Stantec Inc

Welcome to Santec's fourth quarter and full year 2025 results webcast and conference call. Leading the call today are Gord Johnston, President and Chief Executive Officer, and Vito Comoni, Executive Vice President and Chief Financial Officer. Santec invites those dialing in to view the slide presentation, which is available in the investor section at Santec.com. Today's call is being 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 in SANTEC's management discussion and analysis, 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'll turn the call over to Mr. Gord Johnston.

Good morning, everyone, and thank you for joining us today. 2025 marked another record year for Stantec. We delivered solid mid-single-digit organic growth and completed three acquisitions, despite a year of ongoing geopolitical uncertainty. Global trends across the water, mission critical, transportation and energy transition sectors continue to underpin strong demand for our services. And our diversified portfolio across sectors and geographies continues to enhance the resilience of our operations. As a result, we grew our net revenue almost 11% compared to 2024 to $6.5 billion, driven by 5% organic, and 3.9% acquisition growth. Organic growth was achieved in all of our regional and business operating units, with our water business achieving almost 11% organic growth. Adjusted EBITDA increased close to 17% year over year, and continued strong project execution drove our adjusted EBITDA margin to 17.6%, achieving our 2024 to 2026 strategic plan target range of 17 to 18%, one full year earlier than originally anticipated. We also delivered adjusted EPS growth of almost 20% compared to 2024. Looking at our results in each of our geographies, in the fourth quarter, US net revenue increased 13.5%, driven primarily by 11.5% acquisition and just over 2% organic growth. On a full year basis, net revenue grew by almost 11%, supported by just over 5% acquisition and 3.4% organic growth. In our buildings business, net revenue increased over 30% in the year, primarily due to our acquisition of Page, but also from solid organic growth. Public and private sector investments in data centers and other mission-critical facilities, science and technology and civic, continued to continue to drive organic growth in this division. Organic growth in water was driven by large wastewater treatment projects, and growth in environmental services was primarily driven by the energy transition, mining and infrastructure sectors, as well as continued work for a large utility provider. In Canada, fourth quarter net revenue grew 5.5% in the quarter, driven completely by organic growth. For the full year, Net revenue grew over 8% compared to 2024, primarily through organic growth. We're pleased that our water and energy and resources businesses continued to deliver strong double digit growth. Momentum on major wastewater projects contributed to over 20% organic growth in water and consistent progress on major industrial process projects drove 15% organic growth in energy and resources. Solid growth in infrastructure was primarily supported by land development projects in Alberta, airport sector projects in Quebec, and bridge sector work in Eastern Canada. Public sector investment continued to drive growth in buildings, primarily in our civic and healthcare markets. Lastly, in the fourth quarter, our global business delivered net revenue growth of 11%, achieving over 6% organic, and 2.5% acquisition growth, and to a lesser extent, positive foreign exchange impact. For the full year, the global business grew net revenue by almost 13%, underpinned by almost 6% organic and over 4% acquisition growth. Our industry-leading water business continued to deliver consecutive double-digit organic growth through long-term framework agreements and public sector investment in water infrastructure across the UK, Australia and New Zealand. The ramp-up of new projects in Chile and Peru drove strong organic growth in energy and resources as the growing need for energy transition solutions continues to drive demand in mining for copper. We also achieved double-digit organic growth in our German infrastructure business due to continued momentum on a major public sector electrical transmission project and increased volume on transit and rail projects. I'll now turn the call over to Vito to review our fourth quarter and full year 2025 financial results, as well as to provide an update on our backlog and financial targets for 2026.

