Q3 2020 Stantec Inc Earnings Call
[music].
Welcome to Stantecs first quarter twice your Tracy results conference call.
Yeah, and a five 4% increase and adjusted net income.
In spite of net revenue and gross margin retraction.
Backlog grew organically in Q3 to a record high of four 8 billion and our balance sheet continue to strengthen.
Subsequent to the quarter, we closed on our $300 million bond offerings very attractive chairs.
Treasonable discuss this in more detail in her section of the presentation.
At the end of the presentation today or review how're for value creators of people excellence innovation and growth continues underpin our competitive advantage and further enhance shareholder value.
<unk> net revenue is consistent with the outlook, we provided our future call.
Compared to the same period last year net revenue for the quarter decreased three 8% or $36 million to $916 million.
Revenue retracted organically four 7% in the quarter year.
Year to date net revenue holding up very well despite the COVID-19, pandemics with organic retraction of only 1.0%.
Yeah.
Water.
<unk> stared as strong year over year organic growth in the quarter with healthy activity continue.
In our building business continues to be impacted by the pandemic. However, we're seeing continued growth and work for ecommerce clients.
We've also seen a significant increase in the pursuit of activity in the health care sector, and we were recently and the designer of the preferred pro preferred performing team for the $1.4 billion Footscray Hospital in Melbourne, Australia.
Our public sector disordered and buildings remain greater than 50%, which is higher than many of our peers.
And we're seeing a trend towards greater exposure to publicly funded projects in our building business, which should bolster future resiliency.
While Q3 2020 net revenue in the us retracted slightly more than anticipated compared to queue to we're seeing continued growth and water and strong performance and environmental services.
The pandemic have had an unfavorable impact on building and as contribute to the slower half of some major transportation projects.
With three net revenue grew nominally as favorable foreign exchange rates offset a slight organic retraction.
Continued strong performance in our UK and Australian water business. Our work is new Zealand's transportation sector, and progressive recovery and core markets in our UK infrastructure business all contributed to a strong showing our global operations in Q3.
The impact of COVID-19 was most pronounced in our UK, Australia buildings and European Environmental services business.
Our mining business was also affected by a pandemic related short term mine closures in Peru.
And not surprisingly, we're seeing more opportunity to the public sector and we are in the private sector.
I'll turn the call over to treat it out for a review of our financial performance and our outlook.
Can you go ahead and good morning at new lighting.
Again.
From continuing operations increased 5% to $70 million in the third quarter or 76% as a percentage of that revenue.
Adjusted earnings per share increased 5% and 62 per share.
This is largely due to a 9% decrease in administrative and marketing expensive as a 33% reduction in net interest expense.
Gross margin for the quarter decreased 7% to 479 million.
As a percentage of net revenue gross margin with just the two three percentage.
The pandemic continues to disrupt our and our clients operation to a degree, causing sound inefficiencies in project execution.
As demonstrated by our solid adjusted EBITDA margin of $17, 3%, we're managing the business carefully and we've taken steps to mitigate COVID-19 impact on organic growth and gross margin.
Our balance sheet remains strong as September 30th net debt to adjusted EBITDA was below are targeted range at zero eight times Dave.
Days sales outstanding was 82 days at quarter and compared with our target of 90 days.
PSA elements remained unchanged since Q2 and was not seeing any noticeable impact due to the pandemic.
Moving on to liquidity and capital allocation, we generated $124 million in free cash flow for the quarter, a 31% increase compared with Q3 2019.
Sequentially are free cash flow and improved every quarter for the past four quarters on a trailing 12 month basis.
On October 8th we closed our inaugural blonde offering issuing 300 million and senior notes with a seven year term interest at 2.048%.
The notice of our greatest triple beam with a stable changed by Vrs and we use the proceeds to pay down a revolving credit facility, which means at our 800 billion facility is currently largely undrawn, giving a significant dry powder to whether the pandemics and if I'd grown through acquisition.
As a result of the uncertainty created by the pandemic, we withdrew our of 2020 guidance in name we remain committed to our strategic plan lodged in December 2019, However, destruction caused by the COVID-19 pandemic will likely to obey the achievements of our targets within the original timeframe.
Time, we're unable to step to revise timeline with a high degree of confidence.
Today, we're reiterating our outlook for 2020 at setup in August. We're also providing are targets for 2021.
New targets assumes a continuous gradual global recovery, but may not be valid Cherokee geography's experienced severe worsening of the pandemic.
<unk> 0.76, so a weaker U.S. dollar extend the average we saw in 2020.
Organic growth in Canada is expected to be in the mid single digits driven by work in the midstream pipeline space, where activity is anticipated to be at peak levels in 2021.
