Stantec CEO Discusses Q3 2010 Results – Earnings Call Transcript

Stantec Inc. (

STN

)

Q3 2010 Earnings Call Transcript

November 4, 2010 4:00 pm ET

Executives

Robert Gomes – President and CEO

Dan Lefaivre – CFO and SVP

Analysts

Anthony Zicha – Scotia Capital

Carolyn Dennis – Dundee Securities

Sara O'Brien – RBC Capital Markets

Paul Lechem – CIBC

Pierre Lacroix – Desjardins Securities

Tahira Afzal – KeyBanc

Ben Vendittelli – Laurentian Bank Securities

Chris Blake – Stonecap Securities

Benoit Caron – National Bank

Presentation

Operator

» Stantec Inc. Q2 2010 Earnings Call Transcript
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Welcome to Stantec Inc.'s third quarter 2010 earnings result conference call. (Operator Instructions) As a reminder, this conference is being recorded. It will be available for replay on the investor section of stantec.com.

It is now my pleasure to introduce your host Mr. Robert Gomes, President and Chief Executive Officer. Please go ahead.

Robert Gomes

Thank you, Sara. Good afternoon everyone, and welcome to our 2010 third quarter conference call. Joining me is Dan Lefaivre, our Chief Financial Officer. Dan will provide a brief summary of our results for the quarter, and I will follow with an outline of our markets outlook. We will then address individual questions.

Before we begin, I would like to make you aware of our Safe Harbor statement and to caution you that we will be making forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 in the United States and applicable securities legislation in Canada. By their very nature, forward-looking statements require us to make assumptions and are subject to inherent risks and uncertainties that give rise to the possibility that our estimates, projections, expectations or conclusions will not prove to be accurate, that our assumptions may not be correct, and that our actual results may differ materially from those discussed in these statements.

You will find more information about the assumptions and material factors that were applied, that could cause actual results to differ materially from those we discuss in this conference call in the management’s discussion and analysis included in our 2009 financial review. I would also like to advise you that this conference call is being broadcast live over the internet, and it will be archived for future reference at stantec.com under the Investors Section. Therefore, we ask any members of the media, who are joining us today in a listen-only mode and who wish to quote anyone other than Dan or me to please request permission to do so from the individual concerned.

This morning, we released the results of Stantec’s operations for the third quarter of 2010. I’m pleased to report that we achieved strong performance as well as some strategic growth objectives which moved us closer to realizing our vision to become and remain a top 10 global design firm. Traditionally the third quarter is our strongest quarter of the fiscal year and Q3 2010 was a record quarter for us, as we reported the highest earnings in our company's history.

Dan, will now provide a review of our third quarter financial results. Dan.

Dan Lefaivre

Thank you, Bob, and good afternoon everyone. As Bob just indicated, the third quarter of 2010 was very productive for Stantec. Our gross revenue in Q3’10 increased 4.2% from Q2’10, compared to Q3’09 our gross revenue was C$386.7 million, up C$2.5 million. With the completion of six acquisitions during the quarter, revenue from acquisitions increased to C$19.4 million and C$6.8 million in Q2’10. Our net revenue in Q3’10 was up 3.5% in Q2 and compare to Q3’09, our net revenue was C$314.5 million, up C$7.8 million. Our gross margin, as a percentage of net revenue was 56.2% in the third quarter and 55.8% year-to-date continuing to fall within our targeted range of 54.5% to 56.5%. Our administrative and marketing expenses decreased to 40.8% during the quarter from 41.3% in Q3’09, mainly due to operating more efficiently and managing our costs. We expect however that these expenses will be marginally higher in Q4’10 because we will be integrating staff and systems from our recent acquisitions.

Reported net income was C$32.1 million in the third quarter compared to a loss of C$10 million in Q3’09, excluding the impact of a C$5.9 million after-tax gain on the sale of an equity investment in the quarter and of a C$35 million non-cash goodwill impairment charge in Q3’09. Net income increased 4.8% to C$26.2 million during Q3’10. Reported diluted earnings per share in the quarter was C$0.70 without the impact of the gain on sale in the equity investments, diluted earnings per share were C$0.57. As Bob mentioned, our net income and diluted EPS results in the quarter were records for us, and our further evidence that we are continuing to manage our costs and operate effectively. During the quarter we also reached an agreement with our lenders to increase our credit facility to C$350 million and extend its maturity to August 2013. This will ensure that we have the flexibility and funds to support our future activities. We financed all our acquisitions in the third quarter through a combination of cash and debt. Overall we are very pleased with our third quarter results. The quarter was very active showing solid growth and we continue to manage our operations effectively. Bob.

Robert Gomes

Thank you, Dan. As we mentioned in our news release this morning, we completed six acquisitions during the third quarter. We acquired IEA Holdings in Maine, WilsonMiller in Florida, Natural Resources Consulting in Wisconsin, Communication Arts in Colorado, Anshen & Allen Architecture in San Francisco, Columbus, Boston and London England, ECO:LOGIC Engineering in California. Soon after the quarter-end, we acquired Street Smarts in Georgia. The acquisition of these firms, enhance our service offerings in all five of our practice areas and added approximately 760 staff to our operations. Due to the acquisition of Anshen & Allen, we significantly expanded our healthcare practices, design practice and entered a new international market in the United Kingdom. Next month, we expect to complete our acquisition of Burt Hill which will further expand our international presence.

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