Stantec Inc

Welcome to Stantec's second quarter 2024 results webcast and conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. please be advised that today's conference is being recorded. Leading the call today are Gord Johnston, President and Chief Executive Officer, and Teresa 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 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 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 Johnson. Please go ahead.

Good morning. Thank you for joining us today. Before jumping into our second quarter results, I want to express how proud I am that Stantec continues to be recognized for our leadership and sustainability. This past quarter, Corporate Knights ranked Stantec as number two in their 2024 Best 50 Canadian Corporate Citizens ranking. In addition, Stantec has been included in Time Magazine's list of the world's most sustainable companies of 2024. We are the top Canadian company on their list and ranked 14th overall. These accolades are a testament to our authentic approach to sustainability and to doing what is right. I'm very pleased with the strength of our second quarter results. Our revenue growth was excellent and we continued to execute very successfully on our projects, while driving strong operational performance across the business. Many of the long-term macro trends we discussed in the rollout of our strategic plan are building momentum, and we have continued to capitalize on their growth opportunities that they're creating. Our industry-leading water business continues to drive growth in critical areas like shoreline protection, wastewater treatment, water security, advanced manufacturing, and PFAS. In the UK, our team continues to focus on bidding for AMP-AID contracts. Stantec is well placed with our clients. We've already been awarded a significant number of contracts and are awaiting decisions on several others. Themes of addressing aging infrastructure and climate change are very prominent in AMP-AID, with investment to be directed towards replacement of water mains, significantly reducing leaks and harm from storm overflows, and implementing nature-based solutions. We're the number one water firm in the UK and are extremely well positioned for continued growth. Increased funding for healthcare continues to drive growth for our buildings business, where we are a leader in this space. Our expertise in cancer care facilities is world renowned, and we currently have 15 projects underway, including one in Dubai, six in the United States, and eight in Canada. Our buildings business is also a top five player in mission critical and data center facilities, currently working with four of the top five hyperscale data center technology companies. Our infrastructure business is seeing enhanced activity related to aging infrastructure, particularly in the US, as funding continues to flow from IIJA, with over $460 billion now allocated to over 60,000 projects across the country. And innovation continues to be a key enabler in the execution of our strategy. We're seeing a growing trend where our clients are seeking digital solutions that augment our technical expertise with emerging technologies like artificial intelligence. A great example of this is a recent win where Stantec has been engaged to reimagine the monitoring of our clients' sewer pipeline assets. Stantec will design AI machine learning models that can decipher CCTV footage to detect defects in real time. producing automated reports. This innovative approach is a stepping stone towards developing an intelligent system considering salinity, infiltration, and order data across a vast geography. With a collaborative and innovative global workforce that includes civil design engineers and AI experts, Stantec is uniquely positioned to deliver AI-powered asset management systems that will revolutionize operations and allow our clients to provide more reliable, and efficient services. Looking at the specifics of our second quarter results, we achieved record net revenue for the quarter at $1.5 billion, up almost 17% compared to Q2 2023, with 7% organic and 9% acquisition growth. We delivered solid organic growth in each of our key geographies. We had organic growth in each of our business operating units, with the exception of energy and resources. Our water and buildings businesses both realized double-digit organic growth. In addition to the strong organic growth we achieved in the quarter, our recent acquisitions of Zetcon, Morrison, Hirschfield and Hydroc are performing as expected, and we're busy working on their integration and supporting our 2,700 new colleagues as they transition into Stantec. Adjusted EBITDA for the quarter rose to $247 million, up 14.5% with a margin of 16.6%, positioning us well for delivering on our margin guidance for the full year. Overall, we delivered adjusted EPS of $1.12, up 13% over Q2 last year. Our U.S. business continues to perform extremely well. delivering a 16% increase in net revenue for the second quarter, including 6% acquisition growth from ESD and Morrison-Hirschfield and 9% organic growth. Once again, all of our business operating units in the US had solid organic growth. Our water business delivered double-digit organic growth with major industrial and water security projects. Infrastructure also achieved double-digit organic growth with significant transit rail and roadway projects, contributing to growing momentum. Our buildings business saw strong demand across most sub-sectors, particularly in healthcare, science and technology, and industrial. In Canada, we grew our net revenue by 16%, with 11% acquisition growth from Morrison Hershfield and 5% organic growth. Our water business had very robust double-digit organic growth, as activity on major wastewater projects remained high. Buildings also drove double-digit organic growth through projects in the healthcare space in both British Columbia and Quebec. Energy and resources retracted slightly this quarter as a result of ongoing delays in the ramp-up of new projects. However, we continue to grow our backlog and win MSAs, so we expect ENR to shift towards organic growth at the end of the year. Our global operations generated an increase of 19% in net revenue, with 14% coming from the Zetcon and Hydroc acquisitions and 6% from organic growth. Our global buildings, water and environmental services businesses all achieved double-digit organic growth. Buildings organic growth reached almost 30%, driven primarily by the Cancer Centre in Dubai, and the ramp up of work on the four billion pound Agritas battery manufacturing facility in the UK. Waters organic growth was achieved across the UK, New Zealand and Australia through long term framework agreements and public sector investments. Our global infrastructure business saw a slight organic retraction driven by the cancellation of certain infrastructure projects in Australia and New Zealand and community development in the UK which continues to see muted levels of activity. And now, I'll turn the call over to Theresa to review our financial results in more detail.

Thank you, Gord. Good morning, everyone. Once again, we delivered a very solid quarter of performance in Q2. We achieved record net revenue and enhanced project margin. Our gross revenue grew to almost $1.9 billion, up 15% over Q2 23, and net revenue of $1.5 billion was up 17%. Project margin increased 10 basis points due to our continued discipline in project execution. We did see a slight decline of 30 basis points in our adjusted EBITDA margin to 16.6%, which was primarily due to increased insurance claim provisions. Provisions for claims vary from year to year, largely as a result of changes in actuarial projections for our self-insurance programs. Claims provisions in Q2 last year were unusually low and returned to more historical levels in Q2 this year. Adjusted diluted EPS in the quarter increased 13% to $1.12, and I would note that we did not see a meaningful impact this quarter as it relates to our long-term incentive program revaluation. Turning to our liquidity and capital resources, in the first six months of the year, we generated very strong cash flows, achieving $137 million in operating cash flow, doubled what it was in the comparative period last year. This reflects our ongoing focus on working capital management. This also resulted in a reduction in DSO, achieving 77 days, which continues to be below our target of 80 days. And we closed the quarter with a net debt to adjusted EBITDA ratio of 1.7 times, reflecting the Q2 funding for Hydrox. We remain well within our target range of one to two times. And with that, I'll turn the call back to Gord.