Welcome to Stantec's First Quarter 2018 Earnings Results Conference Call. With us today are Gord Johnston, President and Chief Executive Officer; and Dan Lefaivre, Executive Vice President and Chief Financial Officer. The call today is webcast and we invite those dialing in to view the slide show presentation which is available in the investor's section at stantec.com. All information provided during this conference call is subject to the forward-looking statement qualification, which is set out on Slide 2 and detailed in our MD&A and incorporated in full for the purposes of today's call. With that, I'm pleased to turn the call over to Mr. Gord Johnston.

Thank you. Good morning everyone and thank you for joining us this morning. For those of you following the slideshow we're on Slide 3. For today's call I'll begin with a high level overview of our first quarter performance, after that Dan will provide a little bit more specific commentary on our financial results. When Dan concludes his remarks I'll provide some operational highlights and our targets and outlook for the remainder of 2018. Finally to wrap up I'll ask our operator to open the call for questions. Moving on to Slide 4, overall the company performed well in Q1 with solid organic revenue growth. In fact this quarter marks the fourth consecutive quarter that we've achieved overall growth and net organic revenue growth. This shows we are focused on the top line and our strategy of building and maintaining strong client relationships around the world continues to enable us to win new work. We haven't ignored the bottom line either, cost reduction efforts, office consolidations and improved employee utilization resulted in a decrease in administrative and marketing expenses as a percentage of net revenue when compared to Q1 '17. Stantec has long focused on continuous improvement and currently we're in the process of reviewing employee utilization, cost effectiveness and project execution. This quarter's results show that our actions are already having a positive impact on our performance. We completed two key acquisitions this quarter. In the United Kingdom we acquired ESI Limited which expands our environmental services consulting business in that geography and in the Southwestern United States we acquired Occam Engineers Incorporated which bolsters our water, transportation and public works presence in that region. Just after the quarter ended on April 1, we acquired Traffic Design Group Limited, a transportation firm with offices throughout New Zealand and a single office in Sydney, Australia. This acquisition makes us one of the largest transportation players in the region. Also subsequent to the quarter, we signed a Letter of Intent to acquire Norwest Corporation, an Energy and Resources firm headquartered in Calgary, with offices in British Columbia, Colorado, Utah and West Virginia. Once complete, this acquisition will boost our strength and recovery in E&R sector in Canada and the United States. We also signed a Letter of Intent to acquire Cegertec, an engineering and project management firm headquartered in Chicoutimi, Quebec, with offices in Montreal and Quebec City, and finally on April 26th Stantec initiated a strategic review of our construction services segment. Stantec acquired Constructors through our acquisition of MWH Global in May 2016 and as part of this review, we will evaluate a range of strategic options to optimize the value of Constructors to provide the best prospects for our people, our clients and our shareholders. With that I'll now turn it over to Dan to provide additional detail on our Q1 financials. Dan?

Thank you, Gord, good morning, everyone. Overall our performance improved in Q1 2017, and we had performance improvements in revenue, EBITDA and EPS compared to Q1 '17. I'll provide more detail in context as we go through the remainder of the summary. Prior to speaking to our specific operating results however, I'd like to provide a brief summary of the impacts of two new accounting standards that resulted in changes to our accounting policies that became effective January 1, 2018. We adopted IFRS 15 revenue from contracts with customers, which impacts the way we recognize in record revenue as well as IFRS 9 financial instruments. With respect to IFRS 15 the impact on ongoing or on opening retained earnings was a reduction of 23.9 million due to changes in the classification of contracts with multiple services. The recognition of changed orders where we have an enforceable right to the change order or claim, recovery is highly probable and liquidated damages were a probability weighting of expected outcomes is now required. This primarily impacted our construction business. In addition, the change impact of how we record all facts from clients and deferred contract costs. Finally, contract backlog, which, under IFRS 15, represents are -- represents all secured work that really is the remaining performance obligations now totaling approximately $5 billion. IFRS 9 changes the way we classify financial assets and account for debt modifications. IFRS 9 also impacts how we record per value gains and losses on equity securities and how we calculate the loss provisions through an expected credit loss model. The primary impact associated with the adoption of IFRS 9 resulted in a $2.7 million fair value adjustment to other expenses relating to the new requirements of recognizing unrealized losses on equity investments held for self-insured liabilities to the…

Let's go to Slide 15. I'd now like to summarize the performance of our core business in Q1 and then look ahead to our outlook for 2018. As Dan noted, we experienced overall organic gross and net revenue gross this quarter compared to Q1 '17, our Canadian consulting services business achieved organic gross and net revenue growth of 7.9% and 4.3% with organic revenue growth in all BOUs except environmental services. Growth was driven in the -- by private sector, especially energy and resources and by revenue growth in the healthcare industry in D.C., Saskatchewan and Ontario, which helped our buildings BOU. Most sectors in our E&R BOU experienced organic revenue growth. We're seeing some actual growth in the Canadian oil and gas sector winning several projects in the midstream business. Growth in infrastructure in Canada was driven by community development work, along with interdisciplinary projects such as the Calgary Cancer Centre in the Calgary Green Line corridor. Our Canadian water BOUs growth was driven by British Columbia and offset by some minor retraction of the prairies. On Slide 16, in the United States, consulting services achieved growth of 0.9% in both organic and net revenue this quarter, compared to Q1 '17 but this growth was significantly offset by the weakening American dollar compared to the Canadian dollar, divesting Innovyze in Q2 '17, also contributed to the gross revenue retraction. Growth came from a mix of private sector projects that called on our remediation and recovery expertise in the environmental services business and from stabilization in the U.S. oil and gas sector. We also saw increased activity in the U.S. airport, highway, rail and road projects. On the public sector side, we benefited from design build opportunities in transit, bridge inspection, LRT, roadways and bridge design. Organic growth in our…

