Friday, December 6, 2019

 


Stantec Inc
(TSX: STN.TO) Add to Watchlist
$35.53
-0.10 (-0.28%)
as of Dec 6, 2019

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

Quarter Ended March 31
                                                             -----------------------------
(In millions of Canadian dollars, except per share amounts)    2019      2018     Change
                                                                 $         $         $
-----------------------------------------------------------  --------  --------  --------
Gross revenue                                                 1,151.5   1,021.3    130.2
Net revenue                                                    904.1     808.8     95.3
EBITDA from continuing operations (1)                          132.2     86.9      45.3
- Excluding IFRS 16 (1)                                        96.7      86.9       9.8
Net income from continuing operations                          44.9      36.6       8.3
Net income from discontinued operations                          -        0.2      (0.2)
-----------------------------------------------------------  --------  --------  --------
Net income                                                     44.9      36.8       8.1
-----------------------------------------------------------  --------  --------  --------
Basic and diluted earnings per share (EPS) from continuing     0.40      0.32      0.08
operations
-----------------------------------------------------------  --------  --------  --------
Dividends declared per common share                           0.1450    0.1375    0.0075
-----------------------------------------------------------  --------  --------  --------
Continuing operations
Adjusted EBITDA (1)                                            127.1     89.5      37.6
- Excluding IFRS 16 (1)                                        91.6      89.5       2.1
Adjusted net income (1)                                        50.3      47.9       2.4
Adjusted EPS - basic and diluted (1)              0.45      0.42      0.03
===========================================================  ========  ========  ========
(1) EBITDA, adjusted EBITDA, adjusted net income, and adjusted
basic and diluted EPS are non-IFRS measures (discussed in the
Definitions section of Stantec's 2018 Annual Report and Q1 19
Management's Discussion and Analysis).

Revised Annual Targets for 2019The 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.

Measure                                                    Previously Published   Revised 2019 Annual     Q1 19 Results
                                                               2019 Target *            Target         Compared to Revised
                                                                                                              2019
                                                                                                          Annual Target
---------------------------------------------------------  --------------------  -------------------  -------------------
Gross margin as % of net revenue                                53% to 55%             No change              54.0%
Administrative and marketing expenses as % of net revenue       41% to 43%            37% to 39%              39.5%
EBITDA as % of net revenue (note)                               11% to 13%             withdrawn
Adjusted EBITDA as % of net revenue (note)                                            15% to 17%              14.1%
Net income as % of net revenue                               At or above 5.0%          withdrawn
Adjusted net income as % of net revenue (note)                                     At or above 6.0%           5.6%
=========================================================                        ===================  ===================
A complete list of 2019 targets is presented in the Financial
Targets section of Stantec's Q1 2019 Management's Discussion and
Analysis and in the Investors section of stantec.com.
(1) EBITDA, adjusted EBITDA, and adjusted net income, are
non-IFRS measures (discussed in the Definitions section of Stantec's
2018 Annual Report and Q1 19 Management's Discussion and Analysis).
* 2019 Target Range was previously published in Stantec's 2018
Annual Report.

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 of stantec.com. 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. 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, 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.

Design with community in mind

Attached to this news release are Stantec's consolidated statements of financial position, consolidated statements of income, a summary of impacts of IFRS 16, and reconciliation of non-IFRSmeasures.

Consolidated Statements of Financial Position

(Unaudited)
(In millions of Canadian dollars)                      March 31  December 31
                                                           2019         2018
                                                              $            $
-----------------------------------------------------  --------  -----------
ASSETS
Current
Cash and deposits                                          96.9        185.2
Trade and other receivables                               825.0        878.1
Unbilled receivables                                      450.3        384.6
Contract assets                                            61.7         59.7
Income taxes recoverable                                   68.0         47.9
Prepaid expenses                                           53.0         56.8
Other assets                                               27.6         23.2
-----------------------------------------------------  --------  -----------
Total current assets                                    1,582.5      1,635.5
Non-current
Property and equipment                                    299.5        289.4
Lease assets                                              551.7            -
Goodwill                                                1,688.8      1,621.2
Intangible assets                                         276.0        247.7
Investments in joint ventures and associates                9.1          9.4
Net employee defined benefit asset                         11.9         10.0
Deferred tax assets                                        23.9         21.2
Other assets                                              183.0        175.5
-----------------------------------------------------  --------  -----------
Total assets                                            4,626.4      4,009.9
-----------------------------------------------------  --------  -----------
LIABILITIES AND EQUITY
Current
Bank indebtedness                                          43.1            -
Trade and other payables                                  468.4        567.2
Lease liabilities                                          38.5            -
Deferred revenue                                          172.9        174.4
Income taxes payable                                        1.2          2.9
Long-term debt                                             64.6         48.5
Provisions                                                 36.0         42.4
Other liabilities                                           6.5         23.2
-----------------------------------------------------  --------  -----------
Total current liabilities                                 831.2        858.6
Non-current
Lease liabilities                                         602.8            -
Income taxes payable                                       17.3         15.9
Long-term debt                                          1,042.0        885.2
Provisions                                                 84.4         78.2
Net employee defined benefit liability                     59.8         68.6
Deferred tax liabilities                                   77.1         54.3
Other liabilities                                          49.0        140.4
-----------------------------------------------------  --------  -----------
Total liabilities                                       2,763.6      2,101.2
-----------------------------------------------------  --------  -----------
Shareholders' equity
Share capital                                             868.6        867.8
Contributed surplus                                        25.4         24.8
Retained earnings                                         837.1        851.2
Accumulated other comprehensive income                    130.0        163.1
-----------------------------------------------------  --------  -----------
Total shareholders' equity   1,861.1      1,906.9
-----------------------------------------------------  --------  -----------
Non-controlling interests                                   1.7          1.8
-----------------------------------------------------  --------  -----------
Total liabilities and equity                            4,626.4      4,009.9
-----------------------------------------------------  --------  -----------

