Welcome to Stantec's First Quarter 2021 Earnings Results Conference Call. Leading the call today are Gord Johnston, President and Chief Executive Officer; and Theresa Jang, Executive Vice President and Chief Financial Officer. Stantec invites those dialing in to view the slide presentation, which is available in the Investors section at stantec.com.

Today's call is also a webcast. Please be advised that if you're dialed in, while also viewing the webcast, you should mute your computer as there is a 20 second delay between the call and the webcast.

All information provided during this conference call is subject to the forward-looking statement qualification set out on Slide two, detailed in Stantec's management discussion and analysis and incorporated in full for the purposes of today's call. Dollar amounts discussed in today's call are expressed in Canadian dollars and are generally rounded.

With that, I'm pleased to turn the call over to Mr. Gord Johnston..

Well, good morning, and thank you for joining us. Stantec delivered solid performance in the first quarter as we continue to execute on our strategic plan. Our focus on excellence delivered increased earnings, improved margins and strong cash flows.

As we look forward, we're seeing solid signs of recovery, with outstanding backlog growth across all of our business units and a book-to-burn ratio of 1.2 for the quarter. Altogether, backlog grew organically by 5.8% from the end of 2020 and now sits at $4.6 billion.

Our business development pipeline continues to be very active, and we're confident in our ability to deliver on our organic growth expectations over the balance of the year. We also continue to drive acquisition growth in the quarter.

We completed two acquisitions in Australia that together at more than 300 employees and increased our presence there by roughly 20%. With these two acquisitions, we've rounded out our ability to deliver services across all of our key sectors and to deliver upon our growth ambitions in the region. Turning now to our results by key geography.

As anticipated, U.S. revenue retracted organically, largely due to our buildings and transportation businesses. The good news is that the significant increase in wins through Q1 is driving organic backlog growth in U.S. buildings and as a result, we expect this business to swing back to organic growth in the third and fourth quarters.

In transportation, we continue to wind down several major alternative delivery projects, which affected both net revenue and margins this quarter.

However, overall, our infrastructure business is holding its own as a result of the breadth and depth of both the transportation and the community development business and in addition to the significant projects that are already in our backlog, we expect U.S. infrastructure stimulus to become a significant tailwind in future quarters.

We continue to see solid growth in our water business and see growing momentum for increased spending in water from the $350 billion from the America rescue plan that are being appropriated for state and local governments, and they can be used for, among other things water and wastewater infrastructure.

The recent $35 billion Drinking Water and Wastewater Infrastructure Act that's passed the Senate, and a $6.5 billion Water Infrastructure Finance and Innovation Act that's been released by the U.S. EPA. So altogether, we see great momentum for increased water spending going forward. Mining activity in the U.S.

is also increasing with improved commodity prices and our U.S. business development pipeline continued to be very active during the first quarter, driving our backlog up 7.4% organically since year-end 2020.

This was driven in part by multiple contracts worth up to $102 million in work supporting the maintenance and enhancement of California's electrical grid. This work will be delivered through our energy and resources and environmental services business units, where our organic backlog growth approached 40% and 25%, respectively, during the quarter.

Canadian revenue retracted organically due almost entirely to the reduced scope of our role of the Transmountain Expansion Project. This dynamic, which has been incorporated into our guidance, will continue to be a headwind for organic growth in 2021. Offsetting this, however, is growth in our Canadian Buildings business.

The investments being made in Canadian Healthcare facilities is unprecedented and has led to a record backlog in the sector. This drove organic growth in our buildings business during the quarter, and we continue to win new projects like the Cariboo Memorial Hospital redevelopment in British Columbia.

Also during the quarter, we generated year-over-year organic growth in infrastructure from both community development and transportation projects, and we expect continued momentum in infrastructure as a result of recent project wins like the Queens Quay East extension and the Waterfront East light rail transit projects in Toronto.

Strong account management and business development has driven our Canadian backlog up 7.6% organically since year-end 2020, with backlog growth across all of our businesses.

