Maxim Sytchev

Maxim Sytchev from National Bank Financial asked for Stantec's perspective on the evolution towards outcome-based pricing models in the industry, how AI and Stantec's expertise might integrate with such models, and what factors are critical for achieving the high end of the 18.2% adjusted EBITDA margin guidance.

Answer

Gord Johnston, President and CEO, Stantec, explained that outcome-based pricing depends on client and project type, with fixed-fee projects benefiting from technology to optimize margins. He noted that government clients typically prefer time and materials due to scope definition challenges, requiring an industry-wide initiative for change. Vito Culmone, EVP and CFO, Stantec, stated that achieving the higher end of the EBITDA margin guidance is primarily linked to higher revenue growth, leveraging operational scale, and continued progress on existing initiatives.

Maxim Sytchev inquired about Stantec's perspective on outcome-based pricing models and the role of AI in them, as well as the key factors that would enable the company to achieve the high end of its 2026 EBITDA margin guidance.

Answer

President and CEO Gord Johnston explained that outcome-based pricing is common in design-build and P3 projects, where AI can optimize margins. However, government clients typically prefer time-and-materials due to scope definition challenges, requiring an industry-wide shift. EVP and CFO Vito Culmone stated that achieving the high end of the 2026 EBITDA margin range (18.2%) is more likely with higher revenue growth, driven by operational leverage and ongoing efficiency initiatives, including global delivery centers.

Maxim Sytchev asked for color on the divergence in organic growth between environmental services (slowing) and water (accelerating), and inquired about the drivers of strong growth in the German market, including potential for inorganic expansion.

Answer

Gord Johnston, President and CEO, explained the environmental services slowdown is due to large U.S. federal projects awaiting signatures, with an expected acceleration into 2026. He attributed German market growth to government investment (EUR 500 billion), existing infrastructure work, and new electrical transmission projects, confirming interest in both organic and inorganic growth opportunities.

Maxim Sytchev asked about changes in U.S. federal government procurement methodology, specifically a 'book and burn' approach, and its impact on backlog versus robust organic growth. He also inquired about the divergence in organic growth between environmental services (slowdown) and water (acceleration), and the drivers of strong growth in the German market.

Answer

Gord Johnston, President and CEO, confirmed slowed U.S. procurement cycles due to executive orders and government shutdown, leading to verbally awarded projects awaiting signatures, but maintained a long-term bullish outlook. He explained that environmental services' slowdown is partly due to large U.S. federal projects awaiting signatures, with expected acceleration into 2026. Johnston highlighted strong management and opportunities in Germany, driven by traditional infrastructure, new electrical transmission projects, and potential inorganic expansion.

Maxim Sytchev requested an update on FEMA-related work and the current M&A landscape from a seller's perspective.

Answer

President and CEO Gord Johnston confirmed that disaster preparedness work is shifting from FEMA to state and local governments, and Stantec is actively engaged in discussions with these agencies. He described the M&A environment as 'increasingly active,' anticipating that a number of assets will come to market in the next 6 to 12 months.

Maxim Sytchev questioned the demand outlook in Canada and Australia amid political changes and asked about the ramp-up progress of the U.K.'s AMP8 water infrastructure program.

Answer

Executive Gordon Johnston noted that political platforms in Canada and the U.K. remain supportive of infrastructure spending, and he expects the Australian market to strengthen. He confirmed the U.K.'s AMP8 program began in April and is ramping up as anticipated, with hiring and new work orders proceeding on schedule. Executive Vito Culmone added that the Water business in Australia continues to be exceptionally strong.

Maxim Sytchev of National Bank Financial asked about Stantec's view on potential Canadian tariffs, the U.S. IIJA spending curve, the specific drivers of the Buildings segment's growth, and the integration of the ZETCON acquisition in Germany.

Answer

Executive Gordon Johnston stated that potential Canadian tariffs would have a minimal impact on Stantec's business segments. He noted IIJA-related work is progressing with high single-digit growth in U.S. Transportation. He clarified that Buildings growth is broad-based, driven by healthcare, civic, and education sectors, not just data centers. Finally, he reported that the ZETCON integration in Germany is performing "extremely well," even above expectations.

Maxim Sytchev from National Bank Financial inquired about current trends in M&A seller expectations, whether the slowdown in Western Canada had a spillover effect on Environmental Services, and the impact of regulatory developments around PFAS on the Water business.

