stantec/1199 moderator: bob gomes september 24, 2014 3:00 … · 2019. 5. 15. · stantec/1199...

STANTEC/1199 Moderator: Bob Gomes

09-24-14/3:00 pm Confirmation # 9679563

STANTEC/1199

Moderator: Bob Gomes

September 24, 2014 3:00 pm CT

Operator: Welcome to Stantec, Inc.’s conference call. With us today from Stantec Management are Bob

Gomes, President and Chief Executive Officer and Dan Lefaivre, Chief Financial Officer. At this

time all participants are in a listen only mode.

Following the presentation we will conduct a question and answer session. At that time

participants are asked to press star 1 to register their questions. Please allow time for everyone to

ask a question. As a reminder, today is September 24, 2014.

And this conference call is being recorded as well as broadcasted live over the internet. It will be

archived for future reference, at www.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 from the individual concerned.

Stantec Management would like to caution you that this call might include forward looking

statements and forward looking information within the meaning of applicable US and Canadian

Securities laws.


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By their very nature, forward looking statements require Stantec Management to make

assumptions and are subject to inherent risks and uncertainties. In addition, Stantec Management

will be mentioning additional and non-IFRS measures.

I would now like to introduce your host Bob Gomes. Please go ahead sir.

Bob Gomes: Thank you (John). Good afternoon everyone and thank you for joining us today. We were

very pleased to announce this morning that Stantec has made an offer to acquire the Canadian

engineering operations of Dessau.

We thought we’d take this opportunity to discuss the transaction further with you and address any

questions you may have. Dan will speak to you about the structure of the transaction and I will

follow with an outline of the strategic rationale. We will then address individual questions.

Dessau Engineering is a multidisciplinary civil firm based in Quebec. It ranks amongst the world’s

top 60 engineering firms. Our purchase is for the assets for the Canadian engineering operations

only with the employees from 20 offices throughout Quebec and two offices in Ontario.

With the addition of the Canadian engineering business we will be adding almost 1000

employees to Stantec. Their Canadian engineering business is an excellent fit for Stantec. The

strong technical team that will join us is in a geography where we’ve had limited presence.

So we’re excited for the local relationships their engineering team offers and the rounding out of

our national presence. Dan will now provide an overview of the transaction. Dan?

Dan Lefaivre: Thank you Bob. Good afternoon everyone. As Bob mentioned, our offer is for the Dessau

Domestic Engineering Division only. Bob mentioned 1000 people but it’s actually 1300 people

who will be coming over with this transaction.


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Stantec is not assuming any historical claims or issues related to the past industry integrity

practices. The due diligence process has been thorough and we are pleased with the technical

expertise as well as the business practices currently in place.

We expect this transaction to close in the first quarter of 2015 though it is subject to competition

bureau review and Stantec obtaining AMF certification which will allow us to propose some public

sector projects in Quebec.

This transaction is structured as an asset purchase that is the existing client projects,

relationships, work backlog equipment and of course the people.

The full purchase price utilizing cash on hand and credit facilities, will be paid on closing, followed

by a 90 day adjustment mechanism for working capital. As is customary, in private transactions,

we do not disclose the financial details of this transaction.

We expect the addition of these operations to add approximately $130 million in net revenues for

2015. We expect operating margins to be slightly lower than the rest of our Canadian business.

However, we will be confirming these assumptions as we work together to develop our 2015

budgets.

We expect this transaction to be accretive after the first year, taking into consideration the

integration cost and amortization of intangible assets. Bob?

Bob Gomes: Thanks Dan. I would now like to speak a little bit about why this is a great opportunity for

Stantec. This proposed acquisition offers us a number of compelling strategic considerations.

First, it fills out our geographic presence in all Canadian markets without any overlap.


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Its current business mix is extremely similar and complementary to our current business mix. We

see great opportunities for cross selling our services and building on the synergies with our

existing expertise across Canada.

With Stantec’s strong community focus this acquisition builds on the strength of our local

positioning by adding a significant presence across Quebec and further supplementing our

Ontario presence. Together we will now have full capability to service national clients across the

country.

And we position in the top service providers in each of the communities we serve. The second

compelling reason is that the firm is a great cultural fit for Stantec. The culture and capabilities

complement our existing business in Canada.

It is a strong technical firm and stays within our design focus and risk profile. Like Stantec, the

firm was established in the 1950s. Like Stantec they have always strived for engineering design

excellence.

