Stantec (TSX, NYSE:STN), a global leader in sustainable design and
engineering, today reported its results for the three and nine
month periods ended September 30, 2023.
Stantec delivered record third quarter earnings, as continued
strong demand was met with high utilization, particularly in the
United States and Canada. Excellent operational performance was
augmented by effective workforce management strategies and
continued robust organic hiring, bolstered by the effect of
voluntary turnover returning to pre-pandemic levels in North
America. Third quarter results also reflected the favorable impacts
from a higher-than- typical volume of resolved change orders.
In the third quarter of 2023, Stantec generated net revenue of
$1.3 billion on the strength of 9.0% organic growth1. The Company's
regional and business operating units all delivered organic net
revenue growth for the seventh consecutive quarter, with notable
organic growth achieved in Water (18.1%) and Environmental Services
(12.8%). Stantec also achieved double digit organic net revenue
growth of 12.9% in its US region. Adjusted EBITDA margin increased
by 160 basis points over Q3 2022 to 18.3%, driven by high
utilization and operating leverage, combined with sustained
discipline in cost management. These factors were partially offset
by a significant expense related to the revaluation of Stantec’s
long-term incentive plan (LTIP) primarily due to strong share price
appreciation year-to-date. Stantec delivered diluted earnings per
share (EPS) of $0.94, and record third quarter adjusted diluted EPS
of $1.14. Backlog at September 30, 2023 increased to $6.4
billion, driven primarily by organic growth of 5.5% since December
31, 2022.
“I am extremely pleased with our third quarter results as we
continued to deliver exceptional growth in revenue and earnings
through excellent operational performance,” said Gord Johnston,
President and CEO. “As a result of our outperformance this quarter,
our strong year-to-date results, and the continued favorable market
demand, we are increasing our guidance for 2023 once more.” Mr.
Johnston continued, “Our backlog is at a near-record high level and
market demand continues to be robust, bolstering our optimism for
ongoing strong growth in 2024 and beyond. We are confident that our
diverse business model and engaged workforce ideally position
Stantec to continue delivering industry-leading results.”
1 Adjusted diluted EPS, adjusted net income, adjusted EBITDA,
and adjusted EBITDA margin are non-IFRS measures, and organic
growth, acquisition growth and DSO are other financial measures
(discussed in the Definitions section of the Q3 2023 MD&A).
Q3 2023 compared to Q3
2022
- Net revenue increased 13.5% or $156.8 million to $1.3 billion,
primarily driven by 9.0% organic growth. Every regional and
business operating unit achieved organic growth, with the United
States and Water and Environmental Services business units reaching
double digits.
- Project margin
increased $94.1 million or 15.0% to $721.1 million. As a
percentage of net revenue, project margin increased by 70 basis
points to 54.8% due to strong project execution and enhanced by the
resolution of change orders.
- Adjusted EBITDA1
increased $48.0 million or 24.8% to $241.3 million. Adjusted EBITDA
margin increased by 160 basis points over Q3 2022 to 18.3%, driven
by increased activities leading to higher utilization and operating
leverage as well as sustained discipline in cost management, partly
offset by a significant expense related to the revaluation of
Stantec's LTIP, primarily due to strong share price appreciation
year-to-date. Excluding the revaluation, adjusted EBITDA margin
achieved was 18.9%.
- Net income and
diluted EPS achieved record highs in the quarter. Net income
increased 52.8%, or $35.9 million, to $103.9 million, and diluted
EPS increased 54.1%, or $0.33, to $0.94, mainly due to strong net
revenue growth, solid project margins, and lower administrative and
marketing expenses as a percentage of net revenue.
- Adjusted net income1
and adjusted diluted EPS achieved record highs in the quarter.
Adjusted net income grew 33.4%, or $31.7 million, to $126.7
million, achieving 9.6% of net revenue (10.0% excluding the effect
of the LTIP revaluation), and adjusted diluted EPS increased 32.6%
to $1.14 ($1.19 excluding the effect of the LTIP revaluation).
