Q2 2024 Stantec Inc Earnings Call

August 8, 2024

Speaker Change: At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session.

Speaker Change: To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded.

Operator: Please be advised that today's conference call is being recorded. Leading the call today are Gordon Johnston, President and Chief Executive Officer, and Theresa Jang, Executive Vice President and Chief Financial Officer. Stantec invites those dialing in to view the slide presentation, which is available in the Investor section at stantec.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.

Speaker Change: Leading the call today are Gordon Johnston, President and Chief Executive Officer, and Theresa Jang.

Speaker Change: executive vice president and chief financial officer stanta invites those dialing in to view the slide presentation which is available in the investors section at stanttech com

Speaker Change: today's call also webcast

Speaker Change: 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.

Operator: All information provided during this conference call is subject to the forward-looking statement qualification set out on slide 2, detailed in Stantec's Management Discussion and Analysis and incorporated in full for the purposes of today's call. Unless otherwise noted, dollar amounts discussed in today's call are expressed in Canadian dollars and are generally round. With that, I'm pleased to turn the call over to Mr. Gordon Johnston. Please go ahead.

Speaker Change: All information provided during this conference call is subject to the forward-looking statement qualification set out on slide 2, detailed in Stantec's Management Discussion and Analysis, and incorporated in full for the purposes of today's call.

Cor Johnson: unless otherw wides noted dollar amounts discussed in today's call or expressed in canadian dollars and are generally round ed with that i'm pleased to turn the call over to mr cor johnson please go ahead

Gordon Johnston: Good morning. Thank you for joining us today. Before jumping into our second quarter results, I want to express how proud I am that Stantec continues to be recognized for our leadership and sustainability. This past quarter, Corporate Knights ranked Stantec as number two in their 2024 Best 50 Canadian Corporate Citizens ranking. In addition, Stantec has been included in Time Magazine's list of the world's most sustainable companies for 2024. We are the top Canadian company on their list and ranked 14th overall. These accolades are a testament to our authentic approach to sustainability and to doing what is right.

Gordon Johnston: Good morning. Thank you for joining us today. Before jumping into our second quarter results, I want to express how proud I am that Stantec continues to be recognized for our leadership and sustainability. This past quarter, corporate night's ranks Stantec number two in their 2024 best 50 Canadian corporate citizens ranking. In addition, Stantec has been included in Time Magazine's list of the world's most sustainable companies for 2024. We are the top Canadian company on their list and ranked 14th overall. These accolades are a testament to our authentic approach to sustainability and to doing what is right.

Cor Johnson: good morning thank you for joining us today

Cor Johnson: Before jumping into our second quarter results, I want to express how proud I am that Stantec continues to be recognized for our leadership and sustainability. This past quarter, Corporate Knights ranked Stantec as number two in their 2024 Best 50 Canadian Corporate Citizens ranking.

Cor Johnson: in addition stanti has been included in time magazines's list of the world's most sustainable companies of two thousand and twenty four we are the top canadian company on their list and rankked fourteenth overall

Cor Johnson: These accolades are a testament to our authentic approach to sustainability and to doing what is right.

Gordon Johnston: I'm very pleased with the strength of our second quarter results. Our revenue growth was excellent, and we continued to execute very successfully on our projects while driving strong operational performance across the business. Many of the long-term macro trends we discussed in the rollout of our strategic plan are building momentum.

Gordon Johnston: I'm very pleased with the strength of our second quarter results. Our revenue growth was excellent, and we continue to execute very successfully on our projects while driving strong operational performance across the business. Many of the long-term macro trends we discussed in the rollout of our strategic plan are building momentum.

Speaker Change: I'm very pleased with the strength of our second quarter results. Our revenue growth was excellent and we continued to execute very successfully on our projects while driving strong operational performance across the business.

Cor Johnson: Many of the long-term macro trends we discussed in the rollout of our strategic plan are building momentum, and we have continued to capitalize on the growth opportunities that they're creating.

Gordon Johnston: And we have continued to capitalize on the growth opportunities that they're creating. Our industry-leading water business continues to drive growth in critical areas like shoreline protection, wastewater treatment, water security, advanced manufacturing, and PFAS. In the UK, our team continues to focus on bidding for AMP-8 contracts. Stantec is well placed with our clients.

Cor Johnson: Our industry-leading water business continues to drive growth in critical areas like shoreline protection, wastewater treatment, water security advanced manufacturing, and PFAS.

Speaker Change: in the uk our team continues to focus on bidding forampaid contracts stantic is well placed with our clients we've already been awarded a significant number of contracts and are awaiting decisions on several others

Gordon Johnston: We've already been awarded a significant number of contracts and are awaiting decisions on several others. Themes of addressing aging infrastructure and climate change are very prominent in APP-8, with investment to be directed towards replacement of water mains, significantly reducing leaks and harm from storm overflows, and Implementing Nature-Based Solutions.

Gordon Johnston: We've already been awarded a significant number of contracts and are awaiting decisions on several others. Themes of addressing aging infrastructure and climate change are very prominent in AP-8, with investment to be directed towards replacement of water mains, significantly reducing leaks and harm from storm overflows, and Implementing Nature-Based Solutions.

Speaker Change: Themes of addressing aging infrastructure and climate change are very prominent in AMP-8, with investment to be directed towards replacement of water mains, significantly reducing leaks and harm from storm overflows.

Gordon Johnston: We are the number one water firm in the UK and are extremely well positioned for continued growth. Increased funding for health care continues to drive growth for our buildings business, where we are a leader in this space. Our expertise in cancer care facilities is world-renowned, and we currently have 15 projects underway, including one in Dubai, 6 in the United States, and 8 in Canada.

Speaker Change: and Implementing Nature-Based Solutions.

Cor Johnson: We're the number one water firm in the UK and are extremely well positioned for continued growth.

Speaker Change: increased funding for health care continues to drive growth for our buildings business where we are a leader in this space

Speaker Change: Our expertise in cancer care facilities is world-renowned, and we currently have 15 projects underway, including one in Dubai, six in the United States, and eight in Canada.

Gordon Johnston: Our buildings business is also a top five player in mission critical and data center facilities, currently working with four of the top five hyperscale data center technology companies. Our infrastructure business is seeing enhanced activity related to aging infrastructure, particularly in the U.S., as funding continues to flow from IIGA, with over $460 billion now allocated to over 60,000 projects across the country. Innovation continues to be a key enabler in the execution of our strategy.

Gordon Johnston: Our buildings business is also a top five player in mission critical and data center facilities, currently working with four of the top five hyperscale data center technology companies. Our infrastructure business is seeing enhanced activity related to aging infrastructure, particularly in the U.S., as funding continues to flow from IIJA, with over $460 billion now allocated to over 60,000 projects across the country. Innovation continues to be a key enabler in the execution of our strategy.

Speaker Change: Our buildings business is also a top five player in mission-critical and data center facilities.

Speaker Change: Currently working with four of the top five hyperscale data center technology companies.

Speaker Change: Our infrastructure business is seeing enhanced activity related to aging infrastructure, particularly in the U.S. as funding continues to flow from IIJA, with over $460 billion now allocated to over 60,000 projects across the country.

Speaker Change: And innovation continues to be a key enabler in the execution of our strategy. We're seeing a growing trend where our clients are seeking digital solutions that augment our technical expertise with emerging technologies like artificial intelligence.

Gordon Johnston: We're seeing a growing trend where our clients are seeking digital solutions that augment our technical expertise with emerging technologies like artificial intelligence. A great example of this is a recent win, where Stantec has been engaged to reimagine the monitoring of our client's sewer pipeline assets. Stantec will design AI machine learning models that can decipher CCTV footage to detect defects in real time, producing automated reports.

Gordon Johnston: We're seeing a growing trend where our clients are seeking digital solutions that augment our technical expertise with emerging technologies like artificial intelligence. A great example of this is a recent win where Stantec has been engaged to reimagine the monitoring of our client's sewer pipeline assets, and will design AI machine learning models that can decipher CCTV footage to detect defects in real time, producing automated reports. This innovative approach is a stepping stone towards developing an intelligent system considering salinity, infiltration, and order data across a vast geography.

Speaker Change: A great example of this is a recent win, where Stantec has been engaged to reimagine the monitoring of our client's sewer pipeline assets.

Speaker Change: Stantec will design AI machine learning models that can decipher CCTV footage to detect defects in real-time, producing automated reports.

Gordon Johnston: This innovative approach is a stepping stone towards developing an intelligent system considering salinity, infiltration, and order data across a vast geography. With a collaborative and innovative global workforce that includes civil design engineers and AI experts, Stantec is uniquely positioned to deliver AI-powered asset management systems that will revolutionize operations and allow our clients to provide more reliable and efficient services. Looking at the specifics of our second quarter results, we achieved record net revenue for the quarter at $1.5 billion, up almost 17% compared to Q2 2023, with 7% organic and 9% acquisition growth.

Speaker Change: This innovative approach is a stepping stone towards developing an intelligent system considering salinity, infiltration, and order data across a vast geography.

Gordon Johnston: With a collaborative and innovative global workforce that includes civil design engineers and AI experts, Stantec is uniquely positioned to deliver AI-powered asset management systems that will revolutionize operations and allow our clients to provide more reliable and efficient service. Now, let's look at the specifics of our second quarter results. We achieved record net revenue for the quarter at $1.5 billion, up almost 17% compared to Q2 2023, with 7% organic and 9% acquisition growth. We delivered solid organic growth in each of our key geographies.

Speaker Change: With a collaborative and innovative global workforce that includes civil design engineers and AI experts, Stantec is uniquely positioned to deliver AI-powered asset management systems that will revolutionize operations and allow our clients to provide more reliable and efficient services.

Gordon Johnston: We had organic growth in each of our business operating units with the exception of energy and resources. Our water and buildings businesses both realized double-digit organic growth. In addition to the strong organic growth we achieved in the quarter, our recent acquisitions of Zetcon, Morrison Hirschfield, and Hydroc are performing as expected, and we're busy working on their integration and supporting our 2,700 new colleagues as they transition into Stantec. Adjusted EBITDA for the quarter rose to $247 million, up 14.5%, with a margin of 16.6%, positioning us well for delivering on our margin guidance for the full year. Overall, we delivered adjusted EPS of $1.12, up 13% over Q2 last year.

Speaker Change: Looking at the specifics of our second quarter results.

Speaker Change: We achieved record net revenue for the quarter at $1.5 billion, up almost 17% compared to Q2 2023, with 7% organic and 9% acquisition growth.

Gordon Johnston: We delivered solid organic growth in each of our key geographies. We had organic growth in each of our business operating units, with the exception of energy and resources. Our water and buildings businesses both realized double-digit organic growth. In addition to the strong organic growth we achieved in the quarter, our recent acquisitions of Zetcon, Morrison Hirschfield, and Hydroc are performing as expected, and we're busy working on their integration and supporting our 2,700 new colleagues as they transition into Stantec.