And like Stantec, they have strong relationships with their clients who include Public Works and

Government Services Canada, Transport Quebec, Hydro Quebec, McGill University, (TELUS),

Rogers, Bell and Pratt & Whitney.

Their engineering and expertise will provide a strong complement to our work in healthcare,

water, power and energy, roadways, bridges, airports, transit and rail and community

development sectors while introducing new services in telecommunications and security.

The third strategic consideration is the potential opportunities for growth we see in the Quebec

market.


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Quebec has approximately a quarter of the Canadian population, a large infrastructure market

and two of the largest metropolitan areas in Canada, with Montreal being the second and Quebec

City being the seventh. It is and has been a large infrastructure market.

And we are confident the timing of our entering is appropriate for the evolution of Stantec as well

as for the engineering and construction industry in Quebec.

On the public side, a majority provincial government has recently been elected for the continuing

priority on infrastructure and a confirmed, long term, $90 billion infrastructure budget.

The P3 market where Stantec has a strong position, is active in Quebec with a number of

transportation civil projects outlined for coming months and years. Now, while we recognize the

potential in the Quebec market, we have additional considerations in pursuing this acquisition.

It is not news that there has been ongoing Quebec construction - corruption inquiries. We knew

that going into this opportunity. One of Stantec’s core values is we do what is right.

This drives the way we conduct our business and that is the same for any acquisition transaction

we engage in. We did our due diligence, applying Stantec’s highest level standards for ethical

conduct. Their team has gone through a difficult situation in the past two years.

However, they have come through these events as a better, stronger and more engaged group.

And we are proud to include them in the Stantec team. This transaction will be a positive step for

both parties.

Stantec brings strength of management and together we have a strong commitment to ethics and

integrity. Our strengthened platform will increase our company’s capacity to deliver results, now

with a comprehensive community presence across Canada.


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This acquisition will also bring opportunities for growth for all of our employees. This concludes

our comments for today. Dan and I are now available to answer any questions you may have.

(John), the conference call operator, will explain the question procedure. (John)?

Operator: Thank you. Ladies and gentlemen, if you have any questions at this time, you may press the

star followed by the 1 on your touch-tone phone. If you are using a speakerphone today please lift

the handset before pressing the cues.

Once again, ladies and gentlemen if you have any questions you may press star 1 at this time.

One moment please for our first question. And your first question today will come from Bert

Powell with BMO Capital Markets. Please go ahead.

Bert Powell: Thanks. Bob, 1300 employees today - I’m assuming given Dessau’s track record and what’s

going on in Quebec that that was significantly a higher employee headcount a year ago. I’m just

wondering if you can get - give us a sense of what’s happened for that in a year.

And do you feel that you’ve got this at the bottom that you’re in a position to start adding heads?

Bob Gomes: Well they certainly have had to rationalize staff and there has been a staff protraction over

the past year as they’ve gone through their processes. I don’t know the exact number actually

Bert, because, you know, we are really extracting the engineering component out of Dessau.

So I’m not really sure. But certainly in talking to the people here there certainly has been a lot of

staff reductions.


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And yes, I think when you say acquiring them at the bottom, I wouldn’t say at the bottom of their

performance, I would say at the bottom of that rationalization certainly we see opportunities of,

you know, immediately adding to the staff complement to be able to chase additional projects.

So we’re definitely looking forward to this growing immediately out of the gate. We don’t see any

further rationalization or reduction in staff being necessary.

Bert Powell: Okay. And then what - can you just give us a sense of what consortiums they’re a part of?

Like where does this position you now on Champlain Bridge or (Tercott) in the, you know, the

Quebec infrastructure side of things?

Bob Gomes: Well there are - they are involved in consortiums for both those projects. So to tell you the

truth, I’m not sure of the amount of work they’re doing. But I know they’re doing a variety of

different services on both of those projects. So that certainly is a plus for us.

As we move into 2015 we’re going to be able to be part of those teams where today we’re not. So

certainly that gives us some great opportunities of leveraging their presence in those two projects

to potentially even doing more work.

Bert Powell: Did you - could you quantify what that could mean to you as part of - as part of, you know,

the decision to go ahead and acquire Dessau?

Bob Gomes: You know, those two projects are only two of many opportunities. So no, we really - I don’t

think we’ve placed specific growth opportunities on specific projects like that. It’s more of a

generalized view of how we feel we can grow the business going forward.