Consolidated Statements of Income

(Unaudited)
                                                             For the quarter ended March 31
(In millions of Canadian dollars, except per share amounts)         2019               2018
                                                                       $                  $
-----------------------------------------------------------  -----------  -----------------
Continuing operations
Gross revenue                                                    1,151.5            1,021.3
Less subconsultant and other direct expenses                       247.4              212.5
-----------------------------------------------------------  -----------  -----------------
Net revenue                                                        904.1              808.8
Direct payroll costs                                               415.6              368.3
-----------------------------------------------------------  -----------  -----------------
Gross margin                                                       488.5              440.5
Administrative and marketing expenses                              357.1              348.0
Depreciation of property and equipment                              13.7               12.1
Depreciation of lease assets                                        27.4                  -
Amortization of intangible assets                                   15.4               19.3
Net interest expense                                                17.2                5.3
Other net finance expense                                            1.3                1.6
Share of income from joint ventures and associates                     -              (0.3)
Foreign exchange loss                                                2.9                2.1
Other (income) expense                                             (5.0)                2.2
-----------------------------------------------------------  -----------  -----------------
Income before income taxes and discontinued operations              58.5               50.2
-----------------------------------------------------------  -----------  -----------------
Income taxes
Current                                                            (4.2)               13.7
Deferred                                                            17.8              (0.1)
-----------------------------------------------------------  -----------  -----------------
Total income taxes                                                  13.6               13.6
-----------------------------------------------------------  -----------  -----------------
Net income for the period from continuing operations                44.9               36.6
Discontinued operations
Net income from discontinued operations, net of tax                    -                0.2
-----------------------------------------------------------  -----------  -----------------
Net income for the period                                           44.9               36.8
-----------------------------------------------------------  -----------  -----------------
Weighted average number of shares outstanding - basic        111,805,946        114,064,729
-----------------------------------------------------------  -----------  -----------------
Weighted average number of shares outstanding - diluted      111,805,946        114,306,834
-----------------------------------------------------------  -----------  -----------------
Shares outstanding, end of the period                        111,657,956        113,906,006
-----------------------------------------------------------  -----------  -----------------
Earnings per share, basic and diluted
Continuing operations                                               0.40               0.32
Discontinued operations                                                -                  -
-----------------------------------------------------------  -----------  -----------------
Total basic and diluted earnings per share                          0.40               0.32
-----------------------------------------------------------  -----------  -----------------
Impact on Statement of Financial Position at January 1, 2019
(In millions of Canadian dollars)                      IFRS 16  Before IFRS 16    Increase
                                                             $               $  (decrease)
                                                                                         $
----------------------------------------  --------------------  --------------  ----------
Current assets
Trade and other receivables                              828.1           878.1      (50.0)
Prepaid expenses                                          43.9            56.8      (12.9)
Other assets                                              24.3            23.2         1.1
Non-current assets
Lease assets                                             561.8               -       561.8
Intangible assets                                        242.0           247.7       (5.7)
Other assets                                             178.2           175.5         2.7
----------------------------------------  --------------------  --------------  ----------
Total increase in assets                                                             497.0
----------------------------------------                                        ----------
Current liabilities
Trade and other payables                                 566.9           567.2       (0.3)
Lease liabilities                                         44.8               -        44.8
Provisions                                                41.7            42.4       (0.7)
Other liabilities                                          5.0            23.2      (18.2)
Non-current liabilities
Lease liabilities                                        600.2               -       600.2
Provisions                                                86.6            78.2         8.4
Deferred tax liabilities                                  45.6            54.3       (8.7)
Other liabilities                                         45.9           140.4      (94.5)
Shareholders' equity
Retained earnings                                        817.2           851.2      (34.0)
----------------------------------------  --------------------  --------------  ----------
Total increase in liabilities and equity                                             497.0
----------------------------------------                                        ----------
Quarter ended March 31
                                                  ----------------------------------------
(In millions of Canadian dollars)                        2019            2019    Increase
                                                  as reported  before IFRS 16  (decrease)
                                                            $               $           $
------------------------------------------------  -----------  --------------  ----------
