Q2 2024 Stantec Inc Earnings Call

Operator: Good day, and thank you for standing by. Welcome to Stantec's second quarter 2024 results webcast and conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you will need to press star 11 on your telephone. You will then hear an automated message advising that your hand is raised. To withdraw your question, please press star 11 again.

Good day, and thank you for standing by welcome to stay and Teck's second quarter 'twenty 'twenty four results webcast and conference call.

Speaker Change: At this time all participants are in a listen only mode.

After the Speakers' presentation, there'll be a question and answer session.

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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: Please be advised that today's conference is being recorded.

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

<unk> invites those dialing in to view the slide presentation, which is available in the investors section at <unk> Dot com.

Today's call is also webcast. Please be advised that if you have dialed in while also viewing the webcast you should mute your computer as there is a delay between the call and the webcast.

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.

All information provided during this conference call is subject to the forward looking statement qualification set out on slide two detailed in <unk> management discussion and analysis and incorporated in full for the purposes of today's call.

Speaker Change: Unless otherwise why it's noted dollar amounts discussed in today's call are expressed in Canadian dollars and are generally rounded with.

With that I'm pleased to turn the call over to Mr. Cory Johnson.

Speaker Change: 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.

Cory Johnson: Good morning, Thank you for joining us today.

Cory Johnson: Before jumping into our second quarter results I wanted to express how proud I am with <unk> continues to be recognized for our leadership and sustainability.

Cory Johnson: This past quarter corporate Knights ranked <unk> as number two in their 2024 best 50 Canadian corporate citizens ranking.

Cory Johnson: In addition, <unk> has been included in time magazine's list of the world's most sustainable companies of 2024, we are the top Canadian company on their list and ranked 14th overall.

Gordon Johnston: These accolades are a testament to our authentic approach to sustainability and to doing what is right. 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, and we have continued to capitalize on the growth opportunities that they're creating and implementing Nature-Based Solutions.

Speaker Change: These accolades are a testament to our authentic approach to sustainability and to.

Speaker Change: 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.

Speaker Change: I am 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.

Speaker Change: 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, and is well placed with our clients. 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 replacing water mains, significantly reducing leaks and harm from storm overflows, and implementing nature-based solutions.

Speaker Change: Our industry, leading water business continues to drive growth in critical areas like shoreline protection wastewater treatment water security advanced manufacturing and PFS.

Speaker Change: In the UK our team continues to focus on bidding for Amp eight contracts static is well placed with our clients. We have already been awarded a significant number of contracts and are awaiting decisions on several others.

Speaker Change: Teams of addressing aging infrastructure and climate change are very prominent in our base with investment to be directed towards replacement of water remains significantly reducing leaks and harm from storm overflows and.

Speaker Change: And implementing nature based solutions, where.

Gordon Johnston: We are the number one water firm in the U.K. 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: We are the number one water firm in the UK and are extremely well positioned for continued growth.

Speaker Change: Increased funding for healthcare 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.

Speaker Change: 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 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 datacenter facilities.

Speaker Change: Currently were working with four of the top five Hyperscale datacenter technology companies.

Gordon Johnston: 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. A great example of this is a recent win where Stantec was engaged to reimagine the monitoring of our client's sewer pipeline assets and allow our clients to provide more reliable and efficient services.

Speaker Change: Our infrastructure business is seeing enhanced activity related to ageing infrastructure, particularly in the U. S is funding continues to flow from Iga with over 460 billion now allocated to over 60000 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, 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 <unk> has been engaged to reimagine the monitoring of our clients' sewer pipeline assets.

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

Speaker Change: This innovative approach as 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 our collaborative and innovative global workforce that includes civil design engineers and AI experts static is uniquely positioned to deliver AI powered asset management systems that will revolutionize operations.

Speaker Change: 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 as well for delivering on our margin guidance for the full 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.

Speaker Change: Up almost 17% compared to Q2, 2023, with 7% organic and 9% acquisition growth.

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 zircon Morrison Hershfield Hydrarch are performing as expected and we're busy working on their integration and supporting our 2700, new colleagues as they transition into static.

Speaker Change: Adjusted EBITDA for the quarter rose to $247 million.

Speaker Change: Up 14, 5% with a margin of 16, 6% positioning us well for delivering on our margin guidance for the full year.

Gordon Johnston: [inaudible] Overall, we delivered a just EPS of $1.12, up 13% over Q2 last year. Our U.S. 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.

Gordon Johnston: Overall, we delivered adjusted EPS of $1.12, up 13% over Q2 last year. 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 Morrison-Hirschfield and 9% organic growth. Our water business delivered double-digit organic growth with major industrial and water security projects. In Canada, we grew our net revenue by 16%, with 11% acquisition growth from Morris & Hirschfield and 5% 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.

Speaker Change: Overall, we delivered adjusted EPS of $1 12.

Speaker Change: Up 13% over Q2 last year.

Speaker Change: Our U S business continues to perform extremely well.

Gordon Johnston: Delivering a 16% increase in net revenue for the second quarter, including 6% acquisition growth from ESD, and Morrison, Hershfield and 9% organic growth.

Gordon Johnston: Once again all of our business operating units in the U S had solid organic growth.

Gordon Johnston: 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 healthcare, science and technology, and industrial.

Gordon Johnston: Our water business delivered double digit organic growth with major industrial and water security projects.

Gordon Johnston: Infrastructure also achieved double digit organic growth with significant transit rail and roadway projects contributing to growing momentum.

Speaker Change: Our buildings business saw strong demand across most sub sectors, 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 wrap-up of new projects.

Speaker Change: In Canada, we grew our net revenue by 16%.

