Welcome to Stantec Inc.'s First Quarter 2014 Earnings Results Conference Call. With us today from Stantec's management are Bob Gomes, President and Chief Executive Officer; and Dan Lefaivre, Chief Financial Officer. At this time, all participants are in listen only-mode. Following the presentation, we will conduct a question-and-answer session. (Operator Instructions) As a reminder, today is May 15, 2014, and this conference call is being recorded, as well as broadcast 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 wish to quote anyone other than Mr. Gomes or Mr. Lefaivre, are asked to please request permission to do so from the individual concerned. Before the call begins, there are a few words from Investor Relations. Please go ahead.

Thank you, Solange. Stantec management would like to make you aware of its Safe Harbor statement and to caution you that it will be making forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 in the United States and applicable securities legislation in Canada. By their very nature, forward-looking statements require 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. You will find descriptions of these IFRS measures and their use and underlying assumptions in the management's discussion and analysis included in Stantec's 2013 annual report and Q1 2014 first quarter report. I would now like to introduce your host, Bob Gomes. Please go ahead.

Thank you, Crystal. Good afternoon, everyone, and welcome to our 2014 First Quarter Results Conference Call. Dan will provide a brief summary of our financial results for the quarter and I will follow with an outline of our market outlook. We will then address individual questions. Today, we released the results of Stantec's operations for the first quarter of 2014. Overall, we are very pleased with the results. We are on track to meet our expectations for 2014 after coming off a very robust year in many markets. We saw activity throughout our business especially in our oil and gas and water sectors. And after a relatively quite year in 2013, we started off 2014 with robust activity in executing our acquisition strategy. Dan will now provide review of our first quarter financial results. Dan?

Thank you, Bob. Good afternoon, everyone. Overall, Q1 2014 was a good quarter for Stantec and a nice start to the year as Bob mentioned. Our gross revenue increased 11.8% to $573.9 million compared to $513.2 million in Q1 2013. Of that increase, 5.8% was organic revenue growth continuing over two consecutive years of sustained organic growth. Our results are positively impacted by a slight increase in our gross margin to 54.4% in Q1 2014 from 54% in Q1 2013. This increase was offset by an increase in our admin and marketing expenses to 41.5% in Q1 2014 versus 41.1% in Q1 2013. The increase in both our gross margin and our admin and marketing expenses is due to the mix of projects in progress during the quarter and slightly lower utilization -- labor utilization primarily in January. We achieved the 13.1% increase in EBITDA to $62 million from $54.8 million in Q1 2013. As a percentage of net revenue EBITDA was 12.9% which is slightly just under our annual target range of 13% to 15%. This is typical for the first quarter and we expect it to increase throughout the remainder of the year. Our net income increased 18% to $33.5 million compared to $28.4 million in Q1 2013. Diluted earnings per share increased 16.4% to $0.71 from $0.61 in Q1 2013. And our backlog grew 14% to over $1.6 billion at March 31, 2014 from $1.4 billion at December 31, 2013. This increase in backlog was mainly as a result of recent project wins and acquisitions completed in Q1 2014. Actually yesterday, the company declared a quarterly dividend of $0.185 per share payable on July 17, 2014 to shareholders of record on June 27, 2014. So overall, we are pleased with our performance in Q1 2014 and with the solid start for the year. Bob?

