Q1 2020 Earnings Call

David continues to unfold, we remain focused on monitoring and responding to potential impact to our clients our communities and most importantly, our employees.

Our end markets have proven to be resilience in past downturns, and we're better positioned than ever to weather the impact of this downturn, thanks to our increased geographic and business diversification.

Our balance sheet is in great shape and investors should take comfort in our solid cash flow low leverage and robust access to capital.

Our core value of putting people first has never been more important and I want to extend my heartfelt. Thanks to our employees for supporting our clients and our communities as we continue to navigate these exceptional circumstances together.

And with that we'll open the call the question.

Operator.

Thank you very much ladies and gentlemen at this time, we would like to open the floor for questions.

Wed like to ask a question. Please press star one on your telephone keypad now.

Again that is star one to ask a question, we'll pause for just a momentum we wait for questioners to Q.

Our first question will come from Jacob bout see IVC.

Good morning.

Morning Jacob.

I want to talk.

Just or it can you provide a bit more granularity about the risk in the private sector. What areas are you do you think is most vulnerable.

And then maybe.

But the collection of receivables in the private sector to date.

Sure well I'll start.

Private sector overall, and then Teresa can talk more about receivables so from the private sector as we said in Western Canada. The majority of the work that we do and everyone is but of course first oil and gas, but our work in oil and gas in in Canada is really related to.

The midstream pipeline sector and so we're seeing there between our work in.

On Trans mountain our work on coastal gas insulin, we're not seeing any concerns there.

When one area, where we're seeing a bit of trepidation I think from just from a confidence perspective is with private sector land development clients, we're seeing a bit of that in the southern United States. We're seeing some of that the some of the planning work that we had anticipated would come in in the UK latter part.

Last year I think we've mentioned before was a bit slow as has the developers were looking for certainty related to Brexit.

And now we see that.

No. There's the coated uncertainty has caused a little bit confidence issues with some of those developers as well. So those would be the two main areas that we'd be looking forward the private sector.

Just curious on the collections that sure. So first thing I'd say is that we.

Obviously monitoring it very closely and we haven't yet seen.

Really any any shift in the behaviors in our receivables. So that's positive our cash flows appears to be inline with our expectations as well. So you know we're not we're not seeing much of a change there yet in terms of our overall receivable profile.

You know it's a it's interesting if you if you look at our balance sheet. We've got about 1.3 billion that comprises our receivables.

And as we look catch our 10 largest clients with a in North America.

With that doesn't represent.

A disproportionate piece of though those receivables or web site and Dr., our largest client with the receivables and with outstanding.

Makes up about 3% just after that it just kind of goes down from there so that really speaks to the strength of the diversification of our portfolio.

And I might add as well that into the top 10 clients I just referred to those are all largely well capitalized companies or.

General or other large government agencies. So we're not we don't believe that there is really any any significant risk at all where it comes to our receivable profile.

And is there much of a different sandia, so between private and public.

Oh, no not really.

Those items I don't have a statistic off the top by hazardous we look at Dsos more broadly we don't we don't tend to see much of a difference at all.

Okay.

Last question here just on.

Well the line so.

What's your learnings from the pandemic so far.

What what changes.

Are you thinking about longer term the chicken made make on how your operating.

Obviously working from home less travel.

Along those lines.

What are you thinking right now.

The one of those I think the first learning that we had was just how incredibly resilient our employees have been as we've moved them home.

We've got them set up on R&D systems.

It's been extremely.

We've seen the productivity continue very strong so really pleased with the strength of our overall employee base.

But certainly some of the other things that we're looking at is as we begin to move these people back to the office what percentage of them, where we need to bring back and then what would be the long term impact the short and long term impact on.

On real estate.

But you look the other thing that we've been talking both quite a bit as we've seen how efficient we can be.

Working remotely working via Skype and Videoconferences until and so I do think that you'll see a reduction in travel for meetings going forward.

Because we found that we can operate extremely efficiently efficiently without having to get people on airplanes, all the time and really utilizing the technology that we've invested in over the last couple of years.

Good thank you.

Great. Thanks.

Thank you very much our next question will come from Mona Nazir, maybe she bank.

Good morning, and congrats on the quarter and taking my questions.

Thanks, Thanks Warner.

So firstly just in regards to your guidance for Q2, which is appreciated the nominal retraction that you're seeing in Canada and the U.S. I'm. Just wondering if you could share what you factored in for the energy resources or environmental segment or is it safe to assume particularly for the energy segment that it.

Turing took contractionary.

Turning to contraction from the 10.5% organic growth in Q1.

