AtkinsRéalis Third Quarter 2026 Conference Call - DEFI TECHNOLOGIES INC

Explicit Guidance:

• Full-Year 2026 Organic Revenue Growth (Engineering Services Region): Revised to "low single-digit percentage" growth compared to 2025, downgraded primarily due to conflict in the Middle East affecting the EMEA region.
• Full-Year 2026 Net Cash from Operating Activities: Guidance maintained at "at least $500 million," driven by positive operating cash flow expectations through Q4.
• Effective Tax Rate (2026): Expected to remain at or above the current Q3 level of 25.7% (closer to Canadian statutory rate) for the remainder of 2026 and Q4.
• Net Debt Ratio: Target maintained within 1.0x to 2.0x leverage.
• 2027 Outlook (General): No specific financial guidance provided for 2027; management states the underlying global engineering services business is positioned for "5% to 7% organic growth" long-term.

Business-Segment Outlook:

• Engineering Services (Global): Underlying growth rate anticipated at 5–7% annually. Canada, US, LATAM, and UK/Ireland collectively expected to perform in the 5–7% range.
• EMEA Region: Near-term uncertainty persists due to Middle East conflict; however, long-term outlook remains positive supported by growth in Asia (particularly Hong Kong and Shenzhen) and Australia, aiming to reduce Middle East dependency.
• Canada: Strong demand expected from "Build Canada" initiatives, focusing on transportation, power renewables, and defense. Specific momentum noted on Calgary Green Line, East Harbour Transit Hub, and Surrey-Langley SkyTrain.
• UK & Ireland: Outlook remains positive; backlog grew 9% YoY to $2.1 billion driven by rail, aviation, and water. Continued support anticipated from UK's £300 billion defense investment plan and 10-year infrastructure strategy.
• US & LATAM: Long-term optimism for infrastructure-intensive programs; near-term activity affected by funding uncertainty in specific transportation markets. Focus on "land and expand" strategy targeting fully funded large customers (e.g., Sound Transit, MTA).
• Nuclear (Can-Do): Backlog expected to return to 2025 levels post-2026 as current project phases complete and new follow-on phases are awarded. New build opportunities anticipated to drive significant revenue growth "into the 30s" (2030s).
• Nuclear (Services): Revenue expected to grow incrementally through 2027 via feed studies and design phases for new builds, though these are not yet significant revenue drivers.

Market and Competitive Outlook:

• AI & Data Centers: The AI build-out is creating new engineering opportunities in power, nuclear, data centers, and cooling; positioning the company for larger, more complex engagements.
• Nuclear Licensing & Market Structure: US NRC licensing process for CANDU EC6 reactor expected to conclude by end of 2027. Management notes the US needs multiple global technologies (including Canadian) to meet its reported ambition of building 300 power plants.
• Competition: Nuclear technology competition is limited to six global technologies (Chinese, Russian, South Korean, French, American, Canadian), providing a distinct competitive advantage for proven CANDU technology.
• M&A Strategy: Focus on "quality over quantity" in the US market to reach top-end market ranking. No transformational acquisitions expected in 2026 or H1 2027; targets will remain in the size of the recent David Evans acquisition (~1,000 employees) for the near term.
• Canada Infrastructure: Projected 167 new projects from the investment summit; even if only 10–20 materialize in the next 1–2 years, this represents a significant delivery opportunity.

Macro / Industry Outlook:

• Middle East Conflict: Ongoing conflict is causing reprioritization and cancellation of higher-margin building projects in the Middle East, negatively impacting EMEA revenue in 2026, though management anticipates a "quick bounce-back" in the region.
• US Funding Environment: Mixed; while some states face funding confidence issues, focus is shifting toward long-term, multi-year infrastructure programs supported by regulatory drivers and mission-critical asset needs.
• Regulatory Environment (US Nuclear): Viewed as "perfect timing" for CANDU EC6 licensing, leveraging the close alignment between the Canadian (CNSC) and US (NRC) regulatory bodies.
• FX Impact: Foreign exchange fluctuations contributed to revenue declines in EMEA when excluding acquisitions; lower interest rates improved net financial expenses.

Strategic Initiatives:

• Acquisitions: Completed acquisitions of Tobin (Ireland) and WGA (Australia); agreement to purchase remaining 30% interest in David Evans (USA). Future M&A will prioritize US market expansion.
• AI Integration: Applying AI-enabled processes across the business to reduce costs, improve project execution, and support NVIDIA collaboration on data center/power/cooling infrastructure.
• Nuclear Projects:
  • Pickering (Canada): $1.7 billion, 3-year contract signed for Unit 5 refurbishment; follow-on stages expected through end of decade.
  • Indiana (USA): MOU signed with Hoosier Energy/State of Indiana to explore a campus of up to eight CANDU EC6 reactors (up to 6 GW capacity); funding framework and site selection are next milestones.
  • Monarch (Canada): Formal safety case report imminent; pushing for technology selection decision in Ontario by end of 2026/early 2027.
  • Poland & Turkey: New build opportunities progressing through procurement processes and government trade missions.
• Capital Allocation: Continued deployment of capital into share buybacks (approx. 4% of shares repurchased YTD) and bolt-on acquisitions to create shareholder value.

Risks and Headwinds to Outlook:

• Geopolitical Conflict: Ongoing Middle East conflict remains the primary risk to EMEA revenue and margin stability.
• Funding Uncertainty: Potential delays or cancellations in US transportation projects due to lack of federal funding confidence or project timeline extensions.
• Regulatory Timelines: Nuclear projects (Ontario Monarch, US EC6) depend on utility decisions and NRC/CNSC regulatory processes, which are external to company control and could face delays.
• Project Mix: EMEA margin compression driven by a shift to lower-margin building and place projects in the Middle East.
• Non-Recurring Items: Q3 US margins were bolstered by positive settlements on emergency management contracts; this is not expected to repeat in the immediate future.

Management Tone on the Future:

• Confidence: "Confident" in the 5–7% long-term growth trajectory for the underlying engineering business; "bullish" on the Canada market and "very excited" about nuclear new build opportunities.
• Caveats: Management explicitly notes they cannot dictate decisions on Ontario nuclear technology selection or US project funding, describing these as "pressure points" they are pushing on.
• Strategic Shift: Tone reflects a pivot toward higher-value, technically complex infrastructure (nuclear, AI data centers) and a disciplined M&A approach to reduce dependency on volatile regions.
• Dividend Policy: No immediate changes to the dividend; management prefers flexibility to utilize share buybacks and acquisitions for value creation, with dividend reviews to occur over time as the board sees fit.

Miscellaneous:

• Share Repurchases: YTD 2026, ~$561 million deployed to buy back ~4% of outstanding shares (average price ~$87).
• Backlog Status: Total backlog $20.5 billion; Nuclear backlog $4.3 billion (down 20% due to revenue recognition on Pickering/Romania projects).
• Cash Flow: Q3 positive operating cash flow for the third consecutive quarter; Q4 expected to remain strongly positive.