Q3 2024 WSP Global Inc Earnings Call
Speaker Change: Good day and thank you for standing by. Welcome to the WSP Global third quarter 2024 results conference.
Speaker Change: At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session.
Speaker Change: To ask a question during the session, you will need to press star 1 and 1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1, 1 again.
Speaker Change: Please be advised today's conference is being recorded. We'd now like to hand the conference over to your first speaker today, Quentin Weber. Please go ahead.
Speaker Change: During the call, we will make forward-looking statements. Actual results could differ from those expressed or implied. We undertake no obligation to update or revise any of these statements.
Speaker Change: Relevant factors that could cause actual results to differ materially from those forward-looking statements are listed in our DNA for the quarter that ended September 28th, 2024, which can be found on CDAR Plus and on our website. In addition, during the call, we may refer to specific non-IFRS measures.
Speaker Change: These measures are also defined in the MD&A for the September 28th, 2020 full quarter.
Speaker Change: Our MDNA includes reconciliations of non-IFRS measures to the most directly comparable IFRS measures.
Speaker Change: Management believes that these non-IFRS measures provide useful information to investors regarding the corporation's financial condition and the results of appropriations as they provide additional critical metrics of its performance.
Speaker Change: These non-IFRS measures are not recognized under IFRS, do not have any standardized meaning prescribed under IFRS, and may differ from similarly named measures reported by other issuers and accordingly may not be comparable.
Speaker Change: These measures should not be considered as a substitute, but the related information prepared by FIRS.
Speaker Change: With that, I will now turn the call over to Alex Salma.
Alex Salma: Thank you, Quentin, and good day everyone. I'm delighted to provide you with further details on our solid third quarter performance.
Alex Salma: We have demonstrated robust net revenue growth, enhanced profitability, and strong operational cash flows.
Speaker Change: I'm also pleased with our recurrent high backlog, which underscores our continued success of positive market momentum.
Speaker Change: We accomplished a lot this quarter and three key factors drove our strong results.
Speaker Change: First, we saw a 10% increase in net revenues compared to the corresponding quarter in 2023. Organic growth was solid at 7.2%.
Speaker Change: driven by strong market momentum in Canada and double-digit organic growth in the Americas led by our U.S. business.
Speaker Change: Second, adjusted EBITDA group by 12% and adjusted net earnings per share by 13%.
Speaker Change: We delivered a 40 basis point increase in adjusted EBITDA margin, reflecting our continued focus on unlocking efficiencies in our platform.
Speaker Change: And third, we delivered superior cash flows with trailing 12 months of free cash flow increasing by approximately 590 million dollars versus the comparable period last year. This illustrates our continued commitment to strong cash flow generation.
Speaker Change: Before we dive into Q3 in more detail, I am pleased to announce a significant milestone in our organizational structure.
Speaker Change: Effective January 2025, Martin A. Smith, our current president for the EMEA region, will be appointed Global Chief Operating Officer.
drawing on his 35 years of leadership experience at WSB.
Speaker Change: Mark will oversee global operation and promote growth, financial performance, and collaboration while further leveraging the global scale of the business, ensuring we deliver sustainable financial performance.
Speaker Change: With this strategic move, we are laying a solid foundation at the onset of our next strategic cycle, building on our competitive advantages and maintaining our trajectory of success.
Speaker Change: In line with our goal of becoming the undisputed leader in our industry, it is important to recognize that 95% of our revenues
are generated in sectors where we hold.
leading position.
Speaker Change: according to highly recognized industry ranking such as engineering news record and environmental analyst, environment analyst, I'm sorry.
Speaker Change: More specifically, for the fourth consecutive year, we achieved the number one position in ENR top 225 international design firm list.
Speaker Change: We also reaffirm our leadership in several of ENR's market and region-specific rankings for 2024.
Speaker Change: On that note, allow me to briefly share some key three highlights from each of our four leading sectors, i.e. Power and Energy, Earth and Environment and Water, Transportation and Infrastructure, and Property and Buildings.
Speaker Change: Let's kick things off with our power and energy sector and more specifically with an update on the Power Engineers acquisition recently closed on October 1st.
Speaker Change: By joining forces, we are working towards establishing the preeminent pure-plate global consulting firm in the world's energy transition.
Speaker Change: The integration is progressing well and is on plan. We are already benefiting from global collaboration and have successfully brought our teams together, focusing first on our clients.
Speaker Change: Our team's combined expertise and resources and relationship have allowed us to identify over 70 opportunities in the month of our integration.
Speaker Change: For example, we are now pursuing a high-voltage direct current offshore wind opportunity.
Speaker Change: together, and expanding the service offering for an existing solar renewables project to include substation design while exploring significant opportunities to support data centers' expansion.
Speaker Change: Turning now to our earth environment sector. Demand for services designed to drive the green transition is strong across all regions.
