Stantec Inc. (STN) is a leading global design and engineering firm that has been delivering innovative solutions for over 65 years. Founded in 1954 in Edmonton, Alberta, Stantec has grown from a small regional consulting firm to a multinational powerhouse, providing a wide range of professional services, including architecture, engineering, environmental sciences, project management, and construction management.
Business Overview and History: Stantec’s journey began in 1954 as a small engineering firm in Edmonton, Alberta, Canada. The company’s growth trajectory has been marked by strategic expansions and diversification. In the 1970s, Stantec extended its reach across Western Canada, laying the groundwork for future growth. The 1980s and 1990s saw the company diversifying its service offerings and establishing a significant presence in the United States, marking the beginning of its international expansion.
The early 2000s were characterized by accelerated growth through strategic acquisitions. A pivotal moment came in 2008 with the acquisition of FSC Architects & Engineers, which substantially enhanced Stantec’s capabilities in the buildings and facilities sector. This was followed by another significant move in 2015 with the acquisition of MWH Global, a renowned water and environmental services firm. This acquisition not only expanded Stantec’s global footprint but also significantly bolstered its expertise in water-related services.
Today, Stantec’s operations span over 400 locations across 6 continents, with a workforce of more than 22,000 professionals. The company’s business model is diversified across five core operating segments: Infrastructure, Buildings, Environment, Energy & Resources, and Water. This comprehensive range of services, coupled with its extensive geographic presence, enables Stantec to cater to a diverse client base, including government agencies, private corporations, and non-profit organizations.
Financial Performance and Ratios: Stantec’s financial performance has been consistently strong, with the company demonstrating resilience and adaptability in the face of economic and industry challenges. Over the past three fiscal years, Stantec has reported the following financial results:
Stantec’s financial ratios further demonstrate the company’s financial strength and stability. As of the latest reporting period, Stantec’s current ratio stood at 1.42, indicating a healthy liquidity position. The company’s debt-to-equity ratio was 0.62, suggesting a conservative capital structure. Additionally, Stantec’s return on equity (ROE) and return on invested capital (ROIC) were 12.1% and 11.6%, respectively, highlighting the company’s ability to generate strong returns for its shareholders.
Financials: Stantec’s financial performance has shown consistent growth over the years. The company’s revenue has increased from $4.58 billion in 2021 to $6.48 billion in 2023, representing a compound annual growth rate (CAGR) of 18.9%. Net income has also seen significant improvement, growing from $200.7 million in 2021 to $331.2 million in 2023, a CAGR of 28.4%. This strong financial performance is indicative of Stantec’s ability to execute its growth strategy effectively and capitalize on market opportunities.
In the most recent quarter (Q3 2024), Stantec reported revenue of $1.5 billion, up 15.8% year-over-year. Net income for the quarter reached $103.2 million, representing a 1.9% increase compared to the same period in the previous year. The company’s organic revenue growth was 6.5%, while acquisition growth contributed 8% to the strong top-line performance. Notably, Stantec saw double-digit organic growth in its Water and Buildings segments, which helped offset a slight decline in the Energy & Resources segment.
Liquidity: Stantec maintains a strong liquidity position, which is crucial for supporting its operations and future growth initiatives. As of the latest reporting period, the company’s current ratio of 1.42 indicates that it has sufficient short-term assets to cover its short-term liabilities. The quick ratio, also at 1.42, further underscores the company’s strong liquidity position.
The company’s operating cash flow has shown improvement, increasing from $397.0 million in 2021 to $544.7 million in 2023. In the most recent quarter (Q3 2024), operating cash flow was $178.9 million, with free cash flow of $143.8 million. This robust cash flow generation provides Stantec with the financial flexibility to invest in organic growth initiatives, pursue strategic acquisitions, and return value to shareholders through dividends and share repurchases.
As of the latest reporting period, Stantec had cash and cash equivalents of $112.6 million. The company also has access to a $685 million Revolving Credit Facility, with $461 million available after accounting for $190 million in outstanding borrowings and $34 million in letters of credit. This strong liquidity position, combined with a conservative debt-to-equity ratio of 0.62, provides Stantec with ample financial flexibility to pursue its growth strategies and navigate potential economic uncertainties.
