Q4 2022 Stantec Inc Earnings Call

February 23, 2023

The conference will begin shortly.

Reason lower Johan during Q&A, you can dial star one one.

[music].

Yeah.

Hi.

Welcome to <unk> fourth quarter and year end 2022 earnings results webcast and conference call.

Leading the call today are GOR Johnston, President and Chief Executive Officer, and Theresa Jang Executive Vice President and Chief Financial Officer.

<unk> invites 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 statement qualification set out on slide two detailed in <unk> management's discussion and analysis and incorporated in full for the purposes of today's call.

Otherwise noted dollar amounts discussed in today's call are expressed in Canadian dollars and are generally rounded.

With that I'm pleased to turn the call over to Mr. Gore Johnston.

Okay.

Good morning, and thank you for joining us today.

We're very pleased to report record Q4, and full year 2022 adjusted earnings per share of <unk> 82, and.

And $3 13, respectively.

Our results reflect the solid execution of our multiyear strategy and clearly demonstrates the resilience growth and demand that we're seeing for our business.

The outperformance of our guidance for the year was attributable to a very solid fourth quarter, where we achieved double digit organic net revenue growth above our expectations.

For the full year, we generated an all time high of $4 $5 billion in net revenue.

All of our regions and business units delivered organic net revenue growth in the high single to low double digit range, demonstrating the strength of our diversified business model.

This also shows how well positioned we are to address the trends of increasing investments towards aging infrastructure reassuring of domestic production and climate change.

Particularly notable environmental services net revenue grew by almost 50% primarily through acquisition, but also from nearly 10% organic growth.

And importantly, the topline increase of 23% was exceeded by bottom line growth of 29%.

Looking at our results by region.

Both public and private investment continued to drive high activity levels in the U S.

In 2022, we grew U S net revenue by 26% overall with.

With over 9% organic and 13% acquisition growth.

Our work on large scale water security projects in the Western U S helped drive double digit organic growth in water.

And buildings, we continue to see activity levels rebound with investments flowing into healthcare.

Vivek.

Industrial and the science and technology sectors.

Energy and resources had strong organic growth with acceleration of activities related to renewable energy and mining projects as well as reservoir and dam projects all related to the energy transition and energy security.

We also delivered solid organic growth in infrastructure from work on projects in transportation as well as in industrial and residential land development activities.

Our results reflect how well aligned our U S business is with a major trends and government funding sources available.

Canada continued to perform very well with sustained year over year growth that exceeded our expectations net revenue was up almost 8% organically for the year.

Similar to the U S. Both private and public spending was robust in Canada.

We had solid performance in environmental services with ongoing demand for permitting work and archaeological services power.

Power transmission and distribution and energy transition work continued to spur growth in energy and resources.

Our buildings group continued to drive growth with projects in healthcare and mixed use commercial.

And infrastructure captured opportunities in community development in Western Canada, Bridgework across Canada and in recovery efforts associated with the flooding in British Columbia in late 2021.

And global we generated over 35% net revenue growth, 11% organically and 28% from acquisitions.

Our industry, leading water business continues to be a significant pillar for us capturing long term framework agreements in the U K, Australia and New Zealand.

We saw strong demand for our services and community development.

In mining driven by strong pricing for metals, and an environmental services for field work.

We are exceptionally pleased with each of our regions and business units, which are all benefiting from the themes that we've been discussing.

Beyond our excellent financial results I'd like to express how proud I am of our achievements and commitment to sustainability and enhancing our communities.

We have recently provided with great recognition from corporate Knights as we were ranked in their global 100, most sustainable corporations in the world.

Out of nearly 7000 corporations corporate Knights reviewed we were ranked first among our peers and number seven overall.

We have not been included in the corporate Knights Global 100 for four consecutive years.

I will turn the call over now to Theresa to review our financial results in more detail.

Thank you Glenn and good morning, everyone.

Starting with our Q4 results, we had an exceptionally strong finish to the year, which drove our full year results to outperform our expectations.

We grew gross revenue by 28% to $1 5 billion and net revenue by 23% to $1 1 billion.

Net revenue growth was 10, 6% for the quarter with strong growth achieved in each of our regions and business units.