Thanks Dan. As Dan just outlined, our results demonstrates positive performance for our first quarter. And we have strong backlog to replenish those projects that are nearing completion. As mentioned, we had a robust start to the year and our goal of continuing to find great companies to join our team. We are very pleased to welcome the following companies to the Stantec community. Williamsburg Environmental Group, Inc. and Cultural Resources Inc., a 115 person, firm based in Virginia, which expanded our environmental services in U.S. Mid-Atlantic. Process Unlimited International Inc., who added significant strength to our oil and gas and industrial service capabilities in the United States. Subsequent to the quarter, we further enhanced our growing environmental service presence and capabilities across the Western U.S. by acquiring JBR Environmental Consultants Inc., a 140 person full service environmental consulting firm based in Salt Lake City, Utah. And last week, we signed letters of intent with SHW Group nearly 300 person Texas-based firm have offices in the Mid-West and Mid-Atlantic states and USKH Inc., a 130 person multi-disciplined design firm based in Anchorage, Alaska with offices across Washington state and Alaska. We expect to close these two acquisitions in the second quarter which will result in us adding over a 1000 staff to our company so far this year. Now, I would like to give you some highlights on our performance across our business operating units. In our buildings business operating unit with recent acquisition strengthening our local reach and depth of expertise, we are well-positioned to capitalize on opportunities to strength our presence in key geographies and sectors. We are continuing to see opportunities for P3 projects in Canada despite upward funding constraints and increased international competition. For instance during this quarter, Stantec was named the designer on a team,…

Thank you. (Operator Instructions) And the first question is from Michael Tupholme of TD Securities. Please go ahead.

Thanks. Good afternoon.

Hi, Michael.

Just a question about the organic retraction in the U.S., so I guess a two part question, first of all wondering how much of the U.S. organic decline in the first quarter was due to weather, which you highlighted in the MD&A. And then secondly, in your outlook for the U.S., you continued to expect moderate organic growth for the full year. Just wondering what makes you confident that you will see that growth given some of the non-weather issues that you highlighted as being a factor in Q1?

Okay. So the retraction in the U.S., there was a few components weather was a portion of it. I don't think you complain at all on weather, weather did affect some of our environmental services deal work in some to less a degree some of our transportation field work. There was also the fact that our buildings grew did retract. And some of that was in the United States. So that's also contributed to the retraction. Why are we confident that is coming back, well, certainly a lot of the backlog that we have seen built over the first quarter a lot of that is in the U.S., we are seeing that strength gives us a confidence that the work is coming back. As we said there is overall optimism in the U.S., they don't see anything there that is going to continue to cause us to retract not that there is going to be significant growth but certainly we see that retraction journey around. So essentially, I think we are confident because just the general feeling of the work is picking up and the backlog is supporting that.

And is any of that expectation for some improvement related to the energy and resources area where it sounds like you are feeling maybe more confident about resource rich regions in the U.S.?

Well, certainly with the acquisition of ProU in the first quarter that's going to contribute to that. That's a space we were not in, in the United States that we now will have them contributing to the performance in the U.S. from this point forward. So that will help. So that will be portion of it or present outside of ProU in the oil and gas sector is relatively small in the U.S. So but certainly with the ProU acquisition that's providing some contribution to our optimism in the U.S. is result of that acquisition.

Okay. Great. Thanks. And then next question, just in terms of the gross margins for the various areas, I guess in energy and resources and infrastructure there were some things going on and specifically incentive fees mentioned for energy and resources and positive adjustments in the infrastructure, just a little bit more color on those, if possible please?

It was exactly about we have projects with some of our oil and gas clients that resulted in, if we meet certain criteria, some certain metrics that we get essentially bonus payments which were reflected in the first quarter.

That had a smaller impact. And its related to things like schedule, health and safety making sure that we are managing projects effectively for our clients.

So it sounds like its fairly small, yes, is it possible to, I mean, would it have been materially different if you not had those…

No, wouldn't have been material Michael.

Okay. That's all from me. Thanks guys.

Okay. Thanks Michael.

Thank you. The next question is from Paul Lechem of CBIC. Please go ahead.

Thanks. Good afternoon. Just wondering about the backlog up pretty significantly in Q1, I was wondering if you can break out for us a little bit in terms of the growth, how much might have come from moment in foreign exchange, how much from acquisitions, how much from, you mentioned a few project. I was wondering if you could quantify that as well. Thank you.

