Stantec Inc

Welcome to Stantec's year-end and fourth quarter 2023 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 Investors 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 qualification set out on slide two. Detailed and Stantec managements, discussion and analysts, 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.

Good morning, and thank you for joining us today. 2023 was a remarkable year for Stantec, and I'm very proud of what we accomplished. We achieved record financial results and delivered our best year ever for organic net revenue growth. We grew our employee base by 5% through organic hires, another record, while maintaining our best-in-class employee retention rates. And for a fifth consecutive year, Stantec has been ranked by corporate nights as a top 10 global leader in sustainability. And once again, we rank first amongst our peers. None of this would have been possible without the dedication, passion, and commitment of our employees. And I'd like to thank each individual for their contributions. We started 2024 strong from an M&A perspective and have already closed both the Zetcon and the Morris & Hirschfield acquisitions. These are both top-in-class firms, and with the addition of their talented employees to the Stantec team, we are now sitting at over 30,000 people around the world. Closing these acquisitions early in the year helps us jumpstart our new 2024 to 2026 strategic plan. Turning to our 2023 financial results. Overall, we grew net revenue by 14% year over year, with almost 10% coming from organic growth. Market demand in 2023 was particularly robust in our water and environmental service business units and in the US, with each delivering double digit growth for the year. Our strong operational performance drove record high adjusted EBITDA of $831 million, and an EBITDA margin of 16.4%. And as a result, we delivered significant adjusted EPS growth of 17%, achieving a record high of $3.67. Our US business achieved very strong results, with over 18% growth in net revenue for the year, more than 12% of which came from organic growth. In 2023, we achieved organic growth in every one of our business units, with water, buildings, and energy and resources each delivering double-digit organic growth. The demand in public sector and industrial projects, as well as large-scale water security projects, drove a 25% increase in organic growth for our water business. Our buildings business benefited from higher activity levels in healthcare, industrial, and science and technology projects. And Energy and Resources continued to support Puerto Rico's hurricane recovery, including the upgrading of its power grid, contributing to solid revenue growth. So overall, a very, very solid year for our U.S. operations. In Canada, we achieved greater than 8% organic net revenue growth, which surpassed our expectations for the year. Environmental services, infrastructure and water each delivered double-digit organic growth. Strong demand for permitting and archaeological work drove growth for environmental services, particularly in Western Canada for the midstream energy sector and in Ontario for large-scale transportation projects. Activity on environmental impact assessments in the renewable energy sector also contributed to revenue growth. Infrastructure revenue growth was driven by heightened activities around bridge and roadway work in Western Canada. And our expertise on large wastewater infrastructure projects drove growth in water, especially from work on the Iona BC and Barrie Ontario wastewater treatment facilities. Moving to global, we delivered 6.5% organic growth driven by double digit growth in water and energy and resources. Our industry-leading water business remained very active, supporting long-term framework agreements and investments in water infrastructure in the UK, New Zealand and Australia. In energy and resources, double-digit organic growth was driven by the advancement of our work on the Corey Glass Pump Storage Energy Project and increased activity related to the National Grid Framework in the UK. ENR also continued their work on mining activities around copper and other metals that support the energy transition. And now, I'll turn the call over to Theresa to review our financial results in more detail.

Thanks Gord. Good morning everyone. We closed out the year with a solid quarter of performance in Q4, contributing to another record year for Stantec. In Q4, gross revenue was up 6% compared to Q4 22 at $1.6 billion, while net revenue was up 10% at $1.2 billion. Project margin was right in the middle of our targeted range of 53% to 55%, but decreased 100 basis points compared to Q4 last year, in part due to changes in project mix in the U.S. This, along with the quarter's 90 basis point impact from the revaluation of our long-term incentive plan, contributed to the reduction in adjusted EBITDA margin to 15.7%. Diluted EPS in the quarter was 66 cents, and adjusted diluted EPS was 82 cents, both consistent with last year. Excluding the effect of the LTCH revaluation, our Q4 adjusted EPS was 90 cents. Turning to our full year 2023 results, we generated gross revenue of $6.5 billion and net revenue of $5.1 billion, a 14% increase for both over 2022. Project margin for 2023 was a solid 54.2% consistent with last year, and adjusted EBITDA increased by 15% to $831 million. We increased our adjusted EBITDA margin by 20 basis points to 16.4% within our targeted range. This was despite a 70 basis point impact from LTIP revaluation, resulting from the 64% depreciation in our share price for the year. Excluding this, adjusted EBITDA margin was 17.1%. Our full year diluted earnings per share reached a record high of $2.98, and our adjusted diluted EPS was $3.67, up 34% and 17% respectively, despite the $0.24 unfavorable impact from the LTIP revaluation. Increased earnings also reflect the successful completion of our 2023 real estate strategy. We're pleased to have achieved the targets we set out three years ago by delivering approximately $0.38 of incremental adjusted EPS and reducing our real estate footprint by over 30% from our 2019 baseline. Now turning to our liquidity and capital resources, 2023 was one of our strongest years for operating cash flow generation at $545 million compared to $304 million in 2022. Cash flow this year benefited from a full year of operations post Cardinal integration, as well as increased revenues and diligent management of our working capital, as shown by our four-day reduction in DSO from 81 days to 77 days. Increases in operating cash flow were partially offset by higher tax installment payments driven in part by the impact of U.S. Section 174 and higher interest payments. In 2023, we returned more to our shareholders in dividends, but we were less active with share buybacks compared to 2022. And as at December 31, our net debt to adjusted EBITDA was one times well within our internal leverage range of one to two times, positioning us very well to fund our acquisitions of Zetcon and Morrison-Hirschfield in the first quarter of 2024. And with that, I'll turn the call back to Gord.