Thank you. [Operator Instructions] And our first question will come from Mona Nazir with Laurentian Bank.

My first question just is a clarification, so I think you had just stated that for 2018 you're expecting organic growth to be in the low to mid single digit range, was that on a growth or net basis?

Actually on both Mona.

And then just secondly touching on the potential divestiture of your construction arm, when you first purchased MWH you stated that it was closely coupled or correlated to some of the consulting work particularly in the UK, and I'm just wondering should a sale or divestiture occur, how stable are those consulting revenues? Could we potentially expect some softness or contraction of how closely coupled those two divisions are in some geographies? And just secondly on that strategic review of that division, given the nonmaterial contribution just on the EBITDA level and negative margin this quarter, would you ever consider to slowly exiting or winding down the business or is that not a possibility?

I'll start with your question with regards to the UK, so both in the U.S. and the UK, there are -- in U.S. in particular starting there, there're a number of opportunities where our consulting business works together with our construction business on various design build jobs, both in the public and the private sector. That said, there are a number of situations, particularly in the UK, where our objective is to secure the work and sometimes our consulting business will partner with our construction business. In other situations its either due to client pressure -- client sorry preference, workload of the construction business or geographies where our construction business isn't active, our consulting business will partner with other construction firms, and that works in both directions as well. So in the U.S. we see very little negative revenue impact if again a divestiture would proceed. In the UK there are a few clients where they are more closely coupled, our engineering business with our construction business. In that case though what we're during the strategic review process. We're spending a particular amount of time talking to clients, talking to both our consulting and our construction business and talking to staff, because our objective would be again if we did go forward with the divestiture in the UK to ensure that there is no disruption to our clients. To ensure the projects continue to be executed properly and certainly our objective would be to ensure that the same consulting staff is currently working on the projects maintains work -- it continues to work on them going forward from a continuity perspective for the project and for the client. So that is absolutely a consideration Mona as we review any potential firms that have come forward with us is that we want to ensure that our current consulting business in the UK does not deteriorate. And to your second question with regards to would we ever just wind down the operation. Certainly we could do that but it is a very robust operation and the core business in both the US and the UK is very vibrant and what's been a pleasant surprise to us since we announced that we're going forward with the strategic review is the amount of inbound interest that we received, more so than I even thought that there would be. So I don't think the -- well the option of winding down of course is always there. I don't perceive that if we did proceed with a sale that that would be a requirement. I'm seeing a lot of positive interest in the asset.

And we will now hear from Derek Spronck with RBC.

Good morning, thanks for taking my question. You've been fairly active doing them, quite a few nice little tuck in acquisitions recently. What's your pipeline looking for the remainder of the year and the acquisitions that you have done, what sort of year-over-year growth would that provide once they get a full run rate into your system?

Thanks Derek. The acquisition that we've announced so far this year, you're right have been smaller tuck ins you know sub 100. Cegertec where we announced the LOI is about 250 people. And those were great opportunities to strengthen a particular line of business, in a particular geography and sort of they're more surgical in nature. So we're continuing to look at those sorts of opportunities in North America. But we're really focusing as we have -- I think as we mentioned in our strategic plan, we want to continue along with our growth in the UK and the Australia-New Zealand region to support that footprint that came to us through MWH. So we've been spending a lot of time in those regions in particular. We have got a pretty robust acquisition funnel and I think we'll see this M&A is poised for increased activity in 2018, particularly in the Australia, New Zealand and the UK regions.

I think maybe there's another point to make on this Derek and that really is that some of these acquisitions actually have closed, the real smaller ones. Cegertec won't close till likely later in Q2 if not beginning of Q3. And so I think it's important that even though these have been announced they are not in our revenues and when I go through and read through all of the analysts' expectations and reports many of you of the analysts include acquisition growth in their projected numbers to be assuming large acquisition growth in the first and second quarter when these transactions really haven't gotten closed yet, I think is a bit of a overstatement. So we just have to be a little careful in managing those expectations around acquisition revenue growth. It doesn't start when it's announced, it starts actually after the deal is closed.

Just based on your current pipeline and what you've done, is it kind of teeing up at roughly 2%, revenue lift in 2019 from acquisitions given the current landscape?

The funnel is full. We do see increased activity in 2018, hard to predict these. It's lumpy, we've expectations, but until we get folks to sign up, they haven't signed up, so it'd be hard to provide guidance because we don't really know when those might close.

