Mr. Gord Johnston reports

STANTEC ANNOUNCES RECORD 2023 EARNINGS, DIVIDEND INCREASE OF 7.7%, AND PLANNED RETIREMENT OF CFO THERESA JANG

Stantec Inc. has released its results for the fourth quarter and year ended Dec. 31, 2023.

2023 highlights:

• Net revenue of $5.1-billion in 2023, an increase of 13.7 per cent over 2022;
• Adjusted diluted earnings per share (EPS) (1) of $3.67, an increase of 17.3 per cent over 2022;
• Backlog of $6.3-billion, up 6.8 per cent since Dec. 31, 2022;
• Ranked No. 9 of the most sustainable corporations in the world by Corporate Knights, first among peers.

Stantec achieved record financial results and delivered another solid year of excellent performance in 2023. Net revenue increased $609-million to $5.1-billion, driven primarily by 9.9-per-cent organic growth (1) and 1.5-per-cent acquisition growth (1). Continued focus on strong project execution and operational excellence drove record adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) margin (1) of 16.4 per cent, diluted EPS of $2.98 and adjusted diluted EPS of $3.67.

In the fourth quarter of 2023, Stantec grew net revenue 9.9 per cent to $1.2-billion through strong organic growth of 7.5 per cent and acquisition growth of 1.9 per cent. Adjusted EBITDA margin was 15.7 per cent, while diluted EPS was 66 cents and adjusted diluted EPS remained consistent at 82 cents.

Adjusted EBITDA margin and adjusted diluted EPS were both impacted by a significant expense related to the revaluation of Stantec's long-term incentive plan (LTIP), primarily due to strong share price appreciation in 2023. Excluding the revaluation for 2023 and Q4 2023, adjusted EBITDA margin was 17.1 per cent and 16.6 per cent, respectively, and adjusted diluted EPS was $3.91 and 90 cents, respectively.

"Stantec continues to fire on all cylinders, delivering yet another year of record financial results," said Gord Johnston, president and chief executive officer. "I am very proud of the strong operational performance delivered by our dedicated employees while again being ranked as one of the most sustainable companies in the world. We are extremely well positioned to continue addressing the complex multiyear challenges our clients and communities are facing, and we are confident 2024 will be another very strong year for Stantec."

(1) Adjusted diluted EPS, adjusted EBITDA and adjusted EBITDA margin are non-IFRS (international financial reporting standards) measures, and organic growth and acquisition growth are other financial measures (discussed in the definitions section of Stantec's 2023 annual report).

Chief financial officer planned retirement

Stantec also announced today the planned retirement of Theresa Jang, executive vice-president and CFO. The company has initiated a search to identify her successor and is considering both internal and external candidates. Ms. Jang will remain as CFO until her successor is in place and has committed to remaining with the company for a period thereafter to ensure a smooth transition.

"Since joining Stantec in 2018, Theresa has played a pivotal role in creating value for all of our stakeholders," said Mr. Johnston. "Through her stewardship, Stantec's financial position has never been stronger and she has built a world-class finance team that will continue to support our growth ambitions. She has been a tremendous leader and a valued colleague and friend."

"As I reflect on all that my Stantec colleagues and I have accomplished together, I have decided the time is right for me to step away from executive life," said Ms. Jang. "While my journey with Stantec will come to an end later this year, I am confident the company will continue to thrive and outperform for many years to come."

2024 outlook

Stantec is increasing its net revenue growth and adjusted diluted EPS growth targets and reaffirming other targets and expectations included in the 2024 guidance released on Dec. 5, 2023, with the launch of its 2024-2026 strategic plan. These targets now include the acquisition of Morrison Hershfield, which closed on Feb. 9, 2024.

In setting Stantec's targets and guidance, the company assumed an average value for the U.S. dollar of $1.35, 1.70 British pounds and 90 Australian cents. For all other underlying assumptions, see Stantec's 2023 annual report.

Note that adjusted EBITDA, adjusted net income, adjusted diluted EPS and adjusted ROIC (return on invested capital) are non-IFRS measures.

Stantec now expects that net revenue will increase between 11 per cent and 15 per cent in 2024. Stantec continues to see high levels of activity in all regions and reaffirms expectations for organic net revenue growth in the middle to high single digits, with the United States and global regions in the middle to high single digits, and Canada in the mid-single digits. The company now expects acquisition net revenue growth in the middle single digits from Zetcon, Morrison Hershfield and ESD.

