Q4 2024 WSP Global Inc Earnings Call
Speaker Change: Good day and thank you for standing by. Welcome to the WSB Global Inc.
Speaker Change: Fourth Quarter Fiscal 2024 Results Conference Call At this time, all participants be in listen-only mode.
Speaker Change: After the speaker's presentation, there will be a question and answer session. To ask a question during the session, please 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 and 1 again. Please note that today's conference is being recorded.
Speaker Change: I would now like to turn the conference over to your first speaker, Quentin Weber from Investor Relations. Please go ahead.
Speaker Change: Good morning, good afternoon, thank you for joining our call. Today we will discuss our Q4 and fiscal 2024 performance followed by a Q&A session. Alexandre Lerue, our President and CEO, and Alain Michaud, our CFO, are joining us this morning.
Speaker Change: Please know that this call is also accessible via webcast on the website.
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 the MD&A for the year-end of December 31st, 2024, which can be found on CDAR Plus and on their website.
Speaker Change: 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 year-end of December 31st, 2024. Our MD&A includes reconciliations of non-IFRS measures to the most directly comparable IFRS measures.
Speaker Change: Management believes that these non-life-threatening measures provide useful information to investors regarding the corporation's financial condition and results of operations, 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 for the related financial information prepared by IFRS.
Alexandre Lerue: With that, I will now turn the call over to Alexandre.
Alexandre Lerue: Thank you, Quentin, and good day everyone. I am pleased to share our strong fourth quarter and full year performance, which exceeded the high end of our revised financial outlook that we provided in Q3 2024.
Alexandre Lerue: We carried out positive momentum in Q4, delivering robust net revenue growth with continued elevated organic growth, enhanced profitability, and strong operational cash flows.
Alexandre Lerue: We continue to enjoy a robust backlog and pipelines of opportunities demonstrating the strength of our global platform.
Taking a closer look at the three key
Alexandre Lerue: Our net revenues continue to grow significantly over our 2023 performance with a 23% increase.
Alexandre Lerue: for the quarter and a 12% increase for the full year. We maintain a high level of organic growth with 7.5% for the year, led by ongoing strong demand for our services, notably in the US and Canada.
Alexandre Lerue: Second, we significantly exceeded our expectations in Q4 and successfully met our yearly strategic target, delivering a 40 basis point increase in adjusted EBITDA margin despite restructuring activities in Asia, which is not small in nature.
Alexandre Lerue: and a total of 120 basis points during the last three years.
Alexandre Lerue: And third, we ended the year in a strong cash position, with free cash flow more than doubling compared to last year. Our commitment to solid cash flow generation remains a top priority for us going forward.
Alexandre Lerue: 2024 also marked a successful conclusion of our 2022-2024 strategic cycle, a period of remarkable achievements that have shaped WSP.
Alexandre Lerue: During the three-year cycle, we enhanced our client experience, strengthened our platform and completed 16 strategic acquisitions, notably Power Engineer, which we closed in October 2024.
Alexandre Lerue: On that front, the integration is progressing well and is on plan. From day one, our key focus has been to bring our teams together, prioritizing our clients and projects.
Alexandre Lerue: Based on our current pipeline, we now have over 120 opportunities in development together. We have now successfully secured many projects, utilizing our combined expertise across multiple business lines.
Alexandre Lerue: Additionally, we have multiple existing projects leveraging our combined capabilities to expand our current service offering for our clients.
Alexandre Lerue: Recent examples of key wins include two new multi-year framework agreements to provide engineering, design, and environmental planning and permitting for transmission, distribution, and substation related assets for two major utilities in the Northeast.
Alexandre Lerue: In short, we continue to see a significant level of revenue synergies opportunities.
Alexandre Lerue: Today our global talent pool has grown to approximately 73,000 talented professionals as we deepen our capabilities and footprint in key and markets and geographies.
Alexandre Lerue: Our 2022-2024 accomplishments that further solidify our position. More than ever, we run a truly global and highly diversified business primed to keep driving sustainable growth and leading financial performance.
Alexandre Lerue: Before getting into our exciting developments from the start of 2025, I invite Alain to review our financial results in greater detail.
Alain Michaud: Thanks, Alex, and good morning, everyone. I'm pleased to report on our strong 2024 results. For the fourth quarter, revenue and net revenue reached $4.7 billion and $3.4 billion, up 25 and 23 percent, respectively, compared to the fourth quarter of 2023.
Alain Michaud: We posted robust net revenue organic growth at 10% in the quarter driven by continued strong demand for our services.