Some of it did come from FX. So from exchange roughly around 15% of the backlog would have been as a result of a favorable impact of the exchange rate. About 25% came from acquisitions and the rest of it being around 60% came organically. So that's good again from a perspective that even though the backlog increased significantly more than half of it was organic increases. So we were quite happy with that in fact. So essentially there was 8% organic growth in backlog if you want to do the math backwards.

And we saw that growth not only across all of our business operating units but also across every geographic region.

Okay. And you are talking growth, are you talking versus December 31, or year-over-year?

Both.

Okay.

So quarter-over-quarter was about 14% and year-over-year about 25%.

Let's suppose the numbers that Bob gave around 60% organic, its quarter-over-quarter sequential.

That's right.

And great. And given you had a such a run of acquisitions in the last couple of months here. Just wondering does that empty the pipe or do you still have an active DD program underway here or it should be expecting to slow down for a little now?

Now, as we have always said, you can't predict the timing of acquisitions. It's always lumpy. But, I can certainly tell you, the pipeline is still pretty full. There are still a lot of companies we are talking to. We were just had a good period of closing some transactions. We have always said at any point in time, we have over 30 probably conversations going on and they take time to mature. But we were fortunate enough to have three of them closed so far and a couple of more come to conclusion with LOIs. We are pretty comfortable with it. We will be able to continue maybe not at that same page. But certainly we see lots of opportunities going forward.

Okay. And then lastly, given the acquisitions typically once you complete an acquisition, we see a period where your admin costs raise a little bit as you integrate them. Should we expect a similar impact this time around where Q2, Q3 margins might be a little depressed because of that?

I wouldn't say that because of the size of it. It was quite a few of them. We always didn't say there is going to be a significant impact to administration.

In fact, I see our admin cost coming down as you know our business, it's a little seasonal, seasonal so we expect our utilization to continue to increase through Q2 and Q3. So in fact that will drive our EBITDA margin, of course, we indicated previously.

Thank you very much.

Okay. Thanks Paul.

Thank you. The next question is from Sara O'Brien of RBC Capital Markets. Please go ahead.

Hi. Good afternoon.

Hi. Good afternoon.

Hi, Sara.

Can you talk a little bit about the duration of the backlog with your oil and gas contracts in Canada for pipelines, I was just wondering how much of this organic growth is kind of sustainable through like what period time should we expect that?

Can you talk a little bit about the duration of the backlog with your oil and gas contracts in Canada for pipelines, I was just wondering how much of this organic growth is kind of sustainable through like what period time should we expect that?

Well, if you are looking at, if the question is how long do we see sustained activity in the oil and gas sector mid-stream sector in Canada. We see a good two to three years of good work flow projects with our clients. In the U.S. its probably longer. It's not as much mature market in the United States, still emerging but that's probably a longer flow up maybe 5 to 10 years. So that's why we feel we start sometime to build our capability in the U.S. But, certainly right now in Canada, it is a relatively small window. This isn't going to go on for five years, so we will see a good two to three year run of organic growth in that sector.

Okay, great. And then, wonder if could comment a little bit on the EBITDA target margin of 13% to 15%. There was some commentary about how you expect to achieve or exceed that in F'14. I just wonder, is that a gradual progress through the year or is there any kind of period where we would expected it to be weaker for any reason versus last year?

Okay, great. And then, wonder if could comment a little bit on the EBITDA target margin of 13% to 15%. There was some commentary about how you expect to achieve or exceed that in F'14. I just wonder, is that a gradual progress through the year or is there any kind of period where we would expected it to be weaker for any reason versus last year?

Well, the first quarter usually is a weaker quarter for us. And again, as Dan said some of our business is seasonal. Our utilization picks up and that translates right down to an EBITDA increase as well. So I think you will see that gradually continue to increase as we get into the year, certainly in the second and third quarter.

I don't know that the expectation is that will exceed the range of target. But certainly, believe it will be above the 13% cost closer to where we have been historically. You look at where we were in Q1 last year; we were below 13% as well at this margin. We were just like exactly where we are today.

