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, 2021. Unless otherwise indicated,
financial figures are expressed in Canadian dollars, and
comparisons are to the prior periods ended June 30, 2020.
Stantec delivered another quarter of strong earnings, with the
transition to revenue growth on a constant currency basis enhanced
by solid project execution and operational performance. Based on
the strength of its performance to date and confidence in the
continued execution of its strategic plan, Stantec is raising
earnings guidance for the year, with full year adjusted diluted
earnings per share in comparison to 2020 now expected to achieve 4%
to 7% growth compared to the previous guidance of low to mid-single
digit (1% to 5%) growth.
"2021 continues to unfold largely as we expected with strong
organic growth in Canada and Global this quarter offsetting a
slower start to the US turnaround. We see clear evidence of
building momentum in all our key markets, particularly in the US
where we have achieved 6.4% organic backlog growth through the
first half of this year. Beyond wins recorded in backlog, we have
received award notifications for approximately $1.2 billion in
gross revenue, more than half of which is in the US. While these
notified awards can take months or longer to filter into our
backlog, especially for large multi-year frameworks, their sheer
magnitude gives us every reason to be confident in our outlook,”
said Gord Johnston, President and CEO. "As our results continue to
demonstrate, we are managing every aspect of our business to
deliver organic revenue growth, increased earnings, and a strong
balance sheet while continuing our disciplined pursuit of growth
through acquisition."
Q2 2021 Highlights
Q2 2021 adjusted diluted earnings per share increased 19.2% to
$0.62. Revenue generation continues to strengthen as the world
begins to emerge from the pandemic. Increased earnings were
achieved through strong project execution, disciplined
discretionary spending, the ongoing execution of the 2023 Real
Estate Strategy, lower interest expenses, and reduced taxes. Lower
interest expenses resulted from improved working capital management
and the issuance of lower interest Senior Notes in October 2020,
while lower tax expense is attributed to the implementation of tax
optimization strategies. Overall, margins have improved
considerably on a quarter-over-quarter basis with a 1.1% increase
in adjusted EBITDA margin to 16.1% and a 1.6% increase in adjusted
net income margin to 7.7%.
The Canadian dollar has strengthened considerably relative to
the US dollar, with the average exchange rate shifting from $1.39
to $1.22 on a quarter-over-quarter basis ($1.37 to $1.25 year to
date). This has reduced Q2 net revenues by $60.9 million ($90.5
million year to date). Stantec further estimates that the impact to
adjusted EBITDA, adjusted net income and adjusted diluted EPS was
approximately $8.2 million, $4.0 million and $0.04, respectively
(approximately $11.6 million, $5.5 million, and $0.05 year to
date).
- Net revenue, on a constant currency basis, increased 2.2%. This
was driven by acquisitions and modest organic net revenue growth of
0.4% without the impact of Stantec’s descoped role on the Trans
Mountain Expansion Project (TMEP), reflecting very strong organic
growth in Canada and Global, while the US recovery is off to a
slower start.
- Gross margin, as a percentage of revenue, increased 1.7% from
51.5% to 53.2%, mainly due to strong project performance and shifts
in project mix.
- Adjusted EBITDA increased 2.9% to $146.6 million, and adjusted
EBITDA margin increased to 16.1%.
- Net income increased 20.2% to $63.2 million and diluted EPS
from continuing operations increased 21.3% to $0.57, mainly due to
reductions in net interest, depreciation, administrative and
marketing, and other expenses.
- Adjusted net income increased 20.6% to $69.6 million,
representing 7.7% of net revenue.
- Contract backlog was $4.6 billion at June 30, 2021, a 4.3%
increase from December 31, 2020 as a result of 6.0% organic
growth, 0.9% acquired growth, offset by a -2.6% foreign exchange
impact. Organic backlog growth was achieved in the Buildings,
Energy & Resources and Environmental Services business units.
