Q4 2019 Earnings Call
[music].
Welcome to Sam tax fourth quarter and here in 2019 earnings results Conference call.
Leading the call today are Gord Johnston, President and Chief Executive Officer, and Teresa Chang Executive Vice President and Chief Financial Officer, today's call is webcast and Sam tick in fights dose dialing in each of you have a slide presentation, which is available in the investor section at <unk> Dot com.
Information provided during this call is subject to the fourth looking statements qualification out on slide two detailed and Chantix management discussion and analysis and incorporated in full for the purpose of today's call with that I'm pleased to turn the call over to Mr. Gore Johnston.
Good morning, and thank you for joining us.
Well to get our call today with an overview of 29 team and our fourth quarter performance Teresa will provide details on our results and then I'll review our operations in more detail.
29 team, our sixtyth anniversary once a year or reinvigoration for Stantec.
We continue to enhance our competitive position as a top 10 global design for.
Our vision is to maximize long term sustainable value for our clients employees and shareholders.
Particular, which are the following actions in 2019.
We strengthened our alignment with shareholders by introducing relative total shareholder return and just continuing our stock option program.
Replaced options with restricted share units, which are full value units it better align with shareholder interests and reduce dilution.
With a renewed focus on earnings per share growth, we made tremendous efforts to reshape our organization to be leaner and more efficient achieving the $40 million to $45 million of annualized cost savings, we set as our target.
And we clarified our commitment your rigorous and disciplined capital allocation.
These steps represents a renewed focus on delivering value and form the basis of our recently launched three years strategic plan.
In 2019, we delivered adjusted diluted earnings of $2.02 per share and 11% increase over 2018.
This was driven by our success in delivering solid organic and acquisition net revenue growth exceptional project execution and operational efficiencies.
As a result, we achieved an 8.8% return on invested capital.
Over the course of 29 team, we returned $105 million to shareholders through dividends and share repurchases.
And yesterday, our board approved a 6.9% increase at our dividend to an annualized 62 cents per share.
Moving to the corridor, we drove a 7.8% year over year increase the net revenue.
Driven in large part by 5.3% organic growth.
Each of our regions and businesses generated organic growth in the quarter.
In particular, our U.S. operations continued to benefit from a strong economy, achieving net revenue organic growth of 9.6%.
Acquisitions delivered a 2.8% increase in net revenue in the quarter.
At the ended the year, our contract backlog increased 2% year over year to 4.3 billion, which is approximately 11 months of work.
I'll now hand, the call over to Teresa to review our results in a little more detail I scored.
Well as we did threw out 20, Nike we've presented our results on both before and after a basis for the adoption of our for 16 and I'm happy to say that this will be the last time, we need to do that.
You'll find a reconciliation of our statements in our Mdna the appendix slide presentation as the supplemental information posted on the Investor section of our website.
Adjusted net income for the quarter increased 14.9% to 52.3 million and adjusted earnings per share increased 17.5% to 47 cents per share.
They do to a 7.8% increase in net revenue improved gross margin as lower admin and marketing expenses driven by our cost reduction initiatives.
What outlined earlier Q4 net revenue grew organically by 5.3%.
Gross margin for the quarter increased 8.2% to 486.3 million.
The percentage of net revenue gross margin increased 20 basis points to 54% and this reflects our continued focus on improving project execution and our diverse mix of project.
Admin and marketing costs were 348.5 million.
Because any 38.7% net revenue not includes a 0.4% impact from severances associated with our reshaping initiative.
Noteworthy that on an apples to apples basis that is on a pre I have for F 16 basis.
After adjusting both periods for nonrecurring items, Q4, admin and marketing costs decreased by 1.3% as a percentage of net revenue compared to the same period last year.
And this is the result of our drive for operational efficiency and a focus reduction on discretionary spending.
Adjusted EBITDA increased 69.6% to 142.8 million, representing 16.8% of net revenue, excluding IRS 16, adjusted EBITDA increased 25.4% compared to Q4 18.
Looking at our full year results, we were within our target ranges for all our measures.