And as in the U.S., energy and resources and environmental services were particularly strong, with organic backlog growth approaching 35% and 20%, respectively, during the quarter. We're also seeing continued strength in Canada's water business, partly as a result of our work on Saskatchewan's Westside irrigation project.

This project is expected to irrigate up to 500,000 acres and more than double the irrigable land in Saskatchewan, and it's also the largest public works project in the province's history.

As expected, global revenue retracted organically compared to the pre pandemic first quarter of last year, and this was largely due to the impact of the pandemic on our buildings business. Our global water business helped to offset the retraction with solid organic growth in the quarter.

The AMP7 programs in the UK and the water frameworks in Australia and New Zealand are running at full Tilt, and we are actively onboarding new employees to meet project needs.

Stimulus funding in the UK and New Zealand continues due to organic growth in transportation and during the quarter, additional work was awarded to our transportation team as part of the ongoing take to North Leven Expressway project in New Zealand.

During the quarter, we announced the acquisition of GTA consultants and then on April 30, we closed our acquisition of Ingenia, and we're already seeing the benefit of combining our teams in Australia in terms of client interest and project opportunities.

Backlog declined organically in our global operations by about 1.6%, primarily due to buildings projects as a result of pandemic-related challenges. We also saw a slight retraction in water backlog as we began to work through the longer-term frameworks that we won last year. I'll now turn things over to Theresa to review the quarter in more detail..

Thank you, Gordon. Q1 earnings were slightly ahead of our expectations, with adjusted net income from continuing operations increasing 3% to $56 million, which represented 6.4% of net revenue. Adjusted earnings per share increased 2% to $0.50 per share.

Our adjusted EBITDA margin rose to 14.7% as a result of improved gross margin and lower discretionary spending. I would note that our Q1 stock-based compensation expense increased by $11 million due to the increased valuation of our share price. This has had a 125 basis point impact on our adjusted EBITDA margin.

In other words, excluding this noncash fair value adjustment, adjusted EBITDA margin would have been 15.9%. Continued strong cash flow generation meant that no draws were required on our revolving credit facility in the first quarter, which led to a year-over-year decrease in interest expense.

Earnings also reflected the benefit of the implementation of our 2023 real estate strategy, which is on track to deliver $0.10 per share and adjusted EPS by the end of 2021. Our balance sheet remains strong as a result of strong cash flow generation and cash management.

At March 31, net debt to adjusted EBITDA remained below our targeted range of 0.8 times. Days sales outstanding was 75 days at quarter end, which is consistent with Q4 2020 and is down 11 days compared to the same time last year. We generated $14 million in free cash flow in the first quarter, when operating cash flows are traditionally an outflow.

This represents a $99 million increase over Q1 2020. And while half of this increase can be attributed to the timing of our payroll in the quarter, the improvement in operating cash flow is significant. As I mentioned earlier, our $800 million credit facility is currently undrawn, giving us significant dry powder to the growth through acquisitions.

With that, I'll turn it back to Gordon to wrap up..

Thanks, Theresa. Today, we reaffirmed our guidance and targets for 2021. Our projected low to mid single-digit organic revenue growth for the year is underpinned with our expectation that Q1's organic retraction should turn the corner in Q2. And for Q3 and Q4, we expect a strong shift to growth.

Bear in mind that we have not incorporated the proposed U.S. infrastructure stimulus into our revenue expectations because it hasn't yet been finalized or passed and we think it will take roughly one to two quarters once this package is approved for revenue to materialize in a meaningful way.

So we see this as a tailwind potentially for the last quarter of this year, but more realistically for 2022 and subsequent years. Before concluding, I'd like to draw your attention to our recently released 2020 sustainability report, which is available for download through the interactive sustainability section on Stantec's website.

This report is a fantastic resource that describes our commitments and actions toward achieving our ESG goals. One metric we're particularly proud of is the degree to which our revenues support the UN Sustainable Development Goals. We continue to lead the industry in providing this data, which for 2020 amounted to $2.3 billion.

This represents 49% of our 2020 gross revenue that's aligned with the UN SDGs, up 7% from 2019, underscoring the key role our skills and expertise play in the global pursuit of a more sustainable future.