Speaker Change: We delivered solid organic growth in each of our key geographies.

Speaker Change: We had organic growth in each of our business operating units with the exception of energy and resources.

Speaker Change: Our water and buildings businesses both realized double-digit organic growth.

Speaker Change: In addition to the strong organic growth we achieved in the quarter, our recent acquisitions of Zetcon, Morrison Hirschfield and Hydroc are performing as expected, and we're busy working on their integration and supporting our 2,700 new colleagues as they transition into Stantec.

Gordon Johnston: Adjusted EBITDA for the quarter rose to $247 million, up 14.5%, with a margin of 16.6%, positioning us well for delivering on our margin guidance for the full year. Overall, we delivered adjusted EPS of $1.12, up 13% over Q2 last year.

Speaker Change: Adjusted EBITDA for the quarter rose to $247 million, up 14.5% with a margin of 16.6%, positioning us well for delivering on our margin guidance for the full year.

Speaker Change: Overall, we delivered adjusted EPS of $1.12, up 13% over Q2 last year.

Gordon Johnston: Our US business continues to perform extremely well, delivering a 16% increase in net revenue for the second quarter, including 6% acquisition growth from ESD and Morris & Hirschfield and 9% organic growth. Once again, all of our business operating units in the U.S. had solid organic growth. Our water business delivered double-digit organic growth with major industrial and water security projects. Infrastructure also achieved double-digit organic growth, with significant transit, rail, and roadway projects contributing to growing momentum. Our buildings business saw strong demand across most subsectors, particularly in health care, science and technology, and industrial.

Gordon Johnston: Our US business continues to perform extremely well, delivering a 16% increase in net revenue for the second quarter, including 6% acquisition growth from ESD and Morris & Hirschfield and 9% organic growth. Once again, all of our business operating units in the U.S. had solid organic growth. Our Water Business delivered double-digit organic growth with major industrial and water security projects. Infrastructure also achieved double-digit organic growth with significant transit, rail, and roadway projects contributing to growing momentum.

Speaker Change: our u s business continues to perform extremely well flarering a sixteen percent increase in net revenue for the second quarter including six percent acquisition growth from esd and morrison herstfield and nine percent organic growth

Speaker Change: Once again, all of our business operating units in the U.S. had solid organic growth.

Speaker Change: Our water business delivered double-digit organic growth with major industrial and water security projects.

Speaker Change: Infrastructure also achieved double-digit organic growth with significant transit, rail and roadway projects contributing to growing momentum.

Gordon Johnston: Our Buildings Business saw strong demand across most sub-sectors, particularly in healthcare, science and technology, and industrial. In Canada, we grew our net revenue by 16%, with 11% acquisition growth from Morris & Hirschfield and 5% organic growth. Our water business had very robust double-digit organic growth, as activity on major wastewater projects remained high. Buildings also drove double-digit organic growth through projects in the healthcare space in both British Columbia and Quebec. However, energy and resources retracted slightly this quarter as a result of ongoing delays in the wrap-up of new projects.

Speaker Change: Our buildings business saw strong demand across most subsectors, particularly in healthcare, science and technology, and industrial.

Gordon Johnston: In Canada, we grew our net revenue by 16%, with 11% acquisition growth from Morris & Hirschfield and 5% organic growth. Our water business had very robust double-digit organic growth, as activity on major wastewater projects remained high. Buildings also drove double-digit organic growth through projects in the healthcare space in both British Columbia and Quebec. Energy and resources retracted slightly this quarter as a result of ongoing delays in the ramp-up of new projects.

Speaker Change: In Canada, we grew our net revenue by 16%, with 11% acquisition growth from Morris & Hirschfield and 5% organic growth.

Speaker Change: Our water business had very robust double-digit organic growth as activity on major wastewater projects remained high.

Speaker Change: Buildings also drove double-digit organic growth through projects in the healthcare space in both British Columbia and Quebec.

Speaker Change: Energy and resources retracted slightly this quarter as a result of ongoing delays in the wrap-up of new projects. However, we continue to grow our backlog and win MSAs, so we expect E&R to shift towards organic growth at the end of the year.

Gordon Johnston: However, we continue to grow our backlog and win MSAs, so we expect E&R to shift towards organic growth at the end of the year. Our global operations generated an increase of 19% in net revenue, with 14% coming from the Zetcon and Hydroc acquisitions and 6% from organic growth. Our global buildings, water, and environmental services businesses all achieve double-digit organic growth. Water's organic growth was achieved across the UK, New Zealand, and Australia through long-term framework agreements and public sector investment. And now, I'll turn the call over to Theresa to review our financial results in more detail.

Gordon Johnston: However, we continue to grow our backlog and win MSAs, so we expect E&R to shift towards organic growth at the end of the year. Our global operations generated an increase of 19% in net revenue, with 14% coming from the Zetcon and Hydroc acquisitions and 6% from organic growth. Our Global Buildings, Water, and Environmental Services businesses all achieve double-digit organic growth. Buildings' organic growth reached almost 30 percent, driven primarily by the Cancer Centre in Dubai and the ramp-up of work on the 4 billion pound Agritas battery manufacturing facility in the UK.

Speaker Change: Our global operations generated an increase of 19% in net revenue, with 14% coming from the Zetcon and Hydroc acquisitions, and 6% from organic growth.

Speaker Change: Our global buildings, water, and environmental services businesses all achieve double-digit organic growth.

Speaker Change: Building's organic growth reached almost 30%, driven primarily by the Cancer Centre in Dubai and the ramp-up of work on the 4 billion pound Agritas battery manufacturing facility in the UK.

Gordon Johnston: Water's organic growth was achieved across the UK, New Zealand, and Australia through long-term framework agreements and public sector investment. Our global infrastructure business saw a slight organic retraction driven by the cancellation of certain infrastructure projects in Australia and New Zealand and community development in the UK, which continues to see muted levels of activity. Now, I'll turn the call over to Theresa to review our financial results in more detail.

Speaker Change: Water's organic growth was achieved across the UK, New Zealand, and Australia through long-term framework agreements and public sector investments.

Speaker Change: Our global infrastructure business saw a slight organic retraction, driven by the cancellation of certain infrastructure projects in Australia and New Zealand, and community development in the UK, which continues to see muted levels of activity.

Speaker Change: And now, I'll turn the call over to Theresa to review our financial results in more detail.

Theresa Jang: Thank you, Gord. Good morning, everyone.

Theresa Jang: Once again, we delivered a very solid quarter of performance in Q2. We achieved record net revenue and enhanced project margin. Our gross revenue grew to almost $1.9 billion, up 15% over Q2'23, and net revenue of $1.5 billion was up 17%. Project margin increased 10 points due to our continued discipline in project execution. We did see a slight decline of 30 basis points in our adjusted EBITDA margin to 16.6%, which was primarily due to increased insurance claim provision. Provisions for claims vary from year to year, largely as a result of changes in actuarial projections for our self-insurance programs.

Theresa Jang: Thank you, Gordon. Good morning, everyone. Once again, we delivered a very solid quarter of performance in Q2. We achieved record net revenue and enhanced project margin.

Theresa Jang: Our gross revenue grew to almost $1.9 billion, up 15% over Q2-23, and net revenue of $1.5 billion, was up 17%.

Theresa Jang: Project margin increased 10 points due to our continued discipline in project execution.

Speaker Change: We did see a slight decline of 30 basis points in our adjusted EBITDA margin to 16.6%, which was primarily due to increased insurance claim provisions.

Speaker Change: Provisions for claims vary from year to year, largely as a result of changes in actuarial projections for our self-insurance programs.

Theresa Jang: Claims provisions in Q2 last year were unusually low and returned to more historical levels in Q2 this year. Adjusted diluted EPS in the quarter increased 13% to $1.12, and I would note that we did not see a meaningful impact this quarter as it relates to our long-term incentive program revaluation. Turning to our liquidity and capital resources, in the first six months of the year, we generated very strong cash flows, achieving $137 million in operating cash flow, double what it was in the comparative period last year.

Speaker Change: Claims provisions in Q2 last year were unusually low and returned to more historical levels in Q2 this year.

Speaker Change: Adjusted diluted EPS in the quarter increased 13% to $1.12. And I would note that we did not see a meaningful impact this quarter as it relates to our long-term incentive program revaluation.

Theresa Jang: Turning to our liquidity and capital resources, in the first six months of the year, we generated very strong cash flows, achieving $137 million in operating cash flow, double what it was in the comparative period last year. This reflects our ongoing focus on working capital management. Thanks, Tree.

Speaker Change: Turning to our liquidity and capital resources, in the first six months of the year, we generated very strong cash flows, achieving $137 million in operating cash flow, double what it was in the comparative period last year. This reflects our ongoing focus on working capital management.

Theresa Jang: This reflects our ongoing focus on working capital management. This also resulted in a reduction in DSO, achieving 77 days, which continues to be below our target of 80 days. And we close the quarter with a net debt to adjusted EBITDA ratio of 1.7 times, reflecting the Q2 funding for Hydrox. We remain well within our target range of 1-2 times.

Speaker Change: This also resulted in a reduction in DSO, achieving 77 days, which continues to be below our target of 80 days.

Theresa Jang: And we close the quarter with a net debt to adjusted EBITDA ratio of 1.7 times, reflecting the Q2 funding for Hydrox. We remain well within our target range of 1 to 2 times. And with that, I'll turn the call back to Gord.

Theresa Jang: And with that, I'll turn the call back to Gord. And with that, I'll turn the call back to Gord. And with that, I'll turn the call back to Gord. Thanks.

Gordon Johnston: At the end of the second quarter, our backlog stood at $7.2 billion, its highest level ever. Since December 2023, this represents approximately 8% acquisition and 3% organic growth. We achieved organic growth across all of our regions and in all of our BOUs with the exception of buildings. Energy and Resources and Environmental Services both achieved double-digit organic growth. Wins for Energy and Resources included an award for preliminary engineering and consulting on a power project in Eastern Canada, and awards in the mining sector, supporting critical minerals in both Canada and worldwide.

Gord: Thanks, Theresa.

Gord: At the end of the second quarter, our backlog stood at $7.2 billion, its highest level ever. Since December 2023, this represents approximately 8% acquisition and 3% organic growth.

Speaker Change: We achieved organic growth across all of our regions and in all of our BOUs with the exception of buildings.

Theresa Jang: Energy and Resources and Environmental Services both achieve double-digit organic growth.

Gordon Johnston: Wins for Energy and Resources included an award for preliminary engineering and consulting on a power project in eastern Canada, and awards in the mining sector, supporting critical minerals in both Canada and worldwide. Now, major projects awarded in Q2. This initial contract for $43 million U.S. includes implementation of infrastructure upgrades across all drinking water assets. This program also includes development of Pure Water DC, which will provide resilient water supply through a water reuse approach, and through our partnership with the Kitikmeot Inuit, our environmental services team has been engaged to help restart the environmental permitting and engineering for the Grays Bay Road and Port Project in Northern Canada. The road will ultimately allow full access from Alberta to the Northwest Territories, to Nunavut, and to the first deep water port in the Western Arctic, which is tied to the Beaufort Sea.