Excluding this activity organic growth in Canada is expected to be in the low single digits.
Global organic growth is also expected to be in the mid single digits benefiting from strong performance in the regulated water market and the stimulus funds beginning to slow.
And while we have reengaged, our M&A activity, we have not incorporated any acquisitions into our 2021 outlook as it is difficult to predict the cadence of when a particular transaction may close.
I'm sure not invested capital is targeted to be equal to or greater than 9.0%.
I expect to January 40% of our earnings in Q1, and two four and 60% in Q2 and Q3.
We're continuing to advance our strategic initiative to optimize occupancy costs beyond those locations identified to date, which could result in the recording of police outfit impairment non-cash charges that reflects the change in our plan to utilize space that is currently under these with the long term benefit of reduced occupancy costs and.
Increased earnings and cash flows.
As our analysis is ongoing or 2021 targets do not yet included.
Central benefit from further optimization.
Let's see and pandemic.
Given everything Atlantic is done in the last year, including or 2019 reshaping initiative alignment of organizational structure continued focus on discretionary cost management and the staffing strategy, we put in place.
We're very well positioned as we head into 2021 and.
And with that look.
The call up the questions operator.
Thank you.
I would like to pose the question.
One on your telephone keypad. Please ensure the mute function on your telephoning pushed up to allow the signal to reach our equipment. Once again, that's star one for any telephone questions.
First question today comes from Chris Murray of a T V capital markets. Please go ahead.
I supposed good morning, maybe.
Maybe turning to your 2021 guidance. He just maybe we can take into this a little bit more can you talk a little bit.
How the niche you believe it's gonna be the part of the impact and gross margin just I guess, the the EBITDA margins coming in and maybe a little bit lower than we thought and is there any color there would be appreciated.
Sure.
We caught all of that you you were telling me a little bit sound great. I think we call. Your question around 2021 gross margin project and project. So.
Yeah, I mean I think.
Is that is that right.
Okay, alright, great. So I mean I think.
What we saw in 2020 and it is important.
2021 is you know.
Compression in our gross margins relative too.
The range of that that way it has historically.
And that.
That has been driven by a combination of both.
Reduction in productivity, which is really hard to measure.
Is Julian too, but we do believe that there is there is some of that is occurring both from an orange light and.
I suppose you would timeliness around.
Alright, we're able to we're able to conduct their work and have a responsiveness from our clients.
There is also a component of overall all project mix and that has driven our gross margin gallon.
That's what we're expecting to see some continuation of next year <unk> project is somewhat oh sized for us relative to our other projects still overall, Boston less than 5% of our total net rather needed.
So as we've always said they don't really have.
Any number of projects that are big enough to to really put things in one direction and right now there, but there's one particular project and contract is larger than most and it is relatively low gross margin and so that as we move into next year becomes more common to Neil Brown.
Mix.
And it brings our gross margin down.
And around that particular project.
Besides this account as well.
You know because of the nature of that work with.
With the employees working out in the field.
There is virtually no.
Cost associated with that project and so on balance the EBITDA margin neither to generate is comparable probably.
A little bit lower over all of the rest of our project work, but the gross margin reduction is not indicative of what blows through to the ultimate need that reminds so with with that picking up steam next year as well as just where we are in the stage of our and then there's a number of large transportation projects that are winding down Indians out those gross margin.
Range no doubt dynamically seeing that is going to cute alright gross margin around where it is currently we're gonna work really hard to bring it up I think there is some opportunity to improve all those margin.
But we we're now seeing as you can see from the range, we put out there.
Genius right back to that 50, 355%, which is historically has been the gross margin manually targeted.
Alright, Thanks, and then I don't know if it would like to take this one but you know I guess it was a couple of pieces around the question around.
No occupancy and I guess first of all I'm going to be curious about your thoughts around you know how you see organization changes has gone through Covid and how you think about you know folks you in an office setting and what that that's your footprint, but then what does that do to the rest of your buildings business and.
And how are you guys thinking about that business longer term. So you know on the cost side of the savings for you, perhaps but then it's also you know how how officers get you in the future, maybe a little bit different as well.
Yeah. So we'll start off with the overall occupancy size and we we see and I think our industry overall has been based on some of the panels I've been all over the last couple of weeks that Ah.
Across the board, we're seeing the utilization numbers are moving up reasonably well, but there's there's some concern about the amount of productivity per per billable hour. So there is some benefit to having people together in the offices, they're certainly some business of from.
From a project perspective, particularly as you think are both junior and intermediate staff you know the ability to walk by some of the office and ask a question and then continued to work in a more efficient manner. So there is some benefit to that so as soon as we think about overall occupancy over we've been serving our staff we've been talking to other.