And there's also a few areas where we've augmented our disclosure, including enhanced ESG metrics aligned to the sustainability Accounting Standards Board and the task force on climate-related financial disclosures. On the innovation front, last week, we launched our integrated approach to digital services, branded as stantec.io.

Our unified platform combines technologies like machine learning, digital twins and parametric design, with our subject matter experts to accelerate and enhance our solution delivery.

Finally, we continue to support our global employee base in every way we can as the pandemic continues to evolve and I just want to take the moment to thank all of our employees for their continued commitment and diligence in supporting our clients and colleagues around the world. So to wrap up, the quarter delivered as we had expected.

Net revenue retracted compared to a pre-pandemic Q1 2020 as we've been messaging for the past few quarters, our EBITDA margin improved, adjusted EPS was up, free cash flow generation was very strong, and our balance sheet is in great shape, and organic backlog grew 5.8%, all of which supports the reaffirmation of our 2021 guidance.

This coupled with a strengthening global economy and the potential for additional infrastructure stimulus, we believe, provides a solid tailwind for the remainder of 2021 into 2022. And with that, we'll open the call up to questions.

Operator?.

Thank you. [Operator Instructions] Our first question comes from Benoit Poirier with Desjardins Bank. Please go ahead..

Yes. Thank you very much, and good morning, everyone. Just with respect to organic growth, obviously, in Q1, this has been a tougher compare versus last year. Would you expect organic growth to become positive in Q2? And with respect to organic growth for energy and resources, could you maybe quantify the impact of TMX on organic growth? Thanks..

Yes. Thanks, Ben. Good morning. The -- firstly, as we think about Q2. As we said in the prepared remarks there, I think that Q2, from a net revenue perspective, again, it will be compared to Q2 2020, which was a pandemic influence quarter.

I think it's going to be flat, to slightly positive in Q2 and then we'll see, I believe, good organic growth in Q3 and Q4 based on the backlog and those things that we are talking about and that should then result in that low to mid-single-digit organic growth that we've been talking about for the year and it's interesting, as you mentioned, E&R, like the backlog growth in E&R this quarter was truly exceptional.

The impact of the TransMountain job, it's interesting. In Q1, while we saw that Canada had about a 7.6% retraction in net revenue.

If we had taken out the impact of the revenue that we had generated from TransMountain in Q1 the previous year, Canada would have been flat and it would have taken roughly, overall for the company, would have been about 5.4% instead of 7.4% retraction.

So from a net revenue perspective, it's significant and we see that about 2% as a headwind that we'll see even for the full year. From a company perspective, we'll see on a 2% headwind in organic growth because of the removal of that revenue from TransMountain.

But even factoring that in, we reaffirm our commitments to that low to mid single-digit organic growth for the year..

Okay. That's very good color, Gord and now for Theresa, in terms of capital deployment, you were not active in Q1 despite having a leverage ratio well below your targeted levels and showing strong free cash flow number.

So I'm just wondering how should we read into it? And could be explained by big aspiration on the M&A front or more because the stock is at certain level in Q1?.

Yes. The capital allocation strategy remains consistent from what I've stated in the past and so we really are focused on directing our capital toward M&A growth. Gord will tell you that there's a lot of activity there.

The pipeline remains full for various targets that we are looking at and so from that perspective, retaining that capital for that purpose is our priority.

The share price was pretty strong in the first quarter and so overall, we continue to look for opportunities to purchase shares that to the extent we see a bit of a dislocation in the market and so that remains as well an opportunity for us when we believe the timing is right, but it really is around acquisitions that we'll be looking to allocate our capital..

Okay. That's great and last one for me. Free cash flow typically is negative in Q1. It seems the good performance was driven by better working capital movements in Q1. So would -- is it a fair statement? And what should we expect in terms of working capital movement for the full year versus the plus $79 million reported for 2020 at….

Yes.