I'd also like to touch on our day sales outstanding or D.S., So which is not presented on this slide we closed out the year with or D.S.. So at 94 days or 79 days, including deferred revenue outperforming our target of 98 days and significantly improving upon the first nine months to 2019 when d. So hopper.
Around 103 days and this was the result of the full court press, we made throughout the year to improve our billing and collection efforts.
I'm pleased that our results have broken through our target what our improved D.S. So also benefited from the receipt of certain milestones based payments, which as I've spoken out in previous quarters is lumpy in nature.
Moving on to liquidity and capital resources in 2019, we saw significant improvements in our operating cash flows from continuing operations, which increased 119% to for 49.9 million.
Excluding the effect Goodbye for US 16, operating cash flows increased 62.4% to 333.2 million.
Mainly attributed to increased cash receipts from clients, partly offset by higher supplier and employee costs related to acquisition growth.
For investing activities, we use 135.2 million of cash this year or 84.8 million, excluding I for Essex team. The decrease relative to 2018 is mainly a result of lower spend on Capex, that's leasehold improvements as well as engineering equipment and on software purchases.
We used 286 million for net financing activities or to 19.7 billion. Excluding pass Krasik scene is mostly comprised of 80 million used to repay drawing on a revolving credit facility and 105 million returned to shareholders through dividends and share repurchases.
With our improved cash from operations, we continued to strengthen our balance sheet over the course at the here.
Net debt to adjusted EBITDA was 1.1 times at the end of year, which is at the lower end of our internal range of one to two times our liquidity remains strong at the ended the year, we had 286 million in undrawn capacity on our credit facility.
We provided our 2020 guidance in December when we launched our three year strategic plan and we have not made any changes to this guidance I'd like to remind callers today to remember to incorporate the seasonality guidance. We provided wherein we expect 40% of our earnings in the first and last quarters of a year and 60% for earnings in Q.
There's two and three without I'll turn the call back over to goertz the highlights from operations.
Thank you Theresa.
Our Canadian operations achieved net revenue organic growth of 1.6% in Q4 organic growth continued in our environmental services business and transportation sector, partly offset by revenue retraction in our power sector in water business, new mining projects as long as the commencement of the transmission expansion project.
Spur growth in our energy and resources business.
For the full year candidates muted economic growth resulted in a 0.1% organic increase in net revenue was.
Positions drove an additional 1.9% to increase the net revenue this year.
This quarter, our U.S. operations achieved net revenue organic growth of 9.6% with growth across all of our businesses.
Our transportation sector continued to perform well with progress made on our transit and rail projects.
Urban environmental services was driven by the renewables hydropower and Downmarket.
Our U.S. water business grew as a result of our efforts to expand into California, Texas and the northwest U.S. markets.
With that energy and resources was driven by a ramp up of new renewable projects in power and upstream projects and oil and gas.
For the year or U.S. operations continued to generate solid growth.
Net revenue increased 9.8% in 29 team, reflecting 7% organic revenue growth and positive results from the strengthening of the U.S. dollar compared to the Canadian dollar.
Our goal our global operations achieved net revenue growth of 14.5% into quarter, driven by acquisition growth of 16.9% at our buildings business.
[laughter] slight retraction in inorganic growth.
Declining commodity prices [noise] impacted our mining projects, we had a large project wind downs in a waterfall run dams and a slowdown in are you pay transportation sector.
Our environmental services business continued to drive growth.
Our UK water business saw steady work volume as we advance major projects associated with the latest asset management program regulatory cycle.
The ramp up of transmission project in Nepal also resulted in growth in our power sector.
Full year net revenue in our global operations increased 32.7% to 654.2 million in 2019 compared to 28 team.
On an organic basis net revenue grew four grew 4.7% in our global operations in 2019.
As I mentioned earlier, we launched a three year strategic plan in December to grow and diversify sustainably for the benefit of all of our stakeholders.
Our strategy is illustrated in the figure on the left hand side of the slide our clients.
At the center of everything that we do.
The four value creators, which surround or client centric model serve to enhance our ability to deliver great solutions to our clients provide fulfilling careers for employees and drive long term shareholder value.
The measure of success and to drive alignment, we've introduced two new financial metrics for the end of 2022.
