Chris Murray

Chris Murray from ATB Capital Markets asked about the puts and takes influencing Stantec's margin guidance for the upcoming period, particularly the evolution towards the higher end of the range, and inquired about new developments or "green shoots" in the resource business, including pipelines and pre-feasibility work.

Answer

Vito Culmone, EVP and CFO, Stantec, attributed margin improvement to operational efficiency (project margin, utilization) and back-office optimization, expecting continued progress through global delivery centers and discretionary spend focus. He noted that higher revenue growth would increase the probability of reaching the higher end of the EBITDA margin range. Gord Johnston, President and CEO, Stantec, confirmed new resource projects like a natural gas pipeline in Tennessee and strong performance in South American copper mining, driven by energy transition needs.

Chris Murray inquired about the puts and takes influencing Stantec's margin evolution for 2026 and any new developments or 'green shoots' in the resources business, including pipelines and mining.

Answer

EVP and CFO Vito Culmone explained that margin improvement in 2025 was split between operational enhancements (project margin, utilization) and back-office efficiency, expecting continued progress through global delivery centers and disciplined spending. President and CEO Gord Johnston highlighted developments in the resources business, including environmental work for a natural gas pipeline in Tennessee, strong performance in South American copper mining, and growth in energy transition projects, noting high single-digit organic growth in the sector for 2025.

Chris Murray questioned Stantec's commitment to the $7.5 billion net revenue target by the end of next year, given current consensus and the challenge of achieving a 7% organic CAGR. He also asked about re-evaluating share buybacks (NCIB) versus prioritizing M&A as a capital allocation strategy.

Answer

Vito Culmone, EVP and CFO, clarified that the $7.5 billion target was based on a 7% organic CAGR plus acquisitions, stating Stantec is not 'married' to the specific number but to its strategy of diversification, organic growth, and M&A. Gord Johnston, President and CEO, added that robust M&A optionality exists. Culmone reiterated capital allocation priorities: internal needs, dividend, and M&A, with M&A prioritized as a significant value creator, but the NCIB remains available for opportunistic use.

Chris Murray questioned Stantec's commitment to its CAD 7.5 billion revenue target by end of next year, given current consensus and the difficulty of achieving a 7% CAGR, and also asked about the potential for increased share buybacks (NCIB) versus prioritizing M&A.

Answer

Vito Culmone, EVP and CFO, clarified that the CAD 7.5 billion target was based on a 7% organic CAGR plus acquisitions, acknowledging that the 7% CAGR might be challenging. He stated the company is not 'married' to the specific number, with strategy driving activity. Vito outlined capital allocation priorities, emphasizing M&A as a significant value creator, while confirming the NCIB remains available for opportunistic use.

Chris Murray questioned the long-term outlook for the U.S. business and the current impact of AI and technology on the company's margin profile.

Answer

President and CEO Gord Johnston and EVP and CFO Vito Culmone expressed a bullish long-term view on the U.S., citing unspent IIJA funds and strong macro trends, viewing the recent slowdown as transitory. Regarding technology, Gord Johnston stated it is still 'early days' for AI to have a material impact on margins, though the company has deployed over 10,000 Copilot licenses and is actively exploring efficiency gains.

Chris Murray asked for an update on the U.S. government business amid political uncertainty and questioned the integration progress and growth strategy for the ZETCON acquisition in Germany.

Answer

Executive Gordon Johnston stated there has been no appreciable impact from U.S. political uncertainty, aside from a brief, now-resolved slowdown in procurement cycles. Regarding ZETCON, Johnston confirmed it is performing ahead of expectations, driven by Germany's robust infrastructure market. He noted the integration is intentionally slower due to complexities but serves as a platform for future German acquisitions.

Chris Murray of ATB Capital Markets questioned the 2025 EPS guidance, seeking clarity on any unusual items like the Q4 step-down in intangible amortization and whether stock buybacks were included.

Answer

Executive Vito Culmone clarified that the EPS guidance is driven by strong business fundamentals, including revenue growth and margin expansion. He confirmed the guidance does not model any future acquisitions or additional stock buybacks but does reflect some benefit from lower interest expenses due to reduced debt levels.

Chris Murray of ATB Capital Markets questioned why Stantec's performance seems unaffected by the sub-50 Architectural Billings Index (ABI) in the U.S. He also asked about the opportunity pipeline in the traditional oil and gas energy business.

Answer

CEO Gordon Johnston attributed the company's resilience to its business mix, which has strong bipartisan support in areas like infrastructure (IIJA), healthcare, and mission-critical facilities, offsetting the slow commercial sector. CFO Theresa B. Jang stated that traditional oil and gas work remains muted, with growth shifting to power transmission, grid hardening, and critical minerals mining.

Chris Murray asked about the margin expansion seen in Q4 2025 and the 2026 outlook, specifically regarding underlying improvements from turnover and risk, and why those trends might not extend more into 2026. Chris Murray also inquired about the Canadian government's new methane emissions regulations for landfills and their potential impact on the Canadian landscape, including opportunities or costs.

