Q3 2022 Stantec Inc Earnings Call
The conference will begin shortly to raise your hand during Q&A you can dial star one one.
[music].
Welcome to <unk> third quarter 2022 earnings results conference call, leading the call here, our GOR Johnson, President and Chief Executive Officer, and Theresa Jang Executive Vice President and Chief Financial Officer.
That tax advice to those dialing in to view the slide presentation, which is available in the investors section at <unk> Dot Com. Today's call is also webcast. Please be advised that if you have dialed in.
While also viewing the webcast you should mute your computer as there is a delay between the call and the webcast. All information provided during this conference call is subject to the forward looking statements qualification set out on slide two detailed in <unk> management discussion analysis and incorporated in full for the purposes of today's call unless otherwise noted dollar amounts discussed it.
In today's call are expressed in Canadian dollars and are generally rounded with that I am pleased to turn the call over to Mr. Gordon Johnson.
Good morning, and thank you for joining us today I'm very pleased to report record third quarter results that delivered in line with our expectations are.
Our results reflect strong operational performance and the ongoing solid execution of our strategic plan delivering both top and bottom line growth.
We generated a 24% increase in net revenue, reaching approximately $1 2 billion propelled by the key drivers that we've noted over the course of this year.
Infrastructure climate change and sustainability and the re shoring of domestic production.
Net revenue was driven by double digit organic group.
A 11% and acquisition growth of 13%.
We continue to drive organic growth in each of our geographic regions and business units.
Notably water and energy and resources delivered 16% and 17% organic growth respectively.
And environmental services continues to have a very strong year with over 9% organic growth and a 47% net revenue increase overall.
Water environmental services continue to account for 40% of our business, which speaks to the strong weighting of our business towards addressing climate change and sustainability challenges.
We achieved solid project and EBITDA margins of 54, 1% and 16, 7% respectively.
And this performance translated into adjusted diluted earnings per share of <unk> 86 for the quarter.
Looking at our results by region.
Our activity level in the U S continues to increase driven by momentum in both public and private investments.
We grew net revenue by almost 29% overall with 12% organic growth, 13% acquisition growth and 4% from the stronger U S. Dollar.
Organic growth in water. It was driven by the ramp up of public sector at industrial projects, including advanced manufacturing projects as well as our work on large scale water security projects addressing water scarcity risks in the Western U S.
We also delivered solid organic growth in infrastructure from work on projects in transportation as well as in industrial and residential land development activities.
And we continue to see active activity levels recover in buildings with.
With investments still flowing into healthcare and science and technology.
Of note our U S. Environmental services business has now grown to match the net revenue generation of our U S infrastructure business.
Our results reflect how well aligned our U S business is to continue to capture the wave of opportunities and funding being made available to address the key drivers and developing trends.
Canada continued to perform very well.
Net revenues were up 7% in the quarter all attributed to organic growth.
Similar to the U S. Both private and public spending remains robust in Canada.
We saw the strongest growth in environmental services with continued high demand for permitting work and archaeological services and.
And then energy and resources, where power transmission and distribution and energy transition work generated continued opportunities.
We also grew our infrastructure revenues with ongoing work in community development through the housing market rich.
Bridge work in Quebec, and the continued recovery efforts in British Columbia from last year's slate.
Work on public health care and private commercial projects drove growth in our building segments.
And our global region continues to lead with 38% net revenue growth for the quarter or 44% on a constant currency basis.
Global also continues to have the highest organic growth at just over 14% the.
The strength of our acquisition programs generated additional net revenue growth of 30%.
Our water business continues to be a significant pillar for us to capture long term framework opportunities in both the U K and New Zealand.
And we also continue to see strong demand for our services and community development and in mining.
So you can see that the themes, we have been discussing continue to play out across all of our regions with that I'll turn the call over to Theresa to review, our Q3 financial results in more detail.
Thank you Gordon and good morning, everyone.
Q3 was a very solid quarter for US we grew gross revenue by 26% and net revenue by 24%.
Margin was also up 24% driven by strong net revenue growth.
As a percentage of net revenue project margins, but very solid at 54, 1% in line with our expectation.
This largely reflects our continued discipline in project execution.
Our ability to increase rates on certain projects to mitigate the impact of wage inflation.
Increased deal activity and project pursuits.
Consistent with the increase in our project margins. We also delivered adjusted EBITDA growth of 24%.
Through solid execution across the business adjusted EBITDA margin was 16, 7% directly in line with Q3 2021.