Bert Powell: Okay. And last question is I recall Dessau is - like three quarters is public service is typically

what they’ve done as their revenue. Is that - is that substantially the fact?


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Bob Gomes: I think it may be a little less than that. They - roughly 50% of their business is transportation

which therefore would be for the public sector. And the rest of their business is in buildings and

energy of which I would say the majority of that is for the private sector.

So I would say it’s less than 75 and more than 50, somewhere in that range.

Bert Powell: Okay. Oh great. Thank you.

Bob Gomes: Thanks Bert.

Operator: Your next question will come from Tahira Afzal with Key Banc. Please go ahead.

Tahira Afzal: Hi, good evening Bob and team and congratulations. A big acquisition.

Bob Gomes: Thanks Tahira.

Dan Lefaivre: Thank you Tahira.

Tahira Afzal: I guess my first question is, you know, when I look at Quebec from my little experience, you

know, the employment rules over there are slightly different and, you know, given personnel

utilization and being nimble around that as end markets fluctuate, it’s important to your sales in

terms of numbers.

Could you - could you give me an idea of how you’re approaching that and how similar it is and

how you’re going to be approaching utilization in a sense?


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Bob Gomes: Actually we don’t see, you know, that - that part of the business being vastly different than

our other businesses. Utilization obviously is - is always prime importance. And the way that

Dessau operates today is very focused on that.

They move staff around within their own capabilities within their 1300 people they have. What we

believe is by widening the base of the operations, we actually could deal with their utilization

issues better by utilizing their capabilities on projects in Western Canada.

They have a strong bridge capability that we feel we can leverage across North America as well.

So actually it gives us - gives us and them a better opportunity of dealing with that utilization

exercise and equation by broadening the capabilities and geographies that they work in.

Tahira Afzal: Got it. And I guess my second question is in line with what you just mentioned Bob that, you

know, size where it comes to engineering is important, skill is important.

So as - as you look at this particular acquisition and really your size in the whole industry going

forward, what has the reaction of the customers been today?

And I know it’s still early but has it been favorably received in terms of now you guys can maybe

gain some market share on some of the larger projects out there?

Bob Gomes: Well certainly in this transaction I mean with all transactions but even more so in this

transaction, a key part of our due diligence was talking to the clients and trying to get a feel from

them how they would - how they would look at this transaction.

And we can say too, every client we’ve talked to has been very happy. This, from their

perspective, brings some stability to Dessau, who they feel is a very strong service provider to

them. They’re happy with that consultant that they were concerned about the future.


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Stantec basically has now stabilized that. And immediately a lot of them have said that, you know,

we are worried. We now will be able to provide and award more projects to Dessau.

So we find, you know, that it’s not maybe as a matter of size. Yes, we feel that having larger

teams you can bid on larger projects. But, you know, I don’t think there’s a firm out there that

uses all of their project - all of their people on one - on one project.

It really comes down to your relationships that you have at that ground level and then how you

can leverage that relationship to allow you to bid on bigger projects.

And so they have a very strong, very long relationships here in Quebec that we feel that we have

the capability of leveraging by now selling them additional services.

For example, environmental where they don’t have an environmental capability of doing

environmental impact assessments and environmental audits.

We have a very strong team across Canada that we can now bring that expertise into Quebec to

those very clients that we’re doing transportation work for. So that’s a simple example of some

very immediate cross selling that we feel we can execute on.

Tahira Afzal: Great. Congratulations again and that’s all I have.

Bob Gomes: Great. Thanks Tahira.

Operator: Your next question will come from Sara O’Brien with RBC Capital Markets. Please go ahead.


09-24-14/3:00 pm Confirmation # 9679563

Sara O’Brien: Hi. Good afternoon. Can you talk a little bit about the timing of closing in Q1 ’15? Is that

just to allow you time to get the AMF permit to do business?

Dan Lefaivre: Yeah. Exactly Sara. We started that process some time ago. We have to let the authorities

do their work and we’re hopeful that we will have that in place by the end of the year.

Sara O’Brien: Okay. And then just to be clear, because you’re buying the assets, there’s no liability from

your standpoint, on Bill 61 or any kind of penalty payments that will come out of Dessau’s past?

Dan Lefaivre: That’s certainly an area that we’ve tried to put a wrapper around. And we don’t expect to

see any of those liabilities come our way.

Male: Yeah. The Dessau Group is still going to remain...

