Stantec announces third quarter 2019 results

Stantec today reported its results for the quarter ended September 30, 2019. Unless otherwise indicated, financial figures are expressed in Canadian dollars, and comparisons are to the corresponding period ended September 30, 2018.

Stantec delivered solid performance in the third quarter with key financial metrics in line with management’s expectations. Adjusted net income for the quarter increased 29.5% to $66.3 million, primarily due to a 12.4% increase in net revenue from strong organic and acquisitive growth and improved gross margin. As a result, adjusted earnings per share increased 31.1% to $0.59.

“Solid growth across all geographies and business units, with the exception of Energy & Resources, continues to validate our ongoing strategy to diversify to new geographies and to target acquisitions that support organic growth. Environmental Services and Infrastructure were leaders in delivering growth this quarter,” said Gord Johnston, Stantec’s President and Chief Executive Officer. “Our organizational reshaping efforts are on track to deliver cost savings of approximately $40 million to $45 million, or $0.26 to $0.29 per share, on an annualized basis with our administrative and marketing expenses in line with our expectations for Q3 19. This initiative has not affected our ability to execute projects, build backlog, or achieve organic growth. We are continuing to take the right steps to position our organization for success in 2020 and we look forward to presenting our strategic plan to all of our stakeholders in December 2019.”

Third Quarter 2019 Highlights (After adoption of IFRS 16)

Net revenue grew 12.4% to $952.6 million for the quarter (11.5% increase year-to-date) due to:
- 7.4% organic growth (4.1% year-to-date) driven by growth across all geographies, particularly in the US and Global operations and the Environmental Services, Infrastructure, and Water businesses; and
- 4.8% acquisition growth (5.9% year-to-date), primarily due to recent global acquisitions (Peter Brett Associates LLP and Wood & Grieve Engineers).
Gross margin increased 13.4% and, as a percentage of net revenue, increased from 53.7% to 54.2%, reflecting continued focus on project execution and project mix.
Administrative and marketing (A&M) expenses were at the low end of the Company’s guidance range at 37.3% of net revenue, including a 0.3% impact from severances associated with organizational reshaping efforts. Excluding severance costs, A&M as a percentage of net revenue was consistent with the prior year on a pre-IFRS 16 basis and reflects the normal cycle, which also sees A&M expenses expand in the fourth quarter.
Adjusted EBITDA increased 46.9% to $159.1 million, representing 16.7% of net revenue (a 14.6% increase to $124.1 million before IFRS 16, representing 13.0% of net revenue).
Contract backlog was $4.4 billion, a 5.4% increase from December 31, 2018—representing 11 months of work.
Net debt to adjusted EBITDA (on a trailing twelve-month basis) was 1.6x—within the Company’s internal guideline of 1.0x to 2.0x (post-IFRS 16 adoption).
Operating cash flows from continuing operations increased 115.8% to $139.0 million, mainly due to increased cash receipts from clients and IFRS 16 (a 68.0% increase to $108.2 million before IFRS 16).
Days sales outstanding was 104 days (91 days including deferred revenue), unchanged from June 30, 2019.

Financial Summary

Dividend Declare
The Board of Directors declared a dividend of $0.145 per share, payable on January 15, 2020, to shareholders on record on December 30, 2019.

Annual Targets for 2019
Stantec expects IFRS 16 will reduce 2019 net income by approximately $3.0 million and EPS by $0.03. Adoption of IFRS 16 resulted in non-cash impacts to administrative and marketing expenses, depreciation of leased assets, and net interest expense. As a result, in Q1 19, the Company updated its targets, previously provided in its 2018 Annual Report. Stantec revised its EBITDA and net income targets to adjusted EBITDA and adjusted net income since the Company believes these measures better reflect underlying operations.

Stantec is within its targeted ranges for all its measures based on year-to-date results for Q3 19. The Company maintains its previously established target ranges for the full year 2019; however, it expects to be in the upper end of its range for A&M expenses and in the lower end of its range for adjusted EBITDA and adjusted net income.

Conference Call
Gord Johnston, president and chief executive officer, and Theresa Jang, executive vice president and chief financial officer, will hold a conference call at 7:00 AM MST (9:00 AM EST) on Thursday, November 7, 2019, to discuss the Company’s third quarter performance.

The conference call and slideshow presentation will be broadcast live and archived in their entirety in the Investors section of stantec.com. Participants wishing to listen to the call via telephone may dial in toll-free at 1-877-260-1479 (Canada and United States) or 1-334-323-0522 (international). Please provide confirmation code 3846697 when prompted.

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.

Cautionary Statements
Stantec’s EBITDA, adjusted EBITDA, adjusted net income, adjusted basic and diluted earnings per share, and net debt to adjusted EBITDA are non-IFRS measures. For a definition and explanation of non-IFRS measures, refer to the Critical Accounting Estimates, Developments, and Measures section of the Company’s 2018 Annual Report or the Q3 2019 Management’s Discussion & Analysis.

Certain statements contained in this news release constitute forward-looking statements. Forward-looking statements in this news release include, but are not limited to, expected cost savings relating to organizational reshaping and guidance relating to Stantec’s 2019 financial targets. Any such statements represent the views of management only as of the date hereof and are presented for the purpose of assisting the Company’s shareholders in understanding Stantec’s operations, objectives, priorities, and anticipated financial performance as at and for the periods ended on the dates presented and may not be appropriate for other purposes. By their nature, forward-looking statements require us to make assumptions and are subject to inherent risks and uncertainties.

We caution readers of this news release not to place undue reliance on our 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, decreased infrastructure spending levels, 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 our Company.

For more information about how other material risk factors could affect our results, refer to the Risk Factors section and Cautionary Note Regarding Forward-Looking Statements section in our 2018 Annual Report. You may access our annual report online by visiting EDGAR on the SEC website at sec.gov or by visiting the CSA website at sedar.com or Stantec’s website. You may obtain a hard copy of the 2018 Annual Report free of charge from our investor contact noted below.