WSP Global Inc.

Thank you for standing by. Welcome to the WSB Global Inc. Second Quarter 2025 Results Conference Call and Webcast. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-answer session. To ask a question during the session, please press star 1 and 1 on your telephone. You will then hear an automated message advising your hand is raised. To revert your question, please press star 1 and 1 again. Please note that today's conference is being recorded. I would now like to conference over to your speaker, Mr. Weber, Global Head of Investor Relations. Please go ahead.

Thank you. Good day, everyone. Thank you for joining our call. Today, we will be discussing our Q2 2025 performance, followed by a Q&A session. Alexandre Rue, our President and CEO, and Alain Michaud, our CFO, are joining us this morning. Please note that this call is also accessible via webcast on our website. During the call, we will make forward-looking statements. actual results could differ from those expressed or implied. We undertake no obligation to update or revise any of these statements. Relevant factors that could cause actual results to differ materially from those forward-looking statements are listed in the MD&A for the quarter ended June 28, 2025, which can be found on CDARplus and on our website. In addition, during the call, we may refer to specific non-IFRS measures. These measures are also defined in the MD&A for the year ending December 31, 2024. Our MD&E includes reconciliation of non-IFRS measures to the most directly comparable IFRS measures. Management believes that these non-IFRS measures provide useful information to investors regarding this corporation's financial condition and results of operation as they provide additional critical metrics of its performance. These non-IFRS measures are not recognized under IFRS, do not have any standardized meaning prescribed under IFRS, and may differ from similarly named measures reported by other issuers, and accordingly may not be comparable. These measures should not be considered as a substitute for the related financial information prepared by IFRS. With that, I will now turn the call over to Alexandre.

