Q3 2024 Stantec Inc Earnings Call
Okay.
Speaker Change: Welcome to scan text or quarter 2024 results webcast and conference call, leading the call today are Gordon Johnson, President and Chief Executive Officer Officer, and Peter Campbell, Executive Vice President and Chief Financial Officer.
Speaker Change: And to get back to those dialing in to view the slide presentation, which is available in the investors section Atlantic Dot Com. Today's call is also webcast. Please be advised that if you have dialed in but also viewing the webcast you Shouldnt your computer as there is a delay between the call and the webcast.
Speaker Change: All information provided during this conference call is subject to forward looking statement qualification set out on slide two detailed in <unk> management discussion analysis and incorporated in full for the purposes of today's call unless otherwise noted dollar amounts discussed in today's call are expecting Canadian dollars and are generally rounded with that.
Speaker Change: I'm pleased to turn the call over to Mr. <unk> Johnston.
Speaker Change: Good morning, and thank you for joining us today.
Speaker Change: I'm happy to report very solid third quarter results as we delivered another record quarter.
Speaker Change: We continue to see strong demand in all of our geographies and across our business operating units.
Speaker Change: Climate change aging infrastructure industry shifts re shoring of production and incremental breakthrough technologies all continue to drive this demand.
Speaker Change: We achieved record net revenue of $1 5 billion up almost 16% compared to Q3 2023.
Speaker Change: This was generated was six 5% organic and almost 8% acquisition growth.
Speaker Change: We delivered solid organic growth in each of our key geographies and 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.
As a result of solid project execution, adjusted EBITDA for the quarter rose to $275 million.
Speaker Change: Up almost 14% with a very healthy margin of 18% and we delivered adjusted EPS of $1 37 also up 14%.
Speaker Change: In addition to our record results I want to highlight a recent accolades <unk> received.
Speaker Change: Newsweek recently released their list of candidates most responsible companies for 2025.
Speaker Change: I am very pleased to announce that Stan Tech was ranked number one for our commitment to climate, social welfare and responsible governance.
Speaker Change: Over 700 hundred Canada's largest private and public companies, we're evaluating at all.
Speaker Change: <unk> 30 key performance indicators in.
Speaker Change: Those results were coupled with a corporate social responsibility reputation survey of over 4000 Canadian consumers.
Speaker Change: The final rankings list included only 150 companies, where <unk> achieved the highest score and.
Speaker Change: The only firm in the rankings to achieve a score of 100 related to governance.
Speaker Change: We're honored to be recognized by organizations like Newsweek for our leadership in sustainability and for making a positive impact on society.
Speaker Change: Now I'll turn to our results in each of our geographies.
Speaker Change: Our U S business continues to perform well.
Speaker Change: Delivering a 9% increase in net revenue from the third quarter, including five 6% organic and approximately 2% and acquisition growth.
Speaker Change: The public and private investments that we're seeing in the U S allowed all of our business operating units to achieve solid organic growth.
Speaker Change: Significant transit rail and road weight and residential development projects contributed to double digit organic growth in infrastructure.
Speaker Change: Water capitalize on continued robust public sector and industrial demands as well as large scale water security projects.
Speaker Change: Our buildings business saw continued strong demand across most sectors, including healthcare industrial and science and technology.
Speaker Change: In Canada.
Speaker Change: We grew our net revenue by almost 18%.
With 9% organic growth and eight 5% acquisition growth.
Speaker Change: Each of our infrastructure buildings and water businesses experienced double digit organic growth.
Speaker Change: Our infrastructure team saw a significant ramp up in work related to major rubric projects in Western Canada trended.
Speaker Change: Transit and rail projects in Eastern Canada, and land development projects in Alberta.
Speaker Change: Our buildings business performed extremely well.
Speaker Change: As they continue their leading work in healthcare.
Speaker Change: Subic and education.
And our water business continued to outperform.
Speaker Change: Major wastewater projects across the country.
The ramp up of a major power intensive industrial project. This quarter helped our Canadian energy and resources business returned to growth.
Speaker Change: Our global operations generated over 30% growth in net revenue.
Speaker Change: Select a 22% acquisition and closed a 6% organic growth.
Speaker Change: Our industry, leading water business saw strong organic growth across the UK, New Zealand and Australia through long term framework agreements and public sector investment in water infrastructure.
Speaker Change: Buildings achieved 16% organic growth as we continued to ramp up on the cancer Center in Dubai and on the 4 billion pound battery cell manufacturing facility in the UK.
Speaker Change: And our environmental services business continued to see strong organic growth from energy transition projects in Europe.
Our global energy and resources business, particularly at mining saw a slight retraction again this quarter offsetting growth in the U S and Canada.
Speaker Change: Now I will turn the call over to Vito to review our financial results in more detail.
Vito: Thank you Gordon and good morning, everyone.
Vito: The very strong results, we delivered in Q3.
Vito: <unk>, our solid track record, thus far for the 2020 for fiscal year <unk>.
Gross revenue in Q3 grew to $1 9 billion.
Vito: Up almost 14% year over year and net revenue of one 5 billion is up almost 16%.
Vito: On a year to date basis net revenue was approximately $4 4 billion up almost 15% compared to last year at this time.
As a percentage of net revenue projects came in at 54, 3%.
Vito: A decrease of 50 basis points compared to Q3 of 2023.
Vito: Reflecting a minor shift in project mix and as previously stated.
Vito: <unk> recoveries in chart change order approvals in 2023 that were higher than normal for a single quarter.
Speaker Change: As Gordon mentioned, we achieved a very solid adjusted EBITDA margin of 18% in Q3 or.
Speaker Change: Our year to date EBITDA margin now stands at 16, 7%.
Speaker Change: And our adjusted diluted EPS in the quarter increased 14% year over year to $1 30.
Speaker Change: This increase reflects strong operational performance along with the revaluation impacts of our long term incentive program due to strong share price depreciation in the prior period.
Speaker Change: Turning to our cash flow liquidity and capital resources.
Speaker Change: During the first nine months of the year, we generated very strong cash flow achieving $296 million in operating cash flow.