So Q1 had to have a couple of interesting things occur and you're right this is, I think the first time in -- I remembering that Q1 has been cash flow positive from an operating standpoint, typically because of seasonality, it drives to being a net outflow and so we do want to point out that it was $99 million of increase year-over-year, that about half of that just was attributed to timing of payroll that went home the day after quarter end and so we don't want to take credit for all of that increase, but the remaining half is reflective of better working capital management and the fact that our discretionary spending has gone down dramatically in -- on a comparative basis and so that has also given our working capital a boost.

So I would expect that it's going to remain strong throughout the rest of the year because operations are solid. We're not seeing any headwinds from an operations perspective that will disrupt our cash flows.

The focus on DSO remains, and our team is just doing a fantastic job of being focused and continuing to find opportunities, to keep DSO at the level that it's at now. So overall, I think it should be positive for the year..

Okay, that's great. Thank you very much..

Thank you. Our next question comes from Yuri Lynk with Canaccord. Please go ahead..

Hey, good morning. Gord, I wanted to chat a bit on the American Jobs Act. Obviously, the -- it featured pretty prominently in your prepared remarks, if it gets passed.

I mean, what do you -- how do you feel the industry and Stantec, in particular, is equipped to meet what looks to be double-digit growth and end market demand, given just the size of the program. So you said you might -- you anticipate some impact within one or two quarters of it being passed.

So how do you see growth going forward and where Stantec plays in that?.

Yes. So we've been giving a lot of thought to. You're right, there's the American jobs plan. But even in some of the other ones, the American Rescue plan has $350 billion in direct funding to state and local government that they can use on a number of COVID-related things, but one of which, of course, is water and sewer infrastructure.

There's some of the other potential stimulus as well. So with the American jobs plan layered on top of that, we see that as a really, really strong tailwind. It's the latter part of this year, but certainly even into 2022.

So we've been spending a lot of time thinking about how would we, as a company, we're very good at moving work to different locations. How would we even continue to improve on that.

So how do we share work even better with Canada, Australia and New Zealand, the UK, how do we ramp up our operations in Pune in India to help support a lot of these things because we do think we're seeing it now.

The labor market is beginning to get tight already, which is one of the reasons why we spent so much time early on in the pandemic, investing and communicating with our employees. We've seen a decrease in voluntary turnover rates. But we really wanted to make sure that our staff feel valued.

They feel that Stantec has treated them right through the pandemic. So that when we all collectively emerge from this, we'll be a net beneficiary of bringing stuff into Stantec rather than being an exporter of sell. So that, combined with our ability to move work around to our various global operations.

I think are some of the things that we're looking at as a way to be able to staff up for what we believe is quite a wave of opportunity to come..

Yes. Just on that, I mean, given the size of what's being contemplated in that Act, if it were to be passed in its current form, do you envision a time where your U.S.

business, particularly your water business would be growing at double-digits organically?.

All of the various programs that have yet to roll out, but you can see already our water was – has been up every quarter over the last couple of years, 3.7% again here. So to stretch to double-digits is possible in water.

I would also see transportation as a net beneficiary where we could see some significant growth in transportation, public transit, coastal resilience, a lot of these things.

So I think from my gut, that those will be the two net beneficiaries, in addition to some of the clean energy work that we're getting out of our power group and our Environmental Services Group to support those..

Okay. And last one before I turn it over. Just continuing on this theme. I mean, how would you -- what do you have to do to prepare for potentially double-digit growth in some of these end markets versus how you're positioned now? Thanks..

Yes. So a couple of things that we've talked about for 2021 is that this was a year that we came into really focusing on growth.

So certainly, growth from an M&A perspective, but also growth from an organic perspective and so what we want to ensure is that we're going to get our fair share and then more and grow market share through as these things come out. So again, it's really cranking up our organic growth machine in terms of -- some of these will come out in P3.

So talking about contractors about teaming up already. As we begin to think about what some of the projects we're already in, talking to some of the clients about that. As we chatted about just earlier on there, really thinking about how do we begin to share work among the various geographies.

So these things are all under active discussion now, just to make sure that we're ready to take advantage of this when it comes. Yuri Lynk -- Canaccord -- Analyst Thanks Gordon. I'll turn it over..