- Contract backlog
increased to $6.4 billion at September 30, 2023, reflecting
5.5% organic growth from December 31, 2022. Organic backlog
growth was achieved across all regional units, with Water attaining
over 20% organic backlog growth. Contract backlog represents
approximately 12 months of work.
- Operating cash flows
increased $120.3 million, with cash inflows of $213.4 million,
reflecting strong revenue growth and operational performance. This
compares to $93.1 million in the comparative period, which included
impacts from the Cardno financial system integration.
- DSO was 83 days, a
decrease of 3 days from September 30, 2022.
- Net debt to adjusted
EBITDA (on a trailing twelve-month basis) at September 30,
2023 was 1.5x, remaining within Stantec's internal target range of
1.0x to 2.0x.
- On November 9,
2023, the Board of Directors declared a dividend of $0.195 per
share, payable on January 16, 2024, to shareholders of record
on December 29, 2023.
Year-to-date Q3 2023
compared to year-to-date Q3
2022
- Net revenue
increased 14.9% or $497.2 million to $3.8 billion,
primarily driven by 10.7% organic growth. Double-digit organic
growth was achieved in the United States and in the Water,
Environmental Services, and Energy & Resources businesses.
- Project margin
increased $278.3 million or 15.5% to $2.1 billion. As a
percentage of net revenue, project margin increased 30 basis points
to 54.3%.
- Adjusted EBITDA
increased $104.2 million or 19.6% to $636.4 million.
Adjusted EBITDA margin increased by 60 basis points over the prior
period to 16.6%, driven by increased activities and disciplined
cost management, partly offset by a significant expense related to
the revaluation of Stantec's LTIP primarily due to strong
year-to-date share price appreciation. Excluding the revaluation,
adjusted EBITDA margin achieved was 17.2%.
- Net income increased
48.0%, or $83.3 million, to $256.8 million, and diluted
EPS increased 48.1%, or $0.75, to $2.31, mainly due to strong net
revenue growth, solid project margins, and lower administrative and
marketing expenses as a percentage of net revenue.
- Adjusted net income
grew 23.8%, or $61.0 million, to $317.0 million,
achieving 8.3% of net revenue (8.7% excluding the effect of the
LTIP revaluation), and adjusted diluted EPS increased 24.3% to
$2.86 ($3.01 excluding the effect of the LTIP revaluation).
- Operating cash flows
increased $186.4 million, with cash inflows of
$281.1 million, reflecting strong revenue growth and
operational performance. This compares to $94.7 million in the
comparative period, which included impacts from the Cardno
financial system integration.
- Year to date Q3
2023, Stantec repurchased 129,036 common shares under the Company's
Normal Course Issuer Bid program at a cost of $10.0 million.
2023 Outlook
As a result of the strong year-to-date results, Stantec is
revising its targets contained within the Company's 2023 guidance
which was previously updated in August 2023 and provided on page
M-6 of the Q2 2023 Financial Report.
|
Previously Published2023 Annual
Range(Excludes expected impact of LTIPrevaluation) |
Revised 2023 Annual Range(Excludes expected impact
of LTIPrevaluation) |
Revised 2023 Annual Range(Includes the expected
impact ofLTIP revaluation) |
Targets |
|
|
|
Net revenue growth |
10% to 13% |
12% to 14% |
12% to 14% |
Adjusted EBITDA as % of net
revenue (note) |
16.3% to 16.7% |
16.7% to 17.1% |
16.3% to 16.7% |
Adjusted net income as % of
net revenue (note) |
above 7.5% |
above 8.2% |
above 7.8% |
Adjusted diluted EPS growth
(note) |
12% to 15% |
22% to 25% |
17% to 20% |
Adjusted ROIC (note) |
above 10.5% |
above 11.5% |
above 11.0% |
In setting the revised targets and guidance, the average value
for the US dollar was assumed to be $1.35, GBP to be $1.66, and AU
$0.91. For all other underlying assumptions, see the Assumptions
section of the Q3 2023 MD&A.
note: Adjusted EBITDA, adjusted net income, adjusted diluted
EPS, and adjusted ROIC are non-IFRS measures discussed in
the Definitions section of the Q3 2023 MD&A.