Alain Michaud: For the full year, revenue and net revenue increased by 12% compared to 2023, growing to $16.2 billion and $12.2 billion, respectively, exceeding the high end of our updated outlook range for the year of $11.8 billion to $12.1 billion of net revenues.
Alain Michaud: The increase year-over-year was due to solid organic growth of 7.5% and acquisition growth of 3.7%.
Alain Michaud: For both the year and the fourth quarter, growth was led by continued strong momentum in Canada and the U.S., including higher demand for emergency response services following hurricanes in the U.S.
Alain Michaud: This represents the third consecutive quarter of double-digit organic growth in the USA. Also, we're very proud to report that the newly acquired power engineers posted 16% of organic growth in net revenue in Q4.
Alain Michaud: Our backlog continues to be robust, with a healthy level of project awards and pipeline of opportunities. As of December 31st, we reached a new record level with $15.6 billion of backlog, representing 10.9 months of revenues and outlining.
the Sustainable Demand for our Services.
Alain Michaud: Moving on to profitability. Adjusted EBITDA in the quarter grew to $634 million compared to $525 million in the fourth quarter of 2023, an increase of 21%.
Alain Michaud: Adjusted EBITDA margins stood at 18.7% compared to 19% in the fourth quarter of 2023 due to the fluid environment and restructuring activities in Asia and a higher mix of lower margin emergency response services in the U.S.
Alain Michaud: For the full year EBITDA grew to $2.185 billion, up 14% compared to $1.9 billion in 2023, and exceeding the high end of our updated outlook range for the year, which stood at $2.155 to $2.175 billion.
Alain Michaud: Adjusted EBITDA margin to 18% compared to 17.6% in 2023 was mainly attributable to increased productivity and to the progress on our margin expansion journey.
Alain Michaud: Adjusted net earning for the quarter reached $305 million or $2.34 per share, up 23 and 17 percent respectively compared to the fourth quarter of 2023.
Alain Michaud: The increase is mainly attributable to higher-adjusted EBITDA partially offset by higher interest on long-term debt.
For the full year adjusted net earning
Alain Michaud: of $1.01 billion, or $8.05 per share, increased by $155 million, or $1.50 per share, compared to 2023. The respective increase of 18% and 17% in these metrics.
Alain Michaud: were mainly attributable to higher adjusted EBITDA, partially offset by higher interest on long-term debt.
Alain Michaud: As for our cash position, cash inflow from operating activities increased to 1.4 billion dollars compared to 986 million dollars in 2023. And we also more than doubled our free cash flow for the year, reaching 885 million dollars.
Alain Michaud: Free cash flow represented 1.3 times the net earning attributable to shareholders. The improvement in free cash flow is mainly due to higher adjusted EBITDA and improved working capital position.
Alain Michaud: At the end of December, DSO stood at 72 days, ending at the lower end of the outlook range of 72 to 79 days, and compared to 76 days as of December 31, 2023.
Alain Michaud: Considering the level of transformation we orchestrated by making a new ERP available to close to 40,000 employees in 2024, we are very pleased with this outcome.
Alain Michaud: Our balance sheet remains strong, with a net debt position of 1.8 times within management's target range, and incorporating the full 12-month adjusted EBITDA of all acquired businesses in 2024, the net debt to adjusted EBITDA ratio would stand at 1.7 times.
Alain Michaud: Combined with our available capital, it provides us with the flexibility to capture future opportunities.
Alex: Lastly, the financial outlook for 2025, issued in our Global Strategy Action Plan press release on February 12, 2025, is reiterated. On that, back to you, Alex.
Alexandre Lerue: Thank you, Alain. With that in mind, we are very pleased to close our 2022-2024 chapter.
Alexandre Lerue: Before we take questions, I want to highlight some of the exciting developments from the last few weeks.
Alexandre Lerue: including the launches of our new brand identity and our 2025-2027 Global Strategic Action Plan and of course our Investor Day event held in Toronto and online where we had the pleasure of engaging with investors and analysts.
Alexandre Lerue: Starting with our new brand identity which reflects everything we are at our very core and what we want to become known for. It is centered on our people, the most precious resource we have, and it is dynamic and innovative.
Alexandre Lerue: It will serve as a powerful tool to differentiate us in the marketplace and build a strong recognizable presence that resonates with our people, our clients, and our partners.
Alexandre Lerue: Our 2025-2027 plan is our roadmap for an ambitious three-year cycle focus on pioneering change for empowered growth. It is designed to propel WSP forward as we seek to become a catalyst of change in modernizing our industry.