Turning to our earnings net income in the quarter was $68 million 61 per share. This was down slightly compared to Q3 2021, primarily driven by acquisition related expenses.
Our adjusted net income for the third quarter was $95 million or <unk> 86 per share an increase of 18% and 19% respectively. Over Q3, 2021, reflecting our focus on delivering both top lines and bottom line growth.
Looking at our liquidity and capital resources operating cash flows in the quarter with $93 million DSO was 86 days largely resulting from the Cardinal integration and two days from the effect of foreign exchange.
Net debt to adjusted EBITDA was at one nine times as.
As we approach completion of the card note financial migrations cash flows are beginning to normalize and we continue to expect cash flows DSO and leverage to be at more typical levels by the end of the year. However.
However, the disruption during the financial migration has led to our average debt level for the year being slightly higher than anticipated and this will impact 2022 adjusted ROIC.
With that I will turn the call back over to Floyd.
Thank you Theresa.
We continue to see very strong activity across our business. This is clearly evident in our backlog, which has grown organically by 15% since the beginning of the year and has reached an all time high of $6 2 billion, representing 14 months of work as.
As expected increases in backlog were particularly strong in the U S, where we had almost 21% organic growth followed by 10% organic growth in Canada.
The project is being recorded and backlog are largely following the themes that we've been discussing throughout the year driving 20 plus percent organic growth in our backlog for infrastructure buildings and energy and resources.
Turning to some of our major project wins in the quarter in.
In the U S. We were awarded a bridge and structures project through the Colorado Department of transportation for construction management construction inspection and materials testing.
And we're also very active with project awards for our water programs around the country. These include the design of an alternative water source program in Illinois project management, and a biological review for underground and system hardening in California and projects for water quality and data improvements in the Western U S.
Turning to Canada, and British Columbia, We were selected as the prime consultant for the Cape Horn pump station number three for our client Metro Vancouver and.
And in Toronto, we want to continued services and funding contract with Metro links in the greater Toronto area.
And our global region, we're excited to be contributing to the development of the transport corridor as an affirmative Africa.
This project will enable increased mobility and trade within Africa and within Europe .
And we have been awarded are and we've been awarded project management services for an airport expansion project in Asia are first in the region.
These highlighted project wins are reflective of the robust funding being directed towards addressing a significant multifaceted challenges being faced around the world.
As we engage with our clients we continue to see strong advancement of projects. Despite some of the economic headwind fears.
The message remains the same.
And that the need to address these imperatives continues to outweigh the risk of cost increases and recession concerns.
So as we look towards the rest of the year.
With the strong performance that we've delivered year to date, we are confident in our ability to achieve our 2022 financial targets for adjusted diluted EPS growth net revenue growth adjusted EBITDA margin and adjusted net income margin.
As Theresa indicated we now anticipate delivering adjusted ROIC of greater than 10% for 2022 compared to our previous guidance of greater than 10, 5%.
Our execution has been solid and I am very pleased with the continued growth that we're seeing in all of our regions and businesses.
We expect this dynamic to continue into next year and through the years to come.
In the U S public funding from the <unk> The chips Act and the inflation reduction act is starting to accelerate and provide more opportunities in these critical areas.
Similarly in the U K early procurement for <unk> services is already underway.
Spend levels for <unk> are expected to be higher than <unk> seven as they seek to address severe drought conditions that we haven't seen in decades, and the continuing need to harden critical water infrastructure.
And in Canada, the need for environmental services and energy transition continues to grow at an unprecedented pace.
<unk> is very well positioned to capture many of these opportunities integrate significant value for all of our stakeholders.
As we moved into 2023, the last year of our strategic plan, we will remain focused on execution and excellence to deliver on the targets that we've set.
And with that let me turn the call back to the operator.
Ladies and gentlemen, if you have a question or a comment at this time. Please press star one on your Touchtone telephone, we will pause for a moment, while we compile our Q&A roster.
Okay.
Our first question comes from Yuri Lynk with Canaccord Genuity. Your line is open.
Good morning, good morning Theresa.
Good morning, good morning.
Getting towards the end of the year here, So I thought I'd take a stab at it.
Just any update on your 2023 goals.
Clearly around 16% to 17%.
Margin and <unk>.
11% EPS growth just wondering is the inflationary environment and including higher rates is kind of weighing on your ability to achieve those targets.
I think we.
We are confident that our 2023 targets are in sight for us.
We're working hard towards achieving that we will formally rolled out our outlook for 2023.
February .
But there are always going to be pressures.
Wage inflation is one of them, but we continue to find ways to.
Manage them.
