Stantec Inc

Welcome to Stantec's third quarter 2023 earnings results, webcast, and conference call. Leading the call today are Gord Johnston, President and Chief Executive Officer, and Teresa Jang, 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 have 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. Qualifications set out on slide two, detailed and stand text management discussion and analysts and incorporated in full for the purpose 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.

Good morning. Thank you for joining us today. I'm very pleased to report that Stantec has delivered another quarter of record earnings. We continue to see very strong market demand across all of our geographies. with Canada in particular showing remarkable resilience. We met this demand with excellent operational performance, driven by high utilization and augmented by our effective workforce management strategies and strong talent attraction and retention. Organic hiring remains robust. This was the busiest Q3 we've ever experienced in terms of hiring, and we are hiring at two times the rate that we were pre-pandemic. and our employee retention rates remain amongst the best in our industry, with voluntary turnover in North America returning to pre-pandemic levels. These were some of the key drivers that led to our Q3 earnings exceeding our expectations. Looking at our financial results, we grew our net revenue by 14% to $1.3 billion, with organic growth of 9%. For the seventh consecutive quarter, Each of our regional and business operating units delivered organic growth with double-digit growth in the U.S. region and in our water and environmental services business segments. We drove significant margin expansion and delivered record-high adjusted EPS of $1.14. On the strength of our performance to date and our expectation of continued favorable tailwinds, we've raised our guidance for the second time this year. And I'll speak more about this a little later in the presentation. Our U.S. business delivered a very strong third quarter. This included net revenue growth of 20% in the quarter, with 13% organic growth and 5% acquisition growth, driven primarily from our acquisition of ESD. We achieved organic growth in each business line, with water, buildings, and energy and resources all delivering double-digit growth. In particular, our U.S. water business delivered 26% organic growth, driven by public sector and industrial project demands, as well as large-scale water security projects in the western U.S. We continue to see strong demand in healthcare, industrial and science and technology end markets for our buildings business. Within our energy and resources business, work continued on the major power grid upgrade project in Puerto Rico, and we've started to ramp up on a rare minerals energy transition project in California. Our infrastructure and environmental services teams also remain very active in the U.S., delivering high levels of growth. In Canada, we delivered over 7% organic net revenue growth with double-digit growth in environmental services, infrastructure, and water. Environmental services delivered strong growth on the back of demand for services in permitting and archaeological work in the midstream and transportation sectors. Activity on environmental impact assessments also increased in the renewable energy sector. Infrastructure remained robust, driven by heightened activities around bridge and roadway work in Western Canada. And our expertise on large wastewater infrastructure projects drove growth in water. Our global business delivered 6% net revenue growth quarter over quarter with 2% organic growth. Our industry-leading water business delivered high single-digit organic growth. The teams remained very active in the UK on AMP7 and have also begun assisting clients with their AMP8 program submissions. Work supporting long-term framework agreements and investments in water infrastructure in New Zealand and Australia also continued to drive growth. Double-digit organic growth was achieved in energy and resources. Work on the Corrie glass pump storage project in the UK continued to ramp up, as did mining activities in Latin America around copper and other metals that will support the energy transition. And now, I'll turn the call over to Theresa to review our financial results in more detail.

Thank you, Gord, and good morning, everyone. As Gord mentioned, our third quarter results exceeded our expectations. Factors that contributed to our outperformance include stronger than anticipated demand in Canada, higher utilization in Canada and the U.S., robust hiring, disciplined cost management, and a higher than normal volume of change order approval. Gross revenue was up 15% in the quarter at $1.7 billion, while net revenue grew by 14% to reach $1.3 billion. Project margin increased 70 basis points to 54.8%, benefiting from disciplined project selection and execution. Our strong operational performance drove a 160 basis points increase in our adjusted EBITDA margin. For the quarter, diluted EPS was 94 cents compared to 61 cents in Q3 last year. And adjusted diluted EPS increased 33% to a record $1.14 compared with 86 cents last year. As has been the case all year, the significant increase in our share price for the year to date has resulted in a material increase in our admin and marketing expenses due to the quarterly revaluation of our long-term incentive plan. The impact of revaluing our LTIP was 60 basis points as percentage of net revenue or 5 cents per share for Q3. Year to date, the revaluation was 60 basis points, or 15 cents per share. Now turning to our liquidity and capital resources, we generated $281 million of operating cash flow year to date, compared to $95 million over the same period last year. Cash flow this year has benefited from increased revenues and strong operational performance, partially offset by an increase in working capital investments to support growth, higher tax installment payments driven in part by the impact of U.S. Section 174, and higher interest payments. Last year's operating cash flow reflected the impact of the Cardano financial system integration. At the end of September, DSO was 83 days, a couple days higher than the previous quarters. It is fairly typical for DSO to rise in the third quarter due to seasonality. And our net debt to adjusted EBITDA ratio was 1.5 times, well within our internal leverage range of 1 to 2 times. With that, I'll turn the call back to Gord.