Okay. That's helpful. And then just on the acquisition, the pipeline is full, how much time does it take from the management team to once you negotiate and enclose these and you start integrating, I just wonder how comfortable you are continuing on that acquisition path or again, do you take time to digest these and then move on?

Okay. That's helpful. And then just on the acquisition, the pipeline is full, how much time does it take from the management team to once you negotiate and enclose these and you start integrating, I just wonder how comfortable you are continuing on that acquisition path or again, do you take time to digest these and then move on?

No. I mean, we – I think we have shown in the past. We are pretty capable of sustaining some continued acquisitions throughout the year. We don't really need to pass our acquisitions strategy to transition companies because it's a pretty wide diversity in doing it. So we are doing one in oil and gas and the engineering side, we are doing some environmental ones. And we are going to be doing some architectural ones. So we have the capability because we are so divest to use a wide range of people to do those integrations. And its not really one team of people that go from one to the next. It's a very diverse group. So they have the capability of continuing to add companies and not really having to take a pause to integrate.

From an integration perspective numbers these are acquisitions that we have already close this year but well underway in terms of integrating. So good progress has been made. We have the capacity on the due diligence side to complete the two firms due diligence that we announced otherwise for last week or so, were in pretty good shape, Sara.

Definitely like to reiterate, you just can't – you can't predict when things are going to happen, you just can't simply plan and say, okay. We will have three every quarter, acquisitions just don't work that way, you just continue to negotiate, continue to talk and then you come to some conclusions on some. So it's a very lumpy process. It's just a – it is a process that we really can't critic. All we can tell you is, there is a lot of companies we are talking to.

Great. Thank you.

Great. Thank you.

Okay. Thanks.

Thank you. And the next question is from John Rodgers of Davidson. Please go ahead.

Hi, John.

Mr. Rodgers your line is open. Please go ahead.

Guess, he changed his mind.

We will move to the next question Leon Aghazarian of National Bank Financial. Please go ahead.

Hi. Good afternoon, gentlemen.

Hello, Leon.

My first question is regarding the P3 projects, you mentioned that you are seeing a bit more activity in Canada. Can you please comment on that? And second part of that question is, are you seeing any increased competition from international players for P3 projects? Thanks.

I will answer the second one first. Yes, we are seeing increased competition from just about everywhere in the world in the Canadian P3 market. I mean in the Canadian P3 market, as I would call it mature, its been in existence for over fiver years now. There is some clarity with regards to the process and the project, so that attracts people coming into Canada and therefore experienced in doing these types of projects in other places in the world as well as anybody that feels that they can contribute to teams. I think we are well positioned in Canada though. We have been here a long time, we got some great connections to the communities where these P3 are being developed. We understand how to execute on P3. We have some great partners on P3. So we feel like we are well positioned to compete with that higher competition coming in and I think the success translates into us, we need some of the projects we have been. There is a lot more municipal level projects are coming. P3 Canada is funding municipal levels. So the past most of the P3 projects in Canada have been provincially sponsored P3s. A lot of healthcare projects on Ontario and BC. A lot of transportation projects Alberta, BC and Ontario. We are now starting to see that translate into municipal opportunities. There is transit and rail opportunities in a lot of major centers in Western Canada that are getting funded through a P3 model. There are still healthcare projects being advanced in British Columbia and Ontario. And again, we mentioned that we were selected as a proponent in P3 hospital in BC. So we still see the P3 market both in transportation and in buildings, here in Canada being a good model and sustained projects for the next few years.

Yes. And your collar tone on the municipal side sequential thing. I mean do you feel there is a considerable push there like enough to move the needle for Stantec because of the municipal push that you are seeing or is that more of a – just as an U type of growth profile for you?

