Q3 2019 Earnings Call
Then finish here good morning, ladies and gentlemen, you get a coffee house pretty funny solely because he talks unifi tuck in penis that I need to me its nest <unk> ft. Welcome to do both double U.S., Keith third quarter of 2019 results conference call.
Now I'd like to turn time meeting over to you said that Jackie Senior Vice President Investor Relations communication.
I have missed I change.
Got you I got good morning, everyone for cookies applying for join us.
A little BYOD trend attrition today, or we have talking to promote the by office, where we had our board and leadership meeting so we'd like to apologize in advance in the sense you forget disconnected we would go connector.
Children, we that's our unlike some of the wheel precipitously and she ULE and when the war and she is.
Joining us that's why does that unusual.
As you know just said, especially if we succeed we know what she is for effective again as more.
Even though that's biscotti also accessible on the website as a website as a webcast.
Even so cool, we maybe making some forward looking statements and actually to be does could be different from booth expressed or implied we undertake no obligation to update or revise any of these segments.
Factors that could cause accessories, that's to be difficult you French maturity from two if or when it comes segments are listed in our most recent Indiana.
Got themselves versus what it comes on it.
Thank you said on good morning, everyone I'm very pleased with our strong Q3 results, which are will become common thing in a few minutes before do so.
I would like to take a few minutes to discuss the announcement, we made yesterday about the transition of the root shuffle level.
As part of this transition Bruno what will be leaving WSP have you ever March 2020 to pursue new professional endeavors and Im sure currently senior Vice President of operational performance, a strategic initiatives will succeed him as chief financial officer, such stage until them Bruno.
I would continue in this role complete the current fiscal year and work closely with along to ensure a smooth transition.
Having joined doctors being 2016, Bruno assistant and delivering on our 2015 2018 financial ambitions. He leaves behind a strong balance sheet and improve working capital management.
On behalf of the entire global leadership team and myself I would like to wish you all the best in your future endeavors Buddha.
I also want to wish I like continued success in his new role.
As a profound knowledge of WSP not only has he spent the last few months with regional leadership teams to fully understand operation and business model, but them his previous role a senior Parker twice what else, Canada. Alain has advised WSP senior management and the board of directors on Vargas matters.
During the last six years.
They will receive a she did see designation in 97 as an impressive track record of achievement in the professional services industry and a broad range of experience and mergers and acquisitions, a strategic planning acquired over his 25 year Junior Pricewaterhouse.
Separately the process to develop a transition plan for Collins current well is underway.
The next few weeks you will have the opportunity to meet with both Bruno what I like as we will be organizing breakfast meetings in Montreal Detroit Auto on November 12, and 13, respectively details on her just rationed forms are available on our website.
We'll be emailed to you after this call.
Perhaps you know you may want so she wears does your wallet.
So I want to take you the board and the team I'd call you consider myself, but I'd be curious if the service Yahoo terrific already.
I think right in our accomplishments over to spirit I'm, particularly proud of the finest is not only to Montreal, but around the globe.
I need a company with is both financially and operationally strong and I'm very confident of WSP will continue to deliver shareholder value, while continuing to deliver on site.
As I would say what could be electrical after we delivered for scopolamine I'd and we'll obviously because he is a direct with most of you order is actually much.
We could not have children, a better successor funds as Alex mentioned, I mean is not only the operational and business model understanding but also the financial leadership to read the even for the next chapter and successful drew I think well comfortable.
But you know compensate you ever know, let me I'll comment on our strong third quarter financial performance would Bruno will further elaborate on later later on on this call.
For the third quarter net revenue were 1.7 billion up 15.3% compared to Q3 2018 on a constant currency basis organic growth in net revenue spanning across all reportable segments amounted to 4.4% on the Bulls eye as far as 16 basis, adjusted EBITDA was 288.2 million.
Adjusted EBITDA margin, reaching 17% compared to 12.7% last year.
Backlog stood up 7.9 billion idea of the quarter presenting approximately 10.5 months revenues our backlog grew organically by 4.7% when compressed should feel 2018, I'm, sorry, and 2.4% over the first nine months of the year.
Last 12 months free cash will remain strong at 423.9 million or 147% of net earnings attributable to shareholders now would like to turn to our regional operational performance highlights.
Our Canadian operation generated 1.2 person that revenue organic growth reversing the trend, yes seem in the first half of the year.
For fiscal 2019, you anticipate low organic.
Adjusted EBITDA and adjusted EBITDA margin before global corporate costs amounted to 61.4 million and 22.4% the highest margin among all of our reportable segments on a pre IDE for assisting basis adjusted EBITDA margin before global corporate costs, so that 18.1% in line.
With our expectations.
Project wins continued to be strong with Canadian backlog growing organically by 7.7% over the first nine months of the year.
The Ontario government recently released its 2019 Petri market update announcing more than 65 billion potential projects that years to calm, which bodes well for future growth and the province, more specifically on our wins for the quarter. We are pleased to shared the following his tenure.
Process, the public works and government services of Canada awarded innovate innovate energy private partner consortium, including WSP that 35 year Energy services acquisition program or he shop, a contract valued at 2.6 billion to design build.