Male: The parent company.

Male: ...the parent company. It’s still going to be there as an active company. We’re acquiring their

engineering assets which essentially are the people and the things they need to do their work and

the contracts. So Dessau Group will still remain as Dessau Group.

Sara O’Brien: Okay. And I know the structure was - there was quite a wide ownership. I’m just

wondering, do - do the people like I think 125 or so within Dessau, do all the leaders within the

engineering practice go with Stantec through the deal?

Male: Yes. Yes.

Sara O’Brien: Okay.


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Male: All the engineering leadership comes with the deal.

Sara O’Brien: Okay, great. And just maybe one last one on utilization. You commented on a couple of

opportunities. Is that the biggest - is that where the biggest margin improvement opportunity

comes from? Or is it sort of the standard back office integration that also allows for some

synergies?

Male: Yeah. You know, I don’t think that we’re going to see a lot of back office synergies. We are going

to, you know, what they needed to operate their business we will still need going forward. We will

and do plan, to integrate as quickly as possible once we get past the closing.

But the synergies, utilization, once we have visibility into the business are things that we manage,

as you know, regularly on a day to day basis.

Male: Yeah. Certainly this transaction is obviously, from our perspective, 100% a revenue generation

where we’re looking at the upside of cross selling and building better revenue. There really isn’t

any cost savings at all in this. They - they have capable back office we do.

If anything, we may be hiring markets. So it’s certainly we don’t see that as a cost issue. Really

it’s - the upside is the cross selling and bringing other services into Quebec and leveraging their

relationships.

Sara O’Brien: Okay, great. That’s it for me.

Male: Great. Thanks Sara.

Operator: Your next question will come from John Rogers with DA Davidson.


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John Rogers: Hi. Good afternoon.

Male: Hi John.

John Rogers: A couple of things - just for clarification, is there a noncompete now with the remaining

portion of the Dessau?

Dan Lefaivre: To my knowledge, no.

John Rogers: Okay. And then I guess secondly, how much - I mean within Quebec and relative to

Stantec’s existing business, there’s virtually no overlap. Is that right?

Bob Gomes: Well the overlap we have is they have a strong transportation group that does work. I would

say primarily here in Quebec, we have a strong transportation group but we do very little work in

Quebec.

John Rogers: Right.

Bob Gomes: So it allows us to bring additional capabilities in. But I wouldn’t call that overlap because

there’s a geographic separation. But for example, they do very little environmental work. They do

buildings work but no architectural work. So the overlap is, is very small.

Here in Quebec itself, we have 70 people and we only have 12 people in buildings where they

have people in buildings. So it’s a very small geographic overlap. We have complementary

services we provide but we find that that’s - it’s really expanding those services in Quebec.


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They have a small office in Ottawa as well but they’re doing work that we don’t do in Ottawa. So

in every of the locations we went around there was very little and the overlap literally is, you

know, we’re talking 10 to 20 staff.

John Rogers: Okay. Okay. And I know in the past with acquisitions you guys have been very good at,

you know, rapidly integrating the acquired operations. This is a little bit larger. How quickly does

this change over to Stantec, you know, branding Stantec systems and all of that?

Bob Gomes: Well we won’t be doing any of the integration obviously until we close. So there’ll be very

little...

John Rogers: Right.

Bob Gomes: ...obviously done until - until January. But our proposal is since this is an asset purchase

and we’re bringing the people in, it’ll be relative immediate.

This will be one of the ones that even though it’s large, we will be working on the transition plan

over the next three months with the anticipation that it will be as immediate as we possibly can to

get them into our systems, get their staff into our systems.

And we’ll be preparing for that - that date. So this is one where we do believe there are a lot of

advantages to both parties to do it as quickly as possible. Dan, I don’t know if you had any other,

because you’re very involved in the transition strategy, so...

Dan Lefaivre: Right. No, that’s - that’s exactly right.


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John Rogers: And is there a provision in your agreement that prevents Dessau from shopping itself to

somebody else. Or how do you - how do you make sure that while you’re awaiting federal or I

guess government approval and all of those restrictions that...

Male: Yes. Those restrictions are in the - the purchase agreement.

Bob Gomes: Yeah. Absolutely. They can’t shop themselves anymore. Essentially they’ve signed -

they’ve signed off to us. They can’t do that. Nor do they want to. I think the one thing...

John Rogers: Yeah, no.