Thank you, Cathay, and thank you all for joining us today. Let me start by saying that I am very pleased with our performance in Q2 2025. We have robust profitability, increased cash flow generation, and a historically low DSO for a second quarter. We are also enhancing our 2025 financial outlook. Let's dive into a few highlights. First, on net revenues. In Canada and the UK, we delivered high single-digit organic growth, and considering our backlog, the pipeline of opportunities and the recent economic stimulus announcement we feel positive on the outlook. In the US, power engineers delivered a solid 16% organic growth and significant revenue synergies opportunity, and the integration is progressing as planned. When considering the organic growth of power, we delivered high single-digit organic growth in the US this quarter, and our backlog is solid. In the Nordics, we have seen an uptick in the activity level, and our backlog is growing. And in Australia and New Zealand, our ride-sizing activities are largely completed, our backlog and pipeline of opportunities are expanding, and we expect a progressive return to growth in the second half of the year. All in all, we delivered solid growth while keeping our business fit for purpose, which continues are a testament of the strength of our diversified platform. Second, on profitability, adjusted EBITDA grew by 22% in the quarter. Our adjusted EBITDA margin increased by 80 basis points as we continue to own in our productivity and project performance. I am particularly pleased with the fact that we delivered margin expansion across each of our reportable segments despite absorbing optimization and right-sizing costs which impacted our overall margin by approximately 50 basis points in the quarter. Excluding these costs, our focus on operational excellence delivered 130 basis point improvement in the quarter. Third, following a strong cash generation performance in Q1, Q2 performance was even stronger. In fact, free cash flow increased by almost 400 million versus Q2 2024, and over 600 million versus last year for the first six-month period. Our DSO stands at 69 days, making a historically low level for a second quarter. Our leverage ratio now stands in the middle of our target range, and further deleveraging is expected in the second half of the year, which puts us in a favorable position to seize opportunities. On the M&A front, we continue to pursue opportunities and strategically deploy capital. In Q2, we announced the acquisition of Lexica, a UK-based consulting firm specializing in healthcare and life sciences. This acquisition adds experts to our planning, property, and advisory business in the region, forming a new healthcare and life sciences advisory team. WSP also announced the acquisition of Ricardo. Headquartered in the UK, this consultancy firm delivers strategic advisory and engineering solution that intersect the global transport energy and environment agenda. Ricardo operates across Europe, Australia, North America, Asia, and the Middle East. On July 15, the shareholders of Ricardo approved a scheme at the shareholders meeting held in connection with WSP's acquisition. The acquisition received overwhelming support with over 90% of shares voted in favor of the scheme. This step marks an important milestone towards welcoming the team to WSB. Closing the acquisition remains subject to obtaining the required regulatory approval and the sanctions of the scheme by the UK court, all of which is expected to occur in Q4 2025. Now allow me to elaborate on the dynamics across our four core market sectors. The transportation infrastructure sector continues to perform well in Q2. In particular, our leading tunnel teams continue to win new business, including a Virginia Department of Transportation mandate to provide project management services for two tunnels as part of the Empton Roads Bridge Tunnel Extension Project. Water continues to benefit from investment across most of our geographies. Of note, WSB secured a role in the substantial expansion of Ontario's Portright wastewater treatment plant. Rail and transit also maintain robust momentum. For example, in Finland, we secured new business for several strategic projects in Nordic countries. including a segment of rail Baltica in Estonia and the renewable of the Copenhagen metro signaling system. In APAC, WSP picked up strategic wins as the market continued to show signs of recovery. The new terminal of Perth International Airport is one of the many new projects we signed recently. Let's now shift to our property and building sector. We posted strong performance in Canada, the US, and the UK, which account for approximately two-thirds of our business. And our backlog and pipeline remain healthy, which provide a positive outlook for the rest of the year. Four standout area are data centers, industry and advanced manufacturing, healthcare, and defense, all generating significant opportunities that point to future growth. For example, we continue to see strong data center investment in AI and digital infrastructure, with approximately 300 new mandates in the quarter and robust activity across all of our geographies. These mandates encompass site acquisition due diligence, campus master planning for new AI gigafactory, greenfield data center design projects, brownfield data center upgrades, and the growing power and water infrastructure demands. Let's move on to power and energy. The sector continued to demonstrate strong momentum throughout the quarter. Our thermal generation business is driving considerable growth. The transmission distribution market in the U.S. has remained active, and most of our clients are maintaining or increasing their spend projections for 2026 and beyond. Now a brief update on the ongoing integration of power engineers. We successfully achieved several milestone improvements and preparation to move power in our ERP system are in full swing. The success of this integration is evidenced by strong financial performance. The business is growing at a double-digit pace. We have a growing backlog, and with over 250 active pursuits in the pipeline today, we are accelerating our joint market presence with new and existing clients. on earth and environment sector thrive in a fluid environment. This last quarter, we secured a number of very important new wins in high demand area like power, energy, defense, technology, water, and mining, to name just a few. WSP was awarded a major PFAS project for the US Air Force in the American Midwest. This win shows our strong position in the combined defense and water markets. Moreover, our leading biodiversity and marine expertise remains a key differentiator for WSB. And in Canada, WSB has secured a new mandate for Hydro-Québec's major Gull Island hydro projects, which includes environmental studies, biodiversity assessments, and geotechnical scopes. Finally, a few updates on digital. As a reminder, At our Invest Today earlier this year, we share three priorities for our digital strategy. One, growing organic digital revenues at least twice as fast as our core business. Two, pioneer solutions that grow recurring digital revenue. And three, be a catalyst for change in our industry, working with our clients and the world innovative technology companies. We saw strong momentum around all these three focus areas for the first half of the year. We have met our internal organic growth ambitions globally and are confident for the rest of the year. Our pipeline is strong and growing across all our target offerings. For example, we have received multiple awards from clients who have requested our engineers, engineering and science expertise to organize their critical asset data, artificial intelligence application. Another example, we were awarded a multi-year contract in New Zealand to continuously monitor areas of landslide risk using specialized sensors and real-time alerting systems. Real-time monitoring of geohazard and extreme weather risk in one of several areas where we see strong growth signals for recurring digital revenues, which is in line with our second objective. We have a lot of momentum with our digital ecosystem partners as well. In addition to the Microsoft Alliance announced in February, WSP announced a strategic partnership with UrbanLogic in late May and recently won a project where domain expertise and artificial intelligence solutions will predict wildfire grist in Alberta. who are in active discussion with several other potential technology partners. We are very pleased with our progress with the Microsoft Strategic Alliance. Externally, this has resulted in several strategic wins and has led to numerous client conversations regarding how WSB and Microsoft can collaboratively address their most significant challenges. Internally, WSB has pragmatically deployed AI tools globally with strong initial impact and feedback. Several internal AI workstream are in progress with some already contributing to internal productivity improvements. In summary, we are starting strong in our digital ambitions for the strategic cycles. And now before I turn over to Alain, I am pleased to reaffirm our number one position in engineering's news record 2025 list of the top 225 international design firms, a standing WSPS proudly held since 2021, with leading position in transportation, building, power, water, hazardous waste, and sewer waste. Now over to you, Alec.