These are account a compound annual growth rate for adjusted earnings per share at more than 11% and to return on invested capital.
For the 10%.
With a focus on solid execution and disciplined capital allocation I'm confident that were will achieve these targets.
Before turning the call over for questions I'd like to address that cobot 19, Corona virus its impact on our operations and our response.
Shortly after news emerged a boat to see pathogen, we activated our pandemic committee, which immediately implemented a staged pandemic response plan.
As part of our plan, all Stantec traveled to and through mainland China, Hong Kong, Macau, and South Korea has been prohibited until further notice.
In China, we have a total of 50 stuff between or environmental services office in Shanghai, and our design and dropping group in Shenzhen.
The offices were closed for a period of time at the direction of the local authorities and we're closely watching conditions in the region.
In Italy, we have 150 stuff in Milan with all with seven people currently working from home.
Stuff or avoiding public transit and public venues.
Sure knowledge no employees have been infected or exhibiting symptoms at this time.
Weve activate itself weren't seeing protocols for employees have recently visited an area of active transitions for I've been in contact with someone from one of those areas and will remain vigilant and doing everything we can to protect the well being of our employees.
This has not had a material negative impact on our financial results.
And with that we'll open up the called the question.
Operator, thank him if he would like to ask your question. Please signal by pressing star one on your telephone keypad, if you're using a speaker phone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment again press star one to ask a question.
Our first question comes from Jacob bout with C.I.B.C.
Good morning.
For it.
Well when I'm looking at your Ah your backlog.
1.9% year on year down.
<unk>.
How should we be thinking about that translate into two groups and 2020.
Sure.
Yeah, we know we still feel Jacobs in the quarter. We were selected for a number of of significant projects that we haven't fully contracted yet so that those have not showed up in the backlog.
So you know I'm less concerned about the Q3 to Q4 backlog and looking at the general trend over the year, which you know which is up 2%, but I think going into Q1, we'll see some additional adds to the backlog there that will position us well for 2020.
And then the ER, the admin and marketing.
Gotcha that you've given.
I think you 37 is a 37, 39% you're at the top end range for 2019, one of the some of the moving parts there too to get you.
Into that range or more into that range.
Oh, so a couple of things that have that we are focused on Oh of course, we had a lot of activity around our reshaping initiative.
We have taken 40 to 45 billion of labor costs out of the system and so dr. will help to drive down our admin and marketing costs.
You know a couple of things that we've spoken about over the next couple of years that we're going to focus on at beginning of course and this year I is around efficiency in our occupancy costs and and ER and again trying to maintain this lower level of discretionary spend that's out that we achieved I in the second half of 2019 as well so somewhat.
Those are some of the things that you know that are going to help us to add to a cheap.
Target range, you know, there's always movement in our an m. and so it depends you know on wherever we are in the cycle as well yeah, we'll expect it to be a toward or slightly even above the higher end up our range in Q1 that typically because this is slower season for us it's only do I training.
And you know takes that takes a little bit longer to get out to the field to work in the first quarter, a in Canada and the in the U.S. So you know we will see some fluctuation over the course of the year about you know we do believe that by the ended the year well you know will achieve that that range.
My last question here, it's just on the M&A pipeline.
You know how aggressive.
Yeah, when something like one.
And then you know how aggressive do you expect to be in the next say six months or the next three years.
Yeah, we we certainly see great opportunities in the M&A pipeline Jacob primarily looking.
Again into the UK, the Nordics Western Europe, and a down into Australia, New Zealand in fact, I'm, leaving right. Following our meetings here today to go down to New Zealander, Australia for some time is that approaching a one year anniversary for wouldn't agree the engineers as well so to meet with stuff there, but also to chat with with other potential.
<unk> firms that might want to join us down there. So it's a busy time for US I think we'll see 2020 will be a we'll be putting a few more acquisitions up on the board than we did in 2019.
Thank you.
Our next question comes from a mone MSR with more than 10 bank.
Good morning, and thank you for taking my questions.
According to them so.
Good morning, So firstly just on the organic growth you had significant double digit growth in both the environmental.
And the U.S. Division I'm, just wondering if you could be a little bit about the specific items that were driving such and I know that were early into 2020, but how is it trending thus far.
