Stantec Q2 Earnings Call Highlights

Stantec NYSE: STN reported higher second-quarter revenue, earnings and margins, while raising its full-year adjusted EBITDA margin outlook as management cited resilient demand across its regional and business-line portfolio.

Net revenue rose 11.5% year over year to CAD 1.8 billion in the second quarter, supported by 3.7% organic growth and 7.1% acquisition growth.

Gross revenue totaled CAD 2.2 billion.

Adjusted EBITDA increased more than 17%, while the adjusted EBITDA margin expanded 90 basis points from a year earlier to a record second-quarter level of 18.7%.

Adjusted earnings per share increased 18.4% to CAD 1.61.

Project margin as a percentage of net revenue rose 30 basis points to 54.5%.

“Strong operational execution, supported by sustained demand across our diversified multi-sector and multi-regional platform, continues to deliver solid financial results,” Executive Vice President and Chief Financial Officer Vito Culmone said.

President and Chief Executive Officer Gord Johnston said the company’s geographic and sector diversification continued to support its financial targets.

Organic growth was particularly strong in the global segment, which posted nearly 13% organic net revenue growth and more than 18% total net revenue growth, including acquisition and foreign-exchange effects.

Stantec’s water business delivered nearly 12% organic growth overall.

In the global business, water posted more than 20% organic growth, driven by long-term framework agreements and public-sector water infrastructure investment in the United Kingdom, Australia and New Zealand.

Global energy and resources growth was aided by new projects in Chile and Peru, where demand for energy-transition solutions is supporting mining activity related to copper.

Johnston said Germany’s infrastructure operations also benefited from a major public-sector electrical transmission project and transit and rail work.

During the question-and-answer session, Johnston said organic growth was broad-based across the global portfolio.

He said the U.K. was producing roughly 15% organic growth, Germany was in the low-20% range, and Latin American operations were delivering more than 50% organic growth.

Stantec is expanding hiring in Latin America, Germany and the U.K., as well as at its global delivery center in India.

U.S. net revenue increased nearly 13%, primarily reflecting the acquisition of Page and its ongoing performance.

Organic growth in the U.S. was flat during the quarter, however, as some projects ended on schedule and certain newly awarded work ramped more slowly than expected.

Johnston said the issue was one of timing rather than demand.

He cited a delayed U.S. Navy environmental program, a large electrical-utility project in the western U.S. and a public-transit project in the southern U.S. as examples of work that was slower to begin during the quarter but has since advanced.

He also said Page will transition from being reported as acquisition growth to organic growth during the third and fourth quarters.

Canadian organic net revenue grew 2.4%.

The company reported double-digit organic growth in water, supported by biosolids and wastewater projects, along with growth in buildings and environmental services.

Infrastructure activity was affected by the anticipated wind-down of certain transit and roadway projects.

Contract backlog at the end of the second quarter reached a record CAD 9.2 billion, up 17.5% from a year earlier and representing about 13 months of work.

Backlog increased in each region, with the g...