Robert Gomes - President and Chief Executive Officer Daniel Lefaivre - Executive Vice President and Chief Financial Officer.

Chris Murray - AltaCorp Capital Benoit Poirier - Desjardins Capital Markets John Rogers - D.A. Davidson Sara OBrien - RBC Capital Markets Bert Powell - BMO Ben Cherniavsky - Raymond James Mona Nazir - Laurentian Bank Tahira Afzal - KeyBanc Maxim Sytchev - Dundee Capital Markets.

Welcome to Stantec Inc.'s second quarter 2015 earnings results conference call. With us today from Stantec management are Bob Gomes, President and Chief Executive Officer; and Dan Lefaivre, Chief Financial Officer.

[Operator Instructions] As a reminder, today is August 6, 2015, and this conference call is being recorded as well as broadcasted live over the internet. It will be archived for future reference at stantec.com under the Investors section.

Therefore, any members of the media who are joining the call today in a listen-only mode and who wish to quote anyone other than Mr. Gomes or Mr. Lefaivre are asked to please request permission to do so from the individual concerned.

Stantec management would like to caution you that this call contains non or additional IFRS measures, as well as forward-looking statements and information, which may involve risks and uncertainties. I would now like to introduce your host, Bob Gomes. Please go ahead..

Thank you. Good afternoon, everyone, and welcome to our 2015 second quarter results conference call. Today, we released the results of Stantec's operations for the second quarter of 2015.

Compared to Q2 2014, we achieved strong organic revenue growth of 5.7% in each of our Buildings and Infrastructure business operating units, which was offset by an organic retraction in our energy and resources business operating unit of 25%.

Even with this impact to our energy and resources business, mainly as a result of reduced work available in our oil and gas sector, we successfully managed to meet most of our targets year-to-date in 2015.

These results are a testament to our diversified model and show that we effectively produce results, even when our largest sector retracts significantly over a very short time period. It's important to note that all other areas of our company remained strong, with our U.S. operations continuing to benefit from a recovery in economy.

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

Dan?.

Thank you, Bob. Good afternoon, everyone. During Q2 '15 our gross revenue increased by 12.1% to $710.3 million compared to $633.8 million in Q2 '14. This growth was mainly due to acquisitions and the impact of foreign exchange rates on revenue earned by our U.S. subsidiaries. Our gross margin was 54% compared to 54.7% last year.

The decrease in gross margin is mainly due to downward pressure on margins in the oil and gas industry and lower margins from the Dessau acquisition. Our SG&A cost increased to 41.2% from Q2 '15 from 39.9% in Q2 '14, due to lower overall utilization and increased integration-related costs associated with recent acquisitions.

We also incurred significant severance cost as a result of the rightsizing staff to match our backlog in the oil and gas business. EBITDA increased 5.1% to $82.2 million in Q2 '15 from $78.2 million in Q2 '14. For Q2 '15, our net income decreased 2.7% to $43.1 million compared to $44.3 million in Q2 '14.

This is due in part to the SG&A items noted previously as well as an increase in the amortization of intangible assets and net interest expense. Our diluted earnings per share also decreased slightly, 2.1% from $0.46 or 2.6% from $0.47 last year.

Our backlog remained stable at $2 billion from the end of Q1 '15, which continues to represent about nine months of revenue. Our balance sheet and free cash flows continue to be strong and provide us with the necessary resources to execute on our growth strategies.

Finally, yesterday the company declared a cash dividend of $0.1050 per share to shareholders of record on September 30, 2015.

Bob?.

Thanks, Dan. I will provide a bit more detail on our performance in Q2 and some thoughts on the rest of 2015, and then we can go right into Q&A. I will start with some highlights across our business operating units. Buildings continue to gain momentum with strong growth in the second quarter.

In the United States, gross revenue increased significantly due to acquisitions completed in 2014 and 2015, and due to foreign exchange. Organic revenue was stable in the quarter compared to Q2 '14.

In Canada, Buildings experienced strong activity in the healthcare market, continued strength in the education sector and steady activity in the commercial sector. For example, we acquired Dessau in Q1, and as a result of the well-recognized decision in the Quebec market, we secured work in two separate hospital projects in that province.

In energy and resources, we experienced continued retraction in our oil and gas sector. This resulted from the sharp decline in oil prices, which was over 44% since this time last year in corresponding market conditions. This quarter is also being compared to a robust Q2 2014.