No. There is definitely new opportunities for P3s at the municipal level that are constantly growing. It's a new model municipally. There has only been a few projects, Ottawa, LRT is a project that's advanced, the Edmonton, LRT project is advancing through its P3 model. So we are starting to see municipalities better understand and get more comfortable with the P3 model. And I think that's just the tip of the iceberg. There is other pieces of infrastructure, the municipalities can advance using of P3 structure. And again, P3 Canada are the ones that are pushing this through a funding a partnership with the cities and the provinces. So it's a good model what we are encouraged by it's a new basically late to the P3 model that was developed into the provincial model and we are starting to see the municipal level gives us another opportunity.

That's great. Moving on to the building side, I mean you mentioned that you expect stable growth in the buildings but so many opportunities in Canada, so I'm just trying to see a reading through that, I mean you might see more of a decline in the U.S. building side or is that's accurate assessment from us?

No. We see actually what the acquisition of SHW bringing us into another sector in the United States, we are encouraged by that. We feel that we have rationalized our staffing levels in Canada and the United States efficiently. So we don't see any further retraction. We see a stable group of projects in the United States, I think we have just been a little bit more successful in some of the Canadian projects. So certainly it's been able to provide a more integrated solution to the client, I think is another reason for some of the success. But we see strengthen in our buildings and are growing throughout maybe a little stronger in Canada and the United States. But it doesn't mean the United States is further retracting.

Okay. And a last quick for me, just on the backlog, maybe I missed it but are you providing a break down between what's for Canada and what's for the U.S. I mean, we are seeing some growth on the backlog side, just a geographic breakdown if possible?

We don't break down our backlog from a regional or from a business unit perspective. It is suffice to say that all the areas have grown very well maybe a little bit more in the U.S. But we don't give a detailed breakdown.

Thank you.

You are welcome.

Thank you. (Operator Instructions) And the next question is from Mona Nazir from Laurentian Bank. Please go ahead.

Good afternoon. Congrats on another great quarter.

Thanks Mona.

So I'm just looking at the growth in the energy and infrastructure verticals both of which had nice year-over-year double-digit increases. I'm just wondering are you content with the current mix of business or have you thought about maybe allocating more resources into the energy and resources given substantial demand or alternatively pursuing acquisitions in the buildings vertical, so that you will be well-positioned for the recovery?

I think you have seen from the acquisitions we have done this year in the LOIs, we signed. It's been a pretty balanced approach to expanding the geographic range and diversity of the company. We like the fact that we want to be strong in all three of our business operating units. So you don't want to focus just on one that's the most successful now. And as you say, not expand our operations in the buildings group which we do is subject for some good recovery. At the same point in time, we realized that we needed to expand our energy in resources group in the United States and three of the acquisitions the JBR, Williamsburg and ProU are all in that energy and resources business unit and was in the United States where we thought we had an opportunity for growth. So our approach has also been very balanced. You never chase the highest and best, you really have to have a balanced approach. And our acquisition strategy I think so far this year demonstrates that pretty well.

Okay. Thanks. And I just wanted to go into the oil and gas and midstream work that you are doing. You said over the last few quarters that this strong growth was kind of hard to predict and somewhat unanticipated. I know there was an impact of weather and some seasonal softness in the quarter. But overall, is the growth simply a matter of doing more work with existing customers or is it increasing opportunities with new clients, or in new geographies i.e., parts of the U.S.?

Most of it, it was just expanding work with existing clients. With the addition of ProU, they have brought some clients to us notably Chevron that we can also expand and provide service to other regions that ProU could not. So by leveraging the geography that we have, we are looking at expanding some additional clients. There are also some LNG activity that we were successful in winning more on the environmental side that also brought some extra revenue and performance into the first quarter. So that's were some of the unexpected nature is, we were looking at some of our very busy clients. We are going to take a bit of pause in the first quarter that just didn't happen. They continued to advance projects and we have continued to build our revenue. So it's a bit of both, little bit of expansion to new clients and expanding some services into areas that we didn't anticipate we would be successful. So all good news.