Bob Gomes: ...((inaudible)). They’re - I think this is a group that culturally is very strong with Stantec. And

we’ve been here for a couple of days and of course have done due diligence over the last month

or so.

But the last couple of days have given us a very strong comfort that this is going to be a very

strong fit.

John Rogers: Okay. And the last thing - I don’t know if you’re getting into this. But in terms of the - the

revenue levels, you haven’t given us any financials. But can you give us a sense of the

engineering businesses that you’re acquiring, you know, how much smaller they are than they

were two and three years ago.

Bob Gomes: Yeah. That’s - that’s really hard. We know how large they’re going to be going forward and -

but it’s really hard to determine that because they were - they were integrated with the other parts

of their businesses and integrated with the construction part of their business.


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And we really haven’t gone through that historical analysis. We’ve looked really at the last year or

two. And certainly they’ve shrunk a bit but Dan, I...

Dan Lefaivre: We do know that they obviously had issues as a result of the inquiry and the - not being

able to bid on public contracts.

Bob Gomes: For a number of months. Yeah.

Dan Lefaivre: They - they have resolved that they - to the financial markets’ authority, they have their

AMF certificate. So they’re fully able to bid on contracts today. So they - yes, they went through a

bit of a downturn last year and the year before. But they’ve certainly come out of that now.

John Rogers: Okay. Okay, great. That’s all for me. Thanks. Congratulations.

Operator: Your next question will come from ((inaudible)) with the National Bank Financial. Please go

ahead.

Male: Hi, good afternoon. This is ((inaudible)). My first question would be, you mentioned that the

transportation sector generated about 50% of the revenues. But could you comment on the

building and your energy segments?

Male: Sure. Maybe I can touch on that. The infrastructure part of their business is about 50%. And of

that, about 90% of that is transportation. They do have some community development revenue,

about 10%. Building sectors is about 30% of their overall revenue.

And power and energy, including their transmission distribution, telecom work is about 20%.


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Male: Okay, perfect. Thank you. And you also mentioned that the acquisition will be financed with cash

and debt. Could you comment on how many - how much cash you want to maintain on the

balance sheet?

Dan Lefaivre: Well our objective is to keep our capital structure very conservative. So you want to make

sure that you have as little cash on the balance sheet as possible when you have debt

outstanding.

So that’s - that’s our approach to that. So we manage our cash flows on a weekly basis through

our revolver credit facilities.

Male: Okay. Perfect. Thank you. And maybe a last question - could you comment on the bidding process

and if there was a strong competition for these assets?

Bob Gomes: It was a competitive process. We were never told how many were at the table discussing

this opportunity. But it was a competitive process with other firms looking at this and other entities

looking at this opportunity. And I’d say we’ve been in an exclusivity position in the last three or

four weeks.

But up until that point it was a competitive situation. I’m not sure how many were at the table.

Male: Okay. Thank you. And maybe a last question - could you comment on how much the acquisition

would add to backlog?

Dan Lefaivre: I don’t have that information today. No. Sorry.

Male: Okay. Thank you.


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Dan Lefaivre: ...going to be similar to ours but I don’t have that information.

Male: Okay. Thank you.

Bob Gomes: Thank you.

Operator: Your next question will come from Mona Nazir with Laurentian Bank. Please go ahead.

Mona Nazir: Good afternoon and congratulations.

Bob Gomes: Thanks Mona.

Mona Nazir: I know you can’t comment on the purchase price but just in comparison to past acquisitions

or what’s normally paid within the industry, is there somewhat of a discount just given some of the

headwinds that Dessau faced in the last few years?

Bob Gomes: No. This is - I would say this is a fair price to pay for the operations. In a lot of our cases and

in most of our cases our focus and what has a big determining factor on what we’re willing to pay

is the forward looking numbers, what we feel we can do together that really drives a lot of what

we feel we can pay for a firm.

But I would say this is a fair price and it’s in, you know, the ranges that we’ve paid for other firms

through our history.

Mona Nazir: Okay. And I know that the firm was blacklisted due to the corruption inquiry. But they started

to bid for projects at the end of last year. And they’re moving through this rehabilitation process.


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I know you can’t comment on the revenue evolution but maybe the impact or maybe limited

bidding activity, if any, within the engineering group specifically. Has there been any impact? Or...

Bob Gomes: Well as Dan said, through the past year when they were banned for doing work and prior to

getting recertified there certainly was an impact because they were not allowed to bid on projects.