Theresa Jang: Wins for Energy and Resources included an award for preliminary engineering and consulting on a power project in eastern Canada, and awards in the mining sector, supporting critical minerals in both Canada and global.

Gordon Johnston: And our environmental services team has secured a number of contracts that include regulatory services to support new power transmission in Canada and permitting for a data-centric campus in the U.S. Our backlog represents approximately 12 months of work. Turning now to major projects awarded in Q2. In June, we announced the extension of our program management and technical engineering services for Pure Water San Diego. In addition to this, our water team, in a joint venture, has been awarded a five-year contract to provide services for DC Water. This initial contract for $43 million U.S. includes implementation of infrastructure upgrades across all drinking water assets. This program also includes development of Pure Water D.C., which will provide resilient water supply through a water reuse approach.

Theresa Jang: And our Environmental Services team has secured a number of contracts that include regulatory services to support new power transmission in Canada and permitting for a data-centric campus in the U.S.

Theresa Jang: Our backlog represents approximately 12 months' work.

Theresa Jang: Turning now to major projects awarded in Q2. In June , we announced the extension of our program management and technical engineering services for Pure Water San Diego. In addition to this, our water team, in a joint venture, has been awarded a five-year contract to provide services for DC Water.

Theresa Jang: This initial contract for $43 million U.S. includes implementation of infrastructure upgrades across all drinking water assets.

Theresa Jang: This program also includes development of Pure Water DC, which will provide resilient water supply through a water reuse approach.

Gordon Johnston: We also continue to work to win AMP-8 frameworks in the UK and secured an engineering consultancy framework with Dewar Khamri, Welsh Water. Our buildings business will serve as a trusted advisor to a confidential Fortune 100 technology client. Augmented by the expertise of ESD and Morrison-Hirschfield, the buildings team was recently selected to provide architectural and engineering design services for improvements at nine data center locations across five hyperscale campuses in the United States. Additionally, through our partnership with the Kitikmeot Inuit, our environmental services team has been engaged to help restart the environmental permitting and engineering for the Grays Bay Road and Port Project in Northern Canada.

Theresa Jang: We also continue to work to win AMP-8 frameworks in the UK and secured an engineering consultancy framework with Dewar Khumri, Welsh Water.

Theresa Jang: Our buildings business will serve as a trusted advisor to a confidential Fortune 100 technology client.

Theresa Jang: Augmented by the expertise of ESD and Morrison Hirshfield, the buildings team was recently selected to provide architectural and engineering design services for improvements at nine data center locations across five hyperscale campuses in the United States.

Theresa Jang: And through our partnership with the Katikmiyaat Inuit, our environmental services team has been engaged to help restart the environmental permitting and engineering for the Greys Bay Road and Port Project in Northern Canada.

Gordon Johnston: The road will ultimately allow full access from Alberta to the Northwest Territories to Nunavut and to the first deep water port in the Western Arctic, which ties into the Beaufort Sea.

Speaker Change: the road will ultimately allow full access from alberta to the northwest territories to noneof it and to the first deep water port in the western arctic which ties to the bullforth sea

Gordon Johnston: With our solid results here to date, we are reaffirming our overall 2024 financial targets and making some minor adjustments to certain measures. We now expect to increase net revenue for the year in the range of 12 to 15 percent, and we remain confident with our expectations of organic growth being in the mid to high single digits. Our outlook for the U.S. has not changed.

Theresa Jang: And now, turning to our guidance.

Theresa Jang: With our solid results year-to-date, we are reaffirming our overall 2024 financial targets and making some minor adjustments to certain measures.

Gordon Johnston: We now expect to increase net revenue for the year in the range of 12 to 15 percent. We continue to see the ramp-up of funding from the IIJA, IRA, and the Chips in Science Act. And just last week, they announced an expert task force to spearhead the development of new large-scale communities. We have raised our expectations for the net revenue growth from our recent acquisitions, which is now in the high single digits.

Speaker Change: We now expect to increase net revenue for the year in the range of 12 to 15 percent, and we remain confident with our expectations of organic growth being in the mid to high single digits.

Gordon Johnston: We continue to see the ramp-up of funding from the IIJA, IRA, and the Chips in Science Act. Combined, over $560 billion has been allocated from these three bills, and the market remains very robust, supporting our expectation for mid to high single-digit organic growth. Our outlook for global growth also remains positive, with organic growth still projected to be in the mid to high single digits on the strength of ongoing demand for water and buildings. There is expected to be a resurgence of community development in the UK in the second half of this year as the new Labour government moves to fulfill its pledge to build 1.5 million new homes.

Theresa Jang: Our outlook for the U.S. has not changed.

Theresa Jang: We continue to see the ramp-up of funding from the IIJA, IRA and the Chips and Science Act. Combined, over $560 billion has been allocated from these three bills and the market remains very robust, supporting our expectation for mid to high single-digit organic growth.

Theresa Jang: Our outlook for global also remains positive, with organic growth still projected to be in the mid to high single digits on the strength of ongoing demand in water and buildings.

Speaker Change: There is expected to be a resurgence of community development in the UK in the second half of this year as the new Labour government moves to fulfill its pledge to build 1.5 million new homes.

Gordon Johnston: And just last week, they announced an expert task force to spearhead the development of new large-scale communities. And in Canada, we're maintaining our outlook for mid-single-digit organic growth, given the strong backlog that we've built. We have raised our expectations for the net revenue growth from our recent acquisitions, which is now in the high single digits. We're in various stages of transitioning and integrating these firms. This increased level of concurrent activity will initially mute margin and earnings enhancements, but these benefits are fully expected once we've completed the work. We've narrowed our target for adjusted EBITDA margin for the year to 16.5 to 16.9 percent.

Speaker Change: And just last week, they announced an expert task force to spearhead the development of new large-scale communities.

Speaker Change: And in Canada, we're maintaining our outlook for mid-single-digit organic growth, given the strong backlog that we've built.

Speaker Change: We have raised our expectations for the net revenue growth from our recent acquisitions, which is now in the high single digits.

Speaker Change: We're in various stages of transitioning and integrating these firms.

Theresa Jang: This increased level of concurrent activity will initially mute margin and earnings enhancements, but these benefits are fully expected once we've completed the work.

Theresa Jang: We've narrowed our target for adjusted EBITDA margin for the year to 16.5 to 16.9 percent.

Theresa Jang: And finally, we continue to expect our adjusted diluted EPS growth to be in the range of 12 to 16 percent.

Gordon Johnston: And finally, we continue to expect our adjusted diluted EPS growth to be in the range of 12 to 16 percent. 2024 is shaping up to be another excellent year for Stantec as we continue to execute on our three-year strategic plan. Before wrapping up today, I'd like to welcome Vito Kamone. [inaudible] Vito joined us on July 15th as Executive Vice President, and he is already deeply engaged with Theresa and her team. Vita will assume the Chief Financial Officer role on September 3rd.

Gordon Johnston: 2024 is shaping up to be another excellent year for Stantec as we continue to execute on our three-year strategic plan. Before wrapping up today, I'd like to welcome Vito Colmone. Theresa will continue to work with us until September 27th, ensuring a smooth transition with Veto. We will miss her, and we wish her all the best in her retirement.

Theresa Jang: 2024 is shaping up to be another excellent year for Stantec as we continue to execute on our three-year strategic plan.

Theresa Jang: Before wrapping up today, I'd like to welcome Vito Colmone.

Speaker Change: Vito joined us on July 15th as Executive Vice President and he is already deeply engaged with Theresa and team.

Gordon Johnston: Vito brings a wealth of experience as an accomplished financial leader across multiple industries and will be instrumental as we continue to drive the successful execution of our strategic plan. As this will be Theresa's last quarterly conference call, I also want to thank her once again for her tremendous work and dedication to Stantec. Her exceptional leadership and knowledge have left Stantec with a world-class finance team and in a very solid financial position.

Speaker Change: BIDA will assume the Chief Financial Officer role on September 3rd.

Speaker Change: Vito brings a wealth of experience as an accomplished financial leader across multiple industries and will be instrumental as we continue to drive the successful execution of our strategic plan.

Speaker Change: As this will be Theresa's last quarterly conference call, I also want to thank her once again for her tremendous work and dedication to Stantec.

Speaker Change: Her exceptional leadership and knowledge has left Stantec with a world-class finance team and in a very solid financial position.

Gordon Johnston: Theresa will continue to work with us until September 27th, ensuring a smooth transition with the video. We will miss her, and we wish her all the best in her return. And with that, I'll turn the call back to the operator for questions.

Speaker Change: tresa willll continue to work with us until september twenty-seventh ensuring a smooth transition with ezo we will miss her and we wish her all the best in her retirement

Operator: Thank you. At this time, we will conduct the question and answer session. As a reminder, to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced. To withdraw a question, please press star 11 again. Please stand by while we compile the Q&A raw file. Our first question comes from Sabahat Khan with RBC Capital Markets. Your line is now open.

Speaker Change: And with that, I'll turn the call back to the operator for questions.

Speaker Change: Operator.

Speaker Change: Thank you. At this time, we will conduct the question and answer session. As a reminder, to ask a question, you will need to press star 1 1 on your telephone and wait for your name to be announced. To withdraw a question, please press star 1 1 again. Please stand by while we compile the Q&A roster.

Speaker Change: Our first question comes from Sabahat Khan with RVC Capital Markets. Your line is now open.

Sabahat Khan: Okay, great. Thanks, and good morning. And before I get going, Theresa, I wanted to just acknowledge the significant impact you've had here and wish you all the best for the next chapter. Thank you.

Sabahat Khan: Okay, great. Thanks and good morning. And before I get going, Theresa, I wanted to just acknowledge the significant impact you've had here and wish you all the best for the next chapter.

Gordon Johnston: I guess just on the capital allocation side, if you think about M&A, you've done a number of transactions to start the year. Can you maybe just talk about the pipeline there and just more specifically the likelihood of a larger transaction as you do have a bit of a management transition here and you've already done some M&A? Just some thoughts on that.

Speaker Change: oh you follow

Speaker Change: On I guess just on the kind of capital allocation side if we think about M&A

Speaker Change: You've done a number of transactions to start the year. Can you maybe just talk about the pipeline there and just more specifically, you know, the likelihood of a larger transaction as you do have a bit of a management transition here and you've already done some M&A. Just some thoughts on that.

Gordon Johnston: Yeah, so, firstly, as we look at the dry powder that we've got left, you heard Theresa talk about where we are in our, you know, from a leverage perspective, we feel really confident that we can continue to move forward. And we are not pausing our M&A, you know, your search, and the ongoing discussions in any way. So, you know, we're in different levels of discussions with companies really around the world; the pipeline is really full right now.