And the industry and we you know.
As we think about occupancy going forward, we begin configurable certainly <unk>.
Percentage of people in the office fulltime percentage of people and that would be the majority likely a percentage that would be in and out a couple of days in the office a couple of days at home, perhaps and then a smaller percentage that would work from home exclusively so we're thinking about that as we think about our longer term footprint, we're not coming out and making any bold state.
Looks like we've seen from others in the tech sector that nobody's coming back to the authors or much less than 50% will ever come back to the office because we don't think that's that's the reality in the long term.
But that said you asked about the impact it might have on our business.
Our buildings visits in particular, we do have a workforce group in our buildings business. That's that is certainly advising us as well as a number of our clients on these sorts of.
Decisions and how they might reconfigure an office, perhaps if if those folks coming in the office three days three or four days, a week and everyone leathers, maybe those those individuals should not expect to have a dedicated workspaces boredom. So they're looking at how do we moved from Ah.
Perspective, where there is dedicated workspaces for people to to some shared or mortality type space.
In terms of how you think how that might be a factor on our own buildings business.
Certainly that is the commercial the office space segments of our building business has been the most impacted do the downturn.
In the pandemic that in our hospitality through we're redesigning new multi storey hotels and those sorts of things as.
As we've talked of what we have to be a bit of a pivot.
Some of the activities way people are.
Ah responding differently E Commerce work is up.
We're seeing healthcare work is up but as you saw it in Q3.
Building business did retract organically again as they did in Q2, so while that period is occurring that healthcare at work that we're seeing in particular, there's a lot of health care worker big projects coming out in Australia and in Canada. In particular that work is starting to ramp up you. So we announced the footscray, but.
I think the the rapid decline that we saw in commercial and hospitality hasn't been yet offset by the increase that we're seeing in healthcare E commerce and so on so we're watching a pretty carefully matching our our workforce to the type of work that's available.
Okay. Thanks for a couple of turtles.
Thanks, Chris.
Thank you.
Alright correction today cartoon Jacob that's S. T. I D. T. Please go ahead you lines open.
Good morning, and I'm Gonna apologize I've tried to pick up there to finish Staticky line here. So I hope you can hear my questions.
My first question. It just goes back to the EBITDA margin target.
Maybe you can talk a bit about in a post covid world, where you actually see.
EBITDA margins are normalizing.
Sure Jacob.
I think the reality, it's hard to say.
But oppose Covid margin most like.
I see where we have been in our strategic planning and thinking of.
And napping, an opportunity to and to look for EBITDA margin improvement and we still believe that those opportunities exist.
It feels a little bit like the.
The goal posts have moved.
M as through the pandemic.
Whether it be shift.
I just wanted to employee group benefits and that's a step change.
Increase in costs that.
Of course being a people company is pretty significant.
And things like that that it's hard for us to know where that settles down blend and this is kind of a new normal level of costs that we.
Are expecting compare or not.
And so there's a visit back and forth on on this.
So again hard hard to really pin down where we think it's going to land posed pandemic.
Certainly our efforts are around.
Continuing to strengthen arguing with advise you were very focused on it.
Really tells us at four 2021, and the range that we put out as in.
Realistic.
Out of the comp impulsion bumper seen from that gross margin genetic overall cost perspective, and so where does that takes us beyond the pandemic is really tough to say at this point.
Okay.
Yeah, I guess some ideas.
Yeah, It's hard for me to comment plus mix also played into this as well and I saw that you know of normalization of next so much you can choose a step change there as well post covid.
What other than that.
<unk>.
Yeah, I'll just I'll just interjecting I don't I don't know I mean project. Thank you will always be a factor for sure but whatever.
That means us permanently business 13 gallon I don't think we would say that that that's the case I think we are in an interesting period, right now where regardless lighting large project and is that in clearly having an impact on Rosemary Chandos note that we would anticipate anything up.
That size and with that that's kind of a margin profile.
As we come out into the future.
Okay.
Like My my last question here is Keystone D. He organic.
And when I look across business lines, clearly water stands out.
Very strong organic growth corridor.
Do some splints negative uhm.
Can you talk a vehicle what happened in the corner and how sustainable issues.
Yeah, we.
We were very pleased with a 3.2% organic growth.
Just in Q3, and then or 10% year to date.
Particularly the pandemic.
That's a tough period initially we saw in queue to some of the.
Some of their opportunities retracting.
Our clients move home as well, but they are back now too. So we're seeing R. R.
We track on a on a daily basis.
The number of opportunities in the volume of the size of the opportunities that are in our sales pipeline. Those numbers are back is sort of more normal.
Pre covid type numbers.
We're seeing.
