Stantec Inc. (STN) Earnings Call Transcript

Good morning, and thank you for joining Stantec's webcast and conference call covering fourth quarter and full year 2025 results. Gord Johnston, our President and Chief Executive Officer, is with us today to lead the call, along with Vito Culmone, Executive Vice President and Chief Financial Officer. Those of you dialing in are encouraged to pull up the slide presentation, which you can find in the Investors section of stantec.com. This call is being webcast. One note: if you're on the phone and also watching the webcast, please mute your computer, since the call and the webcast aren't perfectly in sync. Everything shared on this conference call carries the forward-looking statement qualifications laid out on Slide 2, described in detail in Stantec's Management Discussion and Analysis, and incorporated in full for today's call. Except where stated otherwise, figures we discuss today are in Canadian dollars and are generally rounded. With that, I'll hand things over to Mr. Gord Johnston.

Good morning, everyone, and thanks for being with us today. For Stantec, 2025 was yet another record-setting year. We achieved solid mid-single-digit organic growth and closed three acquisitions, even through a year of persistent geopolitical uncertainty. Demand for our services remains strong, underpinned by global trends in the water, mission-critical, transportation, and energy transition sectors, and the resilience of our operations keeps being strengthened by our diversified portfolio across sectors and geographies. As a result, our net revenue rose almost 11% versus 2024, reaching $6.5 billion, with 5% organic and 3.9% acquisition growth driving that result. Every one of our regional and business operating units posted organic growth, and our water business delivered almost 11% organic growth. Adjusted EBITDA was up close to 17% year-over-year, and continued strong project execution lifted our Adjusted EBITDA margin to 17.6%, which means we hit the 17%-18% target range in our 2024 to 2026 strategic plan a full year ahead of what we had originally anticipated. We also posted Adjusted EPS growth of almost 20% compared to 2024. Now let's look at our results in each of our geographies. U.S. net revenue rose 13.5% in the fourth quarter, driven primarily by 11.5% acquisition growth and just over 2% organic growth. For the full year, net revenue grew by almost 11%, supported by just over 5% acquisition growth and 3.4% organic growth.

In our buildings segment, net revenue rose more than 30% for the year, driven mainly by the Page acquisition, along with solid organic growth. Organic growth in this division kept being fueled by public and private investment in data centers and other mission-critical facilities, science and technology, and civic work. Organic growth in water came from large wastewater treatment projects, while growth in environmental services was driven chiefly by the energy transition, mining and infrastructure sectors, plus ongoing work for a large utility provider. In Canada, fourth quarter net revenue was up 5.5% in the quarter, entirely from organic growth. For the full year, net revenue increased more than 8% versus 2024, mainly through organic growth. We're pleased that our water and energy and resources businesses kept delivering strong double-digit growth. Momentum on major wastewater projects helped produce over 20% organic growth in water, and steady progress on major industrial process projects generated 15% organic growth in energy and resources. Solid growth in infrastructure was mainly supported by land development projects in Alberta, airport sector projects in Quebec, and bridge sector work in Eastern Canada. Public sector investment kept driving growth in buildings, primarily in our civic and healthcare markets.

And finally, during Q4, net revenue for our global business rose 11%, with organic growth above 6%, acquisition growth of 2.5%, and a smaller positive effect from foreign exchange. Across the whole year, net revenue for the global business increased by nearly 13%, supported by organic growth of almost 6% and acquisition growth of more than 4%. Our water business, which leads the industry, kept posting double-digit organic growth quarter after quarter, thanks to long-term framework agreements and public sector spending on water infrastructure in the UK, Australia, and New Zealand. Strong organic growth in energy and resources came from new projects ramping up in Chile and Peru, since rising demand for energy transition solutions keeps driving copper mining demand. We likewise recorded double-digit organic growth in our German infrastructure business, reflecting sustained momentum on a major public sector electrical transmission project plus higher volume on transit and rail projects. I'll hand the call to Vito now so he can go over our Q4 and full year 2025 financial results and give an update on our backlog and the financial targets for 2026.