Thanks, Alex, and hello, everyone. I'm pleased to report on our solid quarterly results. For the second quarter, revenue and net revenue increased by 15% and 16%, respectively, displaying robust year-over-year growth. The increase was mainly attributable to acquisition growth of 10.4% and organic net revenue growth of 3.5%. Power engineers continue to demonstrate strong growth with an organic growth rate of 16% compared to Q2 2024. Canada, the U.S., including power, and the U.K. each delivered high single-digit organic growth in the quarter. Backlog reached $16.3 billion, up 10% in the 12-month period, representing 11 months of revenue. Our book-to-burn ratio is above 1, similar to what we have delivered every quarter for the last four years. Overall, each of our key markets remains strong, and of interest, we are seeing positive development and backlog increases in the Nordics, Australia, and New Zealand. Moving on to profitability, adjusted EBITDA in the quarter grew to $633 million compared to $520 million in the second quarter of 2024, an increase of 22%. Adjusted EBITDA margin for the quarter stood at 18.2% compared to 17.4% in Q2 2024, an increase of 80 basis points, mainly due to the continued focus on productivity. Excluding optimization and restructuring costs, our margin increased 180 basis points in the quarter, and each of our reportable segments delivered solid margin performance in the quarter. Adjusted net earnings for the quarter reached $307 million, or $2.35 per share, up 30% and 24% respectively. compared to the second quarter of 2024. The increase is mainly attributable to higher adjusted EBITDA. As for our cash position, I'm particularly pleased with our very strong cash flow generation this quarter. Net debt to adjusted EBITDA ratio stood at 1.5 times, which is within management's target range of one to two turn, which provides flexibility to deploy capital. As we now conclude the first half of the year in a good position, we decided to update our 2025 financial outlook. With the adjusted EBITDA now expected to reach the higher end of the range. This is due to continued strong performance in Canada, the Americas, and AMIA, thanks to the fact that our business in APAC is now largely right-sized and fit for purpose. Our net revenue outlook remains unchanged between $13.5 billion and $14 billion. with organic growth on a constant currency basis between 5% and 8%. From a segment standpoint, net revenue in the APAC reportable segments are expected to conclude the year with low to mid-single-digit organic contraction. The remaining 2025 targets and other assumptions are reiterated. As a reminder, the 25 financial outlook exclude the expected contribution of acquisition not completed as of August 6th, such as Ricardo PLC. Lastly, I'm pleased to share that in addition to delivering strong financial performance in the quarter, we continue the deployment of our new ERP. We are now live in 15 countries with the Middle East, India, and Africa added in June 2025. These recent implementation went well, and we have seen strong billing stats volume in the first month of operation. We now have approximately 50,000 active user under the new system. On that, back to you, Alex.

Thank you, Alain. Let me just reaffirm how proud I am of our results this quarter and in the first half of the year. Our North American and UK businesses are benefiting from strong growth momentum and delivering leading margins. Our right-sizing initiatives in APAC are largely completed, and the business is now fit for purpose with a growing backlog. Our ERP rollout continues to progress as planned, with productivity gains starting to materialize. We announced key acquisitions to further strengthen our platform, and we have a strong balance sheet, and the M&A pipeline is healthy. Overall, we are well positioned for the future and are feeling good about the second half of the year. We believe our diversified business and the long-term trends driving our industry will continue to support compounded, sustainable performance. With that, we can open the lines to questions.