A little bit more from the public sector than the private sector.
It's interesting that the the amount of work the amount of opportunities in our pipeline from one dollar value because never been this high but for now I think there's a couple of reasons for that one is that the number of opportunities is kind of return to more normal sizes, a bit different though too could be that squeezing out the bottom some of those offers.
<unk> dark being awarded quite as quickly.
But I think it's just as positive for us to see you go that that does the size of opportunities in the early overall volume of opportunities in the pipeline is continue.
Continues to rise so I do think that from what we're seeing right now Jacob.
The organic growth.
Numbers and we put up for 2021.
Alright, and again, that's absolutely do any significant stimulus because it's hard to predict the timing of when that might occur.
Okay, well, thank you very much.
Thanks <unk>.
Thanks.
Thank you.
And today it kind of turned <unk> K, Jonathan Frank Okay. Go ahead, you line okay.
Yeah, good morning, everyone.
Just to come back on via question on the the mix with will in fact 2021.
Wondering what drove the cross kabuki downward the the the large project that you just mentioned and whether there could be of your project that I put in my pin plugged it mix in 2021.
I think the the big project that trees to refer to it as soon as I said, a big trend mountain pipeline, Joan Big Big job.
And we see while we've been wrapping up all over the last number of years 2021 is the will be the major year will will extend the majority of our effort and received the majority of the revenue. So that's why I think that in 2021.
That has sort of an outsized impact on pulling down gross margin of it.
Factor that will be lesser in 2022, and 2022, just because the majority of the work will will fade on so.
So that would be I think the bigger the bigger one.
But a lot of that that will have the impact and again it will be primarily of 2021 is that it should lessen in 2022, and we don't see anything of that size and lower margin profile.
Currently in the pipeline.
Okay.
But.
One one comment denwa around around 10000, I think it's important for.
It started getting a bit of attention because of his diet and and because of the impact it's having on on our our overall gross margin, but this is a project that we talked about before.
Mainly southwest contract workers and so this is.
Project that we are able to kind of up and down.
The date of workers.
Since the project and is not the case that there is.
A choice to be made for us around competing projects and we are deploying our efforts towards this one project asked to the detriment of another or on the choice of other projects that might have different margin profile. This is purely incremental for us and I think from that perspective.
I wanted to touch on that because I think it's important to understand that it is.
Incremental perspective.
Brown I return on our working capital perspective.
For us.
And so I don't want to leave the impression that this is a project that that that we shouldn't be doing the simplest dragon or gross margin gross margins important has a metric, but there's so many other factors that we need to consider when we look at the work that we do in that range that was January and so from a return perspective. This list.
One is you know is is a good project for us.
Okay, that's great dollar Frank in which respect to the potential with current men that you you might take two in order to reassess the the real estate or cost reduction initiative. We've just curious what would drive the decision is this purely a function of organic growth utilization rate than what.
Could be the the the.
Magnitude or do you see the potential impact we might see in 2021.
Sure so.
It's going to cost friend, you'll you'll recall that this is birth.
He pointed to in our strategic plan and this is something that we have been analyzing for for some time now and certainly as we moved into the pandemic.
Gave us some real live data as to what was possible.
From from a reduction of our footprint.
But of course, you said.
I think we need to resist the urge to add to then set this is our new normal and hands and empty at all of our office spaces to reduce occupancy prostate gave me we need to give you an understanding of what is normal what is long term.
Occupancy what does that that's going to look like and so it will be driven by the work that we had done pre pandemic around what the emergency appropriate amount of square footage per employee and we blending that with now.
Some new information around what do we as one full year expect brown.
Brown, having our employees in the office relative to one of our employees like how much do they want to be in the hospital finding that right balance as well.
And then are there places where we've got nieces that are that are.
May be coming to maturity within the next couple of years that we see an opportunity to exit now.
As opposed to a manager so it's all of those dynamics that we're looking at what's the scale of it it's really it's tough to say at this point and but I think it's fair to say that we believe that there is a significant opportunity there in sales.
Unfortunately, when you do these kinds of things being the accounting rules are kind of punitive it needs to take care of a non cash charge right away, but overall it should you're you're doing it too.
Julius Irving profile and your cash flow so.
Think it would be a good tradeoff unique but we don't have despite has you know.
I'll go back to to for Ya.
Okay. Thank you very much for that time.
Thanks, so much.
Okay.
The next question stay conference Friday that fan of vitamin James. Please go ahead.
Hi, good morning coupons.
I'm a bit surprised by your.
<unk> I'm a bit surprised by your relatively muted growth expectations for the U S. Next year can you provide a bit more detail what's behind that album.
A number of things that we're looking at.