No our our environmental services in energy and resources a lot of that work that we're doing in Canada. In particular is related to the midstream pipelining work, So I don't see.

Significant retraction there.

In Canada in General, where we were thinking is that the overall Canadian economic picture.

Was never forecast to be as strong as the U.S. going into 2020.

So as we're early into Q2, where we're not seeing a lot of the the typical ramp up in field programs and project starts and so on that we would see this early into into the second quarter, but again, we're only a month in so as provinces and the others begin to open up we may.

I see some some additional strengthening of that but however, the slower Q2 ramp up coupled with the overall weaker Canadian economy is really what it made us forecasted that NR might retract nominally from Q1 in Canada.

Okay perfect. That's helpful. So just to confirm for Q2, you have not factored in you're still seeing.

Work and you haven't factored in.

A material contraction.

That's correct.

Okay perfect.

And.

And any outlook you're.

Can you speak about preserving the quality of the workforce. So that you are well positioned to quickly were bound I'm. Just wondering given your guidance for Q2, if you could speak about the balance of maintaining a certain margin profile in keeping staff I'm. Just wondering have you identified certain threshold or time period.

And where your thoughts on preserving.

You know workforce and how could that change.

Okay.

So what we did bonus the very beginning.

We developed and overall.

Playbook to help us as we were thinking about workforce management through this so we we gave people.

Options such as.

Rather than having to move to a lay off or furlough situation, we look at things like.

A reduction in hours or a work sharing or if people wanting to use on some of the banks time, because they add in jurisdictions, where real after being time. So we're looking for a lot of alternatives in order to.

To help people not charging time, if they were busy of course.

But but also to maintain that staff lower just event that we could through it so.

So I think you're right that the whole workforce management is very very important because as we come out of this and I think nobody's really sure was the the recovery will look like we want to ensure that we have all the stuff that we need to respond appropriately but through those strategies like we're ensuring reduced work weeks and so on and as you clear.

If I, we have not asked our broader employee base to take a.

Salary reduction.

We want to keep those those those flows with us we engage the best we can so we're best positioned to for the recovery.

That's very helpful and just lastly from me just wondering if you could give us some insight into the type of conversations that you're having with customers in your end markets and where you're seeing some of the most significant pivots I know that you touched on water accelerating for example.

Great well, it's interesting as we've talked to.

A number of different levels of government.

We're hearing some discussion about what projects might there be available that we could pull forward from a previous from from a subsequent year into this year.

And of course, we're on the front end of that with the environmental work in the design work that needs to be done.

Looking to what projects and we pull forward too as you increase capital spending in 2020 in early 2021. So that we can get these projects out on the street and get people working again, so certainly in the in the public sector. We're hearing a lot of talk about potential stimulus programs.

What's shovel ready project program projects might there be that they could advance and and so I think pretty positive from my perspective, but again, we haven't seen any programs announced yet from an infrastructure stimulus perspective, but.

I think I'm still encouraged by the amount of discussion that that we're having on it.

Thank you.

Thank you ma'am.

Next question will come from.

Then we plan to sergeants capital markets.

Thanks.

Very much and good morning Silesia Gord.

All right.

Yes first question.

When we look at your backlog grew.

<unk>, 0.9% organically on a sequential basis. So that's up was a nice achievements could you talk about what drove that sequential increase and whether it's sustainable in light of Youre bidding pipeline you see in front of you.

Yes, thanks been while we saw an increase in gross margin of course are in backlog in each of our Canada, the United States and global So it was probably.

It was very broad based and we certainly we saw a lot of free water projects coming in in Q1, we saw some good transportation projects. So.

We feel pretty good have voted we have seen the the.

The cadence of.

New RFP issuance did slow a little bit near the end of Q end of Q1, we saw that a little bit through April is well now we've seen a bit of strengthening in that in some jurisdictions into me, but I think it's probably still a little bit lower than.

Lower in terms of new project RFP is that we would typically see this time of year.

But we're hopeful with the as I mentioned into Motors question would be you will be discussions that we've been having with various the government clients in particular that they're looking to bring these some projects forward and if they do then as soon as people hope we can get back to the office will see the issuance of some of those RFP than hopefully, we'll see that return to more normal level.

But again time will tell.

Okay perfect.

With respect to the government stimulus. So you mentioned that there's a lot of discussion that are taking place, although we haven't seen anything yet, but more specifically about the 1.5 trillion that was recirculated by Mr. Trump lately.

Could you talk about that.

Potential unfortunately.

May be wetter.

Like materialize, and the timing and which sector would benefit the most court.

Sure we.