Stantec continues to anticipate adjusted EBITDA margin will be in the range of 16.2 per cent to 17.2 per cent and adjusted net income to achieve a margin above 8.0 per cent. The company now expects adjusted diluted EPS growth to be in the range of 12 per cent to 16 per cent.

The above targets do not include any assumptions for additional acquisitions given the unpredictable nature of the size and timing of such acquisitions, or the impact from share price movements subsequent to Dec. 31, 2023, and the relative total shareholder return components on Stantec's share-based compensation programs.

Full-year 2023 financial highlights:

• Net revenue increased 13.7 per cent or $609.0-million to $5.1-billion compared with 2022, primarily driven by 9.9-per-cent organic growth and 1.5-per-cent acquisition growth. All of Stantec's regional and business operating units delivered organic growth. Water delivered exceptional organic growth of 20 per cent, while environmental services and the United States achieved double-digit organic growth.
• Project margin increased $327.4-million or 13.5 per cent to $2.7-billion and, as a percentage of net revenue, remained consistent with 2022 at 54.2 per cent as a result of net revenue growth and solid project execution.
• Adjusted EBITDA increased $107.1-million or 14.8 per cent to $831.0-million. The company achieved an adjusted EBITDA margin of 16.4 per cent, a 20-basis-point increase from 2022, driven by increased activities and disciplined cost management, partly offset by a significant expense related to the revaluation of Stantec's LTIP (long-term incentive plan) primarily due to strong share price appreciation. Excluding the revaluation, adjusted EBITDA margin achieved was 17.1 per cent.
• Net income and diluted EPS achieved record highs in 2023. Net income increased 34.1 per cent or $84.2-million to $331.2-million and diluted EPS increased 34.2 per cent or 76 cents to $2.98, mainly due to strong net revenue growth, solid project margins, and lower administrative and marketing expenses as a percentage of net revenue.
• Stantec concluded on its 2023 real estate strategy and drove approximately 38 cents of incremental adjusted EPS while reducing the company's footprint by over 30 per cent relative to the 2019 baseline.
• Adjusted net income increased 17.7 per cent or $61.3-million to a record high of $408.4-million, representing 8.1 per cent of net revenue (8.6 per cent excluding the effect of the LTIP revaluation), up 30 basis points compared with last year. Adjusted diluted EPS increased 17.3 per cent or 54 cents to $3.67 ($3.91 excluding the effect of the LTIP revaluation).
• Contract backlog stands at $6.3-billion, a 6.8-per-cent increase from Dec. 31, 2022, reflecting 4.6-per-cent organic growth. Organic backlog growth was achieved across all regional units, with water attaining over-23-per-cent organic backlog growth. Contract backlog represents approximately 12 months of work.
• Net debt to adjusted EBITDA was 1.0 times at Dec. 31, 2023, within the internal range of 1.0 times to 2.0 times.
• Operating cash flows increased 79.0 per cent from $304.3-million to $544.7-million, reflecting strong operating performance and disciplined working capital management.
• Days sales outstanding was 77 days at Dec. 31, 2023, a four-day reduction from Dec. 31, 2022.
• Stantec repurchased 129,036 common shares for an aggregate price of $10.0-million under the company's normal course issuer bid (NCIB).
• Stantec issued 3,108,450 common shares from treasury through a public offering, including 405,450 shares issued in connection with the exercise in full of the overallotment option, at a price of $92.50 for net proceeds of $277.8-million after share issuance costs. The company used the net proceeds of the offering to repay a portion of its revolving credit facility, creating additional capacity to finance future acquisition opportunities and growth initiatives, as well as for general corporate purposes.
• Consistent with Stantec's growth strategy and subsequent to the year-end, the company closed the following acquisitions:
  • On Jan. 8, 2024, Stantec acquired Zetcon Engineering, a 645-person engineering firm headquartered in Bochum, Germany, with 13 offices covering all major German metropolitan areas and one office in Austria. Zetcon provides a strong platform in infrastructure planning, inspection, project management and construction management.
  • On Feb. 9, 2024, the company acquired Morrison Hershfield, a 1,150-person engineering and management firm headquartered in Markham, Ont. Morrison Hershfield has offices in 22 cities across North America and an office in India. The firm has a highly respected industry reputation in transportation, buildings and environmental services.
• On Feb. 28, 2024, the board of directors declared a dividend of 21 cents per share, payable on April 15, 2024, to shareholders of record on March 28, 2024, representing an 7.7-per-cent increase.