Finance operate the mainstream maintained a modernized heating and cooling plants and the national capital region. So bottom line.
This project, which has the federal governments green initiatives Amen Amen promising a safer environment for future generations, well income past implementation of a new electric system to powered heating and cooling plants that support the federal buildings.
WSP will be the lead designer for this project, which is the result of collaborative efforts across our teams and Canada, Sweden, UK and the U.S.
Our our Americas reporting segment posted organic growth in net revenues of 8.2% stemming mainly from our U.S. operation. This increase was mainly due to the timing on the revenue recognition of some of our large assignments for fiscal 2019, we anticipate mid single digit.
Organic growth.
Adjusted EBITDA and adjusted EBITDA margin before global corporate costs were coming in at 127.4 million and 21.3% respectively.
On a pre IPO for 16 basis adjusted EBITDA margin.
Before global corporate cost it up 17.9%.
And organic growth backlog wrote was particularly strong 13.9% when compared to true tree of 18.
In the U.S. obvious just started to work or started to work on the Preconstruction phase of the Texas isolated rail project, providing symbol and structural works engineering as a member of the Texas I speak well LLC.
He lane joint venture.
Once completed this multibillion dollar 240 40 miles rail line.
North, Texas, and greater use than 90 minutes at speed of up to 205 miles per hour.
We're also pleased by the renewable of our FEMA contract, which runs over a five year periods and this cap at 943 million U.S. dollar.
This amount is included in our self backlog and for comparative purposes. During the last five years, we have generated approximately 430 million U.S. dollar in revenues from our FEMA work.
As often mentioned before these revenue streams are unpredictable IDR clearly triggered by emergency for natural disasters.
EMEA operating segment delivered organic growth in net revenues of 2.1% led by continued strength in the UK transportation and infrastructure sector.
For fiscal 2019, we anticipate low to mid single digits organic growth and adjusted EBITDA and adjusted EBITDA margin before global corporate costs amounted to 75.6 million and 14% respectively.
On the pre IPO for US 16 basis, adjusted EBITDA margin before go global corporate cost stood up 10%.
And the middle East as part of the China, well again to joint venture we were appointed as the design consulting phases to B and C.
Of the if he had Ram line, a trend that tangible common or rail project, which construction costs Assistant May then a 1.2 billion you Wes.
Our eight back operating segments posted organic growth in net revenues of 6%, mainly a drive the driven by our operations in Australia, New Zealand, which posted double digit organic growth in net revenues.
For fiscal 2019 to anticipated anticipates I'm, sorry, mid single digit organic growth.
Adjusted EBITDA adjusted EBITDA margin before global corporate costs amounted to 48 million and 17.1% respectively.
And on a pretty RF first 16 basis, adjusted EBITDA margin before guilty of corporate cost up 13.4%.
In Australia, we were awarded the contract 40 independent Certifier role on the West turns in the International Airport, one of Australia's largest ever infrastructure, our worst projects under the agreement we will complete certification of the bulk hurt works pavement works.
Airfield terminal and specialty work as well as Len sides of civil and buildings. So a significant project for us.
Now to our acquisition activities during the quarter inline with our 2019 2021 global strategic plan, we strengthened our strategic advisory services, our frame and environment with the acquisition of orbit Con predominantly based in Denmark with the subsequent acquisition of lives M.C., we stay.
I wish a presence in the Netherlands, bringing our total workforce and continental Europe to well over 1000 people now.
Once again I would like to welcome our newest colleagues and asked for college in environment. We continue to expect to transactions flows during the fourth quarter of this year.
Once.
Once part of WSP, Yes, he will also add to our expertise in environment, bringing our total workforce to approximately 50000 people and our environmental platform to approximately 7000 employees an increase of over 20% and this year alone.
Bruno will now review our true true financial results in more detail Reno. Thank you. Alex we are pleased orders from Q3 financial performance with the key metrics seating.
Everything lined our expectations.
Third quarter revenue and net revenue rose to 2.2, and 1.7 billion. The secondly, an increase of 15.2 at 15.3% respectively compared to Q3 28.
Organic growth in net revenues amounted to 4.4% for the quarter and 3.3% for the first nine months a year inline with our outlook.
Adjusted EBITDA would have periods stood at 288.2 million up $100 million or 553.7% compared to Q3, creating.
Adjusted EBITDA margins reached 17% compared to 12.7 last year, excluding the impact of Afrezza team adjusted EBITDA would have been sorted in 24 million or 13.2% of net revenues.
Our backlog stood at $7.9 billion, representing approximately 10.5 months of revenue.
Let me please.
21.5% when compared to Q3 to one of your team, including 4.7% inorganic growth.
Turning to our balance sheet.
We ended the quarter would it yes, so 80 days, excluding the impact of the integration of who with Berger vehicle would have amounted to 76 days.
Thanks for the same level at the same period lesser.
Trailing 12 month free cash flow amounted to $423 million or 147% of net earnings attributable to shareholders incorporating a full 12 months adjusted EBITDA for acquisitions, our net debt to adjusted EBITDA ratio came in at 1.4 times, including the impact of characteristics.
1.7 times excluding.
Finally.