To maintain our project margins to operate more efficiently. So overall, we are confident that the.
Targets that we set for 2028 will be achieved.
Okay and on the margin front.
<unk>.
Is it just some of the cost synergies coming through in better absorption of your SG&A rather than gross gross profit improvement.
It's really it's really all of the above all of those things that we look towards <unk> and driving to an EBIT margin looking forward.
I mentioned in my comments.
Being selective on the projects that we take on with them.
Pricing and acceptance of margins being pursued.
Rate increases.
To capture the higher wages that that we've seen.
And Ed.
Synergies of course.
But just again continuing to operate as efficiently as we can get our organization we've seen.
A continued uptick in used and then build out of our delivery Center in Pune, Inc, and now in Manila as well in that.
An important part of our overall cost strategy and as we move into 2023 again.
On specific targets around how we intend to continue to grow.
Other services.
It's kind of.
There is no one major thing lots and lots of things.
Okay, that's fair.
Congrats on a nice quarter.
Thanks, Jeff Thank you.
One moment for our next question.
Our next question comes from Devin Dodge with BMO. Your line is open.
Yes, thanks, good morning there.
There continues to be good development backlog.
It's great to see but can you comment on the efforts to expand the workforce.
Just wondering if you've seen net additions in Q3 and.
Should we expect head count to push higher again into Q4.
Yes.
We definitely have.
<unk> seen continued head count development and an increase in Q3, we've seen the our voluntary turnover rate sort of stabilize they were up a little bit in Q2 Q3 was remained the same but I think in Q3, we actually had some of the highest.
Number of new hires that we've had in.
In history really so we're bringing on a lot of new people. So absolutely. The head count continues to increase now when you look.
You're talking about Q4, we will continue to hire people in Q4, but seasonally our workforce sometimes comes down in Q4, depending on the.
How soon winter hits for US here in Canada. So some of our field programs may start to wrap up depending on cold and snow and so on so we will absolutely continue to be hiring but are seasonally our workforce does come down in Q4 typically.
Okay.
In the in the outlook. There was mentioned that year to date figures were near the upper end of the guidance ranges, but I think youre expecting Q4 will bring them down and closer to the midpoint.
Given the seasonality you just mentioned I think that makes sense for EBITDA margins and net income margin, but does that comment also apply for <unk>.
Net revenue growth.
Either organically or just overall net revenue growth.
Net revenue for Q4 should continue to be very strong and we do expect to continue to see good growth in Q4 and of course is because so much of our business is weighted towards the U S and we're getting a nice tailwind from exchange rates as well so net revenue will it push past that.
The upper bound of our range, possibly but overall I think we want to draw attention to.
Our overall profitability, whether that be EBITDA margin or EPS, and we do expect that to be within within the range.
Okay makes sense and if I can just sneak one more in a question for you Theresa and the cash flow statement.
I think there was about $100 million usage of our investments held for self insured liabilities in the quarter looking back I don't believe we've seen anything close to that magnitude just can you give some color for the drivers behind that cash outflow.
Yes for sure.
Over the course of this year actually we changed.
Management of power at our portfolio for our self insured liabilities.
Equities I should say and so we did have a big outflow as you note in the quarter of about 100 million for purchase but if you look at the lines of those out on the cash flow statement, you will see a corresponding purchase of $75 million.
And then further for the year to date the purchases were an outflow of $1 $44 million, but then there was a sale of 170 <unk>. So it has moved around a little bit the numbers on a gross basis are higher than you would typically see because of the movement in sale and transfer of these investments.
Net net.
The impact is not significant.
Okay. Thank you I'll turn it over.
One moment for our next question.
Our next question comes from Jacob bout with CIBC. Your line is open.
Good morning.
Good morning.
So strong backlog.
Organic revenue growth in this.
Quarter can you talk geographically.
If you're seeing any signs of weakness.
Canada lagged a bit.
U S U S global and do things and prudent.
Yes, I think we're feeling pretty good about our operations in.
In each of these locations.
The U S is kind of unfolding the way that we had thought as you recall as we were kind of coming through the last part of.
Last year, it was getting a little bit it was slower to rebound, Canada rebounded quicker coming.
Coming out of last year then.
So thats why when you look at our Canadian organic growth is at against the higher comp from from last year, whereas the U S is really unfolding as we thought a lot of this these projects that are to come in in the buildings group in particular, a lot of the big health care projects were coming and so the.
The backlogs are up the organic growth is up so we're feeling really good about that and then global.
At the same great growth in global it really has been.
