Release Date: November 08, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Stantec Inc (STN, Financial) achieved record net revenue of $1.5 billion in Q3 2024, up almost 16% compared to Q3 2023.
- The company delivered solid organic growth in key geographies, with double-digit organic growth in the water and buildings businesses.
- Adjusted EBITDA for the quarter rose to $275 million, up almost 14%, with a healthy margin of 18%.
- Stantec Inc (STN) was ranked number 1 on Newsweek's list of Canada's Most Responsible Companies for 2025, highlighting its commitment to climate, social welfare, and responsible governance.
- The company's backlog reached a record-setting $7.3 billion, representing 9.5% acquisition and almost 5% organic growth across all regions.
Negative Points
- The energy & resources business experienced a slight retraction, particularly in the global mining sector, offsetting growth in the US and Canada.
- The percentage of net revenue from projects decreased by 50 basis points compared to Q3 2023, reflecting a minor shift in project mix.
- Admin and marketing expenses as a percentage of net revenue were slightly up, reflecting increased labor training and integration costs.
- The company's Q3 financial statements included a noncash charge reducing goodwill by approximately $310 million due to updated IFRS guidance.
- The adjusted EBITDA margin was slightly down compared to the previous year, even after normalizing for long-term incentive programs.
Q & A Highlights
Q: Can you comment on the sustainability of double-digit growth in the water and buildings segments, and what can we expect for the energy & resources segment?
A: Gordon Johnston, CEO: We see strong tailwinds for both water and buildings. Our water franchise is extremely busy across Canada, the US, Australia, and New Zealand, with significant framework agreements in the UK and Ireland. Buildings have shown strong organic growth, and we expect this to continue. For energy & resources, we anticipate a return to organic growth in Q4, supported by a 9% increase in backlog year-to-date.
Q: The margin was slightly down compared to last year. Is this due to LTIPs, or are there other factors?
A: Vito Culmone, CFO: The slight increase in admin and marketing expenses as a percentage of net revenue reflects some benefits from last year and share-based compensation impacts. The increase is also due to labor training and integration costs from acquisitions, which are within our expectations.
Q: What are your thoughts on the potential impact of the US election results on your business, particularly regarding the IIJA, CHIPS Act, and IRA programs?
A: Gordon Johnston, CEO: We feel neutral about the impact of the election on our business. Historically, we've performed well under both Republican and Democratic administrations. We expect continued support for IIJA and CHIPS, and while there might be changes to the IRA, we see potential opportunities from onshoring manufacturing facilities.
Q: How does the current M&A pipeline compare to 12 months ago, and are there specific markets where you want to bolster your presence?
A: Gordon Johnston, CEO: The M&A pipeline remains very full across various regions, including Canada, the US, and the UK. We see opportunities for expansion in the Nordics and Australia/New Zealand. We aim to double our size in the US and expand our presence in the UK beyond water.
Q: Does the recent election change your outlook for the water franchise in the US, particularly regarding PFAS renewal work and other water infrastructure programs?
A: Gordon Johnston, CEO: While there may be changes to PFAS regulatory limits or timelines, we don't expect significant impacts on our water business in the near term. There's substantial opportunity in water scarcity projects and advanced wastewater treatment, which should mitigate any election-related impacts.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