We do feel that there will be some infrastructure sooner listed it will come forward and will continue to drive drive things, we're seeing some some good activity still in the water space, we see some good activity and transportation certainly power some of the renewables, we talked about solar and so on the building space is going to be.
Next year there as we as we continue to talk about that pivot from commercial that pivot from hospitality, we haven't seen as much of an uptick in opportunities and healthcare and the United States that we have in in Canada, and Australia, and so on and so I think you know.
<unk> from from our perspective on next year, then we're we're getting a little.
Cautious and little cautiously optimistic perhaps on things that.
We we haven't included acquisitions, we haven't included stimulus.
I think that's just sort of.
The future of the little unwritten, they're still and so we're we're taking a bit of a cautious wait and see attitude towards it.
Oh, that's good to hear I think I think it is a prudent way to go.
King of emanate from that standpoint are you given current condition and a lot of them.
Parts out there but.
Are there any regions or vertical secure particularly attracted to right now.
We continue to to look for opportunities in many of our vertical work.
Spoken about before in our strategic plan, we're really focused on continuing to grow in those non cyclic businesses.
Water transportation and so on and so.
And the buildings component that would be less cigarette there'll be like the healthcare components and so on so certainly we're looking for activity in those those groups. We continue to look.
Good opportunities I think sales for some infill in Canada. We are looking in the U S and certainly we haven't changed our geographic profile. We're we're looking outside the.
North America sales looking at the UK with a bit of a cautious look too too Brexit in the short term looking at this.
Some of the Nordics Western Europe, a bit and uncertainty down in Australia, and New Zealand.
Okay and are you still and are you still actively engaged in discussions with respect your man obviously, there's uncertainty.
Uncertainty around Covid.
Rhyming of transactions and things like that so you're still comfortable and happy with.
The number disc.
Discussions you are having right now.
Yeah, a lot of the discussion interesting over the last little while this.
Previously provided some color to that we saw a slowdown in activity March April timeframe, most people kind of look inwards to manage their own business.
The existing discussions the ongoing discussion that we're having a brief pause for those are really been reinitiate. It over the last several months and it's been added also interesting to note that there's been a number of new.
Firms that are initiated discussions with us over the last.
Really month to six weeks.
Refers that we've been having some discussions with just very very cursory, but.
Really not that they've suffered during the third covid because a number of firms.
You know are continuing to do just as well now as they were before.
So just looking at ownership transition and having a little bit more time to think about some of these things so I'd say that the.
The discussions that we had ongoing pre covid have continued and we've initiated some additional new discussions over the last month to six weeks.
That's great color. Thank you very much.
Great. Thank you.
Thank you. Our next question is that comes out from <unk> K O R. N B C kept semi kit. Please go ahead.
Great. Thanks, and good morning, just a little bit more on some of the commentary around specific and markets I think part of the U S market in order to some water activity there as well can we would talk about it sounds like there's a bit of a variance within the water market across geographies.
Can you provide a little bit color there on what you're seeing globally.
Sure and it's going to be talking to end markets and just within the United States or sort of.
If you look at that from a larger perspective, we've talked about the UK U S, Canada, and Australia does that sort of where you what you're thinking.
Yeah, just I think it was mentioned in the U S. It seemed like it might be a little bit softer, but yeah. Just globally, just what you're seeing it seems like you can still doing.
Just curious.
Yeah. So.
Looking at water overall, certainly in the UK.
Larger as a regulated industry in the UK continues to be driven by the you directed and this is interesting that those are unlikely to review relax in any way.
For breakfast and seven is now well underway to where in fact aggressively hiring to continue to as we wrap up and of seven course, that's difficult during the pandemic, but.
Surreal and we've been very successful and we haven't seen a drop in 2020 and water in the UK Australia.
Australia New Zealand.
Got a couple of good framework awards ongoing.
In Australia, and I think that will continue to drive growth for us in the water industry through the remainder of 2020 and surveys of 2021 and then in the.
In North America water, we've had organic growth in water.
For the last five six quarters strong growth we saw it again in Q3 and we are.
Projecting continued growth organic growth in water.
And through 2020, as well North America, there's a backlog of projects and the water space very strong.
And this because reacted in so many spaces.
And dominate really in North American a number of everything from Costa resilient type work to water wastewater treatment big water conveyance water resources project. So we see continued good opportunities and water really and all of our major geography's in.
For remainder of 2020 at into 2021.
Alright, Thanks, and then I guess just on the 20th 21 commentary that you provided appreciating the fact that I'm in is not included in there I guess can you really comment on maybe the scale or size of potential transactions are you. Currently engaged we're just trying to see if there is potentially some neato moving opportune.