Okay. And I'm glad that you touched on LNG because that was my next question. How is your work increased over the last few quarters, are you seeing more demand for LNG services?

Yes. I mean we – most of the services we provide in the LNG is in the environmental side, so certainly in the British Columbia market. We are doing a considerable amount of work for the various opportunities there. We do some engineering work more of those associated with the pipeline and facilities leading up to the LNG facility. So we don't have, and I don't want to confuse the market to say that we have capabilities to do the process side of an LNG plant. But we can certainly do all of these associated environmental work. And we can do all the work and engineering work necessary up to the plant. And so that is, where our sweet spot is in the LNG market, a lot of that is in British Columbia and we have a great presence there.

Okay. Great. Thank you. That's it.

You are welcome.

Thank you. The next question is from John Rodgers from Davidson. Please go ahead.

Sounds like John is still not there.

Hi, Mr. Rodgers, your line is open.

Can you hear me now?

Yes. Tell everybody didn't you have the mute button pushed, didn't you John?

Yes. It's my inability to operate my phone. I can't blame it on anybody else. Anyway, congratulations on the quarter.

Thanks.

Bob, I wanted to ask specifically about the acquisition of SHW, lot of companies have been talking about trying to expand in Texas. But primarily targeting the energy market and SHW is primarily building to education. How quickly can you use that footprint to add other Stantec services, or would you have to do another acquisition to get into the industrial energy side of the market down there?

Yes. I think for us the say that we can take a buildings K to 12 focused group in Texas and turn them into oil and gas firm when work would be a little bit of a stretch. So no, what we will be able to do is, do more associated infrastructure work associated with the work SHW does in Texas and in Michigan. We can certainly do more work for those school districts that they work for. But, really this just gives us a – it gives us a presence in Texas that we can now leverage to say that we want to increase our presence in Texas. I don't think we can say that SHW is going to allow us to grow our oil and gas business in Texas better. But it gives us a presence there and it gives us offices there where we can put staff in those offices that can start that process of determining how else can we now expand it. But to be real clear, we need an acquisition in the oil and gas business in Houston to be able to say that we are in that business in Texas. They have an office in Houston but we will leverage that address as much as we can but really we are looking for additional acquisition specifically in that oil and gas sector in Texas.

Okay. Thank you. And then, just on the power side of the business, and you touched on this a little bit. But the growth you are seeing in those markets outside of the P&D, how much of it is power generation and is that predominantly gas fired power plant?

Yes. Essentially what it is, is there is a need in many power in areas and that Alaska was a good example where they need some additional power generation mainly peak power producing areas especially also they needed an area that have some I would call a more sustainable power sources like wind and solar. So what we are seeing is, gas is a great alternative. First, it's quick, I mean you install some gas turbines and you can immediately generate power. And you can do it through a combined cycle one that is really a different type of power generation. They are relatively inexpensive to put in, relatively inexpensive to operate or even seen some of the pole facilities install gas turbines to increase their power generation. So we are starting to see a lot of those opportunities, but we don't – we are not in the power generation business. But, we certainly can do all the necessary associated infrastructure work to install gas turbines and do all the necessary balance the plant work necessary to get those turbines installed. And we are seeing some contractors, we are seeing some design build opportunities coming out of that. So it's a fairly robust market that we start seeing increasing and pretty excited about that because we have gotten some good partnerships and we have the capabilities of doing that type of work. So that's where some of the power increases is coming from.

Okay. Great. Thank you.

You are welcome.

Thank you. (Operator Instructions) There are no further questions at this time. Please continue.

If there is no more questions, I would like to close the call by saying that we are confident in our business strategy and ability to adopt to the evolving needs of our marketplace. Focus will continue to allow us to achieve profitable growth and provide sustainable returns to our shareholders. Thanks. And we look forward to speaking to you again in the near future.

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