Thank you, Gord, and good morning, everyone. 2025 truly was another exceptional year for Stantec, and we are very pleased with our fourth quarter and our full year 2025 results. Sustained demand across our diverse multi-sector platform underpinned by favorable global trends, continues to support our strong results. In the fourth quarter, we achieved gross revenue of $2.1 billion and net revenue of $1.6 billion, an increase of 10.9% compared to Q4 of 2024. This growth was driven by 3.9% organic growth and 6.5% acquisition growth. As a percentage of our net revenue, project margins once again remained in line with our expectations at 54.5%. We achieved an adjusted EBITDA margin of 17.3% in the quarter. That's a 60 basis point increase compared to Q4 of 2024. The increase in margin primarily reflects lower admin and marketing expenses as a percentage of our net revenue, mainly due to higher utilization and our continued discipline in the management of our operations. And our adjusted EPS in the fourth quarter increased 12.6% to $1.25. Looking at the full year, as Gordon mentioned, 2025 was another record year for Stantec. Our gross revenue reached $8.1 billion, and we grew net revenue to $6.5 billion, up 10.7% when compared to our performance in 2024. This was achieved through 5% organic and 3.9% acquisition growth. And as a percentage of our net revenue, project margins came in at 54.3%, once again, in line with our expectations. On a full year basis, we achieved a very strong adjusted EBITDA margin of 17.9%, a 90 basis point increase year over year. This record margin was driven by strong project execution and cost management across our entire business. And finally, our adjusted EPS for the year reached $5.30, an increase of 19.9%. when compared to 2024. Turning to our cash flow liquidity and capital resources. During 2025, our operating cash flow increased 43.1% compared to 2024, growing from $603 million to $863 million, reflecting continued strong cash flow generation through our revenue growth, operational performance, and strong working capital management. Our free cash flow to net income conversion was 1.3 times above our target of 1.0 times. DSO at the end of the fourth quarter was 69 days, a substantive improvement of eight days compared to Q4 of 2024 due to excellence in working capital management. We finished the year with a net debt to adjusted EBITDA ratio at 1.3 times within our internal range, target range of one to two times. As a result of our continued strong performance, the Board has approved an 8.9% dividend increase. With this, our annualized dividend will increase to $0.98 per share. It's important to note that our strong balance sheet leaves us very well positioned for future acquisition growth in 2026. Now, turning to our backlog, at the end of 2025, our contract backlog reached the new all-time high of $8.6 billion. A 9.5% increase year-over-year, representing approximately 13 months of work. Acquisitions completed in 2025 contributed to backlog growth of over 8%, primarily within our building's business. Year-over-year organic growth was 3.6%. We achieved organic growth in all of our regions, most notably in Global, which delivered double-digit growth of 14.2%. We also saw strong Blacklaw growth in water and strengthened our building's business with supported by healthcare, data centers, and other mission-critical facilities. Let's now turn to our 2026 financial targets, and we expect another strong year. Net revenue growth is expected to be in the range of 8.5% to 11.5% achieved through organic net revenue and acquisition growth, primarily due to the page acquisition. We anticipate our adjusted EBITDA margin will continue to expand, and that's driven by solid project execution, enhanced strategies in the management of admin and marketing, continued expansion of our high-value centers, and optimization of our digital strategies. As such, we expect to deliver an adjusted EBITDA margin between 17.6% to 18.2%. And we expect to deliver 15% to 18% growth in adjusted EPS, compared to 2025. These targets of course do not include any assumptions related to additional acquisitions given the unpredictable nature of the timing and size of such transactions. With that, let me turn the call back to Gord to highlight the business drivers supporting our targets for 2026.

