STN
$28.55
Stantec
Earnings Details
2nd Quarter June 2017
Wednesday, August 09, 2017 6:45:27 AM
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Summary

Stantec (STN) Recent Earnings

Stantec (STN) reported 2nd Quarter June 2017 earnings of $0.38 per share on revenue of $980.2 million. The consensus earnings estimate was $0.35 per share on revenue of $672.6 million. Revenue grew 20.7% on a year-over-year basis.

Stantec Inc provides professional consulting services in planning, engineering, architecture, interior design, landscape architecture, surveying, environmental sciences, project management, & project economics for infrastructure & facilities projects.

Results
Reported Earnings
$0.38
Earnings Whisper
-
Consensus Estimate
$0.35
Reported Revenue
$980.2 Mil
Revenue Estimate
$672.6 Mil
Growth
Earnings Growth
Revenue Growth
Power Rating
Grade
Earnings Release

Stantec reports second quarter 2017 results with overall 4.5% organic gross revenue growth

EDMONTON, ALBERTA and NEW YORK, NEW YORK--(Marketwired - Aug. 9, 2017) - Stantec Inc. (TSX:STN)(STN) -

Highlights

Gross revenue increased 26% from approximately $1.05 billion to $1.3 billion from Q2 16 to Q2 17

Organic gross revenue grew 4.5% from Q2 16 to Q2 17

EBITDA increased from $73.7 million to $158.1 million from Q2 16 to Q2 17, and adjusted EBITDA grew by 22% or $18.9 million

Diluted EPS increased from $0.20 to $0.85 from Q2 16 to Q2 17, and adjusted diluted EPS grew by 38% from $0.37 to $0.51

Administrative and marketing expenses as a percentage of net revenue decreased from 43.9% to 42.3% from Q2 16 to Q2 17

Proceeds from the Innovyze sale were used to repay debt by $221.3 million, and the transaction reduced goodwill and intangible assets by $194.4 million and $95.1 million respectively

Overview

Through execution of its consistent strategy of supplying expertise to clients through local offices around the world, Stantec gross revenue rose 26% from approximately $1.05 billion in Q2 16 to $1.3 billion in Q2 17. From Q2 16 to Q2 17, EBITDA rose from $73.7 million to $158.1 million. EBITDA was positively impacted by a decrease in administrative and marketing expenses as a percentage of net revenue, from 43.9% in Q2 16 to 42.3% in Q2 17. Adjusted EBITDA grew by 22% to $103.5 million. Diluted earnings per share (EPS) increased from $0.20 to $0.85, and adjusted diluted EPS increased 38% from $0.37 to $0.51.

Financial Summary
For the period ended June 30
2017 Q2 2016 Q2 Change
(In millions of Canadian dollars, except per share amounts and %)
$
$
 
 
 
 
Gross revenue
1,318.6 1,046.6 26.0%
EBITDA (note)
158.1
73.7
114.5%
Adjusted EBITDA (note)
103.5
84.6
22.3%
Net income
97.6
21.2
360.4%
Adjusted net income (note)
57.9
39.5
46.6%
Diluted earnings per share (EPS)
0.85
0.20
325.0%
Adjusted diluted EPS (note)
0.51
0.37
37.8%
Cash dividends declared per common share
0.1250
0.1125
11.1%
Note: EBITDA, adjusted EBITDA, adjusted net income, and adjusted diluted EPS are non-IFRS measures defined in the Critical Accounting Estimates, Developments, and Measures section of the Company’s 2016 Annual Report and the Q2 17 Management’s Discussion and Analysis.

Business Operating Unit and Geographic Results

Overall organic gross revenue growth of 4.5% was led by Stantec’s Buildings business operating unit, which experienced organic gross revenue growth of 5.1% in Q2 17 compared to Q2 16. The Company attributes this growth to the mobilization of new project wins in Canada and new opportunities in the US Education sector. In Q2 17 compared to Q2 16, growth in the Canadian and US Transportation sectors helped lift Stantec’s Infrastructure business operating unit to realize organic gross revenue growth of 4.6%; the Company’s Water business operating unit experienced 4.1% organic gross revenue growth.