Stantec continues to expect high single digit net revenue
organic growth, with the US being in the low double digits, and
Global in the mid to high single digits. The Canadian market has
continued to be more resilient than expected across Stantec’s
business units, particularly in Water and Infrastructure where
organic growth forecasts were exceeded in the third quarter. While
Stantec expects growth in Canada to moderate in the fourth quarter,
the Company now expects organic net revenue growth to be in the mid
to high single digits (previously mid single digits).
Given regular seasonal factors in the northern hemisphere,
Stantec reiterates guidance that the earnings pattern will continue
to fall within 40 to 45% in Q1 and Q4, and 55 to 60% in Q2 and
Q3.
Q3 2023
Financial Highlights
|
For the quarter endedSeptember
30, |
For the three quarters endedSeptember
30, |
|
2023 |
|
2022 |
|
2023 |
|
2022 |
|
(In millions of Canadian dollars, except per shareamounts and
percentages) |
$ |
|
% of NetRevenue |
|
$ |
|
% of NetRevenue |
|
$ |
|
% of NetRevenue |
|
$ |
|
% of NetRevenue |
|
Gross revenue |
1,693.2 |
|
128.6 |
% |
1,473.2 |
|
127.0 |
% |
4,870.6 |
|
127.4 |
% |
4,163.7 |
|
125.2 |
% |
Net
revenue |
1,316.8 |
|
100.0 |
% |
1,160.0 |
|
100.0 |
% |
3,824.0 |
|
100.0 |
% |
3,326.8 |
|
100.0 |
% |
Direct
payroll costs |
595.7 |
|
45.2 |
% |
533.0 |
|
45.9 |
% |
1,748.9 |
|
45.7 |
% |
1,530.0 |
|
46.0 |
% |
Project margin |
721.1 |
|
54.8 |
% |
627.0 |
|
54.1 |
% |
2,075.1 |
|
54.3 |
% |
1,796.8 |
|
54.0 |
% |
Administrative and marketing expenses |
487.1 |
|
37.0 |
% |
445.4 |
|
38.4 |
% |
1,462.7 |
|
38.3 |
% |
1,303.1 |
|
39.2 |
% |
Depreciation of property and
equipment |
14.8 |
|
1.1 |
% |
14.4 |
|
1.2 |
% |
45.0 |
|
1.2 |
% |
43.0 |
|
1.3 |
% |
Depreciation of lease
assets |
30.1 |
|
2.3 |
% |
29.7 |
|
2.6 |
% |
91.2 |
|
2.4 |
% |
90.2 |
|
2.7 |
% |
Net reversal of lease assets
impairment |
(0.8 |
) |
(0.1 |
%) |
(1.1 |
) |
(0.1 |
%) |
(2.9 |
) |
(0.1 |
%) |
(3.7 |
) |
(0.1 |
%) |
Amortization of intangible
assets |
25.6 |
|
1.9 |
% |
26.6 |
|
2.3 |
% |
78.3 |
|
2.0 |
% |
77.1 |
|
2.3 |
% |
Net interest expense |
25.1 |
|
1.9 |
% |
18.7 |
|
1.6 |
% |
68.1 |
|
1.8 |
% |
46.5 |
|
1.4 |
% |
Other |
5.1 |
|
0.5 |
% |
4.2 |
|
0.4 |
% |
1.3 |
|
— |
% |
13.3 |
|
0.4 |
% |
Income
taxes |
30.2 |
|
2.3 |
% |
21.1 |
|
1.8 |
% |
74.6 |
|
2.0 |
% |
53.8 |
|
1.6 |
% |
Net income |
103.9 |
|
7.9 |
% |
68.0 |
|
5.9 |
% |
256.8 |
|
6.7 |
% |
173.5 |
|
5.2 |
% |
Basic and diluted earnings per
share (EPS) |
0.94 |
|
n/m |
|
0.61 |
|
n/m |