Our clients in this sector continue to adjust their capital spending and are releasing fewer and smaller projects. However, we continue to maintain our strong position in the industry and are maintaining our core competencies to be able to respond to the market, when it recovers.

Despite the oil and gas sector that comprised 25% of our business in 2014, is now making up 15% this quarter. We continue to manage our business effectively. Our projects are going well and our client relationships are healthy.

With consistent disciplined execution of our business strategy and with our diverse business model, we continue to effectively manage our business through this cycle, as we have in the past.

Our environmental services organic revenue from non-resource related sectors remained stable in Canada, and achieved overall strong growth in United States year-to-date. Our infrastructure business operating unit also achieved strong growth in Q2 '15.

Each of these three sectors community development, transportation and water experienced strong organic revenue growth year-to-date compared to 2014. In community development, organic revenue growth was strong in the United States and stable in Canada.

In the United States we continue to secure major non-residential projects, such as the Coney Island infrastructure design project, where we will be designing streets, sidewalks, sewers, water mains and plaza areas in support of the redevelopment in the area affected by Hurricane Sandy. In transportation, a rebounding U.S.

economy and our North American strategic market position meant to increased organic growth opportunities. For example, during the quarter we were selected as the independent engineer for the new Champlain Bridge Corridor design build project in Montreal, Quebec.

Our water sectors also experienced strong organic revenue growth year-to-date in 2015 compared to 2014, with ongoing demand in our services, as work continues on key projects in Canada and the United States. Now, I'd like to comment briefly on potential market conditions going forward.

We continue to maintain an outlook of moderate organic revenue growth for 2015. We expect to end of the year with approximately 2% organic growth, which is a slight reduction from our 3% estimates at the end of Q1. I am sure most of the analyst on the call have run the numbers and question the ability of us achieving this.

This estimate is based on our Buildings and Infrastructure businesses increasing their performance from the first half of the year, and the retraction in our energy and resources business slowing over the second half of 2015. You also have to take into account that we will be comparing the second half of this year to a weaker second half of 2014.

So yes, we're being optimistic in looking forward to the second half of 2015. We have revised the organic growth outlook in two of our regions from what was included in our Annual Report. In Canada, we revised our outlook to retraction from stable, as a result of the retraction at the oil and gas sector.

We expect activity in sectors and region linked to the non-energy related businesses will continue to increase over the remainder of the year. In the United States, we continue to expect moderate organic revenue growth. We are finally seeing some continued momentum in U.S. economy.

We saw good growth in this quarter and we are well-positioned in the U.S. to take advantage of this increased activity through the rest of the year. Despite that momentum, we maintained a moderate outlook, because we expect that ongoing growth in all our U.S. sectors will be offset by continued retraction in the oil and gas sector in United States.

In our international business, we revised the outlook to stable for moderate organic revenue growth. Our international operations, mainly within our Buildings business operating unit and mining sector, continues to make up about 4% for overall business.

Our revised outlook was due to the year-to-date small retraction in our international mining sector, resulting from the challenging global market conditions. We have a strong diversified mining business with strong client relationships that allows us to continue to operate well, even in a slowing mining sector.

Our outlook for our business operating units is as follows. For Buildings, we revised our outlook to strong organic revenue growth from moderate. This change resulted from the better than anticipated organic revenue growth in the first half of 2015.

This growth was supported by strong account management and strategic pursuits that materialized into project wins. Overall we anticipate that the Buildings industry will continue to recover, and we believe we are well-positioned to capitalize on that growth.

Our energy and resources business operating unit both retracted at a slower pace, and stabilized these lower revenue levels during the second half of 2015. We expect our mining and power sectors to remain stable, with our oil and gas sector retracting.

In our Infrastructure business operating unit, we revised our organic revenue outlook from moderate to strong growth. This is due to better than anticipated revenue growth in the first half of 2015.

With our well-establish market position in community development, transportation and water, especially in the United States, we expect to see strong organic revenue growth.

We now have over 6,000 staff in the United States, and we are gaining a top-tier position in transportation and water, and maintaining our dominant position in the community development sector, which is benefiting from our recovering housing market.

Overall, the majority of our business is strong and performing well, while 15% of our business has been affected by one of the most dramatic retractions in oil prices in the past 25 years. We are proud of how we have managed our business and how our staff had reacted to having, which was 25% of our business impacted by the collapse in oil prices.

We are also proud that we have maintained loyal to our clients in this sector, and maintained our strong relationships. And we are now positioned to benefit from the recovery in oil prices, when, not if, that recovers.