Speaker Change: With 11% acquisition growth for Morrison, Hershfield, and 5% organic growth.

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

Gordon Johnston: Buildings also drove double digit organic growth through project in the healthcare space in both British Columbia and Quebec.

Gordon Johnston: Energy and resources retracted slightly this quarter as a result of ongoing delays in the ramp up of new projects. However, we continue to grow our backlog and when Msas. So we expect <unk> 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. 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.

Gordon Johnston: Our global operations generated an increase of 19% of net revenue was 14% coming from the zircon and hydraulic acquisitions and 6% from organic growth.

Gordon Johnston: Our global buildings water and environmental services businesses, all achieved double digit organic growth.

Buildings organic growth reached almost 30% driven primarily by the cancer Center in Dubai, and the ramp up of work on the 4 billion pound <unk> 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: Waters organic growth was achieved across the UK, New Zealand and Australia through long term framework agreements and public sector investments.

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

Gordon Johnston: Yes.

Gordon Johnston: 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.

Unknown Attendee: Thank you, Gord. Good morning, everyone.

Theresa Jang: Thank you Gordon and 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 margins. 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.

Ryan Roberts: Once again, we delivered a very solid quarter of performance in Q2. We achieved record net revenue and enhanced project margins. Provisions for claims vary from year to year, largely as a result of changes in actuarial projections for our self-insurance programs. 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.

Speaker Change: 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, 'twenty three and net revenue of $1 5 billion was up 17%.

<unk> margin increased 10 basis points due to our continued discipline and project execution.

Ryan Roberts: We did see a slight decline of 30 basis points and our adjusted EBITDA margin to 16, 6%, which was primarily due to increased insurance claim provisions.

Ryan Roberts: 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.

Ryan Roberts: Ames provisions in Q2 last year were unusually low and returned to more historical levels in Q2 this year.

Ryan Roberts: Adjusted diluted EPS in the quarter increased 13% to $1 12.

Ryan Roberts: And I would note that we did not see a meaningful impact this quarter as it relates to our long term incentive program revaluation.

Ryan Roberts: 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 doubled what it was in the comparative period last year. This reflects our ongoing focus on working capital management.

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

Ryan Roberts: 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. With that, I'll turn the call back to Gord.

Ryan Roberts: And we closed the quarter with a net debt to adjusted EBITDA ratio of one seven times, reflecting the Q2 funding for hydronic, we remain well within our target range of one to two times.

Ryan Roberts: With that I'll turn the call back to cord.

Gord: Thanks Teresa.

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. Winds 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: At the end of the second quarter, our backlog stood at $7 $2 billion its highest level ever.

Speaker Change: Since December 2023, this represents approximately 8% acquisition and 3% organic growth.

Gord: We achieved organic growth across all of our regions and in all of our <unk> with the exception of buildings.

Gord: Energy and resources and environmental services, both achieved double digit organic growth.

Speaker Change: <unk> for energy and resources, including 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 the development of Pure Water DC, which will provide a resilient water supply through a water reuse approach.

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-centered campus in the U.S. 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, and through our partnership with the Katikmiyaat Inuit 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.

Gord: 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 center campus in the U S.

Gordon Johnston: Our backlog represents approximately 12 months work.

Gordon Johnston: Turning now to major projects awarded in Q2 in.

Gordon Johnston: In June we announced the extension of our program management and technical Engineering services for pure water San Diego.

Gordon Johnston: In addition to this our water team and a joint venture has been awarded a five year contract to provide services for DC water.

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

Gordon Johnston: 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 Ab8 frameworks in the UK and have secured an engineering consultancy framework with Dewar Khumri, 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 Greys Bay Road and Port Project in Northern Canada. The road will ultimately allow full access from Alberta to the Northwest Territories, including nine of them, and to the first deep water port in the Western Arctic, which ties to the Beaufort Sea.

Gordon Johnston: We also continue to work to win App eight frameworks in the U K and secured an engineering consultancy framework with Doer Cymru Welsh water.

Gordon Johnston: Our buildings business will serve as a trusted advisor to a confidential fortune 100 technology client.

Gordon Johnston: <unk> by the expertise of ESD and Morrison Hershfield. The building's 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.

Gordon Johnston: And through our partnership with the Kitikmeot into it our environmental services team has been engaged to help restart the environmental permitting and engineering for the Green Bay Road and Port project in Northern Canada.

Gordon Johnston: The road will ultimately allow full access from Alberta to the northwest territories to none of it and to the first deepwater port in the western Arctic which ties to the <unk>.

Gordon Johnston: And now, turning to our gui, With our solid results year 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.

Gordon Johnston: Now turning to our guidance.

Gordon Johnston: With our solid results year 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. Our outlook for the U.S. has not changed. Combined, over $560 billion has been allocated from these three bills, and the market remains very robust.

Gordon Johnston: 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% and.

Gordon Johnston: And we remain confident with our expectations of organic growth being in the mid to high single digits.

Gordon Johnston: Our outlook for the U S has not changed.

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.

Gordon Johnston: We continue to see the ramp up of funding from the Iga IRR and the chips and Science Act.

Gordon Johnston: 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.

Gordon Johnston: 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 and 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 one 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.

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. 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.

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

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

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

Gordon Johnston: We are in various stages of transitioning and integrating these firms.

Gordon Johnston: 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.

Gordon Johnston: We've narrowed our target for adjusted EBITDA margin for the year to $16 five to 16, 9%.

Gordon Johnston: And finally, we continue to expect our adjusted diluted EPS growth to be in the range of 12% to 16%.

