Q2 2025 WSP Global Inc Earnings Call
Speaker #2: Good day and thank you for standing by. Welcome to the WSP Global Inc. second quarter 2024 results conference call and webcast. At this time, all participants are in a listen-only mode.
Speaker #2: After the speakers' presentation, there will be a question and answer session. To ask a question during the session, please press *1 and 1 on your telephone.
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Speaker #2: I would now like to let the conference over to your speaker, Mr. Weber, Global Head of Investor Relations. Please go ahead.
Speaker #3: Thank you. Good day, everyone. Thank you for joining our call. Today, we will be discussing our Q2 2025 performance followed by a Q&A session.
Speaker #3: Alexandre Heureux, our president and CEO, and Alain Michaud, our CFO, are joining us this morning. Please note that this call is also accessible via webcast on our website.
Speaker #3: 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 #3: Relevant factors that could cause actual results to differ materially from those forward-looking statements are listed in the MD&A for the quarter ended June 28, 2025, which can be found on Cedar Plus and on our website.
Speaker #3: In addition, during the call, we may refer to specific non-IFRS measures. These measures are also defined in the MDNA for the year ending December 31st, 2024.
Speaker #3: Our MDNA includes reconciliations of non-IFRS measures to the most directly comparable IFRS measures. Management believes that these non-IFRS measures provide useful information to investors regarding the corporation's financial condition and results of operation as they provide additional critical metrics of its performance.
Speaker #3: 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; accordingly, they may not be comparable.
Speaker #3: These measures should not be considered a substitute for the related financial information prepared in accordance with IFRS. With that, I will now turn the call over to Alexandre.
Speaker #4: Thank you, Carte, and thank you all for joining us today. Let me start by saying that I am very pleased with our performance in Q2 2025.
Speaker #4: We had robust, profitability, increased cash flow generation, and a historically low DSO for a second quarter. We are also enhancing our 2025 financial outlook.
Speaker #4: Let's dive into a few highlights. First, on net revenues. In Canada and the UK, we delivered high single-digit organic growth and, considering our backlog, the pipeline of opportunities and the recent economic stimulus announcement, we feel positive on the outlook.
Speaker #4: In the US, power engineers delivered a solid 16% organic growth and significant revenue synergies opportunity and the integration is progressing as planned. When considering the organic growth of power, we delivered high single-digit organic growth in the US this quarter and our backlog is solid.
Speaker #4: In the Nordics, we have seen an uptick in the activity level and our backlog is growing. And in Australian and New Zealand, our right-sizing activities are largely completed; our backlog and pipeline of opportunities are expanding, progressive return to growth in the second half of the year.
Speaker #4: All in all, we delivered solid growth while keeping our business fit for purpose which is continues our testament of the strength of our diversified platform.
Speaker #4: Second, on profitability, adjusted EBITDA grew by 22% in the quarter. Our adjusted EBITDA margin increased by 80 and we expect a basis points as we continue to own in our productivity and project performance.
Speaker #4: I am particularly pleased with the fact that we delivered margin expansion across each of our reportable segments despite absorbing optimization and right-sizing costs which impacted our overall margin by approximately 50 basis points in the quarter.
Speaker #4: Excluding these costs, our focus on operational excellence delivered 130 basis points improvement in the quarter. Third, following a strong cash generation performance in Q1, Q2 performance was even stronger.
Speaker #4: In fact, free cash flow increased by almost 400 million versus Q2 2024 and over 600 million versus last year for the first six months period.
Speaker #4: Our DSO stands at 69 days making a historically low level for a second quarter. Our leverage ratio now stands in the middle of our target range and further leveraging is expected in the second half of the year which puts us in a favorable position to seize opportunities.
Speaker #4: On the M&A front, we continue to pursue opportunities and strategically deploy capital. In Q2, we announced the acquisition of Lexica UK-based consulting firm specializing in healthcare and life sciences.
Speaker #4: This acquisition adds expertise to our planning, property, and advisory business in the region, forming a new healthcare and life sciences advisory team. WSP also announced the acquisition of Ricardo.
Speaker #4: Headquartered in the UK, this consultancy firm delivers strategic advisory and engineering solutions that intersect the global transport, energy, and environment agendas. Ricardo operates across Europe, Australia, North America, Asia, and the Middle East.