Alexandre Lerue: The world around us is changing rapidly. Key megatrends such as energy transition, urbanization, and the digital revolution are reshaping our planet and increasing the demand for our expertise.
In this environment, we see tremendous opportunity for growth.
Alexandre Lerue: While we have grown significantly, our estimated market share is still very small. Our deep understanding of the natural and built environment gives us strategic advantage to grow and to be challengers in the professional services arena.
Alexandre Lerue: Today, we are looking beyond undisputed leadership in our industry. We are broadening our reach and evolving our long-term vision to become a leading brand within the professional services universe.
Alexandre Lerue: This three-year plan is designed to unleash the full potential of WSP as we aim to push even more boundaries, drive greater innovation, and meaningfully invest in digital.
Alexandre Lerue: We reaffirm this intention with a groundbreaking new seven-year partnership with Microsoft to accelerate the digitalization of the architecture, engineering, and construction industry.
Alexandre Lerue: By combining our deep engineering and scientific expertise with Microsoft's best-in-class digital and AI technologies, we can drive value-focused innovation and achieve exceptional results for our clients, our communities, and our business worldwide.
Alexandre Lerue: With our 2027 targets, we remain committed to delivering leading financial performance.
Alexandre Lerue: We set ambitious goals to boost our net revenue by 40%, grow our adjusted EBITDA by 50%, and increase our adjusted net earning by 60%, and raise our free cash flow by 70%.
Alexandre Lerue: This plan is not just about numbers, it's about setting a new standard for excellence and innovation in our industry.
Alexandre Lerue: We believe that by focusing on these key metrics, we will be able to drive sustainable growth and create long-term value for our shareholders.
Alexandre Lerue: With a renewed long-term vision, a bold new brand, and the unwavering trust and support of our clients and investors, I am highly confident in our ability to create an enduring legacy of greater impact. I would now like to open the line for questions.
Thank you.
[inaudible]
We are now going to proceed with our first question.
Speaker Change: The first questions come from the line of Stephen Fisher from UBS. Please ask your question.
Stephen Fisher: Thanks, good morning, and congratulations on a strong year. I guess just within the mid to high single-digit organic growth expectations that you have for Canada and the Americas for 2025,
Speaker Change: How different do you think the growth rates are going to be between transportation, environment, property and sun power?
Speaker Change: I would think, generally speaking, it should be strong across the patch, so there's no significant variances between those and market.
Speaker Change: Okay, and then I guess obviously a very dynamic environment at the moment from a political perspective. What impact are you seeing in particular from Trump policies on your various infrastructure markets as it's developing this year?
Speaker Change: Well, it's changing by the week, so we obviously monitor that very closely, but high-level...
Thank you.
Speaker Change: I feel that there is a bilateral support on both sides of the aisle by
Speaker Change: by the Democrats and Republicans around infrastructure. So if there is a one positive aspect of what's happening right now, I feel that there's some commitment to infrastructure. And that, I believe, will continue and will continue to be strong in 2025.
Speaker Change: So, all in all, as a company, we feel extremely strong and feeling extremely good around the markets in which we operate at the moment, both in the U.S. and in Canada.
Thank you very much.
Thank you. Thanks, Stephen.
Speaker Change: Once again, as a reminder, to ask a question, please press star 1 and 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 and 1 again.
We are now going to proceed with our next question.
Speaker Change: The next questions come from the line of Uri Link from Kaneko, Genity. Please ask your question.
Hey, good morning guys. Nice to talk to you again.
Speaker Change: Did I hear correctly on your prepared remarks covering off power engineers, 16% revenue growth for that entity. Can you just confirm, is that what I heard and is that year on year and net revenues?
You heard well, Uri.
Q4-24 compared to Q4-23.
Speaker Change: as reported by Power. So on top of that there could be also opportunities that we highlighted also in Alex's remark on
Speaker Change: revenue synergies on both sides of the equation, on legacy WSB and legacy power.
Speaker Change: I think Yuri said differently, obviously, power engineer growth is accounted as acquisition growth at this point, but for your information, we wanted to provide you with the organic growth that power recorded in the quarter 2.4, which is the first quarter with us.
Speaker Change: No, it's helpful. I did notice the revenue contribution from acquisitions there was higher than expected. I'm assuming that's organic growth and I'm just wondering if that's in line with
Speaker Change: what your expectations were and how do we think about how the revenue synergies might start to layer in on top of that because surely there were no revenue synergies in that number so close after closing, right?