This reflects continued strong organic revenue growth, partially offset by an increased investment in networking capital in support of organic revenue growth.
Speaker Change: DSO at the end of the quarter stood at 80 days, which is within our target range and as a reminder, dsos typically a little higher in the third quarter as a result of the seasonal impacts.
Speaker Change: Our net debt to adjusted EBITDA ratio at quarter end was one five times a reduction from one seven times at the end of Q2, which reflects the free cash flow we generated in the quarter.
Speaker Change: We continue to remain well within our target range of one to two times and the balance sheet is in great shape.
Lastly, one technical accounting matter I wanted to speak to briefly.
Speaker Change: Our Q3 financial statements reflect adjustments emanating from clarifying guidance that the IRS interpretations Committee issued in April of this year.
Speaker Change: This guidance relates to how deferred acquisition consideration should be treated when it may also be contingent on the southern continued unemployment.
Speaker Change: Note three of our Q3 financial statements fully summarized as the accounting impact, resulting from the updated guidance. However in a nutshell the adjustments aggregate to a non cash charge, reducing goodwill by approximately $310 million and a reduction and a reduction in our retained earnings by approximately the same amount.
Speaker Change: I will highlight that this reduction was not in any way related to operating performance, but rather to how the terms of our past agreements were documented.
Speaker Change: And we do not anticipate future impacts from this updated interpretation.
Before handing the call back to Gordon with this being my first earnings call here at Symantec I just wanted to share how excited I am to be here and it's a true privilege to join <unk> Board My executive colleagues, a strong finance team and the rest of 10th Centex over 32000 employees.
Speaker Change: In my short time here, it's abundantly obvious to me that <unk> has truly build something special and with that comes significant value creation opportunities for years to come.
I'll now hand, the call back to you.
Speaker Change: Great. Thank you.
Speaker Change: At the end of the third quarter, our backlog reached a record setting seven 3 billion.
Speaker Change: Since December of 2023, this represents nine 5% acquisition and almost 5% organic growth, which was achieved across all of our regions.
Speaker Change: Backlog traditionally declined in the third quarter as we burned through a significant amount of work.
Speaker Change: However, this year despite our strong revenues, we've seen an increase in backlog sequentially from Q2, which really highlights the demand for our services.
Speaker Change: Our backlog represents approximately 12 months work.
Speaker Change: Let me let me now highlight just some of the major projects we were awarded in Q3.
Speaker Change: First I'll note that in the U K, we continue to secure our future workload related to Amp, Inc. In the regulated water business.
Speaker Change: During the quarter, we received a significant win with northern Ireland water to provide feasibility design and climate change services for the next regulatory cycle.
Speaker Change: In addition, we continued to secure additional amping eight frameworks across the U K with significant contracts being won with both Thames water and United utilities over the last quarter.
Speaker Change: This brings the total number of Abbvie framework secured across the UK and Ireland to over 20 <unk>.
Speaker Change: Strengthening our position as a leading water for them in the U K and securing our market share in regulated water.
Speaker Change: Second between community development and buildings, we've been awarded an MSA to assistant confidential data datacenter client and selecting sites.
Speaker Change: And providing diet design services for multiple data center campuses across Western Canada.
Speaker Change: In terms of scale each site will equate to hundreds of megawatts.
Speaker Change: While data centers currently only account for 1% to 2% of our overall net revenue. It is one of the fastest growing areas within our buildings business.
Speaker Change: And given our strong expertise in this space, we see this business potentially tripling within just a couple of years.
Speaker Change: Lastly, I'm pleased to highlight that we've just won our third Master services agreement with <unk> energy in Puerto Rico.
This MSA as part of a federal Emergency management agency funded effort to continue to rebuild and strengthen the electrical grid in Puerto Rico following major hurricanes.
We've done a lot of work with loom over the past few years and over the next three years. This new MSA will allow centex teams to continue engineering and grid reconstruction designs and upgrades to ageing infrastructure, including multiple transmission lines distribution feeders and substations.
Speaker Change: And now turning to our guidance.
Based on our strong performance in Q3 and outlook for Q4, we're expecting 2024 to be another record setting year.
Speaker Change: With that we are raising certain targets and our guidance and narrowing some ranges.
Speaker Change: We're increasing the bottom end of our net revenue range for the year for the year for 2014, 5% to 15% up from 12% to 15%.
Speaker Change: We remain confident with our expectations of organic net revenue growth being in the mid to high single digits and acquisition growth being in the high single digits.
Speaker Change: In addition, we continue to expect the U S and global regions to deliver organic growth in the mid to high single digits and Canada to be in the mid single digits.
Speaker Change: We maintain our target for adjusted EBITDA margin for the year to $16 five to 16, 9%.
Speaker Change: Which reflects our continued confidence in solid project execution and operational performance.
Speaker Change: With our increased expectations for net revenue growth. We now expect adjusted diluted EPS growth to be in the range of 16% to 18% up from 12% to 16% and our adjusted ROIC to be above 12%.
Speaker Change: 2024 is shaping up to be another record setting year for center, which puts us in a great position to continue to successfully execute on our 2024 to 2026 strategic plan.
Speaker Change: The demand fundamentals for our business remains strong and I'm excited for what's to come in 2025 and beyond.
Speaker Change: And with that I'll turn the call back to the operator for questions operator.
Speaker Change: Thank you at this time, we will conduct a question answer session to ask a question. The only compressed star one wondering if telephone and wait for your name to be enough to withdraw. Your question. Please press star one again, please standby ROI composite Q&A roster.
Speaker Change: Our first question comes from the line of Ben Locke Korea Discharging. Your line is now open.
Speaker Change: Yes. Thank you very much good morning, everyone. Congrats for the results and welcome to the <unk> team veto.
Speaker Change: Thank you Betty.
Speaker Change: Yes, just in terms of organic growth, obviously very strong performance during the quarter, especially from water and building that reported the double digit.
Speaker Change: Any thoughts about the double digit sustainability for dose two segments and also if you could comment about the energy and resources.