Just on your longer-term strategy in, just some color around refining it, could you maybe talk a little bit further about that? Specifically what the refinements were, because it seemed by and large pretty much the same strategic strategy. Has anything changed at all?

Not particularly, Derek, the one likely change was that we announced a review of our construction services segment. And that's something that we thought long and hard on just to look at where we saw our company in three, five, 10 years from now, and whether that factored in, and so that's really why we're having a good look at that now seeing what the market interest might be. But in terms of our strategy of continuing with our growth through acquisition, no changes there. What we have now is a larger geographic platform to work with through our acquisition of MWH. We're going to continue -- we're not going to take our foot off the gas in North America in any way, but we're going to really focus on Australia, New Zealand and the UK, where we have that -- already have a strong footprint, just to continue to grow that. That said, we're beginning to look at three to five year plan outside of UK, Australia, New Zealand, where else might be attractive locations for us to begin to consider. Other than opportunistically not looking at any strategic reviews Derek right now, or what options might be, just beginning to see what might come after Australia, New Zealand and the UK.

Is it largely geographic -- geographical focus? Or could you perhaps move into new end market segments?

At this point we're really looking at continuing with the successful model that Stantec has run. We have our five major BOUs and we look at how we can diversify within those our existing sectors in those newer regions. For example, in the UK we are the number one water firm, but we are single sector in water. So there is lots of opportunities to build out in other sectors, environmental services as we saw with ESI. There is a lot of opportunities in transportation and buildings and other core infrastructure work that we do there. So I think we are looking to continue with the tried-and-true Stantec playbook, using that wedge of getting in there, example in the UK number one water firm, and now expanding into other service lines. But at this point not looking into new service offerings at this point. Operator And our next question will come from Jacob Bout with CIBC.

I wanted to go back to the strategic review, and just what is your current thoughts right now? Is it to completely exit the construction business? Or keeping part of it and also what you're thinking on the type of process that you are thinking about running?

As part of the review we are looking at all alternatives, certainly a sale of the asset might be one of the alternatives that comes out of it. And we have it, as you know we've engaged in advisor to help us through that process, they received numerous inbound interest at this point and they are in the process of preparing the same. So we will work through a process with that we'll see what sort of interest comes from that. At the same time we are talking with our clients, we are talking with our staff and looking to see other ways that we can improve our current operations to make them more sustainable in the long term and certainly grow and keep provide good service to our clients. So we haven't message to the market that we're -- that a sale is the only alternative. We are just still looking at a range of alternatives but that sort of what a process would look like as we are evaluating interest from potential acquires. A number of the folks that have approached this would be interested in both the U.S. and the UK. Others have said only the UK, others have said only the U.S. So there's a wide range of folks that have approached us. So we are really just looking at all alternatives at this point Jacob and seeing where it takes us.

I think it's important to point out again that it's still early days, we only announced a two weeks ago, so the ball is just getting rolling in terms of the full process that's going to be enacted here in the next couple of months.

Maybe my second question here just on your acquisition strategy and in the light of new U.S. tax reform has that changed your approach to acquisition strategy in the U.S.?

I don't think its materially changed our approach. I think certainly companies are looking out at vendors or sellers are looking out at and saying well we get the benefit of a lower tax rate, therefore, we should get a higher EBITDA multiple. Certainly, we factor all of that and as we go through our pricing mechanisms and really try to get the most favorable outcome both for sellers as well as Stantec and our shareholders. So it hasn't really changed our approach but it's certainly another factor that we consider in our acquisition strategy.

Would it be fair to say just maybe a little more expensive for you to buy something in the U.S.?

I think every transaction will have a multiple that makes sense, some that make it higher others may not have had any material impact

And we'll now move to Yuri Lynk with Canaccord Genuity.

Just wanted to make sure I understand what's in the adjusted EBITDA number, is the 2.7 million fair value adjustment in -- that's in the adjusted EBITDA number correct?

No, that 2.7 million actually falls into other income below EBITDA. So really there is virtually nothing really impacting adjusted EBITDA this quarter variable anyway, so that's actually below in other income. So, that was about $0.02 of EPS roughly, so if we had adjusted for that it would had jumped from 42 to 44.

Can you quantify, so your consulting services backlog compared to where it was at the end of the year is about a $1 billion, so a big move, and you did talk about in the contract awards but you also mentioned IFRS 15, so can you just quantify the impact IFRS 15 had on backlog this quarter?

It's very difficult to try to get significant detail, but I think the message is we are now recording all of our backlog based on remaining performance obligations for sign contracts or, notice to perceivers previously only showed to 12 to 18 months. We do know that that we have had a number of project wins in the quarter which have added to backlog organically, so there has been some organic backlog growth, very difficult to quantify what that number is because we have to go back to January 1st and restate where our backlog was, so difficult to completely get that number all the way. I do expect that there was growth, which was offset by again some change in the foreign exchange rate strengthening the Canadian dollars in the quarter. So I guess the bottom line is the some of that is organic growth offset by FX and then the change in IFRS.

