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Stantec (STN): Delivering Exceptional Growth and Shareholder Value
Published on September 24, 2024 | Ticker: STN

Stantec, the global design and engineering firm, has kicked off 2024 with a remarkable performance, showcasing its ability to capitalize on the robust demand across its diversified business segments. The company's solid first-quarter results, coupled with its strategic acquisitions, position Stantec for continued success in the years ahead.

Financials

In the first quarter of 2024, Stantec reported record net revenue of $1.4 billion, up 12% year-over-year. This impressive growth was driven by a combination of 7% organic growth and 6% acquisition-related growth. The company's adjusted EBITDA margin expanded by 90 basis points to 15.5%, reflecting its disciplined project execution and operational efficiency. As a result, Stantec delivered a 23% increase in adjusted earnings per share to $0.90.

Regional Performance

The U.S. business continued to be a standout performer, with a 14% increase in net revenue, including 10% organic growth and 4% acquisition growth. The Water business in the U.S. delivered over 20% organic growth, driven by strong demand for industrial and major water security projects. Stantec's expertise in healthcare, industrial, and mission-critical facilities also drove double-digit organic growth in the Buildings segment.

In Canada, Stantec increased net revenue by 7%, with 6% acquisition growth from the integration of Morrison Hershfield and 1% organic growth. The Water and Infrastructure business units in Canada delivered double-digit organic growth, while the Buildings segment benefited from strong demand in the education and civic sectors.

Stantec's global operations, which include the recent acquisitions of ZETCON and Hydrock, generated 11% net revenue growth, with an 8% increase from ZETCON and 5% organic growth. The company's industry-leading Water, Buildings, and Environmental Services business units all delivered double-digit organic growth globally, showcasing the strength of Stantec's diversified service offerings.

Backlog

The company's backlog stood at a record $7 billion at the end of the first quarter, representing 13 months of work. This backlog includes a 7% contribution from the recent acquisitions, primarily in Infrastructure and Buildings. Organic backlog growth was 3%, with strong performance in Canada and the U.S., particularly in Environmental Services and Infrastructure.

Business Overview

Stantec's strategic focus on high-growth areas, such as water security, energy transition, and climate solutions, has positioned the company to capitalize on the robust demand in these sectors. The company's recent acquisition of Hydrock, a leading U.K. engineering and sustainability consultancy, further strengthens its capabilities in these critical areas.

Outlook

Looking ahead, Stantec is reaffirming its 2024 financial targets, which include net revenue growth in the range of 11% to 15%, with organic net revenue growth expected to be in the mid to high single digits. The company's adjusted EBITDA margin target remains in the range of 16.2% to 17.2%, and it expects adjusted diluted EPS growth to be between 12% and 16%.

Stantec's strong performance in the first quarter, coupled with its strategic acquisitions and robust backlog, positions the company well to deliver on its ambitious growth targets. The company's diversified service offerings, disciplined project execution, and focus on high-growth areas make it an attractive investment opportunity in the engineering and design services sector.

Financials

Stantec's annual net income for the most recent fiscal year was $331.2 million, and its annual revenue was $6.48 billion. The company's annual operating cash flow was $544.7 million, and its annual free cash flow was $444.1 million. In the first quarter of 2024, Stantec reported net revenue of $1.4 billion, up 12% year-over-year, and adjusted EBITDA of $212 million, with a margin of 15.5%.

The company's geographic breakdown shows that the U.S. business continues to be a significant contributor, with a 14% increase in net revenue in the first quarter, including 10% organic growth and 4% acquisition growth. Canada also saw a 7% increase in net revenue, with 6% acquisition growth from the integration of Morrison Hershfield and 1% organic growth.

Stantec's diversified service offerings have been a key driver of its success. The Water business, which is a significant contributor to the company's revenue, delivered 16% organic growth in the first quarter, showcasing the strong demand for water security and water treatment solutions. The Buildings segment also delivered double-digit organic growth, driven by the company's expertise in healthcare, data centers, and advanced manufacturing facilities.

The company's strategic focus on high-growth areas, such as energy transition and climate solutions, has also been a source of strength. Stantec's recent acquisition of Hydrock, a leading U.K. engineering and sustainability consultancy, further enhances its capabilities in these critical areas.

Liquidity

Stantec's liquidity position remains strong, with a net debt to adjusted EBITDA ratio of 1.5x, well within the company's internal leverage range of 1 to 2x. This financial flexibility allows Stantec to continue pursuing strategic acquisitions and investing in organic growth opportunities.

The company's disciplined approach to project selection and operational efficiency has been a key driver of its margin expansion. Stantec has been able to pass along cost increases to its clients, while also focusing on reducing its reliance on sub-consultants, which is expected to contribute to further margin improvements in the coming years.

Conclusion

Stantec's robust backlog, which represents 13 months of work, provides excellent visibility into the company's future revenue streams. The recent acquisitions have also contributed to the backlog, with a 7% increase from the integration of ZETCON, Morrison Hershfield, and Hydrock.

The company's strong performance in the first quarter, combined with its strategic acquisitions and positive outlook, positions Stantec for continued success in the years ahead. The company's diversified service offerings, focus on high-growth areas, and disciplined execution make it a compelling investment opportunity in the engineering and design services sector.

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