Speaker #4: On July 15th, the shareholders of Ricardo approved a scheme at the shareholders' meeting held in connection with WSP's acquisition. The acquisition received overwhelming support with over 90% of shares voted in favor of the scheme.
Speaker #4: This step marks an important milestone towards welcoming the team to WSP. Closing the acquisition remains subject to taining the required regulatory approval and the sanctions of the scheme by the UK court, all of which is expected to occur in Q4 2025.
Speaker #4: Now allow me to elaborate on the dynamics across our four core market sectors. The transportation infrastructure sector continued to perform well in Q2. In particular, our leading tunnel teams continued to win new business, including a Virginia Department of Transportation mandate to provide project management services for two tunnels as part of the Hampton Roads Bridge Tunnel Expansion Project.
Speaker #4: Water continues to benefit from investment across most of our geographies. Of note, WSP secured a role in the substantial expansion of Ontario's court right water wastewater treatment plant.
Speaker #4: Rail and transit also maintain robust momentum. For example, in Finland, we secured new business for several strategic projects in Nordic countries. Including a segment of rail Baltica in Estonia and a renewable of the Copenhagen Metro signaling system.
Speaker #4: In APAC, WSP picked up strategic wins as the market continued to show signs of recovery. The new terminal of Perth International Airport is one the many new projects we signed recently.
Speaker #4: Let's now shift to our property and building sector. We posted strong performance in Canada. The US and the UK, which account for approximately two-thirds our business, and our backlog and pipeline remain healthy, which provide a positive outlook for the rest of the year.
Speaker #4: Four standout areas are data centers and industry and advanced manufacturing, healthcare, and defense, all generating significant opportunities that point to future growth. For example, we continue to see strong data center investment in AI and digital infrastructure with approximately 300 new mandates in the quarter and robust activity across all of our geographies.
Speaker #4: These mandates encompass site acquisition due diligence, campus master planning for new AI gigafactory, greenfield data center design projects, brownfield data center upgrades, and the growing power and water infrastructure demands.
Speaker #4: Let's move on to power and energy. The sector continued to demonstrate strong momentum throughout the quarter. Our thermal generation business is driving considerable growth.
Speaker #4: The transmission distribution market in the US has remained active and most of our clients are maintaining or increasing their spend projections for 2026. And beyond.
Speaker #4: Now a brief update on the ongoing integration of power engineers. We successfully achieved several milestones and preparation to move power in our ERP system are in full swing.
Speaker #4: The success of this integration is evidenced by strong financial performance. The business is growing at a double-digit pace. We have a growing backlog and with over 250 active pursuits in the pipeline today, we are accelerating our joint market presence with the new and existing with new and existing clients.
Speaker #4: On Earth and the environment, sectors thrive in a fluid environment. This last quarter, we secured a number of very high-demand areas, like power, energy, defense, technology, water, and mining, to name just a few.
Speaker #4: WSP was awarded a major PFAS project for the US Air Force in the American Midwest. This win shows our strong position in the combined defense and water markets.
Speaker #4: Moreover, our leading biodiversity and marine expertise remains a key differentiator for important new wins in WSP and in Canada, WSP has secured a new mandate for Hydro-Québec's major Gulf Island hydro projects which includes environmental studies, biodiversity assessments, and geotechnical scopes.
Speaker #4: Finally, a few updates on digital. As a reminder, at our investor day earlier this year, we shared three priorities for our digital strategy. One, growing organic digital revenues at least twice as fast as our core business.
Speaker #4: Two pioneer solutions that grow recurring digital revenue. And three, be a catalyst for change in our industry, working with our clients in the world of innovative technology companies.
Speaker #4: We saw a strong momentum around all these three focus areas for the first half of the year. We have met our internal organic growth ambitions globally and our confidence for the rest of the year.
Speaker #4: Our pipeline is strong and growing across all our target offerings. For example, we have received multiple awards from clients. We have requested our engineers engineering and science expertise to organize their critical asset data artificial intelligence application.
Speaker #4: Another example, we were awarded a multi-year contract in New Zealand to continuously monitor areas of landslide risk using specialized sensors and real-time alerting systems.
Speaker #4: Real-time monitoring of geohazard and extreme weather risk in one of several areas where we see strong growth signals for recurring digital revenues, which is in line with our second objective.
