Stantec Inc

Welcome to Stantec's fourth quarter and year-end 2021 earnings results conference call. Leading the call today are Gord Johnston, President and Chief Executive Officer, and Theresa Yang, Executive Vice President and Chief Financial Officer. Stantec invites those dialing in to view the slide presentation, which is available in the investor section at stantec.com. Today's call is also webcast. Please be advised that if you are dialed in while also viewing the webcast, you should mute your computer as there is a delay between the call and the webcast. All information provided during this conference call is subject to the forward-looking statement qualification set out on slide 2, detailed in Stantec's Management Discussion and Analysis, and incorporated in full for the purposes of today's call. Unless otherwise noted, dollar amounts discussed in today's call are expressed in Canadian dollars and are generally rounded. With that, I'm pleased to turn the call over to Mr. Gord Johnston. Please go ahead, sir.

Good morning, and thank you for joining us today. We're very pleased to report our Q4 and full year 2021 results, which reflect the solid execution of our multi-year strategy. We grew our global employee base by around 15% through strategic acquisitions, We saw an increase in our employee engagement scores from pre-pandemic levels, and our financial performance was strong. For the year, we delivered record earnings per share, both on an adjusted and on an as-reported basis, on stronger margins, the ongoing execution of our 2023 real estate strategy, and lower taxes. Net revenues of $3.6 billion approximated the prior year, and on a constant currency basis, increased by roughly 3%. Excluding Trans Mountain, every one of our business operating units had flat or positive organic growth in Q4. And sequentially, we had improving organic growth in each quarter of the year, with Q3 and Q4 returning to positive organic growth as expected. Our adjusted EBITDA margin increased to a record 15.8%. And we entered 22, having built our backlog to a record $5.1 billion, representing 13 months of work. And this is a 17% increase from 2020. We significantly advanced our growth ambitions in 2021 through the completion of six acquisitions, deploying more than $700 million of capital and adding more than 3,200 employees to drive synergistic revenue growth. Each of these acquisitions are consistent with our strategy of pursuing targeted small to medium sized firms that bolster Stantec's presence in key business lines and geographies. In doubling the size of our footprint in Australia and materially boosting our environmental services offerings in the US, we've strengthened our ability to address the growing demand in both of these markets. The Cardano integration is going well, and on a particular note, we're pleased to announce that Susan Riesbord, Cardano CEO, is taking over the leadership of our environmental services business in the second quarter of 2022. Moving to our results by region. Our U.S. business delivered net revenue of $440 million in the fourth quarter and $1.8 billion for 2021. As we noted throughout 2021, the stronger Canadian dollar was a headwind and the recovery in the U.S. was slower to start than in other regions. Our U.S. backlog achieves 10% organic growth through the year to a record $3 billion, with our U.S. environmental services business recording more than 50% organic backlog growth. The momentum we're seeing in backlog growth, coupled with significant infrastructure stimulus and economic expansion, are all strong indicators that the U.S. recovery has begun. And while it may take another quarter or so to wrap up, we're confident that our U.S. business will deliver a strong performance in 2022. This growing momentum is evident in our buildings business, where in addition to the healthcare and e-commerce work that we've discussed in previous quarters, we recently won our largest contract ever for this team. The Denver International Airport Great Hall project, with fees in excess of $100 million, will transform the main terminal, improve security, and help our client achieve their goal to accommodate 100 million passengers. The drive for greater sustainability is also creating opportunities for us to design for the adaptive reuse of built environments, such as the 2 million square foot L Street Station redevelopment pictured here. The use of existing building stock is gaining favor among our clients as a way to preserve heritage properties and to reduce new construction carbon emissions. The need to bolster supply chain security is also creating increased opportunities for Stantec. We're seeing a push to retrench domestic production facilities in the U.S. as global supply chain disruptions have highlighted the need for onshore manufacturing capabilities. One example of this is our growing work on domestic vaccine production with a major pharmaceutical company in the United States, where we recently began work on a new facility in California. Our Canadian business delivered $260 million in net revenue for the fourth quarter and $1.1 billion for the year, generally consistent with last year and better than we expected, taking into consideration the de-scoping of the Trans Mountain contract. Growth was solid in virtually every sector due to strong demand in healthcare, transit systems and land development in Western Canada. And we see the continued strength in these markets as reflected in the project wins that we've highlighted on the slide. There's also a growing demand for expertise as a result of the increased frequency of extreme weather events, like what we saw in British Columbia in 2021. We're being called upon to assist with remediation efforts and for future readiness as we draw upon new technologies developed by our innovation center. A prime example is our floodplain predictor, which is a cloud-based machine learning application that significantly reduces lead times for accurate flood prediction. And similar to the reshoring efforts underway in the United States, we're working with clients to strengthen the supply of pharmaceutical-grade radioactive isotopes for cancer treatment, through the development of manufacturing facilities in Canada. Education, both in K-12 and post-secondary, continues to be a strong driver for our buildings business. And the picture on the slide highlights our work on the design of the Students Association building at the McEwen University in Edmonton. Our global business performed very well and delivered $216 million in net revenue in the fourth quarter, a 39% increase compared to the same period last year. For the year, net revenue increased by 18% to $768 million. This net revenue growth reflects roughly equal contribution from both acquisition and organic growth. Specifically, we saw the strongest growth in our water and transportation sectors in the UK and New Zealand, while strong commodity prices drove revenue growth in our mining business. We also saw increased opportunities from both public and private clients in our buildings business in Australia. Private investment due to high commodity prices and economic expansion is being supplemented by infrastructure stimulus programs. The UK government has committed more than £130 billion to the National Infrastructure Strategy, which will focus spending on transportation, energy and utilities. This is expected to lead to additional transportation projects, like the A19-2Ts crossing in the UK that we've recently been awarded, and the Transportation Planning Services contract we recently won in Scotland. In addition to this funding, the UK government has committed £26 billion to the Green Industrial Revolution and £96 billion to the Integrated Rail Strategy. In Australia, $110 billion is being spent over 10 years funding energy, transportation, water, waste and social programs. All of these drivers contributed to global backlog increasing over 19% during the year to a new record level. and we continue to expect strong performance from our global operations in 2022, backed by strong macroeconomic factors and continued investments in infrastructure. I'll now turn things over to Theresa to review our financial results in more detail.