We remain confident that we will continue to provide long-term value to our shareholders with the strength of our diversified business model, and consistent disciplined execution of our strategy. This concludes our comments for today. Dan and I are now available to answer any questions you may have.

The conference call operator, Ellia, will explain the question procedure.

Ellia?.

[Operator Instructions] The first question comes from Chris Murray from AltaCorp Capital..

We'll start with the, I guess, seems very obvious question is, how do you think you're actually going to hit a 2% number, because I guess as we've done the math we're expecting a negative number call it minus-5 to minus-10 for energy and resources, you're going to probably have well under the double-digit through the other side.

Any color you can give us on how you actually achieve it that will be great?.

I mean, that's exactly it. I think as I said on the call, I am sure that everyone has ran the math, and yes, we're going to have to get double-digit organic growth at the end of the year for both our infrastructure and for our buildings business operating units.

We've done our forecast, gone to our leadership and looked at what we have now coming up, and they all believe and we believe that we can achieve that. So that's why, yes. I mean they're going to have to perform well. Yes, we're going to have to secure those projects. But the possibility is there, the opportunity is there, all we have to do is execute.

So that's why we're still being fairly optimistic, but we do believe that 2% is achievable..

And how much of that backlog today is actually secured or is it predicated and you have to win a few more contracts in order to hit that volume?.

We have $2 billion of backlog today that has not changed from last quarter, which is good. We're replenishing our backlog. But you're right, that's going to have the increase to be able to get the organic growth to increase in the second half of the year.

So that does mean that, yes, we're going to have to win projects, but those projects are coming out. These are in place, so we just have to simply be good at winning those projects..

And then just my second question.

Just thinking about acquisitions, is there anything you can do on the acquisition side to keep the growth pace up or some of the weakness even in oil and gas affording you additional opportunities?.

Well, the additional opportunities in oil and gas, there is companies out there that are now interested in talking. Yes, that's the case. Interesting even with the retraction in the prices and in the overall market, these companies is just totally optimistic with their pricing.

And that's usually the case, which is a good sign that they see, things recovering as well at some point. But overall, I think we have a fairly good balance to our acquisition strategy. We're looking at acquisitions and potential opportunities now in all three of our business operating units on both sides of the border.

So I think the strategy we have really hasn't changed and usually doesn't. But a market condition like this does give us opportunities in the oil and gas sector, where companies now at least have time to sit down and discuss things with us, and that's certainly happening..

The next question comes from Benoit Poirier from Desjardins Capital Markets..

If I look at the energy and resources, what makes you confident that the retraction will improve a little bit in the second half? I mean, if we would look back in Q1, you've got some feedback from customers that even if the barrel would say at $60, we should see an improvement.

So I am just wondering what makes you confident that the retraction number that you put out in Q2 could improve in the second half?.

Well, based on the amount of backlog we have in that group, that's one factor. I think it's by talking to our clients with regards to what they expect to do in the second half of the year.

But I think the point you bring out with regards to the price of oil affecting all this, that's definitely a wild card in it that it is something that's hard to predict. But we're also comparing the second half of this year to a slower growth in the second half of last year.

So the second half of last year, our business is actually starting to decline, it was starting to be impacted of what was going on. So now in the second half of this year, we're comparing against that. So that's going to also give us another reason why the retraction is less.

But certainly the messaging at the end of last quarter was oil seem to have stabilized at $60, now it's down at less than $45. So certainly that has an impact, but our clients are still advancing projects. They are smaller, and there is less of them, but we still see opportunities there..

And with respect to your 2015 target range, you just revised your organic growth from 3% to 2%.

Am I right to say that you are not changing your target range and you still feel confident to each those metrics?.

Yes. So we're still saying that, everything in front of us and all things working well, we should be able to achieve that approximate 2%. Could things occur where that 2% is less? Yes. But as far as we're concerned, the opportunities are there. All we have to do is execute and win our share of the project that we see available..

Their targets and measures that we set out at the beginning of the year, we still expect to achieve those measures..

And now, if we look at the Infrastructure spending, the different level of government came out with very bullish number. I was wondering if you see in Western Canada any ripple effect in Infrastructure and Building, either negative from the oil and gas now that the government is kind of helping you..

No, we see opportunities across Canada and across the United States in both Buildings and Infrastructure. The P3 market is still strong in Canada. We're bidding on a number of projects, very large projects. The design-build market in the United States is very strong and getting stronger.