Speaker Change: Obviously, you experienced some delays in the ramp up of new projects and the wind down of some projects late in 2023. So just wondering what we could expect in the coming quarter for this segment. Thank you.
Yes, Thanks Pamela.
Speaker Change: For water and buildings.
See really strong tailwind for both of them certainly our water franchise extremely busy here in Canada and the U S.
Speaker Change: Australia, New Zealand with with the framework agreements there and as we've mentioned we've now won over 20 and base frameworks in the UK and Ireland. So very very strong growth going forward for the next couple of years there.
Speaker Change: Buildings is another interesting one for US we all look at the the Abi index in 20 quarters of successive performance below 50, but again for US you can see the strong organic growth that we've had in buildings.
Speaker Change: The last couple of years.
Speaker Change: Just a little over 11% year to date for US here now so we see good continued growth in the in the building section.
Speaker Change: To your comment on Anr Youre right, we've come off.
Speaker Change: Last year ever.
Speaker Change: Every quarter that we had in <unk> in 2023 was pretty strong, particularly in the first part of the year. So.
Speaker Change: We have seen some.
Speaker Change: So in Q3, Canada and the U S. We both had some some positive net revenue growth there, but it really was the global mining business that pulled things down a little bit. So I think what we see is that.
Speaker Change: We're still confident that we're going to return to organic growth in <unk> in Q4.
Speaker Change: Just as an aside the backlog in our energy and resources group is up about 9% year to date. So it really kind of supports that thesis of returning to backlog growth here in Q4, and certainly stronger performance going into 2025, yes, definitely an improving trend in.
Speaker Change: <unk>.
Speaker Change: Okay, that's great color and just with respect to the margin.
Speaker Change: Little bit down versus a year ago, even if you normalize with <unk> looking at admin and marketing expenses percentage was up slightly.
Speaker Change: Versus a year ago is it just a matter of Lcs or is there more costs to support the strong bidding activities that you see out there.
Speaker Change: But no youre, absolutely right as a percentage of of NR Q3, Admin was 37, 5% this year versus 37, 3%, so up a little bit.
Speaker Change: It does reflect some benefit actually we had last year the share based compensation would have been a headwind.
Because we had share price depreciation this year was fairly neutral so when you adjust for that.
Speaker Change: You do have a bit more of a.
Speaker Change: The increase relative to what we're showing in the externals and what that reflects really is.
Speaker Change: Labor.
Speaker Change: Training and integration with respect to some of the acquisitions and which is normal part within our expectations. We've got some slightly lower utilization as we boost up over some major projects coming out of last year into this year.
Speaker Change: But all of them very much within our expectations and we really are as we look into Q4 and into 2025 pleased with the progress against that.
Speaker Change: That's great color I'll pass it over thank you.
Speaker Change: Thank you.
Speaker Change: Thank you relevant for next question.
Speaker Change: Our next question comes from the line of Jacob bout CIBC. Your line is now open.
Jacob Bout: Good morning.
Jacob Bout: Good morning.
Jacob Bout: Yes looking for.
Jacob Bout: Maybe your thoughts around the election results.
Speaker Change: I know the view seems to be the Trump administration will be supportive of AIG chip socs, but that we could see some changes to the eyrie program and USAID.
Speaker Change: What are your thoughts and any adjustments.
Speaker Change: I think youll have to make.
Speaker Change: I think as we were we've been thinking over the last year or so.
Speaker Change: And the change in administration, either change or seeing the administration in the U S might look like for our business and our industry. Overall I think in general we feel pretty pretty neutral about whichever firm was in there. We've we've been around a long time performed well under Republican President and Democratic President So to your point I think.
Speaker Change: IAG is good I think chips in science is good even IRA the majority of that funding has been disbursed to Republican States. So will there be a pullback there.
Speaker Change: To say Jacob but.
Speaker Change: If there if president Trump vice bring tariffs in certainly that might bring some some onshoring of manufacturing facilities back and we've actually already had some manufacturing clients, calling us asking about citing and design should should that occur. So we actually feel pretty positive about the the.
Speaker Change: Opportunities for us going forward.
Speaker Change: Okay, and then maybe just going back to the Investor day that we had last December.
Speaker Change: Youre talking in 2006 net revenue of $7 5 billion in EBITDA margin, so that 17% to 18%.
Speaker Change: Does that feel about right.
Speaker Change: Taking up your revenue guidance here.
Speaker Change: There will be some mid point.
Speaker Change: Does it feel like it's a bit more on the conservative side or how are you thinking about costs.
Speaker Change: I think we still feel really comfortable with that.
Jacob you recall that was 50% net revenue growth and a three year period of time and so we're performing well. This year, we see that continued performance, but we're not putting out any changes to that guidance at this point, yes, yes, Jacob on the margin side of things. Obviously, we are pleased with our year to date EBIT margin I think.
We delivered a strong Q3 here feel good about where we're tracking toward a full year basis. We'll obviously provide 2025 color here with our year end results in February.
And feel very confident that we can step into that 17% to 18% range.
Speaker Change: And then we'll take it from there quite frankly, I think there is lots of opportunity.
Speaker Change: Excellent. Thank you.
Speaker Change: Thank you for our next question.
Speaker Change: Our next question comes from the line of Patrick Bernstein of Raymond James Your line is now open.
Patrick Bernstein: Good morning, Alright, I hope everyone's well.
Speaker Change: Just wanted to switch gears on M&A and.
Gordon wondering if your pipeline is as busy are healthy as it was 12 months ago.
Speaker Change: Yes, Thanks, Patrick Great. Great question, we actually do see the pipeline of M&A very full not just here in Canada, and the United States, but also in different countries around the world.
Speaker Change: And all sorts of different sizes from.
Speaker Change: At sub 1000 firms size to some that are a little bit larger than that so we feel really good about the overall pipeline, we're still feeling good about the competitive environment <unk> would see out there in various processes. So.
Speaker Change: No change to our M&A.
Speaker Change: Thoughts no change to sort of what we're seeing out there in terms of competition or the amount of firms available.