Speaker Change: Yeah, so, you know, firstly...

Speaker Change: You know, as we look at the dry powder that we've got left, you know, you heard Theresa talk about where we are in our...

Theresa Jang: From a leverage perspective, we feel really confident that we can continue to move forward and we are not pausing our M&A search and the ongoing discussions in any way.

Speaker Change: So, you know, we're in different levels of discussion with companies really around the world. The pipeline is really full right now. And there's, you know, there's some, again, in that 500 to 1,000 to 2,000 person range, but there's also some larger ones that we're in the midst of discussions with as well.

Speaker Change: When these would come to bear, the timing will be what it will be, but there absolutely, Sabah, is no change in our M&A philosophy with our change in CFO from Theresa DeVito. We're very, very aligned on continuing with our growth philosophy.

Gordon Johnston: And there are, you know, some again in the 500 to 1000 to 2000 person range. But there are also some larger ones that we're in the midst of discussions with as well. And so, you know, when these would come to bear, you know, we'll, you know, they'll be sort of the timing will be what it'll be. But there's absolutely no change in our M&A philosophy with our change in CFO from Theresa DeVito. You know, we're very, very aligned on continuing with our growth philosophy.

Gordon Johnston: And then just as we kind of look ahead here to the back half of the year, if you could maybe just talk about kind of the trajectory of the margin progression here and the sort of margin that might be baked into your backlog here at this.

Sabah: Okay, great. And then just as we kind of look ahead here to the back half of the year, if you can maybe just talk about kind of the trajectory of the margin progression here and the sort of margin that might be baked into your backlog here at this point. Thank you.

Gordon Johnston: Sure. So, you know, as we get 2-3 underway here, it generally is our strongest quarter from a margin standpoint, historically, and, you know, we don't think that will be any different this year. So the back half, I think, is going to be solid, and, you know, we expect that the range that we've put out in our outlook is very achievable.

Speaker Change: As we get 2-3 underway here, it generally is our strongest quarter from a margin standpoint historically, and we don't think that will be any different this year. So the back half, I think, is going to be solid, and we expect that range that we've put out in our outlook is very achievable.

Gordon Johnston: Great, and then just one last one just based on the discussions you're having with your customers, particularly on the private side, you know what they're hearing from them. Has there been any change in the tone just given where the macro is just kind of the feedback you're hearing from a non-public? Yeah, you know, certainly.

Speaker Change: great and then just one last saw on justbased on the discussions you're having with your customers particularly on the private side and whatdoareyou hearing from them has theret been any change in the tone just given where the macro is just kind of the feedback you'rehearing from the non-public concts

Gordon Johnston: Yeah, you know, certainly as consistent with where we've been in previous quarters, you know, the commercial, you know, subsector is still slower, but on the some of our main buildings, client bases, health care and so on, you know, you've seen, you know, in Q2 of this year, you know, buildings had over 13% organic growth. So, you know, that when people often ask about the building subsector in particular, but, you know, in buildings, one of the differentiator from Stantec is that we have a much larger, you know, public sector perspective there, so all the health care and a lot of the work that we're doing there shows up very strong, but no, we're not really seeing a lot of softening in the approach from from our private sector clients really around the world, little bit, we were seeing it historically, and we commented in the community development or the land developed business in the UK, but yeah, with the change in the government there to the new labor government, the new government, the new government, the new government their commitment to build 1.5 million new homes, their appointment of the expert task force, you know, we do see that, that home building should, should kick off and get restarted here in the second half of this year.

Speaker Change: Yeah, you know...

Speaker Change: Certainly, it's consistent with where we've been in previous quarters, you know, the commercial, you know, subsector is still slower.

Speaker Change: but on the some of our our main buildings

Speaker Change: of

Speaker Change: Client Basis Healthcare and so on you know you've seen you know in q2 of this year

Speaker Change: you know, buildings had over 13% organic growth. So, you know, when people often ask about the building subsector in particular, but, you know, in buildings, one of the differentiators from Stantec over other firms is that we have a much larger, you know, public sector perspective there, so all the health care and a lot of the work that we're doing there shows up very strong.

Speaker Change: No, we're not really seeing a lot of softening in the approach from our private sector clients really around the world. Little bit we were seeing it historically and we commented on in the...

Speaker Change: Community Development or the land development business in the UK, but yet with the change in the government there to the new Labour government, their commitment to build 1.5 million new homes, their appointment of the expert task force, you know, we do see that that home building should kick off and get restarted here in the second half of this year.

Devin Dodge: Thank you. Our next question comes from Devin Dodge with BMO Capital Markets. Your line is now open.

Speaker Change: Great, thanks very much. Thanks, Saba.

Speaker Change: Thank you. Our next question comes from Devin Dodge with BMO Capital Markets. Your line is now open.

Devin Dodge: All right, thanks. Good morning.

Devin Dodge: All right, thanks. Good morning. I'm going to start with a question on the U.S. Just wondering if you could provide some context around the organic backlog development there. It just appears that the backlog is moderated sequentially on an organic basis.

Gordon Johnston: I'm going to start with a question on the U.S. I was wondering if you could provide some context around the organic backlog development there. It just appears that the backlog is moderated sequentially on an organic basis in three of the last four quarters, and I was trying to get a sense if there are any implications to that growth outlook from that.

Speaker Change: I think in three of the last four quarters, and I was trying to get a sense if there's any implications to that growth outlook from that.

Devin Dodge: Yeah, we don't see that at all. Devin, you know, where the pipeline of opportunities is still very, very strong. I think the one thing that we're seeing in the US is we've had such high organic growth there, 8.7% in Q2, but 10% or 12%, you know, really going back over the last number of quarters. So we are filling the pipeline with new work. Because the organic growth is so high, we're consuming it as well.

Speaker Change: Yeah, we don't see that at all. Devin, you know, we're the pipeline of opportunities. He's still very, very strong. I think the one thing that we're seeing in the U.S. is we've had such high organic growth there, you know, 8.7% in Q2, but, you know, 10%.

Speaker Change: or 12%, you know, really going back over the last number of quarters.

Speaker Change: So we are filling the pipeline with new work. We're just, because the organic growth is so high, we're consuming it as well.

Theresa Jang: And a lot of the new work that we're seeing there is just timing issues in terms of when we get it in the contract, when we actually sign it and contract it and put it in the backlog. But we don't see a delay in those contracts being awarded. So it's just a timing issue. We're really not concerned about the US backlog.

Speaker Change: But there's...

Devin Dodge: And a lot of the new work that we're seeing there is just timing issues in terms of when we get it in the contract, when we actually sign it and contract it and put it in the backlog, but we don't see a delay in those contracts being awarded. So it's just a timing issue, we're really not concerned about the U.S. backlog.

Devin Dodge: Okay, thanks for that. And then can you provide an update on the real estate optimization strategy? I believe there was a lease impairment charge taken into two related to this. I'm just looking to get a sense for what opportunities you've identified over and above that initial program from a few years ago. Thank you very much.

Speaker Change: Can you provide an update on the real estate optimization strategy? I believe there was a lease impairment charge taken in Q2 related to this. I'm just looking to get a sense for what opportunities have been identified over and above that initial program from a few years ago.

Theresa Jang: Sure, so you might recall, Devin, that when we rolled out our strategic plan in December for the next three years, we set a new target for ourselves to reduce a further 10% of our real estate from the 2023 baseline, and we estimate about 10 cents per share over that three-year period. So we are well on our way, and you're right, that lease impairment that we took this quarter is related to that effort. So we are well on track to reach that 10 cents per share over the next three years.

Speaker Change: Sure, so you might recall, Devin, that when we rolled out our strategic plan in December for the next three years, that we set a new target for ourselves to reduce a further 10%.

Speaker Change: of our real estate from the 2023 baseline. And, you know, we estimate about $0.10 per share over that three-year period. So we are well on our way, and you're right, that lease impairment that we took...

Speaker Change: This quarter is related to that effort, so we are well on track to reach that $0.10 per share over the next three years.

Devin Dodge: Okay, sounds good. Okay. And just before I turn it over, I just wanted to thank Theresa for all your help over the last five years. Congratulations on the retirement, and if Vito's in the background there, good luck in his new role. Thank you very much.

Speaker Change: Okay, sounds good. Okay. And just before I turn it over, I just wanted to thank Theresa for all your help over the last five years. Congrats on the retirement and if Vito's in the background there, good luck in his new role.

Gordon Johnston: Thank you very much.

Yuri Lynk: Our next question comes from Yuri Lynk with Canna Corriginuity Inc. Your line is now open.

Theresa Jang: Thanks very much.

Speaker Change: Thank you. Our next question comes from Yuri Lynk with Kanna Corriginuity, Inc. Your line is now open.

Yuri Lynk: Morning, Yuri. Good morning.

Yuri Lynk: I'll echo the sentiments to Theresa and Vito. Just wondering about what you mentioned in the MD&A about claim provisions kind of reverting back to normal. Were those lower provisions still in play in the back half of 2023? Or was it just? Q2 because I'm looking at the Q3 EBITDA margin from last year, which was quite strong, and just wondering if we probably will see a bit of a retraction there and maybe a little bump in Q4 as we think about the back half of the year.

Yuri Lynk: Just wondering about, you mentioned in the MD&A about...

Speaker Change: Claim provisions kind of reverting back to normal.

Yuri Lynk: were those lower provisions in play in the back half of two thousand and twenty three or or was it just

Speaker Change: Q2.

Speaker Change: um

Devin Dodge: Because I'm looking at the Q3 EBITDA margin from last year is quite strong and just wondering if we probably see a bit of a retraction there and maybe a little bump in Q4 as we think about the back half of the year.

Theresa Jang: Yeah, so it was actually in Q2 of last year that we saw the benefit of that lower provision in our results. And so the timing, typically around this time of year, where we get those updated actuarial forecasts. And so I think last year, if you'll recall too, there was a bit of noise. Q2 last year was the first time that we had that sort of outsized revaluation from our LTIF, and there were a lot of moving parts. But that lower provision was a part of it.

Devin Dodge: yes so it was ashley was in q two of last year

Speaker Change: that we saw the benefit of that lower provision in our results.

Speaker Change: And so the timing is typically around this time of year where we get those updated actuarial forecasts. And so I think last year, if you'll recall, too, that there was a bit of noise. Q2 last year was the first time that we had that sort of outsized revaluation from our LTIP, and there were a lot of moving parts.

Speaker Change: But that lower provision was a part of it.

Yuri Lynk: Okay, and was there something in Q3? of last year. I know I'm testing your memory, but it was very strong, even a month.

Speaker Change: Okay, and was there something in Q3?

Speaker Change: of last year. I know I'm testing your memory, but it was a very strong even a margin. We did see some of that provision benefit continue on through the rest of last year, but the biggest piece of it would have been in Q2. And last year, we had an exceptional Q3 and whether we can deliver the same level of margins this year remains to be seen, but yeah, last year was a very, very strong quarter.