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

Gordon Johnston: 2024 is shaping up to be another excellent year for static as we continue to execute on our three year strategic plan.

Gordon Johnston: Before wrapping up today, I'd like to welcome Vito Colmoni. Vito joined us on July 15th as Executive Vice President, and he is already deeply engaged with Theresa and her team. 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. Theresa will continue to work with us until September 27th, ensuring a smooth transition with Vito. We will miss her, and we wish her all the best in her retirement.

Vito kimono: Before wrapping up today I'd like to welcome Vito kimono.

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

Speaker Change: Vito will assume the chief financial officer role on September <unk>.

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: 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 <unk> last quarterly conference call I also want to thank you for once again for their tremendous work and dedication to static.

Speaker Change: Her exceptional leadership and knowledge has left <unk> 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 Vito. We will miss her, and we wish her all the best in her retirement. And with that, I'll turn the call back to the operator for questions.

Gordon Johnston: Teresa will continue to work with us until September 27th ensuring a smooth transition with the veto.

Gordon Johnston: We will miss her and we wish you all the best in her retirement.

Gordon Johnston: And with that I'll turn the call back to the operator for questions operator.

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.

Gordon Johnston: At this time, we will conduct a question and answer session. As a reminder to ask a question you will need to press star one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again, please standby, while we compile the Q&A roster.

Speaker Change: Our first question comes from <unk> Khan with RBC 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. I guess just on the kind of capital allocation side, if we 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, 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, some thoughts on that?

Vito Colmoni: Okay, great. Thanks, and good morning, and before I get going the story. So I wanted to acknowledge the significant impact of pad here and wish you all the best for the next chapter.

Gordon Johnston: Silver.

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

Speaker Change: The number of transactions to start the year can you maybe just talk about the pipeline there and just more specifically.

Speaker Change: Likelihood of a larger transaction is 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 powder that we've got left, you heard Theresa talk about where we are from a leverage perspective. We feel really confident that we can continue to move forward, and we are not pausing our M&A search in the ongoing discussions in any way. So, we're in different levels of discussions with companies really around the world; the pipeline is really full right now, and there are some, again in that 500 to 1,000 to 2,000 person range, but there are also some larger ones that we're in the midst of discussions with as well.

Gordon Johnston: Yes so.

Speaker Change: Firstly as we look at at the dry powder that we've got left you heard <unk> talk about where we are in are from a leverage perspective, we feel we feel really confident that we can continue to move forward and we're not pausing our M&A.

Speaker Change: Search and the ongoing discussions in any way. So we're in different levels of discussion with with company is really around the world. The pipeline is really full right now and there is there is some again in that 500 to 1000 to 2000 person range, but theres also some larger ones that were in the midst of discussions with as well.

Gordon Johnston: When these would come to bear.

Speaker Change: There'll be sort of the timing will be what it'll be but theyre absolutely Saba is no change in our M&A philosophy with our with our change in CFO from Teresa to veto.

Vito Colmoni: 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.

Speaker Change: 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 our trajectory of the margin progression here and the sort of margin that might be baked into our 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.

Ryan Roberts: 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: Sure so.

Ryan Roberts: As we get Q3 underway here at 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.

Ryan Roberts: Range that we've put out in our in our outlook is very achievable.

Unknown Attendee: 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 are 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 side?

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. And what are you 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 the non-public? Yeah, you know, certainly.

Speaker Change: Great and then just one last one just based on the discussions you are having with your customers, particularly on the private side.

Speaker Change: What are you 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 nonpublic clients. Thanks.

Gordon Johnston: Yeah, you know, certainly, as consistent with where we've been in previous quarters, the commercial subsector is still slower, but on some of our main buildings, client bases, health care, and so on, you know, you've seen, you know, in Q2 of this year, 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 differentiators from Stantec over other firms is that we have a much larger, you know, public sector perspective there.

Unknown Attendee: Yes.

Speaker Change: Certainly it is consistent with where we've been in previous quarters.

Speaker Change: The commercial.

Speaker Change: Sub sector is still slower but on the some of our main buildings.

Speaker Change: Client basis health care and so on you've seen in Q2 of this year.

Unknown Attendee: Buildings had over 13% organic growth so.

Speaker Change: People often ask about the building sub sector in particular, but in buildings one of the differentiator from static over other firms is that we have a much larger public sector.

Gordon Johnston: 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 our private sector clients really around the world, a little bit we were seeing it historically, and we commented on community development or the land developed business in the UK. But yeah, with the change in government there to the new Labor government, their commitment to build 1.5 million new homes, and 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.

Speaker Change: Perspective, there so all of the health care and a lot of the work that we're doing there shows up very strong but.

Speaker Change: No, we're not really seeing a lot of softening in the approach.

Speaker Change: From from our private sector clients really are around the world little bit we were seeing it historically and we commented on in the <unk>.

Speaker Change: Community development or the land developed business in the UK, but yet with the change in the government there to the new Labour government their commitment to build one 5 million new homes their appointment of the expert task force, we do see that that homebuilding should should kick off and we get restarted here in the second half of this year.

Speaker Change: Great. Thanks very much.

Alan: Thanks Alan.

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

Speaker Change: Thank you.

Unknown Attendee: Our next question comes from Devin Dodge with BMO capital markets. Your line is now open.

Devin Dodge: All right, thanks. Good morning.

Speaker Change: Alright, thanks, good morning.

Speaker Change: Going to start with a question.

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: On the U S. I'm just wondering if you could provide some context around the organic backlog development there.

Speaker Change: It appears that the backlog has moderated sequentially on an organic basis.

Unknown Attendee: I think it's three of the last four quarters, and I was trying to get a sense if there are any implications for that growth outlook from that.