No the a and you're right our environmental services business has been strong putting up double digit growth really Q2, Q3, and a Q4 this year and that's pretty broad based both U.S. and in Canada, and we're seeing good continued backlog for that.
Groups. So we you know I think that it'll continue strong into 2020 or environmental group will it be double digits. Each quarter. You know that's that's a hard to predict but certainly we see good good opportunities there.
The U.S. operations as you say were very strong for us up throughout a 2019 and our backlog there continue to grow from coming out of 2018 to 2019 the backlog in the U.S. So we're optimistic about continued organic growth in United States in 20 Twond.
Okay, and just to confirm it was really just broad based growth across both the U.S. and the environmental services.
Ah, yes, it and in particular environmental services pretty broad based across all of our sectors in both the U.S. and Canada.
Okay perfect.
And secondly, just turning to utilization, which I I believe you spoke about with Q2 results in that kind of come in some of the Rightsizing initiatives I'm. Just wondering how is utilization trending currently in the different verticals or geography.
So I I think what we're seeing and utilization Mona is that they're you know we're seeing improvement as as you know just because of.
The reshaping initiatives that that we did last year.
But the other dynamics, we're seeing now it's because of course been referencing as a growth in our backlog we won a number of significant projects.
And so with that Tom I'm, a hiring staff and you know until those projects really kind of hit their stride, we tend to see a little bit higher indirect labor costs and slightly lower utilization again as people are being onboarded, hi, and waiting for those projects two to two really hit their stride. So.
It's a bit of a it's a bit about mix that way, but again, we do expect over the course of the year that that will you know that will even it play out.
Okay Perfect. Just lastly from me and they know that you just spoke about the M&A pipeline, but has a current environment opened up additional targets for you at all and they know that there have been periods in the U.S. I've had some [noise].
Company specific challenges and they have construction exposure currently is that something that you would potentially shy away from post mwh or not remains open.
Yeah, We've you know weve up.
Through the dark construction experience with Mwh, I think really our and Quinn conclusion is that construction isn't a we don't see that being a a core part of our business going forward. So as we look at acquisition.
Targets that have a construction component to it or you know a turnkey component to it.
Those are considerably less attractive for us and in fact, we would typically withdraw from that process.
Okay perfect. Thank you.
That's one of them.
Our next question comes from a Bennett Poirier with Desjardins capital markets.
Yeah, good morning, or more than <unk>. Good morning to result first question on the do you assume could you talk a little bit about a one bedroom.
Strong improvement in Dsos in the quarter and whether you'd be a the targets of 90 days is still the same or you could even do better going forward.
Sure. So you know we were very pleased that our dsos came in as a as well as it did at the ended the year and it's really a reflection of the effort that has been throughout the course of the are you know you heard me talk every quarter I suppose a the stepped up efforts the increased focus the discussions you know all.
So the organization a boat tightening our D.S., so and as we thought you know improvement in various places over the course with the years finally felt like at the end of the year at all kind of came together and so you know we did see a broad improvement both in the our with this is the invoicing a number of.
Days as well as in the receivables piece. So you know so that was what's really important but what I think I do want to knows as well that you know I've talked about milestone based payment there're a number of larger payments.
That's a we don't necessarily always have control over the timing if those receipts, but we did benefit from collecting on some of those out the ended the year as well. So so that was helpful. So if it's going to be somewhat lumpy, but I would say you know certainly we're not going to let up on our focus now that we have driven at yes.
So down to outsource the level that we achieved at the ended the year.
We've chosen not to change the guidance at this point, but I would tell you that internally everyone is you know he's going to do their best to keep it where it is now.
Okay. Okay. That's perfect. That's that's great color and from it and then these standpoint could you maybe provide some color printers on big key factor does.
We're preventing you two strikes and many deals since 2019, whether it's more valuation cultural fit to work.
Arnie are there any changes in the M&A criteria dureza.
So I'll start a then was he.
We.
You know, we're continually talking to M&A targets throughout North America, and and outside North America and really.
Just in 29 team the ones that we were talking to either couldn't come to conclusion on on valuation because we're still getting very diligent from a valuation perspective or there were some sort of a a cultural.
