Stantec Announces Fourth Quarter and Year-End 2019 Results and Dividend Increase

Stantec today reported its results for the quarter and year ended December 31, 2019. Unless otherwise indicated, financial figures are expressed in Canadian dollars, and comparisons are to the corresponding period ended December 31, 2018.

Stantec continued to demonstrate solid performance in the fourth quarter. Adjusted net income increased 15% to $52.3 million, primarily due to a 7.8% increase in net revenue, improved gross margin, and a decrease in administrative and marketing expenses as a percentage of net revenue on a pre-IFRS 16 basis. As a result, adjusted earnings per share increased 17.5% to $0.47.

“Over the course of 2019 we laid the foundation for a renewed, reinvigorated Stantec and our efforts resulted in solid financial results for the fourth quarter and the year. With clients at the center of everything we do, we enter 2020 laser-focused on winning impactful work, delivering exceptional project execution, and driving operational efficiency,” said Gord Johnston, Stantec’s President and Chief Executive Officer. “With our three-year strategic plan, announced in December, we have charted a course for continued value creation, and I am confident that we will achieve the targets set out in the plan.”

Fourth Quarter 2019 Highlights (After adoption of IFRS 16)

Net revenue increased 7.8% or $65.4 million mainly due to organic growth of 5.3% and acquisition growth of 2.8%. Organic growth was achieved in all businesses and was particularly strong within Environmental Services, Infrastructure, and Water.
Gross margin increased as a percentage of net revenue from 53.8% to 54.0% reflecting Stantec’s continued focus on project execution and project mix.
Administrative and marketing expenses were 38.7% of net revenue, including a 0.4% impact from severances associated with the Company’s organizational reshaping efforts. On a pre-IFRS basis, after adjusting for non-recurring items, administrative and marketing expenses as a percentage of net revenue decreased to 42.4% in Q4 19 from 43.7% in Q4 18. The decrease was primarily a result of improved utilization and operational efficiencies.
Adjusted EBITDA from continuing operations increased 69.6% from $84.2 million to $142.8 million, representing 15.8% of net revenue, mainly due to IFRS 16, higher net revenue, and lower administrative and marketing expenses from cost reduction initiatives (a 25.4% increase to $105.6 million representing 11.7% of net revenue, before IFRS 16).
Contract backlog was $4.3 billion—a 1.9% increase from December 31, 2018—representing approximately 11 months of work.
Days sales outstanding was 94 days (79 days including deferred revenue) at December 31, 2019, compared to Stantec’s target of 98 days. This was a strong improvement compared with 103 days at December 31, 2018, (88 days including deferred revenue) and 104 days at September 30, 2019, (91 days including deferred revenue) and reflects the significant and continuous efforts made during the year to improve the Company’s billing and collection efforts and the receipt of certain milestone-based payments.

2019 Highlights (After adoption of IFRS 16)

Net revenue increased 10.6% or $356.1 million due to organic growth of 4.4% and acquisitions.
Adjusted EBITDA from continuing operations increased 46.3% to $574.4 million, representing 15.5% of net revenue, mainly due to IFRS 16 (a 9.9% increase to $431.4 million and representing 11.6% of net revenue, before IFRS 16).
Adjusted diluted EPS increased 11.0% to $2.02 from $1.82.
Balance sheet strengthened with net debt to adjusted EBITDA (on a trailing twelve-month basis) of 1.1x.
Operating cash flows from continuing operations for 2019 increased 119.2% to $449.9 million (a 62.4% increase to $333.2 million before IFRS 16).
1,400,713 common shares were repurchased for an aggregate price of $43.2 million.
Return on invested capital at December 31, 2019, was 8.8%.

Dividend Increase

On February 26, 2020, Stantec’s Board of Directors declared a dividend of $0.155 per share, an increase of 6.9% from last year, payable on April 15, 2020, to shareholders on record on March 31, 2020.

Financial Summary

2019 Results Compared to Targets
The 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, Stantec updated its targets, previously provided in its 2018 Annual Report. The Company revised its EBITDA and net income targets to adjusted EBITDA and adjusted net income since it believes these measures better reflect underlying operations.

Stantec is within its target range for all measures in 2019. For further details regarding overall annual performance, refer to the Financial Performance section of the Management’s Discussion & Analysis.

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, February 27, 2020, to discuss the Company’s fourth quarter and full year 2019 performance. Please use the following link to register for the webcast:

https://edge.media-server.com/mmc/p/cqrn2b8m

The conference call and 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 1-800-367-2403 (Canada and United States) or 1-334-777-6978 (international). Please provide confirmation code 8912593 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, 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 2019 Annual Report and the reconciliation of Non-IFRS Financial Measures appended hereto.

Certain statements contained in this news release constitute forward-looking statements. Forward-looking statements in this news release include, but are not limited to, Stantec’s ability to drive operational efficiencies in 2020 and achieve the financial targets set out in its Strategic Plan. 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 2019 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, stantec.com. You may obtain a hard copy of the 2019 Annual Report free of charge from our investor contact noted below.

Investor Contact
Cora Klein
Stantec Investor Relations
Ph: 780-969-2018
cora.klein@stantec.com

Media Contact
Stephanie Smith
Stantec Media Relations
Ph: 780-917-7230
stephanie.smith2@stantec.com