State governments in the United States are spending more money on infrastructure this year. So from those perspectives, all the indicators are that we don't see any reason why those areas don't continue to grow for us and grow strongly..

And maybe a quick question for Dan. Just in terms of severance costs, maybe it's in your MD&A.

But how significant were the severance costs in the quarter and should we expect something going forward?.

On the quarter and on a year-to-date basis, we have to adjust our staff and our workforce by about 700 people in the oil and gas business. So it's been material. And about half of that was in the second quarter. So the severance costs associated with that were pretty significant on a year-to-date basis.

It is buried within our SG&A cost, its part of our restructuring costs. We don't make excuses for, we have to adjust our workforce both up and down when markets are good and bad. And it is just buried within SG&A..

And last question.

Could you maybe make some comment on the integration of Dessau versus initiative expectation?.

I'll give you the high-level just from a point of view of perception and attitude. It's been one of the strongest acquisitions I think we've done. The staff there, are very engaged, very enthused, very excited, they're working very hard and performing very well and that's been very good for us. Dan, can give you the details.

And I think that's another issue that, that it's part of those SG&A. We don't look at it as one-time cost, because we do acquisitions all the time. But certainly, this was a big one, the second largest one we did.

It certainly came with a lot additional complexities with the French language changes we have to make, all that's buried in this first quarter and second quarter results.

So Dan, maybe you just want to elaborate?.

No. I think you've covered it well, Bob. The integration has gone very well. All of these systems and business integration that has occurred, French language translation, as we talked about in the first quarter is largely behind us now through the second quarter.

But still integration takes several months to complete, but we're through the bulk of it now and it's progressing very well..

The next question comes from John Rogers from D.A. Davidson..

I just wanted to follow-up a little bit on the margins and your expectations there. The mix has changed a little bit with less oil and gas, but you're holding your margin range the same.

Are you assuming that you're going to see some margin benefits as we work our way through the year or is it just a mix? Some of that's in the oil gas, and I guess that's related maybe, Dan, to your comments about some of the severance cost there, does that affect your margins?.

Well, severance cost doesn't affect gross margin, not really that rolls up within SG&A. So the gross margins, they're about 54% in the quarter. We expect to be still be within that range. And certain aspects of our businesses are somewhat higher margin, like the healthcare sector, for example, was higher.

In oil and gas, we should see some benefit in gross margin, but we don't see it's really materially changing outside of that 54% to 56%..

Anything unusual, particularly in the Infrastructure segment, because margins dropdown their lower than they had been recently?.

Yes, and that was the comment around Dessau. Dessau's margins, they have a lot of transportation work, which is a lower margin business. And at the same time, we've been working through the integration of their projects to make sure that we're appropriately recognizing revenue, which did have a bit of drag on gross margin.

It's not really a performance issue it's just how we account for it. But the Dessau and Infrastructure does have slightly lower margin business..

I'd say the other combination of that for Infrastructure is that is, and I've mentioned earlier that there's significant P3s and design-builds going on. In the bid process for those, we usually confirm those as a slightly lower gross margin. When we've been in the job, we didn't get a success. We had to get some backup.

So sometimes, the timing of those projects in a quarter affect your gross margin, but not significantly does that has a bit of an impact on it as well..

And then in terms of, especially the stronger segment, what are you seeing in terms of pricing in the market, especially on projects that you're currently bidding or negotiating on?.

There is always competitive pressure in any market. And I don't think we've seen any significant changes. I think where the ability is in sometimes in these P3s and design-builds, you're less in a competitive situation, because you're not competing for your piece, you're competing for the overall project cost.

And sometimes the engineering piece are very, very small portion of that. So we actually we get some pretty good ability of getting some good pricing opportunities in that P3 design-build market. But overall, John, we haven't seen a significant change of pricing pressures. We always have it, the competition is always there..

Within oil and gas, so we have seen and we talked about this, I think earlier in the year that the entire supply chain is being stressed by the entire industry looking for lower prices. So we've had to adjust to that..

I think we already have. I don't think that was any further. I mean, we've given everything we're going to get from that perspective, again, which has an impact on first half of the year..

The next question comes from Sara O'Brien from RBC Capital Markets..

Can you comment on utilization rates going forward? It sounds like you've right sized the staff in oil and gas, at least for the current level.

I'm just wondering though, if you're going to retain some people for when the market does recover, how does utilization look relative to Q2 going forward in the back half of the year?.