All year, and we continue to see that.
With that will continue into next year as well.
Are you seeing any change in customer behavior as you as you move through 2023.
We said it.
Yes, we've been talking to all of our business leaders and the people who are closest to the clients or are we seeing projects get delayed and increase of projects that might be getting canceled and we're really not seeing that in any of the of our business units or in any of our geographies and our <unk>.
Customers have not been Telegraphing concern for Q4 haven't been telegraphing concerns for for 2023, either so I think we feel pretty good about the backlog that's there.
That is valid and that we will be drawing upon it as we move forward.
And strategically as you think a bit longer term.
One is geographic mix I think in the quarter it was roughly 50% U S.
And then 25 each.
Each group.
Revenue global in Canada.
The right geographic mix strategically more or where do you think in Europe may be offside there.
We've talked a little bit about.
Overall from an M&A perspective, where we might be looking to deploy capital and to continue to grow. So certainly there are continued opportunities for us to grow head count through M&A activity in the United States.
But also a lot of opportunity if you look at the UK things are a little challenge there right now certainly, but we continue to look for good long term opportunities. There I think we could double or triple our size in the U K, we're still looking at as we've been.
Messaging consistently looking up into the Nordics and Scandinavian countries.
To continue to look for opportunities there because we really arent present in.
President those geographies and then additional opportunities down in Australia, So I think the.
The mix in general is comfortable but I think youll see a change in over the years to come based on these.
These acquisition growth opportunities.
I'll leave it there thank you.
Thanks, Jacob one of them are for our next question.
Our next question comes from Chris Murray with ATB capital markets.
Yes, thanks folks good morning.
Following on that question.
Just curious about if you guys could spend some time, maybe talking about the UK business, a little bit more it's certainly been through.
Kind of a bunch of changes in governments and delays.
Gordon I think you mentioned and paid is coming.
We go back a couple of years and historically, you've been a pretty much a water focused firm in the U K, but there was some talk about bridging into maybe other areas.
Can you just maybe give us some some more thoughts around how you are seeing in the U K market evolve.
I think you alluded to the fact that you think you could double or triple.
Through M&A in that market.
All of this disruption that is going through right now is that creating opportunities for you and maybe accelerate that plan.
Yes, so as we look at the UK in particular, we've talked before that we are the number one water firm there and we continue to be so so that's that.
That work is stable not impacted by the some of the inflation and the economic challenges that we're seeing there waterworks continues out beta as we've talked about should be even a higher spend just because of the.
Some of the drought and so on but I think one of the things that we have been talking about is our move into planning. So Peter Brett Associates had a very very strong planning group, but with the acquisition of Barton Wilmore earlier, this year, where the number one planner in the UK and certainly I was there just.
The last week or the week before still continued discussion about.
A shortage of housing shortage of affordable housing in particular, the various housing authorities around the U K continued to search for ways to to move that forward. So we are active on a number of those those large scale planning scheme. So that's that's.
That's good work for us because we do the planning work and then in many cases, we can do go in and do the actual new community design work as well so that continues to to support that and then we've talked about the building side and certainly.
Peter Brett Associates had a very strong building that infrastructure group, but as well as planning so you've seen we've talked a little bit in previous quarters about some transportation. Some highway projects that we've received that we wouldn't have got without the addition of the folks who joined us from Peter Brett. So I think we're building a really good <unk>.
<unk> multi sector business in the UK.
And so to your point about some of this inflation and economic challenge presents some opportunities.
The firms that we're talking to.
Our really solid tier one players and so while we've been talking about multiple compression and so on.
I think they understand that multiple compression not on M&A activity is is coming but it seems to be lagging just a little bit. Because these are these are good firms who have been through downturns before and come back again, So we'll just stay close to them and when the timing is right.
That will.
We will act.
Okay. That's helpful. Thanks.
My next question, maybe more for Theresa Theresa as we've gone through Q3 reporting the number of companies.
<unk> talked about.
Changes in taxes, I guess theres been a lot of changes in U S regulations. The U K, it's been whipping around tax rates.
Maybe early days anything to think about cash flows is there any potential for like one timers that we should be thinking about or any any material change to tax rates or cash taxes next year that we should maybe be aware of.
Yes.
Capital, particularly on it when you operate on a global scale like we do are there it's always tricky because there's so many moving parts to it.
At this stage.
I would not say that there is anything in particular that I'm aware of that will require an unusual cash outflows.
We will have better guidance for you in February but.
There is always going to be kind of puts and puts and takes.
This global minimum tax of 15% that has been discussed.
