Stantec Inc

Welcome to Stantec's 3rd Quarter 2024 Results Webcast and Conference Call. Leading the call today are Gord Johnston, President and Chief Executive Officer, and Vito Goumon, 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 forward-looking statement, qualifications set out on slide two, detailed and static management discussion 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. Gore Johnston.

Good morning, and thank you for joining us today. I'm happy to report very solid third quarter results as we delivered another record quarter. We continue to see strong demand in all of our geographies and across our business operating units. Climate change, aging infrastructure, industry shifts, Reshoring of production and incremental and breakthrough technologies all continue to drive this demand. We achieved record net revenue of $1.5 billion, up almost 16% compared to Q3 2023. This was generated with 6.5% organic and almost 8% acquisition growth. We delivered solid organic growth in each of our key geographies, and 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. As a result of solid project execution, adjusted EBITDA for the quarter rose to $275 million, up almost 14%, with a very healthy margin of 18%, and we delivered adjusted EPS of $1.30, also up 14%. in addition to our record results i want to highlight a recent accolade that stantec received newsweek recently released their list of canada's most responsible companies for 2025. i'm very pleased to announce that stantec was ranked at number one for our commitment to climate social welfare and responsible governance over 700 of canada's largest private and public companies were evaluated on over 30 key performance indicators Those results were coupled with a corporate social responsibility reputation survey of over 4,000 Canadian consumers. The final rankings list included only 150 companies where Stantec achieved the highest score and was the only firm in the rankings to achieve a score of 100 related to governance. We're honored to be recognized by organizations like Newsweek for our leadership and sustainability and for making a positive impact on society. I'll turn to our results in each of our geographies. Our US business continues to perform well, delivering a 9% increase in net revenue from the third quarter, including 5.6% organic and approximately 2% acquisition growth. The public and private investments that we're seeing in the US allowed all of our business operating units to achieve solid organic growth. Significant transit, rail and roadway, and residential development projects contributed to double-digit organic growth in infrastructure. Water capitalized on continued robust public sector and industrial demands, as well as large-scale water security projects. Our buildings business saw continued strong demand across most subsectors, including healthcare, industrial, and science and technology. In Canada, we grew our net revenue by almost 18% with 9% organic growth and 8.5% acquisition growth. Each of our infrastructure, buildings, and water businesses experienced double-digit organic growth. Our infrastructure team saw a significant ramp-up in work related to major roadway projects in Western Canada, transit and rail projects in Eastern Canada, and land development projects in Alberta. Our buildings business performed extremely well as they continued their leading work in healthcare, civic, and education. And our water business continued to outperform, working on major wastewater projects across the country. The ramp up of a major power-intensive industrial project this quarter helped our Canadian energy and resources business return to growth. Our global operations generated over 30% growth in net revenue, reflecting 22% acquisition and close to 6% organic growth. Our industry-leading water business saw strong organic growth across the UK, New Zealand, and Australia through long-term framework agreements and public sector investment in water infrastructure. Buildings achieved 16% organic growth as we're continuing to ramp up on the Cancer Center in Dubai and on the 4 billion pound battery cell manufacturing facility in the UK. And our environmental services business continued to see strong organic growth from energy transition projects in Europe. Our global energy and resources business, particularly in mining, saw a slight retraction again this quarter, offsetting growth in the U.S. and Canada. Now I'll turn the call over to Vito to review our financial results in more detail.

Thank you, Gordon. Good morning, everyone. The very strong results we delivered in Q3 continues our solid track record thus far for the 2024 fiscal year. Gross revenue in Q3 grew to $1.9 billion. up almost 14% year-over-year, and net revenue of $1.5 billion is up almost 16%. On a year-to-date basis, net revenue is approximately $4.4 billion, up almost 15% compared to last year at this time. As a percentage of net revenue, projects came in at 54.3%, a decrease of 50 basis points compared to Q3 of 2023, reflecting a minor shift in project mix, And, as previously stated, project recoveries and change order approvals in 2023 that were higher than normal for a single quarter. As Gord mentioned, we achieved a very solid adjusted EBITDA margin of 18% in Q3. Our year-to-date EBITDA margin now stands at 16.7%. And our adjusted diluted EPS in the quarter increased 14% year-over-year to $1.30. This increase reflects strong operational performance, along with the revaluation impacts of our long-term incentive program due to strong share price appreciation in the prior period. Turning to our cash flow, liquidity, and capital resources. During the first nine months of the year, we generated very strong cash flows, achieving $296 million in operating cash flow. This reflects continued strong organic revenue growth, partially offset by an increased investment in networking capital in support of organic revenue growth. DSO at the end of the quarter stood at 80 days, which is within our target range. And as a reminder, DSO is typically a little higher in the third quarter as a result of the seasonal impacts. Our net debt to adjusted EBITDA ratio at quarter end was 1.5 times, a reduction from 1.7 times at the end of Q2, which reflects the free cash flow we generated in the quarter. We continue to remain well within our target range of one to two times, and the balance sheet is in great shape. Lastly, one technical accounting matter I wanted to speak to briefly. Our Q3 financial statements reflect adjustments emanating from clarifying guidance that the IFRS Interpretations Committee issued in April of this year. This guidance relates to how deferred acquisition consideration should be treated when it may also be contingent on the seller's continuing employment. Note 3 of our Q3 financial statements fully summarizes the accounting impacts resulting from the updated guidance. However, in a nutshell, the adjustments aggregate to a non-cash charge, reducing goodwill by approximately $310 million, and a reduction in our retained earnings by approximately the same amount. I will highlight that this reduction was not in any way related to operating performance, but rather to how the terms of our past agreements were documented, and we do not anticipate future impacts from this updated interpretation. Before handing the call back to Gord, with this being my first earnings call here at Stantec, I just wanted to share how excited I am to be here. It's a true privilege to join you, Gord, my executive colleagues, a strong finance team, and the rest of Stantec's over 32,000 employees. In my short time here, it's abundantly obvious to me that Stantec has truly built something special, and with that comes significant value creation opportunities for years to come. Gordon, I'll hand the call back to you.