Speaker Change: These services include, amongst others, environmental baseline studies permitting site selection, corridor optimization, and geotechnical and biodiversity activities, all of which are highly strategic to any project.
Speaker Change: For instance, we are extensively involved in the Great Grid upgrade in the UK, one of our marquee power and energy projects providing environmental studies, permitting, and nature-positive solutions.
Speaker Change: And in Australia, we have recently been contracted to assist Queensland Hydro with geotechnical-related services at its Barumba Pump Hydro project. This critical energy storage project will support the state's renewable energy goals.
Speaker Change: Rare earth elements are also critical to the energy transition success as essential components in various industrial and high technology applications.
Speaker Change: In the Nordics, we have been assisting rare earths Norway with the mapping and resource estimation of mineral deposits for continental Europe's largest deposit of rare earth elements.
Speaker Change: Biodiversity continues to gain vital global attention as evidenced at COP16 in Colombia.
Speaker Change: Thanks to the deep expertise of our specialists worldwide, we are at the forefront of change and delivering solutions that reshape how industries protect and restore nature.
Speaker Change: Just recently, we partnered with the United Nations Global Compact to launch a comprehensive task force of nature-related financial disclosure, a guide for businesses.
Speaker Change: In the UK, we released our first Nature Positive Report, highlighting our commitment to embedding nature-positive thinking into our operations.
Speaker Change: Through our client work, we are helping businesses drive nature-positive outcomes.
Speaker Change: In Europe, we work with Brussels-based Urelectric, which represents 34 national electricity associations and companies across the continent, on a guidebook to help its members integrate biodiversity in their operation.
Speaker Change: And in Australia, we have been selected to support TransGrid, which is responsible for operating and maintaining Australia's largest electricity transmission network.
Speaker Change: on a two-year monitoring program to better understand bird species interaction with transmission lines and towers.
Speaker Change: Shifting to our transportation infrastructure sector, it remains our largest and markets and fuels work for all sectors and geographies due to the multidisciplinary nature of its projects.
Speaker Change: WSP was recently awarded work for their Oosterwiel Tunnel project in Belgium which is a project our teams in the Netherlands, Spain and South Africa are working on collectively.
Speaker Change: In New Zealand, WSP has been awarded the largest scheme tendered by the new government.
Speaker Change: The Connecting Northland Scheme for a new 100 kilometres expressway project north of Auckland.
Speaker Change: Looking at key markets, rails remain strong in urban and intercity segments with significant contracts awarded across all of our geographies.
Speaker Change: This continued in Q3 with significant winds on both sides of the Atlantic.
including a recent award for three new stations.
Speaker Change: on the yellow line of the Stockholm Metro and upgrading the train control system of the municipal metro in San Francisco with state-of-the-art technology.
Speaker Change: Water continues to see an increased investment globally. In the UK, for example, the AMP investment will be more than 40% higher than the previous program. WSP is in a favorable position, being on numerous frameworks with all the major water companies.
Speaker Change: The past quarter saw major wins in the water market, including a significant condition assessment for Sydney Waters Corporation pressure pipeline and upgrades to the regions of York's water facilities, including the design and upgrade of transmission, pumping and treatment facilities.
Speaker Change: Similarly, aviation and maritime markets continue to show resilience, supported by worldwide investment aimed at improving global logistics.
Speaker Change: This has included a recent WSP appointment to reconstruct and upgrade the airfield at Gatwick Airport in London and the development of a new container terminal in South Africa.
Speaker Change: This investment cycle is expected to continue as the global supply chain readjusts to the new post-pandemic reality.
Speaker Change: Moving on to our property and building sector which continues to show strong performance across multiple regions and market segments.
Speaker Change: We achieve exceptional results in Canada, the U.S., and the U.K., particularly in data centers, advanced manufacturing, science, and healthcare. Allow me, therefore, to highlight some recent developments in these areas.
Speaker Change: In Qtree, we secure projects for over 20 data centers worldwide with hyperscalers and co-developers in the U.S., Chile, Norway, Indonesia, Australia, Finland, Switzerland, and Canada.
Speaker Change: With Power Engineers now part of WSB, we are also well positioned to enhance our Support for Clients data center power infrastructure needs.
Speaker Change: Manufacturing is thriving as corporations and countries focus on building resilience and security in their supply chains. We have captured several advanced manufacturing projects including an accessory manufacturing plant in Canada and various initiatives in the growing electric vehicle market across Europe and the Americas.
Speaker Change: Elk Care remains robust with significant projects occurring in Q3 including the Center for Advanced Medicine at the University of Maryland and the Master Planning and Infrastructure Project of Alkram Medical Campus in Singapore.
Speaker Change: Another standout achievement is in the science capabilities of animals health program, a 12-year partnership with the UK Department of Environment, Food and Rural Affairs, which includes two large laboratory facilities.