Any of these in the pipeline totally understand so uncertain given the backdrop for what kind of conversations are you having as a larger prayers are smaller players typically.
Yeah, we haven't really changed our philosophy, there, which is still to target those small to mid smaller and midsize first kind of less than a thousand people.
That's really.
Is our area of focus that says that there will be larger ones that come I think in 2021, and we'll have a we'll have a look at them, but our primary area of focus is still on that small to mid size less than a thousand people.
Space.
And then I think I made some comment or there's some commentary earlier that cause the health care workers picking up in some markets and not in the U S. Now somewhat surprising can really shut some color on that region might be a little bit different on that front.
The Oregon, it's there's a lot of ongoing discussions still in the U S. But we've just seen less pursuit activity over the last quarter quarter to have in the U S. And then we have in Canada and Australia in particular.
I do think that we will see it coming back perhaps there's some of these larger projects, where we're waiting to kill.
To learn more about.
And the impact of any potential stimulus I might be coming forward.
U S also has more.
More private healthcare sort of operations down there. So we may be waiting just to see a little bit more how how some of these things shake out over the next quarter or so there is still a great opportunity. There. It's just that over the last quarter quarter have we've seen less opportunities comes to market in the us and we have another locations.
Okay, Great and then just last one for me I think you mentioned earlier on this larger project, which it sounds like as a T. M X the gross margin might be lower but there's less SG&A are discretionary costs associated with it can you hear me talk about what's driving is just the nature of the work you're doing their that's resulting in Laura Jana.
Yes, so <unk>.
<unk> mentioned that the vast majority of the individuals that we have working for us on the job or contractors and so.
Really their bills typically they they won't see the inside of a stand Tech office. These are folks who are hired specifically to be onsite working on that project. So.
So a lot of these the admin, there's there's really no marketing costs for those folks want involved in when working on other proposals.
They often will bill a day right.
For the work that they do their so there's really limited to noble administrative time, certainly no marketing time.
And have expenses are covered so there is there is.
There's really no none of those discretionary admin and marketing costs.
For the most part that we would see with with other operation So very well the gross margin on the work is lower.
Really there is.
Can never say, none, but there is very very limited.
Edwin and marketing cost of it so on the flip side, so utilization rates are virtually 100%.
Okay, great. Thank you very much for the color.
Great. Thank you.
Thank you.
Our next question today account no none of their online can think please go ahead.
Good morning, and thank you for taking my questions.
Mm entire conference calls on the back of Covid needs stated that there was some pricing confessions put in place and I believe the majority of electric short term in nature <unk> I'm just wondering if they have come up at all or are there further concessions and I'm just wondering related to that I P. T increased competition are pricing pressure. Thank you.
<unk>.
Yes, thanks, Laura so some certainly some of those that were of shorter duration have come off others.
Others will will stick for a bit longer.
But we factored all that into our forecast for the remainder of this year and next.
Look for next year as well.
In terms of what we're seeing to import this is always a price competitive market, but we haven't seen some of these a the pricing pressures from from a competitive environment that we saw early on in the pandemic, we've seen a bit of lessening of that.
You'll see from other firms that you look at it in the space. These.
These companies are still doing fairly well so the need to to continually beat each other up and continued drive prices down to secure additional market share. It has become less of a concern of keyboards at the pandemic is preceded setting like as I say, it's always a competitive market, but but a lot of us price.
Pressure that we saw the first couple of months of as people move home really has has come off to a degree.
That's very have call and then get secondly, earn M&A I know you did speak.
Number of questions on that we have not seen the number of transactions within the space I think <unk> with kind of one of the only ones in my covered universe and just wondering you mentioned the various geography that you continue to target UK Nordics, Australia I just wanted to confirm that there's not a higher probability emanate and can.
<unk> or the U S, just giving location and proximity <unk> <unk>.
Restrictions and then on that I'm, just wondering if you're comfortable with the ability to do due diligence coming up for our.
Financial for the companies that you're targeting and related integration.
Yeah.
In terms of where we are looking.
It's really important to us is that we're we're looking for a firm we have.
Solid.
Presence from a center.
Respective we have people that understand.
What it takes to to go through due diligence a source of firm was the cultural said look like and we feel very comfortable with the leadership that we have in place in.
In the UK Western Europe, Australia, New Zealand. In addition to the leadership revenue place in Canada, and the United States. So.
As long as we're in a location, where we have that strong.
Leadership, I think we feel very comfortable continuing to to to move forward and we have our having ongoing discussions really and all of those geographies that you that you mentioned then.
So from the perspective of conducting due diligence.
So on again are the are leaders in these various areas where did where did you do in projects and Gilligan's HR accounting taxation, we'll we'll have people on the ground, but will always be in contact with sort of are the groups that the group of people that leave that initiative just to ensure that we're asking the right questions were.
