Stantec Inc. (STN) Earnings Call Transcript

This is Stantec's webcast and conference call covering first quarter 2026 results. Gord Johnston, our President and Chief Executive Officer, along with Vito Culmone, Executive Vice President and Chief Financial Officer, are leading today's session. Anyone dialing in is encouraged by Stantec to pull up the slide deck, which can be found under the Investors section of stantec.com. A webcast of this call is available as well. <<operator_script>> Please note that everything shared on this conference call falls under the forward-looking statements qualification described on Slide 2, laid out in Stantec's management discussion and analysis, and incorporated in full for today's call. Except where stated otherwise, figures in Canadian dollars are used for the amounts we discuss today and are typically rounded. I'll now hand things over to Gord Johnston. Go ahead, sir.

Good morning, everyone, and thanks for being with us today. The results we posted for the first quarter show a solid start to the year, supported by continued strong execution and our diversified platform. We're well positioned to keep building momentum through the rest of the year. Macro trends in water, aging infrastructure, mission-critical facilities and the energy transition continue to underpin strong long-term demand for what we do. Although the operating environment remains dynamic, we stay focused on execution, prioritizing the right work and continually driving strong operational performance. During the first quarter, net revenue grew to $1.7 billion, up over 9% versus Q1 2025, driven by 3.6% organic growth and 7.2% growth from acquisitions. Organic growth was achieved in every one of our regional operating units. Our Water business delivered over 14% organic growth, and our Energy & Resources business delivered almost 9% organic growth. Adjusted EBITDA rose close to 14% year-over-year, and our adjusted EBITDA margin climbed to 16.9%, an increase of 70 basis points year-over-year. Adjusted EPS grew almost 15% compared to Q1 2025. Now looking at results in each of our geographies. In the first quarter, U.S. net revenue rose 11%, driven by 12.5% acquisition growth from Page and almost 3% organic growth.

Double-digit organic growth came through in our Water business, mainly from work on big wastewater treatment projects. On the Energy & Resources side, a major hydropower dam project helped drive solid organic growth, and our Infrastructure business kept growing thanks to data center projects in the North Central region. A number of our major clients are consolidating work and handing larger, more integrated programs to a smaller set of trusted providers like Stantec. Activity across these programs is starting to ramp up, and we expect that to continue throughout 2026. In Canada, first quarter net revenue grew just over 1% organically. Strong organic net revenue growth in our Water business was driven by biosolids projects and continued momentum on wastewater projects. Robust organic net revenue growth was also achieved in both our Energy & Resources and Buildings businesses through consistent progress on major industrial process projects and public sector investments, primarily in civic markets, respectively. While our Infrastructure business saw the wind down of certain transit and roadway projects in the quarter, we expect a ramp-up of new projects to commence in Q2. Lastly, our Global business delivered over 13% net revenue growth in the first quarter, driven by almost 8% organic and 3% acquisition growth as well as positive foreign exchange impacts.

Our Water business, which leads the industry, achieved 15% organic growth in the quarter, driven by long-term framework agreements and public sector investments in water infrastructure throughout the U.K., Australia and New Zealand. Strong organic growth in Energy & Resources came from the ramp-up of new projects in Chile and Peru, as rising demand for energy transition solutions keeps fueling demand for copper in mining. And in our German Infrastructure business, we reached double-digit organic growth thanks to continued momentum on a major public sector electrical transmission project and higher volume on transit and rail projects. Before I hand the call to Vito, I'd like to briefly spotlight our 19th Annual Sustainability Report, which came out in April. Among the accomplishments in that report: roughly $5.5 billion, or 68% of total revenue, was generated from work aligned with the UN Sustainable Development Goals. We reached operational carbon neutrality for the fourth consecutive year while making continued progress toward our net zero commitments under Canada's net zero challenge. And we held an A- CDP climate score for the eighth consecutive year, which reflects sustained external recognition of our climate action efforts. Sustainability is a core driver of Stantec's strategy, shaping the markets we serve, the projects we pursue and how we deliver work, all of which support long-term growth.

At this point I'll hand things over to Vito, who will walk us through the first quarter's financial results in greater detail.