So - and that certainly would carry forward and probably even into the beginning of this year.

What we’ve seen since we’ve been talking to them is since they have now been recertified, that

activity has significantly picked up.

Mona Nazir: Okay.

Bob Gomes: They have won a strong amount of work and I’d say certainly their fair share. So we see

that definitely being behind them. And that’s why - and we looked at the forward looking numbers

in a lot of scrutiny. And the opportunity has a lot to do with why we’re doing this acquisition.

Mona Nazir: Okay. Perfect. And just lastly here, I’m not sure if you have these details but what

percentage of revenue or even on an absolute basis, how much revenue is stemming from the

(Laval) area of Quebec, because I know that was a key area of this inquiry?

Dan Lefaivre: I don’t have that information.

Mona Nazir: Okay.

Dan Lefaivre: We do know that of their staff, about 800 of their staff are in the Montreal/(Laval) area. But

150 are in the Quebec City area. So put that in that kind of context Mona.

Mona Nazir: Okay. Perfect. That’s it for me. Thank you.


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Bob Gomes: Thank you.

Operator: Your next question will come from Ben Cherniavsky with Raymond James. Please go ahead.

Ben Cherniavsky: Hi guys. Just a couple of quick questions - I’m curious, first of all, why you didn’t

assume the international operations that Dessau had.

Bob Gomes: Well for a couple of reasons. One, in our evolution of it, we just weren’t comfortable with,

you know, those are two areas of the world that they worked in that we did not. One being Latin

America where they had operations in there and the other was Algeria.

And when we looked at it, it really wasn’t core to what they were doing in Quebec and their

historic business. It was something that they’ve done in the fairly recent path. And it, you know,

for us it was high risk and things that we felt we didn’t really want to focus on today. It’s - it was

much better for us.

And we had the opportunity in this type of transaction, to extract basically what we - what we

wanted to acquire. And really when you looked at those operations they really weren’t integrated

into the rest of the Dessau operation. They were quite distinct.

The Latin America was a totally separate corporation. And the Algeria is really one project there

that has just been ongoing. So just clearly this wasn’t strategic to us. And we were - had the, you

know, the opportunity here really to acquiring just the assets we wanted. So we took advantage of

that.


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Ben Cherniavsky: Okay. With respect to, you know, what you’re saying this contributes to, often you guys

do have some visibility on amortization rates. What - how much does this change your

amortization because that’s always a difficult number to forecast in your model?

Dan Lefaivre: It is a difficult number Ben. And we don’t have that detailed data today. As I mentioned,

we’re going to get the, you know, at closing we’ll know what the working capital is. We’ll know

what we’ve paid. We’ll know what the tangible assets are.

The intangible assets, based on work backlog and client relationships. We don’t have that today.

We’ll get all of that at closing and be able to provide more clarity then.

Ben Cherniavsky: So what’s our - I mean we don’t have that either now. Like we’re - but we have to

change our number...

Dan Lefaivre: Right.

Ben Cherniavsky: ...so what - what would be the most reasonable guess or assumption there?

Bob Gomes: We’re both trying to come up with a guess. Your guess is probably better than ours Ben,

so...

Ben Cherniavsky: Well I don’t know about that. I mean like I’m not - I’m not - I’m not going to come back

to you in a month and say hey, you told me...

Bob Gomes: Yeah.

Ben Cherniavski: ...this or you told me that. I’m just saying help me out here.


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Dan Lefaivre: If you use historical, you know, rules of thumb it’s probably as reasonable as anything Ben.

Bob Gomes: I don’t see this being vastly different. No.

Ben Cherniavsky: Historical rules of thumb being - I mean every acquisition is blended into...

Bob Gomes: Yeah, as - around as a percentage of net revenue acquired, you know, or even if you use

the intangible assets that we currently have, you know, on years when we do acquisitions, use

that historical average as a percentage of net revenue would be. And I don’t have those numbers

off the...

Ben Cherniavsky: Sure.

Bob Gomes: ...off the top of my mind here.

Ben Cherniavsky: And then just in terms of financing this, obviously you’ve got a lot of room on your

balance sheet to do something like this. But just a point of clarification - as I look at your available

credit in the last quarter. You have a $350 million revolving credit facility with access to another

$150 million.