Canada and the U S were particularly strong as we benefited from our long longer field season in Canada due to milder than typical weather.

And building momentum in the U S, where several business units achieved over 20% organic growth for the quarter.

Project margin was very solid at 54, 9% and adjusted EBITDA reached 17%, a 150 basis point increase over Q4 2021.

Fourth quarter EPS of <unk> 66.

Compared with 15 cents in the prior year and adjusted diluted EPS of <unk> 82, compared with 57 last year, an increase of 44%.

For the full year 2022, we generated gross revenue of $5 7 billion in net revenue of $4 5 billion, an increase of 24% and 23% respectively.

Project margin was a solid 54, 2% a 20 basis point increase.

And adjusted EBITDA increased by 26% to $724 million.

<unk>, our highest ever adjusted EBITDA margin of 16, 2% and this was at the high end of the range, we set for 2022.

We also advanced our 2023 real estate strategy.

2022, we achieved approximately 34 per share of cost savings relative to our 2019 real estate costs, largely achieving our 2023 target of 35 to 40.

A year early.

We estimate that on a pre <unk> 16 basis. These savings would've increased adjusted EBITDA margin by more than 110 basis points.

In terms of square footage, we have thus far reduced our footprint by 28% also largely in line with our target of 30% from 2019 baseline.

As a result of our strong performance our full year diluted EPS reached $2 22, and our adjusted diluted EPS was $3 13 both.

Both of these are also record high with respective increases of 23 and 29%.

Operating cash flow for the year came in at $304 million and Levered free cash flow was $76 million.

So at the end of December was 81 days, a five day reduction from the third quarter as.

As we expected with the completion of Cardinal financial migrations cash flows began to normalize in the fourth quarter of 2022.

Which was moderated by stronger than anticipated revenue growth in the fourth quarter driving additional net working capital investments.

This also brought our net debt to adjusted EBITDA down to one six times, which is in the middle of our target range. We closed the year with adjusted ROIC of 10, 5% driven by stronger than anticipated Q4 earnings and reflecting a 20 basis point increase over 2021.

With that let me turn the call back to Gordon for our 2023 Outback.

Thanks Teresa.

At the end of 2022, we had $5 9 billion in backlog, an increase of 15% year over year, 10% organically and which represents approximately 12 months of work.

Our backlog does not yet include any meaningful contribution from U S stimulus spending, but we expect this to provide further tailwind in 2023 and beyond.

On the strength of our backlog and as momentum builds for investment spurred by government stimulus around the world. We feel very confident that 2023 will be another strong year for <unk>.

Even with the high comps from 2022, we expect to deliver strong organic net revenue growth in the range of mid to high single digits.

Looking now to the U S.

With over 50% of our revenue generated in the U S. We expect this region to continue as the key driver for 2023.

After delivering almost 10% organic growth in 2022, we expect another solid year with organic growth to be in the high single to low double digits.

Funding from the <unk> is expected to be slower in the first half of the year and to accelerate in the second half bolstering our infrastructure business unit.

Buildings continues to see great opportunities in both healthcare and adaptive reuse.

In water increasingly frequent and extreme climatic events are driving investments in resilient infrastructure to protect against flooding hurricanes and storms searches.

Investment spurred by the IRI is expected to accelerate renewable and other energy transition projects like the <unk> project that we announced last week.

At $2 5 billion.

This is the largest solar panel manufacturing investment in U S history and passage of the IRR was a major driver in helping this project move forward.

The <unk> project is also a prime example of the growing trend towards restoring production and derisking supply chains, bringing production closer to demand.

Another Great example of streamlining supply chain is our recent announcement on being selected as the prime consultants on the multibillion dollar World Logistics Center project in California.

Standard because ideally positioned to provide multi disciplinary expertise to these major projects and we're confident in the opportunities that they will bring.

After a very strong year in Canada, we expect continued high levels of activity in 2023 organic net.

Net revenue growth is expected to moderate relative to 2022 to the low single digits.

Specifically, we see our water business continuing to grow with several major projects ramping up.

We expect continued strong demand to support the energy transition and the need for increased community development.

And we expect high levels of activity in our environmental services and buildings group three remained stable over the year.

Our global business has meaningfully grown in recent years, both organically and through acquisitions.