Thank you, Gord, and good morning to all of you. As Gord mentioned, we delivered strong financial results for the first quarter. Continued demand across a diversified multi-sector platform, together with robust operational execution, keeps underpinning these strong results. During the first quarter, we generated gross revenue of $2.1 billion and net revenue of $1.7 billion, which represents a 9.1% increase over Q1 of 2025. That growth came from 3.6% organic growth and 7.2% growth from acquisitions. Project margins as a percentage of our net revenue were once again consistent with our expectations, at 54%. Our adjusted EBITDA margin for the quarter came in at 16.9%, up 70 basis points versus Q1 of 2025. This margin improvement was mainly attributable to lower admin and marketing expenses as a percentage of our net revenue, and it reflects continued disciplined management of our operations. Adjusted EPS for the first quarter rose 14.7% to $1.33. Now turning to cash flow, liquidity, and capital resources: during the first quarter, net operating cash outflows came to $2.3 million. The first quarter is normally a seasonally weaker period for generating cash flow. In addition, the Q1 results reflect the anticipated transitory disruption tied to the financial migration of Page, as well as the greater investment in working capital needed to fund the elevated organic growth in our global region.

At the close of the first quarter, DSO came in at 74 days — that's 3 days better than Q1 of the previous year and under the 75-day internal target we set for ourselves. The ratio of net debt to adjusted EBITDA held steady at 1.3x, which sits inside our internal target range of 1 to 2x. Our balance sheet is still very strong, and that leaves us well positioned for acquisition growth down the road. With that, I'll pass the call back to Gord, who will cover backlog, the project wins we've had recently, and what we see ahead for 2026.

Appreciate that, Vito. As we closed out the first quarter of 2026, our contract backlog hit a record $9 billion — up 13.2% from a year earlier, which works out to roughly 13 months of work. Acquisitions we wrapped up in 2025 added more than 9% to backlog growth, mostly in our Buildings business. On an organic basis, backlog was up 5.4% year-over-year. The standout for organic growth year-over-year came in our Global region, which posted double-digit growth of 22%. We also saw solid backlog gains in Water and Buildings, with each posting organic growth of nearly 10%. Worth noting that in the U.S., procurement cycle activity keeps picking up, as we logged yet another quarter of consecutive organic backlog growth. Measured against Q4 2025, backlog rose more than 3% organically, building on the 3% organic growth we recorded from Q3 to Q4 of last year. Now I'll walk through a few projects Stantec won during the quarter. These wins illustrate how broad the opportunities we're capturing are — they differ in size, scope and complexity. Leaning on deep experience in advanced manufacturing, our Buildings team was chosen to deliver design services through the construction phase of a multibillion-dollar semiconductor manufacturing and R&D facility in Idaho. That project encompasses on-site water treatment facilities along with 5 ancillary support buildings.

Our Infrastructure group, working through a joint venture, was chosen to head up design work for the first light rail system in Austin, Texas that runs entirely on electric power. The scope covers a transit corridor of 10 miles with 15 stations, and there we will provide complete multidisciplinary design spanning tracks, stations, bridges, systems, utilities, drainage, and streetscape upgrades. Over in Chile, our Energy & Resources team was picked to supply oversight and quality review for a tailings management facility, which shows the strength we keep building in backing complicated mining infrastructure work. Our scope reaches across earthmoving, civil, piping, geosynthetics and electromechanical systems. What's more, our involvement will carry on through construction and commissioning, covering tailings pumps, water systems, piping and electrical components. Turning to the rest of the year, we are reaffirming our 2026 financial targets, among them net revenue growth, which we expect to land in a range of 8.5% to 11.5%, with organic net revenue growth in the mid- to high single digits, powered by robust demand throughout every geographic reporting segment and business unit. Within the U.S., organic growth should speed up, helped along by demand across all 5 of our business verticals. We're also heartened by rising demand in key areas like data centers and defense, and in advanced manufacturing too.

For Canada, we anticipate expansion fueled by public sector spending plans as well as ongoing demand in energy and resources. Following the Canadian government's recent announcements, we keep seeing solid momentum in defense and other nation-building efforts. These programs, though still at an early stage, should add to growth well past 2026. On the defense side, Stantec has finished work on 16 national defense and Canadian forces bases throughout Canada and is presently backing projects that further national sovereignty from coast to coast to coast. Also, the Canadian Defense Review recently included Stantec on its list of top 100 defense companies in 2026. Finally, Global should sustain robust organic net revenue growth, powered by continued high activity levels in our Water business under AMP8 and other framework agreements, strong demand in Energy & Resources, and positive demand fundamentals throughout the rest of Global's business units. Given our ongoing emphasis on operational excellence, we anticipate our adjusted EBITDA margin will keep expanding to a record range of 17.6% to 18.2%. And we expect to deliver 15% to 18% growth in adjusted EPS compared to 2025. I would point out that these targets incorporate no assumptions regarding further acquisitions, since the timing and size of such transactions are unpredictable.