Great. Thanks Yuri..

Thank you. Our next question comes from Sabahat Khan with RBC Capital Markets. Please go ahead..

Great. Thanks very much. Just on the U.S., I guess, one of the themes we heard coming out of Q4 reporting was some of the clients in those end markets were just being cautious until they better understood the priorities of the new administration.

Can you maybe give us some insight into the conversations you're having, understanding some of these builds have in the past. Where are you seeing movements, which end markets are still being a little bit cautious? Just some color on the pipeline and the conversations you're having..

Yes. I do think that there's a lot of optimism among our clients there. When you look at different transportation agencies, both roadways and public transit, certainly water some of the state and local governments.

There's a huge backlog right now of opportunities that we've got out in the transportation space already, but there are some agencies that are waiting to see a little bit what's happening from a funding perspective.

So -- but that said, our backlogs in water and transportation overall as a company, are strong and will carry us through the remainder of 2021, in any event, really even absent significant additional projects coming in the door.

So as we talked about, I see the organic revenue strengthening to flat to slightly positive in Q2 and then continued growth through Q3, Q4 and just really a solid tailwind as we go into 2022..

Okay. Great and then just on your water comments there. I think you mentioned in your commentary earlier that you are working on some of those larger wins. I guess to kind of replace some of that pipeline over the 12, 24-month period, would it have to be some of this funding going into some of these U.S.

water projects? Where do you see sort of the opportunity in the water space as you kind of cycle through some of the framework agreements you want in the UK?.

Yes. So a lot of those, the UK and the Australia/New Zealand frameworks have been awarded. They've been contracted. So we see that in backlog already. We're continually getting new awards, and they will continue to grow backlog. But the big backlog growth opportunities really are in North America.

A lot of great coastal resilience opportunities down in the U.S., particularly in the Gulf area. A lot of work related to shoreline hardening, shoreline strengthening, a lot of treatment work as well, PFOS and these sorts of things, we're seeing more and more discussion related to how can we treat for those things.

So I think, overall, the market is pretty robust. We'll see good growth in water and I do believe we'll see good backlog growth in transportation through the remainder of this year as well..

Okay and then just last one for me. Just digging into the commentary around having to maybe add on staff, I guess, if you can give us some color about end market.

Where in the U.S., across your end markets are you well staffed, where do you see the need to maybe hire more people given what the opportunities are, I guess, I just want to get an understanding of where you'll be….

Yes. So we're actively recruiting. When you look at our number of open postings, we're up well over 1,000 from this time last year. So we're actively recruiting in Canada, the United States, UK, Australia, New Zealand, all of those locations.

But in North America, as we've talked about, for us, a big part of it is how do we share work between different geographies. So we're primarily looking for the right people and if we can get them in some of the growth geographies, Texas, the coast, we'd love to get them there.

But if we can get them in other locations, we'll take them there as well with our ability to share work around. We just are more interested in getting the right people and then, of course, geography would be secondary to where we look. So we're looking to hire additional people in water, in transportation, in buildings.

Certainly, our power sector is very actively looking for additional staff, as well as our Environmental group. So we're seeing, as we see organic growth ramping up through Q2, Q3, Q4, our hiring will be ramping up to support that..

Sorry, if I could just squeeze in one more. Just on a comment around sharing some of this work, I guess, what some of these bills, do you foresee there might be some of this made in U.S. element? Or do you have enough staff in the U.S.

and then you can send some periphery work out to some of these centers? Just as an industry, I guess, you see that as a potential concern with more government dollars coming into the industry?.

Yes. Just – when you look at some of the bio-American provisions, they seem to be mostly related to products and less related to the services and industry. Now there are some works that we do for the U.S. Navy and other armed forces groups that have a requirement for a certain number of U.S.

citizens to be involved in their security requirements and so on, but in general that doesn't seem to be a significant impediment to us being able to move work around..

Thanks very much. Helpful..

Great. Thanks Saba..

Thank you. Our next question comes from Jacob Bout with CIBC. Please go ahead..