Speaker Change: 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.

Gordon Johnston: Yeah, we don't see that at all. Devin, you know, we're the pipeline of opportunities. He's still very, very strong.

Unknown Attendee: Yes, we don't see that at all Devon, where the the pipeline of opportunities is still a very very strong I think the one thing that we're seeing in the U S. As we've had such high organic growth there eight 7% in Q2, but 10%.

Gordon Johnston: 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. And just because the organic growth is so high, we're consuming it as well.

Speaker Change: Our 12% really going back over the last number of quarters. So we are filling the pipeline with new work were just because of the organic growth is so high we're consuming it as well, but there is.

Speaker Change: And a lot of the new work that we're seeing there is just timing issues in terms of when we get it into contracted when do we actually signed and contracted and put it in the backlog.

Gordon Johnston: 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: Don't see a delay in those in.

Speaker Change: In those contracts being awarded so it just a timing issue, we really not concerned about the U S backlog.

Unknown Attendee: Okay, 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 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.

Devin Dodge: Okay, thanks for that. And 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.

Speaker Change: Okay. Okay. Thanks for that.

Unknown Attendee: Then.

Unknown Attendee: 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.

Unknown Attendee: 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% of our real estate from the 2023 baseline and.

Speaker Change: 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.

Speaker Change: Well on track to reach that 10 cents per share over the next three years.

Devin Dodge: Okay, sounds good. Okay.

Unknown Attendee: Okay sounds good Okay, and then just before I turn it over I just wanted to thank Teresa you probably are helpful for the last five years.

Speaker Change: That's on the retirement and if.

Speaker Change: He does in the background there good luck in his new role thank.

Devin Dodge: 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 vetoes in the background there. Good luck in his new role. Thank you very much.

Speaker Change: Thanks very much.

Speaker Change: Thank you.

Yuri Lynk: Our next question comes from Yuri Lynk with canna cord genuity ink. Your line is now open.

Unknown Attendee: Our next question comes from Yuri Lynk with Canaccord Genuity, Inc. Your line is now open.

Speaker Change: Hey, good morning.

Yuri Lynk: Morning, Yuri. Good morning.

Unknown Attendee: Morning, Yuri. Good morning.

Speaker Change: Good morning.

Yuri Lynk: I'll echo the sentiments of Theresa and Vito. Just wondering about what you mentioned in the MD&A about claims, claim provisions kind of reverting back to normal. Were those lower provisions 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 see a bit of a retraction there and maybe a little bump in Q4 as we think about the back half of the year?

Ryan Roberts: I'll echo the sentiments of Theresa and Vito. Just wondering about the claim, claim provisions kind of reverting back to normal. Were those lower provisions in play in the back half of 2023? Or was it just

Speaker Change: The sentiments to Teresa and Vito.

Ryan Roberts: Just wondering about.

Speaker Change: You mentioned in the MD&A about.

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

Speaker Change: Were those lower provisions.

Speaker Change: In the back half of 2023 or was it just Q2.

Ryan Roberts: Because.

Speaker Change: Im looking at the.

Speaker Change: Q3, EBIT EBITDA margin from last year is quite strong and just wondering if.

Speaker Change: We probably see.

Speaker Change: A bit of a retraction, there and maybe a little bump in Q4, as we think about the back half of the year.

Ryan Roberts: 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 is typically around this time of year when 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 part of it.

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 is typically around this time of year when 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 part of it.

Speaker Change: Yeah. So it was actually it was in Q2 of last year that we saw the benefit of that lower provision.

Ryan Roberts: In our results and the timing.

Ryan Roberts: Typically around this time of year, where we get those updated actuarial.

Ryan Roberts: <unk> forecasts and so I think last year, if youll recall too that there was.

Ryan Roberts: It's a bit of noise Q2 last year was the first time that we had that that sort of outsized revaluation from our algorithm there were a lot of moving parts.

Ryan Roberts: But that that lower provision.

Ryan Roberts: Part of it.

Speaker Change: Okay and was there was there something in Q3.

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

Ryan Roberts: of last year. I know I'm testing your memory, but it was a very strong, even margin.

Speaker Change: Last year I know you've touched on your memory, but it was.

Speaker Change: A very strong EBITDA.

Unknown Attendee: Yeah, 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, you know, we had an exceptional Q3. And, you know, 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?

Theresa Jang: 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, you know, we had an exceptional Q3. And, you know, 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?

Ryan Roberts: We did see some of that provision benefit continue on through the rest of last year, but the biggest piece of that would have been in Q2 and last year, we had an exceptional Q3.

Unknown Attendee: And.

Unknown Attendee: Whether we can deliver the same.

Unknown Attendee: Level of margins this year remains to be seen but yes. It was doctor wasn't very very strong quarter.

Unknown Attendee: Okay.

Speaker Change: Just a follow up going to U S backlog.

Speaker Change: Are you seeing any delays in.

Speaker Change: And kind of award activity from your from your pipeline due to maybe the election or anything else out there yes.

Gordon Johnston: Yeah, we're really not, Yuri. You know, at the beginning of the year, when we spent a lot of time thinking about whether we would see other 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 not seeing either. You know, we're just sort of steady as she goes, type of approach from our clients. You know, we're not, we're not, we're not, we're not, we're not, we're not, we're not, we're not, we're not, we're not, we're not, we're not, we're not, we're not, we're not, we

Speaker Change: Yes, we're really not here 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 it get them out and awarded prior to the election, but we're really seeing neither were just sort of steady as she.

Speaker Change: <unk> type of an approach there from from our clients.

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

Unknown Attendee: 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.