Thank you, sir. As a reminder to ask a question, please press star 1 and 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 and 1 again. Once again, please press star 1 and 1. If you have any question and wait for your name to be announced, to withdraw your question, please press star 1 and 1 again. We are now going to proceed with our first question. And the questions come from the line number Stephen Fisher from UBS. Please ask your question. Your line is opened.

Thanks. Good morning and congrats on the progress here. Really standout performance in cash flow. Seems like you're moving on from the ERP costs and you have the benefit of Section 174 R&D expensing. I suppose that leaves M&A and cash drag and really just execution. So maybe you can just give us a sense of how to think about any cash drag from M&A ahead and to what extent your execution focus can kind of keep cash flow at this healthy level?

Well, you look at our leverage and our ratio to EBITDA at the moment, we're already back to the middle of the range that we've provided in our outlook. So I think we are deleveraging very, very fast. So obviously, I just mentioned to you that the the pipeline of opportunities is healthy. And I continue to believe that this is part of our DNA to continue to have a strategy that combines strong organic growth, strong margin improvement, but also inorganic growth. So without providing any any future guidance as to what may or may not happen in the second half of next year. We are extremely pleased now with our cash flow generation, and I think you are right in saying that now 80% more than 80% of our EBITDA has been converted on the ERP. So we have significantly de-risked this program, and now I think the benefits are materializing.

Yeah, and if I could just add a few points, you know, strong performance this quarter, and Q1, too, was strong on free cash flow. If you look at the last 12 months, it's roughly $1.5 billion of free cash flow we generated. Our conversion rate is now standing at about 1.9 times net earnings, so this is significantly above the the typical conversion rate of 100%. So we continue to push hard on working capital management. So I don't foresee any change in the cadence for the rest of the year, Q3, but most importantly, Q4, usually strong free cash flow quarter. In terms of drag, the only one to keep in mind is the Ricardo acquisition that will generate some payment, most likely in Q4, but that's a positive, that's the way I would put it.

It's very helpful. And then just in terms of organic growth, I mean, it seems like you might be more on track for the lower end of organic growth range for the year, but I guess to what extent is there still a path to the upper end of the range? And related to that, are there any extra work days in the second half to be aware of since that was a headwind in Q1?

Yeah, so, you know, feeling good overall. I think that's the statement about the second half of the year. We have our largest region, Canada, U.S., U.K., you heard in our opening commentary, delivering high single-digit growth. um which which on balance you could probably say that this is a bit higher than what we guided so there's some positive um at that on that level the the regions that were creating a bit of a drag on our number i think they're in much better position now you know with a progressive return to growth um So, obviously, that's where we stand. The various things to keep in mind is, yes, the billable days, we had to call that in Q1, especially in the U.S. We will see the reversal of that in Q4, at least for the most part. And then we need to keep in mind we had significant disaster recovery response revenue in Q4 last year in the U.S. hurricane season, storm season is starting, so we shall see. But for the time being, we remain confident for the rest of the year. We'll see how Q3 unfolds and we'll reassess our guidance as we report on Q3 results.

Terrific. Thank you very much.

We are now going to proceed with our next question. And the questions come from the line of from RBC. Please ask your question.

Great. Thanks, and good morning. Just wanted to dig into some of the comments made and prepare remarks around some of the regions. I think the two most dynamic have been the UK and the US with some of the elections, new policies, et cetera. Maybe you can just dig in and just walk us through some of the dynamics you're seeing on the ground. It does sound like your results were positively driven by those markets, but just curious on the puts and takes in those two markets and just see how you look ahead for those reasons. Thanks.