|
2.31 |
|
n/m |
|
1.56 |
|
n/m |
|
Adjusted EBITDA (note) |
241.3 |
|
18.3 |
% |
193.3 |
|
16.7 |
% |
636.4 |
|
16.6 |
% |
532.2 |
|
16.0 |
% |
Adjusted net income
(note) |
126.7 |
|
9.6 |
% |
95.0 |
|
8.2 |
% |
317.0 |
|
8.3 |
% |
256.0 |
|
7.7 |
% |
Adjusted diluted EPS
(note) |
1.14 |
|
n/m |
|
0.86 |
|
n/m |
|
2.86 |
|
n/m |
|
2.30 |
|
n/m |
|
Dividends declared per common share |
0.195 |
|
n/m |
|
0.180 |
|
n/m |
|
0.585 |
|
n/m |
|
0.540 |
|
n/m |
|
note: Adjusted EBITDA, adjusted net income, and adjusted diluted
EPS are non-IFRS measures (discussed in the Definitions of Non-IFRS
and Other Financial Measures section of the Q3 2023 MD&A).
n/m = not meaningful
Net Revenue by Reportable Segment
(In millions of Canadian dollars, except
percentages) |
Q3 2023 |
Q3 2022 |
Total Change |
Change Due to Acquisitions |
Change Due to Foreign Exchange |
Change Due to Organic Growth |
% of Organic Growth |
Canada |
315.9 |
294.1 |
21.8 |
|
— |
|
n/a |
|
21.8 |
|
7.4% |
|
United States |
711.6 |
591.8 |
119.8 |
|
26.9 |
|
16.4 |
|
76.5 |
|
12.9% |
|
Global |
289.3 |
274.1 |
15.2 |
|
— |
|
9.2 |
|
6.0 |
|
2.2% |
|
Total |
1,316.8 |
1,160.0 |
156.8 |
|
26.9 |
|
25.6 |
|
104.3 |
|
|
Percentage Growth |
|
|
13.5% |
|
2.3% |
|
2.2% |
|
9.0% |
|
|
Backlog
(In
millions of Canadian dollars, except percentages) |
Sep 30, 2023 |
Dec 31, 2022 |
Total Change |
Change Due to Acquisitions |
Change Due to Foreign Exchange |
Change Due to Organic Growth |
% of Organic Growth |
Canada |
1,341.6 |
1,249.2 |
92.4 |
|
— |
|
n/a |
|
92.4 |
|
7.4% |
|
United States |
4,051.7 |
3,715.9 |
335.8 |
|
143.1 |
|
11.1 |
|
181.6 |
|
4.9% |
|
Global |
956.7 |
936.6 |
20.1 |
|
— |
|
(31.4) |
|
51.5 |
|
5.5% |
|
Total |
6,350.0 |
5,901.7 |
448.3 |
|
143.1 |
|
(20.3) |
|
325.5 |
|
|
Percentage Growth |
|
|
7.6% |
|
2.4% |
|
(0.3)% |
|
5.5% |
|
|
Webcast & Conference Call
Stantec will host a live webcast and conference call on Friday,
November 10, 2023, at 7:00 AM Mountain Time (9:00 AM Eastern
Time) to discuss the Company’s third quarter performance. To listen
to the webcast and view the slide presentation, please join
here.
If you are an analyst and would like to participate in the
Q&A, please register here. The conference call and
slideshow presentation will be broadcast live and archived in their
entirety in the Investors section of Stantec.com.
About Stantec
Communities are fundamental. Whether around the corner or across
the globe, they provide a foundation, a sense of place and of
belonging. That's why at Stantec, we always design with
community in mind.
