Stantec Inc. Q2 FY2025 earnings call

• Acquisitions: Closed acquisition of Page on July 31, complementing buildings business and bolstering services in key growth sectors. Acquired Cosgroves in New Zealand on June 27 and Ryan Hanley in April.
• Recognition: Ranked #1 architecture firm in health care worldwide by Modern Healthcare's 2025 Construction & Design survey, ranked fifth on Time Magazine's 2025 list of Canada's best companies, and among the top 50 of the world's 500 most sustainable companies.
• Financial Results: Q2 net revenue $1.6 billion, up 6.9% YOY; adjusted EBITDA up 15% with margin 17.8%; adjusted EPS growth over 21%. Year-to-date, adjusted EBITDA margin 17%, adjusted EPS up 24.9%.
• Backlog: Contract backlog at $7.9 billion, reflecting ~12 months of work; up ~10% YOY, with double-digit growth in Water and Energy & Resources.

Energy & Resources: Delivered high single-digit organic growth. In the U.S., growth saw the ramp-up of a major hydropower dam project in the Southwest. In Canada, consistent progress on major industrial process projects drove double-digit organic growth. Global Energy & Resources saw ramp-up of new projects in Chile and Peru driving double-digit organic growth. Water: Achieved 12.4% organic growth in Q2. In Canada, continued momentum on major wastewater projects contributed to over 30% organic growth. Industry-leading water business delivered double-digit organic growth across the U.K., Australia, and New Zealand through long-term framework agreements and public sector investment in water infrastructure. Buildings: In the U.S., client demand for mission-critical, science and technology, and civic contributed to growth. In Canada, solid growth in infrastructure was supported by land development projects in Alberta and public sector investment in Western Canada drove growth in health care and civic markets. Global Business: Delivered net revenue growth of 10.5% in Q2 with 4.3% organic and 3.6% acquisition growth as well as positive foreign exchange impacts. Growth within global operations was driven by new project awards in Infrastructure and Environmental Services business in Europe and AMP8 project awards in U.K. Water business.

• Net Revenue: Now expects 10%-12% growth in 2025, up from previous 7%-10%.
• Adjusted EBITDA Margin: Increased to 17%-17.4%, up from 16.7%-17.3%.
• Adjusted EPS: Expected 18.5%-21.5% growth, up from 16%-19%.
• Adjusted ROIC: Expected >12.5%.

• U.S. Policy Shifts: Administration shifts in policy, funding priorities, tariffs, and regulatory frameworks could impact organic growth.
• Client Delays: Slower procurement in public sector and some private sector capital projects due to early retirements of agency personnel.
• Market Exposure: Cyclical market exposure, though currently within capping, could be a risk if not managed.

Q: I was wondering if maybe you can just provide us with a little bit of additional color on what you're hearing from your U.S. customers, specifically in the private sector, as you called out, maybe an elevated level of caution right now.

A: Yes, great question, Krista. What we're seeing is in the first half of the year, there was a little bit of trepidation to make that final investment decision and to move forward. But as we said in the prepared remarks, we really are looking to see our -- forecasting our U.S. organic growth to accelerate in the second half of this year. our U.S. backlog is up 9% -- 9.8% organically year-over-year, and it's actually particularly strong in water, energy and data centers, some of those private sector type work that you're talking about.

Q: And then maybe just on the acquisition front, you guys have been busy with a couple of acquisitions recently. How are you feeling on the integration? I appreciate Page was just 2 weeks ago here, but just any update there?

A: Yes. So the Ryan Hanley is a firm -- a smaller firm, a couple of hundred people in Ireland. We've been working with them for years. So that integration is going very well. We actually anticipated, I think, to be completed by the end of this year, the financial integration. Cosgrove, similarly, 90-person firm, 100-person firm down in New Zealand. That one is continuing. Page is really interesting. 1,400, 1,500 people, but we've worked with them for a long time. And we've -- over the last number of months, we've been working on how do we align leadership, starting to look already at the financial transformation. And in fact, that's planned for Q4 of this year. So we think we're going to be in pretty good shape, really having wrapped up the majority of the integration and the financial work by the end of the year on all 3 of these.

Q: On the water side, it looks like about a 12.5% organic growth this quarter. And the interesting thing there being it's been several years of good strength in the water market. So maybe if you can just help us think through what drove that, the near-term demand drivers. It sounds like AMP8 might still be at the early stages. So assuming some of the other work is driving. So maybe just give us a perspective on what's driving the strong growth there and maybe the opportunities in the data center side if some of those are tied to water as well.

A: Right. No, great perspective. As we've talked about before, and I think everyone on the call is aware, like we've had strong organic growth in water back to 2019. And every quarter, it just continues to get stronger with our overall water business. And so you're right, we're still early days with AMP8 ramping up, although we are already sort of at a level roughly about 50% higher this time of year than we were a year ago. So we're -- that is already coming, and we're actively hiring people in the U.K., expanding our delivery centers in Pune, India to continue to service that demand. But I think we talked about like even in Canada, we had 30% organic growth on top of more and more strong quarters year-over-year. So there's just an enormous amount of work that we see in water treatment, wastewater treatment, advanced manufacturing facilities. You mentioned the data centers. But also as we're talking to clients about reshoring some of their facilities, it all starts with water. So while our water business continues to strengthen, our backlog is even up even further. So we see continued strength in that water business for the remainder of '25 and really for the years to come. No slowing down in the water space whatsoever.