Thanks, Gord, and good morning, everyone. For Stantec, 2025 was genuinely another outstanding year, and we're extremely happy with both our fourth-quarter and full-year 2025 results. Demand remains steady across our diversified multi-sector platform, supported by favorable worldwide trends, and that continues to underpin our strong performance. During the fourth quarter, gross revenue came in at $2.1 billion, while net revenue was $1.6 billion — a rise of 10.9% versus Q4 of 2024. That growth reflected 3.9% organic growth along with 6.5% from acquisitions. Project margins, measured as a percentage of net revenue, again matched our expectations, landing at 54.5%. In the quarter, our Adjusted EBITDA margin was 17.3%, which is 60 basis points higher than in Q4 of 2024. That margin improvement mainly comes from lower admin and marketing expenses as a share of net revenue, largely thanks to better utilization and our ongoing discipline in running the business. Adjusted EPS for the fourth quarter rose 12.6%, reaching $1.25. Turning to the full year, as Gord noted, 2025 marked another record for Stantec. Gross revenue came to $8.1 billion, and net revenue grew to $6.5 billion, an increase of 10.7% compared with how we performed in 2024.

We got there via 5% organic growth plus 3.9% from acquisitions. Project margins represented 54.3% of our net revenue, which again matched what we had expected. For the full year, our Adjusted EBITDA margin was a very strong 17.9%, up 90 basis points year-over-year. That record margin came from strong project execution and cost management throughout the whole business. Lastly, Adjusted EPS for the year came to CAD 5.30, which is 19.9% higher than 2024. Now to cash flow, liquidity, and capital resources. In 2025, operating cash flow rose 43.1% versus 2024, going from CAD 603 million to CAD 863 million, which reflects continued strong cash generation through revenue growth, operational performance, and strong working capital management. Our free cash flow to net income conversion was 1.3x, above our 1.0x target. DSO finished the fourth quarter at 69 days, a substantive improvement of eight days versus Q4 of 2024, thanks to excellence in working capital management. We ended the year with net debt to Adjusted EBITDA at 1.3x, inside our internal target range of 1x-2x. Given our continued strong performance, the board has approved an 8.9% dividend increase.

With that, our yearly dividend on an annualized basis rises to CAD 0.98 for each share. Worth noting is that a robust balance sheet means we're positioned very favorably for acquisition-driven growth ahead in 2026. Now to our backlog. By the close of 2025, contracted backlog hit an all-time record of CAD 8.6 billion, up 9.5% versus the prior year, equal to roughly 13 months of work. Deals closed during 2025 added more than 8% to backlog expansion, largely inside our buildings segment. Organic growth compared with a year earlier came in at 3.6%. We posted organic gains across every region, with global standing out by delivering double-digit growth of 14.2%. Backlog also grew strongly in water, while momentum in buildings was bolstered by healthcare, data centers, and other mission-critical facilities. Moving on to our 2026 financial targets. We're expecting yet another strong year. Net revenue is projected to grow between 8.5% and 11.5%, delivered via organic net revenue plus acquisitions, chiefly the Page acquisition. We expect our Adjusted EBITDA margin to keep expanding, propelled by solid project execution, stronger approaches to managing admin and marketing, further growth of our high-value centers, and refinement of our digital strategies.

So we're looking at an Adjusted EBITDA margin in the range of 17.6% to 18.2%, and for Adjusted EPS we expect growth of 15% to 18% versus 2025. Naturally, these targets don't factor in any assumptions about further acquisitions, since the timing and size of such deals can't be predicted. With that, I'll hand things back to Gord, who will walk through the business drivers behind our 2026 targets.

Thank you. As Vito said, we're looking for robust net revenue in 2026, driven mainly by stronger organic net revenue growth throughout the business. Every one of our geographies should land in the mid to high single-digit range. Macro trends — aging infrastructure, defense spending, water security, advanced manufacturing, rising demand for mission-critical facilities, and the energy transition — keep opening up meaningful opportunities for Stantec. Over the last couple of months, activity in the U.S. has begun to pick up, and we expect that trend to carry on through the year. We're capturing our fair share of wins across all five business operating units. U.S. growth will be supported by the ongoing strength of our buildings business as we keep capturing synergies from the Page acquisition... Our buildings team is still seeing strong activity in data centers. For instance, an artificial intelligence firm just chose Stantec to design the initial 300 to 350 megawatt phase of a large data center campus, with potential to scale up to 1 gigawatt. In environmental services, work is ramping up related to the U.S. Navy CLEAN program, and activity within the U.S.