Speaker Change: Yeah, no new revenue synergies in that number, obviously early on in the process, so difficult to quantify what those revenue synergies will look like, but a very strong head start.
Speaker Change: First part of your question. Second part, when we complete these acquisitions,
Speaker Change: You will recall when we presented the opportunity and presented the company that
Speaker Change: this company had generated double-digit KGAR growth over the last 10 years, so not surprised by the strong performance, but very pleased with the start of our combining journey together.
Yeah, okay.
Speaker Change: Just a quick last one housekeeping. If I recall Q1 of last year had a couple of fewer billable days. Just wondering how the billable days issue shakes out for 2025.
Speaker Change: No significant differences versus 24, so you could assume stable situation in every quarter. So in other words, like-to-like? Yeah, like-to-like. From one quarter to the other? Correct.
Okay.
Speaker Change: Okay, thanks guys. I'll turn it over. Thank you, Yuri. Thanks, Yuri.
Thank you.
Speaker Change: As a reminder, to ask a question, please press star 1 and 1 on your telephone and wait for your name to be announced. To reply to your question, please press star 1 and 1 again. Once again, it's star 1 and 1. Thank you.
Thank you.
We are now going to proceed with our next question.
Speaker Change: The next questions come from the line of Ian Giles from Stifel. Please ask your question.
Morning everyone. Morning again.
Speaker Change: Can you maybe talk a little bit about some of the steps being taken to returning those to what I would call more normalized levels in 2025 and 2026?
Yeah, look, it's...
Speaker Change: At the moment, I'm feeling fairly, very good around the AIPAC situation. At the moment, we took the liberty to really set the business up for future success in Asia, so we continue to optimize our business.
continue to make some changes.
Speaker Change: We have put our leader in the Middle East, also expanded his role to head also the Asian operation, Dean McGrail.
very pleased with that.
Speaker Change: And again, we can, you know, it is always part of a global business to continue to streamline your operation.
Speaker Change: to make the necessary changes to set it up for future success. So we're starting the next three years, I believe, not on the back foot, but on the front foot as it relates to AIPAC.
Speaker Change: And then when you move down south and you look at Australia and New Zealand, last year New Zealand had a change of government and really infrastructure spending.
Speaker Change: and the country really took a pause and really the new government wanted to reassess priorities within the country. So we saw the market cooling down a bit.
Speaker Change: Do I think it's going to be like this for a very long time? No, I don't think so. In Australia, we finish off many, many large projects.
Speaker Change: in Australia and we had to demobilize some of our workforce, but we are at the moment replenishing the backlog. We are committed to Australia, committed to New Zealand. These are great countries where the margins are extremely high, probably some of the highest in our group.
So we're not changing our view on this.
Speaker Change: But to me, this is just us going through, you know, changes and dynamic in the regions, but we're still very much committed to the region and very much optimistic about the future prospect of that region.
Understood. That's very helpful.
Speaker Change: Question about what is transpiring there and what you see happening in the first half of the year?
Speaker Change: You're reading this very well, you know, we're feeling good about our guidance, very strong.
Speaker Change: And we're going into this, as I said, on the front foot in 2025. And remember that we have a large earth and environment practice.
Speaker Change: And if you look at Q4 last year, you know, we experienced a similar dynamic.
Speaker Change: We've consumed, the backlog in our environment is typically shorter in duration, so we've consumed our backlog and we're going to rebuild it, start in spring again at the end of Q1. So it's nothing unusual and we're feeling very good about it.
Understood. Thanks very much. I'll turn it back over.
We are now going to proceed with our next question.
Speaker Change: The questions come from the line of Maxim Sychev from NBC, please ask your question.
Hi, good morning, Shalman.
I don't mind. Relax.
Speaker Change: I actually just wanted to piggyback on the backlog question. I mean the fact that you're doing more advisory work, does that have sort of any impact on kind of the the book and burn dynamic of sort of from a definitional perspective? Just wondering if you can provide any color there, thanks.
Thank you.
Speaker Change: I wouldn't want you, Max, to draw any conclusion on 90 days of performance. I think you need to have a long-term view on...
Speaker Change: on the business, as I said in the past. I don't believe advisory versus engineering is going to have a significant impact over time. Yes, advisory tend to have a shorter backlog in duration.
Speaker Change: which is fine actually, we have no problem with that, it's just the nature of the work.
Speaker Change: but we could be awarded like a five-year contract next quarter and all of the sudden you're going to see a massive growth in our and from one quarter to the other. So I think it's just a work in progress.
Speaker Change: We're running in the ordinary course of business. The backlog is strong. Our proposal activity in the U.S. is extremely strong.