Typically as we look at lot of infrastructure stimulus I think that we would be we would it's hard to speculate but discussion typically goes along the lines of transportation projects.

But I think we might also see some support for health care going forward as we talk about either health care facilities or.

Those sorts of things I would suspect some areas there.

Certainly we hope to see some in the water space as well, but again, it's all just speculation at this time, because I haven't seen as detailed on any sorts of programs.

Okay and last question for me, obviously, given the travel ban restriction you mentioned in the past that little bit tougher to perform due diligence, but could you maybe provide an update on the M&A unfortunate these and whether you're whether it's still ongoing in terms of discuss.

Jim and whether we might see.

Some of to materialize in 2020, thank you.

We still think.

Was that.

If things go the way we hope you went from a recovery perspective, we certainly we'd like to to bring a few across the finish line. In 2020. We are we have a number of ongoing discussions in various levels of.

Of the process, but there's a couple of things that we need to work through we could do a lot of the due diligence through data room with a number of these firms that we're in discussions with we've already met with senior leadership, we're very comfortable from a cultural perspective.

But you know as near the end, we still want to get in front of people look at the weight to the rise a little bit and talk about projects, perhaps even talk with some clients to make sure that the long term client support will still be there I think we also want to have a good look as valuation now we typically look at valuations based on for.

Form is historically and assuming this outperformance would be similar or with some synergies we can improve it going forward, but the issue is now we really have to get a level of comfort with with the performance would look like going forward before we'd want to.

Confirm our valuation.

That's great color. Thank you very much further thoughts.

Great. Thanks Bill.

Thank you very much ladies and gentlemen.

Reminder, if you would like to ask a question. Please press star one on your Touchtone phone now our next question will come from Ben Cherniavsky Raymond James.

Morning, guys.

Pretty good.

Nice to see you get some of your.

Real Mojo back a quarter.

Yes.

Hi, I wanted to just ask a little more about obviously, though for the rest of year I respect the.

Difficulty of providing guidance and.

Makes sense to me, but you did you did make some comments on where you've seen second quarter in terms of.

Activity in your projects, but.

If I recall correctly from past downturns.

Here is it a little bit of a lagging business the stuff that's broken ground.

Continues for several months in quarters.

It's a question of how you refill that pipeline.

Going forward pro or say back half of the year next year.

Without getting granular about.

About the numbers just directionally.

Thinking about that correctly that if you're going to see a more material impact from covidien from some of that markets outside of say infrastructures some of the private markets.

Because clearly the macro variables are flashing red all over the place that that might show up a little later as your as you business lags and you're trying to replenish the backlog.

Yes, I think you're right that we saw certainly not just in our business, but the overall industry.

Didnt see a big big hit quickly like some other consumer.

Hospitality airline so ended and so I think Q1, there's still reasonably solid were and we provided some color there for Q2.

It's interesting as you look at the significant increase in backlog that we saw in Q1.

And so those projects will see starting up through Q2 and into Q3 in Q4, hopefully deal was that will come some public infrastructure spend little comment will help to continue just to fill the backlog and bolster that but I think your point on on private is very.

Very good point, because we don't really know whether what a private sector recovery might look like so as we're looking anyway I think we added a little color that we do expect to see a bit of a downturn in commercial buildings market.

Expect to see our community development or land development business slow a little bit as well just from an overall industry confidence perspective, So I think thats one of the reasons why we really thought that we wanted to to withdraw guidance just because there is it too we have a little bit more certainty is it's really difficult for us to speculate.

Right, but the I mean, I'm I'm, not even really talking about about how the recovery looks yet I think where we're I mean, I hope we found bottom, but where we're clearly in a retraction mode. Now the I guess my point is the impact of that gets felt.

Several quarters out or just generally in your industry, particularly like I said on the on the private side, there's a lag that right.

Right I think thats exactly right. So it's no more if we if we see a real lack of private work coming in it will be a couple of quarters, when we'll see more softness in our business.

Right from okay. Thanks.

Right now and Thats consistent with what we've seen the last couple of downturns that.

You guys.

Thanks, So thats I just wanted to confirm that I think a change thanks very much.

Great. Thanks, Ben.

Thank you very much again as a quick reminder to ask a question you May press star one on your telephone keypad now.

Speakers at this time, we have no further questions in the Q.

Great well just wanted to thank everyone for joining us on the call today I know, it's a busy morning with a lot of calls there. So certainly we appreciate your spending some of your time with us and.

We look forward to chatting with you threw out through the quarter. Thanks very much. Thank you.

Thank you very much ladies and gentlemen. This now concludes today's conference you may disconnect your phone lines and have a great rest the week. Thank you.

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