And we see ongoing strong demand in 2023 and anticipate organic growth to be in the mid to high single digits.

In the U K, Australia, and New Zealand, our buildings business is expected to have strong organic growth due to the need for healthcare science and technology and commercial mixed use development.

Growth will also be driven by high levels of activity in our water business, where regulatory or drivers are a strong factor.

We also expect to see increases in community development in the U K, where we're one of the top three planning consultancies with.

With a long lead time for development and permitting in the U K. This sector continues to push forward.

Transportation activities will lead the growth in Australia, as one of the raising of dams mining and overall energy transition initiatives.

Overall, we expect to drive another solid year of net revenue growth.

The 7% to 11% range shown here will come primarily from organic net revenue growth.

It also includes some contribution from the acquisitions, we completed in 2022, but no other acquisitions are factored into this outlook.

In 2023, we're targeting an adjusted EBITDA margin between 16 and 17%.

And our goal is to deliver adjusted EPS growth between nine and 13% over 2022.

Further gains may come from M&A as our M&A pipeline remains full and we have the balance sheet strength to capitalize on opportunities that fit strategically for <unk>.

With a favorable market backdrop and engaged workforce, a full M&A pipeline and a healthy balance sheet. We're very optimistic for 2023 in the years ahead and with that I'll turn the call back to the operator for questions operator.

Thank you as a reminder to ask a question. Please press star one one on your telephone and wait for your name to be announced to withdraw your question Press Star one again.

Yes.

One moment, while we compile the Q&A roster.

And today's first question will come from the line of Jacob bout with CIBC. Your line is open.

Good morning.

Good morning Jacob.

I wanted to square 2023 guidance with your backlog in the fourth quarter. So specifically in the U S.

It actually the U S backlog actually dipped.

Quarter on quarter.

But you are guiding to some pretty solid organic net revenue growth. So.

Hearing your commentary is kind of a first half second half type story.

Maybe just a bit more detail on the floor.

Hi.

Hey, Troy.

When projects.

Do you expect that to ramp.

Second half I think is what you said, yes.

Yes, yes.

Currently the IHA funding, we're starting to see clients putting out.

Proposal calls now we do have a little bit of that work already in the backlog and we are generating revenue from it but we're not actually a couple of things about the U S backlog not concerned about that at all certainly are the U S backlog did drop a bit in Q4, we had 13 13, 5% organic growth in the U S and.

Quarter. So we're drawing down that backlog I think you would have seen the same in global that our backlog actually dropped a little bit in Q4, but again not concerned.

Q4 is always a.

A bit of a lower quarter for us for backlog growth and I think that coupled with the extremely strong organic growth that we had in Q4 naturally drew that backlog down a little bit, but as we talk to our.

Through our business leaders as we look at our pipeline of opportunities we're.

We're not concerned with the backlog and we feel very solid with our projections for 2023.

And then my second question is just on the reduction of the real estate footprint.

You say you accomplished through 2023 targets in 'twenty two essentially.

You accomplish that how far do you think you can take this it sounds like you're around 28% you're targeting 30% can you take it to 35 or how you're thinking about that right now.

Yeah. So.

Think 30% is achievable and again that has been based on the footprint. We had back in 2019, so that remains the target.

We begin our work on the next phase of our strategic plan.

Are now starting to evaluate what else is possible.

Given the acquisitions, we've done in recent years, but also considering.

Office occupancy and.

What's the what's the landscape looks like for real estate in various locations. So I do think that there is more as possible.

But that will come in the form of our kind of our next.

Strategy for optimization.

Thank you.

Thanks Jacob.

Thank you one moment for our next question.

Okay.

<unk> with <unk> Your line is open.

Yes. Good morning, good morning, Gordon congratulations for the strong finish.

Just looking at your organic growth outlook by region remained pretty bullish across the board and I would expect the U S infrastructure Bill and the border program.

To bring momentum for the foreseeable future but.

How should we be looking at your ability to raise margin beyond the 16, 17% level that you assume in 2023.

Hi, Dan.

I think the 16% to 17% remains an appropriate target for us.

I've always said that there are there's not one one thing that that tier one dial returns that will give us increased margin as many things being done right all the time.

What you saw in the fourth quarter.

This past year was.