Issue that popped up club on employee retention issue or or or so on so there really was was no. One reason why we why these things didnt close for us and 2019 other than.
All the firms that we were talking to we just didn't get them across the line. So you know we're going to continue to be aggressive here in the the first half from 2020 and through 2020, so like I do think will.
I'm hopeful that assuming the these are projects are these.
Discussions come to fruition that will will close if you are this year.
Okay, perfect and when I look at the international more mobile segment or do you. That's the only segment. That's the posted a negative organic growth and when I look at the gross margin. It was also saw for versus a year ago Wouldnt be fair to say do resolved.
The negative organic growth was the main factors do drive.
More gross margin and any color on what drove negative performance on international.
Sure I can start on the negative on the revenue side and that Teresa could chime in as appropriate. So couple of things happened in Q4 for US there certainly in the UK. The up you know they were doing some work on Hs too or the high speed rail to and then we were expecting even additional work.
Then in Q4, but you know as you know the B. They did a review of Hs to a in Q4, so be additional work didn't come together, we saw a little bit of slowness, there, but certainly they came out in mid February there a couple of weeks ago, and and recommended proceeding. So we anticipate that the dot work will wrap up a little bit more for us.
We enjoy a with the the civil unrest there we had our offices close for three full days and then we're working shorten days for another three weeks. So you know that was a bit of a drag on the operations in Latin America. So just a few things in different locations I think that contributed to the the revenue arbitrage.
But we see those things sort of coming around and you know, we're feeling more positive about them coming down to 2020. Okay. Okay. Sorry, then I'll just I'll just kind of pick up from there we did see up quarter over quarter in global.
Although a small his 0.6% organic growth in our global business, but we did have some offsets from the FX that that I thought that the revenue piece down a little okay, and so be it the other piece to that you're asking about for like gross margin perspective. There are few things that are occurring out, particularly in India.
Okay that are not yeah, maybe not in normal course, and one of those is that we we have talked about the implementation of our Oracle system. There that is taking up you know a lot of time, it's it's a pretty big effort I and so that is having some impact on just see the utilization of our employees out.
We are very focused right now on on getting that system.
Up and running the other piece of it too is we are of course kind of into at the end of the Ampsix cycle.
Building now off for Abpseven, and so you know as we as we continue to to bid for those contracts yeah. We're in a bit about that Ah Ah trough season right. Now. So those are some of the things that would be contributing to the slight reduction we saw on gross margin. There. Okay. Perfect. Then when we look at the cost reduction and.
Initiatives are well under way obviously for the a 40 45 million. That's you a you disclosed earlier could you talk about the further efficiencies that you could.
Bring its fintech well over 2020, and maybe give a little update on be a yard.
Implementation on the status. Thank you very much.
Sure. So we are largely done or that the reshaping initiatives. It was a big effort yeah in the second half was up 2019, and so we you know we doing it where we're going to maintain our focus on on seeing lean as an organization, but that 40 to 45 million as we disclosed we we have a cheap that.
Oh, so going forward, we will expect to see that a reduction in our our overall cost structure and so as we move into into 2020.
Again, some of the things that that we're looking at in terms of bar. Our efficiency is again to maintain you know a lower spend on our discretionary cost. We did a lot of that work again in 2019. So is maintaining a focus on that throughout that Dick this coming year I am just well I'm looking at.
As I mentioned earlier, whether it's our occupancy costs, which are off you know our second largest cost and looking for ways that we can add can be more efficient and how we use space is another thing that we're looking out to do you know any number of things out to that but we are looking out for low cost structure.
Respective that will help us to achieve that 37% to 59% range and her admin and marketing costs.
Okay perfect. So thanks again for the time and congratulation for another strong quarter.
It seems like you.
Once again, if he would like to ask a question you may signal by pressing star one on your telephone keypad. Our next question comes from Michael trip home with TD Securities.
Thank you good morning.
Putting Michael.
Just wanted to circle back on the organizational reshaping trees. I know you just mentioned that it's it's it's largely done now I just wanted to clarify though.
Was that completion of that reshaping there those efforts was that a complete in the in the first part of this year such that sort of on a quarterly run rate basis, we should see that have a step up in Q1.