We also declared a dividend of 37 and a half centsper share for shareholders on record as of September Thirtyth 2019, which was paid on October 15, Threenineteen, what is 51% dividend reinvestment plan participation. The net cash outflow was $19.3 million.
This concludes my remarks Alexandre do.
Thank you Bruno before we open the lines for questions I would like to reiterate that we are pleased with our Q3 and year to date performance as we better leverage solid results, which translated into positive trends on our chief financial metrics strong free cash flow a strong balance sheet and that helps you leverage rate.
Issue, which by year end is projected to land at the low end of our target range based on this continued momentum in this and the regions. We are reiterating our full year 2019 outflow and expect net revenues and adjusted EBITDA to be a Diane high end of the range disclose in Q2.
Of 19.
Finally, as you remember last quarter, we have increase our full year adjusted EBITDA outlook range to 970 million to 1.030 billion to reflect in back of buyer. Fysixteen. Therefore, we are also updating the adjusted EBITDA margin on our 1921 global strategic plan to.
Now reach between 15 and 16%.
I would like now to open the call for questions.
Well I guess Jones, please call physically twice to visit our silver Perclot. These can be funny as a reminder, if you'd like to ask a question press star one on your telephone to withdraw your question Presidente. Thank you.
Your first question I'm Fine line of Chris Murray with Altacorp. Your line is open.
Thank you good morning.
Oh, just turn back a little bit to your commentary around the some of the stuff to use Ontario and.
Any thoughts around whether or not said that new piece repackage or anything else could actually start shaking loose some more activity for you.
Good morning, Chris I'm, not choose to that the because it good afternoon, but.
Shifting to color indefinite Doug.
We announced amendment obviously.
Positive.
Having said all that I will only going to believe that when when it happens and has materialized. So so at this point in time as I mentioned in my address the backlog is there.
Opportunities our dinner, we actually have a good backlog and Canadian business.
But I would like to see some progress being made in on a consistent basis and for that.
And less.
Less so than just being anecdotal for me to to tell you that this is really promising so so at this point in time remaining prudent.
But I think when this is being unlock and think we will be very well positioned to take advantage of that.
Okay fair enough.
Then just turning to U.S. segment, just you talked a little bit about some margin pressures I guess with.
With the integration, but you also talked about the fact that the integration feels like it's on track any thoughts around when you believe or if it's possible to believe.
Key margins get back to kind of a normal rate in the U.S.
Yes, Chris its Bruno.
On the on the U.S. again throughout the year we.
We've integrated we very which had lower margins than we had asked were raising them towards our level slowly, but surely over the course of 2020, you should see some that you have sort of course.
Okay.
Thanks.
Leave it there thank you.
Thank you Chris.
Your next question comes on line have been on par with this out there your line is open.
Good morning, gentlemen.
I Lex could you talk a little bit about the alliance contracting and what R&D implication for WSP I mean, Ontario recently launch a new procurement model with Union station there are skewing it seems that its a.
Growing trend across the globe, So just would be curious.
Argue implications for WSP.
Well, we were awarded the contract. So it's not like we have to go through and procurement process or being impacted by by new model.
We won this contract.
Sign and Thats why im not disclosing it right now so let's say that so there are no new application for us.
Okay, Okay, perfect and if we look.
With respect to the closing of ecology in environmental good could you talk a little bit above the potential for margin improvement in do you see other unfortunately these to acquire some public companies that might not perform well, but have a strong brand more strong photo.
Well.
At College environment I'm very pleased with this acquisition, it's not the largest since its its but the college in the environment historically in for the last 40 years did that the bad at an extraordinary brown.
They have a great less the appliance and I think that this combined with our Lewisburg acquisition, our legacy WSP business and additional acquisitions in the environmental sector that we hope to complete that some planned timing the future in the us.
We will be building, a very strong brand in the U.S.
Already when you look at our headcount in the U.S. not so long ago, we were de Minimis languages, essentially very little or Ciro and now with the recent acquisitions I mean, we'll be web well above 1000 people.
And now we'll be we're not they picked up from in the environmental sector, yet, but that certainly ambitions to continue to build our president and I think at college environment as a great stuff.
And that direction. So that was the first part of your your question on the second part.
The.
I mentioned that I, what I finished on my mind My my keynote address that.
Research and lead by the time, we get to the ended the year and assuming that.
We are generating the free cash flow that we've generated than in past years, clearly we generally in the low end of our range.
In terms of leverage.
So clearly we have a very strong balance sheet position.
But.
What has made us successful in the past the and the way that we've always remain very discipline and focus on our strategy, but also on the price that weekly. So I think our goal is really to be able to look out and I have been and the team has been for.
As usual and the pipeline is good.
But it needs to make sense. So so clearly there will be some opportunities I'm confident that some will show up.
Actually in a good market, but also of one day and maybe in a downturn. If you have a good balance sheet. So so so of course I remain optimistic.
And the months in years to come.
Okay and last one for me when we look at the Americas, you mention a favorable timing in Q3, but does it mean that Q4 should we expect a little bit saw more softness in Q4, given the favorable timing issues in Q3 Alex.
As I said, we are going to finish the year and the upper end of a range both on net revenue and EBITDA. Therefore.
