remarks. Thank you.
Thanks very much for everyone for your participation today. As always, feel free to follow-up with any questions to the IR team here. And we wish you the weekend and good balance of the summer. Well, we will see you on the next call. Thanks.
This concludes today's conference call. Thank you, for your participation. You may now disconnect your line.