Pushing forward with due diligence appropriately so.
I don't really see that these travel restrictions at this point are really significantly inhibiting our ability to to move forward with our M&A discussions.
Okay. That's very helpful. In depth lastly for me I appreciate you, providing 2021 guidance, particularly in such challenging time and understand that there are a number of questions surrounding the outlets that does it just more of a clarification, just giving you stated that organic organic growth target it kind of feeling right.
And you are also somewhat cautious just for my own purposes would it be fair to say that you would characterize the overall guidance as being realistic based on how things were sitting right now or perhaps somewhat.
<unk>.
We we feel good devoted long I think we feel that it's realistic based on what we know now and.
Yeah, we do feel comfortable with where we are we didn't we didn't want to put.
Are are sort of our targets that we thought were an achievable. Because then that'll causes issues. All of next year. So I think these are realistic numbers that we feel.
Reflect our how we're thinking about the environment at this point.
Perfect. That's great. Thank you congrats on the performance.
361.
Thank you for our next question comes from Michael took home some teenaged security. Please go ahead.
Oh. Thanks, Good morning, Uhm wanted to go back to the the description of a strategic initiative to look at optimization of occupancy costs.
Teresa is this just in terms of timing it sounds like you're sort of stolen in an evaluation or add an evaluation stage here I know you said, it's not included without benefits included in your 2021 guidance from there, but what is the timing for percussion coming to some conclusions through this process and.
Then how quickly could you expect to see some benefits from that.
Well I think based on where we are.
It'd be realistic to think that in the next.
Three to six months.
We will draw conclusions.
Conclusion, and again you know because.
Situation around work from home continues to be little Ed.
And we're trying to make a long term decision.
It may may take longer than we expected.
1350 locations around the world.
The credits through and.
And a lot of thinking around what what's the appropriate.
Finding that that we.
Want to put in place so.
Our expectation is that it would be.
I attended to a six month period.
With the account and you better it could take longer than 10 15 at kind of change unexpectedly.
And if it is within that period in terms of it to sort of a decision making process.
It takes time to to.
Get out of leashes or that sort of rearrange things on that front.
What would be a realistic expectation for when you would start to be tend to see the benefits.
Well you know I think.
So.
What's interesting about the way the accounting rules work is that.
When you make a determination and you are established.
Pretty friendly what your plans are around the use of that space.
Assessment and take that impairment charges right away and the constant kicking that turns right away then.
I can see and benefits through and lower occupancy cost.
Multi curious appreciation and interest expense line items, but also to some extent in your <unk>, let me check to see that right away because you know kind of a new versions yourself from that Lee. So it is it is pretty immediate that cash $20 have could be slightly like an independent when you're able to to really.
East or somebody that space as I come in earnings down even start to see that pretty much right away.
Okay. That's helpful. Thank you and then.
Question God I think you were speaking earlier and you mentioned that you can see the the opportunity pipeline. The awards pipeline is being very strong could you thinking back to the last quarterly releasing call. There was some discussion about.
Observing.
Slowdowns and current projects and a new award in the second half of 2020, so I'm just trying to sort of reconcile.
The strength of that pipeline with the commentary last quarter about.
Pipe line, if I made a new award sort of.
Can be slowing a bit I mean, the pipeline I suppose could be very robust, but are you are you confident sort of been a conversion of those opportunities to award or or are there still some.
Pressures, giving me a are nowhere in in terms of.
That conversion.
Yeah, we have seen some sometimes some of the award process can take a little bit longer but again you.
You can see from the three 2% increase in organic growth in our backlog in Q3, we have been converted goes so I think that we're getting back to a more normal cadence although.
They still sometimes it in an environment, where all the the clients are working at home. It can take a little longer to get all the paperwork down and move all these things forward, but again really just the fact that our our backlog increased organically by 3% in Q3.
Think sort of provide me some comfort that we are seeing that conversion from opportunities to backlog.
Okay. So I've been.
That makes sense I'm, just wondering does it benefit actual improvement from your perspective in terms of the.
It's relative to those comments you made last quarter about.
Slowdowns of.
Still awards like at that time about situations sort of improved from your perspective.
And I think.
<unk>, it's interesting because.
My father rode over the over the next period of time, it's going to be one of flexibility.
I think if we looked at now the UK for the next month when the UK doggone into Lockdown I think we're gonna see now Luckily we've got all our App awards going in the projects are underway, but for new awards in the UK during the Lockdown for the next couple of months our next month.
Think it might be a little bit slower.
