Release Date: February 25, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Stantec Inc (NYSE:STN) reported a record year in 2024 with net revenues of $5.9 billion, up 15.8% from 2023.
• The company achieved double-digit organic growth in the US and high single-digit growth in Canada and globally in Q4 2024.
• Adjusted EBITDA grew by 18% to $980 million, with an enhanced margin of 16.7%, reflecting a 30 basis point increase.
• Stantec Inc (NYSE:STN) was recognized as one of the world's most sustainable companies, ranking 8th overall and 1st among industry peers.
• The company's backlog reached a record $7.8 billion, representing a 24.1% increase from December 2023, indicating strong demand for its services.

Negative Points

• Organic backlog growth in the global segment was relatively flat, primarily due to timing issues in New Zealand and the UK.
• The company experienced high project burn rates on major water projects in New Zealand, affecting backlog conversion.
• While the US administration's commitment to economic growth is positive, there is uncertainty about potential disruptions to projects due to shifting priorities.
• The company's exposure to USAID is limited, but there is potential for minor disruptions in project funding.
• Stantec Inc (NYSE:STN) faces challenges in maintaining its project margins, with global operations skewing lower than North America.

Q & A Highlights

• Warning! GuruFocus has detected 2 Warning Sign with STN.

Q: Can you elaborate on the demand environment and what gives you confidence in the revenue growth outlook for 2025? A: (Gord Johnston, CEO) We have strong organic backlog growth, particularly in our buildings and water businesses. The buildings business saw nearly 18% organic growth in Q4, and water achieved 24% organic backlog growth in Canada and the US. Our infrastructure business, especially in transportation, is also strong globally. Overall, we feel confident across all business lines and geographies.

Q: What are the assumptions behind the margin guidance of 16.7% to 17.3%? A: (Vito Coloni, CFO) The main driver is project margin, influenced by the mix of work. Global operations tend to have lower margins than North America. We focus on operational leverage, high-value centers, and technology to drive productivity. This guidance is a step towards our 2026 target of 17% to 18%.

Q: Can you discuss the M&A outlook and whether the macro environment has affected targets' willingness to transact or multiples? A: (Gord Johnston, CEO) Our focus is on mid-sized companies (1,000-2,000 employees), with many opportunities in the US and globally. We haven't seen significant changes in the M&A environment or multiples due to macro factors. Our strong balance sheet allows us to pursue opportunities as they arise.

Q: How did the energy and resources segment perform in Q4, and what is the outlook for 2025? A: (Gord Johnston, CEO) The segment returned to growth in Q4, with a 14% increase in backlog year-over-year. Growth is driven by power and mining projects in Canada and the US, including copper projects in Arizona and mining opportunities in Chile. We expect positive organic growth in this segment for 2025.

Q: Can you provide more detail on the AMP8 program and its impact on your water business? A: (Gord Johnston, CEO) AMP8's capital spend is 75% larger than AMP7, with a budget of 104 billion pounds. Some water companies are appealing for even larger budgets. We expect significant opportunities from this program, and we've ramped up hiring in the UK and Pune to prepare for increased demand.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.