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

Unknown Attendee: Thanks.

Speaker Change: Thank you.

Operator: Our next question comes from Jacob Bout with CIBC. Your line is now open.

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

Jacob Bout: Good morning, and maybe to start, Theresa, just wishing you the best in retirement. Thanks very much.

Jacob Bout: Good morning, and maybe to start, Theresa, I just wish you the best in retirement. Thanks very much.

Jacob Bout: Hi, Good morning, maybe just start.

Speaker Change: Teresa just wishing the best in retirement.

Theresa: Thanks very much.

Jacob Bout: I'll just go back to the Yibida 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 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?

Speaker Change: Maybe just.

Speaker Change: Just go back to the.

Unknown Attendee: Yibida 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.

Speaker Change: EBITDA margin guidance.

Speaker Change: You narrowed full year.

Speaker Change: You called out.

Speaker Change: The margin and earnings in Houston from the three recent acquisitions, so it will be muted.

Speaker Change: And just I guess.

Speaker Change: I had a few questions around that.

Speaker Change: This period of transition and integration, how long will that be and maybe just talk through.

Speaker Change: 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, Morrison-Hirschfield 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.

Unknown Attendee: Yes.

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

Unknown Attendee: The.

Speaker Change: The integrations are all underway.

Speaker Change: They're all at various stages I would say.

Speaker Change: Morris with <unk> is that we are moving now to financial migration.

Speaker Change: It should occur over the second half of this year Hydropical wait until the spring zircon were really at this point.

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

Speaker Change: Valuation, we hadn't intended to bring it onto our back office system and just because it is more of a standalone business at this point.

Speaker Change: Having said that there are there are elements of that gone that are unique in terms of.

Speaker Change: Language difference for starters.

Speaker Change: Accounting methodology that is.

Speaker Change: That is a German GAAP and so.

Unknown Attendee: King.

Speaker Change: Some time to to kind of work our way through and.

Speaker Change: Convert their results into <unk> and so that again is kind of unique to does that con. So.

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 Gord 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: As we get through the back half of this year.

Unknown Attendee: And perhaps through the first half of next year things will start to normalize but it is.

Speaker Change: It's different.

Unknown Attendee: Having as Gordon mentioned in his comments.

Speaker Change: Current acquisitions that we are are transitioning.

Speaker Change: From doing one large 2700 firm acquisition Cardinal if you think about that was one firm 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 want to make sure that the folks that we have brought over are feeling good about.

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 for 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: Being a part of <unk> and learning their way around and learning our processes and so on.

Speaker Change: And so that that is.

Speaker Change: Yes completely expected for us that at margins that you wouldn't see a pop in right away and so as far as the margin profile. So they're all very similar to <unk> in terms of the lines of business.

Speaker Change: That we have so there's really nothing there that would cause us to think that there will be a margin retraction.

Speaker Change: 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.

Unknown Attendee: Sure.

Speaker Change: Given the improvement that you've seen the margins there hasnt been a gap open up between some of these smaller acquisitions and yourself and overtime.

Theresa Jang: No, I don't, 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, 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 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 fairly typical relative to their lines of business.

Speaker Change: Cyclic transportation, having slightly lower.

Speaker Change: Margins are typically public.

Speaker Change: Public projects.

Speaker Change: Some of the construction management project program management work, that's that content tends to be a higher margin. So it's.

Speaker Change: Fairly typical.

Theresa Jang: So 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.

Speaker Change: We generally say as well that there is not.

Speaker Change: <unk> the amount of cost synergies from these acquisitions, because it's really the growth in revenues and collectively with them that we are in pursuit of.

Speaker Change: Okay and last question here, just on pricing as 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. 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 tailwind.

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

Speaker Change: You know us and.

Speaker Change: Our competitor set is still very very busy.

Speaker Change: <unk> are high and so yes, 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.

Unknown Attendee: Isn't.

Speaker Change: 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.

Unknown Attendee: Tailwind.

Jacob Bout: Okay, helpful. Thank you. Great. Thanks, Jacob.

Unknown Attendee: Okay.

Greg: Thank you Greg.

Speaker Change: Great. Thanks Jacob.

Chris Murray: 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 market. Your line is now open.

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 made the comment that you're not seeing anything too much around the election, but we just wanted to help maybe understand, you know, 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 the mix of business or if it's special projects that are maybe helping you out.

Unknown Attendee: 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.

Speaker Change: Yes, thanks folks good morning, and Teresa Congratulations on your retirement and.

Unknown Attendee: Hope it ends up well for you.

Unknown Attendee: I guess the first question.

Unknown Attendee: Maybe just turning back to the U S and Gordon you made the comment that you are not seeing anything too much around the election, but.

Speaker Change: I was wondering if you can help me understand.

Speaker Change: <unk> metrics.

Unknown Attendee: Being sub 50% will also while it doesn't seem like you guys are seeing much of an impact.

Speaker Change: Which is maybe a bit surprising.

Unknown Attendee: And I'm just wondering if that's more of the mix of business or if it's a special projects.

Speaker Change: That maybe is helping you out there.

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

Gordon Johnston: Yeah, so, you know, interestingly, the U.S. in general, we see, we 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 U.S., you know, infrastructure really continues to have bipartisan support there. So, when you look at the IIJA, where about a third of it has been awarded, and Congress has until the end of 2026 to encumber the remaining funds. So, you know, we see that as providing, you know, significant longer-term tailwinds. Already, there are some discussions about, you know, what IIJA 2.0 might look like.

Speaker Change: Yes so.

Speaker Change: Interestingly the U S in general we see.