Both Energy & Resources and Environmental Services have
achieved double-digit organic backlog growth of approximately 26%
since December 31, 2020, while Infrastructure and Water
backlog remained relatively flat or retracted slightly. Contract
backlog at June 30, 2021 represents approximately 12 months of
work.
- Operating cash flows from continuing operations decreased 68.9%
to $78.2 million, reflecting the quarter-over-quarter change in
revenues and corresponding cash receipts, including the effects of
foreign exchange. As well, operating cash flows for the same period
last year benefited from the deferral of income tax and other tax
payments, which resulted from various pandemic relief
programs.
- Net debt to adjusted EBITDA (on a trailing twelve-month basis)
at June 30, 2021 was 0.9x, below the annual target range of
1.0x to 2.0x.
- Days sales outstanding (DSO) was 76 days, an increase of one
day from 75 days at December 31, 2020, and a six-day
improvement from 82 days at June 30, 2020.
- Consistent with its capital allocation strategy, Stantec
repurchased 939,482 common shares under its normal course issuer
bid (NCIB) during the quarter (and year to date), for an aggregate
price of $50.7 million.
- The acquisition of Engenium, a 170-person Australia-based firm
specializing in sustainability within the Energy & Resources
operations, was completed on May 1, 2021.
- On August 4, 2021, Stantec's Board of Directors declared a
dividend of $0.165 per share, payable on October 15, 2021, to
shareholders of record on September 30, 2021.
2021 Outlook - Earnings guidance increased
Stantec's earnings guidance for 2021 has increased based on
financial performance to date and the outlook for the balance of
this year. Adjusted EBITDA and adjusted net income margin ranges,
as well as the adjusted ROIC target, have been revised upward.
Stantec now expects full year adjusted diluted earnings per share
to achieve 4% to 7% growth in comparison to 2020, where previous
guidance was for low to mid-single digit growth (1% to
5%).
Select Updates to Stantec's Annual Targets for
2021 - Please refer to this quarter's MD&A for the
full table
(In millions of Canadian dollars, unless otherwise stated) |
Previously Published 2021 Annual Range |
Revised 2021Annual Range |
For the two quarters ended June 30, 2021 |
Targets |
|
|
|
Adjusted EBITDA as % of net
revenue (note) |
14.5% to 16.0% |
15.0% to 16.0% |
15.4% |
Adjusted net income as % of
net revenue (note) |
At or above 6.5% |
At or above 6.8% |
7.0% |
Adjusted diluted EPS
growth |
Low to mid single % |
4% to 7% |
12.0% |
Adjusted ROIC (note) |
At or above 9.5% |
At or above 10.0% |
(note) |
Other expectations |
|
|
|
Gross margin as % of net revenue |
52% to
54% |
no
change |
53.1% |
Administrative and marketing expenses as % of net revenue |
37% to
39% |
no
change |
38.2% |
Effective tax rate (without discrete transactions) |
27% to
28% |
23.3% to
24.8% |
24.5% |
Earnings pattern |
40% in Q1
and Q4 |
45% in Q1
and Q4 |
n/a |
60% in Q2
and Q3 |
55% in Q2
and Q3 |
n/a |
Days sales
outstanding |
90 days |
<80 days |
76 |
|
|
|
|
In setting targets and guidance, the average value for the US
dollar is assumed to be $1.22 and for the GBP $1.72 for the
remainder of the year.
note: Adjusted EBITDA, adjusted net income, adjusted diluted
EPS, and adjusted return on investment capital (ROIC) are non-IFRS
measures discussed in the Definitions section of the 2020 Annual
Report and this quarter’s MD&A. Adjusted ROIC is calculated
annually at the end of the year.
Stantec's guidance for 2021 full-year organic net revenue growth
remains unchanged with organic net revenue growth in 2021 expected
to be in the 1% to 5% range (low to mid-single digits) on a
constant currency basis, but with a slight shift in mix. Organic
growth in Canada and Global is now expected to be slightly stronger
than initially projected, offsetting a slightly slower recovery in
the US. Please refer to this quarter's MD&A for more detailed
information about Stantec's 2021 outlook.