Speaker #4: We have a lot of momentum with our digital ecosystem partners as well. In addition to the Microsoft Alliance announced in February, WSP announced a strategic partnership with urban logic in late May and recently won a project where the main expertise and artificial intelligence solutions will predict wildfire risk in Alberta.
Speaker #4: We are in active discussion with several other potential technology partners. We are very pleased with our progress with the microsoft strategic alliance. Externally, this has resulted in several strategic wins and has led to numerous client conversations regarding how WSP and Microsoft can collaboratively address their most significant challenges.
Speaker #4: Internally, WSP is pragmatically deploying AI tools globally with strong initial impact and feedback. Several internal AI workstreams are in progress with some already contributing to internal productivity improvements.
Speaker #4: In summary, we are starting strong in our digital ambitions for this strategic cycle. And now, before I turn over to Alain, I am pleased to reaffirm our number one position in engineering's news report 2025 list of the top 225 international design firms extending WSP's proudly held since 2021.
Speaker #4: With a leading position in transportation, buildings, power, water, solid waste, and sewer waste. Now over to you, Alain.
Speaker #5: and hello, everyone. I'm pleased to report on our solid quarterly results. For the second quarter, revenue and net revenue increased by 15% and 16% respectively displaying robust year-over-year growth.
Speaker #5: The increase was mainly attributable to acquisition growth of 10.4% and organic net revenue growth of 3.5%. Power engineers continue to demonstrate strong growth with an organic growth rate of 16% compared to Q2 Thanks, Alex 2024.
Speaker #5: Canada, the US, including power and the UK, each delivered high single-digit organic growth in the quarter. Backlog reached 16.3 billion dollars, up 10% in the 12-month period, representing 11 months of revenue.
Speaker #5: Our book-to-burn ratio is above one, similar to what we have delivered every quarter for the last four years. Overall, each of our key markets remains strong and of interest.
Speaker #5: We are seeing positive development and backlog increases in the Nordics, Australia, and New Zealand. Moving on to profitability, adjusted EBITDA the quarter grew to 633 million dollars compared 520 million dollars in the second quarter of 2024, an increase of 22%.
Speaker #5: Adjusted EBITDA margin for the quarter stood at 18.2% compared to 17.4% in Q2 2024, an increase of 80 basis points, mainly due to the continued focus on productivity.
Speaker #5: Excluding optimization and restructuring costs, our margin increased 130 basis points in the quarter. And each of our reportable segments delivered solid margin performance in the quarter.
Speaker #5: Adjusted net earnings for the quarter reached 370 million dollars or $2.35 per share, up 30% in 24% respectively. Compared to the second quarter of 2024, the increase is mainly attributable to higher adjusted EBITDA.
Speaker #5: As for our cash position, I'm pleased with our very strong cash flow generation this quarter. Net debt to adjusted EBITDA ratio stood at 1.5 times, which is within management's target range of 1 to 2 times.
Speaker #5: Which provides flexibility to deploy capital. As we now conclude the first half of the year, in a good position, we decided to update our 2025 financial outlook with adjusted EBITDA now expected to reach a higher end of the range.
Speaker #5: This is due to continued strong performance in Canada, the Americas, and EMEA, thanks to the fact that our business in APAC is now largely right-sized and fit for purpose.
Speaker #5: Our net revenue outlook remains unchanged between 13.5 billion and 14 billion. With organic growth on a constant currency basis between five and eight percent.
Speaker #5: From a segment standpoint, net revenue in the APAC reportable segments are expected to conclude the year with low to mid-single-digit organic contraction. The remaining 2025 targets are and other assumptions are the 25 financial outlook excludes the expected contribution of acquisition not completed as of August 6th, such as Ricardo PLC, lastly, I'm pleased to share that in addition to delivering strong financial performance in quarter, we continued the deployment of our new ERP.
Speaker #5: We are now live in 15 countries with the reiterated. Middle East, India, As a reminder, and Africa added in June 2025. These recent implementations went well, and we have seen strong billing stats volume in the first month of operation.
Speaker #5: We now have approximately 50,000 active users under the new system. Back to you, Alex.
Speaker #4: Thank you, Alain. Let me just reaffirm how proud I am of our results. This quarter and in the first half of the year. Our North American and UK businesses are benefiting from strong growth momentum and delivering leading margins.