So, safe to say that for consulting services the book to bill in the quarter would have been above one?

That's exactly what I think.

And in Q2 and Q3 you talked about a pretty healthy bid pipeline, so I want to make sure I understand what you're saying the -- you think that book to bill can stay above one for at least the next two quarters?

I would think so Yuri we're seeing a lot of really strong proposal activity in our -- in our major projects, our risk review process, really has ramped up for a number of large project that we've got in the pipeline so I do feel good about you looking forward to Q2 and Q3 as well.

Just a follow-up question on the strategic review. Can you share with us what the bulk of your competitors are doing vis-a-vis owning versus JVing with construction companies?

I think these competitors are in the design space.

Yes, the competitors that you would be going up against on the design side. I mean how many of them are bringing integrated construction capabilities to the table?

I think most of them are partnering. When you look at our competitors like AECOM or SNC they have more of the integrated design construction O&M type firms. But most of the other normal competitors that we run up against we would be partnering.

Yes, I'd agree with that, yes. So the majority of the firms in our space would be partnering on a project by project basis with where it makes sense with construction firms that have the right technical the right expertise in that line of work, strong in that particular geography, just so you can put together the most competitive team.

So you wouldn't be at any major disadvantage by not having those capabilities in house?

I don't see that would be the case. And in particular as well our construction business right now is only active in our water space, and only in United States and the United Kingdom. So big slots of our business still aren't covered by that and still are continuing to grow and perform well.

And our next question will come from Sean Eastman with KeyBanc Capital Markets.

I was just wondering build out on the building segment hoping you guys can provide a little bit more color on those execution issues cited in your commentary. And also for buildings, the UK and Middle East softness it would be helpful to get some perspective on the size of that piece within buildings and whether there's any sign delay from some recovery in those more challenged geographies for the segment?

So building has as you noted a number of moving parts there and maybe I'll start with the UK and the Middle East. We have some large healthcare projects that we were working on in 2017 and 2016 in particular that drove our Middle East business and a lot of that was centered out of London. So with that market more or less retracting in our healthcare business is has really, really tightened up with Middle Eastern clients really putting either on hold deferring our cancelling healthcare facilities in areas like to Qatar and Saudi Arabia and Kuwait. So we have really retracted in that market over the last -- since the last year and its continuing to go down. We are pretty much near the bottom though, there's not much business left there. And that's impacted our London operations as well for sure. With respect to the rest of the buildings business, this is just ongoing project management. Some of it has to do with acquired entities and getting the estimated cost complete and budgets lined up so that the expected margins on these projects are accurate going forward. So a good part of it is that from acquired entities that is ongoing as they get used to operating and then really get public company accounting environment. Some of it is just project execution, not managing our projects well in terms of budgets and again performance of product and cost to complete. We're taking a number of steps to rectify that, really getting down deep into project reviews or project managers and really focused on the underlying principles of good project management fundamentally is what it comes down to. When you have thousands of projects that are having small or incremental provisions on those projects, that adds up over time. So we're really taking a hard look in our buildings practice to really try to turn that around and I think we've got some good strategies in place to do so.

And I guess moving over to energy and resources segment double-digit organic growth in the quarter, but also citing some margin pressure from competitive dynamics. So just like to get a better understanding of what's going on there and whether this double-digit organic growth is sustainable in your view? It sounds like it's kind of hinging on a particular pipeline project, so thoughts around those items would be great.

There is a large pipeline that we're working on in Canada. We continue to work on it through this evaluation phase. But there's lots more than just that one pipeline project ongoing in our energy and resources business. In our -- one of our main oil and gas offices in Calgary just anecdotally the biggest concern we have right now there is parking because we -- through the last half of last year and so far this year we've been hiring and so that's just anecdotally that what we're seeing there. We're seeing a lot of growth in the mining sector. We're seeing, particularly in Latin America we're seeing a lot of the -- in addition to that a lot of the risk reviews that I mentioned earlier that are coming in are related to additional mining work that continues to come in the door. Waterpower and dams seeing some continued growth there. We talked little bit about the Warragamba Dam project already in Sydney, Australia. So really a lot of the groups there, mining we're seeing strengthening, oil and gas still feels good, waterpower and dams is still coming along. And we're seeing even in the power sector some additional work coming in, infrastructure improvement type work, environmental compliance, resiliency, a lot of continued activity in the power sector as well. So I do feel good about the energy and resources sector as we pull through the rest of the year.

And I think it's important to note with the changes that we've seen over the last several years as a result of commodity prices, oil and gas business and energy resources was north of 50% of that entire business operating unit. We've got a much better balance and diversification there with the addition of waterpower, power and mining, both now started to come back. So pretty equal distribution of revenues generated from that business unit which gives us more confidence as well.

And we'll now hear from Benoit Poirier with Desjardin Capital Markets.

Just to come back on the previous question on energy and resources obviously strong organic growth but when we look at the gross margin it's been down year-over-year due to mix of project and some competitive pressure. So could you talk about your ability to improve gross margin and maybe provide more color about the mix of projects?