Speaker Change: Okay, and then when you think about adding new building blocks and so I guess you mentioned a number of regions, but there is there a specific end market.
Speaker Change: You would like to bolster your presence.
Speaker Change: Yes, I think we still have some opportunities for some tuck ins here in Canada.
But as I look at the U S.
Absolutely see the opportunity to do even double our size in the U S.
Speaker Change: UK, we still have great opportunities to expand there while we're dominant in water where non dominant in some of the other areas that we have buildings transportation and so on we've spoken previously about the Nordics I still would be interested in doing the right deal up in the Nordics and we're looking down in Australia, and New Zealand, a little bit as well, but but really focusing.
Speaker Change: On little bit Canada, the U S.
Speaker Change: U K Nordics, and then a little bit down Australia, New Zealand.
Speaker Change: Greg maybe just happy to Sanford decline Bermuda chime in is that <unk>.
Speaker Change: We've been on the road, a little bit and I do get questions around capital structure, and our perspectives on M&A and I just want to reiterate what God has already articulated here historically M&A has been one of the biggest sources of our value creation and we continue to see significant opportunities that will obviously remain disciplined balance sheets in great shape.
Speaker Change: We'll continue to dig deeper here through Q4 into early part of the year.
Speaker Change: But.
Significant growth ahead of us for best through the M&A channel.
Speaker Change: Thank you both and welcome Peter.
Speaker Change: Thank you.
Speaker Change: Thank you for our next question.
Speaker Change: Our next question comes from the line of Mexicans to shift of MBS. Your line is now open.
Speaker Change: Okay.
Speaker Change: But I was wondering if.
Speaker Change: You could comment around the U K market in general it feels like there's a bit of a turning of the page on kind of austerity dynamic I'm curious to see if and how that could translate to for your business in that geography.
Speaker Change: Yeah. Thanks, Max certainly in the U K, we've talked a lot about the abbvie cycle.
Speaker Change: And certainly we're transitioning to that it officially starts in April of 2025, the final ruling from offline as to the size of the <unk> program is expected here in December but as we've talked about before all indications are up 40% to 50% increase in funding availability.
Speaker Change: And that.
Speaker Change: We secured over 20.
New renewals, our new App framework there so.
Speaker Change: Growing by a market share a little bit in addition to securing the existing so water is really really strong we've already taken some additional real estate space. There were hiring people, they're scaling up our Pune, India operation is already there for that.
Speaker Change: From a housing perspective.
Speaker Change: The new Labour government has talked about.
Speaker Change: Reducing some of the regulatory burden on the permitting side and getting more and more new houses built up to $1 5 million New houses. We've mentioned I think previously that we have a four year Master services agreement with homes, England to support that so.
Speaker Change: Maybe it does feel like some of those things are all really positive tailwind for us in the UK.
Speaker Change: Okay.
Speaker Change: Thanks, So much and then just shifting gears to I think in the past.
Of course, we said that in our recent M&A sort of in the short term is constraining the margins somewhat and Im just wondering if you can maybe provide an update.
Speaker Change: Here and potentially linked to some of the design center opportunity that could be.
Speaker Change: Coming through.
Speaker Change: Yes. Thanks.
Speaker Change: Yes, Max it's Vito here.
Speaker Change: Honestly.
Speaker Change: From an acquisitions perspective, and the integration, we're very very pleased with the four that were.
Speaker Change: Integrating at this point, we've got our normal sort of impact related to that but nothing to call out.
Speaker Change: Really pleased with the margins really pleased with our admin costs are performing as a percentage of NR. So really I think it provides a bit of a tailwind as we move through Q4 and into 2025, but nothing really abnormal relative to other acquisitions we've had.
Speaker Change: Call it almost all in order.
Speaker Change: Okay. That's great. Thanks, a lot Peter.
Speaker Change: Yes, my pleasure.
Speaker Change: Thank you next question.
Speaker Change: Our next question comes from the line of Jonathan Goldman of Scotiabank. Your line is now open.
Speaker Change: Hi, good morning, and thanks for taking my questions. Just one for me I wanted to circle back to the question around the potential impacts of the recent elections.
Speaker Change: Or does that change your outlook for the water franchise in the U S and specifically the potential funding allocated to the <unk> renewal work and other water and for programs.
Speaker Change: Yes.
Speaker Change: There is some funding for.
Speaker Change: For water program enhancement in the Iga and certainly that's there.
Speaker Change: There'll be changes too.
Speaker Change: <unk> regulatory limits or Timeframes for.
Speaker Change: For work to be done all remains to be seen but what we've done and some of that work in the industry is starting to ramp up for that work that still has a couple of years down down the down the road, so whether or not theres a change means that I don't see causing any impact on our on our water business in the next number of years huge amount of opportunity.
Speaker Change: Still in water related too.
Speaker Change: Scarcity of water Southern California is a western U S in general.
Speaker Change: Flooding work in a number of the projects that we're doing in Texas and other areas.
Speaker Change: So there's just so much opportunity there in addition to the number of advanced.
Speaker Change: Wastewater and wastewater treatment that we're seeing with.
Speaker Change: Some of these new manufacturing facilities are going and whether there are semiconductor solar panel manufacturing and others. So I think really any impact from from the election on our water business will be really muted.
Speaker Change: That's great color, thanks, I'll get back in queue.
Speaker Change: Okay. Thank you.
Speaker Change: Thank you I'm showing no further questions at this time I would now like to hand back to core Johnston for closing remarks.
Speaker Change: Sure.
core Johnston: Great well, thank you operator, and thank you to everyone for joining us. This morning. If you have any questions. Following today's call. Please reach out to Jeff Zucker, our VP of Investor Relations. So thanks, again, and we look forward to chatting with all of you again soon.
Speaker Change: Thank you for your presentation in today's conference. This does conclude the program you may now disconnect.
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Speaker Change: Welcome to <unk> third quarter 2024 results webcast and conference call, leading the call today are Gordon Johnson, President and Chief Executive Officer Officer, and Peter <unk>, Executive Vice President and Chief Financial Officer.
Speaker Change: Those dialing in to view the slide presentation, which is available in the investors section at <unk> Dot com.