Speaker #4: Our right-sizing initiatives in APAC are largely completed and the business is now fit for purpose with a growing backlog. Our ERP rollout continues to progress as planned with productivity gains starting to materialize.
Speaker #4: We announced key acquisitions to further strengthen our platform. And we have a strong balance sheet and the M&A pipeline is healthy. Overall, we are well-positioned for the future and are feeling good about the second half of the year.
Speaker #4: We believe our diversified business and the long-term trends driving our industry will continue support compounded sustainable performance. With that, we can open the lines to questions.
Speaker #2: Thank you, sir. As a reminder to ask a question, please press star 1 and 1 on your telephone and wait for your name to be announced.
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Speaker #2: To withdraw your question, please press star 1 and 1 again. We are now going to proceed with our first question. And the question's come from the line of Steven Fisher from UBS.
Speaker #2: Please ask a question. Your line is opened.
Speaker #6: Thanks. Good morning and congrats on the progress here. Really standout performance in cash flow, seems like you're moving on from the ERP costs and you have the benefit of Section 174 R&D expensing.
Speaker #6: I suppose that leaves M&A, cash drag, and really just execution. So maybe you can just give us a sense of how to think about any cash drag from M&A ahead, and to what extent your execution focus can kind of keep cash flow at this healthy level.
Speaker #4: Well, when you look at our leverage and our ratio to EBITDA at the moment, we're back to the middle of the range that we've provided in our outlook.
Speaker #4: So I think we are delivering very, very fast. So obviously, I just mentioned to you that the pipeline of opportunities is healthy. And I continue believe that this is part of our DNA to continue to have a strategy that combines strong organic growth, strong margin improvement, but also inorganic growth.
Speaker #4: So without providing any future guidance as to what may or may not happen in the second half and next year, we are extremely pleased now with our cash flow generation.
Speaker #4: And I think you are right in saying that now 80% more than 80% of our EBITDA has been converted on the ERP. So we have significantly de-risked this program.
Speaker #4: And now I think the benefits are materializing.
Speaker #6: Yeah. And if I could just add a few points. Strong performance this quarter, and Q1 too was strong on free cash flow. If you look at the last 12 months, it's roughly $1.5 billion of free cash flow.
Speaker #6: We generated our conversion rate is now standing at about 1.9 times net earnings. So this is significantly above the typical conversion rate of 100%.
Speaker #6: So we continue to push hard on working capital management. So I don't foresee any change in the cadence for the rest of the year.
Speaker #6: Q3 but most importantly, Q4 usually strong free cash flow quarter. In terms of drag, the only one to keep in mind is the Ricardo will generate some payment most likely in Q4.
Speaker #6: But that's a positive. That's the way I would put it. That's very pful. And then just in s of organic growth, I an, it seems like you might be more on track for the lower end of organic growth range for the year.
Speaker #6: But I guess to what extent is there still a path to the upper end of range? And related to that, are there any extra workdays in the second half to be aware of since that was a headwind in Q1?
Speaker #4: Yeah. So feeling good overall, I ink that's the statement about the second half of the year. We have our largest region, Canada, US, UK.
Speaker #4: You heard in our opening commentary delivering high single-digit growth, which on balance, you could probably say that this is a bit higher than what we guided.
Speaker #4: So there's some positive at that acquisition that level. The regions that were creating a bit of a drag on our number, I think they're in much better position now with the progressive return to growth.
Speaker #4: So, obviously, that's where we stand. The various things to keep in mind are, yes, the billable days we had to call that in Q1, especially in the U.S.
Speaker #4: We will see the reversal of that in Q4, at least for the most part. And then we need to keep in mind we had significant disaster recovery response revenue in Q4 last year in the U.S.
Speaker #4: So or it came season storm season is starting. So we shall see. But for the time being, we remain confident for the rest of the year.
Speaker #4: We'll e how Q3 unfolds and we'll reassess our guidance as we report on Q3 results.
Speaker #6: Perfect. Thank you very much.
Speaker #2: We are now going to proceed with our next question. And the estions come from the line of Sabahat Khan from RBC, please ask a question.
Speaker #7: Great. Thanks and good ning. Just wanted dig into some of the comments you made in the prepared remarks around some of the regions I think the two most dynamic have been the UK and the US with some of the elections, new policies, dig in and just walk us through some of the dynamics you're seeing on the ground.