Sure, maybe I'll touch on that one first. In certain sectors, the industrial sectors margin is lower generally than you would see in buildings and infrastructure so that's just the nature of the business, largely time and material projects where you don't have really a fixed feed project where you can generate a higher internal gross margin. If you recall, over the last several years we said we were negotiating new MSAs with oil and gas clients, at lower rates to help them get through the need of retraction relative to that business so they pushed all of their cost retraction or pressure downstream onto the service providers. We have signed a number of MSAs earlier on in the process which did provide some compression in our gross margins but that's you know you can have a slightly lower gross margin, but high utilization is more than made up once you get to the EBITDA number. So because you have people highly utilized you're not having to go out and really bid on a lot of projects a lot of at full source. So I don't know that you'll see a material change in gross margin going forward in the energy business but those would be some of the reasons why.

And when would you -- when are those big MSAs up for renewal and would you expect some pricing increase as a result of let's say a better oil and gas sentiment?

I think, there will be adjustments over time as the market improves, if you know, if we could ever get some of the pipeline, political and social issues resolved you know, that would really help the business in Western Canada, but I think clients still is certainly on the upstream side are still pretty cautious not putting a lot of money into CapEx, which is impacting the midstream business and that's more impacted though by again the political issues that we're facing in this country. The issue though is if those go forward I do expect that there will be some price escalation as things get busy again.

Okay, that's very good color. And on the pipeline side, could you quantify in the quarter your exposure to pipeline? Just trying to gauge what could be kind of a downside scenario assuming some negative news in Canada then?

There're are a lot of smaller type projects that are ongoing, the one project that we mentioned in the first part of the call you know the client has said they're only doing essential services we're doing bits and pieces of the work but I wouldn't suggest we're at full capacity yet subject to that review. So I think if that review gets completed and things go forward it will have a positive impact if it doesn't you know oil and if the oil and gas business unit in our engineering business now is only it's less than 5% of our overall revenues in Stantec and on the environmental side oil and gas is less than 5%, so combination is still less than 10% of our overall business in oil and gas now.

And when you previously talked about your project performance issues for building you gave a lot of color about the UK and Middle East. But could you talk a little bit about what type of improvement we could see going forward on a gross margin and organic growth basis given the year-over-year comparison, the healthcare market downturn that started a year ago? Just trying to gauge how the conversion will be in the second half?

We had a close look with our buildings leadership to look at our forecasts for restored into Q2 and do expect to see some improvements in margin and operating performance. It's really is getting down to project by project and almost hand to hand combat and making sure that we're executing these projects well.

So, pretty much at the bottom right now, right is it?

Bottom of performance expectations?

Yes or kind of okay, okay, perfect. And last one for me. You mentioned that there was, obviously, significant cost overrun incurred to date on some legacy hard-bid project. But on the other side, it seems that there's an opportunity to recover. So could you maybe quantify what could be the amount that could be recovered, and also provide some color about the timing on those potential recoveries?

Every project is unique with respect to the state of other negotiations or remediation -- it's not remediation but the litigation and mediation in anyone of these projects is different and you've different stages. So the timing is certainly uncertain. The -- with respect to the probability we do put a probability waiting on it, but we cannot recognize any of that into revenue until it is highly probable that we have come to a conclusion with client and that we will get paid for those claims. I think we indicated in the fourth quarter, we had about 50 million in claims of which we have recognized about 15% of that, so that number hasn't materially changed in Q1.

And our next question will come from Maxim Sytchev with National Bank Financial.

I just want to ask you a question in terms of your U.S. footprints, when we look at some of your U.S. peers specifically seems to me that the organic growth there is stronger and I am just wondering is it just the question of positioning or do you feel that perhaps you are starting to lose a bit of market share in that important profitable bottom market?

No I don't think we're losing market share, at all their Max, we've got a lot of great wins in the transportation sector over the last little bit that are just starting to ramp up, we've talked about the Long Island railroad. Good wins in the water sector. We talked about the mid-Breton Sediment project just ramping up again. These are some larger projects and really in each sector where we're seeing that. So I think the market there is strong. I think we are winning our fair share and a lot of these larger projects that we secured really are just beginning to ramp up now.

And then in terms of the commentary in the buildings division where you had some client departures from the acquired firms any color on that some please?

Yes, really what that is because we operate as an integrated a buildings firm where we have integrated our buildings engineering and our architecture businesses when you have our buildings engineering in the legacy business generally and a lot of the clients who they work for the architects. So when you bring that engineering business in-house some of those architects don't want to work for a firm or don't want to -- abandoned their working for them that is also got architecture expertise. So that's really what that relates to. It's not material we see it all the time as we do buildings, particularly engineering acquisitions but we do get the benefit when we do architecture acquisitions where we can generate more revenue internally by using our own internal engineering expertise. So it's a bit of trade out sometimes.

And then just going back on construction I guess we will see how the process is going to play out but if it's a status quo situation, obviously the margin is lagging right now relative to your 7% to 9% EBITDA guide. So how should we think about the rest of the year? Is there a catch up dynamic and what gives you confidence you are going to be able to hit those well let's call it 8% midpoint EBITDA?