Quarterly Performance and Outlook: In the most recent quarter, Stantec reported impressive financial results that surpassed market expectations. For the third quarter of 2024, the company reported net revenue of $1.5 billion, an increase of 15.8% compared to the same period in the previous year. Adjusted EBITDA for the quarter reached $274.6 million, up 13.8% year-over-year, with a healthy adjusted EBITDA margin of 18.0%.
Stantec’s adjusted diluted earnings per share (EPS) for the third quarter of 2024 was $1.30, representing a 14.0% increase compared to the same period in 2023. The company’s strong performance was driven by robust organic growth across its regional and business operating units, with the Water and Buildings segments achieving double-digit organic growth.
Looking ahead, Stantec has provided an updated guidance for the full year 2024. The company now expects net revenue growth to be in the range of 14.5% to 15.0%, up from the previous guidance of 12.0% to 15.0%. Stantec also expects its adjusted EBITDA margin to be in the range of 16.5% to 16.9% for the year, reflecting its confidence in solid project execution and operational performance. Additionally, the company has raised its adjusted diluted EPS growth guidance to the range of 16% to 18%, up from the previous range of 12% to 16%.
Stantec’s record backlog of $7.3 billion as of the end of the third quarter, representing a 9.5% increase in acquisition growth and 5.0% organic growth since the beginning of the year, further bolsters the company’s positive outlook and ability to capitalize on the strong demand for its services.
The company expects organic net revenue growth to be in the mid to high single digits, with acquisition growth in the high single digits. Geographically, Stantec anticipates the US and global regions to deliver organic growth in the mid to high single digits, while Canada is expected to grow in the mid-single digits.
Geographic Performance: Stantec operates globally, with a strong presence in the US, Canada, and various international markets. In Q3 2024, the company’s US business grew revenue by 9%, with 5.6% organic growth and 2% from acquisitions. The Canadian operations saw impressive 18% revenue growth, with 9% organic growth and 8.5% from acquisitions. Stantec’s global operations, including the UK, Australia, and New Zealand, generated over 30% revenue growth, with 22% coming from acquisitions and 6% from organic growth. This strong performance across all geographic segments underscores Stantec’s ability to execute its growth strategy on a global scale.
Industry Trends: The engineering and consulting services industry has been experiencing steady growth, driven by several key factors. These include increasing climate change initiatives, the need to address aging infrastructure, industry shifts, reshoring of production, and the adoption of emerging technologies. Stantec’s management anticipates that the industry will continue to grow at a compound annual growth rate (CAGR) in the mid to high single digits over the next few years. This positive industry outlook, combined with Stantec’s strong market position and diverse service offerings, positions the company well for continued growth and success.
Risks and Challenges: While Stantec has demonstrated impressive financial and operational performance, the company is not without its risks and challenges. One key risk factor is the company’s reliance on government and public sector clients, which can be subject to budgetary constraints and political uncertainties. Additionally, Stantec operates in a highly competitive industry, where the ability to win and retain large-scale projects is crucial for maintaining growth and profitability.
The company’s international expansion also introduces additional risks, such as currency fluctuations, geopolitical tensions, and regulatory changes in the various markets it serves. Stantec’s ability to successfully integrate acquired businesses and realize anticipated synergies is another critical factor in its continued success.
Conclusion: Stantec’s rich history, diversified service offerings, and global footprint have positioned the company as a leader in the engineering and design industry. The company’s strong financial performance, robust backlog, and positive outlook suggest that Stantec is well-equipped to navigate the challenges of the industry and capitalize on the growing demand for sustainable and innovative infrastructure solutions. As Stantec continues to execute on its strategic initiatives and leverage its competitive advantages, the company is poised to deliver long-term value for its shareholders.
10-Q Highlights: – Net revenue of $821.23 million in the first six months of 2024, up 15.5% year-over-year – Adjusted EBITDA of $259.87 million in the first six months of 2024, with a margin of 16.7% – Adjusted diluted EPS of $2.98 for the full year 2023, up 34.2% compared to 2022 – Backlog of $7.3 billion as of June 30, 2024, representing 9.5% acquisition growth and 5.0% organic growth since December 31, 2023 – Raised full-year 2024 guidance for net revenue growth to 14.5% to 15.0% and adjusted diluted EPS growth to 16% to 18%
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