Thank you. As Vito mentioned, we expect strong net revenue for 2026. primarily driven by improved organic net revenue growth across the business. Each of our geographies is expected to be in the mid to high single digit range. Macro trends including aging infrastructure, defense spending, water security, advanced manufacturing, the growing demand for mission critical facilities, and the energy transition all continue to create meaningful opportunities for Stantec. Over the past couple of months, we started to see an increase in activity in the US and we expect this trend to continue throughout the year. We're securing our fair share of wins across all five of our business operating units. Growth in the US will be underpinned by the continued strength of our buildings business as we continue to capture synergies from the page acquisition. Our buildings team continues to see strong activity in data centers. As an example, Stantec was just selected by an artificial intelligence firm to design the initial 300 to 350 megawatt phase of a large data center campus, which has the potential to scale up to one gigawatt. In environmental services, work is picking up related to the U.S. Navy Clean Program, and activity within the U.S. Department of Defense continues to accelerate. In the energy sector, particularly LNG, strong demand is expected to generate meaningful project activity and cross-selling opportunities for both our environmental services and energy and resources businesses. U.S. infrastructure remains a significant growth driver for us. With roughly half of IIGA funding still to be allocated, we continue to see strong momentum across our infrastructure business, including major roads and bridge projects in the southeast and large transit and rail programs in the west. In Canada, organic growth will be driven by public and private sector spending plans. We continue to see strong growth in our water business through major wastewater and biosolid treatment facilities. We expect strong growth in environmental services and energy and resources with large private investments in energy infrastructure. And we're seeing strong growth coming from enhanced defense spending in both our buildings and infrastructure businesses. We're involved in a number of projects in the Arctic where we bring specialized expertise in extreme climate conditions to support defense work. These include projects like Grays Bay Road, which lead to the proposed deepwater port that will have the ability to handle Navy vessels and large cargo ships. We're also involved in facilities to support the North American Aerospace Defence Command, and we're doing work for the Canadian Department of National Defence to deliver facility upgrades for the Canadian Armed Forces. And we also just secured a major design-build contract for Defence Construction Canada's multi-mission aircraft hangar. Finally, In our global region, organic growth is expected to be driven by continued high levels of activity in our water business under the ongoing AMP-AID program. We're involved in over 20 AMP-AID frameworks, and we continue to be an industry leader in UK water by a significant margin. Stantec's UK water team was recently named as a preferred bidder for the multi-billion pound Scottish Water Enterprise, which is set to transform Scotland's water and wastewater networks. This program, which can extend out 13 years, is the largest program of investment in Scottish waters history. Combined with other frameworks in Australia and New Zealand, we expect strong growth in our global water segment. In addition, we continue to see strong demand in our global energy and resources business and in transportation, particularly in Germany. Outside of organic growth, M&A remains a fundamental driver for Stantec. However, we will not pursue acquisitions solely for the sake of growth or to meet a certain target. Acquisitions must be value accretive. Stantec has a long and proven track record of successful M&A, with last year's addition of Page marking our 150th completed transaction. We're very well positioned to continue to build on this track record in 2026 and beyond, and we continue to see ample opportunities in the market. As we enter the final year of our 2024 to 2026 strategic plan, we're making meaningful progress towards the plan's targets. The momentum we've built, combined with favorable long-term market trends, position Stantec to drive sustained growth and shareholder value for many years to come. Before concluding today's prepared remarks, I'd like to touch on AI and how we're thinking about it at Stantec. As engineers, architects, and designated professionals, we're trusted advisors. Our clients hire us to use our qualified judgment to solve problems and develop solutions using a variety of tools. AI helps manage scale, consistency, and document every work so our teams can stay focused on the design intent, risk trade-offs, and client accountability. To do this work, clients are continually asking for faster delivery, fewer surprises, and clearer defensibility. For us, AI enables earlier option evaluation, reduces late-stage conflicts, and improves quality control. The opportunity isn't the technology itself. It's the ability to make better decisions earlier and deliver stronger outcomes across the asset lifecycle. From a financial standpoint, AI does not automatically translate to lower fees. In fixed fee work, it improves margins by reducing rework and execution risk. In time and materials work, it increases throughput and delivery confidence, allowing teams to manage more work in parallel. Our pricing remains anchored in value and risk reduction, not simply in hours. Strategically, we take a partner agnostic approach Our advantage isn't tied to a single technology. It's our ability to operationalize AI without compromising that trust, governance, or professional standards. We've moved beyond isolated AI pilots, and we're now enabling AI directly into our delivery workflows while maintaining professional accountability. AI also provides multiple revenue opportunities. For example, related to data center development, Our teams are already working on five separate hyperscalers to develop approximately 2.5 gigawatt of capacity. Combined, these facilities are worth almost $35 billion. In addition, we're working on well over 100 other mission-critical facilities. This work crosses several of our verticals, given the need for planning, design, energy, cooling, and resilience. We also see opportunities from advanced analytics and predictive advisory services for our clients, and for digital and data enhanced deliverables. Clients trust us to securely manage and govern large volumes of project data, which enables us to provide predictive and structured analytical solutions. And these are just a couple of examples of how AI is an opportunity amplifier, enabling new work, new service lines, and deeper client relationships. Clients who are building AI-enabled infrastructure and operations need trusted partners like Stantec who understand both engineering and data. In short, AI strengthens our professional model, enhancing predictability, allowing for better delivery, creating new opportunities, and supporting margin enhancement. And with that, let me turn the call over to the operator for questions. Operator?

Certainly. And as a reminder, ladies and gentlemen, if you do have a question at this time, please press star 1-1 on your telephone. If your question has been answered and you'd like to remove yourself from the queue, simply press star 1-1 again. Our first question comes from the line of Ian Gillies from Stifel. Your question, please.

Morning, everyone. All right. As you think about AI, and I had asked this question on previous conference calls, How do you think this ends up translating into revenue for employee utilization and the like? Because those have always been pretty key drivers in improving margin and improving top line.

Yeah, absolutely. I think in all of those, Ian, it's favorable for us. I see this, and I think we've talked before, I see AI as just the latest tool in a series of technological enhancements that have come through the engineering space. Each time these tools have come, they've made us more efficient and they've driven higher net revenue per employee. We're thinking of things like the transition from when I graduated from calculators to computers to AutoCAD to 3D. And now AI is just that latest tool that I believe will allow us to drive more revenue per full-time employee.