The benefits relative to what you saw in Q4 was it or with a full sort of run rate benefits realized in the fourth quarter [noise].
No I think you'll start to see that tough full run rate benefits that starting this quarter.
The you know that changes that we made in our cost structure really were completed towards the end of 2019.
So so we shouldn't see that through over the course of up 2025 spread pretty pretty evenly I guess, the one thing that I you know I should mention as it comes to our our overall labor cost is you know as I as I mentioned earlier that actually we you know as we are seeing in our cost structure. This reduction in.
Cost of four out there were shaping initiatives you know the business isn't static so as we you know as we continue to wouldn't work and and and higher in those regions, where where we are growing you know, it's it's not perfectly linear where you'll see you know a direct dropping cost is we're bringing people on and.
And then ready to add to go out into the into the field and to be deployed on that utilization ramps up over some period of time and so you know with it. So we're going to see some of that I think in the first quarter.
I think the other thing just as we think about what our cost structure. It's gonna look like for the year and we are confident will be within our our 37% to 39% range. We do have a couple of things going on as I mentioned that our you know a little bit unusual. This year. This focus on getting our systems implemented in the UK.
Are you know that's going to have an impact on our overall indirect labor cost not you know not not hugely material, but it has an impact.
And as I touched on earlier just at the efforts now as we're getting for work on the out seven cycle in the UK means pretty heavy marketing activity and so those are costs that are a little bit higher.
Then we would normally see oh for for our admin and marketing cost. So there's a couple of things like that that just doesn't make it a slightly slightly different than what you would typically see but overall again for the year. You know, we we're confident we'll be in that 37% to 59% range.
Right and when you talk about the the opportunity to possibly consolidate office locations and achieve better efficiencies and reducing these costs.
I know sometimes that those types things can take some time so is that something you're now working on but the benefits of that is likely more to come.
Either later this year or even into next year as opposed to something that would really benefit you in 2020.
Yeah, that's right to it you know it does take some time to work through that 10 over the next three years out the focus of ours. So we may see some benefit towards the latter part of this year.
And the other thing of course that comes with a consolidating office space. You know is the at the accounting requirements you potentially to take a what used to be called the lease exit liability I think it pick up these asset impairments or something like that so noncash charge when you make changes to your occupancy and consolidate offices and so.
You know again, we're just sort of mindful of of what all about what the impact is but really from a cash cost effective that focus. This is how do we know how do we become more efficient and how we use facing reduce the amount of cash outflow that relates to our occupancy costs.
Great and then just on that on a gross margins. If we look at the full year gross margins for 2019 and 2018.
That's right around 55% level set sort of the middle of your target range, but if you if you actually on page five of your.
Your disclosure document, there's a 2017 year show as well and that kind of gross margins in that you would have been hard 55.5% just wondering if there's an opportunity.
What would potentially drive you sort of toward the upper end of that range or is there an opportunity to to see that happen.
Or should we be really be thinking about the middle that range based on the way the business is right now.
So what you're looking at the middle of the Rangers, probably most appropriate up Michael but certainly we're trying to find anything that we can do to to drive that margin or to increase that margin and so that you know looking for more innovative ways of a really selling value more so than selling powers.
Looking for ways to do that looking for ways through our new Chief Innovation officer in the work that he's doing to be able to deliver projects more efficiently. So we're continuing to look for incremental ways to to increase the gross margin, but I think in the and those things will take some time, so I think probably modeling in the middle of the range.
How about 54 is appropriate.
[laughter] and then just if I look at Canada.
Do you want a full year basis, the organic growth in Canada was was a fairly flat.
Thank you in the fourth quarter.
A little bit, but just wondering if you can talk a little bit more about the outlook for Canada from an organic growth perspective in 2020.
Sure No Uh Huh in Canada, we were up as you looked at the year, we were a bit flat in Q1 to our organic growth dropped in Q2 and at that point. We had said there was are we hope that there was a plan that we kind of get back up above the line by year end and we just did just barely or something I had a book I'm there it's zero point.