Gordon Johnston: Often get asked what do we see we might see with <unk>.

Gordon Johnston: If there were to be an administration change there but.

Gordon Johnston: Looking at the Big picture of the U S infrastructure really continues to have bipartisan support there. So when you look at the Iga, where about a third of it has been awarded and Congress has till the end of 2026 to encumber their remaining so we see that providing significant longer term tailwind already some <unk>.

Gordon Johnston: <unk> about what might Iga to look like.

Gordon Johnston: 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 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, you know, decrease in some of the concerns with the ABI, you know, we've seen that commercial growth certainly has been slow, but it's been slow for But healthcare is very, very strong for us; mission-critical facilities are very strong. So, we see those tailwinds continuing, you know, going forward.

Unknown Attendee: 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 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, you know, decrease in some of the concerns with the ABI, you know, we've seen that commercial growth certainly has been slow, but it's been slow for But healthcare is very, very strong for us; mission-critical facilities are very strong. So, we see those tailwinds continuing, you know, going forward.

Gordon Johnston: Semiconductors are busy Datacenters mission critical facilities P. Fast is starting to come on so the kind of that broad based support there. So we we still see that regardless of whether.

Unknown Attendee: 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 to your point about building specifically with the the decrease in some of the concerns with the the Abi.

Unknown Attendee: We've seen that.

Unknown Attendee: Commercial certainly has been slow but its been slow for a couple of years now, but health care is very very strong forest mission critical facilities are very strong so and we see those tail winds continuing going forward.

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

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

Speaker Change: Okay interesting.

Speaker Change: Then just turning back means in your energy and resources business.

Unknown Attendee: Lot of the wins it sounds like are in things like grid resiliency.

Unknown Attendee: But theres been a number of announcements from a lot of companies around the oil and gas.

Unknown Attendee: I call. It traditionally kind of your backyard kind of kind of.

Unknown Attendee: LNG and things like that just wondering whats your opportunity pipeline looking like more in the traditional kind of oil and gas energy business.

Unknown Attendee: Thanks.

Gordon Johnston: 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 it will ever approach what it was a decade ago, 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.

Gordon Johnston: 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 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 MSA with BC Hydro, so that's really where we're seeing growth.

Unknown Attendee: So I would say, Chris that as far as the more traditional oil and gas where it gets still.

Gordon Johnston: Relatively muted.

Gordon Johnston: And I don't know that.

Gordon Johnston: We will ever approach when it was a decade ago, but you are right that that work really is shifting toward.

Gordon Johnston: Transmission power generation powertrains transmission hardening of the grid as a high priority for in many geographies and we've seen a lot of growth.

Gordon Johnston: We've seen a lot of growth on the national grid in the UK, for instance. We've announced the work that we've won under the MSA with BC Hydro, so that's really where we're seeing 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 are still trying to figure out how to make those projects viable. 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, longer term, that is going to be a business that will continue to grow.

Gordon Johnston: For the national grid in the UK for instance.

Gordon Johnston: Announced the work that we've won under MSA with BC hydro.

Gordon Johnston: That's really where we're seeing the growth in renewables a bit muted.

Gordon Johnston: Renewable energy is a bit muted at the moment, just given that the regulatory requirements and so on are still pretty onerous, and I think, you know, proponents are still trying to figure out how to make those projects viable. 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, as we sort through, you know, the fluctuations in commodity prices, that, longer term, that is going to be a business that will continue to grow. Okay.

Gordon Johnston: At the moment, just given the regulatory requirements and so on they are still pretty onerous.

Gordon Johnston: And I think.

Gordon Johnston: They're still trying to figure out how to make those projects economic.

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

Gordon Johnston: But I do think that as we.

Gordon Johnston: As we sort through the.

Gordon Johnston: The fluctuations in commodity prices that 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. Thank you very much I appreciate the color.

Speaker Change: Thank you.

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

Gordon Johnston: Thank you. Our next question comes from Sean Jack with Raymond James Ltd. Your line is now open.

Unknown Attendee: Hey, good morning, guys.

Speaker Change: Hey, Good morning, guys, just a quick one from me.

Speaker Change: Looking at the different business operating units and from an M&A perspective, I'm wondering where the firms seeking 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 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 in the UK, Northern Europe, down in Australia, New Zealand, to a degree as well.

Speaker Change: We have considerable strength in each of our five <unk>. So we're actively engaged in discussions really in all of those <unk>.

Sean: And we're continuing to look at some opportunities in Canada, but even more so in the United States or geographies really havent changed from where we're looking Sean.

Speaker Change: Certainly in the United States still into the UK Northern Europe down.

Unknown Attendee: Down in Australia, and New Zealand to a degree as well. So we we see the geographic M&A pipeline is very robust as well really through all of our <unk> and so there is not one that we're preferentially looking out at the time.

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 there and maintaining those discussions set.

Speaker Change: We're just sort of looking at all the opportunities are there and maintaining those discussions yet.

Unknown Attendee: Okay perfect. That's all from me guys. Thanks. Thank.

Speaker Change: Thank you.

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

Operator: 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.

Speaker Change: Thank you. Our next question comes from <unk> <unk> with Chardan. Your line is now open yes, good morning, everyone and welcome to the team Vito and all the best to you.

Benoit Poirier: Yeah, good morning everyone and welcome to Team Vito, and all the best to you, 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 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?

Theresa: Thank you.

Joe: Yes, Joe.

Benoit Poirier: For <unk>, obviously strong organic growth overall, but we've seen some retraction for energy resources due to some delays in the ramp up of new projects. So could you provide more color about the.

Unknown Attendee: 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?