Speaker Change: for the real estate and hospitality market, also saw numerous projects win this quarter, including the redevelopment of Allianz Twickham Stadium in London.
Speaker Change: Additionally, we started design work on convention centers in Indonesia and in the Middle East and a five-star hotel development in Macau and Hong Kong.
In a nutshell...
Speaker Change: Our four core end markets are healthy, and they continue to reflect and respond to secular trends such as climate resilience, decarbonization, energy transition, aging infrastructure, and urbanization, to name a few.
Speaker Change: I'd now like to review our financial results in greater detail. Alain will.
Alain: Thanks Alex and hello everyone. I'm pleased to report on our strong third quarter results starting with our top line.
Alain: Revenues and net revenues reach four billion dollars and three billion dollars approximately 11 and 10 percent respectively compared to the third quarter of 2023.
Alain: Organic growth and net revenue stood at 7.2% in the quarter, led predominantly by the US and Canada.
Speaker Change: As of the end of the quarter, our backlog reached a record $14.8 billion, representing 11.6 months of revenue.
Speaker Change: Moving to profitability, adjusted EBITDA reached $585 million, an increase of approximately 12% from the $521 million we reported in the third quarter of 2023.
Speaker Change: Adjusted EBITDA margin for the quarter increased by 40 bps to 19.5% compared to 19.1% in the third quarter of 2023. This increase is mainly attributable to improved productivity.
Speaker Change: We continue to be aligned with our 2022 to 2024 strategic ambition of increasing our adjusted EBITDA margin by 30 to 50 basis points annually.
Speaker Change: Our adjusted net earning reached $280 million or $2.24 per share. This represents a 13% increase compared to the third quarter of 2023. Primarily attributable to higher adjusted EBITDA.
Speaker Change: As for our cash position, cash inflows from operating activities were $608 million in the nine months ended September 28, 2024, an increase compared to $210 million in the corresponding period of 2023.
Speaker Change: Free cash inflow was $242 million for the nine months ended September 28, 2024, representing an improvement of $419 million compared to a free cash outflow of $177 million in the corresponding period last year.
Speaker Change: Lastly, the trailing 12-month free cash flow amounted to $852 million, representing 1.3 times the net earning attributable to shareholders. We continue to aim for a 100% conversion of net earning to free cash flow for 2024.
Speaker Change: As of the end of September 24, our DSO stood at 80 days, and we expect to be well within management outlook by year end.
Speaker Change: Our balance sheet remains strong with a net debt position of 1.5 times within management's target range and following the completion of the power acquisition and after incorporating a full 12 month of adjusted EBITDA for the acquired business.
Speaker Change: Our financial outlook issued in Q4 2023, an increase in our Q2 2024 press release, is reaffirmed except for the following increases.
Speaker Change: First, net revenue are now expected to range between $11.8 and $12.1 billion. Adjusted EBITDA is now expected to range between $2.155 and $2.175 billion.
Speaker Change: Our outlook has been revised mainly to include the estimated contribution of power engineers, reflecting its typical fourth quarter seasonality.
Speaker Change: to be in the mid single, the mid to high single digits in our Canadian and America's operation, in the mid single digit in our EMEA operation, and in the low single digit in APAC.
Speaker Change: Acquisition, integration and reorganization costs are expected to range between $120 and $135 million to include the acquisition cost of power.
Speaker Change: closed on October 1st, 2024, and also the accrual of incentive award to be paid to a significant number of power employees as we previously disclosed.
Speaker Change: Lastly, for those who are wondering about the impact of the U.S. election, we've done well under vote administration and we do not expect things to be different this time.
on that, Alex, back to you.
Alex Salma: Thank you, Alain. We are very proud, obviously, of our achievements this quarter as we wrap up the final stretch of our strategic cycle.
Speaker Change: We are poised to conclude a highly successful three-year period marked by a 50% surge in net revenues and a 60% rise in our adjusted EBITDA.
Speaker Change: Additionally, our disciplined capital allocation strategy enabled us to close 15 complementary acquisitions, fortify our diversified platform by welcoming approximately 20,000 talented professionals.
Speaker Change: and advance our transformation journey by deploying a new ERP platform covering approximately 70% of our adjusted EBITDA.
Speaker Change: These achievements reflect our commitment to excellence and delivering shoulder value and building an even stronger WSP.
Speaker Change: Looking ahead, we're putting the finishing touches of our 2025-2027 Global Strategic Action Plan.
Speaker Change: Please mark your calendars for the release of our strategic plan on February 12th, followed by an investor day on February 13th, where we will unveil further details on our plans and ambitions for the next three years and beyond.
Speaker Change: You can now register on WSP.com by accessing the investor section.
Speaker Change: I'm energized by the opportunities that lie ahead. The start of 2025 will be an exciting time for business on many fronts, and I look forward to having you join us on this journey. With that, I would like to open the line for questions.