Speaker Change: This call is also webcast. Please be advised that if you have dialed in while also viewing the webcast you should be computer as there is a delay between the call and the webcast.
Speaker Change: All information provided during this conference call is subject to forward looking statement qualification set out on slide two detailed Atlantic management discussion analysis and incorporated in full for the purposes of today's call unless otherwise noted dollar amounts discussed in today's call are expecting Canadian dollars and are generally rounded with.
Speaker Change: That includes the turn the call over to Mr. <unk> Johnston.
Speaker Change: Good morning, and thank you for joining us today.
Speaker Change: I'm happy to report very solid third quarter results as we delivered another record quarter.
Speaker Change: We continue to see strong demand in all of our geographies and across our business operating units.
Speaker Change: Climate change aging infrastructure industry shifts re shoring up production and incremental and breakthrough technologies all continue to drive this demand.
Speaker Change: We achieved record net revenue of $1 5 billion up almost 16% compared to Q3 2023. This.
Speaker Change: This was generated was six 5% organic and almost 8% acquisition growth.
We delivered solid organic growth in each of our key geographies and we had organic growth in each of our business operating units with the exception of energy resources.
Speaker Change: Our water and buildings businesses, both realized double digit organic growth.
Speaker Change: As a result of solid project execution adjusted EBITDA for the quarter rose to $275 million up almost 14% with a very healthy margin of 18% and we delivered adjusted EPS of $1 30.
Speaker Change: Also up 14%.
Speaker Change: In addition to our record results I want to highlight a recent accolades <unk> received.
Speaker Change: Newsweek recently released their list of candidates most responsible companies for 2025.
Speaker Change: I'm very pleased to announce that stat check was ranked number one for our commitment to climate, social welfare and responsible governance.
Speaker Change: Over 700 hundred Canada's largest private and public companies, we're evaluating on over 30 key performance indicators.
Speaker Change: And those results were coupled with a corporate social responsibility reputation survey of over 4000 Canadian consumers.
Speaker Change: The final rankings list included only 150 companies, where <unk> achieved the highest score and was the only firm in the rankings to achieve a score of 100 related to governance.
Speaker Change: We're honored to be recognized by organizations like Newsweek for our leadership in sustainability and for making a positive impact on society.
Speaker Change: Now I'll turn to our results in each of our geographies.
Speaker Change: Our U S business continues to perform well.
Speaker Change: Remembering a 9% increase in net revenue for the third quarter, including five 6% organic and approximately 2% acquisition growth.
Speaker Change: So public and private investments that we're seeing in the U S allowed all of our business operating units to achieve solid organic growth.
Significant transit rail and roadway and residential development projects contributed to double digit organic growth in infrastructure.
Speaker Change: Water capitalize on continued robust public sector and industrial demands as well as large scale water security projects.
Speaker Change: Our buildings business saw continued strong demand across most sub sectors, including healthcare industrial and science and technology.
In Canada.
Speaker Change: We grew our net revenue by almost 18%.
Speaker Change: With 9% organic growth and eight 5% acquisition growth.
Speaker Change: Each of our infrastructure buildings and water businesses experienced double digit organic growth.
Speaker Change: Our infrastructure team saw a significant ramp up in work related to major roadway projects in Western Canada trended.
Speaker Change: Transit and rail projects in Eastern Canada, and land development projects in Alberta.
Speaker Change: Our buildings business performed extremely well.
Speaker Change: As they continue their leading work in health care.
Speaker Change: Students and education.
Speaker Change: And our water business continued to outperform.
Speaker Change: Looking at our major wastewater projects across the country.
Speaker Change: The ramp up of a major power intensive industrial project. This quarter helped our Canadian energy and resources business returned to growth.
Speaker Change: Our global operations generated over 30% growth in net revenue.
Speaker Change: Slide a 22% acquisition included a 6% organic growth.
Speaker Change: Our industry, leading water business saw strong organic growth across the UK, New Zealand and Australia through long term framework agreements and public sector investment in water infrastructure.
Speaker Change: Buildings achieved 16% organic growth as we're continuing to ramp up on the cancer Center in Dubai and on the 4 billion pound battery cell manufacturing facility in the UK.
Speaker Change: And our environmental services business continued to see strong organic growth from energy transition projects in Europe.
Our global energy and resources business, particularly at mind saw a slight retraction again this quarter offsetting growth in the U S and Canada.
Now I will turn the call over to Vito to review our financial results in more detail.
Speaker Change: Yes.
Thank you Gordon and good morning, everyone.
Speaker Change: The very strong results, we delivered in Q3.
Speaker Change: <unk>, our solid track record, thus far for 2020 for fiscal year <unk>.
Speaker Change: Gross revenue in Q3 grew to $1 9 billion.
Up almost 14% year over year and net revenue of one 5 billion is up almost 16%.
Speaker Change: On a year to date basis net revenue was approximately $4 4 billion up almost 15% compared to last year at this time.
Speaker Change: As a percentage of net revenue projects came in at 54, 3%.
Speaker Change: A decrease of 50 basis points compared to Q3 of 2023.
Speaker Change: Reflecting a minor shift in project mix and as previously stated.
Speaker Change: Recoveries in chart change order approvals in 2023 that were higher than normal for a single quarter.
Speaker Change: As Gordon mentioned, we achieved a very solid adjusted EBIT margin of 18% in Q3 or.
Speaker Change: Our year to date EBITDA margin now stands at 67%.
Speaker Change: And our adjusted diluted EPS in the quarter increased 14% year over year to $1 30.
This increase reflects strong operational performance along with the reevaluation impacts of our long term incentive program due to strong share price appreciation in the prior period.
Speaker Change: Turning to our cash flow liquidity and capital resources.
Speaker Change: During the first nine months of the year, we generated very strong cash flow was achieving $296 million in operating cash flow.
Speaker Change: This reflects continued strong organic revenue growth, partially offset by an increased investment in net working capital in support of organic revenue growth.
Speaker Change: DSO at the end of the quarter stood at 80 days, which is within our target range and as a reminder, dsos typically a little higher in the third quarter as a result of the seasonal impacts.