Theresa Jang: Yeah, we did see some of that provision benefit continue through the rest of last year, but the biggest piece of it would have been in Q2. And last year, you know, we had an exceptional Q3. And whether we can deliver the same level of margins this year remains to be seen. But yeah, last year was a very, very strong quarter. Okay. Just to follow up, Gord, on the U.S. backlog, are you seeing any delays in kind of award activity from your pipeline due to maybe the election or anything else out there?

Speaker Change: Okay. Just to follow up, Gord, to U.S. backlog, are you seeing any delays in kind of award activity from your pipeline due to maybe the election or anything else out there?

Yuri Lynk: Yeah, we're really not, Yuri. We, you know, at the beginning of the year when we spent a lot of time thinking about whether we would see either project awards or proposal activity slow because of it. Or would we see clients pulling things ahead to try and get them out and awarded prior to the election? But we're really seeing neither. You know, we're just sort of a steady as she goes type of approach with our clients.

Gord: Yeah, we're really not Yuri. We, you know, at the beginning of the year when we spent a lot of time thinking about would we see either project awards or proposal activity slow because of it, or would we see clients pulling things ahead to try and get them out and awarded prior to the election, but we're really seeing neither. You know, we're just sort of a steady as she goes type of an approach there from our clients.

Gordon Johnston: Okay, good to hear. I'll turn it over there. Thank you.

Speaker Change: Okay, good to hear. I'll turn it over there. Thank you.

Theresa Jang: Thank you.

Yuri Lynk: Thank you. Our next question comes from Jacob Bout with CIBC. Your line is now open.

Speaker Change: Thanks.

Speaker Change: Thank you. Our next question comes from Jacob Bout with CIBC. Your line is now open.

Jacob Bout: Good morning, and maybe to start: Treeside Distribution, The Best in Retirement. Thanks very much.

Jacob Bout: Good morning, and maybe to start.

Speaker Change: Theresa, just wishing the best in retirement. Thanks very much.

Jacob Bout: Um, maybe I'll just go back to the EBITDA Margin Guidance. And you narrowed it full year. And you call it, you know, the Margin and Earnings Enhancement from the three recent acquisitions that will be muted. And just, I guess... I had a few questions around this period of transition integration, you know, how long will that be? And maybe just talk through, You know, how different are the even done margins for recent acquisitions versus the company overall? [inaudible]

Unknown Attendee: EBITDA Margin Guidance. And you narrowed the full year. And you call the Margin and Earnings Enhancement from the three recent acquisitions that will be muted. You know, how different are the EBITDA margins for recent acquisitions versus the company overall?

Speaker Change: I'll just go back to the

Speaker Change: EBITDA margin guidance, and you narrowed full year, and you called out, you know, the margin and earnings enhancement from the three recent acquisitions that will be muted.

Speaker Change: And just, I guess...

Speaker Change: I had a few questions around that, you know, this period of transition, integration, you know, how long will that be? And maybe just talk through, you know, how different are the EBITDA margins for recent acquisitions versus the company overall?

Theresa Jang: Yeah, so I'll try and address all of those pieces, Jacob. You know, the integrations are all underway, and they're all at various stages, I would say. You know, the Morrison-Hirschfield integration is – we are moving now to financial migration. That should, you know, occur over the second half of this year. Hydroc will wait until the spring.

Speaker Change: Yeah, so I'll try and address all of those pieces, Jacob.

Speaker Change: You know, the integrations are all underway, and they're all at various stages, I would say, you know, the Morrison-Hirschfield is, we are moving now to financial migration. That should, you know, occur over the second half of this year. Hydrop will wait until the spring.

Theresa Jang: Zetcon we're really at this point evaluating. We haven't intended to bring it onto our back office system just because it is more of a stand-alone business at this point. But having said that, there are elements of Zetcon that are unique in terms of language difference, for starters, and accounting methodology that is a German gap. And so, you know, taking – it takes some time to kind of work our way through and convert their results into IFRS. And so that, again, is kind of unique to Zetcon.

Speaker Change: Zetcon we're really, at this point, evaluating. We haven't intended to bring it onto our back office system just because it is more of a standalone business at this point. But having said that, there are elements of Zetcon that are unique in terms of language difference for starters and accounting methodology that is unique.

Speaker Change: and the German Gap. It takes some time to work our way through and convert their results into IFRS. That again is unique to ZETCON. I think as we get through the back half of this year and perhaps through the first half of next year, things will start to normalize.

Theresa Jang: So, you know, I think as we get through the back half of this year and perhaps through the first half of next year, things will start to normalize. But it is – you know, it's different having, as Gordon mentioned in his comments, the three concurrent acquisitions that we are transitioning are different from doing one large, you know, 2700 firm acquisition. Cardno, if you think about that, was, you know, one firm that was on one back office system that we converted.

Speaker Change: It's different having, as Gordon mentioned in his comments, the three concurrent acquisitions that we are transitioning is different from doing one large, you know, 2700 firm acquisition. Cardno, if you think about that, was...

Theresa Jang: This is, again, three unique and different firms. So we're taking our time. We want to make sure that the folks that we have brought over are feeling good about being a part of Stantec and learning their way around and learning our processes and so on. And so that, you know, that is completely expected of us. Margin, you know, that you wouldn't see a pop up right away. And so as far as the margin profile, they're all very similar to Stantec in terms of the lines of business that we have. So there's really nothing there that would cause us to think that there will be a margin retraction as a result of having acquired them.

Speaker Change: that was on one back office system that we converted. This is, again, three unique and different firms. So we're taking our time. We wanna make sure that the folks that we have brought over are feeling good about being a part of Stantec and learning their way around and learning our processes and so on. And so that is,

Speaker Change: Margins are all very similar to Stantec in terms of the lines of business that we have. So there's really nothing there that would cause us to think that there will be a margin retraction as a result of having acquired them.

Jacob Bout: Given the improvement that you've seen in your margins, there hasn't been a gap that's opened up between, you know, some of these smaller acquisitions and yourself over time.

Speaker Change: Given the improvement that you've seen in your margins, there hasn't been a gap that's opened up between some of these smaller acquisitions and yourself and over time.

Theresa Jang: No, I don't, I don't think so. And again, it sort of goes back if you think, if you think about it from a project margin standpoint, they're all, you know, fairly typical relative to their lines of business. So, you know, we always talk about transportation having slightly lower margins, they're typically, you know, public projects. Some of the construction management project program management work that Zetcon does tends to have higher margins.

Gordon Johnston: No, I don't, I don't think so. And again, it sort of goes back if you think, if you think about it from a project margin standpoint, they're all, you know, fairly typical relative to their lines of business. So, you know, I was talking about transportation having slightly lower margins, but typically, public projects, you know, some of the construction management project program management work that Zetcon does tends to have higher margins.

Speaker Change: No, I don't think so. And again, it sort of goes back, if you think about it from a project margin standpoint, they're all fairly typical relative to their lines of business. So, you know, we always talk about transportation having slightly lower margins than typically, you know, public projects.

Speaker Change: Some of the construction management project, program management work that Zetcon does tends to be higher margin, so it's fairly typical. We generally say as well that there's not a significant amount of cost synergies from these acquisitions because it's really the growth in revenues collectively with them that we're in pursuit of.

Theresa Jang: So it's, it's, it's fairly typical. You know, we generally say as well that there's not, you know, a significant amount of cost synergies from these acquisitions because it's really the growth and revenues collectively with them that we're in pursuit of.

Gordon Johnston: So it's, it's, it's fairly typical. You know, we generally say as well that there's not, you know, a significant amount of cost synergies from these acquisitions because it's really the growth and revenues collectively with them that we're in pursuit of.

Unknown Attendee: Okay, and last question here: just on pricing, does the demand environment still support the ability to charge higher fees, or is this starting to change?

Jacob Bout: Okay, and last question here, just on pricing: does the demand environment still support the ability to charge higher fees, or is this starting to change? Unknown Speaker

Speaker Change: Okay, and last question here, just on pricing, does the demand environment still support the ability to charge higher fees or is this starting to change?

Gordon Johnston: No, we're still seeing that as a general industry trend, that there are, you know, us and our competitor set is still very, very busy. Backlogs are high.

Gordon Johnston: No, we're still seeing that as a general industry trend, that there are, you know, us and our competitor set is still very, very busy. Backlogs are high. And so, yeah, we still see that we don't get a lot of pressure on prices. Again, you know, it's still a very competitive industry, without question. But the first question that clients ask us isn't, you know, how cheaply can you do it? The first question, at this point, still remains, can you get it done within the timeframe that I need it? So we still have that pricing that tailwind.

Speaker Change: No, we're still seeing that as a general industry trend, that there's...

Speaker Change: You know, us and our competitor set is still very, very busy.

Gordon Johnston: And so, yeah, we still see that we don't get a lot of pressure on prices. Again, it's still a very competitive industry, without question. But the first question that clients ask us isn't, you know, how cheaply can you do it? The first question at this point still remains, can you get it done within the timeframe that I need it? So we still have that pricing tailwind.

Speaker Change: backlogs are high. And so yeah, we still see that we don't get a lot of pressure on prices. Again, you know, it's still a very competitive industry without question.

Speaker Change: But the first question that clients ask us...

Speaker Change: How cheaply can you do it? The first question at this point still remains can you get it done within the time frame that I need it? So we still have that pricing tailwinds.

Jacob Bout: Okay, all full. Thank you. Great. Thanks, Jacob.

Speaker Change: Okay, helpful, thank you. Great, thanks Jacob.

Operator: Thank you. Our next question comes from Chris Murray with ATB Capital Markets. Your line is now open.

Jacob Bout: Thank you. Our next question comes from Chris Murray with ATB Capital Markets. Your line is now open.

Speaker Change: Thank you. Our next question comes from Chris Murray with ATB Capital Markets. Your line is now open.

Chris Murray: Yeah, thanks, folks. Good morning. And Theresa, congratulations on your retirement. I hope it ends up well for you. I guess the first question, maybe just turning back to the US and Gord, you made the comment that you're not seeing anything too much around the election. But I was wondering if you could help maybe understand, you know, with the ABI metrics, being sub-50 for the last little while, it doesn't seem like you guys are seeing much of an impact, which is maybe a bit surprising. And I'm just wondering if that's more of the mix of business, or if it's special projects that are maybe helping you out.

Chris Murray: Yeah, thanks, folks. Good morning. And, Theresa, congratulations on your retirement and I hope it ends up well for you. I guess the first question, maybe just turning back to the US and Gordon, you made the comment that you're not seeing anything too much around the election, but I was wondering if you could help maybe understand, you know, with the ABI metrics being sub-50 for the last little while, it doesn't seem like you guys are seeing much of an impact, which is maybe And I'm just wondering if that's more of the mix of business, or if it's special projects that are maybe helping you out.

