Stantec reports strong second quarter 2023 results, achieves record backlog and increases guidance for the full year
08/09/2023 EDMONTON, AB; NEW YORK, NY TSX, NYSE:STN
08/09/2023 EDMONTON, AB; NEW YORK, NY TSX, NYSE:STN
Stantec (TSX, NYSE:STN), a global leader in sustainable design and engineering, today reported its results for the three and six month periods ended June 30, 2023.
Stantec generated net revenue of $1.3 billion in the second quarter of 2023 on the strength of 11.2% organic growth. For the sixth consecutive quarter, every regional and business operating unit delivered organic net revenue growth, with notable organic growth achieved in Water (16.2%), Environmental Services (12.1%), and Energy & Resources (12.0%). Adjusted EBITDA margin increased by 20 basis points over Q2 2022 to 16.9%, despite a significant expense related to the revaluation of Stantec's long-term incentive plan (LTIP), due primarily to strong share price appreciation in the quarter. Excluding the revaluation, adjusted EBITDA margin was 17.5%. Stantec delivered diluted earnings per share (EPS) of $0.79, and record second quarter adjusted diluted EPS of $0.99. Backlog at the end of June 30, 2023 reached $6.6 billion, a new all-time high, driven primarily by organic growth of 10.0% since December 31, 2022.
“We continue to deliver significant growth in revenue and earnings driven by strong performance across all our regional and business operating units,” said Gord Johnston, President and CEO. "As a result of our strong year-to-date results and our expectation of continued favorable market fundamentals for the remainder of the year, we are increasing our net revenue and adjusted earnings per share guidance for 2023.”
 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 Q2 2023 MD&A).
Stantec is revising and increasing certain targets contained within the Company's 2023 guidance (provided on page M-10 in the 2022 Annual Report) based on the strength of the Company's financial performance to date and the outlook for the balance of this year.
Stantec is raising its guidance for net revenue and adjusted diluted EPS growth and narrowing the target range for adjusted EBITDA as a percentage of net revenue.
The Company is raising the net revenue growth target range to 10% to 13% (previously 7% to 11%), and overall organic net revenue growth target to high single digits (previously mid to high single digits). In Canada, Stantec now expects organic net revenue growth to be in the mid single digits (previously low single digits). Additionally, the Company now expects organic growth in the US to be in the low double digits (previously high single digits to low double digits), driven by momentum from the record-high US backlog and project opportunities arising from previously announced programs and acts. The Company also continues to expect Global to achieve mid to high single digit organic growth, driven by continued high levels of activity in the UK Water business and demand and stimulus in Environmental Services.
Adjusted EBITDA Margin
Stantec is narrowing the target range for adjusted EBITDA margin to 16.3% to 16.7% (previously 16.0% to 17.0%). This reflects the Company's confidence in continued solid project execution and operational efficiency.
Adjusted Diluted EPS
Based on the factors described above, Stantec is raising the target range for adjusted diluted earnings per share growth to 12% to 15% (previously 9% to 13%).
Consistent with guidance previously provided, these targets do not include the impact of revaluing share-based compensation, which fluctuates primarily due to share price movements subsequent to December 31, 2022. For the year to date, this revaluation resulted in a $14.9 million expense (pre-tax), the equivalent of 60 basis points relative to net revenue and $0.10 per share.
The above targets also do not include any assumptions for additional acquisitions given the unpredictable nature of the size and timing of such acquisitions.
Stantec will host a live webcast and conference call on Thursday, August 10, 2023, at 7:00 AM Mountain Time (9:00 AM Eastern Time) to discuss the Company’s second 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.
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.
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, 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 Q2 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.
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, 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 six month periods ended June 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.
Stantec Investor Relations
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