Q2 2021 Financial Highlights
|
For the quarter ended June 30, |
For the two quarters ended June 30, |
|
2021 |
2020 |
2021 |
2020 |
(In millions of Canadian dollars, except per share amounts and
percentages) |
$ |
% of NetRevenue |
$ |
% of NetRevenue |
$ |
% of NetRevenue |
$ |
% of NetRevenue |
Gross revenue |
1,134.0 |
|
124.8 |
% |
1,205.6 |
|
126.8 |
% |
2,223.2 |
|
124.4 |
% |
2,426.1 |
127.3 |
% |
Net revenue |
908.3 |
|
100.0 |
% |
951.1 |
|
100.0 |
% |
1,787.0 |
|
100.0 |
% |
1,906.3 |
100.0 |
% |
Direct
payroll costs |
425.0 |
|
46.8 |
% |
461.4 |
|
48.5 |
% |
837.3 |
|
46.9 |
% |
909.9 |
47.7 |
% |
Gross
margin |
483.3 |
|
53.2 |
% |
489.7 |
|
51.5 |
% |
949.7 |
|
53.1 |
% |
996.4 |
52.3 |
% |
Administrative and marketing
expenses |
341.3 |
|
37.6 |
% |
344.0 |
|
36.2 |
% |
682.8 |
|
38.2 |
% |
711.3 |
37.3 |
% |
Other |
(4.1 |
) |
(0.5 |
%) |
(1.2 |
) |
(0.1 |
%) |
(8.3 |
) |
(0.5 |
%) |
9.9 |
0.5 |
% |
EBITDA
from continuing operations (note) |
146.1 |
|
16.1 |
% |
146.9 |
|
15.4 |
% |
275.2 |
|
15.4 |
% |
275.2 |
14.4 |
% |
Depreciation of property and
equipment |
13.4 |
|
1.5 |
% |
14.9 |
|
1.6 |
% |
26.6 |
|
1.5 |
% |
29.4 |
1.5 |
% |
Depreciation of lease
assets |
26.3 |
|
2.9 |
% |
30.6 |
|
3.2 |
% |
53.2 |
|
3.0 |
% |
60.2 |
3.2 |
% |
(Reversal) impairment of lease
assets |
(1.0 |
) |
(0.1 |
%) |
2.0 |
|
0.2 |
% |
(2.6 |
) |
(0.1 |
%) |
11.7 |
0.6 |
% |
Amortization of intangible
assets |
13.7 |
|
1.5 |
% |
13.6 |
|
1.4 |
% |
27.0 |
|
1.5 |
% |
27.8 |
1.5 |
% |
Net interest expense |
10.6 |
|
1.2 |
% |
12.5 |
|
1.3 |
% |
19.9 |
|
1.1 |
% |
27.5 |
1.4 |
% |
Income
taxes |
19.9 |
|
2.1 |
% |
20.7 |
|
2.2 |
% |
37.0 |
|
2.1 |
% |
36.5 |
1.9 |
% |
Net income from continuing
operations |
63.2 |
|
7.0 |
% |
52.6 |
|
5.5 |
% |
114.1 |
|
6.4 |
% |
82.1 |
4.3 |
% |
Net
income from discontinued operations |
— |
|
0.0 |
% |
— |
|
0.0 |
% |
— |
|
0.0 |
% |
10.2 |
0.5 |
% |
Net
income |
63.2 |
|
7.0 |
% |
52.6 |
|
5.5 |
% |
114.1 |
|
6.4 |
% |
92.3 |
4.8 |
% |
Basic earnings per share (EPS)
from continuing operations |
0.57 |
|
n/m |
0.47 |
|
n/m |
1.02 |
|
n/m |
0.74 |
n/m |
Diluted
EPS from continuing operations |
0.57 |
|
n/m |
0.47 |
|
n/m |
1.02 |
|
n/m |
0.74 |
n/m |
Adjusted EBITDA from
continuing operations (note) |
146.6 |
|
16.1 |
% |
142.5 |
|
15.0 |
% |
275.7 |
|
15.4 |
% |
282.2 |
14.8 |
% |
Adjusted net income from
continuing operations (note) |
69.6 |
|
7.7 |
% |
57.7 |
|
6.1 |
% |
125.7 |
|
7.0 |
% |
112.0 |
5.9 |
% |
Adjusted diluted EPS from
continuing operations (note) |
0.62 |
|
n/m |
0.52 |
|
n/m |
1.12 |
|
n/m |
1.00 |
n/m |
Dividends declared per common share |
0.165 |
|
n/m |
0.155 |
|
n/m |
0.330 |
|
n/m |
0.310 |
n/m |
note: EBITDA, adjusted EBITDA, adjusted net income, and adjusted
diluted EPS are non-IFRS measures (discussed in the Definitions
section of the 2020 Annual Report and this quarter's MD&A).