You know.
I will now I would argue.
I don't think what you just mentioned as a fair statement I think.
No.
We're deferring that other companies in the sense and then other industries I should say in the sense of income recognition.
Well, we'll change from one quarter to the other depending on the degree of investment of your work.
It sounds like selling widgets between quarters I mean, so so obviously income recognition as a as going to value from one quarter GL, there, but I do not expect any adverse impact into four given that we're going to finish in Ohio.
Range of.
Higher end of our range I'm, sorry aggregate all night on the aggregate that okay. That's great color congrats for the quarter and thanks wanted to time.
Thank you, but no I think you but.
Your next question comes on line of Jacob bout with RBC. Your line is open.
Good morning, or good afternoon there.
Just going back to Canada.
Your thoughts on the results of the federal election does that actually help or hurt.
Well.
I, it's not for me Jacobs to comment on politics, our job is to deliver services to our client.
With or without.
The government up is that right now.
Leading the country so.
I don't necessarily have an opinion on it.
I think the jury's out we'll see we'll see what the with the Liberal government.
We'll come up with that from an infrastructure point of view.
But what we're not trying to be destructive.
Who won in politics and.
Really trying to deliver the best services as I said before the backlog is good.
And.
A bit of luck and and some momentum.
Hopefully things will pick up and I would've been a position to really take advantage of it.
You've talked about that.
Thanks.
Variable cost level.
But outside of that are you seeing any areas of weakness at all.
Last quarter.
I am sorry edge. It comes on I missed the first part of your question can you repeat it. Please yeah. The first part of the question I was just commenting on the Nordics and I don't want to pass you see I've seen a little bit of slowing there, but I'm just trying to get a feeling as far as how you're thinking.
Versus last quarter or are you seeing any any slowing globally.
Look.
We're going to finish the year in the Nordics on the note.
I think it's fair to say when you look in the public data of the private sector is eventual market as a school, thus a little bit.
And I'm not talking about recession here not at all not even close but I'll call I can tell you might think I've talked about this for quite some time the few quarters now that yes, the private residential sectors has cooled off a little bit.
But this year, the nordics will be delivering on budget.
Because of that delivering good organic growth and action improve margin profile.
Which is refreshing give them the nordics.
Had a decline in margins for the last two years. So this year, we're back on the right trajectory and I'm very pleased about that.
And outside of an order.
Sure.
Yes.
Okay, Yes.
You read analysts in the news like I do of course.
I am always.
Quite.
Empress that's probably the right word by the way our business into Ucas has been performing.
Given the uncertainty that the that the country is going true.
I'm very impressed and as I said in the last quarter I think our team should be commended for the good work that theyve done.
Globally clearly of course, there's some insurgencies on terrorists and trade wars and election, but as I said shoe.
Sure to you or early on.
We cannot stop thinking about uncertainties that we don't have any control over nor we can think about politics, our job is to win work.
Create shareholder value and deliver on ambitions. So that's what we're busy doing and we're going to do the best that we the best that we can and the environment in which we operate.
And just a housekeeping item here on the 16 impact and guidance reconciliation.
So if I remember correctly you're guiding.
The full year impact.
16, and even though it's around to 40, if my calculation is correct.
Two year to date.
So is that guidance still.
Yeah, we're via again, the upper hand of the guidance, we have given on best So as to 40 ish is not about number at this stage.
Alright, thank you.
Thank you.
Your next question comes from the line of tariff with RBC. Your line is open.
Turning point for taking my questions.
Organic growth rate seems to be tracking ahead of the industry.
And potentially getting market share when you would you say this is accurate and what do you think or some of the key drivers of this dynamic.
Well a couple of more granular observation and they are more intuitive Dan I don't have the bid on from a new so but just to give you a bit color.
Indeed, I believe right now in Australia, we are gaining market share I think in Asia Pacific over the recent years I believe we've been growing at faster rates than than some of our peer group I.
I believe in the UK, despite as I said before a more challenging environment I do feel that WSP over the last the recent years I've been gaining market share and I've been doing extremely well.
In the marketplace and.
While doing that we were able also to improve our margin profile in the UK.
In Canada, I think we are strictly EMEA era, a leading from and the Canadian market and probably the leading from now in the Canadian market. So.
But.
Ben then I believe a challenging environment for everybody. So we'd argue that we are at this point in time.
Gaming market share, but we're certainly not losing and I think we're doing well but.
But I'd like to see a better organic growth rate for me to suggest that we are.
And then the U.S. I mean, we had we have definitely a plan.
To gain some market shares and the pillars of business lines, where we don't have a strong presence. So in the years to come and we will try to grow them aggressively and then in our main markets I believe that we've been we've been going at a good rate.
And we've been we've been doing very well and.
I'm feeling good about the future of our us business.
Okay. That's great do do you think you know is the driver obviously with the margin profile improving I'd doesn't appear like your this is a price led.
Sort of market share strategy.
Would you say, it's your positioning and your positioning within the marketplace being more of a specialty type of engineering shop versus you know more commodity commodity type of engineering chop and if so how do you think about your peers, who your true peers are front from a valuation.
Perspective.