Conversely, if we looked at Australia, where they just which is pretty active Australia, New Zealand work or officer open. We're back Melbourne has reopened after their lockdown I'd expect to see awards in the Melbourne area that perhaps a bit of it's slower during lockdown speed up a little bit again, so I think it's gonna be.
It's hard to make a broadbrush statements at this point because.
World is going to be I think goodness.
Move forward lurched backwards move forward lurched backwards. So is this gonna be some of those orders that we've been using internally is just be flexible and understand that something that's going to happen faster something that's going to happen slower but on balance we.
Feel like we're on we're on the right track backlog is growing.
Both the bird greater than one in each of our business operating units and the quarter. So.
Pretty impressive.
But it's it's the future. It has just been the same way as we've talked about 2021 I think we're we're just being a bit cautious to make any broad statements because the world is getting a bit of an unknown place though.
Right that makes sense now I appreciate the.
The fluidity and the fact that <unk> differ spend.
So it makes complete sense just final question for me in the Ass and.
And the discussion around the 2021 outlook.
There was some commentary about.
Looking at a meaningful increasing cost of employee group benefits and I apologize if I missed this but.
Can you just explain to me and then parental in more detail on on what's behind that what's driving the.
Yeah, you know I think what we're seeing is.
As soon as the pandemic.
It was interesting because initially people at home and kind of stopped doing everything by the time we're on the.
Employee benefits has really increased pretty pretty.
Pretty high right.
People are.
Going to physio getting getting a neck suggested they call and get massages. There is getting all these sales take care.
Importantly.
And passage.
Company that gentleman emotional support that's often true employee programs and that is of course why those programs.
But I believe what we're seeing now is the pricing into the programs for next year that's reflective.
Assumed hiring and as I said it.
People accompanying that can have quite a quite a dramatic effect on us when the cost of an incentive programs increase in some tasks of unforeseen.
And last month is factored into what I think.
Currently I have no idea, but I know for next year, we are.
A significant increase.
Okay that makes sense. Thank you very much.
Thanks.
Thank you.
Hi, Nice questions comes on that thing to check from National Bank Financial. Please go ahead.
Hi, good morning.
Alright.
Just wanted to shuffle back to record the commentary around the bill being about one.
Look at the Doc, which is which is strong them organic growth on the revenue side, obviously Gibbs.
How should we think about sort of the the change in the burn rate or there was one really none of just timing, which is kind of impacting things. So I just talked to my question is how quickly can be see organic growth actually coming back.
Into Palm territory.
Given of options.
Yeah. So we have seen that some of these projects are stretching out a little bit longer than they had and so we as we looked into 2021 and are are sort of.
Low submitted single digit organic growth assumptions that we put forward there that sort of as as we as we've spoken with our leaders and the various visits lines and the different geographies. That's sort of a number that is everyone feels pretty comfortable book certainly we see a group like water probably at the higher end.
Of that and other groups and different different positioning in the organic growth spread but.
So I think we feel pretty good about that.
A lot of a single digit organic growth in 2021 based on what we see in the pipeline and based on what we've got in backlog.
Okay, but I I definitely can you crush called like kind of Q1 or Q2 is gonna be the first quarter, whether you received some appointment cramps.
I think as part of what we typically see from Ah seasonality perspective.
Q1 is always a little bit slower because we certainly appear in the notice we don't have a lot of fuel programs moving in and things. So I think what we.
No one of course.
Q1, 20 was still pre pre pandemic.
So that it could be a higher cost with where we get into the queue to we're looking at a post pandemic.
So we're going to see a.
While the revenue might be.
React as we would expect from a seasonal perspective.
From a organic growth perspective, as we look at Q2 21, we're still comparing to that higher Q1 hundred 23 pandemic calm so.
I think we'll probably see numerically reflect much better than Q too because we're wrapping up and coming off the lower post pandemic calm.
Yeah that makes sense.
<unk> just.
Give us out of all the moving parts of the building side.
Do you feel about the Hep towns that you have a mob position, specifically yourself set up appropriate.
Given.
The revenue opportunities.
You guys assume on the problem.
I guess my question is that you can get the help.
So consequently, Coca Cola.
Yeah that that group has been manage extremely well true through the pandemic and we've been matching headcount at different levels in the organization to available work throughout so I think we'll continue managing it very judiciously as we have but I don't see the need for any any.
More significant headcount reductions because it's been running very well throughout the pandemic.
Okay excellent. Thank you so much that's it for me.
Great. Thanks Max.
That one I can say that the question and answer session I'd like to have that correct ticket today for any interest smell all kind of thing.
Okay, well, thanks, everyone for joining us on the call today, we look forward to continuing to speak with you about our future programs Smith.
A great day and stay healthy thanks, very much thanks to everyone.