Increasing utilization.

Is that as always.

One of the best ways for us to improve our margin.

And so we do feel good about achieving that range again in 2023, but again, there's always there's always set out instead of pushing against that whether it's.

Inflationary.

The impact on our overall cost structure and so on and so we have to remain pretty diligent and focused on keeping our costs down.

And ensuring that we are.

It's highly utilized as possible and so I think that that is the right range for us.

Okay, and maybe could you talk about your ability to staff given the strong demand that you're seeing.

No.

Yes, so one of the things that as we as we went into the global pandemic one of the things that we had stated was that we wanted to be continue to be a net attractor or a net importer of of talent. During these periods of uncertainty and so we can say now that for full year 2021 and for full year 'twenty two.

We hired more staff than who left us through voluntary.

Our resignations and so we do continue to build the backlog of sorry to build our head count two to service that and you saw that little bit of that in Q4 to the high organic growth rates. In addition to that we're working hard with our innovation groups to look at how we can use digital products to generate more revenue per.

Employee.

And then thirdly, where we're looking to continue to expand our growth and our and our integrated delivery centers in both Pune, India and in Manila in the Philippines. So.

There's a lot of different levers that we're looking to for us to continue to service that.

Backlog that we've got.

Okay very quick one last one just in terms of backlog.

Given the big announcement that we've seen over the last couple of weeks with Q cells in the world The logistics Center.

Would it be fair to expect or what kind of backlog could we expect in Q1 2023.

On the back of these announcements.

Okay.

We do think that our backlog in Q1 will certainly increase over where we were in Q to Q4 of 2022.

But those arent the only jobs that are coming in.

We've acquired some some additional jobs.

New projects and in Europe , and in other regions as well. So we do expect that the overall backlog in Q1 will be up over Q4 last year.

Okay. Thank you very much worth of time.

Thanks Ben.

Thank you one moment our next question.

And.

Yuri Lynk with Canaccord. Your line is now open.

Good morning nice quarter.

Good morning, Gary.

Good morning.

Good I don't recall.

<unk>, putting up sequential EBITDA margin.

Improvement in the fourth quarter versus the third.

Which is what you did.

In the last year was there anything I know you came out on the top end of organic growth.

Is that the reason I mean, it was better better utilization or was there anything noteworthy in the fourth quarter that.

It would have driven the margin.

Up where we normally see a decline sequentially.

In conjunction with that.

<unk> kind of implies that Q1 and Q4.

Will be bigger.

Contributors then I think in the past so is there a change in your earnings.

Earnings profile.

Yeah, Gary maybe I'll take a crack at that for Q4, EBITDA certainly was I would say atypical in terms of increasing.

Increasing relative to Q3.

And so I think a couple of factors you're right.

Increasing utilization certainly played a role in that and again, we point to the the longer field season, we had in Canada.

The northern parts of the U S as well where winter didn't show up for a while.

<unk> allowed us to stay more highly utilized for longer.

As we've been saying really through two.

2022.

We're expecting to see a ramp up of utilization in the U S. As these projects kind of got going.

And I'm, sorry did you reach that part of the cycle, where we have.

Many more of our workforce.

Working on those projects, so that thats been part of what we saw as well.

And then beyond that.

And trying to keep our cost.

Costs down.

We didn't have a big impact on <unk>.

Our share share based comp, which historically has had a bit of a reevaluation lumpiness caused that expense to go up in the fourth quarter. We didn't see that this year. So a couple of things like that.

It really drove it.

As far as what.

But we expect sorry at this one more thing that comes to mind in Q4 that is a bit unusual and it relates to.

The uptake on our employee benefit costs were year over year. It was it was actually very.

Very similar.

But for whatever reason uptake was higher in the first three quarters of the year and lower in the fourth quarter and that having a bit of an impact on a quarter over quarter basis.

So when we look at.

Q1, Q4, which is looking to be a little bit higher than what we've traditionally seen Phil will.

Got it to be slightly lower quarters than the second and third quarter. Some of that is just a growing global footprint, where seasonality is less of an issue.

And I think we're seeing the effects of that and again just you know continued.

Levels of activity that we're seeing in the U S that will come from these various funding sources.

The primary driver for the slight shift I would say is in the seasonal pattern.