I think we have seen good progress on the waste to energy projects in the first quarter. We received turnover acceptance of one of the projects we hit some critical milestone dates on another project. And the third project is essentially completed its in O&M. And we have got two of them now and operating in maintenance. And so we have made some really good progress. We aren't seeing a whole lot of additional negative headwinds on those projects. Although they are qualified that but there is still work to complete on one in particular to get the final turnover and acceptance. But good progress in the quarter on that. And again in the U.S. I think it's important to note that the core water business both in the U.S. and the UK is very strong. It's a good business and operating well. We didn't take any material hits on the designed build projects that takes that projects that we had to take some provisions on in Q4 and in Q1. So our estimates to complete our holding up and we expect that to continue. And we are just ramping up on some other projects that are new that should help generate good revenues in the next couple quarters for construction.

And we will now move to Michael Tupholme with TD Securities.

Just to pick up on that last question, Dan is part of the issue this quarter in construction services the fact that some of these projects that were challenging in the last quarter are running at zero margin until everything is completed?

Not zero margin but they are certainly running at a lower margin. I think, frankly, a lot of the margin on these projects have been recognized quite early and they didn't leave enough margin for the tail end of these projects, not the end of them, but I wouldn't say they're zero margin or negative margin, significantly lower margin that was anticipated at the start.

And the one project that's not yet fully completed or very close to completion you mention, when is that due to be finished?

We're expecting to get turnover, we've to go through about a two week forget exactly what the…

Performance testing.

Performance testing on the plant, it's all constructive in the actual final phases of making sure that can generate power on the consistent basis over 14 days, we achieve that acceptance center terms over, it's always subject to discussion and negotiation with the client. But we do expect to see that either towards the end of Q2. Perhaps in the beginning of Q3, but we expect to get that in the next quarter or so.

And then just in terms of the -- your comments about the strategic review. I think you suggested you expected to be completed before the end of the year and I just want to be clear about what you mean, do you mean you will have decided on what path you're going to take by the end of the year or you would expect any transaction for example, if there is in fact a sale to be closed by the end of the year?

We're active in the -- in that review process now. Our anticipation is that we would've made the decision on our direction and if there -- we're going to proceed with the transaction, it would be our expectation that we would complete the transaction by the end of the year.

You've been asked about buildings a number of times so just want to circle back on one follow-up question regarding buildings. There's -- sounds like there were a number of issues in that segment that were impacted in quarter, but if we look at the margin being down and you mentioned execution issues, is there anyway do help quantify what with the gross margin might have looked like absent these execution issues?

I think the gross margin would have been closer to what our expectations are and what we've forecast for gross margin for buildings, so it should have been closer to what our historical gross margins were in buildings, we're off a couple of percentage points is really what that quantification is.

And given the focus on improving execution in that segment, it's something you expect improvement but should we expect that improvement to show up in the next quarter or so?

I think it will be incremental on those, see it through the year, we're implementing a lot of things, including reevaluating project manager certifications, making sure we have the right PMs on projects to improve the margins here and developing proper project plans and so on. So by the end of the year I expect us to be improved for sure.

And then just lastly really, really strong improvement in admin and marketing as a percentage of revenue in the quarter on a year-over-year basis. So I think there're a number of factors that play there, some of which, you listed things like lower occupancy costs, lower discretionary spending, lower integration costs. Would you expect additional improvement in some of those types of factors sequentially? So what I mean is there -- would occupancy costs come down further for example on a sequential basis as we move through the year and does discretionary spending drop even further?

I think we started seeing some of the improvement in the occupancy costs in Q4 as you might see a little bit more, then it'll normalize through the remainder of the year. I think we are hopefully, we do see some improvements in utilization. We're now coming off one of the weaker quarters, you know Q4 and Q1 are always weak from a seasonality perspective. So we should see some improved utilization in Q2 and Q3. So that should help contain if nothing else the admin and marketing expenses as a percentage of revenue.

And we will now move to Ben Cherniavsky with Raymond James.

Hi guys, most of my questions have been asked, just a little more on the US. The organic growth rates between Canada and the US strike me as maybe a little counterintuitive, I mean the US construction markets from everything that I've been seeing would have suggested perhaps a higher organic growth rate there, I know you guys have touched on some of that already and break it down in the MD&A but is there, like if you're not losing market share what would be, is it just lumpiness or what would account for still a fairly modest organic growth rate south of the border.

I think some of it is lumpiness Ben so we don't really -- it's really hard to quantify projects we're coming on and off of projects, but certainly the lower gross margin also impacts revenue so areas like the building segment would have impacted our organic growth and you see that and the good portion of that business is in the US over almost 60% of that business is in the US. We have fairly tepid growth on a gross revenue basis or course some water and a good portion of our business there, about half of that is in the US but we grew well on a net revenue and environmental services again fairly flat so I think when you look at the mix of business whereabouts just shy of 60% of our revenue now in consulting services within the US and you see a little bit of weakness in some of those end markets and buildings in particular, that's going to drive down your overall US organic growth.

So without leading you into any kind of a guidance trap I mean do you think the number for the year is better than what you just put up, like the -- or is this as good as it gets in the US right now?

