Stantec Inc.

In Q2, Stantec reported gross revenue of $2.2 billion and net revenue of $1.8 billion, up 11.5% year over year. Growth came from 3.7% organic growth and 7.1% acquisition growth. Project margins as a percentage of net revenue increased 30 basis points to 54.5%, adjusted EBITDA margin was 18.7% (up 90 basis points year over year), and adjusted EPS rose 18.4% to $1.61. On a trailing 12-month basis, adjusted EBITDA margin was 18%, up 80 basis points versus the prior trailing 12 months. Cash from operations was $116 million year to date, DSO was 75 days, and net debt to adjusted EBITDA was 1.3x. Management lifted full-year adjusted EBITDA margin guidance to 17.8% to 18.3%, kept net revenue growth guidance at 8.5% to 11.5%, and maintained adjusted EPS growth guidance at 15% to 18%.

Gord Johnston said the quarter demonstrated the strength of Stantec’s diversified, multi-sector, multi-region model and stressed that demand remains strong across infrastructure, energy, transportation, water and advanced manufacturing. He repeatedly pointed to Q2 project timing issues in the U.S. as the main reason for slower organic growth there, while saying backlog, soft backlog and project starts support a second-half acceleration. He also emphasized that this was his final earnings call as CEO, but said he will stay involved as Vice Chair and support Susan Reisbord through the transition.

Vito Culmone highlighted solid execution across the platform, with gross revenue of $2.2 billion, net revenue of $1.8 billion, project margins of 54.5%, adjusted EBITDA margin of 18.7%, and adjusted EPS of $1.61. He said the margin gains came from project execution, utilization, disciplined discretionary spending, and digitalization efforts, while noting that back-half margin expansion may moderate as the company adds headcount to support growth. On capital allocation, he said M&A remains the top value-creation priority, announced the acquisition of Niche in Australia, and said Stantec repurchased about 1.7 million shares for approximately $175 million under the NCIB; leverage remained at 1.3x and DSO was 75 days.

Analysts focused on why U.S. and Canada organic growth was softer in the first half and how management could still hit mid-single-digit growth in the back half. Management said the issue was timing, not demand, citing delayed project starts, a strong sales funnel, improving Q3 momentum, and the Page acquisition moving from acquisition growth to organic growth in Q3 and Q4. Questions also centered on margins, with management saying project margins remain strong and that some back-half moderation reflects planned workforce expansion, plus M&A and valuation gaps; they said the market is active, the private/public valuation spread still exists, but Stantec intends to remain disciplined and may seek to expand its NCIB from 2% to 5%.