The Department of Defense is still speeding up. When it comes to energy, and LNG in particular, robust demand should drive substantial project work and chances to cross-sell for our environmental services arm as well as our energy and resources arm. U.S. infrastructure keeps serving as a major engine of growth for us. Since approximately 50% of IIJA money has yet to be distributed, we keep witnessing solid momentum throughout our infrastructure segment, such as significant road and bridge efforts in the Southeast plus sizable transit and rail initiatives in the West. In Canada, organic expansion is set to come from spending plans in both the public and private sectors. We keep observing robust growth in our water unit via major wastewater and biosolid treatment plants. We anticipate robust growth in environmental services and energy and resources, backed by big private investments in energy infrastructure. We are witnessing robust growth stemming from increased defense spending across both our buildings and infrastructure operations. We are engaged in quite a few projects in the Arctic, where we deliver specialized know-how for extreme climate conditions in support of defense work. Those include an effort such as Grays Bay Road, which leads to the proposed deepwater port that will be capable of handling Navy vessels along with large cargo ships. We are also engaged in facilities supporting the North American Aerospace Defense Command, and we are performing work for the Canadian Department of National Defense to provide facility upgrades for the Canadian Armed Forces.

We've also just locked in a significant design-build contract with Defence Construction Canada for its multi-mission aircraft hangar. Last, in our global region, we anticipate organic growth will come from sustained high activity levels in our water business through the continuing AMP8 program. More than 20 AMP8 frameworks involve us, and we remain an industry leader in UK water by a wide margin. Recently, Stantec's UK water team was selected as a preferred bidder for the multi-billion pound Scottish Water enterprise, which is poised to transform Scotland's water and wastewater networks. This program, potentially extending out 13-years, stands as the biggest investment program in Scottish Water's history. Along with other frameworks in Australia and New Zealand, we anticipate robust growth in our global water segment. Demand stays strong in our global energy and resources business and in transportation, especially in Germany. Beyond organic growth, M&A continues to be a fundamental driver for Stantec. We won't chase acquisitions purely for growth's sake or to hit a particular target. Acquisitions have to be value accretive. Stantec has a long and proven record of successful M&A, with last year's addition of Page marking our 150th completed transaction.

We're in a strong position to keep extending this track record in 2026 and past that, and we still see plenty of opportunity out there in the market. With 2026 being the last year of our 2024 to 2026 strategic plan, we're making solid headway against the plan's targets. The momentum we've generated, together with favorable long-term market trends, puts Stantec in position to deliver sustained growth and shareholder value for many years ahead. Before I wrap up today's prepared remarks, I want to address AI and how we at Stantec are thinking about it. As engineers, architects, and designated professionals, we serve as trusted advisors. Clients hire us so that our qualified judgment gets applied to solving problems and developing solutions with a range of tools. AI helps us handle scale, consistency, and document-heavy work, which lets our teams stay focused on design intent, risk trade-offs, and accountability to clients. To get this work done, clients keep asking for faster delivery, fewer surprises, and clearer defensibility. In our case, AI enables earlier evaluation of options, cuts down on late-stage conflicts, and strengthens quality control. The opportunity isn't the technology itself — it's being able to make better decisions earlier and deliver stronger outcomes across the asset life cycle. Financially speaking, AI does not automatically mean lower fees.

With fixed-fee projects, margins get better because there's less rework and lower execution risk. On time and materials engagements, throughput goes up and delivery confidence improves, which lets teams handle more work concurrently. We still base our pricing on value and risk reduction rather than just hours. From a strategic standpoint, we stay partner-agnostic. Our edge doesn't come from any single technology; it comes from our capacity to operationalize AI while preserving trust, governance, and professional standards. We're past the stage of isolated AI pilots and are now embedding AI straight into our delivery workflows while keeping professional accountability intact. AI opens up several revenue avenues as well. Take data center development, for instance: our teams are already engaged with five separate hyperscalers to build roughly 2.5 gigawatt of capacity. Together, those facilities are valued at nearly $35 billion. Beyond that, we're involved in well over 100 additional mission-critical facilities. This work spans several of our verticals, since it requires planning, design, energy, cooling, and resilience. We also see chances in advanced analytics and predictive advisory services for clients, along with digital and data-enhanced deliverables. Clients rely on us to securely manage and govern big volumes of project data, and that lets us deliver predictive, structured analytical solutions.

Those are merely two illustrations of how AI acts as a multiplier of opportunity—making new kinds of work possible, opening additional service lines, and deepening ties with clients. For clients constructing AI-enabled infrastructure and operations, trusted partners such as Stantec are essential—firms that grasp engineering as well as data. Put simply, AI reinforces our professional model: it improves predictability, permits stronger delivery, generates fresh opportunities, and underpins margin improvement. Having said that, I'll hand the call to the operator for questions. Operator?