Speaker #7: It does und like your results were positively driven by those markets, but just curious on the puts and takes in those two markets and just the outlook ahead for those regions.
Speaker #7: Thanks.
Speaker #4: Yeah. Good morning, Sabah. I mean, it's more than just the UK and the US. I an, if you look in the 12 to 18 months, we had election in New Zealand.
Speaker #4: We had elections in the UK. We had election in Australia. We had election in Canada, last quarter. We had election in the US. So we had liberation day.
Speaker #4: And despite all this turmoil because, I mean, when there's an election, there's change of priorities. WSP continued to perform very well in those markets.
Speaker #4: Obviously, there's been a slowdown in Australia. And New Zealand, in my personal opinion, I would call this a near-term slowdown. I think New Zealand and Australia are now seeing the proposal activity level coming back.
Speaker #4: And as Alain said, we are going to see progressive return to growth in that region. So we're overall feeling very good. As it relates to the UK and the US, there's been obviously a ift in some of the priorities from past governments.
Speaker #4: But the good news is that even with the big, autiful bill and UK statement from government, infrastructure spending remains a top priority for those countries.
Speaker #7: Great. And then one of the thematics that's obviously been picking up in the recent quarters and years, and we're really icing it this quarter, is demand around data centers sounds ike that was one of the drivers around just power acquisition, your involvement in that space.
Speaker #7: Maybe you could just dig into the demand environment today, how that compares to when you got into sort of the power acquisition and maybe just dig into the opportunity ahead today relative to what you may have thought.
Speaker #7: You know, when ou actually made that acquisition.
Speaker #4: Yeah. Well, on the back of last year, obviously, we saw very, very strong demand. On that segment. I would say in the first half, there was a bit of a cooling off.
Speaker #4: But I can tell you that over the last months and what we are foreseeing our pipeline in the next six months and the remainder of the year, we are starting to see again very, very strong demand for that segment.
Speaker #4: So I think it bodes well. In the short term, the medium term, but also in the long term. So I think the power acquisition was, I've id it before, I'll say it again, was not a good to have or good to do.
Speaker #4: For us, it was a must-do deal. And I'm extremely pleased that we completed this acquisition. It's very, very strategic for our form.
Speaker #7: Great. Thanks very much.
Speaker #6: Thank you. Thanks, Sabah.
Speaker #2: We are now going to proceed with our next question. And the questions come from the line of Christopher Zinn from CIBC. Please ask a question.
Speaker #8: Hi. Thanks for taking my question. I was wondering if we could just dig in a little bit on the 50-bip hit from restructuring. Was that largely APAC or was that a little bit more broad?
Speaker #6: Largely. APAC. And it's in line there, Christopher, with what we discussed in Q1, right? We have said that we have done a fair share of bringing our business more to a fit for purpose level in Q1.
Speaker #6: And we had announced that we would still do a bit of work in Q2, which is what happened. So it's in line and it's, as Alex said, it's the biggest chunk is in APAC.
Speaker #6: And again, the sake of repeating, ourselves we absorbed those costs and despite that, we've increased, we have now visibility on the higher end of our range from a bottom line point of view.
Speaker #8: Right. And then maybe if ou can just comment on, are you seeing any changes in the conversations with your customers south of the border just as a result of all the various legislative changes we've seen over the last couple of months here?
Speaker #6: I think that the market is very, is still very, very dynamic. Of course, there are some questions asked. I think the intent of the new administration is to expedite and facilitate investment.
Speaker #6: There's been some shift in priorities. For instance, away from renewable, maybe more in fossil fuel, and a few other matters. But I think the real intent is really to facilitate and expedite investment.
Speaker #6: So in some ways, we have not seen much disruption at this point where we're quite pleased with the way the market and our clients have behaved and operated in the current environment.
Speaker #8: Okay. Great. Thank you all. Jump back in the queue.
Speaker #6: Thanks, Christopher.
Speaker #2: We are now going to proceed with our next question. And the questions come from the line of Benoit Poirier from Desjardins. Please go ahead, your line is open.