So overall for the company, the utilization is good. I think we're at or above, where we want to be at this point of the year. But you're right, in the oil and gas business, it's a very high margin business -- I mean very-low margin business, very high utilization business.

And we're running at slightly lower utilization in that group, for exactly to reaching to set that we're trying to maintain the right people, so that we're well-positioned. So that has a small impact, but we watch that really carefully. And the overall margin for the company has to still our meet our targets.

But we're pretty comfortable where our margins are right now, but we have consciously looked at our oil and gas and are running a few points below where the optimum would be, but that's clearly why we have to do that is because what's going on in the industry..

And then maybe just diving into Q2 a bit, there was a gain on sale for, I guess, cumulative $.6.7 million.

With the integration charges and severance charges, have offset that, or maybe going forward, are there other such gains that you would expect that can wipeout some of the charges that are continuing?.

No, the additional charges that we took in SG&A more than offset, almost double offset the gains that we received on the sale of buildings. We sold our Winnipeg building. We've been trying to sell that for a long time and actually successfully sold it in the quarter, so just the event of that timing.

And the other one is really rebalancing our portfolio in our insurance captive, and again, that's a long-term strategy. It had nothing to do really with quarterly results, its just happen to occur in the quarter..

So you had about $13 million of other charges than going through related to integration and severance?.

Yes, maybe slightly less than that, Sara, probably, around close to that, about $10 million to $12 million..

The next question comes from Bert Powell from BMO..

I just want to go back to the guidance in terms of organic growth. I mean, you're facing some tougher comps in the second half of this year relative to the second half of last year. And it just seems like there is such a big leap.

Are you that confident in getting those double-digit organic growth in kind of the Building and Infrastructure and that the resources will kind of taper off? I'm just trying to figure out what's driving such a big increase in such a short period of time?.

Actually the increase is in building, but the tougher comps is in the other two business operating units in oil and gas. We're comparing against a weaker second half of the year, right, and the others were competing against not fairly good growth. But we did sit down very carefully and look at the opportunities we have in front of us.

And we'll look at the opportunities both sides of the borders in Infrastructure and in Buildings and have come back with the opportunities are there, all we have to do is win the projects. But the opportunities weren't there and the opportunities or the revenue growth was not even possible.

I think we have to recap it, but the revenues possibilities are there. So the point is, we have to be successful wining those projects and having that revenue mix, but certainly the opportunities are there..

So does this sort of scale up into a big number for Q4 or is the step change there available in Q3 as well?.

I think you'll see a step changing Q3 and Q4. I think we started to see some improvement in our Buildings factors towards end of last year in Q4. We're still comparing to fairly weak comps, where we are pretty robust today in our buildings factors. So that's where you're going to see some of the uptick I would expect..

I talked about it being a lower margin business, but I think in the past you had indicated that the plan was to get into, kind of Stantec range.

Is that still the thinking? Can you still based on the book of business do that over the medium term or is that require, you got to churn through their backlog at the embedded margin, and then you're able to reset it?.

I think part of it is getting to that the existing projects and then reset it, but as I said earlier, we're normalizing our margins on those projects, making sure that we're appropriately recognizing revenue. We see that basically continuing through to the end of Q3 and then start to see things normalize as we move forward after that..

That would be a longer term thing, there's no doubt. I mean, you just don't change that overnight, so that will be something we work through for the second half of the year for sure..

Some of it is the transportation client mix, and it is you're working for the provincial government and the municipal government and it is a lower market business in Quebec..

And I just wanted a point of clarification there, just in terms of the severance charges and what not, the $10 million to $12 million, are you referring on a six month basis or are you are referring to this quarter?.

That was really in the quarter. It's over $15 million on year-to-date basis..

So G&A otherwise would have been sort of closer to $235 million..

Yes, we don't have that number in front of us, but yes, they would have been much less than what we had..

Next question comes from Ben Cherniavsky from Raymond James..

So your stock you probably was off like 11% there, I think it's the biggest reaction I can remember to a quarterly result. So clearly the market and analyst, myself included, were surprised by these numbers.

Were you guys surprised by them?.

Essentially seem them for a while, we were as surprised maybe too, but I think one thing we were concerned about over this quarter was certainly the drop in price of oil. I think our clients weren't expecting that. They were expecting some stabilization of it. So that certainly had an impact with how they were releasing projects.