Good morning..

Good morning..

I had a question on the -- your new digital solutions platform, the stantec io.

How big of a revenue driver do you think this will be? Do you plan on breaking this out into a separate division? And what percentage of this platform do you think will be a recurring revenue type model? I see that you're offering a subscription services as well as part of this division?.

Absolutely right. Yes, so we do see that software as a service and these annual subscriptions as think that it will be in every evolving and increasing amount of work -- amount of revenue generation in a number of spaces.

Certainly, in the water industry, we see it being good opportunities there through some of the financial analysis models that we've got through some of the models that we're using, working with clients as they're modeling stream, stream flow, down breaks and all these sorts of things.

So in terms of how big could it get, we're still just exploring that, I think, Jacob, and we see that it will take -- that will be something that will evolve over time, but now we've got -- we've brought together roughly 40 different platforms that we had. Some are much larger than others, of course, but bringing it together allows us to co-brand it.

I think to give us the opportunity to even more cross-selling and for everyone to understand what we have and what we can offer to our client base. So I think it's an important step. I think it's going to be – become even more important from a revenue-generating perspective as we move forward.

But we're still – I think determining what percentage of revenue it could be because it will be different by water versus buildings versus transportation and so on. So little early for us to maybe come up with those projections now. But we do see it to be an important part of our strategy in the years to come.

So our plan is that also that we won't break it out separately. That the products that we have that are related to water will still be revenue generated within water, goes in transportation, still revenue generation within transportation. So it wasn't our intention to break it out sort of as a 5th business operating unit at this point..

And do you have a stand-alone group that provides this digital solutions platform? Or is it more of an integrated type model that you're using?.

We do. It's really coming as part of our overall innovation team. We have a couple of folks that are helping to pull this together, looking at how we can design these common platforms going forward. So it is a dedicated group..

Okay and then the impact of the wind down of a number of these large-scale U.S. transportation projects.

How much of a headwind will that be in the second quarter?.

It's interesting. If you look at infrastructure and the organic retraction over the last number of quarters, each quarter, the organic retraction becomes less and so I think that that's what we'll see going forward that these things have a tail.

Sometimes it's a long tail, but it does get a little bit less of an impact each quarter and we're still – as we're doing this work. We are submitting change orders. So that change order negotiation process will take some time and will we get everything we ask for, likely not, of course.

But we do see the opportunity for some pickups and we hope we see that in 2021, but likely more so into 2022, we'll see a pickup as a result of some of the costs we've already incurred as we negotiate those change orders and get paid, we should get some inflows subsequent quarters..

I'll leave it there. Thank you..

Great. Thanks Jacob..

Thank you. Our next question comes from Frederic Bastien with Raymond James. Please go ahead..

Good morning everybody..

Morning..

Gord, I was intrigued by your comment on the unprecedented investment levels in Canadian healthcare facilities and probably because many super hospitals have already been built.

So I was wondering which segments that particular market are you seeing momentum?.

Yes. Certainly, your neck of the woods, Frederic. There's the St. Paul's Hospital that we're engaged with in Calgary, we're working on the Calgary Cancer Center. In Toronto, there's a number of new hospitals we were awarded there. We talked about the, let's say, the Caribou Regional up in British Columbia there.

So those – plus just the number of opportunities that we see coming. It's from both a Canadian and also an Australian perspective is where we really see significant uptick in the healthcare business and so we've got some additional awards as well that we haven't yet put into backlog or disclosed.

So we just see that great opportunities coming in the healthcare space that certainly is keeping our Canadian groups busy and we're sharing work at this point with our U.S. group. But some good awards, as we mentioned in the prepared remarks, in the U.S. as well, that I think is going to turn our U.S.

buildings business into positive of organic growth in the last half of – on a quarterly basis on the last half of the year also..

Good and you're hearing governments pretty much everywhere talking up long-term care and how much money that you're going to put into that sector.

Are you well positioned to participate in any of the growth that might result from that?.