Well I'd Love your your grant you're raising this point because I I haven't really an opportunity to comment.
On WSP his expertise.
Not going to comment on on on our Mike AARP here.
Yes, I have the up most respect for for our competitors, but I can comment on hours I have.
I believe that WP spin I mentioned at the many times is uniquely positioned to take advantage of the trends. It has taken that are taking place in our industry.
I think the brand.
The rebranding of our organization and the Brendan warn us.
Over the recent here has been.
Been tremendous without a lot of momentum, but at the end of that they were selling green power and we're selling expertise.
And both organically by attracting top talent in our organization and also through acquisition, where we acquired a lot of very strong expertise I think we've been able to develop a really solid offering for clients and I think we are witnessing that not right now and I must say that I'm quite.
Please with the way we've positioned WSP as a trusted advisor.
To the many clients in this industries and this industry I'm sorry.
And I think if we do it well I think it's going to bode well for the company in the years to come.
Okay. That's great. Thanks, Alex I'll turn it over.
Thank you.
Your next question comes on line of seven Dutch with BMO capital markets. Your line is open.
Hey, good morning.
I wanted to come back good morning.
Just want to come back to the to the UK.
You've touched on this a couple of times here, but some of your competitors have suggested that.
Certainly related to break that is starting to impact the timing of certain projects.
Just trying to get a sense have you seen any impact on your business in the okay and if not can you help us understand how you've been able to avoid any kind of slow down there.
Look.
I mentioned previously in previous calls.
To suggest that Brexit has not had any impact on our company is untrue.
Clearly I think it's impacting everybody and I would agree with our competitors that clearly for instance in the private sector.
Real estate sector that real estate developer are often time or on a wait and see approach they want to see what what may come up and what how things will shape up before putting a massive project.
To to start working interest on working on a number of significant projects. So so clearly in the UK we have seen.
A bit more of a wait and see have grown from some of our clients.
The same time, it's still and so formidable to see that the country's fairly resilient. Despite the uncertainty that we've been than we've been seeing.
I think we have a good backlog, we shouldn't take our backlog for granted and we're absolutely not were monitoring that very carefully but I have to tell you and I as I said before.
I myself.
Im very impressed with the way our team has been performing.
And this uncertainty in this environment essentially so.
So I'd say that we got to have a good none of the year in the UK and.
And we are in the middle of our budget through process and 2020, but right now I think we're entering the year thinking that the we're well positioned the UK.
Okay. That's helpful.
Maybe just.
Switching gears here.
But just given that tight labor markets across many of your regions have you seen employee turnover.
I kind of pick up at all and just maybe further to that what's sort of wage inflation are you seeing across the company and where are you seeing the most.
Wage pressures.
Yes, the wage increase I'm not going to disclose this is truly a competitive advantage. So it's something that the clearly we're using a from time to attract talent, so I'm not going to comment on this.
But it's not.
Just put things in perspective, it's not it's not more than there has been in previous years.
It's certainly not to the top.
Lever that we're using to attract talent.
But clearly you're right I mean, where people business. Although we are using and were Digitalizing our service as more and more it's very much a people business environment than and creating the perfect environment. We're attracting top talent is really important and you're right. There is a war on talent.
But it's not consistent.
And the same across.
The globe. So there is some more turnover in some places and more than than other places.
But I think you're right to point out that yes, we all chasing the same talent.
It's our job at Schuh Suretrack are the best talent and in the industry by offering.
Thats a very exciting.
There are opportunities. So there is some some higher turnover in some places, but in other places and our large clubs.
Turnover is actually below industry average because I believe we're doing a great job, creating a good carry environment for people.
Okay. Thank you I'll turn it over.
Thank you.
Your next question comes on line up my call tough TD Securities. Your line is open.
Thank you good morning.
Hello, Good morning, Michael.
Alex can you provide.
A little bit of an update on the integration of Louis Burger and I believe Bruno mentioned.
Something to the effective expecting some margin improvement in the Americas region as they did as the that integration occurs next year, but it didnt quite catch the comment there. So yes, it reiterate that'd be helpful.
Yes, so for the first nine months Lisberger turnover has been below 10%, which is by industry standards are very low so that means I think we've been a very good job at selling division.
Selling selling the.
At the strategic rationale to combination between Lisberger and WP spin the less.
Today, the subsidiary of risk merger, a bomb report and then there is a business is fully integrated to WSP, albeit us is well underway to be completed by year end this will be fully integrated.
I think benefits I've been fully integrated but more importantly, I mean, we've won a number of assignments already together.
As a corporation, especially in the federal space that there would that would have not been one by with merger had we not been there. So so I think theres a lot of good momentum.
Very complementary to what we do as a friend here reminder.
It would do some great environmental work in the federal space.
The.
A very strong planning advisory.
These two to their offering something that is very complementary to what we do.
And finally in bridges.
Very strong so so I think.
Ben has been great news.
And.
And I think it bodes well for the future.
There will be a bit more.
I would say.
Cost synergies and why I should say integrating and integration costs and 2021 return are.
Our eyes on on Lewisburg International.
We mentioned the title of the announcement that theres certain parts of the wafer Gentile international that we would want to restructure.