n/m = not meaningful
Webcast & Conference Call
Stantec will host a live webcast and conference call on
Thursday, August 5, 2021, at 7:00 AM Mountain Time (9:00 AM
Eastern Time) to discuss the Company’s second quarter performance.
The webcast and slide presentation can be accessed at the following
link: https://edge.media-server.com/mmc/p/5uhg6zr3
Participants wishing to listen to the call via telephone may
dial in toll-free at 1-888-204-4368 (Canada and United States) or
+1-647-484-0478 (international). Please provide confirmation code
7033121 when prompted.
The conference call and slideshow presentation will be broadcast
live and archived in their entirety in the Investors section of
stantec.com.
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.
Visit us at stantec.com or find us on social media.
Cautionary Statements
Stantec’s EBITDA, adjusted EBITDA, adjusted net income, adjusted
basic and diluted earnings per share, adjusted return on invested
capital, 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 Management's Discussion and Analysis for this
quarter 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 Annual Targets
for 2021 in their entirety, its position to withstand the
challenges caused by the pandemic, any projections related to
revenue, gross margin, utilization and days sales outstanding. 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 management to make assumptions and are subject
to inherent risks and uncertainties. Stantec's assumptions relating
to Stantec's Annual Targets for 2021 and Stantec's 2021 Outlook are
provided in the Company’s 2020 Annual Report and Management's
Discussion and Analysis for this quarter.
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, project cancellations and a slowdown in new opportunities
related to COVID-19, 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 the Company.
For more information about how other material risk factors could
affect Stantec’s results, refer to the Risk Factors section and
Cautionary Note Regarding Forward-Looking Statements section in the
Company’s 2020 Annual Report. You may access this 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 2020 annual report and the quarterly
report free of charge from the investor contact noted below.
To subscribe to Stantec’s email news alerts, please fill out the
subscription form, which is available on the Contact Information
page of the Investors section at Stantec.com.
Design with community in mind
Attached to this news release are Stantec’s
consolidated statements of financial position, consolidated
statements of income and reconciliation of
non-IFRS measures.