Okay that makes sense.

And my follow up question just to just a gourd you talked about the bookings.

The backlog, obviously, you burned a lot in the quarter I get that.

But the absolute <unk>.

Level of bookings.

Was well below what we've seen in the last four quarters. So.

Anything to call out there in terms of.

Booking activity or maybe any more cautious stance on behalf of your clients.

No not at all actually I think it's a lot of it is just.

Seasonal type work things are a little bit slower in getting people getting things paper in the quarter. So I do think that we'll see that rebound here back in Q1, we've already got a number of significant project announcements in our different regions. So yes, no no concern at all with that.

Okay. Thanks.

Thanks Kurt.

Thank you one moment for our next question.

And that will come from the line of <unk>.

Devin Dodge with BMO capital markets. Your line is open.

Thanks, Good morning, Guoguang Pizza.

Great.

Bob.

I'm wondering about one of your earlier comments.

We've made good progress on expanding the workforce.

2022.

Do you expect a similar level of net additions in 2023 in order to meet that mid to high single digit growth in your guidance.

And can you touch on maybe the general labor environment in terms of availability in the level of wage inflation that you are saying.

Right. So yes. So we we are of course active will continue to actively hire I think another thing that we've seen is that.

Voluntary turnover rates have begun to stabilize so were not losing as many people. There I think anecdotally. We also see that we continue to be between two three even 4% below many of our competitors in terms of voluntary turnover rate. So so that's a positive we also are being very.

Fortunate any number of people that were able to onboard and what's interesting is that both at the junior level at an entry level, but also at very very senior levels. We're having we're attracting because of the strength of the brand in some of these big project Awards that we've that we brought in the door, we're getting some very very senior people joining us for our <unk>.

<unk> as well.

We're feeling good about the hiring.

But again in addition to the hiring we're seeing the benefits of that innovation program as we talked about and also our integrated delivery centers in Pune.

And in Manila.

You talked about wage inflation, yeah, so well.

What we had.

Average for our overall salary increases this year within that sort of 4% to 5% range. So certainly higher than we have seen in past years.

That's what we've incorporated into our our salaries and wages effective Jan one.

Okay. Good color. Thanks, and then maybe another question just for Teresa here working capital we saw good progress on DSO in Q4.

But still a fairly meaningful working capital usage in 2022.

Just wondering how we should be thinking about working capital as we look out to 2023.

Sure. So yes, we did see DSO come down as we expected and I think that when you. When you look at our working capital and how it shifted from Q3 to Q4.

You saw them.

A meaningful progression, where it moved from within to Ari's that'd be helpful weapon to HR and then the cash comes in the door and so that is the movement that we saw that I think is very.

Very encouraging and tells me that we are again, Ron on the right track.

We still are targeting.

DSO level.

Less than 80 days 80 days or last I should say and that remains an appropriate target for us.

And so I think that that will that will start to see again to have working capital continued to normalize as we as we go through 2023 here.

Okay.

Should we expect working capital vehicles the funds in 2023.

Sorry, I just I just missed the last part of your question is it sounds not great. Unfortunately.

Working capital should it be a are you expecting it to be a source of cash in 2023.

Sorry.

Am I expecting working capital to be.

I'm really sorry, the sound on the speaker phone is really terrible.

Is it a thoughtful capital use of cash in 2023, okay sorry.

Well I mean, it ought to be a source of cash given.

Given what were expecting the only the only reason I'm hedging on that a little bit. This is of course, it's going to depend on the rate of growth and as you grow it requires a greater investment in working capital.

And so I would say you know maybe the right way to say it is often being equal it should be a source of cash, but if we continue to grow at a.

At a rapid clip you might see it more a more neutral just based on the need to continue to invest in that working capital that serve as the revenue growth.

Okay understood congrats on the good results I'll turn it over.

Thank you.

Thank you one moment for our next question.

And that will come from the line of Michael <unk> with TD Securities. Your line is open.

Oh, Thank you good morning.

Good morning, Michael.

I guess first question is just regarding the organic net revenue growth outlook, so calling for fairly solid organic growth in 2023 in the mid to high single digit range.

Can you talk about some of the puts and takes that would lead you to the higher end of that range versus the lower end of that range.