So we're working on this right now, but that things are going as planned and we're very pleased with them.
Okay. Thank you just on the sorry go ahead.
Sorry, Mike on the last point clearly of course, we are working at the improving the margin level of was merger to our level and actually this year, we've had a good year in that regards.
Okay. That's helpful.
On the subject of acquisitions, so just just more generally.
Thank you maybe touched on this a little bit, but but any commentary on the acquisition pipeline in general and beyond that are there any regions that you're.
You're more focused on now than than previously any changes in terms of the regions you're focused on for acquisitions and specifically I'm looking at the the fact that you recently announced.
The didn't make sense acquisition in in the Netherlands. So wondering if continental Europe has become more of a focus for you.
At the time of the when we unveiled our strategy in early January I mentioned, the B a.
Geographies of interests.
Yes. So so clearly we are going to continue to deploy the vast majority of our capital D., we see the countries.
We will continue to deploy capital in places, where we are subscale.
Back down I mentioned.
There are number of geographies.
And the U.S., where we are sub scale.
As an example, California as the.
The.
The economy of Canada, and Texas as the economy as well.
Of Australia, so on on its own the U.S. as a as multiple countries and we are subscale in many places in the U.S. So we'll continue to look for good opportunities to two to scale up our UN business.
But equally in Europe .
Well not so long ago in Central Europe , who are very small.
Very little presence and then when you look at the Hall, and Spain, and France, and a number of jurisdiction and countries you talked about a pool of 200 million people population and.
Our work is not always for related to GDP growth is related to needs and the countries and therefore I think it's really important for us if we aspire to become the best professional consultants in the street you to grow our presence and by region and the Netherlands are known to have.
Very very solid engineers and lots of great expertise and it was important for us and friendship for many years now to enter the Dutch market than Im very pleased about this acquisition.
Okay, and then lastly, I'm just wondering if it's possible to get a bit of an update on your thoughts around capital allocation. So clearly it sounds as though acquisitions will continue to be an important part of the the mix.
But you did talk about your leverage ratio coming down further by yearend.
So just wondering if you can provide some more general comments on overall capital allocation priorities and whether there whether other whether other parties are likely to be in the mix as well.
Well, it's fairly simple right I mean, the tree things. We can do we can increase the dividend should we can buy back stock or we can deploy that capital.
By making additional acquisitions. So so obviously I do feel at this point in time that the pipeline of potential acquisitions.
The next 12 to by the end of our strategic plan is still intact.
Have a good pipeline and therefore this is certainly my first choice and so therefore monitoring that very carefully.
But it's our job also to always review our capital structure and a in December . This is you know when I'll be discussing with our board about what we want to do next but if you look at our yield.
Dividend yield I mean, we have a very attractive yield compared to our peer group. Despite our stock appreciation you look at our payout ratio.
With or without the drip I think we are now.
Tracking very well I'm pleased about that.
So so I think I think we aren't a good place I see this to me as a real opportunity to take advantage of it if good opportunity presents itself, but we'll see left to 2020 will.
We will look like.
And then we'll inform you of course, but I'd say the fact in the matter that we are in a position to already be.
On a pre IDE for us basis, let's ask 1.5 time by year end I think that we'd be a great place to Lam and that the credit should yield tour team, which created a very strong free cash flow over the last few years, and we were able to de leverage fairly quickly.
Okay. Thank you.
Thanks.
Your next question comes from the line of.
That's what Freeman James Your line is open.
Hi, guys just building on that you do have the balance sheet strength to continue buying several more businesses down the road, but how are you feeling about your capacity to absorb and integrate them.
I think I'm feeling very good Frederic.
I think.
Look at the recently over the last few years.
A number of smaller size acquisition, but also a number of mid size acquisitions. When he was burger in opus.
In Michelle just to name a few vary in recent years and and clearly I mean neopets integration is history. The Moshe integrations history was bridger will be very soon history as well so I'm feeling good about it then.
I think we are we are good integrators, because we do a lot of work upstream.
Ahead of signing.
An agreement then so therefore I do feel good about yes.
And our you like agnostic to the the size of the firm's you're kind of looking at I mean would you rather do a 5000 employee from acquisition versus five acquisition of 9000 amply firms.
I don't think it would be fair to say I'm agnostics because.
To me every acquisition is different whether it's a 50 people from or 15000 people from.
If we should we choose to complete them go do bring something to the table there are allowing us to strengthen our platform. So.
Clearly I think we have to capacity to do those 500 people firmly of the capacity to do the 5000 people from and obviously clearly given our fired power now we have the capacity to do bigger.
Much bigger so so but it needs to make sense at the end.
I see a lot of potential transaction that makes sense financially.
On paper, but I also know that strategically and practically that perhaps would that create long term value for our shoulders and I'd, rather not do them. So we're very disciplined.
But doesnt come open minded.
And.
It's not because we're not 50000 people from that we're not looking at the smaller size from that's not our culture investment the way we work.
Okay. Thanks for that color.
My last question, how how are you feeling about the state of the U.S. markets and that and your position within those markets.
Well look you look at recent data on a high level basis I think.