Fourth quarter 2023 financial highlights:

• Net revenue increased 9.9 per cent or $111.8-million to $1.2-billion, driven by 7.5-per-cent organic growth and 1.9-per-cent acquisition growth. For the eighth consecutive quarter, Stantec achieved organic growth in every regional and business operating unit with the exception of energy and resources, which saw a slight organic retraction of 1.2 per cent in the fourth quarter. Double-digit organic growth was achieved in the United States and in the water and environmental services businesses.
• Project margin increased 7.9 per cent or $49.1-million and decreased 100 basis points as a percentage of net revenue from 54.9 per cent to 53.9 per cent, remaining in line with expected ranges. Higher project margin in Q4 2022 was partly due to changes in project mix in Stantec's U.S. operations.
• Adjusted EBITDA increased 1.5 per cent or $2.9-million to $194.6-million and achieved a margin of 15.7 per cent compared with 17.0 per cent in the prior period. The revaluation of Stantec's LTIP in Q4 2023, primarily due to strong share price appreciation, contributed to a lower margin. Excluding the revaluation, adjusted EBITDA margin achieved was 16.6 per cent.
• Net income increased 1.2 per cent or $900,000 to $74.4-million and diluted EPS was 66 cents.
• Adjusted net income and adjusted diluted EPS remained consistent at $91.4-million, representing 7.4 per cent of net revenue (8.1 per cent excluding the effect of the LTIP revaluation), and 82 cents (90 cents excluding the effect of the LTIP revaluation), respectively.

Conference call

On Thursday, Feb. 29, 2024, at 7 a.m. Mountain Time (9 a.m. Eastern Time), Mr. Johnston and Ms. Jang will hold a conference call to discuss the company's fourth quarter and year-end 2023 performance.

To listen to the webcast and view the slide presentation, please join on-line.

If you are an analyst and would like to participate in the Q&A (question-and-answer) period, please register on-line.

The conference call and slideshow presentation will be broadcast live and available on the events and presentations section of the company's website.

About Stantec Inc.

Communities are fundamental. Whether around the corner or across the globe, they provide a foundation, a sense of place and of belonging. That is why Stantec always designs with community in mind. The company cares about the communities it serves because they are Stantec's communities too. This allows Stantec to assess what is needed and connect its expertise, to appreciate nuances and envision what is never been considered, to bring together diverse perspectives so the company can collaborate toward a shared success.

Stantec consists of designers, engineers, scientists and project managers, innovating together at the intersection of community, creativity and client relationships. Balancing these priorities results in projects that advance the quality of life in communities across the globe.

Stantec trades on the Toronto Stock Exchange and the New York Stock Exchange under the symbol STN.

Cautionary statements

Non-IFRS and other financial measures

Stantec reports its financial results in accordance with IFRS. However, in this news release, the following non-IFRS and other financial measures are used by the company: adjusted EBITDA, adjusted net income, adjusted EPS, adjusted ROIC, free cash flow, net debt to adjusted EBITDA, days sales outstanding (DSO), margin (percentage of net revenue), organic growth (retraction), acquisition growth, and measures described as on a constant currency basis and the impact of foreign exchange or currency fluctuations, as well as measures and ratios calculated using these non-IFRS or other financial measures. Additional disclosure for these non-IFRS and other financial measures, incorporated by reference, is included in the definitions of non-IFRS and other financial measures section of the 2023 annual report, available on SEDAR+, EDGAR and the company's website.

These non-IFRS and other financial measures do not have a standardized meaning under IFRS and, therefore, may not be comparable with similar measures presented by other issuers. Management believes that, in addition to conventional measures prepared in accordance with IFRS, these non-IFRS and other financial measures provide useful information to investors to assist them in understanding components of Stantec's financial results. These measures should not be considered in isolation or viewed as a substitute for the related financial information prepared in accordance with IFRS.

We seek Safe Harbor.