Speaker #9: Thank you very much. Good morning, everyone. And congrats for the solid quarter. Just on the acquisition of Ricardo, could you provide more details about the opportunities to bring margins to WSP levels down the road, but also what we could we should expect from a net revenue EBITDA as you're oking to divest some businesses once the deal is closed?
Speaker #9: Thank you.
Speaker #6: Yeah. We haven't closed the transaction, Benoit. So we're not going to comment just yet on the impact that this will have on the numbers going forward.
Speaker #6: But I can tell you that we're highly confident that we are going to bring up the Ricardo margins to our level. We've done it in numerous occasions in the past.
Speaker #6: You look at the power engineers, obviously, we're disclosing margins level by acquisition. But I can tell you that right at this point, six months into the year and six months after closing, well, I should say eight to nine ths, after closing, we have seen a huge shift up in the margin level of power engineers.
Speaker #6: So I'm highly confident that we are going to achieve that. And I think we are going to achieve it very quickly. Yeah. And Benoit, more to comment on all of this, but in terms of status, we have the AGM where the transaction was voted in favor 99-plus percent.
Speaker #6: So that's good news. And from a regulatory review standpoint, things are progressing well. So we expect a closing in Q4. And if we don't control and know exactly how it's going turn out, but if I would have to bet based on past experience, this should be closed in the earlier part of Q4.
Speaker #6: Rather than the later part of the quarter.
Speaker #9: That's great. And for power engineers, obviously, we see a lot of, you see a lot of revenue synergies with this acquisition you announced to work McLaren out of nuclear.
Speaker #9: So I'm just wondering about the potential synergies we might see and what kind of area of expertise it could add to power engineers right now.
Speaker #6: Well, power engineer is one, if not the leading firm in transmission. Which is a very high value proposition for our clients. We continue to develop our expertise and continue to grow our expertise and distribution.
Speaker #6: On the electric side, power gen is something that power engineers have been very busy growing this year. We see tremendous growth on power generation.
Speaker #6: And in terms source of energy, I think we are doing a great work right now. Like I said, on the electric side, but we also are doing, and it's not something we talk a lot about, typically, but we do a lot of work on the nuclear side here in Canada.
Speaker #6: More in the UK and obviously in the US with all of the SMR that are currently being designed. So all in all, I'm feeling very bullish around this acquisition and very bullish around this sector.
Speaker #9: Thank you for the time.
Speaker #6: Thank you.
Speaker #2: 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.
Speaker #2: We are now going to proceed with our next question. And the questions come from the line of Frederic Bastiat from Raymond James Limited. Please ask your question.
Speaker #10: Hi. Good morning, guys. I wanted to go back to this these comments you made around the data center and the 300-plus new assignments that you were able to secure from that were related to that.
Speaker #10: Presumably, you had a of that growth coming from power engineers. And I think that business has been growing 15-plus cent organically year to date.
Speaker #10: Could you sort of piece out or parse out the growth that you experienced between sort of the end markets is data center, the bulk of the growth, the bulk of the what led the growth?
Speaker #10: Or were there other end markets that you would point out?
Speaker #9: You mean with power engineer, Frederick? Or you mean?
Speaker #10: Yes. Yes, specifically for power engineers.
Speaker #9: Oh, it's clearly more than that. I an, we work with most, if not all, the major utilities in the US. So at the moment, I mean, I would say we work with the existing blue chip client list that the power engineer had.
Speaker #9: But what's great now is that we are able to bring power engineer on our public sector clients. We are able to bring them on our property and building sector clients.
Speaker #9: So I think that's what why we're seeing this acquisition to be so dynamic for us at this point.
Speaker #10: Okay. Thanks. And then I keep remaining quite impressed with the performance in Canada. The region continues to lead the way with organic growth, 9%.
Speaker #10: And you had the highest margins at almost 24%. So clearly, this company is standing out, sorry, the region is standing out. And I remember, Alex, you made some comments about the potential for all the other regions to effectively catch up to where Canada is right now.
Speaker #10: How strongly do you feel about this? And any idea of sort of what type of type of timeframe you'd be looking to bring the other regions up to Canada's standard?
Speaker #10: Thank you.
Speaker #6: Well, for the other to catch up, Canada will have to slow down a little bit. They're too good. But you are right in commending our home country.
We are not going to proceed with our next question.
And the questions come from the line of Chris Murray from ATB Capital Markets. Please ask your question.