In Q2 17 compared to Q2 16, Stantec’s Environmental Services business operating unit was stable, while organic revenue in the Energy & Resources business operating unit retracted 11.8%, a rate of retraction that slowed compared to 2016.

Executive Commentary

Bob Gomes, president and chief executive officer, noted that Stantec’s second quarter results met executive expectations. "These results were in line with our expectations and establish the trend of recovery in 2017 that we outlined in the first quarter. Organic growth in the consulting business was good across most of our business operating units and all our geographies this quarter. Buildings experienced a strong quarter, with organic gross revenue growth of 5.1%. We also experienced good growth in Water and Infrastructure. Including Construction Services, we had overall organic growth of 4.5% in the second quarter of 2017. This growth demonstrates the continued success of our full integration acquisition strategy and our ability to win projects and execute work around the world across a diverse range of sectors."

Impact of Innovyze Sale

As projected last quarter, the Q2 17 sale of Innovyze (the water software business that was part of the acquisition of MWH Global) had a positive impact on earnings in the second quarter; sale proceeds were used to repay $221.3 million of the Company’s revolving credit facility, reducing our interest payments. The sale of Innovyze also reduced goodwill and intangible assets by $194.4 million and $95.1 million respectively and reduced amortization of intangible assets by $1.2 million in Q2 17 compared to Q2 16.

The table below shows the impact of the Innovyze sale in the first and second quarters of 2017 and year to date:

Impact of Innovyze Transaction
 
           
(In millions of Canadian dollars except per share amounts) Q1 17
  Q2 17
  YTD
 
 
           
Gross proceeds
-
  369.1
  369.1
 
Estimated working capital adjustments
-
  (15.3
)
(15.3
)
Transaction costs
-
  (16.9
)
(16.9
)
Net proceeds from sale
-
  336.9
  336.9
 
Net assets on close
-
  (282.3 )
(282.3 )
Pre-tax gain on disposal
-
  54.6
  54.6
 
 
           
Impact on Taxes, Net Income, and EPS
           
Current tax provision
-
  (124.1 )
(124.1 )
Deferred taxes previously recorded on Innovyze net assets
-
  27.6
  27.6
 
Deferred taxes recorded on held for sale classification
(90.4
)
92.4
  2.0
 
Income taxes expense
(90.4
)
(4.1
)
(94.5
)
Impact on net income
(90.4
)
50.5
  (39.9
)
Impact on EPS - basic
(0.79
)
0.44
  (0.35
)
Impact on EPS - diluted
(0.79
)
0.44
  (0.35
)

Additional Company Activity

During the second quarter of 2017, Stantec completed the transition of projects and the financial integration of MWH Americas Consulting Services into the Company’s enterprise management system. MWH Global should be fully integrated in 2018.

In Q2 17, Stantec acquired Seattle-based Inventrix Engineering Inc. (Inventrix), adding 22 employees to the Company and enhancing the Buildings business operating unit in the United States. Inventrix provides expertise in mechanical engineering.

Also in the quarter, Stantec repurchased 465,713 shares for a total value of $14.4 million at an average price of $30.94 per share through its Normal Course Issuer Bid.

On July 13, 2017, Stantec declared and paid a cash dividend of $0.1250 per share to shareholders of record on June 30, 2017. On August 8, 2017, the Company again declared a dividend of $0.1250 per share, payable on October 12, 2017, to shareholders of record as of September 29, 2017.

Subsequent Event

On July 28, 2017, Stantec acquired Denver-based RNL Facilities Corporation (RNL), adding approximately 130 employees to the Company’s Buildings business operating unit. Along with Denver, RNL has offices in Phoenix, Los Angeles, Washington, DC, and Abu Dhabi. RNL provides expertise in architecture, interior design, urban design, and landscaping.

