Stantec announces first quarter 2019 results

Stantec today announced its financial results for the quarter ended March 31, 2019. “Our solid first-quarter performance reflects our continued focus on organic and acquisition growth,” said Stantec president and chief executive officer Gord Johnston. “We are particularly pleased with the strong organic growth achieved in our global business, which demonstrates the value of our growing geographic reach and augments the diversity of our business mix.”

Effective January 1, 2019, Stantec adopted IFRS 16 Leases using the modified retrospective approach and did not restate comparative information.

Q1 2019 Highlights

After adoption of IFRS 16

• Adjusted net income of $50.3 million or $0.45 on a diluted per share basis, increases of 5.0% and 7.1%, respectively, compared to Q1 18.
  
• Net income of $44.9 million or $0.40 on a diluted per share basis, increases of 22.0% and 25.0%.
• Gross and net revenue of $1,151.5 million and $904.1 million, respectively, reflecting growth of 12.7% and 11.8%, with increases across all geographies.
• Organic net revenue growth of 2.5%, with growth in all geographies and business operating units, except Water, where growth was offset by the effect of a large recovery recognized in Q1 18.
• Acquisition net revenue growth of 6.6% compared to Q1 18, predominately from the recent global acquisitions of Peter Brett Associates and Wood & Grieve Engineers (WGE).
• Adjusted EBITDA of $127.1 million, representing 14.1% of net revenue.
• EBITDA of $132.2 million, representing 14.6% of net revenue.
• Contract backlog of $4.4 billion—a 5.6% increase from December 31, 2018—representing 12 months of work.
• Days sales outstanding (DSO) of 104 days (90 days including deferred revenue), an increase of one day from December 31, 2018. Reducing DSO continues to be a key focus for the Company.
• Net debt to adjusted EBITDA of 2.0x—at the upper end of the Company’s internal guideline of 1.0x to 2.0x (post-IFRS 16 adoption) due to typically lower cash flows in Q1, funding the WGE acquisition, opportunistic share repurchases, and the impact of only one month’s EBITDA contribution from WGE.
• On May 9, 2019, the Board of Directors declared a dividend of $0.145 per share, payable on July 15, 2019, to shareholders on record on June 28, 2019.

Excluding adoption of IFRS 16

• Adjusted net income and diluted earnings per share (EPS)—no significant impact.
• Net income and diluted EPS—no significant impact.
• Adjusted EBITDA of $91.6 million—a 2.3% increase from Q1 18, representing 10.1% of net revenue.
• EBITDA of $96.7 million—an 11.3% increase from Q1 18, representing 10.7% of net revenue.
• Net debt to adjusted EBITDA of 2.67x.

Financial Summary

Revised Annual Targets for 2019
The Company expects IFRS 16 will reduce 2019 net income by approximately $3.0 million and EPS by $0.03 evenly over Q2 19 to Q4 19. 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, the Company 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 its underlying operations.

Q1 19 results are consistent with the Company’s expectations. Certain measures are outside the targeted annual ranges due to the typical slowdown in the first quarter related to winter weather conditions and holiday schedules. This also occurs in the fourth quarter. The Company is confident it will achieve its annual targets by the end of the fiscal year.

Conference Call and Annual General Meeting of Shareholders
On Friday, May 10, 2019, at 7:00 AM MDT (9:00 AM EDT), Stantec’s first quarter 2019 conference call and slideshow presentation will be broadcast live and archived in their entirety in the Investors section. Those wishing to listen to the call can phone toll-free at 1-888-220-8451 (Canada and United States) or 1-647-484-0475 (international). Please provide confirmation code 3085729 when prompted.

Stantec’s Annual General Meeting of Shareholders will be held on Friday, May 10, 2019, at 10:30 AM MDT (12:30 PM EDT) at Stantec Tower, 400-10220 103 Avenue NW, Edmonton, Alberta, Canada.

Investor Day
Stantec’s Investor Day will be held on Wednesday, June 12, 2019, at the Stantec Tower in Edmonton, Alberta. Gord Johnston, CEO, and Theresa Jang, CFO, will share details on the Company’s strategy and outlook. Leaders of the Company’s business and regional operating units will provide additional insight into Stantec’s growth opportunities.

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 days sales outstanding 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 Q1 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, statements relating to the Company’s focus on reducing DSO, and updated 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, stantec.com. You may obtain a hard copy of the 2018 Annual Report free of charge from our investor contact noted below.