Yeah, good morning, Saba. I mean, it's more than just, you know, the U.K. and the U.S. I mean, if you look in the last 12 to 18 months, we had election in New Zealand. We had elections in the U.K., We had an election in Australia. We had an election in Canada last quarter. We had an election in the U.S. So we had Liberation Day. And despite all this turmoil, because when there's an election, there's a change of priorities, WSD continued to perform very well in those markets. Obviously, there's been a slowdown in Australia and New Zealand. In my personal opinion, I would call this near-term slowdown. I think New Zealand and Australia, we're seeing now the proposal activity level coming back. And as Alain said, we are going to see progressive return to growth in that region. So we're overall feeling very good. As it relates to the UK and the US, there's been, you know, obviously shift in some of the priorities from past governments. But the good news is that even with the big, beautiful bill and the UK statement from government, infrastructure spending remains a top priority for those countries.

Great. And then, you know, one of the thematics that's obviously been picking up in the recent quarters and years, and we're really noticing it this quarter, is demand around data centers. Sounds like that was one of the drivers around just, you know, power acquisition, your involvement in that space. Maybe you could just dig into the demand environment today, how that compares to when you got into sort of the power acquisition, and maybe just dig into the opportunity ahead today relative to what you may have thought.

Yeah, well, you know, on the back of last year, obviously, we saw very, very strong demand on that segment. I would say in the first half, there was a bit of a cooling off. But I can tell you that over the last month and what we are forcing our pipeline in the next six months and the remainder of the year, we are starting to see, again, very, very strong demand for that segment. So I think it bodes well in the short term, the medium term, but also in the long term. So I think the power acquisition was, I've said it before, I'll say it again, was not a good to have or good to do. For us, it was a must-do deal, and I'm extremely pleased that we completed this acquisition. It's very, very strategic for our platform.

Great. Thanks very much. Thank you. Thanks, Heather.

We are now going to proceed with our next question. And the questions come from the line over. Christopher is in from CIBC. Please ask your question.

Hi. Thanks for taking my question. I was wondering if we could just dig in a little bit on the 50-bit hit from restructuring. Was that largely APAC, or was that a little bit more broad?

Largely APAC. And it's in line, Krista, with what we discussed in Q1, right? We have said that we have done a fair share of bringing our business more to a fit-for-purpose level in Q1, and we had announced that we would still do a bit of work in Q2, which is what happened. So it's in line, and it's, as Alex said, it's the biggest chunk is in Apex.

And again, the sake of repeating ourselves personally, we absorbed those costs and despite that, we've increased, we have now visibility on the higher end of our range from a bottom line point of view.

Right. And then maybe if you can just comment on, are you seeing any changes in the conversations with your customers south of the border just as a result of all the various legislative changes we've seen over the last couple months here?

I think that the market is still very, very dynamic. Of course, there's some question asked. I think the intent of the new administration is to expedite and facilitate investment. There's been some shift in priorities, for instance, away from renewable, maybe more in fossil fuel and a few other matters. But I think the real intent is really to facilitate and expedite investment. So in some ways, we have not seen much disruption at this point. We're quite pleased with the way the market and our clients have behaved and operated in the current environment.

Okay, great. Thank you.

I'll jump back in the queue.

Thanks, Christa.

We are now going to proceed with our next question. And the questions come from the line of Benoit Poirier from Desjardins.

Thank you very much. Good morning, everyone, and congrats for the solid quarter. Just on the acquisition of Ricardo, could you provide more details about the opportunities to bring margins to WFP levels down the road, but also what we should expect from Net Revenue EBITDA as you're looking to divest some businesses once the deal is closed? Thank you.

Yeah, we haven't closed the transaction, Benoit, so... We're not going to comment just yet on the impact that this will have on the numbers going forward. But I can tell you that we're highly confident that we are going to bring up the Ricardo margins to our level. We've done it on numerous occasions in the past. You look at the power engineers, obviously we're not disclosing margins level by acquisition, but I can tell you that right at this point, six months into the year and six months after closing, I should say eight to nine months after closing, we have seen a huge shift up in the margin level of power engineers. So I'm highly confident that we are going to achieve that and I think we are going to achieve it very quickly.