Impact on income statement items
Administrative and marketing expenses                   357.1           392.6      (35.5)
Net interest expense                                     17.2             9.1         8.1
Depreciation of lease assets                             27.4               -        27.4
Net income                                               44.9            44.9           -
Impact on non - IFRS financial measures(1)
EBITDA                                                  132.2            96.7        35.5
Adjusted EBITDA                                         127.1            91.6        35.5
Net debt/adjusted EBITDA - Continuing operations         2.00            2.67      (0.67)
------------------------------------------------  -----------  --------------  ----------
(1) Non-IFRS measures are discussed in the Definitions section of
Stantec's 2018 Annual Report and Q1 19 Management's Discussion and
Analysis. Net debt/adjusted EBITDA was calculated using a proforma
IFRS 16 adjustment for Q2 18 to Q4 18 adjusted EBITDA, calculated as
3.8% of net revenue from the respective quarter.
Impact on Statement of Cash Flows - Continuing Operations           Quarter ended March 31
                                                           ----------------------------------------
(In millions of Canadian dollars)                                 2019            2019    Increase
                                                           as reported  before IFRS 16  (decrease)
                                                                     $               $           $
---------------------------------------------------------  -----------  --------------  ----------
Cash flows used in operating activities                         (88.5)         (114.1)        25.6
Cash paid to suppliers                                         (515.0)         (548.7)        33.7
Interest paid                                                   (17.9)           (9.8)       (8.1)
Cash flows from investing activities                           (104.2)          (99.4)       (4.8)
Proceeds from leasehold inducements                                  -             4.8       (4.8)
Cash flows from financing activities                              68.2            89.0      (20.8)
Payments of lease obligations                                   (25.6)               -      (25.6)
Proceeds from leasehold inducements                                4.8               -         4.8
---------------------------------------------------------  -----------  --------------  ----------
Reconciliation of Non-IFRS Financial Measures
                                                                          Quarter Ended
                                                                            March 31
                                                                           As reported
                                                              ----------------------------------
(In millions of Canadian dollars, except per share amounts)                    2019           2018
------------------------------------------------------------  ---------------------  -------------
Net income from continuing operations                                          44.9           36.6
Add back:
Income taxes                                                                   13.6           13.6
Net interest expense                                                           17.2            5.3
Depreciation and amortization                                                  56.5           31.4
------------------------------------------------------------  ---------------------  -------------
EBITDA from continuing operations                                             132.2           86.9
Add back (deduct) pre-tax:
Unrealized (gain) loss on investments held for self-insured                   (5.1)            2.6
liabilities
------------------------------------------------------------  ---------------------  -------------
Adjusted EBITDA from continuing operations                                    127.1           89.5
------------------------------------------------------------  ---------------------  -------------
                                                                          Quarter Ended
                                                                            March 31
                                                              ----------------------------------
(In millions of Canadian dollars, except per share amounts)                    2019           2018
------------------------------------------------------------  ---------------------  -------------
Net income from continuing operations                                          44.9           36.6
Add back (deduct) after tax:
Amortization of intangible assets related to acquisitions(1)                    7.0            9.4
Unrealized (gain) loss on investments held for self-insured                   (3.7)            1.9
liabilities(2)
Transition tax(3)                                                               2.1              -
------------------------------------------------------------  ---------------------  -------------
Adjusted net income from continuing operations                                 50.3           47.9
------------------------------------------------------------  ---------------------  -------------
Weighted average number of shares outstanding - basic                   111,805,946    114,064,729
Weighted average number of shares outstanding - diluted                 111,805,946    114,306,834
------------------------------------------------------------  ---------------------  -------------
Adjusted earnings per share from continuing operations
Adjusted earnings per share - basic                                            0.45           0.42
Adjusted earnings per share - diluted                                          0.45           0.42
------------------------------------------------------------  ---------------------  -------------
See the Definitions section of Stantec's 2018 Annual Report and
Q1 19 Management's Discussion and Analysis for a discussion of
non-IFRS measures used. Construction Services operations are
presented as discontinued operations. This table has been updated to
include only continuing operation results.
(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 March 31, 2019, this amount is net of tax of $2.7
(2018 - $3.5).
(2) For the quarter ended March 31, 2019, this amount is net of
tax of $1.4 (2018 - $0.7 recovery).
(3) Refer to Income Taxes section of the Q1 19 Management's
Discussion and Analysis for further details.

View source version on businesswire.com: https://www.businesswire.com/news/home/20190509005972/en/

SOURCE: Stantec"> <Property FormalName="PrimaryTwitterHandle" Value="@Stantec

Investor ContactCora KleinStantec Investor Relations780-969-2018cora.klein@stantec.comMedia ContactStephanie SmithStantec Media Relations780-917-7230stephanie.smith2@stantec.com
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