We care about the communities we serve—because they're our
communities too. This allows us to assess what's needed and connect
our expertise, to appreciate nuances and envision what's never been
considered, to bring together diverse perspectives so we can
collaborate toward a shared success.
We're designers, engineers, scientists, and project managers,
innovating together at the intersection of community, creativity,
and client relationships. Balancing these priorities results in
projects that advance the quality of life in communities across the
globe.
Stantec trades on the TSX and the NYSE under the symbol STN.
Visit us at stantec.com or find us on social media.
Cautionary Statements
Non-IFRS and Other Financial Measures
Stantec reports its financial results in accordance with IFRS.
This news release also reports the following non-IFRS and other
financial measures are used by the Company: adjusted EBITDA,
adjusted net income, adjusted earnings per share (EPS), net debt to
adjusted EBITDA, days sales outstanding (DSO), margin (percentage
of net revenue), organic growth (retraction), acquisition growth,
adjusted return on invested capital (ROIC) and measures described
as on a constant currency basis and the impact of foreign exchange
or currency fluctuations, as well as measures and ratios calculated
using these non-IFRS or other financial measures. Additional
disclosure for these non-IFRS and other financial measures,
incorporated by reference, is included in the Definitions of
Non-IFRS and Other Financial Measures section of the Q3 2023
Management’s Discussion and Analysis, available on SEDAR at
SEDAR.com, EDGAR at sec.gov, and the Company’s website at
Stantec.com and the reconciliation of Non-IFRS Financial Measures
appended hereto.
These non-IFRS and other financial measures do not have a
standardized meaning under IFRS and, therefore, may not be
comparable to similar measures presented by other issuers.
Management believes that, in addition to conventional measures
prepared in accordance with IFRS, these non-IFRS and other
financial measures and ratios provide useful information to
investors to assist them in understanding components of the
Company's financial results. These measures should not be
considered in isolation or viewed as a substitute for the related
financial information prepared in accordance with IFRS.
Forward-looking Statements
Certain statements contained in this news release constitute
forward-looking statements. These statements include, without
limitation, comments regarding the Company's ability to capture
future growth opportunities, adjusted diluted EPS and net revenue
growth, adjusted EBITDA margin, adjusted ROIC, and the updated 2023
outlook. Readers of this news release are cautioned not to place
undue reliance on forward-looking statements since a number of
factors could cause actual future results to differ materially from
the expectations expressed in these forward-looking statements.
These factors include, but are not limited to, the risk of economic
downturn, cash flow projections, project cancellations, access and
retention of skilled labor, decreased infrastructure spending
levels, decrease or end to stimulus programs, changing market
conditions for Stantec’s services, and the risk that Stantec fails
to capitalize on its strategic initiatives. Investors and the
public should carefully consider these factors, other
uncertainties, and potential events, as well as the inherent
uncertainty of forward-looking statements, when relying on these
statements to make decisions with respect to the Company.
Future outcomes relating to forward-looking statements may be
influenced by many factors and material risks. For the three and
nine month periods ended September 30, 2023, there has been no
significant change in the risk factors from those described in
Stantec's 2022 Annual Report. This report is accessible online by
visiting EDGAR on the SEC website at sec.gov or by visiting the CSA
website at sedarplus.ca or Stantec’s website, Stantec.com. You may
obtain a hard copy of the 2022 annual report free of charge from
the investor contact noted below.
Investor Contact
Jess NieukerkStantec Investor RelationsPh:
403-569-5389jess.nieukerk@stantec.com
To subscribe to Stantec’s email news alerts, please fill out the
subscription form, which is available on the Contact Information
page of the Investors section at Stantec.com.
Design with community in mind
Attached to this news release are Stantec’s
reconciliation of non-IFRS measures.