Reconciliation of Non-IFRS Financial
Measures
|
For the quarter ended June 30, |
For the two quarters ended June 30, |
(In
millions of Canadian dollars, except per share amounts) |
2021 |
2020 |
2021 |
2020 |
Net income from continuing operations |
63.2 |
|
52.6 |
|
114.1 |
|
82.1 |
|
Add back: |
|
|
|
|
Income taxes |
19.9 |
|
20.7 |
|
37.0 |
|
36.5 |
|
Net interest expense |
10.6 |
|
12.5 |
|
19.9 |
|
27.5 |
|
(Reversal) impairment of lease assets |
(1.0 |
) |
2.0 |
|
(2.6 |
) |
11.7 |
|
Depreciation and amortization |
53.4 |
|
59.1 |
|
106.8 |
|
117.4 |
|
|
|
|
|
|
EBITDA from continuing
operations |
146.1 |
|
146.9 |
|
275.2 |
|
275.2 |
|
Add back (deduct)
pre-tax: |
|
|
|
|
Unrealized (gain) loss on equity securities |
(4.3 |
) |
(4.4 |
) |
(9.4 |
) |
7.0 |
|
Acquisition, integration, and restructuring costs (note 4) |
4.8 |
|
— |
|
9.9 |
|
— |
|
|
|
|
|
|
Adjusted EBITDA from continuing operations |
146.6 |
|
142.5 |
|
275.7 |
|
282.2 |
|
|
For the quarter ended June 30, |
For the two quarters ended June 30, |
(In
millions of Canadian dollars, except per share amounts) |
2021 |
2020 |
2021 |
2020 |
Net income from continuing operations |
63.2 |
|
52.6 |
|
114.1 |
|
82.1 |
|
Add back (deduct) after
tax: |
|
|
|
|
Amortization of intangible assets related to acquisitions (note
1) |
6.8 |
|
6.9 |
|
13.2 |
|
14.0 |
|
Unrealized (gain) loss on equity securities (note 2) |
(3.3 |
) |
(3.2 |
) |
(7.1 |
) |
5.0 |
|
(Reversal) impairment of lease assets (note 3) |
(0.8 |
) |
1.4 |
|
(2.0 |
) |
8.3 |
|
Acquisition, integration, and restructuring costs (note 4) |
3.7 |
|
— |
|
7.5 |
|
2.6 |
|
|
|
|
|
|
Adjusted net income from continuing operations |
69.6 |
|
57.7 |
|
125.7 |
|
112.0 |
|
Weighted average number of
shares outstanding - basic |
111,246,823 |
|
111,346,512 |
|
111,336,576 |
|
111,355,426 |
|
Weighted average number of
shares outstanding - diluted |
111,735,116 |
|
111,851,675 |
|
111,779,412 |
|
111,804,674 |
|
|
|
|
|
|
Adjusted earnings per share
from continuing operations |
|
|
|
|
Adjusted earnings per share -
basic |
0.63 |
|
0.52 |
|
1.13 |
|
1.01 |
|
Adjusted earnings per share - basic and diluted |
0.62 |
|
0.52 |
|
1.12 |
|
1.00 |
|
See the Definitions section of the 2020 Annual Report and this
quarter's MD&A for a discussion of non-IFRS measures used.
note 1: The add back of intangible amortization relates only to
the amortization from intangible assets acquired through
acquisitions and excludes the amortization of software purchased by
Stantec. For the quarter ended June 30, 2021, this amount is net of
tax of $2.1 (2020 - $2.9). For the two quarters ended June 30,
2021, this amount is net of tax of $4.3 (2020 - $5.7).
note 2: For the quarter ended June 30, 2021, this amount is net
of tax of $(1.0) (2020 - $(1.2)). For the two quarters ended June
30, 2021, this amount is net of tax of $(2.3) (2020 - $2.0).
note 3: For the quarter ended June 30, 2021, this amount is net
of tax of $(0.2) (2020 - $0.6). For the two quarters ended June 30,
2021, this amount is $(0.6) (2020 - $3.4).
note 4: The add back of other costs primarily relates to
integration expenses associated with acquisitions and
reorganization and transitional tax expenses, For the quarter ended
June 30, 2021, this amount is net of tax of $1.1 (2020 - nil). For
the two quarters ended June 30, 2021, this amount is $2.4 (2020
included a reorganization tax expense of $2.6).
Investor Contact
Tom McMillan
Stantec Investor Relations
Ph: 780-917-8159
tom.mcmillan@stantec.com
Media Contact
Stephanie Smith
Stantec Media Relations
Ph: 780-917-7230
stephanie.smith2@stantec.com
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