We don't do two pillars under and I won't go into the details I'm sure you're familiar with it but with the first pillar. We don't expect we will have much of an impact on us.
<unk>.
It may but we don't think that it will be material.
And they're all things that we monitor very very closely.
And as I said in February we all look at that.
As much clarity as we can on that but nothing that I see on the horizon that will be kind of a date material.
Cap cash outflow.
Alright Thats helpful. Thank you.
One moment for our next question.
Our next question comes from Sebastian <unk> of RBC. Your line is open.
Alright, great Thanks, and good morning.
Gordon I think earlier in the conversation you talked about the the kind of a backlog build in the U S.
One of your U S peers provided some early commentary on the 'twenty three outlook there with kind of the IHA is expected to kind of flow through I guess at this point what is the I guess the funding that's driving some of that demand because it feels like some of the bigger builds probably come through in 'twenty three but the backlog on the U S side is building up quite a bit for you can you maybe just walk through kind of what's driving that.
What kind of which end markets are you seeing more funding and then also maybe your thoughts on when some of the bigger U S. Bills. They are exposed to will start to flow through kind of the impression. We got yesterday. It was more kind of calendar Q2 onwards, but wanted to get your thoughts.
Yes, so I would agree with that that then.
We had a lot of the big IHA funding and some of the IRS funding I think we will see coming.
In the.
We're starting we have some of that in backlog now, we're generally a little bit of backlog, but really nothing material. Just some early releases I do think we'll see more of that that coming sort of Q2 Q3 of next year that will just continue to build on our already strong backlog and in the U S. But when I look at the U S. Overall.
We've had backlog growth in each one of our our business units.
In particular, we've seen great backlog growth in our building segment and we've talked about some of the healthcare projects and some of the.
The logistics center work and things that we've been doing big backlog there the largest backlog growth actually is in our energy and resources group lot of transitioning to to renewable energy and anything so we saw great growth there as well as in infrastructure.
Overall, but but again, we saw backlog growth in each one of our business units in the U S and I do think that's just going to continue and even strengthen as we move into 'twenty three.
Alright, great. Thanks for that and then as we kind of look over the next year I think you talked about.
Kind of the margin profile, a little bit earlier on I guess, how are you thinking about you know kind of the drivers of this margin improvement do you think it's going to be sort of the largest scale post cardinal kind of the end market share because it maybe walk us through how you think about your margin progression over the next few years kind of post Cardinal.
Yes.
<unk> business is very similar to ours, and we have talked about they havent achieved synergies already and.
Of course, we will continue to look towards.
Continuing to look for efficiencies amongst the businesses as we combine them, but it's really as I as I noted earlier established that the levers that we have available to us on our EBITDA margin largely center around.
Good project selection good project execution.
Ensuring that we are growing our use of our delivery centers in India and the Philippines.
And we spent.
This year I had talked earlier about investments in our back office systems, and so on and again it will be as bringing comparison just that the efficiencies that have come from that investment.
Continuing to drive and draw on our innovation to do things efficiently. So is all of those things and as we look toward next year and the 16% to 17%.
Margin target is in sight and it is what we're driving toward and.
And beyond that as we enter the next stage of our strategic planning for the next cycle will start to consider where there may be additional kind of step change opportunities.
Again in our business, it's largely these incremental improvements that we're able to make.
As opposed to one big button that we can flex.
Okay, and then just one last quick one I think there was some discussion earlier on kind of some of the tax changes and I think we've heard from your peers.
There was a U S tax change around expensing R&D. So maybe we could take this offline, but I guess for you guys that wasn't an impact in the quarter I guess and then maybe you don't do a lot of R&D in the U S is trying to understand if there was an impact from that change in tax policy in the U S side.
Yes.
It did affect us because we do have.
A healthy R&D program.
For us for the year to date, I think it led to incremental cash taxes around $20 million.
And we would expect maybe another 10 what are the rest of this year, but having said that as I noted earlier, there is always puts and takes and so when we looked at our overall cash flow as it related to our taxable income of our U S. Taxable income in particular, there were offsets and so really didn't feel like we needed to call it out.
Perfect. Thanks, so much for the color.
One moment for our next question.
Our next question comes from Maxim <unk> with.
National Bank financial your line is open.
Hi, good morning.
Good morning.
The first question for you if I may when we talk about working capital sort of free up a normalization in Q4.
Can you provide maybe directionally that the quantum of that improvement that we should expect for Q4.
Sure.
We are.
Actually just putting the finishing touches on our October monthly results.