Executive Transition

During the second quarter, Stantec announced the retirement of president and chief executive officer, Bob Gomes, effective December 31, 2017, after almost nine years in that role. Bob will remain as a director on the Company’s board. The board of directors chose Gord Johnston, executive vice president of Stantec’s Infrastructure business operating unit, as the incoming president and chief executive officer. Gord Johnston has more than 30 years of industry leadership experience, including more than 20 years with Stantec. During his time at Stantec, Gord has taken on various roles, including business leader for the Water and Infrastructure business operating units, and has played an active role in helping guide the Company’s strategic planning over the past nine years.

Conference Call and Company Information

Stantec’s second quarter conference call—to be held Wednesday, August 9, at 7:00 AM MDT (9:00 AM EDT)—will be broadcast live and archived in the Investors section of stantec.com. Financial analysts wanting to participate in the earnings conference are invited to call 1-866-222-0265 (Canada and United States) or 1-416-640-5942 (international) and provide the operator with confirmation code 5088427.

About Stantec

We’re active members of the communities we serve. That’s why at Stantec, we always design with community in mind.

The Stantec community unites approximately 22,000 employees working in over 400 locations across 6 continents. We collaborate across disciplines and industries to bring buildings, energy and resource, environmental, water, and infrastructure projects to life. Our work—engineering, architecture, interior design, landscape architecture, surveying, environmental sciences, construction services, project management, and project economics, from initial project concept and planning through to design, construction, commissioning, maintenance, decommissioning, and remediation—begins at the intersection of community, creativity, and client relationships.

Our local strength, knowledge, and relationships, coupled with our world-class expertise, have allowed us to go anywhere to meet our clients’ needs in more creative and personalized ways. With a long-term commitment to the people and places we serve, Stantec has the unique ability to connect to projects on a personal level and 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, and adjusted diluted earnings per share 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 2016 Annual Report and the Company’s 2017 Second Quarter Management’s Discussion and Analysis.

Certain statements contained in this news release constitute forward-looking statements. These statements include, but are not limited to, the anticipated integration timeline for MWH Global. 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, our ability to successfully manage our integration program and respond to changing market conditions for Stantec’s services. 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 results, refer to the Risk Factors section and Cautionary Note Regarding Forward-Looking Statements in our 2016 Annual Report and the 2017 Second Quarter Management’s Discussion and Analysis. Stantec’s 40-F has been filed with the SEC, and you may obtain this document by visiting EDGAR on the SEC website at sec.gov. You may obtain our complete audited annual consolidated financial statements and associated Management’s Discussion and Analysis for the year ended December 31, 2016 (which form our 2016 Annual Report) by visiting EDGAR on the SEC website at sec.gov, on the CSA website at sedar.com, or at stantec.com. Alternatively, you may obtain a printed copy of the 2016 Annual Report free of charge from our Investor Contact noted below.

Design with community in mind

- Continued, Consolidated Statements of Financial Position and Consolidated Statements of Income attached -

Consolidated Statements of Financial Position
(Unaudited)
 
 
 
 
 
 
June 30
 
December 31  
 
2017
 
2016
 
(In thousands of Canadian dollars)
$
 
$
 
ASSETS
 
 
 
 
Current
 
 
 
 
Cash and cash equivalents
203,529
 
210,903
 
Cash in escrow
3,436
 
8,844
 
Trade and other receivables
794,257
 
806,417
 
Unbilled revenue
475,350
 
421,829
 
Income taxes recoverable
51,152
 
46,705
 
Prepaid expenses
57,803
 
62,253
 
Other financial assets
17,513
 
20,890
 
Other assets
5,223
 
4,679
 
Total current assets
1,608,263  
1,582,520
 
Non-current
 
 
 
 
Property and equipment
210,170
 
213,931
 
Goodwill
1,581,812  
1,828,061
 
Intangible assets
300,110
 
449,530
 
Investments in joint ventures and associates 9,722
 
9,220
 
Deferred tax assets
28,332
 
26,195
 
Other financial assets
166,236
 
160,056
 
Other assets
15,383
 
15,155
 
Total assets
3,920,028  
4,284,668
 
LIABILITIES AND EQUITY
 
 
 
 
Current
 
 
 