Speaker Change: Thank you. We'll now take our first question. This is from the line of Sabahat Khan from RBC. Please go ahead.
Sabahat Khan: Great, thanks and good morning. As you look into 2025, can you maybe talk a little bit more about
Thank you.
The
Speaker Change: Well, good morning. It's about a lot of great questions here. Well, I think I indicated that when we announced the acquisition. Power Engineers is a company I know extremely well.
Speaker Change: and we've collaborated with over the last decade. I've known the leadership for quite some time.
So, actually, I don't know that I've...
Speaker Change: I've been displeased by anything that I've seen, to the contrary. I think I mentioned that in the last month alone, we are working on 70 different opportunities together. This was a very, very strategic...
Speaker Change: acquisition for WSP. I think I've said in the past that, you know, oftentimes transactions fall in two different buckets.
Speaker Change: One being the good-to-have and the other buckets, the must-do deal. In my mind, the Power Engineers transaction was a must-do transaction.
Speaker Change: I see a lot of potential, I see a lot of revenue synergies, and I'm excited because we share the same vision of the industry and we have a collective understanding of what we wish to deliver together.
Speaker Change: Great, and then maybe just another higher level question, you know, as you, you know, I'm sure there'll be more details in your three-year plan, but, you know, as you...
Speaker Change: scale up larger and larger. Maybe if you can just talk about the opportunity set in terms of consolidation for WSP and then maybe after this sort of transaction, what should the investment community think about, you know, timeline for further acquisitions?
Thanks.
Speaker Change: Yeah, well we literally closed on October 1st, so I would appreciate a bit of a bit of patience here. Look, at the end of the day we'll discuss this in greater detail in February.
Speaker Change: But, you know, the rhetoric hasn't changed. I see opportunities for us to continue to consolidate the market.
Speaker Change: I've always said, and I'm repeating it, we always manage a very conservative ship and we run a tight ship and we always want to be fit for purpose because we love to be opportunistic.
Speaker Change: I'm highly confident and I have a strong conviction that in the next three-year plan, opportunities will come our way and we'll have many chances to really complement this platform with extraordinary
Speaker Change: other firms that will want to join the WSP family. So on that, you know, I'm quite confident.
Speaker Change: And I think there's a lot of unfinished business for WSB. I think in the U.S.
Speaker Change: I see tremendous growth opportunities lying ahead. We're still sub-scale in Europe, as you know, and there's other opportunities in other sectors where I think we're sub-scale and we're not where we need to be.
Speaker Change: So we're not going to stop until we reach, you know, the milestone that we have set for ourselves, but I'm excited about the next three years.
Speaker Change: Okay, great. And then just maybe one last one on just kind of the organic growth demand drivers. You just talked about some of the regions that drive that seem optimistic. You know, we get a lot of questions around there's been an elevated level of growth post-pandemic. You know, can you maybe just share some thoughts on
Speaker Change: you know, do you view sort of this current demand level as a sustainable, even just beyond the three-year period? You know, the industry demand drivers, can they sustain this level of growth even over a three, five-year type of period? Just your perspectives on what continues to drive the top line for WSP and the engineering space?
You look at the...
Speaker Change: I mean, the flavor of the day, the topic right now is immigration.
Speaker Change: So, immigration is a great thing for a country. It allows us to improve and increase productivity, but at the same time, the infrastructure needs are real.
Speaker Change: Australia have plans to double the the city of Sydney in the next 20 to 30 years. So that will drive demand for our services. Then you move on to climate change.
Speaker Change: and you look at what took place in the last month and a half in Florida. I mean, we have been busy assisting with our FEMA services and the FEMA agencies, the federal government in the U.S.
Speaker Change: and you move, you talk about demographic changes, you talk about growth and population, generally speaking.
Speaker Change: So that Sabbath is not going to go away. We may be faced with bumps along the way, like we have been in the last 30 years.
Speaker Change: but the road trajectories, or I would say the trajectory is up longer term. There's no doubt in my mind. So, I think that's...
Speaker Change: why I'm so optimistic about the future prospect of our company.
Great. Thanks very much.
Thanks, Abba.
Thank you
Speaker Change: The next question is from the line of Uri Link from Canaccord Genuity, please go ahead.
Hey, good morning, guys.
Good morning. Good morning.
Speaker Change: Start with a clarification on the organic growth guidance. It seems to imply a sequentially lower growth rate in Q4, but I think you're getting a 3%...
Speaker Change: roughly 3% benefit from more billable days in Q4, so just am I thinking about that the right way?
Speaker Change: You are, Uri. We're still predicting the 68% growth aligned with our original outlooks and nothing is changing there. The mix is a bit different.