Understood. And, you know, Gord, you've been pretty vocal about wanting to execute M&A over the last, call it 18 to 24 months, and rightfully so. Right. But with the reset and valuation metrics for public equities, I guess over the course of your career and as you've followed the M&A market, how long does it typically take for private companies to reset their valuation markers? Because there's probably a bit of a disconnect right now, given the rapidity or how rapid it's been and how quickly things have moved over the last few months.

Yeah, I mean, it's interesting because as you can imagine, we're having these very same conversations. And the sort of that decline in the multiples in the public sector, in the public markets, is a pretty new phenomenon. For us, it's been a couple weeks or a month, so we haven't really seen a lot of transactions that have closed in this period of time. So there is a bit of probably an expectations adjustment that will take a while to flow through. The question is, too, is this sort of where all of us and our competitors are now, is this just a transient downward blip? or is this going to be sustained for a period of time? And I think that'll play into how we see what happens in the M&A market.

So a very quick follow-on. So would it be fair to presume that it may take a little longer than we would have thought maybe six months ago, just given everything that's happened?

Take a little longer for... To execute on M&A. Oh, we're very, very active still. Absolutely. And... you know, always have a number of conversations in the works. And these are good firms that we see have good long-term bones and good synergies with Stantec. So certainly the pricing conversation is ongoing, but that's only one conversation out of, you know, multiple to make sure that the fit is there, the synergies are there, the cultural piece is there. And now we're just talking about the financial piece.

Okay. Oh, sorry, Fredo. No, ultimately, and we, you know, We fundamentally believe in the long-term value creation opportunities for our sector, notwithstanding the recent downturn that you're alluding to. So clearly, valuation is one component, as Gord's noted, of any conversation when it comes to targets. But the primary focus really is about how these potential acquisitions fit into our strategic portfolio, what it enables us to do for our clients And, you know, so from that perspective, we don't see any timing-related issues.

Okay. That's very helpful. Thanks very much. I'll turn it back over.

Thanks, Ian. Thanks, Ian.

Thank you. And our next question comes from the line. Sabahat Khan from RBC Capital Markets. Your question, please.

Great. Thanks, and thanks. Good morning. Maybe just one on AI, and I promise to switch over to something else after. But I guess in your – sort of use of AI to date. Where are you finding in terms of end markets or just these efficiency tools, digital tools? Where do you see more application for such tools and capabilities today? And where do you think that sort of evolves over time? Is it something that can sort of, you know, make its way across all end markets providing efficiency? Just curious what you're seeing in the early days versus where you see this going. Thanks.

Yeah. Thanks, Saba. You know, a couple of things. We're focusing on both what we can do internally to make ourselves more efficient. And so those are back office tools and things that we're working through. But then we're also on the front foot. How can our engineers and architects and professional services people use AI tools, again, to be more efficient, but also to refine work products? So some of the examples of things where we're using it, we're using a tool called stable diffusion in our buildings group right now. And that's a, it's a more of a visual and more of a graphical AI tool. So you can be working with the client. You can sketch something up and feed it into the AI tool and it'll, it turns it into, you know, to drawings and things much more efficiently. We have, as you can imagine, when our engineers and architects around the world are working, we have to select a specific specification for a type of project that we're working on or a type of, material or equipment and so we have these very very large specification libraries so we're using AI tools to help us you know quickly narrow down what's the right spec to use when we submit a big package for example to a client we call it a design submittal and there's a number of things that you have to check off to make sure that you you know from a regulatory perspective to get a permit or for client reviews that you've accomplished these things we're using AI to help us in in QA and so A lot of these things will be used across all of our geographies and across all of our business lines. And so, you know, I think we're still in early days, but we and actually our design teams are pretty excited about where this can take us.

Great. And then just in terms of the sort of the setup into 2026, just looking at your guide, maybe just if you could dig into the U.S. segment a bit more. You know, one of your peers noted a bit more predictability and stability in that market this year. Can you give, from your vantage point, what are you seeing across either the infrastructure side, water side, just kind of your larger end markets in the U.S. market today and sort of where the funding mechanisms are for the year ahead? Thanks.