Yeah, thanks folks. Um just following up maybe on that question about margins a little bit. Um, you know the 80 basis points you saw today. I mean it sounds like there's a lot of things that are going, right. Um but I was wondering you you in the commentary? You you said that it was mainly driven by productivity. But is there anything else to be thinking about in terms of um, any any other benefits you're seeing? Or is it just basically having better absorption and utilization? Um, supporting the margin growth at this point?
No, it's not just a utilization game. I think we are actually seeing our operating margins going up.
Gross margin. Uh and we are seeing our our and and this is a function, not just of utilization, but also pricing. So we're feeling quite good about that and also, um, align the team are working uh, very hard to, to continue to to optimize our platform and leverage best practices. So uh we have seen, I would tell you, I would we have seen improvement in our margin profile, pretty much uh, across the value chain, uh, and I expect that to continue and as we build our brand, uh, you know, I've talked about that, the, uh, many times over, um, you know, now a clients are recognizing the expertise that we bring to
The table. The technical Excellence that we are bringing to the table, it it allow us to be more selective uh, in the projects that we undertake. But it also allowed us to to, to charge for, uh, the great work that our Engineers are doing. So, so overall, I I I feel that um, you know, we we are seeing Improvement across the patch in the moment.
Okay, that's helpful. Thank you. Um, maybe turning back to APAC and
Appropriately. So, you know,
Hearing like with what I'm hearing, it feels like. Um, I think you, you you said that you're starting to um
Your surgery signs of recovery and I think you called out, you know, particularly Australia and New Zealand. Um, but I'm just wondering, you know, is this going? Is Apac? Going to be pretty much just Australia and New Zealand on a go forward basis. And how do we think about, you know, given the given we've had the, the weak front end and, and, and the updated guidance, it almost implies that, you know, you're kind of at a more stable position. Today, I want to go forward bases. So, just any thoughts around, you know, because Apex got a lot of moving parts to it. Um just any thoughts about how you see the Apex business evolving from this point forward.
Well, we're we're a big fan of our asia-pacific business, um, you know, through Peaks and valleys, but we've always been committed to Australia and New Zealand. And we'll uh, continue to be, highly committed uh, to uh, New Zealand and Australia. Um,
At the moment Canada is is more than twice the size of our Australian business. So if we see opportunities to continue to grow our Aussie business, we will. But at the at the end of the day, when you look at the, the government data that the government,
Data that was published for instance in New Zealand. We signed 2024 a reduction by the new government of 20%.
And and, uh, an investment in 2024 alone. And then other further 4 5% in 2025, uh, not because New Zealand doesn't have a good balance sheet. Actually, they have 1 of the best balance sheet but because the new government wanted to rep prioritize, uh, the infrastructure spending and and other area of our of of the country. So as I said before, and I said earlier on, in my address to, for us, this is just a near-term bumps. And we expect uh those countries to go back to growth uh in the near term Progressive growth in in in the near term. And when you talk about Asia and asia-pacific as a whole uh, you are right in saying that right now, our Focus area has been a New Zealand and Australia, because Asia right now is now represents such a small part of our of our business going forward. And uh, I would argue that there too. Most of the work has been done, so the work
Feeling good going forward, essentially.
All right, I'll leave it there. Thanks folks. Thanks Chris.
As I found a reminder, if you wish to ask a question, please press star 1 and 1 and your telephone and wait for your name to be announced to withdraw your question. Please press star 1 and 1. Again once again please press star 1 and 1. If you have any question, thank you.
We are not going to proceed with our next question.
And the questions come from the line option to send cumin from Scotia Bank. Please ask your question.
Hi, good morning team, and thanks for taking my questions. Most of them have been asked already, but Alex, maybe you could, can you share your thoughts on the bill P5, in Canada? How that may impact your business and is the timing of that, I guess more medium to longer term? Or just how do you think about any opportunities from that flowing through?
I, I think overall, I mean, there's very few a number of important bills that that um, will will come into effect and and we're feeling actually very good uh, around the the state of the country and the direction that the new government is going to take. So, so overall, I'm feeling very good about it,
thanks for the color and then I guess maybe 1 on the DSO I mean, it's pretty impressive performance in All Time Low
Um, can we think about that level as being sustainable? Obviously, there's the historical seasonality in the business, but can you maybe talk about some of the drivers that led you to put in that performance?