You know banks don't seem to do that position jury agree whether we are facing.
And they're relatively short started basis.
Session or not so it's obviously not my job, but it's also tough for us there see.
What's coming up at the same time, you look at our backlog our backlog is growing I think our 2020 backlog is in good shape.
I feel we have the team to execute.
So so we'll continue to execute on our strategy.
Despite the environment that that they will create and so we are going very very.
Clear strategy to us.
And.
As I said, we'll continue to execute on that and I feel good about it.
Okay. Thank you Matthew.
Thanks.
Your next question comes on line of symmetry Chem Nexgate with Baird. Your line is open.
Good morning, So I have two questions.
First is.
So with the 2019 acquisitions do the other acquisitions.
Going beyond the acknowledging environment acquisition do they have similar financial profile or performance as the acquisition.
So that's a fourth part of the question then second is.
If you can talk a little bit more about how you can improve profitability at coal Gen environment going forward. Thanks, a lot yes.
The answer is no.
The profile is not the same and all the acquisition that we completed.
For a number of different reasons.
They have a very healthy.
Margin profile.
Some others maybe some.
Some operational excellence, maybe some best practice to be implemented I am convinced that that's the case with the college environment told you that environment as a very strong Brandon had very strong brown for many many years.
That would great people.
This company leads to join a group that will allow them to spread the wings.
And take advantage of our network into us and have brought and work with us or improve the margin profile limit our ceris proved out there we are good.
Joining forces with companies and working with them to improve the margin profile. So I am confident that we will be able to improve the margin.
And the U.S.
I mean any call John .
But as I said before the.
Profile is not the same and also the country.
Margin profile doesn't have the same so whether you bottle on places or the other so.
So I hope that this sensors this answered your questions.
Yeah, maybe.
Thanks, a lot and maybe if you can provide a little bit more.
Salary, Virginia rolled on how.
Would you address margin improvement.
Related to acquisitions will be a several good margins that you will take.
That margin improvement.
It's not just an acquisition Martin who run relates to our existing business as well.
We can always improve as a business you never going to hear me, saying that now weve reached a level, where we're no longer than physician who.
Constantly apps, Charles just status for the reinvent ourselves and that's what we're doing right now.
But there's not one single answer to your question.
Delevers that are needed for instance to improve the margin profiles trying to be completely different them into us.
And.
On acquisitions, some companies may have a pricing issue or client selection ensure project selection issue. Some others, maybe more of a matter of utilization and better use that the resources that they have internally.
Also as it may be just a position the marketplace.
R&D service offering that you may want to use so.
In our industry, it's not one single lever that will move the margin. It's a number of small but right worked at action that will drive performance in a company.
Yeah I appreciate it thank you.
Thank you.
Your next question comes from the line of No Man Sachin Laurentian Bank. Your line is open.
Hello, Good morning, everyone.
Good morning America, So and it's if you could comment high level on the competitiveness of the bidding activity as compared to last year and has that impacted any in any way the pricing.
My intuition like.
First gut feel answers that hasn't change materially or idle frankly.
Let's not Kid ourselves, we have we are operating and evolving in an industry with a formidable companies.
And I were competing everyday against very good companies and.
And therefore, it's a very competed Kim.
Very competitive environment, whether youre break in the UK, Ireland, Canada into us or elsewhere, you always bump into great players.
And I need to be on your eight game to end the jobs. So so I think I and my answer very simple answers that hasn't changed much whereas all frankly since last year.
Oh. Thank you thanks for that matter and just going back to Canadian operations and its margin.
What would you attribute this is there anything specific or again is.
This multiple lever that play.
It's multiple lever, but I can tell you have being very close to our Canadian operation that the team should be commended.
You know cost containment.
Hi, This is done a very good job this year at managing the business the streamlining the business at.
At reacting to market conditions very quickly.
And our space.
I may have mentioned this before to you you know we are variable cause business.
We have very little fixed costs, we have very little capex as a percentage of our net revenue. So so the beauty of our model is that if you have good leaders and a good management team. This team is able to react very quickly to changing environment and Canada.
Has done that this year. So thats why did have a good margin profile and this has been bile standard as far as unconcerned a good year for Canada, despite the difficult market environment.
Thank you and congrats on the greater.
Thank you very much.
Your next question comes the line of Mark Neville with Scotiabank. Your line is open.
Hi, good morning.
Just on the I'm, just trying to called environment acquisition I got appreciate it hasn't closed yet.
But I'm looking at sort of trailing numbers profitability looks fairly muted I mean is there any target specific targets you could share with us or.
Yes is there any or structural reason why the margins there couldn't look sort of comparable to your your Americas or U.S. business.
Well like I said before.
It's a number of different reverse.
For example, just to give you a bit more detail the has a great multiple and right great pricing.
Great pricing.
Metrics within you need but utilization.
Perhaps you know leveraging our platform will be able to improve significantly the utilization.
Perhaps also the cost structure of the company is a bit too high.
Relative to what we wouldn't come to expect an accompanying this size. So so we are we are working closely with management to to really improve performance, we will be working very closely with management.
To improve performance, but beyond that above that.
This this deal is a revenue synergy game, it's not a cost synergy gang.