And then can you also touch on how you see organic growth in 2023 looking across your various business units.

Sure so.

There is some we talked about some of the different regions.

Organic growth in the high single to low double digits, and that's off a pretty strong comp this year already but when you look at the opportunities that we're seeing there we talked about.

<unk> supported by IRI.

There's other opportunities like that that are that we.

We continue to be in discussions with certainly the chips and science continues to drive semiconductor opportunities and we're in discussions on a number of those as well right now and then of course, the big one is the <unk> and the support that that's going to get the infrastructure overall, so really a big part of of <unk>.

As we look at organic growth of that next year. All the backdrop is there but some of it is really just how fast that stimulus spending starts to flow how fast the clients can get those proposals out how fast we can get working and generating revenue. So.

We're working with a number of clients now on on as they are beginning to position, but that'll be it.

That will certainly have an impact there.

And then.

And when we look in Canada, good opportunities here in Canada.

A high comp as well, but we don't see that same level of general support in Canada. So we see continued solid growth there, but we've guided to that low single digits.

Globally, though we see great opportunities and we're guiding to the mid to high single digits off of our already very strong 2022, and we're looking certainly at opportunities in the water in the U K, Australia, and New Zealand as we've talked about interestingly.

Interestingly in the U K, we are beginning to see some.

Some re competitions coming out for <unk>, eight and we see.

Great opportunities there, we feel like we're positioned very very well so.

I think overall, we're feeling really good about 2023 and our guidance.

That's helpful. Thanks, and I know some of this touches or relates to some of the the the government programs and spending in the U S. But are you as bullish on the <unk>.

Look for the broader Earth environmental energy transition related work that I'm as bullish as you have been in the past on that front.

Absolutely.

Lot of the energy transition work again will be supported by <unk>.

And but even absent that in other regions around the world, We're seeing a lot of interest in solar and wind pump storage and so on so yes, we're very very positive on both what that means for our environmental business, but also our larger design focused business as well.

Okay perfect.

And then you mentioned just briefly at the end of your prepared remarks that.

But you do have a full M&A pipeline.

I know you get typically get asked about this in one way or another every quarter, but is it possible to expand on that a little bit perhaps talk.

And a little bit more detail about what the pipeline looks like where you're most focused right now as far as acquisition opportunities.

How active you think it might be this year and what youre seeing in terms of evaluations.

So we.

We see great opportunities for for M&A activity really in all of our regions, Canada. The U S and global and we're looking at we're always talking to firms that are both.

Various sizes smaller firms larger firms different lines of business and sometimes it's a bit lumpy and we have to see what firms like come available when we can get our our valuation.

To coincide so.

We're always in different levels of conversation with firms around the globe, but we certainly are hopeful that there'll be some things that we'll be able to transact here in 2023.

Okay, sorry, and just one follow up on that court again, I know, it's hard to predict.

What what opportunities will look like but.

Are you more focused on the smaller and medium sized opportunities or should we expect that there is a possibility of something on the larger side as a as we saw with Cardinal for example.

There are some some very solid opportunities both in that small to medium size that we're always engaged with but also from from a larger perspective, and I think that what we've seen through Cardinal is.

We we feel we're very comfortable taking out a firm of that size or larger and successfully integrating <unk>. So we're absolutely looking at at those firms as well.

Okay perfect. Thank you.

Thanks, Michael.

Thank you one moment for our next question.

And that will come from the line from Friday, Frederick Bastian with Raymond James Your line is open.

Yeah.

Good morning, Gordon and Teresa and congrats to you and the team for the strong results.

Yeah, Thanks very much.

My questions revolve around the most your most important asset which goes home at night every every day.

I appreciate that attracting and keeping talent is always a top priority for <unk>, but.

Can you comment on how that might have changed in the past 12 months specifically.

Labor availability getting better.

And are you seeing some of the cost pressures that you were experiencing maybe a.

A year ago getting better are easing.

Yeah. So a couple of things there certainly youre right. Our primary asset is our people and we want to ensure that there that all of our <unk> employees are engaged they feel connected to the company and our long term growth plans and we feel really good about that.

From a labor availability perspective, we are seeing greater opportunities. There certainly as we continue to grow our digital product offerings, we're seeing with some of the reductions in some of the tech companies. There are additional very very strong resources that are available in that space.