Answer that question. Yeah. So um,
Yeah. So we're standing at a very good level for, for Q2 at 69 days, our guidance, for the full years between 67 and 73. Um, so
We have to remember what have driven our DSO to be a bit higher in the the past few years. There was 2 element and that impacted us was 1 is the initial roll out of our system. Which
Um, in, in my opinion, this is now behind us. Things are working much better. And, and the second head when we had was that
174, uh, overall on free cash flow.
On that front, which we've been needing for many, many, many years. So um, part of the DNA, right? Focus on, uh, productivity, but but cache as well, is a is a big area of focus for us. Um, and I expect to continue to see good performance in the coming quarter, especially that we're entering.
Uh Q3 but most importantly Q4 in in big collection quarter, so I'm cautiously optimistic, I would put it that way for uh continued good trajectory on the DSO um level um for the rest of the year.
Okay. Great. Thanks for taking my question.
Thanks Jonathan.
We are now going to take our last question.
And the last question has come from the line of, please, ask your question.
Morning everyone. Good morning in.
As you think about the aspirational margin Target of 22%, and when you're putting that together, I guess. How much impact did you anticipate in that?
From the AI tools and productivity gains that are going into place. And I know this is a bit of a challenging question. Like, at what point do you think you'll be able to start more closely? Identifying the impact it's having on margins and productivity?
You are right in saying it's a it's a tricky 1.
I can tell you that we are.
A very, very active.
And, uh, and that space.
Um, and we are working very closely with with Microsoft, uh, and the Strategic Alliance that, uh, we formed together is is extremely helpful in that regard. I can tell you, for instance, I give you an example and, and in our bidding group,
Uh uh and I'm careful about saying that. But we we believe that a very
soon, we will be able to reduce
You know, uh some some of our um human output by close to 80%.
So, that's not the Minimus, because we have been in groups across each and every segment and across each and every country. So so that's an example, uh, of of where we feel we can make a tremendous, uh, Improvement and and reduce a human intervention.
but it's not just about AI, it's about what we have been able to achieve over the last decade, if you take our Revenue per employee
Uh, over the course of the last decade you will see constant growth uh over over the years of uh fever employees. And that's a testament of what we have been able to achieve. In other words, doing more with with less
Um and and you will see that our Revenue at the moment is going much faster uh than our headcount.
If you track that very carefully. Uh, and that's why today, unlike perhaps 567 years ago, I am not talking as much about headcount that we used to because to me it's becoming more irrelevant than it was 5 6 years ago. Um, so so I I hope I am. I'm I'm answering that, that question but but certainly, I mean, in terms of human intervention and all of our corporate function but also in operation, uh, we are seeing a tremendous opportunities at the moment.
No, that's that's very helpful. Um, and and maybe on a separate note, um, backlog growth year to date, obviously, uh, is expected to pick up. Can you maybe talk a bit about the impacts environmental has on that backlog growth? Because if I recall correctly, the churns, usually a little quicker and I believe backlog typically grows in that business in 4 q.
Yeah, well, the the backlog is, is continued to grow, uh, that's good. We have very Dynamic, uh, uh, sector for us in in Canada. It also has been very dynamic in the US, uh, in the short term. I think this year for reasons, I, I can't explain. Uh, you know, with with, with definitive statements, the fieldwork has been a little bit more quiet than perhaps what we have seen in the last 2, 3 years, especially in the US. Uh, but I don't believe it's related to anything that has been discussed in the press or, or the changes that the administration are are looking to make. But in terms of activity level, in terms of, um,
Impacted a little bit of our Canadian business, uh, this summer. Uh, but I I I think these are moment in time as opposed to a, you know, a structural issues in the marketplace.
Understood. Thanks very much. I'll turn it back over.
Thanks again.
We have no further questions at the moment. So I head back to you for closing remarks. Thank you.
Well, thank you very much, again, we're extremely pleased, uh, with with the quarter, the strong performance of our large, hubs our margin Improvement, and especially our cash flow Generation. Um, m&a pipeline is great and we look forward to uh, updating you over the course of the next few quarters. Thank you very much and have a great day.
This concludes today's conference call. Thank you all for participating. You may now disconnect your lines. Thank you, and have a good day.