I think Ben, we do see going forward that that our gross and net organic growth in the US will improve, we talked about a number of the projects that we've got that are ramping up. So certainly sub 1% would not be our expectations for organic growth in the US for the remainder of the year.

Okay, that's helpful. And maybe just at a high level Gord, you know the strategic review of construction not long ago, you guys were saying it's critical to the business we're committed, you know I think when you initially looked at it, you were committed but it was, you were going to investigate it and then you were committed and now you're reconsidering it, I mean what, how should we interpret the change in the philosophy of the construction business. Whether or not it is indeed critical to what you're doing compared to what frankly there's been a little bit of mixed messaging around the business?

I think one key to that is I came in with a new set of eyes certainly had been part of our leadership team for some time, but I wanted to come in and have a new look at everything. We're looking at the cost side of things, and we've done some work there and you see we've had some benefits here in Q1. We've been looking at really re-kicking going with our acquisitions program. You've seen a few already. You'll see hopefully some increased activity there through the rest of the year, but construction was something we wanted to have a good look at as well, as we were integrating MWH, as we're learning more about it. And the markets I think the statement that we made was appropriate for the time. But that we're really reevaluating, this is -- is this where we want to be in three years, or in five years, I think the -- because even though what we're in, construction it's only in water, only in the U.S. or the UK, so it's not certainly in all of our BOUs, it's certainly not in all of geographies, we perhaps found in as we looked at it in the U.S. It was -- we don't need that tight integration in all cases. In the UK we found that the tight integration, with some of the clients wasn't as tight as perhaps we had thought and in other cases we're looking for opportunities. Again if we -- if should we decide to divest to ensure that we have that continuity both in our consulting group for our revenue generation, but also for the clients and for project delivery, so we're just having a good look at it, Ben. I don't know that you'll see continued changes, I mean once we make -- once we go through and make our decision here we'll be set.

So, could I just ask if you take a bigger step back, a follow-up on that, your stock hasn't really performed very well since the MWH acquisition, and even may be going a little further back since the overall downturn. What other lessons learned would you say have there been in the last few years and things that you're considering as a new -- like generally there's a fair amount of consistency in the message. You've been an internal appointment, you've been part of the plan all along in management. But is there anything that investors -- you want to say to investors about how Stantec -- how your mandate might look different from what's happened in the past?

Your point that -- starting back when oil and gas turned down and our stock did not see a lot of appreciation there. I think that makes sense. Oil and gas was a big part of our business at the time, the oil market turned down. We experienced some organic retraction in revenue and the markets rightfully saw that. Then when we acquired MWH still committed that was the right thing to do. We stepped back from a lot of acquisition and expansion for a number of years as we sort of processed, what does that mean, we had to get our systems in place. We had to learn a little bit more about how that group functioned and how we could get them all integrated. It was a big bite for us. So I think since the MWH acquisition things have been a little flat from an earnings perspective. They have been a little flat from a stock appreciation perspective. And a big part of that, I think is that while we had some acquisition during that time to continue our growth we weren't and this was part of the plan. We weren't extremely active there, but we starting in the last half of last year and certainly very active through the first part of this year and will continue. We are really ramping up that organic growth. So as we talked about the four main things that I've been working on, then they were looking at some of the cost containment with our leadership on how we could not just anything was broken but we just want to continue that continuous evolution of refining our cost structure getting utilization up. We really focused on organic growth with our campaigns and our account management plan. And you are seeing the organic growth show up this year and this quarter in all the regions. We are really focusing on acquisition growth. And you have seen five LOIs or things that we have closed so far this year you will see continued activity I believe in 2018. And then certainly, we're really looking at everything and one of those is that the review of construction. So I think as you said, what we would like the markets to see how my thoughts going forward that's really it's the same strategy that the tried-and-true Stantec strategy of continued growth through acquisition keeping the focus on moving up the bottom line in concert with the top line and just getting back and sticking to our needing sort of things. So I think that's where you will see going through 2018 and beyond.

Maybe just to add one other thing Ben is that I think the market tends underappreciated the massive amount of effort and investments that we made in 2017 and we will continue to do so and positioning ourselves for that global growth we spent a ton of money in terms of trying to an effort, in trying to get ourselves positioned for that eventual acquisition growth globally. And we are very well positioned today, we have got collaborative tools around the world. We have got a platform now set up around the world going to the final stages of that execution, which will take some time. For example, getting our Australian, New Zealand and UK operations onto Oracle and that we won't have finished by the end of the year. But we are advancing on that and a number of other initiatives internally to really strengthen the business. while at the same time, really focusing on things like as Gordon mentioned utilization, project execution and so on.

And our next question comes from Chris Murray with AltaCorp Capital.

Just a couple of quick questions for you. First, just going back to the construction business one more time. I guess what I'm trying to understand, while we have talked about historically, it's always been the water business. You folks have alluded to the fact that maybe the margins weren't set up right for the construction business. You are getting yourself into trouble on the waste to energy projects which I'm still struggling to understand for a water business. Why are you in that business? How much of the issues that you're facing right now do you think were part of a lack of control before you guys acquired the business? And how should we feel about where the business is today on kind of new projects or projects that are running so we don't see any more issues through the balance of the year?