Reconciliation of Non-IFRS Financial
Measures
|
For the quarter endedSeptember
30, |
For the three quarters endedSeptember
30, |
(In millions of Canadian dollars, except per share amounts) |
2023 |
|
2022 |
|
2023 |
|
2022 |
|
Net income |
103.9 |
|
68.0 |
|
256.8 |
|
173.5 |
|
Add back
(deduct): |
|
|
|
|
Income taxes |
30.2 |
|
21.1 |
|
74.6 |
|
53.8 |
|
Net interest expense |
25.1 |
|
18.7 |
|
68.1 |
|
46.5 |
|
Net reversal of lease assets impairment (note 1) |
(1.8 |
) |
(1.4 |
) |
(3.8 |
) |
(3.3 |
) |
Depreciation and amortization |
70.5 |
|
70.7 |
|
214.5 |
|
210.3 |
|
Unrealized loss (gain) on equity securities |
3.1 |
|
3.7 |
|
(4.1 |
) |
22.2 |
|
Acquisition, integration, and restructuring costs (note 4) |
10.3 |
|
12.5 |
|
30.3 |
|
29.2 |
|
|
|
|
|
|
Adjusted EBITDA |
241.3 |
|
193.3 |
|
636.4 |
|
532.2 |
|
|
For the quarter endedSeptember
30, |
For the three quarters endedSeptember
30, |
(In millions of Canadian dollars, except per share amounts) |
2023 |
|
2022 |
|
2023 |
|
2022 |
|
Net income |
103.9 |
|
68.0 |
|
256.8 |
|
173.5 |
|
Add back (deduct)
after tax: |
|
|
|
|
Net reversal of lease assets impairment (note 1) |
(1.4 |
) |
(1.0 |
) |
(3.0 |
) |
(2.5 |
) |
Amortization of intangible assets related to acquisitions (note
2) |
12.6 |
|
15.6 |
|
41.7 |
|
45.8 |
|
Unrealized loss (gain) on equity securities (note 3) |
2.4 |
|
2.8 |
|
(3.2 |
) |
16.9 |
|
Acquisition, integration, and restructuring costs (note 4) |
9.2 |
|
9.6 |
|
24.7 |
|
22.3 |
|
|
|
|
|
|
Adjusted net income |
126.7 |
|
95.0 |
|
317.0 |
|
256.0 |
|
Weighted average number of shares outstanding - diluted |
110,958,545 |
|
110,896,770 |
|
110,955,101 |
|
111,150,916 |
|
|
|
|
|
|
Adjusted earnings per share - diluted |
1.14 |
|
0.86 |
|
2.86 |
|
2.30 |
|
See the Definitions section of the Q3 2023 MD&A for the
discussion of non-IFRS and other financial measures used and
additional reconciliations of non-IFRS financial measures.
note 1: The net reversal of lease assets impairment includes
onerous contracts associated with the impairment for the quarter
ended September 30, 2023 of $(1.0) (2022 - $(0.3)) and for the
three quarters ended September 30, 2023 of $(0.9) (2022 -
$0.4). For the quarter ended September 30, 2023, this amount is net
of tax of $(0.4) (2022 - $(0.4)). For the three quarters ended
September 30, 2023, this amount is net of tax of $(0.8) (2022
- $(0.8)).
note 2: The add back of intangible amortization relates only to
the amortization from intangible assets acquired through
acquisitions and excludes the amortization of software purchased by
Stantec. For the quarter ended September 30, 2023, this amount is
net of tax of $3.7 (2022 - $4.8). For the three quarters ended
September 30, 2023 this amount is net of tax of $12.1 (2022 -
$14.2).
note 3: For the quarter ended September 30, 2023, this amount is
net of tax of $0.7 (2022 - $0.9). For the three quarters ended
September 30, 2023 this amount is net of tax of $(0.9) (2022-
$5.3).
note 4: The add back of certain administrative and marketing
costs and depreciation primarily related to acquisition and
integration expenses associated with our acquisitions and
restructuring costs. For the quarter ended September 30, 2023, this
amount is net of tax of $2.7 (2022 - $2.9). For the three quarters
ended September 30, 2023, this amount is net of tax of $7.2
(2022- $6.9).
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