Regarding M&A, we're beginning to notice additional buyers showing up in the market, private equity especially. We stay busy assessing opportunities while keeping our disciplined approach intact. A healthy pipeline of firms coming to market is still what we see, and we remain confident that M&A is the best use of our capital. As we finish the last year of our 2024 to 2026 strategic plan, we continue to be grounded in disciplined execution while getting Stantec ready for what comes next. We are confident in our positioning and in our ability to keep delivering strong performance and long-term value for years to come. With that, let me hand the call over to the operator for questions. Operator?

The initial question this afternoon is from Frederic Bastien at Raymond James.

Look, investors now assume that Stantec will point its next investment dollar at M&A. And Gord, you said exactly that in your prepared remarks. How do you view share purchases given the present AI dynamic and the pressure on public valuation, this narrative, and how that dynamic develops? How do you think about buybacks in that light?

Yes. Thanks, Frederic. I'll go ahead and field that one. You're completely correct. Ultimately, at the core, our view remains firmly that strategic acquisitions offer the greatest opportunity for value creation for this organization going forward. Buybacks of stock are certainly one instrument in what you might call our toolkit for optimizing the capital structure. And as you're pointing out and hinting at, honestly, at these valuation levels, it's getting harder and harder to overlook the case for stepping into the market and repurchasing shares. So watch for that as we head into our open windows following this quarter. That said, the amounts and values involved, when you factor in our 2% approved NCIB and the size of our balance sheet, aren't especially large and would not in any way stand in the way of our M&A strategies. So thanks for the question.

Thanks for that, Vito. Stepping back a bit — on the organic growth side, is the U.S. still where you see the most exciting opportunities? Or, given what you said about Canada, defense spending, and nation-building initiatives, does it sound like Canada might be a really strong growth area going forward?

We believe there are strong opportunities on both sides of the border. That said, you're correct that Canada got off to a somewhat sluggish start this year where organic growth is concerned. What's notable, though — and we mentioned this in our prepared remarks — is that Infrastructure scaled back on a couple of transportation projects we had, yet we expect those to be picked back up again in Q2. Apart from that, all of our businesses delivered mid- to high single-digit organic growth for the quarter, only slightly weighed down by Infrastructure. And keep in mind we're up against a tough comparison — 12% in Q1 of '25. Looking at the Canadian business, though, backlog is up 6% organically year over year. Then, considering the opportunities you mentioned with the federal government up north — our first defense industrial strategy, the arctic Infrastructure plan, the Build Communities Strong Fund — there's simply a great deal of positive directional activity underway in Canada. So our confidence is quite high. We've previously discussed the Arctic Over-The-Horizon award and Grays Bay, which we're working on, and there are plenty of opportunities emerging in the North, Frederic, that we feel very good about.

That’s certainly not meant to dismiss the U.S. in any way. What we observed there is that our backlog has kept gaining momentum, with organic backlog growth of a little over 3% this quarter, following roughly 3% organic backlog growth in the prior quarter. So I believe we’re seeing that trend emerge and gain strength too. Still, overall, our view of North America is fairly positive.

We'll take our next question from Krista Friesen, who is on the line from CIBC.

I'd just like a bit more detail on what you're seeing out of the Canadian government. There have been quite a few announcements, after all. At this point, are we seeing those turn into awards? And do you think some of the red tape has actually been cut compared with what we've historically seen from the government?

We have definitely seen some awards come through. Arctic Over-The-Horizon has, of course, been a topic for all of us. But there are quite a few other proposals out there that we're still waiting on. Actually, what's interesting is that when we look at how many opportunities there are, I think you'll find us being fairly selective about which ones we go after, since so many are coming in that we'll be examining them quite carefully. So strong opportunities exist there. You saw that we were ranked 42 in the top 100 of Defense Canada's ranking. So there's simply a great deal of opportunity coming along there, Krista. As for whether red tape has been cut back — do we notice any change in the permitting process right now? My sense is that it's still developing, and we'll see more. But we're also aware that Prime Minister Carney is visiting Alberta on Friday. So we'll see what he says there; he certainly has some expectations of an announcement too, which would be a positive signal for us directionally.