Speaker Change: So at the moment, I'm feeling very very well around and very good around around our backlog and our performance as a result of it
Speaker Change: Yeah, okay. No, that's great color. And then I was wondering if it's possible to to get any comment around You know the M&A landscape and given sort of the policy fluidity You know, we are experiencing the moment how we should be thinking about this in terms of
Speaker Change: You know, is it a net positive negative when it comes to sort of, you know, self-expectations, any call there? Thanks.
Well, it's a push and pull, Max, on one end.
Speaker Change: With this new administration, I think the investment community was hopeful for more deregulation and therefore fostering more of an environment for
Speaker Change: for Merger and Acquisition. That's on the one end. The flip side of this is that when you are creating an unstable environment
Speaker Change: People tend to take a pause. So I feel you have two competing forces right now taking place in the marketplace.
Speaker Change: And that's why I believe, in my personal opinion, that the first half will probably be a bit more quiet.
Speaker Change: And I'm not talking about WSB, I'm talking about the world here. The world of M&A and transaction activities will probably be more quiet than people had hoped back in the fall of 2024.
Speaker Change: Do I think though that this will resume? Absolutely. I do believe that if we can gain more stability in the marketplace I think that the market is poised for a lot of activities in the coming years and and we intend WSP to actively participate in that
Speaker Change: Do you mind if I sneak in one more, in terms of the power engineers, I mean obviously tremendous growth there. I was wondering if you can please expand in terms of the sustainability of this growth because again it looks pretty tremendous. Thank you.
Speaker Change: Well, look, as I said before, not surprising by the performance of Power Engineer. We're extremely pleased. Ten years of Kegard double-digit organic rope.
Speaker Change: So, yet again, I think Q4 was a very strong quarter.
for them.
Speaker Change: I've known this company for as long as I've been with WSP, for more than 15 years now.
Speaker Change: have followed their story. This is a premier brand in the power and energy sector in the U.S.
Speaker Change: So we're, at the sake of repeating myself, I'm extremely pleased that we were able to combine forces with power engineers, and we're really looking forward to working with them to really propel.
Speaker Change: the combined organization in that sector to new heights. I think it's very, very exciting time. Remember that we closed the transaction in October of 2024. So it's really.
Speaker Change: If you take out Christmas and the holidays, it's been a very short time, but I'm very pleased with the head start that we've had so far with power.
Backlog is strong.
a powerful, no doubt, and
Speaker Change: And Max, you've, looking at some of the report that were issued last night, there was a few comments on margin and Q4, so maybe I want to take the opportunity to.
Speaker Change: To discuss that a bit further for everybody's benefit. It's for sure our quarter Margin word was down and we explained why we took action in Asia
Speaker Change: and FEMA work in the U.S. as a lower margin, but if you...
Speaker Change: Step back a little bit, a quarter is a quarter. I think the trend is important to look at. And if we look at the last three years, we started the cycle in 2022 with 30 bps of margin improvement. 2023, we delivered 50 bps.
Speaker Change: And when you look at 2024 and you go a layer down, you know, we deliver 40 bps, but looking by segment, Canada delivered 90 bps of margin.
Speaker Change: America 60 bps of margin, AMIA 70 bps of margin, and APAC, to Alex's point, before on Australia and New Zealand, if you carve out Asia, APAC delivered 145 bps of margin improvement.
Speaker Change: So, you know, we run this business responsibly, we take action where we need to, and that's what we did in Q4. But if you step back and you look at the last three years' performance...
Speaker Change: One could argue that our margins actually going up from 22 to 23 to 24 So we're very very proud of the work of our leadership team in every region And I think that's a point that you should consider and looking at our results
Yeah, excellent. Thank you so much. Thanks, Max.
Speaker Change: Thank you. As a final reminder to ask a question please press star 1 and 1 on your telephone and wait for your name to be announced.
Thank you.
Thank you.
Thank you.
Thank you.
Thank you.
Speaker Change: So I assume there are no more questions at this point. We have no further questions at this time, so I'll hand back to you. Thank you. Okay. Thank you so much. Thank you for attending this call today. If you haven't had the opportunity to listen in to our investor day,
Speaker Change: that took place a few weeks ago in Toronto. I invite you to go on our website and listen to the recorded version of our invest today.
Speaker Change: And again, we thank you for your support and look forward to updating you in the quarters to come. Wish you a great 2025. Thank you very much.
Speaker Change: This concludes today's conference call. Thank you all for participating. You may now disconnect your lines. Thank you and have a great day.