And more to come on all of this, but in terms of status, we We have the AGM where the transaction was voted in favor, 99 plus percent. So that's good news. And from a regulatory review standpoint, things are progressing well. So we expect a closing in Q4. And, you know, we don't control and know exactly how it's going to turn out. But if I would have to bet based on past experience, this should be closed in the earlier part of Q4 rather than the later part of the quarter.

That's great. And for power engineers, obviously, we see a lot of, you see a lot of revenue synergies with this acquisition. You announced Stuart McLaren, head of nuclear. So just wondering about the potential synergies we might see and what kind of area of expertise it could add to power engineers right now.

Well, Power Engineer is one, if not the leading firm in transmission, which is a very high value proposition for clients. We continue to develop our expertise and continue to grow our expertise and distribution on the electric side. PowerGen is something that, you know, Power engineering has been very busy growing this year. We see tremendous growth on power generation. And in terms of source of energy, I think we are doing great work right now, like I said, on the electric side. But we're also doing – and it's not something we talk a lot about typically, but we do a lot of work on the nuclear side here in Canada – more in the UK and obviously in the US with all of the SMR that are currently being designed. So all in all, I'm feeling very bullish around this acquisition and very bullish around this sector.

Thank you for the time.

Thank you.

As a reminder, to ask a question, please press star 1 and 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 and 1 again. We are now going to proceed with our next question. And the question comes from the land of Frédéric Bastien from Raymond James Limited. Please answer your question.

Hi, good morning, guys. I wanted to go back to these comments you made around the data center and the 300 plus new assignments that you were able to secure that were related to that. Presumably, you had a lot of that growth coming from power engineers, and I think that business has been growing 15 plus percent organically year to date. Could you sort of piece out or parse out the growth that you experienced between the end markets? Is data center the bulk of the growth, the bulk of what led the growth, or were there other end markets that you would point out?

You mean with Power Engineer, Frederick? Yes, specifically for Power Engineer. It's clearly more than that. I mean, we work with most, if not all, of the major utilities in the U.S., So at the moment, I mean, I would say we work with the existing blue chip client list that the power engineer had. But what's great now is that we are able to bring power engineer on our public sector clients. We are able to bring them on our property and building sector clients. So I think that's, you know, why we're seeing this. acquisition to be so dynamic for us at this point.

Okay, thanks. And then I keep remaining quite impressed with the performance in Canada. The region continues to lead the way with organic growth, 9%, and you had the highest margins at almost 24%. So clearly this company is standing out. Sorry, the region is standing out. I remember, Alex, you made some comments about the potential for all the other regions to effectively catch up to where Canada is right now. How strongly do you feel about this and any idea of what type of timeframe you'd be looking at to bring the other regions up to Canada's standard?

Thank you. For the others to catch up, Canada will have to slow down a little bit. They're too good. But you are right in commending our home country. I'm extremely pleased with our performance, standing out performance for many quarters now, and I expect continued performance for Canada. And the goal, as we discuss and unveil our plan in February, our three-year plan, Frederick we now have our eyes set on more than 20% on aggregate for the company. And so I can tell you that the U.S. business is providing stellar numbers as well, and they're continuing to improve the margin profile. You will recall where we were in the U.K. back in, for instance, 15, 16, and where we are today. Stellar performance of our U.K. business. I could pinpoint Australia. I understand that we are not disclosing margin profile by country, but I can tell you that we have increased our margin profile in Australia by a couple of hundred basis points. Same thing with New Zealand. That is well above 20%. So to your point around bringing up everybody, I think what's great is, you know, when you experience success in many parts of the world, you want to leverage best practices across the group. And that's what we've been doing. And it's been really paying off for us. Extremely pleased with this 80 basis point increase in the quarter. And again, we're not afraid, and you know us, we're not afraid to right-size businesses whenever we see fit. So without that, it would have been 130 basis points in the quarter. So it's quite extraordinary. So if So I feel that all the countries right now are headed in the same direction, which is up. Awesome.