Yeah, great. So a couple of things. One of the things there is we've mentioned in the prepared remarks that we've seen a little bit of increased activity in the U.S. over the last several months. And If you look at our U.S. backlog, Q4 over Q3 is up about 3% just in the quarter. So that increase in activity that we're seeing is translating into backlog, and we do see that continuing forward. Incredible amount of work right now in the data center work that we're doing for the hyperscalers. We mentioned the five projects, $35 plus or minus billion with the work there. So that continues to go. A lot of environmental services work. We talked about the U.S. Navy Clean program and D&D work. So there's a lot of opportunity we're seeing really across the majority of our sectors in the U.S. Energy transition type work, grid strengthening in the south. So we're actually feeling pretty good broad-based support across the U.S. for us as we move into 2026. Great.

Thanks very much. I'll pass the mic.

Thank you. And our next question comes from the line of Frederick Bastian from Raymond James. Your question, please.

Good morning.

Good morning.

How are you all?

Been good, Frederick. How are you doing?

Good, thank you. Guys, it feels like an engineering firm's ability to seamlessly embed AI with proprietary data will be a major competitive advantage going forward, and I think those who invest accordingly will obviously be awarded. Do you believe that will benefit larger firms like you over the smaller ones and potentially lead to more consolidation acquisition opportunities?

That is exactly our thesis as well, Frederick, that You know, as we've talked over the past, some of the firms that have joined us, these 1,000, 2,000 person firms, you know, even before AI, they've got to this level and then they need to professionalize IT and cybersecurity and finances and HR and such. And they don't have the resources either in terms of skills or finances to support that. They just want to focus on the work. And now we see AI is even driving that more. that just the additional investment in resources, both people and financially to get there, plus the data probably isn't in common formats and all those things. I do believe that this will, as we move forward, that AI and some of the things that we see there will continue to drive more firms in that space towards the consolidators.

That's good answer. Thank you. Thanks, Gord. You also, in your prepared remarks, you mentioned some good developments on the defense side in Canada. Would you mind just expanding on that and potentially, you know, indicate whether all the momentum that we're hearing about is actually translating into projects and bids?

Yeah, it absolutely is. You know, we're seeing certainly a renewed focus from the Canadian federal governments related to defense, related to the Arctic, as well as, you know, other governments around the world. But, you know, we did talk about the Defense Construction Canada's multi-mission aircraft hangar. I believe that's in Nova Scotia that we're working on. You know, facility upgrades for the armed forces sort of across the region. So there's a lot of work coming there. Interestingly, you know, we started working on that Grays Bay Road project you know, a year ago or more. But now, you know, I think everyone can see, well, you know, that used to be, everyone said, well, that's like a road to nowhere. But it's not. It's a road to what will be a deepwater port that will hold both Navy vessels, cargo ships, and the like. And so, a lot of this work is coming to fruition, and I think you'll see a lot more coming in the short term. And, Gord, we're particularly well-positioned north of the 60th with our capabilities, right? Absolutely. You know, with our capabilities in Yellowknife and Whitehorse and a number of other locations up there, as well as significant presence in Alaska, uniquely positioned Stantec for this north of 60 work.

Great. Whatever you're doing, guys, keep doing it. Congrats.

Okay, we will.

Thank you. And our next question comes from the line of Chris Murray from ATB Capital Markets. Your question, please.

yeah thanks folks um hey gordon good good to hear that you might still have a t-square sticking around um the uh i guess the first question is just on margins and we look when i look at the guard the guidance you know you're sort of either guiding to flat to up margins so i'm just wondering if you could talk a little bit about some of the clips and takes around where you think the uh the margin profile evolves over the next so while it looks like there's a you know some good opportunities and some of the back office stuff you guys have been doing um and certainly some of the ai tools um But just any color you can provide on how to think about evolution over the next year would be great.

Yeah, Chris, maybe I'll take that one. First off, we're incredibly pleased with the progress to date. So when you look at our 90 basis point improvement year to date, that's basically come 50% or half of it from, I'll say, the business itself, operations, whether that's project margin improvement across certain sectors, utilization improvement, and then the balance of it, I'll call it more back office and driving efficiency and just operational scale. And frankly, as I think, you know, as we move forward, it's really more of the same. I don't think there's going to be any magic bullets that contribute to what it is. It's really just continuing to lean in, you know, our continued use of our global delivery centers, the excitement around what's happening there and the capabilities. of our folks offshore, which are just incredible, both from a professional service perspective, but also from a back office, and we see significant continued momentum there. We definitely don't expect to be flat. Clearly, the low end of our range is 17.6, which is where we landed the year, but we continue to see continued improvement, so just really more of the same. Labor, at the end of the day, is the biggest component of it, driven either by efficiency and or utilization. And then just continued focus on discretionary spend, I would say. But it all starts with, of course, really continued excellence in project management and project execution. That's where the fundamental point is. And just, you know, just a shout out to our team of 34,000 plus across our organization day in, day out, do well by our customers, our clients, and obviously the bottom line. So really appreciate it.