Speaker Change: Our net debt to adjusted EBITDA ratio at quarter end was one five times a reduction from one seven times at the end of Q2, which reflects the free cash flow we generated in the quarter.
Speaker Change: We continue to remain well within our target range of one to two times and the balance sheet is in great shape.
Speaker Change: Lastly, one technical accounting matter I wanted to speak to briefly.
Speaker Change: Our Q3 financial statements reflect adjustments emanating from clarifying guidance that the IRS interpretations Committee issued in April of this year.
Speaker Change: This guidance relates to how deferred acquisition consideration should be treated when it may also be contingent on the sellers continued unemployment.
Speaker Change: Note three of our Q3 financial statements fully summarized as the accounting impact, resulting from the updated guidance. However in a nutshell the adjustments aggregate to a non cash charge, reducing goodwill by approximately $310 million and a reduction and a reduction in our retained earnings by approximately the same amount.
Speaker Change: I will highlight that this reduction was not in any way related to operating performance, but rather to help in terms of our past agreements were documented and we do not anticipate future impacts from this updated interpretation.
Before I hand, the call back to Gordon with this being my first earnings call here at Symantec I just wanted to share how excited I am to be here and it's a true privilege to join <unk> Board My executive colleagues, a strong finance team and the rest of 10th Centex over 32000 employees.
Speaker Change: In my short time here, it's abundantly obvious to me that <unk> has truly build something special and with that comes significant value creation opportunities for years to come.
Speaker Change: Gordon I'll now hand, the call back to you.
Gordon Johnson: Great. Thank you.
Gordon Johnson: At the end of the third quarter, our backlog reached a record setting seven 3 billion.
Gordon Johnson: Since September since December of 2023. This represents nine 5% acquisition and almost 5% organic growth, which was achieved across all of our regions.
Gordon Johnson: Backlog traditionally declines in the third quarter as we burned through a significant amount of work.
Gordon Johnson: However, this year. Despite our strong revenues, we have seen an increase in backlog sequentially from Q2, which really highlights the demand for our services.
Gordon Johnson: Our backlog represents approximately 12 months work.
Gordon Johnson: Let me let me now highlight just some of the major projects we were awarded in Q3.
Gordon Johnson: First I'll note that in the U K, we continue to secure our future workload related to <unk>, Inc. In the regulated water business.
Gordon Johnson: During the quarter, we received a significant win was northern Ireland water to provide feasibility design and climate change services for the next regulatory cycle.
Gordon Johnson: In addition, we continued to secure additional amping eight frameworks across the U K with <unk>.
Gordon Johnson: Significant contracts being won with Thames water and United utilities over the last quarter.
Gordon Johnson: This brings the total number of Abbvie framework security across the UK and Ireland to over 20 <unk>.
Gordon Johnson: Strengthening our position as a leading water firm in the UK and securing our market share in regulated water.
Gordon Johnson: Second between community development and buildings, we've been awarded an MSA to assistant confidential data datacenter client and selecting sites.
Gordon Johnson: And providing diet design services for multiple data center campuses across Western Canada.
Gordon Johnson: In terms of scale each site will equate to hundreds of megawatts.
While data centers currently only account for 1% to 2% of our overall net revenue. It is one of the fastest growing areas within our buildings business.
Gordon Johnson: And given our strong expertise in this space, we see this business potentially tripling within just a couple of years.
Gordon Johnson: Lastly, I'm pleased to highlight that we just want our third Master services agreement with <unk> energy in Puerto Rico.
Gordon Johnson: These msas as part of a federal Emergency management agency funded effort to continue to rebuild and strengthen the electrical grid in Puerto Rico following major hurricanes.
Gordon Johnson: We've done a lot of work with them over the past few years and over the next three years. This new MSA will allow centex teams to continue engineering and grid reconstruction designs and upgrades to ageing infrastructure, including multiple transmission lines distribution feeders and substations.
Gordon Johnson: And now turning to our guidance.
Gordon Johnson: Based on our strong performance in Q3 and outlook for Q4, we're expecting 2024 to be another record setting year.
Gordon Johnson: With that we are raising certain targets and our guidance and narrowing some ranges.
Gordon Johnson: We're increasing the bottom end of our net revenue range for the year for the year for 2014, 5% to 15% up from 12% to 15%.
Gordon Johnson: We remain confident with our expectations of organic net revenue growth being in the mid to high single digits and acquisition growth being in the high single digits.
Gordon Johnson: In addition, we continue to expect the U S and global regions to deliver organic growth in the mid to high single digits and Canada to be in the mid single digits.
Gordon Johnson: We maintain our target for adjusted EBITDA margin for the year to $16 five to 16, 9%, which reflects our continued confidence in solid project execution and operational performance.
Gordon Johnson: With our increased expectations for net revenue growth. We now expect adjusted diluted EPS growth to be in the range of 16% to 18% up from 12% to 16% and our adjusted ROIC to now be above 12%.
Gordon Johnson: 2024 is shaping up to be another record setting year for center, which puts us in a great position to continue to successfully execute on our 2024 to 2026 strategic plan.
Gordon Johnson: The demand fundamentals for our business remains strong and I'm excited for what's to come in 2025 and beyond.
Speaker Change: And with that I'll turn the call back to the operator for questions operator.
Speaker Change: Thank you at this time, we will conduct a question answer session to ask a question the only to press star one wondering if telephone and wait for your name to be enough.
Speaker Change: To withdraw your question. Please press star one again, please standby alloy composite Q&A roster.
Speaker Change: Our first question comes from the line of Ben Locke Korea Discharging. Your line is now open.
Speaker Change: Yes. Thank you very much good morning, everyone. Congrats for the results and welcome to the <unk> team veto.
Speaker Change: Thank you Bob.
Speaker Change: Yes.
Speaker Change: In terms of organic growth, obviously very strong performance during the quarter, especially from water and building that reported the double digits.
Speaker Change: Any thoughts about the double digit sustainability for those two segments and also if you could comment about the energy and resources.