And that just - just to get the numbers right here, at the end of the last quarter you had 120 -

sorry, $138 million drawn. Plus you had the $124 million of the secured notes. And my question is

when you look at the $500 million of credit availability that does not include the secured notes,

right?

I just want to clarify that.

Dan Lefaivre: That’s correct. That’s over and above the secured notes.


09-24-14/3:00 pm Confirmation # 9679563

Ben Cherniavsky: So effectively you have $500 million minus what’s drawn, the $138 million that’s what’s

available right now.

Bob Gomes: Yes. It’s actually $350 million. And we can use the accordion upon request to the syndicate.

It’s not guaranteed but it’s, you know, assuming everything else is all equal and things are going

well, we have access to that capacity for sure.

Ben Cherniavsky: Yeah. Upon approval. Okay.

Bob Gomes: Yeah.

Ben Cherniavsky: Thanks very much. That’s all I have.

Bob Gomes: Okay. Thanks Ben.

Operator: Your next question will come from Sami Abboud with Scotiabank. Please go ahead.

Sami Abboud: Hi, good afternoon gentlemen and congratulations. I’ll be filling in for (Anthony Zica). My

first question - some of your competitors in Quebec have been rightsizing their workforce over the

past few quarters due to the weaker operating environment.

Can you maybe provide your outlook for Quebec and the rationale behind the timing since you

were in Quebec before and you’re coming back in?

Bob Gomes: Yeah. I think the timing this time is substantially different. I think the - the overall climate in

Quebec is much different than it was the first time ((inaudible)) which was a number of years ago.

And we were actually here in a much smaller way in a much different sector.


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So this is a much stronger (entry) we believe, into the market. We also believe it’s into the market

with a company that has done all the necessary rationalization over the past two years. As a

matter of fact, they probably had to do it in a more aggressive basis than a bunch of our

competitors.

And we have been, here in Montreal for five years, we have grown that business very well, albeit

a small base, started with 35 people but we’re well over 70 people now in Montreal. And so we

have a pretty good outlook of what the market is and what the competitive nature is.

And if we just feel again Dessau just gives us a very strong technical platform for us to be able to

build on. And we see the market changing. We see the culture changing. And we see the

public/private partnership market changing where we’re a very strong player in other areas of

Canada.

So all the factors are just, for us, is just aligning perfectly as a perfect time to enter the market

here.

Sami Abboud: Okay. And as previously mentioned, given the fact that the margins are slightly weaker

than CAPEX margins, how would - I mean how would - what’s the process here to get them up to

the standards of Stantec?

Dan Lefaivre: Well the first step obviously is to get visibility into their business. And I think once we have

that visibility it’ll be about looking at what the factors are, what’s causing margins to be slightly

lower.

And then working on all those core elements that over time will - will normalize Stantec’s overall

Canadian business.


09-24-14/3:00 pm Confirmation # 9679563

(Crosstalk)

Bob Gomes: ...it’s only slightly lower. I mean we’re not talking about margins that are, you know,

abnormally low that need to be significantly improved. It’s just a very slight - slightly below. So

definitely we feel that there - the opportunity if increasing those is not going to be difficult.

Sami Abboud: Do you have a timeline in mind or - that you’re prepared to give? Or...

Bob Gomes: No. Like Dan said, we don’t have a lot of visibility into the details. And it’s going to take us

some time to understand that. And again, they operate very well as a business. The last thing we

want to do is break that. So it’s really just leveraging small things.

That’ll take, you know, it’s not something that happens in weeks. It’ll be months to years to get to

the understanding of that. But again, it’s a very small incremental change.

Dan Lefaivre: And it would just be the same as managing our existing business. And it - whatever market

conditions come along we - we have to adapt to that on a regular basis. We’ll do the same with

these folks. They’ll be integrated into our leadership across all of our business units and

geographically.

So they become part of the overall team.

Bob Gomes: It’s not something we’re worried about or concerned about at all.

Sami Abboud: Okay. That’s all my questions. Thank you so much.

Bob Gomes: Thank you Sami.


09-24-14/3:00 pm Confirmation # 9679563

Operator: Your next question will come from David Rochow with Desjardins Capital Markets. Please go

ahead.

David Rochow: Thanks gentlemen for taking my question. Most of my questions have already been

asked but I have a couple of perhaps offbeat questions that might be interesting to know.

You mentioned with the cross selling opportunities between Stantec and Dessau, with them being

mostly public entities in Quebec, obviously dealing mostly with French, I was curious based on

your current workforce, you know, if you have a split between those that were - have actually

working knowledge in French and those that are English only.