Okay, great. And then I know there's been a lot of focus on AI and infrastructure, but one of the other areas that we're seeing more evolution is resources. I know historically that's been something that know you guys have had a lot of exposure to just wondering if you're seeing any call it green shoots or new developments in the resource business be that either you know new pipelines or or certain pre-feasibility work um or around other kind of resource work that might uh drag in maybe the water business or something like that yeah so a couple things there we

I think it is in our MD&A, isn't it, Vito, that we did pick up environmental work and permitting work related to a 125 mile long natural gas pipeline in Tennessee. So we are seeing those projects absolutely come into bear. And then also, in addition to that, from a resources perspective, incredibly strong performance this year in South America. In our Chile and Peru operations, a lot of work coming back from the copper mining perspective. I went down and visited our offices in both locations and the amount of investment in mine expansions and new mines coming down there is truly phenomenal. Copper prices are still pretty robust and certainly required if we want to continue with this energy transition, grid hardening, grid strengthening and such. Yeah, we're seeing that electrical piece continues to grow for us, which in us is in our energy and resources business. We're seeing the resources required to support that, the copper mining and such continues to grow. And then, as we talked about, this 125-mile-long natural gas pipeline in Tennessee. So we are seeing more work in most of those phases in our energy and resources business.

And you would have seen that through our 2025 results. Chris, you know, the early shoots of it, we had a very strong year on organic growth, high single digits on the energy and resources, and we continue to expect that momentum organically to continue into 2026. All right.

That's helpful. Thanks, folks.

Thank you.

Thank you. And our next question comes from the line of Michael Topone from TD Cowan. Your question, please.

Thanks. Good morning. I just wanted to go over the organic growth outlook from a BOU perspective. I know overall, mid to high single digits, the guidance. In 2025, you saw quite a bit of variance in terms of organic growth across the different BOUs. How do you see that looking in 2026? Do you see sort of more consistent performance, or should we still expect some of these higher growth areas to really be the drivers?

Yeah, maybe I'll start there. As Gord, I think, indicated in his prepared remarks, we expect organic growth across all of our BOUs next year. So that's a great place to start. I mean, water is now 22% of our business overall. You saw continued strength. I think it's four years of consecutive double-digit growth in water, if not more than that. And we definitely continue to see that and expect that going forward. Infrastructure was a little maybe more muted in 2025 in the low single digits. I think that was a temporary drop from our more mid-single-digit range, so we expect continued strength there. Rebound there. Buildings, 4.4% organic growth in 2025. Really a lot of strength. The page acquisition in particular and what the team has brought to the table there. We're really coming off some very, very strong years and expect a rebound there. Really strength across all of them. Court, any other commentary you might have? I completely agree. Yeah. Yeah. So, you know, I think, well, you know, water will continue to lead the way, perhaps, but strength across the board.

I appreciate that. And sorry not to belabor the point, but just environmental services, I guess that was probably the weakest last year and in the fourth quarter was kind of flattish. How do you think about that one for 2026?

Yeah, you know, we do see... With all of these projects coming along, whether they're in the north, the Canadian north, or these big pipeline projects that we talked about, the first group in the door is environmental services. So we do see that kind of leads up, provides us some support. So we're looking for stronger organic growth in environmental services this year than we saw certainly in 2025. And then the last group perhaps is our energy and resources businesses that put up 8.7%, almost 9% last year, but we look for continued growth in that segment as well. Really strong in mining, particularly in South America, the energy transition, the transmission and distribution work we're doing there. And so we're looking for pretty good strength across the board from all of our business operating units.

Okay, perfect, thank you. And then maybe just one further question. You talked a little bit about M&A earlier in the call. As it relates to accelerating adoption and use of AI in the industry, is this in any way affecting how you're thinking about M&A, the kinds of targets you would be interested in? Are there certain targets that maybe we traditionally would have been interested in, but that's sort of evolving and changing, and others that maybe now become of greater interest? Just curious as to how this is affecting your thinking on M&A.