Speaker Change: You see the performance in Canada and the U.S. being really good, but as I mentioned in my opening remark, APAC is driving at 1% organic growth, so that creates a bit of headwind.
on our numbers for sure.
Speaker Change: That and combined with the fact, Erie, that as it always has been...
The third quarter is always our stronger quarter.
Speaker Change: So you look at our performance in North America, which has been stellar. And, you know, Asia has been difficult for quite some time now, and we have taken the appropriate action, and I'm comfortable that we are in a very good place at this point.
Speaker Change: Okay, no, I just wanted to double check that secondly, just.
Sabahat Khan: Bigger picture, Alex, as you think about your plans for the next three years. I think we can all agree, you know, driving further EBITDA margin.
Speaker Change: expansion is definitely going to be more of a grind than a step change given the progress you've made and you know that the market has grown considerably as you alluded to so so how do you balance you know going after a market that's grown substantially in the last five years there's opportunity to take share
but yet you want to be cognizant of driving.
Speaker Change: efficiency improvements and you don't want to stifle that growth. So how do you think about that balancing act as you look into next year and beyond? Well, you're right on. You're in the sense that
Speaker Change: This is this is not science. This is more of an art You don't want to choke your organization around growth When you optimize your platform at the same time
Speaker Change: I think it's quite known in the industry that I've always been a bottom line guy. I like us to grow our top line so long as it will translate in quality earnings.
and it's something I'm extremely proud of.
Speaker Change: So at WSP, I think there's not one more important than the other.
Speaker Change: You know, we aspire to be the campounder of this industry, and that hasn't changed. So, cash flow, top line and bottom line are equally important within the company, and I don't talk about one more than the other.
Speaker Change: and that's the philosophy within WSP. So you are right in saying that we are, it's a balancing act and we're trying to strike the right balance. Having said all that, you know, the heart and blood of a company is organic growth.
Speaker Change: And M&A has always been, and I always viewed M&A as the cherry on the cake.
Speaker Change: But, you know, the recipe of your cake has to be good.
Speaker Change: And so, in the next three years, you can rest assured that all of what I've just discussed will be our focus. And we're going to continue to focus on organic growth, but making sure that we're selective.
Okay, last quick one for me.
Speaker Change: power you've said you know 16 to 17 percent margins that's a bit lower than what you're running at on a consolidated basis
Speaker Change: Should we should we still expect you to be able to do 30 to 50 beeps of margin improvement in 2025, you know, despite being in the early days of harvesting cost synergies and a bit of a lower margin?
Look, I...
Speaker Change: Yeah, I don't want to look too far ahead and on February 12th and when we release our Q4 We'll be able to provide you with our outlook
Speaker Change: But look, suffice to say I'm quite excited about the next three years and I'm excited about 2025.
Speaker Change: so we'll be able to talk more around the margin improvement and growth profile for 2025 in due course, but to me that was the opportunity. I think Power Engineer was a pioneer.
Speaker Change: and the power and energy sector in the U.S. And I see tremendous opportunities to do great things together.
Okay, thought I'd try. I'll turn it over. Thanks.
Thank you.
Speaker Change: The next question is from the line of Stephen Fisher from UBS, please go ahead.
Stephen Fisher: Good morning. You had some nice seasonal improvement in cash flow. I guess in recent years, you've had some drag on the cash flow from ERP spending, DSOs in general, plus...
Stephen Fisher: acquisitions, your ERP drag should roll off. I guess the bigger picture question on free cash flow over the next couple of years is to what extent you still see more opportunity to drive improvement in your free cash flow conversion and what might be the the biggest drivers that you see there?
Yeah, so, good question, good context, Stephen.
definitely focus on pre-cash flow is
Stephen Fisher: is top of the list on what we want to achieve and you see the results so far this year.
Thank you. Bye-bye.
Speaker Change: If you look at our DSO profile, we're expecting to be in that 72 to 79 day range by the end of the year.
Speaker Change: Our expectation, when we look at midterm, is definitely to bring this back down to low 70s, so I think that's a...
Speaker Change: one of the big driver in improving and keep improving our pre-cash flow.
We expect to be at 100% by year-end. That's the...
Speaker Change: the target and we have good visibility on performance so far, including October, that was a really good
Speaker Change: free cash flow month. So DSO reduction is the main driver and obviously keep pushing the business on margin and growth and generating better EBITDA.
Speaker Change: So that's the plan. But as Alex said, if we look at our top priority, we put equal balance on, you know, growing the business, improving our performance, profitability, and cash. So those are our three.
Speaker Change: That's very helpful, Eileen. And then maybe just a follow-up. I think you don't specifically build your strategy around the largest projects, but you've talked about the influence of megaprojects in the market and a number of the
Speaker Change: things that you've highlighted in each of the segments have been some premier programs. So I guess, how should we think about the mix of larger projects in your bid pipeline and your mix over time? Is that just naturally increasing or is there a strategic focus?
shift there. Thank you.