And we have seen positive movement in our working capital DSO now down a couple of days from the end of September and then moving closer toward our target of 80 days. So we're seeing things unfold as we expected and so that that's positive and of course, you can't give or take the.
Pressure off we need to keep driving that.
Two to achieve our typical 80 day target.
That is that that is sort of the.
The movement that we are working towards where the end of the year.
To get back to work.
We generally are in that in that <unk> range.
And it's really.
Talked a lot about cardinal and the impact of the financial migration I do want to note that when you. When you look at our revenue growth that also has an impact because these are the same people that are managing accounting for managing the projects managing all the growth that are also supporting.
Some shape or form the cardinal migration. So overall levels of activity are much higher than usual and that these two things taking a little bit longer on the invoicing side on the collection side and so on so it's.
A number of things that have driven.
Our working capital to where it is all I think quite.
Quite.
Typically given levels of activity.
But as I said, we are seeing movement in.
A positive direction and we expect that to continue through to the end of the year.
Okay. So do you think it's going to be possible to get leverage may be down to like one six.
Around that because it kind of like some of the softness.
One off free ups.
Yes for sure.
That's our goal should be somewhere around that.
1516 range.
It is absolutely possible and we're doing we're doing everything we can to to push towards that.
Okay. Thank you very much for clarifying and then another question for Gordon If I may I think in the past we spoke about some semiconductor opportunities.
One of the things that are more I'm sort of curious about is I guess, if you can attach sort of any materiality to those things and maybe talk about sort of the attach rates of additional services that you are able to introduce to each of those I presume new clients. So maybe just any color on that vertical please.
Yeah, absolutely and so I think we mentioned last quarter that we're currently working with five of the top 10 manufacturers around the world and.
In addition to the work that we have on going back we have in our our opportunity our sales pipeline, we have $1 billion in fees.
For opportunities there now we're not going to get all of that.
To be sure, but but this is a huge opportunity for us not just in the United States, but we're also seeing opportunities in Europe and in other locations with these these clients are often take you with them to these different locations. So in terms of the types of services that we offer.
Quickly everything from <unk>.
Zoning and.
Site selection zoning water transportation Master planning.
Those sorts of things, we do a lot of advanced water and wastewater treatment for these locations and that actually truly is often are our way in the door is on the water and wastewater, but then once youre in there there's a lot of we call it balance of plant. So there would be.
Theres parking lots there is office buildings there is.
Our site security all of these sorts of things so it really touches almost all of our business lines. When we look at a big.
<unk> like that and I think that's why you've seen.
As I mentioned.
Our fees in our opportunity pipeline are roughly $1 billion.
Now again I want to confirm that it's not backlog we're.
We're not going to win it all but it is a huge opportunity.
Alright, and then in terms of talking to some of the stuff in Europe I mean like is this more of a.
I don't know 2024 sort of timeframe, how should we think about in terms of timing.
Yes, as we are.
Talking with the with the firms we are looking for sites now.
And these things so.
You are probably right, it's probably see material revenue generation would likely be some time in.
Some in 'twenty, three but it would likely be a bit of 24 as well.
Okay excellent. Thank you so much that's it for me.
Great. Thanks Max.
One of them are for our next question.
Our next question comes from Venmo Correa with Fisher, Dan Your line is open.
Hey, good morning, Gorgon good morning Theresa.
Yes, good morning, good morning.
Yes, Gordon you provide great color about.
The impact that we've seen so far with the U S infrastructure Bill obviously unfolding the way you thought.
Youll be finishing the year with strong organic growth.
Wondering if you could based on your comments about the timing for the U S infrastructure Bill whether it would be fair to expect an acceleration in the organic growth in 2023.
Or.
<unk>.
Look at the organic growth expectation.
We havent really as you know of course, we haven't put out our guidance yet for next year, but I think if you were to look at the the macro environment certainly.
The speed and the the number of projects that we will see coming out of IAG, particularly in the infrastructure space, we'll look to accelerate now we're going to be coming off a higher comp as well.
But certainly I do think that theres going to be some great opportunities coming for us in 2023 in the U S infrastructure space absolutely.
Okay, perfect and on the water side you provide some color about the upcoming program eight could you provide an update on the <unk> program, so far and maybe more color about the expectation for the forthcoming and program and maybe the timing.
Yes, so we're well into the five year Amp seven program really is unfolding as we had expected.
With the work that we're doing for our clients really throughout the U K there, but some of them were beginning to talk about re procurement for app eight already and typically the way that that works is.