Answer

CEO Gordon Johnston stated that M&A seller multiple expectations remain consistent. He clarified that the Environmental Services business is well-diversified and remains busy, with recent slowness in Canada being due to very high prior-year comparisons. He also noted that while PFAS is an opportunity, Stantec's Water business is so diversified that its overall performance is not materially dependent on PFAS-related work.

Maxim Sytchev asked for commentary on the overall trends in repair versus scrap, particularly in light of slowing used car inflation, and if there have been any incremental structural changes. He also inquired about the potential opportunity size of the new reserved auction channel for international buyers and sellers.

Answer

Sameer Rathod, VP of Investor Relations and Market Intelligence, RB Global, noted that the spread between repair cost inflation and used car values, which was narrowing, has started to reverse, favoring an expanding total loss ratio. He added that structural drivers like heavier vehicles remain unchanged. Jim Kessler, CEO, RB Global, explained that the reserved auction model helps capture market share in countries like Germany and the Nordics, where it's a common operating model, providing territory managers with more competitive tools.

Maxim Sytchev asked for commentary on the repair versus scrap trends, particularly in light of slowing used car inflation. Sytchev also inquired about the potential size and opportunity of the new reserved auction channel for international buyers and sellers down the line.

Answer

VP of Investor Relations and Market Intelligence Sameer Rathod noted that the inflation differential between automotive repair costs and used vehicle pricing, which had been narrowing, recently started to widen again, which is favorable for the total loss ratio. He added that structural drivers like increasing vehicle weight continue to support a higher loss ratio. CEO Jim Kessler explained that the reserved auction format addresses a disadvantage in certain international markets like Germany and the Nordics, where a reserved model is culturally preferred, enabling territory managers to better compete and gain market share.

Maxim Sytchev asked for an update on marketplace services like RBFS, whether transportation services could benefit the IAA business, and for an outlook on the service revenue take rate.

Answer

CFO Eric Guerin noted that services like RBFS are performing well despite the rate environment and highlighted VeriTread as a growth area. CEO Jim Kessler clarified that transportation services are primarily focused on the CC&T business. Guerin added that he sees no significant factors that would materially change the take rate in the second half of the year.

Maxim Sytchev from NBF sought details on the operational tactics for achieving premium price performance and asked about the ROI drivers for the increased CapEx investments, questioning if they support future growth or existing business.

Answer

CEO Jim Kessler explained that premium pricing is achieved by balancing liquidity and price across various auction channels, enhancing marketing, and providing buyers with better data, such as vehicle trim levels. CFO Eric Guerin and Kessler added that CapEx is for both existing needs and future growth, like the expansion in Australia, with all investments analyzed for their return potential.

Maxim Sytchev from National Bank Financial asked about the elasticity of the service revenue take rate, its drivers across business segments, and for an update on the strategy to boost automotive ASPs by attracting more international buyers.

Answer

CEO Jim Kessler stated that take rate improvements have come from both the commercial and automotive sides of the business and expressed optimism for future increases via additional services. He reported a record high percentage of vehicles sold to international buyers, attributing this to an operational focus on increasing the inventory of 'run and drive' vehicles, which are more attractive to this buyer base.

Maxim Sytchev asked for an update on the operational ramp-up in Australia following the recently signed client contract in that market.

Answer

CEO Jim Kessler clarified that the company plans to begin accepting cars at its Australian facilities in the mid-summer. He noted that the first vehicle sales would occur sometime after that initial phase, following the completion of necessary processes like title transfers.

Maxim Sytchev sought clarification on whether the engineering organic growth was on a gross or net basis, the expected growth trajectory for the engineering segment into 2026, and the specific drivers behind the projected dip in Harrison Street's margins and the expected rebound.

Answer

CFO Christian Mayer confirmed that engineering internal growth was on a net revenue basis. He projected mid-single-digit internal growth for engineering in 2026, supported by strong backlogs, with total growth over 25% including acquisitions. He attributed the Harrison Street margin dip to IT systems integration, headcount additions, and planned efficiencies, expecting a rebound as these efforts yield cost savings later in the year.

Maxim Sytchev requested clarification on whether the engineering segment's organic growth was on a gross or net basis and its expected trajectory into 2026. He also asked for details on the drivers behind the projected dip in Harrison Street's (IM segment) margins and how the rebound is expected to occur.

Answer

CFO Christian Mayer confirmed that the internal growth for the engineering segment was on a net revenue basis. For 2026, he expects mid-single-digit internal growth, supported by strong backlogs, which, combined with tuck-in acquisitions and Ayesa, leads to an overall revenue growth outlook of over 25%. He attributed the margin dip in the Investment Management segment to IT systems integration, headcount additions, and planned efficiencies that will yield cost savings later in the year, leading to a prospective rebound.