Answer

Mary Anne Whitney (CFO) explained that while positive trends in employee retention and safety continue, the company is two years into a multi-year benefit, and further improvements become harder. She noted that the 50-70 basis points of underlying margin expansion guided for 2026 is still above the historical 20-40 basis points, reflecting continued benefits. Ron Mittelstaedt (President and CEO) stated it's too early to make an educated response but noted that their Canadian leadership team was not concerned about the new regulations based on current understanding.

Chris Murray with ATB Capital Markets asked to reconcile the Q4 margin expansion (driven by price-cost spread, turnover, and risk improvements) with the lower year-over-year growth rate proposed for 2026. Chris also inquired about the impact of new Canadian government regulations on methane emissions for landfills.

Answer

Mary Anne Whitney (CFO) explained that while positive trends continue, the guided 50-70 basis points of underlying margin expansion for 2026 is still above historical averages, acknowledging that incremental gains become harder after hitting record lows. Ron Mittelstaedt (President and CEO) stated it's too early to provide an educated response on Canadian methane regulations but noted that their Canadian leadership team was not concerned based on current understanding.

Chris Murray of ATB Capital Markets inquired about the volume performance difference between construction/manufacturing and service-based end markets. He also asked about the outlook for outsized margin expansion into 2026-2027.

Answer

CEO Ronald Mittelstaedt clarified that volume weakness is concentrated in cyclical construction and manufacturing, while 'Main Street' commercial business remains positive. CFO Mary Whitney expressed confidence in achieving margin expansion beyond the typical 20-40 basis points in future periods, citing tailwinds from normalizing commodity prices and other initiatives.

Chris Murray of ATB Capital Markets requested an update on the E&P business, including the integration of Secure's assets, and asked about the reduction in employee turnover and the methods used to preserve company culture during a period of high acquisition activity.

Answer

Executive Ronald Mittelstaedt stated the E&P business is performing well, with the legacy U.S. business up 10% and the acquired Canadian business exceeding expectations. He detailed the significant progress in reducing voluntary employee turnover to the 13.5-14% range, attributing successful cultural integration of acquisitions to a decentralized model, speed, and the servant leadership philosophy.

Chris Murray asked about GFL's progress on its self-help initiatives (technology, turnover, pricing strategies) since the investor day, inquiring if new opportunities are emerging, and where GFL stands in its margin catch-up against the industry, particularly for the MSW business.

Answer

Luke Pelosi, CFO of GFL, affirmed that GFL is consistently executing on its well-crafted self-help strategies, leading to industry-leading margin expansion and exceeding guidance. He emphasized that the core levers remain unchanged, and GFL is progressing ahead of its pro rata ramp towards the investor day goals, with the setup for 2026 indicating further advancement.

Chris Murray asked about the progress on GFL's self-help initiatives (technology, turnover, pricing strategies) since the investor day, inquiring if any new opportunities are being uncovered, the company's position in margin catch-up against the industry, and strategies to drive MSW business margins over the next couple of years.

Answer

Luke Pelosi (CFO, GFL) affirmed that GFL is consistently delivering on self-help levers, leading the industry in margin expansion and exceeding guidance. He stated that the strategies and focus, crafted by Billy and the team, have not changed and are the highest and best use of time. He expects the levers to remain consistent in the medium term, with continued progress towards margin goals, potentially accelerating in 2026.

Chris Murray from ATB Capital Markets Inc. asked for the expected rollover revenue contribution in 2026 from M&A completed this year. He also inquired about the future capital allocation strategy, particularly regarding dividend increases, given maturing cash flow and potential proceeds from the GIP sale.

Answer

Executive VP & CFO Luke Pelosi explained that M&A in the back half of the year will create a significant rollover revenue contribution for 2026. Founder, Chairman, President & CEO Patrick Dovigi confirmed that increasing the dividend to normalize with peers is part of the capital allocation plan over the next 12-24 months, enabled by deleveraging and repatriated funds.

Chris Murray sought clarification on the drivers of strong price growth in Canada and asked if EPR opportunities are now emerging in the U.S. as the Canadian model proves successful.

Answer

Executive Luke Pelosi clarified that while most EPR impact is volumetric, a portion of Canada's strong pricing came from re-pricing long-term contracts to current market rates. CEO Patrick Dovigi confirmed that U.S. states are looking to the Canadian model, with legislation advancing in several states. He noted GFL is advocating for efficient models that consolidate volume under a single entity.

Chris Murray asked for an update on core margin enhancement initiatives, the supply chain for new vehicles, and any operational complexities involved in a potential sale of the Environmental Services (ES) business.

Answer

CFO Luke Pelosi confirmed that initiatives like in-truck tablets are progressing well and will be a key future margin lever, alongside RNG and EPR. CEO Patrick Dovigi stated that truck supply has significantly improved to 85-90% of their needs. Both executives affirmed that separating the ES business would be operationally simple, with minor overlaps in HR and Treasury, and less complex than prior divestitures.