Stantec Inc. Q1 FY2026 earnings call

Core Financial & Operational Results

• Achieved a solid start to 2026, with 3.6% organic net revenue growth across all regional operating units, marking continued strong execution on the company's diversified business platform
• DSO improved 3 days YoY to 74 days, below the internal 75-day target; net debt to adjusted EBITDA remained 1.3x, within the 1-2x internal target range, leaving the balance sheet well-positioned for future acquisition activity
• Q1 net operating cash outflows totaled $2.3 million, in line with typical seasonal Q1 cash flow patterns; transitory working capital impacts from the Page financial migration and higher organic growth-related investment in the global region were the primary drivers of the outflow
• Total contract backlog reached a record $9 billion at the end of Q1, up 13.2% YoY, representing approximately 13 months of work: 9% of backlog growth came from 2025 acquisitions, 5.4% from organic growth. The global region delivered 22% YoY organic backlog growth, while water and buildings both achieved nearly 10% YoY organic backlog growth

Sustainability & ESG Highlights

• Released the 19th annual sustainability report in April 2026, noting 68% (~$1.4 billion of gross revenue) of total revenue comes from work aligned with UN Sustainable Development Goals
• Achieved operational carbon neutrality for the fourth consecutive year, maintained an A- CDP climate score for the eighth consecutive year, and continues progress toward net zero commitments under Canada's net zero challenge
• Sustainability remains a core driver of Stantec's long-term growth strategy, shaping market focus, project selection, and service delivery

Key Project Wins

• Awarded design services for the construction phase of a multibillion-dollar semiconductor manufacturing and R&D facility in Idaho, including on-site water treatment and ancillary buildings
• Selected as lead designer via joint venture for Austin, Texas' first fully electric light rail system, a 10-mile, 15-station multidisciplinary project
• Awarded oversight and quality review for a tailings management facility on a large copper mining project in Chile, with scope running through construction and commissioning

Stantec reports results across three geographic operating segments, with overall Q1 2026 net revenue of $1.7 billion, up 9.1% year-over-year (3.6% organic growth, 7.2% acquisition growth):

• U.S. segment: Net revenue increased 11% YoY, driven by 12.5% acquisition growth from the Page acquisition and almost 3% organic growth. The water business achieved double-digit organic growth (driven by large wastewater treatment projects), energy and resources delivered solid organic growth (supported by a major hydropower dam project), and infrastructure delivered growth from north central U.S. data center projects. This segment contributes approximately 50-55% of total net revenue based on overall company disclosure.
• Canada segment: Net revenue grew just over 1% organically YoY. The water, energy and resources, and buildings businesses all delivered robust organic growth, while the infrastructure business saw a pullback from the wind-down of transit and roadway projects. This segment contributes approximately 25-30% of total net revenue.
• Global segment: Net revenue grew over 13% YoY, driven by almost 8% organic growth, 3% acquisition growth, and positive foreign exchange impacts. The water business delivered 15% organic growth via long-term framework agreements across the UK, Australia, and New Zealand; energy and resources saw strong organic growth from project wrap-up activity in Chile and Peru driven by copper demand for the energy transition; and German infrastructure achieved double-digit organic growth from a major public sector electrical transmission project and increased transit/rail volume. This segment contributes approximately 15-20% of total net revenue.

By business vertical, organic growth was 14%+ for water, almost 9% for energy and resources, with all verticals achieving positive organic growth across regions. Adjusted EBITDA for the company increased almost 14% YoY to ~$287.3 million, with an adjusted EBITDA margin of 16.9% (up 70 basis points YoY).

• Management reaffirmed full-year 2026 financial guidance with no upward or downward revisions from prior targets
• Full-year 2026 total net revenue growth is expected to be in the range of 8.5% to 11.5%, with organic net revenue growth in the mid to high single digits, with growth expected across all geographic segments and business units
• U.S. organic growth is expected to accelerate, supported by strong demand across all five business verticals, with particular tailwinds from data centers, defense, and advanced manufacturing
• Canadian growth is expected to be driven by new public sector spending plans and continued energy and resources demand, with emerging long-term growth from new federal defense and Arctic infrastructure programs that will contribute to growth beyond 2026
• Global segment organic growth is expected to remain strong, driven by ramping activity in the water business under AMP8 and other long-term framework agreements, and continued strong demand for energy transition-related mining work in South America
• Adjusted EBITDA margin is expected to expand to a record range of 17.6% to 18.2% for full-year 2026, with adjusted EPS growth of 15% to 18% compared to 2025
• Full-year guidance does not include any assumptions for future acquisitions, given the unpredictable nature of deal timing and size
• Management expects sequential improvement in organic growth through 2026, with a clear ramp up from Q1 levels through the back half of the year

No material new operational risks or failures were explicitly discussed during the call. The only risk factors referenced were standard forward-looking statement qualifications, which were pre-disclosed in slide materials and regulatory filings, and the general unpredictability of M&A timing, size, and valuation.

Q: Given current depressed public valuations and the company’s historical preference for M&A, how is management thinking about share buybacks as a capital allocation option? / A: Management confirms strategic acquisitions remain the highest value-creation opportunity for the company, matching long-standing capital allocation priorities. At current valuation levels, share buybacks are becoming an increasingly attractive capital structure optimization tool, and the company expects to pursue buybacks in upcoming post-quarter open trading windows. The 2% approved NCIB capacity is not large enough to impact the company’s ability to pursue planned M&A activity.

Q: What is driving the Q1 2026 margin expansion, and how should we expect margins to trend through the rest of 2026? / A: Project margins remained steady at 54% year-over-year, only slightly lower than prior year due to mix (the faster growing global segment has a modestly lower margin profile than other segments). All margin expansion came from lower administrative and marketing expenses as a percentage of net revenue, driven by improved employee utilization and operating scale. This marks the sixth or seventh consecutive quarter of year-over-year margin expansion, and management remains confident in hitting the full-year 17.6% to 18.2% margin target.

Q: Are clients asking to share cost savings or upside from faster design work driven by AI adoption? / A: Management reports AI adoption is primarily creating new service opportunities, rather than leading to demands for price cuts. Stantec is co-creating AI tools with many clients, for applications like AI-enabled wastewater plant operations and digital twins, which have already helped win large new projects, including a major water treatment plant in the Middle East. On fixed-fee projects where AI enables faster delivery, clients have not asked for fixed price reductions to date, though management acknowledges this could change in the future.

Q: Is there a growing trend toward larger, bundled projects, and how does this impact Stantec’s business? / A: Clients across the U.S. and Canada are increasingly bundling multiple independent projects or multiple project phases into a single large award, to reduce their own procurement time and effort, awarding to a smaller set of trusted providers. Average project size for these bundled awards is $100-$200 million, compared to a typical average of a couple hundred thousand dollars. The trend benefits Stantec, as only large firms like Stantec can handle these complex, multi-year projects, creating improved pricing power. The diversified business model allows Stantec to fill capacity with smaller projects as large projects ramp up and down, with no material concentration risk from the trend.