Of course. Just a quick reminder for everyone: if you'd like to ask something right now, dial star one one on your phone. And if we've already answered your question and you want out of the queue, just hit star one one once more. We'll begin with Ian Gillies of Stifel. Go ahead, please.

Good morning, everybody.

Good morning, everyone.

When you think about AI—and I raised this on an earlier conference call—how do you see it ultimately showing up in revenue per employee, utilization, and metrics like those? Those have consistently been fairly important factors when it comes to lifting margin and growing the top line.

Yes, certainly. And Ian, I'd say across every one of those areas, the situation works in our favor. What I observe here — and we've discussed this previously — is that my view of AI is simply that it's the newest instrument within a progression of technological improvements that engineering has seen come along. Whenever such instruments have arrived, they've boosted our efficiency and pushed net revenue per employee to higher levels. Consider examples such as the shift, from the time I finished my degree, moving from calculators to computers, then to AutoCAD, then to 3D — and at present AI is merely that most recent instrument, which I'm convinced will let us generate greater revenue per full-time employee.

Got it. Gord, you've made it quite clear that you've wanted to get M&A done across roughly the last 18 to 24 months, and you're right to feel that way. Given how public equity valuation metrics have reset — I suppose throughout your career, and in the way you've tracked the M&A market — how long does it usually take before private companies reset their own valuation markers? Right now there's likely some disconnect, considering how fast this has happened and how quickly things have shifted during the last few months.

Sure — it's a fascinating situation, since we're fielding those exact same questions, and the drop in multiples across the public sector and public markets is quite a recent development. For our part, it's only been a matter of a couple of weeks or a month, so we haven't really seen many deals close during this stretch. There's likely some recalibration of expectations that will take time to work its way through. The other question is whether this is simply where all of us and our competitors sit right now — a temporary dip — or whether it will persist for some period. That will factor into how we view what unfolds in the M&A market.

Just one quick thing to add on that. Given all that's taken place, would it be reasonable to assume this could stretch out somewhat more than we'd have expected — say, compared with what we thought half a year back?

This will require a bit more time.

Regarding carrying out mergers and acquisitions.

We remain quite active, no question about it. You know, there are always several discussions underway. These are solid companies that, in our view, possess strong long-term foundations and solid synergies with Stantec. Of course, the pricing discussion is still going on, but that represents just one discussion among, you know, many, to confirm the fit exists, the synergies exist, the cultural element exists. At this point, we're simply discussing the financial element.

Alright.

Sure.

Oh, that. My apologies, Theo.

No, at the end of the day, you know, we genuinely have faith in the opportunities for creating value over the long term in our sector, despite the recent slump we're in that you're referring to. Obviously, as Gord pointed out, valuation is one piece of any discussion when it comes to targets. What really matters most is how these possible acquisitions fit within our strategic portfolio, what it lets us do for our clients, and, you know, from that angle, we don't see any issues tied to timing.

All right. That's quite useful. Thank you very much. I'll hand it back over.

Appreciate that, Ian.

Appreciate it, Ian.

Thanks. The next question is from Sabahat Khan at RBC Capital Markets. Go ahead with your question, please.

Thanks, and good morning. Perhaps just a single question about AI, and I swear I'll move on to another topic afterward. In the way you've been using AI so far, what are you discovering when it comes to end markets, or simply these efficiency tools and digital tools — where do you currently see greater scope for those kinds of tools and capabilities, and where do you expect that to develop as time goes on? Could this eventually spread through every end market and deliver efficiency? I'm just curious about what you're observing in these early days compared with where you see things heading. Thanks.

Thanks, Sabahat. A few points, then. We're concentrating on two fronts: what we can improve internally to become more efficient — those are back-office tools and similar items we're working through — and we're also being proactive. How can our engineers, architects, and professional services staff leverage AI tools, again, both to work more efficiently and to improve the quality of work products? Some examples of where we're applying it: in our buildings group we're currently using a tool called Stable Diffusion, which is more of a visual, graphical AI tool. You can sit with a client, sketch something out, feed it into the AI tool, and it converts it into drawings and so on far more efficiently. As you can imagine, when our engineers and architects across the world are working, we need to choose a particular specification for the kind of project we're handling, or for a kind of material or equipment. We have extremely large specification libraries. We're using AI tools to help us quickly narrow down which spec is the right one to use.