But overall I.

I mentioned that earlier that both from a junior employee perspective, but also a very very seasoned people, who often will bring teams with them, we're having great success in attracting attracting those people.

And in some ways that's the best.

That's your <unk> acquisition strategy really is to.

To be able to recruit people for nothing really.

I would say nothing but it's.

Uh huh.

Now when discussing with potential targets are you finding that their expectations are getting.

Are they getting more reasonable given the volatile environment, where we're in.

Yeah. It certainly is still a competitive environment for talent, but we are seeing people's expectations moderate a little bit.

We're not seeing some of the people coming to us as Austin with 2030, 40% salary increases because.

Request for that because other firms aren't.

Arent offering those anymore I think we're seeing some moderation there.

Okay, great. Thanks, I'll pass it on.

Great. Thanks Fredrik.

Thank you one moment for our next question.

And that will come from the line of <unk> with RBC capital markets. Your line is now open.

Okay, great. Thanks, and good morning, just I guess a question on kind of the puts and takes in terms of EBITDA for 2020, so it looks like in.

In Q4.

Gross margin was it a little bit down, but then even more than made up by SG&A. Just wondering how we should think about.

2023 should we just looked at the full year run rate for those two metrics as we think about 'twenty three or was there anything in Q4 that we should keep an eye on that might continue as it relates to kind of those two line items.

Yeah, So I'll start by saying that for broadly when we think about.

Ranges for our project margin gross margin that 53% to 55% is the right range for us.

It's going to move around a bit based on.

Our project mix.

And and of course, we are kind of in a nice spot now where we can be a little bit more selective and I think that's why you've seen that that margin.

Move up a little bit year over year.

And so.

It's still our focus in terms of a project.

Our project margin in that in that.

The 5% range and EBITDA as I said earlier in that 16% to 17% range is the appropriate target for us. So in Q4, there were a couple of things that were a bit atypical I would say, particularly compared to Q4 of 2021. So in 2021 in the fourth quarter we.

Had increased share based comp.

We had an onerous lease costs that were higher than we had this year.

So a couple of things like that that made that.

That makes sense.

Admin and marketing as a percentage of net revenue higher in 2021 than in Q4 of 2022, and then when you look over although the year over year basis.

Admin and marketing percentage was actually quite consistent.

At around 39%, maybe 39 plus.

Basis points. So again, we like to think of that as being in that 37% to 39% range, excluding unusual things like onerous lease costs and that kind of thing.

So with that again is what will drive to that 16% to 17% EBITDA margin.

Okay, Great and then just I guess, one other regions it sounds like the U S. Obviously a lot of.

Bigger picture tailwind, maybe if you could just provide a little bit of color on Canada.

Maybe a bit more color by end market, you know, which ones do you would expect strengthened this year versus the ones that might be tougher comps and maybe maybe what are the other the regions, where the bigger funding mechanisms that are driving demand in that market, it's a bit more color there.

Yeah. So we see some great opportunities still in Canada without question our.

Our Es group had a really our environmental services group had a really strong year in <unk>.

In 2022, we expect that to continue in 2023 lots of environment mental work lot of permitting work lot of archaeological work.

So that's a very very strong our community development group, we see to see very strong as well. It's interesting I was I was meeting with some leaders in the overall residential development market.

Several weeks ago in Toronto.

As we talk about over the last decade on average in Ontario, We brought about 70000 residential properties to market on an annual basis, but going forward with the immigration commitments that the government has made for the next 10 years in Ontario alone will need up to a 150000.

<unk> properties per year, and so strong strong.

Long term backdrop for affordable housing additional properties, there and then certainly our water group I think youre going to see this year very very busy.

We've announced a couple of very very strong projects that we've got before in Ontario and <unk>.

In Saskatchewan and certainly in British Columbia, So we feel really good about that and then on the building side lots of health care work ongoing.

So we I think it's pretty broad based really.

Across the end markets that we feel good about Canada.

But we don't see that sort of approaching double digit mid.

<unk>.

So at high to single to double digit growth like we see in the U S. Canada is going to have a good year, but it won't but from our perspective, we don't think it'll be as strong as the U S will be.

