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Stantec reports second quarter 2021 adjusted diluted earnings of $0.62 per share, a 19.2% increase from the prior year, and increases 2021 earnings guidance

Published: 2021-08-04 21:00:00 ET
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EDMONTON, Alberta and NEW YORK, Aug. 04, 2021 (GLOBE NEWSWIRE) -- 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 RangeRevised 2021Annual RangeFor 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 growthLow 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 revenue52% to 54%no change53.1%
Administrative and marketing expenses as % of net revenue37% to 39%no change38.2%
Effective tax rate (without discrete transactions)27% to 28%23.3% to 24.8%24.5%
Earnings pattern40% in Q1 and Q445% in Q1 and Q4n/a
60% in Q2 and Q355% in Q2 and Q3n/a
Days sales outstanding90 days