As we were working through the end of Q1, we're getting a fair amount of request for putting pricing on projects for our clients. After that, when the price started to drop and drop a low-50, they continued to hold those projects back, so that certainly has had an impact on, but we did not really anticipate, did not see.

Will oil continue to drop? No, if somebody tells us that, we'll have a better idea, but at this point in time our clients are now getting used to the new pricing and we continue to give them prices on projects. So our work is still there. But whether we surprised? As the quarter unfolded, we were more disappointed than surprised..

So both, because you're going to be pleasantly surprised, but you obviously weren't --.

Well, we were pleasantly surprised on everything else on the business. And I think Dan left one thing we want to highlight that the other parts of our business are actually doing very well and our Buildings are just doing fantastic compare to last year infrastructurally. So we were pleasantly surprised on how well the rest of the business responded.

And when you have 25% of your business impacted the way we did at the beginning of the year. To this result halfway through the year we're pretty happy actually where we are..

So Bob, I mean, like, we asked this out in the last call about the expectations you have particularly around the energy business, you're backend loaded to growth.

And I want back when revisited the dialogue, very explicitly you've said it yourself, you repeated again today that very dependent on the oil price at that point, oil was at 60 and you were talking about what if it goes to 70, then the projects are going to start to get released. I'm not.

No, I mean, a lot of people do not expect you guys to be commodity forecasters, but just it brings back the question that a lot of people are really trying to get some clarity on is how on earth had you not revised your energy outlook for the back half of this year now, and attracted it by more.

Just wanted to reconcile what you guys are saying?.

We don't define retraction. So we were actually thinking of that, we should see significantly retracting, but I mean, if we were going to give guidance specific to a percentage for each of our business operating units, we would increase that. But the retraction for us is still retraction..

So you do your give shades of grey, when it grows, right, moderate, strong?.

We never had this type of retraction, so we never had to just buy some [multiple speakers] to that..

You got to invent some new words.

So basically what you're saying is you're conceding that the outlook for the energy and resources has gotten worse, but because building has gotten better, you're net neutral for the year?.

Buildings and Infrastructure..

And then where you've ended up for the quarter, doesn't set you behind at all from what your expectations were like?.

It makes those expectations difficult, but we don't believe they're unachievable..

I think it sets us a little further behind than we had expected at Q1 then..

Would you feel like you can catch up, even though most of the indicators in the economy are suggesting things are actually slowing not accelerating?.

In the rest of the economy outside of the energy sector, actually, yes [multiple speakers]..

I mean, even broadly speaking, I think it is fair to describe it that way, unemployment and other indicators?.

So we see the businesses, and especially in the United States, I just spent a week down there last week, and every office I went to we're hiring staff, looking for more space. So we're actually really bullish on the U.S. economy..

The ISM data, like the manufacturing data is slowing. The services is up.

I don't know maybe that has an impact on you?.

It must, because at this point in time the U.S. is definitely -- our base there is stronger, and certainly we have the opportunities for growth there as well..

The next question comes from Mona Nazir from Laurentian Bank..

So just two or three questions from me. Number one, in the MD&A you mentioned on the energy side, project delays, pricing pressure, reduced CapEx, as variable that played into the retraction.

And I am just wondering for those of us not in the same geography, can you discuss maybe the magnitude of the impact that you've seen in the quarter? The percentage of projects that have been delayed or canceled, how much pricing pressure are you seeing, the magnitude of concession? And do you anticipate more stocking reductions or you're right-sized right now?.

So I'll try to answer all that into maybe a simple answer. From staffing reductions there may still be some additional, but I don't think we will not see the magnitude that we've experienced in the first half of the year with the backlog we have.

If we do not win any additional projects in that area, certainly there may have to be, but clients are coming out. I think the percentage of reduction of projects is probably in relationship to the percentage of reduction of our overall revenue. We are also not giving any additional concessions or any additional pricing pressures.

And the pricing pressures were simply our client coming to us and asking for reductions, they weren't retendering things and going out and rebidding. We simply have these projects and the clients are coming and asking for a lower price. That's also gone through its run, so we're not doing that any further.

So we're now at that steady state where we feel we do have the core staff left, we do have core backlog. We're not being asked for any additional price reductions. We just need to have some additional work coming in and our clients are telling us that, yes, even based on today's prices there are some small projects and there is work coming forward.

So that gives us the feeling that the retraction and the worst of the retraction is over..

And in 2005 and 2006, you saw a drop-off in activity in your urban planning division, and you were opportunistic and moved into the midstream sector. And where you're standing right now and just with some of the predictions that oil prices could remain depressed, as other analysts have discussed.

