Yuri Lynk

Yuri Lynk asked about Stantec's forward-looking indicators, considering current economic weaknesses in Canada, Australia, and the U.S. government shutdown, and whether these factors are impacting proposal or RFP activity. He also sought an update on the M&A pipeline, particularly regarding large private players.

Answer

Gord Johnston, President and CEO, acknowledged U.S. procurement slowdowns and flat backlog due to unsigned verbal awards but affirmed strong macro fundamentals. He clarified that financial difficulties of a major U.K. water customer would not impact Stantec's AMP program work. Vito Culmone, EVP and CFO, highlighted the resilience of Stantec's diversified platform. Johnston described a robust M&A industry with ongoing discussions, expressing Stantec's positive stance and board/investor support for acquisitions.

Yuri Lynk questioned Stantec's forward-looking indicators, considering potential headwinds like weak Canadian economic data, financial struggles of a major AMP8 customer, and the U.S. government shutdown, and also asked for an update on the M&A pipeline.

Answer

Gord Johnston, President and CEO, acknowledged U.S. uncertainty due to slowed procurement cycles and the government shutdown, but maintained that macro fundamentals remain strong. He clarified that AMP8 client financial difficulties do not impact Stantec's business as committed work must proceed. Vito Culmone, EVP and CFO, highlighted the resilience provided by Stantec's diversified platform. Gord also noted a robust M&A industry with ongoing discussions and board support.

Yuri Lynk asked about the expected cadence of U.S. organic growth acceleration in the second half, given the tough Q4 comparable, and inquired about any potential business impact from Thames Water's financial issues.

Answer

President and CEO Gord Johnston acknowledged the difficult Q4 comparison influenced the moderated full-year U.S. guidance but highlighted a positive trend with high single-digit organic growth in July. He stated that Stantec does not anticipate a negative impact from Thames Water, as the infrastructure work is essential, and the company has had no payment issues.

Yuri Lynk of Canaccord Genuity sought to contextualize the AMP8 water program in the U.K., asking about its potential contribution relative to AMP7, and also inquired about the unusually low Q4 CapEx.

Answer

Executive Gordon Johnston detailed that AMP8's budget is approximately 75% larger than AMP7's, with potential for further upside from appeals by water companies. He noted Stantec has been preparing by increasing staff and real estate. Executive Vito Culmone added that the U.K. is the largest contributor to the Global business. Regarding CapEx, Culmone attributed the low Q4 figure to timing and accounting classifications, expecting a similar pattern next year with strong free cash flow.

Yuri Lynk of Canaccord Genuity Inc. questioned the impact of insurance claim provisions on margins, asking if the lower provisions from Q2 2023 also affected the back half of that year. He also inquired about any potential U.S. project award delays related to the upcoming election.

Answer

CFO Theresa B. Jang clarified that the benefit from lower insurance provisions was most pronounced in Q2 of the prior year but did continue through the rest of 2023. CEO Gordon Johnston stated that the company is not observing any election-related delays or pull-forwards in project awards from U.S. clients, describing the activity as 'steady-as-she-goes'.

Yuri Lynk inquired about the 2025 outlook for the Canadian operations, questioning what contract wins are necessary to achieve utilization targets and seeking an update on the non-oil sands mining bid pipeline. He also asked for color on the significant decline in the oil sands business and clarification on two specific gross margin adjustments related to shipping costs and a contract claim.

Answer

Joseph Lambert, President & CEO, explained that achieving the 75% Canadian utilization target would require winning new work, likely in Ontario, or else assets would be moved to Australia or sold. He stated the oil sands business has stabilized at a lower but consistent level, with future production increases viewed as potential upside. Lambert also clarified that the claim adjustment was part of a negotiated 4-year contract extension, effectively resolving the issue within the new agreement.

Yuri Lynk from Canaccord Genuity Group Inc. asked if the second-half guidance requires winning new ex-oil sands contracts, inquired about recent shifts in the bid funnel, and sought clarification on an asset write-down's impact on adjusted EBITDA.

Answer

President and CEO Joseph Lambert clarified that the guidance does not depend on new contract wins, which are targeted for 2025. He noted that while one smaller bid in Ontario was lost, the overall bid pipeline has grown. CFO Jason Veenstra confirmed the write-down was for 12 trucks and was already factored into the $87 million adjusted EBITDA figure.