Stantec Inc. (STN)

Q2 2010 Earnings Call

August 5, 2010; 04:00 pm ET

Management

Robert Gomes - President & Chief Executive Officer

Dan Lefaivre - Chief Financial Officer

Analysts

Chris Blake - Stonecap Securities

Sara O'Brien - RBC Capital Markets

Pierre Lacroix - Desjardins Securities

Ben Cherniavsky - Raymond James

Benoit Caron - The National Bank

Maxim Sytchev - Northland Capital Partners

Carolyn Dennis - Dundee Securities

Presentation

Operator

Welcome to Stantec Consulting’s second quarter 2010 earnings results conference call. (Operator Instructions) As a reminder, today’s conference is being recorded. It will be available for replay on the investor section of www.stantec.com.

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

Robert Gomes

Thank you, Andrew. Good afternoon everyone, and welcome to our 2010 second 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 market 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 to 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 and 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 www.stantec.com under the Investors Section.

Therefore, we ask any members of the media that 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 second quarter of 2010. I’m pleased to report that we are on target with our expectations for 2010. We achieved growth in net revenue on a sequential basis and response to the increased activity in some of our markets. We were able to increase our overall employee numbers while continuing to manage our business effectively.

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

Dan Lefaivre

Thank you, Bob, and good afternoon everyone. As Bob just indicated, in the second quarter of 2010, we once again achieved solid results. Our gross revenue in the second quarter was consistent with that achieved in Q1 ’10. Compared to Q2 ’09, our gross revenue was $371.1 million, down $17 million, of this decrease $18.4 million was as a result of the change in foreign exchange during the quarter.

Our net revenue in the second quarter was up 2.4% from Q1 ‘10. Compared to Q2 ’09, our net revenue was $303.8 million, down $14.3 million. Again, this decline reflected an impact, the impact of foreign exchange, as well as staff reductions throughout 2009. Our gross margin as a percentage of net revenue was 55.7% in the second quarter and continued to fall within our target range of 54.5% to 56.5%.

Our administrative and marketing expenses decreased to 41.1% during the quarter from 41.3% in Q2 ‘09, mainly due to achieving increased efficiencies. We also had lower one-time cost related to severances and the downsizing of certain operations. Despite the decline in year-over-year revenue, net income increased 1.8% to $22.7 million in the quarter from Q2 ‘09 and diluted earnings per share in the quarter were $0.49 unchanged from the same time last year.

Our cash flows from operations were strong in the second quarter improving to $24.5 million. As part of our long-term financing strategy, we are currently renegotiating our credit facility to ensure that we have the flexibility and capacity to support our future needs.

During the quarter, we filed our shelf prospectus, which we may use to supplement our debt financing, but only if necessary. We financed all of our announced acquisitions through the combination of cash and debt. During the second quarter, we also renewed our normal course issuer bid with the Toronto Stock Exchange, which will allow us to repurchase up to 5% of our outstanding shares. Pursuant to this [MCIB], we repurchased accounts of over 198,000 shares in the quarter.

Overall, we are pleased with our second quarter results. Our performance in the quarter showed growth on a sequential basis with Q1 ‘10 and we continue to manage our operations effectively. Rob.

Robert Gomes

Thank you, Dan. As we mentioned in our news release this morning, we recently completed four acquisitions. During the second quarter, we acquired TetrES Consultants based in Winnipeg, Manitoba and soon after the quarter end we acquired Industry and Energy Associates or IEA headquartered in Portland, Maine; WilsonMiller, Inc., headquartered in Naples, Florida; and Natural Resources Consulting, Inc., NRC, headquartered in Cottage Grove, Wisconsin.

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