As we move into next year, have you thought about further diversification and what that next growth opportunity may be like midstream was for you nine, 10 years ago? And is there any area or sub-sector where demand is high and you have the ability to bulk up or transfer resources there or are you just focusing on the buildings and infrastructure right now?.

Let's try to answer that to. We have already moved some of our staff from oil and gas into other areas. So that has benefited us, where we have moved a lot of our project managers, good projects managers, and kept them busy into our infrastructure and our buildings groups, especially infrastructure.

Our move into the midstream area really wasn't associated with a reduction of the land development market. In the late 2006, really with the strategy we've had all along and the opportunities presented to ourselves, and we saw the uptick of projects, especially in Canada. But right now, we see the opportunities in United States. Midstream is not over.

There are going to be pipelines built in the Canada. So that's kind going to continue. Where the big plus is, there is going to be even more pipelines built in the United States. And the U.S. market has not been hit as hard as the Canadian market has been.

So the area for investment for us continue to have a strong position in all of our sectors, and we believe that there is growth opportunities within that. So we don't believe we need to branch out outside of a sector that we're in. We believe that that's a diverse enough range of services to provide.

It's actually a much more diverse range of sectors that any of our competitors actually work in. We do believe there is some geography spread that we need to get better. And a lot of our business is still local. A lot of our business comes from state and municipalities, especially in water transportation.

So there we see opportunities for further investments. So we still feel strongly towards it and we will be investing in our current sectors in North America rather than branching out it to new sectors. And that's a conservative strategy, but one we know really well..

And then lastly just a quick question, if we could take Western Canada out of the equation, can we quantify how much organic growth was in Central or Eastern Canada?.

And that would be just a total gut feel answer, because we certainly don't have that numbers and we don't look at our businesses that way. I think it would be positive, bottomline. I think we've retracted in Canada overall, that retraction was Western Canada and that retraction was in oil and gas.

The retraction wasn't even in other sectors, I'd say, some of that were stable. But the retraction was oil and gas in Western Canada. Take that out of the mix, and I have to say, the rest of Canada was plus. Now, I couldn't tell you how much, but certainly they would be above zero..

The next question comes from Tahira Afzal..

So as is been asked so many questions about oil and gas, I'll do something much more fun, which is Infrastructure. So can you talk a bit about the growth you're seeing there? Bob, it seems like after eight years there's probably a pretty high chance that there will be a transportation bill passed in the U.S.

Could that sort of accelerate the growth outlook you have for this year into next year?.

Yes, so you're probably more optimistic than I am that you're going to get a transportation bill, but anything significant more than a six month or a two-year extension.

But you're right, if there's a significant change and if there is a significant bill come forward that would even, I would say, increase our optimism beyond what it is today, because today we're basing it off of what we know today. And most of our work is taken state municipal and that's steady.

That would be accelerated I think with an appropriate or with a build that addressed the issues that they had to deal with. So that would be a plus I would say or our current outlook would be a robust transportation bill passed..

If you have that happened, let's say, hypothetically, Bob, alongside the strengths you're seeing on the non-res building side.

Would that be enough to actually accelerate your growth even potentially on an aggregate basis, so you can climb out of that 2% grown into something higher next year?.

Well, it depends, but speaking theoretically, I'll answer, sure, yes. If you have a good bill on a good robust bill, then absolutely there is the pent-up demand for major transportation projects in the U.S., we all know that. If the bill address that, all it's going to do is create bigger opportunities.

I think we're very well-positioned, as well-positioned as any of the bigger players in transportation now in the U.S. and we're continuing to invest in it. So I would say that, yes. That would then increase our outlook even further..

And Bob, what about the water infrastructure side, you touched a bit on that, other areas where you need to beef up a bit, inorganically if you do see that as a sustainable opportunity?.

What we're getting, there's a sustainable opportunity and it's growing to beyond just I think historically where most of our business was, which is in the municipal wastewater treatment and distribution system combined sewer overflows. Those are still strong. Consent decrees are still there. There is some confidence now coming back.

We're seeing a lot of our historical opportunities come. But now, we're starting to see a lot of the flood control, the investments in flood protection and that is a very strong growing business. I mean, you go to California where they have every water problem you can think of, I mean, the droughts that's making it worse.

That's where we probably need to strengthen some of our capabilities as to have a better presence in California. But we're still very bullish on water. Water is the one area that regulatory changes are never going to get less. They're always going to get more stringent.