Great. Thanks very much.

Thank you.

Thank you one moment for our next question.

Will come from the line of Maxim <unk> with Mds. Your line is open.

Hi, good morning Gordon.

Good morning, Matt.

Most of the questions have been asked but I just wanted to circle back to them.

Obviously the amount of people that you guys are hiring right now I'm curious to hear if maybe to change something onboarding practices just to make sure that people get up to speed.

Small cell will just just any comments there.

Yeah.

Absolutely right and so from an Onboarding perspective, we're always looking to how can we make that more efficient. There is there are certain things that we need to do is we bring people on welcome I'm sure to ensure that they are they feel part of the <unk> enterprise, but then it depends also on where they are in their career progression you know one thing that.

We did mention is that where in addition to hiring at the junior intermediate level that we've been very successful over the last couple of years. We're also hiring at the more senior level. So the more senior folks can come on and hit the ground a little bit quicker you know we have to teach them the <unk> systems and so on but they are ready to go whereas the more junior folks needle.

A little bit longer typically to ramp up because they need to have to they have to understand the work for us understand what our expectations are of them and so we are looking to to bring these folks on and in larger groups, which allows us to be more efficient in those those onboarding processes.

Okay. That's super helpful. Maybe I'll squeeze in one more for Tony you said in terms of.

The kind of approach to share buybacks as a trend that's.

Fair enough, but right now the focus is on organic investments.

M&A.

Oh, Yeah, I mean, the philosophy really hasn't changed.

We will always look to share buyback to the extent that it's opportunistic.

The priority on M&A as it has been historically so.

A couple of things as well.

With the.

The share buyback tax that was going to be in effect in Canada. Starting next year is something longer term that will again kind of impact the overall valuation metrics. When we look at share buybacks. We do at this point, we don't believe that the new rules in the U S will affect our share buyback in 2024, but again.

L. A topically you know M&A is the first priority.

Share buybacks when the opportunity makes sense.

Okay. That's great. Thank you so much.

Thanks Max.

And speakers I'm showing no further questions in the queue. At this time I would now like to turn the call back over to Mr. Gore Johnston for any closing remarks.

Well, Greg I just wanted to say thanks very much for everyone for joining us today should you have any follow up questions. Please feel free to reach out to suggest newkirk our.

Our IR group.

Have a great day, everyone. Thanks very much thank you.

Thank you all for participating. This concludes today's program you may now disconnect.

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The conference will begin shortly to raise and lower Johan during Q&A.

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Welcome to stand Tech's fourth quarter and year end 2022 earnings results webcast and conference call.

Leading the call today are <unk> Johnston, President and Chief Executive Officer, and Theresa Jang Executive Vice President and Chief Financial Officer, Stan Tech invites 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.

Otherwise noted dollar amounts discussed in today's call are expressed in Canadian dollars and are generally rounded.

That I am pleased to turn the call over to Mr. Gore Johnston.

Yeah.

Good morning, and thank you for joining us today.

We're very pleased to report record Q4, and full year 2022 adjusted earnings per share of <unk> 82.

And $3 13, respectively.

Our results reflect the solid execution of our multi year strategy and clearly demonstrates the resilience growth and demand that we're seeing for our business.

The performance of our guidance for the year was attributable to a very solid fourth quarter, where we achieved double digit organic net revenue growth above our expectations.

For the full year, we generated an all time high of $4 $5 billion in net revenue.

All of our regions and business units delivered organic net revenue growth in the high single to low double digit range, demonstrating the strength of our diversified business model.

This also shows how well positioned we are to address the trends of increasing investments towards aging infrastructure reassuring of domestic production and climate change.

Particularly notable environmental services net revenue grew by almost 50% primarily through acquisition, but also from nearly 10% organic growth.

And importantly, the topline increase of 23% was exceeded by bottom line growth of 29%.

Looking at our results by region.

Both public and private investment continued to drive high activity levels in the U S.

In 2022, we grew U S net revenue by 26% overall.

With over 9% organic and 13% acquisition growth.

Our work on large scale water security projects in the Western U S helped drive double digit organic growth in water.

In buildings, we continue to see activity levels rebound with investments flowing into health care.

Civic industrial in the science and technology sectors.