Maxim Sytchev sought clarification on the $9 billion of dry powder across the organization and the strategic rationale behind the recent engineering expansion into Australia.

Answer

Jay Hennick (Global Chairman and CEO) clarified that the $9 billion dry powder is an aggregate of available capital across all funds (alternatives, debt, etc.), emphasizing that deployment in various areas will determine future returns. Jay Hennick (Global Chairman and CEO) explained the recent Australian engineering acquisition in Adelaide as a tuck-in deal for an established platform, expanding into a significant market at attractive valuations.

Maxim Sytchev sought clarification on the $9 billion of dry powder across the organization and the strategic rationale behind the recent engineering expansion into Australia.

Answer

Jay Hennick (Global Chairman and CEO) clarified that the $9 billion dry powder is an aggregate of available capital across all funds (alternatives, debt, etc.), emphasizing that deployment in various areas will determine future returns. Jay Hennick (Global Chairman and CEO) explained the recent Australian engineering acquisition in Adelaide as a tuck-in deal for an established platform, expanding into a significant market at attractive valuations.

Maxim Sytchev asked about the long-term vision for the Engineering segment, questioning its potential to dwarf the real estate services business and the strategy for M&A in such a fragmented market.

Answer

CEO Jay Hennick explained that the segment, likely to be renamed 'Engineering and other,' has massive potential. He outlined a 5-year vision involving high single-digit internal growth plus significant acquisitive growth. He emphasized that Colliers' key differentiator is its partnership model, where management teams of acquired firms take a significant equity stake, which has been a great competitive advantage.

Maxim Sytchev asked about CEO Doug Wright's initial 90-day and 6-month priorities, and then inquired about the correlation between previously telegraphed margin improvements and the current gross margin changes due to mix.

Answer

CEO Doug Wright outlined his focus on strong and growing end markets, margin expansion potential through ABM improvements and commercial actions, and disciplined capital deployment with an emphasis on M&A. Interim CFO Anne Cybulski explained that gross margin mix reflects backlog execution, with nuclear projects generally having lower gross margins but being accretive to the bottom line. She noted ongoing opportunities through standardization, supply chain, and operational excellence.

Maxim Sytchev inquired about CEO Doug Wright's initial 90-day and 6-month priorities and sought clarification on the correlation between previously telegraphed margin improvements and current gross margin changes due to mix, for modeling purposes.

Answer

CEO Doug Wright outlined his focus on strong end markets, margin expansion through ABM improvements and commercial actions, and disciplined capital deployment with an emphasis on M&A. Interim CFO Anne Cybulski explained that gross margin reflects the current backlog mix, including lower-margin but accretive nuclear projects, while emphasizing ongoing opportunities through operational excellence.

Asked about the integration of recent acquisitions, the impact of US research funding cuts, the margin progression outlook, and the M&A strategy during the CEO transition.

Answer

The integration of recent acquisitions is progressing well with a growing cross-selling funnel. The impact from US research funding is minimal. Margin expansion is expected in the medium term, driven by gross margin improvements, though it may not be linear. M&A cultivation continues, but near-term actions are limited by the focus on deleveraging, not the leadership transition.

Maxim Sytchev asked for an update on the integration of recent acquisitions, clarification on the impact of U.S. research funding pressures, the outlook for margin progression, and how the leadership transition affects the M&A pipeline.

Answer

CEO Andrew Hider noted a growing cross-selling funnel from acquisitions. CFO Ryan McLeod confirmed integrations are on track, the impact from research funding is immaterial, and medium-term margin expansion is expected, though not necessarily linear. Regarding M&A, McLeod stated it is 'business as usual,' but the near-term priority is deleveraging the balance sheet, which will govern the pace of large-scale acquisitions.

Inquired about the composition of the healthcare backlog, particularly the sustainability of GLP-1 related growth, the expected velocity of working capital improvement given the reduced size of the transportation business, and the tax rate expectation for fiscal 2026.

Answer

The healthcare backlog is diversified beyond GLP-1s (which are seen as a sustainable short-to-mid-term driver) into radiopharmaceuticals, wearable medical devices, and automated pharmacies. Working capital is expected to improve and get below the 15% target in the coming year, though the benefit from a smaller transportation business is partially offset by more working-capital-intensive product businesses. The normalized effective tax rate for FY26 is expected to be in the mid-20% range (24-26%).