 
Trade and other payables
664,262
 
718,197
 
Deferred revenue
209,751
 
201,766
 
Income taxes payable
5,307
 
1,795
 
Long-term debt
200,572
 
91,876
 
Provisions
30,134
 
36,011
 
Other financial liabilities
3,111
 
2,378
 
Other liabilities
21,698
 
20,795
 
Total current liabilities
1,134,835  
1,072,818
 
Non-current
 
 
 
 
Long-term debt
601,161
 
928,586
 
Provisions
83,208
 
80,664
 
Net employee defined benefit liability
46,331
 
50,490
 
Deferred tax liabilities
50,489
 
79,592
 
Other financial liabilities
7,504
 
7,591
 
Other liabilities
81,487
 
88,427
 
Total liabilities
2,005,015  
2,308,168
 
Shareholders’ equity
 
 
 
 
Share capital
873,741
 
871,822
 
Contributed surplus
19,736
 
18,736
 
Retained earnings
918,255
 
917,883
 
Accumulated other comprehensive income
100,100
 
167,287
 
Total shareholders’ equity
1,911,832  
1,975,728
 
Non-controlling interests
3,181
 
772
 
Total liabilities and equity
3,920,028  
4,284,668
 
 
 
 
 
 
Consolidated Statements of Income
(Unaudited)
 
 
For the quarter ended
  For the two quarters ended
 
 
June 30
  June 30
 
 
 
 
 
   
 
 
 
(In thousands of Canadian dollars, except per share amounts) 2017
 
2016
  2017
 
2016
 
$
$
$
$
Gross revenue
1,318,681
 
1,046,642
  2,594,941
 
1,802,025
 
Less subconsultant/subcontractor and other direct expenses
427,194
 
269,316
  829,656
 
396,051
 
Net revenue
891,487
 
777,326
  1,765,285
 
1,405,974
 
Direct payroll costs
412,186
 
360,420
  813,606
 
649,929
 
Gross margin
479,301
 
416,906
  951,679
 
756,045
 
Administrative and marketing expenses
377,247
 
341,630
  757,981
 
613,307
 
Depreciation of property and equipment
13,568
 
12,547
  27,474
 
22,604
 
Amortization of intangible assets
18,727
 
19,941
  42,237
 
30,744
 
Net interest expense
6,204
 
10,843
  13,812
 
13,931
 
Other net finance expense
1,361
 
2,524
  3,550
 
3,652
 
Share of income from joint ventures and associates
(1,252
)
(704
)
(1,985
)
(1,076
)
Foreign exchange (income) loss
(1,053
)
(39
)
163
 
65
 
Gain on disposition of a subsidiary
(54,576
)
-
  (54,576
)
-
 
Other income
(557
)
(253
)
(1,344
)
(128
)
Income before income taxes
119,632
 
30,417
  164,367
 
72,946
 
Income taxes
 
 
 
   
 
 
 
Current
18,857
 
6,868
  28,382
 
20,909
 
Current tax on disposition of subsidiary
124,053
 
-
  124,053
 
-
 
Deferred
(967
)
2,378
  1,810
 
245
 
Deferred tax on disposition of subsidiary
(119,945
)
-
  (29,506
)
-
 
Total income taxes
21,998
 
9,246
  124,739
 
21,154
 
Net income for the period
97,634
 
21,171
  39,628
 
51,792
 
Weighted average number of shares outstanding - basic
114,045,875  
106,207,939   114,087,887  
100,049,233  
Weighted average number of shares outstanding - diluted
114,355,587  
106,621,988   114,454,989  
100,451,362  
Shares outstanding, end of period
113,816,504  
113,907,017   113,816,504  
113,907,017  
Earnings per share
 
 
 
   
 
 
 
Basic
0.86
 
0.20
  0.35
 
0.52
 
Diluted
0.85
 
0.20
  0.35
 
0.52
 

Media Contact Earl J. Woods Stantec Media Relations 780-969-6544 earl.woods@stantec.com Investor Contact Sonia Kirby Stantec Investor Relations 780-616-2785 sonia.kirby@stantec.com