Stantec Inc. Q4 FY2025 earnings call

2025 was another record year for Stantec with sustained demand across diverse sectors. Net revenue growth was driven by organic and acquisition growth. Adjusted EBITDA margin reached the strategic plan target earlier than anticipated. Each geography and business operating unit showed positive performance. Buildings business grew due to Page acquisition and organic growth in mission-critical facilities. Water and energy resources businesses had double-digit growth. AI is being used internally and externally to improve efficiency, refine work products, and create new revenue opportunities across all end markets while maintaining professional standards.

In 2025, Stantec's net revenue grew nearly 11% to $6.5 billion compared to 2024, driven by 5% organic growth and 3.9% acquisition growth. Adjusted EBITDA increased close to 17% year over year, with the adjusted EBITDA margin reaching 17.6%, achieving the 2024-2026 strategic plan target range. In the US, Q4 net revenue increased 13.5%, and full-year net revenue grew nearly 11%. The buildings business saw net revenue increase over 30% for the year, primarily due to the acquisition of Page and solid organic growth. The water business achieved nearly 11% organic growth driven by large wastewater treatment projects. In Canada, Q4 net revenue grew 5.5% and full-year net revenue grew over 8%. The global business had Q4 net revenue growth of 11% and full-year net revenue growth of nearly 13%.

Stantec expects net revenue growth in 2026 to be in the range of 8.5% to 11.5% through organic and acquisition growth. Adjusted EBITDA margin is expected to continue expanding to between 17.6% to 18.2%. Adjusted EPS is expected to grow 15% to 18% compared to 2025. M&A remains a driver but must be value accretive.

Q: How do you think AI translates into revenue for employee utilization and the like?

A: AI is seen as a tool to drive more revenue per full-time employee, similar to previous technological enhancements like from calculators to AutoCAD.

Q: How long does it typically take for private companies to reset their valuation markers?

A: It's a new phenomenon, with an expectations adjustment taking time to flow through, and pricing conversations ongoing for M&A but focus on strategic fit.

Q: Where are you finding more application for AI tools today?

A: Using tools like stable diffusion in buildings group, AI to narrow down specifications, and in QA for design submittals across geographies and business lines.

Q: What's seen in the US market for 2026?

A: Increased activity, backlog up, strong data center work, environmental services work, energy transition work across sectors.

Q: Will AI benefit larger firms like Stantec over smaller ones and lead to consolidation?

A: AI will drive more firms towards consolidators as smaller firms lack resources to professionalize IT and cybersecurity, while larger firms can invest.

Q: Expand on defense side developments in Canada?

A: Renewed focus on defense, Arctic work, projects like Defense Construction Canada's multi-mission aircraft hangar and Grays Bay Road project.

Q: Thoughts on margin evolution?

A: Margin improvement from business operations, utilization, back office efficiency, continuing with global delivery centers and focus on project management.

Q: Developments in resources business?

A: Environmental work and permitting for natural gas pipeline in Tennessee, strong performance in Chile and Peru copper mining, electrical piece growth.

Q: Organic growth outlook by BOU in 2026?

A: Expect organic growth across all BOUs, water to continue strength, infrastructure rebound, buildings rebound, environmental services and energy resources to grow.

Q: How does AI affect M&A thinking?

A: Doesn't change core M&A thought process, but some targets with developed digital capabilities get attention.

Q: Thoughts on outcome-based pricing?

A: Depends on client and work type, government clients still mostly time and materials, industry working on moving to outcome-based but scope needs to be well defined.

Q: Ability to hit high end of margin guidance?

A: Higher revenue range increases probability of higher EBITDA margin, driven by operational leverage and initiatives.

Q: Canada organic growth outlook?

A: Q1 might be softer than full year but full year outlook strong with balance throughout the year.

Q: M&A and buyback?

A: Prioritize M&A but will look more closely at buybacks with respect to share price.

Q: IIJA anniversary and infrastructure bill?

A: Increasing activity in transportation space, current IIJA funds driving performance, no strong talk of IIJA 2.0 but industry busy.

Q: M&A pipeline of larger firms?

A: Still seeing larger firms coming to market, with good geographic spread and focus on value accretive deals.