1% and so you know as we look at Canada going forward or you know we have some some good project work their long term a project work, but you know we do see be opportunities in Canada to be a bit more muted then we're seeing and in a lot of areas in the United States certainly a lot of great public transit offered.
Charities and were very involved in those are whether those are sort of spread across the company. You know we did announce some some projects last year, the federal labs project in buildings and and so on so I think there's some good long term sustainable project for US there and where you know, we're we're hoping for a little bit better then.
That is flat for Canada for 2020, but it'll certainly nowhere approach the growth that we'll see in the United States.
Okay. Thanks from a for the time thank you.
[laughter].
Our next question comes from Chris Murray with Altacorp capital.
[laughter] spokes. Good morning, just thinking about your your longer term goal on return on invested capital [laughter]. You can you kind of walk us through how you're thinking about how you get to your 10% target. Your your your 8.8 for the year, so fairly decent but I mean, how much of this is gonna be.
Driven by kind of the natural growth rate. If you assume you hit your kind of 10% net revenue growth number and how much do you think comes from having to manage the balance sheet lot lot of moving pieces I'm just trying to think about how you guys are gonna be sooner.
Sure. So it really is a combination of of the things that you just mentioned as we as we look at you know what our growth aspirations are a if we're able to achieve that if we're able to deploy capital a in ways that that that will create the best returns.
For us its those single combined that we believe will drive us to to achieve the ROI target.
You know as we continue to look for ways to be more efficient a and you know we've said that we want to see a 50 basis point improvement in our adjusted EBITDA margin over the course in those two years. So again those those things collectively we believe will will get us to that target.
Okay Fair enough and then I don't think wants to take this one just thinking about you know the acquisition pacing.
You know when and I think about where you're out right now give them certainly you know balance sheets in great shape your you're at the bottom of your.
Of your range feels like you know the dsos should be.
Positive through this year, but you know gordy thinking about you know call it low single digit kind of organic.
You know just even to get to hit those sort of numbers I kind of implies you're gonna have to pick up the pace on acquisitions. This year. You know how are you feeling about the pipeline that this pretty good morning, I think you alluded to the fact that you've got some discussions maybe coming in New Zealand due the next for a while but but do you think you're comfortable and being able to hit that number I mean, we're kind of already kind of moving moving into a deeper.
Into Q1 at this point.
Yeah, you know as we look at you know the overall M&A, you'll really see it as being a bit about it's a long term game for US you know, where we're always talk to your firms looking for the right ones to join us being very disciplined on those that will bring in bringing the door. So we're hopeful with a number of.
Affirms that were chatting with right now seems to be great cultural fit great alignment with our vision for the future and theirs and evaluation seem to be a reasonable and so you know without in mines like we said I certainly hope to to be able to close a few more here in 2020 than we did and 2019 of course that was a pretty slow year.
For us what you're right the balance sheet is in good shape, and but certainly without being in good shape, we want to continue to maintain our discipline and and we will not be Australia side, the zones, where we're comfortable just to do one.
Is there anything that you're finding that's holding up I'm actually closing some of these transactions is there something around seller expectations or is this some concern on their part that that you're seeing.
No no frills. So a lot of them are been either more of just to vote as we got close to the finish line related to valuation.
Or early on in the discussions related to you know the commitment of the ownership team are too just to up to stay with us into transition their their clients and their staff over to US you know if if someone just wants to take the money in run that's really that doesn't help us build our business for the long term.
Sure so you'll that cultural fit is important.
Devaluation is important and so.
I I, we just didn't get dry folks in 2019, but you know were more hopeful for 2020.
Alright fair enough aren't I'll leave it there. Thank you.
Thank you.
Just as a reminder, if he would like to ask a question you may signal by pressing star one on your telephone keypad.
Next question comes from Mark Nebel with Scotiabank.
Hey, good morning, maybe just a few follow up questions I'm, maybe just first idea so.
Theresa It's always your was sort of just three six months ago, where you were sort of softening maybe your language around your ability to give it down and then.
We see Q4, there was a big improvement I think I appreciate there's there's milestone payments, but [noise].
Oh I'm, just curious sort of was there any sort of internally you need.
Major changes made or structural changes within the business or how you're sort of working you know the accounts, but to explain some of this improvement.