We talked a lot about that in our year-end reporting, first of all the waste energy projects were an opportunity that MWH saw as a big business opportunity, should the market go that direction and turning waste into energy, it was subsidized by the UK government, which then was more or less pulled once Brexit came along. It was a good opportunity that they pursued and that thing could've turned either way. Had the market continued they would have been a leader in terms of the expertise gained in waste to energy plants. So -- and we've learned a lot obviously in those plants in the first three. Since then we've obviously put a hold on any new waste energy projects, at the same time they were addressing emerging business opportunities in 2013, 2014 in the U.S. going out after design build, hard bid projects, in areas that were outside of their traditional geographies so they maybe didn't' understand the entire supply chain, the craft labor, the equipment suppliers, etc. in those markets. So, we've pulled that back as well and that's again part of the reason for the strategic view if -- it can't be that satisfying for employees in our construction business where we say we're not going after this, we're not expanding by acquisition. We're keeping you close backed down to your knitting in terms of where your core expertise is. All of those things we've added that additional governance and oversight since the acquisition of MWH. So I think we now have that business more or less contained and under control, focused on what they do best and -- but it can't be satisfying for them so another factor in the strategic review discussions.

And then very quickly just on the energy and resources we did see a pretty wrong number, I guess more just color and a couple things, you talked about mining and energy as well as waterpower really did take a step up. Just trying to figure out, is this -- are these awards that you had won a long time ago and there's just a timing issue of when we get to the work? Or is this -- what are you seeing in terms of the pace of demand for those services? Like is this a big step up in terms of ramp like new work coming in kind of this -- like just last month type of thing to get done today, or is this something that's then kind of in the backlog for a while? And then as a piece of this too as a follow-on, if we hear a positive FID from -- on the LNG projects this year, can you just kind of give us an idea, how you think that may impact you as well?

To your first question, Chris these are jobs that are -- have recently come in. We are -- more again dam and a lot of the power and pipeline job is kind of the smaller work that we're doing. These are new awards. So this isn't -- these are things that have been on the books for a long term. Certainly a lot of activity in our Latin America mining sector as well. We're hiring there again. So I think that's all positive. And should we get a positive investment decision on the LNG, certainly a lot of activity there that we'd be well positioned for from environmental work to, you name it. We'd be..

Pipeline work.

Yes, pipelines and environmental and even a lot of core infrastructure transportation and power lines and all sorts of things that are so I think we would be positively impacted by that.

And once again we will hear from Mona Nazir with Laurentian Bank.

Just kind of quick follow up. You talked a little bit on the various OpEx line items and some seasonality but just stepping back, in your prepared remarks you spoke about holding in on employee utilization, cost effectiveness and initiatives that are flowing through and starting to have some impact on margins. I'm just wondering, trying to hear from you and your perspective, what's the biggest takeaway when you have been going through this process of holding in on all of these drivers? Thank you.

It's a number of things Mona, it's not just one line item. So I can give you a couple of examples. Obviously the occupancy cost we talked about, consolidating office space that has a big impact. The accounting rules, meaning you have to take a reset to liability upfront but it's a long-term benefits of having lower surplus base out there. So we are continually focused on that. When it comes to things like other lines of business, travel and entertainment, is a big line item for us. We have really curtailed travel to just necessary travel. We have implemented new programs for example around our corporate card program, which gives us a lot more efficiencies and again information visibility into our spend. Utilization is probably the biggest item where we are continuing to evaluate the demographic mix of our staff, and the utilization, certainly trying to get that -- make sure we are right sized in each of our business units. This is not a broad brush approach. You have to be somewhat surgical in how you deal with utilization and you really do have to look at it in a local area and look at the work backlog that we have and match our staff. So we are being very focused and disciplined in going about evaluating discipline. So it's all utilization. So it's always all of those type of things. We are looking as Gord said at everything to make sure that we're optimizing our business where we can.

Mona, this will always be ongoing. It's just continuous improvement. We have invested in technology and collaboration tools to allow people to be more efficient. To mean they don't have to travel to be able to collaborate effectively. So we are really pushing the utilization of these tools to get more efficient and at the same time reduce some of these travel costs and things as Dan mentioned.

And just on that some of those you surgically looking at these line items, and try to overall reduce cost, is some of that already factored into your guidance or there are potentially further upsides down the road?

I think we expected when we set our guidance at the beginning of the year that we would achieve these targets. I'm not suggesting that by doing this that we will have a massive increase in the targets that we have set. But we had certainly expected when we set these that we would achieve certain utilization ratios of which we are still targeting that.

And with no further questions I'd like to turn the call back over to management for any additional or closing remarks.

I just want to say thanks again for everyone for joining our Q1 earnings call. We think we feel that we had a good quarter. We feel things are -- there will be continued improvement for the remainder of the year. Enjoy the rest of your day.

And once again that does conclude our call for today. Thank you for your participation. You may now disconnect.