I am confident that the a name within our platform and within our network, we will be able to create a lots of cross selling together and grow the business very rapidly and leverage the cost structure that data. So some very excited about this transaction.
Yeah, that's a that's helpful color.
You know earlier or previously you talked about of arent being you know a big focus I think now you said you're up to sort of 7000 employees.
And that practice.
Sort of longer term or sort of where you're at now how much larger could the scatter how much bigger would you like to make it as part of the sort of the whole.
What we said in our strategy is that we want to grow.
Significant into years to come our advisory services Yep.
We have we have an enviable position and the design space, how we're continuing to capitalize on our strength and the design space and we'll continue to strengthen our platform the design.
But in parallel.
We have great ambitions to expand our other pillars and I think in the years to comment, it's certainly going and the underlying circumstances, obviously will be our will be our goal to reveal strengthen our other pillars such data from from.
The beginning of a project when a client needs a permit.
To the full design of what you know decline with physicians and things of crop.
We are sitting next to just fine and act as a trusted advisor from the beginning to them.
And leave the construction for someone else [laughter] understood.
Oh, sorry for Bruno the the lease expense tracking roughly 65 million per quarter is that a good number to use.
Yeah, I gather we'd we doubled our ranges around to 40 ish and it's not about number.
So, okay, but I guess.
I guess 60 65 initially asked when I got it would imply fairly big step down in Q4, but I think you're sort of talking 60, 65, as I am I reading that right.
Yes, yes, yes, yes, okay.
Sort of the and maybe just one last question. This is just confirmed that 15, 16% EBITDA margin for 2021, that's that's after corporate correct.
As to corporate announced in order for US yes, yes, okay alright. Thank you.
Thank you.
Your next question comes from the line of Maxim.
With National Bank financial your line is open.
Hi, good morning.
Alright Max.
Alex just one very quick follow up on on M&A wondering if the landscape for.
Transactions has changed or evolved at all in terms of are you seeing immersed himself.
The competitors, maybe private equity looking at the asset that potentially you could be looking at because some of your peers as while trading and pretty healthy multiple so any color you can provide there. Please.
Well it's.
You know every day, we're competing.
Again.
Again set some parties that may be or may not be planar industries, and you're right in saying that the.
And last few years Theres been some competitors chose that chose to a sell to a private equity versus a strategic.
But it doesn't change our focus and it doesn't change our approach.
We want to merge or joining forces with companies I want to join WSP wanted to be part of our sorry, I want to be part of our ambitions ambitions to build something special in different.
So.
Those companies that wish to join the Friday, we probably will not shared vision and culture in the first place so it's not like.
We are targeting essentially the same targets if I was to end up just for for argument sake in a process and I was competing head to head with their private equity.
This would lead me to be leads that we might not be right fit for our target like this.
Because we don't have a short term view, we take decision for the long term benefit of the organization and more importantly, and what we want it both the is not about creating mining the next year or two enough slow the asset is really creating long term value for shareholders. So.
So I'm not sure answering your question, but.
That's how how I view, the world and them and first and foremost seven we do we do participate in video process.
We do tend to sole source or deals.
And they love the relationship over over a long period of time.
Before we can consummate the transaction. So so often time when applying the same field in the same space than probably equities. Okay for sure no. That's very helpful. That's it for me thanks very much.
Thank you Max begin next question comes on line of Yuri Lynk with Canaccord. Your line is open.
Yes.
Hey, guys, sorry, just a quick one for me.
Great quarter, but I couldn't help but notice.
Earnings ETF kind of flattish year on year looks like your interest expense.
Kind of doubled sequentially.
So moving a portion of that is noncash Bruno any color you can put on that.
Yeah, you've got a detailed in our financial statements on this so I took this is our first exceeding audience as you bake.
Year to date number the $55 million chartered out last year. So just that there is there for that number.
We do have more debt than we had last year in aggregate.
A decision obviously, the Chris or if that's okay. So it's a little bit higher than it would answer.
And then last but not least we have a bit of effects and better wells, which accounted for about $7 million.
Okay, and that's one thing that I've noticed and.
We're making an observation to to all of our analysts on the investment community.
I think like the Dot line, the finance expense line I do feel from one quarter to the other done.
On a consistent basis, there seem to be some discrepancies.
But bruno is right.
Our debt level I.
I mean, we incurred more expenses this year finance costs.
And there is for US and lastly is the the FX that took place in the quarter that has been impacting us.
That's the only reason there's no real.
Further explanation.
Right I mean, I was obviously, excluding the the IRS impact them.
But it was still makes a big step up relative to.
Kind of on change debt levels versus last quarter anyway, Oh, maybe take it offline after the call we should take it offline with Bruno yes, yes.
Okay. Thanks, guys.
Okay.
There are no further questions at this time I will turn the call back over to the presenters for closing remarks.
Well I would like to thank you Fred on this call. This morning.
We are again very pleased with the way.
You know.
Quarter turned out and we look forward to providing and update the during our Q4 underperformance of other year and our 2020.
Spec and views on what 2020 could look like so look forward to.
Continuing to discussion and we should greatly thank you very much.
This concludes today's conference call you may now disconnect.