AtkinsRéalis Third Quarter 2026 Conference Call - DEFI TECHNOLOGIES INC

Financial Performance:

• Total revenue reached a quarterly record high of $3.1 billion, up 10.7% year-over-year (10.7% reported, 8.7% organic).
• Adjusted EBITDA grew 14% to a record $331 million, translating to a 9% increase in adjusted EPS to $1.20 per diluted share.
• Segment-adjusted EBITDA margin improved 80 basis points to 18% overall, with Engineering Services at 18%, UK & Ireland at 19%, and US & LA at 18.6%.
• Nuclear segment reported 10% organic revenue growth, with segment-adjusted EBITDA margin at 25% and backlog at $4.3 billion.
• Operating cash flow turned positive for the third consecutive quarter; net cash from operating activities totaled $228 million for the first nine months.
• Full-year 2026 net cash from operating activities is expected to be at least $500 million.
• Share repurchases totaled $561 million year-to-date (approx. 4% of outstanding shares); two acquisitions (Tobin in Ireland, WGA in Australia) completed for $156 million.
• Effective tax rate was 25.7%, normalized to Canadian statutory rates after prior year adjustments.

Guidance and Future Outlook:

• Revised 2026 full-year organic revenue growth outlook for the Engineering Services region to a "low single-digit percentage" due to Middle East headwinds.
• All other 2026 financial outlook measures, including EBITDA and EPS, remain unchanged.
• Long-term view remains that the underlying engineering services business is positioned for 5–7% organic growth globally.
• Nuclear backlog expected to return to 2025 levels by 2027 as new build phases and follow-on projects materialize.
• Management anticipates strong positive cash flows for Q4 2026, continuing the trajectory of value-focused capital allocation.

Business Segments and Product Lines:

• Engineering Services: Revenue grew 6% overall; organic growth was 3% for the segment but 6% excluding EMEA. Strong performance driven by Canada (+19% organic), UK & Ireland (+5% revenue), and US & LA (+5% revenue).
• Nuclear: Driven by life extension projects (e.g., Ontario Power Generation's Pickering Unit 5, a $1.7 billion contract). New build opportunities include CANDU EC6 licensing progress in the US and discussions in Turkey and Poland.
• Regional Performance:
  • Canada: Revenue up 19% organically; backlog $7.4 billion. Key projects include Calgary Green Line and Surrey-Langley SkyTrain.
  • UK & Ireland: Revenue up 5%; backlog up 9% to $2.1 billion. Recent wins include Yorkshire Water and Paid Framework; Tobin integration strengthening Irish presence.
  • US & LA: Revenue $565 million; backlog $1.9 billion. Synergies with David Evans evidenced by Sound Transit (Seattle) win.
  • EMEA: Revenue down 4% (12% organically ex-FX/acquisitions) due to Middle East conflict; backlog up 14% due to wins in Asia and Australia.
• M&A: Completed acquisition of remaining 30% interest in David Evans; acquired Tobin and WGA to expand geographic reach and technical capabilities.

Market and Competitive Landscape:

• AI & Data Centers: Surging demand for AI-enabled infrastructure is creating engineering opportunities in power, nuclear, data centers, water, and cooling.
• Nuclear Sector: High demand driven by AI energy needs and decarbonization; CANDU technology positioned as a viable path for US new builds due to regulatory familiarity (CNSC/NRC).
• Infrastructure Investment: UK government's £300 billion defense plan and 10-year strategy; Canada's "Build Canada" initiatives; US state-level infrastructure investments (e.g., Indiana).
• Competition: Limited global nuclear technology providers (six major players); Atkins Realis leveraging proven CANDU technology and regulatory alignment for US market entry.

Risks and Challenges:

• Middle East Conflict: Ongoing geopolitical instability has caused revenue loss and project reprioritizations/cancellations in EMEA, impacting the region's organic growth outlook.
• US Market Uncertainty: Funding uncertainty and potential lack of federal confidence for multi-year transportation projects in certain US states, though strategy is shifting to funded markets.
• Licensing Timelines: Nuclear new build projects depend on regulatory approval timelines (e.g., US NRC process expected to complete by end of 2027).
• Project Execution: Extended project timelines in some transportation markets affecting near-term activity volumes.

Management Commentary and Tone:

• Tone was confident and forward-looking, emphasizing the strength of the core engineering and nuclear businesses despite regional headwinds.
• Management highlighted operational efficiency, AI integration, and disciplined capital allocation as key value drivers.
• CEO Ian Edwards expressed strong conviction in the long-term growth potential, particularly in nuclear and North American infrastructure.
• CFO Jeff Bell emphasized the company's solid balance sheet and financial flexibility to fund acquisitions and share buybacks.

Analyst Questions and Answers:

• 2027 Outlook: Management expects 5–7% organic growth for Engineering Services globally, anticipating the Middle East will recover and Asia/Australia will offset regional declines.
• US Market Strategy: Focus shifted to states with secure funding, power/industrial sectors, and large, fully funded transportation clients (e.g., MTA, Sound Transit).
• Nuclear Milestones: Indiana MOU aims to identify a site and secure a funding framework (PPA, tax incentives); US NRC licensing process expected to conclude by late 2027.
• M&A Strategy: Priority on US market to move from ~16th rank to top-tier; focus on quality over quantity, avoiding transformational deals in short term, aiming for ~$1B revenue targets eventually.
• Dividend Policy: Current dividend remains at a minimal level to maintain flexibility for buybacks and M&A; board will revisit the level over time based on shareholder feedback.
• Margin Drivers: US margins improved due to margin initiatives and positive settlements on emergency management contracts; Canada margins driven by high-value project mix and cost optimization.

Other Key Points:

• AI Integration: Company is applying AI-enabled processes across operations to reduce costs, improve execution, and create value, noting early but promising results.
• Monarch Reactor: Safety case report for the Canadian Monarch reactor is imminent, with a push for a technology selection decision in Ontario by end of year or early 2027.
• Capital Allocation: Strategy balances share buybacks (taking advantage of lower share price) with targeted bolt-on acquisitions to enhance capabilities.
• Workforce: Company employs 43,000 colleagues globally.