Chris Murray: Thanks folks, good morning, and Theresa, congratulations on your retirement, and hope it ends up well for you. I guess the first question, maybe just turning back to the US, and Gord, you made the comment that you're not seeing anything too much around the election, but

Chris Murray: I was wondering if you could help maybe understand, you know, with the ABI metrics being sub 50 for the last little while.

Speaker Change: It doesn't seem like you guys are seeing much of an impact, which is maybe a bit surprising. And I'm just wondering if that's more the mix of business or if it's special projects that maybe is helping you out there.

Gordon Johnston: Yeah, so, you know, interestingly, the US in general, we see, you know, we'll often get asked what we might see if there were to be an administration change there, but, you know, just looking at the big picture in the US, you know, infrastructure really continues to have bipartisan support there. So when you look at the IIGA, where about a third of it has been awarded, and Congress has till the end of 2026 to encumber the remaining.

Gordon Johnston: Yeah, so you know, interestingly, the US in general, we see, we know, we'll often get asked what we might see with, you know, if there were to be an administration change there, but, you know, just looking at the big picture in the US, you know, infrastructure really continues to have bipartisan support there. So when you look at the IIGA, where about a third of it has been awarded, and Congress has till the end of 2026 to encumber the remaining. So, you know, we see that providing, you know, significant longer-term tailwinds, and there are already some discussions about, you know, what IIGA 2.0 might look like.

Speaker Change: Yeah, so, you know...

Speaker Change: Interestingly, the U.S. in general, you know, we see, you know, we'll often get asked, you know, what do we see we might see with, you know, if there were to be an administration change there, but, you know, just looking at the big picture at the U.S., you know, infrastructure really continues to have bipartisan support there, so when you look at the IIJA where, you know, about a third of it has been awarded and Congress has until the end of 2026 to encumber the remaining,

Gordon Johnston: So, you know, we see that providing, you know, significant longer-term tailwinds, and there are already some discussions about, you know, what IIGA 2.0 might look like. You know, semiconductors are busy, data centers, mission critical facilities, PFAS is starting to come on. So, you know, we still see that regardless of whether there is a change in who's in the White House in November, we see that our business will continue to be very, very strong going forward.

Speaker Change: So, you know, we see that providing, you know, significant longer-term tailwinds. Already some discussions about, you know, what might IIJ 2.0 look like.

Speaker Change: You know, semiconductors are busy, data centers, mission-critical facilities, PFAS is starting to come on, so kind of that broad-based support there. So we, you know, we...

Speaker Change: We still see that regardless of whether, you know, there is a change in who's in the White House in November , we see that our business will continue to be very, very strong going forward. But, you know, to your point about building specifically with the...

Gordon Johnston: But, you know, to your point about building specifically with the, you know, decrease in some of the concerns with the ABI, you know, we've seen that, you know, commercial certainly has been slow, but it's been slow for a couple of years now. But health care is very, very strong for us. Mission critical facilities are very strong. So, and we see those tailwinds continuing, you know, going forward.

Speaker Change: You know, the decrease in, you know, some of the concerns with the ABI, you know, we've seen that

Speaker Change: You know, commercial certainly has been slow, but it's been slow for a couple of years now. But healthcare is very, very strong for us. Mission critical facilities are very strong. So, and we see those tailwinds continuing, you know, going forward.

Chris Murray: Okay, interesting. And then just turning back into your energy and resources business. A lot of the wins, it sounds like, are things like grid and resiliency. But there's been a number of announcements from a lot of companies around oil and gas and what I call traditionally kind of your backyard kind of kind of in LMG and things like that. Just wondering, what's your opportunity pipeline looking like in the traditional kind of oil and gas energy business these days?

Gordon Johnston: Okay, interesting. And then just turning back to your energy and resources business. A lot of the wins, it sounds like, are in things like grid and resiliency. But there's been a number of announcements from a lot of companies around oil and gas and, you know, what I call traditionally kind of your backyard kind of in, you know, LMG and things like that. I'm just wondering, you know, what your opportunity pipeline looks like more in the traditional kind of oil and gas energy business these days?

Speaker Change: Okay, interesting. And then just turning back into your energy and resources business, a lot of the wins it sounds like are in things like grid and resiliency. But there's been a number of announcements from a lot of companies around oil and gas and, you know, what I call traditionally kind of your backyard kind of kind of in

Unknown Attendee: Unknown Attendee LMG and things like that. I'm just wondering, you know, what's your opportunity pipeline looking like more in the in the traditional kind of oil and gas energy business these days?

Gordon Johnston: So I'd say, Chris, that as far as the more traditional oil and gas work is concerned, it's still relatively muted, and I don't know that, you know, that it will ever approach what it was, you know, a decade ago. But you're right, that work really is shifting toward transmission, power generation, and power transmission. The hardening of the grid is a high priority for – in many geographies. We've seen a lot of growth for the national grid in the UK, for instance. We've announced the work that we've won under the MSA with BC Hydro.

Gordon Johnston: So I'd say, Chris, that as far as traditional oil and gas work is concerned, it's still relatively muted, and I don't know that it will ever approach what it was a decade ago.

Speaker Change: So I'd say, Chris, that as far as the more traditional oil and gas work, it's still relatively muted. And I don't know that, you know, that it will ever approach what it was, you know, a decade ago. But you're right that that work really is shifting toward transmission, power generation, power transmission. The hardening of the grid is a high priority for in many geographies. We've seen a lot of growth for the national grid in the U.K., for instance.

Gordon Johnston: But you're right, that work really is shifting toward transmission power generation, power transmission. The hardening of the grid is a high priority in many geographies. We've seen a lot of growth for the national grid in the UK, for instance. We announced the work that we've won under the MSA with BC Hydro.

Gordon Johnston: So that's really where we're seeing the growth. Renewable energy is a bit muted at the moment, just given, you know, the regulatory requirements and so on are still pretty onerous. And I think, you know, proponents there are still trying to figure out how to make those projects profitable. So, you know, and I think the other piece of that does sit around our mining work, which, again, is a smaller part of our overall business. But I do think that, you know, as we sort through the fluctuations in commodity prices over the long term, that is going to be a business that will continue to grow.

Gordon Johnston: So that's really where we're seeing the growth. Renewable energy is a bit muted at the moment, just given the regulatory requirements and so on are still pretty onerous. And I think proponents there are still trying to figure out how to make those projects viable. And I think the other piece of that does sit around our mining work, which, again, is a smaller part of our overall business. But I do think that as we sort through the fluctuations in commodity prices over the long term, that is going to be a business that will continue to grow.

Speaker Change: We've announced the work that we've won under MSA with BC Hydro.

Speaker Change: So that's really where we're seeing the growth. Renewables are a bit muted at the moment, just given the regulatory requirements and so on are still pretty onerous. And I think proponents are still trying to figure out how to make those projects economic.

Speaker Change: And I think the other piece of that does sit around our mining work, which again is a smaller part of our overall business.

Speaker Change: But I do think that, you know, as we sort through, you know, the fluctuations in commodity prices, longer term, that is going to be a business that will continue to grow.

Chris Murray: Okay, thank you very much. I appreciate the call. Thank you. Thank you. Our next question comes from Sean Jack with Raymond James.

Speaker Change: Okay, thanks very much. Appreciate the call.

Sean Jack: Thank you. Our next question comes from Sean Jack with Raymond James Limited. Your line is now up. Hey, good morning, guys.

Speaker Change: Thank you.

Speaker Change: Thank you. Our next question comes from Sean Jack with Raymond James Limited. Your line is now open.

Sean Jack: Hey, good morning, guys. Just a quick one from me. Looking at the fight from business operating units and from an M&A perspective, wondering where the firm is seeing the best value right now for potential new targets?

Gordon Johnston: You know, we have considerable strength in each of our five BOUs, so we're actively engaged in discussions, really, in all of those BOUs. And, you know, we're continuing to look at some opportunities in Canada, but even more so in the United States. You know, our geographies really haven't changed from where we're looking, Sean. Certainly in the United States, still into the UK, Northern Europe, you know, down in Australia, New Zealand, to a degree as well.

Speaker Change: You know, we have considerable strength in each of our five BOUs.

Speaker Change: So we're actively engaged in discussions really in all of those BOUs.

Speaker Change: And, you know, we're continuing to look at some opportunities in Canada, but even more so in the United States.

Speaker Change: You know, our geographies really haven't changed from where we're looking, Sean.

Sean Jack: Certainly in the United States.

Speaker Change: Still into the UK, Northern Europe .

Gordon Johnston: So we, you know, we see the geographic M&A pipeline is very robust as well, really, through all of our BOUs. And so there's not one that we're preferentially looking at at the time. We're just sort of looking at all the opportunities that are there and maintaining those discussions.

Speaker Change: You know, down in Australia, New Zealand, to a degree as well.

Speaker Change: So we, you know, we see the geographic...

Speaker Change: M&A pipeline is very robust, as well really through all of our BOUs. And so there's not one that we're preferentially looking at at the time, we're just sort of looking at all the opportunities that are there and maintaining those discussions set.

Operator: Thank you. Our next question comes from Benoit Poirier with Desjardins. The line is now open.

Benoit Poirier: Thank you. Our next question comes from Benoit Poirier with Desjardins. The line is now open.

Speaker Change: Okay, perfect. That's all from me, guys. Thanks. Thank you.

Speaker Change: Thank you. Our next question comes from Benoit Poirier with Desjardins. The line is now open. Yeah. Good morning, everyone, and welcome to the team, Vito, and all the best to you, Theresa.

Benoit Poirier: Yeah, good morning, everyone, and welcome to the team's veto, and all the best to you, Theresa Theresa Yeah, just obviously strong organic growth overall, but we've seen some retraction for energy and resources due to some delays in the ramp-up of the project. So could you provide more details about how many projects are part of this announcement and whether it's a matter of just one quarter and when the ramp-up of these projects is pushed out?

Speaker Change: Thank you.

Benoit Poirier: Yeah, just obviously strong organic growth overall, but we've seen some retraction for energy and resources due to some delays in the ramp up of new projects. So could you provide more color about how many projects are part of this announcement and whether it's a matter of just one quarter and when the ramp up of these projects is pushed out?

Benoit Poirier: Yeah, so we've seen this delay for a couple of quarters now, and also just the winding down of some other larger projects that we had last year. Some of these projects, the BC Hydro project that I referenced earlier, for instance, are something that we've been waiting on for a while to get going, and we're starting to see that now. So that's just a good example where we've won the work, it's in our backlog, we've got people sort of standing by and ready to go, and we just need, as we work with our client, to get the project up and running so that we have our staff working at a steady state.

Gordon Johnston: Yeah, so we've seen this delay for a couple of quarters now, and also just the winding down of some other larger projects that we had last year. Some of these projects, the BC Hydro project that I referenced earlier, for instance, are something that we've been waiting on for a while to get going, and we're starting to see that now. So that's just a good example of where we've won the work, it's in our backlog, we've got people standing by and ready to go, and we just need, as we work with our client, to get the project up and running so that we have our staff working at a steady state.

