Krista Friesen

Krista Friesen from CIBC World Markets followed up on the M&A topic, asking if Stantec still anticipates a pipeline of larger firms coming to market, if Stantec remains interested given its balance sheet capacity, and if specific areas like power are a focus for these potential targets.

Answer

Gord Johnston, President and CEO, Stantec, confirmed that a pipeline of larger firms is still expected to come to market in the next couple of quarters, offering good optionality across geographies and work types. He reiterated Stantec's strong balance sheet and continued interest, while paying close attention to pricing. He mentioned some potential targets have a power focus, but others are in different lines of business across the US, Europe, and Australia.

Krista Friesen followed up on the M&A topic, asking if Stantec still anticipates a pipeline of larger firms coming to market this year and if they are interested in specific operating areas like power.

Answer

President and CEO Gord Johnston confirmed that a pipeline of larger firms is still expected to come to market in the next couple of quarters, offering good optionality across geographies and work types. He mentioned that some of these firms have a power focus, while others are in different Stantec business lines across the U.S., Europe, and Australia. He reiterated that Stantec's strong balance sheet positions them well for these opportunities, with careful attention to pricing.

Krista Friesen asked about the changes in Stantec's margin outlook relative to the beginning of the year, given the impressive Q3 performance and raised guidance. She also requested more details on the Page acquisition integration and realized synergies.

Answer

Vito Culmone, EVP and CFO, attributed the improved EBITDA margin to strong project margins and a 100 basis point reduction in administration and marketing expenses as a percentage of net service revenue, driven by scale, efficient delivery, higher utilization, and positive occupancy costs. He and Gord Johnston, President and CEO, confirmed the Page acquisition integration is progressing very well, exceeding expectations due to prior familiarity and leading to significant project-based and pursuit-based revenue synergies.

Krista Friesen inquired about the drivers behind Stantec's impressive margin performance and the changes relative to initial guidance, and also requested more details on the Page acquisition integration and realized synergies.

Answer

Vito Culmone, EVP and CFO, attributed margin improvement to strong project margins (0.1% ahead year-over-year) and a 100 basis point reduction in administration and marketing expenses as a percentage of net revenue, driven by scale, utilization, and disciplined cost management. Both Vito and Gord Johnston, President and CEO, confirmed the Page acquisition integration is progressing very well, exceeding expectations and yielding strong revenue synergies.

Krista Friesen inquired about the sentiment among U.S. private sector customers and the integration progress of recent acquisitions, including Page.

Answer

President and CEO Gord Johnston acknowledged some client hesitation in the first half of the year but noted that U.S. organic growth is expected to accelerate in the second half, supported by a 9.8% year-over-year increase in organic backlog. He also confirmed that the integrations of Ryan Hanley and Cosgroves are proceeding well, with the financial integration for the larger Page acquisition planned for Q4 2025.

Krista Friesen inquired about Stantec's M&A strategy, asking if the focus remains on smaller deals or includes larger transactions, and sought details on near-term acquisition priorities by business unit.

Answer

Executive Gordon Johnston confirmed Stantec is pursuing both small-to-medium firms and larger companies, with several in active discussion. Executive Vito Culmone emphasized that strategic fit is the primary criterion, not size. Johnston added that priorities include Water, Infrastructure, and Environmental services, while they will likely pause on architectural acquisitions following the Page deal. Geographically, the U.S., Australia, New Zealand, and the U.K. remain key.

Krista Friesen from CIBC asked for more detail on the stronger Q4 performance in the Energy & Resources segment and its outlook for 2025.

Answer

Executive Gordon Johnston explained that the segment returned to growth as expected in Q4 after facing difficult year-over-year comparisons earlier in the year. He highlighted a 14% year-over-year increase in the E&R backlog, driven by projects in Canada and the U.S. across power and mining. Johnston confirmed that Stantec forecasts a return to positive organic growth for the E&R segment for the remainder of 2025.

Krista Friesen asked for clarification on the expected Q1 CRS margins, specifically whether growth would be less than usual or if margins would be down year-over-year. She also inquired about StandardAero's military business exposure, potential expansion into Europe or outside North America given rearmament trends.