Yeah, I think from the core business that we're working on, our five core verticals and our geographies, AI, again, we think while it will enable us and make us more efficient, the firms that we're talking to are viewing it really from the same perspective. So it doesn't really change our thought process there. I don't think we're at this point looking to go out and buy a an AI firm. You know, we see them, a lot of them are pretty highly valued and with little revenue or certainly even less profit in many cases. So we're not looking to do that. We're developing those skills in-house partnering with firms as required. So it really isn't looking to change our M&A strategy at this point.

Yeah, I would add, Gord, you know, certain targets have more developed digital capabilities than others do. And so we're You know, we have some targets that really are a bit advanced and or interested and have capabilities there. I think that gets our attention a little bit. And as far as how, you know, what value add they might bring to us. But as Gord mentioned, no overall change in strategy as it affects our M&A.

All right. Thank you. I will leave it there.

Thank you. And our next question comes from the line of Maxim Saitov from NBCM. Your question, please.

Hi, everyone, gentlemen. I just wanted to start a bit with a broader question around thoughts on outcome-based pricing, as there are some discussions around how much of a cost-plus evolution we could see in the space right now, and I guess how you know, AI and your expertise sort of ties in, because I mean, I presume there's something that actually you would welcome as, you know, the penetration of some of these pricing models could also, I'm just curious, what are your thoughts at the moment? And are we seeing any evolution from that perspective? Thank you.

Yeah, great question. And what we're finding in a lot of this sort of fixed fee outcome-based pricing percentage of construction, a lot of it depends on the client. and the type of work that you're doing. So a lot of the, of course, you know, the big design build or P3 projects that we do are all virtually all fixed fee or deliverables-based, milestone-based. And so, you know, they're certainly, as we've been doing for the last five or ten years, the increased use of technology, whether it's AI or other tools, can help optimize your margin. A lot of buildings projects are similar, land development projects similar, but the government clients in particular, you know, we haven't seen, you know, as we work with municipal clients really around the world, the city of, you know, X, Y, or Z, they don't really move towards, you know, or we haven't seen movement towards outcome-based pricing, fixed fee, value-based. They still seem to be more time and materials, you know, to an upset limit. Now, through ACEC and through other of these sort of professional associations, We're absolutely having these discussions and seeing is there a way that we could move more towards it from a certainty perspective. But I think that would be not as much a Stantec initiative or an initiative of any of our competitors. It really would have to be an overall industry initiative, and that's where we're working with those industry associations to see what we can do to get ourselves there. But it's difficult. The other reason, Max, that I think a number of... government agencies go with the time and materials is that if you want to go with an outcome based price with a fixed fee you have to have the scope incredibly well defined so that the engineer can come in and say the scope of what you're asking for I'm going to do for a million dollars fee just as an example but if the scope is moving and there's going to be change orders and such that really complicates the the whole commercial terms so there's it's There's a lot of work to be done, I think, before we can get municipal and government clients in particular off of time and materials type work. But the industry overall is working on it.

Yeah, no, that's great, Paul. Thank you so much. And maybe just one quick one for Vito, if I may. I mean, the margin guidance is certainly stronger than we were modeling. And I'm just curious if you don't mind talking about the ability to get to maybe that 18.2 at the high end of the range? What needs to happen from your perspective, Vito, to potentially hit that number?

Thanks. Yeah, I think the higher we are on the revenue range, the more probability that we'll be on the higher end of the EBITDA margin. So that's just really operational leverage, I would say. Otherwise, from an initiative perspective, really, really pleased with everything we're doing and having the works. We're working towards, obviously, our next three-year plan. We expect to have a date out to the community sometime soon, late in the year, probably more December, January, as far as when we're rolling out our three-year plan. I'm very excited about the work and the modeling we're doing about what the next three years look like from a margin perspective. uh you'll wait and see where 2026 lands uh but highly encouraged by the progress and the momentum to date yeah yeah 100 thank you so much thanks max thanks max thank you and our next question comes from the line of benoit parier from dj your question please yeah good morning everyone and congrats for the strong achievement in the 2025

If we look at Canada, organic growth came in very solid at 7.7% for the whole year. However, when we look at Q1 2025, you reported a very strong performance at 12.2. So would it be fair to assume potentially a bit of a softer performance to start the year, given the tough comparison, even though the outlook remains very strong?

Yeah, that might be appropriate, Benoit. I mean, again, you know, we think about these things not necessarily from a quarter over quarter. You're absolutely right, by the way. Last year was a 12.2% for Canada in organic growth Q1. We ended the year at a full year 7.8%. So I think Q1 might be a little bit softer relative to where we feel the full year will land for Canada. But as we've been noting in the commentary, when we look at the full year and all of our regions and all of our VOUs, we feel very nice sort of balance throughout the entire year. But that is our single biggest quarter for any region on an organic growth. And so you've pinpointed something that is a legitimate question for sure. But nothing that I'm overly concerned about or need to signal with related to Q1.