Absolutely.

All right, that's excellent. Then, regarding M&A, could you share your observations about the multiples currently being seen for private companies? And I suppose, how significant a dislocation exists between that market and the public markets, along with what we're observing?

Yes, and I'll handle that one, Gordon, perhaps. I mean, we certainly observe — regarding valuations in M&A, it's clearly quite sector-dependent. You've witnessed certain deals take place, obviously, during the past several weeks, and mostly in power, which places you in the high teens kind of range. So comparing that with, obviously, the level at which we're trading, there's a notable sort of disconnect, though those are power assets. I'd say at present, returning to almost Benoit's question — pardon me, Frederic's question concerning valuations, what we're seeing is a valuation disconnect that I believe will, over time, obviously, see some convergence. Still, valuations generally are clearly very specific to company and sector, and we'll keep watching that and stay disciplined as we proceed.

The next person to ask something is Benoit Poirier, who's calling in from Desjardins.

To revisit the U.S. point—you clearly mentioned the softer beginning, with organic growth at 2.8%. I'm curious whether emergency response contributed less. Also, will the Building retraction we observed, stemming from certain projects being completed, carry over into Q2? I'm simply hoping for your thinking on whether there's any slowing in IIJA funding flows, or anything else you could share would be welcome.

Yes. So for the Buildings business, we got off to a slow beginning in Q1. That being said, the backlog in Buildings on a year-over-year basis — and even comparing Q1 of this year with Q4 of last year — shows us some encouraging momentum in Buildings. Much like Canada, where infrastructure was the sole segment that shrank because certain projects were winding down, the same held true in the States: Buildings was the only group that pulled back somewhat on an organic basis. All the other groups posted growth. So as Buildings gains strength here in Q2 and through the back half of the year, I believe that should broadly help our overall organic growth in the U.S. On backlog growth in general, we mentioned sequential gains this quarter and the one before. And in both Canada and the U.S., we have a sizable amount of notified awards not yet under contract that will flow into backlog here in Q2 and afterward. So we feel quite good about where we stand and how this year will come together.

One more point I’d make on that, Gord — and Benoit, regarding the Buildings practice, we’re genuinely enthusiastic about the Page acquisition. And of course, Page revenue and the Page business are being reported through our acquisition-type reporting. But compared with the prior year, there’s been some really solid, healthy organic growth in the Page business. So Page and the organic Building sector we report are complementing each other, and we’re quite happy with the way that’s developing as we look ahead to the year.

And perhaps I could just add something alongside Page here: I believe our revenue synergies are actually surpassing even what we’d hoped to see in that area. Putting those two groups together makes for a very, very strong combination.

All right, that's really helpful context. And over on the Global side, reaching 15% organic growth was quite impressive. You highlighted how well Water performed, along with project ramp-ups in Chile and Peru. So I'm just curious whether that double-digit performance can be sustained going forward.

Regarding the Water segment and AMP8, we’ve discussed it for a while now, and it keeps accelerating. So our confidence there is high. We’re actively recruiting everyone we possibly can in the U.K.; you’ll have noticed that at last we can speak publicly about Scottish Water, since they’ve issued their press release, and about how we serve as one of their main design partners. That will keep expanding, with active hiring there. We’re also bringing on many people in India to back these teams. So that is very, very sustainable. If you look at our South American operations, again mainly supporting copper amid the ongoing rise in and demand for copper for the energy transition and similar needs, we’re seeing extremely strong growth in our Mining segment there, with active hiring. Interestingly, we’re also beginning to rely even more on our Indian — our delivery centers to support our Latin American operations too, simply because of the — given the growth there, it’s simpler to bring in some people from elsewhere. So we feel good about that, and really good about our Global delivery center too.

Okay. So at this point, how many employees would you have in those global centers, Gord?

Yes. So we're at just under 2,000 people, right about where we aimed to be by the close of this year. So we may hit that target a bit ahead of schedule. And what's interesting is that we set our sights on roughly 2,000 people. And as we keep growing there, we've actually taken a second office in Pune as well. We've expanded inside our current office until no further space is left. Now we've taken on additional real estate. So -- and we're beginning to hire some people in some other cities too, to support our continued growth. So more to come there.