Thank you, Gord, and good morning, everyone. Before I dive into the details, we have made some minor presentation changes in order to comply with the new national instrument on non-GAAP measures. You'll note that we're also using the new term project margin for what we used to call gross margin. There is no difference in how it's calculated. As Gord mentioned, the change in the Canadian-U.S. exchange rate had a substantial impact on our U.S. earnings this year, and it was particularly pronounced in the first nine months of the year. We've summarized the impact on our key financial line items on this slide for your reference. For the fourth quarter, we reported EPS of 15 cents compared to 13 cents last year and adjusted EPS of 57 cents compared with 60 cents last year. Operating performance was stronger than Q4 last year, but recall that last year's results included the favorable recovery of claim costs and resolution of certain tax matters. Net revenue grew by 6.3% with 2.0% organic growth and 6.7% acquisition growth partially offset by a 2.4% reduction due to foreign exchange. Project execution was very strong in the fourth quarter, increasing project margin by $51.6 million and by 250 basis points as a percentage of net revenue to 55.3%. Adjusted EBITDA increased $142.1 million, representing a 15.5% margin. The decrease from Q4 last year is mainly due to increased share-based compensation expense, which translated to 146 basis points of margin. Decreased margin also reflects lower utilization in the U.S., as well as the previously mentioned recovery of certain claim costs recorded last year. Our Q4 net income on an as-reported basis also reflects an aggregate pre-tax $37.3 million in impairment and onerous contract costs arising from the ongoing execution of our 2023 real estate strategy. For the full year, we reported EPS of $1.80 and adjusted EPS of $2.42, both of which are records for Stantec. Full year net revenue was $3.6 billion, a 2.6% increase on a constant currency basis driven by acquisition growth of 3.9%, partly offset by a slight organic retraction, and with the effect of foreign exchange, net revenue retracted by 3.2%. Project margin increased $32.8 million, delivering a 160 basis point increase as a percentage of net revenue to 54.0%. Adjusted EBITDA approximated amounts generated last year, and margins increased by 10 basis points to a record 15.8%. despite an 83 basis point reduction due to increased share based compensation expense. Our record earnings also reflect the ongoing success of our 2023 real estate strategy, which contributed more than 18 cents per share in cost savings to as reported EPS or 15 cents to adjusted EPS. On a pre-IFRS 16 basis, we estimate the cumulative impact of this initiative would have increased 2021 adjusted EBITDA margin by more than 100 basis points. We remain on track for our target of a 30% reduction in real estate footprint by the end of 2023 relative to our 2019 baseline and expect to deliver a further 20 to 25 cents per share by the end of 2023. Our balance sheet remains strong. At December 31, net debt to adjusted EBITDA was 1.8 times within our expected leverage range. We anticipate reducing leverage over the course of 2022 on the strength of our cash flow generation. Day sales outstanding was 75 days at year end, consistent with year end 2020. Our 2021 cash flow generation was strong, although it did decrease relative to 2020. 2020 cash from operations was elevated due to the success of our efforts to significantly reduce DSO and due to the deferral of certain tax payments under government introduced pandemic measures. 2021 cash from ops reflects the stabilized lower level of DSO, the outflow of those deferred tax payments, and the substantial effect of the stronger Canadian dollar. Beyond operating cash flow, we deployed $703 million to fund acquisitions and returned $123 million to shareholders through dividends and the repurchase of shares through our normal course issuer bid. Our board of directors yesterday increased our annualized dividend by 9.1% for 2022. This is the ninth consecutive year our board has increased our dividend, and it reflects our confidence in our ongoing cash flow generation and commitment to return capital to our shareholders. I'll now turn things back to Gord to review our outlook for 2022.