Speaker Change: Obviously, you experienced some delays in the ramp up of new projects and the wind down of some projects late in 2023. So just wondering what we could expect in the coming quarter for this segment. Thank you.
Speaker Change: Yes, Thanks Pamela.
Speaker Change: For water and buildings.
Speaker Change: See really strong tailwind for both of them certainly our water franchise.
Speaker Change: Extremely busy here in Canada the U S.
Speaker Change: Australia, New Zealand with with the framework agreements there and as we've mentioned we've now won over 20 and base frameworks in the UK and Ireland. So very very strong growth going forward for the next couple of years, they're built.
Speaker Change: Buildings is another interesting one for US we all look at the Abi index in 20 quarters of successive performance below 50, but again for US you can see the strong organic growth that we've had in buildings.
Speaker Change: The last couple of years.
Speaker Change: Just a little over 11% year to date for US here now so we see good continued growth in the in the building section.
Speaker Change: To your comment on Anr Youre right, we've come off.
Speaker Change: Last year ever.
Speaker Change: Every quarter that we had in <unk> in 2023 was pretty strong, particularly in the first part of the year. So.
We have seen some but so in Q3, Canada and the U S. We both had some some positive net revenue growth there, but it really was the global mining business.
Speaker Change: Things down a little bit so I think what we see is that we.
Speaker Change: Still confident that we're going to return to organic growth <unk> in Q4.
Speaker Change: Just as an aside the backlog in our energy and resources group is up about 9% year to date. So it really kind of supports that thesis of returning to backlog growth here in Q4, and certainly stronger performance going into 2025, yes, definitely an improving trend in Europe.
Speaker Change: Okay, that's great color and just with respect to the margin.
Speaker Change: But down versus a year ago, even if you normalize with <unk> looking at admin and marketing expenses percentage was up slightly.
Speaker Change: Versus a year ago is it just a matter of Lcs or.
Speaker Change: There are more costs to support the strong bidding activities that you see out there.
Speaker Change: And while Youre, absolutely right as a percentage of of NR Q3, <unk> was 37, 5% this year versus 37, 3%, so up a little bit.
It does reflect some benefit actually we had last year the share based compensation would have been a headwind.
Speaker Change: Because we had share price depreciation this year was fairly neutral so when you adjust for that.
Speaker Change: You do have a bit more of a.
Speaker Change: <unk> increased.
Speaker Change: Increase relative to what we're showing in the externals and what that reflects really is.
Speaker Change: Labor.
Speaker Change: Training and integration with respect to some of the acquisitions and which is normal all within our expectations. We've got some slightly lower utilization as we boost up over some major projects coming out of last year into this year.
Speaker Change: But all of them very much within our expectations and we really are as we look into Q4 and into 2025 pleased with the progress against that.
Speaker Change: That's great color I'll pass it over thank you.
Speaker Change: Thank you.
Speaker Change: Thank you <unk> for our next question.
Speaker Change: Our next question comes from the line of Jacob bout CIBC. Your line is now open.
Jacob Bout: Good morning.
Jacob Bout: Good morning.
Jacob Bout: Yes looking for.
Jacob Bout: Maybe your thoughts around the election results.
Jacob Bout: The view seems to be the Trump administration will be supportive of a chip socs, but so we could see some changes to the eyrie program and USAID.
Jacob Bout: What are your thoughts and any adjustments.
Jacob Bout: You think youll have to make.
Speaker Change: I think as we were we've been thinking over the last year or so.
Speaker Change: And the change in administration either change we're seeing in administration in the U S might look like for our business and our industry. Overall I think in general we feel pretty pretty neutral about whichever firm was in there. We've we've been around a long time performed well under Republican President and Democratic President So to your point.
Speaker Change: IAG is good I think chips in science is good even IRA.
The majority of that funding has been dispersed through Republican states. So will there be a pullback there.
Jason: Hard to say, Jason but.
Jason: If there if president Trump vice bring tariffs in certainly that might bring some some onshoring of manufacturing facilities back and we've actually already had some manufacturing clients, calling us asking about <unk>.
Jason: Citing and design should should that occur so we actually feel pretty positive.
Jason: The the economic opportunities for us going forward.
Speaker Change: Okay, and then maybe just going back to the Investor day that we had last December.
Speaker Change: Youre talking end of 2006 net revenue of $7 5 billion in EBITDA margin, so that 17% to 18% does that feel about right.
Speaker Change: You're taking up your revenue guidance.
Speaker Change: Here.
Or at least the midpoint.
Speaker Change: Does it feel like it's a bit more on the conservative side or how are you thinking buckhorn.
Speaker Change: I think we still feel really comfortable with that.
Jacob.
Jacob Bout: That was 50% net revenue growth and a three year period of time and so we're performing well. This year, we see that continued performance, but yes, we're not putting out any changes to that guidance at this point, yes, yes, Jacob on the margin side of things. Obviously, we are pleased with our year to date EBIT margin I think we delivered a strong Q3.
Jacob Bout: Here, we feel good about where we're tracking towards a full year basis, we'll obviously provide 2025 color here with our year end results in February.
Jacob Bout: And we feel very confident that we can step into that 17% to 18% range.
Jacob Bout: And then we'll take it from there quite frankly, I think there is lots of opportunity.
Speaker Change: Excellent. Thank you.
Speaker Change: Thank you next question.
Speaker Change: Our next question comes from the line of Patrick Bernstein of Raymond James Your line is now open.
Patrick Bernstein: Good morning, Alright, I hope everyone's well.
Speaker Change: Just wanted to switch gears on M&A and.
Speaker Change: Gordon wondering if your pipeline is as busy are healthy as it was 12 months ago.
Speaker Change: Yes, Thanks, Patrick Great. Great question, we actually do see the pipeline of M&A very full not just here in Canada, and the United States, but also in different countries around the world.
Speaker Change: And all sorts of different sizes from that sub 1000 firms sized to some that are a little bit larger than that so we feel really good about the overall pipeline, we're still feeling good about the competitive environment.
Speaker Change: Who we would see out there in various processes, so no change to our M&A.