Uh, look, in any professional consultancy, like a...
such as WSB and
Speaker Change: and frankly in our industry but outside of our industry you have your
Speaker Change: Rickon for Avenue Stream certainly for WSP is close to 70% and that's your bread and butter and you know your smaller size work and your medium-sized work and over time indeed we have shaped our business to be able
Speaker Change: to really tackle larger assignments. And if I look back over the last decade,
Speaker Change: We have worked on some of the most iconic projects around the world. So I would say that naturally, in the market, over the last decade, we've seen the projects becoming bigger and bigger and more complex.
Speaker Change: And that's why I believe the size of our firm matters, and the scale of our services also is equally important.
and that was the old thesis.
Speaker Change: consolidating the market and growing the way we have grown is because we believe our clients are looking for multidisciplinary services.
Speaker Change: and especially around large projects. If you take our Propel project that I highlighted, I think it's last quarter, the quarter before, in the state of New York.
Speaker Change: This is not just a power and energy project, this is a buildings project, this is a transportation project. I mean, we're touching pretty much all of our sectors, environmental projects.
Speaker Change: So that's where I think I'm saying that yes, indeed, we have shaped the business to be able to tackle those. But at the same time, we don't turn down small assignments because we know that small assignments can lead to bigger ones.
Speaker Change: So we have a good mix of project size within the company.
Thanks so much, appreciate it.
Thank you.
Speaker Change: Our next question is from the line of Jacob Boo from CIBC. Please go ahead. Good morning. Hello, good morning. Yeah, you touched on this briefly in the prepared remarks, but just the dynamic in the US with Trump 2.0, do you think you need to do any repositioning?
Speaker Change: Many feel that the IRA is going to be dismantled, maybe talk through your exposure to clean energy power there.
Speaker Change: Like the IRA, we first and foremost highly doubt that this will be dismantled.
Speaker Change: There may be a reassignment, and the IRA may be reshaped, so we don't know how fine the scalpel will be, and actually, we don't even know if it's going to happen. If you ask me, Jacob, where I see...
change. It's more around USAID work.
Speaker Change: for players that are in that space. WSP, we do very little, but there are two or three of our largest competitors are quite active in this. I really believe that that could have an impact. USAID work with the federal agencies, but
Speaker Change: When I look at the three large bills, I'm feeling comfortable that we're going to maneuver very well.
Okay.
Speaker Change: And then maybe a second question here, just on APAC, talk a bit about the dynamic that you're seeing there, you know, we're seeing organic backlog growth there that's negative. Maybe just talk a bit of what you're seeing in Asia versus New Zealand, Australia and you know, what are the property building markets there?
portion of our business.
Speaker Change: And when I mean small, it's very small. Having said all that, when things are tough, it's having an impact. And then you look at the Asia Pacific, New Zealand, it's just a change of government. I think the underlying trends in country are good.
Speaker Change: and our sound, and I just talked about the project that we were awarded more recently. We won this assignment with now the new government.
Speaker Change: So we expect the backlog to continue to grow again. I believe in New Zealand we have turned the corner with the change of government.
And in Australia, look, we've experienced...
Speaker Change: Jacob, double-digit organic growth for many, many years in a row. So obviously we're starting, we started the year from a very high position.
And it's normal, as I said before.
Speaker Change: to go through peaks and valleys. I don't see anything structurally in the countries that will lead me to believe that it's going to be tough longer term. But there's been an enormous amount of spend happening in Australia.
Speaker Change: and we just need that the government's take a breather but I expect things will continue to grow a longer term.
Speaker Change: So then, just in Asia specifically, what is your strategy there?
Speaker Change: We are we have been monitoring this situation very closely we have
right size to firm.
Speaker Change: especially in the teams, especially in the property and building sector. So in mainland China we're now extremely small and we continue to monitor the situation in Hong Kong and in Singapore.
Speaker Change: I'd say two years ago, mainland China was probably the only region affected or impacted.
Speaker Change: And I think over the course of the last two years, it's spread it out to, you know, the Southeast.
Speaker Change: But recently the Chinese government has announced new measures that you may have followed in the news, which are positive, extremely positive. So we are going to continue to monitor and manage our team and see where it leads us.
Thank you.
Thank you.
Speaker Change: The next question is from the line of Frédéric Bastien from Raymond James, please go ahead
Good morning, guys. Good morning.
Frederic Bastien: How do you plan on expanding your footprint globally? Are there opportunities to export the expertise you just gained from power engineers abroad?
Speaker Change: Are you going to achieve this organically or will you also look at acquiring to just You know fill in the gaps geographically on the power side. Thank you
Speaker Change: Yes, we absolutely intend to leverage our newly created centre of excellence in the power and energy sector, Fredericks, so yes.