Not quite yet, but soon they will put out there their plans to the regulator in terms of their capital spend and so on the regulator then reviews them because based on that capital spend is one of the things that would impact water rates to the user community. So there'll be looking at.
Drought resistant leakage reduction.
Regulatory burden that overflows and what's the capital program that needs to be put in place in order to deal with these over the next the <unk> <unk> cycle from that then they'll work with the regulator confirm what those are and get back to us. So we're not quite at that stage yet but.
Many of our clients are beginning to look at it so.
The the wisdom on the street is at the <unk> spend will be higher than <unk>, seven, but I couldnt quantify it quite yet.
Okay, perfect and maybe last question for care results you provided great color great explanation about the 86 days for DSO.
Obviously the outlook is still very robust looking at 2023.
I'm, just wondering whether that target.
Low 80 days is still achievable or you could back up you could go back up.
80 days, let's say looking forward beyond Q4.
On the back of the strong market environment.
Hello.
Mike My personal preference.
Yes at 80 days or below and I do believe that that was achievable.
And so that is certainly what we're going to strive for.
Seeing any reason once we get past this big push in the fourth quarter and to get to a steady state on current notes.
And that we shouldnt be able to achieve and so I'd say for now.
What we will be aiming for.
That's great. Thank you for the time.
One of them.
For our next question.
Our next question comes from Michael <unk> with TD Securities. Your line is open.
Thanks, Good morning.
Good morning.
Cord or trees. So I'm wondering if you can talk about your confidence in the outlook for your global geographic segment.
And I guess, specifically I'm looking at the change in organic.
Organic backlog growth for global this quarter.
It does sound like you remain upbeat, but curious about the year to date organic backlog growth in that region moving down to three 2% in Q3 from 13, 4% in the second quarter.
Yes.
The one thing also.
Firstly, just to say, we're not overly concerned with that with that.
That backlog growth, there's a number of our big pursuits that are in the pipeline.
So sometimes these things are a bit lumpy. So we're not overly concerned with that also global had our highest organic growth, but just roughly 14%. So we're chewing through we're consuming a lot of that backlog as well. So I think when you kind of look at the overall growth.
It's a combination of just some lumpiness in terms of when some of these awards will be made and that high organic growth.
Consuming that backlog, so not overly concerned with it at this point.
Okay.
Secondly.
Pleased to hear that youre, not seeing any slowdown in overall activity to any degree any material degree due to the rising rate environment and inflationary pressures.
I think I can understand why that would be the case as it relates to public sector work, but on the private side.
I guess, if you could just confirm that.
That is in fact true you're not seeing sort of anything on the private sector side either.
Why do you think that might be like how our clients are.
They are dealing with the rising rate environment and higher.
Costs for projects like how are they contending with that and.
Where are they finding additional funding if needed and so on and so forth.
Yes no.
And so to answer your first question I think you are your statement is right. We certainly that is the case on public sector projects, but.
As we've queried our various business leaders, specifically about the private sector, we havent seen any it really uptick in projects being delayed or.
Or canceled and so.
As to why why that is I, just think that theres still a lot of underlying fundamentals and we've talked about some things like the the big Logistics Center that we're working on in southern California, and so.
We've had inter.
Interest in that that facility is still very high we've seen no no indications of slowdowns there were from other similar type project. So.
If interest rates go longer higher for longer if.
If the economy slows and perhaps we'll see something going forward, but we're really not at this point, yes, I think the other thing that we're seeing.
Specific to the U S with Michael but the Iras lending is helping to support private investment so perhaps blair.
Project components would have may be pulled back a little bit with this funding that's being made available to them.
The IRS funding as well, we're seeing driving pretty significant investment in energy transition and so much of that work supported by the funding that's going to be available.
These stimulus programs are working to drive investments in ways that they were intended.
Okay. That's helpful. Thank you and then lastly.
Just a question about the sustainability of the strength Youre seeing in Energen resources, it's been one of your better performing.
<unk> units on a year to date basis, but it was I think the best performing business unit from an organic growth perspective in the third quarter.
Gordon I think you mentioned some of Thats being driven by renewables activity.
So I can appreciate that it's probably.
And a long tail on that type of work, but as it relates to the oil and gas piece has that been a major contributor and just given that more cyclical area. How do you see that.
Looking going forward.
And again, just a question on the sustainability of that strength.
Yes, no no a great great great observation, so with the renewable side of it absolutely.
That has been growing and I think that that will continue to grow we're also seeing.
From a power perspective, a lot of work coming from grid hardening or.
The movement of.