Answer

Dan Satterfield, Chief Financial Officer, confirmed that both revenue and earnings growth for CRS in Q1 would be impacted by the government shutdown and the Phoenix facility fire. Russell Ford, Chairman and CEO, explained that the bulk of military work is on transport aircraft, and any MRO uplift from rearmament in Europe would have a lagged effect, not significantly impacting near-term growth. Alex Trapp, Chief Strategy Officer, added that StandardAero serves customers globally, so opportunities depend more on where aircraft operate.

Krista Friesen asked for clarification on the expected Q1 Component Repair Services (CRS) margins, specifically whether growth would be less than seen previously or if margins could be down year-over-year. She also inquired about StandardAero's military business exposure, the impact of European rearmament, and potential expansion outside North America.

Answer

Dan Satterfield (CFO) confirmed that both revenue and earnings growth for CRS in Q1 would be impacted by the government shutdown and facility fire, implying growth below normal levels. Russell Ford (Chairman and CEO) explained that military work is primarily on transport aircraft, with a lagged effect for MRO on fighter engines, and no significant near-term growth impact is expected from rearmament. Alex Trapp (Chief Strategy Officer) added that StandardAero serves customers globally, so opportunities depend more on where aircraft operate than where they are serviced.

Krista Friesen asked about the company's prioritization between organic growth and M&A, and inquired about the expected cadence of free cash flow between Q3 and Q4.

Answer

CFO Dan Satterfield explained that all capital allocation opportunities, whether organic or M&A, are evaluated on a return basis, highlighting strong recent organic investments in Dallas and Augusta. He noted that free cash flow is typically stronger in the second half due to seasonality, a trend amplified this year by the expected unwinding of working capital as high-demand engines are shipped.

Krista Friesen followed up on M&A, asking about typical integration timelines, and questioned if there were any new concerns regarding the potential impact of tariffs.

Answer

Executive Alex Trapp estimated M&A integration timelines range from 6 to 24 months, depending on the deal's size and complexity. CEO Russell Ford addressed the tariff question, stating that while they are monitoring the fluid situation, they do not anticipate a material impact as aircraft engines and components have historically received duty-free treatment, which they expect to continue.

Krista Friesen asked for commentary on the current M&A environment, particularly for small tuck-in acquisitions. She also inquired about the outlook for the military segment in Q4, given its year-over-year decline in Q3.

Answer

Executive Alex Trapp stated that while the company is always evaluating potential deals, especially in component repair, no specifics could be shared. CEO Russell Ford explained the military segment's Q3 decline was temporary, caused by the V-22 Osprey grounding, and that he expects a recovery as flight hours resume and a separate F110 contract issue is now resolved.

Krista Friesen asked if RB Global's customers, such as insurance companies, or new market entrants are developing similar AI tools, seeking a broader perspective on AI adoption among competitors and clients. Friesen also requested a breakdown of the CapEx guidance, specifically how much is allocated to ancillary services investments versus other capital expenditures.

Answer

CEO Jim Kessler noted that larger insurance carriers might build their own tech and plug into RB Global's APIs for auction values, while medium to smaller carriers seek end-to-end solutions. He emphasized RB Global's flexibility to partner in various ways to help reduce advanced charges. CFO Eric Guerin provided a CapEx breakdown, stating that approximately one-third is allocated to technology-related investments and two-thirds to traditional property, plant, and equipment (PP&E) like land or physical assets.

Krista Friesen inquired whether RB Global's insurance company customers or new market entrants are developing similar AI tools, seeking a broader understanding of AI adoption among competitors and clients. She also asked for a breakdown of the CapEx guide, specifically how much is allocated to ancillary services investments versus other capital expenditures.

Answer

Jim Kessler, CEO, RB Global, stated that larger carriers might build their own tech, where RB Global can plug in via APIs, while medium to smaller carriers might seek an end-to-end solution. He emphasized flexibility in partnering. Eric Guerin, CFO, RB Global, provided a CapEx breakdown, estimating about one-third for technology-related investments and two-thirds for traditional PP&E (land, physical assets).

Krista Friesen asked for a breakdown of the GTV growth in the Commercial, Construction, and Transportation (CC&T) division, specifically requesting quantification of the contribution from the J.M. Wood acquisition versus organic growth. Friesen also inquired about the geographic split of growth, noting Canada and international as previous drivers, and whether this trend was shifting in Q4 or if there were any changes observed from U.S. customers.