Speaker Change: So clearly our focus is really to continue to build our footprint and that footprint in my personal opinion will happen with organic growth but if we are in a position also to see some tuck-ins that we can
Speaker Change: where we can build a local footprint that would be great as well. So we'll be on the watch.
Thank you very much.
Speaker Change: Okay, thanks for that. And maybe just a quick one on Mark's appointment as a global COO.
Speaker Change: Can you walk through the logic of adding someone again to that role? I know you previously had someone leading that charge, so I was just curious what your thoughts were behind that. Yeah, in 2020 we did have that position in place.
Speaker Change: And for a variety of reasons, over the last four or five years, I wanted...
and I wanted to...
Speaker Change: and still the culture that I thought was needed, the performing culture that I thought was needed to grow our margin and to shape our business the way we've shaped it. So I'm very pleased with where we got to. But since then, Frederick, since 2020, we've added
30,000 people.
Speaker Change: you know a player or one or two of our competitors within WSPN in that time frame in four years time.
So, I want Mark to continue to drive performance.
Speaker Change: I want us to continue to raise the bar as a company.
Speaker Change: There's a real opportunity to, you know, continue to optimize our platform and transform and tweak the engine as we're flying. And I felt that Marc was the right candidate to undertake that challenge and support me and support Alain.
Speaker Change: in that endeavor. Before we were two at the top and now we're three, and the assistance and the support is welcome, and I think we're going to do great together as a team.
Cool, that's it for me. Merci.
Thank you.
Speaker Change: The next question is from the line of Ian Gillies from Stiefel. Please go ahead.
Morning everyone. Morning again.
Ian Gillies: The business has obviously gotten a lot larger, a lot better diversified over the course of the last, call it five years.
Speaker Change: Have you put much thought or have you thought much about increasing the target leverage metrics to improve returns and maybe create a bit of additional flexibility on M&A outside of what you clearly already have?
Speaker Change: Look, I mentioned that earlier on when the question was asked around our capital structure.
Speaker Change: Look, what made us successful over time is to maintain a conservative leverage and this over time has allowed us to be quite opportunistic.
Speaker Change: So I've always been one that believes you always need to leave a bit of chip on the table. And yes, you may leave a bit of return by not overlevering, leveraging your...
your organization.
Speaker Change: and yes that may you know affect in some fashion I'm very aware of that that the total shoulder return for our shoulders but at the same time we're running I believe a very solid company.
Speaker Change: and we have been able to be opportunistic and we have been able to create shoulder value for our investors with our transaction. So I want the investors are investing in our company, what I want them to know is that we wish to be the compounder of this industry.
Speaker Change: So we want to do it all. We want to generate organic growth. We want to pay a dividend that is, you know,
you know.
Speaker Change: that this is competitive. We want to generate good cash flow. We want to generate good organic growth, and we have we want to have the leading margin. So as I said before, Ian, this is not science. This is an art. So I have not tried to stretch
Speaker Change: Instead, I want our investors to sleep well at night and feel that we're running a very solid company. So that's my philosophy. It can always stretch, but as I said, leaving a few chips on the table to me is the right strategy.
at this point.
Speaker Change: No, that's all that's all fair Maybe switching a little bit to the operational side the markets obviously growing Could you maybe talk a little bit about?
Speaker Change: Market share being captured perhaps even just because some of your clients can't hire enough engineers, and so they just need more your help
Speaker Change: We are definitely capturing market share in the market where we operate.
We have now, as I said in my
commentary earlier on. I think we have...
Speaker Change: leading position in many of our sectors now, so I'm quite pleased about that, but there's always opportunities for us to do more.
Speaker Change: and so clearly what's great about the size of our company but also the operation that we have in the operating model that we have is that we have a fluid workforce.
Speaker Change: So we are able and you know New Zealand for instance our team in New Zealand this year with the change of government it was a little bit the market was a bit more
Speaker Change: has cooled down or had cooled down, so we were able to use our New Zealand team on a number of projects in the UK and the Middle East.
Speaker Change: Equally, we just demobilized our team on the Bogota Metro in Colombia, and we have more than 100 engineers working on the Calgary Green Line right now.
So...
More, I would say, active and hot.
Speaker Change: with the use of technology we're now able to do more with less.
Speaker Change: We have complementary resource centers around the world that can support us.
Speaker Change: and also we have a fluid workforce. So because of all this I think we have a great advantage over others.
Speaker Change: That's very helpful. Thanks very much. We'll turn the call back over. Thank you.
Speaker Change: Thank you. As a reminder if you would like to ask a question you can press star 1 and 1 on your telephone and wait for your name to be announced and to withdraw your question you can press star 1 1 again.
We'll now take our next question.
Speaker Change: This is from the line of Maxim Shchidtsev from NBF, please go ahead.