Thanks. Thanks, Alex. Appreciate it.

We are now going to proceed with our next question. And the questions come from the line of Chris Murray from ATB Capital Markets. Please ask your question.

Yeah. Thanks, folks. Just following up maybe on that question about margins a little bit. Now, the 80 basis points you saw today, I mean, it sounds like there's a lot of things that are going right. But I was wondering, in the commentary, you said that it was mainly driven by productivity. But is there anything else to be thinking about in terms of any other benefits you're seeing? Or is it just basically having better absorption and utilization supporting the margin graph at this point?

No, it's not just a utilization gain. I think we are seeing, actually, operating margins going up. gross margin, and we are seeing our – and this is a function not just of utilization but also pricing. So we're feeling quite good about that. And also, Helen and the team are working very hard to continue to optimize our platform and leverage best practices. So we have seen – I would tell you we have seen improvement in our margin profile pretty much across the value chain. And I expect that to continue. And as we build our brand, you know, I've talked about that many times over, you know, now clients are recognizing the expertise that we bring to the table, the technical excellence that we are bringing to the table. It allows us to be more selective in the projects that we undertake, but it also allows us to charge for the great work that our engineers are doing. So, So overall, I feel that, you know, we are seeing improvement across the patch at the moment. Okay, that's helpful.

Thank you. Maybe turning back to APAC and maybe trying to frame this appropriately. So, you know, hearing what I'm hearing, it feels like I think you said that you're starting to see the region kind of fit for purpose. But you also mentioned you're starting to see signs of recovery, and I think you called out particularly Australia and New Zealand. But I'm just wondering, you know, is APAC going to be pretty much just Australia and New Zealand on a go-forward basis? And how do we think about, you know, given we've had the weak front end and the updated guidance, it almost implies that, you know, you're kind of at a more stable position today on a go-forward basis. So just any thoughts around, you know, Because APAC's got a lot of moving parts to it. Just any thoughts about how you see the APAC business evolving from this point forward?

Well, we're a big fan of our Asia-Pacific business. You know, through peaks and valleys, we've always been committed to Australia and New Zealand and will continue to be highly committed to New Zealand and Australia. At the moment, Canada is more than twice the size of our Australian business. So if we see opportunities to continue to grow our Aussie business, we will. But at the end of the day, when you look at the government data, the government data that was published, for instance, in New Zealand, we signed 2024, a reduction by the new government of 20% in investment in 2024 alone. and another further 4% or 5% in 2025, not because New Zealand doesn't have a good balance sheet. Actually, they have one of the best balance sheets, but because the new government wanted to reprioritize the infrastructure spending in other areas of the country. So, as I said before, and I said earlier on in my address, for us, this is just a near-term bus. and we expect those countries to go back to growth in the near term, progressive growth in the near term. And when you talk about Asia and Asia Pacific as a whole, you are right in saying that right now our focus area has been New Zealand and Australia, because Asia right now represents such a small part of our business going forward. And I would argue that there, too, most of the work has been done. So, We're feeling good going forward, essentially. All right. I'll leave it there. Thanks, folks. Thanks, Chris.

As a final reminder, if you wish to ask a question, please press star 1 and 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 and 1 again. Once again, please press star 1 and 1 if you have any questions. Thank you. We are now going to proceed with our next question. And the questions come from the line of Jonathan Coleman from Scotiabank. Please ask your question.

Hi. Good morning, team. Thanks for taking my questions. Most of them have been asked already. But, Alex, can you share your thoughts on the bill C-5 in Canada, how that may impact your business and Is the timing of that, I guess, more median to longer term? Or just how do you think about any opportunities for that flowing through?

I think overall, I mean, there's very few, a number of important bills that will come into effect. And we're feeling actually very good around the state of the country and the direction that the new government is going to take. So overall, I'm feeling very good about it.

Thanks for the color, and then I guess maybe one on the DSO. I mean, pretty impressive performance and all-time low. Can we think about that level as being sustainable? Obviously, there's the historical seasonality in the business, but can you maybe talk about some of the drivers that I'd like you to put in that performance?