Absolutely. Whether it's healthcare overall, whether it's long-term care facilities or larger or smaller hospitals, our healthcare group is very, very strong and so very well positioned for that really, from a global perspective. So we're looking forward to some of those opportunities coming along as well..

Thank you..

Great. Thanks Frederic..

Thank you and our next question comes from Chris Murray with ATB Capital Markets. Please go ahead..

Thanks folks. Good morning. So just maybe thinking a little bit about the product portfolio going forward. In your energy and Resources business. So this has been one of the more cyclical parts of the business, I guess, for a few years now and it certainly sounds like TMX is going to shrink a little bit.

Can you just talk a little bit about how you think you want to shape the energy and resources business going forward? And I'm also thinking about things like carbon capture, storage, hydrogen and some of your other ESG goals in that context..

Yes. So it's – as we saw this quarter, with changing our contractual relationship on TransMountain, we're really – we're just not running all the independent contractors through Stantec. That's why the revenue has decreased from an oil and gas perspective.

We're still doing all the other work that we were doing previously, but we see a real pivot on the power side. We've talked before about the work that we're doing in renewables, in solar, in wind, in pump storage and so on and we talked in the U.S., this quarter, we got up to $100 million project to strengthen the grid in California.

So we're seeing a pivot really on the power side, particularly to clean power. In mining, we're seeing certainly do the increase in commodity prices, copper, iron ore are at – certainly at significant peaks from where they have been over the last number of years.

But we're also seeing our mining products pick up into other areas that do support the long-term transition also to cleaner energy sources. We're doing some work on lithium mines in Central and South America required, of course, for battery storage.

So I see that over time that the power group will continue to grow our mining group, particularly with – as we talked about with Engenium and some of the opportunities that they have. That transition to sustainable mining and so on as well as our WaterPower & Dams group will continue to grow, and we're seeing that already. So.

I think just over time, we're not planning in any way to divest or get out of oil and gas, but I just see the other groups probably growing at a higher rate than we'd see in the oil and gas sector..

All right. Fair enough and then going back to M&A and your original comments, I think, earlier this year, thinking about how you wanted to see growth, I guess, for the full year. Certainly, we've seen some really neat little tuck-in acquisitions, but I guess going back to thinking about the rate of growth that you want to be able to achieve.

I guess a couple of pieces of this. I mean, one, I'm assuming you're still thinking about that, that's what you want to try to get to this year.

But two, how is the M&A process been evolving now that in a lot of ways we're moving past some of the call it, COVID complications with getting some of the overview and transactions done?.

Yes. We're still very active. Certainly, in the M&A space. We've seen our balance sheet is really strong, of course. But if we really are continuing with our strategy as it is, we're being very disciplined as we're reviewing firms, certainly looking because we need these to be successful from a long-term perspective.

So we're sticking to the geographies that we talked about, Canada, even more so the United States, looking into the U.K., the Nordics, Denmark and Australia, New Zealand and so on and the pipeline of firms that's come to market right now is really, really strong and there are some larger firms as well that are beginning to come to market.

Some of them are PE exiting at the end of their investment horizon. So we're having a good look at all of these things as others are as well. While they spend to PE again, will they come out to a strategic, these are all decisions that are things that we'll have to continue to assess. But certainly, our appetite for continued M&A growth is strong.

Our balance sheet is strong and so we are – we will participate in having a look at these acquisitions, whether they're in our typical sweet spot of less than 1,000 firms, less than 1,000 people, but some of the larger ones as well. But it's really, for us, it's maintaining that continued discipline as we move forward..

Okay and has your ability to do due diligence improve did any, in any way, shape in the last maybe few months?.

I think over the pandemic, and even before that, we were really looking at how to improve our opportunity to diligence these potential acquisition targets from a global perspective. So I think our organization is much more mature now in terms of our U.K. and European operations in terms of our Australia and New Zealand operations.

So we have the ability to diligence those potential acquisitions, using local are certainly in any event, regional resources, and we don't have to send people from north America to do that.

So I think that's been maturing and a strengthening of the overall organization, certainly, maturing and strengthening of it from an M&A and a diligence perspective..