Hi, everyone. Hello, Max. Hello, everyone.
Speaker Change: Most questions have been asked already, but I wanted just to come back to M&A and, not that I'm wrong, but it feels like in the last, let's call it three to five years,
Speaker Change: You know, U.S. peers have been sort of more inward looking right now, perhaps the dynamic is going to change on a perspective basis. I'm just wondering whether you think that could shift a little bit the M&A landscape and whether your strategy could change as a result. Thanks.
Yeah, well, I'm...
Max: I'm saying that you know very very humbly and respectfully Max but I'm busy enough to look at what we have to do as a firm WSP so I don't
spend too much time looking at what's done elsewhere.
Max: We have a strategy, we have a sound strategy, and we have a vision for a company, and I'm busy executing it. I don't know what the other large American players intend to do.
Max: They went in some directions at some point in time in the federal space and then they got out of it.
Speaker Change: So I don't have a view on what they may or may not do.
Speaker Change: But certainly us, we have a really clear and sound game plan for our company, and I don't want to shy away from this and stay very much focused on what we have to achieve. In recent years, we have seen
Speaker Change: you know, impacted us in a very serious way. We have been able to find opportunistic transactions and I've been able to complete the transaction that we wanted to complete. So,
Speaker Change: So I'm confident that in good and active markets, or in tougher markets, WSP will be able to be creative and be active.
Speaker Change: Okay, excellent conversation for me. Thank you so much. Thank you, Max.
Thank you.
Speaker Change: Our next question is from the line of Michael Tupham from TD Cowan, please go ahead.
Thank you, good morning. Morning.
Speaker Change: I wanted to just circle back on one of your comments from earlier in the call, Alex, about the data center work that you had secured. I think you mentioned securing over 20 projects during the third quarter alone and was just hoping to get some context on
Speaker Change: how that compares to what you've been seeing in in prior quarters over the last you know 12-18 months and
Speaker Change: how you sort of see that evolving going forward and then also maybe just some context on on how Significant this this work is in the context of the property and building segment or the company as a whole right now
Speaker Change: Yeah, Michael, well, first of all, good morning. Yeah, I talked about that. You may recall a few quarters ago that.
Speaker Change: Our project mix in the U.S. alone has shifted in a big, big way.
So, if you look back in 2015...
Speaker Change: 16, and like close to 10 years ago, commercial high-rise was a big portion of our business. Today, even though
We have our Center of Excellence in New York.
Speaker Change: This is no longer the biggest piece of our business in the U.S.
Speaker Change: healthcare, mission-critical work are by far bigger now. So I think naturally with the acquisitions that we completed in the last few years we have shifted our portfolio.
Speaker Change: and certainly the demand for data centers has increased significantly over the years. You know, without naming names because I'm not allowed to, but I think it's in the public domains, you know.
Speaker Change: Our scalers are spending anything between $18 to $19 billion a quarter.
Speaker Change: growing the data the data center market. So they some of them are opening data center they opening data center one data center every other day.
Speaker Change: and obviously we have developed over time a very strong relationship with some of them.
And what's now really interesting is...
Speaker Change: Yes, in the past, we were working on the design of the data center themselves, but now with power engineers, we'll be able to connect those data centers to new existing
Speaker Change: grids. So I think that we will be able to offer more to them than what we were able to in the past. So I'm very excited about the prospect of the acquisition of power.
Speaker Change: Perfect, thank you. And then I was just curious, I mean, it didn't show up in the numbers, but did you see much slowdown in the last quarter or so as we led up to the U.S. election? Again, it didn't, you know, the organic growth didn't really reflect that. But I'm just curious on what you did see. No, no, not at all.
Thank you.
Speaker Change: Looking at the America segment, obviously they had good margin improvement on a year-to-date basis, but the margin improvement we saw on a year-over-year basis in Q3 was a little bit less.
Speaker Change: Then you have been seen just wondering if you can provide any thoughts on on that
Speaker Change: We're on plan in terms of margin improvement in the U.S., Michael, so it wouldn't look too much into just one quarter, so we're delivering well for the full year.
Speaker Change: You know, we have to be proud and celebrate successes that we're delivering in Vote Canada in the U.S.
Speaker Change: on target, on plan, on margin trajectory for those two businesses for sure.
Okay, thanks very much.
Thank you.
Thank you
Speaker Change: We are now at time, so I would like to hand the conference back to Alexandre Lerueux for any closing remarks. Well, thank you for attending the call today by phone or on the web, and we look forward to completing the last quarter of our strategic cycle.
Speaker Change: and are quite energized and excited about presenting our new strategic plan on February 13 and 14. So please dial them at 12 and 13, I'm sorry. And we look forward to updating you then. Until then, have a great day and a great quarter. Thank you very much.
Speaker Change: Thank you. This concludes today's conference. Thank you for participating and you may now disconnect.
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