I love that I answered that question.

Yeah, so... Yeah, so we're standing at a very good level for Q2 at 69 days. Our guidance for the full year is between 67 and 73. So we have to remember what have driven our DSO to be a bit higher in the past few years. There was two elements that impacted us. One is the initial rollout of our system, which in my opinion, this is Now behind us, things are working much better. And the second headwind we had was 174 overall on free cash flow, which has now been reversed through the One Big Beautiful Bill Act in the U.S. So we expect tailwind on free cash flow for Section 174 this year. And as it relates to DSO, I would say we're back to be leading again on that front, which we've been leading for many, many, many years. So part of the DNA, right, focused on productivity, but cash as well is a big area of focus for us. And I expect to continue to see good performance in the coming quarter, especially that we're entering Q3, but most importantly Q4 in 2021. big collection quarter. So I'm cautiously optimistic, I would put it that way, for continued good trajectory on the DSO level for the rest of the year.

Okay, great. Thanks for taking my question. Thanks, Jonathan.

We are now going to take our last question. And the last questions come from the line of Ian Gillies from Stifel. Please ask your question.

Good morning, everyone. Good morning, Ian. As you think about the aspirational EBITDA margin target of 22%, and when you're putting that together, I guess, how much impact did you anticipate in that from the AI tools and productivity gains that are going into place? And I know this is a bit of a challenging question. At what point do you think you'll be able to start more closely identifying the impact it's having on margins and productivity?

You are right in saying it's a tricky one. Look, I can tell you that we are very, very active in that space, and we are working very closely with Microsoft, and the strategic alliance that we formed together is extremely helpful in that regard. I can tell you, for instance, I'll give you an example. in our bidding group, and I'm careful about saying that, but we believe that very soon we will be able to reduce some of our human output by close to 80%. So that's not de minimis because we have bidding groups across each and every segment and across each and every country. So that's an example of of where we feel we can make tremendous improvement and reduce human intervention. But it's not just about AI. It's about what we have been able to achieve over the last decade. If you take our revenue per employee over the course of the last decade, you will see constant growth over the years of cheaper employees. And that's a testament of what we have been able to achieve. In other words, doing more with less. And you will see that our revenue at the moment is going much faster than our headcount, if you track that very carefully. And that's why today, unlike perhaps five, six, seven years ago, I am not talking as much about headcount than we used to, because to me it's becoming more irrelevant than it was five, six years ago. So I hope I'm answering that question. But certainly, I mean, in terms of human intervention and all of our corporate function, but also in operation, we are seeing tremendous opportunities at the moment.

No, that's very helpful. And maybe on a separate note, backlog growth year to date obviously is expected to pick up. Can you maybe talk a bit about the impacts environmental has on that backlog growth? Because if I recall correctly, the churn is usually a little quicker, and I believe backlog typically grows in that business in 4Q. Yeah.

Well, the backlog has continued to grow. That's good. We have a very dynamic sector for us in Canada. It also has been very dynamic in the U.S. In the short term, I think this year, for reasons I can't explain, with definitive statements, the fieldwork has been a little bit more quiet than perhaps what we have seen in the last two or three years, especially in the U.S. But I don't believe it's related to anything that has been discussed in the press or the changes that the administration are looking to make. But in terms of activity level, in terms of market dynamics, we're feeling very good about it. Remember also that there was a strike in the province of Quebec by engineers, so that too impacted a little bit of our Canadian business this summer. But I think these are moment in time as opposed to, you know, structural issues in the marketplace.

Understood. Thanks very much. I'll turn it back over. Thank you. Thanks, Ian.

We have no further questions at the moment, so I hand back to you for closing remarks. Thank you.

Well, thank you very much. Again, we're extremely pleased with the quarter, the strong performance of our large hubs, our margin improvement, and especially our cash flow generation. M&A pipeline is great, and we look forward to updating you over the course of the next few quarters. Thank you very much, and have a great day.