Well you know it it is interesting because it did.
You know, obviously kind of popped up the ended the year.
But really the you know the structural changes we've we've made throughout the course of the or not.
Starting they kind of this this time last year I, just driving people to be more proactive to identify you know what are the what's getting underway what what are the right. The challenges whether it's related to our systems and our ability to invoice a and all of those things. So it really has been an effort over the course of the year.
And you're right I mean, it was it was kinda disappointing as we close each quarter in 20, Nineteena, we weren't seeing meaningful is sustained improvements upside to as I said it it really felt like as we got to be ended the year that things you know did sort of worked together for our in our favor a and so I.
I think again as we move into 2025, why we're not taking our foot off the gas you know we need to continue to to focus a and to be a aggressive in a in our invoicing and collections.
And we still have you know in certain pockets of some challenges with our invoicing capabilities just because of the complexity of some of the projects that we work on in the way that we do our billings and so we're still you know there are some areas that we will have to still up to a it make improvements.
So you know I think the to the goal is now to keep it where it is recognizing that there was some you know some uplift from these milestone payments.
That's true.
That's helpful. Maybe on the other workforce reshaping and there's been a few questions on that but as maybe was asking another way I'm just.
Trying to understand sort of whats.
Sort of worked through the opinion, all thus far in sort of.
What sort of is left to sort of roll into 2020 based on what's been done I don't know, whether it's a dollar amount for basis points, but sort of just help us sort of frame out. This is the thought was clear [laughter].
Yeah. So that you know to the goal was to achieve annualized 40 to 45 million in a in labor cost reduction.
And that is what we expect to see through 2020, ER and you know it shouldn't be you know evenly spread through the year because those costs are now taken out of the system and that's about you know that so that's that's the expectation you know that the comments I made earlier worse.
Some of the other dynamics that you know may or May reflect in you know increases or add some flows in our it hasn't been costs, but as it pertains to that reshaping initiatives.
We you know that stands out as a a permanent reduction in our cost structure that we've made and should be seen.
Evenly over the course of this year.
Yeah right now I guess my question was how much incremental savings and 2020 versus 29 genes from that initiative I guess I'm just trying to understand how much you've already seen versus which what's left to sort of work its way through the piano.
Oh, Okay, well I guess, we know when we when we put out our are our guidance in the middle of the year. You know we expected South we would have saved you know maybe 15 to 20 million a for 29 team. So I guess you could think of it being you know like weight that talks about how much we took out was probably.
A you know less than half of that 40 to 45 million. We've seen in 2019 that help right. Yeah. That's exactly it. Thank you maybe just one last one boots on the buyback noticed that you did buys matures and Jan I think fab as well I'm, just sort of curious sort of thoughts around that you know whether.
It's opportunistic if you actually have sort of some sort of program in place you're buying back X amount of shares per day [laughter], just general thoughts on that.
Sure. So you know, we I've not that kind of a a target or a calphalon, whether its dollars or numbers of shares to be purchased a over the course of the year. It is opportunistically based into one of the things that we introduced last year.
Uh huh coming out of the year was a and E.S.P.P. program. So Ah that's supposed to have a bad we kinda set some parameters as we go into blackout.
And is locked in over that blackout periods. So yeah, that's a bit of in new dynamic and so we've been in blackout really since it started the year as we've completed our year end reporting and so you you don't have an ability to alter your parameters I. Once you go into block out and so that's the piece that is a little bit different but.
So the opportunity to be opportunistic, let's say a in those lockup period. This restricted by those parameters that you sat but other than the I know I mean, that's going to continue to you know as we as we look at the capital available to US if you look out a the different ways that we can be deploying it you know it's that the share buyback.
We'll factor or certainly into how we think about deploying our capital.
Right. Okay. Thank you good job in pretty quickly.
Hi, Thanks.
There are no further questions in the queue at this time I would now I'll turn the conference back over to Mr. Gordon Johnson.
Great. Thank your for joining the call today, we look forward to speaking with you during our Q1 earnings call certainly if not before that so thanks very much everyone is.
Thank you again for joining the call today you may now disconnect.
[noise].
[noise] Oh [noise].
[noise].