Speaker Change: Yeah, so we've, you know, we've seen this delay for a couple of quarters now and also just the wind down of some other larger projects that we that we have last year.

Speaker Change: Some of these projects, the BC Hydro project that I referenced earlier, for instance, is something that we've been waiting on for a while to get going, and we're starting to see that now. So that's just a good example where we've won the work, it's in our backlog, we've got people standing by and ready to go, and we just need, as we work with our client, to get the project up and running so that we have our staff working at a steady state.

Benoit Poirier: So a couple of things we're also seeing in the mining sector, and that's going to take a little while to sort through, and again, a lot of that is regulatory, some of it is driven by outlooks for commodity prices and so on, but good contracts that we've got in the backlog as we wait for our clients to get them going have caused a bit of that retraction in the first half of this year. Thank you.

Gordon Johnston: So we're also seeing in the mining sector, and that's going to take a little while to sort through, and again, a lot of that is regulatory, some of it is driven by outlooks for commodity prices and so on, but good contracts that we've got in the backlog as we wait for our clients to get them going have caused a bit of that retraction in the first half of this year. Thank you.

Speaker Change: So, you know, a couple of things we're also seeing in the mining sector, and, you know, that's going to take a little while to sort through, and again, a lot of that is...

Speaker Change: Regulatory, some of it is driven by outlooks for commodity prices and so on. But good contracts that we've got in the backlog as we wait for our clients to get them going has caused a bit of that retraction in the first half of this year.

Benoit Poirier: Okay, and just curious, is that what drove the lower gross margin in Canada despite the overall solid organic growth achieved for the region? Would that be exposure to energy and resources?

Speaker Change: Okay, and just curious, is it what drove the lower gross margin in Canada despite the overall solid organic growth achieved for the region? Would that be the exposure to energy and resources?

Theresa Jang: Not so much, Benoit. We came off in Canada. We had a couple of projects, particularly in environmental services, that were very high-margin and really big projects. That included the coastal gas work, working for Metrolinx in Ontario, and that work has wound down. That's what you're seeing in the project margins, more reflective of just the overall mix that we had this year versus last.

Gordon Johnston: Not so much, Benoit. We came off in Canada. We had a couple of projects, particularly in environmental services, that were very high-margin and really big projects. That included the coastal gas work, working for Metrolinx in Ontario, and that work has wound down. That's what you're seeing in the project margin. It is more reflective of just the overall mix that we have this year versus last.

Speaker Change: Not so much, Benoit. We came off in Canada. We had a couple of projects, particularly in environmental services, that were very high margin and really big projects.

Speaker Change: The Coastal Gas work, working for Metrolinx in Ontario, and that work has wound down, and so, you know, that's what you're seeing in the project margins, more reflective of just the overall mix that we have this year versus last.

Benoit Poirier: Okay, and looking at the global region, you were able to achieve 5.5% organic growth, which is pretty solid. You mentioned the strong performance from building in Dubai, and double-digit growth in water and environmental services. I was just curious to see if you could provide more color maybe on some other regions that are lagging or that need to be maybe a little bit more monitored these days.

Benoit Poirier: Okay, and looking at the global region, you were able to achieve 5.5% organic growth, which is pretty solid. You mentioned the strong performance of building in Dubai, and double-digit growth in water and environmental services. I was just curious to see if you could provide more color maybe on some other regions that are lagging or that need to be maybe a little bit more monitored these days. Thank you.

Speaker Change: Okay, and looking at the global region, you were able to achieve 5.5% organic growth, which is pretty solid. You mentioned the strong performance from building in Dubai, double digit growth in water and environmental services. I was just curious to see if you could provide more color maybe on some other regions that are lagging or that needs to be maybe a little bit more monitored these days. Okay.

Gordon Johnston: Yeah, so one area in particular that we're monitoring right now, Benoit, is Australia, and particularly on the transportation side. I think we discussed in previous quarters that the federal government in Australia launched their federal infrastructure review, and as a result, cancelled about 20%, or deferred about 20% of the projects that they were planning to move forward with. So we've seen that.

Speaker Change: Yeah, so one area in particular that we're monitoring right now, Benoit, is Australia, and particularly on the transportation side.

Speaker Change: You know, we, I think we've chatted previous quarters that, you know, the federal government in Australia launched their, you know, their federal infrastructure review as a result, you know, cancelled about 20% of, or deferred about 20% of the projects.

Benoit Poirier: Certainly, that's impacted Stantec's transportation business in Australia, as well as our competitors as well. So we're actively watching that. We're also watching the community development, or land development, group in the UK, which has trended a bit slower in the first part of this year. But as we mentioned with the transition to the Labour government, them really looking to bear down and move forward with house building there, I think that will be very positive for our group going forward. So those are the two primarily that we've got our eye on, transportation in Australia and our community development business in the UK.

Speaker Change: that they were planning to move forward with, so we've seen that.

Speaker Change: You know, certainly that's impacted Stantec's transportation business.

Speaker Change: In Australia, as well as our competitors as well. So we're actively watching that.

Speaker Change: We're also watching the community development, or the land development group in the UK, which has trended a bit slower the first part of this year, but as we mentioned with the transition to the Labour government, them really looking to...

Speaker Change: To bear down and move forward with house building there, I think that will be very positive for our group going forward. So those are the two primarily that we've got our eye on, is transportation Australia and our community development business in the UK.

Benoit Poirier: Okay, that's great. And maybe the last one for Theresa, in terms of DSO free cash flow, obviously, DSO came in at 77 days below the target of 80. Given that we tend to see a big collection period in Q4, would it be fair to expect DSOs to further improve and potentially reach the low 70s or below 75 days? And just in terms of free cash flow expectation, could you provide a breakdown in the second half and whether you're still confident to achieve 100% conversion for this year? Thank you.

Speaker Change: Okay, that's great. And maybe last one for Theresa. In terms of DSO free cash flow, obviously DSO came in at 77 days below the target of 80.

Speaker Change: Given that we tend to see a big collection period in Q4, would it be fair to expect DSOs to further improve and potentially reach low 70s or below 75 days? And just in terms of free cash flow expectation, if you could provide a...

Speaker Change: break down in the second half and whether you're still confident to achieve 100% conversion for this year. Thank you.

Theresa Jang: Yeah, so I'm really happy with where DSO is, particularly when we've got this continued pace of organic growth. So to be able to maintain a DSO below 80 days is really positive. When we get down to 75, it's pretty hard to predict, to be honest, just given the volume of projects that we have and the complexities around those sort of billing processes. But we're happy with where it is, and there's always room to continue to drive it downward, and we're certainly going to try and do that.

Speaker Change: Yeah, so I, you know, I'm really happy with where DSO is, particularly when, you know, we've got this continued pace of organic growth.

Speaker Change: So to be able to maintain a DSO below 80 days is really positive. You know, when we get down to 75, it's pretty hard to predict, to be honest, just given the volume of projects that we have and the complexities around those sort of billing processes. But, you know, we're happy with where it is, and there's always room to continue to drive it downward, and we're certainly going to try and do that. From a free cash flow conversion standpoint...

Theresa Jang: From a free cash flow conversion standpoint, the goal to have it one times coverage of net income is really a three-year target. I think we almost achieved it last year, but that's certainly, again, the goal is to try and push toward that conversion rate. And so we'll see how it goes. We're off to a really good start for cash flow generation, so I'm hopeful. But whether we get there this year or continue to work towards that goal over the next two years remains to be seen.

Theresa Jang: From a free cash flow conversion standpoint, the goal to have it one times coverage of net income is really a three-year target. I think we almost achieved that last year, but that's certainly, again, the goal is to try and push toward that conversion rate. And so we'll see how it goes. We're off to a really good start for cash flow generation, so I'm hopeful. But whether we get there this year or continue to work towards that goal over the next two years remains to be seen.

Speaker Change: The goal to have it one time coverage of net income is really a three year target. I think we almost achieved it last year, but that certainly again the goal is to try and push toward that conversion rate.

Speaker Change: And so, you know, we'll see how it goes. We're off to a really good start for cash flow generation, so I'm hopeful. But whether we get there this year or continue to work towards that over the next two years remains to be seen.

Benoit Poirier: Thank you very much for your time. Thanks, Benoit. Thank you.

Benoit Poirier: Thank you very much for the time. Thank you very much for the time. Thanks, Benoit.

Operator: Thank you. Our next question comes from Maxim Sytchev with NBF. Your line is now open.

Maxim Sytchev: Thank you. Our next question comes from Maxim Sytchev with NBF. Your line is now open.

Speaker Change: Thank you very much for the time.

Benoit Poirier: Thanks. Thanks, Benoit.

Speaker Change: Thank you. Our next question comes from Maxim Sytchev with NBF. Your line is now open.

Maxim Sytchev: To us, obviously, all the best in the future. I just had a couple of quick questions. In terms of kind of sellers' expectations, I'm wondering if you are observing sort of any emerging trends, or is it still pretty steady, I guess, the larger the deals, the bigger the multiple? What are you guys seeing on the ground right now?

Maxim Sytchev: And to us, obviously, all the best in the future. I just had a couple of quick questions. In terms of kind of the seller's expectations, I'm wondering if you are observing sort of any emerging trends, or is it still pretty steady? I guess the larger the deals, the, you know, the bigger the multiple. How, what are you guys seeing on the ground right now?

Maxim Sytchev: Hi, good morning.

Speaker Change: Morning.

Speaker Change: To us, obviously, all the best in the future.

Speaker Change: Thank you.

Maxim Sytchev: I just had a couple of quick questions. In terms of kind of the sellers' expectations, I'm wondering if you are observing sort of any emerging trends or is it still pretty steady, I guess, the larger the deals?

Gordon Johnston: Yeah, I think in general we're seeing the trends are pretty consistent, Max, but we haven't seen any particular uptake in expectations from multiples, but certainly we haven't seen a decrease either. So I'd say pretty consistent there.

Speaker Change: The Bigger the Multiple. What are you guys seeing on the ground right now?

Max: Yeah, I think in general, we're seeing the trends are pretty consistent, Max. We haven't seen any particular uptake in expectations from multiples, but certainly we haven't seen a decrease either. So I'd say pretty consistent there.

Maxim Sytchev: Okay, that's great. Thank you.

Max: Okay.

Speaker Change: Okay, that's great. Thank you. And then the last question I just had, so like Western Canada, obviously slowed down. I was wondering if there was a bit of a negative spillover effect into the environmental services. And I guess on the other...

Bonnie: set of the ledgers, Bonnie, you know, being better right now, that's helping to offset it. Just curious about this sort of interplay of kind of, you know, commodity verticals and how that pertains to environmental services overall. Thanks.

Gordon Johnston: Yeah, our ES business is, you know, remains pretty busy, particularly we're seeing, you know, strong growth globally, where there is a little bit of slowness from an organic growth perspective in Canada right now. But, you know, as Theresa said, it's because we were so busy that the comps are really, really high coming off of last year and some of the big projects that we were working on.