Thoughts no change to sort of what we're seeing out there in terms of competition or the amount of firms available.
Okay, and then when you think about adding new building blocks and so I guess you mentioned a number of regions, but there is there a specific end market.
Speaker Change: Where you would like to bolster your presence.
Yes.
Speaker Change: We still have some opportunities for some tuck ins here in Canada, but as I look at the U S.
Absolutely you can see the opportunity to do even double our size in the U S. UK, we still have great opportunities to expand there while we're dominant in water where non dominant in some of the other areas that we have buildings transportation and so on.
Speaker Change: We've spoken previously about the Nordics I still would be interested in doing the right deal up in the Nordics and we're looking down in Australia, New Zealand, a little bit as well, but but really focusing on little bit Canada. The U S.
Speaker Change: U K Nordics, and then a little bit down Australia, New Zealand.
Greg maybe just helping to temporary decline Bermuda chime in is that you guys.
Speaker Change: We've been on the road, a little bit and I do get questions around capital structure, and our perspectives on M&A and I just want to reiterate what God has already articulated here historically M&A has been one of the biggest sources of our value creation and we continue to see significant opportunities that will obviously remain disciplined balance sheets in great shape and continue to <unk>.
Speaker Change: Through Q4 into early part of the year.
Speaker Change: But.
Speaker Change: Significant growth ahead of us for that through the M&A channel.
Speaker Change: Thank you both and welcome Peter.
Speaker Change #100: Thank you.
Thank you next question.
Our next question comes from the line of Mexicans to shift of MBS. Your line is now open.
Speaker Change #100: Okay.
Speaker Change #101: But I was wondering if potentially could comment around the U K market in general it feels like there's a bit.
Speaker Change #101: Net of a turning of the page on kind of austerity dynamic I'm curious to see if and how that could translate to for your business in that geography.
Speaker Change #102: Yeah. Thanks, Max certainly in the UK, we've talked a lot about the abbvie cycle.
Speaker Change #103: Certainly we're transitioning to that it officially starts in April of 2025, the final ruling from offline as to the size of the <unk> program is expected here in December but as we've talked about before all indications are up 40% to 50% increase in funding availability I mentioned that we've we've secured.
Speaker Change #104: Over 20.
New renewals, our new App framework there so.
Speaker Change #104: Growing by a market share a little bit in addition to securing the existing so.
Speaker Change #104: Water is really really strong we've already taken some additional real estate space there were hiring people, they're scaling up our Pune, India operation is already there for that.
Speaker Change #104: From a housing perspective, the new Labour government has talked about.
Speaker Change #104: Reducing some of the regulatory burden on the permitting side and getting more and more new houses built up to $1 5 million New houses. We've mentioned I think previously that we have a four year Master services agreement with homes, England to support that so.
Speaker Change #104: Maybe it does feel like some of those things are all really positive tailwind for us in the UK.
Speaker Change #105: Okay. Thanks.
Speaker Change #106: Thank you so much and then just shifting gears to I think in the past couple of quarters. He said that.
Speaker Change #107: Recent M&A sort of in the short term is constraining the margins somewhat.
Speaker Change #108: Wondering if you can maybe provide an update.
Sure.
Speaker Change #108: Potentially linked to some of the design center opportunity that could be coming.
Speaker Change #108: Coming through.
Thanks.
Speaker Change #108: Yes, Max its Vito here.
Speaker Change #108: Honestly.
Speaker Change #108: From an acquisitions perspective, and the integration, we're very very pleased with the.
Speaker Change #108: For that were.
Speaker Change #108: Integrating at this point, we've got our normal sort of impact related to that but nothing to call out.
Speaker Change #108: Really pleased with the margins really pleased with how admin costs are performing as a percentage of NR. So really I think it provides a bit of a tailwind as we move through Q4 and into 2025, but nothing really abnormal relative to other acquisitions we've had.
Speaker Change #108: To call out all the it all in order.
Speaker Change #109: Okay. That's great. Thanks, a lot for them.
Speaker Change #110: Yes pleasure.
Speaker Change #110: Thank you.
Speaker Change #110: Your next question.
Our next question comes from the line of Jonathan Goldman from Scotiabank. Your line is now open.
Speaker Change #111: Hi, good morning, and thanks for taking my questions. Just one for me I wanted to circle back to the question around the potential impacts of the recent elections.
Speaker Change #111: Or does that changed your outlook for the water franchise in the U S and specifically the potential funding allocated to the <unk> renewal work and other water input programs.
Speaker Change #111: Yes.
Speaker Change #111: There is some funding for.
Speaker Change #111: For water program enhancement in the Iga and certainly that's there.
Speaker Change #111: There'll be changes too.
Speaker Change #111: Either <unk> regulatory limits or Timeframes for.
Speaker Change #111: For work to be done.
Speaker Change #111: Remains to be seen but what we've done and some of that work in the industry is starting to ramp up for that work that still has a couple of years down down down the road, so whether or not there is a change makes that I don't see causing any impact on our on our water business in the next number of years huge amount of opportunity still in water related too.
Speaker Change #111: Scarcity of water Southern California, some western U S in general.
Speaker Change #111: Flooding work in a number of the projects that we're doing in Texas and other areas.
Speaker Change #111: So there's just so much opportunity there in addition to the number of advanced wastewater and wastewater treatment that we're seeing with some of these new manufacturing facilities are going and whether theres semiconductor solar panel manufacturing and others. So I think really any impact from from the election on our water business will be really muted.
Speaker Change #111: <unk>.
Speaker Change #112: That's great color, thanks, I'll get back in queue.
Speaker Change #113: Okay. Thank you.
Thank you I'm showing no further questions at this time I would now like to hand back to <unk> for closing remarks.
Speaker Change #114: Okay, well, thank you operator, and thank you to everyone for joining us. This morning. If you have any questions. Following today's call. Please reach out to adjust newkirk, our VP of Investor Relations. So thanks, again, and we look forward to chatting with all of you again soon.
Speaker Change #115: Thank you for your presentation in today's conference. This does conclude the program you may now disconnect.