Maxim Sytchev of National Bank Financial inquired about the composition of the Life Sciences backlog, particularly the sustainability of GLP-1 related growth, the outlook for working capital intensity, and the expected tax rate for fiscal 2026.

Answer

CEO Andrew Hider confirmed the Life Sciences backlog is diversified beyond GLP-1s, including radiopharma, wearables, and automated pharmacies. CFO Ryan McLeod explained that while the smaller transportation business helps working capital, this is offset by inventory-intensive product acquisitions. He reiterated the goal of getting below 15% non-cash working capital as a percentage of revenue and guided for a normalized effective tax rate in the mid-20% range.

Maxim Sytchev from National Bank Financial inquired about the composition of the life sciences backlog, particularly the sustainability of GLP-1 related growth, the expected trend in working capital intensity, and the normalized tax rate for fiscal 2026.

Answer

CEO Andrew Hider confirmed that while GLP-1 is a sustained growth area with over eight customers, the life sciences backlog is diversified across radiopharmaceuticals, diabetes-related wearables, and automated pharmacies. CFO Ryan McLeod stated that while lower transportation revenue helps working capital, new product-based businesses provide an offset, but he expects to get below the 15% target in fiscal '26. He guided to a normalized effective tax rate in the mid-20% range for the upcoming year.

Asked about a new EV program win in Europe, the status of the grid battery storage opportunity, the timing of revenue from nuclear projects, the outlook for the company's tax rate, and working capital performance excluding the EV dispute.

Answer

The company will use its global footprint, including European capabilities, for the new EV win. Nuclear is currently a stronger growth area than grid storage. Revenue from new large nuclear projects is expected to ramp up in more than 12 months. The current higher tax rate is expected to persist in the short term. Working capital outside of the EV dispute is slightly above the 15% target, and the company is working on improvements.

Maxim Sytchev from National Bank Financial questioned the company's capabilities for a new EV program in Europe, sought an update on the grid battery storage opportunity, asked about the revenue ramp-up timing for nuclear projects, and inquired about the tax rate outlook and working capital performance excluding the EV dispute.

Answer

Andrew Hider, Chief Executive Officer, explained the European EV win is with a past OEM customer and will be supported by their multi-region global footprint. He noted that while grid storage is an area of focus, nuclear is currently showing stronger growth. He estimated the nuclear revenue ramp-up from new announcements is likely more than 12 months out. Ryan McLeod, Chief Financial Officer, stated the higher tax rate is expected to continue in the short term and confirmed that working capital, excluding the EV dispute, is running slightly above the 15% target, with progress being made.

Speaking on behalf of Maxim Sytchev from National Bank Financial, an analyst asked about the current technician count in Canada and Australia, whether it remains a bottleneck, and if it is hindering the company from reaching its equipment utilization targets.

Answer

Executive Joseph Lambert stated that while skilled trades are a global challenge, the company manages it well and it is not currently a bottleneck. He expressed confidence in reaching the 85% utilization target in Australia. For the Canadian oil sands, he noted that achieving the 75% target is a matter of labor efficiency, and the company has the necessary systems and programs, like its apprentice program, in place to support this as demand remains high.

Maxim Sytchev sought color on the impact of recent inclement weather in Australia on Q1 2025 performance. He also asked about the capital intensity of the planned expansion into infrastructure, the geographic focus of this growth, the expected revenue trajectory for the Fargo project in 2025, and the company's intentions regarding its Normal Course Issuer Bid (NCIB).

Answer

Joseph Lambert, President & CEO, confirmed Q1 is the weakest quarter due to seasonal weather in Australia, which tempers the typically strong winter season in the Canadian oil sands. He emphasized the strategic push into infrastructure is due to its capital-light nature, with a primary focus on the U.S. and Australia. He also stated the company would remain active with its NCIB. Jason Veenstra, CFO, specified that Fargo project revenue is expected to decline by about 10% in 2025 from its 2024 peak.

Maxim Sytchev from National Bank Financial, Inc. asked about the potential benefits of the MacKellar ERP implementation and the outlook for non-commodity work to replace the Fargo-Moorhead project in the future.

Answer

CFO Jason Veenstra stated the ERP system is expected to improve EBITDA margin by about 1% in 2025 through better cost tracking and back-office efficiency. He also noted the company is pre-qualifying for a major earthworks project in Northern California as a potential replacement for Fargo-Moorhead. President and CEO Joseph Lambert added that they are in early discussions for infrastructure projects in Australia.