Stantec Inc. Q2 FY2026 earnings call

Overall Q2 2026 Financial Performance

• Net revenue reached $1.8 billion, up ~12% year-over-year, consisting of ~4% organic growth and 7% acquisition growth.
• Adjusted EBITDA increased over 17% year-over-year to a Q2 record margin of 18.7%, up 90 basis points year-over-year; trailing 12-month adjusted EBITDA margin is 18%, up 80 basis points from the prior period.
• Adjusted diluted EPS grew 18.4% year-over-year to $1.61.

Backlog and Recent Project Wins

• Total contract backlog reached a record $9.2 billion at quarter-end, up 17.5% year-over-year (equal to ~13 months of work), with 7% organic year-over-year backlog growth.
• Notable recent awards include: architecture and engineering services for Meta's $13 billion data center in Sturgeon County, Alberta; preliminary design for the 23 million gallon per day Drake Water Reclamation Facility in Fort Collins, Colorado; engineering services for the Redcliffe Hospital redevelopment in Queensland, Australia; and a 10-year framework agreement for non-residential social infrastructure with Western Australia's Department of Housing and Works.

Capital Allocation and M&A

• Disciplined M&A remains the top priority for long-term shareholder value creation, with a robust deal pipeline despite ongoing valuation dislocation between public and private targets.
• Stantec completed the acquisition of Niche, a 200-person Australia-based engineering and environmental consultancy, in late July to strengthen regional environmental services capabilities.
• In Q2, the company repurchased 1.7 million common shares (1.5% of outstanding shares) under its NCIB program for $175 million; net debt to adjusted EBITDA remains 1.3x, within the 1.0-2.0x target range.
• Management plans to seek TSX approval to expand the NCIB program from the existing 2% limit.
• Days sales outstanding (DSO) was 75 days at quarter-end, within internal target ranges.

Leadership Transition

• This was outgoing CEO Gord Johnston's final earnings call; he will retire effective October 1, 2026 and transition to Vice Chair of the Board of Directors.
• Susan Reisbord will succeed Gord Johnston as CEO, with full backing from the company and outgoing leadership.

Stantec reports results by geographic operating segments:

1. U.S. Segment: Net revenue increased almost 13% year-over-year, with 7% of growth coming from the Page acquisition. Organic growth was flat in Q2 2026 due to project start delays and slower ramp-up of awarded projects. Strong demand is supported by long-term public and private investment across infrastructure, energy, transportation, water, and advanced manufacturing end markets.
2. Canada Segment: Net revenue grew 2.4% organically year-over-year. Double-digit organic growth was achieved in the water business, driven by biosolids and wastewater projects. Robust growth was also reported in buildings (driven by public sector civic market investment) and environmental services (driven by increased mining sector environmental planning work). The infrastructure segment is experiencing an expected wind-down of legacy transit and roadway projects per scheduled project cycles.
3. Global Segment: Net revenue grew over 18% year-over-year, consisting of ~13% organic growth, ~2% acquisition growth, and positive foreign exchange impacts. The water business delivered over 20% organic growth driven by long-term framework agreements and public sector water infrastructure investment across the UK, Australia, and New Zealand. Strong organic growth in energy and resources came from project wrap-up work in Chile and Peru, supported by growing demand for energy transition-related copper mining. Infrastructure achieved modest year-to-date organic growth, led by double-digit organic expansion in Germany from a large public sector electrical transmission project and growing volume on transit and rail projects.

• Stantec maintains its full year 2026 net revenue growth target of 8.5-11.5%, driven by strong acquisition growth from the Page acquisition and broad-based organic growth across regions.
• Full year 2026 overall organic net revenue is expected to land in the mid single-digit range, with organic growth of mid single-digits expected for both the U.S. and Canada segments, and high single-digit organic growth expected for the global segment.
• Management upgraded and narrowed its full year 2026 adjusted EBITDA margin guidance to 17.8-18.3%, up from prior guidance, reflecting stronger-than-expected year-to-date margin performance and ongoing operational excellence focus.
• Stantec maintains its full year 2026 adjusted EPS growth target of 15-18%.
• U.S. organic growth is expected to accelerate to high single-digit levels in the second half of 2026, as delayed Q2 projects ramp up and the Page acquisition shifts from being reported as acquisition growth to organic growth starting in Q3.
• Large Canadian defense and nation-building infrastructure projects are expected to contribute meaningfully to growth starting in 2027.

• There is ongoing valuation dislocation between public market valuations and private target valuations that could slow M&A activity until the gap narrows.
• U.S. midterm elections may introduce short-term uncertainty for project approval and ramp-up timelines for public sector projects.
• U.S. IIJA surface transportation funding is set to have remaining funds encumbered by the end of September 2026, with new federal surface transportation reauthorization not expected to pass until early 2027 after the election, though management does not expect a material negative impact on 2027 results.
• Working capital and DSO levels are currently at the higher end of internal target ranges, requiring focused collections effort in the second half of the year.

Q: What drives confidence that U.S. organic growth will accelerate to high single-digit levels in the second half after flat Q2 organic growth, and what caused the Q2 slowdown? / A: The Q2 slowdown was purely a timing issue, not a demand issue. Several scheduled project wrap-ups coincided with awarded projects being slower to start than expected across multiple segments, including a large Navy environmental program, a Western U.S. electrical utility project, and a Southern U.S. public transit project. All of these delayed projects have now kicked off in Q3, with positive momentum, organic backlog growth is already positive year-over-year, and the Page acquisition will shift from acquisition growth reporting to organic growth starting in Q3, supporting the acceleration thesis.

Q: What is the outlook for long-term project margin expansion, after project margins rose 30 basis points to 54.5% in Q2? / A: Project margins are the core driver of bottom-line performance for the business. Strong macro demand across end markets allows Stantec to prioritize appropriately priced, high-value projects with the right risk profile, supporting continued project margin strength. Management will share a more detailed long-term margin outlook as part of the new three-year plan to be released at the December 2026 investor day.

Q: What is driving stronger-than-expected growth in the global segment, and how do you plan to match workforce to elevated backlog levels? / A: Growth is broad-based across global regions: mid single-digit organic growth in Australia, 15% organic growth in the UK driven by AMP8 water framework agreements, low 20% organic growth in Germany, and over 50% organic growth in Latin America driven by copper mining demand for energy transition. Stantec is already hiring aggressively across high-growth regions, has hit its 2026 target of 2,000 employees at its global delivery center in India ahead of schedule, and is expanding capacity to convert backlog into revenue.

Q: Given valuation dislocation between public and private M&A targets, will Stantec increase share buybacks to deploy excess capital? / A: M&A remains the top long-term value creation priority, and management expects more M&A activity over the next 12 months than the prior 12 months, starting with the recently closed Niche acquisition. The company is expanding its NCIB program from 2% to 5% of outstanding shares to retain flexibility for buybacks at current valuations, but does not plan to implement a substantial special buyback at this time, and will prioritize disciplined M&A.