This requires more of our services, so our water business right now is very strong, very robust and very well-positioned, but we do need to be stronger in many of our states and California is one of them..

Any chance you would look at investing in the coal-ash side of the business there, given that's going from virtually $0 billion, $0 billion in spending to potentially $20 billion?.

I think that's one area we have to say we don't talk a lot about, but that we are probably way ahead than I think most of our competitors in that area. We've been working with one of the largest clients in that area, Tennessee Valley Authority, for the last six, seven years.

Working with them, advancing their repairs and their protection of their coal-ash facilities, we've worked with the EPA and actually developing the regulations that were passed. So we see that as a huge growing opportunity for us and are extremely well-positioned.

Probably, we don't talk about it well enough, but a lot of our clients don't like us talking about it, because the lot of the work they're doing is trying to catch up to those regulations, but that is absolutely a growing part of our business..

The next question comes from Maxim Sytchev from Dundee Capital Markets..

Just a quick question.

Well, actually trying to clarify that the severance, so are you done rightsizing the platform right now or could we see some additional impacts in Q3?.

I think if you saw any impact, it'd maybe very small. As Dan referenced, we've done over 700 reductions, 700 staff in the first half of this year. You would see, if we did, it would be extremely insignificant compare to that number.

We never want to say, we will never have to continue to adjust that, because we're very careful in trying to match our staff to the backlog we have. The backlog is fairly stable right now, but it's also smaller projects that you're done very quickly. So we got to replenish that backlog to remain, to keep double staff.

Right now, we're confident we can do that. But there maybe some slight additional ones, but they would not be near the magnitude we've had to do to date..

So technically, I mean all things being equal, we should see more normalized margin in Q3 even when accounting for typical seasonality.

Is that a fair way to think about it or is that being too aggressive?.

No..

I think that's a fair way to think about it, Max. You should start to see some normalization of SG&A costs about these big one-time hits that we've had to take..

And then going back to Canada, I mean obviously energy is being impacted.

Have you seen any spillover effect, not that Infrastructure is doing splendid obviously, but in your legacy urban land development business, any developments there?.

It's certainly slower in Calgary and Alberta. So I'd say that's more in Alberta and Western Canada, that is a bit of overhang association with the fact that there is less influx of people. But we're doing an awful lot more, I'd say.

Our position in our urban land business in Alberta is much different than it was 10 years ago, where it was totally dependant upon those greenfield projects. We're seeing a lot of newer projects that are a lot more brownfield projects, a lot more projects involved in landscape architecture and planning.

So our impact has been much less superior than it was in the late-2000s when the real estate market caught. It's definitely is, I would say, much more stable. So there's not significant growth, but we don't see significant retraction in that business in Alberta..

And then, I guess, contrary, in the U.S., is the rebound that you're seeing, does that commensurate with, I don't know housing starts sort of in line with that or was it stronger than that?.

No, it's in line with that. I think again, our position in the U.S. is much more diversified than it was back in the late-2000s, where we're very, very dependant upon that greenfield new home development.

So we're capturing our share, if not more of that greenfield projects, but we've also got some other work, master planning and landscape architecture work that helps that revenue. So I'd say, it's in line with the housing and maybe a little bit better than that..

And we're also in a lot more geographies than we were in '08..

And then just real last question.

In terms of capital allocation and given the stock price reaction today, and given the very strong balance sheet, any potential appetite in terms of thinking about returning some capital to shareholders via buyback? Is this being considered?.

Well, the share price reaction today was just today, so it is something that we'll have to talk to the Board about, we'll be meeting them in September. But the short answer is not to date..

And I think we've got some great opportunities for continuing to invest in acquisitions. Our acquisition pipeline is full. Got lots of opportunities to invest and continuing to grow our business.

I think if those opportunities stated, then we would maybe look at that, but I think our prime focus will always be to invest in the growth of the company and continuing to expand our strategy..

At this time, there are no further questions. Please continue Mr. Gomes. End of Q&A.

Thank you. I'd like to close our call by saying that we are proud on how we have faced the headwinds in portions of our business to date and we're confident in our ability to continue to deliver consistent value to our shareholders.

Our diversified plan allows us to provide consistent results and we expect it to continue to assist us in executing on our strategic plan. I'll look forward to speaking to you again. Thank you..

Ladies and gentlemen, this concludes the conference call for today. We thank you for your participation. You may now disconnect line. And have a great day..