Gordon Johnston: And then the last question I just had, so like Western Canada has obviously slowed down, I was wondering if there was a bit of a negative spillover effect into environmental services. And I guess on the other side of the ledger, if bonding, you know, being better right now, that that's helping to offset it. Just curious about this sort of interplay between kind of, you know, commodity verticals and how that pertains to environmental services overall.

Speaker Change: Yeah, we, you know, our ES business is, you know, remains pretty busy, you know, particularly we're seeing, you know, strong growth globally.

Gordon Johnston: Yeah, our ES business is, you know, remains pretty busy, particularly so in the global context where there is a little bit of slowness from an organic growth perspective in Canada right now. But, you know, as Theresa said, it's because we were so busy that the comps are really, really high, coming off of last year and some of the big projects that we were working on.

Speaker Change: There is a little bit of slowness from an organic growth perspective in Canada right now, but as Theresa said, it's because we were so busy that the comps are really, really high coming off of last year and some of the big projects that we were working on.

Gordon Johnston: So I think we still feel good about ES. Certainly, our environmental services group does work with mining, but it also works with all of our other groups as well, whether it's, you know, transportation, water, siting a new water main, you know; ES is engaged with all of our lines of business. So, no, we're optimistic about the environmental business, you know; we don't see that really receding going forward. So I think we feel good about it.

Gordon Johnston: So I think we still feel good about ES. Certainly, our Environmental Services Group does work with mining, but it also works with all of our other groups as well, whether it's, you know, transportation, water, siting a new water main, you know; ES is engaged with all of our lines of business. So, no, we're optimistic about the environmental business. You know, we don't see that really receding going forward. So I think we should feel good about it.

Speaker Change: So I think we still feel good about E.S. Certainly our environmental services group does work with mining, but it also works with all of our other groups as well, whether it's transportation, water, siting a new water main. E.S. is engaged with all of our...

Theresa Jang: All of our lines of business. So, no, we're optimistic about the environmental business. You know, we don't see that really retracting going forward. So I think we feel good about it.

Maxim Sytchev: You mentioned water, and I'm curious if you have any hot takes on the latest PFAS flip-flopping. On the one hand, at some point, it felt like we were committing to it, and right now, it doesn't seem to be the case. So again, I'm wondering if that changes anything for you on the ground, or maybe not.

Speaker Change: Yeah, makes sense. And then actually, so because you mentioned, you know, water and I'm curious if you have any kind of hot take on the latest PFAS.

Speaker Change: sort of flip-flopping. Like on the one hand, like at some point it felt like we're committing to it. And right now it doesn't seem to be the case. So again, I'm wondering if that changes anything for you kind of on the ground or maybe not.

Gordon Johnston: You know, our water business is so, you know, well diversified that, you know, when PFAS began to pick up, certainly, we're, we're, you know, front and center in that work, and we've mentioned that up to $200 billion in capital was initially estimated there. We know it's going to be more than that. But it's not a meaningful or, you know, contribution to the overall net revenue. So whether PFAS goes up a little bit or comes down a little bit, our water business looks to remain very, very solid for the years to come.

Gordon Johnston: You know, our water business is so, you know, well diversified that, as PFAS began to pick up, certainly, we're, we're, you know, front and center in that work, and we've mentioned, up to $200 billion in capital was initially estimated there. We know it's going to be more than that, but it's not a meaningful or, you know, contribution to the overall net revenue. So whether PFAS goes up a little bit or comes down a little bit, our water business, you know, looks to remain very, very solid for the years to come.

Speaker Change: You know, our water business is so, you know, well diversified that, you know, when, as PFAS began to pick up, certainly, you know, we're, we're, you know, front and centre in that work.

Speaker Change: And we've mentioned you opted.

Speaker Change: $200 billion in capital was initially estimated there. We know it's going to be more than that. But it's not a meaningful or, you know, contribution to the overall net revenue. So whether PFAS goes up a little bit or comes down a little bit, our water business, you know, looks to remain very, very solid for the years to come.

Maxim Sytchev: Excellent, that's it for me. Thank you so much. Thanks, Max.

Maxim Sytchev: Excellent. That's it for me.

Operator: Thank you so much. Thanks, Max. Thank you.

Ian Gillies: Thank you. Our final question comes from Ian Gillies with Stiefel. Your line is now open.

Speaker Change: Okay, excellent. That's it for me. Thank you so much. Thanks, Max.

Speaker Change: Thank you. Our final question comes from Ian Gillies with Stiefel. Your line is now open.

Ian Gillies: Morning, everyone. Morning.

Ian Gillies: There's been quite a bit of talk around integration through M&A this year. As we think about pressing into 2025, would you anticipate that margin expansion year over year in 2025 will be perhaps a bit better than average as you roll through some of these costs and start to get everything on the same platform? Or are you thinking it's kind of a normal year?

Ian Gillies: There's been quite a bit of talk around the integration through M&A this year.

Ian Gillies: As we think about pressing into 2025, would you anticipate...

Ian Gillies: That margin expansion year over year in 25 is perhaps a bit better than average as you roll through some of these costs and start to get everything on the same platform or are you thinking it's kind of a normal year?

Gordon Johnston: No, I think the opportunity to expand margin next year is really good for a number of reasons, including what you're pointing to around the integration work wrapping up. It's the enhancement that comes from having a bigger scale and a bigger platform. It's those that have joined us through the acquisitions being integrated and on the Stantec platform. It's our own employees that are taking the time to work with our new colleagues and helping with that transition.

Gordon Johnston: No, I think the opportunity to expand large and next year is really good, for a number of reasons, including what you're pointing to around the integration work wrapping up.

Speaker Change: No, I think the opportunity to expand margin next year is really good for a number of reasons, including what you're pointing to around the integration work wrapping up. It's the enhancement that comes from having a bigger scale, a bigger platform. It's those that have joined us through the acquisitions being integrated and on the Stantec platform. It's our own employees that are taking the time and working with our new colleagues and helping with that transition. We've noted a couple of times as well that when you look at where we are this year, the

Gordon Johnston: We've noted a couple of times as well that when you look at where we are this year, the winding down of some larger projects and waiting for others to ramp up, as that ramp up takes hold, that will drive strong utilization and reduce the amount of admin labor that we have. There are a number of things that, as we move forward, will lead to, I believe, margin enhancement that will be on track to achieve that 17 to 18% that we're targeting for the end of 2026.

Ian Gillies: the wind gener from larger projects waiting for others to ramp up we as that ramp up takes hold that will drive strong utilization and reduce the the amount of the adnant labor that we have so there's a number of things that as we move forward will lead to i believe margin enhanceand that will be you know on track to achieve about seventeen to eighteenpercent that we're that we're targeting for the end of thousand and twenty six

Ian Gillies: That's very helpful. The other question I had is around the M&A pipeline. I'm just curious about what opportunities ECON has brought, perhaps on the continent of Europe, whether it be in Germany or in other jurisdictions, around continuing to grow in that region as you try and get towards a critical mass.

Gordon Johnston: That's very helpful. The other question I had is around the M&A pipeline. I'm just curious about what opportunities ECCON has brought, perhaps in continental Europe, whether it be in Germany or in other jurisdictions, around continuing to grow in that region as you try and get towards a critical mass.

Speaker Change: That's very helpful.

Speaker Change: Question I had is around the M&A pipeline. I'm just curious on what opportunities ECON has brought, perhaps in continents of Europe , whether it be in Germany or in other jurisdictions, around continuing to grow in that region as you try and get towards a critical mass.

Gordon Johnston: Yeah, certainly. We're focused primarily on Germany right now, and they have some operations in Austria as well. There are good opportunities out there, and you know we're certainly interested in moving forward. We want to get Zetcon itself into Stantec a little bit. There's some IT things that we're working through, you know, getting on those systems and so on, so we're, you know, I wouldn't see us doing anything more in Germany in 2024 just because we want to ensure that Zetcon is on that solid Stantec footprint before we move forward, but certainly lots of good opportunities to continue to expand and you know, get that critical mass, as you mentioned, that we want in Germany.

Gordon Johnston: Yeah, certainly. We're focused primarily on Germany right now, and they have some operations in Austria as well. There are good opportunities out there. And, you know, we're certainly interested in moving forward. We want to get Zetcon itself into Stantec a little bit. There are some IT things that we're working through, you know, getting on those systems, and so on. So we're, you know, I wouldn't see us doing anything more in Germany in 2024.

Speaker Change: Yeah, certainly.

Speaker Change: We're focused primarily on Germany right now, and they have some operations in Austria as well. There are good opportunities out there, and we're certainly interested in moving forward. We want to get Zetcon itself into Stantec a little bit. There's some IT things that we're working through, getting on those systems and so on.

Gordon Johnston: Just because we want to ensure that Zetcon has that solid Stantec footprint before we move forward. But, but certainly lots of good opportunities there to continue to expand and, you know, get that critical mass, as you mentioned, that we want in Germany.

Ian Gillies: I wouldn't see us doing anything more in Germany in 2024, just because we want to ensure that Zedcon is on that solid Stantec footprint before we move forward. But certainly lots of good opportunities there to continue to expand and get that critical mass, as you mentioned, that we want in Germany.

Ian Gillies: Understood. Thanks very much. I'll turn the call back over to you. Thank you. At this time, I'm not showing any further questions. I would like to turn it back to Gord for closing remarks.

Speaker Change: Understood. Thanks very much. I'll turn the call back over.

Speaker Change: Thank you. At this time, I'm showing no further questions. I would like to turn it back to Gord for closing remarks.

Gordon Johnston: Great. Well, thank you, Operator, and thanks, everyone, for joining us this morning. If you have any additional follow-up questions, you know, Jess Nieukerk, our VP of Investor Relations, is always available for your call. So thanks very much.

Operator: Great. Well, thank you, Operator, and thanks, everyone, for joining us this morning. If you have any additional follow-up questions, you know, Jess Nieukerk, our VP of Investor Relations, is always available for your call. So thanks very much.

Gord: Great. Well, thank you, Operator, and thanks, everyone, for joining us this morning. If you have any additional follow-up questions, you know, Jess Nieukerk, our VP of Investor Relations, is always available for your call. So thanks very much. Thank you.

Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.

Speaker Change: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.

Gordon Johnston: It's the enhancements that come from having a bigger scale, a bigger platform. Those that have joined us through the acquisitions, being integrated, and on the Santax platform are our own employees that are taking the time to work with our new colleagues and helping with that transition. But we've noted a couple of times as well that when you look at where we are this year, the line down from larger projects and waiting for others to ramp up.

Gordon Johnston: As that ramp-up takes hold, that will drive strong dualization and reduce the amount of admin labor that we're going to do. So there's a number of things that, as we move forward, will lead to, I believe, margin enhancement that will be on track to achieve that 17 to 18% that we're targeting for the end of 2026.

Q2 2024 Stantec Inc Earnings Call

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