Unknown Attendee: How many projects are part of Bp's announcement, and whether it's a matter of just one quarter and when the ramp up of these projects.

Speaker Change: Pushed out.

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.

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: Yes, so we.

Speaker Change: You've seen this.

Gordon Johnston: Delay for a couple of quarters now and also just the wind down of some other larger projects that we that we had last year.

Gordon Johnston: 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 have we've won the work in our backlog, we've got people sort of standing by and in <unk>.

Gordon Johnston: To go and we just need as we as we work with our clients to get the project up and running.

Gordon Johnston: So that we have our staff are working.

Gordon Johnston: Working at a steady state.

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.

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.

Gordon Johnston: 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.

Gordon Johnston: Driven by our.

Gordon Johnston: Outlook for commodity prices and so on.

Gordon Johnston: But good.

Gordon Johnston: Good contracts that we've got in the backlog as we wait for our clients to get them going.

Gordon Johnston: Cognizant of that retraction in the first half of this year.

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

Speaker Change: Okay, and just curious is it what would drove the 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.

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. And so that included some of 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. It's more reflective of just the overall mix that we had this year versus last.

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. And so that included the coastal gas work, working for Metrolinx in Ontario, and that work has wound down. And so that's what you're seeing in the project margins. It's more reflective of just the overall mix that we have this year versus last.

Speaker Change: No not so much been while we we came off in Canada, we had a couple of projects, particularly in.

Gordon Johnston: In environmental services that were very high margin and really big projects that included the coastal gas work.

Jacob Bout: Okay, and last question here, just on pricing: is the demand environment still supportive of the ability to charge higher fees, or is this starting to change? No, we're

Gordon Johnston: Working for natural links in Ontario, and that work has wound down and so thats what youre seeing in the project margins is more reflective of just the overall mix.

Gordon Johnston: That we have this year versus last.

Unknown Attendee: 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.

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.

Speaker Change: And looking at the global region, you were able to achieve.

Unknown Attendee: 5% organic growth, which is pretty solid you mentioned a strong performance from building in Dubai double digit.

Unknown Attendee: Digit growth in water environmental services I was just curious to see if you could provide more color maybe on some other regions that are lagging or debt that needs to be maybe a little bit more monitor these days.

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, which as a result, cancelled about 20% of, or deferred about 20% of the projects that they were planning to move forward with. So we've seen that.

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: Yes, so one area in particular that Theyre monitored we're monitoring right now.

Benoit: Why is Australia, and particularly on the transportation side.

Gordon Johnston: I think we've chatted previous.

Gordon Johnston: Previous quarters that the.

Gordon Johnston: Federal government in Australia launched there.

Gordon Johnston: Federal infrastructure review as a result, counseled about 20% of our deferred about 20% of the projects that they were planning to move forward with so we've seen that certainly that's impacting <unk> transportation business in Australia as well as our competitors as well. So we are we're actively watching that we're all.

Gordon Johnston: 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.

Gordon Johnston: 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.

Gordon Johnston: 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 as we mentioned with the the transition to the Labour government them really looking to.

Gordon Johnston: Two to bear down and move forward with the with Housebuilding. There I think that will be very positive for our group going forward. So those are the two primarily that we've got our ion is transportation, Australia, and our community development business in the U K.

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 then maybe last one for <unk> in terms of DSO free cash flow. Obviously DSO came in at 77 days below the target of 80 <unk>.

Gordon Johnston: Given that it tends to we tend to see a big collection period in Q4.

Speaker Change: Would it be fair to expect Dsos to further improve and potentially reach low so the knees or below 75 days and just in terms of free cash flow expectation if you could provide.

Speaker Change: Breakdown 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. But 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.

Gordon Johnston: Yes.

Speaker Change: Im really happy with where DSO is particularly when we've got this continued pace of organic growth.

Speaker Change: So to be able to maintain a DSO below 80 days that is.

Speaker Change: As really positive when we get down to 75, or it's pretty hard to predict to be honest just given.

Gordon Johnston: The volume of projects that we have.

Gordon Johnston: And the complexities around just the sort of billing processes, but we're happy with where it is and there's always always room to continue to drive a downward and we are certainly going to try and do that from a free cash flow conversion standpoint.

Benoit Poirier: 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, you know, 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 towards that conversion rate, and so, you know, we'll see how it goes.

Speaker Change: The goal to have it a one times coverage of net income it's 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.

Gordon Johnston: So we'll see how it goes.

Benoit Poirier: We're off to a really good start for cash flow generation, so I'm hopeful, but, you know, whether we get there this year or continue to work towards that over the next two years remains to be seen.

Gordon Johnston: We're off to a really good start for our 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.

Speaker Change: Thank you very much for the time.

Maxim Sytchev: Thanks. Thanks, Benoit. Thank you.

Speaker Change: Thanks Manuel.

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

Speaker Change: Thank you.

Speaker Change: Our next question comes from Maxim <unk> with and.

Speaker Change: Your line is now open.

Speaker Change: Hi, good morning.

Speaker Change: Good morning.

Unknown Attendee: And to us, obviously, all the best in the future.

Maxim Sytchev: and to us, obviously, all the best in the future. Ramachandran, Gordon, I was wondering if 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, you know, the bigger the multiple. How, what are you guys seeing on the ground right now?

Speaker Change: Two is obviously all the best in the future.

Unknown Attendee: Thanks.

Unknown Attendee: Gordon I was wondering if I.

Speaker Change: I just had a couple of quick questions.

Speaker Change: In terms of kind of the sellers' expectations I'm wondering if you are observing sort of any emerging trends.

Speaker Change: Still pretty steady I guess the larger the deals.