Bob Gomes: That’s a good question. What we’re finding is that it has not been a question we’ve had to

ask ourselves before. But what we’re seeing is of our Canadian workforce, a large percent of

them are French and are bilingual. They have a desire, they have either worked in Quebec or

have come from Quebec.

And it’s surprising that that’s only come to our knowledge as we’ve continued to involve people in

the transaction. So we’re actually very comfortable with our capability of working in French. We

had already started our process of conversion to operate totally in French.

This - all this does is accelerate it for us. And actually allow us to build on a very strong platform

that of course Dessau has. So we actually feel very comfortable that we have the capability of

working in French.

We understand absolutely critically that to work for the public sector here in Quebec you are

working in French. We get that. We know that. And we’re definitely very comfortable moving

towards that. I think we feel we have the staff capable to do that.


09-24-14/3:00 pm Confirmation # 9679563

David Rochow: That’s great. That’s great to hear. Another - thinking of the cross selling opportunities

going the other way, you had mentioned bridges earlier.

I was just curious if you could expand a little bit on this telecom and the security services that

Stantec didn’t have in its platform before and perhaps how this could be applied in Stantec’s

current operations.

Bob Gomes: Today, you know, so certainly we do not do work in telecom so they’re some of their clients

I mentioned in the conference call - (Bill), (Roger), tell us a lot of that work they do for them is in

their cellular networks.

So that’s something we don’t work with where we have a lot of capabilities to assist them in

expanding that. So certainly that’s cross selling out of Quebec into Western Canada which they

have been trying to do. But very difficult.

As difficult it is for a Western Canadian firm to move into Quebec, it’s very difficult for a Quebec

firm to move into Western Canada. Having a combined platform makes that much more seamless

and much easier to do. So we’re looking forward to that.

The security work is very interesting because it is high level security. They’re working a lot with

the federal government in top secret security work. Again, a strong client of ours as well but not a

service we have typically provided.

So definitely a strong part of Dessau that - a small part of Dessau but a part that we feel we can

grow and cross sell into our clients across Canada and into the United States.


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So those were, you know, two smart - small parts of their business that we feel has a large upside

opportunity from cross selling into the Stantec world.

David Rochow: Okay. That’s good to know. Another - another quick little question here would be on

organic growth expectations. Naturally I imagine you were saying that having a greater

understanding of the inner workings of their business would help.

But given your look at Quebec is there - is this in line with your 5% growth expectation for Stantec

generally?

Bob Gomes: You know, I’d say generally you’re right. We don’t have enough visibility. And as Dan said,

we’ll be working with them for, you know, determining a 2015 budget. And we’ll have a better idea

at that time.

But I would say that it is in the range of our - of our operations in Canada and, you know, would

be in that 3% to 5% range for sure. I don’t, you know, I’d like to say it would be higher but I don’t

want to, you know, be too optimistic until we really dig into it.

But we certainly see an opportunity for immediately being able to, you know, leverage some

services which would be organic growth.

Dan Lefaivre: Yeah. And we have to be careful because between now and closing we have to be very

concerned about our competition bureau and all of those regulatory and legal issues that it - you

can’t be bidding on projects together and so on. So we’re being very cautious about the steps we

take.

We’re going to be planning for integration or closing. But in the meantime, we have to be careful

around just how much we’re trying to do together.


09-24-14/3:00 pm Confirmation # 9679563

David Rochow: Okay. Well thank you very much for taking my questions and congratulations once again.

Bob Gomes: Thank you David.

Operator: Once again ladies and gentlemen, if you have any additional questions at this time you may

press the star followed by the 1 on your touch-tone phone. As a reminder, if you’re using a

speakerphone please lift your handset before pressing the keys.

And we seem to have no further questions at this time. I’ll turn the call back over to management

for any closing comments.

Bob Gomes: Okay. Thank you (John). I thank you for attending our call today. And we’ll be providing you

further information over the coming months. As always, we continue to be confident in our long

term strategy. And this announcement today maintains that strategy.

We look forward to speaking to you again in the near future. Thank you.

Operator: Ladies and gentlemen, that does conclude our conference call for today. We thank you for

your participation. You may now disconnect your lines and have a great day.

END

stantec/1199 moderator: bob gomes september 24, 2014 3:00 … · 2019. 5. 15. · stantec/1199...

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