So when we hand over a large package to a client, say, we refer to that as a design submittal. There are various items you must tick off to confirm that, you know, from a regulatory standpoint—whether to secure a permit or for client reviews—you have completed those items. We are applying AI to assist us with QA. Many of these elements will be applied throughout every one of our geographies and every one of our business lines. You know, I believe we remain in the early stages, but we—and in fact our design teams—are quite enthusiastic about where this might lead us.

All right, thank you. Regarding how things are positioned as we head into 2026, and looking at your guidance, could you go a little deeper on the U.S. segment? One of your competitors mentioned that this year that market has shown somewhat greater predictability and stability. From where you sit, could you share what you're observing on the infrastructure side, on the water side — really across your bigger end markets in the U.S. today — and also where the funding mechanisms stand for the year ahead? Thanks.

Sure, a few points on that. One item worth noting is what we covered in the prepared remarks: over the past several months, activity in the U.S. has picked up somewhat, and looking at our U.S. backlog, Q4 versus Q3 rose roughly 3% within the quarter alone. That pickup in activity is feeding into backlog, and we expect it to carry on going forward. Right now we have an enormous volume of work in the data center projects we're handling for the hyperscalers. We referenced the five projects, work valued at $35 billion, give or take. That keeps moving ahead. Plenty of environmental services work as well. We discussed the U.S. Navy Clean Water — pardon me, the U.S. Navy CLEAN program — along with DND work. We're seeing substantial opportunity really across most of our sectors in the U.S. Energy transition-related work, grid strengthening in the south. As we head into 2026, we actually feel quite good about broad-based support across the U.S. for us.

Great, thank you so much. I'll hand things over now.

Thank you. The next person to ask a question is Frederic Bastien of Raymond James. Please go ahead with your question.

Morning, everyone.

Good morning, everyone!

What’s going on, everyone?

All right, Frederic, things are going well. How are you?

Okay, thanks. Folks, it seems to me that a technical company’s capacity to integrate artificial intelligence smoothly alongside its own exclusive information is going to be a significant edge in the years ahead, and I think that those, well, those who put money in along those lines will clearly see the payoff. Do you think that this will favor bigger players such as yourselves rather than smaller outfits and perhaps create additional, you know, chances for consolidation and acquisitions?

That's precisely our thesis too, Frederic. As we've discussed previously, some of the firms that have come on board with us — those 1,000, 2,000 person firms — reached this level even prior to AI, and at that point they must professionalize IT, cybersecurity, finances, HR, and the like, yet they lack the resources, whether in skills or in finances, to back that up. Their sole desire is to concentrate on the work. What we observe now is AI pushing that even further — simply the extra investment in resources, both personnel and money, required to get there. On top of that, the data likely isn't in common formats and all those things. I genuinely believe that going forward, AI and some of what we're seeing there will keep pushing more firms in that space toward the consolidators.

That's a helpful response, thank you. Thanks, Gord. In your prepared remarks, you also brought up some positive defense-related developments up in Canada. Could you elaborate on those a bit, and maybe also say whether the momentum everyone keeps hearing about is actually turning into bids and projects?

It certainly is. We’re definitely seeing a stronger emphasis now from Canada’s federal government when it comes to defense and the Arctic, and from other governments worldwide too. We mentioned Defence Construction Canada’s multi-mission aircraft hangar — that’s in Nova Scotia, as I recall — where we’re doing facility upgrades for the armed forces throughout that region. Quite a bit of work is headed there. What’s interesting is that we began on the Grays Bay Road project a year ago or more. At the time, people would say, “That’s a road to nowhere,” but now everyone can see it isn’t.

This is a route toward what’s going to become a deep water port, and that port will accommodate Navy vessels as well as cargo ships and similar craft. Much of this effort is now reaching completion, and I believe you’ll witness considerably more arriving over the near term. Gord, we hold a particularly strong position north of the 60th.

Sure thing.

Capabilities, right?

You know, given what we can do in Yellowknife, in Whitehorse, and several other spots up there, plus a substantial presence in Alaska, that puts Stantec in a unique position for this North of 60 work.

Excellent. Keep up whatever it is you’re all doing. Well done.

All right, we'll do that.

Thanks. The next question is from Chris Murray at ATB Capital Markets. Go ahead, please.