Okay, that's great. And obviously a lot of talks about M&A bidding pipeline remains extremely solid. However, given the pullback in share price, I was wondering if you could provide more details. My understanding, there's a big preference on M&A, but given the strength of your balance sheet, do you see any opportunity to step in in terms of buyback in the short to medium term?

Yeah, that's interesting. I mean, I think we will be renewing our NCIB. So first of all, as it relates to dry powder on the balance sheet, you saw our leverage 1.3 at the end of the year. That enables us to do sizable M&A on balance sheet. It's specific, obviously, to targets and whatnot. We will continue to prioritize our investment grade Obviously and whatnot that's important to us, but there's there's a lot of room there for us to do on balance sheet Meaningful acquisition, so that's a that's a wonderful privilege for us as we sit here and and that's important for us, so we'll just take that and and and sorry been why I forgot the second component of a question and

Just wondering if you would be open to consider more closely the NCIB given the pullback in share price and probably given the fact that we haven't seen the seller expectation coming down yet.

Yeah, short answer is yes. We would be more actively looking at buybacks with respect to where we're valued. First priority, of course, continues to be M&A for us. But, you know, we do have price ranges that we think when we look at our overall perspective of our organization and the value creation opportunities that will, you know, continue to look at it a little bit more closely than perhaps we have in the past.

Okay. Thanks very much for the time.

Yeah. Thank you. Thank you.

And our next question comes from the line of Jonathan Goldman from Scotiabank. Your question, please.

Hey, good morning, team, and thanks for taking my questions. Most of them have already been asked, but I guess I just have one high-level one. The anniversary of the IIJA this year, how do you see that playing out, and is there a potential for renewal or maybe a reshaping of that infrastructure bill and maybe some other form of disbursements there?

Yeah, great question. Early on, two or three years ago, there was a lot of talk about an IIJA 2.0 and what it could look like. We haven't really heard as much of that over the last little bit. So, we are seeing increasing activity, bidding activity and such as folks are beginning to look to how can they place their, you know, get some funding in place before IIJA current terms out in, you know, has to be allocated by, I believe it's September of this year. But recall too that once that is allocated, it doesn't have to be spent. So, I think that the current funds from IIJA will continue to drive really solid performance in the, not just for us, but for the overall industry in the transportation space primarily, you know, for the next three to five years. So there is some discussion about currently about renewing the surface transportation act and such, and that'll no, no, I don't think there'll be any concerns that that would not be renewed. But yeah, I haven't heard a lot of conversation about an IIJ 2.0 right now, but the industry, I think will continue to be busy in the transportation space in the U S in particular. for the next several years to come.

Okay, great. Thanks for taking my question.

Thank you. And our next question comes from the line of Christa Friese from CIBC. Your question, please.

Good morning. Thanks for taking my question. Maybe just to follow up on the M&A topic, you've previously talked about how you expect a handful of larger firms to come to market this year. Is that still what you're seeing in the pipeline? And it sounds like that's still something you'd be interested in given your balance sheet capacity at this moment?

Absolutely. Some of the ones that we have been talking about, you've likely read came and went the latter part of last year, but there still are others that are either in process now or that we understand will be coming to the market here in the next couple quarters. So still a good opportunity there, good optionality in terms of geographies and type of work that these firms are engaged in. And absolutely, as you heard Vito say, the balance sheet is in good shape. So we absolutely will continue to look at those. And of course, paying particular attention to the pricing piece.

For sure. And are you able to share maybe some of these larger firms, what areas they're operating in? Is power still a big focus for you?

Certainly, we do see some firms with a power focus that will be coming to market, but others as well in different lines of business that Stantec currently is in. Some of them are in the U.S., and some of them are – we see Europe, Australia, and such. So good geographic spread with these as well.

All right. Thank you. I appreciate the time.

Great. Thanks, Krista.

Thank you. This does conclude the question and answer session of today's program. I'd like to hand the program back to management for any further remarks.

Great. Well, thanks, everyone, for joining us this morning. You know, we feel really good about 2025 and where we're going in 2026. So if you have any follow-up questions, please reach out to Jess Newkirk, and we'll line things up and take it from there. So thanks again, everyone.

Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.