Okay. That's helpful. Thank you folks..

Thanks Chris..

[Operator Instructions] And our next question comes from Michael Tupholme with TD Securities. Please go ahead sir..

Thanks. Good morning. I was hoping you could provide an update on the progress you've made in terms of your real estate footprint optimization..

Sure. I guess what I'd say is that we are a couple of months into a three-year planned execution. So with still a large portion of our workforce working from home, there hasn't been a lot of movement per se in terms of folks coming back to the office.

What we have done over the last couple of months is communicated with our staff, who have been very welcoming of this possible workplace arrangement and having discussions with staff around at the individual level, what's appropriate for them, given their role, given where they are and starting to map that out.

So everything is on track, but it is early days..

Okay, thanks for that and next question is just, I guess, somewhat of a follow-up related to M&A, which you've already touched on, Gord. Just a question about the Australian market. You've been fairly active there with acquisitions.

I'm wondering if you can just comment on how you feel about your footprint in that market now and how much more additional acquisitions in that market you think you may or may not need if you're comfortable with where you're at now? Or it's a continued focus region for you in terms of further M&A?.

It is a region of continued focus for us. I think now we have a good water platform there. We have a good transportation platform. Certainly, mining is good. Buildings are strong. But we have continued opportunities to grow in environment, certainly, continued opportunities to continue to grow in transportation, even in water.

So really, the majority of our business groups there, we could continue to grow and we do see Australia and to a lesser extent, New Zealand has a great opportunity for us to continue to deploy some capital toward M&A..

Okay and have you started to realize some cross-selling benefits as you've been there now for some time and layered in additional acquisitions?.

Absolutely. Yes. The – with bringing on Engenium in the mining space, in both on the East and West Coast, we have an environmental presence as well and so we see great opportunities to tie that environmental group in with the client base that Engenium had.

We're seeing a lot of cross-selling even between our transportation business and water and buildings. So we're really getting the benefit of adding these additional resources down there and so that's why I think it's so attractive for us to continue to grow through M&A to sort of fill out our space there a bit..

Okay. That's helpful. Thank you. Just a question regarding organic growth. I know you had been calling for a retraction in Q1, and you reiterated your full year organic growth target range.

I'm just wondering, though, if your assessment of risks around being toward the top end of your organic range for the full year versus the bottom end if that assessment has evolved at all since last quarter considering sort of the start you had to the year with organic growth..

Yes. I think we still see that we would target it guide into that low to mid organic growth. With the also the caveat that as we mentioned early on there, that in taking out the revenue that we had generated from TransMountain, is about just approaching a 2% headwind to that organic growth. I'll – for the year already.

So while we say low to mid, we're reaffirming that, even with that approaching 2% headwind from TransMountain..

Okay, got it and then lastly, Theresa, you had talked a little bit about stock-based compensation and the increase year-over-year.

What had you included in your 2021 EBITDA margin guidance range for stock-based comp when you set that range?.

We would have based it on sort of the prevailing share price at the time that we were preparing our budget and our forecast.

So we've seen, as you know, was a pretty significant increase in the share price since January, February and so that's kind of what's driven to the range of that and our path is to not trying to predict where it's going to go in the year, which are based on what the prevailing price is.

So that increase was a plant of surprise, but did create a headwind on our EBITDA margin..

Okay and so based on the price of the stock at the time that you've been developing the budget, would that have sort of led or like you to be forecasting kind of flattish stock-based comp year-over-year, whereas, in fact, now, it's at least the start of the year, it's coming in higher?.

Yes, that's right..

Got it. Okay. Thank you..

Okay..

Thank you. We have no additional questions at this time. Mr. Johnston, I will now turn the conference back to you for any closing or additional remarks..

Great. Well, I just wanted to say thanks, everyone, for joining our call today and we look forward to continuing to connect with you in the near future and talk about our continued progress. So on behalf of Theresa and I have a great day, everyone and stay safe. Thank you..

Thank you very much..

And this concludes today’s call. Thank you all for your participation. You may now disconnect..