Stantec Inc. Q3 FY2025 earnings call

Management Statement and Operational Highlights:

• Financial Results: Net revenue reached $1.7 billion in Q3, a 12% increase y-o-y driven by organic and acquisition growth. Adjusted EBITDA grew ~18% y-o-y with a record margin of 19%. Adjusted EPS grew 17.7% y-o-y.
• Geographic Performance: U.S. net revenue up over 14% in Q3 (4.6% organic, ~9% acquisition growth). Canada's net revenue grew 7.6% in Q3, fully organic. Global net revenue grew almost 11% in Q3.
• Backlog: Contract backlog stood at $8.4 billion, a 15% y-o-y increase, representing ~13 months of work.
• Project Wins: Notable wins included Manitoba Hydro's $7B high-voltage direct current reliability project, a $745M SC-90 corridor widening project, and hospital projects in Western Australia.

Segment Performance:

• Water: Delivered almost 13% organic growth.
• Energy & Resources: Achieved nearly 10% organic growth.
• Buildings: In the U.S., net revenue increased by more than 40% in Q3 and over 20% year-to-date, driven by acquisition of Page and organic growth.
• Infrastructure: In Canada, solid growth supported by land development, airport, transit, rail, and bridge projects.
• Global: Net revenue grew almost 11% in Q3, with 5.5% organic and 2.8% acquisition growth, plus positive foreign exchange impacts. Revenue contributions by segment were not explicitly stated as percentages in the transcript, but key segments' growth rates were highlighted.

Guidance:

• Full-Year Net Revenue Growth: Maintained.
• Adjusted EBITDA Margin: Outlook increased to 17.2%-17.5% due to strong operational performance and cost management.
• U.S. Organic Growth: Mid-single-digit guidance maintained due to persistent slower procurement cycles.
• Canada and Global Organic Growth: Mid-to-high single digits expected, supported by strong demand and backlog levels.
• Adjusted EPS: Expected range of 18.5%-21.5% for the year.
• Adjusted ROIC: Expected to be greater than 12.5%.

Risks:

• U.S. Procurement Cycles: Slower due to factors like government shutdowns and uncertainty, affecting backlog and project signings.
• AMP8 Customer Financial Difficulty: One of the largest customers in the U.K. AMP8 program has financial issues, but no impact on Stantec's business as work still needs to be done.
• Defense Spending: Slow to materialize but expected to grow over time, with exposure in areas like ports, dry docks, etc., but not yet material.

Question and Answer: Q: Knowing it's close to year-end, any color on 2026 outlook?

A: Gordon Johnston mentioned strong momentum into 2026, with global water programs ramping up, Canada's federal budget supporting infrastructure, U.S. macro fundamentals still strong, and defense spending opportunities.

Q: Concerns about leading indicators like weak Canada economic data, U.S. government shutdown, etc.?

A: Gordon Johnston noted U.S. procurement cycles slowed but macros unchanged, AMP8 work continues regardless of customer issues, and Canada has broad-based strength. Vito Culmone highlighted diversity as an asset.

Q: Update on M&A pipeline?

A: Gordon Johnston said robust M&A discussions ongoing, supportive board and investor community, and looking for appropriate opportunities.

Q: Concerns about IIJA funds not being released?

A: Gordon Johnston stated no indication IIJA would be canceled, sees continued momentum.

Q: Margin guidance and changes from年初?

A: Vito Culmone said project margins stable, admin and marketing costs down, utilization and scale contributing to margin expansion.

Q: Page acquisition integration progress?

A: Vito Culmone and Gordon Johnston said integration progressing well, realizing synergies.

Q: Margin improvement sustainability in 2026?

A: Vito Culmone said commercial activity enables margin expansion, expected to continue.

Q: Exposure to defense and data center?

A: Gordon Johnston said defense exposure sub-5%, data center ~3% of revenue, both growing.

Q: 7.5B revenue target?

A: Vito Culmone said target not driving activity, but organic growth and acquisitions support it.

Q: Stock buyback and capital allocation?

A: Vito Culmone said focus on M&A, free cash flow, dividends, and NCIB as needed.

Q: U.S. procurement and environmental services growth?

A: Gordon Johnston said U.S. procurement delays affect ES, but expected to accelerate in 2026.

Q: German market growth drivers?

A: Gordon Johnston said German market growing due to government investments, electrical transmission projects, and infrastructure work.

Q: U.S. organic growth sequential and margin guidance?

A: Vito Culmone said U.S. organic growth not deteriorating, margin guidance not indicating significant pullback.