Taking above ground power lines, putting them underground so theres a lot of power grid type work that is coming out of that power group as well. We're also seeing strength in the mining sector.
While we've seen a little bit of softening recently in copper and iron ore a lot of the investment decisions have been made in those projects that we're working on are still continuing to move forward. So renewables is strong power in general is strong mining is strong from an oil and gas perspective, we've seen that.
Those fees as a.
Percentage of our overall net revenue has sort of continued to decline over the last several years.
Recall that for us are oil and gas is really a midstream pipelining work.
And so we're still active on a number of those but as those as those projects continue to wind down.
I think we've seen the.
Oil and gas.
We're sort of.
Being the percentage of that reflecting in our backlog continues to trend downwards. The one thing that we are those supporting a number of our oil and gas clients is with some <unk>.
Transitional type work, we're looking at.
Our pipeline for the most part of the pipeline, whether it's carbon sequestration or natural gas. So we're talking to clients about sort of moving in those directions. So the question will be going forward does that still called oil and gas because its oil and gas client, even though it's a carbon sequestration pipeline. So those are some of the things that we're working through there so.
No I think we're seeing good long term tailwind for that business.
Okay. That's helpful. Thank you.
For our next question.
Our next question comes from Ian Gillies with Stifel. Your line is open.
Okay.
Good morning, everyone.
Good morning.
It's obviously been a very cheap.
Challenging hurricane season in the U S.
And I know stands out with a long history of disaster recovery work in helping there.
Can you maybe remind us of how long work like this typically tends to show up in the backlog and if you and whether it tends to be material or not.
The growth profile.
Yes, so absolutely after some of the recent hurricanes that have come through.
We have a cruiser our on the ground virtually immediately assessing damage as an example would be in Puerto Rico with some of the electrical grid.
Issue that we had there I think we had 14 or 18 cruise out in different areas of Puerto Rico looking assessing damage and then coming up with remediation plans. Similarly in the.
In the mainland United States. There is always there's drainage pump stations sewage solicitations that are that are knocked out. So we're typically involved in and working with some of those things in terms of it being material we haven't.
It can be significant but but we don't see it really being.
Material to our overall portfolio, but one thing to note is the length of time that some of these projects take we've talked previously about the the big lift station. The PCP those stations that we've put in New Orleans following Hurricane Katrina.
And we commissioned that pump station roughly 10 years. After Katrina. So firstly there is there is that there was the hurricane and flooding then there's the recovery from that then there is the design of the new pump station the construction and the commissioning so a lot of these projects take multiple years as we work through.
Now 10 years for Katrina that was probably a bit on the long side, but it's not particularly it wouldn't be completely unusual that we see that sort of thing. So it's absolutely short term recovery work, but then long term design end.
Commissioning where it also.
Okay. That's helpful. And then the backlog is obviously very very healthy youre, adding head count, but Gordon is there any increased level of concern that you're not going to be at being able to add people click an option you could end up with some disappointed customers.
Just because you can't quite get to the volume of work.
Yes.
It's something that we look at.
All of the on every pursuit that we that we that we chase and that if we can't deliver it in with the quality that we want along with the timeline that we've promised then then we'll either look for partners, who can help us get it done look for sending additional work towards delivery centers, either in India or vanilla look for other ways to make it.
But yes, we specifically though.
We won't go and take projects.
If we don't have a clear sight to how we could deliver it on time.
Okay, maybe if I could sneak in a quick follow up.
To a point you just made is there any intention.
Are there any plans to add additional delivery centers.
In international jurisdictions in 2023.
I think what we'll really be focusing on is continuing to grow our existing we've over the last year or so we've added a touch over 20% in terms of head count to our our delivery center in Pune in India, and we're still it's early days for us with our delivery center in in Manila, but.
By all accounts a good group there. So I think what we'll be doing is focusing on how to grow those existing centers before we would be looking to add additional centers.
Okay. No. That's helpful color. Thanks, very much I will turn the call back over.
Great. Thank you and I'm not showing any further questions at this time I'll turn the call over to Gordon for any closing remarks.
Okay, well, thanks, Lee I'd like to thank everyone for joining us today and I look forward to engaging with many of you throughout the quarter. So if you have any follow up questions. Please feel to reach out to suggest our vice president of Investor Relations and have a great day everyone.
Thanks, everyone.
Ladies and gentlemen, this does conclude today's presentation. You may now disconnect and have a wonderful day.
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The conference will begin shortly to raise Johan during Q&A you can dial one one.
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Okay.
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Okay.
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