Answer

CFO Eric Guerin stated that the J.M. Wood acquisition provided approximately a 2% tailwind to RB Global's overall GTV, impacting both the CC&T and automotive segments. Regarding geographic growth, Guerin clarified that RB Global experienced growth across all regions where it operates, not exclusively driven by Canada and international markets.

Krista Friesen asked for a breakdown of the GTV growth in the Commercial, Construction, and Transportation (CC&T) division, specifically quantifying the contribution from JM Wood versus organic growth. Friesen also inquired about any changes in geographic split drivers (Canada and international) heading into Q4 and customer feedback in the U.S.

Answer

CFO Eric Guerin stated that JM Wood contributed approximately a 2% tailwind to overall GTV growth, spanning both CC&T and automotive. Eric Guerin clarified that RB Global saw growth across all areas of business and was unsure of the specific Canada/international comment.

Krista Friesen requested an update on the IAA business build-out in Australia and inquired about the current competitive dynamics in the North American salvage market.

Answer

CEO Jim Kessler announced that the Australian operation is set to process its first vehicles for sale within ten days, a key milestone with partner Suncorp. Regarding competition, he stated the company's focus is on delivering industry-leading operational performance against SLAs, which he sees as a sustainable competitive advantage.

Krista Friesen from CIBC inquired about specific areas of weakness in the commercial business, the potential impact of election uncertainty, and whether cost synergies were achieved faster than planned or if new ones were discovered.

Answer

CEO Jim Kessler noted that election cycles historically create a delay effect on customer decisions. Executive Sameer Rathod added that the high interest rate environment is causing some customers to delay new equipment purchases. Regarding synergies, Kessler attributed the accelerated achievement to a management philosophy focused on continuously managing growth, margins, and expenses simultaneously.

Krista Friesen asked for quantification of the IAA market share growth mentioned for the quarter and inquired whether the customer hesitancy seen in Q1 had shown any improvement in early Q2.

Answer

CEO Jim Kessler declined to provide specific figures for the market share gain, attributing it to the realization of previously announced insurance carrier wins. Regarding customer hesitancy, Kessler described the current environment as unique due to post-COVID equipment cycles, high interest rates, and tariff uncertainty, making historical comparisons difficult. He indicated that the macro environment had not changed significantly enough to alter customer behavior from the previous quarter.

Krista Friesen inquired about the progress and customer reception of CAE's civil network rationalization conversations, and the outlook for free cash flow in fiscal year 2027, considering anticipated CapEx reductions.

Answer

President and CEO Matthew Bromberg confirmed that conversations with civil customers have begun, requiring tailored approaches, and the goal is to right-size the network for current and expected demand. Interim CFO Constantino Malatesta reiterated the focus on strong free cash flow generation through continued discipline in inventory, payables, and collections. Matthew Bromberg added that initial free cash flow will prioritize funding the transformation and further deleveraging.

Krista Friesen inquired about the progress and customer reception regarding the rationalization of CAE's civil training network and the outlook for free cash flow in fiscal year 2027, particularly with anticipated CapEx reductions.

Answer

Matthew Bromberg (President and CEO, CAE) confirmed positive initial conversations with civil customers regarding network rationalization. Constantino Malatesta (Interim CFO, CAE) emphasized continued strong free cash flow generation and maintaining net debt to Adjusted EBITDA below 2.5x, with Matthew Bromberg adding that initial cash flow will fund the transformation and deleveraging.

Krista Friesen from CIBC asked about any unexpected surprises Matthew Bromberg encountered during his first three months as CEO and if there are opportunities for additional organizational changes in the near term, prior to the full transformation blueprint.

Answer

Matthew Bromberg, President and CEO of CAE, reported only positive surprises, highlighting the organization's energy, entrepreneurial focus, strong customer relevancy, and the depth of CAE's technology. He indicated that the immediate focus is on allowing the new team to assess responsibilities and refine the strategic path, with more details on objectives and measurements to follow in a few quarters.

Krista Friesen inquired about any unexpected surprises Matthew Bromberg encountered in his first three months as CEO and opportunities for additional organizational changes in the near term.

Answer

Matthew Bromberg, President and CEO of CAE, reported only positive surprises, highlighting the organization's energy, entrepreneurial focus, strong customer relevancy, and the depth of technology. Regarding further organizational changes, he stated the focus is on giving the new team time to assess responsibilities and create a strategic path, with more details to be shared in a few quarters.