Speaker Change: The bigger the multiple.

Speaker Change: What are you guys seeing on the ground right now.

Gordon Johnston: 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.

Unknown Attendee: 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.

Speaker Change: I think we are in.

Unknown Attendee: In general we are seeing the trends are pretty consistent.

Unknown Attendee: So we haven't seen any particular uptake in expectations from a multiples, but certainly we haven't seen a decrease either.

Unknown Attendee: I'd say pretty consistent there.

Speaker Change: Okay. Okay. That's great. Thank you and then last question I just had some western Canada. This has 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 side of the ledger with mining being better right now that's helping to offset just curious.

Maxim Sytchev: Okay, that's great, thank you. And then the last question I just had, so like Western Canada, it 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'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.

Speaker Change: But the sort of into play out.

Speaker Change: Commodity verticals and how that pertains to environmental services Paul 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: 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.

Unknown Attendee: Yes.

Unknown Attendee: Our es business is.

Gordon Johnston: It remains pretty busy, particularly we're seeing strong growth globally.

Gordon Johnston: A little bit of slowness from an organic growth perspective in Canada, right now, but as Teresa said it 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 so I think we still feel good about es certainly our environmental services group does work with mining, but it all.

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.

Gordon Johnston: Also works with all of our other groups as well, whether it's transportation water siting of new water main.

Gordon Johnston: <unk> is engaged with all of our all of our lines of business. So.

Gordon Johnston: No we're optimistic about the environmental business, we don't see that 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.

Unknown Attendee: 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: Yes makes sense and then excellent.

Unknown Attendee: Sure.

Unknown Attendee: And I'm curious if you have any uptake on that.

Unknown Attendee: The latest P fast.

Unknown Attendee: Sort of flip flopping like on the one hand like at some point it sounds like we're committing to it and right now it doesn't seem to be the case.

Unknown Attendee: 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, 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.

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: Our water business is so well diversified that wind is PFS began to pick up certainly where we're front and center in that work and we've mentioned you're up to $200 billion. In capital was initially estimated there we know it's going to be more than that.

Gordon Johnston: But it's not a meaningful contribution to the overall net revenue so whether <unk> goes up a little bit or it comes down a little bit our water business looks to remain very very solid for the years to come.

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

Unknown Attendee: Excellent, that's it from me. Thank you so much. Thanks, Max.

Gordon Johnston: Okay excellent thats. It from me. Thank you so much thanks Max.

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

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

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

Ian Gillies: Good morning, everyone.

Ian Gillies: Morning.

Ian Gillies: Yes.

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 that margin expansion year over year, and 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 Samtec 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 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 Samtec platform. It's our own employees that are taking the time to work with our new colleagues and helping with that transition.

Ian Gillies: No I think the opportunity to expand margin next year is it is really good.

Gordon Johnston: For for a number of reasons, including what you're pointing to around the integration work wrapping up.

Gordon Johnston: The enhancements that comes from having.

Gordon Johnston: Bigger scale a bigger platform.

Gordon Johnston: Yes.

Gordon Johnston: Those that have joined us through the acquisitions.

Gordon Johnston: Being integrated and on the <unk> platform.

Gordon Johnston: Our own employees that are taking the time and working with our new colleagues that and helping with that transition, but we've noted a couple of times as well that when you. When you look at where we are where we are this year.

Gordon Johnston: But 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. 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.

Gordon Johnston: But 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. 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.

Gordon Johnston: Wind down of some larger projects and waiting for others.

Gordon Johnston: Ramp up.

Gordon Johnston: As that ramp up takes hold that will drive a strong utilization.

Gordon Johnston: And reduce the amount of admin labor that we have 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 were that were targeting for the end of 2026.

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 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.

Gordon Johnston: That's very helpful. The other question I had is around the M&A pipeline. I'm just curious about what opportunities ECON's 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: The other <unk>.

Gordon Johnston: Question I had is around the M&A pipeline.

Gordon Johnston: I'm just curious on what opportunities at Karnes broad, 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 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, 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 there 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'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 has on 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 that critical mass as you mentioned that we want in Germany.

Speaker Change: Yes, certainly.

Gordon Johnston: We're focused primarily on Germany, right now and they are a sum up operations in Austria as well.

Gordon Johnston: There are good opportunities out there and we're certainly interested in moving forward, we want to get zircon itself into stand Tech a little bit there are some things that we're working through getting on those systems and so on so we are.

Gordon Johnston: I wouldn't see us doing anything more in Germany in 2024.

Gordon Johnston: Because we want to ensure that <unk> has is on that solid static footprint before we move forward, but but certainly lots of good opportunities there to continue to expand and get that critical mass as you mentioned that we wanted in Germany.

Ian Gillies: Understood. Thanks very much. I'll turn the call back over to Ian. Thank you. At this time, I'm not having 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 okay.

Gordon Johnston: Thank you. At this time, I'm not asking any further questions. I would like to turn it back to Gord for closing remarks.

Speaker Change: Okay. Thanks, Ian Thank you at this time I'm showing no further questions I would like to turn it back to Gordon 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.

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.

Gord: Great well, thank you operator, and thanks, everyone for joining us. This morning, if you have any additional follow up questions. Just newkirk, 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.

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.

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Theresa Jang: This reflects our ongoing focus on working capital management. This reflects our ongoing, 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 to 2 times. With that, I'll turn the call back to Gord.

Gordon Johnston: And so, you know, when these come to bear, you know, the timing will be what it'll be, but they're absolutely no change in our M&A philosophy with our change in CFO from Theresa to veto. We're very, very aligned on, you know, continuing with our growth philosophy.